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Filed Pursuant to Rule 424(b)(3)
Registration Number 333-29245
JOINT PROXY STATEMENT
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
RESOURCE BANCSHARES CORPORATION
PROSPECTUS
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
COMMON STOCK, PAR VALUE $.01 PER SHARE
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RBMG ANNUAL MEETING
This Joint Proxy Statement/Prospectus is being furnished to stockholders of
Resource Bancshares Mortgage Group, Inc. ("RBMG") in connection with the
solicitation of proxies by the Board of Directors of RBMG (the "RBMG Board") for
use at the annual meeting of stockholders of RBMG ("RBMG Stockholders") to be
held on Wednesday, December 31, 1997 and at any adjournment or postponement
thereof (the "RBMG Annual Meeting"). At the RBMG Annual Meeting, the RBMG
Stockholders will be asked to consider and vote upon a proposal to approve and
adopt (i) the Agreement of Merger (the "RBC Merger Agreement"), dated as of
April 18, 1997, as amended by the First Amendment to Agreement of Merger dated
September 18, 1997 and the Second Amendment to Agreement of Merger dated
November 12, 1997, among RBMG, RBC Merger Sub, Inc., a South Carolina
corporation and a wholly owned subsidiary of RBMG ("RBC Merger Sub"), and
Resource Bancshares Corporation, a South Carolina corporation ("RBC"), pursuant
to which RBC Merger Sub would be merged with and into RBC (the "RBC Merger"),
(ii) the RBC Merger and (iii) the issuance of shares of common stock, par value
$.01 per share, of RBMG ("RBMG Common Stock") in connection therewith (the "RBC
Stock Issuance"). RBC would be the surviving corporation in the RBC Merger and
would become a wholly owned subsidiary of RBMG. If the RBC Merger is
consummated, each outstanding share of voting common stock, par value $.01 per
share, of RBC ("RBC Voting Common Stock") and non-voting common stock, par value
$.01 per share, of RBC ("RBC Non-Voting Common Stock", and, together with RBC
Voting Common Stock, "RBC Common Stock") will be converted into the right to
receive 1.08026 shares of RBMG Common Stock, as adjusted to account for the cash
dividend of $.04 per share of RBMG Common Stock payable to RBMG Stockholders of
record on December 18, 1997 and thereafter further adjusted to reflect the five
percent stock dividend payable to RBMG Stockholders of record on December 18,
1997 (the "RBC Exchange Ratio"), with cash being paid in lieu of fractional
shares. For a detailed description of how the RBC Exchange Ratio will be
calculated, please see the discussion under the caption "Proposal No. 1: The RBC
Merger -- Terms of the RBC Merger Agrement -- Conversion of Shares."
At the RBMG Annual Meeting and in connection with the RBC Merger, the RBMG
Stockholders will also be asked to consider and vote upon a proposal to approve
and adopt an amendment to RBMG's Restated Certificate of Incorporation (the "RBC
Amendment"), pursuant to which immediately prior to the RBC Merger the number of
shares of RBMG Common Stock that RBMG would be authorized to issue would be
increased from 25,000,000 shares to 50,000,000 shares. The approval and adoption
of the RBC Amendment is contingent upon the approval and adoption of the RBC
Merger Agreement, the RBC Merger and the RBC Stock Issuance, and the approval
and adoption of the RBC Merger, the RBC Merger Agreement and the RBC Stock
Issuance is contingent upon the approval and adoption of the RBC Amendment.
At the RBMG Annual Meeting, RBMG Stockholders will also be asked to
consider and vote upon (i) the election of two directors, (ii) an amendment and
restatement of RBMG's Omnibus Stock Award Plan (the "Omnibus Plan") and an
amendment to RBMG's Formula Stock Option Plan (the "Formula Plan") (collectively
the "Plan Amendments") and (iii) the adoption of a Non-Qualified Stock Option
Plan (the "Non-Qualified Plan").
RBC SPECIAL MEETING
This Joint Proxy Statement/Prospectus is also being furnished to holders of
RBC Voting Common Stock and RBC Non-Voting Common Stock ("RBC Stockholders") in
connection with the solicitation of proxies by the Board of Directors of RBC
(the "RBC Board") for use at a special meeting of RBC Stockholders to be held on
Wednesday, December 31, 1997 and at any adjournment or postponement thereof (the
"RBC Special Meeting"). At the RBC Special Meeting, the RBC Stockholders will be
asked to consider and vote upon a proposal to approve and adopt the RBC Merger
Agreement and the RBC Merger.
RBMG has filed a Registration Statement on Form S-4 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with the Securities and Exchange Commission (the "Commission") covering the
shares of RBMG Common Stock to be issued in connection with the RBC Merger. This
Joint Proxy Statement/Prospectus also constitutes the prospectus of RBMG filed
as part of the Registration Statement relating to the issuance of shares of RBMG
Common Stock to RBC Stockholders pursuant to the terms of the RBC Merger
Agreement.
(continued on next page)
SEE "RISK FACTORS" ON PAGE 16 FOR A DISCUSSION OF CERTAIN INFORMATION RELEVANT
TO OWNERSHIP OF
RBMG COMMON STOCK AND THE RBC MERGER.
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THE SHARES OF RBMG COMMON STOCK TO BE ISSUED IN THE RBC MERGER HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS JOINT
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS DECEMBER 2, 1997, AND IT IS
FIRST BEING MAILED OR OTHERWISE DELIVERED TO RBMG STOCKHOLDERS AND RBC
STOCKHOLDERS ON OR ABOUT DECEMBER 2, 1997.
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(continued from preceding page)
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED HEREIN IN CONNECTION WITH THE OFFER OF
RBMG COMMON STOCK TO BE ISSUED IN CONNECTION WITH THE RBC MERGER, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY RBMG, RBC OR ANY OTHER PERSON. THIS JOINT PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO PURCHASE RBMG COMMON STOCK IN ANY JURISDICTION IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF SUCH RBMG COMMON STOCK SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in the Summary and under the captions "Risk Factors" and
"The RBC Merger" and elsewhere in this Joint Proxy Statement/Prospectus
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Any statements made herein that are
not statements of historical fact and could be considered forward-looking in
nature within the meaning of the Private Securities Litigation Reform Act of
1995 involve known and unknown risks, uncertainties and other factors which may
cause the actual results, performance or achievements of RBMG and RBC or
industry results to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: general economic and business
conditions; adverse changes in the industry; competition with other companies;
government actions and initiatives; and other changes and factors referenced in
this Joint Proxy Statement/Prospectus. See "Risk Factors."
AVAILABLE INFORMATION
RBMG is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information filed with the
Commission by RBMG can be inspected and copied at the office of the Commission
at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, or at its Regional
Offices located at 7 World Trade Center, Suite 1300, New York, New York 10048,
and 500 West Madison Street, Suite 1400, Chicago, Illinois, 60661-2511, and
copies of such materials can be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission also maintains a web site on the Internet that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission and that is located at
http://www.sec.gov.
RBMG has filed with the Commission the Registration Statement under the
Securities Act. This Joint Proxy Statement/Prospectus does not contain all of
the information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission. For
further information relating to RBMG and the shares of RBMG Common Stock offered
hereby, reference is hereby made to the Registration Statement, including the
exhibits and schedules thereto, which may be inspected without charge at the
office of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and
copies of which may be obtained from the Commission at prescribed rates.
Statements contained in this Joint Proxy Statement/Prospectus as to the contents
of any contract or other document referred to are not necessarily complete and
in each instance reference is made to the copy of such contract or document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission by RBMG are
incorporated by reference into this Joint Proxy Statement/Prospectus:
(i) RBMG's Annual Report on Form 10-K for the year ended December 31,
1996, filed on March 28, 1997, as amended by the Form 10-K/A filed on April
30, 1997;
(ii) RBMG's Quarterly Reports on Form 10-Q for the quarters ended
March 31, June 30 and September 30, 1997, filed on May 15, August 14 and
November 14, 1997 (as amended by Form 10-Q/A filed on November 26, 1997),
respectively;
(iii) RBMG's Current Report on Form 8-K filed on April 21, 1997; and
(iv) The description of the RBMG Common Stock contained in RBMG's
Registration Statement on Form 8-A filed on May 18, 1993.
In addition, all documents filed by RBMG pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Joint Proxy
Statement/Prospectus and prior to the later of the date of the RBMG
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Annual Meeting or the RBC Special Meeting shall be deemed to be incorporated by
reference into this Joint Proxy Statement/Prospectus and to be a part hereof
from the date of filing of such documents. Any statements contained in a
document incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Joint Proxy Statement/Prospectus to the extent
that a statement contained herein (or in any other subsequently filed document
which also is incorporated by reference herein) modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed to
constitute a part of this Joint Proxy Statement/Prospectus except as so modified
or superseded.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF THESE DOCUMENTS
(OTHER THAN EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS) ARE AVAILABLE WITHOUT CHARGE,
UPON WRITTEN OR ORAL REQUEST, FROM RESOURCE BANCSHARES MORTGAGE GROUP, INC.,
INVESTOR RELATIONS, 7909 PARKLANE ROAD, COLUMBIA, SOUTH CAROLINA 29223, (803)
741-3896. TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY SUCH REQUEST SHOULD BE
MADE BY DECEMBER 12, 1997.
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TABLE OF CONTENTS
<TABLE>
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS........... iii
AVAILABLE INFORMATION....................................... iii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. iii
SUMMARY..................................................... 1
The Parties............................................... 1
General Information....................................... 2
The RBMG Annual Meeting................................... 2
The RBC Special Meeting................................... 3
The RBC Merger............................................ 5
The Charter Amendment..................................... 10
Markets and Market Prices................................. 11
Equivalent and Pro Forma Per Common Share Data............ 12
Selected Historical Financial Data........................ 13
RISK FACTORS................................................ 16
Risks Associated with the RBC Merger...................... 16
Risks Relating to Business of RBMG........................ 16
Risks Relating to Business of RBC......................... 23
GENERAL INFORMATION......................................... 25
THE RBMG ANNUAL MEETING..................................... 25
Time, Date, Place and Purpose............................. 25
Record Date and Shares Entitled to Vote................... 25
Vote Required; Security Ownership of Management........... 25
Solicitation and Revocation of Proxies.................... 26
THE RBC SPECIAL MEETING..................................... 27
Time, Date, Place and Purpose............................. 27
Record Date and Shares Entitled to Vote................... 27
Vote Required; Security Ownership of Management........... 27
Solicitation and Revocation of Proxies.................... 27
PROPOSAL NO. 1: THE RBC MERGER.............................. 28
Background of the RBC Merger.............................. 28
Terms of the RBC Merger Agreement......................... 31
Effective Time of the RBC Merger and Exchange of Shares... 34
Opinion of RBC's Financial Advisor........................ 34
Recommendation of the RBC Board........................... 37
Opinion of RBMG's Financial Advisor....................... 38
Recommendation of the RBMG Board.......................... 42
Reasons for the RBC Merger................................ 42
Regulatory Approvals Required............................. 43
Interests of Certain Persons in the RBC Merger............ 44
Accounting Treatment...................................... 44
Certain Federal Income Tax Consequences................... 44
Resale of RBMG Common Stock............................... 45
Comparison of Rights of Holders of RBMG Common Stock and
RBC Common Stock....................................... 45
Dissenters' Rights........................................ 54
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS................................................ 56
BUSINESS OF RBMG............................................ 62
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BUSINESS OF RBC............................................. 62
General................................................... 62
Small Ticket Equipment Leasing Business................... 62
Commercial Mortgage Banking Business...................... 63
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF RBC.......................... 65
Background................................................ 65
Small Ticket Equipment Leasing............................ 65
Commercial Mortgage Banking............................... 66
Investment in RBMG........................................ 67
Credit Card Operations.................................... 67
Results of Operations -- Nine Months Ended September 30,
1997, Compared to Nine Months Ended September 30,
1996................................................... 67
Results of Operations -- Year Ended December 31, 1996,
Compared to Year Ended December 31, 1995............... 69
Results of Operations -- Year Ended December 31, 1995,
Compared to Year Ended December 31, 1994............... 71
Liquidity and Capital Resources........................... 73
RBC COMMON STOCK OWNERSHIP BY MANAGEMENT AND PRINCIPAL
STOCKHOLDERS.............................................. 74
Principal Stockholders.................................... 74
Stock Ownership of RBC's Directors and Executive
Officers............................................... 75
PROPOSAL NO. 2: THE CHARTER AMENDMENT....................... 76
General................................................... 76
Recommendation of the RBMG Board.......................... 77
PROPOSAL NO. 3: ELECTION OF DIRECTORS....................... 78
General................................................... 78
Relationships with Independent Accountants................ 79
Meetings of the RBMG Board................................ 79
Committees of the RBMG Board.............................. 79
Section 16(a) Beneficial Ownership Reporting Compliance... 80
EXECUTIVE COMPENSATION...................................... 80
Compensation of Executive Officers........................ 80
Option/SAR Grants in Last Fiscal Year..................... 81
Aggregated Option/SAR Exercises in Last Fiscal Year and
FY-End Option/SAR Values............................... 82
Defined Benefit Plans..................................... 82
Compensation of Directors................................. 83
Employment Contracts, Termination of Employment and
Change-in-Control Arrangements......................... 83
Compensation Committee Interlocks and Insider
Participation.......................................... 85
COMPENSATION COMMITTEE REPORT............................... 85
Compensation of Named Executive Officers.................. 85
Compensation of Chief Executive Officer................... 85
Policy with Respect to $1,000,000 Deduction Limit......... 85
TOTAL CUMULATIVE STOCKHOLDER RETURN SINCE MAY 26, 1993...... 87
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 88
Beneficial Owners of Five Percent or More of the RBMG
Common Stock........................................... 88
Stock Ownership of RBMG's Directors, Nominees and
Executive Officers..................................... 89
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 89
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PROPOSAL NO. 4: APPROVAL OF THE AMENDED AND RESTATED
RESOURCE BANCSHARES MORTGAGE GROUP, INC. OMNIBUS STOCK
AWARD PLAN................................................ 90
General................................................... 90
Amended Omnibus Plan Benefits............................. 95
Certain Federal Income Tax Consequences................... 95
PROPOSAL NO. 5: APPROVAL OF THE FIRST AMENDMENT TO RESOURCE
BANCSHARES MORTGAGE GROUP, INC. FORMULA STOCK OPTION
PLAN...................................................... 98
General................................................... 98
Formula Plan Benefits..................................... 101
Certain Federal Income Tax Consequences................... 101
PROPOSAL NO. 6: APPROVAL OF THE RESOURCE BANCSHARES MORTGAGE
GROUP, INC. NON-QUALIFIED STOCK OPTION PLAN............... 102
General................................................... 102
Non-Qualified Plan Benefits............................... 105
Certain Federal Income Tax Consequences................... 105
EXPERTS..................................................... 106
LEGAL MATTERS............................................... 106
STOCKHOLDER PROPOSALS....................................... 106
INDEX TO FINANCIAL STATEMENTS............................... F-1
ANNEX A: RBC MERGER AGREEMENT............................... A-1
ANNEX B: AMENDMENT TO RBMG RESTATED CERTIFICATE OF
INCORPORATION RELATING TO THE RBC MERGER.................. B-1
ANNEX C: CHAPTER 13 OF THE SOUTH CAROLINA BUSINESS
CORPORATION ACT........................................... C-1
ANNEX D: OPINION OF PRUDENTIAL SECURITIES INCORPORATED AS TO
THE RBC MERGER............................................ D-1
ANNEX E: OPINION OF NATIONSBANC MONTGOMERY SECURITIES,
INC....................................................... E-1
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SUMMARY
The following is a summary of certain information contained, or
incorporated by reference, elsewhere in this Joint Proxy Statement/Prospectus.
This summary is not intended to be complete and is qualified in its entirety by
reference to, and should be read in conjunction with, the detailed information
and financial statements appearing elsewhere, or incorporated by reference, in
this Joint Proxy Statement/Prospectus. Each stockholder is urged to read this
Joint Proxy Statement/Prospectus and the Annexes hereto in their entirety and
with care.
THE PARTIES
RBMG
RBMG is a full-service residential mortgage company that originates and
purchases conforming loans through a network which at September 30, 1997
consisted of approximately 934 correspondent lenders, 3,846 brokers and six
retail offices. RBMG generally pools the mortgages it originates or purchases,
creating mortgage-backed securities, and sells these securities to financial
institutions throughout the United States. RBMG retains in its portfolio or
sells to other approved servicers, generally the largest servicers in the
country, the mortgage servicing rights associated with the loans it originates
or purchases. RBMG originates and services loans made to borrowers located in 48
states and the District of Columbia. See "Business of RBMG."
For the year ended December 31, 1996, RBMG purchased or originated
approximately $10.0 billion of agency-eligible mortgage loans to rank as the
11th largest residential mortgage originator in the country. Also during 1996,
RBMG sold servicing rights associated with substantially all of its loan
production (approximately $9.5 billion of underlying unpaid mortgage loan
principal balances were sold), positioning itself among the largest national
suppliers of mortgage servicing rights within the still-consolidating mortgage
servicing industry. At December 31, 1996, RBMG was ranked as the 51st largest
servicer of mortgage loans based upon its servicing portfolio of approximately
$6.7 billion.
RBMG continues to emphasize correspondent and, to a lesser degree,
wholesale mortgage banking as its primary business focus, which enables it to
enter and exit geographic markets without incurring significant startup costs or
additional fixed expenses, thereby facilitating maintenance of one of the
industry's lowest-cost operating structures. Approximately 93% of RBMG's 1996
loan production was purchased through its correspondent and wholesale channels,
and RBMG was ranked as the sixth-largest correspondent/broker originator for
1996.
RBMG is incorporated under the laws of the State of Delaware. RBMG Common
Stock is traded on the Nasdaq National Market under the symbol "REMI." Unless
the context otherwise requires, references to RBMG include RBMG and its
subsidiaries. RBMG's corporate offices are located at 7909 Parklane Road,
Columbia, South Carolina 29223, and its telephone number is (803) 741-3000.
RBC
RBC, a financial services company, originates, sells and services small
ticket equipment leases and originates for investors and services commercial
mortgage loans. In addition, RBC invests in financial services companies and
owns approximately 36.4% of the outstanding RBMG Common Stock and 11% of Intek
Information, Inc. ("Intek"), a teleservicing company. See "Business of RBC."
RBC, through its Republic Leasing Company division ("Republic Leasing"),
originated $63 million of small ticket equipment leases during 1996 through a
network of approximately 285 brokers. During 1996, Republic Leasing sold
approximately $70 million of leases and was servicing approximately $130 million
of such leases at December 31, 1996.
During 1996, RBC, through Laureate Realty Services, Inc., a second-tier
wholly owned subsidiary ("Laureate Realty"), originated approximately $509
million of commercial mortgage loans. Based on its June 30, 1996 servicing
portfolio of $2.2 billion, Laureate Realty was ranked as the 20th largest
commercial mortgage loan servicer in the country. At December 31, 1996, Laureate
Realty was servicing approximately $2.3 billion of
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commercial mortgage loans. At September 30, 1997, Laureate Realty was servicing
approximately $2.5 billion of commercial mortgage loans.
RBC is incorporated under the laws of the State of South Carolina. There is
no trading market for the shares of RBC Common Stock. Unless the context
otherwise requires, references to RBC include RBC and its subsidiaries. RBC's
corporate offices are located at 1901 Main Street, Suite 650, Columbia, South
Carolina 29201, and its telephone number is (803) 799-2256.
GENERAL INFORMATION
This Joint Proxy Statement/Prospectus is being furnished to (i) the RBMG
Stockholders in connection with the solicitation of proxies by the RBMG Board
for (A) approval and adoption of the RBC Merger Agreement, the RBC Merger and
the RBC Stock Issuance, (B) approval and adoption of the RBC Amendment, (C) the
election of two directors, (D) approval of each of the Plan Amendments and (E)
approval and adoption of the Non-Qualified Plan; and (ii) the RBC Stockholders
in connection with the solicitation of proxies by the RBC Board for approval and
adoption of the RBC Merger Agreement and the RBC Merger.
If the RBC Merger is consummated, each outstanding share of RBC Voting
Common Stock and RBC Non-Voting Common Stock (other than treasury shares, shares
of RBC Common Stock held by RBC Stockholders who perfect their dissenters'
rights under South Carolina law and shares of RBC Common Stock owned by RBMG or
any wholly owned subsidiary of RBMG) will be converted into the right to receive
such number of shares of RBMG Common Stock equal to the RBC Exchange Ratio.
Pursuant to the Articles of Incorporation of RBC (the "RBC Articles"),
immediately prior to the effective time of the RBC Merger (the "RBC Effective
Time"), each outstanding share of RBC Non-Voting Common Stock will automatically
convert into one share of RBC Voting Common Stock.
This Joint Proxy Statement/Prospectus also constitutes the Prospectus of
RBMG with respect to the shares of RBMG Common Stock to be issued in the RBC
Merger. Information in this Joint Proxy Statement/Prospectus with respect to
RBMG has been supplied by RBMG. The information with respect to RBC has been
supplied by RBC.
THE RBMG ANNUAL MEETING
TIME, DATE, PLACE AND PURPOSE
The RBMG Annual Meeting will be held on Wednesday, December 31, 1997, at
10:00 a.m., local time, at the offices of King & Spalding, 191 Peachtree Street,
Atlanta, Georgia 30303. At the RBMG Annual Meeting, RBMG Stockholders will be
asked to consider and vote upon proposals to (i) approve and adopt the RBC
Merger Agreement, the RBC Merger and the RBC Stock Issuance, (ii) approve and
adopt the RBC Amendment, (iii) elect two directors, (iv) approve each of the
Plan Amendments and (v) approve and adopt the Non-Qualified Plan. Copies of the
RBC Merger Agreement and the RBC Amendment are attached hereto as Annex A and
Annex B, respectively, and are incorporated herein by reference.
RECORD DATE AND SHARES ENTITLED TO VOTE
Only holders of record of shares of RBMG Common Stock at the close of
business on November 12, 1997 (the "RBMG Record Date") are entitled to notice of
and to vote at the RBMG Annual Meeting and any adjournment or postponement
thereof. As of such date, there were 20,320,046 shares of RBMG Common Stock
issued and outstanding held by approximately 292 holders of record. Holders of
record of RBMG Common Stock on the RBMG Record Date for the RBMG Annual Meeting
are entitled to one vote per share on any matter that may properly come before
the RBMG Annual Meeting.
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VOTE REQUIRED; SECURITY OWNERSHIP OF MANAGEMENT
The presence in person or by proxy of the holders of a majority of the
shares of RBMG Common Stock issued and outstanding as of the RBMG Record Date
and entitled to vote at the RBMG Annual Meeting is necessary to constitute a
quorum at the RBMG Annual Meeting. Directors are elected by a plurality of the
votes cast by the holders of RBMG Common Stock at a meeting at which a quorum is
present. The approval of a majority of the total votes cast by the shares of
RBMG Common Stock present (in person or by proxy) and entitled to vote at the
RBMG Annual Meeting is required to approve and adopt each of the Plan Amendments
and the Non-Qualified Plan. The affirmative vote of the holders of a majority of
the shares of RBMG Common Stock issued and outstanding as of the RBMG Record
Date, voting in person or by proxy, is necessary to approve and adopt each of
the RBC Merger Agreement, the RBC Merger, the RBC Stock Issuance and the RBC
Amendment, accordingly, a failure to vote or an abstention as to these matters
will have the same effect as a vote against such matters. As of the RBMG Record
Date, the executive officers and directors of RBMG and their affiliates
beneficially owned an aggregate of 682,382 shares of RBMG Common Stock, or
approximately 3.4% of the shares of RBMG Common Stock then outstanding. Each of
the executive officers and directors of RBMG has advised RBMG that he intends to
vote his shares of RBMG Common Stock in favor of each of the proposals to
approve and adopt the RBC Merger Agreement, the RBC Merger, the RBC Stock
Issuance and the RBC Amendment. RBC owns approximately 36.4% of the outstanding
RBMG Common Stock. The RBC Board has authorized the voting of the shares of RBMG
Common Stock owned by RBC in favor of the proposals to approve the RBC Merger
Agreement, the RBC Merger, the RBC Stock Issuance and the RBC Amendment.
THE APPROVAL AND ADOPTION OF EACH OF THE RBC MERGER AGREEMENT, THE RBC
MERGER, THE RBC STOCK ISSUANCE AND THE RBC AMENDMENT IS CONTINGENT UPON THE
APPROVAL AND ADOPTION OF ALL OF THE RBC MERGER AGREEMENT, THE RBC MERGER, THE
RBC STOCK ISSUANCE AND THE RBC AMENDMENT. UNLESS EACH OF THE RBC MERGER
AGREEMENT, THE RBC MERGER, THE RBC STOCK ISSUANCE AND THE RBC AMENDMENT IS
APPROVED AND ADOPTED BY THE RBMG STOCKHOLDERS AT THE RBMG ANNUAL MEETING, NONE
OF THEM WILL BE EFFECTED BY RBMG.
SOLICITATION AND REVOCATION OF PROXIES
A form of proxy for the RBMG Annual Meeting is enclosed with the copies of
this Joint Proxy Statement/ Prospectus being sent to RBMG Stockholders. All
shares of RBMG Common Stock held of record as of the RBMG Record Date
represented by properly executed proxies will, unless such proxies have been
previously revoked, be voted in accordance with the instructions indicated on
such proxies. If no instructions are indicated, such shares will be voted FOR
each of the proposals to approve and adopt the RBC Merger Agreement, the RBC
Merger, the RBC Stock Issuance and the RBC Amendment, to elect the nominees as
directors, to approve each of the Plan Amendments and to approve and adopt the
Non-Qualified Plan and, in the discretion of the proxy holder, as to any other
matter which may properly come before the RBMG Annual Meeting.
The RBMG Board is not aware of any other matters which may be presented for
action at the RBMG Annual Meeting, but if other matters do come properly before
the RBMG Annual Meeting it is intended that shares represented by proxies in the
accompanying form will be voted by the persons named in the proxy in accordance
with their best judgment. Any proxy given pursuant to this solicitation may be
revoked in writing by the person giving it at any time before the proxy is
exercised by giving notice to the RBMG Secretary or by submitting a proxy having
a later date or by such person appearing at the RBMG Annual Meeting and electing
to vote in person.
THE RBC SPECIAL MEETING
TIME, DATE, PLACE AND PURPOSE
The RBC Special Meeting will be held on Wednesday, December 31, 1997 at
8:30 a.m., local time, at the offices of King & Spalding, 191 Peachtree Street,
Atlanta, Georgia 30303. At the RBC Special Meeting, holders of RBC Common Stock
will be asked to consider and vote upon a proposal to approve and adopt the RBC
Merger
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<PAGE> 11
Agreement and the RBC Merger. A copy of the RBC Merger Agreement is attached
hereto as Annex A and is incorporated herein by reference.
RECORD DATE AND SHARES ENTITLED TO VOTE
Only holders of record of shares of RBC Voting Common Stock and RBC
Non-Voting Common Stock at the close of business on November 12, 1997 (the "RBC
Record Date") are entitled to notice of and to vote at the RBC Special Meeting.
As of such date, there were 7,121,245 shares of RBC Voting Common Stock issued
and outstanding held by approximately 180 holders of record and 1,577,788 shares
of RBC Non-Voting Common Stock issued and outstanding and held by six holders of
record. Holders of record of RBC Voting Common Stock on the RBC Record Date for
the RBC Special Meeting are entitled to one vote per share on any matter that
may properly come before the RBC Special Meeting. Holders of record of RBC
Non-Voting Common Stock on the RBC Record Date for the RBC Special Meeting are
entitled to one vote per share only with respect to the approval and adoption of
the RBC Merger Agreement and the RBC Merger.
VOTE REQUIRED; SECURITY OWNERSHIP OF MANAGEMENT
The presence in person or by proxy of the holders of (i) a majority of the
shares of RBC Voting Common Stock issued and outstanding as of the RBC Record
Date and entitled to vote at the RBC Special Meeting and (ii) a majority of the
shares of RBC Non-Voting Common Stock issued and outstanding as of the RBC
Record Date and entitled to vote at the RBC Special Meeting is necessary to
constitute a quorum at the RBC Special Meeting. The affirmative vote of the
holders of (i) a majority of the shares of RBC Voting Common Stock entitled to
vote at the RBC Special Meeting, voting separately, and (ii) a majority of the
shares of RBC Non-Voting Common Stock entitled to vote at the RBC Special
Meeting, voting separately, is necessary to approve and adopt the RBC Merger
Agreement and the RBC Merger. Accordingly, a failure to vote or an abstention
will have the same effect as a vote against such matters. As of the RBC Record
Date, the executive officers and directors of RBC and their affiliates
beneficially owned an aggregate of 2,550,451 shares of RBC Voting Common Stock,
or approximately 35.8% of the shares of RBC Voting Common Stock then
outstanding, and 558,228 shares of RBC Non-Voting Common Stock, or approximately
35.4% of the shares of RBC Non-Voting Common Stock then outstanding. Each of the
executive officers and directors of RBC has advised RBC that he intends to vote
his shares of RBC Common Stock to approve and adopt the RBC Merger Agreement and
the RBC Merger.
SOLICITATION AND REVOCATION OF PROXIES
A form of proxy for the RBC Special Meeting is enclosed with the copies of
this Joint Proxy Statement/ Prospectus being sent to RBC Stockholders. All
shares of RBC Common Stock held of record as of the RBC Record Date, represented
by properly executed proxies will, unless such proxies have been previously
revoked, be voted in accordance with the instructions indicated on such proxies.
If no instructions are indicated, such shares will be voted FOR the proposal to
approve and adopt the RBC Merger Agreement and the RBC Merger and, with respect
to shares of RBC Voting Common Stock, in the discretion of the proxy holder, as
to any other matter which may properly come before the RBC Special Meeting.
The RBC Board is not aware of any other matters which may be presented for
action at the RBC Special Meeting, but if other matters do come properly before
the RBC Special Meeting it is intended that shares of RBC Voting Common Stock
represented by proxies in the accompanying form will be voted by the persons
named in the proxy in accordance with their best judgment. Any proxy given
pursuant to this solicitation may be revoked in writing by the person giving it
at any time before the proxy is exercised by giving notice to the RBC Secretary
or by submitting a proxy having a later date or by such person appearing at the
RBC Special Meeting and electing to vote in person.
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<PAGE> 12
THE RBC MERGER
BACKGROUND OF THE RBC MERGER
Between 1989 and 1993, RBC operated a residential mortgage banking business
as a division of a bank subsidiary. On June 3, 1993, RBC transferred the assets
and liabilities of its residential mortgage banking business to RBMG, a new
wholly owned subsidiary of RBC, and RBMG simultaneously sold 58% of its common
stock in an initial public offering. Accordingly, immediately thereafter RBC
owned 42% of the outstanding RBMG Common Stock. In conjunction with its ongoing
strategic planning and commencing in 1994, RBC had been considering various
alternatives to provide liquidity for its stockholders. Since September 1995,
RBMG had been examining a range of strategic options to diversify its lines of
business. During 1995 and 1996, management of RBMG and RBC periodically met to
discuss various strategic alternatives, some of which contemplated various
combinations of RBMG's and RBC's distinct business activities. On January 23 and
January 25, 1997, management of RBMG and RBC met to discuss the possibility of a
business combination between RBMG and RBC. Following those meetings, the RBMG
Board appointed a Special Committee of the RBMG Board (the "RBMG Special
Committee") to consider and evaluate the proposed acquisition of RBC. On January
29, 1997, the parties were authorized to commence due diligence investigations
of the proposed transaction with RBC. On February 10, 1997, RBC selected
NationsBanc Montgomery Securities, Inc. ("NationsBanc Montgomery") to act as its
financial advisor. On February 13, 1997, the RBMG Special Committee approved the
engagement of Prudential Securities Incorporated ("Prudential Securities") to
serve as its financial advisor to assist in evaluating the proposed transaction
on its merits. Over the next two months, discussions ensued regarding the terms
of a possible merger between RBMG and RBC. A definitive merger agreement was
executed on April 18, 1997. The RBC Merger Agreement was amended on September
18, 1997, to extend the termination date and on November 12, 1997, to account
for a cash dividend declared by RBMG.
TERMS OF THE RBC MERGER AGREEMENT
General. The RBC Merger Agreement provides that, following approval of the
RBC Merger Agreement by the stockholders of RBC and RBMG and the satisfaction or
waiver of the other conditions to the RBC Merger, RBC Merger Sub will be merged
with and into RBC at the RBC Effective Time in accordance with the South
Carolina Business Corporation Act (the "SCBCA"). RBC will be the surviving
corporation in the RBC Merger. As a result of the RBC Merger, the separate
corporate existence of RBC Merger Sub will cease, and RBC will become a wholly
owned subsidiary of RBMG.
Conversion of Shares. The RBC Merger Agreement provides that each share of
RBC Voting Common Stock and RBC Non-Voting Common Stock issued and outstanding
immediately before the RBC Effective Time (other than treasury shares, shares of
RBC Common Stock held by RBC Stockholders who perfect their dissenters' rights
under South Carolina law and shares of RBC Common Stock owned by RBMG or any
wholly owned subsidiary of RBMG) and all rights in respect thereof shall, at the
RBC Effective Time, be converted into and become exchangeable for 1.08026 shares
of RBMG Common Stock, as adjusted to account for the cash dividend of $.04 per
share of RBMG Common Stock payable to RBMG Stockholders of record on December
18, 1997 and thereafter further adjusted to reflect the five percent stock
dividend payable to RBMG Stockholders of record on December 18, 1997, with cash
being paid in lieu of fractional shares. The RBC Exchange Ratio is subject to
adjustment in the event of certain changes in the number of outstanding shares
of RBC Voting Common Stock and RBC Non-Voting Common Stock or RBMG Common Stock.
See "Proposal No. 1: The RBC Merger -- Terms of the RBC Merger
Agreement -- Conversion of Shares."
Directors and Officers of RBC following the RBC Merger. The officers of
RBC immediately prior to the RBC Effective Time will continue to serve in their
respective offices after the RBC Effective Time. The directors of RBC Merger Sub
immediately prior to the RBC Effective Time will become the directors of RBC as
of the RBC Effective Time. The directors of RBC Merger Sub are Edward J.
Sebastian and David W. Johnson, Jr.
Indemnification Obligations. RBMG has agreed in the RBC Merger Agreement
to indemnify certain officers and directors of RBC and RBMG for a period of six
years against liabilities arising prior to the RBC
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<PAGE> 13
Effective Time or arising out of the RBC Merger. See "Proposal No. 1: The RBC
Merger -- Terms of the RBC Merger Agreement -- Indemnification Obligations."
No Solicitation. The RBC Merger Agreement provides that RBC may not
solicit or facilitate mergers, sales of significant assets, tender offers or
similar transactions with other persons prior to the RBC Effective Time. See
"Proposal No. 1: The RBC Merger -- Terms of the RBC Merger Agreement -- No
Solicitation."
Conditions to RBC Merger. In addition to certain customary conditions,
consummation of the RBC Merger is subject to the satisfaction of, or, if
permitted by applicable law, the waiver of, among others, the following
conditions: (i) the effectiveness of the Registration Statement; (ii) the
approval of the RBC Merger Agreement, the RBC Merger and the RBC Amendment by
the RBMG Stockholders and approval of the RBC Merger Agreement and the RBC
Merger by the RBC Stockholders; (iii) receipt of certain regulatory approvals;
and (iv) receipt of an opinion of McNair Law Firm, P.A or King & Spalding to the
effect that the RBC Merger will be treated for federal income tax purposes as a
reorganization qualifying under the provisions of Section 368(a) of the United
States Internal Revenue Code of 1986, as amended (the "Code"), and that the RBC
Stockholders will recognize no gain or loss upon the receipt of shares of RBMG
Common Stock in exchange for shares of RBC Voting Common Stock or RBC Non-Voting
Common Stock in the RBC Merger. See "Proposal No. 1: The RBC Merger -- Terms of
the RBC Merger Agreement -- Conditions to the RBC Merger."
Amendment. The RBC Merger Agreement may be amended at any time prior to
the RBC Effective Time by written agreement of the parties, except that, without
securing any stockholder approval required by Delaware or South Carolina law, no
amendment may be made that would (i) reduce the amount or change the type of
consideration to be received by the RBC Stockholders, (ii) materially and
adversely affect RBC or RBMG or the RBC Stockholders or the RBMG Stockholders or
(iii) change any term of the RBC Articles or the Restated Certificate of
Incorporation of RBMG (the "RBMG Certificate") except as contemplated by the RBC
Merger Agreement.
Termination. The RBC Merger Agreement may be terminated and the RBC Merger
abandoned at any time prior to the RBC Effective Time (i) by mutual written
consent of the RBC Board and the RBMG Board, (ii) by RBC or RBMG if the RBC
Effective Time shall not have occurred on or before January 31, 1998 (or, in
certain circumstances, February 28, 1998), (iii) by RBC or RBMG in the event of
government action prohibiting the RBC Merger or (iv) by RBC or RBMG, if the RBC
Merger Agreement and the RBC Merger shall fail to be approved by the RBC
Stockholders or the RBMG Stockholders. See "Proposal No. 1: The RBC
Merger -- Terms of the RBC Merger Agreement -- Termination."
Fees and Expenses. All expenses incurred in connection with the RBC
Merger, including financial advisory fees, independent accountants fees and
legal fees, will be paid by the party incurring such expenses, whether or not
the RBC Merger is consummated, except that all expenses relating to filing fees
pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), printing, filing and mailing the Registration Statement and the
Joint Proxy Statement/Prospectus and all Commission and other regulatory filing
fees incurred in connection with the Registration Statement and the Joint Proxy
Statement/Prospectus will be borne equally by RBC and RBMG. See "Proposal No. 1:
The RBC Merger -- Terms of the RBC Merger Agreement -- Fees and Expenses."
EFFECTIVE TIME OF THE RBC MERGER AND EXCHANGE OF SHARES
Effective Time of the RBC Merger. The RBC Merger will become effective by
filing articles of merger with the Secretary of State of the State of South
Carolina in such form as required by, and executed in accordance with, the
relevant provisions of the SCBCA. The RBC Merger Agreement provides that the
parties thereto will cause such articles of merger to be filed after each of the
conditions to consummation of the RBC Merger has been satisfied or, if
permissible, waived. The RBC Merger cannot become effective until the RBMG
Stockholders have approved and adopted the RBC Merger Agreement, the RBC Merger,
the RBC Stock Issuance and the RBC Amendment and the RBC Stockholders have
approved and adopted the RBC Merger Agreement and the RBC Merger, and all
required regulatory approvals and actions have been obtained and taken. Thus,
there can be no assurance as to whether or when the RBC Merger will become
effective.
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<PAGE> 14
Exchange of RBC Stock Certificates. Promptly following the RBC Effective
Time, instructions and a letter of transmittal will be furnished to all RBC
Stockholders for use in exchanging their stock certificates for certificates
evidencing the shares of RBMG Common Stock they will be entitled to receive as a
result of the RBC Merger. RBC STOCKHOLDERS SHOULD NOT SUBMIT THEIR STOCK
CERTIFICATES FOR EXCHANGE UNTIL THEY RECEIVE INSTRUCTIONS AND THE LETTER OF
TRANSMITTAL.
OPINION OF RBC'S FINANCIAL ADVISOR
NationsBanc Montgomery has delivered a written opinion, dated November 14,
1997, to the RBC Board that, as of the date of such opinion and based upon and
subject to certain matters stated therein, the consideration to be received by
the RBC Stockholders in the RBC Merger was fair, from a financial point of view,
to the RBC Stockholders. The full text of the written opinion of NationsBanc
Montgomery, which sets forth the assumptions made, matters considered and
limitations on the review undertaken, is attached as Annex E to this Joint Proxy
Statement/Prospectus and should be read carefully in its entirety. See "Proposal
No. 1: The RBC Merger -- Opinion of RBC's Financial Advisor."
RECOMMENDATION OF RBC BOARD
THE RBC BOARD HAS DETERMINED THAT THE RBC MERGER IS IN THE BEST INTERESTS
OF RBC AND ITS STOCKHOLDERS, HAS APPROVED AND ADOPTED THE RBC MERGER AGREEMENT
AND RECOMMENDS THAT THE RBC STOCKHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND
ADOPT THE RBC MERGER AGREEMENT AND THE RBC MERGER.
OPINION OF RBMG'S FINANCIAL ADVISOR
Prudential Securities has delivered a written opinion, dated April 18,
1997, to the RBMG Board that, as of the date of such opinion and based upon and
subject to certain matters stated therein, the RBC Exchange Ratio (as in effect
on such date, which did not reflect the adjustment to account for the $.04 per
share cash dividend payable to RBMG Stockholders of record on December 18, 1997)
was fair, from a financial point of view, to the RBMG Stockholders. On December
1, 1997, Prudential Securities advised the RBMG Board that the adjustment to the
RBC Exchange Ratio to reflect such dividend, which was set forth in the Second
Amendment to the Merger Agreement dated November 12, 1997, would not alter the
conclusion of the opinion that the RBC Exchange Ratio was fair, from a financial
point of view, to the RBMG Stockholders as of April 18, 1997. The full text of
the written opinion of Prudential Securities, which sets forth the assumptions
made, matters considered and limitations on the review undertaken, is attached
as Annex D to this Joint Proxy Statement/Prospectus and should be read carefully
in its entirety. See "Proposal No. 1: The RBC Merger -- Opinion of RBMG's
Financial Advisor."
RECOMMENDATION OF RBMG BOARD
THE RBMG BOARD HAS DETERMINED THAT THE RBC MERGER IS IN THE BEST INTERESTS
OF RBMG AND ITS STOCKHOLDERS, HAS APPROVED AND ADOPTED THE RBC MERGER AGREEMENT
AND RECOMMENDS THAT THE RBMG STOCKHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND
ADOPT THE RBC MERGER AGREEMENT, THE RBC MERGER AND THE RBC STOCK ISSUANCE.
REASONS FOR THE RBC MERGER
RBC. In approving and adopting the RBC Merger Agreement and formulating
its recommendation that the RBC Stockholders approve and adopt the RBC Merger
Agreement and the RBC Merger, the RBC Board considered a number of factors,
including, without limitation, the following:
(i) the business, financial results and prospects of RBMG, including,
without limitation, its earnings history, balance sheet, access to the
capital markets and the expected performance of RBMG Common Stock;
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<PAGE> 15
(ii) the business, financial results and prospects of RBC and its
businesses including, without limitation, the importance of greater
financial resources and enhanced operational and administrative support to
expand and add value to the equipment leasing and commercial mortgage
banking businesses;
(iii) the terms and conditions of the RBC Merger Agreement, including
the amount and form of consideration to be received by the RBC Stockholders
and the nature of the parties' representations, warranties, covenants and
agreements;
(iv) the opinion of NationsBanc Montgomery as to the fairness, from a
financial point of view, of the consideration to be received by the RBC
Stockholders;
(v) the expectation that the RBC Merger will be tax-free for federal
income tax purposes to the RBC Stockholders; and
(vi) the absence of an active trading market for RBC Common Stock and
the expectation that the RBC Merger will provide the RBC Stockholders with
greater liquidity in their investment.
In view of the number of factors considered by the RBC Board, the RBC Board
did not deem it practicable to assign relative weights to the various factors
considered.
RBMG. In determining to recommend that the RBMG Stockholders approve and
adopt the RBC Merger Agreement, the RBC Merger and the RBC Stock Issuance, the
RBMG Special Committee and the RBMG Board, respectively, considered a number of
factors, including, without limitation, the following:
(i) the expectation that the small ticket equipment leasing and
commercial mortgage origination and servicing operations of RBC will allow
RBMG to diversify into new markets that can support an aggressive
growth-oriented strategy, especially in view of the current size of those
operations;
(ii) the expectation that the RBC Merger will complement existing
product and service offerings of RBMG;
(iii) the expectation that the lease production platform of RBC will
be highly compatible with RBMG's management's strategic objective of
mitigating earnings volatility by maintaining a low-cost and variable
operating cost structure;
(iv) the expectation that the lease production platform of RBC will be
highly compatible with RBMG's management's strategic objective to position
RBMG as an efficient provider of secondary market access to smaller
producers of loan products;
(v) the expectation that the RBC Merger will result in the realization
of certain synergies among the businesses of RBMG and RBC, particularly in
the areas of financing costs and operational and administrative support;
(vi) the terms and conditions of the RBC Merger Agreement, including
the amount and form of consideration to be given to the RBC Stockholders
within the context of the business, financial results and prospects of RBC
and RBMG and the nature of the parties' representations, warranties,
covenants and agreements; and
(vii) the opinion of Prudential Securities as to the fairness, from a
financial point of view, of the RBC Exchange Ratio to the RBMG
Stockholders.
In view of the number of factors considered by the RBMG Board and the RBMG
Special Committee, neither deemed it practicable to assign relative weights to
the various factors considered.
REGULATORY APPROVALS REQUIRED
Under the RBC Merger Agreement, the obligations of both RBMG and RBC to
consummate the RBC Merger are conditioned upon receipt of all required
regulatory approvals. Under the HSR Act and the rules promulgated thereunder by
the Federal Trade Commission (the "FTC"), the RBC Merger may not be consummated
unless notification has been given and certain information has been furnished to
the FTC and the
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<PAGE> 16
Antitrust Division of the Department of Justice (the "Antitrust Division") and
the waiting period has expired or been terminated. Pursuant to the HSR Act, on
December 1, 1997, RBMG and RBC each filed a Notification and Report Form with
the FTC and the Antitrust Division for review in connection with the RBC Merger.
The 30-day waiting period under the HSR Act applicable to the RBC Merger will
expire on December 31, 1997, unless the RBC Merger is investigated or opposed by
the FTC or the Antitrust Division. There can be no assurance that the RBC Merger
will not be investigated or opposed by the FTC or the Antitrust Division. See
"Proposal No. 1: The RBC Merger -- Regulatory Approvals Required."
INTERESTS OF CERTAIN PERSONS IN THE RBC MERGER
In considering the RBC Merger, holders of RBMG Common Stock and RBC Common
Stock should be aware that certain executive officers and directors of RBMG and
RBC have certain interests that may present them with potential conflicts of
interest with respect to the RBC Merger. See "Proposal No. 1: The RBC
Merger -- Interests of Certain Persons in the RBC Merger."
ACCOUNTING TREATMENT
The RBC Merger will be accounted for under the "purchase" method of
accounting, as described in Accounting Principles Board Opinion No. 16 and the
interpretations thereof, pursuant to which the assets and liabilities of RBC
will be adjusted to their respective fair values at the date of acquisition and
included with those of RBMG as of the RBC Effective Time. Net income of RBMG
subsequent to the RBC Effective Time will include net income of RBC, and the
historical results of operations of RBMG for periods prior to the RBC Effective
Time will not be restated.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
RBMG and RBC expect the RBC Merger to be a tax-free reorganization for
federal income tax purposes so that no gain or loss will be recognized by the
RBC Stockholders, except in respect of cash received in lieu of fractional
shares and upon the exercise of dissenters' rights. McNair Law Firm, P.A. has
issued an opinion to RBC that, subject to the assumptions, qualifications and
limitations set forth therein, the RBC Merger will qualify as a tax-free
reorganization for federal income tax purposes under Section 368 of the Code.
Each RBC Stockholder should consult his own tax advisor as to the tax
consequences of the RBC Merger to him under applicable tax law. See "Proposal
No. 1: The RBC Merger -- Certain Federal Income Tax Consequences."
RESALE OF RBMG COMMON STOCK
Shares of RBMG Common Stock to be issued to RBC Stockholders in connection
with the RBC Merger will be freely transferable under the Securities Act, except
for shares issued to any person or entity who, at the time of the RBC Merger,
may be deemed an "affiliate" of RBC within the meaning of Rule 145 under the
Securities Act ("Rule 145"). In general, affiliates of RBC include its executive
officers and directors and any other person or entity who controls, is
controlled by or is under common control with RBC. Rule 145, among other things,
imposes certain restrictions upon the resale of securities received by
affiliates in connection with certain reclassifications, mergers, consolidations
or asset transfers. These restrictions will consist of volume and manner of sale
restrictions on the resale of shares of RBMG Common Stock issued to such persons
and entities. RBMG may place legends on certificates representing shares of RBMG
Common Stock that are issued to such RBC Stockholders in the RBC Merger to
restrict such transfers.
COMPARISON OF RIGHTS OF HOLDERS OF RBMG COMMON STOCK AND RBC COMMON STOCK
The rights of RBC Stockholders currently are determined by reference to the
SCBCA and the RBC Articles and the Bylaws of RBC (the "RBC Bylaws"). Upon
consummation of the RBC Merger, and to the extent they receive shares of RBMG
Common Stock, RBC Stockholders will become stockholders of RBMG, a Delaware
corporation. The rights of RBC Stockholders will thereafter be governed by
applicable Delaware law ("Delaware Law"), including the Delaware General
Corporation Law (the "DGCL"), and the RBMG Certificate and the
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<PAGE> 17
Amended and Restated Bylaws of RBMG (the "RBMG Bylaws"). See "Proposal No. 1:
The RBC Merger -- Comparison of Rights of Holders of RBMG Common Stock and RBC
Common Stock."
DISSENTERS' RIGHTS
Pursuant to Chapter 13 of the SCBCA (the "South Carolina Dissenters' Rights
Statute"), the holders of shares of RBC Common Stock are entitled to dissent
from the approval of the RBC Merger Agreement and the RBC Merger and to receive
payment of the fair value of their shares of RBC Common Stock in the event the
RBC Merger is consummated, upon compliance with the provisions of the South
Carolina Dissenters' Rights Statute. Holders of RBC Common Stock who wish to
assert their dissenters' rights must (i) deliver to RBC, before the vote on the
RBC Merger and the RBC Merger Agreement is taken, written notice of their intent
to demand payment for their shares in the event the RBC Merger is consummated,
(ii) not vote such shares in favor of approval and adoption of the RBC Merger
and the RBC Merger Agreement and (iii) comply with the further provisions of the
South Carolina Dissenters' Rights Statute. The delivery of a proxy or a vote
against approval and adoption of the RBC Merger and the RBC Merger Agreement
will not constitute such notice nor will a failure to vote against such approval
and adoption constitute a waiver of dissenters' rights. Any deviation from the
procedures set forth in the South Carolina Dissenters' Rights Statute could
result in the forfeiture of dissenters' rights. Accordingly, RBC Stockholders
wishing to dissent from approval of the RBC Merger and the RBC Merger Agreement
are urged to read carefully "Proposal No. 1: The RBC Merger -- Dissenters'
Rights" and the copy of the South Carolina Dissenters' Rights Statute set forth
in Annex C to this Joint Proxy Statement/Prospectus and to consult with their
own legal advisors. Holders of RBMG Common Stock are not entitled to appraisal
rights under Delaware law in connection with the RBC Merger.
THE CHARTER AMENDMENT
In connection with the RBC Merger, the RBMG Board has unanimously declared
advisable and approved and adopted the RBC Amendment. The approval and adoption
of the RBC Amendment by the RBMG Stockholders is contingent on the approval and
adoption of the RBC Merger Agreement, the RBC Merger and the RBC Stock Issuance
by the RBMG Stockholders. A copy of the RBC Amendment is attached to this Joint
Proxy Statement/Prospectus as Annex B, and is incorporated by reference into
this Joint Proxy Statement/Prospectus. RBMG Stockholders are urged to read the
RBC Amendment in its entirety.
RBMG is currently authorized to issue 25,000,000 shares of RBMG Common
Stock. The RBC Amendment, if it becomes effective, would increase the number of
shares of RBMG Common Stock that RBMG is authorized to issue from 25,000,000
shares to 50,000,000 shares. Assuming that the RBC Amendment is approved and
adopted and the RBC Merger is consummated, and based on the number of shares of
RBMG Common Stock outstanding as of November 12, 1997, 20,282,716 shares of
authorized RBMG Common Stock would remain available for future issuance. RBMG
currently does not have a sufficient number of authorized but unissued shares of
RBMG Common Stock to consummate the RBC Merger. In addition, the RBMG Board
believes that the increased flexibility provided by the RBC Amendment will
enable RBMG to respond to possible acquisitions, financing needs and other
business opportunities, to effect stock dividends or stock splits and to provide
appropriate equity-based compensation. The RBMG Board could issue such
additional shares of RBMG Common Stock at such times and on such terms and
conditions as it deemed appropriate and desirable, without further action by the
RBMG Stockholders, unless such approval were required by applicable law, the
RBMG Certificate, the RBMG Bylaws or any stock exchange or market on which RBMG
securities may then be listed or traded. See "The Charter Amendment -- General."
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<PAGE> 18
MARKETS AND MARKET PRICES
RBMG. RBMG Common Stock is listed on the Nasdaq National Market under the
symbol "REMI."
The following table sets forth for the calendar quarter indicated (i) the
high and low sales prices per share of RBMG Common Stock as reported on the
Nasdaq National Market and (ii) the per share cash dividends declared. The
information presented below has been adjusted for the five percent stock
dividends issued on May 8, 1995 and August 31, 1995, respectively, the ten
percent stock dividend issued on June 30, 1995, the seven percent stock dividend
issued on September 24, 1996 and the five percent stock dividend to be issued on
December 31, 1997.
<TABLE>
<CAPTION>
RBMG COMMON STOCK
-------------------------------
HIGH LOW DIVIDENDS
-------- -------- ---------
<S> <C> <C> <C>
FISCAL YEAR 1995
First Quarter ended March 31, 1995.......................... $ 8.0732 $ 5.8714 $
Second Quarter ended June 30, 1995.......................... 10.8081 7.3210
Third Quarter ended September 30, 1995...................... 16.2439 9.5366
Fourth Quarter ended December 31, 1995...................... 14.9088 12.0160
FISCAL YEAR 1996
First Quarter ended March 31, 1996.......................... 16.2439 12.2942
Second Quarter ended June 30, 1996.......................... 14.1299 9.6795
Third Quarter ended September 30, 1996...................... 13.5714 10.1246 0.03
Fourth Quarter ended December 31, 1996...................... 15.0000 12.2619 0.03
FISCAL YEAR 1997
First Quarter ended March 31, 1997.......................... 16.7857 12.5000 0.03
Second Quarter ended June 30, 1997.......................... 19.0476 12.0238 0.03
Third Quarter ended September 30, 1997...................... 19.0476 11.9048 0.03
Fourth Quarter (through December 1, 1997)................... 14.7619 10.9524 0.04
</TABLE>
On April 18, 1997, the last trading date prior to the public announcement
of the RBC Merger, the closing sale price of RBMG Common Stock on the Nasdaq
National Market was $15.95 per share. On December 1, 1997, the last trading day
for which prices were available at the time of the printing of this Joint Proxy
Statement/Prospectus, the closing sale price of RBMG Common Stock on the Nasdaq
National Market was $13.0357 per share. RBMG is subject to certain financing
agreements which restrict the ability of RBMG to pay dividends.
RBC. RBC is privately held, and there is no established public market for
the RBC Common Stock. As of the date of this Joint Proxy Statement/Prospectus,
there were approximately 180 holders of record of RBC Voting Common Stock and
six holders of record of RBC Non-Voting Common Stock. RBC declared cash
dividends of $.25 and $.30 per share during the second and third quarters of
1995, respectively. No other cash dividends were declared in 1995, and no cash
dividends have been declared by RBC since December 31, 1995. In addition, RBC is
subject to certain financing agreements which restrict the ability of RBC to pay
dividends.
11
<PAGE> 19
EQUIVALENT AND PRO FORMA PER COMMON SHARE DATA
(UNAUDITED)
The following table presents selected, comparative, unaudited per common
share data for (i) RBMG Common Stock, on a historical basis and on a pro forma
basis giving effect to the RBC Merger and (ii) RBC Common Stock on a historical
basis and on a pro forma basis giving effect to the RBC Merger.
The equivalent and pro forma per common share data included in the
following table presents, as applicable, the assumed consummation of the RBC
Merger as of January 1, 1996 with a spin-off of RBC's credit card subsidiary,
Resource Processing Group, Inc. ("RPG") as of January 1, 1996.
The pro forma information is not necessarily indicative of the results of
the future operations of RBMG or RBC or of the actual results that would have
occurred had the RBC Merger (and spin-off of RPG) been consummated on January 1,
1996. The information is derived from, and should be read in conjunction with,
the historical consolidated financial statements of RBMG, including related
notes thereto, which are incorporated herein by reference and the historical
consolidated financial statements of RBC, including related notes thereto, which
are included in this Joint Proxy Statement/Prospectus. See "Available
Information" and "Incorporation of Certain Documents by Reference" and
"Unaudited Pro Forma Condensed Combined Financial Statements."
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------- NINE MONTHS ENDED
1994 1995 1996 SEPTEMBER 30, 1997
----- ----- ----- ------------------
<S> <C> <C> <C> <C>
NET INCOME PER COMMON SHARE:
RBMG historical(1)(2).................................. $1.16 $0.92 $1.02 $0.69
RBMG pro forma......................................... N/A N/A 0.84 0.58
RBC historical......................................... N/A N/A 0.85 0.52
RBC equivalent pro forma(3)............................ N/A N/A 0.91 0.63
CASH DIVIDENDS PER COMMON SHARE:
RBMG historical(4)..................................... N/A N/A 0.06 0.09
RBMG pro forma......................................... N/A N/A 0.06 0.09
RBC historical......................................... 0.50 0.55 N/A N/A
RBC equivalent pro forma(3)............................ N/A N/A 0.06 0.10
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
BOOK VALUE PER COMMON SHARE:
RBMG historical(2).......................................... $7.77 $8.37
RBMG pro forma.............................................. N/A 8.76
RBC historical.............................................. 9.43 10.15
RBC equivalent pro forma(3)................................. N/A 9.46
</TABLE>
- ---------------
N/A -- Not applicable or not required
(1) Beginning in the first quarter of 1997, RBMG was required to report
prospectively net income per common share on a primary earnings per common
share basis. Accordingly, the weighted average shares outstanding for the
nine months ended September 30, 1997, includes common stock equivalents
while such equivalents are excluded for prior periods presented.
(2) Per common share amounts for RBMG have been adjusted to reflect the five
percent stock dividends issued on each of March 8, 1994, September 12,
1994, May 8, 1995 and August 31, 1995, the ten percent stock dividend
issued on June 30, 1995, the seven percent stock dividend issued on
September 24, 1996, and the five percent stock dividend to be issued on
December 31, 1997.
(3) The equivalent pro forma per common share data for RBC are computed by
multiplying RBMG pro forma information by 1.08026, the RBC Exchange Ratio.
(4) RBMG began paying a regular quarterly cash dividend in the third quarter of
1996.
12
<PAGE> 20
SELECTED HISTORICAL FINANCIAL DATA
(UNAUDITED)
The following tables present for RBMG and RBC selected consolidated
financial data for each of the years in the five year period ended December 31,
1996, and for the nine month periods ended September 30, 1996 and 1997. The
information for RBMG has been derived from the consolidated financial statements
of RBMG, including the unaudited consolidated financial statements of RBMG
incorporated in this Joint Proxy Statement/Prospectus by reference to RBMG's
Quarterly Report on Form 10-Q/A for the nine months ended September 30, 1997 and
the audited consolidated financial statements of RBMG incorporated in this Joint
Proxy Statement/Prospectus by reference to RBMG's 1996 Annual Report on Form
10-K for the year ended December 31, 1996, and should be read in conjunction
therewith and the notes thereto. The information for RBC has been derived from
the consolidated financial statements of RBC, including the unaudited
consolidated financial statements of RBC for the nine month periods ended
September 30, 1996 and 1997 and the audited consolidated financial statements of
RBC for each of the years in the three year period ended December 31, 1996
included elsewhere in this Joint Proxy Statement/Prospectus and should be read
in conjunction therewith and the notes thereto. Historical results are not
necessarily indicative of results expected for any future period. In the opinion
of the managements of RBMG and RBC, all adjustments, consisting only of normal
recurring adjustments necessary to arrive at a fair statement of interim results
of operations of RBMG and RBC have been included. See "Available Information"
and "Incorporation of Certain Documents by Reference."
13
<PAGE> 21
RBMG
<TABLE>
<CAPTION>
AT OR FOR THE NINE
MONTHS ENDED
AT OR FOR THE YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
Net interest income................ $ 9,200 $ 9,616 $ 7,686 $ 8,635 $ 16,902 $ 12,780 $ 14,186
Net gain on sale of mortgage
loans............................ 2,262 2,167 1,160 33,822 79,178 59,348 71,578
Gain on sale of mortgage servicing
rights........................... 17,491 29,202 33,375 7,346 1,105 964 5,948
Loan servicing fees................ 3,216 6,128 14,196 24,205 28,763 21,379 23,049
Total revenues..................... 32,826 47,756 56,622 76,697 126,617 94,875 115,333
Salary and employee benefits....... 10,048 12,203 15,986 31,199 55,578 37,830 43,631
Total expenses (including taxes)... 21,576 30,176 38,579 62,478 106,994 67,627 92,212
Net income......................... 11,250 17,580 18,043 14,219 19,623 16,908 14,408
PER COMMON SHARE DATA(2)
Net income per common share(3)..... $ N/A $ 0.76(1) $ 1.10 $ 0.88 $ 1.03 $ .89 $ .69
Market value per common share at
period end....................... N/A 7.08 7.70 12.69 13.57 12.38 12.44
Book value per common share at
period end....................... N/A 3.85 4.96 5.71 7.77 7.69 8.37
Cash dividends declared per common
share............................ 0.06 0.03 0.09
Weighted average shares
outstanding(3)................... N/A 16,261,135 16,273,537 16,181,587 19,153,044 18,916,081 20,902,473
BALANCE SHEET
Mortgage loans held for sale and
mortgage-backed securities....... $ 330,305 $ 587,208 $ 119,044 $1,035,229 $ 802,335 $ 742,808 $1,090,331
Mortgage servicing rights, net..... 10,630 15,123 65,840 99,912 109,815 107,357 128,713
Total assets....................... 364,328 639,425 237,631 1,231,097 1,028,394 957,688 1,404,144
Long-term borrowings............... 22,000 65,530 6,485
Total liabilities.................. 344,388 576,942 157,017 1,137,693 871,093 802,008 1,225,561
Stockholders' equity and parent
equity in the division........... 19,940 62,483 80,614 93,404 157,301 155,680 178,583
OPERATING DATA
Total loan production.............. $2,458,302 $4,239,100 $2,875,265 $7,135,774 $9,995,725 $7,891,664 $7,779,934
Total servicing portfolio
(including subservicing)......... 1,830,825 3,049,270 5,876,508 7,821,736 8,658,742 9,428,088 10,062,622
Return on average assets........... N/A(4) N/A(4) 5.25% 1.95% 1.91% 2.10% 1.64%
Return on average equity........... N/A(4) N/A(4) 25.98% 17.00% 14.43% 16.78% 11.40%
</TABLE>
- ---------------
N/A -- Not applicable
(1) RBMG's initial public offering was consummated on June 3, 1993. Net income
per common share for 1993 was calculated based on net income subsequent to
the date of the initial public offering through December 31, 1993, of
$12,465.
(2) Amounts have been adjusted to reflect the five percent stock dividends
issued on each of March 8, 1994, September 12, 1994, May 8, 1995 and August
31, 1995, the ten percent stock dividend issued on June 30, 1995, the seven
percent stock dividend issued on September 24, 1996 and the five percent
stock dividend to be issued on December 31, 1997.
(3) Beginning in the first quarter of 1997, RBMG was required to report
prospectively net income per common share on a primary net income per common
share basis. Accordingly, the weighted average shares outstanding for the
nine months ended September 30, 1997, includes common stock equivalents
while such equivalents are excluded for the prior periods presented.
(4) Because of the significantly different capital structure of RBMG prior to
its initial public offering, these statistics are not comparatively
meaningful for periods prior to and including the date on which the initial
public offering was consummated.
14
<PAGE> 22
RBC
<TABLE>
<CAPTION>
AT OR FOR THE NINE
MONTHS ENDED
AT OR FOR THE YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------------- ------------------------
1992(1) 1993 1994 1995 1996 1996 1997
-------- -------- -------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
Net interest income................... $ 46,339 $ 13,762 $ 7,085 $ 9,893 $ 8,130 $ 6,778 $ 3,563
Net gain on sale of leases............ 1,617 3,124 1,572 921
Credit card fees...................... 7,420 6,723 23,140 11,637 18,424 13,234
Commercial mortgage loan origination
fees................................ 244 3,082 4,416 2,736 3,367
Commercial mortgage loan and lease
servicing fees...................... 9 1,014 2,508 1,704 2,694
Equity in undistributed earnings of
RBMG................................ 5,153 7,510 5,885 7,424 6,685 5,474
Gain on sale of RBMG Common Stock..... 20,521 2,456 2,456
Revenues of retail banking business... 2,454
Gain on sale of retail banking
business............................ 8,878 9,931
Gain on sale of mortgages and mortgage
servicing rights.................... 18,059 368
Gain (loss) on sale of credit cards... 9,178 (101)
Total revenues........................ 87,893 59,919 51,295 34,469 47,603 35,975 18,128
Salary and employee benefits.......... 26,319 15,618 9,537 11,526 18,360 11,529 6,963
Provision for loan and lease losses... 18,566 6,084 2,000 2,985 2,391 2,377 618
Total expenses (including taxes)...... 78,841 43,535 37,094 27,765 40,350 28,499 13,655
Net income............................ 9,052 16,384 14,201 6,704 7,253 7,476 4,473
PER COMMON SHARE DATA
Net income per common share........... $ 1.14 $ 1.93 $ 1.65 $ 0.78 $ 0.85 $ 0.88 $ 0.52
Book value per common share at
period-end.......................... 7.91 8.36 9.35 9.70 9.43 10.72 10.15
Cash dividends declared per common
share............................... 1.05 .50 .55 (2)
BALANCE SHEET
Loans and lease receivables, net...... $167,831 $159,333 $ 93,931 $ 111,885 $ 55,583 $ 86,076 $ 47,691
Investment in RBMG.................... N/A 25,974 33,484 39,369 61,820 61,302 66,629
Total assets.......................... 669,430 459,236 177,931 197,038 140,128 191,999 131,920
Long-term borrowings.................. 38,611 11,380
Total liabilities..................... 606,512 388,237 97,385 113,531 60,089 101,016 44,417
Stockholders' equity.................. 62,918 70,999 80,546 83,507 80,039 90,983 87,503
OPERATING DATA
Total commercial mortgage loan
originations........................ $ $ $ 21,468 $ 317,940 $ 509,415 $ 434,993 $ 364,921
Total lease production................ 15,524 34,518 75,505 94,334 63,284 48,448 42,488
Commercial mortgage loan servicing
portfolio........................... 107,691 1,464,360 2,334,451 2,265,153 2,504,408
Lease servicing portfolio (including
servicing for third parties)........ 25,889 44,460 88,066 135,430 129,860 129,435 125,431
</TABLE>
- ---------------
(1) Includes the balance sheet and/or results of operations of the mortgage
banking business of the former banking subsidiaries of RBC, which were
spun-out to form RBMG in connection with its initial public offering in
1993.
(2) As of the close of business on December 31, 1996, RBC effected a spin-off of
its credit card processing subsidiary, RPG, through a distribution of RPG's
common stock to RBC Stockholders, which was accounted for as a non-cash
dividend in-kind.
15
<PAGE> 23
RISK FACTORS
In addition to the other information included in or incorporated by
reference into this Joint Proxy Statement/Prospectus and the annexes hereto, the
following factors should be considered carefully in evaluating the proposed RBC
Merger.
RISKS ASSOCIATED WITH THE RBC MERGER
Fixed Exchange Ratios
The RBC Exchange Ratio is expressed in the RBC Merger Agreement as a fixed
ratio. Accordingly, the RBC Exchange Ratio will not be adjusted in the event of
any increase or decrease in the price of RBMG Common Stock. The sales price of
RBMG Common Stock may vary from its sales price at the date of this Joint Proxy
Statement/Prospectus and the dates of the RBMG Annual Meeting and the RBC
Special Meeting. Such variations may be the result of changes in the business,
operations or prospects of RBMG or RBC, market assessments of the likelihood
that the RBC Merger will be consummated and the timing thereof, general market
and economic conditions and other factors. There can be no assurance that the
price of RBMG Common Stock on the date of this Joint Proxy Statement/Prospectus
or the date of the RBC Special Meeting will be indicative of its price at the
RBC Effective Time. The effective time of the RBC Merger will occur as soon as
practicable following the RBC Special Meeting and the satisfaction or waiver of
the conditions set forth in the RBC Merger Agreement. RBC Stockholders are urged
to obtain current market quotations for RBMG Common Stock.
Uncertainties in Integrating Business Operations
In determining that the RBC Merger is advisable and in the best interests
of its stockholders, each of the RBMG Special Committee, the RBMG Board and the
RBC Board considered certain benefits expected to result from the consummation
thereof. See "The RBC Merger -- Reasons for the RBC Merger." There can be no
assurance that any or all of such benefits will be realized as rapidly as
currently expected or at all.
Interests of Certain Persons in the RBC Merger
In considering the recommendation of the RBC Merger by the RBMG Special
Committee, the RBMG Board and the RBC Board, stockholders should be aware that
certain directors and executive officers of RBMG and RBC have certain interests
that may present them with potential conflicts of interest with respect to the
RBC Merger. See "The RBC Merger -- Interests of Certain Persons in the RBC
Merger."
RISKS RELATING TO BUSINESS OF RBMG
General Business Risks
RBMG's business is subject to various business risks, including competition
from other mortgage companies and other financial institutions. Economic
conditions affect the consumer's decision to buy or sell residences as well as
the number of residential mortgage loan delinquencies and foreclosures, the
value of collateral supporting loan portfolios, administrative costs in
evaluating and processing mortgage loan applications and the cost and
availability of funds that mortgage banking companies rely upon to make or
purchase loans. Changes in the level of consumer confidence, tax laws, real
estate values, prevailing interest rates and investment returns expected by the
financial community could make mortgage loans of the types originated or
purchased by RBMG less attractive to borrowers or investors. Competition also
may be affected by fluctuations in interest rates, general economic conditions
and localized economic conditions.
RBMG continues to face the same challenges as other companies within the
mortgage banking industry and as such is not immune from significant volume
declines precipitated by changes in interest rates or other factors beyond its
control.
Competition
The mortgage banking business is highly competitive. RBMG competes with
other mortgage banking companies, commercial banks, savings associations, credit
unions and other financial institutions in every aspect
16
<PAGE> 24
of its business, including funding and purchasing loans from mortgage brokers,
purchasing loans from correspondents and acquiring loan servicing rights. RBMG
competes with mortgage banking companies and other financial institutions that
may have greater financial resources, better operating efficiencies and longer
operating histories than RBMG. Furthermore, increasing consolidation in the
mortgage industry is leading to an increased market share for the largest
mortgage companies. At the same time, the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC") are developing
technologies and business practices that could reduce their reliance on large
mortgage companies for loan production and enable them to access smaller
producers for volume. To the extent that market pricing becomes more
competitive, RBMG may be unable to achieve its planned level of originations and
may be unable to consummate acquisitions of servicing rights at a satisfactory
cost.
Due to the foregoing considerations, there can be no assurance that RBMG
will be able to continue to compete successfully in the markets it serves.
Inability to compete successfully would have a material adverse effect on the
results of operations and financial condition of RBMG.
Regulation, Possible Changes and Related Matters
RBMG's mortgage banking business is subject to the rules and regulations of
the Department of Housing and Urban Development ("HUD"), the Federal Housing
Administration ("FHA"), the Veterans Administration ("VA"), FNMA, FHLMC, the
Governmental National Mortgage Association ("GNMA") and other regulatory
agencies with respect to originating, processing, underwriting, selling,
securitizing and servicing mortgage loans. In addition, there are other federal
and state statutes and regulations affecting the activities of RBMG. These rules
and regulations, among other things, impose licensing obligations on RBMG,
prohibit discrimination and establish underwriting guidelines that include
provisions for inspections and appraisals, require credit reports on prospective
borrowers, establish eligibility criteria for mortgage loans and fix maximum
loan amounts.
Moreover, lenders such as RBMG are required annually to submit audited
financial statements to FNMA, FHLMC, GNMA, HUD and various state regulatory
authorities, and to comply with each regulatory entity's financial requirements.
RBMG's business is also subject to examination by FNMA, FHLMC, GNMA and state
regulatory authorities at all times to assure compliance with applicable
regulations, policies and procedures.
Mortgage origination activities, which are conducted by RBMG, are subject
to the provisions of various federal and state statutes including, among others,
the Equal Credit Opportunity Act, the Federal Truth-in-Lending Act, the Federal
Equal Credit Opportunity Act, the Fair Credit Reporting Act of 1970, the Home
Mortgage Disclosure Act, the Real Estate Settlement Procedures Act of 1974
("RESPA"), the Fair Housing Act and the regulations promulgated thereunder,
which, among other provisions, prohibit discrimination, prohibit unfair and
deceptive trade practices, require the disclosure of certain basic information
to mortgagors concerning credit terms and settlement costs, limit fees and
charges paid by borrowers and lenders and otherwise regulate terms and
conditions of credit and the procedures by which credit is offered and
administered. RBMG is further subject to federal and state laws and regulations
governing the activities involved in servicing mortgage loans, including RESPA,
the Federal Debt Collection Practices Act (with respect to the servicing of
loans that are in default when the right to service is acquired by RBMG), as
well as other federal and state statutes and regulations affecting RBMG's
servicing activities. These statutes and regulations, among other things,
regulate assessment, collection, foreclosure and claims handling, and investment
and interest payments on escrow balances.
Failure to comply with any of the foregoing requirements regulating
mortgage origination or mortgage servicing activities can lead to loss of
approved status, termination of servicing contracts without compensation to the
servicer, demands for indemnification or mortgage loan repurchases, certain
rights of rescission for borrowers, class action lawsuits and administrative
enforcement actions. Such regulatory requirements are subject to change from
time to time and may in the future become more restrictive, thereby making
compliance more difficult or expensive or otherwise restricting the ability of
RBMG to conduct its business as such business is now conducted.
17
<PAGE> 25
Litigation Affecting the Mortgage Banking Industry
In recent years, the mortgage banking industry has been subject to class
action lawsuits that allege violations of federal and state laws and
regulations, including the propriety of collecting and paying various fees and
charges and the calculation of escrow amounts. Most recently, at least 50
purported class action lawsuits have been commenced against various mortgage
companies, including RBMG, alleging, inter alia, that the payment of certain
fees to mortgage brokers violates the anti-kickback provisions of RESPA. If
these cases are resolved against the lenders, it may cause an industry-wide
change in the way independent mortgage brokers are compensated. Such a change
may have a material adverse effect on RBMG and the entire mortgage lending
industry. RBMG's broker compensation and table-funded correspondent purchase
programs permit such payments. Although RBMG believes these programs comply with
all applicable laws and are consistent with long-standing industry practice and
regulatory interpretations, in the future new regulatory interpretations or
judicial decisions may require RBMG to change its broker compensation and
table-funded correspondent purchase practices. Class action lawsuits may
continue to be filed in the future against the mortgage banking industry
generally. No prediction can be made as to whether the ultimate decisions in any
of these class actions will be adverse to the defendant mortgage companies.
Environmental Matters
In the course of its business, through the foreclosure process, RBMG has
acquired, and may acquire in the future, properties securing loans that are in
default. Although RBMG lends to owners of residential properties, there is a
risk that RBMG could be required to investigate and cleanup hazardous or toxic
substances or chemical releases at such properties after its acquisition and may
be held liable to a governmental entity or to third-parties for property damage,
personal injury and investigation cleanup costs incurred by such parties in
connection with the contamination.
To date, RBMG has not been required to perform any investigation or cleanup
activities of any material nature, nor has RBMG been subject to any
environmental claims. No assurance can be given, however, that this will remain
the case in the future.
Dependence Upon Independent Mortgage Brokers and Mortgage Bankers
RBMG depends largely upon independent mortgage bankers, including smaller
mortgage companies and commercial banks, and, to a lesser extent, upon
independent mortgage brokers, for its originations and purchases of mortgage
loans. Substantially all of the independent mortgage brokers and mortgage
bankers with whom RBMG does business deal with multiple loan originators for
each prospective borrower. Wholesale originators, such as RBMG, compete for
business based upon pricing, service, loan fees and costs and other factors.
RBMG's competitors also seek to establish relationships with such independent
mortgage bankers and mortgage brokers, none of whom is obligated by contract or
otherwise to continue to do business with RBMG. In addition, RBMG expects the
volume of broker and mortgage banker-sourced loans purchased by it to increase.
Future operating and financial results of RBMG may be more susceptible to
fluctuations in the volume and cost of its broker and mortgage banker-sourced
loans resulting from, among other things, competition from other purchasers of
such loans.
Net Interest Income
RBMG's loans held for sale are generally funded by borrowings under its
revolving warehouse credit line. RBMG's net warehouse interest income is the
difference between the interest income it earns on loans held for sale
(generally based on long-term interest rates) and the interest it pays on its
borrowings (generally based on short-term interest rates). The factors that can
affect this spread include interest rates charged by lenders, the relationship
between long-term and short-term interest rates and the use of compensating
balances (escrow funds held on deposit with lending banks) to decrease interest
rates charged on borrowed funds. There can be no assurance that this spread will
not decrease from its current level. A decrease in the spread would have a
negative effect on RBMG's net interest income.
18
<PAGE> 26
RBMG's net income reflects a reduction in interest expense on its
borrowings with depository institutions for escrow funds placed with such
institutions. Net income could be adversely affected to the extent that proposed
revisions of applicable bank regulations cause these escrow accounts to be
recharacterized as demand deposit accounts, thereby requiring reserves to be
established with Federal Reserve Banks, which would reduce the amount of the
reduction in RBMG's interest expense on its borrowings. Other regulatory changes
or interpretations that change the ability of RBMG to receive credit for escrow
balances would adversely affect RBMG.
In addition, certain states require that interest be paid to mortgagors on
escrow funds deposited by them to cover mortgage-related payments such as
property taxes and insurance premiums. Federal legislation has in the past been
introduced that would, if enacted, revise current escrow regulations and
establish a uniform interest payment requirement in all states. If such federal
legislation were enacted or if additional states enact legislation relating to
payment of, or increases in the rate of, interest on escrow balances, or if such
legislation were retroactively applied to loans in RBMG's servicing portfolio,
RBMG's earnings would be adversely affected.
Volume of Mortgage Loans Produced
During periods of declining interest rates, RBMG typically experiences an
increase in loan originations because of increased home purchases and,
particularly, increased refinancing activity. During 1990 to 1993, a period of
generally declining interest rates, refinancing activity as a percentage of
total originations in the industry increased from 23% in 1990 to 55% in 1993. In
contrast, refinancing activity decreased to 32% of total originations in 1994,
25% in 1995 and 29% in 1996 as the result of generally increasing interest
rates. Increases in interest rates in the future may adversely affect
refinancing activity, which could have an adverse effect on RBMG's origination
revenues.
Sales of Mortgage Loans
Gains or losses on sales of mortgage loans may result from changes in
interest rates from the time the interest rate on a customer's mortgage loan
application is established to the time RBMG sells the loan. At any given time,
RBMG has committed to sell substantially all of its mortgage loans that are
closed and a percentage of the mortgage loans that are not yet closed but for
which the interest rate has been established ("pipeline loans"). To manage the
interest rate risk of RBMG's pipeline loans, RBMG continuously projects the
percentage of the pipeline loans it expects to close and, on the basis of such
projections, enters into forward sales commitments to sell such loans. To reduce
the effect of such interest rate changes, RBMG employs a variety of techniques,
currently consisting of a combination of mandatory forward sales commitments for
mortgage-backed securities and put and call option contracts on treasuries.
If interest rates make an unanticipated change, the actual percentage of
pipeline loans that close may differ from the projected percentage. A sudden
increase in interest rates can cause a higher percentage of pipeline loans to
close than projected. To the degree that this may not have been anticipated,
RBMG may not have made forward sales commitments to sell these additional loans
and consequently may incur significant losses upon their sale at current market
prices, adversely affecting results of operations. Likewise, if a lower
percentage of pipeline loans closes than was projected, due to a sudden decrease
in interest rates or otherwise, RBMG may have committed to sell more loans than
actually close and as a result may incur significant losses in fulfilling these
commitments, adversely affecting results of operations. This risk is greater
during times of volatility of interest rates.
Forward Sale Arrangements
In connection with its mortgage loan sales and mortgage servicing rights
sales programs, which involve the sale of mortgage loans, mortgage-backed
securities and servicing rights on a forward or other deferred delivery and
payment basis, RBMG has credit risk exposure to the extent purchasers are unable
to meet the terms of their forward purchase contracts. As is customary in the
marketplace, none of the forward payment obligations of any of RBMG's
counterparties is currently secured or subject to margin requirements. Although
RBMG has never suffered a loss as a result of a default by a forward contract
counterparty, RBMG attempts to limit its credit
19
<PAGE> 27
exposure on forward sales arrangements on mortgage loans and mortgage-backed
securities by entering into forward contracts only with institutions that RBMG
believes are acceptable credit risks and by limiting exposure to any single
counterparty by selling to a number of investors. For example, it is RBMG's
current policy based on RBMG's current size that not more than the lesser of (i)
$350 million or (ii) 40% of the total of the forward purchase contracts
outstanding at any time be with any single counterparty. All counterparties are
obligated to settle their sales in accordance with the terms of the related
forward sale agreement. RBMG also attempts to limit its exposure on flow
servicing sales by only selling to institutions that RBMG believes are
acceptable credit risks.
Value of Mortgage Servicing Rights
The value of RBMG's servicing portfolio may be adversely affected if
mortgage interest rates decline and loan prepayments increase. In periods of
declining interest rates, the economic advantages to borrowers of refinancing
their mortgage loans become greater. Increases in the rate of mortgage loan
prepayments reduce the period during which RBMG receives servicing income from
such loans. RBMG capitalizes the cost of the acquisition of servicing rights
from third parties and began in 1995 to capitalize servicing rights on loans
that it originates. The value of servicing rights is based upon the net present
value of future cash flows. If the rate of prepayment of the related loans
exceeds the rate assumed by RBMG, due to a significant reduction in interest
rates or otherwise, the value of the RBMG servicing portfolio will decrease and
accelerated amortization of servicing rights or recognition of an impairment
provision may become necessary, thereby decreasing earnings. RBMG attempts to
mitigate these risks with respect to the value of its servicing rights by
maintaining a portfolio of interest rate option contracts whose value tends to
increase in periods of declining interest rates thus mitigating the decline in
value typical during the same period with respect to servicing rights. However,
there can be no assurance that RBMG's efforts to mitigate these risks will
prevent value loss or impairment provisions.
Sales of Mortgage Servicing Rights
The prices obtained by RBMG upon the sale of its mortgage servicing rights
depend upon a number of factors, including the general supply of and demand for
mortgage servicing rights, as well as prepayment and delinquency rates on the
portfolio of mortgage servicing rights being sold. Interest rate changes can
affect the ability to sell, or the profitability of a sale of, mortgage
servicing rights to a third party. Purchasers of mortgage servicing rights
analyze a variety of factors, including prepayment sensitivity of loans
underlying servicing rights, to determine the purchase price they are willing to
pay. Thus, in periods of declining interest rates, sales of mortgage servicing
rights related to higher interest rate loans may be less profitable than sales
of mortgage servicing rights related to lower interest rate loans as it is
possible that such higher interest rate loans will be refinanced. Because these
factors are largely beyond the control of RBMG, there can be no assurance that
the current level of profitability from the sale of mortgage servicing rights
will be maintained.
Fluctuations in Performance
RBMG's operating results can fluctuate substantially from period to period
as a result of a number of factors, including the volume of loan production,
interest rates, the level of amortization of mortgage servicing rights required
by prepayment rates and the performance of RBMG's servicing portfolio hedge,
which currently consists primarily of interest rate option contracts for ten
year CMT floors. In particular, RBMG's results are strongly influenced by the
level of loan production, which is influenced by the interest rate environment
and other economic factors. Accordingly, the net income of RBMG may fluctuate
substantially from period to period.
Liabilities Under Representations and Warranties
In the ordinary course of business, RBMG makes representations and
warranties to the purchasers and insurers of its mortgage loans and the
purchasers of mortgage servicing rights regarding compliance with laws,
regulations and program standards and as to accuracy of information. Under
certain circumstances, RBMG may become liable for certain damages or may be
required to repurchase a loan if there has been a breach of representations or
warranties. RBMG generally receives similar representations and warranties from
the correspondents from whom it purchases loans. However, in the event of
breaches of such representations and
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warranties, RBMG is subject to the risk that a correspondent may not have the
financial capacity to repurchase loans when called upon to do so by RBMG or
otherwise respond to demands made by RBMG.
Delinquency and Default Risks
RBMG's profitability may be negatively impacted by economic downturns as
during such periods the frequency of loan defaults tends to increase. RBMG
originates and purchases conventional loans as well as loans insured by the FHA
or partially guaranteed by the VA. In the case of conventional loans, RBMG is
generally at risk for any mortgage loan default from origination or purchase by
RBMG, as the case may be, until the loan is sold (typically less than 45 days).
Once RBMG sells the loan, the risk of loss from mortgage loan default and
foreclosure generally passes to the purchaser or insurer of the loan. RBMG has
from the time an FHA or VA mortgage loan is originated or purchased until the
first payment is due, a minimum of 31 days, to request insurance or a guarantee
certificate from the FHA and the VA, respectively. Once the insurance or the
guarantee certificate is issued, RBMG has no risk of default or foreclosure
except with respect to certain losses related to foreclosures of FHA mortgage
loans and losses that exceed the VA's guarantee limitation.
RBMG is also affected by mortgage loan delinquencies and defaults on the
mortgage loans that it services. Under certain types of servicing contracts,
particularly contracts to service loans that have been pooled or securitized,
the servicer must advance all or part of the scheduled payments to the owner of
the loan, even when loan payments are delinquent. Also, to protect their liens
on mortgaged properties, owners of mortgage loans usually require the servicer
to advance mortgage and hazard insurance and tax payments on schedule even if
sufficient escrow funds are unavailable.
With respect to VA loans, the VA guarantees the initial losses on a loan.
The guaranteed amount generally ranges from 20% to 35% of the original principal
balance. Before each foreclosure sale, the VA determines whether to bid to
purchase the foreclosed loan by comparing the estimated net sale proceeds to the
outstanding principal balance and the servicer's accumulated reimbursable costs
and fees. If this amount is a loss and exceeds the guaranteed amount, the VA
typically issues a no-bid and pays the servicer the guaranteed amount. Whenever
a no-bid is issued, the servicer absorbs the loss, if any, in excess of the sum
of the guaranteed principal and amounts recovered at the foreclosure sale.
RBMG's historical delinquency and foreclosure rate experience on VA loans has
generally been consistent with that of the industry.
In the case of loans insured by the FHA, RBMG will not be reimbursed for
certain amounts if foreclosure becomes necessary. Such amounts include interest
on the mortgage loan for the first two months subsequent to the loan becoming
delinquent and a portion of the costs of foreclosure (generally the unreimbursed
amount of such costs is limited to one-third of such costs).
With respect to VA loans, FHA loans and conventional loans, the servicer
generally is reimbursed ultimately by the mortgage loan owner or from
liquidation proceeds. However, in the interim, the servicer must absorb the cost
of funds advanced during the time the advance is outstanding. Further, the
servicer must bear the increased costs of attempting to collect on delinquent
and defaulted mortgage loans. In addition, if a default is not cured, the
mortgage loan will be extinguished as a result of foreclosure proceedings and
any servicing income ceased. As a consequence, RBMG will forego servicing income
from the time such loan becomes delinquent until it is foreclosed upon or is
brought current. RBMG maintains a reserve for possible losses at a level
considered adequate to provide for known and inherent risks related to
foreclosure and disposition losses. RBMG's evaluation of an adequate level of
foreclosure reserves considers past loss experience, industry loss experience,
geographic and product concentrations, delinquency trends, economic conditions
and other relevant factors. While RBMG uses the best currently available
information to make such evaluation, future adjustments to the foreclosure
reserve will be required as conditions and assumptions are revised in response
to changes in trends and the other factors and assumptions relevant to RBMG's
evaluation.
Availability of Funding Sources; Substantial Leverage
RBMG requires substantial financing for its business operations. Such
financing is currently provided primarily under (i) a 364-day secured mortgage
warehousing revolving credit agreement, which will expire in July 1998, entered
into by RBMG and The Bank of New York, as agent, and the several banks
identified on the
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signature pages thereto (the "Bank Credit Agreement"), (ii) a 364-day secured
revolving term credit agreement, which will expire in July 1998, entered into by
RBMG and The Bank of New York, as agent, and the several banks identified on the
signature pages thereto (the "Term Agreement"), (iii) a 364-day secured B/C
warehousing revolving credit agreement, which will expire in July 1998, entered
into by RBMG and The Bank of New York, as agent, and the several banks
identified on the signature pages thereto (the "B/C Credit Agreement") and (iv)
an uncommitted gestation financing facility, dated November 1, 1995, entered
into by RBMG and Chase Manhattan Corporation (the "Gestation Facility"). As of
September 30, 1997, RBMG had aggregate outstanding indebtedness of $521.7
million and $48.3 million of additional availability under the Bank Credit
Agreement, had aggregate outstanding indebtedness of $120.7 million and $79.3
million of additional availability under the Term Agreement, had aggregate
outstanding indebtedness of $25.5 million and $174.5 million of additional
availability under the B/C Credit Agreement and had aggregate outstanding
indebtedness of $461.1 million and $738.9 million of additional availability
under the Gestation Facility.
RBMG may incur additional indebtedness in the future, subject to certain
limitations contained in the instruments governing its current indebtedness. The
degree to which RBMG is leveraged could have important consequences to holders
of RBMG Common Stock, including the following: (i) RBMG's ability to grow will
depend on its ability to obtain additional financing in the future for
originating loans, investment in servicing rights, working capital, capital
expenditures and general corporate purposes; (ii) a substantial portion of
RBMG's cash flow from operations must be dedicated to the payment of the
principal of and interest on its indebtedness, thereby reducing the funds
available to finance operations or pay cash dividends; and (iii) RBMG may be
more highly leveraged than certain of its competitors, which may place RBMG at a
competitive disadvantage and make it more vulnerable to economic downturns.
To the extent that RBMG is not successful in negotiating renewals of its
borrowings or in arranging new financing, it may have to curtail its origination
activities and/or sell significant portions of its servicing portfolio, which
would have a material adverse effect on RBMG's business and results of
operations. Among the factors that will affect RBMG's ability to refinance its
bank credit and term facilities are financial market conditions and the value
and performance of RBMG prior to the time of such refinancing. There can be no
assurance that any such refinancing can be successfully completed at
advantageous rates or at all.
Federal Programs; Availability of Active Secondary Market
RBMG's ability to generate funds by sales of mortgage-backed securities is
largely dependent upon the continuation of programs administered by FNMA, FHLMC
and GNMA, which facilitate the issuance of such securities, as well as RBMG's
continued eligibility to participate in such programs. In addition,
approximately 42% (based on 1996 mortgage loan production) of RBMG's business is
dependent upon the continuation of various programs administered by the FHA,
which insures mortgage loans, and the VA, which partially guarantees mortgage
loans. Although RBMG is not aware of any proposed discontinuation of, or
significant reduction in, the operation of such programs, any such changes could
have a material adverse effect on RBMG's operations. RBMG anticipates that it
will continue to remain eligible to participate in such programs, but any
significant impairment of such eligibility would materially adversely affect its
operations. In addition, the mortgage loan products eligible for such programs
may be changed from time to time by the sponsor. The profitability of specific
types of mortgage loan products may vary depending on a number of factors,
including the administrative costs to RBMG of originating or purchasing such
types of mortgage loans.
There can be no assurance that RBMG will be successful in effecting the
sale of mortgage loans at the historic price or volume levels in any particular
future periods. Any significant change in the secondary market level of activity
or underwriting criteria of FNMA, FHLMC or private investors could have a
material adverse effect on the gain or loss on sales of mortgage loans recorded
by RBMG and therefore on RBMG's results of operations.
Effect of Certain Charter and Bylaw Provisions; Possible Issuance of Preferred
Stock
Certain provisions of the RBMG Certificate and the RBMG Bylaws could delay
or frustrate the removal of incumbent directors and could make more difficult a
merger, tender offer or proxy contest involving RBMG, even
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if such events could be beneficial to the interests of the RBMG Stockholders.
For example, the RBMG Certificate and the RBMG Bylaws provide certain
limitations on the calling of a special meeting of stockholders, and the RBMG
Bylaws require advance notice before certain proposals can be considered at
stockholder meetings. Pursuant to the RBMG Certificate, shares of preferred
stock may be issued in the future without further stockholder approval and upon
such terms and conditions, and having such rights, privileges and preferences,
as the RBMG Board may determine. The ability to issue preferred stock provides
desirable flexibility in connection with acquisitions and other corporate
transactions. However, the rights of the holders of RBMG Common Stock will be
subject to, and may be adversely affected by, any preferred stock that may be
issued in the future, and the issuance of preferred stock could have the effect
of making it more difficult for a third party to acquire, or of discouraging a
third party from acquiring, a majority of the outstanding voting stock of RBMG.
RBMG has no present plans to issue any shares of preferred stock.
Dependence on Key Individuals
The success of RBMG is in large part dependent upon the efforts of Edward
J. Sebastian, Chairman and Chief Executive Officer, and David W. Johnson, Jr.,
Vice Chairman and Managing Director. The loss of the services of either of these
two officers could have a material adverse effect upon RBMG if a suitable
replacement could not be quickly retained. RBMG has obtained key man life
insurance policies on Mr. Sebastian in the amount of $2,000,000 and Mr. Johnson
in the amount of $5,000,000. RBMG also has entered into certain employment and
employment related agreements with Mr. Johnson.
RISKS RELATING TO BUSINESS OF RBC
Business Risks Similar to those of RBMG
RBC's business is subject to a number of business risks that are similar to
those discussed above with respect to RBMG, including competition from other
equipment leasing and commercial mortgage banking companies, many of which are
better capitalized, changes in economic conditions, potential liabilities under
representations and warranties made in connection with the origination of leases
and commercial mortgage loans and delinquency and default risks. Changes in
interest rates also can have a variety of effects on RBC's business. In
particular, changes in interest rates affect the volume of originations, and the
profitability of, equipment leases and commercial mortgage loans. Furthermore,
RBC's equipment leasing business depends largely on independent lease brokers
who are not contractually obligated to do business with RBC. As a result of
these and other factors, RBC's operating results can fluctuate substantially
from period to period.
Dependence on RBMG
RBC's recent earnings have been largely attributable to RBMG and could be
adversely affected by the future performance and corporate actions of RBMG. For
the years 1994, 1995 and 1996, and the nine months ended September 30, 1996 and
1997, RBMG accounted for 37.7%, 76.6%, 128.0%, 106.3% and 109.1%, respectively,
of RBC's pre-tax income and 52.9%, 87.8%, 136.2%, 122.3% and 122.4%,
respectively, of its net income.
Dependence on Single Equipment Lease Client
The growth and profitability of RBC's equipment lease business are
dependent to a large extent on its ability to sell leases to and service leases
for third parties. Currently, RBC has in place an agreement to offer to sell
equipment leases to only one client; however, neither party is obligated to buy
or sell. The client has acquired leases on a regular basis since December 1996,
but there is no assurance of future sales. This client accounted for 65% and
57%, respectively, of lease non-interest revenues for 1996 and the nine months
ended September 30, 1997. RBC has a $50 million revolving credit facility that
expires on December 31, 1997 and which RBC expects to renew or replace upon
termination. RBC uses the proceeds of the credit facility to acquire leases and
hold such leases until they are sold. RBC's ability to acquire leases depends
upon RBC's ability to maintain its revolving credit facility or similar
financing and to periodically sell leases held by it. While RBC believes that it
will be able to maintain such financing and to acquire and sell sufficient
equipment lease receivables to enable its equipment leasing business to be
profitable, there can be no assurance that it will be able to do so. There can
be
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no assurance that RBC will be able to obtain other equipment lease clients,
which could have a material adverse effect on the business and results of
operations of RBC.
Concentration in Commercial Mortgage Loan Business
At September 30, 1997, approximately 43% of the commercial mortgage loans
serviced by Laureate Realty were owned by one investor. That investor accounted
for 32% of RBC's 1996 commercial mortgage fees and 24% of RBC's commercial
mortgage fees during the nine months ended September 30, 1997. The loss of this
investor as a client could have a material adverse effect on the business and
results of operations of RBC.
Availability of Funding Sources; Substantial Leverage
RBC requires substantial financing for its business operations. Such
financing is currently provided primarily under a $50 million equipment lease
facility, two commercial mortgage loan facilities totaling $16.5 million, and
two working capital lines of credit totaling $2.5 million. The equipment lease
facility expires in December 1997, the two commercial mortgage loan facilities
expire in February 1998 and the two working capital lines of credit expire in
March and April 1998. There can be no assurance that the facilities will be
renewed on comparable terms, or at all. RBC may incur additional indebtedness in
the future, subject to certain limitations contained in the instruments
governing its current indebtedness.
The degree to which RBC is leveraged could have important consequences to
holders of RBC Common Stock, including the following: (i) RBC's ability to grow
will depend on its ability to obtain additional financing in the future for
originating equipment leases and commercial mortgage loans, working capital,
capital expenditures and general corporate purposes; (ii) a substantial portion
of RBC's cash flow from operations must be dedicated to the payment of the
principal of and interest on its indebtedness, thereby reducing the funds
available to finance operations or pay cash dividends; and (iii) RBC is more
highly leveraged than certain of its competitors, which may place RBC at a
competitive disadvantage and make it more vulnerable to economic downturns.
To the extent that RBC is not successful in negotiating renewals of its
borrowings or in arranging new financing, it may have to curtail its business
activities, which would have a material adverse effect on RBC's business and its
results of operations. Among the factors that will affect RBC's ability to
refinance its bank credit facilities are financial market conditions and the
value and performance of RBC prior to the time of such refinancing. There can be
no assurance that any such refinancing will be successfully completed.
Certain Provisions in Governing Documents
RBC has adopted several provisions in the RBC Articles that may have the
effect of discouraging or preventing hostile take-over attempts. These
provisions include requirements for super-majority votes to approve certain
business combination transactions unless such transactions are approved by a
majority of disinterested directors or unless such transactions meet certain
minimum price, form of consideration and procedural requirements. To the extent
these provisions are effective, they may tend to reduce the value of shares of
RBC Common Stock.
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GENERAL INFORMATION
This Joint Proxy Statement/Prospectus is being furnished to (i) the RBMG
Stockholders in connection with the solicitation of proxies by the RBMG Board
for (A) approval and adoption of the RBC Merger Agreement, the RBC Merger and
the RBC Stock Issuance, (B) approval and adoption of the RBC Amendment, (C) the
election of two directors, (D) approval of each of the Plan Amendments and (E)
approval and adoption of the Non-Qualified Plan; and (ii) the RBC Stockholders
in connection with the solicitation of proxies by the RBC Board for approval and
adoption of the RBC Merger Agreement and the RBC Merger.
If the RBC Merger is consummated, each outstanding share of RBC Voting
Common Stock and RBC Non-Voting Common Stock (other than treasury shares, shares
of RBC Common Stock held by RBC Stockholders who perfect their dissenters'
rights under South Carolina law and shares of RBC Common Stock owned by RBMG or
any wholly owned subsidiary of RBMG) will be converted into the right to receive
such number of shares of RBMG Common Stock equal to the RBC Exchange Ratio, with
cash being paid in lieu of any fractional shares, plus an adjustment to account
for the cash dividend of $.04 per share of RBMG Common Stock payable to RBMG
Stockholders of record on December 18, 1997 (both as adjusted to reflect the
five percent stock dividend payable to RBMG Stockholders of record on December
18, 1997). Pursuant to the RBC Articles, immediately prior to the RBC Effective
Time, each share of RBC Non-Voting Common Stock will automatically convert into
one share of RBC Voting Common Stock.
This Joint Proxy Statement/Prospectus also constitutes the Prospectus of
RBMG with respect to the shares of RBMG Common Stock to be issued in the RBC
Merger. Information in this Joint Proxy Statement/Prospectus with respect to
RBMG has been supplied by RBMG. The information with respect to RBC has been
supplied by RBC.
THE RBMG ANNUAL MEETING
TIME, DATE, PLACE AND PURPOSE
The RBMG Annual Meeting will be held on Wednesday, December 31, 1997, at
10:00 a.m., local time, at the offices of King & Spalding, 191 Peachtree Street,
Atlanta, Georgia 30303. At the RBMG Annual Meeting, holders of RBMG Common Stock
will be asked to consider and vote upon proposals to (i) approve and adopt the
RBC Merger Agreement, the RBC Merger and the RBC Stock Issuance, (ii) approve
and adopt the RBC Amendment, (iii) elect two directors, (iv) approve each of the
Plan Amendments and (v) approve and adopt the Non-Qualified Plan. Copies of the
RBC Merger Agreement and the RBC Amendment are attached hereto as Annex A and
Annex B, respectively, and are incorporated herein by reference.
RECORD DATE AND SHARES ENTITLED TO VOTE
Only holders of record of shares of RBMG Common Stock at the close of
business on the RBMG Record Date are entitled to notice of and to vote at the
RBMG Annual Meeting and any adjournment or postponement thereof. As of such
date, there were 20,320,046 shares of RBMG Common Stock issued and outstanding
held by approximately 292 holders of record. Holders of record of RBMG Common
Stock on the RBMG Record Date for the RBMG Annual Meeting are entitled to one
vote per share on any matter that may properly come before the RBMG Annual
Meeting.
VOTE REQUIRED; SECURITY OWNERSHIP OF MANAGEMENT
The presence in person or by proxy of the holders of a majority of the
shares of RBMG Common Stock issued and outstanding as of the RBMG Record Date
and entitled to vote at the RBMG Annual Meeting is necessary to constitute a
quorum at the RBMG Annual Meeting. Directors are elected by a plurality of the
votes cast by the holders of RBMG Common Stock at a meeting at which a quorum is
present. The approval of a majority of the total votes cast by the shares of
RBMG Common Stock present (in person or by proxy) and entitled to vote at the
RBMG Annual Meeting is required to approve and adopt each of the Plan Amendments
and the Non-Qualified Plan. The affirmative vote of the holders of a majority of
the shares of RBMG Common Stock
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issued and outstanding as of the RBMG Record Date, voting in person or by proxy,
is necessary to approve and adopt each of the RBC Merger Agreement, the RBC
Merger, the RBC Stock Issuance and the RBC Amendment, accordingly, a failure to
vote or an abstention as to these matters will have the same effect as a vote
against such matters. As of the RBMG Record Date, the executive officers and
directors of RBMG and their affiliates beneficially owned an aggregate of
682,382 shares of RBMG Common Stock, or approximately 3.4% of the shares of RBMG
Common Stock then outstanding. Each of the executive officers and directors of
RBMG has advised RBMG that he intends to vote his shares of RBMG Common Stock in
favor of each of the proposals to approve and adopt the RBC Merger Agreement,
the RBC Merger, the RBC Stock Issuance and the RBC Amendment. RBC owns
approximately 36.4% of the outstanding RBMG Common Stock. The RBC Board has
authorized the voting of the shares of RBMG Common Stock owned by RBC in favor
of the proposals to approve each of the RBC Merger Agreement, the RBC Merger,
the RBC Stock Issuance and the RBC Amendment.
THE APPROVAL AND ADOPTION OF EACH OF THE RBC MERGER AGREEMENT, THE RBC
MERGER, THE RBC STOCK ISSUANCE AND THE RBC AMENDMENT IS CONTINGENT UPON THE
APPROVAL AND ADOPTION OF ALL OF THE RBC MERGER AGREEMENT, THE RBC MERGER, THE
RBC STOCK ISSUANCE AND THE RBC AMENDMENT. UNLESS EACH OF THE RBC MERGER
AGREEMENT, THE RBC MERGER, THE RBC STOCK ISSUANCE AND THE RBC AMENDMENT IS
APPROVED AND ADOPTED BY THE RBMG STOCKHOLDERS AT THE RBMG ANNUAL MEETING, NONE
OF THEM WILL BE EFFECTED BY RBMG.
SOLICITATION AND REVOCATION OF PROXIES
A form of proxy for the RBMG Annual Meeting is enclosed with the copies of
this Joint Proxy Statement/ Prospectus being sent to RBMG Stockholders. All
shares of RBMG Common Stock held of record as of the RBMG Record Date
represented by properly executed proxies will, unless such proxies have been
previously revoked, be voted in accordance with the instructions indicated on
such proxies. If no instructions are indicated, such shares will be voted FOR
each of the proposals to approve and adopt the RBC Merger Agreement, the RBC
Merger, the RBC Stock Issuance and the RBC Amendment, to elect the nominees as
directors, to approve each of the Plan Amendments and to approve and adopt the
Non-Qualified Plan, and, in the discretion of the proxy holder, as to any other
matter which may properly come before the RBMG Annual Meeting.
The RBMG Board is not aware of any other matters which may be presented for
action at the RBMG Annual Meeting, but if other matters do come properly before
the RBMG Annual Meeting it is intended that shares represented by proxies in the
accompanying form will be voted by the persons named in the proxy in accordance
with their best judgment. Any proxy given pursuant to this solicitation may be
revoked in writing by the person giving it at any time before the proxy is
exercised by giving notice to the RBMG Secretary or by submitting a proxy having
a later date or by such person appearing at the RBMG Annual Meeting and electing
to vote in person.
Abstentions will be counted as present for purposes of determining whether
a quorum is present. Consequently, any shares present and entitled to vote at
the RBMG Annual Meeting and which abstain with respect to either of the Plan
Amendments or the Non-Qualified Plan will have the same effect as a vote against
such matters. If a broker or nominee indicates on its proxy that it does not
have discretionary authority to vote on a particular matter as to certain
shares, those shares will be counted as present for purposes of a quorum but
will not be considered as present and entitled to vote with respect to such
matter.
The cost of soliciting proxies from the RBMG Stockholders will be borne by
RBMG. Proxies may be solicited by personal interview, mail and telephone by
certain of RBMG's executive officers, directors and regular employees, without
additional compensation. In addition, RBMG may reimburse brokerage firms and
other persons representing beneficial owners of shares of RBMG Common Stock for
their expenses in forwarding solicitation materials to beneficial owners.
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THE RBC SPECIAL MEETING
TIME, DATE, PLACE AND PURPOSE
The RBC Special Meeting will be held on Wednesday, December 31, 1997, at
8:30 a.m., local time, at the offices of King & Spalding, 191 Peachtree Street,
Atlanta, Georgia 30303. At the RBC Special Meeting, holders of RBC Common Stock
will be asked to consider and vote upon a proposal to approve and adopt the RBC
Merger Agreement and the RBC Merger. A copy of the RBC Merger Agreement is
attached hereto as Annex A and is incorporated herein by reference.
RECORD DATE AND SHARES ENTITLED TO VOTE
Only holders of record of shares of RBC Voting Common Stock and RBC
Non-Voting Common Stock at the close of business on the RBC Record Date are
entitled to notice of and to vote at the RBC Special Meeting. As of such date,
there were 7,121,245 shares of RBC Voting Common Stock issued and outstanding
held by approximately 180 holders of record and 1,577,788 shares of RBC
Non-Voting Common Stock issued and outstanding held by six holders of record.
Holders of record of RBC Voting Common Stock on the RBC Record Date for the RBC
Special Meeting are entitled to one vote per share on any matter that may
properly come before the RBC Special Meeting. Holders of record of RBC
Non-Voting Common Stock on the RBC Record Date for the RBC Special Meeting are
entitled to one vote per share only with respect to the approval and adoption of
the RBC Merger Agreement and the RBC Merger.
VOTE REQUIRED; SECURITY OWNERSHIP OF MANAGEMENT
The presence in person or by proxy of the holders of (i) a majority of the
shares of RBC Voting Common Stock issued and outstanding as of the RBC Record
Date and entitled to vote at the RBC Special Meeting and (ii) a majority of the
shares of RBC Non-Voting Common Stock issued and outstanding as of the RBC
Record Date and entitled to vote at the RBC Special Meeting is necessary to
constitute a quorum at the RBC Special Meeting. The affirmative vote of the
holders of (i) a majority of the shares of RBC Voting Common Stock entitled to
vote at the RBC Special Meeting, voting separately, and (ii) a majority of the
shares of RBC Non-Voting Common Stock entitled to vote at the RBC Special
Meeting, voting separately, is necessary to approve and adopt the RBC Merger
Agreement and the RBC Merger. Accordingly, a failure to vote or an abstention
will have the same effect as a vote against such matters. As of the RBC Record
Date, the executive officers and directors of RBC and their affiliates
beneficially owned an aggregate of 2,550,451 shares of RBC Voting Common Stock,
or approximately 35.8% of the shares of RBC Voting Common Stock then
outstanding, and 558,228 shares of RBC Non-Voting Common Stock, or approximately
35.4% of the shares of RBC Non-Voting Common Stock then outstanding. Each of the
executive officers and directors of RBC has advised RBC that he intends to vote
his shares of RBC Common Stock to approve and adopt the RBC Merger Agreement and
the RBC Merger.
SOLICITATION AND REVOCATION OF PROXIES
A form of proxy for the RBC Special Meeting is enclosed with the copies of
this Joint Proxy Statement/ Prospectus being sent to RBC Stockholders. All
shares of RBC Common Stock held of record as of the RBC Record Date represented
by properly executed proxies will, unless such proxies have been previously
revoked, be voted in accordance with the instructions indicated on such proxies.
If no instructions are indicated, such shares will be voted FOR the proposal to
approve and adopt the RBC Merger Agreement and the RBC Merger and, with respect
to shares of RBC Voting Common Stock, in the discretion of the proxy holder, as
to any other matter which may properly come before the RBC Special Meeting.
The RBC Board is not aware of any other matters which may be presented for
action at the RBC Special Meeting, but if other matters do come properly before
the RBC Special Meeting it is intended that shares of RBC Voting Common Stock
represented by proxies in the accompanying form will be voted by the persons
named in the proxy in accordance with their best judgment. Any proxy given
pursuant to this solicitation may be revoked in writing by the person giving it
at any time before the proxy is exercised by giving notice to the RBC Secretary
or
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by submitting a proxy having a later date or by such person appearing at the RBC
Special Meeting and electing to vote in person.
Abstentions will be counted as present for purposes of determining whether
a quorum is present. If a broker or nominee indicates on its proxy that it does
not have discretionary authority to vote on a particular matter as to certain
shares, those shares will be counted as present for purposes of a quorum but
will not be considered as present and entitled to vote with respect to such
matter.
The cost of soliciting proxies from the RBC Stockholders will be borne by
RBC. Proxies may be solicited by personal interview, mail and telephone by
certain of RBC's executive officers, directors and regular employees, without
additional compensation. In addition, RBC may reimburse brokerage firms and
other persons representing beneficial owners of shares of RBC Common Stock for
their expenses in forwarding solicitation materials to beneficial owners.
PROPOSAL NO. 1: THE RBC MERGER
BACKGROUND OF THE RBC MERGER
Between 1989 and 1993, RBC operated a residential mortgage banking business
as a division of a bank subsidiary. On June 3, 1993, RBC transferred the assets
and liabilities of its residential mortgage banking business to RBMG, a new
wholly owned subsidiary of RBC, and RBMG simultaneously sold 58% of its common
stock in an initial public offering. Accordingly, immediately thereafter RBC
owned 42% of the outstanding RBMG Common Stock. In conjunction with its ongoing
strategic planning and commencing in 1994, RBC had been considering various
alternatives to provide liquidity for its stockholders. Since September 1995,
RBMG had been examining a range of strategic options to diversify its lines of
business. During 1995 and 1996, management of RBMG and RBC periodically met to
discuss various strategic alternatives, some of which contemplated various
combinations of RBMG's and RBC's distinct business activities. On January 23 and
January 25, 1997, management of RBMG and RBC met to discuss the possibility of a
business combination between RBMG and RBC. As a result of the January 25
meeting, the parties determined to commence negotiations and due diligence
activities in connection with a business combination between RBMG and RBC.
Following the January 25 meeting, the RBMG Board met on January 29, 1997,
and determined to appoint the RBMG Special Committee to consider and evaluate
proposals relating to a business combination with RBC and make recommendations
to the RBMG Board with respect to such a transaction. The RBMG Special Committee
was also authorized to consider and evaluate proposals relating to a proposed
business combination with Walsh Holding Co., Inc. ("WSI") and make
recommendations to the RBMG Board with respect to such a transaction. The
members of the RBMG Special Committee were Boyd M. Guttery and John O. Wolcott.
The RBMG Special Committee was authorized by the RBMG Board to retain an
investment banking firm to act as its financial advisor and independent legal
counsel and other professional advisors. On January 29, 1997, the RBMG Special
Committee held its first meeting and selected King & Spalding to serve as its
independent legal counsel. On January 29, 1997, the parties were authorized to
commence due diligence investigations of the proposed transaction with RBC.
The RBMG Special Committee met again on January 30, 1997, with a
representative of King & Spalding. At the meeting, the RBMG Special Committee
discussed the status of the discussions with RBC and scheduled a meeting among
the parties and their advisors on February 2, 1997.
On February 2, 1997, a meeting was held among representatives of King &
Spalding, counsel for the RBMG Special Committee, representatives of McNair Law
Firm, P.A., counsel for RBC, a representative of Prudential Securities, proposed
financial advisor for the RBMG Special Committee, and representatives of Price
Waterhouse LLP, independent accountants for RBMG and RBC. At the meeting, the
parties discussed and summarized the tax, accounting and structural issues that
would need to be addressed in connection with the proposed RBC Merger. The
parties also discussed the steps necessary to complete such transaction.
On February 3, 1997, the RBMG Special Committee met with its counsel and
reviewed the discussions which took place at the meeting the previous day. The
RBMG Special Committee discussed investment banking
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firms which were candidates to serve as financial advisors to the RBMG Special
Committee. On February 4, 1997, the RBMG Special Committee met again to discuss
investment banking firms. On February 5, 1997, representatives of Prudential
Securities made a presentation to the members of the RBMG Special Committee
concerning that firm's qualifications to serve as financial advisor to the RBMG
Special Committee. On February 6 and February 7, 1997, the RBMG Special
Committee met to review the proposed engagement letter with Prudential
Securities.
In February 1997, RBMG entered into a confidentiality agreement with RBC
and WSI regarding confidential information of RBMG, RBC and WSI, and the parties
began exchanging confidential information regarding RBMG, RBC and WSI.
On February 9, 1997, the RBMG Special Committee and representatives of RBMG
met with representatives of RBC and WSI and their respective advisors to review
initial drafts of the principal agreements relating to each of the proposed RBC
Merger and the proposed WSI Merger. Negotiations on the terms of the principal
agreements continued between the RBMG Special Committee, on the one hand, and
each of RBC and WSI, on the other, over the next several weeks.
On February 10, 1997, management of RBC retained NationsBanc Montgomery to
serve as financial advisor to RBC.
On February 13, 1997, the RBC Board met with its counsel and
representatives of NationsBanc Montgomery to discuss the proposed transaction.
At the meeting, NationsBanc Montgomery presented a preliminary report.
On February 13, 1997, the RBMG Special Committee met with its counsel and
representatives of Prudential Securities and Price Waterhouse LLP. The RBMG
Special Committee approved the engagement of Prudential Securities to serve as
its financial advisor and assist in evaluating each of the proposed RBC Merger
and the proposed WSI Merger on their respective merits. Prudential Securities
confirmed that it would discuss with the RBMG Special Committee the other
strategic alternatives available to RBMG.
On February 20, 1997, the RBMG Special Committee met with its counsel and
representatives of Prudential Securities to discuss the status of the
negotiations with RBC on the proposed RBC Merger Agreement.
On February 25, 1997, the RBMG Special Committee met with its counsel and
representatives of Prudential Securities. Prudential Securities made a
preliminary report to the RBMG Special Committee as to the status of the
proposed RBC Merger. On February 26, 1997, the RBMG Special Committee met with
its counsel and representatives of Prudential Securities, RBMG and RBC. At that
meeting, Prudential Securities presented its preliminary reports on the proposed
RBC Merger to representatives of RBMG and RBC and responded to questions.
On March 3, 1997, the RBMG Special Committee met with its counsel,
representatives of Prudential Securities, Price Waterhouse LLP, RBMG, RBC and
counsel for RBC. Price Waterhouse LLP and Prudential Securities discussed the
structural issues relating to the proposed RBC Merger.
On March 6, 1997, the RBMG Special Committee met with its counsel,
representatives of Prudential Securities, Price Waterhouse LLP and RBMG. The
advisors to the RBMG Special Committee reviewed the proposed RBC Merger, and the
RBMG Special Committee reviewed the status of the negotiations with RBC.
During the week of March 10, 1997, representatives of the RBMG Special
Committee met with representatives of RBC to discuss the proposed terms of the
RBC Merger. The parties discussed proposed term sheets relating to the structure
of each of the proposed RBC Merger and the proposed transaction with WSI (the
"WSI Merger").
On March 17, 1997, the RBMG Special Committee met with its counsel and
reviewed the proposed term sheet and timetable for the proposed RBC Merger.
On March 18, 1997, the RBC Board met with its counsel, a representative of
NationsBanc Montgomery and representatives of RBMG. The representatives of RBMG
joined the meeting solely to discuss the proposed WSI Merger and then left the
meeting. Management of RBC, counsel for RBC and the representative of
NationsBanc
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Montgomery reviewed the status of negotiations and discussed alternative
strategies for RBC. NationsBanc Montgomery presented an updated report.
On April 1, 1997, the RBMG Special Committee met with its counsel and
representatives of Prudential Securities and Price Waterhouse LLP. The RBMG
Special Committee reviewed the status of negotiations with RBC and its advisors
and discussed with Price Waterhouse LLP the issues relating to the accounting
treatment of the proposed RBC Merger.
On April 4, 1997, the RBC Board met with its counsel, representatives of
NationsBanc Montgomery and a representative of Wachtell, Lipton, Rosen & Katz,
special counsel to RBC. At that meeting, the advisors to the RBC Board reviewed
the status of the proposed RBC Merger and of the separate proposed WSI Merger.
On April 9, 1997, the RBC Board met with its counsel, its special counsel
and a representative of NationsBanc Montgomery. Management of RBC and the
advisors reviewed the status of the proposed RBC Merger. NationsBanc Montgomery
reviewed the analyses performed by it in connection with its fairness opinion.
The RBC Board engaged the advisors in a thorough discussion of the terms of the
proposed RBC Merger. NationsBanc Montgomery then delivered orally its opinion to
the RBC Board to the effect that, as of such date and based upon and subject to
certain matters stated, the consideration to be received by the RBC Stockholders
in the RBC Merger was fair, from a financial point of view, to the RBC
Stockholders. After thorough discussion of the terms of the proposed RBC Merger
and such recommendation, the RBC Board unanimously approved the RBC Merger and
authorized the execution and delivery of the RBC Merger Agreement subject to
negotiation of the final terms of the RBC Merger Agreement and the submission of
the RBC Merger Agreement and the RBC Merger to the RBC Stockholders.
On April 17, 1997, the RBMG Special Committee met with its counsel to
discuss the status of the negotiations on the RBC Merger Agreement and the open
issues relating to RBMG's due diligence examination of RBC.
On Friday, April 18, 1997, the RBMG Special Committee and management of
RBMG and RBC met to discuss the final terms of the proposed RBC Merger. During
the day on April 18, 1997, negotiations on the RBC Merger Agreement were
concluded. The RBMG Special Committee and the RBMG Board met on the evening of
April 18, 1997. Prudential Securities reviewed with the RBMG Special Committee
and the RBMG Board the financial analyses performed by Prudential Securities in
connection with its fairness opinion. The RBMG Special Committee and the RBMG
Board engaged Prudential Securities in a thorough discussion of the final terms
of the proposed RBC Merger. Prudential Securities then delivered its opinion to
the RBMG Special Committee and the RBMG Board to the effect that, as of such
date and based upon and subject to certain matters stated in such opinion, the
RBC Exchange Ratio was fair, from a financial point of view, to the RBMG
Stockholders. The RBMG Special Committee then met separately from the full RBMG
Board. At that meeting, the RBMG Special Committee unanimously approved the RBC
Merger Agreement. Immediately after the RBMG Special Committee meeting
adjourned, the full RBMG Board met and reviewed the terms of the proposed RBC
Merger and the recommendation of the RBMG Special Committee with its advisors.
After thorough discussion of the terms of the proposed RBC Merger and such
recommendation, the full RBMG Board unanimously approved the RBC Merger
Agreement and authorized the execution and delivery of the RBC Merger Agreement
and the submission of the RBC Merger Agreement and the RBC Merger to the RBMG
Stockholders for approval and adoption.
After the RBMG Board meeting ended in the evening of April 18, 1997, RBMG,
RBC and RBC Merger Sub executed the RBC Merger Agreement. On Monday, April 21,
1997, the parties issued a joint press release announcing the RBC Merger and the
WSI Merger.
On September 18, 1997, the RBC Merger Agreement was amended to extend the
date after which RBC or RBMG may terminate the RBC Merger Agreement if the RBC
Effective Time shall not have occurred from November 1, 1997, to January 31,
1998 (or, in certain circumstances, from December 31, 1997 to February 28,
1997).
On November 1, 1997, the WSI Merger Agreement was terminated by agreement
of the parties.
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On November 12, 1997 the RBC Merger Agreement was further amended to
provide an adjustment to the RBC Exchange Ratio to account for the cash dividend
of $.04 per share of RBMG Common Stock payable to RBMG Stockholders of record on
December 18, 1997. On December 1, 1997, Prudential Securities advised the RBMG
Board that the adjustment to the RBC Exchange Ratio would not alter its opinion
that the RBC Exchange Ratio was fair, from a financial point of view, to the
RBMG Stockholders as of April 18, 1997.
TERMS OF THE RBC MERGER AGREEMENT
General. The RBC Merger Agreement provides that, following approval and
adoption of the RBC Merger Agreement by the stockholders of RBC and RBMG and the
satisfaction or waiver of the other conditions to the RBC Merger, RBC Merger Sub
will be merged with and into RBC at the RBC Effective Time in accordance with
the SCBCA. RBC will be the surviving corporation in the RBC Merger. As a result
of the RBC Merger, the separate corporate existence of RBC Merger Sub will
cease, and RBC will become a wholly owned subsidiary of RBMG.
Conversion of Shares. The RBC Merger Agreement provides that each share of
RBC Voting Common Stock and RBC Non-Voting Common Stock issued and outstanding
immediately before the RBC Effective Time (other than treasury shares, shares of
RBC Common Stock held by RBC Stockholders who perfect their dissenters' rights
under South Carolina law and shares of RBC Common Stock owned by RBMG or any
wholly owned subsidiary of RBMG) and all rights in respect thereof, shall, at
the RBC Effective Time, be converted into and become exchangeable for 1.08026
shares (the "RBC Exchange Ratio") of RBMG Common Stock, with cash being paid in
lieu of any fractional shares plus an adjustment to account for the cash
dividend of $.04 per share of RBMG Common Stock payable to RBMG Stockholders of
record on December 18, 1997. Pursuant to the RBC Articles, immediately prior to
the RBC Effective Time, each outstanding share of RBC Non-Voting Common Stock
will automatically convert into one share of RBC Voting Common Stock. The RBC
Exchange Ratio is subject to adjustment in accordance with the RBC Merger
Agreement. The RBC Exchange Ratio will be increased by an amount equal to (i)
0.0432104 divided by (ii) the arithmetic average of the closing prices of a
share of RBMG Common Stock on the Nasdaq National Market for each of the 10
trading days ending five trading days prior to the RBC Effective Time (the "Cash
Dividend Adjustment"). This adjustment to the RBC Exchange Ratio will provide
RBC Stockholders with the right to receive additional shares of RBMG Common
Stock with a value equal to the value of such cash dividend to RBC Stockholders
had they been RBMG Stockholders entitled to receive the cash dividend. In the
event of any change in the number of outstanding shares of RBC Voting Common
Stock and RBC Non-Voting Common Stock or RBMG Common Stock by reason of any
reclassification, recapitalization, split-up, combination or exchange of shares,
or any dividend payable in stock or other securities is declared the record date
of which is prior to the RBC Effective Time, including the five percent stock
dividend payable to RBMG Stockholders of record on December 18, 1997 (the "Stock
Dividend Adjustment"), the RBC Exchange Ratio shall be appropriately adjusted to
provide the holders of RBC Voting Common Stock and RBC Non-Voting Common Stock
the same economic effect as contemplated by the RBC Merger Agreement prior to
such action. The $.04 per share cash dividend will be distributed to RBMG
Stockholders based on the number of shares outstanding before the five percent
stock dividend. Accordingly, the Cash Dividend Adjustment will be applied to the
RBC Exchange Ratio first, and then the RBC Exchange Ratio, as increased by the
Cash Dividend Adjustment, will be increased by five percent to account for the
Stock Dividend Adjustment. Because the amount of the Cash Dividend Adjustment is
based on market prices for the 10 trading days ending five trading days prior to
the RBC Effective Time, the Cash Dividend Adjustment cannot be calculated as of
the date of this Joint Proxy Statement/Prospectus. As a result, the exact final
RBC Exchange Ratio cannot be calculated until the amount of the Cash Dividend
Adjustment is known, five trading days prior to the RBC Effective Time. However,
if the stock price average on which the Cash Dividend Adjustment is calculated
were equal to $13.6875, the closing sale price of RBMG Common Stock on the
Nasdaq National Market on December 1, 1997 (unadjusted for the five percent
stock dividend), the RBC Exchange Ratio would be calculated as follows: (a)
1.08026 plus the quotient of (i) 0.0432104 divided by (ii) $13.6875 (which
equals 1.0834169), multiplied by (b) 1.05 (the Stock Dividend Adjustment), which
results in a final RBC Exchange Ratio of 1.1375877. Cash will be paid in lieu of
fractional shares of RBMG Common Stock in an amount equal to the fractional
share interest multiplied by the arithmetic average of the closing price for a
share of RBMG
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Common Stock on the Nasdaq National Market for each of the 10 trading days
immediately prior to the RBC Effective Time.
Each outstanding share of RBC Common Stock as to which a written notice of
election to dissent from the RBC Merger is filed in accordance with the South
Carolina Dissenters' Rights Statute, at or prior to the RBC Special Meeting and
not withdrawn at or prior to the RBC Special Meeting and which is not voted in
favor of the RBC Merger, will not be converted into or represent a right to
receive RBMG Common Stock under the RBC Merger Agreement unless and until the
holder shall have failed to perfect, or shall have effectively withdrawn his
right to appraisal, at which time his shares shall be converted into RBMG Common
Stock like any other shares of outstanding RBC Common Stock.
Directors and Officers of RBC following the RBC Merger. The officers of
RBC immediately prior to the RBC Effective Time will continue to serve in their
respective offices after the RBC Effective Time. The directors of RBC Merger Sub
immediately prior to the RBC Effective Time will become the directors of RBC as
of the RBC Effective Time. The directors of RBC Merger Sub are Edward J.
Sebastian and David W. Johnson, Jr.
Indemnification Obligations. The RBC Merger Agreement provides that the
provisions of the RBC Articles of Incorporation and the RBMG Certificate
relating to indemnification of officers and directors shall not be amended,
repealed or otherwise modified for a period of six years from the RBC Effective
Time in any manner that would affect adversely the rights thereunder of
individuals who are at or who were at any time prior to the RBC Effective Time
directors, officers, employees, fiduciaries or agents of RBC or RBMG. RBMG also
agreed in the RBC Merger Agreement to indemnify each present and former director
and officer of RBC and RBMG, determined as of the RBC Effective Time, (i) from
and after the RBC Effective Time, against any liabilities arising out of or
pertaining to matters existing or occurring at or prior to the RBC Effective
Time to the fullest extent that RBC and RBMG would have been permitted under
South Carolina and Delaware law, respectively, and their respective charter
documents to indemnify such parties and (ii) for a period of six years after the
date of the RBC Merger Agreement, against any liabilities arising out of or
pertaining to the transactions contemplated by the RBC Merger Agreement, to the
fullest extent permitted under applicable law.
No Solicitation. The RBC Merger Agreement provides that RBC shall not
directly or indirectly solicit, initiate or knowingly encourage (including by
way of furnishing non-public information) any inquiries or the making of any
proposal or offer that constitutes or may reasonably be expected to lead to (i)
a merger, consolidation, share exchange, business combination or other similar
transaction, (ii) any sale, lease, exchange, transfer or other disposition of 50
percent or more of the assets of RBC and its subsidiaries as a whole or (iii) a
tender offer or exchange offer for 50 percent or more of the outstanding voting
securities of RBC, other than the RBC Merger.
Conditions to the RBC Merger. The obligations of both RBMG and RBC to
consummate the RBC Merger are subject to the satisfaction or, if permitted by
applicable law, the waiver of the following conditions: (i) the effectiveness of
the Registration Statement under the Securities Act and the absence of any stop
order suspending the effectiveness of the Registration Statement or any
proceedings by the Commission for such purpose; (ii) the approval of the RBC
Merger Agreement, the RBC Merger and the RBC Amendment by the RBMG Stockholders
in accordance with the DGCL and the Nasdaq National Market rules; (iii) the
approval of the RBC Merger Agreement and the RBC Merger by the RBC Stockholders
in accordance with the SCBCA; (iv) the absence of any order, writ, injunction or
decree by any court of competent jurisdiction or governmental entity to the
effect that the RBC Merger is illegal or otherwise prohibiting its consummation;
(v) the termination or expiration of the applicable waiting period under the HSR
Act; (vi) the receipt of all consents, approvals and authorizations legally
required to be obtained to consummate the RBC Merger (other than consents,
approvals and authorizations the failure to obtain which would not result in a
change in or have an effect on the business of RBC or RBMG that is or is
reasonably likely to be materially adverse to the business, assets, liabilities,
condition or results of operations of RBMG and its subsidiaries as a whole);
(vii) the receipt of all permits or approvals required by state securities or
blue sky laws to carry out the RBC Merger; and (viii) the shares of RBMG Common
Stock into which the RBC Common Stock will be converted pursuant to the RBC
Merger Agreement shall have been authorized for listing on the Nasdaq National
Market, subject to official notice of issuance.
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In addition to the foregoing, the obligation of RBC to consummate the RBC
Merger is subject to the satisfaction of or, if permitted by applicable law, the
waiver of the following conditions: (i) each of the representations and
warranties of RBMG contained in the RBC Merger Agreement that is qualified by
materiality shall be true and correct on and as of the RBC Effective Time, as if
made at and as of the RBC Effective Time (other than representations and
warranties that address matters only as of a certain date, which shall be true
and correct as of such certain date), and each of the representations and
warranties that is not so qualified shall be true and correct in all material
respects on and as of the RBC Effective Time as if made at and as of the RBC
Effective Time (other than representations and warranties that address matters
only as of a certain date, which shall be true and correct in all material
respects as of such certain date), in each case except as contemplated or
permitted by the RBC Merger Agreement, and RBC shall have received a certificate
of the Chairman or President and the Chief Financial Officer of RBMG to such
effect; (ii) RBMG shall have performed or complied in all material respects with
all material agreements and covenants required by the RBC Merger Agreement to be
performed or complied with by RBMG on or prior to the RBC Effective Time and RBC
shall have received a certificate of the Chairman or President and Chief
Financial Officer of RBMG to that effect; and (iii) McNair Law Firm, P.A. or
King & Spalding shall have issued its opinion, such opinion dated on or about
the RBC Effective Time and on or about the date that is two business days prior
to the date the Joint Proxy Statement/Prospectus is first mailed to RBMG
Stockholders, addressed to RBC and reasonably satisfactory to it, to the effect
that, based upon customary representations of RBC and RBMG and customary
assumptions, the RBC Merger will be treated for federal income tax purposes as a
reorganization qualifying under the provisions of Section 368(a) of the Code and
that the RBC Stockholders will recognize no gain or loss upon the receipt of
shares of RBMG Common Stock in exchange for shares of RBC Voting Common Stock or
RBC Non-Voting Common Stock in the RBC Merger, which opinion shall not have been
withdrawn or modified in any material respect.
In addition, the obligation of RBMG to consummate the RBC Merger is subject
to the satisfaction of or, if permitted by applicable law, the waiver of the
following condition: since January 1, 1997, there shall not have occurred any
change in or effect on the business of RBC and its subsidiaries that is or is
reasonably likely to be materially adverse to the business, assets, liabilities,
condition or results of operations of RBC and its subsidiaries taken as a whole
(an "RBC Material Adverse Effect") or, since the date of the RBC Merger
Agreement, an inaccuracy of the representations and warranties of RBC or the
failure of RBC to comply with or perform its agreements and covenants required
by the RBC Merger Agreement, in either case, which results in an RBC Material
Adverse Effect, other than an RBC Material Adverse Effect that may be
compensated for by adjusting the RBC Exchange Ratio (which adjustment is agreed
to by the parties).
Amendment. The RBC Merger Agreement may be amended at any time prior to
the RBC Effective Time by written agreement of the parties, except that, without
securing any stockholder approval required by Delaware or South Carolina law, no
amendment may be made that would (i) reduce the amount or change the type of
consideration to be received by the RBC Stockholders, (ii) materially and
adversely affect RBC or RBMG or the RBC Stockholders or the RBMG Stockholders or
(iii) change any term of the RBC Articles or the RBMG Certificate except as
contemplated by the RBC Merger Agreement.
Termination. The RBC Merger Agreement may be terminated and the RBC Merger
abandoned at any time prior to the RBC Effective Time (i) by mutual written
consent of the RBC Board and the RBMG Board, (ii) by RBC or RBMG if the RBC
Effective Time shall not have occurred on or before January 31, 1998 (or, in
certain circumstances, February 28, 1998), (iii) by RBC or RBMG in the event of
government action prohibiting the RBC Merger or (iv) by RBC or RBMG, if the RBC
Merger Agreement and the RBC Merger shall fail to be approved by the RBC
Stockholders or the RBMG Stockholders.
Fees and Expenses. All expenses incurred in connection with the RBC Merger
Agreement and the RBC Merger, including financial advisory fees, independent
accountants fees and legal fees, will be paid by the party incurring such
expenses, whether or not the RBC Merger is consummated, except that all expenses
relating to filing fees pursuant to the HSR Act, printing, filing and mailing
the Registration Statement and the Joint Proxy Statement/Prospectus and all
Commission and other regulatory filing fees incurred in connection with the
Registration Statement and the Joint Proxy Statement/Prospectus will be borne
equally by RBC and RBMG.
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EFFECTIVE TIME OF THE RBC MERGER AND EXCHANGE OF SHARES
Effective Time of the RBC Merger. The RBC Merger will become effective by
filing articles of merger with the Secretary of State of the State of South
Carolina in such form as required by, and executed in accordance with, the
relevant provisions of the SCBCA. The RBC Merger Agreement provides that the
parties thereto will cause such articles of merger to be filed after each of the
conditions to consummation of the RBC Merger has been satisfied or, if
permissible, waived. The RBC Merger cannot become effective until the RBMG
Stockholders have approved and adopted the RBC Merger Agreement, the RBC Merger,
the RBC Stock Issuance and the RBC Amendment and the RBC Stockholders have
approved and adopted the RBC Merger Agreement and the RBC Merger, and all
required regulatory approvals and actions have been obtained and taken. Thus,
there can be no assurance as to whether or when the RBC Merger will become
effective.
Exchange of RBC Stock Certificates. Promptly following the RBC Effective
Time, instructions and a letter of transmittal will be furnished to all RBC
Stockholders for use in exchanging their stock certificates for certificates
evidencing the shares of RBMG Common Stock they will be entitled to receive as a
result of the RBC Merger. RBC STOCKHOLDERS SHOULD NOT SUBMIT THEIR STOCK
CERTIFICATES FOR EXCHANGE UNTIL INSTRUCTIONS AND THE LETTER OF TRANSMITTAL ARE
RECEIVED.
OPINION OF RBC'S FINANCIAL ADVISOR
General. Pursuant to an engagement letter dated March 10, 1997 (the "RBC
Engagement Letter"), RBC engaged NationsBanc Montgomery to evaluate a potential
sale of RBC to RBMG. As part of its engagement, NationsBanc Montgomery agreed,
if requested by RBC, to render to the RBC Board a fairness opinion with respect
to a potential sale of RBC. NationsBanc Montgomery is a nationally recognized
investment banking firm and, as part of its investment banking activities, is
regularly engaged in the valuation of businesses and their securities in
connection with merger transactions and other types of acquisitions, negotiated
underwritings, private placements and valuations for corporate and other
purposes. RBC selected NationsBanc Montgomery to render the opinion on the basis
of its experience and expertise in transactions similar to the RBC Merger and
its reputation in the banking and investment communities. NationsBanc Montgomery
was not retained nor did it advise RBC with respect to alternatives to the RBC
Merger. Further, NationsBanc Montgomery was not requested to nor did it solicit
or assist RBC in soliciting indications of interest from third parties for all
or any part of RBC.
In requesting the opinion of NationsBanc Montgomery, the RBC Board neither
gave any special instructions to NationsBanc Montgomery nor imposed any
limitations upon the scope of the investigation that NationsBanc Montgomery
deemed necessary to enable it to deliver the RBC Opinion.
At a meeting of the RBC Board on April 9, 1997, NationsBanc Montgomery
delivered its oral opinion that, as of that date, the consideration to be
received by the RBC Stockholders pursuant to the RBC Merger was fair to the RBC
Stockholders from a financial point of view. NationsBanc Montgomery's oral
opinion was subsequently confirmed in writing as of April 18, 1997 and November
14, 1997.
THE FULL TEXT OF NATIONSBANC MONTGOMERY'S WRITTEN OPINION TO THE RBC BOARD,
DATED NOVEMBER 14, 1997, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS
CONSIDERED, AND LIMITATIONS OF THE REVIEW BY NATIONSBANC MONTGOMERY, IS ATTACHED
HERETO AS ANNEX E AND IS INCORPORATED HEREIN BY REFERENCE. THE FOLLOWING SUMMARY
OF NATIONSBANC MONTGOMERY'S OPINION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FULL TEXT OF THE OPINION, WHICH SHOULD BE READ CAREFULLY AND IN ITS
ENTIRETY. IN FURNISHING SUCH OPINION, NATIONSBANC MONTGOMERY DOES NOT ADMIT THAT
IT IS AN EXPERT WITH RESPECT TO THE REGISTRATION STATEMENT OF WHICH THIS JOINT
PROXY STATEMENT/PROSPECTUS IS A PART WITHIN THE MEANING OF THE TERM "EXPERTS" AS
USED IN THE SECURITIES ACT AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER.
NATIONSBANC MONTGOMERY'S OPINION IS ADDRESSED TO THE RBC BOARD, COVERS ONLY THE
FAIRNESS OF THE CONSIDERATION TO BE RECEIVED BY RBC STOCKHOLDERS FROM A
FINANCIAL POINT OF VIEW AS OF THE DATE OF THE OPINION AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY HOLDER OF THE RBC COMMON STOCK AS TO HOW SUCH RBC
STOCKHOLDER SHOULD VOTE AT THE RBC SPECIAL MEETING.
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In connection with its November 14, 1997 opinion, NationsBanc Montgomery,
among other things: (i) reviewed certain publicly available financial and other
data with respect to RBMG including the consolidated financial statements for
recent years and interim periods to September 30, 1997, and certain other
relevant financial and operating data relating to RBC and RBMG made available to
NationsBanc Montgomery from published sources and from the internal records of
RBC and RBMG, including the consolidated financial statements of RBC for recent
years and interim periods to September 30, 1997; (ii) reviewed the financial
terms and conditions of the RBC Merger Agreement; (iii) reviewed certain
publicly available information concerning the trading of, and the trading market
for, RBMG Common Stock; (iv) compared RBMG and RBC from a financial point of
view with certain other companies in the mortgage banking and equipment leasing
industries which NationsBanc Montgomery deemed to be relevant; (v) reviewed and
discussed with representatives of the management of RBC and RBMG certain
information of a business and financial nature regarding RBC and RBMG furnished
to NationsBanc Montgomery by them, including financial projections and related
assumptions of RBC and RBMG; (vi) made inquiries regarding and discussed the RBC
Merger and the RBC Merger Agreement and other matters related thereto with RBC's
counsel; and (vii) performed such other analyses and examinations as NationsBanc
Montgomery deemed appropriate.
In connection with NationsBanc Montgomery's review, Nationsbanc Montgomery
did not assume any obligation independently to verify the foregoing information
and relied on its being accurate and complete in all material respects. With
respect to the financial projections for RBC and RBMG provided to NationsBanc
Montgomery by their respective managements, upon their advice and with RBC's
consent, NationsBanc Montgomery assumed for purposes of its opinion that the
projections were reasonably prepared on bases reflecting the best available
estimates and judgment of their respective managements, at the time of
preparation as to the financial performance of RBC and RBMG, and that they
provided a reasonable basis from which NationsBanc Montgomery could form its
opinion. NationsBanc Montgomery also assumed that there were no material changes
in RBC's or RBMG's assets, financial condition, results of operations, business
or prospects since the respective dates of their last financial statements made
available to NationsBanc Montgomery.
NationsBanc Montgomery is not an expert in the evaluation of loan
portfolios for purposes of assessing the adequacy of the allowances for losses
with respect thereto and assumed, with RBC's consent, that such allowances for
each of RBC and RBMG were in the aggregate adequate to cover such losses. In
addition, NationsBanc Montgomery did not assume responsibility for reviewing any
individual credit files, or for making an independent evaluation, appraisal or
physical inspection of any of the assets or liabilities (contingent or
otherwise) of RBC or RBMG, nor was NationsBanc Montgomery furnished with any
such appraisals. Similarly, NationsBanc Montgomery, with RBC's consent, did not
assume any responsibility for reviewing any aspect of the loan securitization
programs of RBC or RBMG and assumed, for purposes of its opinion, that each such
program was conducted in full compliance with all applicable regulations.
Further, NationsBanc Montgomery did not make an independent evaluation of the
reasonableness of the projections utilized in each of such securitization
programs and assumed that such projections were based on assumptions that were
reasonable and that such securitizations have been properly presented in the
financial statements in accordance with generally accepted accounting principles
and all applicable accounting standards and have been recorded on the applicable
financial statements on a reasonable basis. Finally, NationsBanc Montgomery's
opinion was based on economic, monetary and market and other conditions as in
effect on, and the information made available to NationsBanc Montgomery as of,
the date of the opinion. Accordingly, although subsequent developments may
affect the opinion, NationsBanc Montgomery has not assumed any obligation to
update, revise or reaffirm its opinion.
NationsBanc Montgomery assumed that the RBC Merger would be consummated in
a manner that complies in all respects with the applicable provisions of the
Securities Act, the Exchange Act, and all other applicable federal and state
statutes, rules and regulations. NationsBanc Montgomery assumed that the RBC
Merger would be recorded as a purchase under generally accepted accounting
principles. Further, RBC informed NationsBanc Montgomery, and NationsBanc
Montgomery assumed, that the RBC Merger, when consummated, would be treated as a
tax-free reorganization under Section 368(a) of the Code.
Set forth below is a brief summary of the report dated November 11, 1997
provided by NationsBanc Montgomery to the RBC Board in connection with its
opinion. For purposes of the report, NationsBanc Montgomery assumed 20.3 million
shares of RBMG Common Stock outstanding, 7.4 million shares of RBMG
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Common Stock already owned by RBC and 2.0 million additional shares of RBMG
Common Stock to be issued by RBMG to RBC Stockholders in the RBC Merger.
Component Valuation of RBC's Operating Assets. NationsBanc Montgomery
independently valued various operating components of RBC and added the
independent values to determine the valuation of RBC as a whole. The pieces for
which NationsBanc Montgomery determined a value were: (i) Republic Leasing; (ii)
Laureate Realty; and (iii) RBC's investment in Intek. RBC also owns 7.4 million
shares of RBMG Common Stock, which NationsBanc Montgomery valued at the then
current market value ($13.94 per share on November 10, 1997) implying an
aggregate market value of $103.1 million for its ownership position in RBMG. For
Republic Leasing, NationsBanc Montgomery examined a group of public leasing
companies NationsBanc Montgomery deemed relevant and selected certain merger and
acquisition transactions in the leasing industry for which public data was
available and that NationsBanc Montgomery believed to be comparable. Applying
certain pricing multiples from both the public comparable companies (price to
estimated 1998 earnings) and the comparable merger transactions (price to last
12 months ("LTM") earnings and price to book) and a reasonable small private
company and liquidity discount to the respective financial figures of Republic
Leasing yielded a valuation range of $10.8 million to $16.5 million. For
Laureate Realty, since no public company existed that was purely a commercial
mortgage company, NationsBanc Montgomery examined a group of companies that had
a commercial mortgage business component. In most instances, the commercial
mortgage business of those companies contributed less than 20% in terms of
assets, revenues and net income to the overall business mix of the combined
company. NationsBanc Montgomery also selected certain merger and acquisition
transactions in the commercial mortgage industry for which public data were
available and that NationsBanc Montgomery believed to be comparable. Using
certain pricing multiples (price to estimated 1998 earnings and total value as a
percentage of the servicing portfolio), NationsBanc Montgomery valued Laureate
Realty at $7.5 million to $15.0 million. To value RBC's ownership position in
Intek, NationsBanc Montgomery examined a group of teleservicing companies
NationsBanc Montgomery deemed to be relevant. Applying a reasonable small
private company and liquidity discount and a price to estimated 1998 earnings
multiple of these teleservicing companies to a discounted 1999 earnings estimate
for Intek and also utilizing a February price for which RBC was able to sell 25%
of its position in Intek yielded a valuation range of $3.9 million to $5.2
million. In summary, NationsBanc Montgomery determined a range of values for:
(i) Republic Leasing of $10.8 million to $16.5 million; (ii) Laureate Realty of
$7.5 million to $15.0 million; and (iii) RBC's investment in Intek of $3.9
million to $5.2 million. Adding these three components yields a valuation range
for RBC's non-RBMG operating assets of $22.2 million to $36.7 million. The value
of the two million additional shares of RBMG Common Stock to be issued in the
RBC Merger fell within this range. At November 10, 1997, the value of the
additional two million shares was approximately $27.9 million, based on RBMG's
Common Stock price of $13.94. Including RBC's 7.4 million share investment in
RBMG yields a valuation range of 125.3 million to $139.8 million. The value of
the 9.4 million shares to be issued in the RBC Merger fell within this range. At
November 10, 1997, the value of the 9.4 million shares was approximately $131.0
million.
Contribution Analysis. NationsBanc Montgomery compared RBC's contribution
to the combined RBMG, Republic Leasing and Laureate Realty companies (in terms
of its non-RBMG operating assets, equity, revenues and net income at or for the
nine months ended September 30, 1997 and estimated net income for 1997 and 1998)
to the additional ownership percentage implied by the additional two million
shares to be issued in the RBC Merger. RBC's non-RBMG operating assets, equity,
revenues and net income at or for the nine months ended September 30, 1997
represent 4.48%, 8.97%, 10.25% and 5.45%, respectively, of the combined RBMG,
Republic Leasing and Laureate Realty companies. For 1997 and 1998 estimated net
income, RBC's non-RBMG operating net income represents 6.90% and 5.08%,
respectively, of the combined RBMG, Republic Leasing and Laureate Realty
companies. In comparison, the additional two million shares of RBMG Common Stock
issued in the RBC Merger for the non-RBMG operating assets represent 8.96% of
the combined RBMG, Republic Leasing and Laureate Realty companies.
Dilution Analysis. NationsBanc Montgomery analyzed the effect of the RBC
Merger on 1998 earnings per share ("EPS") for RBMG. For this analysis,
NationsBanc Montgomery used 1998 earnings projections provided by RBC management
for the RBC non-RBMG operating assets and NationsBanc Montgomery's published
1998 EPS estimate for RBMG. NationsBanc Montgomery did not assume any synergies
regarding cost savings or revenue enhancements in its analysis. Comparing RBMG's
1998 EPS estimate before the RBC Merger with pro
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forma EPS after the RBC Merger indicates that the RBC Merger without synergies
is dilutive to RBMG's 1998 EPS estimates. The estimates used for this analysis
are not necessarily indicative of expected results or plans of RBC, RBMG or the
combined institutions.
The summary set forth above does not purport to be a complete description
of NationsBanc Montgomery's report to the RBC Board or of the analyses performed
by NationsBanc Montgomery. The preparation of a fairness opinion is not
necessarily susceptible to partial analysis or summary description. NationsBanc
Montgomery believes that its analyses and the summary set forth above must be
considered as a whole and that selecting a portion of its analyses and factors,
without considering all analyses and factors, would create an incomplete view of
the process underlying the analyses set forth in its presentation to the RBC
Board. In addition, NationsBanc Montgomery may have given various analyses more
or less weight than other analyses and may have deemed various assumptions more
or less probable than other assumptions, so that the ranges of valuations
resulting from any particular analysis described above should not be taken to be
NationsBanc Montgomery's view of the actual value of RBC or the combined
companies. The fact that any specific analysis has been referred to in the
summary above is not meant to indicate that such analysis was given greater
weight than any other analysis.
In performing its analyses, NationsBanc Montgomery made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of RBC and
RBMG. The analyses performed by NationsBanc Montgomery are not necessarily
indicative of actual values or actual future results, which may be significantly
more or less favorable than suggested by such analyses. Such analyses were
prepared solely as part of NationsBanc Montgomery's analysis of the fairness of
the consideration to be received by the RBC Stockholders in the RBC Merger and
were provided to the RBC Board in connection with the delivery of NationsBanc
Montgomery's opinion. The analyses do not purport to be appraisals or to reflect
the prices at which a company might actually be sold or the prices at which any
securities may trade at the present time or any time in the future. The
projections used in NationsBanc Montgomery's analyses are based on numerous
variables and assumptions which are inherently unpredictable and must be
considered not certain of occurrence as projected. Accordingly, actual results
could vary significantly from those set forth in such projections.
As described below under "The RBC Merger -- Reasons for the RBC Merger,"
NationsBanc Montgomery's opinion and presentation to the RBC Board were among
the many factors taken into consideration by the RBC Board in making its
determination to approve the RBC Merger Agreement.
Pursuant to the RBC Engagement Letter, RBC paid NationsBanc Montgomery a
fee of $50,000 upon the signing of the RBC Engagement Letter and $250,000 on
April 18, 1997 in connection with the delivery of a fairness opinion related to
the RBC Merger. In addition, NationsBanc Montgomery will receive approximately
$1,200,000 upon the closing of the RBC Merger. RBC also has and will reimburse
NationsBanc Montgomery for its reasonable out-of-pocket expenses, including any
fees and disbursements for NationsBanc Montgomery's legal counsel and other
experts retained by NationsBanc Montgomery. RBC has agreed to indemnify
NationsBanc Montgomery, its affiliates and their respective partners, directors,
officers, agents, consultants, employees and controlling persons against certain
liabilities, including liabilities under the federal securities laws.
NationsBanc Montgomery has performed investment banking services for both
RBC and RBMG, including a secondary equity offering for RBMG in 1996. Fees for
such services over the past two years through December 1, 1997 total $2,187,691.
In the ordinary course of its business, NationsBanc Montgomery may trade
equity securities of RBMG for its own account and for the accounts of customers
and, accordingly, may at any time hold long or short positions in such
securities.
RECOMMENDATION OF THE RBC BOARD
THE RBC BOARD HAS DETERMINED THAT THE RBC MERGER IS IN THE BEST INTERESTS
OF RBC AND ITS STOCKHOLDERS, HAS APPROVED AND ADOPTED THE RBC MERGER AGREEMENT
AND RECOMMENDS THAT THE RBC STOCKHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND
ADOPT THE RBC MERGER AGREEMENT AND THE RBC MERGER.
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OPINION OF RBMG'S FINANCIAL ADVISOR
On April 18, 1997, Prudential Securities delivered a written opinion (the
"RBC Opinion") to the RBMG Board that, as of such date, the RBC Exchange Ratio
(as in effect on such date, which did not reflect the adjustment to account for
the $.04 per share cash dividend payable to RBMG Stockholders of record on
December 18, 1997) was fair from a financial point of view to the RBMG
Stockholders. Prudential Securities made a presentation of the financial
analysis underlying the RBC Opinion at a special meeting of the RBMG Board and
the RBMG Special Committee held on April 18, 1997 and provided the members of
the RBMG Board and the RBMG Special Committee with a detailed report setting
forth the financial analysis underlying the RBC Opinion. This analysis, as
presented to the RBMG Board and the RBMG Special Committee, is summarized below.
All of the members of the RBMG Board and the RBMG Special Committee were present
at the meeting, and each RBMG Board member and each RBMG Special Committee
member had the opportunity to ask questions regarding the report. Prudential
Securities discussed with the RBMG Board and the RBMG Special Committee the
information in the report, and the financial data and other factors considered
by Prudential Securities in conducting its analysis, all of which are summarized
below. On December 1, 1997, Prudential Securities advised the RBMG Board that
the adjustment to the RBC Exchange Ratio set forth in the Second Amendment to
the RBC Merger Agreement would not alter the conclusion of the RBC Opinion that
the RBC Exchange Ratio was fair, from a financial point of view, to the RBMG
Stockholders as of April 18, 1997.
In requesting the RBC Opinion, neither the RBMG Special Committee nor the
RBMG Board gave any special instructions to Prudential Securities or imposed any
limitations upon the scope of the investigation that Prudential Securities
deemed necessary to enable it to deliver the RBC Opinion. A copy of the RBC
Opinion, which sets forth the assumptions made, matters considered and limits on
the review undertaken, is attached to this Joint Proxy Statement/Prospectus as
Annex D and is incorporated herein by reference. The summary of the RBC Opinion
set forth below is qualified in its entirety by reference to the full text of
the RBC Opinion.
THE RBC OPINION IS DIRECTED ONLY TO THE FAIRNESS OF THE RBC EXCHANGE RATIO
TO THE RBMG STOCKHOLDERS FROM A FINANCIAL POINT OF VIEW. THE RBC OPINION WAS
DELIVERED FOR THE INFORMATION OF THE RBMG BOARD AND THE RBMG SPECIAL COMMITTEE
AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY RBMG STOCKHOLDER AS TO HOW SUCH
STOCKHOLDER SHOULD VOTE AT THE RBMG ANNUAL MEETING. RBMG STOCKHOLDERS ARE URGED
TO READ THE RBC OPINION IN ITS ENTIRETY.
In conducting its analysis and arriving at the RBC Opinion, Prudential
Securities reviewed such information and considered such financial data and
other factors as Prudential Securities deemed relevant under the circumstances
including the following: (i) the execution copy of the RBC Merger Agreement;
(ii) certain publicly available historical, financial and operating data
concerning RBMG, including the Annual Report on Form 10-K of RBMG for the years
ended December 31, 1994, 1995 and 1996, RBMG's Proxy Statement for the Annual
Meeting of Stockholders held on April 25, 1996, RBMG's Prospectus, dated March
11, 1996, relating to the sale of 3,512,961 shares of RBMG Common Stock and
RBMG's Prospectus, dated May 25, 1993, relating to the initial public offering
of RBMG Common Stock; (iii) certain historical, financial and operating data
concerning RBC, including the audited consolidated financial statements of RBC
and its subsidiaries for the years ended December 31, 1994, 1995 and 1996; (iv)
certain information of RBMG, including projected financial data prepared by the
management of RBMG; (v) certain information of RBC, including projected
financial data prepared by the management of RBC; (vi) certain information of
RBC, including closing documents relating to the February 3, 1997 repurchase by
Intek of 5,000 shares of Intek Series A Preferred Stock (the "Intek Preferred
Stock") owned by RBC; (vii) the pro forma financial impact of the RBC Merger on
RBMG; (viii) publicly available financial, operating and stock market data
concerning certain companies engaged in businesses Prudential Securities deemed
comparable to RBC; (ix) publicly available financial, operating and stock market
data concerning certain companies engaged in businesses Prudential Securities
deemed comparable to Republic Leasing; (x) the financial terms of certain recent
transactions that Prudential Securities deemed relevant; and (xi) other
financial studies, analyses and investigations that Prudential Securities deemed
appropriate.
Representatives of Prudential Securities met with the management of RBMG
and RBC to discuss (i) the prospects for their respective businesses, (ii) their
estimates for such businesses' future financial performance,
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(iii) the financial impact of the RBC Merger on the respective companies and
(iv) such other matters that Prudential Securities deemed relevant.
In connection with its review and analysis and in arriving at its opinion,
Prudential Securities assumed and relied upon the accuracy and completeness of
the financial data and other information provided to it by RBMG and RBC and did
not undertake any independent verification of such information or any valuation
or appraisal of any assets or liabilities of RBMG or RBC. With respect to
certain financial projections furnished by RBMG and RBC, Prudential Securities
assumed that the projections reflect the best currently available estimates and
judgments of each respective management as to the expected future financial
performance of RBMG and RBC. Prudential Securities did not undertake any
independent analysis to verify the reasonableness of the assumptions underlying
these projections. Further, the RBC Opinion was necessarily based on information
that was available to Prudential Securities and on economic, financial, market
and other conditions as they existed and could be evaluated on the date of the
RBC Opinion.
In arriving at the RBC Opinion, Prudential Securities performed a variety
of financial analyses, including those summarized herein. The summary set forth
below of the analyses presented to the RMBG Special Committee and the RBMG Board
at their April 18, 1997 special meeting does not purport to be a complete
description of the analyses performed. The preparation of a fairness opinion is
a complex process that involves various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
these methods to the particular circumstance, and therefore, such an opinion is
not necessarily susceptible to partial analysis or summary description.
Prudential Securities believes that its analysis must be considered as a whole
and that selecting portions thereof or portions of the factors considered by it,
without considering all analyses and factors, could create an incomplete view of
the evaluation process underlying the RBC Opinion. Prudential Securities made
numerous assumptions with respect to industry performance, general business,
economic, market and financial conditions and other matters, many of which are
beyond the control of RBMG and RBC. Any estimates contained in Prudential
Securities' analyses are not necessarily indicative of actual values or future
results, which may be significantly more or less favorable than suggested by
such analyses. Additionally, estimates of the values of businesses or securities
do not purport to be appraisals or necessarily reflect the prices at which such
businesses or securities may be sold. Accordingly, such analyses and estimates
are inherently subject to substantial uncertainty. Subject to the foregoing, the
following is a summary of the material financial analyses performed by
Prudential Securities in arriving at the RBC Opinion.
The RBC Exchange Ratio is defined such that RBMG will issue to RBC
Stockholders a number of shares of RBMG Common Stock approximately equal to the
number of shares of RBMG Common Stock owned by RBC (the "RBC Block") plus 2.0
million shares of RBMG Common Stock (the "Incremental Shares"). Prudential
Securities did not engage in a valuation of the RBC Block because such shares
were deemed to have a value essentially equivalent to the difference between the
total number of shares issuable to the RBC Stockholders and the Incremental
Shares. As such, Prudential Securities' analysis of estimated equity valuation
ranges for RBC focused on comparisons of various valuation measures to the RBC
Incremental Equity Purchase Price ("IPP"), defined as the Incremental Shares
multiplied by the RBMG Common Stock price. As of the close of business on April
16, 1997, the IPP was $29.3 million.
Comparable Company Analysis. Prudential Securities conducted a comparable
company analysis to establish implied ranges of equity values for RBC based upon
recognized financial ratios. Prudential Securities selected publicly-traded
diversified financial services companies whose lines of business and operations
made them, in Prudential Securities' judgment, as nearly comparable to RBC as
practicable. An analysis of comparable companies is not purely mathematical;
rather it involves complex considerations and judgments concerning similarities
and differences in financial, operational and other characteristics of
potentially comparable companies. In this regard, Prudential Securities noted
that although the companies selected were considered similar to RBC, none of the
companies had the same recent operating history, management makeup, size, type
or combination of businesses as RBC. This analysis was believed by Prudential
Securities to be a reasonable method of valuation in light of the absence of
market data regarding similar private companies.
For the purposes of this analysis, Prudential Securities treated the
following diversified financial services companies as comparable to RBC:
Amresco, Inc.; Emergent Group, Inc.; Litchfield Financial Corp.; Matrix Capital
Corporation; and Resource America, Inc. (collectively, the "RBC Comparables").
Prudential Securities
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analyzed publicly available historical and projected financial results for each
of the RBC Comparables, including multiples of current stock price to estimated
calendar year 1997 earnings per share ("1997 EPS") and multiples of equity
market value ("EMV") (defined as fully diluted shares outstanding multiplied by
share price) to book value ("BV"). All of the trading multiples for the RBC
Comparables were based on closing stock prices on April 16, 1997, and all of the
1997 EPS estimates were published by First Call, an on-line database service
("First Call") available to subscribers which compiles earnings estimates
developed by research analysts. The estimates published by First Call were not
prepared in connection with the RBC Merger or at the request of Prudential
Securities. BV was measured as of December 31, 1996.
Prudential Securities performed a similar analysis for RBC by determining
the multiples implied by the RBC IPP of $29.3 million as of April 16, 1997. This
analysis generated an estimated IPP to 1997 projected net income multiple of
10.5x for RBC compared to high, low, mean and median share price to 1997 EPS
multiples for the RBC Comparables of 13.3x, 7.3x, 10.4x and 10.6x, respectively.
The IPP to BV multiple for RBC was 1.6x compared to the high, low, mean and
median EMV to BV multiples for the RBC Comparables of 2.4x, 1.5x, 2.0x, 1.9x,
respectively.
Liquidation Analysis. Prudential Securities also performed a liquidation
analysis in order to determine implied equity valuation ranges for RBC based
upon implied equity valuation ranges for each of RBC's separate operations. For
the purposes of this analysis, Prudential Securities analyzed potential equity
valuation ranges for each of the following RBC operations: (i) the equipment
leasing business of Republic Leasing; (ii) the commercial mortgage operation of
Laureate Realty; and (iii) the ownership of 15,000 shares of Intek Preferred
Stock.
(i) Prudential Securities conducted a comparable company analysis to
establish an implied equity valuation range for Republic Leasing. Prudential
Securities selected publicly-traded equipment leasing companies whose lines of
business and operations made them, in Prudential Securities' judgment, as nearly
comparable to Republic Leasing as practicable. Prudential Securities treated the
following companies as comparable to Republic Leasing: DVI, Inc.; Financial
Federal Corp.; Leasing Solutions, Inc.; MLC Holdings, Inc.; Sunrise Resources,
Inc.; and Trans Leasing International, Inc. (collectively, the "Republic
Comparables"). In this regard, Prudential Securities noted that although the
companies selected were considered similar to Republic Leasing, none of the
companies had the same recent operating history, management makeup, size, type
or combination of businesses as Republic Leasing. This analysis was believed by
Prudential Securities to be a reasonable method of valuation in light of the
absence of market data regarding similar private companies.
Using publicly available financial information, Prudential Securities
examined the share price to calendar year 1996 EPS and projected 1997 EPS
multiples for the Republic Comparables. All of the trading multiples of the
Republic Comparables were based on closing stock prices on April 16, 1997, and
all of the 1997 EPS estimates were published by First Call. The estimates
published by First Call were not prepared in connection with the RBC Merger or
at the request of Prudential Securities. The analysis of the Republic
Comparables generated high, low, mean and median share price to 1996 EPS
multiples of 20.4x, 8.6x, 13.1x and 12.3x. These multiples were applied to
Republic Leasing's 1996 net income to produce implied high, low, mean and median
implied equity valuations for Republic Leasing of $59.8 million, $25.3 million,
$38.5 million and $36.0 million. The comparable companies analysis resulted in
high, low, mean and median share price to 1997 EPS multiples of 11.5x, 6.6x,
9.8x, 11.2x. Application of these multiples to Republic Leasing's projected 1997
net income produced implied high, low, mean and median equity valuations for
Republic Leasing of $34.6 million, $19.7 million, $29.3 million and $33.5
million.
Prudential Securities also conducted a comparable transactions analysis to
establish implied equity valuation ranges for Republic Leasing. Prudential
Securities analyzed recent merger and acquisition transactions involving
companies Prudential Securities deemed to be reasonably similar to Republic
Leasing. For the purposes of this analysis, Prudential Securities treated the
following acquisitions as comparable: Winthrop Resources Corp. by TCF Financial
Corp. and Financing for Science International by Finova Group (collectively, the
"Republic Comparable Transactions"). For each of these transactions, Prudential
Securities examined the relationship between the equity purchase price ("EPP")
and the Latest Twelve Months Net Income ("LTM NI") and the estimated Forward
Twelve Months Net Income ("FTM NI") of each acquired company. The EPP to LTM NI
multiple for the Republic Comparable Transactions was 24.0x. Utilizing this
ratio and Republic Leasing's 1996
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net income resulted in an implied equity valuation for Republic Leasing of $70.6
million. The high, low, mean and median EPP to FTM NI multiples for the Republic
Comparable Transactions were 18.3x, 11.3x, 14.8x and 14.8x, respectively.
Application of these multiples to Republic Leasing's projected 1997 net income
produced high, low, mean and median implied equity valuations for Republic
Leasing of $54.9 million, $33.9 million, $44.4 million and $44.4 million.
Calculating the mean of each high and low implied equity valuation from both the
Republic Comparables and the Republic Comparable Transactions resulted in a mean
high and low implied equity valuation for Republic Leasing ranging from $49.8
million to $26.3 million.
(ii) Prudential Securities conducted a comparable transactions analysis to
determine an implied equity valuation range for Laureate Realty. Prudential
Securities examined recent acquisitions of commercial mortgage servicing
portfolios that it deemed reasonably similar to Laureate Realty's portfolio.
Prudential Securities treated the following acquisitions as comparable: WMF
Holdings by NHP, Inc. and LJ Melody Co. by CB Commercial Holdings, Inc.
(collectively, the "Laureate Comparable Transactions"). Using publicly available
information, Prudential Securities determined the relationship between the EPP
and the aggregate dollar size of each acquired company's servicing portfolio
("Portfolio"). This generated high and low EPP to Portfolio ratios for the
Laureate Comparable Transactions of 0.67% and 0.46%. Application of these ratios
to Laureate Realty's Portfolio yielded an implied equity valuation range for
Laureate of $15.6 million to $10.7 million.
(iii) On February 3, 1997, Intek agreed to repurchase 5,000 shares of Intek
Preferred Stock from RBC for $1.7 million in connection with an equity
investment in Intek by an unrelated third party (the "Intek Transactions"). As
of April 18, 1997, RBC owned 15,000 shares of Intek Preferred Stock. Although
the Intek Preferred Stock is not publicly-traded, the Intek Transactions
established an implied equity valuation for the remaining 15,000 shares of Intek
Preferred Stock. Based on the per share valuation of the Intek Preferred Stock
in the Intek Transactions, RBC's remaining Intek ownership has an implied equity
valuation of $5.2 million. A 25% discount was applied to this implied equity
valuation to establish a range of potential equity valuations. This resulted in
implied high and low equity valuations for RBC's remaining Intek Preferred Stock
of $5.2 million and $3.9 million, respectively.
Prudential Securities determined a range of implied equity liquidation
values for RBC by calculating the sum of the high and low implied equity
valuations for each of RBC's operations. Due to the relatively small size of RBC
and the lack of a public marketplace for the RBC Common Stock, Prudential
Securities applied a 30% discount to the total high and total low implied equity
valuations for RBC, resulting in implied equity valuations ranging from $49.4
million to $28.7 million. The IPP for RBC of $29.3 million, on April 16, 1997,
is within this range.
Pro Forma Earnings Per Share. Prudential Securities also analyzed the pro
forma effect of the RBC Merger on RBMG's 1997 EPS. An analysis of anticipated
future results based on projections provided by RBMG's management and RBC's
management for their respective companies indicated that the RBC Merger slightly
decreases RBMG's pro forma 1997 EPS. Projected financial and other information
concerning RBMG and RBC and the impact of the RBC Merger upon the holders of
RBMG Common Stock are not necessarily indicative of future results. All
projected financial information is subject to numerous contingencies, many of
which are beyond the control of the management of RBMG and RBC.
The RBMG Special Committee selected Prudential Securities as financial
advisor because Prudential Securities is a nationally recognized investment
banking firm that is regularly engaged in the evaluation of businesses and their
securities in connection with mergers and acquisitions and for other purposes
and has substantial experience in transactions similar to the RBC Merger.
Pursuant to the terms of an engagement letter, dated February 12, 1997, as
amended on April 18, 1997, between RBMG and Prudential Securities, Prudential
Securities received a retainer fee of $125,000 and an additional advisory fee of
$375,000 upon the execution of the RBC Merger Agreement. Prudential Securities
will receive additional compensation for its advisory services of $500,000 upon
consummation of the RBC Merger. In addition, the engagement letter with
Prudential Securities provides that RBMG will reimburse Prudential Securities
for its reasonable out-of-pocket and incidental expenses, including all fees and
disbursements of Prudential Securities' legal counsel incurred in connection
with the services provided by Prudential Securities, and will indemnify and hold
Prudential Securities and certain related persons harmless to the full extent
lawful from and against certain liabilities, including
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liability under securities laws or otherwise relating to or arising out of the
RBC Merger or Prudential Securities' engagement.
In the past Prudential Securities has provided other advisory services for
RBMG and received customary compensation for such services. In addition,
Prudential Securities was engaged to provide advisory services in connection
with the WSI Merger and has received customary compensation for such services.
In the ordinary course of business, Prudential Securities may actively trade the
securities of RBMG for its own account and for the accounts of customers and,
accordingly, may at any time hold long or short positions in such securities.
RECOMMENDATION OF THE RBMG BOARD
THE RBMG BOARD HAS DETERMINED THAT THE RBC MERGER IS IN THE BEST INTERESTS
OF RBMG AND ITS STOCKHOLDERS, HAS APPROVED AND ADOPTED THE RBC MERGER AGREEMENT
AND RECOMMENDS THAT THE RBMG STOCKHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND
ADOPT THE RBC MERGER AGREEMENT, THE RBC MERGER AND THE RBC STOCK ISSUANCE.
REASONS FOR THE RBC MERGER
RBC. In approving and adopting the RBC Merger Agreement and formulating
its recommendation that the RBC Stockholders approve and adopt the RBC Merger
Agreement and the RBC Merger, the RBC Board considered a number of factors,
including, without limitation, the following:
(i) the business, financial results and prospects of RBMG, including,
without limitation, its earnings history, balance sheet, access to the
capital markets and the expected performance of RBMG Common Stock;
(ii) the business, financial results and prospects of RBC and its
businesses including, without limitation, the importance of greater
financial resources and enhanced operational and administrative support to
expand and add value to the equipment leasing and commercial mortgage
banking businesses;
(iii) the terms and conditions of the RBC Merger Agreement, including
the amount and form of consideration to be received by the RBC Stockholders
and the nature of the parties' representations, warranties, covenants and
agreements;
(iv) the opinion of NationsBanc Montgomery as to the fairness, from a
financial point of view, of the consideration to be received by the RBC
Stockholders in the RBC Merger;
(v) the expectation that the RBC Merger will be tax-free for federal
income tax purposes to the RBC Stockholders; and
(vi) the absence of an active trading market for RBC Common Stock and
the expectation that the RBC Merger will provide the RBC Stockholders with
greater liquidity in their investment.
In view of the number of factors considered by the RBC Board, the RBC Board
did not deem it practicable to assign relative weights to the various factors
considered.
RBMG. In determining to recommend that the RBMG Stockholders approve and
adopt the RBC Merger Agreement, the RBC Merger and the RBC Stock Issuance, the
RBMG Special Committee and the RBMG Board, respectively, considered a number of
factors, including, without limitation, the following:
(i) the observation that continuing achievement of RBMG's aggressive
growth-oriented goals would become increasingly difficult over time insofar
as RBMG continued to focus solely within its existing markets. Accordingly,
during 1996, RBMG's strategic planning became increasingly focused on
diversification into new markets. Management of RBMG advised the RBMG
Special Committee and the RBMG Board of its expectation that the small
ticket equipment leasing and commercial mortgage banking operations of RBC
will allow RBMG to diversify into new markets which can support an
aggressive growth-oriented strategy, especially in view of the current size
of those operations;
(ii) the expectation that the RBC Merger will complement existing
product and service offerings of RBMG;
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(iii) the observation that (a) historically, RBMG has attempted to
mitigate earnings volatility across variable loan production environments
by generating loan production primarily through correspondent and wholesale
broker channels, which involve lower fixed costs and capital investment
requirements and (b) RBC's small ticket equipment leasing operation
currently has no branch offices and acquires all of its lease production
through independent brokers or other referral sources. Management of RBMG
advised the RBMG Special Committee and the RBMG Board of its expectation
that RBC's lease production platform would prove to be highly-compatible
with RBMG's strategic objective of mitigating earnings volatility by
maintaining a low-cost and variable operating cost structure;
(iv) the observation that RBMG has positioned itself as an efficient
provider of secondary market access to smaller producers of loans based on
RBMG's management's belief that this segment is underserved and that the
originations market will remain highly-fragmented (because these producers
are the most efficient and provide the consumer with a higher quality of
personal service). Management of RBMG advised the RBMG Special Committee
and the RBMG Board of its expectation that similar dynamics are at work
within the small ticket equipment leasing industry and that RBC's lease
production operation will be highly-compatible with RBMG's objective to
position itself as an efficient provider of secondary market access to
smaller producers of loan products;
(v) the expectation that the RBC Merger will result in the realization
of certain synergies among the businesses of RBMG and RBC, particularly in
the areas of financing costs and operational and administrative support;
(vi) the terms and conditions of the RBC Merger Agreement, including
the amount and form of consideration to be given to the RBC Stockholders
within the context of the business, financial results and prospects of RBC
and RBMG and the nature of the parties' representations, warranties,
covenants and agreements; and
(vii) the opinion of Prudential Securities as to the fairness, from a
financial point of view, of the RBC Exchange Ratio to the RBMG
Stockholders.
In view of the number of factors considered by the RBMG Board and the RBMG
Special Committee, neither deemed it practicable to assign relative weights to
the various factors considered.
REGULATORY APPROVALS REQUIRED
Under the RBC Merger Agreement, the obligations of both RBMG and RBC to
consummate the RBC Merger are conditioned upon receipt of all required
regulatory approvals. Other than as discussed below, RBMG and RBC believe that
no such regulatory approvals are required.
Under the HSR Act and the rules promulgated thereunder by the FTC, the RBC
Merger may not be consummated unless notification has been given and certain
information has been furnished to the FTC and the Antitrust Division and the
waiting period has expired or been terminated. Pursuant to the HSR Act, on
December 1, 1997, RBMG and RBC each filed a Notification and Report Form with
the FTC and the Antitrust Division for review in connection with the RBC Merger.
The 30-day waiting period under the HSR Act applicable to the RBC Merger will
expire on December 31, 1997, unless the RBC Merger is investigated or opposed by
the FTC or the Antitrust Division.
Notwithstanding the termination of the HSR Act waiting period, at any time
before or after consummation of the RBC Merger, the FTC or the Antitrust
Division could take such action under the antitrust laws as it deems necessary
or desirable in the public interest, including seeking to enjoin the
consummation of the RBC Merger or to cause the divestiture of substantial assets
of RBMG or RBC. In addition, states and private parties may also bring legal
action under the antitrust laws under certain circumstances. Based on
information available to them, RBMG and RBC believe that the RBC Merger can be
effected in compliance with federal and state antitrust laws. There can be no
assurance, however, that a challenge to the consummation of the RBC Merger based
on an alleged violation of the antitrust laws will not be made or that, if such
a challenge were made, RBMG and RBC would prevail or would not be required to
accept certain conditions, possibly including divestitures, to consummate the
RBC Merger.
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INTERESTS OF CERTAIN PERSONS IN THE RBC MERGER
In considering the RBC Merger, holders of RBMG Common Stock and RBC Common
Stock should be aware that certain executive officers and directors of RBMG and
RBC have certain interests that may present them with potential conflicts of
interest with respect to the RBC Merger.
Mr. Sebastian is the Chairman and Chief Executive Officer of both RBMG and
RBC. As of the RBC Record Date, Mr. Sebastian and members of his immediate
family beneficially owned 237,568 shares of RBC Voting Common Stock and 90,279
shares of RBMG Common Stock. If the RBC Merger is consummated, Mr. Sebastian
will remain as the Chairman and Chief Executive Officer of RBMG and RBC and,
based on his current stock ownership of RBC and RBMG and without adjustment for
the additional shares to be issued in the RBC Merger pursuant to adjustments to
reflect the five percent stock dividend and the $.04 per share cash dividend
payable to RBMG Stockholders of record on December 18, 1997, Mr. Sebastian and
members of his immediate family would own 346,917 shares of RBMG Common Stock.
Pursuant to an employment agreement with RBMG, Mr. Johnson receives an
annual bonus equal to 4% of RBMG's annual total pretax income before bonuses and
incentives. To the extent that the RBC Merger would increase RBMG's annual total
pretax income, Mr. Johnson would receive a greater bonus after the RBC Merger
and may be presented with a potential conflict of interest.
Four of the members of the RBMG Board are also members of the RBC Board. To
the extent that such directors of RBC and RBMG will continue to serve as
directors of RBC or RBMG following the RBC Merger, such directors may be
presented with a potential conflict of interests with respect to the RBC Merger.
ACCOUNTING TREATMENT
The RBC Merger will be accounted for under the "purchase" method of
accounting, as described in Accounting Principles Board Opinion No. 16 and the
interpretations thereof, pursuant to which the assets and liabilities of RBC
will be adjusted to their respective fair values at the date of acquisition and
included with those of RBMG as of the RBC Effective Time. Net income of RBMG
subsequent to the RBC Effective Time will include the net income of RBC, but the
historical results of operations of RBMG for periods prior to the RBC Effective
Time will not be restated.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of certain federal income tax consequences of
the RBC Merger. This discussion is based on provisions of the Code, the Treasury
Regulations thereunder and rulings and court decisions as of the date hereof,
all of which are subject to change, possibly retroactively. The discussion is
included for general information purposes only.
RBC has received an opinion (the "RBC Tax Opinion") from McNair Law Firm,
P.A., that, based upon its review of the Registration Statement of which this
Joint Proxy Statement/Prospectus is a part, certain other facts and documents
which it has considered relevant and certain representations made to it by RBC
and RBMG, the RBC Merger will have the federal income tax consequences set forth
below:
(i) the RBC Merger will constitute a "reorganization" within the
meaning of Section 368(a) of the Code;
(ii) no gain or loss will be recognized by RBC Stockholders upon the
exchange in the RBC Merger of their shares of RBC Common Stock for RBMG
Common Stock;
(iii) the tax basis of the RBMG Common Stock received in the RBC
Merger by an RBC Stockholder will be the same as the tax basis of the RBC
Common Stock exchanged for such RBMG Common Stock;
(iv) the holding period of the RBMG Common Stock received in the RBC
Merger by an RBC Stockholder will include the holding period of such
stockholder in the RBC Common Stock exchanged for such RBMG Common Stock,
provided that the RBC Common Stock is held as a capital asset at the RBC
Effective Time;
(v) an RBC Stockholder who receives cash in the RBC Merger in lieu of
a fractional share interest in RBMG Common Stock will be treated as having
received such fractional share in the RBC Merger and then as having
exchanged such fractional share for cash in a redemption subject to Section
302 of the Code; and
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(vi) if an RBC Stockholder dissents to the RBC Merger and receives
solely cash in exchange for such stockholder's RBC Common Stock, such cash
will be treated as having been received in redemption of the RBC Common
Stock (or possibly RBMG Common Stock deemed to have been received in the
RBC Merger), subject to the provisions and limitations of Section 302 of
the Code.
In rendering the RBC Tax Opinion, counsel has relied upon certain written
representations as to factual matters made by appropriate officers of RBMG and
RBC and certain RBC Stockholders. Such representations are customary for
opinions of this type; the RBC Tax Opinion cannot be relied upon, however, if
any such representation is, or later becomes, inaccurate. No ruling from the
Internal Revenue Service (the "Service") with respect to the tax consequences of
the RBC Merger has been, or will be, requested, and the RBC Tax Opinion is not
binding upon the Service or the courts. If the RBC Merger is consummated, and it
is later determined that the RBC Merger did not qualify as a "reorganization"
under the Code, then each RBC Stockholder would recognize taxable gain or loss
equal to the difference between the fair market value of the RBMG Common Stock
received by him in the RBC Merger and his tax basis in the RBC Common Stock
exchanged therefor.
The foregoing discussion of the tax consequences of the RBC Merger applies
only to an RBC Stockholder who holds RBC Common Stock as a capital asset, and
may not apply to special situations, such as RBC Stockholders, if any, who
received their RBC Common Stock upon the exercise of employee stock options or
otherwise as compensation and RBC Stockholders that are insurance companies,
securities dealers, financial institutions or foreign persons.
Any cash received in the RBC Merger by an RBC Stockholder may be subject to
backup withholding at a rate of 31 percent. Backup withholding will not apply,
however, to a taxpayer who (i) furnishes a correct taxpayer identification
number ("TIN") and certifies that he is not subject to backup withholding on IRS
Form W-9 (or an appropriate substitute form), (ii) provides a certificate of
foreign status on IRS Form W-8 (or an appropriate substitute form) or (iii) is
otherwise exempt from backup withholding. The Service may impose a $50 penalty
upon any taxpayer who fails to provide the correct TIN, as required.
The RBC Merger will not be a taxable event to RBMG Stockholders or to RBMG.
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES OF THE RBC MERGER AND DOES NOT PURPORT TO
BE A COMPLETE ANALYSIS OF ALL POTENTIAL TAX EFFECTS RELEVANT TO A DECISION
WHETHER AN RBC STOCKHOLDER OR AN RBMG STOCKHOLDER SHOULD VOTE IN FAVOR OF THE
RBC MERGER. BECAUSE CERTAIN TAX CONSEQUENCES OF THE RBC MERGER MAY VARY
DEPENDING UPON THE PARTICULAR CIRCUMSTANCES OF EACH RBC STOCKHOLDER, EACH RBC
STOCKHOLDER IS URGED TO CONSULT HIS OWN TAX ADVISOR TO DETERMINE THE PARTICULAR
TAX CONSEQUENCES TO SUCH STOCKHOLDER OF THE RBC MERGER (INCLUDING THE
APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS).
RESALE OF RBMG COMMON STOCK
Shares of RBMG Common Stock to be issued to RBC Stockholders in connection
with the RBC Merger will be freely transferable under the Securities Act, except
for shares issued to any person or entity who, at the time of the RBC Merger,
may be deemed an "affiliate" of RBC within the meaning of Rule 145. In general,
affiliates of RBC include its executive officers and directors and any other
person or entity who controls, is controlled by or is under common control with
RBC. Rule 145, among other things, imposes certain restrictions upon the resale
of securities received by affiliates in connection with certain
reclassifications, mergers, consolidations or asset transfers. These
restrictions will consist of volume and manner of sale restrictions on the
resale of shares of RBMG Common Stock issued to such persons and entities. RBMG
may place legends on certificates representing shares of RBMG Common Stock that
are issued to such RBC Stockholders in the RBC Merger to restrict such
transfers.
COMPARISON OF RIGHTS OF HOLDERS OF RBMG COMMON STOCK AND RBC COMMON STOCK
Upon consummation of the RBC Merger, and to the extent they receive shares
of RBMG Common Stock, stockholders of RBC, a South Carolina corporation, will
become stockholders of RBMG, a Delaware corporation. The rights of RBC
Stockholders will thereafter be governed by applicable Delaware law ("Delaware
Law"),
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including the DGCL, and by the RBMG Certificate and the RBMG Bylaws. The
following is a summary of the material differences between the rights of RBMG
Stockholders and RBC Stockholders pursuant to the differences in Delaware Law
and applicable South Carolina law ("South Carolina Law"), including the SCBCA,
and between the RBMG Certificate and the RBMG Bylaws, on the one hand, and the
RBC Articles and the RBC Bylaws, on the other hand. The following summary does
not purport to be a complete statement of the difference in the rights of RBMG
Stockholders and RBC Stockholders. This summary is qualified in its entirety by
reference to the full text of the RBMG Certificate and the RBMG Bylaws, the RBC
Articles and the RBC Bylaws, the Delaware Law and the South Carolina Law.
Authorized Capital Stock. The authorized capital stock of RBMG consists of
(i) 25,000,000 shares of RBMG Common Stock and (ii) 5,000,000 shares of
preferred stock, par value $.01 per share, of RBMG (the "RBMG Preferred Stock").
If the RBC Amendment is adopted, the number of shares of RBMG Common Stock that
RBMG is authorized to issue would increase to 50,000,000 shares. The RBMG Board
is empowered to authorize by resolution or resolutions from time to time the
issuance of one or more classes or series of RBMG Preferred Stock and to fix the
voting powers, full or limited or no voting powers, and such designations,
powers, preferences and relative, participating, optimal or other rights, if
any, with respect to each such class or series of RBMG Preferred Stock
(including, without limitation, liquidation preferences, dividend rates,
conversion rights and redemption provisions), and the number of shares
constituting each such class or series, and to increase or decrease the number
of any such class or series to the extent permitted by Delaware Law. There is
currently no RBMG Preferred Stock outstanding. The authorized capital stock of
RBC consists of (i) 25,000,000 shares of RBC Voting Common Stock and (ii)
2,500,000 shares of RBC Non-Voting Common Stock.
Dividends and Other Distributions. Delaware Law permits a corporation to
declare and pay dividends out of its surplus (defined as net assets minus
capital) or, if there is no surplus, out of its net profits for the fiscal year
in which the dividend is declared and/or for the preceding fiscal year as long
as the amount of capital of the corporation following the declaration and
payment of the dividend is not less than the aggregate amount of the capital
represented by the issued and outstanding stock of any classes which may have a
preference upon the distribution of assets. The RBMG Certificate and the RBMG
Bylaws contain no restrictions on the payment of dividends or other
distributions.
Unless provided otherwise by its articles of incorporation, a South
Carolina corporation may pay dividends or make other distributions with respect
to its shares if after the dividend or distribution the corporation has the
ability to pay its debts as they become due and has total assets in excess of
the sum of total liabilities and all senior claims upon dissolution. The RBC
Articles and the RBC Bylaws contain no restrictions on the payment of dividends
or other distributions.
Special Meeting of Stockholders. Under Delaware Law, special meetings of
stockholders may be called by the Board of Directors or by such person or such
persons as may be authorized by the certificate of incorporation or bylaws.
Under the RBMG Certificate and the RBMG Bylaws, a special meeting of
stockholders may be called by the RBMG Board or the Chairman of the RBMG Board
only. Notwithstanding the foregoing, whenever holders of one or more classes or
series of RBMG Preferred Stock shall have the right, voting separately as a
class or series, to elect directors, such holders may call special meetings of
such holders for the purpose of electing such directors pursuant to the
certificate of designation for such classes or series.
As permitted by South Carolina Law, the RBC Bylaws provide that a special
meeting of stockholders may be called by the President, the Chairman of the RBC
Board or by a majority of the RBC Board, and shall be called by the President
upon the request of the holders of at least 10% of the outstanding shares of RBC
entitled to vote at the special meeting.
Voting Requirements Generally. Under Delaware Law, each stockholder is
entitled to one vote per share of stock, unless the certificate of incorporation
provides otherwise. The affirmative vote of the majority of shares present in
person or represented by proxy at a duly held meeting at which a quorum is
present and entitled to vote on the subject matter is deemed to be the act of
the stockholders, unless the DGCL, the certificate of incorporation or the
bylaws of the corporation specify a different voting requirement.
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The RBMG Bylaws provide that each stockholder is entitled to one vote for
each outstanding share of stock of RBMG held by such stockholder and that in all
matters other than the election of directors except as otherwise provided by
law, the vote of a majority of the shares of stock of RBMG present, in person or
by proxy, at a meeting of stockholders at which a quorum is present and then
entitled to vote on the subject matter shall be the act of the stockholders.
With certain exceptions, under South Carolina Law, each outstanding share,
regardless of class, is entitled to one vote on each matter voted on at a
shareholders' meeting, unless the articles of incorporation provide otherwise.
If the votes cast in favor of an action (other than the election of directors)
exceed the votes cast opposing the action at a duly held meeting at which a
quorum is present and entitled to vote on the subject matter, it is deemed to be
the act of the shareholders on the matter, unless the articles of incorporation
or the SCBCA require a greater number of affirmative votes.
The RBC Bylaws provide that each outstanding share of RBC Voting Common
Stock is entitled to one vote upon each matter submitted to a vote at a meeting
of stockholders. The RBC Articles provide that shares of RBC Non-Voting Common
Stock have no voting rights except as otherwise required by law. The RBC
Articles also provide that except for certain business combinations, the vote of
a majority of the shares entitled to vote on any action for which the SCBCA
requires a greater vote unless the articles of incorporation provide otherwise
shall be the act of the stockholders on that matter. The RBC Bylaws provide that
the vote of a majority of the shares voted on any matter at a meeting of
stockholders at which a quorum is present shall be the act of the stockholders
on that matter unless the vote of a greater number is required by law or by the
RBC Articles.
Amendment of Certificate or Articles of Incorporation; Amendment of
Bylaws. Under Delaware Law, an amendment to a corporation's certificate of
incorporation requires the approval of the board of directors and the approval
of a majority of the outstanding stock entitled to vote thereon. The holders of
the outstanding shares of a class are entitled to vote as a separate class on a
proposed amendment that would increase or decrease the aggregate number of
authorized shares of such class, increase or decrease the par value of the
shares of such class or alter or change the powers, preferences or special
rights of the shares of such class so as to affect them adversely. If any
proposed amendment would alter or change the powers, preferences or special
rights of one or more series of any class so as to affect them adversely, but
would not so affect the entire class, then only the shares of the series so
affected by the amendment will be considered a separate class for purposes of
voting by classes.
Under the RBMG Certificate, provisions in the RBMG Certificate relating to
the election of the RBMG Board, amendments of the RBMG Articles and the RBMG
Bylaws, written consents, special meetings, indemnification and special voting
requirements for certain business combinations may be amended only upon the
affirmative vote of at least 80% of the shares of RBMG Common Stock then
outstanding and entitled to vote generally in the election of directors, voting
together as a single class.
Under South Carolina Law generally, unless the articles of incorporation
require a different vote, an amendment to a corporation's articles of
incorporation must be approved by: (i) two-thirds of the votes entitled to be
cast on the amendment, regardless of the class or voting group to which the
shares belong, and (ii) two-thirds of the votes entitled to be cast on the
amendment within each voting group entitled to vote as a separate voting group
on the amendment. An amendment to the articles of incorporation that adds,
changes or deletes a greater quorum or voting requirement must meet the same
quorum requirement and be adopted by the same vote and voting groups required to
take action under the quorum and voting requirements then in effect or proposed
to be adopted, whichever is greater. The holders of the outstanding shares of a
class are entitled to vote as a separate voting group (if shareholder voting is
otherwise required under South Carolina Law) on a proposed amendment to the RBC
Articles if the amendment would result in certain fundamental changes to the
rights and preferences of that class. South Carolina Law permits the following
provisions of a corporation's articles of incorporation to be amended by action
of the Board of Directors without shareholder approval: (i) changes in the
issued and unissued shares of an outstanding class of shares into a greater
number of whole shares, if the corporation has only that class of shares
outstanding, (ii) minor changes to the corporate name and (iii) certain minor
technical amendments.
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Under the RBC Articles, provisions in the RBC Articles relating to special
voting requirements for certain business combinations may be amended only upon
the affirmative vote of at least 80% of the shares of the then outstanding RBC
Voting Common Stock, voting together as a single class.
Under Delaware Law, an amendment to a corporation's bylaws requires the
approval of the stockholders, unless the certificate of incorporation confers
the power to amend the bylaws upon the board of directors.
The RBMG Certificate and the RBMG Bylaws provide that the RBMG Board may
adopt, amend or repeal the RBMG Bylaws. Additionally, the RBMG Certificate
provides that the stockholders may adopt, amend or repeal the RBMG Bylaws with
the affirmative vote of the holders of not less than 66 2/3% of the total voting
power of all outstanding securities of RBMG then entitled to vote generally in
the election of directors, voting together as a single class.
Under South Carolina Law, a South Carolina corporation's board of directors
may amend the corporation's bylaws unless the articles of incorporation or
bylaws reserve the power to the shareholders and except that certain types of
provisions may be amended or repealed only by the shareholders. A corporation's
shareholders may amend or repeal the corporation's bylaws even though the bylaws
may also be amended or repealed by the board of directors.
The RBC Bylaws provide that they may be amended or repealed and new bylaws
may be adopted by the affirmative vote of a majority of the RBC Board.
Action by Written Consent. Under Delaware Law, unless otherwise provided
in a corporation's certificate of incorporation, any action that may be taken at
any annual or special meeting of shareholders may be taken without a meeting and
without prior notice, if a consent in writing, setting forth the action so
taken, is signed by the holders of outstanding shares having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted.
The RBMG Certificate and the RBMG Bylaws provide that, so long as RBMG is
subject to the reporting requirements of Section 12 or 15(d) of the Exchange Act
(or any successor law), any action required or permitted to be taken at any
annual or special meeting of stockholders may be taken only upon the vote of
stockholders at an annual or special meeting duly noticed and called in
accordance with Delaware Law and may not be taken by written consent of
stockholders without a meeting.
Under South Carolina Law, shareholders may act without a meeting by
unanimous written consent. Under the RBC Bylaws, any action which is required or
permitted to be taken at a meeting of the stockholders may be taken without a
meeting if consent in writing, setting forth the action so taken, shall be
signed by all of the persons who would be entitled to vote upon such action at a
meeting, and filed with the Secretary of RBC in the minute book of RBC.
Voting in the Election of Directors. Under Delaware Law, vacancies and
newly created directorships may be filled by a majority of the directors then in
office, although less than a quorum, unless otherwise provided in the
certificate of incorporation or bylaws. If, at the time of filling any vacancy
or newly created directorship, the directors then in office constitute less than
a majority of the whole board as constituted immediately prior to such increase,
the Delaware Court of Chancery may, upon application of stockholders holding at
least ten percent of the total number of shares outstanding having the right to
vote for such directors, order an election to be held to fill any such vacancies
or newly created directorships or to replace the directors chosen by the
directors then in office.
The RBMG Bylaws provide that directors shall be elected by a plurality of
the votes of the shares present, in person or by proxy, at a meeting of the
stockholders at which a quorum is present and then entitled to vote on the
election of directors. The RBMG Certificate and the RBMG Bylaws provide that,
subject to any rights of holders of any class of RBMG Preferred Stock then
outstanding, all vacancies on the RBMG Board, including those resulting from an
increase in the number of directors, may be filled solely by a majority of the
remaining directors then in office, even if they do not constitute a quorum, or
by a sole remaining director. When one or more directors resign from the RBMG
Board effective at a future date, a majority of directors then in office,
including the directors who are to resign, may vote on filling the vacancy.
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Under South Carolina Law, unless the articles of incorporation provide
otherwise, if a vacancy occurs on a board of directors, the shareholders or the
board of directors may fill the vacancy, or if the directors remaining in office
constitute fewer than a quorum of the board, they may fill the vacancy by the
affirmative vote of a majority of all the directors remaining in office.
Under the RBC Bylaws, directors are elected by the vote of a majority of
the shares voted at a meeting of stockholders at which a quorum is present. The
RBC Bylaws provide that, except as otherwise expressly required by the
provisions of the SCBCA, any vacancy on the RBC Board, including those resulting
from an increase in the number of directors, may be filled solely by a majority
of the remaining directors, even if they do not constitute a quorum.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. The RBMG Bylaws establish advance notice procedures with regard to
stockholder proposals and the nomination, other than by or at the direction of
the RBMG Board or a committee thereof, of candidates for election as directors.
These procedures provide that the notice of stockholder proposals and
stockholder nominations for the election of directors at any meeting of
stockholders must be in writing and be received by the Secretary of RBMG not
less than 60 nor more than 90 days prior to the meeting (or if less than 70 days
notice or prior public disclosure of the date of the meeting is given, the
notice of stockholder proposals or nominations must be in writing and received
by the Secretary no later than the close of business on the tenth day following
the day on which notice of the meeting was mailed or public disclosure thereof
was made, whichever occurs first). RBMG may reject a stockholder proposal or
nomination that is not made in accordance with such procedures.
The RBC Articles and the RBC Bylaws do not contain any advance notice
requirements for stockholder proposals and director nominations.
Number and Qualification of Directors. Under Delaware Law, the minimum
number of directors is one. Delaware Law permits the board of directors alone to
change the authorized number, or the range, of directors by amendment to the
bylaws, unless the directors are not authorized in the certificate of
incorporation to amend the bylaws or the number of directors is fixed in the
certificate of incorporation, in which cases a change in the number of directors
may be made only upon amendment of the certificate of incorporation.
The RBMG Certificate and the RBMG Bylaws provide that the number of
directors shall be fixed from time to time by resolution adopted by a majority
of the directors then in office, but that the RBMG Board may not consist of less
than three nor more than 15 directors. The RBMG Board currently consists of
seven members and after the RBMG Annual Meeting will consist of eight members.
Under South Carolina Law, the minimum number of directors is one. If a
board of directors has power under the articles of incorporation or bylaws to
fix or change the number of directors, South Carolina Law allows the board of
directors to increase or decrease by thirty percent or less the number of
directors last approved by the shareholders, but only the shareholders may
increase or decrease by more than thirty percent the number of directors last
approved by the shareholders. Where a variable range is established by the
articles of incorporation or the bylaws, the number of directors may be fixed or
changed within the minimum and maximum by the shareholders or the board of
directors. After shares are issued, only the shareholders may change the range
for the size of the board or change from a fixed to a variable-range size board
or vice versa.
The RBC Bylaws provide that the number of directors of RBC shall not be
less than three nor more than 15 as determined from time to time by the RBC
Board. The RBC Board currently consists of ten members.
Classification of Board. A classified board of directors is one in which a
certain number, but not all, of the directors of a corporation are elected on a
rotating basis each year. This method of electing directors makes changes in the
composition of the board of directors, and thus a potential change in control of
a corporation, a lengthier and more difficult process.
Delaware Law permits, but does not require, a classified board of
directors, with staggered terms under which one-half or one-third of the
directors are elected for terms of two or three years, respectively. The RBMG
Certificate divides the RBMG Board into three classes of directors serving
staggered three-year terms. As a result, approximately one-third of the RBMG
Board is elected at each annual meeting of stockholders.
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South Carolina Law provides that when a board of directors has six or more
members, the articles of incorporation may provide for staggering their terms
into two or three classes. The RBC Articles divide the RBC Board into three
classes of directors serving staggered three-year terms when the number of
directors constituting the RBC Board is fixed at nine or more.
Removal of Directors. Under Delaware Law, a director of a corporation with
a classified board of directors may be removed only for cause, unless the
certificate of incorporation otherwise provides. The RBMG Certificate provides
that no director may be removed from office by the stockholders except for cause
with the affirmative vote of the holders of not less than a majority of the
total voting power of all outstanding securities of RBMG then entitled to vote
generally in the election of directors, voting together as a single class.
Under South Carolina Law, the shareholders may remove one or more directors
with or without cause unless the articles of incorporation provide that
directors may be removed only for cause. The RBC Articles and the RBC Bylaws do
not contain any provisions relating to the removal of directors.
Transactions Involving Officers or Directors. Under Delaware Law, no
contract or transaction between a corporation and one or more of its directors
or officers, or between a corporation and any other entity in which one or more
of its directors or officers are directors or officers, or have a financial
interest, is void or voidable if (i) the material facts as to the director's or
officer's relationship or interest and as to the contract or transaction are
disclosed or known to the board of directors or committee, which authorizes the
contract or transaction by the affirmative vote of a majority of the
disinterested directors; (ii) the material facts as to the director's or
officer's relationship or interest and as to the contract or transaction are
disclosed or known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved by the stockholders; or (iii)
the contract or transaction is fair as to the corporation as of the time it is
authorized, approved or ratified by the board of directors, a committee thereof
or the stockholders. A corporation may make loans to, guarantee the obligations
of or otherwise assist its officers or other employees and those of its
subsidiaries, including directors who are also officers or employees, when such
action, in the judgment of the directors, may reasonably be expected to benefit
the corporation.
The RBMG Certificate and the RBMG Bylaws do not contain any provisions
relating to transactions involving officers and directors.
Similarly, under South Carolina Law, a conflict of interest transaction,
which is defined as a transaction with the corporation in which a director of
the corporation has a direct or indirect interest, is not voidable by the
corporation solely because of the director's interest in the transaction if any
one of the following is true: (i) the material facts of the transaction and the
director's interest were disclosed or known to the board of directors or a
committee of the board of directors, and the board of directors or a committee
authorized, approved or ratified the transaction; (ii) the material facts of the
transaction and the director's interest were disclosed or known to the
shareholders entitled to vote and they authorized, approved or ratified the
transaction; or (iii) the transaction was fair to the corporation. A corporation
may lend money to or guarantee the obligation of a director of the corporation
where: (i) the particular loan or guarantee is approved by a majority of the
votes represented by the outstanding voting shares of all classes, voting as a
single voting group, except the votes of shares owned by or voted under the
control of the benefited director; or (ii) the corporation's board of directors
determines that the loan or guarantee benefits the corporation and either
approves the specific loan or guarantee or a general plan authorizing loans and
guarantees.
The RBC Articles and the RBC Bylaws do not contain any provisions relating
to transactions involving officers and directors.
Indemnification and Limitation of Liability. Under Delaware Law, a
corporation has the power to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, other than an action by or in the right of the corporation,
against expenses, judgments, fines and settlements incurred in a proceeding,
other than an action by or in the right of the corporation, if the person acted
in good faith and in a manner that the person reasonably believed to be in the
best interests of the corporation or not opposed to the best interests of the
corporation, and, in the case of a criminal proceeding, had no reason to believe
that his conduct was unlawful. In the case of an action by or in the right of
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the corporation, the corporation has the power to indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, other than an action by or in the right of
the corporation, against expenses incurred in defending or settling the action
if such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the corporation;
provided, however, that no indemnification may be made when a person is adjudged
liable to the corporation, unless a court determines such person is entitled to
be indemnified for expenses, and then such indemnification may be made only to
the extent that such court shall determine. Delaware Law requires that to the
extent an officer, director, employee or agent of a corporation is successful on
the merits or otherwise in defense of any third-party or derivative proceeding,
or in defense of any claim, issue or matter therein, the corporation must
indemnify such person against expenses incurred in connection therewith.
Under Delaware Law, a corporation may adopt a provision in its certificate
of incorporation eliminating or limiting the personal liability of a director to
the corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director; provided, however, that such provision may not eliminate or
limit a director's monetary liability for (i) breaches of the director's duty of
loyalty to the corporation or its stockholders; (ii) acts or omissions not in
good faith or involving intentional misconduct or knowing violations of law;
(iii) the payment of unlawful dividends or unlawful stock repurchases or
redemptions; or (iv) transactions in which the director received an improper
personal benefit.
The RBMG Certificate provides that each person (and the heirs, executors or
administrators of such person) who was or is a party or is threatened to be made
a party to, or is involved in any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that such person is or was a director or officer of RBMG or
is or was serving at the request of RBMG as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise, shall be
indemnified and held harmless by RBMG to the fullest extent permitted by the
DGCL. The RBMG Certificate also provides that the right to indemnification
includes the right to be paid by RBMG for expenses incurred in connection with
any such proceeding in advance of its final disposition to the fullest extent
permitted by the DGCL, and that the right to indemnification conferred
thereunder is a contract right.
The RBMG Certificate also provides that RBMG may, by action of the RBMG
Board, provide indemnification to such of the employees and agents of RBMG and
such other persons serving at the request of RBMG as employees or agents of
another corporation, partnership, joint venture, trust or other enterprise to
such extent and to such effect as is permitted by the DGCL and the RBMG Board
shall determine to be appropriate.
Pursuant to the RBMG Certificate, RBMG may purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
RBMG, or is or was serving at the request of RBMG as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any expense, liability or loss incurred by such person
in any such capacity or arising out of his or her status as such, whether or not
RBMG would have the power to indemnify such person against such liability under
the DGCL.
The RBMG Certificate provides that (i) the rights and authority described
above are not exclusive of any other right that any person may otherwise have or
hereafter acquire and (ii) no amendment, modification or repeal of the RBMG
Certificate, or adoption of any additional provision to the RBMG Certificate or
the RBMG Bylaws or, to the fullest extent permitted by the DGCL, any amendment,
modification or repeal of law will eliminate or reduce the effect of the
provisions in the RBMG Certificate limiting liability or indemnifying certain
persons or adversely affect any right or protection then existing thereunder in
respect of any acts or omissions occurring prior to such amendment,
modification, repeal or adoption. The RBMG Certificate provides that a director
will not be personally liable for monetary damages to RBMG or its stockholders
for breach of fiduciary duty as a director, except to the extent such exemption
from liability or limitation thereof is not permitted under the DGCL.
Under South Carolina Law, a corporation may indemnify an individual, and in
certain circumstances, must indemnify an individual, made party to a proceeding
because he is or was a director against liability incurred in the proceeding if
the person: (i) conducted himself in good faith; (ii) reasonably believed, in
the case of conduct in his official capacity with the corporation, that his
conduct was in its best interest and, in all other cases, that his conduct was
at least not opposed to its best interest; and (iii) in the case of any criminal
proceeding, had no
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reasonable cause to believe his conduct was unlawful. A South Carolina
corporation may not indemnify a director (i) in connection with a proceeding by
or in the right of the corporation in which the director was adjudged liable to
the corporation or (ii) in connection with any other proceeding charging
improper personal benefit to him, whether or not involving action in his
official capacity, in which he was adjudged liable on the basis that personal
benefit was improperly received by him. Indemnification permitted under South
Carolina Law in connection with a proceeding by or in the right of the
corporation is limited to reasonable expenses incurred in connection with the
proceeding. For the purposes of the above, a director is defined as an
individual who is or was a director of the corporation or who, while a director
of the corporation, is or was serving at the corporation's request as a
director, officer, partner, trustee, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise.
Under South Carolina Law, the articles of incorporation of certain
corporations may also contain a provision eliminating or limiting the personal
liability of a director to the corporation or its shareholders, provided that
the provision does not eliminate or limit the liability of a director for (i)
any breach of the director's duty of loyalty to the corporation or its
stockholders; (ii) acts or omissions not in good faith or which involve gross
negligence, intentional misconduct or a knowing violation of law; (iii) unlawful
payment of a dividend or an unlawful stock purchase or redemption; or (iv) any
transaction involving improper personal benefits to the director.
The RBC Bylaws contain provisions for the indemnification to the fullest
extent permitted by Section 33-8-500 et. seq. of the SCBCA, as it may be amended
from time to time, of all persons who RBC may indemnify pursuant thereto.
Pursuant to the RBC Bylaws, the RBC Board may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of RBC, or is or was serving at the request of RBC as an officer, employee
or agent of another corporation, partnership, joint venture, trust, other
enterprise or employee benefit plan against any liability asserted against him
and incurred by him in any such capacity or arising out of his status as such,
whether or not RBC would have the power to indemnify him under the provisions of
the SCBCA.
The RBC Articles provide that no director shall be personally liable to RBC
or its shareholders for monetary damages for breach of his fiduciary duty as a
director; provided, however, the foregoing shall not eliminate or limit the
liability of a director (i) for any breach of the director's duty of loyalty to
RBC or its shareholders; (ii) for acts or omissions not in good faith or which
involve gross negligence, intentional misconduct or a knowing violation of law;
(iii) imposed for unlawful distributions as set forth in Section 33-8-330 of the
SCBCA; or (iv) for any transaction from which the director derived an improper
personal benefit. The RBC Articles also provide that the above provision shall
eliminate or limit the liability of a director only to the maximum extent
permitted from time to time by the SCBCA or any successor law or laws. Any
repeal or modification of such protection by the shareholders of RBC shall not
adversely affect any right or protection of a director of RBC existing at the
time of such repeal or modification.
Mergers, Tender Offers and Sales of Substantially All of the Assets. Under
Delaware Law, the principal terms of a merger generally require the approval of
the stockholders of each of the merging corporations. Unless otherwise required
in a corporation's certificate of incorporation, Delaware Law does not require
the vote of stockholders of a constituent corporation surviving the merger if
(i) the merger agreement does not amend the existing certificate of
incorporation, (ii) each share of the surviving corporation outstanding before
the merger is an identical outstanding or treasury share after the merger and
(iii) either no shares of the surviving corporation and no securities
convertible into such stock are to be issued in the merger or the number of
shares to be issued by the surviving corporation in the merger does not exceed
20% of the shares outstanding immediately prior to the merger.
The RBMG Certificate and the RBMG Bylaws do not contain any provisions
relating to mergers, tender offers or sales of substantially all of the
corporation's assets.
In general, unless the articles of incorporation require a greater or
smaller vote (in no event less than a majority) or the board of directors
requires a greater vote, South Carolina Law requires a merger of a South
Carolina corporation to be approved by two-thirds of the total votes entitled to
be cast on the plan, regardless of
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the class or voting group to which the shares belong, and two-thirds of the
votes entitled to be cast on the plan within any separate class or other voting
group that is entitled to vote separately on the plan. Unless the articles of
incorporation specify otherwise, however, the board of directors does not need
to submit a plan of merger to the shareholders of the surviving corporation if:
(i) the articles of incorporation of the surviving corporation will not differ,
with certain exceptions, from its articles of incorporation before the merger,
(ii) each shareholder of the surviving corporation whose shares were outstanding
immediately before the effective date of the merger will hold the same number of
shares, with identical designations, preferences, limitations and relative
rights, immediately after the merger, (iii) the number of voting shares
outstanding immediately after the merger, plus the number of voting shares
issuable as a result of the merger (either by the conversion of securities
issued pursuant to the merger or the exercise of rights and warrants issued
pursuant to the merger), will not exceed by more than 20% the total number of
voting shares of the surviving corporation outstanding immediately before the
merger and (iv) the number of shares that entitle their holders to participate
without limitation in distributions ("participating shares") outstanding
immediately after the merger, plus the number of participating shares issuable
as a result of the merger (either by the conversion of securities issued
pursuant to the merger or the exercise of rights and warrants issued pursuant to
the merger), will not exceed by more than 20% the total number of participating
shares of the surviving corporation outstanding immediately before the merger.
The RBC Articles provide that except for certain business combinations, the
vote of a majority of the shares entitled to vote on any action for which the
SCBCA requires a greater vote unless the articles of incorporation provide
otherwise shall be the act of the stockholders on that matter.
Proxies. As permitted by Delaware Law, under the RBMG Bylaws, each
stockholder entitled to vote at a meeting of stockholders may authorize another
person or persons to act for him by proxy, but no such proxy shall be voted or
acted upon after three years from its date, unless the proxy provides for a
longer period.
As permitted by South Carolina Law, under the RBC Bylaws, at all meetings
of stockholders, a stockholder may vote by proxy executed in writing by the
stockholder or by his duly authorized attorney in fact. Such proxy shall be
filed with the Secretary of RBC before or at the time of the meeting. Under
South Carolina Law, unless a time of expiration is otherwise specified, an
appointment of a proxy is valid for 11 months.
Preemptive Rights. The holders of RBMG Common Stock and RBC Common Stock
have no preemptive rights.
Stockholder Inspection Rights. Under Delaware Law, any stockholder, in
person or by attorney or other agent, shall, upon written demand under oath
stating the purpose thereof, have the right during the usual hours for business
to inspect for any proper purpose the corporation's stock ledger, a list of its
stockholders and its other books and records, and to make copies or extracts
therefrom. A proper purpose shall mean a purpose reasonably related to such
person's interest as a stockholder.
Under South Carolina Law, any shareholder may inspect and copy certain
corporate records regardless of the shareholder's purpose, and may also inspect
and copy the corporation's accounting records, the record of shareholders,
excerpts from minutes of meetings of the board of directors (or any committee
thereof), minutes of shareholder meetings, and any action taken by the board of
directors or shareholders by written consent, if the shareholder's demand is
made in good faith and for a proper purpose, he describes with reasonable
particularity such purpose and the records he desires to inspect and the records
are directly connected with his purpose. South Carolina Law also allows
shareholders holding at least one percent of any class of shares to conduct an
inspection of a corporation's tax returns.
Anti-Takeover Provisions. Delaware Law contains provisions which impose
supermajority voting requirements for certain business combinations with a 15%
or greater stockholder within three years following the date such stockholder
became an "interested stockholder." A Delaware corporation must specifically
elect, through an amendment to its bylaws or articles of incorporation, not to
be governed by these provisions. RBMG has not made such an election with respect
to the business combinations provisions of Delaware Law, and thus they apply to
RBMG.
The RBMG Certificate generally limits RBMG's power to purchase shares of
voting stock of RBMG (i.e., capital stock having the right to vote generally on
matters relating to RBMG and any security which is convertible
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into such stock) from a holder of at least five percent of any class of voting
securities who has beneficially owned such securities for less than two years
prior to the date of such purchase or any agreement in respect thereof at a
price in excess of its fair market value, unless such purchase is approved by
the holders of a majority of the outstanding shares of voting stock of RBMG,
voting together as a single class, excluding the shares owned by such
stockholder.
South Carolina Law contains provisions which impose super majority voting
requirements or a fair pricing procedure for certain business combinations with
the beneficial owner of 10% or more of the voting power of the corporation or an
affiliate or associate of the corporation who was a 10% beneficial owner within
the two-year period before the date in question and provisions which restrict
the voting rights of persons who, through certain acquisitions ("control share
acquisitions"), are able to exercise control over certain South Carolina
corporations. A South Carolina corporation must specifically elect, through an
amendment to its bylaws or articles of incorporation, not to be governed by
these provisions. RBC has not made such an election with respect to either the
fair price or the control share acquisition provisions of South Carolina Law,
and thus both apply to RBC.
The RBC Articles generally limit RBC's power to enter into certain business
combinations with a holder (not including certain persons) of at least 10% of
any class of voting securities (i.e., capital stock having the right to vote
generally in the election of directors) who has beneficially owned such
securities for less than two years prior to the date of such business
combination or any agreement in respect thereof at a price in excess of its fair
market value, unless such purchase is approved by the holders of at least 80% of
the outstanding shares of stock of RBC entitled to vote in the election of
directors.
Quorum. Under the RBMG Bylaws, unless otherwise provided in the Delaware
Law, the RBMG Certificate or the RBMG Bylaws, the presence, in person or by
proxy, of the holders of a majority of the outstanding stock of RBMG entitled to
vote at a meeting of stockholders shall constitute a quorum for the transaction
of business.
Under the RBC Bylaws, a majority of the outstanding shares of RBC entitled
to vote, represented in person or by proxy, shall constitute a quorum at a
meeting of stockholders.
DISSENTERS' RIGHTS
Pursuant to the South Carolina Dissenters' Rights Statute, the holders of
shares of RBC Common Stock are entitled to dissent from approval of the RBC
Merger Agreement and the RBC Merger and receive payment of the fair value of
their shares in the event the RBC Merger is consummated, provided that the RBC
Stockholders comply with the provisions of the South Carolina Dissenters' Rights
Statute. Holders of RBMG Common Stock are not entitled to appraisal rights with
respect to the RBC Merger under Section 262 of the DGCL.
Under the South Carolina Dissenters' Rights Statute, only RBC Stockholders
who are entitled to vote on the RBC Merger Agreement and the RBC Merger have the
right to dissent from the RBC Merger and obtain payment of the fair value of
such holder's shares of RBC Common Stock. The South Carolina Dissenters' Rights
Statute contains detailed information as to a dissenting stockholder's right to
payment and the procedural steps to be followed by a dissenting stockholder. The
following description is only a summary of these provisions and is qualified in
its entirety by reference to the South Carolina Dissenters' Rights Statute, a
copy of which is attached to this Joint Proxy Statement/Prospectus as Annex C
and is incorporated herein by reference.
If the RBC Merger Agreement is approved by the required vote of RBC
Stockholders and the RBC Merger is consummated, each RBC Stockholder who votes
against the RBC Merger Agreement or who fails to vote and who follows the
procedures set forth in the South Carolina Dissenters' Rights Statute is
entitled to demand payment of the fair value of such holder's shares.
A stockholder electing to exercise such holder's dissenters' rights must
give notice to RBC, before the vote on the RBC Merger Agreement and the RBC
Merger at the RBC Special Meeting, of such holder's intent to demand payment for
such holder's shares if the RBC Merger is effectuated and must not vote his
shares in favor of the proposed action. A vote cast in favor of approval of the
RBC Merger Agreement and the RBC Merger by the holder of a proxy solicited
hereby, however, will not constitute a waiver of a stockholder's right to
dissent from approval of the RBC Merger Agreement, provided such stockholder
complies with the other requirements of
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the South Carolina Dissenters' Rights Statute. All notices of intent to demand
payment should be addressed to: Secretary, Resource Bancshares Corporation, 1901
Main Street, Suite 650, Columbia, South Carolina 29201. A beneficial stockholder
may assert dissenters' rights as to shares held on such holder's behalf by a
nominee only if such holder dissents with respect to all shares of which such
holder is the beneficial owner or over which such holder has the power to vote
and such holder notifies RBC in writing of the name and address of the record
holder of the shares, if known. A record stockholder may assert dissenters'
rights as to fewer than all the shares registered in such holder's name only if
such holder dissents with respect to all shares beneficially owned by any one
person and notifies RBC in writing of the name and address of each person on
whose behalf such holder asserts dissenters' rights. A dissenting stockholder
need not vote against the RBC Merger Agreement and the RBC Merger in order to
preserve such holder's dissenters' rights after filing such holder's notice of
dissent.
If the RBC Merger is authorized at the RBC Special Meeting, within ten days
thereafter, RBC will deliver a written notice to all former RBC stockholders who
notified RBC in compliance with the South Carolina Dissenters' Rights Statute
that they intend to demand payment for their shares. Such notice will: (i) state
where the payment demand must be sent and where certificates for shares of RBC
Common Stock must be deposited; (ii) supply a form for demanding payment that
includes the date of the first announcement to news media or to stockholders of
the terms of the RBC Merger and requires that the person asserting dissenters'
rights certify whether or not such holder (or the beneficial stockholder on
whose behalf he is asserting dissenters' rights) acquired beneficial ownership
of the shares before that date; (iii) set a date by which RBC must receive
payment demand; and (iv) be accompanied by a copy of the South Carolina
Dissenters' Rights Statute.
A stockholder sent the notice described above must demand payment, certify
whether such holder (or the beneficial stockholder on whose behalf he is
asserting dissenters' rights) acquired beneficial ownership of the shares before
the date set forth in the notice, and deposit his shares in accordance with the
terms of the notice. A stockholder who does not comply substantially with the
requirements that such holder demand payment and deposit such holder's shares
where certificates are required to be deposited by the appropriate date is not
entitled to payment for such holder's shares.
After consummation of the RBC Merger, or upon receipt of a payment demand,
RBC will pay each such dissenter who substantially complied with the payment
demand requirements the amount that RBC estimates to be the fair value of such
holder's shares, plus accrued interest. Such payment will be accompanied by
certain financial information regarding RBC, a statement of the estimate of the
fair value, an explanation of how the fair value and interest were calculated, a
statement of the dissenter's right to demand additional payment under the South
Carolina Dissenters' Rights Statute and a copy of the South Carolina Dissenters'
Rights Statute.
If a dissenter believes that the amount paid for such holder's shares is
less than the fair value of such holder's shares or that the interest due is
calculated incorrectly, if RBC fails to make or offer payment within 60 days
after the date set for demanding payment or if RBC, having failed to take the
proposed action, does not return the deposited certificates within 60 days after
the date set for demanding payment, the dissenter may notify RBC in writing of
such holder's own estimate of the fair value of such holder's shares and amount
of interest due and demand payment of such holder's estimate (less any payment
already received). A dissenter waives the right to demand additional payment
unless such demand is made in writing within 30 days after RBC has made or
offered payment for such holder's shares. If RBC and the dissenter do not settle
a demand for additional payment within 60 days after RBC receives the demand,
RBC must commence a proceeding for judicial appraisal of the shares or pay the
amount demanded. The costs of a court-appointed appraiser will be borne by RBC,
unless the court finds that the dissenter acted arbitrarily, vexatiously or not
in good faith in demanding additional payment for the dissenter's shares. The
court also may assess the fees and expenses of counsel and experts for one party
against another under certain circumstances.
Because of the detailed provisions and requirements of the South Carolina
Dissenters' Rights Statute, each dissenting stockholder should consult with such
holder's own legal counsel concerning the procedures and remedies available to
such holder. Any failure to follow the detailed procedures set forth in the
South Carolina Dissenters' Rights Statute may result in the loss of a
stockholder's right to claim fair value as described herein.
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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Combined Financial Statements
have been prepared based on the historical financial statements of RBMG and RBC
for the year ended December 31, 1996 and the nine month period ended September
30, 1997. The Unaudited Pro Forma Condensed Combined Statements of Income for
the year ended December 31, 1996 and the nine months ended September 30, 1997
give effect to the RBC Merger as if it and the spin-off of RPG had occurred on
January 1, 1996. The Unaudited Pro Forma Condensed Combined Balance Sheets as of
September 30, 1997 give effect to the RBC Merger as if it had occurred on
September 30, 1997.
Pro forma adjustments pertaining to RBC are prepared consistent with the
expectation that the RBC Merger will be accounted for under the purchase method
of accounting. The estimated total purchase price for the RBC Merger has been
allocated to tangible and identifiable intangible assets and liabilities based
upon management's estimate of their respective fair values with the excess of
estimated cost over the fair value of the net assets acquired allocated to
goodwill. The estimated allocations of the purchase price are expected to be
revised as additional information concerning asset and liability valuation is
obtained and as the composition of RBC's assets and liabilities change between
the date of the RBC Merger assumed for purposes of preparing the Unaudited Pro
Forma Condensed Combined Financial Statements and the RBC Effective Time.
The pro forma adjustments are based on currently available information and
upon certain assumptions that management believes to be reasonable in the
circumstances. The Unaudited Pro Forma Condensed Combined Financial Statements
are for illustrative purposes only and should not be viewed as a projection or
forecast of the combined company's performance for any future period. The
Unaudited Pro Forma Condensed Combined Financial Statements do not purport to
present the combined company's actual financial position or results of
operations had the RBC Merger actually occurred on the date assumed for purposes
of preparation. Such Unaudited Pro Forma Condensed Combined Financial Statements
should be read in conjunction with the historical consolidated financial
statements of RBMG and RBC and the notes relating thereto, as well as the other
information included elsewhere in this Joint Proxy Statement/Prospectus or
incorporated herein by reference.
56
<PAGE> 64
RBMG AND RBC
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
PRO FORMA COMBINED
RBMG RBC ADJUSTMENTS RBMG AND RBC
---------- -------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash........................................ $ 8,939 $ 5,198 $ (1,034)(1) $ 13,103
Receivables................................. 96,882 2,267 99,149
Residual Certificates....................... 7,550 7,550
Mortgage-backed securities.................. 196,675 196,675
Mortgage loans held for sale................ 893,656 893,656
Lease receivables, net...................... 47,691 1,398(2) 49,089
Mortgage servicing rights, net.............. 128,713 1,475 4,793(2) 134,981
Investment in RBMG.......................... 66,629 32,309(2)
(98,938)(3)
Investment in unaffiliated company.......... 1,500 2,300(2) 3,800
Premises and equipment, net................. 24,287 1,215 25,502
Goodwill and other intangibles, net......... 8,221 2,815 2,000(1) 13,669
(2,815)(2)
3,448(2)
Other assets................................ 39,221 3,130 (966)(1) 41,385
---------- -------- -------- ----------
Total assets...................... 1,404,144 131,920 (57,505) 1,478,559
========== ======== ======== ==========
Short-term borrowings....................... 1,129,065 24,670 1,153,735
Long-term borrowings........................ 6,485 6,485
Accrued expenses and other liabilities...... 90,011 19,747 3,248(2) 113,006
---------- -------- -------- ----------
Total liabilities................. 1,225,561 44,417 3,248 1,273,226
---------- -------- -------- ----------
Common stock................................ 210 87 (78)(3) 231
(87)(4)
99(5)
Additional paid-in capital.................. 171,151 58,074 38,185(2) 197,880
(98,860)(3)
29,429(5)
(99)(5)
Retained earnings........................... 11,190 29,342 (29,342)(4) 11,190
Unearned shares of ESOP..................... (3,968) (3,968)
---------- -------- -------- ----------
Total stockholders' equity........ 178,583 87,503 (60,753) 205,333
---------- -------- -------- ----------
Total liabilities and
stockholders' equity............ $1,404,144 $131,920 $(57,505) $1,478,559
========== ======== ======== ==========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
57
<PAGE> 65
RBMG AND RBC
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
PRO FORMA COMBINED
RBMG RBC ADJUSTMENTS RBMG AND RBC
------------ -------- ------------ -------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
REVENUES
Interest income............................ 53,301 5,388 (350)(6) 58,339
Interest expense........................... (39,115) (1,825) (40,940)
----------- ------- ------- -----------
Net interest income.............. 14,186 3,563 (350) 17,399
Net gain on sale or securitization and fees
on mortgage loans or leases.............. 71,578 921 72,499
Commercial mortgage origination income..... 3,367 3,367
Gain on sale of mortgage servicing
rights................................... 5,948 5,948
Loan and lease servicing fees.............. 23,049 2,694 25,743
Equity in undistributed earnings of RBMG... 5,474 (5,474)(7)
Other income............................... 572 2,109 2,681
----------- ------- ------- -----------
Total revenues................... 115,333 18,128 (5,824) 127,637
----------- ------- ------- -----------
EXPENSES
Salary and employee benefits............... 43,631 6,963 (89)(9) 50,505
Occupancy and equipment.................... 5,328 935 6,263
Amortization of mortgage servicing
rights................................... 13,673 218 449(6) 14,340
Amortization of goodwill and other
intangibles.............................. 204(6) 107
Provision for loan and lease losses........ 618 (97)(6) 618
General and administrative................. 29,580 4,378 (670)(10) 33,288
----------- ------- ------- -----------
Total expenses............................. 92,212 13,112 (203) 105,121
----------- ------- ------- -----------
Income before taxes........................ 23,121 5,016 (5,621) 22,516
Income tax expense......................... 8,713 543 (419)(7) 9,127
34(9)
256(10)
----------- ------- ------- -----------
Net income....................... 14,408 4,473 (5,492) 13,389
=========== ======= ======= ===========
Weighted average common shares
outstanding*............................. 20,902,473 23,002,473
Net income per common share................ $ .69 .58
</TABLE>
- ---------------
* Weighted average common shares outstanding of RBMG, for purposes of the
condensed combined RBMG and RBC pro forma presentation, have been adjusted to
consider the issuance of 9,397,238 (9,867,100 after retroactive adjustment for
the 5% stock dividend declared on October 31, 1997) shares of RBMG Common
Stock to effect the RBC Merger, net of 7,397,238 (7,767,100 after retroactive
adjustment for the 5% stock dividend declared on October 31, 1997) shares of
RBMG Common Stock currently owned by RBC.
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
58
<PAGE> 66
RBMG AND RBC
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMBINED
SPIN-OFF REVISED PRO FORMA RBMG
RBMG RBC OF RPG RBC ADJUSTMENTS AND RBC
----------- ------- -------- ------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Interest income.............. $ 62,858 $13,342 $ (200) $13,142 $ (466)(6) $ 75,534
Interest expense............. (45,956) (5,212) (5,212) (51,168)
----------- ------- -------- ------- -------- -----------
Net interest income.......... 16,902 8,130 (200) 7,930 (466) 24,366
Net gain on sale or
securitization and fees on
mortgage loans or leases... 79,178 3,124 3,124 82,302
Commercial mortgage
origination income......... 4,416 4,416 4,416
Gain on sale of mortgage
servicing rights........... 1,105 1,105
Loan and lease servicing
fees....................... 28,763 2,508 2,508 31,271
Credit card fees............. 18,424 (18,424)
Equity in undistributed
earnings of RBMG........... 7,424 7,424 (7,424)(7)
Gain on sale of RBMG stock... 2,456 2,456 (2,456)(8)
Other income................. 669 1,121 1,121 1,790
----------- ------- -------- ------- -------- -----------
Total revenues..... 126,617 47,603 (18,624) 28,979 (10,346) 145,250
----------- ------- -------- ------- -------- -----------
EXPENSES
Salary and employee
benefits................... 55,578 18,360 (4,478) 13,882 (207)(9) 69,253
Occupancy and equipment...... 5,640 1,958 (763) 1,195 6,835
Amortization of mortgage
servicing rights........... 14,934 209 209 599(6) 15,742
Amortization of goodwill and
other intangibles.......... 264 264 272(6)
(264)(6) 272
Provision for loan and lease
losses..................... 817 2,391 2,391 3,208
General and administrative... 19,100 16,701 (13,438) 3,263 22,363
----------- ------- -------- ------- -------- -----------
Total expenses..... 96,069 39,883 (18,679) 21,204 400 117,673
----------- ------- -------- ------- -------- -----------
Income before taxes.......... 30,548 7,720 55 7,775 (10,746) 27,577
Income tax expense........... 10,925 467 (280) 187 (568)(7)
(939)(8)
79(9) 9,684
----------- ------- -------- ------- -------- -----------
Net income......... $ 19,623 $ 7,253 $ 335 $ 7,588 $ (9,318) $ 17,893
=========== ======= ======== ======= ======== ===========
Weighted average common
shares outstanding*........ 19,153,044 21,253,044
Net income per common
share...................... $ 1.02 $ .84
</TABLE>
- ---------------
* Weighted average common shares outstanding of RBMG, for purposes of the
condensed combined RBMG and RBC pro forma presentation, have been adjusted to
consider the issuance of 9,397,238 (9,867,100 after retroactive adjustment for
the 5% stock dividend declared on October 31, 1997) shares of RBMG Common
Stock to effect the RBC Merger, net of 7,397,238 (7,767,100 after retroactive
adjustment for the 5% stock dividend declared on October 31, 1997) shares of
RBMG Common Stock currently owned by RBC.
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
59
<PAGE> 67
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE A. NET INCOME PER COMMON SHARE
The unaudited pro forma combined net income per common share has been
calculated by dividing pro forma net income by the weighted average common
shares outstanding during the period, adjusted to consider the weighted average
pro forma effect of the shares assumed to be issued in the RBC Merger.
Statement of Financial Accounting Standards No. 128 "Earnings per Share"
(SFAS 128) was issued in February 1997 and is effective for financial statements
for periods ending after December 15, 1997. Earlier application is not
permitted. The unaudited pro forma combined net income per common share
calculations are based on the provisions of Accounting Principles Board Opinion
No. 15, and the related interpretations thereof.
NOTE B. UNAUDITED PRO FORMA ADJUSTMENTS
The following summarizes the unaudited pro forma adjustments which are
necessary to reflect the RBC Merger. All dollar amounts are presented in
thousands.
RBMG AND RBC UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET AND STATEMENTS
OF INCOME
As of the close of business on December 31, 1996, RBC effected a spin-off
of RPG through a distribution of RPG's common stock to RBC Stockholders. In
order to present the historical pro forma results of RBC on a comparable basis
to that of the nine month period ended September 30, 1997, the unaudited pro
forma condensed combined financial statements for the year ended December 31,
1996 include adjustments to RBC's historical financial data to give effect to
the spin-off of RPG as if it occurred on January 1, 1996.
The RBMG and RBC Unaudited Pro Forma Condensed Combined Balance Sheet and
Statements of Income are prepared on the assumption that the RBC Merger is
consummated. The pro forma adjustments are summarized as follows:
(1) To record payment of $2,000 of estimated deferrable acquisition costs,
including investment banking, legal and other professional charges, expected to
be incurred by RBMG in connection with the RBC Merger. Approximately $966 of
such charges had been paid and deferred as a component of other assets as of
September 30, 1997.
(2) To adjust RBC's various assets and liabilities to estimated fair value,
to eliminate existing RBC goodwill and other intangibles, to eliminate existing
deferred organizational and other prepaid costs included in other assets and to
record an offsetting equity adjustment.
<TABLE>
<S> <C> <C>
RBC historical book value as of September 30, 1997.......... $ 87,503
Adjusted by the following:
To adjust the investment in RBMG to estimated fair
value.................................................. 32,309
To adjust lease receivables to estimated fair value....... 1,398
To adjust mortgage servicing rights to estimated fair
value.................................................. 4,793
To adjust the investment in unaffiliated company to
estimated fair value................................... 2,300
To eliminate existing RBC goodwill and other
intangibles............................................ (2,815)
To record deferred tax liabilities associated with
adjusting RBC's various assets to fair value........... (3,248)
--------
Fair value of RBC net assets acquired....................... 122,240
Purchase price.............................................. 125,688
--------
Excess of purchase price over fair value of net assets
acquired.................................................. $ 3,448
========
</TABLE>
Estimated goodwill relating to the RBC Merger is based upon a purchase
price of $125,688 which assumes the issuance of 9,397,238 (9,867,100 after
retroactive adjustment for the 5% stock dividend declared on October 31, 1997)
shares of RBMG Common Stock in exchange for the outstanding RBC Common Stock.
For
60
<PAGE> 68
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
purposes of the pro forma presentation, RBMG Common Stock was valued at $13.375
($12.74 after retroactive adjustment for the 5% stock dividend declared on
October 31, 1997) per share.
(3) To eliminate RBC's investment in 7,397,238 (7,767,100 after retroactive
adjustment for the 5% stock dividend declared October 31, 1997) shares of RBMG
Common Stock at fair value. For purposes of pro forma presentation, RBMG Common
Stock was valued at $13.375 ($12.74 after retroactive adjustment for the 5%
stock dividend declared October 31, 1997) per share.
(4) To eliminate RBC's retained earnings and common stock accounts.
(5) To capitalize at par value the issuance of 9,397,238 (9,867,100 after
retroactive adjustment for the 5% stock dividend declared October 31, 1997)
shares of RBMG Common Stock.
(6) To adjust for amortization of goodwill and purchase price basis
adjustments.
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE NINE
ENDED MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
<S> <C> <C>
Amortization of basis adjustment to lease
receivables over an estimated three year
life........................................... $ 466 $350
Amortization of basis adjustment to mortgage
servicing rights over an estimated eight year
life........................................... 599 449
Amortization of new goodwill over an estimated 20
year life...................................... 272 204
Reversal of amortization expense recorded
relating to pre-existing RBC goodwill.......... (264) (97)
------- ------
$1,073 $906
======= ======
</TABLE>
(7) To eliminate RBC equity in undistributed earnings of RBMG, together
with the allocable income tax expense.
(8) To eliminate RBC's gain on sale of RBMG Common Stock, together with the
allocable income tax expense.
(9) To adjust pro forma salary and employee benefits expenses and related
income tax expense for RBMG's contractual obligations to provide for annual
bonuses to certain key employees in an amount aggregating 6.5% of pre-tax,
pre-bonus net income.
(10) To eliminate merger expenses recorded by RBC during the nine months
ended September 30, 1997, together with the allocable income tax expense.
NOTE C. EARNINGS CONSIDERATIONS RELATED TO THE RBC MERGER
It is expected that RBMG or RBC will incur charges related to the RBC
Merger and to the assimilation of RBC into the RBMG organization. Anticipated
charges include, but are not limited to, legal and accounting fees, financial
advisory fees, consulting fees, and similar costs which normally arise from the
consolidation of operational activities.
Aggregate charges expected to arise from the RBC Merger have been
preliminarily estimated to be in the range of $3,500 to $4,000. After
consideration of the unaudited pro forma adjustments, such charges have not been
included in the unaudited pro forma condensed combined statements of income.
61
<PAGE> 69
BUSINESS OF RBMG
RBMG is a full-service residential mortgage company which originates and
purchases loans through a network which as of September 30, 1997 consisted of
approximately 934 correspondent lenders, 3,846 brokers and six retail offices.
RBMG pools the mortgages it originates or purchases, creating mortgage-backed
securities, and sells these securities to financial institutions throughout the
United States. RBMG retains in its portfolio or sells to other approved
servicers the mortgage servicing rights associated with the loans it originates
or purchases. RBMG originates and services loans made to borrowers located in 48
states and the District of Columbia. RBMG was formed to acquire, own and operate
the mortgage banking business of the banking subsidiaries of RBC, which operated
under the name Resource Bancshares Mortgage Group, Inc. and commenced operations
in May 1989. The mortgage banking business of these subsidiaries was transferred
to RBMG in connection with an initial public offering of RBMG Common Stock in
June 1993. As part of the initial public offering of RBMG Common Stock, RBC
retained approximately 42% of the outstanding RBMG Common Stock.
BUSINESS OF RBC
GENERAL
RBC was organized as a South Carolina corporation in 1986. RBC's current
principal businesses are the origination, sale and servicing of small ticket
equipment leases and of commercial mortgage loans. RBC now owns approximately
36.4% of the outstanding RBMG Common Stock. RBC also owns an 11% interest in
Intek. As of December 31, 1996 and September 30, 1997, RBC had total
consolidated assets of $140 million and $132 million, respectively, and
stockholders' equity of $80 million and $88 million, respectively. RBC's
principal executive offices are located at 1901 Main Street, Suite 650,
Columbia, South Carolina, and its telephone number is (803) 799-2256.
SMALL TICKET EQUIPMENT LEASING BUSINESS
General. RBC's small ticket equipment leasing business is operated through
Republic Leasing. Republic Leasing originates, sells and services small ticket
equipment leases.
Lease Originations and Sales of Leases. Republic Leasing originates
equipment leases using a network of independent lease brokers and bank referrals
as the source of substantially all its new leases. As part of the origination
process, Republic Leasing performs various levels of credit analysis on each
application based on the type of equipment to be leased and the value of the
lease.
Leases originated by Republic Leasing generally have a lease value ranging
from $3,000 to $250,000 and cover a variety of types of equipment, including
manufacturing equipment, computer equipment, security equipment, office
equipment, furniture, construction equipment and tools. As of September 30,
1997, the average lease size of Republic Leasing's lease portfolio was
approximately $16,000, and there were only four leases with a current lease
receivable in excess of $250,000.
Republic Leasing does not purchase the equipment to be leased until it has
received a noncancelable lease from a lessee and has determined that the lease
meets its criteria for funding. Upon obtaining a signed lease and other required
documentation, a Republic Leasing credit processor verifies directly with the
lessee that all the items covered by the lease have been delivered and installed
and are in working order to the lessee's satisfaction. Republic Leasing then
initiates payment to the vendor of the equipment.
Since inception, the majority of all leases generated by Republic Leasing
have been full payout, noncancelable leases, where the minimum lease payments
over the lease term cover the full cost of the equipment, installation, broker
commissions and any related expenses plus an interest factor. The leases entered
into by Republic Leasing normally require an initial amount due of between 3.0%
and 10.0% of the cost of the equipment and fixed monthly payments over a term of
one to five years. The terms and conditions of the equipment lease agreements
used by Republic Leasing do not give a lessee the option to pay the lease out in
full by remitting only the discounted cash flow of payments or the net balance.
62
<PAGE> 70
In December 1994, Republic Leasing completed a lease securitization, which
was accounted for as a financing, and in 1995, 1996 and 1997 lease portfolios
were sold to three investors in private transactions. During 1996, Republic
Leasing entered into an agreement with one investor to make available for sale a
portion of Republic Leasing's lease originations on a flow basis.
As of September 30, 1997, Republic Leasing was originating leases in 48
states through approximately 231 independent brokers and seven independent
banks.
Lease Servicing. Republic Leasing services the lease portfolio owned by
RBC and the lease portfolios owned by three investors who have purchased leases
from Republic Leasing. Under the terms of the lease servicing agreements,
Republic Leasing is paid servicing fees based on the dollar amount of leases
serviced.
The servicing activities performed by Republic Leasing consist of customer
service; billing and collections; lessee file maintenance; sales and property
tax collection and remittance; accounting and management reporting and
processing payments and late fees. As part of these servicing activities,
Republic Leasing follows up with a lessee who is past due on its account and
attempts to collect such amounts and, in the event the lessee fails to pay, may
repossess the collateral and prepares daily, weekly and monthly reports which
include information summarizing trial balances, past due amounts, new leases,
leases that have been paid in full and the status of collateral.
COMMERCIAL MORTGAGE BANKING BUSINESS
General. RBC operates its commercial mortgage banking business through
Laureate Realty, a second tier wholly owned subsidiary of RBC. Laureate Realty
was organized in September 1994 and during 1995 and 1996 it acquired commercial
mortgage servicing rights in connection with its acquisitions of the assets and
businesses of Mortgage Company of Indiana, Inc. (1995) and Camp & Company
(1996). As a commercial mortgage banker, Laureate Realty performs a wide range
of commercial mortgage banking services, including originating, underwriting,
placing, selling and servicing commercial mortgage loans.
Commercial Mortgage Loan Origination and Sale. As a full service
commercial mortgage banker with offices in Alabama, Indiana, North Carolina,
South Carolina, Tennessee and Virginia, Laureate Realty provides a wide range of
real estate capital markets services to owners and developers of commercial real
estate properties.
The typical users of commercial real estate mortgage banking services are
real estate developers, owners (as borrowers) and investor/lenders (as funding
sources). Due to the more specialized nature of commercial mortgage lending and
the smaller universe of lenders serving this market (in each case relative to
the residential mortgage market), borrowers rely on commercial mortgage brokers
and bankers to find competitive lenders, and these lenders (particularly
insurance companies and pension plans, which do not generally have origination
staffs located in multiple branches) rely on mortgage brokers and bankers to
source potential borrowers. Lenders generally include banks, pension funds,
insurance companies and conduits for commercial mortgage backed securities.
In originating loans, Laureate Realty works closely with both the borrower
and potential lenders from the time a loan prospect is first contacted through
the application and proposal process and throughout the documentation of the
loan to final funding. Laureate Realty typically performs extensive due
diligence and market analysis for the lenders in this process.
Laureate Realty principally targets developers and owners of higher-quality
commercial and multifamily real estate properties. The loans originated by
Laureate Realty generally are funded by institutional lenders, primarily
insurance companies. RBC believes that Laureate Realty's relationship and
credibility with its institutional lender network provide it with a competitive
advantage in the commercial mortgage banking industry.
Laureate Realty is also a member of FHLMC's multifamily seller/servicer
program in North Carolina, South Carolina, Tennessee and Arkansas and intends to
expand into other states. Through this program, Laureate Realty sells to FHLMC
and services for FHLMC multifamily commercial mortgages. Laureate Realty also
originates loans for several conduits sponsored by investment banks and capital
market areas of commercial banks. In connection with FHLMC loans and the
origination of loans for conduits, Laureate Realty may make
63
<PAGE> 71
representations and warranties covering title to the property, lien priority,
environmental reviews and certain other matters. In the event of a breach of
such a representation and warranty, Laureate Realty could be called upon to
repurchase the loan.
Laureate Realty generally earns a fee of between 50 and 100 basis points of
the loan amount for originated or underwritten loans, plus certain additional
processing fees.
Commercial Mortgage Loan Servicing. Laureate Realty's business commenced
in September 1994 and by January 1995 two investors had transferred commercial
loan servicing portfolios totaling $464 million. Since that time, through
acquisitions, loan originations and transfers by other investors the servicing
portfolio has grown to $2.5 billion at September 30, 1997. At September 30,
1997, Laureate Realty was servicing 828 loans for 43 investors. At December 31,
1996 and September 30, 1997, Laureate Realty's commercial mortgage loan
servicing rights had a carrying value of $1.7 million and $1.5 million,
respectively. Currently, the primary source of Laureate Realty's commercial
mortgage servicing business is the loans it originates or underwrites. The
revenue stream from servicing contracts on commercial mortgages is relatively
predictable as prepayment penalties in commercial mortgages discourage early
loan payoffs.
Commercial mortgage loan servicing involves collecting monthly mortgage
payments, maintaining escrow accounts for the payment of property taxes and
insurance premiums on behalf of borrowers, remitting payments of principal and
interest promptly to investors in the underlying mortgages, reporting to those
investors on financial transactions related to such mortgages and generally
administering the loans. The servicer also must cause properties to be inspected
periodically, determine the adequacy of insurance coverage on each property,
monitor delinquent accounts for payment and in cases of extreme delinquency,
institute and complete either appropriate forbearance arrangements or
foreclosure proceedings on behalf of investors. Servicing fees are generally
based on the outstanding principal of loans serviced and range from .03% to
.25%.
64
<PAGE> 72
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF RBC
The following discussion and analysis should be read in conjunction with
the financial information and the consolidated financial statements of RBC
(including the notes thereto) included in this Joint Proxy Statement/Prospectus.
BACKGROUND
RBC was organized under the laws of the state of South Carolina in 1986.
From 1987 until May 1, 1994, RBC was a bank holding company and operated its
credit card and leasing operations as divisions of a bank subsidiary. Between
1989 and 1993, RBC also operated a residential mortgage banking business as a
division of a bank subsidiary. On June 3, 1993, RBC transferred the assets and
liabilities of its residential mortgage banking business to RBMG, a new
wholly-owned subsidiary of RBC, and RBMG simultaneously sold 58% of its common
stock in an initial public offering. Accordingly, immediately thereafter, RBC
owned 42% of the outstanding RBMG Common Stock. In 1993 and 1994, RBC sold its
retail banking assets, liabilities and operations (the "Retail Banking
Business"), and during 1994, RBC ceased to be a bank holding company. In 1994,
the credit card and leasing operations were contributed to new operating
subsidiaries of RBC, Resource Processing Group, Inc. ("RPG") and Republic
Leasing Company, Inc., respectively. Also during 1994, RBC formed Laureate
Realty, its commercial mortgage loan subsidiary. During 1995 and 1996, Laureate
Realty acquired two commercial mortgage banking operations and accounted for
both transactions under the purchase method of accounting. On December 31, 1996,
Republic Leasing Company, Inc. merged into RBC and now operates as a division.
In addition, on December 31, 1996, as more fully described in Note 3 to RBC's
consolidated financial statements, the common stock of RPG was distributed to
the RBC Stockholders in a spin-off transaction (the "Spin-off").
In March 1996, RBMG completed a common stock offering. In that offering,
RBC purchased an additional 896,552 shares of RBMG Common Stock resulting in an
in-substance sale of a portion of RBC's investment in RBMG. As a result of that
transaction and other stock issuances by RBMG, RBC owns 36.4% of the outstanding
RBMG Common Stock as of the date of this Joint Proxy Statement/Prospectus.
Subsequent to the Spin-off, RBC, including its subsidiaries, has engaged
primarily in commercial small ticket equipment lease financing and servicing and
commercial mortgage banking.
SMALL TICKET EQUIPMENT LEASING
Substantially all of RBC's lease receivables are acquired from independent
brokers who operate throughout the continental United States and referrals from
independent banks. The majority of the leases are commercial financing leases
which do not provide for early payout and which contain "hell or high water"
provisions (i.e., repayment is required without regard to the suitability,
performance or condition of the leased equipment). In substantially all
instances, the lessee obtains title to the equipment at the end of the lease by
payment of either one dollar or a purchase option which is usually no more than
ten percent of the original lease amount. The small ticket equipment leasing
business has become increasingly competitive in the last 12 to 24 months as more
financial institutions have entered the leasing business in search of high
yielding assets. As a result, the "all-in" leasing yield on RBC's new lease
production has declined from prime plus 6.0% to 6.5% in 1994 to prime plus 4.0%
to 5.0% in 1997.
After steady growth in monthly lease production during 1994 and 1995, RBC's
monthly lease production declined because several major lessors, with whom
Republic Leasing competes, significantly lowered their interest rates and credit
criteria. RBC was not willing either to suffer the margin compression or to take
increased credit risks. As a result, RBC lost some of its market share. In 1997,
RBC introduced a program to originate leases through community banks. Under this
program, the bank is paid a referral fee for each lease originated for RBC's
portfolio. Initial reception to the program has been good, and RBC management
believes that monthly lease production under the program will positively impact
RBC's revenue during 1998.
65
<PAGE> 73
<TABLE>
<CAPTION>
AT OR FOR THE NINE
AT OR FOR THE YEAR ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------------- -------------------
1994 1995 1996 1996 1997
------- -------- ------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Lease production during the period............... $75,505 $ 94,334 $63,284 $48,448 $42,488
Outstanding balance of leases owned by RBC at end
of period (net of security deposits)........... 88,066 106,181 51,113 80,565 45,992
Outstanding balance of leases serviced for third
parties at end of period....................... 29,249 78,747 48,870 79,439
REVENUES:
Interest income on leases........................ 7,883 14,587 11,899 9,897 4,637
Gain on sale of leases........................... 1,617 3,124 1,572 921
Servicing fees................................... 213 727 459 930
</TABLE>
COMMERCIAL MORTGAGE BANKING
RBC entered the commercial mortgage banking business in late 1994. At
December 31, 1994, Laureate Realty was servicing $108 million of commercial
mortgage loans for one investor. In January 1995, two investors transferred
servicing on a number of loans to Laureate Realty. As a result of those
transfers and internal production, Laureate Realty was servicing $579 million of
commercial mortgage loans by the end of January 1995. By December 31, 1995,
servicing was increased to $1.5 billion for 30 investors. This increase resulted
from the purchase of the business and assets of Mortgage Company of Indiana,
Inc. ("MCII") in July 1995 which included the transfer of $503 million in
servicing and $317 million of loan originations closed for investors. The
servicing portfolio had an underlying principal balance of $2.3 billion, $2.3
billion and $2.5 billion at December 31, 1996 and September 30, 1996 and 1997,
respectively. Part of the increase in the servicing portfolio during 1996 was
attributable to the purchase of the business and assets of Camp & Company
("Camp") in July 1996, which included the transfer of $524 million in servicing,
and $509 million of loan originations closed during the year 1996. Loan
originations were $435 million and $365 million during the nine months ended
September 30, 1996 and 1997, respectively.
Substantially all loans originated by Laureate Realty have been originated
in the name of the investor, and in most cases, Laureate Realty has retained the
right to service the loans under a servicing agreement with the investor.
Initially, Laureate Realty originated loans primarily in North Carolina, South
Carolina, Tennessee and Virginia and, with the two acquisitions, expanded to
Indiana and Alabama. Origination fees are generally between 50 and 100 basis
points of the loan amount, and Laureate Realty's average servicing rate is nine
basis points. Most commercial mortgage loan servicing agreements are short-term,
and retention of the servicing contract is dependent on maintaining investor
relationships. Likewise, new loan originations are largely dependent on
relationships with the developer.
<TABLE>
<CAPTION>
AT OR FOR THE NINE
AT OR FOR THE YEAR ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------------------- -----------------------
1994 1995 1996 1996 1997
-------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Commercial mortgage loan
originations...................... $ 21,468 $ 317,940 $ 509,415 $ 434,993 $ 364,921
Outstanding balance of commercial
mortgage loans serviced for third
party investors at end of
period............................ 107,691 1,464,360 2,334,451 2,265,153 2,504,408
REVENUES:
Commercial mortgage loan origination
fees 244 3,082 4,416 2,736 3,367
Servicing fees...................... 9 801 1,781 1,245 1,734
</TABLE>
66
<PAGE> 74
INVESTMENT IN RBMG
As more fully described in Notes 1, 2 and 8 to the consolidated financial
statements of RBC, RBC accounts for its investment in RBMG under the equity
method of accounting.
The following table summarizes certain financial data regarding RBC's
investment in RBMG:
<TABLE>
<CAPTION>
AT OR FOR THE NINE
AT OR FOR THE YEAR ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------------- ------------------
1994 1995 1996 1996 1997
------- -------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Equity in undistributed earnings of
RBMG............................... $ 7,510 $ 5,885 $ 7,424 $ 6,685 $ 5,474
Gain on equity offering by RBMG...... 2,456 2,456
</TABLE>
CREDIT CARD OPERATIONS
As more fully described in Note 3 of the consolidated financial statements
of RBC, as of the close of business on December 31, 1996, RBC spun-off RPG, its
credit card operation to the RBC Stockholders. Accordingly, the results of
operations of RPG are included in the RBC operating results only through the
date of the Spin-off, and RPG's assets and liabilities are excluded from RBC's
balance sheet at December 31, 1996.
The following table sets forth certain financial data regarding RPG while
it was a part of RBC:
<TABLE>
<CAPTION>
AT OR FOR THE
AT OR FOR THE YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------ ------------------
1994 1995 1996 1996
-------- -------- -------- ------------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Number of accounts serviced at end of
period.............................. 226 369 506 500
AVERAGE OUTSTANDING BALANCE OF
ACCOUNTS SERVICED DURING PERIOD:
Long-term agreements with clients... $165,693 $267,298 $391,243 $367,210
Short-term agreements, primarily
with affiliates.................. 22,591
Outstanding balance of accounts
serviced at end of period........... 205,253 369,636 498,306 409,214
Number of accounts originated during
period.............................. 284 192 269 215
Revenues.............................. $ 23,140 $ 11,637 $ 18,424 13,234
Expenses (including taxes)............ (17,927) (10,481) (17,976) (12,697)
-------- -------- -------- --------
Net income.................. $ 5,213 $ 1,156 $ 448 $ 537
======== ======== ======== ========
</TABLE>
RESULTS OF OPERATIONS -- NINE MONTHS ENDED SEPTEMBER 30, 1997, COMPARED TO NINE
MONTHS ENDED SEPTEMBER 30, 1996
Summary
Total revenues of RBC were $18.1 million for the nine months ended
September 30, 1997 as compared to $36.0 million for the nine months ended
September 30, 1996. This $17.9 million, or 50%, decrease was primarily due to a
$2.5 million non-recurring gain recognized in the nine months ended September
30, 1996 related to a secondary common stock offering by RBMG, a $1.2 million
decrease in equity in undistributed earnings of RBMG, $651 thousand lower gains
on the sale of leases and $13.2 million of credit card revenues generated by RPG
during the nine months ended September 30, 1996. These decreases were partially
off-set by a $1.2 million gain realized in the nine months ended September 30,
1997 on the repurchase by Intek of 25% of RBC's investment in that company and
$1.6 million increase in lease and commercial mortgage loan servicing fees and
origination fees during the nine months ended September 30, 1997 compared to the
same period in 1996.
67
<PAGE> 75
As a consequence of the foregoing, pre-tax income decreased 42%, or $3.6
million, and net income decreased from $7.5 million to $4.5 million for the nine
months ended September 30, 1997 as compared to the nine months ended September
30, 1996.
The following sections discuss the components of RBC's results of
operations in greater detail.
Net Interest Income
Net interest income was $3.2 million less during the nine months ended
September 30, 1997 than during the comparable period in 1996 primarily because
of the lower balances of lease receivables outstanding and related borrowings to
finance such leases. For the nine months ended September 30, 1996 and 1997, RBC
originated $48.4 million and $42.5 million of leases, respectively. The decrease
in lease production was due primarily to several major competitors lowering
interest rates and credit criteria. As a result of the decrease in lease
production as well as increased lease sales during 1996 and the nine months
ended September 30, 1997, average month-end lease balances declined from $91.8
million for the nine months ended September 30, 1996 to $43.4 million for the
nine months ended September 30, 1997. During the same periods, the net yield on
the lease portfolio decreased from 13.02% to 11.82%.
Net Gain on Sale of Leases
During the nine months ended September 30, 1997, RBC sold $25.9 million of
lease receivables compared to $35.4 million during the nine months ended
September 30, 1996. As a result, net gain on sale of leases decreased from $1.6
million for the nine months ended September 30, 1996 to $921 thousand for the
nine months ended September 30, 1997.
Credit Card Fees
As a result of the Spin-off, there were no credit card fees in the nine
months ended September 30, 1997 compared to $13.2 million during the nine months
ended September 30, 1996.
Servicing and Other Fees
Servicing and other fees were $6.1 million during the nine months ended
September 30, 1997, compared to $4.4 million for the nine months ending
September 30, 1996, an increase of 37%. This increase is related to a larger
commercial mortgage loan servicing portfolio which increased approximately $239
million, or 11%, to $2.5 billion by September 30, 1997, and a larger lease
servicing portfolio for third parties which increased approximately $30.6
million, or 63%, to $79.4 million by September 30, 1997. The commercial mortgage
loan origination fees increased $631 thousand, or 23%, for the nine months ended
September 30, 1997 as compared to the same period during 1996.
The following table summarizes servicing and other fees for the nine months
ended September 30, 1996 and 1997:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
--------------------
1996 1997
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Lease servicing fees........................................ $ 459 $ 930
Commercial mortgage loan servicing fees..................... 1,245 1,734
Origination and other commercial mortgage loan fees......... 2,736 3,367
Other....................................................... 30
------ ------
Total servicing and other fees.................... $4,440 $6,061
====== ======
</TABLE>
68
<PAGE> 76
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-----------------------
1996 1997
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Lease servicing portfolio for third parties................. $ 48,870 $ 79,439
Number of leases being serviced for third parties........... 2,887 6,764
Commercial mortgage loan servicing portfolio................ $2,265,153 $2,504,408
Number of commercial mortgage loans being serviced.......... 756 828
</TABLE>
Other Income
Other income was $2.1 million for the nine months ended September 30, 1997
as compared to $810 thousand for the nine months ended September 30, 1996. This
$1.3 million increase was primarily due to the repurchase by Intek of 5,000
shares of Intek preferred stock owned by RBC, in conjunction with a private
equity offering by Intek, pursuant to which RBC realized a gain of $1.2 million.
Expenses
Total expenses decreased from $27.3 million in the nine months ended
September 30, 1996 to $13.1 million in the nine months ended September 30, 1997,
a $14.2 million, or 52%, decline. The Spin-off accounts for $12.7 million of the
decrease. The salary and employee benefits expense for the nine months ended
September 30, 1996 included $2.1 million of phantom stock expense compared to
$658 thousand for the comparable period of 1997. The latter was lower as a
result of the termination of RBC's phantom stock plan. The provision for lease
losses decreased $1.8 million, or 74%, primarily as a result of a decrease in
the amount of leases owned by RBC. At September 30, 1996 and 1997, the reserve
for lease losses was 3.7% and 2.8%, respectively, of net lease receivables and
4.0% and 2.9%, respectively, of net leases less security deposits.
RESULTS OF OPERATIONS -- YEAR ENDED DECEMBER 31, 1996, COMPARED TO YEAR ENDED
DECEMBER 31, 1995
Summary
Total revenues of RBC were $47.6 million during 1996 compared to $34.5
million for the prior year. This improvement represented an across the board
increase, except for a $1.8 million decrease in net interest income related
primarily to lower balances of lease receivables outstanding and related debt
because of increased lease sales in 1996. The increased revenues included a $2.4
million increase in lease and commercial mortgage loan servicing fees and
origination fees, a $1.5 million increase in gains on the sale of leases, a $2.5
million gain related to a common stock offering by RBMG as discussed in Note 8
of the consolidated financial statements of RBC, an increase of $1.5 million in
equity in undistributed earnings of RBMG and significantly higher credit card
fees. During the same periods, operating expenses increased $13.1 million, or
49%. Credit card operations accounted for 48%, or $6.2 million, of the increased
expenses reflecting the additional cost necessary to support a greater level of
credit card accounts serviced. In addition, in 1996 RPG recognized a $600
thousand valuation write-off on deferred costs as a result of reassessment of
margins on credit card origination programs. Operating expenses related to the
MCII mortgage loan operations were included for a full year in 1996 but only six
months in 1995, and the Camp operations were included only during five months of
1996. In addition, during 1996 RBC incurred approximately $1.4 million of other
nonrecurring expenses related to the Spin-off. Also in 1996, salary and employee
benefits expense include a phantom stock expense increase of $2.8 million of
which $1.9 million resulted from the Spin-off. In conjunction with the Spin-off,
RBC was obligated to distribute to each holder of certain of its phantom stock
units a dividend equivalent payment equal to one share of RPG stock paid in a
combination of RPG stock and cash based on the December 31, 1996 value of a
share of RPG stock.
Net income for 1996 was $7.3 million, or 8% higher than net income in 1995.
The following sections discuss the components of RBC's results of
operations in greater detail.
Net Interest Income
Net interest income was $8.1 million in 1996, or 18% less than in 1995.
This decrease reflects lower interest income and interest expense primarily as a
result of the sale of $70.0 million of leases during 1996 as well as a
69
<PAGE> 77
reduction in the net yield of the lease portfolio and volume of lease
production. Lease production in 1996 decreased $31 million, or 33.0%, primarily
due to several major competitors significantly lowering their interest rates and
credit criteria. During 1996, the average month-end outstanding balance of the
lease portfolio was $82.9 million compared to $103.0 million during 1995. During
the same periods, the net yield on the lease portfolio decreased from 13.3%
during 1995 to 13.0% during 1996.
Net interest income for 1996 also decreased by $270 thousand due to
repayment of short-term loans to RBMG.
Net Gain on Sale of Leases
The $1.5 million, or 93%, increase in gains on sale of leases in 1996 as
compared to 1995 was primarily attributable to the sale of $70.0 million of
leases during 1996 compared to the sale of $31.6 million of leases during 1995.
However, the leases sold in 1995 were more seasoned and had a lower cost basis
than those sold in 1996.
Credit Card Fees
Credit card fees were $18.4 million, or 59%, higher in 1996 than they were
in 1995. The $6.9 million increase resulted from a 39% increase in the average
number of credit card accounts serviced by RPG during 1996 as compared to 1995
and a $124 million increase during 1996 in the average monthly balance of
serviced accounts. During 1995 and 1996, approximately 41% and 71%,
respectively, of RPG's revenues related to servicing which was priced as a
percentage of the average balance of serviced accounts. A significant portion of
RPG's revenue is derived under agreements which provide for more than one
service. Whenever RPG cross-sells services, the price of the services specified
may be expressed as a fee for all services to be provided ("bundled pricing") or
as a separate price for each service. Servicing fees increased as a result of
accounts originated prior to 1996 which were priced under a bundled pricing
arrangement whereby the servicing fee increased beginning in 1996.
Servicing and Other Fees
Servicing and other fees were $6.9 million during 1996, compared to $4.6
million during 1995, an increase of 52%. Commercial mortgage servicing and
origination fees accounted for $980 thousand and $1.3 million, respectively, of
the increase. During 1996, the commercial mortgage loan servicing portfolio
averaged $1.9 billion compared to $803 million during 1995 and included the
effect of the servicing acquired as a result of the MCII and Camp acquisitions.
During 1996, Laureate Realty originated $509 million of new commercial mortgage
loans compared to $318 million during 1995.
The following table summarizes servicing and other fees for the years ended
December 31, 1995 and 1996:
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER 31,
----------------
1995 1996
------ ------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Lease servicing fees........................................ $ 213 $ 727
Commercial mortgage loan servicing fees..................... 801 1,781
Origination and other commercial mortgage loan fees......... 3,082 4,416
Other....................................................... 464
------ ------
Total servicing and other fees.................... $4,560 $6,924
====== ======
</TABLE>
70
<PAGE> 78
<TABLE>
<CAPTION>
AT YEAR ENDED
DECEMBER 31,
-----------------------
1995 1996
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Lease servicing portfolio for third parties................. $ 29,429 $ 78,747
Number of leases being serviced for third parties........... 1,444 4,986
Commercial mortgage loan servicing portfolio................ $1,464,360 $2,334,451
Number of commercial mortgage loans being serviced.......... 549 785
</TABLE>
Other Income
Other income increased during 1996 compared to 1995, primarily related to
net gains on the dispositions of leases and increased fees from the leasing
operation.
Expenses
Operating expenses increased $13.1 million during 1996. The credit card
operations accounted for $6.8 million of the increase, primarily related to the
larger servicing portfolio and higher costs of originating accounts. Commercial
mortgage banking operations accounted for $2.1 million of higher expenses in
1996 compared to 1995, of which 61% was personnel related. This increase
included the effect of the growth in the commercial mortgage loan servicing
portfolio, including $509 million of new originations in 1996 and the MCII and
Camp acquisitions. Leasing operations and corporate overhead accounted for $786
thousand and $3.5 million, respectively, of increased expenses. Included in
salary and employee benefits expense was a $2.8 million increase in phantom
stock expense related to the Spin-off and increased earnings in 1996. The
provision for lease losses decreased $594 thousand, or 20%, while the amount of
outstanding leases owned by RBC decreased 62% which resulted from the sale of
leases in 1996 and the reclassification of $14 million of leases held for sale.
At December 31, 1996, the reserve for lease losses was 2.8% of net lease
receivables and 3.1% of net leases less security deposits.
RESULTS OF OPERATIONS -- YEAR ENDED DECEMBER 31, 1995, COMPARED TO YEAR ENDED
DECEMBER 31, 1994
Summary
In 1995, total revenues increased $16.8 million over the amounts for the
year 1994. The primary factors contributing to the increase were the growth in
the lease portfolio, the sale of leases in 1995 whereas none were sold in 1994,
the larger commercial mortgage loan portfolio and originations, including the
addition of the MCII business beginning in July 1995. However, these increases
were more than offset by an $11.5 million decrease in credit card revenues, a
$12.4 million decrease in retail banking revenues and the non-recurring January
and May 1994 sale of RBC's remaining retail banking operations and a decrease of
$1.6 million in the equity in undistributed earnings of RBMG.
The following sections discuss the components of RBC's results of
operations in greater detail.
Net Interest Income
Net interest income during 1995 was $9.9 million as compared to $7.1
million for the prior year. This 40% increase was primarily attributable to the
growth in the lease portfolio. Between December 31, 1994 and December 31, 1995,
the outstanding lease portfolio grew from $92.4 million to $114.1 million and
lease production grew from $75.5 million in 1994 to $94.3 million in 1995. To
finance the increased production, RBC completed a $68 million public lease
securitization at the end of 1994 which substantially freed-up its $75 million
lease warehouse line to finance new lease production. The lease securitization
was accounted for as a financing. Accordingly, the lease receivables and the
debt were included in RBC's consolidated balance sheet and RBC continued to
record interest income on the securitized leases and to record interest expense
on the related borrowings.
Net interest income for 1995 was also increased by $541 thousand of
interest income from short-term loans to RBMG.
71
<PAGE> 79
Net Gain on Sale of Leases
Prior to 1995, RBC originated leases solely to be held to maturity.
However, during 1995, RBC sold a portion of its lease portfolio. Currently, RBC
continues to service substantially all of the leases that it has originated
including those sold to third parties. During 1995, RBC sold $31.6 million of
leases and realized a $1.6 million gain.
Credit Card Fees
During 1995, credit card fees decreased significantly even though during
the year there were increases in both the number and average outstanding balance
of accounts being serviced. At December 31, 1995, RPG was servicing
approximately 369,000 accounts, or 64% more accounts than it was servicing at
December 31, 1994. During 1995, the average monthly balance of accounts being
serviced increased $79.0 million, or 42%, over the amount for 1994. During 1994,
RPG had two marketing contracts. However, during 1995 there was a significant
decline in the ratio of accounts originated to the number of offers made to
consumers which resulted in a much lower profit margin on that business. In
addition, beginning in 1995 certain revenues from marketing contracts were
deferred and recognized in subsequent periods as transaction processing and
program management services were performed.
Servicing and Other Fees
During mid-1994, RBC formed a commercial mortgage banking subsidiary.
Experienced commercial mortgage bankers were hired to begin a commercial
mortgage banking operation. Most of the key personnel were hired by September
1994, and by year-end, the operation had originated $21 million of commercial
mortgage loans and had received transfers of servicing on $87 million of such
loans. In 1995, RBC also decided to sell a portion of its lease portfolio and,
in conjunction with the sale, RBC retained the right to service the leases under
a servicing agreement.
The following table summarizes the servicing and other fees for the years
ended December 31, 1994 and 1995:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
----------------------
1994 1995
-------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Lease servicing fees........................................ $ 213
Commercial mortgage loan servicing fees..................... 801
Origination and other commercial mortgage loan fees......... $ 244 3,082
Other....................................................... 422 464
-------- ----------
Total servicing and other fees.................... $ 666 $ 4,560
======== ==========
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------
1994 1995
-------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Lease servicing portfolio for third parties................. $ 29,249
Number of leases being serviced for third parties........... 1,444
Commercial mortgage loan servicing portfolio................ $107,691 $1,464,360
Number of commercial mortgage loans being serviced.......... 44 549
</TABLE>
Other Income
During 1995, other income from leasing operations increased $348 thousand,
primarily related to net gains on the dispositions of leases and increased fees
from the leasing operation. However, this increase was offset by fees no longer
received in 1995 due to the sale of the retail banking operations in 1994.
72
<PAGE> 80
Expenses
During 1995, expenses decreased $4.6 million, or 17%, below 1994 amounts.
This decrease included $4.6 million of 1994 expenses related to retail banking
operations that were sold in 1994 and a decrease of $4.2 million of expenses
related to the credit card operations. These decreases were partially offset by
$2.7 million of increased costs in 1995 related to the full year effect of the
commencement of the commercial mortgage banking operation including its MCII
acquisition, which resulted in $1.9 million of increased personnel costs. During
1995, personnel costs also increased $578 thousand in conjunction with the
growth in the number and amount of leases under management (i.e., leases owned
either by RBC or investors). The provision for lease losses increased $985
thousand, or 49%, while the amount of outstanding leases owned by RBC increased
21%. The increase in the provision expense reflected the required adjustment to
the reserve for lease losses to maintain an adequate level of reserves. As a
result of this adjustment, the reserve for lease losses was 2.0% of net lease
receivables and 2.1% of net leases less security deposits at December 31, 1994
compared to 1.9% of net lease receivables and 2.1% of net leases less security
deposits at December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
RBC's primary cash-flow requirement involves the funding of commercial
small ticket equipment leases and commercial mortgage loan production which is
met primarily through external borrowings. RBC has entered into a 364-day, $50
million revolving credit facility to provide interim financing for its leasing
portfolio that expires in December 1997. The revolving credit facility contains
various covenants including the requirement that RBC maintain a net worth of at
least $40 million and a leverage ratio not to exceed 10:1 as well as "change of
control" covenants. The provisions of the facility also restrict a certain
subsidiary's ability to incur debt, encumber assets, other than as collateral
for the facility, sell assets, merge, declare or pay any dividends or change its
corporate by-laws or certificate of incorporation. The facility also contains
various covenants regarding characteristics of the collateral and the
performance of leases originated and serviced by RBC. In May 1997, this
revolving credit facility was amended to reduce the facility commitment from $75
million to $50 million and to provide that RBC may borrow up to 82% of the
aggregate eligible discounted lease receivable balance related to leases on
which a first priority perfected security interest has been granted to the
lender.
Additionally, RBC has also entered into a 364-day, $14 million revolving
warehouse credit facility with another financial institution. The warehouse
facility generally provides interim financing between the time FHLMC multifamily
conventional loans are closed and the delivery of the loans to FHLMC, the
investor. In addition, RBC has obtained a 364-day, $2.5 million revolving
working capital line of credit with the financial institution that provides the
$14 million credit facility. Both of these facilities which expire in February
1998 and include covenants requiring Laureate Realty to maintain liquid assets
of $200 thousand and a net worth of at least $1 million and requiring RBC as
guarantor of the lines to maintain liquid assets of at least $3 million, a
minimum net worth of $35 million and a ratio of total liabilities to net worth
of not more than 2:1. In addition, RBC must not encumber $5 million of its
investment in RBMG and there are restrictions on changes in ownership, control
and management.
RBC also has obtained a $500 thousand and a $2 million revolving working
capital line of credit with financial institutions which will expire in April
1998 and March 1998, respectively. Under the terms of the $2 million facility,
RBC agreed to continually hold, unencumbered, no less than $3.5 million of its
stock in RBMG.
Although management anticipates that RBC will be able to renew its various
financing arrangements when they expire or find acceptable replacement financing
on satisfactory terms, there can be no assurance that RBC will be able to do so.
Failure to comply with the debt covenants specified could result in the loss of
the related financing and a requirement to repay immediately the outstanding
loan balance.
73
<PAGE> 81
RBC COMMON STOCK OWNERSHIP BY MANAGEMENT
AND PRINCIPAL STOCKHOLDERS
PRINCIPAL STOCKHOLDERS
The following table sets forth as of November 12, 1997, the only RBC
Stockholders which, to the knowledge of the management of RBC, are beneficial
owners of five percent or more of the outstanding shares of RBC Voting Common
Stock. The information set forth below has not been adjusted to reflect the five
percent stock dividend and the $.04 per share cash dividend payable to RBMG
stockholders of record on December 18, 1997.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
-------------------------------------------------------------
PERCENT OF SHARES OF PERCENT OF
TOTAL RBMG RBMG
RBC VOTING COMMON STOCK COMMON STOCK
NUMBER OF COMMON STOCK BENEFICIALLY BENEFICIALLY
SHARES OF OUTSTANDING OWNED AFTER OWNED AFTER
NAME AND ADDRESS RBC VOTING PRIOR TO THE THE RBC THE RBC
OF BENEFICIAL OWNER COMMON STOCK(1) RBC MERGER(2) MERGER MERGER
------------------- --------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
APA Excelsior II L.P. and................................. 1,199,147(3) 13.78% 1,295,390 4.36%
APA Excelsior Venture
Capital Holdings (Jersey) Ltd.
c/o Patricof & Co. Ventures, Inc.
14th Floor
445 Park Avenue
New York, NY 10022
Union Carbide Pension Fund................................ 1,199,147(4) 13.78% 1,295,390 4.36%
c/o Benefit Capital
Management Corporation
39 Old Ridgebury Road E-2
Danbury, CT 06817-0001
Amelia Holdings Partners.................................. 1,199,147(5) 13.78% 1,295,390 4.36%
c/o Mr. Ian McKinnon
43rd Floor
153 East 53rd Street
New York, NY 10022
Saugatuck Capital Company Limited Partnership II.......... 726,667(6) 8.35% 784,989 2.64%
c/o Saugatuck Capital Company
One Canterbury Green
Stamford, CT 06901
SBSF First Sun Capital Group,............................. 700,515(7) 8.05% 756,738 2.55%
a Connecticut Limited Partnership, and SBSF First Sun
Capital Group II, L.P.
c/o Spears, Benzak, Salomon & Farrell
45 Rockefeller Plaza
New York, NY 10111
Centennial Business Development Fund, Ltd................. 506,668 5.82% 547,333 1.70%
c/o Mr. Jeffrey Schutz
1428 Fifteenth Street
Denver, CO 80202
</TABLE>
- ---------------
(1) RBC has 1,577,788 shares of RBC Non-Voting Common Stock outstanding. The RBC
Non-Voting Common Stock has no voting rights (except as required by law, for
example, in connection with the RBC Merger) but is structured to give its
holders the same economic benefits as ownership of RBC Voting Common Stock.
Each share is convertible into one share of RBC Voting Common Stock (subject
to proportionate adjustment in the event of certain corporate transactions).
Generally, the holders of shares of RBC Non-Voting Common Stock have the
right to convert the shares into shares of RBC Voting Common Stock at any
time if the conversion will not result in the holder owning directly or
indirectly more than 9.9% of the outstanding RBC Voting Common Stock. In
addition, all of the shares of RBC Non-Voting Common Stock will be converted
automatically into shares of RBC Voting Common Stock in the event of (1) any
sale, transfer or other disposition of all or substantially all of RBC's
assets or the RBC Voting Common Stock; (2) a sale of all or
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<PAGE> 82
substantially all of the RBC Voting Common Stock in any merger or
consolidation of RBC in which RBC is not the surviving entity; (3) any
merger or consolidation of RBC in which RBC is the surviving entity and all
or substantially all of the RBC Voting Common Stock is converted into
publicly traded securities of another corporation or into cash or other
property; or (4) any dissolution or liquidation of RBC. Immediately prior to
the RBC Effective Time, each share of RBC Non-Voting Common Stock will
automatically convert into one share of RBC Voting Common Stock.
(2) Based on an aggregate of 8,699,033 shares of RBC Common Stock issued and
outstanding as of November 12, 1997, including, for each Beneficial Owner,
the number of shares of RBC Common Stock issuable upon conversion of shares
of RBC Non-Voting Common Stock beneficially owned by such Beneficial Owner.
(3) Includes 509,780 shares issuable upon conversion of shares of RBC Non-Voting
Common Stock beneficially owned by APA Excelsior II L.P. ("APA II") and APA
Excelsior Venture Capital Holdings (Jersey Ltd. ("APA Jersey"), of which
407,824 shares are beneficially owned by APA II and 101,956 shares are
beneficially owned by APA Jersey.
(4) Includes 509,780 shares issuable upon conversion of shares of RBC Non-Voting
Common Stock beneficially owned by Union Carbide Pension Fund.
(5) Includes 509,780 shares issuable upon conversion of shares of RBC Non-Voting
Common Stock beneficially owned by Amelia Holdings Partners.
(6) Includes 37,300 shares issuable upon conversion of shares of RBC Non-Voting
Common Stock beneficially owned by Saugatuck Capital Company Limited
Partnership II.
(7) Includes 11,148 shares issuable upon conversion of shares RBC Non-Voting
Common Stock beneficially owned by SBSF First Sun Capital Group ("SBSF").
STOCK OWNERSHIP OF RBC'S DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth as of November 12, 1997, the ownership of
RBC Voting Common Stock by RBC's directors and executive officers. None of the
directors or executive officers of RBC owns any shares of RBC Non-Voting Common
Stock. The information set forth below has not been adjusted to reflect the five
percent stock dividend and the $.04 per share cash dividend payable to RBMG
Stockholders of record on December 18, 1997.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
----------------------------------------------------------
PERCENT OF SHARES OF PERCENT OF
TOTAL RBC RBMG RBMG
VOTING COMMON STOCK COMMON STOCK
NUMBER OF COMMON STOCK BENEFICIALLY BENEFICIALLY
SHARES OF RBC OUTSTANDING OWNED AFTER OWNED AFTER
VOTING PRIOR TO THE THE RBC THE RBC
NAME COMMON STOCK RBC MERGER MERGER MERGER
- ---- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
John C. Baker(1)(9)........................... -0- N/A 12,700 *
Stuart M. Cable(1)(9)......................... 42,725(2) * 63,134 *
Ward H. Clegg, III............................ 42,540 * 45,954 *
Owen S. Crihfield(3).......................... -0- N/A -0- N/A
John W. Currie(1)(9).......................... 50,000 * 66,713 *
George Jenkins(4)............................. -0- N/A -0- N/A
Lock W. Ireland(9)............................ 77,731(5) * 84,969 *
Edward J. Sebastian(1)(6)(9).................. 237,568(7) 3.34% 346,914 1.17%
Michael T. Smith(9)........................... 10,000 * 12,063 *
Lisa Bishop Tuckerman(8)...................... -0- N/A -0- N/A
Dwight Galloway............................... 17,937 * 19,376 *
H. Jackson Upchurch, Jr....................... 3,452 * 3,729 *
Melissa A. Ard................................ 397 * 428 *
All directors and executive officers as a
group (13 persons).......................... 482,350 6.77% 655,980 2.21%
</TABLE>
- ---------------
* Less than one percent
(1) Also a director of RBMG.
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<PAGE> 83
(2) Includes 34,000 shares held by Mr. Cable as trustee of a family trust. Mr.
Cable is serving on the RBC Board as the nominee of his father, Austin L.
Cable, who beneficially owns 34,000 shares of RBC Voting Common Stock.
Together Stuart and Austin Cable beneficially own 76,725 shares of RBC
Voting Common Stock as of November 12, 1997.
(3) Mr. Crihfield is serving on the RBC Board as the nominee of Saugatuck
Capital Company ("Saugatuck"). For information concerning the RBC Common
Stock ownership of Saugatuck, see "RBC Common Stock Ownership by Management
and Principal Stockholders -- Principal Stockholders," above.
(4) Mr. Jenkins is serving on the RBC Board as the nominee of APA II and APA
Jersey. For information concerning the RBC Common Stock ownership of APA II
and APA Jersey, see "RBC Common Stock Ownership by Management and Principal
Stockholders -- Principal Stockholders."
(5) Includes 6,995 shares owned by members of Mr. Ireland's immediate family.
(6) Mr. Sebastian is also an executive officer of RBMG.
(7) Includes 108,000 shares owned by members of Mr. Sebastian's immediate
family.
(8) Ms. Tuckerman is serving on the RBC Board as the nominee of SBSF and SBSF
II. For information concerning the RBC Common Stock ownership of SBSF and
SBSF II, see "RBC Common Stock Ownership by Management and Principal
Stockholders -- Principal Stockholders," above.
(9) Includes shares of RBMG Common Stock owned as of November 12, 1997 or
subject to options for shares exercisable on November 12, 1997, or within
60 days thereafter in the following amounts: 12,700 shares for Mr. Baker,
16,980 shares for Mr. Cable, 12,700 shares for Mr. Currie, 1,000 shares for
Mr. Ireland, 90,279 shares for Mr. Sebastian and 1,261 shares for Mr.
Smith.
The following table sets forth certain information concerning the annual
and other compensation paid by RBC with respect to calendar 1996 to Edward J.
Sebastian, RBC's Chairman and Chief Executive Officer.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
OTHER
ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION COMPENSATION
- --------------------------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Edward J. Sebastian.............................. $141,790 $150,000 $36,646(1) N/A
President and Chief Executive Officer
</TABLE>
- ---------------
(1) Supplemental life insurance policy including a 25% gross-up for income
taxes.
THE RBMG ANNUAL MEETING
PROPOSAL NO. 2:
THE CHARTER AMENDMENT
GENERAL
In connection with the RBC Merger, the RBMG Board has unanimously declared
advisable and approved and adopted the RBC Amendment. The approval and adoption
of the RBC Amendment by the RBMG Stockholders is contingent upon the approval
and adoption of the RBC Merger Agreement, the RBC Merger and the RBC Stock
Issuance by the RBMG Stockholders. A copy of the RBC Amendment is attached to
this Joint Proxy Statement/Prospectus as Annex B and is incorporated by
reference into this Joint Proxy Statement/ Prospectus. RBMG Stockholders are
urged to read the RBC Amendment in its entirety.
RBMG is currently authorized to issue 25,000,000 shares of RBMG Common
Stock. The RBC Amendment, if it becomes effective, would increase the number of
shares of RBMG Common Stock that RBMG is authorized to issue from 25,000,000
shares to 50,000,000 shares. Assuming that the RBC Amendment is approved and
adopted and the RBC Merger is consummated and based on the number of shares of
RBMG Common Stock outstanding as of November 12, 1997, 20,282,716 shares of
authorized RBMG Common Stock would remain available for further issuance. RBMG
currently does not have a sufficient number of authorized but unissued shares of
RBMG Common Stock to consummate the RBC Merger. In addition, the RBMG Board
believes that the increased flexibility provided by the RBC Amendment will
enable RBMG to respond to possible acquisitions,
76
<PAGE> 84
financing needs and other business opportunities, to effect stock dividends or
stock splits and to provide appropriate equity-based compensation. The RBMG
Board could issue such additional shares of RBMG Common Stock at such times and
on such terms and conditions as it deemed appropriate and desirable without
further action by the RBMG Stockholders, unless such approval were required by
applicable law, the RBMG Certificate, the RBMG Bylaws or any stock exchange or
market on which RBMG securities may then be listed or traded.
Although the RBMG Board will authorize the issuance of additional shares of
RBMG Common Stock only when it considers doing so to be in the best interests of
the RBMG Stockholders, the issuance of additional shares of RBMG Common Stock
may, among other things, have a dilutive effect on the earnings per share of
RBMG Common Stock and on the voting rights of holders of shares of RBMG Common
Stock. The increase in the authorized number of shares of RBMG Common Stock
pursuant to the RBC Amendment also could be viewed as having anti-takeover
effects. Although the RBMG Board has no current plans to do so, shares of RBMG
Common Stock could be issued in various transactions that would make a change in
control of RBMG more difficult or costly and, therefore less likely. For
example, shares of RBMG Common Stock could be privately sold to purchasers
favorable to the RBMG Board in opposing a change in control or to dilute the
stock ownership of a person seeking to obtain control. RBMG has no present
intention to use the increased shares of authorized RBMG Common Stock for
anti-takeover purposes.
RECOMMENDATION OF THE RBMG BOARD
THE RBMG BOARD HAS DECLARED THE RBC AMENDMENT ADVISABLE AND DETERMINED THAT
IT IS IN THE BEST INTERESTS OF RBMG AND ITS STOCKHOLDERS, HAS UNANIMOUSLY
APPROVED AND ADOPTED THE RBC AMENDMENT AND RECOMMENDS THAT RBMG STOCKHOLDERS
VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE RBC AMENDMENT.
77
<PAGE> 85
THE RBMG ANNUAL MEETING
PROPOSAL NO. 3:
ELECTION OF DIRECTORS
GENERAL
The RBMG Certificate divides the RBMG Board into three classes, with the
members of one class to be elected each year for a three-year term. The terms of
the Class III directors will expire at the RBMG Annual Meeting.
Should any nominee for the office of director become unable to serve, which
is not anticipated, it is the intention of the persons named in the proxy,
unless otherwise specifically instructed therein, to vote for the election in
his stead of such other person as the RBMG Board may recommend.
Vacancies on the RBMG Board may be filled by the remaining directors at any
regular or special meeting thereof. Individuals selected to fill such vacancies
shall serve for the remainder of the term for which they are appointed.
NOMINEES
The following information is furnished with respect to the RBMG Board's
nominees for election as directors.
1. CLASS III -- TERMS TO EXPIRE AT THE 2000 ANNUAL MEETING.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR EMPLOYMENT DURING THE LAST
NAME, PRESENT POSITION(S) AND TERM WITH RBMG AGE FIVE YEARS, DIRECTORSHIPS OF PUBLIC COMPANIES
- -------------------------------------------- --- --------------------------------------------------
<S> <C> <C>
John C. Baker......................... 47 Since September 1995, President of Baker Capital Corp.,
Director of RBMG since May 1993 a private equity investment management firm; from
July 1988 to September 1995, Senior Vice
President, Patricof & Co. Ventures, Inc., a
private equity investment firm. Mr. Baker is a
director of Intermedia Communications, Inc.,
Xpedite Systems, Inc. and FORE Systems.
Robin C. Kelton....................... 63 Since 1996, Chairman and Chief Executive Officer
of Kelton International Ltd., investment bankers.
For more than four years prior to 1996, Mr. Kelton
was the Founder, Chairman and Chief Executive
Officer of Fox-Pitt, Kelton Group, an
international investment banking group. Mr. Kelton
is also a director of Net.B@nk, Inc.
</TABLE>
THE RBMG BOARD RECOMMENDS THAT RBMG STOCKHOLDERS VOTE "FOR" BOTH NOMINEES.
78
<PAGE> 86
MEMBERS OF THE RBMG BOARD WHOSE
TERMS WILL CONTINUE AFTER THE RBMG ANNUAL MEETING
The following information is furnished with respect to the members of the
RBMG Board whose terms will continue after the RBMG Annual Meeting.
2. CLASS I -- TERMS EXPIRING AT THE 1998 ANNUAL MEETING.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR EMPLOYMENT DURING THE LAST
NAME, PRESENT POSITION(S) AND TERM WITH RBMG AGE FIVE YEARS, DIRECTORSHIPS OF PUBLIC COMPANIES
- -------------------------------------------- --- --------------------------------------------------
<S> <C> <C>
Edward J. Sebastian......................... 51 Chairman of the Board and Chief Executive
Director, Chairman of the Board and Chief Officer of RBMG since September 1992;
Executive Officer of RBMG since September
1992 Chairman of the Board and Chief Executive
Officer of RBC since September 1986.
Mr. Sebastian is a director of First Sun South
Corporation and Affinity Technology Group, Inc.
David W. Johnson, Jr........................ 49 Vice Chairman and Director of RBMG since
Vice Chairman and Director of RBMG since October 1992 and Managing Director since
October 1992 and Managing Director July 1993; from May 1989 until June 1993,
since July 1993 Executive Vice President, Republic National Bank,
the predecessor of RBMG.
Boyd M. Guttery............................. 69 Consultant and Private Investor since September,
Director of RBMG since June 1993 1996; from February 1995 to August 1996,
Chairman of the Board of Telecom Services
Group, Inc.; from July 1992 to February 1995,
Partner, Adams, Fletcher Guttery & Liss.
</TABLE>
3. CLASS II -- TERMS EXPIRING AT THE 1999 ANNUAL MEETING.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR EMPLOYMENT DURING THE LAST
NAME, PRESENT POSITION(S) AND TERM WITH RBMG AGE FIVE YEARS, DIRECTORSHIPS OF PUBLIC COMPANIES
- -------------------------------------------- --- --------------------------------------------------
<S> <C> <C>
John W. Currie.............................. 51 Attorney, McNair Law Firm, P.A.
Director and Secretary of RBMG since
October 1992
Stuart M. Cable............................. 44 Attorney, Goodwin, Procter & Hoar, LLP.
Director of RBMG since October 1992
John O. Wolcott............................. 54 Executive Vice President of The Olayan America
Director of RBMG since June 1993 Corporation since 1992.
</TABLE>
RELATIONSHIPS WITH INDEPENDENT ACCOUNTANTS
Representatives of Price Waterhouse LLP, which audited the financial
statements of RBMG for the most recently completed fiscal year and which has
been selected to audit such statements for the current year, are expected to be
present at the RBMG Annual Meeting with an opportunity to make a statement if
they desire to do so, and they are expected to be available to respond to
appropriate questions.
MEETINGS OF THE RBMG BOARD
During 1996, the RBMG Board held a total of six regular and special
meetings. Each incumbent director attended at least 75% of such meetings, and
the meetings of committees on which he served, held during the period for which
he was a director. The RBMG Board has established an audit committee (the "Audit
Committee") and a compensation committee (the "Compensation Committee"). RBMG
does not have a nominating committee; rather the RBMG Board as a whole performs
those functions.
COMMITTEES OF THE RBMG BOARD
The current members of the Audit Committee are Mr. Guttery and Mr. Wolcott.
The Audit Committee held two meetings during 1996. The Audit Committee is
charged with the responsibility of reviewing RBMG's
79
<PAGE> 87
internal auditing procedures and accounting controls, considers the selection
and independence of RBMG's independent public accountants and is to approve all
transactions between RBMG and RBC.
The current members of the Compensation Committee are Mr. Baker and Mr.
Currie. The Compensation Committee held five meetings during 1996. The
Compensation Committee is responsible for matters relating to executive
compensation.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant to Section 16 of the Exchange Act, directors and executive
officers of RBMG and beneficial owners of 10% or more of RBMG Common Stock are
required to file reports with the Commission indicating their holdings of and
transactions in RBMG Common Stock. To RBMG's knowledge, based solely on a review
of the copies of such reports furnished to RBMG and written representations that
no other reports were required, all such persons have complied with all filing
requirements with respect to 1996, except John C. Baker who filed late two
reports covering two transactions.
EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation paid to each named
executive officer for services rendered to RBMG during the periods indicated.
The numbers of shares and options and the exercise price of options on the
tables and footnotes in this section have been adjusted for the two five percent
stock dividends issued in 1994, two five percent stock dividends and one ten
percent stock dividend issued in 1995 and one seven percent stock dividend
issued in 1996 (but have not been adjusted to reflect the five percent stock
dividend payable to RBMG Stockholders of record on December 18, 1997).
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
- ---------------------------------------------------------------------- -----------------------------
(A) (B) (C) (D) (E) (F) (G)
SECURITIES (I)
UNDERLYING ALL OTHER
NAME AND OTHER ANNUAL RESTRICTED STOCK OPTIONS/ COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($)(1) AWARDS($)(2) SARS(#) ($)(3)
------------------ ---- --------- -------- ------------------ ---------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
E. J. Sebastian, 1996 $250,008 $500,000 $ -- $ -- 53,500 $ 5,210
Chief Executive 1995 250,455 250,000 -- -- 107,000 3,760
Officer 1994 250,000 250,000 -- -- -- --
D. W. Johnson, Jr., 1996 $386,687 $877,918 $200,000 $341,156 -- $ 72,729
Vice Chairman and 1995 378,694 693,255 253,711 127,844 -- 69,436
Managing Director 1994 360,212 762,878 246,285 203,121 -- 56,769
R. H. Duncan, 1996 $175,000 $350,000 $ 19,266 $ -- 35,515 $ 32,416
Senior Executive 1995 205,666 216,750 -- -- -- 3,218
Vice President -- 1994 N/A N/A N/A N/A N/A N/A
Production
S. F. Herbert, 1996 $175,000 $275,000 $ 8,881 $ -- 24,343 $ 20,983
Senior Executive 1995 113,173 100,000 8,964 -- -- 12,530
Vice President and 1994 N/A N/A N/A N/A N/A N/A
Chief Financial
Officer
L. E. Shelton, 1996 $397,091 $ -- $200,000 $ -- -- $5,017,755
Former Vice 1995 378,695 693,255 256,866 127,844 -- 64,447
Chairman and 1994 360,212 762,878 247,442 203,121 -- 58,416
Managing Director
</TABLE>
- ---------------
(1) For 1996, these amounts represent (i) payments of $200,000 to each of
Messrs. Johnson and Shelton by RBC as more fully described under "Employment
Contracts, Termination of Employment and Change-in-Control Arrangements"
below and (ii) for Messrs. Duncan and Herbert, reimbursement for tax
liability related to premiums on whole life and universal life and
disability policies in the amounts of $19,266 and $8,881, respectively.
80
<PAGE> 88
(2) The shares of restricted stock were awarded to Messrs. Johnson and Shelton
on January 26, 1995 and January 27, 1996, and to Mr. Johnson on February 1,
1997 as part of 1994, 1995 and 1996 bonuses. Each of Messrs. Johnson and
Shelton received 28,160 shares in 1995 and 8,779 shares in 1996, and Mr.
Johnson received 23,528 shares in 1997. Each of Mr. Johnson and Mr. Shelton
also were awarded 6,352 shares of restricted stock in January 1994. Had Mr.
Johnson and Mr. Shelton held all of such shares of restricted stock received
in 1994, 1995, 1996 and 1997 on December 31, 1996, the shares held by each
of them would have had a year end value of $952,141 and $616,868,
respectively, based on the closing price of a share of RBMG Common Stock on
December 31, 1996 of $14.25. Mr. Johnson's shares vest over a five-year
period from the date of issuance at the rate of 20% per year, and all his
unvested shares will vest on December 31, 2000. Dividends are paid on the
shares. All of Mr. Shelton's shares vested on January 31, 1997 upon his
resignation as an officer and director of RBMG.
(3) Amounts shown for 1996 consist of (i) for Mr. Sebastian, contributions to
RBMG's 401(k) plan, (ii) for Mr. Johnson, premiums on whole life and
disability insurance policies of $67,438 and contributions to RBMG's 401(k)
plan of $5,291, (iii) for Mr. Duncan, premiums on whole life and disability
insurance policies of $27,109 and contributions to RBMG's 401(k) plan of
$5,307; (iv) for Mr. Herbert, premiums on whole life and disability
insurance policies of $16,483 and contributions to RBMG's 401(k) plan of
$4,500; and (v) for Mr. Shelton, $5,000,000 paid upon his resignation as an
officer and director of RBMG, premiums on whole life and disability
insurance policies of $13,255 and contributions to RBMG's 401(k) plan of
$4,500.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL
RATES OF STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
- ------------------------------------------------------------------------------------------------------- ---------------------
(A) (B) (C) (D) (E) (F) (G)
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/
UNDERLYING SARS
OPTIONS/ GRANTED TO EXERCISE OR MARKET
SARS EMPLOYEES IN BASE PRICE PRICE DATE EXPIRATION
NAME GRANTED(#) FISCAL YEAR ($/SH) OF GRANT DATE 0%($) 5%($) 10%($)
---- ---------- ------------ ----------- ---------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
E. J. Sebastian(1)....... 53,500 16.60% $14.03 $13.31 03/21/06 -0- $409,306 $1,096,360
R. H. Duncan(2).......... 16,050 4.98 14.56 14.48 01/26/06 -0- 144,874 369,108
S. F. Herbert(3)......... 7,490 2.32 14.56 14.48 01/26/06 -0- 67,607 172,250
R. H. Duncan(4).......... 19,465 6.04 7.19 13.67 01/26/05 $126,133 272,834 487,465
S. F. Herbert(5)......... 16,853 5.23 11.17 13.67 07/01/05 42,132 169,148 354,977
</TABLE>
- ---------------
(1) These options were granted to Mr. Sebastian on March 21, 1996, under the
Omnibus Plan, subject to stockholder approval of the Omnibus Plan, which was
received at the 1996 Annual Meeting. As of December 31, 1996, the options
were exercisable with respect to 10,700 shares. The options became
exercisable as to an additional 10,700 shares on March 21, 1997, and will
become exercisable with respect to an additional 10,700 shares on March 21
of each year thereafter, beginning on March 21, 1998, until they are
exercisable with respect to all 53,500 shares.
(2) These options were granted to Mr. Duncan on January 26, 1996, under the
Omnibus Plan, subject to stockholder approval of the Omnibus Plan, which was
received at the 1996 Annual Meeting. The options were exercisable as to
3,210 shares on December 31, 1996. The options became exercisable as to an
additional 3,210 shares on January 26, 1997, and will become exercisable
with respect to an additional 3,210 shares on January 26 of each subsequent
year, beginning on January 26, 1998, until they become exercisable with
respect to all 16,050 shares.
(3) These options were granted to Mr. Herbert on January 26, 1996, under the
Omnibus Plan, subject to stockholder approval of the Omnibus Plan, which was
received at the 1996 Annual Meeting. The options were exercisable with
respect to 1,498 shares on December 31, 1996. The options became exercisable
as to an additional 1,498 shares on January 26, 1997, and will become
exercisable with respect to an additional
81
<PAGE> 89
1,498 shares on January 26 of each subsequent year, beginning on January 26,
1998, until they become exercisable with respect to all 7,490 shares.
(4) These options were granted to Mr. Duncan on November 8, 1996, under the
Non-Qualified Plan. If the Non-Qualified Plan is approved by the RBMG
Stockholders at the RBMG Annual Meeting, the options will vest immediately
as to 7,786 shares. Subject to such approval, the options will become
exercisable with respect to an additional 3,893 shares on January 26 of each
year thereafter, beginning on January 26, 1998, until they become
exercisable with respect to all 19,465 shares.
(5) These options were granted to Mr. Herbert on November 8, 1996, under the
Non-Qualified Plan. If the Non-Qualified Plan is approved by the RBMG
Stockholders at the RBMG Annual Meeting, the options will vest immediately
as to 6,740 shares. Subject to such approval, the options will become
exercisable with respect to an additional 3,370 shares on July 1 of each
year thereafter, beginning on July 1, 1998, until they become exercisable
with respect to all 16,853 shares.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
(A) (D) (E)
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT FY-END(#) OPTIONS/SARS AT FY-END($)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------------------------------------- ---------------------------------
<S> <C> <C>
E. J. Sebastian(1)............. 53,500/107,000 $2,354/$9,416
D. W. Johnson, Jr.(2)(3)....... 257,517/171,678 $2,096,188/$1,397,459
L. E. Shelton(2)(3)............ 257,517/171,678 $2,096,188/$1,397,459
R. H. Duncan(4)................ 3,210/32,305 0/$137,423
S. F. Herbert(5)............... 1,498/22,845 0/$51,907
</TABLE>
- ---------------
(1) Only 10,700 of Mr. Sebastian's options which were exercisable as of December
31, 1996, were in-the-money as of such date. The value assigned to Mr.
Sebastian's options in column (e) above is equal to the number of
in-the-money exercisable and unexercisable options times the difference
between the closing price of a share of RBMG Common Stock on December 31,
1996, $14.25, and the exercise price of $14.03.
(2) Mr. Johnson's and Mr. Shelton's options became exercisable, respectively,
with respect to 20% of the shares on May 26, 1994, 20% of the shares on May
26, 1995 and 20% of the shares on May 26, 1996. Options will become
exercisable with respect to an additional 20% of the shares on May 26 of
each year until May 26, 1998, at which time the options become exercisable
with respect to all the shares.
(3) The value assigned to Mr. Johnson's and Mr. Shelton's options in column (e)
above is equal to the number of options exercisable or unexercisable, as the
case may be, times the difference between the closing price of a share of
RBMG Common Stock on December 31, 1996, $14.25, and the exercise price of
$6.11.
(4) None of Mr. Duncan's options which were exercisable as of December 31, 1996,
were in-the-money as of such date. The value assigned to Mr. Duncan's
options in column (e) above is equal to the number of in-the-money
unexercisable options times the difference between the closing price of a
share of RBMG Common Stock on December 31, 1996, $14.25, and the exercise
price of $7.19.
(5) None of Mr. Herbert's options which were exercisable as of December 31,
1996, were in-the-money as of such date. The value assigned to Mr. Herbert's
options in column (e) above is equal to the number of in-the-money
unexercisable options times the difference between the closing price of a
share of RBMG Common Stock on December 31, 1996, $14.25, and the exercise
price of $11.17.
DEFINED BENEFIT PLANS
RBMG sponsors a qualified pension plan (the "Pension Plan") for all
employees, and in addition RBMG sponsors a Pension Restoration Plan
("Restoration Plan") for certain eligible employees, including officers. The
Restoration Plan is an unfunded plan which provides for benefit payments in
addition to those payable under the qualified Pension Plan. It maintains uniform
application of the Pension Plan benefit formula and would provide, among other
benefits, payment of Pension Plan formula pension benefits, if any, which exceed
those payable under the Code's maximum benefit limitations.
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<PAGE> 90
The following table illustrates the estimated annual benefits payable upon
retirement at normal retirement date under the Pension Plan and the Restoration
Plan.
1996 PENSION PLAN TABLE
<TABLE>
<CAPTION>
FINAL AVERAGE PAY YEARS OF SERVICE
- ----------------- ----------------------------------------------------
15 20 25 30 35
<S> <C> <C> <C> <C> <C>
$125,000.................................... $ 28,249 $ 37,665 $ 47,081 $ 56,498 $ 65,914
150,000.................................... 34,436 45,915 57,394 68,873 80,351
175,000.................................... 40,624 54,165 67,706 81,248 94,789
200,000.................................... 46,811 62,415 78,019 93,623 109,226
225,000.................................... 52,999 70,665 88,331 105,998 123,664
250,000.................................... 59,186 78,915 98,644 118,373 138,101
300,000.................................... 71,561 95,415 119,269 143,123 166,976
350,000.................................... 83,936 111,915 139,894 167,873 195,851
400,000.................................... 96,311 128,415 160,519 192,623 224,726
450,000.................................... 108,686 144,915 181,144 217,373 253,601
500,000.................................... 121,061 161,415 201,769 242,123 282,476
</TABLE>
The qualified Pension Plan recognizes W-2 earnings up to the Code limit of
$150,000 while the Restoration Plan recognizes a participant's base compensation
in excess of this limit. In 1996 Messrs. Sebastian, Johnson, Shelton, Duncan and
Herbert received base pay of $250,008, $386,687, $397,091, $175,000 and
$175,000, respectively, and as of December 31, 1996, have credited service under
the Pension and Restoration plans of 9, 8, 6, 3 and 2 years, respectively.
Benefits in the table are computed based on a straight-life annuity. The amounts
in the table assume continuation of the Social Security taxable wage base in
effect during 1996 and are not subject to any deduction for Social Security or
other offset amounts.
COMPENSATION OF DIRECTORS
Directors who are also salaried employees of RBMG do not receive any
additional compensation for service as directors. Other directors receive such
compensation as is set from time to time by the RBMG Board. Directors' fees
currently are set at $18,000 a year plus $1,000 per board meeting or committee
meeting attended. Committee chairmen receive an additional annual retainer of
$3,000. RBMG Directors' fees paid for 1996 totaled $169,000. Directors also are
reimbursed for all reasonable out of pocket expenses related to attendance at
meetings.
On September 1, 1996, each of Messrs. Baker, Cable, Currie, Guttery and
Wolcott was awarded an option to purchase 10,000 (10,700, as adjusted for the 7%
dividend paid in 1996) shares of RBMG Common Stock at an exercise price of
$13.25 ($12.38, as adjusted for the 7% stock dividend paid in 1996) per share
under the Formula Plan. Each of the options became exercisable immediately as to
20% of the shares and each of the options will become exercisable with respect
to an additional 20% of the shares on September 1 of each year thereafter,
beginning on September 1, 1997 until each is exercisable with respect to all
10,700 shares.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Mr. Johnson has an employment agreement with RBMG which will expire on
December 31, 2000 (the "Johnson Employment Agreement"). Under the Johnson
Employment Agreement, Mr. Johnson receives a base salary of $350,000, subject to
upward adjustment annually by not less than 5%, but any such increase above 5%
cannot exceed the increase in the Consumer Price Index during the prior year.
Effective January 1, 1997, Mr. Johnson's annual salary was set at $414,840 by
the RBMG Board. Mr. Johnson also receives an annual bonus equal to 4% of RBMG's
annual total pretax income before bonuses and incentives. The bonus is paid each
year as follows: (i) the first $325,000 may, if the employee elects, be
allocated to a deferred compensation account pursuant to Mr. Johnson's Deferred
Compensation Agreement with RBMG whereby no amount will be payable
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<PAGE> 91
to the employee before age 55 or his earlier termination of employment,
disability or death; (ii) the amount by which $575,000 exceeds the amount
deferred pursuant to clause (i) above, but not more than $350,000, will be paid
in cash; and (iii) any remaining amount (the "Remaining Bonus") will be paid in
a combination of restricted RBMG Common Stock (the "Restricted Stock") and cash,
the cash portion being equal to the amount required to pay applicable federal
and state income taxes at the highest combined rate on the Remaining Bonus. The
Restricted Stock will be valued at market based on the average closing price of
the RBMG Common Stock for the 20 trading days preceding the date of payment. The
Restricted Stock will vest with respect to 20% of the shares covered thereby
each year following the grant date from the second through the sixth year;
however, all unvested shares will vest on December 31, 2000. Mr. Johnson will
forfeit all of his unvested Restricted Stock, if any, if his employment is
terminated at any time for any reason other than death, disability or
termination without cause by RBMG. Mr. Johnson also is provided with $2,000,000
whole life and disability insurance.
Mr. Johnson, acting with the concurrence of the Compensation Committee of
the RBMG Board has the right to assign a part of his bonus to other employees.
If the Compensation Committee does not concur, no assignment of his bonus can be
made. Any part of the bonus assigned to other employees which would have been
payable to Mr. Johnson in Restricted Stock may be paid to the other employees in
Restricted Stock, cash or a combination thereof. The Johnson Employment
Agreement gives Mr. Johnson certain registration rights relative to the RBMG
Common Stock underlying his options as well as vested Restricted Stock.
During 1996, Mr. Shelton had an employment agreement with RBMG with terms
substantially the same as Mr. Johnson's employment agreement. Mr. Shelton's
employment agreement was terminated upon Mr. Shelton's resignation as an officer
and director of RBMG effective January 31, 1997. In connection with his
resignation, RBMG paid Mr. Shelton $5,000,000 and accelerated the vesting on his
unvested shares of Restricted Stock. See "Summary Compensation Table" above.
In connection with RBMG's initial public offering, each of Mr. Johnson and
Mr. Shelton entered into a termination agreement pursuant to which RBC agreed to
pay each $200,000 in cash upon the closing of the offering and on each
anniversary date of the closing through the year 2000, provided he is employed
by RBMG on such anniversary date.
Mr. Duncan entered into an employment agreement with RBMG effective
September 25, 1995. The employment agreement provides for Mr. Duncan's
employment until December 31, 2000 with an annual salary of $175,000. Mr. Duncan
is also eligible to receive an annual bonus and is provided a $1,000,000 life
insurance policy. Mr. Herbert entered into an employment agreement with RBMG
effective June 30, 1995. The employment agreement provides for Mr. Herbert's
employment until December 31, 2000 with an annual salary of $175,000. Mr.
Herbert also is eligible to receive an annual bonus and is provided a $1,000,000
life insurance policy. Effective January 1, 1997, the annual salaries of Messrs.
Duncan and Herbert were increased by the RBMG Board to $200,000.
Each of Mr. Duncan's and Mr. Herbert's employment agreements provides that
if (A) he voluntarily terminates his employment within one year following a
Change of Control (as hereinafter defined) as a result of (i) his determination
that as a result of a change in circumstances occurring following a Change in
Control significantly affecting his position, he can no longer adequately
exercise the authority, powers, functions or duties of his position or (ii) his
determination that he can no longer perform his duties by reason of a
substantial diminution in his responsibilities, status or position or (iii) RBMG
requiring him to relocate to an area 100 miles outside of Columbia, South
Carolina or (B) RBMG terminates his employment without Cause (as defined in the
contract) within one year following a Change in Control, all remaining base
salary under the agreement and an annual bonus of $75,000 and life and
disability insurance benefits for the remaining term of the agreement will
become due and payable to such employee. If the employee voluntarily terminates
his employment with RBMG within one year following a Change in Control for any
reason other than as stated above, the employee will be entitled to receive only
his base salary for 12 months. A Change in Control for purposes of Mr. Duncan's
and Mr. Herbert's employment agreements means (i) the obtaining by any party
pursuant to a tender offer of 50% or more of RBMG's voting stock, (ii)
individuals serving as directors immediately prior to a shareholder meeting
involving a director election contest failing to constitute a majority of RBMG's
directors following such election contest, (iii) RBMG executing an agreement
concerning the sale of all or substantially all of its assets to a
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<PAGE> 92
purchaser that is not a subsidiary, (iv) RBMG's adoption of a plan of
dissolution or liquidation or (v) RBMG executing an agreement concerning a
merger or consolidation involving RBMG in which RBMG is not the surviving
corporation or if less than 50% of the surviving corporation's voting stock is
held by persons who are stockholders of RBMG prior to such merger or
consolidation.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
At various times, decisions regarding the compensation of the named
executive officers with respect to 1996 were made by the RBMG Board as a whole,
the Compensation Committee (John C. Baker and John W. Currie) and Mr. Johnson.
Edward J. Sebastian is the Chairman and Chief Executive Officer of RBMG. He also
is the Chairman and Chief Executive Officer of RBC, which owns approximately
36.4% of the outstanding RBMG Common Stock. Mr. Johnson is Vice Chairman and
Managing Director of RBMG. During 1996, Mr. Shelton also was a Vice Chairman and
Managing Director of RBMG. Mr. Currie, the Secretary and a director of RBMG, is
a member of McNair Law Firm, P.A. McNair Law Firm, P.A. has represented RBMG
from time to time, and it is expected that such representation will continue.
Mr. Currie also is the Secretary and a director of RBC, and Messrs. Baker and
Cable are directors of RBC. Messrs. Cable, Currie, Johnson and Sebastian also
are beneficial owners of RBC Voting Common Stock.
COMPENSATION COMMITTEE REPORT
The Compensation Committee established executive compensation for 1996,
except for Mr. Johnson's year-end bonus which was determined by formulas set
forth in his employment agreement and the grants of options to Messrs.
Sebastian, Duncan and Herbert, which were approved by the entire RBMG Board. In
addition, as discussed below, Mr. Johnson made recommendations concerning the
amount of certain bonuses for 1996.
COMPENSATION OF NAMED EXECUTIVE OFFICERS
Messrs. Johnson, Duncan and Herbert have, and Mr. Shelton had, employment
agreements with RBMG. Mr. Johnson's and Mr. Shelton's employment agreements were
entered into prior to and in connection with RBMG's initial public offering. The
terms of all these employment agreements can be found under "Executive
Compensation -- Employment Contracts, Termination of Employment and
Change-in-Control Arrangements" above. In accordance with the terms of Mr.
Johnson's employment agreement, the amounts of Mr. Duncan's and Mr. Herbert's
annual bonuses, $350,000 and $275,000, respectively, were based on Mr. Johnson's
recommendations and were approved by the Compensation Committee.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Mr. Sebastian's base annual salary for 1996 was $250,008. The amount of
this salary was based on the Compensation Committee's subjective determination
of the appropriate salary in view of Mr. Sebastian's experience and the amount
of time he would be devoting to his duties with RBMG. That salary went into
effect on January 1, 1996. Mr. Sebastian received a $500,000 bonus for 1996,
based on a subjective evaluation of his contribution to 1996 performance, the
performance of RBMG Common Stock in the market and earnings results of RBMG.
POLICY WITH RESPECT TO $1,000,000 DEDUCTION LIMIT
Section 162(m) of the Code generally limits to $1,000,000 the corporate
deduction for compensation paid to executive officers named in the proxy
statement unless certain requirements are met. RBMG does not believe the
compensation arrangements for Mr. Johnson and Mr. Shelton are subject to the
$1,000,000 limitation on deductibility because RBMG is not considered a publicly
held corporation for purposes of Section 162(m) since its registration of its
securities under the Exchange Act was voluntary. At this time, RBMG does not
have any other officers whose compensation is potentially subject to the limits
on deductibility set forth in Section 162(m).
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<PAGE> 93
Therefore, the Compensation Committee has not yet adopted a policy with respect
to the limitation on deductibility of such compensation.
<TABLE>
<S> <C> <C> <C>
John C. Baker John W. Currie David W. Johnson, Jr. John O. Wolcott
Stuart M. Cable Boyd M. Guttery Edward J. Sebastian
</TABLE>
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<PAGE> 94
TOTAL CUMULATIVE STOCKHOLDER RETURN SINCE MAY 26, 1993
The following graph compares the percentage change in RBMG's total
stockholder return on the RBMG Common Stock with the cumulative total return of
(i) a broad equity market index (Nasdaq National Market Composite) and (ii) the
MBA Stock Index, a peer group index prepared by the Mortgage Bankers Association
of America (the "MBA Peer Group"). This performance graph represents the period
from May 26, 1993, the date RBMG Common Stock became registered under the
Exchange Act, through December 31, 1996.
RESOURCE BANCSHARES MORTGAGE GROUP, INC. (1)(2)(3)(4)
VS. NASDAQ NATIONAL MARKET COMPOSITE
VS. MBA PEER GROUP
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) RBMG NASDAQ MBA PEER GROUP
<S> <C> <C> <C>
MAY 26, 1993 100 100 100
DECEMBER 31, 1993 121.4 110.4 97.4
DECEMBER 31, 1994 132.3 108.0 87.2
DECEMBER 31, 1995 217.7 152.7 126.4
JUNE 30, 1996 185.3 172.8 137.7
DECEMBER 31, 1996 233.0 187.8 158.2
</TABLE>
- ---------------
(1) Total return assumes an initial investment of $100 on May 26, 1993 and
reinvestment of dividends.
(2) The companies included in the MBA Peer Group for the period ended December
31, 1993, consist of: Advanced Financial, American Residential, Arbor
National Mortgage, Countrywide Credit Industries, Express America, Farragut
Mortgage, First Financial Caribbean, First Mortgage Corp., Fleet Mortgage
Group, Fund American Enterprises, Hamilton Financial, Imperial Credit
Industries, Loan America Financial, Lomas Financial Corp., Margaretten
Financial, North American Mortgage, Paragon Mortgage, Plaza Home Mortgage,
RBMG and TCS Enterprises.
(3) The companies included in the MBA Peer Group for the year ended December 31,
1994, consist of all the companies listed in (2) above with the exception of
American Residential, Farragut Mortgage, Loan America Financial, Margaretten
Financial, Paragon Mortgage and TCS Enterprises. The companies excluded from
the MBA Peer Group for 1994 have either ceased doing business, been acquired
by another company, ceased to be publicly held or significantly altered the
way they do business.
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<PAGE> 95
(4) The companies included in the MBA Peer Group for the year ended December 31,
1995, consist of all the companies listed in (2) above with the exception of
the companies listed in (3) above and Arbor National Mortgage, Express
America, Fleet Mortgage Group, Hamilton Financial, Lomas Financial Corp. and
Plaza Home Mortgage. The companies excluded from the MBA Peer Group for 1995
have either ceased doing business, been acquired by another company, ceased
to be publicly held or significantly altered the way they do business.
(5) The companies included in the MBA Peer Group for the year ended December 31,
1996, consist of all the companies listed in (2) above with the exception of
the companies listed in (3) and (4) above and Imperial Credit Industries.
The companies excluded from the MBA Peer Group for 1996 have either ceased
doing business, been acquired by another company, ceased to be publicly held
or significantly altered the way they do business.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
BENEFICIAL OWNERS OF FIVE PERCENT OR MORE OF THE RBMG COMMON STOCK
The following table sets forth the only RBMG Stockholders which, to the
knowledge of management of RBMG, were beneficial owners of five percent or more
of the outstanding shares of RBMG Common Stock as of November 12, 1997. The
shareholdings reported are based on information provided by the stockholder or
copies of Schedules 13G received by RBMG in 1997. The following information has
not been adjusted to reflect the five percent stock dividend payable to RBMG
Stockholders of record on December 18, 1997.
<TABLE>
<CAPTION>
SOLE SHARED SOLE SHARED
VOTING VOTING DISPOSITIVE DISPOSITIVE PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER POWER POWER POWER POWER CLASS
- ------------------------------------ --------- ------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Resource Bancshares Corporation............. 7,397,238 -0- 7,397,238 -0- 36.4%
1901 Main Street, Suite 650
Columbia, South Carolina 29201
Pioneering Management Corporation(1)........ 1,839,600 -0- 470,000 1,369,600 9.05%
60 State Street
Boston, Massachusetts 02109
Dawson-Samberg Capital...................... 1,071,095 -0- 1,071,095 -0- 5.27%
Management, Inc.
354 Pequot Avenue
Southport, Connecticut 06490
Wellington Management Company, LLP(2)....... -0- 322,870 -0- 1,086,805 5.35%
75 State Street
Boston, Massachusetts 02109
</TABLE>
- ---------------
(1) This percentage reflects the number of shares of RBMG Common Stock over
which Pioneering Management Corporation has sole voting power. Pioneering
Management Corporation has sole dispositive power with respect to 2.31% of
the shares of RBMG Common Stock and has shared dispositive power with
respect to 6.74% of the shares of RBMG Common Stock.
(2) This percentage reflects the number of shares of RBMG Common Stock over
which Wellington Management Company has shared dispositive power. Wellington
Management Company has shared voting power with respect to 1.59% of the
shares of RBMG Common Stock.
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<PAGE> 96
STOCK OWNERSHIP OF RBMG'S DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
The following table sets forth as of November 12, 1997, based on
information available to RBMG, the number of shares of RBMG Common Stock and RBC
Voting Common Stock beneficially owned by current directors, nominees, named
executive officers and all directors, nominees and current executive officers of
RBMG as a group.
<TABLE>
<CAPTION>
RBMG RBC
--------------------------------- ---------------------------------
AMOUNT AND NATURE OF PERCENT OF AMOUNT AND NATURE OF PERCENT OF
NAME BENEFICIAL OWNERSHIP CLASS BENEFICIAL OWNERSHIP CLASS(2)
- ---- -------------------- ---------- -------------------- ----------
<S> <C> <C> <C> <C>
John C. Baker(1)(3)................... 12,700 * -0- N/A
Stuart M. Cable(1)(3)................. 16,980 * 42,725 *
John W. Currie(1)(3).................. 12,700 * 50,000 *
Boyd M. Guttery(1)(3)................. 21,568 * -0- N/A
David W. Johnson, Jr.(1)(3)........... 484,707 2.39% 31,059 *
Robin C. Kelton....................... -0- N/A 38,964 *
Edward J. Sebastian(1)(3)(4).......... 90,279 * 237,568 3.34%
Lee E. Shelton(1)(3).................. 313,340 1.54% 3,285 *
John O. Wolcott(1)(3)................. 15,560 * -0- N/A
Richard M. Duncan(1)(3)............... 18,965 * -0- N/A
Steven F. Herbert(1)(3)............... 8,923 * 1,000 *
All directors and current executive
officers as a group (10 persons).... 682,382 3.36% 404,601 5.68%
</TABLE>
- ---------------
* Signifies less than one percent.
(1) Assumes the exercise by such person of all options exercisable by him as of
November 12, 1997, or within 60 days thereafter. Each person exercises sole
voting and sole investment power with respect to the shares shown as owned
by him except as otherwise indicated by footnote.
(2) 34,000 of the shares of RBC Voting Common Stock shown as owned by Mr. Cable
are held by him as trustee of a family trust.
(3) The shares of RBMG Common Stock shown as owned by Mr. Johnson include
343,356 shares that may be acquired pursuant to the exercise of currently
exercisable options. The shares of RBMG Common Stock shown as owned by Mr.
Shelton include 281,356 shares that may be acquired pursuant to the exercise
of currently exercisable options. All the shares of RBMG Common Stock shown
as owned by Messrs. Baker and Currie, 12,700 of the shares of RBMG Common
Stock shown as owned by each of Messrs. Guttery, Cable and Wolcott, 85,600
of the shares of RBMG Common Stock shown as owned by Mr. Sebastian, 6,420 of
the shares shown as owned by Mr. Duncan and 2,996 of the shares shown as
owned by Mr. Herbert represent shares subject to options exercisable as of
November 12, 1997, or within 60 days thereafter.
(4) The shares of RBC Voting Common Stock shown as owned by Mr. Sebastian
include 108,000 shares owned by members of his immediate family.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On March 15, 1996, RBC purchased 896,552 shares of RBMG Common Stock from
RBMG in a private transaction. Following such purchase and the simultaneous sale
to the public of 2,200,000 shares of RBMG Common Stock, RBC owned 6,913,307
shares of RBMG Common Stock. On September 24, 1996, RBMG effected a seven
percent stock dividend. As a result, RBC currently owns 7,397,238 shares of RBMG
Common Stock, or approximately 36.4% of the outstanding shares. The Audit
Committee of the RBMG Board, consisting of directors independent of both
management and RBC, is to approve all transactions, other than those entered
into in connection with RBMG's initial public offering, between RBMG and RBC for
as long as RBC owns 25% or more of the outstanding RBMG Common Stock.
Beginning in June 1995 and ending on March 15, 1996, RBMG from time to time
borrowed funds on a short-term unsecured basis from RBC. Interest on the loans
was at the prime rate. The maximum aggregate
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amount outstanding at any one time during 1996 was $19 million. The total amount
of interest RBMG paid to RBC for 1996 was $258,000. As of December 31, 1996,
RBMG had no outstanding debt to RBC.
RBMG has from time to time purchased loans on which certain officers and
directors of RBMG or members of their immediate families were obligated. All
such transactions were made in the ordinary course of business on substantially
the same terms, including interest rates and collateral, that prevailed at the
time for comparable transactions with other persons and did not involve more
than normal risk of collectability or present other unfavorable features.
THE RBMG ANNUAL MEETING
PROPOSAL NO. 4:
APPROVAL OF THE AMENDED AND RESTATED
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
OMNIBUS STOCK AWARD PLAN
GENERAL
The Resource Bancshares Mortgage Group, Inc. Omnibus Stock Award Plan was
approved by the RBMG Stockholders at the annual meeting held on April 25, 1996.
The RBMG Board has amended and restated the plan, subject to stockholder
approval at the RBMG Annual Meeting, to increase the number of shares of RBMG
Common Stock subject to the Omnibus Plan and to make a number of other changes,
as more fully described below. If the plan, as amended and restated, is approved
by the RBMG Stockholders at the RBMG Annual Meeting, it will become effective as
of October 31, 1997. If it is not so approved, the plan, as currently in effect,
will remain in place.
The Omnibus Plan is intended to secure for RBMG and the RBMG Stockholders
the benefits of the incentive inherent in RBMG Common Stock ownership by RBMG's
employees and to afford such persons an opportunity to obtain a proprietary
interest in RBMG on a favorable basis and thereby share in its success. The
maximum number of shares of RBMG Common Stock which may be issued under the
plan, as currently in effect, is 438,700 (460,635 after adjustment for the five
percent stock dividend payable to RBMG Stockholders of record on December 18,
1997). The plan, as amended and restated, provides for a maximum number of
shares which may be issued or reserved for issuance under the plan or issued to
any one person under the plan of 1,438,700 (1,510,635 after adjustment for the
five percent stock dividend payable to RBMG Stockholders of record on December
18, 1997) as such number may be adjusted after October 31, 1997 pursuant to the
antidilutive adjustment provisions of the plan. If any option awarded under the
plan terminates or expires or is surrendered without having been exercised in
full, then the underlying shares of RBMG Common Stock not acquired will be
available again for issuance under the plan. Upon the forfeiture (in whole or in
part) of any restricted stock awarded under the plan the shares of RBMG Common
Stock forfeited will be available again for issuance under the plan.
Only employees of RBMG are eligible to receive awards under the Omnibus
Plan. The plan, as currently in effect, defines an employee as any person
engaged or proposed to be engaged as an officer or employee of RBMG. Under the
plan, as amended and restated, the definition of employee is expanded to include
employees of any subsidiary of RBMG. As of September 30, 1997, RBMG and its
subsidiaries had approximately 1,135 employees.
The Omnibus Plan is administered by a committee made up of the entire RBMG
Board (the "Omnibus Plan Committee"). The plan, as amended and restated,
requires administration by a committee consisting of not less than two persons
each of whom must be a "non-employee director" within the meaning of Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended, and an
"outside director" as defined in Section 1.162-27(e)(3) of the Treasury
Regulations promulgated under the Code. Under the terms of the Omnibus Plan, the
Omnibus Plan Committee will from time to time designate employees to receive
options, stock appreciation rights ("SARS"), restricted stock and unrestricted
stock and determine the number of options, SARS and shares of restricted stock
and unrestricted stock to be awarded to each such employee, or the formula or
other basis on which such benefits will be awarded to employees. In making any
such award, the Omnibus Plan Committee may take into account the nature of
services rendered by an employee, commissions or other
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compensation earned by the employee, the capacity of the employee to contribute
to the success of RBMG and other factors that the Omnibus Plan Committee may
consider relevant.
The Omnibus Plan Committee may give employees a choice between two benefits
or combinations of benefits, award benefits in the alternative so that
acceptance of or exercise of one benefit cancels the right of an employee to
another and award benefits in any combination or combinations and subject to any
condition or conditions consistent with the terms of the Omnibus Plan that the
Omnibus Plan Committee in its sole discretion may consider appropriate. Each
award of benefits under the Omnibus Plan will be evidenced by an agreement which
will state the terms of the award. Such terms will include, without limitation,
as applicable, the number of shares, the option price, the medium and time of
payment, the term of each award and any vesting requirements and may include
conditions (in addition to those contained in the plan) on the exercisability of
all or any part of an option or SAR or on the transferability or forfeitability
of restricted stock. Notwithstanding any such conditions, the Omnibus Plan
Committee may, in its discretion, accelerate the time at which any option or SAR
may be exercised or the time at which restricted stock may become transferable
or nonforfeitable. In addition, the Omnibus Plan Committee will have complete
discretionary authority to prescribe the form of agreement to be entered into
with respect to each award, to adopt, amend and rescind rules and regulations
pertaining to the administration of the plan; and to make all other
determinations necessary or advisable for the administration of the plan.
An option granted under the Omnibus Plan will be designated either an
incentive stock option ("ISO") or a nonqualified stock option ("NQSO") at the
time of grant. Each option agreement will state the number of shares to which it
pertains and the option exercise price, which, in the case of an option intended
to be an ISO, will not be less than 100% of the Fair Market Value (as
hereinafter defined) of the shares of RBMG Common Stock subject to the option on
the date of granting the option. In the case of an ISO granted to a person
owning more than 10% of the voting power of RBMG's outstanding stock (a "10%
Stockholder"), the price at which each share of RBMG Common Stock covered by the
option may be purchased will not be less than 110% of the Fair Market Value per
share of the RBMG Common Stock on the date of grant of the option. The price at
which each share of RBMG Common Stock covered by an NQSO granted under the
Omnibus Plan may be purchased will be the price determined by the Omnibus Plan
Committee, in its sole discretion, to be suitable to attain the purposes of the
Omnibus Plan. The aggregate Fair Market Value of the RBMG Common Stock with
respect to which ISOs are exercisable for the first time by the optionee during
any calendar year may not exceed the limitation set forth in Internal Revenue
Code Section 422(d). Under the plan, as amended and restated, the Omnibus Plan
Committee may require an optionee to notify RBMG promptly if there is a
disqualifying disposition, as defined in Code Section 422, of any shares
received through the exercise of an ISO and may require the transfer agent for
the RBMG Common Stock to insert a legend on any certificate evidencing shares of
RBMG Common Stock issued pursuant to an ISO requiring the transfer agent to
report to RBMG any transfer of such shares within one year of exercise or two
years of grant. Fair Market Value as of a particular date is defined in the
plan, as currently in effect, to be the average closing sales price of a share
of RBMG Common Stock for the 20 business days immediately preceding such day for
which a closing price is available from the principal trading market for the
RBMG Common Stock. Under the plan, as amended and restated, the definition of
Fair Market Value as of a particular date has been changed to be the closing
sales price of a share of RBMG Common Stock for the day immediately preceding
such day or, if the principal market for trading the RBMG Common Stock is not
open or if no closing sales price of a share of RBMG Common Stock is available
on that day, the closing sales price of a share of RBMG Common Stock for the day
most immediately preceding that day for which a closing sales price is
available. The market value of an option granted under the plan on any day will
be the market value of the underlying stock, determined as aforesaid, less the
exercise price of the option.
Under the plan, as currently in effect, the option exercise price may be
paid in cash (including check) in shares of RBMG Common Stock owned by the
optionee (but not with restricted stock prior to the expiration of the
restriction period) or, in the case of NQSOs, in other NQSOs or in a combination
of cash and such RBMG Common Stock. Under the plan, as amended and restated,
payment can no longer be made in NQSOs, and any shares of RBMG Common Stock used
must have been owned by the optionee for more than six months. If all or any
portion of the option exercise price is paid in shares of RBMG Common Stock
owned by the optionee or NQSOs, then that stock or the NQSOs will be valued at
Fair Market Value as of the date the option is exercised.
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The plan, as amended and restated, provides that an option will be deemed to be
exercised on the date that RBMG receives full payment of the exercise price for
the number of shares for which the option is being exercised. For the purpose of
assisting an optionee to exercise an option, RBMG, may, in the discretion of the
Omnibus Plan Committee, make loans to the optionee or guarantee loans made by
third parties to the optionee, in either case on such terms and conditions as
the Omnibus Plan Committee may authorize. The plan, as amended and restated,
requires all such loans to be recourse.
Under the plan, as currently in effect, no option shall have a term more
than ten years and one month, or five years and one month in the case of an ISO
granted to a 10% stockholder. Under the plan, as amended and restated, every
option agreement will provide that, unless earlier terminated, options granted
pursuant to the Omnibus Plan will be exercisable at any time on or after the
date of exercise set forth in the option agreement and before the date that is
ten years after the date of grant, or in the case of an ISO granted to a 10%
Stockholder, before the date that is five years after the date of grant.
Notwithstanding the term of any option set forth in the related option
agreement, an option will terminate and may not be exercised if the employee to
whom it is granted ceases to be employed by RBMG, except that the option
agreement may, in the discretion of the Omnibus Plan Committee, provide: (1)
that, if such employee's employment terminates for any reason other than conduct
that in the judgment of the Omnibus Plan Committee involves dishonesty or action
by the employee that is detrimental to the best interest of RBMG, then the
employee may at any time within three months after termination of his or her
employment exercise his or her option but only to the extent the option was
exercisable by him or her on the date of termination of employment; (2) that, if
such employee's employment terminates on account of total and permanent
disability, then the employee may at any time within one year after termination
of his or her employment exercise his or her option but only to the extent that
the option was exercisable on the date of termination of employment; and (3)
that, if such employee dies while in the employ of the Company, or within the
three month or one year period following termination of his or her employment as
described in clause (1) or (2) above, then his or her option may be exercised at
any time within one year following his or her death by the person or persons to
whom his or her rights under the option shall pass by will or by the laws of
descent and distribution, but only to the extent that such option was
exercisable by him or her on the date of termination of employment;
notwithstanding the foregoing, no option may be exercised by anyone after the
expiration of its term. The last sentence will apply to any outstanding options
which are ISOs to the extent permitted by Code Section 422(d), and any
outstanding ISOs in excess thereof will, immediately upon the occurrence of the
event described in such sentence, be treated for all purposes of the plan as
NQSOs and will be immediately exercisable as such as provided in such sentence.
Each option agreement may provide for acceleration of exercisability in the
event of retirement, death or disability. Any cessation of employment, for
purposes of ISOs only, shall include any leave of absence in excess of 90 days
unless the optionee's reemployment rights are guaranteed by law or by contract.
During the lifetime of the optionee, an option may be exercisable only by him or
her and may not be assigned or transferred. An option may be transferred (unless
the committee otherwise prescribes) by will or the laws of descent and
distribution.
Subject to the terms and conditions and within the limitations of the plan,
the Omnibus Plan Committee may modify, extend or renew outstanding options
granted under the Omnibus Plan or accept the surrender of outstanding options
(to the extent not theretofore exercised) and authorize the granting of new
options in substitution therefor (to the extent not theretofore exercised). No
modification of an option may, without the consent of the optionee, alter or
impair any rights or obligations under any option theretofore granted under the
plan.
If upon the exercise of an option granted under the plan (an "Original
Option") the optionee pays the purchase price for the Original Option in whole
or in part in shares of RBMG Common Stock owned by the optionee, then RBMG must
grant to the optionee on the date of such exercise an additional option under
the plan (the "Reload Option") to purchase that number of shares of RBMG Common
Stock equal to the number of shares of RBMG Common Stock transferred to RBMG in
payment of the purchase price upon the exercise of the Original Option. The
price at which each share of RBMG Common Stock covered by the Reload Option may
be purchased will be the Fair Market Value per share of RBMG Common Stock on the
date of exercise of the Original Option. The Reload Option will not be
exercisable until one year after the date the Reload Option is granted or after
the expiration date of the Original Option. Upon the payment of the purchase
price for a Reload
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Option in whole or in part in shares of RBMG Common Stock, the optionee shall be
entitled to receive a further Reload Option. Under the plan, as amended and
restated, shares of RBMG Common Stock covered by a Reload Option will reduce the
number of shares available under the Omnibus Plan.
The Omnibus Plan Committee may from time to time grant SARs to employees
who are granted options under the plan. Such SARs may, but need not, be granted
in conjunction with an option grant. SARs will entitle the holder, upon exercise
thereof in whole or in part, to receive payment in an amount equal in value to
the difference between the SAR exercise price per share and the Fair Market
Value per share of RBMG Common Stock on the date the SAR is exercised,
multiplied by the number of shares with respect to which the SAR shall have been
exercised. Such payment may be in the form of shares of RBMG Common Stock or
cash or any combination thereof. The exercise of SARs will result in a
termination of the SARs with respect to the number of shares covered by the
exercise and, if granted in conjunction with an option, will also result in a
termination of the related option with respect to the number of shares covered
by the exercise. The number of shares with respect to which SARs are exercised
(rather than the number of shares issued by RBMG upon such exercise) will be
deemed to have been issued under an option granted pursuant to the plan and will
not thereafter be available for the granting of further benefits under the plan.
Each SAR will be evidenced by a SAR agreement which may be in such form and
contain such provisions as the Omnibus Plan Committee may from time to time
approve consistent with the plan. No SAR will be exercisable during the first
six months after the date of grant. SARs will not be transferable other than by
will or by the laws of descent and distribution and will be exercisable during
the holder's lifetime only by the holder.
The Omnibus Plan Committee, in its discretion, may from time to time award
restricted stock to any employee eligible to receive benefits under the plan.
Each employee who is awarded restricted stock will enter into a restricted stock
agreement with RBMG in a form specified by the Omnibus Plan Committee agreeing
to the terms and conditions of the award and such other matters consistent with
the plan as the Omnibus Plan Committee in its sole discretion may determine.
Such conditions may include the deferral of a percentage of the employee's
annual cash compensation, not including dividends paid on restricted stock, if
any, to be applied toward the purchase of restricted stock upon such terms and
conditions, including such discounts, as may be set forth in the restricted
stock agreement.
Restricted stock awarded to employees may not be sold, transferred, pledged
or otherwise encumbered during a restriction period commencing on the date of
the award and ending at such later date or dates as the Omnibus Plan Committee
may designate at the time of the award. The employee will have the entire
beneficial ownership of the restricted stock awarded to him or her, including
the right to receive dividends and the right to vote such restricted stock.
If an employee ceases to be employed by RBMG prior to the expiration of the
restriction period, then he or she will forfeit all of his or her restricted
stock with respect to which the restriction period has not yet expired; however,
the restricted stock agreements, in the discretion of the Omnibus Plan Committee
and pursuant to such terms and conditions as it may impose, may provide: (1)
that, if such employee's employment terminates on account of total and permanent
disability, then the employee shall not forfeit his or her restricted stock or
any related compensation deferral or a portion thereof; and (2) that, if such
employee dies while employed by the Company, then his or her restricted stock or
any related compensation deferral or a portion thereof will not be forfeited.
Under the plan, as currently in effect, the Omnibus Plan Committee also may
provide that the restricted stock or related compensation deferral, or a portion
thereof, will not be forfeited if such employee's employment is terminated for
any reason other than conduct that, in the judgement of the committee, involves
dishonesty or actions that are detrimental to the best interests of RBMG.
If any change is made in RBMG Common Stock by reason of any merger,
consolidation, reorganization, recapitalization, stock dividend, split up,
combination of shares, exchange of shares, change in corporation structure, or
otherwise, then any shares received by an employee with respect to restricted
stock shall be subject to the same restrictions applicable to such restricted
stock. Shares of RBMG Common Stock shall cease to be restricted stock when, in
accordance with the terms of the restricted stock agreement, they become
transferable and free of substantial risk of forfeiture.
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The Omnibus Plan Committee, in its discretion, may from time to time award
unrestricted stock to any employee eligible to receive benefits under the plan.
Each employee who is awarded unrestricted stock will enter into an unrestricted
stock agreement with RBMG in a form specified by the Omnibus Plan Committee
agreeing to the terms and conditions of the award and such other matters
consistent with the Omnibus Plan as the Omnibus Plan Committee in its sole
discretion shall determine. Such conditions may include, but shall not be
limited to, the deferral of a percentage of the employee's annual cash
compensation, not including dividends paid on the unrestricted stock, if any, to
be applied toward the purchase of unrestricted stock upon such terms and
conditions, including such discounts, as may be set forth in the unrestricted
stock agreement. Upon the issuance of unrestricted stock to an employee under
the Omnibus Plan, the employee will have the entire beneficial ownership and all
the rights and privileges of a stockholder with respect to the unrestricted
stock awarded to him or her, including the right to receive dividends and the
right to vote such unrestricted stock.
The proceeds received by RBMG from the sale of RBMG Common Stock upon the
exercise of options or in connection with the purchase of restricted stock or
unrestricted stock will be used for general corporate purposes.
Subject to any action required by the RBMG Stockholders, the maximum number
of shares of RBMG Common Stock that may be issued under the Omnibus Plan, the
number of shares of RBMG Common Stock covered by each outstanding option, the
number of shares of RBMG Common Stock to which each SAR relates and the
per-share exercise price under each outstanding option shall be adjusted, in
each case, to the extent and in the manner that the Omnibus Plan Committee deems
appropriate for any increase or decrease in the number of issued shares of RBMG
Common Stock resulting from a reorganization, recapitalization, stock split,
stock dividend, combination of shares, merger, consolidation, rights offering,
subdivision or consolidation of shares or the payment of a stock dividend (but
only on RBMG Common Stock) or any other change in the corporate structure or
shares of RBMG.
Subject to any action required by the shareholders, if RBMG is the
surviving corporation in any merger, then each outstanding option and SAR shall
pertain to and apply to the securities or other consideration that a holder of
the number of shares of RBMG Common Stock subject to the option or to which the
SAR relates would have been entitled to receive in the merger. A dissolution,
liquidation or consolidation of RBMG or a merger in which RBMG is not the
surviving corporation, other than a merger effected solely for the purpose of
changing RBMG's domicile, shall cause each outstanding option and SAR to
terminate, provided that each holder shall, in such event have the right
immediately prior to such dissolution, liquidation, merger or consolidation to
exercise his or her option or SAR in whole or in part without regard to any
installment provision that might be contained in the agreement related thereto.
In the case of a merger effected for the purpose of changing RBMG's domicile,
each outstanding option and SAR will continue in effect in accordance with its
terms and shall apply to the same number of shares of common stock of such
surviving corporation as the number of shares of RBMG Common Stock to which it
applied immediately prior to such merger, adjusted for any increase or decrease
in the number of outstanding shares of common stock of the surviving corporation
effected without receipt of consideration.
In the event of a change in the RBMG Common Stock as presently constituted,
which change is limited to a change of all of the authorized shares with par
value into the same number of shares with a different par value or without par
value, the shares resulting from any such change shall be deemed to be RBMG
Common Stock within the meaning of the Omnibus Plan.
The Omnibus Plan Committee may from time to time amend, suspend or
discontinue the Omnibus Plan or revise it in any respect whatsoever for the
purpose of maintaining or improving its effectiveness as an incentive device,
for the purpose of conforming it to applicable governmental regulations or to
any change in applicable law or regulations, or for any other purpose permitted
by law; provided, however, that no such action by the Omnibus Plan Committee may
adversely affect any benefit theretofore awarded under the plan without the
consent of the holder so affected; and provided further that the Omnibus Plan
Committee may not materially increase the number of shares of RBMG Common Stock
that may be issued under the plan or materially modify the plan's requirements
as to eligibility for participation without the approval of the RBMG
Stockholders.
In addition to such other rights of indemnification as they may have as
directors or as members of the Omnibus Plan Committee, the members of the
Omnibus Plan Committee will be indemnified by RBMG against the reasonable
expenses, including legal fees actually and necessarily incurred in connection
with the defense of
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any investigation, action, suit or proceeding, or in connection with any appeal
therefrom, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Omnibus Plan or any
benefit awarded thereunder, and against all amounts paid by them in settlement
thereof (provided such settlement is approved by independent legal counsel
selected by RBMG) or paid by them in satisfaction of a judgment in or dismissal
or other discontinuance of any such investigation, action, suit or proceeding,
except in relation to matters as to which it shall be adjudged in such
investigation, action, suit or proceeding that such Omnibus Plan Committee
member is liable for negligence or misconduct in the performance of his or her
duties, provided that, within 60 days after institution of any such
investigation, action, suit or proceeding, a committee member shall in writing
offer RBMG the opportunity, at its own expense to handle and defend the same.
AMENDED OMNIBUS PLAN BENEFITS
The following table sets forth the number of shares of RBMG Common Stock
underlying the options granted under the Omnibus Plan in 1996 and the dollar
value such options would have had if such options had been exercisable as of
December 31, 1996.
<TABLE>
<CAPTION>
OMNIBUS PLAN
-----------------------------
DOLLAR VALUE NO. OF OPTIONS
------------ --------------
<S> <C> <C>
E. J. Sebastian............................................. $ 11,770 53,500
D. W. Johnson, Jr........................................... N/A None
R. H. Duncan................................................ -0- 16,050
S. F. Herbert............................................... -0- 7,490
L. E. Shelton............................................... N/A None
Executive Group (5 persons)................................. 11,770 77,040
Non-Executive Director Group................................ N/A None
Non-Executive Officer Employee Group........................ -0- 39,000
</TABLE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Incentive Stock Options. Upon the grant of an ISO, the optionee will not
recognize any income. No income is recognized by the optionee upon the exercise
of an ISO if the holding period requirements contained in the Code are met,
including the requirement that the optionee remain an employee of RBMG during
the period beginning with the date of the grant of the option and ending on the
day three months (one year if the optionee becomes disabled) before the date the
option is exercised. For the year in which an optionee exercises an ISO, the
alternative minimum taxable income of such optionee will be increased by the
amount that would have been ordinary income had the option been a NQSO unless
the optionee disposes of the shares acquired upon exercise during such year in a
taxable disposition in which case the maximum amount that can be included in
alternative minimum taxable income is the gain recognized on the disposition of
the shares.
Upon the subsequent disposition of shares acquired upon the exercise of an
ISO, the federal income tax consequences will depend upon when the disposition
occurs and the type of disposition. If the shares are disposed of by the
optionee after the end of the one-year period beginning on the day after the day
the shares are issued to the optionee, any gain or loss realized upon such
disposition will be long-term capital gain or loss, and RBMG will not be
entitled to any income tax deduction in respect of the option or its exercise.
For purposes of determining the amount of such gain or loss, the optionee's tax
basis in the shares will be the option price.
Generally, if the shares are disposed of by the optionee in a taxable
disposition within the one-year period beginning on the day after the day the
shares are issued to the optionee, the excess, if any, of the amount realized
(up to the fair market value of the shares on the exercise date) over the option
price will be compensation taxable to the optionee as ordinary income, and RBMG
will be entitled to a deduction (subject to the provisions of Section 162(m) of
the Code discussed under the caption "Limits on Deductions," below) equal to the
amount of ordinary income realized by the optionee.
If an optionee has not remained an employee of RBMG during the period
beginning with the grant of an ISO and ending on the day three months (one year
if the optionee becomes disabled) before the date the option is
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exercised, the exercise of such option will be treated as the exercise of a NQSO
with the tax consequences described below.
Non-Qualified Stock Options. Upon the grant of an NQSO, an optionee will
not recognize any income, unless the option has a readily ascertainable fair
market value. At the time a NQSO is exercised, the optionee will recognize
compensation taxable as ordinary income, and RBMG will be entitled to a
deduction (subject to the provisions of Section 162(m) of the Code discussed
under the caption "Limits on Deductions," below), in an amount equal to the
difference between the fair market value on the exercise date of the shares
acquired pursuant to such exercise and the option price. Upon a subsequent
disposition of the shares, the optionee will recognize long- or short-term
capital gain or loss, depending upon the holding period of the shares. For
purposes of determining the amount of such gain or loss, the optionee's tax
basis in the shares will generally be the fair market value of such shares on
the exercise date (i.e., the sum of the ordinary income recognized by the
employee upon the exercise of the NQSO plus the amount paid by the employee to
exercise the NQSO).
Effect of Share for Share Exercise. If an optionee elects to tender shares
of RBMG Common Stock in partial or full payment of the option price for shares
to be acquired through the exercise of an option, generally the optionee will
not recognize any gain or loss on such tendered shares. If the optionee tenders
shares upon the exercise of an option which would result in the receipt of
compensation by the optionee, as described above under the caption
"Non-Qualified Stock Options," the optionee will recognize compensation taxable
as ordinary income, and RBMG will be entitled to a deduction (subject to the
provisions of Section 162(m) of the Code discussed under the caption "Limits on
Deductions," below), in an amount equal only to the fair market value of the
number of shares received by the optionee upon exercise which is in excess of
the number of tendered shares, less any cash paid by the optionee.
Stock Appreciation Rights. Upon the grant of a SAR, an employee will not
recognize any income. At the time a SAR is exercised, the employee will
recognize compensation taxable as ordinary income, and RBMG will be entitled to
a deduction (subject to the provisions of Section 162(m) of the Code discussed
under the caption "Limits on Deduction," below), in an amount equal to the sum
of the cash paid by RBMG and the fair market value on the exercise date of any
shares issued. The optionee's tax basis of any shares received upon the exercise
of a SAR will be the fair market value of such shares on the exercise date
(i.e., the ordinary income recognized by the employee which is attributable to
the shares received).
Restricted Stock. An employee will not recognize any income upon the grant
of an award of restricted stock. Generally, any dividends or dividend
equivalents received by the employee with respect to shares of restricted stock
prior to the date the employee recognizes income with respect to such an award
will be treated by the employee as compensation taxable as ordinary income, and
RBMG will be entitled to a deduction (subject to the provisions of Section
162(m) of the Code discussed under the caption "Limits on Deductions," below),
equal to the amount of ordinary income recognized by the employee.
With respect to restricted stock, the employee will recognize income with
respect to the receipt of the restricted stock at the earlier of when the
restricted stock becomes transferable or the restricted stock is no longer
subject to a substantial risk of forfeiture. Generally, at the time restricted
stock becomes transferrable or is no longer subject to a substantial risk of
forfeiture (whichever occurs first), an employee will recognize ordinary income
in an amount equal to the fair market value of the shares of RBMG Common Stock
received (as of the earlier of the date of transferability or the date of the
lapse of the risk of forfeiture) over the amount, if any, paid by the employee.
However, by making a special election within 30 days of the grant date and
notifying RBMG, an employee may accelerate the recognition of taxable income to
the date restricted stock is granted rather than when the restricted stock
becomes transferable or upon the lapse of the substantial risk of forfeiture. If
the employee makes this election, the employee will recognize ordinary income,
in the year of the grant, in an amount equal to the fair market value of the
shares of RBMG Common Stock received (as of the grant date) over the amount, if
any, paid by the employee at the time of the grant. Making the special election
permits the employee to fix the ordinary income tax treatment as of the date of
the grant and to pay the tax on any appreciation (occurring after the grant
date) at capital gain rates only if and when the employee disposes of the
restricted stock.
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If an employee forfeits restricted stock prior to the recognition of any
income (before it becomes transferable or the lapse of the substantial risk of
forfeiture), the employee recognizes an ordinary gain or loss equal to the
difference between the amount received for the forfeited RBMG Common Stock and
the amount the employee paid, if any, for the forfeited RBMG Common Stock. If an
employee forfeits restricted stock after the recognition of income due to the
lapse of the restriction on transferability but before the lapse of the
substantial risk of forfeiture, the employee recognizes a gain or loss equal to
the difference between the amount received for the forfeited RBMG Common Stock
and the employee's basis in the forfeited RBMG Common Stock (generally the sum
of the amount of ordinary income recognized by the employee on the lapse of the
restriction on transferability plus the amount, if any, the employee paid for
the forfeited RBMG Common Stock). Any gain will be a short-term or a long-term
capital gain, depending on the holding period of the forfeited RBMG Common
Stock, and a loss will be an ordinary loss to the extent that the employee had
previously recognized ordinary income.
If the employee made a special election as described above with respect to
forfeited restricted stock, the forfeiture is treated as a sale or exchange, and
the employee recognizes a short-term (holding period of one year or less) or
long-term (holding period of more than one year) capital gain or loss equal to
the difference between the amount paid for the forfeited RBMG Common Stock and
the amount received for such forfeited RBMG Common Stock. In such a case, the
loss is a capital loss and the employee's loss is calculated using the amount
paid for the forfeited RBMG Common Stock rather than the employee's basis in the
forfeited property (i.e. in the case of a forfeiture, an employee's basis is not
increased by the income recognized upon making the special election).
Generally, in the year in which the employee recognizes the income, RBMG is
entitled to a deduction equal to the income recognized by the employee (subject
to the provisions of Section 162(m) of the Code discussed under the caption
"Limits on Deductions," below). RBMG and the employee will be subject to the
applicable employment and withholding taxes.
Upon the sale or exchange of RBMG Common Stock acquired through the payment
of restricted stock, after the lapse of the substantial risk of forfeiture, an
employee will recognize a capital gain or loss equal to the difference between
the amount received for the sale or exchange of RBMG Common Stock and the
employee's basis in the RBMG Common Stock (generally the sum of the amount of
ordinary income recognized by the employee upon the special election, the lapse
of the substantial risk of forfeiture or the lapse of the restriction on
transferability plus the amount, if any, the employee paid for the RBMG Common
Stock). Any gain or loss recognized on the disposition of the RBMG Common Stock
(other than by forfeiture) will be short-term or long-term capital gain or loss,
depending on the holding period for the RBMG Common Stock. Generally, the
holding period for the RBMG Common Stock begins when the special election is
made or on the earlier of when such property becomes transferrable or the lapse
of the substantial risk of forfeiture.
Unrestricted Stock. Upon the receipt of unrestricted stock, an employee
will recognize compensation taxable as ordinary income, and RBMG will be
entitled to a deduction (subject to the provisions of Section 162(m) of the Code
discussed under the caption "Limits on Deduction," below), in an amount equal to
the fair market value on the date the unrestricted stock is issued. The
employee's tax basis of any unrestricted stock received will generally be the
fair market value of such shares on the receipt date (i.e., the amount of
ordinary income recognized by the employee upon the receipt of the unrestricted
stock). Upon a subsequent disposition of the unrestricted stock, the employee
will recognize long- or short-term capital gain or loss, depending upon the
holding period of such shares. The amount of such gain or loss will be
determined by the difference between the amount received for the unrestricted
stock and the employee's basis in such stock.
Limits on Deduction. Under Section 162(m) of the Code, the amount of
compensation paid to the chief executive officer and the four other most highly
paid executive officers of RBMG in the year for which a deduction is claimed by
RBMG (including its subsidiaries) is limited to $1,000,000 per person, except
that compensation which is performance-based will be excluded for purposes of
calculating the amount of compensation subject to this $1,000,000 limitation.
The ability of RBMG to claim a deduction for compensation paid to any other
executive officer or employee of RBMG (including its subsidiaries) is not
affected by this provision.
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If and when RBMG becomes subject to the limitations contained in Section
162(m) of the Code, RBMG has structured the Omnibus Plan, as amended and
restated, so that any compensation for which RBMG may claim a deduction in
connection with the exercise of SARs and the disposition by an optionee of
shares acquired upon the exercise of ISOs will be performance-based within the
meaning of Section 162(m) of the Code. Because the grant of restricted stock,
unrestricted stock, and NQSOs is not deemed to be performance-based under
Section 162(m) of the Code, amounts for which RBMG may claim a deduction upon
the grant of such unrestricted stock or the lapse of any restrictions on such
shares of restricted stock will be subject to the limitations on deductibility
in Section 162(m). See the "Compensation Committee Report -- Policy with Respect
to $1,000,000 Deduction Limit."
Additional Information. The recognition by an employee of compensation
income with respect to a grant or an award under the Omnibus Plan will be
subject to withholding for federal income and employment tax purposes. If an
employee, to the extent permitted by the terms of a grant or award under the
Omnibus Plan, uses shares of RBMG Common Stock to satisfy the federal income and
employment tax withholding obligation, or any similar withholding obligation for
state and local tax obligations, the employee will recognize a capital gain or
loss, short-term or long-term, depending on the tax basis and holding period for
such shares of RBMG Common Stock.
THE RBMG BOARD RECOMMENDS THAT RBMG STOCKHOLDERS VOTE "FOR" APPROVAL OF THE
AMENDED AND RESTATED OMNIBUS STOCK AWARD PLAN.
THE RBMG ANNUAL MEETING
PROPOSAL NO. 5: APPROVAL OF THE FIRST AMENDMENT TO
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
FORMULA STOCK OPTION PLAN
GENERAL
The Resource Bancshares Mortgage Group, Inc. Formula Stock Option Plan was
approved by the RBMG Stockholders at the annual meeting held on April 25, 1996.
The Board of Directors now has amended the plan, subject to stockholder approval
at the RBMG Annual Meeting, to increase the number of shares of RBMG Common
Stock subject to the plan and to make a number of other changes as more fully
described below. If the amendment is approved by the RBMG Stockholders at the
RBMG Annual Meeting, it will become effective as of October 31, 1997. If the
amendment is not so approved, the plan, as currently in effect, will remain in
place.
The Formula Plan is intended to secure for RBMG and the RBMG Stockholders
the benefits of the incentive inherent in RBMG Common Stock ownership by RBMG's
Independent Directors (as defined in the plan) and to afford such persons an
opportunity to obtain a proprietary interest in RBMG and thereby share in its
success. Only Independent Directors are eligible to receive options under the
Formula Plan. The plan defines an Independent Director as any director who is
not at the time of an option award to such director a full-time employee or
executive officer of RBMG, any subsidiary of RBMG or RBC. Currently, five of
RBMG's seven directors are eligible to receive awards under the Formula Plan.
The plan currently provides for the issuance of up to 160,500 (168,525
after adjustment for the five percent stock dividend payable to RBMG
Stockholders of record on December 18, 1997) shares of RBMG Common Stock. As
amended, the plan provides that the maximum number of shares of RBMG Common
Stock which may be issued or reserved for issuance under the plan is 400,000
(420,000 after adjustment for the five percent stock dividend payable to RBMG
Stockholders of record on December 18, 1997) plus such additional shares as may
be issued pursuant to the antidilutive adjustment provisions of the plan. If any
option awarded under the Formula Plan terminates or expires or is surrendered
without having been exercised in full, then the underlying shares of RBMG Common
Stock not acquired will be available again for issuance under the plan.
Under the terms of the Formula Plan, on September 1 of each year in which
the plan is in effect, each Independent Director will automatically be granted
an option to purchase 10,000 shares of RBMG Common Stock at a per share exercise
price equal to the Fair Market Value (as hereinafter defined) of a share of RBMG
Common Stock as of the date of the award. Fair Market Value as of a particular
date currently is defined in the plan as the average closing sales price of a
share of RBMG Common Stock for the 20 business days immediately
98
<PAGE> 106
preceding such day for which a closing price is available from the principal
trading market for RBMG Common Stock. Under the plan, as amended, the definition
of Fair Market Value has been changed to be the closing sales price of a share
of RBMG Common Stock for the day immediately preceding such day or, if the
principal market for trading the RBMG Common Stock is not open or if no closing
sales price of a share of RBMG Common Stock is available on that day, the
closing sales price of a share of RBMG Common Stock for the day most immediately
preceding that day for which a closing sales price is available. Each award of
options under the Formula Plan will be evidenced by an option agreement which
will state the number of shares of RBMG Common Stock to which it pertains, the
option exercise price and the schedule by which the options subject thereto
become exercisable. The options will be exercisable, in whole or in part, at any
time and from time to time during the option period, but not thereafter, subject
to the following restrictions:
<TABLE>
<CAPTION>
IF THE PERIOD FROM THE DATE OF THE THE MAXIMUM PERCENTAGE OF THE OPTION SHARES THAT
AWARD UNTIL THE EXERCISE DATE IS: MAY BE PURCHASED THROUGH SUCH EXERCISE DATE IS:
---------------------------------- --------------------------------------------------
<S> <C>
less than 1 year............................ 20%
at least 1 year, but less than 2 years...... 40%
at least 2 years, but less than 3 years..... 60%
at least 3 years, but less than 4 years..... 80%
at least 4 years............................ 100%
</TABLE>
provided that, in the event of the dissolution, liquidation or consolidation of
RBMG or a merger of RBMG in which RBMG is not the surviving corporation, the
optionee will have the right, immediately prior to such dissolution,
liquidation, consolidation or merger, to exercise his or her options, in whole
or in part, without regard to the foregoing schedule. Upon exercise of an
option, the exercise price will be payable in either cash or in shares of RBMG
Common Stock owned by the optionee or some combination of both. Under the plan,
as amended, any shares of RBMG Common Stock used must have been owned by the
optionee for more than six months. Any RBMG Common Stock exchanged as part or
all of the exercise price will be valued at its Fair Market Value as of the
exercise date. Under the plan, as amended, an option shall be deemed to be
exercised on the date that RBMG receives full payment of the exercise price for
the number of shares for which the option is being exercised. The plan, as
amended, also provides that, for the purpose of assisting an optionee to
exercise an option, RBMG, may, in the discretion of the RBMG Board, make
recourse loans to the optionee or guarantee recourse loans made by third parties
to the optionee, in either case on such terms and conditions as the RBMG Board
may authorize. All proceeds received by RBMG from the sale of RBMG Common Stock
upon the exercise of options awarded pursuant to the Formula Plan will be used
for general corporate purposes.
The Formula Plan is administered by a committee of the RBMG Board composed
of all of the directors except the Independent Directors (the "Formula Plan
Committee"). Each option agreement provides that, if the optionee's status as an
Independent Director terminates incidental to conduct that, in the judgment of
the Formula Plan Committee, involves a breach of fiduciary duty by such
Independent Director or other conduct detrimental to RBMG, then his or her
option will terminate immediately and thereafter be of no force or effect.
Subject to any action required by the RBMG Stockholders, the maximum number
of shares of RBMG Common Stock that may be issued under the Formula Plan, the
number of shares of RBMG Common Stock covered by each outstanding option and the
per-share exercise price applicable to each outstanding option will, in each
case, be proportionately adjusted for any increase or decrease in the number of
issued shares of RBMG Common Stock resulting from a subdivision or consolidation
of shares or the payment of a stock dividend (but only on RBMG Common Stock) or
any other increase or decrease in the number of such shares effected without
receipt of consideration by RBMG.
Subject to any action required by the RBMG Stockholders, if RBMG is the
surviving corporation in any merger, then each option outstanding will pertain
to and apply to the securities or other consideration that a holder of the
number of shares of RBMG Common Stock underlying the option would have been
entitled to receive in the merger. A dissolution, liquidation or consolidation
of RBMG or a merger in which RBMG is not the surviving corporation, other than a
merger effected solely for the purpose of changing RBMG's domicile, will cause
each outstanding option to terminate; provided that each optionee will, in such
event, have the right immediately prior to such dissolution, liquidation, merger
or consolidation to exercise his or her option in whole
99
<PAGE> 107
or in part without regard to any installment provision that might be contained
in the applicable option agreement. In the case of a merger effected for the
purpose of changing RBMG's domicile, each outstanding option will continue in
effect in accordance with its terms and will apply to the same number of shares
of common stock of such surviving corporation as the number of shares of RBMG
Common Stock to which it applied immediately prior to such merger, adjusted for
any increase or decrease in the number of outstanding shares of common stock of
the surviving corporation effected without receipt of consideration.
In the event of a change in the RBMG Common Stock as presently constituted,
which change is limited to a change of all of the authorized shares with par
value into the same number of shares with a different par value or without par
value, the shares resulting from any such change shall be deemed to be RBMG
Common Stock within the meaning of the Formula Plan.
The foregoing adjustments shall be made by the Formula Plan Committee,
whose determination will be final, binding and conclusive.
Except as provided above, the holder of an option will have no rights by
reason of (i) any subdivision or consolidation of shares of any class, (ii) any
stock dividend, (iii) any other increase or decrease in the number of shares of
stock of any class, (iv) any dissolution, liquidation, consolidation, merger or
spin-off, split-off or split-up of assets of RBMG or stock of another
corporation or (v) any issuance by RBMG of shares of stock of any class or
securities convertible into shares of stock of any class. Moreover, except as
provided above, the occurrence of one or more of such events shall not affect,
and no adjustment by reason thereof shall be made with respect to, the number of
or exercise price for shares of RBMG Common Stock subject to the option.
No option awarded pursuant to the Formula Plan may be assigned or
transferred except by will or the laws of descent or distribution or pursuant to
a formal court order in connection with the divorce of the optionee. Each option
agreement will provide that, if the optionee dies prior to the exercise in full
of his or her option, then such option may be exercised not later than the
expiration of twelve months following such death by the person or persons to
whom his or her rights under the option shall pass by will or by the laws of
descent or distribution (but only to the extent that such option was exercisable
on the date of such death). Notwithstanding the foregoing, no option may be
exercised by anyone after the expiration of its term.
The Formula Plan Committee may from time to time amend, suspend or
discontinue the plan or revise it in any respect whatsoever for the purpose of
maintaining or improving its effectiveness as an incentive device, for the
purpose of conforming it to applicable governmental regulations or to any change
in applicable law or regulations, or for any other purpose permitted by law;
provided, however, that no such action by the Formula Plan Committee may
adversely affect any option theretofore awarded without the consent of the
holder so affected; provided further that any amendment to the Formula Plan that
would materially increase the benefits accruing to participants thereunder,
materially increase the number of shares of RBMG Common Stock that may be issued
upon exercise of options granted thereunder or materially modify the plan's
requirements as to eligibility for participation must be approved, directly or
indirectly, by the RBMG Stockholders; and provided further that there shall not
be amended more than once every six months, other than to comport with changes
in the Code, any of those provisions of the plan that permit directors to
receive awards, that state the amount and price of options, or of the underlying
RBMG Common Stock, to be awarded thereunder to designated directors or
categories of directors, that specify the timing of awards thereunder or that
set forth the formula that determines the amount, price and timing of awards
thereunder. The Formula Plan will terminate on the date when all shares of the
RBMG Common Stock reserved for issuance thereunder have been acquired upon
exercise of options awarded thereunder or on such earlier date as the RBMG Board
may determine.
In addition to such other rights of indemnification as they may have as
directors or as members of the Formula Plan Committee, the members of the
Formula Plan Committee will be indemnified by RBMG against the reasonable
expenses, including legal fees actually and necessarily incurred in connection
with the defense of any investigation, action, suit or proceeding, or in
connection with any appeal therefrom, to which they or any of them may be a
party by reason of any action taken or failure to act under or in connection
with the Formula Plan or any option granted thereunder, and against all amounts
paid by them in settlement thereof (provided such settlement is approved by
independent legal counsel selected by RBMG) or paid by them in satisfaction of a
judgment in or dismissal or other discontinuance of any such investigation,
action, suit or proceeding, except in
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<PAGE> 108
relation to matters as to which it shall be adjudged in such investigation,
action, suit or proceeding that such Formula Plan Committee member is liable for
negligence or misconduct in the performance of his or her duties; provided that,
within 60 days after institution of any such investigation, action, suit or
proceeding, a Formula Plan Committee member shall in writing offer RBMG the
opportunity, at its own expense, to handle and defend the same.
FORMULA PLAN BENEFITS
On September 1, 1996, each of RBMG's Independent Directors was awarded an
option to purchase 10,700 shares of RBMG Common Stock at an exercise price of
$12.38 per share (as adjusted for the seven percent stock dividend paid in
1996). The following table sets forth the number of shares of RBMG Common Stock
evidencing the options awarded under the Formula Plan to the Independent
Directors as a group on September 1, 1996 and the dollar value such options
would have had if all such options had been exercisable as of December 31, 1996.
<TABLE>
<CAPTION>
FORMULA PLAN
-----------------------------
NAME AND POSITION DOLLAR VALUE NO. OF OPTIONS
- ----------------- ------------ --------------
<S> <C> <C>
E. J. Sebastian............................................. -0- None
D. W. Johnson, Jr........................................... -0- None
R. H. Duncan................................................ -0- None
S. F. Herbert............................................... -0- None
L. E. Shelton............................................... -0- None
Executive Group............................................. -0- None
Non-Executive Director Group................................ $100,045 53,500
Non-Executive Officer Employee Group........................ -0- None
</TABLE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The options granted under the Formula Plan will be NQSOs. An Independent
Director will not recognize taxable income at the time of an award of an option
under the plan, unless the option has a readily ascertainable fair market value.
Upon exercise of an option, an Independent Director will recognize ordinary
income, and RBMG will receive a deduction equal to the difference between the
exercise price and the fair market value of the shares of RBMG Common Stock on
the date of exercise. An Independent Director also will recognize as a capital
gain or loss any subsequent profit or loss realized on the sale or exchange of
any such shares of RBMG Common Stock.
If an Independent Director elects to tender shares of RBMG Common Stock in
partial or full payment of the option price for shares to be acquired through
the exercise of an option, generally the Independent Director will not recognize
any gain or loss on such tendered shares. If the Independent Director tenders
shares upon the exercise of an option, the Independent Director will recognize
ordinary income, and RBMG will be entitled to a deduction in an amount equal
only to the fair market value of the number of shares received by the
Independent Director upon exercise which is in excess of the number of tendered
shares, less any cash paid by the Independent Director.
THE RBMG BOARD RECOMMENDS THAT THE RBMG STOCKHOLDERS VOTE "FOR" APPROVAL OF
THE FIRST AMENDMENT TO THE FORMULA STOCK OPTION PLAN.
101
<PAGE> 109
THE RBMG ANNUAL MEETING
PROPOSAL NO. 6:
APPROVAL OF THE RESOURCE BANCSHARES MORTGAGE GROUP,
INC. NON-QUALIFIED STOCK OPTION PLAN
GENERAL
RBMG is seeking stockholder approval of the Resource Bancshares Mortgage
Group, Inc. Non-Qualified Stock Option Plan. The Non-Qualified Plan was approved
by the RBMG Board in November 1996 and, subject to approval by the RBMG
Stockholders at the RBMG Annual Meeting, the Non-Qualified Plan will become
effective as of September 1, 1996.
The Non-Qualified Plan was adopted by RBMG for the sole purpose of issuing
options in substitution for outstanding deferred compensation units which had
been granted under the RBMG phantom stock plan which was terminated in November
1996. The maximum number of shares of RBMG Common Stock which may be issued
pursuant to the plan is 213,159 (223,817 after adjustment for the five percent
stock dividend payable to RBMG Stockholders of record on December 18, 1997) plus
such additional shares as may be issued pursuant to the antidilutive adjustment
provisions of the plan.
Only those employees of RBMG who held deferred compensation units prior to
the adoption by the RBMG Board of the Non-Qualified Plan were eligible to
receive awards under the Non-Qualified Plan. There were 26 such employees, and
all of such employees have been awarded options under the plan subject to
stockholder approval. All the options granted under the Non-Qualified Plan are
non-qualified stock options ("NQSO").
The Non-Qualified Plan will be interpreted, construed and administered by
the RBMG Board in its sole discretion. Each employee who has been granted an
option under the Non-Qualified Plan has entered into a stock option agreement
with respect thereto. Each stock option agreement issued under the Non-Qualified
Plan includes the number of shares covered by the option, the exercise price,
the medium and time of payment, the term of each award and any vesting
requirements and may include conditions (in addition to those contained in the
plan) on the exercisability of all or any part of an option. The exercise prices
of the options granted under the Non-Qualified Plan range from $7.72 to $11.17
and were equivalent to the value base of the units replaced as of the date of
the option grants. Notwithstanding any such conditions, the RBMG Board may, in
its discretion, accelerate the time at which any option may be exercised. In
addition, the RBMG Board may adopt, amend and rescind rules and regulations
pertaining to the administration of the plan and make all other determinations
necessary or advisable for the administration of the Non-Qualified Plan. The
express grant in the Non-Qualified Plan of any specific power to the RBMG Board
shall not be construed as limiting any power or authority of the RBMG Board. All
expenses of administering the Non-Qualified Plan will be borne by RBMG.
The plan provides that RBMG shall at all times during the term of the
Non-Qualified Plan, and so long as any option shall be outstanding thereunder,
reserve and keep available (and will seek or obtain from any regulatory body
having jurisdiction any requisite authority in order to issue) such number of
shares of RBMG Common Stock as shall be sufficient to satisfy the requirements
of the plan. Inability of RBMG to obtain from any regulatory body or appropriate
jurisdiction authority considered by RBMG to be necessary or desirable to the
lawful issuance of any shares of RBMG Common Stock under the Non-Qualified Plan
shall relieve RBMG of any liability in respect of the nonissuance or sale of
such RBMG Common Stock as to which such requisite authority shall not have been
obtained.
Upon the exercise of an option, the option exercise price shall be payable
in cash or (unless the RBMG Board otherwise prescribes) in shares of RBMG Common
Stock owned by the optionee for a period exceeding six months or in a
combination of cash and RBMG Common Stock. If all or any portion of the option
exercise price is paid in RBMG Common Stock owned by the optionee, then that
stock shall be valued at its fair market value as of the date immediately prior
to the date the option is exercised. For the purpose of assisting an optionee to
exercise an option, RBMG may, in the discretion of the RBMG Board, make loans to
the optionee or guarantee loans made by third parties to the optionee, in either
case on such terms and conditions as the RMBG Board may authorize, provided such
loans or guarantees are made on a full recourse basis.
The term of each option granted under the Non-Qualified Plan will expire
within ten years and one month from the date of grant. Not less than 100 shares
may be purchased at any one time unless the number purchased is
102
<PAGE> 110
the total number at the time purchasable under the option. During the lifetime
of the optionee, an option shall be exercisable only by him or her and shall not
be assignable or transferable by him or her and no person shall acquire any
rights therein. An option may be transferred (unless the RBMG Board otherwise
prescribes) by will or the laws of descent and distribution. Every option
agreement provides that, unless earlier terminated, options granted pursuant to
the plan shall be exercisable at any time on or after the date of exercise set
forth in the agreement. Notwithstanding the foregoing, an option shall terminate
and may not be exercised if the employee to whom it is granted ceases to be
employed by RBMG, except that the agreement may, in the discretion of the RBMG
Board, provide: (1) that, if such employee's employment terminates for any
reason other than conduct that in the judgment of the RBMG Board involves
dishonesty or action by the employee that is detrimental to the best interest of
RBMG, then the employee may at any time within three months after termination of
his or her employment exercise his or her option but only to the extent the
option was either exercisable by him or her or vested on the date of termination
of employment; (2) that, if such employee's employment terminates on account of
total and permanent disability, then the employee may at any time within one
year after termination of his or her employment exercise his or her option with
respect to all shares to which it pertains; and (3) that, if such employee dies
while in the employ of RBMG, or within the three month or one year period
following termination of his or her employment as described in clause (1) or (2)
above, then his or her option may be exercised with respect to all shares to
which it pertains at any time within one year following his or her death by the
person or persons to whom his or her rights under the option shall pass by will
or by the laws of descent and distribution. Notwithstanding anything to the
contrary in this subsection, an option may not be exercised by anyone after the
expiration of its term.
Subject to the terms and conditions and within the limitations of the plan,
the RBMG Board may modify, extend or renew outstanding options granted under the
Non-Qualified Plan or accept the surrender of outstanding options and authorize
the granting of new options in substitution therefor. No modification of an
option shall, without the consent of the optionee, alter or impair any rights or
obligations under any option theretofore granted under the plan.
Subject to any required action by the RBMG Stockholders, the maximum number
of shares of RBMG Common Stock that may be issued under the Non-Qualified Plan,
the number of shares of RBMG Common Stock covered by each outstanding option and
the per share exercise price under each outstanding option shall be adjusted, in
each case, to the extent and in the manner the RBMG Board deems appropriate for
any increase or decrease in the number of issued shares of RBMG Common Stock
resulting from a reorganization, recapitalization, stock split, stock dividend,
combination of shares, merger, consolidation, rights offering, subdivision or
consolidation of shares or the payment of a stock dividend (but only on RBMG
Common Stock) or any other change in the corporate structure or shares of RBMG.
Subject to any action that may be required on the part of the RBMG
stockholders, if RBMG is the surviving corporation in any merger, then each
outstanding option shall pertain to and apply to the securities or other
consideration that a holder of the number of shares of RBMG Common Stock subject
to the option would have been entitled to receive in the merger. A dissolution,
liquidation or consolidation of RBMG or a merger in which RBMG is not the
surviving corporation, other than a merger effected for the purpose of changing
RBMG's domicile, shall cause each outstanding option to terminate, provided that
each holder shall, in such event, have the right immediately prior to such
dissolution, liquidation, consolidation or merger to exercise his or her option
in whole or in part. Notwithstanding the foregoing, in no event shall any option
be exercisable after the date of termination of the exercise period of such
option. In the case of a merger effected for the purpose of changing RBMG's
domicile, each outstanding option will continue in effect in accordance with its
terms and will apply or relate to the same number of shares of common stock of
such surviving corporation as the number of shares of RBMG Common Stock to which
it applied or related immediately prior to such merger, adjusted for any
increase or decrease in the number of outstanding shares of common stock of the
surviving corporation effected without receipt of consideration.
In the event of a change in the RBMG Common Stock as presently constituted,
which change is limited to a change of all of the authorized shares with par
value into the same number of shares with a different par value or without par
value, the shares resulting from any such change shall be deemed to be the RBMG
Common Stock within the meaning of the Non-Qualified Plan.
103
<PAGE> 111
The foregoing adjustments shall be made by the RBMG Board, whose
determination will be final, binding and conclusive.
RBMG may pay to each optionee amounts in respect of dividends (cash or
property) that are paid from time to time on issued and outstanding RBMG Common
Stock. The amount paid to each optionee with respect to each dividend will be
equivalent to the dividend the optionee would have received had the optionee
been the owner of a number of shares of RBMG Common Stock equal to the number of
the optionee's unexercised options on the dividend record date.
Except as provided above, the holder of an option will have no rights by
reason of (i) any subdivision or consolidation of shares of any class, (ii) any
stock dividend, (iii) any other increase or decrease in the number of shares of
stock of any class, (iv) any dissolution, liquidation, consolidation, merger or
spin-off, split-off or split-up of assets of RBMG or stock of another
corporation or (v) any issuance by RBMG of shares of stock of any class or
securities convertible into shares of stock of any class. Moreover, except as
provided above, the occurrence of one or more of such events shall not affect,
and no adjustment by reason thereof shall be made with respect to, the number of
or exercise price for shares of RBMG Common Stock subject to the option.
The grant of an option pursuant to the Non-Qualified Plan will not affect
in any way the right or power of RBMG to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge or
to consolidate or to dissolve, liquidate or sell or otherwise transfer all or
any part of its business or assets.
An employee granted options under the Non-Qualified Plan will be
conclusively deemed to have authorized RBMG to withhold from the salary,
commissions or other compensation of such employee funds in amounts or property
(including RBMG Common Stock) in value equal to any federal, state and local
income, employment or other withholding taxes applicable to the income
recognized by such employee and attributable to the options or option shares,
when and to the extent, if any, required by law; provided, however, that, in
lieu of the withholding of federal, state and local taxes, RBMG may require that
the employee (or other person exercising such option) pay RBMG an amount equal
to the federal, state and local withholding taxes on such income at the time
such withholding is required or such other time as shall be satisfactory to
RBMG; and provided further, that as an alternative to complying with withholding
requirements as provided above, an optionee may elect by written notice to RBMG
at the time of exercise of an option to have the number of shares of RBMG Common
Stock issued in connection with such exercise reduced by such number of shares
that the market value of the option relating to the shares not being issued as a
result of such reduction shall be equal to the required withholding (but in no
event in excess of withholding resulting from using the maximum marginal federal
and state tax rates in effect).
The proceeds received by RBMG from the sale of RBMG Common Stock upon the
exercise of options granted under the Non-Qualified Plan will be used for
general corporate purposes.
The RBMG Board may from time to time amend, suspend or discontinue the
Non-Qualified Plan or revise it in any respect whatsoever for the purpose of
maintaining or improving its effectiveness as an incentive device, for the
purpose of conforming it to applicable governmental regulations or to any change
in applicable law or regulations, or for any other purpose permitted by law;
provided, however, that no such action by the RBMG Board may adversely affect
any option granted under the plan without the consent of the holder so affected.
In addition to such other rights of indemnification as they may have as
directors, the members of the RBMG Board shall be indemnified by RBMG against
the reasonable expenses, including attorneys' fees actually and necessarily
incurred in connection with the defense of any investigation, action, suit or
proceeding, or in connection with any appeal therefrom, to which they or any of
them may be a party by reason of any action taken or failure to act under or in
connection with the Non-Qualified Plan or any option and against all amounts
paid by them in settlement thereof (provided such settlement is approved by
independent legal counsel selected by RBMG) or paid by them in satisfaction of a
judgment in or dismissal or other discontinuance of any such investigation,
action, suit or proceeding, except in relation to matters as to which it shall
be adjudged in such investigation, action, suit or proceeding that such RBMG
Board member is liable for negligence or misconduct in the performance of his or
her duties; provided that, within 60 days after institution of any such
investigation,
104
<PAGE> 112
action, suit or proceeding, an RBMG Board member shall in writing offer RBMG the
opportunity, at its own expense, to handle and defend the same.
NON-QUALIFIED PLAN BENEFITS
During 1996 RBMG granted options under the Non-Qualified Plan to acquire
213,159 shares of RBMG Common Stock to a total of 26 persons. The following
table sets forth the number of shares of RBMG Common Stock underlying such
options and the dollar value such options would have had if all such options had
been exercisable as of December 31, 1996.
<TABLE>
<CAPTION>
NON-QUALIFIED STOCK OPTION PLAN
-------------------------------
NAME AND POSITION DOLLAR VALUE NO. OF OPTIONS
- ----------------- ------------ --------------
<S> <C> <C>
E. J. Sebastian............................................. $ N/A None
D. W. Johnson, Jr........................................... N/A None
R. H. Duncan................................................ 137,423 19,465
S. F. Herbert............................................... 51,907 16,853
L.E. Shelton................................................ N/A None
Executive Group (5 persons)................................. 189,330 36,318
Non-Executive Director Group................................ N/A None
Non-Executive Officer Employee Group........................ 1,237,098 176,841
</TABLE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Non-Qualified Stock Options. Upon the grant of a NQSO, an optionee will
not recognize any income, unless the option has a readily ascertainable fair
market value. At the time a NQSO is exercised, the optionee will recognize
compensation taxable as ordinary income, and RBMG will be entitled to a
deduction (subject to the provisions of Section 162(m) of the Code discussed
under the caption "Limits on Deductions," below), in an amount equal to the
difference between the fair market value on the exercise date of the shares
acquired pursuant to such exercise and the option price. Upon a subsequent
disposition of the shares, the optionee will recognize long- or short-term
capital gain or loss, depending upon the holding period of the shares. For
purposes of determining the amount of such gain or loss, the optionee's tax
basis in the shares will generally be the fair market value of such shares on
the exercise date (i.e., the sum of the ordinary income recognized by the
employee upon the exercise of the NQSO plus the amount paid by the employee to
exercise the NQSO).
Generally, any dividend equivalents received by the employee with respect
to NQSOs will be treated by the employee as compensation taxable as ordinary
income, and RBMG will be entitled to a deduction (subject to the provisions of
Section 162(m) of the Code discussed under the caption "Limits on Deductions,"
below), equal to the amount of ordinary income recognized by the employee.
Effect of Share for Share Exercise. If an optionee elects to tender shares
of RBMG Common Stock in partial or full payment of the option price for shares
to be acquired through the exercise of an option, generally the optionee will
not recognize any gain or loss on such tendered shares. If the optionee tenders
shares upon the exercise of an option which would result in the receipt of
compensation by the optionee, as described above under the caption
"Non-Qualified Stock Options," the optionee will recognize compensation taxable
as ordinary income, and RBMG will be entitled to a deduction (subject to the
provisions of Section 162(m) of the Code discussed under the caption "Limits on
Deductions," below), in an amount equal only to the fair market value of the
number of shares received by the optionee upon exercise which is in excess of
the number of tendered shares, less any cash paid by the optionee.
Limits on Deduction. Under Section 162(m) of the Code, the amount of
compensation paid to the chief executive officer and the four other most highly
paid executive officers of RBMG in the year for which a deduction is claimed by
RBMG (including its subsidiaries) is limited to $1,000,000 per person, except
that compensation which is performance-based will be excluded for purposes of
calculating the amount of compensation subject to this $1,000,000 limitation.
The ability of RBMG to claim a deduction for compensation
105
<PAGE> 113
paid to any other executive officer or employee of RBMG (including its
subsidiaries) is not affected by this provision.
Because the grant of NQSOs is not deemed to be performance-based under
Section 162(m) of the Code, amounts for which RBMG may claim a deduction upon
the exercise of any option will be subject to the limitations on deductibility
in Section 162(m). See "Compensation Committee Report".
Additional Information. The recognition by an employee of compensation
income with respect to a grant under the Non-Qualified Option Plan will be
subject to withholding for federal income and employment tax purposes. If an
employee, to the extent permitted by the terms of a grant or award under the
Non-Qualified Option Plan, uses shares of RBMG Common Stock to satisfy the
federal income and employment tax withholding obligation, or any similar
withholding obligation for state and local tax obligations, the employee will
recognize a capital gain or loss, short-term or long-term, depending on the tax
basis and holding period for such shares of RBMG Common Stock.
THE RBMG BOARD RECOMMENDS THAT RBMG STOCKHOLDERS VOTE "FOR" APPROVAL AND
ADOPTION OF THE NON-QUALIFIED STOCK OPTION PLAN.
EXPERTS
The consolidated financial statements of RBMG incorporated in this Joint
Proxy Statement/Prospectus by reference to RBMG's Annual Report on Form 10-K for
the year ended December 31, 1996, have been so incorporated in reliance upon the
report of Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting. The consolidated financial
statements of RBC as of December 31, 1996 and 1995 and for each of the three
years in the period ended December 31, 1996 included in this Joint Proxy
Statement/Prospectus have been so included in reliance upon the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
LEGAL MATTERS
The validity of the shares of RBMG Common Stock being registered under the
Registration Statement of which this Joint Proxy Statement/Prospectus forms a
part will be passed upon for RBMG by King & Spalding, Atlanta, Georgia. The tax
consequences of the RBC Merger will be passed upon for RBC by McNair Law Firm,
P.A. John W. Currie, a member of such firm, is a director and the secretary of
RBC and RBMG, and Mr. Currie and other members of the firm are stockholders of
RBC and RBMG.
STOCKHOLDER PROPOSALS
Stockholders who intend to present proposals for consideration at next
year's annual meeting of RBMG are advised that any such proposal must be
received by the Secretary of RBMG no later than the close of business on August
4, 1998 if such proposal is to be considered for inclusion in the proxy
statement and form of proxy relating to that meeting.
106
<PAGE> 114
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF RBC
Report of Independent Accountants......................... F-2
Consolidated Balance Sheet as of December 31, 1995 and
1996 and September 30, 1997............................ F-3
Consolidated Statement of Income for the years ended
December 31, 1994, 1995 and 1996 and for the nine
months ended September 30, 1996 and 1997............... F-4
Consolidated Statement of Changes in Stockholders' Equity
for the years ended December 31, 1994, 1995 and 1996
and the nine months ended September 30, 1997........... F-5
Consolidated Statement of Cash Flows for the years ended
December 31, 1994, 1995 and 1996 and for the nine
months ended September 30, 1996 and 1997............... F-6
Notes to Consolidated Financial Statements................ F-7
</TABLE>
F-1
<PAGE> 115
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Resource Bancshares Corporation
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, of changes in shareholders' equity
and of cash flows present fairly, in all material respects, the financial
position of Resource Bancshares Corporation and its subsidiaries at December 31,
1996 and 1995, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Corporation's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
February 28, 1997
Price Waterhouse LLP
Columbia, South Carolina
F-2
<PAGE> 116
RESOURCE BANCSHARES CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-------------------- -------------
1995 1996 1997
-------- -------- -------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Cash....................................................... $ 9,899 $ 8,474 $ 5,198
Receivables................................................ 111,885 55,583 47,691
Commercial mortgage loan servicing rights, net............. 904 1,693 1,475
Premises and equipment, net................................ 2,033 1,120 1,215
Investment in RBMG......................................... 39,369 61,820 66,629
Notes receivable........................................... 19,000 2,267 2,267
Intangible assets.......................................... 1,383 3,057 2,815
Other assets............................................... 12,565 6,114 4,630
-------- -------- --------
Total assets..................................... $197,038 $140,128 $131,920
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Short-term borrowings.................................... $ 77,638 $ 36,957 $ 24,670
Long-term borrowings..................................... 11,380
Accrued expenses and payables............................ 7,716 12,121 7,107
Other liabilities........................................ 16,797 11,011 12,640
-------- -------- --------
Total liabilities................................ 113,531 60,089 44,417
-------- -------- --------
Stockholders' equity
Common stock -- par value $.01 -- 25,000,000 shares
authorized; 7,032,810, 6,909,882 and 7,121,245 shares
issued and outstanding at December 31, 1995 and 1996
and September 30, 1997, respectively.................. 70 69 71
Nonvoting common stock -- par value $.01 -- 2,500,000
shares authorized; 1,577,788 shares issued and
outstanding at December 31, 1995 and 1996 and
September 30, 1997.................................... 16 16 16
Additional paid-in capital............................... 56,031 55,085 58,074
Retained earnings........................................ 28,565 24,869 29,342
Unearned shares of employee stock ownership plan......... (1,175)
-------- -------- --------
Total stockholders' equity....................... 83,507 80,039 87,503
-------- -------- --------
Commitments and contingencies (Note 15)....................
-------- -------- --------
Total liabilities and stockholders' equity....... $197,038 $140,128 $131,920
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 117
RESOURCE BANCSHARES CORPORATION
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
--------------------------------- ---------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT SHARE INFORMATION)
<S> <C> <C> <C> <C> <C>
REVENUES
Interest income....................... $ 9,514 $ 16,536 $ 13,342 $ 10,972 $ 5,388
Interest expense...................... (2,429) (6,643) (5,212) (4,194) (1,825)
--------- --------- --------- --------- ---------
Net interest income................... 7,085 9,893 8,130 6,778 3,563
Net gain on sale of leases............ 1,617 3,124 1,572 921
Credit card fees...................... 23,140 11,637 18,424 13,234
Commercial mortgage loan origination
fees................................ 244 3,082 4,416 2,736 3,367
Commercial mortgage loan and lease
servicing fees...................... 9 1,014 2,508 1,704 2,694
Equity in undistributed earnings of
RBMG................................ 7,510 5,885 7,424 6,685 5,474
Gain on sale of RBMG stock............ 2,456 2,456
Revenues of Retail Banking Business... 2,454
Gain on sale of Retail Banking
Business............................ 9,931
Other income.......................... 922 1,341 1,121 810 2,109
--------- --------- --------- --------- ---------
Total revenues.............. 51,295 34,469 47,603 35,975 18,128
--------- --------- --------- --------- ---------
EXPENSES
Salary and employee benefits.......... 9,537 11,526 18,360 11,529 6,963
Occupancy expense..................... 1,368 1,748 1,958 1,409 935
Amortization of commercial mortgage
loan servicing rights............... 61 209 135 218
Provision for lease losses............ 2,000 2,985 2,391 2,377 618
Expenses of Retail Banking Business... 4,631
General and administrative expenses... 13,853 10,467 16,965 11,922 4,378
--------- --------- --------- --------- ---------
Total expenses.............. 31,389 26,787 39,883 27,372 13,112
--------- --------- --------- --------- ---------
Income before income taxes............ 19,906 7,682 7,720 8,603 5,016
Income tax expense.................... (5,705) (978) (467) (1,127) (543)
--------- --------- --------- --------- ---------
Net income.................. $ 14,201 $ 6,704 $ 7,253 $ 7,476 $ 4,473
========= ========= ========= ========= =========
Weighted average common shares
outstanding......................... 8,610,698 8,610,598 8,487,670 8,610,598 8,617,740
Net income per common share........... $ 1.65 $ 0.78 $ 0.85 $ 0.87 $ 0.52
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 118
RESOURCE BANCSHARES CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
MANDATORILY
REDEEMABLE STOCK NONVOTING
APPRECIATION RIGHTS COMMON STOCK COMMON STOCK ADDITIONAL
------------------- ------------------ ------------------ PAID-IN RETAINED
UNITS AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS
--------- ------- --------- ------ --------- ------ ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1993............... 100,530 $744 7,017,810 $70 1,477,258 $15 $54,762 $ 16,664
Conversion of stock
appreciation
rights............. (100,530) (744) 100,530 1 708 36
Shares issued under
Stock Option
Plan............... 15,000 * 140
Loan to Employee
Stock Ownership
Plan...............
Shares released under
Employee Stock
Ownership Plan.....
Net income........... 14,201
Dividends declared... (4,305)
-------- ---- --------- --- --------- --- ------- --------
Balance, December 31,
1994............... 0 0 7,032,810 70 1,577,788 16 55,610 26,596
Shares released under
Employee Stock
Ownership Plan..... 421
Net income........... 6,704
Dividends declared... (4,735)
-------- ---- --------- --- --------- --- ------- --------
Balance, December 31,
1995............... 0 0 7,032,810 70 1,577,788 16 56,031 28,565
Loan to Employee
Stock Ownership
Plan...............
Shares redeemed from
Employee Stock
Ownership Plan..... (122,928) (1) (1,227)
Shares released under
Employee Stock
Ownership Plan..... 281
Net income........... 7,253
Spin-off of RPG...... (10,949)
-------- ---- --------- --- --------- --- ------- --------
Balance, December 31,
1996............... 0 0 6,909,882 69 1,577,788 16 55,085 24,869
Shares issued under
Phantom Stock
Plan............... 211,363 2 2,989
Net income........... 4,473
-------- ---- --------- --- --------- --- ------- --------
Balance, September
30, 1997
(Unaudited)........ 0 $ 0 7,121,245 $71 1,577,788 $16 $58,074 $ 29,342
======== ==== ========= === ========= === ======= ========
<CAPTION>
UNEARNED TOTAL
ESOP STOCKHOLDERS'
SHARES EQUITY
-------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Balance, December 31,
1993............... $(1,256) $ 70,999
Conversion of stock
appreciation
rights............. 1
Shares issued under
Stock Option
Plan............... 140
Loan to Employee
Stock Ownership
Plan............... (765) (765)
Shares released under
Employee Stock
Ownership Plan..... 275 275
Net income........... 14,201
Dividends declared... (4,305)
------- --------
Balance, December 31,
1994............... (1,746) 80,546
Shares released under
Employee Stock
Ownership Plan..... 571 992
Net income........... 6,704
Dividends declared... (4,735)
------- --------
Balance, December 31,
1995............... (1,175) 83,507
Loan to Employee
Stock Ownership
Plan............... (53) (53)
Shares redeemed from
Employee Stock
Ownership Plan..... 1,228 0
Shares released under
Employee Stock
Ownership Plan..... 281
Net income........... 7,253
Spin-off of RPG...... (10,949)
------- --------
Balance, December 31,
1996............... 0 80,039
Shares issued under
Phantom Stock
Plan............... 2,991
Net income........... 4,473
------- --------
Balance, September
30, 1997
(Unaudited)........ $ 0 $ 87,503
======= ========
</TABLE>
- ---------------
* Amount less than $1
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 119
RESOURCE BANCSHARES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE
FOR THE YEAR ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------ ------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- -------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 14,201 $ 6,704 $ 7,253 $ 7,476 $ 4,473
Adjustments to reconcile net income to cash provided by
(used in) operating activities:
Depreciation and amortization............................. 556 586 847 589 467
Amortization of intangibles............................... 215 242 264 212 97
Deferred income tax (benefit) expense..................... (315) 5,529 1,003 1,551 1,737
Employee Stock Ownership Plan Compensation................ (765) 421 228
Provision for lease losses................................ 2,000 2,985 2,391 2,377 618
Net gain on sale of leases................................ (1,617) (3,124) (1,572) (921)
Gain on sale of Retail Banking Business................... (9,931)
Gain on sale of RBMG stock................................ (2,456) (2,456)
Equity in undistributed earnings of RBMG.................. (7,510) (5,885) (7,424) (6,685) (5,474)
Dividends received from RBMG.............................. 429 208 665
Accretion of discount on retail banking investment
securities.............................................. (161)
Decrease in retail banking trading account securities..... 27,171
Decrease (increase) in other assets....................... 3,046 (3,727) (12,730) (15,195) 1,484
Increase (decrease) in accrued expenses and other
liabilities............................................. 14,255 (5,304) 6,498 2,271 (5,122)
-------- -------- -------- -------- -------
Net cash provided by (used in) operating
activities........................................ 42,762 (66) (6,821) (11,224) (1,976)
-------- -------- -------- -------- -------
INVESTING ACTIVITIES
Repayments (advances) on RBMG notes receivable.............. (19,000) 6,000 6,000
Increase in retail banking temporary investments, net....... (15,848)
Proceeds from maturities of retail banking investment
securities................................................ 18,900
Proceeds from sale of leases held for investment............ 31,580 35,373 37,019
Change in lease receivables held for investment............. (50,365) (52,258) 1,247 (12,015) 130
Proceeds from sale of leases held for sale.................. 34,445 26,615
Change in lease receivables held for sale................... (14,030) (18,550)
Decrease in retail banking loans, net....................... 8,465
Disposals (purchases) of intangibles........................ 109 (1,988) (2,965) (2,735) 145
Cash transferred in connection with sale of Retail Banking
Business.................................................. (53,983)
Cash transferred in connection with the spin-off of RPG..... (70)
Equity investment........................................... (2,000) (1,025)
Sales (purchases) of furniture, fixtures and equipment...... 599 (1,126) (2,448) (2,175) (344)
-------- -------- -------- -------- -------
Net cash (used in) provided by investing
activities........................................ (92,123) (42,792) 55,552 25,069 7,996
-------- -------- -------- -------- -------
FINANCING ACTIVITIES
Proceeds from borrowings.................................... 67,938 100,146 48,390 77,072 27,898
Repayment of borrowings..................................... (79,066) (98,546) (93,409) (40,185)
Increase in retail banking deposits, net.................... 4,992
Decrease in retail banking short-term borrowings, net....... (3,997)
Proceeds from exercise of stock options..................... 141
Activity under Employee Stock Ownership Plan................ 275 571
Issuance of common stock -- Phantom Stock Plan.............. 2,991
Cash dividends.............................................. (9,041)
-------- -------- -------- -------- -------
Net cash provided by (used in) financing
activities........................................ 69,349 12,610 (50,156) (16,337) (9,296)
-------- -------- -------- -------- -------
Net increase (decrease) in cash............................. 19,988 (30,248) (1,425) (2,492) (3,276)
Cash, beginning of period................................... 20,159 40,147 9,899 9,899 8,474
-------- -------- -------- -------- -------
Cash, end of period................................. $ 40,147 $ 9,899 $ 8,474 $ 7,407 $ 5,198
======== ======== ======== ======== =======
SUPPLEMENTAL ACTIVITIES
Interest paid............................................... $ 4,487 $ 4,126 $ 5,406 $ 4,256 $ 1,885
Taxes paid (refunded)....................................... 1,631 1,203 (941) (1,361) (3,338)
Non-cash activity:
Satisfaction of note receivable in exchange for RBMG
stock................................................... $ 13,000 $ 13,000
Conversion of advance to RPG for note receivable.......... 2,267
Redemption of unallocated RBC common stock held by
Employee Stock Ownership Plan........................... 1,228
Satisfaction of advance to RPG in conjunction with
spin-off of RPG......................................... 3,044
Spin-off of RPG, net of cash transferred.................. (10,879)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 120
RESOURCE BANCSHARES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
NOTE 1 -- THE COMPANY:
Resource Bancshares Corporation ("Resource") was organized under the laws
of the state of South Carolina in 1986. From 1987 until May 1, 1994, Resource
was a bank holding company and operated its credit card and leasing operations
as divisions of a bank subsidiary. Between 1989 and 1993, Resource also operated
a residential mortgage operation as a division of a bank subsidiary. On June 3,
1993, Resource transferred the assets and liabilities of its residential
mortgage banking business to a new wholly-owned subsidiary, Resource Bancshares
Mortgage Group, Inc. ("RBMG"), and RBMG simultaneously sold 58% of its stock in
an initial public offering. In 1993 and 1994, Resource sold its retail banking
assets, liabilities and operations, (the "Retail Banking Business") and on May
1, 1994 Resource ceased to be a bank holding company. Also in 1994, the credit
card and leasing operations were contributed to new operating subsidiaries of
Resource, Resource Processing Group, Inc. ("RPG") and Republic Leasing Company,
Inc. ("Republic Leasing"), respectively. Also during 1994, Resource formed
Laureate Capital Corp. ("LCC") and LCC formed a wholly-owned commercial mortgage
loan subsidiary, Laureate Realty Services, Inc. ("Laureate Realty"). Also,
during that year Resource formed TFP Funding, Inc. and TFP Funding, II, as
special purpose subsidiaries of Republic Leasing. On December 31, 1996, Republic
Leasing was merged into Resource and is now operated as a division and as more
fully described in Note 3, RPG was spun-off (the "Spin-off").
Subsequent to the Spin-off, Resource and its subsidiaries (collectively,
"RBC") have engaged primarily in commercial small ticket equipment lease
financing and servicing and commercial mortgage banking.
RBC originates commercial mortgage loans for various insurance companies
and other investors, primarily in North Carolina, South Carolina, Tennessee,
Virginia, Indiana and Alabama. Commercial mortgage loans are generally
originated in the name of the investor and, in most instances, RBC retains the
right to service the loans under a servicing agreement.
Substantially all of RBC's lease receivables are acquired from independent
brokers who operate throughout the continental United States.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accounting and reporting policies of Resource and its subsidiaries
reflect industry practices and conform in all material respects with generally
accepted accounting principles. For comparative purposes, Retail Banking
Business revenues and expenses for 1994 are summarized into two line items in
the statement of income. In addition, certain amounts from prior years have been
reclassified to conform to current period presentation.
Unaudited data
The amounts reported at September 30, 1996 and 1997 and for the nine months
then ended are unaudited. However, in the opinion of management of RBC, all
adjustments, consisting of normal recurring items, necessary for a fair
presentation of operating results for the periods shown have been made.
Principles of Consolidation
The consolidated financial statements of RBC include the accounts of
Resource and its direct and indirect wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated. As discussed in
Note 3, the assets and liabilities of RPG have been excluded from the
consolidated balance sheet at December 31, 1996; however, the results of
operations of RPG are included through December 31, 1996.
F-7
<PAGE> 121
RESOURCE BANCSHARES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
Significant Estimates
In preparing the financial statements, management is required to make
estimates based on available information that can affect the reported amounts of
assets and liabilities and disclosures as of the balance sheet date and revenues
and expenses for the related periods. Such estimates relate principally to RBC's
allowance for lease losses. Additionally, the fair values of leases held for
sale and servicing rights are all relevant to ensuring that leases are carried
at the lower of cost or market, and that potential impairments of servicing
rights are recognized if required. Because of the inherent uncertainties
associated with any estimation process and due to possible future changes in
market and economic conditions that will affect fair values, it is possible that
actual future results in realization of the underlying assets and liabilities
could differ significantly from the amounts reflected as of the balance sheet
date.
Cash
RBC considers all highly liquid debt instruments purchased with a maturity
of three months or less to be cash.
Receivables
Receivables consist of direct financing leases which are carried at the
aggregate of lease payments and estimated residuals less unearned discount and
unamortized origination costs, except for leases held for sale which are carried
at the lower of aggregate cost or market value. Interest income is recognized
monthly based on the net lease outstanding balance. Residuals are recognized
monthly based on the estimated end-of-lease residuals and are included as an
adjustment to interest income. Lease receivables are charged-off at the earlier
of the date they are deemed uncollectible or when they become 120 days past due.
Certain direct costs to originate lease receivables are deferred and recognized
as an adjustment to interest income over the estimated life of the lease.
Allowance for Lease Losses
The allowance for lease losses is established through a provision charged
to operations. The allowance is reviewed and adjusted as needed based upon
management's evaluation of factors affecting the lease receivable portfolios
such as economic conditions, growth and composition of the portfolio, historical
loss experience and analyses of the collectibility of specific lease
receivables. The allowance is established at an amount that management believes
will be adequate to absorb probable losses on outstanding leases that may become
uncollectible.
Mortgage servicing rights
Purchased servicing rights for commercial mortgage loans are recorded at
cost and are amortized in proportion to and over the estimated life of the
servicing. The carrying value of such rights is periodically assessed and is
adjusted to the lower of amortized cost or estimated market value.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets or life of the lease, if less. Gains or losses on
routine dispositions are reflected in current operations. Maintenance and
repairs are expensed when incurred and major replacements and improvements are
capitalized.
F-8
<PAGE> 122
RESOURCE BANCSHARES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
Investment and Equity in Undistributed Earnings of Resource Bancshares
Mortgage Group, Inc.
RBC accounts for its investment in RBMG using the equity method.
Accordingly, the investment in RBMG is carried at original cost adjusted to
include RBC's allocable share of the net proceeds of the initial public
offering, subsequent capital changes by RBMG, including stock offerings, and
Resource's allocable share of the undistributed net earnings of RBMG.
Investment in Intek Information, Inc.
In August 1996, RBC purchased for $2,000, 20,000 shares of preferred stock
of Intek Information, Inc. ("Intek"), a teleservicing company based in Colorado.
On February 3, 1997, Intek completed a private offering and as part of the
transaction, Intek repurchased 5,000 shares of preferred stock from RBC for
$1,741. The investment in Intek is accounted for under the cost method and is
recorded in the consolidated balance sheet in other assets.
Gain on Sale of Leases
Beginning in 1995, RBC has sold certain leases with servicing retained.
Gains on the sale of leases are recognized to the extent the net proceeds exceed
the net basis of the leases. In addition, through December 31, 1996 gains were
recognized for excess servicing. Gains attributable to excess servicing were
calculated based on the difference between the actual servicing fee and the
normal servicing fee over the remaining lives of the leases, adjusted for
estimated prepayments and charge-offs. Beginning January 1, 1997, RBC adopted,
on a prospective basis, the provisions of Statement of Financial Accounting
Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" ("FAS 125"), which provides that after a
transfer of financial assets, an entity recognizes the financial and servicing
assets it controls and the liabilities it has incurred, derecognizes the
financial assets when control has been surrendered, and derecognizes liabilities
when extinguished. A transfer of financial assets in which the transferor
surrenders control over those assets is accounted for as a sale to the extent
that consideration other than beneficial interests in the transferred assets is
received in exchange. Liabilities incurred or obtained by transferors as part of
a transfer of financial assets are initially measured at fair value, if
practicable. Servicing assets and other retained interests in the transferred
assets are measured by allocating the previous carrying amount between the
assets sold, if any, and retained interests, if any, based on their relative
fair values at the date of transfer. In addition, servicing assets and
liabilities are subsequently (a) amortized in proportion to and over the period
of estimated net servicing income or loss and (b) measured for assessment of
asset impairment or increased obligation based on their fair values.
During the years 1995 and 1996 and the nine months ended September 30,
1997, RBC sold lease portfolios in the aggregate amount of $31,580, $69,818 and
$25,945, respectively. During the years 1994, 1995 and 1996 and the nine months
ended September 30, 1996 and 1997, gains recognized on the sale of leases was
$0, $1,617, $3,124 and $1,572 and $921, respectively. The effect of adopting FAS
125 was immaterial.
Credit Card Fees
Credit card fees for servicing and marketing credit card portfolios for
investors were recognized by RPG monthly on an accrual basis based upon the
terms of the underlying agreement. Generally, such agreements provided for fees
based upon a percentage of the outstanding portfolio balance or based upon the
number and types of transactions processed. Certain servicing agreements
provided for retention of all or a portion of certain ancillary credit card
revenues (such as interchange volume, application processing fees, credit
insurance commissions and collection fees). Ancillary revenues which were
retained were recorded as collected. Revenues for advising clients on
portfolios' performance and profitability were included in revenues as earned
under the program management agreement, generally on a monthly basis.
F-9
<PAGE> 123
RESOURCE BANCSHARES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
Generally, credit card marketing campaigns were conducted over a two to 12
month period and may have been priced in conjunction with a servicing agreement
or program management agreement. In such case, the related agreements contained
provisions for payment to RBC of the portion of such fees associated with the
marketing services upon early termination of the agreements. Incremental costs
of acquiring servicing and program management agreements and marketing
campaigns, consisted primarily of data processing, postage, credit bureau
reports, payroll and similar direct costs, and were initially deferred as
deferred contract costs. Such deferred costs were amortized based upon the ratio
of estimated total costs to total revenue under the related agreements. Included
in other expenses were amortized deferred contract costs of $0, $1,639, $4,052,
$3,075 and $0 for the years 1994, 1995 and 1996 and the nine months ended
September 30, 1996 and 1997, respectively. Additionally, included in salaries
and other benefit costs were $0, $262, $503, $178 and $0 for the years 1994,
1995 and 1996 and the nine months ended September 30, 1996 and 1997,
respectively. Management periodically reviewed the amortization and
recoverability of deferred contract costs and in 1996 recorded an impairment
write down of $600. See Note 3 regarding the Spin-off of the credit card
operations as of December 31, 1996.
Servicing and other fees
Fees for servicing commercial mortgage loans and lease portfolios are
recognized monthly on an accrual basis based upon the terms of the underlying
agreement. Generally, such agreements provide for fees based upon a percentage
of the outstanding balance. Other fees consist primarily of origination fees for
commercial mortgage loans. Origination fees are recognized when there is a firm
commitment and a firm closing date is scheduled.
Goodwill and Other Intangible Assets
Goodwill arising from purchase transactions is amortized over periods
generally ranging from 15 to 25 years using the straight-line method. Lease
servicing assets are amortized over the estimated remaining lives of the leases,
adjusted for estimated prepayments and charge-offs, in proportion to estimated
net servicing revenues. RBC services leases under long-term servicing agreements
which may not be sold or assigned without the consent of the investor.
Income Taxes
Federal income tax returns for Resource and its wholly-owned subsidiaries
are filed on a consolidated basis. RBC recognizes deferred tax assets and
liabilities in amounts representative of the estimated future tax consequences
of temporary differences between the carrying amounts and tax bases of assets
and liabilities. Deferred tax assets and liabilities are measured using the
enacted tax rate expected to apply to taxable income in the period in which the
difference is expected to be realized or settled. RBC's equity investee and
affiliate, RBMG, files separate federal and state tax returns. Subsequent to
December 31, 1996, RPG will not be included in RBC's consolidated income tax
return but will be obligated for its own taxes and tax returns; however, under
the terms of an income tax sharing agreement, RPG may request RBC to file
amended consolidated income tax returns for periods prior to 1997 to include any
RPG carryback amount. If such carryback results in a tax benefit, RPG is to
receive the benefit.
Fair Value Disclosures
RBC's consolidated financial statements include information about the fair
value of financial instruments. In certain instances, fair values have been
estimated by management in the absence of readily ascertainable market prices.
In developing such values, management has applied methodologies and procedures
which are believed to be reasonable for purposes of estimating fair value.
However, because of the uncertainty inherent in any estimation process,
resultant fair value information may differ significantly from the actual market
values that would have been assigned if an active market existed.
F-10
<PAGE> 124
RESOURCE BANCSHARES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
New Accounting Standard
In February 1997 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" (FAS No. 128),
which is effective for financial statements issued for periods ending after
December 15, 1997. Early adoption of FAS No. 128 is not permitted.
NOTE 3 -- SPIN-OFF OF SUBSIDIARY:
As of the close of business on December 31, 1996, Resource effected a
Spin-off of RPG through a distribution of RPG stock to Resource shareholders.
In conjunction with the Spin-off, on December 31, 1996, each Resource
shareholder received one share of RPG's stock for each share of voting and each
share of nonvoting Resource common stock owned as of the December 30, 1996
record date. In addition, Resource was obligated to distribute to each holder of
certain of its Phantom stock units a dividend equivalent payment of (i) .54
shares of RPG stock and (ii) cash equivalent to .46 times the December 31, 1996
value of a share of RPG stock, as determined by an independent valuation, for
each Phantom stock unit held on the record date. RPG assumed the liability to
issue the RPG stock in satisfaction of $1,951 of its borrowings from Resource.
In conjunction with the Spin-off, Resource contributed $3,044 to RPG
through a reduction of RPG's borrowings from Resource which resulted in RPG
having $12,900 of capital after issuance of RPG shares to the Phantom stock unit
holders. The remaining RPG borrowings from Resource were converted into a note
which is more fully described in Note 9.
RBC recorded the Spin-off of RPG by a charge to its retained earnings. A
summary of the net assets distributed as part of the Spin-off is as follows:
<TABLE>
<S> <C>
Cash........................................................ $ 70
Premises and equipment, net................................. 2,722
Deferred contract costs..................................... 16,275
Other assets................................................ 4,830
Notes payable............................................... (4,067)
Liability to issue common stock............................. (1,951)
Deferred income tax payable................................. (5,845)
Other liabilities........................................... (1,085)
-------
$10,949
=======
</TABLE>
The following unaudited pro forma information for the year ended December
31, 1996 represents the results of operations of RBC assuming the elimination of
revenues and expenses attributed to RPG and the elimination of certain expenses
incurred by RBC in conjunction with the Spin-off. Management believes this
presentation is preferable to one which results from applying the terms of the
Spin-off agreements as of January 1, 1996 as the results of such presentation
would differ materially from the actual transaction which occurred on December
31, 1996:
<TABLE>
<CAPTION>
PRO FORMA
(UNAUDITED)
-----------
<S> <C>
Revenues.................................................... $34,191
Expenses.................................................... 26,416
-------
7,775
Provision for income taxes.................................. (187)
-------
Net income.................................................. $ 7,588
=======
</TABLE>
F-11
<PAGE> 125
RESOURCE BANCSHARES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
NOTE 4 -- ACQUISITION OF COMMERCIAL MORTGAGE LOAN ASSETS AND BUSINESS:
During 1995 and 1996, RBC acquired the assets and business of two
commercial mortgage loan companies, Mortgage Company of Indiana, Inc. ("MCII")
and Camp & Company ("Camp"), respectively, in transactions accounted for under
the purchase method of accounting. In conjunction with the purchases, RBC paid
cash of $1,085 and assumed liabilities of $720 related to MCII and paid cash of
$2,500 and assumed liabilities of $301 related to Camp. The purchase price was
allocated as follows:
<TABLE>
<CAPTION>
MCII CAMP
------ ------
<S> <C> <C>
Fixed assets and leasehold improvements..................... $ 37 $ 89
Commercial mortgage loan servicing rights................... 965 998
Goodwill.................................................... 720 1,714
Other, net.................................................. 83
------ ------
Total............................................. $1,805 $2,801
====== ======
</TABLE>
NOTE 5 -- RECEIVABLES:
Receivables are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1995 1996 1997
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Lease receivables held for investment............ $140,770 $ 53,691 $ 53,561
Lease receivables held for sale.................. 14,030 7,288
Less -- Unearned discount........................ (26,693) (10,834) (11,960)
Less -- Allowance for lease losses............... (2,192) (1,304) (1,198)
-------- -------- --------
$111,885 $ 55,583 $ 47,691
======== ======== ========
</TABLE>
At December 31, 1995 and 1996, lease receivables aggregating $54,806
($46,776 net of related unearned discount) and $25,682 ($22,843 net of related
unearned discount), respectively, were collateral for the Class A and Class B
Lease Backed Notes discussed in Note 11. At September 30, 1997, the Class A and
Class B Lease Backed Notes were paid in full.
The components of RBC's investment in lease receivables are summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1995 1996 1997
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Minimum lease payments due from lessees and
estimated residuals............................ $134,888 $ 65,342 $58,213
Initial direct costs, net........................ 5,882 2,379 2,636
-------- -------- -------
$140,770 $ 67,721 $60,849
======== ======== =======
</TABLE>
F-12
<PAGE> 126
RESOURCE BANCSHARES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
At December 31, 1996, the maturities of minimum lease receivables are as
follows:
<TABLE>
<S> <C>
1997........................................................ $32,580
1998........................................................ 17,633
1999........................................................ 9,572
2000........................................................ 3,652
2001........................................................ 1,861
2002 and thereafter......................................... 44
-------
$65,342
=======
</TABLE>
Leases represent unconditional obligations of the lessees to pay all
scheduled payments and require the lessees to assume all responsibility with
respect to the equipment, including the obligation to pay all costs relating to
its operation, maintenance, repair, sales and property taxes and insurance. At
December 31, 1996 and September 30, 1997, the average lease size was
approximately $11 and $16, respectively, and there were only three and four
leases, respectively, with a current lease receivable in excess of $250.
At December 31, 1996 and September 30, 1997, approximately 13% and 10% and
16% and 19% of RBC's net lease receivables were located in the states of Florida
and California, respectively. At December 31, 1996 and September 30, 1997,
approximately 26% and 21%, respectively, of RBC's net lease receivables were
collateralized by computer systems. At September 30, 1997, approximately 10% and
11%, respectively, of RBC's net lease receivables were collateralized by
electronic equipment and titled equipment, respectively. Otherwise, there are no
geographic, equipment type or lessor industry concentrations greater than 10%.
RBC's leases are collateralized by the equipment subject to the leases. In
most instances, RBC requires a security deposit equal to one monthly payment and
personal guarantees. In addition, where considered necessary other credit
enhancements are obtained. At December 31, 1995 and 1996 and September 30, 1997,
RBC held security deposits and sales and property taxes for the benefit of
lessees of $7,981, $4,981 and $2,826, respectively.
Activity in the allowance for lease losses is summarized as follows:
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS
FOR THE YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------------- ----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period.............. $ 396 $ 1,840 $ 2,192 $ 2,192 $1,304
Provision for lease losses.................. 2,000 2,985 2,391 2,377 618
Charge-offs................................. (1,009) (3,342) (4,022) (3,180) (1,444)
Recoveries.................................. 453 709 743 521 720
------- ------- ------- ------- ------
Balance at end of period.................... $ 1,840 $ 2,192 $ 1,304 $ 1,910 $1,198
======= ======= ======= ======= ======
</TABLE>
F-13
<PAGE> 127
RESOURCE BANCSHARES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
NOTE 6 -- PREMISES AND EQUIPMENT:
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
ESTIMATED ----------------- SEPTEMBER 30,
USEFUL LIVES 1995 1996 1997
------------ ------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Leasehold improvements......................... 7-10 years $ 105 $ 176 $ 232
Furniture and equipment........................ 3-7 years 5,232 3,385 3,592
------- ------- -------
5,337 3,561 3,824
Less -- Accumulated depreciation and
amortization................................. (3,304) (2,441) (2,609)
------- ------- -------
$ 2,033 $ 1,120 $ 1,215
======= ======= =======
</TABLE>
Depreciation and amortization expense for the years 1994, 1995 and 1996 and
the nine months ended September 30, 1996 and 1997 was $556, $525, $638, $454 and
$249, respectively.
NOTE 7 -- LEASE COMMITMENTS:
RBC, as lessee, has entered into various noncancelable operating lease
agreements, primarily for office space and equipment. Certain of the leases
contain renewal options and escalation clauses. In addition, under certain
leases RBC pays maintenance, property taxes and insurance which are not included
in minimum commitments below.
At December 31, 1996, minimum commitments were as follows:
<TABLE>
<S> <C>
1997........................................................ $ 638
1998........................................................ 527
1999........................................................ 465
2000........................................................ 320
2001........................................................ 284
2002 and thereafter......................................... 373
------
$2,607
======
</TABLE>
Rent expense for operating leases for the years 1994, 1995 and 1996 and the
nine months ended September 30, 1996 and 1997 was $622, $939, $968, $722 and
$513, respectively.
NOTE 8 -- INVESTMENT AND EQUITY IN UNDISTRIBUTED EARNINGS OF RESOURCE BANCSHARES
MORTGAGE GROUP, INC.:
In March 1996, RBMG completed a public offering of 3,842,961 shares of
common stock. In a concurrent private placement, RBC purchased an additional
896,552 shares of common stock at the offering price of $14.50 per share for
$13,000. This transaction resulted in an in-substance sale of a portion of
Resource's investment in RBMG, and accordingly RBC recognized a gain of $2,456.
At December 31, 1995, RBC held 6,016,755 shares of RBMG (after giving
effect to various stock dividends and other stock issuances in 1995)
representing a 42% equity interest. At December 31, 1996 and September 30, 1997,
RBC held 7,397,238 shares of RBMG (after giving effect to various stock
dividends and other stock issuances in 1996 and 1997) representing a 38% and
36.4% equity interest, respectively. At December 31, 1995 and 1996, the market
value of the shares of RBMG owned by RBC was approximately $85,739 and $105,411,
respectively, based on a closing market price of $14.25 per share (after giving
effect to the various stock dividends) at both dates. The market value of such
shares at September 30, 1997 was approximately $96,682 based on a closing market
price of $13.07 per share.
F-14
<PAGE> 128
RESOURCE BANCSHARES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
Summarized information concerning the assets, liabilities, equity and
results of operations of RBMG is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1995 1996 1997
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Mortgage loans and mortgage servicing rights..... $1,112,750 $ 788,703 $1,022,369
Premises and equipment........................... 16,314 21,135 24,287
Other assets..................................... 102,033 218,556 357,488
---------- ---------- ----------
$1,231,097 $1,028,394 $1,404,144
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Borrowings....................................... $1,071,087 $ 805,730 $1,135,550
Other liabilities................................ 66,606 65,369 90,011
Stockholders' equity............................. 93,404 157,295 178,583
---------- ---------- ----------
$1,231,097 $1,028,394 $1,404,144
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
-------- -------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES AND EXPENSES
Net interest income................ $ 7,686 $ 8,635 $ 16,902 $ 12,780 $ 14,186
Net gains on sale of mortgage loans
and mortgage servicing rights.... 34,535 41,168 80,283 60,312 77,526
Loan servicing fees and other
income........................... 14,401 26,894 29,432 21,783 23,621
-------- -------- --------- -------- --------
Total revenues..................... 56,622 76,697 126,617 94,875 115,333
Total expenses..................... (38,579) (62,478) (106,994) (77,967) (100,925)
-------- -------- --------- -------- --------
Net income............... $ 18,043 $ 14,219 $ 19,623 $ 16,908 $ 14,408
======== ======== ========= ======== ========
</TABLE>
NOTE 9 -- NOTES RECEIVABLE:
At December 31, 1995, RBMG owed RBC $19,000 under various short-term notes
receivable. All of the notes contained a due on demand clause, were unsecured
and bore interest at the Wall Street Journal Prime interest rate. Interest
income from the notes was $541, $271 and $271 for the years 1995 and 1996 and
the nine months ended September 30, 1996, respectively. The notes were repaid in
March 1996 in conjunction with the RBMG stock offering. In 1994 there were no
loans between RBC and RBMG and since March 1996 there have been none.
At December 31, 1996 and September 30, 1997, RBC has a note receivable from
RPG in the amount of $2,267. The note bears interest at Wall Street Journal
Prime, with an interest rate floor of 6%, and a cap of 10%, per annum. Interest
through January 1, 1998 and through January 1, 1999 is payable on such dates in
arrears with monthly payments thereafter. Principal is payable beginning January
1, 1999, based on a ten-year amortization with the balance due on November 30,
2001. In the event of a public or private offering of equity or debt of RPG,
within 30 days after closing, the note must be reduced by the lesser of (i) 20%
of the net proceeds to RPG or (ii) the remaining principal and accrued interest
of the note.
F-15
<PAGE> 129
RESOURCE BANCSHARES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
NOTE 10 -- GOODWILL AND OTHER INTANGIBLE ASSETS:
Goodwill and other intangible assets (net of accumulated amortization) are
summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Goodwill............................................... $1,042 $2,337 $2,246
Other intangibles...................................... 341 720 569
------ ------ ------
$1,383 $3,057 $2,815
====== ====== ======
</TABLE>
The related amortization expenses were:
<TABLE>
<CAPTION>
FOR THE NINE
FOR THE YEAR ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------- --------------
1994 1995 1996 1996 1997
---- ---- ---- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Goodwill...................................... $213 $232 $250 $205 $91
Other intangibles............................. 2 10 14 7 6
---- ---- ---- ---- ---
$215 $242 $264 $212 $97
==== ==== ==== ==== ===
</TABLE>
NOTE 11 -- SHORT-TERM AND LONG-TERM BORROWINGS:
Short-term and long-term borrowings are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ SEPTEMBER 30,
1995 1996 1997
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Leasing Revolving Credit Facility.................... $53,206 $26,294 $23,961
Equipment Lease Trust................................ 35,812 10,663
Commercial Mortgage Warehouse........................
Commercial Mortgage Working Capital.................. 709
RBC Revolving Lines of Credit........................
------- ------- -------
$89,018 $36,957 $24,670
======= ======= =======
</TABLE>
At December 31, 1996, all borrowings are due in 1997.
Leasing Revolving Credit Facility
TFP has a 364-day $75,000 (reduced to $50,000 in May 1997) revolving credit
facility to provide interim financing for its leasing portfolio. The warehouse
credit agreement which was due in May 1997 and has been extended until December
31, 1997 generally provides that TFP may borrow up to 85% (reduced to 82% in May
1997) of the aggregate eligible discounted lease receivable balance related to
leases on which a first priority perfected security interest has been granted to
the lender. A discount rate equal to the two-year Treasury plus 3.00% is used to
compute the aggregate discounted eligible lease receivables balance. The
agreement provides for either a variable rate of interest based on the 30 day
London Interbank Offered Rate ("LIBOR") plus 1.00% or at the borrower's
election, amounts may be fixed based on the 60 or 90 day LIBOR rate plus 1.00%.
Interest is payable monthly with principal due at the earlier of the disposition
of the leases or the maturity of the line. In the event the revolver balance
exceeds the credit line, RBC has five days to cure the shortfall or the revolver
will convert to a term loan at a fixed rate of LIBOR plus 1.50% for 60 days and
LIBOR plus 3.50% thereafter. Repayment of a term loan will be based upon
scheduled payments of the underlying lease receivables. Under the
F-16
<PAGE> 130
RESOURCE BANCSHARES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
credit facility, Resource is obligated to repurchase or substitute leases up to
a maximum of $20 million for warranty events.
The revolving credit facility contains various covenants regarding
characteristics of the collateral and the performance of the leases originated
and serviced by RBC. During a portion of 1996 and 1997, RBC did not comply with
several of those conditions; however, the lender has waived the exception or
retroactively modified the covenants so that RBC is in compliance.
The credit agreement includes covenants which restrict TFP's ability to
incur debt, encumber assets, other than as collateral for the facility, sell
assets, merge, declare or pay any dividends or change its corporate by-laws or
certificate of incorporation. The revolving credit facility contains various
covenants requiring RBC to maintain a net worth of at least $40 million and a
leverage ratio not exceeding 10:1 as well as change in control covenants.
Equipment Lease Trust
Effective December 28, 1994, PSSFC Equipment Lease Trust 1994-3 ("Trust"),
a special purpose entity formed by TFP II, issued $58,689 of Class A Senior
8.10% and $9,268 of Class B Subordinated 9.23% Lease Backed Notes (collectively,
the "Notes"). Under the terms of an indenture agreement between TFP II, the
Trust and the indenture trustee, TFP II sold certain of its lease receivables
having a net lease balance of $72,846 to the Trust which in turn granted the
indenture trustee a security interest in all collections on those lease
receivables. Under the terms of the indenture agreement, all collections
thereunder were generally applied in the following priority: (1) to pay interest
on the Class A Notes, (2) to pay interest on the Class B Notes, (3) to pay
principal on the Class A Notes, and (4) to pay principal on the Class B Notes.
Payments on the Class B Notes were subordinated to payments on the Class A
Notes. TFP II retained a residual interest in the Trust such that any amounts
remaining after full repayment of the Notes, together with interest due thereon
and after payment of all ancillary obligations of the Trust, would be returned
to TFP II. However, neither TFP II nor RBC have any obligation to make payments
on the Notes should collections on the underlying lease receivables prove
insufficient for such purposes. TFP II had an option to prepay the Notes when
the aggregate principal balance of the Notes was less than 10% of the initial
principal amount and the limited right, but not an obligation, to substitute
comparable leases for any lease receivable which defaults, prepays or terminates
prior to its scheduled termination date. RBC accounted for the sale of the lease
receivables and issuance of the Notes as a collateralized financing. The Class A
and Class B Notes secured by Trust assets were paid in full in June 1997 and the
remaining leases were transferred back to RBC.
Commercial Mortgage Warehouse and Working Capital Facility
In August 1996, Laureate Realty entered into a 364 day, $14,000 revolving
warehouse credit facility with a financial institution. The warehouse facility
generally provides interim financing between the time the Federal Home Loan
Mortgage Corporation ("Freddie Mac") multifamily conventional loans are closed
and the delivery of the loans to Freddie Mac, the investor. The loan is secured
by the underlying loans and interest is at the higher of 30 day adjusted LIBOR
plus 1.50% or the interest rate of the collateral. In August 1996, Laureate
Realty also obtained a 364 day, $2,500 revolving working capital line of credit
with the same financial institution. Interest on this line is at 30 day adjusted
LIBOR plus 2.00%. Both facilities, which were due in August 1997, have been
extended to February 1998 and both contain certain covenants with which RBC is
in compliance as of December 31, 1996 and September 30, 1997. Under these
facilities, Laureate Realty is required to maintain liquid assets of $200 and
net worth of at least $1,000 and Resource, which is guarantor of the lines, is
required to maintain liquid assets of at least $3,000, a minimum net worth of
$35,000 and a ratio of total liabilities to net worth not to exceed 2:1. In
addition, Resource must not encumber $5,000 of its stock in RBMG and there are
restrictions on changes in ownership, control and management.
F-17
<PAGE> 131
RESOURCE BANCSHARES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
RBC Revolving Lines of Credit
In April 1997, Resource entered into a $500 revolving working capital line
of credit with a financial institution. Interest on this line is at Prime plus
.75% and paid monthly. This facility will mature April 17, 1998. In addition, in
May 1997 Resource entered into a $2,000 revolving working capital line of credit
with another financial institution. Under the terms of this line, Resource
agrees to continually hold, unencumbered, no less than $3,500 of its stock in
RBMG. Interest on this line is at Prime plus .50% and paid quarterly. This
facility will mature March 31, 1998.
Compliance with Loan Covenants
Although management anticipates continued compliance, there can be no
assurance that RBC will be able to comply with the debt covenants specified for
each of its financing agreements. Failure to comply could result in the loss of
the related financing and the immediate repayment of the outstanding loan
balance.
The monthly average outstanding amount under these credit arrangements
during 1996 and the nine months ended September 30, 1997 was $71,418 and
$31,981, respectively, and the weighted average interest rate during such
periods was 7.52% and 8.21%, respectively. RBC incurred interest expense of
$2,429, $6,643, $5,212, $4,194 and $1,825 for the years 1994, 1995 and 1996 and
for the nine months ended September 30, 1996 and 1997, respectively. RBC also
incurred facility fees related to these credit facilities totaling $701, $147,
$43, $54 and $27 for the years 1994, 1995 and 1996 and for the nine months ended
September 30, 1996 and 1997, respectively. These fees have been capitalized and
included in other assets and are being amortized as interest expense over the
terms of and in proportion to the estimated loan balances. At December 31, 1996
and September 30, 1997, RBC had additional advances available under these credit
agreements of $21,015 and $26,573, respectively.
NOTE 12 -- GAIN ON SALE OF RETAIL BANKING BUSINESS:
During 1994, RBC divested itself of its remaining Retail Banking Business.
A reconciliation of the net assets sold to the amount of cash transferred as
reflected in the Consolidated Statement of Cash Flows is set forth below for the
year ended December 31, 1994:
<TABLE>
<S> <C>
LIABILITIES ASSUMED BY PURCHASERS:
Deposits.................................................... $367,377
Short-term borrowings....................................... 7,100
Other liabilities........................................... 3,553
ASSETS TRANSFERRED TO PURCHASERS:
Temporary investments....................................... (146,550)
Trading securities.......................................... (22,692)
Investment securities....................................... (15,053)
Loans, net.................................................. (107,302)
Premises and equipment...................................... (10,978)
Other assets................................................ (1,988)
--------
Net liabilities transferred................................. 73,467
Less -- Gain on sale of branch operations................... (9,931)
Less -- Goodwill and other intangibles charged-off.......... (9,553)
--------
Net cash transfer reflected in the Consolidated Statement of
Cash Flows................................................ $ 53,983
========
</TABLE>
The above gains have been presented on a pre-tax basis. Tax expense for
financial reporting purposes allocable thereto approximated $5,041 for the year
ended December 31, 1994. The amounts reflected as net cash transferred and
pre-tax gains are presented net of related selling expenses of $2,412.
F-18
<PAGE> 132
RESOURCE BANCSHARES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
NOTE 13 -- INCOME TAXES:
The components of the provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
FOR THE NINE
FOR THE YEAR ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------ ----------------
1994 1995 1996 1996 1997
------ ------- ----- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal..................................... $5,901 $(4,125) $(747) $ (794) $(1,216)
State....................................... 119 (426) 216 370 22
------ ------- ----- ------ -------
6,020 (4,551) (531) (424) (1,194)
Deferred:
Federal..................................... (288) 5,059 701 1,853 1,688
State....................................... (27) 470 297 (302) 49
------ ------- ----- ------ -------
$5,705 $ 978 $ 467 $1,127 $ 543
====== ======= ===== ====== =======
</TABLE>
RBC's effective tax rate varied from the statutory federal tax rate due to
the following:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------
1994 1995 1996
---------------- ---------------- ----------------
% OF % OF % OF
PRETAX PRETAX PRETAX
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Tax expense at statutory rate...... $ 6,967 35.0% $ 2,689 35.0% $ 2,702 35.0%
State tax, net of federal
benefit.......................... 647 3.3 250 3.3 76 1.0
Goodwill........................... 1,212 6.1 70 .9 58 .8
Benefit of dividends received
deduction on equity in earnings
of RBMG.......................... (3,553) (17.8) (1,801) (23.5) (2,079) (27.0)
Valuation allowance................ (107) (1.4)
Other, net......................... 432 2.1 (230) (3.0) (183) (2.4)
------- ----- ------- ----- ------- -----
$ 5,705 28.7% $ 978 12.7% $ 467 6.0%
======= ===== ======= ===== ======= =====
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------------
1996 1997
---------------- ----------------
% OF % OF
PRETAX PRETAX
AMOUNT INCOME AMOUNT INCOME
------- ------ ------- ------
(UNAUDITED)
<S> <C> <C> <C> <C>
Tax expense at statutory rate....................... $ 3,011 35.0% $ 1,756 35.0%
State tax, net of federal benefit................... 114 1.3 46 .9
Goodwill............................................ 53 .6
Benefit of dividends received deduction on equity in
earnings of RBMG.................................. (1,872) (21.8) (1,533) (30.6)
Valuation allowance................................. (107) (1.2)
Other, net.......................................... (72) (.8) 274 5.5
------- ----- ------- -----
$ 1,127 13.1% $ 543 10.8%
======= ===== ======= =====
</TABLE>
F-19
<PAGE> 133
RESOURCE BANCSHARES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
RBC provides deferred taxes on its equity in undistributed earnings of RBMG
assuming such earnings will be eligible for an 80% dividends received deduction.
In 1994, RBC cumulatively adjusted its deferred tax liability account to reflect
this policy.
Deferred tax (assets) liabilities arising in accordance with FAS No. 109
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- SEPTEMBER 30,
1994 1995 1996 1997
------- ------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Allowance for lease losses.................. $ (844) $(1,162) $ (591) $ (458)
Deferred compensation....................... (2,280) (1,871) (2,843) (117)
Prepaid and accrued expense................. (346) (153) 62 (158)
State net operating loss carry forwards..... (107) (107) (662) (770)
Other....................................... (147) (9) (176)
------- ------- ------- -------
Gross deferred tax assets......... $(3,724) $(3,302) $(4,034) $(1,679)
------- ------- ------- -------
Deferred gain on partial sale of RBMG....... $ 6,246 $ 6,246 $ 7,186 $ 7,186
Equity in undistributed earnings of RBMG.... 971 1,421 1,825 2,324
Premises and equipment depreciation......... 2,913 5,989 2,488 1,226
Deferred fees............................... 385 1,698 120 102
Other....................................... 268 163
------- ------- ------- -------
Gross deferred tax liabilities.... 10,515 15,622 11,619 11,001
------- ------- ------- -------
Valuation allowance against deferred tax
assets.................................... 107 107
------- ------- ------- -------
$ 6,898 $12,427 $ 7,585 $ 9,322
======= ======= ======= =======
</TABLE>
In 1994 and 1995, RBC had provided a valuation allowance relating to the
tax benefits of certain state tax loss carry forwards. Management currently
believes the tax benefits relating to the state tax loss carry forwards are
recoverable.
NOTE 14 -- EMPLOYEE BENEFIT PLANS:
Employee Stock Ownership Plan ("ESOP")
All employees of RBC having attained age 21 and having completed 1,000
hours of employment are eligible to participate in RBC's leveraged ESOP.
Participants vest in RBC's contributions at a rate of 20% per year.
Contributions made by RBC to the ESOP may be made in the form of cash or
Resource common stock at the discretion of the Board of Directors, except that a
cash contribution is required to be made in sufficient amounts to pay any
maturing debt obligations of the ESOP. During 1994, RBC contributed $275 to the
ESOP and loaned the ESOP $765. During 1995, RBC contributed $300 to the ESOP.
During 1994, 1995 and 1996 the ESOP received $121, $133 and $0 of dividends on
shares of Resource held by the plan, respectively. Such dividends were used to
reduce the acquisition loans from Resource. During the nine months ended
September 30, 1996 and 1997, there were no contributions made to the ESOP or
dividends received by the ESOP.
Shares held by the ESOP are allocated to participants as the loan and
interest are repaid. Under the provisions of SOP 93-6, "Employers' Accounting
for Employee Stock Ownership Plans," shares purchased on or before December 31,
1992 are "grandfathered" and the ESOP accounts for these shares under SOP 76-3,
"Accounting Practices for Certain Employee Stock Ownership Plans." RBC
recognizes expense based on the number of shares allocated to participants and
the cost or fair market value of the shares released depending on whether the
shares were purchased before or after December 31, 1992. Compensation expense
recorded by RBC in connection with the ESOP was $275, $767 and $281 for the
years ended December 31, 1994, 1995 and 1996,
F-20
<PAGE> 134
RESOURCE BANCSHARES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
respectively. There was no compensation expense recorded by RBC during the nine
months ended September 30, 1996 and 1997.
Effective December 31, 1996, the ESOP sold to Resource 122,928 of the
unallocated shares of RBC stock in satisfaction of all of the outstanding ESOP
acquisition loans. The sales price per share was determined by an independent
valuation. The remaining unallocated shares, 33,528, were allocated as of
December 31, 1996 to qualified participants.
At December 31, 1994, 1995 and 1996 and September 30, 1996 and 1997, the
ESOP had allocated shares to participants of 76,137, 87,090, 118,721, 87,090 and
118,721, respectively. For the same periods and considering the 33,528 shares
described above, the ESOP held unallocated shares of 165,512, 154,567, -0-,
154,567 and -0-, respectively.
In conjunction with the Spin-off, the December 31, 1996 ESOP benefits
allocated to RPG participants were spun-off to a separate RPG ESOP plan.
Phantom Stock Plan
Prior to 1994, RBC adopted a Phantom Stock Plan that provided for the
awarding of up to 350,000 deferred compensation units. Under the Plan, a vesting
period and value base was assigned at the time an award was made. The plan
permitted a vesting period of between five and ten years with full vesting by
the end of the vesting period.
Under the plan, upon becoming fully vested a participant is paid, for each
unit held, (i) the difference between the market value of a share of common
stock as defined in the plan and the value base of the unit plus (ii) the amount
of cash dividends paid on a share of RBC common stock that had a record date for
payment between the date of the award and January 14, 1995.
On December 15, 1994, the Board of Directors of Resource amended the
Phantom Stock Plan to provide for current payment to participants of an amount
equal to the product of (i) the common stock per share dividend declared and
paid by RBC which has a record date between January 15, 1995 and the payment
date and (ii) the number of Phantom units. As of December 31, 1994, 1995 and
1996 and September 30, 1996 and 1997, of the 346,350 units which had been
awarded, there were 193,200, 186,700, 183,200, 186,700 and -0-, respectively
units outstanding. All of the units were awarded at a value base of $7.50 and
originally vested over five years. However, in 1994 and again in 1995,
Resource's Board of Directors extended the vesting period for certain of the
units for an additional twelve months.
During 1994, LCC's Board of Directors adopted a similar Phantom Stock Plan
for the benefit of its employees which provides for awarding of up to 2,200
deferred compensation units. At December 31, 1995 and 1996, LCC had awarded
1,825 and 2,200 units, respectively, at a value base which approximated book
value. In 1996, LCC's Board of Directors authorized and awarded 2,500 Special
Phantom units. Under the LCC plan, participants receive amounts equivalent to
the amount of any dividend paid on LCC common stock between the date of the
grant and the payment date, times the number of units owned, except to the
extent that the dividend causes book value per share of LCC to be reduced below
the value base, in which case the value base shall be reduced.
Between 1990 and 1993, Resource's Board of Directors approved several
Special Phantom Stock Awards in the aggregate of 700,000 units for RBC's
chairman and chief executive officer and in 1994, Resource's Board of Directors
awarded that officer another 200,000 units. The terms and conditions of those
awards were essentially the same as the regular Phantom Stock Plan except that
any time RBC pays a common stock cash dividend, the employee receives an amount
equivalent to the per share dividend paid times the number of special units,
except with respect to the units awarded for 1994 for which the value base is
reduced by the amount of per share common stock cash dividends paid with a
record date between December 15, 1994 and the payment date. At
F-21
<PAGE> 135
RESOURCE BANCSHARES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
December 31, 1996, the value base of the outstanding units was 300,000 at $7.50,
300,000 at $8.50 and 100,000 at $9.00. The 200,000 units awarded in 1994 expired
without any payment due. As of December 31, 1996 the units are scheduled to
fully vest 200,000 in 1996, 400,000 in 1997 and 300,000 in 1998.
At December 31, 1995 and 1996 and September 30, 1997, the accrued phantom
stock expense was $4,439, $6,754 and $147, respectively.
Compensation expense on the Phantom Stock Plans is measured by the
difference between market value as defined in the plans (currently 150% of the
book value of a share of common stock) and the value base and is recognized over
the vesting period.
In February 1997, Resource's Board of Directors approved the immediate
vesting of all of the Phantom Stock units outstanding under the Resource Phantom
Stock Plan and Special Phantom Stock Plan, except the 200,000 special units
which expired as of December 31, 1996 (the "Phantom Plans"), and terminated the
plans. In addition, Resource's Board of Directors approved the payment of the
Phantom Plans liability by a combination of Resource common stock and cash. In
conjunction with this action, Resource issued 211,363 shares of Resource voting
common stock and has paid out cash of approximately $2,548.
401(k) Retirement Savings Plan
RBC has a 401(k) Retirement Savings Plan which is available to all regular,
full-time active employees. The plan allows employees to contribute annually up
to 15% of their gross before-tax earnings, subject to the maximum established by
law. Employees become eligible to participate in the plan upon completion of six
months continuous service. RBC matches 50% of the employee's contribution up to
a maximum of 3% of the employee's gross compensation. The employee immediately
vests in contributions made by the employee and vests in employer matching
contributions at a rate of 25% per year. RBC matching contributions were $47,
$120, $203, $158 and $93 for the years 1994, 1995 and 1996 and the nine months
ended September 30, 1996 and 1997, respectively.
NOTE 15 -- COMMITMENTS AND CONTINGENCIES:
RBC was servicing commercial mortgage loans of $107,691, $1,464,360,
$2,334,451, $2,265,153 and $2,504,408 at December 31, 1994, 1995 and 1996 and
September 30, 1996 and 1997, respectively. At December 31, 1996 and September
30, 1997, 47% and 43%, respectively, of commercial mortgage loans outstanding
were being serviced for a single customer who accounted for 32% and 24%,
respectively, of commercial mortgage fees and commercial mortgage servicing fees
for the year 1996 and the nine months ended September 30, 1997.
In addition, at December 31, 1994, 1995 and 1996 and September 30, 1996 and
1997, RBC was servicing $0, $29,249, $78,747, $48,870 and $79,439, respectively,
of leases for third parties, the majority of which were serviced for a single
customer who accounted for 65% and 57%, respectively, of leasing non-interest
revenue during 1996 and the nine months ended September 30, 1997. Commercial
mortgage loans and leases serviced for others are not included in the
accompanying balance sheet. In addition, escrow balances related to serviced
commercial mortgage loans are not included in the accompanying balance sheet.
In the ordinary course of business, RBC is exposed to liabilities under
representations made to investors in connection with the origination of
commercial mortgage loans and the sale and servicing of leases. Additionally,
RBC is responsible for servicing commercial mortgage loans and certain lease
receivables in conformity with the terms of the related agreements. Under
certain circumstances, RBC could be required to repurchase certain receivables
if there has been a breach of representations or warranties, or a failure to
service the underlying receivables in a manner consistent with the terms of the
underlying agreements. RBC does not expect to incur any
F-22
<PAGE> 136
RESOURCE BANCSHARES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
material liabilities or losses pursuant to these provisions. Accordingly, no
provision for loss related thereto has been made in the accompanying financial
statements.
In conjunction with the Spin-off described in Note 3, Resource agreed to
(i) guarantee until November 30, 2001, up to $5,000 of RPG's bank debt, for
which Resource will be paid an annual guarantee fee of 62.5 basis points, (ii)
continue to guarantee performance under a RPG transaction processing agreement
and a marketing agreement and (iii) indemnify RPG for any taxes associated with
the Spin-off or any taxes for periods prior to 1996 which have not been provided
for in RPG's financial statements. In addition, RPG has agreed to indemnify
Resource for any losses or expenses incurred by Resource in conjunction with the
guarantee of the above bank debt and transaction processing agreement.
RBC is involved in a series of claims and counter claims, including class
actions brought by various parties on behalf of various lessees regarding
equipment which the lessees acquired from a single vendor. Between 1989 and
1996, the vendor sold approximately 11,000 pieces of advertising equipment which
were financed by various third party lessors. In 1996, the vendor filed for
bankruptcy. At December 31, 1996 and September 30, 1997, RBC has approximately
281 and 244 of such leases with a net lease receivable balance of $2,243 and
$1,921, respectively. All of these leases contain "hell or high water"
provisions which require the lessee to fully pay the lease without regard to
fitness, suitability, performance of the vendor or any other conditions. The
plaintiffs have claimed, among other things, fraud, breach of duty of good faith
and fair dealing, RICO violations and default by the vendor on a marketing
agreement with the lessees. The plaintiffs are seeking release from the leases
and actual and punitive damages. Similar claims and actions have been filed
against most, if not all of the lessors of the equipment. RBC's management
believes the leases are enforceable and that any claims by the plaintiffs are
against the vendor and not RBC. RBC is aggressively defending itself and has
immediately demanded payment for any such lease which has become past due or
where the lessee has advised RBC that they do not intend to make further payment
of the lease. The risks associated with these leases have been considered in the
allowance for lease losses and RBC's management does not expect these actions to
have a material adverse effect on the financial position of RBC.
RBC has various other lawsuits and claims arising from time to time in the
conduct of its business; however, they are not expected to have any material
adverse effect on the financial position or results of operations of RBC.
NOTE 16 -- FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK:
RBC is not a party to any financial instruments with off-balance sheet risk
or a party to any derivatives.
NOTE 17 -- SHAREHOLDERS' EQUITY:
The nonvoting common stock of RBC is not transferable except under limited
circumstances. The nonvoting common stock may be converted into RBC's voting
common stock but only if conversion does not result in direct or indirect
ownership of greater than 9.9% of such voting common stock. When allowed,
conversion is on a share for share basis. The nonvoting common stock
automatically converts if certain events occur, including a sale of all or
substantially all of RBC's assets or common stock, a merger in which RBC is not
the surviving entity or a dissolution of RBC. The nonvoting stock is also
redeemable at the investor's option at a price specified by the investor but
only to the extent RBC is able to sell newly issued common stock at a price
equal to such specified price.
F-23
<PAGE> 137
RESOURCE BANCSHARES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
NOTE 18 -- GENERAL AND ADMINISTRATIVE EXPENSES:
General and administrative expenses are summarized as follows:
<TABLE>
<CAPTION>
FOR THE NINE
FOR THE YEAR ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------------- ----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Data processing and marketing............. $ 2,779 $ 3,056 $ 4,133 $ 2,791 $ 178
Filing fees and credit reports............ 1,842 684 1,257 931 70
Legal and professional.................... 1,088 1,117 1,908 1,260 892
Postage and freight....................... 5,270 1,803 3,759 2,809 102
Telephone................................. 574 767 1,024 688 213
Insurance................................. 276 521 540 402 375
Other..................................... 2,024 2,519 4,344 3,041 2,548
------- ------- ------- ------- ------
$13,853 $10,467 $16,965 $11,922 $4,378
======= ======= ======= ======= ======
</TABLE>
NOTE 19 -- FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following table presents the carrying amounts and fair values of RBC's
financial instruments at December 31, 1995 and 1996 and September 30, 1997.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------- SEPTEMBER 30,
1995 1996 1997
-------------------- -------------------- --------------------
ESTIMATED ESTIMATED ESTIMATED
CARRYING MARKET CARRYING MARKET CARRYING MARKET
VALUE VALUE VALUE VALUE VALUE VALUE
-------- --------- -------- --------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Long-term notes receivables........... $ $ $ 2,267 $ 2,218 $ 2,267 $ 2,250
Lease receivables, net of unearned
income and allowance for lease
losses.............................. 111,885 115,874 55,583 57,695 47,691 49,089
Investment in Intek................... 2,000 6,964 1,500 3,800
LIABILITIES
Short-term and long-term borrowings... 89,018 89,464 36,957 36,957 24,670 24,670
</TABLE>
The following notes summarize the significant methods and assumptions used
in estimating the fair values of financial instruments:
Long-term notes receivables are estimated by discounting future cash flow
using the current rates at which similar loans would be made to borrowers with
similar credit ratings.
Lease receivables are valued by management for each homogenous category of
leases by discounting future expected cash flows. Lease receivables held for
sale are valued by management based upon recent sales with consideration given
to differences between those leases and leases sold. The implicit discount rate
applied for purposes of determining the aggregate discounted lease balance was
obtained from an investment banker based on a recent lease securitization.
The investment in Intek is valued based upon the price of the shares sold
by RBC in February 1997 and discussed in Note 2.
The carrying value of RBC's short-term borrowings approximate fair value.
The fair value of RBC's Class A Note was valued by an independent third party as
of December 31, 1996 and December 31, 1995.
F-24
<PAGE> 138
RESOURCE BANCSHARES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
The carrying values of cash, accounts receivable and payable, and accrued
liabilities approximate fair value due to the short-term maturities of these
assets and liabilities; therefore, these items are not included in the table
above.
NOTE 20 -- SUBSEQUENT EVENT (UNAUDITED):
On April 18, 1997, RBC entered into a definitive merger agreement with
RBMG. The agreement was amended on September 18, 1997 and November 12, 1997. The
agreement, which is subject to shareholder and regulatory approvals, provides
that RBMG will acquire RBC through the issuance of an aggregate number of shares
of RBMG Common Stock equal to the number of shares of RBC Voting Common Stock
and RBC Non-Voting Common Stock outstanding at the effective time of the merger
multiplied by 1.08026 plus an adjustment to reflect the $.04 cash dividend per
share of RBMG Common Stock payable to RBMG Stockholders of record on December
18, 1997 (both as adjusted to reflect the five percent dividend payable to RBMG
Stockholders of record on December 18, 1997). The merger is intended to be
treated as a tax-free reorganization.
F-25
<PAGE> 139
ANNEX A
AGREEMENT OF MERGER
AGREEMENT OF MERGER, dated as of April 18, 1997 (this "Agreement"), among
RESOURCE BANCSHARES MORTGAGE GROUP, INC., a Delaware corporation ("RBMG"), RBC
MERGER SUB, INC., a South Carolina corporation and a wholly owned subsidiary of
RBMG ("Merger Sub"), and RESOURCE BANCSHARES CORPORATION, a South Carolina
corporation ("RBC").
W I T N E S S E T H:
WHEREAS, the Boards of Directors of RBMG, Merger Sub and RBC have
determined that it is consistent with and in furtherance of their respective
long-term business strategies and fair to and in the best interests of their
respective companies and stockholders to combine their respective businesses in
a merger transaction as set forth in this Agreement (the "Reorganization");
WHEREAS, upon the terms and conditions of this Agreement and in accordance
with the Business Corporation Act of the State of South Carolina (the "SCBCA"),
RBMG will acquire all of the common stock of RBC through the merger (the
"Merger") of Merger Sub with and into RBC and the stockholders of RBC will
receive shares of common stock of RBMG in proportion to their interests in RBC;
WHEREAS, in furtherance of the Reorganization, the Board of Directors of
RBC has adopted this Agreement and the Merger, as contemplated by this
Agreement, and has recommended that the holders of voting common stock, par
value $.01 per share, of RBC ("RBC Voting Common Stock") and non-voting common
stock, par value $.01 per share, ("RBC Non-voting Common Stock") vote to adopt
this Agreement and the terms of the Merger as contemplated by this Agreement;
WHEREAS, in furtherance of the Reorganization, a special committee of the
Board of Directors of RBMG (the "Special Committee") has recommended that this
Agreement and the Merger, as contemplated by this Agreement, be approved, and
the Board of Directors of RBMG has approved this Agreement and the Merger and
has recommended that the holders of common stock, par value $.01 per share, of
RBMG ("RBMG Common Stock") vote to adopt this Agreement and the terms of the
Merger as contemplated by this Agreement; and
WHEREAS, for United States federal income tax purposes, it is intended that
the Merger qualify as a reorganization under the provisions of Section 368(a) of
the United States Internal Revenue Code of 1986, as amended (the "Code"), and
the Treasury regulations thereunder (the "Regulations");
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01. Formation of Merger Subsidiary. RBMG has formed Merger Sub
as a wholly owned subsidiary of RBMG. Merger Sub has been formed solely to
facilitate the Merger and shall conduct no business or activity other than in
connection with the Merger.
SECTION 1.02. The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the SCBCA, at the Effective
Time, Merger Sub shall be merged with and into RBC. As a result of the Merger,
the separate corporate existence of Merger Sub shall cease and RBC shall
continue as the surviving corporation of the Merger as a wholly owned subsidiary
of RBMG (the "Surviving Corporation").
SECTION 1.03. Closing. Unless this Agreement shall have been terminated
and the Merger herein contemplated shall have been abandoned pursuant to Section
8.01, subject to the satisfaction or waiver of the conditions set forth in
Article VII, the consummation of the Reorganization shall take place as promptly
as practicable (and in any event within three business days) after satisfaction
or waiver of the conditions set forth in
A-1
<PAGE> 140
Article VII, at the closing (the "Closing") to be held at the offices of King &
Spalding, 120 West 45th Street, New York, New York 10036-4003, unless another
date, time or place is agreed to by RBMG and RBC.
SECTION 1.04. Effective Time. At the time of the Closing and subject to
the satisfaction or, if permissible, waiver of the conditions set forth in
Article VII, the parties shall cause the Merger to be consummated by filing
articles of merger (the "Articles of Merger") with the Secretary of State of the
State of South Carolina in such form as required by, and executed in accordance
with, the relevant provisions of, the SCBCA (the date and time of such filing,
or such later date or time as set forth therein, being the "Effective Time").
SECTION 1.05. Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in the applicable provisions of the SCBCA.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, except as otherwise provided herein, all the property, rights,
privileges, powers and franchises of RBC and Merger Sub shall vest in RBC as the
Surviving Corporation, and all debts, liabilities and duties of RBC and Merger
Sub shall become the debts, liabilities and duties of RBC as the Surviving
Corporation. As of the Effective Time, the Surviving Corporation shall be a
direct wholly owned subsidiary of RBMG.
SECTION 1.06. Articles of Incorporation; Bylaws; Directors and Officers of
Surviving Corporation. Unless otherwise agreed by RBMG and RBC before the
Effective Time, at the Effective Time:
(a) The Articles of Incorporation and the Bylaws of RBC, as in effect
immediately prior to the Effective Time, shall be the Articles of
Incorporation and the Bylaws of the Surviving Corporation until thereafter
amended as provided by Law (as hereinafter defined) and such Articles of
Incorporation or Bylaws;
(b) The officers of RBC immediately prior to the Effective Time shall
continue to serve in their respective offices of the Surviving Corporation
from and after the Effective Time, in each case until their successors are
elected or appointed and qualified or until their resignation or removal.
If, at the Effective Time, a vacancy shall exist in any office of the
Surviving Corporation, such vacancy may thereafter be filled in the manner
provided by Law and the Articles of Incorporation and Bylaws of the
Surviving Corporation; and
(c) The directors of Merger Sub immediately prior to the Effective
Time shall continue to serve as directors of the Surviving Corporation from
and after the Effective Time, in each case until their successors are
elected or appointed and qualified or until their resignation or removal.
If, at the Effective Time, a vacancy shall exist on the Board of Directors
of the Surviving Corporation, such vacancy may thereafter be filled in the
manner provided by Law and the Articles of Incorporation and Bylaws of the
Surviving Corporation.
SECTION 1.07. Amended Certificate of Incorporation of RBMG. Immediately
prior to the Effective Time, RBMG shall cause the Certificate of Incorporation
of RBMG to be amended pursuant to an amendment substantially in the form
attached hereto as Exhibit 1.07. The Certificate of Incorporation of RBMG, as
amended, shall provide, among other things, that the authorized capital stock of
RBMG shall consist of 50,000,000 shares of RBMG Common Stock and 5,000,000
shares of preferred stock, par value $.01 per share ("RBMG Preferred Stock").
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. Conversion of Securities. The manner and basis of converting
the securities of RBC and Merger Sub, respectively, at the Effective Time, by
virtue of the Merger, shall be as hereinafter set forth in this Article II.
SECTION 2.02. Conversion of Shares. Each share of RBC Voting Common Stock
and each share of RBC Non-voting Common Stock issued and outstanding immediately
before the Effective Time (excluding those
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owned by RBMG or any wholly owned subsidiary of RBMG) and all rights in respect
thereof, shall, at the Effective Time, without any action on the part of any
holder thereof, forthwith cease to exist and be converted into and become
exchangeable for 1.08026 shares of RBMG Common Stock (such ratio of the shares
of RBC Voting Common Stock or RBC Non-voting Common Stock to shares of RBMG
Common Stock being referred to as the "Exchange Ratio"). Commencing immediately
after the Effective Time, each certificate which, immediately prior to the
Effective Time, represented issued and outstanding shares of RBC Voting Common
Stock and RBC Non-voting Common Stock (collectively, the "Shares"), shall
evidence ownership of RBMG Common Stock on the basis hereinbefore set forth, but
subject to the limitations set forth in this Article II.
SECTION 2.03. Cancellation of Treasury Shares. At the Effective Time, each
share of RBC Voting Common Stock and each share of RBC Non-voting Common Stock
owned by RBC or any wholly owned subsidiary of RBC immediately prior to the
Effective Time shall be canceled and retired and no shares of stock or other
securities of RBMG or the Surviving Corporation or other any other corporation
shall be issuable, and no payment or other consideration shall be made, with
respect thereto.
SECTION 2.04. Conversion of Common Stock of Merger Sub into Common Stock of
the Surviving Corporation. At the Effective Time, each share of common stock,
par value $.01 per share, of Merger Sub issued and outstanding immediately prior
to the Effective Time, and all rights in respect thereof, shall, without any
action on the part of RBMG, forthwith cease to exist and be converted into one
validly issued, fully paid and nonassessable share of voting common stock, par
value $.01 per share, of the Surviving Corporation (the "New RBC Common Stock").
Immediately after the Effective Time and upon surrender by RBMG of the
certificate representing the shares of the common stock of Merger Sub, the
Surviving Corporation shall deliver to RBMG an appropriate certificate or
certificates representing the New RBC Common Stock created by conversion of the
common stock of Merger Sub owned by RBMG.
SECTION 2.05. Exchange of Shares Other than Treasury Shares; Appraisal
Rights. (a) Subject to Section 2.05(b) and the other terms and conditions
hereof, at or prior to the Effective Time, RBMG shall appoint an exchange agent
to effect the exchange of Shares for RBMG Common Stock in accordance with the
provisions of this Article II (the "Exchange Agent"). From time to time after
the Effective Time, RBMG shall deposit, or cause to be deposited, certificates
representing RBMG Common Stock for conversion of Shares in accordance with the
provisions of Section 2.02 hereof (such certificates, together with any
dividends or distributions with respect thereto, being herein referred to as the
"Exchange Fund"). Commencing immediately after the Effective Time and until the
appointment of the Exchange Agent shall be terminated, each holder of a
certificate or certificates theretofore representing Shares may surrender the
same to the Exchange Agent, and, after the appointment of the Exchange Agent
shall be terminated, any such holder may surrender any such certificate to RBMG.
Such holder shall be entitled upon such surrender to receive in exchange
therefor a certificate or certificates representing the number of full shares of
RBMG Common Stock into which the Shares theretofore represented by the
certificate or certificates so surrendered shall have been converted in
accordance with the provisions of Section 2.02 hereof, together with a cash
payment in lieu of fractional shares, if any, in accordance with Section 2.07
hereof, and all such shares of RBMG Common Stock shall be deemed to have been
issued at the Effective Time. Until so surrendered and exchanged, each
outstanding certificate which, prior to the Effective Time, represented issued
and outstanding Shares shall be deemed for all corporate purposes of RBMG, other
than the payment of dividends and other distributions, if any, to evidence
ownership of the number of full shares of RBMG Common Stock into which the
Shares theretofore represented thereby shall have been converted at the
Effective Time. Unless and until any such certificate theretofore representing
Shares is so surrendered, no dividend or other distribution, if any, payable to
the holders of record of RBMG Common Stock as of any date subsequent to the
Effective Time shall be paid to the holder of such certificate in respect
thereof. Upon the surrender of any such certificate theretofore representing
Shares, however, the record holder of the certificate or certificates
representing shares of RBMG Common Stock issued in exchange therefor shall
receive from the Exchange Agent or from RBMG, as the case may be, payment of the
amount of dividends and other distributions, if any, which as of any date
subsequent to the Effective Time and until such surrender shall have become
payable with respect to such number of shares of RBMG Common Stock
("Presurrender Dividends"). No interest shall be payable with respect to the
payment of Presurrender Dividends upon the surrender of certificates theretofore
representing Shares. After the appointment of the Exchange Agent shall have been
terminated, such holders of
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RBMG Common Stock which have not received payment of Presurrender Dividends
shall look only to RBMG for payment thereof. Notwithstanding the foregoing
provisions of this Section 2.05, risk of loss and title to such certificates
representing Shares shall pass only upon proper delivery of such certificates to
the Exchange Agent, and neither the Exchange Agent nor any party hereto shall be
liable to a holder of Shares for any RBMG Common Stock or dividends or
distributions thereon delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law or to a transferee pursuant to
Section 2.06 hereof.
(b) Each outstanding share of RBC Voting Common Stock or RBC Non-voting
Common Stock for which a written notice of intent to demand payment for such
shares is filed in accordance with Section 33-13-210 of the SCBCA, at or prior
to the RBC Stockholders' Meeting (as hereinafter defined) and not withdrawn at
or prior to the RBC Stockholders' Meeting and which is not voted in favor of the
Merger shall not be converted into or represent a right to receive RBMG Common
Stock hereunder unless and until the holder shall have withdrawn his or her
right to appraisal of or payment of his or her RBC Voting Common Stock or RBC
Non-voting Common Stock under Section 33-13-210 of the SCBCA, at which time his
or her shares shall be converted into RBMG Common Stock as set forth in Section
2.02 in accordance with Section 2.05(a). All such shares of RBC Voting Common
Stock or RBC Non-voting Common Stock as to which such demand for appraisal is so
filed and not withdrawn at or prior to the time of such vote and which are not
voted in favor of the Merger are herein called "Dissenting Stock". RBC shall
give RBMG prompt notice of its receipt of any written demands for appraisal
rights or withdrawal of such demands. RBC shall not voluntarily make any payment
with respect to any demands for appraisal rights and shall not, except with the
prior written consent of RBMG, settle or offer to settle any such demands. Each
holder of RBC Voting Common Stock or RBC Non-voting Common Stock that becomes
entitled, pursuant to the provisions of Section 33-13-210 of the SCBCA, to
payment for his or her shares of RBC Voting Common Stock or RBC Non-voting
Common Stock under the provisions of said Section, shall receive payment
therefor from RBMG and such shares shall be canceled.
SECTION 2.06. Stock Transfer Books. At the Effective Time, the stock
transfer books of RBC with respect to Shares shall be closed, and there shall be
no further registration of transfers of Shares thereafter on the records of such
stock transfer books. In the event of a transfer of ownership of Shares that is
not registered in the stock transfer records of RBC, at the Effective Time, a
certificate or certificates representing the number of full shares of RBMG
Common Stock into which such Shares shall have been converted shall be issued to
the transferee together with a cash payment in lieu of fractional shares, if
any, in accordance with Section 2.07 hereof, and a cash payment in the amount of
Presurrender Dividends, if any, in accordance with Section 2.05 hereof, if the
certificate or certificates representing such Shares is or are surrendered as
provided in Section 2.05 hereof, accompanied by all documents required to
evidence and effect such transfer and by evidence of payment of any applicable
stock transfer tax.
SECTION 2.07. No Fractional Share Certificates. (a) No scrip or fractional
share certificate for RBMG Common Stock shall be issued upon the surrender for
exchange of certificates evidencing Shares, and an outstanding fractional share
interest shall not entitle the owner thereof to vote, to receive dividends or to
any rights of a stockholder of RBMG or of the Surviving Corporation with respect
to such fractional share interest.
(b) RBMG shall pay to the Exchange Agent an amount in cash sufficient for
the Exchange Agent to pay each holder of Shares an amount in cash equal to the
product obtained by multiplying (i) the fractional share interest to which such
holder would otherwise be entitled (after taking into account all shares of RBC
Voting Common Stock or RBC Non-voting Common Stock held at the Effective Time by
such holder) by (ii) the arithmetic average of the closing prices for a share of
RBMG Common Stock on the Nasdaq National Market (the "NMS") for each of the ten
trading days immediately prior to the Effective Time.
(c) As soon as practicable after the determination of the amount of cash,
if any, to be paid to holders of Shares with respect to any fractional share
interests, the Exchange Agent shall make available such amounts, net of any
required withholding, to such holders of RBC Voting Common Stock or RBC
Non-voting Common Stock, subject to and in accordance with the terms of Section
2.05 hereof.
(d) Any portion of the Exchange Fund which remains undistributed for six
months after the Effective Time shall be delivered to RBMG, and any holder of
Shares who has not theretofore complied with the provisions of
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this Article II shall thereafter look only to RBMG for satisfaction of their
claims for RBMG Common Stock or any cash in lieu of fractional shares of RBMG
Common Stock and any Presurrender Dividends.
SECTION 2.08. Conversion of Dissenting Stock. If prior to or after the
Effective Time any stockholder of RBC shall fail to comply with the requirements
of Section 33-13-210 of the SCBCA, or shall effectively withdraw or lose, his or
her right to appraisal of and payment for his or her shares of Dissenting Stock,
the Dissenting Stock of such holder shall be treated for purposes of this
Article II like any other shares of outstanding RBC Voting Common Stock or RBC
Non-voting Common Stock.
SECTION 2.09. Certain Adjustments. If between the date of this Agreement
and the Effective Time, the outstanding shares of RBMG Common Stock or RBC
Voting Common Stock and RBC Non-voting Common Stock shall be changed into a
different number of shares by reason of any reclassification, recapitalization,
split-up, combination or exchange of shares, or any dividend payable in stock or
other securities shall be declared thereon with a record date within such
period, the Exchange Ratio established pursuant to the provisions of Section
2.02 hereof shall be adjusted accordingly to provide to the holders of RBMG
Common Stock and RBC Voting Common Stock or RBC Non-voting Common Stock the same
economic effect as contemplated by this Agreement prior to such
reclassification, recapitalization, split-up, combination, exchange or dividend.
SECTION 2.10. Transmittal Procedures. As soon as reasonably practicable
after the Effective Time, RBMG will instruct the Exchange Agent to mail
appropriate and customary transmittal materials (which shall specify that
delivery shall be effected, and risk of loss and title to the certificates
theretofore representing Shares shall pass, only upon proper delivery of such
certificates to the Exchange Agent) to each holder of record of Shares.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF RBC
RBC hereby represents and warrants to RBMG that:
SECTION 3.01. Organization and Qualification; Subsidiaries. Each of RBC
and each Subsidiary of RBC (the "RBC Subsidiaries") has been duly organized and
is validly existing and in good standing (to the extent applicable) under the
laws of the jurisdiction of its incorporation or organization, as the case may
be, and has the requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as it is now being
conducted. Each of RBC and each RBC Subsidiary is duly qualified or licensed to
do business, and is in good standing (to the extent applicable), in each
jurisdiction where the character of the properties owned, leased or operated by
it or the nature of its business makes such qualification or licensing
necessary, except for such failures to be so qualified or licensed and in good
standing that would not, individually or in the aggregate, have a RBC Material
Adverse Effect. For purposes of this Agreement, "RBC Material Adverse Effect"
means any change in or effect on the business of RBC and the RBC Subsidiaries
that is, or is reasonably likely to be, materially adverse to the business,
assets (including intangible assets), liabilities (contingent or otherwise),
condition (financial or otherwise) or results of operations of RBC and the RBC
Subsidiaries taken as a whole.
SECTION 3.02. Articles or Certificate of Incorporation and Bylaws. The
copies of RBC's and each RBC Subsidiary's Articles or Certificate of
Incorporation and Bylaws that are attached to Section 3.02 of the Disclosure
Schedule delivered to RBMG prior to the execution of (and forming part of) this
Agreement (the "RBC Disclosure Schedule"), are complete and correct copies
thereof. Each such Articles or Certificate of Incorporation and Bylaws are in
full force and effect. Neither RBC nor any RBC Subsidiary is in violation of any
of the provisions of their respective Articles or Certificate of Incorporation
or By-laws except as disclosed in Section 3.02 of the RBC Disclosure Schedule.
SECTION 3.03. Capitalization. The authorized capital stock of RBC consists
of 25,000,000 shares of RBC Voting Common Stock and 2,500,000 shares of RBC
Non-voting Common Stock. As of the date hereof, (i) 7,121,245 shares of RBC
Voting Common Stock and 1,577,788 shares of RBC Non-voting Common Stock were
issued and outstanding, all of which were validly issued, fully paid and
nonassessable, and (ii) no shares of RBC Voting Common Stock or RBC Non-voting
Common Stock were held in the treasury of RBC or by the
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RBC Subsidiaries. Section 3.03 of the RBC Disclosure Schedule also sets forth
all options, warrants or other rights, agreements, arrangements or commitments
entitling any person to acquire any shares of RBC capital stock from RBC. Except
as described in Section 3.03 of the RBC Disclosure Schedule, there are no
options, warrants or other rights, agreements, arrangements or commitments of
any character to which RBC or any RBC Subsidiary is a party or by which RBC or
any RBC Subsidiary is bound, obligating RBC or any RBC Subsidiary to issue or
sell any shares of capital stock of, or other equity interests in, RBC or any
RBC Subsidiary, and no shares of capital stock of RBC are reserved for issuance
or sale. Except as set forth in Section 3.03 of the RBC Disclosure Schedule,
there are no outstanding contractual obligations of RBC or any RBC Subsidiary to
repurchase, redeem or otherwise acquire any shares of RBC Voting Common Stock or
RBC Non-voting Common Stock or any capital stock of any RBC Subsidiary. Except
as disclosed in Section 3.03 of the RBC Disclosure Schedule, each outstanding
share of capital stock of each RBC Subsidiary is duly authorized, validly
issued, fully paid and nonassessable and owned of record and beneficially by RBC
free and clear of all security interests, liens, claims, pledges, options,
rights of first refusal, agreements, limitations on RBC's or such other RBC
Subsidiary's voting rights, charges and other encumbrances of any nature
whatsoever. Except as set forth in Section 3.03 of the RBC Disclosure Schedule,
there are no outstanding contractual obligations of RBC or any RBC Subsidiary
requiring it to provide funds to, or make any investment (in the form of a loan,
capital contribution or otherwise) in, any RBC Subsidiary or any other person.
SECTION 3.04. Authority Relative to this Agreement. RBC has all necessary
corporate power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the Merger (other than the approval
of this Agreement and the Merger contemplated hereby by the holders of a
majority of the outstanding shares of RBC Voting Common Stock and a majority of
the outstanding shares of RBC Non-voting Common Stock at the RBC Stockholders'
Meeting (the "RBC Stockholder Vote") and the filing and recordation of the
Articles of Merger as required by the SCBCA). The execution and delivery of this
Agreement by RBC and the consummation by RBC of the Merger contemplated hereby
have been duly and validly authorized by all necessary corporate action, and no
other corporate proceedings on the part of RBC are necessary to authorize this
Agreement or to consummate such Merger (other than the RBC Stockholder Vote and
the filing and recordation of the Articles of Merger as required by the SCBCA).
The board of directors of RBC has approved the execution, delivery and
performance of this Agreement and the Merger and other transactions provided for
herein in accordance with the requirements of the SCBCA. This Agreement has been
duly executed and delivered by RBC and, assuming the due authorization,
execution and delivery by the other parties hereto, constitutes a legal, valid
and binding obligation of RBC, enforceable against RBC in accordance with its
terms.
SECTION 3.05. No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement by RBC do not, and the performance by
RBC of its obligations hereunder and the consummation of the Merger will not,
(i) conflict with or violate any provision of the Articles of Incorporation or
Bylaws of RBC or any equivalent organizational documents of any RBC Subsidiary,
(ii) assuming that all consents, approvals, authorizations and permits described
in Section 3.05(b) have been obtained and all filings and notifications
described in Section 3.05(b) have been made, conflict with or violate any Law
applicable to RBC or any RBC Subsidiary or by which any property or asset of RBC
or any RBC Subsidiary is bound or affected or (iii) except as set forth in
Section 3.05(a) of the RBC Disclosure Schedule, result in any breach of or
constitute a default (or an event which with the giving of notice or lapse of
time or both would become a default) under, or give to others any right of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or other encumbrance on any property or asset of RBC or any
RBC Subsidiary pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation,
except, with respect to clauses (ii) and (iii), for any such conflicts,
violations, breaches, defaults or other occurrences which would neither,
individually or in the aggregate, (A) have a RBC Material Adverse Effect nor (B)
prevent or materially delay the performance by RBC of its obligations pursuant
to this Agreement or the consummation of the Merger. As used in this Agreement,
"Law" means any federal, state or local statute, law, ordinance, regulation,
rule, code, order, other requirement or rule of law of the United States or any
other jurisdiction.
(b) The execution and delivery of this Agreement do not, and the
performance by RBC of its obligations hereunder or the consummation of the
Merger will not, require any consent, approval, authorization or permit of, or
filing by RBC or any RBC Subsidiary with, or notification by RBC or any RBC
Subsidiary to, any United
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States federal, state or local or any foreign governmental, regulatory or
administrative authority, agent or commission or any court, tribunal or arbitral
body (a "Governmental Entity"), except (i) the premerger notification
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations thereunder (the "HSR Act"), the filing
and recordation of the Articles of Merger as required by the SCBCA, and as set
forth in Section 3.05(b) of the RBC Disclosure Schedule and (ii) where failure
to obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications, would not (A) prevent or materially delay the
performance by RBC of its obligations pursuant to this Agreement or the
consummation of the Merger or (B) individually or in the aggregate, have a RBC
Material Adverse Effect.
SECTION 3.06. Permits; Compliance with Laws. Each of RBC and the RBC
Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, establishment registrations, permits, easements, variances,
exceptions, consents, certificates, approvals and orders of any Governmental
Entity, necessary for RBC or any RBC Subsidiary to own, lease and operate its
properties or otherwise to carry on its business as it is now being conducted
(the "RBC Permits"), except where the failure to possess any RBC Permits would
not, individually or in the aggregate, have an RBC Material Adverse Effect, and,
as of the date of this Agreement, no suspension or cancellation of any of the
RBC Permits is pending or, to the knowledge of RBC, threatened. Neither RBC nor
any RBC Subsidiary is in conflict with, or in default or violation of, (i) any
Law applicable to RBC or any RBC Subsidiary or by which any property or asset of
RBC or any RBC Subsidiary is bound or affected or (ii) any RBC Permits, except
in the case of clauses (i) and (ii) for any such conflicts, defaults or
violations that would not, individually or in the aggregate, have an RBC
Material Adverse Effect.
SECTION 3.07. Financial Statements. (a) (i) The audited consolidated
financial statements (including, in each case, any notes thereto) of RBC for
each of the years ended December 31, 1994, 1995 and 1996 contained in Section
3.07 of the RBC Disclosure Schedule, were prepared from, and are in accordance
with, the books and records of RBC, which books and records are maintained in
accordance with United States generally accepted accounting principles ("U.S.
GAAP") applied on a consistent basis throughout the periods indicated (except as
may be indicated in the notes thereto). The financial statements contained in
Section 3.07 of the RBC Disclosure Schedule each present fairly, in all material
respects, the consolidated financial position of RBC and the consolidated RBC
Subsidiaries, or their predecessors, as appropriate, as at the respective dates
thereof and for the respective periods indicated therein, except as otherwise
noted therein. The audited consolidated balance sheet of RBC as of December 31,
1996 which is contained in Section 3.07 of the RBC Disclosure Schedule is
hereinafter referred to as the "1996 Balance Sheet."
(b) Except as and to the extent set forth or reserved against on the 1996
Balance Sheet, none of RBC or any RBC Subsidiary has any liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise),
except for liabilities or obligations incurred in the ordinary course of
business since January 1, 1997 that would not, individually or in the aggregate,
have a RBC Material Adverse Effect.
SECTION 3.08. Absence of Certain Changes or Events. (a) Since January 1,
1997, except as set forth in Section 3.08 of the RBC Disclosure Schedule, RBC
and the RBC Subsidiaries have conducted their businesses only in the ordinary
course and in a manner consistent with past practice and, since such date, there
has not been (i) any RBC Material Adverse Effect, (ii) any event that could
reasonably be expected to prevent or materially delay the performance of its
obligations pursuant to this Agreement and the consummation of the Merger by
RBC, (iii) any material change by RBC in its accounting methods, principles or
practices, (iv) any declaration, setting aside or payment of any dividend or
distribution in respect of the shares of RBC Voting Common Stock or RBC
Non-voting Common Stock or any redemption, purchase or other acquisition of any
of RBC's securities or (v) except in the ordinary course of business consistent
with past practice, any material increase in the compensation or benefits or
establishment of any material bonus, insurance, severance, deferred
compensation, pension, retirement, profit sharing, stock option (including,
without limitation, the granting of stock options, stock appreciation rights,
performance awards or restricted stock awards), stock purchase or other employee
benefit plan, or any other increase in the compensation payable or to become
payable to any executive officers of RBC or any RBC Subsidiary.
(b) Except as set forth in Section 3.08 of the RBC Disclosure Schedule, and
except as to events, developments or conditions that have not had and are not
reasonably likely to have an RBC Material Adverse
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Effect, since January 1, 1997, there have not been with respect to RBC (i) any
extraordinary losses suffered or any damage, destruction, loss or casualty to
property or assets of RBC with an aggregate value of more than $200,000, whether
or not covered by insurance, (ii) any assets mortgaged, pledged or made subject
to any lien, charge or other encumbrance, (iii) any liability or obligation
(absolute, accrued or contingent) incurred except in the ordinary course of
business, (iv) any claims, liabilities or obligations (absolute, accrued or
contingent) paid, discharged or satisfied, other than the payment, discharge or
satisfaction in the ordinary course of business consistent with past practice of
claims, liabilities and obligations reflected or reserved against in the 1996
Balance Sheet or incurred in the ordinary course of business consistent with
past practice since January 1, 1997, (v) any guaranteed checks, notes or
accounts receivable which have been written off as uncollectible, except
write-offs in the ordinary course of business consistent with past practice,
(vi) any write-down of the value of any asset or investment on the books or
records of RBC, except for depreciation and amortization taken in the ordinary
course of business consistent with past practice, (vii) any cancellation of any
debts or waiver of any claims or rights of substantial value, or sale, transfer
or other disposition of any properties or assets (real, personal or mixed,
tangible or intangible) of substantial value, except, in each such case, in
transactions in the ordinary course of business consistent with past practice
and which in any event do not exceed $200,000 in the aggregate, (viii) any
single capital expenditure or commitment in excess of $1,000,000 for additions
to property or equipment or aggregate capital expenditures and commitments in
excess of $1,000,000 for additions to property or equipment, (ix) any increase
of any reserves for contingent liabilities (excluding any adjustment to bad debt
reserves in the ordinary course of business consistent with past practice), (x)
any transactions entered into other than in the ordinary course of business,
(xi) any agreements to do any of the foregoing or (xii) any other events,
developments or conditions of any character that have had or are reasonably
likely to have a material adverse effect on the assets, liabilities, results of
operations, financial condition or business of RBC.
SECTION 3.09. Employee Benefit Plans; Labor Matters. (a) With respect to
each employee benefit plan, program, arrangement and contract (including,
without limitation, any "employee benefit plan", as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"))
maintained or contributed to by RBC or any RBC Subsidiary, or with respect to
which RBC or any RBC Subsidiary could incur liability under Sections 4069,
4212(c) or 4204 of ERISA (the "RBC Benefit Plans"), RBC has delivered or made
available to RBMG a true and correct copy of (i) such RBC Benefit Plan and the
most recent summary plan description related to each RBC Benefit Plan for which
a summary plan description is required, (ii) each trust agreement or other
funding arrangement relating to such RBC Benefit Plan, (iii) the most recent
annual report (Form 5500) filed with the Internal Revenue Service (the "IRS"),
(iv) the most recent actuarial report or financial statement relating to a RBC
Benefit Plan and (v) the most recent determination letter issued by the IRS with
respect to each RBC Benefit Plan qualified under Section 401(a) of the Code.
(b) Each RBC Benefit Plan has been administered in all material respects in
accordance with its terms and all contributions required to be made under the
terms of any of the RBC Benefit Plans as of the date of this Agreement have been
timely made or have been reflected on the 1996 Balance Sheet. Except as set
forth in Section 3.09(b) of the RBC Disclosure Schedule, with respect to the RBC
Benefit Plans, no event has occurred and, to the knowledge of RBC, there exists
no condition or set of circumstances in connection with which RBC or any RBC
Subsidiary is reasonably likely to be subject to any liability under the terms
of such RBC Benefit Plans, ERISA, the Code or any other applicable Law which
would individually or in the aggregate have a RBC Material Adverse Effect.
(c) Except as set forth in Section 3.09(c) of the RBC Disclosure Schedule,
neither RBC nor any RBC Subsidiary is a party to any collective bargaining or
other labor union contract applicable to persons employed by RBC or any RBC
Subsidiary and no collective bargaining agreement is being negotiated by RBC or
any RBC Subsidiary. As of the date of this Agreement, there is no labor dispute,
strike or work stoppage against RBC or any RBC Subsidiary pending or, to the
knowledge of RBC, threatened which may interfere with the respective business
activities of RBC or any RBC Subsidiary, except where such dispute, strike or
work stoppage would not have a RBC Material Adverse Effect. As of the date of
this Agreement, to the knowledge of RBC, none of RBC, any RBC Subsidiary, or any
of their respective representatives or employees has committed any unfair labor
practice in connection with the operation of the respective businesses of RBC or
any RBC Subsidiary, and there is no charge or complaint against RBC or any RBC
Subsidiary by the National Labor Relations Board or any
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comparable governmental agency pending or threatened in writing, except where
such unfair labor practice, charge or complaint would not have a RBC Material
Adverse Effect.
(d) RBC has delivered or made available to RBMG true and complete copies of
(i) all employment agreements with officers of RBC and each RBC Subsidiary
providing for annual compensation in excess of $200,000, (ii) all severance
plans, agreements, programs and policies of RBC and each RBC Subsidiary with or
relating to their respective employees, and (iii) all plans, programs,
agreements and other arrangements of RBC and each RBC Subsidiary with or
relating to their respective employees which contain "change of control"
provisions.
(e) Except as provided in Section 3.09(e) of the RBC Disclosure Schedule or
as otherwise required by Law, no RBC Benefit Plan provides retiree medical or
retiree life insurance benefits to any person.
SECTION 3.10. Tax Matters. Neither RBC nor any of its affiliates has taken
or agreed to take any action (other than actions contemplated by this Agreement)
that would prevent the Merger from constituting a transaction qualifying under
Section 368(a) of the Code. RBC is not aware of any agreement, plan or other
circumstance that would prevent the Merger from so qualifying under Section
368(a) of the Code.
SECTION 3.11. Material Contracts. Section 3.11 of the RBC Disclosure
Schedule contains a true and complete list of the following (hereinafter
referred to as the "RBC Material Contracts"):
(a) All bonds, debentures, notes, mortgages, indentures or guarantees
to which RBC or any RBC Subsidiary is a party as obligor or by which any of
their respective assets is bound;
(b) All loans and credit commitments to RBC or any RBC Subsidiary
which are outstanding, together with a brief description of such
commitments and the name of each financial institution granting the same;
(c) All contracts or agreements which limit or restrict RBC, any RBC
Subsidiary or any of their respective affiliates from engaging in any
business in any jurisdiction or that limit any third party from engaging in
competition with RBC or any RBC Subsidiary;
(d) All contracts and commitments (other than those described in
subparagraphs (a), (b), or (c) of this Section 3.11) which relate to the
business of RBC or any RBC Subsidiary or by which any of their respective
assets may be bound involving an annual commitment or annual payment by any
party thereto of more than $200,000 individually; and
(e) All material contracts, agreements, arrangements or understandings
between RBC or any RBC Subsidiary and any stockholder, officer or director
of RBC or any RBC Subsidiary, or, to RBC's knowledge, any person with whom
any such stockholder, officer or director has any direct or indirect
relation by blood, marriage or adoption, or, to RBC's knowledge, any entity
in which any such person owns any beneficial interest (other than a
publicly held corporation whose stock is traded on a national securities
exchange or in the NMS and less than 5% of the stock of which is
beneficially owned by all such persons).
True and complete copies of all RBC Material Contracts, including all
amendments thereto, have been made available to RBMG. The RBC Material Contracts
are valid and enforceable in accordance with their respective terms with respect
to RBC or the RBC Subsidiary which is a party thereto, and, to the knowledge of
RBC, are valid and enforceable in accordance with their respective terms with
respect to each other party thereto. There is not under any of the RBC Material
Contracts any existing breach, default or event of default by RBC or any RBC
Subsidiary or event that with notice or lapse of time or both would constitute a
breach, default or event of default by RBC or any RBC Subsidiary, nor does RBC
know of, and neither of RBC nor any RBC Subsidiary has received notice of, or
made a claim with respect to, any breach or default by any other party thereto.
SECTION 3.12. Litigation. (a) Except as disclosed in Section 3.12(a) of
the RBC Disclosure Schedule, there are no suits, claims, actions,
investigations, inquiries or proceedings of any nature by any person that are
pending or, to RBC's knowledge, threatened (i) against or otherwise involving,
directly or indirectly, RBC or any of the RBC Subsidiaries, or any of their
respective properties (including, without limitation, any such matter with
respect to Taxes), or (ii) against or otherwise involving, directly or
indirectly, any officer, director, employee, stockholder or agent of RBC or any
RBC Subsidiary, including, without limitation, any derivative actions that
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have been requested, that, with respect to either of (i) or (ii) above, if
finally determined adversely, individually or in the aggregate, is reasonably
likely to have a RBC Material Adverse Effect.
(b) Except as disclosed in Section 3.12(b) of the RBC Disclosure Schedule,
there is no suit, claim, action, proceeding or investigation pending or, to the
knowledge of RBC, threatened against RBC or any RBC Subsidiary before any
Governmental Entity that, individually or in the aggregate, is reasonably likely
to have a RBC Material Adverse Effect and to the knowledge of RBC, there are no
existing facts or circumstances that would be reasonably likely to result in a
suit, claim, action, proceeding or investigation that, individually or in the
aggregate, is reasonably likely to have a RBC Material Adverse Effect. Except as
disclosed in Section 3.12(b) of the RBC Disclosure Schedule, neither RBC nor any
RBC Subsidiary is subject to any outstanding order, writ, injunction or decree
which, insofar as can be reasonably foreseen, individually or in the aggregate,
would have a RBC Material Adverse Effect.
SECTION 3.13. Environmental Matters. Except as disclosed in Section 3.13
of the RBC Disclosure Schedule or as would not, individually or in the
aggregate, have a RBC Material Adverse Effect:
(i) RBC and the RBC Subsidiaries (i) are in compliance with all
applicable Environmental Laws, (ii) hold all required Environmental Permits
and (iii) are in compliance with their respective Environmental Permits.
All past noncompliance with Environmental Laws or Environmental Permits has
been resolved without any pending, ongoing or future obligation, cost or
liability, and there is no requirement proposed for adoption or
implementation under any Environmental Law or Environmental Permit that is
reasonably expected to have a RBC Material Adverse Effect.
(ii) There is no claim, litigation or proceeding pending or threatened
pursuant to an Environmental Law against RBC, any RBC Subsidiary, or any
real property currently or, to the knowledge of RBC and the RBC
Subsidiaries, formerly owned, leased or occupied by RBC or any RBC
Subsidiary, and there are no circumstances that can reasonably be expected
to form the basis of any such claim, including without limitation with
respect to any off-site disposal location presently or formerly used by RBC
or any RBC Subsidiary.
(iii) None of the real property currently or, to the knowledge of RBC
and the RBC Subsidiaries, formerly owned, leased or occupied by RBC or any
RBC Subsidiary is listed or, to the knowledge of RBC and the RBC
Subsidiaries, proposed for listing on the "National Priorities List" under
CERCLA, as updated through the date hereof, the "Comprehensive
Environmental Response, Compensation, and Liability Information System," or
any similar list of sites in the United States or any other jurisdiction
requiring investigation or cleanup of Hazardous Materials.
For purposes of this Agreement:
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended as of the date hereof.
"Environmental Law" means any federal, state or local statute, law,
ordinance, regulation, rule, code or order of the United States or any
other jurisdiction and any enforceable judicial or administrative
interpretation thereof, including any judicial or administrative order,
consent decree or judgment, relating to pollution or protection of the
environment or natural resources, including, without limitation, those
relating to the use, handling, transportation, treatment, storage,
disposal, release or discharge of Hazardous Materials, as in effect as of
the date of this Agreement.
"Environmental Permit" means any permit, approval, identification
number, license or other authorization required under or issued pursuant to
any applicable Environmental Law.
"Hazardous Material" means (a) any petroleum, petroleum products,
by-products or breakdown products, radioactive materials,
asbestos-containing materials or polychlorinated biphenyls or (b) any
chemical, material or substance defined or regulated as toxic or hazardous
or as a pollutant or contaminant or waste under any applicable
Environmental Law.
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SECTION 3.14. Intellectual Property. Except as set forth in Section 3.14
of the RBC Disclosure Schedule, or as would not, individually or in the
aggregate, have a RBC Material Adverse Effect, RBC and the RBC Subsidiaries own
or possess adequate licenses or other valid rights to use all patents, patent
rights, trademarks, trademark rights, trade names, trade dress, trade name
rights, copyrights, service marks, trade secrets, applications for trademarks
and for service marks, know-how and other proprietary rights and information
used or held for use in connection with the respective businesses of RBC and the
RBC Subsidiaries as currently conducted, and RBC is unaware of any assertion or
claim challenging the validity of any of the foregoing. Except as set forth in
Section 3.14 of the RBC Disclosure Schedule, the conduct of the respective
businesses of RBC and the RBC Subsidiaries as currently conducted does not
conflict in any way with any patent right, license, trademark, trademark right,
trade dress, trade name, trade name right, service mark or copyright of any
third party that, individually or in the aggregate, would have a RBC Material
Adverse Effect. To the knowledge of RBC, there are no infringements of any
proprietary rights owned by or licensed by or to RBC or any RBC Subsidiary that,
individually or in the aggregate, would have a RBC Material Adverse Effect.
SECTION 3.15. Taxes. Except as set forth in Section 3.15 of the RBC
Disclosure Schedule and except for matters that have not had and are not
reasonably likely to have an RBC Material Adverse Effect, (a) RBC and each of
the RBC Subsidiaries have timely filed or shall timely file all returns and
reports required to be filed by them with any taxing authority with respect to
Taxes for any period ending on or before the Effective Time, taking into account
any extension of time to file granted to or obtained on behalf of RBC and the
RBC Subsidiaries, (b) all Taxes shown to be payable on such returns or reports
that are due prior to the Effective Time have been paid or shall be paid, (c) as
of the date hereof, no deficiency for any amount of Tax has been asserted or
assessed by a taxing authority against RBC or any of the RBC Subsidiaries and
(d) RBC and each of the RBC Subsidiaries have provided adequate reserves in the
1996 Balance Sheet for any Taxes that have not been paid, whether or not shown
as being due on any returns. As used in this Agreement, "Taxes" shall mean any
and all taxes, fees, levies, duties, tariffs, imposts and other charges of any
kind (together with any and all interest, penalties, additions to tax and
additional amounts imposed with respect thereto) imposed by any government or
taxing authority, including, without limitation, taxes or other charges on or
with respect to income, franchises, windfall or other profits, gross receipts,
property, sales, use, capital stock, payroll, employment, social security,
workers' compensation, unemployment compensation or net worth; taxes or other
charges in the nature of excise, withholding, ad valorem, stamp, transfer,
value-added or gains taxes; and license, registration and documentation fees.
SECTION 3.16. Real Property. Section 3.16(a)(i) of the RBC Disclosure
Schedule lists all Leased Real Property of RBC. Each of the Leases is in full
force and effect and to the knowledge of RBC conveys to RBC a valid and
subsisting leasehold estate. Except for real property owned by RBC as a result
of foreclosure proceedings relating to loans reflected on its 1996 Balance Sheet
or as described in Section 3.16(ii) of the RBC Disclosure Schedule, RBC owns no
real property.
SECTION 3.17. Brokers. No broker, finder or investment banker (other than
Montgomery Securities, Inc. ("Montgomery")) is entitled to any brokerage,
finder's or other fee or commission in connection with the Merger based upon
arrangements made by or on behalf of RBC. RBC has heretofore made available to
RBMG complete and correct copies of all agreements between RBC and Montgomery
pursuant to which such firm would be entitled to any payment relating to the
Merger. Montgomery has delivered to the board of directors of RBC its written
opinion to the effect that, as of the date of this Agreement, the Exchange Ratio
and the terms of the Merger are fair to RBC and its stockholders, from a
financial point of view. Montgomery has authorized the inclusion of its opinion
in the Joint Proxy Statement (as defined in Section 6.01), and RBC shall
promptly, after the date of this Agreement, deliver a signed copy of such
opinion to RBMG.
SECTION 3.18. Disclosure. No representation or warranty by RBC in this
Agreement and no statement contained in the RBC Disclosure Schedule or any
certificate delivered by RBC to RBMG pursuant to this Agreement when taken
together as a whole contains any untrue statement of a material fact or omits
any material fact necessary to make the statements herein or therein not
misleading.
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SECTION 3.19. Regulatory Approvals. RBC is not aware of any reason why the
regulatory approvals required to be obtained by it to consummate the
transactions contemplated hereby would not be satisfied within the time frame
customary for transactions of the nature contemplated hereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF RBMG
RBMG hereby represents and warrants to RBC that:
SECTION 4.01. Organization and Qualification; Subsidiaries. Each of RBMG
and each Subsidiary of RBMG (the "RBMG Subsidiaries") has been duly organized
and is validly existing and in good standing (to the extent applicable) under
the laws of the jurisdiction of its incorporation or organization, as the case
may be, and has the requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as it is now being
conducted. Each of RBMG and each RBMG Subsidiary is duly qualified or licensed
to do business, and is in good standing (to the extent applicable), in each
jurisdiction where the character of the properties owned, leased or operated by
it or the nature of its business makes such qualification or licensing
necessary, except for such failures to be so qualified or licensed and in good
standing that would not, individually or in the aggregate, have an RBMG Material
Adverse Effect. For purposes of this Agreement, "RBMG Material Adverse Effect"
means any change in or effect on the business of RBMG and the RBMG Subsidiaries
that is, or is reasonably likely to be, materially adverse to the business,
assets (including intangible assets), liabilities (contingent or otherwise),
condition (financial or otherwise) or results of operations of RBMG and the RBMG
Subsidiaries taken as a whole.
SECTION 4.02. Certificate of Incorporation and Bylaws. The copies of
RBMG's Certificate of Incorporation and Bylaws that are incorporated by
reference as Exhibits to RBMG's Form 10-K for the period ending December 31,
1996 are complete and correct copies thereof. Such Certificate of Incorporation
and Bylaws are in full force and effect. RBMG is not in violation of any of the
provisions of its Certificate of Incorporation or By-laws.
SECTION 4.03. Capitalization. The authorized capital stock of RBMG
consists of (i) 25,000,000 shares of RBMG Common Stock and (ii) 5,000,000 shares
of RBMG Preferred Stock. As of the date hereof, 20,255,080 shares of RBMG Common
Stock were issued and outstanding, all of which were validly issued, fully paid
and nonassessable, (ii) no shares of RBMG Common Stock were held in the treasury
of RBMG or by the RBMG Subsidiaries, (iii) 3,614,536 shares of RBMG Common Stock
were reserved for future issuance pursuant to agreements or arrangements
described in Section 4.03 of the RBMG Disclosure Schedule delivered by RBMG to
RBC prior to the execution of (and forming a part of) this Agreement (the "RBMG
Disclosure Schedule"). Except for (a) options granted pursuant to agreements or
arrangements described in Section 4.03 of the RBMG Disclosure Schedule, (b) the
merger agreements described in Section 4.03 of the RBMG Disclosure Schedule and
(c) the rights agreement described in Section 4.03 of the RBMG Disclosure
Schedule, there are no options, warrants or other rights, agreements,
arrangements or commitments of any character to which RBMG is a party or by
which RBMG is bound, obligating RBMG or any RBMG Subsidiary to issue or sell any
shares of capital stock of, or other equity interests in, RBMG or any RBMG
Subsidiary. Between January 1, 1997 and the date of this Agreement, an aggregate
of 323,500 options have been awarded under the Omnibus Stock Award Plan and
23,528 shares of restricted stock have been issued under the Employment
Agreement with David W. Johnson, Jr. As of the date hereof, no shares of RBMG
Preferred Stock are issued and outstanding. All shares of RBMG Common Stock
subject to issuance as aforesaid, upon issuance prior to the Effective Time on
the terms and conditions specified in the instruments pursuant to which they are
issuable, will be duly authorized, validly issued, fully paid and nonassessable.
Except as set forth in Section 4.03 of the RBMG Disclosure Schedule, there are
no material outstanding contractual obligations of RBMG or any RBMG Subsidiary
to repurchase, redeem or otherwise acquire any shares of RBMG Common Stock or
any capital stock of any RBMG Subsidiary. Except as disclosed in Section 4.03 of
the RBMG Disclosure Schedule, each outstanding share of capital stock of each
RBMG Subsidiary is duly authorized, validly issued, fully paid and nonassessable
and each such share owned by RBMG or another RBMG Subsidiary is free and clear
of all security interests, liens, claims, pledges, options, rights of refusal,
agreements, limitations on RBMG's or such other RBMG Subsidiary's voting rights,
charges
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and other encumbrances of any nature whatsoever, except where the failure to own
such shares free and clear would not, individually or in the aggregate, have an
RBMG Material Adverse Effect. Except as set forth in Section 4.03 of the RBMG
Disclosure Schedule, there are no material outstanding contractual obligations
of RBMG or any RBMG Subsidiary to provide funds to, or make any material
investment (in the form of a loan, capital contribution or otherwise) in, any
RBMG Subsidiary or any other person.
SECTION 4.04. Authority Relative to this Agreement. RBMG has all necessary
corporate power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and thereunder and to consummate the Merger (other
than the approval of this Agreement and the Merger contemplated hereby and the
Amended Certificate of Incorporation by the holders of a majority of the
outstanding shares of RBMG Common Stock at the RBMG Stockholders' Meeting (the
"RBMG Stockholder Vote") and the filing and recordation of the Articles of
Merger as required by the SCBCA). The execution and delivery of this Agreement
by RBMG and the consummation by RBMG of the Merger contemplated hereby have been
duly and validly authorized by all necessary corporate action, and no other
corporate proceedings on the part of RBMG are necessary to authorize this
Agreement, or to consummate the Merger (other than the RBMG Stockholder Vote and
the filing and recordation of the Articles of Merger as required by SCBCA). The
board of directors of RBMG has approved the execution, delivery and performance
of this Agreement and the Merger and the other transactions provided for herein
in accordance with the Delaware General Corporation Law ("DGCL"). This Agreement
has been duly executed and delivered by RBMG and, assuming the due
authorization, execution and delivery by the other parties hereto, constitutes a
legal, valid and binding obligation of RBMG, enforceable against RBMG in
accordance with its terms.
SECTION 4.05. No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement by RBMG does not, and the performance
by RBMG of its obligations hereunder and the consummation of the Merger will
not, (i) conflict with or violate any provision of the Certificate of
Incorporation or Bylaws of RBMG or any equivalent organizational documents of
any RBMG Subsidiary, (ii) assuming that all consents, approvals, authorizations
and permits described in Section 4.05(b) have been obtained and all filings and
notifications described in Section 4.05(b) have been made, conflict with or
violate any Law applicable to RBMG or any RBMG Subsidiary or by which any
property or asset of RBMG or any RBMG Subsidiary is bound or affected or (iii)
except as set forth in Section 4.05(a) of the RBMG Disclosure Schedule, result
in any breach of or constitute a default (or an event which with the giving of
notice or lapse of time or both would become a default) under, or give to others
any right of termination, amendment, acceleration or cancellation of, or result
in the creation of a lien or other encumbrance on any property or asset of RBMG
or any RBMG Subsidiary pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation, except, with respect to clauses (ii) and (iii), for any such
conflicts, violations, breaches, defaults or other occurrences which would
neither, individually or in the aggregate, (A) have an RBMG Material Adverse
Effect nor (B) prevent or materially delay the performance by RBMG of its
obligations pursuant to this Agreement or the consummation of the Merger.
(b) The execution and delivery of this Agreement does not, and the
performance by RBMG of its obligations hereunder and thereunder and the
consummation of the Merger will not, require any consent, approval,
authorization or permit of, or filing by RBMG with or notification by RBMG to,
any Governmental Entity, except (i) for applicable requirements of the
Securities Exchange Act of 1934, as amended (together with the rules and
regulations promulgated thereunder, the "Exchange Act"), the Securities Act,
state securities or "blue sky" laws ("Blue Sky Laws"), the rules and regulations
of the NMS, state takeover laws, the premerger notification requirements of the
HSR Act, the filing of the Articles of Merger as required by the SCBCA and as
set forth in Section 4.05(b) of the RBMG Disclosure Schedule, and (ii) where
failure to obtain such consents, approvals, authorizations or permits, or to
make such filings or notifications, would not (A) prevent or materially delay
the performance by RBMG of its obligations pursuant to this Agreement or the
consummation of the Merger or (B) individually or in the aggregate, have an RBMG
Material Adverse Effect.
SECTION 4.06. Permits; Compliance with Laws. Each of RBMG and the RBMG
Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, establishment registrations, permits, easements, variances,
exceptions, consents, certificates, approvals and orders of any Governmental
Entity, necessary for RBMG or any RBMG Subsidiary to own, lease and operate its
properties and to purchase, originate and sell
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conforming and non-conforming mortgage loans secured by residential properties
or otherwise to carry on its business as it is now being conducted (the "RBMG
Permits"), except where the failure to possess any RBMG Permits would not,
individually or in the aggregate, have an RBMG Material Adverse Effect, and, as
of the date of this Agreement, no suspension or cancellation of any of the RBMG
Permits is pending or, to the knowledge of RBMG, threatened. Neither RBMG nor
any RBMG Subsidiary is in conflict with, or in default or violation of, (i) any
Law applicable to RBMG or any RBMG Subsidiary or by which any property or asset
of RBMG or any RBMG Subsidiary is bound or affected or (ii) any RBMG Permits,
except in the case of clauses (i) and (ii) for any such conflicts, defaults or
violations that would not, individually or in the aggregate, have an RBMG
Material Adverse Effect.
SECTION 4.07. SEC Filings; Financial Statements. (a) RBMG has timely filed
all forms, reports and documents required to be filed by it with the Securities
and Exchange Commission ("SEC") since January 1, 1994 through the date of this
Agreement (collectively and as amended, the "RBMG Reports"). Each RBMG Report
(i) was prepared in all material respects in accordance with the requirements of
the Securities Act or the Exchange Act, as the case may be, and (ii) did not at
the time it was filed contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements made therein, in the light of the circumstances under which
they were made, not misleading. No RBMG Subsidiary is subject to the periodic
reporting requirements of the Exchange Act or required to file any form, report
or other document with the SEC, the NMS or any other stock exchange.
(b) Each of the consolidated financial statements (including, in each case,
any notes thereto) contained in the RBMG Reports and contained in Section 4.07
of the RBMG Disclosure Schedule were prepared in accordance with U.S. GAAP
applied on a consistent basis throughout the periods indicated (except as may be
indicated in the notes thereto) and each presented fairly, in all material
respects, the consolidated financial position of RBMG and the consolidated RBMG
Subsidiaries as at the respective dates thereof and for the respective periods
indicated therein, except as otherwise noted therein (subject, in the case of
unaudited statements, to normal and recurring year-end adjustments which were
not and are not expected, individually or in the aggregate, to have an RBMG
Material Adverse Effect).
(c) Except as and to the extent set forth or reserved against on the
consolidated balance sheet of RBMG and its Subsidiaries as reported in the RBMG
Reports, including the notes thereto, and in Section 4.07 of the RBMG Disclosure
Schedule, none of RBMG or any RBMG Subsidiary has any liabilities or obligations
of any nature (whether accrued, absolute, contingent or otherwise) that would be
required to be reflected on a balance sheet or in notes thereto prepared in
accordance with U.S. GAAP, except for liabilities or obligations incurred in the
ordinary course of business since January 1, 1997 that would not, individually
or in the aggregate, have an RBMG Material Adverse Effect.
SECTION 4.08. Absence of Certain Changes or Events. (a) Since January 1,
1997, except as contemplated by or as disclosed in this Agreement, or as set
forth in Section 4.08 of the RBMG Disclosure Schedule or as disclosed in any
RBMG Report filed since January 1, 1997, RBMG and the RBMG Subsidiaries have
conducted their businesses only in the ordinary course and in a manner
consistent with past practice and, since such date, there has not been (i) any
RBMG Material Adverse Effect, (ii) any event that could reasonably be expected
to prevent or materially delay the performance of its obligations pursuant to
this Agreement and the consummation of the Merger by RBMG, (iii) any material
change by RBMG in its accounting methods, principles or practices, (iv) any
declaration, setting aside or payment of any dividend or distribution in respect
of the shares of RBMG Common Stock, except for dividends in amounts consistent
with past practice, or any redemption, purchase or other acquisition of any of
RBMG's securities or (v) except in the ordinary course of business consistent
with past practice, any material increase in the compensation or benefits or
establishment of any bonus, insurance, severance, deferred compensation,
pension, retirement, profit sharing, stock option (including, without
limitation, the granting of stock options, stock appreciation rights,
performance awards or restricted stock awards), stock purchase or other employee
benefit plan, or any other increase in the compensation payable or to become
payable to any executive officers of RBMG or any RBMG Subsidiary.
(b) Except as set forth in Section 4.08 of the RBMG Disclosure Schedule,
and except as to events, developments or conditions that have not had and are
not reasonably likely to have an RBMG Material Adverse
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Effect, since January 1, 1997, there have not been with respect to RBMG (i) any
extraordinary losses suffered or any damage, destruction, loss or casualty to
property or assets of RBMG with an aggregate value of more than $200,000,
whether or not covered by insurance, (ii) any assets mortgaged, pledged or made
subject to any lien, charge or other encumbrance, (iii) any liability or
obligation (absolute, accrued or contingent) incurred except in the ordinary
course of business, (iv) any claims, liabilities or obligations (absolute,
accrued or contingent) paid, discharged or satisfied, other than the payment,
discharge or satisfaction in the ordinary course of business consistent with
past practice of claims, liabilities and obligations reflected or reserved
against in the financial statements in the RBMG Reports or incurred in the
ordinary course of business consistent with past practice since January 1, 1997,
(v) any guaranteed checks, notes or accounts receivable which have been written
off as uncollectible, except write-offs in the ordinary course of business
consistent with past practice, (vi) any write-down of the value of any asset or
investment on the books or records of RBMG, except for depreciation and
amortization taken in the ordinary course of business consistent with past
practice, (vii) any cancellation of any debts or waiver of any claims or rights
of substantial value, or sale, transfer or other disposition of any properties
or assets (real, personal or mixed, tangible or intangible) of substantial
value, except, in each such case, in transactions in the ordinary course of
business consistent with past practice and which in any event do not exceed
$50,000 in the aggregate, (viii) any single capital expenditure or commitment in
excess of $1,000,000 for additions to property or equipment or aggregate capital
expenditures and commitments in excess of $1,000,000 for additions to property
or equipment, (ix) any increase of any reserves for contingent liabilities
(excluding any adjustment to bad debt reserves in the ordinary course of
business consistent with past practice), (x) any transactions entered into other
than in the ordinary course of business, (xi) any agreements to do any of the
foregoing or (xii) any other events, developments or conditions of any character
that have had or are reasonably likely to have a material adverse effect on the
assets, liabilities, results of operations, financial conditions or business of
RBMG.
SECTION 4.09. Tax Matters. Neither RBMG nor, to the knowledge of RBMG, any
of its Subsidiaries has taken or agreed to take any action (other than actions
contemplated by this Agreement) that would prevent the Merger from constituting
a transaction qualifying under Section 368(a) of the Code. RBMG is not aware of
any agreement, plan or other circumstance that would prevent the Merger from so
qualifying under Section 368(a) of the Code.
SECTION 4.10. Opinion of Financial Advisor. Prudential Securities
Incorporated ("Prudential") has delivered to the board of directors of RBMG its
written opinion to the effect that, as of the date of this Agreement, the terms
of the Merger are fair from a financial point of view to RBMG and its
stockholders. Prudential has authorized the inclusion of its opinion in the
Proxy Statement and RBMG shall promptly, after the date of this Agreement,
deliver a signed copy of such opinion to RBC.
SECTION 4.11. Brokers. No broker, finder or investment banker (other than
Prudential) is entitled to any brokerage, finder's or other fee or commission in
connection with the Merger based upon arrangements made by or on behalf of RBMG.
RBMG has heretofore made available to RBC complete and correct copies of all
agreements between RBMG and Prudential pursuant to which such firm would be
entitled to any payment relating to the Merger.
SECTION 4.12. Disclosure. No representation or warranty by RBMG in this
Agreement and no statement contained in the RBMG Disclosure Schedule or any
certificate delivered by RBMG to RBC pursuant to this Agreement when taken
together as a whole contains any untrue statement of a material fact or omits
any material fact necessary to make the statements herein or therein not
misleading.
SECTION 4.13. Regulatory Approvals. RBMG is not aware of any reason why
the regulatory approvals required to be obtained by it to consummate the
transactions contemplated hereby would not be satisfied within the time frame
customary for transactions of the nature contemplated hereby.
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ARTICLE V
COVENANTS
SECTION 5.01. Conduct of Business by RBC Pending the Closing. RBC agrees
that, between the date of this Agreement and the Effective Time, except as set
forth in Section 5.01 of the RBC Disclosure Schedule or as expressly
contemplated by any other provision of this Agreement, unless RBMG shall
otherwise agree in writing, which agreement shall not be unreasonably withheld
or delayed, (x) the respective businesses of RBC and the RBC Subsidiaries shall
be conducted in all material respects only in, and RBC and the RBC Subsidiaries
shall not take any material action except in, the ordinary course of business
consistent with past practice and (y) RBC shall use its reasonable efforts to
keep available the services of such of the current officers, significant
employees and consultants of RBC and the RBC Subsidiaries and to preserve the
current relationships of RBC and the RBC Subsidiaries with such of the
customers, suppliers and other persons with which RBC and the RBC Subsidiaries
have significant business relations in order to preserve substantially intact
its business organization. By way of amplification and not limitation, except as
set forth in Section 5.01 of the RBC Disclosure Schedule or as expressly
contemplated by any other provision of this Agreement, neither RBC nor any RBC
Subsidiary shall, between the date of this Agreement and the Effective Time,
directly or indirectly, do, or agree to do, any of the following without the
prior written consent of RBMG, which consent shall not be unreasonably withheld
or delayed:
(a) amend or otherwise change its Articles of Incorporation or Bylaws
or equivalent organizational documents;
(b) issue, sell, pledge, dispose of, grant, transfer, lease, license,
guarantee or encumber, or authorize the issuance, sale, pledge,
disposition, grant, transfer, lease, license or encumbrance of, (i) any
shares of capital stock of RBC or any RBC Subsidiary of any class, or
securities convertible into or exchangeable or exercisable for any shares
of such capital stock, or any options, warrants or other rights of any kind
to acquire any shares of such capital stock, or any other ownership
interest (including, without limitation, any phantom interest), of RBC or
any RBC Subsidiary; or (ii) any property or assets of RBC or any RBC
Subsidiary, except in the ordinary course of business and except any
property or assets of RBC or any RBC Subsidiary in an aggregate amount not
in excess of $1,000,000;
(c) (i) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets) any interest in any
corporation, partnership, other business organization or person or any
division thereof or any assets, other than acquisitions of assets
(excluding the acquisition of a business or substantially all of the stock
or assets thereof) in the ordinary course of business consistent with past
practice, and any acquisitions for consideration, calculated as of the date
of execution of the definitive agreement for any such acquisition, that is
not, in the aggregate for all such acquisitions, in excess of $1,000,000;
(ii) incur any indebtedness for borrowed money or issue any debt securities
or assume, guarantee or endorse, or otherwise as an accommodation become
responsible for, the obligations of any person for borrowed money, except
for (A) indebtedness or obligations for borrowed money incurred in the
ordinary course of business and consistent with past practice or incurred
to refinance outstanding indebtedness for borrowed money existing on the
date of this Agreement, (B) other indebtedness for borrowed money with a
maturity of not more than one year in a principal amount not, in the
aggregate, in excess of $5,000,000 or (C) indebtedness for borrowed money
incurred to finance acquisitions permitted by clause (i) of this paragraph
(c); (iii) terminate, cancel or request any material change in, or agree to
any material change in, any RBC Material Contract or enter into any
contract or agreement material to the business, results of operations or
financial condition of RBC and the RBC Subsidiaries taken as a whole, in
either case other than in the ordinary course of business, consistent with
past practice; (iv) make or authorize any capital expenditure, other than
capital expenditures in the ordinary course of business consistent with
past practice that are not, in the aggregate, in excess of $5,000,000 for
RBC and the RBC Subsidiaries taken as a whole; or (v) enter into or amend
any contract, agreement, commitment or arrangement that, if fully
performed, would not be permitted under this Section 5.01(c);
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(d) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect
to any of its capital stock, except that any wholly owned RBC Subsidiary
may pay dividends or make other distributions to RBC or any other wholly
owned RBC Subsidiary;
(e) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
(f) increase the compensation payable or to become payable to its
officers or employees, except for increases in accordance with past
practices in salaries or wages of employees or officers of RBC or any RBC
Subsidiary, or grant any rights to severance or termination pay to, or
enter into any employment or severance agreement which provides benefits
upon a change in control of RBC or any RBC Subsidiary that would be
triggered by the Reorganization with, any director, officer or other
employee of RBC or any RBC Subsidiary, who is not currently entitled to
such benefits from the Reorganization, or establish, adopt, enter into or
amend any collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, agreement,
trust, fund, policy or arrangement for the benefit of any director, officer
or employee of RBC or any RBC Subsidiary;
(g) take any action with respect to accounting policies or procedures,
other than actions in the ordinary course of business and consistent with
past practices or as required by U.S. GAAP;
(h) make any tax election or settle or compromise any material
federal, state or local United States income tax liability, or any income
tax liability of any other jurisdiction, other than those made in the
ordinary course of business consistent with past practice and those for
which specific reserves have been recorded on the 1996 Balance Sheet and
only to the extent of such reserves; or
(i) authorize or enter into any formal or informal agreement or
otherwise make any commitment to do any of the foregoing.
SECTION 5.02 Conduct of Business by RBMG Pending the Closing. RBMG agrees
that, between the date of this Agreement and the Effective Time, except as set
forth in Section 5.02 of the RBMG Disclosure Schedule or as expressly
contemplated by any other provision of this Agreement, unless RBC shall
otherwise agree in writing, which agreement shall not be unreasonably withheld
or delayed, (x) the respective businesses of RBMG and the RBMG Subsidiaries
shall be conducted only in, and RBMG and the RBMG Subsidiaries shall not take
any action except in, the ordinary course of business consistent with past
practice and (y) RBMG shall use its reasonable efforts to keep available the
services of such of the current officers, significant employees and consultants
of RBMG and the RBMG Subsidiaries and to preserve the current relationships of
RBMG and the RBMG Subsidiaries with such of the customers, suppliers and other
persons with which RBMG or any RBMG Subsidiary has significant business
relations in order to preserve substantially intact its business organization.
By way of amplification and not limitation, except as set forth in Section 5.02
of the RBMG Disclosure Schedule or as expressly contemplated by any other
provision of this Agreement, neither RBMG nor any RBMG Subsidiary shall, between
the date of this Agreement and the Effective Time, directly or indirectly, do,
or agree to do, any of the following without the prior written consent of RBC,
which consent shall not be unreasonably withheld or delayed:
(a) amend or otherwise change its Certificate of Incorporation or
Bylaws or equivalent organizational documents;
(b) issue, sell, pledge, dispose of, grant, transfer, lease, license,
guarantee or encumber, or authorize the issuance, sale, pledge,
disposition, grant, transfer, lease, license or encumbrance of, (i) any
shares of capital stock of RBMG or any RBMG Subsidiary of any class, or
securities convertible into or exchangeable or exercisable for any shares
of such capital stock, or any other options, warrants or other rights of
any kind to acquire any shares of such capital stock, or any other
ownership interest (including, without limitation, any phantom interest),
of RBMG or any RBMG Subsidiary (except for the issuance of (A) a maximum of
1,723,087 shares of RBMG Common Stock issuable pursuant to the options
outstanding on the date of this Agreement, (B) the issuance of shares of
RBMG Common Stock pursuant to the merger agreements described in Section
4.03 of the RBMG Disclosure Schedule, (C) the issuance of preferred stock
purchase
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rights pursuant to the rights agreement described in Section 4.03 of the
RBMG Disclosure Schedule, (D) the issuance of options to acquire RBMG
Common Stock and the issuance of shares pursuant thereto and (E) the
issuance of RBMG Common Stock pursuant to the Stock Investment Plan and the
Dividend Reinvestment and Stock Purchase Plan) or (ii) any property or
assets of RBMG or any RBMG Subsidiary, except in the ordinary course of
business and except any property or assets of RBMG or any RBMG Subsidiary
in an aggregate amount not in excess of $1,000,000;
(c) (i) acquire (including, without limitation, by merger,
consolidation or acquisition of stock or assets) any interest in any
corporation, partnership, other business organization or person or any
division thereof or any assets, other than acquisitions of assets
(excluding the acquisition of a business or substantially all of the stock
or assets thereof) in the ordinary course of business consistent with past
practice, and any acquisitions for consideration, calculated as of the date
of execution of the definitive agreement for any such acquisition, that is
not, in the aggregate for all such acquisitions, in excess of $1,000,000;
(ii) incur any indebtedness for borrowed money or issue any debt securities
or assume, guarantee or endorse, or otherwise as an accommodation become
responsible for, the obligations of any person for borrowed money, except
for (A) indebtedness or obligations for borrowed money incurred in the
ordinary course of business and consistent with past practice or incurred
to refinance outstanding indebtedness for borrowed money existing on the
date of this Agreement, (B) other indebtedness for borrowed money with a
maturity of not more than one year in a principal amount not, in the
aggregate, in excess of $5,000,000 or (C) indebtedness for borrowed money
incurred to finance acquisitions permitted by clause (i) of this paragraph
(c); (iii) terminate, cancel or request any material change in, or agree to
any material change in, any contract or agreement material to the business,
results of operations or financial condition of RBMG and the RBMG
Subsidiaries taken as a whole (a "RBMG Material Contract") or enter into
any contract or agreement which would be a RBMG Material Contract, in
either case, other than in the ordinary course of business, consistent with
past practice; (iv) make or authorize any capital expenditure, other than
capital expenditures in the ordinary course of business consistent with
past practice that are not, in the aggregate, in excess of $5,000,000 for
RBMG and the RBMG Subsidiaries taken as a whole; or (v) enter into or amend
any contract, agreement, commitment or arrangement that, if fully
performed, would not be permitted under this Section 5.01(c);
(d) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect
to any of its capital stock, except (i) for any dividends not in excess of
$.03 per share of RBMG Common Stock for any calendar quarter and (ii) that
any RBMG Subsidiary may pay dividends or make other distributions to RBMG
or any other RBMG Subsidiary;
(e) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock; or
(f) increase the compensation payable or to become payable to its
officers or employees, except for increases in accordance with past
practices in salaries or wages of employees or officers of RBMG or any RBMG
Subsidiary, or grant any rights to severance or termination pay to, or
enter into any employment or severance agreement which provides benefits
upon a change in control of RBMG or any RBMG Subsidiary that would be
triggered by the Reorganization with, any director, officer or other
employee of RBMG or any RBMG Subsidiary, who is not currently entitled to
such benefits from the Reorganization, or establish, adopt, enter into or
amend any collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, agreement,
trust, fund, policy or arrangement for the benefit of any director, officer
or employee of RBMG or any RBMG Subsidiary;
(g) take any action with respect to accounting policies or procedures,
other than actions in the ordinary course of business and consistent with
past practices or as required by U.S. GAAP;
(h) make any tax election or settle or compromise any material
federal, state or local United States income tax liability, or any income
tax liability of any other jurisdiction, other than those made in the
ordinary course of business consistent with past practice and those for
which specific reserves have been recorded in the financial statements in
the RBMG Reports and only to the extent of such reserves; or
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(i) authorize or enter into any formal or informal agreement or
otherwise make any commitment to do any of the foregoing.
SECTION 5.03. Notices of Certain Events. Each of RBC and RBMG shall give
prompt notice to the other of (i) any notice or other communication from any
person alleging that the consent of such person is or may be required in
connection with the Merger; (ii) any notice or other communication from any
Governmental Entity in connection with the Merger; (iii) any actions, suits,
claims, investigations or proceedings commenced or, to its knowledge, threatened
against, relating to or involving or otherwise affecting RBC, RBMG, the RBC
Subsidiaries or the RBMG Subsidiaries that relate to the consummation of the
Merger; (iv) the occurrence of a default or event that, with the giving of
notice or lapse of time or both, will become a default under any RBC Material
Contract or any RBMG Material Contract; and (v) any change that is reasonably
likely to result in a RBC Material Adverse Effect or an RBMG Material Adverse
Effect or is reasonably likely to delay or impede the ability of any of RBC or
RBMG to perform its respective obligations pursuant to this Agreement and to
effect the consummation of the Merger.
SECTION 5.04. Access to Information; Confidentiality. (a) Except as
required pursuant to any confidentiality agreement or similar agreement or
arrangement to which RBC or RBMG or any of the RBC Subsidiaries or RBMG
Subsidiaries is a party or pursuant to applicable Law or the regulations or
requirements of any stock exchange or other regulatory organization with whose
rules a party hereto is required to comply, from the date of this Agreement to
the Effective Time, RBC and RBMG shall (and shall cause the RBC Subsidiaries and
the RBMG Subsidiaries, respectively, to): (i) provide to the other (and its
officers, directors, employees, accountants, consultants, legal counsel, agents
and other representatives (collectively, "Representatives")) access at
reasonable times upon prior notice to its and its Subsidiaries' officers,
employees, agents, properties, offices and other facilities and to the books and
records thereof and (ii) furnish promptly such information concerning its and
its Subsidiaries' business, properties, contracts, assets, liabilities and
personnel as the other party or its Representatives may reasonably request. No
investigation conducted pursuant to this Section 5.04 shall affect or be deemed
to modify any representation or warranty made in this Agreement.
(b) The parties hereto shall comply with, and shall cause their respective
Representatives to comply with, all of their respective obligations under the
Confidentiality Agreement dated February, 1997, (the "Confidentiality
Agreement") by and among RBC, RBMG and WSI with respect to the information
disclosed pursuant to this Section 5.04.
SECTION 5.05. No Solicitation of Transactions. (a) RBC shall not, directly
or indirectly, and shall instruct its officers, directors, employees,
subsidiaries, agents or advisors or other representatives (including, without
limitation, any investment banker, attorney or accountant retained by it) not
to, directly or indirectly, solicit, initiate or knowingly encourage (including
by way of furnishing non-public information), or take any other action knowingly
to facilitate, any inquiries or the making of any proposal or offer (including,
without limitation, any proposal or offer to its shareholders) that constitutes,
or may reasonably be expected to lead to, any Competing Transaction, or enter
into or maintain or continue discussions or negotiate with any person in
furtherance of such inquiries or to obtain a Competing Transaction, or agree to
or endorse any Competing Transaction, or authorize or permit any of the
officers, directors or employees of such party or any of its subsidiaries, or
any investment banker, financial advisor, attorney, accountant or other
representative retained by such party or any of such party's subsidiaries, to
take any such action. RBC shall promptly notify RBMG if any proposal or offer,
or any inquiry or contact with any person with respect thereto, regarding a
Competing Transaction is made.
(b) A "Competing Transaction" means any of the following involving RBC
(other than the Merger contemplated by this Agreement): (i) a merger,
consolidation, share exchange, business combination or other similar
transaction, (ii) any sale, lease, exchange, transfer or other disposition of 50
percent or more of the assets of such party and its subsidiaries taken as a
whole, or (iii) a tender offer or exchange offer for 50 percent or more of the
outstanding voting securities of such party.
SECTION 5.06. Letters of Accountants. Each of RBC and RBMG shall use all
reasonable efforts to cause to be delivered to the other a "comfort" letter of
Price Waterhouse, each such letter dated and delivered as of the date the
Registration Statement shall have become effective and as of the Effective Time,
and addressed to RBC
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and RBMG, respectively, in form reasonably satisfactory to the recipient thereof
and reasonably customary in scope and substance for letters delivered by
independent public accountants in connection with a merger such as is
contemplated by this Agreement.
SECTION 5.07. Plan of Reorganization. This Agreement is intended to
constitute a "plan of reorganization" within the meaning of Section 1.368-2(g)
of the income tax regulations promulgated under the Code. From and after the
date of this Agreement, each party hereto shall use all reasonable efforts to
cause the Merger to qualify, and shall not, without the prior written consent of
the other parties hereto, knowingly take any actions or cause any actions to be
taken which could prevent the Merger from qualifying as a reorganization under
the provisions of Section 368(a) of the Code. RBC agrees to use its reasonable
best efforts to acquire from each holder of five percent of its Common Stock the
stockholder tax certificate substantially in the form contained in Exhibit 5.07.
Such certificate shall form the basis of any opinion of counsel regarding the
tax treatment of the Merger. In the event that counsel is unable to issue its
opinion to the effect that the Merger will qualify as a reorganization under the
provisions of Section 368(a) of the Code as described in Sections 7.02(c)
hereof, then the parties hereto agree to negotiate in good faith to restructure
the Merger in order that such opinion can be issued. Following the Effective
Time, and consistent with any such consent, none of the Surviving Corporation,
RBC, RBMG, nor any of their affiliates shall knowingly take any action or
knowingly cause any action to be taken which would cause the Merger to fail to
qualify as a reorganization under Section 368(a) of the Code.
SECTION 5.08. Subsequent Financial Statements. Prior to the Effective Time
RBMG shall promptly deliver to RBC copies of each RBMG Report filed by RBMG with
the SEC. Prior to the Effective Time, RBC shall promptly deliver to RBMG copies
of all monthly financial reports prepared by RBC and copies of all other
financial and other information regarding RBC and its Subsidiaries reasonably
requested by RBMG.
SECTION 5.09. Control of Operations. Nothing contained in this Agreement
shall give RBC, directly or indirectly, the right to control or direct the
operations of RBMG or the RBMG Subsidiaries prior to the Effective Time. Nothing
contained in this Agreement shall give RBMG, directly or indirectly, the right
to control or direct the operations of RBC or the RBC Subsidiaries prior to the
Effective Time. Prior to the Effective Time, each of RBC and RBMG shall
exercise, consistent with the terms and conditions of this Agreement, complete
control and supervision over its respective operations.
SECTION 5.10. Further Action; Consents; Filings. Upon the terms and
subject to the conditions hereof, each of the parties hereto shall use all
reasonable efforts to (i) take, or cause to be taken, all appropriate action,
and do, or cause to be done, all things necessary, proper or advisable under
applicable Law or otherwise to consummate and make effective the Merger, (ii)
obtain from Governmental Entities any consents, licenses, permits, waivers,
approvals, authorizations or orders required to be obtained or made by RBC,
RBMG, or the Surviving Corporation or any of their subsidiaries in connection
with the authorization, execution and delivery of this Agreement and the
consummation of the Merger and (iii) make all necessary filings, and thereafter
make any other required or appropriate submissions, with respect to this
Agreement and the Merger required under (A) the rules and regulations of the
NMS, (B) the Securities Act, the Exchange Act and any other applicable federal
or state securities Laws, (C) the HSR Act and (D) any other applicable Law. The
parties hereto shall cooperate and consult with each other in connection with
the making of all such filings, including by providing copies of all such
documents to the non-filing parties and their advisors prior to filing. No party
shall consent to any voluntary extension of any statutory deadline or waiting
period or to any voluntary delay of the consummation of the Merger at the behest
of any Governmental Entity without the consent and agreement of the other
parties hereto, which consent shall not be unreasonably withheld or delayed.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Registration Statement; Joint Proxy Statement. (a) As
promptly as practicable after the execution of this Agreement, RBMG and RBC
shall jointly prepare and RBMG shall file with the SEC a document or documents
that will constitute (i) the prospectus forming part of the registration
statement on Form S-4 of RBMG (together with all amendments thereto, the
"Registration Statement"), in connection with the
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registration under the Securities Act of the RBMG Common Stock to be issued to
RBC's stockholders pursuant to the Merger and (ii) the Joint Proxy Statement
with respect to the Merger relating to the special meeting of each of RBMG's
stockholders (the "RBMG Stockholders' Meeting") and RBC's stockholders (the "RBC
Stockholders' Meeting" and together with the RBMG Stockholders' Meeting, the
"Stockholders' Meetings"), to be held to consider approval of this Agreement and
the Merger contemplated hereby (such document, together with any amendments
thereto, the "Joint Proxy Statement"). Copies of the Joint Proxy Statement shall
be provided to the NMS in accordance with the rules of such market. Each of the
parties hereto shall use all reasonable efforts to cause the Registration
Statement to become effective as promptly as practicable, and, prior to the
effective date of the Registration Statement, the parties hereto shall take all
action required under any applicable Laws in connection with the issuance of
shares of RBMG Common Stock pursuant to the Merger. RBC and RBMG, as the case
may be, shall furnish all information concerning RBC and RBMG as the other party
may reasonably request in connection with such actions and the preparation of
the Registration Statement and Joint Proxy Statement. As promptly as practicable
after the effective date of the Registration Statement, the Joint Proxy
Statement shall be mailed to the stockholders of RBMG and RBC. Each of the
parties hereto shall cause the Joint Proxy Statement to comply as to form and
substance in all material respects with the applicable requirements of (i) the
Exchange Act and (ii) the Securities Act.
(b) (i) The Joint Proxy Statement shall include the approval of the Merger
and recommendation of the Special Committee and of the Board of Directors of
RBMG to RBMG's stockholders that they vote in favor of approval of this
Agreement and the Merger contemplated hereby. In addition, the Joint Proxy
Statement shall include the opinion of Prudential referred to in Section 4.10.
(ii) The Joint Proxy Statement shall include the approval of the Merger and
recommendation of the Board of Directors of RBC to RBC's stockholders that they
vote in favor of approval of this Agreement and the Merger contemplated hereby.
In addition, the Joint Proxy Statement shall include the opinion of Montgomery
referred to in Section 3.17.
(c) No amendments or supplement to the Joint Proxy Statement or the
Registration Statement shall be made without the approval of RBMG and RBC, which
approval shall not be unreasonably withheld or delayed. Each of the parties
hereto shall advise the other parties hereto, promptly after it receives notice
thereof, of the time when the Registration Statement has become effective or any
supplement or amendment has been filed, of the issuance of any stop order, of
the suspension of the qualification of the RBMG Common Stock issuable in
connection with the Merger for offering or sale in any jurisdiction, or of any
request by the SEC or the NMS for amendment of the Joint Proxy Statement or the
Registration Statement or comments thereon and responses thereto or requests by
the SEC for additional information.
(d) The information supplied by RBC for inclusion in the Registration
Statement and the Joint Proxy Statement shall not, at (i) the time the
Registration Statement is filed with the SEC, (ii) if different, the time the
Registration Statement is declared effective, (iii) the time the Joint Proxy
Statement (or any amendment thereof or supplement thereto) is first mailed to
the stockholders of RBMG and RBC, (iv) the time of the RBMG Stockholders'
Meeting, (v) the time of the RBC Stockholders' Meeting, and (vi) the Effective
Time, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. If at any time prior to the Effective Time, any event or
circumstances relating to RBC or any RBC Subsidiary, or their respective
officers or directors, should be discovered by RBC that as a result of which it
is necessary to amend or supplement the Registration Statement or Joint Proxy
Statement in order that the Registration Statement or Joint Proxy Statement will
not include any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein not misleading in light
of the circumstances under which they were made, RBC shall promptly inform RBMG.
(e) The information supplied by RBMG for inclusion in the Registration
Statement and Joint Proxy Statement shall not, at (i) the time the Registration
Statement is filed with the SEC, (ii) if different, the time the Registration
Statement is declared effective, (iii) the time the Joint Proxy Statement (or
any amendment thereof or supplement thereto) is first mailed to the stockholders
of RBMG and RBC, (iv) the time of the RBMG Stockholders' Meeting, (v) the time
of the RBC Stockholders' Meeting, and (vi) the Effective Time, contain any
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untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. If, at
any time prior to the Effective Time, any event or circumstances relating to
RBMG or any RBMG Subsidiary, or their respective officers or directors, should
be discovered by RBMG that as a result of which it is necessary to amend or
supplement the Registration Statement or Joint Proxy Statement in order that the
Registration Statement or Joint Proxy Statement will not include any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein not misleading in light of the circumstances
under which they were made, RBMG shall promptly inform RBC. All documents that
RBMG is responsible for filing with the SEC in connection with the Merger will
comply as to form in all material respects with the applicable requirements of
the Securities Act and the Exchange Act.
SECTION 6.02. Stockholders' Meeting. RBMG shall call and hold the RBMG
Stockholders' Meeting as promptly as practicable for the purpose of voting upon
the approval of this Agreement and the Merger contemplated hereby and the
Amended Certificate of Incorporation. RBC shall call and hold the RBC
Stockholders' Meeting as promptly as practicable for the purpose of voting upon
the approval of this Agreement and the Merger contemplated hereby, and each of
RBMG and RBC shall use its reasonable efforts to hold the Stockholders' Meetings
on the same day and as soon as practicable after the date on which the
Registration Statement becomes effective. RBMG shall use its reasonable efforts
to solicit from its stockholders proxies in favor of the approval of this
Agreement and the Merger contemplated hereby and the Amended Certificate of
Incorporation pursuant to the Joint Proxy Statement, and shall take all other
action necessary or advisable to secure the vote or consent of stockholders
required by the DGCL or applicable NMS requirements to obtain such approval. RBC
shall use its reasonable efforts to solicit from its stockholders proxies in
favor of the approval of this Agreement and the Merger contemplated hereby
pursuant to the Joint Proxy Statement, and shall take all other action necessary
or advisable to secure the vote or consent of stockholders required by the SCBCA
to obtain such approval. Each of the parties hereto shall take all other
reasonable action necessary or advisable to promptly and expeditiously secure
any vote or consent of stockholders required by applicable Law and RBMG's and
RBC's Certificate or Articles of Incorporation and Bylaws to effect the Merger.
SECTION 6.03. Employee Benefits Matters. (a) Except as otherwise provided
herein, each of the RBC Benefit Plans and the RBMG Benefit Plans in effect as of
the Effective Time shall be maintained in effect with respect to the employees
or former employees of RBC and the RBC Subsidiaries and of RBMG and the RBMG
Subsidiaries, respectively, who are covered by such benefit plans immediately
prior to the Closing Date until RBMG otherwise determines after the Effective
Time; provided, however, that nothing contained herein shall limit any reserved
right in any such RBC Benefit Plan or RBMG Benefit Plan, as the case may be, to
amend, modify, suspend, revoke or terminate any such plan. "RBMG Benefit Plans"
means employee benefit plans, programs, arrangements and contracts (including,
without limitation, any "employee benefit plan", as defined in Section 3(3) of
ERISA) maintained or contributed to by RBMG or any RBMG Subsidiary, or with
respect to which RBC or any RBC Subsidiary could incur liability under Section
4069, 4212(c) or 4204 of ERISA.
(b) Prior to the Effective Time, RBMG shall develop short and long-term
incentive compensation arrangements for RBMG which are to be implemented after
the Effective Time and make appropriate adjustments, if any, to the performance
goals, target awards and any other relevant criteria under the incentive
compensation plans of RBC and RBMG that are in effect as of the Effective Time
to take the Reorganization into account. In addition, RBMG shall conduct a
review of RBC's and RBMG's respective benefit plans following the execution of
this Agreement in order to coordinate the provision of benefits after the
Effective Time and to eliminate duplicate benefits, including, without
limitation, through the establishment by RBMG of replacement benefit plans (the
"RBMG Replacement Plans"). Each participant in any RBC Benefit Plan or RBMG
Benefit Plan that is replaced by a RBMG Replacement Plan shall receive credit
for purposes of eligibility to participate, vesting, benefit accrual and
eligibility to receive benefits under any RBMG Replacement Plan for service
credited for the corresponding purpose under such benefit plan; provided,
however, that such crediting of service shall not operate to duplicate any
benefit to any such participant of the funding of any such benefit.
(c) With respect to any RBC Benefit Plan or RBMG Benefit Plan under which
the delivery of RBC Voting Common Stock, RBC Non-voting Common Stock or RBMG
Common Stock, as the case may be, is required upon payment of benefits, grant of
awards or exercise of options (the "Stock Plans"), RBMG shall take all
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corporate action necessary or appropriate to (i) obtain stockholder approval
with respect to such plan to the extent such approval is required for purposes
of the Code or other applicable Law, or to enable such plan to comply with Rule
16b-3 promulgated under the Exchange Act, (ii) reserve for issuance under such
plan or otherwise provide a sufficient number of shares of RBMG Common Stock for
delivery upon payment of benefits, grant of awards or exercise of options under
such plan and (iii) as soon as practicable after the Effective Time, file
registration statements on Form S-3 or Form S-8, as appropriate (or any
successor or other appropriate forms), with respect to the shares of RBMG Common
Stock subject to such plan to the extent such registration statement is required
under applicable law, and RBMG shall use its reasonable efforts to maintain the
effectiveness of such registration statements (and maintain the current status
of the prospectuses contained therein) for so long as such benefits and grants
remain payable and such options remain outstanding. With respect to those
individuals who subsequent to the Merger will be subject to the reporting
requirements under Section 16(a) of the Exchange Act, RBMG shall administer the
Stock Plans, where applicable, in a manner that complies with Rule 16b-3
promulgated under the Exchange Act.
(d) Without limiting the applicability of the foregoing, each of the
parties hereto shall take all actions as are necessary to ensure that RBC shall
not be, at the Effective Time, bound by any options, stock appreciation rights,
warrants or other rights or agreements which would entitle any person, other
than RBMG, to own any capital stock of the Surviving Corporation or to receive
any payment in respect thereof, and all RBC Benefit Plans conferring any rights
with respect to Shares or other capital stock of RBC shall be deemed hereby to
be amended to be in conformity with this Section 6.03.
SECTION 6.04. Directors' and Officers' Indemnification and Insurance. (a)
The Articles of Incorporation of RBC and the Certificate of Incorporation of
RBMG and the Bylaws of RBC and RBMG, as the case may be, shall contain the
indemnification provisions that are set forth, as of the date of this Agreement,
in the Articles of Incorporation of RBC, the Certificate of Incorporation of
RBMG and the Bylaws of RBC and RBMG, as the case may be, which provisions shall
not be amended, repealed or otherwise modified for a period of six years from
the Effective Time in any manner that would affect adversely the rights
thereunder of individuals who at or at any time prior to the Effective Time were
directors, officers, employees, fiduciaries or agents of RBC or RBMG,
respectively.
(b) This Section 6.04 is intended to be for the benefit of, and shall be
enforceable by, the indemnified parties, their heirs and personal
representatives and shall be binding on RBC and RBMG and their respective
successors and assigns.
(c) Notwithstanding anything to the contrary contained herein, RBMG and the
Surviving Corporation shall, and RBMG shall cause the Surviving Corporation to,
assume and perform all obligations of RBC arising under any indemnification
agreement entered into prior to the date hereof between RBC and certain officers
and directors of RBC.
(d) From and after the Effective Time, RBMG agrees that it shall indemnify
and hold harmless each present and former director and officer of RBC and RBMG
determined as of the Effective Time (the "Indemnified Parties"), against any
costs or expenses (including reasonable attorneys' fees), judgments, fines,
losses, claims, damages or liabilities (collectively, "Costs") incurred in
connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, arising out of or pertaining
to matters existing or occurring at or prior to the Effective Time, whether
asserted or claimed prior to, at or after the Effective Time, to the fullest
extent that RBMG would have been permitted under Delaware law and RBC would have
been permitted under South Carolina law, and their respective charter documents
(each as in effect on the date hereof) to indemnify such Indemnified Parties
(and RBMG shall also advance expenses as incurred to the fullest extent
permitted under applicable Law; provided, however, that the Indemnified Party to
whom expenses are advanced provides an undertaking to repay such advances if it
is ultimately determined pursuant to a final, non-appealable judgment by a court
of competent jurisdiction that such Indemnified Party is not entitled to
indemnification).
(e) To the extent paragraph (d) shall not serve to indemnify and hold
harmless any Indemnified Party, for a period of six years after the date hereof,
RBMG shall, subject to the terms set forth herein, indemnify and hold harmless,
to the fullest extent permitted under applicable Law (and RBMG shall also
advance expenses as
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incurred to the fullest extent permitted under applicable Law; provided,
however, that the Indemnified Party to whom expenses are advanced provides an
undertaking to repay such advances if it is ultimately determined that such
Indemnified Party is not entitled to indemnification), each Indemnified Party
against any Cost incurred in connection with any claim, action, suit, proceeding
or investigation, whether civil, criminal, administrative or investigative,
arising out of or pertaining to the transactions contemplated by this Agreement;
provided, further, however, that RBMG shall not be required to indemnify any
Indemnified Party pursuant hereto if it shall be determined that the Indemnified
Party acted in bad faith and not in a manner such Indemnified Party believed to
be in or not opposed to the best interests of RBC or RBMG, as the case may be.
(f) Any Indemnified Party wishing to claim indemnification under paragraphs
(d) or (e) of this Section 6.04, upon learning of any such claim, action, suit,
proceeding or investigation, shall promptly notify RBMG thereof, but the failure
to so notify shall not relieve RBMG of any liability it may have to such
Indemnified Party except to the extent that such failure materially prejudices
RBMG. In the event of any such claim, action, suit, proceeding or investigation
(whether arising before or after the Effective Time), (i) RBMG shall have the
right to assume the defense thereof and RBMG shall not be liable to such
Indemnified Parties for any legal expenses of other counsel or any other
expenses subsequently incurred by such Indemnified Parties in connection with
the defense thereof, except that if RBMG elects not to assume such defense or
counsel for the Indemnified Parties advises that there are issues which raise
conflicts of interest between RBMG and the Indemnified Parties, the Indemnified
Parties may retain counsel satisfactory to them, and RBMG shall pay all
reasonable fees and expenses of such counsel for the Indemnified Parties
promptly as statements therefor are received; provided, however, that RBMG shall
be obligated pursuant to this paragraph (f) to pay for only one firm of counsel
for all Indemnified Parties in any jurisdiction unless the use of one counsel
for such Indemnified Parties would present such counsel with a conflict of
interest, (ii) the Indemnified Parties shall cooperate in the defense of any
such matter and (iii) RBMG shall not be liable for any settlement effected
without its prior written consent; and provided further, however, that RBMG
shall not have any obligation hereunder to any Indemnified Party when and if a
court of competent jurisdiction shall ultimately determine, and such
determination shall have become final, that the indemnification of such
Indemnified Party in the manner contemplated hereby is prohibited by applicable
Law. Notwithstanding the foregoing, if such indemnity is not available with
respect to any Indemnified Party, then RBMG and the Indemnified Party shall
contribute to the amount payable in such proportion as is appropriate to reflect
relative faults and benefits.
(g) If RBMG or any of its successors or assigns (i) shall consolidate with
or merge into any other corporation or entity and shall not be the continuing or
surviving corporation or entity in such consolidation or merger or (ii) shall
transfer all or substantially all of its properties and assets to any
individual, corporation or other entity, then and in each such case, proper
provisions shall be made so that the successors and assigns of RBMG shall assume
all of the obligations set forth in this Section 6.04.
SECTION 6.05. No Shelf Registration. RBMG shall not be required to amend
or maintain the effectiveness of the Registration Statement for the purpose of
permitting resale of the shares of RBMG Common Stock received pursuant hereto by
the persons who may be deemed to be "affiliates" of RBC or RBMG within the
meaning of Rule 145 promulgated under the Securities Act.
SECTION 6.06. Public Announcements. The initial press release concerning
the Reorganization shall be a joint press release and, thereafter, RBC and RBMG
shall consult with each other before issuing any press release or otherwise
making any public statements with respect to this Agreement or the
Reorganization and shall not issue any such press release or make any such
public statement without the prior written approval of the other parties hereto,
except to the extent that RBMG may be required by applicable Law or the
requirements of the NMS, in which case RBMG shall use its reasonable efforts to
consult with RBC before issuing any such release or making any such public
statement.
SECTION 6.07. NMS Additional Listing. Each of the parties hereto shall use
its reasonable efforts to obtain, prior to the Effective Time, the approval for
additional listing on the NMS, effective upon the official notice of issuance,
of the shares of RBMG Common Stock into which the Shares will be converted
pursuant to Article II hereof.
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SECTION 6.08. Blue Sky. Each of the parties hereto shall use all
reasonable efforts to obtain prior to the Effective Time all necessary blue sky
permits and approvals required under Blue Sky Laws to permit the distribution of
the shares of RBMG Common Stock to be issued in accordance with the provisions
of this Agreement.
ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.01. Conditions to the Obligations of Each Party to Consummate the
Merger. The obligations of the parties hereto to consummate the Merger, or to
permit the consummation of the Merger, are subject to the satisfaction or, if
permitted by applicable Law, waiver of the following conditions:
(a) the Registration Statement shall have been declared effective by
the SEC under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued by the
SEC and no proceeding for that purpose shall have been initiated by the SEC
and not concluded or withdrawn;
(b) each of this Agreement and the Merger and the Amended Certificate
of Incorporation of RBMG shall have been duly approved by the requisite
vote of stockholders of RBMG, in accordance with the DGCL and the NMS;
(c) each of the Agreement and the Merger shall have been duly approved
by the requisite vote of the stockholders of RBC, in accordance with the
SCBCA;
(d) no court of competent jurisdiction shall have issued or entered
any order, writ, injunction or decree, and no other Governmental Entity
shall have issued any order, which is then in effect and has the effect of
making the Merger illegal or otherwise prohibiting its consummation;
(e) any waiting period (and any extension thereof) applicable to the
consummation of the Reorganization under the HSR Act or any other
applicable competition, merger control or similar Law shall have expired or
been terminated;
(f) all consents, approvals and authorizations legally required to be
obtained to consummate the Reorganization shall have been obtained from all
Governmental Entities, except where the failure to obtain any such consent,
approval or authorization would not result in a change in or have an effect
on the business of RBC or RBMG that is, or is reasonably likely to be,
materially adverse to the business, assets (including intangible assets),
liabilities (contingent or otherwise), condition (financial or otherwise)
or results of operations of RBMG and its respective subsidiaries, taken as
a whole;
(g) all permits or approvals required by state securities or Blue Sky
Laws to carry out the transactions contemplated hereby shall have been
received; and
(h) the shares of RBMG Common Stock into which the Shares will be
converted pursuant to Article II hereof shall have been authorized for
listing on the NMS, subject to official notice of issuance.
SECTION 7.02. Conditions to the Obligations of RBC. The obligations of RBC
to consummate the Merger, or to permit the consummation of the Merger, are
subject to the satisfaction or, if permitted by applicable Law, waiver of the
following further conditions:
(a) each of the representations and warranties of RBMG contained in
this Agreement that is qualified by materiality shall be true and correct
on and as of the Effective Time as if made at and as of the Effective Time
(other than representations and warranties which address matters only as of
a certain date which shall be true and correct as of such certain date) and
each of the representations and warranties that is not so qualified shall
be true and correct in all material respects on and as of the Effective
Time as if made at and as of the Effective Time (other than representations
and warranties which address matters only as of a certain date which shall
be true and correct in all material respects as of such certain date), in
each case except as
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contemplated or permitted by this Agreement, and RBC shall have received a
certificate of the Chairman or President and Chief Financial Officer of
RBMG to such effect;
(b) RBMG shall have performed or complied in all material respects
with all material agreements and covenants required by this Agreement to be
performed or complied with by it on or prior to the Effective Time and RBC
shall have received a certificate of the Chairman or President and Chief
Financial Officer of RBMG to that effect;
(c) McNair Law Firm, P.A. or King & Spalding shall have issued its
opinions, such opinions dated on or about the Effective Time and on or
about the date that is two business days prior to the date the Proxy
Statement is first mailed to stockholders of RBMG, addressed to RBC, and
reasonably satisfactory to it, based upon customary representations of RBC
and RBMG and customary assumptions, to the effect that the Merger will be
treated for federal income tax purposes as a reorganization qualifying
under the provisions of Section 368(a) of the Code and that the
stockholders of RBC will recognize no gain or loss upon the receipt of
shares of RBMG Common Stock in exchange for shares of RBC Voting Common
Stock or RBC Non-voting Common Stock in the Merger, which opinions shall
not have been withdrawn or modified in any material respect;
SECTION 7.03. Conditions to the Obligations of RBMG. The obligations of
RBMG to consummate the Merger, or to permit the consummation of the Merger, are
subject to the satisfaction or, if permitted by applicable Law, waiver of the
following further condition: since January 1, 1997, there shall not have
occurred an RBC Material Adverse Effect or, since the date of this Agreement, an
inaccuracy of the representation and warranties of RBC or the failure of RBC to
comply with or perform its agreements and covenants required by this Agreement,
in either case, which results in an RBC Material Adverse Effect, other than an
RBC Material Adverse Effect which may be compensated by adjusting the Exchange
Ratio (and which adjustment is agreed to by the Parties).
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time, notwithstanding any
requisite adoption and approval of this Agreement, as follows:
(a) by mutual written consent duly authorized by the Board of
Directors of RBC and RBMG;
(b) by RBC or RBMG, if the Effective Time shall not have occurred on
or before November 1, 1997; provided, however, that the right to terminate
this Agreement under this Section 8.01(b) shall not be available to any
party whose failure to fulfill any obligation under this Agreement shall
have caused, or resulted in, the failure of the Effective Time to occur on
or before such date; provided, further, however, that, if any action is
required to be taken pursuant to Section 5.07 in order to cure any problem
which is curable which caused the Merger to fail to qualify as a
reorganization under the provisions of Section 368(a) of the Code, and such
failure was the sole reason that the Merger could not be consummated on or
prior to November 1, 1997, this Agreement may not be terminated pursuant to
this clause (b) unless the Effective Time shall not have occurred on or
before December 1, 1997;
(c) by RBC or RBMG, if any Governmental Order, writ, injunction or
decree preventing the consummation of any of the Merger shall have been
entered by any court of competent jurisdiction and shall have become final
and nonappealable; or
(d) by RBC or RBMG, (i) if this Agreement and the Merger shall fail to
receive the requisite votes for approval at the RBMG Stockholders' Meeting
or any adjournment or postponement thereof or (ii) if this Agreement and
the Merger shall fail to receive the requisite votes for approval at the
RBC Stockholders' Meeting or any adjournment or postponement thereof.
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SECTION 8.02. Effect of Termination. Except as provided in Section 9.01,
in the event of termination of this Agreement pursuant to Section 8.01, this
Agreement shall forthwith become void, there shall be no liability under this
Agreement on the part of any of RBC or RBMG or any of their respective officers
or directors, and all rights and obligations of each party hereto shall cease,
subject to the remedies of the parties hereto set forth in Section 8.05;
provided, however, that nothing herein shall relieve any party hereto from
liability for the willful or intentional breach of any of its representations
and warranties or the willful or intentional breach of any of its covenants or
agreements set forth in this Agreement.
SECTION 8.03. Amendment. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Board of Directors at
any time prior to the Effective Time; provided, however, that no amendment may
be made (except such amendments that have received the requisite stockholder
approval and such amendments as are permitted to be made without RBC stockholder
approval under the SCBCA or RBMG stockholder approval under the DGCL) that would
(i) reduce the amount or change the type of consideration into which each share
of RBC Voting Common Stock and each share of RBC Non-voting Common Stock shall
be converted upon consummation of the Merger, (ii) change any terms of this
Agreement in a manner that would materially and adversely affect RBC or RBMG, as
the case may be, or RBC's stockholders or RBMG's stockholders, as the case may
be, or (iii) change any term of the Articles of Incorporation of RBC or the
Certificate of Incorporation of RBMG. This Agreement may not be amended except
by an instrument in writing signed by the parties hereto.
SECTION 8.04. Waiver. At any time prior to the Effective Time, any party
hereto may (a) extend the time for or waive compliance with the performance of
any obligation or other act of any other party hereto or (b) waive any
inaccuracy in the representations and warranties contained herein or in any
document delivered pursuant hereto. Any such extension or waiver shall be valid
if set forth in an instrument in writing signed by the party or parties to be
bound thereby.
SECTION 8.05. Fees and Expenses. Except as set forth in this Section 8.05,
all Expenses incurred in connection with this Agreement and the Merger shall be
paid by the party incurring such Expenses, whether or not the Merger is
consummated; provided, however, that all Expenses related to (i) regulatory
filing fees pursuant to the HSR Act and (ii) printing, filing and mailing the
Registration Statement and the Joint Proxy Statement and all SEC and other
regulatory filing fees incurred in connection with the Registration Statement
and the Joint Proxy Statement shall be borne equally by RBC and RBMG.
"Expenses", as used in this Agreement, shall include all reasonable
out-of-pocket expenses (including, without limitation, all fees and expenses of
counsel, accountants, investment bankers, experts and consultants to a party
hereto and its affiliates) and regulatory filing fees incurred by a party or on
its behalf in connection with or related to the authorization, preparation,
negotiation, execution and performance of its obligations pursuant to this
Agreement and the consummation of the Merger.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Non-Survival of Representations and Warranties. The
representations and warranties in this Agreement shall terminate at the
Effective Time or upon the termination of this Agreement pursuant to Section
8.01, as the case may be. Each party agrees that, except for the representations
and warranties contained in this Agreement, including the RBC Disclosure
Schedule and the RBMG Disclosure Schedule, no party hereto has made any other
representation and warranties, and each party hereby disclaims any other
representations and warranties made by itself or any of its officers, directors,
employees, agents, financial and legal advisors or other representatives, with
respect to the execution and delivery of this Agreement or the Merger
contemplated herein, notwithstanding the delivery or disclosure to any other
party or any party's representatives of any documentation or other information
with respect to any one or more of the foregoing.
SECTION 9.02. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by telecopy
or facsimile, by registered or certified mail (postage prepaid, return receipt
requested) or by a
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nationally recognized courier service to the respective parties at the following
addresses (or at such other address for a party as shall be specified in a
notice given in accordance with this Section 9.02):
(a) if to RBC:
Resource Bancshares Corporation
1901 Main Street, Suite 650
Columbia, South Carolina 29201
Attention: Melissa A. Ard
Telecopier: (803) 254-3430
with a copy to:
McNair Law Firm, P.A.
1301 Gervais Street, 17th Floor
Columbia, South Carolina 29201
Attention: John W. Currie
Telecopier: (803) 376-2277
(b) if to RBMG or Merger Sub:
Resource Bancshares Mortgage Group, Inc.
7909 Parklane Road
Columbia, South Carolina 29223
Attention: David W. Johnson, Jr.
Telecopier: (803) 741-3708
with a copy to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attention: Russell B. Richards, Esq.
Telecopier: (404) 572-5100
SECTION 9.03. Certain Definitions. For purposes of this Agreement, the
following terms have the following meanings:
(a) "affiliate" has the meaning specified in Rule 144 promulgated by
the SEC under the Securities Act;
(b) "Beneficial Owner" with respect to any shares of capital stock
means a person who shall be deemed to be the beneficial owner of such
shares (i) which such person or any of its affiliates or associates (as
such term is defined in Rule 12b-2 promulgated under the Exchange Act)
beneficially owns, directly or indirectly, (ii) which such person or any of
its affiliates or associates has, directly or indirectly, (A) the right to
acquire (whether such right is exercisable immediately or subject only to
the passage of time), pursuant to any agreement, arrangement or
understanding or upon the exercise of consideration rights, exchange
rights, warrants or options, or otherwise, or (B) the right to vote
pursuant to any agreement, arrangement or understanding, or (iii) which are
beneficially owned, directly or indirectly, by any other persons with whom
such person or any of its affiliates or associates or person with whom such
person or any of its affiliates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of
any shares of capital stock;
(c) "Business Day" means any day in which the principal offices of the
SEC in Washington, D.C. are open to accept filings; in the case of
determining a date when any payment is due, any day on which banks are not
required or authorized by law or executive order to close in the City of
New York, USA;
(d) "$" means United States Dollars;
(e) "Governmental Order" means any order, writ, judgment, injunction,
decree, stipulation, determination or award entered by or with any
Governmental Entity;
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(f) "Knowledge" means, with respect to any matter in question, that
the executive officers of RBC or RBMG, as the case may be, (i) have actual
knowledge of such matter or (ii) after due investigation, should have known
of such matter;
(g) "Lease" means each lease of Leased Real Property, wherein RBC is
the tenant (including all amendments, consents for alterations and
documents regarding variations and evidence of commencement dates and
expiration dates);
(h) "Leased Real Property" means the real property leased by RBC, as
tenant, together with, to the extent leased by RBC, all buildings and other
structures, facilities or improvements currently or hereafter located
thereon, all fixtures and improvements thereon, and all easements,
licenses, rights and appurtenances relating to the foregoing;
(i) "Permitted Encumbrances" means (a) liens for Taxes and assessments
not yet payable, and (b) imperfections of title, liens, security interests
and other encumbrances the existence of which, individually and in the
aggregate, do not have a RBC Material Adverse Effect;
(j) "Person" means an individual, corporation, partnership, limited
partnership, limited liability company, syndicate, person (including,
without limitation, a "person" as defined in Section 13(d)(3) of the
Exchange Act), trust, association, entity or government or political
subdivision, agency or instrumentality of a government; and
(k) "Subsidiary" or "Subsidiaries" of any person means any
corporation, limited liability company, partnership, joint venture or other
legal entity of which such person (either alone or through or together with
any other subsidiary of such person) owns, directly or indirectly, more
than 50 percent of the stock or other equity interests, the holders of
which are generally entitled to vote for the election of the board of
directors or other governing body of such corporation or other legal
entity.
SECTION 9.04. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the
Reorganization is not affected in any manner materially adverse to any party.
Upon such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the paries as
closely as possible in a mutually acceptable manner to the fullest extent
permitted by applicable Law in order that the Merger may be consummated as
originally contemplated to the fullest extent possible.
SECTION 9.05. Assignment; Binding Effect; Benefit. Neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto (whether by operation of Law or otherwise) without the
prior written consent of the other parties hereto. Subject to the preceding
sentence, this Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors, heirs and executors and
permitted assigns. Notwithstanding anything contained in this Agreement to the
contrary, other than Section 6.04, nothing in this Agreement, expressed or
implied, is intended to confer on any person other than the parties hereto or
their respective successors, heirs and executors and permitted assigns any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
SECTION 9.06. Incorporation of Exhibits. The RBC Disclosure Schedule, the
RBMG Disclosure Schedule and all Exhibits attached hereto and referred to herein
are hereby incorporated herein and made a part of this Agreement for all
purposes as if fully set forth herein.
SECTION 9.07. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement were
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
SECTION 9.08. Governing Law. Except to the extent that the Laws of the
jurisdiction of organization of any party hereto, or any other jurisdiction, are
mandatorily applicable to the Merger or to matters arising under or in
connection with this Agreement, this Agreement shall be governed by the Laws of
the State of South Carolina.
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SECTION 9.09. Consent to Jurisdiction; Venue. (a) Each of the parties
hereto irrevocably submits to the exclusive jurisdiction of the state courts of
South Carolina and to the jurisdiction of the United States District Court for
the District of South Carolina, for the purpose of any action or proceeding
arising out of or relating to this Agreement and each of the parties hereto
irrevocably agrees that all claims in respect to such action or proceeding may
be heard and determined exclusively in any South Carolina state or federal court
sitting in the City of Columbia. Each of the parties hereto agrees that a final
judgment in any action or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other manner provided by
Law.
(b) Each of the parties hereto irrevocably consents to the service of any
summons and complaints and any other process in any other action or proceeding
relating to the Merger, on behalf of itself or its property, by the personal
delivery of copies of such process to such party. Nothing in this Section 9.09
shall affect the right of any party hereto to serve legal process in any other
manner permitted by Law.
SECTION 9.10. Headings. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 9.11. Counterparts. This Agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
and delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.
SECTION 9.12. Entire Agreement. This Agreement (including the Exhibits,
the RBC Disclosure Schedule, the RBMG Disclosure Schedule and the
Confidentiality Agreement) constitutes the entire agreement among the parties
with respect to the subject matter hereof and supersedes all prior agreements
and understandings among the parties with respect thereto. No addition to or
modification of any provision of this Agreement shall be binding upon any party
hereto unless made in writing and signed by all parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
RESOURCE BANCSHARES CORPORATION
By: /s/ EDWARD J. SEBASTIAN
------------------------------------
Name: Edward J. Sebastian
Title: Chairman of the Board and
Chief Executive Officer
RESOURCE BANCSHARES MORTGAGE
GROUP, INC.
By: /s/ DAVID W. JOHNSON, JR.
------------------------------------
Name: David W. Johnson, Jr.
Title: Vice Chairman of the Board
and Managing Director
RBC MERGER SUB, INC.
By: /s/ EDWARD J. SEBASTIAN
------------------------------------
Name: Edward J. Sebastian
Title: President
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FIRST AMENDMENT TO AGREEMENT OF MERGER
FIRST AMENDMENT TO AGREEMENT OF MERGER, dated as of September 18, 1997 (the
"First Amendment"), among RESOURCE BANCSHARES MORTGAGE GROUP, INC., a Delaware
corporation ("RBMG"), RBC MERGER SUB, INC., a South Carolina corporation and a
wholly owned subsidiary of RBMG ("Merger Sub"), and RESOURCE BANCSHARES
CORPORATION, a South Carolina corporation ("RBC").
WHEREAS, pursuant to the terms of that certain Agreement of Merger dated
April 18, 1997 among RBMG, Merger Sub and RBC (the "Agreement"), RBMG will
acquire all of the common stock of RBC through the merger of Merger Sub with and
into RBC, and the stockholders of RBC will receive shares of common stock of
RBMG in proportion to their interests in RBC; and
WHEREAS, the parties wish to amend the Agreement to provide for a later
termination date;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Section 8.01(b) of the Agreement is amended by deleting the date
"November 1, 1997" in both places where it appears and substituting in lieu
thereof in both places the date "January 31, 1998" and by deleting the date
"December 1, 1997" and substituting in lieu thereof the date "February 28,
1998".
2. Except as amended hereby, the terms, conditions, covenants,
agreements, representations and warranties contained in the Agreement shall
remain unaffected hereby and shall continue in full force and effect.
3. This First Amendment may be executed and delivered (including by
facsimile transmission) in one or more counterparts, and by the different
parties hereto in separate counterparts, each of which when executed and
delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this first Amendment to
be executed as of the date first written above by their respective officers
thereunto duly authorized.
RESOURCE BANCSHARES CORPORATION
By: /s/ EDWARD J. SEBASTIAN
------------------------------------
Edward J. Sebastian
Its: Chairman of the Board and Chief
Executive Officer
RESOURCE BANCSHARES MORTGAGE
GROUP, INC.
By: /s/ DAVID W. JOHNSON, JR.
------------------------------------
David W. Johnson, Jr.
Its: Vice Chairman of the Board and
Managing Director
RBC MERGER SUB, INC.
By: /s/ EDWARD J. SEBASTIAN
------------------------------------
Edward J. Sebastian
Its: President
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SECOND AMENDMENT TO AGREEMENT OF MERGER
SECOND AMENDMENT TO AGREEMENT OF MERGER, dated as of November 12, 1997 (the
"Second Amendment"), among RESOURCE BANCSHARES MORTGAGE GROUP, INC., a Delaware
corporation ("RBMG"), RBC MERGER SUB, INC., a South Carolina corporation and a
wholly owned subsidiary of RBMG ("Merger Sub"), and RESOURCE BANCSHARES
CORPORATION, a South Carolina corporation ("RBC").
WHEREAS, pursuant to the terms of that certain Agreement of Merger dated
April 18, 1997 among RBMG, Merger Sub and RBC, as amended by that First
Amendment to Agreement of Merger dated September 18, 1997 (the "Agreement"),
RBMG will acquire all of the common stock of RBC through the merger of Merger
Sub with and into RBC, and the stockholders of RBC will receive shares of common
stock of RBMG in proportion to their interests in RBC; and
WHEREAS, the parties wish to amend the Agreement to provide for an
adjustment to the Exchange Ratio under certain circumstances;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. RBC hereby consents to, and waives any and all defaults under the
Agreement and all other agreements executed in connection therewith that
would arise from, the declaration and payment by RBMG of (i) the cash
dividend of $.04 per share of RBMG Common Stock declared by the RBMG Board
of Directors on October 31, 1997, payable to RBMG shareholders of record on
December 18, 1997, and (ii) the 5% share dividend declared by the RBMG
Board of Directors on October 31, 1997, payable to RBMG shareholders of
record on December 18, 1997, including, without limitation, any defaults
arising under Section 5.02(d) of the Agreement. RBC acknowledges that RBMG
will be relying on this consent and waiver in connection with consummating
the Merger.
2. Section 2.02 of the Merger Agreement is hereby amended by inserting
at the end of the first sentence of such Section 2.02 the following:
"; provided, however, that if the Effective Time occurs after the record
date for determination of holders of RBMG Common Stock entitled to
receive the cash dividend of $.04 per share of RBMG Common Stock
declared by the RBMG Board of Directors on October 31, 1997, the
Exchange Ratio shall be adjusted by adding to the Exchange Ratio the
quotient of (x) 0.0432104 divided by (y) the arithmetic average of the
closing prices for a share of RBMG Common Stock on the Nasdaq National
Market for each of the ten trading days ending five trading days prior
to the Effective Time."
3. Except as amended hereby, the terms, conditions, covenants,
agreements, representations and warranties contained in the Agreement shall
remain unaffected hereby and shall continue in full force and effect.
4. This Second Amendment may be executed and delivered (including by
facsimile transmission) in one or more counterparts, and by the different
parties hereto in separate counterparts, each of which when executed and
delivered shall be deemed to be an original but all of which taken together
shall constitute one and same agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to
be executed as of the date first written above by their respective officers
thereunto duly authorized.
RESOURCE BANCSHARES CORPORATION
By: /s/ MELISSA A. ARD
---------------------------------------
Melissa A. Ard
Senior Vice President and
Chief Financial Officer
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
By: /s/ STEVEN F. HERBERT
---------------------------------------
Steven F. Herbert
Senior Executive Vice President and
Chief Financial Officer
RBC MERGER SUB, INC.
By: /s/ DAVID W. JOHNSON, JR.
---------------------------------------
David W. Johnson, Jr.
Vice Chairman of the Board and
Managing Director
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<PAGE> 172
ANNEX B
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
RESOURCE BANCSHARES MORTGAGE GROUP, INC., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "Corporation") hereby certifies:
FIRST: That the Board of Directors of the Corporation duly adopted the
following resolution proposing and declaring advisable an amendment to the
Certificate of Incorporation of the Corporation increasing the number of
authorized shares of Common Stock, par value $.01 per share, of the Company
from Twenty-Five Million (25,000,000) to Fifty Million (50,000,000):
"RESOLVED, that the Company amend its Certificate of Incorporation
by deleting in its entirety the first paragraph of the Fourth Article of
the Certificate of Incorporation and substituting in lieu thereof the
following:
FOURTH: (a) The total number of shares of all classes of stock
which the Corporation shall have authority to issue is 55,000,000
shares, consisting of 50,000,000 shares of Common Stock, par value
$.01 per share, and 5,000,000 shares of Preferred Stock, par value
$.01 per share."
SECOND: That the amendments have been adopted by an affirmative vote
of a majority of the stockholders of the Corporation in accordance with the
provisions of Section 242(b)(2) of the General Corporation Law of the State
of Delaware.
IN WITNESS WHEREOF, the Corporation has caused its duly authorized officers
to execute this Certificate as of this day of , 1997.
RESOURCE BANCSHARES MORTGAGE
GROUP, INC.
By:
------------------------------------
Attest:
-------------------------------
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ANNEX C
CHAPTER 13 OF THE SOUTH CAROLINA BUSINESS CORPORATION ACT
SEC. 33-13-101. DEFINITIONS.
In this chapter:
(1) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by
merger or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Section 33-13-102 and who exercises that right when
and in the manner required by Sections 33-13-200 through 33-13-280.
(3) "Fair value", with respect to a dissenter's shares, means the
value of the shares immediately before the effectuation of the corporate
action to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action to which the dissenter
objects, excluding any appreciation or depreciation in anticipation of the
corporate action unless exclusion would be inequitable. The value of the
shares is to be determined by techniques that are accepted generally in the
financial community.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair
and equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee certificate on file
with a corporation.
(6) "Beneficial Shareholder" means the person who is a beneficial
owner of shares held by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
SEC. 33-13-102. RIGHT TO DISSENT.
A shareholder is entitled to dissent from, and obtain payment of the fair
value of, his shares in the event of any of the following corporate actions:
(1) consummation of a plan of merger to which the corporation is a
party (i) if shareholder approval is required for the merger by Section
33-11-103 or the articles of incorporation and the shareholder is entitled
to vote on the merger or (ii) if the corporation is a subsidiary that is
merged with its parent under Section 33-11-104 or 33-11-108 or if the
corporation is a parent that is merged with its subsidiary under Section
33-11-108;
(2) consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares are to be acquired, if the
shareholder is entitled to vote on the plan;
(3) consummation of a sale or exchange of all, or substantially all,
of the property of the corporation other than in the usual and regular
course of business, if the shareholder is entitled to vote on the sale or
exchange, including a sale in dissolution, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale must be distributed to
the shareholders within one year after the date of sale;
(4) an amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(i) alters or abolishes a preferential right of the shares;
(ii) creates, alters, or abolishes a right in respect of
redemption, including a provision respecting a sinking fund for the
redemption or repurchase, of the shares;
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(iii) alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities;
(iv) excludes or limits the right of the shares to vote on any
matter, or to cumulate votes, other than a limitation by dilution
through issuance of shares or other securities with similar voting
rights; or
(v) reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be acquired
for cash under Section 33-6-104; or
(5) the approval of a control share acquisition under Article 1 of
Chapter 2 of Title 35;
(6) any corporate action to the extent the articles of incorporation,
bylaws, or a resolution of the board of directors provides that voting or
nonvoting shareholders are entitled to dissent and obtain payment for their
shares.
SEC. 33-13-103. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
(a) A record shareholder may assert dissenters' rights as to fewer
than all the shares registered in his name only if he dissents with respect
to all shares beneficially owned by any one person and notifies the
corporation in writing of the name and address of each person on whose
behalf he asserts dissenters' rights. The rights of a partial dissenter
under this subsection are determined as if the shares to which he dissents
and his other shares were registered in the names of different
shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to
shares held on his behalf only if he dissents with respect to all shares of
which he is the beneficial shareholder or over which he has power to direct
the vote. A beneficial shareholder asserting dissenters' rights to shares
held on his behalf shall notify the corporation in writing of the name and
address of the record shareholder of the shares, if known to him.
SEC. 33-13-200. NOTICE OF DISSENTERS' RIGHTS.
(a) If proposed corporate action creating dissenters' rights under
Section 33-13-102 is submitted to a vote at a shareholders' meeting, the
meeting notice must state that shareholders are or may be entitled to
assert dissenters' rights under this chapter and be accompanied by a copy
of this chapter.
(b) If a corporate action creating dissenters' rights under Section
33-13-102 is taken without a vote of shareholders, the corporation shall
notify in writing all shareholders entitled to assert dissenters' rights
that the action was taken and send them the dissenters' notice described in
Section 33-13-220.
SEC. 33-13-210. NOTICE OF INTENT TO DEMAND PAYMENT.
(a) If proposed corporate action creating dissenters' rights under
Section 33-13-102 is submitted to a vote at a shareholders' meeting, a
shareholder who wishes to assert dissenters' rights (1) must give to the
corporation before the vote is taken written notice of his intent to demand
payment for his shares if the proposed action is effectuated and (2) must
not vote his shares in favor of the proposed action. A vote in favor of the
proposed action cast by the holder of a proxy solicited by the corporation
shall not disqualify a shareholder from demanding payment for his shares
under this chapter.
(b) A shareholder who does not satisfy the requirements of subsection (a)
is not entitled to payment for his shares under this chapter.
SEC. 33-13-220. DISSENTERS' NOTICE.
(a) If proposed corporate action creating dissenters' rights under Section
33-13-102 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of Section 33-13-210(a).
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(b) The dissenters' notice must be delivered no later than ten days after
the corporate action was taken and must:
(1) state where the payment demand must be sent and where certificates
for certificated shares must be deposited;
(2) inform holders of uncertificated shares to what extent transfer of
the shares is to be restricted after the payment demand is received;
(3) supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not he or, if he is a nominee
asserting dissenters' rights on behalf of a beneficial shareholder, the
beneficial shareholder acquired beneficial ownership of the shares before
that date;
(4) set a date by which the corporation must receive the payment
demand, which may not be fewer than thirty nor more than sixty days after
the date the subsection (a) notice is delivered and set a date by which
certificates for certificated shares must be deposited, which may not be
earlier than twenty days after the demand date; and
(5) be accompanied by a copy of this chapter.
SEC. 33-13-230. SHAREHOLDERS' PAYMENT DEMAND.
(a) A shareholder sent a dissenters' notice described in Section 33-13-220
must demand payment, certify whether he (or the beneficial shareholder on whose
behalf he is asserting dissenters' rights) acquired beneficial ownership of the
shares before the date set forth in the dissenters' notice pursuant to Section
33-13-220(b)(3), and deposit his certificates in accordance with the terms of
the notice.
(b) The shareholder who demands payment and deposits his share certificates
under subsection (a) retains all other rights of a shareholder until these
rights are cancelled or modified by the taking of the proposed corporate action.
(c) A shareholder who does not comply substantially with the requirements
that he demand payment and deposit his share certificates where required, each
by the date set in the dissenters' notice, is not entitled to payment for his
shares under this chapter.
SEC. 33-13-240. SHARE RESTRICTIONS.
(a) The corporation may restrict the transfer of uncertificated shares from
the date the demand for payment for them is received until the proposed
corporate action is taken or the restrictions are released under Section
33-13-260.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
SEC. 33-13-250. PAYMENT.
(a) Except as provided in Section 33-13-270, as soon as the proposed
corporate action is taken, or upon receipt of a payment demand, the corporation
shall pay each dissenter who substantially complied with Section 33-13-230 the
amount the corporation estimates to be the fair value of his shares, plus
accrued interest.
(b) The payment must be accompanied by:
(1) the corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for
that year, and the latest available interim financial statements, if any;
(2) a statement of the corporation's estimate of the fair value of the
shares and an explanation of how the fair value was calculated;
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(3) an explanation of how the interest was calculated;
(4) a statement of the dissenter's right to demand additional payment
under Section 33-13-280; and
(5) a copy of this chapter.
SEC. 33-13-260. FAILURE TO TAKE ACTION.
(a) If the corporation does not take the proposed action within sixty days
after the date set for demanding payment and depositing share certificates, the
corporation, within the same sixty-day period, shall return the deposited
certificates and release the transfer restrictions imposed on uncertificated
shares.
(b) If, after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under Section 33-13-220 and repeat the payment demand
procedure.
SEC. 33-13-270. AFTER-ACQUIRED SHARES.
(a) A corporation may elect to withhold payment required by section
33-13-250 from a dissenter as to any shares of which he (or the beneficial owner
on whose behalf he is asserting dissenters' rights) was not the beneficial owner
on the date set forth in the dissenters' notice as the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action, unless the beneficial ownership of the shares devolved upon
him by operation of law from a person who was the beneficial owner on the date
of the first announcement.
(b) To the extent the corporation elects to withhold payment under
subsection (a), after taking the proposed corporate action, it shall estimate
the fair value of the shares, plus accrued interest, and shall pay this amount
to each dissenter who agrees to accept it in full satisfaction of his demand.
The corporation shall send with its offer a statement of its estimate of the
fair value of shares, an explanation of how the fair value and interest were
calculated, and a statement of the dissenter's right to demand additional
payment under Section 33-13-280.
SEC. 33-13-280. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.
(a) A dissenter may notify the corporation in writing of his own estimate
of the fair value of his shares and amount of interest due and demand payment of
his estimate (less any payment under Section 33-13-250) or reject the
corporation's offer under Section 33-13-270 and demand payment of the fair value
of his shares and interest due, if the:
(1) dissenter believes that the amount paid under Section 33-13-250 or
offered under Section 33-13-270 is less than the fair value of his shares
or that the interest due is calculated incorrectly;
(2) corporation fails to make payment under Section 33-13-250 or to
offer payment under Section 33-13-270 within sixty days after the date set
for demanding payment; or
(3) corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within sixty days after the date set for
demanding payment.
(b) A dissenter waives his right to demand additional payment under this
section unless he notifies the corporation of his demand in writing under
subsection (a) within thirty days after the corporation made or offered payment
for his shares.
SEC. 33-13-300. COURT ACTION.
(a) If a demand for additional payment under Section 33-13-280 remains
unsettled, the corporation shall commence a proceeding within sixty days after
receiving the demand for additional payment and petition the court to determine
the fair value of the shares and accrued interest. If the corporation does not
commence the proceeding within the sixty-day period, it shall pay each dissenter
whose demand remains unsettled the amount demanded.
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(b) The corporation shall commence the proceeding in the circuit court of
the county where the corporation's principal office (or, if none in this State,
its registered office) is located. If the corporation is a foreign corporation
without a registered office in this State, it shall commence the proceeding in
the county in this State where the principal office (or, if none in this State,
the registered office) of the domestic corporation merged with or whose shares
were acquired by the foreign corporation was located.
(c) The corporation shall make all dissenters (whether or not residents of
this State) whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication, as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) is plenary and exclusive. The court may appoint persons as
appraisers to receive evidence and recommend decisions on the question of fair
value. The appraisers have the powers described in the order appointing them or
in any amendment to it. The dissenters are entitled to the same discovery rights
as parties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to judgment
for the amount, if any, by which the court finds the fair value of his shares,
plus interest, exceeds the amount paid by the corporation.
SEC. 33-13-310. COURT COSTS AND COUNSEL FEES.
(a) The court in an appraisal proceeding commenced under Section 33-13-300
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court shall
assess the costs against the corporation, except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously, or not
in good faith in demanding payment under Section 33-13-280.
(b) The court also may assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(1) against the corporation and in favor of any or all dissenters if
the court finds the corporation did not comply substantially with the
requirements of Sections 33-13-200 through 33-13-280; or
(2) against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by this chapter.
(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
(d) In a proceeding commenced by dissenters to enforce the liability under
Section 33-13-300(a) of a corporation that has failed to commence an appraisal
proceeding within the sixty-day period, the court shall assess the costs of the
proceeding and the fees and expenses of dissenters' counsel against the
corporation and in favor of the dissenters.
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ANNEX D
[PRUDENTIAL LETTERHEAD]
APRIL 18, 1997
PRIVATE AND CONFIDENTIAL
The Board of Directors
Resource Bancshares Mortgage Group, Inc.
7909 Parkland Road
Columbia, South Carolina 29223
Members of the Committee:
We understand that Resource Bancshares Mortgage Group, Inc. ("RBMG" or the
"Company"), a wholly-owned subsidiary of the Company ("Merger Sub") and Resource
Bancshares Corporation ("RBC") propose to enter into an Agreement of Merger (the
"Agreement"). Pursuant to the Agreement, Merger Sub shall merge with and into
RBC and RBC shall continue as the surviving corporation and a wholly-owned
subsidiary of the Company (the "Merger"). In the Merger each outstanding share
of RBC voting common stock, par value $.01 per share, and each outstanding share
of RBC non-voting common stock, par value $.01 per share, will be converted into
and become exchangeable for the right to receive shares of RBMG common stock
(the "Exchange Ratio"), par value $.01 per share (the "RBMG Common Stock").
You have requested our opinion as to the fairness from a financial point of
view of the Exchange Ratio to the stockholders of the Company.
In conducting our analysis and arriving at the opinion expressed herein, we
have reviewed such materials and considered such financial and other factors we
deemed relevant under the circumstances, including:
(i) the execution copy of the Agreement presented to the Board of
Directors on the date hereof;
(ii) certain publicly available historical financial and operating
data concerning the Company including the Annual Report on Form 10-K of the
Company for the years ended December 31, 1996, 1995 and 1994, the Company's
Proxy Statement for the Annual Meeting of Shareholders held on April 25,
1996, the Company's Prospectus, dated March 11, 1996, relating to the sale
of 3,512,961 shares of RBMG Common Stock and the Company's Prospectus,
dated May 25, 1993, relating to the initial public offering of RBMG Common
Stock;
(iii) certain historical financial and operating data concerning RBC
including the audited consolidated financial statements of RBC and
Subsidiaries for the years ended December 31, 1996, 1995 and 1994;
(iv) certain information of the Company, including financial forecasts
for future fiscal years prepared by the management of the Company;
(v) certain information of RBC, including financial forecasts for the
year ending December 31, 1997, prepared by the management of RBC;
(vi) certain information of RBC, including closing documents relating
to the February 3, 1997 repurchase by Intek Information, Inc. ("Intek") of
5,000 Series A Preferred shares of Intek owned by RBC;
(vii) the pro forma financial impact of the Merger on the Company;
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(viii) publicly available financial, operating and stock market data
concerning certain companies engaged in businesses we deemed comparable to
RBC or otherwise relevant to our inquiry;
(ix) publicly available financial, operating and stock market data
concerning certain companies engaged in businesses we deemed comparable to
Republic Leasing Company, Inc. or otherwise relevant to our inquiry;
(x) the financial terms of certain recent transactions we deemed
relevant; and
(xi) such other financial studies, analyses and investigations that we
deemed appropriate.
We have met with the management of the Company and RBC to discuss (i) the
prospects for their respective businesses, (ii) their estimates of such
businesses' future financial performance, (iii) the financial impact of the
Merger on the respective companies and (iv) such other matters that we deemed
relevant.
In connection with our review and analysis and in arriving at our opinion,
we have relied upon the accuracy and completeness of the financial and other
information provided to us by the Company and RBC and have not undertaken any
independent verification of such information or any independent valuation or
appraisal of any of the assets or liabilities of the Company or RBC. With
respect to certain financial forecasts provided to us by the Company, and
financial forecasts provided to us by RBC, we have assumed that the information
represents each respective management's best currently available estimate as to
the future financial performance of the Company and of RBC. Further, our opinion
is necessarily based on economic, financial and market conditions as they exist
and can be evaluated as of the date hereof and we assume no responsibility to
update or revise our opinion based upon events or circumstances occurring after
the date hereof. Our opinion does not address the relative merits of the Merger
as compared to any alternative business strategies that might exist for the
Company or the effect of any other transaction in which the Company might
engage.
As you know, we have been retained by the Special Committee of the Board of
Directors of the Company to render this opinion and provide other financial
advisory services in connection with the Merger. We received a retainer fee for
our services, are due a fee upon signing of the Agreement and, upon consummation
of the Merger, will receive an additional fee. In the past we have performed
other investment banking services for the Company and we are currently engaged
to represent the Company in, and will receive a fee upon consummation of, the
proposed merger with Walsh Holding Co., Inc. In addition, in the ordinary course
of business we may actively trade the RBMG Common Stock for our own account and
for the accounts of customers and accordingly, may at any time hold a long or
short position in such securities.
This letter and the opinion expressed herein are for the use of the Special
Committee of the Board of Directors of the Company. This opinion does not
constitute a recommendation to the stockholders of the Company as to how such
stockholders should vote regarding the Merger. This opinion may not be
reproduced, summarized, excerpted from or otherwise publicly referred to or
disclosed in any manner, without our prior written consent; except that the
Company may include this opinion in its entirety in any proxy statement or
information statement relating to the Merger sent to the Company's stockholders.
Any summary of this opinion included in such proxy statement must be in a form
acceptable to Prudential Securities Incorporated.
Based upon and subject to the foregoing, we are of the opinion that, as of
the date hereof, the Exchange Ratio is fair to the stockholders of the Company
from a financial point of view.
Very truly yours,
PRUDENTIAL SECURITIES INCORPORATED
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ANNEX E
NATIONSBANC MONTGOMERY SECURITIES, INC.
November 14, 1997
Board of Directors
Resource Bancshares Corporation
1901 Main Street, Suite 650
Columbia, South Carolina 29201
Ladies and Gentlemen:
We understand that Resource Bancshares Corporation, a South Carolina
Corporation ("RBC"), Resource Bancshares Mortgage Group, Inc., a Delaware
corporation ("RBMG"), and RBC Merger Sub, Inc., a South Carolina corporation and
a newly-formed, wholly-owned subsidiary of RBMG ("RBC Merger Sub"), have entered
into a Merger Agreement dated April 18, 1997, as amended by First Amendment to
Agreement of Merger dated September 18, 1997, and Second Amendment to Agreement
of Merger dated November 12, 1997 (the "RBC Merger Agreement"), pursuant to
which RBC Merger Sub will merge with and into RBC and RBC will be the surviving
corporation and a wholly-owned subsidiary of RBMG (the "RBC Merger"). Further,
pursuant to the RBC Merger Agreement, we understand that all of the outstanding
shares of voting common stock, par value $0.01 per share, of RBC and all of the
outstanding shares of non-voting common stock, par value $0.01 per share, of RBC
will be converted into and exchangeable for 9,397,238 shares of the common
stock, $0.01 par value per share ("RBMG Common Stock"), of RBMG, subject to
certain adjustments (the "Consideration"). The terms and conditions of the RBC
Merger are set forth in more detail in the RBC Merger Agreement.
We previously delivered to you an opinion dated April 18, 1997 (the "Prior
Letter") which stated, subject to the limitations and conditions contained
therein, our opinion as investment bankers that the Consideration to be received
by the shareholders of RBC pursuant to the RBC Merger is fair to such
shareholders from a financial point of view, as of the date of the RBC Merger
Agreement. You have asked us to reconfirm the opinion expressed in the Prior
Letter, and further asked for our opinion as investment bankers as to whether
the Consideration to be received by the shareholders of RBC pursuant to the RBC
Merger is fair to such shareholders from a financial point of view, as of the
date hereof. In addition, as you are aware, we were not retained to nor did we
advise RBC with respect to alternatives to the RBC Merger or RBC's underlying
decision to proceed with or effect the RBC Merger. Further, we were not
requested to nor did we solicit or assist RBC in soliciting indications of
interest from third parties for all or any part of RBC.
In connection with our opinion, we have, among other things: (i) reviewed
certain publicly available financial and other data with respect to RBMG,
including the consolidated financial statements for recent years and interim
periods to September 30, 1997 of RBMG and certain other relevant financial and
operating data relating to RBC and RBMG made available to us from published
sources and from the internal records of RBC and RBMG, including the
consolidated financial statements of RBC for recent years and interim periods to
September 30, 1997; (ii) reviewed the financial terms and conditions of the RBC
Merger Agreement; (iii) reviewed certain publicly available information
concerning the trading of, and the trading market for, RBMG Common Stock; (iv)
compared RBMG and RBC from a financial point of view with certain other
companies in the mortgage banking and leasing industries which we deemed to be
relevant; (v) reviewed and discussed with representatives of the management of
RBC and RBMG certain information of a business and financial nature regarding
RBC and RBMG furnished to us by them, including financial projections and
related assumptions of RBC and RBMG; (vi) made inquiries regarding and discussed
the RBC Merger and the RBC Merger Agreement and other matters related thereto
with RBC's counsel; and (vii) performed such other analyses and examinations as
we have deemed appropriate.
In connection with our review, we have not assumed any obligation
independently to verify the foregoing information and have relied on its being
accurate and complete in all material respects. With respect to the financial
projections for RBC and RBMG provided to us by their respective managements,
upon their advice and
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Resource Bancshares Corporation
November 14, 1997
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with your consent, we have assumed for purposes of our opinion that the
projections have been reasonably prepared on bases reflecting the best available
estimates and judgments of their respective managements, at the time of
preparation, as to the future financial performance of RBC and RBMG, and that
they provide a reasonable basis upon which we can form our opinion. We have also
assumed that there have been no material changes in RBC's or RBMG's assets,
financial condition, results of operations, business, or prospects since the
respective dates of their last financial statements made available to us.
We are not experts in the evaluation of loan portfolios for purposes of
assessing the adequacy of the allowances for losses with respect thereto and
have assumed, with your consent, that such allowances for each of RBC and RBMG
are in the aggregate adequate to cover such losses. In addition, we have not
assumed responsibility for reviewing any individual credit files, or making an
independent evaluation, appraisal, or physical inspection of any of the assets
or liabilities (contingent or otherwise) of RBC or RBMG, nor have we been
furnished with any such appraisals. Similarly, we have, with your consent, not
assumed responsibility for reviewing any aspect of the loan securitization
programs of RBC or RBMG and have assumed, for purposes of this opinion, that
each such program was conducted in full compliance with all applicable
regulations. Further, we have not made an independent valuation of the
reasonableness of the projections utilized in each of such securitization
programs and have assumed that such projections are based on assumptions that
are reasonable and have been properly presented in the financial statements in
accordance with generally accepted accounting principles and all applicable
accounting standards and have been recorded on the applicable financial
statements on a reasonable basis. Finally, our opinion is based on economic,
monetary, and market and other conditions as in effect on, and the information
made available to us as of, the date hereof. Accordingly, although subsequent
developments may affect this opinion, we have not assumed any obligation to
update, revise, or reaffirm this opinion.
We have assumed that the RBC Merger will be consummated in a manner that
complies in all respects with the applicable provisions of the Securities Act of
1933, as amended (the "Securities Act"), the Securities Exchange Act of 1934, as
amended, and all other applicable federal and state statutes, rules and
regulations. You have informed us, and we have assumed, that the RBC Merger will
be recorded as a purchase under generally accepted accounting principles.
Further, you have also informed us and we have assumed, that the RBC Merger,
when consummated, will be treated as a tax-free reorganization under Section
368(a) of the Internal Revenue Code.
We have further assumed with your consent that the RBC Merger will be
consummated in accordance with the terms described in the RBC Merger Agreement,
without any further amendments thereto, and without waiver by RBC of any of the
conditions to its obligations thereunder.
We have acted as financial advisor to RBC in connection with the RBC Merger
and will receive a fee for our services, including rendering this opinion, a
significant portion of which is contingent upon the consummation of the RBC
Merger. In the ordinary course of our business, we actively trade the equity
securities of RBMG for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
We have also acted as an underwriter in connection with offerings of securities
of RBMG and performed various investment banking services for both RBC and RBMG.
Based upon the foregoing and in reliance thereon, it is our opinion as
investment bankers that the Consideration to be received by the shareholders of
RBC pursuant to the RBC Merger is fair to such shareholders from a financial
point of view, as of the date hereof.
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We are not expressing an opinion regarding the price at which the RBMG
Common Stock may trade at any future time. The Consideration to be received by
the shareholders of RBC pursuant to the RBC Merger is based upon a fixed
exchange ratio and, accordingly, the market value of the Consideration may from
time to time vary significantly.
This opinion is directed to the Board of Directors of RBC in its
consideration of the RBC Merger and is not a recommendation to any shareholder
as to how such shareholder should vote with respect to the RBC Merger. Further,
this opinion addresses only the financial fairness of the Consideration to the
shareholders of RBC and does not address the relative merits of the RBC Merger
and any alternatives to the RBC Merger, RBC's underlying decision to proceed
with or effect the RBC Merger, or any other aspect of the RBC Merger. This
opinion may not be used or referred to by RBC, or quoted or disclosed to any
person in any manner, without our prior written consent, which consent is hereby
given to the inclusion of this opinion in the Joint Proxy Statement/Prospectus
filed with the Securities and Exchange Commission in connection with the RBC
Merger. In furnishing this opinion, we do not admit that we are experts within
the meaning of the term "experts" as used in the Securities Act and the rules
and regulations promulgated thereunder, nor do we admit that this opinion
constitutes a report or valuation within the meaning of Section 11 of the
Securities Act.
Very truly yours,
NATIONSBANC MONTGOMERY SECURITIES, INC.
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