CEO's financial freefall mirrors Ram Venture's: creditors pursue chief of bankrupt firm, claim financials overstated.

ON JUNE 30, 2004, JOHN T. LEWIS OF LITTLE Rock claimed a net worth of $17.2 million. Just over a year later, the former CEO of Ram Venture Holdings Corp. was bankrupt.

Lewis' debts were listed at $16.4 million and his assets at less than $1 million in his bankruptcy claim, which was filed in October 2005.

Lewis now is facing scrutiny from creditors who say he didn't provide accurate financial information when he applied for loans for Ram and then personally guaranteed the loans.

Three creditors, including a company led by Gen. Wesley Clark, have sued Lewis in U.S. Bankruptcy Court to prevent their claims, which total $1.82 million, from being discharged. All three say that Lewis misled them about his financial health. Their challenges will be heard in early 2007.

Neither Lewis nor his attorney, Richard Ramsay of Little Rock, returned calls for comment.

At the center of Lewis' financial troubles is the failure of Ram Venture Holdings Corp. of Fort Lauderdale, Fla., which owned Natural Gear, the Little Rock camouflage clothing line. (The company was originally called American Apparel & Accessories Inc. but changed its name after a reverse merger in April 2004.)

Ram Venture filed for Chapter 7 bankruptcy in July.

It listed no assets and debts of $17.04 million. Ram's bankruptcy was closed in September.

Ram Venture's and Lewis' debts were intertwined because Lewis had personally guaranteed several of Ram's loans.

A few creditors have already received something from Lewis. In May 2005, he transferred his 50 percent interest in a company called L&R Inc., which owned oil and gas leases. Lewis' interest, which had a stated value of $7.8 million as of June 30, 2004, was transferred to Boyd Rothwell of Little Rock in exchange for Rothwell's assumption of $1 million of Lewis' debt.

Lewis also transferred his 33 percent interest in DBJ Inc., which owned an airplane valued at $1.2 million, to Rothwell and Bill Thompson, address unknown, in exchange for their assumption of $5 million in debt.

A former investor in American Apparel and Ram, Virgil Hardy of Lexa, said the company made several mistakes tinder Lewis' tenure, which lasted from 1999 to 2005.

"They just tried too many different things," Hardy said.

A Ram Venture subsidiary produced a show for ESPN2 called "Wildlife Quest," which ended its run in 2005.

Ram's management "got into stuff that they didn't know what they were doing," Hardy said. "They should have stuck with the clothing line."

Hardy, who lost $30,000 investing in Natural Gear, said he thought the company failed because of the management's big ego.

"They seen all these other companies that were doing these shows and venturing into other fields," Hardy said. "They wanted to do the same thing. They weren't financially able like some of the other companies were."

Larry Rial of Little Rock, a director of Ram, declined to comment.

He said "that's past history for me" and that he was trying to move on with his life.

Natural Gear still is in operation but is now owned by EFO Holdings, a subsidiary of JBJ Lending Co. of Dallas, which bought the company after Ram defaulted on loans to Delta Trust & Bank of Little Rock in 2005. JBJ was a creditor of Ram's; it listed a claim against the company of $3.2 million.

High Hopes

In 1999, Lewis became chairman and CEO of American Apparel & Accessories Inc. of Little Rock, which specialized in the outdoor industry.

"He saw the outdoors industry as highly fragmented and ripe for future consolidation," according to a Ram news release in April 2004.

One of American Apparel's first moves was buying Natgear LLC of Little Rock, which owned the copyrights on several camouflage patterns and made hunting clothes. Natgear did business as Natural Gear.

To launch Natural Gear, American Apparel spent $15 million.

At shareholders meetings held at Chenal Country Club between 1999 and 2004, Lewis painted a rosy picture for the company, Hardy said.

"Things were going good, I thought," Hardy said. "They were talking about the new products they were coming out with."

In 2002, American Apparel bought the rights to "Wildlife Quest," a hunting show on ESPN2.

In its debut episode, "Wildlife" was the highest-rated show in its segment and continued to be at the top of its ratings through 2004, Ram boasted in an April 2004 news release. ESPN2 said it had a 0.27 household rating, which was considered good for that kind of show.

The program was used as if it were an infomercial for Natural Gear. Natural Gear provided the clothes for the host and guests and promoted its products in the opening and closing commercial spots.

The show reached 800,000 viewers a week.

One of the biggest moves American Apparel made was to license its camouflage patterns. It had six licensees in 2002 but more than 120 in 2004.

"Revenue from a camouflage pattern's license is very profitable since there is virtually no traditional cost of goods sold associated with licensing revenue," Ram said in its 2004 annual report. "Acceptance of the Natural Gear patterns in the marketplace has grown rapidly. The company is now poised to take a significant market share of the licensing revenue in the camouflage business."

Ram also touted that Wal-Mart had only three camo patterns in its stores in 2004 and Natural Gear owned one of those patterns.

Despite the glowing announcements, American Apparel still was losing money and sales.

One of the first signs of financial trouble was the sale of subsidiary McAlister Co. for $1.2 million to C.R. Daniels Inc. of Baltimore in 2003. McAlister is a hunting apparel manufacturer.

Hardy said Lewis never explained to him why McAlister needed to be sold.

"They just got to where they needed the money for everyday expenses," Hardy said.

McAlister had sales of $1.1 million in 2003. But the company said selling off the subsidiary helped it cut its losses in 2004 by $1.3 million.

While the company was struggling, Lewis reported his net worth as $17.2 million as of Dec. 31, 2003. His balance sheet of June 30, 2004, however, was exactly the same.

In addition to the value of his interest in L&R and DBJ, the assets with the most value included his stock in American Apparel, which he valued at $4.25 million, and an interest in the Lewis Family Trust, which was valued at $2.5 million.

Going Public

One way the company tried to improve its financial footing was to raise more money. Hardy said American Apparel attempted to get more money out of him, but he didn't invest any more.

American Apparel then borrowed $560,000 from Rebsamen Investment on April 15, 2004. That month it also borrowed $200,000 from Gen. Wesley Clark, the former Democratic presidential candidate from Little Rock. (Clark also was on Ram's board of directors for a short time but resigned in January 2005.)

Lewis had personally guaranteed the loans.

On April 21, 2004, American Apparel completed a reverse merger with Ram Venture Holdings Corp., a shell company. As a result of the merger, American Apparel became publicly traded and changed its name to Ram Venture Holdings Corp.

"Upon the final filings for this merger, we will become a publicly traded company enabling us to accelerate our goal of consolidating the 'best of brand' companies in the outdoor industry," Lewis said in an April 2004 news release.

One of Ram's first major acquisition targets was Mack's Sports Shop LLP of Stuttgart, which owns the iconic Mack's Prairie Wings, for $8.5 million. It also wanted to spend $13.8 million to buy Hodgman Inc. of Montgomery, Ill., which makes waterproof and foul-weather gear used by hunters.

The deals were targeted to close on July 30, 2004, but that didn't happen.

Hardy said Ram didn't have the money to buy the companies.

"That was just another smoke screen," he said. "I think that was a show.... They were hoping and wishing."

In September 2004, Ram turned to Stern Agee & Leach Inc. of Birmingham, Ala., to help raise the millions needed to buy Hodgman and Mack's.

Then Ram made a fatal error: It issued a news release about the hiring of Stern Agee. In his bankruptcy hearing Lewis blamed Ram's failure on the Arkansas Democrat-Gazette, which misreported the item in its "News in Brief" section on Sept. 11, 2004.

"It was printed ... that we were going to sell registered securities, which we weren't," Lewis said in his bankruptcy hearing held Nov. 30, 2005. "We were going to sell unregistered securities."

The brief item in the newspaper said, "Stem Agee is the exclusive agent to sell up to $20 million in Ram's unrestricted common stock." The company's news release said Stern was hired as "our exclusive placement agent of up to $20,000,000 of our restricted common stock."

Lewis said Stern Agee's office received a lot of calls after the publication of the article from investors "wanting to participate." Stern Agee's compliance officer said that since it was supposed to be a private placement in a public company, the announcement was a violation of SEC regulations that necessitated a delay of six months.

Lewis said Ram Venture failed as a result of Stern Agee's decision.

But a Stern Agee official, who asked not to be named, suggested that Ram Venture's press release was the problem, whether or not it was correctly reported in the newspaper.

"We were doing a private placement and all of a sudden it was almost made public that they were doing the offering," he said. "So our legal counsel advised us that we were boxed out for six months."

Even if Stern Agee had raised the money, it would have been used for the acquisitions rather than to improve Ram's desperate cash flow situation.

In either case, Ram couldn't wait six months.

Revenue plummeted 49 percent from $3.3 million in fiscal 2003 to $1.63 million in fiscal 2004, which ended March 31, 2005. However, the company's net loss improved from $5.1 million in 2003 to $4.4 million in 2004.

Collapse and Aftermath

Lewis resigned from Ram on March 3, 2005, without another job lined up.

In a special board meeting, Lewis said that "he was not satisfied with the company's lack of progress during his tenure," according to a Ram SEC filing.

Jeff Harris, who had been Ram's president, was promoted to CEO.

Without Lewis, Ram was falling deeper into debt, and other problems surfaced. ESPN2 canceled "Wildlife Quest" because of a change in programming at the station.

But the biggest blow came when Ram defaulted on March 31, 2005, on two loans from Delta Trust & Bank totaling $2.3 million.

Delta had a lien on Ram's property and seized all of it. Natural Gear was sold to EFO Holdings, the JBJ Lending Co. subsidiary, which is now running Natural Gear.

Even after the sale, Ram still owed Delta Trust $1.07 million. (Delta sued Ram and received a judgment for the amount in September 2005.)

On Oct. 10, 2005, Lewis filed for Chapter 7 bankruptcy protection, listing $980,000 in assets.

His main asset is his house in the 1800 block of North Monroe Street in Little Rock, which was valued at $650,000. Other assets include firearms--two Berettas, two shotguns and three pistols with a total value of $6,500.

Lewis listed $16.4 million in debt. Nearly all of it--$15.6 million--was to creditors holding unsecured claims. Among the creditors holding the largest claims are:

* JBJ investments of Dallas, $3 million for a personally guaranteed loan to Ram;

* Charles Still of Dallas, $2.5 million for a promissory note;

* The Jacksonville branch of Community Bank of Cabot, $1.9 million for a loan to Ram that Lewis personally guaranteed; and

* Boyd Rothwell, whom Lewis still owes $1.8 million.

Lewis, who is either 47 or 48, also said in the November 2005 bankruptcy hearing that he was unemployed and was living off a $250,000 loan from his mother.

Rebsamen Investments LP and River Investments LLC, which is led by Wesley Clark, jointly sued Lewis in U.S. Bankruptcy Court saying he should not be discharged from the debts, which totaled $760,000, because he provided "materially incorrect information about [Ram and Lewis'] financial health."

Sumter (S.C.) National Bank has also sued, saying Lewis' debt of more than $1 million shouldn't be discharged because he didn't disclose certain assets in his bankruptcy filing.

The bank's lawsuit also said the financial statement that Lewis submitted when applying for the loan "contains false and misleading information" and "overvaluation of his net worth."

By Mark Friedman

[e-mail]

Ram Venture Holdings Corp. Creditors

Holding unsecured claims of more than $100,000

Creditor                                                        Amount

JBJ Lending Co. (EFO Holdings), Dallas                      $3,762,130
John and Kimberly Lewis and American Apparel &              $3,669,236
Accessories, Little Rock
Delta Trust & Bank, Little Rock                             $2,294,750
Charles Still, Fort Smith                                   $2,282,687
Winnercomm, Tulsa                                           $1,680,000
Rebsamen Investments, Little Rock                             $788,000
Jeffrey J. Harris, Little Rock                                $472,970
Frank Blackard, Longwood, Fla.                                $265,812
William Calvin, Bernice, La.                                  $262,975
B.R. Brown, Little Rock                                       $226,215
Gen. Wesley Clark, Little Rock                                $210,027

Source: Ram Holdings Corp.'s bankruptcy filing.