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)
<TABLE>
<CAPTION>
<S> <C> <C>
Texas 6159 76-0427502
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of Industrial Identification
incorporation or organization) Classification Code Number)
Number)
</TABLE>
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.
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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
<S> <C> <C> <C> <C>
(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
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(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. </TABLE>
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
<PAGE>
TABLE OF CONTENTS
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<S> <C>
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
</TABLE>
<PAGE>
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
[email protected].
<PAGE>
The Offering
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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"
- -----------------
</TABLE>
(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.
<PAGE>
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.
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<CAPTION>
Years Ended December 31, Six Months Ended June 30,
------------------------------ ------------------------------
1997 1998 1998 1999
-------------- --------------- ------------- ----------------
<S> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
As of December 31, As of June 30,
------------------------------ -------------------------------------------
Adjusted
1997 1998 1998 1999 1999 (1)
------------------------------ -------------------------------------------
<S> <C> <C> <C> <C> <C>
(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
- -------
</TABLE>
(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.
<PAGE>
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.
<PAGE>
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:
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<S> <C> <C>
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
-------------------- ------------
---------------
</TABLE>
(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.
<PAGE>
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:
<PAGE>
<TABLE>
<S> <C> <C>
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%
</TABLE>
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.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average Price
-------------------------------- -------------------------------- -----------------
--------------- ----- ---------- -- ----------------- ----------- -----------------
Number Percent Amount Percent Per Share
--------------- -- -----------
--------------- ---------- ---------------- ----------- ----------- ----
<S> <C> <C> <C> <C> <C>
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%
========= ====== ========== ======
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</TABLE>
<PAGE>
(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.
<PAGE>
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.
<TABLE>
<CAPTION>
June 30, 1999
-------------------------------------
----------------- -- -----------------
(Actual) (As Adjusted)
----------------- -----------------
(Unaudited)
<S> <C> <C>
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
----------------- -----------------
- -----------
</TABLE>
(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.
<PAGE>
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.
<TABLE>
<CAPTION>
Operating Data: Year Ended December 31, Six Months Ended June 30,
----------------------------- -----------------------------
----------------------------- -----------------------------
1997 1998 1998 1999
------------- ------------ -------------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
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
------------- ------------ -------------- -----------
</TABLE>
The following graphs have been omitted:
<PAGE>
The following table presents certain financial data, as a percentage of net
revenues, for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Six Months Ended June 30,
December 31, March 31,
----------------------------- ----------------------------
1997 1998 1998 1999
------------- ------------ ----------- ------------
-------------
(Unaudited)
<S> <C> <C> <C> <C>
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
------------- ------------ ----------- ------------
</TABLE>
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.
<PAGE>
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.
<TABLE>
<CAPTION>
<S> <C>
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
------------------
</TABLE>
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.
<TABLE>
<S> <C>
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
</TABLE>
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.
<PAGE>
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:
<TABLE>
<CAPTION>
Original Estimated
No. of Cost Basis Collections Remaining
Assets Allocation to Date Collections
--------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
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
--------- -------------- -------------- ---------------
</TABLE>
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.
<PAGE>
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.
<PAGE>
MANAGEMENT
Directors and Executive Officers
Our directors and executive officers as of June 30, 1999 are identified below:
<TABLE>
<S> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
Summary Compensation Table
Name and Annual Compensation All Other
---------------------------------
Principal Position Fiscal Year Salary Bonus Compensation
- --------------------------- ------------------------ --------------- -------------- --------------------
<S> <C> <C> <C> <C>
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
- --------------------------- ------------------------ --------------- -------------- --------------------
</TABLE>
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.
<PAGE>
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.
<TABLE>
<CAPTION>
Date Lending Party Amount Stated Profit Effective
Interest Participation % Interest Rate
Rate
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
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.
<TABLE>
<CAPTION>
Shares Owned
-------------------------------------------------------------------------
Prior to Offering After Offering
---------------------------------- -- -----------------------------------
Name and Address of Owner Number Percent Number Percent
- --------------------------------------------- --------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C>
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)
--------------- -------------- ---------------- --------------
- -----------
</TABLE>
(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.
<PAGE>
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:
<TABLE>
<CAPTION>
<S> <C>
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
===========
-----------
</TABLE>
(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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
RAMPART CAPITAL CORPORATION
Index to Consolidated Financial Statements
Interim Consolidated Financial Statements - Unaudited
<TABLE>
<S> <C>
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
</TABLE>
<PAGE>
RAMPART CAPITAL CORPORATION
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
June 30,
1998 1999
<S> <C> <C>
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
---------- ----------
</TABLE>
See notes to consolidated financial statements
F-2
<PAGE>
RAMPART CAPITAL CORPORATION
Consolidated Statements of Operations
<TABLE>
<CAPTION>
(Unaudited)
Six Months
Ended June 30,
1998 1999
<S> <C> <C>
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
------------- ------------
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
RAMPART CAPITAL CORPORATION
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
(Unaudited)
Common Retained
Stock Earnings Total
<S> <C> <C> <C>
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
----------- -------------- --------------
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
RAMPART CAPITAL CORPORATION
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(Unaudited)
Six Months
Ended June 30,
1998 1999
<S> <C> <C>
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
------------- -------------
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
The assets acquired include:
Acres Allocated Costs
<S> <C> <C>
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
</TABLE>
See notes to consolidated financial statements
F-7
<PAGE>
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
<PAGE>
Note 3 - Net Gain on Collections on Asset Pools
The net gain on collection on asset pools is comprised of the following:
<TABLE>
<CAPTION>
June 30,
1998 1999
-------------- ----------
<S> <C> <C>
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
-------------- --------------
</TABLE>
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:
<TABLE>
<CAPTION>
As of and for the six months ended June 30, 1999
Purchased Commercial Investment Sales
Asset Pools Real Estate Real Estate Financing Totals
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
As of and for the six months ended June 30, 1998
Purchased Commercial Investment Sales
Asset Pools Real Estate Real Estate Financing Totals
<S> <C> <C> <C> <C> <C>
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
</TABLE>
Reconciliation of reportable segment assets to the Company's
consolidated totals as of June 30 are as follows:
<TABLE>
<CAPTION>
Assets 1998 1999
------ ------------- ---------
<S> ` <C> <C>
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
- -------- -------------------
</TABLE>
See notes to consolidated financial statements
F-9
<PAGE>
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
<PAGE>
RAMPART CAPITAL CORPORATION
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
1997 1998
<S> <C> <C>
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
---------- ----------
</TABLE>
See notes to consolidated financial statements
F-11
<PAGE>
RAMPART CAPITAL CORPORATION
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1998
<S> <C> <C>
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
------------ ----------
</TABLE>
See notes to consolidated financial statements
F-11
<PAGE>
RAMPART CAPITAL CORPORATION
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Common Retained
Stock Earnings Total
<S> <C> <C> <C>
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
------- ---------- ----------
</TABLE>
See notes to consolidated financial statements
F-12
<PAGE>
RAMPART CAPITAL CORPORATION
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1998
<S> <C> <C>
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
------------- -----------
</TABLE>
See notes to consolidated financial statements
F-13
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
1997 1998
--------------- ----------
<S> <C> <C>
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
---------- ----------
</TABLE>
F-20
<PAGE>
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:
<TABLE>
<CAPTION>
Collections- Paying
Type of collateral In-Progress Loans
<S> <C> <C>
Real estate 46.1% 86.0%
Assets other than real estate 39.6% 6.9%
Unsecured 14.3% 7.1%
</TABLE>
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:
<TABLE>
<S> <C> <C>
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
------------ ------------
</TABLE>
Note 4 - Commercial Rental Property
Commercial rental property consists of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
--------------- ----------
<S> <C> <C>
Commercial rental property $390,203 $750,203
Accumulated depreciation (9,349) (18,047)
---------- ---------
Commercial rental property, net $380,854 $732,156
-------- --------
</TABLE>
Gross rental income from the commercial rental property
amounted to $340,629 and $713,286 for 1997 and 1998, respectively.
F-21
<PAGE>
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:
<TABLE>
<CAPTION>
<S> <C> <C>
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
</TABLE>
F-22
<PAGE>
<TABLE>
<CAPTION>
Note 7 - Notes Payable (Continued)
<S> <C> <C>
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.
</TABLE>
F-23
<PAGE>
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:
<TABLE>
<CAPTION>
1997 1998
Amount Rate Amount Rate
<S> <C> <C> <C> <C>
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%
--------- ------ -------- -----
</TABLE>
Significant components of the Company's deferred tax assets and
liabilities are summarized as follows:
<TABLE>
<CAPTION>
December 31,
1997 1998
------------- ----------
<S> <C> <C>
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)
-------------- ------------
</TABLE>
F-24
<PAGE>
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:
<TABLE>
<CAPTION>
December 31,
1997 1998
<S> <C> <C>
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
------------ ----------
</TABLE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
As of and for the year ended December 31, 1998
Purchased Commercial Investment
Asset Pools Rental Property Real Estate Totals
<S> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
As of and for the year ended December 31, 1997
Purchased Commercial Investment
Asset Pools Rental Property Real Estate Totals
<S> <C> <C> <C> <C>
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
</TABLE>
Reconciliation of reportable segment assets to the Company's
consolidated totals as of December 31 are as follows:
<TABLE>
<CAPTION>
Assets 1997 1998
------ -------------- ---------
<S> <C> <C>
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
</TABLE>
F-27
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
December 31, Proforma December 31,
1998 Adjustments 1998 (Pro forma)
<S> <C> <C> <C>
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
</TABLE>
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
<PAGE>
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
<PAGE>
PART II
<TABLE>
INFORMATION NOT REQUIRED IN PROSPECTUS
<S> <C> <C>
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.
</TABLE>
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.
<TABLE>
<S> <C> <C>
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
</TABLE>
RAMPART CAPITAL CORPORATION
Each Unit Consisting of Two Shares of Common Stock and
One Redeemable Common Stock Purchase Warrant
September 21, 1999
UNDERWRITING AGREEMENT
REDSTONE SECURITIES, INC.
As Representative of the Several Underwriters
101 Fairchild Avenue
Plainview, New York 10110
Dear Sirs:
Rampart Capital Corporation, a Texas corporation (the "Company"),
proposes to sell to you and the other underwriters named in Schedule I hereto
(collectively, the "Underwriters"), for whom Redstone Securities, Inc. is acting
as managing underwriter and representative (the "Representative"), in the
respective amounts set forth opposite each Underwriter's name in Schedule I
hereto, an aggregate of 500400,000 units (the "Units"), each consisting of two
shares of the Company's Common Stock, $.01 par value (the "Common Stock"), and
one redeemable common stock purchase warrant (the "Warrants"). The Units,
together with (a) the shares of Common Stock and Warrants comprising the Units
and (b) the shares of Common Stock issuable upon exercise of the Warrants are
collectively referred to as the "Underwritten Securities". The Company also
proposes to grant to the Underwriters the Underwriters' Option (described in
Section 2(b) hereof) to purchase up to an aggregate of 7560,000 additional Units
solely to cover over-allotments in the sale of the Underwritten Securities (such
additional Units, together with (a) the shares of Common Stock and Warrants
comprising such additional Units and (b) the shares of Common Stock issuable
upon exercise of the Warrants, are collectively referred to herein as the
"Option Securities"); and to issue to the Representative the Representative's
Warrants to purchase up to an aggregate of 5040,000 additional Units
(individually, the Representative's Warrants and such additional Units, together
with (a) the shares of Common Stock and Warrants comprising such additional
Units and (b) the shares of Common Stock issuable upon exercise of such
Warrants, are collectively referred to herein as the "Representative's
Securities"). The Representative's Warrants shall be issued pursuant to the
Representative's Warrant Agreement in the form of Exhibit A attached hereto and
shall be exercisable, in whole or in part, for a period of four years commencing
one year from the date of the Prospectus, at 165% of the initial public offering
price of the Units. The Underwritten Securities, the Option Securities and the
Representatives' Securities are collectively referred to herein as the
"Securities."
The terms which follow, when used in this Agreement, shall have the
meanings indicated. The term "Effective Date" shall mean each date that the
Registration Statement (as defined below) and any post-effective amendment or
amendments thereto became or become effective. "Execution Time" shall mean the
date and time that this Agreement is executed and delivered by the parties
hereto. The term "Preliminary Prospectus" shall mean any preliminary prospectus
referred to in Section 1(a) below with respect to the offering of the
Securities, and any preliminary prospectus included in the Registration
Statement on the Effective Date that omits Rule 430A Information (as defined
below). Capitalized terms not otherwise defined herein shall have the meanings
ascribed to them in the most recent Preliminary Prospectus which predates or
coincides with the Execution Time. "Prospectus" shall mean the final prospectus
with respect to the offering of the Securities that contains the Rule 430A
Information. "Registration Statement" shall mean (a) the registration statement
referred to in Section 1(a) below, including Exhibits and Financial Statements,
in the form in which it has or shall become effective, (b) in the event any
post-effective amendment thereto becomes effective prior to the Closing Date (as
defined in Section 3(a) hereof) or any settlement date pursuant to Section 3(b)
hereof, such registration statement as so amended on such date, and (c) in the
event of the filing of any abbreviated registration statement increasing the
size of the offering (a "Rule 462 Registration Statement"), pursuant to Rule
462(b) (as defined below), which registration statement became effective upon
filing the Rule 462 Registration Statement. Such term shall include Rule 430A
Information (as defined below) deemed to be included therein at the Effective
Date as provided by Rule 430A. "Rule 424," "Rule 462(b)" and "Rule 430A" refer
to such rules promulgated under the Securities Act of 1933, as amended (the
"Act"). "Rule 430A Information" means information with respect to the Securities
and the offering thereof permitted to be omitted from the Registration Statement
when it becomes effective pursuant to Rule 430A.
<PAGE>
50863_1/63466.00005
1. 1. Representations and Warranties of the Company.
The Company represents and warrants to, and agrees with, each Underwriter that:
(a) The Company meets the requirements for the use of Form
SB-2 under the Act and has filed with the Securities and Exchange
Commission (the "Commission") a registration statement, including a
related preliminary prospectus ("Preliminary Prospectus"), on Form SB-2
(Commission File No. 333-71089) (the "Registration Statement") for the
registration under the Act of the Securities. The Company may have
filed one or more amendments thereto, including related Preliminary
Prospectuses, each of which has previously been furnished to you. The
Company will next file with the Commission either prior to
effectiveness of such Registration Statement, a further amendment
thereto (including the form of Prospectus) or, after effectiveness of
such Registration Statement, a Prospectus in accordance with Rules 430A
and 424(b)(1) or (4). As filed, such amendment and form of Prospectus,
or such Prospectus, shall include all Rule 430A Information and, except
to the extent the Representative shall agree in writing to a
modification, shall be in all substantive respects in the form
furnished to you prior to the Execution Time or, to the extent not
completed at the Execution Time, shall contain only such specific
additional information and other changes (beyond that contained in the
latest Preliminary Prospectus) as the Company has advised you in
writing, prior to the Execution Time, will be included or made therein.
(b) The Preliminary Prospectus at the time of filing thereof,
conformed in all material respects with the applicable requirements of
the Act and the rules and regulations thereunder and did not include
any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the
statements therein not misleading. If the Effective Date is prior to or
simultaneous with the Execution Time, (i) on the Effective Date, the
Registration Statement conformed in all material respects to the
requirements of the Act and the rules and regulations thereunder and
did not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading, and (ii) at the
Execution Time, the Registration Statement conforms, and at the time of
filing of the Prospectus pursuant to Rule 424(b), the Registration
Statement and the Prospectus will conform, in all material respects to
the requirements of the Act and the rules and regulations thereunder,
and neither of such documents includes, or will include, any untrue
statement of a material fact or omits, or will omit, to state a
material fact required to be stated therein or necessary in order to
make the statements therein (and, in the case of the Prospectus, in the
light of the circumstances under which they were made) not misleading.
If the Effective Date is subsequent to the Execution Time, on the
Effective Date, the Registration Statement and the Prospectus will
conform in all material respects to the requirements of the Act and the
rules and regulations thereunder, and neither of such documents will
contain any untrue statement of any material fact or will omit to state
any material fact required to be stated therein or necessary to make
the statements therein (and, in the case of the Prospectus, in the
light of the circumstances under which they were made) not misleading.
The two preceding sentences do not apply to statements in or omissions
from the Registration Statement or the Prospectus (or any supplements
thereto) based upon and in conformity with information furnished in
writing to the Company by or on behalf of any Underwriter through the
Representative specifically for use in connection with the preparation
of the Registration Statement or the Prospectus (or any supplements
thereto).
(c) The Company does not own or control, directly or
indirectly, any shares of capital stock or equity interests in any
corporation, partnership, association or other entity, except as set
forth in the Prospectus.
(d) The Company and each of its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction in which each company is chartered
or organized, with full corporate power and corporate authority to own
their respective properties and conduct their respective businesses as
described in the Prospectus, and the Company and each of its
subsidiaries is duly qualified to do business as a foreign corporation
and is in good standing under the laws of each jurisdiction in which
each company conducts its respective business or owns property and in
which the failure, individually or in the aggregate, to be so qualified
would have a material adverse effect on the properties, assets,
operations, business, condition (financial or otherwise) or prospects
of the Company ("Material Adverse Effect"). The Company and each of its
subsidiaries has all necessary authorizations, approvals, orders,
licenses, certificates and permits of and from all government
regulatory officials and bodies, to own their respective properties and
conduct their respective businesses as described in the Prospectus
except where the absence of any such authorization, approval, order,
license, certificate or permit would not have a Material Adverse
Effect.
(e) The Company does not own any shares of capital stock or
any other securities of any corporation or any equity interest in any
firm, partnership, association or other entity other than as described
in the Registration Statement.
(f) The Company's equity capitalization is as set forth in the
Prospectus; the capital stock of the Company conforms in all material
respects to the description thereof contained in the Prospectus; all
outstanding shares of Common Stock (including, without limitation, the
shares of Common Stock underlying (i) the Units to be sold by the
Company hereunder, (ii) the Warrants, and (iii) the Representative's
Warrants) have been duly and validly authorized and issued and are
fully paid and nonassessable, and the certificates therefor are in
valid and sufficient form; there are, and, on the Effective Date, the
Closing Date (and any settlement date pursuant to Section 3(b) hereof),
there will be, no other classes of stock outstanding except Common
Stock; all outstanding options to purchase shares of Common Stock have
been duly and validly authorized and issued; except as described in the
Registration Statement, there are, and, on the Closing Date (and any
settlement date pursuant to Section 3(b) hereof), there will be, no
options, warrant or rights to acquire, or debt instruments convertible
into or exchangeable for, or other agreements or understandings to
which the Company is a party, outstanding or in existence, entitling
any person to purchase or otherwise acquire shares of capital stock of
the Company; the issuance and sale of the Securities have been duly and
validly authorized and, when issued and delivered and paid for, the
Securities will be fully paid and nonassessable and free from
preemptive rights, and will conform in all respects to the description
thereof contained in the Prospectus; the Representative's Warrants
will, when issued, constitute valid and binding obligations of the
Company enforceable in accordance with their terms and the Company has
reserved a sufficient number of shares of Common Stock for issuance
upon exercise thereunder; the Securities will, when issued, possess the
rights, privileges and characteristics as described in the Prospectus;
and the certificates for the Securities are in valid and sufficient
form. Each offer and sale of securities of the Company referred to in
Item 26 of Part II of the Registration Statement was effected in
compliance with the Act and the rules and regulations thereunder.
(g) The Securities (other than the Representative's Warrants)
have been approved for listing on the American Stock Exchange ("AMEX"),
upon official notice of issuance.
(h) Other than as described in the Prospectus, there is no
pending or, to the best knowledge of the Company, threatened action,
suit or proceeding before any court or governmental agency, authority
or body, domestic or foreign, or any arbitrator involving the Company
of a character required to be disclosed in the Registration Statement
or the Prospectus. There is no contract or other document of a
character required to be described in the Registration Statement or
Prospectus or to be filed as an exhibit that is not described or filed
as required.
(i) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes the legal, valid and binding
agreement of the Company, enforceable against the Company in accordance
with its terms, except as rights of indemnity and contribution
hereunder may be limited by public policy and except as the
enforceability hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally and general principles of equity.
(j) The Company has full corporate power and corporate
authority to enter into and perform its obligations under this
Agreement and to issue, sell and deliver the Securities in the manner
provided in this Agreement. The Company has taken all necessary
corporate action to authorize the execution and delivery of, and the
performance of its obligations under, this Agreement.
(k) Neither the offering, issuance and sale of the Securities,
nor the consummation of any other of the transactions contemplated
herein, nor the fulfillment of the terms hereof, will conflict with or
result in a breach or violation of, or constitute a default under, or
result in the imposition of a lien on any properties of the Company or
an acceleration of indebtedness pursuant to, the Articles of
Incorporation or bylaws of the Company, as currently in effect, or any
of the terms of any indenture or other agreement or instrument to which
the Company is a party or by which the Company or any of its properties
are bound, or any law, order, judgment, decree, rule or regulation
applicable to the Company of any court, regulatory body, administrative
agency, governmental body, stock exchange or arbitrator having
jurisdiction over the Company. The Company is not in violation of its
Articles of Incorporation or bylaws, as currently in effect, or, except
as described in the Prospectus, in breach of or default under any of
the terms of any indenture or other agreement or instrument to which it
is a party or by which it or its properties are bound, which breach or
default would, individually or in the aggregate, have a Material
Adverse Effect.
(l) Except as disclosed in the Prospectus, no person has the
right, contractual or otherwise, to cause the Company to issue to it
any shares of capital stock in consequence of the issue and sale of the
Securities, nor does any person have preemptive rights, or rights of
first refusal or other rights to purchase any of the Securities. Except
as referred to in the Prospectus, no person holds a right to require or
participate in a registration under the Act of Common Stock, Preferred
Stock or any other equity securities of the Company.
(m) The Company has not (i) taken and will not take, directly
or indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to cause or result
in, under the Exchange Act, or otherwise, stabilization or manipulation
of the price of any security of the Company to facilitate the sale or
resale of the Securities (other than those actions permitted by
applicable law) or (ii) effected any sales of shares of securities that
are required to be disclosed in response to Item 26 of Part II of the
Registration Statement (other than transactions disclosed in the
Registration Statement or the Prospectus).
(n) No consent, approval, authorization or order of, or
declaration or filing with, any court or governmental agency or body is
required to be obtained or filed by or on behalf of the Company in
connection with the transactions contemplated herein, except such as
may have been obtained or made for registration of the Securities under
the Act, and such as may be required under the Blue Sky laws of any
jurisdiction in connection with the purchase and distribution of the
Securities by the Underwriters.
(o) The accountants who have certified the Financial
Statements filed or to be filed with the Commission as part of the
Registration Statement are independent accountants as required by the
Act.
(p) No stop order preventing or suspending the use of any
Preliminary Prospectus has been issued, and no proceedings for that
purpose are pending or, to the best knowledge of the Company,
threatened or contemplated by the Commission; no stop order suspending
the sale of the Securities in any jurisdiction has been issued and no
proceedings for that purpose have been instituted or, to the best
knowledge of the Company, threatened or are contemplated; and any
request of the Commission for additional information (to be included in
the Registration Statement or the Prospectus or otherwise) has been
complied with.
(q) The Company has not sustained, since January 1, 1998, any
material loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree,
and, since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there have not been any
changes in the capital stock or long-term debt of the Company, or any
material adverse change, or a development known to the Company that
could reasonably be expected to cause or result in a material adverse
change, in the general affairs, management, financial position,
stockholders' equity, results of operations or prospects of the
Company, otherwise than as set forth in the Prospectus. Except as set
forth in the Prospectus, there exists no present condition or state of
facts or circumstances known to the Company involving its customers
which the Company can now reasonably foresee would have a Material
Adverse Effect or which would result in a termination or cancellation
of any agreement with any customer whose purchases, individually or in
the aggregate, are material to the business of the Company, or which
would result in any material decrease in sales to any such customer or
purchases from any supplier, or which would prevent the Company from
conducting its business as described in the Prospectus in essentially
the same manner in which it has heretofore been conducted.
(r) The Financial Statements and the related notes of the
Company, included in the Registration Statement and the Prospectus
present fairly the financial position, results of operations, cash flow
and changes in shareholders' equity of the Company at the dates and for
the periods indicated, subject in the case of the Financial Statements
for interim periods, to normal and recurring year-end adjustments. The
unaudited pro forma combined condensed statements of the Company
present fairly the financial position and the results of operations at
the dates and for the periods indicated. Such Financial Statements and
the unaudited pro forma combined financial information of the Company
were prepared in conformity with the Commission's rules and regulations
and in accordance with generally accepted accounting principles applied
on a consistent basis throughout the periods involved.
(s) The Company owns or possesses, or has the right to use
pursuant to licenses, sublicenses, agreements, permissions or
otherwise, adequate patents, copyrights, trade names, trademarks,
service marks, licenses and other intellectual property rights
necessary to carry on its business as described in the Prospectus, and,
except as set forth in the Prospectus, the Company has not received any
notice of either (i) default under any of the foregoing or (ii)
infringement of or conflict with asserted rights of others with respect
to, or challenge to the validity of, any of the foregoing which, in the
aggregate, if the subject of an unfavorable decision, ruling or
finding, could have a Material Adverse Effect, and the Company knows of
no fact which could reasonably be anticipated to serve as the basis for
any such notice.
(t) Subject to such exceptions as are not likely to result in
a Material Adverse Effect, (A) the Company owns all properties and
assets described in the Registration Statement and the Prospectus as
being owned by it and (B) the Company has good title to all properties
and assets owned by it, free and clear of all liens, charges,
encumbrances and restrictions, except as otherwise disclosed in the
Prospectus and except for (i) liens for taxes not yet due, (ii)
mortgages and liens securing debt reflected on the Financial Statements
included in the Prospectus, (iii) materialmen's, workmen's, vendor's
and other similar liens incurred in the ordinary course of business
that are not delinquent, individually or in the aggregate, and do not
have a Material Adverse Effect on the value of such properties or
assets of the Company, or on the use of such properties or assets by
the Company, in its respective business, and (iv) any other liens that,
individually or in the aggregate, are not likely to result in a
Material Adverse Effect. All leases to which the Company is a party and
which are material to the conduct of the business of the Company are
valid and binding and no material default by the Company has occurred
and is continuing thereunder; and the Company enjoys peaceful and
undisturbed possession under all such material leases to which it is a
party as lessee.
(u) The books, records and accounts of the Company accurately
and fairly reflect, in reasonable detail, the transactions in and
dispositions of the assets of the Company. The system of internal
accounting controls maintained by the Company is sufficient to provide
reasonable assurances that (i) transactions are executed in accordance
with management's general or specific authorization; (ii) transactions
are recorded as necessary to permit preparation of financial statements
in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted
only in accordance with management's general or specific authorization;
and (iv) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(v) Except as set forth in the Prospectus, subsequent to the
respective dates as of which information is given in the Registration
Statement and the Prospectus, the Company has not incurred any
liabilities or obligations, direct or contingent, or entered into any
transactions, in each case, which are likely to result in a Material
Adverse Effect, and there has not been any payment of or declaration to
pay any dividends or any other distribution with respect to the shares
of the capital stock of the Company.
(w) The Company is in compliance in all material respects with
all applicable laws, rules and regulations, including, without
limitation, employment and employment practices, immigration, terms and
conditions of employment, health and safety of workers, customs and
wages and hours, and is not engaged in any unfair labor practice. No
property of the Company has been seized by any governmental agency or
authority as a result of any violation by the Company or any
independent contractor of the Company of any provisions of law. There
is no pending unfair labor practice complaint or charge filed with any
governmental agency against the Company. There is no labor strike,
material dispute, slow down or work stoppage actually pending or, to
the best knowledge of the Company, threatened against or affecting the
Company; no grievance or arbitration arising out of or under any
collective bargaining agreements is pending against the Company; no
collective bargaining agreement which is binding on the Company
restricts the Company from relocating or closing any of its operations;
and none of the Company has experienced any work stoppage or other
labor dispute at any time.
(x) Except as set forth below in this paragraph, the Company
has accurately, properly and timely (giving effect to any valid
extensions of time) filed all federal, state, local and foreign tax
returns (including all schedules thereto) that are required to be
filed, and has paid all taxes and assessments shown thereon. Any and
all tax deficiencies asserted or assessed against the Company by the
Internal Revenue Service ("IRS") or any other foreign or domestic
taxing authority have been paid or finally settled with no remaining
amounts owed. Neither the IRS nor any other foreign or domestic taxing
authority has examined any tax returns of the Company nor has the IRS
or any foreign or domestic taxing authority asserted a position which
conflicts with any tax position taken by the Company. The charges,
accruals and reserves shown in the Financial Statements included in the
Prospectus in respect of taxes for all fiscal periods to date are
adequate, and nothing has occurred subsequent to the date of such
Financial Statements that makes such charges, accruals or reserves
inadequate. The Company is not aware of any proposal (whether oral or
written) by any taxing authority to adjust any tax return filed by the
Company. The Company received an extension of time to file its
Consolidated Federal Income Tax Return for the fiscal year ended
December 31, 1998, which extension expired September 15, 1999. The
Company is unable to file such return within the extension period
because of changes in its 1998 consolidated financial statements
arising from comments from the Securities and Exchange Commission
thereon. The Company has deposited with the Internal Revenue Services
funds more than sufficient to fund any tax liability and, based upon
discussions with its auditors and tax accountants who will prepare the
tax return, represents that such return will be filed by September 30,
1999 with no liability or penalties to the Company.
(y) With such exceptions as are not likely to result in a
Material Adverse Effect, the Company is in compliance with all federal,
state, foreign and local laws and regulations relating to pollution or
protection of human health or the environment ("Environmental Laws"),
there are no circumstances that may prevent or interfere with such
compliance other than as set forth in the Prospectus, and the Company
has not received any notice or other communication alleging a currently
pending violation of any Environmental Laws. With such exceptions as
are not likely to result in a Material Adverse Effect, other than as
set forth in the Prospectus, there are no past or present actions,
activities, circumstances, conditions, events or incidents, including,
without limitation, the release, emission, discharge or disposal of any
chemicals, pollutants, contaminants, wastes, toxic substances,
petroleum and petroleum products, that may result in the imposition of
liability on the Company or any claim against the Company or, to the
Company's best knowledge, against any person or entity whose liability
for any claim the Company has or may have assumed either contractually
or by operation of law, and the Company has not received any notice or
other communication concerning any such claim against the Company or
such person or entity.
(z) Except as set forth in the Prospectus, there are no
outstanding loans, advances or guaranties of indebtedness by the
Company to or for the benefit of its affiliates, or any of its officers
or directors, or any of the members of the families of any of them,
which are required to be disclosed in the Registration Statement or the
Prospectus.
(aa) The Company is not an investment company subject to
registration under the Investment Company Act of 1940, as amended.
(bb) Except as set forth in the Prospectus, the Company has
insurance of the types and in the amounts that it reasonably believes
is adequate for its business, including, but not limited to, casualty
and general liability insurance covering all real and personal property
owned or leased by the Company, as applicable, against theft, damage,
destruction, acts of vandalism and all other risks customarily insured
against.
(cc) The Company has not at any time (i) made any
contributions to any candidate for political office, or failed to
disclose fully any such contribution, in violation of law; (ii) made
any payment to any state, federal or foreign governmental officer or
official, or other person charged with similar public or quasi-public
duties, other than payments required or allowed by all applicable laws;
or (iii) violated, nor is it in violation of, any provision of the
Foreign Corrupt Practices Act of 1977, as amended.
(dd) The preparation and the filing of the Registration
Statement with the Commission have been duly authorized by and on
behalf of the Company, and the Registration Statement has been duly
executed pursuant to such authorization by and on behalf of the
Company.
(ee) All documents delivered or to be delivered by the Company
or any of its directors or officers to the Underwriters, the Commission
or any state securities law administrator in connection with the
issuance and sale of the Securities were, on the dates on which they
were delivered, and will be, on the dates on which they are to be
delivered, true, complete and correct in all material respects.
(ff) Except as described in the Prospectus, the Company does
not maintain, nor does any other person maintain on behalf of the
Company, any retirement, pension (whether deferred or non-deferred,
defined contribution or defined benefit) or money purchase plan or
trust. There are no unfunded liabilities of the Company with respect to
any such plans or trusts that are not accrued or otherwise reserved for
on the Financial Statements.
(gg) Any certificates signed by an officer of the Company and
delivered to the Representative or the Underwriters or to counsel for
the Underwriters shall also be deemed a representation and warranty of
the Company to the Underwriters as to the matters covered thereby. Any
certificate delivered by the Company to its counsel for purposes of
enabling such counsel to render the opinions referred to in Section
6(b) will also be furnished to the Representative and counsel for the
Underwriters and shall be deemed to be additional representations and
warranties by the Company to the Underwriters as to the matters covered
thereby.
(hh) The Company has obtained and delivered to the
Representative the written agreements, substantially in the form
attached hereto as Exhibit B, of the principal shareholders of the
Company restricting dispositions of equity securities of the Company.
2. Purchase and Sale.
(a) Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company agrees to issue and
sell to the Underwriters an aggregate of 500400,000 Units. Each of the
Underwriters agrees, severally and not jointly, to purchase from the Company the
number of Units set forth opposite its name in Schedule I hereto. The purchase
price to be paid by the several Underwriters to the Company shall be
$_____$8.5737 per Unit. No value shall be attributable to the Warrants.
(b) Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company hereby grants an
option (the "Underwriters' Option") to the several Underwriters to purchase,
severally and not jointly, up to an aggregate of 7560,000 Units, at the same
purchase price per Unit for use solely in covering any over-allotments made by
the Representative for the account of the Underwriters in the sale and
distribution of the Underwritten Securities. The Underwriters' Option may be
exercised in whole or in part at any time on or before the 45th day after the
Effective Date upon written or telegraphic notice by the Representative to the
Company setting forth the number of Units which the several Underwriters elect
to purchase pursuant to the Underwriters' Option. Delivery of certificates for
such Option Securities by the Company and payment therefor to the Company shall
be made as provided in Section 3 hereof. The number of Units purchased by each
Underwriter pursuant to the Underwriters' Option shall be determined by
multiplying the number of Units to be sold by the Company pursuant to the
Underwriters' Option, as exercised, by a fraction, the numerator of which is the
number of Units to be purchased by such Underwriter as set forth opposite its
name in Schedule I and the denominator of which is the total number of Units to
be purchased by all of the Underwriters as set forth on Schedule I (subject to
such adjustments to eliminate any fractional Unit purchases as the
Representative in its discretion may make).
3. Delivery and Payment.
<PAGE>
50863_1/63466.00005
Certificates in definitive form for the Underwritten Securities to be
purchased by each Underwriter hereunder, and in such denominations and
registered in such names as the Representative may request upon at least 48
hours' prior notice to the Company, shall be delivered by or on behalf of the
Company to you for the account of such Underwriter, against payment by such
Underwriter or on its behalf of the purchase price therefor by certified or
official bank check or checks, payable to the order of the Company in same day
funds, at the offices of Representative, 101 Fairchild Avenue, Plainview, New
York 10110 or at such other place as shall be agreed upon by the Representative
and the Company. The time and date of such delivery and payment shall be, with
respect to the Underwritten Securities, 9:00 a.m., New York, New York time, on
September ___24, 1999, or at such other time and date as you and the Company may
agree upon in writing, and, with respect to the Option Securities, 9:00 a.m.,
New York, New York time, on the date specified by the Representative in the
written notice given by the Representative of the Underwriters' election to
purchase such Option Securities, or at such other time and date as the
Representative and the Company may agree upon in writing. Said date shall be not
earlier than two (2) or later than (10) ten business days after the date of said
notice.
4. Offering by Underwriters. It is understood that the several Underwriters
propose to offer the Securities for sale to the public as set forth in the
Prospectus.
5. Agreements. The Company agrees with the several Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement, and any amendment thereof, if not effective at the Execution Time, to
become effective as promptly as possible. If the Registration Statement has
become or becomes effective pursuant to Rule 430A, or filing of the Prospectus
is otherwise required under Rule 424(b), the Company will file the Prospectus,
properly completed, pursuant to Rule 424(b) within the time period prescribed
and will provide evidence satisfactory to the Representative of such timely
filing. The Company will promptly advise the Representative (i) when the
Registration Statement shall have become effective, (ii) when any post-effective
amendment thereto shall have become effective, (iii) of any request by the
Commission for any amendment or supplement of the Registration Statement or the
Prospectus or for any additional information with respect thereto, (iv) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the receipt by the Company of any notification with
respect to the institution or threatening of any proceeding for that purpose and
(v) of the receipt by the Company of any notification with respect to the
suspension of the qualification of the Securities for sale in any jurisdiction
or the initiation or threatening of any proceeding for such purpose. The Company
will use its best efforts to prevent the issuance of any such stop order or
suspension and, if issued, to obtain as soon as possible the withdrawal thereof.
The Company will not file any amendment to the Registration Statement or
supplement to the Prospectus without the prior consent of the Representative.
The Company will prepare and file with the Commission, promptly upon your
request, any amendment to the Registration Statement or supplement to the
Prospectus that you reasonably determine to be necessary or advisable in
connection with the distribution of the Securities by you, and will use its best
efforts to cause the same to become effective as promptly as possible.
(b) If, at any time when a prospectus relating to the Securities is
required to be delivered under the Act, any event occurs as a result of which
the Prospectus as then supplemented would include any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it otherwise shall be necessary to supplement the
Prospectus to comply with the Act or the rules or regulations thereunder, the
Company will promptly prepare and file with the Commission, subject to Section
5(a) hereof, a supplement that will correct such statement or omission or a
supplement that will effect such compliance.
(c) As soon as practicable (but not later than eighteen months after
the effective date of the Registration Statement), the Company will make
generally available to its security holders and to the Representative an
earnings statement or statements (which need not be audited) of the Company
covering a period of at least twelve months after the Effective Date (but in no
event commencing later than 120 days after such date), which will satisfy the
provisions of Section 11(a) of the Act and Rule 158 promulgated thereunder.
(d) The Company will furnish to each of you and counsel for the
Underwriters, without charge, one signed copy of the Registration Statement and
any amendments thereto (including exhibits thereto) and to each other
Underwriter a conformed copy of the Registration Statement and any amendments
thereto (without exhibits thereto) and, so long as delivery of a prospectus by
an Underwriter or dealer may be required by the Act, as many copies of the
Prospectus and each Preliminary Prospectus and any supplements thereto as the
Representative may reasonably request.
(e) The Company will take all actions necessary for the registration or
qualification of the Securities for sale under the laws of such jurisdictions
within the United States and its territories as the Representative may
designate, will maintain such qualifications in effect so long as required for
the distribution of the Securities and will pay the fee of the National
Association of Securities Dealers, Inc. (the "NASD") in connection with its
review of the offering, provided that the Company shall not be required to
qualify as a foreign corporation or to consent to service of process under the
laws of any such jurisdiction (except service of process with respect to the
offering and sale of the Securities). Without limiting the foregoing, the
Company will use its best efforts to register or qualify the shares of Common
Stock underlying the Warrants in any jurisdiction where the registered holders
of 5% or more of such Warrants reside, and will use its best efforts to keep
such registrations or qualifications in effect during the term of the Warrants.
(f) The Company will apply the net proceeds from the offering received
by it in the manner set forth under the caption "Use of Proceeds" in the
Prospectus.
(g) The Company will (i) cause the Securities (other than the
Representative's Warrants) to be listed on AMEX and (ii) comply with all
registration, filing and reporting requirements of the Exchange Act, and AMEX
which may from time to time be applicable to the Company.
(h) During the five-year period commencing on the date hereof, the
Company will furnish to its shareholders, as soon as practicable after the end
of each respective period, annual reports (including financial statements
audited by independent certified public accountants) and unaudited quarterly
reports of earnings and will furnish to you and, upon request, to the other
Underwriters hereunder (i) concurrent with furnishing such quarterly reports to
its shareholders, statements of income and other information of the Company for
such quarter in the form furnished to the Company's shareholders; (ii)
concurrent with furnishing such annual reports to its shareholders, a balance
sheet of the Company as at the end of such fiscal year, together with statements
of income and surplus and of cash flow of the Company for such fiscal year, all
in reasonable detail and accompanied by a copy of the certificate or report
thereon of its independent certified public accountants; (iii) as soon as they
are available, copies of all reports and financial statements furnished to or
filed with the Commission, the NASD, AMEX or any other securities exchange on
which any of the Company's securities may be listed; (iv) every press release
and every material news item or article in respect of the Company or its affairs
which was released or prepared by the Company; and (v) any additional
information of a public nature concerning the Company or its business that you
may reasonably request. During such five-year period, if the Company shall have
active subsidiaries, the foregoing financial statements shall be on a
consolidated basis to the extent that the accounts of the Company and its
subsidiaries are consolidated, and shall be accompanied by similar financial
statements for any significant subsidiary that is not so consolidated.
(i) The Company will maintain a transfer agent and, if necessary under
the jurisdiction of incorporation of the Company, a registrar (which may be the
same entity as the transfer agent) for the Securities.
(j) The Company will not, for a period of 365 days following the
Effective Date, without the prior written consent of the Representative, offer,
sell, contract to sell (including, without limitation, any short sale),
transfer, assign, pledge, encumber, hypothecate or grant any option to purchase
or otherwise dispose of, any capital stock, or any options, rights or warrants
to purchase any capital stock of the Company, or any securities or indebtedness
convertible into or exchangeable for shares of capital stock of the Company,
except for (i) sales of Securities as contemplated by this Agreement and (ii)
sales of Common Stock upon the exercise of Warrants or outstanding options
described in the Prospectus.
(k) The Company has reserved and shall continue to reserve a sufficient
number of shares of Common Stock for issuance upon exercise of the
Representative's Warrants.
(l) If the Company elects to rely on Rule 462(b), the Company shall
file a Rule 462(b) Registration Statement with the Commission in compliance with
Rule 462(b) by 10:00 p.m., Washington D.C. time, on the date of this Agreement,
and the Company shall at the time of filing either pay to the Commission the
filing fee for the Rule 462(b) Registration Statement or give irrevocable
instructions for the payment of such fee pursuant to Rule 111(b) under the Act.
(m) For the five year period from the Closing Date, the Company will
nominate for election as a director a person designated by the Representative,
and during such time as the Representative shall not have exercised such right,
the Representative shall have the right to designate a director or advisory
director, who shall be entitled to attend all meetings of the Board of Directors
and receive all correspondence and communications sent by the Company to the
members of the Board of Directors.
(n) The Company shall solicit the exercise of the Warrants solely
through the Representatives, at the Representative's election, and the Company
shall pay to the Representatives the compensation set forth in Section 7 hereof
for such services.
(o) For a period of three (3) years from the date of this Prospectus,
the Company shall not, without the prior written consent of the Representative,
issue, sell, contract to sell, or otherwise dispose of any shares of Common
Stock any options to purchase any shares of Common Stock, or any securities
convertible into, exercisable for, or exchangeable for shares of Common Stock,
except upon the exercise of outstanding options or warrants or the issuance of
options under the Company's employee stock option plan.
6. Conditions to the Obligations of the Underwriters. The obligations of the
Underwriters to purchase the Securities described in Sections 2(a) and 2(b)
hereof shall be subject to (i) the accuracy of the representations and
warranties on the part of the Company contained herein as of the Execution Time,
the Closing Date and (in the case of any Securities delivered after the Closing
Date, any settlement date pursuant to Section 3(b) hereof), (ii) the accuracy of
the statements of the Company made in any certificates delivered pursuant to the
provisions hereof, (iii) the performance by the Company of its obligations
hereunder, and (iv) the following additional conditions:
(a) The Registration Statement shall have become effective (or, if a
post-effective amendment is required to be filed pursuant to Rule 430A under the
Act, such post-effective amendment shall become effective) not later than 5:00
p.m. Eastern Standard Time, on the execution date hereof or at such later date
and time as the Representative may approve in writing and, at the Closing Date
(and any settlement date pursuant to Section 3(b) hereof), no stop order
suspending the effectiveness of the Registration Statement or any qualification
in any jurisdiction shall have been issued and no proceedings for that purpose
shall have been initiated or, to the best knowledge of the Company, threatened
by the Commission.
(b) The Company shall have furnished to the Representative the opinion
of Maurice J. Bates, L.L.C., counsel for the Company, addressed to the
Underwriters and dated the Closing Date (and any settlement date pursuant to
Section 3(b) hereof), or other evidence satisfactory to the Representative to
the effect that:
(i) The Registration Statement has become effective under the
Act; any required filing of the Prospectus or any supplements thereto
pursuant to Rule 424(b) has been made in the manner and within the time
period required by Rule 424(b); to the best knowledge of such counsel,
no stop order suspending the effectiveness of the Registration
Statement or any qualification in any jurisdiction has been issued and
no proceedings for that purpose have been instituted or threatened; any
request from the Commission for additional information has been
complied with; the Registration Statement and the Prospectus (and any
supplements thereto) comply as to form in all material respects with
the applicable requirements of the Act and the rules and regulations
thereunder (except that such counsel need express no opinion with
respect to the Financial Statements and schedules included in the
Registration Statement and Prospectus).
(ii) The Company does not own or control, directly or
indirectly, any shares of capital stock or equity interests in any
corporation, partnership, association or other entity, except as set
forth in the Prospectus.
(iii) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
jurisdiction in which it is chartered or organized, with full corporate
power and corporate authority to own its properties and conduct its
business as described in the Prospectus, and is duly qualified to do
business as a foreign corporation and is in good standing under the
laws of each jurisdiction in which it conducts its business or owns
property and in which the failure, individually or in the aggregate, to
be so qualified would have a Material Adverse Effect. The Company has
all necessary and material authorizations, approvals, orders, licenses,
certificates and permits of and from all government regulatory
officials and bodies, to own its properties and conduct its business as
described in the Prospectus, except where failure to obtain such
authorizations, approvals, orders, licenses, certificates or permits
would not have a Material Adverse Effect.
(iv) The Company has an authorized share capitalization as set
forth in the Prospectus; the capital stock of the Company conforms in
all material respects to the description thereof contained in the
Prospectus; all outstanding shares of Common Stock have been duly and
validly authorized and issued and are fully paid and nonassessable and
the certificates therefor are in valid and sufficient form in
accordance with applicable state law; there are no other classes of
stock outstanding except Common Stock; all outstanding options to
purchase shares of Common Stock have been duly and validly authorized
and issued; except as described in the Prospectus, there are no
options, warrants or rights to acquire, or debt instruments convertible
into or exchangeable for, or other agreements or understandings to
which the Company is a party, outstanding or in existence, entitling
any person to purchase or otherwise acquire any shares of capital stock
of the Company; the issuance and sale of the Securities have been duly
and validly authorized and, when issued and delivered and paid for, the
Securities will be fully paid and nonassessable and free from
preemptive rights, and will conform in all respects to the description
thereof contained in the Prospectus; the Warrants and the
Representative's Warrants constitute valid and binding obligations of
the Company enforceable in accordance with their terms and the Company
has reserved a sufficient number of shares of Common Stock for issuance
upon exercise thereof; the Warrants and the Representative's Warrants
possess the rights, privileges and characteristics as represented in
the forms filed as exhibits to the Registration Statement and as
described in the Prospectus; the Securities (other than the
Representative's Warrants) have been approved for listing on AMEX upon
notice of issuance thereof; the certificates for the Securities are in
valid and sufficient form. Each offer and sale of securities of the
Company described in Item 26 of Part II of the Registration Statement
was effected in compliance with the Act and the rules and regulations
thereunder.
(v) Other than as described in the Prospectus, there is no
pending or, to the best knowledge of such counsel after reasonable
investigation, threatened action, suit or proceeding before any court
or governmental agency, authority or body, domestic or foreign, or any
arbitrator involving the Company of a character required to be
disclosed in the Registration Statement or the Prospectus that is not
adequately disclosed in the Prospectus, and, to the best knowledge of
such counsel, there is no contract or other document of a character
required to be described in the Registration Statement or the
Prospectus, or to be filed as an exhibit, which is not described or
filed as required.
(vi) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes the legal, valid and binding
agreement and obligation of the Company enforceable against it in
accordance with its terms (subject to standard bankruptcy and equitable
remedy exceptions, and limitations under the Act as to the
enforceability of indemnification provisions).
(vii) The Company has full corporate power and corporate
authority to enter into and perform its obligations under this
Agreement and to issue, sell and deliver the Securities in the manner
provided in this Agreement; and the Company has taken all necessary
corporate action to authorize the execution and delivery of, and the
performance of its obligations under, this Agreement.
(viii) Neither the offering, issue and sale of the Securities
nor the consummation of any other of the transactions contemplated
herein, nor the fulfillment of the terms hereof, will conflict with or
result in a breach or violation of, or constitute a default under, or
result in the imposition of a lien on any properties of the Company, or
an acceleration of indebtedness pursuant to, the Articles of
Incorporation (or other charter document) or bylaws of the Company, or
any of the terms of any indenture or other agreement or instrument to
which the Company is a party or by which its properties are bound, or
any law, order, judgment, decree, rule or regulation applicable to the
Company of any court, regulatory body, administrative agency,
governmental body, stock exchange or arbitrator having jurisdiction
over the Company. The Company is not in violation of its Articles of
Incorporation or bylaws or, to the best knowledge of such counsel after
reasonable investigation, in breach of or default under any of the
terms of any indenture or other agreement or instrument to which it is
a party or by which it or its properties are bound, which breach or
default would, individually or in the aggregate, have a Material
Adverse Effect.
(ix) Except as disclosed in the Prospectus, no person has the
right, contractual or otherwise, to cause the Company to issue to it
any shares of capital stock in consequence of the issue and sale of the
Securities to be sold by the Company hereunder nor does any person have
preemptive rights, or rights of first refusal or other rights to
purchase any of the Securities. Except as referred to in the
Prospectus, no person holds a right to require or participate in a
registration under the Act of Common Stock or any other equity
securities of the Company.
(x) No consent, approval, authorization or order of, or
declaration or filing with, any court or governmental agency or body is
required to be obtained or filed by or on behalf of the Company in
connection with the transactions contemplated herein, except such as
may have been obtained or made and registration of the Securities under
the Act, and such as may be required under the Blue Sky laws of any
jurisdiction.
(xi) To the best knowledge of such counsel after reasonable
investigation, the Company is not in violation of or default under any
judgment, ruling, decree or order or any statute, rule or regulation of
any court or other United States governmental agency or body, including
any applicable laws respecting employment, immigration and wages and
hours, in each case, where such violation or default could have a
Material Adverse Effect. The Company is not involved in any labor
dispute, nor, to the best knowledge of such counsel, is any labor
dispute threatened.
(xii) The Company is not an investment company subject to
registration under the Investment Company Act of 1940, as amended.
(xiii) The preparation and the filing of the Registration
Statement with the Commission have been duly authorized by and on
behalf of the Company, and the Registration Statement has been duly
executed pursuant to such authorization by and on behalf of the
Company.
(xiv) Except as disclosed in the Prospectus, the Company owns
or possesses, or has the right to use pursuant to licenses,
sublicenses, agreements, permissions or otherwise, adequate patents,
copyrights, trade names, trademarks, service marks, licenses and other
intellectual property rights necessary to carry on its business as
described in the Prospectus, and, except as set forth in the
Prospectus, neither such counsel nor, to the knowledge of such counsel,
the Company has received any notice of either (i) default under any of
the foregoing or (ii) infringement of or conflict with asserted rights
of others with respect to, or challenge to the validity of, any of the
foregoing which, in the aggregate, if the subject of an unfavorable
decision, ruling or finding, could have a Material Adverse Effect, and
counsel knows of no facts which could reasonably be anticipated to
serve as the basis for any such notice.
In addition, such counsel shall state that such counsel has
participated in conferences with officers and other representatives of the
Company, representatives of the independent public accountants of the Company
and representatives of the Underwriters at which the contents of the
Registration Statement and Prospectus were discussed and, although such counsel
is not passing upon and does not assume responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement or Prospectus (except as and to the extent stated in subparagraphs (i)
and (v) above), on the basis of the foregoing and on such counsel's
participation in the preparation of the Registration Statement and the
Prospectus, nothing has come to the attention of such counsel that causes such
counsel to believe that the Registration Statement, at the Effective Date and at
the Closing Date (and any settlement date pursuant to Section 3(b) hereof),
contained or contains any untrue statement of a material fact or omitted or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, or that the Prospectus, at the date
of such Prospectus or at the Closing Date (or any settlement date pursuant to
Section 3(b) hereof), contained or contains any untrue statement of a material
fact or omitted or omits to state a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading (it being understood that such
counsel need express no comment with respect to the Financial Statements and
schedules and other financial or statistical data derived therefrom included in
the Registration Statement or Prospectus). References to the Prospectus in this
Section 6(b) shall include any supplements thereto.
(c) The Representative shall have received from Wolin, Ridley & Miller
LLP, counsel for the Underwriters, an opinion dated the Closing Date (and any
settlement date pursuant to Section 3(b) hereof), with respect to the issuance
and sale of the Securities, and with respect to the Registration Statement, the
Prospectus and other related matters as the Representative may reasonably
require, and the Company shall have furnished to such counsel such documents as
they may reasonably request for the purpose of enabling them to pass upon such
matters.
(d) The Company shall have furnished to the Representative a
certificate of the Company, signed by its Chief Executive Officer and its Chief
Financial Officer, dated the Closing Date (and any settlement date pursuant to
Section 3(b) hereof), to the effect that each has carefully examined the
Registration Statement, the Prospectus (and any supplements thereto) and this
Agreement, and, after due inquiry, that:
(i) As of the Closing Date (and any settlement date pursuant
to Section 3(b) hereof), the statements made in the Registration
Statement and the Prospectus are true and correct and the Registration
Statement and the Prospectus do not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
(ii) No order suspending the effectiveness of the Registration
Statement or the qualification or registration of the Securities under
the securities or Blue Sky laws of any jurisdiction is in effect and no
proceeding for such purpose is pending before or, to the knowledge of
such officers, threatened or contemplated by the Commission or the
authorities of any such jurisdiction; and any request for additional
information with respect to the Registration Statement or the
Prospectus on the part of the staff of the Commission or any such
authorities brought to the attention of such officers has been complied
with to the satisfaction of the staff of the Commission or such
authorities.
(iii) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not
been any change in the capital stock or long-term debt of the Company,
except as set forth in or contemplated by the Registration Statement
and the Prospectus, (y) there has not been any material adverse change
in the general affairs, business, prospects, properties, management,
results of operations or condition (financial or otherwise) of the
Company, whether or not arising from transactions in the ordinary
course of business, in each case, other than as set forth in or
contemplated by the Registration Statement and the Prospectus, and (z)
the Company has not sustained any material interference with its
business or properties from fire, explosion, flood or other casualty,
whether or not covered by insurance, or from any labor dispute or any
court or legislative or other governmental action, order or decree,
which is not set forth in the Registration Statement and the
Prospectus.
(iv) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has been
no material litigation instituted against the Company, any of its
respective officers or directors, or, to the best knowledge of such
officers, any affiliate or promoter of the Company, and since such
dates there has been no proceeding instituted or, to the best knowledge
of such officers, threatened against the Company, any of its officers
or directors, or, to the best knowledge of such officers, any affiliate
or promoter of the Company, before any federal, state or county court,
commission, regulatory body, administrative agency or other
governmental body, domestic or foreign, which could have a Material
Adverse Effect.
(v) Each of the representations and warranties of the Company in this
Agreement is true and correct in all material respects on and as of the
Execution Time and the Closing Date (and any settlement date pursuant
to Section 3(b) hereof) with the same effect as if made on and as of
the Closing Date (and any settlement date pursuant to Section 3(b)
hereof).
(vi) Each of the covenants required in this Agreement to be
performed by the Company on or prior to the Closing Date (and any
settlement date pursuant to Section 3(b) hereof) has been duly, timely
and fully performed, and each condition required herein to be complied
with by the Company on or prior to the Closing Date (and any settlement
date pursuant to Section 3(b) hereof) has been duly, timely and fully
complied with.
(e) At the Execution Time and on the Closing Date (and any settlement
date pursuant to Section 3(b) hereof), Pannell Kerr Forester of Texas, P.C.,
shall have furnished to the Representative letters, dated as of such dates, in
form and substance satisfactory to the Representative, confirming that they are
independent accountants within the meaning of the Act and the applicable rules
and regulations thereunder and stating in effect that:
(i) In their opinion, the audited Financial Statements of the
Company for the fiscal years ended December 31, 1997 and 1998, and the
notes to the Financial Statements and Financial Statement schedules for
those periods included in the Registration Statement and the
Prospectus, comply in all material respects with generally accepted
accounting principles and the applicable accounting requirements of the
Act and the applicable rules and regulations thereunder.
(ii) On the basis of a reading of the latest unaudited
Financial Statements made available by the Company, carrying out
certain specified procedures (but not an examination in accordance with
generally accepted auditing standards), a reading of the minutes of the
meetings of the shareholders, directors and committees of the Company,
and inquiries of certain officials of the Company who have
responsibility for financial and accounting matters of the Company,
nothing came to their attention that caused them to believe that: (i)
the unaudited Financial Statements of the Company for the three (3)
months ended June 30, 1999, and the notes to the Financial Statements
and the Financial Statement Schedules for the period then ended
included in the Registration Statement and Prospectus do not comply in
all material respects with generally accepted accounting principles or
the applicable accounting requirements of the Act and the applicable
rules and regulations thereunder; and (ii) with respect to the period
subsequent to June 30, 1999, at a specified date not more than five
business days prior to the date of the letter, there were any changes
in the long-term debt or capital stock of the Company or its
subsidiaries, or decreases in net current assets, net assets or
stockholders' equity of the Company as compared with the amounts shown
on the June 30, 1999 balance sheets included in the Registration
Statement and the Prospectus, except for changes or decreases which the
Registration Statement discloses have occurred or may occur and except
for changes or decreases, set forth in such letter, in which case (A)
the letter shall be accompanied by an explanation by the Company as to
the significance thereof unless said explanation is not deemed
necessary by the Representative and (B) such changes or decreases and
the explanation thereof shall be acceptable to the Representative, in
its sole discretion.
(iii) They have performed certain other specified procedures as a result of
which they determined that all information of an accounting, financial or
statistical nature (which is limited to accounting, financial or statistical
information derived from the general accounting records of the Company) set
forth in the Registration Statement and the Prospectus and specified by you
prior to the Execution Time, agrees with the accounting records of the Company.
References to the Prospectus in this Section 6(e) shall
include any supplements thereto.
(f) Subsequent to the respective dates as of which information is given
in the Registration Statement and the Prospectus, there shall not have been (i)
any changes or decreases from that specified in the letters referred to in
Section 6(e) hereof or (ii) any change, or any development involving a
prospective change, in or affecting the properties, assets, results of
operations, business, capitalization, net worth, prospects, general affairs or
condition (financial or otherwise) of the Company, the effect of which is, in
the sole judgment of the Representative, so material and adverse as to make it
impractical or inadvisable to proceed with the public offering or delivery of
the Securities as contemplated by the Registration Statement and the Prospectus.
(g) On or prior to the Effective Date, the Securities (other than the
Representative's Warrants) shall have been approved for listing on AMEX.
(h) The Company shall not have sustained any uninsured substantial loss
as a result of fire, flood, accident or other calamity.
(i) The Company shall have furnished to the Representative a
certificate of the Secretary of the Company certifying as to certain information
and other matters as the Representative may reasonably request.
(j) The Company shall have furnished to the Representative such further
information, certificates and documents as the Representative may reasonably
request.
If any of the conditions specified in this Section 6 shall not have
been fulfilled in any respect when and as provided in this Agreement, or if any
of the opinions and certificates mentioned above or elsewhere in this Agreement
shall not be in all respects reasonably satisfactory in form and substance to
the Representative and its counsel, this Agreement and all obligations of the
Underwriters hereunder may be canceled at, or at any time prior to, the Closing
Date (or any settlement date, pursuant to Section 3(b) hereof), by the
Representative. Notice of such cancellation shall be given to the Company in
writing or by telephone, facsimile or telegraph confirmed in writing.
(k) The Company shall have entered into agreements with Charles W.
Janke, individually, Janke Family Partnership, Ltd., J. H. Carpenter,
individually, J. H. Carpenter, L.L.C., J. H. Carpenter Family Partnership, Ltd.
and InSource Financial Corporation providing that for a period of three (3)
years after the date of this Prospectus without the prior written consent of the
Representative they will not sell, contract to sell, or otherwise dispose of any
shares of Common Stock, any options to purchase Common Stock, or any securities
convertible into, exercisable for or exchangeable for shares of Common Stock.
The Company shall have entered into the Share Transfer Restriction Agreement
dated January 2, 1999.
7. Fees and Expenses and Representative's Warrants. The Company agrees to pay or
cause to be paid and issue the following:
(a) the fees, disbursements and expenses of its own counsel and counsel
for the Company and accountants in connection with the registration of the
Securities under the Act and all other expenses in connection with the
preparation, printing and filing of the Registration Statement, any Preliminary
Prospectus, any Prospectus, and any drafts thereof, and amendments and
supplements thereto, and the mailing and delivery of copies thereof to the
Underwriters and dealers;
(b) all expenses in connection with the qualification of the Securities
for offering under state securities laws, including the fees and disbursements
of counsel for the Underwriters in connection with such qualification and in
connection with any Blue Sky memorandum;
(c) all filing and other fees in connection with filing with the NASD,
and complying with applicable review requirements thereof;
(d) the cost of preparing and printing certificates for the Securities;
(e) all expenses, taxes, fees and commissions, including, without
limitation, any and all fixed transfer duties sellers' and buyers' stamp taxes
or duties on the purchase and sale of the Securities and stock exchange
brokerage and transaction levies with respect to the purchase and, if
applicable, the sale of the Securities (the latter to the extent paid and not
reimbursed) (i) incident to the sale and delivery by the Company of the
Securities to the Underwriters and (ii) incident to the sale and delivery of the
Securities by the Underwriters to the initial purchasers thereof;
(f) the costs and charges of any transfer agent and registrar;
(g) the fees and expenses in connection with qualification of the
Securities (other than the Representative's Warrants) for listing on the AMEX;
(h) a nonaccountable expense allowance of 2.0% of the proceeds derived
from the offering (including the Option Securities described in Section 2(b)
hereof) payable to the Representative; and
(i) a solicitation fee to the Representatives equal to 5.0% of the
aggregate proceeds received by the Company as a result of the solicitation of
the exercise of the Warrants, provided that no solicitation fee shall be payable
(i) within one year after the date of the Prospectus, (ii) if the market price
of the Common Stock is lower than the exercise price of the Warrants, (iii) if
the Warrants are held in a discretionary account at the time of the exercise,
unless prior written approval of the exercise of such Warrants is received from
the beneficial owner of the Warrants, or (iv) unless the beneficial owner of the
Warrants states in writing that the exercise was solicited by the
Representatives and designates in writing the Representatives to receive the
solicitation fee with respect to the exercise of such Warrants;
(j) all other costs and expenses incident to the performance of the
Company's obligations hereunder which are not otherwise specifically provided
for in this Section 7.
Without limiting in any respect the foregoing obligations of the
Company, which obligations shall survive any termination of this Agreement, if
the sale of the Securities provided for herein is not consummated because any
condition to the obligations of the Underwriters set forth in Section 6 hereof
is not satisfied, because of any termination pursuant to Section 10 hereof, or
because of any refusal, inability or failure on the part of the Company to
perform any agreement herein or comply with any provision hereof to be performed
or complied with by the Company other than by reason of a default by any of the
Underwriters, the Company agrees to reimburse the Underwriters, upon demand, for
all out-of-pocket expenses (including reasonable fees and disbursements of
counsel) that shall have been incurred by them in connection with the proposed
purchase and sale of the Securities to the extent the amounts paid pursuant to
Section 7(h) hereof are insufficient therefor.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each Underwriter
and each person who controls any Underwriter within the meaning of the Act or
the Exchange Act against any and all losses, claims, damages or liabilities,
joint or several, to which they or any of them may become subject under the Act,
the Exchange Act or other federal or state statutory law or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in (i)
Section 1 of this Agreement, the Registration Statement, any Preliminary
Prospectus or the Prospectus, or in any amendment thereof or supplement thereto,
or (ii) any application or other document, or any amendment or supplement
thereto, executed by the Company or based upon written information furnished by
or on behalf of the Company filed in any jurisdiction in order to qualify the
Securities under the securities or Blue Sky laws thereof or filed with the
Commission or any securities association or securities exchange, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, and agrees to reimburse each such indemnified party, as
incurred, for any legal or other expenses reasonably incurred by it in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any such untrue statement or alleged untrue
statement or omission or alleged omission made therein in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
any Underwriter through the Representative specifically for use in the
Registration Statement or Prospectus; provided further, that with respect to any
untrue statement or omission, or any alleged untrue statement or omission, made
in any Preliminary Prospectus, the indemnity agreement contained in this
subsection (a) shall not inure to the benefit of any Underwriter (or to the
benefit of any person controlling any such Underwriter) from whom the person
asserting any such losses, claims, damages, liabilities or expenses purchased
the Securities concerned to the extent that such untrue statement or omission,
or alleged untrue statement or omission, has been corrected in the Prospectus
and the failure to deliver the Prospectus was not a result of the Company's
failure to comply with its obligations under Section 5(d) hereof. The indemnity
agreement will be in addition to any liability which the Company may otherwise
have. The Company will not, without the prior written consent of each
Underwriter, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not such Underwriter or any
person who controls such Underwriter within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act is a party to such claim, action, suit or
proceeding), unless the settlement or compromise or consent includes an
unconditional release of such Underwriter and each such controlling person from
all liability arising out of such claim, action, suit or proceeding,
satisfactory in form and substance to the Representative.
(b) Each Underwriter severally agrees to indemnify and hold harmless
the Company, each of its directors, each of the Company's officers who signs the
Registration Statement, and each person who controls the Company, within the
meaning of the Act or the Exchange Act to the same extent as the foregoing
indemnity from the Company to each Underwriter, but only with reference to
written information relating to such Underwriter furnished to the Company by or
on behalf of such Underwriter through the Representative specifically for use in
the Registration Statement or Prospectus. The Company acknowledges that the
corporate names of the Underwriters, the stabilization legend on page 2 and the
information under the heading "Underwriting" in the Prospectus and in any
Preliminary Prospectus constitute the only information furnished in writing by
or on behalf of the several Underwriters. The obligations of each Underwriter
under this subsection (b) shall be in addition to any liability which the
Underwriters may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section 8
of notice of the commencement of any action, suit or proceeding, such
indemnified party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 8, notify the indemnifying party in
writing of the commencement thereof and the indemnifying party shall assume the
defense thereof, including the employment of counsel reasonably satisfactory to
the indemnified party and the payment of all expenses; but the omission so to
notify the indemnifying party will not relieve it from any liability which it
may have to any indemnified party, unless such omission results in the
forfeiture of substantive rights or defenses by the indemnifying party. All such
expenses shall be paid by the indemnifying party as incurred by an indemnified
party. Any such indemnified party shall have the right to employ separate
counsel in any such action and to participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of such indemnified
party unless (i) the indemnifying party has agreed to pay such fees and expenses
or (ii) the indemnifying party shall have failed promptly after notice by such
indemnified party to assume the defense of such action or proceeding and employ
counsel reasonably satisfactory to the indemnified party in any such action,
suit or proceeding or (iii) the named parties in any such action or proceeding
(including any impleaded parties) include both such indemnified party and the
indemnifying party, and such indemnified party shall have been advised by
counsel that there may be one or more legal defenses available to such
indemnified party which are different from or additional to those available to
the indemnifying party (in which case, if such indemnified party notifies the
indemnifying party in writing that it elects to employ separate counsel at the
expense of the indemnifying party, the indemnifying party shall not have the
right to assume the defense of such action or proceeding on behalf of the
indemnified party or parties, it being understood, however, that the
indemnifying party shall not, in connection with any one such action or
proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the reasonable fees and expenses of more than
one separate firm of attorneys (together with appropriate local counsel) at any
time for all such indemnified parties, which firm shall be designated in writing
to the indemnifying party). Any such fees and expenses payable by the
indemnifying party shall be paid to or on behalf of the indemnified party
entitled thereto as incurred. An indemnifying party shall not be liable for any
settlement of any action or claim effected without its consent, which consent
shall not be unreasonably withheld.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in Sections 8(a) or 8(b)
is applicable in accordance with its terms but is for any reason held by a court
to be unavailable from the indemnifying party on grounds of policy or otherwise,
the Company and the Underwriters shall contribute to the aggregate losses,
claims, damages and liabilities (including legal or other expenses reasonably
incurred in connection with investigating or defending same) to which the
Company and one or more of the Underwriters may be subject in such proportion so
that the Underwriters are responsible in the aggregate for that portion
represented by the total underwriting compensation in respect of the Securities
bears to the public offering price appearing thereon and the Company is
responsible for the balance; provided, however, that (i) in no case shall any
Underwriter (except as may be provided in the Agreement Among Underwriters
relating to the offering of the Securities) be responsible for any amount in
excess of the total underwriting compensation applicable to the Securities to be
purchased by such Underwriter hereunder and (ii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 8, each person who controls an
Underwriter within the meaning of the Act shall have the same rights to
contribution as such Underwriter, and each person who controls the Company
within the meaning of the Act, each officer of the Company who shall have signed
the Registration Statement and each director of the Company shall have the same
rights to contribution as the Company, subject in each case to clause (ii) of
this Section 8(d). Any party entitled to contribution will, promptly after
receipt of notice of commencement of any action, suit or proceeding against such
party in respect of which a claim for contribution may be made against another
party or parties under this Section 8(d), notify such party or parties from whom
contribution may be sought, but the omission so to notify such party or parties
shall not relieve the party or parties from whom contribution may be sought from
any other obligation it or they may have hereunder or otherwise.
9. Default by an Underwriter. If any one or more Underwriters shall fail to
purchase and pay for any of the Securities agreed to be purchased by such
Underwriter or Underwriters hereunder and such failure to purchase shall
constitute a default in the performance of its or their obligations under this
Agreement, the remaining Underwriters shall be obligated severally to take up
and pay for (in the respective proportions which the number of Underwritten
Securities set forth opposite their names in Schedule I hereto bears to the
aggregate number of Underwritten Securities set forth opposite the names of all
the remaining Underwriters) the Underwritten Securities which the defaulting
Underwriter or Underwriters agreed but failed to purchase; provided, however,
that if the aggregate number of Underwritten Securities which the defaulting
Underwriter or Underwriters agreed but failed to purchase shall exceed 10% of
the aggregate number of Underwritten Securities set forth in Schedule I hereto,
the remaining Underwriters shall have the right to purchase all, but shall not
be under any obligation to purchase any, of such Underwritten Securities, and if
such nondefaulting Underwriters do not purchase all of such Underwritten
Securities, this Agreement will terminate without liability to any
non-defaulting Underwriter or the Company except as otherwise provided in
Section 7. In the event of a default by any Underwriter as set forth in this
Section 9, the Closing Date shall be postponed for such period, not exceeding
seven days, as the Representative shall determine in order that the required
changes in the Registration Statement and the Prospectus or in any other
documents or arrangements may be effected. Nothing contained in this Agreement
shall relieve any defaulting Underwriter of its liability, if any, to the
Company or any nondefaulting Underwriter for damages occasioned by its default
hereunder.
10. Termination. This Agreement shall be subject to termination in the absolute
discretion of the Representative, by notice given to the Company prior to
delivery of and payment for the Securities, if prior to such time (a) a
suspension or material limitation in trading in securities generally on the New
York or American Stock Exchange or the Nasdaq National Market System shall have
occurred, (b) a banking moratorium shall have been declared by federal or New
York state authorities, (c) the United States shall have engaged in hostilities
which shall have resulted in the declaration, on or after the date hereof, of a
national emergency or war, or (d) a change in national or international
political, financial or economic conditions or national or international equity
markets or currency exchange rates shall have occurred, if the effect of any
such event specified above is so material and adverse as to make it impractical
or inadvisable to proceed with the public offering or delivery of the Securities
as contemplated by the Registration Statement and the Prospectus.
11. Representations and Indemnities to Survive. The respective agreements,
representations, warranties, indemnities and other statements of the Company,
its officers and the Underwriters set forth in, referred to in, or made pursuant
to this Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter or the Company or any of
the officers, directors or controlling persons referred to in Section 8 hereof,
and will survive delivery of and payment for the Securities until all applicable
statutes of limitation have expired. The provisions of Sections 7 and 8 hereof
shall survive the termination or cancellation of this Agreement.
12. Notices. All communications hereunder will be in writing and effective only
on receipt, and will be mailed, delivered, telegraphed or sent by facsimile
transmission and confirmed:
to the Representative at:
Redstone Securities, Inc.
101 Fairchild Avenue
Plainview, New York 10110
Attention: Robert A. Shuey, III
Facsimile No. (516) 576-3840
to the Company at:
Rampart Capital Corporation
700 Louisiana, Suite 2550
Houston, Texas 77002
Attention: J.H. Carpenter, President
Facsimile No. (713) 223-4610
with copy to:
James W. Christian, Esq.
Christian & Smith
2302 Fannin Street
5th Floor
Houston, Texas 77002
Facsimile No. (713) 659-7641
13. Successors. This Agreement will inure to the benefit of and be binding upon
the parties hereto and their respective successors and the officers, directors
and controlling persons referred to in Section 8 hereof, and no other person
will have any right or obligation hereunder.
14. Counterparts. This Agreement may be signed in two or more counterparts, each
of which shall be an original, with the same effect as if the signatures thereon
and hereon were on the same instrument.
15. Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the State of Texas. Venue will lie in the federal or
state courts of Harris County, Texas.
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this letter and your acceptance shall represent a binding agreement among the
Company and the several Underwriters.
<PAGE>
50863_1/63466.00005
Very truly yours,
RAMPART CAPITAL CORPORATION
By:
J. H. Carpenter, President
<PAGE>
50863_1/63466.00005
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
Redstone Securities, Inc.
By:
Robert A. Shuey, III
For itself and the other several Underwriters in Schedule I to the foregoing
Agreement.
<PAGE>
50863_1/63466.00005
SCHEDULE I
Underwriters Number of Units
to be Purchased
Redstone Securities, Inc.
Total 400,000
<PAGE>
EXHIBIT A
50863_1/63466.00005
REPRESENTATIVE'S WARRANT AGREEMENT
September 1524, 1999
REDSTONE SECURITIES, INC.
As Representative of the Several Underwriters
101 Fairchild Avenue
Plainview, New York 10110
Gentlemen:
Rampart Capital Corporation, a Texas corporation (the "Company"),
hereby agrees to sell to you, and you hereby agree to purchase from the Company
at an aggregate purchase price of $100, warrants (the "Representative's
Warrants") to purchase up to an aggregate of 5040,000 Units (the "Units"), each
consisting of two shares of the Company's Common Stock, $.01 par value (the
"Common Stock"), and one redeemable common stock purchase warrant (the
"Warrants") of the Company, or the underlying Common Stock and Warrants, if
separately transferable, issued in accordance with the terms of the Warrant
Agreement (the "Warrant Agreement"), dated as of ____________September 24, 1999,
between the Company and American Stock Transfer & Trust Co., New York, New York,
as warrant agent (the "Warrant Agent"), except that the exercise price of the
RSI Warrants is $13.82 or 130% of the exercise price specified in the Warrant
Agreement. The Representative's Warrants will be exercisable by you as to all or
any lesser number of Units, or the underlying Common Stock and Warrants, if
separately transferable, at the Purchase Price per Unit as defined below, at any
time and from time to time on and after the first anniversary of the date hereof
and ending on the fifth anniversary of the date hereof.
1. Definitions.
As used herein, the following terms, unless the context otherwise
requires, shall have for all purposes hereof the following meanings:
The term "Act" refers to the Securities Act of 1933, as amended.
The term "Affiliate" of any Person refers to any Person directly or
indirectly controlling, controlled by or under direct or indirect common control
with, such other Person. A Person shall be deemed to control a corporation if
such Person possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of such corporation, whether through
the ownership of voting securities, by contract or otherwise.
The term "Commission" refers to the Securities and Exchange Commission.
The term "Common Stock" refers to all stock of any class or classes
(however designated) of the Company, now or hereafter authorized, the holders of
which shall have the right without limitation as to amount, either to all or to
a part of the balance of current dividends and liquidating dividends after the
payment of dividends and distributions on any shares entitled to preference, and
the holders of which shall ordinarily, in the absence of contingency, be
entitled to vote for the election of a majority of the directors of the Company
(even though the right so to vote has been suspended by the occurrence of such a
contingency).
<PAGE>
50863_1/63466.00005
The term "Current Market Price" on any date refers to the average of
the daily Market Price per share for the 30 consecutive Trading Days commencing
45 Trading Days
before the date in question.
The term "Exchange Act" refers to the Securities Exchange Act of 1934,
as amended.
The term "Market Price" refers to the closing sale price on the
American Stock Exchange ("AMEX") or, if no closing sale price is reported, the
closing bid price of the Common Stock, as quoted on the Nasdaq National Market,
or, if the Common Stock is not quoted on the Nasdaq National Market, as reported
by the National Quotation Bureau Incorporated. If Market Price cannot be
established as described above, Market Price shall be the fair market value of
the Common Stock as determined in good faith by the Board of Directors whose
determination shall be conclusive.
The term "Other Securities" refers to any securities of the Company
(other than the Units, Common Stock or Warrants) or any other person (corporate
or otherwise) which the holders of the Representative's Warrants at any time
shall be entitled to receive, or shall have received, upon the exercise of the
Representative's Warrants, in lieu of or in addition to the Units, Common Stock
or Warrants, or which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Units, Common Stock, Warrants or Other
Securities pursuant to Section 6 below or otherwise.
The term "Person" refers to an individual, a partnership, a
corporation, a trust, a joint venture, an unincorporated organization and a
government or any department or agency thereof.
The term "Prospectus" shall mean the final prospectus of the Company,
dated the date hereof, relating to the offer and sale of Units.
The term "Purchase Price" refers to the purchase price per Unit subject
to this Agreement. The Purchase Price shall equal to 165% of the initial
offering price to public per Unit as set forth in the Prospectus, subject to
adjustment as provided in Section 6 below.
The term "Registration Statement" refers to a Registration Statement
filed with the Commission pursuant to the Rules and Regulations of the
Commission promulgated under the Act.
The term "Trading Day" shall mean a day on which the Nasdaq National
Market System or the principal national securities exchange on which the Common
Stock is listed or admitted to trading is open for the transaction of business.
The term "Underlying Securities" refers to the Units, Common Stock and
Warrants (or Other Securities) issuable under this Warrant Agreement pursuant to
the exercise, in whole or in part, of the Representative's Warrants.
The purchase and sale of the Representative's Warrants shall take
place, and the purchase price therefor shall be paid by delivery of your check,
simultaneously with the purchase of and payment for Units as provided in the
Underwriting Agreement between the Company and you, dated the date hereof.
2. Representations and Warranties.
The Company represents and warrants to you as follows:
(a) Corporate Action. The Company has all requisite corporate power and
authority, and has taken all necessary corporate action, to execute and deliver
this Agreement, to issue and deliver the Representative's Warrants and
certificates evidencing same, and to authorize and reserve for issuance, and
upon payment from time to time of the Purchase Price to issue and deliver, the
Units, including the Common Stock and the Warrants and shares of Common stock
underlying the Warrants.
(b) No Violation. Neither the execution nor delivery of this Agreement,
the consummation of the actions herein contemplated nor compliance with the
terms and provisions hereof will conflict with, or result in a breach of, or
constitute a default or an event permitting acceleration under, any of the
terms, provisions or conditions of the Articles of Incorporation or Bylaws of
the Company or any indenture, mortgage, deed of trust, note, bank loan, credit
agreement, franchise, license, lease, permit, judgment, decree, order, statute,
rule or regulation or any other agreement, understanding or instrument to which
the Company is a party or by which it is bound.
3. Compliance with the Act.
(a) Transferability of Representative's Warrants. You agree that the
Representative's Warrants may not be transferred, sold, assigned or hypothecated
for a period of one (1) year from the date hereof, except to (i) persons who are
officers of you; (ii) a successor to you in a merger or consolidation; (iii) a
purchaser of all or substantially all of your assets; (iv) your shareholders in
the event you are liquidated or dissolved; (v) participating broker-dealers; and
(vi) persons who are officers or partners of participating broker-dealers.
(b) Registration of Underlying Securities. The Underlying Securities
issuable upon the exercise of the Representative's Warrants have not been
registered under the Act. You agree not to make any sale or other disposition of
the Underlying Securities except pursuant to a Registration Statement which has
become effective under the Act, setting forth the terms of such offering, the
underwriting discount and the commissions and any other pertinent data with
respect thereto, unless you have provided the Company with an opinion of counsel
reasonably acceptable to the Company that such registration is not required.
(c) Inclusion in Registration of Other Securities. If at any time
commencing one year after the date hereof but prior to the fifth anniversary of
the date hereof, the Company shall propose the registration on an appropriate
form under the Act of any shares of Common Stock or Other Securities, the
Company shall at least 30 days prior to the filing of such Registration
Statement give you written notice, or telegraphic or telephonic notice followed
as soon as practicable by written confirmation thereof, of such proposed
registration and, upon written notice, or telegraphic or telephonic notice
followed as soon as practicable by written confirmation thereof, given to the
Company within five business days after the giving of such notice by the
Company, shall include or cause to be included in any such Registration
Statement all or such portion of the Underlying Securities as you may request,
provided, however, that the Company may at any time withdraw or cease proceeding
with any such registration if it shall at the same time withdraw or cease
proceeding with the registration of such Common Stock or such Other Securities
originally proposed to be registered.
Notwithstanding any provision of this Agreement to the
contrary, if any holder of Representative's Warrants exercises such
Representative's Warrants but shall not have included all the Underlying
Securities in a Registration Statement which complies with Section 10(a)(3) of
the Act, which has been effective for at least 30 calendar days following the
exercise of the Representative's Warrants, the registration rights set forth in
this Section 3(c) shall be extended until such time as (i) such a Registration
Statement including such Underlying Securities has been effective for at least
30 calendar days or (ii) in the opinion of counsel satisfactory to you and the
Company, registration is not required under the Act or under applicable state
laws for resale of the Underlying Securities in the manner proposed.
(d) Company's Obligations in Registration. In connection with any
offering of Underlying Securities pursuant to Section 3(c) above, the Company
shall:
(i) Notify you as to the filing
thereof and of all amendments or
supplements thereto filed prior to
the effective date thereof;
(ii) Comply with all applicable rules
and regulations of the Commission;
(iii) Notify you immediately, and
confirm the notice in writing, (1)
when the Registration Statement
becomes effective, (2) of the
issuance by the Commission of any
stop order or of the initiation,
or the threatening, of any
proceedings for that purpose, (3)
of the receipt by the Company of
any notification with respect to
the suspension of qualification of
the Underlying Securities for sale
in any jurisdiction or of the
initiation, or the threatening, of
any proceedings for that purpose
and (4) of the receipt of any
comments, or requests for
additional information, from the
Commission or any state regulatory
authority. If the Commission or
any state regulatory authority
shall enter such a stop order or
order suspending qualification at
any time, the Company will make
every reasonable effort to obtain
the lifting of such order as
promptly as practicable.
(iv) During the time when a Prospectus
is required to be delivered under
the Act during the period required
for the distribution of the
Underlying Securities, comply so
far as it is able with all
requirements imposed upon it by
the Act, as hereafter amended, and
by the Rules and Regulations
promulgated thereunder, as from
time to time in force, so far as
necessary to permit the
continuance of sales of or
dealings in the Underlying
Securities. If at any time when a
Prospectus relating to the
Underlying Securities is required
to be delivered under the Act any
event shall have occurred as a
result of which, in the opinion of
counsel for the Company or your
counsel, the Prospectus relating
to the Underlying Securities as
then amended or supplemented
includes an untrue statement of a
material fact or omits to state
any material fact required to be
stated therein or necessary to
make the statements therein, in
the light of the circumstances
under which they were made, not
misleading, or if it is necessary
at any time to amend such
Prospectus to comply with the Act,
the Company will promptly prepare
and file with the Commission an
appropriate amendment or
supplement (in form satisfactory
to you).
(v) Endeavor in good faith, in
cooperation with you, at or prior
to the time the Registration
Statement becomes effective, to
qualify the Underlying Securities
for offering and sale under the
securities laws relating to the
offering or sale of the Underlying
Securities of such jurisdictions
as you may reasonably designate
and to continue the qualifications
in effect so long as required for
purposes of the sale of the
Underlying Securities; provided
that no such qualification shall
be required in any jurisdiction
where, as a result thereof, the
Company would be subject to
service of general process, or to
taxation as a foreign corporation
doing business in such
jurisdiction. In each jurisdiction
where such qualification shall be
effected, the Company will, unless
you agree that such action is not
at the time necessary or
advisable, file and make such
statements or reports at such
times as are or may reasonably be
required by the laws of such
jurisdiction. For the purposes of
this paragraph, "good faith" is
defined as the same standard of
care and degree of effort as the
Company will use to qualify its
securities other than the
Underlying Securities.
(vi) Make generally available to its
security holders as soon as
practicable, but not later than
the first day of the eighteenth
full calendar month following the
effective date of the Registration
Statement, an earnings statement
(which need not be certified by
independent public or independent
certified public accountants
unless required by the Act or the
rules and regulations promulgated
thereunder, but which shall
satisfy the provisions of Section
11(a) of the Act) covering a
period of at least twelve months
beginning after the effective date
of the Registration Statement.
(vii) After the effective date of such
Registration Statement, prepare,
and promptly notify you of the
proposed filing of, and promptly
file with the Commission, each and
every amendment or supplement
thereto or to any Prospectus
forming a part thereof as may be
necessary to make any statements
therein not misleading; provided
that no such amendment or
supplement shall be filed if you
shall object thereto in writing
promptly after being furnished a
copy thereof.
(viii) Furnish to you, as soon as
available, copies of any such
Registration Statement and each
preliminary or final Prospectus,
or supplement or amendment
prepared pursuant thereto, all in
such quantities as you may from
time to time reasonably request;
(ix) Make such representations and
warranties to any underwriter of
the Underlying Securities, and use
your best efforts to cause Company
counsel to render such opinions to
such underwriter, as such
underwriter may reasonably
request; and
(x) Pay all costs and expenses
incident to the performance of the
Company's obligations under
Sections 3(c) and 3(d), including,
without limitation, the fees and
disbursements of the Company's
auditors and legal counsel, fees
and disbursements of legal counsel
for you, registration, listing and
filing fees, printing expenses and
expenses in connection with the
transfer and delivery of the
Underlying Securities; provided,
however, that the Company shall
not be responsible for
compensation and reimbursement of
expenses to underwriters or
selling agents for the included
Underlying Securities.
(e) Agreements by Warrant Holder. In connection with the filing of a
Registration Statement pursuant to Section 3(c) above, if you participate in the
offering by including the Underlying Securities owned by you, you agree:
(i) To furnish the Company all
material information requested by
the Company concerning yourself
and your holdings of securities of
the Company and the proposed
method of sale or other
disposition of the Underlying
Securities and such other
information and undertakings as
shall be reasonably required in
connection with the preparation
and filing of any such
Registration Statement covering
all or a part of the Underlying
Securities and in order to ensure
full compliance with the Act; and
(ii) To cooperate in good faith with
the Company and its underwriters,
if any, in connection with such
registration, including placing
the Underlying Securities to be
included in such Registration
Statement in escrow or custody to
facilitate the sale and
distribution thereof.
(f) Indemnification. The Company shall indemnify and hold harmless you
and any underwriter (as defined in the Act) for you, and each person, if any,
who respectively controls you or such underwriter within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, against any loss, liability,
claim, damage and expense whatsoever (including but not limited to any and all
expense whatsoever reasonably incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim whatsoever), joint
or several, to which any of you or such underwriter or such controlling person
becomes subject, under the Act or otherwise, insofar as such loss, liability,
claim, damage and expense (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material fact
contained in (i) a Registration Statement covering the Underlying Securities, in
the prospectus contained therein, or in an amendment or supplement thereto or
(ii) in any application or other document or communication (in this Section
collectively called "application") executed by or on behalf of the Company or
based upon written information furnished by or on behalf of the Company filed in
any jurisdiction in order to qualify the Underlying Securities under the
securities laws thereof or filed with the Commission, or arise out of or based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading;
provided, however, that the Company shall not be obligated to indemnify in any
such case to the extent that any such loss, claim, damage, expense or liability
arises out of or is based upon any untrue statement or alleged untrue statement
or omission or alleged omission made in reliance upon, and in conformity with,
written information respectively furnished by you or such underwriter or such
controlling person for use in the Registration Statement, or any amendment or
supplement thereto, or any application, as the case may be.
If any action is brought against a person in respect of which
indemnity may be sought against, the Company pursuant to the foregoing
paragraph, such person shall promptly notify the Company in writing of the
institution of such action and the Company shall assume the defense of the
action, including the employment of counsel (satisfactory to the indemnified
person in its reasonable judgment) and payment of expenses. The indemnified
person shall have the right to employ its or their own counsel in any such case,
but the fees and expenses of such counsel shall be at the expense of such
indemnified person or unless the employment of such counsel shall have been
authorized in writing by the Company in connection with the defense of the
action or the Company shall not have employed counsel to have charge of the
defense of the action or the indemnified person shall have reasonably concluded
that there may be defenses available to it or them which are different from or
additional to those available to the Company (in which case the Company shall
not have the right to direct the defense of the action on behalf of the
indemnified person), in any of which events these fees and expenses shall be
borne by the Company. Anything in this paragraph to the contrary
notwithstanding, the Company shall not be liable for any settlement of any claim
or action effected without its written consent. The Company's indemnity
agreements contained in this Section shall remain in full force and effect
regardless of any investigation made by or on behalf of any indemnified person,
and shall survive any termination of this Agreement. The Company agrees promptly
to notify you of the commencement of any litigation or proceedings against the
Company or any of its officers or directors in connection with the Registration
Statement pursuant to Section 3(c) above.
If you choose to include any Underlying Securities in a public
offering pursuant to Section 3(c) above, then you agree to indemnify and hold
harmless the Company and each of its directors and officers who have signed any
such Registration Statement, and any underwriter for the Company (as defined in
the Act), and each person, if any, who controls the Company or such underwriter
within the meaning of the Act, to the same extent as the indemnity by the
Company in this Section 3(f) but only with respect to statements or omissions,
if any, made in such Registration Statement, or any amendment or supplement
thereto, or in any application in reliance upon, and in conformity with, written
information furnished by you to the Company for use in the Registration
Statement, or any amendment or supplement thereto, or any application, as the
case may be. In case any action shall be brought in respect of which indemnity
may be sought against you, you shall have the rights and duties given to the
Company, and the persons so indemnified shall have the rights and duties given
to you by the provisions of the first paragraph of this Section.
The Company further agrees that, if the indemnity provisions
of the foregoing paragraphs are held to be unenforceable, any holder of a
Representative's Warrant or controlling person of such a holder may recover
contribution from the Company in an amount which, when added to contributions
such holder or controlling person has theretofore received or concurrently
receives from officers and directors of the Company or controlling persons of
the Company, will reimburse such holder or controlling person for all losses,
claims, damages or liabilities and legal or other expenses; provided, however,
that if the full amount of the contribution specified in this Section 3(f) is
not permitted by law, then such holder or controlling person shall be entitled
to contribution from the Company and its officers, directors and controlling
persons to the full extent permitted by law.
4. Exercise of Representative's Warrants.
(a) Cash Exercise. Each Representative's Warrant may be exercised in
full or in part (but not as to a fractional share of Common Stock) by the holder
thereof by surrender of the Warrant Certificate, with the form of subscription
at the end thereof duly executed by such holder, to the Company at its principal
office, accompanied by payment, in cash or by certified or bank cashier's check
payable to the order of the Company, in the respective amount obtained by
multiplying the number of Units to be purchased by the Purchase Price per Unit.
(b) Net Exercise. Notwithstanding anything to the contrary contained in
Section 4(a), any holder of a Representative's Warrant may elect to exercise the
Representative's Warrant in full or in part and receive Units on a "net
exercise" basis in an amount equal to the value of the Representative's Warrant
by delivery of the form of subscription attached to the Warrant Certificate and
surrender of the Representative's Warrant at the principal office of the
Company, in which event the Company shall issue to the holder a number of Units
computed using the following formula:
X= (P)(Y)(A-B)
A
Where: X= the number of Units to be
issued to holder.
P= the portion of the
Representative's Warrant
being exercised
(expressed as a fraction).
Y= the total number of Units
issuable upon exercise of
the Representative's
Warrant.
A= the Current Market Price
of one Unit.
B= Purchase Price.
(c) Partial Exercise. Prior to the expiration of the Representative's
Warrants, upon any partial exercise, the Company at its expense will forthwith
issue and deliver to or upon the order of the purchasing holder, a new Warrant
Certificate or Certificates of like tenor, in the name of the holder thereof or
as such holder (upon payment by such holder of any applicable transfer taxes)
may request calling in the aggregate for the purchase of the number of Shares of
the Underlying Securities equal to the number of such Units called for on the
face of the Warrant Certificate (after giving effect to any adjustment therein
as provided in Section 6 below) minus the number of such Units (after giving
effect to such adjustment) designated by the holder in the aforementioned form
of subscription.
(d) Company to Reaffirm Obligations. The Company will, at the time of
any exercise of any Representative's Warrant, upon the request of the holder
thereof, acknowledge in writing its continuing obligation to afford to such
holder any rights (including without limitation any right to registration of the
Units issued upon such exercise) to which such holder shall continue to be
entitled after such exercise in accordance with the provisions of this
Agreement; provided, however, that if the holder of a Representative's Warrant
shall fail to make any such request, such failure shall not affect the
continuing obligation of the Company to afford to such holder any such rights.
5. Delivery of Certificates on Exercise.
As soon as practicable after any exercise of any Representative's
Warrant in full or in part, and in any event within twenty days thereafter, the
Company at its expense (including the payment by it of any applicable issue
taxes) will cause to be issued in the name of and delivered to the purchasing
holder thereof, a certificate or certificates for the number of fully paid and
nonassessable Common Stock and Warrants to which such holder shall be entitled
upon such exercise, plus in lieu of any fractional share to which such holder
would otherwise be entitled, cash in an amount determined pursuant to Section
7(g), together with any other stock or other securities and property (including
cash, where applicable) to which such holder is entitled upon such exercise
pursuant to Section 6 below or otherwise.
6. Anti-Dilution Provisions.
The Representative's Warrants are subject to the following terms and
conditions during the term thereof:
(a) Stock Distributions and Splits. In case (i) the outstanding shares
of Common Stock (or Other Securities) shall be subdivided into a greater number
of shares or (ii) a dividend in Common Stock (or Other Securities) shall be paid
in respect of Common Stock (or Other Securities), the Purchase Price per share
in effect immediately prior to such subdivision or at the record date of such
dividend or distribution shall simultaneously with the effectiveness of such
subdivision or immediately after the record date of such dividend or
distribution be proportionately reduced; and if outstanding shares of Common
Stock (or Other Securities) shall be combined into a smaller number of shares
thereof, the Purchase Price per share in effect immediately prior to such
combination shall simultaneously with the effectiveness of such combination be
proportionately increased. Any dividend paid or distributed on the Common Stock
(or Other Securities) in stock or any other securities convertible into shares
of Common Stock (or Other Securities) shall be treated as a dividend paid in
Common Stock (or Other Securities) to the extent that shares of Common Stock (or
Other Securities) are issuable upon the conversion thereof.
(b) Adjustments. Whenever the Purchase Price per Unit is adjusted as
provided in Section 6(a) above, the number of Units purchasable upon exercise of
the Representative's Warrants immediately prior to such Purchase Price
adjustment shall be adjusted, effective simultaneously with such Purchase Price
adjustment, to equal the product obtained (calculated to the nearest full Unit)
by multiplying such number of Units by a fraction, the numerator of which is the
Purchase Price per Unit in effect immediately prior to such Purchase Price
adjustment and the denominator of which is the Purchase Price per Unit in effect
upon such Purchase Price adjustment, which adjusted number of Units shall
thereupon be the number of Units purchasable upon exercise of the
Representative's Warrants until further adjusted as provided herein.
(c) Reorganizations. In case the Company shall be recapitalized by
reclassifying its outstanding Common Stock (or Other Securities) into a stock
with a different par value or by changing its outstanding Common Stock (or Other
Securities) with par value to stock without par value, then, as a condition of
such reorganization, lawful and adequate provision shall be made whereby each
holder of a Representative's Warrant shall thereafter have the right to
purchase, upon the terms and conditions specified herein, in lieu of the shares
of Common Stock (or Other Securities) theretofore purchasable upon the exercise
of the Representative's Warrants, the kind and amount of shares of stock and
other securities receivable upon such recapitalization by a holder of the number
of shares of Common Stock (or Other Securities) which the holder of a
Representative's Warrant might have purchased immediately prior to such
recapitalization. If any consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to another
corporation, shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such consolidation, merger or
sale, lawful and adequate provisions shall be made whereby the holder hereof
shall thereafter have the right to purchase and receive upon the basis and upon
the terms and conditions specified in this Warrant Agreement and in lieu of the
shares of the Common Stock of the Company immediately theretofore purchasable
and receivable upon the exercise of the rights represented hereby, such shares
of stock, securities or assets as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Common Stock equal to the
number of shares of such stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby had such
consolidation, merger or sale not taken place, and in any such case, appropriate
provision shall be made with respect to the rights and interests of the holders
of Representative's Warrants to the end that the provisions hereof (including
without limitation provisions for adjustments of the Purchase Price and of the
number of Units purchasable and receivable upon the exercise of the
Representative's Warrants) shall thereafter be applicable, as nearly as may be,
in relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise hereof (including an immediate adjustment, by reason of such
consolidation or merger, of the Purchase Price to the value for the Common Stock
reflected by the terms of such consolidation or merger if the value so reflected
is less than the Purchase Price in effect immediately prior to such
consolidation or merger). In the event of a merger or consolidation of the
Company with or into another corporation as a result of which a number of shares
of Common Stock of the surviving corporation greater or lesser than the number
of shares of Common Stock of the Company outstanding immediately prior to such
merger or consolidation are issuable to holders of Common Stock of the Company,
then the Purchase Price in effect immediately prior to such merger or
consolidation shall be adjusted in the same manner as though there were a
subdivision or combination of the outstanding shares of Common Stock of the
Company. The Company will not effect any such consolidation, merger or sale,
unless prior to the consummation thereof the successor corporation (if other
than the Company) resulting from such consolidation or merger or the corporation
purchasing such assets shall assume by written instrument executed and mailed or
delivered to the registered holder hereof at the last address of such holder
appearing on the books of the Company, the obligation to deliver to such holder
such shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to purchase. If a purchase, tender or
exchange offer is made to and accepted by the holders of more than of the
outstanding shares of Common Stock of the Company, the Company shall not effect
any consolidation, merger or sale with the Person having made such offer or with
any Affiliate of such Person, unless prior to the consummation of such
consolidation, merger or sale the holders of Representative's Warrants shall
have been given a reasonable opportunity to then elect to receive upon the
exercise of Representative's Warrants either the stock, securities or assets
then issuable with respect to the Common Stock of the Company or the stock,
securities or assets, or the equivalent issued to previous holders of the Common
Stock in accordance with such offer.
(d) Effect of Dissolution or Liquidation. In case the Company shall
dissolve or liquidate all or substantially all of its assets, all rights under
this Agreement shall terminate as of the date upon which a certificate of
dissolution or liquidation shall be filed with the Secretary of the State of
Texas (or, if the Company theretofore shall have been merged or consolidated
with a corporation incorporated under the laws of another state, the date upon
which action of equivalent effect shall have been taken); provided, however,
that (i) no dissolution or liquidation shall affect the rights under Section
6(c) of any holder of a Representative's Warrant and (ii) if the Company's Board
of Directors shall propose to dissolve or liquidate the Company, each holder of
a Representative's Warrant shall be given written notice of such proposal at the
earlier of (x) the time when the Company's shareholders are first given notice
of the proposal or (y) the time when notice to the Company's shareholders is
first required.
(e) Notice of Change of Purchase Price. Whenever the Purchase Price per
Unit or the kind or amount of securities purchasable under the Representative's
Warrants shall be adjusted pursuant to any of the provisions of this Agreement,
the Company shall forthwith thereafter cause to be sent to each holder of a
Representative's Warrant, a certificate setting forth the adjustments in the
Purchase Price per Unit and/or in such number of Unit, and also setting forth in
detail the facts requiring, such adjustments, including without limitation a
statement of the consideration received or deemed to have been received by the
Company for any additional shares of stock issued by it requiring such
adjustment. In addition, the Company at its expense shall within 90 days
following the end of each of its fiscal years during the term of this Agreement,
and promptly upon the reasonable request of any holder of a Representative's
Warrant in connection with the exercise from time to time of all or any portion
of any Representative's Warrant, cause independent certified public accountants
of recognized standing selected by the Company to compute any such adjustment in
accordance with the terms of the Representative's Warrants and prepare a
certificate setting forth such adjustment and showing in detail the facts upon
which such adjustment is based.
(f) Notice of a Record Date. In the event of (i) any taking by the
Company of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend (other
than a cash dividend payable out of earned surplus of the Company) or other
distribution, or any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or property, or to receive
any other right, (ii) any capital reorganization of the Company, or any
reclassification or recapitalization of the capital stock of the Company, or any
transfer of all or substantially all of the assets of the Company to, or
consolidation or merger of the Company with or into, any other person or (iii)
any voluntary or involuntary dissolution or liquidation of the Company, then and
in each such event the Company will mail or cause to be mailed to each holder of
a Representative's Warrant a notice specifying not only the date on which any
such record is to be taken for the purpose of such dividend, distribution or
right and stating the amount and character of such dividend, distribution or
right, but also the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up is to take place, and the time, if any, as of which the holders of
record of Common Stock (or Other Securities) shall be entitled to exchange their
shares of Common Stock (or other Securities) for securities or other property
deliverable upon such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up. Such
notice shall be mailed at least twenty (20) days prior to the proposed record
date therein specified.
7. Further Covenants of the Company.
(a) Reservation of Stock. The Company shall at all times reserve and
keep available, solely for issuance and delivery upon the exercise of the
Representative's Warrants, all Units from time to time issuable upon the
exercise of the Representative's Warrants and shall take all necessary actions
to ensure that the par value per Unit, if any, of the Underlying Securities is,
at all times equal to or less than the then effective Purchase Price per Unit.
(b) Title to Units. All of the Underlying Securities delivered upon the
exercise of the Representative's Warrants shall be validly issued, fully paid
and nonassessable; each holder of a Representative's Warrant shall receive good
and marketable title to the Underlying Securities, free and clear of all voting
and other trust arrangements, liens, encumbrances, equities and adverse claims
whatsoever; and the Company shall have paid all taxes, if any, in respect of the
issuance thereof.
(c) Listing on Securities Exchanges; Registration. If the Company at
any time shall list any Common Stock on any national securities exchange, the
Company will, at its expense, simultaneously list on such exchange, upon
official notice of issuance upon the exercise of the Representative's Warrants,
and maintain such listing of, all of the Underlying Securities from time to time
issuable upon the exercise of the Representative's Warrants; and the Company
will so list on any national securities exchange, will so register and will
maintain such listing of, any Other Securities if and at the time that any
securities of like class or similar type shall be listed on such national
securities exchange by the Company.
(d) Exchange of Representative's Warrants. Subject to Section 3(a)
hereof, upon surrender for exchange of any Warrant Certificate to the Company,
the Company at its expense will promptly issue and deliver to or upon the order
of the holder thereof a new Warrant Certificate or certificates of like tenor,
in the name of such holder or as such holder (upon payment by such holder of any
applicable transfer taxes) may direct, calling in the aggregate for the purchase
of the number of Units called for on the face or faces of the Warrant
Certificate or Certificates so surrendered.
(e) Replacement of Representative's Warrants. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Warrant Certificate and, in the case of any such loss, theft
or destruction, upon delivery of an indemnity agreement reasonably satisfactory
in form and amount to the Company or, in the case of any such mutilation, upon
surrender and cancellation of such Warrant Certificate, the Company, at the
expense of the warrant holder will execute and deliver, in lieu thereof, a new
Warrant Certificate of like tenor.
(f) Reporting by the Company. The Company agrees that, if it files a
Registration Statement during the term of the Representative's Warrants, it will
use its best efforts to keep current in the filing of all forms and other
materials which it may be required to file with the appropriate regulatory
authority pursuant to the Exchange Act, and all other forms and reports required
to be filed with any regulatory authority having jurisdiction over the Company.
(g) Fractional Units. No fractional Units are to be issued upon the
exercise of any Representative's Warrant, but the Company shall pay a cash
adjustment in respect of any fraction of a Unit which would otherwise be
issuable in an amount equal to the same fraction of the highest market price per
Unit on the day of exercise, as determined by the Company.
8. Other Holders.
The Representative's Warrants are issued upon the following terms, to
all of which each holder or owner thereof by the taking thereof consents and
agrees as follows: (a) any person who shall become a transferee, within the
limitations on transfer imposed by Section 3(a) hereof, of a Representative's
Warrant properly endorsed shall take such Representative's Warrant subject to
the provisions of Section 3(a) hereof and thereupon shall be authorized to
represent himself as absolute owner thereof and, subject to the restrictions
contained in this Agreement, shall be empowered to transfer absolute title by
endorsement and delivery thereof to a permitted bona fide purchaser for value;
(b) each prior taker or owner waives and renounces all of his equities or rights
in such Representative's Warrant in favor of each such permitted bona fide
purchaser, and each such permitted bona fide purchaser shall acquire absolute
title thereto and to all rights presented thereby; (c) until such time as the
respective Representative's Warrant is transferred on the books of the Company,
the Company may treat the registered holder thereof as the absolute owner
thereof for all purposes, notwithstanding any notice to the contrary and (d) all
references to the word "you" in this Warrant Agreement shall be deemed to apply
with equal effect to any person to whom a Warrant Certificate or Certificates
have been transferred in accordance with the terms hereof, and where
appropriate, to any person holding the Underlying Securities.
9. Miscellaneous.
All notices, certificates and other communications from or at the
request of the Company to the holder of any Representative's Warrant shall be
mailed by first class, registered or certified mail, postage prepaid, to such
address as may have been furnished to the Company in writing by such holder, or,
until an address is so furnished, to the address of the last holder of such
Representative's Warrant who has so furnished an address to the Company, except
as otherwise provided herein. This Agreement and any of the terms hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver, discharge
or termination is sought. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Texas. The headings in
this Agreement are for reference only and shall not limit or otherwise affect
any of the terms hereof. This Agreement, together with the forms of instruments
annexed hereto as Schedule I, constitutes the full and complete agreement of the
parties hereto with respect to the subject matter hereof.
IN WITNESS WHEREOF, this Representative's Warrant Agreement has been
duly executed on the date hereof.
<PAGE>
50863_1/63466.00005
Rampart Capital Corporation
By:__________________________________
J. H. Carpenter
President
50863_1/63466.00005
Redstone Securities, Inc.
By:_________________________________
Robert A. Shuey, III
<PAGE>
SCHEDULE I
RAMPART CAPITAL CORPORATION
Warrant Certificate
Evidencing Right to Purchase 5040,000 Units
This is to certify that Redstone Securities, Inc. ("RSI") or assigns,
is entitled to purchase at any time or from time to time after 10:00 a.m., New
York, New York time, on September ____24, 2000 and until 5:00 p.m., New York,
New York time, on September ___September 24, 2004 up to the above referenced
number of Units (the "Units"), each consisting of two shares of Common Stock,
$.01 par value (the "Common Stock"), and one redeemable common stock purchase
warrant (the "Warrants") of Rampart Capital Corporation, a Texas corporation
(the "Company"), or the underlying shares of Common Stock and Warrants, if
separately transferable, for the consideration specified in Section 4 of the
Warrant Agreement dated the date hereof between the Company and RSI (the
"Warrant Agreement"), pursuant to which this Warrant is issued. All rights of
the holder of this Warrant Certificate are subject to the terms and provisions
of the Warrant Agreement, copies of which are available for inspection at the
office of the Company, except that the exercise price of the RSI Warrants is
$13.82 or 130% of the exercise price specified in the Warrant Agreement.
Capitalized terms used but not defined herein shall have the respective meanings
set forth in the Warrant Agreement.
The Underlying Securities issuable upon the exercise of this Warrant
have not been registered under the Securities Act of 1933, as amended (the
"Act"), and no distribution of such Underlying Securities may be made until the
effectiveness of a Registration Statement under the Act covering such Underlying
Securities. Transfer of this Warrant Certificate is restricted as provided in
Section 3(a) of the Warrant Agreement.
This Warrant has been issued to the registered owner in reliance upon
written representations necessary to ensure that this Warrant was issued in
accordance with an appropriate exemption from registration under any applicable
state and federal securities laws, rules and regulations. This Warrant may not
be sold, transferred, or assigned unless, in the opinion of the Company and its
legal counsel, such sale, transfer or assignment will not be in violation of the
Act, applicable rules and regulations of the Securities and Exchange Commission,
and any applicable state securities laws.
Subject to the provisions of the Act and of such Warrant Agreement,
this Warrant Certificate and all rights hereunder are transferable, in whole or
in part, at the offices of the Company, by the holder hereof in person or by
duly authorized attorney, upon surrender of this Warrant Certificate, together
with the Assignment hereof duly endorsed. Until transfer of this Warrant
Certificate on the books of the Company, the Company may treat the registered
holder hereof as the owner hereof for all purposes.
Any Underlying Securities (or Other Securities) which are acquired
pursuant to the exercise of this Warrant shall be acquired in accordance with
the Warrant Agreement and certificates representing all securities so acquired
shall bear a restrictive legend reading substantially as follows:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR UNDER ANY APPLICABLE STATE LAW. THEY MAY NOT BE OFFERED FOR
SALE, SOLD, TRANSFERRED OR PLEDGED WITHOUT (1) REGISTRATION UNDER THE
SECURITIES ACT OF 1933 AND ANY APPLICABLE STATE LAW, OR (2) AN OPINION
OF COUNSEL (SATISFACTORY TO THE CORPORATION) THAT REGISTRATION IS NOT
REQUIRED.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be executed by its duly authorized officer.
Date: September ____24, 1999.
50863_1/63466.00005
Rampart Capital Corporation
By:
<PAGE>
SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To: Rampart Capital Corporation
The undersigned, the holder of the enclosed Warrant Certificate, hereby
irrevocably elects to exercise the purchase right represented by such Warrant
Certificate for, and to purchase thereunder, _________________ Units ("Units"),
each consisting of two shares shares of Common Stock, $.01 par value (the
"Common Stock"), and one redeemable common stock purchase warrant (the
"Warrants") of Rampart Capital Corporation, or the underlying Common Stock and
Warrants, if separately transferable, and either tenders herewith payment of the
purchase price in full in the form of cash or a certified or cashier's check in
the amount of $______________ therefor or, if the undersigned elects pursuant to
Section 4(b) of the Warrant Agreement referred to in the Warrant Certificate to
convert the enclosed Warrant Certificate into Common Stock by net issuance, the
undersigned exercises the Warrant by exchange under the terms of said Section
4(b), and requests that the certificate or certificates for such securities be
issued in the name of and delivered to the undersigned.
Date: ______________________________
----------------------------------------
(Signature must conform in all respects to name
of holder as specified on the face of the Warrant
Certificate)
---------------------------------------
---------------------------------------
(Address)
Please indicate in the space below the number of Units called for on
the face of the Warrant Certificate (or, in the case of a partial exercise, the
portion thereof as to which the Warrant is being exercised), in either case
without making any adjustment for additional Units or other securities or
property or cash which, pursuant to the adjustment provisions of the Warrant,
may be deliverable upon exercise and whether the exercise is a cash exercise
pursuant to Section 4(a) of the Warrant Agreement or a net issuance exercise
pursuant to Section 4(b) of the Warrant Agreement.
Number of Units (or shares of Common Stock and Warrants):
- ----------
Cash:____________________
Net issuance:______________
<PAGE>
ASSIGNMENT
(To be signed only upon transfer of Warrant)
For value received, the undersigned hereby sells, assigns and transfers unto
____________________________________ the right represented by the enclosed
Warrant Certificate to purchase ____________________ Units ("Units"), each
consisting of two shares of Common Stock, $.01 par value ("Common Stock"), and
one redeemable common stock purchase warrant ("Warrant") of Rampart Capital
Corporation, or the underlying Common Stock or Warrants, with full power of
substitution.
The undersigned represents and warrants that the transfer, in whole in
or in part, of such right to purchase represented by the enclosed Warrant
Certificate is permitted by the terms of the Warrant Agreement referred to in
the Warrant Certificate, and the transferee hereof, by his acceptance of this
Assignment, represents and warrants that he or she is familiar with the terms of
such Warrant Agreement and agrees to be bound by the terms thereof with the same
force and effect as if a signatory thereto.
Date:___________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate)
(Address)
Signed in the presence of:
<PAGE>
EXHIBIT B
<PAGE>
50863_1/63466.00005
FORM OF LOCK-UP AGREEMENT
Redstone Securities, Inc.,
As Representative of the Several Underwriters
101 Fairchild Avenue
Plainview, New York 10110
Ladies and Gentlemen:
The undersigned understands that you, as the Representative of the
several underwriters (the "Underwriters"), propose to enter into an Underwriting
Agreement (the "Underwriting Agreement") with Rampart Capital Corporation, a
Texas corporation (the "Company"), providing for the initial public offering
(the "Offering") by the Underwriters, of 500400,000 Units, each consisting of
two shares of Common Stock of the Company, $.01 par value (the "Common Stock"),
and one redeemable common stock purchase warrant (the "Warrants"), pursuant to
the Company's Registration Statement on Form SB-2 (the "Registration Statement")
filed with the Securities and Exchange Commission.
In consideration of the Underwriters' agreement to purchase the Common
Stock, and for other good and valuable consideration, receipt of which is hereby
acknowledged, the undersigned hereby agrees that during the period beginning on
the date of this letter and ending three (3) years (the "Lock-Up Period") after
the date of the final prospectus relating to the offer and sale of the Common
Stock, the undersigned will not, directly or indirectly, offer, sell, contract
to sell, grant any option for the sale of, pledge, or otherwise dispose of
(individually, a "Disposition") any Common Stock, or securities exercisable,
convertible, or exchangeable for or into Common Stock (collectively, the
"Securities"), that the undersigned now owns or will own in the future
(beneficially or of record), except (i) as a bona fide gift or gifts, provided
the donee or donees thereof agree in writing to be bound by this Lock-Up
Agreement, or (ii) with the prior written consent of the Representative. The
foregoing restriction is expressly agreed to preclude the holder of Securities
from engaging in any hedging or other transaction which is designed to or
reasonably expected to lead to or result in a Disposition of Securities during
the Lock-Up Period, even if such Securities would be disposed of by someone
other than the undersigned. Such prohibited hedging or other transactions would
include, without limitation, any short sale or any purchase, sale or grant of
any right (including, without limitation, any put or call option) with respect
to any security (other than a broad-based market basket or index) that includes,
relates to or derives any significant part of its value from Securities.
Sincerely,
Date: September ____, 1999
By:
REPRESENTATIVE'S WARRANT AGREEMENT
September 24, 1999
REDSTONE SECURITIES, INC.
As Representative of the Several Underwriters
101 Fairchild Avenue
Plainview, New York 10110
Gentlemen:
Rampart Capital Corporation, a Texas corporation (the "Company"),
hereby agrees to sell to you, and you hereby agree to purchase from the Company
at an aggregate purchase price of $100, warrants (the "Representative's
Warrants") to purchase up to an aggregate of 40,000 Units (the "Units"), each
consisting of two shares of the Company's Common Stock, $.01 par value (the
"Common Stock"), and one redeemable common stock purchase warrant (the
"Warrants") of the Company, or the underlying Common Stock and Warrants, if
separately transferable, issued in accordance with the terms of the Warrant
Agreement (the "Warrant Agreement"), dated as of September 24, 1999, between the
Company and American Stock Transfer & Trust Co., New York, New York, as warrant
agent (the "Warrant Agent"), except that the exercise price of the RSI Warrants
is $13.82 or 130% of the exercise price specified in the Warrant Agreement. The
Representative's Warrants will be exercisable by you as to all or any lesser
number of Units, or the underlying Common Stock and Warrants, if separately
transferable, at the Purchase Price per Unit as defined below, at any time and
from time to time on and after the first anniversary of the date hereof and
ending on the fifth anniversary of the date hereof.
1. Definitions.
As used herein, the following terms, unless the context otherwise
requires, shall have for all purposes hereof the following meanings:
The term "Act" refers to the Securities Act of 1933, as amended.
The term "Affiliate" of any Person refers to any Person directly or
indirectly controlling, controlled by or under direct or indirect common control
with, such other Person. A Person shall be deemed to control a corporation if
such Person possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of such corporation, whether through
the ownership of voting securities, by contract or otherwise.
The term "Commission" refers to the Securities and Exchange Commission.
The term "Common Stock" refers to all stock of any class or classes
(however designated) of the Company, now or hereafter authorized, the holders of
which shall have the right without limitation as to amount, either to all or to
a part of the balance of current dividends and liquidating dividends after the
payment of dividends and distributions on any shares entitled to preference, and
the holders of which shall ordinarily, in the absence of contingency, be
entitled to vote for the election of a majority of the directors of the Company
(even though the right so to vote has been suspended by the occurrence of such a
contingency).
The term "Current Market Price" on any date refers to the average of
the daily Market Price per share for the 30 consecutive Trading Days commencing
45 Trading Days before the date in question.
The term "Exchange Act" refers to the Securities Exchange Act of 1934,
as amended.
The term "Market Price" refers to the closing sale price on the
American Stock Exchange ("AMEX") or, if no closing sale price is reported, the
closing bid price of the Common Stock, as quoted on the Nasdaq National Market,
or, if the Common Stock is not quoted on the Nasdaq National Market, as reported
by the National Quotation Bureau Incorporated. If Market Price cannot be
established as described above, Market Price shall be the fair market value of
the Common Stock as determined in good faith by the Board of Directors whose
determination shall be conclusive.
The term "Other Securities" refers to any securities of the Company
(other than the Units, Common Stock or Warrants) or any other person (corporate
or otherwise) which the holders of the Representative's Warrants at any time
shall be entitled to receive, or shall have received, upon the exercise of the
Representative's Warrants, in lieu of or in addition to the Units, Common Stock
or Warrants, or which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Units, Common Stock, Warrants or Other
Securities pursuant to Section 6 below or otherwise.
The term "Person" refers to an individual, a partnership, a
corporation, a trust, a joint venture, an unincorporated organization and a
government or any department or agency thereof.
The term "Prospectus" shall mean the final prospectus of the Company,
dated the date hereof, relating to the offer and sale of Units.
The term "Purchase Price" refers to the purchase price per Unit subject
to this Agreement. The Purchase Price shall equal to 165% of the initial
offering price to public per Unit as set forth in the Prospectus, subject to
adjustment as provided in Section 6 below.
The term "Registration Statement" refers to a Registration Statement
filed with the Commission pursuant to the Rules and Regulations of the
Commission promulgated under the Act.
The term "Trading Day" shall mean a day on which the Nasdaq National
Market System or the principal national securities exchange on which the Common
Stock is listed or admitted to trading is open for the transaction of business.
The term "Underlying Securities" refers to the Units, Common Stock and
Warrants (or Other Securities) issuable under this Warrant Agreement pursuant to
the exercise, in whole or in part, of the Representative's Warrants.
The purchase and sale of the Representative's Warrants shall take
place, and the purchase price therefor shall be paid by delivery of your check,
simultaneously with the purchase of and payment for Units as provided in the
Underwriting Agreement between the Company and you, dated the date hereof.
2. Representations and Warranties.
The Company represents and warrants to you as follows:
(a) Corporate Action. The Company has all requisite corporate power and
authority, and has taken all necessary corporate action, to execute and deliver
this Agreement, to issue and deliver the Representative's Warrants and
certificates evidencing same, and to authorize and reserve for issuance, and
upon payment from time to time of the Purchase Price to issue and deliver, the
Units, including the Common Stock and the Warrants and shares of Common stock
underlying the Warrants.
(b) No Violation. Neither the execution nor delivery of this Agreement,
the consummation of the actions herein contemplated nor compliance with the
terms and provisions hereof will conflict with, or result in a breach of, or
constitute a default or an event permitting acceleration under, any of the
terms, provisions or conditions of the Articles of Incorporation or Bylaws of
the Company or any indenture, mortgage, deed of trust, note, bank loan, credit
agreement, franchise, license, lease, permit, judgment, decree, order, statute,
rule or regulation or any other agreement, understanding or instrument to which
the Company is a party or by which it is bound.
3. Compliance with the Act.
(a) Transferability of Representative's Warrants. You agree that the
Representative's Warrants may not be transferred, sold, assigned or hypothecated
for a period of one (1) year from the date hereof, except to (i) persons who are
officers of you; (ii) a successor to you in a merger or consolidation; (iii) a
purchaser of all or substantially all of your assets; (iv) your shareholders in
the event you are liquidated or dissolved; (v) participating broker-dealers; and
(vi) persons who are officers or partners of participating broker-dealers.
(b) Registration of Underlying Securities. The Underlying Securities
issuable upon the exercise of the Representative's Warrants have not been
registered under the Act. You agree not to make any sale or other disposition of
the Underlying Securities except pursuant to a Registration Statement which has
become effective under the Act, setting forth the terms of such offering, the
underwriting discount and the commissions and any other pertinent data with
respect thereto, unless you have provided the Company with an opinion of counsel
reasonably acceptable to the Company that such registration is not required.
(c) Inclusion in Registration of Other Securities. If at any time
commencing one year after the date hereof but prior to the fifth anniversary of
the date hereof, the Company shall propose the registration on an appropriate
form under the Act of any shares of Common Stock or Other Securities, the
Company shall at least 30 days prior to the filing of such Registration
Statement give you written notice, or telegraphic or telephonic notice followed
as soon as practicable by written confirmation thereof, of such proposed
registration and, upon written notice, or telegraphic or telephonic notice
followed as soon as practicable by written confirmation thereof, given to the
Company within five business days after the giving of such notice by the
Company, shall include or cause to be included in any such Registration
Statement all or such portion of the Underlying Securities as you may request,
provided, however, that the Company may at any time withdraw or cease proceeding
with any such registration if it shall at the same time withdraw or cease
proceeding with the registration of such Common Stock or such Other Securities
originally proposed to be registered.
Notwithstanding any provision of this Agreement to the
contrary, if any holder of Representative's Warrants exercises such
Representative's Warrants but shall not have included all the Underlying
Securities in a Registration Statement which complies with Section 10(a)(3) of
the Act, which has been effective for at least 30 calendar days following the
exercise of the Representative's Warrants, the registration rights set forth in
this Section 3(c) shall be extended until such time as (i) such a Registration
Statement including such Underlying Securities has been effective for at least
30 calendar days or (ii) in the opinion of counsel satisfactory to you and the
Company, registration is not required under the Act or under applicable state
laws for resale of the Underlying Securities in the manner proposed.
(d) Company's Obligations in Registration. In connection with any
offering of Underlying Securities pursuant to Section 3(c) above, the Company
shall:
(i) Notify you as to the filing thereof and of all amendments or supplements
thereto filed prior to the effective date thereof;
(ii) Comply with all applicable rules and regulations of the Commission;
(iii) Notify you immediately, and confirm the notice in writing, (1) when the
Registration Statement becomes effective, (2) of the issuance by the Commission
of any stop order or of the initiation, or the threatening, of any proceedings
for that purpose, (3) of the receipt by the Company of any notification with
respect to the suspension of qualification of the Underlying Securities for sale
in any jurisdiction or of the initiation, or the threatening, of any proceedings
for that purpose and (4) of the receipt of any comments, or requests for
additional information, from the Commission or any state regulatory authority.
If the Commission or any state regulatory authority shall enter such a stop
order or order suspending qualification at any time, the Company will make every
reasonable effort to obtain the lifting of such order as promptly as
practicable.
(iv) During the time when a Prospectus is required to be delivered under the Act
during the period required for the distribution of the Underlying Securities,
comply so far as it is able with all requirements imposed upon it by the Act, as
hereafter amended, and by the Rules and Regulations promulgated thereunder, as
from time to time in force, so far as necessary to permit the continuance of
sales of or dealings in the Underlying Securities. If at any time when a
Prospectus relating to the Underlying Securities is required to be delivered
under the Act any event shall have occurred as a result of which, in the opinion
of counsel for the Company or your counsel, the Prospectus relating to the
Underlying Securities as then amended or supplemented includes an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is necessary
at any time to amend such Prospectus to comply with the Act, the Company will
promptly prepare and file with the Commission an appropriate amendment or
supplement (in form satisfactory to you).
(v) Endeavor in good faith, in cooperation with you, at or prior to the time the
Registration Statement becomes effective, to qualify the Underlying Securities
for offering and sale under the securities laws relating to the offering or sale
of the Underlying Securities of such jurisdictions as you may reasonably
designate and to continue the qualifications in effect so long as required for
purposes of the sale of the Underlying Securities; provided that no such
qualification shall be required in any jurisdiction where, as a result thereof,
the Company would be subject to service of general process, or to taxation as a
foreign corporation doing business in such jurisdiction. In each jurisdiction
where such qualification shall be effected, the Company will, unless you agree
that such action is not at the time necessary or advisable, file and make such
statements or reports at such times as are or may reasonably be required by the
laws of such jurisdiction. For the purposes of this paragraph, "good faith" is
defined as the same standard of care and degree of effort as the Company will
use to qualify its securities other than the Underlying Securities.
(vi) Make generally available to its security holders as
soon as practicable, but not later than the first day
of the eighteenth full calendar month following the
effective date of the Registration Statement, an
earnings statement (which need not be certified by
independent public or independent certified public
accountants unless required by the Act or the rules
and regulations promulgated thereunder, but which
shall satisfy the provisions of Section 11(a) of the
Act) covering a period of at least twelve months
beginning after the effective date of the
Registration Statement.
(vii) After the effective date of such Registration
Statement, prepare, and promptly notify you of the
proposed filing of, and promptly file with the
Commission, each and every amendment or supplement
thereto or to any Prospectus forming a part thereof
as may be necessary to make any statements therein
not misleading; provided that no such amendment or
supplement shall be filed if you shall object thereto
in writing promptly after being furnished a copy
thereof.
(viii) Furnish to you, as soon as available, copies of any
such Registration Statement and each preliminary or
final Prospectus, or supplement or amendment prepared
pursuant thereto, all in such quantities as you may
from time to time reasonably request;
(ix) Make such representations and warranties to any
underwriter of the Underlying Securities, and use
your best efforts to cause Company counsel to render
such opinions to such underwriter, as such
underwriter may reasonably request; and
(x) Pay all costs and expenses incident to the performance of the Company's
obligations under Sections 3(c) and 3(d), including, without limitation, the
fees and disbursements of the Company's auditors and legal counsel, fees and
disbursements of legal counsel for you, registration, listing and filing fees,
printing expenses and expenses in connection with the transfer and delivery of
the Underlying Securities; provided, however, that the Company shall not be
responsible for compensation and reimbursement of expenses to underwriters or
selling agents for the included Underlying Securities.
(e) Agreements by Warrant Holder. In connection with the filing of a
Registration Statement pursuant to Section 3(c) above, if you participate in the
offering by including the Underlying Securities owned by you, you agree:
(i) To furnish the Company all material information
requested by the Company concerning yourself and your
holdings of securities of the Company and the
proposed method of sale or other disposition of the
Underlying Securities and such other information and
undertakings as shall be reasonably required in
connection with the preparation and filing of any
such Registration Statement covering all or a part of
the Underlying Securities and in order to ensure full
compliance with the Act; and
(ii) To cooperate in good faith with the Company and its
underwriters, if any, in connection with such
registration, including placing the Underlying
Securities to be included in such Registration
Statement in escrow or custody to facilitate the sale
and distribution thereof.
(f) Indemnification. The Company shall indemnify and hold harmless you
and any underwriter (as defined in the Act) for you, and each person, if any,
who respectively controls you or such underwriter within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, against any loss, liability,
claim, damage and expense whatsoever (including but not limited to any and all
expense whatsoever reasonably incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim whatsoever), joint
or several, to which any of you or such underwriter or such controlling person
becomes subject, under the Act or otherwise, insofar as such loss, liability,
claim, damage and expense (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material fact
contained in (i) a Registration Statement covering the Underlying Securities, in
the prospectus contained therein, or in an amendment or supplement thereto or
(ii) in any application or other document or communication (in this Section
collectively called "application") executed by or on behalf of the Company or
based upon written information furnished by or on behalf of the Company filed in
any jurisdiction in order to qualify the Underlying Securities under the
securities laws thereof or filed with the Commission, or arise out of or based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading;
provided, however, that the Company shall not be obligated to indemnify in any
such case to the extent that any such loss, claim, damage, expense or liability
arises out of or is based upon any untrue statement or alleged untrue statement
or omission or alleged omission made in reliance upon, and in conformity with,
written information respectively furnished by you or such underwriter or such
controlling person for use in the Registration Statement, or any amendment or
supplement thereto, or any application, as the case may be.
If any action is brought against a person in respect of which
indemnity may be sought against, the Company pursuant to the foregoing
paragraph, such person shall promptly notify the Company in writing of the
institution of such action and the Company shall assume the defense of the
action, including the employment of counsel (satisfactory to the indemnified
person in its reasonable judgment) and payment of expenses. The indemnified
person shall have the right to employ its or their own counsel in any such case,
but the fees and expenses of such counsel shall be at the expense of such
indemnified person or unless the employment of such counsel shall have been
authorized in writing by the Company in connection with the defense of the
action or the Company shall not have employed counsel to have charge of the
defense of the action or the indemnified person shall have reasonably concluded
that there may be defenses available to it or them which are different from or
additional to those available to the Company (in which case the Company shall
not have the right to direct the defense of the action on behalf of the
indemnified person), in any of which events these fees and expenses shall be
borne by the Company. Anything in this paragraph to the contrary
notwithstanding, the Company shall not be liable for any settlement of any claim
or action effected without its written consent. The Company's indemnity
agreements contained in this Section shall remain in full force and effect
regardless of any investigation made by or on behalf of any indemnified person,
and shall survive any termination of this Agreement. The Company agrees promptly
to notify you of the commencement of any litigation or proceedings against the
Company or any of its officers or directors in connection with the Registration
Statement pursuant to Section 3(c) above.
If you choose to include any Underlying Securities in a public
offering pursuant to Section 3(c) above, then you agree to indemnify and hold
harmless the Company and each of its directors and officers who have signed any
such Registration Statement, and any underwriter for the Company (as defined in
the Act), and each person, if any, who controls the Company or such underwriter
within the meaning of the Act, to the same extent as the indemnity by the
Company in this Section 3(f) but only with respect to statements or omissions,
if any, made in such Registration Statement, or any amendment or supplement
thereto, or in any application in reliance upon, and in conformity with, written
information furnished by you to the Company for use in the Registration
Statement, or any amendment or supplement thereto, or any application, as the
case may be. In case any action shall be brought in respect of which indemnity
may be sought against you, you shall have the rights and duties given to the
Company, and the persons so indemnified shall have the rights and duties given
to you by the provisions of the first paragraph of this Section.
The Company further agrees that, if the indemnity provisions
of the foregoing paragraphs are held to be unenforceable, any holder of a
Representative's Warrant or controlling person of such a holder may recover
contribution from the Company in an amount which, when added to contributions
such holder or controlling person has theretofore received or concurrently
receives from officers and directors of the Company or controlling persons of
the Company, will reimburse such holder or controlling person for all losses,
claims, damages or liabilities and legal or other expenses; provided, however,
that if the full amount of the contribution specified in this Section 3(f) is
not permitted by law, then such holder or controlling person shall be entitled
to contribution from the Company and its officers, directors and controlling
persons to the full extent permitted by law.
4. Exercise of Representative's Warrants.
(a) Cash Exercise. Each Representative's Warrant may be exercised in
full or in part (but not as to a fractional share of Common Stock) by the holder
thereof by surrender of the Warrant Certificate, with the form of subscription
at the end thereof duly executed by such holder, to the Company at its principal
office, accompanied by payment, in cash or by certified or bank cashier's check
payable to the order of the Company, in the respective amount obtained by
multiplying the number of Units to be purchased by the Purchase Price per Unit.
(b) Net Exercise. Notwithstanding anything to the contrary contained in
Section 4(a), any holder of a Representative's Warrant may elect to exercise the
Representative's Warrant in full or in part and receive Units on a "net
exercise" basis in an amount equal to the value of the Representative's Warrant
by delivery of the form of subscription attached to the Warrant Certificate and
surrender of the Representative's Warrant at the principal office of the
Company, in which event the Company shall issue to the holder a number of Units
computed using the following formula:
X= (P)(Y)(A-B)
A
Where: X= the number of Units to be issued to holder.
P= the portion of the Representative's Warrant
being exercised (expressed as a fraction).
Y= the total number of Units issuable upon
exercise of the Representative's Warrant.
A= the Current Market Price of one Unit.
B= Purchase Price.
(c) Partial Exercise. Prior to the expiration of the Representative's
Warrants, upon any partial exercise, the Company at its expense will forthwith
issue and deliver to or upon the order of the purchasing holder, a new Warrant
Certificate or Certificates of like tenor, in the name of the holder thereof or
as such holder (upon payment by such holder of any applicable transfer taxes)
may request calling in the aggregate for the purchase of the number of Shares of
the Underlying Securities equal to the number of such Units called for on the
face of the Warrant Certificate (after giving effect to any adjustment therein
as provided in Section 6 below) minus the number of such Units (after giving
effect to such adjustment) designated by the holder in the aforementioned form
of subscription.
(d) Company to Reaffirm Obligations. The Company will, at the time of
any exercise of any Representative's Warrant, upon the request of the holder
thereof, acknowledge in writing its continuing obligation to afford to such
holder any rights (including without limitation any right to registration of the
Units issued upon such exercise) to which such holder shall continue to be
entitled after such exercise in accordance with the provisions of this
Agreement; provided, however, that if the holder of a Representative's Warrant
shall fail to make any such request, such failure shall not affect the
continuing obligation of the Company to afford to such holder any such rights.
5. Delivery of Certificates on Exercise.
As soon as practicable after any exercise of any Representative's
Warrant in full or in part, and in any event within twenty days thereafter, the
Company at its expense (including the payment by it of any applicable issue
taxes) will cause to be issued in the name of and delivered to the purchasing
holder thereof, a certificate or certificates for the number of fully paid and
nonassessable Common Stock and Warrants to which such holder shall be entitled
upon such exercise, plus in lieu of any fractional share to which such holder
would otherwise be entitled, cash in an amount determined pursuant to Section
7(g), together with any other stock or other securities and property (including
cash, where applicable) to which such holder is entitled upon such exercise
pursuant to Section 6 below or otherwise.
6. Anti-Dilution Provisions.
The Representative's Warrants are subject to the following terms and
conditions during the term thereof:
(a) Stock Distributions and Splits. In case (i) the outstanding shares
of Common Stock (or Other Securities) shall be subdivided into a greater number
of shares or (ii) a dividend in Common Stock (or Other Securities) shall be paid
in respect of Common Stock (or Other Securities), the Purchase Price per share
in effect immediately prior to such subdivision or at the record date of such
dividend or distribution shall simultaneously with the effectiveness of such
subdivision or immediately after the record date of such dividend or
distribution be proportionately reduced; and if outstanding shares of Common
Stock (or Other Securities) shall be combined into a smaller number of shares
thereof, the Purchase Price per share in effect immediately prior to such
combination shall simultaneously with the effectiveness of such combination be
proportionately increased. Any dividend paid or distributed on the Common Stock
(or Other Securities) in stock or any other securities convertible into shares
of Common Stock (or Other Securities) shall be treated as a dividend paid in
Common Stock (or Other Securities) to the extent that shares of Common Stock (or
Other Securities) are issuable upon the conversion thereof.
(b) Adjustments. Whenever the Purchase Price per Unit is adjusted as
provided in Section 6(a) above, the number of Units purchasable upon exercise of
the Representative's Warrants immediately prior to such Purchase Price
adjustment shall be adjusted, effective simultaneously with such Purchase Price
adjustment, to equal the product obtained (calculated to the nearest full Unit)
by multiplying such number of Units by a fraction, the numerator of which is the
Purchase Price per Unit in effect immediately prior to such Purchase Price
adjustment and the denominator of which is the Purchase Price per Unit in effect
upon such Purchase Price adjustment, which adjusted number of Units shall
thereupon be the number of Units purchasable upon exercise of the
Representative's Warrants until further adjusted as provided herein.
(c) Reorganizations. In case the Company shall be recapitalized by
reclassifying its outstanding Common Stock (or Other Securities) into a stock
with a different par value or by changing its outstanding Common Stock (or Other
Securities) with par value to stock without par value, then, as a condition of
such reorganization, lawful and adequate provision shall be made whereby each
holder of a Representative's Warrant shall thereafter have the right to
purchase, upon the terms and conditions specified herein, in lieu of the shares
of Common Stock (or Other Securities) theretofore purchasable upon the exercise
of the Representative's Warrants, the kind and amount of shares of stock and
other securities receivable upon such recapitalization by a holder of the number
of shares of Common Stock (or Other Securities) which the holder of a
Representative's Warrant might have purchased immediately prior to such
recapitalization. If any consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to another
corporation, shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such consolidation, merger or
sale, lawful and adequate provisions shall be made whereby the holder hereof
shall thereafter have the right to purchase and receive upon the basis and upon
the terms and conditions specified in this Warrant Agreement and in lieu of the
shares of the Common Stock of the Company immediately theretofore purchasable
and receivable upon the exercise of the rights represented hereby, such shares
of stock, securities or assets as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Common Stock equal to the
number of shares of such stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby had such
consolidation, merger or sale not taken place, and in any such case, appropriate
provision shall be made with respect to the rights and interests of the holders
of Representative's Warrants to the end that the provisions hereof (including
without limitation provisions for adjustments of the Purchase Price and of the
number of Units purchasable and receivable upon the exercise of the
Representative's Warrants) shall thereafter be applicable, as nearly as may be,
in relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise hereof (including an immediate adjustment, by reason of such
consolidation or merger, of the Purchase Price to the value for the Common Stock
reflected by the terms of such consolidation or merger if the value so reflected
is less than the Purchase Price in effect immediately prior to such
consolidation or merger). In the event of a merger or consolidation of the
Company with or into another corporation as a result of which a number of shares
of Common Stock of the surviving corporation greater or lesser than the number
of shares of Common Stock of the Company outstanding immediately prior to such
merger or consolidation are issuable to holders of Common Stock of the Company,
then the Purchase Price in effect immediately prior to such merger or
consolidation shall be adjusted in the same manner as though there were a
subdivision or combination of the outstanding shares of Common Stock of the
Company. The Company will not effect any such consolidation, merger or sale,
unless prior to the consummation thereof the successor corporation (if other
than the Company) resulting from such consolidation or merger or the corporation
purchasing such assets shall assume by written instrument executed and mailed or
delivered to the registered holder hereof at the last address of such holder
appearing on the books of the Company, the obligation to deliver to such holder
such shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to purchase. If a purchase, tender or
exchange offer is made to and accepted by the holders of more than of the
outstanding shares of Common Stock of the Company, the Company shall not effect
any consolidation, merger or sale with the Person having made such offer or with
any Affiliate of such Person, unless prior to the consummation of such
consolidation, merger or sale the holders of Representative's Warrants shall
have been given a reasonable opportunity to then elect to receive upon the
exercise of Representative's Warrants either the stock, securities or assets
then issuable with respect to the Common Stock of the Company or the stock,
securities or assets, or the equivalent issued to previous holders of the Common
Stock in accordance with such offer.
(d) Effect of Dissolution or Liquidation. In case the Company shall
dissolve or liquidate all or substantially all of its assets, all rights under
this Agreement shall terminate as of the date upon which a certificate of
dissolution or liquidation shall be filed with the Secretary of the State of
Texas (or, if the Company theretofore shall have been merged or consolidated
with a corporation incorporated under the laws of another state, the date upon
which action of equivalent effect shall have been taken); provided, however,
that (i) no dissolution or liquidation shall affect the rights under Section
6(c) of any holder of a Representative's Warrant and (ii) if the Company's Board
of Directors shall propose to dissolve or liquidate the Company, each holder of
a Representative's Warrant shall be given written notice of such proposal at the
earlier of (x) the time when the Company's shareholders are first given notice
of the proposal or (y) the time when notice to the Company's shareholders is
first required.
(e) Notice of Change of Purchase Price. Whenever the Purchase Price per
Unit or the kind or amount of securities purchasable under the Representative's
Warrants shall be adjusted pursuant to any of the provisions of this Agreement,
the Company shall forthwith thereafter cause to be sent to each holder of a
Representative's Warrant, a certificate setting forth the adjustments in the
Purchase Price per Unit and/or in such number of Unit, and also setting forth in
detail the facts requiring, such adjustments, including without limitation a
statement of the consideration received or deemed to have been received by the
Company for any additional shares of stock issued by it requiring such
adjustment. In addition, the Company at its expense shall within 90 days
following the end of each of its fiscal years during the term of this Agreement,
and promptly upon the reasonable request of any holder of a Representative's
Warrant in connection with the exercise from time to time of all or any portion
of any Representative's Warrant, cause independent certified public accountants
of recognized standing selected by the Company to compute any such adjustment in
accordance with the terms of the Representative's Warrants and prepare a
certificate setting forth such adjustment and showing in detail the facts upon
which such adjustment is based.
(f) Notice of a Record Date. In the event of (i) any taking by the
Company of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend (other
than a cash dividend payable out of earned surplus of the Company) or other
distribution, or any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or property, or to receive
any other right, (ii) any capital reorganization of the Company, or any
reclassification or recapitalization of the capital stock of the Company, or any
transfer of all or substantially all of the assets of the Company to, or
consolidation or merger of the Company with or into, any other person or (iii)
any voluntary or involuntary dissolution or liquidation of the Company, then and
in each such event the Company will mail or cause to be mailed to each holder of
a Representative's Warrant a notice specifying not only the date on which any
such record is to be taken for the purpose of such dividend, distribution or
right and stating the amount and character of such dividend, distribution or
right, but also the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up is to take place, and the time, if any, as of which the holders of
record of Common Stock (or Other Securities) shall be entitled to exchange their
shares of Common Stock (or other Securities) for securities or other property
deliverable upon such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up. Such
notice shall be mailed at least twenty (20) days prior to the proposed record
date therein specified.
7. Further Covenants of the Company.
(a) Reservation of Stock. The Company shall at all times reserve and
keep available, solely for issuance and delivery upon the exercise of the
Representative's Warrants, all Units from time to time issuable upon the
exercise of the Representative's Warrants and shall take all necessary actions
to ensure that the par value per Unit, if any, of the Underlying Securities is,
at all times equal to or less than the then effective Purchase Price per Unit.
(b) Title to Units. All of the Underlying Securities delivered upon the
exercise of the Representative's Warrants shall be validly issued, fully paid
and nonassessable; each holder of a Representative's Warrant shall receive good
and marketable title to the Underlying Securities, free and clear of all voting
and other trust arrangements, liens, encumbrances, equities and adverse claims
whatsoever; and the Company shall have paid all taxes, if any, in respect of the
issuance thereof.
(c) Listing on Securities Exchanges; Registration. If the Company at
any time shall list any Common Stock on any national securities exchange, the
Company will, at its expense, simultaneously list on such exchange, upon
official notice of issuance upon the exercise of the Representative's Warrants,
and maintain such listing of, all of the Underlying Securities from time to time
issuable upon the exercise of the Representative's Warrants; and the Company
will so list on any national securities exchange, will so register and will
maintain such listing of, any Other Securities if and at the time that any
securities of like class or similar type shall be listed on such national
securities exchange by the Company.
(d) Exchange of Representative's Warrants. Subject to Section 3(a)
hereof, upon surrender for exchange of any Warrant Certificate to the Company,
the Company at its expense will promptly issue and deliver to or upon the order
of the holder thereof a new Warrant Certificate or certificates of like tenor,
in the name of such holder or as such holder (upon payment by such holder of any
applicable transfer taxes) may direct, calling in the aggregate for the purchase
of the number of Units called for on the face or faces of the Warrant
Certificate or Certificates so surrendered.
(e) Replacement of Representative's Warrants. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Warrant Certificate and, in the case of any such loss, theft
or destruction, upon delivery of an indemnity agreement reasonably satisfactory
in form and amount to the Company or, in the case of any such mutilation, upon
surrender and cancellation of such Warrant Certificate, the Company, at the
expense of the warrant holder will execute and deliver, in lieu thereof, a new
Warrant Certificate of like tenor.
(f) Reporting by the Company. The Company agrees that, if it files a
Registration Statement during the term of the Representative's Warrants, it will
use its best efforts to keep current in the filing of all forms and other
materials which it may be required to file with the appropriate regulatory
authority pursuant to the Exchange Act, and all other forms and reports required
to be filed with any regulatory authority having jurisdiction over the Company.
(g) Fractional Units. No fractional Units are to be issued upon the
exercise of any Representative's Warrant, but the Company shall pay a cash
adjustment in respect of any fraction of a Unit which would otherwise be
issuable in an amount equal to the same fraction of the highest market price per
Unit on the day of exercise, as determined by the Company.
8. Other Holders.
The Representative's Warrants are issued upon the following terms, to
all of which each holder or owner thereof by the taking thereof consents and
agrees as follows: (a) any person who shall become a transferee, within the
limitations on transfer imposed by Section 3(a) hereof, of a Representative's
Warrant properly endorsed shall take such Representative's Warrant subject to
the provisions of Section 3(a) hereof and thereupon shall be authorized to
represent himself as absolute owner thereof and, subject to the restrictions
contained in this Agreement, shall be empowered to transfer absolute title by
endorsement and delivery thereof to a permitted bona fide purchaser for value;
(b) each prior taker or owner waives and renounces all of his equities or rights
in such Representative's Warrant in favor of each such permitted bona fide
purchaser, and each such permitted bona fide purchaser shall acquire absolute
title thereto and to all rights presented thereby; (c) until such time as the
respective Representative's Warrant is transferred on the books of the Company,
the Company may treat the registered holder thereof as the absolute owner
thereof for all purposes, notwithstanding any notice to the contrary and (d) all
references to the word "you" in this Warrant Agreement shall be deemed to apply
with equal effect to any person to whom a Warrant Certificate or Certificates
have been transferred in accordance with the terms hereof, and where
appropriate, to any person holding the Underlying Securities.
9. Miscellaneous.
All notices, certificates and other communications from or at the
request of the Company to the holder of any Representative's Warrant shall be
mailed by first class, registered or certified mail, postage prepaid, to such
address as may have been furnished to the Company in writing by such holder, or,
until an address is so furnished, to the address of the last holder of such
Representative's Warrant who has so furnished an address to the Company, except
as otherwise provided herein. This Agreement and any of the terms hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver, discharge
or termination is sought. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Texas. The headings in
this Agreement are for reference only and shall not limit or otherwise affect
any of the terms hereof. This Agreement, together with the forms of instruments
annexed hereto as Schedule I, constitutes the full and complete agreement of the
parties hereto with respect to the subject matter hereof.
IN WITNESS WHEREOF, this Representative's Warrant Agreement has been
duly executed on the date hereof.
<PAGE>
Rampart Capital Corporation
By:__________________________________
J. H. Carpenter
President
<PAGE>
Redstone Securities, Inc.
By:_________________________________
Robert A. Shuey, III
<PAGE>
SCHEDULE I
RAMPART CAPITAL CORPORATION
Warrant Certificate
Evidencing Right to Purchase 40,000 Units
This is to certify that Redstone Securities, Inc. ("RSI") or assigns,
is entitled to purchase at any time or from time to time after 10:00 a.m., New
York, New York time, on September 24, 2000 and until 5:00 p.m., New York, New
York time, on September 24, 2004 up to the above referenced number of Units (the
"Units"), each consisting of two shares of Common Stock, $.01 par value (the
"Common Stock"), and one redeemable common stock purchase warrant (the
"Warrants") of Rampart Capital Corporation, a Texas corporation (the "Company"),
or the underlying shares of Common Stock and Warrants, if separately
transferable, for the consideration specified in Section 4 of the Warrant
Agreement dated the date hereof between the Company and RSI (the "Warrant
Agreement"), pursuant to which this Warrant is issued. All rights of the holder
of this Warrant Certificate are subject to the terms and provisions of the
Warrant Agreement, copies of which are available for inspection at the office of
the Company, except that the exercise price of the RSI Warrants is $13.82 or
130% of the exercise price specified in the Warrant Agreement. Capitalized terms
used but not defined herein shall have the respective meanings set forth in the
Warrant Agreement.
The Underlying Securities issuable upon the exercise of this Warrant
have not been registered under the Securities Act of 1933, as amended (the
"Act"), and no distribution of such Underlying Securities may be made until the
effectiveness of a Registration Statement under the Act covering such Underlying
Securities. Transfer of this Warrant Certificate is restricted as provided in
Section 3(a) of the Warrant Agreement.
This Warrant has been issued to the registered owner in reliance upon
written representations necessary to ensure that this Warrant was issued in
accordance with an appropriate exemption from registration under any applicable
state and federal securities laws, rules and regulations. This Warrant may not
be sold, transferred, or assigned unless, in the opinion of the Company and its
legal counsel, such sale, transfer or assignment will not be in violation of the
Act, applicable rules and regulations of the Securities and Exchange Commission,
and any applicable state securities laws.
Subject to the provisions of the Act and of such Warrant Agreement,
this Warrant Certificate and all rights hereunder are transferable, in whole or
in part, at the offices of the Company, by the holder hereof in person or by
duly authorized attorney, upon surrender of this Warrant Certificate, together
with the Assignment hereof duly endorsed. Until transfer of this Warrant
Certificate on the books of the Company, the Company may treat the registered
holder hereof as the owner hereof for all purposes.
Any Underlying Securities (or Other Securities) which are acquired
pursuant to the exercise of this Warrant shall be acquired in accordance with
the Warrant Agreement and certificates representing all securities so acquired
shall bear a restrictive legend reading substantially as follows:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR UNDER ANY APPLICABLE STATE LAW. THEY MAY NOT BE OFFERED FOR
SALE, SOLD, TRANSFERRED OR PLEDGED WITHOUT (1) REGISTRATION UNDER THE
SECURITIES ACT OF 1933 AND ANY APPLICABLE STATE LAW, OR (2) AN OPINION
OF COUNSEL (SATISFACTORY TO THE CORPORATION) THAT REGISTRATION IS NOT
REQUIRED.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be executed by its duly authorized officer.
Date: September 24, 1999.
Rampart Capital Corporation
By:
J. H. Carpenter, President
SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To: Rampart Capital Corporation
The undersigned, the holder of the enclosed Warrant Certificate, hereby
irrevocably elects to exercise the purchase right represented by such Warrant
Certificate for, and to purchase thereunder, _________________ Units ("Units"),
each consisting of two shares shares of Common Stock, $.01 par value (the
"Common Stock"), and one redeemable common stock purchase warrant (the
"Warrants") of Rampart Capital Corporation, or the underlying Common Stock and
Warrants, if separately transferable, and either tenders herewith payment of the
purchase price in full in the form of cash or a certified or cashier's check in
the amount of $______________ therefor or, if the undersigned elects pursuant to
Section 4(b) of the Warrant Agreement referred to in the Warrant Certificate to
convert the enclosed Warrant Certificate into Common Stock by net issuance, the
undersigned exercises the Warrant by exchange under the terms of said Section
4(b), and requests that the certificate or certificates for such securities be
issued in the name of and delivered to the undersigned.
Date: ______________________________
----------------------------------------
(Signature must conform in all respects to name
of holder as specified on the face of the Warrant
Certificate)
---------------------------------------
---------------------------------------
(Address)
Please indicate in the space below the number of Units called for on
the face of the Warrant Certificate (or, in the case of a partial exercise, the
portion thereof as to which the Warrant is being exercised), in either case
without making any adjustment for additional Units or other securities or
property or cash which, pursuant to the adjustment provisions of the Warrant,
may be deliverable upon exercise and whether the exercise is a cash exercise
pursuant to Section 4(a) of the Warrant Agreement or a net issuance exercise
pursuant to Section 4(b) of the Warrant Agreement.
Number of Units (or shares of Common Stock and Warrants):
- ----------
Cash:____________________
Net issuance:______________
<PAGE>
ASSIGNMENT
(To be signed only upon transfer of Warrant)
For value received, the undersigned hereby sells, assigns and transfers unto
____________________________________ the right represented by the enclosed
Warrant Certificate to purchase ____________________ Units ("Units"), each
consisting of two shares of Common Stock, $.01 par value ("Common Stock"), and
one redeemable common stock purchase warrant ("Warrant") of Rampart Capital
Corporation, or the underlying Common Stock or Warrants, with full power of
substitution.
The undersigned represents and warrants that the transfer, in whole in
or in part, of such right to purchase represented by the enclosed Warrant
Certificate is permitted by the terms of the Warrant Agreement referred to in
the Warrant Certificate, and the transferee hereof, by his acceptance of this
Assignment, represents and warrants that he or she is familiar with the terms of
such Warrant Agreement and agrees to be bound by the terms thereof with the same
force and effect as if a signatory thereto.
Date:___________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate)
(Address)
Signed in the presence of:
<PAGE>
EXHIBIT B
FORM OF LOCK-UP AGREEMENT
Redstone Securities, Inc.,
As Representative of the Several Underwriters
101 Fairchild Avenue
Plainview, New York 10110
Ladies and Gentlemen:
The undersigned understands that you, as the Representative of the
several underwriters (the "Underwriters"), propose to enter into an Underwriting
Agreement (the "Underwriting Agreement") with Rampart Capital Corporation, a
Texas corporation (the "Company"), providing for the initial public offering
(the "Offering") by the Underwriters, of 400,000 Units, each consisting of two
shares of Common Stock of the Company, $.01 par value (the "Common Stock"), and
one redeemable common stock purchase warrant (the "Warrants"), pursuant to the
Company's Registration Statement on Form SB-2 (the "Registration Statement")
filed with the Securities and Exchange Commission.
In consideration of the Underwriters' agreement to purchase the Common
Stock, and for other good and valuable consideration, receipt of which is hereby
acknowledged, the undersigned hereby agrees that during the period beginning on
the date of this letter and ending three (3) years (the "Lock-Up Period") after
the date of the final prospectus relating to the offer and sale of the Common
Stock, the undersigned will not, directly or indirectly, offer, sell, contract
to sell, grant any option for the sale of, pledge, or otherwise dispose of
(individually, a "Disposition") any Common Stock, or securities exercisable,
convertible, or exchangeable for or into Common Stock (collectively, the
"Securities"), that the undersigned now owns or will own in the future
(beneficially or of record), except (i) as a bona fide gift or gifts, provided
the donee or donees thereof agree in writing to be bound by this Lock-Up
Agreement, or (ii) with the prior written consent of the Representative. The
foregoing restriction is expressly agreed to preclude the holder of Securities
from engaging in any hedging or other transaction which is designed to or
reasonably expected to lead to or result in a Disposition of Securities during
the Lock-Up Period, even if such Securities would be disposed of by someone
other than the undersigned. Such prohibited hedging or other transactions would
include, without limitation, any short sale or any purchase, sale or grant of
any right (including, without limitation, any put or call option) with respect
to any security (other than a broad-based market basket or index) that includes,
relates to or derives any significant part of its value from Securities.
Sincerely,
Date: September ____, 1999
By:
