10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 2006

or

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to __________

Commission file number: 0-4408

RESOURCE AMERICA, INC.

(Exact name of registrant as specified in its charter)

Delaware____________ (State or other jurisdiction of incorporation or organization)	72-0654145 (I.R.S. Employer Identification No.)
One Crescent Drive, Suite 203 Navy Yard Corporate Center Philadelphia, PA______ (Address of principal executive offices)	________19112 (Zip Code)
Registrant’s telephone number, including area code:  215-546-5005
Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Name of each exchange on which registered
None	None

Securities registered pursuant to Section 12(g) of the Act:

Common stock, par value $.01 per share

                                         Title of class

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o  No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(a) of the Act. Yes o  No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes x No o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o  No x

The aggregate market value of the voting common equity held by non-affiliates of the registrant, based on the closing price of such stock on the last business day of the registrant’s most recently completed second fiscal quarter (March 31, 2006) was approximately $207,494,000.

The number of outstanding shares of the registrant’s common stock on December 1, 2006 was 17,292,049 shares.

DOCUMENTS INCORPORATED BY REFERENCE

[None]

RESOURCE AMERICA, INC. AND SUBSIDIARIES

INDEX TO ANNUAL REPORT

ON FORM 10-K

			Page
PART I
	Item 1:	Business	3 − 10
	Item 1A:	Risk Factors	10 − 15
	Item 1B:	Unresolved Staff Comments	15
	Item 2:	Properties	16
	Item 3:	Legal Proceedings	16
	Item 4:	Submission of Matters to a Vote of Security Holders	16
PART II
	Item 5:	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of  Equity Securities	17 − 18
	Item 6:	Selected Financial Data	19
	Item 7:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20 − 46
	Item 7A:	Quantitative and Qualitative Disclosures About Market Risk	47
	Item 8:	Financial Statements and Supplementary Data	48 − 93
	Item 9:	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	94
	Item 9A:	Controls and Procedures	94 − 95
	Item 9B:	Other Information	96
PART III
	Item 10:	Directors and Executive Officers of the Registrant	97 − 99
	Item 11:	Executive Compensation	100 − 103
	Item 12:	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	104 − 105
	Item 13:	Certain Relationships and Related Transactions	106 − 107
	Item 14:	Principal Accounting Fees and Services	108
PART IV
	Item 15:	Exhibits, Financial Statement Schedules	109 − 110
SIGNATURES			111

PART I

ITEM 1.BUSINESS

THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS REGARDING EVENTS AND FINANCIAL TRENDS WHICH MAY AFFECT OUR FUTURE OPERATING RESULTS AND FINANCIAL POSITION. SUCH STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE OUR ACTUAL RESULTS AND FINANCIAL POSITION TO DIFFER MATERIALLY FROM THOSE ANTICIPATED IN SUCH STATEMENTS. IN REAL ESTATE, THESE RISKS INCLUDE RISKS OF THE MARKETABILITY OF REAL ESTATE PROGRAMS, LOAN DEFAULTS, THE ADEQUACY OF OUR PROVISION FOR LOSSES AND THE ILLIQUIDITY OF OUR LOAN PORTFOLIO. IN OUR COMMERCIAL FINANCE AND FINANCIAL FUND MANAGEMENT BUSINESSES, THESE RISKS INCLUDE THE EFFECTS OF FLUCTUATIONS IN INTEREST RATES AND THE MARKETABILITY OF COMMERCIAL FINANCE AND COLLATERALIZED DEBT OBLIGATION PROGRAMS. FOR A MORE COMPLETE DISCUSSION OF THE RISKS AND UNCERTAINTIES TO WHICH WE ARE SUBJECT, SEE ITEM 1A “RISK FACTORS.”

General

We are a specialized asset management company that uses industry specific expertise to generate and administer investment opportunities for our own account and for outside investors in the financial fund management, real estate and commercial finance sectors. As a specialized asset manager, we develop investment funds in each sector in which outside investors invest along with us and for which we provide asset management services. As of September 30, 2006, we managed $12.1 billion of assets.

We limit our fund development and asset management services to asset classes in which we have specific expertise. We believe this strategy enhances the return on investment we can achieve for ourselves and for the investors in our funds. In our financial fund management operations, the asset classes on which we concentrate are asset-backed securities, known as ABS (principally residential and commercial mortgage-backed securities), structured finance securities, bank loans and the trust preferred securities of banks, bank holding companies, insurance companies and other financial companies. We describe these assets more particularly in “— Financial Fund Management,” below. In our real estate operations, we concentrate on investments in multi-family and commercial real estate and real estate mortgage loans including whole loans, first priority interests in commercial mortgage loans, known as A notes, subordinated interests in first mortgage loans, known as B notes, and mezzanine loans. We discuss these assets more particularly in “— Real Estate,” below. In our commercial finance operations, we focus on originating small and middle-ticket equipment leases and commercial notes receivable through strategic marketing alliances and other program relationships with equipment vendors, commercial banks and other financial institutions. The financed equipment includes a wide array of business-essential equipment, including technology, commercial and industrial equipment and medical equipment. We describe these assets more particularly in “−Commercial Finance.”

We have recently undertaken several new initiatives to expand the scope of our asset management operations, including private investment funds that make private equity investments in regional banks, a hedge fund focused on credit products and, through Resource Europe, Inc., the origination and management of international debt assets.

3

    As of September 30, 2006 and 2005, we managed $12.1 billion and $7.1 billion of assets, respectively, for our own account, for the accounts of institutional and individual investors, for the account of Resource Capital Corp., or RCC, and the held in warehouse facilities in the following asset classes (in millions):

	As of September 30, 2006										As of September 30, 2005
	Company		Institutional and Individual Investors		RCC		Assets Held on Warehouse Facilities		Total		Total
Asset-backed securities (1)	$	−	$	2,675	$	1,160	$	568	$	4,403	$	2,821
Trust preferred securities (1)		−		3,538		−		668		4,206		2,879
Bank loans (1)		3		593		615		624		1,835		413
Real properties (2)		−		345		−		−		345		202
Mortgage and other real estate-related loans (2)		99		−		440		−		539		417
Commercial finance assets (3)		109		412		92		−		613		340
Private equity and hedge fund assets (1)		−		58		−		−		58		−
Resource Europe (1)		66		−		−		25		91		2
	$	277	$	7,621	$	2,307	$	1,885	$	12,090	$	7,074

(1)We value these assets at their amortized cost.

(2)We value our managed real estate assets as the sum of: the amortized cost of our commercial real estate loans; the book value of

 real estate and other assets held by our real estate investment partnerships and tenant-in-common, or TIC, property interests; the

 amount of our outstanding legacy loan portfolio; and the book value of our interests in real estate.

(3)We value our commercial finance assets as the sum of the book value of the equipment and notes financed by us.

Included in these assets at September 30, 2006 are $8.3 billion of assets held through the 20 collateralized debt obligation, or CDO, Issuers we have sponsored, including $1.4 billion in four CDOs sponsored for RCC, and $1.9 billion held in warehouse facilities for CDOs which had not closed as of September 30, 2006 for which we have been engaged as the collateral manager.

We attract investment funds through the sponsorship of investment vehicles, including CDO issuers, public and private investment partnerships, TIC programs and a real estate investment trust, or REIT. We arrange for the funding of these vehicles through short, medium and longer-term bank financing, CDO issuances and equity investments. We believe that we have developed a unique combination of origination channels to provide such funding, including a network of international investment banks for our CDOs, international and national banks and investment banks both for our short, medium and longer-term debt financing and for equity financing of RCC, and a national network of independent broker-dealers for our investment partnerships and TIC programs.

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Our assets under management are primarily managed through the investment vehicles we sponsor. As set forth in the table below, the number of investment vehicles we have sponsored grew significantly in 2006:

	CDOs		Limited Partnerships		TIC Property Interests		Other Investment Funds
As of September 30, 2006 (1)
Financial fund management		19		11		−		−
Real estate		1		5		4		−
Commercial finance		−		2		−		1
Resource Europe		−		−		−		−
		20		18		4		1
As of September 30, 2005 (1)
Financial fund management		11		9		−		−
Real estate		−		4		1		−
Commercial finance		−		2		−		2
		11		15		1		2

(1) All of our operating segments, except for Resource Europe, manage assets on behalf of RCC.

Financial Fund Management

General. We focus our financial fund management operations on the sponsorship and management of CDO issuers and the management of RCC. We conduct our financial fund management operations through three principal subsidiaries:

· Apidos Capital Management, LLC, or Apidos, which invests in, finances, structures and manages investments in bank loans.

· Ischus Capital Management, LLC, or Ischus, which invests in, finances, structures and manages investments in asset-backed securities or ABS, including residential mortgage-backed securities, or RMBS, and commercial mortgage-backed securities, or CMBS.

· Trapeza Capital Management, LLC, or Trapeza, a joint venture between us and an unrelated third party, which originates, structures, finances and manages investments in trust preferred securities and senior debt securities of banks, bank holding companies, insurance companies and other financial companies.

CDOs. In general, CDOs are issued by special purpose entities, which we refer to as CDO issuers, that hold portfolios of debt obligations. A CDO issuer typically issues two or more series of CDOs of different seniority, as well as equity (sometimes referred to as “preference shares”) to fund the purchase of a portfolio of assets. The series of CDOs are typically rated based on portfolio quality, diversification and, among the series of CDOs being issued, structural subordination. The equity issued by the CDO issuer is the “first loss” piece of the CDO issuer’s capital structure, but is also generally entitled to all residual amounts available for payment after the CDO issuer’s obligations to the holders of the CDOs have been satisfied.

   We have focused on the sponsorship of CDO issuers whose CDOs are backed by assets purchased through Ischus, Apidos and Trapeza and the management of their assets. We acquire assets for our CDO issuers principally in transactions with the issuers of those assets, and are responsible for the evaluation of assets proposed for inclusion in the CDO issuer’s portfolio. We analyze the creditworthiness of the issuers of the portfolio assets, the assets themselves and the asset servicers through a credit committee made up of individuals with expertise in the targeted asset class. CDOs must be rated by one or more rating agencies in order for them to be eligible for many of the institutional investors to whom they are marketed; accordingly, we apply rating agency standards when evaluating assets for inclusion in a CDO issuer’s portfolio.

We fund the initial acquisition of a CDO issuer’s portfolio assets through a secured warehouse credit facility prior to the closing of a CDO issuer’s offering. At closing, the warehouse facility is refinanced through the issuance of CDOs.

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We derive revenues from our CDO operations through management and administration fees. We also receive distributions on amounts we invest directly in CDO issuers or in limited partnerships we form that purchase equity in our CDO issuers. Management fees vary by CDO issuer but, excluding CDOs managed on behalf of RCC, have ranged from an annual fee of between 0.25% and 0.60% of the par value of the CDO issuer’s portfolio assets. For the Trapeza CDOs we manage, we share these fees with our co-sponsors. For CDOs managed on behalf of RCC, we receive fees directly from RCC pursuant to our management agreement in lieu of asset management fees from the CDO issuers. We describe the management fees we receive from RCC in “− Resource Capital Corp” below. CDO issuer fees are payable monthly, quarterly or semi-annually, as long as we continue to manage portfolio assets on behalf of the CDO issuers. Our interest in distributions from the CDO issuers varies with the amount of our equity interest. In four partnerships in which we have invested that held equity interests in CDO issuers, we have incentive distribution interests.

As of September 30, 2006, our financial fund management operations had sponsored or co-sponsored, structured and managed or co-managed 19 CDO issuers holding approximately $7.9 billion in assets as set forth in the following table:

Sponsor/Manager	Asset Class		Number of CDOs		Assets Under Management
					(in billions)
Ischus (1) (2)		RMBS/CMBS/ABS		5	$	3.1
Apidos (3)		Bank Loans		4		1.3
Trapeza (1)(4)		Trust Preferred Securities		10		3.5
				19	$	7.9

(1) We also own a 50% interest in the general partners of the limited partnerships that own a portion of the equity interests in each of seven Trapeza CDO issuers and one Ischus CDO issuer.

(2) RCC holds 100% of the equity interests in one of these CDOs with assets of $396.4 million.

(3) RCC holds 100% of the equity interests in two of these CDOs with assets of $614.9 million.

(4) Through Trapeza, we own a 50% interest in an entity that manages eight of the Trapeza CDO issuers and a 33.33% interest in an entity that manages two of the Trapeza CDO issuers.

Real Estate

General. Our real estate operations involve:

· the sponsorship and management of real estate investment partnerships and TIC programs;

· the management, solely for RCC, of general investments in commercial real estate debt. These investments may include first mortgage debt, whole loans, mortgage participations, subordinate notes, mezzanine debt and related commercial real estate securities; and

· to a lesser extent, the management and resolution of a legacy portfolio of real estate loans and property interests that we acquired at various times between 1991 and 1999.

6

Real Estate Investment Partnerships and TIC Programs. Since 2003, we have sponsored five real estate investment partnerships and four TIC programs in which investors acquire undivided fractional interests in real properties through a tenant-in-common structure. The partnerships and TIC programs have raised a total of $67.8 million and $57.6 million, respectively. These partnerships and TIC programs have acquired interests in 17 multi-family apartment complexes comprising of 5,754 units. The aggregate investment in the properties by these programs, including debt financing, is $204.8 million. The combined acquisition cost of the real estate controlled by all programs is $344.8 million, including interests owned by third parties. We receive acquisition, debt placement, and bridge equity fees from the partnerships and TIC programs in their acquisition stage. These fees, in the aggregate, have ranged from 1.75% to 2% of the acquisition costs of the properties or the debt financing, in the case of debt placement fees. In their operational state, we receive property management fees of 5% of gross revenues and partnership or program management fees of 1% on our partnership and TIC interests. We typically subcontract our property management obligations to third party property managers, who are paid 3% to 4% of gross revenues.

Resource Capital Corp. As of September 30, 2006, we managed approximately $439.7 million of commercial real estate loan assets on behalf of RCC, including $339.8 million of these assets in a CDO we sponsored in which RCC holds the equity interests.

Legacy Portfolio of Loan and Property Interests. In addition to our real estate investment partnerships, TIC programs and commercial loan portfolio, we have a legacy portfolio of real estate loans and property interests. Between fiscal 1991 and 1999, our real estate operations focused on the purchase of commercial real estate loans at discounts to their outstanding loan balances and the appraised value of their underlying properties. As a result of our ownership, management and resolution of some of these loans, we have acquired direct and indirect property interests. Since fiscal 1999, we have focused on managing and resolving our existing portfolio. However, we may sell, purchase or originate portfolio loans or real property investments in the future as part of our management process or as opportunities arise. During fiscal 2006, we reduced the number of loans in this portfolio from twelve to nine through the repayment of seven loans offset by the addition of four loans in conjunction with the resolution of an existing loan, two ventures and one owned asset. We have retained an interest in one of the properties underlying the restructured loans.

In applying Financial Accounting Standards Board Interpretation 46, “Consolidation of Variable Interest Entities,” or FIN 46 and its revisions, FIN 46-R, we consolidate certain variable interest entities, or VIEs, as to which it has been determined that we are the primary beneficiary. The assets, liabilities, revenues and costs and expenses of the VIEs that are included in our consolidated financial statements are not ours. The liabilities of the VIEs will be satisfied from the cash flows of the respective VIE’s consolidated assets, not from our assets, since we have no legal obligation to satisfy those liabilities. The following table sets forth information about the loans we hold in our legacy portfolio in addition to FIN 46-R loans included in our financial statements (in thousands, except number of loans):

	Number of Loans		Outstanding Loans Receivable (1)		Appraised Value of Property Loan (2)		Third Party Liens (3)		Carried Cost of Investment (4)		Net Interest in Outstanding Loans Receivable (6)
September 30, 2006
Portfolio loans		7	$	66,881	$	136,450	$	25,546	$	28,739	$	41,335
Loans held as FIN 46-R entities’ assets		2	$	9,237	$	4,750	$	1,412	$	1,980(5)	$	7,825
September 30, 2005
Portfolio loans		5	$	62,384	$	59,690	$	15,452	$	25,923	$	46,932
Loans held as FIN 46-R entities’ assets		7	$	231,543	$	138,625	$	84,612	$	38,193(5)	$	146,931

(1) Consists of the original stated or face value of the obligation plus interest and the amount of the senior lien interest.

(2) We generally obtain appraisals on each of the properties underlying our portfolio loans at least once every three years.

(3) Represents the amount of the senior lien interests.

(4) Represents the book cost of our investment, including subsequent advances, after accretion of discount and allocation of gains from the sale of a senior lien interest in, or borrower refinancing of, the loan, but excludes an allowance for possible losses of$770,000 at September 30, 2006 and 2005, respectively.

(5) For loans held as FIN 46 entities’ assets, the carried cost represents our investment adjusted to reflect the requirements of FIN 46-R of which $29.7 million was classified as held for sale on the balance sheet at September 30, 2005 (none at September 30, 2006).

(6)   Consists of the amounts set forth in the column "Outstanding Loans Receivable" less amounts in the column “Third Party Liens.”

7

Resource Capital Corp.

RCC is a publicly-traded (NYSE:RSO) REIT that we sponsored in fiscal 2005. RCC invests in a diversified portfolio of B notes, CMBS and other real estate-related loans and commercial finance assets. We manage RCC through Resource Capital Manager, Inc., or RCM, an indirect wholly-owned subsidiary. At September 30, 2006, we managed approximately $2.3 billion of assets on behalf of RCC. See “ — General.”

At September 30, 2006, we owned 1.9 million shares of RCC common stock, or about 10.7% of RCC’s outstanding common stock and held options to acquire 2,166 shares (at an average price per share of $15.00) and warrants to acquire an additional 100,088 shares (at $15.00 per share) of RCC common stock.

In addition to dividends we receive on our RCC common stock, we derive revenues from RCC through its management agreement with RCM. Under this agreement, RCM receives a base management fee, incentive compensation and a reimbursement for out-of-pocket expenses. The base management fee is 1/12^th of 1.50% of RCC’s equity per month. The management agreement defines “equity” as, essentially, shareholder’s equity, subject to adjustment for non-cash equity compensation expense and non-recurring changes to which the parties agree. The incentive compensation is 25% of the amount by which RCC’s quarterly net income exceeds an amount equal to the weighted average issuance price of RCC’s common shares, multiplied by the greater of 2% or 0.50% plus one-fourth of the ten-year treasury rate. RCM receives at least 25% of its incentive compensation in additional shares of RCC common stock and has the option to receive more of its incentive compensation in stock under the management agreement.

    Furthermore, we receive an acquisition fee of 1% of the carrying value of the commercial finance assets we sold to RCC.

In fiscal 2006, the management and acquisition fees we received from RCC were $8.2 million, or 10% of our consolidated revenues. These fees have been reported as revenues by each of our operating segments, except for Resource Europe.

Commercial Finance

We focus our commercial finance operations on equipment leases and asset-based loans to small and mid-sized companies. Our equipment lease financing is generally for “business-essential” equipment including technology, commercial, industrial and medical equipment, with a primary financed transaction size of under $2.0 million and an average size of between $50,000 to $100,000. Our asset-backed non-commercial financing is used by borrowers to acquire professional practices, such as dental or veterinary practice and business franchises. We also provide loans to other commercial finance companies secured by pledged financial assets. Our asset-based loans generally range from between $5 million to $15 million.

During fiscal 2006, we originated $423.6 million in commercial finance assets (based on book value). As of September 30, 2006, we managed a commercial finance portfolio totaling $613.0 million, including $92.0 million on behalf of RCC, $402.0 million on behalf of two public limited partnerships we sponsored, $109.0 million for our own account and $10.0 million pursuant to an arrangement with a subsidiary of Merrill Lynch, Pierce, Fenner & Smith Incorporated, or ML, pursuant to which we originate, service and manage equipment leases with tax-exempt entities. Before September 28, 2006, we also had an arrangement with ML to originate, service and manage equipment leases and commercial finance notes with small and mid-size businesses, which was terminated by the sale of that portfolio to one of our public investment partnerships.

We receive acquisition and management fees from RCC, from our investment partnerships and from ML. As of September 30, 2006, acquisition fees ranging from 1% to 2% of the cost of the equipment or the amount financed while annual servicing and management fees ranged from 1% to 1.8% of the book value of the assets and the equity managed, respectively.

8

New Initiatives

In fiscal 2006, we undertook several new initiatives to expand the scope of our asset management operations, as follows:

· Public Equity. We sponsored three investment partnerships for institutional and individual investors focused on private equity investments in domestic regional banks. At September 30, 2006, we managed $20.5 million in assets on behalf of these investment partnerships.

· Hedge Fund. We sponsored one partnership for institutional and individual investors that was structured as a hedge fund. The fund focuses on credit products. At September 30, 2006, we managed $37.1 million in ABS and syndicated bank loans on behalf of this fund.

· Resource Europe. We formed Resource Europe, Inc. in fiscal 2006 to focus on investments in international, principally European, bank loans. As of September 30, 2006, we managed $66.4 million in bank loan assets held on a warehouse line of credit. We expect to acquire additional bank loan assets on the warehouse line and to obtain term financing for these acquisitions through a CDO issuance in the second quarter of fiscal 2007.

Resource Europe

      In April 2006, we commenced our European leveraged loan operations, Resource Europe, based in London, England. Operating results for fiscal 2006 reflected approximately $1.0 million of costs, mostly wages and rent. Resource Europe is in the process of completing its first CDO which it expects to close in the second quarter of fiscal 2007.

Credit Facilities

Through our subsidiaries, we have access to three separate credit facilities, which we describe in this section. We also have arranged three credit facilities for three of our CDO issuers relating to their accumulation of assets, for which we are a guarantor. The aggregate amount of losses guaranteed under these facilities, which we describe in “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Contractual Obligations and Other Commercial Commitments” was $29.0 million at September 30, 2006.

On July 31, 2006, LEAF entered into a $150.0 million revolving warehouse facility with a group of banks led by National City Bank. Outstanding borrowings bear interest at one of two rates: (i) London Inter-Bank Offered Rates, or LIBOR, plus 150 basis points or (ii) the prime rate. As of September 30, 2006, the balance outstanding was $86.4 million at an interest rate of 6.9%. The underlying equipment being leased or financed collateralized the borrowings under this facility. The Company has guaranteed this facility up to a maximum of $75.0 million.

We have a $14.0 million revolving line of credit with Sovereign Bank based on pledged real estate collateral and 700,000 shares of RCC stock expiring in July 2009. Outstanding borrowings bear interest at one of two rates, elected at our option: (i) LIBOR plus 200 basis points or (ii) the prime rate. Availability under the facility is limited based on the value of assets pledged as security. As of September 30, 2006, there were no outstanding borrowings and $11.4 million was available under this line.

We also have a $25.0 million revolving line of credit with Commerce Bank expiring in August 2009 secured by collateral of 358,290 shares of TBBK stock and 1.2 million shares of RCC stock. Outstanding borrowings bear interest at one of two rates, elected at our option: (i) LIBOR plus 2.25% or (ii) the prime rate plus 1%. Credit availability is based on the value of assets pledged as security. As of September 30, 2006, there were no outstanding borrowings and $22.1 million was available under this line.

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Asset Sourcing

We originate assets, other than commercial finance investments, commercial real estate whole loans and trust preferred securities, through a variety of financial industry sources including investment banks, brokerage firms, commercial banks and loan originators, including Banc Investment Group, LLC, Barclays Capital Inc, Bear, Stearns International Limited, Citibank N.A., Credit Suisse Securities (USA) LLC, FIG Partners, LLC, Friedman, Billings, Ramsey & Co., Inc., Howe Barnes Investments, Inc., Keefe, Bruyette & Woods, Inc., Lehman Brothers Inc., Morgan Keegan & Co., Inc., Morgan Stanley & Co. Incorporated, RBS Greenwich Capital, Stifel, Nicolaus & Company, Incorporated, and UBS Securities LLC. We base our origination capability on relationships our asset management professionals have developed with these sources over their professional careers, as well as upon our current presence in the market place as sponsor, originator, holder or acquirer of assets for investment entities and for our own account.

LEAF Financial is responsible for sourcing our commercial finance investments. LEAF Financial’s strategy for originating commercial finance assets involves marketing to direct sales organizations which offer LEAF Financial’s financing as part of their marketing package. By developing and maintaining programs with these organizations, LEAF Financial is able to use their sales force, and its outside distributors, dealers and resellers, to market its commercial finance products and services to the highly dispersed population of small- to middle-sized businesses, which is LEAF Financial’s targeted demographic.

In May 2006, we hired a team of two commercial real estate lending professionals to originate commercial real estate whole loans directly from borrowers. This team, which previously headed a commercial lending office for a large investment bank, uses the contacts they have developed in the commercial finance industry to obtain borrower referrals.

Our ability to source trust preferred investment opportunities comes from the relationships we have developed with the regional broker-dealer community that services smaller financial services companies. We also expect to source investments directly through our own relationships in the commercial banking sector.

Employees

As of September 30, 2006, we employed 224 full-time workers, an increase of 70, or 45%, from 154 employees at September 30, 2005. The following table summarizes our employees by operating segment:

	Total		Financial Fund Management		Real Estate		Commercial Finance		Resource Europe		Corporate/ Other
September 30, 2006
Investment professionals		76		24		22		24		5		1
Other		148		18		9		93		−		28
Total		224		42		31		117		5		29
September 30, 2005
Investment professionals		51		19		15		16		−		1
Other		103		11		7		65		−		20
Total		154		30		22		81		−		21

ITEM 1A. RISK FACTORS

You should carefully consider the risks that follow together with all of the other information contained in this report in evaluating our company. If any of these risks develop into actual events, our business, financial condition and results of operations could be materially adversely affected and the trading price of our common stock could decline.

10

Risks Related to Our Business Generally

Our business depends upon our ability to sponsor and raise investor capital for our investment funds.

 Our business as a specialized asset manager depends upon our ability to sponsor, and raise capital, through investment funds and to generate management fees by managing those funds and the assets they hold. If we are unable to raise capital through these funds, our ability to increase our managed assets, and thus our revenues from management fees, will be materially impaired. Our ability to raise capital through these funds will depend upon numerous factors, including

· the performance of our existing funds;

· market acceptance of the types of funds we sponsor;

· the availability of qualified personnel to manage our funds;

· the availability of suitable investments in the types of loans, real estate, commercial finance assets and other assets that we seek to acquire for our funds; and

· interest rate changes and their effect on both the assets we seek to acquire for our funds, and the amount, cost and availability of acquisition financing.

Our revenues depend to a significant extent upon the performance of the assets we manage.

Our asset management revenues depend, to a significant extent, upon the value of the assets we manage and the returns achieved by those assets. If either or both the value of those assets or the revenues from them decline, our management revenues will decline, which could impair our profitability. Asset values and revenues from managed assets may be affected by factors beyond our control, including interest rate changes and other economic or market conditions. Moreover, our ability to compete and grow depends, in part, on the relative attractiveness of the type of investment funds we sponsor and our management performance and strategies under prevailing market conditions. Changes in our absolute performance, or performance relative to competing investments, market indices or other criteria could impair our ability to maintain or increase our revenues.

Increases in interest rates may increase our operating costs.

As of September 30, 2006, we had two corporate credit facilities, one commercial finance credit facilities and, with respect to two CDO issuers we are sponsoring, warehouse credit facilities. We expect that in the course of our operations we will obtain other credit facilities. All of our current credit facilities are at variable interest rates, and we expect that future facilities will also be at variable rates. As a result, increases in interest rates on our credit facilities, to the extent they are not matched by increased interest rates or other income from the assets whose acquisition is financed by these facilities, will increase our interest costs, which would reduce our net income.

Our revenues depend to a significant extent upon the performance of the assets we manage.

The investments made by many of our funds are interest-rate sensitive. As a result, changes in interest rates could reduce the value of the assets held and the returns to investors, thereby impairing our ability to raise capital and reducing both our returns on amounts we have invested in the funds as well as management and other fees that may depend on fund net impaired.

If we cannot generate sufficient cash to fund our participations in our investment funds, our ability to maintain and increase our revenues may be impaired.

We typically participate in our investment funds along with our investors, and believe that our participation enhances our ability to raise capital from investors. We typically fund our participations through cash derived from operations or from financing. If our cash from operations is insufficient to fund our participation in future investment funds we sponsor, and we cannot arrange for financing, our continuing ability to raise funds from investors and, thus, our ability to maintain and increase the revenues we receive from fund management, will be impaired.

11

Termination of management arrangements with one or more of our investment funds could harm our business.

We provide our management services to our investment funds through management agreements, as well as through our position as the sole or managing general partner of partnership funds or as the operating manager of other fund entities, or combinations thereof. Our arrangements are long-term, and frequently have no specified termination dates. However, our management arrangements with, or our position as general partner or operating manager of, an investment fund typically may be terminated by action taken by the investors. Upon any such termination, our management fees, after payment of any termination payments required, would cease, reducing our expected revenues.

We may have difficulty managing our growth which may divert resources and limit our ability to expand our operations successfully.

The amount of assets we manage has grown substantially from $7.1 billion at September 30, 2005 to $12.1 billion at September 30, 2006. We expect to continue to experience significant growth in our assets under management. Our future success will depend on the ability of our officers and key employees to continue to implement and improve our operational, financial and management controls, reporting systems and procedures, and manage a growing number of assets and investment funds. We may not implement improvements to our management information and control systems in an efficient or timely manner and may discover deficiencies in existing systems and controls. Consequently, our continued growth may place a strain on our administrative and operations infrastructure. Any such strain could increase our costs or reduce or eliminate our profitability.

Our business will be harmed if we are unable to locate and retain key personnel.

Our ability to locate and retain quality personnel has contributed significantly to our growth and success and is important to attracting investors. The market for qualified executives, asset managers and other key personnel is extremely competitive. We cannot assure you that we will continue to be successful in our efforts to recruit and retain the required personnel. The loss of any of our professional personnel could reduce our revenues and earnings.

We are subject to substantial competition in all aspects of our business.

Our ability to sponsor investment funds is highly dependent on both our access to various distribution systems of national, regional and local securities firms, and our ability to locate and acquire appropriate assets for our investment funds. We are subject to substantial competition in each area. In the distribution area, our investment funds compete with those sponsored by other asset managers which are being distributed through the same networks as well as investments sponsored by the securities firms themselves. While we have been successful in maintaining access to these distribution channels, we cannot assure you that we will continue to do so. The inability to have continued access to our distribution channels could reduce the number of funds we sponsor and assets we manage, thereby impeding and possibly impairing our revenues and revenue growth.

In acquiring appropriate assets for our investment funds, we compete with numerous public and private investment vehicles, commercial banks, investment banks and other financial institutions, as well as industry participants in each of our separate asset management areas. Many of our competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do. Competition for desirable investments may result in higher costs and lower investment returns, and may delay our sponsorship of investment funds.

There are few economic barriers to entry in the asset management business.

Our investment funds compete against an ever-increasing number of investment and asset management products and services sponsored by investment banks, banks, insurance companies, financial services companies and others. There are few economic barriers to entry into the investment or asset management industries and, as a result, we expect that competition for access to distribution channels and appropriate assets to acquire will increase.

12

Risks Relating to Particular Aspects of Our Financial Fund Management, Real Estate and Commercial Finance Operations

We depend upon CDO issuances as the principal source of term financing for assets we acquire for our account and for the account of investment entities we sponsor. If we are unable to access the CDO market, or are able to do so only on unattractive terms, our ability to acquire assets and sponsor investment vehicles may be limited.

We use CDO financing to provide term funding for a significant portion of the assets we acquire, both for our own account and for the account of investment vehicles we sponsor. Pending financing through a CDO, we accumulate assets through warehouse and other short-term credit facilities. As a result, during the accumulation period, we are subject to the risk that the assets we acquire may not meet standards established by underwriters, rating agencies and CDO purchasers for CDO financing. In addition, conditions in the capital markets may limit or eliminate our ability to use CDOs as term financing for the kinds of assets we seek to acquire, or make the issuance of CDOs economically unattractive. If we are unable to issue CDOs to finance assets we accumulate, we may have to seek other, potentially more economically unfavorable forms of term financing, or liquidate assets which may be at a price lower than the acquisition price. Any such occurrence could limit or eliminate our ability to acquire assets or sponsor investment vehicles to hold these assets and, accordingly, impair our ability to generate asset management fees, which are a significant portion of our gross revenues.

We arrange for warehouse and other short term financing for assets we accumulate for CDOs for our own account and for the account of investment vehicles we sponsor. We typically guarantee some portion of amounts drawn on these facilities which exposes us to loss.

We typically accumulate assets for our own account and for the account of investment vehicles we sponsor by using warehouse and other short term financing pending obtaining term financing through CDOs or other longer-term credit facilities. If we cannot arrange CDO or other term financing, short term lenders may liquidate the assets accumulated through their credit facilities which, depending upon market conditions, could be at a price which is less than what we paid. Because we typically are required to guarantee the short term lender against loss, either generally or subject to negotiated caps, we will have to bear any loss realized up to the guaranty cap amount, if any. Our loss exposure at September 30, 2006 was $29.0 million.

Our income from our interests in CDOs may be volatile.

We account for our investments in the Trapeza CDO programs, described in “Business-Financial Fund Management,” under the equity method of accounting. Accordingly, we recognize our percentage share of any income or loss of these entities. Because the Trapeza entities are investment companies for accounting purposes, such income or loss includes a “mark-to-market” adjustment to reflect the net changes in value, including unrealized appreciation or depreciation, in investments and swap agreements. Such value will be impacted by changes in the underlying quality of the Trapeza entities’ investments and by changes in interest rates. To the extent that the Trapeza entities’ investments are securities with a fixed rate of interest, increases in interest rates will likely cause the value of the investments to fall and decreases in interest rates will likely cause the value of the investments to rise. The Trapeza entities’ various interest rate hedge and swap agreements will also change in value with changes in interest rates. In addition, as the equity interests that we hold in CDO issuers either directly or through limited partnership investments are terminated, we obtain a return of capital only after all payments are made on the CDOs. If there are defaults on the collateral securities held by these issuers, our distributions and return of capital upon liquidation may be reduced or eliminated. Accordingly, our income or loss from our CDO investments and from future similar CDO investments may be volatile.

13

Real estate loans in our portfolio are subject to higher risk of default than first mortgage loans.

The primary or sole source of recovery for our real estate loans and property interests is typically the underlying real property. Accordingly, the value of our loans and property interests depends upon the value of that real property. Many of the properties underlying our portfolio loans, while income producing, do not generate sufficient revenues to pay the full amount of debt service required under the original loan terms or have other problems. There may be a higher risk of default with these loans as compared to conventional loans. Loan defaults will reduce our current return on investment and may require us to become involved in expensive and time-consuming bankruptcy, reorganization or foreclosure proceedings.

Real estate loans in our portfolio require large lump sum payments at maturity, increasing the risk of default.

Our loans, including those treated in our consolidated financial statements as FIN 46 assets and liabilities, typically provide payment structures other than equal periodic payments that retire a loan over its specified term, including structures that defer payment of some portion of accruing interest, or defer repayment of principal, until loan maturity. Where a borrower must pay a loan balance in a large lump sum payment, its ability to satisfy this obligation may depend upon its ability to obtain suitable refinancing or otherwise to raise a substantial cash amount, which we do not control. In addition, lenders can lose their lien priority in many jurisdictions, including those in which our existing loans are located, to persons who supply labor or materials to a property. For these and other reasons, the total amount which we may recover from one of our loans may be less than the total amount of the carrying value of the loan or our cost of acquisition.

The value of our portfolio of real estate loans and property interests depends upon the value of the underlying real properties which may decline due to factors beyond our control.

Declines in real property values generally and/or in those specific markets where the properties underlying our portfolio of loans and property interests are located could affect the value of those properties and, with respect to our portfolio loans, default rates. Properties underlying our loans and our property interests may be affected by general and local economic conditions, neighborhood values, competitive overbuilding, casualty losses and other factors beyond our control. The value of real properties may also be affected by factors such as the cost of compliance with, and liability under environmental laws, changes in interest rates and the availability of financing. Income from a property will be reduced if a significant number of tenants are unable to pay rent or if available space cannot be rented on favorable terms. Operating and other expenses of real properties, particularly significant expenses such as real estate taxes, insurance and maintenance costs, generally do not decrease when revenues decrease and, even if revenues increase, operating and other expenses may increase faster than revenues.

Our portfolio of real estate loans principally consists of junior mortgage loans, which are subject to higher default risks than senior financing.

Many of our portfolio loans, including those treated in our consolidated financial statements as FIN 46 assets and liabilities, are junior lien obligations. Subordinate lien financing poses a greater credit risk, including a substantially greater risk of nonpayment of interest or principal, than senior lien financing. If we or any senior lender forecloses on a loan, we will be entitled to share only in the net foreclosure proceeds after payment to all senior lenders. It is therefore possible that we will not recover the full amount of a foreclosed loan or the amount of our unrecovered investment in the loan.

Our real estate loan loss reserve may not be sufficient to cover future losses.

At September 30, 2006, our allowance for possible losses was $770,000, which represents 1.5% of the book value of our investments in real estate loans and property interests. We cannot assure you that this allowance will prove to be sufficient to cover future losses, or that future provisions for losses will not be materially greater than those we have recorded to date. Losses that exceed our allowance for losses, or cause an increase in our provision for losses, could materially reduce our earnings.

14

Our real estate loans are illiquid, and we may not be able to divest them in response to changing economic, financial and investment conditions.

The loans in our portfolio, including those treated in our consolidated financial statements as FIN 46 assets and liabilities, typically do not conform to standard loan underwriting criteria. Many of our loans are subordinate loans. As a result, our loans are relatively illiquid investments. We may be unable to vary our portfolio in response to changing economic, financial and investment conditions.

Hazardous or toxic substances on properties underlying our loans may subject us to environmental liabilities.

The existence of hazardous or toxic substances on a property will reduce its value and our ability to sell the property in the event of a default in the loan it underlies. Contamination of a real property by hazardous substances or toxic wastes not only may give rise to a lien on that property to assure payment of the cost of remediation, but also can result in liability to us as an owner, lender or, if we assume management, as an operator, for that cost regardless of whether we know of, or are responsible for, the contamination. In addition, if we arrange for disposal of hazardous or toxic substances at another site, we may be liable for the costs of cleaning up and removing those substances from the site, even if we neither own nor operate the disposal site. Environmental laws may require us to incur substantial expenses to remediate contaminated properties and may materially limit use of these properties. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability.

We may be required to repurchase up to $3.5 million of real estate loan participations we have sold.

Before fiscal 2000, we entered into a series of standby commitments with some participants in our loans which obligate us to repurchase their participations or substitute a performing loan if the borrower defaults. At September 30, 2006, the participations as to which we had standby commitments had an aggregate outstanding balance of $1.3 million.

Our equipment leases and commercial notes may have greater risks of default than senior secured loans.

While we expect that we will transfer our commercial financing assets, principally direct financing leases, operating leases and equipment notes, to third party programs or, to a lesser extent, RCC, we typically retain some assets for our own account. Many of the entities seeking equipment financing from us are small- to middle-size businesses. As a result, we may be subject to higher risks of a default than if we provided equipment financing to larger businesses. While we will seek to repossess and re-lease or sell the equipment subject to a defaulted lease or other commercial finance instrument, we may not be able to do so on advantageous terms. If a borrower files for protection under the bankruptcy laws, we may experience difficulties and delays in recovering the equipment. Moreover, the equipment may be returned in poor condition and we may be unable to enforce important lease or loan provisions against an insolvent borrower, including the contract provisions that require the borrower to return the equipment in good condition. In some cases, the deteriorating financial condition of a borrower may make trying to recover what it owes impractical. The costs of recovering equipment upon a default, enforcing obligations under the lease or loan, and transporting, storing, repairing and finding a new borrower or purchaser for the equipment may be high. Higher than expected lease defaults will result in a loss of anticipated revenues.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None

15

ITEM 2.PROPERTIES

Philadelphia, Pennsylvania:

We maintain our executive and corporate offices at One Crescent Drive in the Philadelphia Naval Yard under a lease for 8,771 square feet that expires in May 2019. We lease 20,207 square feet for additional executive office space and for certain of our real estate operations at 1845 Walnut Street. This lease, which expires in May 2008, contains extension options through 2033 and is in an office building in which we own a 30% equity interest. Our commercial finance operations are located in another office building at 1818 Market Street under a lease for 29,554 square feet that expires in March 2008.

New York City, New York:

We maintain additional executive offices in a 12,930 square foot location in New York City at 712 5^th Avenue under a lease agreement that expires in March 2010. Certain of our financial fund management and real estate operations are also located in these offices.

Other:

We maintain various other office leases in the following cities: Los Angeles and San Francisco, California; Portland, Oregon; Northfield, Illinois; Denver, Colorado; and Bloomfield, Michigan. We also lease office space in London, England for our European operations.

ITEM 3.LEGAL PROCEEDINGS

     In October 2006, Atlas America (our former energy subsidiary) tentatively settled a class action lawsuit filed in February 2000 in New York pertaining to the payment of royalty revenues to landowners. We are a named defendant in the lawsuit. Under the terms of the proposed settlement, Atlas America has agreed to pay $300,000. We believe that this matter will not have a material adverse effect on our financial condition or operations.

We are a party to various routine legal proceedings arising out of the ordinary course of our business. Management believes that none of these actions, individually or in the aggregate, will have a material adverse effect on our financial condition or results of operations.

ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of security holders during the quarter ended September 30, 2006.

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PART II

ITEM 5.MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF

     EQUITY SECURITIES

Our common stock is quoted on the Nasdaq National Market under the symbol "REXI." The following table sets forth the high and low sale prices as reported by Nasdaq and as adjusted for the spin-off of Atlas America as of June 30, 2005, on a quarterly basis for our last two fiscal years:

	As Reported				As Adjusted
	High		Low		High		Low
Fiscal 2006
Fourth Quarter	$	22.31	$	17.75	$	22.31	$	17.75
Third Quarter	$	21.00	$	17.06	$	21.00	$	17.06
Second Quarter	$	20.12	$	15.98	$	20.12	$	15.98
First Quarter	$	17.92	$	14.60	$	17.92	$	14.60
Fiscal 2005
Fourth Quarter	$	19.75	$	15.86	$	19.75	$	15.86
Third Quarter	$	38.67	$	31.74	$	16.63	$	13.65
Second Quarter	$	40.17	$	29.57	$	17.28	$	12.72
First Quarter	$	32.92	$	22.94	$	14.16	$	9.87

     As of December 1, 2006, there were 17,292,049 shares of common stock outstanding held by 388 holders of record.

We have paid regular quarterly cash dividends since the fourth quarter of fiscal 1995. Commencing with the third quarter of fiscal 2004, we increased our quarterly dividend by 52% from $0.033 to $0.05 per common share and for fiscal 2006, further increased our quarterly dividend by 20% to $0.06 per common share.

Additionally, in fiscal 2005, we distributed our 10.7 million shares of Atlas America to our stockholders in the form of a tax-free distribution valued at $91.4 million.

Securities Authorized for Issuance under Equity Compensation Plans

	(a)	(b)	(c)
Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation plans excluding securities reflected in column (a)
Equity compensation plans approved  by security holders	3,865,296	$7.54	821,698

17

   The following table provides information about purchases by us during the quarter ended September 30, 2006 of equity securities that are registered by us pursuant to Section 12 of the Securities Exchange Act of 1934:

Issuer Purchases of Equity Securities

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as part of Publicly Announced Plans or Programs (2)(3)		Maximum Number (or Approximate Dollar Value) of Shares that may yet be Purchased Under the Plans or Programs (1)
July 1 to July 31, 2006		−	$	−		−	$	31,362,326
August 1 to August 31, 2006		34,956	$	18.94		34,956	$	30,700,099
September 1 to September 30, 2006		26,123	$	19.99		26,123	$	30,177,850
Total		61,079				61,079

(1) On September 21, 2004, the Board of Directors approved a share repurchase program under which we may buy up to $50.0 million of our outstanding common stock from time to time in open market purchases or through privately negotiated transactions.

(2) As of September 30, 2006, we had repurchased an aggregate of 1,103,639 shares at a total cost of $19.8 million pursuant to the repurchase program, at an average cost of $17.96 per share.

(3) On August 30, 2006, we entered into a Stock Repurchase Agreement with Morgan Stanley & Co. Inc. to begin purchasing stock on September 1, 2006 at a price up to $20.00 (excluding commission) to an aggregate cost of $6.0 million, which expired on November 23, 2006. As of September 30, 2006, we purchased an aggregate of 26,123 shares at a total cost of approximately $522,000 pursuant to this repurchase agreement, at an average cost of $19.99 per share.

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ITEM 6.SELECTED FINANCIAL DATA

The following selected financial data should be read together with our consolidated financial statements, the notes to the consolidated financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of this report. We derived the selected consolidated financial data for each of the years ended September 30, 2006, 2005 and 2004, and as of September 30, 2006 and 2005 from our consolidated financial statements appearing elsewhere in this report, which have been audited by Grant Thornton LLP, an independent registered public accounting firm. We derived the selected financial data for the years ended September 30, 2004, 2003 and 2002 and as of September 30, 2004, 2003 and 2002 from our consolidated financial statements for those periods which were audited by Grant Thornton LLP but are not included in this report. As a result of the completion of our spin-off of Atlas America in June 2005, financial data relating to our former energy operations has been reclassified as discontinued operations for all periods presented.

	As of and for the Years Ended September 30,
	2006		2005		2004		2003			2002
	(in thousands, except per share data)
Statement of operations data:
Revenues
Financial fund management	$	30,834	$	15,944	$	7,585	$	1,444		$	185
Real estate		23,676		17,791		10,519		13,331			16,582
Commercial finance		23,840		13,381		7,135		4,071			1,246
Resource Europe		474		−		−		−			−
Total revenues	$	78,824	$	47,116	$	25,239	$	18,846		$	18,013
Income (loss) from continuing operations before cumulative effect of changes in accounting       principles	$	17,282	$	5,388	$	1,610	$	(3,556	)	$	(1,101	)
Income (loss) from discontinued operations, net of tax		1,231		11,070		16,799		14,522			(2,208	)
Cumulative effect of changes in accounting principles, net of tax		1,357		−		−		(13,881	)		−
Net income (loss)	$	19,870	$	16,458	$	18,409	$	(2,915	)	$	(3,309	)
Basic earnings (loss) per common share:
Continuing operations	$	0.98	$	0.30	$	0.09	$	(0.21	)	$	(0.06	)
Discontinued operations		0.07		0.63		0.97		0.85			(0.13	)
Cumulative effect of changes in accounting principles		0.08		−		−		(0.81	)		−
Net income (loss)	$	1.13	$	0.93	$	1.06	$	(0.17	)	$	(0.19	)
Diluted earnings (loss) per common share:
Continuing operations	$	0.90	$	0.28	$	0.09	$	(0.21	)	$	(0.06	)
Discontinued operations		0.07		0.58		0.92		0.83			(0.13	)
Cumulative effect of changes in accounting principles		0.07		−		−		(0.79	)		−
Net income (loss)	$	1.04	$	0.86	$	1.01	$	(0.17	)	$	(0.19	)
Cash dividends per common share	$	0.24	$	0.20	$	0.17	$	0.13		$	0.13
Balance sheet data:
Total assets	$	416,753	$	459,035	$	740,386	$	670,744		$	467,498
Debt	$	172,238	$	147,302	$	43,694	$	146,761		$	106,005
Stockholders’ equity	$	193,062	$	187,136	$	257,915	$	227,454		$	233,539

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

    In the third quarter of fiscal 2005, we spun-off our energy operation, Atlas America, to our stockholders and focused on being a specialized asset manager in financial fund management, real estate and commercial finance. Before the spin-off, in fiscal 2003, we took initiatives and expanded our specialized asset management businesses. These initiatives have resulted in material growth in both revenues and assets under management for those operations. Our total assets under management increased from $7.1 billion at September 30, 2005 to $12.1 billion at September 30, 2006, a 71% increase. Included in this amount at September 30, 2006 are $1.9 billion of financial fund management assets that are being carried on eight warehouse facilities for which we have been engaged as the collateral manager by CDO issuers for CDOs not closed. In addition, assets are being acquired for two additional CDOs which are not carried on warehouse facilities. We expect to close four CDOs in the first quarter of fiscal 2007 and six CDOs in subsequent periods.

The growth in our assets under management was particularly accelerated by our sponsorship in March 2005 of Resource Capital Corp. (“RCC”) (NYSE: RSO) which, at September 30, 2006, had $2.4 billion in assets, of which we manage $2.3 billion. RCC, a real estate investment trust focuses on originating and investing in commercial real estate secured loans, whole loans, B-notes, mezzanine loans, mortgage-related securities and other real estate related assets and to a lesser extent, higher-yielding commercial finance assets and asset-backed securities. We derive revenues from RCC through its management agreement with our indirect wholly-owned subsidiary, Resource Capital Manager, Inc., or, RCM. In return for providing certain investment and advisory services, RCM is entitled to receive a base management fee and an incentive management fee. RCM also receives reimbursement for certain out-of-pocket expenses that relate to RCC’s activities. As of September 30, 2006, we own $1.9 million shares of RCC from which we expect to receive quarterly dividends. We also hold options and warrants to acquire an additional 102,254 shares at a cost of $15.00 per share.

    The growth in our assets under management was the result of:

· an increase in the financial fund management assets we manage on behalf of individual and institutional investors and RCC;

· an increase in real estate assets managed on behalf of limited partnerships and TIC property interests that we sponsor and RCC; and

· an increase in commercial finance assets managed on behalf of the limited partnerships we sponsor, Merrill Lynch, and RCC.

    The following table sets forth information relating to our assets under management by operating segment and their growth from September 30, 2005 to September 30, 2006 (in millions):

	As of September 30,				Increase
	2006		2005		Amount		Percentage
Financial fund management	$	10,593	$	6,115	$	4,478		73	%
Real estate		884		619		265		43	%
Commercial finance		613		340		273		80	%
	$	12,090	$	7,074	$	5,016		71	%

20

Our assets under management are primarily managed through various investment vehicles including CDOs, public and private limited partnerships, TIC property interests, a real estate investment trust, and other investment funds. The following table sets forth the number of entities we manage by operating segment:

	CDOs		Limited Partnerships		TIC Property Interests		Other Investment Funds
As of September 30, 2006 (1)
Financial fund management		19		11		−		−
Real estate		1		5		4		−
Commercial finance		−		2		−		1
Resource Europe		−		−		−		−
		20		18		4		1
As of September 30, 2005 (1)
Financial fund management		11		9		−		−
Real estate		−		4		1		−
Commercial finance		−		2		−		2
		11		15		1		2

(1) All of our operating segments, except for Resource Europe, manage assets on behalf of RCC.

The revenues in each of our business segments are generated by the fees we earn for structuring and managing the investment vehicles we sponsor on behalf of individual and institutional investors, RCC and ML and the income produced by the assets and investments we manage for our own account. The following table sets forth certain information related to the revenues we have recognized in each of these revenue categories (in thousands):

	Years Ended September 30,
	2006		2005			2004
Fund management revenues (1)	$	45,963	$	23,273		$	13,193
Finance and rental revenues (2)		22,521		12,624			9,507
Gains on resolutions of loans and other property interests (3)		4,691		8,213			890
Net gains (loss) from TIC property interests (4)		1,363		(97	)		−
Other (5)		4,286		3,103			1,649
	$	78,824	$	47,116		$	25,239

(1) Includes fees from each of our financial fund management, real estate and commercial finance operations and our share of the income or loss from limited and general partnership interests we own in our financial fund management and real estate operations.

(2) Includes interest income on bank loans from our financial fund management and Resource Europe operations, interest and accreted discount income from our real estate operations, interest and rental income from our commercial finance operations and revenues from certain real estate assets.

(3) Includes the resolution of loans we hold in our real estate segment.

(4) Reflects net gains (losses) recognized by our real estate segment on the sale of TIC interests to outside investors.

(5) Includes the equity compensation earned in connection with the formation of RCC and the disposition of leases and loans as well as other charges in our commercial finance operations.

A detailed description of the revenues generated by each of our business segments can be found under Results of Operations: Financial Fund Management, Real Estate and Commercial Finance.

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Results of Operations: Financial Fund Management

    We conduct our financial fund management operations through three principal subsidiaries:

· Apidos Capital Management, LLC, which invests in, finances, structures and manages investments in bank loans.

· Ischus Capital Management, LLC, which invests in, finances, structures and manages investments in asset-backed securities or ABS, including residential mortgage-backed securities, or RMBS, and commercial mortgage-backed securities, or CMBS.

· Trapeza Capital Management, LLC, a joint venture between us and an unrelated third party, which originates, structures, finances and manages investments in trust preferred securities and senior debt securities of banks, bank holding companies, insurance companies and other financial companies.

The following table sets forth information relating to assets managed by us on behalf of institutional and individual investors and RCC (in millions):

	As of September 30, 2006								As of September 30, 2005
	Institutional and Individual Investors		RCC		Assets Held on Warehouse Facilities		Total		Total
Apidos	$	687	$	615	$	624	$	1,926	$	413
Ischus		2,675		1,160		568		4,403		2,821
Trapeza		3,538		−		668		4,206		2,879
Other company sponsored partnerships		58		−		−		58		2
	$	6,958	$	1,775	$	1,860	$	10,593	$	6,115

We earn fees on assets managed on behalf of institutional and individual investors as follows:

· collateral management fees− these vary by CDO, ranging from an annual fee between 0.08% and 0.75% of the aggregate principal balance of the collateral securities owned by the CDO issuers; and

· administration fees− these vary by limited partnership, ranging from between 0.75% and 2.00% of the partnership capital balance.

The distributions we expect to receive from each CDO issuer varies and is dependent on our investment in a particular limited partnership and with the terms of our general partner interest.

Apidos

We sponsored, structured and currently manage four CDO issuers for institutional and individual investors and RCC which hold approximately $1.3 billion in bank loans at September 30, 2006, of which $614.9 million are managed on behalf of RCC through Apidos CDO I and Apidos CDO III. In addition, at September 30, 2006, we managed $624.3 million of bank loans for four CDOs currently in their accumulation stage, one of which we expect to close in the first quarter of fiscal 2007 and three which we expect to close in subsequent periods.

We derive revenues from our Apidos operations through base and incentive management fees of up to 0.75% of the aggregate principal balance of the collateral held by the CDO issuers of which a portion is subordinated to debt service payments on the CDOs and interest income earned on the assets of certain issuers during the warehousing period prior to execution of a CDO.

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Ischus

We sponsored, structured and currently manage five CDO issuers for institutional and individual investors and RCC, holding approximately $3.1 billion in primarily real estate ABS including RMBS, CMBS and credit default swaps. At September 30, 2006, we managed $568.0 million of ABS for two CDOs which we expect to close in subsequent periods. At September 30, 2006, Ischus also managed approximately $764.7 million of agency RMBS on behalf of RCC.

We own a 50% interest in the general partner and manager of Structured Finance Fund, L.P. and Structured Finance Fund II, L.P., collectively referred to as the SFF partnerships. These partnerships own a portion of the equity interests of three Trapeza CDO issuers and Ischus CDO I. We also have invested as a limited partner in each of these limited partnerships.

We derive revenues from our Ischus operations through management and administration fees. We also receive distributions on amounts we invest in the limited partnerships. Management fees vary by CDO issuer, ranging from between 0.08% and 0.40% of the aggregate principal balance of the collateral held by the CDO issuer of which a portion is subordinated to debt service payments on the CDOs.

Trapeza

We have co-sponsored, structured and currently co-manage ten CDO issuers holding approximately $3.5 billion in trust preferred securities of banks, bank holding companies, insurance companies and other financial companies. In addition, at September 30, 2006, we managed $668.3 million in trust preferred securities for two CDOs, one of which we expect to close in the first quarter of fiscal 2007 and one which we expect to close in a subsequent period.

We own a 50% interest in an entity that manages eight Trapeza CDO issuers and a 33.33% interest in another entity that manages two Trapeza CDO issuers. We also own a 50% interest in the general partners of the limited partnerships that own the equity interests of five Trapeza CDO issuers. We also have invested as a limited partner in each of these limited partnerships.

We derive revenues from our Trapeza operations through base and incentive management and administration fees. We also receive distributions on amounts we have invested in limited partnerships. Management fees, including incentive fees vary by CDO issuer, but have ranged from between 0.25% and 0.60% of the aggregate principal balance of the collateral held by the CDO issuers of which a portion is subordinated. These fees are also shared with our co-sponsors. We are also entitled to incentive distributions in four of the partnerships we manage.

Other Company Sponsored Partnerships

 We sponsored, structured and currently manage three affiliated partnerships for individual and institutional investors holding approximately $20.7 in investments in regional domestic banks. We derive revenues from these operations through an annual management fee, based on 2.0% of equity. We also have invested as the general partner of these partnerships and may receive a carried interest of up to 20% upon meeting specific investor return rates.

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We have also sponsored, structured and currently manage another affiliated partnership organized as a hedge fund, holding approximately $9.3 million of RMBS and $27.8 million of bank loans at September 30, 2006. We derive revenues from this partnership through base and incentive management fees. Base management fees are calculated monthly at 1/12^th of 2% of the partnership’s net assets. Incentive management fees are calculated annually at 20% of cumulative annual net profits. We also have invested as a limited partner in this partnership.

 The following table sets forth certain information relating to the revenues recognized and costs and expenses incurred in our financial fund management operations (in thousands):

	Years Ended September 30,
	2006		2005		2004
Revenues:
Fund management fees	$	9,213	$	4,260	$	1,821
Interest income on loans		6,910		744		−
RCC management fee and equity compensation		5,518		3,205		−
Limited and general partner interests		5,404		4,825		4,775
Earnings of Structured Finance Fund partnerships		2,218		2,177		−
Earnings on unconsolidated CDOs		737		161		−
Interest income on ABS		283		−		−
Other		551		572		989
	$	30,834	$	15,944	$	7,585
Costs and expenses:
General and administrative expenses	$	9,447	$	8,087	$	2,370
Equity compensation expense − RCC		1,650		757		−
Expenses of Structured Finance Fund partnerships		7		266		−
	$	11,104	$	9,110	$	2,370

Fees and/or reimbursements that we receive vary by transaction and, accordingly, there may be significant variations in the revenues we recognize from our financial fund management operations from period to period.

Year Ended September 30, 2006 Compared to Year Ended September 30, 2005

Revenues from our financial fund management operations increased $14.9 million (93%) to $30.8 million in fiscal 2006 from $15.9 million in fiscal 2005.  We attribute the increase to the following:

· a $5.0 million increase in fund management fees, primarily from the following:

- a $4.8 million increase in collateral management fees principally caused by the completion of eight new CDOs coupled with a full year of collateral management fees for two previously completed CDOs;

- a $1.1 million increase in management fees as a result of four company-sponsored unconsolidated partnerships that commenced operations between June 2005 and February 2006;

These increases were partially offset by:

- a $205,000 increase in the Company’s share of expenses for Trapeza Capital Management LLC;

- a $335,000 decrease in reimbursed expenses. Fiscal 2005 included a reimbursement received in connection with the formation of Trapeza CDO VII. No such expense reimbursements were received in fiscal 2006; and

- a $379,000 decrease related to a fee paid in connection with the assignment of securities on a related warehouse facility during fiscal 2005. No such fees were earned during fiscal 2006;

· a $6.2 million increase in interest income on loans held for investment resulting from the consolidation of four Apidos CDO issuers while they were accumulating assets on warehouse facilities.  In December 2005 and September 2006, the assets and liabilities of these issuers were removed from our consolidated financial statements upon the execution of the CDO transactions; 

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· a $2.3 million increase in RCC management fees and equity compensation, consisting of a $1.8 million increase in management fees and a $557,000 increase in equity compensation. RCC commenced operations in March 2005;

· a $579,000 increase in revenues from our limited and general partner interests, primarily from the following:

- a $1.2 million increase in our earnings from unconsolidated partnerships we have sponsored; offset in part by

- a $644,000 decrease in net unrealized appreciation in the book value of securities and swap agreements to reflect current market value;

· a $576,000 increase in our earnings in unconsolidated CDOs primarily as a result of our investment in six new CDO issuers we sponsored during fiscal 2006; and

· a $283,000 increase in interest income on ABS resulting from the interest spread earned on assets accumulating with a third party through a warehouse facility based on the terms of the warehousing agreement.

Costs and expenses of our financial fund management operations increased $2.0 million (22%) for fiscal 2006 as compared to fiscal 2005.  We attribute the increases to the following:

· a $1.4 million increase in general and administrative expenses, primarily from the following:

- a $4.3 million increase in wages and benefits as a result of the addition of personnel in response to the growth in our assets under management;

- a $551,000 increase in financial software programs and publications as a result of the growth of our assets under management; and

- a $703,000 increase in other operating expenses, including insurance, rent allocations and other expenses related to the additional personnel.

Theses increases were partially offset by:

- a $2.6 million increase in reimbursed expenses from our Trapeza, Ischus, and Apidos operations;

- a $1.1 million decrease in RCC start-up costs, which commenced operations in the second quarter of fiscal 2005; and

- a $446,000 decrease in professional and recruiting fees principally due to the expiration of a consulting agreement.

· a $893,000 increase in equity compensation expense related to the 344,079 restricted shares of RCC and 649,500 stock options of RCC that were held by RCM which were transferred to members of management; and

· a $259,000 decrease in expenses of consolidated partnerships, primarily professional fees.  There were no such expenses in fiscal 2006.

Year Ended September 30, 2005 Compared to Year Ended September 30, 2004

Revenues from our financial fund management operations increased $8.4 million (110%) to $15.9 million in fiscal 2005 from $7.6 million in fiscal 2004.  We attribute the increase to the following:

· a $2.4 million increase in fund management fees resulting primarily from a $2.1 million increase in collateral management fees principally caused by the completion of two new CDOs coupled with a full year of collateral management fees for three previously completed CDOs;

· a $744,000 increase in interest income on loans resulting from the consolidation of an Apidos CDO issuer in our financial statements while it accumulated assets through a warehouse facility;

· a $3.2 million increase in income from RCC as follows:

- a $1.4 million increase in management fees; and

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- a $1.8 million increase in equity compensation as a result of the formation of RCC, for which we were granted 345,000 shares of RCC restricted common stock and options to purchase 651,666 common shares of RCC at an exercise price of $15.00 per share. 

· a $2.2 million increase in our earnings from the SFF partnerships related to interest income on CDO investments;

· a $161,000 increase in interest income on CDO investments; and

· a $417,000 decrease in other revenue resulting primarily from the following:

- a $1.0 million decrease in net reimbursement fees.  Fees were accrued in fiscal 2004 in anticipation of the completion of two Trapeza CDOs.  No such fees were accrued in fiscal 2005.  This decrease was partially offset by

-       a $623,000 increase in consulting and advisory fees.

    Costs and expenses of our financial fund management operations increased $6.7 million (284%) for fiscal 2005 as compared to fiscal 2004.  We attribute the increases to the following:

· a $5.7 million increase in general and administrative expenses.  The increase resulted primarily from the following:

- a $4.5 million increase in wages and benefits as a result of the addition of personnel to manage our expanding portfolio of trust preferred securities, ABS, bank loans, and private equity investments;

- a $1.1 million increase in start-up costs relating to RCC, which commenced operations on March 8, 2005.

- a $525,000 increase in financial software programs and publications as a result of the implementation of new asset management systems in response to our growing assets under management;

- a $444,000 increase in other operating expenses, primarily from increased insurance costs, rent allocations and other general and administrative expenses related to the addition of personnel; and

- a $372,000 increase in professional fees; partially offset by

- a $1.3 million increase in reimbursed expenses, including $631,000 from RCC.

· a $757,000 increase in equity compensation expense related to the transfer of 289,000 restricted shares of RCC held by RCM to members of management; and

· a $266,000 increase in expenses, primarily professional services. 

Results of Operations: Real Estate

     In real estate, we manage three classes of assets:

· commercial real estate debt, principally first mortgage debt, whole loans, mortgage participations, subordinated notes, mezzanine debt and related commercial real estate securities;

· real estate investment limited partnerships, limited liability company and TIC property interests; and

· real estate loans, owned assets and ventures, known collectively as our legacy portfolio.

	September 30,
	2006		2005
	(in millions)
Assets under management:
Commercial real estate debt	$	440	$	87
Real estate investment limited partnerships and TIC property interests		345		202
Legacy portfolio		99		330
	$	884	$	619

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     During fiscal 2006, 2005 and 2004, our real estate operations were affected by three principal trends or events:

· the continued development of our commercial real estate debt platform;

· growth in our real estate business through the sponsorship of five real estate investment partnerships and the sponsorship of four TIC property interests; and

· our selective resolution of the loans in our legacy portfolio through repayments, sales, refinancings and restructurings.

We support our real estate investment partnerships by making long-term limited partnership investments. In addition, from time-to-time, we make bridge investments in the underlying partnerships and TIC property interests to facilitate acquisitions. We record losses on these equity method investments primarily as a result of depreciation and amortization expense recorded by the partnerships and TIC property interests. As additional investors are admitted to the partnerships and TIC programs, we transfer our bridge investment to new investors at our original cost and recognize a gain approximately equal to the previously recognized loss.

      In the twelve months ended September 30, 2006, we resolved loans with a combined book value of $43.9 million, realizing $42.1 million in net proceeds. We reduced the number of loans in our portfolio from twelve at September 30, 2005 to nine at September 30, 2006 through the repayment of seven loans, offset by the addition of four loans in conjunction with the resolution of an existing loan, two ventures and one owned asset. As a result, the face value of the assets we manage in our legacy portfolio, principally outstanding loans receivable, decreased from $293.9 million at September 30, 2005 to $76.1 million at September 30, 2006.

The following table sets forth information relating to the revenues recognized and costs and expenses incurred in our real estate operations (in thousands):

	Years Ended September 30,
	2006			2005			2004
Revenues:
Fee income from sponsorship of partnerships and TIC property interests and RCC	$	10,358		$	3,690		$	941
FIN 46 revenues and rental property income		4,720			5,375			4,017
Property management		2,248			1,184			525
Interest, including accreted loan discount		1,128			1,535			2,893
Gains on resolution of loans, FIN 46 assets and ventures		4,691			8,213			890
(Losses) earnings of equity investees		(832	)		(2,109	)		1,253
Net gains (losses) on sale of TIC property interests		1,363			(97	)		−
	$	23,676		$	17,791		$	10,519
Cost and expenses:
General and administrative expenses	$	9,149		$	5,712		$	4,571
FIN 46 operating and rental property expenses		2,973			4,191			2,374
	$	12,122		$	9,903		$	6,945

Gains on resolutions of loans, FIN 46 assets and other real estate assets (if any) and the amount of fees received (if any) vary from transaction to transaction. There have been in the past, and we expect that in the future, that there will be significant period-to-period variations in our gains on resolutions and fee income. Moreover, it is anticipated that gains on resolutions will likely decrease in the future as we complete the resolution of our legacy portfolio.

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Year Ended September 30, 2006 Compared to Year Ended September 30, 2005

  Revenues from our real estate operations increased $5.9 million (33%) from $17.8 million in fiscal 2005 to $23.7 million in fiscal 2006. We attribute the increase to the following:

·   a $6.7 million increase in fee income related to the purchase and third party financing of properties through the sponsorship of real estate investment partnerships and TIC property interests;

·   a $1.0 million increase in management fees from RCC;

·   a $1.1 million increase in management fees from the additional properties acquired subsequent to September 30, 2005;

·   a $1.3 million decrease in our share of the operating losses of our unconsolidated real estate investments accounted for on the equity method due principally to a prepayment penalty on the refinancing of an investment property recorded in fiscal 2005; and

·   a $1.4 million increase in net gains (including $1.7 million of previously recorded losses) recognized on our sale of TIC property interests in fiscal 2006. There were no sales of TIC property interests in fiscal 2005.

   These increases were partially offset by the following:

·   a $655,000 decrease in FIN 46 revenues and rental property income in fiscal 2006 as compared to fiscal 2005. The decrease is primarily related to our foreclosure on a hotel property during fiscal 2005. As a result of the foreclosure, we included an additional two months of operating income in our results for fiscal 2005;

·   a $3.5 million decrease in gains on resolutions of loans, FIN 46 assets and real estate assets. In fiscal 2006, we received $4.0 million plus a $200,000 note receivable from the sale of 19.99% of our 50% interest in a real estate venture, resulting in a gain of $4.2 million. Additionally, we resolved one loan with a book value of $2.5 million, recognizing a gain of $82,000. During fiscal 2005, a partnership in which we had owned a 50% equity interest (a 30% interest in fiscal 2006) refinanced its mortgage. We received net proceeds from the refinancing of $13.6 million, which was $6.3 million in excess of the recorded value of our interest. We recognized the $6.3 million as a gain. In addition, during fiscal 2005, we foreclosed on a loan that was classified as a FIN 46 asset. In connection with the foreclosure, we acquired a note payable for $540,000 that was recorded as a FIN 46 liability in the amount of $1.6 million; as a result, we recognized a gain of $1.0 million. We also recognized an aggregate gain of $792,000 on the sale of two investments in our real estate investment partnerships during fiscal year 2005; and

·   a $407,000 decrease in interest and accreted discount income resulting from the cessation of accretion on one loan offset by the interest accrued on three new loans acquired during fiscal 2006 as a result of asset resolutions.

 Costs and expenses of our real estate operations were $12.1 million for fiscal 2006, an increase of $2.2 million (22%) as compared to fiscal 2005. We attribute the increase to the following:

·   a $3.4 million increase in general and administrative expenses primarily due to the following:

-   a $2.1 million increase in wages and benefits as a result of the addition of personnel primarily to support the development of our debt platform and the combined growth of our investment partnerships and TIC programs;

-   a $757,000 net increase in commission expense and offering and organizational reimbursements due to the higher level of sales of real estate investment programs; and

-   a $480,000 increase in both property management expenses related to real estate investment partnerships and $300,000 of travel costs due to the increased acquisition activity associated with managing our real estate investment programs.

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This increase was partially offset by:

·   a $1.2 million decrease in FIN 46 operating expenses primarily related to the foreclosed hotel property and the resulting additional two months of operating expenses in fiscal 2005.

Year Ended September 30, 2005 Compared to Year Ended September 30, 2004

Revenues from our real estate operations increased $7.3 million (69%) from $10.5 million in fiscal 2004 to $17.8 million in fiscal 2005. We attribute the increase to the following:

·   a $1.4 million increase in FIN 46 revenues, primarily the additional two months of operating income related to the foreclosed hotel property in fiscal 2005;

·   $659,000 increase in management fees due to additional properties acquired;

·   a $2.7 million increase in fee income related to the purchase and third party financing of properties through the sponsorship of investment partnerships and TIC property interests; and

·   a $7.3 million increase in gains on resolutions of loans, FIN 46 assets and real estate assets. A partnership in which we owned a 50% equity interest refinanced its mortgage. We received net proceeds of $13.6 million from this refinancing and recorded a $6.3 million gain representing the excess of the recorded value of our interest. In addition, during fiscal 2005, we foreclosed on a loan that was classified as a FIN 46 asset on our consolidated balance sheet. In connection with the foreclosure, we acquired a note payable for $540,000 that was recorded on our books as a FIN 46 liability in the amount of $1.6 million; as a result we recognized a gain of $1.0 million. The foreclosed asset is recorded as an investment in real estate at September 30, 2005. We recognized an aggregate gain of $792,000 on the sale of two investments in our real estate investment partnerships during fiscal 2005. In fiscal 2004, we resolved five loans having an aggregate book value of $5.0 million for $5.1 million, recognizing a net gain of $49,000. We also received $3.4 million for the sale of our investment in one venture resulting in a gain of $841,000.

These increases were partially offset by the following:

·   a $1.4 million decrease in interest and accreted discount income resulting from the resolution of six loans since fiscal 2004 and the cessation of accretion on one loan as of July 2005. Approximately $1.0 million of the decrease related to one loan resolved during fiscal 2004; $226,000 of the decrease related to the cessation of accretion; and

·   a $3.4 million decrease in our share of the operating results of our unconsolidated real estate investments accounted for on the equity method. The majority of the decrease was due to costs of approximately $1.8 million associated with the refinancing of a first mortgage on a property in which we had a 50% interest. Additionally, $663,000 of the decrease related to losses incurred through equity investments in our real estate investment partnerships made subsequent to fiscal 2004. The loss from an equity investment which was converted from a loan during fiscal 2004 contributed another $626,000 of the decrease.

      Costs and expenses of our real estate operations were $9.9 million for fiscal 2005, an increase of $3.0 million (43%) as compared to fiscal 2004. We attribute the increase to the following:

·   an increase of $1.1 million in real estate general and administrative expenses primarily from an increase in wages and benefits as a result of the addition of personnel in our real estate subsidiary to manage our existing portfolio of commercial loans and real estate and to expand our real estate operations through the sponsorship of real estate investment programs; and

·   a $1.8 million increase in FIN 46 operating expenses primarily related to the foreclosed hotel property and the adjustment to current reporting, resulting in an additional two months of operating expenses in fiscal 2005.

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Results of Operations: Commercial Finance

During fiscal 2006, our commercial finance originations were $423.6 million compared to $250.8 million during fiscal 2005, increasing our assets under management to $612.7 million as compared to $339.7 million at September 30, 2005, an increase of $273.0 million (80%). Our commercial finance origination growth was driven by our continued growth in new and existing vendor programs, the expansion of our sales staff and new commercial finance products. Asset-backed loans made to other commercial finance companies was a new product we introduced during fiscal 2006. These secured loans are collateralized by leases and loans made to small and mid-sized companies and range in size from $5.0 to $15.0 million. These loan originations are typically sold to RCC.

In December 2004, we commenced an offering of up to $60.0 million of limited partnership interests in our second investment partnership, LEAF Fund II. On April 14, 2005, we sold the required number of units to break escrow and commenced operations. LEAF Fund II completed its offering on October 13, 2006 having raised $60.0 million of capital from investors.

On July 31, 2006, LEAF Financial entered into a new $150.0 million revolving credit facility which among other things, expanded LEAF’s borrowing capacity from $90.0 million, reduced the interest rate, extended the termination date to July 31, 2009, and reduced our corporate guarantee to $75.0 million. The agreement includes performance criteria that if met, will remove the guarantee completely.

On September 28, 2006, LEAF Fund II purchased the ML portfolios, which were serviced by LEAF, for approximately $191.7 million and the ML agreement was terminated. LEAF will continue to act as servicer for this portfolio on behalf of LEAF II and will continue to receive fees similar to those earned from ML. Additionally, LEAF Financial will continue to originate and service tax-exempt leases on behalf of ML.

The following table sets forth information related to our commercial finance assets managed on behalf of our investment partnerships, RCC, ML and ourselves (in millions):

	September 30,
	2006		2005
LEAF Financial Corporation	$	109	$	41
LEAF Fund I		87		85
LEAF Fund II		315		28
Merrill Lynch		10		161
RCC		92		25
	$	613	$	340

As of September 30, 2006, we managed approximately 15,000 leases and notes that had an average original finance value of $53,000 with an average term of 54 months. The following table sets forth certain information related to the types of businesses in which our commercial finance assets are used and the concentration by asset type of our portfolio under management as of September 30, 2006:

Lessee business			Equipment under management
Services	49	%	Medical	26	%
Finance/Insurance	15	%	Computers	18	%
Retail trade services	9	%	Industrial	15	%
Manufacturing services	8	%	Asset based lending	14	%
Transportation/Communication	5	%	Office equipment	5	%
Wholesaler trade	3	%	Garment care	4	%
Construction	3	%	Restaurant equipment	4	%
Agriculture	3	%	Software	3	%
Other	5	%	Communication	3	%
	100	%	Other	8	%
				100	%

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The revenues from our commercial finance operations consist primarily of finance revenues from leases and notes held by us prior to being sold; asset acquisition fees which are earned when commercial finance assets are sold to one of our investment partnerships and asset management fees earned over the life of the lease or loan after it is sold. The following table sets forth certain information relating to the revenues recognized and costs and expenses incurred in our commercial finance operations (in thousands):

	Years Ended September 30,
	2006		2005		2004
Revenues:
Finance revenues	$	9,006	$	4,970	$	2,597
Fund management fees		7,071		3,403		1,335
RCC management and servicing fees		1,607		247		−
Acquisition fees		4,817		4,069		2,543
Other		1,339		692		660
	$	23,840	$	13,381	$	7,135
Costs and expenses	$	14,443	$	8,884	$	7,763

Year Ended September 30, 2006 Compared to Year Ended September 30, 2005

Revenues in our commercial finance operations increased $10.5 million (78%) to $23.8 million in fiscal 2006 as compared to fiscal 2005. We attribute the increase to the following:

· a $4.0 million increase in finance revenues primarily due to an increase of $172.8 million in lease and note originations and the increase in our revolving credit facility which allowed us to hold more finance assets on our balance sheet;

· a $5.0 million increase in fund and RCC management fees directly related to our increase in assets under management; and

· a $748,000 increase in asset acquisition fees. Our increase in lease originations supported our increased sales to our affiliated partnerships, RCC and ML for which we receive acquisition fees.

Costs and expenses from our commercial finance operations increased $5.6 million (63%) for fiscal 2006 as compared to fiscal 2005. We attribute this increase to the following:

· a $3.9 million increase in wages and benefits. Our full-time employees increased to 117 as of September 30, 2006 from 81 as of September 30, 2005 to support the expansion of our operations; and

· a $1.6 million increase in general and administrative expenses principally due to the following:

- a $710,000 increase in professional fees directly related to the overall expansion of our operations;

- a $410,000 increase in rent due to the relocation of our new 30,000 square foot headquarters in November 2005; and

- a $307,000 increase in travel and entertainment expenses resulting from the expansion of our business development activities.

Year Ended September 30, 2005 Compared to Year Ended September 30, 2004

Revenues in our commercial finance operations increased $6.2 million (88%) to $13.4 million in fiscal 2005 as compared to fiscal 2004. We attribute the increase to the following:

· a $2.4 million increase in finance revenues primarily due to an increase of $101.3 million in lease originations;

· a $2.3 million increase in fund and RCC management fees directly related to our increase in assets under management; and

· a $1.5 million increase in asset acquisition fees. The increase in lease originations supported our increased sales to our affiliated partnerships and ML for which we receive acquisition fees.

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   Costs and expenses from our commercial finance operations increased $1.1 million for fiscal 2005 as compared to fiscal 2004. We attribute this increase to the following:

· a $2.4 million increase in wages and benefits due to additional personnel for the further expansion of our operations; and

· a $1.3 million decrease in general and administrative expenses due to the following:

- a $1.1 million decrease in offering and organization expenses related to our affiliated partnerships;

- a $287,000 decrease in liquidation expense as a result of a one time charge in 2004 relating to the dissolution of other affiliated partnerships;

- a $628,000 decrease in allocated corporate expenses;

- a $340,000 decrease in expenses reimbursed to us by our investment partnerships; and

- a $565,000 increase in other expenses resulting from the expansion of our business development activities and the overall expansion of our operations.

Results of Operations: Other Costs and Expenses and Other Income (Expense)

Year Ended September 30, 2006 Compared to Year Ended September 30, 2005

General and administrative costs were $9.8 million for fiscal 2006, an increase of $1.4 million (18%) as compared to $8.4 million for fiscal 2005. We attribute the increase to the following:

· a $870,000 increase in wages and benefits due principally to the following:

- a $1.1 million increase in stock-based compensation expense due to our implementation of FAS 123R. Effective October 1, 2005, we adopted Statement of Financial Accounting Standards (“SFAS”) 123R, “Accounting for Stock-Based Compensation,” as revised (“SFAS 123R”), resulting in a change in our method of recognizing share-based compensation expense. Specifically, we now record compensation expense for our employee stock options. Had we expensed employee stock options for fiscal 2005, we estimate that share-based compensation expense would have increased by $3.2 million. For additional information, see Note 2 to notes to consolidated financial statements; and

- a $380,000 increase in wages and benefits due to increased headcount to service our increased asset management operations; partially offset by

- a $720,000 reduction of expense based on an annual actuarial adjustment to the supplemental employment retirement plan for our retired Chief Executive Officer (and current Chairman) to reflect the increase in investment values in the plan compared to the remaining liability; and

· a $308,000 increase in accounting and auditing fees in conjunction with our expanded operations.

Depreciation and amortization expense was $3.1 million for fiscal 2006, an increase of $855,000 (39%) as compared to $2.2 million for fiscal 2005. We incurred increased depreciation of $624,000 on leasehold improvements, equipment and furnishings for the renovation of existing offices as well as newly opened offices. In addition, depreciation expense from operating leases increased by $231,000 (33%) in correlation to our increase in lease rental income of $239,000 (29%).

Interest expense was $10.1 million for fiscal 2006, an increase of $7.3 million (260%) as compared to $2.8 million for fiscal 2005. The expanded use of our secured warehouse credit facilities to purchase loans held for investment by our financial fund management business resulted in an increase in interest expense of $4.6 million. Additionally, increased draws on our commercial finance credit facilities to fund the growth of our commercial finance loan originations and our entry into asset-backed lending along with higher interest rates on borrowings caused an additional increase in interest expense of $2.3 million.

For the years ended September 30, 2006 and 2005, our operations reflected a charge of $1.8 million and $1.4 million, respectively, to earnings for minority interests, principally for our partners’ share of the SFF partnerships. Fiscal 2005 includes an additional quarter of expense upon the consolidation of these entities which had previously been recorded on a one-quarter lag.

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Other income, net was $5.2 million for fiscal 2006, an increase of $604,000 (13%) as compared to $4.6 million in fiscal 2005. The principal components of other income, net, are as follows:

· in fiscal 2002, we charged operations $1.0 million, which was the amount of our maximum exposure relating to the settlement of a lawsuit, in which one of our insurance carriers refused to participate. We thereafter filed an action seeking recovery on our policy with that carrier. In the second quarter of fiscal 2006, we prevailed in our action against the carrier, received a $200,000 reimbursement and reversed the $1.0 million accrual;

· during fiscal 2006, we recorded a gain of $668,000 from the sale of 50,000 shares of The Bancorp, Inc;

· we recorded $2.7 million and $213,000 of dividends received from RCC in fiscal 2006 and 2005, respectively. RCC was formed by us in March 2005;

· in the first quarter of fiscal 2005, we received a $1.4 million settlement on a claim against one of our directors’ and officers’ liability insurance carriers; and

· during fiscal 2005, we recorded gains totaling $1.5 million from the sale of the remaining RAIT Investment Trust, or RAIT, shares that we held.

Our effective tax rate (income taxes as a percentage of income from continuing operations before taxes and cumulative effect of accounting change) decreased to 16% in fiscal 2006 from 40% in fiscal 2005. The decrease in our effective tax rate reflects the tax planning strategies that we initiated in fiscal 2006 offset, in part, by increased state income taxes in conjunction with the increased profitability of our operating segments. In connection with the implementation of these tax planning strategies, the tax rate for fiscal 2006 reflected the reversal of $39.5 million of a previously recorded valuation allowance against state net operating loss carryforwards, or NOLs which resulted in a tax benefit of approximately $3.9 million. In addition, we recorded a deferred tax asset of $1.1 million associated with approximately $16.3 million of local net operating loss carryforwards, or NOLs, for which we had previously believed would not be realized prior to their statutory expiration date.  Our effective tax rate, as adjusted to exclude the benefit from the change in the valuation allowance and recording the additional local deferred tax asset, would have been 39% for fiscal 2006. We expect our effective tax rate to be 40% in fiscal 2007. Future tax rates could change if estimates of taxable income change or if there are changes in our recorded NOLs or their related valuation allowances.

Year Ended September 30, 2005 Compared to Year Ended September 30, 2004

General and administrative costs were $8.4 million for fiscal 2005, a decrease of $1.1 million (11%) as compared to $9.4 million for fiscal 2004. In fiscal 2004, we incurred $1.7 million of costs in connection with the initial public offering and spin-off of Atlas America, primarily resulting from a $1.4 million charge related to the accelerated retirement of our former Chief Executive Officer. For fiscal 2005, $2.7 million of spin-off costs were reflected in discontinued operations. In addition, our legal fees decreased $1.1 million to $200,000 in fiscal 2005 from $1.3 million in fiscal 2004 due to the resolution of lawsuits. The decreases were, in part, offset by additional accounting and consulting fees of $1.5 million as a result of our compliance with Section 404 of the Sarbanes-Oxley Act of 2002. Our provision for possible losses decreased to $149,000 for fiscal 2005 from $642,000 for fiscal 2004 relative to the continued resolution of our legacy portfolio. The remainder of the variance was comprised of various increased corporate costs and expenditures, primarily payroll and insurance in conjunction with our increased asset management operations.

Depreciation and amortization expense was $2.2 million for fiscal 2005, an increase of $1.0 million (83%) as compared to $1.2 million for fiscal 2004. This increase was principally due to our commercial finance operations which increased its net operating lease assets owned to $5.2 million at September 30, 2005 from $510,000 at September 30, 2004.

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Interest expense was $2.8 million for fiscal 2005, a decrease of $1.2 million, as compared to $4.0 million for fiscal 2004. The decrease in interest expense for fiscal 2005 reflected a $1.4 million reduction of interest resulting from the redemption in fiscal 2004 of our 12% senior notes and a $1.1 million reduction due to repayment of debt related to our real estate operations. The decreases were offset by increased interest expense of $1.0 million related to increased draws on our commercial financing credit facilities as a result of our increased lease originations during fiscal 2005. In addition, our financial fund management operations incurred $443,000 of interest expense on a new warehouse line for acquiring bank loans.

    For fiscal 2005, our operations reflected a $1.4 million charge for minority interests in the SFF partnerships. As of September 30, 2004, these entities were not consolidated.

Other income, net, was $4.6 million for fiscal 2005, a decrease of $4.6 million, as compared to $9.2 million for fiscal 2004. During fiscal 2005 and 2004, we sold 110,637 and 782,700 shares, respectively, of RAIT and recorded gains of $1.5 million and $9.5 million, respectively. Dividend income from RAIT decreased by $904,000 to $11,000 for fiscal 2005 from $915,000 for fiscal 2004 as a result of these sales. As of September 30, 2005, all shares of RAIT had been sold. Fiscal 2004 reflected charges of $2.0 million related to the write-off of deferred finance costs and the premium paid on the redemption of our 12% senior notes. In fiscal 2005, we received $1.4 million related to the settlement of a claim against our directors’ and officers’ liability insurance carrier.

On June 30, 2005, we distributed our remaining 10.7 million shares of Atlas America to our stockholders in the form of a tax-free dividend.

Discontinued Operations

     In accordance with SFAS 144, "Accounting for the Impairment or Disposal of Long Lived Assets," our decision to dispose of certain entities has resulted in the presentation of these operations as discontinued (see Note 18 of notes to consolidated financial statements).

Spin-off of Atlas America

Discontinued operations reflects the June 30, 2005 distribution of our remaining 10.7 million shares of Atlas America to our stockholders. The distribution decreased our stockholders’ equity by $91.4 million. Due to the spin-off, we no longer consolidate Atlas America in our financial statements and accordingly, their income (loss) from operations including disposal costs, net of tax, of ($47,000), $16.5 million and $19.8 million for fiscal 2006, 2005 and 2004, respectively, was reflected in discontinued operations in our consolidated statements of income.

Resolution of Real Estate Assets Held for Sale

The activity in the number of real estate investments held for sale, including FIN 46 entities and owned properties, were as follows:

	Years Ending September 30,
	2006			2005			2004
Balance, beginning of period		6			4			5
Net additions		1			3			3
Resolved		(6	)		(1	)		(4	)
Balance, end of period		1			6			4

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The discontinued operations of our real estate segment were as follows (in thousands):

	Years Ended September 30,
	2006			2005			2004
Operating income (period prior to disposition)	$	2,674		$	3,609		$	1,249
Write-downs to expected sales value		(431	)		(2,303	)		(7,337	)
(Loss) gain on disposals		(452	)		(9,396	)		749
Income tax (provision) benefit		(591	)		2,875			1,981
Discontinued income (loss), net of tax	$	1,200		$	(5,215	)	$	(3,358	)

Cumulative Effect of Change in Accounting Principle

Historically, we have presented our equity pickup in the Trapeza entities on a one-quarter lag as permitted under generally accepted accounting principles. Improvements in the timeliness and availability of financial data from the Trapeza entities have allowed us to report our earnings in these entities on a current basis going forward. As a result of this change, our equity in earnings of the Trapeza entities of $1.4 million, net of tax of $983,000 for the three months ended September 30, 2005 has been reflected as of October 1, 2005 in the consolidated statements of income as a cumulative change in accounting principle.

Liquidity and Capital Resources

General. During the past five years, our major sources of liquidity, exclusive of the cash generated by the operations of Atlas America, have been from the resolution of our real estate legacy portfolio, borrowings under our existing credit facilities and sales of our RAIT shares. We have employed these funds principally to expand our specialized asset management operations including our sponsorship and investment in RCC, repurchase our shares, reduce our outstanding debt and, in fiscal 2004, to redeem our senior notes. We expect to fund our asset management businesses from a combination of cash to be generated by operations, continued resolution of our legacy portfolio and expanded borrowings under our existing credit facilities.

The following table sets forth our sources and uses of cash (in thousands):

	Years Ended September 30,
	2006			2005			2004
Used in operating activities of continuing operations	$	(39,054	)	$	(18,954	)	$	(12,525	)
(Used in) provided by investing activities of continuing operations		(39,626	)		(28,801	)		92,215
Provided by (used in) financing activities of continuing operations		50,831			14,635			(92,443	)
Provided by discontinued operations		38,943			23,566			35,214
Net cash retained by entities previously consolidated		(3,825	)		−			−
	$	7,269		$	(9,554	)	$	22,461

Year Ended September 30, 2006 Compared to Year Ended September 30, 2005

We increased our cash balance by $7.3 million to $37.6 million at September 30, 2006 from $30.4 million at September 30, 2005. Additionally, we held $8.1 million and $5.0 million of cash in escrow accounts at September 30, 2006 and 2005, respectively, which were reflected as restricted cash in our consolidated balance sheets. Our ratio of earnings from continuing operations before income taxes, minority interest and interest expense to fixed charges was 3.6 to 1.0 for fiscal 2006 as compared to 9.9 to 1.0 for fiscal 2005. The decrease in this ratio primarily reflects the increase in interest expense as a result of the additional borrowings under our financial fund management and commercial finance credit facilities. Our ratio of debt to equity was 89% and 79% at September 30, 2006 and 2005, respectively. The increase in the ratio for fiscal 2006 reflects our expanded utilization of and increase in our commercial finance credit facility at September 30, 2006.

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Cash Flows from Operating Activities.Net cash used in the operating activities of continuing operations increased by $20.1 million to $39.1 million of cash used for fiscal 2006 as compared to $19.0 million of cash used for fiscal 2005, substantially as a result of the following:

· a $50.5 million increase in our commercial finance investments, reflecting the continued expansion of that segment; offset in part by

· a $15.6 million increase in cash provided primarily from operating assets and liabilities; and

· a $14.8 million increase in net income generated by our continuing operations, as adjusted for non-cash items; includes a $9.8 million decrease in income from discontinued operations, reflecting the nine months of operations of Atlas America included in fiscal 2005.

Cash Flows from Investing Activities.Net cash used by the investing activities of our continuing operations increased by $10.8 million for fiscal 2006 as compared to fiscal 2005, primarily reflecting the additional utilization under our commercial finance credit facility.

Cash Flows from Financing Activities. Net cash provided by the financing activities of our continuing operations increased by $36.2 million for fiscal 2006 as compared to fiscal 2005. This increase in our cash flows principally reflects the following:

· an increase in our borrowings, net of repayments, of $60.6 million which principally involved the $45.4 million of additional net borrowings to fund our increased investments in our commercial finance operations, and $12.5 million in proceeds from the first mortgage we secured on a foreclosed hotel property. This increase was offset partially by;

· a $9.5 million increase in repurchases of our common stock as part of our Board-approved stock repurchase program; and

· a $5.7 million decrease in proceeds from the exercise of employee stock options, principally by the employees of Atlas America in conjunction with the spin-off of that subsidiary in June 2005.

Cash Retained by Entities Previously Consolidated. As of December 31, 2005, we no longer consolidated two affiliated partnerships in our financial fund management segment that invest in regional banks due to a change in the rights of the limited partners to remove us as the general partner. Accordingly, the September 30, 2005 combined cash balance of these entities of $3.8 million was not reflected in our consolidated statement of cash flows for fiscal 2006.

Cash Flows from Discontinued Operations. Net cash provided by discontinued operations increased by $15.4 million for fiscal 2006 as compared to fiscal 2005. We received $38.9 million principally from the sale of three FIN 46 assets during fiscal 2006, an increase of $32.9 million as compared to the $6.0 million of proceeds for fiscal 2005. This increase was offset, in part, by the $17.8 million decrease in cash flows generated from the operations of Atlas America for the nine months ended June 30, 2005.

Year Ended September 30, 2005 Compared to Year Ended September 30, 2004

We had $30.4 million in cash and cash equivalents at September 30, 2005 compared to $39.9 million at September 30, 2004. In fiscal 2005, we had $5.0 million in cash held in escrow which is reflected as restricted cash. Our ratio of earnings from continuing operations before income taxes, minority interest and interest expense to fixed charges was 9.9 to 1.0 for fiscal 2005 as compared to 1.3 to 1.0 for fiscal 2004. The increase in this ratio reflects primarily the increase in cash distributions from equity investees as well as an increase in pre-tax income from continuing operations. Our ratio of debt to equity was 79% and 17% at September 30, 2005 and 2004, respectively. The increase in the ratio for fiscal 2005 principally reflects the additional debt borrowed under our financial fund management warehouse credit facility to fund our acquisition of loans held for investment.

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Cash Flows from Operating Activities. We increased our cash utilized in operations by $6.4 million to $19.0 million in fiscal 2005, substantially reflecting the following:

· $13.7 million was used by operating assets, liabilities and taxes, including the $18.1 million of Atlas America net operating liabilities eliminated with the spin-off; and

· a $1.2 million increase in our investment in commercial finance; offset in part, by the

· $8.5 million of cash generated by the increase in net income, as adjusted to reconcile net income to net cash from operating activities.

Cash Flows from Investing Activities.Our investing activities from continuing operations utilized $121.0 million more cash in fiscal 2005 as compared to fiscal 2004, primarily as a result of the following:

· we received $52.1 million in dividends from Atlas America in fiscal 2004. No such dividends were received in fiscal 2005;

· the proceeds from the resolution and/or refinancing of our legacy real estate investment portfolio produced $7.4 million of proceeds in fiscal 2005, $19.0 million less than the $26.4 million in fiscal 2004;

· the proceeds we received from the sale of our RAIT shares were $17.1 million less in fiscal 2005 than in fiscal 2004;

· we invested $15.0 million in RCC in fiscal 2005;

· we increased our investments in real estate by $10.1 million, including two TIC property interests;

· we placed $5.0 million in escrow as required by our financial fund secured warehouse credit facility; and

· a $11.7 million reduction in funds provided from the decrease in other assets; offset, in part, by

· a $9.4 million increase in equity distributions.

Cash Flows from Financing Activities. Net cash provided by our financing activities from continuing operations increased by $107.1 million for fiscal 2005 as compared to fiscal 2004. This increase in our cash flows principally reflected the following:

· an increase of $99.0 million in borrowings, net of repayments. Fiscal 2004 net borrowings were reduced by significant repayments, including the $54.0 million redemption of the remaining outstanding 12% senior notes and the $28.3 million repayment of one FIN 46 mortgage loan;

· a $10.4 million increase in investor contributions to our financial fund management entities; and

· $5.2 million of additional proceeds from the exercise of employee stock options.

These increases were offset, in part, by the following:

· $5.2 million of cash used to repurchase 283,080 of our shares as part of our Board-approved stock repurchase program;

· a $1.4 million increase in distributions paid to minority holders; and

· a $914,000 increase in cash dividends paid to our shareholders.

Cash Flows from Discontinued Operations. Net cash provided by discontinued operations decreased by $11.6 million for fiscal 2005 as compared to fiscal 2004. This decrease of cash from discontinued operations principally reflects the $6.0 million of net proceeds received in fiscal 2005 from the resolution of two real estate investments and the operating results of seven real estate properties held for sale as compared to the resolution of six real estate investments and the operating results of 13 real estate properties held for sale in fiscal 2004 generating $42.8 million of proceeds. This decrease of $36.8 million was offset, in part, by a $25.4 million increase in cash generated from operations of Atlas America during the nine months of fiscal 2005 as compared to fiscal 2004.

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Capital Requirements

The amount of funds we must commit to investments in our financial fund management, real estate and commercial finance operations depends upon the level of funds raised through investment programs managed by our operating segments. We believe cash flows from operations, cash and other working capital and amounts available under our credit facilities will be adequate to fund our contribution to these programs. However, the amount of funds we raise and the level of our investments will vary in the future depending on market conditions.

Dividends

   In the years ended September 30, 2006, 2005 and 2004, we paid cash dividends of $4.3 million, $3.5 million and $2.6 million, respectively. We have paid quarterly cash dividends since August 1995. Additionally, in fiscal 2005, we distributed our 10.7 million shares of Atlas America to our stockholders in the form of a tax-free distribution valued at $91.4 million.

The determination of the amount of future cash dividends, if any, is at the sole discretion of our board of directors and will depend on the various factors affecting our financial condition and other matters the board of directors deems relevant.

Contractual Obligations and Other Commercial Commitments

The following tables summarize our contractual obligations and other commercial commitments at September 30, 2006 (in thousands):

			Payments Due By Period
Contractual obligations:	Total		Less than 1 Year		1 - 3 Years		4 - 5 Years		After 5 Years
Long-term debt (1)	$	16,383	$	816	$	1,731	$	13,154	$	682
Secured credit facilities (1) (2)		86,400		86,400		−		-		-
Capital lease obligations (1)		158		38		84		36		−
Operating lease obligations		6,633		1,835		2,188		695		1,915
Purchase obligations		-		-		-		-		-
Other long-term liabilities		725		281		444		-		-
Total contractual obligations	$	110,299	$	89,370	$	4,447	$	13,885	$	2,597

(1)   Not included in the table above are estimated interest payments calculated at rates in effect at September 30, 2006; Less than 1 year: $5.5 million; 1-3 years: $2.0 million; 4-5 years: $1.8 million; and after 5 years: $72,000.

(2)   Excludes $69.9 million related to credit facilities that will be transferred upon the execution of the CDO transactions and will not have to be repaid by us.

			Amount of Commitment Expiration Per Period
Other commercial commitments:	Total		Less than 1 Year		1 - 3 Years		4 - 5 Years		After 5 Years
Guarantees	$	33,676	$	33,676	$	−	$	-	$	-
Standby replacement commitments		1,130		1,130		−		-		-
Other commercial commitments		395,682		63,617		64,494		6,653		260,918
Total commercial commitments	$	430,488	$	98,423	$	64,494	$	6,653	$	260,918

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   In connection with the sale of a real estate loan in March 2006, we have agreed that in exchange for the current property owner relinquishing certain critical control rights, we will make payments to the current property owner under certain stipulated circumstances, including the sale or foreclosure of the property or a subsequent resale of the loan. A payment initially in the amount of $2.6 million, increasing by $16,234 per month to a maximum of $3.6 million, would be due upon the occurrence of specified events. In addition, the current property owner has the right to receive collateral as security for this obligation equal to or greater than 105% of the value of the obligation upon the occurrence of certain specified events or if our net worth falls below $80.0 million. Our obligation runs through December 31, 2014. In addition, we have agreed to partially indemnify the purchaser of the loan for a portion of the difference between ordinary income tax rates and capital gain rates on accrued interest on the note between the date of sale of the loan in March 2006 and December 31, 2011.

In March 2006, we entered into a warehouse agreement with JP Morgan Securities, Inc. which provides for guarantees by the Company on the first $2.3 million of losses on a portfolio of bank loans. This guarantee, secured by a $1.2 million cash deposit, expires upon the closing of the associated CDO which is expected in the second quarter of fiscal 2007.

In June 2006, we entered into a warehouse agreement with Credit Suisse International which provides for guarantees by us on the first $16.5 million of losses on a portfolio of bank loans. This guarantee, secured by a $3.8 million cash deposit, expires upon the closing of the associated CDO which is expected in the second quarter of fiscal 2007.

In August 2006, we entered into a warehouse agreement with Credit Suisse which provides for guarantees by us on the first $10.0 million of losses and 8% of the balance on a portfolio of bank loans. This guarantee increases to $15.0 million and 8% of the warehouse balance of the portfolio of loans if another CDO transaction is not priced by February 7, 2007. This guarantee, secured by a $2.5 million cash deposit, expires upon the closing of the associated CDO which is expected in the fourth quarter of fiscal 2007.

Five real estate investment partnerships in which we have general partner interests have obtained senior lien financing with respect to the thirteen properties they acquired. In addition, four TIC investment programs which we have sponsored have obtained senior lien financing with respect to four acquired properties. These senior liens are with recourse only to the properties securing them subject to certain standard exceptions, which we have guaranteed. These guarantees expire as the related indebtedness is paid down over the next ten years. In addition, property owners have obtained senior lien financing with respect to four of our loans. The senior liens are with recourse only to the properties securing them subject to certain standard exceptions, which we have guaranteed. These guarantees expire as the related indebtedness is paid down over the next ten years.

We guarantee one of our real estate partners against any losses, costs or damages that it may incur due to any fraud, bankruptcy, material misrepresentation or limited other intentional bad acts by us and terminates upon the earlier occurrence of (i) either we or our partner ceases to be member of such partnership or (ii) termination of the operating agreement of the partnership. Our maximum liability on the guarantee is $1.1 million.

As of September 30, 2006, we do not believe it is probable that any payments will be required under any of our indemnifications and accordingly, no liabilities for these obligations have been recorded in the consolidated financial statements.

    As a specialized asset manager, we sponsor investment funds in which we may make an equity investment along with outside investors. This equity investment is generally based on a percentage of funds raised and varies among investment programs.

We are a party to employment agreements with certain executives that provide for compensation and certain other benefits. The agreements also provide for severance payments under certain circumstances.

We are a party to various routine legal proceedings arising out of the ordinary course of our business. Management believes that none of these actions, individually or in the aggregate, will have a material adverse effect on our financial condition or operations.

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Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of our assets, liabilities, revenues and cost and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to the provision for possible losses, deferred tax assets and liabilities, and identifiable intangible assets, and certain accrued liabilities. We base our estimates on historical experience and on various other assumptions that we believe reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We have identified the following policies as critical to our business operations and the understanding of our results of operations.

Loans Held for Investment

We purchase participations in corporate leveraged loans and commercial real estate loans in the secondary market and through syndications of newly-originated loans. These loans are held for investment; therefore, we initially record them at their purchase price, and subsequently account for them based on their outstanding principal plus or minus any unamortized premiums or discounts. We may sell a loan held for investment if the credit fundamentals underlying a particular loan have changed in such a manner that our expected return on investment may decrease. Once we decide to no longer hold the loan for investment, the loan is recorded at the lower of amortized cost or fair value.

     To estimate the allowance for loan losses, we first identify impaired loans. Loans are generally evaluated for impairment individually, but loans purchased on a pooled basis with relatively smaller balances and substantially similar characteristics may be evaluated collectively for impairment. We consider a loan to be impaired when, based on current information and events, management believes it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. When a loan is impaired, the allowance for loan losses is increased by the amount of the excess of the amortized cost basis of the loan over its fair value. Fair value may be determined based on market price, if available; the fair value of the collateral less estimated disposition costs; or the present value of estimated cash flows. Increases in the allowance for loan losses are recognized in the statements of income as a provision for loan losses. When a loan, or a portion thereof, is considered uncollectible and pursuit of the collection is not warranted, then we will record a charge-off or write-down of the loan against the allowance for loan losses.

An impaired loan may remain on accrual status during the period in which we pursue repayment of the loan; however, the loan would be placed on non-accrual status at such time as either (1) management believes that scheduled debt service payments will not be met within the coming 12 months; (2) the loan becomes 90 days delinquent; (3) management determines the borrower is incapable of, or has ceased efforts toward, curing the cause of the impairment; or (4) the net realizable value of the loan’s underlying collateral approximates our carrying value of such loan. While on non-accrual status, we recognize interest income only when actual payment is received.

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Revenue Recognition

Resource Capital Corp.

In March 2005, we entered into a Management Agreement pursuant to which we will provide certain services, including investment management and certain administrative services to RCC. We receive fees and are reimbursed for our expenses as follows:

· a monthly base management fee equal to 1/12th of the amount of RCC’s equity multiplied by 1.50%. Under the Management Agreement, ‘‘equity’’ is equal to the net proceeds from any issuance of shares of common stock less other offering related costs plus or minus our retained earnings (excluding non-cash equity compensation incurred in current or prior periods) less any amounts RCC paid for common stock repurchases. The calculation may be adjusted for one-time events due to changes in generally accepted accounting principles, or GAAP, as well as other non-cash charges, upon approval of the independent directors of RCC;

· incentive compensation based on the products of (i) 25% of the dollar amount by which, (A) RCC’s net income per common share (before non-cash equity compensation expense and incentive compensation) for a quarter (based on the weighted average number of shares outstanding) exceeds, (B) an amount equal to (1) the weighted average share price of shares of common stock in the offerings of RCC, multiplied by (2) the greater of (a) 2.00% or (b) 0.50% plus one-fourth of the ten year treasury rate (as defined in the Management Agreement for such quarter), multiplied by (ii) the weighted average number of common shares outstanding for the quarter. The calculation may be adjusted for one time events due to changes in GAAP as well as other non-cash charges upon approval of the independent directors of RCC; and

· out-of-pocket expenses and certain other costs incurred by us associated with RCC and its operations.

The incentive compensation is payable quarterly. Seventy-five percent (75%) of the incentive compensation is payable in cash and twenty-five percent (25%) is payable in the form of a restricted stock award. We may elect to receive more than 25% of our incentive compensation in the form of shares of common stock. However, our ownership percentage in RCC, direct and indirect, cannot exceed 15%. All shares are fully vested upon issuance, provided that we may not sell such shares for one year after the incentive compensation becomes due and payable. Shares payable as incentive compensation are valued at the average of the closing prices of the shares over the thirty day period ending three days prior to the issuance of such shares.

The initial term of the Management Agreement ends March 31, 2008. The Management Agreement automatically renews for a one-year term at the end of the initial term and each renewal term. With a two-thirds vote of the independent directors of RCC, the independent directors of RCC may elect to terminate the Management Agreement because of the following:

· unsatisfactory performance; and/or

· unfair compensation payable to the Company and fair compensation cannot be agreed upon between two-thirds of the independent directors of RCC and us.

In the event that the Management Agreement is terminated based on the provisions disclosed above, RCC must pay us a termination fee equal to four times the sum of the average annual base management fee and the average annual incentive during the two 12-month periods immediately preceding the date of such termination. The Management Agreement also entitles RCC to terminate the Management Agreement for cause.

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Financial Fund Management

Loan Interest Income Recognition

Interest income on loans includes interest at stated rates adjusted for amortization or accretion of premiums and discounts. Premiums and discounts are amortized or accreted into income using the effective yield method. When we purchase a loan or pool of loans at a discount, we consider the provisions of American Institute of Certified Public Accountants Statement of Position, or SOP, 03-3 ‘‘Accounting for Certain Loans or Debt Securities Acquired in a Transfer’’ to evaluate whether all or a portion of the discount represents accretable yield. If a loan with a premium or discount is prepaid, we immediately recognize the unamortized portion as a decrease or increase to interest income.

Stock-Based Compensation

We account for the RCC restricted stock and stock options it has received in accordance with EITF 00-8, "Accounting by a Grantee for an Equity Instrument to Be Received in Conjunction with Providing Goods or Services." The terms of the stock award agreement provide that the deferred compensation be amortized over a three-year graded vesting period. The unvested stock and options are adjusted quarterly to reflect changes in the market value of RCC as performance under the agreement is completed. Such changes are reflected in the equity compensation expense recognized in that quarter and in future quarters until the stock and options are fully vested.

Investments in Unconsolidated Entities

Investments in the Trapeza entities are accounted for using the equity method of accounting because as a 50% owner of the general partner of these entities, we have the ability to exercise significant influence over their operating and financial decisions. Our combined general and limited partner interests in these entities range from 13% to 18%.

We account for four other company-sponsored partnerships using the equity method.  Three of these partnerships invest in regional banks and the other is organized as a hedge fund that we manage.  Our combined general and limited partner interests in each of these partnerships is approximately 10%. At September 30, 2005, these entities were consolidated with our financial statements.

Investment Securities Available-for-Sale

Investments in financial fund management entities contain the interests in unconsolidated CDOs owned by us and interests owned by the SFF partnerships that we control and as a result, are consolidated in our financial statements. Our combined general and limited partner interests in the SFF entities range from 15% to 36% and the interests owned by third parties are reflected as minority interest. The SFF entities are accounted for in accordance with EITF 99-20, “Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets.”

Real Estate

Investments in Unconsolidated Entities

Our investments in real estate limited partnerships, limited liability companies and TIC property interests are accounted for using the equity method of accounting since we have the ability to exercise significant influence over operating and financial decisions of the entities. These entities, which we sponsored and manage, were organized to invest in multi-family residential properties.

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Fee Income

We receive acquisition fees of 1.75% of the net purchase price of properties acquired and financing fees equal to 1.75% of the debt obtained or assumed related to the properties acquired. In conjunction with TIC acquisitions, we also may receive a bridge equity fee. We recognize these fees upon acquiring the properties and obtaining the related financing.

We also receive a monthly property management fee equal to 5% of the gross operating revenues from the underlying properties. We typically subcontract our property management obligations to third party property managers. We recognize this fee as the revenues of the underlying properties are earned.

Additionally, we receive an annual investment management fee from the limited partnerships equal to 1% of the gross offering proceeds of each partnership for our services. We receive an annual asset management fee from the TIC investments equal to 1% of the gross revenues from the property in connection with the performance of our asset management responsibilities. We receive an annual asset management fee from one limited liability company equal to 1.5% of the gross revenues of the underlying properties. These investment management fees and asset management fees are recognized ratably over each annual period.

Loan Interest Income Recognition

On our investments in real estate loans, we accrete the difference between its cost basis and the sum of projected cash flows from that loan into interest income over the estimated life of the loan using the interest method which recognizes a level interest rate over the life of the loan. We review projected cash flows, which include amounts realizable from the underlying properties, on a regular basis. Changes to projected cash flows, which can be based upon updated property appraisals, changes to the property and changes to the real estate market in general, reduce or increase the amounts accreted into interest income over the remaining life of the loan. We also utilize the cost recovery method for loans when appropriate under the circumstances.

In determining the our allowance for possible losses related to our investments in real estate, we consider general and local economic conditions, neighborhood values, competitive overbuilding, casualty losses and other factors which may affect the value of loans and real estate. The value of loans and real estate may also be affected by factors such as the cost of compliance with regulations and liability under applicable environmental laws, changes in interest rates and the availability of financing. Income from a property will be reduced if a significant number of tenants are unable to pay rent or if available space cannot be rented on favorable terms. In addition, we continuously monitor collections and payments from our borrowers and maintain an allowance for estimated losses based upon our historical experience and our knowledge of specific borrower collection issues. We reduce our investment in real estate loans and real estate by an allowance for amounts that may become unrealizable in the future. Such allowance can be either specific to a particular loan or property or general to all loans and real estate.

Commercial Finance

Finance Revenues

Investments in commercial finance assets consist of notes receivable, direct financing leases and operating leases. Leases are recorded in accordance with SFAS 13, “Accounting for Leases,” and its various amendments and interpretations.

Notes Receivable. For term loans, the investment in notes receivable consists of the sum of the total future minimum loan payments receivable less unearned finance income. Unearned finance income, which is recognized as revenue over the term of the financing by the effective interest method, represents the excess of the total future minimum contracted payments over the cost of the related equipment. For all other loans, interest income is recorded at the stated rate on the accrual basis to the extent that such amounts are expected to be collected.

43

Direct Financing Leases. Certain of our lease transactions are accounted for as direct financing leases (as distinguished from operating leases). Such leases transfer substantially all benefits and risks of equipment ownership to the customer. Our investment in direct financing leases consists of the sum of the total future minimum contracted payments receivable and the estimated unguaranteed residual value of leased equipment, less unearned finance income. Unearned finance income, which is recognized as revenue over the term of the financing by the effective interest method, represents the excess of the total future minimum lease payments plus the estimated unguaranteed residual value expected to be realized at the end of the lease term over the cost of the related equipment. Initial direct costs incurred in the consummation of the lease are capitalized as part of the investment in lease receivables and amortized over the lease term as a reduction of the yield.

Operating Leases. Leases not meeting any of the criteria to be classified as direct financing leases are deemed to be operating leases. Under the accounting for operating leases, the cost of the leased equipment, including acquisition fees associated with lease placements, is recorded as an asset and depreciated on a straight-line basis over the equipment’s estimated useful life, generally up to seven years. Rental income consists primarily of monthly periodic rental payments due under the terms of the leases. We recognize rental income on a straight line basis. Generally, during the lease terms of existing operating leases, we will not recover all of the cost and related expenses of our rental equipment and, therefore, we are prepared to remarket the equipment in future years. Our policy is to review, on a quarterly basis, the expected economic life of our rental equipment in order to determine the recoverability of its undepreciated cost. We write down our rental equipment to its estimated net realizable value when it is probable that its carrying amount exceeds such value and the excess can be reasonably estimated; gains are only recognized upon actual sale of the rental equipment. There were no writedowns of equipment during fiscal 2006, 2005 and 2004.

We generally discontinue the recognition of revenue for leases and notes for which payments are more than 90 days past due.

Acquisition and Fund Management Fees

We receive acquisition fees from our leasing partnerships and ML equal to a percentage of the cost of leased equipment acquired as compensation for expenses incurred related to the lease acquisition. These fees are earned at the time of the sale of the related leased equipment to our partnerships and ML.

We also receive management fees for managing and servicing the leased assets acquired and earns fees at the time the service is performed. We also currently receive servicing fees ranging from 2% to 4% of gross rental payments received from certain parties and servicing fees that average 1% of the managed portfolio balance from others. Further, we receive fees as a reimbursement of our operating and administrative expenses incurred to manage the investment partnerships.

Until September 2006, we had a program with subsidiaries of Merrill Lynch Commercial Finance Corp. (“ML”) under which we originated and sold leases to ML. We recorded gains or losses on the sales of leases and notes to ML based on the present value of the estimated cash flows that we retained over the estimated outstanding period of the receivables. This excess cash flow essentially represented an "interest-only" ("I/O") strip, consisting of the present value of the finance charges and late fees in excess of the amounts paid for debt service, credit losses, and service fees. During fiscal 2006 and 2005, we recognized gains of $28,000 and $313,000, net of tax, respectively related to the I/O strip. On September 26, 2006, we terminated this program with ML.

Investments in Unconsolidated Entities

Investments in commercial finance partnerships are accounted for using the equity method of accounting since we have the ability to exercise significant influence over operating and financial decisions of the partnerships.

Other Revenues

Fees from delinquent payments are recognized when received and are included in other income.

44

Recently Issued Financial Accounting Standards

In September 2006, the FASB issued Statement of Financial Accounting Standards 157, or SFAS, “Fair Value Measurements,” or SFAS 157, which provides guidance on how to measure assets and liabilities that use fair value. SFAS 157 will apply under other accounting pronouncements that require or permits assets or liabilities to be measured at fair value but does not expand the use of fair value to any new circumstances. This standard also will require additional disclosures in both annual and quarterly reports. SFAS 157 will be effective for financial statements issued for fiscal years beginning after November 15, 2007 and will be adopted by us in the first quarter of its fiscal year 2009. We currently are determining the effect, if any, the adoption of SFAS 157 will have on our financial statements.

In September 2006, the Securities and Exchange Commission staff issued Staff Accounting Bulletin, or SAB, 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” or SAB 108. SAB 108 was issued to provide consistency between how registrants quantify financial statement misstatements.

Historically, there have been two widely-used methods for quantifying the effects of financial statement misstatements. These methods are referred to as the “roll-over” and “iron curtain” method. The roll-over method quantifies the amount by which the current year income statement is misstated. Exclusive reliance on an income statement approach can result in the accumulation of errors on the balance sheet that may not have been material to any individual income statement, but which may misstate one or more balance sheet accounts. The iron curtain method quantifies the error as the cumulative amount by which the current year balance sheet is misstated. Exclusive reliance on a balance sheet approach can result in disregarding the effects of errors in the current year income statement that results from the correction of an error existing in previously issued financial statements. We currently use the roll-over method for quantifying identified financial statement misstatements.

SAB 108 established an approach that requires quantification of financial statement misstatements based on the effects of the misstatement on each of a registrant’s financial statements and the related financial statement disclosures. This approach is commonly referred to as the “dual approach” because it requires quantification of errors under both the roll-over and iron curtain methods.

SAB 108 allows registrants to initially apply the dual approach either by (1) retroactively adjusting prior financial statements as if the dual approach had always been used or (2) recording the cumulative effect of initially applying the dual approach as adjustments to the carrying values of assets and liabilities as of January 1, 2006 with an offsetting adjustment recorded to the opening balance of retained earnings. Use of this “cumulative effect” transition method requires detailed disclosure of the nature and amount of each individual error being corrected through the cumulative adjustment and how and when it arose.

We expect to initially apply SAB 108 using the retroactive transition method in connection with the preparation of our annual financial statements for the year ending September 30, 2007. When we initially apply the provisions of SAB 108, we do not expect to record an adjustment as of September 30, 2007. The accompanying financial statements do not reflect any such adjustments.

On July 13, 2006, the FASB issued FIN 48, “Accounting for Uncertainty in Income Taxes - An Interpretation of SFAS 109.” FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with SFAS 109, “Accounting for Income Taxes.” FIN 48 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The new accounting standard also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The provisions of FIN 48 are effective as of the beginning of the first fiscal year beginning after December 15, 2006 with early adoption permitted if no interim financial statements have been issued. We will not elect for early adoption of FIN 48, thus the provisions of FIN 48 will be implemented in the quarter ending December 31, 2007. We are currently determining the effect, if any, the adoption of FIN 48 will have on our financial statements.

45

In March 2006, the FASB issued SFAS 156, “Accounting for Servicing of Financial Assets, an amendment to SFAS 140.”  SFAS 156 requires that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable. It also permits, but does not require, the subsequent measurement of servicing assets and servicing liabilities at fair value. Derivative instruments used to mitigate the risks inherent in servicing assets and servicing liabilities must be accounted for at fair value. Under SFAS 156, an election can also be made for subsequent fair value measurement of servicing assets and servicing liabilities by class, thus simplifying the accounting and provide for income statement recognition of potential offsetting changes in the fair value of servicing assets, servicing liabilities and related derivative instruments. This statement will be adopted by us in the first quarter of its fiscal year 2007. We are currently determining the effect, if any, the adoption of FAS 156 will have on our financial statements.

46

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The primary objective of the following information is to provide forward-looking quantitative and qualitative information about our potential exposure to market risks. The following discussion is not meant to be a precise indicator of expected future losses, but rather an indicator of reasonable possible losses. This forward-looking information provides indicators of how we view and manage our ongoing market risk exposures. All of our market risk-sensitive instruments were entered into for purposes other than trading.

General

We are exposed to various market risks, principally fluctuating interest rates. These risks can impact our results of operations, cash flows and financial position. We manage these risks through regular operating and financing activities.

The following analysis presents the effect on our earnings, cash flows and financial position as if hypothetical changes in market risk factors occurred at September 30, 2006. We analyze only the potential impacts of hypothetical assumptions. Our analysis does not consider other possible effects that could impact our business.

Financial Fund Management

At September 30, 2006, we had two outstanding secured warehouse facilities to purchase bank loans. The two facilities had balances of $66.4 million and $2.9 million, respectively, with interest rates of 3.8% and 6.0%, respectively, at September 30, 2006. A hypothetical 10% changes in the weighted average interest rate on these facilities would change our annual interest expense by approximately $128,000 and $15,000, respectively, based on expected CDO execution dates of March 2007 and July 2007, respectively.

Real Estate

Portfolio Loans and Related Senior Liens. As of September 30, 2006, we believe that none of the three loans held in our portfolio that have senior liens are sensitive to changes in interest rates since:

· the loans are subject to forbearance or other agreements that require all of the operating cash flow from the properties underlying the loans, after debt service on senior lien interests, to be paid to us and thus are not currently being paid based on the stated interest rates of the loans;

· the senior lien interests ahead of our interests are at fixed rates and are thus not subject to interest rate fluctuation that would affect payments to us; and

· each loan has significant accrued and unpaid interest and other charges outstanding to which cash flow from the underlying property would be applied even if cash flow were to exceed the interest due, as originally underwritten.

FIN 46 Loans. One mortgage that we consolidate at September 30, 2006 as a result of FIN 46, is at a fixed interest rate and, therefore, is not subject to interest rate fluctuations.

Commercial Finance

At September 30, 2006, the amount outstanding on the $150.0 million LEAF Financial credit facility with National City Bank was $86.4 million at a weighted average interest rate of 6.9%. A hypothetical 10% change in the weighted average interest rates on these facilities would change our annual interest expense by approximately $420,000.

47

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

48

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Stockholders and Board of Directors

RESOURCE AMERICA, INC.

We have audited the accompanying consolidated balance sheets of Resource America, Inc. (a Delaware corporation) and subsidiaries as of September 30, 2006 and 2005, and the related consolidated statements of income, changes in stockholders' equity and comprehensive income and cash flows for each of the three years in the period ended September 30, 2006. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Resource America, Inc. and subsidiaries as of September 30, 2006 and 2005 and the consolidated results of their operations and cash flows for each of the three years in the period ended September 30, 2006 in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 2 to the consolidated financial statements, the Company recorded the cumulative effect of a change in accounting principle in connection with how the Company presented their equity earnings and losses in certain unconsolidated entities. Additionally, as discussed in Note 2 to the consolidated financial statements, effective October 1, 2005, the Company adopted the fair value method of accounting provisions of Statement of Financial Accounting Standards (SFAS) No. 123R, Share-Based Payment.

Our audits were conducted for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. Schedules III and IV are presented for the purposes of additional analysis and are not a required part of the basic consolidated financial statements. These schedules have been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic consolidated financial statements taken as a whole.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Resource America, Inc.’s internal control over financial reporting as of September 30, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated December 8, 2006 expressed an unqualified opinion on management’s assessment and an unqualified opinion on internal control effectiveness.

/s/ GRANT THORNTON LLP

Cleveland, Ohio

December 8, 2006

49

RESOURCE AMERICA, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	September 30,
	2006			2005
ASSETS
Cash	$	37,622		$	30,353
Restricted cash		8,103			5,000
Accounts receivable		1,847			10,677
Receivables from managed entities		8,795			4,280
Investments in commercial finance		108,850			41,394
Assets held for sale		1,312			107,520
Loans held for investment		69,314			97,752
Investments in real estate		50,104			46,049
Investment securities available-for-sale		64,857			38,353
Investments in unconsolidated entities		26,626			24,564
Property and equipment, net		9,525			30,521
Deferred income taxes		6,408			7,086
Other assets		23,390			15,486
Total assets	$	416,753		$	459,035
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable	$	12,448		$	7,794
Accrued expenses and other liabilities		14,341			16,835
Payables to managed entities		1,579			591
Liabilities associated with assets held for sale		1,145			74,438
Borrowings		172,238			147,302
Deferred revenue		1,592			1,239
Deferred income tax liabilities		10,746			7,086
Minority interests		9,602			16,614
Total liabilities		223,691			271,899
Commitments and contingencies		−			−
Stockholders’ equity:
Preferred stock, $1.00 par value, 1,000,000 shares authorized; none outstanding		-			-
Common stock, $.01 par value, 49,000,000 shares authorized; 26,401,708 and 26,371,780 shares issued, respectively		264			264
Additional paid-in capital		259,882			258,019
Retained earnings		25,464			9,845
Treasury stock, at cost; 9,110,290 and 8,312,760 shares, respectively		(96,960	)		(82,556	)
ESOP loan receivable		(465	)		(488	)
Accumulated other comprehensive income		4,877			2,052
Total stockholders’ equity		193,062			187,136
	$	416,753		$	459,035

See accompanying notes to consolidated financial statements

50

RESOURCE AMERICA, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

	Years Ended September 30,
	2006			2005			2004
REVENUES
Financial fund management	$	30,834		$	15,944		$	7,585
Real estate		23,676			17,791			10,519
Commercial finance		23,840			13,381			7,135
Resource Europe		474			−			−
		78,824			47,116			25,239
COSTS AND EXPENSES
Financial fund management		11,104			9,110			2,370
Real estate		12,122			9,903			6,945
Commercial finance		14,443			8,884			7,763
Resource Europe.		995			−			−
General and administrative		9,838			8,367			9,427
Depreciation and amortization		3,064			2,209			1,188
		51,566			38,473			27,693
OPERATING INCOME (LOSS)		27,258			8,643			(2,454	)
OTHER INCOME (EXPENSE)
Interest expense		(10,119	)		(2,811	)		(3,974	)
Minority interest		(1,775	)		(1,403	)		−
Other income, net		5,154			4,550			9,165
		(6,740	)		336			5,191
Income from continuing operations before taxes and cumulative effect of a change in accounting principle		20,518			8,979			2,737
Provision for income taxes		3,236			3,591			1,127
Income from continuing operations before cumulative effect of a change in accounting principle		17,282			5,388			1,610
Income from discontinued operations, net of tax		1,231			11,070			16,799
Cumulative effect of a change in accounting principle, net of tax		1,357			−			-
NET INCOME	$	19,870		$	16,458		$	18,409
Basic earnings per common share:
Continuing operations	$	0.98		$	0.30		$	0.09
Discontinued operations		0.07			0.63			0.97
Cumulative effect of accounting change		0.08			−			−
Net income	$	1.13		$	0.93		$	1.06
Weighted average shares outstanding		17,627			17,696			17,417
Diluted earnings per common share:
Continuing operations	$	0.90		$	0.28		$	0.09
Discontinued operations		0.07			0.58			0.92
Cumulative effect of accounting change		0.07			−			−
Net income	$	1.04		$	0.86		$	1.01
Weighted average shares outstanding		19,121			19,204			18,309
Dividends declared per common share	$	0.24		$	0.20		$	0.17

See accompanying notes to consolidated financial statements

51

RESOURCE AMERICA, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004

(in thousands)

															Accumulated
			Additional									ESOP			Other			Total
	Common		Paid-In			Retained			Treasury			Loan			Comprehensive			Stockholders’			Comprehensive
	Stock		Capital			Earnings			Stock			Receivable			Income			Equity			Income
Balance, September 30, 2003	$	255	$	227,211		$	74,374		$	(78,860	)	$	(1,137	)	$	5,611		$	227,454
Net income							18,409												18,409		$	18,409
Treasury shares issued				(440	)					1,193									753
Gain on sale of Atlas America, Inc.     shares				20,360															20,360
Issuance of common stock				613															613
Tax benefit from employee stock     options				121															121
Other comprehensive loss																(7,186	)		(7,186	)		(7,186	)
Cash dividends							(2,619	)											(2,619	)
Repayment of ESOP loan													10						10
Balance, September 30, 2004		255		247,865			90,164			(77,667	)		(1,127	)		(1,575	)		257,915		$	11,223
Net income							16,458												16,458		$	16,458
Treasury shares issued				144						290									434
Issuance of common shares		9		7,493															7,502
Tax benefit from employee stock     options				2,517															2,517
Purchase of treasury shares										(5,179	)								(5,179	)
Other comprehensive income																1,762			1,762			1,762
Cash dividends							(3,533	)											(3,533	)
Distribution of shares of      Atlas America, Inc.							(93,244	)								1,865			(91,379	)
Repayment of ESOP loan													639						639
Balance, September 30, 2005		264		258,019			9,845			(82,556	)		(488	)		2,052			187,136		$	18,220
Net income							19,870												19,870		$	19,870
Treasury shares issued				297						238									535
Stock-based compensation				1,137															1,137
Issuance of restricted common     stock				305															305
Issuance of common shares				133															133
Tax benefit from employee stock     options				231															231
Purchase of treasury shares										(14,642	)								(14,642	)
Minority interest created upon the conversion of notes				(240	)														(240	)
Other comprehensive income																2,825			2,825			2,825
Cash dividends							(4,251	)											(4,251	)
Repayment of ESOP loan													23						23
Balance, September 30, 2006	$	264	$	259,882		$	25,464		$	(96,960	)	$	(465	)	$	4,877		$	193,062		$	22,695

See accompanying notes to consolidated financial statements

52

RESOURCE AMERICA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Years Ended September 30,
	2006			2005 (1)			2004 (1)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	19,870		$	16,458		$	18,409
Adjustments to reconcile net income to net cash used in operating activities:
Cumulative effect of a change in accounting principle, net of tax		(1,357	)		−			−
Depreciation and amortization		3,180			2,247			1,696
Equity in earnings of unconsolidated entities		(8,747	)		(7,807	)		(8,679	)
Minority interest earnings		1,775			1,403			−
Distributions from unconsolidated entities		12,570			13,899			7,041
Income from discontinued operations		(1,231	)		(11,070	)		(16,799	)
Gain on sale of investment securities available-for-sale		(668	)		(1,544	)		(9,453	)
(Gain) loss on asset dispositions		(7,715	)		(7,781	)		3,802
Deferred income tax (benefit) provision		(3,120	)		3,591			1,127
Non-cash compensation on long-term incentive plans		1,739			1,251			753
Non-cash compensation issued		2,396			−			−
Non-cash compensation received		(1,844	)		(1,839	)		−
Tax benefit from exercise of stock options		−			2,517			121
Increase in net assets of FIN 46 entities		−			(2,922	)		(717	)
Increase in commercial finance investments		(68,376	)		(17,886	)		(16,720	)
Changes in operating assets and liabilities		12,474			(9,471	)		6,894
Net cash used in operating activities of continuing operations		(39,054	)		(18,954	)		(12,525	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(4,141	)		(2,414	)		(1,604	)
Payments received on real estate loans and real estate		42,058			7,417			26,441
Investments in real estate		(33,004	)		(16,753	)		(6,619	)
Return of capital from investments in unconsolidated entities		−			9,390			−
Purchases of investment securities available-for-sale		(34,820	)		(26,800	)		(10,372	)
Proceeds from sales of investment securities available-for-sale		7,205			5,038			20,170
Increase in restricted cash		(3,103	)		(5,000	)		−
Dividends received from Atlas America		−			−			52,133
(Increase) decrease in other assets		(13,821	)		321			12,066
Net cash (used in) provided by investing activities of continuing operations		(39,626	)		(28,801	)		92,215

See accompanying notes to consolidated financial statements

53

RESOURCE AMERICA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS − (Continued)

(in thousands)

	Years Ended September 30,
	2006			2005 (1)			2004 (1)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in borrowings	$	570,448		$	267,643		$	142,857
Increase in principal payments on borrowings		(501,088	)		(258,865	)		(233,097	)
Investor contributions to financial fund management investments		−			10,410			−
Dividends paid		(4,251	)		(3,533	)		(2,619	)
Proceeds from issuance of stock		133			5,819			613
Purchase of treasury stock		(14,642	)		(5,179	)		−
Tax benefit from exercise of stock options		231			−			−
Other		−			(1,660	)		(197	)
Net cash provided by (used in) financing activities of continuing operations		50,831			14,635			(92,443	)
CASH FLOWS FROM DISCONTINUED OPERATIONS:
Operating activities		1,771			23,566			35,214
Investing activities		37,172			−			−
Net cash provided by discontinued operations		38,943			23,566			35,214
Net cash retained by entities previously consolidated		(3,825	)		−			−
Increase (decrease) in cash		7,269			(9,554	)		22,461
Cash at beginning of period		30,353			39,907			17,446
Cash at end of period	$	37,622		$	30,353		$	39,907

(1)Revised presentation to reflect detail of cash flows from discontinued operations.

See accompanying notes to consolidated financial statements

54

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2006

NOTE 1 - NATURE OF OPERATIONS

Resource America, Inc. (the "Company") is a specialized asset management company that uses industry specific expertise to generate and administer investment opportunities for the Company and for outside investors in the financial fund management, real estate and commercial finance sectors. As a specialized asset manager, the Company seeks to develop investment vehicles in which outside investors invest along with the Company and for which the Company manages the assets acquired pursuant to long-term management and operating agreements. The Company limits its investment vehicles to investment areas where it owns existing operating companies or has specific expertise.

In financial fund management, the Company manages the following types of securities and loans:

     ·trust preferred securities of banks, bank holding companies, insurance companies and other financial companies (“Trapeza”);

·asset-backed securities (“ABS”) including residential mortgage-backed securities (“RMBS”) and commercial mortgage

        backed securities (“CMBS”) (“Ischus”);

     ·bank loans (“Apidos”); and

·private equity investments.

The assets are managed on behalf of institutional and individual investors and a specialty finance real estate investment trust, Resource Capital Corp. (“RCC”) (NYSE: RSO), which commenced operations in March 2005.

In real estate, the Company has expanded its operations through the sponsorship of real estate investment partnerships and tenant-in-common (“TIC”) programs. It has sponsored five such investment partnerships, four of which have commenced operations (one was still in the offering stage) and four TIC programs as of September 30, 2006. In addition, on behalf of RCC, the Company manages commercial real estate secured loans, whole loans, B-notes, mezzanine loans, mortgage related securities and other real estate related assets. The Company also manages a portfolio of real estate loans and, principally as a result of loan restructurings or foreclosures, interests in real property.

In commercial finance, the Company has sponsored two publicly-held commercial finance partnerships for whom it originated leases and notes which commenced operations in March 2003 and April 2005, respectively. The Company is in the process of obtaining regulatory approval for the sponsorship of a third partnership. In April 2003, the Company entered into an agreement with a third party under which the Company originated and serviced equipment leases for the third party. This agreement was terminated in September 2006. In addition, the Company manages assets for RCC.

Atlas America Spin-off

In May 2004, Atlas America Inc., the Company’s former energy subsidiary (“Atlas America”) (Nasdaq: ATLS), completed a public offering of 2,645,000 shares of its common stock resulting in a $20.4 million gain based on the excess of proceeds received over the book value of the interest sold to the public. The gain is reflected as an increase to stockholders’ equity. The net proceeds of the offering of $37.0 million, after deducting underwriting discounts and costs, were distributed to the Company in the form of a non-taxable dividend.

In connection with the Atlas America public offering, Edward E. Cohen (“E. Cohen”) became Chairman, Chief Executive Officer and President of Atlas America and retired as Chief Executive Officer of the Company. In connection with his retirement and the commencement of payment of benefits to him under his retirement plan, the Company recorded a charge of $1.4 million in fiscal 2004, which was included in general and administrative expenses (see Note 14).

55

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2006

NOTE 1 - NATURE OF OPERATIONS − (Continued)

On June 30, 2005, the Company distributed its remaining interest in Atlas America of 10.7 million shares to its stockholders in the form of a tax-free dividend. Each stockholder of the Company received 0.59367 shares of Atlas America for each share of Company common stock owned as of June 24, 2005, the record date. Although the distribution itself was tax-free to the Company’s stockholders, there may be some tax liability as a result of the deconsolidation arising from prior unrelated corporate transactions among Atlas America and some of its subsidiaries. The Company anticipates that all or portions of any liability arising from this transaction may be reimbursed to the Company by Atlas America. The Company no longer consolidates Atlas America in its financial statements as of June 30, 2005, and the results of Atlas America’s operations have been reflected as discontinued operations in the consolidated statements of income (see Note 18).

In connection with the public offering of Atlas America, the Company and Atlas America entered into a master separation and distribution agreement which contains the key provisions relating to Atlas America’s separation from the Company. There are two agreements referenced in the master separation and distribution agreement that govern the ongoing relationships between the Company and Atlas America that are still in effect at September 30, 2006. These agreements are the tax matters agreement and the transition services agreement.

The tax matters agreement governs the respective rights, responsibilities and obligations of the Company and Atlas America with respect to tax liabilities and benefits, tax attributes, tax contests and other matters regarding income taxes, non-income taxes and related tax returns.

The transition services agreement governs the provision of support services by the Company to Atlas America and by Atlas America to the Company, such as:

·payroll and human resources administration;

·information technology and data processing;

·real estate management; and

·other general administrative functions.

The Company and Atlas America pay each other a fee for these services equal to their respective costs in providing them. The fee is payable monthly in arrears, 15 days after the close of the month. The Company and Atlas America also agreed to pay or reimburse each other for any out-of-pocket payments, costs and expenses associated with these services (see Note 15).

     In October 2006, Atlas America tentatively settled a class action lawsuit filed in February 2000 in New York pertaining to the payment of royalty revenues to landowners. The Company is a named defendant in the lawsuit. Under the terms of the settlement, Atlas America has agreed to pay $300,000. Management of the Company believes that this matter will not have a material adverse effect on the Company’s financial condition or operations.

56

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

SEPTEMBER 30, 2006

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Reclassifications

Certain reclassifications have been made to the fiscal 2005 and fiscal 2004 consolidated financial statements to conform to the fiscal 2006 presentation.

The Company believes that, consistent with the presentation of other specialty finance companies, it is more appropriate to present its consolidated balance sheet on a non-classified basis, which does not segregate assets and liabilities into current and non-current categories. The consolidated balance sheet at September 30, 2005 has been reclassified to conform with this new presentation.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned except for certain financial fund management entities and LEAF Financial Corp (“LEAF”) in which the senior executives of LEAF hold 11.5%. In addition, in accordance with Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) 46-R, “Consolidation of Variable Interest Entities” (“FIN 46-R”), the Company consolidates certain variable interest entities (“VIEs”) as to which it has determined that it is the primary beneficiary (see Notes 7 and 8).

Use of Estimates

Preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and costs and expenses during the reporting period. Actual results could differ from these estimates.

Impairment of Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. If it is determined that an asset's estimated future cash flows will not be sufficient to recover its carrying amount, an impairment charge may be required to reduce the carrying amount for that asset to its estimated fair value.

57

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

SEPTEMBER 30, 2006

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES − (Continued)

Supplemental Cash Flow Information

The Company considers temporary investments with a maturity at the date acquired of 90 days or less to be cash equivalents.

Supplemental disclosure of cash flow information (in thousands):

	Years Ended September 30,
	2006		2005		2004
Cash paid during the years for:
Interest	$	12,294	$	2,952	$	4,434
Income taxes paid		6,106		10,836		92
Non-cash activities include the following:
Transfer of loans held for investment (see Note 7):
Reduction of loans held for investment		541,060		−		−
Termination of associated warehouse credit facilities		538,557		−		−
Distribution of shares of Atlas America to shareholders		−		91,379		−
Real estate received in exchange for notes upon foreclosure on loans		−		11,011		−
Receipt of notes upon resolution of real estate investments		5,135		2,240		−
Distribution of RCC stock-based awards (see Note 9)		5,621		−		−
Conversion of notes (see Note 4):
Increase in minority interest		240		−		−
Net reduction of equity		205		−		−

Recently Issued Financial Accounting Standards

In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) 157, “Fair Value Measurements” (“SFAS 157”), which provides guidance on measuring the fair value of assets and liabilities. SFAS 157 will apply to other accounting pronouncements that require or permit assets or liabilities to be measured at fair value but does not expand the use of fair value to any new circumstances. This standard will also require additional disclosures in both annual and quarterly reports. SFAS 157 will be effective for financial statements issued for fiscal years beginning after November 15, 2007 and will be adopted by the Company in the first quarter of its fiscal year 2009. The Company is currently determining the effect, if any, the adoption of SFAS 157 will have on its financial statements.

In September 2006, the Securities and Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 was issued to provide consistency between how registrants quantify financial statement misstatements.

Historically, there have been two widely-used methods for quantifying the effects of financial statement misstatements. These methods are referred to as the “roll-over” and “iron curtain” method. The roll-over method quantifies the amount by which the current year income statement is misstated. Exclusive reliance on an income statement approach can result in the accumulation of errors on the balance sheet that may not have been material to any individual income statement, but which may misstate one or more balance sheet accounts. The iron curtain method quantifies the error as the cumulative amount by which the current year balance sheet is misstated. Exclusive reliance on a balance sheet approach can result in disregarding the effects of errors in the current year income statement that results from the correction of an error existing in previously issued financial statements. The Company currently uses the roll-over method for quantifying identified financial statement misstatements.

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RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

SEPTEMBER 30, 2006

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES − (Continued)

Recently Issued Financial Accounting Standards − (Continued)

SAB 108 established an approach that requires quantification of financial statement misstatements based on the effects of the misstatement on each of a registrant’s financial statements and the related financial statement disclosures. This approach is commonly referred to as the “dual approach” because it requires quantification of errors under both the roll-over and iron curtain methods.

SAB 108 allows registrants to initially apply the dual approach either by (1) retroactively adjusting prior financial statements as if the dual approach had always been used or (2) recording the cumulative effect of initially applying the dual approach as adjustments to the carrying values of assets and liabilities as of January 1, 2006 with an offsetting adjustment recorded to the opening balance of retained earnings. Use of this “cumulative effect” transition method requires detailed disclosure of the nature and amount of each individual error being corrected through the cumulative adjustment and how and when it arose.

The Company expects to initially apply SAB 108 using the retroactive transition method in connection with the preparation of the Company’s annual financial statements for the year ending September 30, 2007. When the Company initially applies the provisions of SAB 108, the Company does not expect to record an adjustment as of September 30, 2007. The accompanying financial statements do not reflect any such adjustments.

On July 13, 2006, the FASB issued FIN 48, “Accounting for Uncertainty in Income Taxes - An Interpretation of SFAS 109.” FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with SFAS 109, “Accounting for Income Taxes.” FIN 48 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The new accounting standard also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The provisions of FIN 48 are effective as of the beginning of the first fiscal year beginning after December 15, 2006 with early adoption permitted if no interim financial statements have been issued. The Company will not elect for early adoption of FIN 48, thus the provisions of FIN 48 will be implemented in the quarter ending December 31, 2007. The Company is currently determining the effect, if any, the adoption of FIN 48 will have on its financial statements.

In March 2006, the FASB issued SFAS 156, “Accounting for Servicing of Financial Assets, an amendment to SFAS 140.”  SFAS 156 requires that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable. It also permits, but does not require, the subsequent measurement of servicing assets and servicing liabilities at fair value. Derivative instruments used to mitigate the risks inherent in servicing assets and servicing liabilities must be accounted for at fair value. Under SFAS 156, an election can also be made for subsequent fair value measurement of servicing assets and servicing liabilities by class, thus simplifying the accounting and provide for income statement recognition of potential offsetting changes in the fair value of servicing assets, servicing liabilities and related derivative instruments. This statement will be adopted by the Company in the first quarter of its fiscal year 2007. The Company is currently determining the effect, if any, the adoption of FAS 156 will have on its financial statements.

59

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

SEPTEMBER 30, 2006

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES − (Continued)

Stock-Based Compensation

Employee stock options

The Company adopted SFAS 123R, “Accounting for Stock-Based Compensation,” as revised (“SFAS 123R”), as of October 1, 2005. Accordingly, employee stock options granted on and after October 1, 2005 are being expensed by the Company over the option vesting period, based on the estimated fair value of the award on the date of grant using the Black-Scholes option-pricing model. The Company’s calculations were made using the Black-Scholes option pricing model with the following weighted average assumptions:

	Years Ended September 30,
	2006			2005			2004
Expected life (years)		6.25			8.0			10.0
Expected stock volatility		27.75	%		28.0	%		23.0	%
Risk-free interest rate		4.0	%		4.3	%		4.1	%
Dividends		1.2	%		1.1	%		0.7	%

During the fiscal year ended September 30, 2006, the Company granted 44,000 employee stock options. There was no corresponding tax benefit recorded since the options issued were incentive stock options (“ISOs”) and employees have typically held the stock received on exercise for the requisite holding period. However, with respect to taxable transactions, including disqualifying dispositions of ISO shares and exercises of non-qualified stock options, the Company recorded a $231,000 deferred tax benefit with an offset to additional paid-in capital for fiscal 2006.

The unamortized compensation related to previously issued options is being expensed over the remaining vesting period of those options. At September 30, 2006 and 2005, the Company had unamortized compensation expense of $2.3 million and $3.1 million, respectively. For fiscal 2006, the Company recorded compensation expense of $1.1 million ($0.06 per share-diluted).

For the fiscal years ended September 30, 2005 and 2004, the Company accounted for stock-based employee compensation plans under the recognition and measurement principles of Accounting Principles Board Opinion 25 and related interpretations. No stock-based employee compensation expense was reflected in net income since each option granted had an exercise price equal to the market value of the underlying common stock on the date of grant.

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RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

SEPTEMBER 30, 2006

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES − (Continued)

Stock-Based Compensation − Employee stock options − (Continued)

SFAS 123R requires the disclosures of pro forma net income and earnings per share as if the Company had adopted the fair value method for stock options granted. The following table provides the pro forma effects of recognizing compensation expense in accordance with SFAS 123R (in thousands, except per share data):

	Years Ended September 30,
	2005			2004
Net income	$	16,458		$	18,409
Stock-based employee compensation determined under the fair value-based method, net of tax		(3,244	)		(2,328	)
Pro forma net income	$	13,214		$	16,081
Basic earnings per share:
As reported	$	0.93		$	1.06
Pro forma	$	0.75		$	0.92
Diluted earnings per share:
As reported	$	0.86		$	1.01
Pro forma	$	0.69		$	0.88

Restricted common stock

In February 2006, LEAF issued 300,000 shares of its restricted common stock valued at $69,000 based on 3% of LEAF’s equity as of the date of issuance. These restricted shares, issued to three senior officers of LEAF, vest 50% per year commencing on February 1, 2007. For fiscal 2006, the Company recorded stock-based compensation for the LEAF restricted stock of $36,000.

In fiscal 2006, the Company issued 84,580 shares of restricted RAI common stock to its senior management valued at $1.5 million based on the closing price of the Company’s stock as of the date of grant. These restricted shares vest 25% per year commencing on January 3, 2007 except for 1,061 shares which vested immediately. For fiscal 2006, the Company recorded stock-based compensation expense for these restricted shares of $269,000.

In conjunction with the formation of RCC in March 2005, the Company received restricted shares of RCC (see Note 9). The Company accounts for the RCC restricted stock and stock options it holds in accordance with EITF 96-18, ‘‘Accounting for Equity Instruments that are issued to other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services,’’ and SFAS 123-R.

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RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

SEPTEMBER 30, 2006

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES − (Continued)

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of periodic temporary investments of cash and restricted cash. The Company places its temporary cash investments and restricted cash in high quality short-term money market instruments with high-quality financial institutions and brokerage firms. At September 30, 2006, the Company had $43.0 million in deposits at various banks, of which $40.3 million was over the insurance limit of the Federal Deposit Insurance Corporation. No losses have been experienced on such investments.

Investments in Marketable Securities

    The Company accounts for its investments in affiliates, financial fund management entities and other marketable securities in accordance with SFAS 115, “Accounting for Certain Investments in Debt and Equity Securities.” Investments in affiliates include the Company’s holdings in The Bancorp, Inc. (“TBBK”) (Nasdaq: TBBK) and RCC. Investments in financial fund management entities include the Company’s direct investments in the unconsolidated collateralized debt obligations (“CDOs”) it sponsors as well as its indirect holdings in CDOs through its consolidation with the Structured Finance Fund (“SFF”) entities. These investment securities are classified as available-for-sale and, as such, are carried at fair value based on market quotes. Cumulative net unrealized gains and losses on these investment securities, net of tax, are reported as accumulated comprehensive income (loss) in stockholders’ equity. The cost of securities sold is based on the specific identification method.

The investments held by the respective CDOs are sensitive to interest rate fluctuations, which accordingly impact their fair value. Unrealized losses are generally caused by the effect of rising interest rates on certain securities with stated interest rates that are below market. The Company’s review of these CDO investments at September 30, 2006 noted that all were current with respect to scheduled payments of interest and principal and that there were no changes in characteristics to indicate any credit impairment. Therefore, the Company does not believe that the unrealized losses in the CDOs represent an other-than-temporary impairment as of September 30, 2006.

The following table discloses the pre-tax unrealized gains (losses) relating to the Company’s investments in marketable securities (in thousands):

	Cost or Amortized Cost		Unrealized Gains		Unrealized Losses			Estimated Fair Value
September 30, 2006	$	61,915	$	8,731	$	(1,560	)	$	69,086
September 30, 2005	$	37,963	$	3,421	$	−		$	41,384

CDO investments with unrealized losses as of September 30, 2006 along with the related fair value and aggregated by the length of time they were in a continuous unrealized loss position, are as follows (in thousands):

Estimated Fair Value		Less than 12 Months			Estimated Fair Value		More than 12 Months
$	13,383	$	(735	)	$	5,517	$	(825	)

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RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

SEPTEMBER 30, 2006

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

Fair Value of Financial Instruments

The Company used the following methods and assumptions in estimating the fair value of each class of financial instrument for which it is practicable to estimate fair value.

For cash, receivables and payables, the carrying amounts approximate fair value because of the short maturity of these instruments.

It is impractical to determine the fair values of the Company’s investments in real estate loans because each loan is a unique transaction involving a discrete property. However, the Company believes the carrying amounts of the loans are reasonable estimates of their fair value considering the nature of the loans and the estimated yield relative to the risks involved.

The fair value of certain financial instruments is as follows (in thousands):

	September 30, 2006				September 30, 2005
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Assets
Loans held for investment	$	69,314	$	69,532	$	97,752	$	97,752
Borrowings(1)
Secured warehouse debt	$	69,297	$	69,297	$	97,751	$	97,751
Real estate debt		14,028		14,028		18,519		18,519
Commercial finance debt		86,400		86,400		30,942		30,942
Other debt		2,513		2,513		90		90
	$	172,238	$	172,238	$	147,302	$	147,302

(1) The carrying value of the Company’s floating rate debt approximates its fair value because of the short-term maturity of these instruments and the variable interest rates in the debt agreements. The carrying value of the Company’s fixed rate debt approximates its fair value due to its recent issuance.

Loans Held for Investment

The Company purchases participations in corporate leveraged loans and commercial real estate loans in the secondary market and through syndications of newly-originated loans. These loans are held for investment; therefore, the Company initially records them at their purchase price, and subsequently accounts for them based on their outstanding principal plus or minus any unamortized premiums or discounts. The Company may sell a loan held for investment if the credit fundamentals underlying a particular loan have changed in such a manner that the Company’s expected return on investment may decrease. Once the Company decides that it no longer will hold the loan for investment, the loan is recorded at the lower of amortized cost or fair value.

63

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

SEPTEMBER 30, 2006

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

Loans Held for Investment − (Continued)

     To estimate the allowance for loan losses, the Company first identifies impaired loans. Loans are generally evaluated for impairment individually, but loans purchased on a pooled basis with relatively smaller balances and substantially similar characteristics may be evaluated collectively for impairment. The Company considers a loan to be impaired when, based on current information and events, management believes it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. When a loan is impaired, the allowance for loan losses is increased by the amount of the excess of the amortized cost basis of the loan over its fair value. Fair value may be determined based on market price, if available; the fair value of the collateral less estimated disposition costs; or the present value of estimated cash flows. Increases in the allowance for loan losses are recognized in the statements of income as a provision for loan losses. When a loan, or a portion thereof, is considered uncollectible and pursuit of the collection is not warranted, then the Company will record a charge-off or write-down of the loan against the allowance for loan losses.

An impaired loan may remain on accrual status during the period in which the Company is pursuing repayment of the loan; however, the loan would be placed on non-accrual status at such time as either (1) management believes that scheduled debt service payments will not be met within the coming 12 months; (2) the loan becomes 90 days delinquent; (3) management determines the borrower is incapable of, or has ceased efforts toward, curing the cause of the impairment; or (4) the net realizable value of the loan’s underlying collateral approximates the Company’s carrying value of such loan. While on non-accrual status, the Company recognizes interest income only when actual payment is received.

Property and Equipment

      Property and equipment is stated at cost. Depreciation is based on cost, less estimated salvage value, using the straight-line method over the asset’s estimated useful life. Amortization is based on cost, maintenance and repairs are expensed as incurred using the straight-line method over the lease term. Major renewals and improvements that extend the useful lives of property and equipment are capitalized.

Revenue Recognition

Resource Capital Corp.

In March 2005, the Company entered into a Management Agreement pursuant to which it will provide certain services, including investment management and certain administrative services to RCC. The Company receives fees and is reimbursed for its expenses as follows:

· a monthly base management fee equal to 1/12th of the amount of RCC’s equity multiplied by 1.50%. Under the Management Agreement, ‘‘equity’’ is equal to the net proceeds from any issuance of shares of common stock less other offering related costs plus or minus the Company’s retained earnings (excluding non-cash equity compensation incurred in current or prior periods) less any amounts RCC paid for common stock repurchases. The calculation may be adjusted for one-time events due to changes in generally accepted accounting principles (“GAAP”) as well as other non-cash charges, upon approval of the independent directors of RCC;

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RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

SEPTEMBER 30, 2006

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

Revenue Recognition − Resource Capital Corp.− (Continued)

· incentive compensation based on the products of (i) 25% of the dollar amount by which, (A) RCC’s net income per common share (before non-cash equity compensation expense and incentive compensation) for a quarter (based on the weighted average number of shares outstanding) exceeds, (B) an amount equal to (1) the weighted average share price of shares of common stock in the offerings of RCC, multiplied by (2) the greater of (a) 2.00% or (b) 0.50% plus one-fourth of the ten year treasury rate (as defined in the Management Agreement for such quarter), multiplied by (ii) the weighted average number of common shares outstanding for the quarter. The calculation may be adjusted for one time events due to changes in GAAP as well as other non-cash charges upon approval of the independent directors of RCC; and

· out-of-pocket expenses and certain other costs incurred by the Company associated with RCC and its operations.

The incentive compensation is to be paid quarterly. Seventy-five percent (75%) of the incentive compensation is to be paid in cash and twenty-five percent (25%) is to be paid in the form of a restricted stock award. The Company may elect to receive more than 25% of its incentive compensation in the form of shares of common stock. However, the Company’s ownership percentage in RCC, direct and indirect, cannot exceed 15%. All shares are fully vested upon issuance, provided that the Company may not sell such shares for one year after the incentive compensation becomes due and payable. Shares payable as incentive compensation are valued at the average of the closing prices of the shares over the thirty day period ending three days prior to the issuance of such shares.

The initial term of the Management Agreement ends March 31, 2008. The Management Agreement automatically renews for a one-year term at the end of the initial term and each renewal term. With a two-thirds vote of the independent directors of RCC, the independent directors of RCC may elect to terminate the Management Agreement because of the following:

· unsatisfactory performance; and/or

· unfair compensation payable to the Company and fair compensation cannot be agreed upon between two-thirds of the independent directors of RCC and the Company.

In the event that the Management Agreement is terminated based on the provisions disclosed above, RCC must pay the Company a termination fee equal to four times the sum of the average annual base management fee and the average annual incentive during the two 12-month periods immediately preceding the date of such termination. The Management Agreement also entitles RCC to terminate the Management Agreement for cause.

    Furthermore, the Company receives an acquisition fee of 1% of the carrying value of the commercial finance assets it sells to RCC.

In fiscal 2006, the management and acquisition fees that the Company received from RCC were $8.2 million, or 10% of our consolidated revenues. These fees have been reported as revenues by each of the Company’s operating segments, except for Resource Europe.

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RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

SEPTEMBER 30, 2006

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

Revenue Recognition − Financial Fund Management

Loan Interest Income Recognition

Interest income on loans includes interest at stated rates adjusted for amortization or accretion of premiums and discounts. Premiums and discounts are amortized or accreted into income using the effective yield method. When the Company purchases a loan or pool of loans at a discount, it considers the provisions of American Institute of Certified Public Accountants Statement of Position (‘‘SOP’’) 03-3 ‘‘Accounting for Certain Loans or Debt Securities Acquired in a Transfer’’ to evaluate whether all or a portion of the discount represents accretable yield. If a loan with a premium or discount is prepaid, the Company immediately recognizes the unamortized portion as a decrease or increase to interest income.

Stock-Based Compensation

The Company accounts for the RCC restricted stock and stock options it has received in accordance with EITF 00-8, "Accounting by a Grantee for an Equity Instrument to Be Received in Conjunction with Providing Goods or Services." The terms of the stock award agreement provide that the deferred compensation be amortized over a three-year graded vesting period. The unvested stock and options are adjusted quarterly to reflect changes in the market value of RCC as performance under the agreement is completed. Such changes are reflected in the equity compensation expense recognized in that quarter and in future quarters until the stock and options are fully vested.

Investments in Unconsolidated Entities

Investments in the Trapeza entities are accounted for using the equity method of accounting because the Company, as a 50% owner of the general partner of these entities, has the ability to exercise significant influence over their operating and financial decisions. The Company's combined general and limited partner interests in these entities range from 13% to 18%.

The Company accounts for four other company-sponsored partnerships using the equity method.  Three of these partnerships invest in regional banks and the other is organized as a hedge fund that the Company manages.  The Company’s combined general and limited partner interests in each of these partnerships is approximately 10%. At September 30, 2005, these entities were consolidated with the Company’s financial statements (see Note 10).

Investment Securities Available-for-Sale

Investments in financial fund management entities contain the interests in unconsolidated CDOs owned by the Company and interests owned by the SFF partnerships that the Company controls and as a result, are consolidated in its financial statements. The Company's combined general and limited partner interests in the SFF entities range from 15% to 36% and the interests owned by third parties are reflected as minority interest. The SFF entities are accounted for in accordance with EITF 99-20, “Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets.”

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RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

SEPTEMBER 30, 2006

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

Revenue Recognition − Real Estate

Investments in Unconsolidated Entities

The Company’s investments in real estate limited partnerships, limited liability companies and TIC property interests are accounted for using the equity method of accounting since the Company has the ability to exercise significant influence over operating and financial decisions of the entities. These entities, which the Company sponsored and manages, were organized to invest in multi-family residential properties.

Fee Income

The Company receives acquisition fees of 1.75% of the net purchase price of properties acquired and financing fees equal to 1.75% of the debt obtained or assumed related to the properties acquired. In conjunction with TIC acquisitions, the Company also may receive a bridge equity fee. The Company recognizes these fees upon acquiring the properties and obtaining the related financing.

The Company also receives a monthly property management fee equal to 5% of the gross operating revenues from the underlying properties. The Company typically subcontracts its property management obligations to third party property managers. The Company recognizes this fee as the revenues of the underlying properties are earned.

Additionally, the Company receives an annual investment management fee from the limited partnerships equal to 1% of the gross offering proceeds of each partnership for its services. The Company receives an annual asset management fee from the TIC investments equal to 1% of the gross revenues from the property in connection with its performance of its asset management responsibilities. The Company receives an annual asset management fee from one limited liability company equal to 1.5% of the gross revenues of the underlying properties. These investment management fees and asset management fees are recognized ratably over each annual period.

Loan Interest Income Recognition

On its investments in real estate loans, the Company accretes the difference between its cost basis and the sum of projected cash flows from that loan into interest income over the estimated life of the loan using the interest method which recognizes a level interest rate over the life of the loan. The Company reviews projected cash flows, which include amounts realizable from the underlying properties, on a regular basis. Changes to projected cash flows, which can be based upon updated property appraisals, changes to the property and changes to the real estate market in general, reduce or increase the amounts accreted into interest income over the remaining life of the loan. The Company also utilizes the cost recovery method for loans when appropriate under the circumstances.

In determining the Company’s allowance for possible losses related to its investments in real estate, the Company considers general and local economic conditions, neighborhood values, competitive overbuilding, casualty losses and other factors which may affect the value of loans and real estate. The value of loans and real estate may also be affected by factors such as the cost of compliance with regulations and liability under applicable environmental laws, changes in interest rates and the availability of financing. Income from a property will be reduced if a significant number of tenants are unable to pay rent or if available space cannot be rented on favorable terms. In addition, the Company continuously monitors collections and payments from its borrowers and maintains an allowance for estimated losses based upon its historical experience and its knowledge of specific borrower collection issues. The Company reduces its investments in real estate loans and real estate by an allowance for amounts that may become unrealizable in the future. Such allowance can be either specific to a particular loan or property or general to all loans and real estate.

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RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

SEPTEMBER 30, 2006

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

Revenue Recognition − (Continued)

Commercial Finance

Finance Revenues

Investments in commercial finance assets consist of notes receivable, direct financing leases and operating leases. Leases are recorded in accordance with SFAS 13, “Accounting for Leases,” and its various amendments and interpretations.

Notes Receivable. For term loans, the investment in notes receivable consists of the sum of the total future minimum loan payments receivable less unearned finance income. Unearned finance income, which is recognized as revenue over the term of the financing by the effective interest method, represents the excess of the total future minimum contracted payments over the cost of the related equipment. For all other loans, interest income is recorded at the stated rate on the accrual basis to the extent that such amounts are expected to be collected.

Direct Financing Leases. Certain of the Company’s lease transactions are accounted for as direct financing leases (as distinguished from operating leases). Such leases transfer substantially all benefits and risks of equipment ownership to the customer. The Company’s investment in direct financing leases consists of the sum of the total future minimum contracted payments receivable and the estimated unguaranteed residual value of leased equipment, less unearned finance income. Unearned finance income, which is recognized as revenue over the term of the financing by the effective interest method, represents the excess of the total future minimum lease payments plus the estimated unguaranteed residual value expected to be realized at the end of the lease term over the cost of the related equipment. Initial direct costs incurred in the consummation of the lease are capitalized as part of the investment in lease receivables and amortized over the lease term as a reduction of the yield.

Operating Leases. Leases not meeting any of the criteria to be classified as direct financing leases are deemed to be operating leases. Under the accounting for operating leases, the cost of the leased equipment, including acquisition fees associated with lease placements, is recorded as an asset and depreciated on a straight-line basis over the equipment’s estimated useful life, generally up to seven years. Rental income consists primarily of monthly periodic rental payments due under the terms of the leases. The Company recognizes rental income on a straight line basis. Generally, during the lease terms of existing operating leases, the Company will not recover all of the cost and related expenses of its rental equipment and, therefore, it is prepared to remarket the equipment in future years. The Company’s policy is to review, on a quarterly basis, the expected economic life of its rental equipment in order to determine the recoverability of its undepreciated cost. The Company writes down its rental equipment to its estimated net realizable value when it is probable that its carrying amount exceeds such value and the excess can be reasonably estimated; gains are only recognized upon actual sale of the rental equipment. There were no writedowns of equipment during fiscal 2006, 2005 and 2004.

The Company generally discontinues the recognition of revenue for leases and notes for which payments are more than 90 days past due.

68

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

SEPTEMBER 30, 2006

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

Revenue Recognition − Commercial Finance − (Continued)

Acquisition and Fund Management Fees

The Company receives acquisition fees from its leasing partnerships and ML equal to a percentage of the cost of leased equipment acquired as compensation for expenses incurred related to the lease acquisition. These fees are earned at the time of the sale of the related leased equipment to its partnerships and ML.

The Company also receives management fees for managing and servicing the leased assets acquired and earns fees at the time the service is performed. The Company also currently receives servicing fees ranging from 2% to 4% of gross rental payments received from certain parties and servicing fees that average 1% of the managed portfolio balance from others. Further, the Company receives fees as a reimbursement of its operating and administrative expenses incurred to manage the investment partnerships.

Until September 2006, the Company had a program with subsidiaries of Merrill Lynch Commercial Finance Corp. (“ML”) under which it originated and sold leases to ML. The Company recorded gains or losses on the sales of leases and notes to ML based on the present value of the estimated cash flows that it retained over the estimated outstanding period of the receivables. This excess cash flow essentially represented an "interest-only" ("I/O") strip, consisting of the present value of the finance charges and late fees in excess of the amounts paid for debt service, credit losses, and service fees. During fiscal 2006 and 2005, the Company recognized gains of $28,000 and $313,000, net of tax, respectively related to the I/O strip. On September 26, 2006, the Company terminated this program with ML.

Investments in Unconsolidated Entities

Investments in commercial finance partnerships are accounted for using the equity method of accounting since the Company has the ability to exercise significant influence over operating and financial decisions of the partnerships.

Other Revenues

Fees from delinquent payments are recognized when received and are included in other income.

69

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

SEPTEMBER 30, 2006

NOTE 3 - COMPREHENSIVE INCOME

Comprehensive income includes net income and all other changes in the equity of a business from transactions and other events and circumstances from non-owner sources. These changes, other than net income, are referred to as “other comprehensive income” and for the Company include changes in the fair value, net of taxes, of investment securities available-for-sale. Hedging gains and losses of Atlas America were also included in comprehensive income through June 30, 2005, the spin-off completion date.

The following table reflects the changes in comprehensive income (in thousands):

	Years Ended September 30,
	2006			2005			2004
Net income	$	19,870		$	16,458		$	18,409
Other comprehensive income (loss):
Unrealized gains on investment securities available-for-sale net of tax of $2,003, $1,368 and $827		3,225			2,001			1,606
Less: reclassification for gains realized in net income, net of tax of          $255, $618 and$3,214		(400	)		(927	)		(6,239	)
		2,825			1,074			(4,633	)
Unrealized gains (losses) on hedging contracts, net of tax of $0, $122 and ($1,384)		−			227			(2,571	)
Add: reclassification for losses realized in net income, net of tax of $0, $248 and $10		−			461			18
		−			688			(2,553	)
Comprehensive income	$	22,695		$	18,220		$	11,223

NOTE 4 - EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share (“Basic EPS”) is determined by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted earnings (loss) per share (“Diluted EPS”) is computed by dividing net income (loss) by the sum of the weighted average number of shares of common stock outstanding after giving effect to the potential dilution from the exercise of securities, such as stock options, into shares of common stock as if those securities were exercised as well as the dilutive effect of other award plans, including restricted stock and director units.

70

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

SEPTEMBER 30, 2006

NOTE 4 - EARNINGS (LOSS) PER SHARE − (Continued)

The following table presents a reconciliation of the components used in the computation of Basic EPS and Diluted EPS (in thousands):

	Years Ended September 30,
	2006			2005			2004
Earnings − Basic
Continuing operations	$	17,282		$	5,388		$	1,610
Discontinued operations		1,231			11,070			16,799
Cumulative effect of accounting change (1)		1,357			−			-
Net income	$	19,870		$	16,458		$	18,409
Earnings − Diluted
Continuing operations	$	17,282		$	5,388		$	1,610
Minority interest from the assumed conversion of notes (2)		(35	)		(29	)		(4	)
Income from continuing operations, as adjusted		17,247			5,359			1,606
Discontinued operations		1,231			11,070			16,799
Cumulative effect of accounting change (1)		1,357			−			−
Net income	$	19,835		$	16,429		$	18,405
Shares(3)
Basic shares outstanding		17,627			17,696			17,417
Dilutive effect of stock option and award plans		1,494			1,508			892
Dilutive shares outstanding		19,121			19,204			18,309

(1) The Company recorded a cumulative adjustment for the elimination of the one-quarter delay in reporting its equity in earnings of the Trapeza entities (see Note 10).

(2) The Company had outstanding convertible notes payable in the amount of $11,500 to two executive officers of LEAF. These notes were converted (at the election of the executives) into 11.5% of LEAF’s common stock on February 1, 2006. The Diluted EPS computation reflects the assumed conversion of the notes as of the beginning of the periods presented through the conversion date and the related minority interest expense, net of tax, as a reduction of income from continuing operations.

(3) As of September 30, 2006, there were 30,000 outstanding options that were anti-dilutive. As of September 30, 2005, all outstanding options were dilutive.

NOTE 5 -RESTRICTED CASH

At September 30, 2006, the Company held $8.1 million of cash in escrow accounts in conjunction with certain financing arrangements (see Notes 12 and 17). At September 30, 2005, the Company held $5.0 million in escrow in conjunction with a warehouse facility.

NOTE 6 - INVESTMENTS IN COMMERCIAL FINANCE

The Company’s investments in commercial finance include the following (in thousands):

	September 30,
	2006		2005
Direct financing leases, net	$	32,275	$	25,869
Notes receivable		74,864		10,309
Assets subject to operating leases, net of accumulated depreciation of $46 and $481		1,711		5,216
Investments in commercial finance	$	108,850	$	41,394

The interest rates on notes receivable generally range from 8% to 15%.

71

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

SEPTEMBER 30, 2006

NOTE 6 - INVESTMENTS IN COMMERCIAL FINANCE − (Continued)

The components of direct financing leases are as follows (in thousands):

	September 30,
	2006			2005
Total future minimum lease payments receivables	$	37,398		$	30,391
Initial direct costs, net of amortization		598			564
Unguaranteed residuals		362			503
Unearned income		(6,083	)		(5,589	)
Investments in direct financing leases	$	32,275		$	25,869

Although the lease and notes terms extend over many years as indicated in the following table, the Company routinely sells without recourse the leases and notes it acquires or originates to the investment entities it manages (including RCC and prior to September 26, 2006, ML) shortly after their acquisition or origination in accordance with agreements with each party. As a result of these routine sales of leases and notes as well as the Company’s credit evaluations, management concluded that no allowance for possible losses was needed at September 30, 2006, 2005 and 2004. The contractual future minimum lease and note payments and related rental payments scheduled to be received on direct financing non-cancelable leases, notes receivable and operating leases for each of the five succeeding annual periods ending September 30 and thereafter are as follows (in thousands):

	Direct Financing Leases		Notes Receivable		Operating Leases (1)
2007	$	11,098	$	26,195	$	565
2008		9,658		17,047		450
2009		7,828		14,400		294
2010		5,103		8,595		205
2011		2,866		4,005		118
Thereafter		845		4,622		−
	$	37,398	$	74,864	$	1,632

(1) Operating lease amounts as shown are net of the residual value, if any, at the end of the lease term.

NOTE 7 − LOANS HELD FOR INVESTMENT

The Company typically funds the initial acquisition of portfolio assets for CDO issuers it sponsors through a secured warehouse credit facility prior to closing the CDO issuer’s offering. In those transactions in which the Company is deemed to be the primary beneficiary (as defined by FIN 46-R), the assets and liabilities of the CDO issuer are consolidated. Upon the execution of the CDO, the warehouse facility is refinanced through the issuance of CDOs and the CDO issuer is no longer consolidated with the Company.

The following is a summary of the Company’s bank loans held for investment (in thousands):

	September 30,
	2006			2005
Principal	$	69,312		$	97,477
Unamortized premium		18			275
Unamortized discount		(16	)		−
Loans held for investment	$	69,314		$	97,752

72

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

SEPTEMBER 30, 2006

NOTE 7 − LOANS HELD FOR INVESTMENT − (Continued)

    At September 30, 2006, the Company’s secured bank loan portfolio consisted of $69.3 million of floating rate loans, which bear interest between various London Inter-Bank Offered Rates (“LIBOR”), including European LIBOR, rates plus 1.75% to 4.25%, with maturity dates ranging from October 2012 to March 2016. There were no fixed rate loans as of September 30, 2006.

At September 30, 2006, all of the Company’s loans are current with respect to the scheduled payments of principal and interest. In reviewing the portfolio of loans and the observable secondary market prices, the Company did not identify any loans with characteristics indicating that impairment had occurred.

    At September 30, 2005, the Company’s secured bank loan portfolio consisted of $97.8 million of floating rate loans, which bore interest between various LIBOR rates plus 1.00% to 6.00%, with maturity dates ranging from December 2005 to April 2013. There were no fixed rate loans as of September 30, 2005. In December 2005, the Company transferred these loans at cost to an unconsolidated CDO issuer that the Company sponsored. The related secured warehouse credit facility was simultaneously terminated (see Note 12).

Based on its review of its loans held for investment at September 30, 2006 and 2005, respectively, management of the Company determined that no allowance for loan losses was needed.

NOTE 8 - INVESTMENTS IN REAL ESTATE

Real Estate Loans and Real Estate

The following is a summary of the changes in the carrying value of the Company’s investments in real estate (in thousands):

	September 30,
	2006			2005
Real estate loans:
Balance, beginning of period	$	25,923		$	24,066
New loans		5,109			2,240
Additions to existing loans		2,310			1,399
Collection of principal		(5,068	)		(2,273	)
Other		465			491
Balance, end of period		28,739			25,923
Real estate:
Ventures		9,519			8,220
Owned, net of accumulated depreciation of $1,736 and $1,346		12,616			12,676
Total real estate		22,135			20,896
Allowance for possible losses		(770	)		(770	)
Investments in real estate	$	50,104		$	46,049

Minimum future rental income under non-cancelable operating leases associated with real estate rental properties owned by the Company or that have been consolidated under FIN 46-R for each of the five succeeding years ending September 30 and thereafter are as follows: 2007 - $739,000; 2008 - $750,000; 2009 - $725,000; 2010 - $595,000; 2011 - $470,000; and thereafter - $1,496,000.

Based on its review of its investments in real estate at September 30, 2006 and 2005, respectively, management of the Company determined that the allowance for loan losses of $770,000 was adequate.

73

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

SEPTEMBER 30, 2006

NOTE 8 - INVESTMENTS IN REAL ESTATE − (Continued)

Consolidation of Variable Interest Entities − Real Estate

Certain entities relating to the Company’s real estate business have been consolidated in accordance with FIN 46-R. Due to the timing of the receipt of financial information from third parties, the Company accounts for the activities of these entities on a one quarter lag, except when adjusting for the impact of significant events such as a refinance or sale.

The assets, liabilities, revenues and costs and expenses of the VIEs that are included in the consolidated financial statements are not the Company’s. The liabilities of the VIEs will be satisfied from the cash flows of the respective VIE’s consolidated assets, not from the assets of the Company, which has no legal obligation to satisfy those liabilities.

The following tables provide supplemental information about assets, liabilities, revenues and costs and expenses associated with two and three entities at September 30, 2006 and 2005, respectively, that were consolidated in accordance with FIN 46-R (in thousands):

	September 30,
	2006		2005
Assets:
Cash	$	85	$	643
Accounts receivable		23		59
Property and equipment, net of accumulated depreciation of $404 and $1,345 (see Note 11)		3,496		27,196
Other assets		21		74
Total assets	$	3,625	$	27,972
Liabilities:
Accounts payable	$	50	$	570
Accrued expenses and other liabilities		59		438
Borrowings		1,536		18,519
Total liabilities	$	1,645	$	19,527

	Years Ended September 30,
	2006		2005		2004
Continuing operations − Real estate:
Revenues	$	476	$	4,153	$	3,500
Costs and expenses:
Operating expenses		144		3,501		2,374
Depreciation and amortization		154		382		334
Interest		140		188		157
Total costs and expenses		438		4,071		2,865
Income from continuing operations	$	38	$	82	$	635

74

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

SEPTEMBER 30, 2006

NOTE 8 - INVESTMENTS IN REAL ESTATE − (Continued)

Consolidation of Real Estate Entities Held for Sale

The following tables provide supplemental information about assets, liabilities and discontinued operations associated with one and six entities that were held for sale at September 30, 2006 and 2005, respectively (in thousands):

	September 30,
	2006		2005
Assets:
Cash	$	−	$	2,546
Accounts receivable		−		569
Property and equipment, net (1)		1,293		103,237
Other assets		19		1,168
Total assets held for sale (1)	$	1,312	$	107,520
Liabilities:
Mortgage loans (1)	$	1,130	$	69,058
Other liabilities		15		5,380
Total liabilities associated with assets held for sale	$	1,145	$	74,438

(1) The decrease at September 30, 2006 reflects the sale of one owned and four FIN 46 properties and the resolution of the corresponding mortgage loans that had been held for sale at September 30, 2005.

	Years Ended September 30,
	2006			2005			2004
Discontinued operations:
Revenues	$	14,125		$	23,283		$	21,770
Costs and expenses		(11,451	)		(19,674	)		(20,521	)
Operating income		2,674			3,609			1,249
Writedown of properties		−			(2,303	)		(7,337	)
(Loss) gain on disposals		(883	)		(9,396	)		749
Income tax (provision) benefit		(591	)		2,875			1,981
Income (loss) from discontinued operations, net of tax	$	1,200		$	(5,215	)	$	(3,358	)

For further information, see Note 18 on discontinued operations.

75

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

SEPTEMBER 30, 2006

NOTE 9 − INVESTMENT SECURITIES AVAILABLE-FOR-SALE

In fiscal 2006, the Company’s investment securities available-for-sale were carried at fair market value based on market quotes. Unrealized gains or losses, net of tax, were reported as a separate component of stockholders’ equity. In fiscal 2005, the Company’s investment in RCC was carried at the lower of cost or market, whereas TBBK was carried at market value.

The Company has invested in two affiliated publicly-traded companies, RCC and TBBK, in addition to CDO issuers it has sponsored and manages as follows (in thousands):

	September 30,
	2006		2005
Investment in RCC, including unrealized gains of $879 and $0	$	29,588	$	15,998
Investment in TBBK, including unrealized gains of $5,696 and $2,592		9,132		6,529
Investment in financial fund management entities, including unrealized losses of $1,471 and $0		26,137		15,826
Total investment securities available-for-sale	$	64,857	$	38,353

In March 2005, RCC completed a private placement of 15,333,334 shares of its common stock at a price of $15.00 per share. On February 10, 2006, RCC closed its initial public offering of 4,000,000 shares of common stock (including 1,879,200 shares sold by selling stockholders) at a price of $15.00 per share. The Company purchased 1,000,000 shares in the March 2005 offering and 900,000 shares in the February 2006 offering. In connection with the formation of RCC, the Company was granted 345,000 shares of restricted stock and options to purchase 651,666 shares of common stock of RCC. Subsequently, the Company awarded 344,079 shares of the RCC restricted stock and 649,500 of the RCC options to officers and employees who provide management services to RCC.

The Company held 482,009 and 532,009 shares of TBBK as of September 30, 2006 and 2005, respectively, of which 358,290 and 408,290 shares were included in investment securities available for sale and 123,719 shares were included in other assets at September 30, 2006 and 2005, respectively.

Investments in financial fund management entities represent the Company’s and SFF partnerships’ investments in CDOs that the Company has sponsored and manages. These investments included investments in ten and five CDOs at September 30, 2006 and 2005, respectively.

76

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

SEPTEMBER 30, 2006

NOTE 10 − INVESTMENTS IN UNCONSOLIDATED ENTITIES

As a specialized asset manager, the Company develops various types of investment vehicles, including partnerships and TIC programs. The following table details these investments and the range of partnership interests owned accounted for using the equity method because the Company has the ability to exercise significant influence over their operating and financial decisions (in thousands):

	September 30,				Range of Combined
	2006		2005		Partnership Interests
Trapeza entities	$	15,007	$	10,457		13% to 18%
Financial fund management partnerships (1)		5,772		−		10%
Real Estate investment partnerships		3,927		2,919		3.9% to 23.0%
Commercial finance investment partnerships		1,353		822		1% to 5%
TIC property interests (2)		567		10,366		N/A
Total investments in unconsolidated entities	$	26,626	$	24,564

(1) Due to a change in the partnership agreements that gave the limited partners the right to remove the Company as the general partner in fiscal 2006, the Company no longer consolidates two of these affiliated partnerships that had been consolidated at September 30, 2005. These partnerships, which invest in regional banks, are included in financial fund management partnerships at September 30, 2006 at a cost of $3.2 million. In addition, the Company has a $2.5 million investment in a hedge fund it manages.

(2) As of September 30, 2005, the Company had sponsored and managed two TIC property interests. During the year ended September 30, 2006, these TIC interests were sold to third-party investors and two new TIC property interests were acquired. At September 30, 2006, substantially all of these interests have been sold to third-party investors.

   Historically, the Company has presented its equity earnings and losses of the Trapeza entities on a one-quarter delay as permitted under GAAP. Beginning with the period ended June 30, 2006, improvements in the timeliness and availability of financial data from the Trapeza entities have allowed the Company to report its share in those earnings on a current basis. As a result of this change, the Company’s equity in earnings of the Trapeza entities of $1.4 million, net of tax of $983,000, for the three months ended September 30, 2005 is being reported as a cumulative change in accounting principle as of October 1, 2005.

The Company has equity interests of 50% and 33.33% in the managers of the Trapeza CDO entities, Trapeza Capital Management, LLC and Trapeza Management Group, LLC, respectively. The Company does not consolidate these entities since it does not have control over them and reports the equity results of these entities on a current basis beginning in fiscal 2006. Summarized operating data for these entities is presented below (in thousands):

	Years Ended September 30,
	2006			2005			2004
Trapeza Capital Management, LLC
Management fees	$	6,810		$	5,432		$	4,816
Operating expenses		(1,746	)		(1,151	)		(939	)
Other (expense) income		(170	)		(356	)		35
Net income	$	4,894		$	3,925		$	3,912
RAI’s proportionate share of the net income	$	2,447		$	1,963		$	1,956

	Years Ended September 30,
	2006			2005			2004
Trapeza Capital Group, LLC
Management fees	$	2,724		$	2,342		$	276
Operating expenses		(255	)		(243	)		(42	)
Other (expense) income		(69	)		909			34
Net income	$	2,400		$	3,008		$	268
RAI’s proportionate share of the net income	$	800		$	1,003		$	89

77

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

SEPTEMBER 30, 2006

NOTE 11 − PROPERTY AND EQUIPMENT

Property and equipment, net, consisted of the following (in thousands):

	Estimated		September 30,
	Useful Lives		2006			2005
Leasehold improvements		1-15 years	$	2,894		$	1,134
Real estate assets − FIN 46 (1)		40 years		3,900			28,541
Furniture and equipment		3-10 years		6,262			4,112
				13,056			33,787
Accumulated depreciation and amortization				(3,531	)		(3,266	)
Property and equipment, net			$	9,525		$	30,521

(1) The decrease reflects the December 2005 resolution of one loan whose underlying assets were consolidated with the Company’s assets pursuant to FIN 46.

NOTE 12 - BORROWINGS

Borrowings consisted of the following (in thousands):

	September 30,
	2006		2005
Secured warehouse credit facilities	$	69,297	$	97,751
Secured revolving credit facilities − commercial finance		86,400		30,942
Real estate − mortgage loan		12,492		−
Real estate − FIN 46 mortgage loans		1,536		18,519
Other debt		2,513		90
Total borrowings	$	172,238	$	147,302

Annual principal payments over the next five years ending September 30 and thereafter are as follows (in thousands):

2007	$	87,254	(1)
2008		889
2009		926
2010		955
2011		12,235
Thereafter		682
	$	102,941	(1)

(1) Excludes $69.3 million related to credit facilities that will be transferred upon the execution of the associated CDO transactions and will not have to be repaid by the Company.

Secured warehouse credit facilities

In June 2006, the Company entered into a $300.0 million warehouse credit facility with affiliates of Credit Suisse International to fund its purchases of bank loans in Europe. The Company is charged interest during the warehouse period at the European London Inter-bank Offered Rate plus 65 basis points (3.8% on borrowings outstanding of $66.4 million at September 30, 2006) in return for a participation interest in the interest earned on the loans. The warehouse credit facility will expire and interest will be payable upon the closing of the collateralized loan obligation which is expected to be completed by the second quarter of fiscal 2007. The facility agreement provides for a guarantee by the Company as well as an escrow deposit (see Notes 5 and 17).

78

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

SEPTEMBER 30, 2006

NOTE 12 - BORROWINGS − (Continued)

Secured warehouse credit facilities − (Continued)

In August 2006, the Company entered into a $350.0 million warehouse credit facility with affiliates of Credit Suisse Securities LLC to fund its purchases of bank loans. The Company is charged interest during the warehouse period at London Inter-Bank Offered Rate (“LIBOR”) plus 62.5 basis points (6.0% on borrowings outstanding of $2.9 million at September 30, 2006) in return for a participation interest in the interest earned on the loans. The warehouse credit facility will expire and interest will be payable upon the closing of the CDO, which is expected to be completed in the fourth quarter of fiscal 2007. The facility agreement provides for a guarantee by the Company as well as an escrow deposit (see Notes 5 and 17).

The Company had a warehouse facility at September 30, 2005 with Credit Suisse First Boston to fund the purchase of bank loans. This facility was terminated upon the closing of the underlying CDO in December 2005.

Secured revolving credit facilities − commercial finance

On July 31, 2006, LEAF entered into a $150.0 million revolving warehouse credit facility with a group of banks led by National City Bank that expires July 31, 2009. Outstanding borrowings bear interest at one of two rates: (i) LIBOR plus 150 basis points or (ii) the prime rate. As of September 30, 2006, the balance outstanding was $86.4 million at an interest rate of 6.9%. The average borrowings in fiscal 2006 were $60.6 million and the weighted average interest rate was 7.0%. The underlying equipment being leased or financed collateralizes the borrowings under this facility. The Company has guaranteed this facility up to a maximum of $75.0 million.

In 2005, the Company’s commercial finance segment had two secured revolving credit facilities, both of which were repaid and terminated on July 31, 2006 with the proceeds from the Nat City Facility. At September 30, 2005, LEAF had a $15.0 million secured credit facility with Commerce Bank with outstanding borrowings of $740,000 at an interest rate of 6.7%. In addition, LEAF had a $75.0 million facility with National City Bank with outstanding borrowings of $30.2 million at an interest rate of 5.8%.

Real estate-mortgage loan

On June 30, 2006, the Company obtained a $12.5 million first mortgage on a hotel property in Savannah, Georgia. The mortgage is due on July 6, 2011. The loan bears interest at 6.9% until October 6, 2006 and requires monthly payments of $82,300 for principal and interest. Commencing November 6, 2006, the mortgage will have a 7.1% fixed rate and will require monthly payments of principal and interest of $84,220.

Real estate-FIN 46 mortgage loans

As of September 30, 2006, a VIE consolidated by the Company in accordance with FIN 46-R is the obligor under an outstanding first mortgage loan secured by real estate with an outstanding balance totaling $1.5 million. The mortgage loan requires monthly payments of principal and interest at a fixed interest rate of 8.80% and matures in July 2014. The mortgage loan is not a legal obligation of the Company; however, it is senior to the VIE’s obligation to the Company. Loan payments are paid from the cash flow of the VIE.

As of September 30, 2005, three VIEs consolidated by the Company in accordance with FIN 46-R held three outstanding first mortgage loans secured by real estate with outstanding balances totaling $18.5 million. These mortgages required monthly payments of principal and interest at fixed rates ranging from 5.25% to 8.80%. During fiscal 2006, the Company sold one of the properties and repaid the mortgage on a second property.

79

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

SEPTEMBER 30, 2006

NOTE 12 - BORROWINGS − (Continued)

Other debt

Secured revolving credit facilities. The Company has a $14.0 million revolving line of credit with Sovereign Bank expiring in July 2009 which is secured by certain real estate collateral and the market value of 700,000 shares of RCC stock. The availability under the facility is limited based on the value of the collateral. Outstanding borrowings bear interest at one of two rates elected at the Company’s option: (i) LIBOR plus 200 basis points or (ii) the prime rate. As of September 30, 2006, there were no outstanding borrowings and $11.4 million was available under this line.

The Company has a $25.0 million revolving line of credit with Commerce Bank expiring in August 2009 secured by collateral of 358,290 shares of TBBK stock and 1.2 million shares of RCC stock held by the Company. The availability under the facility is limited based on the value of the collateral. Outstanding borrowings bear interest at one of two rates, elected at the Company’s option: (i) LIBOR plus 2.25% or (ii) the prime rate plus 1%. As of September 30, 2006, there were no outstanding borrowings and $22.1 million was available under this line.

Notes. On June 15, 2006, the Company borrowed $1.5 million from JP Morgan under a promissory note for the purchase of its equity investment in Trapeza X. The note requires quarterly payments of principal and interest at LIBOR plus 100 basis points (5.35% at September 30, 2006) and matures in July 2010. The Company’s share of the equity distributions and its share of the collateral management fees from Trapeza X collaterized the borrowings under the note. The $1.5 million note remains outstanding at September 30, 2006.

At September 30, 2006, the Company also has an outstanding balance of $950,000 on a secured note with Sovereign Bank. The note, secured by the furniture and computer equipment of the Company’s commercial finance business, requires monthly payments of principal and interestof $18,796 over five years at a fixed interest rate of 6.87%.

Covenants

   At September 30, 2006, the Company was in compliance with all of the financial covenants under its various debt agreements. These financial covenants are customary for the type and size of the related debt facilities and include minimum equity requirements as well as specified debt service coverage and leverage ratios.

NOTE 13 - INCOME TAXES

The following table details the components of the Company's income taxes from continuing operations (in thousands):

	Years Ended September 30,
	2006			2005		2004
Provision (benefit) for income taxes:
Current:
Federal	$	5,238		$	-	$	-
State		1,118			-		-
Deferred		(3,120	)		3,591		1,127
Income tax provision	$	3,236		$	3,591	$	1,127

80

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

SEPTEMBER 30, 2006

NOTE 13 - INCOME TAXES − (Continued)

A reconciliation between the U.S. statutory federal income tax rate and the Company's effective income tax rate is as follows:

	Years Ended September 30,
	2006			2005			2004
Statutory tax rate		35	%		35	%		35	%
Tax-exempt interest		(1	)		(1	)		(4	)
State and local taxes on income, net of U.S. federal income tax benefit		5			7			9
Valuation allowance for state loss carryforwards		(17	)		(4	)		−
Deferred tax asset for local net operating losses		(6	)		−			−
Other items		−			3			1
		16	%		40	%		41	%

Deferred income taxes are provided for the effects of temporary differences between the tax basis of an asset or liability and its reported amount in the consolidated balance sheets. These temporary differences result in taxable or deductible amounts in future years.

The components of the Company’s net deferred tax liability were as follows (in thousands):

	September 30,
	2006			2005
Deferred tax assets related to:
State and local loss carryforwards	$	7,693		$	5,328
Accrued expenses		−			4,054
Provision for possible losses		191			132
Employee stock option exercises		−			2,538
Gross deferred tax assets		7,884			12,052
Valuation allowance		(1,476	)		(4,966	)
Total deferred tax assets		6,408			7,086
Deferred tax liabilities related to:
Property and equipment basis differences		(828	)		(603	)
Accrued expenses		(2,282	)		−
Investments in real estate assets		(1,485	)		(3,555	)
Investments in partnership interests		(3,035	)		(1,572	)
Unrealized gains on investments		(3,116	)		(1,356	)
Total deferred tax liabilities		(10,746	)		(7,086	)
Net deferred tax liability	$	(4,338	)	$	−

As of September 30, 2005, the Company had a deferred tax asset of $5.3 million resulting from state net operating loss carryforwards (“NOLs”) of $77.9 million. A valuation allowance was established against substantially all of this deferred tax asset, based upon management’s assessment at that time that it was more likely than not that the Company would not be able to utilize the NOLs prior to their expiration.

   During fiscal 2006, the Company implemented tax planning strategies that management believes make it more likely than not that the Company will be able to utilize approximately $39.5 million of the NOLs before their expiration.  Accordingly, $3.9 million of the prior year valuation allowance was reversed in fiscal 2006.

81

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

SEPTEMBER 30, 2006

NOTE 13 - INCOME TAXES − (Continued)

In addition, the Company recorded a deferred tax asset in fiscal 2006 of $1.1 million associated with $16.3 million of local NOLs for which management had previously believed would more likely than not be realized prior to their statutory expiration dates.  Management has established a valuation allowance of $228,000 against these NOLs for the portion it believes is unlikely to be realized in future years.

As of September 30, 2006, the Company had available state and local NOLs of $89.9 million which expire in the fiscal years 2007 through 2030. Management will continue to assess its estimates of the amount of NOLs that the Company will be able to utilize. The estimate of the required valuation allowances could be adjusted in the future if projections of taxable income are revised.

NOTE 14 - BENEFIT PLANS

Employee Stock Plans. During fiscal 2006, the Company had four employee stock plans, the 1997 plan, the 1999 plan, the 2002 plan and the 2005 plan. In fiscal 2005, all remaining options previously granted under the 1989 plan were exercised and the plan was terminated. Grants under the employee stock plans become exercisable 25% per year after the date of grant but may vest immediately at management’s discretion; options granted expire no later than ten years after the date of grant. In fiscal 2005, options of certain employees were accelerated in order to lower compensation expense in future periods.

In connection with the spin-off of Atlas America, the Company’s shareholders received a distribution of 0.59367 shares of Atlas America common stock for each share owned of Resource America common stock. Holders of options to purchase shares of the Company’s stock did not participate in this distribution. As a result, an adjustment was required to preserve the intrinsic value of these options at the time of the spin-off. In accordance with rules prescribed by FIN 44, “Accounting for Certain Transaction Involving Stock Compensation - An Interpretation of APB 25” and Internal Revenue Service Treasury regulation section 1.424-1, the ratio of the exercise price per share to the market value per share could not be reduced and the aggregate intrinsic value of an option after the adjustment could not be greater than the intrinsic value immediately before the adjustment. To calculate the adjustment, the Company utilized the price of its stock on the date of the spin-off ($38.53) and the close of business on July 1, 2005 ($16.66). Activity as reflected for fiscal 2005 is based on the adjusted number of options and the adjusted exercise price assigned to those options.

The Company’s employee stock plans can authorize grants of shares of the Company’s common stock in the form of ISOs, non-qualified stock options, and stock appreciation rights. The 2005 plan also permits the issuance of restricted stock, stock units, performance shares, stock awards, dividend equivalents and other stock-based awards.

The following table reflects the shares authorized and available for grant by plan:

Plan	Authorized Shares		Shares Available for Grant as of September 30, 2006
1997		1,907,998		−
1999		2,312,725		−
2002		1,734,547		−
2005		1,200,000		705,853
				705,853

82

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

SEPTEMBER 30, 2006

NOTE 14 - BENEFIT PLANS − (Continued)

Transactions for employee stock options are summarized as follows:

	Years Ended September 30,
	2006					2005						2004
				Weighted					Weighted						Weighted
				Average					Average						Average
				Exercise					Exercise						Exercise
	Shares			Price		Shares			Price			Shares			Price
Outstanding - beginning of year		3,633,213		$	7.61		1,763,495		$	10.42			1,849,254		$	10.26
Adjustment for spin-off of Atlas America		−		$	−		2,314,891		$	(5.91	)		−		$	−
Granted		44,000		$	20.06		913,538		$	16.33			3,000		$	17.35
Exercised		(28,867	)	$	4.34		(1,354,396	)	$	4.13			(81,323	)	$	7.18
Forfeited		(7,250	)	$	17.26		(4,315	)	$	5.68			(7,436	)	$	9.09
Outstanding - end of year		3,641,096		$	7.77		3,633,213		$	7.61			1,763,495		$	10.42
Exercisable, at end of year		3,266,542		$	6.77		3,058,026		$	6.53			1,297,331		$	10.96
Available for grant		705,853	(1)				827,183						232,124
Weighted average fair value per share of     options granted during the year				$	9.20				$	6.83					$	7.65

(1) Adjusted for shares of restricted stock that have been granted under the 2005 plan.

The following information applies to employee stock options outstanding as of September 30, 2006:

	Outstanding						Exercisable
			Weighted
			Average		Weighted				Weighted
Range of			Contractual		Average				Average
Exercise Prices	Shares		Life (Years)		Exercise Price		Shares		Exercise Price
$3.23- $4.04		1,443,090		5.95	$	3.58		1,443,090	$	3.58
$4.78- $7.50		1,247,718		3.24	$	6.05		1,247,718	$	6.05
$14.44- $17.26		906,288		8.64	$	16.32		575,734	$	16.49
$18.84- $21.09		44,000		9.73	$	20.06		−	$	−
		3,641,096						3,266,542

Restricted stock. In fiscal 2006, the Company awarded 84,580 shares of restricted stock, with a total value of $1.5 million, under the 2005 plan of which 1,061 shares vested immediately and were issued. The remaining 83,519 shares vest over a four-year period.

Deferred Stock and Deferred Compensation Plans. In addition to the employee stock plans, the Company has two non-employee directors plans, the 1997 Non-Employee Director Deferred Stock and Deferred Compensation Plan (the “1997 Director Plan”) and the 2002 Non-Employee Director Deferred Stock and Deferred Compensation Plan (the “2002 Director Plan”). Each unit granted under these plans represents the right to receive one share of the Company’s common stock.

The 1997 Director Plan has a maximum of 75,000 units (173,450 units, as adjusted for the spin-off) reserved for issuance which have all been issued. The fair value of the grants awarded (at an average of $5.84 per unit, as adjusted for the spin-off), $972,000 in total, has been charged to operations over the vesting period. As of September 30, 2006, there were 104,070 units vested and outstanding under this plan.

83

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

SEPTEMBER 30, 2006

NOTE 14 - BENEFIT PLANS − (Continued)

Each of the Company’s non-employee directors (“Eligible Director”) is eligible to participate in the 2002 Director Plan, which was approved by stockholders on April 29, 2002. Upon becoming an Eligible Director, each Eligible Director receives units equal to $15,000 divided by the closing price of the Company’s common stock on the date of grant. Eligible Directors receive an additional unit award on each anniversary of the date of initial grant equal to $15,000 divided by the closing price of the Company’s common stock on the date of grant. Units vest on the later of: (i) the fifth anniversary of the date the recipient became an Eligible Director and (ii) the first anniversary of the grant of those units, except that units will vest sooner upon a change in control or death or disability of an Eligible Director, provided the Eligible Director has completed at least six months of service. Upon termination of service by an Eligible Director, vested units will become issued common stock, but all unvested units are forfeited. The 2002 Director Plan provides for the issuance of a maximum of 75,000 units (approximately 173,450 units, as adjusted for the spin-off) and terminates on April 29, 2012, except with respect to previously awarded grants. The fair value of the grants awarded (at an average of $7.00 per unit, as adjusted for the spin-off), $330,000 in total, has been charged to operations over the vesting period. As of September 30, 2006, there were 36,611 units outstanding, of which 30,717 were vested. In fiscal 2006, the Company issued 3,894 units (at an average of $19.26 per unit).

Transactions for the two non-employee director plans are summarized as follows:

	Years Ended September 30,
	2006		2005			2004
Units outstanding - beginning of year		136,787		72,888			72,888
Adjustment for spin-off of Atlas America		−		92,536			−
Granted		3,894		5,162			−
Shares issued upon termination		−		(31,975	)		−
Forfeited		−		(1,824	)		−
Units outstanding - end of year		140,681		136,787			72,888
Vested units		134,787		131,628			69,732
Units available for grant		115,845		119,739			56,398

Employee Stock Ownership Plan. The Company sponsors an Employee Stock Ownership Plan ("ESOP"), which is a qualified non-contributory retirement plan established to acquire shares of the Company's common stock for the benefit of its employees who are 21 years of age or older and have completed 1,000 hours of service for the Company. Contributions to the ESOP are funded by the Company as set forth in the plan. Additional contributions can be made at the discretion of the Board of Directors. In September 1998, the Company loaned $1.3 million to the ESOP which it used to acquire 105,000 shares of the Company's common stock. The ESOP loan receivable (reflected on the consolidated balance sheet as a reduction in stockholders' equity) is reduced by the principal portion of contributions made by the Company to the ESOP.

The common stock purchased by the ESOP is held by the plan trustee. On an annual basis, the trustee releases a portion of the common stock as directed by the plan. As of September 30, 2006, there were 76,000 shares allocated to participants and 84,000 unallocated shares in the plan. The fair value of the unallocated shares was $1.7 million as of September 30, 2006. Compensation expense related to the plan was $147,000, $113,000 and $216,000 for fiscal 2006, 2005 and 2004, respectively.

84

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

SEPTEMBER 30, 2006

NOTE 14 - BENEFIT PLANS − (Continued)

The ESOP owned 102,000 shares of Atlas America at September 30, 2005. In accordance with the spin-off agreement with Atlas America, the Company’s ESOP was divided and a new ESOP plan for Atlas America employees was set up. This agreement also provided that the ESOP of the Company and Atlas America would exchange shares of each other’s stock based on the fair market value at the time of the exchange. Any remaining Atlas America shares after the exchange were sold by the ESOP. As of September 30, 2006, the Company no longer holds any shares of Atlas America in its ESOP.

     Investment Savings Plan. The Company sponsors an Investment Savings Plan under Section 401(k) of the Internal Revenue Code which allows employees to defer up to 15% of their income, subject to certain limitations, on a pretax basis through contributions to the savings plan. The Company matches up to 50% of each employee's contribution, subject to certain limitations. The Company expensed $351,000, $247,000 and $356,000 for matching contributions for fiscal 2006, 2005 and 2004, respectively.

   Supplemental Employment Retirement Plan. Under the supplemental employment retirement plan (“SERP”) of E. Cohen, the Company pays an annual benefit of 75% of his average income. The benefit is payable during his life or for a period of 10 years from May 2004 (the date of his retirement as the Company’s Chief Executive Officer to become chief executive officer and president of Atlas America), whichever is longer. E. Cohen continues to serve as the Company’s Chairman of the Board. During fiscal 2006, 2005 and 2004, operations were charged $355,000, $30,000 and $1.4 million, respectively, with respect to this plan. In the fourth quarter of fiscal 2006, the Company recorded a $720,000 reduction to expense related to an annual actuarial analysis of the SERP related to an increase in value of the SERP’s assets relative to the remaining liability. A corresponding adjustment was made to reduce the SERP liability. Fiscal 2004 expense also included an actuarial adjustment as a result of the acceleration of E. Cohen’s retirement as CEO of the Company. In June 2004, the Company commenced making payments to E. Cohen under his SERP in connection with his retirement. The SERP made retirement distributions to E. Cohen of $837,000, $847,000 and $254,000 during fiscal 2006, 2005 and 2004, respectively (see Notes 2 and 15).

NOTE 15 - CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

In the ordinary course of its business operations, the Company has ongoing relationships with several related entities. The following table details the receivables and payables with these related parties (in thousands):

	September 30,
	2006		2005
Receivables from managed entities and related parties:
Commercial finance investment partnerships	$	3,938	$	1,178
Financial fund management entities		2,064		272
RCC		1,409		750
Real estate investment partnerships and TIC property interests		952		1,880
Atlas America		265		111
Anthem Securities		154		−
Other		13		89
Receivables from managed entities	$	8,795	$	4,280
Payables due to managed entities and related parties:
Real estate investment partnerships and TIC property interests	$	1,325	$	591
Anthem Securities		254		−
Payables to managed entities	$	1,579	$	591

85

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

SEPTEMBER 30, 2006

NOTE 15 - CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS − (Continued)

The Company receives fees, dividends and reimbursed expenses from several related/managed entities. In addition, the Company reimburses another related entity for certain operating expenses. The following table details those activities (in thousands):

	Years Ended September 30,
	2006			2005			2004
Financial Fund Management - fees from managed entities	$	8,726		$	6,385		$	5,243
Real Estate - fees from investment partnerships and TIC property interests		11,452			3,554			1,450
Commercial finance - fees from investment partnerships		5,816			2,871			1,027
RCC:
Fees and equity compensation		8,203			3,925			−
Reimbursement of expenses from RCC		718			631			−
Dividends received		2,722			213			−
Atlas America - reimbursement of net costs and expenses		1,303			1,015			1,100
Anthem Securities:
Payment of operating expenses		(1,166	)		(270	)		(7	)
Reimbursement of costs and expenses from Anthem Securities		2,906			653			156
1845 Walnut Associates Ltd - payment of rent and operating expenses		(450	)		(420	)		(390	)
9 Henmar LLC - payment of broker/consulting fees		(479	)		(438	)		(326	)
Ledgewood P.C. - payment of legal services		(472	)		(1,012	)		(1,200	)

Relationship with Atlas America. On June 30, 2005, the Company completed the spin-off of Atlas America. Atlas America reimburses the Company for various costs and expenses it continues to incur on behalf of Atlas America, primarily payroll and rent. Certain operating expenditures totaling $265,000 that remain to be settled between the Company and Atlas America as of September 30, 2006 are reflected in the consolidated balance sheet as a receivable from related party.

Relationship with Anthem Securities. Anthem Securities, Inc., a wholly-owned subsidiary of Atlas America and a registered broker dealer, serves as the dealer-manager of investment programs sponsored by the Company’s real estate and commercial finance segments. Some of the personnel performing services for Anthem have been on the Company’s payroll and Anthem reimburses the Company for the allocable costs of such personnel. In addition, the Company has agreed to cover some of the operating costs for Anthem’s office of supervisory jurisdiction, principally licensing fees and costs.

Relationship with 1845 Walnut Associates Ltd. The Company leases space in an office building in which it also owns a 30% equity interest in the partnership that owns the building, 1845 Walnut Associates Ltd. The property is managed by Brandywine Construction and Management, Inc. (“BCMI”), as further described below.

Relationship with 9 Henmar LLC (“9 Henmar”). The Company owns interests in the Trapeza entities that have sponsored CDO issuers and manage pools of trust preferred securities acquired by the CDO issuers. The Trapeza entities and CDO issuers were originated and developed in large part by Daniel G. Cohen (“D. Cohen”). Jonathan Z. Cohen (“J. Cohen”) , the President, Chief Executive Officer and a Director of the Company, and D. Cohen are the sons of E. Cohen and Betsy Z. Cohen (“B. Cohen”). The Company agreed to pay D. Cohen’s company, 9 Henmar, 10% of the fees the Company receives in connection with the first four Trapeza CDOs that we sponsored and manage. In fiscal 2006, 2005 and 2004, the Company received $4.3 million, $4.0 million and $3.3 million of such fees from these transactions, net of expenses, respectively, and paid 9 Henmar $479,000, $438,000 and $326,000, respectively.

86

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

SEPTEMBER 30, 2006

NOTE 15 - CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS − (Continued)

Relationship with Ledgewood P.C. Until April 1996, E. Cohen was of counsel to Ledgewood. E. Cohen receives certain debt service payments from Ledgewood related to the termination of his affiliation with Ledgewood and its redemption of his interest.

Relationship with RAIT Investment Trust (“RAIT”) (NYSE: RAS). Organized by the Company in 1997, RAIT is a real estate investment trust in which the Company previously was a shareholder. As of September 30, 2006 and 2005, the Company did not own any of the outstanding common shares or have any beneficial interest of RAIT. B. Cohen is the chief executive officer of RAIT and J. Cohen is vice chairman and secretary of RAIT.

In December 2003, RAIT provided the Company a standby commitment for $10.0 million in bridge financing in connection with the retirement of the Company’s senior debt. RAIT received a $100,000 facilitation fee from the Company in connection with providing this standby commitment. On January 15, 2004, the Company borrowed $10.0 million from RAIT and repaid it in full on January 21, 2004. In fiscal 2005 and 2004, the Company realized gains of $15.0 million and $9.5 million from the sale of the shares of RAIT common stock it held.

Relationship with Retirement Trusts. The Company has established two trusts to fund the SERP for E. Cohen. The 1999 Trust, a secular trust, purchased 100,000 shares of the common stock of TBBK with a market value of $2.5 million at September 30, 2006. This trust and its assets are not included in the Company’s consolidated balance sheets. However, its assets are considered in determining the amount of the Company’s liability under the SERP. The 2000 Trust, a “Rabbi Trust,” holds 123,719 shares of common stock of TBBK carried at market value which was $3.2 million at September 30, 2006 and a loan to a limited partnership in which E. Cohen and D. Cohen own the beneficial interests. This loan was acquired for its outstanding balance of $720,000 by the 2000 Trust in April 2001 from a corporation of which E. Cohen was chairman and J. Cohen was the president. The loan balance as of September 30, 2006 was $297,000. In addition, the 2000 Trust invested $1.0 million in Financial Securities Fund, an investment partnership which is managed by a corporation of which D. Cohen is the principal shareholder and a director. The partnership is being liquidated and the Company has received substantially all of its initial investment together with accumulated income, during fiscal 2006. The carrying value of the assets in the 2000 Trust was approximately $5.6 million and $5.0 million at September 30, 2006 and 2005, respectively. These assets are included in other assets in the Company’s consolidated balance sheets. The Company’s liability under the SERP has not been reduced by the value of those assets (see Notes 2, 9 and 14).

Relationship with The Bancorp, Inc. The Company owns 3.5% of the outstanding common stock of TBBK. D. Cohen is the chairman and B. Cohen is the chief executive officer of TBBK and its subsidiary bank. At September 30, 2006, the Company had cash deposits of $282,000 at TBBK. In 2006, the Company sold 50,000 of its shares TBBK stock for $1.2 million and realized a gain of $668,000.

Relationship with Certain Directors, Officers, Employees and Other Related Parties. A wholly-owned subsidiary of the Company serves as the general partner of three partnerships that invest in regional domestic banks. The general partner may receive a carried interest of up to 20% upon meeting specific investor return rates. Some of the partnerships’ investors wanted to ensure that certain individuals who are critical to the success of the partnerships participate in the carried interest. The total participation authorized by the Company’s compensation committee was 48.5% of the 20% carried interest, of which J. Cohen, B. Cohen and E. Cohen received 10%, 7.5% and 5%, respectively. The remaining 26% was received by six individuals, four of whom are employees of the Company.

    Relationship with Brandywine Construction & Management, Inc. BCMI manages the properties underlying four of the Company’s real estate loans and certain real estate and FIN 46 assets. Adam Kauffman, President of BCMI, or an entity affiliated with him, has also acted as the general partner, president or trustee of three of the borrowers. E. Cohen, is the chairman of BCMI and holds approximately 8% of its common stock.

87

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

SEPTEMBER 30, 2006

NOTE 15 - CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS − (Continued)

Relationship with Certain Borrowers. The Company has from time to time purchased loans in which affiliates of the Company were or have become affiliates of the borrowers.

In 2002, D. Cohen acquired beneficial ownership of a property on which the Company had held a loan interest since 1998. In fiscal 2004, the Company recognized a gain of $100,000 on the sale of the loan to the highest bidder, which was an affiliate of D. Cohen.

In 2000, to protect the Company’s interest, the property securing a loan held by the Company since 1997 was purchased by a limited partnership owned in equal parts by Scott F. Schaeffer, a former officer, Adam Kauffman, E. Cohen and D. Cohen. In September 2003, in furtherance of its position, the Company foreclosed on the property. In 2004, the property was sold for $5.0 million and the Company recognized a gain of $824,000, which was recorded in discontinued operations.

Relationship with Lienholder. In 1997, the Company acquired a first mortgage lien with a face amount of $14.0 million and a book value of $4.5 million on a hotel property owned by a corporation in which, on a fully diluted basis, J. Cohen and E. Cohen would have had a 19% interest. The corporation acquired the property through foreclosure of a subordinate loan. In May 2003, the Company acquired this property through further foreclosure proceedings and recorded write-downs of $2.7 million. In August 2004, the Company listed the property for sale, recorded a further write-down of $882,000 and classified the property as held for sale. In September 2005, the property was sold to an unrelated third party for cash of $332,000 and a note of $2.2 million which bore interest at a rate equal to the greater of eight percent (8%) per annum or the prime rate plus 150 basis points. The Company recorded a loss of $590,000 on the sale during the year ended September 30, 2005. The note was repaid in September 2006.

NOTE 16 − OTHER INCOME, NET

The following table details the Company’s other income, net (in thousands):

	Years Ended September 30,
	2006			2005			2004
Litigation settlements	$	1,188(1	)	$	1,400(2	)	$	−
Gain on sales of RAIT shares		−			1,544			9,453
RCC dividend income		2,722			213			−
Gain on sale of TBBK shares		668			−			−
Loss on early extinguishment of debt		−			−			(1,955	)
Interest, dividends and other income		576			1,393			1,667
Other income, net	$	5,154		$	4,550		$	9,165

(1) In fiscal 2002, the Company had charged operations $1.0 million for the amount of its maximum exposure relating to the settlement of a lawsuit. One of the Company’s insurance carriers refused to participate in the settlement. The Company thereafter filed an action seeking recovery on its policy with that carrier. In the second quarter of fiscal 2006, the Company prevailed in its action against the carrier, received a $200,000 cost reimbursement and accordingly, reversed the $1.0 million accrual.

(2) The Company settled an action filed in the U.S. District Court for the District of Oregon by the former chairman of TRM Corporation and his children. The Company’s Chairman and a former director and officer also had been named as defendants. The plaintiffs' claims were for breach of contract and fraud. The Company recorded a charge of $1.2 million, including related legal fees, in fiscal 2003. The Company subsequently filed an action against one of its directors’ and officers’ liability insurance carriers in connection with this settlement and recovered $1.4 million in fiscal 2005.

88

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

SEPTEMBER 30, 2006

NOTE 17 - COMMITMENTS AND CONTINGENCIES

The Company leases office space and equipment under leases with varying expiration dates through 2019. Rental expense was $1.6 million, $1.2 million and $1.7 million for fiscal 2006, 2005 and 2004, respectively. At September 30, 2006, future minimum rental commitments were as follows (in thousands):

2007	$	1,835
2008		1,265
2009		923
2010		485
2011		210
Thereafter		1,915
	$	6,633

    In connection with the sale of a real estate loan in March 2006, the Company agreed that in exchange for the current property owner relinquishing certain critical control rights, the Company will make payments to the current property owner under certain stipulated circumstances, including the sale or foreclosure of the property or a subsequent resale of the loan. A payment of $2.6 million, increasing $16,234 per month to a maximum of $3.6 million, would be due upon the occurrence of specified events. In addition, the current property owner has the right to receive collateral as security for this obligation equal to or greater than 105% of the value of the obligation upon the occurrence of certain specified events or if the Company’s net worth falls below $80.0 million. The Company’s obligation runs through December 31, 2014. In addition, the Company agreed to partially indemnify the purchaser of the loan for a portion of the difference between ordinary income tax rates and capital gain rates on accrued interest on the note between the date of sale of the loan in March 2006 and December 31, 2011.

Five real estate investment partnerships in which the Company has general partner interests have obtained senior lien financing with respect to the thirteen properties acquired. In addition, four TIC investment programs which the Company sponsored have obtained senior lien financing with respect to four acquired properties. These senior liens are with recourse only to the properties securing them subject to certain standard exceptions, which the Company guaranteed. These guarantees, totaling $268.9 million, expire as the related indebtedness is paid down over the next ten years. In addition, property owners have obtained senior lien financing with respect to four of the Company’s loans. The senior liens are with recourse only to the properties securing them subject to certain standard exceptions, which the Company guaranteed. These guarantees expire as the related indebtedness is paid down over the next ten years.

The Company has guaranteed its partner in one of its real estate partnerships against any losses, costs or damages that it may incur due to any fraud, bankruptcy, material misrepresentation or limited other intentional bad acts by the Company and terminates upon the earlier occurrence of (i) either the Company or its partner ceases to be a member of such partnership or (ii) termination of the operating agreement of the partnership. The Company’s maximum liability is $1.1 million.

In March 2006, the Company entered into a warehouse agreement with JP Morgan Securities, Inc. which provides for guarantees by the Company on the first $2.3 million of losses on a portfolio of bank loans. This guarantee, secured by a $1.2 million cash deposit, expires upon the closing of the associated CDO which is expected in the second quarter of fiscal 2007 (see Notes 5 and 12).

In June 2006, the Company entered into a warehouse agreement with Credit Suisse International which provides for guarantees by the Company on the first $16.5 million of losses on a portfolio of bank loans. This guarantee, secured by a $3.8 million cash deposit, expires upon the closing of the associated CDO which is anticipated in the second quarter of fiscal 2007 (see Notes 5 and 12).

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RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

SEPTEMBER 30, 2006

NOTE 17 - COMMITMENTS AND CONTINGENCIES − (Continued)

In August 2006, the Company entered into a warehouse agreement with Credit Suisse which provides for guarantees by the Company on the first $10.0 million of losses and 8% of the balance on a portfolio of bank loans. This guarantee increases to $15.0 million and 8% of the warehouse balance of the portfolio of loans if another CDO transaction is not priced by February 7, 2007. This guarantee, secured by a $2.5 million cash deposit, expires upon the closing of the associated CDO which is expected in the fourth quarter of fiscal 2007 (see Notes 5 and 12).

As of September 30, 2006, the Company does not believe it is probable that any payments will be required under any of its indemnifications and accordingly, no liabilities for these obligations have been recorded in the consolidated financial statements.

    As a specialized asset manager, the Company sponsors investment funds in which it may make an equity investment along with outside investors. This equity investment is generally based on a percentage of funds raised and varies among investment programs.

The Company is party to employment agreements with certain executives that provide for compensation and certain other benefits. The agreements also provide for severance payments under certain circumstances.

The Company is party to various routine legal proceedings arising out of the ordinary course of its business. Management believes that none of these actions, individually or in the aggregate, will have a material adverse effect on the Company’s financial condition or operations.

NOTE 18 - DISCONTINUED OPERATIONS

Energy. Results of the operations of Atlas America through the date of its spin-off from the Company in June 2005 have been reflected as discontinued operations. In fiscal 2006, additional spin-off costs incurred by the Company have been reported as a loss on disposal. In fiscal 2005, the loss on disposal reflected a non-cash charge of $1.3 million related to the acceleration of stock options held by Atlas America employees, in addition to legal, accounting and valuation fees related to the spin-off. Summarized operating results of the energy operations of Atlas America are as follows (in thousands):

	Years Ended September 30,
	2006			2005			2004
Income from discontinued operations before taxes	$	−		$	31,451		$	29,776
Loss on disposal		(73	)		(2,652	)		−
Benefit (provision) for income taxes		26			(12,322	)		(10,011	)
(Loss) income from discontinued operations, net of tax	$	(47	)	$	16,477		$	19,765

Real Estate. Based on the Company’s intent to sell its interests, certain operations have been classified as discontinued and the related assets and liabilities as held for sale. These operations include those of four real estate entities as of September 30, 2005 that are consolidated under the provisions of FIN 46-R and the operations of one and two real estate properties owned by the Company at September 30, 2006 and 2005, respectively. Summarized operating results of discontinued real estate operations held for sale are as follows (in thousands):

	Years Ended September 30,
	2006			2005			2004
Income (loss) on discontinued operations before taxes	$	2,674		$	1,306		$	(6,088	)
(Loss) gain on disposals		(883	)		(9,396	)		749
(Provision) benefit from income taxes		(591	)		2,875			1,981
Income (loss) from discontinued operations, net of tax	$	1,200		$	(5,215	)	$	(3,358	)

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RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

SEPTEMBER 30, 2005

NOTE 18 - DISCONTINUED OPERATIONS − (Continued)

Other. The Company has two other discontinued entities which reported combined income (loss) from discontinued operations as follows (in thousands):

	Years Ended September 30,
	2006			2005			2004
Income from discontinued operations before taxes	$	−		$	40		$	−
Gain (loss) on disposals		120			(336	)		602
(Provision) benefit for income taxes		(42	)		104			(210	)
Income from discontinued operations, net of tax	$	78		$	(192	)	$	392

    Total. Summarized discontinued operating results of all entities are as follows (in thousands):

	Years Ended September 30,
	2006			2005			2004
Income from discontinued operations before taxes	$	2,674		$	32,797		$	23,688
(Loss) gain on disposals		(836	)		(12,384	)		1,351
Provision for income taxes		(607	)		(9,343	)		(8,240	)
Income from discontinued operations, net of tax	$	1,231		$	11,070		$	16,799

NOTE 19 - OPERATING SEGMENTS

The Company’s operations include four reportable operating segments that reflect the way the Company manages its operations and makes business decisions. In addition to its reporting operating segments, certain other activities are reported in the “all other” category. Segment profit (loss) represents income from continuing operations before income taxes. Summarized operating segment data are as follows (in thousands):

Year Ended September 30, 2006	Revenues from External Customers		Equity in Earnings (Losses) of Equity Investees			Interest Expense			Depreciation and Amortization		Segment Profit (Loss) (b)			Segment Assets
Financial fund management	$	19,565	$	11,269		$	8,883		$	28	$	7,271		$	100,947
Real estate		26,214		(2,538	)		725			612		10,003			144,718
Commercial finance		23,824		16			6,064			1,749		1,096			127,235
Resource Europe		474		−			250			2		(787	)		67,301
All other(a)		−		−			126			673		2,935			67,692
Eliminations		−		−			(5,929	)		−		−			(91,140	)
Totals	$	70,077	$	8,747		$	10,119		$	3,064	$	20,518		$	416,753
Year Ended September 30, 2005
Financial fund management	$	5,879	$	10,065		$	443		$	66	$	2,476		$	127,957
Real estate		19,997		(2,206	)		347			629		6,558			214,833
Commercial finance		13,433		(52	)		3,088			1,262		(79	)		56,535
Resource Europe		−		−			−			−		−			−
All other(a)		−		−			36			252		24			59,710
Eliminations		−		−			(1,103	)		−		−			−
Totals	$	39,309	$	7,807		$	2,811		$	2,209	$	8,979		$	459,035

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RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

SEPTEMBER 30, 2005

NOTE 19 - OPERATING SEGMENTS − (Continued)

Year Ended September 30, 2004	Revenues from External Customers		Equity in Earnings (Losses) of Equity Investees		Interest Expense		Depreciation and Amortization		Segment Profit (Loss) (b)			Segment Assets
Financial fund management	$	226	$	7,359	$	−	$	10	$	5,205		$	10,418
Real estate		9,266		1,253		1,386		480		1,295			210,827
Commercial finance		7,068		67		970		534		(2,258	)		29,298
Resource Europe		−		−		−		−		−			−
All other(a)		−		−		1,618		164		(1,505	)		489,843
Eliminations		−		−		−		−		−			−
Totals	$	16,560	$	8,679	$	3,974	$	1,188	$	2,737		$	740,386

(a) Includes general corporate expenses and assets not allocable to any particular segment as of September 30, 2006, 2005 and also energy assets in September 2004.

(b) Segment profit (loss) represents income from continuing operations before taxes and cumulative effect of accounting change. Excluding intercompany interest charges, segment profit (loss) as adjusted for fiscal 2006 and 2005, would have been as follows (in thousands): financial fund management - $11,086 and $2,476 respectively; real estate - $10,484 and $6,654, respectively; and commercial finance - $2,729 and $928, respectively; and all other $(2,994) and $(1,079), respectively. Intercompany interest charges for fiscal 2004 were not significant.

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RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINA0NCIAL STATEMENTS - (Continued)

SEPTEMBER 30, 2006

NOTE 20 - QUARTERLY RESULTS (Unaudited) ⁽¹⁾

	December 31		March 31		June 30		September 30
	(in thousands, except per share data)
Year ended September 30, 2006
Revenues (2)	$	17,214	$	20,537	$	17,761	$	23,312
Operating income (2)	$	5,669	$	8,433	$	5,056	$	8,100
Income from continuing operations before cumulative effect of a change in accounting principle (2)	$	5,381	$	4,934	$	3,113	$	3,854
Net income (2)	$	7,676	$	5,086	$	3,000	$	4,108
Basic earnings per common share:
Continuing operations (2)	$	0.30	$	0.28	$	0.18	$	0.22
Net income (2)	$	0.43	$	0.29	$	0.17	$	0.24
Diluted earnings per common share:
Continuing operations (2)	$	0.27	$	0.26	$	0.16	$	0.21
Net income (2)	$	0.39	$	0.27	$	0.16	$	0.22

Year ended September 30, 2005
Revenues	$	5,893		$	11,165	$	17,578	$	12,480
Operating (loss) income	$	(1,138	)	$	989	$	6,805	$	1,987
Income from continuing operations	$	1,077		$	7	$	3,511	$	793
Net income (loss)	$	8,567		$	7,462	$	1,610	$	(1,181	)
Basic earnings (loss) per common share:
Continuing operations	$	0.06		$	0.00	$	0.20	$	0.04
Net income (loss)	$	0.49		$	0.43	$	0.09	$	(0.07	)
Diluted earnings (loss) per common share:
Continuing operations	$	0.06		$	0.00	$	0.19	$	0.04
Net income (loss)	$	0.46		$	0.40	$	0.09	$	(0.06	)

(1)   Certain components of quarterly net income (loss) disclosed above differ from those as reported on the Company’s respective quarterly Forms 10-Q. The spin-off costs and operation results of Atlas America and the gains and losses from the disposition of certain real estate assets and their related historical operating results have been reclassified as discontinued operations for all periods presented (see Note 18).

(2)   Reflects the cumulative adjustment from the elimination of the quarterly reporting lag for the Company’s investments in the Trapeza entities (see Note 10).

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ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.CONTROLS AND PROCEDURES

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act of 1934 reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Under the supervision of our Chief Executive Officer and Chief Financial Officer and with the participation of our disclosure committee, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at the reasonable assurance level.

Management assessed the effectiveness of our internal control over financial reporting as of September 30, 2006. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework.

Based on this assessment, management believes that, as of September 30, 2006, our internal control over financial reporting is effective.

Our independent auditors have issued an audit report on our assessment of our internal control over financial reporting. This report appears on page 95 of this annual report on Form 10-K.

There have been no significant changes in our internal controls over financial reporting that has partially affected, or are reasonably likely to materially affect, our internal control over financial reporting during our most recent fiscal year.

94

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Stockholders and Board of Directors

RESOURCE AMERICA, INC.

We have audited management's assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting, that Resource America, Inc. (a Delaware Corporation) maintained effective internal control over financial reporting as of September 30, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  Resource America Inc.'s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting.  Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.  Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances.  We believe that our audit provides a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management's assessment that Resource America, Inc. maintained effective internal control over financial reporting as of September 30, 2006, is fairly stated, in all material respects, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  Also in our opinion, Resource America, Inc. maintained, in all material respects, effective internal control over financial reporting as of September 30, 2006, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). 

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Resource America, Inc. and its subsidiaries as of September 30, 2006 and 2005, and the related statements of income, changes in stockholders’ equity and comprehensive income and cash flows for each of the three years in the period ended September 30, 2006, and our report dated December 8, 2006 expressed an unqualified opinion on those financial statements.

/s/ GRANT THORNTON LLP

Cleveland, Ohio

December 8, 2006

95

ITEM 9B.OTHER INFORMATION

None.

96

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The Board of Directors is divided into three classes with directors in each class serving three year terms. Information is set forth below regarding the principal occupation of each of our directors. There are no family relationships among the directors and executive officers except that Jonathan Z. Cohen, our President, Chief Executive Officer and a director, is a son of Edward E. Cohen, the Chairman of our Board of Directors.

The Board of Directors as a whole fulfills the responsibilities of the Nominating Committee, which includes recommending persons for nomination as directors of the Company. Director nominees are selected by a majority of the independent directors. The Board of Directors will consider formal nominations recommended to our Secretary by security holders beginning with the 2007 annual meeting of stockholders.

Michael J. Bradley, 62, has been a member of our Board of Directors since 2005. Co-owner and Managing Director of BF Healthcare, Inc. (a supplier of physician services to hospitals and assisted living facilities) since 1999. Director of The Bancorp, Inc. (a publicly-traded bank holding company) since 2005. Managing Board Member of Atlas Pipeline Partners GP, LLC (general partner of a publicly-traded natural gas pipeline limited partnership) from 2004 to 2005. Chairman of the Board of First Executive Bank from 1988 to 1998. Vice Chairman of First Republic Bank from 1998 to 2003.

Carlos C. Campbell, 69, has been a member of our Board of Directors since 1990. President of C.C. Campbell and Company (a management consulting firm) since 1985. Director of PICO Holdings, Inc. (a publicly-traded diversified holding company) since 1998. Director of Herley Industries, Inc. (a publicly-traded RF/microwave solutions company) since 2005.

Edward E. Cohen, 67, has been a member of our Board of Directors since 1988. Chairman of our Board since 1990. Chief Executive Officer from 1988 to 2004. President from 2000 to 2003. Chairman of the Board of Resource Capital Corp. (a publicly-traded real estate investment trust managed by us) since its formation in 2005. Chairman of the Managing Board of Atlas Pipeline Partners GP, LLC (a wholly-owned subsidiary of Atlas America that is the general partner of Atlas Pipeline Partners, L.P.) since its formation in 1999. Chairman, Chief Executive Officer and President of Atlas America, Inc. (a publicly-traded energy company formerly owned by us) since its formation in 2000. Chairman and Chief Executive Officer of Atlas Pipeline Holdings GP, LLC (a wholly-owned subsidiary of Atlas America that is the general partner of Atlas Pipeline Holdings, L.P., a publicly traded limited partnership that holds certain interests in and common units of Atlas Pipeline Partners, L.P.) since its formation in 2006. Director of TRM Corporation (a publicly-traded consumer services company) since 1998. Chairman of the Board of Brandywine Construction & Management, Inc. (a property management company) since 1994.

Jonathan Z. Cohen, 36, has been a member of our Board of Directors since 2002. President since 2003, Chief Executive Officer since 2004 and a Director since 2002. Chief Operating Officer from 2002 to 2004. Executive Vice President from 2001 to 2003. Senior Vice President from 1999 to 2001. Chief Executive Officer, President and a Director of Resource Capital Corp. since its formation in 2005. Vice Chairman of the Managing Board of Atlas Pipeline Partners GP, LLC since its formation in 1999. Vice Chairman and a Director of Atlas America since its formation in 2000. Vice Chairman of Atlas Pipeline Holdings GP, LLC since its formation in 2006. Trustee of RAIT Investment Trust (a publicly-traded real estate investment trust) since 1997. Secretary of RAIT since 1998 and Vice Chairman of RAIT since 2003.

Kenneth A. Kind, 53, has been a member of our Board of Directors since 2004. Vice President of Medi-Promotions, Inc. (a healthcare advertising company) since 1991. Director of Van Ameringen Foundation (a private charitable foundation) since 1995.

Andrew M. Lubin, 60, has been a member of our Board of Directors since 1994. President of Delaware Financial Group, Inc. (a private investment firm) since 1990.

97

John S. White, 66, has been a member of our Board of Directors since 1993. Senior Vice President of Royal Alliance Associates, Inc. (an independent broker/dealer), a wholly-owned subsidiary of American International Group, from 2002 to 2006. Chief Executive Officer and President of DCC Securities Corporation (a securities brokerage firm) from 1989 to 2002.

Non-Director Executive Officers

The Board of Directors appoints officers each year at its annual meeting following the annual stockholders meeting and from time to time as necessary.

Thomas C. Elliott, 33, Senior Vice President - Finance and Operations since 2006. Senior Vice President - Finance from 2005 to 2006. Vice President - Finance from 2001 to 2005. Chief Financial Officer of Resource Financial Fund Management, Inc. since 2004. Chief Financial Officer, Chief Accounting Officer and Treasurer of Resource Capital Corp., a publicly-traded real estate investment trust managed by a subsidiary of ours, from 2005 to 2006 and Senior Vice President - Finance and Operations since 2006. From 1997 to 2001, Mr. Elliott held various financial positions at Fidelity Leasing, Inc., a former subsidiary of ours, including Manager of Financial Planning, Director of Asset Securitization and Treasurer.

Alan F. Feldman, 43, Senior Vice President since 2002. Chief Executive Officer of Resource Real Estate, Inc. (a wholly-owned subsidiary) since 2004. Senior Vice President - Real Estate Investments of Resource Capital Corp. since 2005. Vice President at Lazard Freres & Co. (an investment bank) from 1998 to 2002. Executive Vice President at PREIT-Rubin, Inc., the management subsidiary of Pennsylvania Real Estate Investment Trust (a publicly-traded real estate investment trust) and its predecessor, The Rubin Organization, from 1992 to 1998.

Steven J. Kessler, 63, Executive Vice President since 2005 and Chief Financial Officer since 1997. Senior Vice President from 1997 to 2005. Senior Vice President - Finance of Resource Capital Corp. since 2005. Vice President - Finance and Acquisitions at Kravco Company (a national shopping center developer and operator) from 1994 to 1997. From 1983 to 1993, Mr. Kessler worked for Strouse Greenberg & Co., a regional full service real estate company, ending as Chief Financial Officer and Chief Operating Officer. Prior thereto, Partner at Touche Ross & Co. (now Deloitte & Touche LLP), independent public accountants. Trustee of GMH Communities Trust (a publicly-traded specialty housing real estate investment trust) since 2004.

Michael S. Yecies, 39, Senior Vice President since 2005 and Chief Legal Officer and Secretary since 1998. Vice President from 1998 to 2005. Chief Legal Officer and Secretary of Resource Capital Corp. since 2005. Attorney at Duane Morris LLP (an international law firm) from 1994 to 1998.

Other Significant Employees

The following sets forth certain information regarding other significant employees:

David E. Bloom, 42, Senior Vice President since 2001. President of Resource Capital Partners, Inc. (a wholly-owned real estate subsidiary) from 2002 to 2006. President of Resource Real Estate, Inc. since 2004. Senior Vice President at Colony Capital, LLC (an international real estate opportunity fund) from 1999 to 2001. Director at Sonnenblick-Goldman Company (a real estate investment bank) from 1998 to 1999. Attorney at Willkie Farr & Gallagher (an international law firm) from 1996 to 1998.

Crit S. DeMent, 54, Senior Vice President since 2005. Chairman and Chief Executive Officer of LEAF Financial (a majority-owned commercial finance subsidiary) since 2001. President of the Technology Finance Group of CitiCapital Vendor Finance in 2001. President of the Small Ticket Group of European American Bank, a division of ABN AMRO, from 2000 to 2001. President and Chief Operating Officer of Fidelity Leasing, Inc. (a former subsidiary) from 1996 to 2000.

98

Information Concerning the Audit Committee

Our Board of Directors has a standing Audit Committee. Members of the Committee are Messrs. Lubin (Chairman), Bradley and Campbell. All of the members of the Audit Committee are independent directors as defined by Nasdaq rules. The Board of Directors has determined that Mr. Bradley is an “audit committee financial expert” as defined by SEC rules. The Committee held five meetings during fiscal 2006.

Code of Ethics

We have adopted a code of business conduct and ethics applicable to all directors, officers and employees. We will provide to any person without charge, upon request, a copy of our code of conduct. Any such request should be directed to us as follows: Resource America, Inc., 1845 Walnut Street, Suite 1000, Philadelphia, PA 19103, Attention: Secretary. Our code of conduct is also available on our website: www.resourceamerica.com.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires our officers, directors and persons who own more than ten percent of a registered class of our equity securities to file reports of ownership and changes in ownership with the SEC and to furnish us with copies of all such reports.

    Based solely on our review of the reports received by us, or written representations from certain reporting persons, no filings were required for those persons.

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ITEM 11. EXECUTIVE COMPENSATION

Executive Officer Compensation

The following table sets forth certain information concerning the compensation paid or accrued during each of the last three fiscal years for our Chief Executive Officer and each of our four other most highly compensated executive officers whose aggregate salary and bonus (including amounts of salary and bonus foregone to receive non-cash compensation) exceeded $100,000:

Summary Compensation Table

			Annual Compensation						Long Term Compensation Awards
									Restricted		Securities		All Other
	Fiscal								Stock		Underlying		Compen-
Name and Principal Position	Year		Salary		Bonus (1)		Other		Awards(2)		Options		sation (3)
Jonathan Z. Cohen President and Chief Executive Officer		2006 2005 2004		$600,000 623,077 457,692		$1,700,000 800,000 400,000		0 0 0		$32,614 1,435 1,900		0 275,000 0		$      57,658 4,255,691 564,631
Steven J. Kessler Executive Vice President and Chief Financial Officer		2006 2005 2004		325,000 329,808 300,000		400,000 235,000 235,000		0 0 0		33,946 1,435 1,963		0 35,000 0		14,500 143,830 45,260
Alan F. Feldman Senior Vice President		2006 2005 2004		350,000 354,808 317,500		350,000 225,000 150,000		0 0 0		10,712 1,435 1,900		0 0 0		0 75,000 0
Thomas C. Elliott Senior Vice President − Finance and Operations		2006 2005 2004		193,269 180,932 156,539		300,000 140,000 115,000		0 0 0		12,064 1,435 1,911		0 69,381 0		10,090 326,000 37,547
Michael S. Yecies Senior Vice President, Chief Legal Officer and Secretary		2006 2005 2004		207,308 202,692 180,756		200,000 100,000 72,500		0 0 0		26,686 1,435 1,911		0 7,500 0		12,000 61,330 25,130

(1) Bonuses in any fiscal year are generally based upon our performance in the prior fiscal year and the individual’s contribution to that performance. From time to time, we may award bonuses in a fiscal year reflecting an individual’s performance during that fiscal year. Fiscal 2006 bonus includes restricted stock grants of our common stock that vests 25% per year over four years in the following amounts: Mr. Cohen - 11,580 shares ($200,000); Mr. Feldman - 5,790 shares ($100,000); and Mr. Kessler - 2,895 shares ($50,000); and restricted stock grants of Resource Capital Corp. that vest 33.33% per year over three years in the following amounts: Mr. Cohen - 33,333 shares ($500,000) and Mr. Feldman - 1,666 shares ($25,000).

(2) Reflects allocations of shares to employee accounts under our Employee Stock Ownership Plan, or ESOP. Share allocations under the ESOP have been valued at the closing price of our common stock at September 30, 2006, 2005 and 2004, respectively. Fiscal 2006 ESOP share allocations include exchanges of Atlas America, Inc. common stock acquired as a result of our spin-off of Atlas America in fiscal 2005 for equal values of our common stock. For purposes of this table, all ESOP shares are assumed to be fully vested. As of September 30, 2006, Messrs. Cohen, Elliott, Kessler and Yecies were fully vested and Mr. Feldman was 40% vested. ESOP shares vest 20% after three years of service and 20% per year thereafter. At September 30, 2006, the number of restricted shares held and the value of those restricted shares (in the aggregate, and valued at the closing market price of our common stock on September 30, 2006) were: Mr. Cohen - 2,237 shares ($46,530); Mr. Kessler - 2,331 shares ($48,485); Mr. Feldman - 677 shares ($14,082); Mr. Elliott - 773 shares ($16,078); and Mr. Yecies - 1,815 shares ($37,752). Cash dividends, as and when authorized by our Board of Directors, have been and will continue to be paid to the ESOP on the restricted shares.

(3) Reflects matching payments we made under our 401(k) Plan, grants in fiscal 2005 and 2004 of phantom units under the Atlas Pipeline Long Term Incentive Plan, and stock option grants in fiscal 2006 and restricted stock grants in 2005 of RCC common stock under the RCC Stock Incentive Plan, as detailed below. The amount set forth for Mr. Cohen in fiscal 2005 also includes (i) the value of unexercised in-the-money stock options granted under the Atlas America, Inc. Stock Incentive Plan, valued by subtracting the total exercise price from the fair market value of the securities underlying the options at September 30, 2005: 200,000 options ($2,128,000) and (ii) payments of $13,018 to a law firm in connection with its representation of Mr. Cohen in reviewing Mr. Cohen’s employment agreement with the

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Company. The phantom unit grants under the Atlas Pipeline Long Term Incentive Plan entitle the recipient, upon vesting, to receive one common unit or its then fair market value in cash and include distribution equivalent rights. The number of phantom units held and the value of those phantom units, valued at the closing market price of Atlas Pipeline common units on the date of the grant, are: Mr. Cohen - 27,500 phantom units ($1,167,150); Mr. Kessler - 1,500 phantom units ($61,590); Mr. Elliott - 1,500 phantom units ($61,590); and Mr. Yecies - 1,000 phantom units ($42,960). The restricted stock grants under the RCC Stock Incentive Plan vest one-third per year over three years and entitle the recipient to all the rights of an RCC shareholder, including dividend rights. The number of restricted shares held and the value of these shares, valued at the price of the shares sold in RCC’s March 2005 private offering, are: Mr. Cohen - 100,000 shares ($1,500,000); Mr. Kessler - 7,500 shares ($112,500); Mr. Feldman - 5,000 shares ($75,000); Mr. Elliott - 20,000 shares ($300,000); and Mr. Yecies - 2,000 shares ($30,000). The RCC stock options vest one-third per year over three years and have an exercise price of $15.00 per share. The value of RCC stock options is calculated by subtracting the total exercise price of the unexercised in-the-money stock options from the fair market value of the securities underlying the options at September 30, 2006: Mr. Cohen - 100,000 options ($45,000); and Messrs. Kessler, Elliott and Yecies - 10,000 options each ($4,500 each).

Option/SAR Grants and Exercises in Last Fiscal Year and Fiscal Year-End Option Values

We did not grant any stock options or stock appreciation rights to the named executive officers in fiscal 2006.

The following table sets forth the aggregated option exercises during fiscal 2006, together with the number of unexercised options and their value on September 30, 2006, held by the executive officers listed in the Summary Compensation Table. No stock appreciation rights were exercised or held by the named executive officers in fiscal 2006.

Aggregated Option Exercises In Last Fiscal Year

and Fiscal Year-End Option Values

Name	Shares Acquired On Exercise		Value Realized (1)		Number of Securities Underlying Unexercised Options at FY-End Exercisable/ Unexercisable		Value of Unexercised In-the-Money Options at FY-End Exercisable/ Unexercisable (2)
Jonathan Z. Cohen		0		0		1,318,302/0		$18,067,313/$0
Steven J. Kessler		12,100	$	176,010		112,493/0		$1,398,519/$0
Alan F. Feldman		0		0		413,023/0		$6,922,889/$0
Thomas C. Elliott		0		0		38,663/48,063		$402,447/$232,644
Michael S. Yecies		0		0		94,383/5,625		$1,499,635/$19,913

(1) Value is calculated by subtracting the total exercise price from the fair market value of the securities underlying the options at the date of exercise.

(2) Value is calculated by subtracting the total exercise price from the fair market value of the securities underlying the options at September 30, 2006.

Employment Agreements

Jonathan Z. Cohen currently serves as our Chief Executive Officer, President and a director under an employment agreement dated October 5, 1999. The agreement requires Mr. Cohen to devote as much of his business time to us as necessary to the fulfillment of his duties, although it permits him to have outside business interests. The agreement provides for initial base compensation of $200,000 per year, which may be increased by the Compensation Committee of the Board based upon its evaluation of Mr. Cohen's performance. Mr. Cohen is eligible to receive incentive bonuses and equity compensation grants in amounts to be determined by the Board and to participate in all employee benefit plans in effect during his period of employment.

The agreement has a term of three years and, until notice to the contrary, the term is automatically extended so that, on any day on which the agreement is in effect, it has a then-current three year term. The agreement can be terminated sooner in the event of Mr. Cohen’s disability extending for more than 240 days or death. Mr. Cohen also has the right to terminate the agreement upon a change in control or potential change in control and for cause. Otherwise, Mr. Cohen can terminate the agreement upon 180 days notice.

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The agreement provides the following termination benefits: (i) upon termination due to death, Mr. Cohen’s estate will receive an amount equal to three times Average Compensation (defined as the average of the annual total compensation received by Mr. Cohen in the three most highly compensated years during the previous nine years of employment) (payable over 36 months); (ii) upon termination due to disability, Mr. Cohen will receive a monthly benefit equal to one-twelfth of the product of (a) Average Compensation and (b) 75%; and (iii) upon termination by Mr. Cohen for cause, or upon a change in control or potential change in control, an amount equal to three times Average Compensation plus continuation of life, health, accident and disability insurance benefits for a period of 36 months. In the event that any amounts payable to Mr. Cohen pursuant to items (i) through (iii), above, which we refer to as Total Benefits, become subject to any excise tax imposed under Section 4999 of the Internal Revenue Code of 1986, we must pay Mr. Cohen an additional sum such that the net amounts retained by Mr. Cohen, after payment of excise, income and withholding taxes, shall equal Total Benefits.

The terms of our employment agreement with Steven J. Kessler as of October 1999 are substantially similar to the terms of our employment agreement with Mr. J. Cohen, described above, except as follows: Mr. Kessler currently serves as Executive Vice President and Chief Financial Officer, Mr. Kessler’s initial base compensation is $300,000 per year, Mr. Kessler is not expressly permitted to have outside business interests and Mr. Kessler does not have the right to terminate the agreement upon a potential change in control.

    Michael S. Yecies currently serves as our Senior Vice President, Chief Legal Officer and Secretary under an employment agreement dated November 17, 2006. The agreement requires Mr. Yecies to devote substantially all of his time and attention to us as necessary to the fulfillment of his duties. The agreement provides for initial base compensation of $210,000 per year, which may be increased by the Compensation Committee of the Board based upon its evaluation of Mr. Yecies' performance. Mr. Yecies is eligible to receive incentive bonus payments, stock option grants, restricted stock grants and other forms of incentive compensation in amounts to be determined by the Board and to participate in all employee benefit plans in effect during his period of employment.

The agreement has a term of one year and, until notice to the contrary, the term is automatically extended so that, on any day on which the agreement is in effect, it has a then-current one year term. The agreement can be terminated sooner in the event of Mr. Yecies’ disability extending for more than 180 days or death. Mr. Yecies also has the right to terminate the agreement upon a change in control and for cause. Otherwise, Mr. Yecies can terminate the agreement upon 180 days' notice.

The agreement provides the following termination benefits: (i) upon termination due to death, Mr. Yecies’ estate will receive an amount equal to: (a) any earned but unpaid portion of Mr. Yecies' base salary; (b) any accrued but unpaid vacation pay; (c) an amount equal to one (1) year’s base compensation as of the date of death; and (d) an amount equal to the value of all incentive compensation (excluding stock options grants) received by Mr. Yecies during the prior year ending on the date of death; (ii) upon termination due to disability, Mr. Yecies will receive his base compensation and any incentive compensation (excluding stock option grants) until the expiration of the term; (iii) upon termination by Mr. Yecies for cause, or by us not for cause, Mr. Yecies will receive his annual base compensation for a period of one year; and (iv) upon termination following a change in control, Mr. Yecies will receive amounts equal to all compensation and benefits he would have received through the end of the term.

The terms of our employment agreement with Thomas C. Elliott as of November 17, 2006 are substantially similar to the terms of our employment agreement with Mr. Yecies, described above, except as follows: Mr. Elliott currently serves as Senior Vice President - Finance and Operations and Mr. Elliott’s initial base compensation is $200,000 per year.

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Director Compensation

Each of our independent directors receives a retainer of $35,000 per year and is eligible to participate in our 2002 Non-Employee Director Deferred Stock and Deferred Compensation Plan, referred to as the 2002 Plan, which was approved by our stockholders on April 29, 2002. Under the 2002 Plan, non-employee directors, Eligible Directors are awarded units representing the right to receive one share of our common stock for each unit awarded. Upon becoming an Eligible Director, each Eligible Director receives units equal to $15,000 divided by the closing price of our common stock on the date of grant. Eligible Directors receive an additional unit award equal to $15,000 divided by the closing price of our common stock on each anniversary of the date of initial grant. Units vest on the later of: (i) the fifth anniversary of the date the recipient became an Eligible Director and (ii) the first anniversary of the grant of those units, except that units will vest sooner upon a change in control or death or disability of an Eligible Director, provided the Eligible Director completed at least six months of service. Upon termination of service by an Eligible Director, vested units will become issued common stock, but all unvested units are forfeited. The 2002 Plan provides for the issuance of a maximum of 75,000 units (173,454 units, as adjusted for the spin-off) and terminates on April 29, 2012, except with respect to previously awarded grants. As of the date of this annual report, we have five Eligible Directors and 49,486 units, as adjusted, have been awarded to such Eligible Directors under the 2002 Plan.

Mr. E. Cohen received $750,000 in fiscal 2006 for his service as the Chairman of our Board of Directors. In fiscal 2006, Mr. E. Cohen also received a grant of 5,790 shares of our common stock, vesting 25% per year over four years; a grant of options to acquire 25,000 shares of RCC common stock at an exercise price of $15.00 per share, vesting one-third per year over three years; and payment of $837,000 pursuant to a Supplemental Employment Retirement Plan we established as part of Mr. E. Cohen’s former employment agreement with us that pays Mr. E. Cohen a monthly retirement benefit. Mr. E. Cohen currently holds vested options exercisable for 1,034,001 shares of our common stock. Except for options with respect to 80,000 shares referred to above, all of such options were granted to Mr. E. Cohen when he was our Chief Executive Officer.

Compensation Committee Interlocks and Insider Participation

The Compensation Committee of the Board of Directors consists of Messrs. Campbell, Kind and White. Mr. Campbell is the chairman of the Committee. None of such persons was an officer or employee of ours or any of our subsidiaries during fiscal 2006 or was formerly an officer of ours or any of our subsidiaries. None of our executive officers has been a director or executive officer of any entity of which any member of the Compensation Committee has been a director or executive officer during fiscal year 2006.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED

                   STOCKHOLDER MATTERS

The following table sets forth the number and percentage of shares of common stock owned, as of December 1, 2006, by (a) each person who, to our knowledge, is the beneficial owner of more than 5% of the outstanding shares of common stock, (b) each of our present directors, (c) each of the executive officers named in the Summary Compensation Table in Item 11, and (d) all of the named executive officers and directors as a group. This information is reported in accordance with the beneficial ownership rules of the Securities and Exchange Commission under which a person is deemed to be the beneficial owner of a security if that person has or shares voting power or investment power with respect to such security or has the right to acquire such ownership within 60 days. Shares of common stock issuable pursuant to options or warrants are deemed to be outstanding for purposes of computing the percentage of the person or group holding such options or warrants but are not deemed to be outstanding for purposes of computing the percentage of any other person. Unless otherwise indicated in footnotes to the table, each person listed has sole voting and dispositive power with respect to the securities owned by such person.

	Common Stock
	Amount and Nature of		Percent of
Beneficial Owner	Beneficial Ownership		Class
Directors(16)
Michael J. Bradley	10,000		*
Carlos C. Campbell	47,411	(1)(2)	*
Edward E. Cohen	2,555,711	(4)(6)(7)(8)(9)(10)	13.94%
Jonathan Z. Cohen	1,655,529	(3)(4)(6)(7)(8)(11)	8.89%
Kenneth A. Kind	8,115		*
Andrew M. Lubin	45,771	(1)(2)	*
John S. White	45,931	(1)(2)	*
Non-Director Executive Officers(16)
Thomas C. Elliott	45,882	(3)(4)(5)(6)(7)	*
Alan F. Feldman	436,559	(3)(6)(7)	2.47%
Steven J. Kessler	221,499	(3)(4)(6)(7)(8)	1.27%
Michael S. Yecies	98,895	(3)(4)(6)(7)	*
All named executive officers and directors as a group (11 persons)	5,104,788	(1)(2)(3)(4)(5)(6)(7)(8)(9)(10)	24.98%
Other Owners of More Than 5% of Outstanding Shares
Cobalt Capital Management, Inc.	1,574,542	(12)	9.11%
Leon G. Cooperman	1,157,700	(13)	6.69%
Dimensional Fund Advisors Inc.	976,744	(14)	5.65%
Spencer Capital Management, LLC	2,442,872	(15)	14.13%

* Less than 1%

(1) Includes vested units representing the right to receive one share of common stock per unit granted under our 1997 Non-Employee Directors Deferred Stock and Deferred Compensation Plan in the following amounts: Mr. Campbell - 34,690 units; Mr. Lubin - 34,690 units; and Mr. White - 34,690 units.

(2) Includes vested units representing the right to receive one share of common stock per unit granted under our 2002 Plan in the following amounts: Mr. Campbell - 10,241 units; Mr. Lubin - 10,241 units; and Mr. White - 10,241 units.

(3) Includes shares allocated under our ESOP in the following amounts: Mr. J. Cohen - 2,237 shares; Mr. Elliott - 773 shares; Mr. Feldman - 677 shares; Mr. Kessler - 2,331 shares; and Mr. Yecies - 1,815 shares, as to which each has voting power.

(4) Includes shares allocated under our 401(k) plan in the following amounts: Mr. E. Cohen - 21,789 shares; Mr. J. Cohen - 15,030 shares; Mr. Elliott - 6,446 shares; Mr. Kessler - 15,904 shares; and Mr. Yecies - 2,697 shares, as to which each has voting power.

(5) Includes 2,312 shares issuable on exercise of options granted under our 1997 Key Employee Stock Option Plan.

(6) Includes shares issuable on exercise of options granted under our 1999 Key Employee Stock Option Plan in the following amounts: Mr. E. Cohen - 637,089 shares; Mr. J. Cohen - 696,394 shares; Mr. Elliott - 8,767 shares; Mr. Feldman - 49,519 shares; Mr. Kessler - 49,796 shares; and Mr. Yecies - 69,381 shares.

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(7) Includes shares issuable on exercise of options granted under our 2002 Key Employee Stock Option Plan in the following amounts: Mr. E. Cohen - 392,073 shares; Mr. J. Cohen - 346,908 shares; Mr. Elliott - 11,564 shares; Mr. Feldman - 363,504 shares; Mr. Kessler - 27,697 shares; and Mr. Yecies - 23,127 shares.

(8) Includes shares issuable on exercise of options granted under our 2005 Omnibus Equity Compensation Plan in the following amounts: Mr. E. Cohen - 4,839 shares; Mr. J. Cohen - 275,000 shares; Mr. Elliott - 16,020 shares; Mr. Kessler - 35,000 shares and Mr. Yecies - 1,875 shares.

(9) Includes 449,516 shares held by a private charitable foundation of which Mr. E. Cohen serves as a co-trustee. Mr. E. Cohen disclaims beneficial ownership of these shares.

(10) Includes 92,500 shares held in trusts for the benefit of Mr. E. Cohen’s spouse and/or children. Mr. E. Cohen disclaims beneficial ownership of these shares. 46,250 of these shares are also included in the shares referred to in footnote 11 below.

(11) Includes 46,250 shares held in a trust of which Mr. J. Cohen is a co-trustee and co-beneficiary. These shares are also included in the shares referred to in footnote 10 above.

(12) This information is based on Schedule 13G/A filed with the SEC on February 9, 2006. Includes 1,574,542 shares as to which shared voting and dispositive power is claimed. The address for Cobalt Capital Management, Inc. is 237 Park Avenue, Suite 900, New York, New York 10012.

(13) This information is based on Schedule 13G filed with the SEC on February 8, 2006. Includes 626,000 shares as to which sole voting and dispositive power is claimed and 531,700 shares as to which shared voting and dispositive power is claimed. Mr. Cooperman’s address is 88 Pine Street, Wall Street Plaza, 31^st Floor, New York, New York 10005.

(14) This information is based on Schedule 13G/A filed with the SEC on February 6, 2006. Dimensional Fund Advisors Inc. (“Dimensional”), an investment advisor registered under Section 203 of the Investment Advisors Act of 1940, furnishes investment advice to four investment companies registered under the Investment Company Act of 1940, and serves as investment manager to certain other commingled group trusts and separate accounts. It refers to these investment companies, trusts and accounts as the Funds. In its role as investment advisor or manager, Dimensional possesses investment and/or voting power over 976,744 shares of the Company’s common stock as of December 31, 2005. The Funds own all of these securities. Dimensional disclaims beneficial ownership of such securities. The address for Dimensional Fund Advisors Inc. is 1299 Ocean Avenue, 11^th Floor, Santa Monica, California 90401.

(15) This information is based on a Form 4 filed with the SEC on August 28, 2006. Includes 1,891,879 shares as to which shared voting power and shared dispositive power is claimed. The address for Spencer Capital Management, LLC is 1995 Broadway, Suite 1801, New York, New York 10023.

(16) The address for all our directors and officers is One Cresent Drive, Suite 203, Navy Yard Corporate Center, Philadelphia, PA 19112.

Equity Compensation Plan Information

The following table summarizes certain information about our compensation plans, in the aggregate, as of September 30, 2006:

	(a)	(b)	(c)
Plan category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights	Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights	Number of Securities Remaining Available  for Future Issuance Under Equity Compensation  Plans Excluding Securities Reflected in Column (a)
Equity compensation plans approved by security holders	3,865,296	$7.54	821,698

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In the ordinary course of our business operations, we have ongoing relationships with several related entities. The following table details the receivables and payables with these related parties (in thousands):

	September 30, 2006
Receivables from managed entities and related parties:
Commercial finance investment partnerships	$	3,938
Financial fund management entities		2,064
RCC		1,409
Real estate investment partnerships and TIC property interests		952
Atlas America		265
Anthem Securities		154
Other		13
Receivables from managed entities	$	8,795
Payables due to managed entities and related parties:
Real estate investment partnerships and TIC property interests	$	1,325
Anthem Securities		254
Payables to managed entities	$	1,579

We receive fees, dividends and reimbursed expenses from several related/managed entities. In addition, we reimburse another related entity for certain operating expenses. The following table details those activities (in thousands):

	Year Ended September 30, 2006
Financial Fund Management - fees from managed entities	$	8,726
Real Estate - fees from investment partnerships and TIC property interests		11,452
Commercial finance - fees from investment partnerships		5,816
RCC:
Fees and equity compensation		8,203
Reimbursement of expenses from RCC		718
Dividends received		2,722
Atlas America - reimbursement of net costs and expenses		1,303
Anthem Securities:
Payment of operating expenses		(1,166	)
Reimbursement of costs and expenses from Anthem Securities		2,906
1845 Walnut Associates Ltd - payment of rent and operating expenses		(450	)
9 Henmar LLC - payment of broker/consulting fees		(479	)
Ledgewood P.C. - payment of legal services		(472	)

Relationship with Atlas America. On June 30, 2005, we completed the spin-off of Atlas America. Atlas America reimburses us for various costs and expenses we continue to incur on behalf of Atlas America, primarily payroll and rent. Certain operating expenditures totaling $265,000 that remain to be settled between us and Atlas America as of September 30, 2006 are reflected in the consolidated balance sheet as a receivable from related party.

Relationship with Anthem Securities. Anthem Securities, Inc., a wholly-owned subsidiary of Atlas America and a registered broker dealer, serves as the dealer-manager of investment programs sponsored by our real estate and commercial finance segments. Some of the personnel performing services for Anthem have been on our payroll and Anthem reimburses us for the allocable costs of such personnel. In addition, we agreed to pay some of the operating costs for Anthem’s office of supervisory jurisdiction, principally licensing fees and costs.

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Relationship with 1845 Walnut Associates Ltd. We lease space in an office building in which we also own a 30% equity interest in the partnership that owns the building, 1845 Walnut Associates Ltd. The property is managed by Brandywine Construction and Management, Inc., or BCMI, as further described below.

Relationship with 9 Henmar. We own interests in the Trapeza entities that have sponsored CDO issuers and manage pools of trust preferred securities acquired by the CDO issuers. The Trapeza entities and CDO issuers were originated and developed in large part by Daniel G. Cohen, or D. Cohen. Jonathan Z. Cohen, or J. Cohen, the President, Chief Executive Officer and a Director of the Company, and D. Cohen are the sons of Edward E. Cohen, or E. Cohen, and Betsy Z. Cohen, or B. Cohen. We agreed to pay D. Cohen’s company, 9 Henmar, 10% of the fees we receive in connection with the first four Trapeza CDOs that we sponsored and manage. In fiscal 2006, the Company received $4.3 million of such fees from these transactions, net of expenses and paid 9 Henmar $479,000.

Relationship with Ledgewood P.C. Until April 1996, E. Cohen was of counsel to Ledgewood. E. Cohen receives certain debt service payments from Ledgewood related to the termination of his affiliation with Ledgewood and its redemption of his interest.

Relationship with Retirement Trusts. We have established two trusts to fund the SERP for E. Cohen. The 1999 Trust, a secular trust, purchased 100,000 shares of the common stock of The Bancorp, Inc. with a fair value of $2.5 million at September 30, 2006. This trust and its assets are not included in our consolidated balance sheets. However, its assets are considered in determining the amount of our liability under the SERP. The 2000 Trust, a “Rabbi Trust,” holds 123,719 shares of common stock of Bancorp carried at market value which was $3.2 million at September 30, 2006 and a loan to a limited partnership in which E. Cohen and D. Cohen own the beneficial interests. This loan was acquired for its outstanding balance of $720,000 by the 2000 Trust in April 2001 from a corporation of which E. Cohen was chairman and J. Cohen was the president. The loan balance as of September 30, 2006 was $297,000. In addition, the 2000 Trust invested $1.0 million in Financial Securities Fund, an investment partnership which is managed by a corporation of which D. Cohen is the principal shareholder and a director. The partnership is being liquidated and the 2000 Trust received substantially all of its initial investment, together with accumulated income, during fiscal 2006. The carrying value of the assets in the 2000 Trust was approximately $5.6 million at September 30, 2006. Its assets are included in other assets in our consolidated balance sheets. Our liability under the SERP has not been reduced by the value of those assets.

Relationship with The Bancorp, Inc., or TBBK. We own 3.5% of the outstanding common stock of TBBK. D. Cohen is the Chairman and B. Cohen is the Chief Executive Officer of TBBK and its subsidiary bank. At September 30, 2006, we had cash deposits of $282,000 at TBBK. In 2006, we sold 50,000 shares of TBBK stock for $1.2 million and realized a gain of $668,000.

Relationship with Certain Directors, Officers, Employees and Other Related Parties. A wholly-owned subsidiary of ours serves as the general partner of three partnerships that invest in regional domestic banks. The general partner may receive a carried interest of up to 20% upon meeting specific investor return rates. Some of the partnerships’ investors wanted to ensure that certain individuals who are critical to the partnerships’ success participate in the carried interest. The total participation authorized by our compensation committee was 48.5% of the 20% carried interest, of which J. Cohen, B. Cohen and E. Cohen received 10%, 7.5% and 5%, respectively. The remaining 26% was received by six individuals, four of whom are our employees.

    Relationship with Brandywine Construction & Management, Inc. BCMI manages the properties underlying four of our real estate loans and certain real estate and FIN 46 assets. Adam Kauffman, President of BCMI, or an entity affiliated with him, has also acted as the general partner, president or trustee of three of the borrowers. E. Cohen is the chairman of BCMI and holds approximately 8% of its common stock.

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ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES

Audit Fees

The aggregate fees billed by our independent auditors, Grant Thornton LLP, for professional services rendered for the audit of our annual financial statements for fiscal 2006 and 2005 (including a review of internal controls as required under Section 404 of Sarbanes-Oxley) and for the reviews of the financial statements included in our Quarterly Reports on Form 10-Q during such fiscal years were $1,178,000 and $1,692,000, respectively.

Audit−Related Fees

The aggregate fees billed by Grant Thornton for audit-related services, including separate audits as required by certain of our subsidiaries and consulting on reporting issues were $164,000 and $198,000 for fiscal 2006 and 2005, respectively.

Tax Fees

The aggregate fees billed by Grant Thornton for professional services related to tax compliance, tax advice and tax planning were $85,000 and $154,000 for fiscal 2006 and 2005, respectively.

All Other Fees

There were no other aggregate fees billed by Grant Thornton for products and services provided to us, other than services described above under “Audit Fees,” “Audited-Related Fees” and “Tax Fees” for fiscal 2006 and 2005.

Audit Committee Pre-Approval Policies and Procedures

The Audit Committee, on at least an annual basis, reviews the audit and non-audit services performed by Grant Thornton, LLP as well as the fees charged by Grant Thornton, LLP for such services. Our policy is that all audit and non-audit services must be pre-approved by the Audit Committee. All of such services and fees were pre-approved during fiscal 2006.

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PART IV

ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The following documents are filed as part of this Annual Report on Form 10-K:

1.   Financial Statements

 Report of Independent Registered Public Accounting Firm

 Consolidated Balance Sheets at September 30, 2006 and 2005

 Consolidated Statements of Income for the years ended September 30, 2006, 2005 and 2004

 Consolidated Statements of Changes in Stockholders' Equity and Comprehensive Income for

      the years ended September 30, 2006, 2005 and 2004

 Consolidated Statements of Cash Flows for the years ended September 30, 2006, 2005 and 2004

 Notes to Consolidated Financial Statements − September 30, 2006

2.   Financial Statement Schedules

Schedule III - Investments in Real Estate

Schedule IV - Investments in Mortgage Loans on Real Estate

Schedule − Significant Subsidiary Financials

          a)   Trapeza Capital Manager, LLC Audited Financial Statements for the years ended December 31, 2006 and 2005 *

 b)   Trapeza Management Group, LLC Audited Financial Statements for the years ended December 31, 2006 and 2005 *

*Audited statements for these calendar year entities will be filed subsequently in an amendment to this Form 10K.

a)   Exhibits

    Exhibit No.Description

3.1	Restated Certificate of Incorporation of Resource America. (1)
3.2	Amended and Restated Bylaws of Resource America, Inc. (1)
10.1	Master Separation and Distribution Agreement between Atlas America, Inc. and Resource America, Inc. dated May 14, 2004. (2)
10.2	Registration Rights Agreement between Atlas America, Inc. and Resource America, Inc. dated May 14, 2004. (2)
10.3	Tax Matters Agreement between Atlas America, Inc. and Resource America, Inc. dated May 14, 2004. (2)
10.4	Transition Services Agreement between Atlas America, Inc. and Resource America, Inc. dated May 14, 2004. (2)
10.5	Employment Agreement between Steven J. Kessler and Resource America, Inc., dated October 5, 1999. (1)
10.5(a)	Employment Agreement between Jonathan Z. Cohen and Resource America, Inc., dated October 5, 1999. (9)
10.6(a)	Fourth Modification, dated June 30, 2005, of Revolving Credit Agreement, Revolving Credit Loan and Security Agreement dated July 27, 1999 by and between Resource America, Inc., Resource Properties XXXIV, Inc., Resource Properties XL, Inc., Resource Properties XXX, Inc., Resource Properties XXXI, Inc. and Sovereign Bank. (3)
10.6(b)	Fifth Modification, dated September 29, 2005, of Revolving Credit Loan and Security Agreement dated July 27, 1999 by and between Resource America, Inc., Resource Properties XXXIV, Inc., Resource Properties XL, Inc., Resource Properties XXX, Inc., Resource Properties XXXI, Inc. and Sovereign Bank. (4)
10.6(c)	Seventh Modification, dated July 2006, of Revolving Credit Loan and Security Agreement dated July 27, 1999 by and between Resource America, Inc., Resource Properties XXX, Inc., Resource Properties XLI, Inc., Resource Capital Investor, Inc. and Sovereign Bank.
10.7(a)	Credit Agreement dated July 31, 2006 between LEAF Financial Corporation, LEAF Funding, Inc. and National City Bank and between Resource America, Inc. and National City Bank. (7)

109

10.7(b)	Guaranty and Suretyship Agreement dated July 31, 2006 between Resource America, Inc., Resource Leasing, Inc. and National City Bank. (7)
10.7(c)	First Amendment to Credit Agreement dated August 14, 2006 between LEAF Financial Corporation, LEAF Funding, Inc. and National City Bank. (8)
10.8	First Amendment to Guaranty of Payment dated June 18, 2004 between Resource America, Inc. and Commerce Bank, National Association. (2)
10.9	Revolving Credit Agreement and Assignment dated as of May 27, 2004 among Lease Equity Appreciation Fund I, L.P., LEAF Financial Corporation and Sovereign Bank. (2)
10.10	Pooling and Servicing Agreement, dated July 13, 2005, among LEAF Funding, Inc., LEAF Financial Corporation, Merrill Lynch, Pierce, Fenner & Smith Incorporated and The Bank of New York. (4)
10.10 (a)	Assignment, Assumption and Amendment Agreement, dated September 29, 2006, among LEAF Funding, Inc., Merrill Lynch Equipment Finance LLC, Merrill Lynch Commercial Finance Corp. and U.S. Bank National Association.
10.11	2005 Omnibus Equity Compensation Plan. (3)
10.12	Grant of Incentive Stock Option Pursuant to the Resource America, Inc. 2005 Omnibus Equity Compensation Plan. (6)
10.13	Grant of Non-Qualified Stock Option Pursuant to the Resource America, Inc. 2005 Omnibus Equity Compensation Plan. (6)
10.14	2005 Omnibus Equity Compensation Plan - Form of Stock Award Agreement (5)
10.15	Loan and Security Agreement, dated July 2006, among Resource America, Inc. and Commerce Bank, N.A.
21.1	Subsidiaries of Resource America, Inc.
23.1	Consent of Grant Thornton LLP.
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer pursuant to Section 1350 18 U.S.C., as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to Section 1350 18 U.S.C., as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(1)   Filed previously as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended December 31, 1999 and by this reference incorporated herein.

(2)   Filed previously as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2004 and by this reference incorporated herein.

(3)   Filed previously as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 and by this reference incorporated herein.

(4)   Filed previously as an exhibit to our Annual Report on Form 10K for the fiscal year ended September 30, 2005 and by this reference incorporated herein.

(5)   Filed previously as an exhibit to our Report on Form 8-K filed on February 15, 2006 and by this reference incorporated herein.

(6)   Filed previously as an exhibit to our Annual Report on Form 10K/A for the fiscal year ended September 30, 2005 and by this reference incorporated herein.

(7)   Filed previously as an exhibit to our Report on Form 8-K filed on August 4, 2006 and by this reference incorporated herein.

(8)   Filed previously as an exhibit to our Report on Form 8-K filed on August 17, 2006 and by this reference incorporated herein.

(9)   Filed previously as an exhibit to our Annual Report on Form 10K for the fiscal year ended September 30, 2000 and by this reference incorporated herein.

110

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

     RESOURCE AMERICA, INC.

December 14, 2006                                                                    By:/s/ Jonathan Z. Cohen

                                                                        Chief Executive Officer and President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/ Edward E. Cohen	Chairman of the Board	December 14, 2006
EDWARD E. COHEN
/s/ Jonathan Z. Cohen	Director, President	December 14, 2006
JONATHAN Z. COHEN	and Chief Executive Officer
/s/ Carlos C. Campbell	Director	December 14, 2006
CARLOS C. CAMPBELL
/s/ Andrew M. Lubin	Director	December 14, 2006
ANDREW M. LUBIN
/s/ Michael J. Bradley	Director	December 14, 2006
MICHAEL J. BRADLEY
/s/ Kenneth A. Kind	Director	December 14, 2006
KENNETH A. KIND
/s/ John S. White	Director	December 14, 2006
JOHN S. WHITE
/s/ Steven J. Kessler	Executive Vice President	December 14, 2006
STEVEN J. KESSLER	and Chief Financial Officer

111

Resource America, Inc. & Subsidiaries

SCHEDULE III

Real Estate and Accumulated Depreciation

September 30, 2006

(in thousands)

Column

Column

Column

Column

Column

Column

Column

Column

Column

A

B

C

D

E

F

G

H

I

Description

Encumbrances

Initial cost to Company

Cost Capitalized Subsequent to Acquisition

Gross Amount at which Carried at Close of Period

Accumulated Depreciation

Date of Construction

Date Acquired

Life on which Depreciation in Latest Income is Computed

Buildings and Land Improvements

Improvements Carrying Costs

Buildings and Land Improvements Total

Real estate owned - held for sale

Vacant Commercial Retail Space, Richmond, VA

$

1,130

$

2,402

$

−

$

1,293

$

−

1980

9/30/2003

(b)

n/a

Real estate owned

Hotel, Savannah, GA

12,492

10,187

−

14,352

1,736

1853

7/01/2003

(a)

40 years

FIN 46 Assets

Commercial Retail, (c) St. Cloud, MI

1,536

2,300

−

2,300

288

1970

7/01/2003

(a)

40 years

Commercial Retail, (c)     Elkins West, WV

−

1,600

−

1,600

116

1963

7/01/2003

(a)

40 years

$

15,158

$

16,489

$

−

$

19,545

$

2,140

(a) Date of FIN 46R adoption

(b) Date of foreclosure

(c) Balances as of June 30, 2006 due to one-quarter lag in reporting FIN 46-R results

Resource America, Inc. & Subsidiaries

SCHEDULE III - (Continued)

Real Estate and Accumulated Depreciation

September 30, 2006

(in thousands)

	Years Ended September 30,
	2006		2005		2004
Balance at the beginning of the period	$	141,127	$	163,321	$	301,111
Additions during period:
Acquisitions through foreclosure		−		−		−
Other acquisitions		−		−		−
Improvements, etc.		−		499		1,305
Other - basis adjustments		323		−		−
Other − reclass from other assets		4,678		−		−
		146,128		163,820		302,416
Deductions during the period:
Cost of real estate sold		126,177		3,372		35,330
Other − write down		406		19,321		3,423
Other − reclass to loans		−		−		100,342
Balance at close of period	$	19,545	$	141,127	$	163,321

Resource America, Inc. & Subsidiaries

SCHEDULE IV

Mortgage Loans on Real Estate

September 30, 2006

(in thousands)

Column A

Column B

Column C

Column D

Column E

Column F

Column G

Column H

Description

Interest rate

Final maturity date

Periodic payment term

Prior liens

Face amount of mortgages

Carrying amount of mortgages

Principal amount of loans subject to delinquent principal or interest

Second Lien Loans

Office building, Philadelphia, PA

Fixed interest rate of 9%

9/25/2002

(c)

(a)

$

−

$

3,239

$

2,627

$

−

Apartment building, Hartford, CT

Fixed interest rate of 7.5%

1/1/2009

(a)

12,993

21,194

7,967

−

Office building, Washington, DC

Fixed interest rate of 8%

8/1/2008

(b)

−

37,527

13,232

−

Office building, Omaha, NE

Fixed interest rate of 8%

8/31/2011

−

136

109

−

Office building, Philadelphia, PA

Fixed interest rate of 6%

4/27/2008

−

2,814

2,814

−

Multi-family unit, Seabrook Village, NJ

Fixed interest rate of 6%

11/30/2012

−

1,835

1,835

−

$

12,993

$

66,745

$

28,584

$

−

(a) All net cash flows from related property.

(b) No current payments.

(c) We have not foreclosed on the property and continue to forbear, because we receive all of the economic benefit from the underlying property.

Resource America, Inc. & Subsidiaries

SCHEDULE IV − (Continued)

Mortgage Loans on Real Estate

September 30, 2006

(in thousands)

	Years Ended September 30,
	2006		2005		2004
Balance at the beginning of the period	$	25,923	$	24,066	$	40,416
Additions during period:
New loans		4,909		2,240		9,848
Additions to existing loans		2,310		1,399		2,069
Other		465		860		1,958
		33,607		28,565		54,291
Deductions during the period:
Loan converted to equity interest		−		369		7,442
Collections of principal		5,023		2,273		22,783
		5,023		2,642		30,225
Balance at end of fiscal year (d)	$	28,584	$	25,923	$	24,066

(d)   This balance does not include a note receivable which is not a mortgage relating to a partial sale of our interest in a real estate venture.

EX-10.6(C)

SEVENTH MODIFICATION OF

REVOLVING CREDIT LOAN AND

SECURITY AGREEMENT AND OTHER LOAN DOCUMENTS

THIS LOAN MODIFICATION AGREEMENT (this “Modification”) made this 24th day of July, 2006 by and among RESOURCE AMERICA, INC. (“RAI”), RESOURCE PROPERTIES XXX, INC. (“RPI XXX”), RESOURCE PROPERTIES XLI, INC. (“RPI XLI”) and RESOURCE CAPITAL INVESTOR, INC. (“RCI”), each a Delaware corporation (collectively, the “Borrowers”), and SOVEREIGN BANK, a federal banking association, having an address of 1500 Market Street, Suite 1420, Philadelphia, Pennsylvania 19102 (“Bank” or “Lender”).

BACKGROUND

A.Resource Properties, Inc., which merged into RAI on June 29, 2005, RESOUCE PROPERTIES XXIV, INC. (“RPI XXIV”), RESOURCE PROPERTIES XL, INC. (“RPI XL”), and Resource Properties 53, Inc. (“RPI 53”) (the “Original Borrowers”) and Bank entered into a certain Revolving Credit Loan and Security Agreement dated July 27, 1999 (the “Loan Agreement”) wherein the Original Borrowers established a line of credit loan facility with Bank in the amount of Fifteen Million Dollars ($15,000,000) (the “Loan”).

B.As security for the obligations of Original Borrowers under the Loan Documents, RPI XL granted to Lender that certain Leasehold Mortgage and Security Agreement (the “Leasehold Mortgage”) with regard to the real estate known as Factors Walk - Phase Two, Savannah, Georgia (the “SavannahReal Estate”).

C.Original Borrowers, and Bank entered into that certain Modification of Revolving Credit Loan and Security Agreement dated March 30, 2000 (the “First Modification”), whereby, inter alia, the principal amount of the Loan was increased to Eighteen Million Dollars ($18,000,000).

D.To evidence the revised Loan in the amount of $18,000,000, Original Borrowers executed and delivered to Bank that certain Replacement Line Note dated March 30, 2000, in the amount of $18,000,000 (the “Note”).

E.Original Borrowers,RPI XXX, Resource Properties XXXI, Inc. (“RPI XXXI”), and Bank entered into that certain Second Modification of Revolving Credit Loan and Security Agreement and Modification of Other Loan Documents dated April 30, 2002 (the “Second Modification”), whereby RPI 53 requested that Bank release it from its obligations under the Loan and release certain collateral related to RPI 53’s obligations and then to substitute RPI XXX and RPI XXXI as additional makers under the Note and add additional collateral owned by RPI XXX and RPI XXXI to the security for the Loan, in accordance with the terms therein.

F.Original Borrowers, RPI XXX, RPI XXXI, and Bank entered into that certain Third Modification of Revolving Credit Loan and Security Agreement dated September

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15, 2003 (the “Third Modification”) whereby the term of the Loan was extended until July 27, 2005.

G.Original Borrowers, RAI, RPI XXX, RPI XXXI and Bank entered into that certain Fourth Modification of Revolving Credit Loan and Security Agreement and Other Loan Documents dated June 30, 2005 (the “Fourth Modification”) whereby (i) the term of the Loan was extended, (ii) RPI XXIV was released from its obligations under the Loan Documents and (iii) there was an acknowledgement that by operation of law, since Resource Properties, Inc., which was a Borrower under the Loan Documents, merged into RAI, RAI is now a Borrower under the Loan Documents

H.RAI, RPI XXIV, RPI XL, RPI XXX, RPI XXXI and Bank entered into that Fifth Modification of Revolving Credit Loan and Security Agreement and Other Loan Documents dated September 29, 2005 (the “Fifth Modification”) whereby Bank (i) accepted as additional Collateral for the Loan the property known as Wharf Lots 4 and 5 and located at Bull and River Streets, Savannah, Chatham County, Georgia (the “Georgia Property”), which is owned by RPI XXIV pursuant to that certain Deed to Secure Debt, Assignment of Rents and Security Agreement dated September 29, 2005 from RPI XXIV in favor of Lender (the “Georgia Mortgage”), and (ii) acknowledged RPI XXIV as a Borrower under the Loan Documents as if it had never been released in accordance with the terms of the Fourth Modification, which Bank agreed to do, on the terms and conditions as more fully set forth in the Fifth Modification. In connection with the Fifth Modification, an Allonge to Replacement Line Note, dated September 29, 2005, was given by RAI, RPI 53, RPI XXIV AND RPI XL (the “First Allonge”).

I.RAI, RPI XXIV, RPI XL, RPI XXX and Bank entered into that Sixth Modification of Revolving Credit Loan and Security Agreement and Other Loan Documents dated March 30, 2006 (the “Sixth Modification”) whereby Bank agreed to (i) accept and acknowledge RPI XLI as a Borrower under the Loan Documents, (ii) accept as additional Collateral for the Loan a collateral assignment by RAI of all of its right title and interest in and to RPI XLI’s stock (the“RPI XLI Shares”), and (iii) release RPI XXXI as a Borrower under the Loan Documents.

J.On April 6, 2006, Bank released the collateral pledged by RPI XXX which consisted of a collateral assignment of a $3,400,000 loan.

K.Borrowers have now requested that Bank: (i) accept and acknowledge RCI as a Borrower under the Loan Documents; (ii) accept as additional Collateral for the Loan a collateral assignment by RCI of all of its right title and interest in and to 700,000 shares of Resource Capital Corp., a Maryland corporation (the“RCC Shares”); (iii) revise the amount of the Loan to $14,000,000; (iv) extend the maturity date of the Loan; (v) accept as further additional Collateral for the Loan, a collateral assignment of (A) a loan from RPI XXX to Uman Realty, LLC, a New Jersey limited liability company (“Uman”) in the amount of $2,800,000.00 (the “Headhouse Loan”), which is secured by a first mortgage on the real property located in Philadelphia, PA known as Headhouse Piers 3 & 5 (the “Headhouse Loan”) and (B) all notes, documents, instruments and agreements evidencing and/or securing such loan (the “Headhouse Loan Documents”); (vi) release the lien of the Georgia Mortgage on the Georgia Property (each

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as defined in this Modification), and the Leashold Mortgage on the Savannah Real Estate; and (vii) release RP XL and RP XXIV as Borrowers, which Bank has agreed to do on the terms and conditions as more fully set forth herein.

L.To evidence the collateral assignment of the RCC Shares, Bank and RCI, contemporaneously with the execution hereof, are entering into that certain Pledge and Security Agreement of even date herewith (the “RCI Pledge Agreement”) and that certain Securities Account Sole Control Agreement among RCI, Lender, Credit Suisse Securities (USA) LLC and Pershing LLC (the “Control Agreement”).

M.To evidence the collateral assignment of the Headhouse Loan, Bank and RPI XXX contemporaneously with the execution hereof, are entering into that certain Collateral Assignment of Note, Mortgage and Other Loan Documents (the “Headhouse Loan Assignment”) with respect to the collateral assignment of the Headhouse Loan.

N.In connection with this Modification, an Allonge to Replacement Line Note, dated of even date hereof, shall be given by Borrowers to Lender (the “Second Allonge”). The Note, the Loan Agreement, the RCI Pledge Agreement, the Headhouse Loan Assignment and the Headhouse Loan Documents and all other documents, instruments and undertakings evidencing and/or securing the Loan, (as modified hereby and by the First Modification, Second Modification, Third Modification, Fourth Modification, the Fifth Modification and the Sixth Modification (collectively, the “Other Modifications” and this Modification) and all documents instruments and agreement executed and delivered to Lender in connection with the Other Modifications and this Modification are hereinafter collectively referred to as the “Loan Documents”). All capitalized terms used but not defined herein shall have the meaning given to such terms in the Loan Agreement.

AGREEMENT

NOW THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows:

1.Definitions. As used in this Modification, all capitalized terms shall have the respective meanings provided therefor herein or, in absence of such provision, the respective meanings provided therefor in the Loan Documents. Without limiting the foregoing:

(a)References in the Loan Documents to the “Loan Agreement” shall mean and include the Loan Agreement as modified by this Modification and the Other Modifications.

(b)References in the Loan Documents to the “Note” or the ”Line Note” shall mean and include the Note as modified by this Modification, the First Allonge, the Second Allonge, any other allonges to the Note and the Other Modifications.

(c)References in the Loan Documents to the “Loan Documents” shall mean and include the Loan Documents, as defined therein, all as modified by this Modification and the Other Modifications.

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(d)References in the Loan Documents to the terms “Borrowers” shall mean and include RAI, RPI XXX, RPI XLI and RCI.

(e)References in the Loan Documents to the amount of the “Loan” or the “Line” or the “Line of Credit” being in an amount of up to $18,000,000.00, pursuant to the Modifications, shall be replaced with “$14,000,000.00”.

(f)The term “Obligations” as used herein shall mean any and all Obligations of the Borrowers, or any of them, under the Note, the Loan Agreement, the Collateral Documents, the RCI Pledge Agreement and any other Loan Document, as modified by this Modification and the Other Modifications.

2.Confirmation of Indebtedness.

(a)Borrowers hereby confirm, acknowledge, and agree that as of the date hereof, the outstanding principal balance of the Note is $0. Borrowers further acknowledge and agree that the foregoing principal balance from the date stated is validly and duly owing by Borrowers to Bank.

(b)Borrowers hereby confirm, acknowledge, and agree that as of the date hereof, the Borrowing Base, when adding in the value of the RCC Shares and Headhouse Loan as Collateral under the Loan Agreement and removing the Georgia Property and the Savannah Real Estate as Collateral, is $13,545,000.00.

(c)Borrowers hereby ratify, confirm and acknowledge that (i) the Note, the Collateral Documents, and the other Loan Documents are each in full force and effect as of the date hereof, (ii) the Note, the Collateral Documents and the other Loan Documents constitute valid and legally binding obligations of the Borrowers, (iii) no event of default, or event which if continuing would constitute an Event of Default, has occurred under the Loan Documents, and (iv) the Loan Documents are enforceable against the Borrowers and its assets in accordance with their respective terms.

(d)Not by way of limitation of anything herein or in the Loan Documents, RCI hereby agrees to be bound by the Note, the Loan Agreement and other Loan Documents, as if it were an original party thereto and a Borrower under the Loan Documents listed therein, and RCI agrees to comply with all covenants set forth in the Loan Documents and hereby set forth their agreement to the remedies and rights granted to Bank therein.

(e)In order to induce Bank to enter into this Modification, the Borrowers hereby reaffirm the various representations and warranties made by the Original Borrowers in the Loan Documents, as if such representations and warranties were made by each of the Borrowers as of this date, and set forth fully herein, except as such representations and warranties may be otherwise modified by the updated Schedules and Exhibits attached hereto. In order to induce Bank to enter into this Modification, the Borrowers each hereby represent and warrant to Bank that all representations and warranties made by the Original Borrowers in the Loan Documents are hereby made by the Borrowers on and as of the date hereof. Not by way of limitation of the foregoing, the Borrowers hereby further represent and warrant that:

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(i)RCI is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, with full power and authority to execute, deliver and comply with this Modification and the RCI Pledge Agreement, and to carry on its respective business as it is now being conducted and is duly licensed or qualified as a foreign corporation in good standing in each jurisdiction in which the character or location of the properties owned by it or the business transacted by it requires such licensing or qualification;

(ii)The execution and delivery by RCI of this Modification and the RCI Pledge Agreement and the other Borrowers of this Modification and the consummation of the transactions contemplated by the Loan Documents and this Modification and the fulfillment and compliance with the respective terms, conditions and provisions of the Loan Documents: (a) have been duly authorized by all requisite corporate action of all of the Borrowers, (b) will not conflict with or result in a breach of, or constitute a default (or might, upon the passage of time or the giving of notice or both, constitute a default) under, any of the terms, conditions or provisions of (i) any applicable statute, law, rule, regulation or ordinance, (ii) any Borrowers’ articles of incorporation or bylaws, (iii) any indenture, mortgage, loan or credit agreement or instrument to which any of the Borrowers is a party or by which any of them may be bound or affected, or (iv) any judgment or order of any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, and (c) will not result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the property or assets of any of the Borrowers under the terms or provisions of any such agreement or instrument, except liens in favor of Bank;

(iii)This Modification has been duly executed and delivered to Bank by each of the Borrowers, and the RCI Pledge Agreement and Headhouse Loan Assignment have been duly executed and delivered by RCI and RPI XXX, respectively and this Modification and other documents and instruments required hereby or executed in connection herewith constitute legal, valid and binding obligations of such parties, enforceable in accordance with their respective terms;

(iv)None of the Borrowers is in violation of its respective articles of organization or bylaws, nor is any such party in default in the performance or observance of any of its respective obligations, covenants or conditions contained in any indenture or other agreement creating, evidencing or securing any Indebtedness or pursuant to which any such Indebtedness is issued, nor is any of the Borrowers in violation of or in default under any other agreement or instrument or any judgment, decree, order, statute, rule or governmental regulation, applicable to any of them or by which any of their properties may be bound or affected;

(v)There are no actions, suits or proceedings pending or, to the best of any of the Borrowers’ knowledge, threatened against any of the Borrowers, or any properties of any of them before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, which, if determined adversely to any of the Borrowers, would have a material adverse effect on such Borrower’s financial or operating condition;

(vi)No authorization, consent, approval, license, exemption or any other action by and no registration, qualification or filing with any governmental agency or

- 5 -

authority is or will be necessary in connection with the execution, delivery and performance of this Modification or any other document or instrument required hereby by any of the Borrowers;

(vii)RCI is the sole owner of the RCC Shares and has full right an authority to pledge the RCC Shares to Lender as contemplated hereby. The RCC Shares are and will be owned by RCI free of any pledge, mortgage, hypothecation, lien, charge, encumbrance, or security interest in such instruments or the proceeds thereof, except such as are granted under the RCI Pledge Agreement;

(viii)With respect to the Headhouse Loan: (i) the Headhouse Loan Documents are in full force and effect; (ii) Uman is the borrower thereunder and has no claim, cause of action, defense, set-off, counterclaim or challenge of any kind or nature whatsoever against the payment of any of the sums owing under the Headhouse Loan Documents or the enforcement or validity of the Headhouse Loan Documents; (iii) the Headhouse Loan Documents are in full force and effect and there are no defaults thereunder; (iv) the outstanding principal balance thereunder, as of the date hereof, is $2,800,000; and (v) all representations and warranties of RPI XXX under the Headhouse Loan Assignment are true, correct and complete, in all material respects;

(ix)On and as of the date of this Modification, to the best of any of the Borrowers’ knowledge, there exists no default or Event of Default under the Note, or any other Loan Document and no event which with notice or lapse of time or both would, if unremedied, be a default or Event of Default under the Note, or any other Loan Document.

(f)Each of the Borrowers hereby ratify and confirm that it is fully obligated under the Loan Documents and that the Loan Documents remain in full force and effect as modified hereby. The Loan Documents, AND THE WARRANTS OF ATTORNEY TO CONFESS JUDGMENT CONTAINED IN THE NOTE, AND ANY OF THE OTHER LOAN DOCUMENTS, extend to and secure the payment of the obligations of the Borrowers under the Loan Documents (the “Obligations”), as modified by this Modification and the Other Modifications. Each of the Loan Documents remains in full force and effect, as modified by this Modification and the Other Modifications and, along with the Premises and the other Collateral, AND THE WARRANTS OF ATTORNEY TO CONFESS JUDGMENT CONTAINED IN THE NOTE, AND ANY OF THE OTHER LOAN DOCUMENTS, extend to and continue to evidence and secure the Obligations and the Loan Documents, each as modified by this Modification and the Other Modifications. To the extent required in order to achieve the intent of this Modification, this Modification shall be deemed to modify each of the Loan Documents.

(g)BORROWERS HEREBY CONFIRM AND AGREE THAT THEY HAVE NO CLAIM, CAUSE OF ACTION, DEFENSE, SET-OFF, COUNTERCLAIM OR CHALLENGE OF ANY KIND OR NATURE WHATSOEVER AGAINST THE PAYMENT OF ANY OF THE SUMS OWING UNDER THE NOTE, OR THE TERMS OF THE OTHER LOAN DOCUMENTS OR THE ENFORCEMENT OR VALIDITY OF THE NOTE, OR THE OTHER LOAN DOCUMENTS, AND DO HEREBY REMISE, RELEASE AND FOREVER DISCHARGE ANY AND ALL SUCH CLAIMS, CAUSES OF ACTION, DEFENSES, SET-OFFS, COUNTERCLAIMS OR CHALLENGES.

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3.Amendment to Note. Borrowers and Lender hereby acknowledge and agree that the term “Borrower” under the Note shall mean all of the Borrowers, each of which hereby assumes, on a joint and several basis, all obligations of “Borrower” thereunder and is otherwise obligated thereunder as if it were an original signatory thereto. Borrowers and Lender also agree that the face amount of the Note shall be $14,000,000.00. BORROWERS HEREBY AGREE THAT THEY ARE, OR REMAIN, AS THE CASE MAY BE, BOUND BY THE WARRANT OF ATTORNEY TO CONFESS JUDGMENT AS SET FORTH IN THE NOTE. THE BORROWERS HEREBY CONFIRM THAT THEY HAVE AGREED TO BE BOUND BY THE FOREGOING AFTER RECEIVING ADVICE FROM COUNSEL OF THEIR CHOOSING WITH REGARD TO THE SAME AND FURTHER CONFIRM THAT THEIR AGREEMENT TO BE SO BOUND IS BASED ON A KNOWING, VOLUNTARY AND INTELLIGENT DECISION.

4.Amendment to the Loan Agreement.

(a)The following definitions in the Loan Agreement shall be amended as indicated below:

(i) The term “Borrower” as defined in the Loan Agreement shall mean the Borrowers;

(ii) The term “Loan Documents” as defined in the Loan Agreement and the other Loan Documents shall be expanded to include the RCI Pledge Agreement and the Headhouse Loan Assignment, and shall no longer include the Georgia Mortgage or the Leasehold Mortgage;

(iii) The term “Collateral” and/or “Substitute Collateral” as defined in the Loan Agreement shall be expanded to include the RCC Shares and Headhouse Loan, and shall no longer include the Georgia Property and the Savannah Real Estate, consequently, Exhibit “A” shall be amended to include the RCI Pledge Agreement and the Headhouse Loan Assignment and exclude the Georgia Mortgage and the Leasehold Mortgage.

(iv)Replace the definition of “Collateral Documents” with the following:

““Collateral Documents” means the Assigned Loan Documents and all documents, instruments and agreements evidencing the pledge, assignment or granting of any security interest in and to any of the Real Estate, the RPI XLI Shares, the RCC Shares or any other Collateral and/or Substitute Collateral evidencing, securing and/or otherwise relating to the Line, including without limitation those documents and instruments set forth on Exhibit “A” attached hereto and made a part hereof, as the same may be amended from time to time in accordance with the terms hereof.”

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(v)Replace the definition of “Substitute Collateral” with the following:

““Substitute Collateral” means all of the (a) real property or notes, mortgages and other documents and instruments, evidencing and/or securing a commercial mortgage loan (or a participation interest therein) of which a Borrower is the owner (all as more fully described in Section 4.1 herein), where Bank shall have received an Appraisal of the real property subject to such loan and such other reports (including environmental reports), surveys, and information relating thereto as Bank may request, and (b) such other real or personal property as Bank may accept from a Borrower as collateral for the obligations of Borrower hereunder and under the other Loan Documents, where such Substitute Collateral is evidenced by mortgages, assignments, deeds of trust, mortgages, pledge agreements and other documents, instruments and agreements as my be resonbaly required by Bank. Upon the delivery of Substitute Collateral to Bank and the acceptance thereof by Bank, all such documents and instruments shall constitute Collateral Documents (and Exhibit “A” shall be amended accordingly) and the real property, if any, to which they relate shall constitute Real Estate and Collateral and the personal property, if any to which they relate, if any, shall constitute Collateral (and Exhibits “A” and “B” shall be amended accordingly).

(b)The amout of the Loan is hereby changed to $14,000,000.00 and therefore, the amount of the “Line of Credit” or the “Loan”, as referenced in the Loan Agreement and the other Loan Documents is hereby changed to $14,000,000.00.

(c)The following definitions shall be added to the Loan Agreement :

““Assigned Loan Documents” means any notes, mortgages, participation agreements, pledge agreements, deeds of trust, assignments or other documents instruments or agreements evidencing any loan or particpation assigned to Bank by any Borrower as security for the Line Note, including, but not limited to, the Headhouse Loan Documents.”

““Headhouse Loan Documents means any and all notes, documents, instruments and agreements evidencing and/or securing the Headhouse Loan.

““Headhouse Loan” means that certain mortgage loan from PRI XXX to Uman Realty LLC, a New Jersey limited liability company in the amount of $2,800,000.

““Pledge Agreements” means the RAI Pledge Agreement and the RCI Pledge Agreement.

““RAI” means Resource America, Inc, a Delaware corporation.

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““RAI Pledge Agreement” means the Pledge Agreement from RAI in favor of Lender, whereby RAI pledges and assigns to Lender, as collateral for the obligations of Borrower hereunder and under the other Loan Documents, the RPI XLI Shares.”

““RCC” means Resource Capital Corp., a Maryland corporation.

““RCC Shares” means the shares of RCC, pledged to Lender, pursuant to the RCI Pledge Agreement, by RCI for the obligations of Borrower hereunder and under the other Loan Documents.”

    ““RCI” means Resource Capital Investor, Inc., a Delaware corporation.”

          ““RCI Pledge Agreement” means the RCI Pledge Agreement from RCI in favor of Lender, whereby RCI assigns to Lender, as collateral for the obligations of Borrower hereunder and under the other Loan Documents, the RCC Shares.”

         ““RPI XLI Shares” means the shares of Resource Properties XLI, Inc., pledged to Lender, pursuant to the RAI Pledge Agreement, by RAI, as collateral for the obligations of Borrower hereunder and under the other Loan Documents.”

(d)Section 1.1 of the Loan Agreement shall be deleted in its entirety and replaced with the following:

   “Line of Credit. Bank will establish for Borrower for and during the period from the date hereof and until July 27, 2009 (the “Expiration Date”), subject to the Extension Periods (set forth and defined in Section 3.9 hereof), and further, subject to the terms and conditions hereof (including without limitation the Borrowing Base set forth in Section 1.4 herein), a revolving line of credit (the “Line”) pursuant to which Bank will from time to time make loans to Borrower in an aggregate outstanding principal amount not to exceed at any time Fourteen Million Dollars ($14,000,000).”

                               (e)Section 1.2 of the Loan Agreement shall be deleted in its entirety and replaced with:

    ““Use of ProceedsBorrower may use the advances under the Line for general working capital purposes.”

(f)The first sentence of Section 1.4 of the Loan Agreement shall be deleted in its entirety and replaced with the following:

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                    “Notwithstanding anything contained herein to the contrary, but subject to the provisions of Section 4.4(b) herein, the aggregate outstanding principal balance of the Line shall not exceed at any time the sum of the following (the “Borrowing Base”) (i) sixty-five percent (65%) of the Appraised Value of the Real Estate (not including such of the Real Estate that has been released from the lien of any Collateral Documents or that otherwise relates to a Collateral Document that has been terminated or satisfied) plus (ii) with respect to the Intown Loan Documents, the lesser of (A) $6,430,000 less the value of any mortgage lien senior to the mortgage securing the Intown loan documents or (B) anticipated cash flow from the Intown Loan divided by .12 plus (iii) fifty percent (50%) of the fair market value of the RCC Shares, which shares shall be marked to market monthly by Lender, plus (iv) with respect to the Headhouse Loan, the lesser of (A) $2,600,000 less the value of any mortgage lien senior to the mortgage securing the Headhouse loan documents or (B) the anticipated cash flow from the Headhouse Loan divided by .12. Notwithstanding the foregoing, in the event of a default under the Intown Loan Documents or the Headhouse Loan Documents, Lender may determine to remove the cash flow of the Intown Loan and/or the Headhouse Loan, as applicable, from the Borrowing Base, if Lender believes, in its reasonable discretion, that the collection of the Intown Loan, or the Headhouse Loan, as applicable, has been materially impaired. The value assigned to the Collateral for purposes of computing the Borrowing Base, is set forth on Schedule 1.4 hereto.”

(g)A new Section 1.5 shall be added to the Loan Agreement, as follows:

“Limitation on Number of Tranches Borrower shall be limited to having no more than three (3) LIBOR Rate tranches outstanding at any one time.”

(h)Replace Section 2.1 of the Loan Agreement with the following:

“Interest on the Line. Interest on the unpaid outstanding principal balance of the Line will accrue from the date of the advance until final payment thereof, at Borrower’s option, at either (i) equal to, or (ii) at the LIBOR Rate plus 200 basis points, a per annum rate equal to the Prime Rate in effect from time to time (such interest rate to change immediately upon any change in the Prime Rate), or at the Borrower’s option, at the LIBOR Rate plus 200 basis points.

The “LIBOR Rate” means the offered rate for delivery in two London Banking Days (as defined below) of deposits of U.S. Dollars which the British Bankers’ Association fixes as its LIBOR rate and which appears on the Telerate Page 3750 as of 11:00 a.m. London time on the day on which the Interest Period commences, and for a period approximately equal to such Interest Period. If the first day of any Interest Period is not a day which is both a (i) business day, and (ii) a day on which US dollar deposits are transacted in the London interbank market (a “London Banking Day”), the LIBOR Rate shall be determined in reference to the next preceding day which is both a business day and a London Banking Day. If for any reason the LIBOR Rate is unavailable and/or the Lender is unable to determine the LIBOR Rate for any Interest Period, the LIBOR Rate shall be deemed to be equal to the Prime Rate.

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“Interest Period” means the period commencing on the date on which the interest rate under the Loan is converted to (or is continuing as) the LIBOR Rate, and ending on (but excluding) the day which numerically corresponds to such date one month thereafter (or, if such month has no numerically corresponding day, on the last business day of such month).”

(i)Section 3.9 of the Loan Agreement shall be deleted in its entirety and replaced with the following:

“Bank may elect to extend the Expiration Date for up to two, one-year periods (each an “Extension Period”), subject to the following terms and conditions:

(i)On or before May 31 of each year commencing on May 31, 2009, Bank will notify Borrower if (i) Bank has elected to extend the Expiration Date then in effect by an Extension Period, or (ii) Bank has elected not to extend the Expiration Date then in effect. A failure by the Bank to send any such notice shall be deemed to be an election by Bank not to extend the Expiration Date then in effect;

(ii) as of the date of the commencement of any Extension Period, there shall not have occurred any Event of Default and there shall be, as of such date, no Potential Default;

(iii) as of the date of the commencement of any Extension Period, there shall have not occurred any material adverse change in the financial condition of any Borrower and/or the Collateral; and

(iv) on or before the commencement date of any Extension Period, Borrower shall execute or cause to be executed any other documents reasonably requested by Bank.

To the extent that Borrower elects to extend the Expiration Date for an Extension Period, the term the “Expiration Date” shall be the last day of such applicable Extension Period.

In the event that Bank determines in the exercise of its sole discretion that it will extend the Expiration date then in effect, Borrower shall, at least five (5) days prior to the then current Expiration Date, pay to Bank an extension fee of Thirty-Five Thousand Dollars ($35,000). If Borrower shall fail to pay such extension fee to Bank as and when required, Bank’s election to extend the Expiration Date shall be deemed to be canceled and shall be null and void and of no further force or effect and the Expiration Date then in effect shall continue as if Bank had not provided any notice of election to extend.”

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(j)Delete Sections 4.1, 4.2 and 4.3 of the Loan Agreement in their entirety and replace with the following:

                     “4.1Assignment and Security Interest. As security for the performance by Borrower of this Agreement and the other Loan Documents and the payment of the Line Note and as security for the performance of the Guaranty and all other liabilities of any Borrower to Bank (whether absolute or contingent, matured or unmatured, direct or indirect, sole, joint, several or joint and several, similar or dissimilar, related or unrelated, due or to become due or heretofore or hereafter contracted or acquired), Borrower hereby pledges, assigns, transfers and sets over to Bank and grants to Bank a security interest in all of Borrower’s right, title and interest in and to the following:

(a)all of Borrower’s powers, privileges and other benefits under any and all Assigned Loan Documents;

(b)the immediate right to receive and collect all sums payable to or receivable by Borrower under or pursuant to the provisions of all Assigned Loan Documents, whether as principal, interest, casualty or insurance payments, or otherwise (“Payments”);

(c)the right to make all waivers and agreements, to give all notices, consents and releases, and to take all action upon the happening of a Collateral Document Default;

(d)the right to do any and all other things whatsoever which Borrower is or may become entitled to do under the Assigned Loan Documents, including without limitation all rights to be substituted as a creditor in any bankruptcy proceeding affecting any Obligor, Assigned Loan Documents, or Real Estate, with full voting rights, the right to receive dividends, and the right to participate in the administration of any plan, whether in liquidation or reorganization, and the right to take any and all actions that Borrower may be entitled to take as a participant under any Assigned Loan Document. In further of the foregoing assignment, Borrower hereby irrevocably authorizes and empowers Bank, in its own name or in the name of its nominee, or in the name of Borrower or as its attorney, to ask, demand, sue for, collect and receive any and all Payments to which Borrower is or may become entitled under any Assigned Loan Document and to enforce compliance by any Obligor, or any maker, mortgagor, or other party thereto, with all of the terms and provisions thereof;

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(e)All Deposit Accounts maintained by any Borrower, together with all cash deposited in the same.

4.2Representations Regarding Collateral. Borrower represents and warrants that:

(a)Borrower has full right and title to the Collateral and (either as owner of the Assigned Loan Documents or a participation interest in and to the Assigned Loan Documents) to the Assigned Loan Documents, free from

any lien, security interest, encumbrance or other right, title and interest of any other person or entity.

(b)Borrower has not made any currently effective assignment of any interest in any of the Collateral or the Assigned Loan Documents other than to Bank pursuant to this Agreement and the other Loan Documents.

(c)No Obligor has any set-off, defense or counterclaim to any of its obligations under any Assigned Loan Document (as the same may have been modified by any forbearance agreement relating thereto).

(d)Subject to the provisions of any forbearance agreement relating thereto, all Assigned Loan Documents are in full force and effect with respect to the payment obligations arising under them.

(e)Except as may be specifically provided in the Assigned Loan Documents, no Payments have been collected, anticipated, waived, released, discounted or otherwise discharged or compromised except in accordance with their regularly scheduled payment dates.

(f)There is only one original note evidencing each loan to which the Assigned Loan Documents relate, if applicable, only one original deed-in-lieu of foreclosure relating to any loans to which the Assigned Loan Documents relate, and, if applicable, only one Participation Certificate evidencing participation interests comprising a portion of the Collateral, all of which, to the extent applicable, have been delivered to Bank.

4.3Covenants Regarding Collateral. So long as the Line Note remains unpaid or Bank has any commitment under the Line, without the prior written consent of Bank, which consent shall not be unreasonably withheld or delayed:

(a)Borrower shall not obtain any other loans or other financing secured by an encumbrance, lien, mortgage, security interest or other interest in any of the Collateral, or assign, sell, transfer (voluntarily or by operation of law), or otherwise dispose of any interest in any of the Collateral or the Real Estate.

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(b)Borrower shall receive or collect monthly (or otherwise if so provided by the terms of the Assigned Loan Documents) payment of principal and interest pursuant to and in accordance with the terms and conditions of the Assigned Loan Documents.

(c)Prior to the occurrence of an Event or Default, Borrower shall not alter, amend, extend, cancel or otherwise change any terms or conditions of the Assigned Loan Documents if as a result thereof there would occur an Event of Default or Potential Default. Following the occurrence of anEvent of Default, Borrower shall not alter, amend, cancel or otherwise change any provision of any of the Assigned Loan Documents.

(d)In the event Borrower goes into possession of any of the Real Estate relating to the Assigned Loan Documents, should Bank thereafter decide to go into possession pursuant to this Agreement, Borrower shall immediately vacate the affected Real Estate and perform whatever acts or execute whatever documents required by Bank, in its sole discretion, to expedite Bank’s possession of the affected Real Estate.

(e)Borrower shall keep accurate and complete records of Payments and the Collateral Documents and shall furnish Bank with such information as Bank may request, including without limitations, the information required by Section 8 herein.

(f)Following the occurrence of an Event of Default Borrower, shall not exercise any right or remedy granted under any of the Assigned Loan Documents without the prior written consent of Bank.

(g)Following the occurrence of an Event of Default, Borrower shall not (i) waive, excuse, condone or in any manner release or discharge any obligation, covenant or agreement of any Obligor under any Assigned Loan Document; (ii) cancel, terminate or permit the surrender of any Assigned Loan Document; or (iii) solicit or accept any prepayment of monies under any Assigned Loan Document.

(h)Borrower shall not release or terminate any of its interest in, to or under any Assigned Loan Document.

         (i)Borrower shall not propose or consent to any plan of reorganization or liquidation in any proceeding in the United States Bankruptcy Court with regard to any Assigned Loan Documents, Real Estate, Collateral or Obligor.”

(k)In Section 4.4, 4.5, 4.6, 4.7, both paragraphs numbered 4.8, 4.9, 4.10, and 4.11, replace the terms “Collateral Documents” with “Assigned Loan Documents” and replace the term “Collateral Document” with Assigned Loan Document”, wherever such terms appear.

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(a)Schedules 5.3, 5.4, 5.7, 5.13, 5.18, and 5.22 to the Loan Agreement shall be replaced with the schedules attached hereto of the same numbers to reflect the inclusion of RCI as a Borrower, and any other changes.

(b)The definition of “Deposit Accounts as set forth in Section 5.22 of the Loan Agreement shall be amended to include all bank accounts of any Borrower (other than RAI bank accounts at banks other than Bank), all of which are set forth on Schedule5.22.”

(l)Replace Section 6.22 of the Loan Agreement with the following:

“6.22Bank Accounts.

(a)Except as otherwise permitted herein, no Borrower shall open or maintain any bank accounts with respect to the Collateral, the Assigned Loan Documents or the Real Estate other than the Deposit Accounts and bank accounts maintained with Bank. Each Borrower shall deposit or cause to be deposited into the Deposit Accounts or such other accounts as may be maintained with Bank from time to the time the rentals and other income from the Real Estate and all other Payments. Any income received with respect to the balance from time to time standing to the credit of the Deposit Accounts and any other deposit accounts maintained with Bank, including any interest, shall remain, or be deposited in the Deposit Accounts or such other accounts.

(b)All right, title and interest in and to the cash amounts on deposit from time to time in the Deposit Accounts shall vest in Bank, shall constitute part of the Collateral hereunder and shall not constitute payment of the Bank Indebtedness until applied thereto as hereinafter provided. Each Borrower shall as promptly as possible deposit the proceeds of any Collateral and all payments received by it into the Deposit Accounts. Until so deposited, all such proceeds shall be held in trust by Borrower for and as the property of Bank and shall not be commingled with any other funds or property of either of them. The balance from time to time standing to the credit of the Deposit Accounts shall, except as set forth in subsection (c) below, be distributed to Borrower in accordance with the provisions of the Depository Agreements.

(c)If an Event of Default shall have occurred and Bank shall have given notice to Borrower of its intent to exercise exclusive control over the Deposit Accounts, then (i) the applicable Borrower shall instruct all Obligors and other Persons obligated in respect of any Assigned Loan Document or Real Estate to make all payments in respect of the Assigned Loan Document, and shall use its best efforts to cause them to do so, directly to the Deposit Accounts, and (ii) no Borrower shall be entitled to receive any distribution from the Deposit Accounts.”

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(m)A new Section 6.23 shall be added to the Loan Agreement and shall read as follows:

“6.23RCC Shares.

(a)Borrowers represent and warrant that the RCC Shares have been registered under the Securities Act of 1933, as amended ("Securities Act"), under a currently effective Form S-11 shelf registration statement of RCC.  Borrowers further represent that, under a registration rights agreement with RCC, of which Borrowers, or their subsidiaries, are beneficiaries, RCC is required to use its commercially reasonable best efforts to maintain the registration's effectiveness until the earlier of two years following the registration's effective date or the date all shares covered by the registration have been sold or all shares not held by affiliates of RCC are eligible for sale pursuant to Rule 144(k) of the Securities Act."

(b)Borrowers represent and warrant that the RCC Shares have been held by RCI since March 5, 2005 and were fully paid for by it on such date. Borrowers further represent and warrant that RCI complies with all of the conditions relating to a pledgor of securities set forth in Rule 144(d)(3)(iv) under the Securities Act."

(n)Section 7.1 of the Loan Agreement shall be deleted in its entirety and replaced with the following:

“”Minimum Tangible Net Worth” Borrower shall maintain a minimum Tangible Net Worth of One Hundred Million Dollars ($100,000,000.000) plus eighty-five percent (85%) of future equity offerings of Borrower at September 30, 2006 and at each calendar quarter end thereafter. For purposes hereof, “Tangible Net Worth” shall be defined as Total Assets less intangibles and less Liabilities, each determined in accordance with GAAP.”

(o)Section 7.2 of the Loan Agreement shall be revised deleted in its entirety and replaced with the following:

“Debt Service Coverage Ratio. “Borrower shall maintain a ratio of (a) revenues, calculated on an annualized basis, of the cash flow derived from the Headhouse Loan and the Intown Loan plus dividends received on account of the RCC Shares (annualized based upon the most recent calendar quarter), to (b) the greater of (i) actual interest paid on the Line during the period of calculation, or (ii) $1,400,000.00, of not less than 1.15 to 1.0.”

(p)Exhibit “A” and Exhibit “B” to the Loan Agreement shall be replaced with the exhibits attached hereto of the same letters to reflect the inclusion of the RCC Shares and new Headhouse Loan and the removal of the Georgia Property and the Savannah Real Estate as Collateral and Substitute Collateral, and any other changes.

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5.Conditions Precedent. The obligation of Bank to effect the modifications and agreements contained herein is subject to the conditions precedent that:

(a)There has been no material adverse change in the financial or operating condition of any of the Borrowers since the date of the last submission of financial statements to Bank.

(b)The Borrowers shall have paid a fee to the Bank for the Bank’s agreement to extend to the Maturity Date, as provided herein, in the amount of 75 basis points on the maximum amount of the Line.

(c)The Borrower’s shall have paid Bank’s counsel fees incurred in connection with this Modification.

(d)All representations and warranties made by any of the Borrowers herein or in connection with this Modification shall be true, correct and compete in all material respects.

(e)Bank shall have received all of the following documents, each of which shall be in form and substance satisfactory to Bank:

(i)Copies, certified in writing by the secretaries or assistant secretaries of the Borrowers, of (a) resolutions of their respective boards of directors evidencing approval of this Modification and the other matters contemplated hereby and the execution and delivery by RCI of the RCI Pledge Agreement, and by RPI XXX of the Headhouse Loan Assignment and (b) each document evidencing other necessary action and approvals, if any, with respect to this Modification, the RCI Pledge Agreement or the Headhouse Loan Assignment;

(ii)Written certificates by each of the secretaries or assistant secretaries of the Borrowers as to the names and signatures of each Borrowers’ officers who are authorized to sign this Modification, and the other documents or certificates to be executed and delivered by them pursuant hereto;

(iii)Evidence satisfactory to Bank that the certificates of incorporation and bylaws of RAI, RPI XL, RPI XXX and RPI XXI delivered to Bank on or about July 27, 1999 or April 30, 2002, as applicable, and the articles of incorporation of RPI XLI delivered to the Bank on March 20, 2006, have not been amended in any way (or if they have been amended, the nature of such amendment) and are in full force and effect, and certified certificates of incorporation and bylaws of all of the other Borrowers, as well as good standing certificates issued by the secretary of state of the state of incorporation of each of the Borrowers;

(iv)Certificate of incorporation of RCI, certified as true, correct and complete by the secretary of state of the state of Delaware and bylaws or RCI, certified as true, correct and complete by the secretary of RCI;

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(v)A fully executed copy of this Modification adding RCI as a Borrower and otherwise modifying the Note consistent with the terms hereof;

(vi)The following documents with respect to the RCC Shares;

(A)A Pledge and Security Agreement (the “Pledge Agreement”) of even date herewith from RCI in favor of Bank; and

(B)The Control Agreement.

(vii)The following documents with respect to the Headhouse Loan;

(A)A full set of all of the Headhouse Loan Documents, which shall be in form and content reasonably satisfactory to Lender, including the original note from Uman in the amount of the Headhouse Loan, which note shall be endorsed in favor of Lender by RPI XXX;

(B)The Headhouse Loan Assignment; and

(C)Consent and estoppel certificate from Uman with respect to the assignment of the Headhouse Loan Assignment, in form and content as many be satisfactory to Lender.

(viii)Opinion of counsel from Borrowers’ counsel with respect to each Borrower’s due formation, the validity and enforceability of this Modification, the Pledge Agreement, the Headhouse Loan Assignment, the authority and capacity of the respective Borrowers to execute such documents, the creation and perfection in favor of Bank of a first priority security interest in and to the RCC Shares and the Headhouse Loan Documents and such other matters as Bank may request; and

(ix)Such other documents as Bank may reasonably request in connection with this Modification.

6.Reaffirmation of Loan Documents, Accommodations and Collateral. Borrowers hereby ratify and confirm that each of them is fully obligated under the Loan Documents and that the Loan Documents remain in full force and effect as modified hereby. The Assigned Loan Documents and the other Loan Documents shall remain in full force and effect and shall be deemed hereby to extend to and secure the Obligations, including without limitation those created under this Modification. To the extent required in order to achieve the intent of this Modification, this Modification shall be deemed to modify each of the Loan Documents and, along with the Real Estate and other other Collateral extend to and continue to evidence and secure the Loan Documents and the Obligations as modified by this Modification.

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7.Miscellaneous.

(a)Paragraph headings used in this Modification are for convenience only and shall not affect the construction of this Modification.

(b)From time to time, Borrowers will execute and deliver to Bank such additional documents and will provide such additional information as Bank may reasonably require, to carry out the terms of this Modification.

(c)Borrowers hereby indemnify, hold harmless, and upon request will defend Bank and its shareholders, officers, directors, employees, attorneys and agents, and their respective successors and assigns (collectively, the “Indemnified Parties”) from and against any and all claims and liabilities to third parties, and will pay and reimburse to the Indemnified Parties all losses, payments, reasonable costs and expenses associated therewith, or with Bank’s defense (including without limitation reasonable attorneys fees) which Bank may suffer, incur or be exposed to by reason of or in connection with or rising out of (i) the transactions evidenced by or referred to in or related to this Modification or any of the Loan Documents, as modified by this Modification; and (ii) any actions or omissions of any one or more of the Indemnified Parties which conforms with the terms of this Modification or the Loan Documents, or is in good faith and connected therewith or with the enforcement thereof; provided, however, that the Indemnified Parties shall not be indemnified, defended or held harmless for any consequential or indirect losses or damages, or any losses or damages which were caused by the Indemnified Parties’ willful misconduct or gross negligence. The provisions of this paragraph shall survive any cancellation, satisfaction, termination or modification of this Modification, the Note, the Deed of Trust, the Mortgage, any other Loan Document, and the repayment of the Loan.

(d)This Modification shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania.

(e)Borrowers shall pay all costs and expenses of Bank in connection with the preparation, execution, delivery, administration and enforcement of this Modification (including title charges and the fees and out-of-pocket costs of counsel with respect hereto).

(f)This Modification may be signed in counterparts, all of which when taken together shall constitute one and the same instrument.

(g)BORROWERS ACKNOWLEDGE THAT THE NOTE, AND OTHER LOAN DOCUMENTS CONTAIN AUTHORIZATIONS TO CONFESS JUDGMENT AGAINST BORROWERS, THAT AT THE TIME ORIGINAL BORROWERS EXECUTED THE NOTE, AND THE OTHER LOAN DOCUMENTS BORROWERS CONSULTED, AND IN CONNECTION WITH THE EXECUTION OF THIS MODIFICATION AND THE EXECUTION OF THE DOCUMENTS AND INSTRUMENTS REQUIRED HEREBY HAVE CONSULTED LEGAL COUNSEL WITH RESPECT THERETO AND THAT BORROWERS UNDERSTAND (AND AT THE TIME BORROWERS EXECUTED THE NOTE, AND OTHER LOAN DOCUMENTS BORROWERS UNDERSTOOD) THAT THE EXERCISE BY BANK OF  

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THE AUTHORIZATIONS WILL RESULT IN THE ENTRY OF A JUDGMENT AGAINST BORROWERS AND THE SALE OR ATTACHMENT OF OR EXECUTION UPON BORROWERS’ PROPERTY (INCLUDING WITHOUT LIMITATION REAL PROPERTY, PERSONAL PROPERTY AND BANK ACCOUNTS) WITHOUT PRIOR NOTICE OR THE OPPORTUNITY FOR A HEARING.

Signature lines follow on next page.

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IN WITNESS WHEREOF, the parties hereto have executed this Modification as of the date written above.

Witness/Attest:BORROWERS:

RESOURCE AMERICA, INC., a Delaware corporation

______________________________   By: __________________________________

Name:

Title:

RESOURCE PROPERTIES XXX, INC., a Delaware corporation

______________________________   By: __________________________________

Name:

Title:

RESOURCE PROPERTIES XLI, INC., a Delaware corporation

______________________________By: __________________________________

Name:

Title:

RESOURCE CAPITAL INVESTOR, INC., a Delaware corporation

______________________________By: __________________________________

Steven Kessler, CFO

- 22 -

BANK:

SOVEREIGN BANK, a federal banking association

Attest: _____________________________                               By: ________________________________

Name:

Title:

- 23 -

STATE OF:

: SS

COUNTY OF:

BE IT REMEMBERED, that on this _______ day of July, 2006, personally came before me, the Subscriber, a Notarial Officer for the State and County aforesaid, ____________, the _____________ of RESOURCE AMERICA, INC. and the President of RESOURCE PROPERTIES XXX, INC., and RESOURCE PROPERTIES XLI, INC. each a Delaware corporation, each existing under the laws of the State of Delaware, party to this instrument, known to me personally to be such, and acknowledged this instrument to be the act and deed of the aforesaid corporations, that the signature of the officer thereto is in his own proper handwriting, and that his act of sealing, executing, acknowledging and delivering said instrument was duly authorized by the aforesaid corporations.

IN WITNESS WHEREOF, I have hereunto set may hand and official seal.

_____________________________

Notary Public

STATE OF:

: SS

COUNTY OF:

BE IT REMEMBERED, that on this _____day of July, 2006, personally came before me, the Subscriber, a Notarial officer of the State and County aforesaid, Steven J. Kessler, the Chief Financial officer of RESOURCE CAPITAL INVESTOR, INC., a Delaware corporation, existing under the Laws of the State of Delaware party to this instrument, known to me personally to be such, and acknowledged this instrument to be the act and deed of the aforesaid corporations, that the signature of the officer thereto is in his own proper handwriting, and that his act of sealing, executing, acknowledging and delivering said instrument was duly authorized by the aforesaid corporations.

IN WITNESS WHEREOF, I have hereunto set may hand and official seal.

_____________________________

Notary Public

- 24 -

EXHIBIT “A”

Collateral

A. Resource Properties XXX, Inc. (Headhouse)

Collateral Assignment of (i) Leasehold Mortgage dated April 27, 2006 covering real property and improvements known as The Headhouses of Piers 3 and 5 North Columbus Boulevard, Philadelphia, PA; (ii) assignment of leases dated April 27, 2006;

B.Collateral Assignment of that certain loan in the amount of $6,750,000.00 from RPI XLI to Intown Development Corporation, a Connecticut corporation and National Housing Partnership, a District of Columbia limited partnership, dated ____ and all documents and instruments evidencing and/or securing the same;

C.Resource America, Inc.

All issued and outstanding shares of Resource Properties XLI, Inc.

D.Resource Capital Investor, Inc.

700,000 shares of the stock of Resource Capital Corp.

- 25 -

EXHIBIT “B”

Real Estate

1.3-7 N. Christopher Columbus Boulevard, Philadelphia, Pennsylvania

- 26 -

SCHEDULE 5.3

Ownership Interests of Resulting Borrowers

1.Resource America, Inc. is a public company

2. Resource Properties XXX, Inc., Resource Properties XLI, Inc. and Resource Capital Investor, Inc. are all owned by Resource America, Inc.

- 27 -

SCHEDULE 5.4

Stock Owned by Resulting Borrowers

See attached.

- 28 -

SCHEDULE 5.7

Pending Litigation or Proceedings

Pending litigation matters involving Resource America, Inc.:

1. Cherry, et al. v. Resource America, Inc., et al., New York Supreme Court, Chautauqua County, No. K1-2000-171.

2. Pyramid Video, Inc. V. National Press Building L.P., et al., District of Columbia Superior Court, No. 02-0003479.

- 29 -

SCHEDULE 5.13

Names and Addreses of Resulting Borrowers

Resource America, Inc. - Jonathan Z. Cohen, President

Resource Properties XXIV, Inc. - Alan F. Feldman, President

Resource Properties XLI, Inc. - Alan F. Feldman, President

Resource Capital Investor, Inc. - Jonathan Z. Cohen, President

1845 Walnut Street, 10th Floor

Philadelphia, PA 19103

- 30 -

SCHEDULE 5.18

Encumbrances

The property and assets of Resulting Borrowers are not subject to any lien, encumbrance or security interest except as set forth below:

1.3 - 7 N. Christopher Columbus Boulevard, Philadelphia, Pennsylvania

a.$2,800,000 Leasehold Mortgage held by Resource Properties XXX, Inc.

- 31 -

SCHEDULE 5.22

Permitted Bank Accounts

Hudson United Bank

1607 Walnut Street

Philadelphia, PA 19103

Resource Properties XXX, Inc.

80041-56064

00042-47108

Resource Properties XLI, Inc.

42-92665

At Hudson United Bank

1000 MacArthur Blvd.

Mahwah, NJ 07430

    Sovereign Bank

    0322035589

EX-10.10(A)

EXHIBIT 10.10(a)

EXECUTION

ASSIGNMENT, ASSUMPTION AND AMENDMENT AGREEMENT

ASSIGNMENT, ASSUMPTION AND AMENDMENT AGREEMENT, dated as of September 29, 2006 (this “Agreement”), among LEAF FUNDING, INC., a Delaware corporation (“LEAF Funding”), LEAF INSTITUTIONAL DIRECT MANAGEMENT, LLC, a Delaware limited liability company (“LEAF IDM”), LEAF FINANCIAL CORPORATION, a Delaware corporation ("LEAF Financial"), LEASE EQUITY APPRECIATION FUND II, L.P., a Delaware limited partnership (“LEAF II”), LEAF II B SPE, LLC, a Delaware limited liability company (“LEAF II B SPE”), MERRILL LYNCH EQUIPMENT FINANCE LLC, a Delaware limited liability company (“MLEF”), MERRILL LYNCH COMMERCIAL FINANCE CORP., a Delaware corporation ("Lender”), and U.S. BANK NATIONAL ASSOCIATION, as Custodian and Paying Agent ("U.S. Bank").

WITNESSETH:

WHEREAS, capitalized terms used herein not otherwise defined herein shall have the meanings ascribed thereto in Appendix A attached hereto;

WHEREAS, LEAF Funding, LEAF IDM, LEAF Financial, MLEF, the Lender and U.S. Bank are parties to the Transaction Documents (as such term is defined in that certain Purchase, Sale and Contribution Agreement, dated as of April 8, 2003, between LEAF Funding and LEAF IDM, as amended, supplemented or otherwise modified prior to the date hereof, and referred to herein as the “Existing Transaction Documents”), pursuant to which (i) LEAF Funding shall from time to time sell to LEAF IDM, and LEAF IDM shall from time to time purchase from LEAF Funding, all of LEAF Funding’s right, title and interest in, to and under certain Purchased Contracts; (ii) LEAF IDM shall from time to time sell to MLEF, and MLEF shall from time to time purchase from LEAF IDM, all of LEAF IDM’s right, title and interest in, to and under such Purchased Contracts; (iii) the Lender shall from time to time lend to MLEF amounts sufficient to purchase such Purchased Contracts, and MLEF’s obligations to the Lender shall be secured by, among other things, MLEF’s right, title and interest in, to and under such Purchased Contracts; and (iv) the Servicer shall service such Purchased Contracts;

WHEREAS, the parties hereto intend that MLEF transfer, assign and convey to LEAF II B SPE all of MLEF’s right title and interest in, to and under the Purchased Contracts and the Existing Transaction Documents, and in connection therewith, LEAF II B SPE shall assume and undertake to perform all of MLEF’s liabilities and obligations under the Purchased Contracts and the Existing Transaction Documents;

WHEREAS, the parties hereto intend that LEAF IDM transfer, assign and convey to LEAF II all of LEAF IDM’s right title and interest in, to and under the Purchased Contracts and the Existing Transaction Documents, and in connection therewith, LEAF II shall

assume and undertake to perform all of LEAF IDM’s liabilities and obligations under the Purchased Contracts and the Existing Transaction Documents; and

WHEREAS, the parties hereto intend to amend the Transaction Documents in order to give effect to the foregoing transactions on the terms and subject to the satisfaction of the conditions set forth herein.

NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, the parties hereto hereby agree as follows:

SECTION 1.Assignment and Assumption; Purchase Price. On the Effective Date (as defined in Section 3 hereof), subject to the terms and conditions hereof:

(a)MLEF hereby sells, transfers, assigns and otherwise conveys, without recourse, to LEAF II B SPE and LEAF II B SPE hereby purchases from MLEF, all of MLEF’s right, title and interest in, to and under each of the Purchased Contracts owned by MLEF as of the date hereof, together with all of MLEF’s right, title and interest in, to and under each of the Transaction Documents. MLEF’s sale, transference and assignment hereunder of the Purchased Contracts and MLEF’s right, title and interest in, to and under each of the Transaction Documents is final and irrevocable from and after the Effective Date, and none of LEAF Funding, LEAF IDM, LEAF Financial, LEAF II and LEAF II B SPE shall have any right to require that such transference and assignment terminate or that MLEF repurchase such Purchased Contracts or MLEF’s right, title and interest in, to and under each of the Transaction Documents from LEAF II B SPE.

(b)MLEF delegates, transfers, assigns and otherwise conveys, with recourse, to LEAF II B SPE, and LEAF II B SPE hereby assumes from MLEF, all of MLEF’s duties, obligations and liabilities in, to and under each of the Purchased Contracts owned by MLEF as of the date hereof, together with all of MLEF’s right, title and interest in, to and under each of the Transaction Documents. MLEF’s delegation, transference and assignment hereunder of the Purchased Contracts and MLEF’s right, title and interest in, to and under each of the Transaction Documents is final and irrevocable from and after the Effective Date, and none of LEAF Funding, LEAF IDM, LEAF Financial, LEAF II and LEAF II B SPE shall have any right to require that such delegation, transference and assignment terminate or that MLEF re-assume such duties, obligations and liabilities from LEAF II B SPE.

(c)LEAF IDM hereby sells, transfers, assigns and otherwise conveys, without recourse, to LEAF II and LEAF II hereby purchases from LEAF IDM, all of LEAF IDM’s right, title and interest in, to and under each of the Purchased Contracts owned by LEAF IDM as of the date hereof, together with all of LEAF IDM’s right, title and interest in, to and under each of the Transaction Documents. LEAF IDM’s sale, transference and assignment hereunder of the Purchased Contracts and LEAF IDM’s right, title and interest in, to and under each of the Transaction Documents is final and irrevocable from and after the Effective Date, and none of LEAF Funding, LEAF IDM, LEAF Financial, LEAF II and LEAF II B SPE shall have any right to require that such transference and assignment terminate or that LEAF IDM repurchase such

(2)

Purchased Contracts or LEAF IDM’s right, title and interest in, to and under each of the Transaction Documents from LEAF II.

(d)LEAF IDM delegates, transfers, assigns and otherwise conveys, with recourse, to LEAF II, and LEAF II hereby assumes from LEAF IDM, all of LEAF IDM’s duties, obligations and liabilities in, to and under each of the Purchased Contracts owned by LEAF IDM as of the date hereof, together with all of LEAF IDM’s right, title and interest in, to and under each of the Transaction Documents. LEAF IDM’s delegation, transference and assignment hereunder of the Purchased Contracts and LEAF IDM’s right, title and interest in, to and under each of the Transaction Documents is final and irrevocable from and after the Effective Date, and none of LEAF Funding, LEAF IDM, LEAF Financial, LEAF II and LEAF II B SPE shall have any right to require that such delegation, transference and assignment terminate or that LEAF IDM re-assume such duties, obligations and liabilities from LEAF II.

(e)Each of the parties hereto consents to the foregoing sales, transfers, assignments, conveyances and delegations and each party hereto hereby acknowledge and agrees that all property, whether tangible or intangible, as sold, transferred, assigned, conveyed and delegated is done so subject to the continuing first priority Lien of the Lender therein.

(f)In consideration of the foregoing, LEAF II B SPE shall pay to MLEF a net amount equal to $188,824,807.55 (the “Purchase Price”), which shall include LEAF II B SPE’s assumption of the indebtedness and liabilities of MLEF then due and owing under the Existing Transaction Documents in the principal amount of $173,043.222.82. All amounts payable to MLEF in cash shall be paid in same day funds, without defense, setoff or counterclaim, and shall be made to an account of MLEF or Affiliate thereof that has been notified to LEAF II in writing

SECTION 2.Amendment. As of the Effective Date:

(a)Purchase, Sale and Contribution Agreement. The Purchase, Sale and Contribution Agreement is hereby amended as follows:

(i)Each reference therein to “Borrower” shall be deemed to be a reference to LEAF II B SPE, as assignee of MLEF.

(ii) Each reference therein to “LEAF SPE” shall be deemed to be a reference to LEAF II, as assignee of LEAF IDM.

(iii)Each reference therein to the phrase “the applicable Collection Account” is hereby amended by deleting it in its entirety and, in lieu thereof, inserting the phrase “the Collection Account”.

(iv)The Definitions and Rules of Construction attached thereto as Appendix A is hereby amended and restated in its entirety in the form of Appendix A attached hereto.

(3)

(v)The Form of Purchase Date Notice attached thereto as Exhibit A is hereby amended and restated in its entirety in the form of Exhibit I attached hereto.

(vi)Section 2.02 thereof is hereby amended by deleting it in its entirety and, in lieu thereof, the following:

“SECTION 2.02 Purchase Price. In consideration of the sale, transference and assignment of the Purchased Contracts to be sold, transferred and assigned on any Purchase Date, LEAF II shall pay to LEAF Funding the Purchase Price for each Purchased Contract on the applicable Purchase Date, which shall be paid in immediately available funds on such Purchase Date in accordance with the funding instructions set forth in the applicable Purchase Date Notice.”

(vii)Section 2.03 thereof is hereby amended by deleting it in its entirety and, in lieu thereof, inserting “Section 2.03 Intentionally Omitted.”

(viii)Section 3.02(a)(iii)(A)(1) thereof is hereby amended by deleting it in its entirety and, in lieu thereof, inserting “(1) Intentionally Omitted;”.

(ix)Section 3.02(f)(i)(A) thereof is hereby amended by deleting it in its entirety and, in lieu thereof, inserting “(A) Intentionally Omitted;”.

(b)Purchase and Sale Agreement. The Purchase and Sale Agreement is hereby amended as follows:

(i)Each reference therein to “Borrower” shall be deemed to be a reference to LEAF II B SPE, as assignee of MLEF.

(ii) Each reference therein to “LEAF SPE” shall be deemed to be a reference to LEAF II, as assignee of LEAF IDM.

(iii)Each reference therein to the phrase “the applicable Collection Account” is hereby amended by deleting it in its entirety and, in lieu thereof, inserting the phrase “the Collection Account”.

(iv)Section 2.02 thereof is hereby amended by deleting it in its entirety and, in lieu thereof, the following:

“SECTION 2.02 Purchase Price. In consideration of the sale, transference and assignment of the Purchased Contracts to be sold, transferred and assigned on any Purchase Date, LEAF II B SPE shall pay to LEAF II the Purchase Price for each Purchased Contract on the applicable Purchase Date, which shall be paid in immediately available funds on such Purchase Date in accordance with the funding instructions set forth in the applicable Purchase Date Notice. Notwithstanding

(4)

anything herein or in any other Transaction Document to the contrary, as of each Purchase Date, the excess, if any, of the fair market value of any Purchased Contract over the Purchase Price for such Purchased Contract on such Purchase Date shall be deemed to be a contribution to the capital of LEAF II B SPE by LEAF II, which shall increase LEAF II’s beneficial ownership interest in LEAF II B SPE.”

(v)Section 2.04 thereof is hereby amended by deleting it in its entirety.

(vi)Article VIII thereof is hereby amended by inserting the following at the end thereof:

“SECTION 8.14 Relationship of LEAF II and LEAF II B SPE.

(a)The relationship between LEAF II and LEAF II B SPE shall be that of buyer and seller. Neither is a trustee or agent for the other, nor does either have fiduciary obligations to other. This Agreement shall not be construed to create a partnership or joint venture between LEAF II and LEAF II B SPE.

(b)LEAF II B SPE shall maintain at all times a telephone number different from any telephone numbers of LEAF II. LEAF II B SPE shall use stationery separate from that of LEAF II.

(c)LEAF II B SPE and LEAF II shall take steps to ensure that their respective creditors are aware that LEAF II B SPE is a legal entity separate and distinct from any other Entity and maintains its assets, and conducts its operations, separate from those of any other Entity. Neither LEAF II B SPE nor LEAF II shall fail to correct any known misunderstanding regarding their separate identity. LEAF II shall not purport to operate as an integrated, single economic unit with LEAF II B SPE in dealing with any unaffiliated Entity. LEAF II shall not finance LEAF II B SPE’s operations or guarantee LEAF II B SPE’s obligations. LEAF II B SPE shall pay from its own funds, to the extent funds are available, its operating expenses and liabilities, including legal fees and expenses, or shall reimburse LEAF II for any such expenses or liabilities paid by LEAF II on LEAF II B SPE’s behalf. LEAF II B SPE shall not hold out the assets or creditworthiness of LEAF II as being available for the payment of LEAF II B SPE’s liabilities or obligations, and LEAF II B SPE shall not hold out its assets or creditworthiness as being available for the payment of the liabilities or obligations of LEAF II or any of its affiliates other than LEAF II B SPE. LEAF II shall not hold out the assets or creditworthiness of LEAF II B SPE, nor shall LEAF II B SPE permit LEAF II to hold its assets or creditworthiness, as being available for the payment of the liabilities or obligations of LEAF II or any of its affiliates (other than LEAF II B SPE). LEAF II shall not hold out the assets or

(5)

creditworthiness of it or any of its affiliates (other than LEAF II B SPE) as being available for the payment of the liabilities or obligations of LEAF II B SPE. LEAF II B SPE shall not permit the assets or creditworthiness of LEAF II or any of its affiliates (other than LEAF II B SPE) to be held out as being available for payment of the liabilities or obligations of LEAF II B SPE. Neither LEAF II nor LEAF II B SPE shall use or permit the separate trust existence of LEAF II B SPE to be used by LEAF II to abuse creditors or to perpetrate a fraud, injury, or injustice on creditors.

(d)LEAF II and LEAF II B SPE shall each conduct its respective business separate and apart from the business conducted by the other. LEAF II B SPE shall maintain its books and records distinct and separately identifiable from the corporate records of LEAF II and any other Entity. LEAF II B SPE shall prepare financial records distinct and separately identifiable from the financial records of LEAF II or any of its affiliates (other than LEAF II B SPE). LEAF II B SPE shall prepare and maintain such statements and reports in accordance with generally accepted accounting principles. LEAF II shall indicate in such consolidated financial statements that the assets of LEAF II B SPE are not available to satisfy the creditors of any Entity other than LEAF II B SPE. To the extent that LEAF II B SPE is required to file tax returns under applicable law, LEAF II B SPE shall file such tax returns separate from those of any other Entity. LEAF II B SPE shall keep its funds and bank accounts separate and apart from the funds of LEAF II and any of its affiliates (other than LEAF II B SPE), and shall maintain its other assets separately identifiable and distinguishable from the assets of LEAF II and any of its affiliates (other than LEAF II B SPE). LEAF II B SPE shall not commingle its funds or other assets with those of any other Entity.

(e)LEAF II B SPE shall act solely in its own name and solely through its duly Authorized Officers or agents. LEAF II B SPE shall comply with the provisions of its limited liability company agreement, and shall comply in all material respects with the laws of the State of Delaware, insofar as they pertain to its separateness. In addition, LEAF II, as the sole member of LEAF II B SPE, shall execute such consents as may be necessary to authorize action by LEAF II B SPE, and LEAF II B SPE shall maintain appropriate records of its written consents and shall observe all requisite corporate formalities insofar as they pertain to LEAF II B SPE’s separate existence.

(f)All transactions between LEAF II and LEAF II B SPE are and shall be duly authorized and documented, and recorded accurately in their respective books and records. All such transactions shall be fair to each party, constitute exchanges for fair consideration and for reasonably equivalent value, and shall be made in good faith and without any intent to

(6)

hinder, delay, or defraud creditors. LEAF II B SPE shall not take any action, and shall not engage in transactions with LEAF II or any of its Affiliates (other than LEAF II B SPE) except as directed by LEAF II, and LEAF II shall not give any directions that are prohibited by LEAF II B SPE’s limited liability company agreement.”

(c)Loan Agreement. The Loan Agreement is hereby amended as follows:

(i)Each reference therein to “Borrower” shall be deemed to be a reference to LEAF II B SPE, as assignee of MLEF.

(ii)Each reference therein to “LEAF SPE” shall be deemed to be a reference to LEAF II, as assignee of LEAF IDM.

(iii)The form of Class A Note attached thereto as Exhibit A is hereby amended and restated in its entirety in the form of Exhibit II attached hereto.

(iv)The form of Class B Note attached thereto as Exhibit B is hereby deleted in its entirety.

(v)Section 2.01 thereof is hereby amended by deleting it in its entirety and, in lieu thereof, the following:

“SECTION 2.01 Commitment. During the Effective Period, subject to the terms and conditions herein set forth, the Lender agrees to make Advances to LEAF II B SPE in an aggregate principal amount not to exceed the Commitment. The Commitment shall automatically and permanently be reduced to zero on the Expiry Date. Subject to the terms, provisions and limitations set forth herein, LEAF II B SPE may borrow and repay, but not reborrow, Advances on or after the Closing Date and prior to the Expiry Date.”

(vi)Section 2.02(a) thereof is hereby amended by deleting it in its entirety and, in lieu thereof, the following:

“(a) Upon receipt of the Purchase Date Notice, and subject to the terms and conditions hereof, the Lender shall make Advances to LEAF II B SPE on the applicable Purchase Date in an aggregate amount equal to (x) the Advance Rate as of such date times (y) the Contract Value of each Purchased Contract to be purchased as of such Purchase Date.”

(vii)Section 2.03(c) thereof is hereby amended by deleting it in its entirety and, in lieu thereof, the following:

“(c) If requested in writing by the Lender, all Advances made by the Lender to LEAF II B SPE shall be evidenced by a single Note duly executed on behalf of LEAF II B SPE and delivered to and made payable

(7)

to the order of the Lender in a principal amount equal to the amount of the Commitment.”

(viii)The second sentence of Section 2.04 thereof is hereby amended by deleting it in its entirety and, in lieu thereof, the following:

“Each Advance shall bear interest on the principal amount thereof from time to time outstanding, from the date of on which such Advance is made until such principal amount becomes due, at a rate per annum equal to the sum of (i) the LIBO Rate, plus (ii) the Facility Rate; provided, upon the occurrence of a Servicer Default each Advance shall bear interest on the principal amount thereof from time to time outstanding, from the date of such occurrence until such principal amount becomes due, at a rate per annum equal to the Default Funding Rate.”

(ix)Section 2.05 thereof is hereby amended by deleting the phrase “the Applicable Priority of Payments” in its entirety and, in lieu thereof, inserting the phrase “the Priority of Payments”.

(x)Section 3.02(d) thereof is hereby amended by deleting the “and” at the end of clause (iii) thereof, deleting the “.” at the end of clause (iv) thereof inserting, in lieu thereof “ and;”, and inserting the following the following at the end thereof:

“(v) immediately prior to and after giving effect to the Advances to be made on such Purchase Date, (x) the Maximum Advance Amount as of such date does not exceed the aggregate amount of the Note Balance as of such date, and (y) the aggregate amount of the Note Balance as of such date does not exceed the Commitment in effect as of such date.”

(xi)Section 4.01 thereof is hereby amended by inserting the following the following at the end thereof:

“(f) No Proceedings. There are no proceedings, injunctions, writs, restraining orders or investigations pending or, to the best knowledge of LEAF II B SPE, threatened against LEAF II B SPE before any Governmental Authority (i) asserting the illegality, invalidity or unenforceability, or seeking any determination or ruling that would affect the legality, validity or enforceability of, this Agreement or any of the other Transaction Documents, (ii) seeking to prevent the consummation of any of the transactions contemplated by this Agreement or any of the other Transaction Documents, or (iii) seeking any determination or ruling that is reasonably likely to affect adversely the financial condition or operations of LEAF II B SPE or the validity or enforceability of, or the performance by LEAF II B SPE of its obligations under, this Agreement or any of the other Transaction Documents.

(8)

(g) No Consents. No authorization, consent, license, order or approval of, filing, registration or declaration with, or notice to, any Person, including, without limitation, any Governmental Authority, is required for LEAF II B SPE in connection with the execution and delivery of this Agreement or any of the other Transaction Documents by LEAF II B SPE or the performance of its obligations under this Agreement or any of the other Transaction Documents, except for the filing of documents required to have been filed on or prior to the Closing Date or a Purchase Date pursuant to Sections 3.01 and 3.02, all of which were so filed and are in full force and effect.

(h) Ownership; Liens.

(i) On each Purchase Date, LEAF II B SPE is the sole and exclusive owner of each Purchased Contract purchased by LEAF II B SPE on such date, each such Purchased Contract is free and clear of any Lien and no effective financing statement or other instrument similar in effect covering such Purchased Contract is on file in any recording office.

(ii) As of each Purchase Date, each Purchased Contract shall be acquired by LEAF II B SPE from LEAF II free and clear of any Lien except Permitted Liens.

(i) Location. The principal place of business and major executive office of LEAF II B SPE, and the offices where LEAF II B SPE keeps the originals of its books, records and documents regarding the Purchased Contracts sold hereunder, are located at LEAF II B SPE’s address specified in Section 8.09.

(j) Valid Lien. This Agreement creates, to secure the Obligations, a valid security interest (as defined in the UCC) in the Collateral and, upon the filing of the financing statements on Form UCC-1 described in Section 3.01, Lender will have a valid first priority perfected security interest in the Collateral (subject to Section 9-315 of the UCC).

(k) Solvency. LEAF II B SPE is solvent and will not become insolvent after giving effect to the transactions contemplated by this Agreement. LEAF II B SPE is currently repaying all of its indebtedness as such indebtedness becomes due; and, after giving effect to the transactions contemplated by this Agreement, LEAF II B SPE will have adequate capital to conduct its business as presently conducted and as contemplated by this Agreement.

(l) Compliance. LEAF II B SPE has complied, and will comply on each Purchase Date, in all respects with all Requirements of Law with respect to it, its business and properties and all Purchased Contracts sold

(9)

hereunder. LEAF II B SPE has maintained and will maintain all applicable permits, certifications and licenses necessary in any respect with respect to its business and properties and all Purchased Contracts sold hereunder, LEAF II B SPE has filed or caused to be filed, and will file, on a timely basis all tax returns required by any Governmental Authority.

(m) No Rescission. No Purchased Contract has been satisfied, subordinated or rescinded or, except as disclosed in writing to Lender, amended in any manner.

(n) No Insolvency Event. No Insolvency Event has occurred with respect to LEAF II B SPE nor, in LEAF II B SPE’s good faith judgment, is any Insolvency Event anticipated to occur with respect to LEAF II B SPE in the foreseeable future.

(o) Fraudulent Conveyance. LEAF II B SPE is not entering into the transactions contemplated hereby with any intent of hindering, delaying or defrauding creditors.

(p) Eligible Contracts. As of the relevant Purchase Date:

(i) each Purchased Contract sold on such date is an Eligible Contract and the transfer, sale and conveyance to LEAF II hereunder of such Purchased Contract does not conflict with, result in a breach of any of the provisions of, or constitute (with or without notice or lapse of time or both) a default under, such Purchased Contract or violate any Requirement of Law or subject the Lender to any fine, penalty or liability; and

(ii) the information set forth in the Purchase Date Notice with respect to each Purchased Contract to be purchased on such date, together with the applicable electronic data file provided in connection therewith, is and shall be true and correct.

(q) No Proceedings. There are no proceedings, injunctions, writs, restraining orders or investigations pending or, to the best knowledge of an Authorized Officer of LEAF II B SPE, threatened with respect to any Purchased Contract before any Governmental Authority asserting the illegality, invalidity or unenforceability, or seeking any determination or ruling that would affect the legality, validity or enforceability of any such Purchased Contract.

(r) Legal Name. The legal name of LEAF II B SPE is LEAF II B SPE, LLC.

(s) ERISA. No Plan (as defined in Section 3(3) of ERISA) maintained by LEAF II B SPE or any of its ERISA Affiliates (as defined in Section

(10)

414(b), (c), (m) or (o) of the Code) has any accumulated funding deficiency (within the meaning of Section 302 of ERISA or Section 412 of the Code), whether or not waived, LEAF II B SPE and each ERISA Affiliate of LEAF II B SPE have, in a timely manner, made all contributions required to be made by it to any Plan and Multiemployer Plan (as defined in Section 4001(a)(3) of ERISA) to which contributions are or have been required to be made by LEAF II B SPE or such ERISA Affiliate, and no event requiring notice to the Pension Benefit Guaranty Corporation under Section 302(f) of ERISA has occurred and is continuing or could reasonably be expected to occur with respect to any such Plan, in any case, that could reasonably be expected to result, directly or indirectly, in any Lien being imposed on the property of LEAF II B SPE or the payment of any material amount to avoid such Lien. No Reportable Event (as defined in Section 4043 of ERISA) with respect to LEAF II B SPE or any of its ERISA Affiliates has occurred or could reasonably be expected to occur that could reasonably be expected to result, directly or indirectly, in any Lien being imposed on the property of LEAF II B SPE or the payment of any material amount to avoid such Lien.

(t) PATRIOT Act. To the extent applicable, LEAF II B SPE is in compliance, in all material respects, with the (i) Trading with the Enemy Act, as amended, and each of the foreign assets control regulations of the Untied States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) and any other enabling legislation or executive order relating thereto, and (ii) the PATRIOT Act. No part of the proceeds of any Advance will be used, directly or indirectly, for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as amended.”

(xii)Section 5.01(e) thereof is hereby amended by deleting the phrase “the applicable Collection Account” in its entirety and, in lieu thereof, inserting the phrase “the Collection Account”.

(xiii)Section 5.01(f) thereof is hereby amended by deleting it in its entirety and, in lieu thereof, inserting the following:

“(f) Reporting Requirements.

(i) LEAF II B SPE shall (A) within one Business Day after an Authorized Officer of LEAF II B SPE obtains knowledge of the occurrence of any Potential Termination Event or any Termination Event, notify (either orally or in writing) the Lender of such

(11)

occurrence and (B) as soon as possible and in any event within three Business Days after an Authorized Officer of LEAF II B SPE obtains knowledge of the occurrence of any Potential Termination Event or any Termination Event, deliver to Lender, the Lender a statement of an Authorized Officer of LEAF II B SPE setting forth details of such Termination Event or such event and the action that LEAF II B SPE has taken and proposes to take with respect thereto.

(ii) As soon as possible and in any event within 10 Business Days after an Authorized Officer of LEAF II B SPE obtains knowledge thereof, LEAF II B SPE shall notify the Lender of any litigation, investigation or proceeding that could reasonably be expected to impair in any respect the ability of LEAF II B SPE to perform its obligations under this Agreement.

(iii) LEAF II B SPE shall promptly deliver to Lender such other information, documents, records or reports regarding the Purchased Contracts as Lender may from time to time reasonably request in order to protect Lender’s interests under or as contemplated by this Agreement.”

(xiv)Section 5.01 thereof is hereby amended by inserting the following at the end thereof:

“(g) Extension or Amendment of Contract Receivables. Except as otherwise permitted under the Servicing Agreement, LEAF II B SPE will not (i) extend, amend or otherwise modify the terms of any Purchased Contract or (ii) rescind or cancel any Purchased Contract.

(h) No Actions Against Obligors. Except in accordance with the Servicing Agreement, LEAF II B SPE will not commence or settle any legal action to enforce any rights under any Purchased Contract.”

(xv)Article VIII thereof is hereby amended by inserting the following at the end thereof:

“SECTION 8.11 Indemnification. Without limiting any other rights that any of the Indemnified Parties may have hereunder or under any applicable law, LEAF II B SPE hereby agrees to indemnify the Indemnified Parties from and against any and all Indemnified Amounts, whether direct, indirect or consequential, as a result of or arising from or relating to or in connection with any of the following:

(a) the reliance by any of the Indemnified Parties on any representation or warranty made by LEAF II B SPE under this Agreement that was incorrect in any respect when made or deemed made;

(12)

(b) any breach by Lender of any of its obligations under this Agreement or any other Transaction Document;

(c) any claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not any Indemnified Party is a party thereto;

(d) any commingling by LEAF II B SPE of Collections with other funds of LEAF II B SPE or any of its Affiliates; or

(e) any breach by LEAF II B SPE of any obligation under, or any violation by LEAF II B SPE of any Requirement of Law with respect to, any Purchased Contract;

provided,however, that LEAF II B SPE shall not have any obligation to any Indemnified Party pursuant to this Section 8.11 for any of the foregoing (x) caused by the gross negligence or willful misconduct of such Indemnified Party as determined by a final judgment of a court of competent jurisdiction or (y) that arise out of facts and circumstances related to the Purchased Contracts occurring prior to the Effective Date. To the extent that the undertaking to indemnify, pay and hold harmless set forth in this Section 8.11 may be unenforceable because it is violative of any law or public policy, LEAF II B SPE shall contribute the maximum portion which it is permitted to pay and satisfy under applicable law, to the payment and satisfaction of all Indemnified Amounts incurred by the Indemnified Parties.

Each Indemnified Party shall use reasonable efforts to notify LEAF II B SPE in advance of making any claim under this Section. Any Indemnified Amounts due under this Section shall be payable when incurred and, in any event, within ten Business Days of submission of a claim by the Indemnified Party. This Section shall survive the payment of all amounts otherwise due under this Agreement.”

(d)Servicing Agreement. The Servicing Agreement is hereby amended as follows:

(i)Each reference therein to “Borrower” shall be deemed to be a reference to LEAF II B SPE, as assignee of MLEF.

(ii)Each reference therein to “LEAF SPE” shall be deemed to be a reference to LEAF II, as assignee of LEAF IDM.

(iii)Each reference therein to the phrase “the applicable Collection Account” or the phrase “the applicable Collection Account” is hereby amended by deleting it in its entirety and, in lieu thereof, inserting the phrase “the Collection Account”.

(13)

(iv)Each reference therein to the phrase “the Applicable Priority of Payments” is hereby amended by deleting it in its entirety and, in lieu thereof, inserting the phrase “the Priority of Payments”.

(v)Section 2.01(b) thereof is hereby amended by deleting the phrase “the Master DDA, the Collection Accounts and the Reserve Accounts” in its entirety and, in lieu thereof, inserting the phrase “the Master DDA and the Collection Account”.

(vi)Section 2.01(c)(iv) thereof is hereby amended by deleting the phrase “and all funds on deposit in the applicable Reserve Account” in its entirety.

(vii)Section 2.01(c)(v) thereof is hereby amended by deleting it in its entirety and, in lieu thereof, inserting the phrase “Intentionally Omitted”.

(viii)Section 2.01(f)(ii) thereof is hereby amended by deleting it in its entirety and, in lieu thereof, inserting the following:

“(ii) at the Servicer’s expense, with the prior written consent of the Lender, and subject to Section 2.01(g), entering into subservicing arrangements with any Person for the purpose of administering or collecting the Collections.”

(ix)Section 4.01(b)(i) thereof is hereby amended by deleting the phrase “the Master DDA, the Collection Accounts and the Reserve Accounts” in its entirety and, in lieu thereof, inserting the phrase “the Master DDA and the Collection Account”.

(e)Back-up Servicing Agreement. The Back-up Servicing Agreement is hereby amended as follows:

(i)Each reference therein to “Borrower” shall be deemed to be a reference to LEAF II B SPE, as assignee of MLEF.

(ii)Each reference therein to “LEAF SPE” shall be deemed to be a reference to LEAF II, as assignee of LEAF IDM.

(iii)Section 2.04 thereof is hereby amended by deleting the phrase “the Applicable Priority of Payments” in its entirety and, in lieu thereof, inserting the phrase “the Priority of Payments”.

(f)Paying Agent Agreement. The Paying Agent Agreement is hereby amended as follows:

(i)Each reference therein to “Borrower” shall be deemed to be a reference to LEAF II B SPE, as assignee of MLEF.

(14)

(ii)Each reference therein to “LEAF SPE” shall be deemed to be a reference to LEAF II, as assignee of LEAF IDM.

(iii)Each reference therein to the phrase “the applicable Collection Account” or the phrase “the applicable Collection Account” or the phrase “either Collection Account” is hereby amended by deleting it in its entirety and, in lieu thereof, inserting the phrase “the Collection Account”.

(iv)Each reference therein to the phrase “the Applicable Priority of Payments” is hereby amended by deleting it in its entirety and, in lieu thereof, inserting the phrase “the Priority of Payments”.

(v)Section 3(a) thereof is hereby amended by deleting the phrase “the Master DDA, the Collection Accounts and the Reserve Accounts” in its entirety and, in lieu thereof, inserting the phrase “the Master DDA and the Collection Account”.

(vi)Section 5(b) thereof is hereby amended as follows by deleting it in its entirety and, in lieu thereof, inserting the phrase “Intentionally Omitted”.

(vii)Sections 6(b), 6(c) and 6(d) thereof are each hereby amended by deleting it in its entirety.

(viii)Section 7(b) thereof is hereby amended by deleting the phrase “and funds on deposit in the applicable Reserve Account, in each case,”; in its entirety.

(g)Custodial Agreement. The Paying Agent Agreement is hereby amended as follows:

(i)Each reference therein to “Borrower” shall be deemed to be a reference to LEAF II B SPE, as assignee of MLEF.

(ii)Each reference therein to “LEAF SPE” shall be deemed to be a reference to LEAF II, as assignee of LEAF IDM.

(h)Master DDA Control Agreement. The Master DDA Control Agreement is hereby amended as follows:

(i)Each reference therein to “Borrower” shall be deemed to be a reference to LEAF II B SPE, as assignee of MLEF.

(ii)Each reference therein to “LEAF SPE” shall be deemed to be a reference to LEAF II, as assignee of LEAF IDM.

(i)Master DDA Intercreditor Agreement. The Master DDA Intercreditor Agreement is hereby amended as follows:

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(i)Each reference therein to “Borrower” shall be deemed to be a reference to LEAF II B SPE, as assignee of MLEF.

(ii)Each reference therein to “LEAF SPE” shall be deemed to be a reference to LEAF II, as assignee of LEAF IDM.

(j)Addressees. Each of the Transaction Documents is amended to provide that notice information for each of the addressees in the Transaction Documents shall be as follows:

If to LEAF Funding:

LEAF Funding, Inc.

c/o LEAF Financial Corporation

1818 Market Street, 9^th floor

Philadelphia, PA 19103

Tel:(215) 569-1844

Fax:(215) 569-0675

Attn:Crit DeMent

With copies to:

Dar Patel, Esq.

General Counsel

LEAF Financial Corporation

(same info as above)

and:

Richard Abt, Esq.

Ledgewood

1900 Market Street, Suite 750

Philadelphia, PA 19103

Tel:(215) 731-9450

Fax:(215) 735-2513

If to LEAF II:

Lease Equity Appreciation Fund II, L.P.

c/o LEAF Financial Corporation

(same as above)

If to LEAF II B SPE:

LEAF II B SPE, LLC

c/o LEAF Financial Corporation

(same as above)

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If to the Lender:

Merrill Lynch Commercial Finance Corp.

4 World Financial Center,10^th Fl.

New York, NY 10080

Tel:(212) 449-9369

Fax:(212) 449-9015

Attn: Jeffrey S. Cohen

If to U.S. Bank:

U.S. Bank National Association

180 East Fifth Street

St. Paul, MN 55101

Tel:(651) 244-0727

Fax:(651) 244-1917

Attn: Structured Finance/Leaf Financial

SECTION 3.Conditions Precedent to the Effectiveness of this Agreement. This Agreement shall become effective as of the date hereof (the “Effective Date”) provided that each of the following conditions precedent shall have been satisfied, or waived by the Lender and U.S. Bank, on or before such date:

(a)Purchase Price. LEAF II B SPE shall have paid to MLEF the Purchase Price in accordance with the terms and conditions hereof.

(b)Collection Accounts and Reserve Accounts. The Paying Agent shall have (i) renamed the currently existing “Collection Account (Pool A)” as “Merrill Lynch Commercial Finance Corp., as Lender, Account of LEAF II B SPE, LLC”, which account, as of the Effective Date and thereafter, shall for all purposes of the Transaction Documents be the “Collection Account”, (ii) transferred all amounts then on deposit in the Collection Account (Pool B), Reserve Account (Pool A) and Reserve Account (Pool B) into the Collection Account, and (iii) terminated each of the Collection Account (Pool B), Reserve Account (Pool A) and Reserve Account (Pool B).

(c)Delivery of Agreements, Documents, Instruments, Etc. The Lender shall have received each of the following, each, unless otherwise noted, dated as of Effective Date:

(i)this Agreement, executed and delivered by a duly Authorized Officer of each party hereto;

(ii)a Note, executed and delivered by a duly Authorized Officer of LEAF II B SPE;

(iii)an Effective Date Notice in form of Exhibit III attached hereto executed and delivered by a duly Authorized Officer of LEAF Financial, LEAF Funding, LEAF IDM, LEAF II and LEAF II B SPE;

(17)

(iv)copies of the organizational documents of each of LEAF II and LEAF II B SPE, certified by the Secretary of State of the State of Delaware, or, if such document is of a type that may not be so certified, certified by the secretary of each of LEAF II and LEAF II B SPE, as applicable, together with a good standing certificate from the Secretary of State of the State of Delaware and, if applicable, each other jurisdiction in the United States in which each of LEAF II and LEAF II B SPE is qualified to do business and, to the extent generally available, a certificate or other evidence of good standing as to payment of any applicable franchise or similar taxes from the appropriate taxing authority of each jurisdiction of organization, each dated a recent date prior to the Effective Date;

(v)resolutions of the board of directors (or any duly authorized committee thereof) or members of each of LEAF II and LEAF II B SPE approving and authorizing the execution, delivery and performance by such Person of the Transaction Documents to which it is a party, certified as of the Effective Date by the secretary of each of LEAF II and LEAF II B SPE, as applicable, as being in full force and effect without modification or amendment;

(vi)signature and incumbency certificates of the officers of each of LEAF II and LEAF II B SPE executing the Transaction Documents to which it is a party;

(vii)executed copies of one or more favorable written opinions of counsel for LEAF Financial, LEAF Funding, LEAF IDM, LEAF II and LEAF II B SPE in form and substance satisfactory to the Lender and its counsel, dated as of the Effective Date and covering substantially such matters as LEAF II B SPE or the Lender may reasonably request (this Agreement constituting a written request by each of LEAF Financial, LEAF Funding, LEAF IDM, LEAF II and LEAF II B SPE to such counsel to deliver such opinions to LEAF II B SPE and the Lender), including, without limitation, (x) concerning the potential application to LEAF Funding, LEAF II and LEAF II B SPE of the doctrine of “substantive consolidation” under the federal bankruptcy laws and (y) concerning the true sale nature of the transactions contemplated hereby and the other Transaction Documents; and

(viii)financing statements relating to the conveyance of the Purchased Contracts, naming LEAF II as debtor, LEAF II B SPE as secured party and LEAF II B SPE as assignee thereof, or other similar instruments or documents, as may be necessary or, in the opinion of the Lender, desirable under the UCC of any appropriate jurisdiction or other applicable law to perfect LEAF II’s ownership of the Purchased Contracts and a first priority security interest therein, which financing statements, instruments or documents shall be filed with the Secretary of State of the State of Delaware and such other filing offices as may be necessary or appropriate.

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(d)Representations and Warranties. As of the date hereof, the representations and warranties made herein by LEAF Funding, LEAF IDM, LEAF Financial, LEAF II and LEAF II B SPE shall be true and correct in all material respects on and as of such date as if made on and as of such date (except to the extent such representation or warranty expressly relates to an earlier date, in which case such representation or warranty shall be true and correct in all material respects as of such earlier date).

(e)No Potential Termination Event or Termination Event. No Potential Termination Event or Termination Event shall have occurred and be continuing or shall occur as a result of this Agreement.

SECTION 4.Representations and Warranties. To induce MLEF, the Lender and U.S. Bank to enter into this Agreement, each of LEAF Funding, LEAF IDM, LEAF Financial, LEAF II and LEAF II B SPE hereby represent and warrant to MLEF, the Lender and U.S. Bank as follows as of the date hereof:

(a)Representations and Warranties - Transaction Documents. The representations and warranties made by each of LEAF Funding, LEAF IDM, LEAF Financial, LEAF II and LEAF II B SPE in any Transaction Document (giving effect to the transactions contemplated hereby) are true and correct in all material respects on and as of such date as if made on and as of such date (except to the extent such representation or warranty expressly relates to an earlier date, in which case such representation or warranty shall be true and correct in all material respects as of such earlier date).

(b)Representations and Warranties - This Agreement.

(i)It is duly organized and validly existing as a corporation, limited liability company or limited partnership, as the case may be, in good standing under the laws of the State of Delaware. It has full power, authority and legal right to own its properties and conduct its business, as presently owned and conducted, and as is proposed to be conducted under this Agreement (and, in the case of LEAF II B SPE, the Note), and to execute, deliver and perform its obligations under this Agreement (and, in the case of LEAF II B SPE, the Note).

(ii)It is duly qualified to do business (or is exempt from such qualification requirements), is in good standing, and has obtained all Governmental Authorizations in each jurisdiction in which qualification and such Governmental Authorization are required in connection with the conduct its business, as presently owned and conducted, and as is proposed to be conducted under this Agreement (and, in the case of LEAF II B SPE, the Note), and the execution, delivery and performance of its obligations under this Agreement (and, in the case of LEAF II B SPE, the Note), except to the extent that any failure to be so qualified could not reasonably be expected to have a material adverse effect.

(iii)Its execution, delivery and performance of this Agreement (and, in the case of LEAF II B SPE, the Note) and the consummation of the transactions

(19)

contemplated by this Agreement (and, in the case of LEAF II B SPE, the Note) have been duly and validly authorized by all necessary action on the part of it.

(iv)This Agreement (and, in the case of LEAF II B SPE, the Note) constitutes a valid and legally binding obligation of it, enforceable against it in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, reorganization, insolvency, moratorium or other similar laws affecting creditors’ rights generally, now and hereafter in effect, and except as such enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity).

(v)Its execution and delivery of this Agreement (and, in the case of LEAF II B SPE, the Note), its performance of the transactions contemplated hereby and its fulfillment of the terms hereof and thereof applicable to it do not (A) contravene it’s organizational documents, (B) conflict with or violate any Requirements of Law applicable to it, (C) violate any provision of, or require any filing, registration, consent or approval under, any Requirement of Law presently in effect having applicability to it, except for such filings, registrations, consents or approvals as have already been obtained or made and are in full force and effect, and (D) conflict with, result in any breach of any of the terms or provisions of, or constitute (with or without notice or lapse of time or both) a default under, any indenture, Purchased Contract, agreement, mortgage, deed of trust or other instrument to which it is a party or by which it or its properties or assets are bound which conflict, violation, default or breach would have an adverse effect on it’s ability to perform its obligations hereunder or on the ownership of the Purchased Contracts.

(vi)There are no proceedings, injunctions, writs, restraining orders or investigations pending or, to the best knowledge of it, threatened against it before any Governmental Authority (A) asserting the illegality, invalidity or unenforceability, or seeking any determination or ruling that would affect the legality, validity or enforceability of, this Agreement (and, in the case of LEAF II B SPE, the Note), (B) seeking to prevent the consummation of any of the transactions contemplated by this Agreement (and, in the case of LEAF II B SPE, the Note), or (C) seeking any determination or ruling that is reasonably likely to affect adversely the financial condition or operations of it or the validity or enforceability of, or the performance by it of its obligations under, this Agreement (and, in the case of LEAF II B SPE, the Note).

(vii)No authorization, consent, license, order or approval of, filing, registration or declaration with, or notice to, any Person, including, without limitation, any Governmental Authority, is required for it in connection with the execution and delivery of this Agreement (and, in the case of LEAF II B SPE, the Note) by it or the performance of its obligations under this Agreement (and, in the

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case of LEAF II B SPE, the Note), except for the filing of documents required to have been filed on or promptly after the Effective Date.

(c)No Potential Termination Event or Termination Event. No Potential Termination Event or Termination Event has occurred and is continuing or shall occur as a result of this Agreement.

SECTION 5.Reference to and Effect on the Transaction Documents. As of the Effective Date, any reference in any Transaction Document to a Transaction Document shall be to such Transaction Document as amended hereby.

SECTION 6.Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts (including by facsimile transmission of signature pages hereto), and all of said counterparts taken together shall be deemed to constitute one and the same instrument.

SECTION 7.Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

SECTION 8.Integration. This Agreement and the other Transaction Documents represent the agreement of LEAF Funding, LEAF IDM, LEAF Financial, LEAF II, LEAF II B SPE, MLEF, the Lender and U.S. Bank with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by LEAF II B SPE, Lender or U.S. Bank relative to subject matter hereof not expressly set forth or referred to herein or in the Transaction Documents.

SECTION 9.GOVERNING LAW AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

SECTION 10.PATRIOT ACT. Purchaser hereby notifies each of LEAF Funding, LEAF IDM, LEAF Financial, LEAF II, LEAF II B SPE that pursuant to the requirements of the PATRIOT Act, it is required to obtain, verify and record information that identifies each such Person, which information includes the name and address of each such Person and other information that will allow such Purchaser to identify each of LEAF Funding, LEAF IDM, LEAF Financial, LEAF II, LEAF II B SPE in accordance with the PATRIOT Act.

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written.

LEAF FINANCIAL CORPORATION

By:

Name:

Title:

LEAF FUNDING, INC.

By:

Name:

Title:

LEAF INSTITUTIONAL DIRECT MANAGEMENT, LLC

By: LEAF Funding, Inc., its sole member

By:

Name:

Title:

LEASE EQUITY APPRECIATION FUND II, L.P.

By: LEAF Financial Corporation, its general partner

By:

Name:

Title:

LEAF II B SPE, LLC

By: Lease Equity Appreciation Fund II, L.P., its sole member

By: LEAF Financial Corporation, its general partner

By:

Name:

Title:

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MERRILL LYNCH EQUIPMENT FINANCE LLC

By:

Name:

Title:

MERRILL LYNCH COMMERCIAL FINANCE CORP.

By:

Name:

Title:

U.S. BANK NATIONAL ASSOCIATION

By:

Name:

Title:

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Appendix A

[as attached]

Exhibit I

[as attached]

Exhibit II

[as attached]

Exhibit III

[as attached]

EX-10.15

LOAN AND SECURITY AGREEMENT

RESOURCE AMERICA, INC.

with

COMMERCE BANK, N.A.,

as Agent, Arranger and Issuing Bank

and

THE FINANCIAL INSTITUTIONS

NOW OR HEREAFTER LISTED ON SCHEDULE A,

as Lenders

TABLE OF CONTENTS

			PAGE
SECTION 1.DEFINITIONS AND INTERPRETATION			1
	1.1	Terms Defined	1
	1.2	Accounting Principles	9
	1.3	Construction	9
SECTION 2.THE LOANS			9
	2.1	Revolving Credit	9
	2.2	Letter of Credit	9
	2.3	Advances, Conversions, Renewals and Payments	13
	2.4	Interest	15
	2.5	Additional Interest Provisions	16
	2.6	Fees	17
	2.7	Prepayments	18
	2.8	Use of Proceeds	18
	2.9	Indemnity/Loss of Margin	18
	2.10	Capital Adequacy	19
	2.11	Termination of Loans	19
SECTION 3.COLLATERAL			19
	3.1	Description	19
	3.2	Other Actions	19
	3.3	Filing Security Agreement	20
	3.4	Power of Attorney	20
SECTION 4.CLOSING AND CONDITIONS PRECEDENT TO ADVANCES			20
	4.1	Resolutions, Opinions, and Other Documents	20
	4.2	Absence of Certain Events	21
	4.3	Warranties and Representations at Closing	21
	4.4	Compliance with this Agreement	21
	4.5	Closing	21
	4.6	Non-Waiver of Rights	21
	4.7	Conditions to Advances	22
SECTION 5.REPRESENTATIONS AND WARRANTIES			22
	5.1	Organization and Validity	22
	5.2	Places of Business	23
	5.3	Pending Litigation	23
	5.4	Title to Properties	23
	5.5	Consent	23
	5.6	Taxes	23

	5.7	Financial Statements	24
	5.8	Full Disclosure	24
	5.9	Subsidiaries	24
	5.10	Guarantees, Contracts, etc.	24
	5.11	Government Regulations, etc.	24
	5.12	Names	25
	5.13	Other Associations	26
	5.14	Regulation O	26
	5.15	Solvency	26
	5.16	Investment Company	26
	5.17	Anti-Terrorism Laws	26
	5.18	Bancorp Stock	27
SECTION 6. AFFIRMATIVE COVENANTS			27
	6.1	Payment of Taxes and Claims	27
	6.2	Maintenance of Properties and Corporate Existence	28
	6.3	Business Conducted	28
	6.4	Litigation	29
	6.5	Taxes	29
	6.6	Bank Accounts	29
	6.7	Employee Benefit Plans	29
	6.8	Financial Covenants	29
	6.9	Financial and Business Information	30
	6.10	Officers' Certificates	31
	6.11	Inspection	31
	6.12	Information to Participant	32
	6.13	Name Changes, Places of Business	32
	6.14	Bancorp Stock and Resource Capital Stock	32
SECTION 7.NEGATIVE COVENANT			32
	7.1	Merger, Consolidation, Dissolution or Liquidation	32
	7.2	Loans and Investments	32
	7.3	Liens and Encumbrances	32
	7.4	Guarantees	32
	7.5	Use of Lenders’ Name	32
	7.6	Miscellaneous Covenants	33
SECTION 8.DEFAULT			33
	8.1	Events of Default	33
	8.2	Cure	35
	8.3	Rights and Remedies on Default	35
	8.4	Nature of Remedies	36
	8.5	Set-Off	36

ii

SECTION 9.AGENT			36
	9.1	Appointment and Authorization	36
	9.2	General Immunity	36
	9.3	Consultation with Counsel	37
	9.4	Documents	37
	9.5	Rights as a Lender	37
	9.6	Responsibility of Agent	37
	9.7	Collections and Disbursements	37
	9.8	Indemnification	38
	9.9	Expenses	39
	9.10	No Reliance	39
	9.11	Resignation of Agent	39
	9.12	Action on Instructions of Lenders	39
	9.13	Several Obligations	39
SECTION 10.MISCELLANEOUS			40
	10.1	Governing Law	40
	10.2	Integrated Agreement	40
	10.3	Waiver	40
	10.4	Indemnity	40
	10.5	Time	41
	10.6	Expenses of Agent and Lenders	41
	10.7	Brokerage	41
	10.8	Notices	42
	10.9	Headings	42
	10.10	Survival	43
	10.11	Amendments	43
	10.12	Assignability	44
	10.13	Successors and Assigns	46
	10.14	Duplicate Originals	46
	10.15	Modification	46
	10.16	Signatories	46
	10.17	Third Parties	46
	10.18	Discharge of Taxes, Borrower’s Obligations, Etc.	46
	10.19	Withholding and Other Tax Liabilities	46
	10.20	Consent of Jurisdiction	47
	10.21	Waiver of Jury Trail	47

iii

EXHIBITS AND SCHEDULES

Exhibit A	--	Form of Authorization Certificate
Exhibit B	--	Form of Borrowing Request
Exhibit C	--	Form of Borrowing Base Certificate
Exhibit D	--	Form of Compliance Certificate
Schedule A	--	Schedule of Lenders
Schedule B	--	Address of Lenders
Schedule 1.1(b)	--	Permitted Liens
Schedule 5.1	--	Borrower's States of Qualifications
Schedule 5.2	--	Places of Business
Schedule 5.3	--	Judgments, Proceedings, Litigation and Orders
Schedule 5.7	--	Federal Tax Identification Numbers
Schedule 5.9	--	Subsidiary and Affiliates
Schedule 5.11	--	Employee Benefit Plans
Schedule 5.12(a)	--	Schedule of Names
Schedule 5.13(b)	--	Trademarks, Patents and Copyrights
Schedule 5.13	--	Other Associations

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LOAN AND SECURITY AGREEMENT

This Loan and Security Agreement (“Agreement”) is dated the 4th day of August, 2006, by and among Resource America, Inc. a Delaware corporation (“Borrower”), Commerce Bank, N.A., a national banking association, in its capacity as agent (“Agent”), Commerce Bank, N.A. in its capacity as issuing bank (“Issuing Bank”) and each of the financial institutions which are now or hereafter identified as Lenders on Schedule A attached hereto and made a part of this Agreement (as such Schedule may be amended, modified or replaced from time to time), (each such financial institutions, individually each being a “Lender” and collectively all being “Lenders”).

BACKGROUND

Borrower desires to establish financing arrangements with Lenders for general working capital purposes, including interim funding of investments. Lenders are willing to make loans and grant extensions of credit to Borrower under the terms and provisions hereinafter set forth.

NOW, THEREFORE, in consideration of the mutual covenants set forth in this Agreement, the parties hereto, intending to be legally bound hereby, agree as follows:

SECTION 1. DEFINITIONS AND INTERPRETATION

1.1Terms Defined: As used in this Agreement, the following terms have the following respective meanings, or the meanings ascribed to them in the referenced Section:

Advance(s) - Any monies advanced or credit extended to Borrower by any Lender under the Revolving Credit, including without limitation cash advances and the Letter of Credit Amount with respect to the issuance of Letters of Credit.

Affiliate - With respect to any Person, (a) any Person which, directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such Person, or (b) any Person who is a director or officer (i) of such Person, (ii) of any Subsidiary of such Person, or (iii) any person described in clause (a) above. For purposes of this definition, control of a Person shall mean the power, directly or indirectly, (x) to vote 10% or more of the Capital Stock having ordinary voting power for the election of directors (or comparable equivalent) of such Person, or (y) to direct or cause the direction of the management and policies of such Person, whether by contract or otherwise. Control may be by ownership, contract, or otherwise.

Agreement - This Loan and Security Agreement, as it may hereafter be amended, supplemented, restated or replaced from time to time.

Anti-Terrorism Laws - Any statute, treaty, law (including common law), ordinance, regulation, rule, order, opinion, release, injunction, writ, decree or award of any Governmental Authority relating to terrorism or money laundering, including Executive Order No. 13224 and the USA Patriot Act.

Asset Sale - The sale, transfer, lease, license or other disposition by Borrower of any Property now owned, or hereafter acquired, of any nature whatsoever in any transaction or series of related transactions other than in the ordinary course of business. An Asset Sale includes, but is not limited to, a merger, consolidation, division, conversion, dissolution or liquidation.

Assignment and Acceptance - Shall have the meaning set forth in Section 10.12.

Authorized Officer - Any officer of Borrower authorized by the by-laws of the Borrower to execute and deliver documents on behalf of Borrower, to request Advances or execute Borrowing Base Certificates or Quarterly Compliance Certificates, as set forth in the authorization certificate delivered to Agent substantially in the form of Exhibit “A” attached hereto.

Bank Affiliate - Any bank that is controlled by a Lender. A bank shall be deemed controlled by a Lender if (i) such Lender, directly or indirectly, or acting through one or more other Persons, owns, controls or has power to vote twenty-five percent (25%) or more of any class of voting securities of such bank; or (ii) such Lender controls in any manner the election of a majority of the directors or trustees of such bank.

Borrowing Request - A document, in the form of Exhibit B attached hereto, and made part hereof, signed and delivered to Agent by an Authorized Officer of Borrower.

Borrowing Base - As of the date of determination, an amount equal to the lesser of the (i) Maximum Revolving Credit Amount, or (ii) 80% of the market value of the Collateral.

Borrowing Base Certificate - Shall have the meaning set forth in Section 6.9(b).

Business Day - Any day that is not a Saturday or Sunday or day on which Agent or any Lender is required or permitted to close in Philadelphia, Pennsylvania.

Capitalized Lease Obligations - Any Indebtedness represented by obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP.

Capital Stock - Any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all other ownership interests in a Person (other than a corporation) and any and all warrants or options to purchase any of the foregoing.

Closing - Shall have the meaning set forth in Section 4.5.

Closing Date - Shall have the meaning set forth in Section 4.5.

Collateral - The Collateral pledged by Borrower pursuant to Section 3.

Consolidation Amortization Expense - For any period, the aggregate consolidated amount of amortization expenses of Borrower, as determined in accordance with GAAP.

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Control Agreements - The Securities Account Control Agreement, of even date herewith, among Resource Capital Investors, Inc., the Agent, Credit Suisse Securities (USA) LLC and Pershing LLC; and the Securities Account Control Agreement, of even date herewith, among Resource Capital Manager, Inc., the Agent, Credit Suisse Securities (USA) LLC and Pershing LLC.

Default - An event which with the passage of time, the giving of notice, or both would constitute an Event of Default.

Default Rate - Shall have the meaning set forth in Section 2.5(b).

Disqualified Stock - Any Capital Stock which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable) or upon the happening of any event (i) matures or is mandatorily redeemable for any reason, (ii) is convertible or exchangeable for Indebtedness or Capital Stock that meets the requirements of clauses (i) and (ii), or (iii) is redeemable at the option of the holder thereof, in whole or in part in each case on or prior to the Maturity Date.

Distribution - (i) Cash dividends or other cash distributions on any now or hereafter outstanding Capital Stock of Borrower; (ii) the redemption, repurchase, defeasance or acquisition of such Capital Stock or of warrants, rights or other options to purchase such Capital Stock; and (iii) any loans or advances (other than salaries), to any shareholder(s), partner(s), or member(s) of Borrower.

ERISA - The Employee Retirement Income Security Act of 1974, as the same may be amended, from time to time.

Event of Default - Shall have the meaning set forth in Section 8.1.

Executive Order No. 13224 - The Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001, as the same has been, or shall hereafter be, renewed, extended, amended or replaced.

Expenses - Shall have the meaning set forth in Section 10.6.

Federal Funds Rate - For any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or if such rate is not so published for any day which is a Business Day, the average of quotations for such day on such transactions received by Agent from three federal funds brokers of recognized standing selected by Agent.

GAAP - Generally accepted accounting principles as in effect on the Closing Date applied in a manner consistent with the most recent audited consolidated financial statements of Borrower furnished to Agent and described in Section 6.9 hereof.

Government Acts - Shall have the meaning set forth in Section 2.2(f).

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Governmental Authority - Any federal, state or local government or political subdivision, or any agency, authority, bureau, central bank, commission, department or instrumentality of either, or any court, tribunal, grand jury, or arbitration.

Guaranty Agreements - The Guaranty Agreement, of even date herewith, by Resource Capital Investor, Inc. for the benefit of the Agent, and the Guaranty Agreement, of even date herewith, by Resource Capital Manager, Inc. for the benefit of the Agent.

Hedging Agreements - Any Interest Hedging Instrument or any other interest rate protection agreement, foreign currency exchange agreement, commodity purchase or option agreement, or any other interest rate hedging device or swap agreement (as defined in 11 U.S.C. § 101 et. seq.).

IRS - The United States Internal Revenue Service.

Indebtedness - Of any Person at any date, without duplication, (i) all indebtedness of such Person for borrowed money (including with respect to the Borrower, the Obligations) or for the deferred purchase price of property or services (other than current trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices), (ii) any other indebtedness of such Person which is evidenced by a note, bond, debenture or similar instrument, (iii) all Capitalized Lease Obligations of such Person, (iv) the face amount of all letters of credit (including the Letters of Credit), issued for the account of such Person and all drafts drawn thereunder, (v) all obligations of other Persons which such Person has guaranteed, (vi) Disqualified Stock, (vii) all obligations of such Person under Hedging Agreements, and (viii) all liabilities secured by any Lien on any property owned by such Person even though such Person has not assumed or otherwise become liable for the payment thereof.

Interest Hedging Instrument - Any documentation evidencing any interest rate swap, interest “cap” or “collar” or any other interest rate hedging device or swap agreement (as defined in 11 U.S.C. § 101 et. seq.) between Borrower and a Lender (or any Affiliate of a Lender).

Investments - Any direct or indirect acquisition or investment by any Person, whether by means of, (i) the purchase or acquisition of Capital Stock or Securities of another Person, (ii) a loan, advance, or capital contribution to, or guaranty or assumption of Indebtedness of, or purchase or other acquisition of any other debt, or equity participation, or interest in another Person, or (iii) the purchase or other acquisition (in one transaction or a series of transaction), of all or substantially all of the Property or business of another Person, or assets constituting a business unit, line of business, or division of another Person.

Issuing Bank - Commerce Bank, N.A.

L/C Fees - Shall have the meaning set forth in Section 2.6(b).

L/C Sublimit - An amount not to exceed, at any time, twenty percent (20%) of the Maximum Revolving Credit Amount.

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Letter of Credit - Any letter of credit (as amended, supplemented, replaced or restated from time to time) issued by Issuing Bank, pursuant to Section 2.2 of this Agreement, for the account of Borrower.

Letter of Credit Amount - The sum of (i) the aggregate undrawn amount of all Letters of Credit outstanding at any time plus (ii) the aggregate amount of all drawings under Letters of Credit for which Issuing Bank has not been reimbursed at such time.

Letter of Credit Documents - Any Letter of Credit, any amendment thereto, any documents delivered in connection therewith, any application therefore, or any other documents (all in form and substance satisfactory to Issuing Bank), governing or providing for (i) the rights and obligations on the parties concerned or at risk, or (ii) any collateral security for such obligations.

LIBOR - With respect to any LIBOR Rate Loan for the LIBOR Interest Period applicable thereto, the rate of interest per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London time) 2 Business Days prior to the first day of such LIBOR Interest Period for a term comparable to such LIBOR Interest Period; provided however, if more than one rate is specified on Telerate Page 3750, the applicable rate shall be the arithmetic mean of all such rates. If, for any reason, such rate is not available, the term London Interbank Offered Rate shall mean, with respect to any LIBOR Rate Loan for the LIBOR Interest Period applicable thereto, the rate of interest per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBOR Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London time) 2 Business Days prior to the first day of such LIBOR Interest Period for a term comparable to such LIBOR Interest Period; provided however, if more than one rate is specified on Reuters Screen LIBOR Page, the applicable rate shall be the arithmetic mean of all such rates.

LIBOR Interest Period - As to LIBOR Rate Loans, a period of thirty days, sixty days or ninety days, as selected by Borrower in connection with an Advance constituting a LIBOR Rate Loan, commencing on the date designated in the Borrowing Request provided by Borrower to Lender pursuant to Section 2.4(a) (including continuations and conversions thereof); provided however, (i) if any LIBOR Interest Period would end on a day which is not a Business Day, such LIBOR Interest Period shall be extended to the next succeeding Business Day (except that where the next succeeding Business Day falls in the next succeeding calendar month, then on the next preceding Business Day), (ii) no LIBOR Interest Period shall extend beyond the Maturity Date, and (iii) any LIBOR Interest Period with respect to a LIBOR Rate Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such LIBOR Interest Period) shall end on the last Business Day of the relevant calendar month at the end of such LIBOR Interest Period.

LIBOR Rate - The per annum rate of interest denominated as 30-day LIBOR, 60-day LIBOR or 90-day LIBOR, as published in the “Money Rates” section of means the per annum rate of interest denominated as 30-day LIBOR, 60-day LIBOR or 90-day LIBOR, as published in the “Money Rates” section of The Wall Street Journal on the applicable date as such

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rate may change from time to time, plus 2.25%.  If The Wall Street Journal ceases to publish or does not publish a 30-day LIBOR, 60-day LIBOR or 90-day LIBOR rate, then the Lender shall determine such rate using such other indices as the Bank shall determine.

LIBOR Rate Loans - The portions of the Advances accruing interest at LIBOR Rates.

Lien - Any interest of any kind or nature in Property securing an obligation owed to, or a claim of any kind or nature in Property by, a Person other than the owner of the Property, whether such interest is based on the common law, statute, regulation or contract, and including, but not limited to, a security interest or lien arising from a mortgage, encumbrance, pledge, conditional sale or trust receipt, a capitalized lease, consignment or bailment for security purposes, a trust, or an assignment, or as a result of the issuance of any execution or distraint process against Borrower. For the purposes of this Agreement, Borrower shall be deemed to be the owner of any Property which it has acquired or holds subject to a conditional sale agreement or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person for security purposes.

Loans - The unpaid balance of Advances under the Revolving Credit, which may be Prime Rate Loans or LIBOR Rate Loans.

Loan Documents - This Agreement, the Revolving Credit Notes, Letter of Credit Documents, the Pledge Agreement, the Control Agreements, the Guaranty Agreements and all agreements, instruments and documents executed and/or delivered from time to time pursuant to this Agreement or in connection therewith, as amended, supplemented, replaced or restated from time to time.

Majority Lenders - At any time, Lenders holding Pro Rata Percentages aggregating at least fifty one percent (51%) of the total Pro Rata Shares.

Material Adverse Effect - A material adverse effect with respect to (a) the business, assets, properties, financial condition, stockholders’ equity, contingent liabilities, prospects, material agreements or results of operations of Borrower, or (b) Borrower's ability to pay the Obligations in accordance with the terms hereof, or (c) the validity or enforceability of this Agreement or any of the other Loan Documents or the rights and remedies of Agent and/or any Lender hereunder or thereunder.

Maturity Date - shall mean August ____, 2009.

Maximum Revolving Credit Amount - The sum of Twenty-Five Million Dollars ($25,000,000).

Net Worth - At any time, the amount by which all of Borrower’s assets exceed all of Borrower’s liabilities, as shown on Borrower’s balance sheet prepared in accordance with GAAP.

Obligations - All existing and future debts, liabilities and obligations of every kind or nature at any time owing by Borrower to Lenders, Issuing Bank or Agent whether under this Agreement, any other Loan Document, or any other existing or future instrument,

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document or agreement, among Borrower and Lenders, Issuing Bank or Agent, whether joint or several, related or unrelated, primary or secondary, matured or contingent, due or to become due (including debts, liabilities and obligations obtained by assignment), and whether principal, interest, fees, indemnification obligations hereunder or Expenses (specifically including interest accruing after the commencement of any bankruptcy, insolvency or similar proceeding with respect to Borrower, whether or not a claim for such post-commencement interest is allowed), including, without limitation, debts, liabilities and obligations in respect of the Revolving Credit, Reimbursement Obligations and any extensions, modifications, substitutions, increases and renewals thereof; the performance of all covenants set forth in the Loan Documents; any amount payable by Borrower, pursuant to an Interest Hedging Instrument; the payment of all amounts advanced by Agent on behalf of Lenders to preserve, protect and enforce rights hereunder and in the Collateral; and all Expenses incurred by Agent and Lenders. Without limiting the generality of the foregoing, Obligations shall include any other debts, liabilities or obligations owing to Agent in connection with any lock box, cash management, or other services (including electronic funds transfers or automated clearing house transactions) provided by Agent to Borrower.

Overadvance - Shall have the meaning set forth in Section 2.1(a)(i).

PBGC - The Pension Benefit Guaranty Corporation.

Permitted Investments - (a) Investments existing on the Closing Date that are disclosed in Borrower’s financial statements; (b) (i) obligations issued or guaranteed by the United States of America or any agency thereof, (ii) commercial paper with maturities of not more than 180 days and a published rating of not less than A-1 or P-1 (or the equivalent rating) by a nationally recognized investment rating agency, (iii) certificates of time deposit and bankers’ acceptances having maturities of not more than 180 days and repurchase agreements backed by United States government securities of a commercial bank if (A) such bank has a combined capital and surplus of at least $500,000,000, or (B) its debt obligations, or those of a holding company of which it is a Subsidiary, are rated not less than A (or the equivalent rating) by a nationally recognized investment rating agency, and (iv) U.S. money market funds that invest solely in obligations issued or guaranteed by the United States of America or an agency thereof; (c) loans to employees not to exceed $25,000 in the aggregate outstanding at any time; (d) Securities purchased by Borrower which are to be packaged into a collateralized debt obligation, which is then sold to third party investors, and (e) other Investments made in the ordinary course of Borrower's business in accordance with the description of Borrower's business as disclosed in Borrower's filings with the Securities and Exchange Commission.

Permitted Liens - (a) Liens securing taxes, assessments or governmental charges or levies or the claims or demands of materialmen, mechanics, carriers, warehousemen, and other like persons not yet due; (b) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance, social security and other like laws; (c) Liens related to Permitted Investments; and (d) Liens existing on the Closing Date and shown on Schedule 1.1(b) attached hereto and made part hereof.

Person - An individual, partnership, corporation, trust, unincorporated association or organization, joint venture, limited liability company or partnership, or any other entity.

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Pledge Agreements - The Securities Account Pledge Agreement, of even date herewith, between the Borrower and the Agent; the Securities Account Pledge Agreement, of even date herewith, between Resource Capital Investor, Inc. and the Agent; and the Securities Account Pledge Agreement, of even date herewith, between Resource Capital Manager, Inc. and the Agent.

Prime Rate Loans - The portions of the Advances accruing interest at the Prime Rate.

Prime Rate - means the per annum rate of interest designated as the “Prime Rate,” as published in the “Money Rates” section of The Wall Street Journal on the applicable date (or the highest “Prime Rate” if more than one is published) as such rate may change from time to time. If The Wall Street Journal ceases to be published or goes on strike or is otherwise not published, Lenders may use a similar published prime or base rate.

Property - Any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible.

Pro Rata Percentage - As to each Lender, the pro rata percentage set forth opposite each Lender’s name on Schedule A hereto.

Pro Rata Share - As to any Lender, at any time, such Lender’s Pro Rata Percentage of the outstanding principal balance of the Maximum Revolving Credit Amount.

Quarterly Compliance Certificate - Shall have the meaning set forth in Section 6.10.

Regulation D - Regulation D of the Board of Governors of the Federal Reserve System, comprising Part 204 of Title 12, Code of Federal Regulations, as amended, and any successor thereto.

Reimbursement Obligations - Collectively, Borrower's reimbursement obligation for any and all draws under Letters of Credit together with the obligation to pay L/C Fees.

Revolving Credit - Shall have the meaning set forth in Section 2.1(a).

Revolving Credit Loans - Shall have the meaning set forth in Section 2.1(a).

Revolving Credit Notes - Shall have the meaning set forth in Section 2.1(b).

Securities - Collectively, any obligation of an issuer or a share, participation, or other interest in an issuer, or in property or an enterprise of an issuer, which is, or is of a type, dealt in or traded on, financial markets, or which is recognized in any area in which it is issued or dealt in, as a medium for investment.

Securities Act - Securities Act of 1933, as amended.

Settlement Date - Shall have the meaning set forth in Section 2.3(b)(ii).

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                     Senior Debt - All Indebtedness of Borrower, other than non-recourse debt and Subordinated Debt.

Subordinated Debt - Indebtedness of Borrower, subject to payment terms and subordination provisions acceptable to Agent in its sole discretion.

Subsidiary - With respect to any Person at any time, (i) any corporation more than fifty percent (50%) of whose voting stock is legally and beneficially owned directly or indirectly by such Person or owned by a corporation more than fifty percent (50%) of whose voting stock is legally and beneficially owned directly or indirectly by such Person (ii) any trust of which a majority of the beneficial interest is at such time owned directly or indirectly, beneficially or of record, by such Person or one or more Subsidiaries of such Person; and (iii) any partnership, joint venture, limited liability company or other entity of which ownership interests having ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions are at such time owned directly or indirectly, beneficially or of record, by, or which is otherwise controlled directly, indirectly or through one or more intermediaries by, such Person or one or more Subsidiaries of such Person.

1.2Accounting Principles: Where the character or amount of any asset or liability or item of income or expense is required to be determined or any consolidation or other accounting computation is required to be made for the purposes of this Agreement, this shall be done in accordance with GAAP, to the extent applicable, except as otherwise expressly provided in this Agreement.

1.3Construction: No doctrine of construction of ambiguities in agreements or instruments against the interests of the party controlling the drafting shall apply to any Loan Documents.

SECTION 2. THE LOANS

2.1Revolving Credit.

a.i)Subject to the terms and conditions of this Agreement, each Lender hereby severally establishes for the benefit of Borrower a revolving credit facility (collectively, the “Revolving Credit”), which shall include Advances extended by Lenders to or for the benefit of Borrower from time to time hereunder as well as the Letter of Credit Amount on Letters of Credit issued for the account of Borrower (“Revolving Credit Loans”). The aggregate principal amount of all unpaid Advances shall not, at any time, exceed the Borrowing Base. Subject to such limitation, the outstanding balance of Advances may fluctuate from time to time, to be reduced by repayments made by Borrower, to be increased by future Advances which may be made by Lenders and, subject to the provisions of Section 8 hereof, shall be due and payable on the Revolving Credit Maturity Date.

If the aggregate principal amount of all unpaid Advances at any time exceeds the Borrowing Base (such excess is referenced to as “Overadvance”), Borrower shall, within five (5) Business Days after notice from Agent, (1) repay the Overadvance in full or (2) pledge to Lenders sufficient Collateral so that the aggregate principal amount of all unpaid Advances does not exceed the Borrowing Base.

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(ii)Subject to the terms of this Agreement, each Lender severally agrees to lend to Borrower an amount equal to such Lender’s Pro Rata Percentage of the Advance requested by Borrower. The outstanding balance of Revolving Credit Loans of each Lender shall not exceed such Lender’s respective Pro Rata Share.

b.At Closing, Borrower shall execute and deliver a promissory note to each Lender for the total principal amount of such Lender’s initial Pro Rata Share (collectively, as may be amended, supplemented, replaced or restated from time to time, the “Revolving Credit Notes”). Each Revolving Credit Note shall evidence Borrower's absolute unconditional obligation to repay such Lender for all outstanding Advances owed to such Lender, with interest as herein and therein provided. Each and every Advance under the Revolving Credit shall be deemed evidenced by the Revolving Credit Notes, which are deemed incorporated herein by reference and made a part hereof.

c.The term of the Revolving Credit shall expire on the Maturity Date. On such date, unless having been sooner accelerated by Agent, all Obligations shall be due and payable in full, and after such date no further Advances shall be available from Lenders.

2.2Letters of Credit:

a.As a part of the Revolving Credit and subject to its terms and conditions (including, without limitation, the Borrowing Base), Issuing Bank shall, on behalf of and for the benefit of all Lenders, make available the Letters of Credit. The Letter of Credit Amount shall not exceed, in the aggregate at any time, the L/C Sublimit. Notwithstanding the foregoing, all Letters of Credit shall be in form and substance reasonably satisfactory to Issuing Bank and Agent. No Letter of Credit shall have an expiry date later than the Maturity Date. Borrower shall execute and deliver to Issuing Bank all Letter of Credit Documents required by Issuing Bank for such purpose. Each Letter of Credit shall comply with the Letter of Credit Documents. Each Letter of Credit issued from time to time under the Revolving Credit which remains undrawn and the amounts of draws on Letters of Credit prior to payment as hereinafter set forth shall reduce, dollar for dollar, the amount available to be borrowed by Borrower under the Revolving Credit.

b.Immediately upon the issuance of any Letter of Credit, Issuing Bank is deemed to have granted to each other Lender, and each other Lender is hereby deemed to have acquired, an undivided participating interest (without recourse or warranty), in accordance with each such other Lender’s respective Pro Rata Percentage, in all of Issuing Bank’s rights and liabilities with respect to such Letter of Credit. Each Lender shall be absolutely and unconditionally obligated without deduction or setoff of any kind, to Issuing Bank, according to its Pro Rata Percentage, to reimburse Issuing Bank on demand for any amount paid pursuant to any draws made at any time (including, without limitation, following the commencement of any bankruptcy, reorganization, receivership, liquidation or dissolution proceeding with respect to Borrower) under any Letter of Credit.

c.Issuing Bank shall be immediately, absolutely, and unconditionally reimbursed, without offset or deduction of any kind, by Borrower for any draws made under a Letter of Credit. Such reimbursement shall be made, at the sole option of Agent, by either a cash payment by Borrower, by Lenders automatically making or having deemed made (without

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further request or approval of Borrower or Lenders), a cash Advance under the Revolving Credit or pursuant to repayment terms established by Agent (in its sole discretion) upon each draw. All cash Advances made by Agent which constitute a reimbursement to Issuing Bank for a draw under a Letter of Credit shall be repaid to Agent by Lenders, without deduction or setoff of any kind, in accordance with Section 2.3(b)(iii). All of Borrower's Reimbursement Obligations hereunder with respect to Letters of Credit shall apply unconditionally and absolutely to Letters of Credit issued hereunder on behalf of Borrower.

d.The obligation of Borrower to reimburse Issuing Bank for drawings made (or for cash Advances made to cover drawings made) under the Letters of Credit shall be unconditional and irrevocable and shall be paid strictly in accordance with the terms of this Agreement under all circumstances including, without limitation, the following circumstances:

(i)any lack of validity or enforceability of any Letter of Credit;

(ii)the existence of any claim, setoff, defense or other right that Borrower or any other Person may have at any time against a beneficiary or any transferee of any Letter of Credit (or any persons or entities for whom any such beneficiary or transferee may be acting), Agent, Issuing Bank, any Lender or any other Person, whether in connection with this Agreement, the transactions contemplated herein or any unrelated transaction;

(iii)any draft, demand, certificate or any other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect;

(iv)payment by Issuing Bank under any Letter of Credit against presentation of a demand, draft or certificate or other document that does not comply with the terms of such Letter of Credit, unless Issuing Bank shall have acted with willful misconduct or gross negligence in issuing such payment;

(v)any other circumstances or happening whatsoever that is similar to any of the foregoing; or

(vi)the fact that a Default or Event of Default shall have occurred and be continuing.

Notwithstanding anything in this Agreement to the contrary, Borrower will not be liable for payment or performance with respect to a Letter of Credit that results from the gross negligence or willful misconduct of Issuing Bank, except (i) where Borrower actually recovers the proceeds for itself or Issuing Bank of any such payment made by Issuing Bank; or (ii) in cases where Agent makes payment to the named beneficiary of a Letter of Credit.

 e.If by reason of (i) any change after the Closing Date in applicable law, regulation, rule, decree or regulatory requirement or any change in the interpretation or application by any judicial or regulatory authority of any law, regulation, rule, decree or regulatory requirement or (ii) compliance by Issuing Bank or Lenders with any direction, reasonable request or requirement (whether or not having the force of law) of any governmental or monetary authority including, without limitation, Regulation D:

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A.Issuing Bank or Lenders shall be subject to any tax or other levy or charge of any nature or to any variation thereof (except for changes in the rate of any tax on the net income of Issuing Bank or Lenders or its applicable lending office) or to any penalty with respect to the maintenance or fulfillment of its obligations under this Section 2.2, whether directly or by such being imposed on or suffered by Issuing Bank or Lenders; or

B.any reserve, deposit or similar requirement is or shall be applicable, imposed or modified in respect of any Letter of Credit issued by Issuing Bank;

and the result of the foregoing is to directly or indirectly increase the cost to Issuing Bank or any Lender of issuing, creating, making or maintaining any Letter of Credit or to reduce the amount receivable in respect thereof by Issuing Bank or any Lender, then and in any such case, Issuing Bank shall, after the additional cost is incurred or the amount received is reduced, notify Borrower and Borrower shall pay on demand such amounts as may be necessary to compensate Issuing Bank or any Lender for such additional cost or reduced receipt, together with interest on such amount from the date demanded until payment in full thereof at a rate per annum equal at all times to the applicable interest rate under the Revolving Credit. A certificate signed by an officer of Issuing Bank as to the amount of such increased cost or reduced receipt showing in reasonable detail the basis for the calculation thereof, submitted to Borrower by Issuing Bank shall, except for manifest error and absent written notice from Borrower to Issuing Bank within ten (10) days after receipt of notice, be final, conclusive and binding for all purposes.

f.i)In addition to amounts payable as elsewhere provided in this Section 2.2, without duplication, Borrower hereby agrees to protect, indemnify, pay and save Agent, Issuing Bank and each Lender harmless from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable attorneys' fees) which Agent, Issuing Bank and each Lender may incur or be subject to as a consequence, direct or indirect, of (A) the issuance of the Letters of Credit or (b) the failure of Issuing Bank to honor a drawing under any Letter of Credit as a result of any such act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or Governmental Authority (all such acts or omissions herein called “Government Acts”) in each case except for claims, demands, liabilities, damages, losses, costs, charges and expenses arising solely from acts or conduct of Issuing Bank constituting gross negligence or willful misconduct.

(ii)As between Borrower and Issuing Bank, Borrower assumes all risks of the acts and omissions of or misuse of the Letters of Credit issued by Issuing Bank by the respective beneficiaries of such Letters of Credit, except in the case of gross negligence or willful misconduct by Issuing Bank. In furtherance and not in limitation of the foregoing, Issuing Bank shall not be responsible: (A) for the form, validity, sufficiency, accuracy, genuineness or legal effects of any document submitted by any party in connection with the application for and issuance of such Letters of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (B) for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any such Letter of Credit or the rights or benefits there under or proceeds thereof, in whole or in part, that may prove to be invalid or ineffective for any reason; (C) for failure of the beneficiary of any such Letter of Credit to comply fully with conditions required in order to draw upon such Letter of Credit; (D) for errors, omissions, interruptions or delays in transmission or delivery of

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any messages, by mail, cable, telegraph, telex or otherwise, whether or not they are in cipher; (E) for errors in interpretation of technical terms; (F) for any loss or delay in the transmission of any document or required in order to make a drawing under such Letter of Credit or of the proceeds thereof, unless caused by Lender's gross negligence or willful misconduct; (G) for the misapplication by the beneficiary of any such Letter of Credit of the proceeds of any drawing under such Letter of Credit; and (H) for any consequences arising from causes beyond the control of Issuing Bank, including, without limitation, any Government Acts. None of the above shall affect, impair or prevent the vesting of any of Issuing Bank's rights or powers hereunder.

(iii)In furtherance and extension and not in limitation of the specific provisions hereinabove set forth, any action taken or omitted by Issuing Bank in connection with the Letters of Credit issued by it or the related certificates, if taken or omitted in good faith, shall not create any liability on the part of Issuing Bank to Borrower, unless such action or omission constitutes gross negligence or willful misconduct.

2.3Advances, Conversions, Renewals and Payments:

a.Except to the extent otherwise set forth in this Agreement, all payments of principal and of interest on the Revolving Credit, Reimbursement Obligations, the L/C Fees, Expenses and all other fees, charges and any other Obligations of Borrower hereunder, shall be made to Agent at its main New Jersey banking office, 1701 Route 70 East, Cherry Hill, New Jersey 08034, in United States dollars, in immediately available funds. Alternatively, Agent, on behalf of all Lenders, shall, if Borrower has not made any payment on the due date of such payment, have the unconditional right and discretion (and Borrower hereby authorizes Agent) to make a cash Advance under the Revolving Credit to pay, and/or to charge Borrower's operating account with Agent or any Lender for, all of Borrower's Obligations as they become due from time to time under this Agreement including without limitation, interest, principal, fees and reimbursement of Expenses. Any payments received prior to 2:00 p.m. Eastern time on any Business Day shall be deemed received on such Business Day. Any payments (including any payment in full of the Obligations), received after 2:00 p.m. Eastern time on any Business Day shall be deemed received on the immediately following Business Day.

b.Cash Advances which may be made by Lenders from time to time under the Revolving Credit shall be made available for the use and benefit of Borrower by crediting such proceeds to Borrower's operating account with Agent as designated in the Borrowing Request.

(i)All cash Advances requested by Borrower under the Revolving Credit, must be in the minimum amount of One Hundred Thousand ($100,000) and integral multiples of One Hundred Thousand ($100,000) in excess thereof. All cash Advances that are Prime Rate Loans under the Revolving Credit must be requested by 11:00 A.M., Eastern time, on the date such cash Advance is to be made. All requests for a LIBOR Rate Loan are to be requested by 11:00 a.m. Eastern time, three (3) Business Days in advance of the requested LIBOR Rate Loan. Notwithstanding anything to the contrary set forth herein, there shall not be more than four (4) LIBOR Rate Loans outstanding at any one time. Borrower shall provide a Borrowing Base Certificate to Agent upon each request for an Advance. All requests for a cash Advance may be made either by telephone or in writing, provided that, all telephonic requests

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are to be confirmed by Borrower in writing on the same day pursuant to a Borrowing Request (and accompanied by a signed Borrowing Base Certificate), which shall set forth (x) the amount of the requested Advance, (y) the proposed date of borrowing, and (z) if a LIBOR Rate Loan, the requested LIBOR Interest Period, and further provided, that such written confirmation may be sent by facsimile transmission. No Lender shall be obligated, for any reason whatsoever, to advance or reimburse Agent for the share of any other Lender.

        (ii)A.Between each Settlement Date, (defined below) Agent, in its capacity as a Lender, shall have the discretion (without any duty or obligation regardless of any prior practice or procedures) to make all cash Advances for the account and on behalf of each Lender in accordance with each Lender’s Pro Rata Percentage. Periodically but not less frequently than once every week on the same day of each week, unless such day is not a Business Day, in which event such determination shall be made the next Business Day (“Settlement Date”), Agent shall make a determination of the appropriate dollar amount of each Lender’s Revolving Credit Loans based upon each such Lender’s Pro Rata Percentage of all then outstanding Revolving Credit Loans, which amounts shall be calculated as of the close of the Business Day immediately preceding each respective Settlement Date. Amounts of principal paid to Agent by Borrower from time to time, between Settlement Dates, shall be applied to the outstanding balance of Revolving Credit Loans made by Agent, as a Lender pursuant hereto, with the outstanding balance of Revolving Credit Loans made by each other Lender to be adjusted on the next Settlement Date. Interest shall accrue and each Lender shall be entitled to receive interest at the applicable rate only on the actual outstanding dollar amount of its respective outstanding Revolving Credit Loans without regard to a prospective settlement. On each Settlement Date, Agent shall then issue to each Lender a settlement schedule containing information with respect to the status of the Revolving Credit Loans and the relevant net positions of Lenders and the outstanding balances of their respective Revolving Credit Loans as of the close of the Business Day preceding such Settlement Date. Each settlement schedule shall show the net amount then owing by each Lender to Agent or by Agent to each such Lender based upon the aggregate cash Advances made and payments received since the most recent Settlement Date and settlement among Lenders and Agent shall be made in accordance with the direction of Agent no later than 11:00 A.M. Eastern time, on each Settlement Date. All remittances at any time among Lenders and Agent under this Agreement shall be made in immediately available funds by federal funds wire transfer. To the extent Agent is not reimbursed by any Lender on a Settlement Date in accordance with Agent’s direction, Borrower shall immediately repay Agent on demand the amount of any reimbursement not so made by any Lender.

B.Each Lender is absolutely and unconditionally obligated without setoff or deduction of any kind, to remit to Agent on the Settlement Date any amount showing to be owing to Agent by such Lender on the settlement schedule for such date. Agent shall also be entitled to recover any and all actual losses and damages (including without limitation, reasonable attorneys’ fees) from any party failing to remit payment on the Settlement Date in accordance with this Agreement. Agent may set off the obligations of such party under this paragraph against any distributions or payments of the Obligations, which such party would otherwise make available at any time.

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        (iii) A.  In lieu of the procedure set forth in the preceding subparagraph (ii), Agent may provide Lenders with notice that Borrower has requested a cash Advance, on the same Business Day as such request, and request each Lender to provide Agent with such Lender’s Pro Rata Percentage of such requested cash Advance prior to Agent’s making such cash Advance. Upon receipt of such notice from Agent prior to 12:00 p.m., Eastern time, each Lender shall remit to Agent its respective Pro Rata Percentage of such requested cash Advance, prior to 1:00 P.M. Eastern time, on the Business Day Agent is scheduled to make such cash Advance in accordance with Section 2.3(b) hereof. Neither Agent nor any other Lender shall be obligated, for any reason whatsoever, to remit or advance the share of any other Lender. Agent shall not be required to make the full amount of the requested cash Advance unless and until it receives funds representing each other Lender’s Pro Rata Percentage of such requested cash Advance, but Agent shall advance to Borrower that portion of the requested cash Advance equal to the Pro Rata Percentages of such requested cash Advance which it has received from Lenders.

B.If Agent does not receive each other Lender’s Pro Rata Percentage of such requested cash Advance, and Agent elects, in its sole discretion, to make the requested cash Advance on behalf of Lenders or any of them, Agent shall be entitled to recover each Lender’s Pro Rata Percentage of each cash Advance together with interest at a per annum rate equal to the Federal Funds Rate during the period commencing on the date such cash Advance is made and ending on (but excluding) the date Agent recovers such amount. Each Lender is absolutely and unconditionally obligated, without deduction or setoff of any kind, to forward to Agent its Pro Rata Percentage of each cash Advance made pursuant to the terms of this Agreement. To the extent Agent is not reimbursed by such Lender, Borrower shall repay Agent immediately on demand, such amount. Agent shall also be entitled to recover any and all actual losses and damages (including, without limitation, reasonable attorneys’ fees) from any Lender failing to so advance upon demand of Agent. Agent may set off the obligations of a Lender under this paragraph against any distributions or payments of the Obligations, which Agent would otherwise make available to such Lender at any time.

(iv)To the extent and during the time period in which any Lender fails to provide or delays providing its respective payment to Agent pursuant to clause (ii) or (iii) above, such Lender’s percentage of all payments of the Obligations (but not its Pro Rata Percentage of future Advances required to be funded by such Lender) shall decrease to reflect the actual percentage which its actual outstanding Loans bears to the total outstanding Loans of all Lenders. During the time period in which any Lender fails to provide or delays providing its respective payment to Agent pursuant to clause (ii) or (iii) above, such Lender shall not be entitled to give instructions to Agent or to approve, disapprove, consent to or vote on any matters relating to this Agreement and the other Loan Documents. All amendments, waivers and other modifications of this Agreement and the Loan Documents may be made without regard to such Lender and, for purposes of the definition of Majority Lenders, such Lender shall be deemed not to be a Lender.

2.4Interest:

a.The unpaid principal balance of Advances under the Revolving Credit shall bear interest, at Borrower's option, at the Prime Rate plus 1% or the LIBOR Rate, as indicated in the Borrowing Request. If no LIBOR Interest Period is designated in any Borrowing Request, the LIBOR Interest Period shall be deemed to be a one month period.

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b.Changes in the interest rate applicable to Prime Rate Loans shall become effective on the same day that there is a change in the Prime Rate.

c.Interest on Prime Rate Loans shall be payable monthly, in arrears, on the first day of the calendar month next succeeding the Closing Date, on the first day of each calendar month thereafter, and on the Maturity Date. Interest on LIBOR Rate Loans shall be payable, in arrears, on the last day of each LIBOR Interest Period, and on the Maturity Date.

d.If prior to the first day of any LIBOR Interest Period, (i) any Lender shall have determined in good faith (which determination shall be conclusive and binding upon Borrower), that by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the LIBOR Rate for such LIBOR Interest Period, or (ii) dollar deposits in the principal amounts of the LIBOR Rate Loans to which such LIBOR Interest Period is to be applicable, are not generally available in the London Interbank market, such Lender shall give facsimile or telephonic notice thereof to Agent and Borrower, as soon as practicable thereafter, and will also give prompt written notice to Borrower when such conditions no longer exist. If such notice is given (A) any LIBOR Rate Loans requested to be made on the first day of such LIBOR Interest Period shall be made as Prime Rate Loans, (B) any Loans that were to have been converted on the first day of such LIBOR Interest Period to, or continued as, LIBOR Rate Loans shall be converted to, or continued as, Prime Rate Loans, and (C) each outstanding LIBOR Rate Loan shall be converted on the last day of the then-current LIBOR Interest Period thereof, to Prime Rate Loans. Until such notice has been withdrawn by such Lender, no further LIBOR Rate Loans shall be made or continued as such, nor shall Borrower have the right to convert Prime Rate Loans to LIBOR Rate Loans.

e.Notwithstanding any other provision herein, if the adoption of or any change in any law, treaty, rule or regulation or final, non-appealable determination of an arbitrator or a court or other Governmental Authority or in the interpretation or application thereof occurring after the Closing Date shall make it unlawful for any Lender to make or maintain LIBOR Rate Loans as contemplated by this Agreement, (a) such Lender shall promptly give written notice of such circumstances to Agent and Borrower (which notice shall be withdrawn whenever such circumstances no longer exist), (b) the commitment of Lender hereunder to make LIBOR Rate Loans, continue LIBOR Rate Loans as such and convert a Prime Rate Loan to LIBOR Rate Loans shall forthwith be canceled and, until such time as it shall no longer be unlawful for Lender to make or maintain LIBOR Rate Loans, Lender shall then have a commitment only to make a Prime Rate Loan when a LIBOR Rate Loan is requested and (c) Lender's Loans then outstanding as LIBOR Rate Loans, if any, shall be converted automatically to Prime Rate Loans on the respective last days of the then current LIBOR Interest Periods with respect to such Loans or within such earlier period as required by law. If any such conversion of a LIBOR Rate Loan occurs on a day which is not the last day of the then current Interest Period with respect thereto, Borrower shall pay to Lender such amounts, if any, as may be required pursuant to Section 2.9(b).

2.5Additional Interest Provisions:

a.Interest on the Loans shall be calculated on the basis of a year of three hundred sixty (360) days but charged for the actual number of days elapsed.

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b.After the occurrence and during the continuance of an Event of Default hereunder, the per annum effective rates of interest on all outstanding principal under the Loans, shall be increased by three hundred (300) basis points (“Default Rate”). Borrower agrees that the Default Rate payable to Lenders is a reasonable estimate of Lenders' damages and is not a penalty.

c.All contractual rates of interest chargeable on outstanding principal under the Loans shall, as permitted by law, continue to accrue and be paid even after Default, an Event of Default, maturity, acceleration, judgment, bankruptcy, insolvency proceedings of any kind or the happening of any event or occurrence similar or dissimilar.

d.In no event whatsoever shall the aggregate of all amounts deemed interest hereunder and charged or collected pursuant to the terms of this Agreement exceed the highest rate permissible under any law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. In the event that such court determines any Lender has charged or received interest hereunder in excess of the highest applicable rate, Lenders shall apply, in its sole discretion, and set off such excess interest received by Lenders against other Obligations due or to become due and such rate shall automatically be reduced to the maximum rate permitted by such law.

2.6Fees:

a.There shall be an initial fee for the Loan of $250,000, which shall be paid by the Borrower to the Issuing Bank simultaneously with the execution of this Agreement.

b.Borrower shall pay to Agent, for the ratable benefit of each Lender in accordance with its respective Pro Rata Percentage, per annum letter of credit fees equal to the face amount of each Letter of Credit multiplied by 225 basis points, payable in equal quarterly installments in arrears, on the first day of each calendar quarter following the issuance of a Letter of Credit. On the date of issuance of a Letter of Credit, Borrower shall pay to Issuing Bank, for the sole account of Issuing Bank, a fronting fee equal to the greater of (i) twelve (12) basis points multiplied by the face amount of each Letter of Credit and (ii) Five Hundred Dollars ($500), together with all of Issuing Bank’s standard charges (including without limitation all cable and wire transfer charges) for the administration of each such Letter of Credit. All such fees are collectively, the “L/C Fees”.

c.Borrower shall unconditionally pay to Agent, for the ratable benefit of each Lender in accordance with its respective Pro Rata Percentage, a late charge equal to five percent (5%) of any and all payments of principal or interest on the Loans that are not paid within fifteen (15) days of the due date. Such late charge shall be due and payable regardless of whether Agent has accelerated the Obligations. Borrower agrees that any late fee payable to Lenders is a reasonable estimate of Lenders’ damages and is not a penalty.

d.All fees provided for in this Section 2.6 shall be based on a three hundred sixty (360) day year and charged for the actual number of days elapsed.

e.All fees shall be deemed fully earned when paid, shall be non-refundable and shall not be subject to refund or rebate.

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2.7Prepayments: Borrower may prepay the Revolving Credit in whole or in part at any time or from time to time, without penalty or premium, other than any breakage cost under Section 2.9(b) of this Agreement. Any prepayment shall be accompanied by all accrued and unpaid interest and breakage cost, if any.

2.8Use of Proceeds: The extensions of credit under and proceeds of the Revolving Credit shall be used for working capital purposes, including interim funding of Permitted Investments.

2.9Indemnity/Loss of Margin:

a.In the event that any present or future law, rule, regulation, treaty or official directive or the interpretation or application thereof by any central bank, monetary authority or governmental authority, or the compliance with any guideline or request of any central bank, monetary authority or governmental authority (whether or not having the force of law) imposes, modifies or deems applicable any deposit insurance, reserve, special deposit, or other similar requirement with respect to deposits in or for the account of, or loans or advances or commitment to make loans or advances by, or letters of credit issued or commitment to issue letters of credit by a Lender and the result of any of the foregoing is to increase the costs of a Lender, reduce the income receivable by or return on equity of such Lender or impose any expense upon such Lender with respect to any advances or extensions of credit or commitments to make advances or extensions of credit under this Agreement, such Lender shall so notify Agent in writing. Within fifteen (15) days notice from Agent, Borrower agrees to pay such Lender the amount of such increase in cost, reduction in income, reduced return on equity or capital, or additional expense after presentation by such Lender of a statement concerning such increase in cost, reduction in income, reduced return on equity or capital, or additional expense. Such statement shall set forth a brief explanation of the amount and such Lender’s calculation of the amount (in determining such amount such Lender may use any reasonable averaging and attribution methods), which statement shall be conclusively deemed correct absent manifest error.

b.Borrower shall pay to each Lender, on the date of prepayment of a LIBOR Rate Loan, any loss or expense which each Lender may sustain or incur (other than through such Lender's gross negligence or willful misconduct) as a consequence of (a) default by Borrower in making a borrowing of, conversion into, or extension of, LIBOR Rate Loans after Borrower has given a notice requesting the same in accordance with the provisions of this Agreement, and (b) the making of a prepayment of LIBOR Rate Loans on a day which is not the last day of a LIBOR Interest Period with respect thereto. With respect to LIBOR Rate Loans, such indemnification shall equal the excess, if any, of (i) the amount of interest which would have accrued on the amount so prepaid, or not so borrowed, converted, or extended, for the period from the date of such prepayment, or of such failure to borrow, convert, or extend to the last day of the applicable LIBOR Interest Period (or in the case of a failure to borrow, convert, or extend, the LIBOR Interest Period that would have commenced on the date of such failure) in each case at the applicable rate of interest for such LIBOR Rate Loans provided for herein over (ii) the amount of interest (as reasonably determined by Agent) which would have accrued to such Lender on such amount by placing such amount on deposit for a comparable period with leading banks in the

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interbank Eurodollar market. This covenant shall survive the termination of this Agreement, and the payment of the Obligations.

2.10Capital Adequacy: If any present or future law, governmental rule, regulation, policy, guideline, directive or similar requirement (whether or not having the force of law) imposes, modifies, or deems applicable any capital adequacy, capital maintenance or similar requirement which affects the manner in which any Lender allocates capital resources to its commitments (including any commitments hereunder), and as a result thereof, in the reasonable opinion of such Lender, the rate of return on such Lender’s capital with regard to the Loans and/or its obligations hereunder is reduced to a level below that which such Lender could have achieved but for such circumstances taking into account such Lender’s policies regarding capital adequacy, then in such case, and within thirty (30) days of notice from Agent to Borrower, from time to time, Borrower shall pay such Lender such additional amount or amounts as shall compensate such Lender for such reduction in its rate of return. Such notice shall contain the statement of such Lender with regard to any such amount or amounts, which shall, in the absence of manifest error, be binding upon Borrower. In determining such amount, such Lender may use any reasonable method of averaging and attribution that it deems applicable.

2.11Termination of Loans: This Agreement shall terminate, except for those provisions that expressly survive the terms hereof, on the later of : (1) repayment to Agent, Issuing Bank, and Lenders of all Obligations hereunder, or (2) the Maturity Date.

SECTION 3. COLLATERAL

3.1Description: As security for the payment of the Obligations, and satisfaction by Borrower of all covenants and undertakings contained in this Agreement and the other Loan Documents, (i) the Borrower shall pledge to Issuing Bank, on behalf of itself and the Lenders, and grant a lien on and security interest in 408,290 shares of common stock of The Bancorp, Inc. (the “Bancorp Stock”); (ii) the Borrower shall cause its affiliates, Resource Capital Investor, Inc. and Resource Capital Manager, Inc. to pledge to Issuing Bank, on behalf of itself and the Lenders, and grant a lien on and security interest in 1,200,000 shares of common stock (1,100,000 shares and 100,000 shares, respectively) of Resource Capital Corp. (the “Resource Capital Stock” and together with the Bancorp Stock, the “Collateral”); and (iii) Resource Capital Investor, Inc. and Resource Capital Manager, Inc. shall each execute and deliver the Guaranty Agreements. The Borrower shall execute and deliver, and cause to be executed and delivered, the Pledge Agreements and shall cause the execution of the Control Agreements.

3.2Other Actions: Borrower shall do anything further that may be reasonably required by Issuing Bank to secure Issuing Bank and effectuate the intentions and objects of this Agreement, including, without limitation, the execution and delivery of security agreements, contracts and any other documents required hereunder. At Issuing Bank's request, Borrower shall also immediately deliver (with execution by Borrower of all necessary documents or forms to reflect, implement or enforce the Liens described herein) to Issuing Bank all items of which Issuing Bank must receive possession to obtain a perfected security interest.

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3.3Filing Security Agreement: A carbon, photographic or other reproduction or other copy of this Agreement or of a financing statement is sufficient as and may be filed in lieu of a financing statement.

3.4Power of Attorney: Each of the officers of Issuing Bank is hereby irrevocably made, constituted and appointed the true and lawful attorney for Borrower (without requiring any of them to act as such) with full power of substitution to do the following: (a) in the event Borrower fails or refuses to do so, execute in the name of Borrower any schedules, assignments, instruments, documents and statements that Borrower is obligated to give Issuing Bank hereunder or is necessary to perfect (or continue or evidence the perfection of such security interest or Lien) Issuing Bank's security interest or Lien in the Collateral; (b) during the continuance of an Event of Default, endorse the name of Borrower upon any and all checks, drafts, money orders and other instruments for the payment of monies that are payable to Borrower and constitute collections on such Borrower's Accounts or proceeds of other Collateral; and (c) during the continuance of an Event of Default, do such other and further acts in the name of Borrower that Issuing Bank may reasonably deem necessary or desirable to enforce any Account or other Collateral.

SECTION 4. CLOSING AND CONDITIONS PRECEDENT TO ADVANCES

Closing under this Agreement is subject to the following conditions precedent (all documents to be in form and substance satisfactory to Agent and Agent’s counsel):

4.1Resolutions, Opinions, and Other Documents: Borrower shall have delivered or caused to be delivered to Agent and each Lender the following:

a.this Agreement and the Revolving Credit Notes, all properly executed;

b.each other Loan Document;

c.the Guaranty Agreements;

d.the Pledge Agreements;

e.the Control Agreements;

f.the original stock certificates of the Bancorp Stock, duly endorsed in blank for transfer, by the Borrower;

g.a letter of counsel to the Borrower addressed to the Agent under Rule 144 of the Securities Act, in form and substance acceptable to counsel to the Agent;

h.the registration statement dated May 24, 2006, filed with the United States Securities Exchange Commission, with respect to the Resource Capital Stock;

i.certified copies of (i) resolutions of the board of directors (or comparable governing body) of Borrower authorizing the execution of this Agreement, and the Revolving Credit Notes, to be issued hereunder and each other Loan Document; and (ii) Borrower's Articles or Certificate of Incorporation (as applicable) and By-laws, or other appropriate organizational documents;

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j.an incumbency certificate for Borrower identifying all Authorized Officers, with specimen signatures;

k.a written opinion of Borrower's independent counsel addressed to Agent for the benefit of all Lenders and opinions of such other counsel as Agent deems necessary;

l.certification by the chief financial officer of Borrower that there has not occurred any material adverse change in the operations and condition (financial or otherwise) of Borrower since March 31, 2006;

m.payment by Borrower of all fees including, without limitation, any Expenses associated with Loans or Letters of Credit incurred to the Closing Date;

n.Uniform Commercial Code, judgment, federal and state tax lien searches against Borrower, at Borrower's expense, showing that the Property of Borrower is not subject to any Liens except for Permitted Liens, together with Good Standing and Corporate Tax Lien Search Certificates showing no Liens on Borrower's Property (other than Permitted Liens), and showing Borrower to be in good standing in its jurisdiction of organization and each other jurisdiction where the failure to be in good standing would have a Material Adverse Effect; and

o.Such other documents requested by Agent.

4.2Absence of Certain Events: At the Closing Date, no Event of Default or Default hereunder shall have occurred and be continuing.

4.3Warranties and Representations at Closing: The warranties and representations contained in this Agreement shall be true and correct in all material respects on the Closing Date with the same effect as though made on and as of that date. Borrower shall not have taken any action or permitted any condition to exist, which would have been prohibited by any Section hereof.

4.4Compliance with this Agreement: Borrower shall have performed and complied in all material respects, with all agreements, covenants and conditions contained herein including, without limitation, the provisions of Sections 6 and 7 hereof, which are required to be performed or complied with by Borrower before or at the Closing Date.

4.5Closing: Subject to the conditions of this Section 4, the Revolving Credit shall be made available on the date (“Closing Date”) this Agreement is executed and all of the conditions contained in Section 4.1 hereof are completed (the “Closing”).

4.6Non-Waiver of Rights: By completing the Closing hereunder, or by making advances hereunder, Agent and Lenders do not thereby waive a breach of any warranty or representation made by Borrower hereunder or any agreement, document, or instrument delivered to Agent or any Lender, or otherwise referred to herein, and any claims and rights of

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Agent or any Lender resulting from any breach or misrepresentation by Borrower, or any of them, are specifically reserved by Agent and Lenders.

4.7Conditions to Advances: Each request by Borrower for an Advance under the Revolving Credit in any form following the Closing Date and any request for a Letter of Credit shall constitute an automatic representation and warranty, the truth and accuracy of such representation and warranty of which shall be a further condition to the funding of each Advance, by Borrower to the effect that (without waiving, impairing or limiting the rights of Agent and Lenders under Section 8 below):

a.There has not occurred any event or occurrence since the date of delivery of Borrower's most recent financial statements, which has resulted in, or has had, a Material Adverse Effect.

b.No Event of Default or Default then exists;

c.Each Advance is within and complies with the terms and conditions of this Agreement including without limitation the notice provisions contained in Section 2.3 hereof; and

d.Each representation and warranty set forth in this Agreement is then true and correct in all material respects; provided that Borrower may update all Schedules and prepare additional Schedules so that all such Schedules and the representations and warranties, taken together, accurately reflect the state of Borrower's affairs as of the date of a request for an Advance by giving written notice thereof to Agent, and further provided that such updated and additional Schedules do not reflect events or conditions which constitute violations of Section 6 or 7 hereof or otherwise reflect material adverse developments.

SECTION 5. REPRESENTATIONS AND WARRANTIES

To induce Agent, Lenders and Issuing Bank to complete the Closing, and make the initial Advances under the Revolving Credit to Borrower, Borrower warrants and represents to Agent, Lenders and Issuing Bank that:

5.1Organization and Validity:

a.Borrower is a corporation duly organized, and validly existing under the laws of the State of Delaware, is duly qualified, is validly existing and in good standing and has lawful power and authority to engage in the business it conducts in each state where the nature and extent of its business requires qualification, except where the failure to so qualify will not have a Material Adverse Effect. A list of all states and other jurisdictions where Borrower is qualified to do business is attached hereto as shown on Schedule 5.1, attached hereto and made a part hereof.

b.The making and performance of this Agreement and the other Loan Documents will not violate or result in a default (immediately or with the passage of time) under any law, government rule or regulation, or the charter, minutes, bylaw provisions, or operating agreement of Borrower, or any material contract, agreement or instrument to which Borrower is

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a party, or by which it is bound. Borrower is not in violation of and has not knowingly caused any Person to violate any term of any material agreement or instrument to which it or such Person is a party or by which it may be bound or of its charter, minutes, bylaws, trust agreement, or operating agreement.

c.Borrower has all requisite power and authority to enter into and perform this Agreement and to incur the obligations herein provided for, and has taken all proper and necessary action to authorize the execution, delivery and performance of this Agreement, the Loan Documents and the documents and related agreements required hereby.

d.This Agreement, the Loan Documents and all related agreements and documents required to be executed and delivered by Borrower hereunder, when delivered, will be valid and binding upon Borrower, and enforceable in accordance with their respective terms subject to bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally.

5.2Places of Business: The only places of business of Borrower, and the places where Borrower keeps and intends to keep its Property and records concerning its Property, are at the addresses shown on Schedule 5.2 attached hereto and made a part hereof.

5.3Pending Litigation: There are no judgments or judicial or administrative orders, proceedings, litigation or investigations (civil or criminal) pending, or to Borrower's knowledge, threatened, against Borrower in any court or before any governmental authority or arbitration board or tribunal except as shown on Schedule 5.3, attached hereto and made a part hereof, none of which are likely to have a Material Adverse Effect. Borrower is not in default with respect to any order of any court, governmental authority, regulatory agency or arbitration board or tribunal. Neither Borrower nor any executive officer of Borrower has been indicted or convicted in connection with or is engaging in any criminal conduct, or is currently subject to any lawsuit or proceeding or, to Borrower's knowledge, under investigation in connection with any anti-racketeering or criminal conduct or activity.

5.4Title to Properties: Borrower has good and marketable title (except with respect to its leasehold interests in real property) to all of its Property free from Liens, and free from the claims of any other Person, except for Permitted Liens.

5.5Consent: No consent, approval or authorization of, or filing, registration, or qualification with, any Governmental Authority or any other Person on the part of Borrower is necessary or required in connection with Borrower's execution, delivery, and performance of this Agreement or the other Loan Documents.

5.6Taxes: All tax returns required to be filed by Borrower in any jurisdiction have in fact been filed, and all taxes, assessments, fees and other governmental charges upon Borrower, or upon any of its Property, income or franchises, which are shown to be due and payable on such returns have been paid, except for those taxes being contested in good faith with due diligence by appropriate proceedings for which appropriate reserves have been maintained under GAAP. Borrower is not aware of any proposed additional tax assessment or tax to be assessed

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against or applicable to Borrower that would be reasonably likely to have a Material Adverse Effect.

5.7Financial Statements: Borrower's audited financial statements for the year ended December 31, 2005, and the related income statement and statement of cash flow as of such date (complete copies of which have been delivered to Agent), have been prepared in accordance with GAAP and present fairly, the financial position of Borrower as of such date and the results of its opera-tions for such period. Borrower's fiscal year ends on September 30 of each calendar year. Borrower's federal tax identification number and state organizational identification number are as shown on Schedule 5.7, attached hereto and made a part hereof.

5.8Full Disclosure: Neither the financial statements referred to in Section 4.7 and Section 5.7, nor this Agreement nor any other Loan Document or any written reports or certificates, or other financial statements or reports furnished by Borrower to Agent or any Lender in connection with the negotiation of the Loans or this Agreement or contained in any financial statements or documents relating to Borrower, as of the time they were furnished, contained any untrue statement of a material fact or omit a material fact necessary to make the statements contained therein or herein not misleading; provided that, with respect to projected financial information, Borrower represents and warrants only that such information represents Borrower's expectations regarding future performance based upon historical information and reasonable assumptions, it being understood, however, that actual results may differ from the projected results described in the financial projections. There is no fact known to Borrower, which has not been disclosed in writing to Agent, which has or could have a Material Adverse Effect.

5.9Subsidiaries: Borrower has no Subsidiaries or Affiliates, except as shown on Schedule 5.9 attached hereto and made a part hereof.

5.10Guarantees, Contracts, etc.:

a.Borrower does not own, or hold any Investments, in any Person except Permitted Investments.

b.Borrower is not a party to any contract or agreement, or subject to any charter or other corporate restriction, which has or could have a Material Adverse Effect.

c.Except as otherwise specifically provided in this Agreement, Borrower has not agreed or consented to cause or permit any of its Property whether now owned or hereafter acquired to be subject in the future (upon the happening of a contingency or otherwise) to a Lien not permitted by this Agreement.

5.11Government Regulations, etc.:

a.The use of the proceeds of the Revolving Credit and Borrower's issuance of the Revolving Credit Notes, will not directly or indirectly violate or result in a violation of Section 7 of the Securities Exchange Act of 1934, as amended, or Regulations U, T, and X of the Board of Governors of the Federal Reserve System, 12 C.F.R., Chapter II. Borrower does not

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own nor intend to carry or purchase any “margin stock” within the meaning of said Regulation U.

b.Borrower has obtained all licenses, permits, franchises or other governmental authorizations necessary for the ownership of its Property and for the conduct of its business, except those which, if not obtained, would have or could have a Material Adverse Effect.

c.As of the date hereof, no employee benefit plan (“Pension Plan”), as defined in Section 3(2) of ERISA, maintained by Borrower or under which Borrower could have any liability under ERISA (i) has failed to meet the minimum funding standards established in Section 302 of ERISA; (ii) has failed to comply with all applicable requirements of ERISA and of the Internal Revenue Code, including all applicable rulings and regulations there under; (iii) has engaged in or been involved in a prohibited transaction under Section 406 of ERISA or Section 4975 of the Internal Revenue Code which would subject Borrower to any liability; or (iv) has been terminated if such termination would subject Borrower to any liability. Borrower has not assumed, or received notice of a claim asserted against Borrower for, withdrawal liability (as defined in Section 4207 of ERISA) with respect to any multi- employer pension plan and is not a member of any Controlled Group (as defined in ERISA). Borrower has timely made all contributions when due with respect to any multi-employer pension plan in which it participates and no event has occurred triggering a claim against Borrower for withdrawal liability with respect to any multi-employer pension plan in which Borrower participates. All Pension Plans and multi-employer pension plans to which Borrower participates are shown on Schedule 5.11, attached hereto and made a part hereof.

d.Borrower is not in violation of, and has not received written notice that, it is in violation of, or has knowingly caused any Person to violate any applicable statute, regulation or ordinance of the United States of America, or of any state, city, town, municipality, county or of any other jurisdiction, or of any agency, or department thereof, (including without limitation, security laws and regulations).

5.12Names:

a.Borrower has not conducted business under or used any other name (whether corporate or assumed) except for the names shown on Schedule 5.12(a), attached hereto and made a part hereof. Borrower is the sole owner of all names shown on such Schedule 5.12(a) and any and all business done and all invoices issued in such trade names are Borrower's sales, business and invoices. Each trade name of Borrower represents a division or trading style of Borrower and not a separate corporate subsidiary or affiliate or independent entity.

b.All registered trademarks, patents or copyrights, or such as to which applications for registration have been submitted, which any Borrower uses, plans to use or has a right to use are shown on Schedule 5.12(b), attached hereto and made a part hereof. Borrower is the sole owner of such intellectual Property except to the extent any other Person has claims or rights in such Property, as such claims and rights are described on Schedule 5.12(b). Borrower is not in violation of any rights of any other Person with respect to such intellectual Property.

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5.13Other Associations: Borrower is not engaged, and has no interest in, any joint venture or partnership with any other Person except as shown on Schedule 5.13, attached hereto and made a part hereof.

5.14Regulation O: No director, executive officer, and to Borrower's knowledge, no principal shareholder or equity holder of Borrower is a director, executive officer, or principal shareholder of any Lender. For the purposes hereof the terms “director” (when used with reference to a Lender), “executive officer” and “principal shareholder” have the respective meanings assigned thereto in Regulation O issued by the Board of Governors of the Federal Reserve System.

5.15Solvency: Borrower is solvent, able to pay its debts as they become due, and has capital sufficient to carry on its business and all businesses in which it is about to engage, and now owns Property having a value both at fair valuation and at present fair salable value greater than the amount required to pay its debts. Borrower will not be rendered insolvent by the execution and delivery of this Agreement, or any of the other documents executed in connection with this Agreement, or the Acquisition, or by performance of the transactions contemplated hereunder or thereunder or thereby.

5.16Investment Company: Borrower is not (a) an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940, as amended, (b) a “holding company” or a “subsidiary company” of a “holding company,” or an “affiliate” of a “holding company” or of a “subsidiary company” of a “holding company,” within the meaning of the Public Utility Holding Company Act of 1935, as amended, or (c) subject to any other law which purports to regulate or restrict its ability to borrow money or to consummate the transactions contemplated by this Loan Agreement or the other Loan Documents or to perform its obligations hereunder or thereunder.

5.17Anti-Terrorism Laws:

a.General. Neither Borrower nor any Subsidiary of Borrower is in violation of any Anti-Terrorism Law or engages in or conspires to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any Anti-Terrorism Law.

b.Executive Order No. 13224. Neither Borrower nor any Subsidiary of Borrower, or to Borrower's knowledge, any of its respective agents acting or benefiting in any capacity in connection with the Loans, Letters of Credit or other transactions hereunder, is any of the following (each a “Blocked Person”):

(i)a Person that is listed in the annex to, or is otherwise subject to the provisions of, the Executive Order No. 13224;

(ii)a Person owned or controlled by, or acting for or on behalf of, any Person that is listed in the annex to, or is otherwise subject to the provisions of, the Executive Order No. 13224;

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(iii)a Person with which Lender is prohibited from dealing or otherwise engaging in any transaction by any Anti-Terrorism Law;

(iv)a Person that commits, threatens or conspires to commit or supports “terrorism” as defined in the Executive Order No. 13224;

(v)a Person that is named as a “specially designated national” on the most current list published by the U.S. Treasury Department Office of Foreign Asset Control at its official website or any replacement website or other replacement official publication of such list; or

(vi)a Person who is affiliated with a Person listed above.

5.18Bancorp Stock: Borrower acquired the shares of Bancorp Stock on the dates and in the amounts set forth on Schedule 5.18, attached hereto and made a part hereof. All such shares of Bancorp Stock are restricted securities under Rule 144 of the Securities Act. The one year holding period, as defined in Rule 144(d) of the Securities Act, as to 323,286 shares of Bancorp Stock as set forth on Schedule 5.18 has elapsed, and, as to 85,004 shares of Bancorp Stock as set forth on Schedule 5.18, will elapse on September 19, 2006. The Agent, as pledgee of the Bancorp Stock, can sell such Bancorp Stock pursuant to Rule 144 of the Securities Act. The two year holding period, as defined in Rule 144(k) of the Securities Act, as to 182,500 shares of Bancorp Stock, has elapsed, as to 140,786 shares of Bancorp Stock, will elapse on July 14, 2006, and as to 85,004 shares of Bancorp Stock, will elapse on September 19, 2007.

Borrower has all requisite power and authority to pledge the Bancorp Stock as collateral for the Obligations.

SECTION 6. AFFIRMATIVE COVENANTS

Borrower covenants that until all of the Obligations to Agent, Lenders and Issuing Bank are paid and satisfied in full and the Revolving Credit and Letters of Credit have been terminated:

6.1Payment of Taxes and Claims: Borrower shall pay, before they become delinquent, (a) all taxes, assessments and governmental charges or levies imposed upon it or its Property, and (b) all claims or demands of material men, mechanics, carriers, warehousemen, landlords and other Persons entitled to the benefit of statutory or common law Liens, which, in either case, if unpaid, would result in the imposition of a Lien upon its Property; provided, however, that Borrower shall not be required to pay any such tax, assessment, charge, levy, claim or demand if the amount, applicability or validity thereof shall at the time be contested in good faith and by appropriate proceedings by Borrower, and if Borrower shall have set aside on its books adequate reserves in respect thereof, in accordance with GAAP; which deferment of payment is permissible so long as no Lien other than a Permitted Lien has been entered and Borrower's title to, and its right to use, its Property are not materially ad-versely affected thereby.

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6.2Maintenance of Properties and Corporate Existence:

a.Property: Borrower shall maintain its Property in good condition and make all renewals, replacements, additions, betterments and improvements thereto in the ordinary course of business, as Borrower deems reasonably necessary in good faith in the exercise of its business judgment, and will pay and discharge when due the cost of repairs and maintenance to its Property.

b.Property Insurance, Environmental Insurance, Public and Products Liability Insurance: Borrower shall maintain insurance (i) on all insurable tangible Property against fire, flood, casualty and such other hazards (including, without limitation, extended coverage, workmen's compensation, boiler and machinery, with inflation coverage by endorsement) and (ii) against public liability, product liability and business interruption, in each case in such amounts, with such deductibles and with such insurers as are customarily used by companies operating in the same industry as Borrower. At or prior to Closing, Borrower shall furnish Agent with duplicate original policies of insurance or such other evidence of insurance as Agent may require. In the event Borrower fails to procure or cause to be procured any such insurance or to timely pay or cause to be paid the premium(s) on any such insurance, Agent may do so for Borrower, but Borrower shall continue to be liable for the same. Borrower further covenants that all insurance premiums owing under its current policies have been paid. Borrower shall notify Agent, immediately, upon Borrower's receipt of a notice of termination, cancellation, or non-renewal from its insurance company of any such policy

c.Financial Records: Borrower shall keep current and accurate books of records and accounts in which full and correct entries will be made of all of its business transactions, and will reflect in its financial statements adequate accruals and appropriations to reserves, all in accordance with GAAP. Borrower shall not change its fiscal year end date.

d.Corporate Existence and Rights: Borrower shall do (or cause to be done) all things necessary to preserve and keep in full force and effect its existence, good standing in all jurisdictions where its failure to be in good standing might result in a Material Adverse Effect, and all of its rights, licenses and franchises, the absence of which might result in a Material Adverse Effect.

e.Compliance with Laws: Borrower shall (i) be in compliance with any and all laws, ordinances, governmental rules and regulations, and court or administrative orders or decrees to which it is subject, whether federal, state or local, (including without limitation, securities laws, statutes, ordinances, rules, regulations and notices); (ii) obtain and maintain any and all licenses, permits, franchises or other governmental authorizations necessary to the ownership of its Property or to the conduct of its business, which violation or failure to obtain or maintain causes or might cause a Material Adverse Effect. Borrower shall timely satisfy all assessments, fines, costs and penalties imposed by any governmental body against Borrower or any Property of Borrower.

6.3Business Conducted: Borrower shall continue in the business presently operated by it using its best efforts to maintain its customers and goodwill. Borrower shall not engage, directly or indirectly, in any material respect in any line of business substantially different from the business conducted by Borrower immediately prior to the Closing Date, unless such line of business is reasonably related to such business so conducted prior to the Closing Date.

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6.4Litigation: Borrower shall give prompt notice to Agent of (a) the commencement against Borrower of any litigation claiming from Borrower more than Two Hundred Fifty Thousand Dollars ($250,000) in excess of any available insurance coverage Borrower may have for such claim, and (b) any other claims made against Borrower, or investigations or proceedings commenced against Borrower, the existence of which or adverse disposition of which might have a Material Adverse Effect.

6.5Taxes: Borrower shall pay all taxes (other than taxes based upon or measured by any Lender's income or revenues or any personal property tax), if any, in connection with the issuance of the Revolving Credit Notes and the recording of any lien documents. The obligations of Borrower hereunder shall survive the payment of Borrower's Obligations hereunder and the termination of this Agreement

6.6Bank Accounts: Borrower shall maintain its principal depository and disbursement account(s) with Agent.

6.7Employee Benefit Plans: Borrower will (a) fund all its Pension Plan(s) in a manner that will satisfy the minimum funding standards of Section 302 of ERISA, or will promptly satisfy any accumulated funding deficiency that arises under Section 302 of ERISA, (b) furnish Agent, promptly upon Agent’s request of the same, with copies of all reports or other statements filed with the United States Department of Labor, the Pension Benefit Guaranty Corporation (“PBGC”) or the IRS, with respect to all Pension Plan(s), or which Borrower, or any member of a Controlled Group, may receive from the United States Department of Labor, the IRS or the PBGC, with respect to all such Pension Plan(s), and (c) promptly advise Agent of the occurrence of any reportable event (as defined in Section 4043 of ERISA, other than a reportable event for which the thirty (30) day notice requirement has been waived by the PBGC) or prohibited transaction (under Section 406 of ERISA or Section 4975 of the Internal Revenue Code) with respect to any such Pension Plan(s) and the action which Borrower propose to take with respect thereto. Borrower will make all contributions when due with respect to any multi-employer pension plan in which it participates and will promptly advise Agent (i) upon its receipt of notice of the assertion against it of a claim for withdrawal liability, (ii) upon the occurrence of any event which to the best of Borrower's knowledge, would trigger the assertion of a claim for withdrawal liability against any Borrower, and (iii) upon the occurrence of any event which, to the best of Borrower's knowledge, would place Borrower in a Controlled Group as a result of which any member (including Borrower) thereof may be subject to a claim for withdrawal liability, whether liquidated or contingent.

6.8Financial Covenants: Borrower shall maintain and comply with the following financial covenants:

a.Net Worth: Borrower shall maintain a minimum Net Worth of not less than $150,000,000.

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b.Senior Debt to Net Worth: Borrower shall maintain a Senior Debt to Net Worth Ratio of not greater than 2.0.

6.9Financial and Business Information: Borrower shall deliver to Agent and each Lender the following:

a.Financial Statements: such data, reports, statements and information, financial or otherwise, as Agent may reasonably request, including, without limitation:

(i)within one hundred and twenty (120) days after the end of each fiscal year of Borrower, consolidated financial statements of Borrower and each of its Subsidiaries for such year on a consolidated and consolidating basis, eliminating inter-company transactions, including the balance sheet as at the end of such fiscal year and a statement of cash flows and income statement for such fiscal year, setting forth in the consolidated statements in comparative form, the corresponding figures as at the end of and for the previous fiscal year, all in reasonable detail, including all supporting schedules, and audited and certified on an unqualified basis by independent public accountants of recognized standing, selected by Borrower and reasonably satisfactory to Agent, to have been prepared in accordance with GAAP and such independent public accountants shall also unqualifiedly certify that in making the examinations necessary to their certification mentioned above they have reviewed the terms of this Agreement and the accounts and conditions of Borrower during the accounting period covered by the certificate and that such review did not disclose the existence of any condition or event which constitutes a Default or an Event of Default (or if such conditions or events existed, describing them) together with copies of any management letters provided by such accountants to management of Borrower;

(ii)within forty-five (45) days after the end of each calendar quarter, the consolidated and consolidating income and cash flow statements of Borrower and its Subsidiaries for such quarter and for the expired portion of the fiscal year ending with the end of such quarter, setting forth in comparative form the corresponding figures for the corresponding periods of the previous fiscal year, and the consolidated and consolidating balance sheet of Borrower and its Subsidiaries as at the end of such quarter, setting forth in comparative form the corresponding figures as at the end of the corresponding periods of the previous fiscal year, all in reasonable detail and certified by Borrower's chief financial officer to have been prepared from the books and records of Borrower; and

(iii)together with the annual financial statements required under clause (a)(i) above, Borrower's annual financial statement projections for the upcoming fiscal year, including the projected income statements and balance sheets of Borrower and its Subsidiaries on a quarter-by-quarter basis.

b.Borrowing Base Certificate: with each requested Advance, and monthly, not later than fifteen (15) days following each month-end, a signed borrowing base certificate in the form of Exhibit “C” attached hereto and made a part hereof (“Borrowing Base Certificate”);

c.Notice of Event of Default: promptly upon becoming aware of the existence of any condition or event which constitutes an Event of Default or Default under thisAgreement, a written notice specifying the nature and period of existence thereof and what action Borrower is taking (and proposes to take) with respect thereto; 

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d.Notice of Claimed Default: promptly upon receipt by Borrower, a copy of any notice of default, oral or written, given to Borrower, or any of them, by any creditor for Indebtedness for borrowed money, otherwise holding long term Indebtedness of Borrower, or any of them, in excess of Two Hundred Fifty Thousand Dollars ($250,000); and

e.Securities and Other Reports: if Borrower shall be required to file reports with the Securities and Exchange Commission pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, promptly upon its becoming available, one copy of each financial statement, report, notice or proxy statement sent by Borrower to stockholders generally, and, a copy of each regular or periodic report, and any registration statement, or prospectus in respect thereof, filed by Borrower with any securities exchange or with federal or state securities and exchange commissions or any successor agency.

6.10Officers' Certificates: Along with the financial statements delivered to Agent at the end of each fiscal quarter pursuant to Section 6.9(a)(ii) hereof and the annual financial statements delivered pursuant to Section 6.9(a)(i) hereof, Borrower shall deliver to Agent a certificate (“Quarterly Compliance Certificate”) (in the form of Exhibit “D” attached hereto and made part hereof) from an Authorized Officer of Borrower (and as to certificates accompanying the annual financial statements of Borrower, also certified by Borrower’s independent certified public accountant) setting forth:

a.Event of Default - that the signer has reviewed the terms of this Agreement, and has made (or caused to be made under his/her supervision) a review of the transactions and conditions of Borrower from the beginning of the accounting period covered by the financial statements being delivered therewith to the date of the certificate, and that such review has not disclosed the existence during such period of any condition or event which constitutes a Default or an Event of Default or, if any such condition or event exists, specifying the nature and period of existence thereof and what action Borrower has taken or proposes to take with respect thereto.

b.Covenant Compliance - the information (including detailed calculations) required in order to establish that Borrower is in compliance with the requirements of Section 6.8 of this Agreement, as of the end of the period covered by the financial statements delivered.

6.11Inspection: Borrower will permit any of Agent’s officers or other representatives to visit and inspect any of the locations of Borrower at any time during normal business hours to examine and audit all of Borrower's books of account, records, reports and other papers, to make copies and extracts there from and to discuss its affairs, finances and accounts with its officers, employees and independent certified public accountants. Borrower hereby irrevocably authorizes and directs all such accountants and auditors to exhibit and deliver to Agent copies of any and all of such Borrower's financial statements, or other accounting records of any sort, in the accountant’s or auditor’s possession. All such inspections shall, during the continuance of an Event of Default, be at Borrower's expense at the standard rates charged by Agent for such activities (plus Agent’s reasonable out-of-pocket expenses).

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6.12Information to Participant: Each Lender may divulge to any participant, co-lender or assignee or prospective participant, co-lender or assignee it is permitted to obtain in the Loans, or any portion thereof, all information, and furnish to such Person copies of any reports, financial statements, certificates, and documents obtained under any provision of this Agreement, or related agreements and documents provided that such Person agrees to such confidentiality provisions as may be reasonably satisfactory to Borrower and Agent.

6.13Name Changes, Places of Business: Borrower shall give thirty (30) days prior written notice to Agent of any name change or change in the location of any of its respective places of business or the establishment of any new, or the discontinuance of any existing place of business.

6.14Bancorp Stock: Borrower shall deliver, or cause to be delivered, to Agent, not later than five (5) days from the date of filing with the United States Securities and Exchange Commission, each updated prospectus for the Bancorp Stock.  Borrower shall remain an Affiliate (as defined in Rule 144 of the Securities Act) of the Bancorp at all times during the term of this Agreement.

SECTION 7. NEGATIVE COVENANTS:

Borrower covenants that until all of the Obligations to Agent, Lenders and Issuing Bank are paid and satisfied in full and the Revolving Credit, including the Letters of Credit have been terminated, that:

7.1Merger, Consolidation, Dissolution or Liquidation:

a.Borrower shall not engage in any Asset Sale, other than liquidation or sale of Securities in the ordinary course of Borrower's business.

b.Borrower shall not merge or consolidate with any other Person, or commence a dissolution or liquidation.

7.2Loans and Investments: Borrower shall not make any Investments in any Person, other than Permitted Investments.

7.3Liens and Encumbrances: Borrower shall not cause or permit or agree or consent to cause or permit in the future (upon the happening of a contingency or otherwise), the Collateral whether now owned or hereafter acquired, to be subject to a Lien or be subject to any claim, except for Permitted Liens.

7.4Guarantees: Except for the endorsement in the ordinary course of business of negotiable instruments for deposit or collection, and for Permitted Indebtedness, Borrower shall not become or be liable, directly or indirectly, primary or secondary, matured or contingent, in any manner, whether as guarantor, surety, accommodation maker, or otherwise, for the existing or future Indebtedness of any kind of any Person, other than its Subsidiaries.

7.5Use of Lenders’ Name: Borrower shall not use any Lender’s name (or the name of any of any Lender’s Affiliates) or Agent’s name in connection with any of its business, operations except to identify the existence of the Revolving Credit and the names of Lenders and Agent in the ordinary course of Borrower's business. Nothing herein contained is intended to permit or authorize Borrower to make any commitment or contract on behalf of any Lender or Agent.

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7.6Miscellaneous Covenants:

a.Borrower shall not become or be a party to any contract or agreement which at the time of becoming a party to such contract or agreement materially impairs Borrower's ability to perform under this Agreement, or under any other instru-ment, agreement or document to which Borrower is a party or by which it is or may be bound.

b.Borrower shall not carry or purchase any “margin stock” within the meaning of Regulations U, T or X of the Board of Governors of the Federal Reserve System, 12 C.F.R., Chapter II.

SECTION 8. DEFAULT

8.1Events of Default: Each of the following events shall constitute an event of default (“Event of Default”):

a.Payments - if Borrower fails to make any payment on account of the Obligations, whether principal, interest, or any fees within ten (10) days of the due date of such payment or fails to immediately reimburse Issuing Bank for any draw under any Letter of Credit; or

b.Other Charges - if Borrower fails to pay any other charges, Expenses or other monetary obligations owing to any Lender, Issuing Bank or Agent arising out of or incurred in connection with this Agreement within ten (10) days after notice that such payment was not made when due or demanded, as applicable; or

c.Covenant Defaults - if Borrower fails to perform, comply with or observe any covenant or undertaking contained in this Agreement and (other than with respect to the covenants contained in Sections 7 and 8.1 for which no cure period shall exist), such failure continues for fifteen (15) days after the occurrence thereof; provided, however, if such default is capable of being cured, it shall not constitute an Event of Default if corrective action is instituted by the Borrower within fifteen (15) days of the default and diligently pursued until the default is cured, and such default is cured within thirty (30) days of the default; or

d.Financial Information - if any statement, report, financial statement, or certificate made or delivered at any time by Borrower, or any of its officers, employees or agents, to Agent or any Lender is not true and correct, in all material respects, when made; or

e.Warranties or Representations - if any warranty, representation or other statement by or on behalf of Borrower contained in or pursuant to this Agreement, or in any document, agreement or instrument furnished in compliance with, relating to, or in reference to this Agreement, is false, erroneous, or misleading in any material respect when made or deemed made; or

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f.Agreements with Others - (i) if Borrower shall default beyond any grace period in payment of principal or interest of any Indebtedness of Borrower in excess of $250,000 in the aggregate, or (ii) if Borrower otherwise defaults under the terms of any such Indebtedness, if the effect of such default is to enable the holder of such Indebtedness to accelerate the payment of Borrower's obligations, which are the subject thereof, prior to the maturity date or prior to the regularly scheduled date of payment;

g.Other Agreements with Lenders - if Borrower breaches or violates the terms of, or if a default or an Event of Default, occurs under, any other existing or future agreement (related or unrelated) between Borrower or among Borrower or Agent, Issuing Bank or any Lender or all Lenders (subject to any applicable grace or cure period which may be contained in such other agreement); or

h.Judgments - if any final judgment for the payment of money in excess of $250,000 in the aggregate (i) which is not fully and unconditionally covered by insurance or (ii) for which Borrower has not established a cash or cash equivalent reserve in the full amount of such judgment, shall be rendered by a court of record against Borrower and such judgment shall continue unsatisfied and in effect for a period of sixty (60) consecutive days without being vacated, discharged, satisfied or bonded pending appeal; or

i.Assignment for Benefit of Creditors, etc. - if Borrower makes or proposes an assignment for the benefit of creditors generally, offers a composition or extension to creditors, or makes or sends notice of an intended bulk sale of any business or assets now or hereafter owned or conducted by Borrower; or

j.Bankruptcy, Dissolution, etc. - upon the commencement of any action for the dissolution or liquidation of Borrower, or the commencement of any case or proceeding for reorganization or liquidation of Borrower, or any of its, debts under the Bankruptcy Code or any other state or federal law, now or hereafter enacted for the relief of debtors, whether instituted by or against such Borrower; providedhowever, that Borrower shall have sixty (60) days to obtain the dismissal or discharge of any involuntary proceeding filed against it, it being understood that during such sixty (60) day period, no Lender shall be obligated to make Advances hereunder and Agent may seek adequate protection in any bankruptcy proceeding; or

k.Receiver - upon the appointment of a receiver, liquidator, custodian, trustee or similar official or fiduciary for Borrower, or for Borrower's Property; or

l.Execution Process, Seizure, etc. - the issuance of any execution or distraint process against any Property of Borrower; or

m.Termination of Business - if Borrower ceases any material portion of its business operations as presently conducted; or

n.Pension Benefits, etc. - if Borrower fails to comply with ERISA, so that proceedings are commenced to appoint a trustee under ERISA to administer Borrower's employee plans or the Pension Benefit Guaranty Corporation institutes proceedings to appoint a trustee to administer such plan(s), or to permit the entry of a Lien to secure any deficiency or claim or a “reportable event” as defined under ERISA occurs; or

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o.Investigations - any indication or evidence received by Agent that reasonably leads it to believe Borrower may have directly or indirectly been engaged in any type of activity which, would be reasonably likely to result in the forfeiture of any material property of Borrower to any governmental entity, federal, state or local; or

p.Default Under Pledge Agreements or Control Agreements - if any event of default occurs pursuant to the Pledge Agreements or the Control Agreements; or

q.Default Under Guaranty Agreements - if any event of default occurs pursuant to the Guaranty Agreements, the Guaranty Agreements are no longer enforceable, or either of the Guarantors claims the Guaranty Agreement to which it is a party is not binding upon such Guarantor.

8.2Cure: Nothing contained in this Agreement or the Loan Documents shall be deemed to compel Agent, Issuing Bank and/or Lenders to accept a cure of any Event of Default hereunder.

8.3Rights and Remedies on Default:

a.In addition to all other rights, options and remedies granted or available to Agent or Lenders under this Agreement or the Loan Documents, or otherwise available at law or in equity, upon or at any time after the occurrence and during the continuance of a Default or an Event of Default, Agent may, in its discretion, direct Lenders, and the Majority Lenders shall have the option to instruct Agent to direct Lenders, to, withhold or cease making Advances under the Revolving Credit.

b.In addition to all other rights, options and remedies granted or available to Agent under this Agreement or the Loan Documents (each of which is also then exercisable by Agent), Agent may, in its discretion, or at the written direction of Majority Lenders shall, upon or at any time after the occurrence and during the continuance of an Event of Default, terminate the Credit Facility and declare the Obligations immediately due and payable, all without demand, notice, presentment or protest or further action of any kind (it also being understood that the occurrence of any of the events or conditions set forth in Sections 8.1(i),(j) or (k) shall automatically cause an acceleration of the Obligations).

c.In addition to all other rights, options and remedies granted or available to Agent, under this Agreement or the Loan Documents (each of which is also then exercisable by Agent), upon or at any time after the occurrence and during the continuance of an Event of Default Agent may, in its discretion, or at the written direction of Majority Lenders shall, direct Borrower to deliver and pledge to Agent, for the ratable benefit of Agent, all Lenders and Issuing Bank, cash collateral in the amount of all outstanding Letters of Credit.

d.In addition to all other rights, options and remedies granted or available to Agent under this Agreement or the Loan Documents (each of which is also then exercisable by Agent), Agent may, or at the written direction of Majority Lenders shall, upon or at any time following the occurrence of an Event of Default, exercise all rights under the UCC and any other applicable law or in equity, and under all Loan Documents permitted to be exercised after the occurrence of an Event of Default.

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e.Borrower hereby authorizes Agent, as secured party, to make any necessary filings under Rule 144 of the Securities Act in order to sell the Bancorp Stock upon an Event of Default.

8.4Nature of Remedies: All rights and remedies granted Agent or Lenders hereunder and under the Loan Documents, or otherwise available at law or in equity, shall be deemed concurrent and cumulative, and not alternative remedies, and Agent may proceed with any number of remedies at the same time until all Obligations are satisfied in full. The exercise of any one right or remedy shall not be deemed a waiver or release of any other right or remedy, and Agent, upon or at any time after the occurrence of an Event of Default, may proceed against Borrower, at any time, under any agreement, with any available remedy and in any order.

8.5Set-Off:

a.If any bank account of Borrower with Agent, any Lender or any participant is attached or otherwise liened or levied upon by any third party, Agent, as agent for Lenders shall have and be deemed to have, without notice to Borrower, the immediate right of set-off and may apply the funds or amount thus set-off against any of the Obligations hereunder.

b.In addition to all other rights, options and remedies granted or available to Agent under this Agreement or the Loan Documents (each of which is also then exercisable by Agent), upon or at any time after the acceleration of the Obligations, Agent (or any Lender) shall have and be deemed to have, without notice to Borrower, the immediate right of set off against any bank account of Borrower with Agent or any Lender, or of Borrower with any other subsidiary or Affiliate or any participant and may apply the funds or amount thus set off against any of the Obligations hereunder.

SECTION 9. AGENT

9.1Appointment and Authorization: Each Lender, and each subsequent holder of any of the Revolving Credit Notes by its acceptance thereof, hereby irrevocably appoints and authorizes Agent to take such action on its behalf and to exercise such powers under this Agreement as are expressly delegated to Agent by the terms hereof, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere herein, or in any other Loan Document, the Agent shall have no duties or responsibilities, except those expressly set forth herein, nor shall Agent have to be deemed to have any fiduciary relationship with any Lender or participant, and no implied covenants, functions, responsibilities, duties, obligations, or liabilities shall be read into this Agreement, or any other Loan Documents, or otherwise exist against Agent. Without limiting the generality of the foregoing sentence, the use of the term “agent” herein, and in the other Loan Documents with reference to Agent, is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties.

9.2General Immunity: Subject to the provisions of this Agreement, Agent will handle all transactions relating to the Loans and all other Obligations, including, without

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limitation, all transactions with respect to Letters of Credit, this Agreement, the Loan Documents and all related documents in accordance with its usual banking practices. In performing its duties as Agent hereunder, Agent will take the same care as it takes in connection with loans in which it alone is interested. However, neither Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them hereunder or in connection herewith except for its or their own gross negligence or willful misconduct.

9.3Consultation with Counsel: Agent may consult with legal counsel and any other professional advisors or consultants deemed necessary or appropriate and selected by Agent and shall not be liable for any action taken or suffered in good faith by it in accordance with the advice of such counsel.

9.4Documents: Agent shall not be under a duty to examine into or pass upon the effectiveness, genuineness or validity of this Agreement or any other Loan Document or any other instrument or document furnished pursuant hereto or in connection herewith, and Agent shall be entitled to assume that the same are valid, effective and genuine and what they purport to be. In addition Agent shall not be liable for failing to make any inquiry concerning the accuracy, performance or observance of any of the terms, provisions or conditions of such instrument or document.

9.5Rights as a Lender: With respect to its applicable Pro Rata Percentage of the Revolving Credit Loans, Agent shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not Agent, and the term “Lender” or “Lenders” shall, unless the context otherwise indicates, include Agent in its individual capacity.  Subject to the provisions of this Agreement, Agent may accept deposits from, lend money to and generally engage in any kind of banking or trust business with Borrower and its Affiliates as if it were not Agent.

9.6Responsibility of Agent: It is expressly understood and agreed that the obligations of Agent hereunder are only those expressly set forth in this Agreement and that Agent shall be entitled to assume that no Event of Default or Default has occurred and is continuing, unless Agent has actual knowledge of such fact. Except to the extent Agent is required by Lenders pursuant to the express terms hereof to take a specific action, Agent shall be entitled to use its discretion with respect to exercising or refraining from exercising any rights which may be vested in it by, or with respect to taking or refraining from taking any action or actions that it may be able to take under or in respect of, this Agreement and the Loan Documents. Agent shall incur no liability under or in respect of this Agreement and the Loan Documents by acting upon any notice, consent, certificate, warranty or other paper or instrument believed by it to be genuine or authentic or to be signed by the proper party or parties, or with respect to anything that it may do or refrain from doing in the reasonable exercise of its judgment, or that may seem to it to be necessary or desirable under the circumstances.

9.7Collections and Disbursements:

a.Agent will have the right to collect and receive all payments of the Obligations, and to collect and receive all reimbursements for draws made under the Letters of Credit, together with all fees, charges or other amounts due under this Agreement and the Loan

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Documents and to distribute such payments to Lenders and Issuing Bank in accordance with the terms of Section 2.3.

                             b.Agent shall pay to each Lender, on each Settlement Date, from the interest actually received by Agent from Borrower, a sum equal to the interest calculated for the actual number of days elapsed on the basis of a year of 360 days, on each Lender’s outstanding balance of its Revolving Credit at the rate equal to the applicable rate of interest chosen by Borrower with respect to such Lender’s Pro Rata Percentage of the Advances outstanding. If Agent should for any reason receive less than the full amount of the interest or other compensation due under the Loan Documents, each Lender’s share of such interest or compensation shall decrease in proportion to each Lender’s Pro Rata Percentage.

c.If any such payment received by Agent is rescinded, determined to be unenforceable or invalid or is otherwise required to be returned for any reason at any time, whether before or after termination of this Agreement and the Loan Documents, each Lender will, upon written notice from Agent, promptly pay over to Agent its Pro Rata Percentage of the amount so rescinded, held unenforceable or invalid or required to be returned, together with interest and other fees thereon if also required to be rescinded or returned.

d.All payments by Agent and Lenders to each other hereunder shall be in immediately available funds. Agent will at all times maintain proper books of account and records reflecting the interest of each Lender in the Revolving Credit and the Letters of Credit, in a manner customary to Agent’s keeping of such records, which books and records shall be available for inspection by each Lender at reasonable times during normal business hours, at such Lender’s sole expense. In the event that any Lender shall receive any payments in reduction of the Obligations in an amount greater than its applicable Pro Rata Percentage in respect of indebtedness to Lenders evidenced hereby (including, without limitation amounts obtained by reason of setoffs), such Lender shall hold such excess intrust (to the extent such Lender is lawfully able to do so) for Agent (on behalf of all other Lenders) and shall promptly remit to Agent such excess amount so that the amounts received by each Lender hereunder shall at all times be in accordance with its applicable Pro Rata Percentage. To the extent necessary for each Lender’s actual percentage of all outstanding Revolving Credit Loans to equal its applicable Pro Rata Percentage, the Lender having a greater share of any payment(s) than its applicable Pro Rata Percentage shall acquire a participation in the applicable outstanding balances of the Pro Rata Shares of the other Lenders as determined by Agent.

9.8Indemnification: To the extent not promptly paid by Borrower, each Lender hereby indemnifies Agent (and Issuing Bank with respect to Letters of Credit) ratably according to their respective Pro Rata Percentages, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by or asserted against Agent (or Issuing Bank, as the case may be) in any way relating to or arising out of this Agreement or any other Loan Document or any action taken or omitted by Agent (or Issuing Bank, as the case may be) under or related to this Agreement or the other Loan Documents or the Loans, provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from Agent’s (or Issuing Bank’s, as the case may be) gross negligence or willful misconduct. Agent

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shall have the right to deduct, from any amounts to be paid by Agent to any Lender hereunder, any amounts owing to Agent by such Lender by virtue of this paragraph.

9.9Expenses:

a.All reasonable out-of-pocket costs and out-of- pocket expenses incurred by Agent in connection with the creation, amendment, administration, termination and enforcement of the Loans (including without limitation, audit expenses, counsel fees and expenditures to protect, preserve and defend Agent’s and each Lender’s rights and interest under the Loan Documents) shall, to the extent not reimbursed by Borrower, be shared and paid on demand by Lenders pro rata based on their applicable Pro Rata Percentage.

b.Agent may deduct from payments or distributions to be made to Lenders such funds as may be necessary to pay or reimburse Agent for such costs or expenses.

9.10No Reliance: By execution of or joining in this Agreement, each Lender acknowledges that it has entered into this Agreement and the Loan Documents solely upon its own independent investigation and is not relying upon any information supplied by or any representations made by Agent. Each Lender shall continue to make its own analysis (including any credit analysis) and evaluation of Borrower. Agent makes no representation or warranty and assumes no responsibility with respect to the financial condition or Property of Borrower; the accuracy, sufficiency or currency of any information concerning the financial condition, prospects or results of operations of Borrower; or for sufficiency, authenticity, legal effect, validity or enforceability of the Loan Documents. Agent assumes no responsibility or liability with respect to the collectibility of the Obligations or the performance by any Borrower of any obligation under the Loan Documents.

9.11Resignation of Agent: Agent may resign at any time upon thirty (30) days prior written notice thereof to Lenders and Borrower. Upon any resignation, the Majority Lenders shall have the right to appoint a successor Agent. Upon the acceptance of the appointment as a successor Agent hereunder by such successor Agent, such successor Agent shall thereupon succeed to and become vested with all rights, powers, obligations and duties of the retiring Agent and the retiring Agent shall be discharged from its duties and obligations hereunder.

9.12Action on Instructions of Lenders: With respect to any provision of this Agreement, or any issue arising there under, concerning which Agent is authorized to act or withhold action by direction of Lenders (or as the case may be under this Agreement, the Majority Lenders), Agent shall in all cases be fully protected in so acting, or in so refraining from acting, hereunder in accordance with written instructions signed by Lenders. Such instructions and any action taken or failure to act pursuant thereto shall be binding on all Lenders.

9.13Several Obligations: The obligation of each Lender is several, and neither Agent nor any other Lender shall be responsible for any obligation or commitment hereunder of any other Lender.

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SECTION 10. MISCELLANEOUS

10.1GOVERNING LAW: THIS AGREEMENT, AND ALL MATERS ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND ALL RELATED AGREEMENTS AND DOCUMENTS, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS COMMONWEALTH OF PENNSYLVANIA. THE PROVISIONS OF THIS AGREEMENT AND ALL OTHER AGREEMENTS AND DOCUMENTS REFERRED TO HEREIN ARE TO BE DEEMED SEVERABLE, AND THE INVALIDITY OR UNENFORCEABILITY OF ANY PROVISION SHALL NOT AFFECT OR IMPAIR THE REMAINING PROVISIONS WHICH SHALL CONTINUE IN FULL FORCE AND EFFECT.

10.2Integrated Agreement: The Loan Documents, all related agreements, and this Agreement shall be construed as integrated and complementary of each other, and as augmenting and not restricting Lenders’ and Agent’s rights and remedies. If, after applying the foregoing, an inconsistency still exists, the provisions of this Agreement shall constitute an amendment thereto and shall control.

10.3Waiver: No omission or delay by Agent or Lenders in exercising any right or power under this Agreement or any related agreements and documents will impair such right or power or be construed to be a waiver of any default, or Event of Default (unless such Event of Default has been waived in accordance with the terms of this Agreement), or an acquiescence therein, and any single or partial exercise of any such right or power will not preclude other or further exercise thereof or the exercise of any other right, and as to Borrower no waiver will be valid unless in writing and signed by Agent and then only to the extent specified.

10.4Indemnity: (a) Borrower releases and shall indemnify, defend and hold harmless Agent, Issuing Bank and Lenders, and their respective officers, employees and agents, of and from any claims, demands, liabilities, obligations, judgments, injuries, losses, damages and costs, and expenses (including without limitation, reasonable legal fees) resulting from (i) acts or conduct of Borrower under, pursuant, or related to this Agreement and the other Loan Documents, (ii) Borrower's breach or violation of any representation, warranty, covenant or undertaking contained in this Agreement or the other Loan Documents, (iii) Borrower's failure to comply with any or all laws, statutes, ordinances, governmental rules, regulations or standards, whether federal, state or local, or court or administrative orders or decrees, (including without limitation securities laws, etc.) and all costs, expenses, fines, penalties or other damages resulting there from, and (iv) any claim by any other creditor of Borrower against any Lender arising out of any transaction whether hereunder or in any way related to the Loan Documents and all costs, expenses, fines, penalties or other damages resulting therefrom, unless resulting solely from acts or conduct of Agent, Issuing Bank, or Lenders constituting willful misconduct or gross negligence. The obligations of Borrower under this Section 10.4 shall survive the occurrence of any and all events whatsoever, including without limitation, payment of the Obligations or investigation by or knowledge of Lenders.

(b)Promptly after receipt by an indemnified party under subsection (a) above of notice of the commencement of any action by a third party, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection,

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notify the indemnifying party in writing of the commencement thereof. The omission so to notify the indemnifying party shall relieve the indemnifying party from any liability which it may have to any indemnified party under such subsection only if the indemnifying party is unable to defend such actions as a result of such failure to so notify. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnified party), and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation.

10.5Time: Whenever Borrower shall be required to make any payment, or perform any act, on a day which is not a Business Day, such payment may be made, or such act may be performed, on the next succeeding Business Day. Time is of the essence in the performance under all provisions of this Agreement and all related agreements and documents.

10.6Expenses of Agent and Lenders: At Closing and from time to time thereafter, Borrower will pay upon demand of Agent all reasonable costs, fees and expenses of (i) Agent in connection with the analysis, negotiation, preparation, execution, administration, delivery and termination of this Agreement, and other Loan Documents and the documents and instruments referred to herein and therein, and any amendment, amendment and restatement, supplement, waiver or consent relating hereto or thereto, whether or not any such amendment, amendment and restatement, supplement, waiver or consent is executed or becomes effective, search costs, the reasonable fees, expenses and disbursements of counsel for Agent, any fees or expenses incurred by Agent under Section 6.11 for which Borrower is obligated thereunder, and reasonable charges of any expert consultant to Agent, and (ii) Agent, Issuing Bank, and each Lender in connection with the enforcement of Agent’s, Issuing Bank’s and Lenders’ rights hereunder, or the collection of any payments owing from, Borrower under this Agreement and/or the other Loan Documents or the protection, preservation or defense of the rights of Agent, Issuing Bank and Lenders hereunder and under the other Loan Documents, including any refinancing or restructuring of the credit arrangements provided under this Agreement and other Loan Documents in the nature of a “work-out” or of any insolvency or bankruptcy proceedings, or otherwise (including the reasonable fees and disbursements of counsel for Agent, Issuing Bank and any Lender) (collectively, the “Expenses”).

10.7Brokerage: This transaction was brought about and entered into by Agent, Lenders and Borrower acting as principals and without any brokers, agents or finders being the effective procuring cause hereof. Borrower represents that it has not committed Agent or any Lender to the payment of any brokerage fee, commission or charge in connection with this transaction. If any such claim is made on Agent or any Lender by any broker, finder or agent or other person allegedly engaged by Borrower, Borrower hereby indemnify, defend and save such party harmless against such claim and further will defend, with counsel satisfactory to Agent, any action or actions to recover on such claim, at Borrower's own cost and expense, including such party’s reasonable counsel fees. Borrower further agrees that until any such claim or demand is adjudicated in such party’s favor, the amount demanded shall be deemed a liability of Borrower under this Agreement.

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10.8Notices:

a.Any notices or consents required or permitted by this Agreement shall be in writing and shall be deemed given if delivered in person or if sent by telecopy or by nationally recognized overnight courier, or via first class, Certified or Registered mail, postage prepaid, as follows, unless such address is changed by written notice hereunder:

If to Agent to: Commerce Bank, N.A. 1701 Route 70 East Cherry Hill, NJ 08034 Attn: Mr. Gerard Grady Telecopy: (856) 751-6884

With copies to: Blank Rome LLP One Logan Square Philadelphia, PA 19103 Attn: Robert I. Tuteur, Esquire Telecopy: (215) 832-5687

If to Borrower to: Resource America, Inc. 1845 Walnut Street, 10th Floor Philadelphia, PA 19103 Attn: Steven J. Kessler Telecopy: (215) 546-4785

With copies to: Ledgwood, a professional corporation

1900 Market Street, Suite 750

Philadelphia, PA 19103

Attn: Shelle Weisbaum, Esquire

Telecopy: (215) 735-2315

If to Lenders:to the addresses set forth on Schedule B.

b.Any notice sent by Agent, any Lender or Borrower by any of the above methods shall be deemed to be given when so received.

c.Agent shall be fully entitled to rely upon any facsimile transmission or other writing purported to be sent by any Authorized Officer (whether requesting an Advance or otherwise) as being genuine and authorized.

10.9Headings: The headings of any paragraph or Section of this Agreement are for convenience only and shall not be used to interpret any provision of this Agreement.

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10.10Survival: All warranties, representations, and covenants made by Borrower herein, or in any agreement referred to herein or on any certificate, document or other instrument delivered by it or on its behalf under this Agreement, shall be considered to have been relied upon by Agent and Lenders, and shall survive the delivery to Lenders of the Revolving Credit Notes, regardless of any investigation made by Lenders or on their behalf. All statements in any such certificate or other instrument prepared and/or delivered for the benefit of Agent and any and all Lenders shall constitute warranties and representations by Borrower hereunder. Except as otherwise expressly provided herein, all covenants made by Borrower hereunder or under any other agreement or instrument shall be deemed continuing until all Obligations are satisfied in full. All indemnification obligations under this Agreement, including under Section 2.2, 5.5, 10.4 and 10.7, shall survive the termination of this Agreement and payment of the Obligations for a period of two (2) years.

10.11Amendments:

a.Neither the amendment or waiver of any provision of this Agreement or any other Loan Document (other than Letter of Credit Documents), nor the consent to any departure by Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by Majority Lenders (or by Agent at the direction of Majority Lenders), or if Lenders shall not be parties thereto, by the parties thereto and consented to by Majority Lenders, and each such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided that, no amendment, waiver, or consent shall do any of the following: (a) increase the Maximum Revolving Credit Amount (except as contemplated under Section 2.1(d)) or the Pro Rata Share of any Lender, without the written consent of each Lender affected thereby, (b) except as otherwise expressly provided in this Agreement, reduce the principal of, or interest on, any Revolving Credit Note or any Reimbursement Obligations or any fees hereunder, without the written consent of each Lender affected thereby, (c) postpone any date fixed for any payment with respect to principal of, or interest on, any Revolving Credit Note or any Reimbursement Obligations or any fees hereunder, without the written consent of each Lender affected thereby, (d) amend or waive this Section 10.11, or change the definition of Majority Lenders without the written consent of each Lender, or (e) release any Guarantor, without the written consent of each Lender; and provided further that, no amendment, waiver, or consent affecting the rights or duties of Agent or Issuing Bank under any Loan Document shall in any event be effective, unless in writing and signed by Agent and/or Issuing Bank, as applicable, in addition to Lenders required hereinabove to take such action. Notwithstanding any of the foregoing to the contrary, the consent of Borrower shall not be required for any amendment, modification or waiver of the provisions of Section 8 of this Agreement. In addition, Borrower and Lenders hereby authorize Agent to modify this Agreement by unilaterally amending or supplementing Schedule A or Schedule B from time to time in the manner requested by Borrower, Agent or any Lender in order to reflect any assignments or transfers of the Loans as provided for hereunder; provided however, that Agent shall promptly deliver a copy of any such modification to Borrower and each Lender.

b.After an acceleration of the Obligations, Agent shall have the right, with communication (to the extent reasonably practicable under the circumstances) with all Lenders, to exercise or refrain from exercising any and all right, remedies, privileges and options under the Loan Documents and available at law or in equity to protect and enforce the rights of the

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Lenders and collect the Obligations, including, without limitation, instituting and pursuing all legal actions against Borrower or to collect the Obligations, or defending any and all actions brought by Borrower or other Person; or incurring Expenses or otherwise making expenditures to protect the Loans, the Collateral or Lenders’ rights or remedies.

c.To the extent Agent is required to obtain or otherwise elects to seek the consent of Lenders to an action Agent desires to take, if any Lender fails to notify Agent, in writing, of its consent or dissent to any request of Agent hereunder within five (5) Business Days of such Lender’s receipt of such request, such Lender shall be deemed to have given its consent thereto.

10.12Assignability:

a.Borrower shall not have the right to assign or delegate its obligations and duties under this Agreement or any other Loan Documents or any interest therein except with the prior written consent of Agent and Lenders.

b.Notwithstanding subsection (c) of this Section 10.12, nothing herein shall restrict, prevent or prohibit any Lender from (i) pledging or granting a security interest in its Loans hereunder to a Federal Reserve Bank in support of borrowings made by such Lender from such Federal Reserve Bank, or (ii) granting assignments or participations in the Revolving Credit Loans hereunder to its parent and/or to any Affiliate of such Lender or to any other existing Lender or Affiliate. Any Lender may make, carry or transfer Loans at, to or for the account of, any of its branch offices or the office of an Affiliate of such Lender except to the extent such transfer would result in increased costs to Borrower.

c.Each Lender may, with the consent of Agent (such consent not to be unreasonably withheld or delayed) and (if no Event of Default is outstanding) with the consent of Borrower (such consent not to be unreasonably withheld or delayed), but without the consent of any other Lender, assign to one or more banks or other financial institutions all or a portion of its rights and obligations under this Agreement and the Revolving Credit Notes; provided that, (i) for each such assignment, the parties thereto shall execute and deliver to Agent, for its acceptance (if properly completed and executed in accordance with the terms hereof), and recording in its books and records, an assignment and acceptance in form and substance satisfactory to Agent (“Assignment and Acceptance”), together with any Revolving Credit Note subject to such assignment, and a processing and recordation fee of $3,500 payable to Agent for its own account payable by assignee, (ii) no such assignment shall be for less than a Pro Rata Share of $5,000,000 or, if less, the entire remaining Pro Rata Percentage of such Lender of the Revolving Credit Loan, and (iii) each such assignment shall be of a uniform, and not a varying, percentage of all rights and obligations under and in respect of both the Pro Rata Share of such Lender and all Revolving Credit Loans of such Lender. Upon such execution and delivery of the Assignment and Acceptance to Agent, from and after the date specified as the effective date in the Assignment and Acceptance (the “Acceptance Date”), (x) the assignee thereunder shall be a party hereto, and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, such assignee shall have the rights and obligations of a Lender hereunder and (y) the assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance,

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 relinquish its rights (other than any rights it may have pursuant to Section 9.4 which will survive) and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto).

d.Within 5 Business Days after demand by Agent, Borrower shall execute and deliver to Agent in exchange for any surrendered Revolving Credit Note (which the assigning Lender agrees to promptly deliver to Borrower) a new Revolving Credit Note to the order of the assignee in an amount equal to the Pro Rata Share assumed by it pursuant to such Assignment and Acceptance, and if the assigning Lender has retained a Pro Rata Share hereunder, a new Revolving Credit Note to the order of the assigning Lender in an amount equal to the Pro Rata Share retained by it hereunder. Such new Revolving Credit Note shall re-evidence the indebtedness outstanding under the old Revolving Credit Notes or Revolving Credit Notes, and shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Revolving Credit Note, shall be dated the Closing Date and shall otherwise be in substantially the form of the Revolving Credit Note subject to such assignments.

e.Each Lender may sell participations (without the consent of Agent, Borrower or any other Lender) to one or more parties in or to all or a portion of its rights and obligations under this Agreement (including without limitation, all or a portion of its Pro Rata Share, the Revolving Credit Loans owing to it and the Revolving Credit Note held by it); provided that, (i) such Lender’s obligations under this Agreement (including without limitation, its Pro Rata Share to Borrower hereunder) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender shall remain the holder of any such Revolving Credit Note for all purposes of this Agreement, (iv) Borrower, Agent, and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement and (v) such Lender shall not transfer, grant, assign or sell any participation under which the participant shall have rights to approve any amendment or waiver of this Agreement except to the extent such amendment or waiver would (A) extend the final maturity date or the date for the payments of any installment of fees or principal or interest of any Revolving Credit Loan or Reimbursement Obligations in which such participant is participating, (B) reduce the amount of any installment of principal of the Loans or Letter of Credit reimbursement obligations in which such participant is participating, (C) except as otherwise expressly provided in this Agreement, reduce the interest rate applicable to the Revolving Credit Loans or Reimbursement Obligations in which such participant is participating, or (D) except as otherwise expressly provided in this Agreement, reduce any Fees payable hereunder.

f.Each Lender agrees that, without the prior written consent of Borrower and Agent, it will not make any assignment or sell a participation hereunder in any manner or under any circumstances that would require registration or qualification of, or filings in respect of, any Revolving Credit Loan, Revolving Credit Note, or other Obligation under the securities laws of the United States of America or of any jurisdiction.

g.In connection with the efforts of any Lender to assign its rights or obligations or to participate interests, Agent or such Lender may disclose any information in its possession regarding Borrower, its finances and/or Property.

45

10.13Successors and Assigns: This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties. Borrower may not transfer, assign or delegate any of its duties or obligations hereunder.

10.14Duplicate Originals: Two or more duplicate originals of this Agreement may be signed by the parties, each of which shall be an original but all of which together shall constitute one and the same instrument. This Agreement may be executed in counterparts, all of which counterparts taken together shall constitute one completed fully executed document.

10.15Modification: No modification hereof or any agreement referred to herein shall be binding or enforceable unless in writing and signed by Borrower, Agent and Lenders except as provided in Section 10.11 hereof. Any modification in accordance with the terms hereof shall be binding on all parties hereto, whether or not each is a signatory thereto.

10.16Signatories: Each individual signatory hereto represents and warrants that he is duly authorized to execute this Agree-ment on behalf of his principal and that he executes the Agreement in such capacity and not as a party.

10.17Third Parties: No rights are intended to be created hereunder, or under any related agreements or documents for the benefit of any third party donee, creditor or incidental beneficiary of Borrower. Nothing contained in this Agreement shall be construed as a delegation to Agent or any Lender of Borrower's duty of performance, including, without limitation, Borrower's duties under any account or contract with any other Person.

10.18Discharge of Taxes, Borrower's Obligations, Etc.: Agent, in its sole discretion, shall have the right at any time, and from time to time, if Borrower fails to timely perform in accordance with this Agreement, to: (a) pay for the performance of any of Borrower's Obligations hereunder, and (b) discharge taxes or Liens, at any time levied or placed on any of Borrower's Property in violation of this Agreement unless such entity is in good faith with due diligence by appropriate proceedings contesting such taxes or Liens and maintaining proper reserves therefore in accordance with GAAP. Expenses and advances shall be added to the Revolving Credit, bear interest at the same rate applied to the Revolving Credit, until reimbursed to Agent. Such payments and advances made by Agent shall not be construed as a waiver by Agent or Lenders of an Event of Default under this Agreement.

10.19Withholding and Other Tax Liabilities: Each Lender shall have the right to refuse to make any Advances from time to time unless Borrower shall, at Agent’s request, have given to Agent evidence, reasonably satisfactory to Agent, it has properly deposited or paid, as required by law, all withholding taxes and all federal, state, city, county or other taxes due up to and including the date of the requested Advance. Copies of deposit slips showing payment shall likewise constitute satisfactory evidence for such purpose. In the event that any lien, assessment or tax liability against Borrower, or any of them, shall arise in favor of any taxing authority, whether or not notice thereof shall be filed or recorded as may be required by law, Agent shall have the right (but shall not be obligated, nor shall Agent or any Lender hereby assume the duty) to pay any such lien, assessment or tax liability by virtue of which such charge shall have arisen; provided, however, that Agent shall not pay any such tax, assessment or lien if the amount, applicability or validity thereof is being contested in good faith and by appropriate proceedings

46

by such entity. In order to pay any such lien, assessment or tax liability, Agent shall not be obliged to wait until said lien, assessment or tax liability is filed before taking such action as hereinabove set forth. Any sum or sums which Agent (shared ratably by Lenders) shall have paid for the discharge of any such lien shall be added to the Revolving Credit and shall be paid by Borrower to Agent with interest thereon, upon demand, and Agent shall be subrogated to all rights of such taxing authority against Borrower.

10.20Consent to Jurisdiction: Borrower, Agent, Issuing Bank and each Lender hereby irrevocably consent to the non-exclusive jurisdiction of the Courts of the Commonwealth of Pennsylvania or the United States District Court for Commonwealth of Pennsylvania in any and all actions and proceedings whether arising hereunder or under any other agreement or undertaking. Borrower waives any objection which Borrower may have based upon lack of personal jurisdiction, improper venue or forum non conveniens. Borrower irrevocably agrees to service of process by certified mail, return receipt requested to the address of the appropriate party set forth herein.

10.21Waiver of Jury Trial: BORROWER, AGENT, ISSUING BANK AND EACH LENDER HEREBY WAIVE ANY AND ALL RIGHTS IT MAY HAVE TO A JURY TRIAL IN CONNECTION WITH ANY LITIGATION, PROCEEDING OR COUNTERCLAIM ARISING WITH RESPECT TO RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO OR UNDER THE LOAN DOCUMENTS OR WITH RESPECT TO ANY CLAIMS ARISING OUT OF ANY DISCUSSIONS, NEGOTIATIONS OR COMMUNICATIONS INVOLVING OR RELATED TO ANY PROPOSED RENEWAL, EXTENSION, AMENDMENT, MODIFICATION, RESTRUCTURE, FORBEARANCE, WORKOUT, OR ENFORCEMENT OF THE TRANSACTIONS CONTEMPLATED BY THE LOAN DOCUMENTS.

47

IN WITNESS WHEREOF, the undersigned parties have executed this Agreement the day and year first above written.

BORROWER:	RESOURCE AMERICA, INC.
	By: _____________________________ Name:_____________________________ Title:_____________________________
AGENT:	COMMERCE BANK, N.A., as Agent
	By: _____________________________ Name:_____________________________ Title:_____________________________
LENDERS:	COMMERCE BANK, N.A., as Lender
	By: _____________________________ Name:_____________________________ Title:_____________________________

48

Exhibit A - Form of Authorization Certificate

Authorization Certificate

Date: _______________

Commerce Bank, N.A.

Attn: Gerard Grady

1701 Route 70 East

Cherry Hill, NJ 08034

Dear Jerry:

The following individuals are authorized to request loan advances against Resource America, Inc.’s ("Borrower") Revolving Credit, and transfer funds from any of the Borrower’s accounts per written instructions received via fax:

Authorized PersonTitleSignature

1._________________ _____________________ _______________________

2._________________ _____________________ _______________________

3._________________ _____________________ _______________________

Resource America, Inc.

By:_____________________________________

Name:

Title:

Accepted:

Commerce Bank, N.A.

By:

Name:

Title:

Exhibit B - Form of Borrowing Request

Form of Borrowing Request

To:COMMERCE BANK, N.A. ("Agent")

Attn: Gerard Grady

1701 Route 70 East

Cherry Hill, NJ 08034

Resource America, Inc. (“Borrower”) hereby requests an Advance in the amount of $___________ pursuant to Section 2.3 of that certain Loan Agreement, by and among Agent, Borrower, and Lenders dated August __, 2006 (the "Loan Agreement"). Borrower hereby requests that such Advance be a (select one) Prime Rate Loan/LIBOR Rate Loan. If a LIBOR Rate Loan, then the requested LIBOR Interest Period is ______________. Capitalized terms used in this Borrowing Request, unless otherwise defined herein, shall have the meaning set forth in the Loan Agreement.

Borrower hereby represent and warrant to Lenders as follows:

a.There exists no Default or Event of Default under the Loan Agreement.

b.All representations, warranties and covenants made in the Loan Agreement are true and correct as of the date hereof.

c.The aggregate principal amount of all Advances outstanding under the Revolving Credit, after giving effect to this request are $_____________.

d.The number of LIBOR Rate Loans after giving effect to this Advance request will be ____ (may not exceed four).

RESOURCE AMERICA, INC.

By:

Name:

Title:

Exhibit C - Form of Borrowing Base Certificate

BORROWING BASE CERTIFICATE #___________

Dated:_________________

To induce Lenders, as defined in the Loan Agreement (as defined below), to make Advances under the Revolving Credit established pursuant to a Loan Agreement dated August ___, 2006, among Commerce Bank, N.A., as agent and issuing bank, Borrower and Lenders, and any amendments thereto (herein called the "Agreement"), Borrower hereby certifies, as of the date above, as follows (capitalized terms, used without further definition herein, shall have the meanings set forth in the Loan Agreement):

1.The Borrowing Base, determined in accordance with the Agreement, is as follows:

a.Market value of Collateral$___________

b.80% of Item (a)                                                                                      $

c.Maximum Revolving Credit Amount                                                  $

d.Borrowing Base - lesser of item (b) or (c)                                       $

e.Current outstanding amount of Advances

(Prior to requested Advance)                                                  $

f.Plus: Advance Request                                                                        $

g.Sum of item (e) plus (f)                                                                         $

h.Excess availability /(overadvance)*                                                  $

*Calculated by the Borrowing Base (d)

minus item (g).

(2)Borrower hereby certifies that there is no Default or Event of Default outstanding under the Agreement.

(3)Borrower hereby certifies that the information contained herein is true and correct.

Resource America, Inc.

By:_______________________________

Name:

Title:

Exhibit D - Form of Compliance Certificate

____________, 200__

Commerce Bank, N.A.

Attn: Gerard Grady

1701 Route 70 East

Cherry Hill, NJ 08034

The undersigned, an Authorized Officer of Resource America, Inc. ("Borrower"), gives this certificate to Commerce Bank, N.A. ("Agent"), in accordance with the requirements of Section 6.10 of that certain Loan Agreement dated August ___, 2006, by and among Agent, Borrower, and Lenders ("Loan Agreement"). Capitalized terms used in this Certificate, unless otherwise defined herein, shall have the meanings set forth in the Loan Agreement.

1.Based upon my review of the consolidated balance sheets and statements of income of Borrower for the fiscal period ending _____________, 2006, copies of which are attached hereto, I hereby certify that:

a.Borrower's Net Worth is ;

b.Borrower's Senior Debt to Net Worth Ratio is ;

Attached as Schedule "A" are the details underlying such financial covenant calculations.

2.No Default exists on the date hereof, other than: ____________________ [if none, so state]; and

3.No Event of Default exists on the date hereof, other than: __________________ [if none, so state].

RESOURCE AMERICA, INC.

By:

Name:

Title:

SCHEDULE A

Lenders	Pro Rata Percentage	Pro Rata Share
Commerce Bank, N.A.	100%	25,000,000

SCHEDULE B

Commerce Bank, N.A.

1701 Route 70 East

Cherry Hill, NJ 08034

Attn:Mr. Gerard Grady

Telecopy: (856) 751-6884

EX-21.1

EXHIBIT 21.1

RESOURCE AMERICA, INC.

LIST OF SUBSIDIARIES

Resource Financial Fund Management, Inc.

Trapeza Capital Management, LLC

Trapeza Manager, Inc.

Trapeza Funding, LLC

Trapeza Funding II, LLC⁾

Trapeza Funding III, LLC

Trapeza Funding IV, LLC

Trapeza Funding V, LLC

Trapeza TPS, LLC

Trapeza Management Group, LLC

Structured Finance Fund GP, LLC

Structured Finance Management, LLC

Ischus Capital Management, LLC

Apidos Capital Management, LLC

Resource Capital Manager, Inc.

Resource Financial Institutions Group, Inc.

Axios Capital Management, LLC

Resource Credit Partners, L.P.

Resource Credit Partners GP, Inc.

Resource Credit Management, LLC

RAI Ventures, Inc.

Chadwick Securities, Inc.

Resource Europe Management Ltd.

Resource Capital Investor, Inc.

Resource Leasing, Inc.

FLI Holdings, Inc.

LEAF Financial Corporation

LEAF Capital Management, Inc.

LEAF Asset Management, LLC

LEAF Asset Management, Inc.

Lease Equity Appreciation Fund I L.P.

LEAF Fund I, LLC

Lease Equity Appreciation Fund II, L.P.

LEAF Fund II, LLC

LEAF Funding, Inc.

LEAF Institutional Direct Management, LLC

Resource Real Estate Holdings, Inc.

Resource Real Estate, Inc.

Resource Real Estate Funding, Inc.

Resource Capital Partners, Inc.

Resource Real Estate Management, LLC

SR Real Estate Partners, LLC

RCP Nittany Pointe Manager, Inc.

RCP Chinoe Creek Manager, Inc.

RCP Fountains GP, Inc.

RCP Portland Courtyard Manager, Inc.

RCP Albuquerque Manager, Inc.

RCP Avalon Manager, Inc.

RCP Falls at Duraleigh Manager, Inc.

RCP Sage Canyon Manager, Inc.

RCP Cuestas Manager, Inc.

RCP Holdco I Manager, Inc.

RCP Reserves Manager, Inc.

RCP Foxglove Manager, Inc.

RCP Santa Fe Manager, Inc.

RCP Regents Center Manager, Inc.

RCP Highland Lodge Manager, Inc.

RCP Reserves Holdings Manager, Inc.

RCP Grove Manager, LLC

RCP Howell Bridge Manager, Inc.

RCP Howell Bridge Holdings, LLC

RRE Bentley Place Holdings, LLC

RRE Bentley Place TIC, LLC

RRE Reserves TIC, LLC

RRE Reserves Holdings, LLC

RRE Highland Lodge TIC, LLC

RCP Reserves Holdco I Manager, Inc.

RRE Regents Center TIC, LLC

RRE Grove Holdings, L.P.

RRE Regents Center Holdings, LLC

Resource RSI Phase I, LLC

Resource RSI Phase II, LLC

Resource Asset Management, Inc.

Resource Properties II, Inc.

Resource Properties IV, Inc.

Resource Properties VI, Inc.

Resource Properties VIII, Inc.

Resource Properties XII, Inc.

Resource Properties XIV, Inc.

Resource Properties XV, Inc.

Resource Properties XVII, Inc.

Resource Properties XVIII, Inc.

Resource Properties XX, Inc.

Resource Properties XXII, Inc.

Resource Properties XXIII, Inc.

Resource Properties XXIV, Inc.

Resource Properties XXV, Inc.

Resource Properties XXVI, Inc.

Resource Properties XXVII, Inc.

Resource Properties XXVIII, Inc.

Resource Properties XXIX, Inc.

Resource Properties XXX, Inc.

Resource Properties XXXI, Inc.

Resource Properties XXXII, Inc.

Resource Properties XXXIII, Inc.

Resource Properties XXXIV, Inc.

Deerfield RPI, LLC

Resource Properties XXXV, Inc.

Resource Properties XXXVI, Inc.

Resource Properties XXXVIII, Inc.

Resource Properties XL, Inc.

Resource Properties XLI, Inc.

Resource Properties XLII, Inc.

Resource Properties XLIV, Inc.

Resource Properties XLVI, Inc.

Resource Properties XLVII, Inc.

Resource Properties XLIX, Inc.

Resource Properties 50, Inc.

Resource Properties 51, Inc.

Resource Properties 52, Inc.

Resource Properties 53, Inc.

Resource Properties 54, Inc.

CP/GP, Inc.

Chesterfield Mortgage Investors, Inc.

RAI Financial, Inc.

Resource Commercial Mortgages, Inc.

Resource Financial Services, Inc.

Resource Housing Investors I, Inc.

Resource Housing Investors II, Inc.

Resource Housing Investors III, Inc.

Resource Housing Investors IV, Inc.

Resource Programs, Inc.

RCP Financials, LLC

RCP Partners, L.P.

Resource Rittenhouse, Inc.

WS Mortgage Acquisition Corporation

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have issued our reports dated December 8, 2006, accompanying the consolidated financial statements and schedules and management's assessment of the effectiveness of internal control over financial reporting included in the Annual Report of Resource America, Inc. on Form 10-K for the year ended September 30, 2006. We hereby consent to the incorporation by reference of said reports in the Registration Statement of Resource America, Inc. on Forms S-8 (File No. 333126344, effective July 1, 2005, File No. 333105615, effective May 28, 2003, File Nos. 33398505 and 33398507, effective August 22, 2002, File No. 33381420, effective January 25, 2002 and File No. 33337416, effective May 19, 2000).

/s/ GRANT THORNTON LLP

Cleveland, Ohio

December 8, 2006

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Jonathan Z. Cohen, certify that:

1)   I have reviewed this report on Form 10-K for the fiscal year ended September 30, 2006 of Resource America, Inc.;

2)   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3)   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4)   The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)   Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)   Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5)   The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:   December 14, 2006	By:	/s/ Jonathan Z. Cohen
		Jonathan Z. Cohen
		Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Steven J. Kessler, certify that:

1)   I have reviewed this report on Form 10-K for the fiscal year ended September 30, 2006 of Resource America, Inc.;

2)   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3)   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4)   The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)   Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)   Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5)   The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  December 14, 2006	By:	/s/ Steven J. Kessler
		Steven J. Kessler
		Executive Vice President and Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Resource America, Inc. (the "Company") on Form 10-K for the fiscal year ended September 30, 2006 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Jonathan Z. Cohen, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)   The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, and

(2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: December 14, 2006	By:	/s/ Jonathan Z. Cohen
		Jonathan Z. Cohen
		Chief Executive Officer

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Resource America, Inc. (the "Company") on Form 10-K for the fiscal year ended September 30, 2006 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Steven J. Kessler, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)   The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: December 14, 2006	By:	/s/ Steven J. Kessler
		Steven J. Kessler
		Executive Vice President and Chief Financial Officer