As filed with the Securities and Exchange Commission on July 1, 1999
Registration No. 333-71089
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
AMENDMENT 2
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------
RAMPART CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<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.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
maximum maximum
Amount to be offering aggregate offering Amount of
Title of each class of securities to be registered price price(1) registration fee
registered per share(1)
<S> <C> <C> <C> <C>
Common Stock, $.01 par value (2)......... 1,725,000 $10.00 $17,250,000 $5088.75
Representatives' Warrants................ 150,000 $.001 150 $1.00
Common Stock included in Underwriters' 150,000 $12.00 $1,800,000 $ 531.00
Warrants (3)
TOTAL $5,620.75
</TABLE>
(1) Estimated solely for purposes of calculating the amount of the registration
fee pursuant to Rule 457 under the Securities Act of 1933, as amended.
(2) Includes 225,000 Shares of Common Stock issuable pursuant to the
Representative's over-allotment option.
(3) Represents shares of common stock issuable upon exercise of the
Representatives' Warrants, together with such additional indeterminate number of
shares of Common Stock as may be issued upon exercise of such Representatives'
Warrants by reason of the anti-dilution provisions contained therein.
------------
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.
<PAGE>
SUBJECT TO COMPLETION DATED JULY , 1999
1,500,000 Shares
Common Stock
Rampart Capital Corporation
700 Louisiana Street, Suite 2510
Houston, Texas 77002
This is an initial public offering of 1,500,000 shares of common stock of
Rampart Capital Corporation. Currently, there is no public market for our common
stock.
The underwriters have an option to purchase an additional 225,000 shares to
cover over-allotments This is an initial public offering of 1,500,000 shares of
common stock of Rampart Capital Corporation. Currently, there is no public
market for our common stock.
The Offering:
Per Share Total
Public Offering Price $10.00 $15,000,000
Underwriting discounts $ 0.975 $ 1,462,500
Proceeds to Rampart $ 9.025 $13,537,500
- -----------------------
This investment involves a high degree of risk. See "Risk Factors" beginning on
page 7.
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.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
-----------------
REDSTONE SECURITIES, INC.
Prospectus dated 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Page
Prospectus Summary......................................................................3
Selected Consolidated Financial Information.............................................6
Risk Factors............................................................................7
Potential Decline in Value of Collateral and Paying Loans..........................7
Uncertain Nature of the Asset Acquisition and Resolution Business..................7
Potential Unavailability of Certain Federal Income Tax Benefits....................7
Reliance on Principal Officers.....................................................8
Period to Period Variances of Revenues and Collections.............................8
Future Acquisitions of Debt Portfolios, Real Estate and Other Assets...............8
Capital Requirements and Interest Rates............................................8
Influence on Voting by Charles W. Janke and J. H. Carpenter........................9
Absence of Prior Public Market-American Stock Exchange Listing.....................9
Shares of Common Stock Reserved Under 1998 Stock Option Plan.......................9
Effect of Underwriters' Warrants...................................................9
Underwriters' Influence on the Market..............................................10
Environmental Risk on Real Estate Acquired or Foreclosed...........................10
Use of Proceeds.........................................................................11
Dividend Policy.........................................................................12
Dilution................................................................................12
Capitalization..........................................................................13
Management's Discussion and Analysis
of Financial Condition and Results Of Operations ..................................14
Business................................................................................19
Additional Information..................................................................25
Management..............................................................................28
Certain Relationships and Related Transactions..........................................32
Principal shareholders..................................................................33
Certain Federal Income Tax Matters......................................................34
Description of Capital Stock............................................................36
Shares Eligible For Future Sale.........................................................37
Plan of Distribution....................................................................38
Legal Matters...........................................................................40
Experts.................................................................................40
Index to Consolidated Financial Statements..............................................F-1
</TABLE>
2
<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.
Typically, our discounted debt portfolios 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;
andother assets.
Discounted Debt Portfolios
We purchase commercial loans and other commercial obligations at substantial
discounts from their legal balances by competitive bids and negotiated
purchases. We purchase our discounted debt portfolios from governmental
entities, such as the Federal Deposit Insurance Corporation ("FDIC"); financial
institutions; insurance companies; bankruptcy estates; and liquidating trusts.
Undervalued Real Estate and Other Assets
We acquire real estate and other assets in distressed situations at substantial
discounts below market values from bankruptcy estates, liquidating trusts,
insurance companies, and local taxing authorities.
Historically, the majority of our real estate has been sold at market value in
the market place. Because our cost basis in most properties is low, we have
not realized a loss on any property sold. In order to optimize profitability,
we hold and manage properties with significant upside market potential for
future liquidation.
Short-term Funding
We also provide short-term funding for selected real estate projects. Our
typical funding scenario requires that we purchase the real estate; the
developers may purchase the real estate from us or arrange for sales to third
parties, subject to our approval; the developers retain a net profits interest
in the real estate; and the developers' net profits interest decrease pursuant
to a contractual timetable and is forfeited on a default date.
We anticipate that this activity will be a significant portion of our business
expansion for both revenues and profits.
Potential Availability of Tax Loss Carryforwards
In July 1997 we acquired certain assets and corporations of the MCorp
Liquidating Trusts. As a result of this acquisition and pre-acquisition
losses, management believes that currently there may be approximately $56.0
million of net operating loss carryforwards and built-in-losses (collectively,
"NOLs") subject to certain possible limitations, which may be available to
offset future taxable income of the acquired corporations for federal and
state income tax purposes. If we are able to utilize the NOLs, they must be
utilized against profits occurring in the acquired corporations which are
operated as wholly-owned subsidiaries, 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. However, most of our income is now generated through
these subsidiaries, and all of our acquisitions and asset purchases since July
1997 have been made through these subsidiaries. Most notable was our
acquisition of the Newport Assets in February 1999 through Rampart Properties
Corporation, our subsidiary with the greatest NOL carryforward. See "Risk
Factors," "Business-The MCorp Acquisition and -Acquisition of Newport Assets,"
"Certain Federal Income Tax Matters" and "Notes to Consolidated Financial
Statements."
3
<PAGE>
Business Strategy
Our business strategy is to broaden and expand our core business, while building
on our strengths and expertise. To achieve this objective, we plan to do the
following: expand the acquisition of discounted loan portfolios and real estate;
broaden our sources of revenue and operating earnings by developing or acquiring
additional businesses that leverage our core strengths and management expertise;
invest in fragmented or underdeveloped markets in which we have the investment
expertise to achieve attractive risk-adjusted rates of return; pursue new
business opportunities, both domestic and foreign, through joint ventures,
thereby capitalizing on the expertise of partners who complement our skills; and
maximize growth in earnings through our acquired subsidiaries, thereby
accelerating the utilization of potential NOLs.
Our Offices
Rampart is a Texas Corporation whose principal executive offices are located
at 700 Louisiana, Suite 2510, Houston, Texas 77002; telephone number (713)
223-4610; facsimile: (713) 223-4814. The electronic mail address is
[email protected].
4
<PAGE>
The Offering
<TABLE>
<S> <C>
Shares offered ............................. 1,500,000 shares of common stock
Common Stock to be outstanding
after the Offering........................ 3,750,000 shares (1)
Use of Proceeds............................. Purchase of discounted asset portfolios, temporarily reduce debt,
working capital and other general corporate purposes
Underwriting................................ This is a firm commitment underwriting. Redstone Securities,
Inc. will act as representative of the underwriters. We have
agreed to pay the underwriters a 9.75% discount on the gross
proceeds from the sale of the shares offered, and a 2%
non-accountable expense allowance. We have also agreed to grant
warrants to purchase 150,000 shares at 165% of the offering price.
Proposed American Stock Exchange Symbols
Common Stock............................. ""
</TABLE>
- -----------------
(1) Does not include:
Up to 225,000 shares to be issued upon exercise of the underwriters'
over-allotment option, 150,000 shares to be issued upon exercise of the
underwriters' warrants, and 375,000 shares reserved for issuance under the 1998
Stock Compensation Plan.
5
<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 three
months ended March 31, 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. See "Consolidated
Financial Statements."
<TABLE>
<CAPTION>
Years Ended December 31, Quarters Ended March 31,
------------------------------ ------------------------------
1997 1998 1998 1999
-------------- --------------- ------------- ----------------
<S> <C> <C> <C> <C>
Operating Data: (Unaudited)
Revenues $2,935,283 $6,843,785 $2,717,139 $1,616,083
Cost of revenues 1,134,044 2,241,702 1,013,028 392,881
Operating expenses 2,186,720 2,043,037 537,056 587,421
--------- --------- ------- -------
Earnings (loss) before income tax (385,481) 2,559,046 1,167,055 635,781
Income tax benefit (expense) 325,020 (484,891) (200,000) 37,804
------- --------- --------- ------
Net income (loss) (60,461) 2,074,455 967,055 673,585
Basic net income (loss) per common share $ (0.03) $ .92 $ $ .30
.43
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 March 31,
------------------------------ -------------------------------------------
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 $ 5,375,498 $ 9,894,287 $ 17,357,158
Total liabilities 5,791,542 4,482,924 3,954,114 6,691,918 1,117,289
Shareholders' equity 454,329 2,528,784 1,421,384 3,202,369 16,239,869
Weighted average common shares outstanding 2,250,000 2,250,000 2,250,000 2,250,000 3,750,000
Book value per share $ 0.20 $ 1.12 $ .63 $ 1.42 $ 4.33
- -------
</TABLE>
(1) Adjusted to reflect the sale of 1,500,000 shares offered by this prospectus
at an offering price of $10.00 per share and application of the net proceeds of
$13,037,500.
(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.
6
<PAGE>
RISK FACTORS
Investing in our shares 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.
Potential Decline in Value of Collateral and Paying Loans
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.
Uncertain Nature of the Asset Acquisition and Resolution Business
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.
Potential Unavailability of Certain Federal Income Tax Benefits
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 ("IRS") 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. See
"Business-The MCorp Acquisition", "Management-Restrictions on Transfer" and
"Certain Federal Income Tax Matters."
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.
7
<PAGE>
Reliance on Principal Officers
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.
Period to Period Variances of Revenues and Collections
Our method of revenue recognition for non-performing assets is based upon actual
cash collections received. Such collections have historically varied and will
likely continue to vary significantly from period to period. Consequently,
period to period reported revenue has historically varied and will likely
continue to vary. These variations may cause significant fluctuations in
earnings reported from period to period and, therefore, significant fluctuations
in the trading price of Rampart's shares.
Future Acquisitions of Debt Portfolios, Real Estate and Other Assets
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.
Capital Requirements and Interest Rates
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. See "Use of Proceeds" and
"Certain Federal Income Tax Matters."
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.
8
<PAGE>
Influence on Voting by Charles W. Janke and J. H. Carpenter
Upon completion of this offering, Charles W. Janke and J. H. Carpenter, officers
and directors, will own approximately 60.0% of the outstanding shares. Although
there are no agreements or arrangements between such persons with respect to
voting their shares, if they act together, they will be able to control the vote
on any election of directors and to substantially impact the vote on other
matters submitted to shareholders and thereby exert considerable influence over
the affairs of Rampart. See "Principal Shareholders."
Absence of Prior Public Market - American Stock Exchange Listing
Prior to this offering, there was no public market for our common stock. We have
applied for listing of the shares on the American Stock Exchange. We cannot
assure that our listing application will be approved. Such listing, if approved,
does not imply that there will be a meaningful, sustained market for the shares.
We cannot assure that an active trading market for the shares will develop or
continue.
Shares of Common Stock Reserved under 1998 Stock Option Plan
We have reserved 375,000 shares of common stock for issuance to key employees,
officers, directors, and consultants under The 1998 Stock Compensation Plan. To
date no options have been granted under the 1998 Stock Compensation Plan. The
existence of these options may prove to be a hindrance to future equity
financing. See "Management - 1998 Stock Compensation Plan."
Effect of Underwriters' Warrants
The holders of the underwriters' warrants have four years starting one year from
the effective date of this offering to profit from a rise in the market price of
the shares causing dilution in the interests of the other shareholders. Further,
the terms on which we might obtain additional financing during that period may
be adversely affected by the existence of the underwriters' warrants. The
holders of the underwriters' warrants may exercise their warrants at a time when
we might be able to obtain additional capital through a new offering of shares
on terms more favorable than those provided herein. We have agreed that, under
certain circumstances, we will register under federal and state securities laws
the shares to be issued thereunder. Exercise of these registration rights could
involve expense at a time when we could not afford the expenditures and may
adversely affect the terms upon which we may obtain financing. See "Description
of Capital Stock" and "Plan of Distribution - Underwriters' Warrants."
Underwriters' Influence on the Market
A significant number of the shares offered may be sold to customers of the
underwriters. Subsequently, these customers may engage in transactions for the
sale or purchase of such shares through or with the underwriters. If they
participate in the market, the underwriters may exert a dominating influence on
the market, if one develops, for the shares. The price and the liquidity of the
shares may be significantly affected by the degree of the underwriters'
participation in the market. See "Description of Capital Stock" and "Plan of
Distribution Underwriters."
Environmental Risk on Real Estate Acquired or Foreclosed
Some of the real estate acquired through foreclosure or direct purchase and
real estate collateralized loans may have the risk of environmental problems. If
they exist, these problems consist primarily of underground storage tanks and
asbestos. See "Business - Investment in Real Estate and Other Assets."
9
<PAGE>
USE OF PROCEEDS
We expect to net approximately $13,037,500 from the proceeds of this offering
($15,068,500 if the over-allotment option is exercised in full). This assumes an
initial public offering price of $10.00 per share after deducting the
underwriters' discount and $500,000 of expenses relating to the offering. We
intend to use the net proceeds as follows:
<TABLE>
<S> <C> <C>
Amount %
-------------------- ------------
Acquisitions of undervalued real estate and discounted loans (1) $6,900,000 52.9
Temporarily reduce debt (2) 5,600,000 43.0
Working capital 537,500 4.1
==================== ============
$13,037,500 100.0
==================== ============
---------------
</TABLE>
(1) We intend to use as much as $6,900,000 for future acquisitions of
undervalued real estate and discounted loan portfolios consistent with our
business strategy. Currently, we do not have any negotiations for
acquisitions pending.
(2) Our total debt increased by $2,875,000 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%. See "Certain Relationships and
Related Transactions."
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.
10
<PAGE>
Our proposed use of proceeds is illustrated in the following pie chart:
GRAPH OMMITED
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.
11
<PAGE>
DILUTION
As of March 31, 1999, our net tangible book value was $3,202,369 or $1.42 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 1,500,000 shares at an assumed offering price of $10.00 per
share, and (ii) the application of the estimated net proceeds, the pro forma net
tangible book value would increase to $16,239,869, or $4.33 per share. This
represents an immediate increase in net tangible book value of $2.91 per share
to current shareholders and an immediate dilution of $5.67 per share to new
investors or 56.7% as illustrated in the following table:
<TABLE>
<S> <C> <C>
Public offering price per share $10.00
Net tangible book value per share before this offering $1.42
Increase per share attributable to new investors 2.91
------------
Adjusted net tangible book value per share after this 4.33
offering
--------------
Dilution per share to new investors $ 5.67
--------------
Percentage dilution 56.7%
</TABLE>
The following table sets forth as of March 31,1999, 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 assumed offering
price of $10 per share.
<TABLE>
<S> <C> <C> <C> <C> <C>
Shares Purchased Total Consideration Average Price
-------------------------------- -------------------------------- -----------------
--------------- ----- ---------- -- ----------------- ----------- -----------------
Number Percent Amount Percent Per Share
--------------- -- -----------
--------------- ---------- ---------------- ----------- ----------- ----
Current Shareholders 2,250,000 60.0% $ 22,500 0% $0.00
New investors 1,500,000 (1) 40.0% 15,000,000 100.0% $10.00
------
--------------- ---------- ---------------- -----------
=============== ========== ================ ===========
Total 3,750,000 100.0% $15,022,500 100.0%
(2)
=============== ========== ================ ===========
--------
</TABLE>
(1) Upon exercise of the over-allotment option, the number of shares held by
new investors would increase to 1,725,000 or 43.4% of the total number of
shares to be outstanding after the offering and the total consideration
paid by new investors will increase to $17,250,000. See "Principal
Shareholders."
(2) Does not include 750,000 shares issuable upon the exercise of (i) the
underwriters' over-allotment option, (ii) the underwriters' warrants, or
(iii) employee stock options. To the extent that these options and warrants
are exercised, there will be further share dilution to new investors.
12
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization (i) as of March 31, 1999 and
(ii) on a pro forma as adjusted basis to give effect to the sale of 1,500,000
shares and the application of the estimated net proceeds. See "Use of Proceeds."
<TABLE>
<CAPTION>
<S> <C> <C>
March 31, 1999
-------------------------------------
----------------- -- -----------------
(Actual) (As Adjusted)
----------------- -----------------
(Unaudited)
Liabilities:
Notes payable (1) $6,097,488 $522,859
----------------- -----------------
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 $ 22,500 $ 37,500
10,000,000 shares authorized, 2,250,000
shares issued and outstanding, 3,750,000
as adjusted (3)
Additional paid in capital 0 13,022,500
Retained earnings 3,179,869 3,179,869
----------------- -----------------
----------------- -----------------
Total shareholders' equity $3,202,369 $16,239,869
----------------- -----------------
----------------- -----------------
Total capitalization $9,299,857 $16,762,728
</TABLE>
- -----------
Proforma effect of the purchase of Newport Assets on February 1, 1999. See
"Business-Acquisition of Newport Assets"
(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.
(2) The preferred stock was authorized by the board of directors in December
1998.
(3) Does not include 750,000 shares issuable upon the exercise of (i) the
underwriters' over-allotment option, (ii) the underwriters' warrants, or
(iii) employee stock options. To the extent that these options and warrants
are exercised, there will be further share dilution to new investors.
13
<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 three month periods ended in March 1999 and 1998, earnings before tax
decreased $531,274 ($1,167,055 in 1998 to $635,781 in 1999) primarily because of
the sale of a single real estate holding in 1998 resulting in a gross profit of
$1,125,000. Except for the real estate sale in 1998, quarterly earnings would
have increased $593,726. Over the period from December 31, 1997 to December 31,
1998, we have increased net revenues by 134% to $6.8 million from $2.9 million.
As a percentage of revenues, costs decreased 5.8% (38.6% compared to 32.8%) and
operating expenses decreased 44.7% (from 74.5% to 29.8%) for the same period. A
comparative summary of the earnings statements is shown below.
<TABLE>
<CAPTION>
Operating Data: Year Ended December 31, Quarter Ended March 31,
----------------------------- -----------------------------
1997 1998 1998 1999
<S> <C> <C> <C> <C>
------------- ------------ -------------- -----------
(Unaudited)
Revenues $ 2,935,283 $6,843,785 $ 2,717,139 $1,616,083
Cost of revenues 1,134,044 2,241,702 1,013,028 392,881
------------- ------------ -------------- -----------
Gross profit 1,801,239 4,602,083 1,704,111 1,223,202
General and administrative expense 1,544,120 1,548,895 389,016 468,712
Interest expense 642,600 494,142 148,040 118,709
------------- ------------ -------------- -----------
Earnings (loss) before income tax (385,481) 2,559,046 1,167,055 635,781
Income tax benefit (expense) 325,020 (484,591) (200,000) 37,804
------------- ------------
-------------- -----------
Net income (loss) $ (60,461) $ 2,074,455 $ 967,055 $ 673,585
-------------- -----------
Basic net income (loss) per common $ (0.03) $ .92 $ 0.43 $ 0.30
share
------------- ------------ -------------- -----------
Diluted net income (loss) per common $ (0.03) $ .92 $ 0.43 $ 0.30
share
------------- ------------ -------------- -----------
Weighted average common shares 2,250,000 2,250,000 2,250,000 2,250,000
outstanding
------------- ------------ -------------- -----------
</TABLE>
GRAPH OMMITED
14
<PAGE>
The following table presents certain financial data, as a percentage of net
revenues, for the periods indicated:
<TABLE>
<S> <C> <C> <C> <C>
Year Ended December 31, Quarter Ended March 31,
----------------------------- ----------------------------
1997 1998 1998 1999
------------- ------------ ----------- ------------
(Unaudited)
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of revenues 38.6 32.8 37.3 24.3
------------- ------------ ----------- ------------
Gross profit 61.4 67.2 62.7 75.7
General and administrative expense 52.6 22.6 14.3 29.0
Interest expense 21.9 7.2 5.4 7.3
------------- ------------ ----------- ------------
Earnings (loss) before income tax (13.1) 37.4 43.0 39.4
Income tax benefit (expense) 11.1 (7.1) (7.4) 2.3
------------- ------------ ------------ -----------
Net income (loss) (2.0) 30.3 35.6 41.7
------------- ------------ ----------- ------------
</TABLE>
Comparison of the Quarters Ended March 31, 1998 and March 31, 1999
Revenues for the first quarter of 1999 declined $1.1 million dollars as compared
to first quarter 1998. Collection segment revenues declined $2.1 million
primarily because of the large 1998 real estate sale ($1.9 million) from the
purchased asset pools and investment real estate revenues increased primarily
because of the sale of assessment rights, real estate and easements ($.9
million) acquired in the purchase of Newport Assets. In 1999, we had $88,000 in
revenue from operating properties (commercial real estate segment) associated
with the acquisition of the Newport Assets, and rental revenues increased by
$20,000 over 1998. Collections on asset pools were down by $280,000 because in
the first quarter 1998 there was a $300,000 downpayment on a settlement with a
debtor that was not repeated in the first quarter of 1999.
As to be expected, because of the decline in revenues, cost of sales also
declined from $1,013,028 in the first quarter of 1998 to $392,881 in 1999.
However, costs as a percentage of revenues also declined from 37.3% in 1998 to
24.3% in 1999. The decline in costs as a percentage of revenue is due to a
change in the mix of revenues. The large real estate sale in 1998 was costed at
$750,000 as compared to costs of $232,500 for assets sold in 1999. The 1999 sale
of property assessment rights were related to the acquisition of the Newport
Assets and had a low cost basis.
Although gross profits declined in absolute dollars ($480,909) in 1999 as a
percentage of revenues they increased 62.7% in 1998 to 75.7% in 1999) as
explained above. The cost per dollar of revenue on these sales in 1998 was 40%
as compared to 25.5% in 1999.
General and administrative expense ($468,712 in 1999 as compared to $389,016 in
1998) increased by $76,696. This increase is predominantly due to the $98,000 in
direct operating costs associated with the operating assets acquired in the
acquisition of the Newport Assets.
15
<PAGE>
Interest expense decreased $29,331 (from $148,040 in 1998 to $118,709 in 1999).
The profit sharing portion of the related party loans that bore interest and
shared in the profits generated by the financed pools became payable in 1998,
thereby increasing interest costs in 1998 only. These loans are discussed in
more detail in the "Certain Relationships and Related Transactions" section. The
changes in interest expense by segment are explained by the financing necessary
to fund the capital expenditures 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 NOL's 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 NOL's. Thus, we experienced a
deferred tax benefit of $37,808.
With the exception of the commercial real estate segment, the decline in
earnings before income taxes (from $1,167,055 in 1998 to $635,781 in 1999) is
due to the same causes as discussed in the decline in revenues. Commercial real
estate earnings declined $60,300 (1998 profit of $37,700 to a 1999 loss of
$22,600) because of losses in the operating entities acquired in the purchase of
the Newport Assets. 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. 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.
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 loan
portfolios, 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 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.
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 134% increase in net revenues from 1997 to 1998 is partially due to the
strategy change, the timing of settlement negotiations, resolution of litigation
and the sale of a large real estate holding in the purchased asset pools
($1,875,000 selling price/$1,125,000 gross profit). 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 the
reclassification of our San Antonio retail center from the purchased asset pool
classification to the commercial real estate classification. The $2,800,844
increase in gross profit from $1,801,239 in 1997 to $4,602,083 in 1998 without a
corresponding increase in General and Administrative costs is primarily due to
the sale of the large real estate holding with the balance due to the change in
strategy discussed above. We believe the positive effects of our change in
collection strategy will be increasingly evident during future periods.
16
<PAGE>
Gross profit increased from 61.4% in 1997 to 67.2% in 1998 primarily due to a
change in the rate of cost recognition used by several of our subsidiaries
during 1998. The critical variable in our modified cost recovery method of cost
recognition is the rate of amortization that is used in order to recognize costs
in consistent proportion with the collections from the asset pools. Accordingly,
our rate of amortization is based on the cost of asset pools as compared to
total projected collections. Historical collections significantly in excess of
projections create a need to periodically adjust the rate of cost amortization.
During 1998, the rate of amortization for several of our subsidiaries was
decreased because of favorable collection experience on assets within these
subsidiaries.
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 policy 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 2.0% loss in 1997 to a 30.3% profit in 1998. Collection segment
earnings accounted for $2.76 million of the $2.95 million increase in earnings
($2.56 million in 1998 compared to a loss of $.39 million 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 March
31, 1999, was $4,174,629 with available credit of $825,371. We are in compliance
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.
17
<PAGE>
Accounting Standards
The Financial Accounting Standards Board ("FASB") 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 is effective for fiscal years beginning after June 15, 1999 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.
Statement of position ("SOP") 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.
18
<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 gain tax treatment, non-performing debt
portfolios from financial institutions, distressed assets in selected foreign
markets, and through the increased demand for short-term financing 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 ("MCorp Liquidating Trusts" or "Trusts"). In July 1997, we acquired,
through competitive bid, certain corporate subsidiaries and assets (the "MCorp
Acquisition") from the MCorp Liquidating Trusts. The following table sets forth
a classification of the assets, which were purchased for $1,308,723.
<TABLE>
<CAPTION>
Allocation of Purchase Price
<S> <C>
-----------------
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
March 31, 1999, we had collected $1,056,758 or about 120% 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 $174,000 on three of
the claims with unknown status. Based on our evaluation of future cash
recoveries of the remaining assets as of March 31, 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 be approximate $2.1 million.
19
<PAGE>
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 was utilized in
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. See "Risk Factors", "Certain Federal Income Tax Matters" and
Notes to Financial Statements.
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 $2,884,538 - the contract price of $2,875,000 and closing costs of $9,538.
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 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>
<CAPTION>
The assets acquired include:
Acres Allocated Costs
<S> <C> <C>
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
Related golf course acreage 145.31
------
Sub total golf related acreage and improvements 374.36 $2,000,000
------
Swimming pool and 4 tennis courts 7.17 0
Restricted recreational reserves 81.52 0
---------------
Undeveloped acreage 237.39 221,276
311 fully developed lots 61.60 311,000
286 undeveloped platted lots 56.40 71,500
Platted and unplatted reserves and sales office 77.54 49,068
-------
Total acreage 895.98
Assessment rights on 1,288 residential properties 110,000
Delinquent assessment receivables ($3.2 million legal balances) 79,469
Other assets ($ 75,000 estimated fair market value) 42,225
-----------
Total Purchase Price $2,884,538
</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. See "Certain
Relationships and Related Transactions".
20
<PAGE>
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
("RTC") 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 cost basis 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. See "The MCorp Acquisition" and "Certain Federal
Income Tax Matters."
On February 1, 1999, we acquired for $2.875 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 valuable 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. See "Acquisition of Newport Assets".
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".
As individual assets are resolved, they are reclassified as "paying loans" or
"foreclosed real estate". Paying loans primarily represent non-performing claims
that have been resolved and are currently paying according to the settlement
agreement. Collections-in-progress are non-performing claims that are in
bankruptcy proceedings, litigation, post-judgment collection status, and are
being actively worked for collection. Real property foreclosed against a claim
is categorized as foreclosed real estate. When Rampart forecloses on assets that
it wishes to hold for investment or commercial 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 $4,686,650 as of
March 31, 1999. These loans have a cost basis of $1,517,537 or 32.4 percent of
outstanding principal balances. The majority of these notes are secured by real
estate and will mature within three to five years.
21
<PAGE>
Additionally, we have non-performing debt, secured and unsecured,
("collections-in-progress") with a cost basis of $1,220,979 as of March 31,
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 $3.5 million over the next
three years.
Success in this business segment is dependent on management's ability to assess
value on the asset pools being purchased, predominantly by review of the
seller's records. Because we purchase assets primarily from failed institutions,
bankruptcies, and other distressed situations, the information available for
review prior to purchase is often aged and incomplete. We allocate the purchase
price of the portfolio to each individual note based on management's assessment
of potential collections. 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 33 $ 0 $ 1,605,456 $ 1,754,000
collected
Assets originally assessed as collectible and subsequently 47 406,894 33,817 0
impaired
--------- -------------- -------------- ---------------
Subtotal 80 $ 406,894 $ 1,639,273 $ 1,754,000
Remaining assets acquired 1,462 13,043,848 19,874,491 14,522,246
--------- -------------- -------------- ---------------
All assets purchased from inception to March 31, 1999 1,542 $13,450,742 $21,513,764 $16,276,246
--------- -------------- -------------- ---------------
</TABLE>
During the initial review, we allocate a zero cost basis to those individual
notes which 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. As noted in the schedule above,
we have made significant collections ($1,605,456 through March 31,1999) on 33
notes that we initially assessed to be worthless. Conversely, we have written
off or written down 47 notes with a cost basis of $406,894 with cumulative
collections of $33,817, thus realizing a loss of $373,077. Overall, we have
collected $1,232,379 in excess of the allocated costs on 80 loans where
management's original assessment of value was based on incomplete information.
The estimated remaining collections of $1,754,000 are predominantly secured by
real estate. We cannot assure that this performance will continue in the future;
however, our conservative valuation procedures should result in valuation
exceptions being generally favorable.
Investment in Real Estate and other Assets
A major 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 increased
market value and we manage these properties for future liquidation at optimum
price levels. In addition, the earnings from these properties are significant
contributors to our current profitability and 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 $2 million, and represents 20.2% of
our total assets.
Some of our more significant real estate properties are summarized below:
Classified as Commercial Property:
22
<PAGE>
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 cost
basis of $2 million (acquired February 1, 1998); market value of $3 million
based on recent offer to purchase; held for market appreciation, earnings and
future sale
Retail Center, Dallas, Texas -
40,000 square foot retail center, 100% occupied; $250,000 annual net cash flow;
substantial upside potential on rents and market value; cost basis of $390,203
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 $360,000 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 investment real estate has been owned long enough for significant
appreciation over original costs.
Environmental Issues
We 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 we purchase the real
estate; the developers may purchase the real estate from us or arrange for sales
to third parties, subject to our approval; the developers retain a net profits
interest in the real estate; and the developer's net profits 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
$879,716 of investment real estate at March 31, 1999.
23
<PAGE>
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. 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 (the "Exchange Act"). We have filed
with the Securities and Exchange Commission (the "Commission") a registration
statement on Form SB-2 (including any amendments thereto) under the Securities
Act with respect to the shares 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 shares, 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.
Rampart has applied for listing of the shares on the American Stock Exchange
("Amex"). We cannot assure that our shares will be accepted for listing. 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.
24
<PAGE>
MANAGEMENT
Directors and Executive Officers
Our directors and executive officers as of March 31, 1999 are identified below:
<TABLE>
<S> <C> <C>
Name Age Position
Charles W. Janke 54 Chairman, Chief Executive Officer, & Director
J. H. (Jim) Carpenter 57 President, Chief Operating Officer, Secretary &
Director
Charles F. Presley 49 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.
25
<PAGE>
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 (the "Named Executive
Officers") 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.
26
<PAGE>
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 (the "Act") 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"). 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 ("ISO's") 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 "Committee"). 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 ("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.
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.
27
<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%
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 $112,500 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 March 31, 1999, $24,165 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. See "Use of Proceeds" and "Business-Acquisition of
Newport Assets".
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.
28
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table identifies the beneficial ownership of our common stock as
of March 31, 1999 by each beneficial owner of more than 5% of the outstanding
shares of common stock, each director of Rampart, the Named Executive Officers,
and all directors and executive officers as a group.
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 40.0%
2147 Del Monte, Houston, Texas 77019
J. H. Carpenter (2) 750,000 33.3% 750,000 20.0%
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 60.0%
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.
29
<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 ("Code"), Treasury
Regulations promulgated and proposed thereunder (the "Regulations"), 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.
30
<PAGE>
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>
<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 utilized
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.
31
<PAGE>
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 these expiration dates:
Year Amount
---- ------
1999 $1,458,000
2000 1,894,000
2001 0
2002 10,377,000
2003 13,305,000
2004+ 29,044,000
==================
$ 56,078,000
==================
Our NOLs and built-in-losses will not fully expire until 2015.
See "Notes to Consolidated Financial Statements.
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.
32
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Common Stock
We are authorized to issue 10,000,000 shares of common stock, $0.01 par value.
As of March 31, 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.
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 and Registrar
The Transfer Agent and Registrar for the common stock will be American Stock
Transfer & Trust Company, 40 Wall Street, New York, New York 10005.
33
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 3,750,000 shares of common stock
issued and outstanding. Of these shares, the 1,500,000 shares sold in this
offering (1,725,000 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 (the "Restricted 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 37,500 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 one year 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.
34
<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. (the "representative") is acting as the
representative, have severally agreed to purchase the number of shares set forth
opposite its name in the following table.
Underwriters Number of Shares
Redstone Securities, Inc.
=========================
Total 1,500,000
=========================
The underwriters have advised us that they propose to offer the shares to the
public at the initial public offering price per share set forth on the cover
page of this prospectus and to certain dealers at such price less a concession
of not more than $___ per share. 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 225,000 additional
shares to cover over-allotments, if any. The option purchase price is the same
price per share we will receive for the 1,500,000 shares 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 shares. The
underwriters will sell the additional shares on the same terms as those on which
the 1,500,000 shares are being sold.
The underwriters can only offer the shares 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 one year 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. See "Shares Eligible for
Future Sale."
35
<PAGE>
We have agreed to pay the representative a non-accountable expense allowance of
2.00% of the gross amount of the shares sold ($300,000 on the sale of the shares
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 shares, 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 one of its officers to be the person who is to be nominated for
election as a director or designated as an observer. See "Management - Outside
Directors."
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, the underwriters' warrants. The underwriters'
warrants are exercisable at 165% of the public offering price for a 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 will
contain anti-dilution provisions providing for appropriate adjustment of the
number of shares 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.
36
<PAGE>
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 shares, 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 shares, 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 shares on the Amex in accordance with Rule 103
of Regulation M.
American Stock Exchange Listing
We will apply for listing of the common stock on the American Stock Exchange
under the trading symbol "." The listing is contingent, among other things, upon
our obtaining 400 shareholders.
LEGAL MATTERS
Maurice J. Bates L.L.C., Dallas, Texas, will pass on the validity of the
issuance of the shares. Wolin, Ridley & Miller L.L.P., Dallas, Texas, will pass
on certain legal matters for the underwriters in connection with the sale of the
shares.
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.
37
<PAGE>
RAMPART CAPITAL CORPORATION
Index to Consolidated Financial Statements
<TABLE>
Page
Interim Consolidated Financial Statements - Unaudited
<S> <C>
Consolidated Balance Sheets as of March 31, 1999 and 1998 .....................................................F-2
Consolidated Statements of Operations for the Three Months Ended March 31, 1999 and 1998.......................F-3
Consolidated Statements of Shareholders' Equity for the Three Months Ended
March 31, 1999 and 1998........................................................................................F-4
Consolidated Statements of Cash Flows for the Three Months Ended March 31,
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>
F-1
See notes to consolidated financial statements
<PAGE>
RAMPART CAPITAL CORPORATION
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31,
1998 1999
------------- --------
(Unaudited)
<S> <C> <C>
Assets
Cash $ 52,359 $ 260,176
Purchased asset pools, net 4,606,638 3,471,050
Commercial real estate, net 379,329 2,758,328
Investment real estate 224,985 1,695,046
Notes receivable from related parties 28,738 564,375
Notes receivable other - 850,000
Property and equipment, net 19,222 69,522
Other assets 64,227 225,790
----------- -----------
Total assets $5,375,498 $9,894,287
---------- ----------
Liabilities and Stockholders' Equity
Notes payable $3,608,165 $4,697,488
Notes payable to related parties - 1,400,000
Accounts payable and accrued expenses 145,949 190,206
Income tax payable - 4,124
Deferred tax liability 200,000 400,100
----------- -----------
Total liabilities 3,954,114 6,691,918
---------- ----------
Commitments and contingencies
Shareholders' equity
Common stock ($.01 par value;
10,000,000 shares authorized;
2,250,000 shares issued and
outstanding) 22,500 22,500
Retained earnings 1,398,884 3,179,869
---------- ----------
Total stockholders' equity 1,421,384 3,202,369
---------- ----------
Total liabilities and stockholders' equity $5,375,498 $9,894,287
---------- ----------
</TABLE>
F-2
<PAGE>
RAMPART CAPITAL CORPORATION
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1998 1999
(Unaudited)
<S> <C> <C>
Collections on asset pools $2,570,076 $ 417,573
Real estate and other sales - 910,624
Net rental and other income 147,063 287,886
----------- -----------
Total revenue 2,717,139 1,616,083
Asset pool amortization (1,013,028) (140,219)
Other costs - (252,662)
------------------ -----------
Gross profit 1,704,111 1,223,202
General and administrative expenses (389,016) (468,712)
Interest expense (148,040) (118,709)
---------- ----------
Income before income tax benefit (expense) 1,167,055 635,781
Income tax benefit (expense) (200,000) 37,804
---------- ----------
Net income $ 967,055 $ 673,585
----------- ---------
Basic net income per common share $.43 $.30
---- ----
Diluted net income per common share $.43 $.30
---- ----
Average common shares outstanding 2,250,000 2,250,000
--------- ---------
</TABLE>
F-3
<PAGE>
RAMPART CAPITAL CORPORATION
Consolidated Statements of Shareholders' Equity
<TABLE>
<S> <C> <C> <C>
Common Retained
Stock Earnings Total
Balance, December 31, 1997 $ 22,500 $ 431,829 $ 454,329
Net income (unaudited) - 967,055 967,055
------------- ------------ ------------
Balance, March 31, 1998 (unaudited) $ 22,500 $1,398,884 $1,421,384
----------
Balance, December 31, 1998 $ 22,500 $2,506,284 $2,528,784
Net income (unaudited) - 673,585 673,585
------------- ----------- -----------
Balance, March 31, 1999 (unaudited) $ 22,500 $3,179,869 $3,202,369
-------- ---------- ----------
</TABLE>
F-4
<PAGE>
RAMPART CAPITAL CORPORATION
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1998 1999
(Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net income $ 967,055 $673,585
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Depreciation 2,826 11,254
Accrued interest income - (39,375)
Asset pool amortization 1,047,616 143,769
Loan loss reserve adjustment (34,588) (3,550)
Cost of sales - 252,662
Purchase of asset pools (81,607) (52,778)
Other costs capitalized ( 7,970) (96,970)
Decrease (increase) in other assets 3,679 229,500
Increase (decrease) in accounts payable
and accrued expenses 18,719 (101,606)
Decrease in taxes payable - (8,500)
Increase (decrease) in deferred tax liability 200,000 (37,900)
----------- -----------
Net cash provided by operating activities 2,115,730 970,091
---------- ----------
Cash flows from investing activities
Note receivable from related party (28,738) -
Purchase of commercial real estate - (2,025,000)
Purchase of investment real estate - (737,844)
Purchase of property and equipment - (37,700)
---------------- -----------
Net cash used by investing activities (28,738) (2,800,544)
------------ ----------
Cash flows from financing activities
Proceeds from notes payable to related parties - 1,400,000
Payments on notes payable to related parties (331,147) -
Proceeds from notes payable - 1,657,000
Payments on notes payable (1,725,000) (700,000)
Financed asset sales - (850,000)
------------------ ------------
Net cash provided (used) by financing activities (2,056,147) 1,507,000
------------- ----------
Net increase (decrease) in cash 30,845 (323,453)
Cash at beginning of period 21,514 583,629
------------- ------------
Cash at end of period $ 52,359 $ 260,176
------------ -----------
</TABLE>
F-5
<PAGE>
RAMPART CAPITAL CORPORATION
Notes to Consolidated Financial Statements
March 31, 1999
Note 1 - Notes to Consolidated Financial Statements
Interim financial information (unaudited)
The unaudited interim financial statements as of March 31, 1998
and 1999 or the three month periods ended March 31, 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 March 31, 1998 and
1999, and the results of operation and cash flows for the three
month periods ended March 31, 1998 and 1999 have been included.
The results of operation for such interim periods are not
necessarily indicative of the results expected for the full year
ending December 31, 1999.
All notes in the attached audited financial statements are
specifically included by reference. The following notes have been
added to supplement the interim financial statements.
Commercial real estate
Rents collected on commercial rental property are recognized as
rental income is 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. Commercial real estate also includes properties that
generate operating revenues. Revenues and expense of operating
these properties are recognized as they occur.
Other income
Other income is comprised of interest income, operating revenues
from the golf course and convention center acquired in the
acquisition described below, and miscellaneous revenue. Revenue is
recognized as received.
F-6
<PAGE>
RAMPART CAPITAL CORPORATION
Notes to Consolidated Financial Statements
March 31, 1999
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 $2,884,538 - contract price
of $2,875,000 and closing costs of $9,538. 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
balance was paid from Company funds. The total purchase price was
allocated to the individual asset components based on management's
estimate of relative market value.
<TABLE>
<S> <C> <C>
The assets acquired include:
Acres Allocated Costs
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
Related golf course acreage 145.31
------
Sub total golf related acreage and improvements 374.36 $2,000,000
------
Pool and 4 tennis courts 7.17
Restricted recreational reserves 81.52
Subtotal 88.69 0
-------
Undeveloped acreage 237.39 221,276
311 fully developed lots 61.60 311,000
286 undeveloped platted lots 56.40 71,500
Platted and unplatted reserves and sales office 77.54 49,068
-------
Total acreage 895.98
Assessment rights on 1,288 residential properties 110,000
-----------
Delinquent assessment receivables $3.2 million 79,469
Other assets $ 75,000 42,225
-----------
Total Purchase Price $2,884,538
</TABLE>
F-7
<PAGE>
RAMPART CAPITAL CORPORATION
Notes to Consolidated Financial Statements
March 31, 1999
Note 3 - Financed Asset Sales
On February 12, 1999, the Company sold the following assets for an
$850,000 note secured by a collateral assignment of property
rights and a deed of trust . As part of the consideration for the
sale, the Company required the purchaser to expend $150,000 to
repair and upgrade certain common areas beneficial to the
Company's retained properties and obtained the waiver of all fees
and assessments on any of the Company's properties currently owned
or acquired in the future which immediately reduced property costs
by $150,000 per year on current property owned.
<TABLE>
<CAPTION>
Acres Assigned Cost
<S> <C> <C>
Property maintenance assessment rights of $480
per year on 1,288 lots, net of maintenance obligations $195,000
Easements rights to recreational areas 0
Pool and 4 tennis courts 7.17 0
Restricted recreational reserves 81.52 0
----- -------------------
Total 88.69 $195,000
----- -------------
</TABLE>
Costs assigned to the assessment rights were $195,000 - $110,000
allocated at acquisition and subsequent capitalized costs of
$85,000. In management's opinion, the real estate included in the
sale had no market value because of the limited use of the
restricted recreational reserves with associated maintenance
costs, substantial deferred maintenance on the pool and tennis
courts, and the potential liabilities related to recreational
properties. The purchaser was the New Property Owners' Association
of Newport, Inc. ("NPOAN") which is a non-profit,
quasi-governmental entity created by deed restrictions for the
provision of security, maintenance, operation of common and
recreational areas, and beautification of the subdivision. NPOAN
assesses and collects maintenance fees on all property within the
subdivision with rights and powers of foreclosure. In the event of
default on the note, the Company has a collateral assignment of
NPOAN's rights of assessment, the underlying receivables, and
foreclosure rights. Revenues and associated costs and expenses
were recognized using the full accrual method of accounting.
Note 4 - Notes Payable - Related Parties
<TABLE>
<CAPTION>
March 31,
(Unaudited)
1998 1999
<S> <C> <C>
Promissory note payable to a family limited partnership affiliated
with a Company shareholder, interest at 10% per annum paid on the
first of each month, with all outstanding principal
and interest due December 31, 1999. $ - $1,400,000
--------------- ----------
$ - $1,400,000
--------------- ----------
</TABLE>
Interest paid during 1999 and 1998 to related parties was $20,176
and $31,814, respectively. Of the amounts paid to related parties
during 1999 and 1998, $7,500 and $25,500, respectively, were to a
shareholder's family limited partnership for the pledge of
partnership's assets as collateral against the Company's notes
payable to bank.
F-8
<PAGE>
RAMPART CAPITAL CORPORATION
Notes to Consolidated Financial Statements
March 31, 1999
Note 5 - Related Party Transactions
In January 1999, the Company borrowed $1,400,000 from the family
limited partnership of the Company's majority shareholder pursuant
to the terms described in Note 4. The funds were used to complete
the acquisition described in Note 2.
Note 6 - Segment Reporting (Unaudited)
The Company operates in three business segments (1) collections on
discounted debt portfolios, (2) commercial real estate, and (3)
short-term funding of investment real estate. Segment 1,
collection of discounted commercial debt portfolios, involves all
activities related to collecting non-performing loans, servicing
resolved loans, and managing and marketing foreclosed real estate.
Segment 2, commercial real estate, involves holding foreclosed and
acquired real estate for the production of rental or operating
income. Segment 3, investment real estate, involves holding
foreclosed real estate for future appreciation and acquiring real
estate to provide short-term funding for developers. Financial
information by reportable operating segment is as follows:
<TABLE>
<CAPTION>
As of and for the quarter ended March 31, 1999
Collections on
Discounted Commercial Investment
Debt Portfolios Real Estate Real Estate Totals
<S> <C> <C> <C> <C>
Revenue $470,260 $223,499 $ 922,324 $1,616,083
Segment profit (loss) 114,207 (22,593) 544,167 635,781
Segment assets 4,035,425 3,608,328 1,695,046 9,338,799
Depreciation and amortization - 6,828 - 6,828
Capital expenditures 60,778 2,025,000 826,814 2,912,592
Net interest expense 64,138 33,192 21,379 118,709
</TABLE>
<TABLE>
<CAPTION>
As of and for the quarter ended March 31, 1998
Collections on
Discounted Commercial Investment
Debt Portfolios Real Estate Real Estate Totals
<S> <C> <C> <C> <C>
Revenue $2,621,740 $85,749 $ 9,650 $2,717,139
Segment profit 1,217,828 37,720 1,506 1,167,055
Segment assets 4,606,638 379,329 224,986 5,210,953
Depreciation and amortization - 1,526 - 1,526
Capital expenditures 89,577 - - 89,577
Net interest expense 132,251 9,918 5,871 148,040
</TABLE>
Reconciliation of reportable segment assets to the Company's
consolidated totals as of March 31 are as follows:
<TABLE>
<CAPTION>
Assets 1998 1999
------ -------------------------------
<S> <C> <C>
Total assets for reportable segments $5,210,953 $9,338,799
Cash not allocated to segments 52,359 260,176
Other assets not allocated to segments 112,186 295,312
------------ ------------
Consolidated total assets $5,375,498 $9,894,287
---------- ----------
</TABLE>
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 14, as to which the date
is February 12, 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>
F-11
See notes to consolidated financial statements
<PAGE>
RAMPART CAPITAL CORPORATION
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1998
<S> <C> <C>
Collections on asset pools $2,555,363 $6,099,296
Net rental and other income 379,920 744,489
----------- -----------
Total revenue 2,935,283 6,843,785
Asset pool amortization (1,134,044) (2,241,702)
---------- ----------
Gross profit 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>
F-12
See notes to consolidated financial statements
<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>
F-13
See notes to consolidated financial statements
<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 amortization 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>
F-14
See notes to consolidated financial statements
<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 disposes of portfolios of undervalued
assets, primarily non-performing commercial debt and other forms
of legal obligations and real estate (asset pools). A significant
portion of the debts are secured by real estate or other assets.
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
financing 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
At the acquisition date, the purchased asset pools consist of
non-performing debts and legal obligations, including commercial
and industrial loans, commercial real estate loans, multifamily
residential loans, judgments and deficiency balances. The majority
of the debts were non-performing and purchased at substantial
discounts from their outstanding legal principal amounts. At the
acquisition date, the aggregate cost of the purchased asset pool
is allocated to individual assets based on their relative values
within the pool.
Subsequent to acquisition, the purchased asset pools are
periodically revalued and carried at the lower of (i) cost or (ii)
fair value less any estimated costs to sell. A pool's estimated
fair value is calculated by summing projected cash flows on an
asset by asset basis. Projected cash flows are estimated by
management and reflect the credit and interest rate risk inherent
in the assets. Any allowance to reduce pool cost to fair value is
recorded as a provision for possible loss on the purchased asset
pools during the period determined.
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 Statement of Financial
Accounting Standards ("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.
F-15
See notes to consolidated financial statements
<PAGE>
RAMPART CAPITAL CORPORATION
Notes to Consolidated Financial Statements
December 31, 1998
Note 1 - Nature of Business and Summary of Significant Accounting Policies
(Continued)
Purchased asset pools (continued)
Revenue from full or partial settlement of debtors loan
obligations is recognized as collected. Revenue from the sale of
real estate held in the purchased asset pools is recognized under
the full accrual method, assuming the conditions for recognition
under this method are met. If the conditions for recognition are
not met, recognition of revenue and the associated profit is
postponed until the conditions for recognition are met.
Amortization of the purchased asset pools is recognized for
financial statement purposes based on the ratio of the total cost
to total estimated collections on the purchased asset pools.
Commercial rental property
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 provides short term funding for selected real estate
projects by acquiring land and contracting to sell the land to or
through developers. Revenues, net of the developer's profit
interest, and associated costs are recognized at the time of sale
assuming the criteria for sales recognition are met.
Foreclosed assets
Foreclosed assets acquired in settlement of notes are recorded at
the lower of allocated cost or fair market value. Costs relating
to the acquisition, development and improvement of foreclosed
assets are capitalized, whereas those relating to holding
foreclosed assets are charged to expense.
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-16
See notes to consolidated financial statements
<PAGE>
RAMPART CAPITAL CORPORATION
Notes to Consolidated Financial Statements
December 31, 1998
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
reporting certain expenses for financial statement and Federal
income tax purposes. Deferred income taxes result primarily from
the use of a modified cost recovery method for financial statement
reporting and the cost recovery method for tax reporting in
recognizing asset pool amortization.
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 notes receivable 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-17
See notes to consolidated financial statements
<PAGE>
RAMPART CAPITAL CORPORATION
Notes to Consolidated Financial Statements
December 31, 1998
Note 1 - Nature of Business and Summary of Significant Accounting
Policies (Continued)
Fair value of financial instruments (continued)
Purchased asset pools are carried at the lower of cost or
estimated fair value. The estimated fair value is management's
estimate of potential collections calculated on an asset-by-asset
basis. The carrying value of the purchased asset pools, net of
valuation allowance, 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. Management believes that
the stated interest rates of notes payable approximate market
rates for instruments with similar credit risk. Accordingly, the
carrying value of notes payable is believed to approximate 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 are effective for all fiscal quarters
of all fiscal years beginning after June 15, 1999. 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. Statement of Position
("SOP") 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 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.
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.
F-18
See notes to consolidated financial statements
<PAGE>
RAMPART CAPITAL CORPORATION
Notes to Consolidated Financial Statements
December 31, 1998
Note 2 - Acquisitions (Continued)
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 - Asset Classification
The following summarizes the Company's cost and collateral by
asset classification at December 31, 1997 and 1998:
o Collections-in-progress -- Initially this is the
classification of all assets in the purchased asset pools
until further determination or resolution supports
reclassification. Collections-in-progress consist of
non-performing claims that are in bankruptcy proceedings,
litigation, or post-judgement collection status, and assets
that are actively being worked for collection.
Collateral, if any, consists of real estate.
o Paying loans -- Primarily represents non-performing claims
that have been resolved and are currently paying according to
a settlement agreement. Collateral primarily consists of first
liens on real estate.
o Foreclosed real estate -- Represents real property that has
been foreclosed against a claim. Collateral consists of fee
ownership of real estate and/or mineral rights.
o Commercial and investment real estate -- Real estate acquired
by purchase or foreclosure that the Company intends to hold
for investment or commercial purposes. Assets acquired by
foreclosure are removed from the purchased asset pools
category and reclassified as commercial or investment real
estate.
F-19
See notes to consolidated financial statements
<PAGE>
RAMPART CAPITAL CORPORATION
Notes to Consolidated Financial Statements
December 31, 1998
Note 3 - Asset Classification (Continued)
<TABLE>
<CAPTION>
Balance at
December 31,
<S> <C> <C>
1997 1998
Paying loans $ 2,073,552 $ 1,609,666
Collections-in-progress 1,751,153 1,297,228
Foreclosed real estate 1,905,534 774,086
------------ -------------
Purchased asset pools 5,730,239 3,680,980
Loan loss reserve (200,151) (122,489)
-------------- -------------
Purchased asset pools, net 5,530,088 3,558,491
Commercial and investment real estate 615,189 975,189
Costs amortized to date 6,582,856 8,856,284
------------ ------------
Inception-to-date costs $12,728,133 $13,389,964
----------- -----------
</TABLE>
Specific allowances for losses on loans receivable 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
included in asset pool amortization in the statements of
operations.
<TABLE>
<CAPTION>
Balance at
December 31,
<S> <C> <C>
Commercial Real Estate 1997 1998
---------- --------
Reclassified from purchased asset pools $390,203 $ 750,203
Purchased - -
Accumulated depreciation (9,349) (18,047)
---------- ------------
Commercial real estate $380,854 $ 732,156
-------- -----------
Investment Real Estate
Reclassified from purchased asset pools $224,986 $ 224,986
Purchased - 875,745
-------------- -----------
Investment real estate $224,986 $1,100,731
-------- ----------
</TABLE>
Commercial real estate consists of rental property. Gross rental
income from the property amounted to $340,629 and $713,286 for
1997 and 1998, respectively.
Non-cash transaction
During the year ended December 31, 1998, the Company reclassified
asset pool assets with a cost basis of $360,000 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.
F-20
See notes to consolidated financial statements
<PAGE>
RAMPART CAPITAL CORPORATION
Notes to Consolidated Financial Statements
December 31, 1998
Note 4 - 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 5 - 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 6 - Notes Payable
Notes payable consist of the following:
<TABLE>
Notes payable
December 31,
1997 1998
<S> <C> <C>
$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
$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 -
</TABLE>
F-21
See notes to consolidated financial statements
<PAGE>
RAMPART CAPITAL CORPORATION
Notes to Consolidated Financial Statements
December 31, 1998
<TABLE>
<CAPTION>
Note 6 - Notes Payable (Continued)
December 31,
1997 1998
<S> <C> <C>
$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
---------- ----------
</TABLE>
Notes payable to related parties
<TABLE>
<CAPTION>
December 31,
1997 1998
<S> <C> <C>
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 $ -
----------- -----------
</TABLE>
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.
Note 7 - Income Taxes
The deferred tax liability as of December 31, 1997 and 1998 arises
from the use of different methods of recognition of asset pool
amortization for financial statement purposes and Federal tax
purposes. A modified cost recovery method, whereby the
amortization recognized in conjunction with collections on
individual asset pool components is recognized 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
F-22
See notes to consolidated financial statements
<PAGE>
RAMPART CAPITAL CORPORATION
Notes to Consolidated Financial Statements
December 31, 1998
Note 7 - Income Taxes (Continued)
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 carryforward 955,000 19,075,000
Valuation allowance (146,457) (18,369,646)
---------- ------------
Deferred tax liability, net $ - $ (438,000)
-------------- ------------
</TABLE>
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).
F-23
See notes to consolidated financial statements
<PAGE>
RAMPART CAPITAL CORPORATION
Notes to Consolidated Financial Statements
December 31, 1998
Note 7 - Income Taxes (Continued)
Changes in the valuation allowance account are as follows:
<TABLE>
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.
The following is a summary of the NOLs and their expiration dates:
December 31, Amount
1999 $ 1,458,000
2000 1,894,000
2001 0
2002 10,377,000
2003 13,305,000
2004 29,044,000
----------
$56,078,000
The NOLs will not fully expire until 2015.
Note 8 - Commitments and Contingencies
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 loan related assets and
foreclosed real estate 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-24
See notes to consolidated financial statements
<PAGE>
RAMPART CAPITAL CORPORATION
Notes to Consolidated Financial Statements
December 31, 1998
Note 8 - 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.
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:
<TABLE>
<S> <C>
Year Ending
December 31,
1999 $392,000
2000 314,000
2001 154,000
2002 13,000
----------
Total $873,000
</TABLE>
Office space
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.
Note 9 - Segment Reporting
The Company operates in three business segments (i) collections on
discounted debt portfolios, (ii) commercial real estate, and (iii)
short-term funding of investment real estate. Collection of
discounted commercial debt portfolios involves all activities
related to collecting non-performing loans, servicing resolved
loans, and managing and marketing foreclosed real estate. The
commercial real estate segment involves holding foreclosed and
acquired real estate for the production of rental or operating
income.
F-25
See notes to consolidated financial statements
<PAGE>
RAMPART CAPITAL CORPORATION
Notes to Consolidated Financial Statements
December 31, 1998
Note 9 - Segment Reporting (Continued)
The investment real estate segment involves holding foreclosed
real estate for future appreciation and acquiring real estate to
provide 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
Collections on
Discounted Commercial Investment
Debt Portfolios Real Estate Real Estate Totals
<S> <C> <C> <C> <C>
Revenue $6,298,209 $449,643 $ 95,933 $6,843,785
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>
As of and for the year ended December 31, 1997
<TABLE>
<CAPTION>
Collections on
Discounted Commercial Investment
Debt Portfolios Real Estate Real Estate Totals
<S> <C> <C> <C> <C>
Revenue $2,653,456 $281,827 $ - $2,935,283
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>
Note 10 - 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.
F-26
See notes to consolidated financial statements
<PAGE>
RAMPART CAPITAL CORPORATION
Notes to Consolidated Financial Statements
December 31, 1998
Note 11 - 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 12 - 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 13 - Revenue Concentrations
During 1997, collections from a single debtor accounted for
approximately 15% of the total revenue of the Company. During
1998, proceeds from a single transaction amounted to 26% of total
revenue of the Company.
Note 14 - Subsequent Events
Proposed public offering
In January 1999, the Company filed a Registration Statement with
the SEC for the sale of 1,500,000 shares of common stock.
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 $2,875,000. The
assets were acquired from the Liquidating Trustee in
F-27
See notes to consolidated financial statements
<PAGE>
RAMPART CAPITAL CORPORATION
Notes to Consolidated Financial Statements
December 31, 1998
Note 14 - Subsequent Events (Continued)
Asset acquisition (unaudited) (continued)
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.
<TABLE>
<CAPTION>
The assets acquired include:
Acres
<S> <C>
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
Platted and unplatted reserves 77.54
Pool and 4 tennis courts 7.17
Restricted reserves 81.52
-------
Total acreage 895.98
Developer's property maintenance assessment rights
Delinquent assessment receivables, involving over 1,000
residential properties $3.2 million
Other assets $ 75,000
</TABLE>
F-28
See notes to consolidated financial statements
<PAGE>
RAMPART CAPITAL CORPORATION
Notes to Consolidated Financial Statements
December 31, 1998
Note 14 - Subsequent Events (Continued)
Asset acquisition (unaudited) (continued)
On February 12, 1999, the Company sold the developer's property
maintenance assessment rights and obligations and the following
assets for an $850,000 note and other valuable consideration. The
note is secured by a collateral assignment of the assessment
rights and a deed of trust on the assets sold:
Acres
Pool and 4 tennis courts 7.17
Restricted recreational reserves 81.52
Total acreage 88.69
Note 15 - 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 feels 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-29
<PAGE>
No dealer, sales person, or other person has been authorized to give any
information or to make any representation not contained in this prospectus in
connection with the offer contained herein, and if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or any Underwriters. The Prospectus does not constitute an offer
to sell or a solicitation of an offer to buy the shares of common stock offered
hereby by anyone in any jurisdiction in which such offer or solicitation is not
qualified to do so, or to any person to whom it is unlawful to make such
solicitation or offer. Neither the delivery of this prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company since the date hereof or that the
information contained herein is correct as of any time subsequent to its date.
1,500,000 Shares
of Common Stock
Offering Price
$
Per Share
Rampart Capital Corporation
Until ______, 1999 (25 days from the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligations of the dealers to deliver a Prospectus
when acting as Underwriters and with respect to their unsold allotment or
subscriptions.
Prospectus
,1999
Redstone Securities, Inc.
(214) 692-3544
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Pursuant to Section 2.02-1 of the Texas Business Corporation Act, a
corporation may indemnify an individual made a party to a proceeding because the
individual is or was a director against liability incurred in his official
capacity with the corporation including expenses and attorneys fees.
Article VI of the Restated Articles of Incorporation provides as
follows:
"The Corporation shall indemnify any director or officer, or former
director or officer of the Corporation, or any person who may have served at its
request as a director or officer of another corporation of which this
Corporation owns shares of capital stock or of which it is a creditor to the
fullest extent permitted by the Texas Business Corporation act and as provided
in the By-laws of the Corporation."
Article VII of the by-laws provides as follows:
"Section 1. Indemnification.
The corporation shall indemnify its present or former directors and
officers, employees, agents and other persons to the fullest extent permissible
by, and in accordance with, the procedures contained in Article 2.02 of the
Texas Business Corporation Act. Such indemnification shall not be deemed to be
exclusive of any other rights to which a director, officer, agent or other
person may be entitled, consistent with law, under any provision of the articles
of Incorporation or By-laws of the corporation, any general or specific action
of the board of directors, the terms of any contract, or as may be permitted or
required by law."
"Section 2. Insurance and Other Arrangements
"Pursuant to Section R of Article 2.02-1of the Texas Business
Corporation Act, the corporation may purchase and maintain insurance or another
arrangement on behalf of any person who is or was a director, officer, employee,
or agent or the corporation or who is or was serving at the request of the
corporation a a director, officer, partner, venturer, proprietor, trustee,
employee, agent or similar functionary of another foreign or domestic
corporation, partnership, jpin venture, sole proprietorship, trust, employee
benefit plan, or other enterprise, against any liability asserted against him or
her and incurred by him or her in such capacity or arising out of his or her
status as such person, whether or not the corporation would have the power to
indemnify him or her against that liability under article 2.02-1 of the Texas
Business Corporation Act." Item 25. Other Expenses of Issuance and Distribution
Estimated expenses in connection with the public offering by the Company of the
securities offered hereunder are as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission Filing Fee $5,088.75
NASD Filing Fee* 2,432.00
American Stock Exchange Application and Listing Fee 20,000.00
Accounting Fees and Expenses* 40,000.00
Legal Fees and Expenses 80,000.00
Printing* 40,000.00
Fees of Transfer Agent and Registrar* 5,000.00
Underwriters' Non-Accountable Expense Allowance 300,000.00
Miscellaneous* 27,479.25
---------
Total* $500,000.00
===========
- ----------------
* Estimated.
</TABLE>
Item 26. Recent Sales of Unregistered Securities
There were no transactions by the Registrant during the last three
years involving the sale of securities which were not registered under the
Securities Act:.
<PAGE>
<TABLE>
<CAPTION>
Item 27. Exhibits
<S> <C>
Exhibit No Item
Exhibit 1.1 Form of Underwriting Agreement.(3)
Exhibit 1.2 Form of Underwriters' Warrant Agreement.(3)
Exhibit 3.1 Restated Articles of Incorporation of the Registrant. (3)
Exhibit 3.2 Bylaws of the Registrant (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. (1)
Exhibit 21 Subsidiaries of the Registrant. (3)
Exhibit 23.1 Consent of Pannell Kerr Forster of Texas, P. C., Certified Public Accountants.(1)
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 (1)
--------------
(1) Filed herewith (2) To be filed by amendment (3) Previously filed.
</TABLE>
<PAGE>
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.
II-2
<PAGE>
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 June 30, 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>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Charles W. Janke Chairman of the Board June 30, 1999
- ------------------------
Charles W. Janke (Principal Executive Officer)
/s/ J. H. Carpenter President June 30, 1999
- --------------------
J. H. Carpenter Director
/s/ Charles W. Presley Vice President, Chief Financial June 30, 1999
- ----------------------
Charles W. Presley Officer, Treasurer
(Principal Financial Officer)
/s/ James J. Janke Director June 30, 1999
- ------------------
James J. Janke
/s/ James W. Christian Director June 30, 1999
- ----------------------
James W. Christian
</TABLE>
Agreement of Understanding Between Rampart
Properties Corporation and The New
Property Owner's Association of
Newport, Inc.
Presently. the New Property Owner's Association of Newport, Inc. (the "NPOAN) is
engaged in several litigation matters (the "NPOAN Claims") with the Chapter 7
Trustee (the "Trustee") appointed in Case No. 97-4083-H1-11 in The United States
Bankruptcy Court For the Southern District of Texas Houston Division ( the
"Court,), and in such matter, the Trustee has asserted various claims against
the NPOAN (the "Trustee Claims").
Rampart Properties Corporation (Rampart Properties Corporation or its transfer
and assigns, which are to be affiliates of Rampart Properties Corporation, shall
be hereinafter referred to as Rampart has entered into a Purchase and Sale
Agreement ( the "Purchase and Sale Agreement") with the, Trustee to purchase all
of the assets of the Estate free and clear of all liens, claims and encumbrances
in accordance with the Trustee's First Amended Liquidating Chapter 11 Plan (the
"Plan") The Trustee has also agreed to transfer to Rampart the Trustee Claims.
Until this date, the NPOAN has opposed the, Plan.
To induce the NPOAN to support the Plan, Rampart has agreed to, among other
things, settle and discharge the Trustee Claims.
To induce Rampart to consummate the purchase of the Estate with the Trustee,
NPOAN has agreed to among other things, settle and discharge the NPOAN Claims.
Now Therefore, for valuable consideration, the receipt and sufficiency of which
are hereby acknowledged Rampart and the NPOAN hereby agree as follows:
1. Each Rampart and the NPOAN agree to execute reasonable settlement documents
acceptable to each patty which mutually release, extinguish and discharge,
forever, each party from any and all past acts, obligations, ditties oi-
indebtedness in ;my way relating to the Trustee Claims or the NPOAN Claims as
applicable and which dismiss all on going litigation relating thereto, with
prejudice,
2. Rampart agrees to assign, set over and transfer all of its rights and
obligations relating to the collection of fixture property assessments and fees
for the entire Newport subdivision ("Newport") the plat of which is attached
hereto as Exhibit "A" (the Newport Plat"),which it has, if any, and the NPOAN
agrees to assume all obligations and duties arising on or after the effective
date of this agreement of Rampart and the previous developer in connection with
the security, improvement, maintenance, beautification and other matters
relating to the daily operation of the common areas of the subdivision. In this
regard, NPOAN agrees to operate and maintain Newport as a first class
subdivision in the suburban Houston, Texas market place. Without in any way
limiting the generality of the foregoing, NPOAN agrees to spend up to $150,000
as soon as is reasonably possible to improve, upgrade, maintain and bring into
good operating status and condition the following items:
<PAGE>
a. The pumps, fountains and lighting located within the ponds at the
main entrance to Newport.
b. The pumps, skimmers, docking and finish of the swimming pool located
adjacent the golf club house and the landscaping and fencing associated
therewith.
c. The surface and netting of the tennis courts located adjacent the
golf club house and the landscaping and fencing associated therewith.
d. The small service parking located adjacent to the c and c ("b, c and
d shall be collectively referred to herein as the "Swimming Recreation Area"),
e. Grading and where appropriate resurfacing of the easements containing
road access to the San Jacinto River and to Lake Houston.
3. Notwithstanding any provisions to the contrary in paragraph 2 above, Rampart
shall maintain its rights, privileges and authority to enforce the collection of
all delinquent assessments and fee assigned to Rampart by the Trustee under the
terms of the Plan including, without limitation, the rights and powers of
foreclosure,
4. The NPOAN shall amend its bylaws to provide that as long as Rampart owns more
then 50 lots or more then 15 acres within Newport, Rampart shall be allowed to
appoint one board member to the board of directors of the NPOAN.
5. Rampart agrees to transfer to the NPOAN fee title where applicable or
alternatively all of its rights, title or interest it may have, if any, in and
to the real property or real property rights as applicable, delineated on the
Newport Plat and generally described as follows:
a. The Swimming Recreation Area;
b. The areas described as restricted recreational reserves; c The
easement rights relating to road access to the river and lake;
d. Any rights relating to access to or control over the horse stables
and boat storage areas; and e. Permanent easement rights to the ponds
located at the main entrance.
6. NPOAN agrees to pay to Rampart $850,000 plus interest (hereon upon the
following terms and conditions:
a. NPOAN shall execute a promissory note payable to the order of
Rampart in the original principal amount of $850,000. The note shall bear
interest at 10% per annum and shall be payable monthly based upon a full
amortization over 120 months. The monthly payments will consist of 119 monthly
payments of $11,286 with the final payment equal to the remaining outstanding
principal balance plus accrued and unpaid interest due at that time.
<PAGE>
b. The note will be secured by a first lien deed of trust and purchase
money lien in and to all property and property rights transferred to
the NPOAN by Rampart as set forth in paragraph 5 above. In addition,
Rampart will be granted a collateral assignment of the NPOAN'S rights
to collect assessments from the Newport property owners.
7. In addition to the rights of Rampart to the existing delinquent accounts
referred to in paragraph 3, Rampart shall have the right to buy from the NPOAN
any and all past due claims which N'POAN may have against certain owners of
unimproved lots within Newport after the time NPOAN files a lien against their
property and prior to foreclosure. The purchase price shall be the amount of the
past due assessments. NPOAN agrees it will give Rampart written notice of its
intent to foreclose at least ten business days prior the initiation of such
proceedings. On any claims purchased by Rampart, NPOAN shall assign all rights
it may have in and to such claim to Rampart. Currently the NPOAN has assigned
several foreclosure matters to an attorney for collection on a contingency
basis. NPOAN agrees to assist Rampart in obtaining such matters from the
attorney and assigning such claims to Rampart. Rampart agrees to reimburse the
attorney a reasonable amount for his efforts to date.
8. Any lots or real property obtained by Rampart, now or in the future, shall
enjoy an indefinite waiver of fees and assessments of the NPOAN as long as such
lots or real property are owned by Rampart. Any builder to whom Rampart sells a
lot or lot shall have up to a 24 month deferral of fees and assessments of the
NPOAN. Such deferred fees or assessments shall be payable upon the sale of a lot
to a home buyer or a retail purchaser. Any retail purchaser shall be subject to
fees and assessments in accordance with the subdivision ordinances
9. The NPOAN agrees to allow users of the golf facilities, club house and other
facilities related thereto and their families access to the Swimming Recreation
Area for $1.00 per day per person.
10. Rampart and its officers and employees and each of their respective
immediate families, shall have unrestricted access to areas described in and of
paragraph 5 other than rights to the boat storage.
11. NPOAN agrees to join Rampart in a letter writing campaign, press releases
and other items announcing the resolution of existing litigation and a new
beginning for Newport. If requested by Rampart, the NPOAN will join Rampart with
the ongoing promotion of Newport upon terms reasonably satisfactory to both
parties.
12. By executing this agreement, each patty represents and warrants that it is
authorized to execute this document by all applicable laws and regulations and
that this document is enforceable against such party in accordance with the
terms hereof.
13. This document may be executed in any number of counterparts, each of which
shall be deemed an original but all of which shall be deemed one and the same
document. Facsimilie copies of a signature may be deemed an original for all
purposes,
14. Each Rampart and the NPOAN agree to execute whatever documents, instruments
and
agreements requested by the other party hereto which are reasonable necessary to
memorialiize and effectuate the terms and conditions of the parties set forth
herein.
15. 1-his agreement is contingent upon (i) settlement of the disputes betw6sh
the Trustee and the NPOAN regarding NPOAN's unsecured and administrative claims
and (ii) confirmation of the Plan.
16. Rampart and any successor builder or developer shall assign any all voting
rights they have in connection with the ownership of unimproved lots to the
NPOAN.
Executed this 21 st day of January, 1999.
New Property Owners Association of Newport Inc.
By: /s/ Darrell Guidry By: /s/ Jimmy R. Hembree
Name: Darrell Guidry Name: Jimmy R Hembree
By: /s/ Daniel J. Kasarzak By: /s/ Wilson B. Gravitt
Name Daniel J. Kasarzak Name Wilson B. Gravitt
Rampart Properties Corporation By: /s/ Shannon Spears
Shannon Spears
/s/ J. H. Carpenter Vice-President Director
J. H. Carpenter
President By: /s/ Erwin T. Walker
Erwin T. Walker, Director
Consent of Independent Public Accountants
We consent to the inclusion in this registration statement of Rampart Capital
Corporation on Form SB2 of our report dated January 29, 1999, except for Note 14
as to which the date is February 12, 1999, on our examinations of the financial
statements of Rampart Capital Corporation. We also consent to the reference to
our firm under the caption "Experts".
PANNELL KERR FORSTER OF TEXAS, P.C.
Houston, Texas
June 28, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0001074681
<NAME> RAMPART CAPITAL
<CURRENCY> U.S. DOLLARS
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997 DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-1-1998 JAN-1-1997 JAN-1-1999 JAN-1-1998
<PERIOD-END> DEC-31-1998 DEC-31-1997 MAR-31-1999 MAR-31-1998
<EXCHANGE-RATE> 1 1 1 1
<CASH> 583,629 21,514 260,176 52,359
<SECURITIES> 0 0 0 0
<RECEIVABLES> 525,000 0 1,414,375 28,738
<ALLOWANCES> 0 0 0 0
<INVENTORY> 4,659,222 5,755,074 5,166,096 4,831,623
<CURRENT-ASSETS> 0 0 0 0
<PP&E> 828,898 446,476 2,899,957 446,477
<DEPRECIATION> 60,493 45,100 72,107 47,926
<TOTAL-ASSETS> 7,011,708 6,245,871 9,894,287 5,375,498
<CURRENT-LIABILITIES> 0 0 0 0
<BONDS> 3,740,488 5,664,311 6,097,488 3,608,165
0 0 0 0
0 0 0 0
<COMMON> 22,500 22,500 22,500 22,500
<OTHER-SE> 2,506,284 431,829 3,179,869 1,398,884
<TOTAL-LIABILITY-AND-EQUITY> 7,011,708 6,245,871 9,894,287 5,375,498
<SALES> 6,099,296 2,555,363 1,328,197 2,570,076
<TOTAL-REVENUES> 6,843,785 2,935,283 1,616,083 2,717,139
<CGS> 2,319,364 1,118,956 396,431 1,047,616
<TOTAL-COSTS> 2,319,364 1,118,956 396,431 1,047,616
<OTHER-EXPENSES> 1,548,895 1,544,120 468,712 389,016
<LOSS-PROVISION> (77,662) 15,088 (3,550) (34,588)
<INTEREST-EXPENSE> 494,142 642,600 118,709 148,040
<INCOME-PRETAX> 2,559,046 (385,481) 635,781 1,167,055
<INCOME-TAX> 484,591 (325,020) (37,804) 200,000
<INCOME-CONTINUING> 2,074,455 (60,461) 673,585 967,055
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 2,074,455 (60,461) 673,585 967,055
<EPS-BASIC> 0.92 (0.03) 0.30 0.43
<EPS-DILUTED> 0.92 (0.03) 0.30 0.43
</TABLE>
