-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K8UOiWlUMj3iPSXbdP7qhET+DuYIAUvTpcBLOuzXXFdFo6/QhoExUktEgGp2EAYx D1Sy+/wYqqYvIddvvTeyZw== 0000083402-95-000002.txt : 19951231 0000083402-95-000002.hdr.sgml : 19951231 ACCESSION NUMBER: 0000083402-95-000002 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951229 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: RESOURCE AMERICA INC CENTRAL INDEX KEY: 0000083402 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 720654145 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-04408 FILM NUMBER: 95606356 BUSINESS ADDRESS: STREET 1: 1521 LOCUST STREET CITY: PHILADELPHIA STATE: PA ZIP: 19102 BUSINESS PHONE: 2155465005 MAIL ADDRESS: STREET 1: 2876 SOUTH ARLINGTON ROAD CITY: AKRON STATE: OH ZIP: 44312 FORMER COMPANY: FORMER CONFORMED NAME: RESOURCE EXPLORATION INC DATE OF NAME CHANGE: 19890214 FORMER COMPANY: FORMER CONFORMED NAME: SMTR CORP DATE OF NAME CHANGE: 19700522 10KSB 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-KSB (X) Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee Required) For the fiscal year ended September 30, 1995 Commission file number 0-4408 RESOURCE AMERICA, INC. (Name of small business issuer in its charter) Delaware 72-0654145 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1521 Locust Street, Philadelphia, Pennsylvania 19102 (Address of principal executive offices) (Zip Code) Issuer's telephone number: (215) 546-5005 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Title of each class Common Stock, par value $.01 per share Name of each exchange on which registered: The Company's Common Stock trades on the NASDAQ National Market System under the symbol "REXI" Check whether the issuer (l) filed all reports to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Parts II or III of this Form 10-KSB or any amendment to this Form 10-KSB. (X) State issuer's revenues for its most recent fiscal year: $11,448,068 On December 15, 1995, there were 664,636 shares of Common Stock issued and outstanding. The aggregate market value of the voting stock held by non-affiliates of the Registrant on that date was $10,457,088, based upon the closing sale price on December 15, 1995. Documents Incorporated by Reference Portions of the Registrant's Annual Report to Stockholders for the fiscal year ended September 30, 1995 (the "Annual Report") (incorporated into Parts I, II, and IV of this Form 10-KSB). Portions of the Registrant's Proxy Statement dated January 29, 1996 (incorporated into Part III of this Form 10-KSB). PART I ITEM 1. DESCRIPTION OF BUSINESS (a) BUSINESS DEVELOPMENT Resource America, Inc., (the "Company" or the "Registrant") was organized under the laws of Delaware on February 9, 1966. Registrant maintains its principal executive offices at 1521 Locust Street, Philadelphia, Pennsylvania, 19102, and its telephone number is (215) 546-5005. Its energy and accounting operations are centered at 2876 South Arlington Road, Akron, Ohio, 44312, and its telephone number is (216) 644-6626. Its equipment leasing operations are located at 7 East Skippack Pike, Ambler, Pennsylvania, 19002, and its telephone number is (215) 619-2800. Unless the context otherwise requires, the term "Company" as used herein refers to the Registrant and its wholly-owned subsidiaries Resource Programs, Inc., St. Julien III Corporation, Resource Ventures, Inc. (which was liquidated during the current fiscal year), Resource Properties, Inc., Resource Properties II, Inc., Resource Properties III, Inc., Resource Properties IV, Inc., Resource Properties V, Inc., Resource Properties VI, Inc., Resource Properties VII, Inc., Resource Properties VIII, Inc., Resource Properties IX, Inc., Resource Properties X, Inc., Resource Properties XI, Inc., Resource Properties XII, Inc., Resource Properties XIII, Inc., Resource Properties XIV, Inc., Resource Properties XV, Inc., Resource Properties XVI, Inc., RAI Financial, Inc., Rancho Investments, Inc., Resource Leasing, Inc., Resource Energy, Inc., Resource Well Services, Inc., Resource GP, Inc. (which was liquidated during the current fiscal year) and Fidelity Leasing Corp. (which was acquired during the current fiscal year). Information regarding the acquisition of Fidelity Leasing Corporation is set forth in Note 8 to the Company's consolidated financial statements of the Registrant's Annual Report, which is incorporated herein by reference. Information regarding the industry segments the Company operates in is set forth in Note 9 to the Company's consolidated financial statements of the Registrant's Annual Report, which is incorporated herein by reference. (b) BUSINESS OF ISSUER Resource America, Inc. is a specialty-finance company involved in the acquisition and management of income producing partnership related assets principally in two industries: real estate finance and energy. In real estate, the Company is currently focused on the purchase at discount of income producing real estate mortgages in the $1 to $10 million range - a range that has been largely overlooked by the large national and international financial institutions. The Company has been able to purchase sixteen such mortgages representing a total mortgage receivable in excess of $52 million at an aggregate cost of $18 million from just such institutions. The Company has been able to generate income from the recurring interest earned from ownership of the mortgages as well as the gains realized from the restructuring of several such mortgages. The Company intends to purchase at discount further real estate loans with yields which are generally similar to those of the Company's current mortgage portfolio. The Company has financed these activities through use of internally generated cash and through borrowings from an insurance company. In energy, the Company produces, transports, and operates natural gas and oil properties for its own account and that of investors. The Company has interests in 767 wells, operating approximately 680 of those wells (concentrated in the states of Ohio, New York and Pennsylvania), and owns and/or operates approximately 310 miles of gas pipelines in its producing fields in those states. Additionally, the Company holds mineral rights under approximately 88,000 net acres. Through a subsidiary, the Company provides well services to others. REAL ESTATE FINANCING Additional material called for by this item is set forth in Note 10 "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the Registrant's Annual Report for the year ended September 30, 1995, and is incorporated herein by reference. Major Customers As disclosed in Note 9 to the Company's consolidated financial statements of the Registrant's Annual Report, which is incorporated herein by reference, the Company had one borrower that accounted for at least 10% of the Company's total revenues during fiscal 1995. Competition The real estate finance business is intensely competitive in all of its aspects. Competition for the Company in the acquisition of mortgage loans comes from individuals, investment partnerships, financial investment companies, and public and private mortgage funds, among others. Many of these entities possess greater financial resources than the Company. While it is impossible for the Company to accurately determine its comparative industry position with respect to its ability to acquire additional mortgages, the Company does not believe its real estate mortgage acquisition activities to be significant within the industry. The Company's ability to add to its real estate mortgage portfolio will depend on its success in funding the acquisition of such additional mortgages. The Company will face competition in raising such funds in the financial capital markets where it will have to compete for capital based largely on the Company's overall financial performance and, more specifically, the performance of the Company's real estate investment portfolio. ENERGY Oil and Gas Well Operations The Company operates approximately 680 wells on behalf of limited partnerships of which it is also the general partner, and joint ventures of which it is also the managing general partner, as well as for its own account and for other third parties. The Company's activities have been primarily located in the Appalachian Basin in Ohio, New York and Pennsylvania. Natural gas produced from wells operated by the Company is collected in gas gathering pipeline systems operated by the Company and is sold to a number of customers such as gas brokers and local utilities under a variety of contractual arrangements. Oil produced from wells operated by the Company is sold at the well site to regional oil refining companies at the prevailing spot price for Appalachian crude oil. During fiscal 1995, the Company acquired limited partners' interests in and purchased wells from various oil and gas partnerships in which the Company is the general partner for a total cost of $133,000. Exploration and Development The Company has, through limited partnerships and joint ventures organized by it and for its own account, engaged in exploration and development drilling. In such partnerships and joint ventures, the Company acts as general contractor under specific drilling agreements, but subcontracts drilling and certain other work to third parties. Drilling has been on acreage held by the Company. Pipeline Operation The Company operates, on behalf of two limited partnerships of which it is the general partner, and for its own account, various gas gathering pipeline systems totaling approximately 310 miles in length. Such pipeline systems are located in Ohio, New York and Pennsylvania. Well Services The Company provides a variety of well services to wells of which it is the operator and to wells operated by independent third party operators. Such services are provided at rates in conformance with general industry standards. Sources and Availability of Raw Materials The Company contracts for drilling rigs and purchases tubular goods necessary for the drilling and completion of wells from a substantial number of drillers and suppliers, no one of which supplies a significant portion of the Company's annual needs. During fiscal 1995, the Company faced no shortage of such goods and services. The duration of the current supply and demand situation cannot be predicted with any degree of certainty due to numerous factors affecting the oil and gas industry, including selling prices, demand for oil and gas, and governmental regulations. The Company expects the current situation to continue into fiscal 1996. Major Customers As disclosed in Note 9 to the Company's consolidated financial statements of the Registrant's Annual Report, which is incorporated herein by reference, the Company had one oil and gas customer that accounted for at least 10% of the Company's total revenues during fiscal 1995. Competition The oil and gas business is intensely competitive in all of its aspects. The oil and gas industry also competes with other industries in supplying the energy and fuel requirements of industrial, commercial, and individual customers. Domestic oil and gas sales are also subject to competition from foreign sources. Moreover, competition is intense for the acquisition of leases considered favorable for the development of oil and gas in commercial quantities. The Company's competitors include other independent oil and gas companies, individual proprietors, and partnerships. Many of these entities possess greater financial resources than the Company. While it is impossible for the Company to accurately determine its comparative industry position with respect to its provision of products and services, the Company does not consider its oil and gas operations to be a significant factor in the industry. The Company's ability to increase its oil and gas reserves will depend upon (i) its ability to develop its present oil and gas leases, (ii) its ability to select and acquire suitable leases for future drilling, and (iii) its ability to compete for the necessary capital, which will depend largely on the success of its oil and gas development activities and the status of income tax laws affecting oil and gas investments. Markets The availability of a ready market for oil and gas produced by the Company will depend on a variety of factors beyond the Company's control including, among other things, fluctuating supply and demand; the level of domestic production by oil and gas companies; governmental regulation concerning the production, sale, and transportation of oil and gas; imports of crude oil and natural gas from foreign countries; and the proximity, availability, and capacity of pipelines and other required facilities. Currently, the supply of both crude oil and natural gas is more than sufficient to meet projected demand in the United States. These conditions have had, and may continue to have, a negative impact on the Company through reduced demand and lower prices for its oil and gas reserves (see "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the Registrant's Annual Report, which is incorporated herein by reference). Governmental Regulation The exploration, production, and sale of oil and natural gas are subject to numerous state and federal laws and regulations. Such laws and regulations govern a wide variety of matters, including the drilling and spacing of wells, marketing, and pricing. Compliance with the laws and regulations affecting the oil and gas industry generally increases the Company's costs of doing business, and consequently affects its profitability. Inasmuch as such regulations are frequently changing, the Company is unable to predict the future cost or impact of complying with such regulations. The Company is not aware of any violation of environmental regulations pending against it which would have a material effect on its operations or financial position, and the Company does not expect to spend any material amounts during the next fiscal year in connection with such environmental regulations. In April 1992, the Federal Energy Regulatory Commission issued Order 636, which generally requires the unbundling of transportation and marketing of natural gas. As a result of Order 636, the Company has experienced increased competition in the marketing of natural gas and higher costs for services used by the Company in the production of natural gas. Additionally, the Company believes Order 636 diminishes the previous economic advantages and price premiums obtained by the Company due to its proximity to Appalachian Basin reserves and major Northeast markets. The Company cannot predict the effect of Order 636 in the future. Employees On September 30, 1995, the Company employed 60 persons, all of whom are full-time. ITEM 2. DESCRIPTION OF PROPERTY Office Facilities The Company owns its energy and accounting operations which is located in Akron, Ohio. This location consists of a 9,600 square foot office building and land. The Company leases all of its other facilities. Within the state of Pennsylvania, the Company has two offices, the executive and real estate offices are located in Philadelphia, leased under an agreement with rents of $50,000 per year through May 31, 2000. The equipment leasing operations are located in Ambler, leased under an agreement with rents of $81,000 per year through November 27, 2000. The Company also has three other offices located in Ohio, New York and California which house energy and equipment brokerage operations. Rents paid for fiscal 1995 totalled $60,500. INFORMATION CONCERNING RESERVES, PRODUCTION, WELLS, ACREAGE, AND DRILLING ACTIVITIES Introduction The Company believes that it has satisfactory title to its interests in developed oil and gas properties. The Company's developed oil and gas properties are subject to customary royalty interests generally contracted for in connection with the acquisition of the properties, burdens incident to operating agreements, current taxes, and easements and restrictions (collectively, "Burdens"). Presently, the Company is current with respect to all such Burdens and it believes that such Burdens do not materially detract from the value of its properties or from the Company's interests therein or materially interfere with their use in the operation of the Company's business. As is customary in the oil and gas industry in the case of undeveloped properties, little or no investigation of title is made at the time of acquisition (other than a preliminary review of local real estate records). However, investigations are generally made and, in virtually every case, a title opinion is obtained from local counsel before drilling operations begin. Significant Properties At September 30, 1995, the Company had no individual interests in an oil and gas property that accounted for more than 10% of the Company's proved developed oil or gas reserves, including the Company's interest in reserves owned by 41 partnerships. Oil and Gas Reserve Information An evaluation of the Company's estimated proved developed oil and gas reserves as of September 30, 1995, was verified by E. E. Templeton & Associates, Inc., an independent petroleum engineering firm. Factors affecting changes in reserves are set forth and discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the Registrant's Annual Report, which is incorporated herein by reference. Further information concerning net proved developed oil and gas reserves as of September 30, 1995 and 1994, and the standardized measure of discounted future net cash flows and changes therein, is set forth in Note 12 of Notes to Consolidated Financial Statements of the Company of the Registrant's Annual Report, which is incorporated herein by reference. Reserves Reported to Other Agencies The Company does not file any estimates of total proved net oil and gas reserves with any other federal authority or agency. Oil and Gas Production The following table sets forth net quantities of oil and natural gas produced, average sales prices, and average production (lifting) costs per equivalent unit of production, for the periods indicated, including its equity interests in the production of 41 partnerships, for the fiscal years indicated. All production is from wells located in the United States. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the Registrant's Annual Report, which is incorporated herein by reference.
Production Average Sales Price Average Lifting Cost Oil (bbls) Gas (mcf) per bbl per mcf per Equivalent mcf 1995 36,420 1,198,245 $16.74 $2.31 $1.06 1994 34,002 1,161,685 $15.74 $2.45 $1.00 1993 30,788 1,178,727 $18.64 $2.39 $1.05 Oil production is converted to mcf equivalents at the rate of six mcf per bbl (barrel). Oil and Gas Wells The following table sets forth information as of September 30, 1995 regarding the Company's productive oil and gas wells: Number of Productive Wells Gross (2) Net (2) Oil Wells . . . . . . . . . . . . . . . . 186 36 Gas Wells. . . . . . . . . . . . . . . . 581 376 Total. . . . . . . . 767 412 (2) Includes the Company's equity interest in wells owned by 41 partnerships. Does not include royalty or overriding interest held by the Company. Acreage The following table sets forth information with respect to the Company's developed and undeveloped oil and gas acreage as of September 30, 1995. The information in this table includes the Company's equity interest in acreage owned by 41 partnerships.
Developed Acreage Undeveloped Acreage Gross Net Gross Net Arkansas . . . . . . . . . . . . . . . . 2,560 403 Kansas . . . . . . . . . . . . . . . . . 160 20 Louisiana. . . . . . . . . . . . . . . . 1,819 206 Mississippi. . . . . . . . . . . . . . . 40 3 New York . . . . . . . . . . . . . . . . 12,087 10,410 36,484 35,443 Ohio . . . . . . . . . . . . . . . . . . 36,091 28,218 11,470 10,431 Oklahoma . . . . . . . . . . . . . . . . 4,243 635 Pennsylvania . . . . . . . . . . . . . . 2,174 1,593 Texas. . . . . . . . . . . . . . . . . . 4,520 209 62,694 41,697 47,954 45,874
The terms of the Company's oil and gas leases vary, depending upon the location of the leased premises and the minimum remaining terms of undeveloped leases, from less than one year to five years. Rentals of approximately $18,100 were paid in fiscal 1995 to maintain leases on such acreage in force. Drilling Activity The following table sets forth information with respect to the number of wells completed in Ohio and New York (the only areas in which Company drilling activities occurred) at any time during fiscal 1995, 1994, and 1993, regardless of when drilling was initiated:
Exploratory Wells Development Wells Productive Dry Productive Dry Gross Net Gross Net Gross Net Gross Net 1995 3.0 .36 2.0 .36 1.0 .87 2.0 1.75 1994 2.0 .18 2.0 1.18 - - - - 1993 - - - - - - - -
Present Activities At December 22, 1995, no wells were in the process of being drilled. Delivery Commitments The Company is not obligated to provide any fixed quantities of oil or gas in the future under existing contracts. INFORMATION CONCERNING REAL ESTATE INVESTMENTS As disclosed in Note 10 to the Company's consolidated financial statements of the Registrant's Annual Report, which is incorporated herein by reference, the Company holds real estate investments purchased at a discount. The Company currently has no limitations or existing policies on the percentage of assets which the Company may invest in such loans or the types of investments the Company may make. The Company has acquired the long term loans primarily for current income but also, to a lesser extent, for capital gain purposes. ITEM 3. LEGAL PROCEEDINGS There were no material legal proceedings pending as of September 30, 1995. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's security holders during the fourth quarter of fiscal 1995. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Price Range of Common Stock In response to the information called for by this item, the material is set forth under the heading "Corporate Stock" of the Registrant's Annual Report, which is incorporated herein by reference. Approximate Number of Holders of Common Stock In response to the information called for by this item, the material is set forth under the heading "Corporate Stock" of the Registrant's Annual Report, which is incorporated herein by reference. Dividends In response to the information called for by this item, the material is set forth under the headings "Corporate Stock" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the Registrant's Annual Report, which is incorporated herein by reference. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION In response to the information called for by this item, the material is set forth under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the Registrant's Annual Report, which is incorporated herein by reference. ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements of the Company, including the Notes to Consolidated Financial Statements, are included in the Registrant's Annual Report. The report of the Company's current independent auditors with respect to the Company's consolidated financial statements is included on page 2 of the Registrant's Annual Report. Each of the foregoing items is incorporated herein by reference. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS OF THE REGISTRANT In response to the information called for by this item, the material is set forth under the caption "Directors and Executive Officers" of the Proxy Statement, and is incorporated herein by reference. ITEM 10. EXECUTIVE COMPENSATION In response to the information called for by this item, the material is set forth under the caption "Compensation of Executive Officers and Directors" of the Proxy Statement, and is incorporated herein by reference. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT In response to the information called for by this item, the material is set forth under the caption "Security Ownership of Certain Beneficial Owners and Management" of the Proxy Statement, and is incorporated herein by reference. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In response to the information called for by this item, the material is set forth under the caption "Security Ownership of Certain Beneficial Owners and Management" of the Proxy Statement, and is incorporated herein by reference. PART IV ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Form 10-KSB: 1. Financial Statements The following consolidated financial statements of the Company contained on pages 3 through 22, inclusive, of the Registrant's Annual Report are incorporated herein by reference: Consolidated Statement of Operations for years ended September 30, 1995, and 1994. Consolidated Balance Sheet at September 30, 1995, and 1994. Consolidated Statement of Changes in Stockholders' Equity for years ended September 30, 1995, and 1994. Consolidated Statement of Cash Flows for years ended September 30, 1995, and 1994. Notes to Consolidated Financial Statements. 2. Exhibits Exhibits marked with an asterisk are filed herewith. The remainder of the exhibits have heretofore been filed with the Commission and are incorporated herein by reference. Exhibit No. Description 3.1 Restated Certificate of Incorporation. Incorporated by reference to Registrant's Form 10-K for fiscal year ended September 30, 1983. 3.2 Bylaws, as amended. Incorporated by reference to Registrant's Form 10-K for fiscal year ended September 30, 1984. 10.1 1984 Key Employee Stock Option Plan. Incorporated by reference to Registrant's Form 10-K for fiscal year ended September 30, 1984. 10.2 1989 Key Employee Stock Option Plan. Incorporated by reference to Registrant's Form 10-K for fiscal year ended September 30, 1989. 10.3 Employee Stock Ownership Plan. Incorporated by reference to Registrant's Form 10-K for fiscal year ended September 30, 1989. 10.7 Incentive Stock Option Agreement with Michael L. Staines dated April 20, 1993. Incorporated by reference to Registrant's Form 10-KSB for fiscal year ended September 30, 1993. 10.8 Incentive Stock Option Agreement with Scott Schaeffer dated April 20, 1993. Incorporated by reference to Registrant's Form 10-KSB for fiscal year ended September 30, 1993. 10.10 Incentive Stock Option Agreement with Edward E. Cohen dated April 20, 1993. Incorporated by reference to Registrant's Form 10-KSB for fiscal year ended September 30, 1993. 10.11 Incentive Stock Option Agreement with Nancy J. McGurk dated April 20, 1993. Incorporated by reference to Registrant's Form 10-KSB for fiscal year ended September 30, 1993. 10.12 Incentive Stock Option Agreement with Michael L. Staines dated April 20, 1993. Incorporated by reference to Registrant's Form 10- KSB for fiscal year ended September 30, 1993. 10.13 Promissory Note effective February 1, 1993, between Society National Bank and Resource America, Inc. Incorporated by reference to Registrant's Form 10-KSB for fiscal year ended September 30, 1993. 10.14 Note Purchase Agreement Between Resource America, Inc., and Physicians Insurance Company of Ohio dated May 25, 1994. 10.15 Warrant Agreement Between Resource America, Inc., and Physicians Insurance Company of Ohio dated May 25, 1994. 10.16 Wrap-Around Deed of Trust Note between Washington Properties Limited Partnership and RAI Financial, Inc dated January 18, 1995. 10.17 Warrant to Purchase 40,000 shares of Common Stock of Resource America, Inc., issued to Physicians' Insurance Company of Ohio dated December 21, 1994. 10.18 Warrant to Purchase 49,275 shares of Common Stock of Resource America, Inc., issued to Physicians' Insurance Company of Ohio dated June 1, 1995. 10.19 Warrant to Purchase 35,190 shares of Common Stock of Resource America, Inc., issued to Physicians' Insurance Company of Ohio dated June 20, 1995. 10.20* Stock Purchase Agreement between Resource Leasing, Inc. and FML Leasehold, Inc. and Fidelity Leasing Corp. dated August 30, 1995. 11.1* Calculation of Primary and Fully Diluted Earnings per Share. 13.1* Annual Report of Resource America, Inc., for the year ended September 30, 1995. 22.1* List of Subsidiaries. 23.1* Consent of E. E. Templeton & Associates, Inc. 27* Financial Data Schedule (b) Reports on Form 8-K: There were no reports on Form 8-K filed during the fourth quarter of fiscal 1995. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. RESOURCE AMERICA, INC. (Registrant) By: /s/ Edward E. Cohen December 29, 1995 President Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated as of December 29, 1995. Signature Title /s/ Edward E. Cohen Chairman of the Board and President of Edward E. Cohen Resource America, Inc. /s/ Michael L. Staines Senior Vice President, Secretary, and Michael L. Staines Director of Resource America, Inc. /s/ Carlos C. Campbell Director of Resource America, Inc. Carlos C. Campbell /s/ John R. Hart Director of Resource America, Inc. John R. Hart /s/ Andrew M. Lubin Director of Resource America, Inc. Andrew M. Lubin /s/ Alan D. Schreiber Director of Resource America, Inc. Alan D. Schreiber /s/ John S. White Director of Resource America, Inc. John S. White /s/ Nancy J. McGurk Vice President - Finance and Treasurer Nancy J. McGurk Chief Accounting Officer) of Resource America, Inc. EX-10.20 2 STOCK PURCHASE AGREEMENT Between RESOURCE LEASING, INC. and FML LEASEHOLD, INC. Relating to the Capital Stock of FIDELITY LEASING CORPORATION TABLE OF CONTENTS ARTICLE I - REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE STOCKHOLDER -1- 1.1 Organization -1- 1.2 Subsidiaries; Partnerships -2- 1.3 Authority -2- 1.4 Capital Structure -3- 1.5 Financial Statements -3- 1.6 Material Changes since June 30, 1995 -4- 1.7 Availability of Assets and Legality of Use -5- 1.8 Accounts Receivable -5- 1.9 Real Property and Leases -5- 1.10 Organizational Documents -6- 1.11 Material Contracts and Leases -6- 1.12 Insurance -6- 1.13 No Undisclosed Liabilities -7- 1.14 Litigation and Claims -7- 1.15 Tax Liabilities -7- 1.16 Employee Agreements -7- 1.17 Employee Relations -8- 1.18 Benefit Plans -8- 1.19 Conflicts; Sensitive Payments -9- 1.20 Corporate Name -10- 1.21 Trademarks and Proprietary Rights -10- 1.22 Brokers -10- 1.23 No Omissions -10- ARTICLE II REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE BUYER -11- 2.1 Organization -11- 2.2 Authority -11- 2.3 Investment -11- 2.4 Brokers -12- 2.5 No Omissions -12- ARTICLE III - ADDITIONAL COVENANTS OF THE STOCKHOLDER AND THE BUYER -12- 3.1 Non-Competition -12- 3.2 Use of Trademarks -13- 3.3 Section 338 Election -13- 3.4 Use of Name -13- 3.5 Additional Tax Information -14- 3.6 Certain Tax Matters -14- 3.7 Company Operation of the Partnerships -14- 3.8 Continuation of the Company's Severance Policy -15- ARTICLE IV - ACTION PRIOR TO THE CLOSING DATE -15- 4.1 Confidential Nature of Information -15- 4.2 Accuracy of Representations and Warranties -15- 4.3 No Material Change in the Company -15- 4.4 No Public Announcement -16- 4.5 Declaration of Dividend -16- ARTICLE V - CONDITIONS PRECEDENT TO OBLIGATIONS OF THE BUYER -16- 5.1 No Misrepresentation or Breach of Covenants and Warranties -16- 5.2 No Changes in or Destruction of Property -16- 5.3 Approval of the Court -16- 5.4 Bank Accounts -17- ARTICLE VI - CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDER -17- 6.1 No Misrepresentation or Breach of Covenants and Warranties -17- 6.2 Approval of the Court -17- 6.3 Company Confirmation -17- ARTICLE VII - PURCHASE PRICE AND CLOSING -17- 7.1 Closing -17- 7.2 Purchase and Sale -18- 7.3 Deliveries by the Stockholder -19- 7.4 Deliveries of the Buyer -21- ARTICLE VIII - TERMINATION -21- 8.1 Termination -21- ARTICLE IX - SURVIVAL OF OBLIGATIONS; INDEMNIFICATION -21- 9.1 Survival of Obligations -21- 9.2 Indemnification -22- ARTICLE X - MISCELLANEOUS -23- 10.1 Notices -23- 10.2 Governing Law -24- 10.3 Successors and Assigns -24- 10.4 Severability -24- 10.5 Expenses -24- 10.6 Titles and Headings -24- 10.7 Schedules -24- 10.8 Entire Agreement; Amendments and Waivers -25- SCHEDULES 1.1 Jurisdictions of Qualification..................... 1 1.2 Subsidiaries and Partnerships...................... 1 1.3 Consents........................................... 2 1.5 Bank Accounts of the Company....................... 3 1.7 Assets............................................. 5 1.8 Accounts Receivable................................ 5 1.9 Real Property...................................... 5 1.11 Leases............................................. 6 1.12 Insurance.......................................... 6 1.14 Claims............................................. 6 1.15 Tax Procedures..................................... 6 1.16 Employment Agreements.............................. 7 1.17 Employee Compensation.............................. 7 1.19 Conflicts and Sensitive Payments................... 9 1.21 Trademarks and Proprietary Rights .................10 7.2 Syndications in Progress...........................17 STOCK PURCHASE AGREEMENT This Stock Purchase Agreement, made and entered into this ____ day of August, 1995 (the "AGREEMENT") by and among RESOURCE LEASING, INC., a Delaware corporation (the "BUYER"), and FML LEASEHOLD, INC., a Delaware corporation (the "STOCKHOLDER") and FIDELITY LEASING CORPORATION, a Delaware corporation (the "COMPANY"), all of the issued and outstanding capital stock (the "STOCK") of which is owned by the Stockholder. WITNESSETH: WHEREAS, the Company is engaged in the business of equipment leasing; WHEREAS, the Stockholder desires to sell the Stock to the Buyer pursuant to the terms and conditions set forth in this Agreement; and WHEREAS, the Buyer desires to purchase the Stock from the Stockholder on the terms and conditions set forth in this Agreement, NOW, THEREFORE, the Buyer and the Stockholder, in consideration of the agreements, covenants and conditions contained herein, hereby make the following representations and warranties, give the following covenants and agree to be bound hereby as follows: ARTICLE I REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE STOCKHOLDER As an inducement to the Buyer to enter into this Agreement and to consummate the transactions contemplated herein, the Stockholder represents and warrants to the Buyer and agrees as set forth in this Article I. The representations and warranties of the Stockholder are qualified by the information set forth in the Schedules referred to in this Article I. Notwithstanding the reference to any specific Schedule in any paragraph hereof, it is understood and agreed that disclosure shall have been deemed to have been made by the Stockholder for purposes hereof if any item referred to is set forth on the specific Schedule, elsewhere in this Agreement or in any other Schedule to this Agreement. Buyer acknowledges and agrees that apart from the representations and warranties of the Stockholder contained in this Agreement, the Stockholder and representatives of the Stockholder have made no further or additional representations or warranties. 1.1 A. ORGANIZATION. The Stockholder is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and is duly qualified to transact business as a foreign corporation and is in good standing as such in the jurisdictions listed on Schedule 1.1 hereto, which are the only jurisdictions in which the failure to so qualify would have a material adverse effect on the business or financial condition of the Company. Both the Company and the Stockholder have the corporate power and authority and other authorizations necessary or required in order for them to own or lease and operate their respective properties and to carry on their businesses as now conducted. 1.2 A. SUBSIDIARIES; PARTNERSHIPS. The Company owns all of the outstanding shares of capital stock of First Radnor Equities, Inc., a Delaware corporation (the "SUBSIDIARY"). Except for the Subsidiary and the interests of the Company in the partnerships described on Schedule 1.2 hereto (the "PARTNERSHIPS"), none of the Company, the Subsidiary or the Partnerships owns any interest in any other corporation, partnership, joint venture or other entity. Schedule 1.2 also correctly sets forth as to the Subsidiary and each of the Partnerships, its form of organization, its jurisdiction of incorporation or formation, its principal place of business and the jurisdictions in which it is qualified to do business; as to the Subsidiary, its authorized capitalization and its shares of capital stock outstanding. The Subsidiary is a corporation duly incorporated and each of the Partnerships is a limited partnership validly existing and subsisting under the laws of its jurisdiction of organization, with all requisite corporate power, in the case of the Subsidiary, or partnership power, in the case of each of the Partnerships, to own, lease, license and use its properties and assets and to carry on the business in which it is now engaged. The Subsidiary is duly qualified to do business in the jurisdictions in which the property owned, leased or operated by it or the business conducted by it makes such qualifications necessary, and the absence of such qualification would have a material adverse effect on the business or financial condition of the Company. 1.3 A. AUTHORITY. Except for the Approval (as defined in Section 5.3 hereof), this Agreement and the transactions contemplated herein have been duly approved by all necessary corporate action on the part of the Stockholder and the Stockholder has the authority to execute, deliver and perform its obligations under this Agreement. This Agreement, when executed and delivered by the Stockholder and assuming the due execution hereof by the Buyer, will constitute the valid, legal and binding agreement of the Stockholder enforceable in accordance with its terms. Except for the Approval or except as described on Schedule 1.3 hereof, no consent, authorization, approval, order, license, certificate or permit of or from or declaration or filing with, any Federal, state, local or other governmental authority or any court or other tribunal (collectively, the "GOVERNMENTAL CONSENTS") is required in connection with the execution, delivery or performance of this Agreement by the Stockholder. Except as described on Schedule 1.3, no consent of any affiliate of the Stockholder (other than the approval of its shareholder which has been obtained) or of any party to any, contract, agreement, instrument, lease, license, arrangement or understanding to which either the Company or the Subsidiary, any of the Partnerships or the Stockholder is a party, or to which any of their respective properties or assets are subject (the "STOCKHOLDER'S CONTRACTUAL CONSENTS"), is required for the execution, delivery or performance of this Agreement by the Stockholder. The execution, delivery and performance by the Stockholder does not (if the Governmental Consents and the Stockholder's Contractual Consents referred to in Schedule 1.3 hereof have been obtained prior to the Closing) (i) violate, result in a breach of, conflict with or (with or without the giving of notice or the passage of time or both) entitle any party to terminate, modify or otherwise change, in any material respect, the rights or obligations of the parties thereunder or call a default under any such contract, agreement, instrument, lease, license, arrangement, or understanding, (ii) violate or result in a material breach of any term of the certificate of incorporation or other organizational documents or by-laws of the Company, the Subsidiary, or the Stockholder, or (iii) violate, result in a breach of or conflict, in any material respect, with any law, rule, regulation, order, judgment or decree binding the Company, the Subsidiary, or the Stockholder, or to which any of their respective operations, businesses, properties, or assets are subject. 1.4 A. CAPITAL STRUCTURE. The authorized capital stock of the Company consists of 1,000 shares of common stock par value $1.00 per share, of which 100 shares are issued and outstanding (and none of which is held by the Company as treasury stock). Except for this Agreement, there are no agreements, arrangements, options, warrants or rights or commitments of any character relating to the issuance, sale, purchase or redemption of any shares of capital stock of the Company. There is outstanding no security or other investment convertible into or exchangeable for capital stock of the Company or the Subsidiary. Each of such outstanding shares of Stock and each outstanding share of capital stock of the Subsidiary is validly authorized, validly issued, fully paid and nonassessable, has not been issued and is not owned or held in violation of any preemptive right; and is owned of record and beneficially by the Stockholder, in the case of the Company and by the Company, in the case of the Subsidiary, in each case free and clear of any liens, security interests, pledges, charges, encumbrances, stockholders' agreements, voting trusts or restrictions of any kind and the transfer and delivery of the Stock to the Buyer by the Stockholder as contemplated by this Agreement will be sufficient to transfer good and marketable record and beneficial title and ownership to such Stock to the Buyer free and clear of liens, claims, encumbrances and restrictions of any kind. 1.5 A. FINANCIAL STATEMENTS. The Stockholder has furnished to the Buyer the audited consolidated balance sheets of the Company for the years ended December 31, 1990, 1991, 1992, 1993 and 1994 and the related statements of operations, statements of shareholder's equity and statements of cash flows for the periods then ended, including the notes thereto (the 1993 and 1994 statements are collectively, defined as the "FINANCIAL STATEMENTS") and the unaudited financial statements (balance sheet and profit and loss statement) at and for the period ended June 30, 1995 (the "JUNE 30 BALANCE SHEET"). The Financial Statements and the June 30, 1995 Balance Sheet fairly present the respective financial positions of the Company as of the respective dates thereof and the results of operations for the respective periods covered thereby, and the Financial Statements have been prepared in accordance with generally accepted accounting principles consistently applied throughout all periods and in accordance with the books and records of the Company and the Subsidiary. The Stockholder has furnished to the Buyer the Partnerships' Federal tax returns as filed with the Internal Revenue Service for the year ended December 31, 1994. In addition, the Stockholder has furnished the audited financial statements of the Partnership for the year ended December 31, 1994 (the "PARTNERSHIPS' FINANCIAL STATEMENTS"). To the best of the Stockholder's knowledge, after due inquiry of the Company's senior officers as identified on Schedule 1.5 (the "SENIOR OFFICERS"), the Partnerships' Financial Statements fairly present the financial position of the Partnerships as of December 31, 1994 and the results of their operations for the year then ended in all material respects as they affect the financial condition of the Company after taking into account the portion of the Partnerships' net assets that is derived by the Company. There is set forth on Schedule 1.5 hereto a correct and complete list of all (i) accounts, borrowing resolutions and deposit boxes maintained by the Company or the Subsidiary at any bank or other financial institution (ii) the names of the persons authorized to sign or otherwise act with respect thereto, and (iii) powers of attorney for the Company and the Subsidiary. 1.6 MATERIAL CHANGES SINCE JUNE 30, 1995. To the best of the Stockholder's knowledge after due inquiry of the Company's Senior Officers, since June 30, 1995, the business of the Company has been operated only in the ordinary course and, whether or not in the ordinary course of business other than as disclosed in this Agreement or the Schedules referred to herein there has not been, occurred or arisen (i) any material adverse change in the financial condition of the Company from that shown on the June 30 Balance Sheet; (ii) any damage or destruction in the nature of a casualty loss, whether covered by insurance or not, to any property or business of the Company; (iii) any amendment or termination of any agreement other than in the ordinary course of business, or cancellation or material reduction of any debt owing to the Company or waiver or relinquishment of any right of material value to the Company; or (iv) any other event or condition which materially and adversely affects the results of operations or business, financial condition or property of the Company. 1.7 A. AVAILABILITY OF ASSETS AND LEGALITY OF USE. Except as specified in Schedule 1.7, the assets owned or leased by the Company, the Subsidiary or, to the best of the Stockholder's knowledge, after due inquiry of the Company's Senior Officers, the Partnerships constitute all of the assets which are being used in their businesses, and, to the best of the Stockholder's knowledge, after due inquiry of the Company's Senior Officers, such assets are in good and serviceable condition (normal wear and tear excepted) and suitable for the uses for which intended and such assets and their uses conform in all material respects to all applicable laws; and except as specified in Schedule 1.7, each of the Company, the Subsidiary and, to the best of the Stockholder's knowledge, after due inquiry of the Company's Senior Officers, the Partnerships has title to, or valid leasehold interests in, all of their respective properties and assets, including those reflected on the June 30 Balance Sheet (other than those disposed of for fair value in the ordinary course of business) free and clear of all liens, mortgages, security interests, pledges, charges and encumbrances. Notwithstanding the foregoing, the Stockholder's representations set forth herein as they relate to the Partnerships are further limited such that the inaccuracy of such representations would have to represent a material adverse impact on the financial condition of the Company in order to be considered a violation for purposes of this Agreement. 1.8 A. ACCOUNTS RECEIVABLE. All accounts receivable reflected on the June 30 Balance Sheet for the Company and not collected at the date hereof, have arisen from bona fide transactions in the ordinary course of the Company's business. Except as set forth in Schedule 1.8, none of such receivables is subject to counterclaims, set-offs or is in dispute and all of such accounts are good and collectible in the ordinary course of business at the aggregate recorded amounts thereof, subject to the allowance for possible losses shown on such June 30 Balance Sheet. 1.9 A. REAL PROPERTY AND LEASES. Neither the Company nor the Subsidiary owns any real property. Attached hereto as Schedule 1.9 are true, correct and complete copies of every lease or agreement under which the Company or the Subsidiary is lessee or sublessee of, or holds or operates, any real property or personal property owned by any third party. Each of such leases and agreements is in full force and effect and constitutes a legal, valid and binding obligation of the Company or the Subsidiary and, to the best of the Stockholder's knowledge, after due inquiry of the Company's Senior Officers, the other parties thereto. Neither the Company nor the Subsidiary is in default in any material respect under any such lease or agreement nor, to the best of the Stockholder's knowledge after due inquiry of the Company's Senior Officers, has any event occurred which with the passage of time or giving of notice or both would constitute such a default. Except as set forth on Schedule 1.9, none of such leases or agreements requires the consent of any party thereto to the transactions contemplated by this Agreement. 1.10 A. ORGANIZATIONAL DOCUMENTS. The Company has delivered to the Buyer (i) the Certificate of Incorporation and Bylaws of the Company and the Subsidiary, as presently in effect, certified by the Secretary of the Company, and (ii) the partnership agreements and all amendments thereto, as presently in effect, of each of the Partnerships (the "PARTNERSHIP AGREEMENTS") certified by an officer of the Company. The stock ledgers and stock transfer books and the minute book records of the Company and the Subsidiary relating to all issuances and transfers of stock by the Company and the Subsidiary and all formal proceedings of the Stockholder and the Board of Directors of the Company and the Subsidiary since their respective incorporations made available to the Buyer are the original stock ledgers and stock transfer books and minute book records of the Company and the Subsidiary or exact copies thereof. 1.11 A. MATERIAL CONTACTS AND LEASES. True, correct and complete copies of every material contract, agreement, lease or other obligation or commitment (including, without limitation, those entered into in connection with the Company's lease brokerage business) under which the Company, on its own behalf or as general partner of any of the Partnerships, or the Subsidiary is the lessor or sublessor have been made available to the Buyer and attached hereto as Schedule 1.11 is in all material respects, to the best knowledge of Stockholder after due inquiry of the Company's Senior Officers, a true, correct and complete list of all leases currently operated by the Partnerships. Each of such agreements and leases is in full force and effect and constitutes a legal, valid and binding obligation of the parties thereto and is enforceable in accordance with its terms except as enforcement of such agreement may be limited by bankruptcy, insolvency or other similar laws affecting creditors' rights generally. Neither the Company, nor the Subsidiary, as the case may be, nor to the best of Stockholder's knowledge after due inquiry of the Company's Senior of Officers, the other parties to such agreements and leases are in default under any such lease or agreement in any material respect as it relates to the Company nor to the best of the knowledge of the Stockholder after due inquiry of the Company's Senior Officers, has any event occurred which with the passage of time or the giving of notice or both would constitute such a material default. Notwithstanding the foregoing, the Stockholder's representations set forth herein as they relate to the Partnerships are further limited such that the inaccuracy of such representations would have to represent a material adverse impact on the financial condition of the Company after taking into account the portion of the Partnerships' lease revenue that is derived by the Company in order to be considered a violation for purposes of this Agreement. 1.12 A. INSURANCE. Attached hereto as Schedule 1.12 is a list and an accurate description of all policies of insurance that are held or maintained by or for the benefit of the Company or the Subsidiary as of the date hereof (including policy numbers, nature of coverage, limits, deductibles, carriers, premiums and effective and termination dates) The Company has complied with each of such policies and has not failed to give any notice or present any known claim thereunder. The Company has not received, and to the best of the knowledge of the Stockholder after due inquiry of the Company's Senior Officers, no event or omission within the control of the Company has occurred which may cause it to receive notice that any such policies will be cancelled or will be reduced in amount or scope. True and complete copies of all such policies have been delivered to the Buyer. 1.13 A. NO UNDISCLOSED LIABILITIES. Neither the Company nor the Subsidiary is subject to any material liability (including unasserted claims), absolute or contingent, which is not shown or which is in excess of amounts shown or reserved for in the June 30 Balance Sheet other than liabilities of the same nature as those set forth on the June 30 Balance Sheet and reasonably incurred in the ordinary course of business after June 30, 1995. 1.14 A. LITIGATION AND CLAIMS. Except as set forth on Schedule 1.14 hereto, there are no lawsuits, proceedings, claims, governmental or other proceedings (formal or informal) or investigations pending or, to the best of the Stockholder's knowledge, after due inquiry of the Company's Senior Officers, threatened with respect to the Company or the Subsidiary or either of their respective businesses, properties or assets which may reasonably be expected to have a material adverse effect on the Company including, but not limited to claims alleging fraud or misrepresentation in the sales or marketing of any interests in the Partnerships. 1.15 A. TAX LIABILITIES. Schedule 1.15 sets forth a correct description of the procedures followed with respect to all payments by the Company to the Stockholder in connection with taxes, including any amounts paid in 1995, the dates of such payments and any amounts remaining to be paid in respect of any period prior to the Closing Date. The amounts reflected as liabilities for taxes on the June 30 Balance Sheet are sufficient for the payment of all unpaid Federal, state, county, local and foreign taxes of the Company and the Subsidiary accrued and applicable to the period ended on such balance sheet date and all years and periods prior thereto. 1.16 A. EMPLOYEE AGREEMENTS. Attached hereto as Schedule 1.16 is a true, correct and complete list of all employee benefit plans, contracts, and arrangements, oral or written, including, but not limited to, union contracts, employee benefit plans and severance plans, whereunder the Company or the Subsidiary has any obligation (other than the obligation to make current wage or salary payments terminable on notice of 30 days or less or normal policies concerning holidays, vacations and salary continuation during short absence for illness or other reasons) to or on behalf of its officers, employees or their beneficiaries or whereunder any of such persons owes money to the Company or the Subsidiary. 1.17 A. EMPLOYEE RELATIONS. To the best of the Stockholder's knowledge, after due inquiry of the Company's Senior Officers, neither the Company nor the Subsidiary has engaged in any unfair labor practice, unlawful employment practice or unlawful discriminatory practice in the conduct of its respective businesses. The Company and the Subsidiary have complied in all material respects with all applicable laws, rules and regulations relating to wages, hours and collective bargaining and have withheld all amounts required to be withheld from the wages or salaries of employees. Neither the Company nor the Subsidiary is a party to or, to the best of the Stockholder's knowledge, after due inquiry of the Company's Senior Officers, threatened with or, to the best knowledge of the Stockholder, in danger of being a party to any labor dispute which would materially interfere with the conduct of their businesses. Set forth on Schedule 1.17 hereto is the name and total annual compensation (including bonuses) paid by the Company or the Subsidiary to current active employees during the year ended December 31, 1994 and the annual compensation payable for 1995. 1.18 A. BENEFIT PLANS. Schedule 1.16 contains a list of any "employee pension benefit plan" or "employee welfare benefit plan" within the meaning of Sections 3(1) and 3(2) of the Employee Retirement Income Security Act of 1974, as amended, ("ERISA") established or maintained by the Company or the Subsidiary to which the Company or the Subsidiary has made any contributions in 1994 or 1995 (collectively the "EMPLOYEE BENEFIT PLANS"). Neither the Company nor the Subsidiary is required, or was required within the immediately preceding five years, to make any contribution to any "multiemployer plan" within the meaning of Section 3(7) of ERISA. Neither the Company nor the Subsidiary has any liability in respect of any employee pension benefit plans established or maintained and to which contributions are or were made by it to the Pension Benefit Guaranty Corporation ("PBGC"). Schedule 1.16 also lists each deferred compensation plan, bonus plan, stock option plan, employee stock purchase plan and any other employee benefit plan, agreement, arrangement or commitment not required under the preceding paragraph to be listed on Schedule 1.16 (other than normal policies concerning holidays, vacations and salary continuation during short absences for illness or other reasons) maintained by the Company or the Subsidiary. Except as set forth on Schedule 1.16 to the best of the Stockholder's knowledge, after due inquiry of the Company's Senior Officers, (a) no employee pension benefit plan, as defined in Section 3(2) of ERISA, maintained or contributed to by the Company or the Subsidiary or in respect of which the Company or the Subsidiary is considered an "employer" under Section 414 of the Internal Revenue Code of 1986, as amended (the "CODE"), (i) has incurred any "accumulated funding deficiency," as defined in Section 412 of the Code (whether or not waived), or (ii) has incurred any liability to PBGC, and (b) neither the Company nor the Subsidiary has breached any of the responsibilities, obligations or duties imposed on it by ERISA or the Code with respect to any employee pension benefit plan or employee welfare benefit plan maintained by it, which breach has given rise to, or may in the future give rise to, an obligation to pay money, including the obligation to make any required contribution to any employee pension benefit plan for any plan year ending prior to the Closing Date. There is no contribution due for any pension plan for the year in which the Closing occurs. Except as set forth on Schedule 1.16, neither the Company nor any of its affiliates or, to the best knowledge of the Stockholder after the inquiry of the Company's Senior Officers, any "party in interest," as defined in Section 3(14) of ERISA, in respect of any such plan has engaged in any non exempted prohibited transaction described in Sections 406 and 408 of ERISA or Section 4975 of the Code which would result in a material adverse effect on the Company. Except as set forth on Schedule 1.16, no reportable event, as defined in Section 4043 of ERISA, has occurred with respect to any employee pension benefit plan maintained or contributed to by the Company or the Subsidiary or in respect of which the Company or the Subsidiary is an employer under Section 414 of the Code; and none of such plans has been terminated by the plan administrator thereof or by the PBGC. Neither the Company nor the Subsidiary has incurred any unpaid liability for any pension plan covered under ERISA. To the best of the Stockholder's knowledge, after due inquiry of the Company's Senior Officers, with respect to any employee pension benefit plan or employee welfare benefit plan maintained by the Company, no action, suit, grievance, arbitration or other manner of litigation, or claim with respect to the assets of the plan (other than the routine claims for benefits made in the ordinary course of plan administration for which plan administrative review procedures have not been exhausted) are pending, threatened or imminent against or with respect to the plan, the Company, the Subsidiary or fiduciary (as defined in ERISA 3(21)) of the plan (including any action, suit, grievance, arbitration or other manner of litigation, or claim regarding conduct which allegedly interferes with the attainment of rights under the plan), and the Stockholder, after due inquiry of the Company's Senior Officers has no knowledge of any facts which would give rise to or could give rise to any action, suit, grievance, arbitration or other manner of litigation, or claim. 1.19 A. CONFLICTS; SENSITIVE PAYMENTS. There are (a) no material situations involving the interests of the Stockholder (except as listed on Schedule 1.16 or Schedule 1.19) or to the best of Stockholder's knowledge, after due inquiry of the Company's Senior Officer, any officer or director of the Company or the Subsidiary which may be generally characterized as a "conflict of interest," including but not limited to, the leasing of property to or from the Company or significant direct or indirect interests in the business of competitors, suppliers or customers of the Company; and (b) no situations involving illegal payments or payments of doubtful legality from corporate funds of the Company or the Subsidiary since January 1, 1993 to governmental officials or others which may be generally characterized as a "sensitive payment." 1.20 A. CORPORATE NAME. The Company owns and possesses, to the exclusion of the Stockholder and its affiliates, all rights to the use of the names Fidelity Leasing Corporation and First Radnor Equities, Inc. including, but not limited to, the right to use such names in advertising and neither the Company nor the Stockholder has licensed either name to any party. 1.21 A. TRADEMARKS AND PROPRIETARY RIGHTS. All trademarks, trade names, copyrights and applications therefor which are owned or exclusively used or registered in the name of or licensed to the Company or the Subsidiary are listed and briefly described on Schedule 1.21, other than as specified on Schedule 1.21, no proceedings have been instituted or are pending or, to the best of the Stockholder's knowledge, after due inquiry of the Company's Senior Officers, threatened which challenge the validity of the ownership by the Company of any such trademarks, trade names, copyrights or applications. The Company has not licensed anyone to use any of the foregoing or any other technical know-how or other proprietary rights of the Company and the Stockholder has no knowledge of the infringing use of the any of such trademarks and trade names or the infringement of any such copyrights by any person except as set forth on Schedule 1.21. The Company owns all trademarks, trade names, copyrights, processes and other technical know-how and other proprietary rights now used in the conduct of its business and has not received any notice of conflict with the asserted rights of other except as specified in Schedule 1.21. 1.22 A. BROKERS. Neither the Company nor the Stockholder has paid or become obligated to pay any fee or commission to any broker, finder or intermediary for or on account of the transactions provided for in this Agreement. Neither the Company nor the Stockholder has any agreement or obligation whatsoever with entities other than the Buyer regarding any proposed acquisition of the Company by any such entity and neither of them is engaged in any negotiations with any such entity for any such acquisition. 1.23 A. NO OMISSIONS. None of the representations or warranties of the Stockholder contained herein and, none of the information contained in the Schedules referred to in this Article I is false or misleading in any material respect or omits to state a fact herein or therein, necessary to make the statements herein or therein in the circumstances in which they were made not misleading in any material respect. ARTICLE II REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE BUYER As an inducement to the Stockholder to enter into this Agreement and to consummate the transactions contemplated herein, the Buyer represents and warrants to the Stockholder and agrees as follows: 2.1 A. ORGANIZATION. The Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. 2.2 A. AUTHORITY. This Agreement and the transactions contemplated herein have been duly approved by all necessary corporate action on the part of the Buyer. This Agreement, when executed and delivered by the Buyer, and assuming due execution hereof by the Stockholder will constitute the valid and binding agreement of the Buyer enforceable in accordance with its terms. Neither the execution nor the delivery of this Agreement, nor the consummation of the transactions contemplated herein, nor compliance with nor fulfillment of the terms and provisions hereof, will (i) conflict with or result in a breach of the terms, conditions or provisions of or constitute a default under the governing instruments of the Buyer, any instrument, mortgage, agreement, judgment, order, award, decree or other restriction to which the Buyer is a party or by which the Buyer is bound or any statute or regulatory provisions affecting it or (ii) require the approval, consent, or authorization of or any filing with or notification to any Federal, state or local court, governmental authority or regulatory body. The Buyer has full power and authority to purchase the Stock pursuant to this Agreement and to do and perform all acts and things required to be done by the Buyer under this Agreement. 2.3 A. INVESTMENT. The Buyer (i) is an "accredited investor" within the meaning of Rule 501 under the Securities Act of 1933, as amended; (ii) has sufficient knowledge and experience in the business of the Company so as to be able to evaluate the risks and merits of its purchase of the Company; (iii) has had an opportunity to discuss the Company's business, management and financial affairs with the Company's management; and (iv) is acquiring the Stock for its own account (and not for the account of others) for investment and not with a view to the distribution thereof. The Buyer will not sell or otherwise dispose of such shares (whether pursuant to a liquidating dividend or otherwise) without registration under the Securities Act of 1933, as amended (the "SECURITIES ACT"), or an exemption therefrom, and the Buyer acknowledges that certificate or certificates representing such shares contain a legend to the foregoing effect. 2.4 A. BROKERS. Neither the Buyer nor its representatives has paid or become obligated to pay any fee or commission to any broker, finder or intermediary for or on account of the transactions provided for in this Agreement. 2.5 A. NO OMISSIONS. None of the representations or warranties of the Buyer contained herein and none of the other information or documents furnished to the Stockholders or the Company by the Buyer or its representatives in connection with this Agreement is false or misleading in any material respect or omits to state a fact herein or therein necessary to make the statements herein or therein not misleading in any material respect; to the best knowledge of the Buyer, there is no fact which adversely affects, or in the future is likely to adversely affect, the business or assets of the Buyer in any material respect which has not been disclosed in writing to the Stockholder or the Company. ARTICLE III ADDITIONAL COVENANTS OF THE STOCKHOLDER AND THE BUYER 3.1 A. NON-COMPETITION. (a) In furtherance of the sale of the Stock to the Buyer, upon the consummation of the transactions contemplated herein and more effectively to transfer and protect the business of the Company, the Stockholder agrees that for a period ending on the third anniversary of the date hereof, it will not (i) directly or indirectly own, manage or operate an equipment lease brokerage business anywhere in the Commonwealth of Pennsylvania and any other state in which the Company presently conducts its business, that sells to any of the Company's or Partnership's existing customers; provided that ownership of not more than five percent (5%) of the issued and outstanding shares of a class of securities of a corporation, the securities of which are traded on a national securities exchange or in the over-the-counter market, shall not be deemed ownership of the issuer of such shares for the purposes of this paragraph; or (ii) induce or attempt to persuade any employee or agent of the Company to terminate such employment or agency relationship in order to enter into any such relationship with the Stockholder or any of its subsidiaries or affiliates or to enter into any such relationship on behalf of any other business organization in competition with the Company. Nothing contained herein shall be deemed a restriction on the Stockholder's right to merge with or be acquired by any entity engaged in the equipment leasing business and no such merger or acquisition shall constitute a breach hereunder. (b) Without limiting the right of the Buyer and any of its successors or assigns to pursue all other legal and equitable rights available to them for violation of the covenant set forth in Section 3.1(a) above by the Stockholder, it is agreed that other remedies cannot fully compensate the Buyer and its successors and assigns for such a violation and that the Buyer and its successors and assigns shall be entitled to injunctive relief to prevent violation or continuing violation hereof. It is the intent and understanding of each party hereto that if, in any action before any court or agency legally empowered to enforce this covenant, any term, restriction, covenant or promise is found to be unreasonable and for that reason unenforceable, then such term, restriction, covenant or promise shall be deemed modified to the extent necessary to make it enforceable by such court or agency. 3.2 A. USE OF TRADEMARKS. From the date hereof, neither the Stockholder nor any stockholder, director, employee or officer of the Stockholder shall have the right to use any of the trademarks, trade names, or applications therefor heretofore exclusively used or owned by the Company or to use any trademarks or trade names similar thereto or designs imitative thereof except as officers or agents of the Company in connection with its business prior to the Closing. From the date hereof, neither the Stockholder nor any stockholder, director, employee or officer of the Stockholder shall have any right to use or to disclose, except in the ordinary course of business of the Company, to any person, firm or corporation other than the Buyer, its employees, agents and representatives, any trade or business secrets or client lists or other proprietary information of the Company. 3.3 A. SECTION 338 ELECTION. The Buyer and the Stockholder shall elect to treat the sale of Stock pursuant to this Agreement as a deemed taxable sale of all of the assets of the Company to the Buyer pursuant to Section 338 (g) and 338(h)(10) of the Code (the "ELECTIONS"). Both parties agree to cooperate fully with each other with regard to such election and each of the Buyer and the Stockholder shall take or cause to be taken by the Company all actions necessary to file, on a timely basis, the election prescribed pursuant to Temporary Treasury Regulation Section 1.338(h)(10)-IT. Neither the Buyer nor the Stockholder shall take, or cause to be taken, any action in connection with the filing of any tax return of the Company or otherwise which would be inconsistent with or prejudice the Elections and shall take all steps necessary to obtain comparable treatment, where applicable, under state law. 3.4 A. USE OF NAMES. From the Closing Date, the Stockholder and its successors, assigns and affiliates, shall not use the names Fidelity Leasing Corporation and First Radnor Equities, Inc. and, in the case of Fidelity Leasing Corporation and for a period of five years from the Closing Date, any names similar thereto which includes both the words Fidelity and any derivative of lease without the approval of the Company which approval shall not be unreasonably withheld provided, however, that the Stockholder may use the name FML Leasehold, Inc. 3.5 A. ADDITIONAL TAX INFORMATION. The Stockholder agrees to deliver promptly to the Buyer any copies of information in the Stockholder's possession reasonably requested by the Buyer in connection with any tax returns relating to the Company (whether filed prior to the Closing or to be filed hereafter). The Stockholder shall have access to such records of the Company as shall reasonably be required to enable the Stockholder to prepare any tax returns for periods ending on or before the Closing. 3.6 A. CERTAIN TAX MATTERS. The Stockholder shall pay all Federal, state and local taxes, including without limitation, income, profits, occupation, excise, property, sales, use and franchise taxes and including interest and penalties on, based on, measured by or with respect to the income, net worth or capital of the Company (the "TAXES") for all taxable periods up to and including the Closing Date. Within thirty (30) days after the filing of any tax return relating to the Company with respect to a tax period commencing before the Closing Date, and ending after the Closing Date, the Stockholder shall pay to the Buyer its appropriate share of such Taxes in an amount equal to the Taxes, if any, that would have been due if such tax period had ended on the Closing Date, less any estimated taxes previously paid by the Stockholder or its affiliates for such period or any taxes recorded as a liability in calculating the "tangible net worth" of the Company under Section 7.2 hereof. The Stockholder shall file, or cause the Company to file, all tax returns required to be filed on or before the Closing Date with respect to the Company (and amendments thereof) and all tax returns (and amendments thereof) with respect to Taxes on income for tax periods ending on or before the Closing Date. The Buyer shall file or cause the Company to file, all tax returns required to be filed after the Closing Date with respect to the Company, other than tax returns with respect to Taxes for tax periods ending on or before the Closing Date. 3.7 A. COMPANY OPERATION OF THE PARTNERSHIPS. From the Closing Date, the Company agrees to operate and the Buyer agrees to cause the Company to operate each of the Partnerships, as general partner, in accordance with such Partnership's partnership agreement and applicable law, and to operate in compliance with the Company's obligations under each Partnership's partnership agreement. 3.8 A. CONTINUATION OF THE COMPANY'S SEVERANCY POLICY. The Buyer shall cause the Company to maintain its existing severance policy for six (6) months following the Closing Date. ARTICLE IV ACTION PRIOR TO THE CLOSING DATE The parties hereto agree to take the following actions between the date hereof and the Closing Date: 4.1 A. CONFIDENTIAL NATURE OF INFORMATION. The Buyer and the Stockholder agree that, in the event that the transactions contemplated herein shall not be consummated, each will treat in confidence all documents, materials and other information which it shall have obtained during the course of the negotiations leading to the execution of this Agreement, the investigation of the other party hereto and the preparation of this Agreement and any other documents relating hereto, and shall return to the other party all copies of non-public documents and materials which have been furnished in connection therewith. 4.2 A. ACCURACY OF REPRESENTATIONS AND WARRANTIES. The Stockholder shall refrain from intentionally taking any action and shall cause the Company to refrain from intentionally taking any action which would render any representation and/or warranty contained in Article I of this Agreement inaccurate at any time between the date hereof and the Closing Date. The Stockholder will promptly notify the Buyer of any lawsuits, claims, proceedings or investigations that, to the knowledge of the Stockholder, may be brought, asserted or commenced against the Company, the Subsidiary or the Partnerships; their officers or directors, or the Stockholder. 4.3 A. NO MATERIAL CHANGE IN THE COMPANY. Prior to the Closing Date, the Stockholder shall not, without the prior written approval of the Buyer, cause the Company to (i) make any material change in the business or operations of the Company; (ii) make any material change in the accounting policies applied in the preparation of the financial statements referred to herein; (iii) except as permitted by Section 4.5 hereof, declare any dividends on its issued and outstanding shares of capital stock, or make any other distribution of any kind in respect thereof; (iv) issue, sell or otherwise distribute any authorized but unissued shares of its capital stock or effect any stock split or reclassification of any such shares or grant or commit to grant any option, warrant or other rights to subscribe for or purchase or otherwise acquire any shares of capital stock of the Company or any security convertible or exchangeable for any such shares; (v) purchase or redeem any of the capital stock of the Company; (vi) incur or be liable for indebtedness to the Stockholder or any of its subsidiaries, or affiliates other than in the ordinary course of business; (vii) make any material change in the base compensation of officers or key employees of the Company; (viii) enter into any contract, license, franchise or commitment other than in the ordinary course of business, or waive any rights of substantial value; or (ix) enter into any other transaction affecting in any material respect the business of the Company other than in the ordinary course of business and in conformity with past practices, or as contemplated by this Agreement. 4.4 A. NO PUBLIC ANNOUNCEMENT. Neither the Stockholder nor the Buyer shall, without the approval of the other, make any press release or other public announcements or filing concerning the transactions contemplated by this Agreement, except as and to the extent that any such party shall be so obligated by law, in which case the other party shall be advised thereof and given an opportunity to comment thereon. 4.5 A. DECLARATION OF DIVIDEND. The Buyer hereby acknowledges and agrees that prior to the Closing Date, the Stockholder shall cause the Company to declare a cash dividend (the "Dividend") of One Million Six Hundred Forty Thousand Dollars ($1,640,000). ARTICLE V CONDITIONS PRECEDENT TO OBLIGATIONS OF THE BUYER The obligations of the Buyer under this Agreement to purchase and pay for the Stock shall, at the option of the Buyer, be subject to the satisfaction, on or prior to the Closing Date, of the following conditions: 5.1 A. NO MISREPRESENTATION OR BREACH OF COVENANTS AND WARRANTIES. There shall have been no material breach by the Stockholder in the performance of any of its covenants and agreements herein, each of the representations and warranties of the Stockholder contained in this Agreement shall be true and correct in all material respects on the Closing Date as though made on the Closing Date and there shall have been delivered to the Buyer a certificate or certificates to that effect, dated the Closing Date and signed on behalf of the Stockholder by its President. 5.2 A. NO CHANGES IN OR DESTRUCTION OF PROPERTY. There shall have been, between the date hereof and the Closing Date no material adverse change in the condition, financial or otherwise, of the Company. 5.3 A. APPROVAL OF THE COURT. The Stockholder shall have received the approval of the Commonwealth Court of Pennsylvania (the "COURT") in the matter of Cynthia M. Maleski, Insurance Commissioner of the Commonwealth of Pennsylvania v. Fidelity Mutual Life Insurance Company, Case No. 1389M.D.-1992 of this Agreement and the transactions contemplated hereby (the "APPROVAL"). 5.4 A. BANK ACCOUNTS. Prior to the Closing Date, the Stockholder shall have transferred all of its cash and marketable securities used in the calculation of "tangible net worth" pursuant to Section 7.2 hereof to Jefferson Bank and the terms of and restrictions on such bank accounts shall be reasonably satisfactory to the Buyer, in its sole discretion. ARTICLE VI CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDER The obligations of the Stockholder under this Agreement to deliver the Stock shall, at the option of the Stockholder, be subject to the satisfaction, on or prior to the Closing Date, of the following conditions: 6.1 A. NO MISREPRESENTATION OR BREACH OF COVENANTS AND WARRANTIES. There shall have been no material breach by the Buyer in the performance of any of its covenants and agreements herein, each of the representations and warranties of the Buyer contained or referred to in this Agreement shall be true and correct in all material respects on the Closing Date as though made on the Closing Date and there shall have been delivered to the Stockholder a certificate or certificates to that effect, dated the Closing Date and signed on behalf of the Buyer by its President. 6.2 A. APPROVAL OF THE COURT. The Stockholder shall have received the Approval. 6.3 A. COMPANY CONFIRMATION. At the Closing, the Company shall execute a counterpart to this Agreement confirming and agree to be bound by the covenants contained in Section 3.7 and Section 7.2(b), and the provisions of Article IX. ARTICLE VII PURCHASE PRICE AND CLOSING 7.1 A. CLOSING. The closing of the transactions contemplated by this Agreement (the "CLOSING") shall take place within five (5) business days of the Stockholder's receipt of the Approval (the "CLOSING DATE"). 7.2 A. PURCHASE AND SALE. (a) Provided that the Approval occurs on or before September 20, 1995, on the Closing Date, the Stockholder shall sell to the Buyer the stock for a cash purchase price equal to Seven Hundred Fifty Thousand Dollars ($750,000) plus an amount equal to the Company's "tangible net worth," (the "PURCHASE PRICE") as of August 31, 1995. If the Approval occurs on or after September 21, 1995, the "tangible net worth" component of the Purchase Price shall be calculated as of the Closing Date but shall be reduced by the greater of (i) Two Thousand Dollars ($2,000) per day for every calendar day between August 31, 1995 and the Closing Date and (ii) the difference between the "tangible net worth" on the Closing Date and the "tangible net worth" on August 31, 1995. For purposes hereof, "tangible net worth" shall mean the Company's total shareholders' equity as determined based upon the Company's normal year end accounting procedures (compatible with generally accepted accounting principles), less the asset recorded for the Company's Contractual Servicing Rights Under Partnership Management Agreements, net of accumulated amortization, plus the liability recorded for Deferred Income. Accrued fee income as of the Closing Date for services provided with respect to each of the Partnerships shall be calculated based on such fees being earned ratably during the period since last received from each Partnership. The Company will accrue as a liability incentive compensation due non- Partnership reimbursed employees of the Company at the rate of 8/12 (or the percentage of the year through the Closing Date if the Approval occurs after September 20, 1995) multiplied by the employee's percentage bonus for the last year multiplied by the employee's current base compensation. If the bonus is not paid to the employee because the employee is no longer employed, the Company will reimburse 100% of the liability with respect to such employee to the Stockholder. If the bonus is not paid to the employee for any other reason, the Company will reimburse 50% of the liability to the Stockholder. (b) In addition to the Purchase Price, the Stockholder shall receive from the Company each month by the tenth (10th) day of the month payment of the net revenues received by the Company after the Closing for the prior month from any lease brokerage transaction (the "LEASE BROKERAGE REVENUES") which (i) has been awarded to the Company prior to the Closing Date and is described on Schedule 7.2 or has been awarded hereafter prior to the Closing Date; (ii) has been bid as of the Closing Date and is awarded to the Company within ninety (90) days thereafter, or (iii) is in progress as of the Closing Date and is described on Schedule 7.2 hereof (such Schedule shall be updated by the Stockholder as of the Closing Date to include activity between the date hereof and the Closing Date). For purposes of this Section 7.2(b), "net revenues" shall mean gross revenues realized from such transactions less any commissions payable in accordance with the Company's historical practices and less, in the case of non-awarded lease brokerage transactions described in (ii) and (iii) above, an additional 2.5% of gross revenues. Nothing herein contained shall in any way be construed to obligate the Company or the Buyer to provide financing for any such syndication transaction. The Buyer shall use its best efforts consistent with normal practice of the Company to realize the Lease Brokerage Revenues from the Company's lease brokerage transactions in progress on the Closing Date. 7.3 A. DELIVERIES BY THE STOCKHOLDER. At the Closing, the Stockholder shall sell, assign, transfer and convey to the Buyer all of the outstanding capital stock of the Company and shall deliver, at the Closing the following: (a) A certificate or certificates representing all of the Stock, together with fully executed and witnessed stock powers (in blank) attached thereto with signatures guaranteed by an institution that is a participant in the Securities Transfer Agents Medallion Program. (b) An opinion dated the Closing Date hereof from Obermayer, Rebmann, Maxwell & Hippel, counsel for the Stockholder, in form and substance satisfactory to the Buyer and its counsel, to the effect that: (i) The Stockholder is a corporation validly existing and in good standing under the laws of the State of Delaware. (ii) The Company is a corporation validly existing and in good standing under the laws of the State of Delaware; and the Company has full corporate power and authority to own or lease and operate its properties and to carry on its business as now conducted. The Company is duly qualified to do business and is in good standing as a foreign corporation in the Commonwealth of Pennsylvania. To the best of such counsel's knowledge, the Company has no subsidiaries other than First Radnor Equities, Inc., which is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. (iii) The authorized capital stock of the Company consists of 1,000 shares of common stock, par value $1.00 per share, of which 100 shares have been issued and are outstanding and are owned of record by the Stockholder; except for this Agreement, and all of the issued and outstanding shares of common stock of the Company as of the Closing are validly issued, fully paid and nonassessable. (iv) This Agreement and the transactions contemplated herein have been duly approved by all necessary corporate action of the Stockholder. This Agreement has been duly and validly executed and delivered by the Stockholder and such Agreement, assuming due execution by the Buyer, is the valid and binding agreement of the Stockholder enforceable against the Stockholder in accordance with its terms except as enforcement of such agreement may be limited by bankruptcy, insolvency or other similar laws affecting creditors' rights generally. (v) The Stockholder has full power and authority to execute and deliver the Agreement and to perform its obligations hereunder. Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated herein, (a) violates or conflicts with or results in the breach of the terms, conditions or provisions of, or constitutes a default under, the Certificate of Incorporation or the Bylaws of, the Stockholder or the Company or any agreement or instrument known to such counsel to which the Company or the Stockholder is a party or by which either of them is bound or (b) requires the consent, approval or authorization of or any filing with or notification to any Federal, state or local court, governmental authority or regulatory body not already obtained or made, as the case may be. (vi) All of the Partnerships are validly existing and in good standing under the laws of the states of their respective formations; and the Partnerships have full partnership power and authority to own or lease and operate their properties and carry on their businesses as now conducted. The Company is the duly authorized general partner of all the Partnerships in accordance with the Partnership Agreements. (vii) To the best of such counsel's knowledge there is no action, suit, proceeding or investigation pending or threatened against the Stockholder or the Company, other than actions, suits, proceedings or investigations described in Schedule 1.14, Schedule 1.17 or Schedule 1.21 hereto, which might result in a material adverse change in the properties, business or assets or in the condition which questions the legality, validity or propriety of this Agreement or of any action taken or to be taken by the Stockholder pursuant to or in connection with this Agreement. (viii) The Stockholder is the lawful owner of the Stock, to the best of such counsel's knowledge, free and clear of all adverse claims, with unrestricted right and power to transfer and deliver the Stock to the Buyer. The Stockholder has executed and delivered to the Buyer such instruments as are sufficient in form to vest good and marketable title to the Stock in the Buyer free and clear of all adverse claims. In giving such opinion, counsel for the Stockholder may rely, as to matters of fact, upon certificates of officers of the Company, and as to matters relating to the laws of any states other than the States of Delaware and Pennsylvania, upon the opinions of other counsel satisfactory to them, provided that such counsel shall state that they believe that they are justified in relying upon such certificates and opinions and deliver copies thereof at the Closing. (c) The resignations immediately prior to the Closing of (i) each director of the Company and the Subsidiary and (ii) each officer of the Company and the Subsidiary as requested by the Buyer, however, any liability incurred under the Company's existing severance policy as a result of such resignations shall be borne by the Buyer. 7.4 A. DELIVERIES OF THE BUYER. At the Closing, the Buyer shall deliver to the Stockholder an opinion of Ledgewood Law Firm, P.C., counsel for the Buyer, in form and substance satisfactory to the Stockholder and its counsel, to the effect that (i) The Buyer is a corporation duly organized, validly existing and in good standing under the laws State of Delaware; and (ii) this Agreement and the transactions contemplated herein have been duly approved by all necessary corporate action of the Buyer and such Agreement, assuming due execution by the Stockholder, is the valid and binding agreement of the Buyer enforceable against the Buyer in accordance with its terms except as enforcement of such agreement may be limited by bankruptcy, insolvency or other similar laws affecting creditors' rights generally. In giving such opinion, counsel for the Buyer may rely, as to matters of fact, upon certificates of officers of the Buyer. ARTICLE VIII TERMINATION 8.1 A. TERMINATION. This Agreement may be terminated by the Buyer, if the Approval required by Section 5.3 hereof has not been received by October 31, 1995, which date may be extended by the Buyer, in its sole discretion, until December 31, 1995. If this Agreement is terminated as set forth above, the Stockholder shall pay all reasonable out-of-pocket and third party expenses, including, but not limited to, attorneys' fees and third party due diligence costs incurred by the Buyer in connection with the transactions contemplated hereunder. ARTICLE IX SURVIVAL OF OBLIGATIONS; INDEMNIFICATION 9.1 A. SURVIVAL OF OBLIGATIONS. All representations and warranties made herein by the Stockholder and its obligations to be performed pursuant to the terms hereof, shall survive the Closing hereunder and shall terminate one year after the Closing; PROVIDED, that, (i) the representations and warranties contained in Section 1.15 shall expire three years after the Closing, or with respect to any dispute with the Internal Revenue Service, upon the later to occur of the following (x) such dispute's final resolution and the payment of all taxes, interest and penalties arising therefrom and (y) the expiration of the applicable statute of limitations; and (ii) the representations in Section 1.4 shall not terminate. 9.2 A. INDEMNIFICATION. (a) The Stockholder agrees to indemnify and hold harmless the Buyer, the Company and their subsidiaries, affiliates, successors and assigns from and against any and all (x) liabilities, losses, costs, deficiencies or damages and any and all amounts paid in settlement ("LOSS") and (y) reasonable attorneys' and accountants' fees and expenses, court costs and all other reasonable out-of-pocket expenses ("EXPENSE"), incurred by the Buyer or the Company, in investigating, preparing or defending against any litigation, commenced or threatened, or any claim asserted in good faith, in each case net of any insurance proceeds received and retained by the Buyer or the Company in connection with or arising from (i) any claim that the Stockholder did not convey to the Buyer good and marketable title to all of the issued and outstanding capital stock of the Company pursuant to this Agreement, (ii) any breach by the Stockholder of any of its covenants in, or failure of the Stockholder to perform any of its obligations hereunder, or (iii) any breach of any warranty or the inaccuracy of any representation of the Stockholder contained or referred to in this Agreement or in any certificate delivered by or on behalf of the Stockholder pursuant hereto. (b) The Buyer and the Company agree to indemnify and hold harmless the Stockholder and its successors and assigns from and against any and all Loss and Expense incurred by the Stockholder in investigating, preparing or defending against any litigation, commenced or threatened, or any claim asserted in good faith in each case net of any insurance received and retained by the Stockholder in connection with or arising from (i) any breach by the Buyer or the Company of any of its covenants in, or any failure of the Buyer or the Company to perform any of its obligations under, this Agreement or (ii) any breach of any warranty or the inaccuracy of any representation of the Buyer contained or referred to in this Agreement or in any certificate delivered by or on behalf of the Buyer pursuant hereto. (c) No claim shall be made for indemnity pursuant to this Section 9.2 until the aggregate amount of Loss and Expense exceeds Thirty Thousand Dollars ($30,000), but if the aggregate amount of such Loss exceeds such amount, the party responsible therefor (an "INDEMNIFYING PERSON") shall be liable for all Loss and Expense, including such initial Thirty Thousand Dollars ($30,000) amount to the person incurring such Loss or Expense (an "INDEMNIFIED PERSON"). In no event shall the Stockholder's obligations under this Section 9.2 exceed an aggregate of Eight Hundred Thousand Dollars ($800,000). (d) If any Indemnified Person has suffered or incurred any Loss or Expense, the Indemnified Person shall so notify the Indemnifying Person promptly in writing describing such Loss or Expense, the amount thereof, if known, and the method of computation of such Loss or Expense, all with reasonable particularity and containing a reference to the provisions of this Agreement or any certificate delivered pursuant hereto in respect of which such Loss or Expense shall have occurred. If any action at law or suit in equity is instituted by or against a third party with respect to which an Indemnified Person intends to claim any liability or expense as Loss or Expense under this Section 9.2, such Indemnified Person shall promptly notify the Indemnifying Person of such action or suit. (e) An Indemnified Person shall have the right, but not the obligation, to participate at its own expense in the defense of any third party claim, action or suit with counsel of its own choosing, but the Indemnifying Person shall be entitled to control the defense unless the Indemnified Person has relieved the Indemnifying Person from liability with respect to the particular matter. In the event that the Indemnifying Person shall fail timely to defend, contest or otherwise protect against such claim, the Indemnified Person shall have the right, but not the obligation, to defend, contest or otherwise protect against the same or, on not less than thirty (30) days' written notice to the Indemnifying Person, make any compromise or settlement thereof, and such compromise or settlement shall be binding on the Indemnifying Person for purposes of indemnification under this Article IX unless the Indemnifying Person objects thereto within the thirty day period aforesaid. (f) Neither the Buyer nor the Company shall have the right to set off against any Lease Brokerage Revenues due the Stockholder in accordance with Section 7.2(b) hereof except only with respect to any amounts both (i) owed to the Buyer by the Stockholder as a result of the indemnification provided in this Section 9.2 and (ii) paid out-of-pocket to third parties by the Buyer or the Company. ARTICLE X MISCELLANEOUS 10.1 A. NOTICES. All notices or other communications required or permitted hereunder shall be in writing and shall be deemed given (a) three (3) days after having been sent by certified or registered mail, return receipt requested, (b) one (1) business day after having been sent by regional recognized courier guarantying next business day delivery, or (c) upon delivery if given by hand delivery against written receipt, addressed as follows: If to the Buyer: Resource Leasing, Inc. 1521 Locust Street, 4th Floor Philadelphia, PA 19102 ATTN: Freddie Kotek If to the Stockholder: FML Leasehold, Inc. 250 King of Prussia Road Radnor, PA 19087 ATTN: President 10.2 A. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania without regard to the provisions on conflicts of law. 10.3 A. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 10.4 A. SEVERABILITY. In case any one or more of the provisions contained herein shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, but this Agreement shall be construed as if such invalid, illegal or unenforceable provision or provisions had never been contained herein unless the deletion of such provision or provisions would result in such a material change as to cause enforcement of the terms hereof to be unreasonable. 10.5 A. EXPENSES. Each party hereto shall pay its own expenses (including, without limitation, legal and accounting fees and expenses) incident to its negotiation and preparation of this Agreement and to its performance and compliance with the provisions contained herein. 10.6 A. TITLES AND HEADINGS. Titles and headings to Articles and Sections herein are inserted for the convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 10.7 A. SCHEDULES. The Schedules to this Agreement shall be construed with and read as an integral part of this Agreement to the same extent as if the same had been set forth verbatim herein. 10.8 A. ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This Agreement, including the Schedules hereto, contains the entire understanding of the parties hereto with regard to the subject matter contained herein. The parties hereto, by mutual agreement in writing, may amend, modify and supplement this Agreement. The failure of any party hereto to enforce at any time any provision of this Agreement shall not be construed to be a waiver of such provision, nor in any way to affect the validity of this Agreement or any part hereof or the rights of such party thereafter to enforce each and every such provision. No waiver of any breach of this Agreement shall be held to constitute a waiver of any other or subsequent breach. IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above written. RESOURCE LEASING, INC. Attest:___________________________ By:_____________________________ , Secretary Freddie Kotek, _____________ FML LEASEHOLD, INC. Attest:_________________________By:___________________________ , Secretary Arthur W. Mullin, Vice President FIDELITY LEASING COMPANY Attest:____________________ By:___________________________ , Secretary P. Donald Mooney, President EX-11.1 3 EXHIBIT 11.1 CALCULATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE PRIMARY EARNINGS PER SHARE
Computation for Statement of Operations Reconciliation of net income per statement of operations to amount used in primary 1995 1994 earnings per share computation: Net income $2,714,127 $1,308,633 Add-Interest on short-term debt, net of tax effect, on application of assumed proceeds from exercise of options and warrants in excess of 20% limitation 43,320 - Net income, as adjusted $2,757,447 $1,308,633 Additional Primary Computation Net income, as adjusted per primary computation above $2,757,447 $1,308,633 Additional adjustment to weighted average number of shares outstanding: Weighted average number of shares outstanding 678,000 701,300 Add-Dilutive effect of outstanding options and warrants (as determined by the application of the treasury stock method) 117,800 14,100 Weighted average number of shares outstanding 795,800 715,400 Primary earnings per share, as adjusted $3.47 $1.83 FULLY DILUTED EARNINGS PER SHARE Computation for Statement of Operations Reconciliation of net income per statement of operations to amount used in primary earnings per share computation: Income (loss) before extraordinary loss $2,714,127 $1,308,633 Add-Interest on short-term debt, net of tax effect, on application of assumed proceeds from exercise of options and warrants in excess of 20% limitation 31,020 - Net income, as adjusted $2,745,147 $1,308,633 Additional Primary Computation Net income, as adjusted per primary computation above $2,745,147 $1,308,633 Additional adjustment to weighted average number of shares outstanding: Weighted average number of shares outstanding 678,000 701,300 Add-Dilutive effect of outstanding options and warrants (as determined by the application of the treasury stock method) 117,800 73,400 Weighted average number of shares outstanding 795,800 774,700 Primary earnings per share, as adjusted $3.45 $1.69
EX-13.1 4 THIS PAGE IS INTENTIONALLY LEFT BLANK REPORT OF INDEPENDENT AUDITORS Stockholders and Board of Directors Resource America, Inc. We have audited the accompanying consolidated balance sheets of Resource America, Inc., and subsidiaries as of September 30, 1995, and 1994, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Resource America, Inc., and subsidiaries as of September 30, 1995, and 1994 and the consolidated results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ Grant Thornton LLP Cleveland, Ohio November 23, 1995 CONSOLIDATED BALANCE SHEET Resource America, Inc. Years Ended September 30, 1995 and 1994 1995 1994 ASSETS Current Assets Cash and cash equivalents $2,457,432 $2,597,556 Accounts and notes receivable 1,303,556 1,136,656 Inventory 128,488 135,614 Prepaid expenses and other current assets 34,557 115,345 Total current assets 3,924,033 3,985,171 Property and Equipment Oil and gas properties and equipment (successful efforts) 24,039,762 28,682,497 Gas gathering and transmission facilities 1,514,127 1,485,323 Other 1,072,243 1,018,609 26,626,132 31,186,429 Less accumulated depreciation, depletion, and amortization (14,043,455) (17,841,564) 12,582,677 13,344,865 Investments in Real Estate Loans 17,991,415 10,385,587 Restricted Cash 904,409 5,768,439 Other Assets (less accumulated amortization of $907,722 and $857,182) 2,147,430 1,311,620 $37,549,964 $34,795,682 1995 1994 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $721,673 $739,777 Accrued liabilities 516,066 426,640 Accrued income taxes - 100,000 Current portion of long-term debt 91,000 88,000 Total current liabilities 1,328,739 1,354,417 Long-term Debt, net of current portion 8,522,682 8,627,014 Deferred Income Taxes 1,147,000 674,000 Commitments and Contingencies - - STOCKHOLDERS' EQUITY Preferred Stock, $1.00 par value, 1,000,000 authorized shares, none issued - - Common Stock, $.01 par value 8,179 8,179 Additional paid-in capital 19,214,210 19,136,420 Retained earnings 10,532,719 7,979,509 Less treasury stock, at cost (2,721,437) (2,437,437) Less loan receivable from ESOP (482,128) (546,420) Total stockholders' equity 26,551,543 24,140,251 $37,549,964 $34,795,682 See accompanying notes to consolidated financial statements. Consolidated Statement of Operations Resource America, Inc. Years Ended September 30, 1995 and 1994 1995 1994 REVENUES Real estate finance $6,114,258 $2,522,472 Oil and gas production 3,452,327 3,441,752 Gas gathering and transmission 382,638 354,566 Well services 973,242 1,153,306 Financial services 377,272 379,019 Interest 148,331 135,546 11,448,068 7,986,661 COSTS AND EXPENSES Production and transmission 1,563,628 1,414,060 Well services 789,940 877,646 Financial services 174,994 208,762 Real estate 800,970 248,000 Exploration 229,962 634,734 General and administrative 2,119,187 1,708,008 Depreciation, depletion, and amortization 1,334,956 1,346,602 Interest 1,091,027 310,332 Other - net (2,028) 22,274 8,102,636 6,770,418 Income from operations 3,345,432 1,216,243 OTHER INCOME (EXPENSE) Loss on sale of property (1,305) (7,610) Income before income taxes 3,344,127 1,208,633 Provision (benefit) for income taxes 630,000 (100,000) Net income $2,714,127 $1,308,633 Net income per common share - primary $3.47 $1.83 Weighted average common shares outstanding 795,800 715,400 Net income per common share - fully diluted $3.45 $1.69 Weighted average common shares outstanding 795,800 774,700 See accompanying notes to consolidated financial statements. Consolidated Statement of Changes in Stockholders' Equity Resource America, Inc. Years Ended September 30, 1995 and 1994
Additional Total Common Stock Paid-in Retained Treasury Stock ESOP Share Stockholders' Shares Amount Capital Earnings Shares Amount Amount Equity Balance, September 30, 1993 817,912 $8,179 $19,036,420 $6,670,876 (115,545) $(2,243,374) $(610,711) $22,861,390 Treasury shares acquired (15,857) (194,063) (194,063) Warrants issued 100,000 100,000 Repayment of ESOP loan 64,291 64,291 Net income 1,308,633 1,308,633 Balance, September 30, 1994 817,912 8,179 19,136,420 7,979,509 (131,402) (2,437,437) (546,420) 24,140,251 Treasury shares acquired (21,298) (284,000) (284,000) Cash dividends (160,917) (160,917) Warrants issued 77,790 77,790 Repayment of ESOP loan 64,292 64,292 Net income 2,714,127 2,714,127 Balance, September 30, 1995 817,912 $8,179 $19,214,210 $10,532,719 (152,700) $(2,721,437) $(482,128) $26,551,543
Consolidated Statement of Cash Flows Resource America, Inc. Years Ended September 30, 1995 and 1994 1995 1994 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $2,714,127 $1,308,633 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion, and amortization 1,334,956 1,346,602 Amortization of discount on senior note and deferred finance costs 74,020 21,684 Deferred income taxes 473,000 (160,000) Gain on dispositions and investments (1,727,227) (1,088,159) Property impairments and abandonments 56,497 547,342 Change in operating assets and liabilities: (Increase) decrease in accounts receivable 81,084 (46,439) Decrease in prepaid expenses and other current assets 80,788 70,805 Increase (decrease) in accounts payable (291,272) 227,492 Increase (decrease) in accrued income taxes (100,000) 100,000 Accretion of discount (1,175,887) (346,151) Increase in other current liabilities 50,494 300,804 (Increase) decrease in inventory 7,126 (24,147) Net cash provided by operating activities 1,577,706 2,258,466 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of business, less cash acquired (876,535) - Capital expenditures (817,139) (1,036,545) Proceeds from sale of assets 10,348,220 2,156,881 Increase in other assets (59,452) (540,774) Increase in investments in real estate loans (14,708,125) (3,097,812) Net cash used in investing activities (6,113,031) (2,518,250) CASH FLOWS FROM FINANCING ACTIVITIES: Long-term borrowings 2,000,000 8,000,000 Dividends paid (160,917) - (Increase) decrease in restricted cash 4,864,030 (5,046,728) Increase in other assets - (642,425) Principal payments on debt (4,523,912) (21,248) Purchase of treasury stock (284,000) (194,063) Short-term borrowings 2,500,000 - Net cash provided by financing activities 4,395,201 2,095,536 Increase (decrease) in cash and cash equivalents (140,124) 1,835,752 Cash and cash equivalents at beginning of year 2,597,556 761,804 Cash and cash equivalents at end of year $2,457,432 $2,597,556 See accompanying notes to consolidated financial statements. Notes to Consolidated Financial Statements Resource America, Inc. September 30, 1995 and 1994 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Resource America, Inc., and its wholly owned subsidiaries ("the Company") and its pro rata share of the assets, liabilities, income, and expenses of partnerships in which the Company has an interest. All material intercompany transactions have been eliminated. OIL AND GAS PROPERTIES The Company follows the successful efforts method of accounting. Accordingly, property acquisition costs, costs of successful exploratory wells, all development costs, and the cost of support equipment and facilities are capitalized. Costs of unsuccessful exploratory wells are expensed when determined to be nonproductive. The costs associated with drilling and equipping wells not yet completed are capitalized as uncompleted wells, equipment, and facilities. Geological and geophysical costs and the costs of carrying and retaining undeveloped properties, including delay rentals, are expensed as incurred. Production costs, overhead, and all exploration costs other than costs of exploratory drilling are charged to expense as incurred. Unproved properties are assessed periodically to determine whether there has been a decline in value, and if such decline is indicated, a loss is recognized. The Company compares the carrying value of its oil and gas producing properties to the estimated future cash flow from such properties, less applicable income taxes in order to determine whether the carrying value of such properties should be reduced. No adjustment was necessary as of September 30, 1995, or 1994. On an annual basis, the Company estimates the costs of future dismantlement, restoration, reclamation, and abandonment of its gas and oil producing properties. Additionally, the Company evaluates the estimated salvage value of equipment recoverable upon abandonment. At September 30, 1995, the Company's evaluation of equipment salvage values was greater than or equal to the costs of future dismantlement, restoration, reclamation, and abandonment. DEPRECIATION, DEPLETION, AND AMORTIZATION Proved developed oil and gas properties, which include intangible drilling and development costs, tangible well equipment, and leasehold costs, are amortized on the unit-of-production method using the ratio of current production to the estimated aggregate proved developed oil and gas reserves. The net book value of producing properties is limited to the value of their future net cash flow based on unescalated prices and costs less a provision for estimated income taxes. Depreciation of property and equipment, other than oil and gas properties, is computed using the straight-line method over the estimated economic lives, which range from 3 to 25 years. Intangible assets consist primarily of contracts acquired through acquisitions recorded at fair value on their acquisition dates and the excess of the acquisition cost over the fair value of the net assets of a business acquired (goodwill). The contracts are being amortized on a declining balance method over their respective estimated lives, ranging from 5 to 13 years. Goodwill is being amortized on a straight-line basis over 15 years. Cash and cash equivalents The Company considers temporary investments with a maturity at the date of acquisition of 90 days or less to be cash equivalents. RESTRICTED CASH The Company's restricted cash is invested in short-term highly-liquid investments. Classified as a noncurrent asset, it represents collateral for a portion of the Company's long-term debt. Supplemental disclosure of cash flow information: 1995 1994 Cash paid (refunded) during the year for: Interest $1,103,527 $22,812 Income Taxes 254,981 (40,000) LIMITED PARTNERSHIPS A substantial portion of the Company's activities and revenues are attributable to limited partnerships ("Partnerships") in which it serves as general partner and assumes the customary rights and obligations for the Partnerships. As the general partner in these various limited partnerships, the Company is liable for partnership liabilities and can be liable to limited partners if it breaches its responsibilities with respect to the operations of the limited partnerships. The Company is entitled to receive management fees, reimbursement for administrative costs, and to share in the Partnerships' revenue and costs and expenses according to the respective Partnership agreements. Such fees and reimbursements are recognized as income and included in financial services revenue. Amounts reimbursed for costs incurred as operator of a partnership property for the years ended September 30, 1995, and 1994 were $119,000 and $178,000, respectively, and have been offset against general and administrative expense. The Company includes in its operations the portion of the Partnerships' revenues and expenses applicable to its interests therein. INCOME TAXES The Company recognizes deferred tax assets and liabilities for the estimated future tax effects attributable to temporary differences between the financial statement and tax bases of assets and liabilities and carryforwards utilizing enacted rates. Deferred tax provision or benefit represents the change during the year in the deferred tax asset and liability balances. EARNINGS PER SHARE Earnings per common share - primary are determined by dividing net income by the weighted average number of common shares and common share equivalents outstanding during each period. Common share equivalents include shares issuable under the terms of various stock option and warrant agreements (see Notes 3 and 6). Fully diluted earnings per share reflect additional dilution related to stock options and warrants due to the use in that computation of the market price f the Company's shares at the end of the period, which price is higher than the average price for the period. RECLASSIFICATIONS Certain reclassifications have been made to the 1994 consolidated financial statements to conform with the 1995 presentation. NOTE 2 - TRANSACTIONS WITH RELATED PARTIES The Company administers the activities of certain partnerships that it sponsors (see Note 1). Well service revenues primarily represent services provided to Partnerships and joint ventures managed by the Company. The Company acquired limited partners' interests in and purchased wells from various oil and gas partnerships for which the Company served as the general partner. The aggregate purchase price of these acquisitions was $133,000 and $623,000 in 1995 and 1994, respectively. In accordance with industry practice, the Company charges each producing well in the Partnerships and joint ventures a fixed monthly overhead fee and a proportionate share of certain lease operating expenses. These charges are to reimburse the Company for certain operating and general and administrative expenses. The Company has been engaged to provide financial reporting and data processing services to certain real estate partnerships sponsored by others. The general partners of such partnerships may be deemed to be indirect affiliates or associates of an officer of the Company. Financial services revenues include $25,000 and $46,000 in 1995 and 1994, respectively, for the billings of these services. Amounts due from these real estate partnerships amounted to $27,600 at September 30, 1994. A law firm in which an officer of the Company holds "of counsel" status provides legal services to the Company. The Company and its subsidiaries paid the firm approximately $562,000 and $464,000 during 1995 and 1994 for legal services primarily related to the purchase and restructuring of real estate loans and the placement during fiscal 1994 of the $8,000,000 senior secured note referred to in Note 3. In addition, during 1994 the Company retained an individual who is associated with the Chairman of the Company in other business ventures, to perform due diligence services in connection with the placement of the $8,000,000 senior secured note referred to in Note 3. The Company paid approximately $76,000 to this individual during 1994. The Company holds real estate loans with respect to sixteen properties owned by third parties. These properties are managed by a corporation in which an officer of the Company is an officer and minority shareholder. Management fees payable under the management agreements are subordinated to receipt by the Company of minimum required debt service payments under the loans. The Company maintains depository and investment accounts in a bank subsidiary of JeffBanks, Inc., in which the Chairman of the Company serves as a director. The Chairman's wife is a director and executive officer of JeffBanks, Inc. During the first quarter of fiscal 1995, the Company also borrowed $2,500,000 from Jefferson Bank, a subsidiary of JeffBanks, Inc. The Company repaid this loan in the third quarter of fiscal 1995 with long-term financing obtained from an insurance company. NOTE 3 - LONG-TERM DEBT Long-term debt consists of the following: September 30, 1995 1994 Mortgage note payable to a bank, secured by real estate, monthly installments of approximately $3,300 including interest at 3/4% above the prime rate through May 2002 (rate of 9.5% at September 30, 1995) $241,347 $265,262 Loan payable to a bank, secured by a certificate of deposit, 20 equal semiannual installments of $32,143 through February, 2003, and quarterly payments of interest at 84% of the prime rate through July 1996 (rate of 7.35% at September 30, 1995), at which time the rate converts to 1/2% above the prime rate through 2003 (See Note 6) 482,128 546,419 9.5% senior secured note payable, interest due semi-annually, principal due May 2004 7,890,207 7,903,333 8,613,682 8,715,014 Less amounts payable in one year 91,000 88,000 $8,522,682 $8,627,014 The long-term debt maturing over the next five years is as follows: 1996 - $91,000; 1997 - $94,000; 1998 - $97,000; 1999 - $101,000; and 2000 - $105,000. In May 1994, the Company privately placed with an insurance company at 9.5%, a senior secured note in the principal amount of $8,000,000 together with an immediately exercisable detacable warrant to purchase, at any time through May 24, 2004, 160,000 shares, subject to adjustment, of the Company's common stock at an exercise price of $9.50 per share. The value assigned to the warrant ($100,000) has been accounted for as paid-in capital, resulting in a discount which is being amortized on a straight-line basis over the life of the note. The note is collateralized by substantially all of the Company's oil and gas properties and certain of the Company's Real Estate Loans (see Note 10). Among other restrictions, the note agreement limits the payment of dividends, requires the insurance company's consent to mergers and the sale of substantial assets, limits the Company's incurring additional indebtedness, and requires the maintenance of certain financial ratios. At September 30, 1995 and 1994, the Company was in compliance with such covenants. NOTE 4 - INCOME TAXES The following table details the components of the Company's income tax expense for the years 1995 and 1994. 1995 1994 Provision (benefit) for federal income tax Deferred $473,000 $(160,000) Current 157,000 60,000 $630,000 $(100,000) A reconciliation between the statutory federal income tax rate and the Company's effective federal income tax rate is as follows: 1995 1994 Statutory tax rate 34% 34% Statutory depletion (4) (18) Non-conventional fuel credits (1) (4) Adjustment of prior year's accruals (3) (7) Adjustment to valuation allowance for deferred tax assets (7) (9) Other - (4) 19% (8%) The components of the net deferred tax liability are as follows: September 30, 1995 1994 Deferred tax assets: Statutory depletion carryforward $634,000 $1,300,000 Investment tax credit carryforwards (less valuation allowance of $271,000 in 1994) 122,000 113,000 Alternative minimum tax credit carryforwards 221,000 268,000 Interest receivable 120,000 - Other items, net - 25,000 1,097,000 1,706,000 Deferred tax liabilities: Excess of tax over book depreciation, depletion, and amortization (2,138,000) (2,311,000) ESOP benefits (106,000) (69,000) (2,244,000) (2,380,000) Net deferred tax liability $(1,147,000) $(674,000) At September 30, 1995, the Company had a $122,000 investment tax credit carryforward, and a $1,864,000 statutory depletion carryforward available for federal income tax reporting purposes. Additionally, the Company has an alternative minimum tax credit carry over of $221,000 which can reduce regular income taxes in future years. The investment credit carryforward, if unused, will expire in varying amounts from 1996 to 2001. There is no expiration date for the utilization of statutory depletion carry overs and alternative minimum tax credit carry overs. NOTE 5 - STOCKHOLDERS' EQUITY REPURCHASE OF COMMON STOCK In 1993, the Board of Directors of the Company authorized management to develop a definitive program to offer to purchase all shares of its common stock held in accounts of fewer than 100 shares. The purpose of this offer was to reduce the relatively high costs incurred by the Company in servicing its many stockholders with small holdings. Management devised a plan to purchase such shares at a price of $12.00 per share to holders of record as of the close of business on July 15, 1994. Approximately 57,000 shares were eligible for purchase under the plan. In September and October, 1994, the Company purchased 13,901 and 3,267 shares held in 386 and 89 accounts, respectively. In addition to the shares acquired under the definitive program, in August, 1995, the Company repurchased 13,076 shares in a private and unrelated transaction at a cost of $183,000. NOTE 6 - EMPLOYEE BENEFIT PLANS EMPLOYEE STOCK OWNERSHIP PLAN During 1989, the Company established an Employee Stock Ownership Plan ("ESOP"), to which it sold 60,000 newly-issued shares for $1,200,000. The ESOP is a qualified non-contributory retirement plan to acquire shares of the Company's common stock for the benefit of all employees 21 years of age or older and who have completed 1,000 hours of service for the Company. Contributions to the ESOP are made at the discretion of the Board of Directors. The ESOP borrowed the funds to purchase the shares under a seven year bank term loan that was guaranteed by the Company. In February 1993, this loan was retired and refinanced by a loan from the Company, which borrowed the funds for such loan from another bank (see Note 3). The stock purchased by the ESOP with the money borrowed is held by the ESOP trustee in a "suspense account." On an annual basis, a portion of the common stock is released from the "suspense account" and allocated to participating employees. Any dividends on ESOP shares are used to pay principal and interest on the loan. As of September 30, 1995, there were 45,451 shares allocated to participants and 8,570 suspense shares. Compensation expense related to the plan is based upon principal and interest payments to the bank less dividends paid to ESOP shares, such expense amounted to $91,300 and $94,800 for the years ended September 30, 1995, and 1994, respectively. The loan from the bank to the Company is payable in semiannual installments through February 1, 2003. The loan from the Company to the ESOP is payable on a quarterly basis through August 1, 1996. Both the loan obligation and the unearned benefits expense (a reduction in shareholders' equity) will be reduced by the amount of any loan principal payments made by the Company and ESOP, respectively. EMPLOYEE SAVINGS PLAN The Company has an Employee Retirement Savings Plan and Trust under Section 401(k) of the Internal Revenue Code which allows employees to defer up to 10% of their income on a pretax basis through contributions to the savings plan. The Company matches up to 100% of each employee's contribution. Included in general and administrative expenses are $28,100 and $20,000 for the Company's contributions for the years ended September 30, 1995, and 1994, respectively. STOCK OPTIONS Under the Company's 1984 Key Employee Stock Option Plan, officers and certain key employees may be granted options to purchase shares of stock at an option price of not less than the fair market value on the date of the grant. The plan also provides for the grant of Stock Appreciation Rights ("SAR's") to accompany the grant of options. A right entitles the holder to benefit from market appreciation in the Company's stock subject to the right between the date of grant and the date of exercise without requiring any payment on the part of the holder. Upon exercise of a right, the holder is entitled to receive an amount of stock (or, at the election of the Board of Directors, cash) equal in value to the amount of such appreciation. A total of 20,000 shares was originally reserved for issuance under the plan. The exercise of SAR's on 16,000 shares has reduced the number of shares reserved to 4,000, for which options were outstanding at September 30, 1995, at an exercise price of $7.75 per share. To exercise any part of an option, an optionee must remain in the continuous employment of the Company for one year after the date of grant. In January 1990, the stockholders approved the Resource America, Inc., 1989 Key Employee Stock Option Plan ("Plan"). The Plan, for which 70,000 shares have been reserved, provides for the issuance of Incentive Stock Options and Non-qualified Stock Options ("Options") and SAR's. The Plan is administered by a Compensation Committee ("Committee") of the Board of Directors consisting of at least two members of the Board, neither of whom can receive Options or SAR's under the Plan. The Committee may grant to eligible employees Options to purchase shares or SAR's and, at its discretion, may set terms and conditions required of a recipient as a condition to his exercise of the Option or SAR. At September 30, 1995, Options for a total of 68,000 shares were outstanding at a weighted-average exercise price of $8.09 per share. Options under either plan become exercisable as to 25% of the optioned shares each year after the date of grant, and expire not later than ten years after grant. A summary of the changes in shares under option for both plans follows: (number of shares) Years ended September 30, 1995 1994 Outstanding, October 1 72,000 72,000 Outstanding, September 30 72,000 72,000 Exercisable, September 30 36,000 18,000 Available for grant, September 30 2,000 2,000 NOTE 7 - FORMATION OF LIMITED PARTNERSHIPS In 1990, the Company sponsored the Resource America 1990 Pipeline Income Program ("1990 Program"), a limited partnership which purchased a pipeline system from the Company. The Company had guaranteed that the limited partners will receive cash distributions during each of the first two years of the operation of the 1990 Program equal to 12% of their capital contributions to the 1990 Program. To the extent that cash flow to the Program was less than 12%, the Company contributed sufficient capital to the 1990 Program to allow the guaranteed distributions to be made. The Company believes the amount contributed ($299,000), for which it is entitled to be repaid on a preferential basis upon termination of the 1990 Program, will be realized upon final disposition of the pipeline. In December 1989, the Company had a final closing on its Resource America 1989 Pipeline Income Program ("1989 Program"). Similar to the 1990 Program, the Company had guaranteed a 12% return on invested capital to investors during the first two years of the 1989 Program's operations. The Company contributed sufficient capital to the 1989 Program to allow the guaranteed distributions to be made. The Company believes the amount contributed ($394,000), for which it is entitled to be repaid on a preferential basis upon termination of the 1989 Program, will be realized upon final disposition of the pipeline. The limited partners in both Programs have the right to sell their interests in the Programs to the Company following the fifth anniversary of the respective Program's closing at a price equal to 4.5 times the cash flow per unit during the fifth year of partnership operations, subject to a maximum sale price of $50,000 per unit. The limited partners may also cause the sale of the pipeline after the fifth year of partnership operations. In October 1994 and January 1995, in accordance with the terms of the limited partnership agreements, the Company purchased 20 units in the 1989 Program for a total cost of approximately $240,000. In October 1995, the Company extended an offer to purchase 36 units in the 1990 Program for approximately $9,700 per unit. In November,1995, a total of four units were repurchased by the Company at a total cost of approximately $38,000. NOTE 8 - ACQUISITION Effective September 1, 1995, the Company acquired Fidelity Leasing Corporation ("FLC"), an equipment leasing company, for $1,456,000 in cash (including related expenses) and assumed $312,000 in liabilities. The acquisition was accounted for as a purchase and, accordingly, FLC's assets and liabilities have been recorded at their estimated fair values at the date of acquisition. The purchase price resulted in an excess of costs over net assets acquired (goodwill) of approximately $558,000, which will be amortized on a straight line basis over 15 years. FLC manages seven equipment leasing partnerships. The following pro forma results of operations give effect to the above acquisition as though it had occurred on October 1, 1993: (in thousand except per share amounts) 1995 1994 Revenue $13,473 $10,342 Net Income 2,865 1,664 Net Income per common share 3.60 2.33 The pro forma results of operations have been prepared for comparative purposes only and do not purport to present actual operating results had the acquisition been made at the beginning of each year, or of results which may occur in the future. NOTE 9 - INDUSTRY SEGMENT INFORMATION AND MAJOR CUSTOMERS The Company operates in two principal industry segments - real estate and energy. Segment data for the years ended September 30, 1995, and 1994 are as follows: (in thousands of $) 1995 1994 Revenue: Real estate $6,114 $2,522 Energy 4,808 4,950 Unidentified industries 378 379 Corporate 148 136 11,448 7,987 Depreciation, Depletion, and Amortization: Real estate 37 37 Energy 1,208 1,221 Unidentified industries 46 47 Corporate 44 41 1,335 1,346 Operating Profit (Loss): Real estate 4,444 1,819 Energy 804 179 Unidentified industries 136 116 Corporate (2,039) (898) 3,345 1,216 Identifiable Assets: Energy 13,738 14,469 Real estate 18,225 10,489 Unidentified industries 1,043 101 Corporate 4,544 9,737 37,550 34,796 Capital Expenditures: Real Estate 172 2 Energy 637 982 Unidentified industries - - Corporate 8 53 $817 $1,037 Operating profit (loss) represents total revenueless operating expenses, excluding interest and general corporate expenses. A portion of executive salaries, included in their entirety in general and administrative expenses on the Company's Consolidated Statement of Operations, have been allocated to each segment based on the time spent in each area of the business. The Company's natural gas is sold under contract to various purchasers. Gas sales to one purchaser individually approximated 15% and 16% of total revenues for the years ended September 30, 1995 and 1994, respectively. Interest and fees earned from one borrower approximated 24% of total revenues for the year ended September 30, 1995. NOTE 10 - INVESTMENTS IN REAL ESTATE LOANS At September 30, 1995 and 1994,the Company held real estate loans having aggregate face values of $51,680,000 and $24,929,000, respectively, which were being carried at aggregate costs of $17,991,000 and $10,386,000, respectively. The following is a summary of the changes in the carrying value of the Company's investments in real estate loans for the years ended September 30, 1995 and 1994: 1995 1994 Balance, beginning of period $10,385,587 $7,072,888 New real estate loans 13,588,000 2,996,263 Additions to existing loans 1,299,696 717,525 Accretion of discount 1,175,886 602,151 Gains on sale of loan participations and refinancings (revenue contribution) 1,728,531 1,095,769 Proceeds (cash): Refinancings (2,555,285) (2,099,009) Participations (7,631,000) - Balance, end of period $17,991,415 $10,385,587
Investments in Real Estate Loans at September 30 consists of: September 30, 1995 1994 Property 001 Subordinated wraparound note, face value of $4,500,000, secured by residential real estate located in Pittsburgh, PA, interest at 14.5%, due October 31, 1998 $2,334,850 $2,189,589 Property 002 Mortgage note, face value of $1,080,000, secured by residential real estate located in Philadelphia, PA, interest at 12%, due October 31, 1998. In June 1995, the Company sold a senior participation in this mortgage for $600,000, resulting in a gain of $100,000 and a remaining face value due the Company of $562,000 147,972 574,453 Property 003 Mortgage note, face value of $1,312,000, secured by residential real estate located in Philadelphia, PA, interest at 2 1/2% over the monthly national median annualized cost of funds for SAIF-insured institutions as announced by the Federal Deposit Insurance Corporation, due October 31, 1998. In June 1995, the Company sold a senior participation in this mortgage for $896,000, resulting in a gain of $209,000 and a remaining face value due the Company of $479,000 189,347 833,305 Property 004 Mortgage note, face value of $4,234,000, secured by commercial real estate located in Pittsburgh, PA, interest at 10.6%, due October 31, 1998. In June 1995, the Company sold a senior participation in this mortgage for $840,000, resulting in a gain of $146,000 and a remaining face value due the Company of $3,498,000 675,805 1,226,403 Property 005 Mortgage note, face value of $4,389,000, secured by residential real estate located in Philadelphia, PA, interest at 2% over the yield of one-year United States Treasury securities, due July 31, 1998. In January 1995, the owner of the Property refinanced the mortgage note with an unaffiliated party, simultaneously paying the Company $934,000 toward principal and interest on this loan - 1,352,925 The Company received a note,subordinated to the unaffiliated party, face value of $3,559,000, secured by an unrecorded deed on the same property and on the same terms in exchange for the above referenced mortgage note 724,422 - Property 006 Mortgage note, face value of $1,798,000, secured by residential real estate located in Margate, NJ, interest at the Chase Manhattan Bank prime rate (but not less than 9% nor greater than 15.5%), due January 1, 2003. In June 1995, the Company sold a senior participation in this mortgage for $685,000, resulting in a gain of $92,000 and a remaining face value due the Company of $1,370,000 424,749 1,102,015 Property 007 Note, face value of $1,776,000, secured by a judgment lien, relating to real estate located in St. Cloud, MN, interest at 10%, due December 31, 2014 489,196 615,976 Property 008 Mortgage note, face value of $4,629,000, secured by commercial real estate located in Alexandria, VA, interest at 1/2% over the Maryland National Bank prime rate, due October 31, 1998. In June 1995, the owner of the property refinanced the mortgage note with an unaffiliated party, simultaneously paying the Company $840,000 toward principal and interest on this loan - 2,132,921 The Company received a note, subordinated to the unaffiliated party, face value of $4,165,000, secured by the same property and on the same terms, in exchange for the above referenced mortgage note 1,469,899 - Property 009 Wraparound note, face value of $12,000,000 consisting of a first mortgage held by the Company of $9,000,000 secured by commercial real estate located in Washington, D.C., a note, face-value of $350,000, and a $3,000,000 second mortgage held by an unrelated party, interest at 12%, due November 30, 1998 9,252,716 - Property 010 Mortgage note, face value of $1,211,000, secured by residential real estate located in Philadelphia, PA, interest at 3% over the Federal Home Loan Bank of Pittsburgh rate, due September 2, 1999. In June 1995, the Company sold a senior participation in this mortgage for $600,000, resulting in a gain of $227,000 and a remaining face value due the Company of $710,000 107,450 358,000 Property 011 Mortgage note, face value of $900,000, secured by commercial real estate located in Washington, D.C., interest at 1 1/2% over the First Union National Bank rate, due September 30, 1999. In June 1995, the Company sold a senior participation in this mortgage for $685,000, resulting in a gain of $77,000 and a remaining face value due the Company of $317,000 289,504 - Property 012 Mortgage notes, face value of $1,485,000, secured by residential real estate located in Philadelphia, PA, interest at 2% over the Mellon Bank prime rate, due October 31, 1999. In August, 1995, the owner of the property refinanced the mortgage note with an unaffiliated party, simultaneously paying the company $655,000 toward principal and interest on this loan. The Company now holds a note, subordinated to the unaffiliated party, face value of $747,000, secured by the same property and on the same terms 545,077 - Property 013 Mortgage notes, face value of $1,962,000, secured by residential real estate located in Philadelphia, PA, varying interest rates from 9 1/2% to 14.5%, due December 2, 1999. In June 1995, the Company sold a senior participation in this mortgage for $1,160,000, resulting in a gain of $381,000 and a remaining face value due the Company of $931,000 195,092 - Property 014 Mortgage note, face value of $3,000,000, secured by commercial real estate located in Pasadena, CA, interest at 2.75% over the average cost of funds to FSLIC-insured savings and loan associations, 11th District (but not less than 5.5% nor greater than 15.5%), due May 1, 2001. In September, 1995, the Company sold a senior participation in this mortgage for $2,000,000 resulting in a gain of $499,000 and a remaining face value due the Company of $975,000 295,608 - Property 015 Subordinated wraparound note, face value of $3,500,000, secured by residential real estate located in New Concord, NC, interest at 12%, due August 25, 2000 146,765 - Property 016 Subordinated wraparound note, face value of $5,198,000, secured by real estate located in Rancho Cordova, CA, interest at 8.5%, due December 31, 2019 702,963 - $17,991,415 $10,385,587
During June 1994, the Company received $2,099,000 including accrued interest of $128,000 for a mortgage loan with a face value of $3,435,000 and a carrying value, exclusive of interest, of $976,000. This transaction resulted in a pre-tax gain of $1,095,000, which is included in real estate finance revenues. As referenced above, in June and September 1995, the Company sold senior participations in seven and one real estate loans, respectively, to an insuance company, pursuant to which the Company agreed to replace any non-performing loan with a similar but performing loan. In addition, the Company issued to the insurance company warrants to purchase 40,000 and 84,465 shares of the Company's common stock at the then market prices of $9.50 and $11.75 per share, respectively. The value assigned to the warrants ($77,800) has been accounted for as paid-in capital. Further, as referenced above, owners of three properties on which the Company held mortgage notes refinanced those Notes with unaffiliated parties. The Company received payments of principal and interest on these mortgage notes as well as new notes, subordinated to the new first mortgage notes placed on the properties by the unaffiliated parties. NOTE 11 - SUBSEQUENT EVENT CASH DIVIDEND On October 24, 1995, the Board of Directors of the Company approved a dividend of $.25 per share of common stock payable on November 30, 1995 to holders of record as of November 17, 1995. SPECIAL STOCKHOLDERS MEETING On October 16, 1995, the Company's shareholders authorized an amendment to the Certificate of Incorporation of the Company to effect a division of the Company's Common Stock into two classes, Class A Common Stock and Class B Common Stock. The Company's existing Common Stock is designated as Class A Common Stock. Class B Common Stock is currently reserved for issuance upon the exercise of certain warrants held and yet to be issued under prior commitment to Physician's Insurance Company of Ohio. This action did not affect the number of authorized or outstanding shares of Common or Preferred Stock. As a result, of the 3,500,000 shares of Common Stock authorized, 2,500,000 shares is authorized as Class A Common Stock and 1,000,000 shares is authorized as Class B Common Stock, of which 665, 212 shares and zero shares, respectively, were outstanding at that date. Class A Common Stock and Class B Common Stock have the same relative rights in all matters except for the election of directors. At this same meeting, the shareholders also approved an amendment to the Company's 1989 Key Employee Stock Option Plan to increase the number of shares as to which options may be granted from 70,000 shares to 140,000 shares. NOTE 12 - SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED) Results of operations for oil and gas producing activities Year Ended September 30, (in thousands of $) 1995 1994 Revenues $3,452 $3,442 Production costs (1,502) (1,369) Exploration expenses (230) (635) Depreciation, depletion, and amortization (922) (977) Income taxes - - Results of operations for producing activities $798 $461 Capitalized costs related to oil and gas producing activities The components of capitalized costs related to the Company's oil and gas producing activities (less impairment reserve of $30,000 in 1995 and $49,954 in 1994) are as follows: 1995 1994 Proved properties $22,416,417 $26,903,003 Unproved properties 649,962 703,317 Pipelines, equipment, and other interests 2,487,508 2,561,500 Total $25,553,887 $30,167,820 Accumulated depreciation, depletion, and amortization (13,589,493) (17,381,995) Net capitalized costs $11,964,394 $12,785,825
COSTS INCURRED IN OIL AND GAS PRODUCING ACTIVITIES The costs incurred by the Company in its oil and gas activities during 1995 and 1994 are as follows: 1995 1994 Property acquisition costs: Unproved properties $ 5,373 $ 220 Proved properties 388,392 794,585 Exploration costs 217,941 144,334 Development costs 211,313 214,747 OIL AND GAS RESERVE INFORMATION The Company's estimates of net proved developed oil and gas reserves and the present value thereof have been verified by E.E. Templeton & Associates, Inc., an independent petroleum engineering firm. The Company's oil and gas reserves are located within the United States. There are numerous uncertainties inherent in estimating quantities of proved reserves and in projecting future net revenues and the timing of development expenditures. The reserve data presented represent estimates only and should not be construed as being exact. In addition, the standardized measures of discounted future net cash flows may not represent the fair market value of the Company's oil and gas reserves or the present value of future cash flows of equivalent reserves, due to anticipated future changes in oil and gas prices and in production and development costs and other factors for which effects have not been provided. The standardized measure of discounted future net cash flows is merely information provided for the financial statement user as a common base for comparing oil and gas reserves of enterprises in the industry. Gas Oil (mcf) (bbls) Balance - September 30, 1993 10,465,818 261,824 Purchases of reserves in-place 2,835,913 53,111 Current additions - - Sales of reserves in-place (1,865) (66) Revisions to previous estimates (26,065) 15,992 Production (1,161,685) (34,002) Balance - September 30, 1994 12,112,116 296,859 Purchases of reserves in-place 893,104 23,284 Current additions 430,330 3,641 Sales of reserves in-place (79,294) (628) Revisions to previous estimates 624,471 14,423 Production (1,198,245) (36,420) Balance - September 30, 1995 12,782,482 301,159 Presented below is the standardized measure of discounted future net cash flows and changes therein relating to proved developed oil and gas reserves. The estimated future production is priced at year-end prices. The resulting estimated future cash inflows are reduced by estimated future costs to develop and produce the proved developed reserves based on year-end cost levels. The future net cash flows are reduced to present value amounts by applying a 10% discount factor.
1995 1994 Future cash inflows $30,257,454 $30,334,494 Future production and development costs 15,199,823) (15,071,229) Future income tax expense (1,260,450) (961,919) Future net cash flows 13,797,181 14,301,346 Less 10% annual discount for estimated timing of cash flows (5,987,477) (6,340,083) Standardized measure of discounted future net cash flows $7,809,704 $7,961,263
The following table summarizes the changes in the standardized measure of discounted future net cash flows from estimated production of proved developed oil and gas reserves after income taxes.
1995 1994 Balance, beginning of period $7,961,263 $7,281,849 Increase (decrease) in discounted future net cash flows: Sales and transfers of oil and gas, net of related costs (1,869,399) (1,344,839) Net changes in prices and production costs (186,722) (239,502) Revisions of previous quantity estimates 417,560 69,501 Extensions, discoveries, and improved recovery less related costs 252,604 - Purchases of reserves in-place 612,008 1,916,920 Sales of reserves in-place, net of tax effect (46,306) (1,425) Accretion of discount 841,775 760,714 Net change in future income taxes (240,218) (131,190) Other 67,139 (350,765) Balance, end of period $7,809,704 $7,961,263
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION The Company's results of operations for the years ended September 30, 1995, and 1994 and its financial condition at September 30, 1995, are discussed in the following paragraphs and should be read in conjunction with its consolidated financial statements. RESULTS OF OPERATIONS REVENUE Real estate finance revenues represent interest and fees earned and gains recognized on real estate loans owned by the Company. Real estate finance revenues increased 142% to $6,114,000 in fiscal 1995 from $2,522,000 in fiscal 1994. This increase was attributable to an increase in the average amount of real estate loans outstanding and gains recognized on the sale of participations in loans held by the Company. During 1995, the Company purchased seven real estate loans, for a total cost of $13,588,000 as compared to three loans for a total cost of $2,996,000 in fiscal 1994. The Company also realized gains of $1,729,000 in connection with the sale of participation interests in eight loans during fiscal 1995 as compared to $1,096,000 on the refinancing of one loan in fiscal 1994. Total oil and gas revenues remained constant for fiscal 1995 as compared to the prior year. Gas revenues decreased 3% due to a 6% decrease in the average price per mcf of natural gas produced partially offset by a 3% increase in production volumes for the year ended September 30, 1995, as compared to 1994. Oil revenues increased by 14% due to a 6% increase in the average price per barrel of production and a 7% increase in production volumes for the year ended September 30, 1995, as compared to 1994. The Company continues to experience normally declining production from its properties located in New York State. This decline was almost totally offset by the acquisition of additional well interests in Ohio. In addition, the Company participated in the drilling of three successful exploratory wells and recompleted one successful developmental well during 1995. The impact on revenues from these wells, however, will not be fully realized or reflected on the Company's financial statements until fiscal year 1996. A comparison of oil and gas sales, daily production volumes, and average sales prices for the years indicated is as follows: 1995 1994 Sales (thousands) Gas $ 2,762 $2,851 Oil 610 535 Production Volumes Gas (mcf/day) 3,283 3,183 Oil (bbls/day) 100 93 Average Sales Prices Gas (per mcf) $2.31 $2.45 Oil (per bbl) 16.74 15.74 Gas gathering and transmission revenues increased 8% in 1995 over the prior year. This increase resulted from the repurchase of limited partnership interests in a pipeline operated by the Company (see Note 7). Well services revenues decreased 16% from fiscal 1994 to 1995 as a result of a decrease in the number of wells operated for limited partners. Costs and expenses Real estate finance expenses rose significantly in 1995 compared to the prior year. This increase was the result of higher legal and personnel costs associated with the expansion of the Company's real estate financing activities. A comparison of the Company's production costs as a percentage of oil and gas sales, and the production cost per equivalent unit for oil and gas for 1995 and 1994, is as follows: Production Costs 1995 1994 As a % of sales 44% 40% Gas (mcf) $1.06 $1.00 Oil (bbl) 6.36 6.01 Production and transportation costs increased 11% from fiscal 1994 to fiscal 1995. This increase was due to the acquisition of limited partners' interests in a pipeline and oil and gas partnerships for which the Company serves as general partner, and increased workover costs in the Company's Ohio fields of operation. Exploration costs decreased significantly from the prior year due to higher impairment and abandonment of non-producing properties and dry hole costs in fiscal 1994. During 1995, the Company's participation in two exploratory dry holes and lease impairments totalled $56,000. During 1994, the Company's participation in two exploratory dry holes and the determination that an exploratory well drilled in a previous year was not capable of economic production along with lease impairment totalled $547,000. Depreciation, depletion, and amortization consist primarily of amortization of costs relating to oil and gas properties. Amortization of oil and gas property costs as a percentage of oil and gas revenues was 27% in 1995 and 28% in 1994. The variance from year to year is directly attributable to changes in the Company's oil and gas reserve quantitis, product prices, and fluctuations in the depletable cost basis of oil and gas properties. General and administrative expense increased 24% for the year ended September 30, 1995. This increase was a result of the payment of incentive compensation and a reduction in administrative fees earned. Administrative fees charged to wells operated by the Company represent a direct reduction to the Company's general and administrative expense. The number of wells operated for third parties by the Company has decreased as compared to the prior year as a result of the liquidation of some partnerships in which the Company earned fees associated with its duties as general partner. The increase in interest expense reflects an increase in borrowings. In May 1994, the Company privately placed an $8,000,000 senior secured note with an insurance company (see Note 3). In December, 1994, the Company borrowed $4,500,000 which was repaid in June 1995 ($2,500,000) and September 1995 ($2,000,000). LIQUIDITY AND CAPITAL RESOURCES Sources and (uses) of cash for the two years ended September 30, 1995, are as follows: (in thousands of $) 1995 1994 From operations $1,578 $ 2,258 Investing activities (6,113) (2,518) Financing activities 4,395 2,096 $ (140) $1,836 The Company had $2,457,000 in cash and cash equivalents on hand at September 30, 1995, down from $2,598,000 a year ago. The Company's ratio of current assets to current liabilities was 2.9:1 on both September 30, 1995 and 1994. Working capital at September 30, 1995, was $2,595,000, as compared to $2,631,000 at September 30, 1994. Cash provided by operating activities decreased $681,000, or 30%, during 1995, as compared to the prior year. This decrease wa primarily the result of changes in net working capital. The Company's cash used in investing activities increased $3,595,000, or 143%, during 1995, as compared to the prior year, the result of an increase in cash used to fund real estate financing activities ($3,419,000). Cash used for capital expenditures decreased $219,000, or 21%, during 1995, due to a decrease in purchases of additional working interests in wells operated by the Company. The Company's cash flow provided by financing activities increased $2,300,000 during 1995, as compared to the prior year. During fiscal 1995, the Company was able to release for corporate investment purposes $4,864,000 in previously restricted cash which served as partial collateral security for an $8,000,000 senior note. The Company's capital spending is predominantly discretionary - the ultimate level of spending will depend on, among other things, the Company's assessment of investment opportunities in the real estate finance, energy and equipment leasing industries. In real estate, the Company will continue to expand its mortgage portfolio as, and when, economically attractive opportunities become available. In energy, the Company will seek to add to its reserve base through selected acquisition of producing properties and further development of the Company's mineral interests. The Company has recently entered the equipment leasing industry and will seek, and expects to find, attractive opportunities with which to expand its activities. The Company's growth will be dependent upon the continued availability of funds at satisfactory terms and rates which the Company uses principally to finance acquisitions of real estate loans. The Company may obtain required funds from a variety of sources, including internal generation of funds, borrowings, financings through the placement of notes and the sale of equity. The Company has pursued a policy of expanding its real estate finance activities, which focuses on the purchase of discounted real estate mortgage loans. To provide funding for such activities, in May, 1994, the Company sold an $8,000,000 senior secured note to an insurance company. In December, 1994, a mortgage held by the Company was refinanced which resulted in the Company receiving cash substantially in excess of its investment. In May, 1995, the insurance company committed to provide additional funding through the purchase of participations in mortgages held or to be acquired by the Company in a total amount of $10,000,000, of which $2,369,000 remained available at September 30, 1995. During fiscal 1995 the Company also received $2,429,000 through the refinancing by conduits of three mortgages held by the Company. In fiscal 1995, $161,000 or $.25 per share was paid in dividends. The determination of the amount of future cash dividends, if any, to be declared and paid is in the sole discretion of the Company's Board of Directors and will depend on the various factors affecting the Company's financial condition and other matters the Board of Directors deems relevant. INFLATION AND CHANGES IN PRICES Inflation affects the Company's operating expenses and increases in those expenses may not be recoverable by increases in finance rates chargeable by the Company. Inflation also affects interest rates and movements in rates may adversely affect the Company's profitability. The Company's revenues and the value of its oil and gasproperties have been and will continue to be affected by changes in oil and gas prices. Oil and gas prices are subject to fluctuations which the Company is unable to control or accurately predict. ENVIRONMENTAL REGULATION A continued trend to greater environmental and safety awareness and increasing environmental regulation has resulted in higher operating costs for the oil and gas industry and the Company. The Company believes environmental and safety costs will continue to increase in the future. To date, compliance with environmental laws and regulations has not had a material impact on the Company's capital expenditures, earnings, or competitive position. The Company has not received any notices from any regulatory agency regarding violations of environmental laws. The Company monitors environmental laws and believes it is in compliance with applicable environmental regulations. The Company is unable to predict the impact of future laws and regulations on the Company's operations. ACCOUNTING MATTERS Upon the recommendation of the Audit Committee, approved by the Board of Directors, Grant Thornton LLP served as the Company's independent auditors during fiscal 1995 and 1994. It is not expected that a representative of Grant Thornton LLP will be present at the annual meeting. CORPORATE STOCK The Company's common stock is traded in the over-the-counter market and appears on the NASDAQ National Market System under the symbol "REXI." As of December 22, 1995, there were 664,636 shares outstanding (excluding treasury shares) held of record by 821 holders of record. The following table sets forth the quarterly high and low closing sale prices and dividends paid for the periods indicated after such date. 1995 (Fiscal) High Low Dividends Paid First Quarter $13.75 $11.75 $ - Second Quarter 13.50 11.75 - Third Quarter 15.25 11.75 - Fourth Quarter 24.375 13.50 .25 1994(Fiscal) High Low Dividends Paid First Quarter $9.75 $8.375 $ - Second Quarter 9.50 8.25 - Third Quarter 10.00 8.125 - Fourth Quarter 13.50 9.125 - CORPORATE INFORMATION DIRECTORS CARLOS C. CAMPBELL (2) (3) President of C.C. Campbell and Company (a management consulting firm) EDWARD E. COHEN (4) Chairman of the Board and President Resource America, Inc. JOHN R. HART (1) (3) President of Physicians Insurance Company of Ohio ANDREW M. LUBIN (1) (4) President of Delaware Financial Group, Inc. (a private investment firm) ALAN D. SCHREIBER, M. D. (1) (2) Founder and Chief Scientific Officer of CorBec Pharmaceuticals, Inc. MICHAEL L. STAINES Senior Vice President and Secretary Resource America, Inc. JOHN S. WHITE (2) (3) Chairman of the Board and Chief Executive Officer of DCC Securities Corporation (a securities brokerage firm) (1) Member, Audit Committee (2) Member, Compensation Committee (3) Member, Investment Committee (4) Member, Nominating Committee EXECUTIVE OFFICERS EDWARD E. COHEN Chairman of the Board and President FREDDIE M. KOTEK Senior Vice President NANCY J. MCGURK Vice President - Finance and Treasurer SCOTT F. SCHAEFFER Senior Vice President JEFFREY C. SIMMONS Vice President - Energy MICHAEL L. STAINES Senior Vice President and Secretary 10-KSB A copy of the Resource America, Inc., annual report on Form 10-KSB as filed with the Securities and Exchange Commission is available to stockholders by written request to the executive office. ANNUAL MEETING The Annual Meeting of Stockholders of the Company will be held on Tuesday, March 12, 1996, at 9:00 a.m. at 1521 Locust Street - Fourth Floor, Philadelphia, Pennsylvania, 19102. SHARES LISTED Over-the-Counter, NASDAQ National Market System Symbol: REXI EXECUTIVE OFFICES: 1521 Locust Street Philadelphia, Pennsylvania 19102 (215) 546-5005 ENERGY OPERATIONS: 2876 South Arlington Road Akron, Ohio 44312 (216) 644-6626 LEASING OPERATIONS: 7 East Skippack Pike Suite 275 Ambler, Pennsylvania 19002 (215) 619-2800 REGISTERED OFFICE: 2317 Pennsylvania Avenue Wilmington, Delaware 19806 (303) 654-6611 EX-22.1 5 EXHIBIT 22.1 LIST OF SUBSIDIARIES PERCENTAGE OWNED BY RESOURCE AMERICA, INC., STATE OF CORPORATE NAME OR WHOLLY OWNED SUBSIDIARY INCORPORATION Resource Programs, Inc. 100% Delaware St. Julien III Corp. 100% Pennsylvania Resource Ventures, Inc. 100% Pennsylvania Resource Properties, Inc. 100% Delaware Resource Properties II, Inc. 100% Delaware Resource Properties III, Inc. 100% Delaware Resource Properties IV, Inc. 100% Delaware Resource Properties V, Inc. 100% Delaware Resource Properties VI, Inc. 100% Delaware Resource Properties VII, Inc. 100% Delaware Resource Properties VIII, Inc. 100% Delaware Resource Properties IX, Inc. 100% Delaware Resource Properties X, Inc. 100% Delaware Resource Properties XI, Inc. 100% Delaware Resource Properties XII, Inc. 100% Delaware Resource Properties XIII, Inc. 100% Delaware Resource Properties XIV, Inc. 100% Delaware Resource Properties XV, Inc. 100% Delaware Resource Properties XVI, Inc. 100% Delaware Resource Energy, Inc. 100% Delaware Resource Well Services, Inc. 100% Delaware Resource GP, Inc. 100% Delaware RAI Financial, Inc. 100% Delaware Resource Investments, Inc. 100% Delaware Resource Leasing, Inc. 100% Delaware Fidelity Leasing Corp. 100% Delaware EX-23.1 6 EXHIBIT 23.1 E. E. TEMPLETON & ASSOCIATES, INC. 407 1/2 Second Street Marietta, Ohio 45750 614-373-5046 November 15, 1995 Resource America, Inc. Attention: Mr. Jeff Simmons 2876 South Arlington Road Akron, Ohio 44312 Gentlemen: We hereby consent to the use of our audit report dated November 15, 1995, on reserves and revenue, as of October 1, 1995, from certain properties owned by Resource America, Inc. in Resource America, Inc.'s Annual Report on form 10-K for the fiscal year ending September 30, 1995. Very truly yours, /s/ E. E. Templeton - ------------------- E. E. Templeton & Associates, Inc. EX-27 7
5 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 2,457,432 0 1,303,556 0 128,488 3,924,033 26,626,132 14,043,455 37,549,964 1,328,739 8,522,682 8,179 0 0 26,543,364 37,549,964 3,452,327 11,448,068 1,563,628 8,102,636 1,305 0 1,091,027 3,344,127 630,000 2,714,127 0 0 0 2,714,127 3.47 3.45
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