As filed with the Securities and Exchange Commission on September 20, 1999
Registration No. 333-71089
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
AMENDMENT NO. 5
FORM SB-2/A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------
RAMPART CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
Texas 6159 76-0427502
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of Industrial Identification
incorporation or organization) Classification Code Number)
Number)
Rampart Capital Corporation
700 Louisiana, Suite 2550
Houston, Texas 77002
(713) 223-4610
(Address, including zip code and telephone number,
including area code, of registrant's principal executive offices
and principal place of business)
J. H. Carpenter
Rampart Capital Corporation
700 Louisiana, Suite 2550
Houston, Texas 77002
(713) 223-4610
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------
Copies To:
Maurice J. Bates, Esq. Norman R. Miller, Esq.
Maurice J. Bates, L. L. C. Wolin, Ridley & Miller LLP
8214 Westchester, Suite 500 3100 Bank One Center
Dallas, Texas 75225 1717 Main Street
(214) 692-3566 Dallas, Texas 75201-4681
(214) 939-4906
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective. If this Form is
filed to register additional securities for an offering pursuant to Rule 462(b)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. If this Form is a post-effective amendment
filed pursuant to Rule 462(c) under the Securities Act, check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering If delivery of the
prospectus is expected to be made pursuant to Rule 434, please check the
following box.
CALCULATION OF REGISTRATION FEE
Title of Each Class of Proposed Maximum Proposed Maximum
Amount of Securities to Amount to be
be Registered Registered Offering Price Per Share Aggregate
Offering Price Registration Fee
(1) (1) (1)
- ------------------------------------------------------------------------------------------------------------
Units 460,000 $21.00 $8,740,000 $2.6222
- ------------------------------------------------------------------------------------------------------------
Common Stock, par
value $0.01 (2) 920,000 (2) (2) (2)
- ------------------------------------------------------------------------------------------------------------
Redeemable Common Stock
Purchase Warrants (2) 460000 (2) (2) (2)
- ------------------------------------------------------------------------------------------------------------
Common Stock, par
value $0.01 (3) 460,000 $10.64 $4,894,400 $1,468.32
- ------------------------------------------------------------------------------------------------------------
Underwriter's Warrants (4) 40,000 $0.01 $100 $1.00
- ------------------------------------------------------------------------------------------------------------
Units Underlying the
Underwriter's Warrants 40,000 $31.35 $1,254,000 $376.20
- ------------------------------------------------------------------------------------------------------------
Common Stock, par
value $0.01 (5) 80,000 (5) (5) (5)
- ------------------------------------------------------------------------------------------------------------
Redeemable Common Stock
Purchase Warrants 40,000 (5) (5) (5)
- ------------------------------------------------------------------------------------------------------------
Common Stock, par
value $0.01 (6) 40,000 $13.82 $5552,800 $165.04
- ------------------------------------------------------------------------------------------------------------
Total $15,441,300 $4,633.36
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Included in the units. No additional registration fee is required.
(3) Issuable upon the exercise of the redeemable common stock purchase
warrants. Pursuant to Rule 416 there are also registered an
indeterminate number of shares of common stock, which may be issued
pursuant to the anti-dilution provisions applicable to the redeemable
common stock purchase warrants, the underwriters' warrants and the
redeemable common stock purchase warrants issuable under the
underwriters' warrants.
(4) Underwriters' warrants to purchase up to 40,000 units, consisting of an aggregate of 100,000 shares of
common stock and 40,000 redeemable common stock purchase warrants.
(5) Included in the units underlying the underwriters' warrants. No
additional registration fees are required.
(6) Issuable upon exercise of redeemable common stock purchase warrants
underlying the underwriters' units.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
400,000 Units
Rampart Capital Corporation
700 Louisiana Street, Suite 2510
Houston, Texas 77002
This is an initial public offering of 400,000 units. Each unit consists of two
shares of common stock, and one redeemable common stock purchase warrant.
Currently, there is no public market for our common stock, warrants or units.
This is a firm commitment underwriting. The underwriters have an option to
purchase an additional 60,000 units to cover over-allotments.
The Offering:
Per Unit Total
Public Offering Price $19.00 $ 7,600,000
Underwriting discounts $1.85 $ 740,000
Proceeds to Rampart $17.15 $ 6,800,000
This investment involves a high degree of risk. See "Risk Factors" beginning on
page 6.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
REDSTONE SECURITIES, INC.
Prospectus dated September 20, 1999
TABLE OF CONTENTS
Page
Prospectus Summary.............................................................................................. 3
Selected Consolidated Financial Information................................................................. 5
Risk Factors.................................................................................................... 6
Changing economic conditions could cause a decline in the value of our collateral and paying loans and
impact
our business negatively................................................................................................. 6
Our industry is changing and becoming more competitive, resulting in higher prices for our asset pools and
possibly lower revenues and profits for us..................................................................... 6
If the NOLs acquired in the MCorp acquisition are unavailable, we would be required to pay taxes on any
profits we realize, resulting in lower net profits................................................................. 6
The loss of the services of one or more of our executive officers could adversely affect our
business.................. 7
We need to continue to acquire asset pools to grow. Presently, we have no acquisitions pending. There is
no assurance we will find more asset pools.................................................................. 7
If we need additional capital, we may be limited to using debt financing protect our NOLs because the tax
laws relating to NOLs restrict a change in equity ownership. If we obtain debt financing, we may not be
able to repay such debt as it becomes due................................................................ 7
Your warrants can be redeemed on short notice at $.05 per share. If we redeem the warrants, you may be
forced to exercise or sell your warrants when you would rather hold them for possible appreciation....... 8
If we do not maintain an effective registration statement, you will not be able to exercise
your warrants and they may become valueless ............................................................. 8
Use of Proceeds........................................................................................... .... 9
Dividend Policy.................................................................................................. 10
Dilution............................................................................................................ 10
Capitalization....................................................................................................... 11
Management's Discussion and Analysis of Financial Condition and Results Of
Operations................................................................................................................. 12
Business............................................................................................................... 17
Additional Information................................................................................................. 24
Management................................................................................................................. 26
Certain Relationships and Related Transactions............................................................................... 30
Principal Shareholders...................................................................................................... 31
Certain Federal Income Tax Matters......................................................................................... 32
Description of Securities..................................................................................................... 35
Shares Eligible For Future Sale.......................................................................................... 37
Plan of Distribution........................................................................................ 38
Legal Matters....................................................................................................... .. . 41
Experts............................................................................................................... 41
Index to Consolidated Financial Statements.............................................................................. F-1
PROSPECTUS SUMMARY
Unless otherwise indicated, the information herein has been adjusted to
reflect a 3,000 to 1 stock split in December 1998, and assumes the underwriters'
over-allotment option and the underwriters' warrants are not exercised.
Profile of Rampart's Business Activities
Rampart Capital Corporation is a specialty financial services company that
acquires undervalued financial assets, primarily in the form of commercial debt
portfolios and real estate; manages and services its asset portfolios; collects
the debt and sells real estate and other assets for profit; and provides
short-term funding for real estate projects.
We purchase: non-performing asset pools, consisting primarily of commercial
loans and other commercial obligations at substantial discounts from their legal
balances by competitive bids and negotiated purchases; and real estate and other
assets in distressed situations at substantial discounts below market values.
Rampart is a Texas Corporation whose principal executive offices are located at
700 Louisiana, Suite 2510, Houston, Texas 77002; telephone: (713) 223-4610;
facsimile: (713) 223-4814. The electronic mail address is
mail@rampartcapital.com.
The Offering
Securities offered ......................... 400,000 units. Each unit consists of two shares of common stock
and one warrant to purchase an additional share of common stock.
The shares and the warrants included in the units will
automatically separate 30 days from the date of this prospectus,
after which the common stock and warrants in the units will trade
separately.
Warrants.................................... The warrants included in the units will be exercisable commencing
30 days after the offering. The exercise price of a warrant is
$10.64 The Company may reduce the exercise price for 20 days but
must give 15 days notice to warrant holders, which may be in the
form of a press release. The warrants expire March 21, 2001 but
the Company has the option to extend the exercise period up to an
additional 18 months. The Company may redeem some or all of the
outstanding warrants for $.05 per warrant at any time on 30 days
prior written notice if the closing price of the common stock on
the American Stock Exchange is at least $14.25 per share for 10
consecutive trading days.
Common stock to be outstanding
after the offering........................ 3,050,000 shares (1)
Warrants to be outstanding after the offering 400,000warrants (2)
Use of Proceeds............................. Purchase of discounted asset portfolios, temporarily reduce debt,
working capital and other general corporate purposes.
American Stock Exchange symbols............. Common stock "RAC"
........................................ Warrants "RAC.WS"
........................................ Units "RAC.U"
- -----------------
(1) Does not include:
Up to 400,000 shares issuable upon exercise of the warrants;
Up to 180,000 shares issuable upon exercise of the underwriters'
over-allotment option and the warrants included therein;
120,000 shares issuable upon exercise of the underwriters' warrants and
the shares underlying such warrants; and
375,000 shares reserved for issuance under the 1998 Stock Compensation
Plan.
(2) Does not include up to 40,000 warrants subject to the underwriters'
warrants.
Selected Consolidated Financial Information
The following selected financial data has been derived from our audited balance
sheets and income statements for the fiscal years ended December 31, 1997 and
1998, and our unaudited balance sheets and income statements for the six months
ended June 30, 1999 1998 and 1999. This selected financial data should be read
in conjunction with the consolidated financial statements of Rampart and related
footnotes included at the end of this prospectus.
Years Ended December 31, Six Months Ended June 30,
------------------------------ ------------------------------
1997 1998 1998 1999
-------------- --------------- ------------- ----------------
Operating Data: (Unaudited)
Revenues $1,801,239 $4,602,083 $3,036,537 $1,594,833
Operating expenses 2,186,720 2,043,037 994,026 1,524,446
--------- --------- --- ------- ---------
Earnings (loss) before income tax (385,481) 2,559,046 2,042,511 70,387
Income tax benefit (expense) 325,020 (484,591) (370,412) 44,035
--- ------- -- --------- -- --------- ----- ------
Net income (loss) (60,461) 2,074,455 1,672,099 114,422
Basic net income (loss) per common share $ (0.03) $ .92 $ .74 $ .05
Weighted average common shares outstanding 2,250,000 2,250,000 2,250,000 2,250,000
As of December 31, As of June 30,
------------------------------ -------------------------------------------
Adjusted
1997 1998 1998 1999 1999 (1)
------------------------------ -------------------------------------------
(Unaudited)
Balance Sheet:
Working capital (2) - - - - -
Current assets (2) - - - - -
Current liabilities (2) - - - - -
Total assets $ 6,245,871 $ 7,011,708 $ 6,274,477 $ 9,574,595 $ 10,881,595
Total liabilities 5,791,542 4,482,924 4,148,049 6,931,389 1.731,3891,
Shareholders' equity 454,329 2,528,784 2,126,428 2,643,206 9,150,206
Weighted average common shares outstanding 2,250,000 2,250,000 2,250,000 2,250,000 3,050,000
Book value per share $ 0.20 $ 1.12 $ .94 $ 1.17 $ 3.00
- -------
(1) Adjusted to reflect the sale of 400,000 units offered by this prospectus at
an initial public offering price of $19.00 per unit and application of the
net proceeds of $6,507,000.
(2) In our industry, short-term obligations are met by cash flow generated from
assets of indeterminable term. Consequently, consistent with industry
practice, our consolidated balance sheet is presented on an unclassified
basis.
RISK FACTORS
Investing in our units involves a high degree of risk. Prospective investors
should consider the following factors in addition to other information set forth
in the prospectus before purchasing the our common stock.
Changing economic conditions could cause a decline in the value of our
collateral and paying loans and impact our business negatively.
Our lines of business are particularly subject to periods of economic slowdown
or recession, rising interest rates, and declining demand for real estate.
Although these conditions may increase the number of non-performing debt and
undervalued real estate portfolios available for acquisition at discounted
prices, such conditions could reduce marketability of our paying loans and real
estate, thereby increasing the time required to liquidate our assets; reduce the
value or demand for collateral securing paying loans, thereby increasing the
risk of paying loans becoming non-paying, and increase the cost of capital
invested; and reduce the return on assets by lengthening the time that capital
is invested.
Our industry is changing and becoming more competitive, resulting in higher
prices for our asset pools and possibly lower revenues and profits for us
This industry developed approximately ten years ago. Initially, very little was
known about the profit potential of this industry, and there were few
competitors. As the industry has matured, participants have become increasingly
knowledgeable and more sophisticated in evaluating and pricing assets. As a
result, the competition for asset portfolios has increased, resulting in higher
prices and lower resulting gross yields; the number of portfolios available for
purchase has declined since 1995; the majority of the sellers in today's market
are not governmental entities, therefore, more negotiated transactions and fewer
bid situations are available.
Because of state and federal regulations, commercial banks, thrifts and
insurance companies are required to allocate more regulatory capital to
non-performing assets. Consequently, it is often preferable from a regulatory
capital perspective for these entities to sell assets at substantial discounts
from legal balances. In the aggregate, these entities are among the most active
sellers of assets. If regulations were changed in the future to decrease the
regulatory capital required to be allocated to non-performing assets, these
entities would have less incentive to dispose of assets. To the extent these
entities retain non-performing assets rather than selling them, there would be a
decreased supply of assets available for purchase by Rampart and its
competitors. Any significant decrease in the supply of non-performing assets
available for purchase would likely result in significant decreases in revenues
in the discounted asset acquisition industry. We cannot assure that regulatory
changes will not be adopted. If the NOLs acquired in the MCorp acquisition are
unavailable, we would be required to pay taxes on any profits we realize,
resulting in lower net profits for us. In the MCorp Acquisition, we acquired
entities having potentially utilizable NOLs in the amount of approximately $55.8
million. There is little or no legal authority governing many of the tax aspects
of the MCorp Acquisition since many determinations involving the use of the NOLs
after such acquisitions are questions of fact. We have not obtained a private
letter ruling from the Internal Revenue Service or an opinion of counsel
regarding the availability of the NOLs. Therefore, we cannot assure that the IRS
will not successfully challenge the availability of some or all of the NOLs. The
utilization of certain of the NOLs could also potentially be limited or
unavailable in the future in the event of the occurrence of a second ownership
change as defined in the Tax Code. (Certain of our NOLs are currently limited
due to a previous ownership change concerning the acquisition of certain of the
subsidiaries of Rampart.) In order to insure that a second change of ownership
does not occur, our existing shareholders have agreed to certain restrictions on
the transfer of their shares so as to avoid an ownership change and the
application of Section 382 of the Tax Code which defines such changes.
If we are able to utilize the NOLs, they must be utilized against profits
occurring in the acquired corporations as opposed to consolidated profits
realized by Rampart. We cannot assure that sufficient profits, if any, can be
generated in the acquired corporations prior to the expiration of some or all of
the potential NOLs or that the IRS will not deny use of all or part of the NOLs.
However, most of our income is now generated through the acquired corporations,
and all of our acquisitions and asset purchases since July 1997 have been made
through these subsidiaries.
The loss of the services of one or more of our executive officers could
adversely affect our business, in that Rampart is dependent on the efforts of
its senior management, particularly Charles W. Janke (Chairman of the Board and
Chief Executive Officer), J. H. Carpenter (President and Chief Operating
Officer), Charles F. Presley (Vice President, Treasurer and Chief Financial
Officer) and Eileen Fashoro, (Vice President and Assistant Secretary). If one or
more of these individuals become unable or unwilling to continue in his/her
present role, our business operations or prospects could be adversely impacted.
We cannot assure that any of the foregoing individuals will continue to serve in
his or her current capacity or for what time period this service might continue.
We do not have employment agreements with any of our executive officers.
We need to continue to acquire asset pools to grow. Presently we have no
acquisitions pending and cannot assure we will be able to find more asset pools
suitable for purchase. We plan to grow through acquisitions of debt portfolios,
real estate, and other assets. Currently we do not have any negotiations for
acquisitions pending. Further, we cannot assure or represent that we will be
successful in consummating any acquisitions on beneficial terms.
If we need additional capital, we may be limited to using debt financing to
protect our NOLs because the tax laws relating to NOLs restrict a change in
equity ownership. If we obtain debt financing, we may not be able to repay such
debt as it comes due.
A substantial portion of the proceeds of this offering will be utilized for
acquisitions of debt portfolios, real estate, and other assets. Therefore, we
may require additional capital to expand our operations. We may be limited in
the use of equity financing due to the restrictions on ownership changes
occasioned by Section 382 of the Tax Code. These limitations may require
additional debt financing. There can be no assurance that any such debt
financing will be available on favorable terms.
Execution of our business strategy depends to a significant degree on our
ability to obtain additional financing. Factors which could adversely affect
access to the capital markets, or the costs of such capital, include changes in
interest rates, general economic conditions and the perception in the capital
markets of our business, results of operations, leverage, financial condition
and business prospects.
Most of our indebtedness bears interest at floating rates which change when
certain short term benchmarks increase. If these benchmark rates increase beyond
what we had originally projected, our profitability will be adversely affected.
Additionally, if interest rates increase significantly, we may be unable to meet
these obligations. Even if we are able to service our asset acquisition debt,
significant increases in interest rates will depress margins on the resolution
of such asset portfolios, thereby decreasing overall earnings which may prevent
meeting debt obligations we have incurred or may incur in the future. Although
we may be able to negotiate ceilings on interest rates or otherwise hedge
against such risk, we cannot assure that we will be able to do so, or that we
will be able to so hedge against this risk at a reasonable cost.
Your warrants can be redeemed on short notice at $.05 per warrant. If we redeem
the warrants, you may be forced to exercise or sell your warrants when you would
rather hold them for appreciation. At any time after the warrants and the common
stock are separately tradable, we can redeem your warrants for $.05 per warrant,
provided the closing sale price of our common stock on the American Stock
Exchange has been at least $14.25 for ten consecutive trading days immediately
preceding the notice of redemption. If we give notice of redemption, a holder
would be forced to exercise the warrants and pay the exercise price at a time
when it may be disadvantageous or difficult for him to do so, to sell the
warrants at the current market price, or to accept the redemption price.
If we do not maintain an effective registration statement, you will not be
unable to exercise your warrants and they may become valueless. We must maintain
a current registration statement with the Commission relating to the shares of
common stock issuable upon exercise of the warrants in order for the warrant
holders to exercise their warrants. We will use our best efforts to maintain
such a registration statement. If we are unable to maintain a current
registration statement the warrant holders would be unable to exercise the
warrants and the warrants may become valueless. In addition, under applicable
state securities laws, the stock underlying the warrants must be registered for
sale or exempt from registration in any jurisdiction in which a warrant holder
resides. The warrants and the underlying common stock have been accepted for
listing on the American Stock Exchange which provides an exemption from
registration in most states.
USE OF PROCEEDS
We expect to net approximately $6,507,000 from the proceeds of this offering
($7,513,050 if the over-allotment option is exercised in full) based upon an
initial public offering price of $19.00 per unit after deducting the
underwriters' discount and $352,000 of expenses relating to the offering. We
intend to use the net proceeds as follows:
Amount %
-------------------- ------------
Acquisitions of undervalued real estate and discounted loans (1) $ 957,000 14.7
Temporarily reduce debt (2) 5,200,000 79.9
Working capital 350,000 5.4
-------------------- ------------
$ 6,507,000 100.0
-------------------- ------------
---------------
(1) (1) We intend to use as much as $957,000 for future acquisitions of asset
pools of non-performing loans and undervalued real estate consistent with
our business strategy. Currently, we do not have any negotiations for
acquisitions pending.
(2) Our total debt increased by $2,960,000 for the purchase of the Newport
assets. We plan to pay down our revolving credit facility until we have use
for the funds. The credit facility incurs interest at prime rate plus one
percent. Additionally, we will pay off the $1,400,000 debt to the Janke
Family Partnership, Ltd. incurred for the purchase of the Newport assets.
This debt has a fixed interest rate of 10%.
Pending application of the net proceeds of this offering, we may invest
such net proceeds in interest-bearing accounts, United States Government
obligations, certificates of deposit or short-term interest-bearing
securities.
Our proposed use of proceeds is illustrated in the following pie chart: The
following graph has been omitted.
DIVIDEND POLICY
We have never paid cash or other dividends on the common stock and do not
anticipate that we will pay cash dividends in the foreseeable future. The board
of directors plans to retain earnings for the development and expansion of
business. Any future determination as to the payment of dividends will be at the
discretion of the board of directors and will depend on a number of factors,
including future earnings, capital requirements, financial condition, and any
other factors that the board of directors may deem relevant.
DILUTION
As of June 30, 1999, our net tangible book value was $2,643,206 or $1.17 per
share based on 2,250,000 shares outstanding. The net tangible book value is the
aggregate amount of our tangible assets, less our total liabilities. The net
tangible book value per share represents the total tangible assets, less total
liabilities, divided by the number of shares outstanding. After giving effect to
(i) the sale of 800,000 shares at an offering price of $9.50 per share, and (ii)
the application of the estimated net proceeds, the pro forma net tangible book
value would increase to $9,150,206, or $3.00 per share. This represents an
immediate increase in net tangible book value of $1.83 per share to current
shareholders and an immediate dilution of $6.50 per share to new investors o r
65.0% as illustrated in the following table:
Public offering price per share $9.50
Net tangible book value per share before this offering $1.17
Increase per share attributable to new investors 1.83
------------
Adjusted net tangible book value per share after this 3.00
offering
--------------
Dilution per share to new investors $ 6.50
--------------
Percentage dilution 65.0%
The following table sets forth as of June 30, 1999, the number of shares
purchased as a result of the offering, the total consideration paid, and the
average price per share paid by the current shareholders (before deducting
underwriting discounts and other estimated expenses) at an offering price of
$9.50 per share.
Shares Purchased Total Consideration Average Price
-------------------------------- -------------------------------- -----------------
--------------- ----- ---------- -- ----------------- ----------- -----------------
Number Percent Amount Percent Per Share
--------------- -- -----------
--------------- ---------- ---------------- ----------- ----------- ----
Current Shareholders 2,250,000 73.8% $ 0% $0.00
22,500
New investors 800,000 (1) 26.2% 7,600,000 100.0% $9.50 (3)
------- ----- ---------- ------ -----
Total 3,050,000 (2) 100.0% $7,622,500 100.0%
========= ====== ========== ======
--------
(1) Upon exercise of the over-allotment option, the number of shares held by
new investors would increase to 920,000 or 29.0% of the total number of
shares to be outstanding after the offering and the total consideration
paid by new investors will increase to $8,740,000.
(2) Does not include 1,075,000 shares issuable upon the exercise of (i) the
warrants, (ii) the underwriters' over-allotment option and the warrants
included therein, (iii) the underwriters' warrants, or (iv) employee stock
options. To the extent that these options and warrants are exercised, there
will be further share dilution to new investors.
(3) Assumes no part of the unit purchase price attributed to the warrants.
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999: on an
actual basis; and on a pro forma as adjusted basis to give effect to the sale of
400,000 units at an initial public offering price of $19 per unit and the
application of the estimated net proceeds of $6,507,000, after deducting
estimated underwriting discounts and commissions and our estimated offering
expenses.
June 30, 1999
-------------------------------------
----------------- -- -----------------
(Actual) (As Adjusted)
----------------- -----------------
(Unaudited)
Liabilities:
Notes payable (1) $6,349,000 $649,37
----------------- -----------------
Shareholders' equity
Preferred Stock, $.01 par value, 10,000,000 0 0
shares authorized; no shares issued actual or
adjusted (2)
Common Stock, $.01 par value $ 2,500 $ 31,700
10,000,000 shares authorized, 2,250,000 shares
issued and outstanding 3,050,000 as adjusted (3)
Additional paid in capital 0 6,497,500
Retained earnings 2,620,706 2,620,706
----------------- -----------------
----------------- -----------------
Total shareholders' equity $2,643,206 $9,149,906
----------------- -----------------
----------------- -----------------
Total capitalization $8,992,206 $9,799,278
----------------- -----------------
- -----------
(1) Consistent with industry practice, the balance sheet is presented on an
unclassified basis. Accordingly, total capitalization as presented here
captures notes payable in their entirety. Subsequent to June 30, 1999,
notes payable were reduced by approximately $500,000.
(2) The preferred stock was authorized by the board of directors in December
1998.
(3) Does not include 1,075,000 shares issuable upon the exercise of
the warrants, the underwriters' over-allotment option, the underwriters'
warrants, or employee stock options.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should note that this prospectus contains certain "forward-looking
statements," including without limitation, statements containing the words
"believes," "anticipates," "expects," "intends," "plans," "should," "seeks to,"
and similar words. You are cautioned that such forward-looking statements are
not guarantees of future performance and involve risks and uncertainties. Actual
results may differ materially from those in the forward-looking statements as a
result of various factors, including but not limited to, the risk factors set
forth in this prospectus. The accompanying information contained in this
prospectus identifies important factors that could cause such differences. You
should read Rampart's Consolidated Financial Statements, related notes and other
financial information included in this prospectus in conjunction with the
following discussion of our operations.
Results of Operations
For the six-month periods ended in June 1999 and 1998, earnings before tax
decreased $1,972,124 ($2,042,511 in decreased $1,972,124 ($2,042,511 in 1998 to
$70,387 in 1999) because 1998 included the sale of a single real estate holding,
resulting in a net gain of $1,125,000, and a down payment of $300,000 on a 1998
settlement, while 1999 included net losses of approximately $120,000 on Newport
operating properties.
Over the period from December 31, 1997 to December 31, 1998, we have increased
net revenues by 155% to $4.6 million from $1.8 million. As a percentage of
revenues, costs and expenses decreased 77.0% (from 121.4% to 44.4%) for the same
period. A comparative summary of the earnings statements is shown below.
Operating Data: Year Ended December 31, Six Months Ended June 30,
----------------------------- -----------------------------
----------------------------- -----------------------------
1997 1998 1998 1999
------------- ------------ -------------- -----------
(Unaudited)
Revenues $ 1,801,239 $4,602,083 $ 3,036,537 $ 1,594,833
Cost of real estate and other costs - - - 239,783
General and administrative expense 1,544,120 1,548,895 728,281 1,017,047
Interest expense 642,600 494,142 265,745 267,616
------------- ------------ -------------- -----------
Earnings (loss) before income tax (385,481) 2,559,046 2,042,511 70,387
Income tax benefit (expense) 325,020 (484,591) (370,412) 44,035
------------- ------------ -------------- -----------
Net income (loss) $ (60,461) $ 2,074,455 $ 1,672,099 $ 114,422
------------- ------------
-------------- -----------
Basic net income (loss) per common $ (0.03) $ .92 $ 0.74 $ 0.05
share
-------------- -----------
------------- ------------ -------------- -----------
Diluted net income (loss) per common $ (0.03) $ .92 $ 0.74 $ 0.05
share
------------- ------------ -------------- -----------
Weighted average common shares 2,250,000 2,250,000 2,250,000 2,250,000
outstanding
------------- ------------ -------------- -----------
The following graphs have been omitted:
The following table presents certain financial data, as a percentage of net
revenues, for the periods indicated:
Year Ended Six Months Ended June 30,
December 31, March 31,
----------------------------- ----------------------------
1997 1998 1998 1999
------------- ------------ ----------- ------------
-------------
(Unaudited)
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of real estate - - - 15.0
General and administrative expense 85.7 33.7 24.0 63.8
Interest expense 35.7 10.7 8.8 16.8
------------- ------------ ----------- ------------
Earnings (loss) before income tax (21.4) 55.6 67.2 4.4
Income tax benefit (expense) 18.0 (10.5) (12.2) 2.9
------------- ------------
------------ -----------
Net income (loss) (3.4) 45.1 55.0 7.3
------------- ------------ ----------- ------------
Comparison of the Six Months Ended June 30, 1998 and June 30, 1999
Revenues for the first six months of 1999 declined $1.4 million as compared to
the period ending in 1998. The overall $1.4 million revenue decline is composed
of a $2.1 million decline in collection segment revenue which is offset by an
increase of $235,000 in the commercial real estate segment and an increase of
$354,000 in the investment real estate segment. Collection segment revenues,
which are comprised principally of the net gains on collections on asset pools,
declined $2.1 million primarily because of the 1998 sale of a large foreclosed
real estate asset from the purchased asset pools (which generated a $1,125,000
gain) and a $300,000 downpayment on a 1998 settlement. The increase in
commercial real estate revenues was primarily due to $142,000 of revenue in 1999
from operating properties included in the Newport assets acquired in 1999, and
because of the late 1998 reclassification of the San Antonio shopping center
from purchased asset pools resulting in a $78,000 increase commercial rental
revenues over 1998. Sales of investment real estate of approximately $360,000
accounts for the $354,000 change in segmental revenues for investment real
estate.
General and administrative expense ($1,017,047 in 1999 as compared to $728,281
in 1998) increased by $288,766. This increase is predominantly due to the
$260,307 in direct operating costs associated with the operating assets acquired
in the acquisition of the Newport assets. The disparity between the revenues and
operating expenses for the Newport assets is due to the facilities being closed
for over two months during the second quarter for rehabilitation. Although some
costs were reduced, the golf course still required ongoing maintenance during
the rehabilitation period.
Interest expense increased $1,871 (from $265,745 in 1998 to $267,616 in 1999).
The changes in interest expense by segment are explained by the financing
necessary to fund the cost of assets in the respective segments and the change
in the relative proportion of segmental assets.
In 1998 our earnings were produced primarily in subsidiaries that could not use
the NOLs acquired in the MCorp acquisition to offset earnings. This resulted in
an increase in deferred income tax expense of $200,000. In 1999 our earnings
were in subsidiaries that could use the acquired NOLs. Thus, we experienced a
deferred tax benefit of $47,035.
With the exception of the commercial real estate segment, the decline in net
income (from $1,672,099 in 1998 to $114,422 in 1999) is due to the same causes
as discussed in the decline in revenues. Commercial real estate earnings
declined $199,197 (1998 profit of $85,384 compared to a 1999 loss of $113,812)
because of losses in the operating entities acquired in the purchase of the
Newport assets. These operations were shut down for rehabilitation for two
months in the second quarter. These entities were managed for many years by the
bankruptcy trustee and were not actively marketed nor properly maintained. We
have hired a professional management company to operate the acquired entities
and are in the process of refurbishing facilities, updating equipment, and
establishing a marketing program
Comparison of the Years Ended December 31, 1997 and December 31, 1998
In late 1996 the opportunities to purchase loan portfolios at advantageous
prices declined due to reductions in loan offerings and increased competition.
Prior to 1997, in order to accelerate collections on our purchased asset pools,
we offered substantial discounts for quick cash settlements. The cash flow from
accelerated settlements was used to acquire additional asset pools and pay down
debt. During 1997, we changed our corporate strategy of giving substantial
discounts for the accelerated resolution of debt obligations and the sale of
foreclosed real estate. We decided to maximize collections, even if the recovery
period was extended. This strategic change was in response to the rising costs
of acquiring new asset pools. We believed that the additional costs to maximize
collections on existing assets would provide a higher yield than the potential
yield to be realized by purchasing higher cost portfolios. We also believed that
the strategy of maximizing collections was necessary to maintain viable yields
on new assets purchased.
When we acquire an asset pool, we allocate the total price we pay for it to the
individual loans and real estate assets that make up the pool based on our
initial estimate of fair value of each asset. Some of the assets may initially
be estimated as having no value, and no cost is allocated to those loans or real
estate assets. During 1998, we collected $799,926 on notes that we originally
assessed as worthless. Because of our original assessment, none of the
acquisition costs were allocated to these notes. Collections in the future of
this type may be expected to be as successful because they are secured by
collateral that is subject to foreclosure. A comparative summary of our
collections from inception to date on notes for which no original cost was
allocated and notes for which a cost basis was allocated is set forth in the
table in "Business-Investment in Discounted Debt Portfolios and Services."
The 155% increase in net revenues from 1997 to 1998 is principally the result of
a 171% increase in the net gains on collection on asset pools. This increase is
partially due to the strategy change, the timing of settlement negotiations, the
resolution of litigation and the sale of a large real estate holding in the
purchased asset pools ($1,875,000 selling price and a $1,125,000 net gain). The
$167,816 increase (from $281,827 in 1997 to $449,643 in 1998) in commercial real
estate revenue is due primarily to rental increases and new leases at our Dallas
retail center, and our decision to hold and operate the San Antonio retail
center, which caused us to reclassify the asset and its revenues from the
purchased asset pools to commercial real estate. We believe the positive effects
of our change in collection strategy will be increasingly evident during future
periods.
General and Administrative expenses for 1998 increased by $4,775 to $1,548,895
from $1,544,120 in 1997. These expenses were predominantly unchanged because no
additional staff was required to generate the increase in revenues.
Interest expense decreased $148,458 in 1998 to $494,142 from $642,600 in 1997.
This decrease is due to cash flow being used to reduce debt. Liabilities,
exclusive of deferred federal income taxes, decreased $1,746,618 in 1998.
Because of the strategy change in 1997 and the timing in the sale of the large
real estate holding, earnings before income tax as a percentage of revenues
increased from a 21.4% loss in 1997 to a 55.6% profit in 1998. Collection
segment earnings accounted for $2.76 million of the $2.94 million increase in
earnings ($2.31 million in 1998 compared to a loss of $450,000 in 1997). The
remaining increase is due to increased rental income. Because of the variability
in the timing of our revenues and the increased costs in acquiring new assets,
we may not be able to sustain such high earnings percentages.
Liquidity and Capital Resources
We have financed capital requirements with bank debt and borrowings from
shareholders and related parties. As of December 31, 1998, we had no outstanding
debt to shareholders or related parties. However, on February 1, 1999, the Janke
Family Partnership, Ltd. loaned $1.4 million for the acquisition of the Newport
assets.
We have a $5,000,000 revolving line of credit with Southwest Bank of Texas, NA.
The line of credit is secured by the purchased debt portfolios and foreclosed
real estate. As of December 31, 1998, the line of credit had an outstanding
balance of $3,303,000 and available credit of $1,697,000. As a result of the
acquisition of Newport assets, the balance on the line of credit, as of June 30,
1999, was $4,299,628 with available credit of $700,372. We are in compliance, or
have received waivers from the bank in the event of non-conformance, with all of
the loan covenants governing the credit facility.
Whenever acquisitions have required more funding than available through our
revolving credit facility a major shareholder and/or related parties have
provided temporary funding for acquisitions. However, we cannot assure that this
funding source will be available in the future.
Our cash requirements for calendar 1999 and in the future will depend upon
continued profitable operations and the level of future acquisitions. The net
proceeds from this offering, anticipated future profitable operations, and
temporary loans from a major shareholder are expected to provide for capital
requirements over the course of the next twelve months. We could be required to
seek additional financing prior to the end of twelve months, if
plans or assumptions change,
there are unanticipated changes in business conditions, or the proceeds of
this offering prove to be insufficient to fund operations.
Year 2000 Compliance
We are aware of the issues associated with the year 2000 as it relates to
information systems. A new information system certified by the supplier to be
Year 2000 compliant was installed in 1998. The cost of the new computers and
software was approximately $25,000. Based on the nature of our business, we do
not expect to experience material business interruption due to the impact of
Year 2000 compliance on our customers and vendors. Since our system is Year 2000
compliant and we are not dependent on vendors, there will not be any significant
additional expenditure. Year 2000 issues should not affect our liquidity,
financial position, or results of operations.
Accounting Standards
The Financial Accounting Standards Board periodically issues statements of
financial accounting standards. In April 1997, FASB issued Statement of
Financial Accounting Standards (SFAS) No. 128. The new standard replaces primary
and fully diluted earnings per share with basic and diluted earnings per share.
We were required to adopt SFAS No. 128 in the year ending December 31, 1998. We
have adopted SFAS No. 128 for the year ended December 31, 1998 and for all
periods presented.
In June 1997, the FASB issued SFAS No. 130 and 131. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its components.
SFAS No. 131 establishes standards for reporting about operating segments,
products and services, geographic areas, and major customers. The standards
became effective for calendar years beginning after December 15, 1997. We have
adopted these standards for the year ended December 31, 1998 and for all periods
presented. SFAS No. 130 and 131 will not have a material effect on our financial
condition or reported results of operation.
In February 1998, the Financial Accounting Standards Board issued SFAS No. 132,
"Employers' Disclosures about Pensions and Other Post Retirement Benefits - An
Amendment of FASB Statements No. 87,88, and 106". This Statement revises
employers' disclosures about pension and other post retirement benefit plans. It
does not change the measurement or recognition of those plans. Rather, it
standardizes the disclosure requirements for pensions and other post retirement
benefits to the extent practicable, requires additional information on changes
in the benefit obligations and fair values of plan assets that will facilitate
financial analysis, and eliminates certain disclosures that are no longer
useful. This Statement became effective February 1998. It will not have a
material effect on our financial condition or results of operations.
In August 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". This statement,
which applies to all entities, requires derivative instruments to be measured at
fair value and recognized as either assets or liabilities on the balance sheet.
The statement, as amended by SFAS No. 137, is effective for fiscal years
beginning after June 15, 2000 with earlier application encouraged but permitted
only as of the beginning of any fiscal quarter beginning after June 1998.
Retroactive application is prohibited. We do not believe this statement will be
applicable to our financial condition or our results of operations.
In December 1998, the Financial Accounting Standards Board issued SFAS No. 134
"Accounting for Mortgaged-Backed Securities Retained after the Securitization of
Mortgage Loans held for Sale by a Mortgage Banking Enterprise", which amends
SFAS No. 65. This statement is effective for the fiscal quarter beginning after
December 15, 1998. It will not have a material effect on our financial condition
or results of operations.
In April 1998, the Accounting Standards Executive Committee issued Statement of
Position 98-5 "Reporting on the Costs of Start-up Activities" requires all
start-up and organizational costs to be expensed as incurred. It also requires
all remaining historically capitalized amounts to these costs existing at the
date of adoption to be expensed and reported as the cumulative effect of a
change in accounting principles. SOP 98-5 is effective for all fiscal years
beginning after December 31, 1998. The Company believes that the adoption of SOP
98-5 will not have a material effect on its financial statements.
BUSINESS
Organization, Operations & Strategy
We are a specialty financial services company that commenced business operations
in 1994. Our office is located at 700 Louisiana, Suite 2510, Houston, Texas
77002. Our primary business activities are acquiring undervalued financial
assets, primarily in the form of discounted commercial debt portfolios and real
estate; managing and servicing our purchased asset portfolios; collecting the
debt and selling the real estate for profit; and providing short-term funding
for real estate projects.
We plan to increase our business through purchases of undervalued real estate
and other assets from business bankruptcies; portfolios of assets being sold by
real estate investment trusts; non-performing and under-performing assets from
insurance companies; real properties with delinquent property taxes from local
taxing authorities; debt portfolios from privately-held entities in the business
of acquiring and resolving discounted assets looking for exit strategies which
would generate long-term capital gains tax treatment; non-performing debt
portfolios from financial institutions; distressed assets in selected foreign
markets; and through the increased demand for short-term funding for selected
real estate projects.
We plan to maximize utilization of NOLs obtained from the MCorp acquisition by
optimizing profitability within the acquired subsidiaries which have NOLs by
concentrating future asset purchases within the companies.
Principal Acquisitions
The two acquisitions described below have been our two largest purchases of
undervalued financial assets in the last two years.
Acquisition of MCorp Subsidiaries and Assets
In March 1989, MCorp Inc., a large bank holding company, filed for protection
under the federal bankruptcy laws and in 1994 the bankruptcy court approved a
plan of reorganization and liquidation of MCorp. The court ordered that the
assets of MCorp be transferred into three grantor trusts for the benefit of the
creditors. In July 1997, we acquired, through competitive bid, certain corporate
subsidiaries and assets from the MCorp Liquidating Trusts. The following table
sets forth a classification of the assets, which were purchased for $1,308,723.
Allocation of
Purchase Price
------------------
Cash $ 427,589
Paying loans (principal balances of $2,432,000) 801,692
Foreclosed real property (approximate tax assessed value of $189,000) 79,442
Legal claims with unknown status 0
------------------
Total purchase price $
1,308,723
Less: cash acquired 427,589
------------------
Net purchase price $
881,134
------------------
Because of the unknown potential for collection of the legal balances on claims
with unknown status, we did not allocate any cost basis to those loans. As of
June 30, 1999, we had collected $1,203,922 or about 137% of the net purchase
price of the entire asset portfolio by selling some of the foreclosed real
estate, collecting some of the paying loans and collecting $183,628 on three of
the claims with unknown status. Based on our evaluation of future cash
recoveries of the remaining assets as of June 30, 1999, we presently estimate
additional recoveries of approximately $1.1 million (excluding interest) from
the sale of the real estate and collection of outstanding debt over the next
three years. If we attain our projected collections, total recoveries on the
MCorp assets would approximate $2.1 million.
Incidental to the acquisition of the assets described above, the entities
acquired in the MCorp acquisition had utilizable NOLs and built-in-losses of
approximately $55.8 million of which approximately $455,000 is expected to be
utilized for fiscal year 1998. We believe that these NOLs, subject to certain
possible limitations, may be used to offset future taxable income of the
acquired corporations. If we are able to utilize the NOLs, they must be utilized
against profits occurring in the acquired corporations as opposed to
consolidated profits realized by Rampart. We cannot assure that sufficient
profits, if any, can be generated in the acquired corporations prior to the
expiration of some or all of the potential NOLs. Nor can we assure that the
Internal Revenue Service will not deny use of all or a part of the NOLs.
Acquisition of Newport Assets
On February 1, 1999, we acquired all of the assets of a bankruptcy liquidation
estate, including real estate, receivables, assessment rights and other assets
for $2,969,538 - the contract price of $2,875,000 and closing costs of $94,538.
The assets were acquired from a liquidating trustee in Federal Bankruptcy Court.
The acquisition was financed with $1,475,000 of bank debt, $1,400,000 borrowed
from our majority shareholder. The balance was paid from available funds. The
total purchase price was allocated to the individual asset components based on
management's estimate of relative market value.
The assets acquired include:
Acres Allocated Costs
Commercial real property
18-hole golf course 124.53
Clubhouse, convention center and driving range 23.34
Expansion site - 9 holes for golf course 81.18
Expansion site - potential golf course 145.31
Sales Office 2.00
-------
Sub total 376.36 $1,547,051
------
Investment real estate
----------------------
Undeveloped acreage 237.39
311 fully developed lots 61.60
286 undeveloped platted lots 56.40
Platted and unplatted reserves and sales office 75.54
-------
Subtotal 430.93 479,651
Amenities
Swimming pool and 4 tennis courts 7.17
Restricted recreational reserves 81.52
Subtotal 88.69 0
-------
Total acreage 895.98
Assessment rights on 2,000 residential properties 850,000
Delinquent assessment receivables ($3.2 million legal balances) 60,619
Other assets ($ 75,000 estimated fair market value) 32,217
-----------
Total Purchase Price $2,969,538
The purchase was financed by borrowing $1.475 million from our revolving credit
facility with Southwest Bank of Texas, N.A. and $1.4 million from the Janke
Family Partnership, Ltd. The Bank recorded a first lien secured by the assets,
and the Janke Family Partnership, Ltd. was granted a second lien position. The
purchase was made through Rampart Properties Corporation, our wholly-owned
subsidiary, to utilize the NOLs attributable to that subsidiary.
Although the golf course, the clubhouse and the convention center will be
retained and operated by Rampart as businesses, and their acquisition was
material, we have not presented any financial statements for these operations
for the period prior to our acquisition. We are not presenting these
pre-acquisition financial statements because we believe that changes we are
making in the operations would mean that financial information on these
operations under their prior owners would not be meaningful. Among the reasons
we believe there is a lack of continuity of operations, making that information
unmeaningful, are:
Until approximately 1994 the club, comprised of the golf course and
the clubhouse, was operated as a private country club. All persons
using the facilities had to be members of the club, and paid dues for
the use of the club. In 1994 the prior developer converted the club
to a mixture of private and public use; there were still members who
paid dues to use the club, but non-members could also play the golf
course for a daily greens fee. The club continued to operate in this
manner while operated by the bankruptcy trustee. Upon the acquisition
of the club, we canceled all memberships and began operating the club
as a public, daily fee facility (with an "annual greens fee" also
being offered). The economics of private, mixed, and public clubs are
different.
The prior developer and the bankruptcy trustee operated the club
themselves. We have hired a professional golf course management
company to operate the golf course and conference center. The
management company is compensated with a fixed fee and a percentage
of operating profits.
The majority of the club employees of the prior developer and the
bankruptcy trustee have been replaced by employees of the management
company. The management company chose to continue employing some of
the golf course maintenance crew and select operational personnel.
All management personnel were replaced.
The physical facilities have been substantially changed. We are
expending approximately $350,000 to replant new greens, repair the
tees and bunkers, and upgrade the course irrigation system. The golf
course was in fact shut down for a period of 2 and one-half months
for this work.
Similarly, the clubhouse is undergoing substantial renovation, with
a total of $850,000 in budgeted improvements. The clubhouse was has
been shut down for this work, and will remain shut down until October
1999.
We are making these improvements in the hopes of upgrading the club and
therefore attracting more, and different (i.e. more "discerning" golfers and
conference center) patrons. We have embarked on an extensive marketing program
(which the bankruptcy trustee did not) to try to attract such patrons.
Industry & Competition; History of Operations
Our industry, commonly called the distressed asset business, started
approximately ten years ago when the FDIC and the Resolution Trust Corporation
began liquidating large portfolios of notes and real estate acquired from failed
banks and savings institutions. Initially, there were few participants in the
business. The two principal officers of Rampart were active participants at the
start-up of the industry and were involved in acquisitions of assets with face
values in excess of $400 million while associated with another company. As the
industry matured, more knowledgeable and sophisticated investors entered the
business. Numerous investment companies and partnerships were established to buy
distressed assets. Additionally, bank and other financial institutions have been
active purchasers of discounted assets in recent years. Since 1994, according to
the FDIC's database, over 300 separate entities have purchased debt and/or real
estate portfolios from the FDIC.
Rampart began acquiring distressed debt portfolios and other assets in 1994,
primarily on a competitive bid basis from the FDIC and RTC. In 1995 we began
acquiring assets from healthy financial institutions, banks, and insurance
companies interested in eliminating non-performing assets from their portfolios.
These acquisitions were made on both a competitive bid and negotiated purchase
basis. In 1996 we began to negotiate purchases of assets, primarily debt and
real estate, from bankruptcy estates and liquidating trusts.
In July 1997, we consummated the MCorp acquisition with a net cash outlay of
$881,134 in which we acquired paying loans with principal balances of $2.4
million, claims with unknown status with legal balances of approximately $34
million and foreclosed real estate with a tax assessed value of approximately
$189,000. The subsidiaries acquired in the MCorp acquisition had approximately
$55.8 million in NOLs and built-in-losses which we believe can be used to offset
future taxable income generated by the acquired corporate entities, subject to
certain possible limitations.
On February 1, 1999, we acquired for $2.97 million all the real estate,
receivables, and other assets of the bankruptcy liquidation estate of Newport
Partners, free and clear of all liens, claims and encumbrances. The assets
included developed and undeveloped real estate, an 18-hole public play golf
course, 9 partially developed expansion holes, a clubhouse, conference center,
furniture, fixtures, inventory, equipment, $3.2 million in delinquent property
assessments, and property assessment rights. Simultaneously, we sold the
property assessment rights and approximately 88 acres of recreational reserves
to the New Property Owners' Association of Newport for an $850,000 note and
other consideration. The note is payable interest only for the first year and
monthly installments of principal and interest at 10% per annum for 9 years.
Investment in Discounted Debt Portfolios & Services
Our primary business is the acquisition of non-performing financial asset pools,
primarily commercial loans and other commercial obligations. These pools are
purchased at substantial discounts from their legal balances by competitive bids
and negotiated purchases. Sources of discounted financial asset pools are
governmental entities, such as the FDIC; financial institutions; insurance
companies; bankruptcy estates; and liquidating trusts.
Typically, our discounted financial asset pools contain some or all of the
following non-performing loans and other debt obligations, primarily secured;
under-performing loans, primarily real estate secured; paying loans, primarily
real estate secured; other forms of unsecured debt
obligations; real estate; and other assets.
These financial asset pools are categorized as purchased asset pools. Initially
the assets in these pools are classified as collections-in-progress.
Collections-in-progress are non-performing claims that are in bankruptcy
proceedings, litigation or post-judgment collection status, and are being
actively worked for collection. As individual assets are resolved, they are
reclassified as paying loans or foreclosed real estate. Paying loans primarily
represent previously non-performing claims that have been resolved and are
currently paying according to the settlement agreement. Real property foreclosed
against a claim is categorized as foreclosed real estate. When Rampart
forecloses on assets that it wishes to hold for investment appreciation or
commercial operation purposes, it reclassifies those assets to different balance
sheet classifications and removes them from the purchased asset pools.
We currently own paying loans with principal balances totaling $4,604,140 as of
June 30, 1999. These loans have a cost basis of $1,484,405 or 32.2 % of
outstanding principal balances. The majority of these notes are secured by real
estate and will mature within three to five years.
Additionally, we have non-performing debt, secured and unsecured, with a cost
basis of $1,267,998 as of June 30, 1999. These assets are in various stages of
resolution, including litigation and bankruptcy. While there can be no assurance
that any recoveries will be realized on these assets, we estimate a minimum
recovery of $4.6 million over the next three years.
Success in this business segment is dependent on management's ability to assess
value on the asset pools being purchased, predominantly by review of the
seller's records. Because we purchase assets primarily from failed institutions,
bankruptcies, and other distressed situations, the information available for
review prior to purchase is often aged and incomplete. We allocate the purchase
price of the asset pool to each individual asset based on management's
assessment of potential collections. During the initial review, we allocate a
zero cost basis to those individual notes that appear to have no potential for
collection. After the purchase is consummated, subsequent in-depth reviews are
performed on each of the note files. Based on the more current information
derived from the in-depth reviews, we decide whether or not to pursue
collection. Our success in assessing value under these circumstances is shown in
the analysis below:
Original Estimated
No. of Cost Basis Collections Remaining
Assets Allocation to Date Collections
--------- -------------- -------------- ---------------
Assets originally assessed as worthless and subsequently 36 $ 0 $ 1,706,697 $ 1,917,989
collected 0
Assets originally assessed as collectible and subsequently 53 880,103 486,122 10,001
impaired
--------- -------------- -------------- ---------------
Subtotal 89 $ 880,103 $ 2,192,819 $ 1,927,990
Assets resolved or in resolution 1,469 12,880,105 20,191,365 13,326,310
--------- -------------- -------------- ---------------
All assets purchased from inception to June 30, 1999 1,558 $13,760,208 $22,384,184 $15,254,299
--------- -------------- -------------- ---------------
As noted in the schedule above, we have made significant collections ($1,706,697
through June 30,1999) on 36 notes that we initially assessed to be worthless.
Conversely, we have written off or written down 53 notes with a cost basis of
$880,103 with cumulative collections of $486,122 and expected remaining
collections of $10,001, thus realizing a loss of $383,980. Overall, we have
collected $1,312,717 in excess of the allocated costs on 89 loans where
management's original assessment of value was based on incomplete information.
The estimated remaining collections of $1,997,990 are predominantly secured by
real estate. We cannot assure that this performance will continue in the future;
however, we think our valuation procedures are conservative and therefore should
result in valuation exceptions being generally favorable.
Investment in Real Estate and other Assets
A portion of our business is managing real estate and other assets acquired by
foreclosure on non-performing debt and real estate purchased below our
assessment of market values. We sell the majority of the real estate and other
assets in an orderly manner in the marketplace. However, some of our real estate
properties, in our opinion, have significant potential for operating income or
increased market value. We manage these properties for future liquidation at
optimum price levels, and the earnings from these properties are significant
contributors to our current profitability. We believe that the ultimate sale of
these properties will generate significant future earnings. Only one asset has a
cost basis greater than ten percent of total assets. The recently acquired
Newport Golf Club and Conference Center cost $1.82 million comprised of $1.54
million of allocated acquisition costs and $282,000 in capital improvements, and
represents 19.0% of our total assets.
Some of our more significant real estate properties are summarized below:
Classified as Commercial real estate:
Newport Golf Club and Conference Center, Houston, Texas- 18 hole
championship golf course; 9 expansion holes partially completed; club
house and convention center ( 32,000 square feet combined area); allocated
acquisition cost of $1.54 million (acquired February 1, 1999);
$1.2 million in capital improvements planned, with $282,000 completed as
of June 30, 1999; market value of $3 million prior to any capital
improvements made, based on recent offer to purchase; held for market
appreciation, earnings and future sale.
Retail Center, Dallas, Texas - 40,000 square foot retail center, 100%
occupied; $250,000 annual net cash flow; substantial upside potential on
rents and market value; cost basis of $374,751, after depreciation; market
value of $1,500,000 based on broker's opinion of value; and held for
market appreciation, earnings and future sale.
Retail Center, San Antonio, Texas -
15,000 square foot retail center prime location, 100% occupied; $125,000
annual net cash flow; cost basis of $357,404, after depreciation; market
value of $1 million based on broker's opinion of value; and
held for market appreciation, earnings and future sale.
Classified as Purchased asset pools:
12 acres on South Padre Island, Texas undeveloped commercial waterfront
property; allocated cost basis on this property is zero;
market value of $750,000 based on broker's opinion of value, and currently
offered for sale.
Underground storage facility, Montgomery County, Texas - 40,000 square
foot underground storage facility; 37 acres of land; cost basis of
$75,000; market value of $900,000 based on a broker's opinion of value;
and currently offered for sale. Classified as Investment real estate:
None of our remaining investment real estate has been owned long enough
for significant appreciation over original costs.
We classify improved real estate held for appreciation and the production of
income as Commercial Real Estate. Revenues from Commercial Real Estate is
comprised of rental income and golf and event related income. When a commercial
property is sold, the sale amount is recorded as real estate sales. Investment
real property is comprised of unimproved real estate purchased and held for sale
or appreciation and unimproved real estate reclassified from purchased asset
pools and held for appreciation and rental income. Revenues associated with
investment real estate are recorded as rental income or real estate sales.
Purchased asset pool real estate is improved or unimproved real estate acquired
by foreclosure and available for immediate sale. The sale of foreclosed real
estate classified as purchased asset pools reflects in the net gains on
collections on asset pools.
Environmental Issues
Although we do not intend to acquire real estate with environmental problems, we
may find that some real estate we acquire through foreclosure, or direct
purchase or real estate collateralized by loans, may have the risk of
environmental problems. We try to determine that the properties we foreclose or
purchase do not have significant environmental problems before we acquire title
to these properties. Some of the real estate acquired had remedial environmental
problems. These problems consisted primarily of underground storage tanks and
asbestos. When environmental issues are identified, we notify the appropriate
state agency and engage a certified environmental consultant/contractor to
evaluate and remedy the problem. Once the problems are remedied and the proper
certifications are obtained from the agencies, we sell or manage the properties.
We have never suffered a loss on a property that had environmental issues. As of
the date of this prospectus, the remedial costs have not been significant and we
attempt to recover all environmental costs in our selling price.
All of the real estate properties are insured for property damage based on
replacement value and all of the properties have liability insurance coverage up
to $10 million.
Short-term Funding on Real Estate Projects
A newer business activity includes short-term funding for selected real estate
projects. Our typical funding situation requires that a developer identify and
bring to us a potential real estate project; we purchase 100% fee ownership in
the real estate; the developer purchase the real estate from us or arrange for
sales to third parties, subject to our approval; as compensation for identifying
and managing the project, the developer is assigned a net profit interest in the
real estate until the sale to a third party, the default date, or the developer
purchases the real estate; and the developer's net profit interest decreases
pursuant to a contractual timetable and is forfeited on a default date.
In 1998, we acquired land at a cost of $1,100,731 to provide funding for
developers. A portion of the projects have been sold for development, leaving
$749,842 of investment real estate at June 30, 1999. Legal Proceedings We are
not parties in any lawsuit, pending or threatened, which management believes
should have a material effect on our financial position, liquidity or results of
operations.
Employees
We have a permanent staff of seven employees - two executive officers, four
professional staff, which includes two administrative officers, and one clerical
staff. Additionally, we have established a network of contract due diligence
professionals and field support personnel to perform fieldwork and supplement
our permanent staff, when needed. We believe that we have solid relationships
with our employees. None of our employees are members of any labor union. Office
Facilities Our corporate offices are located in the Bank of America building
(previously the NationsBank building), 700 Louisiana, Suite 2510, Houston,
Texas, 77002. We have about 2,000 square feet of office space. Of this space, a
major law firm provides about 1,200 square feet to Rampart. We also have use of
the law firm's meeting rooms, law library, reception facilities, and other
facilities within the firm on an as needed basis. We estimate the fair market
value of the provided rental space and facilities to be approximately $1,200 per
month. The value of these facilities has not been recognized as either income or
expense. The law firm performs approximately 60% of our legal work and, as an
accommodation, provides the space and facilities without charge. The balance of
our space is leased on a month to month basis. Additional lease space is
available in the event expansion is required. Currently, we do not have a
written lease agreement. Additional Information Rampart has not previously been
subject to the reporting requirements of the Securities Exchange Act of 1934, as
amended. We have filed with the Securities and Exchange Commission a
registration statement on Form SB-2 (including any amendments thereto) under the
Securities Act with respect to the units offered. This prospectus does not
contain all of the information, exhibits, and schedules contained in the
registration statement. For further information about Rampart and the units,
read the registration statement, the exhibits and any schedules attached.
Statements made in this prospectus regarding the contents of any contract or
document filed as an exhibit to the registration statement are not necessarily
complete and, in each instance, you are referred to a copy of each contract,
document or exhibit filed with the registration statement. Each such statement
is qualified in its entirety by such reference. The registration statement, the
exhibits, and the schedules filed with the Commission may be inspected, without
charge, at the Commission's public reference facilities. These facilities are
located at
Room 1024, Judiciary Plaza, 450 Fifth Street, NW, Washington, D.C. 20549;
Northwestern Atrium Center, 500 West Madison Street, Room 1400, Chicago,
Illinois 60661; and Suite 1300, Seven World Trade Center, New York, New
York 10048.
Copies of the materials may also be obtained at prescribed rates by writing to
the Commission, Public Reference Section, 450 Fifth Street, NW, Washington, D.C.
20549. The Commission maintains a web site that contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the Commission at http://www.sec.gov.
As a result of this offering, Rampart will become subject to the reporting
requirements of the Exchange Act. Therefore, we will file periodic reports,
proxy statements, and other information with the Commission. Following the end
of each calendar year, we will furnish our shareholders with annual reports
containing audited consolidated financial statements certified by independent
public accountants and proxy statements. For the first three quarters of each
calendar year, we will provide quarterly reports containing unaudited
consolidated financial information.
Our reports, proxy statements, and other information will be available for
inspection at the principal office of the Amex at 86 Trinity Place, New York,
New York 10006.
MANAGEMENT
Directors and Executive Officers
Our directors and executive officers as of June 30, 1999 are identified below:
Name Age Position
Charles W. Janke 54 Chairman, Chief Executive Officer, & Director
J. H. (Jim) 57 President, Chief Operating Officer, Secretary
Carpenter & Director
Charles F. Presley 50 Vice-President, Chief Financial Officer,
Treasurer & Controller
James W. Christian 45 Director
James J. Janke 45 Director
Our directors are elected at each annual meeting of shareholders. The officers
are elected annually by the board of directors. Officers and directors hold
office until their respective successors are elected and qualified or until
their earlier resignation or removal.
Charles W. Janke was Chairman, President, Chief Executive Officer, and director
of Rampart since its organization in March 1994. He relinquished his position as
President to Mr. Carpenter effective January 1, 1999 and continues as a
director. 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 Exchange. 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 its management. For the period 1975 through 1985, Mr. Janke was
a stockholder and officer in Centurian National Group, Inc., a cemetery and
funeral home holding company, which was acquired by Service Corporation
International, a public corporation.
J. H. Carpenter was elected President and Chief Operating Officer in December
1998 to become effective January 1, 1999. He has been Vice President and a
director since the organization of Rampart in March 1994. 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 RTC. During the
period, 1989 to October 1991, Mr. Carpenter was associated with a company that
acquired, in conjunction with a major securities firm, purchased 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.
Charles F. Presley was elected Vice President and Chief Financial Officer in
December 1998 to become effective January 1, 1999 and has been the controller
for Rampart since 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.
James W. Christian was elected a director of Rampart in December 1998 to become
effective January 1, 1999. Mr. Christian is a member of the Houston, Texas law
firm, Christian & Smith L. L. P. where he has practiced since 1990. Mr.
Christian specializes in litigation, corporate and real estate law.
James J. Janke 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 Houston 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.
Outside Directors
We will appoint one director who is not an officer, employee, or 5% shareholder
upon conclusion of the offering as designated by the representative of the
underwriters. The director nominee designated by the representative of the
underwriters is Robert A. Shuey, III. Mr. Shuey is a director and Chief
Executive Officer of Institutional Equity Holdings, Inc. (formerly Euromed,
Inc.), which owns all of the outstanding stock of Redstone Securities, Inc., the
representative of the underwriters in this offering. Mr. Shuey has been a
director of Institutional Equity Holdings since July 1996 and Chief Executive
Officer since December 1998. Prior thereto, he had been Manager of Investment
Banking with Tejas Securities Group, Inc. since September 1997. He has been in
the investment banking business for more than the past five years, with National
Securities Corporation from September 1996 until August 1997; with La Jolla
Securities Corporation from April 1995 until August 1996, with Dillon Gage
Securities Corporation from January 1994 until April 1995 and Dickinson & Co.
from March 1993 to December 1993. Mr. Shuey is a member of the Board of
Directors of AutoBond Corporation, Westower Corporation and Transnational
Financial Corporation. Mr. Shuey is a graduate of Babson with a degree in
Economics and Finance. Compensation of Directors Directors who are also
employees will not receive any remuneration in their capacity as directors.
Outside directors will receive travel expense reimbursement and $1,000 per
meeting attended. Executive Compensation The following table sets forth the
compensation awarded to, earned by, or paid to the Chief Executive Officer and
the other officer of Rampart who received compensation of over $100,000 for the
fiscal years ended December 31, 1998, 1997 and 1996:
Summary Compensation Table
Name and Annual Compensation All Other
---------------------------------
Principal Position Fiscal Year Salary Bonus Compensation
- --------------------------- ------------------------ --------------- -------------- --------------------
Charles W. Janke 1998 $132,886 -- --
Chief Executive 1997 123,562 -- --
Officer
1996 226,824
- --------------------------- ------------------------ --------------- -------------- --------------------
J. H. Carpenter 1998 131,659 -- --
President 1997 122,437 -- --
1996 120,222
- --------------------------- ------------------------ --------------- -------------- --------------------
In the future, we intend to compensate officers in accordance with the
recommendations of a compensation committee consisting entirely of outside
directors. Restrictions on Transfer On January 21, 1999, Charles W. Janke and
J.H. Carpenter entered into a Share Transfer Restriction Agreement with Rampart.
Janke and Carpenter agreed, for a period of three years and one day from the
consummation of this offering, not to sell, assign, transfer, or otherwise
dispose of any shares of Rampart in a transaction which would cause an ownership
change under Section 382 of the Internal Revenue Code of 1986. Rampart agreed
not to issue any new shares of common stock or preferred stock for the same
period. Employment Agreements We do not have employment agreements with any
employees. Indemnification and Limitation of Liability As permitted by the Texas
Business Corporation Act, we intend to maintain insurance against any liability
incurred by our officers and directors in defense of any actions to which they
may be made parties by reason of their positions as officers and directors if it
can be obtained at a reasonable cost.
Rampart has been advised that it is the position of the Securities and Exchange
Commission that insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of Rampart pursuant to the foregoing provisions, or otherwise, such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
1998 Stock Compensation Plan
In December 1998, the board of directors adopted the 1998 Stock Compensation
Plan. The plan was also approved by the shareholders in December 1998. Under the
plan, up to 375,000 shares of our common stock may be granted as incentive
compensation to employees; officers; directors; and consultants to Rampart or
any parent, subsidiary or affiliate of Rampart.
The number of shares reserved and the shares granted are subject to adjustment
in the event of any subdivision, combination, or reclassification of shares. The
plan will terminate in 2008. Either incentive stock options within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended, or
non-qualified options, or both may be granted at the discretion of the board of
directors or a committee of the board of directors. The exercise price of any
option will not be less than the fair market value of the shares at the time the
option is granted. The options granted are exercisable within the times or upon
the events determined by the board or committee set forth in the grant, but no
option is exercisable beyond ten years from the date of the grant. The board of
directors or committee administering the plan will determine whether each option
is to be an ISO or non-qualified stock option; the number of shares; the
exercise price; the period during which the option may be exercised; and any
other terms and conditions of the option.
The holder of an option may pay the option price in cash; shares of Rampart with
a fair market value equal to the purchase price; or partly in shares and partly
in cash.
The options can only be transferred by will or by the laws of descent and
distribution. Except in the case of death, disability or change in control, no
option shall be exercisable after an employee ceases to be an employee unless
extended for not more than 90 days by the committee. An optionee who was a
director or advisor to Rampart may exercise his options at any time within three
months after his status as a director or advisor is terminated, unless his
termination was due to death or disability. If an optionee's employment as an
employee, director, or advisor, is terminated because of permanent disability,
the committee shall have the right to extend the exercise period for not longer
than one year from the date of termination.
The plan also permits the award of Stock Appreciation Rights to optionees. The
committee may award to an optionee, with respect to each share of common stock
covered by an option, a related SAR permitting the optionee to be paid the
appreciation on the related option. A SAR granted with respect to an ISO must be
granted together with the related option. A SAR granted with respect to a
non-qualified option may be granted together with or subsequent to the grant of
the related option. The exercise of the SAR shall cancel and terminate the right
to purchase an equal number of shares covered by the related option.
The plan can be amended or terminated at any time. The plan is to be
administered by the compensation committee of the board of directors which is
composed entirely of directors who are "disinterested persons" as defined in
Rule 16b-3 of the Securities Exchange Act of 1934, as amended. Currently,
options have not been granted to anyone.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1996, Charles W. Janke, Chairman and Chief Executive Officer, and members
of his immediate family or trusts loaned funds to Rampart as shown below as part
of the funds required to purchase two loan portfolios. The lenders were paid
interest and given a participation in the net cash profits of the recovery from
the portfolios. Net cash profits for purposes of profit participation were
defined as gross collections less direct collection costs.
Date Lending Party Amount Stated Profit Effective
Interest Participation % Interest Rate
Rate
January 1, 1996 Janke Family Partnership, Ltd. $100,000 12% 0% 12.0%
May 22, 1996 C.W. Janke Trust $112,500 12% 1.4625%, 27.1%
6.5825%
May 22, 1996 H. Y. Janke Trust $112,500 12% 1.4625%, 27.1%
6.5825%
May 22, 1996 Alfred Janke $125,000 12% 3.655% 23.9%
All of the above loans , including interest and profit participation of
$171,588, were paid in 1997 and 1998.
Furthermore, the Janke Family Limited Partnership, Ltd. has pledged certificates
of deposits as collateral for our bank financing. We could not have received the
amount of financing without this pledge. In order to compensate the family
limited partnership for the reduced yield on the money invested in the
certificates and pledged as collateral, we have paid an additional 6% interest
per year on the certificates pledged. We paid additional interest of $102,000 in
1997 and $84,000 in 1998, as the amount pledged as collateral has been reduced.
During 1998, InSource Financial Corporation, a company owned and controlled by
J. H. Carpenter, President and director, sold its interest in a real estate
mortgage and judgment lien to Rampart for $334,000. Rampart collected
approximately $375,000 on this mortgage and judgment during 1998. InSource
purchased the lien in 1995 for approximately $250,000, including capitalized
costs.
In 1998 we sold a property for $525,000 to a consortium of buyers consisting of
Mr. Carpenter, Mr. Janke, trusts for two of Mr. Janke's children, the Janke
Family Limited Partnership, Ltd., and Southwest Commerce Partners No. 1, Ltd., a
partnership in which Mr. Janke has a 25% interest. The sales price was equal to
the highest third party offer received on the property. We took 10% interest
bearing notes that mature in three years as payment for the property. We
purchased the property in 1994 as part of a debt portfolio purchased from the
FDIC and allocated a cost basis of $100,000 to the property.
In 1994, Southwest Commerce Partners No. 1, Ltd., a limited partnership in which
Mr. Janke has a 25% interest, contributed approximately $52,000 for its interest
in the purchase of two portfolios of non-performing debt from the FDIC. The
partnership received a 6.25% profit interest in the acquired portfolios. As of
December 31, 1998, all of the funds contributed by the partnership have been
repaid and the partnership retains a 6.25% profit interest in the assets
remaining in the acquired portfolios.
On February 1, 1999, we acquired through Rampart Properties Corporation, our
wholly-owned subsidiary, the real estate and other assets from the bankruptcy
estate of Newport Partners, LLC for $2,875,000. The Janke Family Partnership,
Ltd. loaned $1,400,000 to Rampart Properties Corporation to provide a portion of
the funding for the purchase. The balance of the purchase price was advanced by
Southwest Bank of Texas, N.A. against our revolving line of credit. The Janke
Family Partnership, Ltd. was secured by a real estate note secured by a deed of
trust which was secondary to the security interest of Southwest Bank. The real
estate note provides for monthly payments of interest only at a 10% annual
interest rate, commencing March 31, 1999. As of June 30, 1999, $58,686 of
interest had been paid on this note. The maturity date of the note is December
31, 1999. We intend to retire the Janke Family Partnership, Ltd. note from the
proceeds of this offering.
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.
PRINCIPAL SHAREHOLDERS
Unless noted, each beneficial owner has sole investment and voting power for the
shares beneficially owned.
Shares Owned
-------------------------------------------------------------------------
Prior to Offering After Offering
---------------------------------- -- -----------------------------------
Name and Address of Owner Number Percent Number Percent
- --------------------------------------------- --------------- -------------- ---------------- --------------
Charles W. Janke (1) 1,500,000 66.7% 1,500,000 46.1%
2147 Del Monte, Houston, Texas 77019
J. H. Carpenter (2) 750,000 33.3% 750,000 23.1%
700 Louisiana, Suite 2510, Houston, Texas
77002
Charles F. Presley -- -- -- --
4119 Tasselwood Lane, Houston, Texas 77014
James J. Janke -- -- -- --
1145 North Shepherd, Houston, Texas 77008
James W. Christian -- -- -- --
5 Martin Lane, Houston, Texas 77055
--------------- -------------- ---------------- --------------
All Executive Officers and Directors as a 2,250,000 100.0% 2,250,000 69.2%
group (5 persons)
--------------- -------------- ---------------- --------------
- -----------
(1) Mr. Janke's shares are owned by a family limited partnership in which Mr.
Janke is the general partner.
(2) The majority of Mr. Carpenter's shares (600,000 shares) is owned by a
family limited partnership. The general partner 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 this corporation and has voting power over its stock. The
balance of Mr. Carpenter's shares (150,000 shares) is held by a corporation
which is solely owned and controlled by Mr. Carpenter.
CERTAIN FEDERAL INCOME TAX MATTERS
The following discussion is a summary of certain of the significant federal
income tax matters with respect to the availability of the NOLs acquired by
Rampart in the MCorp Acquisition. We have not obtained a private letter ruling
from the IRS or an opinion of counsel regarding the availability of the NOLs.
The following discussion also does not address any aspect of state and local
taxation, including, without limitation, the effect of state law limitations on
the use of NOLs. This summary is based on the Internal Revenue Code, Treasury
Regulations promulgated and proposed thereunder, judicial decisions, and
published administrative rules and pronouncements of the IRS as in effect on the
date hereof. Changes in such rules or new interpretations thereof may have
retroactive effect and could therefore significantly affect the tax consequences
described below.
Basis for Availability of NOLs
On July 10, 1997, we acquired five corporate subsidiaries of the MCorp
Liquidating Trusts. The five corporate subsidiaries had existing NOLs on the
acquisition date. Generally, corporations that have experienced an ownership
change under code section 382 can utilize NOLs only to a limited extent.
However, there is an exception to the general rule when the loss corporations
are under the jurisdiction of a bankruptcy court and the acquiring corporation
is a creditor of the entity in bankruptcy. Our ability to utilize the NOLs is
based for the most part upon this exception. In addition to the NOLs that may be
utilized under the bankruptcy exception, we also have NOLs that are subject to
the limitations of code section 382. In addition to code section 382, other
limitations arising out of the consolidated federal income tax regulations can
also work to limit the use of the NOLs.
How Certain Ownership Changes Effect NOLs
In general, whenever there is a more than 50% ownership change of a corporation
during a three-year testing period, the ownership change rules in code section
382 limit the corporation's utilization of pre-change NOLs on an annual basis
following the ownership change to the product of the fair market value of the
stock of the corporation immediately before the ownership change and the
long-term tax exempt rate then in effect (which is an interest rate published
monthly by the IRS). A more than 50% ownership change occurs when the percentage
of stock of the corporation owned by one or more five-percent shareholders has
increased by more than 50 percentage points (determined by value) over the
lowest percentage of the corporation's stock owned by the same shareholders
during the three-year testing period. In any given year, the annual limitation
imposed by section 382 of the code may be decreased by built-in losses or
increased by built-in gains realized after, but accruing economically before,
the ownership change.
The effect of the ownership change rules of section 382 of the code may be
ameliorated by an exception that applies in the case of federal bankruptcy
reorganizations. Under the bankruptcy exception to section 382 of the code, if
the reorganization results in an exchange by qualifying creditors and
stockholders of their claims and interests for at least 50% of the debtor
corporation's stock (determined by vote and value), then the general ownership
change rules will not apply. Instead, the debtor corporation will be subject to
a different tax regime under which NOLs are not limited on an annual basis but
are reduced by certain provisions which are not applicable to the MCorp
acquisition. However, because the bankruptcy exception is based upon factual
determination and upon legal issues with respect to which there is uncertainty,
there can be no assurance that the IRS will not challenge the amount or
availability of the NOLs of the acquired corporations. Moreover, if the
bankruptcy exception applies, the Tax Code provides that any more than 50%
ownership change of the debtor within a two year period will result in
forfeiture of all of the debtor's NOLs incurred through the date of such second
ownership change.
Certain Limitations to Use of NOLs
The regulations provide limits on the use of NOLs when corporations that were
members of a former consolidated group join in the filing of a consolidated
federal income tax return of another group. Since the MCorp corporations were
acquired from a consolidated group, and Rampart will file a consolidated federal
income tax return, the separate return limitation year ("SRLY") rules apply to
these NOLs. Generally, these NOLs are available only to the extent that the
acquired corporation generates taxable income in the Rampart consolidated group.
In addition, the SRLY limitations operate after any annual limitations imposed
by code section 382.
Rampart's Basis for NOLs Availability
Because of the application of the bankruptcy exception, we believe that the
general ownership change rules of section 382 do not apply to limit the
utilization of certain of our NOLs. In addition, we believe that we have not
experienced a more than 50% ownership change since the prior ownership change.
Therefore, our NOLs have not been forfeited under section 382(1)(5)(D). However,
while the bankruptcy exception applies to most of the NOLs, the remaining NOLs
are subject to the operation of section 382 of the code. In order to prevent a
second change in ownership, Rampart's shareholders have agreed to certain
restrictions on the transfers of stock within the appropriate time limits.
Our 1997 Consolidated Federal Income Tax Return identified approximately $51.2
million of NOLs. In addition, we have identified approximately $8.4 million of
items that had no fair market value as of the acquisition date. These
built-in-losses were written off for tax purposes in 1998. The following is a
list of our NOLs and built-in losses:
Pre-acquisition NOLs of Rampart $ 1,400,000
NOLs subject to 382 limitation and SRLY limitations 2,400,000
NOLs and built-in losses not subject to 382 limitation but
subject to SRLY limitations 55,800,000
Total NOLs and built-in-losses $59,600,000
Less: NOLs subject to 382 limitation and SRLY limitations 2,400,000
Less: NOLs estimated to be utilized in 1998 (1) 1,122,000
-------------
Remaining utilizable NOLs $56,078,000
===========
-----------
(1) NOLs utilized in 1998 are estimated at $667,000 of pre-acquisition NOLs of
Rampart and $455,000 of acquired NOLs.
Although we have $59.6 million in total NOLs, our code section 382 limitation
NOLs, for all practical purposes, are not utilizable. Further, we expect to
utilize approximately $1,122,000 of NOL in 1998. Hence, we expect $56.0 million
of the NOLs to be available. However, the $56.0 million of the NOLs will only be
available to the extent that the specific acquired subsidiaries with the NOLs
have taxable income in the future to offset their NOLs under the SRLY rules.
Since July 1997, all of our acquisitions and asset purchases have been made
through our acquired subsidiaries and most of our income is generated through
these subsidiaries. We plan to continue to maximize utilization of the NOLs by
making acquisitions and purchases through our acquired subsidiaries.
NOLs Expiration Schedule
NOLs can be carried forward for 15 years from the date they arise. If the NOLs
are not used within the 15-year period, they expire. The following is a summary
of our NOLs and their expiration dates based on our 1997 Consolidated Federal
Income Tax Return, adjusted for the estimated utilization of approximately
$1,122,000 of NOL in 1998 and recognition of the $8.4 million of built-in
losses.
Year Amount
1999 $1,458,000
2000 1,894,000
2001 0
2002 10,377,000
2003 13,305,000
2004 -2013 29,044,000
---------------
$ 56,078,000
----------------
Our NOLs and built-in losses will not fully expire until 2013.
Existing Shareholder Restrictions to Protect NOLs
Certain changes in the ownership of Rampart could cause an additional limitation
of the use of the NOLs acquired with the MCorp Corporations. We have taken
precautions to prevent these ownership changes from happening. Prior to this
offering, Charles W. Janke and J. H. Carpenter were the only two 5%
shareholders. If they retain ownership of more than 50% of Rampart for at least
three years following this offering, an ownership change causing a limitation on
the use of the NOLs will not occur. The shareholders have entered into a Share
Transfer Restriction Agreement with Rampart not to reduce their ownership to
less than 50% ownership as defined in the code and regulations for three years
and one day following this offering.
DESCRIPTION OF SECURITIES
Units
Each unit consists of two shares of common stock and one warrant. The shares and
the warrants included in the units will automatically separate 30 days from the
date of this prospectus, after which the common stock and warrants in the units
will trade separately.
Common Stock
We are authorized to issue 10,000,000 shares of common stock, $0.01 par value.
As of June 30, 1999, there were 2,250,000 shares of common stock issued,
outstanding and held by three holders of record. Shareholders are entitled to
share ratably in any dividends paid on the common stock when, as and if declared
by the board of directors. Each share of common stock is entitled to one vote.
Cumulative voting is denied. There are no preemptive or redemption rights
available to shareholders of common stock. Upon liquidation, dissolution or
winding up of Rampart, the holders of common stock are entitled to share ratably
in the net assets legally available for distribution. All outstanding shares of
common stock and the shares to be issued in this offering will be fully paid and
non-assessable.
Redeemable Common Stock Purchase Warrants
Purchase Warrants The warrants will be issued in registered form under, governed
by, and subject to the terms of a warrant agreement between Rampart and American
Stock Transfer & Trust Company as warrant agent. The following statements are
brief summaries of certain provisions of the warrant agreement. Copies of the
warrant agreement may be obtained from Rampart or the warrant agent and have
been filed with the Commission as an exhibit to the registration statement of
which this prospectus is a part. Each warrant entitles the holder to purchase
one share of common stock at an exercise price of $10.64 per share at any time
after the common stock and warrants become separately tradable until March 20,
2001. We may reduce the exercise price of the warrants for a period of at least
20 days. The right to exercise the warrants will terminate at the close of
business on March 20, 2001. We may extend the exercise period up to an
additional 18 months. The warrants contain provisions that protect the warrant
holders against dilution by adjustment of the exercise price in certain events,
including but not limited to stock dividends, stock splits, reclassification or
mergers. A warrant holder will not possess any rights as a shareholder of
Rampart. Shares of common stock, when issued upon the exercise of the warrants
in accordance with the terms thereof, will be fully paid and non-assessable. At
any time after the warrants become separately tradable we may redeem some or all
of the warrants at a call price of $0.05 per warrant, upon thirty (30) day's
prior written notice if the closing sale price of the common stock on the
American Stock Exchange has equaled or exceeded $14.25 per share for ten (10)
consecutive days immediately preceding the notice of redemption.
The warrants may be exercised only if a current prospectus relating to
the underlying common stock is then in effect and only if the shares are
qualified for sale or exempt from registration under the securities laws of the
state or states in which the purchaser resides. So long as the warrants are
outstanding, we have undertaken to file all post-effective amendments to the
registration statement required to be filed under the Securities Act, and to
take appropriate action under federal law and the securities laws of those
states where the warrants were initially offered to permit the issuance and
resale of the common stock issuable upon exercise of the warrants. However,
there can be no assurance that we will be in a position to effect such action,
and the failure to do so may cause the exercise of the warrants and the resale
or other disposition of the common stock issued upon such exercise to become
unlawful. Preferred Stock The board of directors, without further action by the
shareholders, is authorized to issue up to 10,000,000 shares of preferred stock,
$.01 par value. The preferred shares may be issued in one or more series. The
terms as to any series, as relates to any and all of the relative rights and
preferences of shares, including without limitation, preferences, limitations or
relative rights with respect to redemption rights, conversion rights, voting
rights, dividend rights and preferences on liquidation will be determined by the
board of directors. The issuance of preferred stock with voting and conversion
rights could have an adverse affect on the voting power of the holders of the
common stock. The issuance of preferred stock could also decrease the amount of
earnings and assets available for distribution to holders of the common stock.
In addition, the issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control. We have no plans or commitments to
issue any shares of preferred stock.
Transfer Agent, Registrar and Warrant Agent
The Transfer Agent, Registrar and Warrant Agent for the units, common stock and
warrants will be American Stock Transfer & Trust Company, 40 Wall Street, New
York, New York 10005.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 3,050,000 shares of common stock
issued and outstanding. Of these shares, the 800,000 shares sold in this
offering (920,000 if the over-allotment option is exercised in full) will be
freely tradable in the public market without restriction under the Securities
Act, except shares purchased by an "affiliate" (as defined in the Securities
Act) of Rampart. The remaining 2,250,000 shares, will be "restricted shares"
within the meaning of the Securities Act. Restricted shares cannot be publicly
sold unless registered under the Securities Act or sold in accordance with an
applicable exemption from registration, such as that provided by Rule 144 under
the Securities Act. In general, under Rule 144, as currently in effect, a person
(or persons whose shares are aggregated) is entitled to sell restricted shares
if at least one year has passed since the later of the date such shares were
acquired from Rampart or any affiliate of Rampart. Rule 144 provides, however
that within any three-month period such person may only sell up to the greater
of 1% of the then outstanding shares of common stock (approximately 30,500
shares following the completion of this offering) or the average weekly trading
volume in our shares during the four calendar weeks immediately preceding the
date on which the notice of the sale is filed with the Commission. Sales
pursuant to Rule 144 also are subject to certain other requirements relating to
manner of sale, notice of sale and availability of current public information.
Anyone who is not an affiliate for a period of at least 90 days is entitled to
sell restricted shares under Rule 144 without regard to the limitations if at
least two years have passed since the date such shares were acquired from us or
any affiliate. Any affiliate is subject to such volume limitations regardless of
how long the shares have been owned or how they were acquired. After this
offering, the two executive officers will own 2,250,000 shares of the common
stock. Our officers, directors and shareholder directors will enter into an
agreement with the underwriters agreeing not to sell or otherwise dispose of any
shares for three years after the date of this prospectus without the prior
written consent of the underwriters. We cannot predict the effect, if any, that
an offer or sale of these shares would have on the market price. Nevertheless,
sales of significant amounts of restricted shares in the public markets could
adversely affect the fair market price of the shares, as well as impair our
ability to raise capital through the issuance of additional equity shares.
PLAN OF DISTRIBUTION
Underwriters
Under the terms and conditions of the underwriting agreement, we have agreed to
sell to the underwriters named below and each of the underwriters for whom
Redstone Securities, Inc. is acting as the representative, have severally agreed
to purchase the number of units set forth opposite its name in the following
table.
Underwriters Number of Units
Redstone Securities, Inc.
=====================
Total 400,000
=========================
The underwriters have advised us that they propose to offer the units to the
public at the initial public offering price per unit set forth on the cover page
of this prospectus and to certain dealers at such price less a concession of not
more than $___ per unit. These dealers may re-allow $____ to other dealers. The
representative will not reduce the public offering price, concession and
re-allowance to dealers until after the offering is completed. Regardless of any
reduction, we will receive the amount of proceeds set forth on the cover page of
this prospectus.
We have granted to the underwriters an option, exercisable during the 45-day
period after the date of this prospectus, to purchase up to 75,000 additional
units to cover over-allotments, if any. The option purchase price is the same
price per unit we will receive for the 400,000 units that the underwriters have
agreed to purchase. If the underwriters exercise such option, each of the
underwriters will purchase its pro-rata portion of such additional units. The
underwriters will sell the additional units on the same terms as those on which
the 400,000 units are being sold.
The underwriters can only offer the units through licensed securities dealers in
the United States who are members of the National Association of Securities
Dealers, Inc. and may allow the dealers any portion of its nine and
three-quarters (9.75%) percent commission.
The underwriters will not confirm sales to any discretionary accounts without
the prior written consent of their customers.
Under the terms of the underwriting agreement, the holders of the 2,250,000
restricted shares have agreed that for three years after the date of this
prospectus and subject to certain limited exceptions, without the prior written
consent of the representative, they will not sell; contract to sell; or
otherwise dispose of any shares, any options to purchase shares, or any
securities convertible into, exercisable for, or exchangeable for shares.
Substantially all of such shares would be eligible for immediate public sale
following expiration of the lock-up periods, and subject to the provisions of
Rule 144. However, the holders of such 2,250,000 shares have agreed with Rampart
that they will not dispose of their shares to the extent such disposition would
jeopardize the NOLs. In addition, Rampart has agreed that until 365 days after
the date of this prospectus and subject to certain exceptions, without the prior
written consent of the representative, Rampart will not issue; sell; contract to
sell; or otherwise dispose of any shares, any options to purchase any shares, or
any securities convertible into, exercisable for, or exchangeable for shares in
this offering, the issuance of common stock upon the exercise of outstanding
options or warrants or the issuance of options under its employee stock option
plan are not included in the restrictions we agreed to.
We have agreed to pay the representative a non-accountable expense allowance of
2.00% of the gross amount of the units sold ($152,000 on the sale of the units
offered) at the closing of the offering. The representative will pay the
underwriters' expenses in excess of the 2% allowance. If the expenses of
underwriting are less than the 2% allowance, the excess shall be additional
compensation to the underwriters. If this offering is terminated before its
successful completion, we may be obligated to pay the representative a maximum
of $50,000 on an accountable basis for expenses incurred by the underwriters in
connection with this offering. In addition to the non-accountable expense
allowance, we estimate that we will incur other costs of approximately $200,000
for legal, accounting, listing, printing, and filing fees.
We have agreed that, for a period of five years from the closing of the sale of
the units, we will nominate for election as a director a person designated by
the representative. If the representative has not exercised that right, the
representative shall have the right to designate an observer, who shall be
entitled to attend all meetings of the board and receive all correspondence and
communications sent by us to the members of the board. The representative has
designated Robert A. Shuey, III to be the person who is to be nominated for
election as a director or designated as an observer.
The underwriting agreement provides for indemnification among Rampart and the
underwriters against certain civil liabilities, including liabilities under the
Securities Act. In addition, the underwriters' warrants provide for
indemnification among Rampart and the holders of the underwriters' warrants and
underlying shares against certain civil liabilities, including liabilities under
the Securities Act, and the Exchange Act.
Underwriters' Warrants
Upon the closing of this offering, we have agreed to sell to the underwriters
for nominal consideration 40,000 underwriters' warrants. The underwriters'
warrants cover 40,000 units exercisable at $31.35 per unit for 80,000 shares of
common stock and 40,000 warrants identical to the public warrants, except the
exercise price of the underwriters underlying warrants is $13.82 (130% of the
exercise price of the public warrants). The underwrites warrants are exercisable
four-year period starting one year from the effective date of this offering. The
underwriters' warrants may not be sold, transferred, assigned or hypothecated
for a period of one year from the date of this offering except to the officers
of the underwriters and their successors and dealers participating in the
offering and/or their partners or officers. The underwriters' warrants contain
anti-dilution provisions providing for appropriate adjustment of the number of
units subject to the warrants under certain circumstances. The holders of the
underwriters' warrants have no voting, dividend or other rights as shareholders
of Rampart with respect to shares underlying the underwriters' warrants until
the underwriters' warrants have been exercised.
For four years from the one year anniversary of this offering, we have granted
to the holders of the underwriters' warrants or underlying shares "piggyback"
registration rights with respect to any registration statement we may file,
other than in connection with employee stock options, mergers, or acquisitions.
The holders of the underwriters' warrants and underlying shares shall have the
right to require us to include their shares in such registration statement at
our expense.
For the term of the underwriters' warrants, the holders of the warrants will be
given the opportunity to profit from a rise in the market value of our shares,
with a resulting dilution in the interest of other shareholders. The holders of
the underwriters' warrants can be expected to exercise the underwriters'
warrants at a time when we would, in all likelihood, be able to obtain needed
capital by an offering of our unissued shares on terms more favorable than those
provided by the underwriters' warrants. This could adversely affect the terms on
which we could obtain additional financing. Any profit realized by the
underwriters on the sale of the underwriters' warrants or shares issuable upon
exercise of the underwriters' warrants will be additional underwriting
compensation.
If the Representative, at his election at any time one year after the date of
this prospectus, solicits the exercise of the warrants, Rampart will be
obligated, subject to certain conditions, to pay the representative, a warrant
solicitation fee equal to 5% of the aggregate proceeds received by Rampart as a
result of the solicitation. No warrant solicitation fees will be paid within one
year after the date of this prospectus. No solicitation fee will be paid if the
market price of the common stock is lower than the then exercise price of the
warrants. No solicitation fee will be paid if the warrants being exercised are
held in a discretionary account at the time of their exercise, except where
prior specific approval for exercise is received from the customer exercising
the warrants and no solicitation fee will be paid unless the customer exercising
thee warrants states in writing that the exercise was solicited and designates
in writing the representative or other broker-dealer to receive compensation in
connection with the exercise. The representative may reallow a portion of the
fee to the soliciting broker.
Determination of Offering Price
The initial public offering price was determined by negotiations between the
representative and us. The factors considered in determining the public offering
price include our revenue growth since organization, the industry in which we
operate, our business potential and earning prospects, and the general condition
of the securities markets at the time of the offering.
The offering price does not bear any relationship to our assets, book value, net
worth or other recognized objective criteria of value.
Prior to this offering, there was no public market for the units, common stock
or warrants and we cannot assure that an active market will develop.
Stabilization; Passive Market Making Transactions
Certain persons participating in this offering may engage in transactions that
stabilize, maintain or otherwise affect the price of the units, including
overallotment, entering stabilization bids, effecting syndicate covering
transactions, and imposing penalty bids.
In connection with this offering, certain underwriters may engage in passive
market making transactions in the units on the Amex in accordance with Rule 103
of Regulation M.
American Stock Exchange Listing
The units, common stock and warrants have been approved for listing on the
American Stock Exchange under the trading symbols "RAC.U", "RAC", and "RAC.WS",
respectively.
LEGAL MATTERS
Maurice J. Bates L.L.C., Dallas, Texas, will pass on the validity of the
issuance of the units. Wolin, Ridley & Miller L.L.P., Dallas, Texas, will pass
on certain legal matters for the underwriters in connection with the sale of the
units.
EXPERTS
Pannell Kerr Forster of Texas P. C., independent certified public accountants,
has audited our financial statements for the fiscal years ended December 31,
1997 and 1998. Our financial statements are included in this prospectus and
registration statement, in reliance upon the report of said firm and upon their
authority as experts in accounting and auditing.
RAMPART CAPITAL CORPORATION
Index to Consolidated Financial Statements
Interim Consolidated Financial Statements - Unaudited
Page
Consolidated Balance Sheets as of June 30, 1999 and 1998 ......................................................F-2
Consolidated Statements of Operations for the Three Months
Ended June 30, 1999 and 1998...................................................................................F-3
Consolidated Statements of Shareholders' Equity for the Three Months Ended
June 30, 1999 and 1998.........................................................................................F-4
Consolidated Statements of Cash Flows for the Three Months Ended June 30, 1999
and 1998.......................................................................................................F-5
Notes to Consolidated Financial Statements.....................................................................F-6
Audited Financial Statements
Report of Pannell Kerr Forster of Texas, P.C., Independent Public Accountants.................................F-10
Consolidated Balance Sheets as of December 31, 1998 and 1997..................................................F-11
Consolidated Statements of Operations for the Years Ended December 31, 1998
and 1997......................................................................................................F-12
Consolidated Statements of Shareholders' Equity for the Years Ended December
31, 1998 and 1997.............................................................................................F-13
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998
and 1997......................................................................................................F-14
Notes to Consolidated Financial Statements....................................................................F-15
RAMPART CAPITAL CORPORATION
Consolidated Balance Sheets
(Unaudited)
June 30,
1998 1999
Assets
Cash $ 134,148 $ 176,800
Purchased asset pools, net 4,325,961 3,236,178
Commercial real estate, net 380,570 2,550,784
Investment real estate 810,102 1,435,579
Notes receivable from related parties 525,000 577,500
Notes receivable other - 850,000
Property and equipment, net 15,149 274,103
Other assets 83,547 473,651
----------- ----------
Total assets $6,274,477 $9,574,595
---------- ----------
Liabilities and Shareholders' Equity
Notes payable $3,603,830 $4,949,000
Notes payable to related parties 7,874 1,400,000
Accounts payable and accrued expenses 154,845 228,165
Income taxes payable - 4,124
Deferred tax liability 381,500 350,100
----------- -----------
Total liabilities 4,148,049 6,931,389
---------- ----------
Commitments and contingencies
Shareholders' equity
Common stock ($.01 par value;
10,000,000 shares authorized;
2,250,000 shares issued and
outstanding) 22,500 22,500
Retained earnings 2,103,928 2,620,706
---------- ----------
Total shareholders' equity 2,126,428 2,643,206
---------- ----------
Total liabilities and shareholders' equity $6,274,477 $9,574,595
---------- ----------
See notes to consolidated financial statements
F-2
RAMPART CAPITAL CORPORATION
Consolidated Statements of Operations
(Unaudited)
Six Months
Ended June 30,
1998 1999
Net gain on collections on asset pools $2,804,569 $ 714,429
Real estate sales - 343,017
Rental income 231,619 309,635
Other income 349 227,752
--------- ---------
Total revenue 3,036,537 1,594,833
Costs of real estate sales - (203,104)
Other costs - (36,679)
General and administrative expenses (728,281) (1,017,047)
Interest expense (265,745) (267,616)
------------- --------
Income before income tax benefit (expense) 2,042,511 70,387
Income tax benefit (expense) (370,412) 44,035
------------- ------
Net income $ 1,672,099 $ 114,422
------------- -------------
Basic net income per common share $.74 $.05
---- ----
Diluted net income per common share $.74 $.05
---- ----
Average common shares outstanding 2,250,000 2,250,000
------------- ------------
See notes to consolidated financial statements
F-3
RAMPART CAPITAL CORPORATION
Consolidated Statements of Shareholders' Equity
(Unaudited)
Common Retained
Stock Earnings Total
Balance, December 31, 1997 $ 22,500 $ 431,829 $ 454,329
Net income - 1,672,099 1,672,099
----------- -------------- --------------
Balance, June 30, 1998 $ 22,500 $ 2,103,928 $ 2,126,428
----------- -------------- --------------
Balance, December 31, 1998 $ 22,500 $ 2,506,284 $ 2,528,784
Net income - 114,422 114,422
----------- -------------- --------------
Balance, June 30, 1999 $ 22,500 $ 2,620,706 $ 2,643,206
----------- -------------- --------------
See notes to consolidated financial statements
F-4
RAMPART CAPITAL CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
Six Months
Ended June 30,
1998 1999
Cash flows from operating activities
Net income $ 1,672,099 $ 114,422
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Depreciation 5,657 22,418
Accrued interest income - (52,500)
Asset pool costs deducted in net gain on collections 1,879,278 363,065
Loan loss reserve (77,662) 12,225
Cost of real estate - 203,104
Cost of assessment rights sold - 850,000
Purchase of asset pools (597,488) (60,619)
Other costs capitalized - (2,014)
Decrease (increase) in other assets ( 15,640) 1,801
Increase (decrease) in accounts payable
and accrued expenses 27,614 (63,647)
Increase (decrease) in taxes payable - (8,500)
Increase (decrease) in deferred tax liability 381,500 (87,900)
------------- -------------
Net cash provided by operating activities 3,275,358 1,291,855
------------- -------------
Cash flows from investing activities
Note receivable from related party (525,000) -
Purchase of commercial real estate - (1,828,858)
Purchase of investment real estate (585,117) (537,952)
Purchase of assessment rights - (850,000)
Purchase of property and equipment - (250,042)
------------- -------------
Net cash used by investing activities (1,110,117) (3,466,852)
------------- -------------
Cash flows from financing activities
Proceeds from notes payable to related parties 7,874 1,400,000
Payments on notes payable to related parties (331,147) -
Proceeds from notes payable 803,830 2,302,711
Payments on notes payable (2,533,164) (1,094,199)
Proceeds from purchased paying assessments - 9,656
Financed sale of assessment rights - (850,000)
------------- -------------
Net cash provided (used) by financing activities (2,052,607) 1,768,168
------------- -------------
Net increase (decrease) in cash 112,634 (406,829)
Cash at beginning of period 21,514 583,629
------------- -------------
Cash at end of period $ 134,148 $ 176,800
------------- -------------
See notes to consolidated financial statements
F-5
RAMPART CAPITAL CORPORATION
Notes to Consolidated Financial Statements
June 30, 1999
(Unaudited)
Note 1 - Notes to Consolidated Financial Statements
Interim financial information
The unaudited interim financial statements as of June 30, 1998 and
1999 for the six month periods ended June 30, 1998 and 1999 have
been prepared on the same basis as the Company's audited financial
statements as of and for the years ended December 31, 1997 and
1998. In the opinion of management, all adjustments, consisting of
normal, recurring accruals, necessary to present fairly the
financial position of the Company at June 30, 1998 and 1999, and
the results of operation and cash flows for the six month periods
ended June 30, 1998 and 1999 have been included. The results of
operations for such interim periods are not necessarily indicative
of the results expected for the full year ending December 31,
1999.
As permitted by the rules of the Securities and Exchange
Commission, the unaudited interim financial statements do not
include all disclosures that might normally be required for
interim financial statements prepared in accordance with generally
accepted accounting principles. The unaudited interim financial
statements should be read in conjunction with the audited
financial statements, including the notes thereto, appearing
elsewhere in this Prospectus.
Commercial real estate
As of March 31, 1999, the Company changed the caption for this
asset classification from "Commercial rental property" to
"Commercial real estate" due to the acquisition during the first
quarter of 1999 of real estate which produces operating revenue as
opposed to rental revenue (see Note 2). Rents collected on
commercial rental property are recognized as rental income as
collected, and other revenues from the operation of commercial
properties is recognized as earned. Expenses of operating
commercial properties are charged to operations as incurred. Sales
of commercial real estate are generally recorded using the full
accrual method of accounting for sales of real estate, assuming
the conditions for recognition are met.
Other income
Other income is comprised of interest income, operating revenues
from the golf course and convention center acquired in the
acquisition described in Note 2, and miscellaneous revenue.
Revenue is recognized as earned.
See notes to consolidated financial statements
F-6
Note 2 - Acquisitions
On February 1, 1999, the Company acquired all of the assets of a
bankruptcy liquidation estate, including real estate, receivables,
assessment rights and other assets for $2,969,583, comprised of
the contract price of $2,875,000 and acquisition costs of $94,538.
The assets were acquired from a liquidating trustee in Federal
Bankruptcy Court. The acquisition was financed with $1,475,000 of
bank debt and $1,400,000 borrowed from the Company's majority
shareholder. The total purchase price was allocated to the
individual asset components based on management's estimate of
relative market value. None of the purchase price was allocated to
the community swimming pool and tennis courts or to the restricted
recreational reserves because the costs to rehabilitate these
properties to operational status was estimated to exceed the
market value of these assets and the restricted usage of these
assets impaired market value.
The assets acquired include:
Acres Allocated Costs
Commercial real estate
18-hole golf course 124.53
Club house, convention center and driving range 23.34
Expansion site - 9 holes for golf course 81.18
Expansion site - potential golf course 145.31
Sales Office 2.0
---------
Sub total 376.36 $1,547,051
------
Investment real estate
Undeveloped acreage 237.39
311 fully developed lots 61.60
286 undeveloped platted lots 56.40
Platted and unplatted reserves 75.54
-------
Sub total 430.93 479,651
------
Amenities
Swimming pool and 4 tennis courts 7.17
Restricted recreational reserves 81.52
Subtotal 88.69 0
-------
Total acreage 895.98
Assessment Rights
Assessment rights on 2,000 residential properties 850,000
Purchased Asset Pools Legal Balances
Delinquent assessment receivables $3.2 million 60,619
Other Estimated Value
Other assets $ 75,000 32,217
Total Purchase Price $2,969,538
See notes to consolidated financial statements
F-7
Note 2 - Acquisitions (Continued)
The allocation of $850,000 of the purchase price to the assessment
rights (the "Rights") reflected the amount received by the
Company, in the form of a note, for the simultaneous resale of the
assessment rights to an unrelated buyer (which is the property
owners' association for the development). In addition to the note,
the Company received other consideration as described below. The
buyer acquired the Rights subject to the obligation to perform the
required property maintenance. As a requirement to the buyer's
purchase of the Rights, the Company also deeded to the buyer the
amenities described above to which the Company had allocated no
portion of the purchase price because of the needed rehabilitation
and restricted usage, subject to the buyer's obligation to expend
$150,000 to renovate those amenities.
The note is secured by a collateral assignment of the Rights, the
related assessment receivables, and associated real property
foreclosure rights. Interest on the note is payable monthly at 10%
per annum through December 1999, at which time monthly principal
and interest payments of $12,030 are due through December 2008.
The Rights provide the buyer with an enforceable lien on the
underlying properties, and the historical and anticipated cash
flows from the collection of the fees, which is reasonably assured
because of the lien, and provide for the buyer's performance of
the required maintenance and the repayment of the note in
accordance with its terms. The sale did not require any contingent
performance by the Company as a condition of the buyer's repayment
of the note and, accordingly, the full amount of the note has been
considered in the computation of gain or loss.
The other consideration received by the Company consisted of a
waiver (the "Waiver") of all fees and assessments payable on lots
it owns, presently or in the future, within the jurisdiction of
the development for which the Rights apply and the option, in
certain circumstances, to acquire liens the property owners'
association may acquire as the result of future delinquencies in
assessment rights. The Waiver includes $75,000 of assessments
payable at the time of sale. The present value of future
assessments waived is estimated to be $75,000. No accounting
recognition was given to the Waiver. Additionally, no accounting
recognition was given to the option to purchase future liens
because the value of the option cannot be reasonably estimated.
The resale of the assessment rights resulted in no gain or loss
since the $850,000 cost allocated to the assessment rights equaled
the amount of the note received from the buyer.
See notes to consolidated financial statements
F-8
Note 3 - Net Gain on Collections on Asset Pools
The net gain on collection on asset pools is comprised of the following:
June 30,
1998 1999
-------------- ----------
Collections $ 4,606,185 $ 1,089,719
Recovery of allocable portion of asset pool costs (1,801,616) (375,290)
-------------- --------
Net gain on collections on asset pools $ 2,804,569 $ 714,429
-------------- --------------
Note 4 - Related Party Transactions
In January 1999, the Company borrowed $1,400,000 from a family
limited partnership of the Company's majority shareholder.
Interest on the note is payable monthly at 10% per annum, with the
outstanding principal and interest due December 31, 1999. The
funds were used to complete the acquisition described in Note 2.
Note 5 - Segment Reporting
The Company operates in four business segments (i) purchased asset
pools, (ii) commercial real estate, (iii) investment real estate,
and (iv) sales financing. The purchased asset pools segment
involves the acquisition, management, servicing and realization of
income from collections on or sales of portfolios of undervalued
financial assets, and in some instances real estate the Company
may acquire as part of an asset pool or as the result of
foreclosing on the collateral underlying an acquired real estate
debt. The commercial real estate segment involves holding
foreclosed and acquired improved real estate for appreciation and
the production of income. The investment real estate segment
involves holding foreclosed and acquired unimproved real estate
for future appreciation and acquiring unimproved real estate in
conjunction with short-term funding for developers. The sales
financing segment is comprised of non-discounted notes held by the
Company by virtue of financing the sale of Company assets. The
notes are fully secured with real estate or other collateral.
Financial information by reportable operating segment is as
follows:
As of and for the six months ended June 30, 1999
Purchased Commercial Investment Sales
Asset Pools Real Estate Real Estate Financing Totals
Revenue $ 714,429 $ 413,288 $ 382,741 $ 84,375 $ 1,594,833
Segment profit 45,367 (113,812) 120,507 62,360 114,422
Segment assets 3,236,178 2,797,554 1,435,579 1,427,500 8,896,811
Depreciation and amortization - 17,897 - - 17,897
Capital expenditures 62,633 528,577 537,952 - 1,129,162
Net interest expense 97,130 122,410 26,061 22,015 267,616
As of and for the six months ended June 30, 1998
Purchased Commercial Investment Sales
Asset Pools Real Estate Real Estate Financing Totals
Revenue $ 2,829,424 $ 178,613 $ 28,500 $ - $ 3,036,537
Segment profit 1,597,374 85,384 989 (11,648) 1,672,099
Segment assets 4,325,961 380,570 810,102 525,000 6,041,633
Depreciation and amortization - 3,052 - - 3,052
Capital expenditures 597,418 - 585,117 - 1,182,535
Net interest expense 214,238 16,894 22,965 11,648 265,745
Reconciliation of reportable segment assets to the Company's
consolidated totals as of June 30 are as follows:
Assets 1998 1999
------ ------------- ---------
`
Total assets for reportable segments $ 6,041,635 $ 8,896,811
Cash not allocated to segments 134,148 176,800
Other assets not allocated to segments 98,694 500,984
------------- -------------
Consolidated total assets $ 6,274,477 $ 9,574,595
- -------- -------------------
See notes to consolidated financial statements
F-9
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Rampart Capital Corporation
We have audited the accompanying consolidated balance sheets of Rampart Capital
Corporation and subsidiaries (the "Company") as of December 31, 1998 and 1997,
and the related consolidated statements of operations, stockholders' equity and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Rampart Capital
Corporation and subsidiaries as of December 31, 1998 and 1997, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
Houston, Texas
January 29, 1999, except for PANNELL KERR FORSTER OF TEXAS, P.C.
Note 15, as to which the date
is August 17, 1999
F-10
RAMPART CAPITAL CORPORATION
Consolidated Balance Sheets
December 31,
1997 1998
Assets
Cash $ 21,514 $ 583,629
Purchased asset pools, net 5,530,088 3,558,491
Commercial rental property, net 380,854 732,156
Investment real estate 224,986 1,100,731
Notes receivable from related parties - 525,000
Property and equipment, net 20,522 36,249
Other assets 67,907 475,452
------------ -----------
Total assets $6,245,871 $7,011,708
---------- ----------
Liabilities and Stockholders' Equity
Notes payable $5,333,164 $3,740,488
Notes payable to related parties 331,147 -
Accounts payable and accrued expenses 127,231 291,812
Federal income taxes payable - 12,624
Deferred tax liability - 438,000
---------------- -----------
Total liabilities 5,791,542 4,482,924
---------- ----------
Commitments and contingencies
Stockholders' equity
Common stock ($.01 par value;
10,000,000 shares authorized;
2,250,000 shares issued and
outstanding) 22,500 22,500
Retained earnings 431,829 2,506,284
----------- ----------
Total stockholders' equity 454,329 2,528,784
----------- ----------
Total liabilities and stockholders' equity $6,245,871 $7,011,708
---------- ----------
See notes to consolidated financial statements
F-11
RAMPART CAPITAL CORPORATION
Consolidated Statements of Operations
Year Ended December 31,
1997 1998
Net gain on collections on asset pools $1,421,319 $3,857,594
Rental and other income 379,920 744,489
----------- -----------
Total revenue 1,801,239 4,602,083
General and administrative expenses (1,544,120) (1,548,895)
Interest expense (642,600) (494,142)
------------ -----------
Income (loss) before income tax benefit (expense) (385,481) 2,559,046
Income tax benefit (expense) 325,020 (484,591)
------------ -----------
Net income (loss) $ (60,461) $2,074,455
------------ ----------
Basic net income (loss) per common share $ (.03) $ .92
-------------- --------------
Diluted net income (loss) per common share $ (.03) $ .92
-------------- --------------
Average common shares outstanding 2,250,000 2,250,000
------------ ----------
See notes to consolidated financial statements
F-11
RAMPART CAPITAL CORPORATION
Consolidated Statements of Stockholders' Equity
Common Retained
Stock Earnings Total
Balance, December 31, 1996 $22,500 $ 492,290 $ 514,790
Net loss - (60,461) (60,461)
------------ ------------- -------------
Balance, December 31, 1997 22,500 431,829 454,329
Net income - 2,074,455 2,074,455
------------ ------------ -----------
Balance, December 31, 1998 $22,500 $2,506,284 $2,528,784
------- ---------- ----------
See notes to consolidated financial statements
F-12
RAMPART CAPITAL CORPORATION
Consolidated Statements of Cash Flows
Year Ended December 31,
1997 1998
Cash flows from operating activities
Net income (loss) $ (60,461) $2,074,455
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities
Depreciation 13,852 15,394
Asset pool costs deducted in net gain on collections 1,018,956 2,319,364
Change in loan loss reserve 115,088 (77,662)
Purchase of asset pools (299,961) (504,373)
Other costs capitalized with asset pools (314,695) (125,732)
Decrease (increase) in other assets 1,410 (407,545)
Increase (decrease) in accounts payable
and accrued expenses (133,413) 164,581
Increase in federal income taxes payable - 12,624
Increase (decrease) in deferred tax liability (325,020) 438,000
----------- -----------
Net cash provided by operating activities 15,756 3,909,106
------------ ----------
Cash flows from investing activities
Acquisition of subsidiaries, net of cash
acquired (881,134) -
Purchase of investment real estate - (875,745)
Purchase of property and equipment - (22,423)
----------------- -----------
Net cash used by investing activities (881,134) (898,168)
------------ -----------
Cash flows from financing activities
Payments on notes payable to related
parties (100,000) (331,147)
Proceeds from notes payable 1,931,601 1,664,334
Payments on notes payable (1,003,000) (3,257,010)
Financed asset sales to related parties - (525,000)
----------------- -----------
Net cash provided (used) by financing activities 828,601 (2,448,823)
------------ ----------
Net increase (decrease) in cash (36,777) 562,115
Cash at beginning of year 58,291 21,514
------------- ------------
Cash at end of year $ 21,514 $ 583,629
------------- -----------
See notes to consolidated financial statements
F-13
RAMPART CAPITAL CORPORATION
Notes to Consolidated Financial Statements
December 31, 1998
Note 1 - Nature of Business and Summary of Significant Accounting Policies
Description of business
Rampart Capital Corporation (the "Company"), established in March
1994, is a specialized financial services company which acquires,
manages, services and realizes income from collection or sale of
portfolios of undervalued financial assets, primarily
non-performing commercial debt and other forms of legal
obligations (purchased asset pools). A significant portion of the
debts are secured by real estate or other assets. The purchased
asset pools acquired by the Company may also include real estate,
or the Company may acquire real estate as the result of
foreclosing on the collateral underlying an acquired debt. The
Company generally seeks to immediately sell foreclosed real
estate, but in some instances may elect to hold a property for
appreciation and/or the production of income. The Company
purchases these asset pools at substantial discounts from their
outstanding legal principal amounts from financial institutions,
regulatory agencies and bankruptcy courts. Purchased asset pools
are primarily acquired by public sealed bid sales of portfolios of
loans, by sealed bid sales limited to a small number of invited
participants and by negotiated transactions on behalf of the
Company. Additionally, the Company provides short-term funding for
real estate projects.
Basis of consolidation
The consolidated financial statements include the accounts of
Rampart Capital Corporation and all of its subsidiaries.
Intercompany accounts and transactions have been eliminated.
Purchased asset pools
Purchased asset pools consist of pools of assets, which, when
purchased, are comprised of non-performing debts or other legal
obligations which are not performing pursuant to the contractual
terms of the underlying agreements (collectively "debt assets"),
and in some cases incidental real estate. Each purchased asset
pool represents the assets purchased by the Company as a pool in a
single transaction. The Company acquires the pools at substantial
discounts from the outstanding legal balances under the loan or
debt agreements.
At the acquisition date, the aggregate cost of a purchased asset
pool is allocated to individual debt and real estate assets
comprising the asset pool at the time of purchase on the basis of
management's estimate of relative fair values of the individual
debt and real estate assets comprising the asset pool. However,
for financial reporting purposes, each asset pool, rather than the
individual debt and real estate assets within the asset pool, is
treated as the asset, and the individual debt and real estate
assets comprising an asset pool remain within that asset pool,
except a real estate asset may be removed from the asset pool and
reclassified as commercial rental property (developed properties)
or investment real estate (unimproved properties) if the Company
determines to hold the real estate for appreciation and/or the
production of income. Additionally, income and expenses relating
to the individual debt and real estate assets comprising an asset
pool is recognized, as described below, on the basis of the asset
pool as a
F-14
Note 1 - Nature of Business and Summary of Significant Accounting Policies
(Continued)
Purchased asset pools (continued)
single asset, except that the recoverability of the Company's
investments in the assets comprising the purchased asset pools is
assessed on the basis of individual assets within the asset pool.
For the purposes of assessing the recoverability of the Company's
investment, and additionally to provide information on the
progress of resolving and recovering on the individual debt and
real estate assets comprising an asset pool, the Company
classifies the assets within an asset pool as (i)
"Collections-in-Progress", (ii) "Paying Loans", or (iii)
"Foreclosed Real Estate". Initially all debt assets acquired in
the purchase of an asset pool are classified as
Collections-in-Progress. Collections-in-Progress represents
non-performing debts assets being actively evaluated for
resolution, and debts or judgments that are in bankruptcy
proceedings, litigation, or post-judgment collection status. Those
debt assets that are resolved by the debtor (i) resuming the
payments required under the original agreement, or (ii) executing
with the Company a settlement agreement which involves payments to
the Company over time, are at that time reclassified as Paying
Loans within the asset pool. In those instances where the Company
forecloses on the real estate securing either a
Collection-in-Progress or a Paying Loan, the asset is reclassified
as Foreclosed Real Estate. Additionally, any real estate acquired
with the initial purchase of an asset pool is classified as
Foreclosed Real Estate. Foreclosed Real Estate is held by the
Company for immediate sale. See Note 3.
The net gain on collections on asset pools represents the excess
of any cash proceeds received from an individual debt or real
estate asset within an asset pool over an allocable portion of the
cost of the related asset pool. Cash proceeds may be a settlement
payment, the proceeds from the sale of an asset, or a principal or
interest payment under the terms of a debt agreement. No interest
income or any other yield component of revenue is recognized
separately on any debt asset in an asset pool. Gains from
collections on asset pools are recognized as collections are
received.
In computing the gains on collections from asset pools, the
aggregate cost of each asset pool is allocated to (recovered
against) the collections on that asset pool, based on the
previously unrecovered cost of the asset pool and the relationship
of the collection income recognized in that period to the
aggregate of those collections and the estimated future
collections for the assets remaining in that asset pool. As a
result, the relationship of collections to the amount of asset
pool costs recovered against such collections for an individual
asset pool may vary from period to period as the result of (i)
changes in the estimates of future collections, and (ii)
impairment allowances previously recorded as described below.
The Company continually assesses the recoverability of its
investments in the assets comprising the asset pools, on the basis
of the individual assessment of the recoverability of the
remaining balance of the investment allocated to each individual
debt or real estate asset comprising an asset pool. Consistent
with the requirements of Statement of Financial Accounting
Standards ("SFAS") No. 114, Accounting by Creditors for Impairment
of a Loan, the debt assets within the asset pool are assessed
Note 1 - Nature of Business and Summary of Significant Accounting Policies
(Continued)
Purchased asset pools (continued)
F-15
based on the comparison of the investment allocated to the debt
asset, net of a pro-rata portion of the asset pool cost already
recovered from collections, to the present value of management's
estimate of the future cash flows from the debt asset, or, in the
case of a Collection-in-Progress debt asset that management
estimated will be collected through foreclosure, to the fair value
of the underlying collateral. For Paying Loans the estimated
future cash flows are discounted to a present value using the
interest rate implicit in the difference between the investment in
the debt asset and the cash flows to the Company required under
the debt agreement being complied with. For
Collections-in-Progress debt assets the estimated future cash
flows are discounted to a present value using the interest rate
implicit in the difference between the investment allocated to the
debt asset and management's initial estimate, made at the time the
asset pool was purchased, of the cash flows to be recovered. Where
such comparisons indicate an excess of the investment over the
present value of cash flows or fair value, a impairment allowance
(loan loss allowance) is recorded by a charge to operations in the
form of a decrease in that period's gains on collections from
asset pools. See Note 3.
Foreclosed Real Estate is assessed on the basis of a comparison of
the investment allocated to the real estate asset, net of a
pro-rata portion of the asset pool cost already recovered from
collections, to management's estimate of the fair value of the
real estate, less estimated costs to sell. Where such comparisons
indicate an excess of the investment over the fair value, a
impairment allowance is recorded by a charge to operations in the
form of an increase in that period's asset pool amortization.
Through December 31, 1998 the Company has not been required to
record an impairment allowance on Foreclosed Real Estate.
The Company's purchased asset pools are free of beneficial
interests by, and liabilities of, the transferor of the pool
assets. Accordingly, the provisions of SFAS No. 125, Accounting
for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, do not presently impact the
Company's accounting for purchased asset pools.
Commercial rental property
Commercial rental property consists of foreclosed real property
that management has determined to hold for appreciation and the
production of income. The property is reclassified from purchased
asset pools at its carrying value when management determines to a
hold the property for the appreciation or production of income.
The property's carrying value is depreciated over its estimated
useful life.
In the event a commercial rental property's carrying value exceeds
the sum of the undiscounted future cash flows from the asset, an
impairment allowance is recorded to reduce its carrying amount to
the fair value of the property.
F-16
Note 1 - Nature of Business and Summary of Significant Accounting Policies
(Continued)
Commercial rental property (continued)
Rents collected on commercial rental property are recognized as
rental income as collected. Sales of commercial rental property
are generally recorded using the full accrual method of accounting
for sales of real estate, assuming the conditions for recognition
are met.
Investment real estate
The Company's investment real estate portfolio is comprised of
unimproved real estate transferred from purchased asset pools, or
acquired for appreciation and, if possible, income, as well as
unimproved real estate acquired for the purpose of short-term
funding of real estate projects. The Company provides short-term
funding by acquiring an undeveloped property which a developer has
identified as having development potential. The Company will
acquire a 100% fee ownership in the property, and will compensate
the developer of identifying the property and managing the sale or
development of the project with a profit interest in the project.
Properties are not acquired from developers of entities related to
developers. Revenues, net of any developer's profit interest, and
associated costs are recognized at the time of sale by the Company
assuming the criteria for sales recognition are met. The Company
does not retain any interest in the real estate upon its sale.
In the event an investment real estate asset's carrying value
exceeds its fair value less estimated costs to sell, an impairment
allowance is recorded to reduce its carrying amount to its fair
value less estimated costs to sell.
Property and equipment
Property and equipment is stated at cost less accumulated
depreciation. Depreciation for financial reporting purposes is
provided using the straight-line method over the estimated useful
lives of the assets. Estimated useful lives of the assets range
from three to five years. Commercial rental property is
depreciated over 40 years.
Expenditures for major acquisitions and improvements are
capitalized; expenditures for maintenance and repairs are charged
to expense as incurred. When property and equipment are sold or
retired, the cost and related accumulated depreciation are removed
from the accounts and any gain or loss is reflected in income.
F-17
Note 1 - Nature of Business and Summary of Significant Accounting Policies
(Continued)
Income taxes
The Company accounts for income taxes in accordance with SFAS No.
109, Accounting for Income Taxes. This statement requires the use
of an asset and liability approach for financial accounting and
reporting purposes and also requires deferred tax balances to be
adjusted to reflect the tax rates in effect when those amounts are
expected to be payable or refundable.
Deferred income taxes are provided for differences in timing in
the basis of assets and liabilities for financial reporting and
income tax purposes. Basis differences result primarily from the
difference between the method used to recognize income and
allocable costs related to asset pools for financial reporting
purposes, as described above, and the use of the cost recovery
method for income tax purposes.
Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Significant estimates include the estimation of future
collections on purchased asset pools used in determining the value
of pools of assets within the purchased asset pool and the
periodic revaluation for possible loss. Actual results could
differ materially from those estimates.
Concentration of credit risk
The Company maintains its cash with major U.S. banks and, from
time to time, these amounts exceed the Federally insured limit of
$100,000. The terms of these deposits are on demand to minimize
risk. The Company has not incurred losses related to these
deposits.
The majority of the debt assets included in the asset pools are
concentrated in Texas and substantially all of the real estate is
located in Texas.
Fair value of financial instruments
SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments," requires that the Company disclose estimated fair
values of its financial instruments. Fair value estimates, methods
and assumptions are set forth below.
The carrying amount of cash and accounts payable and accrued
expenses approximates fair value at December 31, 1997 and 1998 due
to the short-term nature of such accounts. The carrying amount of
notes receivable from related parties approximates fair value as
of December 31, 1998.
F-18
Note 1 - Nature of Business and Summary of Significant Accounting Policies
(Continued)
Fair value of financial instruments (continued)
Purchased asset pools, which are comprised principally of
financial instruments, are carried at unrecovered costs, which
includes any required impairment allowance. The net carrying value
of the purchased asset pools is $5,530,088 and $3,558,491 as of
December 31, 1997 and 1998, respectively. The estimated fair value
of the purchased asset pools is $15,336,000 and $12,379,000 as of
December 31, 1997 and 1998, respectively. The fair value of the
asset pools was estimated based on management's estimates of the
future cash flows to be derived from the asset pools, discounted
to a present value using interest rates that reflect current
interest rate and asset risk conditions.
The Company's notes payable carry both fixed and variable interest
rates. Management estimates that the interest rates in effect
under both the fixed and variable rate notes approximate the
current market rates for instruments with similar terms and credit
risk, and that therefore the carrying amount of notes payable
approximates fair value.
Reclassifications
Certain reclassifications have been made to the 1997 financial
statements to conform with the 1998 presentation. These
reclassifications had no effect on the 1997 net income or
stockholders' equity.
New accounting standards
In November 1998, the Financial Accounting Standards Board
("FASB") issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which established accounting
and reporting standards for derivative instruments and hedging
activities. It requires that entities recognize all derivatives as
either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The
provisions of this statement, as amended by SFAS No. 137, are
effective for all fiscal quarters of all fiscal years beginning
after June 15, 2000. In December 1998, the FASB issued SFAS No.
134 "Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage
Banking Enterprise", which amended SFAS No. 65. This statement is
effective for the first fiscal quarter beginning after December
15, 1998. The Company believes that neither standard will have a
material impact on their financial statements or disclosures
thereto. In April, 1998, the Accounting Standards Executive
Committee issued Statement of Position ("SOP") 98-5 "Reporting on
the Costs of Start-up Activities". SOP 98-5 requires all start-up
and organizational costs to be expensed as incurred. It also
requires all remaining historically capitalized amounts of these
costs existing at the date of adoption to be expensed and reported
as the cumulative effect of a change in accounting principles. SOP
98-5 is effective for all fiscal years beginning after December
31, 1998. The Company believes that the adoption of SOP 98-5 will
not have a material effect on its financial statements.
F-19
Note 2 - Acquisitions
During 1997, the Company acquired certain corporate subsidiaries
and assets of MCorp Trust, MCorp Financial Trust, and MCorp
Management Trust (collectively the "MCorp Trusts"). The MCorp
Trusts were created pursuant to a confirmed Plan of Reorganization
in the Chapter 11 bankruptcy estates of MCorp, Inc., MCorp
Management, Inc., and MCorp Financial, Inc.
The acquisition (the "MCorp Acquisition") has been accounted for
as a purchase. The purchase price of $881,134, net of cash
acquired of $427,589, was allocated to purchased asset pools. The
results of the operations of the acquired businesses have been
included in the Company's consolidated results of operations from
the date of acquisition. The impact of these acquisitions on the
results of operations for 1997 is not material, except as
described in Note 7.
Additionally, in 1997, the Company acquired 100% of the
outstanding common stock of two other unrelated entities by
executing against a judgment creditor.
Note 3 - Purchased Asset Pools
The net gain on collections on asset pools is comprised of the
following as of December 31:
1997 1998
--------------- ----------
Collections $2,555,363 $6,099,296
Recovery of allocable portion of
asset pool costs (1,017,029) (2,302,401)
Impairment adjustments (loan losses) (117,015) 60,699
----------- -----------
Net gain on collections
on asset pools $1,421,319 $3,857,594
---------- ----------
Purchased asset pools consist of the following at December 31:
1997 1998
--------------- ----------
Collections-in-progress $ 1,751,153 $ 1,297,228
Paying loans 2,073,552 1,609,666
Loan loss allowance (200,151) (122,489)
------------- -------------
3,624,554 2,784,405
Foreclosed real estate 1,905,534 774,086
----------- ------------
Purchased asset pools, net $5,530,088 $3,558,491
---------- ----------
F-20
Note 3 - Purchased Asset Pools (Continued)
The composition of the Company's debt assets included within
purchased asset pool balances are summarized by classification and
type of collateral as follows:
Collections- Paying
Type of collateral In-Progress Loans
Real estate 46.1% 86.0%
Assets other than real estate 39.6% 6.9%
Unsecured 14.3% 7.1%
Specific allowances for losses on debt assets included in the
asset pools determined to be impaired under SFAS No. 114,
Accounting by Creditors for Impairment of a Loan amounted to
$200,151 and $122,489 at December 31, 1997 and 1998, respectively.
The related expense amount is a reduction of the net gain on
collection on asset pools in the statements of operations. The
loan loss allowance related to specific loans which had aggregate
carrying amounts of $485,596 and $256,103 at December 31, 1997 and
1998, respectively. The average balance of loans for which the
loan loss allowances have been provided was $18,205 and $10,205,
respectively for the years ended December 31, 1997 and 1998.
Activity in the Company's allowance for loan losses for the years
ended December 31, is as follows:
1997 1998
--------------- ----------
Allowance at beginning of year $ 90,003 $ 200,151
Additions charged (credited) to operations 117,015 (60,669)
Direct write downs charged against
the allowance (6,867) (16,993)
-------------- ---------------
Allowance at end of year $ 200,151 $ 122,489
------------ ------------
Note 4 - Commercial Rental Property
Commercial rental property consists of the following at December 31:
1997 1998
--------------- ----------
Commercial rental property $390,203 $750,203
Accumulated depreciation (9,349) (18,047)
---------- ---------
Commercial rental property, net $380,854 $732,156
-------- --------
Gross rental income from the commercial rental property
amounted to $340,629 and $713,286 for 1997 and 1998, respectively.
F-21
Note 4 - Commercial Rental Property (Continued)
Non-cash transaction
During the year ended December 31, 1998, the Company reclassified
a single asset with a cost basis of $360,000 from purchased asset
pools to commercial real estate. The cost basis of these assets
while held for sale was lower than the fair value less the
estimated costs to sell, therefore no allowance had been
established by the Company. Accordingly, no basis adjustment was
recognized in connection with the reclassification.
Note 5 - Notes Receivable From Related Parties
During June 1998, the Company sold a property from its asset pool
to related parties in exchange for five notes receivable totaling
$525,000. Note principal plus interest at 10% per annum is due
June 2001 for each of the notes. The Company recognized $210,000
of asset pool amortization in connection with this sale. The cost
basis originally allocated to this property at the time of sale
approximated $268,000.
Note 6 - Property and Equipment
Property and equipment consists of the Company's furniture and
equipment and is recorded at cost. Accumulated depreciation on the
Company's furniture and equipment amounted to $35,751 and $42,446
as of December 31, 1997 and 1998, respectively.
Note 7 - Notes Payable
Notes payable consist of the following:
Notes payable
December 31,
1997 1998
$5,000,000 bank line of credit, secured by notes receivable and
real estate comprising the purchased asset pools and a
shareholder's certificate of deposit; principal payable based on
proceeds from disposition and payments received on the purchased
asset pools; interest payable monthly at the bank's prime rate
plus 1.0% per annum (10% and 8.8% as of December 31, 1997 and
1998, respectively), with the remaining unpaid principal and
interest due December 31, 1999 $3,933,164 $3,302,629
F-22
Note 7 - Notes Payable (Continued)
December 31,
1997 1998
$2,000,000 term note payable to bank, secured by notes receivable
and real estate comprising the purchased asset pools and a
shareholder's certificate of deposit; principal payments of
$100,000 due quarterly beginning December 1997; interest payable
monthly at the bank's prime rate plus 1.5% per annum. Entire
principal and
interest paid September 30, 1998 1,400,000 -
$441,705 term note payable to a third party corporation, secured
by real estate; principal and interest payments of $24,827 due
semi-annually beginning December 1998; bearing a stated interest
rate of 9.5% per annum, with the
remaining unpaid principal and interest due June 2002 - 437,859
----------------- -----------
$5,333,164 $3,740,488
---------- ----------
Notes payable to related parties
December 31,
1997 1998
Unsecured promissory notes payable to various trusts and
individuals affiliated with a Company officer, accruing interest
at 12% per annum, with all outstanding principal and interest due
December 31, 1998, paid
February 1998 $ 331,147 -
----------- ------------
$ 331,147 $ -
----------- -----------
Interest paid during 1997 and 1998 on all of the Company's debt
instruments, approximated $642,000 and $449,000, respectively,
including $152,000 and $90,000 paid to related parties during 1997
and 1998, respectively. Of the amounts paid to related parties
during 1997 and 1998, $102,000 and $84,000, respectively, were to
a shareholder for the pledge of the shareholder's personal
collateral against the Company's notes payable to bank.
Non-cash transaction
During the year ended December 31, 1998, the Company acquired
investment real estate for $585,117, comprised of a cash payment
of $143,412 and a $441,705 non-recourse note payable to the
seller.
F-23
Note 8 - Income Taxes
The deferred tax liability as of December 31, 1997 and 1998 arises
from the use of different methods of recognition of costs
allocable to asset pools for financial statement purposes and
Federal tax purposes. A modified cost recovery method, whereby the
allocable costs are recognized in conjunction with collections on
individual asset pool components in the ratio of total asset pool
acquisition costs to total asset pools collections, is used for
financial statement purposes. The cost recovery method is used for
Federal income tax purposes. The Company's deferred tax asset as
of December 31, 1997 and 1998 consists of net operating loss
carryforwards ("NOLs") of approximately $2,481,000 and $56,000,000
which expire from 2008 through 2012.
At December 31, 1998, based upon further review of the MCorp
Acquisition (see Note 2) and completion of the
Company's 1997 Federal income tax return, management believes the
Company has a reasonable position to support full utilization of
the NOLs related to the MCorp Acquisition. Accordingly, management
believes the Company has available NOLs of approximately
$56,000,000 at December 31, 1998.The ultimate realization of the
resulting net deferred tax asset is dependent upon generating
sufficient taxable income within the appropriate subsidiaries
prior to expiration of the NOLs. Due to the nature of these NOLs
and since realization is not assured, management has established a
valuation allowance relating to the deferred tax asset. The
ability of the Company to realize the deferred tax asset is
periodically reviewed and the valuation allowance adjusted
accordingly.
Deferred income taxes have been established for the effects of
differences in the bases of assets and liabilities for financial
reporting and income tax purposes. The provision for income tax
expense (benefit), consisting entirely of deferred income taxes,
is reconciled with the Federal statutory rate as follows:
1997 1998
Amount Rate Amount Rate
Tax at statutory rate $(131,064) (34.0)% $870,075 34.0%
Utilization/recognition of net operating
loss carryforward (200,000) (51.9) (385,484) (15.1)
State and other, net 6,044 1.6 - -
------------ ------- --------
Income tax (benefit) expense $(325,020) (84.3)% $484,591 18.9%
--------- ------ -------- -----
Significant components of the Company's deferred tax assets and
liabilities are summarized as follows:
December 31,
1997 1998
------------- ----------
Book basis of purchased asset pools,
net, in excess of tax basis $(808,543) $ (1,143,354)
Net operating loss carryforwards 955,000 19,075,000
Valuation allowance (146,457) (18,369,646)
---------- ------------
Deferred tax liability, net $ - $ (438,000)
-------------- ------------
F-24
Note 8 - Income Taxes (Continued)
The Company has recorded a valuation allowance against a majority
of the deferred tax assets because the realization of the deferred
tax assets is contingent on the future profitability of the
Company. The changes in the valuation account applicable to the
deferred tax asset primarily relate to management's position taken
during 1998 with regard to the availability of NOLs related to the
MCorp Acquisition (see Note 2).
Changes in the valuation allowance account are as follows:
December 31,
1997 1998
Valuation allowance at beginning of year $ - $ 146,457
Increase (decrease) for the year 146,457 (18,223,189)
------------- -----------
Valuation allowance at end of year $ 146,457 $18,369,646
------------ ----------
No income taxes were paid during 1997 or 1998.
Note 9 - Commitments and Contingencies
The following is a summary of the NOLs and their expiration dates:
Expiring in
December 31, Amount
1999 $ 1,458,000
2000 1,894,000
2001 -
2002 10,377,000
2003 13,305,000
2004 - 2013 29,044,000
----------
$56,078,000
Litigation
The Company is involved in various legal proceedings in the
ordinary course of business. In the opinion of management, the
resolution of such matters should not have a material adverse
impact on the financial condition, results of operations or
liquidity of the Company. Subsequent to December 31, 1998, the
Company evaluated its financial exposure to litigation and
environmental risks associated with the debt assets and foreclosed
real estate within its asset pools and elected to transfer and
realign its assets based upon the element of risk associated with
the different types of asset pools. Management believes that this
restructuring of its assets within existing corporate entities
will provide greater protection of its financial condition.
F-25
Note 9 - Commitments and Contingencies (Continued)
Operating leases (as lessee)
The Company leases vehicles under operating leases which expire
November 2000. Future minimum rental payments required by these
leases are estimated as follows:
Year Ending
December 31,
1999 $ 10,000
2000 9,000
--------
Total $19,000
Total expense incurred under these and other month-to-month rental
agreements approximated $22,000 and $33,000 during 1997 and 1998,
respectively.
The Company's offices are located in a major downtown Houston
office building. A portion of its space is leased to the Company
on a month-to-month basis and a portion is provided as an
accommodation by the firm providing legal counsel to the Company.
Operating leases (as lessor)
The Company has long-term lease agreements with tenants in their
San Antonio and Dallas commercial rental property locations.
Future minimum payments required under these leases are estimated
as follows:
Year Ending
December 31,
1999 $392,000
2000 314,000
2001 154,000
2002 13,000
----------
Total $873,000
F-26
Note 10 - Segment Reporting
The Company operates in three business segments (i) purchased
asset pools, (ii) commercial rental property, and (iii) investment
real estate. The purchased asset pools segment involves the
acquisition, management, servicing and realization of income from
collections on or sales of portfolios of undervalues financial
assets, and in some instances real estate the Company may acquire
as part of an asset pool or as the result of foreclosing on the
collateral underlying an acquired real estate debt. The commercial
rental property segment involves holding foreclosed and The
investment real estate segment involves holding foreclosed real
estate for future appreciation and acquiring unimproved real
estate in conjunction with short-term funding for developers.
Financial information by reportable operating segment is as
follows:
As of and for the year ended December 31, 1998
Purchased Commercial Investment
Asset Pools Rental Property Real Estate Totals
Revenue $4,056,507 $449,643 $ 95,933 $4,602,083
Segment profit 2,313,308 232,842 12,896 2,559,046
Segment assets 4,351,963 732,156 1,100,731 6,184,850
Depreciation and amortization - 8,699 - 8,699
Capital expenditures 691,333 - 875,745 1,567,078
Net interest expense 380,755 42,173 71,214 494,142
As of and for the year ended December 31, 1997
Purchased Commercial Investment
Asset Pools Rental Property Real Estate Totals
Revenue $1,519,412 $281,827 $ - $1,801,239
Segment profit (453,222) 61,324 6,417 (385,481)
Segment assets 5,530,088 380,854 224,986 6,135,928
Depreciation and amortization - 9,349 - 9,349
Capital expenditures 1,498,939 - - 1,498,939
Net interest expense 581,269 38,555 22,776 642,600
Reconciliation of reportable segment assets to the Company's
consolidated totals as of December 31 are as follows:
Assets 1997 1998
------ -------------- ---------
Total assets for reportable segments $6,135,928 $6,184,850
Cash not allocated to segments 21,514 583,629
Other assets not allocated to segments 88,429 243,229
------------ -----------
Consolidated total assets $6,245,871 $7,011,708
F-27
Note 11 - Stock Split and Preferred Stock Authorization
In December 1998, the Board of Directors approved (i) an increase
in the authorized number of shares of common stock to 10,000,000,
(ii) a 3,000-for-1 stock split of issued and outstanding common
shares and (iii) authorization of 10,000,000 shares of $.01 par
value preferred stock. All common shares, per share and option
information in the accompanying financial statements has been
restated to reflect the effect of the split and change in
authorized shares.
Note 12 - Stock Compensation Plan
In December 1998, the 1998 Stock Compensation Plan (the "Plan")
was approved by the Board of Directors ("Board") and by the
shareholders. The provisions of the Plan provide for 375,000
shares of Company common stock to be granted as incentive
compensation to employees, officers, directors and/or consultants
of the Company and its subsidiaries. The number of shares and the
shares granted are subject to adjustment in the event of any
change in the capital structure of the Company. Further, the Plan
provides for issuance, at the discretion of the Board, of (i)
incentive stock options ("ISO's") within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended, or (ii)
non-qualified options. The exercise price of any option will not
be less than the fair market value of the shares at the time the
option is granted, and exercise will be required within 10 years
of the grant date. The Plan will terminate in 2008.
The Plan permits the award of Stock Appreciation Rights ("SARs")
to optionees. The Committee may award to an optionee, with respect
to each share of Common Stock covered by an option (a "Related
Option"), a related SAR permitting the optionee to be paid the
appreciation on the Related Option. A SAR granted with respect to
an ISO must be granted together with the Related Option. A SAR
granted with respect to a non-qualified option may be granted
together with or subsequent to the grant of the Related Option.
The exercise of the SAR shall cancel and terminate the right to
purchase an equal number of shares covered by the Related Option.
There have been no options granted under the Plan.
Note 13 - Related Party Transactions
During 1998, the Company acquired, for $334,000, an interest in a
real estate mortgage and judgment lien from an entity controlled
by a Company officer. Collections are expected to exceed $375,000.
Note 14 - Revenue Concentrations
During 1997, the net gain from collections from a single debtor
accounted for approximately 10% of the total revenue of the
Company. During 1998, the net gain from a single transaction
amounted to 23% of total revenue of the Company.
F-28
Note 15 - Subsequent Events
Public offering
The Company filed a Registration Statement with the Securities and
Exchange Commission ("SEC") in February 1999 for the sale of
1,500,000 shares of common stock. As of August 17, 1999, the
Company intends to file an amended Registration Statement with the
SEC for the sale of 500,000 units. Each unit is comprised of two
shares of common stock and a warrant for the purchase of an
additional share at approximately 112% of the initial offering
price.
Asset acquisition (unaudited)
On February 1, 1999, the Company acquired all of the assets of a
bankruptcy liquidation estate, including real estate, receivables,
property assessment rights and other assets for $2,969,538. The
assets were acquired from the Liquidating Trustee in Federal
Bankruptcy Court. The acquisition was financed with $1,475,000 of
bank debt and $1,400,000 borrowed from the Company's majority
shareholder. The purchase price will be allocated to the
individual asset components based on management's estimate of
relative market value.
Condensed pro forma financial information to give effect as if the
transaction occurred as of December 31, 1998 is as follows:
December 31, Proforma December 31,
1998 Adjustments 1998 (Pro forma)
Total Assets $7,011,708 $2,875,000 $9,886,708
Total Liabilities 4,482,924 2,875,000 7,357,924
Shareholders' Equity 2,528,784 - 2,528,784
The pro forma consolidated income and earnings per share would not
have been materially different from the reported amounts during
1997 or 1998 and, accordingly, are not presented.
The assets acquired include:
Acres
Real estate
18-hole golf course 124.53
Country Club and driving range 23.34
Expansion site - 9 holes for golf course 81.18
Undeveloped acreage 382.70
311 fully developed lots 61.60
286 undeveloped platted lots 56.40
F-29
Note 15 - Subsequent Events (Continued)
Asset acquisition (unaudited) (continued)
Acres
Platted and unplatted reserves 77.54
Pool and 4 tennis courts 7.17
Restricted reserves 81.52
-------
Total acreage 895.98
Amount
Developer's property assessment rights $850,000
Delinquent assessment receivables
(Legal balances) $3.2 million
Other assets $75,000
In February 1999, the Company sold property maintenance assessment
rights ("Rights") for $1,000,000 to an unrelated party in exchange
for an $850,000 note and other consideration with an estimated
value of $150,000. The Rights were acquired by the Company in
conjunction with the acquisition described above.
Note 16 - Year 2000 Issues
The Company developed and implemented a plan to modify its
information technology to be ready for the Year 2000 and has
converted its critical data processing systems. The costs of the
conversion were not significant. Management believes that the
nature of the Company's business does not give rise to significant
exposure from noncompliance by vendors or suppliers. While
additional testing will be conducted on its systems through the
Year 2000, the Company does not expect the year 2000 issues to
have a significant effect on operating activities.
F-30
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 27. Exhibits
Exhibit No Item
Exhibit 1.1 Revised Form of Underwriting Agreement.(1)
Exhibit 1.2 Revised Form of Representative's Warrant Agreement.(1)
Exhibit 3.1 Restated Articles of Incorporation of the Registrant. (3)
Exhibit 3.2 Bylaws of the Registrant (3)
Exhibit 4.1 Form of Warrant Agreement Between Company and American Stock
Transfer and Trust Company. (3)
Exhibit 5.1 Opinion of Maurice J. Bates L.L.C.(3)
Exhibit 10.1 1998 Stock Compensation Plan (3)
Exhibit 10.2 Share Transfer Restriction Agreement. (3)
Exhibit 10.3 Opinion of REOC Corp. as to value of Jefferson Street Property. (3)
Exhibit 10.4 Opinion of REOC Corp as to value of San Antonio Property. (3)
Exhibit 10.5 Opinion of John Thobe, M.S. as to value of South Padre Island Property. (3)
Exhibit 10.6 Opinion of Top Guns Land Company, Inc. as to value of Montgomery County, Texas Property.
(3)
Exhibit 10.7 Sixth (current) Amendment to Loan Agreement with Southwest Bank of Texas N. A.(3)
Exhibit 10.8 Purchase and Sale Agreement for Newport Assets. (3)
Exhibit 10.9 Copy of Janke Family Partnership, Ltd. Note for Newport Assets purchase. (3)
Exhibit 10.10 Copy of Purchase Agreement for Newport Assets. (3)
Exhibit 21 Subsidiaries of the Registrant. (3)
Exhibit 23.1 Consent of Pannell Kerr Forster of Texas, P. C., Certified Public Accountants.(3)
Exhibit 23.2 Consent of Maurice J. Bates, L.L.C. is contained in his opinion filed as Exhibit 5.1 to
this registration statement.(3)
Exhibit 23.3 Consent of Robert A. Shuey, III as director-designee. (3)
Exhibit 27 Financial Data Schedule (3)
--------------
(1) Filed herewith (2) To be filed by amendment (3) Previously filed.
Item 28. Undertakings
The undersigned registrant hereby undertakes as follows:
(1) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
(3) For the purpose of determining any liability under the
Securities Act, treat each post-effective amendment that
contains a form of prospectus as a new registration statement
relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the
initial bona fide offering of those securities.
(4) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or
persons controlling the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised
that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy, as
expressed in the Act and is, therefore, unenforceable.
(5) In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
shares of the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
(6) For the purposes of determining any liability under the
Securities Act, the information omitted from the form of
prospectus filed as part of a registration statement in
reliance upon Rule 430A and contained in the form of
prospectus filed by the registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to
be part of this Registration Statement as of the time it was
declared effective.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorizes this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, State of Texas on September 20, 1999.
Rampart Capital Corporation.
By: /s/ Charles W. Janke
Charles W. Janke, Chairman of the Board
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose
signature appears below constitutes and appoints Charles W. Janke and J. H.
Carpenter, and each for them, his true and lawful attorney-in-fact and agent,
with full power of substitution and re-substitution, for him and in his name,
place and stead, in any and all capacities (until revoked in writing), to sign
any and all further amendments to this Registration Statement (including
post-effective amendments), and to file same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto such attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person thereby ratifying and
confirming all that said attorneys-in-fact and agents, and each of them, or
their substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ Charles W. Janke Chairman of the Board September 20, 1999
- ------------------------
Charles W. Janke (Principal Executive Officer)
/s/ J. H. Carpenter President September 20, 1999
- --------------------
J. H. Carpenter Director
/s/ Charles W. Presley Vice President, Chief Financial September 20, 1999
- ----------------------
Charles W. Presley Officer, Treasurer
(Principal Financial Officer)
/s/ James J. Janke Director September 20, 1999
- ------------------
James J. Janke
/s/ James W. Christian Director September 20, 1999
- ----------------------
James W. Christian