SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14 A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. 1)
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, For Use of the Commission
Only (as permitted by Rule 14a-6(c)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Rule 14a-12
RAMPART CAPITAL CORPORATION
(Name of Registrant as specified in its Charter)
NOT APPLICABLE
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which the transaction
applies: NOT APPLICABLE
(2) Aggregate number of securities to which the transaction applies:
NOT APPLICABLE
(3) Per unit price or other underlying value of the transaction
computed pursuant to Exchange Act Rule 0-11 (set forth amount on
which the filing fee is calculated and state how it was
determined): NOT APPLICABLE
(4) Proposed maximum aggregate value of the transaction: NOT
APPLICABLE
(5) Total fee paid: NOT APPLICABLE
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing:
(1) Amount previously paid: NOT APPLICABLE
(2) Form, Schedule or Registration Statement No.: NOT APPLICABLE
(3) Filing Party: NOT APPLICABLE
(4) Date Filed: NOT APPLICABLE
RAMPART CAPITAL CORPORATION
16401 COUNTRY CLUB DRIVE
CROSBY, TEXAS 77532
(713) 223-4610
Dear Fellow Shareholder,
You are cordially invited to attend the annual meeting of shareholders to
be held on Wednesday, November 5, 2003, at 10:00 a.m. Houston, Texas time, at
our corporate office, 16401 Country Club Drive, Crosby, Texas 77532.
The annual meeting has been called for the purpose of considering and
voting upon (1) the approval of an amendment to Rampart's restated articles of
incorporation to effect a 1-for 100,000 reverse stock split of our common stock,
(2) the election of six directors, each to serve until the earlier of (A) the
deregistration of our common stock under the Securities Exchange Act of 1934
(the "Exchange Act") and delisting of our common stock from the American Stock
Exchange ("AMEX") and (B) the 2004 annual meeting of shareholders, (3) the
ratification of Pannell Kerr Forster of Texas, P.C. as our independent
accountants for 2003 and (4) the transaction of such other business as may
properly come before the annual meeting.
The reverse stock split, if approved by our shareholders, is designed to
cash out all common shareholders holding less than one share after the reverse
split and to reduce the number of our common shareholders after split to two
shareholders. Our common shareholders holding less than one share after the
reverse split would receive $3.50 per pre-split share in lieu of receiving a
fractional share. Commonly referred to as a "going private" transaction, if the
proposed reverse split is approved by our shareholders, we intend to terminate
registration of our common stock under the Exchange Act and terminate listing of
our common stock on AMEX.
The remaining shareholders after the reverse split would be Charles W.
Janke, our Chief Executive Officer and director, and J.H. Carpenter, our Chief
Operating Officer and a director. If any common shareholder (other than Messrs.
Janke and Carpenter) remains after the initial reverse split, we intend to
initiate a subsequent reverse split to eliminate such holders at a price per
pre-split share equivalent to the $3.50 per pre-split share in the initial
reverse split.
Our Board of Directors (with Messrs. Janke and Carpenter abstaining from
the reverse split proposal) unanimously supports each of the proposals,
including the reverse stock split and related transactions, and recommends that
our shareholders vote in favor of each of the proposals. In addition, Messrs.
Janke and Carpenter, as controlling shareholders, have indicated that they
intend to vote their common shares in favor of each of the above proposals,
including the reverse stock split, which shares are sufficient to approve each
of the proposals.
The board has established October 6, 2003 as the record date for
determining our shareholders who are entitled to notice of the annual meeting
and to vote on the proposals described above. Whether or not you plan to attend
the annual meeting, please complete, sign and date the enclosed proxy card and
return it in the envelope provided as soon as possible to be sure that your
shares are represented at the annual meeting.
This proxy statement and the accompanying documents provide you with
detailed information about the reverse stock split and the other proposals.
Please read these documents carefully and in their entirety. You may also obtain
information about us from publicly available documents that we have filed with
the Securities and Exchange Commission.
We appreciate your support.
________________________
Charles W. Janke
Chairman of the Board and Chief Executive Officer
_______________ __, 2003
NEITHER THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE TRANSACTION, PASSED
UPON THE MERITS OR FAIRNESS OF THE TRANSACTION, OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THE DISCLOSURE IN THE PROXY STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The proxy statement is dated ______, 2003 and is first being mailed to our
shareholders on or about _______, 2003.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 5, 2003
To the Shareholders of
Rampart Capital Corporation:
The annual meeting of Shareholders of Rampart Capital Corporation will be held
at the Newport Golf Club and Conference Center, 16401 Country Club Drive,
Crosby, Texas 77532, on Wednesday, November 5, 2003 at 10:00 a.m., Houston,
Texas time, for the following purposes:
1. To approve an amendment to our Restated Articles of Incorporation to effect
a 1-for-100,000 reverse stock split of our common stock following which
holders of less than one common share will be paid $3.50 per pre-split
share;
2. To elect six directors to serve until the earlier of (i) deregistration and
delisting of our common stock and (ii) the 2004 Annual Meeting;
3. To ratify the selection of Pannell Kerr Forster of Texas, P.C. as
independent public accountants for 2003; and
4. To transact such other business as may properly come before the meeting or
any adjournment thereof.
Our Board of Directors recommends a vote FOR the amendment to our Restated
Articles of Incorporation, FOR each of the nominees for director and FOR
ratification of the selection of Pannell Kerr Forster of Texas, P.C. as
independent public accountants.
Our Board of Directors has fixed the close of business on October 6, 2003 as the
record date for determining Shareholders entitled to notice of and to vote at
the meeting.
You are cordially invited to attend the meeting in person. Even if you plan to
attend the meeting, however, you are requested to mark, sign, date, and return
the accompanying proxy as soon as possible.
By Authorization of the Board of Directors
______________________
Charles W. Janke
Chairman of the Board and
Chief Executive Officer
_______________ __, 2003
16401 Country Club Drive
Crosby, Texas 77532
RAMPART CAPITAL CORPORATION
16401 COUNTRY CLUB DRIVE
CROSBY, TEXAS 77532
(713) 223-4610
PROXY STATEMENT
TABLE OF CONTENTS
SUMMARY TERM SHEET 1
QUESTIONS AND ANSWERS ABOUT THE MEETING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ITEM 1. AMENDMENT TO OUR RESTATED ARTICLES OF INCORPORATION . . . . . . . . . . . . . . . . . . . . 8
Structure of the Reverse Split . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Reservation of Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SPECIAL FACTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Purpose of and Reasons for the Reverse Split . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Alternatives Considered. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Background of the Reverse Split. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Effects of the Reverse Split . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Recommendation of the Special Committee and Board of Directors; Fairness of the Reverse Split. . . 20
Opinion of Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Information Provided by Rampart . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Material Federal Income Tax Consequences of the Reverse Split. . . . . . . . . . . . . . . . . . . 31
ADDITIONAL INFORMATION REGARDING THE REVERSE SPLIT . . . . . . . . . . . . . . . . . . . . . . . . . 33
Changes in Management Team and Conduct of the Business after the Reverse Split . . . . . . . . . . 33
Special Interests of Current and Prospective Directors and Executive Officers in the Reverse Split 34
Source of Funds and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Dissenters' and Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Market for Common Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Dividend Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SELECTED HISTORICAL FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Ratio of Earnings to Fixed Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Book Value Per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Pro Forma Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Notes to Pro Forma Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ITEM 2. ELECTION OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Nominees for Director. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Compensation of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Standing Committees, Board Organization and Meetings . . . . . . . . . . . . . . . . . . . . . . . 45
Audit Committee Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Compensation of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Non-Director Executive Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Securities Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . 47
Section 16(a) Beneficial Ownership Reporting Compliance. . . . . . . . . . . . . . . . . . . . . . 48
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Securities Authorized for Issuance under Equity Compensation Plans . . . . . . . . . . . . . . . . 49
Option Grants in Last Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Aggregate Option Exercises and Fiscal Year-End Option Values . . . . . . . . . . . . . . . . . . . 49
Retirement Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
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ITEM 3. RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS . . . . . . . . . . . . . . . 49
ITEM 4. OTHER BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
WHERE YOU CAN FIND MORE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SHAREHOLDER PROPOSALS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Appendix A Form of Amendment to our Restated Articles of Incorporation. . . . . . . . . . . . . . . A-1
Appendix B Opinion and Supplemental Opinion of Independent Financial Advisor .. . . . . . . . . . . B-1
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SUMMARY TERM SHEET
The following is a summary of the material terms of the proposed amendment
to our Restated Articles of Incorporation. This summary is qualified in its
entirety by reference to the more detailed information appearing elsewhere in or
accompanying this proxy statement, including the financial information and
appendices. We urge you to review the entire proxy statement and accompanying
materials carefully.
- Reverse Stock Split. We are asking our shareholders to approve an
amendment to our Restated Articles of Incorporation to effect a
1-for-100,000 reverse stock split of our common stock following which
holders of less than one common share will be paid $3.50 per pre-split
share. In addition, if the reverse split is completed, we intend to
make an application to terminate the listing of shares of our common
stock on the American Stock Exchange (the "AMEX") and to terminate
registration of our common stock under the Securities Exchange Act of
1934, as amended (the "Exchange Act").
- Purpose and Reasons for the Reverse Split. Our purpose and reasons for
the reverse stock split include:
o The cost savings realized from not having to comply with the
Exchange Act disclosure, reporting and compliance requirements or
the AMEX listing requirements for our common stock. In addition,
due to the recent litigation and legislation environment
surrounding public companies, we anticipate increases in these
costs, including compliance costs, audit fees, director and
officer insurance premiums and compensation payable to our
outside directors.
o Additional savings in terms of management's and employee's time
that will no longer be spent preparing and reviewing the periodic
reports required of publicly-traded companies and managing
shareholder relations and communications.
o The ability of our management to focus its efforts on long-term
value rather than the short-term earnings focus generally imposed
on public reporting companies.
o The opportunity of all our minority shareholders to cash out
their common stock at a significant premium over recent market
prices prior to the announcement of the reverse stock split, and
without incurring transaction costs, rather than forcing some
shareholders to retain their common stock interest in a private
company with limited liquidity. While this cash price does
represent a 9.8% discount from our book value per common share at
June 30, 2003 and a 3.6% discount from our net asset value per
common share at March 31, 2003, we believe this price represents
a value per share within the range of our net realizable value
per share after taking into account overhead, selling and
marketing costs that would be incurred in an orderly liquidation
of our assets. In addition, due to the volatility of our earnings
stream from our business cycles, the lack of market makers, and
the lack of analyst coverage and liquidity for our shares, we
believe that as a public company it will be difficult to achieve
parity between our stock price and asset values.
o Possible access to increased capital based on indications from
Charles W. Janke and J.H. Carpenter, our controlling
shareholders, principal executive officers and two of our
directors, of their willingness to provide credit support or
personal guarantees to expand our existing credit facilities,
which they are unwilling to do so long as minority shareholders
exist.
o From the standpoint of Messrs. Janke and Carpenter, the
elimination of the increased liability exposure of directors,
executive officers, and controlling shareholders resulting from
the general litigation environmental surrounding public companies
as well as the increased obligations imposed by recent
legislation, including the Sarbanes-Oxley Act and related SEC
rulemaking.
For a full discussion of the purpose and reasons for the reverse stock
split, see page 9.
- Alternatives Considered. We considered a number of alternative
transactions to the reverse stock split, including other methods of
"going private," increasing our public float, selling the company,
1
maintaining the status quo and liquidation. For a complete discussion
of the alternatives considered, see page 12.
- Effect of the Reverse Stock Split. As a result of the reverse stock
split:
o our number of record shareholders, measured as of August 4, 2003,
will be reduced from approximately 27 to two and the number of
outstanding shares of our common stock will decrease from
approximately 2,905,143 to approximately 22.6.
o we will be entitled to terminate the registration of our common
stock under the Exchange Act, which will mean that we will no
longer be required to file reports with the Securities and
Exchange Commission or be classified as a public company;
o we will be entitled to terminate the listing of our common stock
on the AMEX;
o until listing of our common stock on the AMEX is terminated, the
market price for a share of our common stock will increase by a
factor approximately equal to 100,000, depending on market
conditions;
o the book value per share of our common stock as of June 30, 2003
will be changed from approximately $3.88 per share on an
historical basis to a pre-split pro forma basis of approximately
$4.06.
o the percentage ownership of our common stock beneficially owned
by our executive officers and directors as a group will increase
from approximately 79.4% to 100% and the stock will be held by
two persons instead of five.
See page 17 for a more detailed description of these effects.
- Fairness of the Reverse Stock Split. We believe that the reverse stock
split is fair to, and in the best interests of, our shareholders,
including minority shareholders as a group. Our Board of Directors
(with Messrs. Janke and Carpenter abstaining due to their conflicting
interests) has unanimously approved the reverse stock split and the
transactions contemplated thereby. The board's opinion is based on
several substantive and procedural factors, which are summarized
beginning on page 21. These factors include:
o Substantive Factors:
- The recommendation of the special committee of our Board of
Directors based on the special committee determinations that
the reverse stock split is in the best interest of our
minority shareholders and that the cash price of $3.50 per
pre-split share to be paid in lieu of fractional shares in
the reverse stock spilt is fair to our shareholders.
- The terms of the reverse stock split, including the cash
payment to our minority shareholders of $3.50 per pre-split
share, resulted from arm's length negotiations between
Messrs. Janke and Carpenter and the special committee.
- Our belief that the reverse stock split is the superior
transaction to Rampart and our shareholders as compared to
the alternatives considered.
- The opportunity for all of our minority shareholders to
liquidate their investment at a significant premium over our
recent stock price prior to announcement of the reverse
stock split, without incurring transaction costs, and
without requiring any minority shareholders to retain an
illiquid private company stock interest.
2
- The opinion and underlying analysis of the special
committee's financial advisor, Wm. H. Murphy & Co., Inc.,
that the reverse stock split and cash price of $3.50 per
pre-split share is fair to our minority shareholders from a
financial point of view.
o Procedural Factors:
- The establishment of the special committee consisting
entirely of non-management, non-affiliated independent
directors to represent solely the interests of our minority
shareholders.
- The special committee's ability to retain its own
independent financial advisor and legal counsel.
- The special committee's extensive negotiations and thorough
deliberations in evaluating the reverse stock split,
including increasing the cash payment to our minority
shareholders from $2.50 to $3.25 and then finally to $3.50
per pre-split share.
For a complete description of the fairness of the reverse stock split and
factors considered by both the special committee and our directors in
recommending the reverse stock split to our shareholders, see page 20.
- Opinion of Independent Financial Advisor. On June 9, 2003, Wm. H.
Murphy & Co., Inc., delivered its opinion to the special committee
that the reverse stock split and the cash price of $3.25 per pre-split
share were fair from a financial point of view to our minority
shareholders who would receive cash in lieu of fractional shares in
the reverse stock split. On September 11, 2003, Wm. H. Murphy & Co.,
Inc. provided a supplemental opinion to the special committee that the
reverse stock split and the increased cash price of $3.50 per
pre-split share were fair from a financial point of view to our
cashed-out minority shareholders. This supplemental opinion considered
both our most recently filed Form 10-QSB for the quarter ended June
30, 2003 and the effects of a foreclosure by on one of our
subsidiaries on approximately 96 acres of unimproved real estate
located in Galveston, Texas that occurred on July 1, 2003. A copy of
its original opinion and the supplemental opinion are attached as
Appendix B. See "Opinion of Financial Advisor" on page 23 for more
information relating to the opinion and related financial analyses.
- Material Federal Income Tax Consequences of Reverse Stock Split
o Cashed-Out Minority Shareholders. The reverse stock split is
expected to result in a taxable transaction for United States
federal income tax purposes to our minority shareholders that
receive cash in lieu of a fractional share. Minority shareholders
whose stock is a capital asset can be expected to recognize
capital gain or loss, and such persons who have held their shares
for more than one year are expected to recognize long term
capital gain or loss. Under the Jobs and Growth Tax Relief Act of
2003 (the "2003 Tax Act"), net long term capital gains of
individuals are generally taxed at a maximum of 15%. Net capital
losses may generally only be offset against net capital gain, and
not other income.
o Shareholders Not Cashed Out in Reverse Split. The reverse stock
split is expected to be a non-taxable transaction for United
States federal income tax purposes to shareholders who will
remain shareholders of Rampart immediately after the reverse
stock split.
Your tax consequences are dependent on your unique tax situation.
Accordingly, we urge you to consult your own tax advisor to determine the
effect of the reverse stock split under applicable federal, state, local
and foreign tax laws.
For a complete description of the material federal income tax consequences
from the reverse stock split, see the discussion entitled "Material Federal
Income Tax Consequences of the Reverse Split" at page 21
3
- Effectiveness of the Reverse Stock Split. The reverse stock split will
not be effected unless and until our shareholders approve the reverse
stock split and Rampart confirms the availability of the funds
necessary to pay for the fractional shares in connection with the
transaction. Shareholders holding sufficient shares to approve the
amendment have already indicated that they intend to vote in favor of
the amendment. Assuming that sufficient funds will be available, we
will file the amendment to our Restated Articles of Incorporation with
the Secretary of State of the State of Texas as soon as possible after
the annual meeting and thereby effect the reverse stock split at 12:01
a.m. on the day following filing of the amendment. See page 8 for more
detailed information.
- Changes in Management Team and Post Reverse Split Plans. Our executive
officers and directors will remain the same immediately following the
reverse stock split, however, after the listing of shares of our
common stock on the AMEX and the registration of our common stock
under the Exchange Act are terminated, we intend to decrease the size
of our board to two members with Charles W. Janke and J. H. Carpenter
filling those positions. In addition, after the reverse stock split
Messrs. Janke and Carpenter have plans regarding adjustments to their
relative stock ownership and management responsibilities. For more
detailed information about our management changes and post reverse
stock split plans, see page 33.
- Special Interests of Current and Prospective Directors and Executive
Officers in the Transaction. Following the reverse stock split, all of
our remaining shares of common stock will be held by two executive
officers who are also directors. In addition, all options currently
held by our directors will terminate 90 days after they leave our
Board of Directors. Our directors who leave the board following the
reverse stock split and hold options to purchase our common stock will
be entitled to exercise their options according to their terms,
subject to adjustments to the exercise price and number of underlying
shares for the 1-for-100,000 reverse stock split. None of our
directors holds an option that would be exercisable for at least a
whole post-split share and none of the options they hold have a
pre-split exercise price less than $3.50. Consequently, all options
held by directors leaving the board will likely expire without being
exercised. See page 34 for more detailed information.
- Financing for the Reverse Stock Split. We estimate that approximately
$2,258,000 will be required to pay for the shares of our common stock
exchanged for cash in the reverse stock split. We intend to pay for
such shares with available cash and with funds available under our
credit facilities. We have received a commitment letter dated August
26, 2003 from Southwest Bank of Texas, N.A. to increase our revolving
credit facility from $3 million to $4.5 million and to extend its
maturity date to September 23, 2004 subject to the personal guarantees
of Messrs. Janke and Carpenter. See page 35 for more detailed
information regarding financing of the reverse stock split.
- No Dissenters' or Appraisal Rights. Under the Texas Business
Corporation Act and our Restated Articles of Incorporation and bylaws,
our shareholders are not entitled to dissenters' or appraisal rights
because the amendment to our Restated Articles of Incorporation to
effect the reverse split is not a corporate action for which
shareholders are entitled to dissenters' or appraisal rights. See page
35 for more detailed information.
4
QUESTIONS AND ANSWERS ABOUT THE MEETING
Q: Why did you send me this proxy statement?
A: We sent you this proxy statement and the enclosed proxy card because our
Board of Directors is soliciting your votes for use at our annual meeting
of shareholders. This proxy statement summarizes information that you need
to know in order to cast an informed vote at the meeting. However, you do
not need to attend the meeting to vote your shares. Instead, you may simply
complete, sign and return the enclosed proxy card. We first sent this proxy
statement, notice of annual meeting and the enclosed proxy card on or about
October __, 2003 to all shareholders entitled to vote. Holders of our
common stock as of the record date of October 6, 2003 are entitled to vote
at the special meeting. On that date, there were approximately 2,905,143
shares of our common stock outstanding. Shareholders are entitled to one
vote for each share of common stock held as of the record date.
Q: What is the time and place of the annual meeting?
A: The annual meeting will be held at the Newport Golf Club and Conference
Center, 16401 Country Club Drive, Crosby, Texas 77532, on Wednesday,
November 5, 2003 at 10:00 a.m., Houston, Texas time.
Q: Who may be present at the annual meeting and who may vote?
A: All holders of our common stock may attend the annual meeting in person.
However, only holders of our common stock of record as of October 6, 2003
may cast their votes in person or by proxy at the special meeting.
Q: What constitutes a quorum for the annual meeting?
A: The presence in person or by proxy of holders of a majority of the
outstanding shares of our common stock will constitute a quorum for the
annual meeting.
Q: What is the vote required for the proposals?
A: 1) Requirement for election of directors:
The director nominees will be elected by a plurality of the votes cast at
the annual meeting. Cumulative voting is not permitted. In a plurality
vote, abstentions are not considered a vote cast and will not affect the
outcome.
2) Requirements for Amendment to Our Restated Articles of Incorporation and
Ratification of Appointment of Independent Public Accountants:
The affirmative vote of the holders of a majority of the shares of our
common stock entitled to a vote and present at the annual meeting in person
or represented by proxy is required to approve each of these proposals. If
you do not vote your shares, either in person or by proxy, or if you
abstain from voting on the proposal, it has the same effect as if you voted
against the proposal. In a majority vote, express abstentions are
considered a vote cast and have the effect of a vote against a particular
matter. In addition, if your shares are held in a brokerage account and you
do not instruct your broker on how to vote on the proposal, your broker
will not be able to vote for you. This will have the same effect as a vote
against the proposal.
Directors and executive officers of Rampart holding sufficient shares of
common stock to approve the above proposals have indicated that they intend
to vote "FOR" such proposals.
5
Q: What is the recommendation of our Board of Directors regarding the
proposals?
A: 1) Election of Directors:
Our Board of Directors recommends a vote "FOR" each of the nominees for
director.
2) Amendment to Our Restated Articles of Incorporation:
Our Board of Directors has determined that the amendment to our Restated
Articles of Incorporation to effectuate a 1-for-100,000 reverse stock split
is fair to our minority shareholders and that the reverse stock split is
advisable and in the best interests of Rampart and our shareholders. Our
Board of Directors (with Charles W. Janke and J. H. Carpenter abstaining
due to their conflicting interests) has therefore unanimously approved the
proposed amendment to our Restated Articles of Incorporation that will
effect the reverse stock split and recommends that you vote "FOR" approval
of the proposed amendment.
3) Ratification of Appointment of Independent Public Accountants:
Our Board of Directors recommends a vote "FOR" approval of the appointment
of Pannell Kerr Forster of Texas, P.C. as our independent public
accountants.
Q: What do I need to do now?
A: Please sign, date, and complete your proxy card and promptly return it in
the enclosed, self-addressed, prepaid envelope so that your shares can be
represented at the annual meeting.
Q: May I change my vote after I have mailed my signed proxy card?
A: Yes. Just send by mail a written revocation or a new, later-dated,
completed and signed proxy card before the annual meeting or attend the
annual meeting and vote in person. You may not change your vote by
facsimile or telephone.
Q: What if I don't return a proxy card or vote my shares in person at the
annual meeting?
A: If you don't return your proxy card or vote your shares in person at the
annual meeting, each of those shares will be treated as a non-vote and will
have no effect on the election of directors but will have the same effect
as a vote against approval of the amendment to our Restated Articles of
Incorporation and a vote against ratification of Pannell Kerr Forster of
Texas, P.C. as our independent public accountants.
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: Your broker will vote your shares for you ONLY if you instruct your broker
how to vote for you. Your broker will mail information to you that will
explain how to give these instructions.
Q: Will my shares held in "street name" or another form of record ownership be
combined for voting purposes with shares I hold of record?
A: No. Because any shares you may hold in street name will be deemed to be
held by a different shareholder than any shares you hold of record, any
shares so held will not be combined for voting purposes with shares you
hold of record. Similarly, if you own shares in various registered forms,
such as jointly with your spouse, as trustee of a trust or as custodian for
a minor, you will receive, and will need to sign and return, a separate
proxy card for those shares because they are held in a different form of
record ownership. Shares held by a corporation or business entity must be
voted by an authorized officer of the entity, and shares held in an IRA
must be voted under the rules governing the account.
6
Q: Should I send in my stock certificates now?
A: No. As soon as practicable after the reverse stock split is completed, we
will send instructions to all holders of our common stock for use in
surrendering your stock certificates in connection with the reverse stock
split.
Q: What if I have questions about the amendment to our Restated Articles of
Incorporation, the other proposals or the voting process?
A: Please direct any questions about the amendment to our Restated Articles of
Incorporation, the other proposals or the voting process to the following
person at address and telephone number indicated.
J. H. Carpenter
Rampart Capital Corporation
16401 Country Club Drive
Crosby, Texas 77532
(713) 223-4610
Q: Is Rampart using a solicitation agent in connection with the annual
meeting?
A: No. However, our employees may solicit proxies by telephone or other means
but will not receive any additional compensation for such services. In
addition, we will also reimburse brokers or other nominees for their
reasonable expenses in forwarding proxy materials to beneficial owners of
common stock.
7
ITEM 1. AMENDMENT TO OUR RESTATED ARTICLES OF INCORPORATION
The Board of Directors has authorized, and recommends for your approval, a
proposal for a reverse 1-for-100,000 stock split of our common stock.
The transaction is comprised of a reverse stock split (the "Reverse Split")
whereby each 100,000 of shares of our common stock registered in the name of a
shareholder at the effective time of the Reverse Split will be converted into
one share of our common stock. As permitted under Texas law, shares of our
common stock that would be converted into less than one share in the Reverse
Split will instead be converted into the right to receive a cash payment as
described below (we refer to the Reverse Split and these cash payments,
collectively, as the "Reverse Split"). However, if a registered shareholder
holds 100,000 or more shares of our common stock in his or her account at the
effective time of the Reverse Split, any fractional share in such account
resulting from the Reverse Split will not be cashed out.
The Board will have the discretion to determine if and when to effect the
Reverse Split if it is approved by our shareholders and reserves the right to
abandon the Reverse Split even if it is approved by our shareholders (see
"-Reservation of Rights"). We expect that, if our shareholders approve and the
Board elects to implement the Reverse Split, the Reverse Split would be
consummated within 20 days of the date of the Annual Meeting. If the Board
determines to implement the Reverse Split approved by our shareholders, we will
publicly announce in a press release and related current report on Form 8-K that
the approved Reverse Split was consummated.
The expected continuing shareholders after the Reverse Split would be Charles W.
Janke, our Chief Executive Officer and a director, and J. H. Carpenter, our
Chief Operating Officer and a director.
STRUCTURE OF THE REVERSE SPLIT
If the Reverse Split is approved by our shareholders and is implemented by the
Board, the Reverse Split is expected to occur at 12:01 a.m. on the day after the
amendment to our Restated Articles of Incorporation is filed with the Secretary
of State of the State of Texas (the "Effective Date"). The form of proposed
amendment to our Restated Articles of Incorporation necessary to affect the
Reverse Split is attached to this proxy statement as Appendix A. Upon
consummation of the Reverse Split, each registered shareholder on the Effective
Date will receive one share of our common stock for each 100,000 of shares of
our common stock held in his or her account at that time. If a registered
shareholder holds 100,000 or more shares of our common stock in his or her
account, any fractional share in such account will not be cashed out after the
Reverse Split. Any registered shareholder who holds fewer than the 100,000
shares of our common stock in his or her account at the time of the Reverse
Split will receive a cash payment instead of fractional shares. This cash
payment will be $3.50 per pre-split share. We intend for the Reverse Split to
treat shareholders holding our common stock in street name through a nominee
(such as a bank or broker) in the same manner as shareholders whose shares are
registered in their names, and nominees will be instructed to effect the Reverse
Split for their beneficial holders. However, nominees may have different
procedures, and shareholders holding shares in street name should contact their
nominees. In addition, if any shareholders other than Messrs. Janke and
Carpenter remain, we intend to initiate a subsequent reverse stock split to
eliminate such holders at the same $3.50 per initial pre-split share.
In general, the Reverse Split can be illustrated by the following examples,
assuming the Reverse Split is implemented by our board:
HYPOTHETICAL SCENARIO RESULT
--------------------- ------
Mr. Smith is a registered shareholder who holds Instead of receiving a fractional share of our common stock
29,000 shares of our common stock in his account immediately after the Reverse Split, Mr. Smith's shares will
prior to the Reverse Split. be converted into the right to receive $101,500 in cash
(29,000 x $3.50 = $101,500).
8
Ms. Jones has two separate record accounts. As of the Ms. Jones will receive cash payments equal to $3.50 per
Effective Date, she holds 60,000 shares of our share of our common stock in each of her record accounts
common stock in one account and 45,000 shares of instead of receiving fractional shares. In this case, Ms.
our common stock in the other. All of her shares are Jones will receive $367,500 (60,000 x $3.50 = $210,000;
registered in her name only. 45,000 x $3.50 = $157,500; $210,000 + $157,500 = $367,500).
Mr. Schmidt held 40,000 shares of our common stock. After the Reverse Split, Mr. Schmidt will continue to hold
Prior to the Effective Date Mr. Schmidt purchases an 1.1 shares of our common stock. However, we intend to
additional 70,000 shares of our common stock so that initiate a subsequent reverse stock split to cash-out Mr.
he holds 110,000 shares as of the Effective Date. Schmidt at a price per pre-split share equivalent to the
$3.50 per pre-split share in the initial Reverse Split.
Ms. Lee holds 30,000 shares of our common stock in a We intend for the Reverse Split to treat shareholders
brokerage account as of the Effective Date. holding our common stock in street name through a
nominee (such as a bank or broker) in the same manner as
shareholders whose shares are registered in their names.
Nominees will be instructed to effect the Reverse Split for
their beneficial holders. However, nominees may have
different procedures and shareholders holding our common
stock in street name should contact their nominees.
RESERVATION OF RIGHTS
We reserve the right to abandon the Reverse Split without further action by our
shareholders at any time before the filing of the necessary amendment to our
Restated Articles of Incorporation with the Secretary of State of the State of
Texas, even if the Reverse Split has been authorized by our shareholders at the
annual meeting, and by voting in favor of the Reverse Split you are expressly
also authorizing us to determine not to proceed with the Reverse Split if we
should so decide.
SPECIAL FACTORS
PURPOSE OF AND REASONS FOR THE REVERSE SPLIT
The primary purpose of the Reverse Split is to realize the cost savings that
would be achieved by eliminating the expenses related to our disclosure,
reporting and compliance requirements under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") and our listing requirements on the American
Stock Exchange ("AMEX") for our common stock. As a public reporting company, we
incur significant expenses, including amounts paid to:
- our independent accountants to audit our annual financial statements
and review our quarterly financial statements;
- our directors as fees for their services;
- our SEC counsel to review and assist us in the preparation of our SEC
reports, as well as advising us on securities law and AMEX compliance
matters;
- AMEX for the annual listing fee for our common stock;
- our insurance company for director and officer insurance in an amount
sufficient to attract and retain qualified directors and executive
officers; and
- our transfer agent and third parties for printing, postage, stock
transfer and other administrative expenses to service our public
shareholders, most of whom are holders of a relatively small number of
our common shares.
9
Our current costs of complying with the Exchange Act disclosure, reporting and
compliance requirements and maintaining the listing of our common stock on AMEX
are substantial, representing an estimated annual cost of $300,000. These
expenses would be largely eliminated as a private company after the Reverse
Split. The annual savings (before any increases discussed below) represents a
12% annual yield on the costs of effecting the Reverse Split.
Furthermore, as a result of recent corporate governance scandals and the
legislative and litigation environment resulting from these scandals, the costs
of being a public company in general, and the costs of remaining a public
company in particular, is expected to increase significantly in the near term.
For example, new legislation, such as the recently enacted Sarbanes-Oxley Act of
2002, will have the effect of increasing the burdens and potential liabilities
of being a public reporting company. This and other proposed legislation will
likely increase compliance costs, audit fees, director and officer insurance
premiums and compensation for outside directors.
Currently, we have no in-house legal counsel and have generally relied upon
outside legal counsel to advise us on legal matters, including securities laws.
As a result of the enactment of Sarbanes-Oxley Act, we have incurred a
significant increase in our outside legal fees in an effort to comply with this
legislation, as well as the significant volume of SEC rulemaking adopted in
response thereto. As of June 30, 2003, our legal costs related to SEC reporting
and compliance for the first six months of 2003 were $44,000, or about twice as
much as compared to the entire year of 2002. We expect the total legal costs
for SEC reporting and compliance for the 2003 reporting year to represent
between a 125% and 150% increase over our 2002 reporting year costs of
approximately $22,000.
Our independent accountants have informed us that we should expect a nominal
increase in their fees for 2003 over the $56,000 we paid them in 2002 for audit
fees and reviewing SEC reporting documents. However, they also informed us that
their fees for a private company would be approximately 50% of those for the
same company if it were a public company. Our independent accountants have also
informed us that they estimate that their fees will increase by approximately
37% in 2005, the first year they would be required to perform a compliance
review of the effectiveness of our internal controls and procedures for
financial reporting purposes as required by the Sarbanes-Oxley Act. They have
also suggested that we hire a third party to review these internal controls and
procedures during 2004 to resolve any issues before the independent accountants'
required compliance review report in 2005. They estimated that this would cost
us an additional $15,000 to $25,000.
In September 1999, Rampart purchased a three-year Director and Officer insurance
policy for approximately $96,600 or $32,200 per year of coverage. In 2002, the
renewal of the same policy cost approximately $45,000 and could only be renewed
for one year. This represents an approximately 40% increase in cost in 2002.
We have received a notice of non-renewal of our policy and have been told to
reapply for coverage. Our agent has informed us that if we are able to obtain
coverage, it will be at a significant increase in premium and coinsurance
deductible, and that the driving cause of these increases and limitations in
coverage is due to corporate governance issues. Because of the length of time
before the renewal date, our agent could not quantify the expected increase as
he informed us that it was frequently changing.
We have received requests for increased compensation by directors who perceive
that their liability is increasing along with increasing responsibilities
imposed by the new rules. We cannot quantify the level of compensation
necessary to attract and retain qualified independent directors, but expect
those costs to increase significantly. In addition, the litigation environment
surrounding directors of public companies has made it increasingly difficult for
us to attract and retain qualified, independent directors.
We also believe that consummating the Reverse Split will free up management's
time currently spent on our SEC reporting and compliance obligations to focus on
our core business operations. We have traditionally maintained a lean
management team, with a total of six employees at our executive offices.
Currently, our management team spends a considerable amount of its time dealing
with these SEC reporting and compliance obligations particularly given the new
internal and disclosure controls implemented by the company as well as the
additional review time by management related to their individual certifications
related to each statement contained in our SEC periodic reporting documents.
Since implementing several of the requirements mandated by the Sarbanes-Oxley
Act, we estimate management collectively spends between 30% and 40% more time,
and our staff collectively spends between 10% and 20% more time, on these SEC
reporting and compliance obligations. These increases have
10
primarily been absorbed by a reduction of employee time spent on operational
matters as opposed to these SEC compliance and reporting matters.
We believe the Reverse Split will permit our management team to focus its
attention on long-term value, rather than the short-term earnings focus
generally imposed on public reporting companies. Due to the nature of our
business, our operating results vary significantly from year-to-year and
quarter-to-quarter depending on the timing of our asset dispositions and capital
expenditures relating to our real estate and other investments. This has
contributed to the volatility of our stock price. As a public company, our
management feels pressure to generate certain periodic revenue and income levels
in an effort to support our public stock price level even though the decision to
sell or otherwise liquidate certain of its asset holdings may not be in the
long-term best interest of the company. As a private company after the Reverse
Split, this pressure imposed by the investing community to generate short-term
earnings will no longer exist, and operating decisions can be made with more of
a long-term perspective.
Our public company status has not provided us with the anticipated benefit of
better access to the capital markets. We continue to have difficulty financing
the expansion and growth of our business. If the Reverse Split is consummated,
Messrs. Janke and Carpenter, our controlling shareholders, principal executive
directors and two of our directors, have indicated their willingness to provide
credit support or personal guarantees to expand our access to capital to support
and grow our business. Historically, we have funded certain of our business
operations with loans from our controlling shareholders or their affiliates,
particularly Mr. Janke. Financial institutions have been unwilling to provide
us with expanded credit facilities without the credit support or personal
guarantee of one or both of Messrs. Janke and Carpenter. Furthermore, Messrs.
Janke and Carpenter have indicated that they are unwilling to continue to
provide their financial support at their current levels or provide this credit
support or guarantees so long as the minority common stock position remains in
the company since this constituency bears none of the risk associated with the
funding or support.
In addition, we believe that structuring the Reverse Split to cash out all
minority shareholders at a significant premium over our trading price prior to
our public announcement of the Reverse Split (and without incurring typical
transaction costs, such as brokerage commissions) provides our public minority
shareholders the best opportunity to realize the value attributable to their
shares. While this amount is less than our book value, due to the volatility in
our earnings from our normal business cycles, the lack of analyst coverage or
market makers for our common shares and the lack of liquidity or trading volume
in our common shares, we believe it will be difficult to achieve parity between
our stock price and asset values. In addition, book value does not reflect (1)
the significant expenses that would be incurred to market and sell our assets,
(2) the general and administrative expenses necessary to maintain a skeleton
staff to facilitate on orderly liquidation of our assets or (3) the risks
associated with declining asset values due to increases in interest rates,
terrorist activity or depressed market conditions during the period the assets
are held for sale. Furthermore, by cashing out all minority shareholders, the
Reverse Split does not force our minority shareholders to maintain their
investment in a private company with limited means of liquidity, particularly
since Messrs. Janke and Carpenter have indicated that they have no present
intention to sell or liquidate the company (other than to equalize their
investments after the Reverse Split-see, "Additional Information Regarding the
Reverse Split-Changes in Management Team and Conduct of the Business After the
Reverse Split").
Messrs. Janke's and Carpenter's purpose for pursuing the Reverse Split is their
belief that, for the reasons stated above, the Reverse Split provides the best
opportunity to enhance the value of the business of the company, and thus,
indirectly the value of their shares. In addition, Messrs. Janke's and
Carpenter's purpose for supporting the Reverse Split is their concern related to
the increased liability exposure of directors, executive officers and
controlling shareholders of public companies resulting from the general
litigation environment surrounding public companies as well as the mandates of
the Sarbanes-Oxley Act and related SEC rulemaking and that would be largely
eliminated if Rampart were a private company with only two shareholders.
We and Messrs. Janke and Carpenter are pursuing the Reverse Split at this time
because of the significant costs attributable to continuing and maintaining our
status as a public company. Due to the current litigation and regulatory
environment surrounding public companies, we and Messrs. Janke and Carpenter
expect these costs will continue only to rise. In addition, for the reasons
stated above, we and Messrs. Janke and Carpenter believe our best opportunity to
increase the value of the business for the benefit of the company and our
shareholders is as a private company and not a public reporting company.
11
ALTERNATIVES CONSIDERED
In making our determination to proceed with the Reverse Split, we considered
other alternatives. We rejected these alternatives because we believed the
Reverse Split would be the simplest and most cost-effective manner in which to
achieve the purposes described above. These alternatives included:
Other Forms of "Going Private" Transactions. We considered forms of
transactions other than the Reverse Split that would make us eligible to
terminate the registration of our common stock under the Exchange Act and its
listing on AMEX. For example, we considered an issuer tender offer to
repurchase shares of our outstanding common stock. In addition to cost and
timing concerns associated with such a structure, the results of an issuer
tender offer would be unpredictable due to its voluntary nature. In addition,
the controlling shareholders, Messrs. Janke and Carpenter, indicated to our
board that they would only support a going private transaction where the
minority shareholders were completely cashed out in the transaction. As a
result, we rejected this alternative.
We also considered, as a possible alternative to the Reverse Split, a merger of
Rampart into a newly-formed corporation, with conversion of the outstanding
shares occurring in the same general manner and ratios as in the Reverse Split.
We determined that this alternative was more burdensome than a Reverse Split due
to constraints imposed by corporate and federal and state securities laws. In
addition to these constraints, we did not believe that such an alternative
transaction would result in any benefit to shareholders, in terms of
consideration to be received, over that to be received in the Reverse Split.
For these reasons, we rejected this alternative.
Increase Public Float. From time to time, we have considered issuing additional
shares of our common stock to increase our public float. However, given the
decline in our stock price and the virtual closure in public equity markets
during the past two years for issuers of our size, we were unwilling, even if
possible, to dilute our existing shareholders at these price levels. For similar
reasons, we did not pursue the private equity markets. As a result, we rejected
this alternative.
Selling Rampart. We determined that the sale of the company was not a viable
alternative to the Reverse Split. Given the hybrid nature of our business
(including short-term funding of real estate projects, acquiring and
rehabilitating undervalued financial and real estate assets and selling and
operating acquired assets), we believe only a limited number of strategic buyers
or financial buyers, if any, would exist for the purchase of our entire company.
Furthermore, one of our significant assets consists of a large net operating
loss carry forward that would likely be lost or severely restricted in a company
sale transaction. Our board also realized that obtaining shareholder approval of
the sale of our company would have been highly unlikely given our controlling
shareholders' support of the Reverse Split and opposition to any transaction
that would adversely effect the net operating loss carry forward.
If more than 50% of our common stock is disposed of in a transaction like a
merger or sale, the net operating loss carry forward (approximately $29 million
available at December 31, 2002) is essentially unusable under Section 382(a) of
the Internal Revenue Code. Thus, maximization of net operating loss carry
forward utilization, assuming continued lack of denial of its use by the IRS and
assuming adequate future earnings, can only be accomplished through continued
operations as a going concern. Since the Reverse Split represents a
sale/purchase of only about 22% of our common stock, the net operating loss
carry forward limitation provisions of Section 382(a) are not triggered, thereby
allowing Rampart to potentially utilize the net operating loss carry forward in
full. If we have future earnings and if the IRS does not disallow future
utilization, we can shelter those earnings, through utilization of the net
operating loss carry forward, up to the amount of net operating loss carry
forward available. By eliminating the costs associated with being a public
company, Rampart should have more earnings to use against the net operating loss
carry forward. Through March 31, 2003, approximately $24 million of net
operating loss carry forward had expired unutilized because of Rampart's lack of
sufficient earnings. For the reasons described in this proxy statement, we
eliminated the other alternatives considered that would have resulted in Rampart
remaining a going concern (other forms of going private transactions, increasing
public float and maintaining the status quo); therefore, the Reverse Split
offers the best opportunity to maximize utilization of the net operating loss
carry forward.
Maintaining the Status Quo. We also considered whether maintaining the status
quo would be a viable alternative to the Reverse Split. We determined that the
costs associated with maintaining our public company status, and the expected
increases in these costs in the near term, were no longer justified,
12
particularly in light of our size and resources and the relatively small benefit
we believe Rampart and our shareholders have received as a result of us being a
publicly company. For these reasons, we rejected this alternative.
Liquidating Rampart. We also considered a possible liquidation of Rampart as an
alternative to the Reverse Split. In analyzing this alternative, we realized
that the sale of our assets to multiple buyers would lead to the highest sales
proceeds but would result in higher sales costs and uncertainty as to the timing
as to the completion of the liquidation given the nature of our asset base. On
the other hand, we further realized the sale of multiple properties to a single
or a few buyers was likely not feasible given our diverse asset pool, and even
if possible, would probably result in lower value offers. If we were to
liquidate our assets and then distribute the proceeds to shareholders, we could
only utilize the portion of the net operating loss carry forward that represents
the taxable gain on disposition of our existing assets. Our taxable gain would
be significantly less than the $29 million of available net operating loss carry
forward and any excess would be lost. We believed that due to the uncertainty
of the time necessary to complete an orderly liquidation, as well as the
uncertainty as to the ultimate costs involved and the proceeds to be received
from a liquidation, our minority shareholders would not likely receive a higher
effective value than the cash out price under the Reverse Split. As a result,
we rejected this alternative.
BACKGROUND OF THE REVERSE SPLIT
In September 1999, we completed our initial public offering of 400,000 units at
a price of $19.00 per unit. Each unit consisted of two shares of common stock
and a warrant to purchase an additional share of common stock, with AMEX shares
and warrant separating automatically 30 days after the offering and thereafter
begin trading separately on the AMEX. The exercise price per share for the
public offering warrants was $10.64, but the warrants have since expired without
ever being exercised. We also issued to the underwriters of our initial public
offering 40,000 warrants to purchase units at an exercise price of $31.35 per
unit. The exercise price per share of the warrants to purchase our common stock
underlying the underwriters' warrants to purchase units was $13.82. The
underwriters' warrants to purchase units expire on September 24, 2004. In
addition to liquidity for our common stock, one of the benefits we had hoped to
gain by completing our initial public market was better access to the debt and
equity capital markets as a means to finance our growth. Unfortunately, this
has never materialized due in part to the significant decline in our stock price
since the initial public offering and the refusal of traditional financial
institutions to provide us with debt financing without the credit support or
guarantee of our two principal shareholders, Charles W. Janke, our Chief
Executive Officer and director, and J.H. Carpenter, our Chief Operating Officer
and director.
In October 1999 after our common stock first traded separately from the unit,
the opening price per share for our common stock on AMEX was $8.25 per share.
Since that time, our common stock closing price on AMEX has ranged from a high
of $8.50 (November 2, 1999) to a low of $0.94 (August 29, 2000). From January
1, 2002 through June 9, 2003 (the date prior to the public announcement of the
reverse split) the closing price of our common stock has ranged from a high of
$3.60 (May 7, 2002) to a low of $1.10 (April 21, 2003), and from January 1, 2003
through June 9, 2003, the closing price of our common stock has ranged from a
high of $1.85 (January 16, 2003) to a low of $1.10 (April 21, 2003).
Historically, our common stock has also had a low trading volume and has not
been able to attract any analyst coverage.
Due to the nature of our business, our operating results have varied
significantly from year-to-year and quarter-to-quarter depending on the timing
of our asset dispositions, capital expenditures relating to our real estate and
other investment assets, the timing of our collection activities due to
bankruptcies, the court systems' setting of trial dates related to our
collection activities, and other factors that delay the receipt of funds. For
example, for calendar years 1999 and 2001, we had net income of $1.9 million and
$2.5 million, respectively, but for calendar years 2000 and 2002, we suffered
net losses of ($1.2) million and ($138,000), respectively. This volatility in
our earnings has also contributed to the wide swings in our stock price. Our
total market capitalization has also been consistently lower than the reported
book value of our assets.
In January 2000, our board authorized a share repurchase plan under Rule 10b-18
of the Exchange Act to purchase up to $2.0 million worth of our outstanding
common stock. The stock repurchase plan was adopted to provide some liquidity
support for our common shares at a price that we then believed was attractive.
During the first quarter of 2000, we purchased an aggregate of 144,587 common
shares at an aggregate cost of approximately $378,500, or $2.62 per share.
While the trading volume increased during our active involvement in the
repurchase plan in the first quarter of 2000, since that time and after we
suspended our buying activity because we were advised by our counsel that
13
continued significant purchases may affect our AMEX listing eligibility and due
to other corporate needs, the trading volume of our common stock returned to its
pre-January 2000 levels and the price of our stock continued its decline.
Beginning in the second half of 2000, we also investigated possible candidates
for a reverse acquisition of Rampart that could derive value from our public
company platform. While we entered into discussions with certain parties,
nothing ever materialized.
As a result of the foregoing matters, in June 2002 at our annual board meeting,
the Board of Directors authorized Mr. Janke to consult with and, if necessary,
hire, third party consultants for their recommendations on alternative
transactions in an effort to maximize shareholder value. From July 2002 through
December 2002, Mr. Janke met separately with several individuals and
institutions, including persons within the legal and investment banking
community with whom he, other board members or their respective friends had a
past business or personal relationship. The main focus of these meetings was to
receive ideas and suggestions regarding possible transactions the company could
initiate in an effort to increase the stock price or otherwise maximize
shareholder value, as well as an overview of the legal steps and procedures
necessary to consummate the alternative transactions. In the end, Mr. Janke did
not hire any of the persons with whom he met, but believed he obtained valuable
information for the company to assess and evaluate. Mr. Janke concluded that
Rampart, together with our existing outside professionals, possessed sufficient
expertise and experience to assess and evaluate the possible alternative
transactions without the assistance of additional outside professionals and
consultants. The alternative transactions discussed with these persons
included: (1) growth of our existing business by raising public or private
capital and thereby also increasing the outstanding public float of our common
stock, (2) sale of the company, (3) liquidation of the company and (4) taking
the company private and terminating the registration of our common stock under
the Exchange Act and removing its listing on AMEX. For a more complete
discussion of the company's consideration of these alternatives. See
"Alternatives Considered" (page 11).
From late 2002 through the spring of 2003, our management, including Messrs.
Janke and Carpenter, further researched and investigated the steps necessary to
consummate a liquidation or a going private transaction. Given the uncertainty
and timing associated with an orderly liquidation of the our assets and the loss
of a significant amount of our net operating loss carry forward, management
started to focus more on the going private transaction. Based in part on
discussions with its advisors, management believed that the reverse split
alternative was the most effective means to take the company private given our
size and resources, the concentrated ownership of our common stock, the desire
to cash out all public minority stockholders instead of requiring some
shareholders to maintain their equity ownership in a private illiquid enterprise
and the uncertainty and timing issues associated with an issuer or management
tender offer. However, given management's conflict of interest in any going
private transaction and in an effort to ensure that any such transaction would
be fair to our minority shareholders, management realized that certain
procedural safeguards would need to be implemented.
At a March 20, 2003 special meeting of our Board of Directors, Mr. Carpenter
reported on and presented a written summary of management's evaluation of the
various alternative transactions considered by the company during the prior
months and management's recommendation to take the company private and cash-out
our minority shareholders. Due to the conflicts involved in such a transaction
and for the protection of our minority public common shareholders, he also
indicated that the board should establish a special committee of independent
directors to approve or disapprove any such transaction, including the
negotiation of the amount of the cash payment to our minority shareholders. Mr.
Carpenter also indicated that, in his view, it was more equitable to our
minority shareholders to cash them all out rather than force certain minority
shareholders to maintain their stock interests in a private company with limited
liquidity for their investment. Further, Messrs. Janke and Carpenter will
likely have to provide personal credit support to finance parts of company's
operations and its growth, which they are less likely to provide if other
minority shareholders remain in the company.
While the board generally was in agreement with management's decision to pursue
the going private transaction, the board determined to defer its decision until
after its review of the requested report and a further deliberation and
discussion of such report at a subsequent board meeting. However, the board did
agree to establish the special committee at the meeting so that the committee
could begin the process of interviewing separate legal counsel and financial
advisors. Accordingly, the special committee was established, and William F.
Mosley and Michael V. Ronca, two of our outside directors, were appointed the
members of the special committee after confirming that neither Mr. Mosley nor
Mr. Ronca had any significant past or current relationship with either Mr. Janke
14
or Mr. Carpenter. The Board of Directors delegated to the special committee the
exclusive power and authority to (1) review, evaluate and negotiate the terms
and provisions, and determine the advisability of the reverse stock split with
respect to the interests of our minority shareholders, (2) determine, in its
sole discretion, whether the reverse stock split is fair to, and in the best
interests of, our minority shareholders, (3) approve or disapprove (in its sole
discretion), on behalf of Rampart and the full Board of Directors, the reverse
stock split and the form, terms and provisions thereof, subject to the approval
of the full Board of Directors, (4) make a recommendation to the full Board of
Directors to approve or disapprove the reverse stock split and (5) if the
special committee and the full Board of Directors approve the reverse stock
split, take any other action necessary or advisable to consummate the reverse
stock split.
During the next two to three weeks, the special committee interviewed various
law firms and financial advisors to engage in connection with their duties. The
special committee then engaged legal counsel, Akin Gump Strauss Hauer & Feld
LLP, because of its expertise in corporate and securities law matters and since
the firm had not previously represented Rampart or Messrs. Janke and Carpenter.
In late April 2003, the special committee then formally engaged Wm. H. Murphy &
Co., Inc. to serve as its financial advisor for the reverse stock split
transaction. During this same period, Mr. Carpenter completed and circulated to
the board members the written directive outlining the alternatives considered
and management's findings and recommendations relating to each alternative.
On April 29, 2003, the Board of Directors held a special meeting to consider and
discuss the alternative transactions. At the meeting, Mr. Carpenter again
outlined and discussed the various alternatives and management's recommendation
that the company pursue the going private transaction by reverse stock split and
cashing out our minority shareholders, subject to the approval by, and
negotiation with, the special committee. In addition, Mr. Carpenter and Mr.
Janke formally proposed a cash payment to the minority common shareholders of
$2.50 per pre-split common share and discussed the source of funds for the
buyout. They indicated the funds would be provided from our available cash and
an expanded company credit facility that Messrs. Janke and Carpenter would
likely be required to personally guarantee. Messrs. Janke and Carpenter were
then excused from the meeting after answering questions, and after full
discussion and deliberation, the remaining directors unanimously approved a
resolution to pursue the going private transaction by reverse stock split,
subject to the approval by the special committee, and if approved and
recommended by the special committee to the full board, the subsequent approval
by the full board.
During the next few weeks, the special committee met with its counsel and
financial advisors several times to discuss the reverse stock split and the cash
price to the minority common shareholders. In addition, management provided
information to, and met with, the financial advisor regarding certain historical
business and financial information necessary for the advisor's analysis. On
June 5, 2003, the special committee met with the financial advisor to discuss
its preliminary report, methodology and preliminary opinion as to fairness, from
a financial point of view, of the reverse split and related cash price to our
minority shareholders. As a result of these discussions, Messrs. Ronca and
Mosley contacted Messrs. Carpenter and Janke to negotiate the cash price based
in part on the range of per share values determined under Murphy's net book
value and net asset value analyses. Each of these analyses, at least in part,
gave effect to the utilization of our net operating loss carry forward resulting
in higher per share values. These higher values were then used by the special
committee as part of its support for a higher cash out price to the minority
shareholders. Later that same day, the parties ultimately agreed to a price of
$3.25 per pre-split common share.
On June 9, 2003, the special committee met with its counsel and financial
advisor. At the meeting, the financial advisor gave its final report and
opinion relating to the reverse stock split transaction and answered questions
presented by the members of the special committee. At the conclusion of the
meeting, the special committee approved the reverse stock split transaction and
the $3.25 cash price to our minority shareholders and directed that it be
recommended to the full board for approval. On the same date, the full Board of
Directors met to discuss the reverse stock split transaction and the special
committee's recommendation. The special committee's financial advisor was also
present at the full board meeting to discuss its analyses and any matters
requested by the other board members. After answering questions from the other
board members, Messrs. Janke and Carpenter were excused from the meeting for
further discussions by the remaining board members. Legal counsel to the
company then reviewed the principal aspects of the reverse stock split
transaction, including the range of splits to be approved, the cash price to our
minority shareholders, the termination of the registration of our common stock
under the Exchange Act and from listing on AMEX, and discussed the heightened
15
fiduciary duties of the board in corporate transactions involving management.
After full discussion, the remaining board members (with Messrs. Janke and
Carpenter abstaining) unanimously approved the reverse stock split and related
transactions.
On July 1, 2003, through our wholly owned entity, SourceOne Capital Group,
L.L.C., we foreclosed on approximately 96 acres of unimproved real estate
located in Galveston, Texas. This Galveston property secured two promissory
notes issued by the borrower in favor of SourceOne Capital Group. Although the
foreclosure was well publicized and properly noticed, SourceOne Capital Group
was the only bidder at the foreclosure sale in which it made a credit bid in the
amount of approximately $4.1 million, representing the outstanding principal
balance and accrued and unpaid interest, delinquent ad valorem property taxes,
and legal and foreclosure costs and expenses.
On July 15, 2003, Mr. Carpenter, as a reverse split sponsor and member of our
management, by letter informed the special committee of the Galveston
foreclosure, together with related information for their consideration. Due to
the timing and the significance of the Galveston foreclosure, the special
committee subsequently informed our full Board of Directors and management that
it desired to evaluate the effects, if any, of the Galveston foreclosure on the
terms of the previously recommended and approved reverse split.
The Company's most recent appraisals related to the Galveston property reflected
an aggregate value of approximately $10.5 million, consisting of approximately
$3.4 million for 15.8 acres from a September 2002 appraisal and $7.1 million for
80.4 acres from a January 2003 appraisal. However, the Galveston County
Appraisal District has an assessed value for the full 96 acres at approximately
$1.9 million. In addition, while the appraisal involving the 15.8 acres was
based upon a December 2000 sale of contiguous comparable acreage, no direct
comparable sales were available for the 80.4 acreage, and furthermore, the
appraisal of the 80.4 acreage did not reflect certain negative factors
ascertained by the Company during the foreclosure process, including the effects
of beach erosion, wetland and certain permitting restrictions, and potential
litigation exposure. The litigation exposure relates to threats of legal action
communicated by the borrower and his counsel to the Company subsequent to the
foreclosure sale; however, the borrower did not specify the grounds upon which
any such legal action would be based
In early August as a result of these discrepancies and the additional
information pertinent to the 80.4 acres, the Company, after consulting with the
special committee, sought a new appraisal for the 80.4 acreage from the same
appraisal firm that conducted the January appraisal due to their familiarity
with the subject property.
During the middle of August, the special committee and its legal counsel set up
and attended meetings with our outside litigation and finance counsel to assess
the potential litigation exposure associated with the Galveston property.
In late August, Mr. Carpenter, as a reverse split sponsor and a member of our
management, provided the updated appraisal to the special committee, together
with a letter setting forth further proposed reductions to the combined
appraisal based upon items not considered by the appraisal firm as to the
combined 96 acres, including marketing and selling costs and amounts relating to
the potential litigation exposure, as well as items considered in the appraisal
of the 80.4 acres but not the 15.8 acres, such as two years of carrying costs
associated with obtaining the permits necessary to market and sell the property.
Based on this appraisal, as adjusted for the foregoing factors, it was
recommended in the letter that no adjustment be made to the $3.25 per pre-split
share price to be paid to our minority shareholders in the reverse split as
previously approved by the special committee and our full Board of Directors.
During late August and early September, the special committee met on several
occasions with its legal counsel and financial advisor to assess the results of
the appraisal and the proposed adjustments to such appraisal offered by Messrs.
Janke and Carpenter as the reverse split sponsors. This culminated in a joint
meeting held on September 4, 2003 among the special committee and Messrs. Janke
and Carpenter as the reverse split sponsors. At the meeting Messrs. Janke and
Carpenter reiterated their position that no adjustment in the $3.25 per
pre-split share cash-out price was warranted as a result of the foreclosure due
to the lack of any third party bidders at the foreclosure sale, particularly
given the publicity relating to the Galveston property leading up to the
foreclosure sale, as well as negative adjustments to the appraisal they believed
were warranted for carrying costs, marketing and selling costs, and amounts
attributable to potential litigation exposure relating to the property. In
addition, while unrelated to the appraisal, they stated that there may likely be
future write-downs in their Newport Golf and Conference Center Property based
16
upon further deterioration of the golf course market in the greater Houston area
and for which they are seeking no adjustment to the reverse split cash-out
price.
On the other hand, the special committee continued to believe that an increase
in the $3.25 per pre-split cash-out price was warranted. While they essentially
agreed with the transaction sponsors' adjustments for (1) carry costs ($530,000
on the 15.8 acres, assuming a two-year permitting period based on a 3%
appreciation factor per year and a 12% per annum discount factor, which was
consistent with the carrying costs on the 80.4 acres set forth in the updated
appraisal) and (2) marketing and selling costs of 10% of the gross sales price,
it disagreed with the 25 % discount attributable to litigation exposure proposed
by Messrs. Janke and Carpenter. The special committee believed a litigation
adjustment in the range of 15% to 20% was more appropriate. Assuming this
adjustment for the litigation exposure, the parties agreed on an appraisal, as
adjusted, in the amount of approximately $4,719,000, or approximately $0.2218
per outstanding share based on the $644,373 difference between the adjusted
appraised value of the Galveston property and our credit bid at the foreclosure
sale. After further negotiations, Messrs. Janke and Carpenter and the special
committee agreed on an increase in the minority shareholder cash-out price from
$3.25 per pre-split share to $3.50 per pre-split share, subject to a
determination by the financial advisor retained by the special committee that
such price is fair from a financial point of view to our minority shareholders
after considering the recent Galveston foreclosure.
On September 11, 2003, the special committee telephonically met with its legal
counsel. Earlier that day, the financial advisor delivered its written
supplemental fairness opinion confirming the fairness of the revised $3.50 cash
price to our minority shareholders. At the telephonic meeting, the special
committee approved the terms of the revised reverse split based on the new $3.50
cash price and the elimination of the range of stock splits initially proposed
for a single 1-for-100,000 reverse stock split and directed that it be
recommended to the full board for approval. On the same date, the full Board of
Directors telephonically met to discuss the revised reverse stock split
transaction and the special committee's recommendation. After answering
questions from the other board members, Messrs. Janke and Carpenter were excused
from the telephonic meeting for full discussion by the remaining board members.
Legal counsel to the Company reviewed the principal aspects of the revised
reverse stock split transaction, including the increased $3.50 price and the
elimination of the range of stock splits for a single 1-for-100,000 reverse
stock split, and reminded them of the heightened fiduciary duties of the board
in corporate transactions involving management. After full discussion, the
remaining board members (with Messrs. Janke and Carpenter abstaining)
unanimously approved the revised reverse stock split and related transactions.
EFFECTS OF THE REVERSE SPLIT
The Reverse Split will have various effects on Rampart, as described below.
Rampart
Reduction in the Number of Shareholders of Record and the Number of Outstanding
- --------------------------------------------------------------------------------
Shares. Based on information as of August 4, 2003, we believe that the Reverse
- ------
Split will reduce our number of record shareholders from approximately 27 to
two. We estimate that approximately 645,143 shares held by approximately 297
beneficial holders will be exchanged for cash in lieu of fractional shares in
the Reverse Split. The number of outstanding shares of common stock will
decrease from approximately 2,905,143 to approximately 22.6. Accordingly, the
liquidity of shares of our common stock will be substantially less as a result
of the Reverse Split than it is currently.
Transfer of Book Value. Because (1) the price to be paid to holders of fewer
- -------------------------
than 100,000 shares of our common stock will be $3.50 per share, (2) the number
of shares of common stock expected to be cashed out as a result of the Reverse
Split is estimated to be approximately 645,143, (3) the total cost to Rampart
(including expenses) of effecting the Reverse Split is expected to be
approximately $2,508,000, and (4) at June 30, 2003 aggregate shareholders'
equity in Rampart was approximately $11,278,000, or $3.88 per share, we expect
that, as a result of the Reverse Split, the book value per share of our common
stock as of June 30, 2003 will be changed from approximately $3.88 per share on
a historical basis to approximately $4.06 (pre-split), or $406,287.61
(post-split) per share on a pro forma basis.
Decrease in Stated Capital. As a result of the Reverse Split, our stated
- -----------------------------
capital will be reduced as of June 30, 2003 from approximately $30,500 on a
historical basis to $1,448.80 on a pro forma basis.
17
Elimination of Exchange Act Registration. Our common stock is currently
- --------------------------------------------
registered under the Exchange Act. After the Reverse Split, our common stock
will not be registered under the Exchange Act, nor will we be subject to any
reporting requirements under the Exchange Act. As a result, we expect to
eliminate direct and indirect costs and expenses associated with the Exchange
Act registration, which we estimate to be approximately $300,000 on an annual
basis. See "- Purpose of and Reasons for the Reverse Split" for a discussion of
the nature of the information we will no longer be required to provide.
However, our shares will no longer be freely tradable and any subsequent sale
must be made pursuant to an effective registration statement under the
Securities Act of 1933 or an available exemption therefrom. This will
materially and adversely affect the liquidity of the shares remaining
outstanding.
Effect on Market for Shares. Our common stock is currently listed on the AMEX.
- ----------------------------
After the Reverse Split, our common stock will not be listed on the AMEX. The
lack of listing on the AMEX, together with the reduction in public information
concerning Rampart as a result of our not being required to file reports under
the Exchange Act, will adversely affect the liquidity of our common stock.
Financial Effects of the Reverse Split. We estimate that approximately
- -------------------------------------------
$2,258,000 will be required to pay for the fractional shares of our common stock
exchanged for cash in the Reverse Split. Additionally, we estimate that
professional fees and other expenses related to the transaction will total
approximately $250,000. We do not expect that the payment to shareholders
receiving cash in the Reverse Split and the payment of expenses will have any
material adverse effect on our capital adequacy, liquidity, results of
operations or cash flow. You should read the discussion under "Additional
Information Regarding the Reverse Split-Sources of Funds and Expenses" for a
description of the sources of funds for the Reverse Split and the fees and
expenses we expect to incur in connection with the transaction.
Rampart Affiliates
The Reverse Split will have various effects on our executive officers and
directors, each of whom may, as a result of his position or beneficial ownership
of 10% or more of our outstanding common stock, be deemed to be an affiliate of
Rampart.
Consolidation of Management Ownership. As a result of the Reverse Split, we
- ----------------------------------------
expect that the percentage of beneficial ownership of our common stock held by
our executive officers and directors as a group will increase from approximately
79.4% before the reverse stock split to 100%. Instead of being held by five
directors and executive officers, however, these shares will be held by only two
directors and executive officers after the Reverse Split.
No Further Reporting Obligations Under the Exchange Act. After the Reverse
- -------------------------------------------------------------
Split, our common stock will not be registered under the Exchange Act. As a
result, the executive officers, directors and other affiliates of Rampart will
no longer be subject to the reporting requirements and restrictions of the
Exchange Act, including the reporting and short-swing profit provisions of
Section 16.
Rule 144 Not Available. Because our common stock will not be registered under
- ------------------------
the Exchange Act after the Reverse Split, executive officers and directors of
Rampart will be deprived of the ability to dispose of their shares of our common
stock under Rule 144 under the Securities Act of 1933.
Rampart Shareholders
Registered Shareholders with Fewer than 100,000 Shares of Common Stock. If we
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complete the Reverse Split and you hold fewer than 100,000 shares of our common
stock immediately prior to the Reverse Split:
- You will not receive a fractional share of stock as a result of the
Reverse Split in respect of your shares being cashed out.
- Instead of receiving a fractional share, you will receive a cash
payment with respect to your affected shares equal to $3.50 per
pre-split share.
- After the Reverse Split, you will have no further interest in Rampart
with respect to your cashed-out shares. These shares will no longer
entitle you to the right to vote as a shareholder or share in
Rampart's assets, earnings, or profits or in any dividends paid after
the Reverse Split. In other words,
18
you will no longer hold your cashed-out shares and you will have only
the right to receive cash for these shares. In addition, you will not
be entitled to receive interest with respect to the period of time
between the Effective Date of the Reverse Split and the date you
receive your payment for the cashed-out shares.
- You will not have to pay any service charges or brokerage commissions
in connection with the Reverse Split.
- As soon as practicable after the time we effect the Reverse Split, you
will receive a payment for the cashed-out shares you held immediately
prior to the Reverse Split in accordance with the procedures described
below.
o If you hold book-entry shares:
- Some of Rampart's registered shareholders hold their shares
in book-entry form under the Direct Registration System for
securities. These shareholders do not have stock
certificates evidencing their ownership of our common stock.
They are, however, provided with a statement reflecting the
number of shares registered in their accounts.
- If you are a cashed-out shareholder who holds registered
shares in a book-entry account, you do not need to take any
action to receive your cash payment. A check will be mailed
to you at your registered address as soon as practicable
after the effective date of the Reverse Split. By signing
and cashing this check, you will warrant that you owned the
shares for which you received a cash payment.
o If you hold certificated shares:
- If you are a cashed-out shareholder with a stock certificate
representing your cashed-out shares, you will receive a
letter of transmittal as soon as practicable after the
Effective Date of the Reverse Split. The letter of
transmittal will contain instructions on how to surrender
your certificate(s) to Rampart for your cash payment. You
will not receive your cash payment until you surrender your
outstanding certificate(s) to Rampart together with a
completed and executed copy of the letter of transmittal.
Please do not send your certificates until you receive your
letter of transmittal.
- All amounts owed to you will be subject to applicable federal income
tax withholding and state abandoned property laws.
- You will not receive any interest on cash payments owed to you as a
result of the Reverse Split.
Registered Shareholders with 100,000 or More Shares of Our Common Stock. If you
- -----------------------------------------------------------------------
are a registered shareholder with 100,000 or more shares of our common stock as
of 12:01 a.m. on the effective date of the Reverse Split, we will reclassify
your shares into 1/100,000th of the number of shares you held immediately prior
to the Reverse Split. However, if shareholders other than Messrs. Janke and
Carpenter hold 100,000 or more shares of our common stock, we intend to initiate
another reverse stock split transaction following the deregistration and
delisting of our common stock at a price per pre-split share equivalent to the
$3.50 per pre-split share in the initial Reverse Split.
Street Name Holders of Our Common Stock. Rampart intends for the Reverse Split
- ----------------------------------------
to treat shareholders holding our common stock in street name through a nominee
(such as a bank or broker) in the same manner as shareholders whose shares are
registered in their names. Nominees will be instructed to effect the Reverse
Split for their beneficial holders. However, nominees may have different
procedures and shareholders holding our common stock in street name should
contact their nominees.
Holders of Stock Options. As a result of the Reverse Split, the exercise price
- -------------------------
of each outstanding option will automatically increase by a factor equal to
100,000 and the number of underlying shares will decrease by the same factor.
We will permit options to cover underlying fractional shares of common stock,
but will not be able to issue fractional shares upon exercise of an option.
Instead, we will pay the option holder cash for any fractional shares in an
19
amount equal to the amount by which $3.50 exceeds the current exercise price of
the option, multiplied by the number of underlying pre-split shares, represented
by the option. The only options we have outstanding are grants for 1,000
underlying shares of our common stock each to two existing non-executive officer
directors. These two directors will cease to be directors upon the termination
of the registration and listing of our common stock. The options will expire 90
days after the directors cease to be members of our board. Because the number
of shares underlying each of these options is less than 100,000 and the current
exercise price of the options is greater than $3.50, these options will likely
expire without being exercised and the holders will receive no consideration in
respect of the options.
Holders of Underwriters' Warrants. We currently have outstanding warrants to
- ------------------------------------
purchase 40,000 units (each unit consisting of two shares of our common stock
and a warrant to purchase one share of our common stock) that were issued to the
underwriters in our initial public offering. As a result of the Reverse Split,
the exercise price of the unit warrants (initially $31.35) will increase by a
factor equal to 100,000 and the underlying number of units will decrease by the
same factor. Additionally, the exercise price of the common stock warrants
underlying the unit warrants (initially $13.82) will increase by a factor equal
to 100,000 and the number of shares underlying such warrant will decrease by the
same factor. The warrants to purchase units expire on September 24, 2004. In
the aggregate, the holders of the warrants will be entitled to exercise them for
0.4 units following the Reverse Split, however, no fraction of a unit can be
issued upon exercise of the warrants. Instead, Rampart must pay a cash
adjustment in respect of the fraction of a unit in an amount equal to the
highest market price per unit on the day of exercise, as determined by Rampart.
Immediately following the Reverse Split, the aggregate exercise price of the
warrants would be $1,254,000 for an aggregate of 0.8 shares of our common stock
(worth an aggregate of $280,000 based on $3.50 per pre split share) and warrants
to purchase an aggregate of 0.4 shares of our common stock (worth an aggregate
of $140,000 based on $3.50 per pre split share) with an aggregate exercise price
of $552,800. Unless the value of a share of our common stock exceeds $15.057
per share on a pre-split basis, or $1,505,700 on a post-split basis, the
aggregate exercise price of the unit warrants will exceed the aggregate cash
adjustment that must be paid by Rampart. Considering the high common share
value required to make exercise of the warrants profitable to the holders, the
warrants will likely expire without being exercised.
RECOMMENDATION OF THE SPECIAL COMMITTEE AND BOARD OF DIRECTORS; FAIRNESS OF THE
REVERSE SPLIT
On September 11, 2003, the special committee determined that the Reverse Split,
including the cash payments to our minority shareholders in the amount of $3.50
per pre-split share, is fair to our minority shareholders, and recommended that
our Board of Directors approve the Reverse Split.
At a special meeting held on September 11, 2003, at which all of our directors
were present, our Board of Directors considered the recommendation of the
special committee and (with Messrs. Janke and Carpenter abstaining due to their
conflicting interests) unanimously concluded that the terms and provisions of
the Reverse Split are fair to and in the best interests of Rampart and our
shareholders, approved the Reverse Split and declared its advisability, and
recommended that the shareholders approve and adopt the Reverse Split.
Special Committee
The special committee unanimously approved the Reverse Split, believes that the
Reverse Split is fair to our minority shareholders and unanimously recommended
approval and adoption of the Reverse Split by our full Board of Directors. In
reaching these conclusions, the special committee adopted the analysis and
conclusions underlying the Murphy fairness opinion and supplement thereto,
analyzed in detail the Galveston foreclosure and related appraisals and other
factors described in "Background of the Reverse Split" above with Rampart's
counsel and the Special Committee's counsel and financial advisor and considered
the following procedural aspects of the Reverse Split approval process that
afforded the special committee a meaningful opportunity to participate in and
influence the outcome of that process:
- The composition of the membership of the special committee and its
empowerment to retain legal counsel and investment bankers selected by
it; and
- The ability of the special committee to approve or disapprove of the
Reverse Split and fully negotiate the terms of the Reverse Split on
behalf of our minority shareholders.
20
Additionally, the special committee considered the following favorable
substantive factors in reaching its conclusion that the Reverse Split is fair to
our minority shareholders:
- The special committee's negotiations with Messrs. Janke and Carpenter,
which resulted in an increase in the cash payment in lieu of
fractional shares from $2.50 to $3.25 and then finally to $3.50 per
pre-split share;
- While the $3.50 cash-out price per share of our common stock is less
than the $3.88 net book value per share of our common stock at June
30, 2003 and the $3.63 net asset value per share of our common stock
at March 31, 2003, this price represents a substantial premium over
our recent common stock price prior to the public announcement of the
Reverse Split proposal on June 10, 2003, and the special committee
believes that this price represents a value per share within the range
of Rampart's net realizable value pre share after taking into account
overhead, selling and marketing costs that would be incurred in an
orderly liquidation of our assets. In addition, due to the volatility
of our earnings stream from our business cycles, the lack of market
makers, and the lack of analyst coverage and liquidity for our shares,
the special committee believes that it will be difficult for Rampart
to achieve parity between its stock price and asset values as a public
company;
- The written opinion and supplement of Murphy that, as of September 11,
2003, the Reverse Split and cash payment of $3.50 per pre-split share
was fair to our minority shareholders from a financial point of view;
and
- The special committee's belief that the Reverse Split would likely
result in the highest value to the minority shareholders as compared
to the other alternatives considered. See "-Alternatives Considered."
Finally, the special committee considered the following adverse substantive
aspects of the proposed transaction in reaching its fairness conclusions:
- Since Messrs. Janke and Carpenter desired to retain their equity
interest in Rampart and declined to offer Rampart for sale as an
entirety to a third party, our minority shareholders were not afforded
an opportunity to participate in any control premium that might have
been generated by the sale of the entire company to a third party; and
- Our minority shareholders will have no ongoing equity participation in
the company following the Reverse Split.
In view of the variety of factors considered by the special committee, the
special committee did not find it practicable to, and it did not, quantify or
otherwise attempt to assign specific or relative weights to the factors
considered in making its determination. In addition, each member of the special
committee may have given different weights to the various factors.
Board of Directors
The Board of Directors (with Messrs. Janke and Carpenter abstaining due to
conflicting interests) unanimously approved the Reverse Split, believes that the
Reverse Split, including the cash payment to our minority shareholders in the
amount of $3.50 per pre-split share, is fair to and in the best interests of the
company and our shareholders and unanimously (with Messrs. Janke and Carpenter
abstaining due to conflicting interests) recommends approval of the Reverse
Split by our shareholders at the annual meeting. In reaching its fairness
determination, the Board adopted the analysis and conclusions underlying the
Murphy fairness opinion and supplement and the analysis and conclusions of the
special committee. Additionally, the Board considered the following substantive
factors in deciding to recommend that shareholders vote "FOR" the adoption and
approval of the Reverse Split at the annual meeting:
- The recommendation of the special committee;
21
- The fact that the Reverse Split, including the cash payment to our
minority shareholders in the amount of $3.50 per pre-split share, was
the result of arm's-length negotiations between the special committee
and its independent legal and financial advisors, on the one hand, and
Messrs. Janke and Carpenter, on the other hand;
- Our board's belief that the Reverse Split is the superior transaction
alternative to both Rampart and our shareholders as described under
"-Purposes of and Reasons for the Reverse Split" and "-Alternatives
Considered";
- The opportunity for all of our minority shareholders to liquidate
their common stock at a substantial premium over our recent common
stock price prior to the public announcement of the Reverse Split,
without incurring any costs, rather than requiring some of our
minority shareholders to retain their stock interests in a private
company with limited liquidity, while at the same time recognizing
that the cash-out price is less than the net book value and net asset
value per share, but for the same reasons referred to by the special
committee, the Board believes this disparity is justified; and
- The opinion of Murphy that the Reverse Split and the cash payment was
fair to our minority shareholders from a financial point of view and
Murphy's related analysis.
In view of the factors considered by our Board of Directors in connection with
the evaluation of the Reverse Split and the complexity of these matters, our
Board of Directors did not consider it practicable to, nor did it attempt to,
quantify, rank or otherwise assign relative weights to the specific factors it
considered in reaching its decision, nor did it evaluate whether these factors
were of equal importance. Our Board of Directors also received an extensive
presentation from, and relied on the experience and expertise of, Murphy with
respect to the quantitative analysis of the financial terms of the Reverse Split
to our minority shareholders. Our Board of Directors conducted a discussion of,
among other things, the factors described above, including asking questions of
our management and regularly retained legal advisors, and reached the conclusion
that the Reverse Split was advisable and in the best interests of Rampart and
our minority shareholders. In considering the factors described above,
individual members of our Board of Directors may have given different weight to
different factors.
Our Board of Directors believes that the Reverse Split is procedurally fair
because, among other things:
- the special committee consisted entirely of non-management,
non-affiliated independent directors appointed by our Board of
Directors to represent solely the interests of our minority
shareholders;
- the special committee retained and was advised by its own independent
financial advisor, Murphy, to assist it in evaluating the Reverse
Split and provide it with financial advice;
- the special committee retained and was advised by its own independent
legal counsel, Akin Gump Strauss Hauer & Feld LLP;
- the special committee engaged in extensive negotiations and
deliberations in evaluating the Reverse Split, including increasing
the cash payment to our minority shareholders from $2.50 to $3.25 and
finally to $3.50 per pre-split share; and
- even though the special committee consisted of directors of the
company and was therefore not completely unaffiliated with us,
committees of independent directors are a commonly used mechanism that
are recognized under applicable law to ensure fairness in transactions
of this type.
In view of the foregoing, the Board of Directors believes that sufficient
procedural safeguards exist to ensure fairness of the Reverse Split and to
permit the special committee to effectively represent the interests of our
minority shareholders, and therefore, additional unaffiliated representatives to
act on behalf of such shareholders are not necessary.
In reaching its conclusions, our board considered the negative substantive
factors considered by the special committee and set forth above as well as the
following negative procedural and substantive factors:
22
- The Reverse Split is expected to be a taxable transaction for our
minority shareholders; and
- The approval of a majority of our minority shareholders is not
required to approve the Reverse Split.
We made no provisions to grant our minority shareholders access to our corporate
files or to obtain counsel or appraisal services at our expense. However,
subject to specified conditions, Texas law allows our shareholders to review our
relevant books and records of account. Further, as stated above, the special
committee, acting on behalf of the minority shareholders, retained separate
counsel and financial advisor.
Because within the past two years none of Rampart, Mr. Janke or Mr. Carpenter
have purchased any of our common stock or received any firm offers from any
unaffiliated person involving the merger or consolidation of Rampart, the sale
of all or substantially all of our assets or the purchase of our securities that
would allow such holder to exert control over us, those factors were not
considered by the Board of Directors in determining the fairness of the Reverse
Split to our minority shareholders.
Janke and Carpenter
Although Messrs. Janke and Carpenter abstained from voting on the Reverse Split,
each of Messrs. Janke and Carpenter has adopted the analysis and conclusions of
Murphy underlying its fairness opinion and supplement, the analysis and
conclusions of the special committee and the analysis and conclusions of our
Board of Directors, and believes the Reverse Split is fair to our minority
shareholders based upon the same considerations considered by our Board of
Directors.
OPINION OF FINANCIAL ADVISOR
Wm. H. Murphy & Co., Inc. has acted as the financial advisor to the special
committee with respect to rendering an opinion as to the fairness of the Reverse
Split to the minority shareholders of Rampart from a financial point of view.
Murphy is an independent investment banking firm with offices in Houston, Texas
and a registered broker-dealer whose business includes rendering advisory
services in connection with mergers and acquisitions and corporate financings,
including rendering fairness opinions in connection therewith, and advising
clients with respect to equity and fixed income investments.
The special committee interviewed three firms as candidates to advise the
committee and, if warranted, render a fairness opinion in connection with the
Reverse Split. Two of the firms were recommended by Rampart's management, and
Murphy was recommended by Mr. Ronca, as suitable potential advisors. Mr. Ronca
has previously been associated with Murphy on an informal basis in connection
with examining (as principal or intermediary) various investment opportunities,
and recently he acted as a consultant to Murphy in connection with a financial
advisory engagement of Murphy's in a matter unrelated to the Reverse Split. Mr.
Ronca is not employed by Murphy and does not have any contractual relationship
with Murphy; however, it is possible that Mr. Ronca may be involved with Murphy
on an ad hoc basis in the future in other Murphy engagements or investment
opportunities. Because of this relationship, Mr. Ronca abstained from the
selection of the financial advisor, which was made by Mr. Mosley for the special
committee. Mr. Ronca and Mr. Mosley together conducted in-depth interviews with
each of the prospective candidates. Murphy was selected from among the three
candidates interviewed on the basis of its experience in rendering fairness
opinions in smaller transactions such as the Reverse Split, its relatively lower
cost structure compared to the other candidates and its expertise with real
estate investments in the Houston metropolitan area. Other than as described
above, there has been no relationship during the past two years between any of
Rampart, its affiliates, directors or executive officers, on the one hand, and
Murphy or any of its affiliates or representatives, on the other.
Murphy received a fee paid by Rampart in the amount of $45,000 plus
reimbursement of expenses in connection with the fairness opinion. There are no
other current arrangements to compensate Murphy, its affiliates or unaffiliated
representatives for any services rendered to Rampart, its affiliates, directors
or executive officers.
No limitations were imposed by the special committee, our Board of Directors or
Rampart upon Murphy in rendering its opinion as of June 9, 2003.
23
Murphy delivered its oral opinion to the special committee on June 9, 2003 as to
the fairness of the Reverse Split to the minority shareholders of Rampart.
Murphy's opinion is that, as of June 9, 2003 and based upon and subject to the
factors and assumptions set forth therein, the Reverse Split is fair, from a
financial point of view, to the minority shareholders of Rampart. Such oral
opinion was followed by delivery of the written fairness opinion.
Murphy's opinion, which sets forth the assumptions made, matters considered and
scope of limitations of the review undertaken and the procedures followed by
Murphy, is attached hereto as Appendix B and is incorporated herein by
reference. Rampart shareholders are urged to read this opinion carefully and in
its entirety for the assumptions made, matters considered and limits of the
review by Murphy. The summary of the opinion set forth in this proxy statement
is qualified in its entirety by reference to the full text of the opinion.
Murphy's opinion is directed only to the fairness, from a financial point of
view, of the Reverse Split to the minority holders of our common stock, and it
did not address the determination of the original $3.25 per share valuation or
the revised $3.50 per share valuation established by the special committee and
the controlling shareholders, or any other aspect of the fairness of the Reverse
Split or the underlying business decision of our Board of Directors to effect
the Reverse Split or constitute a recommendation to any Rampart shareholder as
to any matter. Murphy has not been asked to consider, and Murphy's opinion does
not address, the relative merits of the Reverse Split as compared to any
alternative business strategy that may exist for Rampart. Murphy expressed no
opinion, nor should one be implied, as to the current fair market value of our
common stock.
The special committee requested that Murphy make an oral presentation to the
special committee with respect to the fairness of the Reverse Split, from a
financial point of view, to the minority shareholders of Rampart. The
presentation was given on June 9, 2003, following which Murphy made such
presentation to our full Board of Directors, except the controlling
shareholders, who excused themselves from the meeting for Murphy's presentation
and ensuing discussion.
In the presentation, Murphy explained that its opinion was limited to an
examination of the fairness of the Reverse Split from a financial point of view
to our minority shareholders and that its opinion was not an appraisal or
valuation of Rampart or our common stock.
Murphy's presentation included an overview of Rampart and our current prospects
and characteristics, which had previously been identified to Murphy by our
management. In its presentation, Murphy noted to the special committee the
following information:
- Rampart is a micro-cap stock with no institutional ownership and no
analyst coverage.
- Liquidity will continue to be an issue in attracting investors since
the controlling shareholders control 78% of the outstanding common
shares. Rampart has only about 2.9 million shares outstanding and
trades an average of only about 1,400 shares per day.
- Rampart is a difficult company to understand and value, as it is
neither a financial services company nor a real estate investment
company.
- Rampart's reported book value and net asset value substantially exceed
its equity capitalization.
- Rampart's financial performance is highly unpredictable due to the
nature of its business model, whereby the majority of booked revenue
and profit occur only when properties or other assets are sold. This
approach also precludes Rampart from deducting depreciation on assets
held for sale, which limits the realization of one of the traditional
benefits associated with real estate investing.
- Rampart cannot use its stock as currency for acquisitions without
significantly diluting the shareholders.
- The capital markets have not been accessible to Rampart for debt or
equity offerings.
- The cost of remaining a public company is significant in both time and
money. Rampart spent approximately $338,000 in 2002 in connection with
the preparation of its SEC filings and in complying with other
24
requirements associated with being a public company. Rampart forecasts
these expenses rising in 2003 due to increases in directors' and
officers' insurance and the need to comply with the recently enacted
Sarbanes-Oxley Act.
Murphy also noted to the special committee that since our initial public
offering in 1999 at a price of about $8.00 per share, our common stock price had
declined precipitously. Murphy reviewed for the special committee results of an
evaluation conducted in June of 2002 by management for our Board of Directors of
possible means of enhancing shareholder value. Through this effort, management
identified several alternatives, including (1) the sale of Rampart for cash,
stock or other property; (2) the liquidation of Rampart's assets and the
associated distribution of the cash proceeds to shareholders; and (3) other
forms of "going private" transactions.
The following is a summary of the significant analyses performed by Murphy in
connection with its fairness opinion:
Historical Stock Performance. Murphy reviewed trading prices for the shares of
our common stock. This review indicated that the then current price of our
common stock was approximately $1.35 per share on the AMEX. The original
"cash-out" price of $3.25 therefore represents a multiple of about 2.4x the then
current market price. Murphy noted that our common stock is thinly traded.
Selected Comparable Public Company Analysis. Using publicly available
information, Murphy compared selected historical financial, operating and stock
market performance data of Rampart to the corresponding data of other publicly
traded companies that Murphy deemed to be comparable to Rampart in some
respects. In performing this analysis, Murphy reviewed financial services
firms, REITs and other somewhat comparable companies. Murphy also compared
Rampart to the historical performance of Rampart's industry (financial), the
miscellaneous financial services sector and the S&P 500 using several metrics
that Murphy believed have comparative value, which illustrated that our common
stock was underperforming compared to our industry, sector and the S&P 500.
Murphy reviewed Rampart's performance trends for the past five years and
determined that its operating and financial performance generally was
deteriorating as measured by the standards of price to sales, price to book,
profit margins, debt to equity, and returns on assets and equity. Murphy also
considered other commonly used valuation metrics such as multiples of earnings
before interest, taxes, depreciation and amortization (EBITDA), cash flow and
net income but determined that they were not meaningful measures or comparisons
due to the fact that Rampart generated a negative cash flow and a net loss for
its most recent fiscal year, 2002. Murphy compared Rampart to the Industry
(Financial), and the Sector (Miscellaneous Financial Services) and the S & P 500
using several metrics that have comparative value. The comparative results for
these selective measures are shown in the table below and may illustrate why
Rampart's common stock is under performing its industry and sector on a relative
basis.
Misc.
Financial
Financial Services
Description Rampart Industry Sector S&P 500
- ----------------- ---------- --------- --------- -------
Sales Growth Rate (30.00%) 0.36% (1.25%) 6.03%
EPS Growth Rate NA 5.38% 21.9% 19.9%
Operating Margin (4.43%) 63.54% 34.13% 18.57%
Return on Assets (2.82%) 4.10% 2.03% 6.38%
Return on Equity (4.85%) 5.28% 15.31% 18.67%
<FN>
- - All of the numbers in the above chart are based on trailing 12-months
actual results.
- - Source: Multex Financial Data (a Reuters Service), cnnfn.multexinvestor.com,
------------------------
May 1, 2003.
- - See Table I attached to Murphy's fairness opinion, reproduced in full as
Appendix B, for a listing of the companies included in the Miscellaneous
Financial Services Sector.
Rampart's declining results during the past several years generally reflect the
confluence of the following negative factors:
25
- its inability to raise additional capital to fund growth;
- greater competition for distressed assets; and
- a declining supply of investment opportunities due to declining
interest rates and a healthy real estate market.
Because Rampart is a hybrid of a financial securities firm and a real estate
investment company, it has no peers with closely comparable profiles; therefore,
Murphy concluded that direct valuation comparisons are difficult and of little
value.
Discounted Cash Flow Analysis. Murphy determined that the discounted cash flow
method of valuation is not meaningful as a valuation methodology regarding
Rampart. Rampart acquires assets that are in distress with the intent of
realizing a profit through their resale at a higher price. Cash flow from
operations is primarily a function of asset sales, which have historically been
erratic.
Net Book Value Analysis. Murphy determined that the then current Rampart common
stock price of $1.35 per share represents roughly a 65% discount to Rampart's
year-end book value of $3.92 per share and first quarter 2003 book value of
$3.82 per share. When the discount to book value is adjusted for the "cash-out"
price of $3.25 per share, the discount is reduced to 17% to first quarter 2003
net book value. Murphy considered net book value as a relatively useful value
indicator and a good comparative to the calculation of Rampart's current net
asset valuation.
Net Asset Value Analysis. Murphy performed an analysis of Rampart's net asset
value based on its First Quarter 2003 Form-10QSB and Rampart-supplied
information on the various asset classes. In calculating net asset value Murphy
analyzed the following five Rampart asset categories:
- major real estate properties owned and supported by a recent appraisal
(within the past 24 months);
- purchased asset pools comprised of non-performing loans and debt
obligations;
- minor real estate properties owned but without a third party
appraisal;
- real estate joint ventures; and
- notes receivable associated with bridge lending and other types of
financing.
Murphy utilized Rampart's most recent appraisals for its major properties and
consulted with Rampart in determining the best estimate of fair market value for
the remaining assets. Murphy utilized Rampart's most recent appraisals for its
major properties and Rampart's estimate of market value for the assets
comprising the Purchased Asset Pools (non-performing loans and debt obligations)
and other real estate.
This effort of assessing fair market value included discounting the Purchased
Asset Pools (non-performing loans and debt obligations) for both risk of
collection and the appropriate rate of return necessary to consummate a sale.
The discount rates differed by asset type within the Purchased Asset Pools, and
Rampart advised Murphy that Rampart assumed discount rates of 18%, 25% or 35%
per year reflecting Rampart's perceived risk of collection. Specifically,
Rampart discounted sub-par performing notes with improved real estate collateral
at an 18% yield factor, sub-par performing notes with unimproved real estate at
a 25% yield factor and sub-par performing notes with non-real estate or no
collateral at a 35% yield factor. Murphy in turn independently tested these
assumptions and determined that Rampart could be overestimating the value of
these Purchased Asset Pools under current market conditions; therefore, Murphy
reduced the Rampart-discounted value of these assets by an additional 20%, or
$300,000. Murphy also assumed in its net asset valuation that Rampart would
incur transaction costs of approximately 10% of property sales, or $1,750,000,
comprised of expenses associated with commissions, environmental reports,
surveys and title policies and ongoing general and administrative expenses of
$332,000 per quarter, the current level as identified to Murphy by management.
In determining to discount further the discounted asset valuations established
by Rampart's management for the Purchased Asset Pools, Murphy viewed as
significant the fact that Rampart took a write-down of $742,000 for its Newport
26
Golf Course resulting from the completion of a first quarter 2003 independent
property appraisal performed at the request of Rampart's bank. This write-down
is the equivalent of ($.26) per share and reflects the fact that the Houston
market is significantly overbuilt with public golf courses. Discussions with
management and Murphy's review of certain public records and informal
consultations with others knowledgeable in this area indicate that several golf
courses in the Houston market have recently failed and many others are incurring
ongoing operating losses.
Murphy also consulted with Rampart regarding the appropriate federal income tax
rate and the use of the net operating loss carry forwards (NOLs). Based on
these discussions Murphy assigned a 50% risk to the utilization of the NOLs in a
sale scenario and therefore, one-half of the gain from the sale of Rampart's
assets was assumed to be sheltered.
In making this assessment Murphy considered the fact that Rampart does not have
a private letter ruling from the Internal Revenue Service or an opinion of
counsel regarding the use of the NOLs. In addition, Murphy considered that
there is no guarantee that Rampart will generate profits to allow the full
utilization of the NOLs. Through March 31, 2003, approximately $24 million of
NOLs had expired unutilized.
This net asset value analysis indicated an implied equity value for Rampart of
approximately $10,559,000, or $3.63 per share.
Liquidation Value Analysis. Murphy reviewed Rampart's historical results in
selling assets and assumed that liquidation in a systematic, yet expedited
manner would result in a discount to appraised value of approximately 15%. Based
on Murphy's assessment of the quality of the assets and the state of the
associated markets, Murphy assumed that liquidation could take up to 24 months
to complete. Murphy further assumed that general and administrative expenses
would be reduced to $200,000 per quarter in the second year from $332,000 per
quarter in the first year reflecting a reduced asset base. The implied equity
value for Rampart under a liquidation scenario is between a high of $7,994,000
or $2.75 per share and a low of $7,194,000 or $2.47 per share depending upon the
length of time it would take to complete a liquidation.
Murphy is of the view that any liquidation analysis should incorporate
assumptions of speed and intensive selling efforts as necessary and appropriate
means of maximizing value, because Murphy believes that as a general rule, once
an enterprise commences a liquidation process, the value of its assets erodes
the longer they are on the market. Moreover, Murphy believes that were Rampart
to liquidate, it should properly focus on an expedited process in order to
accelerate the distribution of liquidation sale proceeds to shareholders to
permit them at the earliest possible date to redeploy their investment where
there may be an opportunity to earn a return. Thus, while Murphy does not
believe that Rampart would necessarily be forced to liquidate on a "fire sale"
basis, it is of the opinion that if a liquidation were commenced, the best
interests of the shareholders would be served by prosecution of the effort in a
prompt and expeditious manner and therefore Murphy's liquidation analysis
presupposes that Rampart would act accordingly in a liquidation scenario. To
this end, Murphy recognized that some discounting of asset values may be
required to effect sales reasonably quickly to avoid the greater value
diminution that Murphy believes could result from the assets remaining on the
market for an extended period of time, and thus a discount of 15% is
incorporated in the liquidation value analysis. Murphy also believes that the
nature of Rampart's saleable assets - - distressed financial instruments and
disparate real estate investments - - further justifies this discount as such
assets in any circumstance are difficult to sell owing to the relatively small
supply of potential purchasers (in the case of the financial assets) and the
general state of the current real estate market in the Houston vicinity.
In assessing the fairness to the minority shareholders of the Reverse Split, in
addition to the analyses summarized above, Murphy considered the following: (1)
the terms of the Reverse Split, including the price to be paid to the minority
shareholders and the ability of Rampart to fund the payment; (2) the current
market price of our common stock and the prospects of higher prices in the near
to intermediate future; (3) the potential net proceeds available for
disbursement to shareholders if Rampart were liquidated; (4) Rampart's prospects
of attracting a Wall Street following if it continued pursuing its existing
business plan; and (5) Rampart's prospects for raising alternative debt or
equity financing.
Murphy also considered the viability of alternatives available to the
controlling shareholders for realizing better value for their shares given the
size of their aggregate holdings relative to Rampart's total number of
outstanding shares. Murphy further reviewed Rampart's efforts to sell several
of its real estate assets during the past twelve months and noted the difficulty
27
experienced by Rampart in consummating transactions at a price, and within the
time frame, it desired. Furthermore, Rampart's management advised Murphy that
several properties were affected by environmental issues and could not be
immediately sold for full value without remediation or other expenditures.
In assessing the Reverse Split, Murphy also considered the following:
- The minority shareholders would receive a premium price for their
common stock, paid in cash without any transaction costs.
- Our common stock is thinly traded and results in an almost completely
illiquid situation for shareholders; future sales of any size would
most likely result in a lower stock price.
- Rampart is a micro-cap company with little prospects of capturing
coverage from Wall Street analysts or of attracting institutional
ownership.
- Rampart has no realistic prospects of raising additional capital,
either debt or equity, in the foreseeable future.
- Certain of Rampart's assets may be subject to future write-downs, such
as the Newport Golf Course, or are at risk of generating less cash
than Rampart is forecasting.
The summary of Murphy's opinion set forth above does not purport to be a
complete description of the data or analyses presented by Murphy. The
preparation of a fairness opinion involves various determinations as to the most
appropriate and relevant quantitative methods of financial analyses and the
application of those methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to partial analysis or summary
description. Accordingly, Murphy believes that its analysis must be considered
as a whole and that considering any portion of such analysis and of the factors
considered, without considering all analyses and factors, could create a
misleading or incomplete view of the process underlying the opinion. In its
analyses, Murphy made numerous assumptions with respect to industry performance,
general business and economic conditions and other matters, many of which are
beyond the control of Rampart. Any estimates contained in these analyses are
not necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than as set forth
therein. Accordingly, such estimates are inherently subject to substantial
uncertainty and neither Rampart nor Murphy assumes responsibility for the
accuracy of such analyses and estimates. In addition, analyses relating to the
value of businesses do not purport to be appraisals or to reflect the prices at
which businesses may actually be sold.
With respect to projections and estimates of future revenue and operating costs
for Rampart, each as prepared by Rampart, upon the advice of Rampart, Murphy
assumed that such projections and estimates have been reasonably prepared on a
basis reflecting the best currently available estimates and judgments of
Rampart's management as to the future performance of Rampart, and that Rampart
will perform substantially in accordance with such projections and estimates.
In connection with rendering its opinion, Murphy reviewed and analyzed certain
information relating to Rampart, including certain publicly available business
and financial information relating to Rampart, certain internal financial
statements, asset valuations and related information of Rampart prepared by the
management of Rampart and other financial and operating information concerning
the business, assets and operations of Rampart provided to Murphy by the
management of Rampart, including, but not limited to, pro-forma financial and
operating budgets, analyses, forecasts, and certain estimates of asset values
prepared by Rampart. Murphy also discussed with members of the senior
management of Rampart the past and current business operations, financial
condition and future prospects of the company, as well as other matters believed
to be relevant to its analysis. Further, Murphy considered such other
information, financial studies, analyses and investigations and financial,
economic and market criteria that Murphy deemed relevant to its analysis.
Murphy's opinion is based on market, economic and other conditions and
circumstances involving Rampart and its industry, the Houston metropolitan area
real estate market and the market for distressed financial assets and the supply
of such assets available for purchase, as they existed on the date of its
opinion and which, by necessity, can only be evaluated by Murphy on that date.
Murphy assumed no responsibility to update or revise its opinion based upon
events or circumstances occurring after the date thereof.
28
In conducting its review and arriving at its opinion, Murphy relied upon and
assumed the accuracy and completeness of all of the financial and other
information provided to or discussed with Murphy by Rampart or otherwise
publicly available, and assumed that there were no material changes in Rampart's
business operations, financial condition, assets, liabilities or prospects since
the respective dates of such information. Murphy did not independently verify
this information, nor did Murphy have such information independently verified.
Murphy did not conduct a physical inspection of any of the assets or properties
of Rampart, nor did Murphy make or obtain any independent evaluation or
appraisals or any such assets or properties.
At the request of the special committee, Murphy supplemented its opinion by
letter to the committee dated September 11, 2003, a copy of which is included
with the opinion in Appendix B. In this supplement, Murphy confirmed its
opinion that, as of September 11, 2003 and based upon and subject to the factors
and assumptions set forth or incorporated therein, the Reverse Split, at the
revised offer price, is fair from a financial point of view to the minority
shareholders of Rampart.
For purposes of the supplement to its June 9, 2003 fairness opinion, as agreed
with the special committee, Murphy conducted a review of only the information
regarding the July 2003 Galveston foreclosure provided to it by the special
committee and the information contained in Rampart's Form 10-QSB for the quarter
ended June 30, 2003. Murphy did not update or review any of the analyses or
studies performed by it in connection with the rendering of the June 9, 2003
fairness opinion.
For purposes of the supplement to its fairness opinion, Murphy reviewed
Rampart's net asset value increase of approximately $644,373, which represents
the approximated difference between (1) the total appraised value of the
foreclosed tracts, discounted by about 35% (from $7,240,000 to $4,719,000), and
(2) the "credit bid" made by Rampart in the foreclosure of $4,074,627.34, which
effectively represents Rampart's investment in the foreclosed properties. As a
result, Murphy concluded that Rampart's total net asset value had increased by
approximately $0.2218 per share based upon 2,905,143 shares outstanding.
Murphy assumed that the total appraised value for the foreclosed tracts, and the
approximate 35% discount to total appraised value negotiated between the special
committee and Messrs. Janke and Carpenter were reasonable, and Murphy did not
independently verify, test or analyze the total appraised value of the tracts,
the negotiated discount thereto or any component thereof.
INFORMATION PROVIDED BY RAMPART
In May 2003, we provided Murphy internal estimates of our financial position and
performance as of and for the year ending December 31, 2003. These internal
estimates furnished to Murphy are summarized below. They are being disclosed to
you only because these estimates were provided to Murphy in connection with its
rendering its fairness opinion in the Reverse Split, and not because they were
prepared with a view to public disclosure. As you review this information and
in considering what weight, if any, you will give it, keep in mind that:
- No one is representing to you that estimates reflect actual future
results.
- The estimates were prepared on the basis of assumptions that may prove
to be wrong, and which, in the case of certain assumptions, have
already been proven wrong.
- The estimates were not prepared in compliance with the guidelines
concerning financial projections promulgated by the American Institute
of Certified Public Accountants.
- The estimates do not purport to present future operations in
accordance with generally accepted accounting principles.
- The estimates were not furnished to or compiled, audited or otherwise
reviewed by any accounting firm, and no accounting firm assumes any
responsibility for the estimates.
- The estimates constitute forward looking statements, and actual
results may differ based on a variety of factors, including statements
regarding our expected future business and prospects. These
forward-looking statements are based upon current expectations and
involve certain risks that could cause actual results to differ
29
materially from any such statements. These risks and uncertainties
include (1) tightening of credit markets, (2) volatility in the real
estate markets and interest rates, (3) emerging competition, (4)
changes in regulations in the industries we serve, (5) changes in
general economic conditions, particularly within the regions in which
we operate, (6) market valuation risks, and (7) terrorist activities.
- Murphy's analysis utilizing the operating data estimates (e.g.
discounted cash flow analysis) was not considered meaningful as a
valuation methodology regarding Rampart because (1) we acquire assets
that are in distress with the intent of realizing a profit through
their resale at a higher price and (2) cash flow from our operations
is primarily a function of asset sales, which have historically been
erratic.
- The assumptions upon which the estimates were based involved judgments
of our management concerning future economic, real estate and finance
markets, competitive and regulatory conditions, all of which are
difficult or impossible to predict and many of which are beyond our
control.
- The 2003 estimates were prepared in May 2003, and these estimates have
not been, and none of the estimates will be, further updated to
reflect any events or conditions occurring since the estimates were
prepared.
- Except as specifically noted, the estimates do not give effect to the
Reverse Split or related transactions and were prepared as if we
continued as a stand-alone public company.
- The estimates do not take into account any non-recurring charges of
the nature frequently excluded in the preparation of projections.
Examples include non-recurring items that were not deducted from net
income in preparing the estimates include expenses associated with the
Reverse Split and related transactions.
The following table, which should be reviewed only after consideration of the
foregoing caveats, summarizes the 2003 estimates furnished by us to Murphy:
RAMPART 2003 ESTIMATES
YEAR ENDING
RAMPART OPERATING DATA: DECEMBER 31, 2003
----------------------------- -----------------------
(IN THOUSANDS)
Total Revenue $8,526
Pre-Tax Income 55
Net Income 55
Earnings per Share $0.02
RAMPART BALANCE SHEET DATA: DECEMBER 31, 2003
----------------------------- -----------------------
(IN THOUSANDS)
Total Assets $24,488
Total Liabilities 12,989
Total Shareholders' Equity 11,499
In preparation of the foregoing estimates for 2003, we made the following
assumptions:
- - Purchased Asset Pools - Estimated normal ongoing collections of
-----------------------
approximately $173,000 and settlement of four large collection assets
totaling $1,850,000. Cost of collections were estimated at 30% of the gross
amount collected.
30
- - Real Estate Sales - Estimated sale of the golf course and conference
-------------------
center for approximately $2.5 million resulting in an estimated loss of
$843,000; approximately $766,000 in Newport lot sales with a gross margin
contribution of $338,000; sales of 10 townhomes for approximately $588,000
in revenues yielding net income of about $69,000; and approximately
$500,000 in lot sales to our development joint venture.
- - Financing - Assumed average loan balances of approximately $10.3 million
---------
yielding approximately $855,000 in net interest income.
- - Operating Entities - Estimated golf club and conference center revenues of
------------------
approximately $1,326,000 generating an estimated net loss of $92,000 and
rental and other revenues of about $574,000.
- - General and Administrative - Estimated expenses of approximately $1.8
----------------------------
million, down slightly from the $1.9 million comparable 2002 expenses.
- - Interest Expense - Estimated an increase from approximately $367,000 in
-----------------
2002 to an estimated $450,000 in 2003.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE REVERSE SPLIT
Presented below is a general summary of the material federal income tax
consequences to our shareholders from the Reverse Split. This summary is based
upon laws, regulations, rulings and decisions now in effect, all of which are
subject to change (including retroactive changes) or possible differing
interpretations. The discussion below deals only with shares held as capital
assets, and does not purport to deal with persons in special tax situations,
such as:
- a dealer in securities or currencies;
- a trader in securities that elects to use a mark-to-market method of
accounting for its securities holdings;
- a bank, an insurance company or other financial institution;
- a tax-exempt organization;
- a person treated as a partnership for U.S. federal income tax purposes
or a partner thereof;
- a person that owns Rampart shares that are a hedge or that are hedged
against interest rate risks;
- a person that owns Rampart shares as part of a straddle, conversion or
other risk reduction transaction for U.S. federal income tax purposes;
- a person whose functional currency for U.S. federal income tax
purposes is not the U.S. dollar; or
- a person who is not a U.S. citizen or U.S. resident for U.S. federal
income tax purposes.
We do not address all of the tax consequences that may be relevant to you. In
particular, we do not address:
- the United States federal income tax consequences to shareholders in,
or partners or beneficiaries of, an entity that is a holder of our
shares;
- the United States federal estate, gift or alternative minimum tax
consequences of the redemption of our shares; or
- any state, local or foreign tax consequences of the redemption of our
shares.
This discussion is based on the Internal Revenue Code of 1986, as amended, (the
"Code"), the Treasury Regulations promulgated under the Code and administrative
and judicial interpretations of the Code and the Treasury Regulations, all as of
the date of this proxy statement, and all of which are subject to differing
interpretations and to change, possibly on a retroactive basis.
31
YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISORS AS TO THE SPECIFIC TAX
CONSEQUENCES OF THE REVERSE SPLIT, INCLUDING APPLICABLE FEDERAL, FOREIGN, STATE
AND LOCAL TAX CONSEQUENCES TO YOU OF THE TRANSACTIONS CONTEMPLATED BY THE
REVERSE SPLIT IN LIGHT OF YOUR OWN PARTICULAR CIRCUMSTANCES.
The receipt by a shareholder of cash in lieu of fractional shares of new common
stock pursuant to the Reverse Split will be a taxable transaction for federal
income tax purposes under the United States Internal Revenue Code of 1986, as
amended (the "Code").
Under Section 302 of the Code, a shareholder will recognize gain or loss upon
receiving cash in lieu of fractional shares of new common stock pursuant to the
Reverse Split if:
- the Reverse Split results in a "complete redemption" of all of the
shares held by a shareholder immediately prior to the Reverse Split;
- the receipt of cash is "substantially disproportionate" with respect
to the shareholder; or
- the receipt of cash is "not essentially equivalent to a dividend" with
respect to the shareholder.
These three tests are applied by taking into account not only shares that a
shareholder actually owns, but also shares that the shareholder constructively
owns pursuant to Section 318 of the Code, as described below.
If any one of the three tests is satisfied, the shareholder will recognize gain
or loss on the difference between the amount of cash received by the shareholder
pursuant to the Reverse Split and the tax basis in the redeemed shares held by
such shareholder immediately prior to the Reverse Split. Provided that these
shares constitute a capital asset in the hands of the shareholder, this gain or
loss will be long-term capital gain or loss if the eligible shares are held for
more than one year and will be short-term capital gain or loss if such shares
are held for one year or less.
Under the constructive ownership rules of Section 318 of the Code, a shareholder
is deemed to constructively own shares owned by certain related individuals and
entities in addition to shares directly owned by the shareholder. For example,
an individual shareholder is considered to own shares owned by or for his or her
spouse and his or her children, grandchildren and parents ("family
attribution"). In addition, a shareholder is considered to own a proportionate
number of shares owned by estates or certain trusts in which the shareholder has
a beneficial interest, by partnerships in which the shareholder is a partner,
and by corporations in which 50% or more in value of the stock is owned directly
or indirectly by or for such shareholder. Similarly, shares directly or
indirectly owned by beneficiaries of estates of certain trusts, by partners of
partnerships and, under certain circumstances, by shareholders of corporations
may be considered owned by these entities ("entity attribution"). A shareholder
is also deemed to own shares that the shareholder has the right to acquire by
exercise of an option.
The receipt of cash by a shareholder pursuant to the Reverse Split will result
in a "complete redemption" of all of the shareholders shares held immediately
prior to the Reverse Split as long as the shareholder does not constructively
own any shares of new common stock immediately after the Reverse Split. However,
a shareholder may qualify for gain or loss treatment under the "complete
redemption" test even though such shareholder constructively owns shares of new
common stock provided that (1) the shareholder constructively owns shares of new
common stock as a result of the family attribution rules (or, in some cases, as
a result of a combination of the family and entity attribution rules), and (2)
the shareholder qualifies for a waiver of the family attribution rules (such
waiver being subject to several conditions, one of which is that the shareholder
has no interest in Rampart immediately after the Reverse Split, including as an
officer, director or employee, other than an interest as a creditor).
It is anticipated that most shareholders who receive cash in lieu of fractional
shares pursuant to the Reverse Split will qualify for capital gain or loss
treatment as a result of satisfying the "complete redemption" requirements.
However, if the constructive ownership rules prevent compliance with these
requirements, such shareholder may nonetheless qualify for capital gain or loss
treatment by satisfying either the "substantially disproportionate" or the "not
essentially equivalent to a dividend" requirements. In general, the receipt of
cash pursuant to the Reverse Split will be "substantially disproportionate" with
respect to the shareholder if the percentage of voting power of common stock
owned by the shareholder immediately after the Reverse Split is less than 80% of
the percentage of shares directly and constructively owned by the shareholder
immediately before the Reverse Split (giving effect to the difference in number
of outstanding shares due to the Reverse Split). Alternatively, the receipt of
32
cash pursuant to the Reverse Split will, in general, be "not essentially
equivalent to a dividend" if the Reverse Split results in a "meaningful
reduction" in the shareholders proportionate interest in Rampart.
If none of the three tests described above is satisfied, the shareholder will be
treated as having received a taxable dividend in an amount equal to the lesser
of the cash received by the shareholder pursuant to the Reverse Split or the
shareholder's allocable share of Rampart's earnings and profits, with no offset
for the shareholder's tax basis in the redeemed shares.
The receipt of shares of common stock pursuant to the Reverse Split by owners of
more than the Minimum Number of shares will be a non-taxable transaction for
federal income tax purposes. Accordingly, a holder of more than the Minimum
Number of shares who receives shares of common stock will not recognize gain or
loss, or dividend income, as a result of the Reverse Split with respect to the
shares of common stock received (but, as described above, cash received in lieu
of a fractional share of common stock will be a taxable transaction to the
extent of such cash received). In addition, the basis and holding period of
such shareholder's shares prior to the Reverse Split will generally carry over
as the basis and holding period of such shareholder's shares of Rampart
resulting from the Reverse Split, except to the extent of cost basis allocable
to any fractional shares which are redeemed and taxed as a sale or exchange.
Under the 2003 Tax Act, qualifying dividends and net long term capital gains of
noncorporate taxpayers are generally taxed at a maximum rate of 15%. As before,
net capital losses for a tax year cannot generally be offset against other
income, but may be carried forward (and carried back in the case of certain
corporate shareholders).
No ruling has been or will be obtained from the Internal Revenue Service in
connection with the Reverse Split.
Non-corporate shareholders of Rampart may be subject to backup withholding at a
rate of 28% on cash payments received in the Reverse Split. Backup withholding
will not apply, however, to a shareholder who (1) furnishes a correct taxpayer
identification number and certifies that he or she is not subject to backup
withholding on the substitute Form W-9 included in the letter of transmittal,
(2) who provides a certificate of foreign status on an appropriate Form W-8, or
(3) who is otherwise exempt from backup withholding. A shareholder who fails to
provide the correct taxpayer identification number on Form W-9 may be subject to
a $50 penalty imposed by the Internal Revenue Service.
Rampart is likely a United States Real Property Holding Corporation.
Accordingly, if a shareholder is not a U.S. citizen or resident, and thus,
subject to the rules of Section 897 of the Code, tax withholding at the source
may apply to the Reverse Split. It is not certain whether our shares are
regularly traded on an established securities market as determined under Section
897(c)(3) of the Code.
The preceding discussion is intended only as a summary of the material United
States income tax consequences of the Reverse Split and does not purport to be a
complete analysis or discussion of all potential tax effects relevant to the
Reverse Split. Again, our shareholders are urged to consult their own tax
advisors as to the specific tax consequences to them of the Reverse Split,
including tax return reporting requirements, the applicability and effect of
foreign, federal, state, local and other applicable tax laws and the effect of
any proposed changes in the tax laws.
ADDITIONAL INFORMATION REGARDING THE REVERSE SPLIT
CHANGES IN MANAGEMENT TEAM AND CONDUCT OF THE BUSINESS AFTER THE REVERSE SPLIT
Following the Reverse Split, we will continue to conduct our business in the
same manner as presently conducted. However, Messrs. Janke and Carpenter have
indicated that as holders of 100% of our common stock, they would be more
willing to provide credit support or guarantees to expand our credit facilities
to fund not only the buy out of our minority shareholders but also to fund our
corporate growth. Further, Messrs. Janke and Carpenter have indicated that
within the next 12 to 18 months after the Reverse Split, they desire to equalize
their ownership and/or voting rights in the company. This equalization could
take a variety of forms, including issuance of additional capital stock to Mr.
Carpenter, the sale of common shares by Mr. Janke to Mr. Carpenter, the
redemption of certain of Mr. Janke's common shares for non-cash assets of the
company, the recapitalization of the company (e.g., exchange of common shares by
Mr. Janke for non-voting dividend-paying preferred shares of the company) or any
other arrangement or transaction that we and Messrs. Janke and Carpenter deem
appropriate.
33
After the Reverse Split, we intend to cancel all treasury shares, including the
shares acquired from our minority shareholders in the Reverse Split, and thereby
restore them to the status of authorized but unissued shares of our common
stock. Furthermore, we also expect to initiate a forward stock split by a
factor that both increases the number of shares of our outstanding common stock
and rounds up our outstanding fractions of a share to a whole share of common
stock.
Our executive officers will not change immediately following the Reverse Split.
However, if and when the stock interests of Messrs. Janke and Carpenter are
equalized as described above, Mr. Janke has indicated that he may relinquish
certain of his executive management functions and titles to Mr. Carpenter. In
addition, after termination of registration of our common stock under the
Exchange Act and termination of the listing of our common stock on AMEX, we
intend to decrease the size of our board from six members to two members with
Messrs. Janke and Carpenter filling such positions.
Following the Reverse Split, Rampart intends to implement any equity incentive
measures that may be required to insure the retention of key employees.
We believe there are significant advantages in becoming a private company, and
we plan to avail ourselves of any opportunities we may have as a private
company, including entering into any arrangements or transactions we deem
appropriate. Although we do not presently have the intent to enter into any
such arrangement or transaction nor are we in substantive negotiations with
respect to any such arrangement or transaction (except as described above),
there exists the possibility that we may enter into such an arrangement in the
future and our remaining shareholders after the Reverse Split may receive
payment for their shares in any such arrangement or transaction lower than,
equal to or in excess of the amount paid to our minority shareholders in the
Reverse Split.
Other than as described in this proxy statement, we do not have any current
plans or proposals to effect any extraordinary corporation transaction, such as
a merger, reorganization or liquidation; a sale or transfer of any material
amounts of our assets; a change in our Board of Directors or management; a
material change in our indebtedness or capitalization; or otherwise effect any
material change in our corporate structure or business.
SPECIAL INTERESTS OF CURRENT AND PROSPECTIVE DIRECTORS AND EXECUTIVE OFFICERS IN
THE REVERSE SPLIT
Because of the large number of shares of our common stock they beneficially
hold, some of our executive officers and directors have interests in the Reverse
Split that are not available to minority shareholders. Currently, Charles W.
Janke beneficially owns 51.6% of our common stock, J. H. Carpenter beneficially
owns 26.2% of our common stock and Charles F. Presley beneficially owns 1.5% of
our common stock. Immediately following the Reverse Split, and assuming that
all other shareholders are cashed-out, Mr. Janke will beneficially own 66.4% of
our common stock and Mr. Carpenter will beneficially own 33.6%. As a result of
being cashed out in the Reverse Split, Mr. Presley will receive $157,500 for the
45,000 shares of our common stock he beneficially owns.
After the listing of shares of our common stock on the AMEX and the registration
of our common stock under the Exchange Act are terminated, we intend to decrease
the size of our board and retain only Messrs. Janke and Carpenter as directors.
We currently have outstanding options to purchase 2,000 shares of our common
stock all of which are held by two of our directors. James J. Janke and James
W. Christian each hold options to purchase 1,000 shares of our common stock and
they will cease to be directors when we decrease the size of our board. Stock
options held by our directors expire 90 days after a director leaves the board
for any reason. As a result of the Reverse Split, the exercise price of each
outstanding option will automatically increase by a factor equal to 100,000 and
the number of underlying shares will decrease by the same factor. We will
permit options to cover underlying fractional shares of common stock, but will
not be able to issue fractional shares upon exercise of an option. Instead, we
will pay the option holder cash for any fractional shares in an amount equal to
the amount by which $3.50 exceeds the pre-split exercise price of the option,
multiplied by the number of underlying pre-split shares represented by the
option. Because the number of shares underlying each of the options held by our
directors is less than 100,000 and the pre-split exercise price of the options
is greater than $3.50, the options held by our directors will likely expire
without being exercised and the holders will receive no consideration in respect
of those options.
In addition, details of the compensation of members of the special committee and
compensation of non-employee directors for efforts and time spent in connection
with any proceeding for which they are entitled to indemnification under our
charter documents are set forth in "Item 2. Election of Directors-Compensation
of Directors" (page 45).
34
SOURCE OF FUNDS AND EXPENSES
We estimate that approximately $2,258,000 will be required to pay for the
fractional shares of our common stock exchanged for cash in the Reverse Split.
We intend to pay for such shares with available cash ($464,679 at June 30,
2003), and funds available under our revolving credit facility. We have
received a commitment letter dated August 26, 2003 from Southwest Bank of Texas,
N.A. to increase our revolving credit facility from $3 million to $4.5 million
and to extend its maturity date to September 23, 2004. The expanded and
extended facility would be personally guaranteed by Messrs. Janke and Carpenter
and secured by substantially all our assets including purchased asset pools,
notes receivable and real estate. The facility would provide for certain
financial covenants and will bear interest, payable monthly, at the bank's prime
rate plus 1.0% per annum (5.0% as of June 30, 2003) with a floor of 5.0%. We
expect the expanded and extended facility to be consummated by September 30,
2003.
Additionally, we will pay all of the expenses related to the Reverse Split. We
estimate that these expenses will be as follows:
SEC filing fees $ 500
Legal fees 160,000
Accounting fees 0
Financial Advisory Fees 45,000
Printing and mailing costs 20,000
Special Committee Fees 20,000
Paying Agent Fees 0
Other 4,500
-----------
Total $ 250,000
===========
DISSENTERS' AND APPRAISAL RIGHTS
Under the Texas Business Corporation Act and our Restated Articles of
Incorporation and bylaws, our shareholders do not have the right to dissent from
the Reverse Split and to receive the fair value of their shares in cash because
an amendment to our Restated Articles of Incorporation to effect the Reverse
Split is not a corporate action for which shareholders are entitled to
dissenters' rights.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In addition to the Reverse Split described in this proxy statement, during the
past two years our affiliates have engaged in the following transactions
involving Rampart.
During June 1998, Rampart sold real estate property from its asset pool to
related parties in exchange for four notes receivable totaling $525,000. These
notes are secured by certain investments in common stock held by the related
parties. Principal plus interest at 10% per annum was due June 2001 for each of
the notes. During June 2001, Rampart elected to extend the terms of the notes to
mature on June 30, 2004 and to reduce the interest rates from 10% to 4.07% per
annum.
The outstanding notes receivable from related parties plus accrued interest was
$540,074 and $522,581 at December 31, 2002 and 2001, respectively. During the
years ended December 31, 2002 and 2001, the fair value of the underlying
collateral of these notes was determined to be impaired. In accordance with SFAS
No. 114, Rampart provided an allowance of $487,713 and $367,713 as of December
31, 2002 and 2001, respectively, to reduce the notes to their estimated net
realizable value. There were no principal or interest payments received during
the years ended December 31, 2002 and 2001.
During the year ended December 31, 2002, Rampart entered into a 15-year note
receivable of $110,000 with one of our officers. The note bears interest at a
rate of prime plus 2% (6.25% at December 31, 2002) and matures on March 15,
2017. The note is secured by residential real estate. Total principal and
interest payments received on this note during 2002 were $3,403 and $5,086,
respectively. Total interest income earned on this note during the year ended
December 31, 2002 was $5,086. As of April 18, 2003, this note was paid in full.
35
During the year ended December 31, 2001, Rampart received principal of $3,504 on
a related party note from an employee. This note was repaid in full during the
year ended December 31, 2001.
A director and an officer of Rampart are partners, along with other non-related
individuals, in a partnership which holds a 6.75% net cash profits interest in
two of Rampart's purchased asset pools. As of December 31, 2002, undistributed
net profits of $115,505 and $170,341, respectively, were owed to this
partnership and will be paid when collections are received. During 2002, Rampart
paid a total of $72,113 representing the partnership's participation in cash
collections on these asset pools.
During October 2002, Rampart secured a $1,300,000 note from a financial
institution. As a component of the terms of the loan, an officer of Rampart
pledged 600,000 shares of beneficially owned common stock of Rampart to
guarantee $1,040,000 of the loan amount. The officer received compensation of
$52,000, or 5% of the guaranteed amount, as a fee for the pledge.
From time to time, Rampart enters into note payable agreements with certain
related parties, some of which are officers and directors of Rampart, to provide
working capital necessary to conduct its ongoing business affairs. Generally
these second lien notes have a term not to exceed 12 months and bear interest at
a fixed rate of 18% per annum. During the years ended December 31, 2002 and
2001, Rampart received proceeds from borrowings of $1,617,000 and $2,470,304,
respectively, and repaid $1,365,981 and $1,665,304, respectively, under the
terms of these related party note agreements. The total outstanding as of
December 31, 2002 and 2001 was $1,056,019 and $805,000, respectively. For the
years ended December 31, 2002 and 2001, total interest accrued and paid was
$196,013 and $141,560, respectively.
Certain officers of Rampart and/or directors advanced funds to Rampart in
anticipation of exercising their common stock options. Until exercise of these
common stock options, the advances accrued interest at a rate of 7% per annum
payable monthly. The $326,919 in advances from officers and/or directors were
repaid in full during the year ended December 31, 2001. Total interest paid
during the year ended December 31, 2001 was $7,809.
Interest paid to related parties during the years ended December 31, 2002 and
2001, on all of Rampart's debt instruments referred to above, was approximately
$196,000 and $141,600, respectively.
We believe that all of the foregoing transactions were on terms no less
favorable than would have been received at the time of the transaction if
transacted with unaffiliated third parties. Any future transactions between
Rampart and its officers and directors, principal shareholders and affiliates,
will be approved by a majority of the Board of Directors, including a majority
of the independent, disinterested outside directors. These future transactions
will be on terms no less favorable to Rampart than could be obtained from
unaffiliated third parties.
MARKET FOR COMMON STOCK
Our common stock trades on the American Stock Exchange under the symbol "RAC".
The following table lists high and low sales prices of our common stock for the
periods indicated.
COMMON STOCK
---------------
PERIOD HIGH LOW
- --------------------- ------- ------
1st Quarter 2001 $ 1.700 $1.125
2nd Quarter 2001 $ 1.550 $1.210
3rd Quarter 2001 $ 2.350 $1.150
4th Quarter 2001 $ 2.400 $1.300
COMMON STOCK
---------------
PERIOD HIGH LOW
- --------------------- ------- ------
1st Quarter 2002 $ 3.500 $2.050
2nd Quarter 2002 $ 3.600 $2.560
3rd Quarter 2002 $ 3.000 $1.810
4th Quarter 2002 $ 2.030 $1.320
36
COMMON STOCK
---------------
PERIOD HIGH LOW
- --------------------- ------- ------
1st Quarter 2003 $ 1.85 $ 1.20
2nd Quarter 2003 $ 1.60 $ 1.10
through June 10, 2003
2nd Quarter 2003 June
11, 2003 through June
30, 2003 $ 3.20 $ 2.40
3rd Quarter 2003
through September 10,
2003 $ 3.16 $ 3.00
As of August 4, 2003 there were approximately 27 holders of record of our common
stock and approximately 300 beneficial owners. We issued the press release for
our intended "Going Private" transaction after the market closed on June 10,
2003. From April 1, 2003 through June 10, 2003 the high selling price for our
common stock was $1.60 and the low selling price was $1.10. After public
announcement of the Reverse Split, from June 11, 2003 through June 30, 2003 the
high selling price for our common stock was $3.20 and the low selling price was
$2.40. On September 12, 2003, there were 2,905,143 issued and outstanding
shares of our common stock.
DIVIDEND POLICY
Rampart has never paid any cash dividends and anticipates that, except as
described in "Additional Information Regarding the Reverse Split-Changes in
Management Team and Conduct of the Business After the Reverse Split," for the
foreseeable future all earnings, if any, will be retained to finance growth and
to meet working capital requirements.
SELECTED HISTORICAL FINANCIAL DATA
FINANCIAL STATEMENTS
Our audited financial statements for our last two fiscal years are included in
our annual report on Form 10-KSB and Form 10-KSB/A which accompany this proxy
statement and our unaudited balance sheets, comparative year-to-date income
statements and related earnings per share data, statements of cash flows and
comprehensive income for the six months ended June 30, 2003 are included in our
quarterly report on Form 10-QSB that accompanies this proxy statement.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of our earnings to our fixed charges for each of the periods indicated
is as follows:
Six Months Year Ended December 31,
Ended ------------------------
June 30, 2003 2002 2001
- --------------------- ---- ----
<$0.53> <$0.03> $3.16
For these ratios, earnings consist of income from continuing operations before
income taxes, plus distributed income of equity investees, less income/loss of
equity investees, less minority interests and plus fixed charges. Fixed charges
consist of interest expense, bridge financing costs and capitalized interest.
For the six months ended June 30, 2003 and the year ending December 31, 2002,
earnings were insufficient to cover fixed charges by $164,362 and $674,969,
respectively. There was no preferred stock outstanding for any of the periods
shown above.
BOOK VALUE PER SHARE
Our book value per share of our common stock at June 30, 2003, was $3.88.
37
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated balance sheet as of
June 30, 2003 (the "Pro Forma Balance Sheet"), and the unaudited pro forma
consolidated income statements for the year ended December 31, 2002, and for the
six months ended June 30, 2003 (collectively, the "Pro Forma Income
Statements"), show the pro forma effect of the Reverse Split. Pro forma
adjustments to the Pro Forma Balance Sheet are computed as if the Reverse Split
occurred at June 30, 2003, while the pro forma adjustments to the Pro Forma
Income Statements are computed as if the Reverse Split were consummated on
January 1, 2002.
The pro forma information does not purport to represent what our results of
operations actually would have been if the Reverse Split had occurred on January
1, 2002.
RAMPART CAPITAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
PRO FORMA BALANCE SHEET
AS OF JUNE 30, 2003
AS IF THE REVERSE SPLIT OCCURRED JUNE 30, 2003
(Unaudited)
As Reported Adjustments Pro Forma
ASSETS
Current Assets
Cash 464,679 464,679
Prepaid Expenses 67,599 67,599
Golf Club Inventory 90,340 90,340
Investment Real Estate-- Lots for Sale 141,550 141,550
Investment Real Estate, Joint Ventures--Lots for Sale 405,000 405,000
Commercial Real Estate--Condominiums for Sale 2,269,767 2,269,767
Commercial Real Estate--Retail Centers for Sale 676,653 676,653
Asset pools, Collections in Progress 21,000 21,000
Asset Pools, Owned Real Estate for Sale 150,000 150,000
Asset Pools, Performing Notes, current portion 51,960 51,960
Notes receivable, real estate bridge lending 5,512,713 5,512,713
Notes receivable, other financing, current portion 116,994 116,994
------------- ------------
Total Current Assets $ 9,968,255 $ 9,968,255
Plant, Property & Equipment
Property and equipment, net 317,765 317,765
------------- ------------
Total Plant, Property & Equipment 317,765 317,765
Investments & Other Long-Term Assets
Purchased Asset pools, net of current portion 591,912 591,912
Long-Term portion of Notes Rec to Related Parties 34,868 34,868
Commercial property, net 2,468,631 2,468,631
38
Investment real estate 5,780,573 5,780,573
Investment in real estate joint ventures 1,034,139 1,034,139
Other assets 132,510 132,510
------------- ------------
Total Investments & Other Long-Term Assets 10,042,633 10,042,633
------------- ------------
TOTAL ASSETS $ 20,328,653 $20,328,653
============= ============
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 721,532 $ 721,532
SWBT Line of Credit, Rampart 600,000 2,308,000 (A) 2,908,000
SWBT Line of Credit, GHGP 626,682 626,682
Notes payable, current portion 1,467,50 8 1,467,508
Notes payable to related parties 2,432,604 2,432,604
------------- ------------
Total Current Liabilities $ 5,848,326 $ 8,156,326
Long-Term Liabilities
Notes payable, long-term portion 3,201,512 3,201,512
------------- ------------
Total Long-Term Liabilities 3,201,512 3,201,512
------------- ------------
Total Liabilities $ 9,049,838 $11,357,838
============= ============
Shareholders' equity
Preferred Stock, $.01 par value; 10,000,000 shares
authorized; none shares issued
Common Stock, $.01 par value; 10,000,000 shares $ 30,500 (29,051) (B) 1,449
authorized; 3,050,000 shares issued. -
Paid-in-capital 6,194,255 (2,278,949) (C) 3,915,306
Retained earnings 5,432,559 5,432,559
Treasury Stock (378,499) (378,499)
------------- ------------
Total shareholders' equity $ 11,278,815 $ 8,970,815
============= ============
------------- ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 20,328,653 $20,328,653
============= ============
39
RAMPART CAPITAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
PRO FORMA INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2002
AS IF THE REVERSE SPLIT OCCURRED JANUARY 1, 2002
(Unaudited)
AS REPORTED ADJUSTMENTS PRO FORMA
Net gain on collections on asset pools 421,113 421,113
Commercial Real Estate Income 2,722,157 2,722,157
Investment Real Estate Income 1,387,365 1,387,365
Equity in earnings of investment real estate ventures 181,782 181,782
Real Estate Bridge Lending Income, net 703,601 703,601
Other Financing Income, net 119,086 119,086
Interest income 4,415 4,415
Other income 32,100 32,100
-
------------ -----------
Total revenue 5,571,619 5,571,619
-
Cost of real estate sales 1,268,165 1,268,165
Operating and other costs 2,043,247 2,043,247
-
------------ -----------
Total Cost of Sales & Operating Costs 3,311,412 3,311,412
-
Gross Profit 2,260,207 2,260,207
-
General and administrative expenses 2,573,689 (293,441) (D) 2,280,248
Interest Expense 366,941 132,710 (E) 499,651
Minority Interests (8,272) (8,272)
-
------------ -----------
Total G&A and Other Expenses 2,932,358 (160,731) 2,771,627
-
------------ -----------
Income (Loss) before income tax benefit and extraordinary item (672,151) 160,731 (511,420)
-
Income tax benefit (expense) 104,000 104,000
-
------------ -----------
Net income (loss) before extraordinary item (568,151) 160,731 (407,420)
-
Extraordinary item, extinguishment of debt, net of taxes 430,000 430,000
-
------------ -----------
Net income (loss) (138,151) 160,731 22,580
40
-
Retained earnings, beginning of year 5,735,072 5,735,072
-
------------ -----------
Retained earnings, end of year 5,596,921 (160,731) 5,757,652
============ ===========
Basic and diluted earnings per common share:
Net income (loss) from operations (0.20) (18,027.44)
Extraordinary item 0.15 19,026.55
Net income per common share (0.05) 999.11
Average common shares outstanding 2,905,143 22.6
41
RAMPART CAPITAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
PRO FORMA INCOME STATEMENT
FOR THE SIX MONTHS ENDED JUNE 30, 2003
AS IF THE REVERSE SPLIT OCCURRED JANUARY 1, 2002
(Unaudited)
AS REPORTED ADJUSTMENTS PRO FORMA
Net gain on collections on asset pools 1,210,254 1,210,254
Commercial Real Estate Income 2,077,174 2,077,174
Investment Real Estate Income 372,533 372,533
Equity in earnings of investment real estate ventures 9,246 9,246
Real Estate Bridge Lending Income, net 610,701 610,701
Other Financing Income, net (6,548) (6,548)
Interest income 1,715 1,715
Other income 44,800 44,800
-
------------ ----------
Total revenue 4,319,875 4,319,875
-
Cost of real estate sales 904,617 904,617
Operating and other costs 1,169,453 1,169,453
-
------------ ----------
Total cost of sales 2,074,070 2,074,070
-
Gross Profit 2,245,805 2,245,805
-
General and administrative expenses 1,524,763 (391,900) (F) 1,132,863
Interest Expense 143,230 66,355 (G) 209,585
Loss on Impairment of LT assets 742,174 742,174
-
------------ ----------
Total Operating Expenses 2,410,167 (325,545) 2,084,622
------------ ----------
Income (Loss) before income tax benefit and extraordinary item (164,362) 325,545 161,183
Income tax benefit (expense) - -
-
------------ ----------
Net income (loss) before extraordinary item (164,362) 325,545 161,183
Extraordinary item, extinguishment of debt, net of taxes - -
------------ ----------
Net income (loss) (164,362) 325,545 161,183
42
Retained earnings, beginning of year 5,596,921 160,731 (H) 5,757,652
------------ ----------
Retained earnings, end of year 5,432,559 486,275 5,918,834
============ ==========
Basic and diluted earnings per common share:
Net income (loss) from operations (0.06) 7,131.97
Extraordinary item - -
Net income per common share (0.06) 7,131.97
Average common shares outstanding 2,905,143 22.6
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(A) Amount borrowed to fund remaining costs and Reverse Split payments for
fractional shares.
(B) Adjust par value of common stock for the effects of the Reverse Split.
(C) Reduce Paid-in-Capital for Reverse Split payments to shareholders for
fractional shares.
(D) Reduction to General and Administrative expenses for estimated savings
from the reduction of expenses related to our SEC and AMEX compliance
costs including a reduction of $111,304 in legal, audit and reporting
expense, $14,500 in director's fees, $10,056 in Director's and
Officer's Liability insurance, and $157,581 in directly related
payroll and related benefits and taxes.
(E) Increased interest costs at 5.75% on the $2,308,000 of additional
borrowings to fund Reverse Split costs and Reverse Split payments for
fractional shares.
(F) Reduction to General and Administrative expenses for estimated savings
from the reduction of expenses related to our SEC and AMEX compliance
costs including a reduction of $57,357 in legal, audit and reporting
expense, $17,787 in director's fees, $200,000 in actual and accrued
special committee expenses, $16,760 in Director's and Officer's
Liability insurance, and $99,996 in directly related payroll and
related benefits and taxes.
(G) Increased interest costs at 5.75% on the $2,308,000 of additional
borrowings to fund Reverse Split costs and payments for partial
shares.
(H) Carryover of the income adjustment from the December 31, 2002 Pro
Forma Income Statement.
43
ITEM 2. ELECTION OF DIRECTORS
NOMINEES FOR DIRECTOR
Our Board of Directors currently consists of six directors with each director
elected annually. All of our current directors have been nominated for
re-election.
The persons named in the proxy may act with discretionary authority in the event
any nominee should become unavailable for election, although management is not
currently aware of any circumstances likely to result in a nominee becoming
unavailable for election. A shareholder may, in the manner set forth in the
enclosed proxy card, instruct the proxy holder not to vote the shareholder's
shares for one or more of the named nominees.
The following summaries set forth information concerning the six nominees for
election as directors at the annual meeting, including each nominee's age,
position with Rampart, if any, and business experience during at least the last
five years. Each director will serve until the earlier of (i) deregistration and
delisting of our common stock and (ii) the 2004 annual meeting of shareholders.
CHARLES W. JANKE, age 59, has been Chairman, Chief Executive Officer, and a
director of Rampart since its organization in March 1994. He also served as
Rampart's President from its organization until January 1, 1999, when he
relinquished that position to Mr. Carpenter. Prior to the organization of
Rampart, Mr. Janke's primary activity was private investments. During 1992 and
1993, Mr. Janke invested in Laidlaw Holdings, Inc., a securities investment
firm. During this period he provided mezzanine and bridge financing for several
firms, all of which became listed on the Nasdaq Stock Market. Mr. Janke's
ownership in Laidlaw Holdings, Inc. was less than 1% and he has no current
ownership. During the period 1989 through 1992, Mr. Janke provided acquisition
funding for a company that acquired in excess of $400 million in residential
mortgage portfolios in association with a major securities firm. After a brief
retirement, he funded the start-up of Rampart and became active in our
management. For the period 1975 through 1985, Mr. Janke was a shareholder and
officer of Centurian National Group, Inc., a cemetery and funeral home holding
company, which was acquired by Service Corporation International, a public
corporation.
J. H. CARPENTER, age 61, was elected President and Chief Operating Officer
effective January 1, 1999. He has been a director since the organization of
Rampart in March 1994 and was Vice President from March 1994 until January 1999.
For the period October 1991 through March 1994, Mr. Carpenter was a shareholder
and president of two closely held corporations that acquired commercial debt
from the Resolution Trust Corporation and the Federal Deposit Insurance
Corporation. During the period 1989 to October 1991, Mr. Carpenter was
associated with a company that acquired, in conjunction with a major securities
firm, and sold over $400 million in residential mortgage portfolios. From 1970
through 1981, Mr. Carpenter was Vice President and Treasurer of Camco,
Incorporated, a publicly traded oil tool manufacturing company.
JAMES W. CHRISTIAN, age 50, was elected a director of Rampart effective January
1, 1999. Mr. Christian is a member of the Houston, Texas law firm of Christian
Smith & Jewell, L.L.P. where he has practiced since 1990. Mr. Christian
specializes in litigation, corporate and real estate law.
JAMES J. JANKE, age 48, was elected a director of Rampart in 1996. Mr. Janke is
Vice President and General Manager of a top 100 Ford dealership where he has
been employed since 1976. He serves on the Board of Directors of the Texas Auto
Dealers Association, the Houston Livestock Show and Rodeo, a charitable
organization, and the Better Business Bureau of Houston. Charles W. Janke and
James J. Janke are brothers.
W. F. MOSLEY, age 53, was elected as a director of Rampart in May 2002. He has
been a principal and director of W. F. Mosley, Inc., a certified public
accounting firm, since 1981. Mr. Mosley is a Certified Public Accountant and is
a tax practitioner. He is also a director and investor in Southwest Commerce
Partners, Inc., which invests in various business opportunities.
MICHAEL V. RONCA, age 49, was appointed as a director of Rampart in March 2003
to replace former director Robert A. Shuey, IV. Mr. Ronca has been a private
investor and consultant from 2002 to present. From 2000 to 2002, Mr. Ronca was
President and Chief Executive Officer of NewGen Communications, Inc., a
44
privately held company which provides broadband videophone and data networks.
From 1998 to 2000, Mr. Ronca was the Chief Operating Officer of Range Resources
Corporation, a publicly traded oil and gas exploration and production company.
Mr. Ronca serves on the Board of Directors of NewGen Communications, Inc., and
Neighborhood Centers Inc., a Houston area charitable organization.
COMPENSATION OF DIRECTORS
Directors who are also employees do not receive any remuneration in their
capacity as directors. Non-employee directors received travel expense
reimbursement and $1,000 per meeting attended, $500 per meeting telephonically
attended, and $1,500 for the Annual Meeting of Shareholders and the board
meeting immediately following. The Chairman of the Audit Committee receives an
additional $4,000 per year.
On January 11, 2000, directors James W. Christian, James J. Janke, and former
director Robert A. Shuey IV were granted a five-year non-qualified stock option
to purchase 1,000 shares of common stock for a price per share equal to the
closing price, as quoted on the American Stock Exchange, on the date granted.
The closing price per share on January 11, 2000 was $3.75. Mr. Shuey resigned as
a director effective June 20, 2002 and as such his options expired September 18,
2002. On October 13, 2000, director James Janke and former director Robert
Shuey were granted stock options to purchase 9,000 shares of common stock and
director James W. Christian was granted an option to purchase 14,000 shares of
common stock for a share price equal to $3.50 per share. The closing share
price, as quoted on the American Stock Exchange for October 13, 2000, was $1.75.
The October 13, 2000 options expired June 30, 2002.
On March 20, 2003, at the time the special committee was formed in connection
with evaluating the Reverse Split, our board established compensation for a
member's service on the special committee at $250 per hour, but not less than a
total of $10,000, plus reimbursement for any and all expenses incurred by the
member in connection with his service on the special committee, including travel
to and from meetings, through consummation or abandonment of the Reverse Split.
On April 29, 2003, our board acted to require Rampart to compensate each
non-employee director or non-employee former director at the rate of $250 per
hour for his efforts and time spent in connection with any proceeding because of
his status as a director or former director of Rampart and for which he would be
entitled to indemnification for any damages or expenses incurred by him in
connection with the proceeding, subject to his providing Rampart written
reasonable support of his efforts and time spent in connection with the
proceeding.
STANDING COMMITTEES, BOARD ORGANIZATION AND MEETINGS
Our Board of Directors has two committees, the Audit and Compensation
Committees. These committees report their actions, if any, to our full Board of
Directors at its next regular meeting. The Compensation Committee and the Audit
Committee are composed of the three non-employee, non-related directors -
currently Messrs. Christian, Ronca and Mosley. All of the members of the Audit
Committee qualify as independent directors under the listing standards for the
American Stock Exchange.
The duties and functions of the Audit Committee are to: (1) examine the
activities of our independent auditors to determine whether their activities are
reasonably designed to assure the soundness of accounting and financial
procedures; (2) review our accounting policies and the objectivity of our
financial reporting; and (3) consider annually the qualifications of our
independent auditors and the scope of their audit and make recommendations to
the Board of Directors as to its selection. The Audit Committee operates under a
written charter adopted by our Board of Directors, a copy of which is filed with
our 2000 proxy statement.
The duties and functions performed by the Compensation Committee are: (1) to
review and recommend to our Board of Directors, or determine, the annual salary,
bonus, stock options and other benefits, direct and indirect, of the executive
officers; (2) review new executive compensation programs; (3) review on a
periodic basis the operations of our executive compensation programs to
determine whether they are properly coordinated; (4) establish and periodically
review policies for the administration of executive compensation programs; (5)
modify any executive compensation programs that yield payments and benefits that
are not reasonably related to executive performance; (6) establish and
periodically review policies in the area of management perquisites; and (7) to
exercise all of the powers of our Board of Directors with respect to any other
matters involving the compensation of our employees and employee benefits as may
be delegated to the Compensation Committee from time to time.
45
During 2002, our Board of Directors held two meetings and acted once by written
consent. There were four audit committee meetings and no compensation committee
meetings in 2002. During 2002, all members of our Board of Directors, other than
Robert A. Shuey, IV, attended at least 75% of the aggregate of all meetings of
our Board of Directors and committees of the board to which they belong.
AUDIT COMMITTEE REPORT
Management is responsible for Rampart's internal controls and the financial
reporting process. The independent accountants are responsible for performing an
independent audit of Rampart's financial statements in accordance with auditing
standards generally accepted in the United States of America and to issue a
report thereon. The Committee's responsibility is to monitor and oversee these
processes.
In this context, the Committee has met and held discussions with management and
the independent accountants. Management represented to the Committee that
Rampart's audited consolidated financial statements as of and for the year ended
December 31, 2002 were prepared in accordance with accounting principles
generally accepted in the United States of America, and the Committee has
reviewed and discussed these financial statements with management and the
independent accountants. The Committee discussed with the independent
accountants the matters required to be discussed by Statement on Auditing
Standards No. 61 (Communication with Audit Committees).
Rampart's independent accountants also provided to the Committee the written
disclosures and letter required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees), and the Committee discussed
with the independent accountants that firm's independence.
Based on the Committee's discussions with management and the independent
accountants and the Committee's review of the representations of management and
the report of the independent accountants to the Committee, the Committee
recommended that the Board of Directors include the audited financial statements
in Rampart's Annual Report on Form 10-KSB for the year ended December 31, 2002,
filed with the Securities and Exchange Commission. The Committee also
recommended reselection of Pannell Kerr Forster of Texas, P.C. as Rampart's
independent accountants and the Board of Directors concurred in such
recommendation.
Members of the Audit Committee:
James W. Christian
William F. Mosley
Michael V. Ronca
COMPENSATION OF INDEPENDENT PUBLIC ACCOUNTANTS
Audit Fees. Pannell Kerr Forster of Texas, P.C., our independent public
accountants, billed us $42,716.70 for services related to auditing and public
reporting for fiscal year 2002.
Financial Information Systems Design and Implementation Fees. No fees were paid
to our independent public accountants for financial information systems design
and implementation.
All Other Fees. Our independent public accountants billed us $13,135 for the
review of SEC reporting documents and $1,878 for research and consultation
regarding GAAP disclosure and presentation issues for prospective transactions.
NON-DIRECTOR EXECUTIVE OFFICERS
CHARLES F. PRESLEY, age 54, was elected Vice President and Chief Financial
Officer in December 1998 to be effective January 1, 1999 and was the controller
for Rampart from March 1996. He is responsible for accounting, federal and state
tax compliance, internal controls, and also has investigation and litigation
support responsibilities. For the 15 years prior to his tenure with Rampart, Mr.
Presley was the principal practitioner in a Certified Public Accounting practice
in Houston, Texas. He has been a Certified Public Accountant since 1978 and a
Diplomat of the American Board of Forensic Accounting since 1998.
46
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of September 12, 2003, information with
respect to (a) each person (including any "group" as the term is used in section
13(d)(3) of the Securities Exchange Act of 1934) who we know to be the
beneficial owner of more than 5% of our outstanding common stock and (b) the
number of shares and percentage of our common stock owned by nominees for
director and by each of our directors and executive officers individually and as
a group. We believe that, unless otherwise indicated, each of the shareholders
has sole voting and investment power with respect to the shares beneficially
owned, subject to community property laws where applicable.
SHARES OF COMMON STOCK
-------------------------
BENEFICIALLY OWNED
-------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER (1) NUMBER PERCENT
- ----------------------------------------------------------- ----------- ------------
Charles W. Janke (2) 1,500,000 51.6%
16401 Country Club Drive, Crosby, Texas 77532
J. H. Carpenter (3) 760,000 26.2%
16401 Country Club Drive, Crosby, Texas 77532
Charles F. Presley (4) 45,000 1.5%
James J. Janke (5) 1,000 *
James W. Christian (5) 1,000 *
W. F. Mosley 0 *
Michael V. Ronca 0 *
- ----------------------------------------------------------- ----------- ------------
All Executive Officers and Directors as a group (7 persons) 2,307,000 79.4%
<FN>
- ---------------
* LESS THAN ONE PERCENT OF OUTSTANDING SHARES.
(1) The table is based on information supplied by the officers, directors, and
principal shareholders and reporting forms, if any, filed with the
Securities and Exchange Commission on behalf of such persons. A person is
deemed to beneficially own shares of common stock underlying options,
warrants or other convertible securities if the person can acquire the
stock within sixty days of the date of this proxy statement.
(2) 1,500,000 of Mr. Janke's shares are owned by a family limited partnership
of which Mr. Janke is the general partner.
(3) The majority of Mr. Carpenter's shares (600,000 shares) are owned by a
family limited partnership, the general partner of which is a closely held
corporation whose stock is owned by trusts for the benefit of Mr.
Carpenter's children and grandchildren. Mr. Carpenter is sole director and
officer of that corporation and has voting power over its stock. A solely
owned corporation controlled by Mr. Carpenter owns 152,000 shares. Mr.
Carpenter personally owns 8,000 shares.
(4) Mr. Presley owns 25,400 shares and Mr. Presley's IRAs own 19,600 shares.
(5) Includes 1,000 shares issuable upon exercise of options.
Neither Rampart nor any of our subsidiaries, affiliates, directors or executive
officers or any affiliates of the foregoing has engaged in a transaction in our
common stock during the past 60 days.
Our executive officers, directors and affiliates that have voting authority over
any shares of our common stock, including proxy authority, have indicated that
they intend to vote such shares in favor of the Reverse Split. The reasons
Messrs. Janke and Carpenter intend to vote in favor of the Reverse Split have
been set forth in detail elsewhere in this proxy statement. Mr. Presley has
indicated that he intends to vote in favor of the Reverse Split to take
advantage of the opportunity to realize the substantial premium the cash-out
price represents over the trading prices of our common stock prior to our
announcement of the reverse stock split.
47
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), requires our directors, executive officers and persons who beneficially
own 10% or more of our Common Stock to file with the SEC initial reports of
ownership and reports of changes in ownership of common stock. Based solely on
our review of copies of such reports and written representations that no other
reports were required, we believe that during 2002 all our directors and
executive officers and 10% or greater shareholders complied on a timely basis
with all applicable filing requirements under Section 16(a) of the Exchange Act.
EXECUTIVE COMPENSATION
The following table sets forth the compensation awarded to, earned by, or paid
to the Chief Executive Officer and the other executive officers of Rampart who
received compensation of over $100,000 for the fiscal years ended December 31,
2002, 2001 and 2000 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
NAME AND FISCAL ----------------------- ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- ----------------------- ------ ----------- --------- --------------
Charles W. Janke 2002 $ 203,886 -- $ 6,000(1)
Chairman of the Board 2001 199,931 -- 6,000(1)
Chief Executive Officer 2000 200,000 -- 6,000(1)
- -----------------------------------------------------------------------
J. H. Carpenter 2002 $ 202,659 -- $ 6,000(1)
President 2001 194,865 -- 6,000(1)
Chief Operating Officer 2000 202,659 -- 6,000(1)
- -----------------------------------------------------------------------
Charles F. Presley 2002 $ 125,000 -- $ 5,842(2)
Vice-President 2001 128,753 -- 5,939(2)
Chief Financial Officer 2000 125,000 -- 5,640(2)
<FN>
- --------------
(1) Rampart matching contribution to retirement plan.
(2) Rampart matching contribution to retirement plan of $3,750 for each year
and $2,092, $2,189, and $1,890 of reimbursements for medical insurance
premiums for 2002, 2001, and 2000, respectively.
EMPLOYMENT AGREEMENTS
We do not have written employment contracts with any of our Named Executive
Officers. However, since 1996, in addition to his other duties, Charles Presley
has performed, and continues to perform, services for Rampart to facilitate the
collection of certain defaulted obligations owned by Rampart and to facilitate
realization from other assets. Mr. Presley has an oral arrangement with Rampart
whereby he is entitled to receive from one to five percent, net of costs, of any
amounts realized by Rampart with respect to such assets. During 2002, 2001, and
2000, Mr. Presley received $0, $8,561, and $0 respectively under this
arrangement. These amounts are included in the salary amounts reported in the
table above.
48
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
For our equity compensation plans, the following table shows, at the end of
fiscal year 2002, (a) the number of securities to be issued upon the exercise of
outstanding options, warrants and rights, (b) the weighted-average exercise
price of such options, warrants and rights, and (c) the number of securities
remaining available for future issuance under the plans excluding those issuable
upon exercise of outstanding options, warrants and rights.
EQUITY COMPENSATION PLAN INFORMATION
NUMBER OF SECURITIES
NUMBER OF SECURITIES REMAINING AVAILABLE FOR
TO BE ISSUED WEIGHTED-AVERAGE FUTURE ISSUANCE UNDER
UPON EXERCISE OF EXERCISE PRICE OF EQUITY COMPENSATION PLANS
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, (EXCLUDING SECURITIES
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN COLUMN (a))
- ------------------------------------ --------------------- ----------------------- --------------------------
(a) (b) (c)
Equity compensation 2,000 $ 3.75 373,000
plans approved by
security holders
Equity compensation - - -
plans not approved
by security holders
--------------------- ----------------------- --------------------------
Total 2,000 $ 3.75 373,000
OPTION GRANTS IN LAST FISCAL YEAR
No options were granted during the fiscal year ended December 31, 2002.
AGGREGATE OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
None of the Named Executive Officers owned any stock options in 2002.
RETIREMENT PLAN
Effective January 1, 2000, all of our employees may participate in an IRS
Section 408(p) SIMPLE (Savings Incentive Match Plan for Employees of Small
Employers). We elected to match participating employee contributions to the plan
up to a maximum of 3% of the employee's compensation. In no event may our
contribution on behalf of any employee exceed the limit set by the IRS. The
employee's elective contributions are made on a pre-tax basis and each employee
may choose the equities in which to invest both the employee's and Rampart's
contributions. Both the employee and Rampart's contributions are immediately
vested and are payable to the employee or their designated beneficiary upon
termination of employment.
ITEM 3. RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Our Board of Directors has selected Pannell Kerr Forster of Texas, P.C. as our
independent public accountants to conduct an audit of our financial statements
for the year 2003, and has further directed that management submit the selection
of the independent accountants for ratification by our shareholders at the
annual meeting. This firm has acted as independent public accountants for us for
the past five fiscal years. Representatives of Pannell Kerr Forster of Texas,
P.C. are not expected to be present at the annual meeting. Its representatives
will not be able to make a statement at the annual meeting and are not expected
to be available to respond to questions.
Shareholder ratification of the selection of Pannell Kerr Forster of Texas, P.C.
as our independent public accountants is not required by our bylaws, Texas law
or otherwise. If our shareholders fail to ratify the selection, the board will
reconsider whether to retain that firm but may nonetheless still retain that
firm. Even if the selection is ratified, the board, in its discretion, may
direct the appointment of a different independent accounting firm at any time
during the year if the board believes that such a change would be in the best
interest of Rampart. The affirmative vote of the holders of a majority of the
shares of our common stock present or represented by proxy at the annual meeting
is required to ratify the selection of Pannell Kerr Forster of Texas, P.C.
49
ITEM 4. OTHER BUSINESS
Management does not intend to bring any other business before the annual meeting
and has not been informed that any other matters are to be presented by others.
If, however, any other matters properly come before the meeting, it is intended
that the persons named in the accompanying proxy will vote pursuant to the
discretionary authority granted in the proxy in accordance with their best
judgment on such matters. The discretionary authority includes matters that our
Board of Directors does not know are to be presented by others.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly, and current reports, proxy statements and other
information with the Securities and Exchange Commission. You can read and copy
any materials we file with the SEC at the SEC's public reference room at 450
Fifth Street, N.W., Washington, D.C. 20549. You can obtain information about
the operation of the SEC's public reference room by calling the SEC at
1-800-SEC-0330. The SEC also maintains a Web site that contains information we
file electronically with the SEC, which you can access over the Internet at
http://www.sec.gov.
- ------------------
We are incorporating by reference in this proxy statement information we file
with the SEC, which means that we are disclosing important information to you by
referring you to those documents. The information we incorporate by reference
is an important part of this proxy statement. We incorporate by reference the
documents listed below:
- our annual report on Form 10-KSB and Form 10-KSB/A for the year ended
December 31, 2002; and
- our quarterly report of Form 10-QSB for the quarter ended June 30,
2003.
You may request a copy of any of our filings, which we will
provide to you at no cost, by writing or telephoning us at the following address
and telephone number:
Rampart Capital Corporation
Attention: J. H. Carpenter
16401 Country Club Drive
Crosby, Texas 77532
(713) 223-4610
SHAREHOLDER PROPOSALS
If our Exchange Act registration is not terminated in connection with the
Reverse Split, Rule 14a-8 under the Securities and Exchange Act of 1934, as
amended, addresses when a company must include a shareholder's proposal in its
proxy statement and identify the proposal in its form of proxy when the company
holds an annual or special meeting of shareholders. Under Rule 14a-8, we must
receive proposals for the 2004 annual meeting of shareholders no later than
_______ __, 200_ for such proposals to be included in next year's Proxy
Statement and proxy card. However, if the date of the 2004 annual meeting of
shareholders changes by more than 30 days from the date of the 2003 annual
meeting of shareholders, the deadline is a reasonable time before we begin to
print and mail our proxy materials, which deadline will be set forth in a
quarterly report on Form 10-QSB or will otherwise be communicated to
shareholders. Shareholder proposals must also be otherwise eligible for
inclusion. If we do not receive notice of any other matter that shareholders
wish to raise at the 2004 annual meeting of shareholders by ______ __, 200_, and
that matter is raised at the meeting, the proxy holders will have discretionary
authority to vote on the matter. All proposals and notifications should be
addressed to our Chief Executive Officer at the address listed on the front page
of this proxy statement.
50
Appendix A
PROPOSED FORM OF
ARTICLES OF AMENDMENT
TO THE
RESTATED ARTICLES OF INCORPORATION
OF
RAMPART CAPITAL CORPORATION
Pursuant to Article 4.04 of the Texas Business Corporation Act, the
undersigned corporation (the "Corporation") adopted the following Articles of
Amendment to its Articles of Incorporation:
ARTICLE ONE
The name of the Corporation is Rampart Capital Corporation.
ARTICLE TWO
The following amendment to the Amended and Restated Articles of
Incorporation was adopted by the shareholders of the Corporation on November 5,
2003:
Section 1 of Article IV of the Corporation's Restated Articles of
Incorporation is hereby amended to read in its entirety as follows:
"Section 1. The Corporation shall have authority to issue two classes of
capital stock, designated "Common Stock" and "Preferred Stock",
respectively. The aggregate number of shares of Common Stock authorized to
be issued is ten million (10,000,000) shares with a par value of one cent
($0.01) per share. The aggregate number of shares of Preferred Stock
authorized to be issued is ten million (10,000,000) shares with a par value
of one cent ($0.01) per share. Each one hundred thousand (100,000) shares
of the Corporation's Common Stock outstanding at 12:01 a.m., Houston, Texas
time, on November 6, 2003, shall be changed and reclassified into one (1)
fully paid and nonassessable share of the Corporation's Common Stock
without any further action by the shareholders or Board of Directors,
provided that no fractional shares shall be issued to any holder of fewer
than 100,000 shares of Common Stock immediately prior to such time and that
instead of issuing such fractional shares, the Corporation shall pay to
such holders cash in the amount of $3.50 per pre-split share of Common
Stock."
ARTICLE THREE
The number of shares of the Corporation outstanding at the time of adoption
of the amendment was 2,905,143 shares of Common Stock with a par value of one
cent ($0.01) per share (the "Common Stock") and the number of shares entitled to
vote on the amendment was 2,905,143 shares of Common Stock.
ARTICLE FOUR
Pursuant to Section 2 of Article IV of the Corporation's Restated Articles
of Incorporation, the affirmative vote of the holders of a majority of the
Common Stock is sufficient for any action that requires the vote of the
shareholders. The holders of at least a majority of the Common Stock voted for
the amendment as follows: ___________ shares of Common Stock were voted for the
amendment and ________ shares of Common Stock were voted against the amendment.
A-1
ARTICLE FIVE
The amendment will reduce the stated capital of the Corporation by
$29,051.20 from $30,500.00 to $1,448.80.
DATED: _________________, 2003
Rampart Capital Corporation
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
A-2
Appendix B
WM. H. MURPHY & CO., INC.
INVESTMENT BANKERS
__________________________
2200 POST OAK BOULEVARD, SUITE 514
HOUSTON, TEXAS 77056
OFFICE: (713) 965-9494 FACSIMILE: (713) 965-9497
June 9, 2003
Mr. Michael V. Ronca
Mr. W.F. Mosley
Special Independent Committee of the Board of Directors
Rampart Capital Corporation
16401 Country Club Drive
Crosby, Texas 77532
Gentlemen:
Wm. H. Murphy & Co., Inc. ("Murphy") understands that the Special Independent
Committee of the Board of Directors (the "Special Committee") of Rampart Capital
Corporation ("Rampart") has been asked to review, evaluate and negotiate with
Messrs. Janke (Chairman and Chief Executive Officer) and Carpenter (President
and Chief Operating Officer) of Rampart ("Management") regarding an offer made
to the Board of Directors of Rampart, (the "Board") to take the Company private
under Rule 13-3 promulgated by the Securities and Exchange Commission under the
Securities and Exchange Act of 1934, as amended. Pursuant to which, the Company
would employ a reverse stock split thereby cashing out the minority common
shareowners other than Messrs. Janke, Carpenter and Presley (Chief Financial
Officer). Murphy further understands that Management owns and controls directly
or indirectly approximately 78% of the Company's common stock outstanding and
that the Special Committee is acting on behalf of the Minority Shareholders. As
such Management has offered to acquire the minority shareowners common stock for
$3.25 per share in cash.
Murphy has been asked by the Special Independent Committee of the Board of
Directors of Rampart Capital Corporation to render its opinion, from a financial
point of view, to the Special Independent Committee of Rampart Capital
Corporation regarding the fairness of the proposed transaction to the minority
shareholders.
Credentials
- -----------
Murphy is an independent American investment broker dealer, member N.A.S.D. and
S.I.P.C., whose business includes corporate finance, mergers and acquisitions,
equity, and fixed income sales and trading and investment banking. The directors
of Murphy, each of whom is experienced in merger, acquisition, divesture,
valuation and fairness opinion matters, have approved this engagement and the
scope of services to be rendered.
B-1
Scope of Review
- -----------------
In connection with the preparation of its opinion, Murphy made certain reviews,
analyses and inquiries as it deemed necessary and appropriate under the
circumstances. Among other things Murphy reviewed and relied upon the
following:
(i) a copy of the offer letter regarding the Transaction to the Board;
(ii) a copy of Board meeting minutes approving the formation of the Special
Committee and defining the Committee's responsibilities and
objectives;
(iii) publicly available regulatory filings for Rampart, including but not
limited to audited financial statements for the last four fiscal
years, any quarterly unaudited financial statements for the quarterly
periods since the last completed fiscal year;
(iv) unaudited financial information relating to all months subsequent to
the last publicly available quarterly filing;
(v) copies of Rampart's Schedule 14A (Proxy Statement) for years 2000
through 2002;
(vi) details of options outstanding to Rampart executives, directors,
employees and others;
(vii) Rampart's corporate income tax returns for the years 1999 through
2001;
(viii) Rampart's Texas Franchise tax returns for the years 2000 through 2002;
(ix) Rampart's operating segment reports for the years 2000 through 2002;
(x) correspondence and details regarding all litigation involving Rampart;
(xi) Rampart's operating plan and budget for 2003;
(xii) third party appraisals for the following major properties: (a) 249
acres in Brazoria County, Tx; (b) BWM Building; (c) Newport Golf
Course; (d) Newport Subdivision; (e) Mursch Center and (f) the West
Jefferson Retail Center; and
(xiii) an organizational chart listing the parent company and wholly owned
subsidiaries.
Assumptions and Limitations
- -----------------------------
We have relied upon, and have assumed the completeness, accuracy and fair
representation of all financial and other information, data, advice, opinions
and representations obtained by us from public sources or information provided
to us by Rampart or otherwise pursuant to our engagement. We did not attempt to
independently verify the accuracy or completeness of any such information, data,
advice, opinions and representations.
Murphy's opinion is rendered on the basis of securities markets, economic and
general business and financial conditions prevailing as of the period of the
engagement and the conditions and prospects, financial and otherwise, of Rampart
as they are reflected in the information, data, and other material (financial or
otherwise) reviewed by us as they were represented to Murphy in our discussions
with management of Rampart.
B-2
In connection with our assignment, we made assumptions with respect to industry
performance, general business, market and economic conditions and other matters,
many of which are beyond the control of any party involved with the Transaction.
Murphy believes these assumptions to be reasonable with respect to Rampart and
the industry in which it operates.
We believe that our work must be considered as a whole and that selecting
portions, without considering all factors and analyses together, could create a
misleading view of the process underlying the fairness opinion rendered. Such
opinion is not necessarily susceptible to partial analysis or summary
descriptions. Any attempt to do so could lead to undue emphasis on any
particular factor.
Our opinion is provided for the exclusive use of the Special Committee and other
than as provided herein is not to be communicated to other persons without our
express prior written consent, except as otherwise required by law. Murphy
consents to the inclusion of the written opinion in its entirety and a summary
thereof in any prospectus, proxy statement, information circular or
solicitation/recommendation statement, as the case may be, required to be
distributed to Rampart's shareholders in connection with the Transaction so long
as such summary is in form and substance reasonably acceptable to Murphy.
Methodology
- -----------
We have made a variety of financial and comparative reviews, including but not
limited to, those described below. We did not attribute any particular weight
to any specific review or factor considered, but rather made quantitative and
qualitative judgments based on our experience in rendering such opinions and on
the circumstances and information as a whole.
In assessing the Transaction, as to whether the consideration to be paid (the
"Offer Value") is fair from a financial point of view, we, among other things:
(i) reviewed Rampart's past operating and financial performance;
(ii) reviewed Rampart's 2003 operating plan and budget;
(iii) reviewed the independent appraisals prepared for Rampart's major
properties;
(iv) reviewed and evaluated the remaining assets and conducted several
meetings with management to analyze fair market value;
(v) made industry comparisons with respect to sales and earnings growth,
operating margins and returns on assets and equity;
(vi) compared the Offer Value to the historical market prices for the
Rampart Common Stock;
(vii) compared the Offer Value to the value implied by our analyses of
comparable equity instruments of like kind;
(viii) compared the Offer Value to the value implied by a discounted cash
flow analysis of assets;
(ix) compared the Offer to the equity value implied by our net asset value
analyses;
(x) compared the Offer Value to the value implied by a liquidation
analysis; and
(xi) considered other factors or analyses that we judged, based on our
experience, to be relevant.
B-3
Our opinion is limited to the fairness, from a financial point of view, of the
proposed transaction and the Offer Value. We render no opinion as to the merits
of the business decision by the Board to accept the offer made by Management.
We have acted as financial advisor to the Special Committee. We will receive a
fee for our services, including delivery of this Opinion; furthermore, Rampart
has agreed to indemnify us for certain liabilities arising out of our
engagement.
CONCLUSION
- ----------
BASED UPON, AND SUBJECT TO THE FORGOING, IT IS OUR OPINION THAT, AS OF THE DATE
HEREOF, THE PROPOSED TRANSACTION AND THE OFFER ARE FAIR FROM A FINANCIAL POINT
OF VIEW, TO THE MINORITY SHAREHOLDERS.
Yours Very Truly,
WM. H. MURPHY & CO., INC.
/s/ William H. Murphy
-----------------------------------
By: William H. Murphy, President
B-4
TABLE I
RAMPART CAPITAL CORPORATION
FINANCIAL SERVICES COMPARABLE COMPANIES AS DEFINED BY THE SIC CODE.
CHEUY Cheung Kong Holdings, Ltd.
TMA Thornburg Mtg., Inc.
LQ Quinenco SA ADS
PVX Provident Energy TR
GRDHY Giordano Int'l., Ltd. S/ADR
BZF The Brazil Fund
FII Federated Inv., Inc.
ACAS American Capital Strategies
LEO Dreyfus Stra Muni
SOR Source Cap Inc.
CET Central Secs
ESGR Enstar Group, Inc.
JNS Janus Cap Gp CMN STK
GIM Templeton Global ICM
TEI Templeton Emrg. Mkts.
CMGI CMGI, Inc.
BPT BP Prudhoe Bay UTS
HQH HQ Healthcare SBI
DNP DNP Select Income FD
SBF Salomon Brother FD
RVT Royce Value TR Inc.
FF First Finl Fund
FPAPY First PAC Co., Ltd.
NRT North European Oil
ALD Allied Cap Corp
ADX Adams Express Co
BKY Blackrock Income TR
ASA ASA, Ltd.
PBT Permian Basin Roy TR
CSWC Capital Southwest Corp
ACG ACM Income FD, Inc.
CHC Charter Muni Mtg, ACC
DES DESC SA DE CV C ADS
PMT Putnam Master, Inc. TR
PWN Cash America Int'l., Inc.
TY Tri Cont'l Corp.
SJT San Juan Basin Royal
DSM Dreyfus Stra Muni BD
MCGC MCG Capital Corp
NCA Nuveen California Muni FD
KMR KinderMorgan Management
ATF Equity Income Fund
NCN NCE Petrofund New
GVT MS Gov't Inc. TR
OMS Oppenheimer Multi FD
FAX Aberdeen Asia-Pac FD
PIM Putnam Master Intrm
PEO Petroleum & Resources Corp.
SBR Sabine Rylty TR UBI
CIK Credit Suisse Income
B-5
WM. H. MURPHY & CO., INC.
INVESTMENT BANKERS
__________________________
2200 POST OAK BOULEVARD, SUITE 514
HOUSTON, TEXAS 77056
OFFICE: (713) 965-9494 FACSIMILE: (713) 965-9497
September 11, 2003
Mr. W.F. Mosley
Mr. Michael V. Ronca
Special Independent Committee of the Board of Directors
Rampart Capital Corporation
16401 Country Club Drive
Crosby, Texas 77532
Gentlemen:
Wm. H. Murphy & Co., Inc. ("MURPHY") makes reference to the letter from Murphy
to the Special Independent Committee of the Board of Directors (the "SPECIAL
COMMITTEE") of Rampart Capital Corporation ("RAMPART") dated June 9, 2003 (the
"FAIRNESS OPINION"), regarding an offer made by Charles W. Janke, Rampart's
Chairman and Chief Executive Officer, and J. H. Carpenter, Rampart's President
and Chief Operating Officer, to the Board of Directors of Rampart (the "BOARD")
to take the Company private under Rule 13e-3 promulgated by the Securities and
Exchange Commission (the "COMMISSION") under the Securities Exchange Act of
1934, as amended, by means of a reverse stock split (the "REVERSE SPLIT") in
which the minority shareholders of Rampart would be "cashed out" at a price of
$3.25 per share. In the Fairness Opinion, subject to the assumptions made,
matters considered and scope of limitations on the review undertaken and the
procedures followed by Murphy as set forth therein, Murphy opined that, as of
June 9, 2003, the Reverse Split is fair from a financial point of view to the
minority shareholders of Rampart.
You have advised us that since the date of the Fairness Opinion, a wholly owned
subsidiary of Rampart has acquired certain tracts of undeveloped real property
situated in Galveston, Texas, by public foreclosure of a promissory note held by
that subsidiary. This Rampart subsidiary "credit bid" the entire secured
indebtedness of $4,074,627.34 to acquire these tracts in the foreclosure
auction, in which Messrs. Janke and Carpenter have represented that no other
bids were received. You have also advised us that Rampart has obtained recent
independent appraisals of the foreclosed properties, indicating a total
appraised value of $7,240,000. You have further informed us that you have
engaged in extensive discussions and negotiations with Messrs. Janke and
Carpenter regarding certain risks perceived by them to be associated with the
ownership and ultimate disposition of these properties, which risks were not
taken into account in the appraisals including, without limitation, carrying
costs associated with certain of the tracts, marketing and closing costs, and
the costs and risks of litigation expected to be pursued by the foreclosed-upon
property owner.
You have also requested that I review the Company's most recent Form 10-QSB for
the quarter ended June 30, 2003, filed with the Securities and Exchange
Commission (the "FORM 10-QSB").
As a result of the apparent enhancement to Rampart's total asset value resulting
from the above-described foreclosure, you have advised us that the Special
Committee has negotiated an increase to the price previously offered by Messrs.
B-6
Janke and Carpenter at which the minority shareholders would be cashed out in
the Reverse Split from $3.25 per share to $3.50 per share. The Special
Committee has asked Murphy to supplement the Fairness Opinion to confirm that,
taking into account the foreclosure event described above and Murphy's review of
the Form 10-QSB, as of the date hereof, the proposed transaction and the revised
offer are fair from a financial point of view to the minority shareholders.
You should understand that Murphy has not undertaken to update or review any of
the analyses or studies performed by it in connection with the rendering of the
Fairness Opinion. For purposes of this letter, Murphy has reviewed only the
information provided by you related to the subsequent event described above, and
the Form 10-QSB. As this letter is a supplement to the Fairness Opinion, all of
the assumptions and limitations applicable to the Fairness Opinion remain
applicable hereto.
Based upon, and subject to the foregoing, it is our opinion that, as of the date
hereof, the proposed transaction and the revised offer are fair from a financial
point of view to the minority shareholders of Rampart.
Yours Very Truly,
WM. H. MURPHY & CO., INC.
/s/ William H. Murphy
---------------------------------
By: William H. Murphy,
President
B-7
PRELIMINARY
RAMPART CAPITAL CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
FOR
THE ANNUAL MEETING OF SHAREHOLDERS ON NOVEMBER 5, 2003
The undersigned, hereby revoking all prior proxies, hereby appoints Charles W.
Janke and J. H. Carpenter and each of them individually, as proxies with full
power of substitution, to vote all shares of Common Stock of RAMPART CAPITAL
CORPORATION standing in the name of the undersigned, at the Annual Meeting of
Shareholders of RAMPART CAPITAL CORPORATION to be held at 10:00 a.m., Houston
time, on November 5, 2003 at the Newport Golf Club and Conference Center, 16401
Country Club Drive, Crosby, Texas 77532, or at any adjournment(s) or
postponement(s) thereof, on all matters properly coming before said meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE PROPOSALS AS STATED
BELOW AND, UNLESS A CONTRARY CHOICE IS SPECIFIED, THIS PROXY WILL BE VOTED FOR
EACH OF SUCH PROPOSALS.
1. PROPOSAL TO APPROVE AN AMENDMENT TO OUR RESTATED ARTICLES OF INCORPORATION
TO EFFECT A 1-FOR-100,000 REVERSE STOCK SPLIT OF OUR COMMON STOCK,
FOLLOWING WHICH HOLDERS OF LESS THAN ONE SHARE WILL BE PAID $3.50 PER
PRE-SPLIT SHARE.
[ ] For [ ] Against [ ] Abstain
2. ELECTION OF SIX DIRECTORS TO SERVE UNTIL THE EARLIER OF (i) DEREGISTRATION
AND DELISTING OF OUR COMMON STOCK AND (ii) THE 2004 ANNUAL MEETING OF
SHAREHOLDERS.
NOMINEES: Charles W. Janke, J. H. Carpenter, James W. Christian, James J.
Janke, W. F. Mosley and Michael V. Ronca.
[ ] VOTE FOR all nominees listed above, except vote withheld
from the following nominees (IF ANY):_______________________
____________________________________________________________
[ ] VOTE WITHHELD from all nominees
(THIS PROXY MUST BE DATED AND SIGNED ON THE REVERSE SIDE.)
(CONTINUED FROM OTHER SIDE)
3. PROPOSAL TO RATIFY THE SELECTION OF PANNELL KERR FORSTER OF TEXAS, P.C. AS
INDEPENDENT PUBLIC ACCOUNTANTS OF RAMPART FOR 2003.
[ ] For [ ] Against [ ] Abstain
In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the meeting or any adjournment or
postponement thereof.
The undersigned hereby acknowledges receipt of the Notice of Annual
Meeting of Shareholders, the proxy statement furnished with the notice, our 2002
Annual Report on Form 10-KSB and Form 10-KSB/A and our quarterly report on Form
10-QSB for the six months ended June 30, 2003.
Dated: __________, 2003 ____________________________
Shareholder's Signature
____________________________
Signature if held jointly
(Please sign exactly as your name appears on this card. For joint accounts, each
joint owner should sign.
Executors, administrators, trustees, etc., should also so indicate when
signing.)
PLEASE COMPLETE, SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY BY USING THE ENCLOSED ENVELOPE.