-----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, MozKwIYwWDb/fgQTLbh3yWEAiT9VA631PAhlZ00AaNXlKIwzyE/1oHct7HSwMk5C GmmHZhf5xxbttsbpx2A8jA== 0000950116-00-000262.txt : 20000215 0000950116-00-000262.hdr.sgml : 20000215 ACCESSION NUMBER: 0000950116-00-000262 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RESOURCE AMERICA INC CENTRAL INDEX KEY: 0000083402 STANDARD INDUSTRIAL CLASSIFICATION: INVESTMENT ADVICE [6282] IRS NUMBER: 720654145 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-04408 FILM NUMBER: 542609 BUSINESS ADDRESS: STREET 1: 1521 LOCUST ST STREET 2: 4TH FL CITY: PHILADELPHIA STATE: PA ZIP: 19102 BUSINESS PHONE: 2155465005 MAIL ADDRESS: STREET 1: 1521 LOCUST ST CITY: PHILADELPHIA STATE: PA ZIP: 19102 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 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to __________ Commission file number: 0-4408 RESOURCE AMERICA, INC. ---------------------- (Exact name of registrant as specified in its charter) Delaware 72-0654145 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1521 Locust Street Suite 400 Philadelphia, PA 19102 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (215) 546-5005 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of outstanding shares of each of the issuer's classes of common stock, as of the latest practicable date: 23,373,551 Shares February 1, 2000 RESOURCE AMERICA, INC. AND SUBSIDIARIES INDEX TO QUARTERLY REPORT ON FORM 10-Q
PAGE ---- PART I FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - December 31, 1999 (Unaudited) and September 30, 1999.............................................................. 3 Consolidated Statements of Income (Unaudited) Three Months Ended December 31, 1999 and 1998....................................... 4 Consolidated Statements of Comprehensive Income (Unaudited) Three Months Ended December 31, 1999 and 1998....................................... 5 Consolidated Statement of Changes in Stockholders' Equity (Unaudited) Three Months Ended December 31, 1999................................................ 6 Consolidated Statements of Cash Flows (Unaudited) Three Months Ended December 31, 1999 and 1998....................................... 7 Notes to Consolidated Financial Statements (Unaudited) December 31, 1999................................................................... 8-14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 14-22 Item 3. Quantitative and Qualitative Disclosures about Market Risk.............................. 22-24 PART II OTHER INFORMATION Item 5. Other Information ...................................................................... 25 Item 6. Exhibits and Reports on Form 8-K........................................................ 25
2 PART I ITEM 1. FINANCIAL STATEMENTS RESOURCE AMERICA, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
December 31, September 30, 1999 1999 ------------- ------------- (Unaudited) ASSETS Cash and cash equivalents........................................................... $ 47,206 $ 42,643 Accounts and notes receivable and other prepaid expenses............................ 23,719 18,977 Investments in real estate loans (less allowance for possible losses of $1,555 and $1,405)............................................ 182,555 250,231 Investments in real estate ventures................................................. 17,614 18,159 Investments in leases and notes receivable (less allowance for possible losses of $10,276 and $10,017).......................................... 471,916 401,461 Investment in Resource Asset Investment Trust....................................... 9,039 9,300 Property and equipment: Oil and gas properties and equipment (successful efforts)........................ 79,927 78,923 Gas gathering and transmission facilities........................................ 15,867 18,061 Other............................................................................ 12,793 12,198 ------------ ------------- 108,587 109,182 Less - accumulated depreciation, depletion and amortization...................... (23,310) (21,213) ------------- -------------- Net property and equipment................................................. 85,277 87,969 Other assets (less accumulated amortization of $7,429 and $6,058)................... 105,855 72,647 ------------ ------------- $ 943,181 $ 901,387 ============ ============= LIABILITIES AND STOCKHOLDERS' EQUITY Debt: Warehouse debt................................................................... $ 23,421 $ 15,291 Non recourse debt................................................................ 456,351 439,943 Senior debt...................................................................... 99,850 101,400 Other debt ...................................................................... 23,798 21,188 ------------ -------------- Total debt................................................................. 603,420 577,822 Other liabilities: Accounts payable................................................................. 15,988 16,751 Accrued liabilities.............................................................. 41,844 27,395 Estimated income taxes........................................................... 4,480 2,563 Deferred income taxes............................................................ 11,304 13,069 ------------ ------------- Total liabilities.......................................................... 677,036 637,600 Commitments and contingencies....................................................... - - Stockholders' equity Preferred stock, $1.00 par value: 1,000,000 authorized shares .................. - - Common stock, $.01 par value: 49,000,000 authorized shares....................... 244 244 Accumulated other comprehensive loss............................................. (1,873) (1,764) Additional paid-in capital....................................................... 220,999 221,084 Less treasury stock, at cost..................................................... (16,839) (17,002) Less loan receivable from Employee Stock Ownership Plan ......................... (1,480) (1,488) Retained earnings................................................................ 65,094 62,713 ------------ ------------- Total stockholders' equity................................................. 266,145 263,787 ------------ ------------- $ 943,181 $ 901,387 ============ =============
See accompanying notes to consolidated financial statements 3 RESOURCE AMERICA, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended December 31, 1999 1998 -------------- ----------- (in thousands, except per share data) REVENUES Real estate finance....................................................................... $ 6,651 $ 10,001 Equipment leasing......................................................................... 14,451 4,406 Energy.................................................................................... 15,924 15,126 Interest and other........................................................................ 850 1,103 ----------- ----------- 37,876 30,636 COSTS AND EXPENSES Real estate finance....................................................................... 734 478 Equipment leasing......................................................................... 2,241 2,033 Energy.................................................................................... 11,456 11,346 General and administrative................................................................ 1,850 988 Depreciation, depletion and amortization.................................................. 3,229 1,627 Interest.................................................................................. 11,901 3,995 Provision for possible losses............................................................. 1,858 537 ----------- ----------- 33,269 21,004 ----------- ----------- Income from continuing operations before income taxes, extraordinary item and cumulative effect of a change in accounting principle........... 4,607 9,632 Provision for income taxes................................................................ 1,570 3,456 ----------- ----------- Income from continuing operations before extraordinary item and cumulative effect of a change in accounting principle.............................. 3,037 6,176 Discontinued operations: Loss from operations of subsidiary, net of taxes of $366............................... - (732) ----------- ----------- 3,037 5,444 Extraordinary item, net of taxes of $63 and $150.......................................... 122 291 Cumulative effect of change in accounting principle, net of taxes of $369................. - (471) ----------- ----------- Net income................................................................................ $ 3,159 $ 5,264 =========== =========== Net income per common share - basic: From continuing operations............................................................. $ .13 $ .28 Discontinued operations................................................................ - (.03) Extraordinary item..................................................................... .01 .01 Cumulative effect of a change in accounting principle.................................. - (.02) ----------- ----------- Net income per common share - basic....................................................... $ .14 $ .24 =========== =========== Weighted average common shares outstanding................................................ 23,318 21,871 =========== =========== Net income per common share - diluted: From continuing operations............................................................. $ .13 $ .28 Discontinued operations................................................................ - (.03) Extraordinary item..................................................................... - .01 Cumulative effect of a change in accounting principle.................................. - (.02) ----------- ----------- Net income per common share - diluted..................................................... $ .13 $ .24 =========== =========== Weighted average common shares............................................................ 23,742 22,393 =========== ===========
See accompanying notes to consolidated financial statements 4 RESOURCE AMERICA, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended December 31, 1999 1998 ----------- ----------- (Unaudited) (in thousands) Net income................................................................................ $ 3,159 $ 5,264 Other comprehensive income (loss): Unrealized loss on investment, net of taxes of $89 and $940............................ (172) (1,777) Foreign currency translation adjustment, net of taxes of $40........................... 63 - ----------- ----------- (109) (1,777) ------------ ------------ Comprehensive income...................................................................... $ 3,050 $ 3,487 =========== ===========
See accompanying notes to consolidated financial statements 5 RESOURCE AMERICA, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY THREE MONTHS ENDED DECEMBER 31, 1999 (Unaudited) (in thousands, except share data)
Accumulated Common stock Other Additional -------------------------- Comprehensive Paid-In Shares Amount Loss Capital ---------------------------------------------------------- Balance, October 1, 1999.................. 24,385,279 $ 244 $ (1,764) $ 221,084 Treasury shares issued.................... (106) Issuance of common stock.................. 2,828 - 21 Other comprehensive income: Net unrealized loss on investment...... (172) Foreign currency translation adjustments.......................... 63 Cash dividends ($.03 per share)........... Repayment of ESOP Loan.................... Net income................................ - ------------------------------------------------------------------------------------------------------- Balance, December 31, 1999................ 24,388,107 $ 244 $ (1,873) $ 220,999 ========== ========= ========== ===========
[RESTUB]
Treasury Stock ESOP Totals ------------------------- Loan Retained Stockholders' Shares Amount Receivable Earnings Equity ---------------------------------------------------------------------- Balance, October 1, 1999.................. (1,071,432) $ (17,002) $ (1,488) $ 62,713 $ 263,787 Treasury shares issued.................... 7,740 163 57 Issuance of common stock.................. 21 Other comprehensive income: Net unrealized loss on investment...... (172) Foreign currency translation adjustments.......................... 63 Cash dividends ($.03 per share)........... (778) (778) Repayment of ESOP Loan.................... 8 8 Net income................................ 3,159 3,159 - ------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1999................ (1,063,692) $ (16,839) $ (1,480) $ 65,094 $ 266,145 =========== =========== ========== ========== ===========
See accompanying notes to consolidated financial statements 6 RESOURCE AMERICA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended December 31, 1999 1998 -------------- ----------- (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income................................................................................ $ 3,159 $ 5,264 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization............................................... 3,229 1,627 Amortization of discount on senior notes and deferred finance costs.................... 406 269 Amortization of initial direct costs................................................... 766 - Provision for possible losses.......................................................... 1,858 537 Loss from operations of discontinued subsidiary........................................ - 732 Gain on asset dispositions............................................................. (1,257) (4,613) Property impairments and abandonments.................................................. 381 - Deferred income taxes.................................................................. (599) (975) Accretion of discount.................................................................. (1,734) (2,946) Collection of interest................................................................. 3,286 3,716 Extraordinary gain on debt extinguishment.............................................. (122) (291) Cumulative effect of change in accounting principle.................................... - 471 Change in operating assets and liabilities: Increase in accounts receivable and other assets....................................... (5,474) (7,130) Increase in accounts payable and other liabilities..................................... 14,563 8,220 ----------- ----------- Net cash provided by operating activities of continuing operations........................ 18,462 4,881 CASH FLOWS FROM INVESTING ACTIVITIES: Cost of equipment acquired for lease...................................................... (135,560) (39,703) Capital expenditures...................................................................... (2,239) (4,571) Principal payments on notes receivable.................................................... 68,841 - Proceeds from sale of assets.............................................................. 23,752 33,306 Increase in other assets.................................................................. (4,223) (873) Investments in real estate loans and ventures............................................. (1,389) (8,981) Increase (decrease) in other liabilities.................................................. 372 (9,906) Payments received in excess of revenue recognized on leases............................... 39,753 1,392 ----------- ----------- Net cash used in investing activities of continuing operations............................ (10,693) (29,336) CASH FLOWS FROM FINANCING ACTIVITIES: Net change in warehouse borrowings........................................................ 8,095 1,125 Non recourse borrowings................................................................... 208,219 25,300 Principal payments on non recourse borrowings............................................. (191,868) (25,524) Other borrowings.......................................................................... 3,252 - Principal payments on other borrowings.................................................... (1,996) (2,449) Dividends paid............................................................................ (778) (739) Increase in restricted cash............................................................... (27,132) - Repayment of ESOP loan.................................................................... 8 - Increase in other assets.................................................................. (807) (60) Proceeds from issuance of stock........................................................... 78 322 ----------- ----------- Net cash used in financing activities of continuing operations............................ (2,929) (2,025) ----------- ----------- Net cash used in discontinued operations.................................................. (217) (1,175) ----------- ----------- Effect of exchange rate changes on cash................................................... (60) - Increase (decrease) in cash and cash equivalents.......................................... 4,563 (27,655) Cash and cash equivalents at beginning of period.......................................... 42,643 77,025 ----------- ----------- Cash and cash equivalents at end of period................................................ $ 47,206 $ 49,370 =========== ===========
See accompanying notes to consolidated financial statements 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 (Unaudited) NOTE 1 - MANAGEMENT'S OPINION REGARDING INTERIM FINANCIAL STATEMENTS In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair statement of the results of operations for the interim period included herein have been made. Certain reclassifications have been made to the consolidated financial statements for the first quarter ended December 31, 1998 to conform with the first quarter ended December 31, 1999. In addition, certain reclassifications have been made to the consolidated financial statements for the first quarter ended December 31, 1998 to reflect discontinued operations and the cumulative effect of a change in an accounting principle. The accounting policies followed by the Company are set forth in Note 1 to the Company's consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1999. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates Preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Other Assets Included in other assets are intangible assets that consist primarily of the excess of the acquisition cost over the fair value of the net assets of businesses acquired (goodwill), contracts acquired through acquisitions recorded at fair value on their acquisition dates and deferred financing costs. Goodwill is being amortized on a straight-line basis over periods ranging from 15 to 30 years, contracts acquired are being amortized on a declining balance method (except for the drilling program syndication network which is being amortized on a straight-line basis) over their respective estimated lives, ranging from five to 30 years, and deferred financing costs are being amortized over the terms of the related loans (two to seven years). In addition, other assets includes restricted cash which arose through a prefunding from the November 1999 term securitization by the Company's leasing subsidiary. Other assets at December 31, 1999 and September 30, 1999 were:
December 31, September 30, 1999 1999 ------------ ----------- (Unaudited) Goodwill.............................................................................. $ 47,144 $ 43,255 Contracts acquired (including syndication network).................................... 18,310 18,636 Restricted cash....................................................................... 27,357 225 Deferred financing costs.............................................................. 6,186 5,842 Net assets of discontinued operations................................................. 2,422 2,394 Net assets held for disposition....................................................... 850 850 Other................................................................................. 3,586 1,445 ----------- ----------- $ 105,855 $ 72,647 =========== ===========
Fair Value of Financial Instruments The following methods and assumptions were used by the Company in estimating the fair value of each class of financial instruments for which it is practicable to estimate fair value. For cash and cash equivalents, receivables and payables, the carrying amounts approximate fair value because of the short maturity of these instruments. 8 For investments in real estate loans, because each loan is a unique transaction involving a discrete property it is impractical to determine their fair values. However, the Company believes the carrying amounts of the loans are reasonable estimates of their fair value considering the nature of the loans and the estimated yield relative to the risks involved. The following table provides information of other financial instruments as of December 31, 1999:
Carrying Estimated Amount Fair Value ------ ---------- (in thousands) Warehouse debt............................................................................ $ 23,421 $ 23,421 Securitized term facilities............................................................... 289,286 286,871 CP conduit facilities..................................................................... 100,536 100,536 Term facility............................................................................. 4,179 4,179 Real estate finance....................................................................... 22,875 22,875 Energy.................................................................................... 39,475 39,475 Senior debt............................................................................... 99,850 77,384 Other debt................................................................................ 23,798 23,798 ----------- ----------- Totals................................................................................. $ 603,420 $ 578,539 =========== ===========
Earnings Per Share Earnings per share - basic is determined by dividing net income by the weighted average number of common shares outstanding during the period. Earnings per share - diluted is computed by dividing net income as adjusted by the sum of the weighted average number of shares outstanding and dilutive potential common shares issuable during the period. Dilutive potential common shares consist of the excess of common shares issuable under the terms of various stock option and warrant agreements over the number of such shares that could have been reacquired (at the weighted average price of the Company's common stock during the period) with the proceeds received from the exercise of the options and warrants. The computations of basic and diluted earnings per share for each period were as follows:
Three Months Ended December 31, 1999 1998 ---------- --------- (in thousands) Income from continuing operations before extraordinary item and cumulative effect of a change in accounting principle............................. $ 3,037 $ 6,176 Loss from discontinued operations..................................................... - (732) Extraordinary gain on early extinguishment of debt.................................... 122 291 Cumulative effect of a change in accounting principle................................. - (471) --------- ---------- Net income............................................................................ 3,159 5,264 Minority interest in net income of subsidiary upon assumed option exercise............ (91) - --------- --------- Net income as adjusted................................................................ $ 3,068 $ 5,264 ========= ========= Basic average shares of common stock outstanding...................................... 23,318 21,871 Dilutive effective of stock option and award plans.................................... 424 522 --------- --------- Dilutive average shares of common stockholders........................................ 23,742 22,393 ========= =========
9 NOTE 3 - CASH FLOW STATEMENTS The Company considers temporary investments with a maturity at the date of acquisition of 90 days or less to be cash equivalents. Supplemental disclosure of cash flow information:
Three Months Ended December 31, 1999 1998 ----------- ----------- (in thousands) Cash paid during the period for: Interest............................................................................... $ 8,127 $ 288 Income taxes........................................................................... 482 6,246
NOTE 4 - ACQUISITIONS On August 31, 1999, the Company acquired all of the common stock of Viking Resources Corporation in exchange for 1,243,684 shares of the Company's common stock and the assumption of Viking Resources debt as described below. Viking Resources is a company primarily involved in the energy finance business through the syndication of oil and gas properties in the Appalachian Basin. The Viking Resources acquisition was recorded under the purchase method of accounting and, accordingly, the results of operations of Viking Resources are included in the Company's consolidated financial statements commencing September 1, 1999. The purchase price has been allocated to assets acquired and liabilities assumed based on their fair market value at the date of acquisition as summarized below (in thousands).
Estimated fair value of assets acquired................................................................... $ 48,289 Liabilities assumed....................................................................................... (19,910) Common stock issued....................................................................................... (12,437) ------------ Net cash paid............................................................................................. $ (15,942) ============
This acquisition was immaterial to the results of operations of the Company, and therefore pro forma information is excluded. On February 4, 1999, the Company acquired all of the common stock of JLA Credit Corporation, in exchange for cash and assumption of JLA Credit debt. The acquisition was recorded as a purchase and accordingly the results of JLA Credits' operations are included in the Company's consolidated financial statements from the date of acquisition. The purchase price has been allocated to assets acquired and liabilities assumed based on their fair market values at the date of acquisition as summarized below (in thousands).
Estimated fair value of assets acquired................................................................... $ 315,466 Debt issued............................................................................................... (142,997) Debt assumed.............................................................................................. (147,534) Amounts due seller........................................................................................ (6,673) ------------ Net cash paid............................................................................................. $ (18,262) ============
10 The following table reflects unaudited pro forma combined results of operations of the Company and JLA presented as if the acquisition had taken place on October 1, 1998:
Three Months Ended December 31, 1998 ------------------ (in thousands, except per share amounts) (unaudited) Revenues ................................................................................................. $ 40,908 Net income from continuing operations..................................................................... 7,832 Net income................................................................................................ 6,920 Net income per common share - basic: Net income from continuing operations.................................................................. $ .36 Net income............................................................................................. $ .32 Net income per common share - diluted: Net income from continuing operations.................................................................. $ .35 Net income............................................................................................. $ .31
These unaudited pro forma results have been prepared for comparative purposes only and include certain adjustments to: (i) depreciation and amortization expense attributable to allocation of the purchase price; (ii) interest expense for additional borrowings; (iii) equipment leasing revenue as a result of the purchase price allocation; and (iv) provision for income taxes to reflect the above adjustments at the Company's tax rate. They do not purport to be indicative of the results of operations which actually would have resulted had the combination been consummated on October 1, 1998 or of future results of operations of the consolidated entities. NOTE 5 - INVESTMENTS IN REAL ESTATE LOANS The Company primarily focuses its real estate activities on the purchase of income producing commercial mortgages at a discount from both the face value of such mortgages and the appraised value of the properties underlying the mortgages. The Company records as income the accretion of a portion of the difference between its cost basis in a commercial mortgage and the sum of projected cash flows therefrom. Cash received by the Company for payment on each mortgage is allocated between principal and interest. This accretion of discount amounted to $1.7 million and $2.9 million during the three months ended December 31, 1999 and 1998, respectively. As the Company sells senior lien interests or receives funds from refinancings in such mortgages, a portion of the cash received is employed to reduce the cumulative accretion of discount included in the carrying value of the Company's investments in real estate loans. At December 31, 1999, the Company held real estate loans having aggregate face values of $698.0 million, which were being carried at an aggregate cost of $182.6 million, including cumulative accretion. 11 The following is a summary of the changes in the carrying value of the Company's investments in real estate loans for the three months ended December 31, 1999 and 1998.
Three Months Ended December 31, 1999 1998 ------------ ----------- (in thousands) Balance, beginning of period (commercial mortgage loans only)......................... $ 250,231 $ 188,651 New loans............................................................................. - 5,479 Additions to existing loans........................................................... 1,389 3,502 Provisions for possible losses........................................................ (150) (100) Accretion of discount (net of collection of interest)................................. 1,734 2,946 Collections of principal.............................................................. (59,440) - Cost of loans sold.................................................................... (11,209) (3,334) ----------- ----------- Balance, end of period (commercial mortgage loans only)............................... 182,555 197,144 Investments in residential mortgage loans (less an allowance for possible losses of $326).................................... - 8,214 ----------- ----------- Balance, end of period................................................................ $ 182,555 $ 205,358 =========== ===========
The following is a summary of activity in the Company's allowance for possible losses related to real estate loans for the for the three months ended December 31, 1999 and 1998:
Three Months Ended December 31, 1999 1998 ------------ ----------- (in thousands) Balance, beginning of period.......................................................... $ 1,405 $ 1,191 Provision for possible losses...................................................... 150 100 Write-offs......................................................................... - - ----------- ----------- Balance, end of period................................................................ $ 1,555 $ 1,331 =========== ===========
NOTE 6 - INVESTMENTS IN LEASES AND NOTES RECEIVABLE Components of the investments in leases and notes receivable as of December 31, 1999 and September 30, 1999, including residual values are as follows:
December 31, September 30, 1999 1999 ------------ ----------- (in thousands) Total minimum lease payments receivable............................................... $ 514,848 $ 438,323 Initial direct costs, net of amortization............................................. 8,869 6,213 Unguaranteed residual................................................................. 37,934 31,207 Unearned lease income................................................................. (91,972) (79,231) ----------- ----------- Investments in leases................................................................. 469,679 396,512 Notes receivable...................................................................... 12,513 14,966 Allowance for possible losses......................................................... (10,276) (10,017) ----------- ----------- Investments in leases and notes receivable............................................ $ 471,916 $ 401,461 =========== ===========
12 A summary of activity in the Company's allowance for possible losses related to direct financing leases and notes receivable for the three months ended December 31, 1999 and 1998 is as follows:
Three Months Ended December 31, 1999 1998 ------------ ----------- (in thousands) Balance, beginning of period.......................................................... $ 10,017 $ 1,602 Provision for possible losses......................................................... 1,638 424 Write offs............................................................................ (1,379) (289) ----------- ----------- Balance, end of period................................................................ $ 10,276 $ 1,737 =========== ===========
NOTE 7 - DEBT Total debt consists of the following:
December 31, September 30, 1999 1999 ------------ ----------- (in thousands) Warehouse debt Equipment leasing.................................................................. $ 23,421 $ 15,291 Nonrecourse debt Equipment leasing Securitized term facilities...................................................... 289,286 219,979 CP conduit facilities............................................................ 100,536 93,213 Term facility.................................................................... 4,179 - Real estate finance Loan facilities.................................................................. - 58,901 Revolving credit facilities...................................................... 22,000 22,000 Other............................................................................ 875 875 Energy Revolving and term bank loans.................................................... 39,475 44,975 ----------- ----------- Total non recourse debt...................................................... 456,351 439,943 Senior debt........................................................................... 99,850 101,400 Other debt Equipment leasing Term loans..................................................................... 10,476 7,587 Seller financing............................................................... 7,489 7,725 Corporate.......................................................................... 5,833 5,876 ----------- ----------- Total other debt............................................................. 23,798 21,188 ----------- ----------- $ 603,420 $ 577,822 =========== ===========
13 NOTE 8 - OPERATING SEGMENT INFORMATION AND MAJOR CUSTOMERS The Company operates in three principal industry segments - real estate finance, equipment leasing and energy. Segment data for the three months ended December 31, 1999 and 1998 are as follows:
Three Months Ended December 31, 1999 1998 ------------ ----------- (in thousands) Revenues: Real estate finance.............................................................. $ 6,651 $ 10,001 Equipment leasing................................................................ 14,451 4,406 Energy........................................................................... 15,924 15,126 Corporate........................................................................ 2,500 1,588 ----------- ----------- $ 39,526 $ 31,121 =========== =========== Operating Profit (Loss): Real estate finance.............................................................. $ 4,451 $ 9,255 Equipment leasing................................................................ 1,091 1,725 Energy........................................................................... 1,286 2,267 Corporate........................................................................ (2,221) (3,615) ----------- ----------- $ 4,607 $ 9,632 =========== =========== Identifiable Assets: Real estate finance.............................................................. $ 202,703 $ 215,406 Equipment leasing................................................................ 530,324 41,125 Energy........................................................................... 144,488 98,077 Corporate........................................................................ 65,666 65,310 ----------- ----------- $ 943,181 $ 419,918 =========== ===========
Operating profit (loss) represents total revenues less costs attributable thereto, including interest expense, provision for possible losses, and less depreciation, depletion and amortization, but excludes general corporate expenses. The information presented above does not eliminate intercompany interest charges to the leasing segment by corporate of $1.7 million and $485,000 in the three months ended December 31, 1999 and 1998, respectively. NOTE 9 - PUBLIC OFFERING OF UNITS In February 2000, the Company completed its amended registration statement on Form S-1 with respect to the offering related to the Company's pipeline operations. The Company's natural gas pipeline and gathering operations were sold to a master limited partnership which sold 1.5 million common units to the public. As the purchase price for the gathering systems, the master limited partnership paid the Company $16.6 million (before expenses relating to the acquisition, and issued to the Company 1,641,026 subordinated units constituting a 51% limited partner interest in the master limited partnership. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS WHEN USED IN THIS FORM 10-Q, THE WORDS "BELIEVES," "ANTICIPATES," "EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD LOOKING STATEMENTS. SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD LOOKING STATEMENTS WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE THE RESULTS OF ANY REVISIONS TO FORWARD LOOKING STATEMENTS WHICH MAY BE MADE TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS. 14 Overview of First Quarter of Fiscal 2000 The Company's gross revenues were $37.9 million in the first quarter of fiscal 2000, an increase of $7.3 million (24%) from $30.6 million in the first quarter of fiscal 1999. The increase in total revenues during the first quarter of fiscal 2000 was primarily due to an increase of $10.1 million in the revenues from the Company's leasing business to $14.5 million from $4.4 million in the first quarter of fiscal 1999. This is primarily due to the acquisition of JLA Credit and the growth of the leasing business. Real estate finance revenues were $6.7 million in the first quarter of fiscal 2000, a decrease of $3.3 million (33%) from $10.0 million in the first quarter of fiscal 1999. Real estate finance and equipment leasing revenues, in the aggregatge, were 56% and 47% of total revenues in the first quarter of fiscal 2000 and 1999, respectively. The Company's revenues, expressed as a percentage of its total revenues, were distributed across its operating segments as follows:
Three Months Ended December 31, 1999 1998 --------- -------- Energy ................................................................................. 42% 49% Equipment leasing....................................................................... 38% 14% Real estate finance..................................................................... 18% 33%
The balance (2% and 4% for the three months ended December 31, 1999 and 1998, respectively) is attributable to corporate assets not allocated to a specific operating segment, including cash and the common shares held in Resource Asset Investment Trust. The Company anticipates that its energy revenues, as a percentage of total revenues, will increase in fiscal 2000 as a result of the acquisition of Viking Resources. As of December 31, 1999, total assets were $943.2 million, an increase of $41.8 million (5%) from assets of $901.4 million at September 30, 1999. The Company's assets, expressed as a percentage of its total assets, were distributed across its operating segments as follows:
December 31, September 30, 1999 1999 ----------- ------------- Real estate finance..................................................................... 21% 30% Equipment leasing....................................................................... 56% 48% Energy ................................................................................. 15% 15%
The balance (8% as of December 31, 1999 and 7% as of September 30, 1999) represents corporate assets not attributable to a specific operating segment, as referred to above. 15 Results of Operations: Real Estate Finance The following table sets forth certain information relating to the revenue recognized and cost and expenses incurred in the Company's real estate finance operations during the periods indicated:
Three Months Ended December 31, 1999 1998 ----------- ----------- (in thousands) Revenues: Interest........................................................................... $ 3,797 $ 3,716 Accreted discount.................................................................. 1,734 2,946 Fees............................................................................... 17 969 Gains on sales of senior lien interests............................................ - 2,370 Gains on sales of loans............................................................ 984 - Loan payments in excess of carrying value and loans................................ 73 - Net rental income.................................................................. 46 - ----------- ----------- $ 6,651 $ 10,001 =========== =========== Costs and Expenses.................................................................... $ 734 $ 478 =========== ===========
Prior to January 1, 1999, most of the transactions in which senior lien interests were created were structured to meet the criteria under generally accepted accounting principles for sales of those interests to the senior lienors. Effective January 1, 1999, the Company made a strategic decision to structure future transactions as financings rather than as sales, thereby retaining the entire principal amount of its commercial mortgage loans originated on its balance sheet. Thus, for most transactions that were completed prior to January 1, 1999 (including two loans sold in fiscal 1999, referred to below in note (i)), the Company recorded a gain on sale which is included in the Company's revenues; refinancing proceeds received subsequent to that date are not recordable as gains under generally accepted accounting principles. Despite the decrease in revenues resulting from the foregoing change, the cash flows available to the Company from its financing transactions, which were generally based on the appraised value and the cash flows of the property underlying the Company's commercial mortgage loans, are unaffected by these modifications. The primary effect of this change in policy is a shift from the recognition of an immediate gain upon the sale of a senior lien interest in a commercial mortgage loan receivable to the recognition of interest income over the life of the loan receivable. Revenues from commercial mortgage loan acquisition and resolution operations decreased to $6.7 million in the first quarter ended December 31, 1999, a decrease of $3.3 million (33%) from $10.0 million in the first quarter ended December 31, 1998. The decrease was attributable to the following: (i) A decrease of $2.4 million (100%) in gains from sales of senior lien interests. The Company sold senior lien interests in two loans in the first quarter ended December 31, 1998 resulting in proceeds of $5.7 million; no such gains were recognized in the quarter ended December 31, 1999. (ii) In the first quarter ended December 31, 1999, proceeds of $10.0 million from the sale of one loan to Resource Asset resulted in a gain of $984,000. (iii) A decrease of $1.1 million (17%) in interest income, resulting from a decrease of $1.2 million of accretion of discount. The average accretion rate (accreted discount divided by the book value of average loan balances) on commercial mortgage loans held decreased to 3% in the quarter ended December 31, 1999 as compared to 6% in the quarter ended December 31, 1998. (iv) A decrease of $952,000 in fee income (98%) primarily resulting from a one-time fee of $806,000 earned in the first quarter of fiscal 1999 for services rendered to an existing borrower in connection with the operation, leasing and supervision of the collateral securing one of the Company's loans. No such fees were earned during the quarter ended December 31, 1999. 16 During the three months ended December 31, 1999, the Company acquired no loans as compared to the purchase and origination of two loans for a cost of $5.5 million during the three months ended December 31, 1998. The two loans acquired during the first quarter ended December 31, 1998 had outstanding receivable balances of $4.0 million and $1.5 million, respectively. Gains on sale of loans and senior lien interests in loans (if any) and the amount of fees received (if any) vary from transaction to transaction and there may be significant variations in the Company's gain on sale and fee income from period to period. As a consequence of the foregoing, the Company's yield (gross real estate finance revenues, including gains resulting from refinancings, sales of loans and sales of senior lien interests in loans, divided by the book value of average loan balances) decreased to 12% in the first quarter ended December 31, 1999 as compared to 19% in the first quarter ended December 31, 1998. Costs and expenses of the Company's real estate finance operations were $734,000 in the first quarter ended December 31, 1999, an increase of $256,000 (54%) from $478,000 in the first quarter ended December 31, 1998. The increase was primarily a result of increased compensation to existing employees. As a result of the foregoing, the Company's gross operating profit from real estate finance operations decreased to $5.9 million in the first quarter ended December 31, 1999, as compared to $9.5 million in the same period in the prior year. Results of Operations: Equipment Leasing The following table sets forth certain information relating to the revenues recognized and costs and expenses incurred in the Company's equipment leasing operations during the periods indicated:
Three Months Ended December 31, 1999 1998 ------------ ----------- (in thousands) Revenues: Small ticket leasing Interest and fees................................................................ $ 13,765 $ 1,402 Gains on sales of leases......................................................... 280 2,244 Partnership management............................................................. 406 760 ----------- ----------- $ 14,451 $ 4,406 =========== =========== Costs and expenses: Small ticket leasing............................................................... $ 1,893 $ 1,419 Partnership management............................................................. 348 614 ----------- ----------- $ 2,241 $ 2,033 =========== ===========
Through March 31, 1999, the Company structured a substantial part of its lease financing transactions, other than warehouse revolving lines of credit and certain financings relating to JLA Credit, to meet the criteria for treatment as sales under generally accepted accounting principles. Thus, for all such transactions completed through that date, the Company recorded gains on sales. On April 1, 1999, the Company decided to alter the structure of its future securitizations to retain leases that it securitizes as investments on its balance sheet and record the related securitization indebtedness on its balance sheet as debt for accounting purposes. The Company also modified its existing $100.0 million commercial paper conduit facility so that it would retain leases as investments and record related securitization indebtedness as debt on its balance sheet. The primary effect of the change in securitization structure and the modification of its commercial paper conduit facility is that the Company will recognize income over the lives of the lease receivables it securitizes or finances under its commercial paper conduit facilities rather than recognize an immediate gain upon the sale of the lease receivables. The Company's cash flow, which is influenced by the advance rates and discount rates provided for by the commercial paper conduit facilities, was unaffected by these modifications. 17 The Company continued to experience growth in its leasing business during the first quarter of fiscal 2000, originating 6,765 leases having a cost of $135.6 million, as compared to 3,221 leases having a cost of $39.7 million during the first quarter of fiscal 1999. This growth was further accelerated by the JLA Credit acquisition on February 4, 1999. The results of operations of JLA Credit are included in the Company's consolidated results of operations from February 4, 1999. JLA Credit accounted for 848 leases having an approximate cost of $40.0 million during the quarter ended December 31, 1999, which primarily accounted for the average cost per lease increase to approximately $20,000 in the quarter ended December 31, 1999 from $12,300 in the quarter ended December 31, 1998. Interest and fee income totaled $13.8 million in the first quarter ended December 31, 1999, of which $8.7 million was attributable to JLA Credit and the balance to the increase in lease originations and the retention by the Company of leases it securitized as assets on its balance sheet, as described above. This is an increase of $12.4 million (882%) over the quarter ended December 31, 1998. Gains on sale of leases decreased to $280,000 in the first quarter of fiscal 2000 from $2.2 million in the first quarter of fiscal 1999, a decrease of $2.0 million (88%), for the reasons described above. However, the Company currently has two sales facilities, one with IBM Credit and one with IBM Canada, that relate to equipment leases generated through those companies. As a result of the requirements of IBM Credit and IBM Canada, these facilities continue to be structured in a way that requires the Company to treat transactions under the facilities as sales for accounting purposes. All leases generated through IBM Credit and IBM Canada must be sold to these facilities. The gains on sale of leases in the quarter ended December 31, 1999 primarily relate to the IBM sales facilities. Equipment leasing costs and expenses increased $208,000 (10%) to $2.2 million in the first quarter ended December 31, 1999, as compared to $2.0 million in the quarter ended December 31, 1998. The increase was primarily a result of the acquisition of JLA Credit ($775,000) offset by an increase in initial direct costs capitalized ($2.9 million) due to the increase in lease volume originations. In addition, expenses related to the Company's partnership management business decreased $266,000 (43%) to $348,000 from $614,000 because the Company managed fewer leases with a reduced staff in the quarter ended December 31, 1999 as compared to the quarter ended December 31, 1998. Results of Operations: Energy On August 31, 1999, the Company acquired Viking Resources. Results of operations include the operations of Viking Resources from September 1, 1999 and, accordingly, are not comparable to the similar period of the prior year. The following tables set forth certain information relating to revenues recognized and costs and expenses incurred, daily production volumes, average sales prices, production costs as a percentage of oil and gas sales, and production cost per equivalent unit in the Company's energy operations during the periods:
Three Months Ended December 31, 1999 1998 ----------- ----------- (in thousands) Revenues: Production......................................................................... $ 5,461 $ 2,520 Well drilling...................................................................... 7,154 10,401 Well services...................................................................... 3,309 2,205 ----------- ----------- $ 15,924 $ 15,126 =========== =========== Cost and expenses: Exploration and production......................................................... $ 2,383 $ 1,322 Well drilling...................................................................... 6,728 9,313 Well services...................................................................... 2,345 711 ----------- ----------- $ 11,456 $ 11,346 =========== ===========
18
Three Months Ended December 31, 1999 1998 ----------- ----------- Revenues (in thousands): Gas(1)............................................................................. $ 4,415 $ 2,289 Oil................................................................................ 1,025 172 Production volumes (in thousands): Gas (thousands of cubic feet ("mcf")/day)(1)....................................... 16,646 10,522 Oil (barrels ("bbls")/day)......................................................... 541 154 Average sale price: Gas (per mcf)...................................................................... $ 2.88 $ 2.36 Oil (per bbl)...................................................................... $ 20.58 $ 12.15
- ------------------ (1) Excludes sales of residual gas and sales to landowners. Natural gas revenues were $4.4 million in the first quarter ended December 31, 1999, an increase of $2.1 million (93%) from $2.3 million in the first quarter of fiscal 1998 due to a 58% increase in production volumes and a 22% increase in the average sales price of natural gas. Oil revenues were $1.0 million in the first quarter of fiscal 2000, an increase of $853,000 (496%) from $172,000 in the first quarter of fiscal 1999, due to a 251% increase in production volumes and a 69% increase in the average sales price of oil during the first quarter of fiscal 1999. Both gas and oil volumes continued to be favorably impacted by the acquisition of The Atlas Group at the end of fiscal 1998 and Viking Resources in August 1999. Without the addition of Viking Resources, gas and oil production revenues would have been $3.1 million and $316,000 respectively, for the first quarter of fiscal 2000, resulting in an overall increase of $965,000 (39%) compared to the first quarter of fiscal 1999. Average daily gas production volumes would have been 11,658 mcf for the first quarter of fiscal 2000, an 11% increase compared to the first quarter of fiscal 1999. The average sales price per mcf would have increased to $2.90. Average daily oil production would have increased by three barrels (2%) over the first quarter of fiscal 1999, the average sales price per barrel would have increased by $7.51 (62%). Well drilling revenues and expenses in the first quarter ended December 31, 1999 represent the billings and costs associated with the completion of 37 wells for partnerships sponsored by Atlas America in the first quarter of fiscal 2000 as compared to 53 wells in the first quarter of fiscal 1999. Well services revenues and related costs increased significantly as a result of an increase in the number of wells operated due to the acquisition of Viking Resources and the addition of wells drilled by Atlas America. Production costs (excluding exploration costs of $514,000) increased 713,000 (62%) to $1.9 million in the first quarter ended December 31, 1999, as compared to the same period in the prior year as a result of the acquisition of the interests in producing properties referred to above. Amortization of oil and gas property costs as a percentage of oil and gas revenues was 27% in the first quarter ended December 31, 1999 compared to 24% in the first quarter ended December 31, 1998. The variance from period to period was directly attributable to changes in the Company's oil and gas reserve quantities, product prices and fluctuations in the depletable cost basis of oil and gas. Results of Operations: Other Revenues, Costs and Expenses Interest and other income decreased $253,000 (23%) to $850,000 in the quarter ended December 31, 1999, as compared to the quarter ended December 31, 1998, primarily as a result of a substantial decrease in the Company's uncommitted cash balances. The temporary investment of such balances during the quarter ended December 31, 1999 decreased interest income by $313,000 as compared to the quarter ended December 31, 1998. 19 General and administrative expenses increased $862,000 (87%) to $1.9 million in the quarter ended December 31, 1999, as compared to $988,000 the quarter ended December 31, 1998, primarily as a result of the hiring of additional corporate staff and increases in the compensation of senior officers, together with an increase in occupancy costs as the Company leased additional office space to accommodate its increased staff. Interest expense increased $7.9 million (198%) to $11.9 million in the quarter ended December 31, 1999 as compared to $4.0 million in the quarter ended December 31, 1998, primarily reflecting an increase in borrowings ($5.0 million) as a result of the acquisition of JLA Credit and the decision by the Company on April 1, 1999 to alter the structure of its future securitizations to retain leases it securitizes as investments on its balance sheet and to record the related securitization indebtedness on its balance sheet as debt. Provision for possible losses increased $1.3 million (246%) to $1.9 million in the quarter ended December 31, 1999 as compared to $537,000 in the quarter ended December 31, 1998. The increase was primarily the result of increases in the provision for possible losses relating to equipment leasing ($1.2 million). The increased provision reflects the increase in lease originations. In establishing the Company's allowance for possible losses in connection with its real estate finance and equipment leasing operations, the Company considers among other things, the historic performance of the Company's loan or lease portfolios, industry standards and experience regarding losses in similar loans or leases and payment history on specific loans and leases, as well as general economic conditions in the United States, in the borrower's or lessee's geographic area and in its specific industry. The effective tax rate decreased to 34% in the quarter ended December 31, 1999 from 36% in the quarter ended December 31, 1998. The decrease resulted from an increase in the generation of depletion for tax purposes due to the Viking Resources acquisition and an increase in tax credits. These increases in tax benefits were partially offset by an increase in state income taxes. Liquidity and Capital Resources During the past three fiscal years, the Company has derived its capital resources from three main sources: public and private offerings of debt and equity securities, lines of credit and purchase facilities extended by banks and other institutional lenders with respect to equipment leasing and energy operations, and sales of senior lien interests in or borrower refinancings of commercial mortgage loans held in the Company's portfolio. The Company has employed its available capital resources primarily in the expansion of its small ticket leasing and real estate finance businesses. However, through its acquisition of The Atlas Group and Viking Resources, the Company has significantly expanded its oil and gas operations and, as a result, may direct capital resources to oil and gas operations as other opportunities arise or as the Company's oil and gas business develops. The Company believes that its future growth and earnings will be materially dependent upon its ability to continue to generate capital resources from prior sources or to identify new sources. As a result of the continued depressed price of the Company's common stock, the Company anticipates that generating additional capital resources on terms similar to those available during fiscal 1997 and 1998 may be restricted. Accordingly, the Company's ability to generate continued growth in its real estate finance and equipment leasing operations may be restricted, which could adversely affect the Company's earnings potential. Sources and (uses) of cash for the three months ended December 31, 1999 and 1998 were as follows:
Three Months Ended December 31, 1999 1998 ------------ ----------- (in thousands) Provided by operations................................................................ $ 18,462 4,881 Used in investing activities.......................................................... (10,693) (29,336) Used in financing activities.......................................................... (2,929) (2,025) Used in discontinued operations....................................................... (217) (1,175) Effect of exchange rate changes on cash............................................... (60) - ----------- ----------- $ 4,563 $ (27,655) =========== ===========
20 The Company had $47.2 million in cash and cash equivalents on hand at December 31, 1999, as compared to $42.6 million at September 30, 1999. The Company's ratio of earnings to fixed charges was 1.3 to 1.0 in the quarter ended December 31, 1999 as compared to 2.2 to 1.0 in the quarter ended December 31, 1998. The Company's cash provided by operating activities in the first quarter of fiscal 2000 increased $13.6 million as compared to the first quarter of fiscal 1999, primarily as a result of the following: (i) a $4.7 million increase in net income from continuing operations before non-cash items. (ii) a $8.0 million decrease in net working capital The Company's cash used in investing activities decreased $18.6 million in the quarter ended December 31, 1999 as compared to the quarter ended December 31, 1998 as a result of the following: (i) In small ticket leasing, cash used increased $65.9 million primarily as a result of an increase of $95.9 million in cash used to acquire equipment for lease and a decrease in proceeds from the sale of assets ($7.6 million) which was partially offset by an increase in payments in excess of revenue recognized ($38.4 million). (ii) In energy, cash used decreased $1.3 million as a result of the decrease in the number of wells (16) participated in by the Company through Atlas ($1.7 million). (iii) In real estate finance, cash provided increased $71.3 million as a result of an increase of $63.2 million in principal payments and proceeds from the sale of loans, and a $7.6 million decrease in investments in real estate loans and ventures. The Company's cash flow used in financing activities increased $904,000 during the quarter ended December 31, 1999 as compared to the quarter ended December 31, 1998. This increase resulted from a $27.3 million increase in the Company's net borrowings, partially offset by an increase of $27.1 million in restricted cash, which is held in the Company's securitization trusts. Computer Systems and Year 2000 Issues The "year 2000 issue" is the result of computer programs being written using two digits, rather than four digits, to identify the year in a date field. Any computer programs using such a system, and which have date sensitive software, will not be able to distinguish between the year 2000 and the year 1900. This could result in miscalculations or an inability to process transactions, send invoices or engage in similar normal business activities, which could cause a disruption of business operations. The Company's year 2000 compliance review included assessing its information technology and non-information technology systems (collectively, the "Systems"), contacting third party vendors, customers and other suppliers regarding their year 2000 compliance, testing the Systems and remediating any problems. The Company has year 2000 capable Systems for its real estate finance, equipment leasing and energy operations. The Company has communicated with all of its significant business partners through a Vendor Readiness Survey to determine their Year 2000 compliance. Responses are evaluated as they are received to determine if additional action is required to ensure compliance of the business partner. As of December 31, 1999, all of the Company's principal business partners have advised the Company that they are Year 2000 compliant or have initiated programs that will render them Year 2000 compliant in a timely fashion. As a result of its internal assessment and survey of its business partners, the Company currently does not believe that Year 2000 matters will have a material impact on its business, financial condition or results of operations. To the extent that any of its business partners are materially affected by Year 2000 problems, the Company intends to seek alternative firms providing the same services that are Year 2000 compliant. In view of the responses from its current business partners, the Company will identify alternative firms on an as-needed basis. There can be no assurance, however, that the Company would be able to make appropriate arrangements should the need arise and, accordingly, it is uncertain whether or to what extent the Company may be affected if problems with its business partners arise. 21 The Company is aware of the potential for claims against it and other companies for damages for products and services that were not Year 2000 compliant. Since the Company is neither a hardware manufacturer nor a software developer, the Company believes that it does not have significant exposure to liability for such claims. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The following table sets forth certain information regarding 37 of the 39 loans held in the Company's portfolio as of December, 1999. The presentation, for each category of information, aggregates the loans by their maturity dates for maturities occurring in each of the fiscal years 2000 through 2004 and separately aggregates the information for all maturities arising after the 2004 fiscal year. The Company does not believe that these loans are sensitive to changes in interest rates since (i) the loans are subject to forbearance or other agreements that require all of the operating cash flow from the properties underlying the loans, after debt service on senior lien interests, to be paid to the Company and thus are not currently being paid based on the stated interest rates of the loans; (ii) all senior lien interests are at fixed rates and are thus not subject to interest rate fluctuation that would affect payments to the Company; and (iii) each loan has significant accrued and unpaid interest and other charges outstanding to which cash flow from the underlying property would be applied even if cash flow were to exceed the interest rate, as originally underwritten.
Portfolio Loans, Aggregated by Maturity Dates,(1) For The First Quarter Ended December 31, 2000 2001 2002 2003 2004 Thereafter Totals ---------- ---------- ---------- ---------- ------- ----------- ----------- Outstanding loan receivable balances (to the Company's interest) $19,241,333 $14,057,052 $38,786,404 $46,596,877 n/a $116,110,904 $234,792,570 Carried cost of loans (fixed rate) $ 8,458,891 $ 4,211,194 $22,827,940 $11,303,090 n/a $ 78,328,967 $125,130,082 Average stated interest rate (fixed rate) 12.30% 9.98% 9.73% 8.25% n/a 12.26% Carried cost of loans (variable rate) $ 792,594 $ 423,640 $ 1,378,048 $ 724,901 n/a $ 4,832,285 $ 8,151,468 Average interest payment rate (2) (2) (2) (2) n/a (2) Outstanding balance of senior lien interests (3) $ 9,581,800 $ 7,174,468 $ 7,712,136 $21,030,777 n/a $209,035,251 $254,534,432 Average interest rate of senior lien interests (fixed rate) 8.44% 9.38% 9.45% 9.84% n/a 9.38%
- --------------- (1) Maturity dates of related forbearance agreement or Company's interest in the loan. (2) Pay rates are equal to the net cash flow from the underlying properties after payments on senior lien interests and, accordingly, depend upon future events not determinable as of the date hereof. 22 (3) Maturity dates for senior lien interests are as follows:
Maturity Date of Maturity Dates of Company's Loans Senior Lien Interests Outstanding Balance (Fiscal Year Ended (Fiscal Year Ended of Senior Lien Interests September 30) September 30) at December 31, 1999 ------------- ------------- -------------------- 2000 2000 $ 7,485,800 2002 2,096,000 2001 2000 2,000,000 2001 2,809,000 2007 2,365,468 2002 2003 5,312,136 2004 2,400,000 2003 2003 18,869,676 2006 2,161,101 2004 2004 None Thereafter 2001 2,010,000 2003 3,563,973 2004 4,416,337 2008 142,246,486 2009 49,137,832 2010 5,653,418 2014 2,007,205 ------------- Total $ 254,534,432 =============
The following table sets forth information concerning two of the 39 loans held in the Company's portfolio at December 31, 1999 that the Company believes may be deemed to be interest rate sensitive.
Outstanding receivable balance (to the Company's interest)....................... $ 59,380,198 $ 40,388,946 Carried cost of loan........................ $ 13,536,336 $ 37,279,341 Stated interest rate........................ 10.647% Federal funds rate plus 87.5 basis points plus 200 basis points default interest Interest payment rate....................... Net cash flow from property Net cash flow from property underlying loan underlying loan Outstanding balance of senior lien interests................................. $ 49,195,889 $ 58,950,000 Stated interest rate (senior lien interest). LIBOR plus 300 basis points LIBOR plus 250 basis points (8.875% maximum rate) Current interest payment rate (senior lien interest)................................. 8.25% 8.75% Maturity date (senior lien interest)........ 03/30/02 10/01/01
23 Interest Rate Risk and Hedging. Interest rate hedge agreements outstanding at December 31, 1999 for Fidelity Leasing's commercial paper conduit securitizations had an aggregate notional value of approximately $310.0 million, required payments based on fixed rates ranging from 5.32% to 11.00% and had a positive estimated fair market value of approximately $2.1 million. Interest Rate Sensitivity. The table below provides information as of December 31, 1999 about the Company's derivative financial instruments and other financial instruments that are sensitive to changes in interest rates, including interest rate swaps and debt obligations. For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates. For interest rate swaps, the table presents notional amounts and weighted average interest rates by expected contractual maturity dates. Notional amounts are used to calculate the contractual payments to be exchanged under the contract. Weighted average variable rates are based on LIBOR as of December 31, 1999.
Expected Maturity Date ----------------------------------------------------------------------------------- 2000 2001 2002 2003 2004 Thereafter Total ---- ---- ---- ---- ---- ---------- ----- Liabilities: Fixed rate...................... $ 95,497,170 $85,628,739 $50,841,434 $26,143,363 $12,170,651 $7,080,336 $277,361,692 Average interest rate........... 7.20% 7.64% 7.28% 6.65% 6.81% 6.74% 7.27% Variable (commercial paper)..... $147,279,350 $86,423,575 $54,436,667 $26,841,181 $10,215,111 $1,078,153 $326,274,036 Average interest rate........... 7.10% 6.88% 6.87% 6.96% 6.81% 6.82% 6.98% Interest Rate Derivatives: Interest rate swaps: Variable to fixed............... $108,291,396 $95,381,595 $61,835,846 $31,399,084 $12,051,547 $1,411,152 $310,310,620 Average pay rate................ 6.08% 6.16% 6.21% 6.23% 6.29% 6.27% 6.16% Average receive rate............ 5.91% 5.94% 5.88% 5.82% 5.61% 5.69% 5.89%
The following table sets forth certain information regarding the Company's debt as of December 31, 1999, excluding debt relating to the Company's equipment leasing operations discussed above. For further information regarding the Company's 12% Notes and credit facilities, see Item 1 "Business-Sources of Funds." The Company's interest-bearing assets are discussed above in this item.
Expected Maturity Date For the Fiscal Years Ended September 30, ---------------------------------------------------------------------------------------- 2000 2001 2002 2003 2004 Thereafter Total ---- ---- ---- ---- ---- ---------- ----- Fixed rate - - - - $99,850,000 - $99,850,000 Average interest rate - - - - 12.00% - - Variable rate $10,332,000 $21,666,000 833,000 $34,477,000 - - $67,308,000 Average interest rate 8.49% 8.31% 9.00% 8.75% - - -
24 PART II. OTHER INFORMATION Item 5. Other Information. The Board of Directors of the Company adopted amended and restated bylaws effective as of December 14, 1999. Among other changes, the amended bylaws provide that a stockholder may bring a matter of business or nominations for the election of directors before a meeting of stockholders only if the stockholder has given written notice to the Company in proper form of such matter not less than 90 days before the first anniversary date of the mailing date of the Company's proxy solicitation materials for the previous year's annual meeting of stockholders and, in the case of a special meeting of stockholders, such business is within the purpose or purposes specified in the notice of the meeting and the stockholder has given written notice to the Company not less than 90 days prior to the date of the special meeting. The chairman of a stockholders' meeting may refuse to acknowledge the nomination of any person or the proposal of any business not made in compliance with the foregoing procedure. Moreover, even if the nomination or proposal is recognized, the effect of this bylaw provision is that persons named as proxies on the form of proxy card to be mailed in connection with the solicitation of proxies on behalf of the Company's Board of Directors in connection with the annual meeting of stockholders will be authorized to vote in their own discretion on any proposal as to which the Company has not received written notice within the timeframe set forth in the bylaws. ITEM 6. Exhibits And Reports On Form 8-K (a) Exhibits:
Exhibit No. Description ----------- ----------- 3.1 Restated Certificate of Incorporation of the Company 3.2 Amended and Restated By-Laws of the Company 10.29 Employment Agreement between Scott F. Schaeffer and the Company 10.30 Employment Agreement between Daniel G. Cohen and the Company 10.31 Employment Agreement between Steven J. Kessler and the Company 10.32 Employment Agreement between Nancy J. McGurk and the Company 27 Financial Data Schedule
(b) Reports on Form 8-K During the quarter for which this report is being filed, the Company filed a current report on Form 8-K dated October 5, 1999 regarding a meeting of institutional stockholders of the Company. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. RESOURCE AMERICA, INC. (Registrant) Date: February 14, 2000 By: /s/ Steven J. Kessler ----------------- --------------------- STEVEN J. KESSLER Senior Vice President and Chief Financial Officer Date: February 14, 2000 By: /s/ Nancy J. McGurk ----------------- ------------------- NANCY J. McGURK Vice President-Finance and Chief Accounting Officer 25 EX-3.1 2 EXHIBIT 3.1 RESTATED CERTIFICATE OF INCORPORATION OF RESOURCE AMERICA, INC. RESOURCE AMERICA, INC., a corporation organized on February 9, 1966 under the name of S.M.T.R. Corp. in accordance with the General Corporation Law of the State of Delaware and pursuant to Section 245 thereof hereby restates its Certificate of Incorporation in its entirety, without amendment, as follows: FIRST. The name of this corporation is Resource America, Inc. (the "Corporation"). SECOND. The Corporation's registered office is located at 49 Bancroft Mills, Unit P15, Wilmington, New Castle County, Delaware 19806. The name of the Corporation's registered agent at said address is Andrew M. Lubin. THIRD. The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH. The total number of shares of capital stock which the Corporation shall have authority to issue is fifty million (50,000,000), of which forty-nine million (49,000,000) shall be shares of common stock (the "Common Stock"), with a par value of one cent ($.01) per share, and one million (1,000,000) shall be shares of preferred stock (the "Preferred Stock"), with a par value of one dollar ($1.00) per share. A statement of the designations of the authorized classes of stock or of any series thereof, and the powers, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof, or of the authority of the Board of Directors to fix by resolution or resolutions such designations and other terms not fixed by the Certificate of Incorporation, is as follows: 1. The Preferred Stock may be issued in one or more series, from time to time, with each such series to have such designation, powers, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions providing for the issue of such series adopted by the Board of Directors of the Corporation, subject to the limitations prescribed by law and in accordance with the provisions hereof, the Board of Directors being hereby expressly vested with the authority to adopt any such resolution or resolutions. The authority of the Board of Directors with respect to each such series shall include, but not be limited to the determination or fixing of the following: (i) The distinctive designation and number of shares comprising such series, which number may (except where otherwise provided by the Board of Directors in creating such series) be increased or decreased (but not below the number of shares then outstanding) from time to time by like action of the Board of Directors; (ii) The dividend rate of such series, the conditions and times upon which such dividends shall be payable, the relation which such dividends shall bear to the dividends payable on any other class or classes of stock or series thereof, or any other series of the same class, whether the Corporation shall be required to pay such dividends on specified dates, if funds are legally available for the payment thereof, or, whether the payment of such dividends shall be entirely at the discretion of the Board of Directors, whether such dividends shall be payable in cash or by the issuance of Common or Preferred Stock of the Corporation, and whether dividends shall be cumulative or non-cumulative; (iii) Whether or not the shares of such series shall be subject to redemption by the Corporation and the conditions thereof, and the times, prices and other terms and provisions upon which the shares of the series may be redeemed; (iv) Whether or not the shares of the series shall be subject to the operation of a retirement or sinking fund to be applied to the purchase or redemption of such shares and, if such retirement or sinking fund be established, the annual amount thereof, and the terms and provisions relative to the operation thereof; (v) Whether or not the shares of the series shall be convertible into or exchangeable for shares of any other class or classes, with or without par value, or of any other series of the same class, and, if provision is made for conversion or exchange, the times, prices, rates, adjustments and other terms and conditions of such conversion or exchange; (vi) Whether or not the shares of the series have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights, and the number of votes per share; (vii) The rights of the shares of the series in the event of voluntary or involuntary liquidation, dissolution, or upon distribution of assets of the Corporation; (viii) Any other powers, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof of the shares of such series, as the Board of Directors may deem advisable and as shall not be inconsistent with the provisions of the Certificate of Incorporation. 2. The holders of shares of the Preferred Stock of such series shall be entitled to receive dividends, in accordance with the terms applicable to their stock, out of funds legally available for the payment thereof, at the rate fixed for such series and before any dividends, other than dividends payable without distinction between Preferred Stock and Common Stock, shall be declared and paid or set apart for payment on the Common Stock. In the event that holders of 2 shares of Preferred Stock of any series shall have a preference over any other class or series of stock with respect to dividends and in the event of default in the payment of such dividends, holders of such series of Preferred Stock shall be entitled to elect one or more directors to the Board of Directors of the Corporation to represent the interests of such series until said event of default shall have been cured, and appropriate provision therefor shall be made by the Board of Directors in connection with the issuance of any series of Preferred Stock entitled to such dividend. 3. Whenever, at any time, dividends of the then outstanding Preferred Stock as may be required with respect to any series outstanding shall have been paid or declared and set apart for payment on the then outstanding Preferred Stock, and after complying with respect to any retirement or sinking fund or funds for any series of Preferred Stock, the Board of Directors may, subject to the provisions of the resolution or resolutions creating any series of Preferred Stock, declare and pay dividends on the Common Stock, and the holders of shares of the Preferred Stock shall not be entitled to share therein. 4. The holders of shares of the Preferred Stock of each series shall be entitled upon liquidation or dissolution or upon the distribution of the assets of the Corporation to such preferences as provided in the resolution or resolutions creating such series of Preferred Stock, and no more, before any distribution of the assets of the Corporation shall be made to the holders of shares of Common Stock. Whenever the holders of the Preferred Stock shall have been paid the full amounts to which they shall be entitled, the holders of shares of the Common Stock shall be entitled to share ratably in all assets of the Corporation remaining. 5. At all meetings of the stockholders of the Corporation, the holders of shares of Common Stock shall be entitled to one vote for each share of Common Stock held by them, and the holders of all shares of Preferred Stock, or any series thereof, shall be entitled to such number of votes as shall be fixed by resolution of the Board of Directors authorizing the issuance thereof; provided, however, that the Board of Directors shall not be authorized to provide for the issuance of any shares of capital stock of the Corporation except shares which shall entitle the holders thereof to receive notice of and to vote at meetings of the stockholders of the Corporation. 6. The Preferred Stock purchased, redeemed or converted pursuant to any of the provisions of the resolution of the Board of Directors creating each series, shall, at the discretion of the Board of Directors, be held in the Treasury of the Corporation subject to reissuance, or shall, from time to time, in the discretion of the Board of Directors, upon the filing and recording of such certificate as may be in accordance with the laws of the State of Delaware, be returned to the status of authorized and unissued shares of Preferred Stock, in which event such shares shall no longer be part of the series created in connection with the original issuance thereof. 7. No holder of the Common Stock or the Preferred Stock of the Corporation shall be entitled as such, as a matter of right, to subscribe for, or purchase any part of, any new or additional issue of stock of the Corporation of any class or of any issue of securities convertible into stock, or of any warrants or rights to purchase stock, whether now or hereafter authorized and whether issued for money or for a consideration other than money. 3 Subject to the provision of this Article FOURTH, upon such terms, in such manner and under such conditions, in conformity with law, as may be fixed by the Board of Directors, the Board of Directors shall have the power to issue bonds, debentures, or other obligations, either convertible or non-convertible into the Corporation's stock, and warrants and rights to purchase the Corporation's stock. 8. All holders of capital stock of the Corporation shall be entitled to receive, not less often than annually, periodic reports relating to the financial condition and operations of the Corporation, which shall include profit and loss statements and balance sheets prepared in accordance with sound business and accounting practice. FIFTH. It is hereby declared to be a proper purpose reasonably calculated to benefit the stockholders for the Board of Directors to base the response of the Corporation to any 'Acquisition Proposal' (as hereinafter defined) on the Board of Directors' evaluation of what is in the best interests of the Corporation, and for the Board of Directors, in evaluating what is in the best interests of the Corporation, to consider: 1. the best interests of the stockholders, and for this purpose the Board shall consider, among other factors, not only the consideration being offered in the Acquisition Proposal in relation to the then current market price, but also in relation to the then current value of the Corporation in a freely negotiated transaction and in relation to the Board of Directors' then estimate of the future value of the Corporation as an independent entity; and 2. such other factors as the Board of Directors determines to be relevant, including, among other factors, the social, legal and economic effects upon stockholders, employees, suppliers and customers of the Corporation and the industry and business community as a whole. The term "Acquisition Proposal" as used in this Article FIFTH shall mean any proposal of any person (a) for a tender offer or exchange offer for any equity security of the Corporation, (b) to merge or consolidate the Corporation with another corporation, or (c) to purchase or otherwise acquire all or substantially all of the properties and assets of the Corporation. SIXTH. Subject to all applicable provisions of this Restated Certificate of Incorporation and to all applicable provisions of the laws of Delaware relating, inter alia, to stockholder approval, the Board of Directors shall be authorized to effect the merger or consolidation of the Corporation with another corporation or person or to sell, lease or exchange all or substantially all of the property and assets of the Corporation, including its goodwill and its corporate franchises, upon such terms and conditions and for such consideration, which may be, in whole or in part, shares of stock in, and/or of the securities of, any corporation or corporations, as the Board of 4 Directors shall deem expedient and in the best interests of the Corporation; provided, however, that regardless of any other provision of this Restated Certificate of Incorporation, such power of the Board of Directors shall be exercisable only when and as duly authorized by the affirmative vote of not less than 66 2/3% of the aggregate voting power represented by all of the then issued and outstanding shares of the Corporation with respect to all Acquisition Proposals which have not previously been approved by at least the vote of two-thirds of the members of the Board. Should any Acquisition Proposal have been approved by the vote of two-thirds of the members of the then duly constituted Board of Directors of the Corporation prior to the submission of such Acquisition Proposal for approval by the stockholders of the Corporation, the general provisions of applicable Delaware law respecting stockholder approval of such proposed action shall be applicable. The term "Acquisition Proposal" as used in this Article SIXTH shall mean any proposal of any person (a) for a tender offer or exchange offer for any equity security of the Corporation, (b) to merge or consolidate the Corporation with another corporation, or (c) to purchase or otherwise acquire all or substantially all of the property and assets of the Corporation, in any situation wherein the laws of Delaware require such transaction to be submitted to a vote of the stockholders of the Corporation or their approval thereof as a condition of consummation. This Article SIXTH shall not be altered, amended or repealed except by the affirmative vote of not less than 66 2/3% of the aggregate voting power represented by all of the then issued and outstanding shares of capital stock of the Corporation, given at a stockholders' meeting duly called for that purpose upon a proposal adopted by the Board of Directors. SEVENTH. The following additional provisions are in furtherance, and not in limitation, of any power, privilege or purpose conferred or permitted by law, this Restated Certificate or the Bylaws: 1. Except as otherwise expressly required by law or by other provisions of this Restated Certificate of Incorporation or by the Bylaws, the Board of Directors shall have and may exercise, transact, manage, promote and carry on all the powers, authorities, businesses, objects and purposes of the Corporation. 2. The election of Directors need not be by ballot unless the Bylaws of the Corporation shall so provide. 3. The Bylaws of the Corporation may be made, altered, amended or repealed by the Board of Directors. 4. The Board of Directors may fix from time to time the compensation of its members. 5. The Corporation shall have power to indemnify such persons, in such manner and under such circumstances to the full extent permitted by the law of the State of Delaware. 5 EIGHTH. The Corporation reserves the right to amend and repeal any provision contained in this Restated Certificate of Incorporation, in the manner now or hereafter prescribed by law. NINTH. The capital of the Corporation will not be reduced under or by reason of this restatement. TENTH. No director of the Corporation shall be personally liable to the Corporation or to the holders of Common or Preferred Stock of the Corporation for monetary damages for breach of fiduciary duty as a director, except (i) for any breach of the directors' duty of loyalty to the Corporation or the holders of Common or Preferred Stock of the Corporation, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law of Delaware, (iv) for any transaction from which the director derived an improper benefit, or (v) for any act or omission occurring prior to the date upon which this Article TENTH became effective. IN WITNESS WHEREOF, Resource America, Inc. has caused this Restated Certificate of Incorporation to be executed by its duly authorized officers, and caused its corporate seal to be affixed hereto this ________ day of January, 2000. RESOURCE AMERICA, INC. By:___________________________ 6 EX-3.2 3 EXHIBIT 3.2 AMENDED AND RESTATED BYLAWS OF RESOURCE AMERICA, INC. TABLE OF CONTENTS Page ARTICLE I: CORPORATE OFFICES.................................................1 1.1 REGISTERED OFFICE.................................................1 1.2 OTHER OFFICES.....................................................1 ARTICLE II: MEETINGS OF STOCKHOLDERS..........................................1 2.1 PLACE OF MEETINGS.................................................1 2.2 ANNUAL MEETING....................................................1 2.3 SPECIAL MEETING...................................................2 2.4 NOTICE OF STOCKHOLDERS' MEETINGS..................................2 2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE......................2 2.6 QUORUM............................................................2 2.7 ADJOURNED MEETING; NOTICE.........................................2 2.8 CONDUCT OF BUSINESS...............................................3 2.9 VOTING............................................................3 2.10 WAIVER OF NOTICE..................................................3 2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING...........4 2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS.......4 2.13 PROXIES...........................................................5 2.14 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS...5 ii ARTICLE III: DIRECTORS........................................................6 3.1 POWERS...........................................................6 3.2 NUMBER OF DIRECTORS..............................................6 3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS..........6 3.4 RESIGNATION AND VACANCIES........................................7 3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE.........................7 3.6 FIRST MEETINGS...................................................7 3.7 REGULAR MEETINGS.................................................7 3.8 SPECIAL MEETINGS; NOTICE.........................................8 3.9 QUORUM...........................................................8 3.10 WAIVER OF NOTICE.................................................8 3.11 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING................8 3.12 FEES AND COMPENSATION OF DIRECTORS...............................9 3.13 APPROVAL OF LOANS TO OFFICERS....................................9 ARTICLE IV: COMMITTEES.......................................................9 4.1 COMMITTEES OF DIRECTORS..........................................9 ARTICLE V: OFFICERS.........................................................9 5.1 OFFICERS.........................................................9 5.2 APPOINTMENT OF OFFICERS.........................................10 5.3 SUBORDINATE OFFICERS............................................10 5.4 REMOVAL AND RESIGNATION OF OFFICERS.............................10 5.5 VACANCIES IN OFFICES............................................10 5.6 CHAIRMAN OF THE BOARD...........................................10 5.7 VICE CHAIRMAN OF THE BOARD......................................11 5.8 CHIEF EXECUTIVE OFFICER.........................................11 5.9 PRESIDENT.......................................................11 5.10 CHIEF OPERATING OFFICER.........................................11 5.11 VICE PRESIDENTS.................................................11 5.12 CHIEF FINANCIAL OFFICER.........................................12 5.13 SECRETARY.......................................................12 5.14 TREASURER.......................................................13 5.15 ASSISTANT SECRETARY.............................................13 5.16 REPRESENTATION OF SHARES OF OTHER CORPORATIONS..................13 iii ARTICLE VI: INDEMNITY.......................................................13 6.1 THIRD PARTY ACTIONS.............................................13 6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION...................14 6.3 SUCCESSFUL DEFENSE..............................................14 6.4 PAYMENT OF EXPENSES IN ADVANCE..................................14 6.5 INDEMNITY NOT EXCLUSIVE.........................................15 6.6 INSURANCE INDEMNIFICATION.......................................15 6.7 THE CORPORATION.................................................15 6.8 EMPLOYEE BENEFIT PLANS..........................................15 6.9 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES.....16 ARTICLE VII: RECORDS AND REPORTS.............................................16 7.1 MAINTENANCE OF RECORDS..........................................16 ARTICLE VIII: GENERAL MATTERS.................................................16 8.1 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS................16 8.2 SPECIAL DESIGNATION ON CERTIFICATES.............................16 8.3 LOST CERTIFICATES...............................................17 8.4 CONSTRUCTION; DEFINITIONS.......................................17 8.5 DIVIDENDS.......................................................17 8.6 FISCAL YEAR.....................................................17 8.7 SEAL............................................................18 8.8 TRANSFER OF STOCK...............................................18 8.9 STOCK TRANSFER AGREEMENTS.......................................18 8.10 REGISTERED STOCKHOLDERS.........................................18 ARTICLE IX: AMENDMENTS......................................................18 iv AMENDED AND RESTATED BYLAWS OF RESOURCE AMERICA, INC. ---------------------- ARTICLE I CORPORATE OFFICES ------------------ 1.1 REGISTERED OFFICE The registered office of the corporation shall be at 49 Bancroft Mills, Unit 15, in the City of Wilmington, County of New Castle, State of Delaware. 1.2 OTHER OFFICES The board of directors may at any time establish other offices at any place or places where the corporation is qualified to do business. ARTICLE II MEETINGS OF STOCKHOLDERS ------------------------ 2.1 PLACE OF MEETINGS Meetings of stockholders shall be held at any place, within or outside the State of Delaware, designated by the board of directors. In the absence of any such designation, stockholders' meetings shall be held at the principal executive office of the corporation. 2.2 ANNUAL MEETING Annual meetings of the stockholders shall be held, each year, at the time and on the day designated by resolution of the Board of Directors. At the annual meeting, the stockholders shall elect one class of the board of directors, consider reports of the affairs of the corporation and transact such other business as may be properly brought before the meeting. 1 2.3 SPECIAL MEETING Special meetings of the stockholders for any purpose may be called by the Chairman of the Board, President or Secretary, or by resolution of the directors. 2.4 NOTICE OF STOCKHOLDERS' MEETINGS All notices of meetings with stockholders shall be in writing and shall be sent or otherwise given in accordance with Section 2.5 of these bylaws not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting. The notice shall specify the place, date, and hour of the meeting, and, in the case of a special meeting, the purpose for which the meeting is called. 2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE Written notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder's address as it appears on the records of the corporation. An affidavit of the Secretary or an Assistant Secretary or of the transfer agent of the corporation that the notice has been given shall be, in the absence of fraud, prima facie evidence of the facts stated therein. 2.6 QUORUM The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business, except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum is neither present nor represented at any such meeting of the stockholders, then either (i) the Chairman of the meeting or (ii) the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed. 2.7 ADJOURNED MEETING; NOTICE When a meeting is adjourned to another time or place, unless these bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 2 2.8 CONDUCT OF BUSINESS The Chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of business. 2.9 VOTING The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.12 of these bylaws. Except as may be otherwise provided in the certificate of incorporation or as may be otherwise required by applicable law, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder. Except as may be otherwise provided in the certificate of incorporation or these bylaws, or as may be otherwise required by applicable law: (i) in all matters other than the election of directors, the affirmative vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders; (ii) directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors; and (iii) where a separate vote by a class or classes or series is required, the affirmative vote of the majority of shares of such class or classes or series present in person or represented by proxy at the meeting shall be the act of such class or classes or series. 2.10 WAIVER OF NOTICE Whenever notice is required to be given under any provision of this Article II, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice unless so required by the certificate of incorporation or these bylaws. 3 2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING Unless otherwise provided in the certificate of incorporation, any action required to be taken at any annual or special meeting of stockholders of a corporation, or any action that may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice, and without a vote if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. If the action which is consented to is such as would have required the filing of a certificate under any section of the General Corporation Law of Delaware if such action had been voted on by stockholders at a meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written notice and written consent have been given as provided in Section 228 of the General Corporation Law of Delaware. 2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. If the board of directors does not so fix a record date: (i) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. (ii) The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the board of directors is necessary, shall be the day on which the first written consent is delivered to the corporation at its principal place of business. (iii) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply 4 to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. 2.13 PROXIES Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for the stockholder by a written proxy, signed by the stockholder and filed with the secretary of the corporation, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. A proxy shall be deemed signed if the stockholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the stockholder or the stockholder's attorney-in-fact. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(e) of the General Corporation Law of Delaware. 2.14 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS A stockholder may bring a matter of business or nominations for the election of directors before a meeting of stockholders only if: (a) such business may otherwise be properly be brought before the meeting, (b) such stockholder shall have given, and the corporation shall have received at its principal executive offices addressed to the Secretary, written notice in proper form of such matter not less than 90 days prior to the first anniversary date of the mailing date of the corporation's proxy solicitation materials for the previous year's annual meeting of stockholders, and (c) in the case of a special meeting of stockholders, such business is within the purpose or purposes specified in the notice of the meeting and such stockholder shall have given, and the corporation shall have received at its principal executive offices addressed to the Secretary, written notice in proper form of such matter not less than 90 days prior to the date of the special meeting. To be in proper form, a stockholder's notice to the secretary shall set forth: (i) the name and address of the stockholder who intends to make the nominations, propose the business, and, as the case may be, the name and address of the person or persons to be nominated or the nature of the business to be proposed; (ii) a representation that the stockholder is a holder of record of stock of the corporation entitled to vote at such meeting and, if applicable, intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice or introduce the business specified in the notice; (iii) if applicable, a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; 5 (iv) such other information regarding each nominee or each matter of business to be proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had the nominee been nominated, or intended to be nominated, or the matter been proposed, or intended to be proposed by the board of directors; and (v) if applicable, the consent of each nominee to serve as director of the corporation if so elected. The chairman of the meeting may refuse to acknowledge the nomination of any person or the proposal of any business not made in compliance with the foregoing procedure. ARTICLE III DIRECTORS ----------- 3.1 POWERS Subject to the provisions of the General Corporation Law of Delaware and any limitations in the certificate of incorporation or these bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors. 3.2 NUMBER OF DIRECTORS The authorized number of directors shall be nine (9). This number may be changed by a duly adopted amendment or resolution of a majority of the board of directors. The directors shall be divided into three classes, which shall be as nearly equal in number as possible. No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires. 3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS Except as provided in Section 3.4 of these bylaws, each class of directors shall be elected as set forth in Section 2.9(ii) at each annual meeting of stockholders. Directors need not be stockholders unless so required by the certificate of incorporation or these bylaws, wherein other qualifications for directors may be prescribed. Each director, including a director elected to fill a vacancy, shall hold office until his or her successor is elected and qualified or until the director's earlier resignation. At each succeeding annual stockholder's meeting following such election, the respective successors of each class shall be elected for three year terms. Elections of directors need not be by written ballot. 6 3.4 RESIGNATION AND VACANCIES Any director may resign at any time upon written notice to the attention of the secretary of the corporation. When one or more directors so resigns and the resignation is effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have the power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in this section in the filling of other vacancies. Any vacancy among the board of directors or newly created directorship position, occurring from any cause whatsoever, may be filled by a majority vote of the remaining directors then in office, although less than a quorum or by a sole remaining director. Any person elected to fill a vacancy shall hold office until the next election of the class of directors for which such director has been chosen and until such successor is elected and qualified. Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the certificate of incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected. 3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE The board of directors of the corporation may hold meetings, both regular and special, either within or outside the State of Delaware. Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the board of directors, or any committee designated by the board of directors, may participate in a meeting of the board of directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. 3.6 FIRST MEETINGS The first meeting of each newly elected board of directors shall be held without notice, provided a quorum is present, immediately following the annual meeting of stockholders. 3.7 REGULAR MEETINGS Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board. 7 3.8 SPECIAL MEETINGS; NOTICE Special meetings of the board of directors for any purpose may be called at any time by the chairman of the board or the vice chairman of the board. Notice of the time and place of any special meeting shall be delivered personally or by telephone, first-class mail or facsimile to each director at least two (2) days prior to such special meeting. 3.9 QUORUM At all meetings of the board of directors, a majority of the authorized number of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum is not present at any meeting of the board of directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting. 3.10 WAIVER OF NOTICE Whenever notice is required to be given under this Article III, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice unless so required by the certificate of incorporation or these bylaws. 3.11 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the board of directors, or of any committee thereof, may be taken without a meeting if all members of the board or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the board or committee. 8 3.12 FEES AND COMPENSATION OF DIRECTORS Unless otherwise restricted by the certificate of incorporation or these bylaws, the board of directors shall have the authority to fix the compensation of directors. 3.13 APPROVAL OF LOANS TO OFFICERS The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiary, including any officer or employee who is a director of the corporation or its subsidiary, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the corporation. The loan, guaranty or other assistance may be with or without interest and may be unsecured, or secured in such manner as the board of directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in this section contained shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. ARTICLE IV COMMITTEES ---------- 4.1 COMMITTEES OF DIRECTORS The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, with each committee to consist of one or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. ARTICLE V OFFICERS --------- 5.1 OFFICERS The officers of the corporation shall be a chairman of the board, vice chairman of the board, president, a secretary, a chief operating officer, a chief financial officer and a treasurer. The corporation may also have, at the discretion of the board of directors, a chief executive officer, one or more 9 executive, senior or other vice presidents, one or more assistant vice presidents, one or more assistant secretaries, one or more assistant treasurers, and any such other officers as may be appointed in accordance with the provisions of Section 5.3 of these bylaws. Any number of offices may be held by the same person. 5.2 APPOINTMENT OF OFFICERS The officers of the corporation, except such officers as may be appointed in accordance with Sections 5.3 of these bylaws, shall be appointed by the board of directors, subject to the rights, if any, of an officer under any contract of employment. 5.3 SUBORDINATE OFFICERS The board of directors may appoint, or empower the chief executive officer to appoint, such other officers and agents as the business of the corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the board of directors may from time to time determine. 5.4 REMOVAL AND RESIGNATION OF OFFICERS Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the board of directors at any regular or special meeting of the board or, except in the case of an officer chosen by the board of directors, by any officer upon whom such power of removal may be conferred by the board of directors. Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. 5.5 VACANCIES IN OFFICES Any vacancy occurring in any office of the corporation may be filled by the board of directors. 5.6 CHAIRMAN OF THE BOARD The chairman of the board, if such an officer be elected, shall, if present, preside at meetings of the board of directors and exercise and perform such other powers and duties as may from time to time be assigned to him or her by the board of directors or as may be prescribed by these bylaws. The chairman of the board shall be, ex officio, a member of all standing committees. If there is no chief executive officer and no president, then the chairman of the board shall also be the chief executive officer of the corporation and shall have the powers and duties prescribed in Section 5.8 of these bylaws. 10 5.7 VICE CHAIRMAN OF THE BOARD The vice chairman of the board shall preside at all meetings of the stockholders and of the board of directors in the absence of the chairman of the board. In the absence or disability of the chairman of the board, or in the event that it is impractical for the chairman of the board to act personally, he shall have the powers and duties of the chairman of the board. The vice chairman of the board shall also have such other powers or duties as shall be assigned to him by the board of directors. 5.8 CHIEF EXECUTIVE OFFICER Subject to the supervisory powers, if any, as may be given by the board of directors to the chairman of the board, if there be such an officer, the chief executive officer shall, subject to the control of the board of directors, have general supervision, direction, and control of the business and the officers of the corporation. In the absence or nonexistence of a chairman of the board or vice chairman of the board, the chief executive officer shall preside at meetings of the board of directors and stockholders. The chief executive officer shall have such other powers and duties as may be prescribed by the board of directors or these bylaws. 5.9 PRESIDENT In the absence of the chairman of the board, vice chairman of the board or a chief executive officer, the president shall preside at all meetings of the board of directors. The president shall have the general powers and duties of management usually vested in the office of president of a corporation and shall have such other powers and duties as may be prescribed by the board of directors or these bylaws. In the absence or disability of the chairman of the board or vice chairman of the board, or in the event that for any reason it is impractical for the chairman of the board or vice chairman of the board to act personally, the president shall have the powers and duties of chairman of the board and vice chairman of the board. 5.10 CHIEF OPERATING OFFICER The chief operating officer shall supervise the property, business and affairs of the corporation, subject to the direction of the chief executive officer, in accordance with the policies established by the board of directors and subject to overall discretion, authority and responsibility of the board of directors. 5.11 VICE PRESIDENTS In the absence or disability of the president, the vice presidents, if any, in order of their rank as fixed by the board of directors or, if not ranked, a vice president designated by the board of directors, shall perform all the duties of the president and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall 11 have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors, these bylaws, the president or the chairman of the board. 5.12 CHIEF FINANCIAL OFFICER The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capitol retained earnings, and shares. The chief financial officer shall deposit all moneys and other valuables in the name and to the credit of the corporation with such depositories as may be designated by the board of directors. The chief financial officer shall disburse the funds of the corporation as may be ordered by the board of directors, shall render to the president and directors, whenever they request it, an account of all his or her transactions as chief financial officer and of the financial condition of the corporation, and shall have other powers and perform such other duties as may be prescribed by the board of directors or these bylaws. 5.13 SECRETARY The secretary shall keep or cause to be kept, at the principal executive office of the corporation or such other place as the board of directors may direct, a book of minutes of all meetings and actions of directors, committees of directors, and stockholders. The minutes shall show the time and place of each meeting, whether regular or special (and, if special, how authorized and the notice given), the names of those present at directors' meetings or committee meetings, the number of shares present or represented at stockholders' meetings, and the proceedings thereof. The secretary shall keep, or cause to be kept, at the principal executive office of the corporation, at the office of the corporation's transfer agent or registrar, as determined by resolution of the board of directors, or such other place as the board of directors may direct, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the board of directors required to be given by law or by these bylaws. The secretary shall keep the seal of the corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the board of directors or by these bylaws. 12 5.14 TREASURER The treasurer shall, in the absence of the chief financial officer or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the chief financial officer and shall perform such other duties and have such other powers as may be prescribed by the board of directors or these bylaws. 5.15 ASSISTANT SECRETARY The assistant secretary, or, if there is more than one, the assistant secretaries in the order determined by the stockholders or board of directors (or if there be no such determination, then in the order of their election) shall, in the absence of the secretary or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as may be prescribed by the board of directors or these bylaws. 5.16 REPRESENTATION OF SHARES OF OTHER CORPORATIONS The chairman of the board, the chief executive officer, the president, the chief operating officer, any vice president, the chief financial officer, the secretary or the assistant secretary of this corporation, or any other person authorized by the board of directors or the president or a vice president, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority. ARTICLE VI INDEMNITY ---------- 6.1 THIRD PARTY ACTIONS The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement (if such settlement is approved in advance by the corporation, which approval shall not be unreasonably withheld) actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any 13 action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interest of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. 6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) and amounts paid in settlement (if such settlement is approved in advance by the corporation, which approval shall not be unreasonably withheld) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if the person acted in good faith and in manner the person reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court shall deem proper. Notwithstanding any other provision of this Article VI, no person shall be indemnified hereunder for any expenses or amounts paid in settlement with respect to any action to recover short-swing profits under Section 16(b) of the Securities Exchange Act of 1934, as amended. 6.3 SUCCESSFUL DEFENSE To the extent that a director, officer, employee or agent of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 6.1 and 6.2, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by the person in connection therewith. 6.4 PAYMENT OF EXPENSES IN ADVANCE Expenses incurred in defending a civil or criminal action, suit or proceeding by an individual who may be entitled to indemnification pursuant to Sections 6.1 or 6.2 shall be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount if it shall ultimately be determined that the individual is not entitled to be indemnified by the corporation as authorized in this Article VI. 14 6.5 INDEMNITY NOT EXCLUSIVE The indemnification and advancement of expenses provided by or granted pursuant to the other sections of this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in their official capacity and as to action in another capacity while holding such office. 6.6 INSURANCE INDEMNIFICATION The corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against the person and incurred by the person in any such capacity or arising out of the person's status as such, whether or not the corporation would have the power to indemnify such person against such liability under the provisions of this Article VI. 6.7 THE CORPORATION For purposes of this Article VI, references to "the corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under and subject to the provisions of this Article VI (including, without limitation, the provisions of Section 6.4) with respect to the resulting or surviving corporation as the person would have with respect to such constituent corporation if its separate existence had continued. 6.8 EMPLOYEE BENEFIT PLANS For purposes of this Article VI, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this Article VI. 15 6.9 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VI shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such person. ARTICLE VII RECORDS AND REPORTS ------------------- 7.1 MAINTENANCE OF RECORDS The corporation shall, either at its principal executive office or at such place or places as may be designated by the board of directors, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these bylaws as amended to date, accounting books, minutes of the proceedings of the board of directors and stockholders, and other records. ARTICLE VIII GENERAL MATTERS --------------- 8.1 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS The board of directors, except as otherwise provided in these bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the board of directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. 8.2 SPECIAL DESIGNATION ON CERTIFICATES If the corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the General Corporation Law of 16 Delaware, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the corporation shall issue to represent such class or series of stock a statement that the corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. 8.3 LOST CERTIFICATES Except as provided in this Section 8.3, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and canceled at the same time. The corporation may issue, or direct its transfer agent to issue, a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate, or the owner's legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares. 8.4 CONSTRUCTION; DEFINITIONS Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Delaware General Corporation Law shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person. 8.5 DIVIDENDS The directors of the corporation, subject to any restrictions contained in the General Corporation Law of Delaware or the certificate of incorporation, may declare and pay dividends upon the shares of its capital stock. Dividends may be paid in cash, in property, or in shares of the corporation's capital stock. The directors of the corporation may set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the corporation, and meeting contingencies. 8.6 FISCAL YEAR The fiscal year of the corporation shall be fixed by resolution of the board of directors and may be changed by the board of directors. 17 8.7 SEAL The corporation may adopt a corporate seal, which shall be adopted and which may be altered by the board of directors, and may use the same by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. 8.8 TRANSFER OF STOCK Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction in its books. 8.9 STOCK TRANSFER AGREEMENTS The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the General Corporation Law of Delaware. 8.10 REGISTERED STOCKHOLDERS The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE IX AMENDMENTS ---------- Except as otherwise set forth herein or as provided by the General Corporation Law of Delaware, these bylaws may be altered, amended or repealed, or new bylaws may be adopted by the affirmative vote of a majority of the directors present at any regular or special meeting of the board of directors at which a quorum is present. 18 EX-10.29 4 EXHIBIT 10.29 EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is executed on this ____ day of October, 1999 by and between RESOURCE AMERICA, INC., a Delaware corporation having its principal place of business at 1521 Locust Street, Philadelphia, Pennsylvania 19102 ("RAI") and SCOTT F. SCHAEFFER ("Schaeffer"). BACKGROUND A. Since 1995, Schaeffer has been an officer of RAI and currently he serves as the Vice Chairman of RAI. B. Schaeffer and RAI desire to formally set forth the terms, conditions and agreements regarding Schaeffer's employment as Vice Chairman of RAI. TERMS NOW, THEREFORE, in consideration of the mutual promises set forth herein, and intending to be legally bound hereby, RAI and Schaeffer agree as follows: 1. Employment. During the term of this Agreement, Schaeffer shall be employed as the Vice Chairman of the Board of Directors of RAI. 2. Duties. Schaeffer shall report to and accept direction from the Chairman of the Board and from the Board. Schaeffer shall serve RAI diligently and to the best of his abilities, but Schaeffer shall be required to devote only so much of his time and attention to the business of RAI as may be required to fulfill his duties. It is recognized that Schaeffer in the past has participated, and it is agreed that Schaeffer in the future may participate in business endeavors separate and apart from RAI. 3. Term. Schaeffer's employment hereunder shall continue in full force and effect for a period of three (3) years, unless sooner terminated in accordance with the provisions hereof. Such term shall automatically extend so that on any day that this Agreement is in effect, it shall have a then current term of three (3) years. Such automatic extensions shall cease upon RAI's written notice to Schaeffer of its election to terminate this Agreement at the end of the three (3) year period then in effect. 4. Compensation. (a) Base Compensation. During the period of employment, RAI shall pay to Schaeffer "Base Compensation" to be established by the Board, initially in an amount equal to Four Hundred Twenty-Five Thousand Dollars ($425,000.00) per annum base compensation which Schaeffer, under existing arrangements approved by the Board, is to receive during calendar 1999 (the "Initial Level"). The Base Compensation will be payable in accordance with the general payroll practices by which RAI pays its executive officers, and the historical practice of RAI's compensation of Schaeffer. It is understood that RAI, through the compensation committee of the Board, will review Schaeffer's performance on an annual basis and increase or decrease (but in no event below the Initial Level) such Base Compensation, based upon Schaeffer's performance. (b) Incentive Compensation. During the period of employment Schaeffer may receive incentive compensation in the form of cash bonus payments, stock option grants and other forms of incentive compensation, based upon Schaeffer's performance. (c) Reimbursement of Expenses. RAI shall reimburse Schaeffer for all reasonable expenses incurred by Schaeffer in the performance of his duties, including (without limitation) expenses incurred during business-related travel. 5. Benefits. Schaeffer shall be entitled to receive the following benefits from RAI independent of any other benefits which Schaeffer may receive from RAI or otherwise: (a) Participation in Benefit Plans. Schaeffer will participate in all employee benefit plans in effect during the term of Schaeffer's employment hereunder. (b) Temporary Disability. During any period that Schaeffer fails to perform his duties hereunder as a result of incapacity due to physical or mental illness Schaeffer shall continue to receive his full compensation at the rate then in effect for such period until his employment is terminated pursuant to paragraph 6(b) hereof. 2 6. Termination. Schaeffer's employment hereunder shall terminate as follows: (a) Death. Schaeffer's employment shall terminate automatically upon the death of Schaeffer. (b) Disability. RAI may terminate this Agreement if Schaeffer becomes disabled by reason of any physical or mental disability whatsoever for more than two hundred forty (240) days in the aggregate during any calendar year and the Board determines, that Schaeffer, by reason of such physical or mental disability, is rendered unable to perform his duties and services hereunder (a "Disability"); (c) Termination by Schaeffer for Cause. Schaeffer may terminate his employment for cause upon thirty (30) days' prior written notice to RAI, with opportunity to cure any condition reasonably susceptible of cure. For the purposes of this paragraph 6(c), cause shall be deemed to exist if any of the following shall occur: (i) without the written consent of Schaeffer, a substantial change in the services or duties required of Schaeffer hereunder or the imposition of any services or duties substantially inconsistent with, or in diminution of Schaeffer's current position, services or duties, or status with RAI; (ii) failure to continue Schaeffer's coverage under any RAI benefit plan as required under paragraph 5(a) except pursuant to a change to a benefit plan that applies to senior executives of RAI generally or is required by law or regulation; or (iii) any material breach by RAI of any provision of this Agreement; (d) Termination by Schaeffer Without Cause. Schaeffer may terminate this Agreement without cause upon one hundred eighty (180) days prior written notice to RAI. (e) Change of Control. Schaeffer may, in his discretion, terminate his employment upon a Change in Control or Potential Change in Control by sending a Notice of Termination. (f) Termination by RAI. In accordance with paragraph 3 hereof, RAI may terminate this Agreement at the end of the then current three (3) year term. 7. Effect of Termination. (a) Death. Upon the termination of Schaeffer's employment pursuant to paragraph 6(a) hereof due to Schaeffer's death, a death benefit shall be paid to Schaeffer's estate equal to the total amount payable to Schaeffer under this Agreement until expiration of the term then in effect, assuming that Schaeffer's total compensation for each year would be equal to the Average Compensation. The death benefit shall be paid in thirty-six (36) equal, consecutive monthly installments, beginning the first month following the month in which Schaeffer shall have died. 3 (b) Disability. Upon the termination of Schaeffer's employment pursuant to paragraph 6(b) hereof due to Schaeffer's disability, Schaeffer shall be entitled to receive a monthly disability benefit equal to one twelfth (1/12) of the product of (i) the Average Compensation, multiplied by (ii) seventy-five percent (75%). The disability benefit described above shall be paid to Schaeffer, beginning the first month following the termination pursuant to paragraph 6(b). Schaeffer's disability benefit shall cease if he resumes his employment with RAI on the terms provided in this Agreement. Disability payments made under this paragraph shall not be reduced by any payments made directly to Schaeffer by an insurance company. (c) For Cause; Change of Control. Upon the termination of this Agreement either (i) by Schaeffer for cause pursuant to paragraph 6(c) hereof, (ii) by Schaeffer pursuant to paragraph 6(e) after a Change in Control or Potential Change of Control or (iii) by RAI pursuant to section 6(f) hereof, then RAI shall provide to Schaeffer the benefits described in Section 7(c)(1) and 7(c)(2) below (the "Severance Benefits"). (1) Lump-Sum Severance Payment. In lieu of any further compensation payments to Schaeffer for periods subsequent to the Date of Termination, RAI shall pay to Schaeffer a lump sum severance payment, in cash, without discount, equal to the sum of the total amount payable to Schaeffer under this Agreement until expiration of the term then in effect, assuming that Schaeffer's total compensation for each year would be equal to the Average Compensation. (2) Continued Benefits. For a thirty-six (36) month period after the Date of Termination (the "Benefits Period"), RAI shall provide Schaeffer with group term life insurance, health insurance, accident and long-term disability insurance benefits (collectively, "Welfare Benefits") substantially similar in all respects to those that Schaeffer was receiving immediately prior to the Date of Termination (without giving effect to any reduction in such benefits subsequent to a Change in Control). During the Benefits Period, Schaeffer shall be entitled to elect to change his level of coverage and/or his choice of coverage options with respect to the Welfare Benefits to be provided by RAI to Schaeffer to the same extent that actively employed senior executives of RAI are permitted to make such changes. (e) Vesting of Options. Upon any termination of this Agreement, the vesting of all options to purchase securities of RAI granted to Schaeffer during his employment with RAI shall be accelerated to the later of the effective date of termination of this Agreement, or six months after the date such option was granted, and any provision contained in the agreements under which such options were granted that is inconsistent with such acceleration is hereby modified to the extent necessary to provide for such acceleration; such acceleration shall not apply to any option that by its terms would vest prior to the date provided for in this paragraph 7(d). 4 8. Gross-Up Payment. (a) In the event that (i) Schaeffer becomes entitled to any benefits or payments in connection with the termination of Schaeffer's employment, whether pursuant to the terms of this Agreement or otherwise, including without limitation the Severance Benefits (collectively, the "Total Benefits"), and (ii) any of the Total Benefits will be subject to the Excise Tax, RAI shall pay to Schaeffer an additional amount (the "Gross-Up Payment") such that the net amount retained by Schaeffer, after deduction of any Excise Tax on the Total Benefits and any federal, state and local income taxes, Excise Tax, and FICA and Medicare withholding taxes upon the payment provided for by this paragraph 8(a), shall be equal to the Total Benefits. For purposes of determining whether any of the Total Benefits will be subject to the Excise Tax and the amount of such Excise Tax, the amount of the Total Benefits that shall be treated as subject to the Excise Tax shall be equal to the amount of the Total Benefits reduced by the amount of such Total Benefits that, in the opinion of tax counsel selected by Schaeffer, at RAI's expense and reasonably acceptable to RAI ("Tax Counsel"), are not excess parachute payments (within the meaning of Section 28OG(b)(1) of the Code). (b) For purposes of this Section 8, Schaeffer shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Excise Tax is (or would be) payable and state and local income taxes at the highest marginal rate of taxation in the state and locality of Schaeffer's residence on the Date of Termination, net of the reduction in federal income taxes which could be obtained from deduction of such state and local taxes (calculated by assuming that any reduction under Section 68 of the Code in the amount of itemized deductions allowable to Schaeffer applies first to reduce the amount of such state and local income taxes that would otherwise be deductible by Schaeffer). Except as otherwise provided herein, all determinations required to be made under this Section 8 shall be made by Tax Counsel. (c) In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of Schaeffer's employment, Schaeffer shall repay to RAI, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax, federal, state and local income taxes and FICA and Medicare withholding taxes imposed on the Gross-Up Payment being repaid by Schaeffer to the extent that such repayment results in a reduction in Excise Tax, FICA and Medicare withholding taxes and/or a federal, state or local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of Schaeffer's employment (including by reason of any payment the existence or amount of which cannot be determined at 5 the time of the Gross-Up Payment), RAI shall make an additional Gross-Up Payment to Schaeffer in respect of such excess (plus any interest, penalties or additions payable by Schaeffer with respect to such excess) at the time that the amount of such excess is finally determined. 9. Indemnification. (a) If Schaeffer is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (herein a "proceeding"), by reason of the fact that he is or was an employee (which term includes officer, director, agent and any other capacity) of RAI or is or was serving at the request of RAI as an employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as an employee or agent or in any other capacity while serving as an employee or agent, Schaeffer shall be indemnified and held harmless by RAI to the fullest extent authorized by applicable law, against all expense, liability and loss (including, but not limited to, attorneys' fees, judgments, fines, ERISA excise taxes and penalties and amounts paid or to be paid in settlement) incurred or suffered by Schaeffer in connection therewith and such indemnification shall continue as to Schaeffer after he has ceased to be a director, officer, employee or agent and shall inure to the benefit of Schaeffer's heir, executors, and administrators; provided, however, that RAI shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by Schaeffer (other than a proceeding to enforce this paragraph 9) only if such proceeding (or part thereof) was authorized directly or indirectly by the Board of RAI. The right to indemnification conferred in this paragraph shall be a contract right and shall include the right to be, promptly upon request, paid by RAI the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that if the Business Corporation Law of the Commonwealth of Pennsylvania requires the payment of such expenses incurred by an employee in his capacity as an employee (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, payment shall be made only upon delivery to RAI of an undertaking, by or on behalf of Schaeffer, to repay all amounts so advanced if it shall ultimately be determined that such employee is not entitled to be indemnified under this paragraph or otherwise. (b) The indemnification provided by this paragraph shall not be limited or exclude any rights, indemnities or limitations of liability to which Schaeffer may be entitled, whether as a matter of law, under the Certificate of Incorporation, By-laws of RAI, by agreement, vote of the stockholders or disinterested directors of RAI or otherwise. 6 (c) Schaeffer, in seeking indemnification under this Agreement (an "Indemnitee"), shall give the other party or parties (the "Indemnitor") prompt written notice of any claim, suit or demand that the Indemnitee believes will give rise to indemnification under this Agreement; provided, however, that the failure to give such notice shall not affect the liability of the Indemnitor under this Agreement unless the failure to give such notice materially and adversely affects the ability of the Indemnitor to defend itself against or to cure or mitigate the damages. Except as hereinafter provided, the Indemnitor shall have the right (without prejudice to the right of the Indemnitee to participate at its expense through counsel of its own choosing) to defend and to direct the defense against any such claim, suit or demand, at the Indemnitor's expense and with counsel chosen jointly by Indemnitor and Indemnitee, and the right to settle or compromise any such claim, suit or demand; provided, however, that the Indemnitor shall not, without the Indemnitee's written consent, which shall not be unreasonably withheld, settle or compromise any claim or consent to any entry of judgment. The Indemnitee shall, at the Indemnitor's expense, cooperate in the defense of any such claim, suit or demand. If the Indemnitor, within a reasonable time after notice of a claim fails to defend the Indemnitee, the Indemnitee shall be entitled to undertake the defense, compromise or settlement of such claim at the expense of and for the account and risk of the Indemnitor. (d) Schaeffer will be covered during the entire term of this Agreement by Officer and Director liability insurance in amounts and on terms similar to that afforded to other executives and/or directors of RAI or its affiliates, which such insurance shall be paid by RAI. 10. Definitions. Any terms not otherwise defined herein shall have the following meaning: (a) "Average Compensation" means the average of the three highest amounts of annual total compensation received by Schaeffer during any of the then current calendar year (on an annualized basis) and the then preceding eight (8) calendar years. (b) "Board" means the Board of Directors of RAI. (c) A "Change in Control" means the occurrence of any of the following events: (1) RAI's shareholders approve (or, in the event no approval of RAI's shareholders is required, RAI consummates) a merger, consolidation, share exchange, division or other reorganization or transaction of RAI (a "Fundamental Transaction") with any other corporation, other than a Fundamental Transaction which would result in the voting securities of RAI outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being 7 converted into voting securities of the surviving entity) at least sixty percent (60%) of the combined voting power immediately after such Fundamental Transaction of (i) RAI's outstanding securities, (ii) the surviving entity's outstanding securities, or (iii) in the case of a division, the outstanding securities of each entity resulting from the division; (2) the shareholders of RAI approve a plan of complete, liquidation or winding-up of RAI or an agreement for the sale or disposition (in one transaction or a series of transactions) of all or substantially all of RAI's assets; or (3) during any period of twenty-four consecutive months, individuals who at the beginning of such period constituted the Board (including for this purpose any new director whose election or nomination for election by RAI's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board. (d) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (e) "Control Effort" means any acting together or undertaking efforts to act together by any Person or Persons, excluding employee benefit plans of RAI, who are, or seek in any direct or indirect manner to become, the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act or any successor provisions thereto), directly or indirectly, of securities of RAI representing twenty-five percent (25%) or more of the combined voting power of RAI's then outstanding securities. (f) "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time. (g) "Excise Tax" means any excise tax imposed under Section 4999 of the Code or a similar provision that may later be enacted. (h) "Notice of Termination" After a Potential Change in Control or a Change in Control, Schaeffer may terminate this Agreement by sending a written notice to RAI that shall (i) specify the date of termination (the "Date of Termination") which shall not be more than sixty (60) days from the date such Notice of Termination is given, (ii) indicate the specific provisions of this Agreement that will apply upon such termination and (iii) set forth in reasonable detail the facts and circumstances for the application of the provisions indicated. 8 (i) "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act and shall also include any syndicate or group deemed to be a "person" under Section 13(d)(3) of the Exchange Act. (j) "Potential Change in Control" means the occurrence of any of the following: (1) the Board approves a transaction described in Subsection (2) of the definition of Change in Control contained in paragraph 10(c) hereof; (2) the commencement of a proxy or other contest or effort to effectuate a Change in Control; or (3) a Control Effort. (k) "RAI" means Resource America, Inc., a Delaware corporation and any direct or indirect subsidiary of RAI by which Schaeffer is employed. References to payments, benefits, privileges or other rights to be provided by RAI or such subsidiary by which Schaeffer is employed, as the case may be, will correspond to the corporate entity obligated to make payments or provide benefits, privileges or other rights pursuant to employee benefit plans affected by the provisions hereof, and in the absence of any such existing plans or provisions, such reference shall be deemed to be to RAI. RAI shall also mean any successor by merger or other business combination to more than one-half of the assets or ownership of RAI. 11. Miscellaneous. (a) Severability. In case any one or more of the provisions contained herein shall, for any reason, be held to be invalid, illegal, or unenforceable in any respect such validity, illegality or unenforceability shall not affect any other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision(s) had never been contained herein, provided that such invalid, illegal or unenforceable provision(s) shall first be curtailed, limited or eliminated only to the extent necessary to remove such invalidity, illegality or unenforceability with respect to the applicable law as it shall then be applied. (b) Modification of Agreement. This Agreement shall not be modified by any oral agreement, either expressed or implied, and all modifications thereof shall be in writing and signed by the parties hereto. (c) Waiver. The waiver of any right under this Agreement by any of the parties hereto shall not be construed as a waiver of the same right at a future time or as a waiver of any other rights under this Agreement. 9 (d) Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Delaware, without giving affect to the principles of conflicts of laws. (e) Notices. Any notice to be given pursuant to this Agreement shall be sufficient if in writing and mailed by certified or registered mail, postage-prepaid, to the addresses listed below, or to such other address as either party may notify the other of in accordance with this section. If to RAI: Resource America, Inc. 1521 Locust Street, Suite 400 Philadelphia, PA 19102 If to Schaeffer: Scott F. Schaeffer 1521 Locust Street, Suite 400 Philadelphia, PA 19102 (f) Duplicate Originals and Counterparts. This Agreement may be executed in any number of duplicate originals or counterparts or facsimile counterparts, each of such duplicate original or counterpart or facsimile counterpart shall be deemed to be an original and all taken together shall constitute but one and the same instrument. [INTENTIONALLY LEFT BLANK] 10 IN WITNESS WHEREOF, the parties hereto have executed or caused to be executed this Agreement on the day first above written. RESOURCE AMERICA, INC. By:____________________________ SCOTT F. SCHAEFFER _______________________________ 11 STATE OF PENNSYLVANIA : : COUNTY OF PHILADELPHIA : On this ___ day of October, 1999, before me, the undersigned, a Notary Public in and for said state personally appeared Edward E. Cohen and Scott F. Schaeffer, on behalf of Resource America, Inc., a Delaware corporation, known to me or proved to me to be the persons who executed the within instrument of behalf of said corporation and acknowledged to me that they executed the same for the purposes therein stated. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal, the day and year last above written. ____________________________________ Notary Public My Commission Expires: EX-10.30 5 EXHIBIT 10.30 EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is executed on this 5th day of October, 1999 by and between RESOURCE AMERICA, INC., a Delaware corporation having its principal place of business at 1521 Locust Street, Philadelphia, Pennsylvania 19102 ("RAI") and DANIEL G. COHEN ("Cohen"). BACKGROUND A. Since 1997, Cohen has been an officer of RAI and currently he serves as the President and Chief Operating Officer of RAI. B. Cohen and RAI desire to formally set forth the terms, conditions and agreements regarding Cohen's employment as President and Chief Operating Officer of RAI. TERMS NOW, THEREFORE, in consideration of the mutual promises set forth herein, and intending to be legally bound hereby, RAI and Cohen agree as follows: 1. Employment. During the term of this Agreement, Cohen shall be employed as the President and Chief Operating Officer of RAI. 2. Duties. Cohen shall report to and accept direction from the Chairman of the Board of Directors of RAI and from the Board. Cohen shall serve RAI diligently and to the best of his abilities, but Cohen shall be required to devote only so much of his time and attention to the business of RAI as may be required to fulfill his duties. It is recognized that Cohen in the past has participated, and it is agreed that Cohen in the future may participate in business endeavors separate and apart from RAI. 3. Term. Cohen's employment hereunder shall continue in full force and effect for a period of three (3) years, unless sooner terminated in accordance with the provisions hereof. Such term shall automatically extend so that on any day that this Agreement is in effect, it shall have a then current term of three (3) years. Such automatic extensions shall cease upon RAI's written notice to Cohen of its election to terminate this Agreement at the end of the three (3) year period then in effect. 4. Compensation. (a) Base Compensation. During the period of employment, RAI shall pay to Cohen "Base Compensation" to be established by the Board, initially in an amount equal to Four Hundred Twenty-Five Thousand Dollars ($425,000.00) per annum base compensation which Cohen, under existing arrangements approved by the Board, is to receive during calendar 1999 (the "Initial Level"). The Base Compensation will be payable in accordance with the general payroll practices by which RAI pays its executive officers, and the historical practice of RAI's compensation of Cohen. It is understood that RAI, through the compensation committee of the Board, will review Cohen's performance on an annual basis and increase or decrease (but in no event below the Initial Level) such Base Compensation, based upon Cohen's performance. (b) Incentive Compensation. During the period of employment Cohen may receive incentive compensation in the form of cash bonus payments, stock option grants and other forms of incentive compensation, based upon Cohen's performance. (c) Reimbursement of Expenses. RAI shall reimburse Cohen for all reasonable expenses incurred by Cohen in the performance of his duties, including (without limitation) expenses incurred during business-related travel. 5. Benefits. Cohen shall be entitled to receive the following benefits from RAI independent of any other benefits which Cohen may receive from RAI or otherwise: (a) Participation in Benefit Plans. Cohen will participate in all employee benefit plans in effect during the term of Cohen's employment hereunder. (b) Temporary Disability. During any period that Cohen fails to perform his duties hereunder as a result of incapacity due to physical or mental illness Cohen shall continue to receive his full compensation at the rate then in effect for such period until his employment is terminated pursuant to paragraph 6(b) hereof. 6. Termination. Cohen's employment hereunder shall terminate as follows: (a) Death. Cohen's employment shall terminate automatically upon the death of Cohen. 2 (b) Disability. RAI may terminate this Agreement if Cohen becomes disabled by reason of any physical or mental disability whatsoever for more than two hundred forty (240) days in the aggregate during any calendar year and the Board determines, that Cohen, by reason of such physical or mental disability, is rendered unable to perform his duties and services hereunder (a "Disability"); (c) Termination by Cohen for Cause. Cohen may terminate his employment for cause upon thirty (30) days' prior written notice to RAI, with opportunity to cure any condition reasonably susceptible of cure. For the purposes of this paragraph 6(c), cause shall be deemed to exist if any of the following shall occur: (i) without the written consent of Cohen, a substantial change in the services or duties required of Cohen hereunder or the imposition of any services or duties substantially inconsistent with, or in diminution of Cohen's current position, services or duties, or status with RAI; (ii) failure to continue Cohen's coverage under any RAI benefit plan as required under paragraph 5(a) except pursuant to a change to a benefit plan that applies to senior executives of RAI generally or is required by law or regulation; or (iii) any material breach by RAI of any provision of this Agreement; (d) Termination by Cohen Without Cause. Cohen may terminate this Agreement without cause upon one hundred eighty (180) days prior written notice to RAI. (e) Change of Control. Cohen may, in his discretion, terminate his employment upon a Change in Control or Potential Change in Control by sending a Notice of Termination. (f) Termination by RAI. In accordance with paragraph 3 hereof, RAI may terminate this Agreement at the end of the then current three (3) year term. 7. Effect of Termination. (a) Death. Upon the termination of Cohen's employment pursuant to paragraph 6(a) hereof due to Cohen's death, a death benefit shall be paid to Cohen's estate equal to the total amount payable to Cohen under this Agreement until expiration of the term then in effect, assuming that Cohen's total compensation for each year would be equal to the Average Compensation. The death benefit shall be paid in thirty-six (36) equal, consecutive monthly installments, beginning the first month following the month in which Cohen shall have died. (b) Disability. Upon the termination of Cohen's employment pursuant to paragraph 6(b) hereof due to Cohen's disability, Cohen shall be entitled to receive a monthly disability benefit equal to one twelfth (1/12) of the product of (i) the Average Compensation, multiplied by (ii) seventy-five percent (75%). The disability benefit described above shall be paid to Cohen, beginning the first month following the termination pursuant to paragraph 6(b). Cohen's 3 disability benefit shall cease if he resumes his employment with RAI on the terms provided in this Agreement. Disability payments made under this paragraph shall not be reduced by any payments made directly to Cohen by an insurance company. (c) For Cause; Change of Control. Upon the termination of this Agreement either (i) by Cohen for cause pursuant to paragraph 6(c) hereof, (ii) by Cohen pursuant to paragraph 6(e) after a Change in Control or Potential Change of Control or (iii) by RAI pursuant to section 6(f) hereof, then RAI shall provide to Cohen the benefits described in Section 7(c)(1) and 7(c)(2) below (the "Severance Benefits"). (1) Lump-Sum Severance Payment. In lieu of any further compensation payments to Cohen for periods subsequent to the Date of Termination, RAI shall pay to Cohen a lump sum severance payment, in cash, without discount, equal to the sum of the total amount payable to Cohen under this Agreement until expiration of the term then in effect, assuming that Cohen's total compensation for each year would be equal to the Average Compensation. (2) Continued Benefits. For a thirty-six (36) month period after the Date of Termination (the "Benefits Period"), RAI shall provide Cohen with group term life insurance, health insurance, accident and long-term disability insurance benefits (collectively, "Welfare Benefits") substantially similar in all respects to those that Cohen was receiving immediately prior to the Date of Termination (without giving effect to any reduction in such benefits subsequent to a Change in Control). During the Benefits Period, Cohen shall be entitled to elect to change his level of coverage and/or his choice of coverage options with respect to the Welfare Benefits to be provided by RAI to Cohen to the same extent that actively employed senior executives of RAI are permitted to make such changes. (3) Vesting of Options. Upon any termination of this Agreement, the vesting of all options to purchase securities of RAI granted to Cohen during his employment with RAI shall be accelerated to the later of the effective date of termination of this Agreement, or six months after the date such option was granted, and any provision contained in the agreements under which such options were granted that is inconsistent with such acceleration is hereby modified to the extent necessary to provide for such acceleration; such acceleration shall not apply to any option that by its terms would vest prior to the date provided for in this paragraph 7(d). 4 8. Gross-Up Payment. (a) In the event that (i) Cohen becomes entitled to any benefits or payments in connection with the termination of Cohen's employment, whether pursuant to the terms of this Agreement or otherwise, including without limitation the Severance Benefits (collectively, the "Total Benefits"), and (ii) any of the Total Benefits will be subject to the Excise Tax, RAI shall pay to Cohen an additional amount (the "Gross-Up Payment") such that the net amount retained by Cohen, after deduction of any Excise Tax on the Total Benefits and any federal, state and local income taxes, Excise Tax, and FICA and Medicare withholding taxes upon the payment provided for by this paragraph 8(a), shall be equal to the Total Benefits. For purposes of determining whether any of the Total Benefits will be subject to the Excise Tax and the amount of such Excise Tax, the amount of the Total Benefits that shall be treated as subject to the Excise Tax shall be equal to the amount of the Total Benefits reduced by the amount of such Total Benefits that, in the opinion of tax counsel selected by Cohen, at RAI's expense and reasonably acceptable to RAI ("Tax Counsel"), are not excess parachute payments (within the meaning of Section 28OG(b)(1) of the Code). (b) For purposes of this Section 8, Cohen shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Excise Tax is (or would be) payable and state and local income taxes at the highest marginal rate of taxation in the state and locality of Cohen's residence on the Date of Termination, net of the reduction in federal income taxes which could be obtained from deduction of such state and local taxes (calculated by assuming that any reduction under Section 68 of the Code in the amount of itemized deductions allowable to Cohen applies first to reduce the amount of such state and local income taxes that would otherwise be deductible by Cohen). Except as otherwise provided herein, all determinations required to be made under this Section 8 shall be made by Tax Counsel. (c) In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of Cohen's employment, Cohen shall repay to RAI, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax, federal, state and local income taxes and FICA and Medicare withholding taxes imposed on the Gross-Up Payment being repaid by Cohen to the extent that such repayment results in a reduction in Excise Tax, FICA and Medicare withholding taxes and/or a federal, state or local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of Cohen's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up 5 Payment), RAI shall make an additional Gross-Up Payment to Cohen in respect of such excess (plus any interest, penalties or additions payable by Cohen with respect to such excess) at the time that the amount of such excess is finally determined. 9. Indemnification. (a) If Cohen is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (herein a "proceeding"), by reason of the fact that he is or was an employee (which term includes officer, director, agent and any other capacity) of RAI or is or was serving at the request of RAI as an employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as an employee or agent or in any other capacity while serving as an employee or agent, Cohen shall be indemnified and held harmless by RAI to the fullest extent authorized by applicable law, against all expense, liability and loss (including, but not limited to, attorneys' fees, judgments, fines, ERISA excise taxes and penalties and amounts paid or to be paid in settlement) incurred or suffered by Cohen in connection therewith and such indemnification shall continue as to Cohen after he has ceased to be a director, officer, employee or agent and shall inure to the benefit of Cohen's heir, executors, and administrators; provided, however, that RAI shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by Cohen (other than a proceeding to enforce this paragraph 9) only if such proceeding (or part thereof) was authorized directly or indirectly by the Board of RAI. The right to indemnification conferred in this paragraph shall be a contract right and shall include the right to be, promptly upon request, paid by RAI the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that if the Business Corporation Law of the Commonwealth of Pennsylvania requires the payment of such expenses incurred by an employee in his capacity as an employee (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, payment shall be made only upon delivery to RAI of an undertaking, by or on behalf of Cohen, to repay all amounts so advanced if it shall ultimately be determined that such employee is not entitled to be indemnified under this paragraph or otherwise. (b) The indemnification provided by this paragraph shall not be limited or exclude any rights, indemnities or limitations of liability to which Cohen may be entitled, whether as a matter of law, under the Certificate of Incorporation, By-laws of RAI, by agreement, vote of the stockholders or disinterested directors of RAI or otherwise. 6 (c) Cohen, in seeking indemnification under this Agreement (an "Indemnitee"), shall give the other party or parties (the "Indemnitor") prompt written notice of any claim, suit or demand that the Indemnitee believes will give rise to indemnification under this Agreement; provided, however, that the failure to give such notice shall not affect the liability of the Indemnitor under this Agreement unless the failure to give such notice materially and adversely affects the ability of the Indemnitor to defend itself against or to cure or mitigate the damages. Except as hereinafter provided, the Indemnitor shall have the right (without prejudice to the right of the Indemnitee to participate at its expense through counsel of its own choosing) to defend and to direct the defense against any such claim, suit or demand, at the Indemnitor's expense and with counsel chosen jointly by Indemnitor and Indemnitee, and the right to settle or compromise any such claim, suit or demand; provided, however, that the Indemnitor shall not, without the Indemnitee's written consent, which shall not be unreasonably withheld, settle or compromise any claim or consent to any entry of judgment. The Indemnitee shall, at the Indemnitor's expense, cooperate in the defense of any such claim, suit or demand. If the Indemnitor, within a reasonable time after notice of a claim fails to defend the Indemnitee, the Indemnitee shall be entitled to undertake the defense, compromise or settlement of such claim at the expense of and for the account and risk of the Indemnitor. (d) Cohen will be covered during the entire term of this Agreement by Officer and Director liability insurance in amounts and on terms similar to that afforded to other executives and/or directors of RAI or its affiliates, which such insurance shall be paid by RAI. 10. Payments. RAI will make payments to Cohen described in this Agreement within ten (10) business days after receiving written notice from Cohen describing such payment, referring to the provision of this Agreement under which such payment is claimed and certifying that all conditions for such payment, as set forth in this Agreement, have been satisfied. The information so furnished to RAI by Cohen shall be presumed to be correct, subject to rebuttal by RAI after making payment. Failure by RAI to timely make payments in accordance herewith shall entitle Cohen to liquidated damages in an amount equal to two times the amount of such payment. The entire amount due (i.e., the payment plus the liquidated damages of two times such payment) shall accrue interest at the rate of 15% per annum until paid. RAI shall also pay, on demand Cohen's legal fees and expenses incurred in connection with enforcement of this Agreement 11. Definitions. Any terms not otherwise defined herein shall have the following meaning: (a) "Average Compensation" means the average of the three highest amounts of annual total compensation received by Cohen during any of the then current calendar year (on an annualized basis) and the then preceding eight (8) calendar years. 7 (b) "Board" means the Board of Directors of RAI. (c) A "Change in Control" means the occurrence of any of the following events: (1) RAI's shareholders approve (or, in the event no approval of RAI's shareholders is required, RAI consummates) a merger, consolidation, share exchange, division or other reorganization or transaction of RAI (a "Fundamental Transaction") with any other corporation, other than a Fundamental Transaction which would result in the voting securities of RAI outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least sixty percent (60%) of the combined voting power immediately after such Fundamental Transaction of (i) RAI's outstanding securities, (ii) the surviving entity's outstanding securities, or (iii) in the case of a division, the outstanding securities of each entity resulting from the division; (2) the shareholders of RAI approve a plan of complete, liquidation or winding-up of RAI or an agreement for the sale or disposition (in one transaction or a series of transactions) of all or substantially all of RAI's assets; or (3) during any period of twenty-four consecutive months, individuals who at the beginning of such period constituted the Board (including for this purpose any new director whose election or nomination for election by RAI's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board. (d) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (e) "Control Effort" means any acting together or undertaking efforts to act together by any Person or Persons, excluding employee benefit plans of RAI, who are, or seek in any direct or indirect manner to become, the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act or any successor provisions thereto), directly or indirectly, of securities of RAI representing twenty-five percent (25%) or more of the combined voting power of RAI's then outstanding securities. (f) "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time. 8 (g) "Excise Tax" means any excise tax imposed under Section 4999 of the Code or a similar provision that may later be enacted. (h) "Notice of Termination" After a Potential Change in Control or a Change in Control, Cohen may terminate this Agreement by sending a written notice to RAI that shall (i) specify the date of termination (the "Date of Termination") which shall not be more than sixty (60) days from the date such Notice of Termination is given, (ii) indicate the specific provisions of this Agreement that will apply upon such termination and (iii) set forth in reasonable detail the facts and circumstances for the application of the provisions indicated. (i) "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act and shall also include any syndicate or group deemed to be a "person" under Section 13(d)(3) of the Exchange Act. (j) "Potential Change in Control" means the occurrence of any of the following: (1) the Board approves a transaction described in Subsection (2) of the definition of Change in Control contained in paragraph 10(c) hereof; (2) the commencement of a proxy or other contest or effort to effectuate a Change in Control; or (3) a Control Effort. (k) "RAI" means Resource America, Inc., a Delaware corporation and any direct or indirect subsidiary of RAI by which Cohen is employed. References to payments, benefits, privileges or other rights to be provided by RAI or such subsidiary by which Cohen is employed, as the case may be, will correspond to the corporate entity obligated to make payments or provide benefits, privileges or other rights pursuant to employee benefit plans affected by the provisions hereof, and in the absence of any such existing plans or provisions, such reference shall be deemed to be to RAI. RAI shall also mean any successor by merger or other business combination to more than one-half of the assets or ownership of RAI. 12. Miscellaneous. (a) Severability. In case any one or more of the provisions contained herein shall, for any reason, be held to be invalid, illegal, or unenforceable in any respect such validity, illegality or unenforceability shall not affect any other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision(s) had never been contained herein, provided that such invalid, illegal or unenforceable 9 provision(s) shall first be curtailed, limited or eliminated only to the extent necessary to remove such invalidity, illegality or unenforceability with respect to the applicable law as it shall then be applied. (b) Modification of Agreement. This Agreement shall not be modified by any oral agreement, either expressed or implied, and all modifications thereof shall be in writing and signed by the parties hereto. (c) Waiver. The waiver of any right under this Agreement by any of the parties hereto shall not be construed as a waiver of the same right at a future time or as a waiver of any other rights under this Agreement. (d) Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Delaware, without giving affect to the principles of conflicts of laws. (e) Notices. Any notice to be given pursuant to this Agreement shall be sufficient if in writing and mailed by certified or registered mail, postage-prepaid, to the addresses listed below, or to such other address as either party may notify the other of in accordance with this section. If to RAI: Resource America, Inc. 1521 Locust Street Suite 400 Philadelphia, PA 19102 If to Cohen: Daniel G. Cohen 1521 Locust Street; Ste. 400 Philadelphia, PA 19102 (f) Duplicate Originals and Counterparts. This Agreement may be executed in any number of duplicate originals or counterparts or facsimile counterparts, each of such duplicate original or counterpart or facsimile counterpart shall be deemed to be an original and all taken together shall constitute but one and the same instrument. [INTENTIONALLY LEFT BLANK] 10 IN WITNESS WHEREOF, the parties hereto have executed or caused to be executed this Agreement on the date first above written. RESOURCE AMERICA, INC. By:____________________________ DANIEL G. COHEN _______________________________ STATE OF PENNSYLVANIA : : COUNTY OF PHILADELPHIA : On this ___ day of October, 1999, before me, the undersigned, a Notary Public in and for said state personally appeared Edward E. Cohen and Daniel G. Cohen, on behalf of Resource America, Inc., a Delaware corporation, known to me or proved to me to be the persons who executed the within instrument of behalf of said corporation and acknowledged to me that they executed the same for the purposes therein stated. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal, the day and year last above written. ____________________________________ Notary Public My Commission Expires: EX-10.31 6 EXHIBIT 10.31 EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is executed on this ____ day of October, 1999 by and between RESOURCE AMERICA, INC., a Delaware corporation having its principal place of business at 1521 Locust Street, Philadelphia, Pennsylvania 19102 ("RAI") and STEVEN J. KESSLER ("Kessler"). BACKGROUND A. Since 1997, Kessler has been an officer of RAI and currently he serves as the Senior Vice President and Chief Financial Officer of RAI. B. Kessler and RAI desire to formally set forth the terms, conditions and agreements regarding Kessler's employment as Senior Vice President and Chief Financial Officer of RAI. TERMS NOW, THEREFORE, in consideration of the mutual promises set forth herein, and intending to be legally bound hereby, RAI and Kessler agree as follows: 1. Employment. During the term of this Agreement, Kessler shall be employed as the Senior Vice President and Chief Financial Officer of RAI. 2. Duties. Kessler shall report to and accept direction from the Chairman of the Board of Directors of RAI and from the Board. Kessler shall serve RAI diligently and to the best of his abilities. 3. Term. Kessler's employment hereunder shall continue in full force and effect for a period of three (3) years, unless sooner terminated in accordance with the provisions hereof. Such term shall automatically extend so that on any day that this Agreement is in effect, it shall have a then current term of three (3) years. Such automatic extensions shall cease upon RAI's written notice to Kessler of its election to terminate this Agreement at the end of the three (3) year period then in effect. 4. Compensation. (a) Base Compensation. During the period of employment, RAI shall pay to Kessler "Base Compensation" to be established by the Board, initially in an amount equal to Three Hundred Thousand Dollars ($300,000.00) per annum base compensation which Kessler, under existing arrangements approved by the Board, is to receive during calendar 1999 (the "Initial Level"). The Base Compensation will be payable in accordance with the general payroll practices by which RAI pays its executive officers, and the historical practice of RAI's compensation of Kessler. It is understood that RAI, through the compensation committee of the Board, will review Kessler's performance on an annual basis and increase or decrease (but in no event below the Initial Level) such Base Compensation, based upon Kessler's performance. (b) Incentive Compensation. During the period of employment Kessler may receive incentive compensation in the form of cash bonus payments, stock option grants and other forms of incentive compensation, based upon Kessler's performance. (c) Reimbursement of Expenses. RAI shall reimburse Kessler for all reasonable expenses incurred by Kessler in the performance of his duties, including (without limitation) expenses incurred during business-related travel. 5. Benefits. Kessler shall be entitled to receive the following benefits from RAI independent of any other benefits which Kessler may receive from RAI or otherwise: (a) Participation in Benefit Plans. Kessler will participate in all employee benefit plans in effect during the term of Kessler's employment hereunder. (b) Temporary Disability. During any period that Kessler fails to perform his duties hereunder as a result of incapacity due to physical or mental illness Kessler shall continue to receive his full compensation at the rate then in effect for such period until his employment is terminated pursuant to paragraph 6(b) hereof. 6. Termination. Kessler's employment hereunder shall terminate as follows: (a) Death. Kessler's employment shall terminate automatically upon the death of Kessler. (b) Disability. RAI may terminate this Agreement if Kessler becomes disabled by reason of any physical or mental disability whatsoever for more than two hundred forty (240) days in the aggregate during any calendar year and the Board determines, that Kessler, by reason of such physical or mental disability, is rendered unable to perform his duties and services hereunder (a "Disability"); (c) Termination by Kessler for Cause. Kessler may terminate his employment for cause upon thirty (30) days' prior written notice to RAI, with opportunity to cure any condition reasonably susceptible of cure. For the purposes of this paragraph 6(c), cause shall be deemed to exist if any of the following shall occur: (i) without the written consent of Kessler, a substantial change in the services or duties required of Kessler hereunder or the imposition 2 of any services or duties substantially inconsistent with, or in diminution of Kessler's current position, services or duties, or status with RAI; (ii) failure to continue Kessler's coverage under any RAI benefit plan as required under paragraph 5(a) except pursuant to a change to a benefit plan that applies to senior executives of RAI generally or is required by law or regulation; or (iii) any material breach by RAI of any provision of this Agreement; (d) Termination by Kessler Without Cause. Kessler may terminate this Agreement without cause upon one hundred eighty (180) days prior written notice to RAI. (e) Change of Control. Kessler may, in his discretion, terminate his employment upon a Change in Control by sending a Notice of Termination. (f) Termination by RAI. In accordance with paragraph 3 hereof, RAI may terminate this Agreement at the end of the then current three (3) year term. 7. Effect of Termination. (a) Death. Upon the termination of Kessler's employment pursuant to paragraph 6(a) hereof due to Kessler's death, a death benefit shall be paid to Kessler's estate equal to the total amount payable to Kessler under this Agreement until expiration of the term then in effect, assuming that Kessler's total compensation for each year would be equal to the Average Compensation. The death benefit shall be paid in thirty-six (36) equal, consecutive monthly installments, beginning the first month following the month in which Kessler shall have died. (b) Disability. Upon the termination of Kessler's employment pursuant to paragraph 6(b) hereof due to Kessler's disability, Kessler shall be entitled to receive a monthly disability benefit equal to one twelfth (1/12) of the product of (i) the Average Compensation, multiplied by (ii) seventy-five percent (75%). The disability benefit described above shall be paid to Kessler, beginning the first month following the termination pursuant to paragraph 6(b). Kessler's disability benefit shall cease if he resumes his employment with RAI on the terms provided in this Agreement. Disability payments made under this paragraph shall not be reduced by any payments made directly to Kessler by an insurance company. (c) For Cause; Change of Control. Upon the termination of this Agreement either (i) by Kessler for cause pursuant to paragraph 6(c) hereof, (ii) by Kessler pursuant to paragraph 6(e) after a Change in Control or (iii) by RAI pursuant to section 6(f) hereof, then RAI shall provide to Kessler the benefits described in Section 7(c)(1) and 7(c)(2) below (the "Severance Benefits"). 3 (1) Lump-Sum Severance Payment. In lieu of any further compensation payments to Kessler for periods subsequent to the Date of Termination, RAI shall pay to Kessler a lump sum severance payment, in cash, without discount, equal to the sum of the total amount payable to Kessler under this Agreement until expiration of the term then in effect, assuming that Kessler's total compensation for each year would be equal to the Average Compensation. (2) Continued Benefits. For a thirty-six (36) month period after the Date of Termination (the "Benefits Period"), RAI shall provide Kessler with group term life insurance, health insurance, accident and long-term disability insurance benefits (collectively, "Welfare Benefits") substantially similar in all respects to those that Kessler was receiving immediately prior to the Date of Termination (without giving effect to any reduction in such benefits subsequent to a Change in Control). During the Benefits Period, Kessler shall be entitled to elect to change his level of coverage and/or his choice of coverage options with respect to the Welfare Benefits to be provided by RAI to Kessler to the same extent that actively employed senior executives of RAI are permitted to make such changes. (3) Vesting of Options. Upon any termination of this Agreement, the vesting of all options to purchase securities of RAI granted to Kessler during his employment with RAI shall be accelerated to the later of the effective date of termination of this Agreement, or six months after the date such option was granted, and any provision contained in the agreements under which such options were granted that is inconsistent with such acceleration is hereby modified to the extent necessary to provide for such acceleration; such acceleration shall not apply to any option that by its terms would vest prior to the date provided for in this paragraph 7(d). 4 8. Gross-Up Payment. (a) In the event that (i) Kessler becomes entitled to any benefits or payments in connection with the termination of Kessler's employment, whether pursuant to the terms of this Agreement or otherwise, including without limitation the Severance Benefits (collectively, the "Total Benefits"), and (ii) any of the Total Benefits will be subject to the Excise Tax, RAI shall pay to Kessler an additional amount (the "Gross-Up Payment") such that the net amount retained by Kessler, after deduction of any Excise Tax on the Total Benefits and any federal, state and local income taxes, Excise Tax, and FICA and Medicare withholding taxes upon the payment provided for by this paragraph 8(a), shall be equal to the Total Benefits. For purposes of determining whether any of the Total Benefits will be subject to the Excise Tax and the amount of such Excise Tax, the amount of the Total Benefits that shall be treated as subject to the Excise Tax shall be equal to the amount of the Total Benefits reduced by the amount of such Total Benefits that, in the opinion of tax counsel selected by Kessler, at RAI's expense and reasonably acceptable to RAI ("Tax Counsel"), are not excess parachute payments (within the meaning of Section 28OG(b)(1) of the Code). (b) For purposes of this Section 8, Kessler shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Excise Tax is (or would be) payable and state and local income taxes at the highest marginal rate of taxation in the state and locality of Kessler's residence on the Date of Termination, net of the reduction in federal income taxes which could be obtained from deduction of such state and local taxes (calculated by assuming that any reduction under Section 68 of the Code in the amount of itemized deductions allowable to Kessler applies first to reduce the amount of such state and local income taxes that would otherwise be deductible by Kessler). Except as otherwise provided herein, all determinations required to be made under this Section 8 shall be made by Tax Counsel. (c) In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of Kessler's employment, Kessler shall repay to RAI, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax, federal, state and local income taxes and FICA and Medicare withholding taxes imposed on the Gross-Up Payment being repaid by Kessler to the extent that such repayment results in a reduction in Excise Tax, FICA and Medicare withholding taxes and/or a federal, state or local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of Kessler's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the 5 Gross-Up Payment), RAI shall make an additional Gross-Up Payment to Kessler in respect of such excess (plus any interest, penalties or additions payable by Kessler with respect to such excess) at the time that the amount of such excess is finally determined. 9. Indemnification. (a) If Kessler is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (herein a "proceeding"), by reason of the fact that he is or was an employee (which term includes officer, director, agent and any other capacity) of RAI or is or was serving at the request of RAI as an employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as an employee or agent or in any other capacity while serving as an employee or agent, Kessler shall be indemnified and held harmless by RAI to the fullest extent authorized by applicable law, against all expense, liability and loss (including, but not limited to, attorneys' fees, judgments, fines, ERISA excise taxes and penalties and amounts paid or to be paid in settlement) incurred or suffered by Kessler in connection therewith and such indemnification shall continue as to Kessler after he has ceased to be a director, officer, employee or agent and shall inure to the benefit of Kessler's heir, executors, and administrators; provided, however, that RAI shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by Kessler (other than a proceeding to enforce this paragraph 9) only if such proceeding (or part thereof) was authorized directly or indirectly by the Board of RAI. The right to indemnification conferred in this paragraph shall be a contract right and shall include the right to be, promptly upon request, paid by RAI the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that if the Business Corporation Law of the Commonwealth of Pennsylvania requires the payment of such expenses incurred by an employee in his capacity as an employee (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, payment shall be made only upon delivery to RAI of an undertaking, by or on behalf of Kessler, to repay all amounts so advanced if it shall ultimately be determined that such employee is not entitled to be indemnified under this paragraph or otherwise. (b) The indemnification provided by this paragraph shall not be limited or exclude any rights, indemnities or limitations of liability to which Kessler may be entitled, whether as a matter of law, under the Certificate of Incorporation, By-laws of RAI, by agreement, vote of the stockholders or disinterested directors of RAI or otherwise. 6 (c) Kessler, in seeking indemnification under this Agreement (an "Indemnitee"), shall give the other party or parties (the "Indemnitor") prompt written notice of any claim, suit or demand that the Indemnitee believes will give rise to indemnification under this Agreement; provided, however, that the failure to give such notice shall not affect the liability of the Indemnitor under this Agreement unless the failure to give such notice materially and adversely affects the ability of the Indemnitor to defend itself against or to cure or mitigate the damages. Except as hereinafter provided, the Indemnitor shall have the right (without prejudice to the right of the Indemnitee to participate at its expense through counsel of its own choosing) to defend and to direct the defense against any such claim, suit or demand, at the Indemnitor's expense and with counsel chosen jointly by Indemnitor and Indemnitee, and the right to settle or compromise any such claim, suit or demand; provided, however, that the Indemnitor shall not, without the Indemnitee's written consent, which shall not be unreasonably withheld, settle or compromise any claim or consent to any entry of judgment. The Indemnitee shall, at the Indemnitor's expense, cooperate in the defense of any such claim, suit or demand. If the Indemnitor, within a reasonable time after notice of a claim fails to defend the Indemnitee, the Indemnitee shall be entitled to undertake the defense, compromise or settlement of such claim at the expense of and for the account and risk of the Indemnitor. (d) Kessler will be covered during the entire term of this Agreement by Officer and Director liability insurance in amounts and on terms similar to that afforded to other executives and/or directors of RAI or its affiliates, which such insurance shall be paid by RAI. 10. Definitions. Any terms not otherwise defined herein shall have the following meaning: (a) "Average Compensation" means the average of the three highest amounts of annual total compensation received by Kessler during any of the then current calendar year (on an annualized basis) and the then preceding eight (8) calendar years. (b) "Board" means the Board of Directors of RAI. (c) A "Change in Control" means the occurrence of any of the following events: (1) RAI's shareholders approve (or, in the event no approval of RAI's shareholders is required, RAI consummates) a merger, consolidation, share exchange, division or other reorganization or transaction of RAI (a "Fundamental Transaction") with any other corporation, other than a Fundamental Transaction which would result in the voting securities of RAI outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being 7 converted into voting securities of the surviving entity) at least sixty percent (60%) of the combined voting power immediately after such Fundamental Transaction of (i) RAI's outstanding securities, (ii) the surviving entity's outstanding securities, or (iii) in the case of a division, the outstanding securities of each entity resulting from the division; (2) the shareholders of RAI approve a plan of complete, liquidation or winding-up of RAI or an agreement for the sale or disposition (in one transaction or a series of transactions) of all or substantially all of RAI's assets; (3) during any period of twenty-four consecutive months, individuals who at the beginning of such period constituted the Board (including for this purpose any new director whose election or nomination for election by RAI's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board; or (4) the commencement of a proxy or other contest or effort to effectuate the events set forth in the foregoing subparagraphs (c)(1), (2) or (3) above. (d) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (e) "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time. (f) "Excise Tax" means any excise tax imposed under Section 4999 of the Code or a similar provision that may later be enacted. (g) "Notice of Termination" After a Change in Control, Kessler may terminate this Agreement by sending a written notice to RAI that shall (i) specify the date of termination (the "Date of Termination") which shall not be more than sixty (60) days from the date such Notice of Termination is given, (ii) indicate the specific provisions of this Agreement that will apply upon such termination and (iii) set forth in reasonable detail the facts and circumstances for the application of the provisions indicated. (h) "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act and shall also include any syndicate or group deemed to be a "person" under Section 13(d)(3) of the Exchange Act. (i) "RAI" means Resource America, Inc., a Delaware corporation and any direct or indirect subsidiary of RAI by which Kessler is employed. 8 References to payments, benefits, privileges or other rights to be provided by RAI or such subsidiary by which Kessler is employed, as the case may be, will correspond to the corporate entity obligated to make payments or provide benefits, privileges or other rights pursuant to employee benefit plans affected by the provisions hereof, and in the absence of any such existing plans or provisions, such reference shall be deemed to be to RAI. RAI shall also mean any successor by merger or other business combination to more than one-half of the assets or ownership of RAI. 11. Miscellaneous. (a) Severability. In case any one or more of the provisions contained herein shall, for any reason, be held to be invalid, illegal, or unenforceable in any respect such validity, illegality or unenforceability shall not affect any other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision(s) had never been contained herein, provided that such invalid, illegal or unenforceable provision(s) shall first be curtailed, limited or eliminated only to the extent necessary to remove such invalidity, illegality or unenforceability with respect to the applicable law as it shall then be applied. (b) Modification of Agreement. This Agreement shall not be modified by any oral agreement, either expressed or implied, and all modifications thereof shall be in writing and signed by the parties hereto. (c) Waiver. The waiver of any right under this Agreement by any of the parties hereto shall not be construed as a waiver of the same right at a future time or as a waiver of any other rights under this Agreement. (d) Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Delaware, without giving affect to the principles of conflicts of laws. (e) Notices. Any notice to be given pursuant to this Agreement shall be sufficient if in writing and mailed by certified or registered mail, postage-prepaid, to the addresses listed below, or to such other address as either party may notify the other of in accordance with this section. If to RAI: Resource America, Inc. 1521 Locust Street Suite 400 Philadelphia, PA 19102 10 If to Kessler: Steven J. Kessler 1521 Locust Street; Ste. 400 Philadelphia, PA 19102 (f) Duplicate Originals and Counterparts. This Agreement may be executed in any number of duplicate originals or counterparts or facsimile counterparts, each of such duplicate original or counterpart or facsimile counterpart shall be deemed to be an original and all taken together shall constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have executed or caused to be executed this Agreement on October ___, 1999. RESOURCE AMERICA, INC. By:____________________________ STEVEN J. KESSLER _______________________________ 11 EX-10.32 7 EXHIBIT 10.32 EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is executed on this ____ day of October, 1999 by and between RESOURCE AMERICA, INC., a Delaware corporation having its principal place of business at 1521 Locust Street, Philadelphia, Pennsylvania 19102 ("RAI") and N ANCY J. MCGURK ("McGurk"). BACKGROUND A. Since 1989, McGurk has been an officer of RAI and currently she serves as Vice President, Chief Accounting Officer and Treasurer of RAI. B. McGurk and RAI desire to formally set forth the terms, conditions and agreements regarding McGurk's employment Vice President, Chief Accounting Officer and Treasurer of RAI. TERMS NOW, THEREFORE, in consideration of the mutual promises set forth herein, and intending to be legally bound thereby, RAI and McGurk agree as follows: 1. Employment. During the term of this Agreement, McGurk shall be employed as the Vice President, Chief Accounting Officer and Treasurer of RAI. 2. Duties. McGurk shall report to and accept direction from the Chairman of the Board of Directors of RAI and from the Board. McGurk shall serve RAI diligently and to the best of her abilities. 3. Term. McGurk's employment thereunder shall continue in full force and effect for a period of three (3) years, unless sooner terminated in accordance with the provisions hereof. Such term shall automatically extend so that on any day that this Agreement is in effect, it shall have a then current term of three (3) years. Such automatic extensions shall cease upon RAI's written notice to McGurk of its election to terminate this Agreement at the end of the three (3) year period then in effect. 4. Compensation. (a) Base Compensation. During the period of employment, RAI shall pay to McGurk "Base Compensation" to be established by the Board, initially in an amount equal to One Hundred Fifty Thousand Dollars ($150,000.00) per annum base compensation which McGurk, under existing arrangements approved by the Board, is to receive during calendar 1999 (the "Initial Level"). The Base Compensation will be payable in accordance with the general payroll practices by which RAI pays its executive officers, and the historical practice of RAI's compensation of McGurk. It is understood that RAI, through the compensation committee of the Board, will review McGurk's performance on an annual basis and increase or decrease (but in no event below the Initial Level) such Base Compensation, based upon McGurk's performance. (b) Incentive Compensation. During the period of employment McGurk may receive incentive compensation in the form of cash bonus payments, stock option grants and other forms of incentive compensation, based upon McGurk's performance. (c) Reimbursement of Expenses. RAI shall reimburse McGurk for all reasonable expenses incurred by McGurk in the performance of her duties, including (without limitation) expenses incurred during business-related travel. 5. Benefits. McGurk shall be entitled to receive the following benefits from RAI independent of any other benefits which McGurk may receive from RAI or otherwise: (a) Participation in Benefit Plans. McGurk will participate in all employee benefit plans in effect during the term of McGurk's employment thereunder. (b) Temporary Disability. During any period that McGurk fails to perform her duties thereunder as a result of incapacity due to physical or mental illness McGurk shall continue to receive her full compensation at the rate then in effect for such period until her employment is terminated pursuant to paragraph 6(b) hereof. 6. Termination. McGurk's employment thereunder shall terminate as follows: (a) Death. McGurk's employment shall terminate automatically upon the death of McGurk. (b) Disability. RAI may terminate this Agreement if McGurk becomes disabled by reason of any physical or mental disability whatsoever for more than two hundred forty (240) days in the aggregate during any calendar year and the Board determines, that McGurk, by reason of such physical or mental disability, is rendered unable to perform her duties and services thereunder (a "Disability"); (c) Termination by McGurk for Cause. McGurk may terminate her employment for cause upon thirty (30) days' prior written notice to RAI, with opportunity to cure any condition reasonably susceptible of cure. For the 2 purposes of this paragraph 6(c), cause shall be deemed to exist if any of the following shall occur: (i) without the written consent of McGurk, a substantial change in the services or duties required of McGurk thereunder or the imposition of any services or duties substantially inconsistent with, or in diminution of McGurk's current position, services or duties, or status with RAI; (ii) failure to continue McGurk's coverage under any RAI benefit plan as required under paragraph 5(a) except pursuant to a change to a benefit plan that applies to senior executives of RAI generally or is required by law or regulation; or (iii) any material breach by RAI of any provision of this Agreement; (d) Termination by McGurk Without Cause. McGurk may terminate this Agreement without cause upon one hundred eighty (180) days prior written notice to RAI. (e) Change of Control. McGurk may, in her discretion, terminate her employment upon a Change in Control by sending a Notice of Termination. (f) Termination by RAI. In accordance with paragraph 3 hereof, RAI may terminate this Agreement at the end of the then current three (3) year term. 7. Effect of Termination. (a) Death. Upon the termination of McGurk's employment pursuant to paragraph 6(a) hereof due to McGurk's death, a death benefit shall be paid to McGurk's estate equal to the total amount payable to McGurk under this Agreement until expiration of the term then in effect, assuming that McGurk's total compensation for each year would be equal to the Average Compensation. The death benefit shall be paid in thirty-six (36) equal, consecutive monthly installments, beginning the first month following the month in which McGurk shall have died. (b) Disability. Upon the termination of McGurk's employment pursuant to paragraph 6(b) hereof due to McGurk's disability, McGurk shall be entitled to receive a monthly disability benefit equal to one twelfth (1/12) of the product of (i) the Average Compensation, multiplied by (ii) seventy-five percent (75%). The disability benefit described above shall be paid to McGurk, beginning the first month following the termination pursuant to paragraph 6(b). McGurk's disability benefit shall cease if she resumes her employment with RAI on the terms provided in this Agreement. Disability payments made under this paragraph shall not be reduced by any payments made directly to McGurk by an insurance company. (c) For Cause; Change of Control. Upon the termination of this Agreement either (i) by McGurk for cause pursuant to paragraph 6(c) hereof, (ii) by McGurk pursuant to paragraph 6(e) after a Change in Control or (iii) by RAI pursuant to section 6(f) hereof, then RAI shall provide to McGurk the benefits described in Section 7(c)(1) and 7(c)(2) below (the "Severance Benefits"). 3 (1) Lump-Sum Severance Payment. In lieu of any further compensation payments to McGurk for periods subsequent to the Date of Termination, RAI shall pay to McGurk a lump sum severance payment, in cash, without discount, equal to the sum of the total amount payable to McGurk under this Agreement until expiration of the term then in effect, assuming that McGurk's total compensation for each year would be equal to the Average Compensation. (2) Continued Benefits. For a thirty-six (36) month period after the Date of Termination (the "Benefits Period"), RAI shall provide McGurk with group term life insurance, health insurance, accident and long-term disability insurance benefits (collectively, "Welfare Benefits") substantially similar in all respects to those that McGurk was receiving immediately prior to the Date of Termination (without giving effect to any reduction in such benefits subsequent to a Change in Control). During the Benefits Period, McGurk shall be entitled to elect to change her level of coverage and/or her choice of coverage options with respect to the Welfare Benefits to be provided by RAI to McGurk to the same extent that actively employed senior executives of RAI are permitted to make such changes. (3) Vesting of Options. Upon any termination of this Agreement, the vesting of all options to purchase securities of RAI granted to McGurk during her employment with RAI shall be accelerated to the later of the effective date of termination of this Agreement, or six months after the date such option was granted, and any provision contained in the agreements under which such options were granted that is inconsistent with such acceleration is thereby modified to the extent necessary to provide for such acceleration; such acceleration shall not apply to any option that by its terms would vest prior to the date provided for in this paragraph 7(d). 4 8. Gross-Up Payment. (a) In the event that (i) McGurk becomes entitled to any benefits or payments in connection with the termination of McGurk's employment, whether pursuant to the terms of this Agreement or otherwise, including without limitation the Severance Benefits (collectively, the "Total Benefits"), and (ii) any of the Total Benefits will be subject to the Excise Tax, RAI shall pay to McGurk an additional amount (the "Gross-Up Payment") such that the net amount retained by McGurk, after deduction of any Excise Tax on the Total Benefits and any federal, state and local income taxes, Excise Tax, and FICA and Medicare withholding taxes upon the payment provided for by this paragraph 8(a), shall be equal to the Total Benefits. For purposes of determining whether any of the Total Benefits will be subject to the Excise Tax and the amount of such Excise Tax, the amount of the Total Benefits that shall be treated as subject to the Excise Tax shall be equal to the amount of the Total Benefits reduced by the amount of such Total Benefits that, in the opinion of tax counsel selected by McGurk, at RAI's expense and reasonably acceptable to RAI ("Tax Counsel"), are not excess parachute payments (within the meaning of Section 28OG(b)(1) of the Code). (b) For purposes of this Section 8, McGurk shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Excise Tax is (or would be) payable and state and local income taxes at the highest marginal rate of taxation in the state and locality of McGurk's residence on the Date of Termination, net of the reduction in federal income taxes which could be obtained from deduction of such state and local taxes (calculated by assuming that any reduction under Section 68 of the Code in the amount of itemized deductions allowable to McGurk applies first to reduce the amount of such state and local income taxes that would otherwise be deductible by McGurk). Except as otherwise provided herein, all determinations required to be made under this Section 8 shall be made by Tax Counsel. (c) In the event that the Excise Tax is subsequently determined to be less than the amount taken into account thereunder at the time of termination of McGurk's employment, McGurk shall repay to RAI, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax, federal, state and local income taxes and FICA and Medicare withholding taxes imposed on the Gross-Up Payment being repaid by McGurk to the extent that such repayment results in a reduction in Excise Tax, FICA and Medicare withholding taxes and/or a federal, state or local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account thereunder at the time of the termination of McGurk's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the 5 Gross-Up Payment), RAI shall make an additional Gross-Up Payment to McGurk in respect of such excess (plus any interest, penalties or additions payable by McGurk with respect to such excess) at the time that the amount of such excess is finally determined. 9. Indemnification. (a) If McGurk is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (herein a "proceeding"), by reason of the fact that she is or was an employee (which term includes officer, director, agent and any other capacity) of RAI or is or was serving at the request of RAI as an employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as an employee or agent or in any other capacity while serving as an employee or agent, McGurk shall be indemnified and held harmless by RAI to the fullest extent authorized by applicable law, against all expense, liability and loss (including, but not limited to, attorneys' fees, judgments, fines, ERISA excise taxes and penalties and amounts paid or to be paid in settlement) incurred or suffered by McGurk in connection therewith and such indemnification shall continue as to McGurk after she has ceased to be a director, officer, employee or agent and shall inure to the benefit of McGurk's heir, executors, and administrators; provided, however, that RAI shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by McGurk (other than a proceeding to enforce this paragraph 9) only if such proceeding (or part thereof) was authorized directly or indirectly by the Board of RAI. The right to indemnification conferred in this paragraph shall be a contract right and shall include the right to be, promptly upon request, paid by RAI the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that if the Business Corporation Law of the Commonwealth of Pennsylvania requires the payment of such expenses incurred by an employee in her capacity as an employee (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, payment shall be made only upon delivery to RAI of an undertaking, by or on behalf of McGurk, to repay all amounts so advanced if it shall ultimately be determined that such employee is not entitled to be indemnified under this paragraph or otherwise. (b) The indemnification provided by this paragraph shall not be limited or exclude any rights, indemnities or limitations of liability to which McGurk may be entitled, whether as a matter of law, under the Certificate of Incorporation, By-laws of RAI, by agreement, vote of the stockholders or disinterested directors of RAI or otherwise. 6 (c) McGurk, in seeking indemnification under this Agreement (an "Indemnitee"), shall give the other party or parties (the "Indemnitor") prompt written notice of any claim, suit or demand that the Indemnitee believes will give rise to indemnification under this Agreement; provided, however, that the failure to give such notice shall not affect the liability of the Indemnitor under this Agreement unless the failure to give such notice materially and adversely affects the ability of the Indemnitor to defend itself against or to cure or mitigate the damages. Except as hereinafter provided, the Indemnitor shall have the right (without prejudice to the right of the Indemnitee to participate at its expense through counsel of its own choosing) to defend and to direct the defense against any such claim, suit or demand, at the Indemnitor's expense and with counsel chosen jointly by Indemnitor and Indemnitee, and the right to settle or compromise any such claim, suit or demand; provided, however, that the Indemnitor shall not, without the Indemnitee's written consent, which shall not be unreasonably withheld, settle or compromise any claim or consent to any entry of judgment. The Indemnitee shall, at the Indemnitor's expense, cooperate in the defense of any such claim, suit or demand. If the Indemnitor, within a reasonable time after notice of a claim fails to defend the Indemnitee, the Indemnitee shall be entitled to undertake the defense, compromise or settlement of such claim at the expense of and for the account and risk of the Indemnitor. (d) McGurk will be covered during the entire term of this Agreement by Officer and Director liability insurance in amounts and on terms similar to that afforded to other executives and/or directors of RAI or its affiliates, which such insurance shall be paid by RAI. 10. Definitions. Any terms not otherwise defined herein shall have the following meaning: (a) "Average Compensation" means the average of the three highest amounts of annual total compensation received by McGurk during any of the then current calendar year (on an annualized basis) and the then preceding eight (8) calendar years. (b) "Board" means the Board of Directors of RAI. (c) A "Change in Control" means the occurrence of any of the following events: (1) RAI's shareholders approve (or, in the event no approval of RAI's shareholders is required, RAI consummates) a merger, consolidation, share exchange, division or other reorganization or transaction of RAI (a "Fundamental Transaction") with any other corporation, other than a Fundamental Transaction which would result in the voting securities of RAI outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being 7 converted into voting securities of the surviving entity) at least sixty percent (60%) of the combined voting power immediately after such Fundamental Transaction of (i) RAI's outstanding securities, (ii) the surviving entity's outstanding securities, or (iii) in the case of a division, the outstanding securities of each entity resulting from the division; (2) the shareholders of RAI approve a plan of complete, liquidation or winding-up of RAI or an agreement for the sale or disposition (in one transaction or a series of transactions) of all or substantially all of RAI's assets; (3) during any period of twenty-four consecutive months, individuals who at the beginning of such period constituted the Board (including for this purpose any new director whose election or nomination for election by RAI's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board; or (4) the commencement of a proxy or other contest or effort to effectuate the events set forth in the foregoing subparagraphs (c)(1), (2) or (3) above. (d) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (e) "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time. (f) "Excise Tax" means any excise tax imposed under Section 4999 of the Code or a similar provision that may later be enacted. (g) "Notice of Termination" After a Change in Control, McGurk may terminate this Agreement by sending a written notice to RAI that shall (i) specify the date of termination (the "Date of Termination") which shall not be more than sixty (60) days from the date such Notice of Termination is given, (ii) indicate the specific provisions of this Agreement that will apply upon such termination and (iii) set forth in reasonable detail the facts and circumstances for the application of the provisions indicated. (h) "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act and shall also include any syndicate or group deemed to be a "person" under Section 13(d)(3) of the Exchange Act. (i) "RAI" means Resource America, Inc., a Delaware corporation and any direct or indirect subsidiary of RAI by which McGurk is employed. References 8 to payments, benefits, privileges or other rights to be provided by RAI or such subsidiary by which McGurk is employed, as the case may be, will correspond to the corporate entity obligated to make payments or provide benefits, privileges or other rights pursuant to employee benefit plans affected by the provisions hereof, and in the absence of any such existing plans or provisions, such reference shall be deemed to be to RAI. RAI shall also mean any successor by merger or other business combination to more than one-half of the assets or ownership of RAI. 11. Miscellaneous. (a) Severability. In case any one or more of the provisions contained herein shall, for any reason, be held to be invalid, illegal, or unenforceable in any respect such validity, illegality or unenforceability shall not affect any other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision(s) had never been contained herein, provided that such invalid, illegal or unenforceable provision(s) shall first be curtailed, limited or eliminated only to the extent necessary to remove such invalidity, illegality or unenforceability with respect to the applicable law as it shall then be applied. (b) Modification of Agreement. This Agreement shall not be modified by any oral agreement, either expressed or implied, and all modifications hereof shall be in writing and signed by the parties hereto. (c) Waiver. The waiver of any right under this Agreement by any of the parties hereto shall not be construed as a waiver of the same right at a future time or as a waiver of any other rights under this Agreement. (d) Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Delaware, without giving affect to the principles of conflicts of laws. (e) Notices. Any notice to be given pursuant to this Agreement shall be sufficient if in writing and mailed by certified or registered mail, postage-prepaid, to the addresses listed below, or to such other address as either party may notify the other of in accordance with this section. If to RAI: Resource America, Inc. 1521 Locust Street Suite 400 Philadelphia, PA 19102 9 If to McGurk: Nancy J. McGurk 2876 South Arlington Road Akron, OH 44312 (f) Duplicate Originals and Counterparts. This Agreement may be executed in any number of duplicate originals or counterparts or facsimile counterparts, each of such duplicate original or counterpart or facsimile counterpart shall be deemed to be an original and all taken together shall constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have executed or caused to be executed this Agreement on October ___, 1999. RESOURCE AMERICA, INC. By:____________________________ NANCY J. MCGURK _______________________________ 10 EX-27 8 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1999 DEC-31-1999 47,206 9,039 666,302 11,831 0 0 108,587 23,310 943,181 0 603,420 244 0 0 265,901 943,181 5,461 37,876 2,383 33,269 3,229 1,858 11,901 4,607 1,570 3,037 0 122 0 3,159 .14 .13
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