EXHIBIT 4.2
Name:____________________
Copy No.:_________________
CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM
RG America, Inc.
f/k/a INVVISION CAPITAL, Inc
$1,000,000
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SECURED SUBORDINATED CONVERTIBLE DEBENTURES
MINIMUM SUBSCRIPTION: $ 25,000
RG America f/k/a Invvision Capital, Inc., a Nevada corporation (the
"Company" or "RG America") hereby offers up to $1,000,000 of its secured
subordinated convertible debentures (the "Debentures") on the terms provided in
this confidential private placement memorandum (the "Memorandum"). RG America is
engaged in the business of providing risk management and property restoration
services to clients in the commercial real estate industry.
The Debentures will be sold only to a limited number of accredited
investors (as defined under applicable federal and state securities laws).
Qualified investors (as defined herein) may purchase Debentures under the terms
set forth in this Memorandum. Brokers, dealers or sales agents may be used, in
which case commissions will be paid for the offer or sale of the Debentures, as
set forth herein.
The offer and sale of the Debentures offered hereby has not been
registered or qualified under the Securities Act of 1933, as amended, or with
any state securities agency. Instead, the Debentures are being offered and sold
in reliance upon exemptions from the requirement for such registration and
qualification for private offerings. The sale, transfer, pledge, hypothecation
or other disposition of the Debentures or an interest therein may not be
accomplished except in accordance with the registration requirements of the
Securities Act, as amended, and applicable state securities laws. Prior to
transfer, compliance with such requirements shall be demonstrated by an opinion
of counsel satisfactory to us to the effect that such registration or
qualification is not required.
The minimum subscription for an investor is a face value $25,000
Debenture. Persons subscribing for the minimum number of Debentures may also
subscribe for additional Debentures. Our Common Stock is currently quoted on the
NASD Over-The-Counter Bulletin Board (the "Bulletin Board") under the symbol
"RGMA.OB." The closing price as reported by the Bulletin Board for our Common
Stock on December 10, 2004 was $0.13 per share.
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See "Risk Factors" for information that should be considered by
prospective investors.
The Securities and Exchange Commission (SEC) and state securities
regulators have not approved these securities or determined if this Memorandum
is truthful or complete. Any representation to the contrary is a criminal
offense.
The date of this Confidential Private Placement Memorandum is December 10,
2004.
The terms, "RG America", "Company", "we", "our", and "us" refer to RG
America, Inc. unless context suggests otherwise. The terms "you" and "your"
refer to a prospective investor. The term "Common Stock" means RG America's
common stock, par value $0.001 per share.
Please read this Memorandum carefully. It describes our company, finances
and services. Federal and State securities laws require that we include in this
Memorandum all the material information that you will need to make an investment
decision.
You may only refer to the information contained in this Memorandum. We
have not authorized anyone to provide information different from that contained
in this Memorandum. Neither the delivery of this Memorandum nor the sale of our
Debentures means that information contained in this Memorandum is correct after
the date of this Memorandum. This document is not an offer to sell or
solicitation of an offer to buy our Debentures in any circumstances under which
the offer or solicitation is unlawful.
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SUMMARY
This summary is intended only for quick reference and is not intended to
be all-inclusive. This Memorandum describes in detail numerous aspects of the
Offering that are material to investors, including those summarized below. This
Memorandum, with its exhibits and supporting documents, must be read in their
entirety by prospective investors. The following summary is qualified in its
entirety by reference to the full text of this Memorandum, including its
exhibits and supporting documents. The Debentures offered hereby involve a high
degree of risk. See "Risk Factors."
About Our Company
We provide a broad array of fee-based services that address clients' risk
management needs. We intend to do this by dealing with all procedures and costs
associated with the risk of a possible loss such as loss control activities and
purchasing traditional insurance products. We also deal with the consequences of
a loss after it has occurred by pre-qualifying property, lowering reconstruction
costs, providing appropriate insurance coverage, adjusting claims, restoring
property and minimizing business interruption costs.
Our Strategy
We offer three main types of services:
o A full-service risk management program designed for the multi-family
housing industry;
o A general lines insurance agency specializing in placing business
related insurance for a variety of customers; and
o A multi-family housing and commercial real estate restoration/
construction division.
Our risk management programs and insurance agency are opportunities
identified by the management of the restoration construction business conducted
by our subsidiary RG Restoration, Inc. ("RG"). Each of our operating
subsidiaries was formed to capitalize on our historic roots within the risk
management industry and the affinity group of customers that we have developed
through superior service and customer value generation. We believe synergies can
be realized by directly marketing a full spectrum of risk management products
and services in a less competitive, more loyal environment. This strategy also
creates a diversified stream of recurring revenue that is far less cyclical in
nature than traditional risk management or construction income. Therefore,
although each unit has a unique marketing strategy and product portfolio,
marketing efforts are closely coordinated and complementary, and share certain
key elements.
An important component of any corporate marketing strategy is selecting
the basis of competition. We can choose to compete on price, service and/or
products. Competing on product alone can mean offering the widest selection or
the highest quality product lines. Many companies can compete on any one or two
of these bases, but cannot deliver all three. We believe it is, for example,
inconsistent to offer superior service and premium products at a discount price.
Our business units provide on superior service and, to varying degrees, lower
prices.
Subsidiaries
We are comprised of indirect wholly-owned subsidiaries providing insurance
products, claims management services and property restoration services:
o RG Insurance Services, Inc. is a general insurance agency which is
currently licensed in the state of Texas as a Texas Property &
Casualty and a Life & Health insurance agency;
o RG Risk Management, Inc. provides claim management, inspection and
underwriting services. These services are provided both in support
of our proprietary risk management program, PropertySMARTSM, which
is specifically designed for the multi-family housing industry and
on a fee basis to other various types of customers;
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o RG Restoration, Inc. dba The Restoration Group performs restoration
work on commercial properties (primarily multi-family housing) which
have suffered an insured loss such as a fire, flood or hail damage;
o Restoration Group America, Inc. is a non-operating company set up to
hold the intellectual property rights to PropertySMARTSM.; and
o Practical Buildings Solutions 2000, Inc. is a specialist in the
design and coordination of multi- family and commercial Mechanical
Electrical and Plumbing (MEP) engineering
Our Competitive Advantage
We believe that the combination of our restoration services, along with
our other more traditional risk management services, including our full lines of
insurance agency, differentiates us from our competitors and provides us with a
significant competitive advantage. Our restoration division serves as our
strategic "implementation arm" and affords us the unique ability to control (i)
property loss costs, which we believe are the most unpredictable and potentially
the largest component of a customer's risk management budget and (ii) property
insurer cost structures. We are also able to deliver value through a high level
of quality service after the client sustains a major loss such as fire or flood.
Our Management
Our management team consists of individuals with experience in the
management of insurance companies, real estate developments, retail companies
and restoration businesses.
Xx. Xxxxxx X. Xxx, our Chairman, has over 35 years of experience in the
development, capitalization, expansion and disposition of operating companies.
He was the founder and CEO of Triland International, Inc., a real estate
investment/development company specializing in large master-planned real estate
developments in Dallas, Denver and Atlanta. Past accomplishments include Valley
Ranch, a master-planned real estate development and home of the NFL Dallas
Cowboys training facility. He is also currently the Chairman and CEO of The
Crafter's Marketplace, Ltd.
Xx. Xxxx X. (Xxx) Xxx, our Chief Executive Officer and Director, was
previously our President and has been a member of our Board of Directors since
April 2001. Xx. Xxx has been involved in various aspects of management in real
estate construction, development and syndication for more than 24 years. He
previously co-founded and served as President of a national retail chain in
Canada, The Crafter's Marketplace, beginning in 1994, with daily operations and
management of more than 30 stores, 250 employees and over 15,000 tenants. He
attended Southern Methodist University from 1983 to 1985. He has been a member
of Young President Organization (YPO) since 1999, serving in numerous forum,
chapter and regional positions.
Xx. Xxxxx X. Xxx, our Chief Operating Officer and co-founder, has over 10
years of experience in the construction and property restoration industry and
previously served as Vice President of Construction for Xxxxxxxx Southwest, a
Texas-based construction and development firm. In addition, he has founded and
operated his own custom home building company, building homes throughout North
Texas.
Xx. Xxxxx X. Xxxx, our Chief Financial Officer , joined us in May 2004 and
is a senior financial executive with extensive experience as a CFO and related
financial management positions in the real estate development, energy,
consulting and manufacturing industries. He has held senior level positions at
Recognition Equipment, Inc., Xxxxxx Adacom Corporation and Probex Corporation.
He has also been an independent senior financial and management consultant,
multi-family housing developer and began his career in public accounting with
Xxxxxx Xxxxx & Company, a predecessor of Ernst & Young LLP. Xx. Xxxx holds both
CPA (Certified Public Accountant) and CMA (Certified Management Accountant)
designations and is a graduate of the University of Texas at Austin.
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Xx. Xxxxxxx X. Xxxxxx, our President, has over 20 years of senior
management experience. He was previously Senior Vice President - Business Sales
of WebLink Wireless, Inc. f/k/a PageMart Wireless, Inc., a NASDAQ-listed
wireless communications carrier and Vice President of Marketing for American
Eagle airlines.
Xx. Xxxxx X. Xxxxxxxx, our Executive Vice President , has a distinguished
20 year career in real estate and securities investments, holding various senior
positions with Hillwood, a Xxxxx company, Xxxxxxx Xxxxx, Keybank and Fidelity
Investments. He currently holds series 6, 63, and 7 securities licenses and was
responsible for creating a $100 million real estate acquisition platform in
Japan for Hillwood.
Xx. Xxxxxx X. Xxxxx, our Vice-President - Insurance Operations and the
President of our subsidiary RG Insurance Services, Inc., has over 20 years of
experience in the insurance and risk management industry. Prior to joining RGIS,
she was vice president of Merit Insurance, a Texas full-line insurance company.
Xx. Xxxxxx X. (Xxxx) England is our Chief Technology Officer. Xx. Xxxxxxx
has over 20 years of experience in the information technology industry. Xx.
Xxxxxxx previously held several senior IT positions at Sabre Corporation
including Senior Integration Manager and served as a Global Account Manager for
Motorola, Inc.
Xx. Xxxxxxxxxxx X. Xxxxxx, our Senior Vice President and General Counsel
of our subsidiary, RG Insurance Services, was previously employed as Senior Vice
President, General Counsel and Corporate Secretary of Xxxxxxxxxx Xxxxxxx U.S.,
Inc, an insurance loss adjusting firm based in Dallas, Texas with over 100
locations across the United States. While at Xxxxxxxxxx Xxxxxxx U.S., Inc., Xx.
Xxxxxx was responsible for all legal matters, including litigation management,
corporate and regulatory compliance, as well as for the supervision of the risk
management, human resources and administrative departments. Prior to joining
Xxxxxxxxxx Xxxxxxx U.S., Inc., Xx. Xxxxxx was an associate attorney with the law
firm of Touchstone, Bernays, Johnston, Xxxxx, Xxxxx & Xxxxxxxxxxx L.L.P. with a
general commercial and insurance litigation practice. Xx. Xxxxxx' areas of
expertise include licensing/regulatory compliance, risk management, claims
administration, defense of extra-contractual and bad faith claims, human
resources, acquisitions and strategic planning. He is a graduate of Southern
Methodist University where he received degrees in economics and political
science as well as a Juris Doctorate.
Xx. Xxxxxxx X. Xxxxx, is our Director of Financial Services. Before to
joining us, from October 1986 through June 2004, Mr. Xxxxx was with Mars
Incorporated as a National Finance Manager, National Sales Manager, Specialty
Markets Manager, and Key Account Supervisor. From May 1984 to October 1986 he
was a Sales Manager for Procter and Xxxxxx and PepsiCo. Mr. Xxxxx earned a
Bachelor of Arts degree (BA) from Xxx Houston State University, Huntsville,
Texas and a Masters of Business Administration (MBA) degree from Xxxxxx Xxxx
College in Crestview Hills, Kentucky.
Background
Effective as of December 30, 2003, we acquired all of the capital stock of
Restoration Group America 2003, Inc., a Texas corporation ("RGA 2003") and its
wholly-owned subsidiaries (i) RG Insurance Services, Inc., a Texas corporation
("RGIS") which is a general insurance agency, (ii) RG Risk Management, Inc., a
Texas corporation ("RGRM") which intends to engage in the business of providing
claims management services, (iii) RG Restoration, Inc., a Texas corporation
("RG") which is engaged in the business of performing commercial property
restoration services and (iv) Restoration Group America, Inc., a Texas
corporation which holds the intellectual property rights to PropertySMARTSM
("RGA"). RGIS, RGRM, RG and RGA are now our indirect wholly-owned subsidiaries.
The Independent Registered Public Accounting Firm's reports on the
financial statements for the years ended December 31, 2003 and December 31,
2002, include an emphasis paragraph in addition to their audit opinion stating
that recurring losses from operations, a working capital deficiency and
accumulated deficit raise substantial doubt about the ability of RG America to
continue as a going concern.
Our principal executive office is located at 0000 Xxxxxx Xxxx Xxxx, Xxxxx
000, Xxxxxx Xxxxx 00000, and our telephone number is (000) 000-0000. We are
located on the World Wide Web at xxx.xxxxxxxxx.xxx where general information is
available about us. Information contained on our website does not constitute a
part of this Memorandum.
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THE OFFERING
Securities: Secured Convertible Debentures
Amount: $1,000,000
Minimum Subscription: a $25,000 face value Debenture
Coupon Rate: 12%
Conversion Price: Convertible into shares of common stock of the
Company at of 60% of the closing price of the
Company's common stock, based upon the previous 5-day
trading average of the Company's stock.
Maturity Date: Earlier of either July 31, 2005 or Closing of up to
an additional $3,000,000 of Equity Proceeds.
Collateral: First lien on the Company's construction receivables,
subordinated to an existing lender.
Events of Default: If any of the following events occur (an 'Event of
Default'), the entire unpaid principal amount of, and
accrued and unpaid interest on, this Debenture, shall
immediately be due and payable, and Holder shall be
entitled to all legal and equitable remedies
available:
o the Company failing to redeem Debentures when due
pursuant to the terms and conditions under which
the Convertible Debentures are issued or otherwise
failing to pay interest, costs, charges, expenses
or other sum whatsoever in accordance with the
terms and conditions of the final Debenture
Purchase Agreement; and/or
o any statement, representation, warranty or
confirmation on the part of any of the Company
being found to be materially incorrect or untrue;
and/or
o there is a material change ("material" change
defined as greater than a 30%) in ownership,
management and/or control of the Company; and/or
o the Company's failure to register the underlying
shares in the Offering, which is more fully
described under the section of this term sheet
entitled Registration.
Event of Default
Consequences: Upon any occurrence of default, the interest rate
will be increased to a penalty rate of 18% until such
time as the event of default has been cured in its
entirety, and the Debenture Holders will be entitled
to receive additional warrants in an amount equal to
25% of the original warrants issued hereunder, for
each 180 day period the Company remains in default;
Liquidation Preference: In the event of any liquidation, dissolution or
winding up of the Company, the holders of the
Debentures shall be entitled to receive proceeds in
preference to the holders of the Common Stock
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Right of Redemption: The Company shall have the right to redeem any or
all-outstanding Convertible Debentures in its sole
discretion anytime after the Closing Date with (3)
three- business days advance notice. The redemption
price shall be the face amount redeemed plus accrued
interest.
Warrants: The Investor shall receive up to 1,500,000
post-reverse split warrants to purchase 1,500,000
shares of Common Stock pro rata based upon percentage
of aggregated Debentures. The warrant will be
exercisable on a cash basis and will have
"piggy-back" registration rights and survive for two
years from the Closing Date. Exercise Price of such
warrants shall be equal to 105 percent of the closing
price based upon the previous 5-day trading average
of the Company's stock.
Protective Provisions: For so long as a majority of the Debentures remain
outstanding, consent of the holders of a majority of
the then outstanding Debentures shall be required for
any action that materially; (i) alters or changes the
rights, preferences or privileges of the Debentures,
(ii) increases or decreases the authorized number of
shares of Common or Preferred Stock, (iii) creates
(by reclassification or otherwise) any new class or
series of shares having rights, preferences or
privileges senior to the Debentures, (iv) amends or
waives any provision of the Company's Articles of
Incorporation or Bylaws in a manner which materially
adversely affects the holders of the Debentures, or
results in the payment or declaration of any dividend
on any shares of Common or Preferred Stock.
Registration Rights: Promptly, but no later than 60 days from the Closing
Date, the Company shall file a registration statement
with the United States Securities & Exchange
Commission ("SEC") and use its best commercially
reasonable efforts to ensure that such registration
statement is declared effective within 120 days.
Information: The Company will agree to provide all holders of the
outstanding Debentures of Common Stock with copies of
the Company's annual and quarterly reports filed with
the Securities and Exchange Commission (the "SEC")
and all other such documents and information as
required by the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
Investor Suitability
Standards: This Offering is made solely to "accredited
investors," as defined in Rule 501 of Regulation D
promulgated under the Securities Act.
Use of Proceeds: Expansion, working capital and general corporate
purposes. See "Use of Proceeds."
Closing: One or more closings with the final closing expected
to occur on or before January 10, 2005, unless
extended at our sole discretion.
Conditions: The Offering is subject to certain conditions,
including subscription of the Minimum Offering. See
"Plan of Distribution -- Closing Conditions; Escrow
Agent."
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Subscription Agreement: The purchase of the Debentures will be made pursuant
to a Subscription Agreement and a Registration Rights
Agreement which will require, among other provisions,
appropriate representations and warranties of the
subscriber to the Company, covenants of the Company
reflecting the provisions set forth herein and other
typical covenants and appropriate conditions of
closing, including qualification of the Debentures
under applicable Blue Sky laws. See "Plan of
Distribution."
Transfer Restriction: None of the Debentures offered hereby may be sold,
pledged or otherwise transferred from the original
purchaser without written consent, which will not be
unreasonably withheld.
Expenses: RG America will bear all reasonable expenses in
connection with this Offering.
High Risk: This Offering involves a high degree of risk, and the
Debentures should not be purchased by investors who
cannot afford the loss of their entire investment.
Prospective investors are advised to consult their
own professional advisors as to legal, financial,
tax, accounting and other matters relating to the
purchase of Debentures. See "Risk Factors."
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FORWARD-LOOKING STATEMENTS
This Memorandum includes "forward looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities Act")
and Section 21E of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act") which can be identified by the use of words such as "intend,"
"anticipate," "believe," "estimate," "project," "expect" or other similar
statements. These statements discuss future expectations, contain projections of
results of operations or of financial condition, or state other
"forward-looking" information. All statements other than statements of
historical information provided herein are forward looking and may contain
information about financial results, economic conditions, trends and known
uncertainties. We caution you that actual results could differ materially from
those expected by us, depending on the outcome of certain factors, including
those factors discussed in the Section of this Memorandum entitled "Risk
Factors." You are further cautioned not to place undue reliance on these forward
looking statements, which speak only as of the date of this Memorandum. We do
not undertake to update publicly any forward-looking statements for any reason,
even if new information becomes available or other events occur in the future,
including, without limitation, changes in our business strategy or planned
capital expenditures, or to reflect the occurrence of unanticipated events. We
believe our forward-looking statements are within the safe harbor provided by
the Exchange Act. When considering these statements, you should keep in mind the
risk factors described below and other cautionary statements contained in this
Memorandum.
RISK FACTORS
You should carefully consider the following risk factors and other
information in this Memorandum before deciding to invest in Debentures of our
Common Stock. If any of these risks occur, our business, results of operations
and financial condition could be adversely affected. This could cause the
trading price of our Common Stock to decline, and you might lose part or all of
your investment.
RISKS RELATED TO THE COMPANY
We have only recently begun operations as a consolidated group and are
presently incurring losses.
We have only operated as a consolidated group for a short period of time.
We were a development stage company through December 31, 2003. As a result of
the acquisition of RGA 2003 as discussed above, we are an operating entity and
are no longer in the development stage effective as of January 1, 2004.
Our ability to generate revenue is subject to substantial uncertainty and
risk. In addition, we anticipate that our operating expenses will increase
substantially in the foreseeable future as we purchase additional systems,
equipment, increase our sales and marketing activities. Accordingly, we expect
to incur losses at least through the end of fiscal year 2004 and may continue to
incur losses for some time thereafter. There can be no assurance that we will
begin expanded operations successfully or on a timely basis or that we will be
able to achieve or sustaining operating profitability. Our success may
ultimately depend on our management's ability to react expeditiously to
exigencies that have not been taken into account in our business plan.
We have a need for additional financing.
Substantial capital is required to pursue our operating strategy.
Additional working capital will be needed to finance the accounts receivable
generated by our construction subsidiary and to hire additional sales and
marketing people as our business grows in states outside of Texas.
We will need additional capital to (i) retire our indebtedness, (ii) for
working capital requirements, and (iii) to obtain additional systems and
improvement to our facilities, property and equipment and satisfy further
capital requirements. We cannot assure you that we will be able to raise needed
capital from other sources on terms favorable to us, if at all. If we are unable
to obtain sufficient capital in the future, our ability to pursue our business
strategy and our results of operations for future periods may be impaired.
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Our additional financing requirements could result in dilution to existing
stockholders.
If additional financing is required, it could be obtained through one or
more transactions which effectively dilute the ownership interests of holders of
our Common Stock. Further, there can be no assurances that we will be able to
secure such additional financing. We have the authority to issue additional
Shares of Common Stock, as well as additional classes or series of ownership
interests or debt obligations of the Company which may be convertible into any
class or series of ownership interests of the Company. We are authorized to
issue up to 300,000,000 Shares of Common Stock and 35,000,000 Shares of
preferred stock. Such securities may be issued without the approval or other
consent of the holders of our Common Stock.
Public adjusting firms in Texas may not make referrals to restoration
companies in which they have a financial interest.
Since September 1, 2003, under the provisions of S.B. 127, the Texas
legislature has banned public adjusting firms within the state of Texas from
referring restoration services contracts to restoration companies in which they
have a financial interest. Prior to September 1, 2003, restoration companies
such as RG have historically derived a large portion of their revenues from
contracts for restoration services that have been referred to them by public
adjustment firms that had a financial interest in the referral. Accordingly,
public adjustment firms may be less likely to make referrals of restoration
services to companies such as RG because they have no direct financial incentive
to do so. As a result, there is no assurance that we will be able to obtain
sufficient revenues from new restoration services contracts in the future. This
would have a material adverse affect on our financial results.
Established competitors with greater resources may make it difficult for
us to market our products effectively and offer our products at a profit.
The property insurance and insurance restoration businesses are highly
competitive and many of our competitors have substantially greater other
resources. We compete with both large national writers and smaller regional
companies including companies which serve the independent agency market, and
companies which sell insurance directly to customers. Some of these companies
may have certain competitive advantages over us, including increased name
recognition, loyalty of their customer base, lower cost structures and longer
operating histories. In the past, competition in the property insurance market
has included offering significant rate discounts, and there can be no assurance
that these conditions will not recur. Although a number of national insurers
that are much larger than we are do not currently compete in a material way in
the multi-family property market, if one or more of these companies decided to
aggressively enter the market it could have a material adverse effect on us.
These companies include some that would be able to sustain significant losses in
order to acquire market share, as well as others which use distribution methods
that compete with our distribution channels. There can be no assurance that we
will be able to compete effectively against these companies in the future.
Our future success will be dependent on our ability to attract and retain
key personnel.
Our future success depends significantly upon the efforts of certain key
management personnel, including: X. X. (Xxx) Xxx, our Chief Executive Officer;
Xxxxx Xxx, our Chief Operating Officer; Xxxxx Xxxx, our CFO; Xxxxxxx Xxxxxx, our
President; Xxxxx Xxxxxxxx, our Executive Vice President - Finance; Xxxx Xxxxxxx,
our Chief Technology Officer; Xxxxxx Xxxxx, our Vice President - Insurance
Operations; Xxxxxxx Xxxxx, our Director of Financial Services; and Xxxxx Xxxxxx,
our Senior Vice President and General Counsel RG Insurance Services. We intend
to enter into employment agreements with Messrs. Xxx, Rea, Xxxx, Nelson,
Dahlberg, England, Mayor, Xxxxxx, and Xx. Xxxxx, as members of our Management
Team. While our subsidiary RGA does currently have employment agreements with
Messrs. Rea, Xxx, Nelson, Dahlberg, England, Mayor , Xxxxxx and Xx. Xxxxx, there
is no assurance that we will be able to satisfactorily negotiate employment
agreements between the key members of our management team and RG America. The
loss of key personnel could adversely affect our business. As we continue to
grow, we will need to recruit and retain additional qualified management
personnel, and there can be no assurance that we will be able to do so. We
currently do not maintain either key man life insurance on any of our management
or directors and officers insurance for our management.
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The substantial growth projected by us, if achieved, must be efficiently
and effectively managed.
Our projected growth will likely place a significant strain on our
managerial, operational and financial resources. We need to:
o improve our financial and management controls, reporting systems and
procedures;
o expand, train and manage our workforce for marketing, sales and
support; and
o manage multiple relationships with various customers, investors and
third parties.
Our projections are forward-looking statements and are uncertain.
This Memorandum contains "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. These forward-looking
statements are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 and include estimates and assumptions
related to economic, competitive and legislative developments. These include
statements relating to trends in, or representing management's beliefs about,
our future strategies, operations and financial results, as well as other
statements including words such as "anticipate," "believe," "plan," "estimate,"
"expect," "intend," "may," "should" and other similar expressions.
Forward-looking statements are made based upon our management's current
expectations and beliefs concerning trends and future developments and their
potential effects on the company. They are not guarantees of future performance.
Actual results may differ materially from those suggested by forward-looking
statements as a result of risks and uncertainties which include, among others:
o the availability of primary and reinsurance coverage;
o global political conditions and the occurrence of terrorist attacks,
including nuclear, biological or chemical events;
o premium price increases and profitability or growth estimates
overall or by lines of business, or geographic area and related
expectations with respect to the timing and terms of any required
regulatory approvals;
o our expectations with respect to cash flow projections and
investment income and with respect to other income;
o the effects of disclosures by and investigations of insurance and/or
construction companies relating to possible accounting
irregularities, practices in the insurance industry and other
corporate governance issues, including: i) the effects on the
capital markets and the markets for directors and officers and
errors and omissions insurance; ii) claims and litigation arising
out of accounting and other corporate governance disclosures by
other companies; and iii) legislative or regulatory proposals or
changes, including the changes in law required under the
Xxxxxxxx-Xxxxx Act of 2002;
o general economic conditions including: i) changes in interest rates,
market credit spreads and the performance of the financial markets,
generally; ii) changes in laws, regulations and taxes; iii) changes
in competition and pricing environments; and iv) changes in asset
valuations;
o the occurrence of significant weather-related or other natural or
human-made disasters;
o the inability by our insurance partners to reinsure certain risks
economically;
o changes in the litigation environment;
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o if our fronting insurance company or managing general agency
partners unreasonably restrict, terminate or cease to allow us to
write new business;
o if we fail to attract and retain an adequate base of customers in
our PropertySMARTSM program;
o if we fail to adequately perform our re-construction/restoration
duties, we could be exposed to increased costs and/or litigation
risks; and o general market conditions.
We undertake no obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
RISKS RELATED TO THE INSURANCE INDUSTRY
We are dependent upon finding and maintaining a relationship with an
insurance company or a managing general agency who will write policies for
our program.
We do not own an insurance company, and therefore are dependent on
companies within the insurance industry to issue required policies. As such,
price increases, changes in underwriting standards, policy changes and
restrictions or withdrawals from certain territories or the multi-family
industry, are beyond our control. We may not be able to find an insurance
company or a managing general agency willing to write policies for our insurance
program. Furthermore, if we do find such an insurance company to partner with,
the property and casualty insurance industry frequently experiences prolonged
periods of profitability, followed by periods of losses. This industry is
subject to large losses caused by natural catastrophes such as hurricanes,
tornados and hail storms. The frequency and severity of these catastrophes are
unpredictable, but tend to occur in certain geographic areas, such as along the
U.S. Atlantic and Gulf Coasts, where much of our sales are expected. Insurers
typically take actions to mitigate the financial impact of these industry-wide
underwriting cycles and catastrophes on their net income. Such actions might
include price increases, reducing coverage and restricting or withdrawing from
entire markets. If our insurance company partner were to cease writing policies
for our program, we may not be able to find a replacement insurance partner
which would mean that we will not be able to collect premiums and accept
properties into our program. All these actions could adversely impact our
ability to execute our business plan and meet our financial projections.
Our fronting company partners' or managing general agency partners'
failure to maintain a commercially acceptable financial strength rating
would significantly and negatively influence our ability to implement our
business strategy successfully.
In order for our insurance product to be acceptable to our targeted market
place, our fronting company partners or managing general agency partners must
maintain a minimum underwriting rating of A- or its equivalent. There can be no
assurance that our fronting company partner's rating or future changes to our
fronting company's rating will not affect our ability to market our insurance
program.
Our fronting company partners or managing general agency partners may not
be able to successfully alleviate risk through reinsurance arrangements.
In order to reduce their risk and to increase our underwriting capacity,
our fronting company partners or our managing general agency partners may
purchase reinsurance. The availability and the cost of reinsurance protection
are subject to market conditions, which are outside of our control. As a result,
our fronting company partners or our managing general agency partners may not be
able to successfully alleviate risk through these arrangements. In addition, our
fronting company partner is subject to credit risk with respect to reinsurance
because the ceding of risk to reinsurers does not relieve them of their
liability to our policyholders. A significant reinsurer's insolvency or
inability to make payments under the terms of a reinsurance treaty could have a
material adverse effect on their results of operations and financial condition.
10
Because our commission revenues are based on premiums set by insurers, any
decreases in these premium rates could result in revenue decreases for us.
We are engaged in insurance agency and brokerage activities and derive
revenues from commissions on the sale of insurance products to clients that are
paid by the insurance underwriters with whom we place our clients' insurance.
These commissions are based on the premiums that the insurance underwriters
charge, and we do not determine insurance premium rates. In addition, these
premiums historically have been cyclical in nature and have displayed a high
degree of volatility based on the prevailing economic and competitive factors
that affect insurance underwriters. These factors, which are not within our
control, include the capacity of insurance underwriters to place new business,
non-underwriting profits of insurance underwriters, consumer demand for
insurance products, the availability of comparable products from other insurance
underwriters at a lower cost and the availability of alternative insurance
products, such as government benefits and self-insurance plans, to consumers.
We cannot predict the timing or extent of future changes in premiums and
thus commissions. Therefore, we cannot predict the effect that future premium
rates will have on our operations. While increases in premium rates may result
in revenue increases for us, decreases in premium rates may result in revenue
decreases. These decreases may adversely affect our results of operations for
the periods in which they occur.
Carrier contingent commissions are difficult to predict, and any decreases
in our collection of them may have an impact on our operating results that
we are unable to anticipate.
We anticipate deriving a portion of our revenues from contingent
commissions based upon the terms of the contractual relationships with the
insurance underwriters. Contingent commissions are commissions paid by insurance
underwriters and are based on the estimated profit that the underwriter makes on
the overall volume of business that we place with it.
Due to the nature of these commissions, it is difficult for us to predict
their payment. Increases in loss ratios experienced by insurance carriers will
result in a decreased profit to them and may result in decreases in the payment
of contingent commissions to us. Furthermore, we have no control over insurance
carriers' ability to estimate loss reserves, which affects our profit-sharing
calculation. In addition, tightening of underwriting criteria by certain
insurance underwriters, due in part to the high loss ratios, may result in a
lower volume of business that we are able to place with them. Contingent
commissions affect our revenues, and decreases in their payment to us may have
an adverse effect on our results of operations.
We may enter new markets and there can be no assurance that our
diversification strategy will be effective.
Although we intend to initially concentrate on our core businesses in the
multi-family property industry in Texas, Louisiana, Mississippi, Oklahoma,
Arkansas, Arizona, Colorado, Kansas, Kentucky, Missouri, New Mexico, Nevada,
Florida, Georgia, North Carolina, South Carolina, Alabama, Virginia and
Tennessee, we also may seek to take advantage of prudent opportunities to expand
our core businesses into other geographic areas and industry segments or where
we believe the opportunity to apply our business model to the market place is
strong. There is no assurance, however, that this diversification will be
successful.
We are subject to comprehensive regulation by state insurance boards and
commissions. Therefore, we may be limited in the way we operate and our
ability to earn profits may be restricted by these regulations.
We are subject to regulation by government agencies in every state that we
conduct insurance related business. These regulations relate to numerous aspects
of our business and financial condition. Additionally, we must obtain prior
approval for certain corporate actions. The primary purpose of this supervision
and regulation is the protection of our insurance policyholders and not our
investors. The extent of regulation varies, but generally is governed by state
statutes. These statutes delegate regulatory, supervisory and administrative
authority to state insurance departments. This system of regulation covers,
among other things restrictions on the types of terms that we can include in the
insurance policies we offer.
11
The regulations of the state insurance departments may affect the cost or
demand for our products and may impede us from taking actions we might wish to
take to increase our profitability. Furthermore, we may be unable to maintain
all required licenses and approvals and our business may not fully comply with
the wide variety of applicable laws and regulations or the relevant authority's
interpretation of the laws and regulations. Also, regulatory authorities have
relatively broad discretion to grant, renew or revoke licenses and approvals. If
we do not have the requisite licenses and approvals or do not comply with
applicable regulatory requirements, the insurance regulatory authorities could
stop or temporarily suspend us from conducting some or all of our activities or
monetarily penalize us. We must comply with regulations involving:
o limitation of the right to cancel or non-renew policies in some
lines;
o regulation of the right to withdraw from markets or terminate
involvement with agencies; and
o licensing of agents.
The general level of economic activity can have an impact on our business
that is difficult to predict; a strong economic period may not necessarily
result in higher revenues for us.
The volume of insurance business available to our offices may be
influenced by factors such as the health of the overall economy. The specific
impact of the health of the economy on our revenues, however, can be difficult
to predict. When the economy is strong, insurance coverage typically increases
as payrolls, inventories and other insured risks increase. Insurance commissions
to our offices generally would be expected to increase. As discussed above,
however, our commission revenues are dependent on premium rates charged by
insurers, and these rates are subject to fluctuation based on prevailing
economic and competitive conditions. As a result, the higher commission revenues
that our company generally would expect to see in a strong economic period may
not necessarily occur, as any increase in the volume of insurance business
brought about by favorable economic conditions may be offset by premium rates
that have declined in response to increased competitive conditions, among other
factors.
We face competitive pressures in our business that could cause demand for
our products to fall and adversely affect our profitability.
We compete with a large number of other companies in our selected lines of
business. We compete, and will continue to compete, with major U.S. and non-U.S.
insurers and other regional companies, as well as mutual companies, specialty
insurance companies, underwriting agencies and diversified financial services
companies. Many of our competitors have greater financial and marketing
resources than we do. Our profitability could be adversely affected if we lose
business to competitors offering similar or better products at or below our
prices. In addition, a number of new, proposed or potential legislative or
industry developments could further increase competition in our industry. New
competition from these developments could cause the demand for our products to
fall, which could adversely affect our profitability.
A number of new, proposed or potential legislative or industry
developments could further increase competition in our industry. These
developments include:
o the formation of new insurers and an influx of new capital into the
marketplace as existing companies attempt to expand their business
as a result of better pricing and/or terms;
o programs in which state-sponsored entities provide property
insurance in catastrophe-prone areas or other alternative market
types of coverage; and
o changing practices caused by the Internet, which have led to greater
competition in the insurance business.
These developments could make the property insurance marketplace more
competitive by increasing the supply of insurance capacity.
12
If we are unable to respond in a timely and cost-effective manner to
technological change in our industry, there may be a resulting adverse
effect on our business and operating results.
The insurance industry is influenced by rapid technological change, new
product and service introductions and evolving industry standards. For example,
the insurance brokerage industry has increased use of the internet to
communicate benefits and related information to consumers and to facilitate
business-to-business information exchange and transactions. We actively explore
the opportunities that information technology affords the insurance brokerage
industry and, in particular, the operations of our offices. We believe that our
future success will depend on our ability to continue to anticipate
technological changes and to offer additional product and service opportunities
that meet evolving standards on a timely and cost-effective basis. We believe
that the development and implementation of new technologies will require
additional investment of our capital resources in the future. We have not
determined, however, the amount of resources and the time that this development
and implementation may require. There is a risk that we may not successfully
identify new product and service opportunities or develop and introduce these
opportunities in a timely and cost-effective manner. In addition, opportunities
that our competitors develop or introduce may render our products and services
noncompetitive. As a result, we can give no assurances that technological
changes that may affect our industry in the future will not have a material
adverse effect on our business and operating results.
RISKS RELATED TO THE OFFERING
Our management has broad discretion over the use of proceeds raised in
this Offering.
Our management will have broad discretion over the allocation of the net
proceeds from the Offering as well as over the timing of their expenditure.
Particularly, our management may use a portion of the proceeds of the Offering
to pay off a portion of our indebtedness. As a result, investors will be relying
upon our management's judgment with only limited information about their
specific intentions for the use of the proceeds.
Federal and State Securities Laws.
The Debentures offered hereby have not been registered under the
Securities Act, or under the provisions of any state securities laws and
therefore may not be resold without registration or an applicable exemption. The
Debentures are being offered and will be sold without such registration by
reason of specific exemptions provided by federal and state securities laws. The
availability of such exemptions depends, in part, upon the "investment intent"
of the investors, and the exemptions may not be available if any one investor
purchases Debentures with a view to the redistribution of that instrument.
We have a limited market for our Common Stock, and our stock price is
volatile.
The Shares of Common Stock offered hereby are not listed on any national
securities exchange or quoted on the Nasdaq National Market or Small Cap Market.
Instead, our Common Stock is currently quoted on the Bulletin Board under the
symbol "RGMA.OB." Trading on the Bulletin Board is sporadic and highly volatile.
The market price of our Common Stock has fluctuated in the past and may continue
to fluctuate in the future. Although we plan to apply for a listing of our
Common Stock on a national securities exchange or to have it quoted on the
Nasdaq National Market or Small Cap Market in the future, no assurance can be
given that we will be able to list our Common Stock on a national securities
exchange or have it quoted on the Nasdaq National Market or Small Cap Market.
Accordingly, you may be required to bear the economic consequences of holding
these securities for an indefinite period of time and transfers of the
Debentures will be restricted. Therefore, you cannot expect to be able to
immediately liquidate such investment readily or at all.
13
USE OF PROCEEDS
We will receive net proceeds from the sale of the maximum amount of the
Debentures offered hereby in the approximate amount of $800,000 after deducting
any selling commissions and other expenses of the Offering.
Sources:
Total Principal Amount of Price to Expenses of the Net Proceeds to the
Debentures Offered Investors Offering Company
------------------------- ---------- ---------------- -------------------
$ 1,000,000 $1,000,000 $ 200,000 $ 800,000
Uses:
We intend to use the net proceeds from this Offering to continue
implementation of our new business plan and general working capital needs.
THE FOREGOING ARE ONLY ESTIMATES OF THE TYPE AND AMOUNT OF EXPENDITURES
FOR WHICH THE PROCEED OF THE OFFERING WILL BE USED. WE RESERVE THE RIGHT TO
CHANGE THE ACTUAL USE OF THE PROCEEDS OF THE OFFERING, IF WE BELIEVE, IN OUR
SOLE DISCRETION, OUR BUSINESS OR OUR AFFAIRS SO DICTATE.
14
LEGAL PROCEEDINGS
We are currently not a party to any pending material legal proceeding. To
the knowledge of our management, no federal, state or local governmental agency
is presently contemplating any proceeding against us. To the knowledge of our
management, (i) none of our directors, executive officers or affiliates, and
(ii) no owner of record or beneficially of more than 5% of our Common Stock, is
a party adverse to us or has a material interest adverse to us in any
proceeding.
DIVIDEND POLICY
We have never paid any dividends on our Common Stock. We do not currently
intend to declare or pay dividends on our Common Stock, rather we intend to
retain our earnings, if any, for the operation and expansion of our business.
Dividends are subject to the discretion of our board of directors and are
contingent on future earnings, if any, our financial condition, capital
requirements, general business conditions and other factors as our board of
directors deems relevant.
CAPITALIZATION
We are authorized to issue up to 300,000,000 shares of common stock, $.001
par value per share, of which 118,885,605 were issued and outstanding at
September 30, 2004. We are also authorized to issue up to 50,000,000 shares of
preferred stock, $.001 par value per share, of which none were issued and
outstanding at September 30, 2004. Additionally, we had 27,614,850 shares
subscribed but not issued at September 30, 2004 and these have been recorded as
Common Stock Subscribed.
In August 2004, the stockholders of the Company approved the Company's
2004 Omnibus Stock Plan for the issuance of up to 30,000,000 shares of the
Common Stock. Additionally, in August 2004, the stockholders of the Company
approved a reverse stock split of the issued and outstanding shares of the
Company's common stock by a ratio of between one-for-two and one-for-six,
inclusive, to be made at the sole discretion of the Board of Directors before
December 31, 2004. The Company can provide no assurance that the reverse stock
split will be implemented before December 31, 2004.
In August 2004, we acquired all of the common stock of Practical Business
Solutions 2000, Inc. ("PBS 2000"). The aggregate purchase price was $350,000,
which payment consisted of one million (1,000,000) restricted shares of our
common stock. The terms included (1) an agreement by the stockholders of PBS
2000 to escrow 333,333 shares of common stock shares for a period of two years
to satisfy certain potential indemnifiable claims and (2) and an agreement by us
granting "piggyback" registration rights. In December 2004, we determined that
an impairment of the business will result in a one-time write down of the
goodwill of PBS 2000 in the amount of approximately $404,000. Additionally, we
estimate additional impairment related expenses of approximately $120,000 in
2004.
COMMON STOCK SUBSCRIBED
In April 2004, in accordance to the terms of the Acquisition Agreement
between RG America and RGA 2003, we issued 80,000,000 shares of our common stock
at the agreed upon $0.019 per share to the shareholders of RGA 2003 as follows:
60,000,000 shares once our Amended and Restated Articles of Incorporation were
declared effective and 20,000,000 shares upon the satisfaction of certain
conditions. As a result of this issuance, 20,000,000 shares remain unissued
subject to the satisfaction of certain additional conditions. In June 30, 2004,
the required conditions were met and the Company recorded the 20,000,000 shares
as Common Stock Subscribed.
In June 2004, we concluded a private placement offering under Rule 506 of
Regulation D promulgated under the Securities Act of 1933, as amended (the
"Act"). In conjunction with that offering, we received $387,501 of proceeds,
15
representing 3,875,750 shares of our common stock at an average price of $0.10
per share to accredited and non-accredited investors. We issued 1,385,750 of
these shares and at September 30, 2004, 2,490,000 shares had not been issued by
the transfer agent and we have recorded the 2,490,000 shares as Common Stock
Subscribed.
COMMON STOCK WARRANTS
In May 2001, we granted a corporation, which is a stockholder of RG
America, a warrant to purchase 1,000,000 shares of our common stock at a price
of $1.00 per share in exchange for $100,000 cash. The warrant exercise period
was to commence upon the granting of free trading shares in an Arkansas
corporation, which had filed for federal bankruptcy protection under Chapter 11
of the federal bankruptcy laws. We were under contract to purchase this
corporation from the federal bankruptcy trustee at the time the warrant was
issued. The contract to purchase this corporation was subsequently terminated.
As a result, in February 2002, we amended the warrant agreement to grant an
option to purchase 2,000,000 shares of RG's $.001 par value common stock at a
price of $.50 per share. The warrants expire February 28, 2005. In May 2004, we
granted a corporation, which is a stockholder of RG America, a warrant to
purchase 1,000,000 shares of our common stock at a price of $0.10 per share in
exchange for previous and ongoing financial advisory services to assist the
Company. We determined that the fair market value of the services provided was
$30,000 based upon comparable services in the marketplace and the entire $30,000
has been recorded against additional paid-in-capital. In June 2004, we granted a
corporation, which is a strategic partner of RG America, a warrant to purchase
2,000,000 shares of our common stock through June 2009 at a price of $1.00 per
share in exchange current and ongoing strategic financial services.
16
SELECTED FINANCIAL DATA
You should read the following selected financial data together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and the notes thereto included
elsewhere in this Memorandum.
NET INCOME (LOSS) PER SHARE
Basic net loss per common share (Basic EPS) excludes dilution and is computed by
dividing net loss by the weighted average number of common shares outstanding or
subscribed during the period. Diluted net loss per share (Diluted EPS) reflects
the potential dilution that could occur if stock options or other contracts to
issue common stock, such as warrants or convertible notes, were exercised or
converted into common stock. At September 30, 2004 and 2003, there were no
common stock equivalents outstanding that were dilutive.
Nine Months Ended Three Months Ended
September 30, September 30,
------------------------ --------------------------
2004 2003 2004 2003
----------- ---------- ----------- ----------
Net income (loss), as reported (numerator) $(2,185,103) $ (19,360) $ (773,604) $ 101,215
=========== ========== =========== ==========
Weighted average number of common
shares outstanding (denominator) 92,678,730 11,489,990 140,149,118 11,489,990
----------- ---------- ----------- ----------
Net income (loss) per share $ (.02) $ (.00) $ .01 $ .01
=========== ========== =========== ==========
17
RG AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
ASSETS
September 30,
2004
-------------
Current assets:
Cash and cash equivalents $ --
Contracts receivable, net of allowance for doubtful
accounts of $74,757 701,472
Unbilled revenue 59,765
Prepaid expenses 7,530
Other receivables 95,259
Notes receivable - related party 28,485
Notes receivable 268,900
-------------
Total current assets 1,161,411
Property and equipment, net of
accumulated depreciation of $77,797 329,253
Goodwill - net 401,033
-------------
Total assets $1,891,697
=============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
LIABILITIES
September 30,
2004
-------------
Current liabilities:
Bank overdraft $ 8,030
Accounts payable, trade 1,334,309
Accrued expenses 489,360
Withholding taxes payable 220,518
Deferred revenue 495,346
Bank line of credit 270,000
Notes payable - related party 63,254
Notes payable 300,455
-------------
Total current liabilities 3,181,272
-------------
Long-term debt - related party 8,355
-------------
Total liabilities $ 3,189,627
Commitments and contingencies --
18
STOCKHOLDERS' DEFICIENCY
Stockholders' deficiency
Preferred stock, $.001 par value, 35,000,000
shares authorized, none issued and outstanding --
Common stock, $.001 par value, 300,000,000
shares authorized, 118,885,605 issued and
outstanding 118,886
Common stock subscribed, 27,614,850 shares 27,615
Additional paid in capital 5,279,772
Common stock warrants 130,000
Accumulated deficit (6,854,203)
-----------
Total stockholders' deficiency (1,297,930)
-----------
Total liabilities and stockholders' deficiency $ 1,891,697
-----------
OUR REVENUES AND EXPENSES
As a provider of risk management services to the commercial real estate
industry, we generate revenues through the operation of a general insurance
agency, providing claims management services and performing commercial property
restoration services These revenues are made up of insurance premiums that we
receive for placing policies, fees received from providing claims management,
inspection and underwriting services, as well as payments for restoration work
on multi-family properties (primarily apartment buildings) which have suffered
an insured loss such as a fire, flood or hail damage.
Our expenses largely consist of:
o salaries and benefits paid to employees;
o construction materials; and
o occupancy and equipment costs.
Insurance losses occur at various times during the year such as fire, flood,
hail, hurricanes and tornadoes. As a result, we do not experience seasonality
issues with respect to revenues from operations.
PLAN OF OPERATION
We provide a broad array of fee-based services that address clients' risk
management needs. It is the intent of our management to create a risk management
business which is highly diversified in the following ways:
o Services. We currently offer various risk management services
including placing insurance products, offering risk mitigation
services and strategies to minimize business interruption costs
through our PropertySMARTSM program, adjusting loss claims and
performing property restoration services.
19
o Geography. We are currently based in Texas and do business in Texas,
Mississippi, Alabama, Pennsylvania and Colorado and intend to expand
our marketing territory to the contiguous 48 states of the United
States.
o Channels of Distribution. Our internal sales people place insurance
coverage, sell our PropertySMARTSM risk management program and sell
property restoration services. We also receive referrals from
independent adjusting firms for property restoration services. We
intend to expand this by further marketing to these firms and to
demonstrate to insurance carriers our anticipated lower loss
experience for property owners enrolled in our PropertySMARTSM
program. We believe this will likely result in our ability to place
insurance products with our clients at a lower premium cost to them
in the future thus generating additional commissions for our
insurance agency and greater fee income for our risk mitigation
services business. This will in turn drive additional revenue to our
property restoration division from contracts from our risk
mitigation services clients.
Our acquisition of Restoration Group America 2003, Inc. and its
wholly-owned subsidiaries RGIS, RGRM and RG in December, 2003, was the beginning
of the implementation of this business plan. We will concentrate in the next 12
months on increasing sales and marketing efforts for our risk management service
offerings.
LIQUIDITY AND CAPITAL RESOURCES
Upon completion of the Offering, we will still have a critical need for
additional working capital in the next 12 months to execute our business
strategy. We anticipate using the net proceeds of the Offering for general
working capital. We will need additional capital (i) to retire our indebtedness,
(ii) for working capital purposes, (iii) expand sales and marketing activities
and (iv) obtain additional systems and improvements to our facilities, property,
equipment and satisfy further capital expense requirements.
In the event that we are unable to obtain additional capital after
completion of the Offering, this will likely have a material adverse effect on
our operations and may force us to cease operating entirely. Our long-term
capital requirements beyond this 12 month period (assuming we have raised
sufficient capital during the next 12 months to allow us to maintain operations)
will depend on numerous factors, including:
o The rate of market acceptance for our services;
o The ability to expand our client base; and
o The level of expenditures for sales and marketing and other factors.
To the extent that the funds from this Offering and our revenues are
insufficient to fund our activities in the short or long term, we will need to
raise additional funds by incurring debt or through public or private offerings
of our securities.
20
BUSINESS
INTRODUCTION
We provide a broad array of fee-based services that address clients' risk
management needs for their real estate assets. We do this by dealing with all
procedures and costs associated with the risk of a possible loss such as loss
control activities and purchasing traditional insurance products. We also deal
with the consequences of a loss after it has occurred by adjusting claims,
restoring property and minimizing business interruption costs. We have two
direct, wholly-owned, non-operating subsidiaries, Restoration Group America
2003, Inc. and Invvision Funding, Inc., three indirect, wholly-owned, primary
operating subsidiaries, (i) RG Insurance Services, Inc. ("RGIS"), (ii) RG Risk
Management, Inc. ("RGRM"), (iii) RG Restoration, Inc. ("RG"), Practical Building
Solutions 2000, Inc. ("PBS 2000") and one indirect, wholly-owned, non-operating
subsidiary, Restoration Group America, Inc. ("RGA").
RG Insurance Services, Inc.
RGIS, a Texas corporation, was organized in September 2003 to operate as a
general insurance agency. It is licensed as a Texas Property & Casualty and Life
& Health agency. During the year ended December 31, 2003, RGIS received gross
commissions of nearly $140,000 earned on approximately $3,000,000 of annual
premiums. In addition to pursuing traditional commercial agency business, RGIS
will serve as the retail agent for our PropertySMARTSM insurance program
described in the PropertySMARTSM Risk Management Program section of this
Memorandum. Texas, like most states, requires insurance agents to collect and
remit certain fees and taxes on insurance policies written on an "excess and
surplus lines" basis. Since these policies are not subject to rate and form
regulation, states impose additional licensing requirements on agents writing
such business. Accordingly, RGIS is currently completing licensing requirements
for its Texas surplus lines license. RGIS hopes to obtain necessary licenses in
all of the states where we do business by the end of 2004.
RG Risk Management, Inc.
RGRM, a Texas corporation, was also organized in 2003 and operates as our
risk management division providing claims management, third-party inspections,
adjusting and underwriting services. These services will be provided in support
of PropertySMARTSM, as well as on a fee basis to other customers. We intend to
be a valuable asset to the customers of RGIS by aiding them in reducing the
frequency and severity of losses through the implementation of our comprehensive
loss control program.
RG Restoration, Inc.
RG is a Texas corporation organized in 2003. It performs restoration work
on multi-family properties (primarily apartment buildings) which have suffered
an insured loss such as a fire, flood or hail damage. RG may also act as
construction managers on selected restoration or construction projects in
conjunction with the PropertySMARTSM program
Restoration Group America, Inc.
RGA currently employs some members of our management team and currently it
holds the intellectual property rights to PropertySMARTSM.
Practical Building Solutions 2000, Inc.
PBS 2000 is a Texas corporation organized in 1999. It is a specialist in
the design and coordination of multi-family and commercial Mechanical Electrical
and Plumbing (MEP) engineering.
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Corporate Mission
Our corporate mission is to provide a broad array of fee based services
that address clients' risk management needs. Therefore, a definition of risk
management largely defines the products and services we provide. A traditional
definition of risk management includes the following four steps:
o Risk identification and quantification;
o Determination of optimum risk management solutions including
avoidance, reduction, transfer and retention;
o Implementing and financing of the risk management program; and o
Monitoring the effectiveness of the risk management program.
Risk management includes all procedures and costs associated with the risk of a
possible loss, such as loss control activities and purchasing traditional
insurance products. It also includes dealing with the consequences of a loss
after it has occurred, such as adjusting claims, restoring property, and
minimizing business interruption costs. As explained in more detail elsewhere in
this Memorandum, we offer substantially all of these services.
Risk management services are traditionally provided by insurance companies
who actually retained a substantial portion of the associated underwriting risk.
We do not assume underwriting risk. To do so would greatly increase enterprise
risk and require significantly more capital, the return on which is presently
unlikely to justify its deployment. We consider the ability to generate fee
income from risk management services without incurring certain business risks
typically associated with underwriting (insurance cycles, adverse loss reserve
development, regulatory issues, etc.) to be a significant strategic advantage of
our business plan. From a corporate perspective, the role of our insurance
programs is to generate commission and service revenue from alternative risk
financing and through access to traditional retail and wholesale insurance
markets.
To minimize possible errors and omissions exposure to us (and credit risk
to its reinsurance partners), we will only accept insurance "paper" or policies
from well capitalized fronting carriers with an A- or better rating from the
major insurance rating agencies (i.e., AM Best).
Our Strategy
We offer three main types of services:
o PropertySMARTSM, a full-service risk management program designed for
the multi-family housing industry;
o a general lines insurance agency specializing in placing business
related insurance for a variety of customers; and
o an insurance restoration division.
Our PropertySMARTSM program and insurance agency are outgrowths of the
restoration business conducted by our subsidiary RG. They were formed to
capitalize on our historic roots within the risk management industry and the
affinity group of customers that we have developed through superior service and
customer value generation. We believe synergies can be realized by direct
marketing a full spectrum of risk management products and services in a less
competitive, more loyal environment. This strategy also creates a diversified
stream of recurring revenue that is far less cyclical in nature than traditional
risk management or construction income. Therefore, although each unit has a
unique marketing strategy and product portfolio, marketing efforts are closely
coordinated and complementary, and share certain key elements.
For example, each of our subsidiaries claims Texas as its home and largest
state. They also share a primary marketing territory in the Gulf and Southern
Atlantic Coast states through Virginia, as well as Arkansas, Arizona, Colorado,
Kansas, Kentucky, Missouri, New Mexico, Nevada, Oklahoma, and Tennessee. These
nineteen states comprise 40% (113 million) of the U.S. population. Additionally,
according to the U.S. Census Bureau, they include 38% of all renter-occupied
housing units, including 5 million housing units (34% of the national total) in
structures with 10 or more units. At $560 per month, the median gross rent is
$42 less than the national average, putting property owners and managers under
22
additional pressure to control insurance and other operating costs. According to
the U.S. Census Bureau, the median household income in our target markets is
5.7% higher than the national average. Demographics aside, coastal winds, hail
and tornado losses have caused traditional insurers to withdraw or curtail
business while simultaneously raising premiums in recent years, thereby
encouraging self-insurance and spawning residual market vehicles. Additionally,
these states are largely non-union, and are generally recognized as having above
average insurance regulatory climates.
An important component of any corporate marketing strategy is selecting
the basis of competition. We can choose to compete on price, service and/or
products. By being the low-cost volume provider in a particular industry,
customers who care mainly about getting the lowest price will take notice.
Competing on product can mean offering the widest selection or the highest
quality product lines. Many companies can compete on any one or two of these
bases, but cannot deliver all three. We believe it is, for example, inconsistent
to offer superior service and premium products at a discount price. Our business
units provide on superior service and, to varying degrees, lower prices.
Our History
From our incorporation in May 1998 until July 2000, we were known as Asset
Servicing Corporation ("ASC"). We were originally in the business of
originating, underwriting, documenting, closing, funding, and servicing leases
for manufacturing and transportation equipment for businesses.
On July 10, 2000, we merged with XxxxXxxx.xxx, Inc. and changed our name
to Omni ParkPass, Inc. ("OPPI"). We then entered the business of designing,
developing and integrating software systems in the live entertainment and
amusement park industries. These efforts were discontinued in March 2001 due to
the high entry costs to the users.
On April 28, 2001, we acquired all of the outstanding shares of Invvision
Capital, Inc., a Texas corporation and changed our name to Invvision Capital,
Inc. We became a commercial and industrial real estate and business development
company. At the time, we also had a mortgage banking business as a separate
business unit. Our business strategy provided for us to pursue
vertically-integrated projects including the acquisition, development and
operation of retail food outlets, fuel outlets and power generation facilities.
We implemented this strategy by focusing on the development of venture
relationships with Native American Indian tribes recognized by the U.S.
Government.
In April 2002 we discontinued our mortgage banking business and sold some
of its assets to the CFO of our mortgage banking subsidiary due to mounting
regulatory and financial pressures. In June 2002, we sold our mortgage banking
subsidiary, Invvision Mortgage, Inc., in its entirety to its President.
In August 2002 we also sold our real estate development business to the
president of the subsidiary, retaining a net profits interest in several of
their business opportunities. In August 2002, we discontinued our efforts to
establish retail outlets due to capital resource shortages as well as
difficulties in negotiating with various Native American Indian tribes to
establish these types of development projects.
From August 2002 through November 2003, we were an inactive publicly-held
corporation pursuing a business combination with a privately-held company in the
commercial and industrial real estate business.
Effective as of December 30, 2003, we acquired all of the capital stock of
Restoration Group America 2003, Inc., a Texas corporation ("RGA 2003") and its
wholly-owned subsidiaries (i) RG Insurance Services, Inc., a Texas corporation
("RGIS") which is a general insurance agency and (ii) RG Risk Management, Inc.,
a Texas corporation ("RGRM") which is engaged in the business of providing
claims management services, (iii) RG Restoration, Inc., a Texas corporation
("RG") which intends to engage in the business of performing commercial property
restoration services and (iv) Restoration Group America, Inc., a Texas
corporation ("RGA") which holds the intellectual property rights to
PropertySMARTSM. RGIS, RGRM, RG and RGA are now our indirect wholly-owned
subsidiaries.
In August 2004, we acquired all of the common stock of Practical Business
Solutions 2000, Inc. ("PBS 2000"). The aggregate purchase price was $350,000,
which payment consisted of one million (1,000,000) restricted shares of our
23
common stock. The terms included (1) an agreement by the stockholders of PBS
2000 to escrow 333,333 shares of common stock shares for a period of two years
to satisfy certain potential indemnifiable claims and (2) and an agreement by us
granting "piggyback" registration rights. In December 2004, we determined that
an impairment of the business will result in a one-time write down of the
goodwill of PBS 2000 in the amount of approximately $404,000. Additionally, we
estimate additional impairment related expenses of approximately $120,000 in
2004.
Services and Products
PropertySMARTSM
We are developing a property risk management program to address these risk
management needs in the multi-family housing industry. The program will be
marketed under the acronym PropertySMARTSM, or Property Strategically Managed
Alternative Risk Transfer. One of the basic goals is to align the interests of
insurance companies and owners, thereby providing adequate coverage and prompt
claim settlements for reasonable premiums. PropertySMARTSM will include
extensive loss control efforts and comprehensive underwriting.
We will receive fee-based income for all services provided through the
PropertySMARTSM program, except restoration work, for which we will receive a
fixed percentage over actual construction costs. Program revenues will likely
contain an element of incentive based commissions, wherein RGA's total
compensation will be partially a function of the program's risk management and
loss reduction products. Since it is a primary goal to manage the
PropertySMARTSM program to as low a loss level as possible, we believe that our
resulting loss of construction revenue (with less losses occurring under the
program) will be partially offset by increased commission income, thus producing
a more predictable stream of recurring revenues for the entire organization.
Initially, PropertySMARTSM will be directly marketed to existing customers
of RG. These property owners and managers control several hundred thousand
units, however, not all of these will meet program underwriting standards. Other
sources of potential customers are forecast to be national, regional and local
apartment associations who will be made aware of the program by exhibiting at
their trade shows and advertising in their trade publications. PropertySMARTSM
will also have the ability to accept insurance applications from traditional
retail agents, but expects to do so only on a limited basis, most likely in
situations where strong existing customer/agent relationships exist.
Superior service for the PropertySMARTSM program will include a level of
underwriting, loss control and claim restoration services that we believe are
unmatched currently in the multi-family housing segment of the risk management
industry.
Insurance Coverage
Through our subsidiary RGIS, we operate a general lines insurance agency
specializing in placing business-related insurance for a variety of customers.
RGIS is able to handle the insurance placement needs for virtually all lines of
insurance including general liability, workers compensation, property,
commercial automobile, umbrella, directors and officers liability (D&O), errors
and omissions (E&O), employment practices liability (EPLI), surety bonds, group
health, life and disability insurance. RGIS places this coverage through many
major insurance companies including Zurich, Travelers, Hartford and AIG.
Additionally, we offer clients a complete portfolio of investment products such
as mutual funds, variable annuities, retirement programs, and Professional
Employment Organization (PEO) programs through several key strategic alliances.
Like our other business units, RGIS stresses customer service and value.
It simply requires developing, maintaining and communicating a sense of urgency
in addressing all aspects of clients risk management needs, from the initial
sales call through the actual claims settlement. It also requires doing business
with insurance company partners who share our sense of urgency and service. In
an industry where mediocre customer service is often accepted as the norm, RGIS
follows an approach to business that has resulted in a customer retention record
that is almost unheard of. RGIS's President is Xx. Xxxxxx Xxxxx, a seasoned
insurance industry veteran who brought with her an established book of business
with approximately $3,000,000 of annual premiums. Although Xx. Xxxxx will be
resigning her full time employment with RGIS effective December 31, 2004, she
has agreed to continue as a consultant until December 31, 2005. RGIS will retain
her book of business and associated commissions.
24
RGIS is targeting several distinct customer groups in its marketing
efforts. The first is growing the existing book of business referred to above.
It has two major concentrations outside of habitational insurance, medical
malpractice business for physicians' management groups and the food service and
restaurant industries. Customers include state-wide franchises of several
national restaurant chains and a national food processing company. We believe an
additional area for revenue growth is enticing established insurance agent
producers to transfer their existing customer lists to RGIS in exchange for
receiving a more favorable commission sharing arrangement than agents typically
receive. RGIS is aggressively pursuing such opportunities for growth, and
expects to successfully execute this plan.
In addition to providing property insurance (in conjunction with
PropertySMARTSM ), we offer multi-line agency services for apartment owners'
other insurance needs including workers compensation, employee benefits, auto
and general liability policies. The combination of these ancillary lines of
insurance usually costs the property owners additionally, about as much as 50%
of the actual the property insurance. As previously mentioned, not all apartment
complexes in our existing customer base meet program underwriting standards. For
these properties, RGIS will offer traditional insurance placement, including
placing property coverage through other markets.
Insurance Restoration Services
The insurance restoration business is a highly competitive and fragmented
industry. This is due to high profit margins, coupled with low economic barriers
to entry. While gross profit margins on residential construction might be in the
10% to 15% range, restoration contractors typically enjoy margins in excess of
25%. Although timely receivable collections can be problematic, restoration
contractors experience minimal credit risk since their bills are usually paid by
insurance companies, a significant advantage over residential contractors.
Finally, the insurance restoration industry is largely recession proof and
non-cyclical. Hurricanes, tornadoes, hail storms, floods and fires, along with a
host of other natural and man-made perils, combine to generate a year-round
stream of potential customers without regard for the state of the economy.
There are generally two parts to the insurance restoration industry,
remediation (or mitigation) and reconstruction. As the name implies, remediation
means stopping or reducing further losses. It includes such services as water
extraction and smoke removal, and is often limited to working with an
apartment's interiors and contents. The reconstruction side of the business
involves demolition and replacement of damaged structural components. Currently,
the majority of our revenues are derived from reconstruction. RG, our
restoration and construction subsidiary, encounters significant competition from
local, regional and nationally franchised companies on both remediation and
reconstruction contracts. The later two companies are national franchises. In
this relationship driven business, some competitors focus on insurance companies
(sometimes as preferred vendors) as their client, while others such as RG places
its focus on property owners and managers, who are the policyholders.
Since the insurance restoration industry is a relationship driven
business, we have consistently followed a marketing approach of building
relationships with policyholders and/or public adjusters hired to represent
policyholders' interests in settling losses. Securing contracts on losses not
involving existing relationships often involves "chasing fire trucks" or
following storms. Our technology includes digital pagers that notify our sales
force of every dispatched fire/emergency truck in their marketing territory. We
have parlayed these one-on-one efforts into a portfolio of satisfied clients who
currently own or manage several hundred thousand apartment units. Although RG's
primary source of future business is expected to come from servicing
PropertySMARTSM customer losses, it fully intends to continue to pursue
non-program related business through historic marketing channels and efforts.
Although such business is inherently less predictable and more costly to obtain,
its profit margins are extremely lucrative because they are "whatever the market
will bear" rather than limited by prior agreement with insurance company
partners. Additionally, we will continue to offer restoration services to
existing customers whose apartment complexes are not part of or fail to qualify
for insurance incorporating PropertySMARTSM .
Our insurance restoration subsidiary, RG, has traditionally targeted the
multi-family housing industry. RG does not actively pursue contracts involving
total losses, but concentrates on those where the restoration of damaged
structures is possible.
25
SALES AND MARKETING
Our insurance agency subsidiary, RGIS, is enjoying strong growth based on
the high level of service it offers as well as the extensive experience of the
management. We will continue to build upon these strengths. We intend to remain
a full lines agency but focus on the restaurant, medical and habitational
markets. We will continue to employ traditional selling techniques as well as
enjoy strong referral business by using our broad ranging contacts and
exceptional reputation. The agency will increase its manpower, attracting
successful agents with existing books of business. Strategic partnerships with
specialty insurance professionals are being pursued because it believed they
will assist us in adding product offering and offering competitive solutions.
We believe that insurance is one of the largest and fastest growing
expenses of all real estate operations, such as apartment complexes, behind only
debt service costs and (occasionally) property taxes. This financial squeeze
sets a pre-existing interest in any solution that can deliver stable to lower
premiums with manageable deductibles.
XX continues to follow traditional methods for obtaining restoration work.
We compete for restoration contracts at loss locations. We use a variety of
techniques to determine where there are losses from fire, wind, storm etc. and
to position ourselves to be in contact with the decision maker on each loss.
Because of RG's expertise in construction we have been approached and are
evaluating build-to-suit industrial and commercial projects. Some of our
subsidiaries are members of several trade and industry groups which provide us
excellent contacts for sales calls. Each subsidiary promotes and markets the
services and programs of the other operating subsidiaries. This cross
pollination can be both informal as well as within a defined program such as
PropertySMARTSM. Further, we have and will continue to use expert consultants to
assist us in targeting, contacting and marketing to those sectors we have
identified for concentration.
The PropertySMARTSM program will be a major on-going branding effort of
ours as well as promoting all the RG America family of companies under the RG
America designation. We have chosen to do what is often called "rifle shot"
marketing and advertising techniques rather than broad based efforts to our
defined audience due to its cost effectiveness. We have applied to register
PropertySMARTSM as a service mark with the United States Patent and Trademark
Office and believe it will be granted.
COMPETITION
We do not believe that we have any competitors with respect to the
aggregate suite of services we offer, and particularly with respect to our
PropertySMARTSM program.
However, our insurance agency and our restoration construction company
both operate in very large industries, each with substantial competition.
In Texas, there are approximately 5,400 separate insurance agency
entities, employing 80,000 insurance agents. Of these, approximately 2,500
insurance agencies provide commercial insurance services. For 2002, insurance
agencies licensed to do business in Texas collected $2.5 billion in commissions
from their insurance company partners. RGIS focuses on commission-based property
and casualty insurance placements, as well as providing Life, Accident and
Health insurance for selected businesses. RGIS seeks to maintain a competitive
advantage over the other agencies discussed above, with its service and
promoting the PropertySMARTSM program.
Our restoration construction company operates in a multi-billion dollar
per year industry where there are low barriers to entry and little to no
regulation. Consequently the industry is fragmented with thousands of
restoration contractors ranging in size from international giants to solo
handymen working from the back of a pickup truck. However, despite the industry
confusion and competition, we seek to maintain a competitive advantage over
other restoration companies with our PropertySMARTSM program.
26
OPERATIONS
Our operations are headquartered in Dallas, Texas. We currently do not
maintain any other permanent office locations. From time to time, we establish
and maintain temporary on-site construction offices at job-sites for RG.
FACILITIES
Our principal executive and administrative offices are presently located
at 0000 Xxxxxx Xxxx Xxxx, Xxxxx 000, Xxxxxx, Xxxxx 00000. We currently lease,
from an unrelated third party, 8,647 square feet of office space on a month to
month basis for $12,971.00 per month or $18.00 per square foot. We consider
these facilities to be suitable and adequate for our needs for the foreseeable
future. Additional space is available for lease in our building if we should
need it in the future. In the opinion of our management, our properties are
adequately covered by insurance.
EMPLOYEES
Labor Relations
None of our employees are represented by a labor union. We believe we have
and will continue to have a good relationship with our employees. Management
meets with employees periodically to discuss our objectives, as well as more
specific labor issues, such as scheduling, compensation and work rules. Much of
the labor on our construction and restoration crews are independent contractors
hired on a job-by-job basis.
LITIGATION
We are currently not a party to any pending material legal proceeding. To
the knowledge of our management, no federal, state or local governmental agency
is presently contemplating any proceeding against us. To the knowledge of our
management, (i) none of our directors, executive officers or affiliates, and
(ii) no owner of record of beneficially of more than 5% of our Common Stock, is
a party adverse to us or has a material interest adverse to us in any
proceeding.
GOVERNMENT REGULATIONS
RG Insurance Services, Inc. is regulated by the Texas Department of
Insurance (TDI). Among other regulations and requirements, TDI requires the
following from our agency:
o Errors & Omissions insurance in the amount of at least $1,000,000;
o At least one of RGIS' officers and voting shareholders must be
licensed individually as insurance agents by TDI; and
o All RGIS employees producing new business or consulting clients on
insurance purchasing or premium issues must hold an insurance agent
license.
Our other subsidiaries are subject to various state and local laws and
regulations regarding construction activities and building codes.
27
MANAGEMENT
The following table sets forth certain information concerning each of our
directors and executive officers as well as certain key executives of our
subsidiaries as of the date of this Memorandum:
Name Age Position with the Company
------------------------- --- -----------------------------------------------
Xxxx X. Xxx 39 Chief Executive Officer and Director
Xxxxx X. Xxx 36 Chief Operating Officer and Director
Xxxxxx X. Xxxxxxx 42 Chief Technology Officer
Xxxxxxx X. Xxxxxx 56 President
Xxxxx X. Xxxxxxxx 41 Executive Vice President - Finance
Xxxxxx X. Xxxxx 43 Vice President - Insurance Operations and
President, RG Insurance Services, Inc.
Xxxxx X. Xxxx 48 Chief Financial Officer
Xxxxxxx X. Mayor 42 Director of Financial Services
Xxxxxxxxxxx X. Xxxxxx 34 Senior Vice President & General Counsel -
RG Insurance Services, Inc.
Xxxxxx X. Xxx 64 Chairman of the Board of Directors and Director
Xxxx X. Xxxxxxx(1),(2) 70 Director
Xxxxxxx X. Xxxxxxx(1),(2) 62 Director
X. Xxxxxxx Xxxx 45 Director
Xxxxx Xxxxxx 66 Director
----------
(1) Audit Committee member.
(2) Compensation Committee member.
28
Xxxx X. (Xxx) Xxx, Chief Executive Officer and Director
Xx. Xxx was named as our Chief Executive Officer in December 2003. He was
previously our President and has been a member of our Board of Directors since
April 2001. Xx. Xxx previously served as President of The Crafter's Marketplace,
Ltd. in Canada beginning in 1998. He attended Southern Methodist University from
1983 to 1985. Xx. Xxx is the brother of our President, Chief Operating Officer
and Director, Xx. Xxxxx X. Xxx, and the son of our Chairman, Xx. Xxxxxx X. Xxx.
Xxxxx X. Xxx, Chief Operating Officer and Director
Xx. Xxx has been our past President and Chief Operating Officer since
December 2003 and has been a Director of the Company since March 2004. Prior to
joining us, he was President and Chief Operating Officer of The Restoration
Group, Inc. from June 2001 through December 2003. He was President of Tenax,
Inc. a home building company from February, 1999 through June 2001. He was the
Vice President of Construction for Xxxxxxxx Southwest from 1996 through
February, 1999. Xx. Xxx attended Texas Tech University. Xx. Xxx is the brother
of our Chief Executive Officer and Director, Xx. Xxxx X. Xxx and the son of our
Chairman, Xx. Xxxxxx X. Xxx.
Xxxxxx X. (Xxxx) England, Chief Technology Officer
Xx. Xxxxxxx has been our Chief Technology Officer since December 2003. He
was previously the Chief Technology Officer and Chief Production Manager at
Restoration Group America 2003, Inc. from April 2003 to December 2003. Prior to
that, he was employed by Motorola, Inc. as a Global Account Manager from May
1999 through March 2003. Xx. Xxxxxxx was a Senior Integration Manager for Sabre
Holdings Corporation from 1986 until May 1999. He earned a Bachelor of Science
(BSc) degree in Computing and Information Sciences from Oklahoma State
University in 1986. Mr. England is also a licensed all-lines insurance adjuster.
Xxxxxxx X. Xxxxxx, President
Xx. Xxxxxx has been with us since February 2004. Prior to joining us, from
September 2003 through February 2004, Xx. Xxxxxx was the CEO of Mosquito Control
Systems, L.P., a Dallas, Texas-based pest control firm. From September 2002
through September 2003, he headed Xxxxxxx Xxxxxx & Associates, a business
consulting firm. From June, 1992 through September 2002, he was Senior Vice
President of WebLink Wireless, Inc., f/k/a PageMart Wireless, Inc., a
publicly-held wireless communication carrier. He also held several executive
positions at AMR Corporation. Xx. Xxxxxx earned a Bachelor of Arts degree (BA)
from Northwestern University in Chicago, Illinois and a Masters of Business
Administration (MBA) degree from the University of Dallas in Dallas, Texas.
Xxxxx X. Xxxx, Chief Financial Officer
Xx. Xxxx joined us in May 2004 and is a senior financial executive with
extensive experience as a CFO and in related financial management positions in
the real estate development, energy, consulting and manufacturing industries. He
has held senior level positions at Recognition Equipment, Inc., Xxxxxx Adacom
Corporation and Probex Corporation. He has also been a senior financial and
management consultant, multi-family housing developer and began his career in
public accounting with Xxxxxx Xxxxx & Company, a predecessor of Ernst & Young
LLP. Xx. Xxxx holds both CPA (Certified Public Accountant) and CMA (Certified
Management Accountant) designations and is a graduate of the University of Texas
at Austin.
Xxxxx X. Xxxxxxxx, Executive Vice President - Finance
Xx. Xxxxxxxx has been our Executive Vice President - Finance since
December 2003. He was previously employed with Xxxxx Remodeling & Construction,
L.P. and Mosquito Control Systems, L.P. as principal and partner from September
2002 through December 2003. Prior to that, Xx. Xxxxxxxx was employed by Xxxxxxxx
29
Investments, a Xxxxx Company, from March 2000, through August 2002 as a Vice
President. Prior to his tenure at Hillwood, Xx. Xxxxxxxx was employed at Archon
Financial, a Xxxxxxx Xxxxx company, as a Vice President and Commercial Real
Estate Lending Underwriter from November 1997, through September 1999. Xx.
Xxxxxxxx obtained a Bachelor of Arts in Business Administration (BBA) degree
from Baylor University with majors in Entrepreneurship, Management and Real
Estate in 1985. He also holds Series 6, Series 7 and Series 63 Securities
Licenses.
Xxxxxx X. Xxxxx, Vice President - Insurance Operations and President, RG
Insurance Services, Inc.
Xx. Xxxxx has been our Vice President - Insurance Operations since
December 2003 and President of RG Insurance Services, Inc. since September 2003.
She was Vice President of Merit Insurance Services, Inc. from August, 1999 until
September 2003. Prior to that, Xx. Xxxxx was Assistant Vice President at Hilb
Rogal & Xxxxxxxx Company from September 1995 until August 1999. Xx. Xxxxx will
be resigning her full time employment with RGIS effective December 31, 2004, but
has agreed to continue as a consultant until December 31, 2005. RGIS will retain
her book of business and associated commissions.
Xx. Xxxxxxxxxxx X. Xxxxxx, Senior Vice President and General Counsel of RG
Insurance Services, Inc.
Xx. Xxxxxx joined our firm in September 2004. He was previously employed
as Senior Vice President, General Counsel and Corporate Secretary of Xxxxxxxxxx
Xxxxxxx U.S., Inc, an insurance loss adjusting firm based in Dallas, Texas with
over 100 locations across the United States. Prior to joining Xxxxxxxxxx Xxxxxxx
U.S., Inc., Xx. Xxxxxx was an associate attorney with the law firm of
Touchstone, Bernays, Johnston, Xxxxx, Xxxxx & Xxxxxxxxxxx L.L.P. He is a
graduate of Southern Methodist University where he received degrees in economics
and political science as well as a Juris Doctorate.
Xxxxxxx X. Xxxxx , Director of Financial Services
Mr. Xxxxx is our Director of Financial Services. Prior to joining us, from
October 1986 through June 2004, Mr. Xxxxx was with Mars Incorporated as a
National Finance Manager, National Sales Manager, Specialty Markets Manager, and
Key Account Supervisor. From May 1984 to October 1986, he was a Sales Manager
for Procter and Xxxxxx and PepsiCo. Mr. Xxxxx earned a Bachelor of Arts degree
(BA) from Xxx Houston State University, Huntsville, Texas and a Masters of
Business Administration (MBA) degree from Xxxxxx Xxxx College in Crestview
Hills, Kentucky.
Xxxxxx X. (Xxx) Xxx, Chairman of the Board
Xx. Xxx has been Chairman of the Board and a Director since April 2001. He
has also been an independent business consultant since 1998. Xx. Xxx is the
father of our Chief Executive Officer and Director, Xx. Xxxx X. Xxx, and our
President, Chief Operating Officer and Director, Xx. Xxxxx X. Xxx.
Xxxx X. Xxxxxxx, Director
Xx. Xxxxxxx has been a member of our Board of Directors since February
2004. Xx. Xxxxxxx retired from the U.S. Naval Reserves in 1991 with the rank of
2-star admiral. From July, 1989 to the present, he has been employed by American
East as a Captain on Boeing 727 aircraft. He is a graduate of Iowa State
University where he obtained a Bachelors of Science (BS) degree.
Xxxxxxx X. Xxxxxxx, Director
Xx. Xxxxxxx has been a member of our Board of Directors since March 2004.
He is currently President of Leisure and Recreation Concepts, Inc. (LARC), a
design and consulting firm, located in Dallas, Texas. He has been President of
LARC since 1970. Additionally, Xx. Xxxxxxx has been President and Managing
Director of Dallas Summer Musicals, Inc., a musical theater company, since 1974.
Xx. Xxxxxxx attended Baylor University from 1960 to 1963.
30
X. Xxxxxxx Xxxx, Director
Xx. Xxxx is currently the President of Rainer Capital Management, a
banking and financial consulting firm, which he formed in 2003. From 1994 to
2002, Xx. Xxxx was a partner with Meridian Capital Management, a real estate
management firm. From 1988 to 1994, Xx. Xxxx was Executive Vice President of
Hampton Real Estate Group, a real estate management company which owned and /or
controlled approximately 10,000 apartment units and 1,500,000 square feet of
commercial property. Xx. Xxxx was employed as a commercial loan officer from
1982 to 1988 with First National Bank of Commerce in New Orleans, Louisiana and
Banc Texas in Dallas, Texas in the general business and real estate lending
divisions. Xx. Xxxx received his Master of Business Administration degree from
the University of Arkansas in 1982.
Xxxxx Xxxxxx, Director
Xx. Xxxxxx has been the President of Xxxxxx-Xxxx Financial Services, Inc.,
an Ontario-based financial and investment planning firm, since 1994. Xx. Xxxxxx
has extensive experience in the insurance industry and from 1960 to 1998 was
President and Chief Executive Officer of Hunter Insurance Brokers, Ltd., an
Ontario-based general insurance brokerage firm specializing in commercial and
personal insurance services. Xx. Xxxxxx is past President of the City of
Mississauga Insurance Brokers Association and in 2003, was awarded the Queen of
England's Jubilee Award in recognition of community service. He is currently
Chairman of the board of directors for the Mississauga Living Arts Center and a
director on the Peel Regional Police Service Board responsible for the second
largest Police Service in Ontario with over 2100 employees.
Board Participation and Structure
On November 26, 2004, Xxxxx X. Xxxxx resigned his position as a director
of the Company due to the time required for Xx. Xxxxx primary business. There
were no disagreements with the Company on any matter related to the Company's
operations, policies or practices.
On December 6, 2004, X. Xxxx Xxxx resigned his position as a director of
the Company to pursue other business interests. There were no disagreements with
the Company on any matter related to the Company's operations, policies or
practices.
Compensation Committee
We maintain a Compensation Committee of our Board of Directors. The
Compensation Committee is responsible for review of and making recommendations
to our Board of Directors on all matters relating to compensation and benefits
provided to our executive officers. The Compensation Committee is comprised of
Messrs. Xxxxxxx, Xxxxxx and Xxxxxxx.
Audit Committee
The Audit Committee assists our Board of Directors in exercising its
fiduciary responsibilities for oversight of audit and relating matters including
corporate accounting, reporting and control practices. It is also responsible
for recommending to our Board of Directors the independent auditors to be
engaged by the Company for the following fiscal year. The Audit Committee is
comprised of Xx. Xxxx and a director to be determined by the end of January
2005. , The Audit Committee will meet periodically with our management,
financial personnel and the independent auditors to review our internal
accounting controls and auditing and financial reporting matters. The Company
does not currently have a designated financial expert, but anticipates filling
this position in 2005.
31
Governance Committee
The Governance Committee assists our Board of Directors in addressing
corporate governance and fiduciary control issues. The Governance Committee is
comprised of Messrs. Xxxx and Xxxxxx.
Nomination Committee
The Nomination Committee assists our Board of Directors in the selection
and nomination of directors. The Nominating Committee is comprised of Messrs.
Xxxxxxx, Xxxxxxx and Xxxxxx X. Xxx.
32
MINIMUM SUITABILITY
We have adopted as a general investor suitability standard the requirement
that each subscriber for our Debentures represent in writing, in addition to
other representations, that (i) he is acquiring our Debentures for investment
and not with a view to resale or distribution; (ii) he can bear the economic
risk of losing his entire investment; (iii) he is an accredited investor as that
term is defined in Regulation D; (iv) his overall commitment to investments that
are not readily marketable is not disproportionate to his net worth and his
investment in our Debentures will not cause such overall commitment to become
excessive and (v) he has adequate means of providing for his current needs and
personal contingencies and has no need for liquidity in his investment in our
Debentures.
These suitability standards represent minimum suitability requirements for
a prospective purchaser, and the satisfaction of such standards by a prospective
purchaser does not necessarily mean that our Debentures is a suitable investment
for the purchaser. Each prospective investor should consider whether the
purchase of Debentures is suitable for him in the light of his individual
investment objectives and his present and expected future financial and tax
position and needs. Each prospective investor is urged to consult a qualified,
independent tax and investment advisor and his attorney.
SUBSCRIPTION PROCEDURES
Upon request by a prospective investor, we will deliver a volume of the
documents (the "Subscription Documents"), that a prospective investor will be
required to complete and execute in order to be considered as a purchaser of our
Debentures. The Subscription Documents will consist of, among other possible
documents, a Subscription Agreement, a Registration Rights Agreement and a
Confidential Purchaser Questionnaire that will require a prospective investor to
certify, among other things, that (i) the prospective investor is an accredited
investor; (ii) the prospective investor's total investment in our Debentures
will not represent more than ten percent of the prospective investor's net
worth; and (iii) any Debentures to be purchased by the prospective investor will
be purchased for the prospective investor's own account, for investment and not
with a view to resale or distribution thereof.
If the prospective investor determines to purchase Debentures offered
hereby, the prospective investor must return to us the prospective investor's
copy of the Subscription Documents) each of which shall have been duly completed
and signed. At that time, the prospective investor must also remit by certified
check or wire transfer (to an escrow account specified by us) an amount equal to
the purchase price of the Debentures that the prospective investor wishes to
purchase.
We will review the Subscription Documents and determine whether to accept
the subscriptions proposed thereby. If a subscription is accepted, we will so
notify the prospective investor and the purchase price will remain deposited in
escrow at a bank until the closing for the subscribed Debentures. If the
subscription is not accepted, the Company will so notify the prospective
investor and will return the prospective investor's funds, as soon as
practicable. Funds held in escrow will not bear interest. We may, in our sole
discretion, reduce each prospective investor's requested number of Debentures by
any amount without any prior notice to or consent by any prospective investor.
In this event, each prospective investor's funds in excess of the purchase price
for Debentures issued to the investor will be returned as soon as practicable
following the closing date.
We may agree to hold more than one closing with respect to the Debentures
offered hereby. There will be no minimum aggregate number of Debentures required
to be sold at the initial closing or any subsequent closing. The initial closing
and any subsequent closings will be held at times and places and on dates
selected by us and any Placement Agent, provided that no closing will be held
after January 10, 2005, unless this Offering is extended by us as permitted
herein.
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CLOSING CONDITIONS
Each prospective investor will not be deemed to have purchased any
Debentures until such time as all of the following conditions to closing have
occurred: (i) the purchase price for the Debentures has been delivered to us;
and (ii) closing documents in form and substance satisfactory to the us and our
counsel, Gardere Xxxxx Xxxxxx, L.L.P., have been executed and delivered.
AVAILABLE INFORMATION
We are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copies made at the public
reference facilities maintained by the Commission at Room 0000, Xxxxxxxxx Xxxxx,
000 Xxxxx Xxxxxx, X.X., Xxxxxxxxxx, X.X. 00000 and at the regional offices of
the Commission. In addition, registration statements and certain other documents
filed with the Commission through its Electronic Data Gathering, Analysis and
Retrieval ("XXXXX") system are publicly available through the Commission's site
on the Internet's World Wide Web, located at xxxx://xxx.xxx.xxx.
Nevertheless, before December 2003, we were an inactive, publicly-held
corporation pursuing a business combination with a privately held company. See
"Business - Our History." Consequently, our filings available through XXXXX as
of the date of this Memorandum do not describe our present business and
operations or any of our prospects since the date of our acquisitions of RGIS,
RGRM and RG. This Memorandum has not been filed with the Commission or any other
federal or state agency or regulatory body. Neither the Commission nor any other
federal or state agency or regulatory body has passed upon the accuracy or
adequacy of this Memorandum.
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