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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM - 10KSB
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 0R 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition from ___________ to _________
Commission File Number: 1-15277
Rampart Capital Corporation
(Name of Small Business Issuer in Its Charter)
TEXAS 76-0427502
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
700 LOUISIANA, SUITE 2510, HOUSTON, TEXAS 77002
(Address of Principal Executive Offices) (Zip Code)
713-223-4610
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
Common Stock, $.01 Par Value American Stock Exchange
Units (consisting of two shares of
Common Stock and one Redeemable
Common Stock Purchase Warrant) American Stock Exchange
Redeemable Common Stock Purchase Warrants American Stock Exchange
Securities registered under Section 12(g) of the Exchange Act: None
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the proceeding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes /X/ No / /
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. /X/
The issuer's revenues for its most recent fiscal year were $5,235,808.
The aggregate market value of voting and non-voting common equity held
by non-affiliates of the issuer on March 23, 2000, was approximately $2,831,000
(based upon the last sales price of $3.625 per share as reported on the American
Stock Exchange on such date). For purposes of this calculation, all executive
officers, directors and 5% beneficial owners of the issuer were deemed
affiliates. Such determination should not be deemed an admission by such
officers, directors and beneficial owners that they are, in fact, affiliates of
the issuer.
DOCUMENTS TO BE INCORPORATED BY REFERENCE
The issuer's Definitive Proxy Statement pertaining to its 2000 Annual
Meeting of Shareholders is incorporated herein by reference into Part III of
this report.
The number of shares of the issuer's common stock, $.01 par value,
outstanding as of March 23, 2000, was 3,031,026.
Transitional Small Business Disclosure Format (check one):
Yes / / No /X/
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RAMPART CAPITAL CORPORATION
For Year Ended December 31, 1999
TABLE OF CONTENTS
FORM 10-KSB
PART I
ITEM PAGE
1. Business.............................................................3
2. Description of Property..............................................5
3. Legal Proceedings....................................................8
4. Submission of Matters to a Vote of Security Holders..................8
PART II
5. Market for Common Equity and Related Stockholder Matters.............8
6. Management's Discussion and Analysis or Plan of Operation............8
7. Financial Statements................................................10
8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure............................................10
PART III
9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act ..................10
10. Executive Compensation..............................................10
11. Security Ownership of Certain Beneficial Owners and Management......10
12. Certain Relationships and Related Transactions......................11
PART IV
13. Exhibits, List and Reports on Form 8-K..............................11
14. Signatures..........................................................12
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PART I
ITEM 1. BUSINESS
Organization, Operations We are a specialty financial services company that
& Strategy was incorporated in Texas in 1994 and commenced
operations that same year. 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 debt and selling real estate for
profit; and
- providing short-term funding for real estate
projects.
We utilize nine full-time employees to manage our
core business, and utilize experienced independent
management companies to manage our operating
entities.
Industry & Competition; Our industry, commonly called the distressed asset
History of Operations 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,
banks 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.
We 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. We made these acquisitions 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 (i) paying loans with principal balances of
$2.4 million, (ii) claims with unknown status with
legal balances of approximately $34.0 million, and
(iii) foreclosed real estate with a tax assessed
value of approximately $189,000. The subsidiaries
acquired in the MCorp transaction had approximately
$55.8 million in net operating losses, or NOLs and
built-in-losses which we believe can be used to
offset future taxable income generated by the
acquired corporate entities, subject to certain
possible limitations.
On February 1, 1999, we acquired for approximately
$2.96 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, nine partially developed expansion holes, a
clubhouse, conference center, furniture, fixtures,
inventory, equipment, approximately $3.2 million in
delinquent property assessments, and property
assessment rights. Simultaneously, we sold the
property assessment rights and approximately 88 acres
of recreational reserves to the New Property Owners'
Association of Newport for an $850,000 note and other
consideration. The note requires payment of interest
only for the first year and monthly installments of
principal and interest at 10% per annum for nine
years.
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Investment in Discounted Our primary business is the acquisition of
Debt Portfolios & non-performing financial asset pools, primarily
Services commercial loans and other commercial obligations. We
purchase these pools 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.
We categorize these financial asset pools as
purchased asset pools. Initially, we classify the
assets in these pools as collections-in-progress.
Collections-in-progress are non-performing claims
that are in bankruptcy proceedings, litigation or
post-judgment collection status, and are being
actively worked for collection. As individual assets
are resolved, we reclassify them as paying loans or
foreclosed real estate. Paying loans primarily
represent previously non-performing claims that have
been resolved and are currently paying according to
the settlement agreement. We categorize real property
foreclosed against a claim as foreclosed real estate.
When we foreclose on assets that we wish to hold for
investment appreciation or commercial operation
purposes, we reclassify those assets to different
balance sheet classifications and remove them from
the purchased asset pools.
Debtors on paying loans must annually provide proof
of insurance and proof of payment of property taxes
to keep from defaulting on their loans. We insure
(using our forced coverage policy) all properties
from the date we post them for foreclosure through
the date of sale.
Investment in Real A portion of our business is managing real estate and
Estate and Other Assets other assets acquired through 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, we believe some
of our real estate properties have significant
potential for operating income or increased market
value. We hold and manage these properties for income
generation and future liquidation at optimum price
levels, and the earnings from these properties are
significant contributors to our current
profitability. We believe that the ultimate sale of
these properties will generate significant future
earnings. Only one asset has a cost basis greater
than ten percent of our total assets. The recently
acquired Newport Golf Club and Conference Center cost
$2.96 million consisting of $1.54 million of
allocated acquisition costs and $1.42 million in
capital improvements, and represents 24.7% of our
total assets.
Environmental Issues Although we do not intend to acquire real estate with
environmental problems, we may find that some real
estate we acquire through foreclosure, direct
purchase, or real estate collateralized by loans, may
have the risk of environmental problems. We try to
determine that the properties we foreclose or
purchase do not have significant environmental
problems before we acquire title to these properties.
Some of the real estate we have acquired had remedial
environmental problems, consisting primarily of
underground storage tanks and asbestos. When we
identify environmental issues, 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
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that had environmental issues. In the past, remedial
costs have not been significant and we attempt to
recover all environmental costs in our selling price.
Short-term Funding on A recent business activity of Rampart includes
Real Estate Projects short-term funding for selected real estate projects.
Our typical funding situation requires that:
- the developer identifies and brings to us a
potential real estate project;
- we purchase 100% fee ownership in the real
estate;
- the developer purchases the real estate from
us or arranges for sales to third parties,
subject to our approval;
- we assign the developer a net profit
interest in the real estate until the sale
to a third party, the default date, or the
developer purchases the real estate, as
compensation for the developer identifying
and managing the project; and
- the developer's net profit interest
decreases based on a negotiated timetable
and will be forfeited on a default date.
In 1998, we acquired two raw land projects at a cost
of $1,100,731. These projects had net profits
interests with developers. We capitalized $61,625 of
improvements on these properties during 1999. We have
sold a portion of the projects for development,
leaving $771,766 of investment real estate at
December 31, 1999. The net profits interest on one
parcel has expired and the developer's percentage
interest on the other parcel has declined to less
than 10%. The remainder of our investment real estate
is predominantly located in the Newport subdivision.
Employees We have a permanent staff of nine employees comprised
of three executive officers, an administrative
officer, three professional staff, and two clerical
employees. We may hire two additional clerical
employees during 2000. We have also established
a network of contract due diligence professionals and
field support personnel to perform fieldwork and
supplement our permanent staff when needed. We
believe our relations with our employees generally
are good.
Forward-Looking This annual report on Form 10-KSB contains
Statements "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. All statements other than
statements of historical facts included in this
report including, without limitation, statements
regarding our business strategy, plans, objectives,
expectations, intent, and beliefs of management for
future operations are forward-looking statements.
Such statements are based on certain assumptions and
analyses made by our management in light of their
experience and their perception of historical trends,
current conditions, expected future developments and
other factors they believe to be appropriate. The
forward-looking statements included in this report
are also subject to a number of material risks and
uncertainties. Important factors that could cause
actual results to differ materially from our
expectations are discussed under the captions "Item
1. Business," "Item 2. Description of Property," and
"Item 6. Management's Discussion and Analysis or Plan
of Operations." Forward-looking statements are not
guarantees of future performance and actual results,
developments and business decisions may differ from
those contemplated by such forward-looking
statements.
ITEM 2. DESCRIPTION OF PROPERTY
Office Facilities Our corporate offices are located in the Bank of
America building (previously the NationsBank
building), 700 Louisiana, Suite 2510, Houston, Texas,
77002. We have about 2,000 square feet of office
space. Of this space, a major law firm provides about
1,200 square feet to Rampart. We also have use of the
law firm's meeting rooms, law library, reception
facilities, and other facilities within the firm on
an as needed basis. We estimate the fair market value
of the provided rental space and facilities to be
approximately $1,200 per month. We have not
recognized the value of these facilities as either
income or expense. The law firm performs
approximately 60% of our legal work and, as an
accommodation, provides the space and facilities
without charge. We lease, for approximately $1,700
per month, the balance of our space on a lease that
expires on June 30, 2000. We are currently evaluating
alternative office arrangements.
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Discounted Debt We currently own paying loans with principal balances
Portfolios & Services totaling $2,866,000 as of December 31, 1999. These
loans have a cost basis of $749,000 or 26.1 % of
outstanding principal balances at December 31, 1999.
The majority of these notes are secured by real
estate and will mature within three to five years.
Additionally, we have non-performing debt, secured
and unsecured, with a cost basis of $998,000 as of
December 31, 1999. These assets are in various stages
of resolution, including litigation and bankruptcy.
We cannot be certain that any recoveries will be
realized on these assets, but we estimate a minimum
recovery of approximately $2.58 million over the next
three years.
We anticipate realizing approximately $2.63 million
on real estate (cost basis $700,000) in our
discounted debt portfolios acquired as part of our
collections process on non-performing debt.
Real Estate Some of our more significant real estate properties
are summarized below:
- CLASSIFIED AS COMMERCIAL REAL ESTATE:
) NEWPORT GOLF CLUB AND CONFERENCE CENTER,
HOUSTON, TEXAS -
- 18 hole championship golf course;
- 9 expansion holes partially
completed;
- club house and convention center
(32,000 square feet combined area);
- owned in fee simple with no
encumbrances;
- allocated acquisition cost of $1.54
million (acquired February 1,
1999);
- $1.42 million in capital
improvements completed as of
December 31, 1999, with
approximately $500,000 additional
capital expenditures planned;
- held for market appreciation,
earnings and future sale;
- competitive advantage to other area
facilities based on amenities
available;
- tax basis of property is $2.96
million - land of $1.22 million and
improvements of $1.74 million;
- improvements are predominantly
depreciated over 40 years using the
Modified Cost Recovery System for
tax purposes;
- annual property taxes of $130,000
based on a rate of $3.55 per
hundred dollars of tax assessed
value.
) RETAIL CENTER, DALLAS, TEXAS -
- 40,000 square foot retail center,
70% occupied;
- owned in fee simple with no
encumbrances;
- $275,000 annual net cash flow;
- substantial upside potential on
rents and market value;
- financial cost basis of $390,000,
accumulated depreciation of
$22,000;
- held for market appreciation,
earnings and future sale;
- tax cost basis of $109,000 - land
of $43,000 land and improvements of
$66,000;
- improvements are predominantly
depreciated over 40 years using the
Modified Cost Recovery System for
tax purposes;
- annual property taxes of $15,000
based on a rate of $2.58 per
hundred dollars of tax assessed
value;
- two tenants, a national chain drug
store and a pawn shop occupy more
than 10% of the available space;
- net effective rental of $8.13 per
square foot.
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Schedule of lease expirations:
<TABLE>
<CAPTION>
YEAR 2000 2001 2002 2004
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
No. Tenants 1 5 3 2
Square Footage 7,103 9,462 9,216 2,702
Rents $28,128 $147,760 $55,975 $21,975
Rental % 10.6% 56.1% 24.1% 9.2%
</TABLE>
) RETAIL CENTER, SAN ANTONIO, TEXAS -
- 15,000 square foot retail center
prime location, 100% occupied;
- owned in fee simple with no
encumbrances;
- $113,000 annual net cash flow;
- financial cost basis of $360,000,
accumulated depreciation of $8,800;
- held for market appreciation,
earnings and future sale;
- tax cost basis of $0;
- annual property taxes of $18,400
based on a rate of $2.78 per
hundred dollars of tax assessed
value;
- two physicians and one music
retailer occupy more than 10% of
the available space;
- net effective rental of $8.45 per
square foot.
Schedule of lease expirations:
<TABLE>
<CAPTION>
YEAR 2000 2001
---- ---- ----
<S> <C> <C> <C>
No. Tenants 0 3
Square Footage 0 15,000
Rents 0 $126,792
Rental % 0% 100%
</TABLE>
- CLASSIFIED AS PURCHASED ASSET
POOLS:
) 12 ACRES ON SOUTH PADRE ISLAND, TEXAS -
- undeveloped commercial waterfront
property;
- owned in fee simple with no
encumbrances;
- allocated cost basis on this
property is zero;
- currently offered for sale,
- annual property taxes of $4,300
based on a rate of $2.28 per
hundred dollars of tax assessed
value.
) UNDERGROUND STORAGE FACILITY, MONTGOMERY
COUNTY, TEXAS -
- 40,000 square foot underground
storage facility;
- 37 acres of land;
- owned in fee simple with no
encumbrances;
- cost basis of $75,000, no
depreciation of improvements;
- currently offered for sale;
- annual property taxes of $4,600
based on a rate of $2.36 per
hundred dollars tax assessed value.
- CLASSIFIED AS INVESTMENT REAL ESTATE:
) None of our remaining investment real estate
has been owned long enough for significant
appreciation over original costs.
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We classify improved real estate held for
appreciation and the production of income as
Commercial real estate. Revenues from
Commercial real estate are comprised of
rental income and golf and event related
income. When a commercial property is sold,
the sale amount is recorded as real estate
sales. Investment real estate is comprised
of unimproved real estate purchased and held
for sale or appreciation and unimproved real
estate reclassified from purchased asset
pools and held for appreciation and rental
income. Revenues associated with investment
real estate are rental income or real estate
sales. Purchased asset pool real estate is
improved or unimproved real estate acquired
by foreclosure and available for immediate
sale. The sale of foreclosed real estate
classified as purchased asset pools is
reflected in the net gains on collections on
asset pools.
We insure our real estate properties for
property damage based on replacement value
and for liability coverage up to $10
million. Management believes these coverage
limits adequately insure our properties.
ITEM 3. LEGAL PROCEEDINGS
We are not a party in any lawsuit, pending or threatened, which
management believes would have a material effect on our financial position,
liquidity or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of our fiscal year ended December 31, 1999.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our securities, consisting of a unit comprised of two shares of common
stock and a warrant to purchase one share of common stock, commenced trading on
September 21,1999 on the American Stock Exchange under the symbol RAC. During
the units 30 trading days, the high closing sales price was $19.25 and the low
closing sales price was $17.875. On October 22, 1999 the units split and the
common stock traded under the symbol RAC and the warrants traded under the
symbol RAC.W. For the period from October 22, 1999, through December 31, 1999,
the high closing sales price was $8.50 for the common stock and $1.50 for the
warrants and the low closing sales price was $3.813 for the common stock and
$.438 for the warrants.
As of March 27, 2000 there were approximately 8 holders of record of
our common stock and 4 holders of record of our warrants.
The Company has never paid any cash dividends and anticipates that for
the foreseeable future all earnings, if any, will be retained to finance growth
and to meet working capital requirements.
With the net proceeds received from the initial public offering, we retired
$5.060 million in debt, acquired $163,000 in additional real estate and
discounted debt portfolios, and invested the remaining $979,000 in short-term
interest bearing investments
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
Revenues increased from $4.602 million in 1998 to $5.236 million during 1999.
The $634,000 increase in revenues is comprised of an increase in investment real
estate sales of $1.320 million, an increase in commercial real estate revenues
of $685,000, in project financing revenues of $158,000, and in unsegmented
revenue of $60,000, offset by a $1.589 million decline in net gain on
collections on asset pools. The increase in sales in investment real estate is
due to the marketing of residential lots acquired in the February 1999
acquisition of the Newport assets. Net gain on collections on asset pools
decreased from $4.014 million in 1998 to $2.425 million in 1999. The decrease in
net gain on collections on asset pools was due to a redirection of management
resources to the acquisition, marketing and redevelopment of the Newport assets
and completion of the initial public offering.
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General and administrative expenses ("G&A") increased $959,000 from $1.549
million in 1998 to $2.508 million in 1999. The significant increase in G&A is
predominantly due to operating expenses of $956,000 related to the Newport Golf
Course and Conference Center acquired in February 1999.
Cost of commercial real estate of approximately $462,000 is primarily due to the
sales of residential lots acquired in the February acquisition of Newport
assets.
Operating costs of $126,000 incurred during 1999 relate to the costs of
merchandise and food sold through the operation of the Newport Golf Course and
Conference Center that was purchased during February 1999. Operating costs are
expected to significantly increase in the future due to expected increases in
sales because of increased marketing and full year operations.
Interest expense decreased from $494,000 in 1998 to $377,000 in 1999. The
decrease in interest expense during 1999 is primarily due to a reduction in the
weighted average debt outstanding for the year resulting from the retirement of
debt with proceeds from the offering, further reduced by the capitalization of
approximately $80,000 of interest attributable to the renovation and development
of the Newport Golf Course and Conference Center.
Net income before income taxes decreased from $2.559 million in 1998 to $1.763
million in 1999. The decrease is comprised of an increase in earnings of
$819,000 on investment real estate sales and a $139,000 increase in earnings in
project financing, offset by declines in earnings of $520,000 from commercial
real estate and $1.234 million from net gain on collections on asset pools.
Operating expenses at the Newport Golf Course and Conference Center exceeded
revenues by $586,000 due to the golf course and dining operations being closed
from May 1999 until early October 1999, and with the conference center being
closed from May 1999 to the end of the year for renovations. Increased earnings
of $66,000 on other commercial properties reduced the overall loss on commercial
real estate to $520,000. The decrease in earnings from net gains on collections
on pooled assets was due to a redirection of management resources to the
acquisition, marketing and redevelopment of the Newport assets and completion of
the initial public offering. The potential profitability of the Newport project,
as a whole, is evidenced by the profitability in the current year from
residential lot sales.
Income tax expense (benefit) was approximately $485,000 in 1998 compared to
approximately $(163,000) in 1999. We have available a significant net operating
loss carryforward which was primarily generated from acquisition of certain
corporate subsidiaries and assets of MCorp Trusts. Due to the availability of
net operating loss carry forwards and other net deferred tax assets, we offset
our taxable income during 1999 and adjusted its valuation allowance accordingly.
LIQUIDITY AND CAPITAL RESOURCES
In September 1999, we completed our initial public offering of 400,000 units,
generating proceeds of $6.202 million, net of offering expenses of approximately
$1.398 million. Each unit consisted of two shares of common stock and one
redeemable common stock purchase warrant. The shares and the warrants included
in the units automatically separated 30 days following the close of the offering
and became separately tradable. With the net proceeds received from the initial
public offering, we retired $5.060 million in debt, acquired $163,000 in
additional real estate and discounted debt portfolios, and invested the
remaining $979,000 in short-term interest bearing investments.
We had cash and cash equivalents of $2.742 million at December 31, 1999 compared
to approximately $584,000 at December 31, 1998.
During 1999, we continued to invest a substantial portion of our cashflow in
various projects, most notably the Newport acquisition in which we expended
approximately $4.38 million of which $1.42 million represented the cost of
renovation and development. Cash flow from financing activities was $2.957
million in 1999 which consisting of net proceeds received from the initial
public offering offset by the retirement of the majority of our debt as
discussed above.
Due to the capital-intensive nature of our business, we have experienced, and
expect to continue to experience substantial working capital needs. We believe
that cash flows from operations and future borrowings available under our
revolving credit facility will be sufficient to fund our capital expenditures
and working capital requirements as they come due.
REVOLVING CREDIT FACILITY -On March 17, 2000, we received a commitment to renew
our $5,000,000 revolving promissory note maturing on December 31, 2000. This
revolving credit facility is secured by notes receivable and real estate
comprising the purchased asset pools, the commercial and investment real estate,
the notes receivable from project financing, and equipment. Principal is payable
at maturity with interest payable monthly at the bank's prime rate plus 1.0% per
annum (8.8% and 9.25% as of December 31, 1998 and 1999, respectively). During
1999, we repaid the outstanding balance of $3.660 million and accrued interest
with proceeds from our initial public offering. We have not subsequently
borrowed funds on the note. Management is negotiating with this bank and other
financial institutions to increase the amount of credit facilities available.
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The Revolving Credit Facility provides for certain financial covenants. Tangible
net worth is equity reduced by the book value of intangible assets. The
"tangible net worth covenant" requires that our tangible net worth be at least
$9.0 million. The "total liabilities to tangible net worth ratio covenant"
requires that we maintain a ratio of liabilities to tangible net worth not
exceeding 1.25:1.00. At December 31, 1999, we were in compliance with the above
covenants.
Interest paid during 1998 and 1999 on all of our debt instruments, approximated
$449,000 and $425,000, respectively, including $90,000 and $115,000 paid to
related parties during 1998 and 1999, respectively. Of the amounts paid to
related parties during 1998 and 1999, $84,000 and $22,000 respectively, were to
a shareholder for the pledge of the shareholder's personal collateral against
our notes payable to the bank. The shareholder's personal collateral was
released as collateral when the loan was repaid.
YEAR 2000
We completed our assessment of the year 2000 processing issues of internal
technology systems, considering our current financial and accounting, computer
systems and software. We experienced no Year 2000 problems either internally or
as related to third parties.
ACCOUNTING PRONOUNCEMENTS
In November 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133 - "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES," ("SFAS
No. 133"). SFAS No. 133 establishes 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. Depending on the
intended use of the derivatives, changes in its fair value will be reported in
the period of change as either a component of earnings or a component of other
comprehensive income.
In June 1999, the FASB issued SFAS No. 137, "ACCOUNTING FOR DERIVATIVES
INSTRUMENTS AND HEDGING ACTIVITIES - DEFERRAL OF THE EFFECTIVE DATE OF FASB
STATEMENT NO. 133," ("SFAS No. 137"). SFAS No. 137 delays the effective date of
implementation of SFAS No. 133 for one year making SFAS No. 133 effective for
all fiscal quarters of all fiscal years beginning after June 15, 2000.
Retroactive application to periods prior to adoption is not allowed. We have not
quantified the impact of adoption on our consolidated financial statements or
the date we intend to adopt FASB 133.
ITEM 7. FINANCIAL STATEMENTS
See page F-1 for the Index to Consolidated Financial Statements.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTER AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
The information required in response to this Item 9 is incorporated by
reference to our Definitive Proxy Statement to be filed with the Securities and
Exchange Commission not later than 120 days after the end of the fiscal year
covered by this report.
ITEM 10. EXECUTIVE COMPENSATION
The information required in response to this Item 10 is incorporated by
reference to our Definitive Proxy Statement to be filed with the Securities and
Exchange Commission not later than 120 days after the end of the fiscal year
covered by this report.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required in response to this Item 11 is incorporated by
reference to our Definitive Proxy Statement to be filed with the Securities and
Exchange Commission not later than 120 days after the end of the fiscal year
covered by this report.
10
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in response to this Item 12 is incorporated by
reference to our Definitive Proxy Statement to be filed with the Securities and
Exchange Commission not later than 120 days after the end of the fiscal year
covered by this report.
PART IV
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
EXHIBITS
See "Index of Exhibits" after signature page below which lists the
documents filed as exhibits herewith.
REPORTS ON FORM 8-K
We did not file any reports on Form 8-K during the last quarter of the
period covered by this report.
11
<PAGE>
RAMPART CAPITAL CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Pannell Kerr Forster of Texas, P.C.,
Independent Public Accountants...............................................F-2
Consolidated Balance Sheets as of December 31, 1998 and 1999.................F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1998 and 1999...................................................F-4
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1998 and 1999...................................................F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998 and 1999...................................................F-6
Notes to Consolidated Financial Statements...................................F-7
F-1
<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 1999,
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 1999, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
Houston, Texas
February 25, 2000 /s/ PANNELL KERR FORSTER OF TEXAS, P.C.
F-2
<PAGE>
RAMPART CAPITAL CORPORATION
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1998 1999
-------------- --------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 583,629 $ 2,741,787
Purchased asset pools, net 3,826,963 2,447,194
Commercial real estate, net 732,156 3,657,423
Investment real estate 1,100,731 1,405,889
Notes receivable - 850,000
Notes receivable from related parties 533,765 460,754
Property and equipment, net 36,249 371,493
Other assets 198,215 63,162
-------------- --------------
Total assets $ 7,011,708 $ 11,997,702
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $ 3,740,488 $ 580,173
Accounts payable and accrued expenses 304,436 481,563
Deferred tax liability 438,000 279,000
-------------- --------------
Total liabilities 4,482,924 1,340,736
-------------- --------------
Commitments and contingencies
Stockholders' equity
Preferred stock, $.01 par value, 10,000,000 shares authorized;
none issued or outstanding at December 31, 1998 and 1999 - -
Common stock, $.01 par value; 10,000,000 shares authorized;
2,250,000 and 3,050,000 shares issued and outstanding
at December 31, 1998 and 1999, respectively 22,500 30,500
Additional paid in capital - 6,194,255
Retained earnings 2,506,284 4,432,211
-------------- --------------
Total stockholders' equity 2,528,784 10,656,966
-------------- --------------
Total liabilities and stockholders' equity $ 7,011,708 $ 11,997,702
-------------- --------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
RAMPART CAPITAL CORPORATION
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1998 1999
--------------- --------------
<S> <C> <C>
Net gain on collections on asset pools $ 4,013,607 $ 2,425,022
Investment real estate income 138,833 1,458,720
Commercial real estate income 449,643 1,134,611
Interest income - 178,486
Other income - 38,969
--------------- --------------
Total revenue 4,602,083 5,235,808
-------------- --------------
General and administrative expenses 1,548,895 2,507,872
Cost of investment real estate sales - 462,403
Operating costs - 125,981
Interest expense 494,142 376,749
-------------- --------------
Income from operations before income tax expense (benefit) 2,559,046 1,762,803
Income tax expense (benefit) 484,591 (163,124)
-------------- --------------
Net income $ 2,074,455 $ 1,925,927
-------------- --------------
Basic earnings per common share $ 0.92 $ 0.78
-------------- --------------
Diluted earnings per common share $ 0.92 $ 0.78
-------------- --------------
Basic weighted average number of common shares outstanding 2,250,000 2,471,370
-------------- --------------
Diluted weighted average number of common shares outstanding 2,250,000 2,471,370
-------------- --------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
RAMPART CAPITAL CORPORATION
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Common Additional
-------------------------------- Paid in Retained
Shares Amount Capital Earnings Total
------------ ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1998 2,250,000 $ 22,500 $ - $ 431,829 $ 454,329
Net income - - - 2,074,455 2,074,455
------------ ----------- ------------- ------------ -------------
Balance, December 31, 1998 2,250,000 22,500 - 2,506,284 2,528,784
Public stock offering, net of
offering costs of $1,400,000 800,000 8,000 6,194,255 - 6,202,255
Net income - - - 1,925,927 1,925,927
------------ ----------- ------------- ------------- -------------
Balance, December 31, 1999 3,050,000 $ 30,500 $ 6,194,255 $ 4,432,211 $ 10,656,966
------------ -------- ------------- ------------ -------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
RAMPART CAPITAL CORPORATION
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1998 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,074,455 $ 1,925,927
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation 15,394 66,430
Accrued interest income -- (24,054)
Asset pool costs allocated against net gain on collections 1,525,892 1,458,363
Change in loan loss reserve (77,662) (24,941)
Cost of real estate sold -- 462,403
Other costs capitalized (125,732) (53,651)
Changes in operating assets and liabilities
Other assets (130,308) 135,053
Accounts payable and accrued expenses 177,205 177,127
Deferred tax liability 438,000 (159,000)
----------- -----------
Net cash provided by operating activities 3,897,244 3,963,657
----------- -----------
Cash flows from investing activities
Purchase of commercial real estate -- (2,870,627)
Proceeds from notes receivable issued to related parties -- 97,065
Notes receivable issued to related party (8,765)
Purchase of investment real estate (875,745) (767,561)
Purchase of assessments rights (850,000)
Purchase of property and equipment (22,423) (371,316)
Purchase of asset pools (504,373) --
----------- -----------
Net cash used by investing activities (1,411,306) (4,762,439)
----------- -----------
Cash flows from financing activities
Proceeds from notes payable issued to related parties -- 1,400,000
Payments on notes payable to related parties (331,147) (1,400,000)
Proceeds from notes payable 1,664,334 2,834,105
Payments on notes payable (3,257,010) (6,079,420)
Net proceeds from the issuance of common stock -- 6,202,255
----------- -----------
Net cash provided (used) by financing activities (1,923,823) 2,956,940
----------- -----------
Net increase in cash 562,115 2,158,158
Cash and cash equivalents, beginning of year 21,514 583,629
----------- -----------
Cash and cash equivalents, end of year $ 583,629 $ 2,741,787
----------- -----------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
RAMPART CAPITAL CORPORATION
Notes to Consolidated Financial Statements
December 31, 1999
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
DESCRIPTION OF BUSINESS
Rampart Capital Corporation, a Texas Corporation, (the "Company"),
established in March 1994, is a specialized financial services company
that acquires, manages, services and realizes income from collection or
sale of portfolios of undervalued financial assets, primarily
non-performing commercial debt and other forms of legal obligations
(purchased asset pools). A significant portion of the debts are secured
by real estate or other assets. The purchased asset pools acquired by
the Company may also include real estate, or the Company may acquire
real estate as the result of foreclosing on the collateral underlying
an acquired debt. The Company generally seeks to immediately sell
foreclosed real estate, but in some instances may elect to hold a
property for appreciation and/or the production of income. The Company
purchases these asset pools at substantial discounts from their
outstanding legal principal amounts from financial institutions,
regulatory agencies and bankruptcy courts. Purchased asset pools are
primarily acquired by public sealed bid sales of portfolios of loans,
by sealed bid sales limited to a small number of invited participants
and by negotiated transactions on behalf of the Company. The Company
also provides short-term funding for real estate projects.
Through the acquisition of various assets, the Company currently holds
three significant properties which generate operating revenue for the
Company. During 1999, the Company acquired the Newport Golf Club and
Conference Center which the Company currently manages as an operating
component of their business. The Company also owns two retail centers
which were acquired for the purpose of generating rental income.
INITIAL PUBLIC OFFERING
In September 1999, the Company completed its initial public offering
(the "Offering") of 400,000 units, generating proceeds of $6,202,255,
net of offering expenses of approximately $1,400,000 (including
approximately $75,000 of offering expenses prepaid during 1998). Each
unit is comprised of two shares of common stock and one redeemable
common stock purchase warrant. The shares and the warrants included in
the units automatically separated 30 days following the close of the
offering and became separately tradable. The warrants included in the
units became exercisable 30 days following the close of the offering
and provided for the purchase of one share of common stock at an
exercise price of $10.64 per share. These warrants expire in March
2001, but the Company reserves the option to extend the exercise period
up to an additional 18 months. These warrants are subject to redemption
by the Company for $0.05 per warrant at any time on 30 days prior
written notice if the closing price of the common stock is at least
$14.25 for ten consecutive trading days.
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 in consolidation.
F-7
<PAGE>
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
PURCHASED ASSET POOLS
Purchased asset pools consist of pools of assets, which, when
purchased, are comprised of debts or other legal obligations which are
not performing pursuant to the contractual terms of the underlying
agreements (collectively "debt assets"), and in some cases incidental
real estate. Each purchased asset pool represents assets purchased by
the Company as a pool in a single transaction. The Company acquires the
pools at substantial discounts from the outstanding legal balances
under the loan or debt agreements.
At the acquisition date, the aggregate cost of a purchased asset pool
is allocated to individual debt and real estate assets comprising the
asset pool at the time of purchase on the basis of management's best
estimate of relative fair values of the individual debt and real estate
assets within the asset pool. However, for financial reporting
purposes, each asset pool, rather than the individual debt and real
estate assets within the asset pool, is treated as the asset. The
individual debt and real estate assets comprising an asset pool remain
within that asset pool, except real estate assets may be removed from
the asset pool and reclassified as commercial real estate (developed
properties) or investment real estate (unimproved properties) if the
Company determines to hold the real estate for appreciation and/or the
production of income. Additionally, income and expenses relating to the
individual debt and real estate assets comprising an asset pool is
recognized, as described below, on the basis of the asset pool as a
single asset, except that the recoverability of the Company's
investments in the assets comprising the purchased asset pools is
assessed on the basis of individual assets within the asset pool.
For the purposes of assessing the recoverability of the Company's
investment and to provide information on the progress of resolving and
recovering on the individual debt and real estate assets comprising an
asset pool, the Company classifies the assets within an asset pool as
(i) "Collections-in-Progress", (ii) "Paying Loans", or (iii)
"Foreclosed Real Estate". Initially all debt assets acquired in the
purchase of an asset pool are classified as Collections-in-Progress.
Collections-in-Progress represents non-performing debt assets being
actively evaluated for resolution, and debts or judgements that are in
bankruptcy proceedings, litigation, or post-judgement collection
status. Those debt assets that are resolved by the debtor (i) resuming
the payments required under the original agreement, or (ii) executing
with the Company a settlement agreement which involves payments to the
Company over time, are at that time reclassified as Paying Loans within
the asset pool. In those instances where the Company forecloses on the
real estate securing either a Collection-in-Progress or a Paying Loan,
the asset is reclassified as Foreclosed Real Estate. Additionally, any
real estate acquired with the initial purchase of an asset pool is
classified as Foreclosed Real Estate. Foreclosed Real Estate is held by
the Company for immediate sale (see Note 3).
The net gain on collections on asset pools represents the excess of any
cash proceeds received over the allocable portion of the cost of the
related asset pool. Cash proceeds may be a settlement payment, proceeds
from the sale of an asset, or a principal or interest payment under the
terms of a debt agreement. No interest income or any other yield
component of revenue is recognized separately on any debt asset in an
asset pool. Gains from collections on asset pools are recognized as
collections are received.
F-8
<PAGE>
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
PURCHASED ASSET POOLS (CONTINUED)
In computing the gains on collections from asset pools, the aggregate
cost of each asset pool is allocated to (recovered against) the
collections on that asset pool. The cost allocation (recovery) is based
on the previously unrecovered cost of the asset pool and the
relationship of the collection income recognized in the period to the
aggregate of those collections and the estimated future collections for
the assets remaining in that asset pool. The relationship of
collections to the amount of asset pool costs recovered against such
collections for an individual asset pool may vary from period to period
as the result of (i) changes in the estimates of future collections,
and (ii) impairment allowances previously recorded as described below.
The Company continually assesses the recoverability of its investments
in the assets comprising the asset pools by evaluating the
recoverability of the remaining balance of the investment allocated to
each individual debt or real estate asset comprising an asset pool.
Consistent with the requirements of Statement of Financial Accounting
Standards ("SFAS") No. 114, "ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF
A LOAN," ("SFAS No. 114"), the debt assets within the asset pool are
assessed based on the comparison of the investment allocated to the
debt asset, net of a pro-rata portion of the asset pool cost already
recovered from collections, to (i) management's estimate of the present
value of the future cash flows from the debt asset, or, (ii) the fair
value of the underlying collateral in the case of a
Collection-in-Progress debt asset that management estimated will be
collected through foreclosure. For Paying Loans the estimated future
cash flows are discounted to present value using the interest rate
implicit in the difference between the investment in the debt asset and
the cash flows to the Company required under the debt agreement. For
Collections-in-Progress debt assets the estimated future cash flows are
discounted to a present value using the interest rate implicit in the
difference between the investment allocated to the debt asset and
management's initial estimate of the cash flows to be recovered made at
the time the asset pool was purchased. Where such comparisons indicate
an excess of the investment over the present value of cash flows or
fair value, an impairment allowance (loan loss allowance) is recorded
by a charge to operations in the form of a decrease in that period's
gains on collections from asset pools (see Note 3).
Foreclosed Real Estate is assessed on the basis of a comparison of the
investment allocated to the real estate asset, net of a pro-rata
portion of the asset pool cost already recovered from collections, to
management's estimate of the fair value of the real estate, less
estimated costs to sell. Where such comparisons indicate an excess of
the investment over the fair value, an impairment allowance is recorded
by a charge to operations in the form of an increase in that period's
asset pool cost allocation. Through December 31, 1999, the Company has
not been required to record an impairment allowance on Foreclosed Real
Estate.
F-9
<PAGE>
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
PURCHASED ASSET POOLS (CONTINUED)
The Company's purchased asset pools are free of beneficial interests
by, and liabilities of, the transferor of the pool assets. Accordingly,
the provisions of SFAS No. 125, "ACCOUNTING FOR TRANSFERS AND SERVICING
OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES," do not
presently impact the Company's accounting for purchased asset pools.
COMMERCIAL REAL ESTATE
As of March 31, 1999, the Company changed the caption for this asset
classification from "Commercial rental property" to "Commercial real
estate" due to the acquisition during the first quarter of 1999 of real
estate which produces operating revenue as opposed to rental revenue
(see Note 2). Rents collected on commercial rental properties are
recognized as earned. Expenses of operating commercial properties are
charged to operations as incurred. Sales of commercial real estate are
recorded using the accrual method of accounting for sales of real
estate, assuming the conditions for recognition are met. The properties
carrying value is depreciated over its estimated useful life.
In the event a commercial real estate's carrying value exceeds the sum
of the undiscounted future cash flows from the asset, an impairment
allowance is recorded to reduce its carrying amount to the fair value
of the property.
INVESTMENT REAL ESTATE
The Company's investment real estate portfolio is comprised of
unimproved real estate transferred from purchased asset pools, acquired
for appreciation or income, or unimproved real estate acquired for the
purpose of short-term funding of real estate projects. The Company
provides short-term funding by acquiring an undeveloped property which
a developer has identified as having development potential. The Company
acquires a 100% fee ownership in the property and compensates the
developer with a profit interest in the project for identifying the
property and managing the sale or development of the project. Real
estate properties are not acquired from developers who have an existing
interest in the property. Revenues, net of any developer's profit
interest, and associated costs are recognized at the time of sale by
the Company assuming the criteria for sales recognition are met. The
Company does not retain any interest in the real estate upon its sale.
In the event an investment real estate asset's carrying value exceeds
its fair value less estimated costs to sell, an impairment allowance is
recorded to reduce its carrying amount to its fair value less estimated
costs to sell.
F-10
<PAGE>
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
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 real estate 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.
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"ACCOUNTING FOR INCOME TAXES," ("SFAS No. 109"). This statement
requires the use of an asset and liability approach for financial
accounting and reporting purposes and also requires deferred tax
balances to be adjusted to reflect the tax rates in effect when those
amounts are expected to be payable or refundable.
Deferred income taxes are provided for differences in timing in the
basis of assets and liabilities for financial reporting and income tax
purposes. Basis differences result primarily from the difference
between the method used to recognize income and allocable costs related
to asset pools for financial reporting purposes, as described above,
and the use of the cost recovery method for income tax purposes.
STATEMENTS OF CASH FLOWS
The consolidated statements of cash flows are presented using the
indirect method and considers all highly liquid investments with
original maturities of three months or less to be cash equivalents.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation in accordance with
SFAS No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION," ("SFAS No.
123"). Under SFAS No. 123, the Company is permitted to either record
expenses for stock options and other employee compensation plans based
on their fair value at the date of grant or to continue to apply its
current accounting policy under Accounting Principles Board Opinion No.
25 ("APB No. 25") and recognize compensation expense, if any, based on
the intrinsic value of the equity instrument at the measurement date.
Currently the Company has no common stock options outstanding thus
there has been no material impact on the financial statements of the
Company resulting from SFAS No. 123.
F-11
<PAGE>
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
EARNINGS PER SHARE
The Company accounts for its earnings per share ("EPS") in accordance
with SFAS No. 128, "EARNINGS PER SHARE," ("SFAS No. 128") which
establishes the requirements for presenting EPS. SFAS No. 128 requires
the presentation of "basic" and "diluted" EPS on the face of the income
statement. Basic earnings per common share amounts are calculated using
the average number of common shares outstanding during each period.
Diluted earnings per share assumes the exercise of all stock options
having exercise prices less than the average market price of the common
stock using the treasury stock method.
USE OF 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 of those assets for possible loss
impairment. Actual results could differ materially from those
estimates.
CONCENTRATION OF CREDIT RISK
The Company maintains its cash with major U.S. banks and, from time to
time, these amounts exceed the Federally insured limit of $100,000. The
terms of these deposits are on demand to minimize risk. The Company has
not incurred losses related to these deposits.
The majority of the debt assets included in the asset pools are
concentrated in Texas and substantially all of the real estate is
located in Texas.
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS,"
requires that the Company disclose estimated fair values of its
financial instruments. Fair value estimates, methods and assumptions
are set forth below.
The carrying amount of cash, accounts payable and accrued liabilities
approximates fair value at December 31, 1998 and 1999 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 and 1999.
Purchased asset pools, which are comprised primarily of financial
instruments, are carried at unrecovered costs, which includes any
required impairment allowance. The net carrying value of the purchased
asset pools is $3,558,491 and $2,447,194 as of December 31, 1998 and
1999, respectively. The estimated fair value of the purchased asset
pools is $12,379,000
F-12
<PAGE>
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
and $8,031,000 as of December 31, 1998 and 1999, respectively. The
estimated fair value of the asset pools is based on management's
estimates of the future cash flows to be derived from the asset pools,
discounted to a present value using interest rates that reflect current
interest rate and asset risk conditions.
The Company's notes payable carry both fixed and variable interest
rates. Management estimates that the interest rates in effect under
both the fixed and variable rate notes approximate the current market
rates for instruments with similar terms and credit risk, and therefore
the carrying amount of notes payable approximates fair value.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1998 financial
statements to conform with the 1999 presentation. These
reclassifications had no effect on the 1998 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," ("SFAS No. 133"). SFAS No. 133 establishes 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. Depending on the intended use of the
derivatives, changes in its fair value will be reported in the period
of change as either a component of earnings or a component of other
comprehensive income.
In June 1999, the FASB issued SFAS No. 137, "ACCOUNTING FOR DERIVATIVES
INSTRUMENTS AND HEDGING ACTIVITIES - DEFERRAL OF THE EFFECTIVE DATE OF
FASB STATEMENT NO. 133," ("SFAS No. 137"). SFAS No. 137 delays the
effective date of implementation of SFAS No. 133 for one year making
SFAS No. 133 effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. Retroactive application to periods prior
to adoption is not allowed. The Company has not quantified the impact
of adoption on its consolidated financial statements or the date it
intends to adopt.
NOTE 2 - ACQUISITIONS
On February 1, 1999, the Company acquired all of the assets of a
bankruptcy liquidation estate, including real estate, receivables,
assessment rights and other assets for $2,969,538, comprised of the
contract price of $2,875,000 and acquisition costs of $94,538. The
assets were acquired from a liquidation trustee in Federal Bankruptcy
Court, financed with $1,475,000 of bank debt and $1,400,000 borrowed
from the Company's majority stockholder. These borrowings were
subsequently repaid with proceeds from the Company's Offering. The
total purchase price was allocated to the individual asset components
based on management's estimate of relative market value. None of the
purchase price was allocated to the community swimming pool and tennis
courts or to the restricted recreational reserves.
F-13
<PAGE>
NOTE 2 - ACQUISITIONS (CONTINUED)
Management considered the costs to rehabilitate these portions of the
property to operational status and estimated that such costs would
exceed the market value of these assets. Additionally, since these
assets are restricted in their usage, their market value was deemed to
be further impaired.
The assets acquired include:
<TABLE>
<CAPTION>
Allocated
Costs
------------
<S> <C>
Commercial real estate $ 1,547,051
Investment real estate 479,651
Amenities -
Assessment rights
Assessment rights on 2,000
residential properties 850,000
Purchased asset pools
Delinquent assessment receivables 60,619
Other assets 32,217
------------
Total purchase price $ 2,969,538
------------
</TABLE>
SALE OF ASSESSMENT RIGHTS
The allocation of $850,000 of the purchase price to the assessment
rights (the "Rights") reflected the amount received by the Company, in
the form of a note, for the simultaneous resale of the assessment
rights to an unrelated buyer (the property owners' association for the
development). In addition to the note, the Company received other
consideration as described below. The buyer acquired the Rights subject
to the obligation to perform the required property maintenance. As a
requirement of the buyer's purchase of the Rights, the Company also
deeded to the buyer the amenities described above, subject to the
buyer's obligation to expend $150,000 to renovate those amenities.
The note is secured by a collateral assignment of the Rights, the
related assessment receivables, and associated real property
foreclosure rights. Interest on the note is payable monthly at 10% per
annum through December 1999, at which time monthly principal and
interest payments of $12,030 are due through December 2008. The Rights
provide the buyer with enforceable lien rights on the underlying
properties. The historical and anticipated cash flows from the
collection of the fees, are reasonably assured because of the lien
rights, and provide for the buyer's performance of the required
maintenance and the repayment of the note in accordance with its terms.
F-14
<PAGE>
NOTE 2 - ACQUISITIONS (CONTINUED)
SALE OF ASSESSMENT RIGHTS (CONTINUED)
The sale did not require any contingent performance by the Company as a
condition of the buyer's repayment of the note. The resale of the
assessment rights resulted in no gain or loss since the $850,000 cost
allocated to the assessment rights equaled the amount of the note
received from the buyer.
The other consideration received by the Company consisted of a waiver
(the "Waiver") of all fees and assessments payable on lots it owns,
presently or in the future, within the jurisdiction of the development
for which the Rights apply and the option, in certain circumstances, to
acquire liens the property owners' association may acquire as the
result of future delinquencies in assessment rights. The Waiver
included assessments payable at the time of sale. The present value of
future assessments waived is estimated to be $75,000. No accounting
recognition was given to the Waiver. Additionally, no accounting
recognition was given to the option to purchase future liens because
the value of the option cannot be reasonably estimated.
NOTE 3 - PURCHASED ASSET POOLS
The net gain on collections on asset pools is comprised of the
following as of December 31:
<TABLE>
<CAPTION>
1998 1999
------------- -------------
<S> <C> <C>
Collections $ 6,255,279 $ 3,589,972
Recovery of allocable portion of
asset pool cost (2,302,371) (1,188,886)
Impairment adjustments (loan losses) 60,699 23,936
------------- -------------
Net gain on collections on asset pools $ 4,013,607 $ 2,425,022
------------- -------------
</TABLE>
Purchased asset pools consist of the following at December 31:
<TABLE>
<CAPTION>
1998 1999
------------- -------------
<S> <C> <C>
Collections-in-progress $ 1,565,700 $ 1,095,543
Paying loan 1,609,666 749,487
Loan loss allowance (122,489) (97,548)
------------- -------------
3,052,877 1,747,482
Foreclosed real estate 774,086 699,712
------------- -------------
Purchased asset pools, net $ 3,826,963 $ 2,447,194
------------- -------------
</TABLE>
Included in asset pool collections for 1998 is a non-cash sale of
$268,472 represented by funds held in escrow which were not collected
until 1999.
F-15
<PAGE>
NOTE 3 - PURCHASED ASSET POOLS (CONTINUED)
Activity in the Company's allowance for loan losses for the years ended
December 31, is as follows:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Allowance at beginning of year $ 200,151 $ 122,489
Additions charged (credited) to operations (60,669) (23,936)
Direct write downs charged against
the allowance (16,993) (1,005)
----------- ----------
Allowance at end of year $ 122,489 $ 97,548
----------- ----------
</TABLE>
Specific allowances for losses on debt assets included in the asset
pools amounted to $122,489 and $97,548 at December 31, 1998 and 1999,
respectively. The related expense amount is a reduction of the net gain
on collection on asset pools in the statement of operations. The loan
loss allowance related to specific loans which had aggregate carrying
amounts of $256,103 and $157,331 at December 31, 1998 and 1999,
respectively. The average balance of loans for which the loan loss
allowances have been provided was $10,205 and $39,083, respectively,
for the years ended December 31, 1998 and 1999.
NOTE 4 - COMMERCIAL REAL ESTATE
Commercial real estate consists of the following at December 31:
<TABLE>
<CAPTION>
1998 1999
----------- ------------
<S> <C> <C>
Commercial real estate $ 750,203 $ 3,687,781
Accumulated depreciation (18,047) (30,358)
----------- ------------
Commercial real estate, net $ 732,156 $ 3,657,423
----------- ------------
</TABLE>
Gross rental income from commercial real estate amounted to $713,286
and $584,100 for 1998 and 1999, respectively.
NON-CASH TRANSACTION
During the year ended December 31, 1998, the Company reclassified a
single asset with a cost basis of $360,000 from purchased asset pools
to commercial real estate. The cost basis of this asset 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.
NOTE 5 - NOTES RECEIVABLE FROM RELATED PARTIES
During June 1998, the Company sold a property from its asset pool to
related parties in exchange for five notes receivable totaling
$525,000. 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.
F-16
<PAGE>
NOTE 5 - NOTES RECEIVABLE FROM RELATED PARTIES (CONTINUED)
The cost basis originally allocated to this property at the time of
sale approximated $268,000. The Company received interest of $54,688
during 1999. No payments were received during 1998.
NOTE 6 - PROPERTY AND EQUIPMENT
Property and equipment consists of the Company's furniture and
equipment and is recorded at cost. Accumulated depreciation on the
Company's furniture and equipment amounted to $42,446 and $78,517 as of
December 31, 1998 and 1999, respectively.
NOTE 7 - NOTES PAYABLE
Notes payable consist of the following at December 31:
<TABLE>
<CAPTION>
1998 1999
------------- -------------
<S> <C> <C>
$5,000,000 revolving credit facility (the "Revolving
Credit Facility"), secured by notes receivable and real
estate comprising the purchased asset pools and a
stockholder'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 one (1) percent per annum (8.8%
and 9.25% as of December 31, 1998 and 1999, respectively).
During 1999, the Company repaid the outstanding balance of
$3,659,658 and accrued interest with proceeds from its
initial public offering. The note is due and payable on
April 30, 2000. $ 3,302,629 $ -
$205,339 term note payable to a third party, secured by
equipment; principal and interest payments of $4,252 due
monthly beginning August 15, 1999; bearing a stated
interest rate of 8.9% per annum, with the remaining unpaid
principal and interest due July 15, 2004. - 181,079
</TABLE>
F-17
<PAGE>
NOTE 7 - NOTES PAYABLE (CONTINUED)
<TABLE>
<CAPTION>
1998 1999
------------- -------------
<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. 437,859 314,094
Unsecured non-recourse promissory notes payable secured by
cash flow from a $850,000 note receivable. - 85,000
------------- -------------
$ 3,740,488 $ 580,173
------------- -------------
</TABLE>
The unsecured promissory note was given to an unrelated third party
related to the sale of the Rights (see Note 2). The note is
non-recourse to the Company and is to be repaid solely from a ten
percent participation in cash receipts from the $850,000 note
receivable issued to the purchaser of the Rights.
The Revolving Credit Facility provides for certain financial covenants.
The Tangible Net Worth Covenant requires that at any time subsequent to
December 31, 1999 the Company's Tangible Net Worth be at least $9.4
million. The Total Liabilities to Tangible Net Worth Ratio Covenant
requires that the Company maintain a ratio of Liabilities to Tangible
Net Worth not exceeding 1.00:1.00. At December 31, 1999 the Company was
in compliance with the above covenants.
Interest paid during 1998 and 1999 on all of the Company's debt
instruments, approximated $449,000 and $425,000 (approximately $345,000
net of capitalized interest), respectively, including $90,000 and
$115,000 paid to related parties during 1998 and 1999, respectively. Of
the amounts paid to related parties during 1998 and 1999, $84,000 and
$22,000 respectively, were to a stockholder for the pledge of the
stockholder's personal collateral against the Company's bank notes
payable.
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 8 - INCOME TAXES
The deferred tax liability as of December 31, 1998 and 1999 arises from
the use of different methods of recognition of costs allocable to asset
pools for financial statement purposes and Federal tax purposes. A
modified cost recovery method, whereby the allocable costs are
recognized in conjunction with collections on individual asset pool
components in the ratio of
F-18
<PAGE>
NOTE 8 - INCOME TAXES (CONTINUED)
total asset pool acquisition costs to total asset pools collections, is
used for financial statement purposes.
The cost recovery method is used for Federal income tax purposes. The
Company's deferred tax asset as of December 31, 1998 and 1999 consists
of net operating loss carryforwards ("NOLs") of approximately $56.0
million and $52.4 million, respectively, which expire from 2008 through
2013. The majority of these NOLs were generated through the 1997
acquisition of certain corporate subsidiaries and assets MCorp Trust,
MCorp Financial Trust, and MCorp Management Trust (collectively the
"MCorp Trusts"). These subsidiaries had approximately $56 million in
NOLs and built-in-losses which management believes can be used to
offset future taxable income generated by the acquired corporate
entities, subject to certain possible limitations.
Due to the nature of the net operating loss carryforwards acquired in
the MCorp Trusts acquisition, and the fact that the resolution of the
Company's assets and the recognition of income therefrom is subject to
conditions and timing which are beyond the control of management, there
can be no assurance that the Company will generate any specific level
of earnings, or that the taxable earnings will be realized in a
subsidiary which has sufficient net operating loss carryforwards
available. SFAS No. 109 requires the recognition of future tax benefits
such as net operating loss carryforwards, to the extent that
realization of such benefits is more likely than not. Due to the
inherent uncertainty underlying the likelihood of future earnings
management has established a valuation allowance relating to its net
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, using a Federal statutory rate to
the Company's effective tax rate as follows:
<TABLE>
<CAPTION>
1998 1999
--------------------- ---------------------
Amount Rate Amount Rate
---------- ------- ----------- ------
<S> <C> <C> <C> <C>
Tax at statutory rate $ 870,075 34.0% $ 599,353 34.0%
Utilization/recognition of net operating
loss carryforward (385,484) 15.1% (762,477) (43.0)%
---------- ------- ----------- ------
Income tax expense (benefit) $ 484,591 18.9% $ (163,124) (9.0)%
---------- ------- ----------- ------
</TABLE>
F-19
<PAGE>
NOTE 8 - INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax assets and
liabilities at December 31, 1998 and 1999 are summarized as follows:
<TABLE>
<CAPTION>
1998 1999
-------------- --------------
<S> <C> <C>
Book basis of purchased asset pools,
net, in excess of tax basis $ (1,143,354) $ (1,039,915)
Net operating loss carryforwards 19,075,000 18,272,179
Valuation allowance (18,369,646) (17,511,264)
-------------- --------------
Deferred tax liability, net $ (438,000) $ (279,000)
-------------- --------------
</TABLE>
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.
Changes in the valuation allowance account for the years ended December
31, are as follows:
<TABLE>
<CAPTION>
1998 1999
-------------- --------------
<S> <C> <C>
Valuation allowance at beginning of year $ 146,457 $ 18,369,646
Increase (decrease) for the year 18,223,189 (858,382)
-------------- --------------
Valuation allowance at end of year $ 18,369,646 $ 17,511,264
-------------- --------------
</TABLE>
No income taxes were paid during 1998 or 1999.
The following is a summary of the NOLs and their expiration dates:
<TABLE>
<CAPTION>
Expiring in
December 31, Amount
------------ --------------
<S> <C>
2000 $ 634,055
2001 -
2002 10,376,766
2003 13,304,126
2004 1,258,441
2005 - 2013 26,837,366
--------------
Total $ 52,410,754
--------------
</TABLE>
NOTE 9 - 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
F-20
<PAGE>
NOTE 9 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
adverse impact on the financial condition, results of operations or
liquidity of the Company. During the year ended December 31, 1999, the
Company evaluated its financial exposure to litigation and
environmental risks associated with the debt assets and foreclosed real
estate within its asset pools and elected to transfer and realign its
assets based upon the element of risk associated with the different
types of asset pools. Management believes that this restructuring of
its assets within existing corporate entities will provide greater
protection of its financial condition.
OPERATING LEASES (AS LESSEE)
The Company leases golf course equipment and vehicles under operating
leases. Future minimum rental payments required by these leases are
estimated as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
2000 $ 59,277
2001 43,171
2002 43,171
2003 43,171
2004 17,988
----------
Total $ 206,778
----------
</TABLE>
Total expense incurred under these and other month-to-month rental
agreements approximated $33,000 and $71,000 during 1998 and 1999,
respectively.
The Company's offices are located in a major downtown Houston office
building. A portion of its space is leased to the Company on a
month-to-month basis and a portion is provided as an accommodation by a
firm providing legal counsel to the Company.
OPERATING LEASES (AS LESSOR)
The Company has long-term lease agreements with tenants in their San
Antonio and Dallas commercial real estate property locations.
F-21
<PAGE>
NOTE 9 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum payments to be received under these leases are estimated
as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
2000 $ 300,365
2001 176,375
2002 60,085
2003 26,003
2004 24,104
----------
Total $ 586,932
----------
</TABLE>
MANAGEMENT AGREEMENT
Effective November 12, 1999, the Company entered into a five year
agreement, commencing on January 1, 2000, with Benchmark Management
Company, to manage and operate the Newport Golf Club and Conference
Center. Future minimum base fee payments of $7,000 per month are
required under the agreement, and are to be adjusted annually according
to the change in the Consumer Price Index.
NOTE 10 - SEGMENT REPORTING
The Company operates in four business segments (i) purchased asset
pools, (ii) commercial real estate, (iii) investment real estate and
(iv) project financing. The purchased asset pools segment involves the
acquisition, management, servicing and realization of income from
collections on or sales of portfolios of undervalued financial assets,
and in some instances real estate the Company may acquire as part of an
asset pool or as the result of foreclosing on the collateral underlying
an acquired real estate debt. The commercial real estate segment
involves holding foreclosed and acquired real estate for appreciation
and the production of income. The investment real estate segment
involves holding foreclosed real estate for future appreciation and
acquiring unimproved real estate in conjunction with short-term funding
for developers. The project financing segment involves non-discounted
notes held by the Company by virtue of financing the sales of Company
assets and lending to projects in which the Company may participate.
F-22
<PAGE>
NOTE 10 - SEGMENT REPORTING (CONTINUED)
Financial information by reportable operating segment is as follows:
<TABLE>
<CAPTION>
Year ended December 31, 1999
----------------------------------------------------------------------------
Collections on
Discounted
Debt Commercial Investment Project
Portfolios Real Estate Real Estate Financing Totals
-------------- ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Revenue $ 2,425,022 $ 1,134,611 $ 1,458,720 $ 157,642 $ 5,175,995
Segment profit 1,098,808 (287,149) 832,022 119.123 1,762,803
Segment assets 2,447,194 3,657,423 1,405,889 1,303,750 8,814,256
Depreciation and
amortization - 55,603 - - 55,603
Capital expenditures 53,651 2,955,625 767,561 850,000 4,626,837
Net interest expense 114,594 143,835 52,799 38,520 376,749
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31, 1998
------------------------------------------------------------------------------
Collections on
Discounted Debt Commercial Investment Project
Portfolios Real Estate Real Estate Financing Totals
--------------- ------------ ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Revenue $4,013,607 $ 449,643 $ 138,833 $ - $ 4,602,083
Segment profit 2,333,201 232,842 12,896 (19,893) 2,559,046
Segment assets 3,826,963 732,156 1,100,731 525,000 6,184,850
Depreciation and
amortization - 8,699 - - 8,699
Capital expenditures 691,333 - 875,745 - 1,567,078
Net interest expense 360,862 42,173 71,214 19,893 494,142
</TABLE>
Reconciliation of reportable segment assets to the Company's
consolidated totals as of December 31, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
Assets 1998 1999
------ ------------- -------------
<S> <C> <C>
Total assets for reportable segments $ 6,184,850 $ 8,814,256
Cash not allocated to segments 583,629 2,741,787
Other assets not allocated to segments 243,229 441,659
------------- -------------
Consolidated total assets $ 7,011,708 $ 11,997,702
------------- -------------
</TABLE>
F-23
<PAGE>
NOTE 10 - SEGMENT REPORTING (CONTINUED)
Reconciliation of reportable segment revenue to the Company's
consolidated totals as of December 31, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
Revenue 1998 1999
------- ------------- -------------
<S> <C> <C>
Total revenue for reportable segments $ 4,602,083 $ 5,175,995
Interest income - 20,844
Other income - 38,969
------------- -------------
Consolidated total revenue $ 4,602,083 $ 5,235,808
------------- -------------
</TABLE>
NOTE 11 - STOCK SPLIT AND PREFERRED STOCK AUTHORIZATION
In December 1998, the Board of Directors approved (i) an increase in
the authorized number of shares of common stock to 10,000,000, (ii) a
3,000-for-1 stock split of issued and outstanding common shares and
(iii) authorization of 10,000,000 shares of $.01 par value
preferred stock. All common shares, per share and option information in
the accompanying financial statements have been restated to reflect the
effect of the split and change in authorized shares.
NOTE 12 - STOCK COMPENSATION PLAN
In December 1998, the 1998 Stock Compensation Plan (the "Plan") was
approved by the Board of Directors ("Board") and by the stockholders.
The provisions of the Plan provide for the granting of options for the
purchase of the Company's common stock to be granted as incentive
compensation to employees and officers of the Company and its
subsidiaries. Effective June 24, 1999, the Company amended the Plan to
reserve up to 375,000 shares of common stock to be granted under the
Plan and to provide option grants to Directors and consultants. 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 ("ISOs") 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 also provides for the award of Stock Appreciation Rights
("SARs") to optionees. The Compensation 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
F-24
<PAGE>
NOTE 12 - STOCK COMPENSATION PLAN (CONTINUED)
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 as of December 31,
1999 (see Note 15).
NOTE 13 - RELATED PARTY TRANSACTIONS
During 1998, the Company acquired, for $334,000, an interest in a real
estate mortgage and judgement lien from an entity controlled by a
Company officer. During 1999 the company collected approximately
$375,000 on this loan.
NOTE 14 - REVENUE CONCENTRATIONS
During the years ended December 31, 1998 and 1999, the Company recorded
a net gain from a single transaction which amounted to 23% and 13%,
respectively, of total revenue for each year.
NOTE 15 - SUBSEQUENT EVENTS
On January 7, 2000 the Company finalized the acquisition of a 51%
interest in Greater Houston Gulf Partners, LTD (the "Partnership). The
Partnership was formed to acquire, own, and manage a condominium
redevelopment project (the "Project"). In connection with the
acquisition, the Company made a loan to the Partnership for $1.1
million to provide financing for the acquisition of the Project. The
balance of the Project purchase price and developmental funds was
provided to the partnership by a bank loan in the amount of $2.9
million.
On January 11, 2000 the Company's Board of Directors approved a stock
repurchase plan under rule 10b-18 of the Securities and Exchange
Commissions Act of 1934, for the purchase of up to $2.0 million worth
of the Company's outstanding common stock in open market transactions.
Acquired shares will be held as treasury stock by the Company, and will
be available for future acquisitions, financing or awards as granted
under the Company's 1998 Stock Compensation Plan.
On January 20, 2000, the Company's Board of Directors approved the
granting of 3,000 options, 1,000 options for each of three outside
Board members, to purchase common stock of the Company pursuant to the
Plan.
F-25
<PAGE>
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the
Exchange Act, the registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
RAMPART CAPITAL CORPORATION
(Registrant)
By: /s/ C. W. JANKE
---------------------------------
C. W. JANKE
Chief Executive Officer
Date: March 29, 2000
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
By: /s/ C. W. JANKE March 29, 2000
---------------------------------------
C. W. Janke
Chairman of the Board
Chief Executive Officer
(Principal Executive Officer)
By: /s/ J.H. CARPENTER March 29, 2000
---------------------------------------
J.H. Carpenter
President
Chief Operating Officer
Director
By: /s/ CHARLES F. PRESLEY March 29, 2000
---------------------------------------
Charles F. Presley
Vice-President
Chief Financial Officer
Treasurer & Controller
(Principal Financial and Accounting Officer)
By: /s/ JAMES W. CHRISTIAN March 29, 2000
---------------------------------------
James W. Christian
Director
By: /s/ JAMES J. JANKE March 29, 2000
---------------------------------------
James J. Janke
Director
By: /s/ ROBERT A. SHUEY, III March 29, 2000
---------------------------------------
Robert A. Shuey, III
Director
12
<PAGE>
RAMPART CAPITAL CORPORATION
EXHIBITS TO FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1999
INDEX OF EXHIBITS
EXHIBIT
NO. DESCRIPTION
--- -----------
3.1 Restated Articles of Incorporation (Exhibit 3.1 to Rampart's
Registration Statement on Form SB-2 (File No. 333-71089) and
incorporated herein by reference)
3.2 Bylaws (Exhibit 3.2 to Rampart's Registration Statement on
Form SB-2 (File No. 333-71089) and incorporated herein by
reference)
4.1 Form of Warrant Agreement Between Rampart and American Stock
Transfer and Trust Company (Exhibit 4.1 to Rampart's
Registration Statement on Form SB-2 (File No. 333-71089) and
incorporated herein by reference)
*10.1 1998 Stock compensation Plan - Revised June 24, 1999
10.2 Share Transfer Restriction Agreement (Exhibit 10.2 to
Rampart's Registration Statement on Form SB-2 (File No.
333-71089) and incorporated herein by reference)
10.3 Sixth (current) Amendment to Loan Agreement with Southwest
Bank of Texas N. A. (Exhibit 10.7 to Rampart's Registration
Statement on Form SB-2 (File No. 333-71089) and incorporated
herein by reference)
10.4 Purchase and Sale Agreement for Newport Assets (Exhibit 10.8
to Rampart's Registration Statement on Form SB-2 (File No.
333-71089) and incorporated herein by reference)
10.5 Janke Family Partnership, Ltd. Note for Newport assets
purchase (Exhibit 10.9 to Rampart's Registration Statement on
Form SB-2 (File No. 333-71089) and incorporated herein by
reference)
10.6 Purchase Agreement for Newport Assets (Exhibit 10.10 to
Rampart's Registration Statement on Form SB-2 (File No.
333-71089) and incorporated herein by reference
*10.8 The Benchmark Management Contract to manage the Newport Golf
Club and Conference Center
*21.1 Subsidiaries of Registrant
*27.1 Financial Data Schedule
- -----------------------------
* Filed herewith.
13
<PAGE>
1998 STOCK COMPENSATION PLAN
OF
RAMPART CAPITAL CORPORATION
(A TEXAS CORPORATION)
REVISED JUNE 24, 1999
<PAGE>
TABLE OF CONTENTS
1998 STOCK COMPENSATION PLAN
OF
RAMPART CAPITAL CORPORATION
<TABLE>
<CAPTION>
SECTION SUBJECT PAGE
<S> <C> <C>
1. Purpose of Plan ...........................................................................1
2. Stock Subject to the Plan....................................................................1
3. Administration of the Plan...................................................................1
(a) General ...........................................................................1
(b) Changes in Law Applicable...........................................................2
4. Types of Awards Under the Plan...............................................................2
5. Persons to Whom Options Shall Be Granted.....................................................2
(a) Nonqualified Options................................................................2
(b) Incentive Options...................................................................2
6. Factors to Be Considered in Granting Options.................................................3
7. Time of Granting Option......................................................................3
8. Terms and Conditions of Options..............................................................3
(a) Number of Shares....................................................................3
(b) Type of Option......................................................................3
(c) Option Period.......................................................................3
(1) General....................................................................3
(2) Termination of Employment..................................................3
(3) Cessation of Service as Director or Advisor................................4
(4) Disability.................................................................4
(5) Death......................................................................4
(6) Acceleration and Exercise Upon Change of Control...........................4
(d) Option Prices.......................................................................5
(1)
<PAGE>
(1) Nonqualified Options.......................................................5
(2) Incentive Options..........................................................5
(3) Determination of Fair Market Value.........................................5
(e) Exercise of Options.................................................................6
(f) Non-transferability of Options......................................................6
(g) Limitations on 10% Shareholders.....................................................6
(h) Limits on Vesting of Incentive Options..............................................6
(i) Compliance with Securities Laws.....................................................6
(j) Additional Provisions...............................................................7
9. Medium and Time of Payment...................................................................7
10. Alternate Stock Appreciation Rights..........................................................8
(a) Award of Alternate Stock Rights.....................................................8
(b) Alternate Stock Rights Agreement....................................................8
(c) Exercise ...........................................................................8
(d) Amount of Payment...................................................................8
(e) Form of Payment.....................................................................8
(f) Termination of SAR .................................................................8
(g) Effect of Exercise of SAR...........................................................9
(h) Effect of Exercise of Related Option................................................9
(i) Non-transferability of SAR..........................................................9
11. Rights as a Shareholder......................................................................9
12. Optionee's Agreement to Serve................................................................10
13. Adjustments on Changes in Capitalization.....................................................10
(a) Changes in Capitalization...........................................................10
(b) Reorganization, Dissolution or Liquidation..........................................10
(c) Change in Par Value.................................................................10
(d) Notice of Adjustments...............................................................10
(e) Effect Upon Holder of Option........................................................11
(f) Right of Company to Make Adjustments................................................11
14. Investment Purpose...........................................................................11
15. No Obligation to Exercise Option or SAR......................................................12
16. Modification, Extension, and Renewal of Options..............................................12
17. Effective Date of the Plan...................................................................12
(2)
<PAGE>
18. Termination of the Plan......................................................................12
19. Amendment of the Plan........................................................................12
20. Withholding..................................................................................12
21. Indemnification of Committee.................................................................12
22. Application of Funds.........................................................................13
23. Governing Law................................................................................13
</TABLE>
(3)
<PAGE>
1998 STOCK COMPENSATION PLAN
OF
RAMPART CAPITAL CORPORATION
1. PURPOSE OF PLAN. This 1998 Stock Compensation Plan ("Plan") is
intended to encourage ownership of the common stock of RAMPART CAPITAL
CORPORATION ("Company") by certain officers, directors, employees and
advisors of the Company or any Subsidiary or Subsidiaries of the Company (as
hereinafter defined) in order to provide additional incentive for such
persons to promote the success and the business of the Company or its
Subsidiaries and to encourage them to remain in the employ of the Company or
its Subsidiaries by providing such persons an opportunity to benefit from any
appreciation of the common stock of the Company through the issuance of stock
options and related stock appreciation rights to such persons in accordance
with the terms of the Plan. It is further intended that options granted
pursuant to this Plan shall constitute either incentive stock options
("Incentive Options") within the meaning of Section 422 (formerly Section
422A) of the Internal Revenue Code of 1986, as amended ("Code"), or options
which do not constitute Incentive Options ("Nonqualified Options") as
determined by the Committee (as hereinafter defined) at the time of issuance
of such options. Incentive Options, Nonqualified Options and Reload Options
(as defined in Section 11 hereof) are herein sometimes referred to
collectively as "Options". As used herein, the term Subsidiary or
Subsidiaries shall mean any corporation (other than the employer corporation)
in an unbroken chain of corporations beginning with the employer corporation
if, at the time of granting of the Option, each of the corporations other
than the last corporation in the unbroken chain owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
2. STOCK SUBJECT TO THE PLAN. Subject to adjustment as provided in
Section 14 hereof, there will be reserved for the use upon the exercise of
Options to be granted from time to time under the Plan, an aggregate of three
hundred and seventy-five thousand (375,000) shares of the common stock, $.01
par value, of the Company ("Common Stock"), which shares in whole or in part
shall be authorized, but unissued, shares of the Common Stock or issued
shares of Common Stock which shall have been reacquired by the Company as
determined from time to time by the Board of Directors of the Company ("Board
of Directors"). To determine the number of shares of Common Stock available
at any time for the granting of Options under the Plan, there shall be
deducted from the total number of reserved shares of Common Stock, the number
of shares of Common Stock in respect of which Options have been granted
pursuant to the Plan which remain outstanding or which have been exercised.
If and to the extent that any Option to purchase reserved shares shall not be
exercised by the optionee for any reason or if such Option to purchase shall
terminate as provided herein, such shares which have not been so purchased
hereunder shall again become available for the purposes of the Plan unless
the Plan shall have been terminated, but such unpurchased shares shall not be
deemed to increase the aggregate number of shares specified above to be
reserved for purposes of the Plan (subject to adjustment as provided in
Section 14 hereof).
3. ADMINISTRATION OF THE PLAN.
(a) GENERAL. The Plan shall be administered by a Compensation
Committee ("Committee") appointed by the Board of Directors, which
Committee shall consist of not less than two (2) members of the Board
of Directors each of whom shall be (i) a "non-employee director" within
the meaning of Rule 16b-3 promulgated under the Exchange Act and (ii)
an "outside director" within the meaning of Section 162(m) of the Code
and the regulations promulgated thereunder. Notwithstanding the
preceding sentence, the term "Committee" as used in the Plan shall
refer to the full Board if (i) no committee of the Board has been
appointed to administer the Plan or there is not a committee of two
members that meet the above qualifications or (ii) even if a committee
has been so appointed, with respect to the grant of any Options to
Outside Directors, and in either case, the full Board shall have all
the rights, powers and responsibilities of the Committee set forth
hereunder. For purposes of this Plan, "Outside Director" shall mean any
director of the Company who is not an employee of the Company or any
Subsidiary. The Board of Directors may from time to time appoint
members of the Committee in substitution for or in addition to members
previously appointed
1998 STOCK COMPENSATION PLAN - Page 1
<PAGE>
and may fill vacancies, however caused, in the Committee. If the
Board of Directors does not designate a Chairman of the Committee,
the Committee shall select one of its members as its Chairman. The
Committee shall hold its meetings at such times and places as it
shall deem advisable. A majority of its members shall constitute a
quorum. Any action of the Committee shall be taken by a majority vote
of its members at a meeting at which a quorum is present.
Notwithstanding the preceding, any action of the Committee may be
taken without a meeting by a written consent signed by all of the
members, and any action so taken shall be deemed fully as effective
as if it had been taken by a vote of the members present in person at
the meeting duly called and held. The Committee may appoint a
Secretary, shall keep minutes of its meetings, and shall make such
rules and regulations for the conduct of its business as it shall
deem advisable.
The Committee shall have the sole authority and power, subject
to the express provisions and limitations of the Plan, to construe the
Plan and option agreements granted hereunder, and to adopt, prescribe,
amend, and rescind rules and regulations relating to the Plan, and to
make all determinations necessary or advisable for administering the
Plan, including, but not limited to, (i) who shall be granted Options
under the Plan, (ii) the term of each Option, (iii) the number of
shares covered by such Option, (iv) whether the Option shall constitute
an Incentive Option or a Nonqualified Option or a Reload Option, (v)
the exercise price for the purchase of the shares of the Common Stock
covered by the Option, (vi) the period during which the Option may be
exercised, (vii) whether the right to purchase the number of shares
covered by the Option shall be fully vested on issuance of the Option
so that such shares may be purchased in full at one time or whether the
right to purchase such shares shall become vested over a period of time
so that such shares may only be purchased in installments, and (viii)
the time or times at which Options shall be granted. The Committee's
determinations under the Plan, including the above enumerated
determinations, need not be uniform and may be made by it selectively
among the persons who receive, or are eligible to receive, Options
under the Plan, whether or not such persons are similarly situated.
The interpretation by the Committee of any provision of the
Plan or of any option agreement entered into hereunder with respect to
any Incentive Option shall be in accordance with Section 422 of the
Code and the regulations issued thereunder, as such section or
regulations may be amended from time to time, in order that the rights
granted hereunder and under said option agreements shall constitute
"Incentive Stock Options" within the meaning of such section. The
interpretation and construction by the Committee of any provision of
the Plan or of any Option granted hereunder shall be final and
conclusive, unless otherwise determined by the Board of Directors. No
member of the Board of Directors or the Committee shall be liable for
any action or determination made in good faith with respect to the Plan
or any Option granted under it. Upon issuing an Option under the Plan,
the Committee shall report to the Board of Directors the name of the
person granted the Option, whether the Option is an Incentive Option or
a Nonqualified Option, the number of shares of Common Stock covered by
the Option, and the terms and conditions of such Option.
(b) CHANGES IN LAW APPLICABLE. If the laws relating to
Incentive Options or Nonqualified Options are changed, altered or
amended during the term of the Plan, the Board of Directors shall have
full authority and power to alter or amend the Plan with respect to
Incentive Options or Nonqualified Options, respectively, to conform to
such changes in the law without the necessity of obtaining further
shareholder approval, unless the changes require such approval.
4. TYPES OF AWARDS UNDER THE PLAN. Awards under the Plan may be in
the form of either Options, alternate stock appreciation rights (as described
in Section 10 hereof), or a combination thereof.
5. PERSONS TO WHOM OPTIONS SHALL BE GRANTED.
(a) NONQUALIFIED OPTIONS. Nonqualified Options shall be
granted only to officers, directors, employees and advisors of the Company or
a Subsidiary who, in the judgment of the Committee, are responsible for or
contribute to the management or success of the Company or a Subsidiary and
who, at the time of the granting of the Nonqualified Options, are either
officers, directors, employees or advisors of the Company or a Subsidiary.
(b) INCENTIVE OPTIONS. Incentive Options shall be granted
only to employees of the Company or a Subsidiary who, in the judgment of the
Committee, are responsible for or contribute to the management or success of
the Company or a Subsidiary and who, at the time of the granting of the
Incentive Option are either an employee of
1998 STOCK COMPENSATION PLAN - Page 2
<PAGE>
the Company or a Subsidiary. Subject to the provisions of Section 8(g)
hereof, no individual shall be granted an Incentive Option who, immediately
before such Incentive Option was granted, would own more than ten percent
(10%) of the total combined voting power or value of all classes of stock of
the Company ("10% Shareholder").
6. FACTORS TO BE CONSIDERED IN GRANTING OPTIONS. In making any
determination as to persons to whom Options shall be granted and as to the
number of shares to be covered by such Options, the Committee shall take into
account the duties and responsibilities of the respective officers,
directors, employees, or advisors, their current and potential contributions
to the success of the Company or a Subsidiary, and such other factors as the
Committee shall deem relevant in connection with accomplishing the purpose of
the Plan.
7. TIME OF GRANTING OPTIONS. Neither anything contained in the Plan
or in any resolution adopted or to be adopted by the Board of Directors or
the Shareholders of the Company or a Subsidiary nor any action taken by the
Committee shall constitute the granting of any Option. The granting of an
Option shall be effected only when a written Option Agreement acceptable in
form and substance to the Committee, subject to the terms and conditions
hereof including those set forth in Section 8 hereof, shall have been duly
executed and delivered by or on behalf of the Company and the person to whom
such Option shall be granted. No person shall have any rights under the Plan
until such time, if any, as a written Option Agreement shall have been duly
executed and delivered as set forth in this Section 7.
8. TERMS AND CONDITIONS OF OPTIONS. All Options granted pursuant to
this Plan must be granted within ten (10) years from the date the Plan is
adopted by the Board of Directors of the Company. Each Option Agreement
governing an Option granted hereunder shall be subject to at least the
following terms and conditions, and shall contain such other terms and
conditions, not inconsistent therewith, that the Committee shall deem
appropriate:
(a) NUMBER OF SHARES. Each Option shall state the number of
shares of Common Stock which it represents.
(b) TYPE OF OPTION. Each Option shall state whether it is
intended to be an Incentive Option or a Nonqualified Option.
(c) OPTION PERIOD.
(1) GENERAL. Each Option shall state the date upon
which it is granted. Each Option shall be exercisable in whole
or in part during such period as is provided under the terms
of the Option subject to any vesting period set forth in the
Option, but in no event shall an Option be exercisable either
in whole or in part after the expiration of ten (10) years
from the date of grant; provided, however, if an Incentive
Option is granted to a 10% Shareholder, such Incentive Option
shall not be exercisable more than five (5) years from the
date of grant thereof.
(2) TERMINATION OF EMPLOYMENT. Except as otherwise
provided in case of Disability (as hereinafter defined), death
or Change of Control (as hereinafter defined), no Option shall
be exercisable after an optionee who is an employee of the
Company or a Subsidiary ceases to be employed by the Company
or a Subsidiary as an employee; provided, however, that the
Committee shall have the right in its sole discretion, but not
the obligation, to extend the exercise period for not more
than three (3) months following the date of termination of
such optionee's employment; provided further, however, that no
Option shall be exercisable after the expiration of ten (10)
years from the date it is granted and provided further, no
Incentive Option granted to a 10% Shareholder shall be
exercisable after the expiration of five (5) years from the
date it is granted.
(3) CESSATION OF SERVICE AS DIRECTOR OR ADVISOR. In
the event an optionee who was a director or advisor of the
Company or a Subsidiary ceases to be a director or advisor of
the Company or a Subsidiary for any reason, other than
Disability or death, prior to the full exercise of the Option,
such optionee may exercise his Option at any time within
ninety (90) days after such optionee's status as a director or
advisor of the Company or a Subsidiary is so terminated to the
extent he was entitled to exercise such Option at the date
such optionee's status as a director or advisor of the Company
or a Subsidiary terminated; provided, however, that no Option
shall be exercisable after the expiration of ten (10) years
from the date it is granted.
1998 STOCK COMPENSATION PLAN - Page 3
<PAGE>
(4) DISABILITY. If an optionee's employment is
terminated by reason of the permanent and total Disability of
such optionee or if an optionee who is a director or advisor
of the Company or a Subsidiary ceases to serve as a director
or advisor by reason of the permanent and total Disability of
such optionee, the Committee shall have the right in its sole
discretion, but not the obligation, to extend the exercise
period for not more than one (1) year following the date of
termination of the optionee's employment or the date such
optionee ceases to be a director or advisor of the Company or
a Subsidiary, as the case may be, subject to the condition
that no Option shall be exercisable after the expiration of
ten (10) years from the date it is granted and subject to the
further condition that no Incentive Option granted to a 10%
Shareholder shall be exercisable after the expiration of five
(5) years from the date it is granted. For purposes of this
Plan, the term "Disability" shall mean the inability of the
optionee to fulfill such optionee's obligations to the Company
or a Subsidiary by reason of any physical or mental impairment
which can be expected to result in death or which has lasted
or can be expected to last for a continuous period of not less
than twelve (12) months as determined by a physician
acceptable to the Committee in its sole discretion.
(5) DEATH. If an optionee dies while in the employ of
the Company or a Subsidiary, or while serving as a director or
advisor of the Company or a Subsidiary, and shall not have
fully exercised Options granted pursuant to the Plan, such
Options may be exercised in whole or in part at any time
within one (1) year after the optionee's death, by the
executors or administrators of the optionee's estate or by any
person or persons who shall have acquired the Options directly
from the optionee by bequest or inheritance, but only to the
extent that the optionee was entitled to exercise such Option
at the date of such optionee's death, subject to the condition
that no Option shall be exercisable after the expiration of
ten (10) years from the date it is granted and subject to the
further condition that no Incentive Option granted to a 10%
Shareholder shall be exercisable after the expiration of five
(5) years from the date it is granted.
(6) ACCELERATION AND EXERCISE UPON CHANGE OF CONTROL.
Notwithstanding the preceding provisions of this Section 8(c),
if any Option granted under the Plan provides for either (a)
an incremental vesting period whereby such Option may only be
exercised in installments as such incremental vesting period
is satisfied or (b) a delayed vesting period whereby such
Option may only be exercised after the lapse of a specified
period of time, such as after the expiration of one (1) year,
such vesting period shall be accelerated upon the occurrence
of a Change of Control (as hereinafter defined) of the
Company, or a threatened Change of Control of the Company as
determined by the Committee, so that such Option shall
thereupon become exercisable immediately in part or its
entirety by the holder thereof, as such holder shall elect.
For the purposes of this Plan, a "Change of Control" shall be
deemed to have occurred if:
(i) Any "person", including a "group" as
determined in accordance with Section 13(d)(3) of the
Securities Exchange Act of 1934 ("Exchange Act") and
the Rules and Regulations promulgated thereunder, is
or becomes, through one or a series of related
transactions or through one or more intermediaries,
the beneficial owner, directly or indirectly, of
securities of the Company representing 25% or more of
the combined voting power of the Company's then
outstanding securities, other than a person who is
such a beneficial owner on the effective date of the
Plan and any affiliate of such person;
(ii) As a result of, or in connection with,
any tender offer or exchange offer, merger or other
business combination, sale of assets or contested
election, or any combination of the foregoing
transactions ("Transaction"), the persons who were
Directors of the Company before the Transaction shall
cease to constitute a majority of the Board of
Directors of the Company or any successor to the
Company;
(iii) Following the effective date of the Plan,
the Company is merged or consolidated with another
corporation and as a result of such merger or
consolidation less than 40% of the outstanding voting
securities of the surviving or resulting corporation
shall then be
1998 STOCK COMPENSATION PLAN - Page 4
<PAGE>
owned in the aggregate by the former stockholders
of the Company, other than (x) any party to such
merger or consolidation, or (y) any affiliates of
any such party;
(iv) A tender offer or exchange offer is
made and consummated for the ownership of securities
of the Company representing 25% or more of the
combined voting power of the Company's then
outstanding voting securities; or
(v) The Company transfers more than 50% of
its assets, or the last of a series of transfers
result in the transfer of more than 50% of the assets
of the Company, to another corporation that is not a
wholly-owned corporation of the Company. For purposes
of this subsection 8(c)(6)(v), the determination of
what constitutes more than 50% of the assets of the
Company shall be determined based on the sum of the
values attributed to (i) the Company's real property
as determined by an independent appraisal thereof,
and (ii) the net book value of all other assets of
the Company, each taken as of the date of the
Transaction involved.
In addition, upon a Change of Control, any Options
previously granted under the Plan to the extent not already
exercised may be exercised in whole or in part either
immediately or at any time during the term of the Option as
such holder shall elect.
(d) OPTION PRICES.
(1) NONQUALIFIED OPTIONS. The purchase price or
prices of the shares of the Common Stock which shall be
offered to any person under the Plan and covered by a
Nonqualified Option shall be the price determined by the
Committee at the time of granting of the Nonqualified Option,
which price may be less than, equal to or higher than one
hundred percent (100%) of the fair market value of the Common
Stock at the time of granting the Nonqualified Option.
(2) INCENTIVE OPTIONS. The purchase price or prices
of the shares of the Common Stock which shall be offered to
any person under the Plan and covered by an Incentive Option
shall be one hundred percent (100%) of the fair market value
of the Common Stock at the time of granting the Incentive
Option or such higher purchase price as may be determined by
the Committee at the time of granting the Incentive Option;
provided, however, if an Incentive Option is granted to a 10%
Shareholder, the purchase price of the shares of the Common
Stock of the Company covered by such Incentive Option may not
be less than one hundred ten percent (110%) of the fair market
value of such shares on the day the Incentive Option is
granted.
(3) DETERMINATION OF FAIR MARKET VALUE. During such
time as the Common Stock of the Company is not listed upon an
established stock exchange, the fair market value per share
shall be deemed to be the closing sales price of the Common
Stock on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") on the day the Option is
granted, as reported by NASDAQ, if the Common Stock is so
quoted, and if not so quoted, the mean between dealer "bid"
and "ask," prices of the Common Stock in the New York
over-the-counter market on the day the Option is granted, as
reported by the National Association of Securities Dealers,
Inc. If the Common Stock is listed upon an established stock
exchange or exchanges, such fair market value shall be deemed
to be the highest closing price of the Common Stock on such
stock exchange or exchanges on the day the Option is granted
or, if no sale of the Common Stock of the Company shall have
been made on established stock exchange on such day, on the
next preceding day on which there was a sale of such stock. If
there is no market price for the Common Stock, then the Board
of Directors and the Committee may, after taking all relevant
facts into consideration, determine the fair market value of
the Common Stock.
(e) EXERCISE OF OPTIONS. To the extent that a holder
of an Option has a current right to exercise, the Option may
be exercised from time to time by written notice to the
Company at its principal place of business. Such notice shall
state the election to exercise the Option, the number of whole
shares in respect of which it is being exercised, shall be
signed by the person or persons so
1998 STOCK COMPENSATION PLAN - Page 5
<PAGE>
exercising the Option, and shall contain any investment
representation required by Section 8(i) hereof. Such notice
shall be accompanied by payment of the full purchase price
of such shares and by the Option Agreement evidencing the
Option. In addition, if the Option shall be exercised,
pursuant to Section 8(c)(4) or Section 8(c)(5) hereof, by
any person or persons other than the optionee, such notice
shall also be accompanied by appropriate proof of the right
of such person or persons to exercise the Option. The
Company shall deliver a certificate or certificates
representing such shares as soon as practicable after the
aforesaid notice and payment of such shares shall be
received. The certificate or certificates for the shares as
to which the Option shall have been so exercised shall be
registered in the name of the person or persons so exercising
the Option. In the event the Option shall not be exercised
in full, the Secretary of the Company shall endorse or cause
to be endorsed on the Option the number of shares which has
been exercised thereunder and the number of shares that
remain exercisable under the Option and return such Option
Agreement to the holder thereof.
(f) NON-TRANSFERABILITY OF OPTIONS. An Option granted
pursuant to the Plan shall be exercisable only by the optionee
or the optionee's court appointed guardian as set forth in
Section 8(c)(4) hereof during the optionee's lifetime and
shall not be assignable or transferable by the optionee
otherwise than by Will or the laws of descent and
distribution. An Option granted pursuant to the Plan shall not
be assigned, pledged or hypothecated in any way (whether by
operation of law or otherwise other than by Will or the laws
of descent and distribution) and shall not be subject to
execution, attachment, or similar process. Any attempted
transfer, assignment, pledge, hypothecation, or other
disposition of any Option or of any rights granted thereunder
contrary to the foregoing provisions of this Section 8(f), or
the levy of any attachment or similar process upon an Option
or such rights, shall be null and void.
(g) LIMITATIONS ON 10% SHAREHOLDERS. No Incentive
Option may be granted under the Plan to any 10% Shareholder
unless (i) such Incentive Option is granted at an option price
not less than one hundred ten percent (110%) of the fair
market value of the shares on the day the Incentive Option is
granted and (ii) such Incentive Option expires on a date not
later than five (5) years from the date the Incentive Option
is granted.
(h) LIMITS ON VESTING OF INCENTIVE OPTIONS. An
individual may be granted one or more Incentive Options,
provided that the aggregate fair market value (as determined
at the time such Incentive Option is granted) of the stock
with respect to which Incentive Options are exercisable for
the first time by such individual during any calendar year
shall not exceed $100,000. To the extent the $100,000
limitation in the preceding sentence is exceeded, such option
shall be treated as an option which is not an Incentive
Option.
(i) COMPLIANCE WITH SECURITIES LAWS. The Plan and the
grant and exercise of the rights to purchase shares hereunder,
and the Company's obligations to sell and deliver shares upon
the exercise of rights to purchase shares, shall be subject to
all applicable federal and state laws, rules and regulations,
and to such approvals by any regulatory or governmental agency
as may, in the opinion of counsel for the Company, be
required, and shall also be subject to all applicable rules
and regulations of any stock exchange upon which the Common
Stock of the Company may then be listed. At the time of
exercise of any Option, the Company may require the optionee
to execute any documents or take any action which may be then
necessary to comply with the Securities Act of 1933, as
amended ("Securities Act"), and the rules and regulations
promulgated thereunder, or any other applicable federal or
state laws regulating the sale and issuance of securities, and
the Company may, if it deems necessary, include provisions in
the stock option agreements to assure such compliance. The
Company may, from time to time, change its requirements with
respect to enforcing compliance with federal and state
securities laws, including the request for and enforcement of
letters of investment intent, such requirements to be
determined by the Company in its judgment as necessary to
assure compliance with said laws. Such changes may be made
with respect to any particular Option or stock issued upon
exercise thereof. Without limiting the
1998 STOCK COMPENSATION PLAN - Page 6
<PAGE>
generality of the foregoing, if the Common Stock issuable
upon exercise of an Option granted under the Plan is not
registered under the Securities Act, the Company at the time
of exercise will require that the registered owner execute
and deliver an investment representation agreement to the
Company in form acceptable to the Company and its counsel,
and the Company will place a legend on the certificate
evidencing such Common Stock restricting the transfer
thereof, which legend shall be substantially as follows:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAW BUT HAVE BEEN ACQUIRED FOR THE
PRIVATE INVESTMENT OF THE HOLDER HEREOF AND MAY NOT
BE OFFERED, SOLD OR TRANSFERRED UNTIL EITHER (i) A
REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR
SUCH APPLICABLE STATE SECURITIES LAWS SHALL HAVE
BECOME EFFECTIVE WITH REGARD THERETO, OR (ii) THE
COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY AND ITS COUNSEL THAT
REGISTRATION UNDER SUCH SECURITIES ACT OR SUCH
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN
CONNECTION WITH SUCH PROPOSED OFFER, SALE OR
TRANSFER.
(j) ADDITIONAL PROVISIONS. The Option Agreements
authorized under the Plan shall contain such other provisions
as the Committee shall deem advisable, including, without
limitation, restrictions upon the exercise of the Option. Any
such Option Agreement with respect to an Incentive Option
shall contain such limitations and restrictions upon the
exercise of the Incentive Option as shall be necessary in
order that the option will be an "Incentive Stock Option" as
defined in Section 422 of the Code.
9. MEDIUM AND TIME OF PAYMENT. The purchase price of the shares of
the Common Stock as to which the Option shall be exercised shall be paid in
full either (i) in cash at the time of exercise of the Option, (ii) by
tendering to the Company shares of the Company's Common Stock having a fair
market value (as of the date of receipt of such shares by the Company) equal
to the purchase price for the number of shares of Common Stock purchased, or
(iii) partly in cash and partly in shares of the Company's Common Stock
valued at fair market value as of the date of receipt of such shares by the
Company. Cash payment for the shares of the Common Stock purchased upon
exercise of the Option shall be in the form of either a cashier's check,
certified check or money order. Personal checks may be submitted, but will
not be considered as payment for the shares of the Common Stock purchased and
no certificate for such shares will be issued until the personal check clears
in normal banking channels. If a personal check is not paid upon presentment
by the Company, then the attempted exercise of the Option will be null and
void. In the event the optionee tenders shares of the Company's Common Stock
in full or partial payment for the shares being purchased pursuant to the
Option, the shares of Common Stock so tendered shall be accompanied by fully
executed stock powers endorsed in favor of the Company with the signature on
such stock power being guaranteed. If an optionee tenders shares, such
optionee assumes sole and full responsibility for the tax consequences, if
any, to such optionee arising therefrom, including the possible application
of Code Section 424(c), or its successor Code section, which negates any
nonrecognition of income rule with respect to such transferred shares, if
such transferred shares have not been held for the minimum statutory holding
period to receive preferential tax treatment.
1998 STOCK COMPENSATION PLAN - Page 7
<PAGE>
10. ALTERNATE STOCK APPRECIATION RIGHTS.
(a) AWARD OF ALTERNATE STOCK RIGHTS. Concurrently with or
subsequent to the award of any Option to purchase one or more shares of
Common Stock, the Committee may in its sole discretion, subject to the
provisions of the Plan and such other terms and conditions as the
Committee may prescribe, award to the optionee with respect to each
share of Common Stock covered by an Option ("Related Option"), a
related alternate stock appreciation right ("SAR"), permitting the
optionee to be paid the appreciation on the Related Option in lieu of
exercising the Related Option. A SAR granted with respect to an
Incentive Option must be granted together with the Related Option. A
SAR granted with respect to a Nonqualified Option may be granted
together with or subsequent to the grant of such Related Option.
(b) ALTERNATE STOCK RIGHTS AGREEMENT. Each SAR shall be on
such terms and conditions not inconsistent with this Plan as the
Committee may determine and shall be evidenced by a written agreement
executed by the Company and the optionee receiving the Related Option.
(c) EXERCISE. An SAR may be exercised only if and to the
extent that its Related Option is eligible to be exercised on the date
of exercise of the SAR. To the extent that a holder of a SAR has a
current right to exercise, the SAR may be exercised from time to time
by written notice to the Company at its principal place of business.
Such notice shall state the election to exercise the SAR, the number of
shares in respect of which it is being exercised, shall be signed by
the person so exercising the SAR and shall be accompanied by the
agreement evidencing the SAR and the Related Option. In the event the
SAR shall not be exercised in full, the Secretary of the Company shall
endorse or cause to be endorsed on the SAR and the Related Option the
number of shares which have been exercised thereunder and the number of
shares that remain exercisable under the SAR and the Related Option and
return such SAR and Related Option to the holder thereof.
(d) AMOUNT OF PAYMENT. The amount of payment to which an
optionee shall be entitled upon the exercise of each SAR shall be equal
to 100% of the amount, if any, by which the fair market value of a
share of Common Stock on the exercise date exceeds the fair market
value of a share of Common Stock on the date the Option related to said
SAR was granted or became effective, as the case may be; provided,
however, the Company may, in its sole discretion, withhold from such
cash payment any amount necessary to satisfy the Company's obligation
for withholding taxes with respect to such payment. For this purpose,
the fair market value of a share of Common Stock shall be determined as
set forth in Section 8(d) hereof.
(e) FORM OF PAYMENT. The amount payable by the Company to an
optionee upon exercise of a SAR may be paid in shares of Common Stock,
cash or a combination thereof. The number of shares of Common Stock to
be paid to an optionee upon such optionee's exercise of SAR shall be
determined by dividing the amount of payment determined pursuant to
Section 10(d) hereof by the fair market value of a share of Common
Stock on the exercise date of such SAR. For purposes of this Plan, the
exercise date of a SAR shall be the date the Company receives written
notification from the optionee of the exercise of the SAR in accordance
with the provisions of Section 10(c) hereof. As soon as practicable
after exercise, the Company shall either deliver to the optionee the
amount of cash due such optionee or a certificate or certificates for
such shares of Common Stock. All such shares shall be issued with the
rights and restrictions specified herein.
(f) TERMINATION OF SAR. Except as otherwise provided in case
of Disability (as defined in Section 8(c)(4) hereof) or death, no SAR
shall be exercisable after an optionee ceases to be an employee,
director or advisor of the Company or Subsidiary; provided, however,
that the Committee shall have the right in its sole discretion, but not
the obligation, to extend the exercise period for not more than three
(3) months following the date such optionee ceases to be an employee,
director or advisor of the Company or a Subsidiary; provided further,
that the Committee may not extend the period during which an optionee
may exercise a SAR for a period greater than the period during which an
optionee may exercise the Related Option. If an optionee's position as
an employee, director or advisor of the Company is terminated due to
the Disability or death of such optionee, the Committee shall have the
right, in its sole discretion, but not the obligation, to extend the
exercise period applicable to the SAR for a period not to exceed the
period in which
1998 STOCK COMPENSATION PLAN - Page 8
<PAGE>
the optionee may exercise the Option related to said SAR as set forth
in Sections 8(c)(4) and 8(c)(5) hereof, respectively.
(g) EFFECT OF EXERCISE OF SAR. The exercise of any SAR shall
cancel and terminate the right to purchase an equal number of shares
covered by the Related Option.
(h) EFFECT OF EXERCISE OF RELATED OPTION. Upon the exercise or
termination of any Related Option, the SAR with respect to such Related
Option shall terminate to the extent of the number of shares of Common
Stock as to which the Related Option was exercised or terminated.
(i) NON-TRANSFERABILITY OF SAR. A SAR granted pursuant to this
Plan shall be exercisable only by the optionee or the optionee's court
appointed guardian as set forth in Section 8(c)(4) hereof during the
optionee's lifetime and, subject to the provisions of Section 10(f)
hereof, shall not be assignable or transferable by the optionee. A SAR
granted pursuant to the Plan shall not be assigned, pledged or
hypothecated in any way (whether by operation of law or otherwise) and
shall not be subject to execution, attachment, or similar process. Any
attempted transfer, assignment, pledge, hypothecation, or other
disposition of any SAR or of any rights granted thereunder contrary to
the foregoing provisions of this Section 10(i), or the levy of any
attachment or similar process upon a SAR or such rights, shall be null
and void.
11. RIGHTS AS A SHAREHOLDER. The holder of an Option or a SAR shall
have no rights as a shareholder with respect to the shares covered by the
Option or SAR until the due exercise of the Option, Related Option, or SAR
and the date of issuance of one or more stock certificates to such holder for
such shares. No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or
distributions or other rights for which the record date is prior to the date
such stock certificate is issued, except as provided in Section 14 hereof.
12. OPTIONEE'S AGREEMENT TO SERVE. Each employee receiving an Option
shall, as one of the terms of the Option Agreement agree that such employee
will remain in the employ of the Company or Subsidiary for a period of at
least one (1) year from the date on which the Option shall be granted to such
employee; and that such employee will, during such employment, devote such
employee's entire time, energy, and skill to the service of the Company or a
Subsidiary as may be required by the management thereof, subject to
vacations, sick leaves, and military absences. Such employment, subject to
the provisions of any written contract between the Company or a Subsidiary
and such employee, shall be at the pleasure of the Board of Directors of the
Company or a Subsidiary, and at such compensation as the Company or a
Subsidiary shall reasonably determine. Any termination of such employee's
employment during the period which the employee has agreed pursuant to the
foregoing provisions of this Section 13 to remain in employment that is
either for cause or voluntary on the part of the employee shall be deemed a
violation by the employee of such employee's agreement. In the event of such
violation, any Option or Options held by such employee, to the extent not
theretofore exercised, shall forthwith terminate, unless otherwise determined
by the Committee. Notwithstanding the preceding, neither the action of the
Company in establishing the Plan nor any action taken by the Company, a
Subsidiary or the Committee under the provisions hereof shall be construed as
granting the optionee the right to be retained in the employ of the Company
or a Subsidiary, or to limit or restrict the right of the Company or a
Subsidiary, as applicable, to terminate the employment of any employee of the
Company or a Subsidiary, with or without cause.
13. ADJUSTMENTS ON CHANGES IN CAPITALIZATION.
(a) CHANGES IN CAPITALIZATION. Subject to any required action
by the Shareholders of the Company, the number of shares of Common
Stock covered by the Plan, the number of shares of Common Stock covered
by each outstanding Option, and the exercise price per share thereof
specified in each such Option, shall be proportionately adjusted for
any increase or decrease in the number of issued shares of Common Stock
of the Company resulting from a subdivision or consolidation of shares
or the payment of a stock dividend (but only on the Common Stock) or
any other increase or decrease in the number of such shares effected
without receipt of consideration by the Company after the date the
Option is granted, so that upon exercise of the Option, the optionee
shall receive the same number of shares the optionee would have
received had the optionee been the holder of all shares subject to such
optionee's outstanding Option immediately before the effective date of
such change in the number of issued shares of the Common Stock of the
Company.
1998 STOCK COMPENSATION PLAN - Page 9
<PAGE>
(b) REORGANIZATION, DISSOLUTION OR LIQUIDATION. Subject to any
required action by the Shareholders of the Company, if the Company
shall be the surviving corporation in any merger or consolidation, each
outstanding Option shall pertain to and apply to the securities to
which a holder of the number of shares of Common Stock subject to the
Option would have been entitled. A dissolution or liquidation of the
Company or a merger or consolidation in which the Company is not the
surviving corporation, shall cause each outstanding Option to terminate
as of a date to be fixed by the Committee (which date shall be as of or
prior to the effective date of any such dissolution or liquidation or
merger or consolidation); provided, that not less than thirty (30) days
written notice of the date so fixed as such termination date shall be
given to each optionee, and each optionee shall, in such event, have
the right, during the said period of thirty (30) days preceding such
termination date, to exercise such optionee's Option in whole or in
part in the manner herein set forth.
(c) CHANGE IN PAR VALUE. In the event of a change in the
Common Stock of the Company as presently constituted, which change is
limited to a change of all of its authorized shares with par value into
the same number of shares with a different par value or without par
value, the shares resulting from any change shall be deemed to be the
Common Stock within the meaning of the Plan.
(d) NOTICE OF ADJUSTMENTS. To the extent that the adjustments
set forth in the foregoing paragraphs of this Section 14 relate to
stock or securities of the Company, such adjustments, if any, shall be
made by the Committee, whose determination in that respect shall be
final, binding and conclusive, provided that each Incentive Option
granted pursuant to this Plan shall not be adjusted in a manner that
causes the Incentive Option to fail to continue to qualify as an
"Incentive Stock Option" within the meaning of Section 422 of the Code.
The Company shall give timely notice of any adjustments made to each
holder of an Option under this Plan and such adjustments shall be
effective and binding on the optionee.
(e) EFFECT UPON HOLDER OF OPTION. Except as hereinbefore
expressly provided in this Section 14, the holder of an Option shall
have no rights by reason of any subdivision or consolidation of shares
of stock of any class or the payment of any stock dividend or any other
increase or decrease in the number of shares of stock of any class by
reason of any dissolution, liquidation, merger, reorganization, or
consolidation, or spin-off of assets or stock of another corporation,
and any issue by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall not
affect, and no adjustment by reason thereof shall be made with respect
to, the number or price of shares of Common Stock subject to the
Option. Without limiting the generality of the foregoing, no adjustment
shall be made with respect to the number or price of shares subject to
any Option granted hereunder upon the occurrence of any of the
following events:
(1) The grant or exercise of any other options which
may be granted or exercised under any qualified or
nonqualified stock option plan or under any other employee
benefit plan of the Company whether or not such options were
outstanding on the date of grant of the Option or thereafter
granted;
(2) The sale of any shares of Common Stock in the
Company's initial or any subsequent public offering,
including, without limitation, shares sold upon the exercise
of any overallotment option granted to the underwriter in
connection with such offering;
(3) The issuance, sale or exercise of any warrants to
purchase shares of Common Stock whether or not such warrants
were outstanding on the date of grant of the Option or
thereafter issued;
(4) The issuance or sale of rights, promissory notes
or other securities convertible into shares of Common Stock in
accordance with the terms of such securities ("Convertible
Securities") whether or not such Convertible Securities were
outstanding on the date of grant of the Option or were
thereafter issued or sold;
(5) The issuance or sale of Common Stock upon
conversion or exchange of any Convertible Securities, whether
or not any adjustment in the purchase price was made or
required to be made upon the issuance or sale of such
Convertible Securities and whether or not such
1998 STOCK COMPENSATION PLAN - Page 10
<PAGE>
Convertible Securities were outstanding on the date of grant
of the Option or were thereafter issued or sold; or
(6) Upon any amendment to or change in the terms of
any rights or warrants to subscribe for or purchase, or
options for the purchase of, Common Stock or Convertible
Securities or in the terms of any Convertible Securities,
including, but not limited to, any extension of any expiration
date of any such right, warrant or option, any change in any
exercise or purchase price provided for in any such right,
warrant or option, any extension of any date through which any
Convertible Securities are convertible into or exchangeable
for Common Stock or any change in the rate at which any
Convertible Securities are convertible into or exchangeable
for Common Stock.
(f) RIGHT OF COMPANY TO MAKE ADJUSTMENTS. The grant of an
Option pursuant to the Plan shall not affect in any way the right or
power of the Company to make adjustments, reclassification,
reorganizations, or changes of its capital or business structure or to
merge or to consolidate or to dissolve, liquidate or sell, or transfer
all or any part of its business or assets.
14. INVESTMENT PURPOSE. Each Option under the Plan shall be granted
on the condition that the purchase of the shares of stock thereunder shall be
for investment purposes, and not with a view to resale or distribution;
provided, however, that in the event the shares of stock subject to such
Option are registered under the Securities Act or in the event a resale of
such shares of stock without such registration would otherwise be
permissible, such condition shall be inoperative if in the opinion of counsel
for the Company such condition is not required under the Securities Act or
any other applicable law, regulation, or rule of any governmental agency.
15. NO OBLIGATION TO EXERCISE OPTION OR SAR. The granting of an
Option or SAR shall impose no obligation upon the optionee to exercise such
Option or SAR.
16. MODIFICATION, EXTENSION, AND RENEWAL OF OPTIONS. Subject to the
terms and conditions and within the limitations of the Plan, the Committee
and the Board of Directors may modify, extend or renew outstanding Options
granted under the Plan, or accept the surrender of outstanding Options (to
the extent not theretofore exercised). Neither the Committee nor the Board of
Directors shall, however, modify any outstanding Options so as to specify a
lower price or accept the surrender of outstanding Options and authorize the
granting of new Options in substitution therefor specifying a lower price.
Notwithstanding the foregoing, however, no modification of an Option shall,
without the consent of the optionee, alter or impair any rights or
obligations under any Option theretofore granted under the Plan.
17. EFFECTIVE DATE OF THE PLAN. The Plan shall become effective on
the date of execution hereof, which date is the date the Board of Directors
approved and adopted the Plan ("Effective Date"); provided, however, if the
Shareholders of the Company shall not have approved the Plan by the requisite
vote of the Shareholders, within twelve (12) months after the Effective Date,
then the Plan shall terminate and all Options theretofore granted under the
Plan shall terminate and be null and void.
18. TERMINATION OF THE PLAN. This Plan shall terminate as of the
expiration of ten (10) years from the Effective Date. Options may be granted
under this Plan at any time and from time to time prior to its termination.
Any Option outstanding under the Plan at the time of its termination shall
remain in effect until the Option shall have been exercised or shall have
expired.
19. AMENDMENT OF THE PLAN. The Plan may be terminated at any time by
the Board of Directors of the Company. The Board of Directors may at any time
and from time to time without obtaining the approval of the Shareholders of
the Company or a Subsidiary, modify or amend the Plan (including such form of
Option Agreement as hereinabove mentioned) in such respects as it shall deem
advisable in order that the Incentive Options granted under the Plan shall be
"Incentive Stock Options" as defined in Section 422 of the Code or to conform
to any change in the law, or in any other respect which shall not change: (a)
the maximum number of shares for which Options may be granted under the Plan,
except as provided in Section 14 hereof; or (b) the option prices other than
to change the manner of determining the fair market value of the Common Stock
for the purpose of Section 8(d) hereof to conform with any then applicable
provisions of the Code or regulations thereunder; or (c) the periods during
which Options may be granted or exercised; or (d) the provisions relating to
the determination of persons to whom Options shall be granted
1998 STOCK COMPENSATION PLAN - Page 11
<PAGE>
and the number of shares to be covered by such Options; or (e) the provisions
relating to adjustments to be made upon changes in capitalization. The
termination or any modification or amendment of the Plan shall not, without
the consent of the person to whom any Option shall theretofore have been
granted, affect that person's rights under an Option theretofore granted to
such person. With the consent of the person to whom such Option was granted,
an outstanding Option may be modified or amended by the Committee in such
manner as it may deem appropriate and consistent with the requirements of
this Plan applicable to the grant of a new Option on the date of modification
or amendment.
20. WITHHOLDING. Whenever an optionee shall recognize compensation
income as a result of the exercise of any Option or SAR granted under the
Plan, the optionee shall remit in cash to the Company or Subsidiary the
minimum amount of federal income and employment tax withholding which the
Company or Subsidiary is required to remit to the Internal Revenue Service in
accordance with the then current provisions of the Code. The full amount of
such withholding shall be paid by the optionee simultaneously with the award
or exercise of an Option or SAR, as applicable.
21. INDEMNIFICATION OF COMMITTEE. In addition to such other rights
of indemnification as they may have as Directors or as members of the
Committee, the members of the Committee shall be indemnified by the Company
against the reasonable expenses, including attorneys' fees actually and
necessarily incurred in connection with the defense of any action, suit or
proceedings, or in connection with any appeal therein, to which they or any
of them may be a party by reason of any action taken or failure to act under
or in connection with the Plan or any Option granted thereunder, and against
all amounts paid by them in settlement thereof (provided such settlement is
approved by independent legal counsel selected by the Company) or paid by
them in satisfaction of a judgment in any such action, suit or proceeding,
except in relation to matters as to which it shall be adjudged in such
action, suit or proceeding that such Committee member is liable for
negligence or misconduct in the performance of his duties; provided that
within sixty (60) days after institution of any such action, suit or
proceeding a Committee member shall in writing offer the Company the
opportunity, at its own expense, to pursue and defend the same.
22. APPLICATION OF FUNDS. The proceeds received by the Company from
the sale of Common Stock pursuant to Options granted hereunder will be used
for general corporate purposes.
23. GOVERNING LAW. This Plan shall be governed and construed in
accordance with the laws of the state of incorporation of the Company.
EXECUTED on the 23rd day of December, 1998 and modified this 24th
day of June, 1999.
RAMPART CAPITAL CORPORATION
By: /s/ CHARLES W. JANKE
Charles W. Janke, Chairman
ATTEST:
/s/ J. H. CARPENTER
- --------------------------
J. H. Carpenter, Secretary
1998 STOCK COMPENSATION PLAN - Page 12
<PAGE>
MANAGEMENT AGREEMENT
THIS AGREEMENT, made as of the 12 day of November, 1999, is between
Owner (hereinafter named), and BMC-The Benchmark Management Company, a Texas
corporation doing business as Benchmark Golf (hereinafter called "Operator"):
W I T N E S S E T H:
WHEREAS, Owner proposes to provide the first-class golf club and
conference center known as Newport Golf Club & Conference Center whose Site is
located at 16401 Country Club Drive, Houston, Texas (hereinafter referred to and
defined as the "Project"); and
WHEREAS, Owner desires to obtain the benefits of Operator's expertise
in the management and operation of the Project, and Operator desires to provide
its management upon the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, Owner and Operator agree as follows:
ARTICLE I
DEFINITIONS
1.1 BASE FEE. The Base Fee of SEVEN THOUSAND DOLLARS ($7,000.00) per
month, or pro rata portion thereof. The Base Fee shall be adjusted annually
according to the increase in the Consumer Price Index, mutually agreeable to
both parties.
1.2 BUDGETS. An estimate of income, revenues and expenditures
(including capital expenditures and replacements) approved by Owner pursuant to
Paragraph 4.3 below.
1.3 BUILDINGS. The buildings and improvements to be located on the
Project, including locker room, pro shop, golf cart storage and maintenance
area, restaurant, bar, and other public rooms, recreational facilities,
landscaped grounds and other facilities necessary for the operation of a
first-class golf club and conference center, together with all fixtures and
equipment necessary for the efficient operation of the buildings and other
improvements, including without limitation, heating, air conditioning, lighting,
sanitation, laundry, refrigeration, kitchen, and other similar fixtures and
equipment.
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<PAGE>
1.4 EXECUTIVE COMMITTEE MEMBERS. The members of this committee shall be
the general manager, head golf professional, golf course superintendent,
marketing manager, and food & beverage manager, or any positions mutually agreed
upon between Owner and Operator. Owner will have the right to approve the
general manager, head golf professional, golf course superintendent and food &
beverage manager or require their removal if such request is for cause which
directly affects his ability to operate the Project, or maintain the Project's
image in the community. Owner will have the right to attend Executive Committee
meetings.
1.5 FISCAL YEAR. The year ending December 31, which is the fiscal year
established by Owner for the Project.
1.6 FURNISHINGS AND EQUIPMENT.
(a) The Operating Equipment;
(b) All furniture, furnishings and specialized golf
course equipment;
(c) Office furniture and equipment.
1.7 GROSS REVENUES. Income derived from aggregate sales to unaffiliated
as well as affiliated customers of all products and services offered at the
Project, including annual golf contract fees and trail fees, food and beverage
sales, guest privilege fees, service charges, golf operations and other user
fees, and other revenues; but, excluding:
(a) revenues from sales of goods or services by
concessionaires;
(b) sales and use taxes or other similar impositions
collected directly from customers or included as the sales price of any
goods or services;
(c) revenues from the sale of disposition of capital
assets;
(d) proceeds from financings or refinancings; (e) sales
allowances, discounts, rebates and adjustments;
(f) golf revenue derived from the annual charity event
held one day each year on behalf of the Boys and Girls Harbor.
1.8 INCENTIVE FEE. Twenty percent (20%) of Net Operating Income over
approved operating budget for calendar year 2000 (attached hereto as Exhibit
"C"), or pro rata portion thereof, if applicable. For each of the years two
through five, the incentive Fee shall be 20%
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<PAGE>
of net operating income over each prior year. In each of years six through
ten, the Incentive Fee shall be 15% of the increased net operating income
over the four-year average actual net operating income for contract years two
through five. The Incentive Fee will be calculated annually and paid to
Operator within thirty (30) days of the presentation of final year-end
financial statements.
1.9 INCOME BEFORE FIXED CHARGES. For any period, the sum of Gross
Revenues and business interruption insurance proceeds less all direct expenses
but before Replacement Reserves, depreciation and amortization, property and
liability insurance, interest, real estate and personal property taxes, and any
state or federal income taxes.
1.10 NET OPERATING INCOME. For any period, the sum of Gross Revenues
and business interruption insurance proceeds less all direct and undistributed
operating expenses but before Base Fee, Incentive Fees, Replacement Reserves,
depreciation and amortization, property and liability insurance, interest, real
estate and personal property taxes, and any state or federal income taxes.
1.11 OPERATING EQUIPMENT. All chinaware, glasses, utensils, silverware
and uniforms necessary for the operation of the Project.
1.12 OPERATING SUPPLIES. Supplies, cleaning materials, food and
beverages, and other consumable items.
1.13 OPERATING YEAR. A twelve-month year of operation under this
Agreement.
1.14 OWNER. Rampart Properties Corporation, a wholly owned subsidiary
of Rampart Capital Corporation.
1.15 OWNERS MEETING. There will be a quarterly meeting between the
Owner, the Operator's Home Office representatives and the appropriate members
of the Project's Executive Committee. At the quarterly meeting, the agenda
will consist of review of financial performance, ninety (90) day forecasts,
review of marketing strategies, reviews and status of all capital projects,
capital planning sessions and any matters relevant to management and
operation of the Project.
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<PAGE>
1.16 PROJECT. The Buildings, the Site, the Furnishings and Equipment,
together with all entrances, exits, rights of ingress and egress, riparian
rights, easements and appurtenances thereunto belonging or appertaining to the
property known as Newport Golf Club & Conference Center.
1.17 REPLACEMENT EXPENDITURES. Unless otherwise specified by the
Budget, the amount of Replacement Expenditures during a fiscal year will be:
<TABLE>
<CAPTION>
YEAR OF OPERATION PERCENT OF GROSS SALES
----------------- ----------------------
<S> <C>
1 2 percent
2 3 percent
3 4 percent
4 5 percent
</TABLE>
1.18 SITE. A tract of real property described in Exhibit A and A-1
attached hereto on which the Buildings, golf course and nine expansion golf
holes are located.
1.19 TERM. The original term shall be five (5) years commencing on
January 1, 2000, and Operator shall have the right as set forth in Article III
to renew the term for five (5) years.
1.20 TERM OF THIS AGREEMENT. The phrase "Term of this Agreement" as
used herein shall mean the original term and any renewal or renewals thereof
then in effect in accordance with the provisions of Article III.
1.21 UNIFORM SYSTEM. A Uniform System of Accounts for Hotels, as
revised from time to time and approved by The American Hotel and Motel
Association. Accounting terms used in this Agreement have the meanings given
them in the Uniform System and must conform to Generally Accepted Accounting
Principles ("GAAP").
ARTICLE II
OWNER'S TITLE
Owner represents and warrants as follows:
(a) Owner is the fee simple owner of the Project and has full power and
authority to enter into this Agreement.
(b) The Project is used as a golf club and conference center and all
necessary
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governmental and other permits and approvals which Owner is required to
obtain under the terms of this Agreement for such use has been obtained and
are in full force and effect.
ARTICLE III
TERM OF AGREEMENT
3.1 RENEWALS. This Agreement shall continue for the term described in
Paragraph 1.19 hereof. Operator shall have the right and option to renew such
term for successive periods as set out in Paragraph 1.19 hereof, upon the
following terms and conditions:
(a) Each renewal term shall be upon the same terms, covenants
and conditions as in this Agreement, except as modified in this Article
III;
(b) The term of this Agreement shall have been renewed for the
prior renewal term (if applicable);
(c) Operator shall exercise its right to renew the term by
written notice to Owner at least six (6) months prior to the expiration
of the then existing term.
ARTICLE IV
DUTIES OF OPERATOR
4.1 MANAGEMENT AND OPERATION. During the term of this Agreement,
Operator agrees, for and in consideration of the compensation hereinafter
provided, to supervise and direct the management and operation of the Project
including but not limited to the responsibility for all matters relating to
human resources, accounting, management information services support, and
facilities evaluation in addition to management oversight, as the independent
contractor of Owner, and Owner hereby grants Operator the sole and exclusive
right to do so. Without limiting the generality of the foregoing, Owner grants
to Operator the sole and exclusive right, and Operator agrees.
4.2 GENERAL STANDARD. To operate the Project in the same manner as is
customary and usual in the operation of comparable facilities, to provide such
services as are customarily provided by operators of a golf club and conference
center of comparable class and standard consistent with the Project's
facilities, and to consult with Owner and keep Owner advised as to
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<PAGE>
all major policy matters affecting the Project; provided, however, that
Operator will make no major policy changes not reflected in the Budget
without prior written approval of Owner. In this connection, and except as
otherwise required by this Agreement, Operator shall have all reasonable
discretion in the operation, direction, management and supervision of the
Project, including without limitation, labor policies, credit policies
(including entering into agreements with credit card organizations),
cashiering, terms of admittance food and beverages, purchases of Operating
Equipment not to exceed $5,000, maintenance of the Project, repairs to and
replacements of Furnishings and Equipment, the institution of such legal
proceedings as are necessary in connection with tenants or otherwise in the
operation of the Project, all matters relating to employee safety, health and
welfare, insurance, benefits and the like, and all phases of advertising,
promotion, publicity, marketing and sales strategy relating to the Project.
4.3 BUDGETS. To submit for Owner's approval, within sixty (60) days,
prior to the first day of the succeeding Fiscal Year, a Budget in reasonable
detail, including special repairs and maintenance projects and Replacement
Expenditures. In conjunction with submittal of the Budget, Owner will review the
marketing strategy, major operating assumptions, any proposed changes in
physical facilities, and the proposed Replacement Expenditures. These items may
not then be changed without the consent of both parties. If Owner and Operator
cannot agree upon a budget for the ensuing year, then the last budget submitted
by Operator along with written objections of Owner shall be submitted to a
mutually acceptable nationally recognized independent firm with expertise in the
financial aspects of golf club and conference center operations such as Pannell
Kerr Forster ("Consultant"). Consultant shall review the documents and recommend
a budget for the ensuring year. The budget so recommended by Consultant shall be
considered the Budget under which the Project will be administered. Until such
time that a Budget is approved, the prior year's actual revenues and expenses
adjusted by a percentage equal to the increase year over year in the U. S.
Consumer Price Index. Such Budgets shall, in general, form the basis on which
expenditures for the Project shall be made, it being understood and agreed that,
subject to the limitations contained in this Agreement, Operator may deviate
from such Budgets if in Operator's reasonable judgment a deviation is necessary
or desirable for the efficient operation of the Project as a first-class golf
club and
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conference center. Operator makes no guarantee, warranty or representation
whatsoever in connection with the Budgets, other than that the Budgets will
be prepared in good faith to the best of Operator's ability and will be
reasonable estimates of anticipated operations. Operator will notify Owner as
soon as reasonably possible of any anticipated or actual significant variance
in the budgeted monthly income or expenses for any department, and will
provide an explanation of the reason for the variance and measures being
taken in response to it. Any variance which exceeds the monthly budgeted
total departmental amount for that department by fifteen percent (15%) per
individual item or ten percent (10%) aggregate will be deemed significant.
Any expenditures not in the approved budget and exceeding $5,000 or with a
term of longer than one year must have written Owner approval.
4.4 EMPLOYEES. To hire, promote, discharge and supervise the work of
the management staff (i.e., general manager, assistant managers and department
heads) of the Project and to supervise through said management staff the
recruiting, hiring, promoting, discharging and work of all other operating and
service employees performing services in or about the Project, all in Project's
name. Operator agrees to hire the current Head Golf Professional, Golf Course
Superintendent and Chef and to evaluate their performance over ninety (90) days.
All Executive Committee Members shall be employees of Operator and all other
employees working in or about the Project shall be employees of Operator or its
subsidiary. Operator will, in the hiring of the management staff and other
operating and service employees of the Project, use or cause said management
staff to use reasonable care to select qualified, competent and trustworthy
employees. Operator will not enter into any agreement with an employee for an
annual base salary in excess of the General Manager's Base Salary without the
consent of the Owner. Operator may arrange a bonus plan to be paid to the
General Manager and the other members of the Executive Committee as an incentive
to maximize the total Income Before Fixed Charges, provided this plan is
specific for the Project, and not part of Operator's company-wide bonus, pension
or profit plans.
The General Manager and other Executive Committee Members assigned to
the Project shall be employees of Operator and their total aggregate
compensation, including salary and related fringe benefits will be expenses of
the Project. The term "fringe benefits" will include
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the items listed in Payroll Taxes and Employee Benefits in the Uniform
System, and will also include the Project's prorata share of costs of any of
Operator's company-wide incentive compensation plan, pension or profit plans
for employees involved in the Project if required by applicable federal
income tax laws. However, Operator will diligently and in good faith attempt
to structure its operations so that on-site employee wage and benefit plans
will be competitive with other such wages and benefits in the local area for
comparable employees and facilities.
Operator may from time to time find it desirable to assign one or more
of its supervisory employees to the Project on a temporary basis. Owner will
reimburse Operator for all actual expenses to and from the Project and for all
room and board while at the Project for such employees while on Project
business, but only if Owner has previously approved the assignment of such
employees, which approval will not be unreasonably withheld. If such an employee
is filling a vacant position, salary and benefits will be charged to the
Project; if such an employee is on an audit or supervisory overview function,
salary and benefits will not be charged to the Project.
Human Resource supervision and benefit administration will be handled
by Operator's Home Office personnel with no additional Human Resource fees.
The Project will participate in Benchmark University Training Programs
for its managers. The prorata expense of the training program will be an expense
of the Project.
4.5 CONCESSIONS. To consummate in the name of and for the benefit of
Owner, arrangement with concessionaires, licensees, tenants, or other intended
users of the facilities of the Project.
4.6 CONTRACTS. To enter into contracts on behalf of the Owner with
prior approval of owner for the furnishing to the Project of electricity, gas,
water, steam, telephone, cleaning (including window cleaning where necessary),
vermin extermination, boiler maintenance, air conditioning maintenance, and
other utilities, services and concessions which are provided in connection with
the maintenance and operation of a first-class golf course.
4.7 SUPPLIES. To purchase all Operating Supplies and other materials
and supplies as agent for the Owner. Owner acknowledges that Operator may
perform services as a
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representative of the manufacturer of any of such items in order to secure
the benefits of lower costs in connection with purchasing arrangements for
Owner.
4.8 MAINTENANCE. Cause to be made or installed, through a schedule of
preventative maintenance and supervisory program, all necessary or desirable
repairs, decorations, renewals, revisions, alterations, re-buildings,
replacements, additions and improvements in and to the Project; provided,
however, that such are included in the Budget or do not exceed Five Thousand
Dollars ($5,000) per item. Operator also agrees to cause needed repairs to be
recorded and serviced on a priority basis through the use of a work order
system.
4.9 PERMITS. To apply for, obtain and maintain in the name of Owner, if
legally permitted, all licenses and permits required of Owner or Operator in
connection with the management and operation of the Project. Owner agrees to
execute and deliver any and all applications and other documents and to
otherwise cooperate to the fullest extent with Operator in applying for,
obtaining and maintaining such licenses and permits.
4.10 COMPLIANCE WITH LAWS. Owner and Operator covenant to each other
that throughout the term of this Agreement, they will not take any action which
would intentionally violate any statutes, ordinances, laws, rules, regulations,
orders and requirements of any federal, state or municipal government and/or
appropriate departments, commissions, boards or officers having jurisdiction
over the Project or the construction, maintenance or operator thereof. Owner and
Operator are to comply with all orders and requirements of the local Board of
Fire Underwriters, or any other body which may hereafter exercise similar
functions, and any requirements of any agreements concerning financing of the
Project (other than the payment of loan monies, taxes or insurance). If Owner
shall adequately secure and protect Operator from loss, cost, damage and expense
by bond or other means satisfactory to Operator, Owner at its sole expense and
without cost to Operator, shall have the right to contest by proper legal
proceedings the validity of any such statute, ordinance, law, rule, regulations,
order or requirements involving Owner's actions, provided such contest shall not
result in the suspension of operations of the Project. Subject to the foregoing,
Owner may postpone compliance with any such law, ordinance, order, rule,
regulation or requirement to the extent and in the manner provided by law until
final determination of any such proceedings.
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Owner shall prosecute all such proceedings with all due diligence and
dispatch. Notwithstanding the foregoing, if failure to comply promptly with
any statute, ordinance, law, rule, regulations, order or requirement would
result in the suspension of operations of the Project or would expose Owner
or Operator to the imminent danger of criminal liability other than the
payment of fines, then in such event Operator may (but shall not be obligated
to) cause the same to be compiled with at Owner's expense.
4.11 CASH ACCOUNTS. As agent for Owner, to deposit in a banking
institution or institutions in a segregated account with both Owner and Operator
having signatory and withdrawal capacity, in the Project's name all monies
furnished by Owner as working capital and all monies received by Operator from
the Project's operation or for or on behalf of Owner, and subject to the
limitations in this Agreement, to disburse and pay the same on behalf of the
Project in such amounts and at such times as the same are required in connection
with the ownership, maintenance and operation of the Project:
(a) OPERATING COSTS. All costs and expenses of
maintaining, operating and supervising the operation of the Project,
including, without limitation, the following:
(i) The cost of all purchase of Operating Supplies.
(ii) Reimbursement to Operator for salaries, fringe
benefits and expenses of Project employees, including the Executive
Committee and General Manager.
(iii) Out-of-pocket expenses incurred for the account of or
in connection with the Project, including reasonable traveling expenses
of executives and employees of Operator and its subsidiaries and
affiliates.
(iv) All expenditures which are of an ordinary nature and
which have been covered in the Budget for the then current year, for
repairs and maintenance, Furnishings and Equipment for capital
improvements.
(v) All legal and accounting fees, paid to outside third
parties.
(vi) The Base Fee, Incentive Fee, and all reimbursements
or other payments due to Operator under the provisions of this
Agreement.
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(vii) Cost and expense of utilities, services and
concessions at the Project and any and all other expenditures provided
for in this Agreement.
(viii) Any other charge, item or expense or other item which
Owner, in writing, directs to be paid.
(ix) Any charges for outside security consultant, approved
in operating budget or approved directly by owner.
(x) If property is linked to Benchmark's Sales and
Catering Operating System and national database, any mutually agreed
allocations will be expenses of the property.
(b) TRANSFER OF FUNDS. At the end of each calendar month, Operator will
determine the amount of cash reserves which reasonably need to be retained in
the operating account, which cash reserves shall not exceed the projected cash
expenditure requirements for operating costs, debt service, taxes, Replacement
Expenditures and maintenance for the following calendar month. The balance of
funds in the operating account (if any) will then be transferred to one or more
accounts designated by Owner, which will be Owner's sole accounts, within
fifteen (15) days after the end of such calendar month.
(c) INTEREST. Interest earned on Project funds will not be considered
Project income, but will be Owner's funds and will be used to offset Owner's
required working capital contributions (if needed).
(d) RESOLUTIONS. Owner shall provide all necessary corporate
resolutions required in order to open Cash Accounts within a reasonable period
of time, not to exceed thirty (30) days from such time as the same are required
in connection with the ownership, maintenance and operation of the Project.
4.12 Owner to be responsible for paying all real estate and personal
property taxes and to notify Operator of payments and proper allocations for
financial statement preparation.
4.13 INSURANCE. Owner will take out and maintain at all times during
the term of this Agreement, insurance as provided in the Insurance Exhibit B
attached hereto and made a part of this Agreement for all purposes. Owner will
pay insurance premiums for policies specified in Exhibit B and notify Operator
of payments and proper allocations for financial statement preparation.
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Operator will take out and maintain Worker's Compensation
insurance on its employees with limits of $1,000,000. The cost of such insurance
shall be an expense of the Project.
Operator will take out and maintain a crime policy on its home
office employees and its employees at the Project with limits of not less than
one million dollars. The cost of such policy will be an expense of the Operator.
Operator shall name Owner and Owner shall name Operator as
Additional Insured.
4.14 FINANCIAL STATEMENTS. To deliver or cause to be delivered to Owner
statements as follows:
(a) MONTHLY. Within fifteen (15) days after the end of each
calendar month, Operator shall deliver or cause to be delivered to Owner a
complete financial statement, including but not limited to balance sheet and
statement of earnings before income taxes showing the results of operation of
the Project for that calendar month and the cumulative results of operation for
the Fiscal Year to date, and having annexed thereto a computation of the
management fee for such month and the Fiscal Year to date. Such statement and
computation shall be prepared by the Operator's Home Office and taken and made
from the books of account of the Project. In addition to the monthly statement,
Operator shall provide to Owner the Project's check registers, accounts payable
and accounts receivable, detailed ledgers and bank reconciliations. Operator's
Senior Vice President, Financial Operations shall warrant these monthly
statements to fairly present the Project's operation results provided that such
warrant may be subject to future changes resulting from year-end audit
adjustments.
(b) NINETY-DAY FORECAST. Simultaneously, with the presentation
of the monthly financial statement; but no later than five (5) days prior to the
commencement of the first month of the ninety (90) day forecast period, Operator
shall present and review with Owner a ninety (90) day forecast. Such forecast
shall project revenues and expenses for the next ninety (90) day period as well
as cash needs or surpluses during the ninety (90) day period.
(c) ANNUAL. Within thirty (30) days after the end of each
Fiscal Year,
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Operator will deliver or cause to be delivered to Owner a balance sheet and
related statements of earnings before income taxes, and changes in Owner's
equity and financial position for the year then ended. If required and at the
expense of the project, these financial statements may be audited by
independent public accountants recognized in the club management field,
approved by both Owner and Operator and retained by Owner. In addition, the
computation of the Base Fees and Incentive Fees, shall be included in the
footnotes to the audited financial statements and shall be included within
the scope of the independent auditor's examination.
The preparation of financial statements, payment of accounts payable
and maintenance of accounting records by Operator are included in the Base Fee
and no additional accounting fees will be paid to Operator.
4.15 LEGAL MATTERS. To institute, in its own name or in the name of
Owner, and at the Project's expense, any and all legal actions or proceedings to
collect charges, rent or other income for the Project or to oust or dispossess
guests, tenants or other persons in possession therefrom, or to cancel or
terminate any lease, license or concessions agreement for the breach thereof or
default thereunder by the tenant, licensee or concessionaire; provided, however,
that Operator shall not institute any legal actions or proceedings to oust or
dispossess tenants or other persons in possession thereunder, or cancel or
terminate any lease, license or concession agreement involving in excess of Five
Thousand Dollars ($5,000), or having a then unexpired term of one (1) year or
more, without prior consent of Owner.
ARTICLE V
FEES
5.1 PAYMENT. As compensation for the services to be rendered by
Operator during the term of this Agreement, Owner authorizes Operator to pay its
base fee monthly from the authorized Cash Accounts specified in Section
4.11.Atime specified in Section 1.8, Incentive Fees, derived from the Project in
each Fiscal Year, or portion thereof if applicable shall be paid by Owner.
5.2 ADJUSTMENTS. If, based on the audited yearly financial statements,
the aggregate installments of the management fee paid in any Fiscal Year shall
be more or less than the total
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annual management fee due for the Fiscal Year, Operator, or Owner, as the
case may be, shall pay to the other the amount of such overpayment or
underpayment within thirty (30) days after the date of the Auditor's report
on the year-end financial statements.
ARTICLE VI
GENERAL COVENANTS OF OWNER AND OPERATOR
6.1 BOOKS AND RECORDS. Operator shall supervise and direct the keeping
of, full and adequate books of account and such other records reflecting the
results of the operation of the Project. Such books and records shall be kept in
all material respects in accordance with the Uniform System of Accounts and
according to GAAP. Operator will establish an internal control program designed
to stay abreast of all operational responsibilities and to provide constructive
development of such responsibilities.
6.2 WORKING CAPITAL. Owner will, upon the commencement of this
Agreement and thereafter, provide One Hundred Thousand Dollars ($100,000) in
funds required for the uninterrupted and efficient operation and maintenance of
the Project in accordance with the previously approved Budget and sound cash
management. If, at any time during the term of this Agreement, the funds
available from Project operations for the payment of all financial requirements
of the Project, including any of the fees and the costs and expenses specified
in Paragraph 4.11, 5.1 are insufficient to pay the same as they become due and
payable, Owner shall make deposits of funds into the Project's bank accounts
sufficient to make the payments. To implement this obligation, Owner agrees to
establish and maintain, at its sole cost and expense, a financing program for
the Project to ensure that sufficient funds exist at all times to meet all
financial requirements of the Project. To the extent that Owner fails to
establish and maintain such a financing program, and fees earned and expenses
incurred by Operator are unpaid and outstanding, the fees and expenses shall
accrue interest at the annual rate of the lesser of one and one-half percent
(1.5%) over the prime lending rate of Bank One (Houston) computed on the first
day of each month or the maximum interest rate allowable unable applicable law.
A similar rate of interest shall be paid by Owner to Operator on any advances
Operator may elect, without obligation, to make on Owner's behalf in payment of
any
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obligations of Owner to third parties or Operator.
6.3 OPERATING EXPENSES. Operator will pay for the costs and expenses of
maintaining and operating the Project from funds in the operating account, as
supplemented by Owner's working capital contributions provided pursuant to
Paragraph 6.2.
6.4 OWNER'S RIGHTS OF INSPECTION AND REVIEW. Operator shall accord to
Owner, its accountants, attorneys and agents, the right to enter upon any part
of the Project during normal business hours and upon prior reasonable notice to
the Project's general manager during the term of this Agreement for the purpose
of examining or inspecting the same or examining or making extracts of books and
records of the Project or for any other purpose which Owner, in its discretion,
shall deem necessary or advisable, but the same shall be done with as little
disruption to the business of the Project as possible. Books and records of the
Project shall be kept at the Project or such other place as the parties may
hereafter agree. In all cases, prior reasonable notice and proper identification
must be given to management in charge of the Project before inspection or review
is granted.
6.5 REPLACEMENT EXPENDITURES. Funds for Replacement Expenditures shall
be provided by Owner as reasonably required, but not to exceed those specified
in that year's Budget. These funds will be used for making capitalized
replacements, substitutions and additions to the Furnishing and Equipment of the
Project in accordance with the Budget. Any expenditure for replacement,
substitution of or addition to Furnishings and Equipment during each Fiscal Year
may be made by Operator in accordance with the Budget up to the cumulative total
of Replacement Expenditures specified in the applicable Budget. Any Replacement
Expenditure of five percent (5%) or more in excess of the budgeted amount shall
be subject to Owner's discretionary approval. If the Project's Total Income
Before Fixed Charges differs from that projected by the Budget, Owner and
Operator will revise the budgeted Replacement Expenditures as appropriate to
reflect such change on a quarterly basis. Upon termination of this Agreement,
the remaining balance of any Replacement Expenditure funds advanced by Owner
shall be returned to Owner.
6.6 INDEMNIFICATION OF OPERATOR.
(a) Operator, its agents and employees, shall not be liable to
Owner or to any
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other person for any omission, negligent, tortuous or otherwise, of any agent
or employee of Owner or Operator in the performance of this Agreement, except
this provision will not apply to any such liability arising from any fraud,
willful misconduct or negligence or intentional acts of Operator, its
employees or agents. Owner hereby agrees to indemnify and hold harmless
Operator, its agents and employees from and against any such liability, loss,
damage, cost or expense (including attorneys' fees) by reason of any such act
or omission which is covered by the preceding sentence.
(b) Owner, its agents and employees, shall not be liable to
Operator or to any other person for any omission, negligent, tortuous or
otherwise, of any agent or employee of Owner or Operator in the performance of
this Agreement, except this provision will not apply to any such liability
arising from any fraud, willful misconduct or negligence or intentional acts of
Owner, its employees or agents. Operator hereby agrees to indemnify and hold
harmless Owner, its agents and employees from and against any such liability,
loss, damage, cost or expense (including attorneys' fees) by reason of any such
act or omission which is covered by the preceding sentence.
6.7 EMPLOYMENT OF EXECUTIVE COMMITTEE MEMBERS. If any of the Executive
Committee Members of the Project or other off-site executive employees of
Operator or any of its affiliated entities leave the employment of Operator or
the affiliate involved for any reason, including termination by Operator, Owner
will not hire or cause to be hired such Executive Committee Members or other
employees in any capacity for at least two (2) years following such termination
of employment with Operator, without prior written consent of Operator. This
restriction will not apply to Executive Committee Members if Operator elects not
to renew this Agreement for any additional terms permitted hereunder.
6.8 MAJOR CONTRACTS. Any expenditure, concession, contract or agreement
made by Operator under this Agreement which has a term (including renewal
options) longer than one (1) year, or involves a total expenditure in excess of
Five Thousand Dollars ($5,000), is called a "Major Contract" and must have
Owner's prior approval. Unless otherwise provided for herein, or Owner otherwise
consents, Major Contracts will be in Owner's name.
6.9 APPEALS. Unless otherwise directed by Owner, Operator may (but
shall not be
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obligated to) take, at the Project's expense, any appropriate steps to
protest and/or litigate to final decision in any appropriate court or forum
any violation, order, rule or regulation affecting the Project. Any counsel
to be engaged under this paragraph or Paragraph 4.14 above shall be mutually
approved by Owner and Operator.
ARTICLE VII
TRADE NAME
7.1 USE. The trademarks and service marks of both Owner and Operator
may be used in connection with the operation of the Project but only with the
party involved's prior consent of the proposed use. It is expressly agreed that
neither party will, by virtue of the operations under this Agreement, acquire
any right to any trademark or service mark of the other party. Each party agrees
to cooperate with the other party by all reasonable means in the protection of
its trademarks and service marks.
7.2 RESTRICTION. Anything contained in this Article VII to the contrary
notwithstanding, upon the expiration or earlier termination of this Agreement,
Owner shall have the right to use, in connection with the operation of the
Project, any and all items of Operating Equipment and Operating Supplies then on
hand bearing the trademarks or service marks of Operator but shall not reorder
any such items; and thereafter Owner shall not use any trademark or service
marks of Operator for any purpose. It is expressly provided, however, that
Operator may, at its expense, replace any such items with supplies of comparable
quality at its expense, and from and after such replacement Owner shall have no
right to use such items bearing Operator's trademarks or service marks. Any
merchandise in the golf shop utilizing the Benchmark Golf logo must first
receive Owner's approval.
ARTICLE VIII
TRANSFERS
8.1 TRANSFERS BY OPERATOR. Operator may not sell or transfer any of its
interests in this Agreement without Owner's prior written consent. This
restriction shall not apply to transfers to entities in which the Operator or
Benchmark Hospitality, Inc., has at least fifty-one
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percent (51%) ownership interest and which the Operator controls.
8.2 TRANSFERS BY OWNER.
(a) RESTRICTIONS. If Owner sells, transfers or leases either
the Project or its interest in this Agreement and it is not due to:
(i) any transfer or restructuring by Owner, so long
as Owner retains control over the entity owning the Project
and remains obligated to make the contributions of working
capital required by this Agreement; or
(ii) any transfer or restructuring made pursuant to
bona fide financing or refinancing of the Project;
either party hereto will then have the right to terminate this
Agreement. Termination will be effective sixty (60) days after Operator
and/or Owner has received the notice of termination. Upon termination
pursuant to this Paragraph 8.2(a), Owner will pay Operator a
termination payment as defined in Paragraph 9.4.
8.3 EFFECT OF TRANSFER. This Agreement will inure to the benefit
of, and be binding upon, any permitted successors and assigns of the
parties. No transfer or assignment will relieve the transferring party
of its obligations hereunder.
ARTICLE IX
TERMINATION
9.1 BY OWNER. Owner may terminate this Agreement if:
(a) BANKRUPTCY. Operator shall apply for or consent to the
appointment of a receiver, trustee or liquidator of Operator or of all or a
substantial part of its assets, file a voluntary petition in bankruptcy, or
admit in writing its inability to pay its debts as they come due, make a general
assignment for the benefit of creditors, file a petition or an answer seeking
reorganization or arrangement with creditors or to take advantage of any
insolvency law, or file an answer admitting the material allegations of a
petition filed against Operator in any bankruptcy, reorganization or insolvency
proceedings, or if an order, judgement or decree shall be entered by any court
of competent jurisdiction on the application of a creditor adjudicating Operator
bankrupt or insolvent or approving a petition seeking reorganization of Operator
or
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appointing a receiver, trustee or liquidator of Operator or of all or a
substantial part of its assets, and such order, judgment or decree shall
continue unstayed and in effect for any period of ninety (90) consecutive
days; or
(b) DEFAULT. Operator shall fail to keep, observe or perform
any covenant, agreement, term or provision of this Agreement to be kept,
observed or performed by Operator and such default shall continue for a period
of thirty (30) days after notice thereof by Owner to Operator, or if such
default cannot be cured within thirty (30) days, then such additional period as
shall be reasonable, provided that Operator has proceeded to cure such default.
(c) FAILURE TO MEET PERFORMANCE STANDARD. If for any two
consecutive fiscal years beginning with the calendar year 2000, during the
term of this Agreement, Income Before Fixed Expenses is less than eighty
percent (80%) of the Owner approved budgeted amount ("The Performance
Standard"), Owner may elect to terminate this Agreement by notice given to
the Operator within sixty (60) days after receipt of the necessary financial
information from the Operator, which termination shall be effective not less
than sixty (60) days nor more than ninety (90) days after the giving of such
notice. If the Owner does not deliver to Operator the notice provided for
herein and within the period provided, Owner shall be deemed to have waived
its rights under this section with respect to such fiscal year. Owner's
election to terminate under this Paragraph 9.1(c) shall be null and void when
Income Before Fixed Expenses does not meet the Performance Standard if the
Operator is able to show (i) that the operations of comparable facilities in
the local metropolitan area suffered similar loses in Income Before Fixed
Charges by reason of unfavorable economic climate (comparable statistics are
to be furnished by Pannell Kerr Forster (PKF) or another recognized industry
expert, as agreed upon, in the event PKF no longer provides such services),
or (ii) that failure to meet the Performance Standard was because Owner
failed to advance working capital funds to the extent required by this
Agreement. In measuring a performance standard of the operational comparison
with other operators, reference shall be made to rates of percentage change
rather than absolute dollar amounts. Comparable and competing properties will
be agreed between Owner and Operator prior to the commencement of each year
to which this standard may apply. In the event that there is disagreement
regarding the
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preceding, PKF or another recognized industry expert will be engaged (the
cost of which will be borne by the losing party) to arbitrate. Its decision
will be final. Notwithstanding the foregoing, should Income Before Fixed
Expenses not meet the Performance Standard for any fiscal year the Operator
may, at its option, contribute the difference from its separate funds and
thereupon the required level of performance shall be deemed achieved for such
fiscal year.
(d) COMPETITIVE FACILITIES. If during the term of this
Agreement, Operator contracts to operate or manage a comparable golf club and
conference center that provides services consistent with the Projects that is
located within twenty-five miles of the Project in any direction without
Owner's written approval.
9.2 BY OPERATOR. Operator may terminate this Agreement if:
(a) DEFAULT. Owner shall fail to keep, observe or perform any
covenant, agreement, term or provision of this Agreement to be kept, observed or
performed by Owner and such default shall continue for a period of thirty (30)
days after notice thereof by Operator to Owner, or if such default cannot be
cured within thirty (30) days, then such additional period as shall be
reasonable, provided that Owner has proceeded to cure such default.
(b) CASUALTY. The Project or any portion thereof shall be
materially damaged by fire or other casualty and if Owner fails to repair,
restore, rebuild or replace any such damage or destruction within one hundred
twenty (120) days after such fire or other casualty, or shall fail to complete
such work diligently.
(c) BANKRUPTCY. Owner shall apply for or consent to the
appointment of a receiver, trustee or liquidator of Owner or of all or a
substantial part of its assets, file a voluntary petition in bankruptcy or admit
in writing its inability to pay its debts as they come due, make a general
assignment for the benefit of creditors, file a petition or an answer seeking
reorganization or arrangement with creditors or to take advantage of any
insolvency law, or file an answer admitting the material allegations of a
petition filed against Owner in any bankruptcy, reorganization or insolvency
proceeding, or if any order, judgment or decree shall be entered by any court of
competent jurisdiction on the application of a creditor adjudicating Owner
bankrupt or insolvent or approving a petition seeking reorganization of Owner or
appointing a
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receiver, trustee or liquidator of Owner or of all or a substantial part of
the assets of Owner and such order, judgment or decree shall continue
unstayed and in effect for any period of ninety (90) consecutive days.
9.3 PROCEDURE.
(a) GENERALLY. Termination shall be by written notice from
the party entitled to terminate which will specify the effective date of
termination, which will not be less than sixty (60) or more than ninety (90)
days after the notice is delivered, ("Termination Date"). On the date of
termination, Operator will transfer to Owner all funds, accounts, deposits,
receivables, Operating Supplies, equipment, reservations, contracts,
information concerning prospective customers and other items or things of any
kind under its control or supervision pertaining to the operation and
management of the Project and will fully disclose to Owner any information
Operator may have concerning operation or management of the Project which had
not previously been made available to Owner. In addition, Owner will have the
option to employ any on-site staff of Operator (excluding members of the
Executive Committee), effective as of termination. As promptly as possible
after termination, Operator will deliver to Owner audited financial
statements for the Project up to the date of termination. The auditor's costs
for preparing these statements will be paid by Owner. If Operator terminates
this Agreement pursuant to Paragraph 9.2, Owner will pay Operator a
reasonable termination fee to cover relocation expenses of Operator's
full-time on-site employees, but in no event will this fee be greater than
one (1) month's regular salary for each such employee who has not been
employed by Owner after termination pursuant to this Paragraph 9.3.
(b) EFFECT OF TERMINATION. All obligations of the parties
under this Agreement shall automatically terminate on the effective date of
the Termination Date, except as other explicitly provided for hereunder, and
except for any such obligations which have accrued or arose prior to
Termination Date.
9.4 TERMINATION PAYMENTS. If, during the initial term of this
Agreement, Operator terminates this Agreement pursuant to Paragraphs 8.2(a)
or 9.2(a), Owner shall pay Operator a termination payment equal two times the
Base and Incentive Fees earned by Operator during the preceding twelve (12)
month period, or in the event a twelve (12) month period has not
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<PAGE>
been completed, based upon the agreed upon Budget for the next twelve (12)
month period ("Termination Payment") and thereafter, the Termination Payment
shall be one (1) times Base and Incentive Fees.
Termination payments are considered full liquidated damages with no
right or cause of action on the part of the Operator. In addition, Owner
shall pay a reasonable fee to cover relocation expenses of Operator's
full-time on-site employees, but in no event will this relocation fee be
greater than one (1) month's regular salary for each such employee who has
not been employed by Owner after termination. If this Agreement is terminated
pursuant to Paragraph 9.1(a), 9.1(b). 9.1(c) or 9.1(d) there are no
termination payments or fees due Operator pursuant to this paragraph.
9.5 PAST DUE FEES. Except as specifically provided herein all fees
payable under Paragraph 9.4 are in addition to any past due fees payable to
Operator under other portions of this Agreement.
ARTICLE X
CONDEMNATION
10.1 TOTAL. If the whole of the Project shall be taken or condemned
in any eminent domain, condemnation, compulsory acquisition or like
proceeding by any competent authority for any public or quasi-public use or
purpose, or if such a portion thereof shall be taken or condemned as to make
it imprudent or unreasonable, in Operator's reasonable opinion, to use the
remaining portion as a golf club and conference center of the type and class
immediately preceding such taking or condemnation, then in either of such
events the Term of this Agreement shall cease and terminate as of the date on
which Owner shall be required to surrender possession of the Project as a
consequence of such taking or condemnation, and Operator shall be paid any
damages awarded in condemnation to the extent any award for such taking or
condemnation includes compensation to Operator for any loss of income
resulting from such taking or condemnation. If the award contains no express
award to the Operator, then any such award for loss of income shall be fairly
and equitably apportioned between Owner and Operator so as to compensate
Operator for any such loss of income that it would have derived from its
management fee for the longer of the remainder of the then current term
22
<PAGE>
of this Agreement (excluding renewal options) or two (2) years. Operator
shall continue to supervise and direct the management and operation of the
Project until such time as Owner shall be required to surrender possession of
the Project as a consequence of such taking or condemnation.
10.2 PARTIAL. If only a part of the Project shall be taken or
condemned and the taking or condemnation of such part does not make it
unreasonable or imprudent, in Operator's reasonable opinion, to operate the
remainder as a golf club and conference center of the same type and class as
immediately preceding such taking or condemnation, this Agreement shall not
terminate. In such event, the entire award shall belong to Owner, but out of
the award to Owner, so much thereof as shall be reasonably necessary to
repair any damage to the Project, or any part thereof, or to alter or modify
the Project, or any part thereof, so as to render the Project a complete and
satisfactory architectural unit as a golf club and conference center of the
same type and class as immediately preceding the taking or condemnation,
shall be used for that purpose.
ARTICLE XI
NOTICES
11.1 GENERAL. Any approvals, consents or notices by either party to
the other shall be in writing and shall be given and be deemed to have been
duly given if either delivered personally or five (5) days after having been
mailed in a registered or certified postpaid envelope addressed as set forth
below, or, if the address for the notice of either party shall be duly
changed as hereinafter provided, delivered or mailed as aforesaid to such
party at such changed address. Either party may at any time change the person
or address for notice to such party by the delivery or mailing as aforesaid
of a notice stating the change and setting forth the changed address. Notices
shall be addressed as follows:
If to Owner, to the attention of:
Jim Carpenter
President
Rampart Properties Corporation
700 Louisiana, Suite 2550
23
<PAGE>
Houston, Texas 77002
If to Operator, to the attention of:
Burt Cabanas
Chairman & Chief Executive Officer
BMC-The Benchmark Management Company
2170 Buckthorne Place, Suite 400
The Woodlands, Texas 77380
11.2 APPROVALS. If any approvals or consents are required by this
Agreement, they will be given within the time period specified, or if none is
required, within thirty (30) days. Failure to either approve or deny within
the required time will be deemed approval.
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1 NO PARTNERSHIP OR JOINT VENTURE. Nothing contained in this
Agreement shall constitute or be construed to be or create a partnership or
joint venture between Owner, its successors or assigns, on the one part, and
Operator, its successors or assigns, on the other part.
12.2 AGREEMENT NOT AN INTEREST IN REAL PROPERTY; SUBJECT AND
SUBORDINATE. This Agreement shall not be deemed at any time to be an interest
in real estate or a lien of any nature against the Project or the land on
which it is erected. This Agreement shall at all times be subject and
subordinate to all mortgages on the Project or the land on which is erected
which may now or hereafter be outstanding, to all renewals, modifications,
consolidations, replacements and extensions thereof. This clause shall be
self-operative and no further instrument of subordination shall be required
by any mortgagee. However, Owner and Operator shall execute promptly any
certificate or other document that any mortgagee may request as to the
subordination of this Agreement.
12.3 NON-COMPETE. Operator agrees that during the term of this
Agreement, it will not operate or manage a comparable golf club and
conference center that provides services consistent with the Projects and is
located within twenty-five miles of the Project in any
24
<PAGE>
direction without Owner's written approval.
Operator and Owner acknowledge that Redstone Capital,
Operator's capital partner, is attempting to purchase the El Dorado Golf
Club. If Redstone is successful in its attempt to purchase El Dorado and
either Operator or Owner determine this to be in direct competition with the
Newport Golf Club and Conference Center, either may terminate this Management
Agreement with written notice. This shall also apply to any golf club or
conference center owned by Redstone and managed by Benchmark.
12.4 FORCE MAJEURE. Except for failure to pay any sums required by
this Agreement, neither party hereto shall be in default for failure to
perform any of its obligations pursuant to this Agreement if and to the
extent that it can establish that such failure was occasioned by any
circumstances which were beyond its control and which by the exercise of due
diligence and foresight it could have not prevented or overcome.
12.5 MODIFICATION AND CHANGES. This Agreement cannot be changed or
modified except by another agreement in writing signed by the party sought to
be charged therewith or by its duly authorized agent.
12.6 UNDERSTANDINGS AND AGREEMENTS. This Agreement constitutes all
of the understandings and agreements of whatsoever nature or kind existing
between the parties with respect to Operator's management of the Project.
Operator makes no guarantee, warranty or representation that there will be
profits or that there will not be losses from the operation of the Project,
but does warrant that any financial or other projections or forecasts it may
deliver to Owner will be reasonable and made in good faith and to the best of
its ability.
12.7 HEADINGS. The article and paragraph headings contained herein
are for convenience of reference only and are not intended to define, limit
or describe the scope or intent or any provision of this Agreement.
12.8 COSTS OF ENFORCEMENT. In any action to enforce this Agreement,
collect damages as a result of a breach of its provisions, or to collect any
indemnity provided for herein, the prevailing party shall also be entitled to
collect all its costs in such action, including the costs of investigation,
settlement, expert witnesses and reasonable attorneys' fees, together with
all additional costs incurred in enforcing or collecting any judgment
rendered.
25
<PAGE>
12.9 GOVERNING LAW. This Agreement shall be deemed to have been made
and shall be construed and interpreted in accordance with the laws of the State
of Texas.
26
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed or caused to be
executed this Agreement, all as of the day and year first above written.
OWNER
RAMPART PROPERTIES CORPORATION
By: /s/ J. H. CARPENTER
-------------------------------
J. H. Carpenter
President
OPERATOR
BMC-THE BENCHMARK MANAGEMENT COMPANY
By: /s/ R. DENNIS BLYSHAK
--------------------------------
R. Dennis Blyshak
Senior Vice President
27
<PAGE>
EXHIBIT "A" INSURANCE
Several pages of mete and bounds legal description of the Newport Golf Club
and Conference Center.
28
<PAGE>
EXHIBIT "B" INSURANCE
INSURANCE. Owner shall carry or cause to be carried, at its expense,
insurance with responsible and reputable companies in such amounts and
covering such risks as is usually carried by companies engaged in similar
businesses and owning similar properties in the same area and which will be
consistent with all lenders' requirements. Such insurance shall include, but
not be limited to:
a. All Risk Property insurance coverage including boiler and
machinery and sprinkler leakage insurance on all facilities
and all improvements thereto and contents therein in an amount
of not less than the full replacement value.
b. Business Interruption and/or Rental insurance providing
coverage on all facilities for loss of income resulting from
the shutdown arising from a peril usually insured under a
standard all risk policy form. Such coverage shall be for a
period of one (1) year or the estimated time to rebuild the
facilities in a diligent manner following the loss, whichever
is greater.
c. General Liability insurance coverage providing third party
bodily injury and property damage coverage with endorsements
provided for contractual liability, owners protective
liability, liquor liability and completed operations/products
liability coverage.
d. Automobile Liability insurance providing third party bodily
injury and property damage coverage for losses arising from
the ownership, operation or use of an owned, non-owned or
hired vehicle.
e. Umbrella Liability coverage providing limits of liability
protection in an amount of not less than Ten Million Dollars
($10,000,000) per occurrence excess of the limits provided
under (a), (d) and (e) above.
Operator shall carry or cause to be carried insurance with responsible and
reputable companies in such amounts and covering such risks as is usually
carried by companies engaged in similar businesses and owning similar properties
in the same area and which will be consistent with all lenders' requirements.
Such insurance shall include, but not be limited to:
a. Workers Compensation and Employers Liability coverage (in
accordance with all
29
<PAGE>
state and federal laws) on all employees of Operator employed
at the Project with limits of coverage for workers
compensation based on the statutory benefits established
within the State of Texas and Employers Liability limits of
not less than One Million Dollars ($1,000,000) as a Project
expense.
b. Crime policy to cover Operator's employees at the Project and
at Operator's Home Office with limits of coverage not less
than One Million Dollars at Operator's expense.
All such insurance shall name Owner, Operator and any Contractors so
designated by Owner or Operator that are employed in performance of this
Contract as additional insureds. Owner shall cause all insurance carried by
the construction contractor and any subcontractors employed by the
construction contractor to contain a waiver of subrogation in favor of Owner
and Operator. Owner shall furnish Operator with certificates of insurance or
at the written request of Operator, copies of insurance policies relative
thereto. Such policies shall not be cancelable or subject to modification
without at least sixty (60) days' written notice to Owner. This insurance
will be coordinated with any other insurance required by lenders, contractors
or others to avoid duplication or excessive costs. Any deductibles on
insurance policies maintained by Owner shall be for the account of the Owner.
All insurance coverages carried will be with the mutual agreement of Owner
and Operator.
30
<PAGE>
Subsidiaries of the Registrant
Rampart Capital Corporation
<TABLE>
<CAPTION>
STATE OR JURISDICTION OTHER JURISDICTIONS IN AMOUNT
COMPANY NAME OF INCORPORATION WHICH QUALIFIED OWNED
<S> <C> <C> <C>
Rampart Capital Corporation Texas Public
Leissner's Inc. Texas 100%
Rampart Newport Corporation Texas 100%
Rampart Facilities Corporation Texas 100%
Rampart Properties Corporation Nevada Texas 100%
IGBF, Inc. Texas 100%
IGBAF, Inc. Texas 100%
Newport Fund Corporation Oklahoma Texas 100%
Rempart Acquisition Corporation, L.L.C. Texas 100%
Rempart Ventures Corporation, L.L.C. Texas 100%
Source One Capital, L.L.C. Nevada Texas 100%
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM RAMPART
CAPITAL CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 2,741,787 583,629
<SECURITIES> 0 0
<RECEIVABLES> 1,310,754 533,765
<ALLOWANCES> 0 0
<INVENTORY> 3,853,083 4,927,694
<CURRENT-ASSETS> 0 0
<PP&E> 4,155,240 828,898
<DEPRECIATION> 126,324 60,493
<TOTAL-ASSETS> 11,997,702 7,001,708
<CURRENT-LIABILITIES> 0 0
<BONDS> 580,173 3,740,488
0 0
0 0
<COMMON> 30,500 22,500
<OTHER-SE> 10,626,466 32,506,284
<TOTAL-LIABILITY-AND-EQUITY> 11,997,702 7,011,708
<SALES> 5,018,353 4,602,083
<TOTAL-REVENUES> 5,235,808 4,602,083
<CGS> 588,384 0
<TOTAL-COSTS> 588,384 0
<OTHER-EXPENSES> 2,531,808 1,609,564
<LOSS-PROVISION> (23,936) (60,669)
<INTEREST-EXPENSE> 376,749 494,142
<INCOME-PRETAX> 1,762,803 2,559,046
<INCOME-TAX> (163,124) 484,591
<INCOME-CONTINUING> 1,925,927 2,074,455
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,925,927 2,074,455
<EPS-BASIC> 0.78 0.92
<EPS-DILUTED> 0.78 0.92
</TABLE>
