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 June 30, 1997
-------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
----------- ---------
Commission file number 0-4408
RESOURCE AMERICA, INC.
----------------------
(Exact name of registrant as specified in its charter)
Delaware 72-0654145
-------- ----------
(State or other jurisdiction of (IRS EmployerIdentification No.)
incorporation or organization)
1521 Locust Street, Philadelphia, Pennsylvania 19102
-----------------------------------------------------
(Address of principal executive offices)
(215) 546-5005
---------------
(Registrant's telephone number, including area code)
--------------------------------------------------
(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
preceding 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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Outstanding at August 13, 1997
Common Stock $.01 par value 4,607,998
RESOURCE AMERICA, INC.
INDEX
PAGE
NUMBER
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited) June 30, 1997,
and September 30, 1996 . . . . . . . . . . . . . . . 1 & 2
Consolidated Statements of Income (Unaudited) - Three
Months and Nine Months Ended June 30, 1997, and 1996 . . 3
Consolidated Statements of Cash Flows (Unaudited) -
Nine Months Ended June 30, 1997, and 1996 . . . . . . . .4
Notes to Consolidated Financial Statements (Unaudited) .5 - 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . .10 - 15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . .16
<PAGE 1>
PART I. FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
RESOURCE AMERICA, INC., AND SUBSIDIARIES
June 30, 1997, and September 30, 1996
- -------------------------------------------------------------------------------
June 30, September 30,
1997 1996
------------- ----------------
ASSETS
Current Assets
Cash and cash equivalents $ 2,890,547 $ 4,154,516
Accounts and notes receivable 1,145,206 1,478,702
Prepaid expenses and other current assets 668,901 472,673
Total Current Assets 4,704,654 6,105,891
Net Investment in Direct Financing Leases 2,459,869 729,446
Notes Secured by Equipment Receivables 2,862,156 -
Property and Equipment
Oil and gas properties and equipment
(successful efforts) 24,963,481 24,034,987
Gas gathering and transmission
Facilities 1,535,781 1,535,781
Other 2,169,195 1,666,085
--------- ---------
28,668,457 27,236,853
Less - accumulated depreciation, depletion,
and amortization (15,543,823) (14,856,874)
------------ ------------
Net Property and Equipment 13,124,634 12,379,979
Investments in Real Estate Loans 59,302,341 21,797,768
Restricted Cash 903,727 935,346
Other Assets 6,173,603 2,010,498
--------- ---------
$89,530,984 $43,958,928
=========== ===========
1
<PAGE 2>
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
RESOURCE AMERICA, INC., AND SUBSIDIARIES
June 30, 1997, and September 30, 1996
- -------------------------------------------------------------------------------
June 30, September 30,
1997 1996
----------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable - trade $ 662,717 $ 584,985
Accrued liabilities 1,162,969 596,783
Accrued income taxes 446,946 376,946
Current portion of long-term debt 703,000 105,000
----------- ------------
Total Current Liabilities 2,975,632 1,663,714
Long-term Debt 25,119,096 8,966,524
Deferred Income Taxes 3,100,000 2,206,000
Other Long-term Liabilities 315,827 --
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, 3,714,474 and 2,047,209
issued and outstanding shares (including
130,819 and 152,448 treasury shares) at
June 30, 1997, and September 30, 1996,
Respectively 37,144 20,472
Additional paid-in capital 41,281,439 21,760,695
Retained earnings 19,332,312 12,458,344
Less cost of treasury shares (2,244,776) (2,698,985)
Less loan receivable from ESOP (385,690) (417,836)
----------- -----------
Total Stockholders' Equity 58,020,429 31,122,690
----------- -----------
$89,530,984 $43,958,928
============ ===========
2
<PAGE 3>
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
RESOURCE AMERICA, INC., AND SUBSIDIARIES
Three Months and Nine Months Ended June 30, 1997, and 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Nine Months
Ended June 30, Ended June 30,
-------------------- ----------------------
1997 1996 1997 1996
--------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues
Real estate finance $4,450,571 $1,628,919 $11,447,547 $5,580,242
Equipment leasing 1,867,320 1,126,132 4,743,330 3,785,543
Energy : production 1,024,190 932,879 2,922,159 2,524,663
: services 419,680 447,823 1,169,067 1,417,739
Interest 58,587 36,047 238,829 141,749
--------- --------- ---------- ----------
7,820,348 4,171,800 20,520,932 13,449,936
Costs and Expenses
Real estate 240,622 193,560 907,190 811,728
Equipment leasing 961,701 540,791 2,761,594 1,707,051
Energy : production and
Exploration 459,339 398,249 1,296,132 1,134,098
: services 205,593 239,925 652,380 734,419
General and administrative 636,499 508,059 1,571,431 1,197,780
Depreciation and amortization 390,012 350,480 1,161,169 1,059,245
Interest 703,260 214,041 1,720,983 642,766
Provision for possible losses 157,000 -- 303,000 --
Other - net (7,118) (6,323) (25,054) (5,171)
--------- --------- ---------- ---------
3,746,908 2,438,782 10,348,825 7,281,916
--------- --------- ---------- ---------
Income from operations 4,073,440 1,733,018 10,172,107 6,168,020
Other Income
Gain on sale of property 1,315 2,000 72,310 7,165
Income before income taxes 4,074,753 1,735,018 10,244,417 6,175,185
Provision for federal income
Taxes 1,144,000 503,000 2,494,000 1,790,000
---------- ---------- ---------- ----------
Net Income $2,930,753 $1,232,018 $7,750,417 $4,385,185
========== ========== ========== ==========
Net Income per Common Share-
primary $ .63 $ .46 $ 1.83 $ 1.72
========== ========== ========== ==========
Weighted average common shares
Outstanding 4,626,500 2,705,600 4,233,600 2,549,000
========== ========== ========== ==========
Net Income per Common Share -
fully diluted $ .63 $ .46 $ 1.83 $ 1.64
========== ========== ========== ==========
Weighted average common shares
Outstanding 4,635,600 2,705,600 4,236,700 2,675,000
========== ========== ========== ==========
</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
Nine Months Ended June 30, 1997, and 1996
- -------------------------------------------------------------------------------
Nine Months
Ended June 30,
1997 1996
Cash Flows from Operating Activities:
Net income $7,750,417 $4,385,185
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 1,161,169 1,059,245
Amortization of discount on senior note
and deferred finance costs 86,114 55,987
Provision for possible losses 303,000 -
Property impairments and abandonments 2,922 36,662
Accretion of discount (2,603,153) (776,488)
Deferred income taxes 894,000 1,220,000
Gain on dispositions and investments (6,042,861) (3,432,951)
Change in operating assets and liabilities
net of effects from purchase of subsidiaries:
(Increase) decrease in accounts receivable 333,496 (1,785,219)
Increase in prepaid expenses and other current
Assets (196,228) (332,850)
Increase (decrease) in accounts payable 77,732 (225,932)
Increase (decrease) in other current
Liabilities 636,186 (193,407)
---------- -----------
Net Cash Provided by Operating Activities 2,402,794 10,232
Investing Activities:
Cost of equipment acquired for lease (21,201,276) -
Capital expenditures (1,813,774) (766,154)
Proceeds from sale of assets 21,181,275 16,697,180
Payments received in excess of revenue
recognized on leases 1,335,875 -
Principal payments on notes receivable 2,842,528 -
Increase in other assets (4,031,042) (110,348)
Investments in real estate loans (35,129,888) (13,459,113)
------------ ------------
Net Cash Provided by (used in)
Investing Activities (36,816,302) 2,361,565
Financing Activities:
Short-term borrowings 8,850,000 -
Long-term borrowings 19,995,000 -
Dividends paid (876,387) (567,879)
Principal payments on short-term debt (8,850,000) -
Principal payments on long-term debt (5,602,822) (19,538)
Proceeds from issuance of common stock 19,677,063 120,723
Increase in restricted cash 31,619 (90,442)
Purchase of treasury stock - (47,258)
Increase in other assets (74,934) -
---------- --------
Net Cash Provided by (Used in)
Financing Activities 33,149,539 (604,394)
Increase (decrease) in cash and cash
Equivalents (1,263,969) 1,767,403
Cash at beginning of year 4,154,516 2,457,432
---------- ---------
Cash at June 30 $2,890,547 $4,224,835
The accompanying notes are an entegral part of these financial statements.
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.
Certain amounts reflected in the consolidated financial statements for
the three and nine month periods ended June 30, 1996 have been reclassified
to conform to the presentation for the three and nine month periods ended
June 30, 1997.
Note 2 - Cash Flows Statement
- -----------------------------
Total interest paid during the first nine months of fiscal 1997 and 1996
amounted to $1,722,000 and $777,000, respectively. Cash payments for income
taxes during the first nine months of fiscal 1997 and 1996, amounted to
$1,530,000 and $570,000, respectively.
In fiscal 1997, noncash activities include the following transactions:
a) receipt of notes with face values of $5.7 million, in partial payment for
the sale of leases, b) receipt of note with a face value of $3.5 million and
assumption of a $2.4 million obligation associated with a real estate
property and c) the issuance of 17,000 shares of common stock in connection
with the purchase of certain energy assets.
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 $438,000, from the offering.
5
<PAGE 6>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Note 4 - Earnings Per Share
- ---------------------------
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. The Company will adopt
this standard for its quarter ended December 31, 1997 and has not determined
the impact of such adoption.
Note 5 - Long-term Debt
- -----------------------
June 30, 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 9.25% at June 30, 1997) 193,119 $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; this note was paid in full
subsequent to period end 7,912,083 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 679,825 -
6
<PAGE 7>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- -------------------------------------------------------------------------------
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; this note was paid in
full subsequent to period end 13,370,000 -
Loans payable, secured by real estate,
monthly installments of $27,700 including
interest at 10% and 1% above the prime rate
through September 2005 and January 2019 2,356,379 -
Note payable, interest at LIBOR, due in
two equal annual installments beginning
on March 31, 1998 925,000 -
--------- ----------
25,822,096 9,071,524
Less amounts payable in one year 703,000 105,000
---------- ----------
$25,119,096 $8,966,524
The following is the amount of long-term debt maturing during each of
the five periods ending on June 30: 1998 - $703,000; 1999 - $15,109,000
(including a loan in the principal amount of $13.37 million which was repaid
subsequent to period end); 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 June 30, 1997, the Company was in compliance with
such covenants. In July 1997, the senior secured note and the loan payable
of $13.37 million were paid in full with the proceeds from a private debt
offering (see Note 9).
In December 1996, a subsidiary of the Company, Fidelity Leasing, Inc.
("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, require the maintenance of certain
financial ratios and restrict a change in the ownership or a key management
position by FLI. At June 30, 1997, FLI was in compliance with all covenants.
7
<PAGE 8>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- -----------------------------------------------------------------------------
Note 6 - Investment in Direct Financing Leases
- ----------------------------------------------
Components of the net investment in direct financing leases as of
June 30, 1997, are as follows:
Total minimum lease payments receivable $ 2,874,719
Initial direct costs, net of amortization 48,726
Unguaranteed residual 229,418
Unearned lease income (515,827)
Provision for possible losses (177,167)
------------
Net investment in direct financing leases $ 2,459,869
============
In the nine months ended June 30, 1997, the Company had sold leases with a
book value of approximately $17.9 million to special-purpose financing
entities in return for cash of $14.8 million and notes with a face value of
$5.2 million, resulting in gains of $2.1 million (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 as payment on each mortgage is allocated between
principal and interest, with the interest portion of the cash received being
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 $2,603,000 during the nine
months ended June 30, 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 June 30, 1997, the Company held real estate loans having aggregate face
values of $182.4 million, which were being carried at an aggregate cost of
$59.3 million, including cumulative accretion of $4.3 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 and nine months ended
June 30, 1997:
Three months ended Nine months ended
June 30, 1997 June 30, 1997
------------------ -----------------
Balance, beginning of period $55,574,108 $21,797,768
New real estate loans 4,374,870 37,461,391
Additions to existing loans 360,829 1,392,200
8
<PAGE 9>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- -------------------------------------------------------------------------------
Reserve for possible losses (67,000) (133,000)
Accretion of discount 1,100,302 2,603,153
Collections of principal - (183,321)
Cost of mortgages sold (2,040,768) (3,635,850)
----------- -----------
Balance, end of period $59,302,341 $59,302,341
=========== ===========
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.
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 to an unaffiliated third party 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.
Note 8 - Acquisition
- --------------------
On June 2, 1997, the Company acquired equity interests in 288 wells
(representing 78 wells net to the Company's interest) and operating rights
to an additional 62 wells, together with 220 miles of natural gas pipelines
and 21,830 gross acres (9,340 net acres) of mineral rights, for $1.25 million
in cash, a note for $925,000 and 17,000 shares of the Company's common stock.
Note 9 - Subsequent Events
- --------------------------
In July 1997, the Company privately placed $115 million of senior notes
with institutional investors. These notes bear interest at 12% and are due
August 2007.
Further, in July 1997, the Company issued 983,150 unregistered shares of
the Company's common stock pursuant to warrants held by the holder of the
Company's 9.5% senior secured note payable due 2004, which was repaid with
the proceeds from the July 1997 debt offering, along with a note payable
secured by real estate in the amount of $13.37 million (see Note 5). These
shares were subsequently sold by the holder in a separate private placement
to a small group of institutional investors.
9
<PAGE 10>
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 OCCURENCE OF UNANTICIPATED EVENTS.
Results of Operations: Real Estate Finance
- ------------------------------------------
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:
Quarter Ended Nine Months Ended
June 30, June 30,
------------- -----------------
1997 1996 1997 1996
------ -------- ------- --------
(Dollars in thousands)
Interest $1,454 $487 $3,588 $1,362
Accreted discount 1,100 268 2,603 776
Fees 7 7 1,421 666
Gains on refinancings and
sale of participations 1,890 867 3,836 2,776
------ ------ ------- -------
Total $4,451 $1,629 $11,448 $5,580
====== ====== ======= =======
Average balance of investment,
Net $57,438 $20,027 $40,055 $18,537
Yield on net average balance 31.0% 32.5% 37.6% 40.1%
Revenues from real estate finance operations increased 173% in the
third quarter and 105% in the nine months ended June 30, 1997, compared to
the same periods of the prior fiscal year. This increase is attributable to
an increase of $1.8 million and $4.1 million in interest (including
accretion of discount) in the quarter and nine months ended June 30, 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 period
as compared to the prior year periods. The average balance of investment
in the real estate loans increased by 187% in the quarter and 116% in the
nine months ended June 30, 1997, respectively. Fees increased $755,000 in
the nine months ended June 30, 1997, while gains increased $1.0 million in
both the quarter and nine months ended June 30, 1997. The amount of fees
earned and gains recognized are dependent on the closing of particular
transactions and are not earned ratably throughout the year. Accordingly,
revenues from these sources may vary materially from period to period.
10
<PAGE 11>
During the quarter and nine months ended June 30, 1997, the
Company purchased or originated three and nine real estate loans,
for a total cost of $4.4 and $37.5 million, as compared to two and
eight loans for a total cost of $1.3 and $12.1 million in the quarter
and nine months ended June 30, 1996. Gains were recognized on three and
six loans in the quarter and nine months ended June 30, 1997, respectively
compared to one and five loans in the similar prior periods. Real estate
finance expenses increased 24% in the quarter and 12% in the nine months ended
June 30, 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:
Quarter Ended, Nine Months Ended
June 30, June 30,
1997 1996 1997 1996
(Dollars in thousands)
Gain on sale of leases $1,055 - $2,131 -
Small ticket leasing 324 - 620 -
Partnership Management
Servicing 215 112 647 818
Partnership leasing 8 595 30 1,346
Reimbursement of administrative costs 194 249 661 1,164
Lease brokerage 71 170 654 457
------ ----- ------ ------
Total $1,867 $1,126 $4,743 $3,785
====== ====== ====== =======
In June 1996, the Company entered the "small ticket" leasing business
and began writing leases in August 1996. In the quarter and nine months
ended June 30, 1997, the Company acquired equipment for lease with a cost
of $9.7 million and $21.2 million, respectively. This new business segment
is expected to grow significantly during the remainder of fiscal 1997.
The gain on the sale of leases results from the sale in the third
quarter of fiscal 1997 leases with a book value of $8.6 million in exchange
for cash of $8.9 million and a note with a face value of $700,000. In the
nine months ended June 30, 1997, leases were sold with a book value of $17.9
million in return for cash of $14.8 million and notes with a face value of
$5.2 million.
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 three
months and nine months ended June 30, 1996 includes the settlement of the
Company's general partner share of revenues from prior fiscal periods.
11
<PAGE 12>
The Company now acts as general partner for six limited partnerships which
held a total of $63 million (original cost) in lease assets at June 30,
1997. Lease brokerage revenue decreased substantially in the quarter ended
June 30, 1997, as compared to the similar period of the prior year; this
revenue is transaction based resulting in fluctuations from quarter to
quarter.
The following table sets forth certain information relating to expenses
recognized in the Company's equipment leasing operations during the periods
indicated:
Quarter Ended Nine Months Ended
June 30, June 30,
1997 1996 1997 1996
(Dollars in thousands)
Small ticket leasing $538 $112 $1,260 $112
Partnership management 312 318 1,006 1,262
Lease brokerage 112 111 496 333
---- ---- ------ ------
Total $62 $541 $2,762 $1,707
==== ==== ====== =======
Small ticket leasing expenses increased as a result of the start-up of
small ticket leasing activities in June 1996.
Results of Operations: Energy
- -----------------------------
Oil and gas production revenues increased 10% in the quarter and 16% in
the nine months ended June 30, 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 Nine Months Ended
June 30, June 30,
1997 1996 1997 1996
Revenues (in thousands)
Gas $ 803 $ 705 $2,311 $1,991
Oil 198 191 561 468
Production Volumes
Gas (Mcf/day) 3,360 3,176 3,261 3,170
Oil (Bbls/day) 119 104 100 94
Average Sales Price
Gas (per Mcf) $2.63 $2.44 $2.60 $2.29
Oil (per Bbl) $18.33 $20.20 $20.54 $18.23
Natural gas revenues increased 14% in the quarter and 16% in the nine
months ended June 30, 1997, compared to the similar periods of the prior
year due to an 8% and 13% increase in the average price per mcf of natural
gas for the quarter and nine months ended June 30, 1997, respectively.
Additionally, production volumes increased 6% and 2% in the quarter and
nine months ended June 30, 1997, respectively. The increase in the quarter
is a result of production volumes associated with wells acquired in June 1997
(see Note 8, Notes to Consolidated Financial Statements (unaudited)).
12
<PAGE 13>
Oil revenues increased 4% and 20% in the quarter and nine months ended
June 30, 1997, compared to the similar periods of fiscal 1996, due to a 14%
and 7% increase in production volumes in the quarter and nine months ended
June 30, 1997, respectively. The increase in volumes produced in the third
quarter of fiscal 1997 was partially offset by a 9% decrease in the average
price received per barrel for the quarter ended June 30, 1997 as compared to
the similar period of the prior year. The average price received per barrel
for the nine months ended June 30, 1997 increased 13% as compared to the
similar period of the prior year. Oil production volumes in the third
quarter of fiscal 1997 were also faborable impacted by the acquisition
of the wells mentioned above.
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 nine months ended June 30, 1997 is as follows:
Quarter Ended Nine Months Ended
June 30, June 30,
1997 1996 1997 1996
Production Costs
As a percent of sales 42% 40% 41% 42%
Gas (mcf) $1.16 $1.07 $1.13 $1.02
Oil (bbl) $6.96 $6.42 $6.78 $6.12
Production costs increased 17% ($61,000) and 14% ($143,000) in the
quarter and nine months ended June 30, 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 19% in the quarter and nine months ended June 30, 1997
compared to 23% and 25% in the quarter and nine months ended June 30, 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 25% ($128,000) and 31%
($374,000) in the quarter and nine months ended June 30, 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 quarter and the
nine months ended June 30, 1997 from the similar periods of the prior fiscal
year, reflecting the increase in borrowings to fund the growth of the
Company's real estate finance and small ticket leasing operations. In
December 1996, the Company borrowed $13.37 million to fund the acquisition
of a series of mortgage loans on a property located in Philadelphia,
Pennsylvania (see Notes 5 and 9, Notes to Consolidated Financial Statements
(unaudited)). The Company also borrowed and subsequently repaid $8.6 million
to fund the acquisition of equipment for lease.
13
<PAGE 14>
The effective tax rate decreased to 25% in the quarter and 24% in the
nine months ended June 30, 1997 from 29% in the quarter and nine months
ended June 30, 1996, respectively. 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 real estate finance 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 producting 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 nine months ended June 30, 1997
and 1996 are as follows:
Nine Months
Ended June 30,
1997 1996
(in thousands of dollars)
Provided by operations $2,403 $10
Provided by (used in) investing activities (36,816) 2,362
Provided by (used in) financing activities 33,149 (605)
$(1,264) $1,767
The Company had $2.9 million in cash and cash equivalents on hand at
June 30, 1997, as compared to $4.2 million at September 30, 1996. The
Company's ratio of current assets to current liabilities was 1.6:1 at
June 30, 1997 and 3.7:1 on September 30, 1996. Working capital at June 30,
1997 was $1.7 million as compared to $4.4 million at September 30, 1996.
Cash provided by operating activities in the first nine months of fiscal
1997 increased $2.4 million as compared to the first nine months of fiscal
1996. The fiscal 1997 increase was primarily the result of cash generated
by an increase in current liabilities and a decrease in current receivables.
The Company's cash used in investing activities increased $39.2 million
in the first nine months of fiscal 1997, as compared to the first nine months
of fiscal 1996. This increase resulted primarily from an increase in the
amount of cash used to fund real estate finance and small ticket leasing
activities. In real estate finance, the Company invested $33.7 million
and $12.1 million in the acquisition of eight loans in both the first nine
months of fiscal years 1997 and 1996, respectively.
14
<PAGE 15>
In addition, the Company advanced funds on existing loans of $1.4 million
in both the first nine months of fiscal years 1997 and 1996. Proceeds
received upon refinancings or the sale of participations amounted to
$6.3 million and $16.0 million in the first nine months of fiscal years 1997
and 1996, respectively. These proceeds reflect the refinancing or sale of
participations in five and six loans, respectively, of which gains were
recognized on four and five of these loans in the first nine months of
fiscal 1997 and 1996, respectively.
In small ticket leasing, cost of equipment acquired for lease represents
the equipment cost and initial direct costs associated with 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
the sale of lease equipment receivables totaled $14.2 million in the nine
months ended June 30, 1997.
Increase in other assets represents the investment of $2.0 million in
several real estate partnerships, some of which will generate tax credits
and the purchase of energy assets totaling $ 1.7 million.
The Company's cash flow provided by financing activities increased
$33.8 million during the first nine months of fiscal 1997, as compared
to the first nine months 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 nine months of fiscal 1997 the
Company borrowed and subsequently repaid $8.6 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 $91.6 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.
In July 1997, the Company received net proceeds of $110.4 million from
a private debt offering. The Company intends to use the proceeds for general
corporate purposes, including acquisitions and originations of real estate
loans and expansion of its equipment leasing activities. Proceeds from the
offering of $21.4 million were used to repay existing long- term debt.
15
<PAGE 16>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
10.38 Resource America, Inc. Non-Employee Director Deferred Stock and
Deferred Compensation Plan.
10.39 Resource America, Inc. 1997 Employee Stock Option Plan.
10.40 Resource America, Inc. 1997 Stock Option Plan for Directors.
11.1 Calculation of Primary and Fully Diluted Earnings per share.
27 Financial Data Schedule.
b) Reports on Form 8-K:
During the quarter for which this report is being filed, the Registrant
filed a current report on Form 8-K dated June 24, 1997, reporting the
commencement of a private placement of senior notes, disclosing certain
information regarding equipment leasing operations and reporting the exercise
of warrants to purchase 983,150 shares of the Company's common stock.
16
<PAGE 17>
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 August 13, 1997 By /s/ Michael L. Staines
------------------------
Michael L. Staines
Senior Vice President
and Secretary
Date August 134, 1997 By /s/Nancy J. McGurk
------------------------
Nancy J. McGurk
Vice President -
Finance and
Treasurer
17
RESOURCE AMERICA, INC.
NON-EMPLOYEE DIRECTOR DEFERRED STOCK AND
DEFERRED COMPENSATION PLAN
SECTION 1. ESTABLISHMENT OF PLAN; PURPOSE.
The Plan is hereby established to permit Eligible Directors of the
Company, in recognition of their contributions to the Company, to receive
Shares in the manner described below. The Plan is intended to enable the
Company to attract, retain and motivate qualified Directors and to enhance the
long-term mutuality of interest between Directors and stockholders of the
Company.
SECTION 2. DEFINITIONS.
When used in this Plan, the following terms shall have the definitions set
forth in this Section:
"Affiliate" shall mean an entity at least a majority of the total voting
power of the then-outstanding voting securities of which is held, directly or
indirectly, by the Company and/or one or more other Affiliates.
"Board of Directors" shall mean the Board of Directors of the Company.
"Committee" shall mean the Nominating Committee of the Board of Directors
or such other committee of the Board as the Board shall designate from time to
time.
"Company" shall mean Resource America, Inc.
"Compensation" shall mean the annual retainer fees earned by an Eligible
Director for service as a Director, the annual retainer fee, if any, earned by
an Eligible Director for service as a member of a committee of the Board of
Directors; and any fees earned by an Eligible Director for attendance at
meetings of the Board of Director and any of its committees.
"Director" shall mean any member of the Board of Directors, whether or not
such member is an Eligible Director.
"Disability" shall mean an illness or injury that lasts at least six
months, is expected to be permanent and renders as Director unable to carry out
his/her duties.
"Effective Date" shall mean the date, if any, on which the Plan is
approved by the shareholders of the Company.
1
"Eligible Director" shall mean a member of the Board of Directors who is
not an employee of the Company.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Fair Market Value" shall mean the arithmetic mean of the closing bid and
ask sale prices for the Shares reported by the 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.
"Grant" shall mean a grant of Units under Section 5.
"Shares" shall mean shares of Stock.
"Stock" shall mean the Common Stock, $.01 par value, of the Company.
"Stock Unit Account" shall mean, with respect to an Eligible Director who
has elected to have deferred amounts deemed invested in Units, a bookkeeping
account established to record such Eligible Director's interest under the Plan
related to such Units.
"Subsidiary" shall mean any entity of which the Company possesses directly
or indirectly fifty percent (50%) or more of the total combined voting power of
all classes of stock of such entity.
"Unit" shall mean a contractual obligation of the Company to deliver a
Share based on the Fair Market Value of a Share to an Eligible Director or the
beneficiary or estate of such Eligible Director as provided herein.
"Year of Service as a Director" shall mean a period of 12 months of
service as a Director, measured from the effective date of a Grant.
SECTION 3. ADMINISTRATION.
The Plan shall be administered such that awards under the Plan shall be
deemed to be exempt under Rule 16b-3 of the Securities and Exchange Commission
under the Exchange Act ("Rule 16b-3"), as such Rule is in effect on the
Effective Date of the Plan and as it may be subsequently amended from time to
time.
2
SECTION 4. SHARES AUTHORIZED FOR ISSUANCE.
4.1. Maximum Number of Shares. The aggregate number of Shares with
respect to
which Grants may be made to Eligible Directors under the Plan shall not exceed
25,000 Shares, subject to adjustment as provided in Section 4.2 below. If any
Unit is forfeited without a distribution of Shares, the Shares otherwise
subject to such Unit shall again be available for Grants hereunder.
4.2. Adjustment for Corporate Transactions. In the event that any
stock dividend, extraordinary cash dividend, recapitalization, reorganization,
merger, consolidation, split-up, spin-off, combination, exchange of shares,
warrants or rights offering to purchase Stock at a price substantially below
Fair Market Value, or other similar event affects the Stock such that an
adjustment is required to preserve, or to prevent enlargement of, the benefits
or potential benefits made available under the Plan, then the Board of
Directors shall adjust the number and kind of shares which thereafter may be
awarded under the Plan and the number of Units that have been, or may be,
granted under the Plan.
SECTION 5. UNIT GRANTS.
5.1. Unit Awards. Each Eligible Director who is a member of the Board
of Directors on the Effective Date and each Eligible Director who is first
elected or appointed to the Board of Directors on or after the Effective Date
of the Plan shall be awarded 1,000 Units on the Effective Date or the date of
first election or appointment, as the case may be. In addition, on each
anniversary of the date on which an Eligible Director is first awarded Units
during the term of the Plan an Eligible Director serving as a Director on such
date shall be awarded 1,000 Units.
5.2. Delivery of Shares. Subject to satisfaction of the applicable
vesting requirements set forth in Section 6 and except as otherwise provided in
Section 7, all Shares that are subject to any Units shall be delivered to an
Eligible Director and transferred on the books of the Company on the date which
is the first business day of the month immediately following the termination of
such Eligible Director's service as a Director. Any fractional Shares to be
delivered in respect of Units shall be settled in cash based upon the Fair
Market Value on the date any whole Shares are transferred on the books of the
Company to the Eligible Director or the Eligible Director's beneficiary. Upon
the delivery of a Share (or cash with respect to a fractional Share) pursuant
to the Plan, the corresponding Unit (or fraction thereof) shall be cancelled
and be of no further force or effect.
5.3. Nontransferability. Units may not be assigned or transferred,
in whole or in part, either directly or by operation of law (except in the
event of an Eligible Director's death by will or applicable laws of descent and
distribution), including, but not by way of limitation, by execution, levy,
garnishment, attachment, pledge, bankruptcy or in any other manner, and no such
right or interest of any Eligible Director in the Plan shall be subject to any
obligation or liability of such Eligible Director.
3
SECTION 6. VESTING.
6.1. Service Requirements. Except as otherwise provided in this
Section 6 or Section 7, an Eligible Director shall vest in his or her Units on
the fifth anniversary of the Grant of those Units. If an Eligible Director
terminates service prior to the completion of five Years of Service as a
Director from the date of a Grant of Units, all of the Units granted within
five years of such date shall be immediately forfeited, and the number of
Shares to be delivered to such Eligible Director shall equal the number of
Units that were granted five years or more before the termination.
Notwithstanding the foregoing, and except as provided in Section 6.2, if the
Eligible Director terminates service by reason of his/her death or Disability
prior to the completion of the period of service required to be performed to
fully vest in any Grant, all Shares that are the subject of such Grant shall be
delivered to such Eligible Director (or the Eligible Director's beneficiary or
estate).
6.2. Six Months' Minimum Service. If an Eligible Director has
completed less than six consecutive months of service as a Director, all Units
held by such Eligible Director shall be immediately forfeited. If an Eligible
Director has completed less than six consecutive months of service from any
date on which any annual Grant of Units is made, all Units held by such
Eligible Director that relate to such annual Grant shall be immediately
forfeited.
6.3. Distribution on Death. Except as provided in Section 6.2, in the
event of the death of an Eligible Director, the Shares corresponding to such
Units shall be delivered to the beneficiary designated by the Eligible Director
on a form provided by the Company, or, in the absence of such designation, to
the Eligible Director's estate.
SECTION 7. CHANGE IN CONTROL.
7.1. Immediate Vesting. Upon the occurrence of a Change in Control,
each Eligible Director's right and interest in Units which have not previously
vested under Section 6 shall become vested and nonforfeitable regardless of the
period of the Eligible Director's service since the date such Units were
granted.
7.2. Definition. "Change in Control" shall mean the occurrence of
any of the following events:
(i) When any "person" as defined in Section 3(a)(9) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and as used in Sections
13(d) and 14(d) thereof, including a "group" as defined in Section 13(d) of the
Exchange Act but excluding the Company and any Subsidiary thereof and any
employee benefit plan sponsored or maintained by the Company or any Subsidiary
(including any trustee of such plan acting as trustee), directly or indirectly,
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act, as amended from time to time), of securities of the Company representing
20 percent or more of the combined voting power of the Company's then
outstanding securities;
4
(ii) When, during any period of 24 consecutive months the individuals
who, at the beginning of such period, constitute the Board (the "Incumbent
Directors") cease for any reason other than death to constitute at least a
majority thereof, provided that a Director who was not a Director at the
beginning of such 24-month period shall be deemed to have satisfied such 24-
month requirement (and be an Incumbent Director) if such Director wa selected
by, or on the recommendation of or with the approval of, at least two-thirds of
the Directors who then qualified as Incumbent Directors either actually
(because they were directors at the beginning of such 24-month period) or by
prior operation of this Paragraph (ii); or
(iii) The occurrence of a transaction requiring stockholder approval
for the acquisition of the Company by an entity other than the Company or a
Subsidiary through purchase of assets, or by merger, or otherwise.
SECTION 8. DEFERRED COMPENSATION PROGRAM.
8.1. Election to Defer. On or before December 31 of any calendar
year, an Eligible Director may elect to defer receipt of all or any part of any
Compensation payable in respect of the calendar year following the year in
which such election is made, and to have such amounts credited, in whole or in
part, to a Stock Unit Account. Any person who shall become an Eligible
Director during any calendar year may elect, not later than the 30th day after
his or her term as a Director begins, to defer payment of all or any part of
his or her Compensation payable for the portion of such calendar year following
such election.
8.2. Method of Election. A deferral election shall be made by written
notice filed with the Corporate Secretary of the Company. Such election shall
continue in effect (including with respect to Compensation payable for
subsequent calendar years) unless and until the Eligible Director revokes or
modifies such election by written notice filed with the Corporate Secretary of
the Company. Any such revocation or modification of a deferral election shall
become effective as of the end of the calendar year in which such notice is
given and only with respect to Compensation payable for services rendered
thereafter; provided, however, that it shall in no event become effective if
the modification would cause liability under Section 16(b) of the Exchange
Act. Amounts credited to the Eligible Director's Stock Unit Account prior to
the effective date of any such revocation or modification of a deferral
election shall not be affected by such revocation or modification and shall
be distributed only in accordance with the otherwise applicable terms of
the Plan. An Eligible Director who has revoked an election to participate in
the Plan may file a new election to defer Compensation payable for services
to be rendered in the calendar year following the year in which such election
is filed.
8.3. Stock Unit Account. Any Compensation allocated to the Stock Unit
Account shall be deemed to be invested in a number of Units equal to the
quotient of (i) such Compensation divided by (ii) the Fair Market Value on the
date the Fees then being allocated to the Stock Unit Account would otherwise
have been paid. Fractional Units shall be credited, but shall be rounded to
the nearest hundredth percentile, with amounts equal to or greater than .005
rounded up and amounts less than .005 rounded down. In the case of any
dividend declared on Shares which is payable in Shares, the Eligible Director's
Stock
5
Unit Account shall be increased by the number of Units equal to the product of
(i) the number of Units credited to the eligible Director's Stock Unit Account
on the related dividend record date, and (ii) the number of Shares (including
any fraction thereof) distributable as a dividend on a Share. In the event of
any stock split, stock dividend, recapitalization, reorganization or other
corporate transaction affecting the capital structure of the Company, the
Committee shall make such adjustments to the number of Units credited to each
Eligible Director's Stock Unit Account as the Committee shall deem necessary or
appropriate to prevent the dilution or enlargement of such Eligible Director's
rights.
8.4. Timing and Form of Distributions. Any distribution to be made
hereunder following the termination of an Eligible Director's service as a
Director shall be made in Shares.
SECTION 9. UNFUNDED STATUS.
The Company shall be under no obligation to establish a fund or reserve in
order to pay the benefits under the Plan. A Unit represents a contractual
obligation of the Company to deliver Shares to a Director as provided herein.
The Company has not segregated or earmarked any Shares or any of the Company's
assets for the benefit of a Director or his/her beneficiary or estate, and the
Plan does not, and shall not be construed to, require the Company to do so.
The Director and his/her beneficiary or estate shall have only an unsecured,
contractual right against the Company with respect to any Units granted or
amounts credited to a Director's Accounts hereunder, and such right shall not
be deemed superior to the right of any other creditor. Units shall not be
deemed to constitute options or rights to purchase Stock.
SECTION 10. AMENDMENT AND TERMINATION.
The Plan may be amended at any time by the Board of Directors, provided
that, except as provided in Section 4.2, the Board of Directors may not,
without approval of the shareholders of the Company: (i) modify the number of
Shares with respect to which Units may be awarded under the Plan; (ii) modify
the vesting requirements established under Section 6 or Section 7; or (iii)
otherwise change the times at which, or the period within which, Shares may be
delivered under the Plan. The Plan shall terminate on April 30, 2002, except
with respect to previously awarded Grants and amounts credited to the Accounts
of Directors. Notwithstanding the foregoing, no termination of the Plan shall
materially and adversely affect any rights of any Director under any Grant made
pursuant to the Plan.
SECTION 11. GENERAL PROVISIONS.
11.1. No Right to Serve as a Director. This Plan shall not impose any
obligations on the Company to retain any Eligible Director as a Director nor
shall it impose any obligation on the part of any Eligible Director to remain
as a Director of the Company.
6
11.2. Construction of the Plan. The validity, construction,
interpretation, administration and effect of the Plan, and the rights relating
to the Plan, shall be determined solely in accordance with the laws of the
State of Delaware.
11.3. No Right to Particular Assets. Nothing contained in this Plan
and no action taken pursuant to this Plan shall create or be construed to
create a trust or any kind or any fiduciary relationship between the Company
and any Eligible Director, the executor, administrator or other personal
representative or designated beneficiary of such Eligible Director, or any
other persons. Any reserves that may be established by the Company in
connection with Units granted under this Plan shall continue to be treated as
the assets of the Company for federal income tax purposes and remain subject to
the claims of the Company's creditors. To the extent that any Eligible
Director or the executor, administrator, or other personal representative of
such Eligible Director, acquires a right to receive any payment from the
Company pursuant to this Plan, such right shall be no greater than the right of
an unsecured general creditor of the Company.
11.4. Listing of Shares and Related Matters. If at any time the Board
of Directors shall determine in it discretion that the listing, registration or
qualification of the Shares covered by this Plan upon any national securities
exchange or under any state or federal law, or the consent or approval of any
governmental regulatory body, is necessary or desirable as a condition of, or
in connection with, the delivery of Shares under this Plan, no Shares will be
delivered unless and until such listing, registration, qualification, consent
or approval shall have been effected or obtained, or otherwise provided for,
free of any conditions not acceptable to the Board of Directors.
11.5. Severability of Provisions. If any provision of this Plan shall
be held invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provisions hereof, and this Plan shall be construed and
enforced as if such provision has not been included.
11.6. Incapacity. Any benefit payable to or for the benefit of a
minor, an incompetent person or other person incapable of receipting therefor
shall be deemed paid when paid to such person's guardian or to the party
providing or reasonably appearing to provide for the care of such person, and
such payment shall fully discharge any liability or obligation of the Board of
Directors, the Company and all other parties with respect thereto.
11.7. Headings and Captions. The headings and captions herein are
provided for reference and convenience only, shall not be considered part of
this Plan, and shall not be employed in the construction of this Plan.
7
RESOURCE AMERICA, INC.
1997 KEY EMPLOYEE STOCK OPTION PLAN
This is the 1997 Key Employee Stock Option Plan of Resource America, Inc.,
effective as of , 1997.
-----------------
SECTION 1. DEFINITIONS.
As used in the Plan the following terms shall have the following assigned
meanings.
(a) Board of Directors. Board of Directors shall mean the Board of
Directors of the Company.
(b) Code. Code shall mean the Internal Revenue Code of 1986, as
amended.
(c) Company. Company shall mean Resource America, Inc., its
successors and assigns and any corporation which (i) substitutes a new Option
or Stock Appreciation Right for an old Option or Stock Appreciation Right
granted under the Plan (ii) assumes an Option or Stock Appreciation Right under
the Plan or (iii) becomes a parent or subsidiary of the Company by reason of a
corporate merger, consolidation, acquisition of property or stock, separation,
reorganization or liquidation within the meaning of Section 424(a) of the Code.
(d) Committee. Committee shall mean that subcommittee of the Board of
Directors known as the Compensation Committee which is duly authorized by the
Board of Directors to administer the Plan.
(e) Disability. Disability shall mean "permanent and total
disability" as defined in Section 22(e)(3) of the Code
(f) Eligible Employee. Eligible Employee shall mean a common law
employee of the Company whose initiative and effort has contributed or may in
the future contribute to the Company's success.
(g) Fair Market Value. Fair Market value shall mean the arithmetic
mean of the closing bid and ask sale prices for the Shares reported by the
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.
(h) Incentive Stock Option. Incentive Stock Option shall mean an
Option granted under the Plan which qualifies under Section 422 of the Code.
(i) Nonqualified Stock Option. Nonqualified Stock Option shall mean
any Option granted under the Plan which does not qualify as an Incentive Stock
Option and which is specifically designated at the time it is granted as an
Option which is not an Incentive Stock Option.
(j) Option. Option shall mean either an Incentive Stock Option or a
Nonqualified Stock Option granted under the Plan.
1
(k) Option Agreement. Option Agreement shall mean any definitive
written agreement between the Company and an Eligible Employee which complies
with the Plan and which pertains to the grant of an Option and/or Stock
Appreciation Right to an Eligible Employee under the Plan.
(l) Option Price. Option Price shall mean the purchase price which an
Optionee must pay to the Company to acquire Shares on the exercise of an
Option.
(m) Optionee. Optionee shall mean an Eligible Employee to whom an
Option or Stock Appreciation Right is granted under the Plan.
(n) Plan. Plan shall mean the 1997 Key Employee Stock Option Plan of
the Company.
(o) Securities Acts. Securities Acts shall mean the Securities and
Exchange Act of 1933, as amended, and all applicable federal and state
securities law, or any successors thereto.
(p) Shares. Shares shall mean shares of the Company's common stock,
$0.01 par value, and (i) any stock or securities of the Company into which such
common stock is converted, (ii) any stock or securities of the Company which
are distributed with respect to such common stock and (iii) the stock and
securities of any other corporation into which such common stock is converted
as a result of the Company's engaging in any transaction described in Section
424(a) of the Code.
(q) Stock Appreciation Right. Stock Appreciation Right shall mean a
right granted to an Optionee which upon the surrender of an Option, entitles
the Optionee to receive payment from the Company in an amount equal to the
excess of the aggregate Fair Market value of Shares subject to such Option,
determined at the time of such surrender, over the aggregate Option Price
applicable to such Shares.
SECTION 2. PURPOSE OF THE PLAN.
The purpose of the Plan is to advance the interests of the Company and its
stockholders by providing a means through which Eligible Employees may be given
an opportunity to benefit from both the purchase Shares under Options and the
exercise of Stock Appreciation Rights so that the Company may retain and
attract personnel upon whose judgment, initiative and efforts the successful
conduct of the Company and its business largely depends.
SECTION 3. SHARES SUBJECT TO THE PLAN.
Subject to the adjustments provided for in Subsection 7(g), the aggregate
number of Shares for which Options or Stock Appreciation Rights may be granted
under the Plan shall be 275,000; provided, however, that whatever number of
Shares shall remain reserved for issuance under the Plan at the time of any
stock split, stock dividend or other change in the Company's capitalization
shall be appropriately and proportionately adjusted to reflect such stock
dividend, stock split or change in capitalization. Any Shares which are
subject to the Plan shall be made available from the authorized but unissued or
reacquired Shares of the Company. Any Shares for which an Option is granted
hereunder that are released from any Option for any reason, other than the
exercise of a Stock Appreciation Right granted under the Plan, shall become
available for other Options granted under the Plan.
2
SECTION 4. ADMINISTRATION OF THE PLAN.
The Plan shall be administered by the Committee. The Committee shall
consist of at least two members of the Board of Directors, none of whom shall
be eligible to receive Options or Stock Appreciation Rights under the Plan.
The Board of Directors, acting as a body, may from time to time remove members
from, or add members to the Committee. The Committee shall elect one of its
members as Chairman, and shall hold meetings at such times and in such places
as it shall deem advisable. All actions of the Committee shall be taken by a
majority vote of all of its members present at any properly convened meeting of
the Committee. Any action of the Committee may be taken by written instrument
signed by a majority of all of its members and any actions so taken shall be
fully effective as if they had been taken by a majority vote of the members of
the Committee at a duly convened meeting. The Committee may appoint a
secretary to take minutes of its meetings and the Committee shall make such
rules and regulations for the conduct of its business as it shall deem
advisable.
Subject to the provisions of the Plan, the Committee shall at its
discretion:
(a) Determine who among the Eligible Employees shall be granted
Options and Stock Appreciation Rights and the number of Shares to be subject to
such Option or Stock Appreciation Right;
(b) Determine the time or times at which Options and Stock
Appreciation Rights shall be granted;
(c) Determine the Option Price of the Shares subject to each Option or
Stock Appreciation Right;
(d) Determine the time or times when each Option or Stock Appreciation
Right shall become exercisable and the term of such Option or Stock
Appreciation Right;
(e) Grant cash bonuses which are conditioned upon an Optionee's
exercise of Options granted under this Plan;
(f) Authorize payment of the Option Price in cash, Shares or a
combination of cash and Shares; and
(g) Interpret the provisions of the Plan or any Option or Stock
Appreciation Right granted under the Plan, including all attendant Option
Agreements, and any such interpretation shall be final, conclusive and binding
upon the Company and all Optionees.
SECTION 5. GRANTING OF OPTIONS.
The Committee may from time to time designate who among the Eligible
Employees are to be granted Options to purchase Shares under the Plan, the
number of Shares which shall be subject to each Option and the type of Option.
The Committee shall direct an appropriate officer of the Company to execute and
deliver Option Agreements to such Eligible Employees reflecting the grant of
Options.
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SECTION 6. GRANT OF STOCK APPRECIATION RIGHTS.
The Committee may from time to time designate who among the Eligible
Employees are to be granted Stock Appreciation Rights under the Plan, the
number of Shares to which such Stock Appreciation Rights shall be subject and
the terms and conditions affecting such Stock Appreciation Right. The
Committee shall direct an appropriate officer of the Company to execute and
deliver Option Agreements to such Eligible Employees reflecting the grant of
the Stock Appreciation Rights. The Committee may determine the form of the
payment (i.e. Shares, cash or a combination of Shares and cash) to be received
by such Eligible Employee upon the exercise of a Stock Appreciation Right.
Shares which are the subject of any Option that is surrendered in connection
with the exercise of a Stock Appreciation Right shall not be available for the
grant of future Options under the Plan.
SECTION 7. TERMS AND CONDITIONS COMMON TO ALL OPTION AGREEMENTS.
Each Option Agreement shall be evidenced by a written agreement executed
by the Optionee and the Company in such form as the Committee shall from time
to time approve. The Option Agreement shall contain such terms and conditions
as the Committee shall deem appropriate, subject to the following:
(a) Optionee's Employment. The Option Agreement may provide that the
Optionee agrees to remain an employee of, and render services to the Company
for a specified period of time as condition to his exercise of his Option or
Stock Appreciation Right. The Option Agreement shall not impose any obligation
on the Company to retain the Optionee as an employee for any period or
adversely effect the Optionee's "employment at will" status with the Company.
(b) Number of Shares. The Option Agreement shall, subject to
Subsection 7(g), set forth the number of Shares which are subject to Options
and/or Stock Appreciation Rights granted to the Optionee under the Plan.
(c) No Obligation to Exercise. The Option Agreement shall not
obligate the Optionee to exercise any Option or Stock Appreciation Right.
(d) Term of Options and Stock Appreciation Rights. The Option
Agreement shall establish the period during which each Option and Stock
Appreciation Right is exercisable; provided, however, no Option Agreement shall
provide for the exercise of any Option or Stock Appreciation Right after the
expiration of the ten (10) year period immediately following the date upon
which such Option or Stock Appreciation Right is granted.
(e) Exercise of Options and Stock Appreciation Rights. The Option
Agreement shall provide for (and may limit or restrict) the date or dates upon
which any Option or Stock Appreciation Right granted under the Plan may be
exercised. The Option Agreement may provide for the exercise of Options and
Stock Appreciation Rights in installments and upon such terms and conditions as
the Committee may determined. The Option Agreement shall also provide that
during a period of not less than twelve (12) months immediately following the
date upon which an Optionee receives a "hardship withdrawal" from a retirement
plan qualifying under Section 401(k) of the Code, that all rights of the
Optionee to exercise Options granted under the Plan shall be suspended.
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(f) Transferability of Options and Stock Appreciation Rights. The
Option Agreement shall provide that during the lifetime of an Optionee, the
Options and Stock Appreciation Rights granted to him under the Plan shall be
exercisable only by him and shall not be assignable or transferable by him;
provided, however, that the Option Agreement may provide for transferability or
assignability of Options and Stock Appreciation Rights by will or under the
applicable laws of dissent and distribution.
(g) Adjustments. The Option Agreement may contain such provisions as
Committee considers appropriate to adjust the number of Shares subject to
Options and Stock Appreciation Rights in the event of a stock dividend, stock
split, reorganization, recapitalization, combination of shares, merger,
consolidation or any other change in the corporate structure or Shares of the
Company or any other similar transaction to which the Company is a party. If
such adjustment is made, the number of Shares subject to the provisions of the
Plan thereupon shall be adjusted correspondingly. In the event that an
adjustment to the number of Shares subject to Options or Stock Appreciation
Rights has been made pursuant to the preceding two sentences, the Committee
shall make appropriate adjustments to the Option Price (per share) so that the
Optionee's economic benefit from the exercise of the remaining Options or Stock
Appreciation Rights shall be neither better nor worse than would have existed
prior to such adjustments. The foregoing adjustments shall be made by the
Committee as its members may determine, which determination shall be final,
binding and conclusive on the Company and the Optionees. The grant of an
Option or Stock Appreciation Right under the Plan shall not affect the right or
power of the Company to make adjustments, classifications, reorganizations or
changes in its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
SECTION 8. TERMS AND CONDITIONS COMMON TO OPTIONS.
An Option Agreement which evidences the grant of an Option shall contain
such terms and conditions as the Committee shall deem appropriate, subject to
Section 7 and the following:
(a) Payment of Option Price. The Option Agreement shall provide that
the Option Price shall be payable in full upon the exercise of an Option and
must be paid in cash, by check or by the surrender of Shares (if approved by
the Committee); provided, however, that Shares may not be surrendered in
payment of the Option Price if such surrender of Shares will adversely effect
the continued qualification of any Incentive Stock Option (whether or not
granted under the Plan). No stock certificate representing Shares shall be
issued until full payment therefore has been received by the Company.
(b) Death or Disability of Optionee. The Option Agreement shall
provide that if an Optionee should die or suffer a Disability while an employee
of the Company or within a period of three (3) months immediately following the
termination of his employment with the Company, his Option privileges shall
cease; provided, however, that the Option Agreement may provide that the Option
privileges which were immediately exercisable by the Optionee at the time of
his death or Disability may be exercised by him or either his personal
representative or designated beneficiary, as the case may be, during a period
not exceeding (1) year following the date upon which the earlier of his
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Disability or death occurred, but in no event after the total term of the
Option as set forth in the Option Agreement.
(c) Registration. The Option Agreement may provide for the issuance
of Shares which are registered under the Securities Acts. The Plan shall not
obligate the Company to issue Shares which are registered under the Securities
Acts. The Option Agreement may provide that if the Shares are issued upon the
exercise of an Option, and such Shares are not registered under the Securities
Acts, that the Company may grant to the Optionee certain rights to cause such
Shares to be so registered and to require the Optionee to deliver to the
Company sufficient representations and investment letters as may be reasonably
required by the Company in order to assure that the Company's issuance of
Shares to such Optionee is either exempt from registration under the Securities
Acts or does not constitute a violation of the Securities Acts which
determination shall be made by counsel selected by the Committee.
SECTION 9. TERMS AND CONDITIONS OF INCENTIVE STOCK OPTIONS.
Each Option Agreement which evidences the grant of an Incentive Stock
Option shall contain such terms and conditions as the Committee shall deem
appropriate, subject to Sections 7 and 8, and the following:
(a) Option Price. The Option Agreement shall, subject to Subsection
7(g), set forth the Option Price (per share) as determined by the Committee,
which Option Price shall not be less than one hundred percent (100%) of the
Fair Market Value of the Shares on the date the Option is granted; provided,
however, any Incentive Stock Option that is granted to Eligible Employee who,
at the time such Incentive Stock Option is granted, is deemed for the purposes
of Section 22 of the Code to own Shares possessing more than ten percent (10%)
of the total combined voting power of all classes of stock of the Company or
of a parent or subsidiary of the Company, shall be granted at an Option Price
of at least one hundred ten percent (110%) of the Fair Market value of such
Shares.
(b) Term of Incentive Stock Options Granted to Ten Percent
Shareholders. If an Incentive Stock Option is granted to an Eligible Employee
who, at the time such Incentive Stock Option is granted, is deemed for the
purposes of Section 422 of the Code to own Shares possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of
the Company or of a parent or subsidiary of the Company, then the term of
such Incentive Stock Option shall be limited to five (5) years.
(c) Other Termination of Employment. The Option Agreement may provide
that if an Optionee shall cease to be employed by the Company for any reason
other than his death or Disability his Option privileges shall cease; provided,
however, that the Option Agreement may provide that the Option privileges which
were immediately exercisable by the Optionee on the date of his termination of
employment with the Company may be exercised by him during a period not
exceeding three (3) months following the date of such termination, but in no
event after the total term of the Incentive Stock Option as set forth in the
Option Agreement.
(d) Notice of Disqualifying Disposition. The Option Agreement may
provide that if an Optionee shall sell or otherwise dispose of Shares which
were acquired by him through the exercise of an Incentive Stock Option and such
6
disposition occurs within two years of the date upon which the Incentive Stock
Option was granted or within one year following the date the Shares were
transferred to him upon the exercise of such Incentive Stock Option, such
Optionee shall give written notice to the Company which notice shall contain
each of the following items:
(i) The number of Shares sold or otherwise disposed,
(ii) The date or dates of such sale or disposition,
(iii) The selling price for each Share sold or disposed, and
(iv) The Option Price applicable to each Share sold or disposed.
The written notice required by this Subsection 9(d) must be received
by the Company within fifteen (15) days of any disqualifying disposition.
(e) $100,000 Per Year Limitation. The Option Agreement shall provide
that aggregate Fair Market Value of Shares (determined as of the date such
Incentive Stock Options were granted) with respect to which Incentive Stock
Option are exercisable for the first time by any Optionee during any calendar
year (under the Plan and all other incentive stock Option plans sponsored by
the Company) shall not exceed $100,000.
SECTION 10. TERMS AND CONDITIONS OF NONQUALIFIED STOCK OPTIONS.
Each Option Agreement which evidences the grant of a Nonqualified Stock
Option shall contain such terms and conditions as the Committee shall deem
appropriate, subject to Sections 7 and 8, and the following:
(a) Designation as a Nonqualified Stock Option. The Option Agreement
shall provide, that under no circumstances shall the Nonqualified Stock Option
be deemed to qualify as an Incentive Stock Option.
(b) No Interference with Incentive Stock Options. The Option
Agreement shall contain no provisions which adversely effects the qualification
of any Option which is intended to be an Incentive Stock Option under Section
422 of the Code.
(c) Withholding. The Option Agreement shall provide that there shall
be deducted from each distribution of Shares receivable by Optionee on the
exercise of a NonQualified Stock Option, the amount of withholding or other
taxes required to be withheld by any governmental authority. Such withholding
may be accomplished by either (i) the Optionee's deposit of cash with the
Company in an amount equal to the required withholding amount (the "Deposit
Method") or (ii) the Optionee's surrender in the exercise of a Stock
Appreciation Right, Options covering a sufficient number of Shares so that the
distribution of cash upon the exercise of such Stock Appreciation Right will
provide the Company with the required withholding amount (the "SAR Method").
The selection between the Deposit method and the SAR Method shall be made by
the Optionee and such selection shall be contained in the Optionee's timely
notice of exercise of his Nonqualified Stock Option. If the Optionee fails to
properly select between the two withholding alternatives, the SAR Method shall
be used.
7
(d) Option Price. The Option agreement shall, subject to Subsection
7(g), set forth the Option Price (per share) as determined by the Committee.
(e) Other Termination of Employment. The Option Agreement may provide
that if an Optionee shall cease to be employed by the Company for any reason
other than his death or Disability, his Option privileges shall cease;
provided, however, that the Option Agreement may provide that the Option
privileges which were immediately exercisable by the Optionee on the date of
his termination of employment with the Company may be exercised by him during a
period not exceeding one (1) year following the date of such termination, but
in no event after the total term of the Option is set forth in the Option
Agreement.
SECTION 11. TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS.
Each Option Agreement which evidences the grant of Stock Appreciation
Rights shall contain such terms and conditions as the Committee shall deem
appropriate, subject to Section 7 and the following:
(a) No Interference with Incentive Stock Options. The Option Agreement
pursuant to which Stock Appreciation Rights are granted shall contain no
provision which adversely affects the qualification of any Option intended to
be an Incentive Stock Option under Section 422 of the Code. To that end, (i)
any Stock Appreciation Right which is exercised in connection with the
cancellation or surrender of an Incentive Stock Option may only be
exercisable when the Fair Market Value of each Share which is the subject
matter of the Incentive Stock Option exceeds the Option Price, (ii) the Stock
Appreciation Right may be transferred only when the underlying Incentive
Stock Option is otherwise transferable and (iii) the exercise of the Stock
Appreciation Right must have the same economic and tax consequences to the
Optionee as would arise as a result of the exercise of the Incentive Stock
Option followed immediately by a sale of the acquired Shares.
(b) Withholding. The Option Agreement shall provide that there shall
be deducted from any distribution resulting from the exercise of a Stock
Appreciation Right that amount which equals the withholding or other taxes
required to be withheld by any governmental authority.
SECTION 12. RIGHTS AS A SHAREHOLDER.
An Optionee or a transferee of an Option shall have no rights as a
shareholder of the Company with respect to any Shares which are subject to an
Option until the issuance of the stock certificates representing such Shares.
SECTION 13. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS.
Subject to the terms and conditions of the Plan, the Committee may modify,
extend or renew outstanding Options granted under the Plan or accept the
surrender of outstanding Options and authorize the granting of new Options in
substitution therefor. Shares which are the subject matter of lapsed Options,
may be granted in Options to other Eligible Employees at any time during the
term of this Plan. Notwithstanding the foregoing, no modification of an Option
shall, without the consent of the Optionee, alter or impair the rights or
obligations of any Optionee with respect to any Option granted under the Plan.
8
SECTION 14. INDEMNIFICATION OF COMMITTEE.
In addition to such other rights of indemnification as they may have as
members of the Board of Directors, members of the Committee shall be
indemnified by the Company against the reasonable expenses, including attorneys
fees, actually and necessarily incurred by them in connection with the defense
of any action, suit or other proceeding through which any of them may be a
party as a result of any action or failure to act under or in connection with
the Plan, any Option Agreement or any Option granted thereunder, and against
all amounts paid in settlement thereof (provided such settlement is approved by
independent legal counsel selected by the Company) or paid in satisfaction of a
judgment in any such action, suit or other proceeding; provided, however, that
no member of the Committee shall be indemnified for any such expenses or
amounts relating to matters as to which it is determined in such action, suit
or other proceeding that such member of the Committee is liable for gross
negligence or wanton misconduct in the performance of his duties.
SECTION 15. AMENDMENT AND TERMINATION OF THE PLAN.
The Company by action of the Board of Directors, reserves the right to
amend, modify or terminate this Plan at any time or by action of the Board of
Directors, and with the consent of the effected Optionee, amend, modify or
terminate any outstanding Option Agreement, except that the Company may not,
without further shareholder approval, increase the total number of Shares for
which Options may be granted under the Plan (except for increases attributable
to adjustments authorized in the Plan), change the employees or class of
employees who are Eligible Employees or materially increase the benefits
accruing to Optionees under the Plan. Moreover, no action may be taken by the
Company (without the consent of the effected Optionee) which will impair the
validity of any Option or Stock Appreciation Right then outstanding or which
will prevent an Incentive Stock Option from continuing to qualify under Section
422 of the Code.
SECTION 16. EFFECTIVE DATE OF PLAN.
This Plan shall be effective upon its adoption by the Board of Directors.
The Plan shall be submitted to the stockholders of the Company for approval
within twelve (12) months after its adoption by the Board of Directors and, if
the Plan shall not be approved by the shareholders within such twelve month
period, the Plan shall be void and of no effect. Any Options or Stock
Appreciation Rights granted under the Plan prior to the date of approval by the
stockholders shall be void if such shareholders' approval is not timely
obtained.
SECTION 17. EXPIRATION OF PLAN.
Options may be granted under this Plan at any time on or prior to the date
which is ten (10) years immediately following effective date of the Plan.
9
RESOURCE AMERICA, INC.
1997 STOCK OPTION PLAN FOR DIRECTORS
This is the 1997 Stock Option Plan for Directors of Resource America,
Inc., effective as of , 1997.
------------------------
Section 1. Definitions. As used in the Plan the following terms shall
have the following assigned meanings.
(a) Board of Directors. Board of Directors shall mean the Board of
Directors of the Company.
(b) Code. Code shall mean the Internal Revenue Code of 1986, as
amended.
(c) Company. Company shall mean Resource America, Inc., its
successors and assigns and any corporation which (i) substitutes a new Option
or Stock Appreciation Right for an old Option or Stock Appreciation Right
granted under the Plan (ii) assumes an Option or Stock Appreciation Right under
the Plan or (iii) becomes a parent or subsidiary of the Company by reason of a
corporate merger, consolidation, acquisition of property or stock, separation,
reorganization or liquidation within the meaning of Section 424(a) of the Code.
(d) Committee. Committee shall mean that subcommittee of the Board of
Directors known as the Compensation Committee for Directors which is duly
authorized by the Board of Directors to administer the Plan.
(e) Disability. Disability shall mean "permanent and total
disability" as defined in Section 22(e)(3) of the Code
(f) Eligible Person. Eligible Person shall mean a member of the
Board of Directors of the Company who is not an employee of the Company.
(g) Fair Market Value. Fair Market value shall mean the arithmetic
mean of the closing bid and ask sale prices for the Shares reported by the
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.
(h) Option. Option shall mean a Stock Option granted under the Plan.
(i) Option Agreement. Option Agreement shall mean any definitive
written agreement between the Company and an Eligible Person which complies
with the Plan and which pertains to the grant of an Option and/or Stock
Appreciation Right to an Eligible Person under the Plan.
1
(j) Option Price. Option Price shall mean the purchase price which an
Optionee must pay to the Company to acquire Shares on the exercise of an
Option.
(k) Optionee. Optionee shall mean an Eligible Person to whom an
Option or Stock Appreciation Right is granted under the Plan.
(l) Plan. Plan shall mean the 1997 Stock Option Plan for Directors of
the Company.
(m) Securities Acts. Securities Acts shall mean the Securities and
Exchange Act of 1933, as amended, and all applicable federal and state
securities law, or any successors thereto.
(n) Shares. Shares shall mean shares of the Company's common stock,
$0.01 par value, and (i) any stock or securities of the Company into which such
common stock is converted, (ii) any stock or securities of the Company which
are distributed with respect to such common stock and (iii) the stock and
securities of any other corporation into which such common stock is converted
as a result of the Company's engaging in any transaction described in Section
424(a) of the Code.
(o) Stock Appreciation Right. Stock Appreciation Right shall mean a
right granted to an Optionee which upon the surrender of an Option, entitles
the Optionee to receive payment from the Company in an amount equal to the
excess of the aggregate Fair Market value of Shares subject to such Option,
determined at the time of such surrender, over the aggregate Option Price
applicable to such Shares.
Section 2. Purpose of the Plan. The purpose of the Plan is to advance
the interests of the Company and its stockholders by providing a means through
which Eligible Persons may be given an opportunity to benefit from both the
purchase Shares under Options and the exercise of Stock Appreciation Rights so
that the Company may retain and attract directors upon whose judgment,
initiative and efforts the successful conduct of the Company and its business
depends.
Section 3. Shares Subject to the Plan. Subject to the adjustments
provided for in Subsection 7(g), the aggregate number of Shares for which
Options or Stock Appreciation Rights may be granted under the Plan shall be
50,000; provided, however, that whatever number of Shares shall remain reserved
for issuance under the Plan at the time of any stock split, stock dividend or
other change in the Company's capitalization shall be appropriately and
proportionately adjusted to reflect such stock dividend, stock split or change
in capitalization. Any Shares which are subject to the Plan shall be made
available from the authorized but unissued or reacquired Shares of the
Company. Any Shares for which an Option is granted hereunder that are
released from any Option for any reason, other than the exercise of a Stock
Appreciation Right granted under the Plan, shall become available for other
Options granted under the Plan.
Section 4. Administration of the Plan. The Plan shall be administered by
the Committee. The Committee shall consist of at least two members of the
Board of Directors, none of whom shall be eligible to receive Options or Stock
Appreciation Rights under the Plan. The Board of Directors, acting as a body,
may from time to time remove members from, or add members to the Committee.
The Committee shall elect one of its members as Chairman, and shall hold
meetings at
2
such times and in such places as it shall deem advisable. All actions of the
Committee shall be taken by a majority vote of all of its members present at
any properly convened meeting of the Committee. Any action of the Committee
may be taken by written instrument signed by a majority of all of its members
and any actions so taken shall be fully effective as if they had been taken by
a majority vote of the members of the Committee at a duly convened meeting.
The Committee may appoint a secretary to take minutes of its meetings and the
Committee shall make such rules and regulations for the conduct of its business
as it shall deem advisable.
Subject to the provisions of the Plan, the Committee shall at its
discretion:
(a) Determine who among the Eligible Persons shall be granted Options
and Stock Appreciation Rights and the number of Shares to be subject to such
Option or Stock Appreciation Right;
(b) Determine the time or times at which Options and Stock
Appreciation Rights shall be granted;
(c) Determine the Option Price of the Shares subject to each Option or
Stock Appreciation Right;
(d) Determine the time or times when each Option or Stock Appreciation
Right shall become exercisable and the term of such Option or Stock
Appreciation Right;
(e) Authorize payment of the Option Price in cash, Shares or a
combination of cash and Shares; and
(f) Interpret the provisions of the Plan or any Option or Stock
Appreciation Right granted under the Plan, including all attendant Option
Agreements, and any such interpretation shall be final, conclusive and binding
upon the Company and all Optionees.
Section 5. Granting of Options. The Committee may from time to time designate
who among the Eligible Persons are to be granted Options to purchase Shares
under the Plan, the number of Shares which shall be subject to each Option and
the type of Option. The Committee shall direct an appropriate officer of the
Company to execute and deliver Option Agreements to such Eligible Persons
reflecting the grant of Options.
Section 6. Grant of Stock Appreciation Rights. The Committee may from
time to time designate who among the Eligible Persons are to be granted Stock
Appreciation Rights under the Plan, the number of Shares to which such Stock
Appreciation Rights shall be subject and the terms and conditions affecting
such Stock Appreciation Right. The Committee shall direct an appropriate
officer of the Company to execute and deliver Option Agreements to such
Eligible Persons reflecting the grant of the Stock Appreciation Rights. The
Committee may determine the form of the payment (i.e. Shares, cash or a
combination of Shares and cash) to
be received by such Eligible Person upon the exercise of a Stock Appreciation
Right. Shares which are the subject of any Option that is surrendered in
connection with the exercise of a Stock Appreciation Right shall not be
available for the grant of future Options under the Plan.
3
Section 7. Terms and Conditions Common to All Option Agreements. Each
Option Agreement shall be evidenced by a written agreement executed by the
Optionee and the Company in such form as the Committee shall from time to time
approve. The Option Agreement shall contain such terms and conditions as the
Committee shall deem appropriate, subject to the following:
(a) Optionee's Service as a Director. The Option Agreement may
provide that the Optionee agrees to remain a director of the Company (if duly
elected as such by the shareholders of the Company) for a specified period of
time as condition to his exercise of his Option or Stock Appreciation Right.
The Option Agreement shall not impose any obligation on the Company to retain
the Optionee as a director for any period.
(b) Number of Shares. The Option Agreement shall, subject to
Subsection 7(g), set forth the number of Shares which are subject to Options
and/or Stock Appreciation Rights granted to the Optionee under the Plan.
(c) No Obligation to Exercise. The Option Agreement shall not
obligate the Optionee to exercise any Option or Stock Appreciation Right.
(d) Term of Options and Stock Appreciation Rights. The Option
Agreement shall establish the period during which each Option and Stock
Appreciation Right is exercisable; provided, however, no Option Agreement shall
provide for the exercise of any Option or Stock Appreciation Right after the
expiration of the ten (10) year period immediately following the date upon
which such Option or Stock Appreciation Right is granted.
(e) Exercise of Options and Stock Appreciation Rights. The Option
Agreement shall provide for (and may limit or restrict) the date or dates upon
which any Option or Stock Appreciation Right granted under the Plan may be
exercised. The Option Agreement may provide for the exercise of Options and
Stock Appreciation Rights in installments and upon such terms and conditions as
the Committee may determined.
(f) Transferability of Options and Stock Appreciation Rights. The
Option Agreement shall provide that during the lifetime of an Optionee, the
Options and Stock Appreciation Rights granted to him under the Plan shall be
exercisable only by him and shall not be assignable or transferable by him;
provided, however, that the Option Agreement may provide for transferability or
assignability of Options and Stock Appreciation Rights by will or under the
applicable laws of dissent and distribution.
(g) Adjustments. The Option Agreement may contain such provisions as
Committee considers appropriate to adjust the number of Shares subject to
Options and Stock Appreciation Rights in the event of a stock dividend, stock
split, reorganization, recapitalization, combination of shares, merger,
consolidation or any other change in the corporate structure or Shares of the
Company or any other similar transaction to which the Company is a party. If
such adjustment is made, the number of Shares subject to the provisions of the
Plan thereupon shall be adjusted correspondingly. In the event that an
adjustment to the number of Shares subject to Options or Stock Appreciation
Rights has been made pursuant to the preceding two sentences, the Committee
shall make appropriate adjustments to the Option Price (per share) so that the
Optionee's economic benefit from the exercise of the remaining Options or Stock
Appreciation Rights shall be neither better nor worse than would have existed
4
prior to such adjustments. The foregoing adjustments shall be made by the
Committee as its members may determine, which determination shall be final,
binding and conclusive on the Company and the Optionees. The grant of an
Option or Stock Appreciation Right under the Plan shall not affect the right or
power of the Company to make adjustments, classifications, reorganizations or
changes in its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
Section 8. Terms and Conditions of Options. An Option Agreement which
evidences the grant of an Option shall contain such terms and conditions as the
Committee shall deem appropriate, subject to Section 7 and the following:
(a) Payment of Option Price. The Option Agreement shall provide that
the Option Price shall be payable in full upon the exercise of an Option and
must be paid in cash, by check or by the surrender of Shares (if approved by
the Committee). No stock certificate representing Shares shall be issued
until full payment therefore has been received by the Company.
(b) Death or Disability of Optionee. The Option Agreement shall
provide that if an Optionee should die or suffer a Disability while a director
of the Company or within a period of three (3) months immediately following the
termination of his service as a director of the Company, his Option privileges
shall cease; provided, however, that the Option Agreement may provide that the
Option privileges which were immediately exercisable by the Optionee at the
time of his death or Disability may be exercised by him or either his personal
representative or designated beneficiary, as the case may be, during a period
not exceeding (1) year following the date upon which the earlier of his
Disability or death occurred, but in no event after the total term of the
Option as set forth in the Option Agreement.
(c) Registration. The Option Agreement may provide for the issuance
of Shares which are registered under the Securities Acts. The Plan shall not
obligate the Company to issue Shares which are registered under the Securities
Acts. The Option Agreement may provide that if the Shares are issued upon the
exercise of an Option, and such Shares are not registered under the Securities
Acts, that the Company may grant to the Optionee certain rights to cause such
Shares to be so registered and to require the Optionee to deliver to the
Company sufficient representations and investment letters as may be reasonably
required by the Company in order to assure that the Company's issuance of
Shares to such Optionee is either exempt from registration under the Securities
Acts or does not constitute a violation of the Securities Acts which
determination shall be made by counsel selected by the Committee.
(d) Option Price. The Option Agreement shall, subject to Subsection
7(g), set forth the Option Price (per share) as determined by the Committee,
which Option Price shall not be less than one hundred percent (100%) of the
Fair Market Value of the Shares on the date the Option is granted.
(e) Other Termination of Service as Director. The Option Agreement
may provide that if an Optionee shall cease to be a director of the Company for
any reason other than his death or Disability his Option privileges shall
cease; provided, however, that the Option Agreement may provide that the Option
privileges which were immediately exercisable by the Optionee on the date of
his termination of service as a director of the Company may be exercised by him
during a period not exceeding three (3) months following the date of such
5
termination, but in no event after the total term of the Stock Option as set
forth in the Option Agreement.
(f) Withholding. The Option Agreement shall provide that there shall
be deducted from each distribution of Shares receivable by Optionee on the
exercise of a Stock Option, the amount of withholding or other taxes required
to be withheld by any governmental authority. Such withholding may be
accomplished by either (i) the Optionee's deposit of cash with the Company in
an amount equal to the required withholding amount (the "Deposit Method") or
(ii) the Optionee's surrender in the exercise of a Stock Appreciation Right,
Options covering a sufficient number of Shares so that the distribution of cash
upon the exercise of such Stock Appreciation Right will provide the Company
with the required withholding amount (the "SAR Method"). The selection between
the Deposit method and the SAR Method shall be made by the Optionee and such
selection shall be contained in the Optionee's timely notice of exercise of his
Stock Option. If the Optionee fails to properly select between the two
withholding alternatives, the SAR Method shall be used.
Section 9. Terms and Conditions of Stock Appreciation Rights. Each
Option Agreement which evidences the grant of Stock Appreciation Rights shall
contain such terms and conditions as the Committee shall deem appropriate,
subject to Section 7 and the Option Agreement shall provide that there shall
be deducted from any distribution resulting from the exercise of a Stock
Appreciation Right that amount which equals the withholding or other taxes
required to be withheld by any governmental authority.
Section 10. Rights as a Shareholder. An Optionee or a transferee of an
Option shall have no rights as a shareholder of the Company with respect to any
Shares which are subject to an Option until the issuance of the stock
certificates representing such Shares.
Section 11. Modification, Extension and Renewal of Options. Subject to
the terms and conditions of the Plan, the Committee may modify, extend or renew
outstanding Options granted under the Plan or accept the surrender of
outstanding Options and authorize the granting of new Options in substitution
therefor. Shares which are the subject matter of lapsed Options, may be
granted in Options to other Eligible Persons at any time during the term of
this Plan. Notwithstanding the foregoing, no modification of an Option shall,
without the consent of the Optionee, alter or impair the rights or obligations
of any Optionee with respect to any Option granted under the Plan.
Section 12. Indemnification of Committee. In addition to such other
rights of indemnification as they may have as members of the Board of
Directors, members of the Committee shall be indemnified by the Company against
the reasonable expenses, including attorneys fees, actually and necessarily
incurred by them in connection with the defense of any action, suit or other
proceeding through which any of them may be a party as a result of any action
or failure to act under or in connection with the Plan, any Option Agreement or
any Option granted thereunder, and against all amounts paid in settlement
thereof (provided such settlement is approved by independent legal counsel
selected by the Company) or paid in satisfaction of a judgment in any such
action, suit or other proceeding; provided, however, that no member of the
Committee shall be indemnified for any such expenses or amounts relating to
matters as to which it is determined in such action, suit or other proceeding
that such member of the Committee is liable for gross negligence or wanton
misconduct in the performance of his duties.
6
Section 13. Amendment and Termination of the Plan. The Company by action
of the Board of Directors, reserves the right to amend, modify or terminate
this Plan at any time or by action of the Board of Directors, and with the
consent of the effected Optionee, amend, modify or terminate any outstanding
Option Agreement, except that the Company may not, without further shareholder
approval, increase the total number of Shares for which Options may be granted
under the Plan (except for increases attributable to adjustments authorized in
the Plan), change the employees or class of employees who are Eligible Persons
or materially increase the benefits accruing to Optionees under the Plan.
Moreover, no action may be taken by the Company (without the consent of the
effected Optionee) which will impair the validity of any Option or Stock
Appreciation Right then outstanding.
Section 14. Effective Date of Plan. This Plan shall be effective upon
its adoption by the Board of Directors. The Plan shall be submitted to the
stockholders of the Company for approval within twelve (12) months after its
adoption by the Board of Directors and, if the Plan shall not be approved by
the shareholders within such twelve month period, the Plan shall be void and of
no effect. Any Options or Stock Appreciation Rights granted under the Plan
prior to the date of approval by the stockholders shall be void if such
shareholders' approval is not timely obtained.
Section 15. Expiration of Plan. Options may be granted under this Plan
at any time on or prior to the date which is ten (10) years immediately
following effective date of the Plan.
7
EXHIBIT 11.1
CALCULATION OF PRIMARY AND FULLY
DILUTED EARNINGS PER SHARE
Earnings per common share and common share equivalent are determined by
dividing net income by the weighted average number of common shares and common
share equivalents outstanding during each period. Common share equivalents
consist of common shares issuable upon the exercise of stock options, provided
the effect is dilutive, less common shares assumed to have been purchased with
the proceeds therefrom. Provided below is a table reconciling common stock
earnings per share:
Three Months Nine Months
Ended June 30, Ended June 30,
------------------ ------------------
Primary 1997 1996 1997 1996
Weighted average number of
common shares outstanding 3,562,200 1,893,900 3,209,000 1,889,500
Weighted average number of
Common share equivalents
relating to stock options
and warrants 1,064,300 811,700 1,024,600 659,500
--------- ------- --------- -------
4,626,500 2,705,600 4,233,600 2,549,000
--------- --------- --------- ---------
Fully Diluted
Weighted average number of
common shares outstanding 3,562,200 1,893,900 3,209,000 1,889,500
Weighted average number of
common share equivalents
relating to stock options
and warrants 1,073,400 811,700 1,027,700 785,500
--------- ------- --------- -------
4,635,600 2,705,600 4,236,700 2,675,000
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 2890547
<SECURITIES> 0
<RECEIVABLES> 1145206
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0
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<COMMON> 37144
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<SALES> 2922159
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<CGS> 1296132
<TOTAL-COSTS> 10348825
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<INTEREST-EXPENSE> 1720983
<INCOME-PRETAX> 10244417
<INCOME-TAX> 2494000
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