SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
--------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-4408
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RESOURCE AMERICA, INC.
----------------------
(Exact name of small business issuer as specified in its charter)
Delaware 72-0654145
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1521 Locust Street, Philadelphia, Pennsylvania 19102
(Address of principal executive offices)
(215) 546-5005
(Registrant's telephone number)
---------------------------------------------
(Former name, former address, and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the
preceeding 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 3,553,380
RESOURCE AMERICA, INC.
INDEX
PAGE
NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited) March 31, 1997,
and September 30, 1996. . . . . . . . . . . . . . . . . . . . 1 & 2
Consolidated Statements of Income (Unaudited) - Three
Months and Six Months Ended March 31, 1997, and 1996. . . . . 3
Consolidated Statements of Cash Flows (Unaudited) -
Six Months Ended March 31, 1997, and 1996 . . . . . . . . . . 4
Notes to Consolidated Financial Statements (Unaudited). . . . . 5 - 13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 14 - 19
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . 20
<PAGE 1>
PART I. FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
RESOURCE AMERICA, INC., AND SUBSIDIARIES
March 31, 1997, and September 30, 1996
=============================================================================
March 31, September 30,
1997 1996
------------ -------------
ASSETS
Current Assets
Cash and cash equivalents. . . . . . . . . . . $ 5,784,406 $ 4,154,516
Accounts and notes receivable. . . . . . . . . 945,339 1,478,702
Prepaid expenses and other current assets. . . 776,549 472,673
------------ ------------
Total Current Assets . . . . . . . . . . . . . 7,506,291 6,105,891
Net Investment in Direct Financing Leases. . . . 2,037,529 729,446
Notes Secured by Equipment Receivables . . . . . 2,624,256 -
Property and Equipment
Oil and gas properties and equipment
(successful efforts) . . . . . . . . . . . . 23,902,098 24,034,987
Gas gathering and transmission facilities. . . 1,535,781 1,535,781
Other. . . . . . . . . . . . . . . . . . . . . 1,772,570 1,666,085
------------ ------------
27,210,449 27,236,853
Less - accumulated depreciation, depletion,
and amortization. . . . . . . . . . . . . . . (15,307,384) (14,856,874)
------------ ------------
Net Property and Equipment . . . . . . . . . . . 11,903,065 12,379,979
Investments in Real Estate Loans . . . . . . . . 55,574,108 21,797,768
Restricted Cash. . . . . . . . . . . . . . . . . 1,013,550 935,346
Other Assets . . . . . . . . . . . . . . . . . . 4,470,684 2,010,498
------------ ------------
$ 85,129,486 $ 43,958,928
============ ============
1
<PAGE 2>
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
RESOURCE AMERICA, INC., AND SUBSIDIARIES
March 31, 1997, and September 30, 1996
=============================================================================
March 31, September 30,
1997 1996
------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable - trade . . . . . . . . . . $ 851,674 $ 584,985
Accrued liabilities. . . . . . . . . . . . . 973,022 596,783
Accrued income taxes . . . . . . . . . . . . 579,947 376,946
Current portion of long-term debt. . . . . . 240,000 105,000
------------ ----------
Total Current Liabilities. . . . . . . . . . 2,644,643 1,663,714
Long-term Debt . . . . . . . . . . . . . . . . 24,696,335 8,966,524
Deferred Income Taxes. . . . . . . . . . . . . 2,746,000 2,206,000
Other Long-term Liabilities. . . . . . . . . . 426,793 --
Commitments and Contingencies. . . . . . . . . -- --
Stockholders' Equity
Preferred stock, $1.00 par value, 1,000,000
authorized, none issued. . . . . . . . . . -- --
Common stock, $.01 par value, 8,000,000
authorized shares, 3,703,238 and 2,047,209
issued and outstanding shares (including
149,858 and 152,448 treasury shares) at
March 31, 1997, and September 30, 1996,
Respectively . . . . . . . . . . . . . . . 37,032 20,472
Additional paid-in capital . . . . . . . . . 41,298,168 21,760,695
Retained earnings. . . . . . . . . . . . . . 16,310,171 12,458,344
Less cost of treasury shares . . . . . . . . (2,643,966) (2,698,985)
Less loan receivable from ESOP . . . . . . . (385,690) (417,836)
------------ ------------
Total Stockholders' Equity . . . . . . . . . 54,615,715 31,122,690
------------ ------------
$ 85,129,486 $ 43,958,928
============ ============
The accompanying notes are an integral part of these financial statements.
2
<PAGE 3>
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
RESOURCE AMERICA, INC., AND SUBSIDIARIES
Three Months and Six Months Ended March 31, 1997 and 1996
=============================================================================
<TABLE>
<CAPTION>
Three Months Six Months
Ended March 31, Ended March 31,
------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES
Real estate finance. . . . . . . . . . . $ 3,778,134 $ 1,866,202 $ 6,996,976 $ 3,951,323
Equipment leasing. . . . . . . . . . . . 1,674,178 1,352,878 2,876,010 2,659,411
Energy: production . . . . . . . . . . . 947,557 769,793 1,897,969 1,591,784
: services . . . . . . . . . . . . 360,804 486,298 749,387 969,916
Interest . . . . . . . . . . . . . . . . 101,755 34,493 180,242 105,702
----------- ----------- ----------- -----------
6,862,428 4,509,664 12,700,584 9,278,136
COSTS AND EXPENSES
Real estate. . . . . . . . . . . . . . . 188,643 163,212 351,568 303,168
Equipment leasing. . . . . . . . . . . . 906,558 478,929 1,799,893 1,166,260
Energy: production and exploration . . . 425,015 363,437 836,793 735,849
: services . . . . . . . . . . . . 222,871 252,543 446,787 494,494
General and administrative . . . . . . . 658,021 550,879 1,249,932 1,004,721
Depreciation and amortization. . . . . . 391,853 298,907 771,157 708,765
Interest . . . . . . . . . . . . . . . . 608,935 214,159 1,017,723 428,725
Provision for possible losses. . . . . . 136,000 -- 146,000 --
Other - net. . . . . . . . . . . . . . . (1,705) 3,231 (17,936) 1,152
----------- ----------- ----------- -----------
3,536,191 2,325,297 6,601,917 4,843,134
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS . . . . . . . . . 3,326,237 2,184,367 6,098,667 4,435,002
OTHER INCOME (EXPENSE)
Gain (loss) on sale of property. . . . . (16,759) 4,738 70,995 5,165
----------- ----------- ----------- -----------
Income before income taxes . . . . . . . . 3,309,478 2,189,105 6,169,662 4,440,167
Provision for federal income taxes . . . . 775,000 634,000 1,350,000 1,287,000
----------- ----------- ----------- -----------
NET INCOME . . . . . . . . . . . . . . . $ 2,534,478 $ 1,555,105 $ 4,819,662 $ 3,153,167
=========== =========== =========== ===========
NET INCOME PER COMMON SHARE - primary . . $ .55 $ .56 $ 1.19 $ 1.19
Weighted average common shares outstanding 4,625,200 2,847,800 4,045,400 2,657,400
NET INCOME PER COMMON SHARE -
fully diluted . . . . . . . . . . . . $ .55 $ .54 $ 1.18 $ 1.18
Weighted average common shares outstanding 4,642,000 2,872,200 4,086,000 2,669,600
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE 4>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
RESOURCE AMERICA, INC., AND SUBSIDIARIES
Six Months Ended March 31, 1997, and 1996
=============================================================================
Six Months
Ended March 31,
-----------------------
1997 1996
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . $ 4,819,662 $ 3,153,167
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization . . . . . . . . . 771,157 708,765
Amortization of discount on senior note and
deferred finance costs. . . . . . . . . . . . 55,443 37,325
Provision for possible losses . . . . . . . . . 146,000 -
Property impairments and abandonments . . . . . 1,422 33,663
Accretion of discount . . . . . . . . . . . . . (1,502,851) (507,543)
Deferred income taxes . . . . . . . . . . . . . 117,000 917,000
Gain on dispositions and investments. . . . . . (3,096,399) 1,914,192)
Change in operating assets and liabilities
net of effects from purchase of subsidiaries:
(Increase) decrease in accounts receivable. . 533,362 (494,396)
Increase in prepaid expenses and others
current assets . . . . . . . . . . . . . . . (303,876) (371,351)
Increase (decrease) in accounts payable . . . 16,688 (354,820)
Increase in other current liabilities . . . . 579,240 23,790
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES . . . 2,136,848 1,231,408
INVESTING ACTIVITIES:
Cost of equipment acquired for lease. . . . . . . (11,478,279) -
Capital expenditures. . . . . . . . . . . . . . . (258,209) (408,204)
Proceeds from sale of assets. . . . . . . . . . . 8,571,160 11,061,957
Payments received in excess of revenue
recognized on leases. . . . . . . . . . . . . . 720,336 -
Principal payments on notes receivable. . . . . . 1,878,346 -
Increase in other assets. . . . . . . . . . . . . (2,216,743) (35,320)
Investments in real estate loans. . . . . . . . . (30,394,190) 11,503,933)
----------- ----------
NET CASH USED IN INVESTING ACTIVITIES . . . . . (33,177,579) (885,500)
FINANCING ACTIVITIES:
Short-term borrowings . . . . . . . . . . . . . . 5,000,000 -
Long-term borrowings. . . . . . . . . . . . . . . 14,070,000 -
Dividends paid. . . . . . . . . . . . . . . . . . (544,775) (358,346)
Principal payments on short-term debt . . . . . . (4,750,000) -
Principal payments on long-term debt. . . . . . . (560,457) (12,728)
Proceeds from issuance of common stock. . . . . . 19,608,991 82,001
Increase in restricted cash . . . . . . . . . . . (78,204) (90,001)
Purchase of treasury stock. . . . . . . . . . . . - (47,252)
Increase in other assets. . . . . . . . . . . . . (74,934) -
---------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIE . . . . . . . . . . . . . . . . . . 32,670,621 (426,326)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. . 1,629,890 (80,418)
CASH AT BEGINNING OF YEAR . . . . . . . . . . . . . 4,154,516 2,457,432
----------- -----------
CASH AT MARCH 31. . . . . . . . . . . . . . . . . . $ 5,784,406 $ 2,377,014
=========== ===========
The accompanying notes are an integral part of these financial statements,
including Note 2 which discloses Interest and Taxes Paid and Noncash
Investing Activities.
4
<PAGE 5>
NOTE 1 - MANAGEMENT'S OPINION REGARDING INTERIM FINANCIAL STATEMENTS
In the opinion of management, all adjustments (consisting of normal
recurring accruals) necessary for a fair statement of the results of
operations for the interim period included herein have been made.
The accounting policies followed by the Company are set forth in Note 1
to the Company's consolidated financial statements for the fiscal year ended
September 30, 1996, included in the Company's Annual Report on Form 10-K.
NOTE 2 - CASH FLOWS STATEMENT
Total interest paid during the first six months of fiscal 1997 and 1996
amounted to $860,000 and $389,000, respectively. Cash payments for income
taxes during the first six months of fiscal 1997 and 1996, amounted to
$1,030,000 and $370,000, respectively.
During the first quarter of fiscal 1997, noncash investing activities
include the sale of various equipment leases in exchange for a note with a
face value of $3.26 million.
During the second quarter of fiscal 1997, noncash activities include the
receipt of a note with a face value of $1.2 million, in partial payment for
the sale of leases. In satisfaction of a real estate loan, the Company
received a note with a face value of $3.5 million and became subject to a
$2.4 million obligation associated with the underlying property.
NOTE 3 - PUBLIC OFFERING OF COMMON STOCK
In November 1996, the Company closed a public offering of 1,656,000
shares of its Common Stock. The Company received net proceeds of
$19,991,000, before offering expenses of $433,000, from the offering.
NOTE 4 - EARNINGS PER SHARE
Management discovered in a review of earnings per share for the second
quarter of the prior fiscal year that the computation of the dilutive effect
of outstanding options was in error in that only vested options, as opposed
to all options, were considered. This resulted in an understatement of
353,800 shares and 581,600 shares for the quarter and six months ended March
31, 1996, respectively. Accordingly, primary earnings per share in the prior
fiscal year have been decreased by $.06 and $.09 for the quarter and six
months ended March 31, 1996, respectively.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share," ("EPS") which is required to be adopted for
financial statements issued for periods ending after December 14, 1997. At
that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the
new requirements, primary EPS will be replaced by basic EPS which will not
include the dilutive effect of stock options. When adopted, this statement
will materially change earnings per share as currently reported.
NET 5 - LONG-TERM DEBT
March 31, September 30,
Long-term debt consists of the following: 1997 1996
------------- --------------
Mortgage note payable to a bank, secured
by real estate, monthly installments of
approximately $4,000 including interest at
3/4% above the prime rate through May 2002
(rate of 9% at March 31, 1997). . . . . . . . $ 200,719 $ 214,779
Loan payable to a bank, secured by a
certificate of deposit, 20 equal semiannual
installments of $32,143, through February,
2003, and quarterly payments of interest at
1/2% above the prime rate through 2003. . . . 385,690 417,836
9.5% senior secured note payable, interest
due semi- annually, principal due May 2004. . 7,908,958 7,902,708
Loan payable, secured by real estate,
Monthly installments of approximately
$5,200 including interest at 2.25% above
the prime rate (but not less than 7% nor
greater than 14.25%) through April 2004 at
which time the unpaid balance shall be due.
This loan was refinanced in December 1996
with the proceeds of the following loan . . . - 536,201
Loan payable, secured by real estate,
Monthly installments of approximately
$9,200 including interest at 10.25% through
December 2001, at which time the unpaid
balance shall be due. . . . . . . . . . . . . 689,802 -
Loan payable, secured by real estate,
interest due monthly at the greater of
8.75% or LIBOR (London InterBank Offered
Rate) plus 350 basis points, principal due
January 1999. . . . . . . . . . . . . . . . . 13,370,000 -
6
<PAGE 7>
Loan payable, secured by real estate,
Monthly installments of $13,300 including
interest at 1% above the prime rate, due
January 2019. . . . . . . . . . . . . . . . . 1,136,996 -
------------ -----------
24,936,335 9,071,524
Less amounts payable in one year. . . . . . . 240,000 105,000
------------ -----------
$ 24,696,335 $ 8,966,524
============ ===========
The following is the amount of long-term debt maturing during each of
the five periods ending on March 31: 1998 - $240,000; 1999 - $14,647,000;
2000 - $210,000; 2001 - $226,000 and 2002 - $671,000.
The senior secured note payable is collateralized by substantially all
of the Company's oil and gas properties and selected real estate assets.
Certain credit agreements require the Company to comply with certain
restrictive covenants. At March 31, 1997, the Company was in compliance with
such covenants.
In December 1996, a subsidiary of the Company ("FLI") entered into a new
Secured revolving credit and term loan facility with a maximum borrowing
limit of $20 million with two banking institutions. FLI pays interest on the
revolving and term borrowings at a rate equal to LIBOR plus 1.75% and LIBOR
plus 2.25% per annum, respectively. The initial maturity date of the credit
facility is March 31, 1998, but may be renewed annually at the lenders'
discretion. FLI incurs a commitment fee of 3/8% per annum on the unused
portion of the borrowing limit. The credit agreement is collateralized by
certain leases and leased equipment. The credit facility contains covenants
which, among other things, requires the maintenance of certain financial
ratios and restricts a change in the ownership or a key management position
by FLI. At March 31, 1997, FLI was in compliance with all covenants.
NOTE 6 - INVESTMENT IN DIRECT FINANCING LEASES
Components of the net investment in direct financing leases as of March
31, 1997, are as follows:
Total minimum lease payments receivable $ 2,292,775
Initial direct costs, net of amortization 51,516
Unguaranteed residual 93,430
Unearned lease income (313,025)
Provision for possible losses (87,167)
---------------
Net investment in direct financing leases $ 2,037,529
===============
In December 1996, the Company sold leases with a net book value of
approximately $3.0 million to a special-purpose financing entity in return
for a note with a face value of approximately $3.3 million, of which $1.9
million was collected in the second quarter of fiscal 1997, resulting in a
gain of $313,000 (see Note 2).
7
<PAGE 8>
In March 1997, the Company sold leases with a net book value of
approximately $6.4 million to a special-purpose financing entity in return
for cash of $5.3 million and a note with a face value of $1.2 million,
resulting in a gain of $763,000 (see Note 2).
NOTE 7 - INVESTMENTS IN REAL ESTATE
The Company has focused its real estate activities on the purchase of
income producing mortgages at a discount to the face value of such mortgages
and also to the appraised value of the property underlying the mortgage. Cash
received by the Company for payment on each mortgage is allocated between
principal and interest - the interest portion of the cash received is
recorded as income to the Company. Additionally, the Company records as
income the accrual of a portion of the discount to the underlying collateral
value. This "accretion of discount" amounted to $1,502,851 during the six
months ended March 31, 1997. As the Company sells participations or receives
funds from refinancings in such mortgages, a portion of the cash received is
employed to reduce the cumulative accretion of discount included in the
carrying value of the Company's investment in real estate loans.
At March 31, 1997, the Company held real estate loans having aggregate
face values of $167.9 million, which were being carried at an aggregate cost
of $55.5 million, including cumulative accretion of $3.5 million. The
following is a summary of the changes in the carrying value of the Company's
investments in real estate loans for the quarter ended March 31, 1997:
1997
----------------
Balance, beginning of period $ 21,797,768
New real estate loans 33,086,520
Additions to existing loans 1,031,370
Reserve for possible losses (66,000)
Accretion of discount 1,502,851
Collections of principal (183,321)
Cost of mortgages sold (1,595,080)
----------------
Balance, end of period $ 55,574,108
================
8
<PAGE 9>
Investments in Real Estate Loans consist of:
March 31, September 30,
1997 1996
------------ ------------
Property 001 Subordinated wraparound note,
face value of $4,500,000,
secured by residential real
estate located in Pittsburgh,
PA, interest at 14.5%, due
December 31, 2002. . . . . . . . . . .$ 2,457,262 $ 2,410,665
Property 002 Note, face value of $1,080,000,
secured by residential real
estate located in Philadelphia,
PA, interest at 12%, due
October 31, 1998 . . . . . . . . . . . 180,054 179,980
Property 003 Mortgage note, face value of
$1,798,000, secured by
residential real estate
located in Margate, NJ,
interest at the Chase
Manhattan Bank prime rate (but
not less than 9% nor greater
than 15.5%), due January 1, 2003 . . . 705,744 694,850
Property 004 Note, face value of $1,312,000,
secured by residential real estate
located in Philadelphia, PA,
interest at 2 1/2% over the
monthly national median annualized
cost of funds for SAIF-insured
institutions as announced by the
Federal Deposit Insurance
Corporation, due October 31, 1998. . . 239,109 226,968
Property 005 Note, face value of $4,234,000
by commercial real estate located
in Pittsburgh, PA, interest at
10.6%, due February 7, 2001. . . . . . 756,769 1,086,709
Property 006 Subordinated note, face value of
$4,165,000, interest at 1/2% over
the Maryland National Bank prime
rate, due July 31, 1998. . . . . . . . 1,569,908 1,537,546
Property 007 Note, face value of $1,776,000,
secured by a judgment lien,
relating to real estate located
in St. Cloud, MN, interest at 10%,
due December 31, 2014. . . . . . . . . 541,734 527,846
9
<PAGE 10>
Property 008 Subordinated note, face value
of $3,559,000, secured by an
unrecorded deed relating to real
estate located in Philadelphia,
PA, interest at 2% over the yield
of one-year United States Treasury
securities, due July 31, 1998. . . . . 811,691 721,212
Property 009 Subordinated notes, face value of
$1,495,000 secured by residential
real estate located in Philadelphia,
PA, interest at 2% over the Mellon
Bank prime rate, due October 31, 1999. 526,835 510,608
Property 010 Mortgage note, face value of
$1,211,000, secured by residential
real estate located in Philadelphia,
PA, interest at 3% over the Federal
Home Loan Bank of Pittsburgh rate,
due September 2, 1999. . . . . . . . . 123,289 112,467
Property 011 Mortgage note, face value of
$900,000, secured by commercial
real estate located in Washington,
D.C., interest at 1 1/2% over the
First Union National Bank rate,
due September 30, 1999 . . . . . . . . 560,692 414,360
Property 012 Mortgage notes, face value of
$1,962,000, secured by residential
real estate located in Philadelphia,
PA, varying interest rates from
9 1/2% to 14 1/2%, due December
2, 1999. . . . . . . . . . . . . . . . 722,496 747,640
Property 013 Mortgage note, face value of
$3,000,000, secured by commercial
real estate located in Pasadena,
CA, interest at 2.75% over the
average cost of funds to FSLIC-
insured savings and loan
associations, 11th District (but
not less than 5.5% nor greater than
15.5%), due May 1, 2001. . . . . . . . 327,528 302,354
Property 014 Subordinated wraparound note, face
value of $12,000,000 consisting of
a first mortgage held by the
Company of $9,000,000 secured by
commercial real estate located in
Washington, D.C., and a $3,000,000
second mortgage held by the Company,
interest at 12%, due November 30,
1998 . . . . . . . . . . . . . . . . . 5,281,983 3,170,843
10
<PAGE 11>
Property 015 Subordinated wraparound note, face
value of $3,500,000, secured by
residential real estate located in
New Concord, NC, interest at 12%,
due August 25, 2000. The property
securing this note was obtained
through default by the borrower,
and subsequently sold for
$3,700,000 in return for cash of
$150,000 and the following note. . . . - 356,147
Subordinated wraparound note, face
value of $3,550,000, secured by
residential real estate located in
New Concord, NC, interest at 8%,
due March 2002 . . . . . . . . . . . . 3,550,000 -
Property 016 Wraparound note, face value of
$5,198,000, secured by real estate
located in Rancho Cordova, CA,
interest at 8.5%, due December 31,
2019 Company of $4,143,000 . . . . . . 450,417 428,703
Property 017 Subordinated wraparound note, face
value of $3,300,000 secured by
commercial real estate located in
Elkins, WV, interest at 13.6%, due
in equal installments through
December 31, 2018. In November
1996, the owner of the property
refinanced the property with an
unaffiliated party, simultaneously
paying the Company $169,000 toward
principal and interest on this
loan . . . . . . . . . . . . . . . . . 969,962 961,756
Property 018 Mortgage note, face value of
$2,271,000, secured by commercial
real estate located in Northridge,
CA, interest at 9%, due December
27, 2000 . . . . . . . . . . . . . . . 794,872 782,973
Property 019 Mortgage note, face value of
$4,627,000, secured by residential
real estate located in Philadelphia,
PA, interest at 7.75%, due
December 31, 2000. . . . . . . . . . . 898,525 900,017
Property 020 Subordinated note, face value of
$4,800,000 secured by real estate
located in Cherry Hill, NJ,
interest at 10%, due February
7, 2001. . . . . . . . . . . . . . . . 1,750,636 1,536,729
11
<PAGE 12>
Property 021 Mortgage notes, face value of
$3,269,000, secured by real estate
located in Philadelphia, PA,
interest at 12%, due March and
April, 2001. . . . . . . . . . . . . . 707,483 516,036
Property 022 Subordinated participation loan,
face value of $2,038,000, secured
by real estate located in
Philadelphia, PA, interest at 85%
of the 30-day rate on $100,000
Certificates of Deposit as
published by the Wall Street
Journal plus 2.75%, due October
31, 1998 . . . . . . . . . . . . . . . 1,260,733 1,060,176
Property 023 Subordinated mortgage note, face
value of $600,000, secured by real
estate located in Philadelphia, PA,
interest at 12%, due March 28,
2001 . . . . . . . . . . . . . . . . . 174,262 110,559
Property 024 Mortgage note, face value of
$3,500,000, secured by residential
real estate located in Sharon Hill,
PA, interest at 10.5%, due December
31, 2002. In December 1996, the
Company sold a senior participation
in this mortgage for $1,980,000,
resulting in a gain of $384,919 and
a face value due the Company
of $1,694,000. . . . . . . . . . . . . 990,634 2,500,624
Property 025 Tax free bonds, face value of
$5,800,000, secured by hotel/
commercial real estate located in
Savannah, GA, interest at 14%, due
August 2015. . . . . . . . . . . . . . 5,922,178 -
Property 026 Subordinated mortgage note, face
value of $3,423,000, secured by
commercial real estate located in
Ambler, PA, interest at 12%, due
September 2003 . . . . . . . . . . . . 1,345,890 -
Property 027 Mortgage notes, face value of
$40,644,000, secured by commercial
real estate located in Philadelphia,
PA, interest at 12%, due
January 2002 . . . . . . . . . . . . . 20,350,445 -
12
<PAGE 13>
Property 028 Mortgage note, face value of
$1,670,000, secured by real estate
located in New Concord, NC,
interest at 8% due March 2002. . . . . 1,670,000 -
Reserve for possible losses . . . . . . . . . . . . (66,000) -
------------ ------------
$ 55,574,108 $ 21,797,768
============ ============
As referenced above, in the first quarter of fiscal 1997 the Company
sold a senior participation in one real estate loan to a financial
institution. The financial institution has certain recourse rights against
the Company should the loan not perform under the terms of the participation
agreement. Further, as referenced above, in November 1996 the owner of
one property on which the Company held a mortgage note refinanced that Note
with an unaffiliated party. The Company received payments of principal and
interest on the note and now holds a position which is subordinated to the
new first mortgage note placed on the property by the unaffiliated party.
In the second quarter of fiscal 1997 a borrower defaulted on an existing
Forbearance agreement associated with one property. In settlement, the
borrower assigned its ownership interest in the property to the Company which
was subsequently sold in exchange for cash and a note with a face value of
$3,550,000, resulting in a gain of $837,000. In addition, the Company
acquired a note on another property and the right to acquire an equity
interest in this property. This right was subsequently assigned in exchange
for cash and a note with a face value of $1,670,000, resulting in a gain of
$724,000.
13
<PAGE 14>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
WHEN USED IN THIS FORM 10-Q, THE WORDS "BELIEVES," "ANTICIPATES,"
"EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD LOOKING
STATEMENTS. SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES
WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY. READERS ARE CAUTIONED
NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD LOOKING STATEMENTS WHICH SPEAK
ONLY AS OF THE DATE HEREOF. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY
RELEASE THE RESULTS OF ANY REVISIONS TO FORWARD LOOKING STATEMENTS WHICH MAY
BE MADE TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO
REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.
RESULTS OF OPERATIONS: ASSET ACQUISITION AND RESOLUTION
The following table sets forth certain information relating to the
revenue recognized on the Company's commercial real estate loan portfolio
during the periods indicated:
Quarters Ended Six Months Ended
March 31, March 31,
------------------ -----------------
1997 1996 1997 1996
-------- -------- -------- -------
(Dollars in thousands)
Interest . . . . . . . . . . . . . . $ 1,500 $ 421 $ 2,134 $ 875
Accreted discount. . . . . . . . . . 710 379 1,503 508
Fees . . . . . . . . . . . . . . . . 7 604 1,414 659
Gains on refinancings and
sale of participations . . . . . 1,561 462 1,946 1,909
-------- -------- -------- --------
Total. . . . . . . . . . . . . . . . $ 3,778 $ 1,866 $ 6,997 $ 3,951
======== ======== ======== ========
Average balance of investment, net . $ 52,634 $ 18,632 $ 38,686 $ 19,482
Yield on net average balance . . . . 28.7% 40.0% 36.1% 40.6%
Revenues from asset acquisition and resolution operations increased 102%
in the second quarter and 77% in the six months ended March 31, 1997,
compared to the same periods of the prior fiscal year. This increase was
attributable to an increase of $1.4 million and $2.3 million in interest
(including accretion of discount) in the quarter and six months ended March
31, 1997, respectively, compared to the prior similar periods, as a result of
an increase in the average amount of real estate loans outstanding in the
current fiscal year as compared to the prior fiscal year. The average
balance of investment in real estate loans increased by 182% in the quarter
and 99% in the six months ended March 31, 1997, respectively. Fees decreased
$597,000 and increased $755,000, while gains increased $1.1 million and
$37,000 in the quarter and six months ended March 31, 1997, respectively.
The amount of fees earned and
14
<PAGE 15>
gains recognized are dependent on the closing of certain transactions and are
not earned ratably throughout the year.
During the quarter and six months ended March 31, 1997, the Company
purchased or originated two and six real estate loans, for a total cost of
$5.2 and $33.1 million, as compared to four and six loans for a total cost of
$3.4 and $10.8 million in the quarter and six months ended March 31, 1996.
Gains were recognized on two and three loans in the quarter and six months
ended March 31, 1997, compared to one and four loans in the similar prior
periods. Asset acquisition and resolution expenses increased 15% in the
quarter and 16% in the six months ended March 31, 1997 compared to the prior
fiscal year. The increase was primarily a result of higher personnel costs
associated with the expansion of these operations.
RESULTS OF OPERATIONS: EQUIPMENT LEASING
The following table sets forth certain information relating to the
revenue recognized in the Company's equipment leasing operations during the
periods indicated:
Quarters Ended, Six Months Ended
March 31, March 31,
---------------- ----------------
1997 1996 1997 1996
------- ------- ------- -------
(Dollars in thousands)
Partnership Management
Servicing. . . . . . . . . . . . . $ 212 $ 355 $ 432 $ 706
Partnership leasing. . . . . . . . 10 560 22 751
Reimbursement of administrative
Costs . . . . . . . . . . . . . 186 217 467 915
Lease brokerage . . . . . . . . . . . 283 221 583 287
Small ticket leasing. . . . . . . . . 220 - 296 -
Gain on sale of leases. . . . . . . . 763 - 1,076 -
------- ------- ------- -------
Total. . . . . . . . . . . . . . . $ 1,674 $ 1,353 $ 2,876 $ 2,659
The decrease in servicing revenue, partnership leasing and reimbursement
Of administrative costs was the result of the liquidation, in accordance with
the terms of the partnership agreement, of one leasing partnership in the
second quarter of fiscal 1996. Partnership leasing revenue in the previous
fiscal periods includes the settlement of the Company's general partner share
revenues from prior fiscal periods. The Company now acts as general partner for
six limited partnerships which held a total of $64 million (original cost) in
lease assets at March 31, 1997. Lease brokerage revenue increased
substantially in the quarter and six months ended March 31, 1997, as compared
to the similar periods of the prior year; this revenue is transaction based
and the Company closed several large transactions in the first six months of
fiscal 1997. The gain on sale of leases resulted from the sale of leases
with a book value of $3.0 million in exchange for a note with a face value
of $3.3 million in the first quarter of fiscal 1997 and the sale of leases
with a book value of $6.4 million in exchange for cash of $5.3 million and a
note with a face value of $1.2 million in the second quarter of fiscal 1997.
During the second quarter of fiscal 1997 the Company collected $1.9 million
in principal payments on the $3.3 million note.
In June 1996, the Company entered the "small ticket" leasing business
and began writing leases in August 1996. In the quarter and six months ended
March 31, 1997, the
15
<PAGE 16>
Company acquired equipment for lease with a cost of $7.1 million and $11.5
million, respectively. This new business segment is expected to grow
significantly during the remainder of fiscal 1997.
The following table sets forth certain information relating to expenses
recognized in the Company's equipment leasing operations during the periods
indicated:
Quarters Ended Six Months Ended
March 31, March 31,
1997 1996 1997 1996
----- ----- ------- -------
(Dollars in thousands)
Partnership management . . . $ 323 $ 275 $ 695 $ 879
Lease brokerage. . . . . . . 226 204 384 287
Small ticket leasing . . . . 358 - 721 -
----- ----- ------- -------
Total . . . . . . . . . . $ 907 $ 479 $ 1,800 $ 1,166
===== ===== ======= =======
Partnership leasing expenses decreased as a result of the liquidation of
One partnership, as discussed above. Lease brokerage expenses increased as a
result of an increase in commissions paid in association with the higher
level of revenues earned.
RESULTS OF OPERATIONS: ENERGY
Oil and gas production revenues increased 23% in the quarter and 19% in
the six months ended March 31, 1997, compared to the similar periods of the
previous year. A comparison of the Company's revenues, daily production
volumes, and average sales prices follows:
Quarter Ended Six Months Ended
March 31, March 31,
--------------- -----------------
1997 1996 1997 1996
------ ------ ------- -------
Revenues (in thousands)
- -----------------------
Gas $ 752 $ 606 $ 1,507 $ 1,286
Oil 178 143 363 277
Production Volumes
- -----------------------
Gas (Mcf/day) 3,101 2,935 3,206 3,168
Oil (Bbls/day) 91 90 91 88
Average Sales Price
- -----------------------
Gas (per Mcf) $ 2.69 $ 2.27 $ 2.58 $ 2.22
Oil (per Bbl) 21.75 17.44 21.98 17.08
Natural gas revenues from production sales increased 24% in the quarter
and 17% in the six months ended March 31, 1997, compared to the similar
periods of the prior year due to a 19% and 16% increase in the average price
per mcf of natural gas for the quarter and six months ended March 31, 1997,
respectively. Oil revenues increased by 24% and 31% in the quarter and six
months ended March 31, 1997, compared to the similar periods of fiscal 1996,
due to a 25% and 29% increase in the average price per barrel for the quarter
and six months ended March 31, 1997, respectively. Production volumes for
both oil and gas remained stable in both the quarter and six months ended
March 31, 1997
Energy services revenues decreased 26% and 23% in the quarter and six
months ended March 31, 1997, from the similar prior periods of fiscal 1996.
This decrease resulted from reduced service rig work, a decrease in the
number of wells operated for partnerships managed by the Company and a
reduction in financial reporting services provided to certain partnerships.
A comparison of the Company's production costs as a percentage of oil
and gas sales, and the production cost per equivalent unit for oil and gas
for the quarter and six months ended March 31, 1997 is as follows:
Quarter Ended Six Months Ended
March 31, March 31,
--------------- ---------------
Production Costs 1997 1996 1997 1996
--------------------- ------ ------ ------ ------
As a percent of sales . . . 42% 44% 40% 43%
Gas (mcf) . . . . . . . . . $ 1.20 $ 1.06 $ 1.11 $ 1.00
Oil (bbl) . . . . . . . . . $ 7.20 $ 6.36 $ 6.66 $ 6.00
Production costs increased 17% ($59,000) and 12% ($82,000) in the
quarter and six months ended March 31, 1997 from the similar periods of
fiscal 1996 as a result of an increase in repairs and maintenance. Repairs
are conducted on an as-needed basis and, accordingly, costs incurred by the
Company may vary from year to year.
Amortization of oil and gas property costs as a percentage of oil and
gas revenues was 22% and 21% in the quarter and six months ended March 31,
1997 compared to 21% and 27% in the quarter and six months ended March 31,
1996. The variance from year to year is directly attributable to changes in
the Company's oil and gas reserve quantities, product prices and fluctuations
in the depletable cost basis of oil and gas properties.
RESULTS OF OPERATIONS: OTHER INCOME (EXPENSE)
General and administrative expense increased 19% ($107,000) and 24%
($245,000) in the quarter and six months ended March 31, 1997 as compared to
the same periods in fiscal 1996 primarily as a result of higher legal and
professional fees and the payment of incentive compensation to executive
officers.
Interest expense increased substantially in both the first quarter and
six months ended March 31, 1997 from the similar periods of the prior fiscal
year, reflecting the changes in borrowings to fund the growth of the
Company's asset acquisition and resolution and small ticket leasing
operations. In December 1996, the Company borrowed $13.4 million to fund the
acquisition of a series of mortgage loans on a property located in
Philadelphia, Pennsylvania (see Note 5 to Consolidated Financial Statements).
The Company also borrowed and subsequently repaid $5.0 million to fund the
acquisition of equipment for lease.
The effective tax rate decreased to 23% in the quarter and 22% in the
six months ended March 31, 1997 from 29% in the second quarter and first half
of fiscal 1996. The decrease in fiscal 1997 is the result of the investment
in several real estate partnerships which will generate tax credits and tax-
exempt interest earned on several real estate loans.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary liquidity needs are for continued expansion of its
Asset acquisition and resolution and small ticket leasing subsidiaries,
activities that are the core of the Company's growth strategy. The Company
will add to its real estate loan portfolio as, and when, economically
attractive opportunities become available and, further, expects substantial
ongoing growth in its small ticket leasing activities. In energy, while
the Company does not envision substantial cash needs, it will seek to add to
its reserve base through selected acquisition of producing properties and
further development of its mineral interests.
The Company has been able to finance each of these activities through a
variety of sources including internally generated funds, borrowings and
financings through the placement of notes and sale of equity. The Company
expects to finance its future activities in a similar manner and is exploring
several alternative public and/or private financings that would provide it
with a significant increase in liquidity and capital to permit additional
growth.
Sources and (uses) of cash for the three months ended March 31, 1997 and
1996 are as follows:
Six Months
Ended March 31,
--------------------------
1997 1996
---------- -----------
(in thousands of dollars)
Provided by operations $ 2,137 $ 1,231
Used in investing activities (33,178) (885)
Provided by (used in) financing activities 32,671 (426)
---------- -----------
$ 1,630 $ (80)
========== ===========
The Company had $5.8 million in cash and cash equivalents on hand at
March 31, 1997, a compared to $4.2 million at September 30, 1996. The
Company's ratio of current assets to current liabilities was 2.8:1 at March
31, 1997 and 3.7:1 on September 30, 1996. Working capital at March 31, 1997
was $4.9 million as compared to $4.4 million at September 30, 1996.
Cash provided by operating activities in the first six months of fiscal
1997 increased $905,000, as compared to the first six months of fiscal 1996.
The fiscal 1997 increase was primarily the result of an increase in operating
income in the asset acquisition and resolution business segment.
18
<PAGE 19>
The Company's cash used in investing activities increased $32.3 million
in the first six months of fiscal 1997, as compared to the first six months
of fiscal 1996. The increase resulted primarily from an increase in the
amount of cash used to fund asset acquisition and resolution and small ticket
leasing activities. The Company invested $29.4 million and $10.8 million in
the acquisition of five loans and six loans in the first half of fiscal years
1997 and 1996, respectively. In addition, the Company advanced funds on
existing loans of $1.0 million in both the first half of fiscal years 1997
and 1996. Cost of equipment acquired for lease represents the equipment cost
and initial direct costs associated with small ticket leasing operations.
The Company commenced leasing operations for its own account in June 1996 and
began to write leases in August 1996. Proceeds received upon refinancings or
the sale of participations amounted to $2.4 million and $10.9 million in the
first half of fiscal years 1997 and 1996, respectively. These proceeds
reflect the refinancing or sale of participations in two and four loans,
respectively, of which gains were recognized on one and three of these loans
in the first quarter of fiscal 1997 and 1996, respectively. Proceeds
received upon the sale of lease equipment receivables totaled $5.8 million in
the six months ended March 31, 1997. Increase in other assets represents the
investment of $2.0 million in several real estate partnerships, some of which
will generate tax credits.
The Company's cash flow provided by financing activities increased $33.1
million during the first half of fiscal 1997, as compared to the first half
of fiscal 1996. In December 1996, the Company entered into a secured
revolving/term credit facility with a maximum credit limit of $20 million.
During the first half of fiscal 1997 the Company borrowed and subsequently
repaid $5.0 million under this line of credit agreement. In November 1996,
the Company completed a public offering of shares of its common stock and
received net proceeds (after all underwriting expenses) of $19.6 million.
During the first quarter of fiscal 1997, the Company also borrowed $13.4
million to fund the acquisition of a mortgage loan on a property located in
Philadelphia, Pennsylvania. As discussed in Note 5, the Company also
refinanced an unsecured loan with a principal balance of approximately
$530,000 with the proceeds of an unsecured loan with a principal balance of
$700,000.
19
<PAGE 20>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
10.35 Employment Agreement, dated March 11, 1997, between Registrant
and Edward E. Cohen
10.36 Employment Agreement, dated April 9, 1997, between Fidelity
Mortgage Funding, Inc. and Daniel G. Cohen and Registrant
10.37 Grant of Incentive Stock Option Pursuant to Fidelity Mortgage
Funding, Inc. 1997 Key Employee Stock Option Plan, dated April 9,
1997, between Daniel G. Cohen and Fidelity Mortgage Funding, Inc.
11 Calculation of Primary and Fully Diluted Earnings per share.
27 Financial Data Schedule
b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended March
31, 1997.
20
<PAGE 21>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RESOURCE AMERICA, INC.
(Registrant)
Date May 14, 1997 By /s/ Michael L. Staines
------------------------------- ---------------------------------
Michael L. Staines
Senior Vice President and
Secretary
Date May 14, 1997 By /s/ Nancy J. McGurk
------------------------------- ----------------------------------
Nancy J. McGurk
Vice President - Finance and
Treasurer
21
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is executed on this 11th day of
March, 1997, but effective as of January 1, 1997, by and between RESOURCE
AMERICA, INC., a Delaware corporation having its principal place of business at
1521 Locust Street, Philadelphia, Pennsylvania 19102 ("RAI") and EDWARD E.
COHEN ("Cohen").
BACKGROUND
----------
A. Since 1988, Cohen has been an officer of RAI and currently serves as
the Chairman of RAI's Board of Directors. Although certain verbal
understandings regarding Cohen's employment with RAI have existed during
Cohen's tenure with RAI, there has not been a formalized written agreement to
reflect those understandings.
B. Cohen and RAI desire to formally set forth the terms, conditions and
agreements regarding Cohen's employment as Chairman of RAI.
TERMS
-----
NOW, THEREFORE, in consideration of the mutual promises set forth herein,
and intending to be legally bound hereby, RAI and Cohen agree as follows:
1. EMPLOYMENT. During the term of this Agreement, Cohen shall be
employed as the Chairman of the Board of Directors of RAI. Until such time as
the Board shall fill the office of President, Cohen shall also serve as
President.
2. DUTIES. Cohen shall report to and accept direction from the Board.
Cohen shall serve RAI diligently and to the best of his abilities, but Cohen
shall be required to devote only so much of his time and attention to the
business of RAI as may be required to fulfill his duties. It is recognized
that Cohen in the past has participated, and it is agreed that Cohen in the
future may participate in business endeavors separate and apart from RAI.
3. TERM. Cohen's employment hereunder shall continue in full force and
effect for a period of five (5) years, unless sooner terminated in accordance
with the provisions hereof. Such term shall automatically extend so that on
any day that this Agreement is in effect, it shall have a then current term of
five (5) years. Such automatic extensions shall cease upon RAI's written
notice to Cohen of its election to terminate this Agreement at the end of the
five (5) year period then in effect.
4. COMPENSATION.
a. BASE COMPENSATION. During the period of employment, RAI shall pay
to Cohen "Base Compensation" to be established by the Board, initially in an
amount equal to the Three Hundred Fifty Thousand Dollars ($350,000) per annum
base compensation which Cohen, under existing arrangements approved by the
Board, is to receive during calendar 1997 (the "Initial Level"). The Base
Compensation will be payable in accordance with the general payroll practices
by which RAI pays its executive officers, and the historical practice of RAI's
compensation of Cohen. It is understood that RAI, through the compensation
committee of the Board, will review Cohen's performance on an annual basis and
increase or decrease (but in no event below the Initial Level) such Base
Compensation, based upon Cohen's performance.
b. INCENTIVE COMPENSATION. During the period of employment Cohen may
receive incentive compensation in the form of cash bonus payments, stock option
grants and other forms of incentive compensation, based upon Cohen's
performance.
c. REIMBURSEMENT OF EXPENSES. RAI shall reimburse Cohen for all
reasonable expenses incurred by Cohen in the performance of his duties,
including (without limitation) expenses incurred during business-related
travel.
5. BENEFITS.
Cohen shall be entitled to receive the following benefits from RAI
independent of any other benefits which Cohen may receive from RAI or
otherwise:
a. PARTICIPATION IN BENEFIT PLAN. Cohen will participate in all
employee benefit plans in effect during the term of Cohen's employment
hereunder.
b. SUPPLEMENT RETIREMENT PLAN. RAI hereby establishes a Supplemental
Employment Retirement Plan (the "SERP") for the benefit of Cohen. The SERP
will pay to Cohen upon his retirement at any time after he has reached
Retirement Age, a monthly retirement benefit equal to one twelfth (1/12) of the
product of (i) the Average Compensation, multiplied by (ii) seventy five
percent (75%), less any amounts payable to Cohen under any other retirement
plan of RAI in which Cohen participates. If Cohen should die prior to receipt
of at least one-hundred twenty (120) months of retirement benefits under the
SERP, such retirement benefits shall continue to be paid to Cohen's estate
until a total of one-hundred twenty (120) months of such benefits shall have
been paid.
c. TEMPORARY DISABILITY. During any period that Cohen fails to
perform his duties hereunder as a result of incapacity due to physical or
mental illness Cohen shall continue to receive his full compensation at the
rate then in effect for such period until his employment is terminated pursuant
to paragraph 6(b) hereof.
6. Termination.
Cohen's employment hereunder shall terminate as follows:
a. DEATH. Cohen's employment shall terminate automatically upon the
death of Cohen.
b. DISABILITY. RAI may terminate this Agreement if Cohen becomes
disabled by reason of any physical or mental disability whatsoever for more
than two hundred forty (240) days in the aggregate during any calendar year and
the Board determines, that Cohen, by reason of such physical or mental
disability, is rendered unable to perform his duties and services hereunder (a
"Disability");
c. COHEN'S RETIREMENT. Cohen may, upon reaching the Retirement Age,
retire upon ninety (90) days written notice to RAI and upon his retirement
shall receive the benefits set forth in paragraph 7(c) hereof.
d. TERMINATION BY COHEN FOR CAUSE. Cohen may terminate his employment
for cause upon thirty (30) days' prior written notice to RAI, with opportunity
to cure any condition reasonably susceptible of cure. For the purposes of this
paragraph 6(d), cause shall be deemed to exist if any of the following shall
occur: (i) without the written consent of Cohen, a substantial change in the
services or duties required of Cohen hereunder or the imposition of any
services or duties substantially inconsistent with, or in diminution of Cohen's
current position, services or duties, or status with RAI; (ii) failure to
continue Cohen's coverage under any RAI benefit plan as required under
paragraph 5(a) except pursuant to a change to a benefit plan that applies to
senior executives of RAI generally or is required by law or regulation; or
(iii) any material breach by RAI of any provision of this Agreement;
e. TERMINATION BY COHEN WITHOUT CAUSE. Cohen may terminate this
Agreement without cause upon one hundred eighty (180) days prior written notice
to RAI.
f. CHANGE OF CONTROL. Cohen may, in his discretion, terminate his
employment upon a Change in Control or Potential Change in Control by sending a
Notice of Termination.
g. TERMINATION BY RAI. In accordance with paragraph 3 hereof, RAI may
terminate this Agreement at the end of the then current five (5) year term.
7. Effect of Termination.
a. DEATH. Upon the termination of Cohen's employment pursuant to
paragraph 6(a) hereof due to Cohen's death, a death benefit shall be paid to
Cohen's estate equal to the total amount payable to Cohen under this Agreement
until expiration of the term then in effect, assuming that Cohen's total
compensation for each year would be equal to the Average Compensation. The
death benefit shall be paid in thirty-six (36) equal, consecutive monthly
installments, beginning the first month following the month in which Cohen
shall have died.
b. DISABILITY. Upon the termination of Cohen's employment pursuant to
paragraph 6(b) hereof due to Cohen's disability, Cohen shall be entitled to
receive a monthly disability benefit equal to one twelfth (1/12) of the product
of (i) the Average Compensation, multiplied by (ii) seventy-five percent (75%).
The disability benefit described above shall be paid to Cohen, beginning the
first month following the termination pursuant to paragraph 6(b). Cohen's
disability benefit shall cease if he resumes his employment with RAI on the
terms provided in this Agreement. Disability payments made under this
paragraph shall not be reduced by any payments made directly to Cohen by an
insurance company. If during a period in which Cohen is receiving disability
benefits, he should reach the Retirement Age then effective the month following
his reaching such age, disability benefits shall terminate and retirement
benefits shall commence as if this Agreement were in effect on such date and
terminated on that date pursuant to section 6(c) hereof due to Cohen's
retirement.
c. RETIREMENT. Upon the termination of Cohen's employment pursuant to
paragraph 6(c) hereof due to Cohen's retirement, Cohen shall be paid retirement
benefits pursuant to the SERP.
d. FOR CAUSE; CHANGE OF CONTROL. Upon the termination of this
Agreement either (i) by Cohen for cause pursuant to paragraph 6(d) hereof, (ii)
by Cohen pursuant to paragraph 6(f) after a Change in Control or Potential
Change of Control or (iii) by RAI pursuant to section 6(g) hereof, then RAI
shall provide to Cohen the benefits described in Section 7(d)(1) and 7(d)(2)
below (the "Severance Benefits").
(1) LUMP-SUM SEVERANCE PAYMENT. In lieu of any further
compensation payments to Cohen for periods subsequent to the Date of
Termination, RAI shall pay to Cohen a lump sum severance payment, in cash,
without discount, equal to the sum of the total amount payable to Cohen under
this Agreement until expiration of the term then in effect, assuming that
Cohen's total compensation for each year would be equal to the Average
Compensation.
(2) CONTINUED BENEFITS. For a thirty-six (36) month period (or, if
less, the number of months from the Date of Termination until the date Cohen
will reach age seventy (70)) after the Date of Termination (the "Benefits
Period"), RAI shall provide Cohen with group term life insurance, health
insurance, accident and long-term disability insurance benefits (collectively,
"Welfare Benefits") substantially similar in all respects to those that Cohen
was receiving immediately prior to the Date of Termination (without giving
effect to any reduction in such benefits subsequent to a Change in Control).
During the Benefits Period, Cohen shall be entitled to elect to change his
level of coverage and/or his choice of coverage options with respect to the
Welfare Benefits to be provided by RAI to Cohen to the same extent that
actively employed senior executives of RAI are permitted to make such changes.
e. TERMINATION BY COHEN WITHOUT CAUSE. If this Agreement is
terminated by Cohen without cause, on or after January 1, 2000, pursuant to
paragraph 6(e) hereof, Cohen shall be entitled to a benefit equal to one-fourth
(1/4) of the death benefit to which his estate would be entitled under
paragraph 7(a) hereof, calculated as if Cohen had died on the effective date of
the termination of this Agreement. Such benefit shall be paid in sixty (60)
equal, consecutive monthly installments, beginning on the month following the
effective date of termination.
f. VESTING OF OPTIONS. Upon any termination of this Agreement, the
vesting of all options to purchase securities of RAI granted to Cohen during
his employment with RAI shall be accelerated to the later of the effective date
of termination of this Agreement, or six months after the date such option was
granted, and any provision contained in the agreements under which such options
were granted that is inconsistent with such acceleration is hereby modified to
the extent necessary to provide for such acceleration; such acceleration shall
not apply to any option that by its terms would vest prior to the date provided
for in this paragraph 7(f).
8. GROSS-UP PAYMENT.
a. In the event that (i) Cohen becomes entitled to any benefits or
payments in connection with the termination of Cohen's employment, whether
pursuant to the terms of this Agreement or otherwise, including without
limitation the Severance Benefits (collectively, the "Total Benefits"), and
(ii) any of the Total Benefits will be subject to the Excise Tax, RAI shall pay
to Cohen an additional amount (the "Gross-Up Payment") such that the net amount
retained by Cohen, after deduction of any Excise Tax on the Total Benefits and
any federal, state and local income taxes, Excise Tax, and FICA and Medicare
withholding taxes upon the payment provided for by this paragraph 8(a), shall
be equal to the Total Benefits. For purposes of determining whether any of the
Total Benefits will be subject to the Excise Tax and the amount of such Excise
Tax, the amount of the Total Benefits that shall be treated as subject to the
Excise Tax shall be equal to the amount of the Total Benefits reduced by the
amount of such Total Benefits that, in the opinion of tax counsel selected by
Cohen, at RAI's expense and reasonably acceptable to RAI ("Tax Counsel"), are
not excess parachute payments (within the meaning of Section 28OG(b)(1) of the
Code).
b. For purposes of this Section 8, Cohen shall be deemed to pay
federal income taxes at the highest marginal rate of federal income taxation in
the calendar year in which the Excise Tax is (or would be) payable and state
and local income taxes at the highest marginal rate of taxation in the state
and locality of Cohen's residence on the Date of Termination, net of the
reduction in federal income taxes which could be obtained from deduction of
such state and local taxes (calculated by assuming that any reduction under
Section 68 of the Code in the amount of itemized deductions allowable to Cohen
applies first to reduce the amount of such state and local income taxes that
would otherwise be deductible by Cohen). Except as otherwise provided herein,
all determinations required to be made under this Section 8 shall be made by
Tax Counsel.
c. In the event that the Excise Tax is subsequently determined to be
less than the amount taken into account hereunder at the time of termination of
Cohen's employment, Cohen shall repay to RAI, at the time that the amount of
such reduction in Excise Tax is finally determined, the portion of the Gross-Up
Payment attributable to such reduction (plus that portion of the Gross-Up
Payment attributable to the Excise Tax, federal, state and local income taxes
and FICA and Medicare withholding taxes imposed on the Gross-Up Payment being
repaid by Cohen to the extent that such repayment results in a reduction in
Excise Tax, FICA and Medicare withholding taxes and/or a federal, state or
local income tax deduction) plus interest on the amount of such repayment at
the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the
Excise Tax is determined to exceed the amount taken into account hereunder at
the time of the termination of Cohen's employment (including by reason of any
payment the existence or amount of which cannot be determined at the time of
the Gross-Up Payment), RAI shall make an additional Gross-Up Payment to Cohen
in respect of such excess (plus any interest, penalties or additions payable by
Cohen with respect to such excess) at the time that the amount of such excess
is finally determined.
9. INDEMNIFICATION.
a. If Cohen is made a party or is threatened to be made a party to or
is involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (herein a "proceeding"), by reason of the fact
that he is or was an employee (which term includes officer, director, agent and
any other capacity) of RAI or is or was serving at the request of RAI as an
employee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans, whether the basis of such proceeding is alleged action in an official
capacity as an employee or agent or in any other capacity while serving as an
employee or agent, Cohen shall be indemnified and held harmless by RAI to the
fullest extent authorized by applicable law, against all expense, liability and
loss (including, but not limited to, attorneys' fees, judgments, fines, ERISA
excise taxes and penalties and amounts paid or to be paid in settlement)
incurred or suffered by Cohen in connection therewith and such indemnification
shall continue as to Cohen after he has ceased to be a director, officer,
employee or agent and shall inure to the benefit of Cohen's heir, executors,
and administrators; provided, however, that RAI shall indemnify any such person
seeking indemnification in connection with a proceeding (or part thereof)
initiated by Cohen (other than a proceeding to enforce this paragraph 9) only
if such proceeding (or part thereof) was authorized directly or indirectly by
the Board of RAI. The right to indemnification conferred in this paragraph
shall be a contract right and shall include the right to be, promptly upon
request, paid by RAI the expenses incurred in defending any such proceeding in
advance of its final disposition; provided, however, that if the Business
Corporation Law of the Commonwealth of Pennsylvania requires the payment of
such expenses incurred by an employee in his capacity as an employee (and not
in any other capacity in which service was or is rendered by such person while
a director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding, payment
shall be made only upon delivery to RAI of an undertaking, by or on behalf of
Cohen, to repay all amounts so advanced if it shall ultimately be determined
that such employee is not entitled to be indemnified under this paragraph or
otherwise.
b. The indemnification provided by this paragraph shall not be limited
or exclude any rights, indemnities or limitations of liability to which Cohen
may be entitled, whether as a matter of law, under the Certificate of
Incorporation, By-laws of RAI, by agreement, vote of the stockholders or
disinterested directors of RAI or otherwise.
c. Cohen, in seeking indemnification under this Agreement (an
"Indemnitee"), shall give the other party or parties (the "Indemnitor") prompt
written notice of any claim, suit or demand that the Indemnitee believes will
give rise to indemnification under this Agreement; provided, however, that the
failure to give such notice shall not affect the liability of the Indemnitor
under this Agreement unless the failure to give such notice materially and
adversely affects the ability of the Indemnitor to defend itself against or to
cure or mitigate the damages. Except as hereinafter provided, the Indemnitor
shall have the right (without prejudice to the right of the Indemnitee to
participate at its expense through counsel of its own choosing) to defend and
to direct the defense against any such claim, suit or demand, at the
Indemnitor's expense and with counsel chosen jointly by Indemnitor and
Indemnitee, and the right to settle or compromise any such claim, suit or
demand; provided, however, that the Indemnitor shall not, without the
Indemnitee's written consent, which shall not be unreasonably withheld, settle
or compromise any claim or consent to any entry of judgment. The Indemnitee
shall, at the Indemnitor's expense, cooperate in the defense of any such claim,
suit or demand. If the Indemnitor, within a reasonable time after notice of a
claim fails to defend the Indemnitee, the Indemnitee shall be entitled to
undertake the defense, compromise or settlement of such claim at the expense of
and for the account and risk of the Indemnitor.
d. Cohen will be covered during the entire term of this Agreement by
Officer and Director liability insurance in amounts and on terms similar to
that afforded to other executives and/or directors of RAI or its affiliates,
which such insurance shall be paid by RAI.
10. DEFINITIONS. Any terms not otherwise defined herein shall have the
following meaning:
a. "Average Compensation" means the average of the three highest
annual total compensation received by Cohen during any of the then current
calendar year (on an annualized basis) and the then preceding eight (8)
calendar years.
b. "Board" means the Board of Directors of RAI.
c. A "Change in Control" means the occurrence of any of the following
events:
(1) any Person or Persons acting together, excluding employee
benefit plans of RAI, are or become the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act or any successor provisions thereto),
directly or indirectly, of securities of RAI representing twenty-five percent
(25%) or more of the combined voting power of RAI's then outstanding securities
(other than a Person or Persons holding such combined voting power at the
beginning of the current fiscal year (being October 1, 1996));
(2) RAI's shareholders approve (or, in the event no approval of
RAI's shareholders is required, RAI consummates) a merger, consolidation, share
exchange, division or other reorganization or transaction of RAI (a
"Fundamental Transaction") with any other corporation, other than a Fundamental
Transaction which would result in the voting securities of RAI outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least sixty percent (60%) of the combined voting power immediately
after such Fundamental Transaction of (i) RAI's outstanding securities, (ii)
the surviving entity's outstanding securities, or (iii) in the case of a
division, the outstanding securities of each entity resulting from the
division;
(3) the shareholders of RAI approve a plan of complete, liquidation
or winding-up of RAI or an agreement for the sale or disposition (in one
transaction or a series of transactions) of all or substantially all of RAI's
assets; or
(4) during any period of twenty-four consecutive months,
individuals who at the beginning of such period constituted the Board
(including for this purpose any new director whose election or nomination for
election by RAI's shareholders was approved by a vote of at least two-thirds
(2/3) of the directors then still in office who were directors at the beginning
of such period) cease for any reason to constitute at least a majority of the
Board.
d. "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
e. "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.
f. "Excise Tax" means any excise tax imposed under Section 4999 of the
Code or a similar provision that may later be enacted.
g. "Notice of Termination". After a Potential Change in Control or a
Change in Control, Cohen may terminate this Agreement by sending a written
notice to RAI that shall (i) specify the date of termination (the "Date of
Termination") which shall not be more than sixty (60) days from the date such
Notice of Termination is given, (ii) indicate the specific provisions of this
Agreement that will apply upon such termination and (iii) set forth in
reasonable detail the facts and circumstances for the application of the
provisions indicated.
h. "Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Act and shall also include any syndicate or group deemed to be a
"person" under Section 13(d)(3) of the Exchange Act.
i. "Potential Change in Control" means the occurrence of any of the
following:
(1) the Board approves a transaction described in Subsection (b) of
the definition of Change in Control contained in paragraph 10(c) hereof; or
(2) the commencement of a proxy or other contest or effort in which
any Person seeks to obtain effective control of RAI.
j. "RAI" means Resource America, Inc., a Delaware corporation. If
Cohen becomes employed by a direct or indirect subsidiary of RAI, then RAI
shall also be deemed to refer to the subsidiary thereof by which Cohen is
employed. In such case, references to payments, benefits, privileges or other
rights to be provided by such subsidiary by which Cohen is employed or RAI, as
the case may be, to correspond to the corporate entity obligated to make
payments or provide benefits, privileges or other rights pursuant to employee
benefit plans affected by the provisions hereof, and in the absence of any such
existing plans or provisions, such reference shall be deemed to be to RAI. RAI
shall also mean any successor by merger or other business combination to more
than one-half of the assets or ownership of RAI.
k. "Retirement Age" means sixty-two (62) years old.
11. MISCELLANEOUS.
a. SEVERABILITY. In case any one or more of the provisions contained
herein shall, for any reason, be held to be invalid, illegal, or unenforceable
in any respect such validity, illegality or unenforceability shall not affect
any other provisions of this Agreement, and this Agreement shall be construed
as if such invalid, illegal or unenforceable provision(s) had never been
contained herein, provided that such invalid, illegal or unenforceable
provision(s) shall first be curtailed, limited or eliminated only to the extent
necessary to remove such invalidity, illegality or unenforceability with
respect to the applicable law as it shall then be applied.
b. MODIFICATION OF AGREEMENT. This Agreement shall not be modified by
any oral agreement, either expressed or implied, and all modifications thereof
shall be in writing and signed by the parties hereto.
c. WAIVER. The waiver of any right under this Agreement by any of the
parties hereto shall not be construed as a waiver of the same right at a future
time or as a waiver of any other rights under this Agreement.
d. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of Delaware, without giving
affect to the principles of conflicts of laws.
e. NOTICES. Any notice to be given pursuant to this Agreement shall
be sufficient if in writing and mailed by certified or registered mail,
postage-prepaid, to the addresses listed below, or to such other address as
either party may notify the other of in accordance with this section.
If to RAI:
Resource America, Inc.
1521 Locust Street
Suite 400
Philadelphia, PA 19102
If to Cohen:
Edward E. Cohen
1521 Locust Street; Ste. 400
Philadelphia, PA 19102
IN WITNESS WHEREOF, the parties hereto have executed or caused to be
executed this Agreement on March 11th, 1997, but effective as of January 1,
1997.
RESOURCE AMERICA, INC.
By: /s/ Carlos C. Campbell
----------------------
EDWARD E. COHEN
/s/ Edward E. Cohen
-------------------
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is executed this 9th day of April,
1997 by and between FIDELITY MORTGAGE FUNDING, INC., a Delaware corporation
(the "Company"), DANIEL G. COHEN (the "Executive") and RESOURCE AMERICA, INC.,
a Delaware corporation ("RAI").
WHEREAS, the Company is a subsidiary of RAI; and
WHEREAS, Executive has been offered employment by the Company as President
and Chief Executive Officer (the "Office"); and
WHEREAS, Executive wishes to be employed in the Office by the Company; and
WHEREAS, the Company and RAI desire to assure the availability of
Executive's services in the Office; and
NOW, THEREFORE, in consideration of the mutual promises set forth herein,
the adequacy of which is hereby acknowledged, Company, Executive and RAI,
intending to be legally bound, agree as follows:
1. Employment.
The Company hereby employs Executive in the Office and Executive hereby
accepts such employment, positions and responsibilities, and agrees to serve
the Company in such capacities upon the terms and conditions set forth herein.
2. Services.
Executive shall serve the Company diligently, competently, and to the best
of his abilities during the period of employment. Executive's services shall
be performed within a reasonable commuting distance of Philadelphia except for
reasonable travel.
Executive's duties shall include the development and strategic oversight
of the Company's business, and such other matters as may be designated from
time to time by the Company's Board of Directors and which are appropriate to
the Office.
In carrying out his duties Executive shall report to and accept direction
from the Board of Directors of the Company; provided, however, Executive shall
not be required to devote all of his time to the Office, but only so much as
may be reasonably necessary to carry out the duties of such Office.
3. Term.
Executive's employment hereunder shall continue in full force and effect
for a period of three (3) years, unless sooner terminated in accordance with
the provisions hereof. Such term shall automatically extend so that on any day
that this Agreement is in effect, it shall have a then current term of three
(3) years (the "Contract Period"). Such automatic extensions shall cease upon
Company's written notice to Executive of its election to terminate this
Agreement at the end of the three (3) year period then in effect.
4. Compensation.
(a) Base Salary. During the period of employment, the Company shall pay
to Executive a Base Salary of One Hundred Fifty Thousand Dollars ($150,000) per
annum, payable monthly. It is understood that Company will review annually and
may, in the discretion of the Board of Directors, increase or decrease (but not
below $150,000) the Base Salary, as adjusted, in light of the Executive's
performance and other factors. It is understood that Executive may perform
other services for entities owned directly or indirectly by RAI and the Base
Salary shall not be intended to compensate for such services; rather Executive
will be directly compensated therefor.
(b) Incentive Compensation Plan. During the period of employment the
Executive shall receive bonus payments equal to 2.75% of the annual after tax
earnings of the Company, but not more than 2.0% of the pre-tax earnings of the
Company. After Tax Earnings shall mean the before tax earnings of the Company
determined by the Company's independent auditors in accordance with generally
acceptable accounting principles consistently applied adjusted for the taxes
that would be payable if the Company were a corporation that filed a separate
tax return. Payment of such bonus shall be made within fifteen (15) days of
the receipt by the Company of its audited financial statement for the preceding
fiscal year, but in no event later than 105 days after the end of the preceding
fiscal year.
(c) Payments in Lieu of Dividends. In the case of any dividend paid by
the Company at a time during which Executive has unvested or unexercised stock
options to acquire Company stock, Executive shall receive, contemporaneous with
the payment of such dividend, an amount hereunder equal to that amount to which
he would have been entitled had he previously exercised his stock options.
5. Benefits.
During the period of employment, Executive shall be entitled to receive
the following additional benefits:
(a) Participation in Benefit Plans. Executive will participate on a
substantially equal basis as all other employees of Company in all employee
benefit plans and arrangements now in effect or which may hereafter be
established which are generally applicable to other employees of the Company or
any of its subsidiaries.
(b) Car Allowance. The Company agrees to pay Executive a car allowance
not to exceed Five Hundred Dollars ($500) per month.
6. Termination.
Anything herein contained to the contrary notwithstanding, Executive's
employment hereunder shall terminate as a result of any of the following
events:
(a) Executive's death;
(b) Termination by the Company, for Cause (as hereinafter defined).
"Cause" shall encompass the following: (i) A court of competent jurisdiction
determines that Executive has committed a material fraud against the Company or
RAI; or (ii) Executive has been convicted of a felony involving any material
conflict of interest or self-dealing related to the Company and/or RAI;
(c) The Executive becomes disabled by reason of any physical or mental
disability whatsoever for more than one hundred eighty (180) days in the
aggregate during any 365-day period and the Board of Directors determines, in
good faith and in writing, that the Executive, by reason of such physical or
mental disability, is rendered unable to perform his duties and services
hereunder (a "Disability"); or
(d) Termination by Executive for "Good Reason" upon forty-five (45) days'
prior written notice to the Company. "Good Reason" shall mean: (i) without the
written consent of Executive, a substantial change in the services or duties
(including relocation in contravention of Paragraph 2 of this Agreement)
required of the Executive hereunder or the imposition of any services or duties
substantially inconsistent with, or in diminution of Executive's position,
services or duties, or status with the Company; (ii) failure to continue
Executive's coverage under any benefit plan as required under paragraph 5(a)
except pursuant to a change to a benefit plan that applies to senior executives
of the Company generally or is required by law or regulation; (iii) any breach
by the Company of any provision of this Agreement; (iv) Company should provide
Executive with the written notice of its election to terminate the automatic
extension of this Agreement as set forth in paragraph 3 hereof; or (v) a Change
in Control or Potential Change in Control (as such terms are hereinafter
defined); provided, however, that Termination by Executive for Good Reason
shall be effective in the case of clause (i)-(iii) only if such failure has not
been cured to Executive's satisfaction within thirty (30) days after notice of
such failure has been given to the Company. If notice has been given under
the previous sentence for a failure of the Company, Executive may terminate
this Agreement for Good Reason without further notice in the case of a similar
failure.
For the purposes of this Paragraph 6(d), "Change in Control" means the
occurrence of any of the following events:
i) any person, corporation, partnership or unincorporated association
(each a "Person") or Persons acting together, excluding RAI or employee benefit
plans of the Company or RAI, are or become the "beneficial owner" (as defined
in Rules 13d-3 and 13d-5 under the Exchange Act or any successor provisions
thereto), directly or indirectly, of securities of the Company or RAI
representing twenty-five percent (25%) or more of the combined voting power of
the Company's or RAI then outstanding securities;
ii) the Company's or RAI's shareholders approve (or, in the event no
approval of the Company's or RAI's shareholders is required, the Company or RAI
consummates) a merger, consolidation, share exchange, division or other
reorganization or transaction of the Company (a "Fundamental Transaction") with
any other corporation, other than a Fundamental Transaction which would result
in the voting securities of the Company or RAI outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least sixty
percent (60%) of the combined voting power immediately after such Fundamental
Transaction of (a) the Company's or RAI's outstanding securities, (b) the
surviving entity's outstanding securities, or (c) in the case of a division,
the outstanding securities of each entity resulting from the division;
iii) the shareholders of the Company or RAI approve a plan of complete
liquidation or winding-up of the Company or RAI or an agreement for the sale or
disposition (in one transaction or a series of transactions) of all or
substantially all of the Company's or RAI's assets; or
iv) during any period of twenty-four (24) consecutive months, individuals
who at the beginning of such period constituted RAI's Board (including for this
purpose any new director whose election or nomination for election by the
Company's shareholders was approved by a vote of at least two-thirds (2/3) of
the directors then still in office who were directors at the beginning of such
period) cease for any reason to constitute at least a majority of the Board.
For the purposes of this Paragraph 6(d), "Potential Change in Control"
means the occurrence of any of the following events:
i) the Board of the Company or RAI approves a transaction described in
clause (ii) of the definition of Change in Control; or
ii) the commencement of a proxy or other contest or effort in which any
Person seeks to obtain effective control of the Company or RAI.
7. Consideration Payable to Executive Upon Termination or in the Event of
Disability.
(a) During any period that the Executive fails to perform his duties
hereunder as a result of incapacity due to physical or mental illness
("Disability Period"), the Executive shall continue to receive his full salary
at the rate then in effect for such period until his employment is terminated
pursuant to subparagraph 6(c) hereof (together with his bonus, so long as any
such disability is for less than sixty (60) days in the aggregate in any bonus
year), provided that payments so made to the Executive shall be reduced by the
sum of the amounts, if any, payable to the Executive at or prior to the time of
any such payment under disability benefits of Company and which were not
previously applied to reduce any such payment.
(b) If Executive's employment shall terminate pursuant to subparagraph
6(a),(b) or (c), Executive shall receive his full Base Salary, together with
all benefits required pursuant to paragraph 5, through the date of termination,
but shall not be entitled to receive any additional payments, benefits or
compensation otherwise due subsequent to the date of termination.
(c) If Executive's employment by the Company under this Agreement shall be
terminated for "Good Reason" as specified under subparagraph 6(d), Company
shall pay to Executive a lump sum severance payment, in cash, without discount,
equal to the sum of the total amount payable to Executive under this Agreement
until expiration of the term then in effect, assuming that Executive's total
compensation for each year would be equal to the Average Compensation. For the
purposes of this paragraph 7(c) "Average Compensation" shall mean the average
of the three highest annual total compensation received by Executive during
any of the then current calendar year (on an annualized basis) and the then
preceding five (5) calendar years during which Executive was employed by the
Company for the entire calendar year. If employee has been employed for fewer
than three years, Average Compensation shall be employee's highest compensation
for any 12 months during such period. Executive shall not be required to
mitigate the amount of any payment provided for in this subparagraph 7(c) by
seeking other employment or otherwise, nor shall the amount of any payment or
benefit provided for therein be reduced by any compensation of any retirement
benefit heretofore or hereafter earned by Executive as the result of employment
by any other person, firm or corporation.
8. Confidential Information.
All confidential information or trade secrets which Executive currently
has or may obtain during the period of employment relating to the business of
the Company and its affiliates shall not be published, disclosed, or made
accessible by him to any other person, firm, or corporation except in the
business and for the benefits of the Company, RAI and its affiliates. The
provisions of this paragraph 8 shall survive the termination of this Agreement,
but shall not apply to any information which is or becomes publicly available
otherwise than by any breach of this paragraph 8.
9. Covenant Not to Compete.
Executive shall not, during the period of employment, for whatever reason,
for himself, or on behalf of any other person, firm, partnership, corporation,
or other entity, without the prior written consent of RAI: (i) engage in the
residential sub-prime mortgage lending business; or (ii) solicit or hire, or
attempt to solicit or hire, any employee of the Company or its affiliates away
from the Company or its affiliates or away from the Company's employ. For
purposes of clause (i) of this paragraph, "to engage" shall include Executive's
acting as an owner (of more than 10%), employee, shareholder, consultant,
director or officer, directly or indirectly, of an entity so engaged.
10. Remedies in Case of Breach of Certain Covenants or Termination.
The Company and Executive agree that the damages that may result to the
Company from misappropriation of confidential information or competition as
prohibited by paragraphs 8 and 9 could be estimated only by conjecture and not
by any accurate standard, and, therefore, any breach by Executive of the
provisions of such paragraphs, in addition to giving rise to monetary damages,
will be enjoined.
11. Representations and Warranties.
(a) Executive represents and warrants to the Company that he is under no
contractual or other restriction or obligation which would prevent the
performance of his duties hereunder, or which interfere with the rights of the
Company hereunder. Executive represents and agrees that he has no agreements
or arrangements with the Company or any of its affiliates providing for the
compensation of Executive in any respect other than as set forth in this
Agreement.
(b) The Company represents and warrants to Executive that it has all
requisite power and authority to execute, deliver, and perform this Agreement
and all necessary corporate proceedings of the Company have been duly taken to
authorize the execution, delivery, and performance of this Agreement by the
Company.
12. Indemnification.
(a) If Executive is made a party or is threatened to be made a party to or
is involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (herein a "Proceeding"), by reason of the fact
that he is or was an employee (which term includes officer, director, agent and
any other capacity) of the Company or is or was serving at the request of the
Company as an employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such Proceeding is alleged action
in an official capacity as an employee or agent or in any other capacity while
serving as an employee or agent, Executive shall be indemnified and held
harmless by RAI and the Company to the fullest extent authorized by the General
Corporation Law of the State of Delaware, as the same exists or may hereafter
be amended (but, in the case of any such amendment, only to the extent that
such amendment permits RAI and the Company to provide broader indemnification
rights than said law permitted RAI and the Company to provide prior to such
amendment), against all expense, liability and loss (including, but not limited
to, attorneys' fees, judgments, fines, ERISA excise taxes and penalties and
amounts paid or to be paid in settlement) incurred or suffered by Executive in
connection therewith and such indemnification shall continue as to Executive
after he has ceased to be a director, officer, employee or agent and shall
inure to the benefit of Executive's heir, executors, and administrators;
provided, however, that RAI and the Company shall indemnify any such person
seeking indemnification in connection with a Proceeding (or part thereof)
initiated by Executive (other than a proceeding to enforce this Section 12)
only if such Proceeding (or part thereof) was authorized directly or indirectly
by the Board of RAI and the Company. The right to indemnification conferred in
this paragraph shall be a contract right and shall include the right to be
promptly upon request, paid by RAI and the Company the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that if the General Corporation Law of the State of Delaware requires
the payment of such expenses incurred by an employee in his capacity as an
employee (and not in any other capacity in which service was or is rendered by
such person while a director or officer, including, without limitation, service
to an employee benefit plan) in advance of the final disposition of a
proceeding, payment shall be made only upon delivery to RAI and the Company of
an undertaking, by or on behalf of Executive, to repay all amounts so advanced
if it shall ultimately be determined that such employee is not entitled to be
indemnified under this paragraph or otherwise.
(b) The indemnification provided by this Paragraph 12 shall not be limited
or exclude any rights, indemnities or limitations of liability to which
Executive may be entitled, whether as a matter of law, under the Certificate of
Incorporation, By-laws of RAI and the Company, by agreement, vote of the
stockholders or disinterested directors of RAI and the Company or otherwise.
(c) Executive (an "Indemnitee"), in seeking indemnification under this
Agreement, shall give RAI or the Company (the "Indemnitor") prompt written
notice of any claim, suit or demand that the Indemnitee believes will give rise
to indemnification under this Agreement; provided, however, that the failure to
give such notice shall not affect the liability of the Indemnitor under this
Agreement unless the failure to give such notice materially and adversely
affects the ability of the Indemnitor to defend itself against or to cure or
mitigate the damages. Except as hereinafter provided, the Indemnitor shall
have the right (without prejudice to the right of the Indemnitee to participate
at its expense through counsel of its own choosing) to defend and to direct the
defense against any such claim, suit or demand, at the Indemnitor's expense and
with counsel chosen jointly by Indemnitor and Indemnitee, and the right to
settle or compromise any such claim, suit or demand; provided, however, that
the Indemnitor shall not, without the Indemnitee's written consent, which shall
not be unreasonably withheld, settle or compromise any claim or consent to any
entry of judgment. The Indemnitee shall, at the Indemnitor's expense,
cooperate in the defense of any such claim, suit or demand. If the Indemnitor,
within a reasonable time after notice of a claim fails to defend the
Indemnitee, the Indemnitee shall be entitled to undertake the defense,
compromise or settlement of such claim at the expense of and for the account
and risk of the Indemnitor.
(d) Executive will be covered during the entire term of this Agreement by
Officer and Director liability insurance in amounts and on terms similar to
that afforded to other executives of RAI or its affiliates, which such
insurance shall be paid by RAI or Company.
13. Gross-Up Payment.
(a) In the event that (i) Cohen becomes entitled to any benefits or
payments in connection with the termination of Cohen's employment, whether
pursuant to the terms of this Agreement or otherwise, including without
limitation the Severance Benefits (collectively, the "Total Benefits"), and
(ii) any of the Total Benefits will be subject to the Excise Tax, RAI shall pay
to Cohen an additional amount (the "Gross-Up Payment") such that the net amount
retained by Cohen, after deduction of any Excise Tax on the Total Benefits and
any federal, state and local income taxes, Excise Tax, and FICA and Medicare
withholding taxes upon the payment provided for by this Section 13(a), shall be
equal to the Total Benefits. For purposes of determining whether any of the
Total Benefits will be subject to the Excise Tax and the amount of such Excise
Tax, the amount of the Total Benefits that shall be treated as subject to the
Excise Tax shall be equal to the amount of the Total Benefits reduced by the
amount of such Total Benefits that, in the opinion of tax counsel selected by
Cohen, at RAI's expense and reasonably acceptable to RAI ("Tax Counsel"), are
not excess parachute payments (within the meaning of Section 28OG(b)(1) of the
Code).
(b) For purposes of this Section 13, Cohen shall be deemed to pay federal
income taxes at the highest marginal rate of federal income taxation in the
calendar year in which the Excise Tax is (or would be) payable and state and
local income taxes at the highest marginal rate of taxation in the state and
locality of Cohen's residence on the Date of Termination, net of the reduction
in federal income taxes which could be obtained from deduction of such state
and local taxes (calculated by assuming that any reduction under Section 68 of
the Code in the amount of itemized deductions allowable to Cohen applies first
to reduce the amount of such state and local income taxes that would otherwise
be deductible by Cohen). Except as otherwise provided herein, all
determinations required to be made under this Section 13 shall be made by Tax
Counsel.
(c) In the event that the Excise Tax is subsequently determined to be less
than the amount taken into account hereunder at the time of termination of
Cohen's employment, Cohen shall repay to RAI, at the time that the amount of
such reduction in Excise Tax is finally determined, the portion of the Gross-Up
Payment attributable to such reduction (plus that portion of the Gross-Up
Payment attributable to the Excise Tax, federal, state and local income taxes
and FICA and Medicare withholding taxes imposed on the Gross-Up Payment being
repaid by Cohen to the extent that such repayment results in a reduction in
Excise Tax, FICA and Medicare withholding taxes and/or a federal, state or
local income tax deduction) plus interest on the amount of such repayment at
the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the
Excise Tax is determined to exceed the amount taken into account hereunder at
the time of the termination of Cohen's employment (including by reason of any
payment the existence or amount of which cannot be determined at the time of
the Gross-Up Payment), RAI shall make an additional Gross-Up Payment to Cohen
in respect of such excess (plus any interest, penalties or additions payable by
Cohen with respect to such excess) at the time that the amount of such excess
is finally determined.
(d) For the purposes of this Section, "Excise Tax" shall mean any excise
tax imposed under Section 4999 of the Code or a similar provision that may
later be enacted.
14. Joinder by RAI. RAI joins this Agreement for the purpose of
confirming its undertakings hereunder and for guaranteeing performance by the
Company. Accordingly, RAI does hereby unconditionally and unequivocally
guarantee to Executive that Company will perform its obligations hereunder and
make all payments hereunder. If Company should default or its payment or non-
payment obligations, RAI will pay any amounts due to Executive hereunder not
paid by Company and, to the extent a non-payment default can be performed by
RAI, will perform the non-payment obligations of Company.
15. Severability.
In case any one or more of the provisions contained herein shall, for any
reason, be held to be invalid, illegal, or unenforceable in any respect such
validity, illegality or unenforceability shall not affect any other provisions
of this Agreement, and this Agreement shall be construed as if such invalid,
illegal or unenforceable provision(s) had never been contained herein, provided
that such invalid, illegal or unenforceable provision(s) shall first be
curtailed, limited or eliminated only to the extent necessary to remove such
invalidity, illegality or unenforceability with respect to the applicable law
as it shall then be applied.
16. Modification Agreement.
This Agreement shall not be modified by any oral agreement, either
expressed or implied, and all modifications thereof shall be in writing and
signed by the parties hereto.
17. Waiver.
The waiver of any right under this Agreement by any of the parties hereto
shall not be construed as a waiver of the same right at a future time or as a
waiver of any other rights under this Agreement.
18. Governing Law.
This Agreement shall be governed by and construed in accordance with the
internal laws of the Commonwealth of Pennsylvania, without giving affect to the
principles of conflicts of laws.
19. Notices.
Any notice to be given pursuant to this Agreement shall be sufficient if
in writing and mailed by certified or registered mail, postage-prepaid, to the
addresses listed below:
If to Company:
Fidelity Mortgage Funding, Inc.
1521 Locust Street, 10th Floor
Philadelphia, PA 19102
If to Executive:
Daniel G. Cohen
1521 Locust Street
Philadelphia, PA 19103
IN WITNESS WHEREOF, the parties hereto have executed or caused to be
executed this Agreement as of the date first written above.
FIDELITY MORTGAGE FUNDING, INC.
By: /s/ Carlos C. Campbell
---------------------------
Carlos Campbell, Chairman,
Comp. Committee
/s/ Daniel G. Cohen
----------------------------
DANIEL G. COHEN
RESOURCE AMERICA, INC.
By: /s/ Carlos C. Campbell
----------------------------
Carlos Campbell, Chairman,
Comp. Committee
GRANT OF INCENTIVE STOCK OPTION
PURSUANT TO FIDELITY MORTGAGE FUNDING, INC.
1997 KEY EMPLOYEE STOCK OPTION PLAN
THIS AGREEMENT, made as of this 9th day of April, 1997 ("DATE OF GRANT"),
by and between DANIEL G. COHEN, ("GRANTEE") and FIDELITY MORTGAGE FUNDING, INC.
(together with its successors or assigns, the "COMPANY").
WHEREAS, the Board of Directors of Fidelity Mortgage Funding, Inc. (the
"Board") previously adopted, with subsequent stockholder approval, the Fidelity
Mortgage Funding, Inc. 1997 Key Employee Stock Option Plan (the "PLAN");
WHEREAS, the Plan provides for the granting of incentive stock options by
a committee to be appointed by the Board (the "COMMITTEE") to eligible
employees of the Company to purchase, or to exercise certain rights with
respect to, shares of the Common Stock of the Company, par value $.01 per share
(the "STOCK"), in accordance with the terms and provisions thereof; and
WHEREAS, the Committee considers the Grantee to be a person who is
eligible for a grant of incentive stock options under the Plan, and has
determined that it would be in the best interest of the Company to grant the
incentive stock options on the terms and conditions hereinafter set forth.
NOW, THEREFORE, the parties hereto, intending to be legally bound hereby,
agree as follows:
1. Grant of Option.
----------------
Subject to the terms and conditions hereinafter set forth, the
Company, with the approval and at the direction of the Committee, hereby grants
to the Grantee an option to purchase up to 2,000,000 shares of Stock at a price
(the "EXERCISE PRICE") of $0.118 per share. Such option is hereinafter
referred to as the "OPTION" and the shares of stock purchasable upon exercise
of the Option are hereinafter sometimes referred to as the "OPTION SHARES."
The Option is intended by the parties hereto to be, and shall be treated as, an
incentive stock option as such term is defined under Section 422 of the
Internal Revenue Code of 1986, as amended (the "CODE").
2. Installment Exercise.
---------------------
(a) Subject to such further limitations as are provided herein and
subject to Section 2(b), below, the Option shall become exercisable in four (4)
installments, the Grantee having the right hereunder to purchase from the
Company the following number of Option Shares upon exercise of the Option on
and after the following dates, in cumulative fashion:
(i) on and after the first anniversary of the Date of Grant, up to
25% (ignoring fractional shares) of the total number of Option Shares;
(ii) on and after the second anniversary of the Date of Grant, up
to an additional 25% (ignoring fractional shares) of the total number of Option
Shares;
(iii) on and after the third anniversary of the Date of Grant, up
to an additional 25% (ignoring fractional shares) of the total number of Option
Shares; and
(iv) on and after the fourth anniversary of the Date of Grant, the
remaining Option Shares.
(b) Upon a Change in Control (as such term is hereinafter defined) of
the Company, the Option shall become immediately exercisable with respect to
all Option Shares. A Change in Control means the occurrence of any one or more
of the following:
i) any person, corporation, partnership or unincorporated
association (each a "Person") or Persons acting together, excluding RAI or
employee benefit plans of the Company or RAI, are or become the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act or any
successor provisions thereto), directly or indirectly, of securities of the
Company or RAI representing twenty-five percent (25%) or more of the combined
voting power of the Company's or RAI then outstanding securities;
ii) the Company's or RAI's shareholders approve (or, in the event
no approval of the Company's or RAI's shareholders is required, the Company or
RAI consummates) a merger, consolidation, share exchange, division or other
reorganization or transaction of the Company (a "Fundamental Transaction") with
any other corporation, other than a Fundamental Transaction which would result
in the voting securities of the Company or RAI outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least sixty
percent (60%) of the combined voting power immediately after such Fundamental
Transaction of (a) the Company's or RAI's outstanding securities, (b) the
surviving entity's outstanding securities, or (c) in the case of a division,
the outstanding securities of each entity resulting from the division;
iii) the shareholders of the Company or RAI approve a plan of
complete liquidation or winding-up of the Company or RAI or an agreement for
the sale or disposition (in one transaction or a series of transactions) of all
or substantially all of the Company's or RAI's assets; or
iv) during any period of twenty-four (24) consecutive months,
individuals who at the beginning of such period constituted RAI's Board
(including for this purpose any new director whose election or nomination for
election by the Company's shareholders was approved by a vote of at least two-
thirds (2/3) of the directors then still in office who were directors at the
beginning of such period) cease for any reason to constitute at least a
majority of the Board.
For the purposes of this Paragraph 6(d), "POTENTIAL CHANGE IN CONTROL"
means the occurrence of any of the following events:
i) the Board of the Company or RAI approves a transaction described in
clause (ii) of the definition of Change in Control; or
ii) the commencement of a proxy or other contest or effort in which any
Person seeks to obtain effective control of the Company or RAI.
3. Termination of Option.
----------------------
(a) The Option and all rights hereunder with respect thereto, to the
extent such rights shall not have been exercised, shall terminate and become
null and void after the expiration of ten years from the Date of Grant (the
"OPTION TERM").
(b) If employment of the Grantee by the Company is terminated, the Option
shall become immediately exercisable with respect to all option shares.
(c) In the event of the death of the Grantee, the Option may be exercised
by the Grantee's legal representative(s) (but only to the extent that the
Option would otherwise have been exercisable by the Grantee).
(d) A transfer of the Grantee's employment between the Company and any
affiliate of the Company, or between any subsidiaries of the Company, shall not
be deemed to be a termination of the Grantee's employment.
(e) All rights of Grantee to exercise the Options shall be suspended for a
period of twelve (12) months immediately following the date upon which Grantee
receives a "hardship withdrawal" from a retirement plan qualifying under
Section 401(k) of the Code.
(f) Notwithstanding any other provisions set forth herein or in the Plan,
if (i) a court of competent jurisdiction determines that the Executive has
committed a material fraud against RAI; or (ii) Executive has been convicted of
a felony involving any material conflict of interest or self-dealing related to
the Company and/or RAI the Option shall terminate and be null and void.
4. Mechanical Adjustments.
-----------------------
(a) If at any time prior to the exercise of this Option in full, the
Company shall (i) declare a dividend or make a distribution on its Stock
payable in shares of its capital stock (whether shares of Stock or of capital
stock of any other class); (ii) subdivide, reclassify or recapitalize its
outstanding Stock into a greater number of shares; or (iii) combine, reclassify
or recapitalize its outstanding Stock into a smaller number of shares, the
Exercise Price in effect at the time of the record date of such dividend,
distribution, subdivision, combination, reclassification or recapitalization
shall be adjusted so that the Grantee shall be entitled to receive the
aggregate number and kind of shares which, if this Option had been exercised in
full immediately prior to such event, he would have owned upon such exercise
and been entitled to receive by virtue of such dividend, distribution,
subdivision, combination, reclassification or recapitalization. Any adjustment
required by this Section 4(a) shall be made immediately after the record date,
in the case of a dividend or distribution, or the effective date, in the case
of a subdivision, combination, reclassification or recapitalization, to allow
the purchase of such aggregate number and kind of shares.
(b) If at any time prior to the exercise of this Option in full, the
Company shall (i) issue or sell any Stock or any securities that are
convertible into or exercisable for Stock ("STOCK EQUIVALENTS") without
consideration or for consideration per share less than the Fair Market Value in
effect immediately prior to the date of such issuance or sale or (ii) fix a
record date for the issuance of subscription rights, options or warrants to all
holders of Stock entitling them to subscribe for or purchase Stock (or Stock
Equivalents) at a price (or having an exercise or conversion price per share)
less than the Fair Market Value in effect immediately prior to such record
date, then the Exercise Price shall be adjusted to be equal to such lower sale,
exercise or conversion price per share. Any adjustments required by this
Section 4(b) shall be made immediately after such issuance or sale or record
date, as the case may be. Such adjustments shall be made successively whenever
such event shall occur. Notwithstanding the foregoing, the Fair Market Value
shall not be adjusted until such time as the cumulative total of the shares of
Stock issued at such lesser prices and the shares of Stock issuable pursuant to
Stock Equivalents for such lesser prices shall be 50,000 shares (excluding
Stock or Stock Equivalents previously issued at lesser prices but cancelled,
terminated or repurchased by the Company).
5. Exercise of Options.
--------------------
(a) The Grantee may exercise the Option with respect to all or any part of
the number of Option Shares then exercisable hereunder by giving the Secretary
of the Company written notice of intent to exercise. The notice of exercise
shall specify the number of Option Shares as to which the Option is to be
exercised and the date of exercise thereof.
(b) Full payment (in U.S. dollars) by the Grantee of the option price for
the Option Shares purchased shall be made on or before the exercise date
specified in the notice of exercise in cash, or, with the prior written consent
of the Committee, in whole or in part through the surrender of previously
acquired shares of Stock at their Fair Market Value on the exercise date.
On the exercise date specified in the Grantee's notice or as soon
thereafter as is practicable, the Company shall cause to be delivered to the
Grantee, a certificate or certificates for the Option Shares then being
purchased (out of theretofore unissued Stock or reacquired Stock, as the
Company may elect) upon full payment for such Option Shares. The obligation of
the Company to deliver Stock shall, however, be subject to the condition that
if at any time the Committee shall determine in its discretion that the
listing, registration or qualification of the Option or the Option Shares upon
any securities exchange, any automated quotation system of a national
securities association, or under any state or federal law, or the consent or
approval of any governmental or other regulatory body, is necessary or
desirable as a condition of, or in connection with, the Option or the issuance
or purchase of Stock thereunder, the Option may not be exercised in whole or in
part unless such listing, registration, qualification, consent or approval
shall have been effected or obtained free of any conditions not acceptable to
the Committee; provided, that the Company and the Committee shall at all times
be obligated to use their best efforts to obtain such listing, registration,
qualification, consent or approval as soon as possible and without any
conditions unacceptable to the Committee.
(c) If the Grantee fails to pay for any of the Option Shares specified in
such notice or fails to accept delivery thereof, the Grantee's right to
purchase such Option Shares may be terminated by the Company, The date
specified in the Grantee's notice as the date of exercise shall be deemed the
date of exercise of the Option, provided that payment in full for the Option
Shares to be purchased upon such exercise shall have been received by such
date.
6. Fair Market Value.
------------------
As used herein, the "FAIR MARKET VALUE" of a share of Stock shall be (i)
if the Company is a public company whose Shares are traded on a stock exchange,
the closing price for the Shares on a given day or, if there is no sale on such
day, then the last sale price on the last previous date on which a sale is
reported or, if the Shares are traded other than on an exchange, the arithmetic
mean of the closing bid and ask sale prices for the Shares reported by Nasdaq
on a given day or if there is no sale on such day, then the arithmetic mean of
such closing bid and ask sale prices on the last previous date on which a sale
is reported; (ii) if the Company is not a public company, the greater of fully-
diluted book value per share for the previous fiscal year (or in the case of
the Company's first fiscal year, $0.118 per share) or ten times after-tax
earnings per share for the last fiscal year ended prior to the date of
determination.
7. No Rights of Stockholders.
--------------------------
Neither the Grantee nor any personal representative shall be, or shall
have any of the rights and privileges of, a stockholder of the Company with
respect to any shares of Stock purchasable or issuable upon the exercise of the
Option, in whole or in part, prior to the date of exercise of the Option.
8. Non-Transferability of Option.
------------------------------
During the Grantee's lifetime, the Option hereunder shall be exercisable
only by the Grantee or any guardian or legal representative of the Grantee, and
the Option shall not be transferable except, in the case of the death of the
Grantee, by will or the laws of descent and distribution, nor shall the Option
be subject to attachment, execution or other similar process. In the event of
(a) any attempt by the Grantee to alienate, assign, pledge, hypothecate or
otherwise dispose of the Option, except as provided for herein, or (b) the levy
of any attachment, execution or similar process upon the rights or interest
hereby conferred, the Company may terminate the Option by notice to the Grantee
and it shall thereupon become null and void.
9. Employment Not Affected.
------------------------
The granting of the Option nor its exercise shall not be construed as
granting to the Grantee any right of continuing employment with the Company,
any subsidiary of the Company, or any parent of the company, direct or
indirect. Except as may otherwise be limited by a written agreement between
the Company and the Grantee, the right of the Company (or any subsidiary or
parent of the Company) to terminate at will the Grantee's employment with it at
any time (whether by dismissal, discharge, retirement or otherwise) is
specifically reserved by the Company, or such subsidiary or parent of the
Company (whichever the case may be), and acknowledged by the Grantee.
10. Stock Appreciation Rights (SARs).
---------------------------------
(a) IN GENERAL. Subject to the terms and conditions of the Plan and as
set forth herein, the Grantee shall have the right to surrender this Option to
the Company, in whole or in part, and to receive in exchange therefor a payment
by the Company of an amount equal to the excess of the Fair Market Value of the
Option Shares covered by the portion of the Option being surrendered as of the
date the Option or portion thereof is surrendered over the exercise price to
acquire such Option Shares.
(b) SAR EXERCISE RIGHTS. Grantee shall have the right to surrender all or
a portion of this Option in exchange for cash payments under this Section 10
starting on the fourth anniversary of the Date of Grant. The Grantee's rights
under this Section 10 shall apply to that number of Option Shares indicated in
the schedule set forth below:
Surrender Date Option Shares
-------------- -------------
Fourth Anniversary 500,000
Fifth Anniversary 1,000,000
Sixth Anniversary 1,500,000
Seventh Anniversary 2,000,000
The Grantee's right to surrender any portion of this Option in exchange for a
cash payment under this Section 10 shall terminate as of the date of the
Company's receipt of the proceeds of the initial underwritten public offering
of the Company's Stock.
(c) PAYMENT. The Grantee shall have the right to receive the payment
required to be made under this Section 10 either in cash or in shares of Stock.
If payment is made in shares of Stock, the amount of the payment shall be
divided by the Fair Market Value of a share of Stock on the surrender date of
the SARs. No fractional share of Stock shall be issued on exercise of a SAR,
and cash shall be paid by the Company to the Grantee in lieu of any such
fractional share. Any payment made under this Section 10 shall be subject to
the withholding requirements of Section 11(b) of the Plan.
(d) LIMITATION. Notwithstanding anything to the contrary contained
herein, the Company's obligation to make cash payments under this Section 10
shall be limited to $444,444 during each of the annual periods occurring
between anniversaries of the Date of Grant, until the eighth anniversary of the
Date of Grant. Any amounts not paid on account of this Section 10(d) shall be
paid in the next following annual period following the period for which this
Section 10(d) has limited payment, subject to the applicability of this Section
10(d) again for payments otherwise due during such subsequent annual period.
Any amounts not paid on account of this Section 10(d) shall be deferred until
after the eighth anniversary of the Date of Grant, at which time all such
amounts deferred shall be payable in full regardless of whether the Company has
become publicly held.
11. AMENDMENT OF OPTION.
The Option may be amended by the Board or the Committee at any time (i) if
the Board or the Committee determines, in its reasonable discretion, that
amendment is necessary or advisable in the light of any addition to or change
in the Code or in the regulations issued thereunder, or any federal or state
securities law or other law or regulation, which change occurs after the Date
of Grant and by its terms applies to the Option, and without which such
amendment the Board or Committee believes, based upon the advice of counsel,
that the treatment of the Option under the Code, or such securities or other
laws, would be materially affected; or (ii) other than in the circumstances
described in clause (i), with the written consent of the Grantee.
12. NOTICE.
Any notice to the Company provided for in this instrument shall be
addressed to it in care of its Secretary at its executive offices at 1521
Locust Street, Suite 400, Philadelphia, Pennsylvania 19102, and any notice to
the Grantee shall be addressed to the Grantee at the current address shown on
the payroll records of the Company. Any notice shall be deemed to be duly
given if and when properly addressed and posted by registered or certified
mail, postage prepaid.
13. INCORPORATION OF PLAN BY REFERENCE.
The Option is granted pursuant to the terms of the Plan, the terms of
which are incorporated herein by reference, and the Option shall in all
respects be interpreted in accordance with the Plan. The Committee shall
interpret and construe the Plan and this instrument in its reasonable
discretion with due regard for the interests of both the Company and Grantee,
and its interpretations and determinations shall, when made in its reasonable
discretion and with due consideration for the interests of both the Company and
the Grantee, be conclusive and binding on the parties hereto and any other
person claiming an interest hereunder, with respect to any issue arising
hereunder or thereunder. The duty of reasonable interpretation set forth in
this Section 12 shall, to the extent inconsistent with the provisions of the
Plan, prevail over those contained in the Plan.
14. GOVERNING LAW.
The validity, constructions, interpretation and effect of this instrument
shall exclusively be governed by and determined in accordance with the law of
the Commonwealth of Pennsylvania, except to the extent preempted by federal
law, which shall to the extent govern.
[SIGNATURES BEGIN ON NEXT PAGE]
IN WITNESS WHEREOF, the Company has caused its duly authorized officers to
execute and attest this Grant of Incentive Stock Option, and to apply the
corporate seal hereto, and the Grantee has placed his or her signature hereon,
effective as of the Date of Grant.
FIDELITY MORTGAGE FUNDING, INC.
By: /s/ Carlos Campbell
--------------------------
Carlos Campbell, Chairman,
Comp. Committee
Attest: /s/ Kimberly A. Touch
--------------------------
Secretary
ACCEPTED AND AGREED TO:
/s/ Daniel G. Cohen
--------------------------
Daniel G. Cohen, Grantee
EXHIBIT 11.1
CALCULATION OF PRIMARY AND FULLY
DILUTED EARNINGS PER SHARE
PRIMARY EARNINGS PER SHARE
<TABLE>
<CAPTION>
Computation for Statement of Operations Three Months Six Months
- --------------------------------------- Ended March 31, Ended March 31,
--------------- ---------------
Reconciliation of net income per statement
of operations to amount used in primary
earnings per share computation: 1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 2,534,478 $ 1,555,105 $ 4,819,662 $ 3,153,167
Add-Interest on short-term debt, net of
tax effect, on application of assumed
proceeds from exercise of options and
warrants in excess of 20% limitation - 27,641 - 35,476
----------- ----------- ----------- -----------
Net income, as adjusted $ 2,543,478 $ 1,582,746 4,819,662 3,188,643
Additional Primary Computation
- ------------------------------
Net income, as adjusted per primary
computation above $ 2,534,478 $ 1,582,746 $ 4,819,662 $ 3,188,643
Additional adjustment to weighted average
number of shares outstanding:
Weighted average number of shares
outstanding 3,551,900 1,895,500 3,032,700 1,889,400
Add-Dilutive effect of outstanding
options and warrants (as determined
by the application of the treasury
stock method) 1,073,300 952,300 1,012,700 780,200
=========== =========== =========== ===========
Weighted average number of shares
outstanding 4,625,200 2,847,800 4,045,400 2,669,600
=========== =========== =========== ===========
Primary earnings per share, as adjusted $.55 $.56 $1.19 $1.19
=========== =========== =========== ===========
</TABLE>
FULLY DILUTED EARNINGS PER SHARE
Computation for Statement of Operations
- ---------------------------------------
Reconciliation of net income per statement of operations to amount
used in fully diluted earnings per share computation:
<TABLE>
<S> <C> <C> <C> <C>
Income before extraordinary items $ 2,534,478 $ 1,555,105 $ 4,819,662 $ 3,153,167
Add-Interest on short-term debt, net of
tax effect, on application of assumed
proceeds from exercise of options and
warrants in excess of 20% limitation - 10,198 - 11,303
----------- ----------- ----------- -----------
Net income, as adjusted $ 2,534,478 $ 1,565,303 $ 4,819,662 $ 3,164,470
Additional Primary Computation
- ------------------------------
Net income, as adjusted per primary
computation above $ 2,534,478 $ 1,565,303 $ 4,819,662 $ 3,164,470
Additional adjustment to weighted average
number of shares outstanding:
Weighted average number of shares
outstanding 3,551,900 1,895,500 3,032,700 1,889,400
Add-Dilutive effect of outstanding
options and Warrants (as determined
the application of the treasury stock
method) 1,090,100 976,700 1,053,300 780,200
----------- ----------- ----------- -----------
Weighted average number of shares
outstanding 4,642,000 2,872,200 4,086,000 2,669,600
=========== =========== =========== ===========
Fully diluted earnings per share,
as adjusted $.55 $.54 $1.18 $1.18
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
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0
0
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