-----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, Dbc9B7ErBfhEgdb4ASTlBOtnsjCirfHIDiPK8itSzPZkXKDsEGMp2FBWRvVmwAJZ ib5shzQ8/EiBcDNZwvJMHg== 0000950144-00-006554.txt : 20000515 0000950144-00-006554.hdr.sgml : 20000515 ACCESSION NUMBER: 0000950144-00-006554 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RESOURCE BANCSHARES MORTGAGE GROUP INC CENTRAL INDEX KEY: 0000893817 STANDARD INDUSTRIAL CLASSIFICATION: MORTGAGE BANKERS & LOAN CORRESPONDENTS [6162] IRS NUMBER: 570962375 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21786 FILM NUMBER: 629995 BUSINESS ADDRESS: STREET 1: 7909 PARKLANE ROAD SUITE 150 CITY: COLUMBIA STATE: SC ZIP: 29223 BUSINESS PHONE: 8037413000 MAIL ADDRESS: STREET 1: 7909 PARKLANE RD SUITE 150 STREET 2: 7909 PARKLANE RD SUITE 150 CITY: COLUMBI STATE: SC ZIP: 29223 10-Q 1 RESOURCE BANCSHARES MORTGAGE GROUP INC 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Quarterly Period Ended March 31, 2000 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 000-21786 RESOURCE BANCSHARES MORTGAGE GROUP, INC. (Exact name of registrant as specified in its charter) STATE OF DELAWARE 57-0962375 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 7909 Parklane Road, Columbia, SC 29223 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (803)741-3000 Indicate by check mark whether the registrant (i) 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 each shorter period that the registrant was required to file reports) and (ii) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] The number of shares of common stock of the Registrant outstanding as of April 30, 2000 was 18,658,271. Page 1 Exhibit Index on Pages A to F 2 RESOURCE BANCSHARES MORTGAGE GROUP, INC. Form 10-Q for the quarter ended March 31, 2000 TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements - (Unaudited) Consolidated Balance Sheet 3 Consolidated Statement of Income 4 Consolidated Statement of Changes in Stockholders' Equity 5 Consolidated Statement of Cash Flows 6 Notes to Consolidated Financial Statements 7 ITEM 2. Management's Discussion and Analysis of 10 Financial Condition and Results of Operations ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 39 PART II. OTHER INFORMATION 41 ITEM 2. Changes in Securities and Use of Proceeds 41 ITEM 6. Exhibits and Reports on Form 8-K 41 SIGNATURES 42 EXHIBIT INDEX A-F 2 3 RESOURCE BANCSHARES MORTGAGE GROUP, INC. CONSOLIDATED BALANCE SHEET ($ IN THOUSANDS)
March 31, December 31, 2000 1999 ------------ ----------- (Unaudited) ASSETS Cash $ 21,150 $ 30,478 Receivable from sale of mortgage-backed securities 90,455 -- Receivables 34,396 40,219 Trading securities: Residual interests in subprime securitizations 47,604 54,382 Mortgage loans held for sale 446,145 480,504 Lease receivables 164,904 155,559 Servicing rights, net 172,864 177,563 Premises and equipment, net 35,205 36,294 Accrued interest receivable 1,763 1,691 Goodwill and other intangibles 15,256 15,478 Other assets 36,363 35,014 ----------- ----------- Total assets $ 1,066,105 $ 1,027,182 ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Short-term borrowings $ 753,261 $ 709,803 Long-term borrowings 6,232 6,259 Accrued expenses 10,822 13,826 Other liabilities 96,238 84,822 ----------- ----------- Total liabilities 866,553 814,710 =========== =========== Preferred stock - par value $0.01 - 5,000,000 shares authorized; no shares issued or outstanding -- -- Common stock - par value $0.01 - 50,000,000 shares authorized; 31,637,331 shares issued and outstanding at March 31, 2000 and December 31, 1999 316 316 Additional paid-in capital 298,648 300,909 Retained earnings 44,467 56,506 Common stock held by subsidiary at cost - 7,767,099 shares at March 31, 2000 and December 31, 1999 (98,953) (98,953) Treasury stock - 4,924,388 and 4,686,391 shares at March 31, 2000 and December 31, 1999, respectively (39,912) (41,148) Unearned shares of employee stock ownership plan - 503,244 and 537,084 unallocated shares at March 31, 2000 and December 31, 1999, respectively (5,014) (5,158) ----------- ----------- Total stockholders' equity 199,552 212,472 =========== =========== Total liabilities and stockholders' equity $ 1,066,105 $ 1,027,182 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 3 4 RESOURCE BANCSHARES MORTGAGE GROUP, INC. CONSOLIDATED INCOME STATEMENT ($ IN THOUSANDS EXCEPT SHARE AMOUNTS) (UNAUDITED)
For the Quarter Ended March 31, ------------------------------- 2000 1999 ------------ ------------ REVENUES Interest income $ 15,338 $ 26,355 Interest expense (11,230) (18,881) ------------ ------------ Net interest income 4,108 7,474 Net gain on sale of mortgage loans 9,283 37,289 Gain on sale of mortgage servicing rights 808 2,998 Servicing fees 10,629 12,998 Mark-to-market on residual interests in subprime securitizations (7,675) (1,349) Other income 2,069 1,478 ------------ ------------ Total revenues 19,222 60,888 ------------ ------------ EXPENSES Salary and employee benefits 16,607 20,497 Occupancy expense 3,610 3,173 Amortization and provision for impairment of mortgage servicing rights 6,902 8,980 Provision expense 2,001 3,055 General and administrative expenses 5,866 7,825 ------------ ------------ Total expenses 34,986 43,530 ------------ ------------ Income (loss) before income taxes (15,764) 17,358 Income tax benefit (expense) 5,797 (6,197) ------------ ------------ Net income (loss) $ (9,967) $ 11,161 ============ ============ Weighted average common shares outstanding -- Basic 18,657,683 22,224,610 ============ ============ Net income (loss) per common share -- Basic $ (0.53) $ 0.50 ============ ============ Weighted average common shares outstanding -- Diluted 18,657,683 22,477,224 ============ ============ Net income (loss) per common share -- Diluted $ (0.53) $ 0.50 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 4 5 RESOURCE BANCSHARES MORTGAGE GROUP, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY ($ in thousands, except share information) (Unaudited)
Unearned Shares of Common Employee Common Stock Additional Stock Stock Total Three Months Ended ------------------- Paid-in Retained Held by Treasury Ownership Stockholders March 31, 1999 Shares Amount Capital Earnings Subsidiary Stock Plan Equity - ---------------------------- ---------- ------- --------- -------- ---------- -------- ---------- ------------ Balance, December 31, 1998 31,637,331 $ 316 $ 307,114 $ 59,599 $ (98,953) $(11,499) $ (4,419) $252,158 Issuance of restricted stock 116 1,285 1,401 Cash dividends (2,244) (2,244) Treasury stock purchases (18,501) (18,501) Shares committed to be released under Employee Stock Ownership Plan 180 320 500 Purchase of shares by Employee Stock Ownership Plan (750) (750) Shares issued or purchased under Dividend Reinvestment and Stock Purchase Plan and Stock Investment Plan (56) (30) 1,359 1,273 Net income 11,161 Total comprehensive income 11,161 ---------- ------ --------- -------- --------- -------- -------- -------- Balance, March 31, 1999 31,637,331 $ 316 $ 307,354 $ 68,486 $ (98,953) $(27,356) $ (4,849) $244,998 ========== ====== ========= ======== ========= ======== ======== ========
Shares of Common Employee Common Stock Additional Stock Stock Total Three Months Ended ------------------- Paid-in Retained Held by Treasury Ownership Stockholders March 31, 2000 Shares Amount Capital Earnings Subsidiary Stock Plan Equity - ---------------------------- ---------- ------- --------- -------- ---------- -------- ---------- ------------ Balance, December 31, 1999 31,637,331 $ 316 $ 300,909 $ 56,506 $ (98,953) $(41,148) $ (5,158) $212,472 Issuance of restricted stock (960) 1,750 790 Cash dividends (2,054) (2,054) Treasury stock purchases (2,960) (2,960) Shares committed to be released under Employee Stock Ownership Plan 81 144 225 Shares issued or purchased under Dividend Reinvestment and Stock Purchase Plan and Stock Investment Plan (1,382) (18) 2,446 1,046 Net income (loss) (9,967) Total comprehensive income (9,967) ---------- ------ --------- -------- --------- -------- -------- -------- Balance, March 31, 2000 31,637,331 $ 316 $ 298,648 $ 44,467 $ (98,953) $(39,912) $ (5,014) $199,552 ========== ====== ========= ======== ========= ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 5 6 RESOURCE BANCSHARES MORTGAGE GROUP, INC. CONSOLIDATED STATEMENT OF CASH FLOWS ($ in thousands)
FOR THE THREE MONTHS ENDED MARCH 31, ------------------------------------ 2000 1999 ---------- ----------- OPERATING ACTIVITIES Net income $ ($9,967) $ 11,161 Adjustments to reconcile net income to cash (used in) provided by operating activities: Depreciation and amortization 9,500 10,538 Employee Stock Ownership Plan compensation 225 500 Provision for estimated foreclosure losses and repurchased loans 2,001 3,055 Increase in receivables from sale of mortgage backed securities (90,455) -- Decrease in receivables 5,823 9,837 Acquisition of mortgage loans (1,410,081) (3,474,106) Proceeds from sales of mortgage loans and mortgage-backed securities 1,452,081 3,822,113 Acquisition of mortgage servicing rights (33,325) (100,984) Sales of mortgage servicing rights 31,929 78,888 Net gain on sales of mortgage loans and servicing rights (10,091) (40,287) Increase in accrued interest on loans (72) (94) Increase in lease receivables (9,704) (11,643) Increase in other assets (1,800) (7,660) Decrease in residual certificates 6,778 1,158 Increase in accrued expenses and other liabilities 8,412 15,660 ---------- ----------- Net cash (used in) provided by operating activities (48,746) 318,136 ---------- ----------- INVESTING ACTIVITIES Purchases of premises and equipment (1,209) (2,063) Disposition of premises and equipment 374 0 ---------- ----------- Net cash used in investing activities (835) (2,063) ---------- ----------- FINANCING ACTIVITIES Proceeds from borrowings 1,718,663 11,266,371 Repayment of borrowings (1,675,232) (11,508,155) Issuance of restricted stock 790 1,401 Shares issued under Dividend Reinvestment and Stock Purchase Plan and Stock Investment Plan 1,046 1,273 Acquisition of treasury stock (2,960) (18,501) Cash dividends (2,054) (2,244) Loans to Employee Stock Ownership Plan 0 (750) ---------- ----------- Net cash provided by (used in) financing activities 40,253 (260,605) ---------- ----------- Net increase (decrease) in cash (9,328) 55,468 Cash, beginning of year 30,478 18,124 ---------- ----------- Cash, end of year $ 21,150 $ 73,592 ========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 6 7 RESOURCE BANCSHARES MORTGAGE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2000 Note 1 - Basis of Presentation: The financial information included herein should be read in conjunction with the consolidated financial statements and related notes of Resource Bancshares Mortgage Group, Inc. (the Company), included in the Company's December 31, 1999, Annual Report on Form 10-K. Certain financial information, which is normally included in financial statements prepared in accordance with generally accepted accounting principles, is not required for interim financial statements and has been omitted. The accompanying interim consolidated financial statements are unaudited. However, in the opinion of management of the Company, all adjustments, consisting of normal recurring items, necessary for a fair presentation of operating results for the periods shown have been made. During the first quarter of 2000, management and the Board of Directors reconsidered the Company's current positioning in the market and its corporate, management and leadership structures. As a result, the Company is reorganizing around the primary business processes that are critical to achieving its new vision: production/sales, customer fulfillment, servicing and portfolio management. These business units will continue to be centrally supported by traditional corporate functions. Segment reporting, which is done based upon the current holding company organization structure, will change in future periods when the new organization structure is fully implemented. Certain prior period amounts have been reclassified to conform to current period presentation and for comparability purposes. In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133). SFAS No. 133 establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security or a foreign-currency denominated forecasted transaction. SFAS No. 133 is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000 (January 1, 2001 for the Company). However, early adoption is permitted. The Company has not yet determined either the impact that the adoption of SFAS 133 will have on its earnings or statement of financial position. 7 8 The following is a reconciliation of basic earnings per share to diluted earnings per share for the quarter ended March 31, 2000 and 1999, respectively:
FOR THE QUARTER ENDED MARCH 31, ------------------------------- 2000 1999 -------------- ------------- Net income (loss) $ (9,967) $ 11,161 -------------- ------------- Average common shares outstanding 18,657,683 22,224,610 -------------- ------------- Earnings (loss) per share - basic $ (0.53) $ 0.50 -------------- ------------- Dilutive stock options -- 252,614 -------------- ------------- Average common and common equivalent shares outstanding 18,657,683 22,477,224 -------------- ------------- Earnings (loss) per share - diluted $ (0.53) $ 0.50 -------------- -------------
Options to purchase 2,014,649 shares of common stock at prices ranging between $4.50 - $17.75 per share were outstanding during the first quarter of 2000 but were not included in the computation of diluted earnings (loss) per share because the options' exercise prices were greater than the average market price of the common shares. Following is a summary of the allocated revenues and expenses for each of the Company's operating divisions for the quarter ended March 31, 2000 and 1999, respectively: 8 9
Agency-Eligible For the three months ---------------------------------- Commercial Total Other/ ended March 31, 2000(1) Production Servicing Reinsurance Subprime Mortgage Leasing Segments Eliminations Consolidated - ----------------------------------------------------------------------------------------------------------------------------------- (UNAUDITED) Net interest income $ 238 $(1,297) $ (16) $ 3,086 $ (8) $2,127 $ 4,130 $ (22) $ 4,108 Net gain on sale of mortgage loans 6,206 -- -- 2,441 636 -- 9,283 -- 9,283 Gain on sale of mortgage servicing rights -- 808 -- -- -- -- 808 -- 808 Servicing fees -- 9,365 -- -- 1,314 99 10,778 (149) 10,629 Mark to market on residual interests in subprime securitizations -- -- -- (7,675) -- -- (7,675) -- (7,675) Other income 120 128 746 893 13 262 2,162 (93) 2,069 ------------------------------------------------------------------------------------------------------ Total revenues 6,564 9,004 730 (1,255) 1,955 2,488 19,486 (264) 19,222 ------------------------------------------------------------------------------------------------------ Salary and employee benefits 6,888(2) 693 42 5,545(3) 1,854(4) 760 15,782 825 16,607(5) Occupancy expense 2,690(2) 55 -- 629 290 120 3,784 (174) 3,610(5) Amortization and provision for impairment of mortgage servicing rights -- 6,277 -- -- 625 -- 6,902 -- 6,902 Provision expense 900 -- -- 742 -- 359 2,001 -- 2,001 General and administrative expenses 2,514 938 89 1,454 417 294 5,706 160 5,866 ------------------------------------------------------------------------------------------------------ Total expenses 12,992(2) 7,963 131 8,370(3) 3,186(4) 1,533 34,175 811 34,986(5) ------------------------------------------------------------------------------------------------------ Income (loss) before income taxes (6,428)(2) 1,041 599 (9,625)(3) (1,231)(4) 955 (14,689) (1,075) (15,764)(5) Income tax benefit (expense) 2,383(2) (386) (210) 3,521(3) 466(4) (376) 5,398 399 5,797(5) ------------------------------------------------------------------------------------------------------ Net income (loss) $(4,045)(2) $ 655 $ 389 $(6,104)(3) $ (765)(4) $ 579 $ (9,291) $ (676) $ (9,967)(5) ======================================================================================================
(1) Revenues and expenses have been allocated on a direct basis to the extent possible. Management believes that these and all other revenues and expenses have been allocated to the respective divisions on a reasonable basis. (2) Includes work force reduction charge totaling $307 pre-tax or $194 after-tax. Exclusive thereof, salary and employee benefits, occupancy expense, total expenses, net income (loss) before income taxes, income tax benefit (expense) and net income would have been $6,752, $2,519, $12,685, $(6,121), $2,270 and $(3,851), respectively. (3) Includes work force reduction charge totaling $2,075 pre-tax or $1,312 after-tax. Exclusive thereof, salary and employee benefits, total expenses, net income (loss) before income taxes, income tax benefit (expense) and net income would have been $3,470, $6,295, $(7,550), $2,758 and $4,792, respectively. (4) Includes work force reduction charge totaling $191 pre-tax or $121 after-tax. Exclusive thereof, salary and employee benefits, total expenses, net income (loss) before income taxes, income tax benefit (expense) and net income (loss) would have been $1,663, $2,995, $(1,040), $396 and $(644), respectively. (5) Includes work force reduction charge totaling $194 pre-tax or $122 after-tax. Exclusive thereof, salary and employee benefits, occupancy expense, total expenses, net income (loss) before income taxes, income tax benefit (expense) and net income (loss) would have been $14,205, $3,439, $32,413, $(13,191), $4,851 and $(8,430), respectively.
Agency-Eligible For the three months ---------------------------------- Commercial Total Other/ ended March 31, 1999* Production Servicing Reinsurance Subprime Mortgage Leasing Segments Eliminations Consolidated - ----------------------------------------------------------------------------------------------------------------------------------- (UNAUDITED) Net interest income $ 3,761 $(1,389) $ -- $ 3,473 $ 94 $1,645 $ 7,584 $ (110) $ 7,474 Net gain on sale of mortgage loans 33,193 -- -- 2,857 1,239 -- 37,289 -- 37,289 Gain on sale of mortgage servicing rights -- 2,998 -- -- - -- 2,998 -- 2,998 Servicing fees -- 11,703 -- -- 975 161 12,839 159 12,998 Mark to market on residual interests in subprime securitizations -- -- -- (1,349) -- -- (1,349) -- (1,349) Other income 82 161 652 417 11 151 1,474 4 1,478 ------------------------------------------------------------------------------------------------------ Total revenues 37,036 13,473 652 5,398 2,319 1,957 60,835 53 60,888 ------------------------------------------------------------------------------------------------------ Salary and employee benefits 11,638 898 -- 3,301 1,738 640 18,215 2,282 20,497 Occupancy expense 1,934 107 -- 583 263 104 2,991 182 3,173 Amortization and provision for impairment of mortgage servicing rights -- 8,516 -- -- 464 -- 8,980 -- 8,980 Provision expense 2,108 -- 65 499 -- 383 3,055 -- 3,055 General and administrative expenses 3,554 1,778 27 1,489 430 370 7,648 177 7,825 ------------------------------------------------------------------------------------------------------ Total expenses 19,234 11,299 92 5,872 2,895 1,497 40,889 2,641 43,530 ------------------------------------------------------------------------------------------------------ Income (loss) before income taxes 17,802 2,174 560 (474) (576) 460 19,946 (2,588) 17,358 Income tax benefit (expense) (6,367) (773) (197) 168 219 (192) (7,142) 945 (6,197) ------------------------------------------------------------------------------------------------------ Net income (loss) $11,435 $ 1,401 $ 363 $ (306) $ (357) $ 268 $ 12,804 $ (1,643) $ 11,161 ======================================================================================================
* Revenues and expenses have been allocated on a direct basis to the extent possible. Management believes that these and all other revenues and expenses have been allocated to the respective divisions on a reasonable basis. 9 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements of Resource Bancshares Mortgage Group, Inc. (the Company) (and the notes thereto) and the other information included or incorporated by reference into the Company's 1999 Annual Report on Form 10-K. Statements included in this discussion and analysis (or elsewhere in this annual report) which are not statements of historical fact are intended to be, and are hereby identified as, "forward looking statements" for purposes of the safe harbor provided by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties, and that actual results could differ materially from those indicated by such forward-looking statements. Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include, but are not limited to, the following which are described herein or in the Company's Annual Report on Form 10-K for the year ended December 31, 1999: (i) interest rate risks, (ii) changes in economic conditions, (iii) competition, (iv) possible changes in regulations and related matters, (v) litigation affecting the mortgage banking business, (vi) delinquency and default risks, (vii) changes in the market for servicing rights, mortgage loans and lease receivables, (viii) environmental matters, (ix) changes in the demand for mortgage loans and leases, (x) changes in the value of residual interests in subprime securitizations, (xi) prepayment risks, (xii) changes in accounting estimates and (xiii) availability of funding sources and other risks and uncertainties. The Company disclaims any obligation to update any forward-looking statements. THE COMPANY The Company is a diversified financial services company engaged through wholly-owned subsidiaries primarily in the business of mortgage banking, through the purchase (via a nationwide network of correspondents and brokers), sale and servicing of agency-eligible and subprime residential, single-family (i.e. one-four family), first-mortgage loans and the purchase and sale of servicing rights associated with agency-eligible loans. In addition, two of the Company's wholly-owned subsidiaries originate, sell and service small-ticket commercial equipment leases and originate, sell, underwrite for investors and service commercial mortgage loans. 10 11 LOAN AND LEASE PRODUCTION A summary of production by source for the periods indicated is set forth below: ($ IN THOUSANDS) FOR THE QUARTER ENDED MARCH 31, ------------------------------- 2000 1999 ----------- ---------- Agency-Eligible Loan Production: Correspondent $ 914,034 $2,428,021 Wholesale 248,088 711,822 ---------- ---------- Total Agency-Eligible Loan Production 1,162,122 3,139,843 Subprime Loan Production 152,484 184,111 Commercial Mortgage (for Investors And Conduits) Loan Production 95,475 150,152 Lease Production 24,246 20,525 ---------- ---------- Total Mortgage Loan and Lease Production $1,434,327 $3,494,631 ========== ========== Initially, the Company was focused exclusively on purchasing agency-eligible mortgage loans through its correspondents. To diversify its sources of residential loan volume, the Company started a wholesale operation in 1994, a retail operation in 1995 (which was sold in 1998) and a subprime operation in 1997. To further diversify its sources of production and revenue, the Company acquired a small-ticket commercial equipment lease operation and a commercial mortgage loan business. These two newer sources of production accounted for approximately 8% and 5% of the Company's total production for the first quarter of 2000 and 1999, respectively. Historically, correspondent operations have accounted for a diminishing percentage of the Company's total production (64% for the first quarter of 2000 and 69% for the first quarter of 1999). Wholesale and subprime production accounted for 17% and 11%, respectively, of the Company's first quarter 2000 production. A summary of key information relevant to industry loan production activity is set forth below:
($ IN THOUSANDS) AT OR FOR THE QUARTER ENDED MARCH 31, ------------------------------------- 2000 1999 -------------- ---------------- U. S. 1-4 Family Mortgage Originations Statistics (1): U. S. 1-4 Family Mortgage Originations $197,000,000 $359,000,000 Adjustable Rate Mortgage Market Share 32.00% 12.00% Estimated Fixed Rate Mortgage Originations $134,000,000 $316,000,000 Company Information: Residential Loan Production $ 1,314,606 $ 3,323,954 Estimated Company Market Share 0.67% 0.93%
(1) Source: Mortgage Bankers Association of America, Economics Department. The Company's total residential mortgage production decreased by 60% to $1.3 billion for the first quarter of 2000 from $3.3 billion for the first quarter of 1999. During the first quarter of 2000, interest rates were higher than during the first quarter of 1999, resulting in a 11 12 decrease in industry wide residential loan origination of 45%. Likewise, the higher rate environment resulted in an increase in ARM market share in the first quarter of 2000. The Company has historically focused on fixed rate products, and only recently has commenced offering a broader spectrum of mortgage products, including adjustable rate products. Further, as often happens in the mortgage banking industry, a rise in interest rates and resulting decrease in volumes prompted increasing price competition in the marketplace during the quarter. Correspondent Loan Production The Company purchases closed mortgage loans through its network of approved correspondent lenders. Correspondents are primarily mortgage lenders, larger mortgage brokers and smaller savings and loan associations and commercial banks that have met the Company's approval requirements. The Company continues to emphasize correspondent loan production as its basic business focus because of the lower fixed expenses and capital investment required of the Company. A summary of key information relevant to the Company's correspondent loan production activities is set forth below: ($ IN THOUSANDS) AT OR FOR THE QUARTER ENDED MARCH 31, ------------------------------------- 2000 1999 ------------ ---------- Correspondent Loan Production $914,034 $2,428,021 Estimated Correspondent Market Share (1) 0.46% 0.68% Approved Correspondents 944 851 Correspondent Division Expenses $ 10,567 $ 17,062 (1) Source: Mortgage Bankers Association of America, Economics Department. The Company's correspondent loan production decreased by 62% to $0.9 billion for the first quarter of 2000 from $2.4 billion for the first quarter of 1999. During the first quarter of 2000, interest rates were higher than during the first quarter of 1999, resulting in a decrease in industry wide residential loan origination of 45%. Likewise, the higher rate environment resulted in an increase in ARM market share in the first quarter of 2000. The Company has historically focused on fixed rate products, and only recently has commenced offering a broader spectrum of mortgage products, including adjustable rate products. Further, as often happens in the mortgage banking industry, a rise in interest rates and resulting decrease in volumes prompted increasing price competition in the market place during the quarter. The correspondent division expenses decreased by 38% to $10.6 million for the first quarter of 2000 from $17.1 million for the first quarter of 1999 primarily due to the decrease in correspondent production during the same period. Wholesale Loan Production The wholesale division receives loan applications through brokers, underwrites the loans, funds the loans at closing and prepares all closing documentation. The wholesale branches and regional operating centers handle all shipping and follow-up procedures on loans. Typically, mortgage brokers are responsible for taking applications and accumulating the information precedent to the Company's processing and underwriting of the loans. Although the establishment of wholesale branch offices and regional operating centers involves the incurrence of fixed expenses associated with maintaining those offices, wholesale operations also generally 12 13 provide for higher profit margins than correspondent loan production. Additionally, each branch office and regional operating center can serve a relatively sizable geographic area by establishing relationships with large numbers of independent mortgage loan brokers who bear much of the cost of identifying and interacting directly with loan applicants. In 1999, the Company closed branches and established regional operations centers to better facilitate service to larger geographic areas. The Company's nationwide salesforce is supported by these regional operating centers. A summary of key information relevant to the Company's wholesale production activities is set forth below: ($ IN THOUSANDS) AT OR FOR THE QUARTER ENDED MARCH 31, ------------------------------------- 2000 1999 --------------- ------------- Wholesale Loan Production $248,088 $711,822 Estimated Wholesale Market Share (1) 0.13% 0.20% Wholesale Division Direct Operating Expenses $ 2,425 $ 4,557 Approved Brokers 4,173 3,401 Regional Operation Centers 5 0 Number of Branches 2 15 Number of Employees 102 174 (1) Source: Mortgage Bankers Association of America, Economics Department. Wholesale loan production decreased 65% ($0.5 billion) from $0.7 billion for the first quarter of 1999 to $0.2 billion for the first quarter of 2000. During the first quarter of 2000, interest rates were higher than during the first quarter of 1999, resulting in a decrease in industry wide residential loan origination of 45%. Likewise, the higher rate environment resulted in an increase in ARM market share in the first quarter of 2000. The Company has historically focused on fixed rate products, and only recently has commenced offering a broader spectrum of mortgage products, including adjustable rate products. Further, as often happens in the mortgage banking industry, a rise in interest rates and resulting decrease in volumes prompted increasing price competition in the market place during the quarter. Subprime Loan Production In 1997, the Company began its initial expansion into subprime lending activities. The Company does subprime business through its wholly-owned subsidiary, Meritage Mortgage Corporation (Meritage). A summary of key information relevant to the Company's subprime production activities is set forth below: ($ IN THOUSANDS) AT OR FOR THE QUARTER ENDED MARCH 31, ------------------------------------- 2000 1999 --------------- ------------- Subprime Loan Production $152,484 $184,111 Subprime Division Direct Operating Expenses $ 8,370 $ 5,955 Number of Brokers 3,529 1,831 Number of Employees 279 316 Number of Branches 10 19 13 14 Subprime loan production decreased by 17% to $152.5 million for the first quarter of 2000 as compared to $184.1 million during the first quarter of 1999 primarily due to a decrease in industry wide residential loan originations of 45%. Subprime division direct operating expenses increased by 41% to $8.4 million for the first quarter of 2000 as compared to 6.0 million during the first quarter of 1999. This was primarily due to recognition of $2.2 million of severance benefits associated with a planned reorganization of the Company around it's primary business processes (production/sales, customer fulfillment, servicing and portfolio management). Charges associated with the planned reorganization are discussed elsewhere in this Management's Discussion and Analysis. Between March 31, 1999 and 2000, respectively, the Company increased the number of its subprime brokers by 1,698. The number of branches declined from 19 at March 31, 1999 to 10 at of March 31, 2000 as the Company reassessed the geographic regions that each branch covers. Commercial Mortgage Production The Company's subsidiary, Laureate Capital Corp. (Laureate), originates commercial mortgage loans for various insurance companies and other investors. Commercial mortgage loans are generally originated in the name of the investor and, in most instances, Laureate retains the right to service the loans under a servicing agreement. A summary of key information relevant to the Company's commercial mortgage production activities is set forth below: ($ IN THOUSANDS) AT OR FOR THE QUARTER ENDED MARCH 31, --------------------------- 2000 1999 ----------- ---------- Commercial Mortgage Production $95,475 $150,152 Commercial Mortgage Division Direct Operating Expenses $ 3,186 $ 2,895 Number of Branches 11 13 Number of Employees 87 83 Lease Production The Company's wholly-owned subsidiary, Republic Leasing Company, Inc. (Republic Leasing), originates and services small-ticket commercial equipment leases. Substantially all of Republic Leasing's lease receivables are acquired from independent brokers who operate throughout the continental United States. A summary of key information relevant to the Company's lease production activities is set forth below: ($ IN THOUSANDS) AT OR FOR THE QUARTER ENDED MARCH 31, --------------------------- 2000 1999 ----------- ---------- Lease Production $24,246 $20,525 Lease Division Direct Operating Expenses $ 1,533 $ 1,497 Number of Brokers 207 232 Number of Employees 62 65 14 15 SERVICING Residential Mortgage Servicing Residential mortgage servicing includes collecting and remitting mortgage loan payments, accounting for principal and interest, holding escrow funds for payment of mortgage-related expenses such as taxes and insurance, making advances to cover delinquent payments, making inspections as required of the mortgaged premises, contacting delinquent mortgagors, supervising foreclosures and property dispositions in the event of unremedied defaults and generally administering mortgage loans. The Company is somewhat unique in that its strategy is to sell substantially all of its produced agency-eligible mortgage servicing rights to other approved servicers. Typically, the Company sells its agency-eligible mortgage servicing rights within 90 to 180 days of purchase or origination. However, for strategic reasons, the Company also strives to maintain a servicing portfolio whose size is determined by reference to the Company's cash operating costs which, in turn, are largely determined by the size of its loan production platform. A summary of key information relevant to the Company's agency-eligible loan servicing activities is set forth below: ($ IN THOUSANDS) AT OR FOR THE QUARTER ENDED MARCH 31, --------------------------- 2000 1999 ----------- ------------ Underlying Unpaid Principal Balances: Beginning Balance* $ 7,822,394 $ 9,865,100 Agency-Eligible Loan Production (net of servicing-released production)* 1,100,297 3,133,563 Net Change in Work-in-Progress* 77,109 190,242 Sales of Servicing* (1,128,536) (3,003,253) Paid-In-Full Loans* (106,809) (365,729) Amortization, Curtailments and Other, net* (51,439) (84,169) ----------- ----------- Ending Balance* 7,713,016 9,735,754 Subservicing Ending Balance 1,357,253 3,272,754 ----------- ----------- Total Underlying Unpaid Principal Balances $ 9,070,269 $13,008,508 =========== =========== * These numbers and statistics apply to the Company's owned agency-eligible servicing portfolio and, therefore, exclude the subservicing portfolio. The ending balance for the first quarter of 2000 and 1999, respectively, includes $174,595 and -0-, respectively, of subprime loans being temporarily serviced until these loans are sold. Of the $7.7 billion and $9.7 billion unpaid principal balance at March 31, 2000 and 1999, $6.3 billion and $5.8 billion, respectively, of the related mortgage servicing right asset is classified as available-for-sale, while $1.4 billion and $3.9 billion, respectively, of the related mortgage servicing right asset is classified as held-for-sale. 15 16 A summary of agency-eligible servicing statistics follows: ($ IN THOUSANDS) AT OR FOR THE QUARTER ENDED MARCH 31, --------------------------- 2000 1999 ----------- ----------- Average Underlying Unpaid Principal Balances (including subservicing) $ 8,041,986 $13,456,746 Weighted Average Note Rate* 7.54% 7.21% Weighted Average Servicing Fee* 0.44% 0.44% Delinquency (30+ days) Including Bankruptcies and Foreclosures* 2.61% 1.82% Number of Servicing Division Employees 76 157 * These numbers and statistics apply to the Company's owned agency-eligible servicing portfolio and, therefore, exclude the subservicing portfolio. The $5.4 billion, or 40%, decrease in the average underlying unpaid principal balance of agency-eligible mortgage loans being serviced and subserviced for the first quarter of 2000 as compared to the first quarter of 1999 is primarily related to the Company's decreased loan production volumes during the first quarter of 2000. Since the Company generally sells servicing rights related to the agency-eligible loans it produces within 90 to 180 days of purchase or origination, decreased production volumes generally result in a lower volume of mortgage servicing rights held in inventory pending sale. Commercial Mortgage Servicing Laureate originates commercial mortgage loans for investors and in most cases, Laureate retains the right to service the loans. A summary of key information relevant to the Company's commercial mortgage servicing activities is set forth below: ($ IN THOUSANDS) AT OR FOR THE QUARTER ENDED MARCH 31, --------------------------- 2000 1999 ----------- ----------- Commercial Mortgage Loan Servicing Portfolio $ 4,186,017 $ 3,437,851 Weighted Average Note Rate 7.92% 8.02% Delinquencies (30+ Days) 0.55% 0.43% Lease Servicing Republic Leasing services leases that are owned by it and also services leases for investors. A summary of key information relevant to the Company's lease servicing activity is set forth below: 16 17 ($ IN THOUSANDS) AT OR FOR THE QUARTER ENDED MARCH 31, --------------------------- 2000 1999 ----------- ----------- Owned Lease Servicing Portfolio $ 161,576 $ 110,161 Serviced For Investors Servicing Portfolio 10,539 30,366 ----------- ----------- Total Managed Lease Servicing Portfolio $ 172,115 $ 140,527 =========== =========== Weighted Average Net Yield For Managed Lease Servicing Portfolio 10.63% 10.79% Delinquencies (30+ Days) Managed Lease Servicing Portfolio 2.82% 1.87% Consolidated Coverage Ratios A summary of the Company's consolidated ratios of servicing fees and interest income from owned leases to cash operating expenses net of amortization and depreciation follows: ($ IN THOUSANDS) AT OR FOR THE QUARTER ENDED MARCH 31, --------------------------- 2000 1999 ----------- ----------- Total Company Servicing Fees $ 10,629 $ 12,998 Net Interest Income from Owned Leases 2,127 1,645 ----------- ----------- Total Servicing Fees and Interest from Owned Leases $ 12,756 $ 14,643 ----------- ----------- Total Company Operating Expenses $ 34,986 $ 43,530 Total Company Amortization and Depreciation (9,500) (10,538) ----------- ----------- Total Company Operating Expenses, Net of Amortization and Depreciation $ 25,486 $ 32,992 ----------- ----------- Coverage Ratio 50% 44% =========== =========== The Company's coverage ratios for the first quarter of 2000 and 1999 were 50% and 44%, respectively. The coverage ratio for the first quarter of 1999 was lower than the Company's target level of between 50% and 80%. In the opinion of the Company's management, market prices for servicing rights were attractive throughout that period. Accordingly, management consciously determined on a risk-versus-return basis to allow this ratio to move below its stated goals. Opportunistically and as market conditions permit, management would expect to remain in line with the stated objective of maintaining a coverage ratio of between 50% and 80%. 17 18 RESULTS OF OPERATIONS - QUARTER ENDED MARCH 31, 2000, COMPARED TO QUARTER ENDED MARCH 31, 1999 SUMMARY BY OPERATING DIVISION Net income (loss) per common share on a diluted basis for the first quarter of 2000 was $(0.53) as compared to $0.50 for the first quarter of 1999. Following is a summary of the revenues and expenses for each of the Company's operating divisions for the quarters ended March 31, 2000 and 1999, respectively: 18 19
Agency-Eligible For the three months ---------------------------------- Commercial Total Other/ ended March 31, 2000(1) Production Servicing Reinsurance Subprime Mortgage Leasing Segments Eliminations Consolidated - ----------------------------------------------------------------------------------------------------------------------------------- (UNAUDITED) Net interest income $ 238 $(1,297) $ (16) $ 3,086 $ (8) $2,127 $ 4,130 $ (22) $ 4,108 Net gain on sale of mortgage loans 6,206 -- -- 2,441 636 -- 9,283 -- 9,283 Gain on sale of mortgage servicing rights -- 808 -- -- -- -- 808 -- 808 Servicing fees -- 9,365 -- -- 1,314 99 10,778 (149) 10,629 Mark to market on residual interests in subprime securitizations -- -- -- (7,675) -- -- (7,675) -- (7,675) Other income 120 128 746 893 13 262 2,162 (93) 2,069 ------------------------------------------------------------------------------------------------------ Total revenues 6,564 9,004 730 (1,255) 1,955 2,488 19,486 (264) 19,222 ------------------------------------------------------------------------------------------------------ Salary and employee benefits 6,888(2) 693 42 5,545(3) 1,854(4) 760 15,782 825 16,607(5) Occupancy expense 2,690(2) 55 -- 629 290 120 3,784 (174) 3,610(5) Amortization and provision for impairment of mortgage servicing rights -- 6,277 -- -- 625 -- 6,902 -- 6,902 Provision expense 900 -- -- 742 -- 359 2,001 -- 2,001 General and administrative expenses 2,514 938 89 1,454 417 294 5,706 160 5,866 ------------------------------------------------------------------------------------------------------ Total expenses 12,992(2) 7,963 131 8,370(3) 3,186(4) 1,533 34,175 811 34,986(5) ------------------------------------------------------------------------------------------------------ Income (loss) before income taxes (6,428)(2) 1,041 599 (9,625)(3) (1,231)(4) 955 (14,689) (1,075) (15,764)(5) Income tax benefit (expense) 2,383(2) (386) (210) 3,521(3) 466(4) (376) 5,398 399 5,797(5) ------------------------------------------------------------------------------------------------------ Net income (loss) $(4,045)(2) $ 655 $ 389 $(6,104)(3) $ (765)(4) $ 579 $ (9,291) $ (676) $ (9,967)(5) ======================================================================================================
(1) Revenues and expenses have been allocated on a direct basis to the extent possible. Management believes that these and all other revenues and expenses have been allocated to the respective divisions on a reasonable basis. (2) Includes work force reduction charge totaling $307 pre-tax or $194 after-tax. Exclusive thereof, salary and employee benefits, occupancy expense, total expenses, net income (loss) before income taxes, income tax benefit (expense) and net income would have been $6,752, $2,519, $12,685, $(6,121), $2,270 and $(3,851), respectively. (3) Includes work force reduction charge totaling $2,075 pre-tax or $1,312 after-tax. Exclusive thereof, salary and employee benefits, total expenses, net income (loss) before income taxes, income tax benefit (expense) and net income would have been $3,470, $6,295, $(7,550), $2,758 and $4,792, respectively. (4) Includes work force reduction charge totaling $191 pre-tax or $121 after-tax. Exclusive thereof, salary and employee benefits, total expenses, net income (loss) before income taxes, income tax benefit (expense) and net income (loss) would have been $1,663, $2,995, $(1,040), $396 and $(644), respectively. (5) Includes work force reduction charge totaling $194 pre-tax or $122 after-tax. Exclusive thereof, salary and employee benefits, occupancy expense, total expenses, net income (loss) before income taxes, income tax benefit (expense) and net income (loss) would have been $14,205, $3,439, $32,413, $(13,191), $4,851 and $(8,430), respectively.
Agency-Eligible For the three months ---------------------------------- Commercial Total Other/ ended March 31, 1999* Production Servicing Reinsurance Subprime Mortgage Leasing Segments Eliminations Consolidated - ----------------------------------------------------------------------------------------------------------------------------------- (UNAUDITED) Net interest income $ 3,761 $(1,389) $ -- $ 3,473 $ 94 $1,645 $ 7,584 $ (110) $ 7,474 Net gain on sale of mortgage loans 33,193 -- -- 2,857 1,239 -- 37,289 -- 37,289 Gain on sale of mortgage servicing rights -- 2,998 -- -- - -- 2,998 -- 2,998 Servicing fees -- 11,703 -- -- 975 161 12,839 159 12,998 Mark to market on residual interests in subprime securitizations -- -- -- (1,349) -- -- (1,349) -- (1,349) Other income 82 161 652 417 11 151 1,474 4 1,478 ------------------------------------------------------------------------------------------------------ Total revenues 37,036 13,473 652 5,398 2,319 1,957 60,835 53 60,888 ------------------------------------------------------------------------------------------------------ Salary and employee benefits 11,638 898 -- 3,301 1,738 640 18,215 2,282 20,497 Occupancy expense 1,934 107 -- 583 263 104 2,991 182 3,173 Amortization and provision for impairment of mortgage servicing rights -- 8,516 -- -- 464 -- 8,980 -- 8,980 Provision expense 2,108 -- 65 499 -- 383 3,055 -- 3,055 General and administrative expenses 3,554 1,778 27 1,489 430 370 7,648 177 7,825 ------------------------------------------------------------------------------------------------------ Total expenses 19,234 11,299 92 5,872 2,895 1,497 40,889 2,641 43,530 ------------------------------------------------------------------------------------------------------ Income (loss) before income taxes 17,802 2,174 560 (474) (576) 460 19,946 (2,588) 17,358 Income tax benefit (expense) (6,367) (773) (197) 168 219 (192) (7,142) 945 (6,197) ------------------------------------------------------------------------------------------------------ Net income (loss) $11,435 $ 1,401 $ 363 $ (306) $ (357) $ 268 $ 12,804 $ (1,643) $ 11,161 ======================================================================================================
* Revenues and expenses have been allocated on a direct basis to the extent possible. Management believes that these and all other revenues and expenses have been allocated to the respective divisions on a reasonable basis. 19 20 AGENCY-ELIGIBLE MORTGAGE OPERATIONS Following is a comparison of the revenues and expenses of the Company's agency-eligible mortgage production operations. ($ IN THOUSANDS) AT OR FOR THE QUARTER ENDED MARCH 31, ---------------------------- 2000 1999 ----------- ---------- Net interest income $ 238 $ 3,761 Net gain on sale of mortgage loans 6,206 33,193 Other income 120 82 ----------- ---------- Total production revenue 6,564 37,036 ----------- ---------- Salary and employee benefits 6,888 11,638 Occupancy expense 2,690 1,934 Provision expense 900 2,108 General and administrative expenses 2,514 3,554 ----------- ---------- Total production expenses 12,992 19,234 ----------- ---------- Net pre-tax production margin $ (6,428) $ 17,802 ----------- ---------- Production $ 1,162,122 $3,139,849 Pool delivery 1,164,906 3,418,299 Total production revenue to pool delivery 56 bps 110 bps Total production expenses to production 112 bps 61 bps ----------- ---------- Net pre-tax production margin (56) bps 49 bps =========== ========== Summary The production revenue to pool delivery ratio decreased 54 basis points for the first quarter of 2000 as compared to the first quarter of 1999. Net gain on sale of mortgage loans (53 basis points for the first quarter of 2000 versus 97 basis points for 1999) declined primarily due to compressed margins attributable to an aggressive competitive pricing environment and lower overall agency-eligible production volume. Net interest income decreased from 11 basis points in the first quarter of 1999 to 2 basis points in the first quarter of 2000 primarily as a result of a flattened yield curve. The production expenses to production ratio increased 51 basis points from the first quarter of 1999 to the first quarter of 2000. This is primarily due to the 63% decline in production for the first quarter of 2000 as compared to the first quarter of 1999. Also, there were $0.3 million in charges ($0.2 million in occupancy expense and $0.1 million in salary and employee benefits) during the first quarter of 2000 associated with the reduction-in-force executed in late 1999. This was partially offset by a $6.2 million decline in total production expenses for the first quarter of 2000 as compared to the first quarter of 1999. As a consequence of the foregoing, the Company's net agency-eligible pre-tax production margin declined 105 basis points. Net Interest Income The following table analyzes net interest income allocated to the Company's agency-eligible mortgage production activities in terms of rate and volume variances of the interest spread (the difference between interest rates earned on loans and mortgage-backed securities and interest 20 21 rates paid on interest-bearing sources of funds) for the quarters ended March 31, 2000 and 1999, respectively:
($ IN THOUSANDS) Variance Average Volume Average Rate Interest Attributable to - ----------------------------------------- --------------------- ---------------------- 2000 1999 2000 1999 2000 1999 Variance Rate Volume - ----------------------------------------- ---------------------------------------------------- INTEREST INCOME Mortgages Held-for-Sale and Mortgage-Backed $ 267,699 $1,052,324 8.01% 6.70% Securities $ 5,364 $17,628 $(12,264) $880 $(13,144) - ----------------------------------------- ---------------------------------------------------- INTEREST EXPENSE $ 259,132 $ 435,572 4.90% 4.16% Warehouse Line * $ 3,168 $ 4,463 $ (1,295) $513 $ (1,808) -- 603,776 -- 5.16% Gestation Line -- 7,677 (7,677) -- (7,677) 123,309 127,750 7.01% 5.91% Servicing Secured Line 2,156 1,861 295 360 (65) 4,362 28,233 5.88% 5.21% Servicing Receivables Line 64 363 (299) 8 (307) 7,685 8,436 8.61% 8.27% Other Borrowings 165 172 (7) 8 (15) Facility Fees & Other Charges 904 830 74 -- 74 - ----------------------------------------- ---------------------------------------------------- $ 394,488 $1,203,767 6.57% 5.18% Total Interest Expense $ 6,457 $15,366 $ (8,909) 889 $ (9,798) - ----------------------------------------- ---------------------------------------------------- Net Interest Income Before 1.44% 1.52% Interdivisional Allocations $(1,093) $ 2,262 $ (3,355) $ (9) $ (3,346) ================ ============================= Allocation to Agency-Eligible Servicing Division 1,297 1,389 Allocation to Other 127 110 Intercompany Net Interest Expense Included In Segment (93) -- ------------------ Net Interest Income $ 238 $ 3,761 ==================
* The interest-rate yield on the warehouse line is net of the benefit of escrow deposits. The 8 basis point decrease in the interest-rate spread was primarily as a result of a flattened yield curve. The Company's mortgages and mortgage-backed securities are generally sold and replaced within 30 to 35 days. Accordingly, the Company generally borrows at rates based upon short-term indices, while its asset yields are primarily based upon long-term mortgage rates. Net Gain on Sale of Agency-Eligible Mortgage Loans A reconciliation of gain on sale of agency-eligible mortgage loans for the periods indicated follows:
($ IN THOUSANDS) FOR THE QUARTER ENDED MARCH 31, ------------------------------ 2000 1999 ----------- ----------- Gross proceeds on sales of mortgage loans $ 1,208,385 $ 3,429,942 Initial unadjusted acquisition cost of mortgage loans sold, net of hedge results 1,209,729 3,426,577 ----------- ----------- Unadjusted gain (loss) on sale of mortgage loans (1,344) 3,365 Loan origination and correspondent program administrative fees 2,280 8,338 ----------- ----------- Unadjusted aggregate margin 936 11,703 Acquisition basis allocated to mortgage servicing rights (SFAS No. 125) 5,795 22,349 Net deferred costs and administrative fees recognized (525) (859) ----------- ----------- Net gain on sale of agency-eligible mortgage loans $ 6,206 $ 33,193 =========== ===========
Net gain on sale of agency-eligible mortgage loans decreased $27.0 million from $33.2 million for the first quarter of 1999 to $6.2 million for the first quarter of 2000. The decrease is 21 22 primarily due to compressed margins attributable to an aggressive competitive pricing environment in the correspondent channel and lower overall agency-eligible production volume. Receivable from sale of mortgage-backed securities The company sold certain mortgage-backed securities during the first quarter of 2000, for which it did not receive the cash settlement until early in the second quarter of 2000. This resulted in a $90.5 million receivable on the March 31, 2000 Balance Sheet. AGENCY-ELIGIBLE REINSURANCE OPERATIONS In November 1998, the Company formed a captive insurance company, MG Reinsurance Company (MG Reinsurance). MG Reinsurance is licensed as a property and casualty insurer and operates as a monoline captive insurance company assuming reinsurance for PMI policies on agency-eligible mortgage loans initially purchased or produced by the Company. During the first quarter of 2000 and 1999, the Company recognized premium and investment income of approximately $0.75 million and $0.65 million, respectively, that has been included as other income in the agency-eligible reinsurance segment. SUBPRIME MORTGAGE OPERATIONS Following is a comparison of the revenues and expenses of the Company's subprime mortgage production operations:
FOR THE QUARTER ENDED MARCH 31, ------------------------------- ($ IN THOUSANDS) 2000 1999 ----------- ----------- Net interest income $ 3,086 $ 3,473 Net gain on sale of mortgage loans 2,441 2,857 Mark to market on residual interests in subprime securitizations (7,675) (1,349) Other income 893 417 --------- --------- Total production revenue (1,255) 5,398 --------- --------- Salary and employee benefits 5,545 3,301 Occupancy expense 629 583 Provision expense 742 499 General and administrative expenses 1,454 1,489 --------- --------- Total production expenses 8,370 5,872 --------- --------- Net pre-tax production margin $ (9,625) $ (474) --------- --------- Production $ 152,484 $ 184,111 Whole loan sales and securitizations 135,455 98,624 Total production revenue to whole loan sales and securitizations (93) bps 547 bps Total production expenses to production 549 bps 319 bps --------- --------- Net pre-tax production margin (642) bps 228 bps ========= =========
22 23 Summary During the first quarter of 2000, subprime production volume of $152.5 million exceeded whole loan sales and securitizations of $135.5 million by $17.0 million. At March 31, 2000, the Company had unsold subprime mortgage loans of $138.3 million as compared to $182.3 million at March 31, 1999. Overall, the Company operated during the first quarter of 2000 at a (6.42%) pre-tax subprime production margin. The $10.1 million (870 basis point) decline in the pre-tax subprime production margin is primarily due to the ($7.7) million adjustment during the first quarter of 2000 in the mark to market on residual interests in subprime securitizations. The Company is currently exploring options to extract cash in the short-term from these investments. Options being considered include the outright sale of certain securities and/or a re-REMIC of residual cash flows. Based upon initial market feedback, the Company reassessed the assumptions utilized in valuing these relatively illiquid securities, primarily the discount rate used in the valuation. Absent the $7.7 million adjustment to residual interests, the margin on sale of subprime loans was 5%. Also contributing to the decline in the pre-tax subprime production margin during the first quarter of 2000 is the $0.4 million decline in net gain on sale of subprime mortgage loans. This decline is primarily attributable to compressed margins as a result of an intensely competitive pricing environment. Salary and employee benefit costs increased by 41%, or $2.2 million, from the first quarter of 1999 to the first quarter of 2000. This was primarily due to recognition of severance benefits associated with a planned reorganization of the Company around it's primary business processes (production/sales, order fulfillment, servicing and portfolio management). Charges associated with the planned reorganization are discussed elsewhere in this Management's Discussion and Analysis. Occupancy expense increased by $0.05 million primarily due to charges associated with acquisition of newly leased office space. Provision expense increased by 49%, or $0.2 million, from the first quarter of 1999 to the first quarter of 2000 primarily due to a change in certain estimates used in calculating the provision. General and administrative expenses remained relatively flat between quarters. Net Interest Income The following table analyzes net interest income allocated to the Company's subprime mortgage production activities in terms of rate and volume variances of the interest spread (the difference between interest rates earned on loans and residual certificates and interest rates paid on interest-bearing sources of funds) for the quarters ended March 31, 2000 and 1999, respectively.
($ IN THOUSANDS) Variance Average Volume Average Rate Interest Attributable to - ---------------------------------------- --------------------- ---------------------- 2000 1999 2000 1999 2000 1999 Variance Rate Volume - ---------------------------------------- ---------------------------------------------------- Mortgages Held-for-Sale and $192,668 $210,424 11.62% 10.12% Residual Certificates $ 5,594 $5,326 $ 268 $ 717 $(449) - ----------------------------------------- ---------------------------------------------------- $135,963 $147,765 7.25% 5.09% Total Interest Expense $ 2,456 $1,853 $ 603 $ 751 $(148) - ----------------------------------------- ---------------------------------------------------- 4.37% 5.03% Net Interest Income $ 3,138 $3,473 $(335) $ (34) $(301) ================= =============================== Intercompany Net Interest Expense Included In Segment (52) -- --------------------- Net Interest Income $ 3,086 $3,473 =====================
23 24 Net interest income from subprime products decreased to $3.1 million for the first quarter of 2000 as compared to $3.5 million for the first quarter of 1999. This was primarily a result of a flattened yield curve and the decline in production volume, which was partially offset by $0.4 million increase in accretion income from $1.5 million for the first quarter of 1999 to $1.9 million for the first quarter of 2000. Net Gain on Sale and Securitization of Subprime Mortgage Loans During the first quarter of 2000 and 1999, there were no securitization transactions. The gain on sale recorded in the respective income statements are cash gains. The Company sold subprime mortgage loans on a whole loan basis during the first quarter of 2000 and 1999. Whole loans are generally sold without recourse to third parties with the gain or loss being calculated based on the difference between the carrying value of the loans sold and the gross proceeds received from the purchaser less expenses. Generally, no interest in these loans is retained by the Company. A reconciliation of the gain on subprime mortgage whole loan sales for the periods indicated follows:
($ IN THOUSANDS) FOR THE QUARTER ENDED MARCH 31, ----------------------------------------- 2000 1999 ------------------ ----------------- Gross proceeds on whole loan sales of subprime mortgage loans $ 139,435 $ 102,050 Initial acquisition cost of subprime mortgage loans sold, net of fees 135,455 98,624 ------------------ ----------------- Unadjusted gain on whole loan sales of subprime mortgage loans 3,980 3,426 Net deferred costs and administrative fees recognized (1,539) (569) ------------------ ----------------- Net gain on whole loan sales of subprime mortgage loans $ 2,441 $ 2,857 ================== =================
The $0.4 million decrease in the net gain on whole loan sales of subprime mortgage loans from the first quarter of 1999 gain of $2.9 million to $2.4 million reported for the first quarter of 2000 is primarily due to compressed margins in the subprime market. Also, in accordance with Statement of Financial Accounting Standard No. 91, "Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases" the Company reduced its net gain on whole loan sales of subprime mortgage loans by $1.5 million in the first quarter of 2000 as compared to $0.6 million in the first quarter of 1999. Mark to Market on Residual Interests in Subprime Securitizations The Company generally has retained residual certificates in connection with the securitization of subprime loans. These residual certificates are adjusted to approximate market value each quarter. For the quarters ended March 31, 2000 and 1999, respectively, mark-to-market gain (loss) on residuals was approximately $(7.7) million and $(1.3) million, respectively. Management has initiated a strategic change in the Company's intent to hold these instruments for the long-term. As a result, there has been a reassessment of the assumptions utilized for purposes of valuing these relatively illiquid securities, primarily the discount rate used in the valuation, as described below. 24 25 See additional discussion regarding this reassessment elsewhere in this Management's Discussion and Analysis. The Company assesses the fair value of residual certificates quarterly, with assistance from an independent third party. This valuation is based on the discounted cash flows expected to be available to the holder of the residual certificates. Significant assumptions used at March 31, 2000 for residual certificates then held by the Company generally include a discount rate of 15%, a constant default rate of 3% (5% for 1997-1 and 1998-1) and a loss severity rate of 25%. Ramping periods are based on prepayment penalty periods and adjustable rate mortgage first reset dates. Terminal prepayment rate assumptions specific to the individual certificates for purposes of the March 31, 2000 valuations are set forth below:
1997-1 1997-2 1998-1 1998-2 1999-1 1999-2 ---------------------------------------------------------------------- Prepayment Speeds Fixed rate mortgages 34% cpr 32% cpr 32% cpr 32% cpr 30% cpr 30% cpr Adjustable rate mortgages 34% cpr 32% cpr 32% cpr 32% cpr 30% cpr 30% cpr
Terminal prepayment rate assumptions specific to the individual certificates for purposes of the March 31, 1999 valuations are set forth below:
1997-1 1997-2 1998-1 1998-2 OTHER ----------------------------------------------------------- Prepayment speeds Fixed rate mortgages 32% cpr 30% cpr 28% cpr 28% cpr 32% cpr Adjustable rate mortgages 32% cpr 30% cpr 28% cpr 28% cpr 24% cpr
The assumptions used in the independent third party valuation referred to above are estimated based on current conditions for similar instruments that are subject to prepayment and credit risks. Other factors considered in the determination of fair value include credit and collateral quality of the underlying loans, current economic conditions and various fees and costs associated with ownership of the residual certificate including actual credit history of the individual residual certificates. Although the Company believes that the fair values of its residual certificates are reasonable given current market conditions, the assumptions used are estimates and actual experience may vary from these estimates. Differences in the actual prepayment speed and loss experience from the assumptions used, could have a significant effect on the fair value of the residual certificates. As summarized in the following analysis, the recorded residual values imply that the Company's securitizations are valued at 1.44 times the implied excess yield at March 31, 2000, as compared to the 1.41 multiple implied at March 31, 1999. The table below represents balances as of March 31, 2000, unless otherwise noted. 25 26
SECURITIZATIONS ------------------------------------------------------------ 1997-1 1997-2 1998-1 1998-2 1999-1 1999-2 TOTAL -------- --------- -------- --------- --------- --------- --------- ($ IN THOUSANDS) Residual Certificates $ 5,589 $ 6,225 $ 8,805 $ 11,319 $ 8,119 $ 7,720 $ 47,777 Bonds $16,115* $18,796* $62,326* $122,157* $112,167* $121,396* $452,957 -------- -------- -------- --------- --------- --------- --------- Subtotal $21,704 $25,021 $71,131 $133,476 $120,286 $129,116 $500,734 Unpaid Principal Balance $20,891* $23,650* $67,951* $128,003* $115,175* $ 23,268* $478,938 -------- -------- -------- --------- --------- --------- --------- Implied Price 103.89 105.80 104.68 104.28 104.44 104.74 104.55 -------- -------- -------- --------- --------- --------- --------- Collateral Yield 12.49 12.17 9.93 9.74 9.82 9.82 10.01 Collateral Equivalent Securitization Costs (0.70) (0.63) (0.59) (0.60) (0.62) (0.68) (0.63) Collateral Equivalent Bond Rate (5.60) (5.11) (5.80) (6.45) (6.25) (6.39) (6.21) -------- --------- -------- --------- --------- --------- --------- Implied Collateral Equivalent Excess Yield 6.19 6.43 3.54 2.69 2.95 2.75 3.17 -------- --------- -------- --------- --------- --------- --------- Implied Premium Above Par 3.89 5.80 4.68 4.28 4.44 4.74 4.55 Implied Collateral Equivalent Excess Yield 6.19 6.43 3.54 2.69 2.95 2.75 3.17 -------- --------- -------- --------- --------- --------- --------- Multiple 0.63 x 0.90 x 1.32 x 1.59 x 1.50 x 1.73 x 1.44 x -------- --------- -------- --------- --------- --------- ---------
* Amounts were based upon trustee statements dated April 25, 2000 that covered the period ended March 31, 2000. A SUMMARY OF KEY INFORMATION RELEVANT TO THE SUBPRIME RESIDUAL ASSETS AT MARCH 31, 2000 IS SET FORTH BELOW:
SECURITIZATIONS ------------------------------------------------------------ 1997-1 1997-2 1998-1 1998-2 1999-1 1999-2 TOTAL -------- --------- -------- --------- --------- --------- --------- ($ IN THOUSANDS) Balance at December 31,1999 $ 5,971 $ 7,153 $10,334 $12,460 $ 9,566 $ 8,898 $54,382 Initial Capitalization of Residual Certificates -- -- -- -- -- -- -- Accretion 263 296 359 412 311 247 1,888 Mark-to-Market (677) (1,001) (1,460) (1,553) (1,758) (1,426) (7,875)* Cash Flow (140) (223) (428) - - - (791) -------- --------- -------- --------- --------- --------- --------- Balance at March 31, 2000 $ 5,417 $ 6,225 $ 8,805 $11,319 $ 8,119 $ 7,719 $47,604 ======== ========= ======== ========= ========= ========= =========
* In 1999 the Company decided to conservatively write off the remaining portion of a residual certificate it received in 1997 in settlement of an account receivable. In the first quarter of 2000 the Company disposed of this residual certificate and recovered approximately $0.2 million, which had been previously reported as a mark-to-market loss. Thus the Company reported a total market-to-market loss for the first quarter of 2000 of $7.7 million and a $7.9 million market-to-market loss on the residual interests remaining on the balance sheet at March 31, 2000. A SUMMARY OF KEY INFORMATION RELEVANT TO THE SUBPRIME RESIDUAL ASSETS AT MARCH 31, 1999 IS SET FORTH BELOW:
SECURITIZATIONS ------------------------------------------------------------ 1997-1 1997-2 1998-1 1998-2 1999-1 1999-2 OTHER* TOTAL -------- --------- -------- --------- --------- --------- -------- -------- ($ IN THOUSANDS) Balance at December 31,1998 $7,997 $9,702 $10,815 $12,569 $ -- $ -- $ 4,700 $45,783 Initial Capitalization of Residual Certificates -- -- -- -- -- -- -- Accretion 292 318 315 362 -- -- 179 1,466 Mark-to-Market 27 (109) (467) 661 -- -- (1,461) (1,349) Cash Flow (421) (855) -- -- -- -- -- (1,276) ------ ------ ------- ------- ------- ------- -------- ------- Balance at March 31, 1999 $7,895 $9,056 $10,663 $13,592 $ -- $ -- $ 3,418 $44,624 ====== ====== ======= ======= ======= ======= ======== =======
* Represents a portion of a residual certificate the Company received in 1997 in settlement of an account receivable. In 1999 the Company decided to conservatively write off this receivable. 26 27 Other Income Other income from subprime operations increased $0.5 million and consists primarily of prepayment penalties. AGENCY-ELIGIBLE MORTGAGE SERVICING Following is a comparison of the revenues and expenses of the Company's agency-eligible mortgage servicing operations for the years ended March 31, 2000 and 1999:
FOR THE QUARTER ENDED MARCH 31, -------------------------------- ($ IN THOUSANDS) 2000 1999 ------------ -------------- Net interest expense $ (1,297) $ (1,389) Loan servicing fees 9,365 11,703 Other income 128 161 ----------- ------------ Servicing revenues 8,196 10,475 Salary and employee benefits 693 898 Occupancy expense 55 107 Amortization and provision for impairment of mortgage Servicing rights 6,277 8,516 General and administrative expenses 938 1,778 ----------- ------------ Total loan servicing expenses 7,963 11,299 ----------- ------------ Net pre-tax servicing margin 233 (824) Gain on sale of mortgage servicing rights 808 2,998 ----------- ------------ Net pre-tax servicing contribution $ 1,041 $ 2,174 =========== ============ Average servicing portfolio $ 8,041,986 $ 10,318,105 Servicing sold 1,128,536 3,003,253 Net pre-tax servicing margin to average servicing portfolio 1 bp (3) bps Gain on sale of servicing to servicing sold 7 bps 10 bps
Summary The ratio of net pre-tax servicing margin to the average servicing portfolio increased 4 basis points primarily due to the $2.2 million reduction in amortization and provision for impairment of mortgage servicing rights from the first quarter of 1999 to the first quarter of 2000. This reduction in amortization and provision for impairment of mortgage servicing rights is primarily due to the generally smaller size of the portfolio and slowing prepayments due to higher rates. The 3 basis point decrease in the gain on sale of servicing sold is primarily attributable to compressed margins in an intensely competitive market during the first quarter of 2000. Loan servicing fees were $9.4 million for the first quarter of 2000, compared to $11.7 million for the first quarter of 1999, a decrease of 20%, primarily due to lower production volumes which resulted in a lower average balance of agency-eligible servicing rights held in inventory pending sale. Management regularly assesses market prepay trends and adjusts amortization accordingly. Management believes that the value of the Company's mortgage servicing rights are reasonable in light of current market conditions. However, there can be no guarantee that market conditions 27 28 will not change such that mortgage servicing rights valuations will require additional amortization or impairment charges. Net Interest Expense The net interest expense for the first quarter of 2000 and the first quarter of 1999 is composed of benefits from escrow accounts of $1.8 million and $2.0 million, respectively, that is offset by $3.1 million and $3.4 million, respectively, in interest expense. Gain on Sale of Mortgage Servicing Rights A reconciliation of the components of gain on sale of mortgage servicing rights for the periods indicated follows:
($ IN THOUSANDS) FOR THE QUARTER ENDED MARCH 31, ------------------------------- 2000 1999 ----------- ----------- Underlying unpaid principal balances of agency-eligible mortgage loans on which servicing rights were sold during the period $ 1,128,536 $ 3,003,253 =========== =========== Gross proceeds from sales of mortgage servicing rights $ 31,929 $ 78,888 Initial acquisition basis, net of amortization and hedge results 25,528 56,942 ----------- ----------- Unadjusted gain on sale of mortgage servicing rights 6,401 21,946 Acquisition basis allocated from mortgage loans, net of amortization (SFAS No. 125) (5,593) (18,948) ----------- ----------- Gain on sale of mortgage servicing rights $ 808 $ 2,998 =========== ===========
Gain on sale of mortgage servicing rights decreased $2.2 million from $3.0 million for the first quarter of 1999 to $0.8 million for the first quarter of 2000. The decrease in the gain on sale of mortgage servicing rights is primarily attributable to lower production volumes which resulted in a lower balance of agency-eligible servicing rights sold. COMMERCIAL MORTGAGE OPERATIONS Following is a summary of the revenues and expenses of the Company's commercial mortgage production operations. 28 29
FOR THE QUARTER ENDED MARCH 31, ------------------------------- ($ IN THOUSANDS) 2000 1999 ----------- ----------- Net interest income $ (8) $ 94 Net gain on sale of mortgage loans 636 1,239 Other income 13 11 ----------- ----------- Total production revenue 641 1,344 ----------- ----------- Salary and employee benefits 1,854 1,738 Occupancy expense 290 263 General and administrative expenses 417 430 ----------- ----------- Total production expenses 2,561 2,431 ----------- ----------- Net pre-tax production margin (1,920) (1,087) ----------- ----------- Servicing fees 1,314 975 Amortization of mortgage servicing rights 625 464 ----------- ----------- Net pre-tax servicing margin 689 511 ----------- ----------- Pre-tax income (loss) $ (1,231) $ (576) ----------- ----------- Production $ 95,475 $ 150,152 Whole loan sales 95,475 165,262 Average commercial mortgage servicing portfolio $ 4,170,476 $ 3,337,253 Total production revenue to whole loan sales 67 bps 81 bps Total production expenses to production 268 bps 162 bps ----------- ----------- Net pre-tax production margin (201) bps (81) bps ----------- ----------- Servicing fees to average commercial mortgage servicing portfolio 13 bps 12 bps Amortization of mortgage servicing rights to average commercial mortgage servicing portfolio 6 bps 6 bps ----------- ----------- Net pre-tax servicing margin 7 bps 6 bps ----------- -----------
The net pre-tax production margin declined for the first quarter of 2000 as compared to the first quarter of 1999 primarily due to a decrease in production revenue and an increase in production expenses. Production revenue to whole loan sales decreased 14 basis points from the first quarter of 1999 to the first quarter of 2000. This decrease in production revenue between quarters is primarily attributable to (1) an 8 basis point decrease in the net gain on sale of commercial mortgage loans due to compressed margins in an intensely competitive pricing environment and lower overall production volumes and (2) a 7 basis point decrease in the net interest margin due to a flattened yield curve. Production expenses to production increased 106 basis points from the first quarter of 1999 to the first quarter of 2000. The production expense increase is primarily attributable to (1) a 5% increase in the number of employees from quarter to quarter and (2) $0.2 million charge to salary and employee benefits associated with the continuation of the workforce reduction initiated in the fourth quarter of 1999. Such charges are discussed elsewhere in this Management's Discussion and Analysis. Laureate originates commercial mortgage loans for various insurance companies and other investors, primarily in 29 30 Alabama, Florida, Indiana, North Carolina, Pennsylvania, South Carolina, Tennessee and Virginia. Substantially all loans originated by Laureate have been originated in the name of the investor, and in most cases, Laureate has retained the right to service the loans under a servicing agreement with the investor. Most commercial mortgage loan servicing agreements are short-term, and retention of the servicing contract is dependent on maintaining the investor relationship. Net Gain on Sale of Commercial Mortgage Loans A reconciliation of gain on sale of commercial mortgage loans for the periods indicated follows:
($ IN THOUSANDS) FOR THE QUARTER ENDED MARCH 31, ------------------------------- 2000 1999 ------- -------- Gross proceeds on sales of commercial mortgage loans $95,475 $165,262 Initial unadjusted acquisition cost of commercial mortgage loans sold 95,475 165,262 ------- -------- Unadjusted gain on sale of commercial mortgage loans -- -- Commercial mortgage and origination fees 752 849 ------- -------- Unadjusted aggregate margin 752 849 Initial acquisition cost allocated to basis in commercial mortgage servicing rights (SFAS No. 125) 116 390 ------- -------- Net gain on sale of commercial mortgage loans $ 636 $ 1,239 ======= ========
The net gain on sale of commercial mortgage loans decreased $0.6 million (49%) from $1.2 million for the first quarter of 1999 to $0.6 million for the first quarter of 2000. The decrease is primarily attributable to compressed margins in an intensely competitive pricing environment and lower overall production volumes. LEASING OPERATIONS Following is a summary of the revenues and expenses of the Company's small-ticket equipment leasing operations for the periods indicated: 30 31
FOR THE QUARTER ENDED MARCH 31, ------------------------------- ($ IN THOUSANDS) 2000 1999 -------- -------- Net interest income $ 2,127 $ 1,645 Other income 262 151 -------- -------- Leasing production revenue 2,389 1,796 -------- -------- Salary and employee benefits 760 640 Occupancy expense 120 104 359 383 General and administrative expenses 294 370 -------- -------- Total lease operating expenses 1,533 1,497 -------- -------- Net pre-tax leasing production margin 856 299 Servicing fees 99 161 -------- -------- Net pre-tax leasing margin $ 955 $ 460 -------- -------- Average owned leasing portfolio $156,209 $104,355 Average serviced leasing portfolio 12,373 33,967 -------- -------- Average managed leasing portfolio $168,582 $138,322 ======== ======== Leasing production revenue to average owned portfolio 612 bps 688 bps Leasing operating expenses to average owned portfolio 393 bps 574 bps -------- -------- Net pre-tax leasing production margin 219 bps 114 bps ======== ======== Servicing fees to average serviced leasing portfolio 320 bps 190 bps ======== ========
The 33% increase in leasing production revenue for the first quarter of 2000 as compared to the first quarter of 1999 is primarily due to the 50% increase in the average owned leasing portfolio which is due to the policy of retaining originated leases on the balance sheet. The net pre-tax leasing margin improved in the first quarter of 2000 as compared to the first quarter of 1999 due to the increase in production revenue which was only partially offset by a 2% increase in lease operating expenses. Efficiencies in managing costs were able to be achieved in the first quarter of 2000 as the volume of leases owned increased. Substantially all of the Company's lease receivables are acquired from independent brokers who operate throughout the continental United States and referrals from independent banks. The Company has made an effort to increase the owned portfolio. As it has increased its owned portfolio more cost efficiencies have been achieved thereby increasing the net pre-tax leasing production margin. Net Interest Income Net interest income for the first quarter of 2000 was $2.1 million as compared to $1.6 million for the first quarter of 1999. This is equivalent to an annualized net interest margin of 3.90% and 4.44% for the first quarter of 2000 and 1999, respectively, based upon average lease receivables owned of $156.2 million and $104.4 million, respectively, and average debt outstanding of $132.3 and $85.6 million, respectively. OTHER During the third quarter of 1999, the Company reorganized its reporting cost centers and is now reporting holding company costs as a reconciling item between the segmented income statement and the consolidated income statement. The primary components of holding company 31 32 costs are 1) interest expense on the debt on the Company's corporate headquarters; 2) salary and employee benefits of corporate personnel; 3) depreciation on the corporate headquarters; and 4) income taxes. The first quarter 1999 segmented income statement has been restated to conform with the first quarter 2000 segmented income statement presentation. WORKFORCE REDUCTION During the fourth quarter of 1999, the Company initiated a workforce reduction. The workforce reduction became necessary as the Company continued to adapt to a smaller overall residential mortgage market and intensely competitive pricing conditions. In the first quarter of 2000, the Company reconsidered it's current positioning in the market and its corporate, management and leadership structures. As a result, the Company is reorganizing around primary business processes, production/sales, customer fulfillment, servicing and portfolio management. In connection with the planned reorganization, a number of senior management positions have been scheduled for elimination during the remainder of the year. The impact of the expense in the first quarter of 2000 related to the continuation of the workforce reduction and the planned reorganization is summarized below by financial statement component and operating division: ($ in thousands) Agency-Eligible Commercial Production Subprime Mortgage Consolidated --------------- -------- ---------- ------------ Salary and employee benefits $ 136 $ 2,075 $ 191 $ 2,402 Occupancy expense 171 -- -- 171 ----- ------- ----- ------- Net pre-tax impact 307 2,075 191 2,573 Estimated allocable income tax expense (113) (763) (70) (946) ----- ------- ----- ------- Net after-tax Impact $ 194 $ 1,312 $ 121 $ 1,627 ===== ======= ===== ======= 32 33 FINANCIAL CONDITION During the first quarter of 2000, the Company experienced a 24% decrease in the volume of production originated and acquired compared to the fourth quarter of 1999. Production decreased to $1.4 billion during the first quarter of 2000 from $1.9 billion during the fourth quarter of 1999. In general the decline in production is primarily attributable to (1) the current level of competition in the marketplace; (2) an estimated 25% decline in residential originations within the industry from the fourth quarter of 1999 to the first quarter of 2000; (3) the increased ARM market share (the Company offers primarily fixed rate products); and (4) the rise in mortgage interest rates during the first quarter of 2000. The March 31, 2000, locked residential mortgage application pipeline (mortgage loans not yet closed but for which the interest rate has been locked) was approximately $0.5 billion and the application pipeline (mortgage loans for which the interest rate has not yet been locked) was approximately $0.4 billion. This compares to a locked mortgage application pipeline of $0.4 billion and a $0.3 billion application pipeline at December 31, 1999. Mortgage loans held-for-sale and mortgage-backed securities totaled $0.4 billion at March 31, 1999, versus $0.5 billion at December 31, 1999, a decrease of 7%. The Company's servicing portfolio (exclusive of loans under subservicing agreements) decreased to $7.7 billion at March 31, 2000, from $7.8 billion at December 31, 1999, a decrease of 1%. The decrease in mortgage loans held-for-sale and mortgage-backed securities is primarily attributable to the decrease in production, as previously discussed. Short-term borrowings, which are the Company's primary source of funds, totaled $0.8 billion at March 31, 2000, compared to $0.7 billion at December 31, 1999, an increase of 6%. At March 31, 2000, there were $6.2 million in long-term borrowings, compared to $6.3 million at December 31, 1999. Other liabilities totaled $96.2 million as of March 31, 2000, compared to the December 31, 1999 balance of $84.8 million, an increase of $11.4 million, or 13%. The increase in other liabilities is primarily due to normal fluctuations in the monthly business cycle. The Company continues to face the same challenges as other production-oriented companies within the mortgage banking industry and as such is not immune from significant volume declines precipitated by competitive pricing, a rise in interest rates and other factors beyond the Company's control. These and other important factors that could cause actual results to differ materially from those reported are listed under the Risk Factors section in the Company's 1999 Form 10K. LIQUIDITY AND CAPITAL RESOURCES The Company's primary cash-flow requirement involves the funding of loan production, which is met primarily through external borrowings. In August 1999, the Company and its wholly owned subsidiaries RBMG, Inc., Meritage Mortgage Corporation and RBMG Asset Management Company, Inc. (not including the Company, the Restricted Group), entered into a $540 million warehouse line of credit provided by a syndicate of unaffiliated banks that expires in July 2000. The credit agreement includes covenants requiring the Restricted Group to 33 34 maintain (i) a minimum net worth of $170 million, plus the Restricted Group's net income subsequent to June 30, 1999, plus 90% of capital contributions to the Restricted Group and minus restricted payments, (ii) a ratio of total Restricted Group liabilities to tangible net worth of not more than 8.0 to 1.0, excluding debt incurred pursuant to gestation and repurchase financing agreements, (iii) RBMG, Inc.'s eligibility as a servicer of Ginnie Mae, FHA, VA, Fannie Mae and Freddie Mac mortgage loans, (iv) a mortgage servicing rights portfolio with an underlying unpaid principal balance of at least $5 billion and (v) a ratio of consolidated cash flow to consolidated interest expense (these terms are defined in the loan agreements) of at least 1.10 to 1.00 for the quarter ending March 31, 2000 and 1.20 to 1.00 for any period of two consecutive fiscal quarters thereafter (the interest rate coverage ratio). The provisions of the agreement also restrict the Restricted Group's ability to engage significantly in any type of business unrelated to the mortgage banking and lending business and the servicing of mortgage loans. In August 1999, the Company and the Restricted Group also entered into a $210 million subprime revolving credit facility and a $250 million servicing revolving credit facility, which expire in July 2000. These facilities include covenants identical to those described above with respect to the warehouse line of credit. The Restricted Group was in compliance with the debt covenants in place at March 31, 2000. Although management anticipates continued compliance with current debt covenants, there can be no assurance that the Restricted Group will be able to comply with the debt covenants specified for each of these financing agreements. Failure to comply could result in the loss of the related financing. RBMG Asset Management Company, Inc., a wholly-owned subsidiary of Meritage and a bank are parties to a master repurchase agreement, pursuant to which RBMG Asset Management Co. is entitled from time to time to deliver eligible subprime mortgage loans in an aggregate principal amount of up to $200 million to the bank. The master repurchase agreement has been extended through July 26, 2000. The Company has entered into an uncommitted gestation financing arrangement. The interest rate on funds borrowed pursuant to the gestation line is based on a spread over the Federal Funds rate. The gestation line has a funding limit of $1.2 billion. The Company executed a $6.6 million note in May 1997. This debt is secured by the Company's corporate headquarters. The terms of the related agreement require the Company to make 120 equal monthly principal and interest payments based upon a fixed interest rate of 8.07%. The note contains covenants similar to those previously described. The Company has entered into a $10.0 million unsecured line of credit agreement that expires in July 2000. The interest rate on funds borrowed is based upon the prime rate announced by a major money center bank. Republic Leasing, a wholly-owned subsidiary of the Company, has a $200 million credit facility to provide financing for its leasing portfolio. The warehouse credit agreement matures in 34 35 August 2000 and contains various covenants regarding characteristics of the collateral and the performance of the leases originated and serviced by Republic Leasing. The warehouse credit agreement also requires the Company to maintain a minimum net worth of $60 million and Republic Leasing to maintain a ratio of total liabilities to net worth of no more than 10.0 to 1.0. The Company has been repurchasing its stock pursuant to Board authority since March 1998, and, as of March 31, 2000, the Company had remaining authority to repurchase up to $4.5 million of the Company's common stock in either open market transactions or in private or block trades. Decisions regarding the amount and timing of repurchases will be made by management based upon market conditions and other factors. The repurchase authority will enable the Company to repurchase shares to meet the Company's obligations pursuant to existing bonus, stock option, dividend reinvestment and employee stock purchase and ESOP plans. Shares repurchased are maintained in the Company's treasury account and are not retired. At March 31, 2000, there were 4,924,388 shares held in the Company's treasury account at an average cost of $8.11 per share. NEW ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133). SFAS No. 133 establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security or a foreign-currency denominated forecasted transaction. SFAS No. 133 is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000 (January 1, 2001 for the Company). However, early adoption is permitted. The Company has not yet determined either the impact that the adoption of SFAS 133 will have on its earnings or statement of financial position. DIVISIONAL ANALYSIS OF PRE-TAX FUNDS GENERATED FROM OPERATIONS The analyses which follow are included solely to assist investors in obtaining a better understanding of the material elements of the Company's funds generated by operations at a divisional level. It is intended as a supplement, and not an alternative to, and should be read in conjunction with, the Consolidated Statement of Cash Flows, which provides information concerning elements of the Company's cash flows. 35 36 SUMMARY On a combined divisional basis, during the quarters ended March 31, 2000 and 1999, the Company generated approximately $5.3 million and $30.5 million, respectively, of positive funds from operations. ($ in thousands) FOR THE QUARTER ENDED MARCH 31, ------------------------------- 2000 1999 ----------- ----------- Agency-eligible production $ (2,417) $ 20,182 Agency-eligible servicing 6,553 7,781 Subprime production 213 2,049 Commercial mortgage (397) (410) Leasing 1,380 919 -------- -------- $ 5,332 $ 30,521 ======== ======== Each of the Company's divisions produced positive operating funds during both periods except for agency-eligible production in the first quarter of 2000 and commercial mortgage production in the first quarter of both 2000 and 1999. The combined positive operating funds were invested to reduce indebtedness, pay dividends, repurchase stock and purchase fixed assets. AGENCY-ELIGIBLE PRODUCTION Generally, the Company purchases agency-eligible mortgage loans which are resold with the rights to service the loans being retained by the Company. The Company then separately sells a large percentage of the servicing rights so produced. When the loans are sold, current accounting principles require that the Company capitalize the estimated fair value of the retained mortgage servicing rights sold and subsequently amortize the servicing rights retained to expense. Accordingly, amounts reported as gains on sale of agency-eligible mortgage loans may not represent positive funds flow to the extent that the associated servicing rights are not sold for cash but are instead retained and capitalized. In this context, the table below reconciles the major elements of pre-tax operating funds flow of the Company's agency-eligible production activities. ($ in thousands) FOR THE QUARTER ENDED MARCH 31, -------------------------------- 2000 1999 ------------ ---------- Income (loss) before income taxes $ (6,428) $ 17,802 Deduct: Net gain on sale of mortgage loans, as reported (6,206) (33,193) Add back: Cash gains on sale of mortgage loans 936 11,703 Cash gains on sale of mortgage servicing rights 6,401 21,946 Depreciation 1,500 1,005 Provision expense 1,380 919 --------- -------- $ (2,417) $ 20,182 ======== ======== 36 37 AGENCY-ELIGIBLE SERVICING The Company's current strategy is to position itself as a national supplier of agency-eligible servicing rights to the still consolidating mortgage servicing industry. Accordingly, the Company generally sells a significant percentage of its produced mortgage servicing rights to other approved servicers under forward committed bulk purchase agreements. However, the Company maintains a relatively small mortgage servicing portfolio. As discussed above, mortgage servicing rights produced or purchased are initially capitalized and subsequently must be amortized to expense. Much like depreciation, such amortization charges are "non-cash." In this context, the table below reconciles the major elements of pre-tax operating funds flow of the Company's agency-eligible mortgage servicing activities. ($ in thousands) FOR THE QUARTER ENDED MARCH 31, ------------------------------- 2000 1999 ----------- ---------- Income before income taxes $ 1,041 $ 2,174 Deduct: Net gain on sale of mortgage servicing rights, as reported (808) (2,998) Add back: Amortization and provision for impairment of Mortgage servicing rights 6,277 8,516 Depreciation 43 89 ------- ------- $ 6,553 $ 7,781 ======= ======= SUBPRIME PRODUCTION Generally, the Company purchases subprime loans through a wholesale broker network. The Company then separately sells or securitizes the loans so produced. Existing accounting principles require that at the time loans are securitized, the Company capitalize the estimated fair value of future cash flows to be received in connection with retention by the Company of a residual interest in the securitized loans. Accordingly, amounts reported as gains on sale of subprime mortgage loans may not represent cash gains to the extent that associated residual interests are retained and capitalized. In this context, the table below reconciles the major elements of pre-tax operating funds flow of the Company's subprime mortgage production activities. 37 38
($ in thousands) FOR THE QUARTER ENDED MARCH 31, ------------------------------- 2000 1999 ------------- -------------- Income (loss) before income taxes $(9,625) $ (474) Deduct: Net gain on sale of subprime loans, as reported (2,441) (2,857) Accretion income on residuals (1,888) (1,466) Add back: Cash gains on sale of whole subprime loans 3,980 3,426 Cash received from investments in residual certificates 791 1,276 Depreciation and amortization of goodwill and intangibles 779 296 Provision expense 742 499 Mark to market on residuals 7,875 1,349 ------------- -------------- $ 213 $ 2,049 ============= ==============
COMMERCIAL MORTGAGE Generally, the Company originates commercial mortgage loans for conduits, insurance companies and other investors. The Company either table funds the loans or originates the loans pursuant to pre-existing investor commitments to purchase the loans so originated. Similar to the agency-eligible operation, the Company generally retains the right to service the loans under various servicing agreements. Current accounting principles require that the Company capitalize the estimated fair value of mortgage servicing rights produced at the time the related loans are sold and subsequently amortize the servicing rights retained to expense. Accordingly, amounts reported as gains on sale of commercial mortgage loans may not represent cash gains to the extent that the associated servicing rights are not sold for cash but are instead retained and capitalized. Mortgage servicing rights initially capitalized must be amortized subsequently to expense. Much like depreciation, such amortization charges are "non-cash." In this context, the table below reconciles the major elements of pre-tax operating funds flow of commercial mortgage production and servicing activities. 38 39 ($ in thousands) FOR THE QUARTER ENDED MARCH 31, ------------------------------- 2000 1999 --------- --------- Income (loss) before income taxes $(1,231) $ (576) Deduct: Net gain on sale of commercial loans, as reported (636) (1,239) Add back: Cash gains on sale of whole commercial loans 752 849 Amortization and provision for impairment of commercial mortgage servicing rights 625 464 Depreciation and amortization of goodwill and intangibles 93 92 -------- ------- $ (397) $ (410) ======== ======= LEASING Generally, the Company originates small-ticket equipment leases for commercial customers that are retained as investments by the Company. Investments in leases originated and retained are financed through a borrowing facility at draw rates that approximate the net cash investment in the related lease. Accordingly, financing activities related to growth in the balance of leases held for investment do not significantly impact operating cash flow. In this context, the table below reconciles the major elements of operating funds flow allocable to leasing activities. ($ in thousands) FOR THE QUARTER ENDED MARCH 31, ------------------------------- 2000 1999 ---------- ---------- Income before income taxes $ 955 $460 Add back: Depreciation and amortization of goodwill and intangibles 66 76 Provision expense 359 383 ------ ---- $1,380 $919 ====== ==== ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The primary market risk facing the Company is interest rate risk. The Company manages this risk by striving to balance its loan origination and loan servicing business segments, which are countercyclical in nature. In addition, the Company utilizes various financial instruments, including derivatives contracts, to manage the interest rate risk related specifically to its committed pipeline, mortgage loan inventory, mortgage backed securities held for sale, servicing rights, leases and residual interests retained in securitizations. The overall objective of the Company's interest rate risk management policies is to mitigate potentially significant adverse effects that changes in the values of these items resulting from changes in interest rates 39 40 might have on the Company's consolidated balance sheet. The Company does not speculate on the direction of interest rates in its management of interest rate risk. For purposes of disclosure in the 1999 Annual Report on Form 10-K, the Company performed various sensitivity analyses that quantify the net financial impact of hypothetical changes in interest rates on its interest rate-sensitive assets, liabilities and commitments. These analyses presume an instantaneous parallel shift of the yield curve. Various techniques are employed to value the underlying financial instruments which rely upon a number of critical assumptions. Actual experience may differ materially from the estimated. To the extent that yield curve shifts are non-parallel and to the extent that actual variations in significant assumptions differ from those applied for purposes of the valuations, the resultant valuations can also be expected to vary. Such variances may prove material. The Company has procedures in place that monitor whether material changes in market risk are likely to have occurred since December 31, 1999. The Company does not believe that there have been any material changes in market risk from those reported in the 1999 Annual Report on Form 10-K. 40 41 PART II. OTHER INFORMATION ITEM 2. - CHANGES IN SECURITIES AND USE OF PROCEEDS ON JANUARY 10, 2000, THE COMPANY ISSUED 100,000 SHARES OF ITS COMMON STOCK, PAR VALUE $0.01 PER SHARE, TO DOUGLAS K. FREEMAN AT A PRICE OF $4.50 PER SHARE. THE COMPANY BELIEVES THAT THE ISSUANCE OF THE SHARES TO MR. FREEMAN WAS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, UNDER REGULATION D AND SECTION 4 (2) PROMULGATED THEREUNDER BY VIRTUE OF HIS STATUS AS AN ACCREDITED INVESTOR. ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K - (a) A LIST OF EXHIBITS FILED WITH THIS FORM 10-Q, ALONG WITH THE EXHIBIT INDEX CAN BE FOUND ON PAGES A TO F FOLLOWING THE SIGNATURE PAGE. - (b) ON MARCH 29, 2000 THE COMPANY FILED A REPORT ON FORM 8-K ANNOUNCING A CHANGE IN ACCOUNTANTS. 41 42 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 BANCSHARES MORTGAGE GROUP, INC. (Registrant) /s/ Steven F. Herbert --------------------------------------------- Steven F. Herbert Corporate Senior Executive Vice President and Corporate Chief Financial Officer (signing in the capacity of (i) duly authorized officer of the registrant and (ii) principal financial officer of the registrant) DATED: May 14, 2000 42 43 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION PAGE - ----------- ----------- ---- 3.1 Restated Certificate of Incorporation of the Registrant incorporated by reference to * Exhibit 3.3 of the Registrant's Registration No. 33-53980 3.2 Certificate of Amendment of Certificate of Incorporation of the * Registrant incorporated by reference to Exhibit 3.2 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1997 3.3 Certificate of Designation of the Preferred Stock of the Registrant * incorporated by reference to Exhibit 4.1 of the Registrant's Form 8-A filed on February 8, 1998 3.4 Amended and Restated Bylaws of the Registrant incorporated by reference to * Exhibit 3.4 of the Registrant's Registration No. 33-53980 3.5 Amendment to Bylaws of Resource Bancshares Mortgage Group, Inc. dated January 28, 1999 * incorporated by reference to Exhibit 3.5 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1998 3.6 Amendment to Bylaws of Resource Bancshares Mortgage Group, Inc. incorporated by * reference to Exhibit 3.1 of the Registrant's Registration No. 333-82105 4.1 Specimen Certificate of Registrant's Common Stock incorporated by * reference to Exhibit 4.1 of the Registrant's Registration No. 33-53980 4.2 Rights Plan dated as of February 6, 1998 between the Registrant and First Chicago * Trust Company of New York incorporated by reference to Exhibit 4.1 of the Registrant's Form 8-A filed on February 8, 1998 4.3 Note Agreement between the Registrant and UNUM Life Insurance Company of * America dated May 16, 1997 incorporated by reference to Exhibit 10.45 of the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1997 10.1 Employment Agreement dated June 3, 1993, between the Registrant and * David W. Johnson, Jr. as amended by amendment dated October 22, 1993 incorporated by reference to Exhibit 10.1 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 10.2 (A) Stock Option Agreement between the Registrant and David W. Johnson, Jr. * incorporated by reference to Exhibit 10.8 (A) of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 (B) Stock Option Agreement between the Registrant and Lee E. Shelton * incorporated by reference to Exhibit 10.8 (B) of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 10.3 Termination Agreement dated June 3, 1993, between the Registrant and * David W. Johnson, Jr. incorporated by reference to Exhibit 10.9 (A) of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993
A 44
EXHIBIT NO. DESCRIPTION PAGE - ----------- ----------- ---- 10.4 (A) Deferred Compensation Agreement dated June 3, 1993, between the Registrant and * David W. Johnson, Jr. incorporated by reference to Exhibit 10.10 (A) of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 (B) Deferred Compensation Rabbi Trust, for David W. Johnson, dated * January 19, 1994, between Registrant and First Union National Bank of North Carolina incorporated by reference to Exhibit 10.10 (C) of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 10.5 Employment Agreement dated June 30, 1995, between the Registrant and * Steven F. Herbert incorporated by reference to Exhibit 10.34 of the Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 1995 10.6 Employment Agreement dated September 25, 1995, between the Registrant and * Richard M. Duncan incorporated by reference to Exhibit 10.38 of the Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 1995 10.7 Office Building Lease dated March 8, 1991, as amended by Modification of Office * Lease dated October 1, 1991, incorporated by reference to Exhibit 10.5 of the Registrant's Registration No. 33-53980 10.8 Assignment and Assumption of Office Lease incorporated by reference to Exhibit 10.6 * of the Registrant's Registration No. 33-53980 10.9 Governmental Real Estate Sub-Lease-Office, between Resource Bancshares Mortgage * Group, Inc. and the South Carolina Department of Labor, Licensing and Regulation incorporated by reference to Exhibit 10.19 of the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1994 10.10 First Sub-Lease Amendment to Governmental Real Estate Sub-Lease-Office, * between Resource Bancshares Mortgage Group, Inc. and the South Carolina Department of Labor, Licensing and Regulation incorporated by reference to Exhibit 10.20 of the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1994 10.11 Request for Extension of Governmental Real Estate Sub-Lease-Office, between the Registrant * and the South Carolina Department of Labor, Licensing and Regulation dated December 12, 1995 incorporated by reference to Exhibit 10.39 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995 10.12 Section 125 Plan incorporated by reference to Exhibit 10.17 of the Registrant's Annual * Report on Form 10-K for the year ended December 31, 1993 10.13 Pension Plan incorporated by reference to Exhibit 10.18 of the Registrant's Annual * Report on Form 10-K for the year ended December 31, 1993 10.14 Amendment I to Pension Plan incorporated by reference to Exhibit 10.21 of the Registrant's * Annual Report on Form 10-K for the year ended December 31, 1994 10.15 Amendment II to Pension Plan incorporated by reference to Exhibit 10.22 of the Registrant's * Annual Report on Form 10-K for the year ended December 31, 1994
B 45
EXHIBIT NO. DESCRIPTION PAGE - ----------- ----------- ---- 10.16 Amendment to Pension Plan effective January 1, 1995 incorporated by * reference to Exhibit 10.42 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995 10.17 (A) Phantom 401(k) Plan incorporated by reference to Exhibit 10.24 of the * Registrant's Annual Report on Form 10-K for the year ended December 31, 1994 (B) Amendment to Phantom 401(k) Plan incorporated by reference to Exhibit 10.17(B) of the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1999 * (C) Merger and Transfer Agreement Between The Resource Bancshares Mortgage Group, Inc. and Fidelity Management Trust Company incorporated by reference to Exhibit 10.53 of the Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 1999. * 10.18 Resource Bancshares Mortgage Group, Inc. Supplemental Executive Retirement Plan * incorporated by reference to Exhibit 10.14 of the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1998. 10.19 First Amendment to Resource Bancshares Mortgage Group, Inc. Supplemental Executive * Retirement Plan dated October 28, 1998 incorporated by reference to Exhibit 10.19 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1998 10.20 Pension Restoration Plan incorporated by reference to Exhibit 10.25 of the Registrant's * Annual Report on Form 10-K for the year ended December 31, 1994 10.21 Stock Investment Plan incorporated by reference to Exhibit 4.1 of the Registrant's * Registration No. 33-87536 10.22 (A) Amendment I to Stock Investment Plan incorporated by reference to * Exhibit 10.27 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994 (B) Amendment II to Stock Investment Plan dated November 30, 1998 * incorporated by reference To Exhibit 4.1(c) of the Registrant's Registration Statement No. 333-68909 (C) Amendment III to Stock Investment Plan dated February 2, 2000 ______ 10.23 (A) Change of Control Agreement by and between Resource Bancshares Mortgage Group, Inc. and Douglas K. Freeman, dated as of January 10, 2000. ______ (B) Incentive Stock Option Agreement pursuant to Resource Bancshares Mortgage Group, Inc. Omnibus Stock Award Plan between Resource Bancshares Mortgage Group, Inc. and Douglas K. Freeman dated as of January 10, 2000 ______ (C) Employment Agreement between Resource Bancshares Mortgage Group, Inc. and Douglas K. Freeman dated as of January 10, 2000 ______ (D) Indemnity Agreement between Resource Bancshares Mortgage Group, Inc. and Douglas K. Freeman dated as of January 10, 2000 ______ 10.24 Employee Stock Ownership Plan incorporated by reference to Exhibit 10.29 * of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994
C 46
EXHIBIT NO. DESCRIPTION PAGE - ----------- ----------- ---- 10.25 First Amendment to Employee Stock Ownership Plan dated October 31, 1995 * incorporated by reference to Exhibit 10.41 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995 10.26 Second Amendment to Employee Stock Ownership Plan dated August 12, 1996 * incorporated by reference to Exhibit 10.45 of the Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 1996 10.27 Amended Resource Bancshares Mortgage Group, Inc. Successor Employee Stock * Ownership Trust Agreement dated December 1, 1994, between the Registrant and Marine Midland Bank incorporated by reference to Exhibit 10.30 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994 10.28 ESOP Loan and Security Agreement dated January 12, 1995, between the Registrant * and The Resource Bancshares Mortgage Group, Inc. Employee Stock Ownership Trust incorporated by reference to Exhibit 10.31 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994 10.29 ESOP Loan and Security Agreement dated May 3, 1996, between the * Registrant and The Resource Bancshares Mortgage Group, Inc. Employee Stock Ownership Trust incorporated by reference to Exhibit 10.36 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996 10.30 (A) ESOP Notes dated January 20, 1998, April 1, 1998, July 1, 1998 and October 1, * 1998 between the Registrant and The Resource Bancshares Mortgage Group, Inc. Employee Stock Ownership Trust incorporated by reference to Exhibit 10.30 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1998 (B) ESOP Notes dated March 8, 1999, April 26, 1999, July 1, 1999 and October 1, * 1999 between the Registrant and The Resource Bancshares Mortgage Group, Inc. Employee Stock Ownership Trust 10.31 Formula Stock Option Plan incorporated by reference to Exhibit 10.36 of * the Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 1995 10.32 Amendment to Resource Bancshares Mortgage Group, Inc. Formula Stock * Option Plan and Non-Qualified Stock Option Plan incorporated by reference to Exhibit 10.42 of the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1997 10.33 First Amendment to the Formula Stock Option Plan incorporated by reference to * Exhibit 99.8 of the Registrant's Registration No. 333-29245 as filed on December 1, 1997 10.34 Second Amendment to Resource Bancshares Mortgage Group, Inc. Formula Stock * Option Plan dated October 28, 1998 incorporated by reference to Exhibit 10.34 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1998 10.35 Amended and Restated Omnibus Stock Award Plan incorporated by reference to Exhibit 99.10 * of the Registrant's Registration No. 333-29245 filed on December 1, 1997 10.36 First Amendment to Omnibus Stock Award Plan and form of Incentive Stock Option * Agreement and Release to the Omnibus Stock Award Plan incorporated by reference to Exhibit 10.44 of the Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 1998.
D 47
EXHIBIT NO. DESCRIPTION PAGE - ----------- ----------- ---- 10.37 Second Amendment to Resource Bancshares Mortgage Group, Inc. Omnibus * Stock Award Plan dated October 29, 1998 incorporated by reference to Exhibit 10.37 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1998 10.38 Form of Incentive Stock Option Agreement (Omnibus Stock Award Plan) * incorporated by reference to Exhibit 10.40 of the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1997 10.39 Resource Bancshares Mortgage Group, Inc. Non-Qualified Stock Option Plan * dated September 1, 1996 incorporated by reference to Exhibit 10.33 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996 10.40 Form of Non-Qualified Stock Option Agreement (Non-Qualified Stock * Option Plan), incorporated by reference to Exhibit 10.41 of the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1997 10.41 First Amendment to Resource Bancshares Mortgage Group, Inc. * Non-Qualified Stock Option Plan dated January 29, 1997 incorporated by reference to Exhibit 10.41 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1998 10.42 Second Amendment to the Non-Qualified Stock Option Plan dated February * 6, 1998 incorporated by reference to Exhibit 10.40 of the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1998 10.43 Third Amendment to Resource Bancshares Mortgage Group, Inc. * Non-Qualified Stock Option Plan dated October 28, 1998 incorporated by reference to Exhibit 10.43 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1998 10.44 Agreement and Release Form of Non-Qualified Stock Option Agreement * incorporated by reference to Exhibit 10.41 of the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1998 10.45 Amended and Restated Retirement Savings Plan dated April 1, 1996 * incorporated by reference to Exhibit 10.34 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996 10.46 First Amendment to Amended and Restated Retirement Savings Plan dated as of * November 8, 1996 incorporated by reference to Exhibit 10.35 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996 10.47 Second Amendment to Amended and Restated Retirement Savings Plan dated * January 1997, incorporated by reference to Exhibit 10.38 of the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1997 10.48 (A) Agreement of Merger dated April 18, 1997 between Resource Bancshares * Mortgage Group, Inc., RBC Merger Sub, Inc. and Resource Bancshares Corporation incorporated by reference to Annex A of the Registrant's Registration No.333-29245 (B) First Amendment to Agreement of Merger dated April 18, 1997 between * Resource Bancshares Mortgage Group, Inc., RBC Merger Sub, Inc. and Resource Bancshares Corporation incorporated by reference to Exhibit 10.42 of the Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 1997 (C) Second Amendment to Agreement of Merger dated April 18, 1997 between Resource *
E 48
EXHIBIT NO. DESCRIPTION PAGE - ----------- ----------- ---- Bancshares Mortgage Group, Inc., RBC Merger Sub, Inc. and Resource Bancshares Corporation incorporated by reference to Annex A of the Registrant's Registration No. 333-29245 10.49 (A) Mutual Release and Settlement Agreement between the Registrant, Lee E. Shelton * and Constance P. Shelton dated January 31, 1997 incorporated by reference to Exhibit 10.44 of the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1997 (B) Amendment to Mutual Release and Settlement Agreement between * Registrant, Lee E. Shelton and Constance P. Shelton dated January 31, 1997 incorporated by reference to Exhibit 10.44 of the Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 1997 10.50 Preferred Provider Organization Plan for Retired Executives incorporated by reference to * Exhibit 10.43 of the Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 1998 10.51 Resource Bancshares Mortgage Group, Inc. Flexible Benefits Plan Amended and * Restated as of January 1, 1998 incorporated by reference to Exhibit 10.51 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1998 10.52 The Resource Bancshares Mortgage Group, Inc. Nonqualified Deferred Compensation Plan effective April 1, 1999 incorporated by reference to Exhibit 10.52 of the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1999 * 10.53 Voluntary Employees' Beneficiary Association Trust for the Employees of Resource Bancshares Mortgage Group, Inc. * 10.54 Voluntary Employees' Beneficiary Association Plan for the Employees of Resource Bancshares Mortgage Group, Inc. _____ 11.1 Statement re: Computation of Net Income per Common Share _____ 27.1 Financial Data Schedule _____
- ---------------------------------- * Incorporated by reference F EX-10.22C 2 AMENDMENT III TO STOCK INVESTMENT PLAN 1 EXHIBIT 10.22(C) THIRD AMENDMENT TO STOCK INVESTMENT PLAN THIS THIRD AMENDMENT TO STOCK INVESTMENT PLAN (this "Amendment"), dated as of February 2, 2000, by RESOURCE BANCSHARES MORTGAGE GROUP, INC. (the "Company"). W I T N E S S E T H: WHEREAS, the Company maintains the Resource Bancshares Mortgage Group, Inc. Stock Investment Plan, effective as of January 1, 1995, as amended by the First Amendment made as of March 24, 1995, and the Second Amendment made as of November 30, 1998 (the "Plan") for the benefit of its eligible employees; and WHEREAS, in Section 15 of the Plan, the Company reserved the right by action of its Board of Directors to amend the Plan; and WHEREAS, the Company now desires to amend the Plan to authorize an additional 300,000 shares of Common Stock to be acquired under the Plan; NOW, THEREFORE, in consideration of the premises, the Plan is amended as follows: 1. Effective February 2, 2000, Section 3 of the Plan shall be deleted and the following inserted in its place: "3. SCOPE OF THE PLAN. The maximum number of shares of Common Stock which may be purchased under the Plan shall be 725,529 (the original 100,000 shares as adjusted for changes in capitalization pursuant to Section 14 plus an additional 300,000 shares added pursuant to the Second Amendment to the Plan and an additional 300,000 shares added pursuant to this Amendment) as such number may be adjusted after February 2, 2000 pursuant to Section 14. Subject to the provisions in Section 16, the Plan will continue in effect until the maximum number of shares of Common Stock (described in the preceding sentence) have been purchased by Participants pursuant to the Plan. Except as otherwise provided in the Plan, all purchases of Common Stock pursuant to the Plan shall be subject to the same terms, conditions, rights and privileges. The shares of Common Stock acquired by the Custodian pursuant to the Plan shall be acquired by the Custodian in open market purchases, purchases of treasury stock from the Company or purchases of original issue Common Stock from the Company as directed from time to time by the Chief Executive Officer of the Company." 2 2. This Amendment is conditioned upon obtaining the appropriate approval by the stockholders of the Company and shall be submitted for approval by the stockholders of the Company prior to February 1, 2001. 3. Except as expressly or by necessary implication amended hereby, the Plan still continues in full force and effect. IN WITNESS WHEREOF, the Company has caused this Amendment to be executed by its duly authorized officers as of the day and year first above written. RESOURCE BANCSHARES MORTGAGE GROUP, INC. By: ___________________________________ Its: ___________________________________ ATTEST: _________________________________ ______________________, Secretary EX-10.23A 3 CHANGE OF CONTROL AGREEMENT 1 EXHIBIT 10.23(A) CHANGE OF CONTROL AGREEMENT AGREEMENT by and between Resource Bancshares Mortgage Group, Inc., a Delaware corporation ("RBMG"), and Douglas K. Freeman (the "Executive"), dated as of the 10th day of January, 2000. The Board of Directors of RBMG (the "Board") has determined that it is in the best interests of RBMG and its shareholders to assure that the Company (as defined below) will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of RBMG. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control. Therefore, in order to accomplish these objectives, the Board has caused RBMG to enter into this Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Certain Definitions. As used in this Agreement, the following terms shall have the meanings set forth below: (a) "AFR" shall have the meaning set forth in Section 6. (b) "Affiliated Company" shall mean any corporation, partnership or other entity which controls, is controlled by or is under common control with RBMG. (c) "Annual Base Salary" shall have the meaning set forth in Section 1(q)(i). (d) "Board" shall have the meaning set forth in the recitals to this Agreement. (e) "Business Combination" shall have the meaning set forth in Section 1(g)(iii). (f) "Cause" shall mean: (i) the willful and continued failure of the Executive to perform substantially the Executive's duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board which specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties; or (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this provision, no act, or failure to act, on the part of the Executive shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or 2 without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advice of counsel for RBMG shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in Section 1(f)(i) or 1(f)(ii) above, and specifying the particulars thereof in detail. (g) "Change of Control" shall mean: (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then outstanding shares of common stock of RBMG (the "Outstanding RBMG Common Stock") or (B) the combined voting power of the then outstanding voting securities of RBMG entitled to vote generally in the election of directors (the "Outstanding RBMG Voting Securities"); provided, however, that for purposes of this Section 1(g)(i), the following acquisitions shall not constitute a Change of Control: (W) any acquisition directly from RBMG or any corporation controlled by RBMG, (X) any acquisition by RBMG or any corporation controlled by RBMG, (Y) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by RBMG or any corporation controlled by RBMG or (Z) any acquisition by any corporation pursuant to a transaction which complies with clauses (A), (B) and (C) of Section 1(g)(iii); or (ii) That individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by RBMG's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of RBMG or the acquisition of assets of another corporation (a "Business Combination"), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding RBMG Common Stock and 2 3 Outstanding RBMG Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns RBMG or all or substantially all of RBMG's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding RBMG Common Stock and Outstanding RBMG Voting Securities, as the case may be, (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of RBMG or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock or the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns RBMG or all or substantially all of RBMG's assets either directly or through one or more subsidiaries) except to the extent that such ownership existed prior to the Business Combination and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (iv) Approval by the shareholders of RBMG of a complete liquidation or dissolution of RBMG. (h) "Change of Control Period" shall mean the period commencing on the Effective Date and ending on the second anniversary of the Effective Date. (i) "Code" shall mean the Internal Revenue Code of 1986, as amended. (j) "Company" shall include RBMG and its Affiliated Companies. (k) "Date of Termination" means (i) if the Executive's employment is terminated by RBMG for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by RBMG other than for Cause or Disability, the Date of Termination shall be the date on which RBMG notifies the Executive of such termination and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. (l) "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 120 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician 3 4 selected by RBMG or its insurers and acceptable to the Executive or the Executive's legal representatives. (m) "Disability Effective Date" shall have the meaning set forth in Section 3. (n) "Effective Date" shall mean the first date on which a Change of Control occurs. If a Change of Control occurs and the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment arose in connection with or anticipation of a Change of Control, then "Effective Date" shall mean the date immediately prior to the date of such termination of employment. (o) "Exchange Act" shall have the meaning set forth in Section 1(g)(i). (p) "Executive" shall have the meaning set forth in the recitals to this Agreement. (q) "Good Reason" shall mean: (i) a reduction by the Company in the Executive's annual base salary as in effect immediately prior to the Effective Date (the "Annual Base Salary"); (ii) the Company requiring the Executive to be based at a location more than 100 miles from the location at which he is based immediately prior to the Effective Date (except for required travel which is substantially consistent with travel obligations as of the date of this Agreement); (iii) the failure by the Company to pay the Executive any portion of the Executive's current compensation within seven days of the date such compensation is due, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iv) the failure by the Company to continue any material benefit plan in which the Executive participates immediately prior to the Effective Date (unless the failure did not occur in bad faith and is remedied by the Company, promptly after receipt of notice thereof given by the Executive, by the Company providing an equitable arrangement with respect to such plan); (v) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or (vi) any failure by RBMG to comply with and satisfy Section 8(c) of this Agreement. For purposes of this Section 1(q), any good faith determination of "Good Reason" made by the Executive shall be conclusive. 4 5 (r) "Incumbent Board" shall have the meaning set forth in Section 1(g)(ii). (s) [intentionally left blank] (t) "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 30 days after the giving of such notice). The failure by the Executive or RBMG to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or RBMG, respectively, hereunder or preclude the Executive or RBMG, respectively, from asserting such fact or circumstance in enforcing the Executive's or RBMG's rights hereunder. (u) "Outstanding RBMG Common Stock" shall have the meaning set forth in Section 1(g)(i). (v) "Outstanding RBMG Voting Securities" shall have the meaning set forth in Section 1(g)(i). (w) "Payment" shall have the meaning set forth in Section 4(c). (x) "Person" shall have the meaning set forth in Section 1(g)(i). (y) "RBMG" shall have the meaning set forth in the recitals to this Agreement. 2. Termination for Cause or Good Reason; Notice of Termination. RBMG may terminate the Executive's employment with the Company during the Change of Control Period for Cause and the Executive may terminate employment during the Change of Control Period for Good Reason. Any termination by RBMG for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto in accordance with Section 9(b) of this Agreement. 3. Termination by Reason of Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death. If RBMG determines in good faith during the Change of Control Period that the Disability of the Executive has occurred, it may give to the Executive written notice in accordance with Section 9(b) of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. 4. Obligations of RBMG upon Termination. (a) Good Reason; Without Cause; Death or Disability. If, during the Change of Control Period, RBMG shall terminate the 5 6 Executive's employment without Cause, the Executive shall terminate employment for Good Reason or the Executive's employment terminates for death or Disability, and subject to the limitation set forth in Section 4(c): (i) RBMG shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the sum of (A) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid and (B) the product of (1) two and (2) the Executive's Annual Base Salary, and (C) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any unused annual vacation pay, in each case to the extent not theretofore paid; and (ii) RBMG shall provide medical, dental and vision insurance coverage for the Executive and his current spouse and eligible dependents until the first to occur of (A) the first anniversary of the Date of Termination or (B) the death of the Executive and his spouse, that is comparable to the most favorable medical, dental and vision insurance coverage provided by the Company for the Executive (and such spouse and dependents) during the 120-day period immediately prior to the Change of Control, with the Executive (or such spouse) continuing to pay the employee portion of the premiums for such coverage (in the same pro rata amount as during the 120-day period prior to the Change of Control). (b) Cause; Without Good Reason. If the Executive's employment shall be terminated for Cause during the Change of Control Period or if the Executive voluntarily terminates employment during the Change of Control Period without Good Reason, this Agreement shall terminate without further obligation to the Executive other than the obligation to pay to the Executive (i) his Annual Base Salary through the Date of Termination, and (ii) the amount of any compensation previously deferred by the Executive. (c) Notwithstanding anything in this Agreement to the contrary, if it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (a "Payment") would constitute an "excess parachute payment" within the meaning of Section 280G of the Code, then the Payments, in the aggregate, shall be reduced (in a manner elected by the Executive, or by RBMG if the Executive fails to make such an election) to the greatest amount that could be paid to the Executive such that the receipt of Payments would not constitute an "excess parachute payment." 5. Non-exclusivity of Rights. Subject to the limitation set forth in Section 4(c), nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any pension, profit sharing, 401(k), supplemental executive retirement or stock option plan provided by the Company and for which the Executive may qualify, nor, subject to Section 9(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any pension, profit sharing, 401(k), supplemental executive retirement or stock option plan or any contract or agreement with the 6 7 Company at or subsequent to the Date of Termination shall be payable in accordance with such plan or contract or agreement except as explicitly modified by this Agreement. 6. Full Settlement. RBMG's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. RBMG agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by RBMG, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code ( the "AFR"). The Executive shall repay (with interest at the AFR) any such advanced legal fees and expenses in the event a court determines that the Executive's claim or action was in bad faith. 7. Confidential Information. The Executive shall comply with the confidentiality obligations set forth in Section 8 of his Employment Agreement. 8. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of RBMG shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon RBMG and its successors and assigns. (c) RBMG will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of RBMG to assume expressly and agree to perform this Agreement in the same manner and to the same extent that RBMG would be required to perform it if no such succession had taken place. As used in this Agreement, "RBMG" shall mean RBMG as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 9. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of South Carolina, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. 7 8 (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: 4934 Morven Road Jacksonville, Florida 32210 If to RBMG: Resource Bancshares Mortgage Group, Inc. 7909 Parklane Road Columbia, SC 29223 Attention: Corporate Secretary or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) RBMG may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or RBMG's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or RBMG may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 2, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) The Executive and RBMG acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is "at will" and, subject to Section 1(n), the Executive's employment may be terminated by either the Executive or the Company at any time prior to the Effective Date, in which case the Executive shall have no further rights under this Agreement. This Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof. 8 9 (g) This Agreement shall terminate and be of no further force or effect if a Change of Control does not occur on or before December 31, 2001. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, RBMG has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. ------------------------------------ Douglas K. Freeman RESOURCE BANCSHARES MORTGAGE GROUP, INC. By _________________________________ 9 EX-10.23B 4 INCENTIVE STOCK OPTION AGREEMENT 1 EXHIBIT 10.23(B) INCENTIVE STOCK OPTION AGREEMENT Pursuant to RESOURCE BANCSHARES MORTGAGE GROUP, INC. OMNIBUS STOCK AWARD PLAN This Incentive Stock Option Agreement is entered into as of the 10th day of January, 2000, between Resource Bancshares Mortgage Group, Inc., a Delaware corporation (the "Company"), and Douglas K. Freeman (the "Optionee"). 1. Definitions. Capitalized terms used in this Option Agreement but not defined herein are used herein as defined in the Plan. In addition, throughout this Option Agreement, the following terms shall have the meanings indicated: (a) "Exercise Date" shall have the meaning indicated in paragraph 3 hereof. (b) "Option Period" shall mean the period commencing on the date of this Option Agreement and ending at the close of the Company's business ten years from the date hereof. Notwithstanding the previous sentence, in the case of an Option granted to a 10% Stockholder, the Option Period shall mean the period commencing on the date of this Option Agreement and ending at the close of the Company's business five years from the date hereof. (c) "Plan" shall mean the Resource Bancshares Mortgage Group, Inc. Amended and Restated Omnibus Stock Award Plan. (d) "Securities Act" shall mean the Securities Act of 1933, as amended. 2. Award of Option. Effective upon the date hereof, and subject to the terms and conditions set forth herein and in the Plan, the Company has awarded to the Optionee the option to purchase from the Company, at an exercise price of $4.50 per share, up to but not exceeding in the aggregate 100,000 shares of Common Stock. The Company intends the exercise price to be at least 100% of the Fair Market Value of the Shares of Common Stock subject to the Option as of the date of granting the Option. In the case of an Option granted to a 10% Stockholder, the exercise price of each share of Common Stock covered by the Option is at least 110% of the Fair Market Value per share of Common Stock on the date of grant of the Option. It is intended that this Option qualify to the extent possible as an ISO. The Company shall have no liability if this Option shall not qualify as an ISO, but this Option shall continue in full force and effect as an NQSO notwithstanding such failure to so qualify. 1 2 3. Exercise of Option. (a) The Option shall be exercisable, in whole or in part, at any time and from time to time during the Option Period, but not thereafter, to the extent set forth in the schedule below. then the maximum percentage of the Option Shares that may be purchased through if the Exercise Date is: such Exercise Date is: - ------------------------ --------------------------- earlier than July 1, 2000, 20% July 1, 2000 or thereafter, but not later than December 31, 2000, 40% January 1, 2001 or thereafter, but not later than June 30, 2001, 60% July 1, 2001 or thereafter, but not later than December 30, 2001, 80% December 31, 2001 or thereafter, 100% The Exercise Dates contained herein are intended to comply with Code Section 422(d). In the event the aggregate Fair Market Value of the Common Stock with respect to ISOs exercisable for the first time by Optionee during any calendar year exceeds $100,000, the Optionee shall give notice promptly (as provided in Section 6(e)) of such fact to the Company. The number of shares of Common Stock subject to this Option and the per share exercise price under each outstanding Option shall be adjusted, to the extent the Committee deems appropriate, as provided in Section 4.1(e) of the Plan. Sections 4.1(e), 4.1(f), 4.1(g) and 4.1(i) of the Plan are incorporated in this Option Agreement by reference as if fully set forth herein. (b) Notwithstanding Section 3(a), the Option shall terminate and may not be exercised if the Optionee ceases to be employed by the Company, except: (1) that, if such Optionee's employment terminates for any reason other than conduct that in the judgment of the Committee involves dishonesty or action by the Optionee that is detrimental to the best interest of the Company, then the Optionee may at any time within three months after termination of his or her employment exercise his or her Option but only to the extent the Option was exercisable by him or her on the date of termination of employment unless termination of employment is due to retirement at or after the Optionee attains age sixty-five, in which event the Option shall be exercisable with respect to all Option Shares; (2) that, if such Optionee's employment terminates on account of total and permanent disability, then the Optionee may at any time within one year after termination of his or her employment exercise his or her Option with respect to all Option Shares; and (3) that, if such Optionee dies while in the employ of the Company, or within the three or twelve month period following termination of his or her employment as described in clause (1) or 2 3 (2) above, then his or her Option may be exercised at any time within twelve months following his or her death by the person or persons to whom his or her rights under the Option shall pass by will or by the laws of descent and distribution with respect to all Option Shares. (c) No less than 100 shares of Common Stock may be purchased upon any one exercise of the Option granted hereby unless the number of shares purchased at such time is the total number of shares in respect of which the Option is then exercisable. (d) Upon exercise of the Option, the Option exercise price shall be payable in United States dollars, in cash (including by check) or (unless the Committee otherwise prescribes) in shares of Common Stock owned by the Optionee for a period exceeding six months, or in a combination of cash and such Common Stock. If all or any portion of the Option exercise price is paid in Common Stock owned by the Optionee, then that stock shall be valued at its Fair Market Value as of the date the Option is exercised. The Option shall be deemed to be exercised on the date (the "Exercise Date") that the Company receives full payment of the exercise price for the number of shares for which the Option is being exercised. (e) During the lifetime of the Optionee, the Option shall be exercisable only by the Optionee and shall not be assignable or transferable by the Optionee and no person shall acquire any rights therein. The Option may be transferred by will or the laws of descent and distribution. 4. Compliance with the Securities Act; No Registration Rights. Anything in this Option Agreement to the contrary notwithstanding, if, at any time specified herein for the issuance of Option Shares, any law, regulation or requirement of any governmental authority having jurisdiction in the premises shall require the Company or the Optionee, in the judgment of the Company, to take any action in connection with the shares then to be issued, then the issuance of such shares shall be deferred until such action shall have been taken. Nothing in this Option Agreement shall be construed to obligate the Company at any time to file or maintain the effectiveness of a registration statement under the Securities Act, or under the securities laws of any state or other jurisdiction, or to take or cause to be taken any action that may be necessary in order to provide an exemption from the registration requirements of the Securities Act under Rule 144 or any other exemption with respect to the Option Shares or otherwise for resale or other transfer by the Optionee (or by the executor or administrator of the Optionee's estate or a person who acquired the Option or any Option Shares or other rights by bequest or inheritance or by reason of the death of the Optionee) as a result of the exercise of the Option evidenced by this Option Agreement. 5. Resolution of Disputes. Any dispute or disagreement that arises under, or as a result of, or pursuant to, this Option Agreement shall be determined by the Committee in its absolute and uncontrolled discretion, and any such determination or other determination by the Committee under or pursuant to this Option Agreement, and any interpretation by the Committee of the terms of this Option Agreement, shall be conclusive as to all persons affected thereby. 3 4 6. Miscellaneous. (a) Binding on Successors and Representatives. The parties understand that this Option Agreement shall be binding not only upon themselves, but also upon their heirs, executors, administrators, personal representatives, successors and assigns (including any transferee of a party hereto); and the parties agree, for themselves and their successors, assigns and representatives, to execute any instrument that may be necessary or desirable legally to effect such understanding. (b) Entire Agreement; Relationship to Plan. The Optionee acknowledges that he or she has received a copy of the Plan. This Option Agreement, together with the Plan, constitutes the entire agreement of the parties with respect to the Option and supersedes any previous agreement, whether written or oral, with respect thereto. This Option Agreement has been entered into in compliance with the terms of the Plan; to the extent that any interpretive conflict may arise between the terms of this Option Agreement and the terms of the Plan, the terms of the Plan shall control. (c) Amendment. Neither this Option Agreement nor any of the terms and conditions herein set forth may be altered or amended orally, and any such alteration or amendment shall be effective only when reduced to writing and signed by each of the parties or their respective successors or assigns. (d) Construction of Terms. Any reference herein to the singular or plural shall be construed as plural or singular whenever the context requires. (e) Notices. All notices and requests under this Option Agreement shall be in writing and shall be deemed to have been given when personally delivered or sent prepaid certified mail: (i) if to the Company, to the following address: Resource Bancshares Mortgage Group, Inc. 7909 Parklane Road Columbia, South Carolina 29223 Attention: Chairman or to such other address as the Company shall designate by notice. (ii) if to the Optionee, to the Optionee's address appearing in the Company's records, or to such other address as the Optionee shall designate by notice. (f) Governing Law; Submission to Jurisdiction. This Option Agreement shall be governed by and construed in accordance with the laws of the State of South Carolina. The parties hereby consent to the exclusive jurisdiction and venue of the Court of Common Pleas in Richland County, South Carolina for purposes of adjudicating any issue arising hereunder. 4 5 (g) Severability. The invalidity or unenforceability of any particular provision of this Option Agreement shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provision was omitted. IN WITNESS WHEREOF, the parties hereto have executed this Option Agreement as of the day and year first above written. RESOURCE BANCSHARES MORTGAGE GROUP, INC. By: ____________________________________ OPTIONEE: -----------------------------------(SEAL) Name: Douglas K. Freeman 5 EX-10.23C 5 EMPLOYMENT AGREEMENT 1 EXHIBIT 10.23(C) EMPLOYMENT AGREEMENT AGREEMENT made as of January 10, 2000 between RESOURCE BANCSHARES MORTGAGE GROUP, INC. ("RMBG") and Douglas K. Freeman ("Employee"). WITNESSETH: WHEREAS, the parties hereto desire to provide for the Employee's employment by RBMG. NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties agree as follows: 1. Employment. RBMG agrees to employ the Employee and the Employee agrees to enter into the employ of RMBG on the terms and conditions hereafter set forth. 2. Capacity and Duties. The Employee shall be employed as the Chief Executive Officer of RMBG. In addition, the Employee shall upon request serve as an officer and on the Board of Directors of such subsidiaries as the Board of Directors of RBMG may from time to time designate. The Employee shall perform his responsibilities in accordance with the direction and supervision of the Board of Directors of RBMG and he shall devote his full business time, skill, energies, business judgment, knowledge and best efforts to the advancement of the best interests of RBMG and the performance of such executive, administrative and operational duties on behalf of RBMG and its subsidiaries, appropriate to the offices he holds or shall hold hereunder, as the Board of Directors of RBMG may assign. The requirement that the Employee devote his full business time shall not be construed to prevent the Employee from making investments in stocks, bonds and other types of personal property, both tangible and intangible, and real estate or engaging in church, charitable, professional, or other community activities or serving as a member of a board of directors which do not, singly or in the aggregate, materially impair his ability to fulfill his responsibilities under this Agreement; provided, however, that serving as a member of the board of directors of a business enterprise shall require the prior approval of RBMG's Board of Directors. 3. Term. The term of the Employee's employment hereunder shall be for the period commencing on January 10, 2000 (the "Commencement Date") and ending on December 31, 2001, unless such term is terminated earlier by or pursuant to Section 5. 2 4. Compensation and Benefits. (a) Salary. RBMG shall pay or cause to be paid to the Employee, as compensation for all of the services to be rendered by him hereunder during the term hereof, a salary of $500,000 per year ("Base Salary"), payable in accordance with the regular payroll practices of RBMG for executives, less such deductions or amounts as are required to be deducted or withheld by applicable laws or regulations and less such other deductions or amounts, if any, as are authorized by the Employee; provided, however, that the Employee shall receive his first paycheck on or about September 15, 2000 and it shall be in the gross amount of $341,666.67. (b) Annual Bonus. The Employee's annual bonus opportunity will be $300,000. The amount of the bonus for 2000 will be determined based on achievement of specified goals which are to be defined on or before March 1, 2000. (c) Expenses. To the extent not otherwise paid for by RBMG or one of its subsidiaries, RBMG will reimburse the Employee or cause the Employee to be reimbursed for reasonable expenses incurred in promoting RBMG's and its subsidiaries' businesses, including expenses for travel and entertainment, such reimbursement to be made promptly upon presentation of appropriate receipts or other substantiation. (d) Plans. The Employee shall be entitled to participate in any and all employee benefit plans as may be in effect for executives of RBMG to the extent that he is eligible for participation therein and coverage thereunder. Such right of participation in any such plan and the degree or amount thereof shall be subject, however, to generally applicable RBMG policies and to action by RBMG's Board of Directors or any administrative or other committee or to any other administrative or managerial determination provided in or contemplated by such plan, it being agreed that this Agreement is not intended to impair the right of any committee or other group or person concerned with the administration of such plan to exercise in good faith the full discretion reposed in him or them by such plan. (e) Vacation. The Employee shall be entitled to paid vacation during each year of this Agreement in accordance with the policies of RBMG with respect thereto applicable to officers with comparable duties and responsibilities. Unused vacation time in any year shall not be carried over to subsequent years and the Employee shall not be entitled under this Agreement to pay in lieu of unused vacation time. (f) Withholding. The Employee acknowledges that certain payments provided for herein are subject to withholding and other taxes. (g) Purchase of Stock. RBMG hereby sells, assigns and transfers to the Employee, and the Employee hereby purchases and accepts from RBMG, 100,000 shares of RBMG Common Stock at a price of $4.49 per share. The Employee shall pay for such shares by good check to be delivered to RBMG on or before January 12, 2000. The Employee agrees not to sell, transfer, pledge or otherwise encumber such shares prior to 2 3 January 1, 2002 unless there is a Change of Control (hereinafter defined) of RBMG or the Employee's employment with RBMG is terminated pursuant to Section 5(a) or Section 5(b) or by RBMG without "cause" as specified in Section 5(c). (h) Omnibus Stock Award Plan. In consideration of the payment by the Employee to the Corporation of $1,000.00 and of the Employee's other covenants contained in this Agreement, RBMG hereby awards to the Employee 100,000 shares of RBMG Common Stock pursuant to RBMG's Omnibus Stock Award Plan, as amended (the "Plan"). Such shares shall be deemed to be unrestricted stock under the Plan. The Employee shall make an election under Section 83(b) of the Internal Revenue Code of 1986, as amended, with respect to such shares and shall be responsible for all taxes on the award of such shares. Within 10 days prior to making the Section 83(b) election, the Employee shall pay to RBMG the amount of any federal, state or local income tax withholding or other employment tax with respect to the shares. The determination of the amount of any federal, state or local income tax withholding or other employment tax due in such event shall be made by RBMG in accordance with applicable laws and regulations and shall be binding upon the Employee. Except as provided in the following sentence, the Employee agrees not to sell, transfer, pledge or otherwise encumber such shares prior to January 1, 2002 unless there is a Change of Control of RBMG or the Employee's employment with RBMG is terminated pursuant to Section 5(a) or Section 5(b) or by RBMG without "cause" as specified in Section 5(c). If the Employee's employment with RBMG ceases prior to December 31, 2001 for any reason other than as provided in Section 5(a), 5(b) or 5(d), the Employee shall sell, assign and transfer such shares to RBMG, and RBMG shall purchase and accept such shares from the Employee, for an amount equal to the federal and state income taxes paid by the Employee as a result of the award of such shares plus any taxes payable by the Employee and any reasonable costs and expenses of the Employee arising from RBMG's purchase of such shares. (i) Stock Options. The Employee has been awarded an option to acquire one hundred thousand (100,000) shares of Common Stock of RBMG pursuant to the terms and conditions of the Incentive Stock Option Agreement between the Employee and RBMG dated as of the date of this Agreement. (j) Provisions Relating to Common Stock. All stock certificates evidencing the shares referred to in Sections 4(g) and (h) shall bear the following legend: The transfer or encumbrance of the shares of Common Stock represented by this certificate is restricted under the terms of an Employment Agreement dated January 10, 2000, a copy of which Employment Agreement is on file at the principal office of Resource Bancshares Mortgage Group, Inc. Notwithstanding the transfer restrictions and other provisions herein applicable to the shares of Common Stock referred to in Sections 4(g) and (h), the Employee shall have the entire beneficial interest of such shares and, subject to this Agreement, shall be entitled to 3 4 exercise the rights and privileges of a stockholder with respect to such shares, including the right to receive dividends and the right to vote such shares. The Employee hereby represents to RBMG that he is acquiring the shares for his own account and not with a view to the distribution thereof. The Employee agrees that none of the shares will be sold, transferred or otherwise disposed of unless (i) a registration statement under the Securities Act of 1933, as amended (the "Act"), shall at the time of disposition be effective with respect to such shares or (ii) RBMG shall have receive an opinion of counsel or other information and representations satisfactory to it to the effect that registration under the Act is not required, by reason of the application of Rule 144 or otherwise, for such sale, transfer or other disposition. 5. Termination. Notwithstanding Section 3, the term of the Employee's employment hereunder shall terminate on the first to occur of the (i) termination date provided for under Section 3 or (ii) any of the events described in the paragraphs of this Section 5. (a) Death. In the event of the Employee's death, the Employee's employment shall terminate automatically, effective as of the date of death, and RBMG shall pay to his estate the Base Salary that otherwise would have been paid or accrued to the Employee pursuant to Section 4(a) up to the end of the fiscal quarter in which he died. (b) Disability. If the Employee, due to physical or mental illness, shall be disabled to perform substantially all of his duties for a continuous period of three months (a "disability"), then either the Employee or RBMG may by notice terminate the Employee's employment under this Agreement effective as of a date 30 days after the date such notice is given. The Employee's Base Salary during the period prior to such termination shall be reduced by the amount of any disability or similar benefits to which he is entitled, notwithstanding anything contained elsewhere in this Agreement to the contrary. (c) Termination for Cause. The Employee's employment may be terminated effective immediately by RBMG for "cause" by notice of termination to the Employee. "Cause" for such termination shall be limited to the following: (i) Breach by the Employee in any material respect of any of the material covenants contained in this Agreement, which breach continues for 30 days following receipt of written notice given by RBMG's Board of Directors specifying the breach and requesting that the Employee correct the same; (ii) Chronic and disabling use of alcohol or controlled substances that materially inhibits the performance of the Employee's duties under this Agreement for a period of not less than three consecutive months; 4 5 (iii) The Employee's conviction of either a felony involving moral turpitude or any crime in connection with his employment by RBMG which causes RBMG a substantial detriment; (iv) Gross or willful neglect of the Employee's duties; or (v) Such conduct as results or as is likely to result in substantial damage to the reputation of RBMG or any of the affiliates of RBMG. (d) Change of Control. RBMG and the Employee are entering into a Change of Control Agreement simultaneous with the execution of this Agreement. Such Change of Control Agreement permits the Employee to terminate his employment under certain circumstances. As used in this Agreement, the term "Change of Control" shall have the meaning ascribed thereto in the Change of Control Agreement. (e) Compensation Upon Termination. Except as provided in Sections 5(a) and 5(b) and the Change of Control Agreement referred to in Section 5(d), all compensation to the Employee shall cease immediately on termination of the Employee's employment hereunder. 6. No Raid. The Employee acknowledges that he has had and will have extensive contacts with employees and customers of, and others having business dealings with, RBMG. For the purposes of this Section and Sections 7, 8 and 9, the term "RBMG" shall be deemed to include subsidiaries, parents and affiliates of RBMG. Accordingly, the Employee covenants and agrees that during the term of his employment and during the two-year period immediately thereafter he will not (i) solicit any of the employees of RBMG who were employed by RBMG during the time when the Employee was employed by RBMG to leave RBMG, (ii) interfere with the relationship of RBMG with any such employees or (iii) personally target or solicit to the detriment of RBMG any customers or others having business dealings with RBMG in the business activities and endeavors in which the Employee was involved. The Employee further covenants and agrees that during the term of his employment and during the two-year period immediately thereafter he will not make public statements in derogation of RBMG. 7. Blue Pencil. The Employee acknowledges that the period of restriction imposed by Section 6 is fair and reasonable and is reasonably required for the protection of RBMG. If any part or parts of Section 6 shall be held to be unenforceable or invalid, then the remaining parts thereof shall nevertheless continue to be valid and enforceable as though the invalid portion or portions were not a part hereof. If any of the provisions of Section 6 relating to the period of restriction shall be deemed to exceed the maximum period of time which a court of competent jurisdiction would deem enforceable, then the time shall, for the purposes of Section 6, be deemed to be the maximum time period which a court of competent jurisdiction would deem valid and enforceable in any state in which such court of competent jurisdiction shall be convened. 5 6 8. Confidentiality. The Employee acknowledges that he has had and will have access to certain information related to the business, operations, future plans and customers of RBMG, the disclosure or use of which could cause RBMG substantial losses and damages. Accordingly, the Employee covenants that during the term of his employment with RBMG and for three years thereafter he will keep confidential all information and documents furnished to him by or on behalf of RBMG and not use the same to his advantage, except to the extent such information or documents are or thereafter become lawfully obtainable from other sources or are in the public domain through no fault on his part or as is consented to in writing by RBMG. Upon termination of his employment, the Employee shall return to RBMG all records, lists, files and documents which are in his possession and which relate to RBMG. 9. Right to Injunctive Relief. The Employee agrees and acknowledges that a violation of the covenants contained in Sections 6 and 8 of this Agreement will cause irreparable damage to RBMG, and that it is and will be impossible to estimate or determine the damage that will be suffered by RBMG in the event of a breach by the Employee of any such covenant. Therefore, the Employee further agrees that in the event of any violation or threatened violation of such covenants, RBMG shall be entitled as a matter of course to an injunction issued by any court of competent jurisdiction restraining such violation or threatened violation by the Employee, such right to an injunction to be cumulative and in addition to whatever other remedies RBMG may have. 10. Representation by the Employee. The Employee hereby represents and warrants to RBMG that the execution of this Agreement and the performance of his duties and obligations hereunder will not breach or be in conflict with any other agreement to which he is a party or by which he is bound and that he is not now subject to any covenant against competition or similar covenant that would affect the performance of his duties hereunder. 11. No Assignment. This Agreement is personal and shall in no way be subject to assignment, except by RBMG incident to the sale of all or substantially all of its business (whether by asset sale, stock sale or merger). Any attempt by one party to assign this Agreement in any other circumstances without the prior written consent of the other party shall be null and void. 12. Enforceability. If any portion or provision of this Agreement shall to any extent be declared illegal or unenforceable by a duly authorized court of competent jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than 6 7 those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 13. Notices. All notices and other communications required or permitted to be given hereunder shall be given by delivering the same in hand or by mailing the same by certified or registered mail, return receipt requested, postage prepaid, as follows: if to RBMG, to: Resource Bancshares Mortgage Group, Inc. 7909 Parklane Road Columbia, South Carolina 29202-7486 Attention: Corporate Secretary if to the Employee, to: Mr. Douglas K. Freeman 4934 Morven Road Jacksonville, Florida 32210 (or to such other address as either party shall have furnished to the other by like notice) A notice shall be effective as of the date of such delivery or mailing, as the case may be. 14. Entire Agreement. This Agreement constitutes the only agreement and understanding (other than the Change of Control Agreement referred to in Section 5(d), stock option agreements and employee benefit plans, indemnification agreements and policies and practices applicable to RBMG's executive officers generally, each of which shall, except as otherwise specifically provided in this Agreement, be interpreted and construed independently of this Agreement) between RBMG, on the one hand, and the Employee, on the other hand, in relation to the subject of the Employee's employment by RBMG, and there are no promises, representations, conditions, provisions or terms related thereto other than those set forth herein. This Agreement supersedes all previous understandings, agreements and representations, written or oral, between RBMG and the Employee regarding the Employee's employment by RBMG. 7 8 15. Governing Law. This contract shall be construed under and be governed in all respects by the internal laws, and not the laws pertaining to choice or conflicts of laws, of the State of South Carolina. 16. Waiver; Amendment. No waiver in any instance by either party of any provision of this Agreement shall be deemed a waiver by such party of such provision in any other instance or a waiver of any other provision hereunder in any instance. This Agreement cannot be amended, supplemented or otherwise modified except in a writing signed by RBMG and the Employee. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day first above written. RESOURCE BANCSHARES MORTGAGE GROUP, INC. By: __________________________________ Name: __________________________________ Title: __________________________________ EMPLOYEE: ----------------------------------------- Douglas K. Freeman 8 EX-10.23D 6 INDEMNITY AGREEMENT 1 EXHIBIT 10.23(D) INDEMNITY AGREEMENT This Agreement is made as of the 10th day of January, 2000, by and between Resource Bancshares Mortgage Group, Inc., a Delaware corporation (the "Corporation"), and Douglas K. Freeman (the "Indemnitee"), a Director and/or Officer of the Corporation. WHEREAS, it is essential to the Corporation to attract and retain as Directors and Officers the most capable persons available; and WHEREAS, the substantial increase in corporate litigation subjects Directors and Officers to expensive litigation risks; and WHEREAS, the Corporation does not regard the protection available to the Indemnitee as adequate in the present circumstances and realizes that the Indemnitee may not be willing to serve as a Director or Officer without adequate protection, and the Corporation desires the Indemnitee to serve in such capacity; NOW, THEREFORE, in consideration of the Indemnitee's service as a Director or Officer after the date hereof, the parties agree as follows: 1. Definitions. As used in this Agreement: (a) The term "Proceeding" shall include any threatened, pending or completed action, suit or proceeding, whether brought by or in the right of the Corporation or otherwise and whether of a civil, criminal, administrative or investigative nature. (b) The term "Expenses" shall include, but is not limited to, all expenses (including attorneys' fees), losses, damages, liabilities, judgments, fines, amounts paid in settlement by or on behalf of the Indemnitee and disbursements and any expenses of establishing a right to indemnification under this Agreement. (c) The terms "Director" and "Officer" shall include the Indemnitee's service at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise as well as Director, Officer, employee or agent of the Corporation. (d) The phrase "other enterprise" shall include employee benefit plans; the term "fines" shall include any excise taxes assessed on the Indemnitee with respect to an employee benefit plan; and the phrase "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries. 2 2. Indemnity. Subject only to the limitations set forth in Section 3, the Corporation will pay on behalf of the Indemnitee all Expenses actually and reasonably incurred by the Indemnitee because of any claim or claims made against him in a Proceeding by reason of the fact that he is or was a Director and/or Officer. 3. Limitations on Indemnity. The Corporation shall not be obligated under this Agreement to make any payment of Expenses to the Indemnitee: (a) the payment of which is prohibited by applicable law; (b) for which and to the extent payment is actually and unqualifiedly made to the Indemnitee under an insurance policy or otherwise; (c) which result from a claim, issue or matter as to which the Indemnitee is adjudged liable to the Corporation in a Proceeding by or in the right of the Corporation, unless it is decided in such Proceeding that the Indemnitee is entitled to indemnification hereunder despite such adjudication; or (d) which result from a claim, issue or matter decided in a Proceeding adversely to the Indemnitee based upon or attributable to: (i) the breach of the Indemnitee's duty of loyalty to the Corporation or its stockholders; (ii) acts or omissions of the Indemnitee not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) Section 174 of the General Corporation Law of the State of Delaware; or (iv) a transaction from which the Indemnitee derived an improper personal benefit. For purposes of Sections 3 and 4, the phrase "decided in a Proceeding" shall mean a decision by a court, arbitrator(s), hearing officer or other judicial agent having the requisite legal authority to make such a decision which decision has become final and from which no appeal or other review proceeding is permissible. 4. Advance Payment of Costs. Expenses actually and reasonably incurred by the Indemnitee in defending a claim against him in a Proceeding, other than a Proceeding by the Corporation, shall be paid by the Corporation as incurred and in advance of the final disposition of such Proceeding. As a condition precedent to his right to receive any such advancement of Expenses, the Indemnitee hereby agrees and undertakes to repay such amounts advanced if it shall be decided in such Proceeding that he is not entitled to be indemnified by the Corporation pursuant to this Agreement or otherwise. 2 3 5. Settlement. The termination of a 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 Indemnitee is not entitled to indemnification under this Agreement. 6. Enforcement. If a claim under this Agreement is not paid by the Corporation, or on its behalf, within thirty days after a written claim has been received by the Corporation, the Indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and if successful in whole or in part, the Indemnitee also shall be entitled to be paid the Expenses of prosecuting such claim. 7. Subrogation. In the event of payment under this Agreement, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Corporation effectively to bring suit to enforce such rights. 8. Notice and Cooperation. The Indemnitee, as a condition precedent to his right to be indemnified under this Agreement, shall notify the Corporation in writing promptly upon receipt of notice of any claim made against him for which indemnity will or could be sought under this Agreement; provided, however, that failure of the Indemnitee to so notify the Corporation shall relieve the Corporation of its obligations hereunder only to the extent that such failure materially prejudices the Corporation. In addition, the Indemnitee shall give the Corporation such information and cooperation as it may reasonably require. Notice to the Corporation shall be in writing and shall be deemed to have been given when personally delivered or sent by telecopy (with confirmation of receipt) or by prepaid certified mail to the Corporation at the following address (or such other address as the Corporation shall designate in writing to the Indemnitee): Resource Bancshares Mortgage Group, Inc. 7909 Parklane Road Columbia, South Carolina 29223 Attention: Chairman Telecopier: (803) 741-3586 9. Severability. If this Agreement or any portion thereof shall be invalidated on any ground by any court of competent jurisdiction, the Corporation shall nevertheless indemnify the Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated or by any other applicable law. 10. Exclusivity. Nothing herein shall be deemed to diminish or otherwise restrict the Indemnitee's right to indemnification under any provision of the Certificate of Incorporation or Bylaws of the Corporation or under Delaware law. 3 4 11. Applicable Law. This agreement shall be governed by and construed in accordance with Delaware law. 12. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall constitute the original. 13. Successors and Assigns. This Agreement shall be binding upon the Corporation and its successors and assigns. 14. Continuation of Indemnification. The indemnification under this Agreement shall continue as to the Indemnitee even though he may have ceased to be a Director and/or Officer and shall inure to the benefit of the heirs and personal representatives of the Indemnitee. 15. Coverage of Indemnification. The indemnification under this Agreement shall cover the Indemnitee's service as a Director and/or Officer and all of his acts in such capacity, whether prior to or on or after the date of this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and signed as of the day and year first above written. RESOURCE BANCSHARES MORTGAGE GROUP, INC. By: __________________________________ Its: __________________________________ INDEMNITEE ---------------------------------------- Douglas K. Freeman 4 EX-10.54 7 VOLUNTARY EMPLOYEE'S BENEFICIARY ASSOCIATION PLAN 1 EXHIBIT 10.54 VOLUNTARY EMPLOYEES' BENEFICIARY ASSOCIATION PLAN FOR THE EMPLOYEES OF RESOURCE BANCSHARES MORTGAGE GROUP, INC. 2 TABLE OF CONTENTS
Page ---- ARTICLE I - DEFINITIONS AND CONSTRUCTION 2 ---------------------------------------- 1.1 DEFINITIONS 2 1.2 GENDER AND NUMBER 4 1.3 HEADINGS 4 1.4 UNIFORMITY 4 ARTICLE II - ADMINISTRATION --------------------------- 2.1 POWERS AND RESPONSIBILITIES OF THE EMPLOYER 5 2.2 ASSIGNMENT AND DESIGNATION OF ADMINISTRATIVE AUTHORITY 5 2.3 ALLOCATION AND DELEGATION OF RESPONSIBILITIES 6 2.4 POWERS, DUTIES AND RESPONSIBILITIES 6 2.5 RECORDS AND REPORTS 7 2.6 APPOINTMENT OF ADVISERS 7 2.7 INFORMATION FROM EMPLOYER 8 2.8 PAYMENT OF EXPENSES 8 2.9 MAJORITY ACTIONS 8 2.10 ACTION BY EMPLOYER 8 2.11 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY 8 2.12 LEGAL ACTION 9 ARTICLE III - ELIGIBILITY ------------------------- 3.1 CONDITIONS OF ELIGIBILITY 10 3.2 EFFECTIVE DATE OF PARTICIPATION 10 3.3 REQUIREMENTS OF HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT OF 1996 11 3.4 DETERMINATION OF ELIGIBILITY 12 3.5 OMISSION OF A PARTICIPANT 12 3.6 INCLUSION OF INELIGIBLE PERSON 13 3.7 NONDISCRIMINATION REQUIREMENTS 13 ARTICLE IV - BENEFITS --------------------- 4.1 SICK AND ACCIDENT BENEFITS 14 4.2 DESIGNATION OF BENEFICIARY 14
i 3 ARTICLE V - CLAIMS PROCEDURE ---------------------------- 5.1 FILING OF CLAIM 15 5.2 DENIAL OF CLAIM 15 5.3 REVIEW OF CLAIM DENIAL 15 ARTICLE VI - CONTRIBUTIONS AND VALUATION ---------------------------------------- 6.1 EMPLOYER CONTRIBUTIONS 17 6.2 PARTICIPANT CONTRIBUTIONS 17 6.3 VALUATION OF THE TRUST FUND 17 6.4 METHOD OF VALUATION 17 ARTICLE VII - CESSATION OF BENEFITS ----------------------------------- 7.1 BENEFITS FOR PARTICIPANTS 18 7.2 BENEFITS FOR DEPENDENTS 18 7.3 CONVERSION OF POLICIES 18 7.4 CONTINUATION OF COVERAGE 18 ARTICLE VIII - DISTRIBUTION OF BENEFITS --------------------------------------- 8.1 DISTRIBUTION OF BENEFITS 20 8.2 DISTRIBUTION FOR MINOR BENEFICIARY 20 8.3 LOCATION OF A PARTICIPANT OR BENEFICIARY UNKNOWN 20 ARTICLE IX - AMENDMENTS AND TERMINATION --------------------------------------- 9.1 AMENDMENTS 21 9.2 TERMINATION 21
ii 4 VOLUNTARY EMPLOYEES' BENEFICIARY ASSOCIATION PLAN FOR THE EMPLOYEES OF RESOURCE BANCSHARES MORTGAGE GROUP, INC. THIS AGREEMENT, made and entered into this ________ day of November, 1999 by and between RESOURCE BANCSHARES MORTGAGE GROUP, INC. (herein referred to as the "Employer") and HSBC BANK, USA (herein referred to as the "Trustee"). WITNESSETH: WHEREAS, the Employer desires to recognize the contribution made to its successful operation by its employees and to reward such contribution by means of a Voluntary Employees' Beneficiary Association Plan for those employees who shall qualify and elect to participate hereunder; and WHEREAS, the Employer intends that this Plan (and the Trust attached hereto) shall constitute an employee welfare benefit plan under Title I, Section 3(1), of the Employee Retirement Income Security Act of 1974 (ERISA) and as such shall be subject to the requirements of Parts 1 and 4 of Subtitle B, Title I of ERISA; and WHEREAS, the Employer intends that this Plan (and the Trust attached hereto) shall constitute a Voluntary Employees' Beneficiary Association and as such shall be a tax exempt organization pursuant to Sections 501(a) and 501(c)(9) of The Internal Revenue Code of 1986, as amended (the "Code"); NOW, THEREFORE, effective January 1, 2000 (hereinafter called the "Effective Date"), the Employer hereby establishes a Voluntary Employees' Beneficiary Association Plan and creates a separate trust (which plan and trust are hereinafter called the "Plan"), as the amendment and restatement of the current health benefit program maintained by the Employer, for the exclusive benefit of the Participants and their Beneficiaries and the Trustee hereby accepts the Plan on the following terms; 1 5 ARTICLE I DEFINITIONS 1.1 DEFINITIONS Wherever used in the Plan, unless the content clearly indicates otherwise, the following terms shall have the following meanings: (a) "Act" means Parts 1 and 4 of Subtitle B, Title I, of the Employee Retirement Income Security Act of 1974, as it may be amended from time to time. (b) "Administrator" means the person or persons designated by the Employer pursuant to Section 2.2 to administer the Plan on behalf of the Employer. (c) "Agreement" or "Plan" means this instrument including all amendments hereto and any other documents (including the separate trust agreement) which are incorporated by reference and made a part hereof. (d) "Beneficiary" or "Beneficiaries" means any Dependant or Dependants designated by a Participant in such form as the Administrator may prescribe to receive any benefit that may be payable hereunder. (e) "Benefit Schedules" means the Benefit Schedules or booklets issued by the Employer describing benefits provided by the Plan. The terms, conditions, limitations, and exclusions of said Benefit Schedules or Booklets are hereby incorporated by reference and made a part hereof, except insofar as the Benefit Schedules or Booklets are in conflict with this Agreement. (f) "Code" means the Internal Revenue Code of 1986, as amended. (g) "Contingent Beneficiary" means the person or persons (or a trust) duly designated by the Participant to receive a death benefit (if any) from the Plan in the event the designated Beneficiary does not survive the Participant. (h) "Dependent" means the Participant's wife or husband and unmarried children within the prescribed age limits who are not employed by the Employer. The term "children" also includes step children, adopted children and any other children related by blood or marriage who are dependent upon the Participant and residing with the Participant in regular parent-child relationship. The prescribed age limit for eligible children is under nineteen years of age, and with respect to unmarried children who are attending school on a full-time basis, under twenty-five years of age. If both husband and wife are covered under the Plan as Employees, either the husband or wife, but not both, may elect the insurance with respect to children eligible under the definition above. (i) "Eligible Dependent" means any Dependent who has satisfied the provisions of Section 3.1. 2 6 (j) "Eligible Employee" means any Employee who has satisfied the provisions of Section 3.1 (k) "Employee" means any person who is employed by the Employer. (l) "Employer" means RESOURCE BANCSHARES MORTGAGE GROUP, INC., its successors, and any other entity which is related to or affiliated with Resource Bancshares Mortgage Group, Inc. pursuant to Section 267, 414, 707 or 1563 of the Code. (m) "Fiduciary" means any person who (a) exercises any discretionary authority or discretionary control respecting management of the Plan or exercises any authority or control respecting management or disposition of its assets, (b) renders investment advice for a fee or other compensation, direct or indirect, with respect to any monies or other property of the Plan or has any authority or responsibility to do so, or (c) has any discretionary authority or discretionary responsibility in the administration of the Plan, including, but not limited to, the Trustee, the Employer and the Administrator. (n) "Investment Manager" means any person, firm or corporation who is a registered investment adviser under the Investment Advisers Act of 1940, a bank or an insurance company, and (1) who has the power to manage, acquire, or dispose of Plan assets, or (2) who acknowledges in writing his fiduciary responsibility to the Plan. (o) "Participant" means any Eligible Employee who elects to participate in the Plan as provided in Section 3.2, and has not for any reason become ineligible to participate further in the Plan. (p) "Plan Year" means the Plan's accounting year of twelve (12) months commencing on January 1 of each year and ending the following December 31. (q) "Pre-existing Condition" means a physical or mental condition, regardless of the cause of the condition, for which medical advice, diagnosis, care or treatment was recommended or received within the six-month period prior to the Enrollment Date. Genetic information shall not be treated as a Pre-existing Condition in the absence of a diagnosis of the condition related to the genetic information. Pregnancy shall not be considered a Pre-existing Condition hereunder. A newborn child, a child placed for adoption or a newly-adopted child (under age 18) who begins Dependent Coverage hereunder within 30 days of birth, placement for adoption or adoption (or who has creditable coverage from birth, placement for adoption or adoption without a significant break in coverage) shall not be considered to have any Pre-existing Conditions. (r) "Trustee" means the person or persons named as Trustee herein or in any separate trust forming a part of this Plan, and his, their, or its successors. (s) "Trust Fund" means the assets of the Plan and Trust as the same shall exist from time to time. 3 7 1.2 GENDER AND NUMBER Wherever any words are used herein in the masculine, feminine or neuter gender, they shall be construed as though they were also used in another gender in all cases where they would so apply, and whenever any words are used herein in the singular or plural form, they shall be construed as though they were also used in the other form in all cases where they would so apply. 1.3 HEADINGS The headings and subheadings of this Agreement have been inserted for convenience or reference and are to be ignored in any construction of the provisions hereof. 1.4 UNIFORMITY All provisions of this Plan shall be interpreted and applied in a uniform, nondiscriminatory manner. 4 8 ARTICLE II ADMINISTRATION 2.1 POWERS AND RESPONSIBILITIES OF THE EMPLOYER The Employer, by acting through its board of directors, shall be empowered to appoint and remove the Trustee and the Administrator from time to time as it deems necessary for the proper administration of the Plan to assure that the Plan is being operated for the exclusive benefit of the Participants and their Beneficiaries in accordance with the terms of this Agreement, the Code, and the Act. The Employer shall establish a "funding policy and method", i.e., it shall determine whether the Plan has a short run need for liquidity (e.g., to pay benefits) or whether liquidity is a long run goal and investment growth (and stability of same) is a more current need, or shall appoint a qualified person to do so. The Employer or its delegate shall communicate such needs and goals to the Trustee, who shall coordinate such plan needs with its investment policy. The communication of such a "funding policy and method" shall not, however, constitute a directive to the Trustee as to investment of the Trust Funds. Such "funding policy and method" shall be considered with the objectives of this Plan and with the requirements of Title I of the Act. The Employer may in its discretion appoint an Investment Manager to manage all or a designated portion of the assets of the Plan. In such event, the Trustee shall follow the directive of the Investment Manager in investing the assets of the Plan managed by the Investment Manager. The Employer shall periodically review the performance of any Fiduciary or other person to whom duties have been delegated or allocated by it under the provisions of this Plan or pursuant to procedures established hereunder. This requirement may be satisfied by formal periodic review by the Employer or by a qualified person specifically designated by the Employer, through day-to-day conduct and evaluation, or through other appropriate ways. The Employer may establish a special account whose assets will be separate and not commingled with the Employer's other assets (the "Separate Account"). The Employer shall designate a person to be charged with administering the Separate Account and shall notify the Administrator of such designation. In the event benefits are paid on behalf of retired Participants and their Dependents under the Plan, the Separate Account shall be the sole source of payment of benefits for retired Participants and their Dependents. 2.2 ASSIGNMENT AND DESIGNATION OF ADMINISTRATIVE AUTHORITY The Employer shall appoint one or more Administrators. Any person, or group of persons, including, but not limited to, the directors, shareholders, officers, and Employees of the Employer, shall be eligible to serve as an Administrator. Any person so appointed shall signify his acceptance by filing written acceptance with the Employer. An Administrator may resign by delivering his written resignation to the Employer or be removed by the Employer by delivery of written notice of 5 9 removal, to take effect at a date specified therein, or upon delivery to the Administrator if no date is specified. The Employer, upon the resignation or removal of an Administrator, shall promptly designate in writing a successor to this position. If the Employer does not appoint an Administrator, the Senior Vice President of Human Resources of the Employer shall function as the Administrator. 2.3 ALLOCATION AND DELEGATION OF RESPONSIBILITIES If more than one person is appointed as Administrator, the responsibilities of each Administrator may be specified by the Employer and accepted in writing by each Administrator. In the event that no such delegation is made by the Employer, the Administrators may allocate the responsibilities among themselves, in which event the Administrator shall notify the Employer and the Trustee in writing of such action and specify the responsibilities of each Administrator. The Trustee thereafter shall accept and rely upon any documents executed by the appropriate Administrator until such time as the Employer or the Administrators file with the Trustee a written revocation of such designation. 2.4 POWERS, DUTIES AND RESPONSIBILITIES The primary responsibility of the Administrator is to administer the Plan for the exclusive benefit of the Participants and their Beneficiaries, subject to the specific terms of the Plan. The Administrator shall administer the Plan in accordance with its terms and shall have the power in its sole discretion to determine all questions arising in connection with the administration, interpretation, and application of the Plan. Any such determination by the Administrator shall be conclusive and binding upon all persons. The Administrator may correct any defect, supply any information, or reconcile any inconsistency in such manner and to such extent as shall be deemed necessary or advisable to carry out the purpose of this Agreement; provided however, that any interpretation or construction shall be done in a nondiscriminatory manner and shall be consistent with the intent that the Plan shall continue to be deemed a qualifying plan under the terms of Section 501(c)(9) of the Code as amended from time to time, and shall comply with the terms of the Act and all regulations issued pursuant thereto. The administrator shall have all powers necessary or appropriate to accomplish his duties under this Plan. The Administrator shall be charged with the duties of the general administration of the Plan, including, but not limited to, the following: (a) to determine all questions relating to the eligibility of Employees to participate or continue to participate (b) to compute, certify, and direct the Trustee or, if applicable, the person charged with administering the Separate Account (described in Section 2.1 of the Plan) with respect to the amount and kind of benefits to which any Participant shall be entitled hereunder; 6 10 (c) to authorize and direct the Trustee or, if applicable, the person charged with administering, the Separate Account (described in Section 2.1 of the Plan) with respect to all nondiscretionary or otherwise directed disbursements for the Trust or, if applicable, the Separate Account; (d) to maintain all necessary records for the administration of the Plan; (e) to interpret the provisions of the Plan and to make and publish such rules for regulation of the Plan as are consistent with the terms hereof; (f) to determine the size and type of any insurance contract to be purchased from any insurer, and to designate the insurer from which such Contract shall be purchased; (g) to compute and certify to the Employer and to the Trustee from time to time the sums of money necessary or desirable to be contributed to the Trust Fund and to compute and certify to the Employer and the person charged with administering the Separate Account (described in Section 2.1) from time to time the sums of money necessary or desirable to be contributed to the Separate Account; (h) to consult with the Employer and the Trustee regarding the short and long-term liquidity needs of the Plan in order that the Trustee can exercise any investment discretion in a manner designed to accomplish specific objectives; (i) to assist any Participant or Beneficiary regarding his rights, benefits, or elections available under the Plan; and (j) to communicate to Employees, Participants and their Beneficiaries a summary plan description outlining the provisions of the Plan as required under Title I of the Act. 2.5 RECORDS AND REPORTS The Administrator shall keep a record of all actions taken and shall keep all other books of account, records, and other data that may be necessary for proper administration of the Plan and shall be responsible for supplying all information and reports to the Internal Revenue Service, Department of Labor, Participants, Beneficiaries and others as required by law. 2.6 APPOINTMENT OF ADVISORS The Administrator, or the Trustee with the consent of the Administrator, may appoint counsel, specialists and advisers, and other persons as the Administrator or the Trustee deems necessary or desirable in connection with the administration of this Plan. 7 11 2.7 INFORMATION FROM EMPLOYER To enable the Administrator to perform his functions, the Employer shall supply full and timely information to the Administrator on all matters relating to the retirement, death disability, or termination of employment, of all Participants and such other pertinent facts as the Administrator may require; and the Administrator shall advise the Trustee of such of the foregoing facts as may be pertinent to the Trustee's duties under the Plan. The Administrator may rely upon such information as is supplied by the Employer and shall have no duty or responsibility to verify such information. 2.8 PAYMENT OF EXPENSES All expenses of administration may be paid out of the Trust Fund unless paid by the Employer. Such expenses shall include any expenses incident to the functioning of the Administrator, including, but not limited to, fees of accountants, counsel, and other specialists, and other costs of administering the Plan. Until paid, the expenses shall constitute a liability of the Trust Fund. However, the Employer may reimburse the Trust for any administration expense incurred pursuant to the above. Any administration expense paid to the Trust as a reimbursement shall not be considered as an Employer contribution. 2.9 MAJORITY ACTIONS Except where there has been an allocation and delegation of administrative authority pursuant to Section 2.3, if there shall be more than one Administrator, they shall act by a majority of their number, but may authorize one or more of them to sign all papers on their behalf. 2.10 ACTION BY EMPLOYER Whenever the Employer under the terms of this Agreement is permitted or required to do or perform any act or matter or thing, it shall be done and performed by an officer duly authorized by its board of directors. 2.11 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY The "named Fiduciaries" of this Plan are (1) the Employer, (2) the Administrator, (3) the Trustee and (4) any Investment Manager appointed hereunder. The named Fiduciaries shall have only those specific powers, duties, responsibilities, and obligations as are specifically given them under this Agreement. In general, the Employer, acting through its board of directors, shall have the sole responsibility for making the contributions provided for under Section 6.1; and shall have the sole authority to appoint and remove the Trustee, the Administrator and any Investment Manager which may be provided for under this Agreement; to formulate the Plan's "funding policy and method"; and to amend or terminate, in whole or in part, this Agreement. 8 12 The Administrator shall have the sole responsibility for the Administration of this Agreement, which responsibility is specifically described in this Agreement. The Trustee shall have the sole responsibility of management of the assets held under the Trust, except those assets the management of which has been assigned to an Investment Manager, who shall be solely responsible for the management of the assets assigned to it, all as specifically provided in this Agreement. Each named Fiduciary may rely upon any such direction, information or action of another named Fiduciary as being proper under this Agreement, and is not required under this Agreement to inquire into the propriety of any such direction, information or action. It is intended under this Agreement that each named Fiduciary shall be responsible for the proper exercise of its own powers, duties, responsibilities and obligations under this Agreement. No named Fiduciary guarantees the Trust Fund in any manner against investment loss or depreciation in asset value. Any person or group may serve in more than one Fiduciary capacity. 2.12 LEGAL ACTION In the event any claim, suit, or proceeding is brought regarding the Trust and/or Plan established hereunder to which the Trustee or the Administrator may be a party, they shall be entitled to be reimbursed from the Trust Fund for any and all costs, attorney's fees, and other expenses pertaining thereto incurred by them for which they shall have become liable. 9 13 ARTICLE III ELIGIBILITY 3.1 CONDITIONS OF ELIGIBILITY Any Employee who is a regular full time Employee of the Employer and who is regularly scheduled to work at least thirty (30) hours per week for the Employer and who is a participant of the class or classes of Employees eligible for coverage under the Benefit Schedules shall be eligible to participate in the Plan on the later of the effective date of the Plan or after the date the Employee completes 60 days of service with the Employer (or such other period contained in the applicable Benefit Schedules). An Employee is eligible for benefits with respect to Dependents on the date he becomes eligible for benefits with respect to himself if he has an eligible Dependent or Dependents, as defined above, on that date; otherwise on the date the Employee acquires an eligible Dependent or Dependents. 3.2 EFFECTIVE DATE OF PARTICIPATION With regard to benefits inuring directly to the Employee, participation will commence on the date Employee becomes eligible as provided above if the Employee completed the necessary enrollment form prior to such date. Participation will commence on the date the Employee completes the necessary enrollment form, if the enrollment form is completed within one month of the date the Employee becomes eligible. Participation will commence on the first day of the succeeding Plan Year if the enrollment form is completed more than one moth after the date the Employee becomes eligible or during an open enrollment period. With regard to benefits inuring to Dependents, participation will commence on the following dates provided that the Eligible Employee has completed the necessary enrollment form electing coverage for all Eligible Dependents and provided the Employee is covered on the date the benefits with respect to Dependents are to become effective: (a) the date the Employee becomes eligible for benefits with respect to a Dependent or Dependents if the enrollment form is received by the Employer on or prior to such date; (b) the date of marriage, birth of child, or the Participant becomes responsible for a Dependent, if the Administrator is notified within 31 days of the applicable event; (c) on the first day of the succeeding Plan Year, if the Administrator is notified after 31 days of the applicable date of marriage, birth of child, or the Participant becomes responsible for a Dependent; (d) in the case of coverage pursuant to a qualified medical child support order, the date on which the Administrator determines the order is a qualified medical child support order 10 14 or, if earlier, the date the Administrator determines that coverage should become effective pursuant to the qualified medical child support order. If the Employee's coverage is not in effect on the date the coverage with respect to a Dependent or Dependents would otherwise become effective, the Employee's coverage with respect to the Dependent or Dependents will become effective on the date the Employee's coverage becomes effective. The effective date of the Employee's coverage with respect to a Dependent who is confined in a hospital on the date such coverage would otherwise become effective will be deferred until the day following the date the Dependent is discharged from the hospital. This provision shall not apply to a newborn child who is hospitalized on the date the child become eligible as a Dependent provided the child is born while the Employee is insured with respect to Dependents. 3.3 REQUIREMENTS OF HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT OF 1996. Special Enrollees. Notwithstanding the requirements of Section 3.2, the following special participation rules shall apply to Special Enrollees (as hereinafter described in items (a) and (b) below): (a) If an otherwise eligible Employee or Dependent declined coverage under the Plan at the time of initial eligibility, and stated in writing at that time that coverage was declined because of other health coverage but that other health coverage is subsequently lost, and that person makes application for coverage hereunder within 30 days of the loss of other health coverage, such individual shall be a Special Enrollee provided such person: (1) lost the alternative health coverage as a result of loss of eligibility for the coverage (including as a result of legal separation, divorce, death, termination of employment, or reduction in the number of hours of employment, but not including an increase in cost of the other coverage or reduction in benefits of the other coverage); (2) employer contributions toward such other coverage were terminated; or (3) if the eligible Employee or Dependent was covered under a COBRA continuation provision and the COBRA continuation period has been exhausted. (b) An otherwise eligible Employee who is not covered by the Plan, an otherwise eligible Employee and Dependent who are not covered by the Plan or a Participant's Dependent who is not otherwise covered by the Plan may apply for coverage under the Plan as a result of the acquisition of a new Dependent by the Employee or Participant through marriage, birth, adoption or placement for adoption and shall be a Special Enrollee provided such person is properly enrolled as a Participant or Dependent of the Participant within thirty (30) days of the acquisition of the new Dependent. Participation Date of Special Enrollees. Coverage for a Special Enrollee who is a newborn child, a child placed for adoption or an adopted child shall begin as of the date of the birth, placement for adoption or adoption. Coverage for a Special Enrollee, other than for a newborn, a child placed for adoption or a newly adopted child, shall begin as of the first day of the calendar month following the enrollment request. 11 15 Pre-existing Conditions. The following rules shall apply to claims incurred with respect to pre-existing conditions: (a) Claims resulting from Pre-existing Conditions, as defined in the Plan, are excluded from coverage under the Plan for a period of twelve (12) months from the Enrollment Date of the Participant or Dependent where the Participant or Dependent enrolls for coverage under the Plan when first eligible. The Plan shall reduce the period of exclusion by those periods of prior Creditable Coverage which the covered person served under prior qualifying medical benefit programs when evidence of the prior Creditable Coverage is submitted and the Plan shall notify the covered person as to the date that the Pre-existing Condition exclusion period shall end. (b) For purposes of this Plan, the term "Creditable Coverage" includes only those coverages required to be included as such under Section 701 of the Act and shall exclude those coverages that are permitted to be excluded under Section 701(c) of the Act. (c) If a claim for benefits under the Plan is denied or reduced by operation of this provision, the Employee or Dependent shall be entitled to appeal that decision and may provide additional evidence of prior Creditable Coverage pursuant to the normal procedure of the Plan for the appeal of any other coverage decision of the Plan. Rules of Construction. In the event of a conflict between this section or any other provision of the Plan and Sections 701 through 733 of the Act or Sections 9801 through 9833 of the Code, Sections 701 through 733 of the Act and Sections 9801 through 9833 of the Code shall control and this section shall be deemed to contain the controlling provisions from Sections 701 through 733 of the Act and Sections 9801 through 9833 of the Code. 3.4 DETERMINATION OF ELIGIBILITY The Administrator shall determine in its sole discretion the eligibility of each Employee or Dependant for participation in the Plan based upon information furnished by the Employer. Such determination shall be conclusive and binding upon all persons, as long as the same is made in accordance with this Agreement and the Act. 3.5 OMISSION OF A PARTICIPANT If, in any Plan Year, any person who should be included as a Participant or Beneficiary in the Plan is erroneously omitted and discovery of such omission is not made until after a contribution by the Employer for the year has been made, the Employer shall make a subsequent contribution with respect to the omitted Participant or Beneficiary in the amount which the said Employer would have contributed with respect to him had he not been omitted. Such contribution shall be made regardless of whether it is deductible in whole or in part in any taxable year, under applicable provisions of the Internal Revenue Code by such Employer. 12 16 3.6 INCLUSION OF INELIGIBLE PERSON If, in any Plan Year, any person who should not have been included as a Participant or Beneficiary in the Plan is erroneously included and discovery of such incorrect inclusion is not made until after a contribution for the year has been made, the Employer shall not be entitled to recover the contribution made with respect to the ineligible person regardless of whether a deduction is allowable with respect to such contribution. In such event, the amount contributed with respect to the ineligible person shall be used to provide Participants or Beneficiaries with the benefits set forth in the Plan. 3.7 NONDISCRIMINATION REQUIREMENTS All other provisions of this Plan and the Benefit Schedules notwithstanding, each class of benefits provided hereunder must not be provided in a discriminatory manner in favor of highly compensated individuals as defined by Section 505(b)(5) of the Code. 13 17 ARTICLE IV BENEFITS 4.1 SICK AND ACCIDENT BENEFITS Participants: In the event of a Participant's illness or personal injury, such Participant shall be entitled to receive each Plan Year a sick and accident benefit equal to the amount provided in the Benefit Schedules. Beneficiaries: In the event of a Beneficiary's illness or personal injury, such Beneficiary shall be entitled to receive each Plan Year a sick and accident benefit equal to the amount provided in the Benefit Schedules. 4.2 DESIGNATION OF BENEFICIARY If death benefits are provided by this Plan, each Participant may designate in writing a Beneficiary (or a trust) of his own choosing, and may, in addition, name a Contingent Beneficiary. Such designation shall be made in a form satisfactory to the Administrator. Any participant may at any time revoke his designation of Beneficiary by filing written notice of such revocation or change with the Administrator. In the event of death of the designated Beneficiary prior to the death of the Participant, the Contingent Beneficiary shall be entitled to receive such benefit. In the event no Beneficiary or Contingent Beneficiary is surviving at the time any payment is to be made, then such payment shall be made to such Participant's spouse, if living, or if there is no spouse living, to the Participant's issue, per stirpes, or if neither the Participant's spouse nor any of his issue are living, then to such Participant's estate. 14 18 ARTICLE V CLAIMS PROCEDURE 5.1 FILING OF CLAIM If the Benefit Schedule contains a procedure for filing for a claim for benefits provided under the Benefit Schedule, the Participant or Beneficiary shall submit or have submitted a claim in accordance with the procedure in the applicable Benefit Schedule. If the Benefit Schedule does not contain a procedure for filing for a claim for benefits provided under the Benefit Schedule, the Participant or his Beneficiary shall submit or have submitted a written notice of claim with 20 days after the date of loss, or as soon as possible, followed by a written proof of loss within 90 days after the date of loss, or as soon as possible, including an attached billing of the hospital, physician or other provider of services, to the Plan Administrator or to such other person designated by the Plan Administrator to handle such claims. 5.2 DENIAL OF CLAIM If the Benefit Schedule contains a procedure for filing for a claim for benefits under the Benefit Schedule and a procedure addressing the denial of claims filed pursuant to such procedures, the procedure contained in the Benefit Schedule will apply to the denial of claims for benefits under the Benefit Schedule. If the Benefit Schedule does not contain a procedure for filing a claim for benefits provided under the Benefit Schedule or does not contain a procedure addressing the denial of claims filed pursuant to such procedures, the Administrator shall furnish the Participant or Beneficiary with written notice of the denial of any claim (in whole or part) within ninety (90) days of the date of the original claim was filed. The notice of denial shall provide (1) the reason for denial, (2) specific reference to pertinent Plan provisions on which the denial is based, (3) a description of any additional information needed to perfect the claim and an explanation of which such information is necessary, and (4) an explanation of the Plan's claim procedure. 5.3 REVIEW OF CLAIM DENIAL If the Benefit Schedule contains a procedure for reviewing the denial of a claim for benefits under the Benefit Schedule, the procedure contained in the Benefit Schedule will apply to the review of denial claims for benefits under the Benefit Schedule. If the Benefit Schedule does not contain a procedure for reviewing the denial of a claim for benefits under the Benefit Schedule, the Participant or Beneficiary shall have sixty (60) days from receipt of a denial notice in which to make written application for review by the Administrator. The Participant or Beneficiary may request that the review be in the nature of a hearing. The Participant or Beneficiary shall have the rights (1) to representation, (2) to review 15 19 pertinent documents, and (3) to submit comments in writing. The Plan Administrator shall issue a decision on such review within sixty (60) days after receipt of an application for review as provided in Section 5.3, unless special circumstances, such as a review of the claim by a Peer Review Board, require an extension of time, in which case an additional sixty (60) days will be allowed. 16 20 ARTICLE VI CONTRIBUTIONS AND VALUATIONS 6.1 EMPLOYER CONTRIBUTIONS The Employer shall pay to the Trustee from time to time such amounts in cash or property as the Employer shall determine to be necessary to provide the benefits for Participants and their Beneficiaries under the Plan determined by the application of accepted actuarial methods and assumptions. In establishing the liabilities under the Plan and contributions thereto, the actuary will use methods and assumptions as will reasonably reflect the cost of the benefits The method of funding should be consistent with Plan objectives. 6.2 PARTICIPANT CONTRIBUTIONS Each Participant shall pay to the Trustee such amounts as may be required under the Plan and in accordance with a uniform, non-discriminatory procedure established by the Employer. 6.3 VALUATION OF THE TRUST FUND The Administrator shall direct the Trustee, as of each last day of the Plan Year, and at such other date or dates deemed necessary by the Administrator, herein called "valuation date", to determine the net worth of the assets comprising the Trust Fund as it exists on the valuation date prior to taking into consideration any contribution for that Plan Year. In determining such net worth, the Trustee shall value the assets comprising the Trust Fund at their fair market value as of the valuation date and shall deduct all expenses for which the Trustee has not yet obtained reimbursement from the Employer or the Trust Fund 6.4 METHOD OF VALUATION The Plan assets are to be valued on the basis of any reasonable method of valuation that takes into account fair market value pursuant to regulations prescribed by the Secretary of Treasury. In determining the fair market value of securities held in the Trust Fund which are listed on a registered stock exchange, the Administrator shall direct the Trustee to value the same at the prices they were last traded on such exchange preceding the close of business on the valuation date. If such securities were not traded on the valuation date, or if the exchange on which they are traded was not open for business on the valuation date then the securities shall be valued at the prices at which they were last traded prior to the valuation date. Any unlisted security held in the Trust Fund shall be valued at its bid price next preceding the close of business on the valuation date, which bid price shall be obtained from a registered broker or an investment banker. In determining the fair market value of assets other than securities for which trading or bid prices can be obtained, the Trustee may appraise such assets itself, or in its discretion, employ one or more appraisers for that purpose and rely on the values established by such appraiser or appraisers. 17 21 ARTICLE VII CESSATION OF BENEFITS 7.1 BENEFITS FOR PARTICIPANTS Subject to continuation of coverage pursuant to Section 7.4 of the Plan, Participant shall cease to be eligible for benefits under the Plan upon the occurrence of the earliest of the following events: (a) the Participant no longer meets the eligibility requirements set forth in Section 3.1; (b) the Participant voluntarily elects to discontinue his Participation in the Plan; (c) insurance with respect to the Participant terminates pursuant to the terms of the Policy; (d) the date the Plan ceases or the date the Plan ceases for the class of Employees to which the Participant belongs; (e) the first Sunday following the date active employment with the Employer ceases, except as provided in the Benefit Schedules. 7.2 BENEFITS FOR BENEFICIARIES Subject to continuation of coverage pursuant to Section 7.4 of the Plan, a Beneficiary shall cease to be eligible for benefits under the Plan as of the earlier of the date on which he loses his status as a Dependent or on the date benefits with respect to such Dependent terminates under the terms of the Plan. 7.3 CONVERSION OF POLICIES Any policies in effect pursuant to this Plan may contain a provision which shall permit, upon payment of an additional conversion premium, the conversion (without medical examination) of the policy to provide individual coverage upon termination of eligibility for coverage under this Plan. 7.4 CONTINUATION OF COVERAGE If health coverage has ended due to the occurrence of a qualifying event within the meaning of Section 603 of the Act, each Participant or qualified beneficiary is eligible for Continued Coverage. Continued Coverage is conditioned on timely election to the Administrator for such coverage and timely payment of continuation coverage premium. The Administrator shall mail the first payment date notice and any notice announcing a change in the continuation coverage premium to a Participant or qualified beneficiary. No other premium notices will be sent. Each Participant or qualified beneficiary is responsible for timely payment of premiums. 18 22 (A) As soon as practical after receipt of the election, the Administrator shall send a premium notice for the continuation coverage premium for the first payment date. The notice shall notify the Participant or qualified beneficiary (1) of the continuation coverage premium due on the first payment date; (2) the monthly continuation coverage premium due on the first day of each succeeding month; (3) that no other premium notices will be sent; (4) that each participant is responsible for timely payment of premiums; and (5) that failure to make timely premium payments will result in termination of Continued Coverage. (B) In no event will the first continuation coverage premium be due prior to 45 days after the day on which the Participant or qualified beneficiary makes the initial election for continuation coverage. However, at the election of the former Employee or qualified beneficiary, continuation coverage premiums may be made prior to the first payment date. (C) All continuation coverage premiums which have accumulated between the time the Participant loses coverage and the first payment date plus the continuation coverage premium for the succeeding month must be paid on the first payment date. If a Participant ceases to be an Eligible Employee and fails to elect Continued Coverage within 60 days of his termination or reduction in hours, or if a Participant becomes ineligible to receive Continued Coverage by reason of a Disqualifying Event, participation in the Plan shall terminate. In the event of a conflict between this section and Sections 601 through 609 of the Act or Section 4980B of the Code, Section 601 through 609 of the Act and Section 4980B of the Code shall control and this section shall be deemed to contain the controlling provisions from Sections 601 through 609 of the Act and Section 4980B of the Code. 19 23 ARTICLE VIII DISTRIBUTION OF BENEFITS 8.1 DISTRIBUTION OF BENEFITS The Administrator in his sole discretion shall direct the Trustee or, if applicable, the person charged with administering the Separate Account (described in Section 2.1 of the Plan) to distribute to a Participant or his Beneficiaries any amount to which he is entitled under the Plan pursuant to the method of payment provided in the Benefit Schedules of, if no method of payment is provided in the Benefit Schedules, as determined by the Administrator. 8.2 DISTRIBUTION FOR MINOR BENEFICIARY In the event a distribution is to be made to a minor, the Administrator may, in the Administrator's sole discretion, direct that such distribution be paid to the legal guardian, or if none, to a parent of such Beneficiary or a responsible adult with whom the Beneficiary maintains his residence, or to the custodian for such Beneficiary under the Uniform Gift to Minors Act if such is permitted by the laws of the state in which said Beneficiary resides. Such a payment to the legal guardian or parent of a minor Beneficiary shall fully discharge the Trustee, Employer, and Plan from further liability on account thereof. 8.3 LOCATION OF A PARTICIPANT OR BENEFICIARY UNKNOWN In the event that all, or any portion, of the distribution payable to a Participant or his Beneficiary hereunder shall, at the expiration of five (5) years after it shall become payable, remain unpaid solely by reason of the inability of the Administrator, after sending a registered letter, return receipt requested, to the last known address, and after further diligent effort, to ascertain the whereabouts of such Participant or his Beneficiary, the amount so distributable shall remain in the Trust, or, if applicable, the Separate Account (described in Section 2.1 of the Plan), to be used as part of the general Trust Fund or Separate Account. 20 24 ARTICLE X AMENDMENTS AND TERMINATION 9.1 AMENDMENTS The Employer shall have the right at any time and from time to time amend, in whole or in part, any or all of the provisions of this Agreement. However, no such amendment shall authorize or permit any part of the Trust Fund (other than such part as is required to pay taxes and administration expenses) to be used for or diverted to purposes other than for the exclusive benefit or the Participants or their Beneficiaries or estates; no such amendment shall cause or permit any portion of the Trust Fund to revert to or become the property of the Employer; and no such amendment which affects the rights, duties or responsibilities of the Trustee and Administrator may be made without the Trustee's and Administrator's written consent. Any such amendment shall become effective upon delivery of a duly executed instrument to the Trustee, provided that the Trustee shall in writing consent to the term of such amendment. 9.2 TERMINATION The Employer shall have the right at any time to terminate the Plan by delivering to the Trustee and Administrator written notice of such termination. Upon such termination of the Plan, the Employer, by written notice to the Trustee and Administrator, may direct either: (a) complete distribution of the assets in the Trust Fund to the Participants or their Beneficiaries as soon as the Trustee deems it to be in the best interest of the Participants or their Beneficiaries, except however, such distribution shall only be made (1) pursuant to the terms of a collective bargaining agreement or (2) on the basis of objective and reasonable standards which do not result in unequal payment to similarly situated Participants or their Beneficiaries or in disproportionate payment to officers, shareholders, or highly compensated Employees of an Employer contributing to or otherwise funding this Plan; or (b) that any assets remaining in the Plan, after the satisfaction of all liabilities to existing Participants or their Beneficiaries, be applied to provide such Participants or their Beneficiaries with the benefits set forth in the Plan, provided, however, that such benefits shall not be provided in disproportionate amounts to officers, shareholders, or highly compensated Employees of the Employer. 21 25 IN WITNESS WHEREOF, this Agreement has been executed the day and year first above written. EMPLOYER: RESOURCE BANCSHARES MORTGAGE GROUP, INC. WITNESS: By: ------------------------------- - ------------------------------ HSBC BANK, USA WITNESS: By: ------------------------------- - ------------------------------ 22 EX-11.1 8 COMPUTATION OF NET INCOME PER COMMON SHARE 1 EXHIBIT 11.1 RESOURCE BANCSHARES MORTGAGE GROUP, INC. STATEMENT RE: COMPUTATION OF NET INCOME PER COMMON SHARE, BASIC AND DILUTED EARNINGS PER SHARE ($ in thousands, except per share amounts) For the Quarter Ended March 31, 2000 --------------------- Net income $ (9,967) Net income per common share - basic (1) $ (0.53) Net income per common share - diluted (2) $ (0.53) 1) The number of common shares outstanding used to compute net income per share-basic was 18,657,683 for the quarter ended March 31, 2000. 2) Diluted earnings per common share for the quarter ended March 31, 2000, was calculated based on weighted average common shares outstanding of 18,657,683 which assumes the exercise of options covering -0- shares and computes incremental shares using the treasury stock method. EX-27.1 9 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 21,150 47,604 289,755 0 619,009 1,015,644 54,767 19,562 1,066,105 860,321 6,232 0 0 316 199,236 199,552 15,338 19,222 27,119 34,986 7,867 2,001 11,230 (15,764) (5,797) (9,967) 0 0 0 (9,967) (0.53) (0.53)
-----END PRIVACY-ENHANCED MESSAGE-----