<PAGE> 1
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED: MAY 31, 1998.
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____
COMMISSION FILE NUMBER:0-21689
MEGO MORTGAGE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 88-0286042
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1000 PARKWOOD CIRCLE, SUITE 500, ATLANTA, GEORGIA 30339
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(770) 952-6700
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant(1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES/X/NO//
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of August 25, 1998, there were 30,566,667 shares of Common Stock,
$.01 par value per share, of the Registrant outstanding.
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<PAGE> 2
MEGO MORTGAGE CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
----
PART I FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Condensed Financial Statements (unaudited)
Condensed Statements of Financial Condition at
August 31, 1997 and May 31, 1998...................................................................1
Condensed Statements of Operations for the Three and Nine Months Ended
May 31, 1997 and 1998 ............................................................................2
Condensed Statements of Cash Flows for the Nine Months Ended
May 31, 1997 and 1998 .............................................................................3
Condensed Statements of Stockholders' Equity (Deficit) for the Nine Months Ended
May 31, 1998 ......................................................................................4
Notes to Condensed Financial Statements............................................................5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.........................................................................15
PART II OTHER INFORMATION
Item 1. Legal Proceedings.................................................................................34
Item 4. Results of Votes of Security Holders..............................................................34
Item 5. Other.............................................................................................34
Item 6. Exhibits and Reports on Form 8-K..................................................................35
SIGNATURE ..................................................................................................37
</TABLE>
i
<PAGE> 3
MEGO MORTGAGE CORPORATION
CONDENSED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
May 31,
August 31, 1998
1997 (unaudited)
---------- -----------
(thousands of dollars, except
per share amounts)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 6,104 $ 13,130
Cash deposits, restricted 6,890 6,345
Loans held for sale, net of allowance for credit losses of $100 at August 31,
1997 and $1,407 at May 31, 1998 and net of lower of cost or market allowance
of $0 at August 31, 1997 and $9,561 at May 31, 1998 9,523 17,297
Mortgage related securities, at fair value 106,299 65,841
Mortgage servicing rights 9,507 6,329
Other receivables 7,945 3,644
Property and equipment, net of accumulated depreciation of $675 and $1,221 2,153 1,630
Organizational costs, net of amortization 289 145
Prepaid debt expenses 2,362 4,565
Prepaid commitment fee 2,333 --
Deferred state income tax asset -- 2,157
Other assets 795 356
--------- ---------
TOTAL ASSETS $ 154,200 $ 121,439
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Liabilities:
Notes and contracts payable $ 35,572 $ 31,274
Accounts payable and accrued liabilities 17,858 27,755
Allowance for credit losses on loans sold with recourse 7,014 8,022
State income taxes payable 649 --
--------- ---------
Total liabilities 61,093 67,051
Subordinated debt 40,000 80,343
--------- ---------
Stockholders' equity (deficit):
Preferred Stock, $.01 par value per share
(Authorized--5,000,000 shares) -- --
Common Stock, $.01 par value per share
(Authorized--50,000,000 shares;
Issued and outstanding--12,300,000 at August 31, 1997 and May 31, 1998 123 123
Additional paid-in capital 29,185 36,823
Retained earnings (accumulated deficit) 23,799 (62,901)
--------- ---------
Total stockholders' equity (deficit) 53,107 (25,955)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 154,200 $ 121,439
========= =========
</TABLE>
See notes to condensed financial statements.
1
<PAGE> 4
MEGO MORTGAGE CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
May 31, May 31,
---------------------------- ----------------------------
1997 1998 1997 1998
------------ ------------ ------------ ------------
(thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C>
REVENUES:
Gain (loss) on sale of loans $ 13,226 $ (17,371) $ 28,650 $ (15,562)
Net unrealized gain (loss) on mortgage related securities 2,305 (27,360) 5,213 (44,120)
Loan servicing income (loss), net 726 (1,367) 1,924 1,137
Interest income 2,911 4,026 5,940 13,201
Less: interest expense (1,774) (3,894) (3,922) (11,175)
------------ ------------ ------------ ------------
Net interest income 1,137 132 2,018 2,026
------------ ------------ ------------ ------------
Net revenues (losses) 17,394 (45,966) 37,805 (56,519)
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Net provision for credit losses 4,107 108 5,018 2,404
Depreciation and amortization 173 338 469 844
Other interest 122 103 220 330
General and administrative:
Payroll and benefits 3,351 4,185 8,490 14,925
Professional services 505 1,101 1,496 3,637
Sub-servicing fees 523 524 1,180 1,795
Other services 324 479 831 1,615
Rent and lease expenses 313 408 815 1,118
Travel 248 212 716 967
Credit reports 352 8 885 474
FHA insurance 136 192 414 335
Other 349 537 919 1,737
------------ ------------ ------------ ------------
Total costs and expenses 10,503 8,195 21,453 30,181
------------ ------------ ------------ ------------
Income (Loss) Before Income Taxes 6,891 (54,161) 16,352 (86,700)
Income Taxes 2,619 -- 6,230 --
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 4,272 $ (54,161) $ 10,122 $ (86,700)
============ ============ ============ ============
EARNINGS (LOSS) PER COMMON SHARE:
Basic:
------
Net income (loss) $ 0.35 $ (4.40) $ 0.87 $ (7.05)
============ ============ ============ ============
Weighted-average number of common shares outstanding 12,300,000 12,300,000 11,634,432 12,300,000
============ ============ ============ ============
Diluted:
--------
Net income (loss) $ 0.35 $ (4.40) $ 0.86 $ (7.05)
============ ============ ============ ============
Weighted-average number of common shares
and common share equivalents outstanding 12,379,368 12,300,000 11,723,630 12,300,000
============ ============ ============ ============
</TABLE>
See notes to condensed financial statements.
2
<PAGE> 5
MEGO MORTGAGE CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended May 31,
-------------------------
1997 1998
----------- -----------
(thousands of dollars)
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $ 10,122 $ (86,700)
--------- ---------
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Additions to mortgage servicing rights (5,538) (3,529)
Write-off of mortgage servicing rights -- 3,804
Net unrealized (gain) loss on mortgage related securities (5,213) 44,120
Additions to mortgage related securities (50,185) --
Adjustments to mortgage related securities -- 1,869
Net provisions for estimated credit losses 5,018 2,404
Depreciation and amortization expense 469 844
Amortization of prepaid debt expense 337 1,142
Amortization and write-off of prepaid commitment fee 513 4,333
Amortization of mortgage servicing rights 1,642 2,903
Accretion of residual interest on mortgage related securities (2,684) (7,295)
Payments on mortgage related securities 815 974
Amortization of mortgage related securities 956 790
Additions to deferred loan fees, net (325) (10,826)
Additions to prepaid debt expenses, net -- (1,318)
Additions to prepaid commitment fee, net -- (2,000)
Loans originated for sale, net of loan fees (347,661) (337,050)
Payments on loans held for sale 164 1,896
Proceeds from sale of loans 326,617 336,745
Changes in operating assets and liabilities:
(Increase) decrease in cash deposits, restricted (1,613) 545
(Increase) decrease in other assets, net (1,324) 4,664
Increase in state income taxes payable (708) (649)
Increase in deferred state income tax asset -- (2,157)
(Decrease) increase in other liabilities, net (3,487) 17,557
--------- ---------
Total adjustments (82,207) 59,766
--------- ---------
Net cash used in operating activities (72,085) (26,934)
--------- ---------
Cash Flows From Investing Activities:
Purchase of property and equipment (1,477) (58)
Proceeds from sale of property and equipment 5 --
--------- ---------
Net cash used in investing activities (1,472) (58)
--------- ---------
Cash Flows From Financing Activities:
Proceeds from borrowings on notes and contracts payable 309,562 333,899
Payments on notes and contracts payable (290,922) (338,197)
Proceeds from issuance of subordinated debt, net 37,750 38,373
Proceeds from sale of common stock 20,658 --
Amortization of premium of subordinated debt -- (57)
--------- ---------
Net cash provided by financing activities 77,048 34,018
--------- ---------
Net Increase in Cash and Cash Equivalents 3,491 7,026
Cash and Cash Equivalents--Beginning of Period 443 6,104
--------- ---------
Cash and Cash Equivalents--End of Period $ 3,934 $ 13,130
========= =========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ 1,470 $ 4,997
========= =========
State income taxes $ 1,691 $ 504
========= =========
Supplemental Disclosure of Non-Cash Activities:
Addition to prepaid commitment fee and other liabilities in
connection with loan sale commitment received $ 3,000 $ --
========= =========
Increase in deferred federal income tax asset related to Spin-off $ -- $ 2,354
========= =========
Increase in additional paid-in capital related to settlement
of amount payable related to Spin-off $ -- $ 5,284
========= =========
</TABLE>
See notes to condensed financial statements.
3
<PAGE> 6
MEGO MORTGAGE CORPORATION
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Stock Retained
$.01 par value Additional Earnings
-------------------------- Paid-In (Accumulative
Shares Amount Capital Deficit) Total
---------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
(thousands of dollars, except per share amounts)
Balance at August 31, 1997 12,300,000 $ 123 $ 29,185 $ 23,799 $ 53,107
Increase in additional paid-in capital due to
adjustment of deferred federal income tax
asset related to Spin-off -- -- 2,354 -- 2,354
Increase in additional paid-in capital due to
settlement of amount payable to
Mego Financial Corp. related to Spin-off
(see Note 7 of Notes to Condensed Financial
Statements) -- -- 5,284 -- 5,284
Net loss for the nine months ended
May 31, 1998 -- -- -- (86,700) (86,700)
---------- ------------ ------------ ------------ ------------
Balance at May 31, 1998 (unaudited) 12,300,000 $ 123 $ 36,823 $ (62,901) $ (25,955)
========== ============ ============ ============ ============
</TABLE>
See notes to condensed financial statements.
4
<PAGE> 7
MEGO MORTGAGE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED MAY 31, 1997 AND 1998
1. CONDENSED FINANCIAL STATEMENTS
In the opinion of management, when read in conjunction with the audited
Financial Statements for the years ended August 31, 1996 and 1997, contained in
the Form 10-K of Mego Mortgage Corporation filed with the Securities and
Exchange Commission for the year ended August 31, 1997, the accompanying
unaudited Condensed Financial Statements contain all of the information
necessary to present fairly the financial position of Mego Mortgage Corporation
at May 31, 1998, the results of its operations for the three and nine months
ended May 31, 1997 and 1998, the change in stockholders' equity (deficit) for
the nine months ended May 31, 1998 and the cash flows for the nine months ended
May 31, 1997 and 1998. Certain reclassifications, including the reclassification
of commission and selling expenses of $675,000 and $493,000 for the quarters
ended May 31, 1997 and 1998, respectively, and $1.9 million and $1.7 million for
the nine months ended May 31, 1997 and 1998, respectively, into their component
expense categories within general and administrative expenses, have been made to
conform prior periods with the current period presentation. On June 1, 1998,
$9.5 million of the $13.1 million of cash and cash equivalents shown on the
Company's Statement of Financial Condition was utilized to reduce the Company's
indebtedness.
The preparation of financial statements in conformity with generally
accepted accounting principles ("GAAP") requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. In the
opinion of management, all material adjustments necessary for the fair
presentation of these statements have been included herein, which are normal and
recurring in nature. The results of operations for the three and nine months
ended May 31, 1998 are not necessarily indicative of the results to be expected
for the full year.
The Company records gain on sale of loans as required by Statement of
Financial Accounting Standards No. 125 ("SFAS 125") which, among other things,
requires management to estimate the fair value of certain mortgage related
securities and servicing assets utilizing future prepayment and loss
assumptions. Such assumptions will differ from actual results and the difference
could be material. Management utilizes assumptions based on a variety of factors
including historical trends, consultation with its financial advisors, and
assumptions utilized by its peers. Historical trends may not be an indication of
future results which may be affected by changes in interest rates, credit
quality, availability of alternative financing options, and general economic
conditions. The application of SFAS 125 is required for all entities with
certain mortgage banking activities including originators and sellers of
mortgage loans. Management believes that its assumptions are similar to those
utilized by other subprime mortgage loan originators.
2. NATURE OF OPERATIONS
Mego Mortgage Corporation (the "Company") was incorporated on June 12,
1992, in the state of Delaware. The Company, through its wholesale and retail
divisions, is primarily engaged in the business of originating, selling,
servicing and pooling home improvement and debt consolidation loans, certain of
which qualify under the provisions of Title I of the National Housing Act which
is administered by the U.S. Department of Housing and Urban Development ("HUD").
Pursuant to the Title I credit insurance program, 90% of the principal balances
of the loans are U.S. government insured ("Title I Loans"), with cumulative
maximum coverage equal to 10% of all Title I Loans originated by the Company. At
May 31, 1998, as a result of prior claims, no FHA insurance remained with
respect to the Company's portfolio of Title I Loans. In May 1996, the Company
commenced the origination of conventional home improvement loans and debt
consolidation loans ("Conventional Loans"), which generally are secured by
residential real estate, through its network of mortgage bankers and dealers. In
December 1997, the Company commenced the origination of subprime conventional
residential First
5
<PAGE> 8
MEGO MORTGAGE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
FOR THE THREE AND NINE MONTHS ENDED MAY 31, 1997 AND 1998
Mortgage Loans ("First Mortgage Loans"). During the nine months ended May 31,
1998, the Company's loan originations were comprised of 92.0% Conventional
Loans, 5.5% Title I Loans and 2.5% First Mortgage Loans.
The Company was formed as a wholly owned subsidiary of Mego Financial
Corp. ("Mego Financial") and remained so until November 1996, when the Company
issued 2.3 million shares of its common stock, $.01 par value per share (the
"Common Stock"), in an underwritten public offering (the "IPO") at $10.00 per
share. As a result of this transaction, Mego Financial's ownership in the
Company was reduced from 100% at August 31, 1996 to 81.3%. Concurrently with the
IPO, the Company issued $40.0 million of 12.5% senior subordinated notes due in
2001 (the "1996 Notes") in an underwritten public offering. On September 2,
1997, Mego Financial distributed all of its 10 million shares of the Company's
Common Stock to Mego Financial shareholders in a tax-free spin-off (the
"Spin-off"). In October 1997, the Company issued an additional $40.0 million of
12.5% senior subordinated notes due in 2001 (the "Additional Notes", and
together with the 1996 Notes, the "Old Notes") in a private placement (the "1997
Private Placement"). See Note 9. The proceeds from the sale of the Old Notes
were used by the Company to repay borrowings, including borrowings from Mego
Financial, and to provide funds for loan originations, the securitizations of
loans and working capital.
The Company has historically operated on a negative cash flow basis. During
the years ended August 31, 1996 and 1997 and the six months ended February 28,
1997 and 1998, the Company, primarily due to a substantial increase in loans
originated and sold, used $15.3 million, $70.4 million, $39.6 million and $59.5
million of cash, respectively, principally funded from borrowings. As a result
of a $32.5 million loss recognized for the six months ended February 28, 1998,
and due to the fact that the Company was not in compliance with certain
provisions of its warehouse and other debt agreements, the Company was
restricted in its ability to incur additional indebtedness. As a consequence of
its inability to incur additional indebtedness, the Company was required to
reduce substantially its loan originations and to liquidate its portfolio of
loans in order to raise cash to operate. In addition, the Company determined to:
(i) seek new financing which resulted, in July 1998, in a recapitalization of
the Company (see Note 3) and (ii) change in the manner in which it conducts its
operations.
The Company's future operations will focus, among other things, on: (i)
increasing its sales of whole loans in the secondary market on a servicing
released or servicing retained basis for cash premiums and reducing its reliance
on securitizations as a method to sell loans; (ii) implementing additional cost
saving measures beyond the recent internal restructuring which resulted in a
reduction of approximately 32% of its workforce; (iii) offering new
complementary loan products and increasing the origination of non-conforming
First Mortgage Loans; (iv) continuing to diversify its loan production channels
by increasing its direct loan originations through its own efforts and through
the acquisition of originators of retail mortgage loans; and (v) completing the
restructuring of the Company's Board of Directors and recruiting additional
executive management personnel.
The Company's operations are sensitive to increases in interest rates
and to inflation. Increased borrowing costs resulting from increases in interest
rates may not be immediately recoverable from perspective borrowers. The
Company's loans held for sale consist primarily of fixed-rate, long term
obligations the interest rates of which do not increase or decrease as a result
of changes in interest rates charged to the Company. In addition, delinquency
and loss exposure may be affected, among other things, by changes in the
national economy.
6
<PAGE> 9
MEGO MORTGAGE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
FOR THE THREE AND NINE MONTHS ENDED MAY 31, 1997 AND 1998
3. SUBSEQUENT EVENTS
Recapitalization
In an effort to accomplish its strategic goals and return itself to a
strong financial position, on July 1, 1998, the Company completed a series of
transactions to recapitalize the Company (the "Recapitalization"). Pursuant to
the Recapitalization, the Company raised approximately $87.5 million of new
equity. Two strategic partners, City National Bank of West Virginia ("City
National Bank"), a wholly owned subsidiary of City Holding Company ("City
Holding Company"), and Sovereign Bancorp, Inc. ("Sovereign") each purchased
10,000 shares of the Company's newly-designated Series A Convertible Preferred
Stock (the "Preferred Stock") at a purchase price of $1,000 per share. City
National Bank and Sovereign each have been granted an option, which expires in
December 2000, to acquire 6.67 million shares of the Company's Common Stock at
$1.50 per share (the "Option"). Each share of Preferred Stock is convertible
into 666.67 shares of Common Stock, subject to adjustment, 180 days after their
date of issuance. The Preferred Stock will be mandatorily converted into Common
Stock on June 18, 2000. City National Bank and Sovereign each has a right of
first refusal to purchase the Company in the event the Company's Board of
Directors determines to sell the Company. In addition, other private investors
purchased an aggregate of 5,000 shares of Preferred Stock at a purchase price of
$1,000 per share and 16.67 million shares of Common Stock at a purchase price of
$1.50 per share. All of the foregoing sales were made pursuant to private
placements.
As part of the Recapitalization, the Company completed an offer to
exchange (the "Exchange Offer") new subordinated notes and Preferred Stock,
subject to certain limitations, for any and all of the outstanding $80.0 million
principal amount of the Company's Old Notes. Pursuant to the Exchange Offer, the
Company issued approximately 37,500 shares of Preferred Stock at an issuance
price of $1,000 per share and $41.5 million principal amount of new 12 1/2%
Subordinated Notes due 2001 (the "New Notes") in exchange for approximately
$79.0 million of Old Notes. Less than $1.0 million principal amount of the Old
Notes remain outstanding. The net proceeds of the Recapitalization in the amount
of $40.3 million were used to repay indebtedness including $1.6 million to Mego
Financial, pay interest of $5.1 million on the Old Notes, to provide capital to
originate loans and for other general corporate purposes.
Upon completion of the Recapitalization, Jerome J. Cohen, Robert
Nederlander, Herbert B. Hirsch and Don A. Mayerson resigned as directors of the
Company and Edward B. "Champ" Meyercord was elected the Company's Chairman of
the Board of Directors and Chief Executive Officer. Mr. Meyercord has been a
special consultant to the Company since May 1998. City National Bank and
Sovereign each have the right to nominate one board member and each may nominate
an additional board member if they exercise their Option. The holders of the New
Notes and two private investors each have the right to nominate one board
member. City National Bank, the holders of the New Notes and one of the two
private investors each has nominated one member to the Company's Board of
Directors. Sovereign and the other private investor have not exercised their
right to nominate a board member but alternatively have exercised their right to
have a representative to attend each board meeting. See Item 5 "Other."
Financing Arrangements
The Company has executed a new warehouse line of credit for up to $90.0
million with Sovereign (the "Sovereign Warehouse Line") which replaced the
Company's existing warehouse line of credit which matured on May 29, 1998 and
was repaid in full on June 29, 1998. The Sovereign Warehouse Line is renewable,
at Sovereign's option, at six-month intervals, for up to five years, may be
increased with certain consents, and contains pricing/fees which vary by product
and the dollar amount outstanding. The Sovereign Warehouse Line is to be secured
by specific loans held for sale. If the Company determines to seek additional
warehouse financing, Sovereign has a right of first refusal to provide such
additional financing at market rates.
7
<PAGE> 10
MEGO MORTGAGE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
FOR THE THREE AND NINE MONTHS ENDED MAY 31, 1997 AND 1998
The Company currently has four significant sources of financing and
liquidity: (i) $40.3 million in net proceeds from the sale of Preferred and
Common Stock in the Recapitalization; (ii) the Sovereign Warehouse Line of $90.0
million; (iii) a revolving line of credit for up to $25.0 million, less amounts
outstanding under repurchase agreements (the "First Revolving Credit Facility")
which expires on December 31, 1998; and (iv) a second revolving credit facility
for up to $5.0 million which may, under certain circumstances, be increased to
$8.8 million (the "Second Revolving Credit Facility"). Each of the First and
Second Revolving Credit Facilities are secured by certain of the Company's
mortgage related securities. The Flow Purchase Agreement (as defined below)
provides the Company with an additional source of liquidity. The Company
believes that its financing sources are adequate to meet its current needs.
As a result of the losses the Company recognized during the nine months
ended May 31, 1998 and at May 31, 1998, the Company was not in compliance with
certain provisions of: (i) its then existing warehouse line of credit; (ii) the
pledge and security agreement, as amended, governing the First Revolving Credit
Facility; (iii) the Second Revolving Credit Facility; and (iv) the indenture
(the "Indenture") governing the Old Notes. Specifically, its then existing
warehouse line of credit agreement required the Company to maintain: (i) funded
debt (as defined therein) not to exceed a calculated maximum, and at May 31,
1998, funded debt exceeded the calculated maximum by $17.5 million; and (ii) a
minimum tangible net worth requirement (as defined therein) and at May 31, 1998,
tangible net worth was $61.7 million below the minimum. The pledge and security
agreement governing the First Revolving Credit Facility requires the Company to
maintain: (i) a minimum net worth (as defined therein) of $42.5 million and at
May 31, 1998, net worth was a deficit of $27.0 million; and (ii) a ratio of
debt-to-net worth not to exceed 2.5:1, and at May 31, 1998, the ratio of
debt-to-net worth was incalculable due to the deficit in Stockholders' equity.
The Second Revolving Credit Facility requires the Company to maintain a minimum
net worth (as defined therein) and at May 31, 1998, the calculated net worth was
$22.8 million below the requirement. The indenture governing the Old Notes
requires the Company, in order to incur additional indebtedness, to maintain:
(i) a minimum net worth (as defined therein) and (ii) a maximum consolidated
leverage ratio (as defined therein) not to exceed 2:1 and at May 31, 1998,
neither ratio was calculable due to the deficit in Stockholders' equity.
The Company's then existing warehouse line of credit matured on May 29,
1998 and was repaid, in full, on June 29, 1998. The First Revolving Credit
Facility's requirement of: (i) a minimum net worth of $42.5 million which, prior
to the Recapitalization, the Company's net worth was a deficit of $27.0 million,
and after giving effect to the Recapitalization, net worth was $60.3 million;
and (ii) the ratio of debt-to-net worth is not to exceed 2.5:1 which, prior to
the Recapitalization, the ratio was incalculable due to the deficit in
Stockholders' equity and after giving effect to the Recapitalization, the ratio
is 1.7:1. The Second Revolving Credit Facility's requirement of net worth was,
prior to the Recapitalization, $22.8 million below the minimum, and after giving
effect to the Recapitalization, was $26.9 million above the minimum. The
Indenture governing the Old Notes requirements of minimal net worth and a
maximum consolidated leverage ratio were incalculable prior to the
Recapitalization due to the deficit in Stockholders' equity and, after giving
effect to the Recapitalization, net worth exceeded the minimum required by $55.6
million and the consolidated leverage ratio was 1.4:1 which is below the 2:1
maximum.
Flow Purchase Agreement
As part of the Recapitalization, the Company entered into a flow
purchase commitment (the "Flow Purchase Agreement") with Sovereign Bank, a
wholly-owned subsidiary of Sovereign ("Sovereign Bank"), pursuant to which
Sovereign Bank has agreed to purchase up to $400.0 million per year of the
Company's high loan-to-value loans at specified prices. Up to $200.0 million of
the $400.0 million can be loans, the principal amount of which, when added to
the outstanding senior debt on the property, will not exceed 125% of the
property's market value. Sovereign Bank also has a right of first refusal to
acquire certain non-conforming loans originated by the Company at market prices
and terms. The Flow Purchase Agreement expires in September 2001.
8
<PAGE> 11
MEGO MORTGAGE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
FOR THE THREE AND NINE MONTHS ENDED MAY 31, 1997 AND 1998
Termination of Master Purchase Agreement
As part of the Recapitalization and concurrent with the execution of
the Flow Purchase Agreement with Sovereign, the Company terminated its existing
master purchase agreement with a financial institution which had provided for
such financial institution to purchase up to $2.0 billion of loans over a
five-year period ending in September 2001. In connection with the termination of
this master purchase agreement, the remaining unamortized prepaid commitment
fees associated with the master purchase agreement, totaling approximately $3.6
million, were written-off and are reflected as a charge to earnings as a loss on
the sale of loans in the Company's Statement of Operations.
Servicing Agreements
As part of the Recapitalization, the Company sold to City Mortgage
Services ("City Mortgage Services"), a division of City National Bank, its
existing mortgage servicing rights (the "Bulk Servicing Purchase Agreement") for
a cash purchase price equal to 90% of the book value of such rights at time of
transfer. The Company is committed to sell approximately $6.3 million of its
existing mortgage servicing rights resulting in a loss on this transaction of
approximately $703,000 which is reflected as a charge to earnings in the
Company's Statement of Operations. Additionally, the Company and City Mortgage
Services have entered into an agreement for City Mortgage Services to service
all of the Company's mortgage loans held for sale and loans sold on a servicing
retained basis by the Company (the "Flow Servicing Agreement"). The Company has
an option, contingent upon the delivery to City Mortgage Services of servicing
on $1.0 billion of additional loans, to purchase up to a 20% equity position in
a new entity to be created should City National Bank determines to spin-off its
City Mortgage Services division. Upon completion of the transfer of servicing to
City Mortgage Services, the Company anticipates eliminating substantially its
entire collections and claims staff.
Summary Pro Forma Financial Data
The following summary financial data sets forth the assets, liabilities
and stockholders' equity (deficit) at May 31, 1998 and as
adjusted as of May 31, 1998 to give effect to the Recapitalization:
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
AS OF MAY 31, AS OF MAY 31,
1998 1998
------------- -------------
(thousands of dollars)
<S> <C> <C>
Assets $ 121,439 $ 162,081 (1)
Liabilities 67,051 57,251 (2)
Subordinated debt 80,343 42,843 (3)
Stockholders' equity (deficit)
Preferred stock -- 1 (4)
Common stock 123 306 (5)
Paid-in capital 36,823 124,581 (6)
Retained earnings (accumulated deficit) (62,901) (62,901)
Total stockholders' equity (deficit) (25,955) 61,987
Total liabilities and stockholders' equity (deficit) $ 121,439 $ 162,081
</TABLE>
(1) Assumes receipt of $50.0 million from the issuance of 25,000
shares of Preferred Stock at $1,000 per share and 16,666,667
shares of Common Stock at $1.50 per share, net of approximately
$2.4 million to repay in full its existing warehouse line,
approximately $5.1 million for interest on the Old Notes,
approximately $1.3 million to payoff a liability owed to a
subsidiary of Mego Financial, and the payment of approximately
$480,000 of expenses associated with the Recapitalization.
9
<PAGE> 12
MEGO MORTGAGE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
FOR THE THREE AND NINE MONTHS ENDED MAY 31, 1997 AND 1998
(2) Represents the payment of principal and interest on the warehouse
line, interest on the Old Notes and the payment and adjustment of
an amount owed to Mego Financial.
(3) Represents the effect of the exchange offer pursuant to which
$80.3 million principal and premium amount of Old Notes were
exchanged for $41.5 million principal amount of New Notes and
37,500 shares of Preferred Stock. Less than $1.0 million principal
amount of Old Notes remain outstanding.
(4) Represents the issuance of an aggregate of 62,500 shares of
Preferred Stock at $1,000 per share, 37,500 of which were issued
in exchange for $37.5 million principal amount of Old Notes and
the sale of 25,000 shares of Preferred Stock for cash.
(5) Represents the sale of an aggregate of 16,666,667 shares of Common
Stock at $1.50 per share for cash, and the issuance of an
additional 1,600,000 shares of Common Stock to the Company's
placement agent as compensation for its services related to the
Recapitalization.
(6) Represents the change to Paid-in capital from the adjustment of an
amount owed to Mego Financial and the issuance of Common and
Preferred Stock at a price above par.
4. WRITE-DOWN OF LOANS HELD FOR SALE
Pursuant to recourse provisions under certain loan sale agreements, the
Company was obligated to repurchase Conventional and Title I Loans with an
aggregate principal balance of approximately $15.4 million at May 31, 1998.
These loans, which are reflected in the Company's Statement of Financial
Condition under Loans Held for Sale, were valued utilizing the Company's
estimate of the price to be received upon their final disposition. Based on the
estimated price, a lower of cost or market allowance of $4.5 million was
recorded for the three month and nine month periods ended May 31, 1998, as a
charge to gain (loss) on sale of loans in the Company's Statement of Operations.
An additional lower of cost or market allowance of $5.2 million relating to the
$13.3 million principal balance of the Company's loans held for sale at May 31,
1998 was recorded for the three month and nine month periods ended May 31, 1998,
as a charge to gain (loss) on sale of loans in the Company's Statement of
Operations.
5. WRITE-DOWN OF MORTGAGE RELATED SECURITIES
Based on, among other things, delinquencies in the Company's
securitized portfolio of Conventional Loans that were higher than anticipated,
the Company, in consultation with its financial advisors, revised the loss
assumptions utilized to determine the cash flow anticipated to be received on
its mortgage related securities backed by these loans. On a cumulative basis,
the new assumptions project aggregate losses of approximately 14.5% of the
original portfolio loan balance as compared to approximately 9% under the
Company's prior assumptions. The Company also determined it appropriate to
increase from 12% to 14.5% the discount rate used to calculate the present value
of the cash flow anticipated to be received over the life of the loans.
During the three and nine months ended May 31, 1998, the Company
experienced higher than anticipated levels of loan delinquencies and higher than
anticipated levels of voluntary prepayments with respect to its Title I Loans,
resulting in a downward adjustment to the carrying value of the Company's
portfolio of mortgage related securities backed by Title I Loans.
Higher than anticipated levels of defaults on securitized loans and
loans in which the Company otherwise retains an interest reduces the aggregate
amount of excess cash flow from the loans backing these securities. The excess
cash flow that would have been distributed to the Company is instead distributed
to the holders of securities or other interests backed by the loans that are
senior to the Company's mortgage related securities backed by these Title I
Loans.
10
<PAGE> 13
MEGO MORTGAGE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
FOR THE THREE AND NINE MONTHS ENDED MAY 31, 1997 AND 1998
The application of the Company's revised prepayment and loss
assumptions and the increase in the discount rate which the Company uses to
calculate the present value of the cash flow the Company anticipated to be
received from the loans backing the Company's mortgage related securities,
resulted in a downward adjustment to the carrying value of the Company's
mortgage related securities of approximately $23.2 million and $38.7 million for
the three and nine month periods ended May 31, 1998. At May 31, 1998, mortgage
related securities were $65.8 million compared to $91.3 million at February 28,
1998, $94.3 million at November 30, 1997 and $106.3 million at August 31, 1997.
Changes in the methodology used in calculating the carrying value of
the Company's mortgage related securities are being implemented based on, among
other things, pertinent information received from a number of market sources,
consultations with the Company's financial advisors and management's belief as
to current market conditions. The Company's new assumptions with respect to
prepayments and defaults on the Company's portfolio of securitized Conventional
Loans do not reflect the actual performance to date of such loans.
6. WRITE-DOWN OF MORTGAGE SERVICING RIGHTS
Due to the implementation of the new methodology referred to above in
calculating the carrying value of its mortgage related securities, the carrying
value of the Company's mortgage servicing rights was negatively impaired by
approximately $1.1 million in the three and nine month periods ended May 31,
1998. This impairment was recorded as a loss on servicing revenue in the
Company's Statement of Operations.
As part of the Recapitalization, the Company entered into the Bulk
Servicing Purchase Agreement with City Mortgage Services for the sale of the
Company's mortgage servicing rights to City Mortgage Services. The terms of the
Bulk Servicing Purchase Agreement provide for a cash purchase price equal to 90%
of the book value of such rights at the time the transfer of servicing is
consummated. The Company incurred a loss on this transaction for the 10%
discount on the sale of such rights of approximately $703,000 and it will incur
an additional loss associated with an administration fee to be charged by City
Mortgage Services to service certain seriously delinquent loans. This adjustment
for the 10% discount was reflected in the three and nine month periods ended May
31, 1998 as a charge to earnings in the Company's Statement of Operations.
7. SETTLEMENT OF AMOUNT PAYABLE TO MEGO FINANCIAL CORP.
Prior to the Spin-off, the Company filed a consolidated federal income
tax return with Mego Financial's affiliated group under a Tax Allocation and
Indemnity Agreement dated November 19, 1996. In April 1998, Mego Financial
agreed to reduce the income tax portion of a payable that the Company owed Mego
Financial under such Tax Allocation and Indemnity Agreement by $5.3 million. As
part of the Recapitalization, the payment of approximately $869,000 owed at May
31, 1998 under the Tax Allocation and Indemnity Agreement to Mego Financial was
forgiven by Mego Financial. The $869,000 will be reflected as an addition to
Stockholders' equity (deficit) in the Company's fourth quarter.
8. RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities" ("SFAS No. 125") was issued by the
FASB in June 1996. SFAS No. 125 provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities.
This statement also provides consistent standards for distinguishing transfers
of financial assets that are sales from transfers that are secured borrowings.
It requires that liabilities and derivatives incurred or obtained by transferors
as part of a transfer of financial assets be initially measured at fair value.
SFAS No. 125 also requires that servicing assets be measured by allocating the
carrying amount between the assets sold and retained interests based on their
relative fair values at the date of transfer. Additionally, this statement
requires that the servicing assets and liabilities be subsequently measured by
(a) amortization in proportion to and over the period of estimated net servicing
income or loss and (b) assessment for asset impairment or increased obligation
based on their fair values. SFAS No. 125
11
<PAGE> 14
MEGO MORTGAGE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
FOR THE THREE AND NINE MONTHS ENDED MAY 31, 1997 AND 1998
requires the Company's excess servicing rights be measured at fair market value
and be reclassified as interest only receivables, carried as mortgage related
securities, and accounted for in accordance with SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." As required by SFAS No. 125,
the Company adopted the new requirements effective January 1, 1997, and applied
them prospectively. Implementation of SFAS 125 did not have any material impact
on the financial statements of the Company, as the book value of the Company's
mortgage related securities approximated fair value.
The following table reflects the components of mortgage related
securities as required by SFAS No. 125 at May 31, 1998 (thousands of dollars):
<TABLE>
<CAPTION>
<S> <C>
Interest only strip securities $ 3,783
Residual interest securities 55,654
Interest only receivables (formerly excess servicing rights) 6,404
-------
Total mortgage related securities $65,841
=======
</TABLE>
All mortgage related securities are classified as trading securities
and are recorded at their estimated fair value. Changes in the estimated fair
value are recorded in current operations. See Note 5.
SFAS No. 128, "Earnings per Share" ("SFAS No. 128"), was issued by the
FASB in March 1997, effective for financial statements issued after December 15,
1997. SFAS No. 128 provides simplified standards for the computation and
presentation of earnings per share ("EPS"), making EPS comparable to
international standards. SFAS No. 128 requires dual presentation of "Basic" and
"Diluted" EPS, by entities with complex capital structures, replacing "Primary"
and "Fully-diluted" EPS under Accounting Principles Board ("APB") Opinion No.
15.
Basic EPS excludes dilution from common stock equivalents and is
computed by dividing income (loss) available to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution from common stock equivalents, similar to fully
diluted EPS, but uses only the average stock price during the period as part of
the computation.
Data utilized in calculating earnings per share under SFAS 128 is as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MAY 31, MAY 31,
------------------------------ ---------------------------
1997 1998 1997 1998
------------ ------------ ------------ -------------
(thousands of dollars)
<S> <C> <C> <C> <C>
Basic:
- -----
Net income (loss) $ 4,272 $ (54,161) $ 10,122 $ (86,700)
============ ============ ============ ============
Weighted-average number of common shares
outstanding 12,300,000 12,300,000 11,634,432 12,300,000
============ ============ ============ ============
Diluted:
- -------
Net income (loss) $ 4,272 $ (54,161) $ 10,122 $ (86,700)
============ ============ ============ ============
Weighted-average number of common shares and
common share equivalents outstanding 12,379,368 12,300,000 11,733,630 12,300,000
============ ============ ============ ============
</TABLE>
12
<PAGE> 15
MEGO MORTGAGE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
FOR THE THREE AND NINE MONTHS ENDED MAY 31, 1997 AND 1998
The following tables reconcile the net income (loss) applicable to
common stockholders, basic and diluted shares, and EPS for the following
periods:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MAY 31, 1997 THREE MONTHS ENDED MAY 31, 1998
----------------------------------------- -----------------------------------------
PER SHARE PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------------- ------------- ------------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
(thousands of dollars, except per share amounts)
Net income (loss) $ 4,272 $ (54,161)
------------ --------------
BASIC EPS
Income (loss) applicable to
common stockholders 4,272 12,300,000 $ 0.35 (54,161) 12,300,000 $ (4.40)
============ ============
Effect of dilutive securities:
Stock options - 79,368 - -
------------ ------------ ------------- ------------
DILUTED EPS
Income (loss) applicable to
common stockholders and
assumed conversions $ 4,272 12,379,368 $ 0.35 $ (54,161) 12,300,000 $ (4.40)
============ ============ ============ ============== ============ ============
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED MAY 31, 1997 NINE MONTHS ENDED MAY 31, 1998
----------------------------------------- -----------------------------------------
PER-SHARE PER-SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------------- ------------- ------------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
(thousands of dollars, except per share amounts)
Net income (loss) $ 10,122 $ (86,700)
------------ -------------
BASIC EPS
Income (loss) applicable to
common stockholders 10,122 11,634,432 $ 0.87 (86,700) 12,300,000 $ (7.05)
============ ============
Effect of dilutive securities:
Stock options - 89,198 - -
------------ ------------ ------------- ------------
DILUTED EPS
Income (loss) applicable to
common stockholders and
assumed conversions $ 10,122 11,723,630 $ 0.86 $ (86,700) 12,300,000 $ (7.05)
============ ============ ============ ============= ============ ============
</TABLE>
In June 1997, the FASB issued Statement No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130"), and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS No. 131"). SFAS No.
130 establishes standards for reporting and display of comprehensive income and
its components in a full set of general-purpose financial statements. SFAS No.
131 establishes standards of reporting by publicly held business enterprises and
disclosure of information about operating segments in annual financial
statements and, to a lesser extent, in interim financial reports issued to
shareholders. SFAS Nos. 130 and 131 are effective for fiscal years beginning
after December 15, 1997. As both SFAS Nos. 130 and 131 deal with financial
statement disclosure, the Company does not anticipate the adoption of these new
standards will have a material impact on its financial position, results of
operations or cash flows. The Company has not yet determined what its reporting
segments will be under SFAS No. 131.
13
<PAGE> 16
MEGO MORTGAGE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
FOR THE THREE AND NINE MONTHS ENDED MAY 31, 1997 AND 1998
9. 1997 PRIVATE PLACEMENT
In October 1997, the Company sold $40.0 million of Additional Notes in
the 1997 Private Placement which increased the aggregate principal amount of
outstanding 12.5% senior subordinated notes from $40.0 million to $80.0 million
(collectively referred to in Note 3 as the Old Notes). The Company used the net
proceeds from the sale, after deducting expenses, to repay $3.9 million of debt
due to Mego Financial, $29.0 million to reduce the amount outstanding under the
Company's lines of credit and the balance of $5.5 million for working capital.
The Additional Notes are subject to the indenture governing the Company's Old
Notes. In connection with the Company's solicitation of holders of the 1996
Notes to amend the indenture to permit the Company's sale of the Additional
Notes, the Company made consent payments totaling $392,000 ($10.00 cash per
$1,000 principal amount of the 1996 Notes) to holders of the 1996 Notes that
properly furnished their consents to the amendments to such indenture.
As part of the Recapitalization, $37.5 million principal amount of Old
Notes were exchanged for approximately 37,500 shares of Preferred Stock and
$41.5 million principal amount of Old Notes were exchanged for an equal
principal amount of New Notes. Less than $1.0 million principal amount of Old
Notes remain outstanding. The Company may elect to defease the Old Notes by
tendering the required sum to the Indenture trustee.
14
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations section contains certain forward-looking
statements and information relating to Mego Mortgage Corporation (the "Company")
that are based on the beliefs of management as well as assumptions made by and
information currently available to management. Such forward-looking statements
include, without limitation, the Company's expectation and estimates as to the
Company's business operations, including the introduction of new loan programs
and products and future financial performance, including growth in revenues and
net income and cash flows. In addition, included herein the words "anticipates,"
"believes," "estimates," "expects," "plans," "intends" and similar expressions,
as they relate to the Company or its management, are intended to identify
forward-looking statements. Such statements reflect the current views of the
Company's management with respect to future events and are subject to certain
risks, uncertainties and assumptions. Also, the Company specifically advises
readers that the factors listed under the caption "Liquidity and Capital
Resources" could cause actual results to differ materially from those expressed
in any forward-looking statement. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described herein as anticipated,
believed, estimated or expected.
The following discussion and analysis should be read in conjunction
with the Condensed Financial Statements, including the notes thereto, contained
elsewhere herein and in the Financial Statements, including the notes thereto,
in the Company's Form 10-K for the fiscal year ended August 31, 1997.
RECENT DEVELOPMENTS
The Company has historically operated on a negative cash flow basis.
During the years ended August 31, 1996 and 1997 and the six months ended
February 28, 1997 and 1998, the Company, primarily due to a substantial increase
in loans originated and sold, used $15.3 million, $70.4 million, $39.6 million
and $59.5 million of cash, respectively, principally funded from borrowings.
As a result of a $32.5 million loss recognized by the Company for the
six months ended February 28, 1998, and due to the fact that the Company was not
in compliance with certain provisions of its warehouse and other debt
agreements, the Company was restricted in its ability to incur additional
indebtedness. As a consequence of its inability to borrow additional funds to
make new loans, the Company substantially curtailed its loan originations. Loan
originations for the three months ended May 31, 1998, February 28, 1998,
November 30, 1997 and May 31, 1997 totaled $9.9 million, $111.3 million, $199.9
million and $173.9 million, respectively. From January 1, 1998, when the
curtailment of new originations began, until the completion of the
Recapitalization on July 1, 1998 (which includes the three months ended May 31,
1998 and three of the months in the nine months ended May 31, 1998), the
Company's activities consisted of the liquidation of its portfolio of mortgage
loans, the proceeds from which were used to reduce the Company's indebtedness,
and the maintenance of its systems and personnel necessary to enable the Company
to recommence operations. These matters, among others, raised substantial doubt
in the opinion of Deloitte & Touche, the Company's independent auditors, about
the Company's ability to continue as a going concern.
In an effort to accomplish its strategic goals and return itself to a
strong financial position, on July 1, 1998, the Company completed its
Recapitalization, providing the Company with approximately $87.5 million of new
equity. Two strategic partners, City National Bank of West Virginia ("City
National Bank") a wholly owned subsidiary of City Holding Company ("City Holding
Company"), and Sovereign Bancorp, Inc. ("Sovereign") each purchased 10,000
shares of the Company's newly-designated Series A Convertible Preferred Stock
(the "Preferred Stock") at a purchase price of $1,000 per share. City National
Bank and Sovereign each have been granted an option, which expires in December
2000, to acquire 6.67 million shares of the Company's Common Stock ("Common
Stock") at $1.50 per share (the "Option"). Each share of Preferred Stock is
convertible into 666.67 shares of Common Stock, subject to adjustment, 180 days
from their date of issuance. The Preferred Stock will be mandatorily converted
into Common Stock on the second anniversary of the issuance of the Preferred
Stock. City
15
<PAGE> 18
National Bank and Sovereign each has a right of first refusal to purchase the
Company in the event the Company's Board of Directors determines to sell the
Company. In addition, other private investors purchased an aggregate of 5,000
shares of Preferred Stock at a purchase price of $1,000 per share and 16.67
million shares of Common Stock at a purchase price of $1.50 per share. An
additional 1.6 million shares of Common Stock were issued to the Company's
placement agent as the placement agent's fees for the Recapitalization. All of
the foregoing sales were made pursuant to private placements.
The net proceeds from the Recapitalization of approximately $40.3
million were used to pay interest of approximately $5.1 million on the Old
Notes, to repay, in full, a line of credit that matured on May 29, 1998, to pay
loan and management fees and other miscellaneous charges due to Mego Financial
of $1.6 million and to pay a portion of the costs of the Recapitalization of
approximately $480,000. The balance will be used to originate new loans, for
general and administrative expenses and other corporate purposes. See Note 3 to
Notes to Condensed Financial Statements.
As part of the Recapitalization, the Company completed its Exchange
Offer for any and all of the outstanding $80.0 million principal amount of the
Company's Old Notes. Pursuant to the Exchange Offer, the Company issued
approximately 37,500 shares of Preferred Stock at an issuance price of $1,000
per share and $41.5 million principal amount of new 12 1/2% Subordinated Notes
due 2001 in exchange for approximately $79.0 million of Old Notes. Less than
$1.0 million principal balance of the Old Notes remain outstanding. The Company
may elect to defease the Old Notes.
To return the Company to profitability and a strong financial position,
the Company has initiated changes in its operations designed to reduce its loan
origination costs and implemented measures to place the Company on a cash flow
neutral basis for fiscal 1999.
The Company intends to increase the percentage of loan sales in the
secondary market for cash premiums and reduce its historical dependence on
securitizations due to the negative cash flow generated by securitizations as a
method to sell loans. The Company will also attempt to reduce the acquisition
premiums paid to its network of mortgage bankers for Conventional Loans. During
the Company's 1997 fiscal year, these cash acquisition premiums totaled $18.0
million or approximately 3.5% of the Company's total loan originations. In
addition, the Company is implementing additional cost saving measures beyond its
recent internal restructuring which resulted in the reduction of its workforce
by approximately 32%.
Increasing the Company's originations of first mortgage loans using its
existing mortgage banker relationships, developing a broker network and
providing direct consumer lending are also significant goals of the Company's
strategic initiatives. The Company originates first mortgage loans solely for
sale at cash premiums in the secondary market substantially without recourse for
credit losses or risk of prepayment.
The Company commenced direct to consumer origination of Conventional
Loans in September 1997. In its direct to consumer origination channel,
origination fees are typically paid by the borrowers to the Company, the amount
of which is anticipated to exceed the Company's origination cost of the loan.
This is unlike loans purchased from the Company's network of mortgage bankers
that are paid up front cash premiums to acquire loans, with no related offsets.
The Company intends to increase its direct origination of mortgage loans through
its own efforts and through the acquisition of retail mortgage brokers and other
retail loan originators. The Company believes that, by acquiring originators of
retail loans, the Company can lower its overall cost of originating mortgage
loans and improve its profitability. The Company is not in negotiation at this
time to acquire any loan originators.
There can be no assurance that these changes to the Company's
operations and new measures to improve the Company's cash flow will be
successful.
As part of the Recapitalization, the Company, entered into agreements
with Sovereign, for a new $90.0 million warehouse line, (subject to the
availability of collateral), and a mortgage loan purchase and sale commitment.
In addition, the Company agreed to sell City Mortgage Services ("City Mortgage
Services"), a division of City National Bank, its existing mortgage servicing
portfolio for approximately $7.0 million in cash.
16
<PAGE> 19
The Company also entered into an agreement with City Mortgage Services for City
Mortgage Services to service all of the mortgage loans that the Company owned at
the date of the Recapitalization. In addition, the Company and City Mortgage
Services entered into an agreement for City Mortgage Services to service all of
the mortgage loans originated or purchased by the Company after the
Recapitalization on a servicing retained basis, which will allow the Company to
substantially eliminate its loan collection and servicing division, while
enabling the Company to take advantage of the collection and servicing skills of
one of its strategic partners. The Company has an option to acquire 20% of this
servicing platform subject to certain conditions, including the delivery by the
Company to City Mortgage Services of $1.0 billion of additional loans to
service.
GENERAL
The Company is a specialty consumer finance company that originates,
purchases, sells and securitizes consumer loans consisting primarily of
conventional uninsured home improvement and debt consolidation loans which are
generally secured by first or second liens on residential property
("Conventional Loans"). The Company historically has originated loans through a
network of independent correspondent lenders ("Correspondents") and home
improvement construction contractors ("Dealers").
Until May 1996, the Company originated only home improvement loans
insured under the Title I credit insurance program ("Title I Loans") of the
Federal Housing Administration (the "FHA"). Subject to certain limitations, the
Title I program provides for insurance of 90% of the principal balance of the
loan and certain other costs. At May 31, 1998, as a result of prior claims, no
FHA insurance remained with respect to the Company's portfolio of Title I Loans.
The Company began offering Conventional Loans through its Correspondents in May
1996 and through its Dealers in September 1996.
Since May 1996, Conventional Loans have accounted for an increasing
portion of the Company's loan originations. For the three months ended February
28, May 31, August 31, and November 30, 1997 and February 28 and May 31, 1998,
the Company originated $89.7 million, $149.5 million, $158.5 million, $187.8
million, $116.5 million and $5.6 million of Conventional Loans, respectively,
which constituted 80.6%, 85.9%, 88.4%, 93.9%, 91.5% and 57.0%, respectively, of
the Company's total loan originations during the periods. For the nine months
ended May 31, 1997 and 1998, the Company originated $270.3 million and $309.9
million of Conventional Loans, respectively, which constituted 77.8% and 92.0%,
respectively, of the Company's total loan originations during the periods.
To broaden its channels of origination and to reduce its overall cost
of loan origination, the Company commenced the direct to consumer origination of
Conventional Loans in the three months ended November 30, 1997. To increase the
amount of loans from this new origination channel, the Company has entered into
contractual arrangements with third-party financial institutions for
underwriting qualified consumer loan applications. These applications do not
conform to those institutions' loan programs, but may be suitable for approval
and funding under the Company's product lines that are not available at the
third-party institutions. By making direct consumer loans, the Company avoids
the payment of premiums that it incurs with the acquisition of completed loans
from its network of mortgage bankers. It is anticipated that the permissible
fees charged to consumers on the direct loans will cover the cost of the
underwriting and origination expenses and place the Company on a positive cash
flow basis with respect to its direct to consumer loan originations.
In December 1997, the Company began originating subprime residential
first mortgage loans ("First Mortgage Loans"). The Company originates First
Mortgage Loans through its network of mortgage bankers and brokers. The Company
believes that there are several advantages to originating First Mortgage Loans
including (i) a more liquid secondary market exists for such loans, (ii) the
average principal amount of such loans is typically twice that of a Conventional
Loan and (iii) such loans are originated by mortgage bankers and brokers that
historically sell them to the Company at lower premiums than Conventional Loans.
For the nine months ended May 31, 1998, the Company originated $8.5 million of
First Mortgage Loans.
The Company has historically sold substantially all the loans it
originated either through securitizations at a yield below the stated interest
rate on the loans, generally retaining the right to service the loans and
receiving any
17
<PAGE> 20
amounts in excess of the yield to the purchasers, or through the sale of loans
to third-party institutional purchasers in the secondary market. In connection
with loan sales, the Company generally sells the loans on a servicing its
retained basis at a yield below the stated interest rate on the loans, or on a
servicing released basis. Currently, sales on a servicing released basis and
some sales on a servicing retained basis are at a premium to their principal
balance. In connection with securitizations, certain of the interests in the
related securitizations were generally sold to institutional purchasers, with
the interest only and residual class securities generally retained by the
Company. The Company presently intends to dispose of a majority of its loan
originations through loan sales on a servicing retained basis, at a premium, and
reduce its historical dependence on securitizations. Loans sold servicing
retained will be serviced by City Mortgage Services pursuant to the Flow
Servicing Agreement.
The Company recognizes revenue from gain (loss) on sale of loans,
unrealized gain (loss) on mortgage related securities, interest income and
servicing income. Interest income, net, represents the interest received on
loans in the Company's portfolio prior to their sale, plus accretion of interest
related to mortgage related securities, net of interest paid under its credit
agreements. The Company continues to service a substantial amount of loans it
sold through May 31, 1998. However, during the nine months ended May 31, 1998,
$181.6 million principal balance of loans were sold with servicing released. Net
loan servicing income represents servicing fee income and other ancillary fees
received for servicing loans less: (i) the amortization of capitalized mortgage
servicing rights, (ii) and through January 1, 1997, the date of adoption of
Statement of Financial Accounting Standards No. 125 ("SFAS 125"), the
amortization of excess servicing rights. Mortgage servicing rights are amortized
in proportion to, and over the period of, estimated net servicing income or over
the estimated lives of the related loans. As reflected in Note 3 to Notes to
Condensed Financial Statements, the Company has entered into the Bulk Servicing
and Flow Servicing Agreements pursuant to which it sold its present servicing
rights and up to an additional $1.0 billion of future loan servicing to City
Mortgage Services as part of the Recapitalization.
Gain (loss) on sale of loans includes the gain on sale resulting from
securitizations and loan sales. The gain on sale in securitization transactions
is determined by an allocation of the cost of the securities based on the
relative fair values of the interests sold and the interests retained. The
Company's retained interests are referred to as "mortgage related securities."
From a securitization, the Company generally retains a residual interest
mortgage related security and may retain an interest only strip mortgage related
security. The Company carries its mortgage related securities at their estimated
fair value. Included in the Company's mortgage related securities is the
estimated fair value of prepayment penalties (where applicable) the Company
anticipates it will receive from borrowers who repay their loan within a
specified period (generally within three years) after the loan is made. The fair
value of these mortgage related securities is the present value of the
anticipated net cash flows to be received after considering the effects of
anticipated prepayments and credit losses and, where applicable, net of
estimated FHA insurance recoveries on Title I Loans. The net unrealized gain
(loss) on mortgage related securities represents the difference between the
allocated cost basis of the securities and their estimated fair value.
The fair value of the Company's mortgage related securities are
affected by, among other things, changes in market interest rates and prepayment
and loss experiences of these and similar securities. The Company estimates the
fair value of its mortgage related securities utilizing prepayment and credit
loss assumptions on the mortgage loans backing these securities that the Company
believes to be appropriate for the characteristics (weighted-average interest
rate, weighted-average maturity date, etc.) of the mortgage loans backing each
particular securitization. To the Company's knowledge, there is no active market
for the sale of these securities.
During the three months ended November 30, 1997, the Company
experienced voluntary prepayment activity and delinquencies with respect to its
securitized Conventional Loans, which substantially exceeded the levels, that
had been assumed for the applicable time frame. As a result of this increase,
the Company adjusted the assumptions previously utilized in calculating the
carrying value of its mortgage related securities as of November 30, 1997. The
application of these revised assumptions to the Company's portfolio of
Conventional Loans backing its mortgage related securities caused the Company to
adjust the carrying value of such securities by approximately $10.2 million at
November 30, 1997. Additional negative adjustments of approximately $3.9 million
to the carrying value of mortgage related securities backed by Title I Loans and
other sales were also recognized during the three
18
<PAGE> 21
months ended November 30, 1997, due to higher levels of defaults and prepayments
than had been previously anticipated. After calculating the effect of accretion
of interest, amortization of residuals and increased prepayment penalty fees,
the carrying value of the Company's mortgage related securities was reduced to
$94.3 million as of November 30, 1997 from $106.3 million as of August 31, 1997.
As a result of, among other things, the application of the revised prepayment
and loss assumptions, the Company recorded a $14.1 million charge to earnings
during the three months ended November 30, 1997.
Based on, among other things, continued higher than anticipated levels
of delinquencies, the Company's loss assumptions were further modified as of May
31, 1998. On a cumulative basis, the new loss assumptions assume aggregate
losses of approximately 14.5% of the original portfolio loan balance as compared
to approximately 9% under the Company's prior model, which had been implemented
in the three month period ending November 30, 1997.
In addition, the Company has elected to use a voluntary prepayment
curve which ramps from a 4.5% annualized rate in month one to a 15.25%
annualized rate in month 12. The annualized rate reaches 18.75% in month 18,
where the prepayment speed remains constant until month 36. At that point, the
prepayment speed declines by 0.5% per month until it reaches 15.25% in month 43,
where it remains for the remaining life of the portfolio. The prepayment
assumption is exclusive of regularly scheduled principal and interest payments
on the loans.
Based on assumptions of voluntary prepayment speeds and losses, the
Company projects the anticipated cash flow to be received from the loans backing
the Company's mortgage related securities. To determine the fair value of its
mortgage related securities, the Company discounts the projected cash flow at
the rate it believes an independent third-party purchaser would require as a
rate of return. As a result, the Company increased from 12% to 14.5%, the rate
the Company uses to discount to present value the cash flow anticipated to be
received on the Company's mortgage related securities from the mortgage loans
backing these securities.
The Company has revised its assumptions based on information from a
variety of sources including, among other things, the Company's experience with
its own portfolio of loans, pertinent information from a variety of market
sources and consultations with its financial advisors. However, the Company has
not obtained an independent evaluation of the assumptions utilized in
calculating the carrying value of its mortgage related securities for any period
subsequent to August 31, 1997. In the three and nine months ended May 31, 1998,
taken as a whole, negative adjustments of approximately $27.4 million and $40.5
million, respectively, were recognized. See Note 5 to Notes to Condensed
Financial Statements.
Although the Company believes that it has made reasonable estimates of
the prepayments and default rates in determining the fair value of the Company's
mortgage related securities, the rate of prepayments and default rates utilized
are estimates, and actual experience will vary from these estimates and such
variances may be material. There can be no assurance that the revised prepayment
and loss assumptions used to determine the fair value of the Company's mortgage
related securities and mortgage servicing rights will remain appropriate for the
life of the loans backing such securities. If actual loan prepayments or credit
losses vary from the Company's estimates, the carrying value of the Company's
mortgage related securities and mortgage servicing rights, if any, may have to
be further adjusted through a charge or credit to earnings.
19
<PAGE> 22
RESULTS OF OPERATIONS
As previously discussed, the Company's operations, since January 1,
1998, have consisted principally of the liquidation of its portfolio of loans,
the proceeds from which were used to reduce the Company's indebtedness. During
this period, the Company focused on obtaining new financing and initiating new
strategic initiatives to return the Company to profitability while maintaining
its systems and a level of personnel necessary to recommence operations. As a
result, the Company does not believe that its results for the three and nine
months ended May 31, 1998 are comparable to its results for the three and nine
months ended May 31, 1997.
Loans Originated
The following table sets forth certain data regarding loans originated
by the Company during the three and nine months ended May 31, 1997 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MAY 31, NINE MONTHS ENDED MAY 31,
-------------------------------------- ---------------------------------------
1997 1998 1997 1998
-------------------- ----------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(thousands of dollars)
PRINCIPAL BALANCE OF LOANS
ORIGINATED:
Correspondents(1):
Title I $ 11,970 6.9% $ 140 1.4% $ 42,481 12.2% $ 7,056 2.1%
Conventional 144,634 83.1 2,579 26.2 263,395 75.8 289,043 85.8
--------- ------- -------- ------- --------- ------- --------- -------
Total correspondents 156,604 90.0 2,719 27.6 305,876 88.0 296,099 87.9
Dealers:
Title I 12,427 7.2 350 3.5 34,852 10.0 11,595 3.4
Conventional 4,908 2.8 155 1.6 6,932 2.0 14,001 4.2
--------- ------- -------- ------- --------- ------- --------- -------
Total dealers 17,335 10.0 505 5.1 41,784 12.0 25,596 7.6
Retail:
Conventional - - 2,887 29.3 - - 6,851 2.0
First Mortgage - - 469 4.7 - - 712 0.2
--------- ------- -------- ------- --------- ------- --------- -------
Total retail - - 3,356 34.0 - - 7,563 2.2
First Mortgage - - 3,282 33.3 - - 7,792 2.3
--------- ------- -------- ------- --------- ------- --------- -------
Total principal amount
of loans originated $ 173,939 100.0% $ 9,862 100.0% $ 347,660 100.0% $ 337,050 100.0%
========= ======= ======== ======= ========= ======= ========= =======
NUMBER OF LOANS ORIGINATED:
Correspondents:
Title I 565 9.0% 6 2.3% 2,058 15.0% 326 2.9%
Conventional 4,377 70.0 77 29.3 8,337 60.8 8,837 78.8
--------- ------- -------- ------- --------- ------- --------- -------
Total correspondents 4,942 79.0 83 31.6 10,395 75.8 9,163 81.7
Dealers:
Title I 1,018 16.2 27 10.3 2,925 21.3 971 8.7
Conventional 299 4.8 9 3.4 392 2.9 742 6.6
--------- ------- -------- ------- --------- ------- --------- -------
Total dealers 1,317 21.0 36 13.7 3,317 24.2 1,713 15.3
Retail:
Conventional - - 80 30.4 - - 199 1.8
First Mortgage - - 11 4.2 - - 16 0.1
--------- ------- -------- ------- --------- ------- --------- -------
Total retail - - 91 34.6 - - 215 1.9
First Mortgage - - 53 20.1 - - 126 1.1
--------- ------- -------- ------- --------- ------- --------- -------
Total number of loans
originated 6,259 100.0% 263 100.0% 13,712 100.0% 11,217 100.0%
========= ======= ======== ======= ========= ======= ========= =======
</TABLE>
(1) As part of its strategic initiatives to reduce the cost of its originations,
the Company is focusing on Mortgage Bankers and intends to reduce substantially
its historical focus on Correspondents.
20
<PAGE> 23
Loans Serviced
The following table sets forth the principal balance of loans serviced
as at May 31, 1997 and 1998:
<TABLE>
<CAPTION>
MAY 31,
-----------------------------------------------------------
1997 1998
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
LOANS SERVICED AT END OF PERIOD (INCLUDING LOANS
SECURITIZED, SOLD TO INVESTORS AND HELD FOR SALE):
Title I $ 248,361 48.1% $ 231,917 42.4%
Conventional 268,065 51.9 312,338 57.2
First Mortgage - - 1,990 0.4
--------------- -------- --------------- --------
Total loans serviced at end of period $ 516,426 100.0% $ 546,245 100.0%
=============== ======== =============== ========
</TABLE>
Loans Sold
The following table sets forth the principal balance of loans sold or
securitized and related gain on sale data for the three and nine months ended
May 31, 1997 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MAY 31, MAY 31,
---------------------------- ----------------------------
1997 1998 1997 1998
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
(thousands of dollars)
ALL LOANS SOLD:
Principal amount of loans sold:
Title I $ 22,879 $ 5,549 $ 78,545 $ 19,406
Conventional 136,297 44,975 248,072 310,259
First Mortgage - 3,596 - 5,684
---------- ---------- ---------- ----------
Total principal balances $ 159,176 $ 54,120 $ 326,617 $ 335,349
========== ========== ========== ==========
Gain (loss) on sale of loans $ 13,226 $ (9,206) $ 28,650 $ (7,397)
========== ========== ========== ==========
Net unrealized gain (loss) on mortgage related
securities $ 2,305 $ (28,121) $ 5,213 $ (44,881)
========== ========== ========== ==========
Gain (loss) on sale of loans as a percentage of
principal balance of loans sold 8.3% (17.0)% 8.8% (2.21)%
Gain (loss) on sale of loans plus net unrealized gain
(loss) on mortgage related securities as a
percentage of principal balance of loans sold 9.8% (69.0)% 10.4% (15.6)%
WHOLE LOAN SALES SOLD WITH RECOURSE AND
SECURITIZATIONS:
Principal amount of loans sold:
Title I $ 9,032 $ - $ 64,697 $ (8,770)(1)
Conventional 126,296 8,280 238,072 162,535
---------- ---------- ---------- ----------
Total principal balances $ 135,328 $ 8,280 $ 302,769 $ 153,765
========== ========== ========== ==========
WHOLE LOAN SALES SOLD WITH SERVICING RELEASED AND
SALES TO FNMA:
Principal amount of loans sold:
Title I $ 13,847 $ 5,549 $ 13,847 $ 28,176
Conventional 10,001 36,695 10,001 147,724
First Mortgage - 3,596 - 5,684
---------- ---------- ---------- ----------
Total principal balances $ 23,848 $ 45,840 $ 23,848 $ 181,584
========== ========== ========== ==========
</TABLE>
- ------------------
21
<PAGE> 24
(1) Negative Title I Loan sales resulted from the repurchase of Title I
Loans sold, with recourse, from a financial institution and the sale of
certain of such loans to the Federal National Mortgage Association
("FNMA"), without recourse.
The percentage of gain on sale of loans can vary for several reasons,
including the relative amounts of Conventional and Title I Loans, each of which
type of loan has different (i) estimated prepayment rates, (ii) weighted-average
interest rates, (iii) weighted-average maturities and (iv) estimated future
delinquency and default rates. Historically, the gain on sale of loans sold
through securitizations has been much higher than the gain on the sale of
loans in the secondary market. However the Company intends to reduce the use of
securitizations as a method to dispose of loans in the future because of the
negative cash flow associated with this method of selling loans.
As the holder of mortgage related securities issued in securitizations,
the Company is entitled to receive certain excess cash flows from the loans
backing the securitization. These excess cash flows are calculated as the
positive difference between (a) principal and interest paid by borrowers and (b)
the sum of (i) pass-through interest and principal to be paid to the holders of
the securities issued in securitization that are senior to the mortgage related
securities owned by the Company, (ii) trustee fees, (iii) third-party credit
enhancement fees, (iv) servicing fees and (v) estimated loan losses. The
Company's right to receive the excess cash flows is subject to the satisfaction
of certain reserve or over-collateralization requirements that are specific to
each securitization and are used as a means of credit enhancement.
Loan Delinquency
The Company considers a loan delinquent when a scheduled payment has
not been received within 30 days of its due date. The following table sets forth
the delinquency experienced on the loans being serviced by the Company unless
otherwise specified and Title I insurance claims experience:
<TABLE>
<CAPTION>
AUGUST 31, MAY 31,
1997 1998
---------- ------------
<S> <C> <C>
(thousands of dollars)
Delinquency period (1):
31-60 days past due 1.54% 1.93%
61-90 days past due 0.80 0.91
91 days and over past due 3.07 6.29
31 days and over past due, total delinquencies 5.41 9.13
91 days and over past due, net of claims filed (2) 2.32 5.57
Outstanding claims filed with HUD (3) 0.75 0.73
Outstanding number of Title I insurance claims filed 269 229
Total serviced portfolio $ 628,068 $ 546,245
Title I Loans serviced 255,446 231,917
Conventional Loans serviced 372,622 312,338
First Mortgage Loans serviced - 1,990
Amount of FHA insurance available for Title I Loans serviced 21,094 16,229 (4)
Amount of FHA insurance available as a percentage of Title I Loans serviced 8.26% 7.00% (4)
Aggregate losses on liquidated loans for the year and nine months
ended (5) $ 201 $ 7
</TABLE>
- ------------------
(1) Represents the dollar amount of delinquent loans as a percentage of the
total dollar amount of loans serviced by the Company (including loans
owned by the Company) as of the dates indicated. Conventional Loan
delinquencies represented 10.4% and 28.3%, respectively, of the
Company's total delinquencies at August 31, 1997 and May 31, 1998.
22
<PAGE> 25
(2) Represents the dollar amount of delinquent loans, net of delinquent
Title I Loans for which claims have been filed with the U.S. Department
of Housing and Urban Development ("HUD") and payment is pending, as a
percentage of the total dollar amount of total loans serviced by the
Company (including loans owned by the Company) as of the dates
indicated.
(3) Represents the dollar amount of delinquent Title I Loans for which
claims have been filed with HUD and payment is pending as a percentage
of the total dollar amount of total loans serviced by the Company
(including loans owned by the Company) as of the dates indicated. At
May 31, 1998, as a result of prior claims, no FHA insurance remained
with respect to the Company's portfolio of Title I Loans.
(4) If all claims filed with HUD had been processed as of May 31, 1998, the
amount of FHA insurance available for all serviced Title I Loans would
have been reduced to $12.4 million, which as a percentage of Title I
Loans serviced would have been 5.4%.
(5) On Title I Loans, a loss is recognized upon receipt of payment of a
claim or final rejection thereof. Claims paid in a period may relate to
a claim filed in an earlier period. Since the Company commenced its
Title I lending operations in March 1994, there has been no final
rejection of a claim by the FHA. The aggregate losses on liquidated
Title I Loans related to 1,101 Title I insurance claims made by the
Company, as servicer, since commencing operations through May 31, 1998.
Losses on Title I Loans liquidated will increase as the balance of the
claims are processed by HUD. The Company has received an average
payment from HUD equal to 90% of the outstanding principal balance of
such Title I Loans, plus appropriate interest and costs.
The pooling and servicing agreements and sale and servicing agreements
related to the Company's securitization transactions contain provisions with
respect to the maximum permitted loan delinquency rates and loan default rates,
which, if exceeded, would allow, during the period the Company owns such
servicing, the termination of the Company's right to service the related loans.
At May 31, 1998, the rolling three-month average annual default rates on the
pools of loans sold in the March 1996, August 1996 and December 1996
securitization transactions exceeded 6.5%, the permitted limit set forth in the
related pooling and servicing agreements. Accordingly, this condition could
result in the termination of the Company's servicing rights with respect to
those pools of loans by the trustee, the master servicer or the insurance
company providing credit enhancement for those transactions. No assurance can be
given that the insurance company, trustee or master servicer will not exercise
its right to terminate the Company's servicing rights.
As part of the Recapitalization, the Company entered into the Bulk
Servicing Agreement with City Mortgage Services pursuant to which the Company
sold its existing mortgage servicing rights to City Mortgage Services. The terms
of the Bulk Servicing Purchase Agreement provide for a cash purchase price equal
to 90% of the book value of such rights at the date of actual transfer. The
Company estimates proceeds from the sale of approximately $6.3 million and that
it will incur a loss on this transaction of approximately $703,000 which is
recorded as a charge to earnings in the Company's Statement of Operations.
Additionally, the Company and City Mortgage Services have entered into an
agreement for City Mortgage Services to service all of the Company's new
mortgage loans originated after the Recapitalization held for sale by the
Company or sold on a servicing retained basis. The Company has an option,
contingent, among other things, upon delivery to City Mortgage Services of
servicing on $1.0 billion of additional loans, to purchase up to a 20% equity
position in a new entity to be created if City National Bank determines to
spin-off its City Mortgage Services division. Upon completion of the transfer of
servicing to City Mortgage Services, the Company anticipates eliminating
substantially its entire collections and claims staff.
The pooling and servicing agreements and sale and servicing agreements
also require that certain delinquency and default rates not exceed certain
thresholds. If these thresholds are exceeded, higher levels of
over-collateralization are required which may cause a delay in, or reduce, the
cash receipts to the Company as a holder of the residual interest, causing an
adverse valuation adjustment to the carrying value of the mortgage related
security.
23
<PAGE> 26
Delinquencies on loans serviced by the Company have also decreased the
Company's amount of loan servicing income recorded during the nine months ended
May 31, 1998 as the Company's loan servicing income has been reduced by the
amount of interest advances paid to the owners of these loans, which advances
the Company expects to recover.
Delinquencies on loans serviced by the Company have increased to $49.9
million at May 31, 1998 from $49.5 million at February 28, 1998, $46.9 million
at November 30, 1997 and $34.0 million at August 31, 1997. Since the Company
began originating Title I Loans in 1994, a greater level of delinquencies has
appeared than expected on such loans less than two years old. Conventional Loan
delinquencies represented 10.4% and 28.3%, respectively, of the Company's total
delinquencies at August 31, 1997 and May 31, 1998.
The Company continues to be subject to the risks of default and
foreclosure following the sale of loans through securitizations to the extent
excess servicing distributions are required to be retained or applied to reduce
principal or cover interest shortfalls from time to time. Such retained or
applied amounts are predetermined by the entity issuing any guarantee of the
related interests as a condition to obtaining insurance or by the rating
agencies as a condition to obtaining their applicable rating thereon. In
addition, such retention delays cash distributions that otherwise would flow to
the Company through its retained mortgage related securities, thereby adversely
affecting the flow of cash to the Company.
Certain loan sale transactions require the subordination of certain
cash flows payable to the Company to the payment of scheduled principal and
interest due to the loan purchasers. In connection with certain of such sale
transactions, a portion of amounts payable to the Company from the excess
interest spread between the higher interest rate of the loan and the lower yield
paid to the loan purchaser is required to be maintained in a reserve account to
the extent of the subordination requirements. The subordination requirements
generally provide that the excess interest spread is payable to the reserve
account until a specified percentage of the principal balances of the sold loans
is accumulated therein. Excess interest spread payable to the Company is subject
to being utilized first to replenish cash paid from the reserve account to fund
shortfalls in collections of interest from borrowers who default on the payments
on the loans until the Company's deposits into the reserve account equal the
specified percentage. The excess interest required to be deposited and
maintained in the respective reserve accounts is not available to support the
cash flow requirements of the Company. At May 31, 1998, amounts on deposit in
such reserve accounts total $6.3 million.
Three Months Ended May 31, 1998 compared to Three Months Ended May 31, 1997
As previously discussed, the Company's operations, since January 1,
1998, have consisted principally of the liquidation of its portfolio of loans,
the proceeds from which were used to reduce the Company's indebtedness. During
this period, the Company focused on obtaining new financing and on initiating
new strategic initiatives to return the Company to profitability while
maintaining its systems and a level of personnel necessary to recommence
operations. As a result, the Company does not believe that its results for the
three and nine months ended May 31, 1998 are comparable to its results for the
three and nine months ended May 31, 1997.
The Company originated $9.9 million of loans during the three months
ended May 31, 1998 compared to $173.9 million of loans during the three months
ended May 31, 1997, a decrease of 94.3%. The decrease is a result, among other
things, of the Company's negative operating cash flow, a $32.5 million loss for
the six months ended February 28, 1998, and its inability to borrow additional
amounts to originate loans because the Company was not in compliance with
certain provisions of its warehouse line, other debt agreements and the
Indenture governing the Old Notes. As a consequence of its inability to borrow
additional amounts to fund new loan originations, the Company, after January 1,
1998, was required to reduce substantially its loan originations and to
liquidate its portfolio of loans in order to raise cash to operate. See Note 3
of Notes to Condensed Financial Statements. Of the $9.9 million of loans
originated during the three months ended May 31, 1998, $5.6 million were
Conventional Loans, $0.5 million were Title I Loans and $3.8 million were First
Mortgage Loans compared to $149.5 million of Conventional Loans, $24.4 million
of Title I Loans and no First Mortgage Loans during the three months ended May
31, 1997.
24
<PAGE> 27
Net revenues (losses) decreased to a loss of $46.0 million during the
three months ended May 31, 1998 from revenues of $17.4 million during the three
months ended May 31, 1997. The decrease was primarily the result of the downward
valuation adjustment to the Company's mortgage related securities, which is
reflected in the net unrealized loss on mortgage related securities, and the
lower of cost or market adjustment on the Company's portfolio of loans, which is
reflected in the gain (loss) on sale of loans. The lower of cost or market
adjustment was based on the Company's estimate of the proceeds to be received
when these loans are sold. See Note 5 of Notes to Condensed Financial
Statements.
The combined gain (loss) on sale of loans and net unrealized gain
(loss) on mortgage related securities resulted in a loss of $44.7 million during
the three months ended May 31, 1998 as compared to a gain of $15.5 million
during the three months ended May 31, 1997. The Company's downward valuation
adjustment of $23.2 million, at May 31, 1998, in the fair value of the Company's
mortgage related securities, is the result of changes in (i) the prepayment and
loss assumptions utilized by the Company in calculating the anticipated cash
flow to be received from the mortgage loans backing such securities; and (ii)
write downs of an aggregate of $9.7 million to reduce to the lower of cost or
market the remaining $13.3 million principal amount of the Company's mortgage
loans held for sale at May 31, 1998 and approximately $15.4 million principal
amount of mortgage loans the Company was obligated to repurchase at May 31, 1998
under the recourse provisions of certain loan sale agreements. The lower of cost
or market adjustment was based on the Company's estimate of the proceeds to be
received when these loans are sold. See Note 4 of Notes to Condensed Financial
Statements.
In addition, the Company's gain (loss) on the sale of loans was
substantially lower in the three months ended May 31, 1998 as compared to the
three months ended May 31, 1997. In the three months ended May 31, 1997, the
Company's loans were sold in securitizations, which generated substantially
higher gains than loan sales in the secondary market, the method of disposition
of loans the Company used in the three months ended May 31, 1998. As part of the
Company's strategic initiatives, it intends to increase loan sales in the
secondary market for cash and to decrease its historical reliance on
securitizations to sell loans. The sale of loans in a securitization generates
substantial negative cash flow.
Loan servicing income, net, decreased $2.1 million to a loss of $1.4
million during the three months ended May 31, 1998 from income of $726,000
during the three months ended May 31, 1997. The decrease was the result of
adjustments in the third quarter totaling approximately $2.3 million for loan
prepayment penalties, changes in the parameters of the serviced portfolio
including its weighted-average coupon, weighted-average maturity and delinquency
rates and a loss of $703,000 on the sale of servicing rights to City Mortgage
Services although the servicing portfolio increased to $546.2 million at May 31,
1998 from $516.4 million at May 31, 1997. See Note 6 of Notes to Condensed
Financial Statements.
Interest income on loans held for sale and accretion of interest on
mortgage related securities, net of interest expense, decreased $1.0 million to
$132,000 during the three months ended May 31, 1998 from $1.1 million during the
three months ended May 31, 1997. The decrease was primarily the result of
interest accrued on the Additional Notes during the quarter ended May 31, 1998
and a lower inventory of loans held for sale.
The net provision for credit losses decreased $4.0 million to $108,000
for the three months ended May 31, 1998 from of $4.1 million for the three
months ended May 31, 1997. The decrease in the provision was directly related to
the decrease in the volume of loans originated and the ratio of Conventional
Loans to Title I Loans originated during the three months ended May 31, 1998,
compared to the three months ended May 31, 1997, and a change in the Company's
business strategy to focus on loan sales in the secondary market on a
non-recourse basis rather than securitizations to sell loans. An allowance for
credit losses is not established on loans sold through securitizations or on
whole loan sales on a servicing released basis, because the Company typically
does not have recourse obligations for credit losses on loans sold in a
securitization. Estimated credit losses on loans sold through securitizations
are considered in the Company's valuation of its mortgage related securities.
The provision for credit losses is based upon periodic analysis of the
portfolio, economic conditions and trends, historical credit loss experience,
borrowers' ability to repay, collateral values and estimated FHA insurance
recoveries on Title I Loans originated and sold.
25
<PAGE> 28
Total general and administrative expenses increased $1.5 million to
$7.6 million during the three months ended May 31, 1998 compared to $6.1 million
during the three months ended May 31, 1997. The increase was primarily a result
of increased professional services due to increased outside legal and audit
expenses associated with additional Securities and Exchange Commission ("SEC")
filings and with amendments to existing debt agreements, increased loan
servicing expenses due to an increase in loans serviced and increased payroll
and benefits related to the hiring of additional underwriting, loan processing,
administrative, loan quality control and other personnel as a result of the
expansion of the Company's business during the period prior to the reduction in
the workforce. The individual changes in general and administrative expense are
discussed below.
Payroll and benefits expense increased $834,000 to $4.2 million during
the three months ended May 31, 1998 from $3.4 million during the three months
ended May 31, 1997 primarily due to an increased number of employees and
expenses associated with a 32% reduction of the Company's workforce from its
peak in early January 1998. Although the number of employees decreased to 294 at
May 31, 1998 from 332 at May 31, 1997, the average number of employees employed
during the third quarter was higher in the quarter ending May 31, 1998 than the
quarter ending May 31, 1997. This increase in the number of employees was due to
increased staff necessary to support the then business expansion and to maintain
quality control. Savings from the 32% reduction in the Company's workforce will
not be realized until subsequent accounting periods.
Credit reports decreased $344,000 to $8,000 during the three months
ended May 31, 1998 from $352,000 for the three months ended May 31, 1997, due to
the decrease in loan originations during the current quarter.
Rent and lease expenses increased $95,000 to $408,000 during the three
months ended May 31, 1998 from $313,000 for the three months ended May 31, 1997
due to the annual escalation charge and reflecting new tenant discounts for
office space at its corporate offices.
Professional services increased $596,000 to $1.1 million during the
three months ended May 31, 1998 from $505,000 for the three months ended May 31,
1997, due to increased outside legal and audit expenses and reclassification of
certain consulting and management services expenses that were previously
classified in different line items. A significant portion of the increase in
professional services was due to actions taken by the Company subsequent to
January 1, 1998 as a result of its adverse financial position.
Other services increased $155,000 to $479,000 during the three months
ended May 31, 1998 from $324,000 for the three months ended May 31, 1997 due to
increased telephone and overnight shipping charges.
FHA insurance expenses increased $56,000 to $192,000 during the three
months ended May 31, 1998 from $136,000 during the three months ended May 31,
1997 due to increased volume of insured Title I Loans.
Travel expenses decreased $36,000 to $212,000 during the three months
ended May 31, 1998 from $248,000 during the three months ended May 31, 1997 due
to lower loan originations and decreased business activity during the current
quarter.
Other general and administrative expenses increased $188,000 to
$538,000 during the three months ended May 31, 1998 from $349,000 during the
three months ended May 31, 1997 due primarily to increased expenses related to
the then business expansion.
The loss before income taxes was $54.2 million for the three months
ended May 31, 1998 compared to income of $6.9 million for the three months ended
May 31, 1997. Due to the uncertainty as to whether the Company will be able to
utilize any additional net operating loss ("NOL's") in the foreseeable future,
no provision for an income tax benefit was made for the current quarter. An
income tax expense of $2.6 million was provided for in three months ended May
31, 1997.
As a result of the foregoing, the Company incurred a net loss of $54.2
million for the three months ended May 31, 1998 compared to net income of $4.3
million for the three months ended May 31, 1997.
26
<PAGE> 29
Nine Months Ended May 31, 1998 compared to Nine Months Ended May 31, 1997
As previously discussed, the Company's operations, since January 1,
1998, have consisted principally of the liquidation of its portfolio of loans,
the proceeds from which were used to reduce the Company's indebtedness. During
this period, the Company focused on obtaining new financing and initiating new
strategic initiatives to return the Company to profitability while maintaining
its systems and a level of personnel necessary to recommence operations. As a
result, the Company does not believe that its results for the three and nine
months ended May 31, 1998 are comparable to its results for the three and nine
months ended May 31, 1997.
The Company originated $337.1 million of loans during the nine months
ended May 31, 1998 compared to $347.2 million of loans during the nine months
ended May 31, 1997, a decrease of 3.0%. The decrease is a result of the
Company's negative operating cash flow and a $32.5 million loss generated in the
first six months of fiscal 1998, which resulted in restrictions on additional
borrowings due to non-compliance with certain provisions under its warehouse
line, other debt agreements, and the indenture governing the Old Notes. As a
consequence of its inability to borrow additional amounts to fund new loan
originations, the Company, after January 1, 1998, was required to reduce
substantially its loan originations and to liquidate its portfolio of loans in
order to raise cash to operate. Of the $337.1 million of loans originated during
the nine months ended May 31, 1998, $309.9 million were Conventional Loans,
$18.7 million were Title I Loans and $8.5 million were First Mortgage Loans
compared to $270.3 million of Conventional Loans, $77.4 million of Title I Loans
and no First Mortgage Loans during the nine months ended May 31, 1997.
Net revenues (losses) were $56.5 million during the nine months ended
May 31, 1998 compared with revenues of $37.8 million during the nine months
ended May 31, 1997. The decrease was primarily the result of the downward
valuation adjustment to the Company's mortgage related securities which is
reflected in net unrealized gain (loss) on mortgage related securities, the
change in business strategy to focus on loan sales for cash premiums rather than
securitization to sell loans, and the lower of cost or market adjustment on the
Company's portfolio of loans which is reflected in the gain (loss) on sale of
loans. The lower of cost or market adjustment was based on the Company's
estimate of the proceeds to be received when these loans are sold. See Note 5 of
Notes to Condensed Financial Statements.
The combined gain (loss) on sale of loans and net unrealized gain
(loss) on sale of mortgage related securities resulted in a loss of $59.7
million during the nine months ended May 31, 1998 from a gain of $33.9 million
during the nine months ended May 31, 1997. The decrease was primarily due to the
change in business strategy to focus on loan sales for cash premiums rather than
securitizations to sell loans, and a change in assumptions on voluntary
prepayment speeds, defaults and the discount rate utilized by the Company in
calculating the carrying value of its mortgage related securities and
determining the gain (loss) on loan sales. See Note 5 of Notes to Condensed
Financial Statements.
Loan servicing income, net, decreased $787,000 to $1.1 million during
the nine months ended May 31, 1998 from $1.9 million during the nine months
ended May 31, 1997. The decrease was the result of adjustments in the third
quarter totaling approximately $2.4 million, change in assumptions utilized by
the Company to calculate the carrying value of loans with servicing retained and
a loss of $703,000 on the sale of servicing rights to City Mortgage Services
although the servicing portfolio increased to $546.2 million at May 31, 1998
from $516.4 million at May 31, 1997. See Note 6 of Notes to Condensed Financial
Statements.
Interest income on loans held for sale and mortgage related securities,
net of interest expense, increased $8,000 to $2.0 million during the nine months
ended May 31, 1998 from $2.0 million during the nine months ended May 31, 1997.
The net provision for credit losses decreased $2.6 million to $2.4
million for the nine months ended May 31, 1998 from $5.0 million for the nine
months ended May 31, 1997. The decrease in the provision was directly related to
the decrease in the volume of loans originated and the ratio of Conventional
Loans to Title I Loans originated during the nine months ended May 31, 1998
compared to the nine months ended May 31, 1997, and to
27
<PAGE> 30
focus on loan sales rather than securitizations to sell loans. An allowance for
credit losses is not established on loans sold through securitizations or on
loan sales on a servicing released basis, because the Company typically does not
have recourse obligations for credit losses on loans sold in a securitization.
Estimated credit losses on loans sold through securitizations are considered in
the Company's valuation of its mortgage related securities. The provision for
credit losses is based upon periodic analysis of the portfolio, economic
conditions and trends, historical credit loss experience, borrowers' ability to
repay, collateral values, and estimated FHA insurance recoveries on Title I
Loans originated and sold.
Total general and administrative expenses increased to $26.6 million
during the nine months ended May 31, 1998 from $15.7 million during the nine
months ended May 31, 1997. The increase was primarily a result of increased
professional services due to increased outside legal and audit expenses
associated with, additional SEC filings and amendments to existing debt
agreements, increased loan servicing expenses due to an increase in loans
serviced and increased payroll and benefits related to the hiring of additional
underwriting, loan processing, administrative, loan quality control and other
personnel as a result of the expansion of the Company's business during the
period prior to its reduction in its workforce. The individual changes in
general and administrative expenses are discussed in more detail below.
Payroll and benefits expense increased $6.4 million to $14.9 million
during the nine months ended May 31, 1998 from $8.5 million during the nine
months ended May 31, 1997 primarily due to an increased number of employees
during the then expansion and expenses associated with the reduction in the
Company's workforce. Although the number of employees decreased to 294 at May
31, 1998 from 332 at May 31, 1997, the average number of employees employed
during the nine months was higher in the nine months ended May 31, 1998 than the
nine months ended May 31, 1997. This increase in the number of employees was due
to increased staff necessary to support the then business expansion and to
maintain quality control. From its peak in early January 1998, the workforce has
since been reduced by 32%, pursuant to the Company's restructuring.
Credit reports decreased $411,000 to $474,000 during the nine months
ended May 31, 1998 from $885,000 for the nine months ended May 31, 1997 due to
the decrease in loan originations during the third quarter of fiscal 1998.
Rent and lease expenses increased $303,000 to $1.1 million for the nine
months ended May 31, 1998 from $815,000 for the nine months ended May 31, 1997
due to annual escalation charges and due to the prior year reflecting new tenant
discounts for office space at the Company's corporate offices.
Professional services increased $2.1 million to $3.6 million for the
nine months ended May 31, 1998 from $1.5 million for the nine months ended May
31, 1997, due to increased outside legal and audit expenses associated with the
1997 Private Placement, additional SEC filings and amendments to existing debt
agreements and reclassification of certain consulting and management services
expenses that were previously classified in different line items. A substantial
portion of the increase in professional services was due to actions taken by the
Company subsequent to January 1, 1998 as a result of its adverse financial
position.
Sub-servicing fees increased $615,000 to $1.8 million for the nine
months ended May 31, 1998 from $1.2 million for the nine months ended May 31,
1997 due primarily to a larger average loan servicing portfolio, notwithstanding
a lower sub-servicing rate paid to the sub-servicer in the latter part of the
nine months ended May 31, 1998.
Other services increased $784,000 to $1.6 million during the nine
months ended May 31, 1998 from $831,000 for the nine months ended May 31, 1997
due to higher telephone and overnight mailing expenses during the first six
months of fiscal 1998.
FHA insurance expense decreased $79,000 to $335,000 during the nine
months ended May 31, 1998 from $414,000 during the nine months ended May 31,
1997 due to decreased volume of insured Title I loans.
28
<PAGE> 31
Travel expenses increased $251,000 to $967,000 during the nine months
ended May 31, 1998 from $716,000 during the nine months ended May 31, 1997 due
to increased travel necessary to support the then business expansion during the
first six months of fiscal 1998.
Other general and administrative expenses increased $819,000 to $1.7
million during the nine months ended May 31, 1998 from $919,000 during the nine
months ended May 31, 1997 due primarily to increased expenses related to the
expansion of facilities related to the then business expansion.
Loss before income taxes decreased to $86.7 million for the nine months
ended May 31, 1998 from income of $16.4 million for the nine months ended May
31, 1997. Due to the inability to predict whether the Company will be able to
utilize any additional NOL's in the foreseeable future, no provision for income
taxes was made for the nine months ended May 31, 1998. An income tax expense of
$6.2 million was provided for in the nine months ended May 31, 1997.
As a result of the foregoing, the Company incurred a net loss of $86.7
million for the nine months ended May 31, 1998 compared to net income of $10.1
million for the nine months ended May 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity Uses
As previously discussed, the Company's operations, since January 1,
1998, have consisted principally of the liquidation of its portfolio of loans
the proceeds from which were used to reduce the Company's indebtedness. During
this period, the Company focused on obtaining new financing and initiating new
strategic initiatives to return the Company to profitability while maintaining
its systems and a level of personnel necessary to recommence operations. As a
result, the Company does not believe that its liquidity at May 31, 1998 is
comparable to its liquidity at May 31, 1997.
Cash and cash equivalents were $13.1 million at May 31, 1998 compared
to $6.1 million at August 31, 1997. On June 1, 1998, $9.5 million of the $13.1
million of the Company's cash and cash equivalents was utilized to reduce the
Company's indebtedness to its warehouse lender. The warehouse loan, which
matured on May 29, 1998, was repaid in full on June 29, 1998. The Company's
liquidity is primarily used to originate loans, pay operating and interest
expenses, to fulfill over-collateralization requirements related to the
securitization of loans, if any, and make deposits to reserve accounts related
to loan sale transactions. Prior to the Recapitalization, loan originations were
initially funded principally through the Company's warehouse line pending the
sale of loans in the secondary market or in securitizations. Substantially all
of the loans originated by the Company are sold. The warehouse line is repaid
primarily from the proceeds from the sale of the loans collateralizing the line
in the secondary market or in securitizations. The Company resumed the
origination of new loans on July 1, 1998. The Company's cash requirements
require continued access to sources of debt financing and sales of loans in the
secondary market.
Recapitalization
To improve its adverse financial and cash position, the Company, on
July 1, 1998, completed the Recapitalization of the Company. Pursuant to the
Recapitalization, the Company raised approximately $87.5 million of new equity.
Two strategic partners, City National Bank, and Sovereign, each purchased 10,000
shares of the Company's newly-designated Series A Convertible Preferred Stock at
a purchase price of $1,000 per share. City Holding Company and Sovereign each
have been granted an option, which expires in December 2000, to acquire 6.67
million shares of the Company's Common Stock at $1.50 per share. Each share of
Preferred Stock is convertible into 666.67 shares of Common Stock, subject to
adjustment, 180 days from their date of issuance. The Preferred Stock will be
mandatorily converted into Common Stock on the second anniversary of the
issuance of the Preferred Stock. City National Bank and Sovereign each has a
right of first refusal to purchase the Company in the event the Company's Board
of Directors determines to sell the Company. In addition, other private
investors purchased an aggregate of 5,000 shares of Preferred Stock at a
purchase price of $1,000 per share and 16.67 million
29
<PAGE> 32
shares of Common Stock at a purchase price of $1.50 per share. All of the
foregoing sales were made pursuant to private placements.
The net proceeds from the Recapitalization of approximately $40.3
million were used to pay interest of approximately $5.1 million on the Old
Notes, to pay in full the indebtedness of approximately $2.5 million under the
existing warehouse line of credit which matured on May 29, 1998, to pay loan and
management fees and other miscellaneous charges due to Mego Financial of $1.6
million and to pay a portion of the costs of the Recapitalization of
approximately $480,000. The balance will be used to originate new loans, for
general and administrative expenses and other corporate purposes. See Note 3 of
Notes to Condensed Financial Statements.
Exchange Offer
As part of the Recapitalization, the Company completed its Exchange
Offer for any and all of the outstanding $80.0 million principal amount of the
Company's Old Notes. Pursuant to the Exchange Offer, the Company issued
approximately 37,500 shares of Preferred Stock at an issuance price of $1,000
per share and $41.5 million principal amount of new 12 1/2% Subordinated Notes
due 2001 in exchange for approximately $79.0 million of Old Notes. Less than
$1.0 million of the Old Notes remain outstanding. The Company may elect to
defease the Old Notes by tendering the amount required to the Indenture trustee.
New Notes
As a result of the Exchange Offer, $80.0 million principal amount of
the Company's Old Notes were exchanged for approximately 37,500 shares of
Preferred Stock at an issuance price of $1,000 per share and $41.5 million
principal amount of new 12 1/2% Subordinated Notes due 2001. The New Notes
contain certain restrictive covenants with respect to limitations on
indebtedness, liens, affiliate transactions, and mergers or consolidations.
Sovereign Warehouse Line of Credit
The Company has executed a warehouse line of credit for up to $90.0
million with Sovereign that replaced the Company's warehouse line of credit that
matured on May 29, 1998 and was repaid in full on June 29, 1998. The Sovereign
Warehouse Line is renewable, at Sovereign's option, in six-month intervals for
up to five years, may be increased with certain consents and contains
pricing/fees that vary by product and by the dollar amount outstanding. The
Sovereign Warehouse Line is secured by specific loans held for sale and bears
interest at LIBOR plus an amount based on the average outstanding balance. If
the Company determines to seek additional warehouse financing, Sovereign has a
right of first refusal to provide such additional financing at market rates. At
May 31, 1998 and through July 17, 1998, the Company did not have any funds
borrowed under the Sovereign Warehouse Line.
Liquidity Sources
The Company currently has four significant sources of financing and
liquidity: (i) approximately $40.3 million in net proceeds from the sale of
Preferred and Common Stock in the Recapitalization; (ii) the new Sovereign
Warehouse Line of $90.0 million; (iii) the First Revolving Credit Facility for
up to $25.0 million, less amounts outstanding under repurchase agreements which
expires December 31, 1998; and (iv) the Second Revolving Credit Facility for up
to $5.0 million which may, under certain circumstances, be increased to $8.8
million. Each of the First and Second Revolving Credit Facilities is secured by
certain of the Company's mortgage related securities. In addition, the Flow
Purchase Agreement provides the Company with an additional source of liquidity.
The pledge and security agreement governing the First Revolving Credit
Facility provides the Company with $25.0 million of liquidity, less amounts
outstanding under repurchase agreements, of which $10.0 million was outstanding
as of May 31, 1998. The First Revolving Credit Facility matures on December 31,
1998 and contains certain covenants relating to the maintenance of minimum net
worth and debt-to-net worth requirements. At May 31, 1998, the Company was not
in compliance with (i) the minimum net worth requirement of $42.5 million and
actual net worth was a deficit of $27.0 million; and (ii) the requirement that
the Company's debt-to-net worth ratio
30
<PAGE> 33
exceed 2.5:1. The Company's compliance with the debt-to-net worth ratio was
incalculable due to a negative net worth. As of July 1, 1998, the Company was in
compliance with the terms of the First Revolving Credit Facility.
The Second Revolving Credit Facility provides the Company with up to
$5.0 million of liquidity, which may, under certain circumstances, be increased,
to $8.8 million. At May 31, 1998 the Company had $5.0 million borrowed under
this facility. The Second Revolving Credit Facility matures in October 2002 and
contains certain covenants including restrictions on the incurrence of certain
liens, limitations on asset dispositions and mergers and requires the
maintenance of certain financial ratios and compliance with certain financial
tests and limitations. As calculated prior to the Recapitalization, at May 31,
1998, the Company was not in compliance in the maintenance of a minimal net
worth requirement. As of July 1, 1998, the Company was in compliance with the
terms of the Second Revolving Credit Facility.
The Company also has entered into a flow purchase agreement with
Sovereign pursuant to which Sovereign has agreed to purchase up to $400.0
million of the Company's high loan-to-value loans per year at specified prices.
Up to $200.0 million of the $400.0 million can be loans the principal amount of
which, when added to the outstanding senior debt on the property, will not
exceed 125% of the property's market value. Sovereign has a right of first
refusal under certain circumstances and conditions to acquire certain
non-conforming loans originated by the Company at market prices and terms. The
Flow Servicing Agreement expires in September 2001.
In the ordinary course of business, the Company makes representations
and warranties to the purchasers of mortgage loans and the related servicing
rights regarding compliance with laws, regulations and program standards and as
to accuracy of information. Under certain recourse provisions, the Company may
become liable for certain damages or may be required to repurchase a loan if
there has been a breach of representations or warranties. Pursuant to recourse
provisions under certain whole sale agreements, the Company was obligated to
repurchase Conventional and Title I loans with an aggregate principal balance of
approximately $15.4 million at May 31, 1998. These loans, which are reflected in
the Company's Statement of Financial Condition under Loans Held for Sale, were
valued utilizing the Company's estimate of the price to be received upon their
final disposition. Based on the estimated price, a lower of cost or market
allowance of $4.5 million was recorded for the nine months ended May 31, 1998,
as a charge to gain (loss) on sale of loans in the Company's Statement of
Operations. An additional lower of cost or market allowance of $5.2 million
relating to the $13.3 million principal balance of the Company's loans held for
sale at May 31, 1998 was recorded for the three and nine month periods
ended May 31, 1998, as a charge to gain (loss) on sale of loans in the Company's
Statement of Operations.
Until the Company begins to operate on a positive cash flow basis, the
Company expects to pay its monthly operating expenses out of the proceeds of
the Recapitalization.
At May 31, 1998, no commitments existed for additional material
capital expenditures. The Company, however, may be obligated to pay 101% of the
principal amount of the Old Notes in connection with an optional redemption of
those notes. Less than $1.0 million principal balance of Old Notes remains
outstanding. In addition, the Company expects to incur additional costs in
connection with the implementation of its revised business strategy.
Specifically, the Company anticipates that it may need to hire additional
personnel in order to carry out its strategic plan. The hiring of such
additional personnel would require the Company to incur additional expenses.
Net cash used in the Company's operating activities for the nine months
ended May 31, 1997 and 1998 was $72.1 million and $26.9 million, respectively.
During the nine months ended May 31, 1997 and 1998, the Company used net cash of
$1.5 million and $58,000, respectively, in investing activities, which was
substantially expended for office equipment and furnishing and data processing
equipment. During the nine months ended May 31, 1997 and 1998, cash provided by
financing activities amounted to $77.0 million and $34.0 million, respectively.
FINANCIAL CONDITION
As previously discussed, the Company's operations, since January 1,
1998, have consisted principally of the liquidation of its portfolio of loans
the proceeds from which were used to reduce the Company's indebtedness. During
this period, the Company focused on obtaining new financing and initiating new
strategic initiatives to return the Company to profitability while maintaining
its systems and a level of personnel necessary to recommence operations. As a
result, the Company does not believe that its financial condition at May 31,
1998 is comparable to its financial condition at May 31, 1997.
May 31, 1998 compared to August 31, 1997
Cash and cash equivalents increased 115.1% to $13.1 million at May 31,
1998 from $6.1 million at August 31, 1997 primarily as a result of the sale of
loans in process as of May 31, 1998. On June 1, 1998, approximately $9.5
million of the $13.1 million cash and cash equivalents at May 31, 1998, was paid
to the Company's warehouse lender on June 1, 1998. The warehouse line which was
repaid, in full, on June 29, 1998, matured on May 31, 1998.
Restricted cash deposits decreased 7.9% to $6.3 million at May 31, 1998
from $6.9 million at August 31, 1997 primarily due to a reduction of collected
funds due investors which were in transit as of that date.
Loans held for sale, net, increased 81.6% to $17.3 million at May 31,
1998 from $9.5 million at August 31, 1997 primarily as a result of the timing of
loan sales, with no securitization transaction during the three and nine months
ended May 31, 1998 and $9.7 million of loans which the Company has agreed to
repurchase under recourse agreements.
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<PAGE> 34
Changes in the allowance for credit losses and the allowance for credit
losses on loans sold with recourse for the three and nine months ended May 31,
1998 consist of the following (thousands of dollars):
<TABLE>
<S> <C>
Balance at February 28, 1998 $ 9,401
Provision for credit losses -
Reductions to the provision due to securitizations or loans sold without recourse (1,381)
Reductions due to charges to allowance for credit losses 2
---------
Balance at May 31, 1998 $ 8,022
=========
Balance at August 31, 1997 $ 7,114
Provision for credit losses 915
Reductions to the provision due to securitizations or loans sold without recourse -
Reductions due to charges to allowance for credit losses (7)
---------
Balance at May 31, 1998 $ 8,022
=========
</TABLE>
The allowance for credit losses and the allowance for credit losses on
loans sold with recourse consist of the following at these dates:
<TABLE>
<CAPTION>
AUGUST 31, MAY 31,
1997 1998
--------------- ---------------
<S> <C> <C>
(thousands of dollars)
Allowance for credit losses $ 100 $ 0
Allowance for credit losses on loans sold with recourse 7,014 8,022
--------------- ---------------
Total $ 7,114 $ 8,022
=============== ===============
</TABLE>
The increase in the allowance for credit losses and the allowance for
credit losses on loans sold with recourse is primarily due to higher than
anticipated losses on Title I Loans. Although the Company believes it has made
reasonable estimates of the losses on Title I Loans, there can be no assurance
that the actual losses will not vary from these estimates.
Pursuant to recourse provisions under certain whole loan sale
agreements, the Company was obligated to repurchase Conventional and Title I
Loans with an aggregate principal balance of approximately $15.4 million at May
31, 1998. These loans have been valued utilizing management's estimate of the
price to be received upon their final disposition and a lower of cost or market
allowance of $4.5 million was recorded for the three month and nine month
periods ended May 31, 1998, as a charge to gain (loss) on sale of loans in the
Company's Statement of Operations. An additional lower of cost or market
allowance of $5.2 million was recorded for the three month and nine month
periods ended May 31, 1998, as a charge to gain (loss) on sale of loans in the
Company's Statement of Operations relating to the $13.3 million remaining
principal balance of the Company's loans held for sale at May 31, 1998. Mortgage
related securities decreased $40.5 million to $65.8 million at May 31, 1998 from
$106.3 million at August 31, 1997 substantially due to the downward adjustment
to their carrying value. See Note 5 of Notes to Condensed Financial Statements.
Mortgage servicing rights decreased $3.2 million to $6.3 million at May
31, 1998 from $9.5 million at August 31, 1997 due to downward adjustments of the
servicing rights of approximately $1.1 million and to
32
<PAGE> 35
establishing an allowance for a 10% discount on the sale of servicing rights to
City Mortgage Services. See Note 6 to Notes to Condensed Financial Statements.
Other receivables decreased $4.3 million to $3.6 million at May 31,
1998 from $7.9 million at August 31, 1997 primarily due to a payment of deferred
charges due to the Company from whole loan sales prior to August 31, 1997.
Prepaid debt expenses increased $2.2 million to $4.6 million at May 31,
1998 from $2.4 million at August 31, 1997 primarily due to the debt expense
related to the additional $40.0 million of senior subordinated notes sold in
October 1997.
Prepaid commitment fees decreased $2.3 million to $0 at May 31, 1998
from $2.3 million at August 31, 1997 due to the respective purchase commitment
being terminated.
The deferred income tax asset of $2.2 million at May 31, 1998 was
comprised of only state income taxes, while no such benefit was previously
reported. However, no deferred income tax asset was established for potential
federal income tax benefits, as management is unable to predict its ability to
utilize the federal tax benefits over the next several years. Prior to the
Spin-off, income taxes were included in the Due to Mego Financial caption since
Mego Financial filed a consolidated tax return.
Other assets decreased 55.2% to $356,000 at May 31, 1998 from $795,000
at August 31, 1997 primarily due to a reclassification of accrued fees on
securitizations to other receivables of $541,000.
Notes and contracts payable decreased $4.3 million to $31.3 million at
May 31, 1998 from $35.6 million at August 31, 1997 due to the decreased
borrowings by the Company caused by curtailment of loan originations.
Accounts payable and accrued liabilities increased $9.9 million to
$27.8 million at May 31, 1998 from $17.9 million at August 31, 1997 primarily
due to interest on the Old Notes and the repayment of a warehouse line from the
net proceeds of the Recapitalization on June 29, 1998.
Allowance for credit losses on loans sold with recourse increased $1.0
million to $8.0 million at May 31, 1998 from $7.0 million at August 31, 1997
primarily due to increased loan sales. Recourse to the Company on sales of loans
is governed by the agreements between the purchasers and the Company. The
allowance for credit losses on loans sold with recourse represents the Company's
estimate of its probable future credit losses to be incurred over the lives of
the loans considering estimated future FHA insurance recoveries on Title I
Loans. Due to prior claims, the Company's Title I Loans have no FHA insurance.
An allowance for credit losses is not established on loans sold through
securitizations, because the Company typically has no recourse obligations for
credit losses on loans sold in a securitization. Estimated credit losses on
loans sold through securitizations are considered in the Company's valuation of
its mortgage related securities.
Stockholders' equity (deficit) decreased $79.1 million to a deficit of
$26.0 million at May 31, 1998 from $53.1 million at August 31, 1997 as a result
of the net loss of $86.7 million during the nine months ended May 31, 1998,
partially offset by an increase in additional paid-in capital related to a
federal income tax benefit which was a result of the Spin-off. See Note 7 of
Notes to Condensed Financial Statements.
33
<PAGE> 36
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 23, 1998, an action was filed in the United States District
Court for the Northern District of Georgia by Robert J. Feeney, as a purported
class action against the Company and Jeffrey S. Moore, then the Company's
President and Chief Executive Officer. The complaint alleges, among other
things, that the defendants violated the federal securities laws in connection
with the preparation and issuance of certain of the Company's financial
statements. The named plaintiff seeks to represent a class consisting of
purchasers of the Common Stock between April 11, 1997 and December 18, 1997, and
seeks damages in an unspecified amount, costs, attorney's fees and such other
relief as the court may deem just and proper. The Company believes it has
meritorious defenses to this lawsuit, adequate insurance and that any resolution
of this lawsuit will not have a material adverse effect on the business or
financial condition of the Company.
On or about June 30, 1998, the suit was amended to include Mego
Financial, the former parent of the Company, as a defendant.
In the ordinary course of its business, the Company is, from time to
time, named in lawsuits. The Company believes that it has meritorious defenses
to these lawsuits and that resolution of these matters will not have a material
adverse effect on the business or financial condition of the Company.
ITEM 4. RESULTS OF VOTES OF SECURITY HOLDERS
The annual meeting of shareholders was held on June 8, 1998 in Atlanta,
Georgia. Of the 12,300,000 shares of Common Stock entitled to vote, 6,801,744
shares were represented at the meeting by proxies and all 6,801,744 shares voted
affirmatively to each of the proposals submitted to shareholders in the
Company's Proxy Statement dated May 27, 1998:
(1) to elect Jerome J. Cohen, Jeffrey S. Moore, Robert
Nederlander, Herbert B. Hirsch, Don A. Mayerson and Spencer I.
Browne as Directors of the Company;
(2) to approve a transaction or series of transactions pursuant to
which the Company will sell a number of shares of Common Stock
below the greater of book or market value and a number of
shares of Preferred Stock convertible into Common Stock at a
conversion price below the greater of book or market value
which will likely result in the issuance of shares of Common
Stock and Preferred Stock convertible into shares of Common
Stock constituting more than 20% of the Company's outstanding
Common Stock and will likely result in a change of control of
the Company;
(3) to approve the amendment of the Company's Certificate of
Incorporation to increase the number of authorized shares of
Common Stock from 50,000,000 to 400,000,000 shares; and
(4) to approve the Company's 1997 Stock Option and Stock
Appreciation Rights Plan.
ITEM 5. OTHER
Subsequent to the annual shareholders meeting and pursuant to a meeting
of the Board of Directors held after completion of the Recapitalization of the
Company, Champ Meyercord, 57, was elected the Company's Chairman of the Board
and Chief Executive Officer. Mr. Meyercord has been a special consultant to the
Company since May 1998.
Upon completion of the Recapitalization, Jerome J. Cohen, Robert
Nederlander, Herbert B. Hirsch and Don A. Mayerson resigned as directors. Mr.
Meyercord is joined on the new Company Board of Directors by Jeff S. Moore, who
continues as President of the Company; David J. Vida, Jr., President of City
Mortgage Services, a division of City National Bank; Hubert M. Stiles, Jr.,
President of T. Rowe Price Recovery Fund II, L.P.; Wm. Paul Ralser, Chief
Executive Officer and Chairman of the Board of First Fidelity Bancorp, Inc.
located in Irvine, Calif.; and Spencer I. Browne, a special consultant to the
Company who was first elected to the Board of Directors in November 1996.
34
<PAGE> 37
Mr. James L. Belter, Executive Vice President, CFO and Treasurer has
agreed to terminate his prior employment contract with the Company and has
executed a term sheet for the basis of a new employment contract with the
Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<S> <C>
10.78* Preferred Stock Purchase Agreement dated as of June 9, 1998 between City National Bank of West Virginia
and Mego Mortgage Corporation
10.79* Stock Option Agreement dated as of June 29, 1998 by Mego Mortgage Corporation in favor of City National Bank
of West Virginia
10.80 Registration Rights Agreement dated as of June 29, 1998 between Mego Mortgage Corporation and
City National Bank of West Virginia
10.81* Bulk Servicing Purchase Agreement dated as of June 26, 1998 between City National Bank of
West Virginia and Mego Mortgage Corporation
10.82* Servicing Agreement dated as of June 26, 1998 between Mego Mortgage Corporation and City
Mortgage Services
10.83* Subservicing Agreement dated as of June 29, 1998 between Mego Mortgage Corporation and City
Mortgage Services
10.84 City Mortgage Services Option Agreement dated as of June 29, 1998 between City National Bank
of West Virginia and Mego Mortgage Services
10.85* Right of First Refusal Agreement dated as of June 29, 1998 among City National Bank of West
Virginia, Sovereign Bancorp, Inc. and Mego Mortgage Corporation
10.86* Preferred Stock Purchase Agreement dated as of June 9, 1998 between Mego Mortgage Corporation
and Sovereign Bancorp, Inc.
10.87* Stock Option Agreement Dated as of June 29, 1998 by Mego Mortgage Corporation in favor of
Sovereign Bancorp, Inc.
10.88 Registration Rights Agreement dated as of June 29, 1998 between Mego Mortgage Corporation in
favor of Sovereign Bancorp, Inc.
10.89+ Participation Agreement dated as of June 29, 1998 between Mego Mortgage Corporation and
Sovereign Bank
10.90+ Master Mortgage Loan Purchase Agreement dated as of June 29, 1998 between Sovereign Bank and
Mego Mortgage Corporation
10.91 Form of Custodian Agreement dated as of June 29, 1998 among Sovereign Bank, State Street Bank and
Trust Company and Mego Mortgage Corporation
10.92 Common Stock Purchase Agreement dated as of June 9, 1998 between Mego Mortgage Corporation
and Emanuel J. Friedman
10.93 Registration Rights Agreement dated as of June 29, 1998 between Mego Mortgage Corporation and
Emanuel J. Friedman
10.94 Indenture dated as of June 29, 1998 between Mego Mortgage Corporation and American Stock Transfer
& Trust Company, as Trustee
10.95 Form of Note issued pursuant to Indenture dated as of June 29, 1998 between Mego Mortgage
Corporation and American Stock Transfer & Trust Company, as Trustee
</TABLE>
35
<PAGE> 38
<TABLE>
<S> <C>
10.96 Registration Rights Agreement dated as of June 29, 1998 between Mego Mortgage Corporation and
Friedman, Billings, Ramsey & Co., Inc., as placement agent
10.97 Registration Rights Agreement dated as of June 29, 1998 between Mego Mortgage Corporation and
Friedman, Billings, Ramsey & Co., Inc., as placement agent
10.98 Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock
of Mego Mortgage Corporation
10.1A* Co-Sale Agreement dated as of June 29, 1998 among Mego Mortgage Corporation, Emanuel J.
Friedman, Friedman, Billings, Ramsey & Co., Inc., City National Bank of West Virginia and
Sovereign Bancorp, Inc.
10.2A Employment Agreement dated June 23, 1998 between Mego Mortgage Corporation and Edward B.
"Champ" Meyercord
27.1* Financial Data Schedule (for SEC use only)
</TABLE>
* Incorporated by reference to Quarterly Report on Form 10-Q filed on July
20, 1998.
+ Confidential treatment has been requested with respect to portions of
these exhibits. Such portions have been omitted and filed separately with the
Commission.
(b) Reports on Form 8-K
A report on Form 8-K dated March 30, 1998 was filed on March 31, 1998
to report that the Company's Board of Directors revoked and rescinded its
actions previously taken changing the fiscal year end to December 31 and
determined that the Company's fiscal year end shall revert back to August 31. A
report on Form 8-K dated May 13, 1998 was filed on May 20, 1998 to report that
the Company proposes to engage in a series of transactions to recapitalize the
Company and in connection with the preparation of a private placement offering
memorandum, the Company has reissued its financial statements as of August 31,
1996 and 1997 and for each of the three years in the period ended August 31,
1997 and, as a result of events occurring subsequent to August 31, 1997, the
Company's independent auditors, Deloitte & Touche LLP, have reissued their
report on the Company's financial statements as of August 31, 1996 and 1997 and
for each of the three years in the period ended August 31, 1997 to include an
explanatory paragraph related to the Company's ability to continue as a going
concern. A report on Form 8-K dated July 1, 1998 was filed on July 15, 1998 to
report that the Company completed a series of transactions intended to
recapitalize the Company pursuant to which the Company generated approximately
$87.5 million of new equity which resulted in a change in control of the
Company.
36
<PAGE> 39
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MEGO MORTGAGE CORPORATION
By:/s/ James L. Belter
-------------------------------------
James L. Belter
Executive Vice President
Treasurer and Chief Financial Officer
Date: August 26, 1998
37
<PAGE> 1
EXHIBIT 10.80
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of June 29, 1998 by and between Mego Mortgage Corporation, a
Delaware corporation (the "Company"), and City National Bank of West Virginia, a
national banking association ("City"), in connection with the purchase of the
Company's Series A Convertible Preferred Stock (the "Series A Preferred Stock")
in the transactions comprising the Company's Recapitalization (as defined
below).
WHEREAS, the Company is engaging in a plan of recapitalization (the
"Recapitalization") which includes the following: (i) a private offering (the
"Common Stock Offering") of shares of its common stock, par value $.01 (the
"Common Stock"); (ii) a private offering (the "Series A Preferred Stock
Offering") by the Company of shares of its Series A Preferred Stock; and (iii)
an offer occurring concurrently with the Common Stock Offering and the Series A
Preferred Stock Offering (together, the "Offerings") and as a condition thereto
to exchange shares of Series A Preferred Stock and/or new 12 1/2% Subordinated
Notes Due 2001 (the "New Notes") of the Company or a combination thereof,
subject to certain limitations, for any and all of the Company's outstanding 12
1/2% Senior Subordinated Notes Due 2001 of the Company, subject to certain
conditions (the "Exchange Offer");
WHEREAS, the Company has entered into a Placement Agreement dated as of
June 9, 1998 (the "Placement Agreement"), with Friedman, Billings, Ramsey & Co.,
Inc. ("FBR"), a Virginia corporation, pursuant to which FBR will act as
placement agent in connection with the issue and sale of the Common Stock and
Series A Preferred Stock;
WHEREAS, the Company has entered into various Purchase Agreements (each
a "Purchase Agreement") with certain purchasers of Common Stock and Series A
Preferred Stock in conjunction with the Offerings, including, but not limited
to, a Purchase Agreement with City pursuant to which City will purchase 10,000
shares of Series A Preferred Stock and be granted an Option ("City Option") to
purchase 6,666,667 shares of Common Stock; and
WHEREAS, as an incentive to induce investors to participate in the
Recapitalization, the Company has agreed to provide registration rights to
holders of Common Stock acquired in the Offerings, including, but not limited
to, shares of Common Stock underlying the Series A Preferred Stock and the
shares of Common Stock issuable pursuant to the City Option (such shares of
Common Stock are referred to herein as the "Securities" and each share of such
Common Stock is referred to herein as a "Security").
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are acknowledged by
all parties hereto, the parties, intending to be legally obligated, hereby agree
as follows:
<PAGE> 2
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
"Act": The Securities Act of 1933, as amended.
"Broker-Dealer": Any broker or dealer registered as such under the
Exchange Act.
"Closing Date": The date of this Agreement.
"Commission" or "SEC": The United States Securities and Exchange
Commission.
"DTC": The Depository Trust Company.
"Exchange Act": The Securities Exchange Act of 1934, as amended.
"Indemnified Holder": As defined in Section 6(a) hereof.
"NASD": National Association of Securities Dealers, Inc.
"Person": An individual, partnership, corporation, trust or
unincorporated organization, or a government or an agency, authority or
political subdivision thereof.
"Prospectus": The prospectus included in a Registration Statement, as
amended or supplemented, including post-effective amendments, therein.
"Registration Default": As defined in Section 3 hereof.
"Resale Filing Deadline": As defined in Section 2 hereof.
"Resale Registration Statement": As defined in Section 2 hereof.
"Securities": As defined in the preamble hereto.
"City Option": As defined in the preamble hereto.
"Transfer Restricted Securities": Each share of Security until the
earliest to occur of (a) the date on which such Security has been effectively
registered under the Act and disposed of in accordance with a Resale
Registration Statement or such other applicable registration statement or (b)
the date on which such Security is available for resale without restriction to
the public
-2-
<PAGE> 3
pursuant to Rule 144 under the Act or by a Broker-Dealer pursuant to the "Plan
of Distribution" contemplated in the Resale Registration Statement.
"Underwritten Registration" or "Underwritten Offering": An offering in
which securities of the Company are sold to an underwriter for reoffering to the
public pursuant to an effective registration statement filed with the
Commission.
SECTION 2. RESALE REGISTRATION STATEMENT
(a) Registration. The Company shall:
(i) cause to be filed one or more registration statements on
Form S-1, S-2, S-3 or S-4, if the use of such form is then available
(each a "Resale Registration Statement") pursuant to Rule 415 under the
Act, on or prior to September 16, 1998 (the "Resale Filing Deadline"),
which Resale Registration Statements shall provide for resales of all
Transfer Restricted Securities, the holders of which shall have
provided the information required pursuant to Section 2(b) hereof; and
(ii) use its reasonable best efforts to cause such Resale
Registration Statements to be declared effective by the Commission on
or before the 180th day after the Closing Date.
The Company shall use its reasonable best efforts to keep such Resale
Registration Statement continuously effective, supplemented and amended to the
extent necessary to ensure that it is available for resales of Securities by the
holders of Transfer Restricted Securities entitled to the benefit of this
Section 2(a), and to ensure that it conforms with the requirements of this
Agreement, the Act and the policies, rules and regulations of the Commission as
announced from time to time, until the earlier of (i) a period of at least two
years following the Closing Date or (ii) the date on which all Transfer
Restricted Securities may be sold without restriction.
(b) Provision by City of Certain Information in Connection with the
Shelf Registration Statement. City may not include any of its Transfer
Restricted Securities in any Resale Registration Statement pursuant to this
Agreement unless and until City furnishes to the Company in writing, within 20
business days after receipt of a request therefor, such information as the
Company may reasonably request for use in connection with any Resale
Registration Statement or Prospectus or preliminary Prospectus included therein.
City shall not be entitled to Liquidated Damages pursuant to Section 3 hereof
unless and until City shall have used its best efforts to provide all such
reasonably requested information. City agrees to promptly furnish to the Company
any and all information relating to a Resale Registration Statement required to
be disclosed in such Resale Registration Statement in order to make the
information previously furnished to the Company by City not materially
misleading.
-3-
<PAGE> 4
SECTION 3. LIQUIDATED DAMAGES
Subject to the provisions of Section 2(b) hereof, if (i) the applicable
Resale Registration Statements required by this Agreement are not filed with
the Commission on or prior to the date specified for such filing in this
Agreement or (ii) any Resale Registration Statement required by this Agreement
is filed and declared effective but shall thereafter cease to be effective or
fail to be usable for its intended purpose without being restored to
effectiveness by amendment or otherwise within thirty (30) business days or
succeeded immediately by an additional Resale Registration Statement that cures
such failure and that is itself immediately declared effective within thirty
(30) business days (each such event referred to in clauses (i) and (ii), a
"Registration Default"), the Company shall pay liquidated damages to City with
respect to the first 90-day period immediately following the occurrence of such
Registration Default, in an amount equal to $.05 per Security per week. The
amount of the liquidated damages shall increase by an additional $.05 per week
with respect to each subsequent 90-day period until all Registration Defaults
have been cured, up to a maximum amount of liquidated damages of $.50 per share
per week. All accrued liquidated damages shall be paid to City by the Company by
wire transfer of immediately available funds or by federal funds check on the
91st day following the occurrence of a Registration Default. Following the cure
of all Registration Defaults relating to any particular Transfer Restricted
Securities, the accrual of liquidated damages with respect to such Transfer
Restricted Securities will cease.
All obligations of the Company set forth in the preceding paragraph
that are outstanding with respect to any Transfer Restricted Security at the
time such Security ceases to be a Transfer Restricted Security shall survive
until such time as all such obligations with respect to such Security shall have
been satisfied in full.
SECTION 4. REGISTRATION PROCEDURES
(a) Resale Registration Statement. In connection with each Resale
Registration Statement, the Company shall comply with all the provisions of
Section 4(b) below and shall use all reasonable efforts to effect such
registration to permit the sale of the Transfer Restricted Securities being sold
in accordance with the intended methods thereof. In this regard pursuant thereto
the Company will, by September 16, 1998, prepare and file with the Commission a
Registration Statement relating to the registration on any appropriate form
under the Act, which form shall be available for the sale of the Transfer
Restricted Securities in accordance with such intended methods of resale.
(b) General Provisions. In connection with any Resale Registration
Statement and any Prospectus required by this Agreement to permit the sale or
resale of Transfer Restricted Securities (including, without limitation, any
Registration Statement and the related Prospectus required to permit resales of
the Securities by Broker-Dealers), the Company shall:
-4-
<PAGE> 5
(i) use its reasonable best efforts to keep such
Registration Statement continuously effective and provide all requisite
financial statements for the period specified in Section 2 of this
Agreement, and upon the occurrence of any event that would cause any
such Registration Statement or the Prospectus contained therein (A) to
contain a material misstatement or omission or (B) not to be effective
and usable for resale of Transfer Restricted Securities during the
period required by this Agreement, the Company shall file promptly, and
as appropriate, an amendment or supplement to such Registration
Statement, in the case of clause (A), correcting any such misstatement
or omission, and, in the case of either clause (A) or (B), use its
reasonable best efforts to cause such amendment to be declared
effective and such Registration Statement and the related Prospectus to
become usable for their intended purpose(s) as soon as practicable
thereafter;
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be
necessary to keep the Registration Statement effective for the
applicable period set forth in Section 2 hereof or such shorter period
as will terminate when all Transfer Restricted Securities covered by
such Registration Statement cease to be Transfer Restricted Securities;
cause the Prospectus to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424
under the Act in a timely manner, and reasonably assist City in
complying with the provisions of the Act with respect to the
disposition of all Securities covered by such Registration Statement
during the applicable period in accordance with the intended method of
methods of distribution by the sellers thereof set forth in such
Registration Statement or supplement to the Prospectus;
(iii) advise the underwriter(s), if any, and City promptly
and, if requested by such Persons in writing, to confirm such advice in
writing, (A) when the Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to any
Registration Statement or any post-effective amendment thereto, when
the same has become effective, (B) of any request by the Commission for
amendments to the Registration Statement or amendments or supplements
to the Prospectus or for additional information relating thereto, (C)
of the issuance by the Commission of any stop order or other order or
action suspending the effectiveness of the Registration Statement under
the Act or of the suspension by any state securities or Blue Sky
commission of the exemption, qualification or registration of the
Transfer Restricted Securities for offering or sale in any
jurisdiction, or the initiation of any proceeding for any of the
preceding purposes, or (D) of the existence of any fact or the
happening or any event that makes any statement of a material fact made
in the Registration Statement, the Prospectus, any amendment or
supplement thereto, or any document incorporated by reference therein
untrue, or that requires the making of any additions to or changes in
the Registration Statement or the Prospectus in order to make the
statements therein not misleading. If at any time the Commission shall
issue any stop order or other order or take other action suspending the
effectiveness of the Registration Statement, or any state securities
-5-
<PAGE> 6
commission or other regulatory authority shall issue an order
suspending the exemption, qualification or registration of the Transfer
Restricted Securities under state securities or Blue Sky laws, the
Company shall use all reasonable efforts to obtain the withdrawal or
lifting of such order at the earliest possible time;
(iv) furnish to City and each of the underwriter(s), if any,
before filing with the Commission, copies of any Registration Statement
or any Prospectus included therein or any amendments or supplements to
any such Registration Statement or Prospectus (including all documents
incorporated by reference after the initial filing of such Registration
Statement), which documents will be subject to the review of City and
the underwriter(s), if any, for a period of at least five business
days, and the Company will not file any such Registration Statement or
Prospectus or any amendment or supplement to any such Registration
Statement or Prospectus (including all such documents incorporated by
reference) to which City or the underwriter(s), if any, shall
reasonably object within five business days after the receipt thereof.
City or the underwriter, if any, shall be deemed to have reasonably
objected to such filing if such Registration Statement, amendment,
Prospectus or supplement, as applicable, as proposed to be filed,
contains a material misstatement or omission;
(v) make available at reasonable times and upon reasonable
notice for inspection by City, any underwriter participating in any
disposition pursuant to such Registration Statement, and any attorney
or accountant retained by City or any of the underwriter(s), all
financial and other records, pertinent corporate documents and
properties of the Company and cause the Company's' officers, directors
and employees to supply all information reasonably requested by City,
or any underwriter, attorney or accountant in connection with such
Registration Statement subsequent to the filing thereof and prior to
its effectiveness;
(vi) if requested by City or the underwriter(s), if any,
promptly incorporate in any Registration Statement or Prospectus,
pursuant to a supplement or post-effective amendment if necessary, such
information as City and the underwriter(s), if any, may reasonably
request to have included therein, provided such information is usual
and customary in such a document, including, without limitation,
information relating to the "Plan of Distribution" of the Transfer
Restricted Securities, information with respect to the principal amount
of Transfer Restricted Securities being sold to such underwriter(s),
the purchase price being paid therefor and any other terms of the
offering of the Transfer Restricted Securities to be sold in such
offering; and make all required filings of such Prospectus supplement
or post-effective amendment as soon as practicable after the Company is
notified of the matters to be incorporated in such Prospectus
supplement or post-effective amendment;
(vii) furnish to City and each of the underwriter(s), if any,
without charge, one copy of the Registration Statement, as first filed
with the Commission, and of each
-6-
<PAGE> 7
amendment thereto, including all documents incorporated by reference
therein and all exhibits;
(viii) deliver to City and each of the underwriter(s), if any,
without charge, as many copies of the Prospectus (including each
preliminary prospectus) and any amendment or supplement thereto as such
Persons reasonably may request; and the Company hereby consents to the
use of the Prospectus and any amendment or supplement thereto (other
than in those states or jurisdictions in which the Company has not
complied with or satisfied the requirements of the relevant "blue sky"
securities laws) by City and each of the underwriter(s), if any, in
connection with the offering and the sale of the Transfer Restricted
Securities covered by the Prospectus or any amendment or supplement
thereto;
(ix) enter into such agreements (including an underwriting
agreement), and make such representations and warranties, and take all
such other actions in connection therewith in order to expedite or
facilitate the disposition of the Transfer Restricted Securities
pursuant to any Registration Statement contemplated by this Agreement,
to the extent reasonably and customary in this type of offering and as
may be reasonably requested by City or any underwriter in connection
with any sale or resale pursuant to any Registration Statement
contemplated by this Agreement; and if the registration is an
Underwritten Registration, the Company shall:
(A) furnish to City and each underwriter, if any, in
such substance and scope as they may request and as are
customarily made by issuers to underwriters in primary
underwritten offerings, upon the date of the effectiveness of
the Resale Registration Statement:
(1) a certificate, dated the date of
effectiveness of the Resale Registration Statement,
as the case may be, signed by (i) the President or
any Vice President and (ii) a principal financial or
accounting officer of the Company, confirming, as of
the date thereof, the matters set forth in paragraph
(c) of Section 5 of the Placement Agreement and such
other matters as such parties may reasonably request;
(2) an opinion, dated the date of
effectiveness of the Resale Registration Statement,
as the case may be, of counsel for the Company,
covering the matters set forth in paragraph (a) of
Section 5 of the Placement Agreement and such other
matters as such parties may reasonably request, and
in any event including a statement to the effect that
such counsel has participated in conferences with
officers and other representatives of the Company,
representatives of the independent public accountants
for the Company, City's representatives and City's
counsel in connection with the preparation of such
Registration Statement and the
-7-
<PAGE> 8
related Prospectus and have considered the matters
required to be stated therein and the statements
contained therein, although such counsel has not
independently verified the accuracy, completeness or
fairness of such statements; and that such counsel
advises that, on the basis of the foregoing, no facts
came to such counsel's attention that caused such
counsel to believe that the applicable Registration
Statement, at the time such Registration Statement or
any post-effective amendment thereto become
effective, contained an untrue statement of a
material fact or omitted to state a material fact
required to be stated therein or necessary to make
the statements therein not misleading, or that the
Prospectus contained in such Registration Statement
as of its date, an untrue statement of a material
fact or omitted to state a material fact necessary in
order to make the statements therein, in light of the
circumstances under which they were made, not
misleading. Without limiting the foregoing, such
counsel may state further that such counsel assumes
no responsibility for, and has not independently
verified, the accuracy, completeness or fairness of
the financial statements, notes and schedules and
other financial data included in any Registration
Statement contemplated by this Agreement or the
related Prospectus; and
(3) a customary comfort letter, dated as of
the date of effectiveness of the Resale Registration
Statement, as the case may be, from the Company's
independent accountants, in the customary form and
covering matters of the type customarily covered in
comfort letters by underwriters in connection with
primary underwritten offerings, and affirming the
matters set forth in the comfort letters delivered
pursuant to Section 5(b) of the Placement Agreement,
without exception;
(B) set forth in full or incorporate by reference in
the underwriting agreement, if any, the indemnification
provisions and procedures of Section 6 hereof with respect to
all parties to be indemnified pursuant to said Section; and
(C) deliver such other documents and certificates as
may be reasonably requested by such parties to evidence
compliance with clause (A) above and with any customary
conditions contained in the underwriting agreement or other
agreement entered into by the Company pursuant to this clause
(ix), if any.
If at any time the representations and warranties of the
Company contemplated in clause (A)(1) above cease to be true and
correct, the Company promptly shall so advise City and the
underwriter(s), if any, if requested by such Persons, shall confirm
such advice in writing;
-8-
<PAGE> 9
(x) prior to any public offering of Transfer Restricted
Securities, cooperate with City, the underwriter(s), if any, and their
respective counsel in connection with the registration and
qualification of the Transfer Restricted Securities under the
securities or Blue Sky and securities laws of such jurisdictions as
City or underwriter(s) may reasonably request and do any and all other
acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Transfer Restricted Securities covered by the
Resale Registration Statement; provided, that the Company shall not be
required to register or qualify as a foreign corporation where it is
not now so qualified or to take any action that would subject it to the
service of process in suits or to taxation, other than as to matters
and transactions relating to the Registration Statement, in any
jurisdiction where it is not now so subject;
(xi) cooperate with City and the underwriter(s), if any, to
facilitate the timely preparation and delivery of certificates
representing Transfer Restricted Securities to be sold and not bearing
any restrictive legends; and enable such Transfer Restricted Securities
to be in such denominations and registered in such names as City or the
underwriter(s), if any, may reasonably request at least two business
days prior to any sale of Transfer Restricted Securities made by such
underwriter(s);
(xii) use its reasonable best efforts to cause the Transfer
Restricted Securities covered by the Registration Statement to be
registered with or approved by such other governmental agencies or
authorities as may be necessary to enable City or the underwriter(s),
if any, to consummate the disposition of such Transfer Restricted
Securities, subject to the proviso contained in paragraph (x) above;
(xiii) if any fact or event contemplated by paragraph
(b)(iii)(D) above shall exist or have occurred, prepare a supplement or
post-effective amendment to the Registration Statement or related
Prospectus or any document incorporated therein by reference or file
any other required document so that, as thereafter delivered to the
purchasers of Transfer Restricted Securities, the Prospectus will not
contain an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading;
(xiv) provide a CUSIP number for Transfer Restricted
Securities not later than the effective date of the Registration
Statement and provide City with printed certificates for the Transfer
Restricted Securities which are in a form satisfactory to City;
(xv) cooperate and assist in any filings required to be made
with the NASD and in the performance of any due diligence investigation
by any underwriter (including any "qualified independent underwriter")
that is required to be retained in accordance with the rules and
regulations of the NASD, and use its reasonable best efforts to cause
such Registration Statement to become effective and approved by such
governmental agencies
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or authorities as may be necessary to enable City to consummate the
disposition of such Transfer Restricted Securities;
(xvi) otherwise comply with all applicable rules and
regulations of the Commission, and make generally available to its
security holders, as soon as practicable, a consolidated earnings
statement meeting the requirements of Rule 158 (which need not be
audited) for the twelve-month period (A) commencing at the end of any
fiscal quarter in which Transfer Restricted Securities are sold to
underwriters in a firm or best efforts underwritten offering or (B) if
not sold to underwriters in such an offering, beginning with the first
month of the Company's first fiscal quarter commencing after the
effective date of the Registration Statement;
(xvii) cause all Transfer Restricted Securities covered by
the Registration Statement to be listed on each securities exchange or
market, if applicable, on which similar securities issued by the
Company are then listed; and
(xviii) provide promptly to City, as long as it remains a
stockholder of the Company, upon request each document filed with the
Commission pursuant to the requirements of Sections 13, 14 and 15 of
the Exchange Act for a period of three years from the Closing Date.
City agrees by acquisition of a Transfer Restricted Security that, upon
receipt of any notice from the Company of the existence of any fact of the kind
described in Section 4(b)(iii)(D) hereof, City will forthwith discontinue
disposition of Transfer Restricted Securities pursuant to the applicable
Registration Statement until City's receipt of the copies of the supplemented or
amended Prospectus, or until it is advised in writing (the "Advice") by the
Company that the use of the Prospectus may be resumed, and has received copies
of any additional or supplemental filings that are incorporated by reference in
the Prospectus. If so directed by the Company, City will deliver to the Company
(at the Company's expense) all copies, other than permanent file copies then in
City's possession, of the Prospectus covering such Transfer Restricted
Securities that was current immediately prior to the time of receipt of such
notice. In the event the Company shall give any such notice, the time period
regarding the effectiveness of such Registration Statement set forth in Section
2, shall be extended by the number of days during the period from and including
the date of the giving of such notice pursuant to Section 4(b)(iii)(D) hereof to
and including the date when City shall have received the copies of the
supplemented or amended Prospectus or shall have received the Advice.
SECTION 5. REGISTRATION EXPENSES
(a) All expenses incident to the Company's performance of or
compliance with this Agreement will be borne by the Company, as the case may be,
regardless of whether a Registration Statement becomes effective, including
without limitation: (i) all registration and
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filing fees and expenses (including filings made by City with the NASD (and, if
applicable, the fees and expenses of any "qualified independent underwriter" and
its counsel that may be required by the NASD)); (ii) all fees and expenses of
compliance with federal securities, foreign securities and state Blue Sky or
securities laws; (iii) all expenses of printing (including the printing of
Prospectuses), messenger and delivery services and telephone incurred by the
Company; (iv) all fees and disbursements of counsel for the Company and, subject
to Section 5(b) below, City; (v) all application and filing fees in connection
with listing the Securities on a national securities exchange or automated
quotation system pursuant to the requirements hereof; (vi) all fees and
disbursements of independent certified public accountants of the Company
(including the expenses of any special audit and comfort letters required by or
incident to such performance); and (vii) all fees and charges of the Rating
Agencies, if any; provided, that the Company will not bear certain personal
expenses of City, including, underwriting discounts, commissions, and messenger
and delivery services and telephone expenses incurred by City.
The Company will, in any event, bear its internal expense (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expenses of any annual audit, all
trustee and Rating Agency fees and charges and the fees and expenses of any
Person, including special experts, retained by the Company.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Resale Registration Statement),
the Company will reimburse City, as applicable, for the reasonable fees and
disbursements of not more than one counsel as may be chosen by City.
SECTION 6. INDEMNIFICATION
(a) The Company shall indemnify and hold harmless (i) City and (ii)
each person, if any, who controls (within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act) City (any of the persons referred to in this
clause (ii) being hereinafter referred to as a "Controlling Person") and (iii)
the respective officers, directors, partners, employees, representatives and
agents of City or any Controlling Person (any person referred to in clause (i),
(ii) or (iii) may hereinafter be referred to as an "Indemnified Holder"), to the
fullest extent lawful, from and against any and all losses, claims, damages,
liabilities, judgments, actions and expenses (including without limitation,
reimbursement of all reasonable costs of investigating, preparing, pursuing or
defending any claim or action, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, including the reasonable
fees and charges of counsel), directly or indirectly caused by, related to,
based upon, arising out of or in connection with any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement or
Prospectus (or any amendment or supplement thereto), or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims,
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<PAGE> 12
damages, liabilities or expenses are caused by an untrue statement or omission
or alleged untrue statement or omission that is made in reliance upon and in
conformity with information relating to City furnished in writing to the Company
by City or any counsel or agent of City expressly for use therein.
In case any action or proceeding (including any governmental or
regulatory investigation or proceeding) shall be brought or asserted against any
Indemnified Holder with respect to which indemnity may be sought against the
Company, such Indemnified Holder (or the Indemnified Holder controlled by such
controlling person) shall promptly notify the Company in writing (provided, that
the failure to give such notice shall not relieve the Company of its obligations
pursuant to this Agreement unless and to the extent materially and adversely
affected). Such Indemnified Holder shall have the right to employ its own
counsel in any such action and the fees and expenses of such counsel shall be
paid, as incurred, by the Company (regardless of whether it is ultimately
determined that an Indemnified Holder is not entitled to indemnification
hereunder); provided, that if the Indemnified Holder is not successful and it is
determined that such Indemnified Holder is not entitled to indemnification
hereunder, then such Indemnified Holder shall reimburse the Company for all
monies advanced by the Company to which such Indemnified Holder was not
entitled. The Company shall not, in connection with any one such action or
proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the reasonable fees and expenses of more than
one separate firm of attorneys (in addition to any local counsel) at any time
for such Indemnified Holders, which firm shall be designated by the holders of a
majority of the shares of Common Stock, or Securities that are subject to, or
affected by, such action or proceeding. The Company shall not be liable for any
settlement of any such action or proceeding effected without the Company's prior
written consent, which consent shall not be withheld unreasonably, and subject
to the limitation contained in the prior paragraph, the Company will indemnify
and hold harmless any Indemnified Holder from and against any loss, claim,
damage, liability or expense by reason of any settlement of any action effected
with the prior written consent of the Company. The Company shall not, without
the prior written consent of each Indemnified Holder, settle or compromise or
consent to the entry of judgment in or otherwise seek to terminate any pending
or threatened action, claim, litigation or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not any
Indemnified Holder is a party thereto), unless such settlement, compromise,
consent or termination includes an unconditional release of each Indemnified
Holder from all liability arising out of such action, claim, litigation or
proceeding.
(b) City agrees to indemnify and hold harmless the Company, and its
respective directors, officers and any person controlling (within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act) the Company, and the
respective officers, directors, partners, employees, representatives and agents
of each such person, to the same extent as the foregoing indemnity from the
Company to each of the Indemnified Holders, but only with respect to claims and
actions based on information relating to City furnished in writing by City
expressly for use in any Registration Statement. In case any action or
proceeding shall be brought against the
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<PAGE> 13
Company or its directors or officers or any such controlling person in respect
of which indemnity may be sought against City, City shall have the rights and
duties given the Company and the Company or its directors or officers or such
controlling person shall have the rights and duties given to each Indemnified
Holder by the preceding paragraph. In no event shall the liability of City
hereunder be greater in amount than the dollar amount of the net proceeds
received by City upon the sale of the Restricted Securities giving rise to such
indemnification obligation.
(c) If the indemnification provided for in this Section 6 is
unavailable to an indemnified party under Section 6(a) or Section 6(b) hereof
(other than by reason of the exceptions provided therein) in respect of any
losses, claims, damages, liabilities or expenses referred to therein, then each
applicable indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand, and City on the other hand from their purchase of
Transfer Restricted Securities or if such allocation is not permitted by
applicable law, the relative fault of the Company on the one hand and of the
Indemnified Holder on the other in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative fault of the
Company on the one hand, and of the Indemnified Holder on the other, shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or by the
Indemnified Holder and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include,
subject to the limitations set forth in the second paragraph of Section 6(a),
any legal or other fees, expenses or charges reasonably incurred by such party
in connection with investigating or defending any action or claim.
The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or expenses referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
SECTION 7. RULE 144
The Company hereby agrees with City, for so long as any Transfer
Restricted Securities remain outstanding, to make available to City in
connection with any sale thereof and any prospective purchaser of such Transfer
Restricted Securities from City, the information required
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by Rule 144 under the Act in order to permit resales of such Transfer Restricted
Securities pursuant to Rule 144.
SECTION 8. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS
City may not participate in any Underwritten Registration hereunder
unless City (a) agrees to sell City's Transfer Restricted Securities on the
basis provided in any underwriting arrangements provided by the Persons entitled
hereunder to approve such arrangements and (b) completes and executes all
reasonable questionnaires, powers of attorney, indemnities, underwriting
agreements, lock-up letters and other documents required under the terms of such
underwriting arrangements.
SECTION 9. SELECTION OF UNDERWRITERS
City as a holder of Transfer Restricted Securities covered by the
Resale Registration Statement may sell such Transfer Restricted Securities in an
Underwritten Offering. In any such Underwritten Offering, the investment banker
or investment bankers and manager or managers that will administer the offering
will be selected by the Holders of a majority in aggregate principal amount of
the Transfer Restricted Securities included in such offering; provided, that
such investment bankers and managers must be reasonably satisfactory to the
Company.
SECTION 10. MISCELLANEOUS
(a) Remedies. The Company agrees that monetary damages (including the
liquidated damages contemplated hereby) would not be adequate compensation for
any loss incurred by reason of a breach by it of the provisions of this
Agreement and hereby agree to waive the defense in any action for specific
performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company will not, on or after the
date of this Agreement, enter into any agreement with respect to its securities
that is inconsistent with the rights granted to City in this Agreement or
otherwise conflicts with the provisions hereof. The Company has not previously
entered into any agreement granting any registration rights with respect to its
securities to any Person, except as contemplated in the Offering Memorandum. The
rights granted to City hereunder do not in any way breach or conflict with and
are not inconsistent with the rights granted to the holders of the Company's
securities under any agreement in effect on the date hereof.
(c) Adjustments Affecting the Securities. The Company will not take
any action, or permit any change to occur, with respect to the Securities that
would materially and adversely affect the ability of City to resell such
Securities.
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<PAGE> 15
(d) Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to or departures from
the provisions hereof may not be given unless in writing from both parties.
(e) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class or
certified mail, telex, telecopier, or reliable overnight delivery service:
(i) If to City:
City National Bank of West Virginia
3601 McCorkle Avenue
Charleston, West Virginia 25304-1498
Telecopier No.: (304) 769-1111
Attention: Robert A. Henson
Attention:
(ii) If to the Company:
Mego Mortgage Corporation
Fifth Floor
1000 Parkwood Circle
Atlanta, Georgia 30339
Telecopier No.: (800) 694-6346
Attention: Edward B. Meyercord
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt acknowledged, if telecopied; and on the
next business day, if sent via a reliable overnight delivery service.
(f) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment,
subsequent Holders of Transfer Restricted Securities.
(g) Counterparts. This Agreement may be executed in any number of
counterparts, by the parties hereto, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
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<PAGE> 16
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF GEORGIA, WITHOUT REGARD TO THE CONFLICT
OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof, in any circumstances, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement together with the Purchase
Agreement, and the Placement Agreement (as defined in the Purchase Agreement) is
intended by the parties as a final expression of their agreement and intended to
be a complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter hereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein with respect to the registration rights granted by the
Company with respect to the Transfer Restricted Securities. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
MEGO MORTGAGE CORPORATION
By: /s/ Jeffrey S. Moore
-----------------------------------------------
Name: Jeffrey S. Moore
Title: President and Chief Executive Officer
CITY NATIONAL BANK OF WEST VIRGINIA
By: /s/ Robert A. Henson
-----------------------------------------------
Name: Robert A. Henson
Title: Chief Financial Officer
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<PAGE> 1
EXHIBIT 10.84
CITY MORTGAGE SERVICES
OPTION AGREEMENT
This OPTION AGREEMENT ("Option Agreement") dated as of June 29, 1998,
between CITY NATIONAL BANK OF WEST VIRGINIA, a national banking association
("City National"), and MEGO MORTGAGE CORPORATION ("Mego"), a Delaware
corporation, recites and provides:
A. Pursuant to a Preferred Stock Purchase Agreement, dated as of June
9, 1998, between Mego and City National (the "Preferred Stock Purchase
Agreement"), Mego and City Mortgage Services, a division of City National
("CMS") have executed a Flow Servicing Agreement dated as of June 26, 1998 (the
"Servicing Agreement") whereby CMS will service certain Mortgage Loans for Mego.
B. To induce Mego to enter into the Servicing Agreement, City National
has agreed to grant to Mego an option to purchase up to 20% of the equity
interests in CMS upon the terms and conditions set forth herein.
NOW, THEREFORE, the parties agree as follows:
1. Definitions.
Capitalized terms defined in the Servicing Agreement and used herein
shall have the same meanings as in the Servicing Agreement.
"Board of Directors of CMS" means, if CMS is a corporation, its duly
elected board of directors, or if CMS is not a corporation, the person or body
exercising similar authority with respect to its affairs.
"CMS" means the City Mortgage Services division of City National and
any entity created by City National to carry out the business conducted by such
division. The parties acknowledge and confirm that City National currently
conducts the servicing of (i) high loan-to-value or "125" consumer mortgage
loans and (ii) home improvement mortgage loans insured under Title I of the
National Housing Act of 1934, as amended, and similar home improvement mortgage
loans not so insured, exclusively through CMS and that the option described in
this Agreement is intended to extend to that business only and is not intended
to grant Mego any rights in any other servicing business conducted by City
National or its affiliates now or in the future. In particular, the parties
acknowledge and confirm that this Agreement does not grant Mego any rights in
the servicing of loans originated or purchased by City National or any of its
affiliates that are classified at the time of origination or purchase (or a
reasonable time thereafter) as loans to be held to maturity. The
<PAGE> 2
parties may agree in writing hereafter to extend this option to other business
conducted by City National based upon the contributions of Mego to such
businesses.
"CMS Equity Interests" means the common voting equity securities in
CMS.
"Exercise Trigger Date" means the date of the first issuance in a
public or private sale of CMS Equity Interests or the effective date of any
distribution of CMS Equity Interests to the shareholders of City National, City
Holding or their affiliates, as applicable.
"Exercise Trigger Event" means the first to occur of (i) the issuance
of CMS Equity Interests in a public or private sale and (ii) the distribution of
CMS Equity Interests to the shareholders of City National, City Holding or their
affiliates.
"Fair Market Value" with respect to the CMS Equity Interests, means (i)
if the Option becomes exercisable as a result of the issuance of CMS Equity
Interests in a public or private sale, the initial price to the public in such
public offering or to investors in such private offering, (ii) if the Option
becomes exercisable as a result of the distribution of CMS Equity Interests to
the shareholders of City National, City Holding or their affiliates, the average
of the daily "market price" of a unit of CMS Equity Interests for the 10
consecutive trading days commencing with the effective date of such
distribution. The "market price" for each such trading day shall be: (x) if the
CMS Equity Interests are listed or admitted to trading on any securities
exchange or The NASDAQ National Market, the closing price, regular way, on such
day, or if no such sale takes place on such day, the average of the closing bid
and asked prices on such day, (y) if the CMS Equity Interests are not listed or
admitted to trading on any securities exchange or The NASDAQ National Market,
the last reported sale price on such day or, if no sale takes place on such day,
the average of the closing bid and asked prices on such day, as reported by a
reliable quotation source designated in good faith by the Board of Directors of
CMS, or (z) if the CMS Equity Interests are not listed or admitted to trading on
any securities exchange or The NASDAQ National Market and no such last reported
sale price or closing bid and asked prices are available, the average of the
reported high bid and low asked prices on such day, as reported by a reliable
quotation source designated in good faith by the Board of Directors of CMS or if
there shall be no bid and asked prices on such day, the average of the high bid
and low asked prices, as so reported, on the most recent day (not more than 10
days) after the date in question for which prices have been so reported;
provided, that if there are no bid and asked prices reported during the 10 days
after the date in question, the value of the CMS Equity Interests shall be as
determined by the Board of Directors of CMS acting in good faith.
"Option" has the meaning set forth in Section 2.
"Purchase Price" has the meaning set forth in Section 2.
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<PAGE> 3
2. Grant of Option.
Subject to the terms and conditions set forth herein, City National
hereby grants to Mego an option (the "Option") to purchase up to a number of CMS
Equity Interests (the "Option Interests") equal to 20% of the aggregate of (i)
the number of CMS Equity Interests outstanding immediately following the
Exercise Trigger Event plus (ii) the aggregate number of Option Interests, at an
exercise price equal to 90% of the Fair Market Value of the Option Interests
purchased (the "Purchase Price").
3. Exercise of Option; Term of Option.
(a) Mego may exercise the Option once, in whole or part, at any time
following the occurrence of an Exercise Trigger Event; provided, that the Option
shall not be exercisable during any period during which (i) Mego shall have
breached in any material respect any covenant or representation contained in the
Preferred Stock Purchase Agreement, the Servicing Agreement or any of the
agreements between Mego and City National and CMS referred to in either of such
documents, and such breach shall not have been cured, or (ii) the aggregate
principal balance of Mortgage Loans being serviced by CMS pursuant to the
Servicing Agreement is less than $1,000,000,000.00. The Option shall terminate
and be of no further force and effect upon the first to occur of (i) 5:00 p.m.,
Charleston, West Virginia time, on June 29, 2003, and (ii) the valid resignation
of CMS as servicer under the Servicing Agreement or any termination of the
Servicing Agreement pursuant to Section 5.01, 5.02 or 5.03 thereof.
(b) To exercise the Option, Mego shall send to CMS a written notice
(the date of which is referred to as the "Notice Date") specifying (i) the total
number of CMS Equity Interests it will purchase pursuant to such exercise, and
(ii) a date not earlier than five business days nor later than 15 business days
after the Notice Date for the closing of such purchase (the "Closing Date");
provided, that if prior notification to or approval of any federal or state
regulatory agency is required in connection with such purchase or sale, Mego or
CMS, as applicable, shall promptly file the required notice or application for
approval and shall expeditiously process the same and the period of time that
otherwise would run pursuant to this sentence shall run instead from the date on
which any required notification period has expired or been terminated or such
approval has been obtained and any requisite waiting period shall have passed.
The Closing shall take place at the principal offices of CMS or at such other
location as Mego and CMS may agree upon.
(c) Mego agrees that the CMS Equity Interests issued to it shall be
issued on the same terms and conditions as they are issued to all purchasers or
distributees of the CMS Equity Interests in the transaction constituting the
Exercise Trigger Event.
(d) City National agrees that it will not transfer, and will cause CMS
not to transfer, to any party other than an Affiliate of City National (if such
Affiliate agrees to abide by the terms of this Agreement), any CMS Equity
Interests prior to the Exercise Trigger Date without the prior written consent
of Mego.
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<PAGE> 4
4. Payment and Delivery of Certificates.
(a) At the closing referred to in Section 3, Mego shall pay to CMS the
Purchase Price in immediately available funds by wire transfer to an account
designated by CMS.
(b) At such closing, simultaneously with the delivery of funds as
provided in subsection (a), CMS shall deliver to Mego a certificate or
certificates (or other appropriate evidence of ownership) representing the
number of CMS Equity Interests purchased by Mego, and Mego shall deliver to CMS
a letter agreeing that Mego will not offer to sell or otherwise dispose of such
shares in violation of applicable law or the provisions of this Option Agreement
and that Mego will be bound by all other terms and condition applicable to the
CMS Equity Interests issued in the transaction constituting the Exercise Trigger
Event. Certificates for CMS Equity Interests delivered at a closing hereunder
may be endorsed with an appropriate restrictive legend.
(c) From time to time, Mego may direct CMS in writing to deposit any
portion of the servicing revenues to which it is entitled relating to Mortgage
Loans serviced by CMS under the Servicing Agreement in an account for the
benefit of Mego. All amounts deposited in such account shall not bear interest
and shall be applied to the Purchase Price or refunded to Mego upon the
exercise, expiration or termination of the Option.
5. Representations, Warranties and Covenants.
CMS represents, warrants and covenants to Mego as follows:
(a) Upon the creation of CMS as an entity separate from City National,
CMS will at all times maintain sufficient authorized but unissued CMS Equity
Interests so that the Option may be exercised without authorization of
additional CMS Equity Interests.
(b) All CMS Equity Interests issued upon the exercise, in whole or in
part, of the Option, when paid for as provided herein, will be duly authorized,
validly issued, fully paid and nonassessable, as applicable.
6. Adjustments to Option.
In the event of any change in CMS Equity Interests following the
Exercise Trigger Date by reason of dividends payable in equity interests,
split-ups, mergers, recapitalizations, combinations, exchanges of interests or
the like, the type and number of interests subject to the Option, and the
purchase price per unit, as the case may be, shall be adjusted appropriately.
7. Registration Rights.
If requested by Mego and at Mego's expense, CMS shall as expeditiously
as possible file a registration statement on a form of general use under the
Securities Act of 1933, as amended, if
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<PAGE> 5
necessary in order to permit the sale or other disposition of the shares of CMS
Equity Interests that have been acquired upon exercise of the Option in
accordance with the intended method of sale or other disposition requested by
Mego. Mego shall provide all information reasonably requested by CMS for
inclusion in any registration statement to be filed hereunder. CMS will use its
reasonable best efforts to cause such registration statement first to become
effective and then to remain effective for such period not in excess of 90 days
from the day such registration statement first becomes effective as may be
reasonably necessary to effect such sales or other dispositions. CMS will use
its reasonable best efforts to cause the CMS Equity Interests to be registered
or qualified under the securities laws of such states and other U.S.
jurisdictions as Mego reasonably may request. In no event shall CMS be required
to effect more than two registrations hereunder or to effect any registration
for CMS Equity Interests having an aggregate value less than $5,000,000. The
filing of any registration statement hereunder may be delayed for such period of
time, not to exceed 180 days in any 365-day period, as the Board of Directors of
CMS, acting in good faith, determines is in the best interest of the Company. If
requested by Mego, in connection with any such registration, CMS will become a
party to any underwriting agreement relating to the sale of such shares, but
only to the extent of obligating itself in respect of representations,
warranties, indemnities and other agreements customarily included in such
underwriting agreements. CMS and its management shall not be required to
participate in any "road show" or other special marketing effort with respect to
the CMS Equity Interests to be sold hereunder. To the extent customary, CMS will
indemnify the selling holders of CMS Equity Interests against losses and
reasonable expenses incurred as a result of any material misstatement or
omission, or alleged misstatement or omission, in or from any registration
statement or prospectus filed or used hereunder, except with respect to any
information furnished to CMS by such holders for use therein.
8. Severability.
If any term, provision, covenant or restriction contained in this
Option Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Option
Agreement shall remain in full force and effect, and shall in no way be
affected, impaired or invalidated. If for any reason such court or regulatory
agency determines that the Option will not permit the holder to acquire the full
number of shares of CMS Equity Interests provided in Section 2 (as adjusted
pursuant to Section 6), it is the express intention of CMS to allow the holder
to acquire such lesser number of shares as may be permissible, without any
amendment or modification hereof.
9. Miscellaneous.
(a) Expenses. Except as otherwise provided herein, each of the parties
hereto shall bear and pay all costs and expenses incurred by it or on its behalf
in connection with the transactions contemplated hereunder, including fees and
expenses of its own financial consultants, investment bankers, accountants and
counsel.
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<PAGE> 6
(b) Entire Agreement. Except as otherwise expressly provided herein,
this Option Agreement contains the entire agreement between the parties with
respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereto, written or oral. The terms
and conditions of this Option Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and assigns.
Nothing in this Option Agreement, expressed or implied, is intended to confer
upon any party, other than the parties hereto, and their respective successors
and assigns, any rights, remedies, obligations or liabilities under or by reason
of this Option Agreement, except as expressly provided herein.
(c) Assignment. Neither of the parties hereto may assign any of its
rights or obligations under this Option Agreement or the Option created
hereunder to any other person, without the express written consent of the other
party.
(d) Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered in the
manner and to the addresses provided for in or pursuant to the Preferred Stock
Purchase Agreement.
(e) Counterparts. This Option Agreement may be executed in any number
of counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
(f) Specific Performance. The parties agree that damages would be an
inadequate remedy for a breach of the provisions of this Option Agreement by
either party hereto and that this Option Agreement may be enforced by either
party hereto through injunctive or other equitable relief.
(g) Governing Law. This Option Agreement shall be governed by and
construed in accordance with the laws of West Virginia applicable to agreements
made and entirely to be performed within such state and such federal laws as may
be applicable.
[Signatures appear on following page.]
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<PAGE> 7
IN WITNESS WHEREOF, each of the parties hereto has executed this Option
Agreement as of the date and year first written above.
MEGO MORTGAGE CORPORATION
By: /s/ Jeffrey S. Moore
----------------------------------------------
Name: Jeffrey S. Moore
Title: President and Chief Executive Officer
CITY NATIONAL BANK OF WEST VIRGINIA
By: /s/ Robert A. Henson
----------------------------------------------
Name: Robert A. Henson
Title: Chief Financial Officer
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<PAGE> 1
EXHIBIT 10.88
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of June 29, 1998 by and between Mego Mortgage Corporation, a
Delaware corporation (the "Company"), and Sovereign Bancorp, Inc., a
Pennsylvania corporation ("Sovereign"), in connection with the purchase of the
Company's Series A Convertible Preferred Stock (the "Series A Preferred Stock")
in the transactions comprising the Company's Recapitalization (as defined
below).
WHEREAS, the Company is engaging in a plan of recapitalization (the
"Recapitalization") which includes the following: (i) a private offering (the
"Common Stock Offering") of shares of its common stock, par value $.01 (the
"Common Stock"); (ii) a private offering (the "Series A Preferred Stock
Offering") by the Company of shares of its Series A Preferred Stock; and (iii)
an offer occurring concurrently with the Common Stock Offering and the Series A
Preferred Stock Offering (together, the "Offerings") and as a condition thereto
to exchange shares of Series A Preferred Stock and/or new 12 1/2% Subordinated
Notes Due 2001 (the "New Notes") of the Company or a combination thereof,
subject to certain limitations, for any and all of the Company's outstanding 12
1/2% Senior Subordinated Notes Due 2001 of the Company, subject to certain
conditions (the "Exchange Offer");
WHEREAS, the Company has entered into a Placement Agreement dated as of
June 9, 1998 (the "Placement Agreement"), with Friedman, Billings, Ramsey & Co.,
Inc. ("FBR"), a Virginia corporation, pursuant to which FBR will act as
placement agent in connection with the issue and sale of the Common Stock and
Series A Preferred Stock;
WHEREAS, the Company has entered into various Purchase Agreements (each
a "Purchase Agreement") with certain purchasers of Common Stock and Series A
Preferred Stock in conjunction with the Offerings, including, but not limited
to, a Purchase Agreement with Sovereign pursuant to which Sovereign will
purchase 10,000 shares of Series A Preferred Stock and be granted an Option
("Sovereign Option") to purchase 6,666,667 shares of Common Stock; and
WHEREAS, as an incentive to induce investors to participate in the
Recapitalization, the Company has agreed to provide registration rights to
holders of Common Stock acquired in the Offerings, including, but not limited
to, shares of Common Stock underlying the Series A Preferred Stock and the
shares of Common Stock issuable pursuant to the Sovereign Option (such shares of
Common Stock are referred to herein as the "Securities" and each share of such
Common Stock is referred to herein as a "Security").
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are acknowledged by
all parties hereto, the parties, intending to be legally obligated, hereby agree
as follows:
<PAGE> 2
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
"Act": The Securities Act of 1933, as amended.
"Broker-Dealer": Any broker or dealer registered as such under the
Exchange Act.
"Closing Date": The date of this Agreement.
"Commission" or "SEC": The United States Securities and Exchange
Commission.
"DTC": The Depository Trust Company.
"Exchange Act": The Securities Exchange Act of 1934, as amended.
"Indemnified Holder": As defined in Section 6(a) hereof.
"NASD": National Association of Securities Dealers, Inc.
"Person": An individual, partnership, corporation, trust or
unincorporated organization, or a government or an agency, authority or
political subdivision thereof.
"Prospectus": The prospectus included in a Registration Statement, as
amended or supplemented, including post-effective amendments, therein.
"Registration Default": As defined in Section 3 hereof.
"Resale Filing Deadline": As defined in Section 2 hereof.
"Resale Registration Statement": As defined in Section 2 hereof.
"Securities": As defined in the preamble hereto.
"Sovereign Option" As defined in the preamble hereto.
"Transfer Restricted Securities": Each share of Security until the
earliest to occur of (a) the date on which such Security has been effectively
registered under the Act and disposed of in accordance with a Resale
Registration Statement or such other applicable registration statement or (b)
the date on which such Security is available for resale without restriction to
the public
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<PAGE> 3
pursuant to Rule 144 under the Act or by a Broker-Dealer pursuant to the "Plan
of Distribution" contemplated in the Resale Registration Statement.
"Underwritten Registration" or "Underwritten Offering": An offering in
which securities of the Company are sold to an underwriter for reoffering to the
public pursuant to an effective registration statement filed with the
Commission.
SECTION 2. RESALE REGISTRATION STATEMENT
(a) Registration. The Company shall:
(i) cause to be filed one or more registration statements on
Form S-1, S-2, S-3 or S-4, if the use of such form is then available
(each a "Resale Registration Statement") pursuant to Rule 415 under the
Act, on or prior to September 16, 1998 (the "Resale Filing Deadline"),
which Resale Registration Statements shall provide for resales of all
Transfer Restricted Securities, the holders of which shall have
provided the information required pursuant to Section 2(b) hereof; and
(ii) use its reasonable best efforts to cause such Resale
Registration Statements to be declared effective by the Commission on
or before the 180th day after the Closing Date.
The Company shall use its reasonable best efforts to keep such Resale
Registration Statement continuously effective, supplemented and amended to the
extent necessary to ensure that it is available for resales of Securities by the
holders of Transfer Restricted Securities entitled to the benefit of this
Section 2(a), and to ensure that it conforms with the requirements of this
Agreement, the Act and the policies, rules and regulations of the Commission as
announced from time to time, until the earlier of (i) a period of at least two
years following the Closing Date or (ii) the date on which all Transfer
Restricted Securities may be sold without restriction.
(b) Provision by Sovereign of Certain Information in Connection with
the Shelf Registration Statement. Sovereign may not include any of its Transfer
Restricted Securities in any Resale Registration Statement pursuant to this
Agreement unless and until Sovereign furnishes to the Company in writing, within
20 business days after receipt of a request therefor, such information as the
Company may reasonably request for use in connection with any Resale
Registration Statement or Prospectus or preliminary Prospectus included therein.
Sovereign shall not be entitled to Liquidated Damages pursuant to Section 3
hereof unless and until Sovereign shall have used its best efforts to provide
all such reasonably requested information. Sovereign agrees to promptly furnish
to the Company any and all information relating to a Resale Registration
Statement required to be disclosed in such Resale Registration Statement in
order to make the information previously furnished to the Company by Sovereign
not materially misleading.
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<PAGE> 4
SECTION 3. LIQUIDATED DAMAGES
Subject to the provisions of Section 2(b) hereof, if (i) the applicable
Resale Registration Statements required by this Agreement are not filed with
the Commission on or prior to the date specified for such filing in this
Agreement or (ii) any Resale Registration Statement required by this Agreement
is filed and declared effective but shall thereafter cease to be effective or
fail to be usable for its intended purpose without being restored to
effectiveness by amendment or otherwise within thirty (30) business days or
succeeded immediately by an additional Resale Registration Statement that cures
such failure and that is itself immediately declared effective within thirty
(30) business days (each such event referred to in clauses (i) and (ii), a
"Registration Default"), the Company shall pay liquidated damages to City with
respect to the first 90-day period immediately following the occurrence of such
Registration Default, in an amount equal to $.05 per Security per week. The
amount of the liquidated damages shall increase by an additional $.05 per week
with respect to each subsequent 90-day period until all Registration Defaults
have been cured, up to a maximum amount of liquidated damages of $.50 per share
per week. All accrued liquidated damages shall be paid to City by the Company by
wire transfer of immediately available funds or by federal funds check on the
91st day following the occurrence of a Registration Default. Following the cure
of all Registration Defaults relating to any particular Transfer Restricted
Securities, the accrual of liquidated damages with respect to such Transfer
Restricted Securities will cease.
All obligations of the Company set forth in the preceding paragraph
that are outstanding with respect to any Transfer Restricted Security at the
time such Security ceases to be a Transfer Restricted Security shall survive
until such time as all such obligations with respect to such Security shall have
been satisfied in full.
SECTION 4. REGISTRATION PROCEDURES
(a) Resale Registration Statement. In connection with each Resale
Registration Statement, the Company shall comply with all the provisions of
Section 4(b) below and shall use all reasonable efforts to effect such
registration to permit the sale of the Transfer Restricted Securities being sold
in accordance with the intended methods thereof. In this regard pursuant thereto
the Company will, by September 16, 1998, prepare and file with the Commission a
Registration Statement relating to the registration on any appropriate form
under the Act, which form shall be available for the sale of the Transfer
Restricted Securities in accordance with such intended methods of resale.
(b) General Provisions. In connection with any Resale Registration
Statement and any Prospectus required by this Agreement to permit the sale or
resale of Transfer Restricted Securities (including, without limitation, any
Registration Statement and the related Prospectus required to permit resales of
the Securities by Broker-Dealers), the Company shall:
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<PAGE> 5
(i) use its reasonable best efforts to keep such
Registration Statement continuously effective and provide all requisite
financial statements for the period specified in Section 2 of this
Agreement, and upon the occurrence of any event that would cause any
such Registration Statement or the Prospectus contained therein (A) to
contain a material misstatement or omission or (B) not to be effective
and usable for resale of Transfer Restricted Securities during the
period required by this Agreement, the Company shall file promptly, and
as appropriate, an amendment or supplement to such Registration
Statement, in the case of clause (A), correcting any such misstatement
or omission, and, in the case of either clause (A) or (B), use its
reasonable best efforts to cause such amendment to be declared
effective and such Registration Statement and the related Prospectus to
become usable for their intended purpose(s) as soon as practicable
thereafter;
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be
necessary to keep the Registration Statement effective for the
applicable period set forth in Section 2 hereof or such shorter period
as will terminate when all Transfer Restricted Securities covered by
such Registration Statement cease to be Transfer Restricted Securities;
cause the Prospectus to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424
under the Act in a timely manner, and reasonably assist City in
complying with the provisions of the Act with respect to the
disposition of all Securities covered by such Registration Statement
during the applicable period in accordance with the intended method of
methods of distribution by the sellers thereof set forth in such
Registration Statement or supplement to the Prospectus;
(iii) advise the underwriter(s), if any, and City promptly
and, if requested by such Persons in writing, to confirm such advice in
writing, (A) when the Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to any
Registration Statement or any post-effective amendment thereto, when
the same has become effective, (B) of any request by the Commission for
amendments to the Registration Statement or amendments or supplements
to the Prospectus or for additional information relating thereto, (C)
of the issuance by the Commission of any stop order or other order or
action suspending the effectiveness of the Registration Statement under
the Act or of the suspension by any state securities or Blue Sky
commission of the exemption, qualification or registration of the
Transfer Restricted Securities for offering or sale in any
jurisdiction, or the initiation of any proceeding for any of the
preceding purposes, or (D) of the existence of any fact or the
happening or any event that makes any statement of a material fact made
in the Registration Statement, the Prospectus, any amendment or
supplement thereto, or any document incorporated by reference therein
untrue, or that requires the making of any additions to or changes in
the Registration Statement or the Prospectus in order to make the
statements therein not misleading. If at any time the Commission shall
issue any stop order or other order or take other action suspending the
effectiveness of the Registration Statement, or any state securities
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<PAGE> 6
commission or other regulatory authority shall issue an order
suspending the exemption, qualification or registration of the Transfer
Restricted Securities under state securities or Blue Sky laws, the
Company shall use all reasonable efforts to obtain the withdrawal or
lifting of such order at the earliest possible time;
(iv) furnish to City and each of the underwriter(s), if any,
before filing with the Commission, copies of any Registration Statement
or any Prospectus included therein or any amendments or supplements to
any such Registration Statement or Prospectus (including all documents
incorporated by reference after the initial filing of such Registration
Statement), which documents will be subject to the review of City and
the underwriter(s), if any, for a period of at least five business
days, and the Company will not file any such Registration Statement or
Prospectus or any amendment or supplement to any such Registration
Statement or Prospectus (including all such documents incorporated by
reference) to which City or the underwriter(s), if any, shall
reasonably object within five business days after the receipt thereof.
City or the underwriter, if any, shall be deemed to have reasonably
objected to such filing if such Registration Statement, amendment,
Prospectus or supplement, as applicable, as proposed to be filed,
contains a material misstatement or omission;
(v) make available at reasonable times and upon reasonable
notice for inspection by City, any underwriter participating in any
disposition pursuant to such Registration Statement, and any attorney
or accountant retained by City or any of the underwriter(s), all
financial and other records, pertinent corporate documents and
properties of the Company and cause the Company's officers, directors
and employees to supply all information reasonably requested by City,
or any underwriter, attorney or accountant in connection with such
Registration Statement subsequent to the filing thereof and prior to
its effectiveness;
(vi) if requested by City or the underwriter(s), if any,
promptly incorporate in any Registration Statement or Prospectus,
pursuant to a supplement or post-effective amendment if necessary, such
information as City and the underwriter(s), if any, may reasonably
request to have included therein, provided such information is usual
and customary in such a document, including, without limitation,
information relating to the "Plan of Distribution" of the Transfer
Restricted Securities, information with respect to the principal amount
of Transfer Restricted Securities being sold to such underwriter(s),
the purchase price being paid therefor and any other terms of the
offering of the Transfer Restricted Securities to be sold in such
offering; and make all required filings of such Prospectus supplement
or post-effective amendment as soon as practicable after the Company is
notified of the matters to be incorporated in such Prospectus
supplement or post-effective amendment;
(vii) furnish to City and each of the underwriter(s), if any,
without charge, one copy of the Registration Statement, as first filed
with the Commission, and of each
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<PAGE> 7
amendment thereto, including all documents incorporated by reference
therein and all exhibits;
(viii) deliver to City and each of the underwriter(s), if any,
without charge, as many copies of the Prospectus (including each
preliminary prospectus) and any amendment or supplement thereto as such
Persons reasonably may request; and the Company hereby consents to the
use of the Prospectus and any amendment or supplement thereto (other
than in those states or jurisdictions in which the Company has not
complied with or satisfied the requirements of the relevant "blue sky"
securities laws) by City and each of the underwriter(s), if any, in
connection with the offering and the sale of the Transfer Restricted
Securities covered by the Prospectus or any amendment or supplement
thereto;
(ix) enter into such agreements (including an underwriting
agreement), and make such representations and warranties, and take all
such other actions in connection therewith in order to expedite or
facilitate the disposition of the Transfer Restricted Securities
pursuant to any Registration Statement contemplated by this Agreement,
to the extent reasonably and customary in this type of offering and as
may be reasonably requested by City or any underwriter in connection
with any sale or resale pursuant to any Registration Statement
contemplated by this Agreement; and if the registration is an
Underwritten Registration, the Company shall:
(A) furnish to City and each underwriter, if any, in
such substance and scope as they may request and as are
customarily made by issuers to underwriters in primary
underwritten offerings, upon the date of the effectiveness of
the Resale Registration Statement:
(1) a certificate, dated the date of effectiveness
of the Resale Registration Statement, as the case may
be, signed by (i) the President or any Vice President
and (ii) a principal financial or accounting officer
of the Company, confirming, as of the date thereof,
the matters set forth in paragraph (c) of Section 5
of the Placement Agreement and such other matters as
such parties may reasonably request;
(2) an opinion, dated the date of
effectiveness of the Resale Registration Statement,
as the case may be, of counsel for the Company,
covering the matters set forth in paragraph (a) of
Section 5 of the Placement Agreement and such other
matters as such parties may reasonably request, and
in any event including a statement to the effect that
such counsel has participated in conferences with
officers and other representatives of the Company,
representatives of the independent public accountants
for the Company, City's representatives and City's
counsel in connection with the preparation of such
Registration Statement and the
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<PAGE> 8
related Prospectus and have considered the matters
required to be stated therein and the statements
contained therein, although such counsel has not
independently verified the accuracy, completeness or
fairness of such statements; and that such counsel
advises that, on the basis of the foregoing, no facts
came to such counsel's attention that caused such
counsel to believe that the applicable Registration
Statement, at the time such Registration Statement or
any post-effective amendment thereto become
effective, contained an untrue statement of a
material fact or omitted to state a material fact
required to be stated therein or necessary to make
the statements therein not misleading, or that the
Prospectus contained in such Registration Statement
as of its date, an untrue statement of a material
fact or omitted to state a material fact necessary in
order to make the statements therein, in light of the
circumstances under which they were made, not
misleading. Without limiting the foregoing, such
counsel may state further that such counsel assumes
no responsibility for, and has not independently
verified, the accuracy, completeness or fairness of
the financial statements, notes and schedules and
other financial data included in any Registration
Statement contemplated by this Agreement or the
related Prospectus; and
(3) a customary comfort letter, dated as of
the date of effectiveness of the Resale Registration
Statement, as the case may be, from the Company's
independent accountants, in the customary form and
covering matters of the type customarily covered in
comfort letters by underwriters in connection with
primary underwritten offerings, and affirming the
matters set forth in the comfort letters delivered
pursuant to Section 5(b) of the Placement Agreement,
without exception;
(B) set forth in full or incorporate by reference in
the underwriting agreement, if any, the indemnification
provisions and procedures of Section 6 hereof with respect to
all parties to be indemnified pursuant to said Section; and
(C) deliver such other documents and certificates as
may be reasonably requested by such parties to evidence
compliance with clause (A) above and with any customary
conditions contained in the underwriting agreement or other
agreement entered into by the Company pursuant to this clause
(ix), if any.
If at any time the representations and warranties of the
Company contemplated in clause (A)(1) above cease to be true and
correct, the Company promptly shall so advise City and the
underwriter(s), if any, if requested by such Persons, shall confirm
such advice in writing;
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<PAGE> 9
(x) prior to any public offering of Transfer Restricted
Securities, cooperate with City, the underwriter(s), if any, and their
respective counsel in connection with the registration and
qualification of the Transfer Restricted Securities under the
securities or Blue Sky and securities laws of such jurisdictions as
City or underwriter(s) may reasonably request and do any and all other
acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Transfer Restricted Securities covered by the
Resale Registration Statement; provided, that the Company shall not be
required to register or qualify as a foreign corporation where it is
not now so qualified or to take any action that would subject it to the
service of process in suits or to taxation, other than as to matters
and transactions relating to the Registration Statement, in any
jurisdiction where it is not now so subject;
(xi) cooperate with City and the underwriter(s), if any, to
facilitate the timely preparation and delivery of certificates
representing Transfer Restricted Securities to be sold and not bearing
any restrictive legends; and enable such Transfer Restricted Securities
to be in such denominations and registered in such names as City or the
underwriter(s), if any, may reasonably request at least two business
days prior to any sale of Transfer Restricted Securities made by such
underwriter(s);
(xii) use its reasonable best efforts to cause the Transfer
Restricted Securities covered by the Registration Statement to be
registered with or approved by such other governmental agencies or
authorities as may be necessary to enable City or the underwriter(s),
if any, to consummate the disposition of such Transfer Restricted
Securities, subject to the proviso contained in paragraph (x) above;
(xiii) if any fact or event contemplated by paragraph
(b)(iii)(D) above shall exist or have occurred, prepare a supplement or
post-effective amendment to the Registration Statement or related
Prospectus or any document incorporated therein by reference or file
any other required document so that, as thereafter delivered to the
purchasers of Transfer Restricted Securities, the Prospectus will not
contain an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading;
(xiv) provide a CUSIP number for Transfer Restricted
Securities not later than the effective date of the Registration
Statement and provide City with printed certificates for the Transfer
Restricted Securities which are in a form satisfactory to City;
(xv) cooperate and assist in any filings required to be made
with the NASD and in the performance of any due diligence investigation
by any underwriter (including any "qualified independent underwriter")
that is required to be retained in accordance with the rules and
regulations of the NASD, and use its reasonable best efforts to cause
such Registration Statement to become effective and approved by such
governmental agencies
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<PAGE> 10
or authorities as may be necessary to enable City to consummate the
disposition of such Transfer Restricted Securities;
(xvi) otherwise comply with all applicable rules and
regulations of the Commission, and make generally available to its
security holders, as soon as practicable, a consolidated earnings
statement meeting the requirements of Rule 158 (which need not be
audited) for the twelve-month period (A) commencing at the end of any
fiscal quarter in which Transfer Restricted Securities are sold to
underwriters in a firm or best efforts underwritten offering or (B) if
not sold to underwriters in such an offering, beginning with the first
month of the Company's first fiscal quarter commencing after the
effective date of the Registration Statement;
(xvii) cause all Transfer Restricted Securities covered by
the Registration Statement to be listed on each securities exchange or
market, if applicable, on which similar securities issued by the
Company are then listed; and
(xviii) provide promptly to City, as long as it remains a
stockholder of the Company, upon request each document filed with the
Commission pursuant to the requirements of Sections 13, 14 and 15 of
the Exchange Act for a period of three years from the Closing Date.
City agrees by acquisition of a Transfer Restricted Security that, upon
receipt of any notice from the Company of the existence of any fact of the kind
described in Section 4(b)(iii)(D) hereof, City will forthwith discontinue
disposition of Transfer Restricted Securities pursuant to the applicable
Registration Statement until City's receipt of the copies of the supplemented or
amended Prospectus, or until it is advised in writing (the "Advice") by the
Company that the use of the Prospectus may be resumed, and has received copies
of any additional or supplemental filings that are incorporated by reference in
the Prospectus. If so directed by the Company, City will deliver to the Company
(at the Company's expense) all copies, other than permanent file copies then in
City's possession, of the Prospectus covering such Transfer Restricted
Securities that was current immediately prior to the time of receipt of such
notice. In the event the Company shall give any such notice, the time period
regarding the effectiveness of such Registration Statement set forth in Section
2, shall be extended by the number of days during the period from and including
the date of the giving of such notice pursuant to Section 4(b)(iii)(D) hereof to
and including the date when City shall have received the copies of the
supplemented or amended Prospectus or shall have received the Advice.
SECTION 5. REGISTRATION EXPENSES
(a) All expenses incident to the Company's performance of or compliance
with this Agreement will be borne by the Company, as the case may be, regardless
of whether a Registration Statement becomes effective, including without
limitation: (i) all registration and
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filing fees and expenses (including filings made by City with the NASD (and, if
applicable, the fees and expenses of any "qualified independent underwriter" and
its counsel that may be required by the NASD)); (ii) all fees and expenses of
compliance with federal securities, foreign securities and state Blue Sky or
securities laws; (iii) all expenses of printing (including the printing of
Prospectuses), messenger and delivery services and telephone incurred by the
Company; (iv) all fees and disbursements of counsel for the Company and, subject
to Section 5(b) below, City; (v) all application and filing fees in connection
with listing the Securities on a national securities exchange or automated
quotation system pursuant to the requirements hereof; (vi) all fees and
disbursements of independent certified public accountants of the Company
(including the expenses of any special audit and comfort letters required by or
incident to such performance); and (vii) all fees and charges of the Rating
Agencies, if any; provided, that the Company will not bear certain personal
expenses of City, including, underwriting discounts, commissions, and messenger
and delivery services and telephone expenses incurred by City.
The Company will, in any event, bear its internal expense (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expenses of any annual audit, all
trustee and Rating Agency fees and charges and the fees and expenses of any
Person, including special experts, retained by the Company.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Resale Registration Statement),
the Company will reimburse City, as applicable, for the reasonable fees and
disbursements of not more than one counsel as may be chosen by City.
SECTION 6. INDEMNIFICATION
(a) The Company shall indemnify and hold harmless (i) City and (ii)
each person, if any, who controls (within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act) City (any of the persons referred to in this
clause (ii) being hereinafter referred to as a "Controlling Person") and (iii)
the respective officers, directors, partners, employees, representatives and
agents of City or any Controlling Person (any person referred to in clause (i),
(ii) or (iii) may hereinafter be referred to as an "Indemnified Holder"), to the
fullest extent lawful, from and against any and all losses, claims, damages,
liabilities, judgments, actions and expenses (including without limitation,
reimbursement of all reasonable costs of investigating, preparing, pursuing or
defending any claim or action, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, including the reasonable
fees and charges of counsel), directly or indirectly caused by, related to,
based upon, arising out of or in connection with any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement or
Prospectus (or any amendment or supplement thereto), or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims,
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<PAGE> 12
damages, liabilities or expenses are caused by an untrue statement or omission
or alleged untrue statement or omission that is made in reliance upon and in
conformity with information relating to City furnished in writing to the Company
by City or any counsel or agent of City expressly for use therein.
In case any action or proceeding (including any governmental or
regulatory investigation or proceeding) shall be brought or asserted against any
Indemnified Holder with respect to which indemnity may be sought against the
Company, such Indemnified Holder (or the Indemnified Holder controlled by such
controlling person) shall promptly notify the Company in writing (provided, that
the failure to give such notice shall not relieve the Company of its obligations
pursuant to this Agreement unless and to the extent materially and adversely
affected). Such Indemnified Holder shall have the right to employ its own
counsel in any such action and the fees and expenses of such counsel shall be
paid, as incurred, by the Company (regardless of whether it is ultimately
determined that an Indemnified Holder is not entitled to indemnification
hereunder); provided, that if the Indemnified Holder is not successful and it is
determined that such Indemnified Holder is not entitled to indemnification
hereunder, then such Indemnified Holder shall reimburse the Company for all
monies advanced by the Company to which such Indemnified Holder was not
entitled. The Company shall not, in connection with any one such action or
proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the reasonable fees and expenses of more than
one separate firm of attorneys (in addition to any local counsel) at any time
for such Indemnified Holders, which firm shall be designated by the holders of a
majority of the shares of Common Stock, or Securities that are subject to, or
affected by, such action or proceeding. The Company shall not be liable for any
settlement of any such action or proceeding effected without the Company's prior
written consent, which consent shall not be withheld unreasonably, and subject
to the limitation contained in the prior paragraph, the Company will indemnify
and hold harmless any Indemnified Holder from and against any loss, claim,
damage, liability or expense by reason of any settlement of any action effected
with the prior written consent of the Company. The Company shall not, without
the prior written consent of each Indemnified Holder, settle or compromise or
consent to the entry of judgment in or otherwise seek to terminate any pending
or threatened action, claim, litigation or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not any
Indemnified Holder is a party thereto), unless such settlement, compromise,
consent or termination includes an unconditional release of each Indemnified
Holder from all liability arising out of such action, claim, litigation or
proceeding.
(b) City agrees to indemnify and hold harmless the Company, and its
respective directors, officers and any person controlling (within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act) the Company, and the
respective officers, directors, partners, employees, representatives and agents
of each such person, to the same extent as the foregoing indemnity from the
Company to each of the Indemnified Holders, but only with respect to claims and
actions based on information relating to City furnished in writing by City
expressly for use in any Registration Statement. In case any action or
proceeding shall be brought against the
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<PAGE> 13
Company or its directors or officers or any such controlling person in respect
of which indemnity may be sought against City, City shall have the rights and
duties given the Company and the Company or its directors or officers or such
controlling person shall have the rights and duties given to each Indemnified
Holder by the preceding paragraph. In no event shall the liability of City
hereunder be greater in amount than the dollar amount of the net proceeds
received by City upon the sale of the Restricted Securities giving rise to such
indemnification obligation.
(c) If the indemnification provided for in this Section 6 is
unavailable to an indemnified party under Section 6(a) or Section 6(b) hereof
(other than by reason of the exceptions provided therein) in respect of any
losses, claims, damages, liabilities or expenses referred to therein, then each
applicable indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand, and City on the other hand from their purchase of
Transfer Restricted Securities or if such allocation is not permitted by
applicable law, the relative fault of the Company on the one hand and of the
Indemnified Holder on the other in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative fault of the
Company on the one hand, and of the Indemnified Holder on the other, shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or by the
Indemnified Holder and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include,
subject to the limitations set forth in the second paragraph of Section 6(a),
any legal or other fees, expenses or charges reasonably incurred by such party
in connection with investigating or defending any action or claim.
The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or expenses referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
SECTION 7. RULE 144
The Company hereby agrees with City, for so long as any Transfer
Restricted Securities remain outstanding, to make available to City in
connection with any sale thereof and any prospective purchaser of such Transfer
Restricted Securities from City, the information required
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<PAGE> 14
by Rule 144 under the Act in order to permit resales of such Transfer Restricted
Securities pursuant to Rule 144.
SECTION 8. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS
City may not participate in any Underwritten Registration hereunder
unless City (a) agrees to sell City's Transfer Restricted Securities on the
basis provided in any underwriting arrangements provided by the Persons entitled
hereunder to approve such arrangements and (b) completes and executes all
reasonable questionnaires, powers of attorney, indemnities, underwriting
agreements, lock-up letters and other documents required under the terms of such
underwriting arrangements.
SECTION 9. SELECTION OF UNDERWRITERS
City as a holder of Transfer Restricted Securities covered by the
Resale Registration Statement may sell such Transfer Restricted Securities in an
Underwritten Offering. In any such Underwritten Offering, the investment banker
or investment bankers and manager or managers that will administer the offering
will be selected by the Holders of a majority in aggregate principal amount of
the Transfer Restricted Securities included in such offering; provided, that
such investment bankers and managers must be reasonably satisfactory to the
Company.
SECTION 10. MISCELLANEOUS
(a) Remedies. The Company agrees that monetary damages (including the
liquidated damages contemplated hereby) would not be adequate compensation for
any loss incurred by reason of a breach by it of the provisions of this
Agreement and hereby agree to waive the defense in any action for specific
performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company will not, on or after the
date of this Agreement, enter into any agreement with respect to its securities
that is inconsistent with the rights granted to City in this Agreement or
otherwise conflicts with the provisions hereof. The Company has not previously
entered into any agreement granting any registration rights with respect to its
securities to any Person, except as contemplated in the Offering Memorandum. The
rights granted to City hereunder do not in any way breach or conflict with and
are not inconsistent with the rights granted to the holders of the Company's
securities under any agreement in effect on the date hereof.
(c) Adjustments Affecting the Securities. The Company will not take any
action, or permit any change to occur, with respect to the Securities that would
materially and adversely affect the ability of City to resell such Securities.
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<PAGE> 15
(d) Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to or departures from
the provisions hereof may not be given unless in writing from both parties.
(e) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class or
certified mail, telex, telecopier, or reliable overnight delivery service:
(i) If to City:
City National Bank of West Virginia
3601 McCorkle Avenue
Charleston, West Virginia 25304-1498
Telecopier No.: (304) 769-1111
Attention: Robert A. Henson
Attention:
(ii) If to the Company:
Mego Mortgage Corporation
Fifth Floor
1000 Parkwood Circle
Atlanta, Georgia 30339
Telecopier No.: (800) 694-6346
Attention: Edward B. Meyercord
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt acknowledged, if telecopied; and on the
next business day, if sent via a reliable overnight delivery service.
(f) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment,
subsequent Holders of Transfer Restricted Securities.
(g) Counterparts. This Agreement may be executed in any number of
counterparts, by the parties hereto, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
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<PAGE> 16
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF GEORGIA, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(j) SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof, in any circumstances,
is held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be affected or impaired thereby.
(k) ENTIRE AGREMENT. This Agreement together with the Purchase
Agreement, and the Placement Agreement (as defined in the Purchase Agreement)
is intended by the parties as a final expression of their agreement and
intended to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter hereof.
There are no restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein with respect to the registration rights
granted by the Company with respect to the Transfer Restricted Securities.
This Agreement supersedes all prior agreements and understandings between the
parties with respect to such subject matter.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
MEGO MORTGAGE CORPORATION
By: /s/ Jeffrey S. Moore
---------------------------------------------
Name: Jeffrey S. Moore
Title: President and Chief Executive Officer
CITY NATIONAL BANK OF WEST VIRGINIA
By: /s/ Mark R. McCollom
--------------------------------------------
Name: Mark R. McCollom
Title: Chief Accounting Officer
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<PAGE> 1
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT 10.89
PARTICIPATION AGREEMENT
This Agreement ("Agreement"), dated as of June 29, 1998, is
made by and between MEGO MORTGAGE CORPORATION, a Delaware corporation, ("Mego")
with offices at 1000 Parkwood Circle, Fifth Floor, Atlanta, Georgia 30339 (the
"Seller") and SOVEREIGN BANK, a federally chartered savings bank with offices at
1130 Berkshire Boulevard, Wyomissing, Pennsylvania 19610 ("Participant").
RECITALS:
A. Seller is an originator of residential mortgage loans and
may from time to time desire to offer to sell 100% participation interests to
Participant in such loans pursuant to this Agreement.
B. Participant may from time to time purchase some or all of
such participation interests offered by Seller.
C. Seller and Participant wish to set forth the terms and
conditions of Participant's commitment to purchase such participation interests
from Seller.
NOW, THEREFORE, in consideration of the promises and of the
mutual covenants herein contained and intending to be legally bound hereby, the
parties hereto agree as follows:
ARTICLE I.
DEFINITIONS; CONSTRUCTION
1.1 Certain Definitions. In addition to other words and terms
defined elsewhere in this Agreement, as used herein the following words and
terms shall have the following meanings, respectively, unless the context hereof
otherwise clearly requires:
"125 Mortgage Loan" shall mean any Mortgage Loan as
to which the original principal amount plus the amount of any Liens
senior in priority to the Mortgage Loan exceeds the appraised value of
the Mortgaged Property.
"Acceptance Sheet" shall have the meaning given that
term in the Flow Agreement.
<PAGE> 2
"Acceptance Sheet Mortgage Loan" shall mean any
Mortgage Loan as to which an Acceptance Sheet has been issued.
"Affiliate" shall mean, as to any Person, each other
Person that directly, or indirectly through one or more intermediaries,
controls or is controlled by, or is under common control with, the
Person in question.
"Approved Private Investor" shall have the meaning
given that term in the Custodian Agreement.
"Average Participation Portfolio Balance" means the
average daily Participation Portfolio Balance during the calendar month
immediately preceding the month in which the calculation is made.
"Bailment Agreement" shall have the meaning given
that term in the Custodian Agreement.
"Basic Agreements" means this Agreement, the
Custodian Agreement and the Bailment Agreement and all instruments,
agreements and documents executed in connection with any of the
foregoing.
"Business Day" shall have the meaning given that term
in the Custodian Agreement.
"Change of Control" shall mean the first to occur of:
(a) any "Person" becoming or obtaining
the contractual right to become the beneficial owner, directly or
indirectly, of 10% or more of the combined voting power of the Seller's
then outstanding securities other than a Person who, as of the date
hereof, is or has the right to become the beneficial owner, directly or
indirectly, of 10% or more the combined voting power of the Seller's
outstanding securities;
(b) a contested proxy solicitation of
the Seller's shareholders that results in the contesting party
obtaining the ability to vote securities representing 10% or more of
the combined voting power of the Seller's then outstanding securities
unless the contesting party is a Person who, as of the date hereof, is
or has the right to become the beneficial owner, directly or
indirectly, of 10% or more of the combined voting power of the Seller's
outstanding securities;
(c) a binding written agreement is
executed (and, if legally required, approved by the Seller's
shareholders) providing for a sale, exchange, transfer or other
disposition of substantially all of the assets of the Seller to another
entity;
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<PAGE> 3
(d) the shareholders of the Seller
approve a merger, consolidation, or other reorganization of the Seller;
(e) a plan of liquidation or dissolution
of the Seller, other than pursuant to bankruptcy or insolvency laws, is
adopted; or
(f) during any period of two consecutive
years, individuals who, at the beginning of such period, constituted
the board of directors cease for any reason to constitute at least a
majority of the board unless the election or nomination for election by
the Seller's shareholders of each new director was approved by a vote
of at least two-thirds of the directors then still in office who were
directors at the beginning of the period.
Notwithstanding clause (a) of the preceding
paragraph, a Change in Control shall not be deemed to have occurred if
a Person becomes the beneficial owner, directly or indirectly, of 10%
or more of the combined voting power of the Seller's then outstanding
securities solely as a result of an acquisition by the Seller of its
voting securities which, by reducing the number of shares outstanding,
increases the proportionate number of shares beneficially owned by such
Person to 10% or more of the combined voting power of the Seller's then
outstanding securities; provided, however, that if a Person becomes a
beneficial owner of 10% or more of the combined voting power of the
Seller's then outstanding securities by reason of share purchases by
the Seller and shall, after such share purchases by the Seller, become
the beneficial owner, directly or indirectly, of any additional voting
securities of the Seller (other than as a result of a stock split,
stock dividend or similar transaction), the a Change in Control of the
Seller shall be deemed to have occurred with respect to such Person
under clause (a) of the preceding paragraph.
"City National" shall mean City National Bank of West
Virginia.
"City National Stock Purchase Agreement" shall mean
that certain agreement dated as of June 9, 1998 pursuant to which City
National will purchase convertible preferred stock of the Seller.
"Commitment" shall have the meaning given that term
in the Custodian Agreement.
"Custodian" shall mean State Street Bank and Trust
Company or its successors from time to time as Custodian under the
Custodian Agreement
"Custodian Agreement" shall mean that certain
Custodian Agreement dated as of June 29, 1998, among Seller,
Participant and Custodian.
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<PAGE> 4
"Dry Loan" shall mean a Mortgage Loan as to which
either the Custodian, the Participant or an Approved Private Investor
has possession of the Mortgage Documents.
"Event of Purchase Termination" shall have the
meaning given that term in Section 6.1 hereof.
"Event of Servicing Termination" shall have the
meaning given that term in Section 6.3 hereof.
"FDIC" shall mean the Federal Deposit Insurance
Corporation or its successors.
"FHA" shall mean the Federal Housing Administration
or its successors.
"FHLMC" shall mean the Federal Home Loan Mortgage
Corporation or its successors.
"Fico Score" shall mean the arithmetic score of an
Obligor on the "delinquency predictor" model established by Fair Isaac
Co. and shown on a credit report prepared by Equifax, Inc., TRW or
Trans Union.
"FIRREA" shall mean the Financial Institutions
Reform, Recovery and Enforcement Act of 1989, as amended.
"Flood Insurance Policy" shall have the meaning given
that term in Section 4.1(f) hereof, and shall also mean any replacement
policy obtained in accordance with Section 3.6(b) hereof.
"Flow Agreement" shall mean that certain Master
Mortgage Loan Purchase Agreement dated as of June 29, 1998 by and
between the Seller and the Participant.
"FNMA" shall mean the Federal National Mortgage
Association or its successors.
"GAAP" shall mean generally accepted accounting
principles, as in effect from time to time, consistently applied.
"GNMA" shall mean the Government National Mortgage
Association or its successors.
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<PAGE> 5
"Governmental Authority" shall mean any government or
political subdivision or any agency, authority, bureau, central bank,
commission, department or instrumentality of either, or any court,
tribunal, grand jury or arbitrator, in each case whether foreign or
domestic.
"Hazard Insurance Policy" shall have the meaning
given that term in Section 4.1(f) hereof, and shall also mean any
replacement policy obtained in accordance with Section 3.6(b) hereof.
"HUD" shall mean the United States Department of
Housing and Urban Development or its successors.
"Indemnified Person" shall have the meaning given
that term in Section 7.4 hereof.
"Indemnifying Person" shall have the meaning given
that term in Section 7.4 hereof.
"Initial Credit File" with respect to a given
Mortgage Loan shall mean a file comprised of a true and correct copy of
each of the following documents relating to such Mortgage Loan (all of
which shall be complete and executed by all parties except as set forth
below, and all of which shall comply with applicable underwriting
standards and applicable law):
(a) Form of Mortgage Note (not executed by
the Obligor but otherwise complete);
(b) Form of Mortgage (not executed by the
Obligor but otherwise complete);
(c) Form of Assignment (not executed by the
Seller but otherwise complete);
(d) Residential loan application, executed
by the Obligor (which shall be in the form required by FNMA and
otherwise reasonably acceptable to Participant and shall among other
things, disclose the purpose for which the Mortgage Loan is sought and
the identity of the Mortgaged Property, and which shall disclose the
purchase price of the Mortgaged Property);
(e) Obligor's financial statement, or
written credit report;
(f) Verification of Obligor's employment;
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<PAGE> 6
(g) Verification of Obligor's down payment
(if applicable);
(h) Verification of Obligor's income;
(i) Records verifying payment of applicable
taxes, assessments and insurance premiums with respect to the Mortgaged
Property;
(j) Verification of Obligor's previous
mortgage or rent payment record;
(k) If applicable, agreement of sale with
respect to the Mortgaged Property, executed by Obligor and the seller;
(l) Appraisal report (to the extent
required by, and in compliance with, applicable underwriting standards
or applicable law);
(m) Survey (to the extent required by, and
in compliance with, applicable underwriting standards, FIRREA, and
other applicable law);
(n) Mortgage Insurance Policy certification
(to the extent required by, and in compliance with, this Agreement,
applicable underwriting standards or applicable law);
(o) Hazard Insurance Policy certification
and, to the extent required by applicable underwriting standards or
applicable law, Flood Insurance Policy certificate; and
(p) Title report and, to the extent required
pursuant to the underwriting guidelines of the Participant or any
applicable Approved Private Investor, title insurance commitment
binder, with all endorsements.
"Investor Proceeds" shall have the meaning given that
term in Section 2.1(i)(a) hereof.
"Law" shall mean any law (including common law),
constitution, statute, treaty, convention, regulation, rule, ordinance,
order, injunction, writ, decree or award of any Governmental Authority.
"Legal Documents" shall, as to a given Mortgage Loan,
collectively refer to (a) the executed original Mortgage Note, duly
endorsed in blank by Seller; (b) a copy of the executed original
Mortgage; and (c) a fully executed original Assignment in blank.
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<PAGE> 7
"Libor" shall mean the rate per annum for U.S. dollar
deposits of one (1) month maturity as reported on Telerate page 3750
(or any successor page) as of 11:00 a.m. London time, on the first
London business day of the relevant interest period (or if not so
reported, then as determined by the Participant by reference to another
recognized source or interbank quotation).
"Lien" shall mean any security interest, pledge,
lien, mortgage, assignment, charge, participation, ownership, interest,
or other encumbrance, security arrangement or adverse claim of any
nature whatsoever.
"Majority Owned Subsidiary" shall have the meaning
given that term in Section 5.16 hereof.
"Mortgage" shall mean, as to a given Mortgage Loan,
the fully executed, acknowledged and recorded mortgage, deed to secure
debt, deed of trust or similar instrument customarily used in the
jurisdiction in which the Mortgaged Property is situate securing such
Mortgage Loan (including all riders, addenda or other supplements
thereto).
"Mortgage Documents" shall have the meaning given
that term in the Custodian Agreement.
"Mortgage Insurance Policy" shall have the meaning
given that term in Section 4.1(g) hereof, and shall also mean any
replacement policy obtained in accordance with Section 3.6(b) hereof.
"Mortgage Loan" shall mean a mortgage loan (either a
Qualifying Mortgage Loan or a Non-Qualifying Mortgage Loan) in which
Participant purchases a Participation pursuant to this Agreement.
"Mortgage Note" shall mean, with respect to a given
Mortgage Loan, the fully executed promissory note evidencing the
underlying obligor's indebtedness to Seller on the Mortgage Loan
(including all riders, addenda or other supplements thereto).
"Mortgaged Property" shall mean, as to a given
Mortgage Loan, all lands, tenements, hereditaments, appurtenances and
real property encumbered by the Mortgage.
"Net Worth" shall mean net worth defined according to
GAAP consistently applied from period to period.
"Non-Qualifying Mortgage Loan" shall mean a mortgage
loan which is not a Qualifying Mortgage Loan.
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<PAGE> 8
"Obligor" with respect to a given Mortgage Loan shall
mean the maker or makers of the Mortgage Note evidencing such Mortgage
Loan, their heirs, personal representatives and permitted assigns.
"OTS" shall mean the Office of Thrift Supervision.
"Outstanding Participation Purchase Price" shall mean
the Participation Purchase Price minus all reductions to the
Outstanding Participation Purchase Price pursuant to Section 3.3
hereof.
"Participation" shall have the meaning given that
term in Section 2.1(c) hereof.
"Participation Amount" shall have the meaning given
that term in Section 2.1(a)(i) hereof.
"Participation Certificate" shall mean each
Participation Certificate in the form attached hereto as Exhibit "A" as
may be delivered from time to time hereunder.
"Participation Portfolio Balance" means, as of any
given time, the total Participation Purchase Price paid by the
Participant for purchase of Mortgage Loans in which Participant then
owns a Participation.
"Participation Purchase Price" shall have the meaning
given that term in Section 2.1(c) hereof.
"Person" shall mean any individual, corporation,
partnership, association, joint-stock company, limited liability
company, Trust, unincorporated organization, joint venture, court or
government or political subdivision or agency thereof.
"Permitted Debt" shall have the meaning given that
term in Section 2.1(h)(iii) hereof.
"Pool Limit" shall initially mean $90,000,000.00 and
shall thereafter mean such larger or smaller number as may be in effect
from time to time pursuant to the terms hereof.
"Proceeding" shall have the meaning given that term
in Section 7.4(b) hereof.
"Proceeds Deficiency" shall have the meaning given
that term in Section 2.1(i)(a)(ii) hereof.
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<PAGE> 9
"Proceeds Excess" shall have the meaning given that
term in Section 2.1(i)(a)(ii) hereof.
"Purchase Termination Notice" shall have the meaning
given that term in Section 6.2 hereof.
"Qualifying Mortgage Loan" shall mean a mortgage loan
which (i) meets all of the criteria set forth in Section 4.1(b)-(1)
hereof, or (ii) is subject to an Acceptance Sheet issued by the
Participant.
"Qualifying Offer" shall have the meaning given that
term in Section 2.1(b) hereof.
"Regular Repurchase Price" with respect to a
Participation or a related Mortgage Loan as of any date shall mean an
amount equal to the sum of (a) the Outstanding Participation Purchase
Price with respect to such Participation, plus (b) accrued interest on
such Outstanding Participation Purchase Price at the rate set forth in
Section 2.1(i) as of such date (to the extent not otherwise received by
Participant to such date), plus (c) any unreimbursed advances made by
Participant with respect to such Mortgage Loan or Participation.
"Servicing Fee" shall have the meaning given that
term in Section 2.1(a)(i) hereof.
"Settlement Date" shall mean the date that the
Participant tenders to the Seller the Participation Purchase Price of
any Dry Loan or Acceptance Sheet Loan or, as to any Mortgage Loan which
is not a Dry Loan or Acceptance Sheet Loan, the date the Participant
tenders to the Seller the first installment of the Participation
Purchase Price pursuant to Section 2.1(c) hereof.
"Shipment Order" shall have the meaning given that
term in the Custodian Agreement.
"Sovereign Stock Purchase Agreement" shall mean that
certain agreement dated as of June 9, 1998 pursuant to which Sovereign
Bancorp, Inc. will purchase convertible preferred stock of the Seller.
"Subordinated Debt Indenture" shall mean that certain
Indenture for 12.5% Subordinated Notes due 2001 dated as of June 29,
1998, as amended, by and between the Seller and American Stock Transfer
& Trust Company, as indenture trustee.
"Subservicing Agreement" shall mean that certain
servicing agreement by and between the Seller and City National dated
as of June 29, 1998.
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"Transmittal Schedule" shall have the meaning given
that term in Section 2.1(a)(i) hereof.
"Underwriting Standards" shall have the meaning given
that term in Section 2.1(h)(i) hereof.
"VA" shall mean the Veteran's Administration or its
successor.
"Wet Loan" shall mean a Mortgage Loan as to which
neither the Custodian, the Participant nor the Approved Private
Investor has possession of the Mortgage Documents.
1.2 General Construction. Unless the context of this
Agreement otherwise clearly requires, references to the plural include the
singular, the singular and the part of the whole; and "or" has the inclusive
meaning represented by the phrase "and/or". The words "hereof", "herein",
"hereunder" and similar terms in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement. The section and
other headings contained in this Agreement are for references purposes only and
shall not control or affect the construction of this Agreement or the
interpretation thereof in any respect. Section, subsection and exhibit
references are to this Agreement unless otherwise specified. References in this
Agreement to "applicable law", "compliance with law", and all other phrases
pertaining to legal compliance, shall include but not be limited to laws
applicable to Participant as acquirer or holder of the Participation (which
shall include but not be limited to applicable OTS regulations regarding
mortgage loans and mortgage loan participations found at 12 C.F.R.
ss.563.170(c)(1) and 12 C.F.R. ss.563.170(c)(3), and any similar or successor
regulations from time to time).
ARTICLE II.
SALE AND PURCHASE OF PARTICIPATIONS
2.1 Sale and Purchase of Participations.
(a) Term of Agreement and Offer to Sell
Participation. Subject to the terms and conditions of this Agreement,
Participant agrees to purchase from Seller, during the term of this Agreement,
Seller's requirements of 100% participations in Qualifying Mortgage Loans up to
the Pool Limit in effect at any time. The Participant may also, in its sole
discretion, purchase Non-Qualifying Mortgage Loans. The term of this Agreement
and Participant's commitment to purchase Participations shall terminate on
December 26, 1998, unless extended in a writing signed by Participant.
Participant shall have the option to extend the term of this Agreement for nine
additional terms of six months each upon written notice to the Seller given at
least thirty (30) days before each six month anniversary of the date of this
Agreement. Such option may be exercised for any such six month period
notwithstanding that such option may not have been exercised for any or all
prior six month periods. If the term hereof is extended,
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<PAGE> 11
Participant's commitment to purchase Participations shall thereafter extend to
the date provided in the notice of exercise of option sent by Participant or in
any extension agreement. In any such extension, the terms and conditions of this
Agreement, the Custodian Agreement and the Bailment Agreement shall remain in
full force and effect. Seller acknowledges that Participant has made no
commitment and has no obligation to extend the term of this Agreement.
Subject to the terms and conditions hereof and the
Custodian Agreement, Seller may from time to time elect to offer to sell a
Participation in a mortgage loan to Participant up to the Pool Limit in effect
from time to time. If Seller desires to make such an offer, it shall do so by
delivering to Participant, for each such mortgage loan, at least one Business
Day in advance of the proposed date of sale, the following items:
(i) A Transmittal Schedule, substantially
in the form attached hereto as Exhibit "B" ("Transmittal Schedule"),
duly completed (except for the "Date Received" line at the top and any
signature on behalf of Participant) and executed on behalf of Seller.
On such Transmittal Schedule: (a) the line captioned "Date Transmitted"
shall set forth the date on which Seller transmitted such Transmittal
Schedule to Participant; (b) the line captioned "Mortgage Banker" shall
set forth the name of Seller; (c) the line captioned "Institution Name"
shall set forth the name of Participant; (d) the lines from and
including the line captioned "Loan Number" through and including the
line captioned "Interest Rate" shall set forth the indicated
information about the mortgage loan; (e) the line captioned "Settlement
Date" shall set forth the date on which Seller desires to sell the
Participation to Participant, which shall be a Business Day not less
than one (1) Business Day after, and not later than five (5) Business
Days after the date Seller delivers such Transmittal Schedule to
Participant; (f) the line captioned "Servicing Fee" shall not apply for
mortgage loans hereunder ("Servicing Fee" shall be deemed zero in
consideration of other agreements between Seller and Participant
herein); (g) the line captioned "Committed Investor" shall set forth
the name of the Approved Private Investor with respect to such Mortgage
Loan, and the line captioned "Commitment Expiration Date" shall set
forth the date on which the Approved Private Investor's Commitment to
purchase such Mortgage Loan expires if such information is known or, if
such information is not known, such lines shall be left blank; (h) the
line captioned "Commitment Price" shall set forth the price (expressed
as a percentage of the unpaid principal amount of the mortgage loan,
exclusive of the portion of the price representing settlement for
unpaid interest) at which the Approved Private Investor is committed to
purchase such mortgage loan pursuant to the related Commitment if such
information is known or, if such information is not known, such lines
shall be left blank; (i) the line captioned "Participation Amount"
shall set forth the dollar amount (the "Participation Amount") for such
mortgage loan (or related Participation) equal to the unpaid principal
amount of the mortgage loan as of the Settlement Date; and (j) the line
captioned "Participation Purchase Price" shall set forth the amount of
the Participation Purchase Price for the Participation in such mortgage
loan for such Participation.
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<PAGE> 12
Nothing in the Transmittal Schedule or any other information sent by
Seller to Participant shall limit or derogate from Seller's
representations and warranties set forth herein.
(ii) Upon request by the Participant, the
Initial Credit File.
(b) Acceptance of the Offer. Seller shall be deemed
to have made an offer to Participant to sell a Participation on the first
Business Day on which Participant has received the related Transmittal Schedule
and, if requested, Initial Credit File. Subject to the terms of this Agreement,
Participant shall be obligated to accept any offer (a "Qualifying Offer"), to
purchase a Qualifying Mortgage Loan if the offer and the materials submitted to
Participant by Seller comply with the requirements of the Basic Agreements; but
otherwise Participant shall have no obligation to accept any such offer. If
Participant accepts an offer, it shall do so by executing the Transmittal
Schedule, filling in the "Date Received" line, and transmitting a copy of such
executed Transmittal Schedule to Seller by facsimile or similar means not later
than 3:00 p.m., Philadelphia time, on such Business Day (or, if any such item
was received by Participant later than 12:00 Noon, Philadelphia time, on such
Business Day, not later than 3:00 p.m., Philadelphia time, on the next Business
Day). If Participant does not accept such offer by such time, such offer may be
terminated by the Seller upon written notice to the Participant. If Participant
accepts such offer, Seller shall be obligated to sell and Participant shall be
obligated to purchase such Participation, subject to the provisions of this
Agreement. Participant's obligation to purchase any such Participation as to
which it has accepted such offer is subject to the satisfaction of the following
conditions precedent as of the date of such purchase: (i) Seller shall have
performed its obligations to be performed hereunder and under the Custodian
Agreement as of the date of such purchase; (ii) no "Event of Purchase
Termination" or "Event of Servicing Termination" shall have occurred and be
existing, or shall exist after giving effect to such purchase; (iii) the
representations and warranties of Seller contained in each of the Basic
Agreements are true and correct in all material respects as of the date of such
purchase and after giving effect to such purchase; and (iv) such purchase shall
not cause the aggregate unpaid principal amount of Mortgage Loans outstanding on
the date of such purchase, together with the aggregate unpaid principal amount
of all Mortgage Loans in which Participations are to be purchased on the date of
such purchase, to exceed the Pool Limit then in effect. Participant shall not be
obligated to purchase such Participation if any condition to its purchase
obligation is not satisfied.
(c) Purchase; Funding. Notwithstanding any
provision of this Agreement or the Custodian Agreement, the purchase price to be
paid by Participant to Seller for each 100% Participation (the "Participation
Purchase Price") shall be a sum equal to (i) *** of the principal amount of any
Acceptance Sheet Mortgage Loan or, (ii) as to any other Mortgage Loan, the
lesser of: (A) *** of the principal amount of the Mortgage Loan; or (B) the
amount of the Commitment. Seller shall provide Participant, prior to
Participant's purchase of a Participation, with such information as Participant
may reasonably request to establish the information supporting the calculation
of items (A) and (B) above. If Participant has agreed to purchase a
Participation, then, subject to satisfaction of the conditions set forth herein,
Participant shall
*** OMITTED PURSUANT TO A CONFIDENTIAL
TREATMENT REQUEST AND FILED SEPARATELY
WITH THE COMMISSION.
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<PAGE> 13
purchase such Participation by paying to Seller on the Settlement Date an amount
equal to the Participation Purchase Price for any Mortgage Loan which is a Dry
Loan or an Acceptance Sheet Mortgage Loan. As to any Mortgage Loan which is not
a Dry Loan or Acceptance Sheet Loan, the Participation Purchase Price shall be
paid as follows (i) 125 Loans - *** of the Participation Purchase Price on
the Settlement Date and the balance on the date the Mortgage Loan becomes a Dry
Loan, and (ii) all other Mortgage Loans, *** of the Participation Purchase
Price on the Settlement Date and the balance on the date the Mortgage Loan
becomes a Dry Loan. All payments shall be paid to Seller by wire transfer, or by
delivery of a certified or cashier's check to Seller or a closing agent
designated by Seller, as Participant shall elect. Upon Participant's payment of
the portion of the Participation Purchase Price with respect to such
Participation due on the Settlement Date, Participant shall immediately become
vested with a 100% beneficial ownership interest in the related Mortgage Loan,
collections thereon, any related Hazard Insurance Policy, Flood Insurance Policy
and Mortgage Insurance Policy, all other Mortgage Documents (including but not
limited to all books, records and documents of every nature of Seller relating
to such Mortgage Loan), and all other proceeds of and rights related to any of
the foregoing (the foregoing rights being referred to as the "Participation"
with respect to such Mortgage Loan).
(d) Participation Certificate. Each Participation
shall be evidenced in part by a Participation Certificate in substantially the
form attached hereto as Exhibit "A," with the blanks appropriately filled, duly
executed by Seller. A Participation Certificate may evidence Participations in
more than one Mortgage Loan purchased on the same date. Seller shall deliver a
Participation Certificate to Participant in accordance with Section 2.1(f)
hereof, with a copy to Custodian as provided in Section 2.1(e) hereof. Failure
to deliver such a Participation Certificate, or any error therein, shall not
limit or affect the rights of Participant or the obligations of Seller with
respect to such Participation.
(e) Delivery of Documents to Custodian. After the
purchase of any Participation, Seller shall in accordance with the terms of the
Custodian Agreement, deliver the Mortgage Documents to Custodian, so that
Custodian receives the same not later than seven (7) Business Days after the
Settlement Date, together with a completed Shipment Order. The foregoing
notwithstanding, upon written notice by Participant to Seller, the Mortgage
Documents shall be delivered to the Participant rather than the Custodian within
seven (7) Business Days after the Settlement Date in which case Participant
shall act as its own custodian until the Mortgage Loan is purchased or the
Mortgage Documents are delivered to the Custodian, provided the cost to Seller
of Participant acting as its own custodian shall not be any greater than the
cost to Seller of the Custodian's services.
*** OMITTED PURSUANT TO A CONFIDENTIAL
TREATMENT REQUEST AND FILED SEPARATELY
WITH THE COMMISSION
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<PAGE> 14
In the event that no Approved Private Investor has
been identified at the time of the purchase, Seller shall deliver the Mortgage
Documents as provided above but Seller will not identify an Approved Private
Investor in the Shipment Order. Seller will send notice of the Approved Private
Investor to the Custodian and the Participant within three days of the Approved
Private Investor being identified.
(f) Delivery of Documents to Participant. As
promptly as practicable after the purchase of any Participation, Seller shall
deliver the following documents to Participant, so that Participant receives the
same not later than seven (7) Business Days after the Settlement Date:
(i) The original Participation Certificate
relating to such Participation; and
(ii) If so required pursuant to Section
2.1(e) above, Mortgage Documents or, otherwise, a copy of the executed
Shipment Order relating to such Participation and if an Approved
Private Investor has not been identified such information shall be left
blank on the Shipment Order and such information shall be provided
within three (3) days of identifying such Approved Private Investor.
(g) OTS Certification. Without limitation of any
other provision hereof, Seller hereby certifies that copies of any
documents concerning the Mortgage Loan provided to Participant or
Custodian from time to time are and will be accurate and complete to
the best knowledge of the Seller. Seller agrees to take such further
actions and obtain and/or execute, acknowledge, deliver and/or record
such further documents and instruments, as Participant may reasonably
request to fulfill any obligations Participant may have under
applicable banking regulations or as requested by Participant's
regulatory examiners.
(h) Additional Conditions to Purchase. In addition
to any other conditions set forth herein to Participant's commitment to
purchase Participations, Participant shall have no obligation to
purchase any Participations hereunder unless and until, and only to the
extent that, the following shall have occurred:
(i) Seller shall have made available to
Participant for Participant's review on request, from time to
time, and Participant shall not, in the exercise of its
reasonable discretion, have disapproved in writing all or any
portion of Seller's Mortgage Loan underwriting standards and
guidelines applicable to the Mortgage Loans in which
Participant is to purchase Participations (the "Underwriting
Standards"); and
(ii) Seller shall have delivered to
Participant for Participant's review the financial statements
of Seller required by this Agreement, in form and substance
satisfactory to Seller; and
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<PAGE> 15
(iii) Seller shall not have outstanding any
debt obligations which are not subordinated in payment to Seller's
obligations to Participant under this Agreement, except the following
(herein, "Permitted Debt"): (i) obligations for the purchase or lease
of equipment, supplies and services in the ordinary course of business;
(ii) debt obligations identified on Seller's financial statements
delivered to Participant prior to the date hereof; (iii) debt
obligations secured by liens on the contractual or certificated right
to Excess Spread, as defined in the Subordinated Debt Indenture,
capitalized on the Seller's balance sheet; (iv) debt permitted pursuant
to Section 5.18 hereof; and (v) obligations owed to the Participant.
Seller shall have provided evidence satisfactory to Participant that it
shall have obtained such regulatory approvals or consents, and such
favorable legal opinions, and such other documentation and evidence, as
Participant may deem advisable in connection with Participant's and
Seller's entering into and performing their respective obligations
under this Agreement and their respective authority to do so, including
without limitation a favorable legal opinion from Seller's legal
counsel, in form satisfactory to Participant and its legal counsel,
regarding such matters as Participant may deem appropriate;
(iv) Seller shall have paid the actual,
reasonable expenses of Participant in connection with the negotiation,
execution and closing upon this Agreement, including without limitation
the fees and disbursements of Participant's legal counsel; and
(v) Closing shall have occurred under the
Flow Agreement, the Subordinated Debt Indenture, the Subservicing
Agreement, the Sovereign Stock Purchase Agreement and the City National
Stock Purchase Agreement.
(i) Investor Proceeds; Reconciliation; Interest.
(i) Within five (5) Business Days of
receipt by Participant of the proceeds from the sale of a Mortgage Loan
from the Custodian or upon purchase by the Participant, in its capacity
as an Approved Private Investor, of any Mortgage Loan as to which
Participant is acting as custodian, the proceeds of such sale (the
"Investor Proceeds") shall be applied as follows:
(A) Participant shall first be
reimbursed 100% of the Regular Repurchase Price for the
Mortgage Loan.
(B) If any balance of Investor
Proceeds remain after paying item (i) above (a "Proceeds
Excess"), Participant shall credit the Proceeds Excess to any
demand deposit account of Seller maintained at Participant
and, in the absence of Participant's credit of such amount to
Seller's account, Participant shall pay Seller the balance
thereof, on demand. If the Investor Proceeds are not
sufficient to pay item (i) above (a "Proceeds Deficiency"),
Participant shall be entitled
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<PAGE> 16
to charge any demand deposit account of Seller therefor,
and/or Seller shall pay Participant on demand, the amount of
the Proceeds Deficiency. Any amounts not paid when properly
demanded under this Paragraph shall bear interest from the
date of demand until the date of payment at a per annum rate
equal to ten (10%) percent for any period in question
calculated on the basis of a year consisting of 360 days.
(ii) Participant shall be accountable to
Seller for any Investor Proceeds only to the extent that it
actually receives them in collected funds. Participant shall
have no obligation to enforce any claims on behalf of or for
the benefit of Seller.
(iii) Monthly, on or before the 15th day of
each calendar month, Participant shall provide Seller with an
accounting for each Mortgage Loan for which Participant shall
have received Investor Proceeds during the prior calendar
month, setting forth: (w) the Participation Purchase Price;
(x) the Investor Proceeds received by Participant; (y) the
Regular Repurchase Price; and (z) the net amount, if any,
credited or charged to Seller's deposit account pursuant to
paragraph (i)(B) of this Section.
(iv) From the date of the funding by
Participant of each Mortgage Loan through the date the legal
and beneficial interests in the Mortgage Loan are sold and the
Regular Repurchase Price is received by the Participant,
Seller shall pay to Participant interest on the applicable
Outstanding Participation Purchase Price at a per annum rate
equal to:
125 Loans: the sum of
(a) Libor plus *** multiplied by
the dividend of (i) the lesser of (A) the Average
Participation Portfolio Balance, and (B) $40.0
million, divided by (ii) the Average Participation
Portfolio Balance; plus
(b) Libor plus *** multiplied by
the dividend of (i) the greater of (A) the Average
Participation Portfolio Balance minus $40.0 million,
and (B) $0, divided by (ii) the Average Participation
Portfolio Balance; plus
***OMITTED PURSUANT TO A CONFIDENTIAL
TREATMENT REQUEST AND FILED SEPARATELY
WITH THE COMMISSION
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<PAGE> 17
(c) Libor plus *** multiplied by
the dividend of (i) the greater of (A) the Average
Participation Portfolio Balance minus $60.0 million,
and (B) $0, divided by (ii) the Average Participation
Portfolio Balance.
(d) Libor plus *** multiplied by
the dividend of (i) the greater of (A) the Average
Participation Portfolio Balance minus $80.0 million,
and (B) $0, divided by (ii) the Average Participation
Portfolio Balance.
All other Mortgage Loans: the sum of
(a) Libor plus *** multiplied by
the dividend of (i) the lesser of (A) the Average
Participation Portfolio Balance, and (B) $40.0
million, divided by (ii) the Average Participation
Portfolio Balance; plus
(b) Libor plus *** multiplied by
the dividend of (i) the greater of (A) the Average
Participation Portfolio Balance minus $40.0 million,
and (B) $0, divided by (ii) the Average Participation
Portfolio Balance; plus
(c) Libor plus *** multiplied by
the dividend of (i) the greater of (A) the Average
Participation Portfolio Balance minus $60.0 million,
and (B) $0, divided by (ii) the Average Participation
Portfolio Balance; plus
(d) Libor plus *** multiplied by
the dividend of (i) the greater of (A) the Average
Participation Portfolio Balance minus $80.0 million,
and (B) $0, divided by (ii) the Average Participation
Portfolio Balance.
Interest shall be calculated on the basis of a year
containing 365 days for the actual number of days elapsed. Interest
shall be payable monthly, in arrears, on the 15th day of each month.
Participant is hereby authorized to debit from any account of Seller
maintained at the Participant all payments due under this Paragraph
2.1(i).
***OMITTED PURSUANT TO A CONFIDENTIAL
TREATMENT REQUEST AND FILED SEPARATELY
WITH THE COMMISSION
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(j) Overpurchase. Participant shall not be
obligated to purchase any Participation the purchase of which would
cause the aggregate unpaid principal amount of Mortgage Loans
outstanding on the date of such purchase, together with the aggregate
unpaid principal amount of all mortgage loans in which Participations
are to be purchased on the date of such purchase, to exceed the Pool
Limit. If Participant purchases a Participation or Participations
which cause the aggregate unpaid principal amount of all Mortgage
Loans in which Participations have been purchased by Participant to
exceed the Pool Limit at any time (herein, an "Overpurchase"), such
Overpurchase shall not bind Participant to continue to make an
Overpurchase available thereafter, and neither any Overpurchase nor
any course of Overpurchases shall be deemed a waiver of or increase of
the Pool Limit. Seller agrees that it will, immediately upon
Participant's demand, repurchase, at the Regular Purchase Price, any
Participation which causes an Overpurchase.
(k) Intentionally Deleted.
(l) Fees. In addition to any interest payable
hereunder to the Participant, the Seller shall pay fees to the
Participant on the Average Participation Portfolio Balance at a per
annum rate equal to the sum of:
(i) *** of the Average Participation
Portfolio Balance
(ii) *** of the Pool Limit minus the
Average Participation Portfolio
Balance.
Fees shall be calculated on the basis of a 365 day
year for the actual number of days elapsed. Fees shall be payable
monthly, in arrears, on the 15th day of each month. Participant is
hereby authorized to debit from the accounts of the Seller maintained
at the Participant all payments due hereunder.
2.2 Relationship Between Seller and Participant.
(a) Seller as Trustee. With respect to the
Mortgage Loans, the servicing thereof, collections thereon, and related Hazard
Insurance Policy, Flood Insurance Policy and Mortgage Insurance Policy, all
other Mortgage Documents, all other proceeds of and rights related to any of the
foregoing, and the Participation, Seller shall be, and shall hold bare legal
title to the Mortgage Documents solely as trustee for Participant and shall have
fiduciary
***OMITTED PURSUANT TO A CONFIDENTIAL
TREATMENT REQUEST AND FILED SEPARATELY
WITH THE COMMISSION
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<PAGE> 19
duties to Participant. Seller, as trustee, shall not transfer legal title to any
Mortgage Loan except to Participant or an Approved Private Investor pursuant to
the terms hereof, or permit any Lien to arise on any Mortgage Loan or any
Mortgage Documents except in favor of the Participant. In performing its trustee
function, Seller shall exercise that degree of care which is legally required of
a trustee. Subsequent to sale of any Participation hereunder and prior to
delivery by the Seller to the Custodian or Participant of the applicable
Mortgage Documents, the Seller shall hold such Mortgage Documents in file
cabinets segregated from all other documents held by the Seller and containing
only Mortgage Documents relating to the Mortgage Loans in which the Participant
has purchased a Participation hereunder. Such file cabinets and Mortgage
Documents shall be conspicuously marked as being held by the Seller as trustee
and custodian for the Participant.
(b) Nature of Participation, etc. Seller shall
cause all loan files relating to Mortgage Loans maintained by it or Servicer to
be marked to indicate Participant's Participation in such Mortgage Loan. Neither
Seller nor Servicer shall represent to anyone that Seller or Servicer owns any
Mortgage Loan except (in the case of Seller) as trustee for Participant. Seller
and Participant agree that the purchase of Participation hereunder does not
represent a loan or extension of credit by Participant to Seller, but rather the
true sale of a Participation, and that the Participation Purchase Price
represents fair consideration and reasonably equivalent value for such
Participation. Seller will reflect the transaction hereunder on its balance
sheets and other financial statements and records as a purchase of an asset by
Participant and the sale of an asset by Seller.
(c) Resale Pursuant to the Commitment. Subject
to the terms and conditions of this Agreement, Seller, as trustee, is hereby
authorized and directed to sell each Mortgage Loan to an Approved Private
Investor pursuant to the related Commitment. Each such sale of a Mortgage Loan
must be for cash in an amount resulting in net cash proceeds not less than the
Regular Repurchase Price of the Participation as of the date of sale.
Participant shall be entitled to receive, on account of its Participation, such
Regular Repurchase Price from the proceeds of sale. Any excess shall be for the
account of Seller. The Approved Private Investor shall be directed to pay the
entire purchase price for the Mortgage Loan to the Custodian for the account of
Participant, in accordance with the terms of the Bailment Agreement and
following such payment Participant shall, within five (5) days, pay to Seller an
amount equal to any portion of such payment to which Seller is entitled pursuant
to this Section 2.2. The foregoing notwithstanding, if the Participant is acting
as custodian and is the Approved Private Investor, the Participant shall
reconcile the Investor Proceeds as required herein without paying the purchase
price to the Custodian. Seller shall use its best efforts to cause all
conditions precedent to the sale of each Mortgage Loan, pursuant to a Commitment
that are within its control to be satisfied in a timely and complete manner,
shall use its best efforts to sell such Mortgage Loan pursuant to such
Commitment and in accordance with the terms of this Agreement, and shall not
terminate or amend any Commitment without the prior written consent of
Participant. Seller agrees that any and all sales of the Mortgage Loans pursuant
to this Section 2.2 shall be made by Seller without recourse to, or
representation or warranty (express or implied) by Participant.
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<PAGE> 20
ARTICLE III.
SERVICING
3.1 Servicing Responsibilities.
(a) Seller's Responsibility for Servicing.
Subject to the terms of this Agreement, Seller hereby assumes the responsibility
for administering and servicing each Mortgage Loan, as specified in this
Agreement. Subject to Participant's right to terminate Seller as Servicer
pursuant to the terms of this Agreement, Seller shall retain such responsibility
so long as this Agreement remains in effect. The term "Servicer" as used herein,
shall refer to the Person actually performing the servicing function. No
servicing functions shall be assigned, transferred, sub-serviced or otherwise
performed by any Person other than Seller, Participant or Participant's designee
without the prior written consent of Participant. Participant hereby consents to
the retention by the Seller of City National to act as subservicer hereunder
pursuant to the terms of the Subservicing Agreement. No appointment of or
delegation to a servicer or subservicer, including City National, shall relieve
Seller of its liability and responsibility with respect to servicing and
administration of the Mortgage Loans, and Seller shall be responsible for
performance of all obligations of Servicer under this Agreement and for all
obligations of City National under the Subservicing Agreement.
(b) Servicing Standards and Administration. The
Mortgage Loans shall be administered and serviced consistent with the terms of
the Subservicing Agreement, whether or not the Subservicing Agreement is in
effect. Seller shall be responsible for the execution of any and all notices,
and other acts necessary in connection with the transfer of ownership of the
respective Participations to Participant, and its successors and assigns, and
for preserving all rights in the Mortgage Loans.
3.2 Servicing Compensation.
(a) Compensation. Neither Seller nor any other
Servicer (including City National) shall be paid any compensation by Participant
for servicing Mortgage Loans in consideration of the other agreements between
Participant and Seller set forth in the Basic Agreements.
(b) No Other Compensation. Seller shall bear
for its own account all expenses incurred by it (including by Servicer) in
connection with the performance of the obligations of Seller and Servicer under
this Agreement, and the Custodian Agreement, and neither Seller nor Servicer
shall be entitled to receive or retain any compensation or reimbursement under
this Agreement or the Custodian Agreement except as expressly provided herein.
Without limitation, Seller shall bear all costs and expenses (whether incurred
by it, Servicer or Custodian) in connection with any sale of the Mortgage Loans
to an Approved Private Investor.
20
<PAGE> 21
3.3 Application of Mortgagor Payments. Any amounts
received by the Participant on account of payments by an Obligor shall be
applied first to accrued interest on the Outstanding Participation Purchase
Price at the rate set forth in Section 2.1(g) hereof, next to any unreimbursed
advances made by Participant with respect to the subject Mortgage Loan, next to
the Outstanding Participation Purchase Price and next any excess to the Seller.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
4.1 Certain Representations and Warranties of Seller.
Seller hereby represents and warrants to Participant, as of the date of each
sale of a Participation hereunder, as follows:
(a) As to Seller.
(i) Seller is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation. Seller is qualified to do business as a
foreign corporation and is in good standing in the jurisdiction in
which the Mortgaged Property is located.
(ii) Seller has full power and authority,
corporate and otherwise, to execute, deliver, perform and take all
actions contemplated by this Agreement, and all such action has been
duly and validly authorized by all necessary corporate proceedings on
its part. Without limitation of the foregoing, Seller has the power and
authority to originate Mortgage Loans, to sell Participations
hereunder, and otherwise to transact the business in which it is
presently engaged, and Seller has taken all necessary corporate action
to authorize such actions. Seller has all licenses, permits and
authorizations necessary to originate or acquire the Mortgage Loans, to
sell the Participations and otherwise to perform and take all actions
contemplated by this Agreement and to carry out its business.
(iii) This Agreement has been duly and
validly executed and delivered by Seller. This Agreement constitutes
the legal, valid and binding obligation of Seller, enforceable against
Seller in accordance with its terms, subject to applicable rules of
equity and any applicable insolvency, bankruptcy, receivership and
similar laws and regulations. Neither the sale of Participations nor
the other transfers and assignments provided for herein are subject to
any bulk transfer or similar statutory provision in effect in any
applicable jurisdiction.
(iv) No approval, order, consent,
authorization, certificate, license, permit or validation of, or
exemption or other action by, or filing, recording or registration
with, or notice to, any Governmental Authority is or will be necessary
or advisable in connection with the execution and delivery of this
Agreement,
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<PAGE> 22
consummation by Seller or the transactions herein contemplated, or if
any such is required, it has been obtained and is in full force and
effect.
(v) Neither the execution and delivery of
this Agreement, nor consummation of the transactions herein
contemplated, nor performance of or compliance with the terms and
conditions hereof does or will (a) violate or conflict with any law; or
(b) violate, conflict with or result in a breach of any term or
condition or, or constitute a default under, or result in (or give rise
to any right, contingent or otherwise, of any Person to cause) any
termination, cancellation, prepayment or acceleration of performance
of, (I) the certificate of incorporation or by-laws (or other
constituent documents) of Seller; or (II) any agreement or instrument
to which Seller is a party or by which it or any of its properties may
be subject or bound.
(b) Title, etc. Seller has good and marketable
title to the Mortgage Loan relating to each such Participation, free and clear
of all Liens (other than the interest of Participant under its Participation).
Immediately upon the Settlement Date, Participant shall be the owner of and have
good and marketable title to such Participation, free and clear of any Lien
(other than Liens created by, through or under Participant).
(c) Enforceability. The Mortgage Loan relating
to each such Participation has been fully advanced to the Obligors and is
evidenced by Mortgage Documents which have been duly executed and delivered and,
where applicable, acknowledged, by the Obligors. The Mortgage Loan and such
Mortgage Documents constitute the legal, valid and binding obligations of the
Obligors, enforceable against the Obligors in accordance with their terms,
except as the enforceability thereof may be limited by bankruptcy, insolvency or
other similar laws of general application affecting the enforcement of
creditors' rights or by general principles of equity limiting the availability
of equitable remedies. Such Mortgage Loan is not limited by the terms of the
respective Mortgage Documents as to the personal liability of any Obligor, and
if executed by more than one Obligor, the liability of each Obligor is primary,
joint and several.
(d) Transmittal Schedule; Compliance with Law,
Underwriting Standards, etc. The information set forth in the Transmittal
Schedule about the Mortgage Loan related to such Participation is true and
correct and complies with the provisions of this Agreement. Such Mortgage Loan,
and the sale of the Participation therein to Seller, complies with all
applicable laws, and meets all of the criteria established by any applicable
Approved Private Investor. In addition, such Mortgage Loan complies with all
underwriting standards previously delivered in writing by Seller to Participant,
and complies with the following additional requirements: (i) the Mortgaged
Property consists of a single parcel of real property with a detached single
family residence erected thereon, or a two to four family residential dwelling
or an individual condominium unit; provided, however, that the Mortgaged
Property does not consist of a manufactured home or mobile home or the land on
which the same has been placed; (ii) no selection procedures adverse to
Participant were used in Seller's determination to
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offer the Participation in such Mortgage Loan; (iii) such Mortgage Loan is an
amount not exceeding ***; (iv) such Mortgage Loan does not have a loan to value
ratio greater than ***, (v) the interest rate on such Mortgage Loan is not
materially greater or less than the interest rate charged by institutional
lenders upon mortgage loans of like type and size, secured by similar property
and originated in the same geographic area; (vi) such Mortgage Loan matures not
more than 30 years from the date of origination; and (vii) the Obligor's Fico
Score is greater than or equal to ***, provided, however, an Obligor's Fico
Score may be between *** and *** if the principal of the subject Mortgage Loan,
when added to the principal of all other Mortgage Loans as to which the
Obligor's Fico Score was less than ***, does not exceed 5% of the Participation
Portfolio Balance (in the event any Mortgage Loan has more than one Obligor, the
relevant Fico Score for the purposes of the foregoing analysis shall be the
score of the primary wage earner).
(e) Mortgage. Each Mortgage constitutes a valid
first or second lien with respect to the Mortgaged Property and has been
properly acknowledged and recorded (or submitted for recordation) in the public
real property records of the jurisdiction in which the Mortgaged Property is
situate. There are no delinquent taxes, assessments, mechanic's liens or the
like encumbering the Mortgaged Property. To the extent required pursuant to
underwriting guidelines of any applicable Approved Private Investor or the
Participant, such Mortgage Loan is insured by a paid-up mortgagee's title
insurance policy issued to Seller by a substantial and reputable title insurance
company, which policy includes assignees of such Mortgage Loan as an insured
thereunder, in an amount at least equal to the original principal amount of the
Mortgage Loan, which insures that the attendant Mortgage Loan constitutes a
valid first or second mortgage lien on the Mortgaged Property.
(f) Hazard and Flood Insurance. The
improvements constructed on the Mortgaged Property are insured against fire and
extended coverage hazards (a "Hazard Insurance Policy", as further defined
herein) by a substantial and reputable insurance company, and if required by law
or applicable underwriting standards, are also insured against flood hazards (a
"Flood Insurance Policy," as further defined herein), in each case with a
substantial and reputable insurance company, with a standard mortgagee's
endorsement in favor of Seller and its assigns (which shall, among other things,
provide that such insurance is not invalidated by acts of Obligor), in an amount
at least equal to the amounts required under the Subservicing Agreement.
(g) Intentionally Deleted.
***OMITTED PURSUANT TO A CONFIDENTIAL
TREATMENT REQUEST AND FILED SEPARATELY
WITH THE COMMISSION
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(h) Current Payments; Absence of Defaults. The
Mortgage Loan related to such Participation is current as to the scheduled
payments to be made by the Obligor thereunder. There is no material default
under the Mortgage Documents, and the Mortgage Loan is not subject to any
pending action or proceeding which may adversely affect the title to or the
interest of Participant in such Mortgage Loan.
(i) Documents. Seller has in its possession
(or has delivered to the Custodian or Participant) the Initial Credit File and
all Mortgage Documents and other records required to be maintained for such
Mortgage Loan under applicable law. Seller has no knowledge that any Obligor's
financial condition or that of any guarantor or insurer, is not as described in
the Initial Credit File relating to each Mortgage Loan.
(j) Improvements. The improvements constructed
on the Mortgaged Property secured by each Mortgage are free of substantial
damage and are in good repair.
(k) Commitment. Seller has obtained (or will
obtain within 150 days of the date of purchase of the Participation) with
respect to the Mortgage Loan related to such Participation a Commitment from an
Approved Private Investor to purchase from Seller such Mortgage Loan within a
period of not more than one hundred eighty (180) days from the Settlement Date.
Such Commitment provides (or will provide) for the Approved Private Investor to
purchase such Mortgage Loan at a price at least equal to the Regular Repurchase
Price. Such Commitment is or will be subject only to conditions customarily
found in mortgage loan purchase commitments utilized in the secondary mortgage
market, and such Mortgage Loan (including all related Mortgage Documents)
complies with all conditions for sale pursuant to such Commitment. Seller knows
of no reason why the sale will not be timely consummated pursuant to the
Commitment.
(l) Pool Limit and Wet Loan Limit. The purchase
of such Participation by Participant shall not cause the aggregate unpaid
principal amount of (i) Mortgage Loans outstanding on the date of such purchase,
together with the aggregate unpaid principal amount of all Mortgage Loans in
which Participations are to be purchased on the date of such purchase, to exceed
the Pool Limit, or (ii) Wet Loans outstanding on the date of such purchase,
together with the aggregate unpaid principal amount of all Wet Loans in which
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Participations are to be purchased on the date of such purchase to exceed the
following percentages of total principal outstanding on all Mortgage Loans in
which Participant owns or will purchase a Participation hereunder:
*** of the first ***
*** of the next ***
*** of the next ***
*** of the next ***
*** of any excess
***OMITTED PURSUANT TO A CONFIDENTIAL
TREATMENT REQUEST AND FILED SEPARATELY
WITH THE COMMISSION
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4.2 Certain Presumptions.
(a) Early Payment Default. In any litigation
Over whether Seller has breached the representation and warranty described in
Section 4.1(d) hereof, if the Obligor defaults in the timely payment of the
first installment of principal and interest due after purchase of the
Participation, Seller shall have the burden of proving that it did not breach
such representation and warranty. (Timely payment of the first installment by
the Obligor shall not, however, give rise to any presumption that Seller did not
breach such representation and warranty).
(b) Failure to Sell Pursuant to Commitment. In
any litigation over whether Seller has breached the representation and warranty
described in Section 4.1(k) hereof, if the Approved Private Investor has failed
to purchase the Mortgage Loan pursuant to the Commitment as contemplated herein
within 180 days after purchase of the Participation, Seller shall have the
burden of proving that it did not breach such representation and warranty.
(Timely purchase of a Mortgage Loan by the Approved Private Investor shall not,
however, give rise to any presumption that Seller did not breach such
representation and warranty).
4.3 Repurchase Obligation. If any material representation
or warranty of Seller set forth in this Article IV made or deemed to be made in
connection with any sale of any Participation is untrue or incorrect in any
respect when made or deemed to have been made or if any Mortgage Loan is or
becomes more than sixty (60) days past due on account of any scheduled payment
or if an Approved Private Investor has failed to purchase any Mortgage Loan
within one hundred eighty (180) days, then, in addition to all other rights and
remedies which Participant may have hereunder, at law, in equity or otherwise,
Participant may at any time and from time to time, by notice to Seller, require
Seller, and Seller shall have the obligation immediately to repurchase such
Participation, for cash in immediately available funds, at the Regular
Repurchase Price of the Participation as of the date of purchase.
ARTICLE V.
SELLER'S COVENANTS
5.1 Maintenance of Books and Records. Seller will
maintain, in accordance with GAAP, accurate records and books of account
showing, among other things, all transactions relating to all Mortgage Loans in
which Participant purchases or agrees to purchase a Participation. Without
limiting the foregoing, Seller and Participant agree that Participant is
purchasing the entire beneficial interest in each Mortgage Loan in which a 100%
Participation is purchased hereunder, and each shall show Seller's purchase of a
100% Participation in a Mortgage Loan as a purchase by Participant and a sale by
Seller of the entire Mortgage Loan in question, and after such purchase and sale
Seller shall not carry any Mortgage Loan as an asset on its balance sheet.
Seller hereby grants to Participant the right to call at Seller's places of
business during regular business hours, at intervals to be determined by
Participant, and, without
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hindrance or delay, to inspect, audit, check, and make extracts and copies from
the books, records, journals, orders, receipts, correspondence and other data
relating to the Mortgage Loans.
5.2 Financial Statements, Reports.
(a) Seller will furnish Participant, within
sixty (60) days after the close of each quarterly period of its fiscal year, a
copy of its quarterly financial statements, including balance sheets and profit
and loss statements reflecting the financial condition of Seller at the end of
each such respective period and the results of its operations during each such
period, and for the fiscal year to date, with a certification by the chief
executive officer and chief financial officer of Seller that the statements
present fairly the financial condition of such Seller at the end of such period
and the results of its operations during such period in accordance with
generally accepted accounting principles consistently applied, subject to audit
and ordinary year-end adjustments and without footnote disclosure.
(b) Seller will furnish Participant, within one
hundred twenty (120) days after the close of each fiscal year of Seller, audited
financial statements together with a full and complete signed copy of the audit
opinion prepared in accordance with generally accepted auditing standards by
certified public accountants acceptable to the Participant, together with
balance sheets as at the end of such year and detailed statements of profit and
loss and sources and uses of funds reflecting operations during such year, and a
complete copy of the management letter delivered to Seller by its auditors in
connection with such audit.
(c) Intentionally Omitted.
(d) Seller will promptly, from time to time, on
request, deliver to Participant copies of all reports, returns and other
documents filed with any Federal, State of local regulatory agencies and provide
such other information regarding the operations, business, affairs, financial
condition, commitments and contingencies of Seller as Participant may reasonably
request.
(e) On or before the earlier of the dates each
respective return or amended return is filed or is required to be filed, Seller
shall have delivered to the Participant complete copies of its U.S. federal
income tax return (with all schedules) for the year covered thereby.
(f) On or before the date that quarterly and
annual financial statements are due to Participant under this Section, a
Compliance Certificate, executed by the chief financial officer of the Seller,
in form acceptable to Participant, showing the Seller's compliance or describing
the nature of the Seller's noncompliance with Seller's obligations under this
Agreement and the Custodian Agreement.
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(g) Seller shall provide Participant, from time
to time upon Participant's request, such additional financial information as
Participant may request.
5.3 Existence, Properties, Etc. Seller will do or cause
to be done all things necessary to obtain, preserve, renew and keep in full
force and effect its existence and its qualification to do business and good
standing in each jurisdiction in which such qualification is necessary for the
proper conduct of its business, and conduct and operate its business in
substantially the manner in which same is presently conducted and operated; at
all times maintain, preserve and protect all material property and contract
rights belonging to Seller; preserve the condition of all property useful in the
conduct of its business and keep the same in good repair, working order and
condition (reasonable wear and tear excepted) and from time to time make, or
cause to be made, all repairs, renewals, replacements, betterments and
improvements thereto, to the extent that the same are necessary for the proper
and advantageous conduct of its business; and comply with all present and future
regulatory and other laws applicable to it in the operation of its businesses,
and with all material agreements to which it is subject.
5.4 Fidelity Bond Coverage; Insurance.
(a) Seller shall comply with its obligations
under the Custodian Agreement regarding insurance, fidelity bond coverage and
errors and omissions insurance.
(b) Without limiting the foregoing, Seller shall
maintain in force, at all times that any of the Basic Agreements is in force, a
fidelity bond or policy or policies of fidelity bond coverage and errors and
omissions coverage, in an aggregate amount at least equal to the amount required
under similar circumstances for seller/servicers with similar characteristics by
FNMA, insuring Seller and Participant and their successors and assigns from and
against all items of loss, fraud, theft and the like as are customarily covered
by mortgage banker and mortgage broker fidelity bonds. The issuer or issuers of
the fidelity bond coverage and the terms and amounts of the fidelity bond
coverage and the issuer of the errors and omissions coverage and the terms and
conditions of the errors and omissions coverage (including without limitation
the amount or amounts of any deductibles) shall at all times be acceptable to
Participant.
(c) Seller agrees (1) to notify Participant in
writing prior to any change in fidelity bond or insurance coverage which would
cause such insurance to not meet the requirements of this Agreement; and (2) to
provide Participant complete copies of all fidelity bonds and insurance
policies, with all endorsements.
(d) All fidelity bonds and similar insurance
coverages shall be endorsed to cover the interest of Participant, and its
successor and assigns, and Seller shall cause the issuers of all such coverages,
or their authorized agents, to deliver to Participant from time to time, without
need of special request by Participant, a current certificate or certificates of
such coverage, stating the effective period for such coverage, addressed to
Participant, and providing
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that such coverage shall not be canceled without at least thirty (30) days'
prior written notice to Participant.
5.5 Financial Covenants. Seller shall comply with the
following at the respective times indicated and thereafter at all times that
Participant shall own any Participations:
(a) Seller shall at all times be in compliance
with the financial covenants contained in the Subordinated Debt Indenture.
(b) Seller shall not have outstanding at any
time any debt obligations which are not subordinated in payment to Seller's
obligations to Participant under this Agreement, except Permitted Debt.
5.6 Intentionally Omitted.
5.7 Notice of Default. If the chief executive officer,
chief operating officer or chief financial officer of Seller knows of any Event
of Purchase Termination under this Agreement or any breach by Seller of any of
its obligations to Participant under any of the Basic Agreements, Seller will
immediately furnish to Participant a written statement as to such event or
occurrence, specifying the nature and extent thereof.
5.8 Changes. Seller will immediately notify Participant
of any and all proposed material changes in its business practices or properties
and of any change in the officers or directors of Seller.
5.9 Further Assurances. From time to time, upon the
written reasonable request of Participant, Seller will do, execute, acknowledge
and deliver or cause or be done, executed, acknowledged and delivered, all such
further acts, deeds, instruments, transfers, powers of attorney or assurances as
may be required in connection with the transactions contemplated by this
Agreement or any of the other Basic Agreements.
5.10 Authorization to Accountants. Seller hereby
irrevocably authorizes all accountants and auditors employed by Seller at any
time while there are any sums owed to Participant during the term of this
Agreement, and thereafter until all of the obligations of Seller hereunder or
under the Custodian Agreement have been fully performed and discharged, to
cooperate with Participant and to exhibit and deliver to Participant copies of
Seller's financial statements, tax returns, trial balances, or other accounting
or tax records or other information of any sort which may be in their
possession, all at Seller's expense.
5.11 Computer Records. Seller hereby irrevocably
authorizes all of Seller's data processors, computer service bureaus or
companies (if any) to give Participant full access to and to deliver to
Participant, at Seller's expense, printouts and all information respecting any
and all financial records now or hereafter maintained by the same for Seller.
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5.12 Visitation. Seller shall permit such person as the
Participant may designate to visit and inspect any of the properties of the
Seller and the subsidiaries, to examine Seller's books and records and take
copies and extracts therefrom and to discuss their respective affairs with
Seller's officers and employees, at such times and as often as the Participant
may reasonably request. Seller hereby authorizes such officers and employees to
discuss with the Participant the affairs of Seller and any subsidiaries.
5.13 Notice of Material Proceedings. Promptly upon
becoming aware thereof, Seller shall give the Participant notice of the
commencement, existence or threat of any action or proceeding by or before any
governmental authority against or affecting Seller or any Affiliate which, if
adversely decided, would have a material adverse effect on the business,
operations, properties or financial condition of Seller or on the ability of
Seller to perform its obligations under this Agreement or any of the other Basic
Agreements.
5.14 Statements Not Misleading, etc. Seller will not
knowingly, after reasonable inquiry, furnish Participant any certificate or
other document that contains any untrue statement of material fact or that omits
to state a material fact necessary to make it not misleading in light of the
circumstances under which it is furnished.
5.15 Intentionally Omitted.
5.16 Disposition of Interests in and Indebtedness of
Subsidiaries or Owned Partnerships. Seller will not directly or indirectly sell,
pledge or otherwise dispose of, or part with control of, any shares of capital
stock of a subsidiary or the ownership interest in any partnership, joint
venture or other Person which is majority owned or controlled at any time
hereafter by Seller ("Majority Owned Subsidiary") or any indebtedness of a
Majority Owned Subsidiary.
5.17 Payment of Participant's Expenses. Seller shall pay
and reimburse Participant, on demand, for any out-of-pocket expenses (other than
salary or overhead expenses) which Participant may pay or be obligated to pay
now or hereafter in connection with the negotiation, administration or amendment
of, or enforcement of Participant's rights under this Agreement, the Custodian
Agreement or the Bailment Agreement, including without limitation, the fees and
disbursements of Participant's legal counsel.
5.18 Exclusivity and Right of First Refusal. During the
term of this Agreement (including any extensions) Seller shall not finance any
mortgage loan nor sell participations in any mortgage loan (other than to
Participant) unless (a) at the time of such financing and/or sale of a
participation, the Participation Portfolio Balance equals or exceeds the Pool
Limit, (b) the Seller has requested that the Participant increase the Pool Limit
by an amount sufficient to allow for the purchase by the Participant of a
Participation in such mortgage loan without exceeding the Pool Limit and
Participant has declined to grant such increase, and (c) Seller has provided
Participant with at least five (5) Business Days prior written notice of the
material terms of any
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such financing or participation sale and the Participant has failed, within the
said five (5) Business Day period to provide the Seller with a commitment to
match such material terms.
ARTICLE VI.
EVENT OF PURCHASE TERMINATION
6.1 Events of Purchase Termination. An Event of Purchase
Termination shall mean the occurrence or existence of one or more of the
following events or conditions (for any reason, whether voluntary, involuntary
or effected or required by law):
(a) Seller (or any Servicer to which Seller
assigns, transfers or sub- services the performance of any Servicer functions,
other than the Participant) shall default in the performance of any covenant
contained herein provided, as to any default of any covenant not involving the
payment of money, the Participant shall have given the Seller ten (10) days
written notice of and opportunity to cure such default.
(b) Any representation or warranty made by
Seller hereunder shall prove to have been untrue in any material respect as of
the time when made or deemed made; or any statement made by Seller in any
report, notice or document to Participant is untrue in any material respect and
Participant shall have given Seller ten (10) days written notice of and
opportunity to cure such default.
(c) (i) Seller shall, or shall purport to,
delegate or subcontract its servicing function as to any Mortgage Loan to any
Person, except a Servicer permitted in accordance with the provisions of this
Agreement; or (ii) any Mortgage Insurance Policy, Flood Insurance Policy, Hazard
Insurance Policy or title insurance policy with respect to a given Mortgage Loan
lapses, becomes void or coverage under such policy is terminated as a result of
the act or omission of Seller provided, as to (ii) only, Participant shall have
given Seller ten (10) days written notice of and opportunity to cure such
default.
(d) A Governmental Authority shall issue a cease
and desist order or its equivalent against Seller, Servicer (other than the
Participant), any Affiliate of the foregoing, or any directors or officers
involving the safety, soundness or financial viability of Seller, Servicer
(other than the Participant) or such Affiliate;
(e) A material adverse change shall have occurred
in the business, operations, condition (financial or otherwise) or prospects of
Seller, Servicer (other than the Participant) or any Affiliate of either of
them; or Seller or Servicer (other than the Participant) shall become, in the
judgment of Participant, unable to perform its obligations hereunder in a
satisfactory manner;
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(f) An Approved Private Investor fails to
purchase a Mortgage Loan in accordance with the terms hereof within one hundred
eighty (180) days of the purchase of the Participation in such Mortgage Loan
(whether or not such failure was in breach of the Commitment) and the Seller
shall fail to repurchase such Mortgage Loan within fifteen (15) days thereafter;
(g) Any creditor of Seller declares, or becomes
entitled to declare, any indebtedness of Seller or any Affiliate in an aggregate
amount in excess of $1,000,000 to be due and payable prior to its expressed
maturity, or any such indebtedness becomes due by its terms and shall not be
promptly paid or extended; or Seller shall breach any material contract (now
existing or hereafter existing) to which it is a party under which it is
obligated to sell mortgage loans to, or service mortgage loans for, another
Person;
(h) Any creditor of Seller or of any Affiliate
of Seller issues or obtains issuance of execution in a sum in excess of $500,000
against Seller or any Affiliate or any of their assets or properties;
(i) A Proceeding shall have been instituted in
respect of Seller or any Affiliate or either of them which, if adversely
instituted, shall either (x) result in the entry of an order granting relief
against Seller or such Affiliate or (y) shall not have been dismissed in favor
of Seller or such Affiliate within 90 days of its filing: (i) seeking to have an
order for relief entered in respect of such Person, or seeking a declaration or
entering a finding that such Person is insolvent or a similar declaration or
finding, or seeking dissolution, winding up, charter revocation or forfeiture,
liquidation, reorganization or other similar relief with respect to such
Person under any law relating to bankruptcy, insolvency, receivership, relief of
debtors or protection of creditors, termination of legal entities or any other
similar law now or hereafter in effect; or (ii) seeking appointment of a
receiver, trustee, liquidator, assignee, sequestrator or other custodian for
such Person or for all or any substantial part of its property provided the
foregoing shall not apply to the dissolution of any nonoperating Affiliate;
(j) Seller shall become insolvent or shall fail
to pay, become unable to pay, or state that it is or will be unable to pay, its
debts as they become due; or Seller or any Affiliate shall: (i) voluntarily
suspend transaction of its business; (ii) make a general assignment for the
benefit of creditors; (iii) institute (or fail to controvert in a timely and
appropriate manner) a proceeding described in Section 6.1(i)(i) hereof, or
(whether or not any such proceeding has been instituted) shall consent to or
acquiesce in any such order for relief, declaration, finding or relief described
therein; (iv) institute (or fail to controvert in a timely and appropriate
manner) a proceeding described in Section 6.1(i) or (ii) hereof, or (whether or
not any such proceeding has been instituted) shall consent to or acquiesce in
any such appointment or to the taking of possession by any such custodian of all
or any substantial part of its property; (v) dissolve, wind up, revoke or
forfeit its charter (or other constituent documents) or liquidate itself or any
substantial party of its property; or (vi) take any action in furtherance of any
of the foregoing, provided the foregoing shall not apply to the dissolution of
any nonoperating affiliate;
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(k) A Change of Control shall occur;
(l) The fidelity bond coverage and errors and
omissions coverage required hereunder shall at any time cease to be in force, or
Seller shall in any respect fail to comply with its obligations under this
Agreement in relation to fidelity bond or other insurance coverage;
(m) There shall occur any default by Seller
under the Flow Agreement or the Subordinated Debt Indenture;
(n) Any Event of Servicing Termination shall
occur;
(o) The board of directors of the Seller shall
fail to include at least one (1) nominee of Sovereign Bancorp, Inc. for a period
in excess of ten (10) Business Days unless (i) Sovereign Bancorp, Inc. has
consented in writing or (ii) such failure is due to a voluntary act by Sovereign
Bancorp, Inc.
6.2 Participant's Rights. If any Event of Purchase
Termination shall occur, then, upon receipt by the Seller of notice of the
occurrence of the Event of Purchase Termination (the "Purchase Termination
Notice") in addition to all other rights and remedies which Participant may have
hereunder, or otherwise at law, in equity or otherwise:
(a) Participant's commitments hereunder shall no
longer be in force, and Participant may exercise any or all of the remedies
available to Participant hereunder or under the Basic Agreements. Without
limiting the foregoing, Participant shall have no further obligation to purchase
any mortgage loans, or to fund any purchase;
(b) Participant shall also be entitled to set
off any sums of Seller held by Participant or any debts owed to Seller by
Participant against any obligations owed to Participant by Seller.
If any Event of Purchase Termination shall occur, Participant
agrees to continue to take any actions required of it under the Basic Agreements
to facilitate Seller's sale to an Investor of any Mortgage Loans in which
Participant shall have purchased a Participation, provided, however, that
Participant shall only be obligated to do so to facilitate a sale to an Approved
Private Investor on the purchase terms and conditions on which Participant's
Participation purchase was based, and further provided, that such actions shall
not expose Participant to liability or claims of liability to Seller or any
third person.
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6.3 Termination of Servicing.
(a) Upon the occurrence of an Event of
Servicing Termination, Participant shall have the right, from time to time,
immediately upon notice to Seller, to terminate Seller's servicing (and the
Subservicing Agreement, if necessary, as it relates to Mortgage Loans) in favor
of Participant, or transfer servicing to any third party, with respect to any
one or more or all of the Mortgage Loans in which Participant shall have
purchased a 100% Participation in which case Participant or Participant's
designee may charge its customary servicing fee which fee shall be paid by the
Seller. An "Event of Servicing Termination" shall mean (i) any breach by the
Seller or Servicer (including City National) of the provisions of Article III
hereof, (ii) any "Event of Purchase Termination", or (iii) any breach or
termination of the Subservicing Agreement.
(b) Upon a termination or transfer of servicing
for any one or more Mortgage Loans:
(i) Seller shall immediately take all such
actions and execute, acknowledge and deliver in recordable form such
documents and instruments as Participant may reasonably request to
evidence the transfer to Participant of legal title to each Mortgage
Loan as to which servicing has been terminated or transferred;
(ii) Seller shall cooperate fully with
Participant or any third party servicer, at Seller's expense, including
without limitation by providing such documents and information as
Participant or such third party may reasonably request and providing
such notices to mortgagors and third parties as Participant or such
third party may reasonably request.
Whenever servicing of a Mortgage Loan has been
terminated or transferred, and at all times thereafter, Seller shall hold for
Participant as trustee, and shall pay over to Participant or its designee
immediately upon receipt, in the form received, any monies, checks, items of
payment, instruments, notices and other documents which may come into Seller's
possession with respect to such Mortgage Loan. Termination of servicing shall
not affect any other rights or remedies of the parties hereto.
ARTICLE VII.
MISCELLANEOUS
7.1 Notices. Except to the extent otherwise expressly
permitted hereunder, all notices, requests, demands, directions and other
communications (collectively, "Notices") under this Agreement shall be sent by
nationally recognized overnight courier, or by telex or telecopier (with
confirmation in writing), or by machine readable electronic transmission, or by
personal delivery. All notices shall be sent to the applicable party at the
address provided therefore from
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<PAGE> 35
time to time, in all cases with postage or other charges prepaid. Any such
properly given notice shall be effective on the earliest to occur of receipt,
telephone confirmation of receipt of telexed or telecopied communication or one
(1) Business Day after delivery to a nationally recognized overnight courier.
7.2 No Partnership. Neither the execution of this
Agreement, the sharing in the sales proceeds of the Mortgage Loans nor any
agreement to share in any other profit, loss, income or expense arising as a
result of the transactions contemplated by this Agreement shall be construed to
be or to create, any partnership, joint venture, or other joint enterprise or
joint adventure between Seller and Participant.
7.3 Assignment. This Agreement shall be binding upon and
shall inure to the benefit of Seller, Participant and their respective
successors and permitted assigns. Seller may not sell, pledge, assign or
otherwise transfer any of its rights under this Agreement, and any such
purported transfer shall be void. Participant may from time to time sell,
pledge, assign or otherwise transfer Participations purchased hereunder
provided, Participant may not assign rights hereunder if the effect of any such
assignment, when combined with any prior assignments, would be to create
obligations hereunder on the part of the Seller to more than five (5) Persons.
7.4 Indemnity.
(a) Seller, on the one hand, and Participant, on
the other hand each for itself and its successors (herein, each an "Indemnifying
Person") hereby agrees to reimburse and indemnify and upon request, defend the
other, its Affiliates, and their respective directors, officers, employees and
agents, and their respective heirs, personal representatives, successors and
assigns of the foregoing (herein, each an "Indemnified Person") from and against
any and all losses, liabilities, claims, damages, expenses, obligations,
penalties, actions, judgments, suits, costs or disbursements of any kind or
nature whatever (including, without limitation, the fees and disbursements of
counsel in connection with the investigative, administrative or judicial
proceedings commenced or threatened, whether or not such Indemnified Person is a
party thereto) that may at any time be imposed on, asserted against or incurred
by such Indemnified Person as a result of, or arising out of any breach of a
representation, warranty, covenant, agreement or duty under or in connection
with this Agreement or the Custodian Agreement by an Indemnifying Person. The
obligations of each Indemnifying Person under this Section shall survive the
termination of this Agreement.
(b) If any action, claim or proceeding shall be
brought or asserted against any Indemnified Person in respect of which indemnity
may be sought under this Agreement from an Indemnifying Person, the Indemnified
Person shall give prompt written notice of such action, claim or proceeding to
the Indemnifying Person who shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Person and the
payment of all of such counsel's fees and expenses (it being understood and
agreed that such counsel's fees and expenses are an indemnifiable loss under
this Agreement)
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<PAGE> 36
provided that any delay or failure to so notify the Indemnifying Person of its
obligations hereunder shall release the Indemnifying Person of its obligations
hereunder only to the extent, if at all, that it is prejudiced by reason of such
delay or failure. Any such notice shall refer to this Section of this Agreement
and shall state that the Indemnified Person may undertake the defense of the
applicable action, claim or proceeding (herein, a "Proceeding"), unless it is
assumed by the Indemnifying Person within fifteen (15) Business Days after the
date it receives such notice. The Indemnifying Person will keep the Indemnified
Person advised as to all material developments in connection with any
Proceeding, including, but not limited to, promptly furnishing to the
Indemnified Person copies of all documents filed or served in connection
therewith. The Indemnified Person shall have the right to employ one separate
counsel per jurisdiction in any Proceeding and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
the Indemnified Person unless both the Indemnified Person and the Indemnifying
Person are named as parties and the Indemnified Person shall in good faith
determine that the representation by the same counsel is inappropriate due to
actual or potential differing interests between them. In the event that the
Indemnifying Person, within fifteen (15) Business Days after receiving written
notice of any Proceeding fails to assume the defense thereof, the Indemnified
Person shall have the right, subject to the further provisions hereof, to
undertake the defense, compromise or settlement of such Proceeding for the
account of the Indemnifying Person. Anything in this Section notwithstanding,
the Indemnifying Person shall not, without the Indemnified Person's prior
written consent, settle or compromise any action or claim or consent to the
entry of any judgment if such settlement, compromise or judgment requires
anything other than money damages paid by the Indemnifying Person. The
Indemnifying Person may, without the Indemnified Person's prior written consent,
settle or compromise any Proceeding or consent to the entry of any judgment that
requires solely the payment of money damages by the Indemnifying Person and that
includes as an unconditional term thereof the release by the claimant or the
plaintiff of the Indemnified Person from all liability in respect of such
Proceeding. As a condition to asserting any rights as an Indemnified
Person claiming by virtue of its relationship with the Participant, such
Indemnified Person must appoint the Participant as its sole agent for all
matters relating to any claim hereunder.
7.5 Governing Law. This Agreement shall be governed by,
construed and enforced in accordance with the laws of the Commonwealth of
Pennsylvania.
7.6 Entire Agreement Relationship of Basic Agreements.
This Agreement together with the other Basic Agreements constitute the entire
agreement of the parties hereto with respect to their subject matter, and the
Basic Agreements supersede all prior and contemporaneous understandings and
agreements, whether written or oral, between the parties hereto relating to the
transactions provided for herein. Any provision of the Custodian Agreement shall
control to the extent it affects the rights or obligations of the Custodian.
Otherwise, to the extent of any conflict between this Agreement and any other
Basic Agreement, this Agreement shall control.
36
<PAGE> 37
7.7 Amendments; No Implied Waiver; Cumulative Remedies.
No amendments, modification or waiver of any provision of this Agreement, nor
any consent to any departure by Seller or Participant from any provision of this
Agreement, shall in any event be effective unless the same shall be in writing
and executed by the party against whom enforcement is sought, and then such
waiver or consent shall be effective only in the specified instance and for the
purpose for which given. No course of dealing and no delay or failure by
Participant or Seller in exercising any right, power or privilege under this
Agreement shall affect any other right, power or privilege; nor shall any single
or partial exercise of any such right, power or privilege preclude any further
exercise thereof or of any other right, power or privilege. The rights and
remedies of Participant and Seller under this Agreement are cumulative and not
exclusive of any right or remedies which it may otherwise have hereunder, under
the Custodian Agreement, at law, in equity or otherwise.
7.8 Jurisdictional Consent. In any litigation arising out
of or relating to the Basic Agreements, Seller hereby consents to the personal
jurisdiction of the Courts of the Commonwealth of Pennsylvania and/or the
Federal Courts of the Commonwealth of Pennsylvania.
7.9 Survival. All representations, warranties, covenants,
agreements and duties of Seller contained herein or made in connection herewith
shall survive the making of, and shall not be waived by the execution and
delivery of, any Transmittal Schedule or Participation Certificate, any
investigation by or knowledge of Participant, the purchase of any Participation,
or any other event of condition whatever.
7.10 Severability. The provisions of this Agreement are
intended to be severable. If any provision of this Agreement shall be held
invalid or unenforceable in whole or in part in any jurisdiction, such provision
shall, as to such jurisdiction, be ineffective to the extent of such invalidity
or unenforceability without in any manner affecting the validity or
enforceability thereof in any other jurisdiction or the remaining provisions
hereof in any jurisdiction.
7.11 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original, and all
such counterparts shall together constitute one and the same instrument.
7.12 Expenses. Without limitation of any other provision
hereof, Seller shall pay and save Participant harmless against liability for the
payment of all reasonable out-of-pocket costs and expenses (including but not
limited to fees and expenses of counsel) incurred by Participant from time to
time arising from the enforcement or preservation of rights under this Agreement
or the Custodian Agreement (including but not limited to the collection or
enforcement of any amount owing hereunder by Seller, and any litigation,
proceeding, dispute, or work-out related to this Agreement or the Custodian
Agreement).
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<PAGE> 38
7.13 Further Assurances. Seller shall perform such other
duties, furnish such reports, and execute such other documents (including but
not limited to precautionary financing statements) and provide such other and
further assurances in connection with this Agreement as Participant from time to
time may reasonably request.
7.14 Security Interest Grant and Priority. Seller hereby
grants to the Participant a security interest in all Mortgage Loans and all
accounts, instruments, general intangibles, deposits, books and records relating
to Mortgage Loans and in the Subservicing Agreement. Such security interest
shall secure all obligations of the Seller to the Participant hereunder and
shall, at all times, be senior in priority to any other liens on such property.
Seller shall, from time to time, execute such additional documents, including
Uniform Commercial Code financing statements, as Participant may reasonably
request for the purpose of effecting or perfecting the security interest granted
herein.
7.15 Liability Limitation. Notwithstanding any other term
or provision hereof, the monetary obligations of the Seller to the Participant
created hereunder shall not exceed, at any point in time, (a) 120% of the
principal amount of all Mortgage Loans outstanding at the time of payment of
such obligations, minus (b) an amount equal to the greater of (i) $0, and (ii)
any amounts previously paid by the Seller to the Participant (other than
remittance of funds held in trust by the Seller for the Participant) pursuant
hereto on account of any individual Mortgage Loan, minus 120% of the principal
amount of such individual Mortgage Loan on the date of such previous payment.
The foregoing limitation shall not apply to (x) any obligation of the Seller (or
Servicer) to remit funds held in trust, or (y) any obligation arising out of the
Seller's bad faith failure to perform or observe any term, condition or covenant
hereof.
IN WITNESS WHEREOF, the parties hereto, by their officers
thereunto duly authorized, have executed and delivered this Agreement as of the
date first above written.
MEGO MORTGAGE CORPORATION
By /s/ Jeffrey S. Moore
-------------------------------------
JEFFREY S. MOORE
Attest: /s/ James L. Belter
--------------------------------
JAMES L. BELTER
SOVEREIGN BANK
By /s/ Jay S. Sidhu
-------------------------------------
JAY S. SIDHU
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EXHIBIT "A"
FORM OF PARTICIPATION CERTIFICATE
No. ________
PARTICIPATION CERTIFICATE
This certifies that ______________________________ ("Seller")
has sold, assigned, transferred and conveyed to SOVEREIGN BANK ("Participant"),
upon the representations and warranties set forth in the Participation Agreement
referred to below, Participations representing 100% undivided beneficial
ownership interests in the Mortgage Loans described in the Annex A hereto.
Reference is hereby made to the Participation Agreement dated
as of June 29, 1998 between Seller and Participant (as amended, modified or
supplemented from time to time, the "Participation Agreement"). Capitalized
terms used herein and not otherwise defined have the meanings given them in the
Participation Agreement. The rights and obligations of Participant and Seller
with respect to this Participation Certificate and the Participations evidenced
hereby are governed by such Participation Agreement.
WITNESS the due execution hereof as of ______________, 19___.
[SELLER]
By:
-------------------------------
Title:
-----------------------------
39
<PAGE> 1
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT 10.90
==========================
MASTER MORTGAGE LOAN PURCHASE AGREEMENT
--------------------------
Dated as of June 29, 1998
--------------------------
SOVEREIGN BANK,
as Buyer
MEGO MORTGAGE CORPORATION,
as Seller
==========================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I DEFINITIONS
Section 1.1 Defined Terms...............................................................................1
ARTICLE II PURCHASE AND SALE COMMITMENT
Section 2.1 Flow Purchase and Delivery Obligation.......................................................8
Section 2.2 Acceptance of Loan..........................................................................8
Section 2.3 Conditions and Timing of Purchase...........................................................9
Section 2.4 Underwriting Review........................................................................10
Section 2.5 Exclusivity................................................................................10
Section 2.6 Right of First Refusal.....................................................................11
ARTICLE III PURCHASE AND SALE OF LOANS
Section 3.1 Conveyance of Mortgage Loans; Possession and Ownership.....................................12
Section 3.2 Price and Closing Methodology..............................................................12
Section 3.3 Custodial Agreement........................................................................13
Section 3.4 Delivery of Documents......................................................................13
Section 3.5 Prepayment Rebate..........................................................................15
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER
Section 4.1 Representations and Warranties of Seller - General.........................................16
Section 4.2 Representations and Warranties of Seller As to Each Loan...................................19
Section 4.3 Representations and Warranties of Buyer....................................................28
Section 4.4 Remedies for Breach of Representations and Warranties......................................29
Section 4.5 Indemnification............................................................................30
ARTICLE V LOSS PROTECTION
Section 5.1 Reserve Account............................................................................31
Section 5.2 Remedy For First Payment Default...........................................................32
Section 5.3 Remedy to Insure Accuracy of Real Estate Appraisals........................................32
ARTICLE VI COVENANTS
Section 6.1 Covenants of Seller........................................................................33
Section 6.2 Covenants of Buyer.........................................................................34
Section 6.3 Mutual Covenants...........................................................................35
ARTICLE VII EVENT OF PURCHASE TERMINATION
Section 7.1 Events of Purchase Termination.............................................................35
Section 7.2 Buyer's Rights.............................................................................37
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE VIII MISCELLANEOUS
Section 8.1 Relationship of the Parties...............................................................38
Section 8.2 Sale Treatment............................................................................38
Section 8.3 Survival of Covenants, Agreements, Representations and Warranties;
Successors and Assigns....................................................................38
Section 8.4 Severability..............................................................................38
Section 8.5 Fees and Expenses.........................................................................38
Section 8.6 Waivers...................................................................................38
Section 8.7 Notices...................................................................................39
Section 8.8 Assignment................................................................................39
Section 8.9 Captions..................................................................................39
Section 8.10 Entire Agreement..........................................................................39
Section 8.11 Duration of This Agreement................................................................40
Section 8.12 Governing Law; Consent to Jurisdiction; Waiver of Jury Trial..............................40
Section 8.13 Recordation of Agreement..................................................................40
Section 8.14 Endorsements..............................................................................41
Section 8.15 Reproduction of Documents.................................................................41
Section 8.16 Sale and Security Interest................................................................41
Section 8.17 Excess Servicing Fee......................................................................41
Section 8.18 Further Assurances........................................................................41
Section 8.19 Clean up Call.............................................................................42
Section 8.20 Servicer is Third Party Beneficiary.......................................................42
</TABLE>
Exhibits
Exhibit A - Officer's Certificate
Exhibit B - Opinion of Counsel
Exhibit C - Underwriting Guidelines
Exhibit D - The Servicing Agreement
Exhibit E - Bill of Sale
(ii)
<PAGE> 4
MASTER MORTGAGE LOAN PURCHASE AGREEMENT
MASTER MORTGAGE LOAN PURCHASE AGREEMENT (this "Agreement"),
dated as of June 29, 1998, by and between SOVEREIGN BANK, located in
Wyomissing, Pennsylvania, a federal savings bank organized and existing under
the laws of the United States of America ("Buyer"), and MEGO MORTGAGE
CORPORATION, a Delaware corporation, located in Atlanta, Georgia (the
"Seller").
RECITALS
Seller desires to sell to Buyer, and Buyer desires to
purchase from Seller, on the terms and subject to the conditions set forth
herein certain Loans originated or purchased by Seller evidenced by notes and
secured by mortgages of the agreed upon priority on real property owned by the
mortgagors.
Buyer and Seller desire to enter into this Agreement to
govern the sale and purchase of said Loans.
NOW, THEREFORE, in consideration of the above recitals and
the mutual covenants contained herein, the parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS
Section 1.1 Defined Terms. Capitalized terms used herein
shall have the meanings given to such terms in this Section 1.1. The following
words and phrases, unless the context otherwise requires, shall have the
following meanings:
125 Loans: Those loans which comply with the Underwriting
Guidelines and the other terms and conditions of this Agreement having an LTV
in excess of 100% but not exceeding 125% and which conform to the terms and
conditions of this Agreement.
Acceptance Sheet: The document delivered to Seller by Buyer
as set forth in Section 2.2.
Accepted Servicing Practices: As to any Loan, those
mortgage servicing practices of prudent mortgage lending institutions that
service for themselves and for other investors mortgage loans of the same type
as the Loan in the jurisdiction where the related Mortgaged Property is
located.
Agreement: This Master Mortgage Loan Purchase Agreement and
all amendments hereof and supplements hereto.
<PAGE> 5
ALTA: The American Land Title Association or any successor
thereto.
Appraised Value: The value of the related Mortgaged
Property as set forth in an appraisal if required pursuant to the Underwriting
Guidelines made in connection with the origination of a Loan.
Assignment of Mortgage: As to any Loan, an assignment of
the related Mortgage, notice of transfer, or equivalent instrument, in
recordable form, sufficient under the laws of the jurisdiction wherein the
related Mortgaged Property is located to reflect of record the sale of the Loan
to the Buyer.
Bankruptcy Law. Title 11 of the U.S. Code or any other
federal or state law relating to bankruptcy, insolvency, reorganization,
winding up or composition or adjustment of debts now or hereafter in effect
relating to creditors' rights and remedies generally.
Bill of Sale: The Bill of Sale in the form attached hereto
as Exhibit E.
Business Day: Any day other than (i) a Saturday or Sunday,
or (ii) a day on which Federal Savings banks are authorized or obligated by law
or executive order to be closed.
Buyer: Sovereign Bank, or its successor in interest or any
successor to the Buyer under this Agreement as herein provided.
Closing Date: June 29, 1998.
Condemnation Proceeds: All awards or settlements in respect
of a Mortgaged Property, whether permanent or temporary, partial or entire, by
exercise of the power of eminent domain or condemnation (or consideration
received for a deed in lieu of condemnation), to the extent not required to be
released to a Mortgagor in accordance with the terms of the related Mortgage
Loan documents.
Custodial File: As to any Loan, each of the items set forth
in Sections 3.4(a) and 3.4(b).
Custodian: State Street Bank and Trust Company or such
other custodian reasonably acceptable to Buyer and Seller.
Cut-off Date: The close of business on the Business Day
five days prior to the related Funding Date.
Deleted Mortgage Loan: A Loan which is repurchased by the
Seller in accordance with the terms of this Agreement.
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<PAGE> 6
Due Date: The day of the month on which the Monthly Payment
is due on a Loan, exclusive of any days of grace.
Excess Servicing Fee. With respect to each Loan, a monthly
amount equal to one-twelfth of the product of (a) the Excess Servicing Fee Rate
and (b) the outstanding principal balance of such Loan. Such amount shall be
determined monthly, computed on the same basis and on the same principal amount
and period respecting which any related interest payment on such Loan is
completed. The Excess Servicing Fee is limited to, and funded solely from, the
interest portion (including recoveries with respect to interest from
Liquidation Proceeds) and is payable only after payment of the Servicing Fee
and interest on the Loans to Buyer at the Remittance Rate.
Excess Servicing Fee Rate: Except as set forth below, the
Excess Servicing Fee Rate is the difference between (a) the Interest Rate and
(b) the sum of ((x) the Remittance Rate and (y) the Servicing Fee Rate).
FNMA: The Federal National Mortgage Association, or any
successor thereto.
Funding Date: The Funding Date shall be no later than the
last Business Day of each calendar quarter beginning with the initial Funding
Date of December 31, 1998, or as otherwise mutually agreed to between the
parties.
Funding Date Principal Balance: The principal balance of
the applicable Loan as of the Cut-off Date for a related Funding Date after
deduction of payments of principal actually received on or before such Cut-off
Date.
Hazardous Substances: (i) Those substances included within
the definitions of any one or more of the terms: "hazardous substances,"
"hazardous materials," "toxic substances," "toxic pollutants," and "hazardous
waste" in the Clean Water Act, as amended, the Comprehensive Environmental
Response, Compensation and Liability Act, as amended, the Resource Conservation
and Recovery Act of 1976, as amended, or the Hazardous Materials Transportation
Act, as amended, or in the regulations promulgated pursuant to such laws, (ii)
such other substances, materials, and wastes as are classified as hazardous or
toxic under federal, state or local laws or regulations, and (iii) any
materials, wastes or substances that are (a) petroleum; (b) friable asbestos;
(c) polychlorinated biphenyls; (d) flammable explosives; or (e) radioactive
materials.
High LTV Loan: Those loans which comply with the
Underwriting Guidelines and the other terms and conditions of this Agreement
and which have an LTV not exceeding 100%.
Initial Certification of Receipt: The certification of
receipt from the Custodian certifying as to receipt of the items set forth in
Section 3.4(a).
3
<PAGE> 7
Insurance Proceeds: With respect to each Loan, proceeds of
insurance policies including, without limitation, hazard and flood insurance
insuring the Loan or the related Mortgaged Property.
Interest Rate: The annual rate of interest borne on a Note.
Liquidation Proceeds: Cash received in connection with the
liquidation of a defaulted Loan, whether through the sale or assignment of such
Loan, trustee's sale, foreclosure sale or otherwise, or the sale of an REO
Property.
Loan: An individual 125 Loan and/or High LTV Loan
identified on the Loan Schedule, which Loan includes, without limitation, the
Mortgage File, the Monthly Payments, Principal Prepayments, Prepayment Penalty,
Liquidation Proceeds, Condemnation Proceeds, Insurance Proceeds and all other
rights, benefits, proceeds and obligations arising from or in connection with
such Mortgage Loan.
Loan Schedule: The schedule of Loans to be delivered on the
Funding Date, such schedule setting forth the following information with
respect to each Loan: (1) the Seller's Loan identifying number; (2) the
Mortgagor's name; (3) the street address of the Mortgaged Property including
the state and zip code; (4) the mailing address of the Mortgagor; (5) a code
indicating the property type of the Mortgaged Property (e.g., single-family
residence, two-family, three-family, four-family, planned unit development,
condominium, etc.); (6) the original months to maturity, (7) the remaining
months to maturity from the Cut-off Date based on the original amortization
schedule, and if different, the maturity expressed in the same manner but based
on the actual amortization schedule; (8) the Loan-to-Value Ratio at
origination; (9) the Interest Rate; (10) the date on which the Loan was
originated; (11) the stated maturity date; (12) the amount of the Monthly
Payment; (13) the last Due Date for which a Monthly Payment was received; (14)
the original principal amount of the Loan; (15) the Funding Date Principal
Balance; (16) the date on which the first payment was due on the Loan; (17) the
Appraised Value or stated value, as applicable pursuant to the Underwriting
Guidelines; (18) the lien priority of the Mortgage; (19) the amount of the
Senior Lien, if any; (20) Seller Loan program type; (21) FICO score; and (22)
other credit scores, if any.
Loss: means the negative result, if any, of the following
calculations: (x) the total of: (i) the Stated Principal Balance of the Loan,
with accrued interest thereon at the Remittance Rate up to the earlier of (A)
the date a loss is established under generally accepted accounting principles
consistently applied and (B) the date the Loan is charged-off (except for a
Loan in foreclosure or for which there is a deed in lieu of foreclosure then
upon final liquidation of the Loan or Mortgaged Property); (ii) all advances by
or charged to Buyer; less (y) the net Liquidation Proceeds. For purposes of
determining Loss, charge-off of a Loan shall occur when the applicable
Mortgagor is 180 days delinquent on a contractual basis.
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<PAGE> 8
LTV: With respect to any Loan, the ratio (expressed as a
percentage) of (i) (a) the principal balance of the Loan at origination plus
(b) the remaining principal balance of any Senior Lien at the time of
origination to (ii) the Appraised Value or stated value (as applicable pursuant
to the Underwriting Guidelines) of the Mortgaged Property.
Monthly Advance: Any advances of principal and interest
made by the Seller or the Seller's servicing agent with respect to delinquent
Monthly Payments.
Monthly Payment: The scheduled monthly payment of principal
and interest on a Loan.
Mortgage: The mortgage, deed of trust or other instrument
securing a Note, which creates a lien on an unsubordinated estate in fee simple
in real property securing the Note.
Mortgage File: All documents, records, and items pertaining
to a particular Loan, including without limitation the Custodial File.
Mortgaged Property: The real property subject to the
Mortgage securing repayment of the debt evidenced by a Note.
Mortgagor: The obligor on a Loan.
Note: The note or other evidence of the indebtedness of a
Mortgagor secured by a Mortgage, which shall not include a lost note affidavit.
Officer's Certificate: A certificate in the form of Exhibit
A signed by the Chairman, any Vice Chairman, the President, any Vice President
or any assistant Vice President and by the Treasurer, the Secretary or any
Assistant Treasurers or Assistant Secretaries of the Seller and delivered to
Buyer as required by this Agreement.
Person: Any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization,
or government or any agency or political subdivision thereof, or any other
legal entity.
Pool: The pool of Loans purchased on a given Funding Date
or such other pool of Loans as agreed by the Buyer and Seller.
Prepayment Penalty: Any fee, penalty or other similar cost
paid by the Mortgagor (other than the principal balance and accrued interest)
in connection with the payment of the principal balance of a Note prior to its
scheduled due date.
Prepayment Rebate: The prepayment rebate set forth in
Section 3.5.
5
<PAGE> 9
Principal Prepayment: Any payment or other recovery of
principal on a Loan which is received in advance of its scheduled Due Date and
which is not accompanied by an amount of interest representing scheduled
interest due on any Due Date in any month subsequent to the month of
prepayment.
REO Property: A Mortgaged Property acquired by Buyer
through foreclosure or by deed in lieu of foreclosure.
Rebate Date: The earlier of (1) the actual date of
repurchase, (2) the date Seller received notice of or knew of the applicable
breach or other event which led to repurchase, or (3) the last Due Date for
which a Monthly Payment was received.
Remittance Date: The Remittance Date set forth in the
Servicing Agreement.
Remittance Rate: With respect to a Loan in a specific Pool,
as of the applicable Cut-off Date, the yield on the interpolated 4-year U.S.
Treasury securities adjusted to a constant term to maturity as published by the
Federal Reserve Board plus either (i) *** basis points for 125 Loans and (ii)
*** basis points for High LTV Loans.
Repurchase Price: A price equal to 100 percent of the
Stated Principal Balance of the Loan, plus (i) accrued and unpaid interest on
such Stated Principal Balance at the Remittance Rate from the date with respect
to which interest has last been paid to and received by the Buyer to the date
of repurchase, plus (ii) rebate of premium to Buyer as follows: If a Loan is
repurchased pursuant to this Agreement, Seller shall, upon demand by Buyer,
refund to Buyer the premium (which, for a High LTV Loan shall be *** of the
Funding Date Principal Balance and for a 125 Loan shall be *** of the Funding
Date Principal Balance) paid by Buyer to Seller as follows: if the Rebate Date
is within one (1) month of the Funding Date, 12/12ths of the premium shall be
refunded; if the Rebate Date is within two (2) months of the Funding Date,
11/12ths of the premium shall be refunded; if the Rebate Date is within three
(3) months of the Funding Date, 10/12ths of the premium shall be refunded; if
the Rebate Date is within four (4) months of the Funding Date, 9/12ths of the
premium shall be refunded; if the Rebate Date is within five (5) months of the
Funding Date, 8/12ths of the premium shall be refunded; if the Rebate Date is
within six (6) months of the Funding Date, 7/12ths of the premium shall be
refunded; if the Rebate Date is within seven (7) months of the Funding Date,
6/12ths of the premium shall be refunded; if the Rebate Date is within eight
(8) months of the Funding Date,
*** OMITTED PURSUANT TO A CONFIDENTIAL
TREATMENT REQUEST AND FILED SEPARATELY
WITH THE COMMISSION
6
<PAGE> 10
5/12ths of the premium shall be refunded; if the Rebate Date is within nine (9)
months of the Funding Date, 4/12ths of the premium shall be refunded; if the
Rebate Date is within ten (10) months of the Funding Date, 3/12ths of the
premium shall be refunded; if the Rebate Date is within eleven (11) months of
the Funding Date, 2/12ths of the premium shall be refunded; if the Rebate Date
is within twelve (12) months of the Funding Date, 1/12th of the premium shall
be refunded.
Reserve Account: Each Reserve Account shall be a
noninterest bearing, uninsured account established with the Buyer by the Seller
on behalf of the Buyer. A separate Reserve Account shall be established on each
Funding Date in connection with the related Pool.
Seller: Mego Mortgage Corporation, or its successor in
interest.
Senior Lien: The lien, if any, on the Mortgaged Property,
senior in right to the Mortgage, which senior lien amount is identified in the
Loan Schedule.
Servicer: City Mortgage Services, a division of City
National Bank of West Virginia, or, its successor in interest.
Servicing Agreement: The Servicing Agreement the form of
which is attached hereto as Exhibit D.
Servicing Fee Rate: 0.75 percent per annum for High LTV
Loans and 1.00 percent for 125 Loans.
Stated Principal Balance: As to each Loan, (i) the Funding
Date Principal Balance, minus (ii) all amounts previously distributed to the
Buyer with respect to the related Loan representing payments or recoveries of
principal.
Target Reserve Account Balance: With respect to each Pool,
the Target Reserve Account shall be equal to (a) for the four (4) year period
subsequent to the Funding Date or until such time when the aggregate Stated
Principal Balance of Loans in such Pool is equal to or less than *** of the
Funding Date Principal Balance, *** of the Funding Date Principal Balance, or
(b) upon reaching the fourth (4th) anniversary of the Funding Date with respect
to such Pool or when the aggregate Stated Principal Balance of Loans in such
Pool is equal or less than *** of the Funding Date Principal Balance whichever
occurs first, *** of the Stated Principal Balance at the time of such event.
Once the Target Reserve Account Balance for a Pool is determined in accordance
with part (b) of this paragraph, the Target Reserve Account Balance shall
remain at *** of the Stated Principal Balance until this Agreement is
terminated with respect to such Pool.
*** OMITTED PURSUANT TO A CONFIDENTIAL
TREATMENT REQUEST AND FILED SEPARATELY
WITH THE COMMISSION
7
<PAGE> 11
Underwriting Guidelines: The underwriting guidelines
attached hereto as Exhibit C or as such underwriting guidelines may be changed,
amended, modified or supplemented from time to time but only with the consent
of Buyer which consent may be withheld for any reason or no reason. Any change,
amendment, modification or supplement for purposes of this Agreement shall only
apply to Loans originated or purchased by Seller via Seller's correspondent
network or other origination channels after such changes, amendments,
modifications, or supplements are consented to by Buyer.
Y2K Compliant: Shall mean, collectively with respect to any
product or system and its constituent elements, that such product or system and
its constituent elements correctly, completely, consistently, accurately,
reliably, efficiently, and securely processes, transforms, operates, sorts,
calculates, compares, reports, displays, archives and accepts commands related
to data and associated programs across multiple interfaces and across multiple
centuries without utilizing bridges, gateways and the like while still
preserving the level of functionality, usability, reliability, efficiency,
performance and accessibility of such data and associated programs as existed
prior to any modification to such product or system and its constituent
elements to make the same Y2K compliant.
ARTICLE II
PURCHASE AND SALE COMMITMENT
Section 2.1 Flow Purchase and Delivery Obligation. By this
Agreement and subject to the terms of this Agreement, for each calendar quarter
beginning with the calendar quarter ending December 31, 1998 and ending with
the calendar quarter ending September 30, 2001, the Buyer shall purchase from
Seller and the Seller shall use its best efforts to originate or acquire
through Seller's correspondent network or other origination channels and then
sell to Buyer on the Funding Date for each such calendar quarter 125 Loans and
High LTV Loans in aggregate Funding Date Principal Balance of $100,000,000,
which $100,000,000 shall not consist of more than $75,000,000 of 125 Loans;
provided, however, that Buyer shall not be required to purchase more than
$200,000,000 of 125 Loans in aggregate Funding Date Principal Balance for each
of the following periods: (1) the period beginning on the date of this
Agreement and ending September 30, 1999; (2) the period beginning October 1,
1999 and ending September 30, 2000; and (3) the period beginning, October 1,
2000 and ending September 30, 2001. Nothing herein shall require Seller to
acquire or originate loans at a loss (as determined in accordance with
generally accepted accounting principles consistently applied) in order to
fulfill the requirements of this Section.
Section 2.2 Acceptance of Loan. Seller shall, at least
monthly, offer Loans to Buyer for acceptance for purchase pursuant to this
Agreement. Buyer shall, in response to such an offer, issue to Seller an
Acceptance Sheet within 10 Business Days of receipt of such offer and all
information reasonably necessary for Buyer to accept such Loans pursuant to
this Section 2.2, thereby indicating that Buyer has reviewed such Loans and
identifying which Loans
8
<PAGE> 12
Buyer has accepted and which Loans Buyer has rejected for purchase pursuant to
this Agreement. The aggregate principal balance of Loans submitted by Seller
for such acceptance shall be at least $5,000,000. Notwithstanding an acceptance
by Buyer and the issuance to Seller of an Acceptance Sheet, Buyer's obligation
to purchase such Loans on the Funding Date shall still be subject to Seller's
compliance with the terms and conditions of this Agreement and the Loans being
in compliance with the Underwriting Guidelines and representations and
warranties of this Agreement, and such acceptance shall not constitute a waiver
of any representation, warranty, covenant or condition of this Agreement unless
specifically set forth in writing in such Acceptance Sheet.
Section 2.3 Conditions and Timing of Purchase.
(a) Purchase by the Buyer of the Loans shall
occur on each Funding Date (unless otherwise agreed to by the Seller and the
Buyer).
(b) Purchase by Buyer of Loans on the applicable
Funding Date is conditioned upon the following:
(i) compliance by Seller in all
material respects with all requirements of this Agreement, including
without limitation Section 2.4 of this Agreement;
(ii) the representations and warranties
of Seller under this Agreement being true and correct in all material
respects as of the Funding Date;
(iii) each Mortgage Loan being purchased
having been reviewed and approved by Buyer pursuant to Section 2.4
hereof;
(iv) receipt by Buyer of a complete
Loan Schedule for all of the Loans in the applicable Pool from Seller
to Buyer;
(v) If Buyer requests prior to the
Funding Dates, receipt by Buyer from Seller of an Opinion of Counsel
of the Seller in the form of Exhibit B, dated the date of execution of
this Agreement;
(vi) receipt by Buyer from Seller of an
Officer's Certificate, in the form of Exhibit A, and attached thereto
the resolutions of the Seller and a certificate of good standing of
the Seller;
(vii) receipt by Buyer from Seller of a
certificate or other evidence of merger or change of name, signed or
stamped by the applicable regulatory authority, if any of the Loans
were acquired by Seller by merger or acquired or originated by Seller
while conducting business under a name other than its present name;
9
<PAGE> 13
(viii) receipt by Buyer of the Initial
Certification of Receipt from the Custodian; and
(ix) receipt of a release from any and
all lenders having an interest in any Loan.
(x) the Buyer received the offer to
purchase together with all information required pursuant to this
Agreement to make such decision at least 10 Business Days prior to the
applicable Funding Date.
(c) In the event that any conditions in (b)
above to the purchase of a Loan by Buyer are not fully satisfied, the
obligation of Buyer to purchase such Loan or Loans shall, at Buyer's option,
(x) be suspended until such time as Seller has fulfilled all such conditions or
(y) be terminated, and the Buyer shall have no further obligation or liability
with respect to such Loan or Loans. Any loan Buyer rejects pursuant this
Section 2.3 (other than loans rejected pursuant to Section 2.3(b)(iii), which
loans Seller shall be free to sell to any third party; provided that Seller has
acted in good faith in submitting such loans for approval) shall, after such
rejection, be governed by Section 2.6(b) of this Agreement. The Seller shall
use its reasonable best efforts to fulfill each condition in (b) above and to
remedy any defect or failure of such conditions as soon as practicable.
Section 2.4 Underwriting Review. Prior to each Funding
Date, the Buyer or its agent shall have the right to conduct an underwriting
review of each related Loan to determine whether such Loan is acceptable for
purchase. Seller shall cooperate fully with the Buyer or its agent and shall
provide Buyer or its agents with full on-site access and all reasonably
requested information. Buyer may, in accordance with the Underwriting
Guidelines and in its sole discretion, reject any Loan, or determine that
additional documentation or explanatory material is required for the
underwriting review. The underwriting review of each Loan shall be based upon
the Underwriting Guidelines. Buyer may reject any Loan which does not meet, or
causes Buyer to violate any regulations or requirements of the OTS or any other
regulatory agencies. Any loan Buyer rejects pursuant to this Section 2.4 shall,
after such rejection, be governed by Section 2.6 of this Agreement; provided,
however, Seller shall be free to offer and sell to third parties any Loan or
Loans rejected due to OTS or other regulatory agency guidelines.
Section 2.5 Exclusivity. During the term of this Agreement,
Buyer shall have the exclusive right to purchase and Seller shall be obligated
to sell 125 Loans and High LTV Loans exclusively to Buyer in the amounts set
forth in Section 2.1 hereof. Until Seller has delivered Loans in the amounts
set forth in Section 2.1 which comply with the terms and conditions of this
Agreement, Seller shall not sell Loans to any other Person. The rights of the
parties with respect to Loans in amounts in excess of that set forth in Section
2.1 shall be governed by Section 2.6(b) hereinbelow.
10
<PAGE> 14
Section 2.6 Right of First Refusal.
(a) Intentionally omitted.
(b) Other Loans. From the date of execution
hereof until September 30, 2001, Buyer shall have the additional option, but
not the obligation, to purchase from Seller any loans offered by Seller to
third parties. Such option shall include the option to enter into forward
commitments and flow purchase and sale agreements and similar arrangements.
Prior to offering to any other Person, Seller shall provide written notice to
Buyer setting forth the type of loan, forward commitment, or flow loan purchase
and sale agreement, the volume of such loans, price, and the terms and
conditions of Seller's offer and all additional information reasonably
necessary for the Buyer to make a decision regarding such option. Within 5
Business Days after receipt of such information, Buyer shall provide Seller
with a nonbinding indication of interest indicating whether Buyer is interested
in purchasing or, if applicable, entering into a forward commitment or a flow
purchase and sale agreement or similar agreement. Within 10 Business Days after
the receipt of such information, Buyer shall provide Seller with written
notification whether Buyer intends to exercise its option which written
notification shall be binding on Buyer and Seller subject to Buyer's due
diligence. If Buyer does not exercise its option, Seller may sell the loans,
enter into a forward purchase or sale agreement, or flow purchase and sale
agreement or similar arrangement which were the subject of such offer to, a
third party within 60 days after Buyer's rejection on terms not materially more
favorable to such third party than were offered to Buyer. If Seller is unable
to sell such loans or enter into a forward purchase agreement or flow purchase
and sale agreement or similar arrangement within such 60 day period or if
Seller desires to sell or enter into a forward purchase agreement or flow
purchase and sale agreement or similar arrangement on terms materially more
favorable than offered to Buyer, Seller must reoffer the loans, forward
purchase agreement or flow purchase and sale agreement or similar arrangement
to Buyer pursuant to the terms above in this Section 2.6(b). If Seller decides
to sell to a third party, it shall report the terms and conditions of such sale
to Buyer if requested by Buyer and afford Buyer a reasonable opportunity to
review the sale transaction documents as soon as practicable after the
consummation of such sale. This provision shall apply to the sale of loans,
leases, financial instruments, and loan type products. A securitization shall
constitute a sale under this Section 2.6(b). If and only if a flow purchase and
sale agreement or similar arrangement offers periodic market pricing changes
(hereinafter a "Master Purchase Agreement Structure") and Buyer declined to
exercise its option as set forth above, Buyer shall have and Seller shall
provide Buyer with a continuing opportunity to create a Master Purchase
Agreement Arrangement with terms and conditions not materially less favorable
to Seller than such declined Master Purchase Agreement Arrangement and, upon
completion and notice to Seller, Seller shall be obligated to sell to Buyer
when and if Buyer's stated pricing is more than or equal to the stated pricing
of such other Master Purchase Agreement Arrangement.
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<PAGE> 15
(c) Failure to Notify. If Buyer fails to notify
Seller within the time periods set forth in Subsections (a) or (b) above,
Seller shall have the right to sell the applicable loan products to third
parties.
ARTICLE III
PURCHASE AND SALE OF LOANS
Section 3.1 Conveyance of Mortgage Loans; Possession and
Ownership. On each applicable Funding Date, Seller shall sell, transfer,
assign, set over and convey to Buyer and Buyer shall purchase from Seller, all
of Seller's right, title and interest in and to the Loans for the applicable
Pool which shall be identified on the Loan Schedule. All such Loans purchased
on a Funding Date shall constitute a separate Pool (unless the parties mutually
agree otherwise). Conveyance of title to the Loans in the applicable Pool shall
be accomplished by endorsement of each Note in blank by Seller, an assignment
of each Mortgage by Seller to Buyer, and delivery of a Bill of Sale in the form
attached hereto as Exhibit E.
On the applicable Funding Date, Seller shall deliver or
cause to be delivered to the Custodian on behalf of the Buyer, the Custodial
File for each Loan in the applicable Pool On the applicable Funding Date,
Seller shall transfer ownership of the Mortgage File for each Loan in the
applicable Pool to the Buyer. The ownership of all records and documents with
respect to the Loans in the applicable Pool prepared by, or which come into the
possession of, Seller shall vest immediately in Buyer and any such records and
documents which are to remain with Seller, shall be retained and maintained by
Seller, in trust, at the will of Buyer and only in such custodial capacity.
Loan documents, servicing files, mortgage files, credit file with respect to a
Loan shall be delivered by the Seller to Buyer or Buyer's designee in a
commercially reasonable time and manner.
Except as provided in Section 2.02, from and after the
applicable Cut-off Date all rights arising out of the Loans in the applicable
Pool shall be the property of Buyer.
Section 3.2 Price and Closing Methodology. On each Funding
Date, Buyer shall pay to Seller in immediately available funds the aggregate
purchase price equal to the sum of (a) *** of the Funding Date Principal
Balance for each 125 Loan in the applicable Pool and *** of the Funding Date
Principal Balance for each High LTV Loan in the applicable Pool and (b) accrued
and unpaid interest on such Funding Date Principal Balance from the date with
respect to which interest has last been paid to Seller to (but not including)
the Closing Date at the Remittance Rate minus, (c) interest payments received
by Seller that, in accordance with the
*** OMITTED PURSUANT TO A CONFIDENTIAL
TREATMENT REQUEST AND FILED SEPARATELY
WITH THE COMMISSION
12
<PAGE> 16
terms of the Note, were due on or after the Funding Date. Principal and
interest payments received after the applicable Cut-off Date (regardless of
when due) shall belong to Buyer and if Seller (or Seller's agent) receives such
payments, Seller shall pay or forward such payments to Buyer as soon as
practicable. Buyer shall also be entitled to all other recoveries (including
specifically any payment of fees or penalties) on the Loans collected after the
Cut-off Date.
If either Buyer or Seller receives any payments to which
either is not entitled under this Agreement, such party shall forward such
payments to the correct party as soon as practicable.
If either party discovers an error in the Purchase Price
calculation or payment within 180 days after a Funding Date, such party shall
notify the other party and the parties shall make any Purchase Price
adjustments and transfer of funds required to correct any errors in the
calculation or payment of Purchase Price.
Section 3.3 Custodial Agreement. As soon as practicable
after the date hereof, Buyer and Seller will enter into a custodial agreement
with the Custodian on terms and conditions satisfactory to Buyer and which
provides for, at a minimum, the usual and ordinary protections provided to a
buyer of loans of the same type as the Loans. Seller shall pay all reasonable
fees and expenses charged by the Custodian.
Section 3.4 Delivery of Documents.
(a) With respect to each Loan, on or prior to
the related Funding Date, and the Seller shall deliver or shall cause to be
delivered, to the Custodian as the agent of Buyer each of the following
documents (collectively, the "Custodial File"):
(i) The original Note, endorsed "Pay
to the order of [Blank] , without recourse" and signed, by manual
signature, in the name of the Seller by an authorized officer of
Seller, together with all intervening endorsements that evidence a
complete chain of title from the originator thereof to the Seller,
provided that any of the foregoing endorsements may be contained on an
allonge which shall be firmly affixed to such Note;
(ii) With respect to each Note, either:
(A) the original Mortgage, with evidence of recording thereon, (B) a
copy of the Mortgage certified as a true copy by an authorized officer
of the Seller or by the closing attorney, if the original has been
transmitted for recording but has not, at the time of delivery of this
Agreement, been returned or (C) a copy of the Mortgage certified by
the applicable public recording office in those instances where the
original recorded Mortgage has been lost or has been retained by the
public recording office;
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<PAGE> 17
(iii) With respect to each Note, either
(A) the original Assignment of Mortgage assigned to "Sovereign Bank"
and signed in the name of the Seller by an authorized Officer with
evidence of recording thereon, (B) a copy of the Assignment of
Mortgage, certified as a true copy by an authorized officer of the
Seller where the original has been transmitted for recording but has
not, at the time of delivery of this Agreement, been returned or (C) a
copy of the Assignment of Mortgage certified by the applicable public
recording office in those instances where the original recorded
Assignment of Mortgage has been lost or has been retained by the
public recording office, provided that any such Assignments of
Mortgage may be made by blanket assignments for Loans secured by
Mortgaged Properties located in the same county, if permitted by
applicable law;
(iv) With respect to each Note, either:
(A) originals of all intervening assignments of the Mortgage, with
evidence of recording thereon, (B) if the original intervening
assignments have not yet been returned from the recording office, a
copy of the originals of such intervening assignments together with a
certificate of an authorized officer of Seller or the closing attorney
certifying that the copy is a true copy of the original of such
intervening assignments or (C) a copy of the intervening assignment
certified by the public recording office in those instances where the
original recorded intervening assignment has been lost or has been
retained by the public recording office; provided that the chain of
intervening recorded assignments shall not be required to match the
chain of intervening endorsements of the Note, so long as the chain of
intervening recorded assignments, if applicable, evidences one or more
assignments of the Mortgage from the original mortgagee ultimately to
the person who has executed the Assignment of Mortgage referred to in
clause (iii) above;
(v) Originals of all assumption and
modification agreements, if any, or a copy certified as a true copy by
an authorized officer of Seller if the original has been transmitted
for recording until such time as the original is returned by the
public recording office;
(vi) With respect to each Note, either:
(A) the original power of attorney used at Closing, if applicable,
with evidence of recording thereon, (B) a copy of the power of
attorney used at Closing, if applicable, certified as a true copy by
an authorized officer of the Seller or by the closing attorney, if the
original has been transmitted for recording but has not, at the time
of delivery of this Agreement, been returned or (C) a copy of the
power of attorney used at closing, if applicable, certified by the
applicable public recording office in those instances where the
original recorded Mortgage has been lost or has been retained by the
public recording office;
(vii) Originals of guaranties, if
applicable; and
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<PAGE> 18
(viii) Original of the title report or
title policy as required by the Underwriting Guidelines or if such
title report or policy is not yet available at closing, a preliminary
title report.
(b) With respect to each Loan, Seller shall,
within ten Business Days after the receipt thereof, and in any event, within
nine (9) months of the applicable Funding Date deliver or cause to be delivered
to the Custodian: (i) the original recorded Mortgage in those instances where a
copy thereof certified by Seller was delivered to the Custodian; (ii) the
original recorded Assignment of Mortgage; (iii) any original recorded
intervening assignments of Mortgage in those instances where copies thereof
certified by Seller were delivered to the Custodian; and (iv) the original
recorded assumption and modification agreement in those instances in which a
copy was delivered; (v) the original recorded power of attorney, if applicable;
and the title report or title policy as required by the Underwriting
Guidelines. Notwithstanding anything to the contrary contained in this Section
3.4(b), in those instances where the public recording office retains the
original Mortgage or, if applicable, the Assignment of Mortgage, the
intervening assignments of the Mortgage or the original recorded assumption and
modification agreement after it has been recorded, or where any such original
has been lost or destroyed, Seller shall be deemed to have satisfied their
respective obligations hereunder with respect to the delivery of any such
document upon delivery to the Custodian of a copy, as certified by the public
recording office to be a true copy of the recorded original of such Mortgage
or, if applicable, the Assignment of Mortgage, intervening assignments of
Mortgage or assumption and modification agreement, respectively.
(c) All recordings required pursuant to this
Section 3.4 and this Agreement shall be accomplished by and at the expense of
the Seller.
Section 3.5 Prepayment Rebate. In the event that on the
fourth (4th) anniversary date of the Funding Date, the aggregate Stated
Principal Balance of a Pool is less than the product of (a) *** and (b) the
aggregate Funding Date Principal Balance of such Pool, Seller shall refund to
Buyer an amount (the "Prepayment Rebate") equal to the product of (a) the
Premium and (b) the difference of ((i) *** times the aggregate Funding Date
Principal Balance of such Pool and (ii) the aggregate Stated Principal Balance
of such Pool as of the fourth (4th) anniversary date of the Funding Date). The
Prepayment Rebate shall be withdrawn by Buyer from the Reserve Account and
Seller's liability with respect to the Prepayment Rebate shall be limited to
those amounts in all the Reserve Accounts and those amounts required to be paid
into
*** OMITTED PURSUANT TO A CONFIDENTIAL
TREATMENT REQUEST AND FILED SEPARATELY
WITH THE COMMISSION
15
<PAGE> 19
all the Reserve Accounts. Buyer may withdraw at any time amounts from the
Reserve Account equal to any portion of such Prepayment Rebate which was not
previously withdrawn from the Reserve Account. Any Prepayment Penalties
previously paid to Buyer shall be credited against the Prepayment Rebate
refunded to Buyer. For purposes of this Section 3.5, Premium shall mean *** for
a 125 Loan and *** for a High LTV Loan.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
Section 4.1 Representations and Warranties of Seller -
General. It is understood and agreed by Seller and Buyer that, as a material
inducement to Buyer to enter into this Agreement, Seller hereby represents and
warrants to Buyer on the date hereof and on each Funding Date as follows:
(a) Duly Organized; Good Standing; Qualification.
Seller is a corporation and is duly organized, validly existing and in good
standing under the laws of Delaware, and is duly qualified in all jurisdictions
in which any Loans are originated.
(b) Due Authorization. The execution and
delivery of this Agreement by Seller and the performance by Seller of the
obligations to be performed by it hereunder have been duly authorized by all
necessary corporate or other similar action. Seller shall deliver to Buyer no
later than the date this Agreement is executed, a good standing certificate for
the state of its incorporation and for each state in which Seller is qualified
to do business and certified copies of relevant corporate or similar
resolutions.
(c) No Conflicts. Neither the execution and
delivery of this Agreement, the acquisition of Loans by Seller, the sale of the
Loans to Buyer or the transactions contemplated hereby, nor the fulfillment of
or compliance with the terms and conditions of this Agreement, will conflict
with or result in a breach of any of the terms, conditions or provisions of
Seller's articles, charter or bylaws or any legal restriction or any agreement
or instrument to which Seller is now a party or by which it is bound, or
constitute a default or result in an acceleration under any of the foregoing,
or result in the violation of any law, rule, regulation, order, judgment or
decree to which Seller or its property is subject, or impair the ability of
Buyer to realize on the Loans, or impair the value of the Loans.
*** OMITTED PURSUANT TO A CONFIDENTIAL
TREATMENT REQUEST AND FILED SEPARATELY
WITH THE COMMISSION
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<PAGE> 20
(d) Duly Licensed. All parties which have had
any interest in the Loans, whether as mortgagee, assignee (other than Buyer or
assignee of Buyer) or pledgee are (or during the period in which they held and
disposed of such interest, were) in compliance with all applicable licensing
requirements of the federal, state, and local government wherein the Mortgaged
Property is located.
(e) Binding Obligation. This Agreement
constitutes, when duly executed and delivered by Seller, a legal, valid and
binding obligation of Seller enforceable against Seller according to its terms,
except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, receivership, moratorium, or similar laws affecting creditors'
rights in general, including equitable remedies.
(f) No Actions Pending. Other than as disclosed
to Buyer prior to execution hereof, there is no action, suit, proceeding or
investigation pending or, to the best of Seller's knowledge, threatened against
Seller which (1) either in any one instance or in the aggregate, if determined
adversely to Seller, would result in (A) any material adverse change in the
business, operations, financial condition, properties or assets of Seller, (B)
any material impairment of the right or ability of Seller to carry on its
business substantially as now conducted, or (C) any material liability on the
part of Seller, (2) would draw into question the validity of this Agreement or
the Loans or of any action taken or to be taken in connection with the
obligations of Seller contemplated herein, or (3) would be likely to impair
materially the ability of Seller to perform under the terms of this Agreement.
(g) No Broker. Seller has not, in connection
with each Loan purchased by Buyer, incurred any obligation, made any commitment
or taken any action which might result in a claim against Buyer or an
obligation by Buyer to pay a sales brokerage commission, finder's fee or
similar fee in respect to the transactions between Buyer and Seller as
described in this Agreement.
(h) Ordinary Course of Business. After the
recapitalization of Seller which closed as of the date of this Agreement,
Seller is not insolvent, nor will it be made insolvent by the transfer of any
Loans hereunder, nor is Seller aware of any pending insolvency. The
consummation of the transactions contemplated by this Agreement are in the
ordinary course of business of the Seller, and the transfer, assignment and
conveyance of the Mortgage Notes and the Mortgages by Seller pursuant to this
Agreement are not subject to the bulk transfer or any similar statutory
provisions in effect in any applicable jurisdiction. Seller has not transferred
any Loan to Buyer with any intent to hinder, delay or defraud any of Seller's
creditors.
(i) Ability to Perform. Seller can perform each
and every covenant contained in this Agreement in all material respects;
(j) No Consent Required. No consent, approval,
authorization or order of any court or governmental agency or body is required
for the execution, delivery and
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<PAGE> 21
performance by Seller of or compliance by Seller with this Agreement or the
sale of the Loans in accordance with the terms of this Agreement, or if
required, such approval has been obtained prior to the Closing Date.
(k) No Default. After the recapitalization of
Seller which closed on the date of this Agreement, neither Seller nor any of
its affiliates is in material default under any agreement, contract, instrument
or indenture of any nature whatsoever to which Seller or any of its
subsidiaries is a party or by which it is bound nor has any event occurred
which with notice or lapse of time or both would constitute a material default
under any such agreement, contract, instrument or indenture and which default
would have a material adverse effect on its ability to perform its obligations
under this Agreement.
(l) Sale Treatment. The disposition of the
Loans pursuant to this Agreement will be afforded sale treatment for financial
and regulatory accounting purposes and tax purposes by Seller.
(m) No Untrue Information. Neither this
Agreement nor any statement, report or other document prepared by Seller
pursuant to this Agreement or in connection with the transactions contemplated
hereby contains any untrue statement of material fact or omits to state a
material fact necessary to make the statements contained herein or therein not
misleading.
(n) Selection Procedures. Seller has used no
selection procedures that identified the Loans as being less desirable or
valuable than other comparable mortgage loans as to which the representations
and warranties described in Section 4.2 could be made.
(o) Financial Statements. Seller has delivered
to the Buyer financial statements as to its last two complete fiscal years and
any later quarter ended more than 60 days prior to the Closing Date. All such
financial statements fairly present the pertinent results of operations and in
cash flow for each of such periods and the financial condition at the end of
each such period of the Seller and its subsidiaries. All such financial
statements have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved, except as set
forth in the notes thereto.
(p) Material Adverse Change. Other than as
disclosed in Seller's Offering Memorandum dated June 9, 1998, there has been no
change in the business, operations, financial condition, properties or assets
of the Seller since the date of Seller's financial statements which would have
a material adverse effect on its ability to perform its obligations under this
Agreement.
(q) Errors and Omissions Policies. Seller has
one or more errors and omissions insurance policies and fidelity bonds, each in
an amount or, in the aggregate, in an amount, customarily maintained by similar
companies, each of which policies and bonds is in full force and effect. Each
such policy or policies and bond or bonds and the respective amounts
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of each shall, together, comply with the requirements from time to time of FNMA
for persons performing servicing for mortgage loans purchased by FNMA.
(r) Fair Consideration. Seller received fair
consideration and reasonably equivalent value in exchange for the sale of the
Loans to the Buyer.
(s) Y2K Compliant. Seller represents and
warrants that it, and all of its information systems, data processing and other
hardware, software and other systems, facilities, programs and procedures, are
subject to a plan which has been initiated and which has the goal of rendering
such systems, data processing, hardware, software and procedures Y2K Compliant
by June 30, 1999 and that such systems, data processing, hardware, software and
procedures shall be Y2K Compliant by June 30, 1999.
The representations and warranties in this Section shall
survive the execution and assignment of this Agreement and any subsequent
transfers of each Loan.
Section 4.2 Representations and Warranties of Seller As to
Each Loan. It is understood and agreed by Seller and Buyer that, as a material
inducement to Buyer to enter into this Agreement, Seller hereby represents and
warrants to Buyer as of each Funding Date with respect to each Loan purchased
on such Funding Date:
(a) Sole Owner; Good Title. Seller is
transferring good and marketable title to the Loan, with servicing retained by
a third party, to the Buyer free and clear of any and all encumbrances, liens,
pledges, equities, participation interests, claims, charges, rights of first
refusal or similar rights, or security interests of any nature encumbering such
Loan.
(b) Holder in Due Course. The Note is a
negotiable instrument, and Seller is a holder in due course of the Note.
(c) Loan Schedule Complete, True and Correct.
The information set forth in the Loan Schedule is complete, true and correct in
all material respects.
(d) State and Federal Laws. Applicable state,
federal and local laws, regulations and other requirements pertaining to usury,
and, any and all other requirements of any federal, state or local law
including, without limitation, truth-in-lending, tax, real estate settlement
procedures, consumer credit protection, equal credit opportunity, and
disclosure laws (including without limitation disclosure relating to flood
insurance) applicable to the Loan have been complied with. All disclosures
required by law, rule, regulation or any interpretation thereof, whether
federal, state or local, were properly made by Seller or the originator prior
to the closing of the Loan.
(e) Validity of the Mortgage Documents. The
Note, the related Mortgage and all other agreements executed in connection with
the Loan are each the legal, valid
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and binding obligation of the maker thereof, enforceable in accordance with the
terms thereof except as such enforcement may be limited by bankruptcy,
insolvency, reorganization or other similar laws or equitable principles
affecting the enforcement of creditors' rights. All parties to the related Note
and Mortgage had legal capacity to enter into the Loan and to execute and
deliver such Note and Mortgage, and such Note and Mortgage have been duly and
properly executed by such parties.
(f) Valid Lien. The Mortgage is a valid,
subsisting, and enforceable lien on the related Mortgaged Property, including
all improvements on the Mortgaged Property, having the lien priority set forth
in the Loan Schedule and the Mortgaged Property is free and clear of all
encumbrances and liens having priority over the lien of the Mortgage except for
(i) Senior Liens, if any, (ii) liens for current real estate taxes and current
special assessments not yet due and payable, (iii) such covenants, conditions
and restrictions, rights of way, easements and other matters of public record
as of the date of recording of the Mortgage, as are (A) generally acceptable to
mortgage lending institutions making similar type loans in the area in which
the Mortgaged Property is located and (B) specifically referred to in the
mortgagee's title insurance policy or attorney's title certificate or opinion
delivered to the originator of the Loan, and (iv) other matters to which like
properties are commonly subject which do not, individually or in the aggregate,
materially interfere with the benefits of the security intended to be provided
by the Mortgage or the use, enjoyment, value or marketability of the related
Mortgaged Property.
(g) Security Agreement. Any security agreement,
chattel mortgage or equivalent document related to the Mortgage Loan
establishes in Seller a valid, subsisting and enforceable lien and security
interest with the priority set forth in the Loan Schedule on the property
described therein and Seller has full right to sell and assign the same to the
Buyer hereunder.
(h) No Modifications. Neither Seller nor any
prior holder of the Loan has impaired, waived, altered or modified the related
Mortgage or Note in any material respect, except by written instruments which
are a part of the Custodial File and which impairment, waiver, alteration or
modification has been approved by the insurer under any title insurance and is
reflected in the Loan Schedule.
(i) Taxes, Assessments, Insurance Premiums and
Other Charges. All taxes, governmental assessments, insurance premiums, water
charges, sewer charges, municipal charges, ground rents, or other outstanding
charges affecting the Mortgaged Property, which previously became due and owing
in respect of the related Mortgaged Property have been paid, if such items
would result in a lien on such Mortgaged Property.
(j) No Advances. Seller has not advanced funds
or received any advance of funds by a party other than the Mortgagor, directly
or indirectly, for the payment of any amount required to be paid by the
Mortgagor under the related Loan.
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(k) No Condemnation, Damage or Waste. There is
no proceeding pending or threatened for the total or partial condemnation of
the related Mortgaged Property, and such Mortgaged Property is in good repair
and free and clear of any damage or waste that would affect materially and
adversely the value or marketability of such Mortgaged Property.
(l) No Mechanics' or Materialmen's Liens. The
related Mortgaged Property is free and clear of all mechanics' and
materialmen's liens or liens in the nature thereof, and no rights are
outstanding that under law could give rise to any such liens, any of which
liens are or may be prior to, or equal with, the lien of the Mortgage except
those which are insured against by the mortgagee title insurance policy
referred to in this Section.
(m) Within Boundaries. All of the improvements
which were included for the purpose of determining the Appraised Value of the
related Mortgaged Property at the time of the origination of the Mortgage Loan
lie wholly within the boundaries and building restriction lines of such
Mortgaged Property, and no improvements on adjoining properties encroach upon
such Mortgaged Property.
(n) Originator and Subsequent Mortgagee
Authorized. To the extent required under applicable law, all parties which have
had any interest in the Loan, whether as originator, mortgagee, subsequent
mortgagee, assignee, pledgee or otherwise are or were at the time such party
held such interest (i) in compliance with any and all applicable licensing
requirements of the laws of the state where the related Mortgaged Property is
located and (ii) (A) organized under the laws of such state, (B) qualified to
do business in such state, (C) federal savings and loan associations, federal
savings banks or national banks having principal offices in such state, or (D)
not doing business in such state.
(o) Title Insurance Policy. If required by the
Underwriting Guidelines, the Loan is covered by either (i) an ALTA mortgagee
title insurance policy acceptable to FNMA, issued by, and which is the valid
and binding obligation of, a title insurer acceptable to FNMA and qualified to
do business in the jurisdiction where the related Mortgaged Property is
located, insuring the Seller, its successors and assigns, as to the priority
lien of the related Mortgage in the original principal amount of the Loan, as
increased by deferred and capitalized interest, if applicable (subject only to
(A) a Senior Lien, if any, (B) liens for current real property taxes and
current assessments not yet due and payable, and (C) such covenants, conditions
and restrictions, rights-of-way, easements and other matters of public record
as of the date of recording of the Mortgage as are (1) acceptable to mortgage
lending institutions in the area in which the Mortgaged Property is located and
(2) specifically referred to in and insured by the mortgagee's title insurance
policy or attorney's title certificate or opinion delivered to the originator
of the Loan or are specifically referred to in the appraisal performed in
connection with the origination of the Loan), and (D) other matters to which
like properties are commonly subject which do not, individually or in the
aggregate, materially interfere with the benefits of the security intended to
be provided by the Mortgage or the use, enjoyment, value or marketability of
the related Mortgaged Property; or (ii) an attorney's opinion of title or title
certificate given by an attorney
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licensed to practice law in the jurisdiction where such Mortgaged Property is
located, stating that the Mortgage is a lien in the priority set forth in the
Loan Schedule on the Mortgaged Property, subject only to the matters listed in
(A), (B), (C) and (D) above. Additionally, such mortgagee's title insurance
policy (if a title insurance policy is required by the Underwriting Guidelines)
affirmatively insures ingress and egress, and against (i) encroachments by or
upon the Mortgaged Property or any interest therein, (ii) any other adverse
circumstance that either is disclosed or would have been disclosed by an
accurate survey, and (iii) against loss by reason of the invalidity or
unenforceability of the lien resulting from the provisions of such Mortgage or
Note providing for adjustment in the Interest Rate and the Monthly Payment. The
Seller and its successors and assigns are the sole insureds of such mortgagee's
title insurance policy and such policy is in full force and effect and will be
in full force and effect upon the consummation of the transactions contemplated
by this Agreement. No claims have been made under the mortgagee's title
insurance policy, and no prior holder of the Loan, including the Seller, has
done, by act or omission, anything which would impair the coverage of such
mortgagee's title insurance policy. If a title insurance policy is not required
pursuant to the Underwriting Guidelines, there is an insured title report in
the Custodial File which complies with the origination requirements of Seller
and the Underwriting Guidelines.
(p) Hazard Insurance. All buildings and other
improvements upon the related Mortgaged Property are insured by a generally
acceptable insurer against loss by fire, hazards of extended coverage, flood
hazards (if the Mortgaged Property is in an area identified as having special
flood hazards by the Federal Emergency Management Agency) and such other
hazards as are customary in the area where such Mortgaged Property is located,
pursuant to insurance policies conforming to the requirements of FNMA. All such
insurance policies contain a standard mortgagee clause naming the originator of
the Loan, its successors and assigns, as mortgagee and all premiums thereon
have been paid. The related Mortgage obligates the Mortgagor thereunder to
maintain all such insurance at Mortgagor's cost and expense, and on the
Mortgagor's failure to do so, authorizes the holder of such Mortgage to
maintain such insurance at Mortgagor's cost and expense and to seek
reimbursement therefor from the Mortgagor. The hazard insurance policy is the
valid and binding obligation of the insurer, is in full force and effect, and
will be in full force and effect and inure to the benefit of the Buyer upon the
sale of the Loans to the Buyer. The Seller has not engaged in, and has no
knowledge of the Mortgagor having engaged in, any act or omission which would
impair the coverage of any such policy, the benefits of the endorsement
provided for herein, or the validity and binding effect of either.
(q) No Defaults. There is no default, breach,
violation or event of acceleration existing under the related Mortgage or Note
and no event which, with the passage of time or with notice and the expiration
of any grace or cure period, would constitute a default, breach, violation or
event of acceleration and the Seller has not waived any default, breach,
violation or event of acceleration. No foreclosure (including any non-judicial
foreclosure) or any other legal action has been brought by Seller or any senior
lienholder in connection therewith.
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(r) One- To Four-Family Residential Property.
The related Mortgaged Property consists of a single parcel of real property
with a detached single family residence erected thereon, or a two- to
four-family residential dwelling, or an individual residential condominium
unit; provided, however, that the related Mortgaged Property does not consist
of a mobile home or the land on which the same has been placed.
(s) No Delinquencies. Except as disclosed on
the Loan Schedule, as of the Cut-off Date, all payments required to be made up
to and including the Cut-off Date for such Mortgage Loan under the terms of the
related Mortgage and Note have been made and credited and no Loan had a
delinquency for 30 or more days during the 3-month period immediately preceding
the Cut-off Date.
(t) No Release of Mortgage. The Mortgage has
not been released, satisfied, cancelled, subordinated or rescinded, in whole or
in part, and the Mortgaged Property has not been released from the lien of the
Mortgage, in whole or in part, nor has any instrument been executed that would
effect any such release, cancellation, subordination, rescission, or
satisfaction.
(u) Principal Payments. Principal payments on
the Loan commenced no more than 60 days after funds were disbursed in
connection with the Loan.
(v) No Defenses. The related Note or Mortgage
are not subject to any right of rescission, set-off, counterclaim or defense,
including the defense of usury, and no such right of rescission, set-off,
counterclaim or defense has been asserted with respect thereto, nor will the
operation of any of the terms of such Note or Mortgage, or the exercise of any
right thereunder, (i) render such Note or Mortgage unenforceable, in whole or
in part, or (ii) render such Note or Mortgage subject to any right of
rescission, set-off, counterclaim or defense.
(w) Loan Closed. The Loan has closed and the
proceeds of the Loan have been fully disbursed and there is no requirement for
future advances thereunder. All costs, fees and expenses incurred in making or
closing the Loan and the recording of the Mortgage were paid, and the Mortgagor
is not entitled to any refund of any amounts paid or due under the Note or
Mortgage.
(x) Note and Mortgage Forms. The Note and
Mortgage are on forms acceptable to FNMA.
(y) Conventional Mortgage. The Loan is a
mortgage loan having an original term to maturity of not more than 30 years,
with interest payable in arrears. The required Monthly Payment is sufficient to
fully amortize the original principal balance over the original term and to pay
interest at the related Interest Rate; interest on each Loan is calculated on
the basis of a 360 day year consisting of twelve 30-day months, and the Note
does not provide for any extension of the original term.
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(z) Customary and Enforceable Provisions. The
Note and related Mortgage contains customary and enforceable provisions for
Loans of this type such as to render the rights and remedies of the holder
thereof adequate for the realization against the related Mortgaged Property of
the benefits of the security provided thereby, including, (i) in the case of a
Mortgage designated as a deed of trust, by trustee's sale, and (ii) otherwise
by judicial foreclosure. Other than the federal bankruptcy homestead exemption,
there is no homestead or other exemption available to the Mortgagor which would
interfere with the right to sell the related Mortgaged Property at a trustee's
sale or the right to foreclose the Mortgage. The related Mortgage or Note
contains the usual and customary "due-on-sale" clause or other similar
provision for the acceleration of the payment of the unpaid principal balance
of the Loan in the event the related Mortgaged Property is sold without the
prior consent of the mortgagee thereunder.
(aa) The Collateral. The related Note is not and
has not been secured by any collateral except the lien of the corresponding
Mortgage and the security interest of any applicable security agreement or
chattel mortgage referred to in (g) above.
(bb) The Appraisal. If required by the
Underwriting Guidelines, the Mortgage File contains an appraisal of the related
Mortgaged Property on forms and riders, signed prior to the approval of the
Loan application by an appraiser who had no interest, direct or indirect in the
Mortgaged Property or in any loan made on the security thereof, and whose
compensation was not affected by the approval or disapproval of the Loan and
who met the minimum qualification of FNMA for appraisers and, for every
Mortgage Loan originated after December 31, 1992, the appraisal conforms to
Title XI of the Financial Institutions Reform Recovery and Enforcement Act of
1989.
(cc) Trustee for Deed of Trust. In the event the
related Mortgage constitutes a deed of trust, a trustee, duly qualified under
applicable law to serve as such, has been properly designated and currently so
serves and is named in the Mortgage, and no fees or expenses are or will become
payable by the Buyer to the trustee under the deed of trust, except in
connection with a trustee's sale after default by the Mortgagor, but only from
the proceeds of such sale.
(dd) No Buydowns. No Loan is currently subject
to any provision pursuant to which Monthly Payments are (i) paid or partially
paid with funds deposited in any separate account established by the Seller,
the Mortgagor, or anyone on behalf of the Mortgagor, (ii) paid by any source
other than the Mortgagor or (iii) contains any other similar provisions which
may constitute a "buydown" provision.
(ee) Mortgagor Disclosure Statement. The
Mortgagor has executed a statement to the effect that the Mortgagor has
received all disclosure materials required by applicable law with respect to
the making of conventional mortgage loans and the Mortgage File includes such
statements.
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(ff) No Facilitation Loans. No Loan was made in
connection with facilitating the sale of a Mortgaged Property that had been
acquired by the Seller by foreclosure or deed-in-lieu thereof.
(gg) No Adverse Circumstances or Conditions. The
Seller has no knowledge of any material circumstances or condition with respect
to the Loan, Mortgage File, the Mortgaged Property, the Mortgagor or the
Mortgagor's credit standing that can reasonably be expected to cause private
institutional investors which invest in loans and other financial instruments
backed by loans similar to the Loans to regard the Loan as an unacceptable
investment, cause the Loan to become delinquent, or adversely affect the value
or marketability of the Loan;
(hh) Lawfully Occupied. To the Sellers's
knowledge, the Mortgaged Property is lawfully occupied under applicable law. To
the Seller's knowledge, all inspections, licenses and certificates required to
be made or issued with respect to all occupied portions of the Mortgaged
Property and, with respect to the use and occupancy of the same, including but
not limited to certificates of occupancy and fire underwriting certificates,
have been made or obtained from the appropriate authorities.
(ii) No Commercial Purposes. To the best of
Seller's knowledge, no portion of the Mortgaged Property is used for commercial
purposes.
(jj) Leaseholds. If the Mortgaged Property
securing the Loan is a leasehold estate, then (i) the lease is a lease of a fee
or a sublease executed by the fee owner and the sublessor; (ii) the use of a
leasehold or ground rent estate for residential properties is an accepted
practice in the area where the Mortgaged Property is located; (iii) residential
properties in the area consisting of leasehold or ground rent estates are
readily marketable; (iv) the lease, sublease, or conveyance reserving ground
rents and their provisions are in a form commonly acceptable to private
institutional mortgage investors in the area where the Mortgaged Property is
located; (v) the remaining term or exercised renewal of the lease and sublease
with any renewals enforceable by the mortgagee do not terminate earlier than
ten (10) years after the maturity date of the Loan; and (vi) the sublease
payments if any, are at least equal to the lease payments and are due no less
frequently than the lease payments.
(kk) No Impairment of Insurance Coverage. No
action, error, omission, misrepresentation, negligence, fraud or similar
occurrence in respect of any Loan has taken place on the part of any Person
(including without limitation the Mortgagor, the appraiser, any builder or
developer or any party involved in the origination of the Loan) or in the
application for any insurance relating to such Loan that would result in a
failure or impairment of full and timely coverage under any insurance policy
required to be obtained for the Loan.
(ll) Primary Residence. The Mortgaged Property
is occupied by the Mortgagor as the Mortgagor's primary residence.
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(mm) Soldiers' and Sailors' Civil Relief Act.
The Loan has not been modified as a result of the application of, and Seller is
unaware of and has received no notice with respect to any Loan regarding the
application of, the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended, or any similar law or regulation.
(nn) Delivery of Collateral File. The Collateral
File for the Loan and any other documents required to be delivered by the
Seller under this Agreement have been delivered to Buyer or the Custodian.
(oo) Transfer of Loans. The Assignment of
Mortgage is in recordable form and is acceptable for recording under the laws
of the jurisdiction in which the Mortgaged Property is located.
(pp) Origination, Servicing and Collection
Practices. The origination, servicing and collection practices used with
respect to the Loan have been in accordance with Accepted Servicing Practices,
and have been in all material respects legal, proper, prudent and customary.
The Loan has been serviced in accordance with the terms of the Mortgage and
Note. No fraud or misrepresentations was committed by any Person in connection
with the origination or servicing of the Loan.
(qq) No Graduated Payments or Contingent
Interests. The Loan is not a graduated payment mortgage loan and the Loan does
not have a shared appreciation or other contingent interest feature.
(rr) Environmental Matters. No Mortgaged
Property has been used for the storage, treatment or disposal of Hazardous
Substances; no Hazardous Substances are present in, on or below any Mortgaged
Property in such a manner or concentration as to violate any law or regulation;
and, no Mortgaged Property, by itself or as part of any other property, has
been identified by any government agency as the site of a "release," within the
meaning of CERCLA or RCRA, of a Hazardous Substance.
(ss) Underwriting, Origination and Documentation
Guidelines. Except as expressly agreed to by Buyer in writing, each Loan
conforms in all material respects to the Underwriting Guidelines in effect on
such Funding Date.
(tt) No Additional Instruments. No instruments,
other than those delivered herewith or with the Loans on the related Funding
Date are required under applicable law to evidence the indebtedness represented
by the Loan or to perfect the lien of the related Mortgage.
(uu) Transfer of Interest. Seller has
transferred to Buyer all of its right, title and interest in the Note, the
related Mortgage and the documents related to such Loan, and Buyer has
purchased such Loan and the related Note, Mortgage and documents related to
such
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Loan, together with an individual flood insurance policy (to the extent
required by the Flood Disaster Protection Act) and an individual current hazard
insurance policy (including fire and extended coverage and other matters as are
customary in the area of the Mortgaged Property), or a blanket policy in lieu
thereof, or a certificate if Buyer agrees in writing to accept a certificate,
insuring the Mortgaged Property, with a loss payable clause in favor of Seller,
its successors and assigns in an amount equal to the lower of: (a) the
replacement value of the Mortgaged Property, or (b) the aggregate unpaid
principal balance of the Loan and all senior liens, free and clear of any
pledge, liens, claims, encumbrances, mortgages, charges, exceptions or security
interests; Seller shall have complied and caused the Mortgagor to comply with
all laws relating to issuing the Mortgaged Property with respect to flood
insurance protection.
(vv) Recording. The original Mortgage was
recorded or submitted for recording, and all subsequent assignments of the
original Mortgage (other than the assignment from Seller to Buyer) have been
recorded, or submitted for recording in the appropriate jurisdictions wherein
such recordation is necessary to perfect the lien thereof as against creditors
of the Seller, or, pursuant to the terms and conditions hereof, is in the
process of being recorded.
(ww) Additional Payments. There is no obligation
on the part of the Seller or any other party to make payments in addition to
those made by the Mortgagor under the Loan.
(xx) Prepayment Penalty. If the Loan provides
for any Prepayment Penalty to be paid by the Mortgagor in connection with any
prepayment, Seller has specified to Buyer in writing on the mortgage loan
schedule delivered to Buyer on or before the related Funding Date that such
Loan provides for such a Prepayment Penalty and Seller represents and warrants
to Buyer that such Prepayment Penalty is enforceable and is in compliance with
all applicable laws, rules and regulations.
(yy) Servicing. Unless otherwise agreed in a
writing executed by both of the parties hereto, the Loan is being serviced by
Servicer.
(zz) Principal Balance. The outstanding
principal balance of the Loan on the Funding Date does not exceed the original
principal balance of the Note.
(aaa) Information Not Misleading. No statement,
report or other document prepared by Seller in connection with the Loan
contains any untrue statement of material fact or omits to state a material
fact necessary to make the statements contained herein or therein not
misleading.
(bbb) Intentionally Omitted
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(ccc) Bulk Transfer Laws. The transfer,
assignment and conveyance of the Debt Instruments and the Mortgages by Seller
to the Depositor were not subject to the bulk transfer laws or any similar
statutory provisions in effect in any applicable jurisdiction.
(ddd) No Bankruptcy. As of the applicable Cut-Off
Date, Mortgagor is not a debtor under proceedings under any Bankruptcy Law, and
no such Mortgagor has defaulted in payments on a Loan after the filing of such
bankruptcy case, whether under a plan or reorganization or otherwise.
(eee) Compliance With Environmental Laws. To
Seller's best knowledge, there exists no violation of any environmental law
(either local, state or federal), rule or regulation in respect of the Property
which violation has or could have a material adverse effect on the market value
of such Property. Seller has no knowledge of any pending action or proceeding
directly involving the related Property in which compliance with any
environmental law, rule or regulation is in issue, and, to Seller's best
knowledge, nothing further remains to be done to satisfy in full all
requirements of each such law, rule or regulation constituting a prerequisite
to the use and enjoyment of such Property.
(fff) Consent of Senior Lienholder. With respect
to each Loan that is not a first mortgage loan, either (i) no consent for the
Loan is required by the holder of the related prior lien or (ii) such consent
has been obtained and has been delivered to Buyer.
(ggg) Pool Parameters. Unless waived in writing
by Buyer, no more than 20% of the Loans in a Pool as measured by Funding Date
Principal Balance are secured by Mortgaged Property in one state or are from
one correspondent or other Person from Seller's other origination channels. No
more than 30% of the Loans in a Pool are B credits pursuant to the Underwriting
Guidelines. There are no Loans secured by Mortgaged Property in Alabama or
Louisiana.
The representations and warranties in this Section shall
survive the execution and assignment of this Agreement and any subsequent
transfers of each Loan.
Section 4.3 Representations and Warranties of Buyer. Buyer
hereby represents and warrants to Seller on the date hereof as follows:
(a) It is a federal savings bank, duly
organized, validly existing and in good standing under the laws of the United
States of America.
(b) The execution and delivery of the Agreement
by it and the performance by it of the obligations to be performed by it
hereunder have been duly authorized by all necessary corporate or other similar
action.
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(c) The execution and delivery of this
Agreement by it and the performance by it of the obligations to be performed by
it hereunder do not, and will not, violate any provision of any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or award
presently in effect having applicability to it or to its articles of
association or bylaws.
(d) The execution and delivery of this
Agreement by it and the performance by it of the obligations to be performed by
it hereunder do not and will not result in a breach of or constitute a default
under any indenture or loan or credit agreement or any other agreement, lease
or instrument to which it is a party or by which it or its properties may be
bound or affected.
(e) This Agreement constitutes, when duly
executed and delivered by it, a legal, valid and binding obligation of Buyer
enforceable against Buyer according to its terms, except as such enforcement
may be limited by bankruptcy, insolvency, reorganization, receivership,
conservatorship, moratorium, or similar laws affecting creditors' rights in
general, including equitable remedies.
(f) There are no actions, suits or proceedings
pending or, to its knowledge, threatened against or affecting it or its
properties before any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, which, if determined
adversely, would have a material adverse effect on its financial condition,
properties or operation.
(g) The transactions contemplated by this
Agreement are in the ordinary course of business of Buyer.
(h) Buyer has not, in connection with each Loan
purchased by Buyer, incurred any obligation, made any commitment or taken any
action which might result in a claim against Seller or an obligation by Seller
to pay a sales brokerage commission, finder's fee or similar fee in respect to
the transactions between Buyer and Seller as described in this Agreement.
Section 4.4 Remedies for Breach of Representations and
Warranties. It is understood and agreed that the representations and warranties
set forth in Sections 4.1 and 4.2 shall survive the sale of the Loans to the
Buyer and the delivery of the Mortgage Files to the Buyer and shall inure to
the benefit of the Buyer, notwithstanding any restrictive or qualified
endorsement on any Note or Assignment of Mortgage or the examination or failure
to examine any Mortgage File or any recital set forth in any Assignment which
provides that such assignment is without recourse or representations. Upon
discovery by either the Seller or the Buyer of a breach of any of the foregoing
representations and warranties which materially and adversely affects the value
of the Loans or the interest of the Buyer in the Loans (or which materially and
adversely affects the interest of the Buyer in, or the value of, the related
Loan in
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the case of a representation and warranty with respect to a particular Loan),
the party discovering such breach shall give prompt written notice to the
other.
Within 45 days of the earlier of either discovery by or
notice to the Seller of any breach of a representation or warranty which
materially and adversely affects the value of a Loan (or the interest of the
Buyer in a Loan), the Seller shall use its reasonable best efforts promptly to
cure such breach in all material respects and, if such breach cannot be cured
within such 45 days, the Seller shall, at the Buyer's option, repurchase such
Loan at the Repurchase Price within ten Business Days of Buyer's demand. In the
event that a breach shall involve any representation or warranty set forth in
Section 4.1, and such breach cannot be cured within 90 days of the earlier of
either discovery by or notice to the Seller of such breach, all of the Loans
shall, at the Buyer's option, be repurchased by the Seller at the Repurchase
Price. Any repurchase of a Loan or Loans pursuant to the foregoing provisions
of this Section 4.4 shall be accomplished by wire transfer of immediately
available funds in the amount of the Repurchase Price in such account as the
Buyer may direct.
At the time of repurchase, the Buyer and the Seller shall
arrange for the reassignment of the Deleted Mortgage Loan without recourse to
the Seller and the delivery to the Seller within five Business Days after
Buyer's receipt of the Repurchase Price of any documents held by the Buyer
relating to the Deleted Mortgage Loan. In the event of a repurchase, the Seller
shall, simultaneously with such reassignment, give written notice to the Buyer
that such repurchase has taken place.
In addition to such repurchase obligation, the Seller shall
indemnify the Buyer and hold it harmless against any losses, damages,
penalties, fines, forfeitures, reasonable and necessary legal fees and related
costs, judgments, and other costs and expenses resulting from any claim,
demand, defense or assertion based on or grounded upon, or resulting from, a
breach of the Seller's representations and warranties contained in this
Agreement. It is understood and agreed that the obligations of the Seller set
forth in this Section 4.4 to cure or repurchase a defective Loan and to
indemnify the Buyer as provided in this Section 4.4 constitute the sole
remedies of the Buyer respecting a breach of the foregoing representations and
warranties.
Any cause of action against the Seller relating to or
arising out of the breach of any representations and warranties made in
Sections 4.1 and 4.2 shall accrue as to any Loan upon (i) discovery of such
breach by the Buyer or notice thereof by the Seller to the Buyer, (ii) failure
by the Seller to cure such breach or repurchase such Loan as specified above,
and (iii) demand upon the Seller by the Buyer for compliance with this
Agreement.
Section 4.5 Indemnification. Seller, on the one hand, and
Buyer, on the other hand each for itself and its successors (herein, each an
"Indemnifying Person") hereby agrees to reimburse and indemnify and upon
request, defend the other, its affiliates, and their respective directors,
officers, employees and agents, and their respective heirs, personal
representatives, successors and assigns of the foregoing (herein, each an
"Indemnified Person") from and against
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<PAGE> 34
any and all losses, liabilities, claims, damages, expenses, obligations,
penalties, actions, judgements, suits, costs or disbursements of any kind or
nature whatever (including, without limitation, the fees and disbursements of
counsel in connection with the investigative, administrative or judicial
proceedings commenced or threatened, whether or not such Indemnified Person is
a party thereto) that may at any time be imposed on, asserted against or
incurred by such Indemnified Person as a result of, or arising out of any
breach of a representation, warranty, covenant, agreement or duty under or in
connection with this Agreement. The obligations of each Indemnifying person
under this Section shall survive the termination of this Agreement.
ARTICLE V
LOSS PROTECTION
Section 5.1 Reserve Account.
(a) On each Funding Date, Seller shall (i)
deposit into a separate Reserve Account with respect to each Pool *** of the
Stated Principal Balance and (ii) for the four (4) year period beginning on
such Funding Date, deposit into such account the Excess Servicing Fee, on each
Remittance Date, until the balance of the Reserve Account for such Loans is
equal to the Target Reserve Account Balance.
(b) Buyer shall deposit that portion of the
Excess Servicing Fee as may be necessary to maintain the Reserve Account at the
Target Reserve Account Balance. Buyer may withdraw amounts from the Reserve
Account equal to (i) any interest due on a Loan which was not paid by the
Mortgagor for a payment to be remitted by Servicer to Buyer on the last
Remittance Date and (ii) any accrued Losses not previously reimbursed from the
Excess Servicing Fee or Reserve Account. The Excess Servicing Fee shall be
applied by Seller first to reduce accrued Losses, second to current Losses and
third to the Target Reserve Account Balance. To the extent that the balance of
the Reserve Account is at the Target Reserve Account Balance, any additional
available Excess Servicing Fee shall be remitted by Buyer to Seller within two
Business Days after the applicable Remittance Date.
(c) If the Reserve Account for a Pool has
insufficient funds in it to reimburse Buyer for any amount required to
reimburse Buyer pursuant to Section 5.1(b) above or pursuant to Section 3.5,
then Buyer shall have the option to withdraw funds sufficient to so reimburse
Buyer from one or more Reserve Accounts for different Pools. The selection of
the Reserve Accounts shall be at the option of Buyer.
*** OMITTED PURSUANT TO A CONFIDENTIAL
TREATMENT REQUEST AND FILED SEPARATELY
WITH THE COMMISSION.
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(d) In the event Buyer sells or participated
the Loans in any Pool, Buyer may elect, by delivery in writing of notice of
such election to Seller, to eliminate the right of the purchaser or the
participant(s) in Section 5.1(c) above with respect to the Loans in the
applicable Pool.
(e) Notwithstanding anything in this Agreement
to the contrary, ownership of each Reserve Account resides with Seller. Buyer
holds each Reserve Account as collateral for certain obligations of Seller as
set forth in this Agreement. Seller grants Buyer a security interest in each
Reserve Account and will take all actions requested by Seller reasonably
necessary to perfect Seller's security interest in each Reserve Account.
(f) Buyer shall release to Seller the funds in
a Reserve Account 60 days after the final payment or other liquidation of the
last Loan in the related Pool or the disposition of any Mortgaged Property with
respect to the last Loan in the related Pool and the remittance to Buyer of all
funds from the Pool and related Reserve Account due to Buyer.
(g) Buyer may transfer its interest in a
Reserve Account.
(h) Any collections on Loans which were
charged-off for purposes of calculating Loss shall be deposited by Buyer into
the applicable Reserve Account.
Section 5.2 Remedy For First Payment Default.
Notwithstanding anything to the contrary herein contained, if a Mortgagor fails
to make the first payment due to Buyer within sixty (60) days of the first
payment due date to occur after the Funding Date, regardless of whether such
payment is subsequently paid by the Mortgagor, Buyer, at its sole and absolute
discretion, shall have the right to require Seller to repurchase such Loan at
the Repurchase Price within 10 days after receipt by Seller from Buyer of a
written request to repurchase such Loans.
Section 5.3 Remedy to Insure Accuracy of Real Estate
Appraisals. If an appraisal is required pursuant to the Underwriting
Guidelines, within sixty (60) days after any Loan purchase, Buyer may, at its
own expense, in order to verify the accuracy of real property appraisals
prepared for Seller, order a reappraisal of the property secured by a Mortgage
to determine the property value at the date of the original appraisal. If the
reappraisal obtained by Buyer indicates a fair market value which is more than
ten (10%) percent less than the original appraisal value, then if such Loan
would not meet the Underwriting Guidelines and the other terms and conditions
of this Agreement after accounting for the impact of the new appraisal upon
receipt by Seller from Buyer of a signed copy of the reappraisal, Seller shall
repurchase the Loan at the Repurchase Price and reimburse Buyer for the cost of
the appraisal within 30 Business Days of written demand by Buyer. If such Loan
would move from being a High LTV Loan to a 125 Loan after accounting for the
impact of the new appraisal, then the appropriate adjustments to the Purchase
Price, the Remittance Rate, Excess Serving Fee, and Reserve Account shall be
effected back to and as of the applicable Cut-Off Date and Seller or Buyer, as
applicable, shall remit the necessary funds to the other party within 5
Business Days after written demand.
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ARTICLE VI
COVENANTS
Section 6.1 Covenants of Seller.
(a) Intentionally Omitted
(b) Intentionally Omitted
(c) Marked-Up Title Insurance Binder. If Buyer
purchases a Loan having relied on a marked-up title insurance binder or title
certificate rather than a title insurance policy, Seller shall have thirty (30)
days to deliver to Buyer the title insurance policy.
(d) Refinancing. Seller shall not take any
action to solicit Mortgagors in order to effect the refinancing of a Loan.
Seller shall use its best efforts to prohibit correspondents and other Persons
from Seller's other origination channels from refinancing a Loan.
(e) Preservation of Rights and Remedies. Seller
has caused to be performed or shall cause to be performed within 15 Business
Days of the Closing Date any and all acts required to preserve the rights and
remedies of the Buyer in any insurance policies applicable to each Loan,
including, without limitation, any necessary notifications of insurers,
assignments of policies or interests therein, and establishment of coinsured,
joint loss payee and mortgagee rights in favor of Buyer.
(f) Actions by Buyer. Any and all decisions
made by Buyer in good faith consistent with customary standards for loans of
this type to take action or to not take action relative to a Loan, including,
but not limited to, the sale or liquidation of a Loan, Mortgaged Property or
collateral shall be final and conclusively binding upon Seller in the event
Seller does not repurchase a Loan within ten (10) days of notification by Buyer
pursuant to Sections 4.4, 5.2 and 5.3 of this Agreement.
(g) Future Obligations; Power of Attorney. In
order to enforce Buyer's rights under this Agreement, Seller shall, upon the
request of Buyer or its assigns, do and perform or cause to be done and
performed, every reasonable act and thing necessary or advisable to put Buyer
and its assigns in position to carry out the intent of this Agreement,
including the execution of and, if necessary, the recordation of additional
documents including separate endorsements and assignments upon request of
Buyer.
(h) Errors and Omissions Insurance Policy.
Seller shall maintain one or more errors and omissions insurance policies and
fidelity bonds, each in an amount or, in the aggregate, in an amount, and in
all other manners, in compliance with the requirements from
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<PAGE> 37
time to time of FNMA for persons performing servicing for mortgage loans
purchased by FNMA.
(i) Access to Premises. Seller agrees to allow
Buyer, its authorized representatives and any governmental officials having
regulatory responsibility with respect to the Buyer full access to all of the
properties, personnel, books and records of Seller as is required by Buyer
and/or the aforementioned officials in connection with this Agreement.
(j) Regulatory Requirements. Seller agrees to
take such further actions and obtain and/or execute, acknowledge, deliver
and/or record such further documents and instruments, as Buyer may reasonably
request to fulfill any obligations Buyer may have under applicable banking
regulations or as requested by Seller's regulatory examiners.
(k) Y2K Compliant. Seller covenants and agrees
to protect its business and operations against any contamination or
recontamination of its products and systems arising, directly or indirectly, by
reason of any third-party's failure to be Y2K Compliant (including, without
limitation, third-parties which conduct business with the Seller or any of its
customers).
Section 6.2 Covenants of Buyer.
(a) Reports. Buyer shall produce and provide to
Seller a statement on a monthly basis reporting the amount of funds available
in the Reserve Account, the amount of funds added to the Reserve Account for
the preceding month and the funds removed from the Reserve Account with respect
to such month.
(b) Solicitation. Buyer shall not use the
information received from Seller or Servicer to solicit High LTV Loan and 125
Loan business from Mortgagors of the Loans; provided, however, that such
information (other than that obtained from rejected loans) may be used by Buyer
except loans rejected to solicit business from such Mortgagors for other loan
products of Buyer.
(c) Servicing Agreements. During the term of
the Flow Servicing Agreement, dated as of June 29, 1998, between Seller and
Servicer, Buyer shall enter into a servicing agreement in the form of the
Servicing Agreement attached as Exhibit B with Servicer for each Pool of Loans
unless (i) any Event of Default described in Section 5.02 (other than
subsection 10 thereof [the numerical performance standards]) of the applicable
Servicing Agreement shall have occurred and be continuing with respect to any
Pool or Pools then serviced by Servicer or any Servicing Agreement previously
entered into with Servicer pursuant to this Section has been terminated by
Buyer due to any such Event of Default, (ii) if Servicer is then servicing or
has at any time serviced pursuant to one or more Servicing Agreements entered
into pursuant to this Section 6.2 Mortgage Loans with an aggregate principal
balance of at least $100,000,000, (a) an Event of Default described in Section
5.02(10) of the applicable Servicing
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<PAGE> 38
Agreement shall have occurred and be continuing with respect to two or more
Pools each having an outstanding principal balance of $35,000,000 or more or
(b) two or more Servicing Agreements previously entered into with Servicer
pursuant to this Section with respect to Mortgage Loans having an aggregate
outstanding principal balance at the date of such Servicing Agreements of at
least $50 million have been terminated due to an Event of Default described in
Section 5.02(10).
(d) Notice. Buyer will provide Seller with
written notice of any material adverse change which would result in Buyer being
unable to perform or fulfill its obligations under this Agreement.
Section 6.3 Mutual Covenants. Each party shall, from time
to time, execute and deliver or cause to be executed and delivered, such
additional instruments, assignments, endorsements, papers and documents as the
other party may at any time reasonably request for the purpose of carrying out
this Agreement and the transfers provided for herein.
ARTICLE VII
EVENT OF PURCHASE TERMINATION
Section 7.1 Events of Purchase Termination. An Event of
Purchase Termination shall mean the occurrence or existence of one or more of
the following events or conditions (for any reason, whether voluntary,
involuntary or effected or required by law):
(a) Seller shall default in the performance of
any covenant contained herein provided, as to any default of any covenant not
involving the payment of money, the Buyer shall have given the Seller ten (10)
days written notice of an opportunity to cure such default.
(b) Any representation or warranty made by
Seller hereunder shall prove to have been untrue in any material respect as of
the time when made or deemed made; or any statement made by Seller in any
report, notice or document to Buyer is untrue in any material respect and Buyer
shall have given Seller 10 days written notice of an opportunity to cure such
default; provided, however, with respect to the representatives and warranties
in Section 4.2, such representations and warranties must prove to have been
untrue with respect to a material amount of Loans measured by Funding Date
Principal Balance in any Pool.
(c) A governmental authority shall issue a
cease and desist order or its equivalent against Seller which shall materially
impair Seller's ability to perform or prohibit Seller's performance under this
Agreement.
(d) A material adverse change shall have
occurred in the business, operations, condition (financial or otherwise) or
prospects of Seller, or Seller shall become, in the
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reasonable judgment of Seller, unable to perform its obligations hereunder in a
satisfactory manner;
(e) Any creditor of Seller declares, or becomes
entitled to declare, any indebtedness of Seller or any affiliate in an
aggregate amount in excess of $1,000,000 to be due and payable prior to its
expressed maturity, or any such indebtedness becomes due by its terms and shall
not be promptly paid or extended; or Seller shall breach materially any
material contract (now existing or hereafter existing) to which it is a party
under which it is obligated to sell loans to, or service loans for, another
Person;
(f) Any creditor of Seller or of any affiliate
of Seller of Seller issues or obtains issuance of execution in a sum in excess
of $1,000,000 against Seller or any Affiliate or any of their assets or
properties;
(g) A proceeding shall have been instituted in
respect of Seller or any affiliate of Seller or either of them which, if
adversely decided, shall either (x) result in the entry of an order granting
relief against Seller or (y) shall not have been dismissed in favor of Seller
within 90 days of its filing: (i) seeking to have an order for relief entered
in respect of such Person, or seeking a declaration or entering a finding that
such Person is insolvent or a similar declaration or finding, or seeking
dissolution, winding up, charter revocation or forfeiture, liquidation,
reorganization or other similar relief with respect to such Person under any
law relating to bankruptcy, insolvency, receivership, relief of debtors or
protection of creditors, termination of legal entities or any other similar law
now or hereafter in effect; or (ii) seeking appointment of a receiver, trustee,
liquidator, assignee, sequestrator or other custodian for such Person or for
all or any substantial part of its property provided the foregoing shall not
apply to the dissolution of any nonoperating affiliate;
(h) Seller shall become insolvent or shall fail to
pay, become unable to pay, or state that it is or will be unable to pay, its
debts as they become due; or Seller or any affiliate shall: (i) voluntarily
suspend transaction of its business; (ii) make a general assignment for the
benefit of creditors; (iii) institute (or fail to controvert in a timely and
appropriate manner) a proceeding described in Section 7.1(g)(i) hereof, or
(whether or not any such proceeding has been instituted) shall consent to or
acquiesce in any such order for relief, declaration, finding or relief
described therein; (iv) institute (or fail to controvert in a timely and
appropriate manner) a proceeding described in Section 6.1(g) or (ii) hereof, or
(whether or not any such proceeding has been instituted) shall consent to or
acquiesce in any such appointment or to the taking of possession by any such
custodian of all or any substantial part of its property; (v) dissolve, wind
up, revoke or forfeit its charter (or other constituent documents) or liquidate
itself or any substantial party of its property; or (vi) take any action in
furtherance of any of the foregoing, provided the foregoing shall not apply to
the dissolution of any nonoperating affiliate;
(i) The fidelity bond coverage and errors and
omissions coverage required hereunder shall at any time cease to be in force
for a period in excess of 10 days, or
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Seller shall in any respect fail in any material respects to comply with its
obligations under this Agreement in relation to fidelity bond or other
insurance coverage which shall remain uncured for 10 days;
(j) There shall occur any material breach or
default by Seller under this Agreement the Participation Agreement dated June
29, 1998 between Buyer and Seller, or the Indenture for 12.5% Subordinated
Notes due 2001 dated as of June 29, 1998, as amended, by and between Seller and
American Stock Transfer and Trust Company, as indenture trustee;
(k) Any Event of Servicing Termination shall
have occurred under the Servicing Agreement with respect to any Pool and Seller
fails to provide a replacement servicer satisfactory to Buyer within 120 days
if requested by Buyer.
(l) The board of directors of the Seller shall
fail to include at least one (1) nominee of Sovereign Bancorp, Inc. for a
period in excess of ten (10) Business Days unless (i) Sovereign Bancorp, Inc.
has consented in writing or (ii) such failure is due to a voluntary act by
Sovereign Bancorp, Inc.
(m) With respect to any Pool of Loans if the
charge-off experience exceeds the following:
<TABLE>
<CAPTION>
As of the Cumulative Charge-Offs as a
Last Day Percentage of Funding Date
of the Month Principal Balance
------------ --------------------------
<S> <C>
12 1.5%
24 5.0%
36 7.0%
48 8.0%
</TABLE>
Section 7.2 Buyer's Rights. If any Event of Purchase
Termination shall occur, then, at the option of the Buyer exercised by delivery
of written notice to Seller upon receipt by the Seller and of notice of the
occurrence of the Event of Purchase Termination (the "Purchase Termination
Notice") in addition to all other rights and remedies which Buyer may have
hereunder, or otherwise at law, in equity or otherwise:
(a) Buyer's commitments hereunder shall no
longer be in force, and Buyer may exercise any or all of the remedies available
to Buyer hereunder or under the this Agreement. Without limiting the foregoing,
Buyer shall have no further obligation to purchase any mortgage loans, or to
fund any purchase;
(b) Buyer shall also be entitled to set off any
sums of Seller held by Buyer or any debts owed to Seller by Buyer against any
obligations owed to Buyer by Seller.
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ARTICLE VIII
MISCELLANEOUS
Section 8.1 Relationship of the Parties. It is agreed that
Seller and Buyer are not partners or joint venturers and that Seller is not an
agent for Buyer in originating, administering or collecting any Loan, but shall
have the status of and shall act in all matters hereunder as an independent
contractor.
Section 8.2 Sale Treatment. The sale of each Loan to Buyer
shall be reflected on Seller's balance sheet and other records as a sale of
assets by Seller.
Section 8.3 Survival of Covenants, Agreements,
Representations and Warranties; Successors and Assigns. All representations,
warranties, covenants and agreements made herein or in any other instrument or
writing delivered hereunder or in connection with any transaction contemplated
hereby or thereby, including those made by third parties for the benefit of
either party, shall be considered to have been relied upon by the recipient or
beneficiary thereof and shall survive the termination of this Agreement. Buyer
reserves the right to proceed against third parties to enforce any
representations, warranties and covenants made by them for the benefit of
Seller.
Section 8.4 Severability. If any provision, or part
thereof, of this Agreement is invalid or unenforceable under any law, such
provision, or part thereof, is and will be totally ineffective to that extent,
but the remaining provisions, or part thereof, will be unaffected.
Section 8.5 Fees and Expenses. Each of the parties hereto
shall pay all legal fees and expenses incurred by it in connection with the
negotiation, preparation, execution and delivery of this Agreement. Seller
shall pay all reasonable legal fees and expenses incurred by Buyer as may from
time to time be incurred by Buyer in connection with any enforcement of any
obligation of the Seller under this Agreement. All such fees and expenses to be
paid by Seller shall be promptly paid upon receipt of an invoice therefor.
Notwithstanding anything to the contrary herein contained, in any action at
law, in equity, arbitration or otherwise between the parties in relation to
this Agreement or any transaction contemplated hereby or any Loan or other
instrument or agreement required or purchased or sold hereunder or thereunder,
the non-prevailing party, in addition to any other sums which such party shall
be required to pay pursuant to the terms and conditions of this Agreement, at
law, in equity, arbitration or otherwise, shall also be required to pay to the
prevailing party all costs and expenses of such litigation, including
reasonable attorney fees.
Section 8.6 Waivers. No waiver of any term, provision or
condition of this Agreement, whether by conduct or otherwise, in any one or
more instances, shall be deemed to be, or construed as a further or continuing
waiver of any such term, provision or condition, or of any other term,
provision or condition of this Agreement.
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Section 8.7 Notices. Any notice or other communication in
this Agreement provided or permitted to be given by one party to the other must
be in writing and given by personal delivery or by depositing the same in the
United States mail (certified mail, return receipt requested), addressed to the
other party to be notified, postage prepaid. For purposes of notice, the
addresses of the parties shall be as follows:
BUYER: Sovereign Bank
521 Park Avenue
Freehold, New Jersey 07728
Attention: Scott Abercrombie,
Senior Vice President
Copy to: David A. Silverman,
Chief Legal Officer
SELLER: Mego Mortgage Corporation
1000 Parkwood Circle
Suite 500
Atlanta, Georgia 30339
Attention: Jeff S. Moore, President
Copy to: Robert Chastain, Vice President
and Corporate Counsel
The above addresses may be changed from time to time by
written notice from one party to the other.
Section 8.8 Assignment. Seller may not and shall not assign
any of its rights or obligations hereunder. Any such attempted assignment shall
be null and void. The Buyer may not assign all or part of its rights hereunder;
provided, however, Buyer may assign all or part of its rights with respect to
any Loan or Pool of Loans Buyer has purchased.
Section 8.9 Captions. Paragraph or other headings contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement.
Section 8.10 Entire Agreement. This Agreement, the Exhibits
attached hereto and the documents referred to herein constitute the entire
agreement between the parties hereto with respect to the subject matter hereof,
and, other than the Participation Agreement between the parties dated as of the
date of this Agreement, there are no prior agreements, understandings,
restrictions, warranties or representations between the parties with respect
thereto.
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Section 8.11 Duration of This Agreement. This Agreement
shall continue in existence and effect until terminated as herein provided.
This Agreement shall continue notwithstanding transfers of the Loans by Buyer.
This Agreement shall terminate either: (i) 60 days after
the final payment or other liquidation of the last Loan or the disposition of
any Mortgaged Property with respect to the last Loan and the remittance of all
funds due hereunder; or (ii) the mutual consent of Seller and Buyer in writing.
Section 8.12 Governing Law; Consent to Jurisdiction; Waiver
of Jury Trial. This Agreement shall be construed in accordance with and
governed by the laws of the Commonwealth of Pennsylvania without regard to any
principles of conflict of laws.
Seller hereby agrees that any LEGAL ACTION OR PROCEEDING BY
IT OR AGAINST IT WITH RESPECT TO THIS AGREEMENT, OR ANY OF THE AGREEMENTS,
DOCUMENTS OR INSTRUMENTS DELIVERED IN CONNECTION WITH THIS AGREEMENT SHALL BE
BROUGHT IN THE COURTS OF THE COMMONWEALTH OF PENNSYLVANIA OR OF THE UNITED
STATES OF AMERICA FOR THE EASTERN DISTRICT OF PENNSYLVANIA unless Buyer elects
otherwise, and, by execution and delivery hereof, Seller accepts and consents
to, for itself and in respect to its property, generally and unconditionally,
the jurisdiction of the aforesaid courts and agrees that such jurisdiction
shall be exclusive, unless waived by Buyer in writing, with respect to any
action or proceeding brought by Seller against Buyer or by Buyer against
Seller. Nothing herein shall limit the right of Buyer to bring proceedings
against Seller in the courts of any other jurisdiction.
EACH OF THE SELLER AND THE BUYER HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION BASED ON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS AGREEMENT, OR ANY OTHER DOCUMENTS AND INSTRUMENTS
EXECUTED IN CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTIONS OF THE SELLER OR THE BUYER.
THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE BUYER TO ENTER INTO THIS
AGREEMENT.
Section 8.13 Recordation of Agreement. To the extent
necessary under applicable law to protect the interests of Buyer, this
Agreement is subject to recordation in all appropriate public offices for real
property records in all the counties or other comparable jurisdictions in which
any or all of the Mortgaged Properties are situated, and in any other
appropriate public recording office or elsewhere, such recordation to be
effected by Seller at Seller's expense upon direction of Buyer.
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Section 8.14 Endorsements. In the event that the remedies
or other terms outlined in this Agreement conflict with the terms of any,
endorsement by Seller of any Note evidencing a Loan purchased by Buyer from
Seller, including, but not limited to, an endorsement stating that the
assignment of the Note is without recourse, the remedies and terms of this
Agreement shall govern and control.
Section 8.15 Reproduction of Documents. This Agreement and
all documents relating thereto, including, without limitation, (i) consents,
waivers and modifications which may hereafter be executed, (ii) documents
received by any part at the closing, and (iii) financial statements,
certificates and other information previously or hereafter furnished, may be
reproduced by any photographic, optical storage, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties agree
that any such reproduction shall be admissible in evidence as the original
itself in any judicial or administrative proceeding, whether or not the
original is in existence and whether or not such reproduction was made by a
party in the regular course of business, and that any enlargement, facsimile or
further reproduction of such reproduction shall likewise be admissible in
evidence.
Section 8.16 Sale and Security Interest. It is the
intention of the parties to this Agreement that the conveyance of Seller's
right, title and interest in and to the Loans pursuant to this Agreement shall
constitute a sale and not a pledge. If the conveyance of the Loans from the
Seller to the Trustee is characterized as a pledge, it is the intention of the
parties to this Agreement that this Agreement shall constitute a security
agreement under applicable law, and that the Seller shall be deemed to have
granted to the Buyer a first priority security interest in all of Seller's
right, title and interest in, to and under the Loans, all other rights relating
to and payments made in respect to the Loans in the related Pool, and all
proceeds thereof to secure payment of the obligations of the Seller herein.
accordingly, Seller will cooperate with Buyer and take such actions as are
reasonably required by Buyer to perfect Buyer's security interest in the Loans
and related assets.
Section 8.17 Excess Servicing Fee. Subject to the
provisions of Section 5.1 and Section 3.5 of this Agreement, Buyer shall pay to
Seller the Excess Servicing Fee with respect to each Pool of Loans within two
Business Days after the applicable Remittance Date. Seller's right to receive
the Excess Servicing Fee does not, and shall not be deemed to, constitute an
interest in any Loan or Pool of Loans. Such right of the Seller to be paid the
Excess Servicing Fee is solely a contractual obligation of the Buyer to the
Seller.
Section 8.18 Further Assurances. Each party shall use its
reasonable efforts to perform such other duties, furnish such reports, and
execute such other documents and provide such other and further assurances in
connection with this Agreement as the other party from time to time may
reasonably request. The requesting party shall bear all reasonable
out-of-pocket costs in connection with such actions.
41
<PAGE> 45
Section 8.19 Clean up Call. The Seller may, at its option,
effect an early termination of a Pool of Loans on or after any Remittance Date
on which the aggregate Stated Principal Balance of a Pool is less than 10% of
the Funding Date Principal Balance of such Pool. Seller shall effect such
termination by repurchasing from Buyer all of the remaining Loans in such Pool
at the Repurchase Price. Upon 10 Business Days written notice received from
Seller, Buyer shall take such actions reasonably necessary to transfer such
Loans to Seller upon receipt of the Repurchase Price in immediately available
funds.
Section 8.20 Servicer is Third Party Beneficiary. Servicer
is an express third party beneficiary of the representation of Seller set forth
in Section 4.1(n) and the covenant of Buyer contained in Section 6.2(c) hereof.
[SIGNATURE PAGE FOLLOWS.]
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<PAGE> 46
IN WITNESS WHEREOF, the parties have executed this
Agreement on the date first above written:
SOVEREIGN BANK
By: /s/ Scott W. Abercrombie
------------------------------------------
Name: Scott W. Abercrombie
--------------------------------------
Title: Senior Vice President
--------------------------------------
MEGO MORTGAGE CORPORATION
By: /s/ Jeffrey S. Moore
-----------------------------------------
Name: Jeffrey S. Moore
--------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
43
<PAGE> 47
COMMONWEALTH OF PENNSYLVANIA :
:ss
COUNTY OF BERKS :
The foregoing instrument was acknowledged before me this
_______ day of June, 1998, by _____________________, a ___________________ of
and on behalf of Sovereign Bank, a federal savings bank, who is ( ) personally
known to me, or who has produced __________________________ as identification.
----------------------------------------------
Notary Public in and for the State and County
aforesaid.
Commission No.:
-------------------------------
My Commission expires:
------------------------
Print Notary Name:
(Notary Seal)
----------------------------------------------
STATE OF_________________ :
:ss
COUNTY OF _______________ :
The foregoing instrument was acknowledged before me this
_______ day of _____________, 199___, by __________________, as the
______________ of and on behalf of ______________________, a
___________________ [corporation] [limited partnership] [partnership] [limited
liability company], who is ( ) personally known to me, or who has ( )
produced ______________________ as identification.
----------------------------------------------
Notary Public in and for the State and County
aforesaid.
Commission No.:
-------------------------------
My Commission expires:
------------------------
Print Notary Name:
(Notary Seal)
----------------------------------------------
44
<PAGE> 1
EXHIBIT 10.91
CUSTODIAN AGREEMENT
THIS CUSTODIAN AGREEMENT, dated as of June 29, 1998 (this "Agreement"),
is entered into by and among SOVEREIGN BANK, a federally chartered savings bank
(the "Purchaser"), STATE STREET BANK AND TRUST COMPANY, a Massachusetts banking
corporation with its principal place of business at 225 Franklin Street, Boston,
Massachusetts (the "Custodian"), and MEGO MORTGAGE CORPORATION, a Delaware
corporation, with a principal place of business at 1000 Parkwood Circle,
Atlanta, Georgia 30339 (the "Seller").
RECITALS
A. The Seller and the Purchaser have entered into a Participation
Agreement dated as of June __, 1998 ("Purchase Agreement"), providing, among
other things, for the purchase by the Purchaser of 100% participations in
residential mortgage loans originated by the Seller (collectively, "Participated
Loans", and each is a "Participated Loan").
B. Pursuant to the transactions contemplated by the Purchase Agreement,
the Purchaser is entitled to have in its possession from time to time various
documents and instruments which relate to, evidence or secure Participated
Loans.
C. The Seller and the Purchaser desire that the Custodian be appointed
as custodian on behalf of the Purchaser to take possession of any and all
mortgage documents which relate to or are a part of such Participated Loans and
which come into the Custodian's possession from time to time.
D. The Custodian is willing to act as custodian for the Purchaser for
such purpose, but only upon and subject to the terms of this Agreement.
NOW THEREFORE, in consideration of the mutual covenants and promises
herein contained, the parties hereto agree as follows:
ARTICLE I - DEFINITIONS
Section 1.1 In addition to such terms as may be expressly defined elsewhere
in or by reference in this Agreement, the following capitalized terms appearing
in this Agreement (or in any Exhibit hereto) shall have the following meanings:
"Agency" shall mean FHLMC, FHA, FNMA, GNMA and VA, and "Agencies" shall
mean each Agency, collectively.
"Approved Private Investor" shall mean any of the private investors
(which shall not include the Agencies) who have executed and delivered to
Purchaser and Custodian a Bailee Agreement listed on Exhibit 1 attached hereto
and made a part hereof as such list may be amended or changed from time to time
by written notice by the Purchaser to the Seller and the Custodian at the
Purchaser's discretion.
<PAGE> 2
"Bailee Agreement" shall mean the agreement in the form attached hereto
as Exhibit 2.
"Business Day" shall mean any day other than (i) a Saturday or Sunday
or (ii) any other day on which banks in the Commonwealth of Massachusetts, or
the Commonwealth of Pennsylvania or the State of Georgia, or any of them, are
authorized or required to be closed.
"Commitment" shall mean a Purchase Commitment from an Approved Private
Investor to the Seller and relating to a Participated Loan.
"CTS" shall mean the Custodian's Collateral Tracking System, which is a
data system made available to the Purchaser and the Seller, the use of which is
subject to the terms and conditions, including the data security requirements,
set forth in Section 5.4 hereof and Exhibit 10 annexed hereto and made a part
hereof, as such CTS terms and conditions may be changed, modified or
supplemented by the Custodian from time to time by written notice to the Seller
and the Purchaser (collectively, the "CTS Security Procedures"). By its
execution and delivery of this Agreement, each of the Seller and the Purchaser
agrees to the CTS Security Procedures.
"Custodian's Shipping Letter" shall mean a letter substantially in the
form of Exhibit 4 annexed hereto and made a part hereof.
"FHA" shall mean the Federal Housing Administration.
"FHLMC" shall mean the Federal Home Loan Mortgage Corporation.
"FNMA" shall mean the Federal National Mortgage Association.
"Funds Receipt Agent" shall have the meaning set forth in Section
3.4(a) hereof.
"GNMA" shall mean the Government National Mortgage Association.
"Mortgage Documents" shall mean the documents listed in Section 2.2(a)
hereof which are delivered to the Custodian pursuant to this Agreement from time
to time with respect to any Participated Loan.
"Mortgage Document Delivery Date" has the meaning given it in Section
2.1 hereof.
"Participated Loan" or "Participated Loans" shall have the meaning set
forth in the Recitals hereinabove.
"Purchase Commitment" shall mean a written Commitment from an Approved
Private Investor to the Seller to purchase for cash a Participated Loan.
"Required Delivery Documents" shall mean any and all documents and
instruments which are required to be delivered to an Approved Private Investor
pursuant to the terms of the related Commitment or the applicable procedures or
requirements of such Approved Private Investor to carry out the sale of a
Participated Loan to such Approved Private Investor, including without
limitation any delivery schedules, mortgage schedules, tax and insurance escrow
account or other
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<PAGE> 3
custodial account agreements, wire transfer authorizations, warehouse purchaser
release certifications, investor custodian agreements, and similar forms or
required by applicable FNMA, GNMA or FHLMC sale and delivery requirements or
procedures.
"Review Procedures" shall have the meaning set forth in Section 2.3
hereof.
"Shipment Order" shall mean a Shipping Request and Authorization
transmittal letter substantially in the form of Exhibit 3 annexed hereto and
made a part hereof, duly completed and signed by the Seller.
"Trust Receipt" shall mean a letter substantially in the form of the
Document Request and Trust Receipt attached hereto as Exhibit 5 annexed hereto
and made a part hereof, duly completed and executed by the Seller.
"VA" shall mean the Veteran's Administration or its successor.
Section 1.2 As used herein, the terms "herein", "hereunder" and "hereof"
and the like shall be deemed to refer to this Agreement; the term "including"
shall not be deemed to imply exclusion or exclusivity, and shall instead be
deemed to mean "including but not limited to"; and any use of the singular shall
include the plural, and vice versa, except where the context otherwise requires.
Section 1.3 Any time of day designated in this Agreement shall mean Boston,
Massachusetts time, unless the context expressly states otherwise.
ARTICLE II - DELIVERY PROCEDURE
Section 2.1 Document Transmittal To The Custodian. Before 10:00 a.m. on the
Business Day on which the Seller intends to deliver Mortgage Documents to the
Custodian (the "Mortgage Document Delivery Date"), the Seller shall deliver to
the Custodian, by electronic transmission to the Custodian's CTS or by telecopy
of a facsimile, a notice identifying the Participated Loan to be delivered
(which shall identify, at a minimum, the mortgagor name, the property address,
the loan number, the original principal amount and interest rate of the Mortgage
Note, the funding date and the Purchaser as the applicable Purchaser) and, to
the extent such information is then available to the Seller, a Transmittal
Letter duly completed and describing such Mortgage Documents and the
Participated Loan to which they relate. On the Mortgage Document Delivery Date,
an original, completed Shipment Order, accompanied by those documents described
in Section 2.2(a) hereof, will be delivered to the Custodian by the Seller.
Participated Loans closed or to be closed on the basis of "wet" settlement or
funding shall be governed by Section 2.6 below. As used herein, the term "wet"
settlement or funding shall mean any settlement or funding where immediately
available funds (i.e., wire transfer, certified check, cashier's check, etc.)
are provided by Seller at closing.
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<PAGE> 4
Section 2.2 Documents to be Delivered:
(a) At the time of delivery of an original Shipment Order,
the Seller shall deliver to the Custodian the following documents (collectively,
the "Mortgage Documents") with respect to the Participated Loan described in
such Shipment Order:
(i) The original Mortgage Note endorsed in blank, without
recourse, by such Seller (and, if the Seller is not the named payee, also
endorsed by the named payee and any intervening parties as is necessary to show
an unbroken chain of endorsement to the Seller);
(ii) The original recorded Mortgage (or Deed of Trust, as
applicable), if available, or a copy of the Mortgage (or Deed of Trust) which
has been recorded or submitted for recording, certified by such Seller to be a
true copy of the original instrument;
(iii) An original, unrecorded assignment of the Mortgage (or Deed
of Trust, as applicable), duly executed by the Seller in blank and acknowledged,
in recordable form (an "Assignment");
(iv) If the named mortgagee (or beneficiary) set forth in the
Mortgage (or Deed of Trust) is not the Seller, executed original assignments in
recordable form, or photocopies of assignments certified by the Seller to be a
true copy of the original instrument which has been duly recorded (or submitted
for recordation), from the named mortgagee (or beneficiary) and any intervening
parties, as necessary to show an unbroken chain of assignment to the Seller
("Third Party Assignments");
(v) For each Conventional Mortgage Note with a loan-to-value
ratio in excess of 80%, the applicable original private mortgage insurance
policy (for purposes hereof, "Conventional Mortgage Note" shall mean any
Mortgage Note which is not FHA insured or VA guaranteed), or a copy of such
policy certified by the Seller to be a true copy of the original.
(b) The Custodian shall be entitled to rely conclusively upon the
information transmitted by the Seller in the Shipment Order (or the
corresponding data input by the Seller into the CTS) to determine the
applicability of items (vi) and (vii) set forth in (a). The Purchaser may at any
time notify the Custodian (in writing or by electronic transmission via CTS) of
its waiver of any requirement under Section 2.2 with respect to any Participated
Loan (which may be a standing instruction) and the Custodian shall be entitled
to conclusively rely thereon until expressly notified to the contrary in writing
by the Purchaser.
(c) Promptly after receipt of the Mortgage Documents the Custodian
shall review the information appearing in the CTS against the Mortgage Documents
(pursuant to the Review Procedures) in order to reconcile any material
discrepancy or inaccuracy in the applicable loan information shown or reported
in the CTS (to the extent the same may be determined from a review of the face
of the Mortgage Documents so delivered). Unless and until it receives the
required Mortgage Documents, the Custodian shall be entitled to rely
conclusively, in good faith, upon the loan information received from the Seller,
unless and until (and except to the extent) notified of a discrepancy or
inaccuracy by the Purchaser, as provided below.
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<PAGE> 5
(d) The Purchaser agrees to immediately notify the Custodian if (i) it
has not funded any Participated Loan for which it is identified as the Purchaser
in the CTS (or in any other report or listing furnished by the Custodian and
received by the Purchaser), or (ii) any Participated Loan which the Purchaser
has funded does not appear in the CTS (or is missing from any such report or
listing from the Custodian), or (iii) any loan information reflected in the CTS
(or as otherwise listed or reported by the Custodian) pertaining to any
Participated Loan for which it is the Purchaser is inaccurate or incorrect in
any respect. Upon notification from the Purchaser as to any material discrepancy
or inaccuracy in the information reflected in the CTS pertaining to any
Participated Loan, the Custodian shall promptly review the relevant Mortgage
Documents it has received, if any (pursuant to the Review Procedures) in order
to determine if any change in the information reflected in the CTS is required,
shall make any adjustments in the loan information reflected in the CTS which it
determines necessary on the basis of such review (to the extent the same may be
determined from reviewing the face of such Mortgage Documents), and if it
determines no adjustment is necessary it shall so inform the Purchaser. If the
Custodian is informed by the Purchaser of any such inaccuracy or discrepancy in
the CTS (or other listing or report furnished by the Custodian) pertaining to
any Participated Loan, and the Custodian has not yet received the related
Mortgage Documents from the Seller, the Custodian shall so inform the Purchaser
and it shall be the Purchaser's sole responsibility to contact the Seller to
reconcile the discrepancy or inaccuracy. In such an instance, the Custodian
shall have no obligation to change or adjust the loan information in the CTS
pertaining to such Participated Loan unless and until the sooner of (i) its
receipt of written instruction signed by Seller and Purchaser directing the
Custodian as to the proper correction or corrections to be made, or (ii) its
receipt of the required Mortgage Documents from the Seller, the Custodian's
review of the same, and its determination, as a result of such review (to the
extent such determination may be made from a review of the face of such Mortgage
Documents) that a correction should be made in the information reflected in the
CTS.
(e) Unless and except to the extent notified in writing by the
Purchaser as to any inaccuracy or discrepancy, the Custodian shall for all
purposes be entitled to rely conclusively upon the loan information furnished by
the Seller, until such time as the Custodian receives and has an opportunity to
review the required Mortgage Documents, as required by the terms of this
Agreement. Upon its review of the Mortgage Documents pursuant to the terms
hereof, the Custodian shall be entitled to rely conclusively upon the accuracy
and genuineness of such Mortgage Documents, and upon the results of its review
thereof, with respect to the related Participated Loan (and the loan information
to be reflected in the CTS) for all purposes, except as otherwise expressly
provided in this Agreement.
(f) In any instance in which the Custodian receives any contrary or
contradictory instruction, direction or demand from the Seller and the
Purchaser, the instruction, direction or demand from the Purchaser shall
supersede and govern, and the Custodian shall be entitled to rely thereon
without liability.
Section 2.3 Mortgage Document Review. Subject to the review procedures set
forth on Exhibit 13 attached hereto and made a part hereof (collectively, the
"Review Procedures") and other applicable terms of this Agreement, the Custodian
shall examine the Mortgage Documents delivered to it by the Seller pursuant to
Section 2.2(a) to determine whether or not it appears
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<PAGE> 6
from the face thereof that the documents and instruments described in Section
2.2 and required to be delivered for the Participated Loan described in the
related Shipment Order have been delivered, provided, however, that the
Custodian shall be entitled to rely exclusively upon the information contained
in the Shipment Order, any additional Mortgage Documents it has received, and
the terms of this Agreement for such purposes. Upon completing its review of the
Mortgage Documents, the Custodian shall use reasonable efforts to make available
to the Purchaser (not later than 4:00 p.m. on the Business Day the Custodian
receives the Mortgage Documents, if such Mortgage Documents are received prior
to 10:30 a.m. on such Business Day in good order and in the same loan order as
the loan information previously received by the Custodian from the Seller with
respect to such delivery; or, in all other cases not later than 12:00 Noon on
the next Business Day) the following information as determined by the Custodian
pursuant to the Review Procedures (in each case by entering such information in
the CTS, the format and contents thereof being subject to the parameters of the
CTS):
(i) identification of the Mortgage Documents delivered;
(ii) confirmation that, with respect to Mortgage Documents
delivered to it, the Custodian has performed the examination described in this
Section 2.3; and
(iii) a brief description of any discrepancies or deficiencies in
any documents delivered to the Custodian and listing any documents required
pursuant to Section 2.2 to be delivered and not received by the Custodian.
Section 2.4 Exception Report. If the Custodian shall note any discrepancies
or deficiencies in any documents delivered by or on behalf of the Seller
pursuant to Section 2.2, the Custodian shall (in addition to notification
thereof to the Purchaser as provided in Section 2.2.b. above) promptly inform
the Seller electronically via CTS to deliver to it any missing document within
two (2) Business Days thereafter, and shall return any document containing any
discrepancy or deficiency to the Seller for correction, but only upon the
Custodian's receipt of a Trust Receipt therefor executed by the Seller which
shall provide that the Seller shall redeliver such document to the Custodian
within ten (10) days after such return. The Custodian shall notify Purchaser of
the failure by Seller to redeliver any such document within ten (10) days via
the CTS. The Custodian shall keep records of all documents delivered to it
pursuant to this Agreement, including notations of missing documents and
notations of discrepancies or deficiencies in any documents returned to the
Seller for correction, the date of such return and the date of redelivery
therefor to the Custodian.
Section 2.5 Loan Reports Available Via CTS. The Custodian shall make
available to the Purchaser and the Seller electronically through the CTS (i) a
schedule listing the Participated Loans for which Mortgage Documents have been
received pursuant to Section 2.2 and which have not been delivered to an
Approved Private Investor pursuant to Section 3.1, and a report briefly
summarizing the outstanding document deficiencies applicable thereto, and (ii) a
schedule listing by loan number and mortgagor name all Participated Loans.
Section 2.6 Wet Settlements. Before 11:00 a.m. on the Business Day on
which the Seller intends to close a Participated Loan on the basis of a "wet"
settlement or funding, so called, the
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Seller shall deliver to the Custodian, by electronic transmission to the
Custodian's CTS or by telecopy of a facsimile, a notice identifying such
Participated Loan (a "Transmittal Summary"), in which case the following
procedure shall apply:
(a) The Transmittal Summary shall identify to the Custodian, at a
minimum, the following information regarding such Participated Loan: the
mortgagor name, property address, loan number, original principal amount and
interest rate of the Mortgage Note, the funding date, the loan type (e.g.,
whether conventional, FHA or VA) and the Purchaser (or the applicable funding
Approved Private Investor).
(b) By or before the close of business on the seventh Business Day
(or such later date as may be consented to by the Purchaser in its discretion by
written notice to the Custodian) after the funding date identified in such
Transmittal Summary, the Seller shall deliver to the Custodian a Transmittal
Letter duly completed describing such Participated Loan and the related Mortgage
Documents, accompanied by the Mortgage Documents set forth in, and in compliance
with the terms of, Section 2.2(a) of this Agreement (with regard to which the
terms of Section 2.2(b) of this Agreement shall likewise apply).
(c) If within such seven (7) Business Days (or such later date as may
be consented to by the Purchaser in its discretion by written notice to the
Custodian) after the funding date, the Custodian has not received such Mortgage
Documents from the Seller, the Custodian shall promptly notify the Purchaser via
CTS or otherwise.
(d) As to any Mortgage Documents received by the Custodian within
such seven (7) Business Days (or such later date as may be consented to by the
Purchaser in its discretion by written notice to the Custodian) after the
funding date and accompanied by a duly completed Shipment Order, the procedures
of Sections 2.3, 2.4 and 2.5 of this Agreement shall apply.
ARTICLE III -SHIPMENT (TO INVESTOR) PROCEDURE
Section 3.1 Shipment Order and Authorization. Upon the written direction of
the Seller substantially in the form of Exhibit 3 annexed hereto and made a part
hereof (a "Shipment Order"), received by the Custodian in a timely fashion, the
Custodian shall deliver the Mortgage Documents in such Shipment Order to the
Approved Private Investor (or its custodian) and in the manner directed in such
Shipment Order. The Shipment Order shall be duly completed and executed by the
Seller and the Custodian shall be entitled to rely conclusively thereon. If a
Shipment Order is received in good order (for the Custodian's purposes)
Custodian shall ship the requested Mortgage Documents (together with any related
Required Delivery Documents enclosed with such Shipment Order, as described in
Section 3.2 below) by the close of the next Business Day, provided, however,
that if the Shipment Order requests shipment of more than fifty (50)
Participated Loans, the Custodian shall endeavor to make the requested shipment
no later than 5:00 p.m. of the second Business Day following receipt of such
Shipment Order.
Section 3.2 Required Delivery Documents. Each Shipment Order delivered to
the Custodian shall be accompanied by all Required Delivery Documents, each in
proper form and complete, duly executed, with the required number of copies or
counterparts, and otherwise in
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form ready for shipment to the Approved Private Investor as is. The Custodian
shall examine the Shipment Request to determine whether the Required Delivery
Documents specifically listed thereon, if any, appears (on their face) to be
enclosed therewith.
Section 3.3 Endorsement of Mortgage Notes. Unless specifically
instructed in the Shipment Order, all Mortgage Notes shall be delivered by the
Custodian to the Approved Private Investor in the same form delivered to it. If
the Shipment Order specifically instructs the Custodian to endorse any such
Mortgage Notes to the Approved Private Investor on behalf of the Purchaser, the
Custodian, and each of its officers, agents, and employees is hereby authorized
and directed to endorse (and the Purchaser hereby appoints the Custodian, its
officers, agents and employees as its attorney-in-fact) any such Mortgage Notes
in the name of and on behalf of the Purchaser, as its attorney-in-fact, without
recourse, to the Approved Private Investor named, or otherwise instructed in the
related Shipment Order. The foregoing power of attorney shall remain in full
force and effect unless and until expressly revoked by written notice from the
Purchaser received by the Custodian.
Section 3.4 Custodian's Shipping Letter; Funds Receipt Agent.
(a) Each Shipment Order of a Participated Loan for which the Custodian
is to receive the purchase price proceeds on behalf of the Purchaser ("Funds
Receipt Agent") shall instruct the Custodian to direct the Approved Private
Investor to make such payment to the Custodian on the Purchaser's behalf
pursuant to the Bailee Agreement.
(b) The Seller shall deliver directly to the Approved Private Investor
any missing documents required to be delivered pursuant to Section 2.2(a), and
any documents in its possession for correction pursuant to Section 3.6, which
have not yet been delivered, or returned, to the Custodian at the time a
Shipment Order for the related Participation Loan is sent to the Custodian.
Promptly after its receipt of a Shipment Order, the Custodian shall cause the
CTS, as made available to the Purchaser, to reflect the delivery of such related
Shipment Order to the Custodian as it is related to each Participated Loan
covered thereby in which the Purchaser has an interest.
(c) Each delivery by the Custodian of Mortgage Documents (with
Required Delivery Documents, if any) to an Approved Private Investor (or its
Custodian) pursuant to a Shipment Order shall be accompanied by a Custodian's
Shipping Letter prepared and executed by the Custodian substantially in the form
of Exhibit 4. The Custodian shall monitor the source of payment for each
Participated Loan sold to an Approved Private Investor and shall not accept
payment, in any form, from any person or entity other than the Approved Private
Investor identified on the Transmittal Form for such Participated Loan. In the
event the Custodian rejects any payments for Purchased Loans because the source
of the payment is other than the Approved Private Investor identified on the
Transmittal Letter, Custodian shall, within twenty-four (24) hours, notify
Purchaser of such rejection by telephone, confirmed by written notice.
(d) The Purchaser and the Custodian shall establish with State Street
Bank and Trust Company, a Massachusetts trust company having a principal place
of business in Boston, Massachusetts (the "Depository") an account deposit
relationship, to provide for receipt and
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<PAGE> 9
deposit of sale proceeds by the Custodian from Approved Private Investors on the
Purchaser's behalf, and remittance thereof to the Purchaser, all upon terms
mutually agreeable to the Custodian and the Depository. The Custodian shall be
responsible only for good funds actually received and cleared, subject to the
provisions of 3.4(c) hereof, and shall have no obligation to pay interest on or
for investment of any such funds held for the Purchaser by the Custodian except
upon such terms as are expressly agreed upon between the Purchaser, the
Custodian and the Depository in establishing such deposit relationship. With
respect to each such account, the Custodian shall make available remittances
therefrom (of available and cleared funds) by wire transfer, if requested by the
Purchaser (which may be a standing instruction and which shall include
appropriate wiring instructions), subject to the Custodian's usual terms and
conditions governing deposit accounts and the wiring of funds (including
execution and delivery of the Custodian's usual agreements, if any, regarding
such matters). Subject to the foregoing, if any such sale proceeds are paid by
wire transfer of immediately available funds received by the Custodian by or
before 3:00 p.m. on any Business Day, and such payment is properly identified by
the Seller in writing received by the Custodian by telecopier by or before 3:00
p.m. (so as to enable the Custodian to match the proceeds to the appropriate
related Participated Loan or Loans), the Custodian shall remit to the Purchaser
the portion thereof to which it is entitled hereunder by wire transfer sent by
or before the close of business on the same Business Day; and any such proceeds
received by the Custodian by wire transfer after 3:00 p.m. (or not properly
identified to the Custodian by such time) shall be remitted by the Custodian as
soon as practicable after receipt and proper identification (the Custodian
hereby agreeing to make reasonable efforts to remit on the next Business Day).
Section 3.5 Shipment Where the Custodian Acts As the Custodian For Approved
Private Investor. Each Shipment Order shall instruct the Custodian to deliver
the Mortgage Documents (and enclosed Required Delivery Documents, if any) to the
Approved Private Investor or its custodian, as specified therein. In any
instance in which the Custodian acts as custodian (or as sub-custodian for an
institution acting as custodian) for the Approved Private Investor (whether an
Agency or an Approved Private Investor, as the case may be), the Custodian
shall, in lieu of physical shipment, transfer the Mortgage Documents on its
books and records to a custodial account at the Custodian maintained for such
Approved Private Investor, which account is segregated and maintained in
accordance with and as required by the applicable arrangements then existing
between such Approved Private Investor and the Custodian acting as its custodian
(or sub-custodian, as the case may be).
Section 3.6 Delivery To the Seller For Correction. The Custodian shall be
authorized and permitted at any time or times to deliver any Mortgage Documents
to the Seller, provided that, and only if, the Seller shall deliver to the
Custodian a Trust Receipt substantially in the form of Exhibit 5 annexed hereto,
completed and executed by the Seller, which certifies that the purpose of such
delivery is to correct the document or documents requested thereby. The Seller
shall return to the Custodian any such Mortgage Documents delivered to it when
the Seller's need therefor no longer exists or within ten (10) days after its
receipt of such documents from the Custodian, whichever is sooner.
Section 3.7 CTS Status Tracking After Shipment. The Custodian shall use
its reasonable efforts to make available to the Purchaser the status of each
Participated Loan after shipment to
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an Approved Private Investor by entering into the CTS the following information,
to the extent applicable: (i) that the Participated Loan has been shipped to an
Approved Private Investor, including the date of shipment; (ii) upon its receipt
of such payment, that the Custodian has received payment directly from the
identified Approved Private Investor from the sale of the Participated Loan (or
for the group of loans shipped to the Investor of which the Participated Loan is
a part); (iii) upon its receipt of any Participated Loan from an Approved
Private Investor which has been rejected, that the Participated Loan has been
rejected by an Approved Private Investor.
Section 3.8 Notice of Default. Upon receipt by the Custodian of written
notice from the Purchaser that the Seller is in default under the Purchase
Agreement, which notice makes specific reference to this Agreement and the name
of the Seller, and notwithstanding any terms to the contrary contained in
Section 3.1 or Section 3.6 hereof, the Custodian shall make no delivery of
Mortgage Documents to or upon the instruction of the Seller without the
Purchaser's express written consent and the Custodian shall at any time at the
request of the Purchaser, make delivery of any Mortgage Documents to the
Purchaser. In addition, upon its receipt of any such notice of default,
Custodian may (but shall not be obligated) notify any third party (and to notify
the Purchaser, in the case of a notice received from any third party) that it
has received such notice of default and drawing to the attention of the third
party (or the Purchaser, as the case may be ) that delivery of Mortgage
Documents relating to Participated Loans in which the Purchaser has an interest
(including any such Participated Loan included in a Participated Loan Pool)
shall thereafter be delivered by the Custodian only upon the Purchaser's written
instruction.
Section 3.9 Restricted Access By The Seller. Once accepted by Custodian, no
Mortgage Documents held by the Custodian shall be released or returned to the
Seller without the specific written consent of the Purchaser, except as
specifically provided in Section 3.7 (and except as directed in a Shipment Order
to an Approved Private Investor pursuant to this Article III).
ARTICLE IV -THE CUSTODIAN
Section 4.1 Appointment and Authorization; Limited Duties. The Custodian
agrees that it shall accept delivery of the Mortgage Documents as set forth in
this Agreement, as custodian, and shall hold the Mortgage Documents on behalf of
the Purchaser. Except as otherwise expressly provided in this Agreement, all
Mortgage Documents shall be subject to the control of the Purchaser and shall be
delivered by the Custodian to or as directed, subject to the terms of this
Agreement, by the Seller, including without limitation the selection of shippers
and method of shipment. Subject to the foregoing, and provided that it has not
been expressly instructed to the contrary by the Purchaser in writing, the
Custodian is hereby authorized to take such actions and to exercise such powers
and to exercise such powers and perform such duties as are expressly set forth
herein.
Section 4.2 The Custodian's Reliance, Exculpation, Etc. Notwithstanding
anything to the contrary set forth in this Agreement or any other document or
instrument, the Custodian shall not be responsible for the form or substance, or
the validity, effectiveness, legality, binding nature, enforceability
truthfulness or accuracy of any documents or instruments received by it or in
its control. Without limiting the generality of the foregoing sentence, the
Custodian: shall not be
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responsible for determining whether any document or instrument has actually been
recorded in accordance with the requirements of the applicable jurisdiction, or
is in suitable form for recording; shall be entitled to assume and rely upon the
purported due execution and genuineness of any document or instrument, and the
due authority and genuineness of any signature thereon ; shall be entitled to
assume that each document and instrument is what it purports to be and is
sufficient for its purported purpose; shall have no obligation to determine
whether the form or content of any document conforms to or satisfies any
applicable requirements of the Purchase Agreement, or of any Agency or other
Approved Private Investor under any Commitment, or that any document complies
with applicable law; shall have no obligation to determine whether any insurer
or the terms of any insurance policy (such as, for example, any exceptions
listed on Schedule B of any title insurance policy) are in compliance with the
Purchase Agreement or any Commitment; shall have no obligation to determine that
any Mortgage creates (or any title policy insures) a lien of any priority; and
shall have no responsibility or liability for any representations, warranties,
recitals or certifications made by the Seller. The Custodian shall have no
obligation to accept or examine any documents other than the Mortgage Documents
described in Section 2.2, and shall have no obligation to perform any
examination or review except as expressly set forth in Section 2.3 and the
Review Procedures.
Section 4.3 Standard of Care. Custodian shall have no responsibilities,
obligations or duties other than those expressly set forth in this Agreement,
and no implied duties, responsibilities or obligations shall be read into this
Agreement against the Custodian. Custodian may in any instance where the
Custodian reasonably determines that it lacks or is uncertain as to its
authority to take or refrain from taking certain action, or as to the
requirements of this Agreement under any circumstances before it, delay or
refrain from taking action unless and until it has received appropriate
instructions from the Purchaser. Custodian will not be responsible to the
Purchaser for any statement, warranty or representation made by any party other
than the Custodian in connection with this Agreement. Custodian shall not be
required by any provision of this Agreement to expend or risk the Custodian's
own funds, or to take any action (including but not limited to the institution
or defense of legal proceedings) which in its or their reasonable judgment may
cause it or them to incur or suffer any expense or liability, unless acceptable
security or indemnity for the payment of the costs, expenses (including but not
limited to attorneys' fees) and liabilities which may be incurred therein or
thereby, satisfactory to the Custodian, has been provided to it.
Section 4.4 Possession of Mortgage Files: No Duty To Preserve or Enforce
Rights: Fidelity Insurance.
(a) The Custodian shall make appropriate notations on its books and
records to reflect that the Mortgage Documents in its possession are held by it
as the Custodian hereunder for the Purchaser. Except as otherwise expressly
provided in this Agreement, all Mortgage Documents shall be held by the
Custodian in fire-proof file cabinets under its exclusive custody and control
and segregated from such documents held by the Custodian for Custodian's
account, and separately identified from such documents held by the Custodian for
others.
(b) The Custodian shall not have, and nothing herein shall be
construed to impose upon the Custodian or create, any duty, obligation or
responsibility to preserve or protect any
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rights of the Purchaser or the Seller in any Mortgage Note or any other Mortgage
Documents, whether against prior parties or other claimants or otherwise, or to
take any action to collect principal, interest or other amounts under, or
otherwise exercise, enforce, preserve or protect any rights or remedies under
any Participated Loans or the Mortgage Documents.
(c) The Custodian shall at its own expense maintain at all times
during the existence of this Agreement bankers blanket bond fidelity insurance
and errors and omissions insurance in such amount, with standard coverage and
subject to such deductibles, as are in compliance with any applicable federal or
state law or regulations to which the Custodian is subject and as is consistent
with custodians of similar size and in a similar custodian indemnity.
Section 4.5 Right of the Purchaser to Inspect Participated Loans. The
Purchaser shall have the right to inspect the Mortgage Documents held by the
Custodian and the Custodian's records with respect to the Mortgage Documents and
Participated Loans held by the Custodian upon reasonable notice and during the
Custodian's normal business hours.
Section 4.6 Indemnification.
(a) The Purchaser and the Seller jointly and severally, hereby
agree to indemnify, pay and hold harmless the Custodian and the officers,
directors, employees and agents of the Custodian (collectively called the
"Indemnitee") from and against, any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims, costs, expenses and
disbursements of any kind or nature whatsoever (including, without limitation,
reasonable attorneys' fees and expenses), including any that may arise in
connection with any investigative, administrative or judicial proceeding, or
otherwise, which may be imposed on, incurred by or asserted against the
Indemnitee, arising out of or related to this Agreement, or any actions taken by
it (or them) pursuant hereto or in connection herewith, or arising out of or
caused by or relating to any of the Participated Loans (collectively, the
"Indemnified Liabilities"), excluding Indemnified Liabilities arising from the
gross negligence or willful misconduct of any such Indemnitee.
(b) If any claim is made, or action, suit or proceeding is brought
against any person indemnified pursuant to this Section 4.6, the Indemnitee
shall promptly notify the Seller of such claim or of the commencement of such
defense of such action, suit or proceeding, and the Seller will, at the option
of each Indemnitee, assume the defense of such action, suit or proceeding,
employing counsel selected by the Indemnitee, and Seller shall pay the fees and
expenses of such counsel.
(c) The obligations of the Purchaser and the Seller under this
Section shall survive termination or assignment of this Agreement.
Section 4.7 Successor Custodian. The Custodian may resign at any time upon
giving 30 days prior written notice, with cause (which may include without
limitation that the Custodian lacks legal power or authority to continue, or
would be in violation of applicable law regulation or governmental order in
continuing, or is otherwise incapable of continuing to perform its obligations
and duties under this Agreement), or without cause upon giving ninety (90) days
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prior written notice, to the Seller and the Purchaser. The Custodian may be
removed at any time for cause by the Purchaser upon giving thirty (30) days
prior written notice of such removal to the Custodian and the Seller. Upon
notice of such resignation or removal, the Purchaser may appoint any bank, trust
company or other financial institution as the Custodian, such appointment to be
subject to the consent of the Seller, which consent shall not be unreasonably
withheld. Upon the effective date of resignation or removal of the Custodian,
such successor will thereupon succeed to and become vested with all the rights,
powers, privileges and duties of the resigning or removed Custodian, and the
resigning or removed Custodian will be discharged from its duties and
obligations under this Agreement. Upon the effective date of its resignation or
removal, the Custodian shall deliver the Mortgage Documents to its successor,
without recourse, representation or warranty, expressed or implied. After any
retiring Custodian's resignation or removal as the Custodian, the provisions of
this Article IV shall continue to inure to its benefit.
ARTICLE V -MISCELLANEOUS
Section 5.1 Authorized Representatives. Each Authorized Representative of
the Purchaser, the Seller and the Custodian is authorized, respectively, to give
and receive notices, requests and instructions and to deliver certificates and
documents in connection with this Agreement on behalf of the Purchasers, the
Seller or the Custodian, as the case may be. The names, titles and specimen
signatures of the Authorized Representatives of the Purchaser, the Seller and
the Custodian initially authorized hereunder are set forth on Exhibits 7, 8 and
9, respectively. From time to time the Purchaser, the Seller and the Custodian
may, by delivering to the others a revised exhibit (setting forth the names,
titles and specimen signatures of the then current Authorized Representatives of
such party), change the information previously given, but each of the other
parties hereto shall be entitled to rely conclusively on the last exhibit (and
to conclusively rely upon the due authority of the then current Authorized
officers) until receipt of a superseding exhibit.
Section 5.2 Approved Private Investors. Subject to the approval of
Purchaser, the Seller may at any time or times change or amend the list of
Approved Private Investors attached hereto as Exhibit 1 by written notice to the
Custodian and the Seller, provided such Approved Private Investor, Seller and
Custodian shall have executed a Bailee Agreement for any Approved Private
Investor to be added to the List.
Section 5.3 Independent Purchaser Credit Decision. The Purchaser expressly
acknowledges that it has, independently and without reliance upon the Custodian
and based on the financial information of the Seller delivered to it pursuant to
the Purchase Agreement and such other documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into the
Purchase Agreement and to continue its relationship with the Seller on the terms
thereof and hereof, and the Purchaser shall continue on an independent basis and
based solely upon such information as the Purchaser shall deem appropriate from
time to time, without reliance upon the Custodian, to make its own decisions
with respect to its relationship with the Seller under the Purchase Agreement
and otherwise.
Section 5.4 Data Access.
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(a) The Custodian has issued to the Purchaser and the Seller a data
access security system or procedure in order that the Purchaser or the Seller
may have access to the CTS, and with respect to the CTS (and any other data and
functions to which the Purchaser or the Seller is or are provided access by the
Custodian) the Purchaser and the Seller each hereby agrees:
(i) To access data and functions only in accordance with Data
Access Operating Procedures annexed hereto as Exhibit 10 and made a part hereof
and to regard and preserve as confidential all information obtained with respect
to the issuance to the Purchaser or the Seller of a data access security system
or procedure.
(ii) To access data and functions solely for its own internal
use and benefit;
(iii) To discontinue use of the data access security system or
procedure at any time for security reasons upon notice from the Custodian;
(iv) Upon request, to cause the Purchaser's or the Seller's
internal auditors to verify to the Custodian that data access is restricted to
authorized employees;
(v) To indemnify the Custodian against and to hold the
Custodian harmless from all liability, claims, loss and demands whatsoever,
including reasonable attorney's fees, howsoever arising or incurred because of
or in connection with the access of data and functions by the Purchasers or the
Seller and the use by the Purchasers or the Seller or any of its employees,
whether authorized or unauthorized, of the data access security system or
procedure; and
(vi) To designate a duly authorized individual to serve as the
Data Security Administrator by executing and delivering to the Custodian a Data
Security Administrator Designation form (the "Data Security Administrator
Designation Form") in the form annexed hereto as Exhibit 11 and hereby made a
part hereof.
The Custodian makes no representation or warranty with respect to
and shall have no liability for the accuracy or completeness of any data or
information appearing in CTS other than data which is input by the Custodian and
which sets forth information furnished by the Custodian and which sets forth
information furnished by the Custodian. The Custodian has no obligation or duty
to verify or otherwise investigate the accuracy of any data input by any party
other than the Custodian (other than the Custodian's responsibility for
examination and certification of documents pursuant to Section 2.3 of this
Agreement and the applicable Review Procedures). Without limiting the foregoing,
the Purchaser acknowledges that certain data regarding Participated Loan
(particularly, but not limited to, "wet settlements") will be input into the CTS
directly by the Seller, or directly from computer disc or magnetic tape prepared
and furnished by the Seller, without verification or investigation by the
Custodian, and the Custodian shall have no responsibility or liability for the
accuracy or truthfulness of such information. The Custodian is entitled to rely
upon, among other things, the truthfulness and accuracy of any Shipment Order
from the Seller, and any notice from the Purchaser, and to the extent the
Custodian enters data in the CTS from or in reliance upon the
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<PAGE> 15
truthfulness or accuracy of any such documents or notices received by it from
another party, it shall have no responsibility or liability therefor.
Each of the Seller and the Purchaser further acknowledges that the
Custodian shall have no liability for inaccurate information which results from
its examination of Mortgage Documents and which is input by the Custodian into
the CTS, if such inaccuracy in examination was not due to the Custodian's own
gross negligence or willful misconduct in failing to observe or perform its
duties under the Agreement and pursuant to the Review Procedures.
Each of the Seller and the Purchaser further agrees that it shall not
modify, enhance or otherwise create derivative works based upon the CTS, and
each agrees that it shall not reverse engineer, decompile or otherwise attempt
to secure the source code for all or any part of the CTS.
These CTS Security Procedures may be amended, modified or otherwise
changed (including the addition of other terms and conditions) from time to time
at the option of the Custodian, by written notice to each of the Purchaser and
the Seller in advance of the effective date of any such amendment, modification
or change.
(b) NO OTHER WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING,
WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE, ARE MADE BY THE CUSTODIAN WITH REGARD TO CTS. IN NO EVENT
WILL THE CUSTODIAN BE LIABLE TO ANY PARTY FOR ANY CONSEQUENTIAL OR INCIDENTAL
DAMAGES WHICH MAY ARISE FROM THE CUSTOMER'S ACCESS TO THE CTS OR USE OF
INFORMATION OBTAINED THEREBY.
Section 5.5 Fees. The Custodian will charge and the Purchaser agrees
to pay such fees for the Custodian's services under this Agreement as are set
forth, or as are in accordance with the terms set forth, on Exhibit 12 attached
hereto and made a part hereof. The Purchaser agrees to reimburse the Custodian
for its expenses, costs and disbursements as are incurred by the Custodian from
time to time in performing its services under this Agreement, in accordance with
the terms of said Exhibit 12, in each case as the terms of said Exhibit 12 may
be amended or modified from time to time by agreement in writing between the
Purchaser and the Custodian. Such fees, costs, expenses and disbursements shall
be billed periodically by the Custodian and shall be due and payable upon
receipt by the Purchaser (unless otherwise provided in the billing statement).
Section 5.6 Reproduction of Documents. This Agreement and all
documents relating thereto, including, without limitation, (a) consents, waivers
and modifications which may hereafter be executed, (b) documents received by any
party at the closing, and (c) certificates and other information previously or
hereafter furnished, may be reproduced by any photographic, photostatic,
microfilm, micro-card, miniature photographic or other similar process. The
parties agree that any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding, whether or not the
original is in existence and whether or not such reproduction was made by a
party in the regular course of business, and that any
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enlargement, facsimile or further reproduction of such reproduction shall
likewise be admissible in evidence.
Section 5.7 Notices. All notices and other communications provided for
hereunder shall, unless otherwise stated herein, be in writing or be telex,
telegraph or cable and mailed or sent or delivered, including by overnight air
courier, at the address set forth hereunder or at such other address as shall be
designated by such party in written notice to the other parties hereto. All such
notices and communications shall be effective and shall be deemed to be given
when personally delivered or 48 hours after deposited in the United States
certified or registered mail, postage prepaid, or when transmitted by telegraph
or telex, charges prepaid, addressed as set forth below.
To Purchaser: Sovereign Bank
1130 Berkshire Blvd.
Wyomissing, PA 19610
Attention: Warehouse Department
To Seller: Mego Mortgage Corporation
1000 Parkwood Circle, Fifth Floor
Atlanta, GA
Attention: Robert V. Bellacusa, Vice President
To Custodian: State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Attention: Mortgage Custody Department
Section 5.8 Survival. All covenants, agreements, representations and
warranties made herein and in certificates delivered pursuant hereto shall
continue in full force and effect as long as any amount is outstanding and
unpaid under this Agreement or the Purchase Agreement.
Section 5.9 Successors and Assigns. Whenever in this Agreement any party
hereto is referred to, such reference shall be deemed to include the successors
and assigns of such party; and all covenants, promises and agreements contained
in this Agreement shall be binding upon and shall inure to the benefit of the
successors and assigns of the respective parties hereto.
Section 5.10 Prior Agreements. This Agreement represents the entire
agreement and understanding of the parties with respect to the subject matter
hereof. All prior agreements and understandings, whether written or oral,
between any of the parties hereto relative to the subject matter hereof are
deemed superseded hereby.
Section 5.11 Modification of Agreement. No modification or waiver of any
provision of this Agreement, nor any consent to any departure by the Purchaser,
the Seller or the Custodian from any provision of this Agreement, shall in any
event be effective unless the same shall be in writing executed by all parties
hereto, and then such waiver or consent shall be effective only in
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the specific instance and for the purpose for which given. No notice to or
demand on the Purchaser, the Seller or the Custodian shall apply to any other or
further notice or demand in the same, similar or other circumstances.
Section 5.12 Severability. In case any one or more of the provisions
contained in this Agreement should be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby.
Section 5.13 Law. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the Commonwealth of Massachusetts.
Section 5.14 Qualification. Nothing in this Agreement shall be deemed to
impose upon the Custodian any duty to qualify to do business in any jurisdiction
other than the Commonwealth of Massachusetts.
Section 5.15 Tax Reports. The Custodian is not responsible for preparing or
filing any reports or returns relating to federal, state or local income taxes
with respect to this Agreement (other than for the Custodian's compensation or
for reimbursement of expenses).
Section 5.16 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute but one and the same instrument.
Section 5.17 Force Majeure. The Custodian shall not be responsible for
delays or failures in performance resulting from acts beyond its control. Such
acts shall include but not be limited to acts of God, strikes, lockouts, riots,
acts of war or terrorism, epidemics, nationalization, expropriation, currency
restrictions, governmental regulations superimposed after the fact, fire,
communication line failures, computer viruses, power failures, earthquakes or
other disasters.
Section 5.18 Consent to Jurisdiction and Service. Each of the Purchaser and
the Seller hereby absolutely and irrevocably consents and submits to the
jurisdiction of the courts of the Commonwealth of Massachusetts and of any
Federal court located in the Commonwealth of Massachusetts in connection with
any actions or proceedings brought against the Seller or Purchaser by the
Custodian arising out of or relating to this Custodian Agreement. In any such
action or proceeding, the Purchaser and the Seller hereby absolutely and
irrevocably waives personal service of any summons, complaint, declaration or
other process and hereby absolutely and irrevocably agrees that the service
thereof may be made by certified or registered first-class mail directed to the
Purchaser or the Seller at its address in accordance with Section 5.7 hereof.
Section 5.19 Purchase Agreement Remains in Effect. The Seller acknowledges
that the terms of its Purchase Agreement with the Purchaser (including without
limitation additional provisions or requirements relating to Mortgage Documents
or other documents) shall and does remain in full force and effect, to the
extent they do not conflict with or contradict the express terms of this
Agreement. The Purchaser acknowledges and agrees that the related Purchase
Agreement to which it is a party shall be deemed to be supplemented by and made
subject to the
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terms and procedures set forth in this Agreement concerning the custody and
delivery of Mortgage Documents for Participated Loans.
IN WITNESS WHEREOF, each of the parties to this Agreement has caused
this Agreement to be executed and delivered, intending this Agreement to take
effect as an instrument under seal, in its name and on its behalf by a duly
authorized officer, as of this 26 day of June, 1998.
SOVEREIGN BANK
By: By: /s/ Jay S. Sidhu
----------------------------- ----------------------------------
Name: Name: Jay S. Sidhu
Title: Title: President and Chief
Executive Officer
MEGO MORTGAGE CORPORATION
By: By: /s/ Jeffrey S. Moore
----------------------------- ----------------------------------
Name: Name: Jeffrey S. Moore
Title: Title: President
STATE STREET BANK AND TRUST COMPANY
("Custodian")
By: /s/ Paul T. Davis By: /s/ Peter T. Croke
----------------------------- ----------------------------------
Name: Paul T. Davis Name: Peter T. Croke
Title: Assistant Vice President Title: Vice President
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<PAGE> 1
EXHIBIT 10.92
MEGO MORTGAGE CORPORATION
AND
EMANUEL J. FRIEDMAN
COMMON STOCK
PURCHASE AGREEMENT
DATED AS OF
JUNE 9, 1998
<PAGE> 2
Table of Contents
Page
<PAGE> 3
MEGO MORTGAGE CORPORATION
COMMON STOCK
PURCHASE AGREEMENT
This Common Stock Purchase Agreement is made as of June 9, 1998, by and
between Emanuel J. Friedman (the "Purchaser"), and Mego Mortgage Corporation
(the "Company"), a Delaware corporation, with its principal offices at 1000
Parkwood Circle, 5th Floor, Atlanta, Georgia.
WHEREAS, the Company is engaging in a plan of recapitalization (the
"Recapitalization") which includes the following: (i) a private offering (the
"Common Stock Offering") of shares of its common stock, par value $.01 per share
(the "Common Stock"); (ii) a private offering (the "Series A Preferred Stock
Offering") by the Company of shares of its Series A Convertible Preferred Stock,
par value $.01 per share (the "Series A Preferred Stock"); and (iii) an exchange
offer to occur concurrent with the Common Stock Offering and the Series A
Preferred Stock Offering (together, the "Offerings") and as a condition thereto
to exchange shares of Series A Preferred Stock and/or new 12.5% Subordinated
Notes Due 2001 ("New Notes") of the Company or a combination thereof, subject to
certain limitations, for any and all of the outstanding 12.5% Senior
Subordinated Notes Due 2001 of the Company, subject to certain conditions (the
"Exchange Offer");
WHEREAS, the Company will enter into a Placement Agreement (the
"Placement Agreement"), with Friedman, Billings, Ramsey & Company, Incorporated
("FBR"), a Virginia corporation, pursuant to which FBR will act as placement
agent in connection with the issue and sale of the Common Stock and Series A
Preferred Stock (together with the New Notes, the "Securities") to be issued in
the Offerings, and;
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WHEREAS, the completion of the Offerings (the "Closing") is scheduled
to take place on June 18, 1998, or such other date (the "Closing Date") as is
agreed upon by the Company and FBR;
WHEREAS, the Company wishes to offer and sell to Purchaser, and
Purchaser wishes to buy from the Company, on the terms and conditions set forth
herein, up to 6,666,667 shares of Common Stock for a purchase price of $1.50 per
share, or $10,000,000 in aggregate;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained in this Purchase Agreement, the parties agree as follows:
Section 1. Definitions. Capitalized terms not otherwise defined herein
shall have the meanings assigned to them in the Company's Offering Memorandum,
dated June 9, 1998 (the "Offering Memorandum").
Section 2. Agreement to Sell and Purchase the Securities. Subject to
the terms and conditions of this Purchase Agreement, that certain registration
rights agreement (the "Registration Rights Agreement") to be entered into by and
between the Company and Purchaser, as provided in Exhibit A hereto, and the
Placement Agreement, the Company agrees to sell and Purchaser agrees to buy
6,666,667 shares (the "Shares") of Common Stock for a purchase price of $1.50
per share, or $10,000,000 in the aggregate (the "Purchase Price"). Purchaser
shall pay the Purchase Price on the Closing Date in New York Clearing House
Funds, to the account of the Company.
The Company represents to Purchaser that, prior to the Closing, the
Company will be executing substantially identical purchase agreements with
respect to shares of Common Stock and Series A Preferred Stock (except for the
name and address of the Purchaser and the number of shares of Series A Preferred
Stock or Common Stock, as the case may be, purchased) with certain
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<PAGE> 5
other investors (the "Other Purchasers") for an aggregate purchase price of at
least $20,000,000. Purchaser and Other Purchasers are hereinafter sometimes
referred to as the "Purchasers," and this Purchase Agreement and such other
Purchase Agreements are hereinafter sometimes referred to as the "Purchase
Agreements."
Section 3. Issuance of the Certificates Representing the Securities. At
the Closing, the Company will cause to be delivered to the Purchaser, one
certificate for the Shares being purchased registered in the name of Purchaser
as set forth on the signature page hereof (or in such other name as may be
designated by Purchaser to the Company in writing upon payment of the applicable
purchase price therefor).
Section 4. Representations, Warranties and Covenants of the Company.
The Company hereby represents and warrants to, and covenants with, Purchaser as
follows:
4.1. Organization and Qualification. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. The Company has all requisite power and authority, and all necessary
authorizations, approvals, consents, orders, licenses, certificates and permits
of and from all governmental or regulatory bodies or any other person or entity,
to own, lease and license its assets and properties and conduct its business as
now being conducted and as described in the Offering Memorandum, except for such
authorizations, approvals, consents, orders, licenses, certificates and permits
the failure to so obtain would not have a material adverse effect upon the
assets or properties, business, results of operations, prospects or condition
(financial or otherwise) of the Company and its subsidiaries, taken as a whole
(a "Material Adverse Effect"); no such authorization, approval, consent, order,
license, certificate or permit contains a materially burdensome restriction
other than as disclosed in the Offering Memorandum; and the Company has all such
corporate power and authority, and has or will have as of the Closing
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such authorizations, approvals, consents, orders, licenses, certificates and
permits as shall be necessary to enter into, deliver and perform this Agreement,
the Purchase Agreements and the Other Transaction Documents (as defined in
Section 4.3, below) and to issue and sell the Securities (except as may be
required under state securities laws). The Company is duly qualified to do
business and is in good standing in every jurisdiction where such qualification
is required by controlling law and where the failure to so qualify is reasonably
likely to have a Material Adverse Effect. The Company has no subsidiaries that
would be deemed to be "significant subsidiaries" for purposes of Rule 1-02 of
Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), substituting in the tests set forth in such rule the
figure "5%" in each case for "10%."
4.2. Authorized Capital Stock. The authorized, issued and outstanding
capital stock of the Company is as set forth in the Offering Memorandum. All
issued and outstanding shares of Company capital stock have been duly and
validly authorized and issued, are fully paid and nonassessable, have been
issued in compliance with all federal and state securities laws, and have not
been issued in violation of or subject to any preemptive right, co-sale right,
registration right, right of first refusal or other similar right. All of the
outstanding shares of capital stock of the Company's subsidiaries have been duly
and validly authorized and issued and are fully paid and non-assessable and are
owned, directly or indirectly, by the Company, free and clear of any lien,
pledge, charge, security interest or other encumbrance. The Shares have been
duly authorized and, when issued and sold pursuant to this Purchase Agreement
will be duly and validly issued, fully paid and nonassessable and none of them
will be issued in violation of any preemptive or other similar right. Except as
disclosed in the Offering Memorandum, there is no outstanding option, warrant or
other right calling for the issuance of, and there is no commitment, plan or
arrangement
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to issue, any share of capital stock of the Company or any subsidiary or any
security convertible into, or exercisable or exchangeable for, such capital
stock. The Shares conform in all material respects to all statements in relation
thereto contained in the Offering Memorandum.
4.3. Due Execution, Delivery and Performance. The execution, delivery
and performance of each of this Agreement and the Placement Agreement, the
Registration Rights Agreement, the Purchase Agreements entered into with the
Other Purchasers, the Option Agreement between the Company and The City National
Bank of West Virginia ("City") and the similar Option Agreement between the
Company and Sovereign Bancorp, Inc. ("Sovereign") the Bulk Servicing Purchase
Agreement and the Flow Servicing Purchase Agreement referred to in Section 7.4
below (the "Servicing Purchase Agreements"), the Warehouse Line Agreement
referred to in Section 7.16(c) below, and the Flow Purchase Agreement referred
to in Section 7.16(d) below (collectively, the "Other Transaction Documents") by
the Company (a) have been (or prior to Closing will be) duly authorized by all
requisite corporate action of the Company and (b) will not violate (i) the
Certificate of Incorporation or Bylaws of the Company, or (ii) any provision of
any indenture, mortgage, agreement, contract, or other instrument to which the
Company or any of its subsidiaries is bound or be in conflict with, or result in
a breach of or constitute (upon notice or lapse of time or both) a default under
any such indenture, mortgage, agreement, contract, or other instrument or result
in the creation or imposition of any lien, security interest, mortgage, pledge,
charge or other encumbrance of any nature whatsoever upon any of the properties
or assets of the Company or any of its subsidiaries, except for any such
violations, conflicts, breaches or defaults which have been waived in writing as
of the Closing or would not have a Material Adverse Effect. Upon execution and
delivery, this Agreement and the Other Transaction Documents will constitute
legal, valid and binding obligations of the Company, enforceable in accordance
with their respective
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<PAGE> 8
terms, except insofar as the enforcement thereof may be limited by bankruptcy
law or other laws relating to or affecting the enforcement of creditors' rights
generally or by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law) and except as
rights to indemnity or contribution may be limited under applicable law.
4.4. Offering Memorandum and Additional Information. The Company has
furnished, and Purchasers acknowledge receipt of the Offering Memorandum dated
June 9, 1998.
The Offering Memorandum when combined with the documents incorporated
by reference therein does not, and any amendment or supplement thereto will not,
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading. Each document incorporated by reference into the Offering Memorandum
complies in all material respects with the requirements of the Exchange Act, and
the Commission's rules and regulations thereunder ("Exchange Act Regulations")
and, when read together with the other information in the Offering Memorandum,
does not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
4.5. Legal Proceedings. There are no actions, suits, investigations or
proceedings pending or threatened other than as disclosed in the Offering
Memorandum (including the documents incorporated by reference therein and
provided to the Purchasers) to which the Company or any of its subsidiaries is a
party or to which any of their properties is subject before or by any court or
governmental agency or both which is reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect; and to the knowledge of the
Company, no such actions,
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<PAGE> 9
suits, investigations or proceedings are threatened by any person, corporation
or governmental agency or body.
4.6. No Material Adverse Change. Subsequent to the respective dates as
of which information is given in the Offering Memorandum, and except as
specifically described therein, there has not been (i) any material adverse
change in the business, properties or assets described or referred to in the
Offering Memorandum, or the results of operations, condition (financial or
otherwise) earnings, operations, business or business prospects, of the Company
and its subsidiaries, taken as a whole, (ii) any transaction entered into
(whether binding or nonbinding) by the Company and/or its subsidiaries that is
material to the Company and its subsidiaries, taken as a whole, except
transactions in the ordinary course of business, (iii) any obligation that is
material to the Company and its subsidiaries, direct or indirect, contingent or
noncontingent, matured or unmatured, absolute or otherwise, incurred by the
Company or its subsidiaries, except obligations incurred in the ordinary course
of business, (iv) any change in the capital stock (other than upon the exercise
of stock options described in the Offering Memorandum) or outstanding
indebtedness of the Company or its subsidiaries (other than indebtedness
incurred in the ordinary course of business consistent with past practice), (v)
any dividend or distribution of any kind declared, paid or made on the capital
stock of the Company or any of its subsidiaries, or (vi) any change in senior
management or key employees, and no such change or event is reasonably expected.
4.7. Law and Regulation. The Company and its subsidiaries are in
compliance with, and conduct their respective businesses in conformity with all
applicable laws and governmental regulations governing the businesses conducted
by the Company and its subsidiaries, as the case may be, except for failures to
comply or conform which would not have a Material Adverse Effect.
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4.8. Accounting Matters. Deloitte & Touche LLP ("D&T"), which has
audited the financial statements, together with the related notes, of the
Company as of August 31, 1997 and 1996, and for each of the three years ended
August 31 1997, 1996, and 1995, which are included in the Offering Memorandum,
are independent public accountants as required by the Securities Act of 1933, as
amended (the "Securities Act") and the Securities Act Regulations (as if the
Offering Memorandum was a prospectus filed as part of a registration statement
filed under the Securities Act).
The financial statements included or incorporated by reference in the
Offering Memorandum comply as to form in all material respects with applicable
accounting requirements of the Securities Act, the Securities Act Regulations,
the Exchange Act, and the Exchange Act Regulations, including Regulation S-X
under the Securities Act (as if such financial statements were filed with or
incorporated by reference in a registration statement under the Securities Act),
and said financial statements present fairly the financial position of the
Company and its Subsidiaries on a consolidated basis as of the dates indicated
and the results of their operations for the periods specified; except as
otherwise stated in the Offering Memorandum, such financial statements have been
prepared in conformity with generally accepted accounting principles applied on
a consistent basis and such financial statements are consistent in all material
respects with financial statements and other reports filed by the Company and
its Subsidiaries with the Commission; the supporting schedules included are
incorporated by reference in the Offering Memorandum and present fairly the
information required to be stated therein. The selected and summary financial
and statistical data included in the Offering Memorandum present fairly the
information shown therein and have been compiled on a basis consistent with the
audited financial statements presented therein.
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The Company and each of its subsidiaries (i) make and keep books and
records which, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of assets; (ii) maintain a system of internal
accounting controls sufficient to provide reasonable assurance that: (a)
transactions are executed in accordance with management's general or specific
authorizations, (b) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets, (c) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect thereto, and (d) access
to assets is permitted only with management's general or specific authorization;
and (iii) otherwise conform to the requirements of the Exchange Act, Section
13(b) and Regulation 13b-2 thereunder and shall continue to do so for so long as
Purchaser holds any Shares.
4.9. Compliance with Securities Laws. Assuming (i) the accuracy of the
representations and warranties of FBR and the Purchasers as set forth in the
Placement Agreement and the Purchase Agreements, and (ii) that the Purchaser,
the Other Purchasers and the participants in the Exchange Offer are either
"qualified institutional buyers" (as defined in Rule 144A under the Securities
Act) or "accredited investors" (as defined in Rule 501(a) under the Securities
Act) (the Company having received representations from such persons to such
effect), the Company has complied with all applicable federal and state
securities or Blue Sky laws in connection with the Offerings and the Offerings
are or will be exempt from registration under such laws.
4.10. Intangibles. The Company owns or possesses adequate and
enforceable rights to use all trademarks, trademark applications, trade names,
service marks, copyrights, copyright applications, licenses, know-how and other
similar rights and proprietary knowledge (collectively, "Intangibles") necessary
for the conduct of its business as described in the
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<PAGE> 12
Offering Memorandum. The Company has not received any notice of, nor to its best
knowledge is aware of, any infringement of or conflict with asserted rights of
others with respect to any Intangibles which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would have a Material
Adverse Effect.
4.11. Title. The Company has good title to each of the items of
personal property which are reflected in the financial statements referred to in
Section 4.8 or are referred to in the Offering Memorandum as being owned by it
and valid and enforceable leasehold interests in each of the items of real and
personal property which are referred to in the Offering Memorandum as being
leased by it, in each case free and clear of all liens, encumbrances, claims,
security interests and defects, other than those described in the Offering
Memorandum and those which do not and will not have a Material Adverse Effect.
4.12. Contracts. Each material contract or agreement to which the
Company is a party is in full force and effect and is valid and enforceable by
and against the Company in accordance with its terms, assuming the due
authorization, execution and delivery thereof by each of the other parties
thereto. Except as disclosed in the Offering Memorandum, neither the Company,
nor to the best knowledge of the Company, any other party is in default in the
observance or performance of any term or obligation to be performed by it under
any such agreement, and no event has occurred which with notice or lapse of time
or both would constitute such a default, in any such case which default or event
would have a Material Adverse Effect. Except as described in the Offering
Memorandum, no default exists, and no event has occurred which with notice or
lapse of time or both would constitute a default, in the due performance and
observance of any term, covenant or condition, by the Company of any other
agreement or instrument to which the Company
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<PAGE> 13
is a party or by which it or its properties or business may be bound or affected
which default or event would have a Material Adverse Effect.
4.13. No Violation. The Company is not in violation of any term or
provision of its Certificate of Incorporation or Bylaws or of any franchise,
license, permit, judgment, decree, order, statute, rule or regulation, where the
consequences of such violation would have a Material Adverse Effect.
4.14. Transactions with Affiliates. No transaction has occurred or is
contemplated between or among the Company and any of its officers or directors
or any affiliate or affiliates of any such officer or director that would have
been required to be described in the Offering Memorandum if it were part of a
Registration Statement under the Securities Act and is not described in the
Offering Memorandum.
4.15. No Manipulation. The Company has not taken, nor will it take,
directly or indirectly, any action designed to or which might reasonably be
expected to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of the Common Stock to facilitate the sale or resale of any of the Shares.
4.16. Taxes. The Company or its former parent, Mego Financial Corp.,
has filed all Federal, state, local and foreign tax returns which are required
to be filed by the Company through the date hereof, or has received extensions
thereof, and has paid all taxes shown on such returns and all assessments
received by it to the extent that the same are material and have become due.
4.17. Investment Company Act of 1940. The Company is not, and will not
become upon the issuance and sale of the Securities and the application of net
proceeds therefrom
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as described in the Offering Memorandum under the caption "Use of Proceeds," an
"investment company" or, assuming FBR is not an "investment company," an entity
"controlled" by an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended (the "1940 Act").
4.18. Use of Proceeds. The Company will apply the proceeds from the
Offerings as set forth in the Offering Memorandum.
4.19. Board of Directors. As of the Closing, the Board of Directors of
the Company shall have seven members and Purchaser shall be entitled at the
Closing or at any time thereafter to designate one member, who shall be
appointed to the Board of Directors promptly following his designation and who
shall also be elected to any executive or similar committee of the Board of
Directors. After the Closing and until the first date on which Purchaser holds
shares of Common Stock (on an as-converted basis) and Common Stock representing
less than 7.0% of the outstanding shares of Common Stock (including the number
of shares of Common Stock into which all outstanding shares of Common Stock are
convertible) (the "7% Termination Date") (a) the Board of Directors shall
continue to have seven members (as adjusted pursuant to the following sentence
and the similar provision of the Preferred Stock Purchase Agreement of even date
herewith between the Company and Sovereign), and (b) Purchaser shall be entitled
to nominate one member of the Board of Directors at each meeting of shareholders
at which directors are elected, and such member shall also be elected to any
executive or similar committee of the Board of Directors. The Company shall use
its best efforts to cause the nominees of Purchaser to be elected to the Board
of Directors and appointed to such committee. Purchaser shall have the right at
all times until the 7% Termination Date to designate a representative (who shall
be reasonably satisfactory to the Company) who shall be given notice of and who
shall have the right to attend all meetings of the
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<PAGE> 15
Board of Directors of the Company and all meetings of any executive or similar
committee of the Board of Directors.
4.20. Certificates. Any certificates signed by any officer of the
Company or its subsidiaries, and delivered to the Purchasers or to counsel for
the Purchasers pursuant to the terms of this Agreement shall be deemed a
representation and warranty by the Company to the Purchaser as to the matters
covered thereby.
4.21. Mortgage-Related Asset Revaluation. Immediately following
Closing, the Company shall cooperate with City, with the advice of their
respective advisors, to arrive at a mutually satisfactory, and more conservative
set of assumptions to be used to value the mortgage-related assets carried on
the Company's balance sheet.
4.22. Other Transactions. The material terms of all of the transactions
relating to the Recapitalization are accurately disclosed on Exhibit E.
4.23. Best Efforts. The Company shall cooperate with Purchaser and
shall use its reasonable best efforts to do or cause to be done all things
necessary or appropriate on its part in order to effect the consummation of the
transactions contemplated under this Agreement.
4.24. Due Diligence. In order to permit Purchaser to perform further
due diligence, the Company shall give to Purchaser and its accountants, counsel
and other authorized representatives reasonable access during normal business
hours throughout the period prior to the Closing Date to all of its properties,
books, records, contracts and other documents relating to its business as
Purchaser may reasonably request, subject to the obligation of Purchaser and its
authorized representatives to maintain the confidentiality of all non-public
information concerning the Company obtained by reason of such access.
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<PAGE> 16
Section 5. Representations, Warranties and Covenants of Purchaser.
Purchaser hereby represents, warrants and covenants to the Company as follows:
5.1. Compliance with United States Securities Laws. Purchaser
understands and acknowledges that the Shares have not been registered under the
Securities Act, and that the Shares may not be offered or sold in the United
States or to, or for the account or benefit of, any "U.S. person" (as defined in
Regulation S under the Securities Act), unless such Securities are registered
under the Securities Act or such offer or sale is made pursuant to an exemption
from the registration requirements of the Securities Act. The Shares are being
offered and sold in reliance on an exemption from registration pursuant to
Section 4(2) of the Securities Act and Rule 506 promulgated thereunder.
Purchaser further represents that it has read and understands the investor
notices and legends set forth in the Offering Memorandum.
5.2. Status of Purchaser. Purchaser is purchasing the Shares for its
own account or for persons or accounts as to which it exercises investment
discretion. Such Purchaser is an "accredited investor" (as defined in Rule
501(a) under the Securities Act) and is knowledgeable, sophisticated and
experienced in making, and is qualified to make, decisions with respect to
investments in restricted securities and has requested, received, reviewed and
considered all information it deems relevant in making a decision to execute
this Purchase Agreement and to purchase the Shares. Purchaser has agreed to
purchase the Shares for investment and not with a view to distribution. To the
extent that any certificate representing the Shares is registered in the name of
Purchaser's nominee, Purchaser confirms that such nominee is acting as custodian
for Purchaser of the Shares represented thereby.
5.3. Restrictions on Re-Sale. Purchaser understands that the Shares are
only transferable on the books and records of the Company and its Transfer Agent
and Registrar and
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that the Company and the Transfer Agent and Registrar will not register any
transfer of the Shares which the Company in good faith believes violates the
restrictions set forth in this Section 5.3 or violates any state or federal
securities laws. Purchaser will not, directly or indirectly, voluntarily offer,
sell, pledge, transfer or otherwise dispose of (or solicit any offers to buy,
purchase or otherwise acquire or take a pledge of) its rights under this
Purchase Agreement or the Shares otherwise than in compliance with the
Securities Act, any applicable state securities or blue sky laws and any
applicable securities laws of jurisdictions outside the United States, and the
rules and regulations promulgated thereunder.
Purchaser understands that the Company intends to register the Shares
under the Securities Act as contemplated in the Registration Rights Agreement.
After registration of the Shares under the Securities Act, Purchaser agrees to
comply with the prospectus delivery and all other requirements of the Securities
Act in connection with any sale or other disposition of the Shares. Purchaser
agrees that Purchaser or its broker will deliver to each transferee a copy of a
current prospectus until the Company gives written notice to the Purchaser that
delivery of a current prospectus is no longer required. Purchaser agrees to
confirm with the Company that the prospectus is in fact current and that the
Shares may be lawfully sold prior to any sale or other disposition by Purchaser.
5.4. Due Execution, Delivery and Performance of the Purchase Agreement
and Other Obligations. Upon approval of this Agreement and the transactions
contemplated herein by its Board of Directors: Purchaser will have full right,
power, authority and capacity to enter into this Purchase Agreement and to
consummate the transactions contemplated hereby; the execution, delivery and
performance of this Purchase Agreement by Purchaser will have been duly
authorized by all requisite corporate action of Purchaser; upon the execution
and delivery of this Purchase
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<PAGE> 18
Agreement by Purchaser, this Purchase Agreement shall constitute the legal,
valid and binding obligations of Purchaser, enforceable against Purchaser in
accordance with its terms except insofar as the enforcement thereof may be
limited by bankruptcy law or other laws relating to or affecting the enforcement
of creditors' rights generally or by general equitable principles (regardless of
whether such enforceability is considered in a proceeding in equity or at law)
and except as rights to indemnity and contribution may be limited under
applicable law.
5.5. Representations, Warranties and Covenants at Closing. Each of the
representations and warranties contained in this Section 5 is true and correct
as of the date of this Purchase Agreement and will be true and correct as of the
Closing Date with the same effect as though such representations and warranties
had been made on and as of such date. Each of the covenants contained in this
Section 5 will have been performed as of the Closing Date if performance is
required as of such date by this Section 5.
Section 6. Survival of Representations, Warranties, Covenants and
Agreements. Notwithstanding any investigation made by either party to this
Purchase Agreement, all representations, warranties, covenants and agreements
made by the Company and Purchaser herein shall survive the execution of this
Purchase Agreement, the delivery of certificates representing the Shares and the
receipt of payment for the Shares.
Section 7. Conditions to Closing. The obligations of the Purchaser
hereunder are subject to (i) the accuracy of the representations and warranties
on the part of the Company in all material respects on the date hereof, at the
Closing Date, (ii) the performance by the Company of its obligations hereunder
in all material respects, and (iii) the following further conditions:
7.1. Exchange Offer. The Company shall have consummated the Exchange
Offer with respect to at least $76 million in aggregate principal amount of
Original Notes.
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<PAGE> 19
7.2. Additional Equity. The Company shall have consummated or sale of
additional shares of Common Stock and Series A Preferred Stock pursuant to the
Offerings for aggregate gross proceeds to the Company of not less than
$20,000,000.
7.3. Waiver of Change of Control Payments. All current and former
directors, officers, employees and consultants of the Company or any subsidiary
who would be entitled as a result of the consummation of the Recapitalization to
receive payments or other benefits pursuant to "change of control" provisions of
any agreement between such person and the Company or any subsidiary shall have
irrevocably waived their rights to receive such payments or benefits and the
Company shall have irrevocably determined not to make such payments.
7.4. Servicing Purchase Agreements. The Company and City shall have
entered into a Bulk Servicing Purchase Agreement including the terms set forth
on Exhibit B and a Flow Servicing Purchase Agreement including the terms set
forth on Exhibit G and each such Agreement shall have been determined by City in
the exercise of its sole and absolute discretion to be satisfactory in form and
substance.
7.5. Registration Rights Agreement. The Company and Purchaser shall
have entered into the Registration Rights Agreement and such agreement shall
have been determined by Purchaser in the exercise of its sole and absolute
discretion to be satisfactory in form and substance.
7.6. Opinion of Greenberg Traurig. The Company shall have furnished to
the Purchaser on the Closing Date an opinion of Greenberg Traurig Hoffman Lipoff
Rosen & Quentel, P.A., counsel for the Company, addressed to the Purchaser and
dated the Closing Date and in form reasonably satisfactory to the Purchaser,
stating that:
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(a) the authorized shares of capital stock of the Company
conform as to legal matters to the description thereof contained in
the Offering Memorandum under the heading "Description of Capital
Stock"; the Company has an authorized capitalization as set forth
in the Offering Memorandum under the caption "Capitalization"; the
issued and outstanding shares of capital stock of the Company have
been duly and validly authorized and issued and are fully paid and
non-assessable; to such counsel's knowledge, except as set forth in
the Offering Memorandum, there are no outstanding (i) securities or
obligations of the Company convertible into or exercisable or
exchangeable for any shares of capital stock of the Company, (ii)
warrants, rights, or options to subscribe for or purchase from the
Company any shares of capital stock or any such convertible or
exchangeable securities or obligations, or (iii) obligations of the
Company to issue any shares of capital stock, any such convertible
or exchangeable securities or obligation, or any such warrants,
rights, or options; the Shares have been duly authorized, and, when
issued and sold pursuant to this Purchase Agreement, will be duly
and validly issued, fully paid and nonassessable.
(b) the Company has been duly incorporated and is validly
existing and in good standing under the laws of the State of
Delaware with all requisite corporate power and authority to own,
lease and license its assets and properties and conduct its
business as now being conducted and as described in the Offering
Memorandum and to enter into, deliver and perform this Agreement,
the Purchase Agreements and the Other Transaction Documents;
(c) the Company is duly qualified in or registered by and
in good standing as a foreign corporation in each jurisdiction
listed on Exhibit E hereto;
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(d) to such counsel's knowledge, except as described in
the Offering Memorandum, the Company is not in breach of, or in
default under (nor has any event occurred that with notice, lapse
of time, or both would constitute a breach of or default under) its
Certificate of Incorporation or in the performance or observation
of any obligation, agreement, covenant, or condition contained in
any license, indenture, mortgage, deed of trust, loan or credit
agreement, or any other agreement or instrument known to such
counsel to which the Company or any of its subsidiaries is a party
or by which any of them or their respective properties may be bound
or affected or under any law, regulation, or rule or any decree,
judgment, or order applicable to the Company or any of its
subsidiaries, except such breaches or defaults that are not
reasonably likely to have a Material Adverse Effect;
(e) the execution, delivery, and performance of this
Agreement and the Other Transaction Documents by the Company and
the consummation by the Company of the transactions contemplated
under this Agreement and the Other Transaction Documents, as the
case may be, do not and will not conflict with, or result in any
breach of, or constitute a default under (nor constitute any event
that with notice, lapse of time, or both would constitute a breach
of or default under) (i) any provisions of the Company's
certificate of incorporation or by-laws, (ii) any provision of any
license, indenture, mortgage, deed of trust, loan or credit
agreement, or other agreement or instrument known to such counsel
and to which the Company or any subsidiary is a party or by which
any of them or their respective properties may be bound or
affected, or (iii) to such counsel's knowledge, assuming (x) the
accuracy of the representations and warranties of the Company, FBR
and the Purchasers set forth in the Placement Agreement, the
Purchase Agreements and the Other Transaction Documents, and (y)
that the Purchaser, the Other Purchasers and the participants
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in the Exchange Offer are either "qualified institutional buyers"
(as defined in Rule 144A under the Securities Act) or "accredited
investors" (as defined in Rule 501(a) under the Securities Act),
any law or regulation or any decree, judgment, or order applicable
to the Company or any subsidiary, except in the case of clause (ii)
for such conflicts, breaches, or defaults that have been waived or
individually or in the aggregate are not reasonably likely to have
a Material Adverse Effect;
(f) the Company has full corporate power, and authority
to enter into and perform this Agreement and the Other Transaction
Documents and to consummate the transactions contemplated herein;
this Agreement and the Other Transaction Documents have been duly
authorized, executed, and delivered by the Company and will
constitute valid and binding agreements of the Company enforceable
against the Company in accordance with their terms, except as may
be limited by bankruptcy, insolvency, reorganization, moratorium,
or similar laws affecting creditors' rights generally, and by
general principles of equity, whether considered at law or in
equity, and except as rights to indemnity or contribution may be
limited under applicable law;
(g) assuming (x) the accuracy of the representations and
warranties of the Company, FBR and the Purchasers set forth in the
Placement Agreement, the Purchase Agreements and the Other
Transaction Documents, and (y) that the Purchaser, the Other
Purchasers and the participants in the Exchange Offer are either
"qualified institutional buyers" (as defined in Rule 144A under the
Securities Act) or "accredited investors" (as defined in Rule
501(a) under the Securities Act), no approval, authorization,
consent, or order of or filing with any federal or, to such
counsel's knowledge, state governmental or regulatory commission,
board, body, authority, or agency is required in connection with
the
-22-
<PAGE> 23
execution, delivery, and performance by the Company of this
Agreement and the Other Transaction Documents or the consummation
of the transactions contemplated hereby and thereby by the Company,
or the sale and delivery of the Shares by the Company as
contemplated hereby, other than (i) the filing of a certificate of
designation of the Series A Preferred Stock with the Secretary of
State of Delaware, (ii) the filing of a Current Report on Form 8-K,
(iii) filings required pursuant to the terms of the Registration
Rights Agreement and any other registration rights agreements
entered into pursuant to the Offerings and the Exchange Offer, and
(iv) as may be required pursuant to any state securities laws;
(h) to such counsel's knowledge, each of the Company and
its subsidiaries has all necessary licenses, authorizations,
consents, and approvals and has made all necessary filings required
under any federal, state, or local law, regulation or rule, and has
obtained all necessary authorizations, consents, and approvals from
other persons, required to conduct their respective businesses, as
described in the Offering Memorandum, except to the extent that any
failure to have any such licenses, authorizations, consents, or
approvals would not, individually or in the aggregate, have a
Material Adverse Effect; to such counsel's knowledge, neither the
Company nor any of its subsidiaries is in violation of, in default
under, or has received any notice regarding a possible violation,
default, or revocation of any such license, authorization, consent,
or approval or any federal, state, local, or foreign law,
regulation, or decree, order, or judgment applicable to the Company
or any of its subsidiaries, which would result in a Material
Adverse Effect; and no such license, authorization, consent, or
approval contains a materially burdensome restriction that is not
adequately disclosed in the Offering Memorandum;
-23-
<PAGE> 24
(i) the issuance and sale of the Shares by the Company is
not subject to preemptive or other similar rights arising by
operation of law, under the Certificate of Incorporation or Bylaws
of the Company or under any agreement known to such counsel to
which the Company or any of its subsidiaries is a party;
(j) the form of certificate used to evidence the shares
complies in all material respects with all applicable statutory
requirements, with any applicable requirements of the Certificate
of Incorporation and Bylaws of the Company and the requirements of
The Nasdaq National Market;
(k) the statements under the captions "Business --
Government Regulation," "Description of the Original Notes,"
"Description of the New Notes," "Description of Capital Stock" and
"Certain Federal Income Tax Consequences" in the Offering
Memorandum, insofar as such statements constitute a summary of the
legal matters referred to therein, constitute accurate summaries
thereof in all material respects;
(l) except as described in the Offering Memorandum, to
such counsel's knowledge, there are no actions, suits,
investigations or proceedings pending to which the Company or any
of its subsidiaries is a party or to which any of their properties
is subject before or by any court or governmental agency or both,
which is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect,
(m) neither the Company nor any of its subsidiaries is,
or solely as a result of transactions contemplated hereby and the
application of the proceeds from the sale of the Shares or the
consummation of the Recapitalization, will become an "investment
company" or, assuming that FBR is not an "investment company," a
company "controlled"
-24-
<PAGE> 25
by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended (the "1940 Act").
In addition, such counsel shall state that they have participated in
conferences with the directors, officers and employees of the Company and its
independent public accountants at which the contents of the Offering Memorandum
were discussed and, although such counsel is not passing upon and does not
assume responsibility for the accuracy, completeness, or fairness of the
statements contained in the Offering Memorandum (except as and to the extent
stated above), they have no reason to believe that the Offering Memorandum, as
of its date and as of the date of such counsel's opinion, contained or contains
any untrue statement of a material fact or omitted or omits to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading (it
being understood that, in each case, such counsel need express no view with
respect to the financial statements and other financial and statistical data
included in the Offering Memorandum).
7.7. Comfort Letter. The Purchaser shall have received from Deloitte &
Touche LLP, letters relating to the Offering Memorandum dated as of the Closing
Date addressed to the Purchaser and in form and substance satisfactory to it.
7.8. Offering Memorandum. The Offering Memorandum, as amended or
supplemented after the date hereof, shall not, in Purchaser's reasonable
judgment, (i) disclose a material change in the assets or properties, business,
results of operations, prospects or condition (financial or otherwise) of the
Company and its subsidiaries taken as a whole, as described in the Offering
Memorandum dated June 9, 1998, or (ii) contain an untrue statement of material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading.
-25-
<PAGE> 26
7.9. Other Transactions. There shall have been, in Purchaser's
reasonable judgment, no material change in the terms of the transactions
described in Exhibit F.
7.10. No Material Adverse Effect. Between the time of execution of this
Agreement and the Closing Date no event shall have occurred which has had or is
reasonably likely to have a Material Adverse Effect.
7.11. Certificates. The Company will, on the Closing Date deliver to
the Purchaser a certificate of the Chief Executive Officer and the Chief
Financial Officer of the Company to the effect that, to each of such officer's
knowledge, the representations and warranties of the Company set forth in this
Agreement are true and correct as of such date and the conditions set forth in
Sections 7.1, 7.2, 7.3, 7.9, 7.10, 7.12 and 7.13 of this Agreement have been
met. The Company shall have furnished to the Purchaser such other documents and
certificates as to the accuracy and completeness of any statement in the
Offering Memorandum, the representations, warranties and statements of the
Company contained herein, and the performance by the Company of its covenants
contained herein, and the fulfillment of any conditions contained herein as of
the Closing Date as the Purchaser may reasonably request.
7.12. Consents. The Company shall have obtained in writing all consents
of third parties necessary to permit the consummation of the transactions
contemplated by this Agreement and the Other Transaction Documents and no such
consent shall contain any term or condition that Purchaser reasonably deems to
be materially disadvantageous to the Company or Purchaser.
7.13. Related Party Indebtedness. At the Closing, the Company shall
have no outstanding indebtedness to Mego Financial Corp.
-26-
<PAGE> 27
7.14. Documents. The Company shall have delivered to Purchaser
executed copies of the Purchase Agreements entered into with the Other
Purchasers and all other agreements between the Company and any Other Purchasers
or any holder of the Original Notes or the New Notes relating to the Offerings
or the Recapitalization.
7.15. Additional Conditions. The obligations of Purchaser hereunder are
further subject to the satisfaction of each of the following conditions:
(a) Certificate of Designation. The certificate of
designation of the Series A Preferred Stock shall have been
determined by Purchaser in the exercise of its sole and absolute
discretion to be satisfactory in form and substance.
(b) Letter from FBR. FBR shall have delivered to
Purchaser a letter in the form attached hereto as Exhibit G.
(c) Warehouse Line Agreement. The Company and Sovereign
shall have entered into a Warehouse Line Agreement, which
Agreement: (i) shall include, inter alia, the terms set forth in
Exhibit H hereto, and (ii) shall otherwise have been determined by
Purchaser in the exercise of its sole and absolute discretion to be
satisfactory in form and substance.
(d) Flow Loan Purchase Agreement. The Company and
Sovereign shall have entered into a Flow Loan Purchase Agreement,
which Agreement: (i) shall include, inter alia, the terms set forth
in Exhibit I hereto, (ii) shall provide that the Company shall
retain servicing rights with respect to all loans purchased in the
Flow Loan Purchase Agreement, and (iii) shall otherwise have been
determined by Purchaser in the exercise of its sole and absolute
discretion to be satisfactory in form and substance.
-27-
<PAGE> 28
(e) Amendment of Placement Agreement. The Company and FBR
shall have entered into an Amendment to the Placement Agreement
under the terms of which the parties thereto agree that the fees to
be paid to FBR shall be paid by the delivery of shares of Common
Stock valued at $1.50 per share.
Section 8. Conditions to Closing. The obligations of the Company
hereunder are subject to (i) the accuracy of the representations and warranties
on the part of the Purchaser in all material respects on the date hereof, at the
Closing Date, and (ii) the performance by the Purchaser of its obligations
hereunder in all material respects.
Section 9. Compliance with the Securities Act.
9.1. Information Available. So long as Purchaser holds any shares
of the Company's capital stock, the Company will furnish to each Purchaser:
(a) as soon as practicable after available, one copy of
(i) its Annual Report to Shareholders, and (ii) if not included in
substance in the Annual Report to Shareholders, its Annual Report
on Form 10-K, and (iii) each of its Quarterly Reports to
Shareholders and its Quarterly Reports on Form 10-Q, and (b) upon
the reasonable request of Purchaser, all other information of a
kind that is generally available to the public.
9.2. Legend Requirement. Purchaser hereby agrees that the Shares
will be subject to Section 5.3 hereof and to that effect the following legend
will appear on the Shares until such time as the Company may deem such legend to
be no longer required under the federal or state securities laws:
The Securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, of the United States of America
(the "Act") and may have been
-28-
<PAGE> 29
issued in reliance upon the exemption set forth in Section 4(2) of the
Securities Act and Rule 506 promulgated thereunder. The Securities represented
by this certificate may not be offered, sold, transferred or otherwise disposed
of in the United States or to, of for the account or benefit of, any "U.S.
person" (as defined in Regulation S) unless registered under the Act or an
exemption from the registration requirements of the Act is available.
Section 10. Broker's Fee. Purchaser acknowledges that the Company has
advised it that the Company intends to pay FBR, the placement agent: (i) a fee
(the "Offerings Fee") equal to 6.0% of the gross proceeds received from the sale
of the shares of Common Stock (except for those shares sold to the Purchaser)
and Series A Preferred Stock sold in the Offerings and shares of Common Stock
(except for those shares sold to the Purchaser or his affiliates) sold in the
Rights Offering; and (ii) a fee (the "Advisory Fee") of $1,000,000 as financial
advisor in connection with the Recapitalization. Purchaser further acknowledges
that the Company has advised it that the Offering Fee is payable upon
consummation of the Offerings in Common Stock valued at the Offering Price and
the Advisory Fee is payable upon consummation of the Rights Offering in Common
Stock valued at the Offering Price. Purchaser further acknowledges that the
Company has advised it that the Company has also agreed: (i) to reimburse FBR on
request by the FBR for the FBR out-of-pocket expenses, including, among other
things, the fees and expenses of legal counsel; and (ii) to indemnify FBR
against certain liabilities, including liabilities under the Securities Act, and
other liabilities incurred in connection with the Offerings, and to contribute
to payments FBR may be required to make in respect thereof. The parties hereto
hereby represent that there are no other brokers or finders entitled to
compensation in connection with the sale of the securities contemplated hereby.
-29-
<PAGE> 30
Section 11. Notices. All notices, requests, consents and other
communications hereunder shall be in writing, shall be mailed by registered air
mail, postage prepaid, or sent by facsimile transmission with a confirmation
copy sent by registered mail, and shall be deemed given when so mailed:
(a) if to the Company, to 1000 Parkwood Circle, Atlanta,
Georgia 30339, Attention: Jeffrey S. Moore, or to such other person
at such other place as the Company shall designate to the Purchaser
in writing;
(b) if to Purchaser, to 2120 Leroy Place, Washington,
D.C. 20008, or at such other address or addresses as Purchaser may
have furnished to the Company; or
(c) if to any transferee or transferees of Purchaser, at
such address or addresses as shall have been furnished to the other
parties hereto at the time of the transfer or transfers, or at such
other address or addresses as may have been furnished by such
transferee or transferees to the other parties hereto in writing.
Section 12. Amendments. No amendment, interpretation or waiver of any
of the provisions of this Purchase Agreement shall be effective unless made in
writing and signed by the parties to this Purchase Agreement.
Section 13. Headings. The headings of the sections, subsections and
subparagraphs of this Purchase Agreement are used for convenience only and shall
not affect the meaning or interpretation of the contents of this Purchase
Agreement.
Section 14. Enforcement. The failure to enforce or to require the
performance at any time of any of the provisions of this Purchase Agreement
shall in no way be construed to be a waiver of such provisions, and shall not
affect either the validity of this Purchase Agreement or any
-30-
<PAGE> 31
part hereof or the right of any party thereafter to enforce each and every
provision in accordance with the terms of this Purchase Agreement.
Section 15. Governing Law. This Purchase Agreement and the
relationships of the parties in connection with the subject matter of this
Purchase Agreement shall be governed by and determined in accordance with the
laws of the State of Georgia in the United States of America.
Section 16. Severability. If any severable provision of this Purchase
Agreement is held to be invalid or unenforceable by any judgment of a tribunal
of competent jurisdiction, the remainder of this Purchase Agreement shall not be
affected by such judgment, and the Purchase Agreement shall be carried out as
nearly as possible according to its original terms and intent.
Section 17. Counterparts. This Purchase Agreement may be executed in
counterparts, all of which shall constitute one agreement, and each such
counterpart shall be deemed to have been made, executed and delivered on the
date set out at the head of this Purchase Agreement without regard to the dates
or times when such counterparts may actually have been made, executed or
delivered.
Section 18. Assignment. This Purchase Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of, as the case
may be, and be enforceable by and against the parties hereto and their
respective successors and assigns, but neither this Purchase Agreement nor any
of the rights, interests or obligations of the parties hereunder shall be
assigned by any of the parties hereto without the prior written consent of each
of the other parties.
-31-
<PAGE> 32
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives the day and year first above
written.
MEGO MORTGAGE CORPORATION
By: /s/ Jeffrey S. Moore
-------------------------------------
Name: Jeffrey S. Moore
Title: President and Chief
Executive Officer
EMANUEL J. FRIEDMAN
By: /s/ Emanuel J. Friedman
-------------------------------------
-32-
<PAGE> 33
EXHIBIT A
TERMS OF REGISTRATION RIGHTS AGREEMENT
To be agreed upon prior to Closing and to include provisions for resale
registration.
-33-
<PAGE> 34
EXHIBIT B
TERMS OF SERIES A PREFERRED STOCK
[ATTACH PAGES 158 THROUGH 161 OF THE OFFERING MEMORANDUM]
-34-
<PAGE> 35
EXHIBIT C
TERMS OF BULK SERVICING PURCHASE AGREEMENT
The Bulk Servicing Purchase Agreement shall provide that Purchaser will
purchase all of the Company's mortgage servicing rights for ninety percent (90%)
of the book value thereof as set forth on the books of the Seller as of the
Closing Date, determined in accordance with GAAP and consistent with the
valuation methodology used to calculate such book value in the Company's
financial statements included in the Offering Memorandum.
-35-
<PAGE> 36
EXHIBIT D
TERMS OF FLOW SERVICING PURCHASE AGREEMENT
The Flow Servicing Purchase Agreement shall have terms and conditions
substantially similar, as appropriate, to those of the Bulk Servicing Purchase
Agreement. In addition, it shall include the following specific terms:
1. The Company will retain City Mortgage Services to service all
mortgage loans originated or purchased by the Company after
the Closing, in either case not sold on a servicing released
basis.
2. The servicing fee to City Mortgage Services for "125" loans
will be 0.75% per annum of the principal amount of such loans
serviced. The servicing fees for all other loans will be
negotiated in good faith by the Company and City Mortgage
Services with the intention of achieving an economic outcome
for both the Company and City Mortgage Services proportionate
to the sharing of servicing revenues represented by the fee
for "125" loans. After the Company has retained City Mortgage
Services to service loans with an aggregate initial principal
balance of $1 billion, the Flow Servicing Purchase Agreement
will terminate, unless renewed by mutual agreement.
3. In consideration of the sale by the Company to the Purchaser
of the servicing rights referred to in paragraph 2 and only
after such time as $1 billion in servicing has been boarded
and retained by City Mortgage Services, the Purchaser will
grant to the Company an option expiring June 9, 2003 to
acquire up to a 20% equity interest in City Mortgage Services
for 90% of its fair market value, provided, that such option
shall be exercisable only if equity interests in an entity
created for the purpose of holding the assets of City Mortgage
Services are sold by the Purchaser in a public or private
offering or distributed to the shareholders of its parent
company, City Holding Company. The Purchaser further agrees
not to transfer a separate equity interest in City Mortgage
Services prior to the option becoming exercisable without the
consent of the Company.
4. The Company and the Purchaser acknowledge that currently City
Mortgage Services' servicing platform is operated as a
division of the Purchaser and it is contemplated that this
division will ultimately be a separate subsidiary or stand
alone public corporation. The Company and the Purchaser agree
that at that point in time, and subject to paragraph 3 above,
the Company will have the option to purchase up to 20% of the
City Mortgage Services servicing business at 90% of its fair
market value. The Company may at its option exchange either
cash or contribute its retained portion of the servicing fee
or some combination of both to pay for its interest in the
platform. This option shall terminate upon the termination of
the Flow Servicing Purchase Agreement.
-36-
<PAGE> 37
5. It is further agreed that the Company may at its option choose
to receive its portion of servicing as an accrual toward a
potential purchase of up to 20% of the equity of the City
Mortgage Services servicing platform prior to any actual sale.
Should the Company elect this option, the Purchaser will
maintain a record of fees retained in lieu of payment to the
Company in order to track the accrual. At the time of any
material transaction involving the servicing platform the
accrual would be applied to the Company's purchase price or
refunded to the Company in the event that the Company did not
exercise its option to acquire an interest in the servicing
platform.
-37-
<PAGE> 38
EXHIBIT E
JURISDICTIONS OF FOREIGN QUALIFICATION
-38-
<PAGE> 39
EXHIBIT F
OTHER TRANSACTIONS
[ATTACH SUMMARIES OF ALL MATERIAL TERMS OF RECAPITALIZATION
TRANSACTIONS, INCLUDING LATEST REVISIONS OF THE ALSTON & BIRD MEMORANDUM AND THE
OFFERING MEMORANDUM PAGES.]
-39-
<PAGE> 40
EXHIBIT G
FBR LETTER RE: VOTING OF SHARES
FRIEDMAN, BILLINGS, RAMSEY & COMPANY, INCORPORATED
1001 Nineteenth Street North
Arlington, Virginia 22209
June __, 1998
Emanuel J. Friedman
2120 Leroy Place
Washington, D.C. 20005
Gentleman:
To induce you, Emanuel J. Friedman, to enter into the Common Stock
Purchase Agreement (the "Agreement"), of even date herewith, between you and
Mego Mortgage Corporation (the "Company"), we agree to vote all of the shares of
the Company's voting stock held by us from time to time for the election of your
nominee to serve on the Company's Board of Directors pursuant to Section 5.19 of
the Agreement.
FRIEDMAN, BILLINGS, RAMSEY & COMPANY,
INCORPORATED
By: /s/ James R. Kleeblatt
--------------------------------------
Name: James R. Kleeblatt
Title: Managing Director
-40-
<PAGE> 41
EXHIBIT H
TERMS OF WAREHOUSE LINE AGREEMENT
-41-
<PAGE> 42
EXHIBIT I
TERMS OF FLOW LOAN PURCHASE AGREEMENT
-42-
<PAGE> 43
EXHIBIT 1
LIST OF APPROVED PRIVATE INVESTORS
[To be completed by the Purchaser]
<PAGE> 44
EXHIBIT 2
BAILMENT AGREEMENT
See attached
-2-
<PAGE> 45
EXHIBIT 3
SHIPPING REQUEST AND AUTHORIZATION
____________, 199____
199-State Street Bank and Trust Company
of Massachusetts
225 Franklin Street
Boston, MA _______
Attn:
----------------------------------
Mortgage Custody Department
This letter is to serve as authorization for you to [endorse and](1)
ship all documents and instruments in your possession relating to the following
loan(s):
<TABLE>
<S> <C> <C>
Loan Mortgagor Note
Number Name Amount
------------
</TABLE>
This is a "Shipment Order" pursuant to the Custodian Agreement dated
_______ (the "Custodian Agreement") by and among you, as the Custodian, the
undersigned, as the Seller, and ________________ as the Purchaser (the
"Purchaser"). Capitalized terms not otherwise defined herein shall have the same
meanings as in such Custodian Agreement.
This shipment of loan(s) is for the purpose of effectuating [a direct
sale of the loan(s) to _____________________ (the "Investor") - please use
Exhibit 4 to the Custodian Agreement as your shipment cover letter to the
Investor. The undersigned hereby certifies that such Investor is currently an
"Approved Private Investor" under the Custodian Agreement or an "Agency" as
defined in the Custodian Agreement] [an MBS Exchange with ______________ (the
"Agency") - please use Exhibit 3B to the Custodian Agreement as your shipment
cover letter to the Agency].
Also enclosed herewith are the following Required Delivery Documents
required to be delivered to the [Investor] [Agency] with the requested shipment
of loan(s):
- --------
(1) GIVE ENDORSEMENT INSTRUCTION IF APPLICABLE. IF NOT APPLICABLE, DELETE
BRACKETED PROVISIONS.
-3-
<PAGE> 46
[List Required Delivery Documents]
The undersigned hereby certifies that the above constitute all of the
Required Delivery Documents required to be delivered to the [Investor] [Agency],
each is in good form, duly executed and complete, and in the required number of
copies or counterparts.
Please ship the documents and instruments in your possession relating
to the above loan(s) together with the Required Delivery Documents enclosed
herewith to the following address:
[insert Investor/Agency/Custodian name and address as appropriate]:
NAME:
ADDRESS:
ATTENTION:
[You are hereby instructed and authorized to endorse the promissory notes as
follows: (give specific endorsements)]
Please ship the loan documents (and other documents) either by
__________________ or by such other courier service as we have previously
designated to you as approved. The courier shall be considered our agent, and
you are not responsible for any delays in shipment or any other actions or
inactions of the courier, however because the related purchase commitment for
the loans expires on ___________________________, we ask that you deliver that
loan documents to the courier no later than ____________________.
If you should have any questions or should feel the need for additional
documentation, please contact the undersigned at [insert telephone no.].
Sincerely,
[Seller]
By:
-------------------------------------
(Authorized Representative)
Title:
----------------------------------
Name:
-----------------------------------
Enclosures
-4-
<PAGE> 47
EXHIBIT 4
CUSTODIAN'S LETTER
(Direct Investor - Custodian As Funds Receipt Agent)
_____________, 199___
[Name and address of Investor]
Gentlemen:
State Street Bank and Trust Company of Massachusetts ("State Street"),
as custodian, in accordance with your takeout commitment (the "Commitment") to
[Name of Seller] (the "Seller"), is sending directly to you
_____________________ loan package(s) (each consisting of a promissory note and,
if applicable, other related documents) for purchase by you.
By acceptance of the enclosed documents, you agree that these documents
are delivered to you on a conditional basis, subject to the terms and conditions
of a certain Bailment Agreement executed by the undersigned, you, the Seller and
Sovereign Bank and subject to payment in Federal Funds at the negotiated
principal commitment price. Delivery is made to you upon the conditions set
forth in the Bailment Agreement and including but not limited to:
1. A 100% participation interest in the aforedescribed promissory
notes and related documents has been purchased by Sovereign
Bank of Wyomissing, Pennsylvania (the "Warehouse Purchaser").
Sovereign Bank shall retain all beneficial ownership rights in
each loan until payment is made to State Street, as custodian
for Sovereign Bank in accordance with the terms of the
Bailment Agreement.
2. Until payment is made, you agree to return the enclosed
promissory notes and other documents (if any) to State Street,
as custodian, consistent with the terms of the Bailment
Agreement.
Please wire your payment in Federal Funds to:
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
ABA #0110-000-28
Account No. 91155960
Attn: Mortgage Custody Department
-5-
<PAGE> 48
You are cautioned not to honor any communications from the Seller
relating to any of the enclosed documents or loans. Do not deliver any documents
to any third party.
It is understood that you agree that if for any reason you fail to
purchase any of these loans within twenty-one (21) days, the enclosed note(s)
will be endorsed in blank and returned to State Street at the above address,
together with all supporting papers relating to such loans.
Kindly acknowledge receipt of the enclosed by signing and returning the
attached copy of this letter.
Yours very truly,
STATE STREET BANK AND TRUST COMPANY
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
-6-
<PAGE> 49
EXHIBIT 5
DOCUMENT REQUEST AND TRUST RECEIPT
______________, 199___
State Street Bank and Trust Company
of Massachusetts
225 Franklin Street
Boston, MA ____
Attn: ____________________________
Mortgage Custody Department
Gentlemen:
The undersigned Authorized Representative of [insert Seller's name]
(the "Seller") hereby requests and acknowledges the Seller's receipt from State
Street Bank and Trust Company, hereinafter referred to as the Custodian, of the
promissory notes and related documentation described below, possession of which
is herewith given to the undersigned, for the purpose of correcting document
deficiencies or discrepancies in accordance with the Custodian Agreement dated
as of ______, by and among the Custodian, _________ (the "Purchaser") and the
undersigned Seller by its consent thereto.
Loan Number:
Mortgage Name:
Purpose: To correct document deficiencies or discrepancies.
Documents requested and received:
[List documents]
Delivery from the Custodian to the undersigned has been made upon the following
conditions:
1. A 100% participation interest in the aforedescribed promissory notes
and related documents has been purchased by Sovereign Bank of
Wyomissing, Pennsylvania (the "Warehouse Purchaser"). The Warehouse
Purchaser shall retain all beneficial ownership rights in each loan
until payment is made to State Street, as custodian for the Warehouse
Purchaser.
2. The undersigned shall return all of the notes and related documentation
as described above to the Custodian within the earlier of the date on
which correction of the document
-7-
<PAGE> 50
deficiencies for which this request is made has been completed or ten
(10) calendar days from the undersigned's receipt hereof.
The undersigned hereby agrees to hold said promissory notes and other
documents in trust for the Custodian and the Purchaser.
Kindly acknowledge receipt of the enclosed by signing and returning the
attached copy of this letter.
Yours very truly,
[SELLER]
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
[Authorized Officer]
AGREED AND ACCEPTED:
STATE STREET BANK AND TRUST
COMPANY OF MASSACHUSETTS,
as Custodian
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
-8-
<PAGE> 51
EXHIBIT 6
INTENTIONALLY DELETED
-9-
<PAGE> 52
EXHIBIT 7
AUTHORIZED REPRESENTATIVES OF THE PURCHASER
<TABLE>
<CAPTION>
Name Title Specimen Signature
<S> <C> <C>
- -------------------- --------------------- -----------------------
- -------------------- --------------------- -----------------------
- -------------------- --------------------- -----------------------
- -------------------- --------------------- -----------------------
- -------------------- --------------------- -----------------------
- -------------------- --------------------- -----------------------
- -------------------- --------------------- -----------------------
</TABLE>
-10-
<PAGE> 53
EXHIBIT 8
AUTHORIZED REPRESENTATIVES OF THE SELLER
<TABLE>
<CAPTION>
Name Title Specimen Signature
<S> <C> <C>
- -------------------- --------------------- -----------------------
- -------------------- --------------------- -----------------------
- -------------------- --------------------- -----------------------
- -------------------- --------------------- -----------------------
- -------------------- --------------------- -----------------------
- -------------------- --------------------- -----------------------
- -------------------- --------------------- -----------------------
</TABLE>
-11-
<PAGE> 54
EXHIBIT 9
AUTHORIZED REPRESENTATIVES OF THE CUSTODIAN
<TABLE>
<CAPTION>
Name Title Specimen Signature
- ---- ----- ------------------
<S> <C> <C>
- -------------------- --------------------- -----------------------
- -------------------- --------------------- -----------------------
- -------------------- --------------------- -----------------------
- -------------------- --------------------- -----------------------
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</TABLE>
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<PAGE> 55
EXHIBIT 10
DATA ACCESS OPERATING PROCEDURES
PROTECTION OF EQUIPMENT AND INFORMATION
The databases, computer programs, screen formats, screen designs,
report formats, interactive design techniques, and other information furnished
to the Purchasers or the Seller by the Custodian as part of the services
constitute copyrighted, trade secret or proprietary information of substantial
value to the Custodian. Such database, programs and other information are
collectively referred to below as "Proprietary Information". The Purchaser and
the Seller each agrees that it shall treat all Proprietary Information as
proprietary to the Custodian and that it shall not divulge any Proprietary
Information to any person or organization except as is expressly permitted
hereunder. Proprietary Information is furnished "as is" without warranty.
Without limiting the foregoing, the Purchaser and the Seller each agrees:
(a) to use such programs and database (i) solely on the Custodian's
Computers, (ii)solely from terminals at the Purchaser's or the Seller's
locations designated by the Purchaser or the Seller on the Appendix attached to
the Data Security Administrator Designation Form delivered to the Custodian by
the Seller and (iii) solely in accordance with the Custodian's applicable user
documentation;
(b) to refrain from copying or duplicating in any way (other than in the
normal course of performing processing on the Custodian's computers) any part of
any Proprietary Information, and to return any Proprietary Information upon
termination of this Agreement;
(c) to refrain from obtaining unauthorized access to any programs, data or
other information to which the Purchaser or the Seller is not entitled, and if
such access is accidentally obtained, to respect and safeguard the same as
Proprietary Information;
(d) to refrain from causing or allowing information transmitted from the
Custodian's computer to the Purchaser's or the Seller's terminal to be
transmitted to another computer, terminal or other device for other than the
Purchaser's or the Seller's own use, except upon prior approval of the
Custodian;
(e) to refrain from modifying, enhancing or otherwise creating derivative
works based upon the Proprietary Information, nor shall the Purchaser or the
Seller reverse engineer, decompile or otherwise attempt to secure the source
code for all or any part of the Proprietary Information;
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<PAGE> 56
(f) that the Purchaser and the Seller each shall have access to only those
authorized transactions as come within the scope and coverage of the Custodian
Agreement to which this Exhibit is attached;
(g) to honor all reasonable written requests made by the Custodian to
protect at the Custodian's expense the rights of the Custodian in Proprietary
Information at common law, under the Federal copyright statute and under other
federal and state statutes;
(h) to designate a duly authorized individual to serve as the Data
Security Administrator in accordance with the Designation Form annexed hereto;
(i) to request a unique user ID for each separate user. The request must
be made in writing to the Custodian's data security manager;
(j) to request immediate deactivation of a user ID or deletion of access
when no longer needed or when the Purchaser or the Seller believes security has
been violated;
(k) to limit knowledge of user IDs to only authorized individuals;
(l) to not disclose passwords directly to indirectly to anyone, including
other employees of the Purchaser or the Seller;
(m) to not store user IDs or passwords in any computer file, as part of an
"automatic log-on" procedure;
(n) to select unique passwords which cannot be easily guessed;
(o) to change the password every 30 days, or when the Purchaser or the
Seller, as the case may be, believes the password might have become known to
others, or when the Purchaser or the Seller suspects a possible security
violation; and
(p) to not recycle or reuse passwords.
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<PAGE> 57
EXHIBIT 11
DATA SECURITY ADMINISTRATOR DESIGNATION FORM
Date:__________________ 199_
State Street Bank and Trust Company
of Massachusetts ("State Street")
225 Franklin Street
Boston, MA ______________
Attn:__________________________
Mortgage Custody Dept.
Gentlemen:
As _______________ (title of officer or other authorized official) of
__________________ (Name of Company), I hereby certify that the following
individual has been duly authorized by the Board of Directors or other governing
body of the Company (or designated by an official of the Company who has been
duly authorized by said Board of Directors or other governing body to make such
designation), to serve as the Data Security Administrator, as such term is
defined in the Data Access Operating Procedures:
- ------------------------------- ------------------------------
Name Signature
It is understood and agreed that the above-named individual is the
authorized recipient on behalf of the Company of (1) all documents and
correspondence assigning, confirming or otherwise containing company and user
identification codes, passwords, mnemonics, testkeys, encryption keys and other
security devices, and (2) all other notices, documents and correspondence from
State Street respecting the data access security system, including, without
limitation, any changes or supplements to the Data Access Operating Procedures.
Attached hereto as Appendix A is a list of the sole location designated
by the Company at which terminals will be located which will access State
Street's Collateral Tracking System [more than one location listed on Appendix A
will require the consent of State Street].
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<PAGE> 58
IN WITNESS WHEREOF, I have executed this document and affixed the seal
of the Company on this ____ day of __________________ 199__.
---------------------------------------------------
(Signature of officer or other authorized official)
---------------------------------------------------
(Title)
---------------------------------------------------
(Signature of other officer or other authorized
official)*
---------------------------------------------------
(Title)
* In case the first signing officer is a Data Security Administrator,
this form must be signed by a second officer.
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<PAGE> 59
EXHIBIT 12
FEE SCHEDULE
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<PAGE> 60
EXHIBIT 13
REVIEW PROCEDURES
Subject to the terms of the Custodian Agreement, the Custodian shall
examine the Mortgage Documents received to determine whether it appears on the
face of such documents and instruments that, with respect to the Participated
Loan to which such Mortgage Documents relate:
(i) the Mortgage Note and the Mortgage or Deed of Trust, as applicable
(together referred to herein as the "Mortgage") each bear what appears to be an
original signature or signatures purporting to be the signature or signatures of
the Person or Persons named as the maker and mortgagor or grantor (or the
attorney or attorneys for such Person or Persons, as applicable) or, in the case
of copies of the Mortgage, that such copies bear a reproduction of such
signature or signatures;
(ii) the name or names typed in the signature blocks on the Mortgage Note
and the Mortgage are identical and the name of the payee of the Mortgage Note
and the mortgagee (or beneficiary, as the case may be) of the Mortgage are
identical;
(iii) the amount spelled out in English and the amount set forth in arabic
numerals as the face amount of the Mortgage Note are identical;
(iv) the amount set forth on the Transmittal Letter as the "Note Amount"
for such Mortgage Note is identical to the face amount of the Mortgage Note;
(v) the principal amount of the indebtedness secured by the Mortgage is
identical to the face amount of the Mortgage Note secured thereby;
(vi) the Mortgage Note and the Mortgage have the same date and, if the
maturity of the indebtedness secured by the Mortgage is stated therein, such
maturity is the same as the maturity of the Mortgage Note;
(vii) if given in both the Mortgage and the Mortgage Note, the street
addresses for the Mortgaged Premises in the Mortgage and the Mortgage Note are
identical;
(viii) any alteration, white-out or erasure on the Mortgage Note and the
Mortgage has been initialed by the person or persons named as the maker and
mortgagor (or grantor), or their attorney or attorneys, as applicable;
(ix) the Mortgage Note has been endorsed in blank by the Company, without
recourse, and if the Seller is not the named payee in such Mortgage Note, the
Mortgage Note has been indorsed by each prior payee without any limitation as to
warranty, so as to set forth an unbroken chain of endorsements from the payee to
the Seller;
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<PAGE> 61
(x) the Mortgage if original, bears evidence of recordation or delivery for
recordation, or if a copy of the Mortgage is delivered to the Custodian, it
bears a copy of such evidence or is accompanied by a certification of the Seller
as contemplated by Section 2.2 of the Custodian Agreement;
(xi) the Title Policy (or written commitment to issue same or copy thereof,
as applicable): (A) appears to be an ALTA policy or other form of policy
acceptable under the FNMA Guide and the FHLMC Guide and (B) is for an amount not
less than the Face Amount of the Mortgage Note;
(xii) the legal description of the Mortgaged Premises in the Mortgage is
identical to the legal description of the Mortgaged Premises in the Title Policy
(or written commitment to issue same or copy thereof, as applicable), and the
recording data for the Mortgage, if any, set forth in the Assignment (and any
Third Party Assignment) appears identical to the recording data for the
Mortgage, if any, reflected in the Title Policy;
(xiii) the original of the Assignment bears what appears to be an original
signature purporting to be the signature of an officer of the Seller;
(xiv) if the Mortgage does not name the Seller as mortgagee (or
beneficiary, as the case may be), a copy of a Third Party Assignment is included
in the file from the mortgagee (or beneficiary, and each intervening assignee,
which appears to bear evidence of recording or is accompanied by a certification
of the Seller that it is a true copy of the original instrument which has been
duly recorded (or submitted for recordation) in the jurisdiction where the
Mortgaged Premises are located), showing an unbroken chain of assignments from
the named mortgagee (or beneficiary) to the Seller';
(xv) each Third Party Assignment identified on the relevant Transmittal
Letter bears what appears to be an original signature purporting to be the
signature of the assignor or attorney of the assignor, as applicable (or, if a
copy, appears to bear evidence of recording or is accompanied by a certification
of the Seller that it is a true copy of the original instrument which has been
duly recorded (or submitted for recordation) in the jurisdiction where the
Mortgaged Premises are located); and
(xvi) the copy of each instrument creating a power of attorney identified
on the relevant Transmittal Letter appears to bear the signature or other mark
of the person granting such power of attorney.
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<PAGE> 1
EXHIBIT 10.93
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of June 29, 1998 by and between Mego Mortgage Corporation, a
Delaware corporation (the "Company"), and Emanuel J. Friedman ("Friedman") in
connection with the purchase of the Company's common stock, par value $.01 per
share (the "Common Stock") in the transactions comprising the Company's
Recapitalization (as defined below).
WHEREAS, the Company is engaging in a plan of recapitalization (the
"Recapitalization") which includes the following: (i) a private offering (the
"Common Stock Offering") of shares of its Common Stock; (ii) a private offering
(the "Series A Preferred Stock Offering") by the Company of shares of its Series
A convertible preferred stock (the "Series A Preferred Stock"); and (iii) an
offer occurring concurrently with the Common Stock Offering and the Series A
Preferred Stock Offering (together, the "Offerings") and as a condition thereto
to exchange shares of Series A Preferred Stock and/or new 12 1/2% Subordinated
Notes Due 2001 (the "New Notes") of the Company or a combination thereof,
subject to certain limitations, for any and all of the outstanding 12 1/2%
Senior Subordinated Notes Due 2001 of the Company, subject to certain conditions
(the "Exchange Offer");
WHEREAS, the Company has entered into a Placement Agreement dated as of
June 9, 1998 (the "Placement Agreement"), with Friedman, Billings, Ramsey & Co.,
Inc. ("FBR"), a Virginia corporation, pursuant to which FBR will act as
placement agent in connection with the issue and sale of the Common Stock and
Series A Preferred Stock to be issued in the Recapitalization;
WHEREAS, the Company has entered into various Purchase Agreements (each
a "Purchase Agreement") with certain purchasers of Common Stock and Series A
Preferred Stock in conjunction with the Offerings; and
WHEREAS, as an incentive to induce investors to participate in the
Recapitalization, the Company has agreed to provide registration rights to
holders of Common Stock acquired in the Offerings and to holders of Series A
Preferred Stock issued in the Offerings and the Exchange Offer relating to the
shares of Common Stock underlying the Series A Preferred Stock (such shares of
Common Stock are referred to herein as the "Securities").
<PAGE> 2
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are acknowledged by
all parties hereto, the parties, intending to be legally obligated, hereby agree
as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
"Act": The Securities Act of 1933, as amended.
"Broker-Dealer": Any broker or dealer registered as such under the
Exchange Act.
"Closing Date": The date of this Agreement.
"Commission" or "SEC": The United States Securities and Exchange
Commission.
"DTC": The Depository Trust Company.
"Exchange Act": The Securities Exchange Act of 1934, as amended.
"NASD": National Association of Securities Dealers, Inc.
-2-
<PAGE> 3
"Person": An individual, partnership, corporation, trust or
unincorporated organization, or a government or an agency, authority or
political subdivision thereof.
"Prospectus": The prospectus included in a Registration Statement, as
amended or supplemented, including post-effective amendments, therein.
"Registration Default": As defined in Section 3 hereof.
"Resale Filing Deadline": As defined in Section 2 hereof.
"Resale Registration Statement": As defined in Section 2 hereof.
"Securities": As defined in the preamble hereto.
"Transfer Restricted Securities": Each Security, until the earliest to
occur of (a) the date on which such Security has been effectively registered
under the Act and disposed of in accordance with a Resale Registration Statement
or such other applicable registration statement, (b) the date on which such
Security is available for sale without restriction to the public pursuant to
Rule 144 under the Act or by a Broker-Dealer pursuant to the "Plan of
Distribution" contemplated in the Resale Registration Statement.
"Underlying Common Stock": The shares of Company Common Stock into
which the Series A Preferred Stock may be converted.
"Underwritten Registration" or "Underwritten Offering": An offering in
which securities of the Company are sold to an underwriter for reoffering to the
public pursuant to an effective registration statement filed with the
Commission.
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<PAGE> 4
SECTION 2. RESALE REGISTRATION STATEMENT
(a) REGISTRATION. The Company shall:
(x) cause to be filed one or more registration statements on
Form S-1, S-2, S-3 or S-4, if the use of such form is then available
(each a "Resale Registration Statement") pursuant to Rule 415 under the
Act, on or prior to September 16, 1998 (the "Resale Filing Deadline"),
which Resale Registration Statements shall provide for resales of all
Transfer Restricted Securities, the holders of which shall have
provided the information required pursuant to Section 2(b) hereof; and
(y) use its reasonable best efforts to cause such Resale
Registration Statements to be declared effective by the Commission on
or before the 180th day after the Closing Date.
The Company shall use its reasonable best efforts to keep such Resale
Registration Statement continuously effective, supplemented and amended to the
extent necessary to ensure that it is available for resales of Securities by the
holders of Transfer Restricted Securities entitled to the benefit of this
Section 2(a), and to ensure that it conforms with the requirements of this
Agreement, the Act and the policies, rules and regulations of the Commission as
announced from time to time, until the earlier of (i) a period of at least three
years following the Closing Date or (ii) the date on which all Transfer
Restricted Securities may be sold without restriction.
(b) PROVISION BY FRIEDMAN OF CERTAIN INFORMATION IN CONNECTION WITH THE
SHELF REGISTRATION STATEMENT. Friedman may not include any of its Transfer
Restricted Securities in any Resale Registration Statement pursuant to this
Agreement unless and until Friedman furnishes to the Company in writing, within
20 business days after receipt of a request therefor, such information as the
Company may reasonably request for use in connection with any Resale
Registration Statement or Prospectus or preliminary Prospectus included therein.
Friedman shall not be entitled to Liquidated Damages pursuant to Section 3
hereof unless and until Friedman shall have used its best efforts to provide any
and all such reasonably requested information. Friedman agrees to promptly
furnish to the Company all information relating to a Resale Registration
Statement required to be disclosed in such Resale Registration Statement in
order to make the information previously furnished to the Company by Friedman
not materially misleading.
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<PAGE> 5
SECTION 3. LIQUIDATED DAMAGES
Subject to the provisions of Section 2(b) hereof, if (i) the applicable
Resale Registration Statements required by this Agreement is not filed with the
Commission on or prior to the date specified for such filing in this Agreement
or (ii) any Registration Statement required by this Agreement is filed and
declared effective but shall thereafter cease to be effective or fail to be
usable for its intended purpose without being restored to effectiveness by
amendment or otherwise within thirty (30) business days or succeeded immediately
by an additional Resale Registration Statement that cures such failure and that
is itself immediately declared effective within thirty (30) business days (each
such event referred to in clauses (i) and (ii), a "Registration Default"), the
Company shall pay liquidated damages to Friedman with respect to the first
90-day period immediately following the occurrence of such Registration Default,
in an amount equal to $.05 per share per week of Common Stock. The amount of the
liquidated damages shall increase by an additional $.05 per share per week with
respect to each subsequent 90-day period until all Registration Defaults have
been cured, up to a maximum amount of liquidated damages of $.50 per week. All
accrued liquidated damages shall be paid to Friedman by the Company by wire
transfer of immediately available funds or by federal funds check on the 91st
day following the occurrence of a Registration Default. Following the cure of
all Registration Defaults relating to any particular Transfer Restricted
Securities, the accrual of liquidated damages with respect to such Transfer
Restricted Securities will cease.
All obligations of the Company set forth in the preceding paragraph
that are outstanding with respect to any Transfer Restricted Security at the
time such Security ceases to be a Transfer Restricted Security shall survive
until such time as all such obligations with respect to such Security shall have
been satisfied in full.
SECTION 4. REGISTRATION PROCEDURES
(a) RESALE REGISTRATION STATEMENT. In connection with each Resale
Registration Statement, the Company shall comply with all the provisions of
Section 4(c) below and shall use all reasonable efforts to effect such
registration to permit the sale of the Transfer Restricted Securities being sold
in accordance with the intended methods thereof. In this regard the Company
will, by September 16, 1998, prepare and file with the Commission a Registration
Statement relating to the registration on any appropriate form under the Act,
which form shall be available for the sale of the Transfer Restricted Securities
in accordance with such intended methods of resale.
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<PAGE> 6
(b) GENERAL PROVISIONS. In connection with any Resale Registration
Statement and any Prospectus required by this Agreement to permit the sale or
resale of Transfer Restricted Securities (including, without limitation, any
Registration Statement and the related Prospectus required to permit resales of
the Securities by Broker-Dealers), the Company shall:
(i) use its reasonable best efforts to keep such Registration
Statement continuously effective and provide all requisite financial
statements for the period specified in Section 2 of this Agreement, and
upon the occurrence of any event that would cause any such Registration
Statement or the Prospectus contained therein (A) to contain a material
misstatement or omission or (B) not to be effective and usable for
resale of Transfer Restricted Securities during the period required by
this Agreement, the Company shall file promptly, and as appropriate, an
amendment or supplement to such Registration Statement, in the case of
clause (A), correcting any such misstatement or omission, and, in the
case of either clause (A) or (B), use all reasonable efforts to cause
such amendment to be declared effective and such Registration Statement
and the related Prospectus to become usable for their intended
purpose(s) as soon as practicable thereafter;
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be
necessary to keep the Registration Statement effective for the
applicable period set forth in Section 2 hereof or such shorter period
as will terminate when all Transfer Restricted Securities covered by
such Registration Statement cease to be Transfer Restricted Securities;
cause the Prospectus to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424
under the Act in a timely manner, and reasonably assisting Friedman in
complying with the provisions of the Act with respect to the
disposition of all Securities covered by such Registration Statement
during the applicable period in accordance with the intended method of
methods of distribution by the sellers thereof set forth in such
Registration Statement or supplement to the Prospectus;
(iii) advise the underwriter(s), if any, Friedman promptly
and, if requested by such Persons in writing, to confirm such advice in
writing, (A) when the Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to any
Registration Statement or any post-effective amendment thereto, when
the same has become effective, (B) of any request by the Commission for
amendments to the Registration Statement or amendments or supplements
to the Prospectus or for additional information relating thereto, (C)
of the issuance by the Commission of any stop order or other order or
action suspending the effectiveness of the Registration Statement under
the Act or of the suspension by any state securities or Blue Sky
commission of the exemption, qualification or registration of the
Transfer Restricted Securities for offering or sale in any
jurisdiction, or the initiation of any proceeding for any of the
preceding purposes, or (D) of the existence of any fact or the
happening or any event that makes any statement of a material fact made
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<PAGE> 7
in the Registration Statement, the Prospectus, any amendment or
supplement thereto, or any document incorporated by reference therein
untrue, or that requires the making of any additions to or changes in
the Registration Statement or the Prospectus in order to make the
statements therein not misleading. If at any time the Commission shall
issue any stop order or other order or take other action suspending the
effectiveness of the Registration Statement, or any state securities
commission or other regulatory authority shall issue an order
suspending the exemption, qualification or registration of the Transfer
Restricted Securities under state securities or Blue Sky laws, the
Company shall use all reasonable efforts to obtain the withdrawal or
lifting of such order at the earliest possible time;
(iv) furnish to Friedman and each of the underwriter(s), if
any, before filing with the Commission, copies of any Registration
Statement or any Prospectus included therein or any amendments or
supplements to any such Registration Statement or Prospectus (including
all documents incorporated by reference after the initial filing of
such Registration Statement), which documents will be subject to the
review of Friedman and the underwriter(s), if any, for a period of at
least five business days, and the Company will not file any such
Registration Statement or Prospectus or any amendment or supplement to
any such Registration Statement or Prospectus (including all such
documents incorporated by reference) to which Friedman or the
underwriter(s), if any, shall reasonably object within five business
days after the receipt thereof. Friedman or the underwriter, if any,
shall be deemed to have reasonably objected to such filing if such
Registration Statement, amendment, Prospectus or supplement, as
applicable, as proposed to be filed, contains a material misstatement
or omission;
(v) make available at reasonable times and upon reasonable
notice for inspection by Friedman, any underwriter participating in any
disposition pursuant to such Registration Statement, and any attorney
or accountant retained by Friedman or any of the underwriter(s), all
financial and other records, pertinent corporate documents and
properties of the Company and cause the Company's' officers, directors
and employees to supply all information reasonably requested by
Friedman or any underwriter, attorney or accountant in connection with
such Registration Statement subsequent to the filing thereof and prior
to its effectiveness;
(vi) if requested by Friedman or the underwriter(s), if any,
promptly incorporate in any Registration Statement or Prospectus,
pursuant to a supplement or post-effective amendment if necessary, such
information as Friedman and the underwriter(s), if any, may reasonably
request to have included therein, provided such information is usual
and customary in such a document, including, without limitation,
information relating to the "Plan of Distribution" of the Transfer
Restricted Securities, information with respect to the principal amount
of Transfer Restricted Securities being sold to such underwriter(s),
the
-7-
<PAGE> 8
purchase price being paid therefor and any other terms of the offering
of the Transfer Restricted Securities to be sold in such offering; and
make all required filings of such Prospectus supplement or
post-effective amendment as soon as practicable after the Company is
notified of the matters to be incorporated in such Prospectus
supplement or post-effective amendment;
(vii) furnish to Friedman and each of the underwriter(s), if
any, without charge, one copy of the Registration Statement, as first
filed with the Commission, and of each amendment thereto, including all
documents incorporated by reference therein and all exhibits;
(viii) deliver to Friedman and each of the underwriter(s), if
any, without charge, as many copies of the Prospectus (including each
preliminary prospectus) and any amendment or supplement thereto as such
Persons reasonably may request; and the Company hereby consent to the
use of the Prospectus and any amendment or supplement thereto (other
than in those states or jurisdictions in which the Company has not
complied with or satisfied the requirements of the relevant "blue sky"
securities laws) by Friedman and each of the underwriter(s), if any, in
connection with the offering and the sale of the Transfer Restricted
Securities covered by the Prospectus or any amendment or supplement
thereto;
(ix) enter into such agreements (including an underwriting
agreement), and make such representations and warranties, and take all
such other actions in connection therewith in order to expedite or
facilitate the disposition of the Transfer Restricted Securities
pursuant to any Registration Statement contemplated by this Agreement,
to the extent reasonably and customary in this type of offering and as
may be reasonably requested by Friedman or any underwriter in
connection with any sale or resale pursuant to any Registration
Statement contemplated by this Agreement; and if the registration is an
Underwritten Registration, the Company shall:
(A) furnish to Friedman and each underwriter, if any,
in such substance and scope as they may request and as are
customarily made by issuers to underwriters in primary
underwritten offerings, upon the date of the effectiveness of
the Resale Registration Statement:
(1) a certificate, dated the date of
effectiveness of the Resale Registration Statement,
as the case may be, signed by (i) the President or
any Vice President and (ii) a principal financial or
accounting officer of the
-8-
<PAGE> 9
Company, confirming, as of the date thereof, the
matters set forth in paragraph (c) of Section 5 of
the Placement Agreement and such other matters as
such parties may reasonably request;
(2) an opinion, dated the date of
effectiveness of the Resale Registration Statement,
as the case may be, of counsel for the Company,
covering the matters set forth in paragraph (a) of
Section 5 of the Placement Agreement and such other
matter as such parties may reasonably request, and in
any event including a statement to the effect that
such counsel has participated in conferences with
officers and other representatives of the Company,
representatives of the independent public accountants
for the Company, Friedman's representatives and
Friedman's counsel in connection with the preparation
of such Registration Statement and the related
Prospectus and have considered the matters required
to be stated therein and the statements contained
therein, although such counsel has not independently
verified the accuracy, completeness or fairness of
such statements; and that such counsel advises that,
on the basis of the foregoing, no facts came to such
counsel's attention that caused such counsel to
believe that the applicable Registration Statement,
at the time such Registration Statement or any
post-effective amendment thereto become effective,
contained an untrue statement of a material fact or
omitted to state a material fact required to be
stated therein or necessary to make the statements
therein not misleading, or that the Prospectus
contained in such Registration Statement as of its
date, an untrue statement of a material fact or
omitted to state a material fact necessary in order
to make the statements therein, in light of the
circumstances under which they were made, not
misleading. Without limiting the foregoing, such
counsel may state further that such counsel assumes
no responsibility for, and has not independently
verified, the accuracy, completeness or fairness of
the financial statements, notes and schedules and
other financial data included in any Registration
Statement contemplated by this Agreement or the
related Prospectus; and
(3) a customary comfort letter, dated as of
the date of effectiveness of the Resale Registration
Statement, as the case may be, from the Company's
independent accountants, in the customary form and
covering matters of the type customarily covered in
comfort letters by underwriters in connection with
primary underwritten offerings, and affirming the
matters set forth in the comfort letters delivered
pursuant to Section 5(b) of the Placement Agreement,
without exception;
-9-
<PAGE> 10
(B) set forth in full or incorporate by reference in
the underwriting agreement, if any, the indemnification
provisions and procedures of Section 6 hereof with respect to
all parties to be indemnified pursuant to said Section; and
(C) deliver such other documents and certificates as
may be reasonably requested by such parties to evidence
compliance with clause (A) above and with any customary
conditions contained in the underwriting agreement or other
agreement entered into by the Company pursuant to this clause
(ix), if any.
If at any time the covenants of the Company contemplated in
clause (A)(1) above cease to be true and correct, the Company shall so
advise Friedman and the underwriter(s), if any, and Friedman promptly
and, if requested by such Persons, shall confirm such advice in
writing;
(x) prior to any public offering of Transfer Restricted
Securities, cooperate with the selling Holders, the underwriter(s), if
any, and their respective counsel in connection with the registration
and qualification of the Transfer Restricted Securities under the
securities or Blue Sky and securities laws of such jurisdictions as
Friedman or underwriter(s) may reasonably request and do any and all
other acts or things necessary or advisable to enable the disposition
in such jurisdictions of the Transfer Restricted Securities covered by
the Resale Registration Statement; provided, that the Company shall not
be required to register or qualify as a foreign corporation where it is
not now so qualified or to take any action that would subject it to the
service of process in suits or to taxation, other than as to matters
and transactions relating to the Registration Statement, in any
jurisdiction where it is not now so subject;
(xi) cooperate with Friedman and the underwriter(s), if any,
to facilitate the timely preparation and delivery of certificates
representing Transfer Restricted Securities to be sold and not bearing
any restrictive legends; and enable such Transfer Restricted Securities
to be in such denominations and registered in such names as Friedman or
the underwriter(s), if any, may reasonably request at least two
business days prior to any sale of Transfer Restricted Securities made
by such underwriter(s);
(xii) use its reasonable best efforts to cause the Transfer
Restricted Securities covered by the Registration Statement to be
registered with or approved by such other governmental agencies or
authorities as may be necessary to enable Friedman or the
-10-
<PAGE> 11
underwriter(s), if any, to consummate the disposition of such Transfer
Restricted Securities, subject to the proviso contained in paragraph
(xi) above;
(xiii) if any fact or event contemplated by paragraph
(b)(iii)(D) above shall exist or have occurred, prepare a supplement or
post-effective amendment to the Registration Statement or related
Prospectus or any document incorporated therein by reference or file
any other required document so that, as thereafter delivered to the
purchasers of Transfer Restricted Securities, the Prospectus will not
contain an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading;
(xiv) provide a CUSIP number for shares of Common Stock and
Underlying Common Stock that are Transfer Restricted Securities not
later than the effective date of the Registration Statement;
(xv) cooperate and assist in any filings required to be made
with the NASD and in the performance of any due diligence investigation
by any underwriter (including any "qualified independent underwriter")
that is required to be retained in accordance with the rules and
regulations of the NASD, and use its reasonable best efforts to cause
such Registration Statement to become effective and approved by such
governmental agencies or authorities as may be necessary to enable
Friedman to consummate the disposition of such Transfer Restricted
Securities;
(xvi) otherwise comply with all applicable rules and
regulations of the Commission, and make generally available to its
security holders, as soon as practicable, a consolidated earnings
statement meeting the requirements of Rule 158 (which need not be
audited) for the twelve-month period (A) commencing at the end of any
fiscal quarter in which Transfer Restricted Securities are sold to
underwriters in a firm or best efforts underwritten offering or (B) if
not sold to underwriters in such an offering, beginning with the first
month of the Company's first fiscal quarter commencing after the
effective date of the Registration Statement;
(xvii) cause all shares of Common Stock which are Transfer
Restricted Securities covered by the Registration Statement to be
listed on each securities exchange or market, if applicable, on which
similar securities issued by the Company are then listed if requested
by the Holders of a majority in aggregate principal amount of the Notes
or the managing underwriter(s); and
-11-
<PAGE> 12
(xviii) provide promptly to Friedman, as long as he remains a
stockholder of the Company, upon request each document filed with the
Commission pursuant to the requirements of Sections 13, 14 and 15 of
the Exchange Act for a period of three years from the Closing Date.
Friedman agrees by acquisition of a Transfer Restricted Security that,
upon receipt of any notice from the Company of the existence of any fact of the
kind described in Section 4(b)(iii)(D) hereof, Friedman will forthwith
discontinue disposition of Transfer Restricted Securities pursuant to the
applicable Registration Statement until Friedman's receipt of the copies of the
supplemented or amended Prospectus, or until it is advised in writing (the
"Advice") by the Company that the use of the Prospectus may be resumed, and has
received copies of any additional or supplemental filings that are incorporated
by reference in the Prospectus. If so directed by the Company, Friedman will
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in Friedman's possession, of the Prospectus covering
such Transfer Restricted Securities that was current immediately prior to the
time of receipt of such notice. In the event the Company shall give any such
notice, the time period regarding the effectiveness of such Registration
Statement set forth in Section 3, shall be extended by the number of days during
the period from and including the date of the giving of such notice pursuant to
Section 5(c)(iii)(D) hereof to and including the date when Friedman shall have
received the copies of the supplemented or amended Prospectus or shall have
received the Advice.
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<PAGE> 13
SECTION 5. REGISTRATION EXPENSES
(a) All expenses incident to the Company's performance of or compliance
with this Agreement will be borne by the Company regardless of whether a
Registration Statement becomes effective, including without limitation: (i) all
registration and filing fees and expenses (including filings made by Friedman
with the NASD (and, if applicable, the fees and expenses of any "qualified
independent underwriter" and its counsel that may be required by the NASD));
(ii) all fees and expenses of compliance with federal securities, foreign
securities and state Blue Sky or securities laws; (iii) all expenses of printing
(including the printing of Prospectuses), messenger and delivery services and
telephone incurred by the Company; (iv) all fees and disbursements of counsel
for the Company and, subject to Section 5(b) below, Friedman; (v) all
application and filing fees in connection with listing the shares of the Common
Stock on a national securities exchange or automated quotation system pursuant
to the requirements hereof; (vi) all fees and disbursements of independent
certified public accountants of the Company (including the expenses of any
special audit and comfort letters required by or incident to such performance);
and (vii) all fees and charges of the Rating Agencies, if any; provided, that
the Company will not bear certain personal expenses of Friedman, including,
underwriting discounts, commissions, and messenger and delivery services and
telephone expenses incurred by Friedman.
The Company will, in any event, bear its internal expense (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expenses of any annual audit, all
trustee and Rating Agency fees and charges and the fees and expenses of any
Person, including special experts, retained by the Company.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Resale Registration Statement),
the Company will reimburse Friedman, as applicable, for the reasonable fees and
disbursements of not more than one counsel as may be chosen by Friedman.
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<PAGE> 14
SECTION 6. INDEMNIFICATION
(a) The Company shall indemnify and hold Friedman harmless, to the
fullest extent lawful, from and against any and all losses, claims, damages,
liabilities, judgments, actions and expenses (including without limitation,
reimbursement of all reasonable costs of investigating, preparing, pursuing or
defending any claim or action, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, including the reasonable
fees and charges of counsel) directly or indirectly caused by, related to, based
upon, arising out of or in connection with any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement or
Prospectus (or any amendment or supplement thereto), or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or expenses are caused by an untrue
statement or omission or alleged untrue statement or omission that is made in
reliance upon and in conformity with information relating to Friedman furnished
in writing to the Company by Friedman expressly for use therein or any agent or
representative of Friedman.
In case any action or proceeding (including any governmental or
regulatory investigation or proceeding) shall be brought or asserted against
Friedman with respect to which indemnity may be sought against the Company,
Friedman shall promptly notify the Company in writing (provided, that the
failure to give such notice shall not relieve the Company of its obligations
pursuant to this Agreement unless and to the extent materially and adversely
affected). Friedman shall have the right to employ its own counsel in any such
action and the fees and expenses of such counsel shall be paid, as incurred, by
the Company (regardless of whether it is ultimately determined that Friedman is
not entitled to indemnification hereunder); provided, that if Friedman is not
successful and it is determined that Friedman is not entitled to indemnification
hereunder, then Friedman shall reimburse the Company for all monies advanced by
the Company to which Friedman was not entitled. The Company shall not, in
connection with any one such action or proceeding or separate but substantially
similar or related actions or proceedings in the same jurisdiction arising out
of the same general allegations or circumstances, be liable for the reasonable
fees and expenses of more than one separate firm of attorneys (in addition to
any local counsel) at any time for Friedman, which firm shall be designated by
the holders of a majority of the shares of Common Stock that are subject to, or
affected by, such action or proceeding. The Company shall not be liable for any
settlement of any such action or proceeding effected without the Company's prior
written consent, which consent shall not be withheld unreasonably, and the
Company will indemnify and hold Friedman harmless from and against any loss,
claim, damage, liability or expense by reason of any settlement of any action
effected with the prior written consent of the Company. The Company shall not,
without the prior written consent of Friedman, settle or compromise or consent
to the entry of judgment in or otherwise seek to terminate any pending or
threatened action, claim, litigation or proceeding in respect of which
indemnification or contribution may be sought hereunder , unless such
settlement, compromise, consent or termination includes an unconditional release
of Friedman from all liability arising out of such action, claim, litigation or
proceeding.
-14-
<PAGE> 15
(b) Friedman agrees to indemnify and hold harmless the Company, and its
respective directors, officers and any person controlling (within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act) the Company, and the
respective officers, directors, partners, employees, representatives and agents
of each such person, to the same extent as the foregoing indemnity from the
Company to Friedman, but only with respect to claims and actions based on
information relating to Friedman furnished in writing by Friedman expressly for
use in any Registration Statement. In case any action or proceeding shall be
brought against the Company or its directors or officers or any such controlling
person in respect of which indemnity may be sought against Friedman, Friedman
shall have the rights and duties given the Company and the Company or its
directors or officers or such controlling person shall have the rights and
duties given to each Indemnified Holder by the preceding paragraph. In no event
shall the liability of Friedman hereunder be greater in amount than the dollar
amount of the net proceeds received by Friedman upon the sale of the Restricted
Securities giving rise to such indemnification obligation.
(c) If the indemnification provided for in this Section 6 is
unavailable to an indemnified party under Section 6(a) or Section 6(b) hereof
(other than by reason of the exceptions provided therein) in respect of any
losses, claims, damages, liabilities or expenses referred to therein, then each
applicable indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand, and Friedman on the other hand from their purchase of
Transfer Restricted Securities or if such allocation is not permitted by
applicable law, the relative fault of the Company on the one hand and of
Friedman on the other in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. The relative fault of the Company
on the one hand, and of Friedman on the other, shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or by Friedman and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The amount paid or payable by a party as a
result of the losses, claims, damages, liabilities and expenses referred to
above shall be deemed to include, subject to the limitations set forth in the
second paragraph of Section 6(a), any legal or other fees, expenses or charges
reasonably incurred by such party in connection with investigating or defending
any action or claim.
The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or expenses referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
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<PAGE> 16
SECTION 7. RULE 144
The Company hereby agrees with Friedman, for so long as any Transfer
Restricted Securities remain outstanding, to make available to Friedman in
connection with any sale thereof and any prospective purchaser of such Transfer
Restricted Securities from Friedman, the information required by Rule 144 under
the Act in order to permit resales of such Transfer Restricted Securities
pursuant to Rule 144.
SECTION 8. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS
Friedman may not participate in any Underwritten Registration hereunder
unless Friedman (a) agrees to sell Friedman's Transfer Restricted Securities on
the basis provided in any underwriting arrangements provided by the Persons
entitled hereunder to approve such arrangements and (b) completes and executes
all reasonable questionnaires, powers of attorney, indemnities, underwriting
agreements, lock-up letters and other documents required under the terms of such
underwriting arrangements.
SECTION 9. SELECTION OF UNDERWRITERS
Friedman as a holder of Transfer Restricted Securities covered by the
Resale Registration Statement who desire to do so may sell such Transfer
Restricted Securities in an Underwritten Offering. In any such Underwritten
Offering, the investment banker or investment bankers and manager or managers
that will administer the offering will be selected by the Holders of a majority
in aggregate principal amount of the Transfer Restricted Securities included in
such offering; provided, that such investment bankers and managers must be
reasonably satisfactory to the Company.
-16-
<PAGE> 17
SECTION 10. MISCELLANEOUS
(a) REMEDIES. The Company agrees that monetary damages (including the
liquidated damages contemplated hereby) would not be adequate compensation for
any loss incurred by reason of a breach by it of the provisions of this
Agreement and hereby agree to waive the defense in any action for specific
performance that a remedy at law would be adequate.
(b) NO INCONSISTENT AGREEMENTS. The Company will not, on or after the
date of this Agreement, enter into any agreement with respect to its securities
that is inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. The Company has not previously
entered into any agreement granting any registration rights with respect to its
securities to any Person, except as contemplated by the Offering Memorandum. The
rights granted to Friedman hereunder do not in any way breach or conflict with
and are not inconsistent with the rights granted to the holders of the Company's
securities under any agreement in effect on the date hereof.
(c) ADJUSTMENTS AFFECTING THE SECURITIES COMMON STOCK. The Company will
not take any action, or permit any change to occur, with respect to the
Securities that would materially and adversely affect the ability of Friedman to
resell such Securities.
(d) AMENDMENTS AND WAIVERS. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to or departures from
the provisions hereof may not be given unless the Company in writing from both
parties.
(e) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class or
certified mail, telex, telecopier, or reliable overnight delivery service:
(i) If to Friedman:
Emanuel J. Friedman
2120 Leroy Place
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<PAGE> 18
Washington, D.C. 20008
Telecopier No.: (703) 312-9698
(ii) If to the Company:
MEGO Mortgage Corporation
Fifth Floor
1000 Parkwood Circle
Atlanta, Georgia 30339
Telecopier No.: (800) 694-6346
Attention: Edward B. Meyercord
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt acknowledged, if telecopied; and on the
next business day, if sent via a reliable overnight delivery service.
(f) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment,
subsequent Holders of Transfer Restricted Securities.
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, by the parties hereto, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same agreement.
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<PAGE> 19
(h) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF GEORGIA, WITHOUT REGARD TO THE CONFLICT
OF LAW RULES THEREOF.
(j) SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof, in any circumstances, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(k) ENTIRE AGREEMENT. This Agreement together with the Purchase
Agreement, and the Placement Agreement (as defined in the Purchase Agreement) is
intended by the parties as a final expression of their agreement and intended to
be a complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter hereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein with respect to the registration rights granted by the
Company with respect to the Transfer Restricted Securities. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
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<PAGE> 20
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
MEGO MORTGAGE CORPORATION
By: /s/ Jeffrey S. Moore
-------------------------------------
Name: Jeffrey S. Moore
Title: President and Chief Executive
Officer
EMANUEL J. FRIEDMAN
/s/ Emanuel J. Friedman
----------------------------------------
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<PAGE> 1
EXHIBIT 10.94
MEGO MORTGAGE CORPORATION
TO
AMERICAN STOCK TRANSFER & TRUST COMPANY, TRUSTEE
---------------
12 1/2%
SUBORDINATED NOTES
DUE 2001
---------------
INDENTURE
DATED AS OF JUNE 29, 1998
---------------
<PAGE> 2
TABLE OF CONTENTS
Page
<PAGE> 3
TRUST INDENTURE
<TABLE>
<CAPTION>
ACT SECTION INDENTURE SECTION
- ------------ -----------------
<S> <C> <C>
310 (a)(1)............................... 6.9
(a)(2)............................... 6.9
(a)(3)............................... Not Applicable
(a)(4)............................... Not Applicable
(a)(5)............................... 6.9
(b).................................. 1.5, 6.8, 6.9, 6.10, 6.11
(c).................................. Not Applicable
311 (a).................................. 6.13
(b).................................. 6.13
(c).................................. Not Applicable
312 (a).................................. 7.1, 7.2
(b).................................. 7.2
(c).................................. 7.2
313 (a).................................. 7.3
(b)(1)............................... Not Applicable
(b)(2)............................... 7.3
(c).................................. 1.6, 7.3
(d).................................. 7.3
314 (a).................................. 1.5, 1.6, 7.4
(b).................................. Not Applicable
(c)(1)............................... 1.2
(c)(2)............................... 1.2
(c)(3)............................... Not Applicable
(d).................................. Not Applicable
(e).................................. 1.2
(f).................................. Not Applicable
315 (a).................................. 6.1
(b).................................. 1.6, 6.2
(c).................................. 6.1
(d).................................. 6.1
(e).................................. 5.14
316 (a)(last sentence) 1.1 (definition of "Outstanding")
(a)(1)(A)............................ 5.12
(a)(1)(B)............................ 5.13
(a)(2)............................... Not Applicable
(b).................................. 5.7, 5.8
(c).................................. 1.4(c)
317 (a)(1)............................... 5.3
(a)(2)............................... 5.4
(b).................................. 6.6
318 (a).................................. 1.7
(c).................................. 1.7
</TABLE>
-ii-
<PAGE> 4
INDENTURE, dated as of June 29, 1998, by and between MEGO MORTGAGE
CORPORATION, a corporation duly organized and existing under the laws of the
State of Delaware (herein called the "COMPANY"), having its principal office at
1000 Parkwood Circle, Suite 500, Atlanta, Georgia 30339 and AMERICAN STOCK
TRANSFER & TRUST COMPANY, a New York corporation, as Trustee (herein called the
"TRUSTEE").
RECITALS OF THE COMPANY
A. The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance of a series of its unsecured 12 1/2%
Subordinated Notes due 2001 with an aggregate principal amount of $41,495,000
(herein called the "NEW NOTES") and may, subject to Section 3.13, in the future
authorize the issuance of one additional series of its unsecured 12 1/2%
Subordinated Notes due 2001 limited in aggregate principal amount to $41,495,000
issued in exchange for such New Notes pursuant to a registered exchange offer
under the Securities Act (the "EXCHANGE NOTES" or, together with the New Notes,
the "NOTES"), to be issued as in this Indenture provided.
B. All things necessary to make this Indenture a valid agreement of
the Company, in accordance with its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Notes
by the Holders thereof, it is mutually agreed, for the equal and proportionate
benefit of all Holders of the Notes, as follows:
ARTICLE ONE -
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.1 Definitions.
<PAGE> 5
For all purposes of this Indenture, except as otherwise
expressly provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings
assigned to them in this Article and include the plural as well as the
singular;
(2) all other terms used herein which are defined in the
Trust Indenture Act, either directly or by reference therein, have the
meanings assigned to them therein;
(3) all accounting determinations hereunder shall be
made, and all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP;
(4) the words "HEREIN", "HEREOF" and "HEREUNDER" and
other words of similar import refer to this Indenture as a whole and
not to any particular Article, Section or other subdivision;
(5) the word "INCLUDING" is not limiting;
(6) references in this Indenture to any agreement, other
document or law "AS AMENDED" or "AS AMENDED FROM TIME TO TIME," or to
"AMENDMENTS" of any document or law, shall include any amendments,
supplements, replacements, renewals or other modifications from time to
time, provided in the case of modifications to documents, such
modifications are permissible under this Indenture; and
(7) references in this Indenture to "interest" on or with
respect to the Notes include, in the case of New Notes subject to the
Registration Rights Agreement, Added Interest; and
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<PAGE> 6
(8) references in this Indenture to any law include
regulations promulgated thereunder from time to time.
"ACCREDITED INVESTOR" means an accredited investor as defined
in Rule 501(a)(1), (2), (3), (5), (6) or (7) under the Securities Act.
"ADDED INTEREST" with respect to New Notes, has the meaning
specified in Section 3.9.
"ACT", when used with respect to any Holder, has the meaning
specified in Section 1.4.
"AFFILIATE" of any specified Person means any other Person,
directly or indirectly, controlling or controlled by or under direct or
indirect common control with such specified Person. For the purposes of
this definition, "CONTROL" when used with respect to any Person means
the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; provided that a Person shall be
deemed to have such power with respect to the Company if such Person is
the beneficial owner of Capital Stock representing 5% or more of the
total voting power of the Voting Stock (on a fully diluted basis) of
the Company or of rights or warrants to purchase such Capital Stock
(whether or not currently exercisable) or of Capital Stock convertible
into such Voting Stock (whether or not currently convertible). The
terms "CONTROLLING" and "CONTROLLED" have meanings correlative to the
foregoing.
"AFFILIATE TRANSACTION" has the meaning specified in Section
9.10.
"APPLICABLE LAW" means all applicable provisions of all (i)
constitutions, treaties, statutes, laws, rules, regulations and
ordinances of any Governmental Authority, (ii) Governmental Approvals
and (iii) orders, decisions, judgments, awards and decrees of any
Governmental Authority.
"AUTHENTICATING AGENT" means any Person authorized by the
Trustee pursuant to Section 6.14 to act on behalf of the Trustee to
authenticate Notes.
-3-
<PAGE> 7
"AUTHORIZED OFFICER" means any officer of an Obligor
designated by a resolution of the Board of Directors to take certain
actions as specified in this Indenture.
"AVERAGE LIFE" means, as of the date of determination, with
respect to any Indebtedness or Preferred Stock, the quotient obtained
by dividing (i) the sum of the products of numbers of years from the
date of determination to the dates of each successive scheduled
principal payment of such Indebtedness or redemption or similar payment
with respect to such Preferred Stock multiplied by the amount of such
payment by (ii) the sum of all such payments.
"BANKRUPTCY CODE" means Title 11, U.S. Code or any similar
federal or state law for the relief of debtors.
"BOARD OF DIRECTORS" means either the board of directors of
the Company or any committee thereof duly authorized to act on behalf
of such Board.
"BOARD RESOLUTION" means a copy of a resolution certified by
the Secretary or an Assistant Secretary of the relevant Obligor to have
been duly adopted by the Board of Directors, or by action of an
Authorized Officer designated as such pursuant to a resolution of the
Board of Directors, and to be in full force and effect on the date of
such certification, and delivered to the Trustee. Unless otherwise
indicated, "BOARD RESOLUTION" means a Board Resolution of the Company.
"BUSINESS DAY" means each day which is not a Legal Holiday.
"CAPITAL LEASE OBLIGATION" means an obligation that is
required to be classified and accounted for as a capital lease for
financial reporting purposes in accordance with GAAP. The amount of
Indebtedness represented by such obligation shall be the capitalized
amount of such obligation determined in accordance with GAAP, and the
Stated Maturity thereof shall be the date of the last payment of rent
or any other amount due under such lease prior to the first date upon
which such lease may be terminated by the lessee without payment of a
penalty.
-4-
<PAGE> 8
"CAPITAL STOCK" of any Person means any and all shares,
interests, rights to purchase, warrants, options, participations or
other equivalents of or interests in (however designated) equity of
such Person, including any Preferred Stock, but excluding any debt
securities convertible into such equity.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY" means the Person named as the "COMPANY" in the first
paragraph of this instrument until a successor Person shall have become
such pursuant to the applicable provisions of this Indenture, and
thereafter "COMPANY" shall mean such successor Person.
"COMPANY REQUEST" or "COMPANY ORDER" means a written request
or order signed in the name of each Obligor by its Chairman of the
Board, its Vice Chairman of the Board, its President, its Chief
Financial Officer or a Vice President, and by its Controller, an
Assistant Controller, its Secretary or an Assistant Secretary, and
delivered to the Trustee.
"CONSOLIDATED LEVERAGE RATIO" as of any date of determination
means the ratio of (i) the aggregate amount of all Indebtedness and
Disqualified Stock of the Company and its Subsidiaries, excluding (A)
Permitted Warehouse Indebtedness, (B) Hedging Obligations, (C) Capital
Lease Obligations, and (D) Permitted Excess Spread Receivables
Indebtedness, provided in the case of (A), (B), (C) or (D), such
Indebtedness is then permitted to be Incurred pursuant to Section
9.9(b) (1), (3), (6) or (7) to (ii) the Consolidated Net Worth of the
Company.
"CONSOLIDATED NET INCOME" means, for any period, the net
income of the Company and its consolidated Subsidiaries for such period
determined in accordance with GAAP; provided, however, that there shall
not be included in such Consolidated Net Income: (i) any net income of
any person if such Person is not a Subsidiary, except that (A) subject
to the exclusion contained in clause (iv) below, the Company's equity
in the net income of any such Person for such period shall be included
in such Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Person during such period to the Company
or a Subsidiary as a dividend or other distribution (subject, in the
case of a dividend or other distribution paid to a Subsidiary, to the
limitations contained in clause (iii) below) and (B) the Company's
equity in a net loss of any such Person for such period shall be
included in determining such Consolidated Net Income; (ii) any net
income (or loss) of any Person acquired by the Company or a Subsidiary
in a pooling of interests transaction for any period prior to the date
of such acquisition; (iii) any net income of any Subsidiary if such
-5-
<PAGE> 9
Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Subsidiary,
directly or indirectly, to the Company, except that (A) subject to the
exclusion contained in clause (iv) below, the Company's equity in the
net income of any such Subsidiary for such period shall be included in
such Consolidated Net Income to the extent that cash could have been
distributed by such Subsidiary during such period to the Company or
another Subsidiary as a dividend or other distribution (subject, in the
case of a dividend or other distribution paid to another Subsidiary, to
the limitation contained in this clause) and (B) the Company's equity
in a net loss of any such Subsidiary for such period shall be included
in determining such Consolidated Net Income; (iv) any gain (but not
loss) realized upon the sale or other disposition of any assets of the
Company or its consolidated Subsidiaries (including pursuant to any
sale-and-leaseback arrangement) which is not sold or otherwise disposed
of in the ordinary course of business and any gain (but not loss)
realized upon the sale or other disposition of any Capital Stock of any
Person; (v) extraordinary gains or losses; and (vi) the cumulative
effect of a change in accounting principles, in each case determined in
accordance with GAAP.
"CONSOLIDATED NET WORTH" means the consolidated stockholders'
equity of the Company and its Subsidiaries, as determined in accordance
with GAAP, as of the end of the most recent fiscal quarter of the
Company for which financial statements are available, less (i) all
write-ups by the Company or any Subsidiary (other than write-ups
resulting from foreign currency translations, write-ups of tangible
assets of a going concern business made within 12 months after
acquisition thereof and write-ups of Excess Spread Receivables or
mortgage servicing rights in accordance with GAAP), (ii) all
Investments in unconsolidated Subsidiaries (except Temporary Cash
Investments), (iii) all unamortized debt discount and expense and
unamortized deferred charges of the Company and its Subsidiaries, in
each case as of such date, and (iv) any amounts attributable to
Disqualified Stock. The "Consolidated Net Worth" of a Subsidiary means
the consolidated net worth of such Subsidiary and its Subsidiaries (if
any), determined on an equivalent basis. For purposes of this
definition, "deferred charges" does not include deferred taxes, costs
associated with mortgage servicing rights and loan origination costs,
in each case to the extent deferred in accordance with GAAP.
"CORPORATE TRUST OFFICE" means the office of the Trustee at
which at any particular time its corporate trust business shall be
principally administered, which office as of the date hereof is located
at 40 Wall Street, New York, New York 10005.
"COVENANT DEFEASANCE" has the meaning specified in Section
13.3.
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"CURRENCY AGREEMENT" means, with respect to any Person, any
foreign exchange contract, currency swap agreement or other similar
agreement to which such Person is a party or a beneficiary.
"DEFAULT" means any event which is, or after notice or passage
of time or both would be, an Event of Default.
"DEFAULTED INTEREST" has the meaning specified in Section 3.8.
"DEFINITIVE NOTE" is defined in Section 4.3(d).
"DEPOSITARY" has the meaning specified in Section 3.1.
"DESIGNATED SENIOR INDEBTEDNESS" means, as of any date of
determination, any Senior Indebtedness designated as such by the
Company in the related credit documentation, provided the unpaid
principal amount thereof, or the amount of Senior Indebtedness
committed to be extended by the lender or lenders under the related
credit facility, equals or exceeds $1,000,000 on such date of
determination.
"DISQUALIFIED STOCK" means, with respect to any Person, any
Capital Stock that 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
pursuant to a sinking fund obligation or otherwise, (ii) is convertible
or exchangeable for Indebtedness or Disqualified Stock or (iii) is
redeemable at the option of the holders thereof, in each case in whole
or in part on or prior to the first anniversary of the Stated Maturity
of the Notes.
"EVENT OF DEFAULT" has the meaning specified in Section 5.1.
"EXCESS SPREAD" means (i) with respect to a "POOL" of
Receivables that has been sold to a trust or other Person in a
securitization, the excess of (a) the weighted average coupon
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<PAGE> 11
on each pool of Receivables sold over (b) the sum of the pass-through
interest rate plus a normal servicing fee, a trustee fee, an insurance
fee and an estimate of annual future credit losses related to such
assets, in each case calculated in accordance with any applicable GAAP,
and (ii) with respect to Receivables that have been sold to a Person in
a whole loan sale, the cash flow of the Company and its Restricted
Subsidiaries from such Receivables, net of, to the extent applicable, a
normal servicing fee, a trustee fee, an insurance fee and an estimate
of annual future credit losses related to such assets, in each case
calculated in accordance with any applicable GAAP.
"EXCESS SPREAD RECEIVABLES" of a Person means the contractual
or certificated right to Excess Spread capitalized on such Person's
consolidated balance sheet (the amount of which shall be the present
value of the Excess Spread, calculated in accordance with GAAP, net of
any allowance for losses on loans sold with recourse or other liability
allocable thereto, to the extent not otherwise reflected in such
amount). Excess Spread Receivables (a) include mortgage backed
securities attributable to Receivables sold by the Company or any
Subsidiary, and (b) do not include any mortgage servicing rights.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXCHANGE NOTES" is defined in the Recitals.
"EXCHANGE OFFER" means an offer to exchange New Notes issued
without registration under the Securities Act for Exchange Notes
registered under the Securities Act pursuant to the Registration Rights
Agreement applicable to such New Notes.
"EXCHANGE OFFER REGISTRATION STATEMENT" means any registration
statement that the Company may be required to file and cause to be
declared effective by the SEC in connection with an offer to exchange
New Notes issued without registration under the Securities Act for
Exchange Notes registered under the Securities Act pursuant to the
Registration Rights Agreement.
"GAAP" means generally accepted accounting principles in the
United States of America as in effect from time to time, including
those set forth in (i) the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified
Public Accountants, (ii) statements and pronouncements of the Financial
Accounting
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Standards Board, (iii) such other statements by such other entity as
approved by a significant segment of the accounting profession and (iv)
the rules and regulations of the SEC governing the inclusion of
financial statements (including pro forma financial statements) in
periodic reports required to be filed pursuant to Section 13 of the
Exchange Act, including opinions and pronouncements in staff accounting
bulletins and similar written statements from the accounting staff of
the SEC and releases of the Emerging Issues Task Force.
"GLOBAL NOTE" means a Note bearing the legend prescribed in
Section 2.4 evidencing all or part of the Notes, authenticated and
delivered to the Depositary or its custodian, and registered in the
name of such Depositary or its nominee.
"GLOBAL NOTE HOLDER" has the meaning specified in Section 3.1.
"GOVERNMENTAL APPROVAL" means an authorization, consent,
approval, permit, license, registration or filing with any Governmental
Authority.
"GOVERNMENTAL AUTHORITY" with respect to any Person, means any
nation (including an Indian nation), any state or other political
subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to
government, including any government authority, agency, department,
board, commission or instrumentality of the United States, any state of
the United States or any political subdivision thereof, and any
tribunal or arbitrator(s) of competent jurisdiction, in each case,
having jurisdiction or authority over such Person.
"GSE" means Federal National Mortgage Association or Federal
Home Loan Mortgage Corporation.
"GUARANTEE" means any obligation, contingent or otherwise, of
any Person directly or indirectly guaranteeing any Indebtedness or
other obligation of any Person and any obligation, direct or indirect,
contingent or otherwise, of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation of such Person (whether arising by
virtue of partnership arrangements, or by agreements to keep-well, to
purchase assets, goods, securities or services, to take-or-pay or to
maintain financial statement conditions or otherwise) or (ii) entered
into for the purpose of assuring in any other manner the obligee of
such Indebtedness or other obligation of the
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payment thereof or to protect such obligee against loss in respect
thereof (in whole or in part); provided, however, that the term
"GUARANTEE" shall not include endorsements for collection or deposit in
the ordinary course of business. The term "GUARANTEE" used as a verb
has a corresponding meaning.
"GUARANTOR" means any person Guaranteeing any obligation.
"HEDGING OBLIGATIONS" of any Person means the obligations of
such Person pursuant to any Interest Rate Agreement or Currency
Agreement.
"HOLDERS" or "NOTEHOLDERS" means the Person in whose name a
Note is registered on the Registrar's books.
"INCUR" means issue, assume, Guarantee, incur or otherwise
become liable for; provided, however, that any Indebtedness or Capital
Stock of a Person existing at the time such Person becomes a Subsidiary
(whether by merger, consolidation, acquisition or otherwise) shall be
deemed to be Incurred by such Subsidiary at the time it becomes a
Subsidiary. The term "INCURRENCE" when used as a noun shall have a
correlative meaning. The accretion of principal of a non-interest
bearing or other discount security shall be deemed the Incurrence of
Indebtedness.
"INDEBTEDNESS" means, with respect to any Person on any date
of determination (without duplication): (i) the principal of and
premium, if any, in respect of (A) indebtedness of such Person for
money borrowed and (B) indebtedness evidenced by notes, debentures,
bonds or other similar instruments for the payment of which such Person
is responsible or liable; (ii) all Capital Lease Obligations of such
Person; (iii) all obligations of such Person issued or assumed as the
deferred purchase price of property, all conditional sale obligations
of such Person and all obligations of such Person under any title
retention agreement (including any such obligations under repurchase
agreements, but excluding trade accounts payable and expense accruals
arising in the ordinary course of business; (iv) all obligations of
such Person for the reimbursement of any obligor on any letter of
credit, banker's acceptance or similar credit transaction; (v) the
amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock
(but excluding any accrued dividends) or, in the case of a Subsidiary
of such Person, any Preferred Stock (but excluding any accrued
dividends) (vi) Warehouse Indebtedness; (vii) all obligations of the
type referred to in clauses (i) through (vi) of other Persons and all
dividends of other Persons for the payment of which, in either case,
such Person is
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<PAGE> 14
responsible or liable, directly or indirectly, as obligor, guarantor or
otherwise, including by means of any Guarantee; (viii) all obligations
of the type referred to in clauses (i) through (vii) of other persons
secured by any Lien on any property or asset of such Person, and (ix)
to the extent not otherwise included in this definition, Hedging
Obligations of such Person. Except in the case of Warehouse
Indebtedness (the amount of which shall be determined in accordance
with the definition thereof), the amount of unconditional Indebtedness
of any Person at any date shall be the outstanding balance at such date
of all unconditional obligations as described above. The amount of any
Indebtedness under clause (vii) of this definition shall be equal to
the amount of the outstanding obligation for which such Person is
responsible or liable, directly or indirectly, including by way of
Guarantee. Notwithstanding the foregoing, any securities issued in a
securitization by a special purpose owner trust or similar entity
(including any "Securitization Vehicle") formed by or on behalf of a
Person and to which Receivables have been sold or otherwise transferred
by or on behalf of such Person or its Subsidiaries shall not be treated
as Indebtedness of such Person or its Subsidiaries under the Indenture,
regardless of whether such securities are treated as indebtedness for
tax purposes, provided that (1) neither the Company nor any of its
Subsidiaries (other than the Securitization Vehicle and Special Purpose
Subsidiaries) (a) provides credit support of any kind (including any
undertaking, agreement or instrument that would constitute
Indebtedness), except for credit support in the form of
"over-collateralization" of the senior certificates issued in, or
subordination of or recourse to all or a portion of Excess Spread
Receivables attributable to, such securitization, in each case to the
extent of the book value of such Excess Spread Receivables, or (b) is
directly or indirectly liable (as a guarantor or otherwise) for such
securities, and (2) no default with respect to such securities would
permit (upon notice, lapse of time or both) any holder of any other
Indebtedness of the Company or any of its Subsidiaries to declare a
default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity. Notwithstanding
the foregoing, "INDEBTEDNESS" shall not include obligations under the
Tax Sharing Agreement or any renewal or other modification thereof.
"INDENTURE" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions
hereof, including, for all purposes of this instrument, and any such
supplemental indenture, the provisions of the Trust Indenture Act that
are deemed to be a part of and govern this instrument and any such
supplemental indenture, respectively.
"INTEREST-ONLY CERTIFICATE" means a certificate issued in a
securitization of a pool of Receivables which pays a fixed or floating
interest rate on a notional principal amount.
"INTEREST PAYMENT DATE" means the date on which any
installment of interest on the Notes becomes due and payable, as
provided in such Notes, the form of which is set forth in Section 2.2.
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<PAGE> 15
"INTEREST RATE AGREEMENT" means any interest rate swap
agreement, interest rate cap agreement, repurchase agreement, futures
contract or other financial agreement or arrangement designed to
protect the Company or any Subsidiary against fluctuations in interest
rates.
"INVESTMENT" in any Person means any direct or indirect
advance, loan (other than advances to customers in the ordinary course
of business, other than Receivables, that are recorded as trade
accounts on the balance sheet of the lender) or other extensions of
credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other
property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition of Capital
Stock, Indebtedness (including Receivables) or other similar
instruments issued by, such Person.
"ISSUE DATE" means the date on which the New Notes are
originally issued.
"JUNIOR SUBORDINATED OBLIGATION" is any future Indebtedness of
the Company that by its terms is expressly subordinated in right of
payment to the Notes to at least the same extent as described in
Article Eleven.
"LEGAL DEFEASANCE" has the meaning specified in Section 13.2.
"LEGAL HOLIDAY" means any Saturday, Sunday or other day on
which banks in the States of New York or Georgia are authorized or
obligated by law to be closed for business.
"LIEN" means (i) any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any conditional sale
or other title retention agreement or lease in the nature thereof) and
(ii) any claim (whether direct or indirect through subordination or
other structural encumbrance) against any Excess Spread Receivables
sold or otherwise transferred by such Person to a buyer, unless such
Person is not liable for any losses thereon.
"MATURITY", when used with respect to any Note, means the date
on which the principal of such Note or an installment of principal
becomes due and payable as therein or
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herein provided, whether at the Stated Maturity or by declaration of
acceleration, call for redemption, upon repurchase or otherwise.
"MEGO FINANCIAL" means Mego Financial Corp., a New York
corporation, or its successor.
"NEW NOTES" is defined in the Recitals.
"NON-U.S. PERSON" means a Person who is not a "U.S. person,"
as defined in Rule 902 of Regulation S.
"NOTES" has the meaning specified in the recitals.
"NOTE REGISTER" has the meaning specified in Section 3.6.
"NOTE REGISTRAR" has the meaning specified in Section 3.6.
"OBLIGOR" means the Company or any Guarantor.
"OFFERING MEMORANDUM" means the offering memorandum of the
Company dated as of June 9, 1998.
"OFFERINGS" means the offering of common stock, $.01 par value
per share, and Preferred Stock of the Company as described and defined
in the Offering Memorandum.
"OFFICERS' CERTIFICATE" means a certificate signed by the
Chairman of the Board, a Vice Chairman of the Board, the President, the
Chief Financial Officer or a Vice President, and by the Treasurer, an
Assistant Treasurer, the Controller, an Assistant Controller, the
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<PAGE> 17
Secretary or an Assistant Secretary, of any Obligor, and delivered to
the Trustee. Unless otherwise indicted, "OFFICERS' CERTIFICATE" means
an Officers' Certificate of the Company.
"OPINION OF COUNSEL" means a written opinion of counsel, who
may be counsel for the Obligors and who shall be acceptable to the
Trustee.
"ORIGINAL NOTES" means the Company's 12 1/2% senior
subordinated notes due 2001 issued under an indenture dated as of
November 22, 1996, which rank pari passu to the Notes.
"OUTSTANDING", when used with respect to Notes, means, as of
the date of determination, all Notes theretofore authenticated and
delivered under this Indenture, except:
(i) Notes theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation;
(ii) Notes for whose payment or redemption money in
the necessary amount has been theretofore deposited with the
Trustee or any Paying Agent (other than any Obligor) in trust
or set aside and segregated in trust by the Company (if the
Company shall act as its own Paying Agent) for the Holders of
such Notes; provided that, if such Notes are to be redeemed,
notice of such redemption has been duly given pursuant to this
Indenture or provision therefor satisfactory to the Trustee
has been made; and
(iii) Notes in exchange for or in lieu of which other
Notes have been authenticated and delivered pursuant to this
Indenture, other than any such Notes in respect of which there
shall have been presented to the Trustee proof satisfactory to
it that such Notes are held by a bona fide purchaser in whose
hands such Notes are valid obligations of the Company
provided, however, that in determining whether the
Holders of the requisite principal amount of the Outstanding
Notes have given any request, demand, authorization,
direction, notice, consent or waiver hereunder, Notes owned by
the
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<PAGE> 18
Company or any other Obligor upon the Notes or any Affiliate
of the Company or of such other Obligor shall be disregarded
and deemed not to be Outstanding, except that, in determining
whether the Trustee shall be protected in relying upon any
such request, demand, authorization, direction, notice,
consent or waiver, only Notes which the Trustee knows to be so
owned shall be so disregarded. Notes so owned which have been
pledged in good faith may be regarded as Outstanding if the
pledgee establishes to the satisfaction of the Trustee the
pledgee's right so to act with respect to such Notes and that
the pledgee is not the Company or any other Obligor upon the
Notes or any Affiliate of the Company or of such other
Obligor.
"PAYING AGENT" means any Person authorized by the
Company to pay the principal of or any premium or interest on
any Notes on behalf of the Company or, if the Company is
acting as its own Paying Agent, the Company.
"PAYMENT BLOCKAGE PERIOD" has the meaning specified in Section
11.3.
"PAYMENT BLOCKAGE NOTICE" has the meaning specified in Section
11.3.
"PERMITTED EXCESS SPREAD RECEIVABLES INDEBTEDNESS" means any
Indebtedness secured by Permitted Lien referred to in clause (vii) of
the definition thereof.
"PERMITTED LIENS" means, with respect to the Company and any
Restricted Subsidiary: (i) pledges or deposits by such Person under
worker's compensation laws, unemployment insurance laws or similar
legislation, or good faith deposits in connection with bids, tenders,
contracts (other than for the payment of Indebtedness) or leases to
which such Person is a party, or deposits to secure public or statutory
obligations of such Person or deposits of cash or United States
government bonds to secure surety or appeal bonds to which such Person
is a party, or deposits as security for contested taxes or for the
payment of rent, in each case Incurred in the ordinary course of
business; (ii) Liens imposed by law, such as carriers', warehousemen's
and mechanics' Liens, in each case for amounts not yet due or being
contested in good faith by appropriate proceedings or other Liens
arising out of judgments or awards against such Person with respect to
which such Person shall then be proceeding with an appeal or other
proceedings for review; (iii) Liens for property taxes not yet subject
to penalties for nonpayment or which are being contested in good faith
and by appropriate proceedings; (iv) minor survey exceptions, minor
encumbrances, easements or reservations of, or rights of others for,
licenses, rights of way, sewers, electric lines, telegraph and
telephone lines and other similar purposes, or zoning or other
restrictions as to the use
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of real property, or leases, subleases or other Liens incidental to the
conduct of the business of such Person or to the ownership of its
properties which were not Incurred in connection with Indebtedness and
which do not in the aggregate materially adversely affect the value of
said properties or materially impair their use in the operation of the
business of such Person; (v) Liens securing Indebtedness of such Person
Incurred to finance the construction, purchase or lease of, or repairs,
improvements or additions to, equipment (including vehicles) of such
Person (but excluding Capital Stock of another Person); provided,
however, that the Lien may not extend to any other property owned by
such Person or any of its Subsidiaries at the time the Lien is
Incurred, and the Indebtedness secured by the Lien may not be Incurred
more than 180 days after the later of the acquisition, completion of
construction, repair, improvement, addition or commencement of full
operation of the property subject to the Lien; (vi) Liens on
Receivables of the Company or a Subsidiary, as the case may be, to
secure Indebtedness permitted under the provisions described in clause
(b)(1) of Section 9.9; (vii) Liens on Excess Spread Receivables (or on
the Capital Stock of any Person substantially all the assets of which
are Excess Spread Receivables) securing Permitted Excess Spread
Receivables Indebtedness; (viii) Liens existing on the Issue Date and
listed on Schedule 9.12 to this Indenture; (ix) Liens on property or
shares of Capital Stock of another Person at the time such other Person
becomes a Subsidiary of such Person; provided, however, that (A) such
Liens are not created, incurred or assumed in connection with, or in
contemplation of, such acquisition and (B) such Liens may not extend to
any other property owned by such Person or any of its Subsidiaries; (x)
Liens on property at the time such Person or any of its Subsidiaries
acquires the property, including any acquisition by means of a merger
or consolidation with or into such Person or a Subsidiary of such
Person; provided, however, that (A) such Liens are not created,
incurred or assumed in connection with, or in contemplation of, such
acquisition and (B) such Liens may not extend to any other property
owned by such Person or any of its Subsidiaries; (xi) Liens securing
Indebtedness or other obligations of a Subsidiary of such Person owing
to such Person or a Wholly Owned Subsidiary of such Person; (xii) Liens
securing Hedging Obligations of the Company or such Restricted
Subsidiary so long as such Hedging Obligations relate to Indebtedness
that is, and is permitted under this Indenture to be, secured by a Lien
on the same property securing such Hedging Obligations; (xiii) Liens to
secure any Refinancing (or successive Refinancings) as a whole, or in
part, of any Indebtedness of the Company or such Subsidiary secured by
any Lien referred to in the foregoing clauses (v), (vii), (viii) and
(ix); provided, however, that (A) such new Lien shall be limited to all
or part of the same property that secured the original Lien (plus
improvements to or on such property), (B) the Indebtedness secured by
such Lien at such time is not increased to any amount greater than the
sum of (1) the outstanding principal amount or, if greater, committed
amount of the Indebtedness described in clause (v), (vii), (viii), (ix)
or (x), as the case may be, at the time the original Lien became a
Permitted Lien and (2) an amount necessary to pay any fees and
expenses, including premiums, related to such refinancing, and (C) the
Average Life of such Indebtedness is not decreased; and (xiv) any Lien
in the form of "over-collateralization" of the senior certificates
issued in, or subordination of or recourse to all or a portion of
Excess Spread Receivables of the Company or any Subsidiary attributable
to, a securitization of Receivables, in each case to the extent of the
book value of such Excess Spread Receivables,
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which Lien is in favor of the holders of other interests in the trust
or other vehicle relating to such securitization.
"PERMITTED WAREHOUSE INDEBTEDNESS" means Warehouse
Indebtedness in connection with a Warehouse Facility; provided,
however, that (i) the assets being financed are or, prior to any
funding under the Warehouse Facility with respect to such assets, were
eligible to be recorded as held for sale on the consolidated balance
sheet of the Company and its Restricted Subsidiaries in accordance with
GAAP, (ii) Warehouse Indebtedness constitutes Permitted Warehouse
Indebtedness only (a) if, in the case of Warehouse Indebtedness under a
Purchase Facility, recourse with respect to the obligations of the
Company and its Subsidiaries under such Warehouse Facility is limited
to the original principal amount of the Receivables financed thereby
plus an amount equal to 20% of the principal amount of such Receivables
or (b) in the case of any other Warehouse Indebtedness, to the extent
of the lesser of (A) the amount advanced by the lender with respect to
the Receivables financed under the Warehouse Facility, and (B) the
principal amount of such Receivables, and (iii) any such Indebtedness
has not been outstanding in excess of 360 days.
"PERSON" means any individual, corporation, partnership, joint
venture, association, joint-stock company, limited liability company,
trust, unincorporated organization, government or any agency or
political subdivision thereof or any other entity.
"PLACE OF PAYMENT" means the place or places where the
principal of and any premium and interest on the Notes are payable as
specified in Section 9.2.
"PREDECESSOR NOTE" of any particular Note means every previous
Note evidencing all or a portion of the same debt as that evidenced by
such particular Note; and, for the purposes of this definition, any
Note authenticated and delivered under Section 3.7 in exchange for or
in lieu of a mutilated, destroyed, lost or stolen Note shall be deemed
to evidence the same debt as the mutilated, destroyed, lost or stolen
Note.
"PREFERRED STOCK" as applied to the Capital Stock of any
Person, means Capital Stock of any class or classes (however
designated) which is preferred as to the payment of dividends, or as to
the distribution of assets upon any voluntary or involuntary
liquidation or dissolution of such Person, over shares of Capital Stock
of any other class of such corporation.
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"PRINCIPAL" of a Note means the principal of the Note payable
on the Note which is due or overdue or is to become due at the relevant
time.
"PRIVATE PLACEMENT LEGEND" is defined in Section 2.4(b).
"PUBLIC EQUITY OFFERING" means an underwritten primary public
offering of Common Stock of the Company pursuant to an effective
registration statement under the Securities Act.
"PURCHASE FACILITY" means any Warehouse Facility pursuant to
which the Company or a Subsidiary sells Receivables to a financial
institution or other Person and retains a right of first refusal (or a
right with similar effect) upon the subsequent resale of such
Receivables by such financial institution.
"QUALIFIED INSTITUTIONAL BUYER" or "QIB" has the meaning
specified in Rule 144A under the Securities Act.
"QUALIFIED STOCK" of any Person means any and all Capital
Stock of such Person other than Disqualified Stock.
"RECAPITALIZATION" means the broad plan of recapitalization of
the Company as described in the Offering Memorandum.
"RECEIVABLES" means loans, leases and receivables purchased or
originated by the Company or any Subsidiary in the ordinary course of
business; provided, however, that for purposes of determining the
amount of a Receivable at any time, such amount shall be determined in
accordance with GAAP, consistently applied, as of the most recent
practicable date.
"REDEMPTION DATE", when used with respect to any Note to be
redeemed, means the date fixed for such redemption by or pursuant to
this Indenture.
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"REDEMPTION PRICE", when used with respect to any Note to be
redeemed, means the price at which it is to be redeemed pursuant to
this Indenture.
"REFINANCE" means, in respect of any Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or
retire, or to issue other Indebtedness in exchange or replacement for,
such Indebtedness. "REFINANCED" and "REFINANCING" shall have
correlative meanings.
"REFINANCING INDEBTEDNESS" means Indebtedness that Refinances
any Indebtedness of the Company or any Subsidiary existing on the Issue
Date or Incurred in compliance with this Indenture, including
Indebtedness that Refinances Refinancing Indebtedness; provided,
however, that (i) such Refinancing Indebtedness has a Stated Maturity
no earlier than the Stated Maturity of the Indebtedness being
Refinanced, (ii) such Refinancing Indebtedness has an Average Life at
the time such Refinancing Indebtedness is Incurred that is equal to or
greater than the Average Life of the Indebtedness being Refinanced,
(iii) such Refinancing Indebtedness has an aggregate principal amount
(or, if Incurred with original issue discount, an aggregate issue
price) that is equal to or less than the aggregate principal amount
(or, if Incurred with original issue discount, the aggregate accreted
value) then outstanding or committed (plus fees and expenses, including
any premium and defeasance costs) under the Indebtedness being
Refinanced, and (iv) in the case of Refinancing Indebtedness that
Refinances any Junior Subordinated Obligations, such Refinancing
Indebtedness constitutes a Junior Subordinated Obligation; provided
further, however, that Refinancing Indebtedness shall not include
Indebtedness of a Subsidiary that Refinances Indebtedness of the
Company or another Subsidiary.
"REGISTRATION DEFAULT " has the meaning specified in Section
3.9.
"REGISTRATION RIGHTS AGREEMENT" means, with respect to the New
Notes, the registration rights agreement that the Company has entered
into with Friedman, Billings, Ramsey & Co., Inc., dated as of June 29,
1998 with respect to and benefiting the New Notes.
"REGULAR RECORD DATE" for the interest payable on any Interest
Payment Date on the Notes means the May 15 or November 15 (whether or
not a Business Day), as the case may be, next preceding such Interest
Payment Date.
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"REGULATION S DEFINITIVE NOTE" is defined in Section 4.3(d).
"REGULATION S GLOBAL NOTE" is defined in Section 3.1(b).
"REGULATION S TEMPORARY GLOBAL NOTE" is defined in Section
3.1(b).
"RELATED BUSINESS" means any consumer lending business or any
financial service business directly relating to such business.
"REPRESENTATIVE" means, with respect to any Senior
Indebtedness, any holder thereof or any agent, trustee or other
representative for any such holder.
"RESPONSIBLE OFFICER", when used with respect to the Trustee,
means the chairman or any vice-chairman of the board of directors, the
chairman or any vice-chairman of the executive committee of the board
of directors, the chairman of the trust committee, the president, any
vice president, any assistant vice president, the secretary, any
assistant secretary, the treasurer, any assistant treasurer, the
cashier, any assistant cashier, any senior trust officer, trust officer
or assistant trust officer, the controller or any assistant controller
or any other officer of the Trustee customarily performing functions
similar to those performed by any of the above designated officers and
also means, with respect to a particular corporate trust matter, any
other officer to whom such matter is referred because of his knowledge
of and familiarity with the particular subject.
"RESTRICTED GLOBAL NOTE" is defined in Section 3.1(b).
"RESTRICTED PERIOD" is defined in Section 4.3(e).
"RESTRICTED SECURITY" has the meaning assigned to such term in
Rule 144(a)(3) under the Securities Act; provided that the Trustee
shall be entitled to request and conclusively rely on an Opinion of
Counsel with respect to whether any Note constitutes a Restricted
Security.
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"RESTRICTION TERMINATION DATE" means, with respect to the New
Notes the date that is two years after the Issue Date.
"RIGHTS OFFERING" means the rights offering being conducted as
part of the Recapitalization and as described in the Offering
Memorandum.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIZATION VEHICLE" a subsidiary established exclusively
for the purpose of issuing securities in connection with any
securitization of Receivables.
"SENIOR INDEBTEDNESS" means principal of and interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company to the extent
postpetition interest is allowed in such proceeding) and premium, if
any, on (a) any Indebtedness of the Company or any Subsidiary of the
type referred to in clause (i), (ii), (iii), (iv) or (vi) of the
definition of "Indebtedness," or (b) all Guarantees by the Company or
any Subsidiary with respect to Indebtedness referred to in the
foregoing clause (a), unless, in the case of clause (a) or (b), the
instrument under which such Indebtedness is incurred expressly provides
that it is pari passu with or subordinated in right of payment to the
Notes.). Notwithstanding the foregoing, Senior Indebtedness shall not
include (a) any liability for federal, state, local, foreign or other
taxes, (b) any Indebtedness of the Company to any Affiliates , (c) any
trade accounts payable and expense accruals, (d) Indebtedness owed for
compensation or for services rendered, and (e) the Original Notes.
"SENIOR OFFICER" means the Chairman of the Board, a Vice
Chairman of the Board, the President, the Chief Financial Officer, a
Vice President, the Treasurer, the Controller, or the Secretary of the
Company.
"SERIES ISSUE DATE" means, with respect to any series of
Notes, the date on which Notes of such series are initially issued
hereunder, which in the case of the Existing Notes shall be the Issue
Date.
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"SHELF REGISTRATION STATEMENT" means any shelf registration
statement that the Company may be required to file and cause to be
declared effective by the SEC pursuant to the Registration Rights
Agreement.
"SPECIAL PURPOSE SUBSIDIARY" means a Subsidiary formed in
connection with a securitization of Receivables (i) all the Capital
Stock of which (other than directors' qualifying shares and shares held
by other Persons to the extent such shares are required by applicable
law to be held by a Person other than the Company or a Subsidiary) is
owned by the Company or one or more Restricted Subsidiaries, (ii) that
has no assets other than Excess Spread Receivables created in such
securitization, (iii) that conducts no business other than holding such
Excess Spread Receivables, and (iv) that has no Indebtedness (other
than short-term Indebtedness to the Company or any Wholly Owned
Subsidiary attributable to the purchase by such Subsidiary from the
Company or such Wholly Owned Subsidiary of such Receivables, which
Indebtedness is paid in full upon closing of such securitization).
"SPECIAL RECORD DATE" for the payment of any Defaulted
Interest means a date fixed by the Trustee pursuant to Section 3.8.
"STATED MATURITY" means, with respect to any security, the
date specified in such security as the fixed date on which the final
payment of principal of such security is due and payable, including
pursuant to any mandatory redemption provision (but excluding any
provision providing for the repurchase of such security at the option
of the holder thereof upon the happening of any contingency unless such
contingency has occurred).
"SUBSIDIARY" means, in respect of any Person, any corporation,
association, partnership or other business entity of which more than
50% of the total voting power of shares of Capital Stock or other
interests (including partnership interests) entitled (without regard to
the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by (i) such Person, (ii) such
Person and one or more Wholly Owned Subsidiaries of such Person or
(iii) one or more Wholly Owned Subsidiaries of such Person. Unless
otherwise specified, "SUBSIDIARY" means a Subsidiary of the Company.
"SUCCESSOR COMPANY" has the meaning specified in Section 10.1.
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"TAX SHARING AGREEMENT" means the tax allocation and indemnity
agreement, dated as of November 22, 1996, by and among Mego Financial
and the Company.
"TRUSTEE" means the Person named as the "TRUSTEE" in the first
paragraph of this instrument until a successor Trustee shall have
become such pursuant to the applicable provisions of this Indenture,
and thereafter "TRUSTEE" shall mean or include each Person who is then
a Trustee hereunder, and if at any time there is more than one such
Person, "TRUSTEE" as used with respect to the Notes shall mean the
Trustee with respect to the Notes.
"TRUST INDENTURE ACT" means the Trust Indenture Act of 1939 as
in force at the date as of which this instrument was executed;
provided, however, that in the event the Trust Indenture Act of 1939 is
amended after such date, "TRUST INDENTURE ACT" means, to the extent
required by any such amendment, the Trust Indenture Act of 1939 as so
amended.
"U.S. GOVERNMENT OBLIGATIONS" means direct obligations (or
certificates representing an ownership interest in such obligations) of
the United States of America (including any agency or instrumentality
thereof) for the payment of which the full faith and credit of the
United States of America is pledged and which are not callable at the
issuer's option.
"VICE PRESIDENT", when used with respect to any Obligor or the
Trustee, means any vice president (but shall not include any assistant
vice president), whether or not designated by a number or a word or
words added before or after the title "vice president".
"VOTING STOCK" of a Person means all classes of Capital Stock
or other interests (including partnership interests) of such Person
then outstanding and normally entitled (without regard to the
occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof.
"WAREHOUSE FACILITY" means any funding arrangement with a
financial institution or other lender or purchaser exclusively to
finance the purchase or origination of Receivables by the Company or a
Subsidiary of the Company for the purpose of pooling such Receivables
prior to securitization or sale in the ordinary course of business,
including any Purchase Facilities.
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"WAREHOUSE INDEBTEDNESS" means the consideration received by
the Company or its Subsidiaries under a Warehouse Facility with respect
to Receivables until such time such Receivables are (i) securitized,
(ii) repurchased by the Company or its Subsidiaries or (iii) sold by
the counterpart under the Warehouse Facility to a Person who is not an
Affiliate of the Company.
"WHOLLY OWNED SUBSIDIARY" means a Subsidiary all the Capital
Stock of which (other than directors' qualifying shares and shares held
by other Persons to the extent such shares are required by applicable
law to be held by a Person other than the Company or a Subsidiary) is
owned by the Company or one or more Wholly Owned Subsidiaries.
Section 1.2 Compliance Certificates and Opinions.
Upon any application or request by any Obligor to the Trustee
to take any action under any provision of this Indenture, the Obligor shall
furnish to the Trustee such certificates and opinions as may be required under
the Trust Indenture Act. Each such certificate or opinion shall be given in the
form of an Officers' Certificate, if to be given by an officer of the Obligor,
or an Opinion of Counsel, if to be given by counsel, and shall comply with the
requirements of the Trust Indenture Act and any other requirements set forth in
this Indenture.
Every certificate or opinion (other than the Officers'
Certificate delivered under Section 10.4 hereof) with respect to compliance with
a condition or covenant provided for in this Indenture shall include:
(1) a statement that each individual signing such certificate
or opinion has read such covenant or condition and the definitions
herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
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(3) a statement that, in the opinion of each such individual,
he has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
Section 1.3 Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified
by, or covered by an opinion of, any specified Person, it is not necessary that
all such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of any Obligor may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or opinion of counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Obligor stating that the
information with respect to such factual matters is in the possession of the
Obligor, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.
Section 1.4 Acts of Holders, Record Dates.
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(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given or taken
by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective upon action by the requisite percentage of Holders
when such instrument or instruments are delivered to the Trustee and, where it
is hereby expressly required, to the Company. Such instrument or instruments
(and the action embodied therein and evidenced thereby) are herein sometimes
referred to as the "ACT" of the Holders signing such instrument or instruments.
Proof of execution of any such instrument or of a writing appointing any such
agent shall be sufficient for any purpose of this Indenture and (subject to
Section 6.1) conclusive in favor of the Trustee and the Obligor, if made in the
manner provided in this Section.
Without limiting the generality of the foregoing, a Holder,
including a Depositary that is a Holder of a Global Note, may make, give or
take, by a proxy, or proxies, duly appointed in writing, any request, demand,
authorization, direction, notice, consent, waiver or other action provided or
permitted in this Indenture to be made, given or taken by Holders, and a
Depositary that is a Holder of a Global Note may provide its proxy or proxies to
the beneficial owners of interest in any such Global Note.
(b) The fact and date of the execution by any Person of any
such instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
(c) The Company may, in the circumstances permitted by the
Trust Indenture Act, fix any day as the record date for the purpose of
determining the Holders of Notes entitled to give or take any request, demand,
authorization, direction, notice, consent, waiver or other action, or to vote on
any action, authorized or permitted to be given or taken by Holders of Notes. If
not set by the Company prior to the first solicitation of a Holder of Notes made
by any Person in respect of any such action, or, in the case of any such vote,
prior to such vote, the record date for any such action or vote shall be the
30th day (or, if later, the date of the most recent list of Holders required to
be provided pursuant to Section 7.1) prior to such first solicitation or vote,
as the case may be. With regard to any record date for action to be taken by the
Holders Notes, only the Holders of Notes on such date (or their duly designated
proxies) shall be entitled to give or take, or vote on, the relevant action.
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(d) The ownership of Notes shall be proved by the Note
Register.
(e) Any request, demand, authorization, direction, notice,
consent, waiver or other Act of the Holder of any Note shall bind every future
Holder of the same Note and the Holder of every Note issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee or the
Company in reliance thereon, whether or not notation of such action is made upon
such Note.
(f) Without limiting the foregoing, a Holder entitled
hereunder to give or take any action hereunder with regard to any particular
Note may do so with regard to all or any part of the principal amount of such
Note or by one or more duly appointed agents each of which may do so pursuant to
such appointment with regard to all or any different part of such principal
amount.
Section 1.5 Notices, Etc., to Trustee and Company.
Except as otherwise expressly provided herein, any request,
demand, authorization, direction, notice, consent, waiver or Act of Holders or
other document provided or permitted by this Indenture to be made upon, given or
furnished to, or filed with,
(1) the Trustee by any Holder or by any Obligor shall be
sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with the Trustee at its Corporate Trust Office,
or
(2) any Obligor by the Trustee or by any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage
prepaid, to the Obligor addressed to it at the address of the Company's
principal office specified in the first paragraph of this instrument or
at any other address previously furnished in writing to the Trustee by
such Obligor, Attention: George Karfunkel, Executive Vice President.
Section 1.6 Notice to Holders; Waiver.
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Where this Indenture provides for notice to Holders of any
event, such notice shall be sufficiently given (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage prepaid, to
each Holder affected by such event, at his address as it appears in the Note
Register, not later than the latest date (if any), and not earlier than the
earliest date (if any), prescribed for the giving of such notice. In any case
where notice to Holders is given by mail, neither the failure to mail such
notice, nor any defect in any notice so mailed, to any particular Holder shall
affect the sufficiency of such notice with respect to other Holders. Where this
Indenture provides for notice in any manner, such notice may be waived in
writing by the Person entitled to receive such notice, either before or after
the event, and such waiver shall be the equivalent of such notice. Waivers of
notice by Holders shall be filed with the Trustee, but such filing shall not be
a condition precedent to the validity of any action taken in reliance upon such
waiver.
In case by reason of the suspension of regular mail service or
by reason of any other cause it shall be impracticable to give such notice by
mail, then such notification as shall be made with the approval of the Trustee
shall constitute a sufficient notification for every purpose hereunder.
Section 1.7 Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with a
provision of the Trust Indenture Act that is required under such Act to be a
part of and govern this Indenture, the latter provision shall control. If any
provision of this Indenture modifies or excludes any provision of the Trust
Indenture Act that may be so modified or excluded, the latter provision shall be
deemed to apply to this Indenture as so modified or to be excluded, as the case
may be.
Section 1.8 Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of
Contents are for convenience only and shall not affect the construction hereof.
Section 1.9 Successors and Assigns.
All covenants and agreements in this Indenture by the Company
shall bind its successors and assigns, whether so expressed or not.
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Section 1.10 Separability Clause.
In case any provision in this Indenture or in the Notes shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
Section 1.11 Benefits of Indenture.
Nothing in this Indenture or in the Notes, express or implied,
shall give to any Person, other than (a) the parties hereto and their successors
hereunder and (b) the Holders, any benefit or any legal or equitable right,
remedy or claim under this Indenture.
Section 1.12 Governing Law; Choice of Forum.
(A) THIS INDENTURE AND THE NOTES WILL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING
EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE
APPLICATION OF THE LAW OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
(b) EACH OBLIGOR HEREBY IRREVOCABLY SUBMITS TO THE
JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN
THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN
THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF
OR RELATING TO THIS INDENTURE AND THE NOTES, AND IRREVOCABLY ACCEPTS FOR ITSELF
AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF
THE AFORESAID COURTS. EACH OBLIGOR IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
THEY MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY OBJECTION WHICH IT MAY NOW
OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
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(c) Each Obligor hereby irrevocably appoints CT Corporation
Systems (the "PROCESS AGENT," which has consented thereto) with offices on the
date hereof at 1633 Broadway, New York, New York 10019, as Process Agent to
receive for and on behalf of such Obligor service of process in the County of
New York relating to this Indenture and the Notes. SERVICE OF PROCESS IN ANY
SUIT, ACTION OR PROCEEDING AGAINST ANY OBLIGOR MAY BE MADE ON THE PROCESS AGENT
BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, OR BY ANY OTHER
METHOD OF SERVICE PROVIDED FOR UNDER APPLICABLE LAWS IN EFFECT IN THE STATE OF
NEW YORK, AND THE PROCESS AGENT IS HEREBY AUTHORIZED AND DIRECTED TO ACCEPT SUCH
SERVICE FOR AND ON BEHALF OF SUCH OBLIGOR AND TO ADMIT SERVICE WITH RESPECT
THERETO. SUCH SERVICE UPON THE PROCESS AGENT SHALL BE DEEMED EFFECTIVE PERSONAL
SERVICE ON SUCH OBLIGOR, SUFFICIENT FOR PERSONAL JURISDICTION, 10 DAYS AFTER
MAILING, AND SHALL BE LEGAL AND BINDING UPON SUCH OBLIGOR FOR ALL PURPOSES,
NOTWITHSTANDING ANY FAILURE OF THE PROCESS AGENT TO MAIL COPIES OF SUCH LEGAL
PROCESS TO SUCH OBLIGOR OR ANY FAILURE ON THE PART OF SUCH OBLIGOR TO RECEIVE
THE SAME. Each Obligor confirms that it has instructed the Process Agent to mail
to such Obligor, upon service of process being made on the Process Agent
pursuant to this Section, a copy of the summons and complaint or other legal
process served upon it, by registered mail, return receipt requested, at such
Obligor's address set forth in Schedule 105, or to such other address as such
Obligor may notify the Process Agent in writing. Each Obligor agrees that it
will at all times maintain a process agent to receive service of process in the
County of New York on its behalf with respect to this Indenture and the Notes.
If for any reason the Process Agent or any successor thereto shall no longer
serve as such process agent or shall have changed its address without
notification thereof to the Trustee, such Obligor, immediately after gaining
knowledge thereof, irrevocably shall appoint a substitute process agent
acceptable to the Trustee in the County of New York and advise the Trustee
thereof.
(d) NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE TRUSTEE OR
ANY HOLDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE
LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY OBLIGOR IN ANY OTHER
JURISDICTION.
Section 1.13 Legal Holidays.
In any case where any Interest Payment Date, Redemption Date
or Stated Maturity of any Note shall not be a Business Day at any Place of
Payment, then (notwithstanding any other provision of this Indenture or of the
Notes (other than a provision of the Notes which specifically states that such
provision shall apply in lieu of this Section)) payment of interest or principal
(and premium, if any) need not be made at such Place of Payment on such date,
but may be made on the next succeeding Business Day at such Place of Payment
with the same force and effect as if made
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on the Interest Payment Date or Redemption Date, or at the Stated Maturity,
provided that no interest shall accrue with respect to such payment for the
period from and after such Interest Payment Date, Redemption Date or Stated
Maturity, as the case may be.
ARTICLE TWO -
NOTE FORMS
Section 2.1 Forms Generally.
The Notes shall be in substantially the form set forth in this
Article, with such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Indenture, and may have such
letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may be required to comply with the rules of any
securities exchange or as may, consistently herewith, be determined by the
officers executing such Notes, as evidenced by their execution of the Notes.
The definitive Notes shall be printed, lithographed or
engraved on steel engraved borders or may be produced in any other manner, all
as determined by the officers of the Obligor executing such Notes, as evidenced
by their execution of such Notes.
Section 2.2 Form of Face of Note.
MEGO MORTGAGE CORPORATION
12 1/2% SUBORDINATED NOTES DUE 2001
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No................... $..............
Mego Mortgage Corporation, a corporation duly organized and
existing under the laws of Delaware (herein called the
"Company", which term includes any Successor Company under the
Indenture hereinafter referred to), for value received, hereby
promises to pay to .........................., or registered
assigns, the principal sum of ....................... Dollars
on December 1, 2001, and to pay interest thereon from [insert
Series Issue Date of the relevant series] or from the most
recent Interest Payment Date to which interest has been paid
or duly provided for, semi-annually on June 1 and December 1
in each year, commencing [insert first Interest Payment Date
after relevant Series Issue Date], at the rate of 12 1/2% per
annum, until the principal hereof is paid or made available
for payment, and at the rate of 1% over the rate set forth
above per annum on any overdue principal and (to the extent
that the payment of such interest shall be legally
enforceable) on any overdue installment of interest. The
interest so payable, and punctually paid or duly provided for,
on any Interest Payment Date will, as provided in such
Indenture, be paid to the Person in whose name this Note (or
one or more Predecessor Notes) is registered at the close of
business on the Regular Record Date for such interest, which
shall be the May 15 or November 15 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment
Date. Any such interest not so punctually paid or duly
provided for will forthwith cease to be payable to the Holder
on such Regular Record Date and may either be paid to the
Person in whose name this Note (or one or more Predecessor
Notes) is registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest to be
fixed by the Trustee, notice whereof shall be given to Holders
of Notes not less than 10 days prior to such Special Record
Date, or be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange
on which the Notes may be listed, and upon such notice as may
be required by such exchange, all as more fully provided in
said Indenture.
Payment of the principal of (and premium, if any) and
any such interest on this Note will be made at the office or
agency of the Company maintained for that purpose in the City
of New York, Borough of Manhattan, in such coin or currency of
the United States of America as at the time of payment is
legal tender for payment of public and private debts.
Reference is hereby made to the further provisions of
this Note set forth on the reverse hereof, which further
provisions shall for all purposes have the same effect as if
set forth at this place.
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Unless the certificate of authentication hereon has
been executed by the Trustee referred to on the reverse hereof
by manual signature, this Note shall not be entitled to any
benefit under the Indenture or be valid or obligatory for any
purpose.
IN WITNESS WHEREOF, the Company has caused this
instrument to be duly executed under its corporate seal.
Dated:
MEGO MORTGAGE CORPORATION
By.......................
Attest:
.........................
Section 2.3 Form of Reverse of Note.
This Note is one of a duly authorized issue of securities of
the Company (herein called the "NOTES"), issued under an Indenture, dated as of
June __, 1998 (herein called the "INDENTURE"), by and between the Company, and
American Stock Transfer & Trust Company, as Trustee (herein called the
"TRUSTEE", which term includes any successor trustee under the Indenture), to
which Indenture and all indentures supplemental thereto reference is hereby made
for a statement of the respective rights, limitations of rights, duties and
immunities thereunder of the Company, the Trustee and the Holders of the Notes
and of the terms upon which the Notes are, and are to be, authenticated and
delivered. This Note is one of the Notes designated on the face hereof, limited
in aggregate principal amount to $41,495,000.
The Notes are redeemable, in whole but not in part, prior to
maturity at the option of the Company at any time and from time to time at a
redemption price (the "Redemption Price") (expressed as a percentage of
principal amount), (i) prior to December 1, 1999, of 100% and (ii) after
December 1, 1999 but prior to December 1, 2001, of 106%, in either case plus
accrued and unpaid interest (including Added Interest, if any) to the redemption
date (subject to the right of Holders of record on the relevant record date to
receive interest (including Added Interest, if any) due on the relevant interest
payment date).
The Notes are subordinated in right of payment, in the manner
and to the extent set forth in the Indenture, to the prior payment in full of
all Senior Indebtedness of the Company,
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whether outstanding on the date of the Indenture or thereafter created,
incurred, assumed or guaranteed. Each Holder by his acceptance hereof agrees to
be bound by such provisions and authorizes and expressly directs the Trustee, on
his behalf, to take such action as may be necessary or appropriate to effectuate
the subordination provided for in the Indenture and appoints the Trustee his
attorney-in-fact for such purposes.
The Indenture contains provisions for defeasance at any time
of (a) the entire indebtedness evidenced by this Note and (b) certain
restrictive covenants, in each case upon compliance by the Company with certain
conditions set forth therein, which provisions apply to this Note.
If an Event of Default with respect to Notes shall occur and
be continuing, the principal of the Notes may be declared due and payable in the
manner and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the Holders of the Notes to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of a majority in principal amount of the Notes at the
time Outstanding. The Indenture also contains provisions permitting the Holders
of specified percentages in principal amount of the Notes at the time
Outstanding, on behalf of the Holders of all Notes of such series, to waive
certain past defaults under the Indenture and their consequences. Any such
consent or waiver by the Holder of this Note shall be conclusive and binding
upon such Holder and upon all future Holders of this Note and of any Note issued
upon the registration of transfer hereof or in exchange herefor or in lieu
hereof, whether or not notation of such consent or waiver is made upon this
Note.
No reference herein to the Indenture and no provision of this
Note or of the Indenture shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of and any premium and
interest on this Note at the times, place and rate, and in the coin or currency,
herein prescribed.
As provided in the Indenture and subject to certain
limitations therein set forth, the transfer of this Note is registrable in the
Note Register, upon surrender of this Note for registration of transfer at the
office or agency of the Company in any place where the principal of and any
premium and interest on this Note are payable, duly endorsed by, or accompanied
by a written instrument of transfer in form satisfactory to the Company and the
Note Registrar duly executed by,
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the Holder hereof or his attorney duly authorized in writing, and thereupon one
or more new Notes of like tenor, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees.
The Notes are issuable only in registered form without coupons
in denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, Notes are
exchangeable for a like aggregate principal amount of Notes of like tenor of a
different authorized denomination, as requested by the Holder surrendering the
same.
No service charge shall be made for any such registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Note for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Note is registered as the owner hereof
for all purposes, whether or not this Note be overdue, and neither the Company,
the Trustee nor any such agent shall be affected by notice to the contrary.
All terms used in this Note which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
Section 2.4 Form of Legends for Certain Notes.
(a) Any Global Note authenticated and delivered hereunder
shall bear a legend in substantially the following form:
"This Note is a Global Note within the meaning of the
Indenture hereinafter referred to and is registered in the
name of a Depositary or a nominee thereof. This Note may not
be transferred to, or registered or exchanged for Notes
registered in the name of, any Person other than the
Depositary or a nominee thereof or a successor of such
Depositary or a nominee of such successor and no such transfer
may be registered, except in
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the limited circumstances described in the Indenture. Every
Note authenticated and delivered upon registration of transfer
of, or in exchange for or in lieu of, this Note shall be a
Global Note subject to the foregoing, except in such limited
circumstances."
(b) From the related Series Issue Date unless and until
(i) exchanged for an Exchange Note pursuant to the Registration Rights Agreement
or (ii) sold under an effective Shelf Registration Statement, New Notes that
constitute Restricted Securities (including Restricted Global Notes), Regulation
S Global Notes, or Regulation S Definitive Notes shall contain a legend
substantially to the following effect (the "PRIVATE PLACEMENT LEGEND") on the
face thereof:
"THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN
THE FOLLOWING SENTENCE OR UNLESS A REGISTRATION STATEMENT
UNDER THE SECURITIES ACT IS IN EFFECT WITH RESPECT TO THIS
NOTE. BY ITS ACQUISITION HEREBY (BUT SUBJECT TO CERTAIN RIGHTS
TO REQUIRE REGISTRATION OF THE NOTES), THE HOLDER (1)
REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER"
(AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (B) IT IS
AN "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2),
(3), (5), (6) or (7) UNDER THE SECURITIES ACT) OR (C) IT IS A
"NON-US PERSON" (AS DEFINED IN REGULATION S UNDER THE
SECURITIES ACT); (2) AGREES THAT IT WILL NOT PRIOR TO THE
LATER TO OCCUR OF (i) TWO YEARS AFTER THE ORIGINAL ISSUANCE OF
THE NOTE EVIDENCED HEREBY OR (ii) ACQUISITION THEREOF FROM AN
AFFILIATE OF THE COMPANY (THE "RESTRICTION TERMINATION DATE")
RESELL OR OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY OR ANY
INTEREST THEREIN, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR IN A TRANSACTION NOT
REQUIRING REGISTRATION UNDER THE SECURITIES ACT (A) TO MEGO
MORTGAGE CORPORATION OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE
UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE
WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED
STATES TO AN ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER,
FURNISHES TO THE TRUSTEE UNDER THE INDENTURE
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RELATING TO THIS NOTE (THE "TRUSTEE") A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO
THE RESTRICTION ON TRANSFER OF THE NOTES EVIDENCED HEREBY (THE
FORM OF WHICH LETTER CAN BE OBTAINED FROM MEGO MORTGAGE
CORPORATION OR THE TRUSTEE), (D) OUTSIDE THE UNITED STATES IN
COMPLIANCE WITH REGULATION S PROMULGATED UNDER THE SECURITIES
ACT, (E) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, INCLUDING THE
EXEMPTION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF
AVAILABLE), SUBJECT IN EACH OF THE FOREGOING CASES TO ANY
REQUIREMENT OF LAW THAT THE DISPOSITION OF THE PROPERTY OF
SUCH HOLDER BE AT ALL TIMES WITHIN SUCH HOLDER'S CONTROL AND
IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS; AND
(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS
NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF
THIS LEGEND, IN CONNECTION WITH ANY TRANSFER OF THE NOTE
EVIDENCED HEREBY PRIOR TO THE RESTRICTION TERMINATION DATE. IN
THE CASE OF CERTAIN TRANSFERS PURSUANT TO CLAUSE (2)(B) OR
(2)(D), THE HOLDER MUST MAKE CERTAIN CERTIFICATIONS TO THE
TRUSTEE TO CONFIRM THAT SUCH TRANSFERS ARE BEING MADE PURSUANT
AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. IN ADDITION,
IN THE CASE OF ANY TRANSFER REFERRED TO IN CLAUSE (2)(E)
ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER FURNISH TO THE
TRUSTEE SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER
INFORMATION AS THE COMPANY OR THE TRUSTEE MAY REASONABLY
REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT
TO AN EXEMPTION FROM OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT."
Section 2.5 Form of Trustee's Certificate of Authentication.
The Trustee's certificate of authentication shall be in
substantially the following form:
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This is one of the Notes designated and referred to in the
within-mentioned Indenture.
AMERICAN STOCK TRANSFER & TRUST
COMPANY, as Trustee
By
--------------------------------------
Authorized Officer
Section 2.6 Form of Assignment.
Each Note shall include the following form of Assignment:
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ASSIGNMENT
(TO BE EXECUTED BY THE REGISTERED HOLDER
IF SUCH HOLDER DESIRES TO TRANSFER THIS NOTE)
FOR VALUE RECEIVED _________________ hereby sells, assigns and
transfers unto _____________________________________________________.
PLEASE INSERT SOCIAL SECURITY OR OTHER
TAX IDENTIFYING NUMBER OF TRANSFEREE
(PLEASE PRINT NAME AND ADDRESS OF TRANSFEREE)
this Note, together with all right, title and interest herein, and does hereby
irrevocably constitute and appoint ___________________ Attorney to transfer this
Note on the Note Register, with full power of substitution.
Dated:
Signature of Holder Signature Guaranteed:
NOTICE: The signature to the foregoing Assignment must correspond to the Name as
written upon the face of this Note in every particular, without alteration or
any change whatsoever.
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ARTICLE THREE -
THE NOTES
Section 3.1 Global Note; Depositary.
(a) The New Notes initially will be, and the Exchange Notes
initially may be, issued in the form of one or more Global Notes. Each Global
Note will be deposited on the relevant Series Issue Date (or, in the case of any
Exchange Notes, on the date of consummation of the relevant Exchange Offer) with
The Depository Trust Company or any other depositary designated for the Notes
evidenced thereby (the "DEPOSITARY"), or the Trustee on its behalf, and
registered in the name of Cede & Co. or any other relevant Person, as nominee of
the Depositary (such nominee being referred to herein as the "GLOBAL NOTE
HOLDER").
(b) New Notes offered and sold to QIBs in reliance on Rule
144A shall be issued initially in the form of one or more Global Notes, and New
Notes offered and sold to Accredited Investors, if so provided in the offering
memorandum with respect to such offering, shall be issued initially in the form
of one or more Global Notes (each Global Note referenced in this sentence, a
"RESTRICTED GLOBAL NOTE"). If so provided in any such offering memorandum, New
Notes offered and sold in reliance on Regulation S shall be issued initially in
the form of one or more Global Notes (a "REGULATION S GLOBAL NOTE"), which, if
so specified in the offering memorandum with respect to such offering, shall be
exchanged at the end of the Restricted Period with respect to such Regulation S
Global Note for one or more Regulation S Definitive Notes as provided in Section
4.3(d) (each Regulation S Global Note subject to such exchange, a "REGULATION S
TEMPORARY GLOBAL NOTE").
Section 3.2 Amount.
The aggregate principal amount of Notes which may be
authenticated and delivered under this Indenture is $82,990,000.00 (Eighty-Two
Million Nine Hundred and Ninety Thousand Dollars and No Cents), except as for
Notes authenticated and delivered pursuant to Section 3.5, 3.6, 3.7, 4.2 or
12.7.
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Section 3.3 Denominations.
The Notes shall be issuable in registered form without coupons
in denominations of $1,000 and any integral multiple thereof.
Section 3.4 Execution, Authentication, Delivery and
Dating.
The Notes shall be executed on behalf of each Obligor by its
Chairman of the Board, its Vice Chairman of the Board, its President or one of
its Vice Presidents, under its corporate seal reproduced thereon attested by its
Secretary or one of its Assistant Secretaries. The signature of any of these
officers on the Notes may be manual or facsimile.
Notes bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of any Obligor shall bind
the Obligor, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Notes or did
not hold such offices at the date of such Notes.
At any time and from time to time after the execution and
delivery of this Indenture, the Company may deliver Notes executed by each
Obligor to the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Notes, and the Trustee in accordance with
the Company Order shall authenticate and deliver such Notes.
Each Note shall be dated the date of its authentication.
No Note shall be entitled to any benefit under this Indenture
or be valid or obligatory for any purpose unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature of an Responsible Officer, and such
certificate upon any Note shall be conclusive evidence, and the only evidence,
that such Note has been duly authenticated and delivered hereunder.
Notwithstanding the foregoing, if any Note shall have been authenticated and
delivered hereunder but never issued and sold by the Company, and the Company
shall deliver such Note to the Trustee for cancellation as provided in Section
3.11, for all purposes of this Indenture such Note shall be deemed never to have
been authenticated and delivered hereunder and shall never be entitled to the
benefits of this Indenture.
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Section 3.5 Temporary Notes.
Pending the preparation of definitive Notes, the Obligors may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Notes which are printed, lithographed, typewritten, mimeographed or
otherwise produced, in any authorized denomination, substantially of the tenor
of the definitive Notes in lieu of which they are issued and with such
appropriate insertions, omissions, substitutions and other variations as the
officers executing such Notes may determine, as evidenced by their execution of
such Notes.
If temporary Notes are issued, the Company will cause definitive
Notes to be prepared without unreasonable delay. After the preparation of
definitive Notes, the temporary Notes shall be exchangeable for definitive Notes
upon surrender of the temporary Notes at the office or agency of the Company in
a Place of Payment, without charge to the Holder. Upon surrender for
cancellation of any one or more temporary Notes the Obligors shall execute and
the Trustee shall authenticate and deliver in exchange therefor one or more
definitive Notes of any authorized denominations and of a like aggregate
principal amount and tenor. Until so exchanged the temporary Notes shall in all
respects be entitled to the same benefits under this Indenture as definitive
Notes of such tenor.
Section 3.6 Registration; Registration of Transfer and
Exchange.
The Company shall cause to be kept at the Corporate Trust
Office of the Trustee a register (the register maintained in such office being
herein sometimes collectively referred to as the "NOTE REGISTER") in which,
subject to such reasonable regulations as it may prescribe, the Company shall
provide for the registration of Notes and of transfers of Notes. The Trustee is
hereby appointed "Note Registrar" for the purpose of registering Notes and
transfers of Notes as herein provided.
Upon surrender for registration of transfer of any Note at the
office or agency in a Place of Payment, the Company shall execute, and the
Trustee shall authenticate and deliver, in the name of the designated transferee
or transferees, one or more new Notes of any authorized denominations and of a
like aggregate principal amount and tenor.
At the option of the Holder, Notes may be exchanged for other
Notes of any authorized denominations and of a like aggregate principal amount
and tenor, upon surrender of the Notes to be exchanged at such office or agency.
In addition, in connection with any Exchange Offer, New Notes shall be exchanged
for Exchange Notes of a like aggregate principal amount and tenor,
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upon surrender of the New Notes to be exchanged at such office or agency.
Whenever any Notes are so surrendered for exchange, the Company shall execute,
and the Trustee shall authenticate and deliver, the Notes which the Holder
making the exchange is entitled to receive.
All Notes issued upon any registration of transfer or exchange
of Notes shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Notes
surrendered upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company or the Trustee) be
duly endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Note Registrar duly executed, by the Holder
thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of
transfer or exchange of Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes, other than
exchanges pursuant to Section 3.5, 3.6, 3.7, 4.2 or 12.7 not involving any
transfer.
The Company shall not be required (i) to issue, register the
transfer of or exchange Notes during a period beginning at the opening of
business 15 days before the day of the mailing of a notice of redemption of
Notes selected for redemption under Section 12.3 and ending at the close of
business on the day of such mailing or (ii) to register the transfer of or
exchange any Note so selected for redemption in whole or in part, except the
unredeemed portion of any Note being redeemed in part.
Section 3.7 Mutilated, Destroyed, Lost and Stolen Notes.
If any mutilated Note is surrendered to the Trustee, the
Obligors shall execute and the Trustee shall authenticate and deliver in
exchange therefor a new Note of like tenor and principal amount and bearing a
number not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i)
evidence to their satisfaction of the destruction, loss or theft of any Note and
(ii) such security or indemnity as may
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be required by them to save each of them and any agent of either of them
harmless, then, in the absence of notice to any Obligor or the Trustee that such
Note has been acquired by a bona fide purchaser, the Obligors shall execute and
the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost
or stolen Note, a new Note of like tenor and principal amount and bearing a
number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Note has
become or is about to become due and payable, the Obligors in their discretion
may, instead of issuing a new Note, pay such Note.
Upon the issuance of any new Note under this Section, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Note issued pursuant to this Section in lieu of any
destroyed, lost or stolen Note shall constitute an original additional
contractual obligation of the Obligors, whether or not the destroyed, lost or
stolen Note shall be at any time enforceable by anyone, and shall be entitled to
all the benefits of this Indenture equally and proportionately with any and all
other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Notes.
Section 3.8 Payment of Interest; Interest Rights
Preserved.
Interest on any Note which is payable, and is punctually paid
or duly provided for, on any Interest Payment Date shall be paid in immediately
available funds to the Person in whose name that Note (or one or more
Predecessor Notes) is registered at the close of business on the Regular Record
Date for such interest.
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Any interest on any Note which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date (herein
called "DEFAULTED INTEREST") shall forthwith cease to be payable to the Holder
on the relevant Regular Record Date by virtue of having been such Holder, and
such Defaulted Interest may be paid by the Company, at its election in each
case, as provided in clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Notes (or their respective
Predecessor Notes) are registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest, which shall be
fixed in the following manner. The Company shall notify the Trustee in
writing of the amount of Defaulted Interest proposed to be paid on each
Note and the date of the proposed payment, and at the same time the
Company shall deposit with the Trustee an amount of money equal to the
aggregate amount proposed to be paid in respect of such Defaulted
Interest or shall make arrangements satisfactory to the Trustee for
such deposit prior to the date of the proposed payment, such money when
deposited to be held in trust for the benefit of the Persons entitled
to such Defaulted Interest as in this clause provided. Thereupon the
Trustee shall fix a Special Record Date for the payment of such
Defaulted Interest which shall be not more than 15 days and not less
than 10 days prior to the date of the proposed payment and not less
than 10 days after the receipt by the Trustee of the notice of the
proposed payment. The Trustee shall promptly notify the Company of such
Special Record Date and, in the name and at the expense of the Company,
shall cause notice of the proposed payment of such Defaulted Interest
and the Special Record Date therefor to be mailed, first-class postage
prepaid, to each Holder of Notes at his address as it appears in the
Note Register, not less than 10 days prior to such Special Record Date.
Notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor having been so mailed, such Defaulted
Interest shall be paid to the Persons in whose names the Notes (or
their respective Predecessor Notes) are registered at the close of
business on such Special Record Date and shall no longer be payable
pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted Interest on
the Notes in any other lawful manner not inconsistent with the
requirements of any securities exchange on which such Notes may be
listed, and upon such notice as may be required by such exchange, if,
after notice given by the Company to the Trustee of the proposed
payment pursuant to this clause, such manner of payment shall be deemed
practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Note
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Note shall carry the rights to interest accrued and
unpaid, and to accrue, which were carried by such other Note.
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Section 3.9 Added Interest
(a) The Company and the Trustee agree that the Holders of
New Notes will suffer damages if the Company fails to fulfill its obligations to
register the New Notes pursuant to the Registration Rights Agreement and that it
would not be possible to ascertain the extent of such damages. Accordingly, in
the event of such failure by the Company to fulfill such obligations, the
Company agrees to pay liquidated damages ("Added Interest") to each Holder of
New Notes under the circumstances and to the extent set forth below:
(i) if the Exchange Offer Registration Statement has not
been filed with the SEC on or prior to the December 15, 1998; or
(ii) if the Exchange Offer Registration Statement is not
declared effective by the SEC on or prior to the March 15, 1999; or
(iii) if the Exchange Offer has not been consummated and
the Company has not exchanged Exchange Notes for all New Notes validly tendered
in accordance with the terms of the Exchange Offer on or prior to April 14, 1999
or a Shelf Registration Statement has not been declared effective by the SEC
prior to April 14, 1999;
(any of the foregoing, a "Registration Default"), then, the
Company shall pay to each Holder of New Notes, accruing from December 15, 1998
in the case of clause (i) above, March 15, 1999 in the case of clause (ii) above
or April 14, 1999 in the case of clause (iii) above, Added Interest in an amount
equal to one-half of one percent (0.5%) per annum of the principal amount of New
Notes held by such Holder; which rate will be increased by an additional
one-half of one percent (0.5%) per annum for each additional 90-day period after
the 90-day period commencing on such date that any such Added Interest continues
to accrue; provided, however that Added Interest shall not at any time exceed
one percent (1.0%) per annum of the principal amount of New Notes. Upon the
filing of the Exchange Offer Registration Statement after December 15, 1998, (y)
the effectiveness of the Exchange Offer Registration Statement after March 15,
1999 or (z) the day before the date of the consummation of the Exchange Offer or
the effectiveness of a Shelf Registration Statement, as the case may be, after
April 14, 1999, the interest rate borne by the New Notes from the date of such
filing, effectiveness or the day before the date of such consummation or
effectiveness, as the case may be, will be reduced by the full amount of the
related increase from, but not to less than, the original interest rate set
forth on the cover page of the Offering Memorandum; provided, however, that (a)
if after any such reduction in interest rate, a different event specified in
clause (i), (ii) or (iii) above occurs, the interest rate may again be increased
and
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thereafter reduced pursuant to the foregoing provisions, and (b) such rate will
also be reduced to the rate set forth on the cover page of the Offering
Memorandum on the date on which the New Notes become eligible for sale under
Rule 144 without limitation as to volume.
(b) The Company shall notify the Trustee within one
Business Day after each and every date on which a Registration Default first
occurs. Payment of Added Interest, if any, will initially be due at the offices
of the Paying Agent, provided that, at the option of the Company, Added Interest
may be paid by check mailed to Holders at their registered addresses, provided
further that (i) all payments with respect to Global Notes are required to be
made in same day funds in accordance with the policies of the Depository and
(ii) all payments with respect to New Notes, the Holders of which have given
wire transfer instructions to the Company, will be required to be made by wire
transfer of immediately available funds to the accounts specified by such
Holders. Added Interest shall be paid on or before the semi-annual interest
payment date provided in the Indenture and on each payment date provided in the
Indenture including, without limitation, whether upon redemption, or maturity
(by acceleration or otherwise). Each obligation to pay Added Interest shall be
deemed to commence accruing on the date of the applicable Registration Default
and to cease accruing when all Registration Defaults have been cured. In no
event shall the Company pay Added Interest in excess of the applicable maximum
amount set forth above, regardless of whether one or multiple Registration
Defaults exist.
(c) The parties hereto agree that the Added Interest
provided for in this Section 3.9 constitutes a reasonable estimate of the
damages that will be suffered by Holders of New Notes by reason of the failure
to file the Exchange Offer Registration Statement or the Shelf Registration
Statement, the failure of the Exchange Offer Registration Statement or the Shelf
Registration Statement to be declared effective, the failure to consummate the
Exchange Offer or the failure of the Shelf Registration Statement to remain
effective, as the case may be, in accordance with the Registration Rights
Agreement. No monetary damages in addition to Added Interest shall be payable by
the Company to Holders by reason of the failure of the actions set forth in this
Section 3.9(c) to occur as set forth herein.
Section 3.10 Persons Deemed Owners.
Prior to due presentment of a Note for registration of
transfer, the Obligors, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name such Note is registered as the owner of such
Note for the purpose of receiving payment of principal of and any
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premium and (subject to Section 3.8) any interest on such Note and for all other
purposes whatsoever, whether or not such Note be overdue, and neither the
Obligors, the Trustee nor any agent of the Company or the Trustee shall be
affected by notice to the contrary.
So long as the Global Note Holder is the registered owner of
any Notes, the Global Note Holder will be considered the sole Holder under this
Indenture of any Notes evidenced by the Global Note for the purposes of
receiving payment on the Notes, receiving notices, and for all other purposes
under this Indenture and the Notes. Beneficial owners of Notes evidenced by the
Global Note will not be considered the owners or Holders thereof under this
Indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the Trustee thereunder. Neither the
Obligors nor the Trustee will have any responsibility or liability for any
aspect of the records of the Depositary or for maintaining, supervising or
reviewing any records of the Depositary relating to the Notes.
Section 3.11 Cancellation.
All Notes surrendered for payment, redemption, registration of
transfer or exchange or for credit against any sinking fund payment shall, if
surrendered to any Person other than the Trustee, be delivered to the Trustee
and shall be promptly canceled by it. The Company may at any time deliver to the
Trustee for cancellation any Notes previously authenticated and delivered
hereunder which the Company may have acquired in any manner whatsoever, and may
deliver to the Trustee (or to any other Person for delivery to the Trustee) for
cancellation any Notes previously authenticated hereunder which the Company has
not issued and sold, and all Notes so delivered shall be promptly canceled by
the Trustee. No Notes shall be authenticated in lieu of or in exchange for any
Notes canceled as provided in this Section, except as expressly permitted by
this Indenture. All canceled Notes held by the Trustee shall be disposed of as
directed by a Company Order.
Section 3.12 Computation of Interest.
Interest on the Notes shall be computed on the basis of a
360-day year of twelve 30-day months.
Section 3.13 Exchange Notes.
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Subject to compliance with Section 9.9 (a), the Company may
from time to time issue one more series of Exchange Notes in an aggregate
principal amount not to exceed $41,495,000 pursuant to the Registration Rights
Agreement. All Exchange Notes (i) shall have terms and conditions identical to
those of the New Notes (except for provisions relating to restrictions on
transfer, global notes and the Registration Rights Agreement benefiting any such
series), (ii) will have the benefit of the same Indenture covenants as the New
Notes, (iii) shall rank in all respects pari passu with the New Notes and the
Original Notes, and (iv) shall be considered part of the same class and issue of
securities as the New Notes and, as such, the Holders of the New Notes and the
Holders of any such series of Exchange Notes shall vote on all matters subject
to vote of the Holders hereunder as one class.
ARTICLE FOUR -
BOOK-ENTRY PROVISIONS FOR GLOBAL NOTES
Section 4.1 Applicability of Article
Each Global Note shall be subject to this Article.
Section 4.2. Book-Entry Provisions For Global Note
(a) Members of, or participants in, the Depositary
("AGENT MEMBERS") shall have no rights under this Indenture with respect to any
Global Note held on their behalf by the Depositary or under any Global Note, and
the Depositary may be treated by the Company, the Trustee and any agent of the
Company or the Trustee as the absolute owner of any Global Note for all purposes
whatsoever. Any Holder of any Global Note shall, by acceptance of such Global
Note, agree that the transfers of Interests in such Global Note may be effected
only through a book-entry system maintained by the Holder of such Global Note
(or its agent), and that ownership of an Interest in such Global Note shall be
required to be reflected in a book-entry system. Notwithstanding the foregoing,
nothing herein shall prevent the Company, the Trustee or an agent of the Company
or the Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depositary or impair, as between the Depositary
and its Agent Members, the operation of customary practices governing the
exercise of the rights of a Holder of any Note.
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(b) The Depositary must, at the time of its designation
and at all times while it serves as Depositary, be a clearing agency registered
under the Exchange Act and any other applicable statute or regulation.
(c) Notwithstanding any other provision of this Section,
unless and until it is exchanged in whole or in part for individual Notes
represented thereby, a Global Note representing all or a portion of the Notes
may not be transferred except as a whole by the Depositary to a nominee of such
Depositary or by a nominee of such Depositary to such Depositary or another
nominee of such Depositary or by such Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary. Interests of
beneficial owners in the Global Notes (each an "INTEREST") may be transferred to
Agent Members or other beneficial owners or exchanged for Definitive Notes in
accordance with the rules and procedures of the Depositary, the provisions of
this Indenture and applicable law.
(d) If specified by the Company pursuant to Section 3.4,
the Depositary may surrender a Global Note (except Regulation S Global Notes
during the Restricted Period) in exchange in whole or in part for Definitive
Notes of like tenor and terms on such terms as are acceptable to the Company,
the Trustee and the Depositary. In addition, Definitive Notes shall be issued to
all beneficial owners in exchange for their Interests in Global Notes if (i) the
Depositary for the Notes notifies the Company that the Depositary is unwilling
or unable to continue as Depositary for the Global Notes or is no longer
eligible to serve as Depositary pursuant to the terms of this Indenture and a
successor Depositary is not appointed by the Company within 90 days after
delivery of such notice; (ii) the Company, at its sole discretion, notifies the
Trustee in writing that it elects to cause the issuance of Definitive Notes
under this Indenture; or (iii) there shall have occurred and be continuing a
Default with respect to any Notes represented by the Global Notes, provided that
clauses (i) and (ii) shall not apply to Regulation S Global Notes during the
Restricted Period.
(e) In connection with the transfer of any Interest from
one Agent Member to another Agent Member not taking a Definitive Note, but an
Interest, the Depositary shall reflect on its books and records the date, the
name of the transferor and transferee, and the amount of the Interest
transferred.
(f) In connection with the issuance to beneficial owners
of Definitive Notes in exchange for any Global Note pursuant to paragraph (c) or
(h) of this Section, such Global Note shall be deemed to be surrendered to the
Trustee for cancellation, and the Company shall execute and the Trustee upon
receipt of a Company Order for the authentication and delivery of Definitive
Notes shall authenticate and deliver, without service charge:
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(i) to the Depositary or to each Person
specified by such Depositary a new Definitive Note or
Definitive Notes of like tenor and terms and of any authorized
denomination as requested by such Person in aggregate
principal amount equal to and in exchange for such Person's
Interest in the Global Note; and
(ii) to such Depositary a new Global Note of like
tenor and terms and in an authorized denomination equal to the
difference, if any, between the principal amount of the
surrendered Global Note and the aggregate principal amount of
Definitive Notes delivered to Holders thereof.
Except as otherwise provided in this Indenture, any
Note authenticated and delivered upon registration of transfer
of, or in exchange for, or in lieu of, any Global Note shall
also be a Global Note and shall bear the legend specified in
Section 2.4(a) except for any Note authenticated and delivered
in exchange for, or upon registration of transfer of, a Global
Note pursuant to the preceding sentence.
(g) The Holder of any Global Note may grant proxies and
otherwise authorize any person, including Agent Members and persons that may
hold Interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Notes.
(h) Upon the exchange of any Global Note in its entirety
for Definitive Notes or another Global Note, such Global Note shall be canceled
by the Trustee.
(i) Notwithstanding anything herein to the contrary, if
at any time the Depositary for the Notes notifies the Company that it is
unwilling or unable to continue as a Depositary for the Notes or if at any time
the Depositary for the Notes shall no longer be registered or in good standing
under the Exchange Act, or other applicable statute or regulation, the Company
shall appoint a successor Depositary with respect to the Notes. If a successor
Depositary for the Notes is not appointed by the Company within 90 days after
the Company receives such notice or becomes aware of such condition, the Company
will execute, and the Trustee, upon Company Request, will authenticate and
deliver Definitive Notes in an aggregate principal amount equal to the principal
amount of the Global Note or Global Notes representing Notes in exchange for
such Global Note or Global Notes.
Section 4.3. Special Transfer Provisions.
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(a) Transfers to Non-U.S. Persons. With respect to any
proposed transfer of any Definitive Note constituting a Restricted Security or
of an Interest in any Restricted Global Note to any Non-U.S. Person (which
Non-U.S. Person would, in the case of a transfer of any Definitive Note or an
Interest in any Restricted Global Note during the Restricted Period, take an
Interest in a Regulation S Global Note):
(i) in the case of the transfer of any
Definitive Note constituting a Restricted Security for a
Regulation S Definitive Note or a Regulation S Global Note,
the Note Registrar shall, whether or not such Note bears the
Private Placement Legend, register such transfer and, if
applicable, issue such Definitive Note, if (x) the requested
transfer is after the Restriction Termination Date, or (y) the
proposed transferor has delivered to the Note Registrar a
certificate substantially in the form of Annex A hereto;
(ii) in the case of the transfer of an Interest
in any Restricted Global Note for an Interest in a Regulation
S Global Note, there shall be delivered to the Note Registrar
(x) the certificate, if any, required by paragraph (i) above
and (y) instructions in accordance with the Depositary's and
the Note Registrar's procedures; and
(iii) in the case of the transfer of an Interest
in any Restricted Global Note for a Regulation S Definitive
Note, the Note Registrar, upon receipt of instructions in
accordance with the Depositary's and the Note Registrar's
procedures, shall register such transfer and issue such
Definitive Note, if (x) the requested transfer is after the
Restriction Termination Date, or (y) the proposed transferor
has delivered to the Note Registrar a certificate
substantially in the form of Annex A hereto.
With respect to all such transfers, (A) the Note
Registrar shall reflect on its books and records the date of
such transfer, (B) in the case of any transfer affecting any
Global Note, the Company shall execute, and the Trustee shall
authenticate and deliver to the Depositary, a new Global Note
or Global Notes in a principal amount as appropriate to
reflect such transfer, and (C) if the transfer is of a
Definitive Note, the transferred Definitive Note shall be
cancelled and, if the entire amount of such Definitive Note
was not transferred, a new Definitive Note, in the amount of
the untransferred portion of the original Definitive Note,
shall be executed by the Company, authenticated by the
Trustee, and delivered to such transferor.
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(b) Transfers to QIBs. With respect to any proposed
transfer to a QIB of any Definitive Note constituting a Restricted Security, any
Regulation S Definitive Note or an Interest in any Regulation S Global Note
(excluding transfers to Non-U.S. Persons) (which QIB would take an Interest in a
Global Note):
(i) in the case of the transfer of any
Definitive Note (including any Regulation S Definitive Note),
the Note Registrar shall register the transfer only upon
receipt of instructions in accordance with the Depositary's
and the Note Registrar's procedures and if (x) the requested
transfer is after the Restriction Termination Date, or (y) the
transferor has delivered to the Note Registrar a certificate
substantially in the form of Annex B hereto; and
(ii) in the case of the transfer of any Interest
in any Regulation S Global Note, there shall be delivered to
the Note Registrar (x) the certificate required by paragraph
(i) above and (y) instructions in accordance with the
Depositary's and the Note Registrar's procedures.
With respect to all such transfers, (A) the Note
Registrar shall reflect on its books and records the date of
such transfer, (B) if the transfer affects a Global Note, the
Company shall execute, and the Trustee shall authenticate and
deliver to the Depositary, a new Global Note or Global Notes
in a principal amount as appropriate to reflect such transfer,
and (C) if the transfer is of a Definitive Note, the
transferred Definitive Note shall be cancelled and, if the
entire amount of such Definitive Note was not transferred, a
new Definitive Note, in the amount of the untransferred
portion of the original Definitive Note, shall be executed by
the Company, authenticated by the Trustee, and delivered to
such transferor.
(c) Transfers to Accredited Investors. With respect to
any proposed transfer of any Definitive Note constituting a Restricted Security
or any Regulation S Definitive Note or the proposed transfer of an Interest in
any Restricted Global Note or any Regulation S Global Note to any Accredited
Investor (other than a QIB):
(i) in the case of the transfer of any
Definitive Note, the Note Registrar shall register such
transfer, whether or not such Note bears the Private Placement
Legend, if (x) the requested transfer is after the Restriction
Termination Date, or (y) the proposed transferee has delivered
to the Note Registrar a certificate substantially in the form
of Annex C hereto;
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(ii) in the case of the transfer of an Interest
in any Restricted Global Note for an Interest in another
Restricted Global Note, there shall be delivered to the Note
Registrar (x) the certificate, if any, required by paragraph
(i) above and (y) instructions in accordance with the
Depositary's and the Note Registrar's procedures; and
(iii) in the case of the transfer of an Interest
in any Restricted Global Note or any Regulation S Global Note
for a Definitive Note, the Note Registrar, upon receipt of
instructions in accordance with the Depositary's and the Note
Registrar's procedures, shall register such transfer and issue
such Definitive Note, if (x) the requested transfer is after
the Restriction Termination Date, or (y) the proposed
transferor has delivered to the Note Registrar a certificate
substantially in the form of Annex C hereto.
With respect to all such transfers, (A) the Note
Registrar shall reflect on its books and records the date of
such transfer, (B) in the case of any transfer affecting a
Global Note, the Company shall execute, and the Trustee shall
authenticate and deliver to the Depositary, a new Global Note
or Global Notes in a principal amount as appropriate to
reflect such transfer, and (C) if the transfer is of a
Definitive Note, the transferred Definitive Note shall be
cancelled and, if the entire amount of such Definitive Note
was not transferred, a new Definitive Note, in the amount of
the untransferred portion of the original Definitive Note,
shall be executed by the Company, authenticated by the
Trustee, and delivered to such transferor.
(d) Issuance of Regulation S Definitive Notes After
Restricted Period. Interests in a Regulation S Temporary Global Note will be
exchanged for certificated notes ("REGULATION S DEFINITIVE NOTES"; all Notes
other than Global Notes being "DEFINITIVE NOTES") after the Restricted Period
upon receipt by the Trustee and the Company of representations in form and
substance acceptable to it demonstrating that the Interests in such Regulation S
Temporary Global Notes are owned either by Non-U.S. Persons or by QIBs or
Accredited Investors that acquired their Interests in such Notes in a
transaction that did not require registration under the Securities Act.
(e) Transfer of Interests in any Regulation S Global
Note. Except as otherwise specified in the relevant offering memorandum, only
Non-U.S. Persons may acquire any Interest in a Regulation S Global Note from the
Company, a distributor (as such term is defined in Regulation S under the
Securities Act) or any of their respective affiliates, during the period from
the relevant Series Issue Date through and including the 40th day thereafter
(such period being the "RESTRICTED PERIOD").
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(f) Private Placement Legend. Upon the registration of
transfer, exchange or replacement of Notes not bearing the Private Placement
Legend, the Note Registrar shall deliver Notes that do not bear the Private
Placement Legend. Upon the registration of transfer, exchange or replacement of
Notes bearing the Private Placement Legend, the Note Registrar shall deliver
only Notes that bear the Private Placement Legend (including any Restricted
Global Note or any Regulation S Global Note) unless (i) such transfer takes
place after the Restriction Termination Date or (ii) there is delivered to the
Note Registrar an Opinion of Counsel reasonably satisfactory to the Company and
the Trustee to the effect that neither such legend nor the related restrictions
on transfer are required in order to maintain compliance with the provisions of
the Securities Act.
(g) Transfers Pursuant to a Shelf Registration Statement.
Nothing in subsections (a), (b) and (c) of this Section 4.3 shall apply to any
transfer of Notes pursuant to a Shelf Registration Statement.
(h) General. By its acceptance of any Note bearing the
Private Placement Legend, each Holder of such a Note acknowledges the
restrictions on transfer of such Note set forth in this Indenture and in the
Private Placement Legend and agrees that it will transfer such Note only as
provided in this Indenture. The Company shall cause the Depositary to follow
appropriate procedures so that all transfer of Interests in any Global Note
comply with the restrictions of this Indenture, including the Private Placement
Legend.
(i) The Note Registrar shall retain copies of all
letters, notices and other written communications received pursuant to Section
4.2 or this Section 4.3 in accordance with its usual procedures. The Company
shall have the right to inspect and make copies of all such letters, notices or
other written communications at any reasonable time upon the giving of
reasonable written notice to the Note Registrar.
ARTICLE FIVE -
REMEDIES
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Section 5.1 Events of Default.
An "EVENT OF DEFAULT" as used herein is any one of the
following:
(a) a default in the payment of interest on the Notes
when due, continued for 30 days;
(b) a default in the payment of principal of and premium,
if any, on any Note when due at its Stated Maturity, upon optional redemption,
upon required repurchase, upon declaration of acceleration or otherwise;
(c) the failure by the Company to comply with any of its
obligations in Article Eleven;
(d) the failure by the Company to comply with any of its
obligations in Section 7.4, 9.9, 9.10, 9.11, 9.12, 10.1 or 10.2 and 30 days or
more shall have expired after a Senior Officer of the Company first becomes
aware of such failure;
(e) the failure by the Company to comply, for 30 days
after the notice specified below, in any material respect in the performance of
or to breach any covenant, representation or warranty contained in this
Indenture;
(f) Indebtedness of the Company or any Subsidiary is not
paid within any applicable grace period after final maturity or is accelerated
by the holders thereof because of a default and the total amount of such
Indebtedness unpaid or accelerated exceeds $2,000,000;
(g) a decree, judgment or order by a court of competent
jurisdiction shall have been entered adjudging the Company or any of its
Subsidiaries as bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization of the Company or such Subsidiary under any bankruptcy or
similar law, and such decree or order shall have continued undischarged and
unstayed for a period of 60 days; or a decree or order of a court of competent
jurisdiction over
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the appointment of a receiver, liquidator, trustee or assignee in bankruptcy or
insolvency of the Company or such Subsidiary, or of the property of any such
person, or for the winding up for liquidation of the affairs of any such person,
shall have been entered, and such decree, judgment or order shall have remained
in force undischarged and unstayed for a period of 60 days; or the Company or
any of its Subsidiaries shall institute proceedings to be adjudicated a
voluntary bankrupt, or shall consent to the filing of a bankruptcy proceeding
against it, or shall file a petition or answer or consent seeking reorganization
under any bankruptcy or similar law or similar statute, or shall consent to the
filing of any such petition, or shall consent to the appointment of a custodian,
receiver, liquidator, trustee or assignee in bankruptcy or insolvency of it or
any of its assets or property, or shall make a general assignment for the
benefit of creditors, or shall admit in writing its inability to pay its debts
generally as they become due, or shall become insolvent or fail generally to pay
its debts as they become due; or
(h) any judgment or decree for the payment of money in
excess of $1,000,000 is rendered against the Company or a Subsidiary, remains
outstanding for a period of 60 days following such judgment and is not
discharged, waived or stayed; or
A Default under subsection (e) is not an Event of Default
until the Trustee or the Holders of at least 25% in principal amount of the
Outstanding Notes notify the Company of the Default and the Company does not
cure the Default within 30 days after receipt of the notice. The notice must
specify the Default, demand that it be remedied and state that the notice is a
"NOTICE OF DEFAULT."
Section 5.2 Acceleration of Maturity; Rescission and
Annulment.
If an Event of Default (other than an Event of Default
specified in clause (g) of Section 5.1) with respect to Notes at the time
Outstanding occurs and is continuing, then in every such case the Trustee or the
Holders of not less than 25% in principal amount of the Outstanding Notes may
declare the principal amount of all of the Notes to be due and payable
immediately, by a notice in writing to the Company (and to the Trustee if given
by Holders), and upon any such declaration such principal amount (or specified
amount) shall become immediately due and payable. If any Event of Default
specified in clause (g) of Section 5.1 occurs, such principal amount shall
automatically become and be immediately due and payable without any declaration
or other act on the part of the Trustee or any Holder.
At any time after such a declaration of acceleration with
respect to Notes has been made and before a judgment or decree for payment of
the money due has been obtained by the
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Trustee as hereinafter in this Article provided, the Holders of a majority in
principal amount of the Outstanding Notes, by written notice to the Company and
the Trustee, may rescind and annul such declaration and its consequences if
(1) the Company has paid or deposited with the Trustee a
sum sufficient to pay
(A) all overdue interest on all Notes,
(B) the principal of (and premium, if any, on)
any Notes which have become due otherwise than by such
declaration of acceleration and any interest thereon at the
rate or rates prescribed therefor in such Notes,
(C) to the extent that payment of such interest
is lawful, interest upon overdue interest at the rate or rates
prescribed therefor in such Notes, and
(D) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and
counsel;
and
(2) all Events of Default with respect to Notes, other
than the non-payment of the principal of Notes which have become due
solely by such declaration of acceleration, have been cured or waived
as provided in Section 5.13.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
Section 5.3 Collection of Indebtedness and Suits
for Enforcement by Trustee.
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The Company covenants that if
(1) default is made in the payment of any interest on any
Note when such interest becomes due and payable and such default
continues for a period of 30 days, or
(2) default is made in the payment of the principal of
(or premium, if any, on) any Note at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Notes, the whole amount then due and payable on such Notes for
principal and any premium and interest and, to the extent that payment of such
interest shall be legally enforceable, interest on any overdue principal and
premium and on any overdue interest, at the rate or rates prescribed therefor in
such Notes, and, in addition thereto, such further amount as shall be sufficient
to cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel.
If the Company fails to pay such amounts forthwith upon such
demand, the Trustee, in its own name and as trustee of an express trust, may
(or, at the direction of Holders of not less than 25% of the Outstanding Notes
shall), in addition to any other remedies available to it, institute a judicial
proceeding for the collection of the sums so due and unpaid and may prosecute
such proceeding to judgment or final decree, and may enforce the same against
the Company or any other obligor upon the Notes and collect the moneys adjudged
or decreed to be payable in the manner provided by law out of the property of
the Company or any other obligor upon the Notes, wherever situated. If an Event
of Default with respect to Notes occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders of Notes by such appropriate judicial proceedings as the Trustee shall
deem most effectual to protect and enforce any such rights, whether for the
specific enforcement of any covenant or agreement in this Indenture or in aid of
the exercise of any power granted herein, or to enforce any other proper remedy.
Section 5.4 Trustee May File Proofs of Claim.
In case of any judicial proceeding relative to the Company (or
any other Obligor upon the Notes), its property or its creditors, the Trustee
shall be entitled and empowered, by intervention in such proceeding or
otherwise, to take any and all actions authorized under the Trust Indenture Act
in order to have claims of the Holders and the Trustee allowed in any such
proceeding. In particular,
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the Trustee shall be authorized to collect and receive any moneys or other
property payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 6.7.
No provision of this Indenture shall be deemed to authorize
the Trustee to authorize or consent to or accept or adopt on behalf of any
Holder any plan of reorganization, arrangement, adjustment or composition
affecting the Notes or the rights of any Holder thereof or to authorize the
Trustee to vote in respect of the claim of any Holder in any such proceeding;
provided, however, the Trustee may vote on behalf of the Holders for the
election of a trustee in bankruptcy or similar official and may be a member of a
creditors' or other similar committee.
Section 5.5 Trustee May Enforce Claims Without
Possession of Notes.
All rights of action and claims under this Indenture or the
Notes may be prosecuted and enforced by the Trustee without the possession of
any of the Notes or the production thereof in any proceeding relating thereto,
and any such proceeding instituted by the Trustee shall be brought in its own
name as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Notes in respect of which such judgment
has been recovered.
Section 5.6 Application of Money Collected.
Subject to Article Twelve, any money collected by the Trustee
pursuant to this Article shall be applied in the following order, at the date or
dates fixed by the Trustee and, in case of the distribution of such money on
account of principal or any premium or interest, upon presentation of the Notes
and the notation thereon of the payment if only partially paid and upon
surrender thereof if fully paid:
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FIRST: To the payment of all amounts due the Trustee under
Section 6.7; and
SECOND: To the payment of the amounts then due and unpaid for
principal of and any premium and interest on the Notes in respect of
which or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according to the
amounts due and payable on such Notes for principal and any premium and
interest, respectively.
Section 5.7 Limitation on Suits.
No Holder of any Note shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the
Trustee of a continuing Event of Default with respect to the Notes;
(2) the Holders of not less than 25% in principal amount of
the Outstanding Notes shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own
name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee
reasonable security or indemnity against the costs, expenses and
liabilities to be incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of a
majority in principal amount of the Outstanding Notes;
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it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other of
such Holders, or to obtain or to seek to obtain priority or preference over any
other of such Holders or to enforce any right under this Indenture, except in
the manner herein provided and for the equal and ratable benefit of all of such
Holders.
Section 5.8 Unconditional Right of Holders to Receive
Principal, Premium and Interest.
Notwithstanding any other provision in this Indenture, the
Holder of any Note shall have the right, which is absolute and unconditional, to
receive payment of the principal of and any premium and (subject to Section 3.8)
any interest on such Note on the Stated Maturity or maturities expressed in such
Note (or, in the case of redemption or repurchase, on the Redemption Date or
Repurchase Date), and to institute suit for the enforcement of any such payment,
and such rights shall not be impaired without the consent of such Holder.
Section 5.9 Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
Section 5.10 Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Notes in the last paragraph
of Section 3.7, no right or remedy herein conferred upon or reserved to the
Trustee or to the Holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy
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hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
Section 5.11 Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any
Notes to exercise any right or remedy accruing upon any Default shall impair any
such right or remedy or constitute a waiver of any such Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
Section 5.12 Control by Holders.
The Holders of a majority in principal amount of the
Outstanding Notes shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred on the Trustee, with respect to the Notes, provided
that
(1) such direction shall not be in conflict with any rule of
law or with this Indenture,
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction, and
(3) subject to the provisions of Section 6.1, the Trustee
shall have the right to decline to follow any such direction if the
Trustee in good faith shall, by a Responsible Officer or Officers of
the Trustee, determine that the proceeding so directed would be unduly
prejudicial to the rights of any other Holder or would involve the
Trustee in personal liability.
Section 5.13 Waiver of Past Defaults.
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The Holders of not less than a majority in principal amount of
the Outstanding Notes may on behalf of the Holders of all the Notes waive any
past default hereunder and its consequences, except a default
(1) in the payment of the principal of or any premium or
interest on any Note, or
(2) in respect of a covenant or provision hereof which under
Article Nine cannot be modified or amended without the consent of the
Holder of each Outstanding Note affected.
Upon any such waiver, such default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have been cured, for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other default or impair any right consequent thereon.
Section 5.14 Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any
Notes by his acceptance thereof shall be deemed to have agreed, that any court
may in its discretion require, in any suit for the enforcement of any right or
remedy under this Indenture, or in any suit against the Trustee for any action
taken, suffered or omitted by it as Trustee, the filing by any party litigant in
such suit of an undertaking to pay the costs of such suit, and that such court
may in its discretion assess reasonable costs, including reasonable attorneys'
fees, against any party litigant in such suit, having due regard to the merits
and good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Company, to any suit instituted by the Trustee, to any suit instituted by any
Holder, or group of Holders, holding in the aggregate more than 10% in principal
amount of the Outstanding Notes, or to any suit instituted by any Holder for the
enforcement of the payment of the principal of (or premium, if any) or interest
on any Notes on or after the Stated Maturity or maturities expressed in such
Notes (or, in the case of redemption or repurchase, on or after the Redemption
Date or Repurchase Date).
Section 5.15 Waiver of Usury, Stay or Extension Laws.
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The Company covenants (to the extent that it may lawfully do
so) that it will not at any time insist upon, or plead, or in any manner
whatsoever claim or take the benefit or advantage of, any usury, stay or
extension law wherever enacted, now or at any time hereafter in force, which may
affect the covenants or the performance of this Indenture; and the Company (to
the extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law and covenants that it will not hinder, delay or impede
the execution of any power herein granted to the Trustee, but will suffer and
permit the execution of every such power as though no such law had been enacted.
ARTICLE SIX -
THE TRUSTEE
Section 6.1 Certain Duties and Responsibilities.
The duties and responsibilities of the Trustee shall be as
provided by the Trust Indenture Act. Whether or not therein expressly so
provided, every provision of this Indenture relating to the conduct or affecting
the liability of or affording protection to the Trustee shall be subject to the
provisions of this Section. If an Event of Default occurs (and is not cured),
the Trustee, in the exercise of its power, must use the degree of care of a
prudent man in the conduct of his own affairs. Subject to the requirement in the
foregoing sentence, the Trustee is under no obligation to exercise any of its
rights or powers under this Indenture at the request of any Holder, unless such
Holder shall have offered to the Trustee security and indemnity satisfactory to
it against any loss, liability or expense and then only to the extent required
by the terms of this Indenture.
Section 6.2 Notice of Defaults.
If a Default occurs and is continuing and is known to the
Trustee, the Trustee shall mail to each Holder notice of the Default within 60
days after it occurs. Except in the case of a Default in the payment of
principal of, premium, if any, or interest on any Note, the Trustee may withhold
notice if and so long as a committee of its trust officers determines that
withholding notice is not opposed to the interest of the Holders.
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Section 6.3 Certain Rights of Trustee.
Subject to the provisions of Section 6.1:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document believed by it
to be genuine and to have been signed or presented by the proper party or
parties;
(b) any request or direction of any Obligor mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors of any Obligor may be sufficiently
evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad faith on
its part, rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel and the advice of
such counsel or any Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request or
direction of any of the Holders pursuant to this Indenture, unless such Holders
shall have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by it in compliance with
such request or direction;
(f) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or document, but
the Trustee, in its discretion, may make such further inquiry or investigation
into such facts or matters as it may see fit, and, if the Trustee shall
determine to make such further inquiry or
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investigation, it shall be entitled to examine the books, records and premises
of the Company, personally or by agent or attorney; and
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys and the Trustee shall not be responsible for any misconduct
or negligence on the part of any agent or attorney appointed with due care by it
hereunder.
Section 6.4 Not Responsible for Recitals or Issuance of
Notes.
The recitals contained herein and in the Notes, except the
Trustee's certificate of authentication, shall be taken as the statements of the
Company, and the Trustee or any Authenticating Agent assumes no responsibility
for their correctness. The Trustee makes no representations as to the validity
or sufficiency of this Indenture or of the Notes. The Trustee or any
Authenticating Agent shall not be accountable for the use or application by the
Company of Notes or the proceeds thereof.
Section 6.5 May Hold Notes.
The Trustee, any Authenticating Agent, any Paying Agent, any
Note Registrar or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Notes and, subject to Sections 6.8
and 6.13, may otherwise deal with the Company with the same rights it would have
if it were not Trustee, Authenticating Agent, Paying Agent, Note Registrar or
such other agent.
Section 6.6 Money Held in Trust.
Money held by the Trustee in trust hereunder need not be
segregated from other funds except to the extent required by law. The Trustee
shall be under no liability for interest on any money received by it hereunder
except as otherwise agreed with the Company.
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Section 6.7 Compensation and Reimbursement.
The Company agrees:
(1) to pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder (which
compensation shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the
reasonable compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement or advance
as may be attributable to its negligence or bad faith;
(3) to indemnify the Trustee for, and to hold it harmless
against, any loss, liability or expense incurred without negligence or
bad faith on its part, arising out of or in connection with the
acceptance or administration of the trust or trusts hereunder,
including the reasonable costs and expenses of defending itself against
any claim or liability in connection with the exercise or performance
of any of its powers or duties hereunder; and
(4) when the Trustee incurs any expenses or renders any
services after the occurrence of an Event of Default specified in
Section 5.1(g), such expenses and the compensation for such services
are intended to constitute expenses of administration under the
Bankruptcy Code or any similar federal or state law for the relief of
debtors.
As security for the performance of the obligations of the
Company under this Section, the Trustee shall have a lien prior to the Notes
upon all property and funds held or collected by the Trustee as such, except
funds (i) held in trust for the payment of principal of and interest on Notes or
(ii) held in the Trustee's capacity as Paying Agent.
The obligations of the Company under this Section to
compensate and indemnify the Trustee and each predecessor Trustee and to pay or
reimburse the Trustee and each predecessor Trustee for expenses, disbursements
and advances shall constitute an additional obligation hereunder
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and shall survive the satisfaction and discharge of this Indenture and the
resignation or removal of the Trustee and each predecessor Trustee.
Section 6.8 Disqualification; Conflicting Interests.
If the Trustee has or shall acquire a conflicting interest
within the meaning of the Trust Indenture Act, the Trustee shall either
eliminate such interest or resign, to the extent and in the manner provided by,
and subject to the provisions of, the Trust Indenture Act and this Indenture.
Section 6.9 Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be
a Person that is eligible pursuant to the Trust Indenture Act to act as such and
has a combined capital and surplus of at least $10,000,000. If such Person
publishes reports of condition at least annually, pursuant to law or to the
requirements of said supervising or examining authority, then for the purposes
of this Section, the combined capital and surplus of such Person shall be deemed
to be its combined capital and surplus as set forth in its most recent report of
condition so published. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section, it shall resign immediately in
the manner and with the effect hereinafter specified in this Article.
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Section 6.10 Resignation and Removal; Appointment of
Successor.
(a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor Trustee in
accordance with the applicable requirements of Section 6.11.
(b) The Trustee may resign at any time with respect to
the Notes by giving written notice thereof to the Company. If the instrument of
acceptance by a successor Trustee required by Section 6.11 shall not have been
delivered to the Trustee within 30 days after the giving of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee with respect to the
Notes.
(c) The Trustee may be removed at any time with respect
to the Notes by Act of the Holders of a majority in principal amount of the
Outstanding Notes, delivered to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 6.8
after written request therefor by the Company or by any Holder who has
been a bona fide Holder of a Note for at least six months, or
(2) the Trustee shall cease to be eligible under
Section 6.9 and shall fail to resign after written request therefor by
the Company or by any such Holder, or
(3) the Trustee shall become incapable of acting or
shall be adjudged a bankrupt or insolvent or a receiver of the Trustee
or of its property shall be appointed or any public officer shall take
charge or control of the Trustee or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation,
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then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee with respect to all securities, or (ii) subject to Section 5.14, any
Holder who has been a bona fide Holder of a Note for at least six months may, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the removal of the Trustee with respect to all Notes
and the appointment of a successor Trustee or Trustees.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of Trustee for
any cause, with respect to the Notes, the Company, by a Board Resolution, shall
promptly appoint a successor Trustee or Trustees with respect to the Notes and
shall comply with the applicable requirements of Section 6.11. If, within one
year after such resignation, removal or incapability, or the occurrence of such
vacancy, a successor Trustee with respect to the Notes shall be appointed by Act
of the Holders of a majority in principal amount of the Outstanding Notes
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment in accordance
with the applicable requirements of Section 6.11, become the successor Trustee
with respect to the Notes and to that extent supersede the successor Trustee
appointed by the Company. If no successor Trustee with respect to the Notes
shall have been so appointed by the Company or the Holders and accepted
appointment in the manner required by Section 6.11, any Holder who has been a
bona fide Holder of a Note for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the appointment of a successor Trustee with respect to the Notes.
(f) The Company shall give notice of each resignation and each
removal of the Trustee with respect to the Notes and each appointment of a
successor Trustee with respect to the Notes to all Holders of Notes in the
manner provided in Section 1.6. Each notice shall include the name of the
successor Trustee with respect to the Notes and the address of its Corporate
Trust Office.
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Section 6.11 Acceptance of Appointment by Successor.
(a) In case of the appointment hereunder of a successor
Trustee with respect to the Notes, every such successor Trustee so appointed
shall execute, acknowledge and deliver to the Company and to the retiring
Trustee an instrument accepting such appointment, and thereupon the resignation
or removal of the retiring Trustee shall become effective and such successor
Trustee, without any further act, deed or conveyance, shall become vested with
all the rights, powers, trusts and duties of the retiring Trustee; but, on the
request of the Company or the successor Trustee, such retiring Trustee shall,
upon payment of its charges, execute and deliver an instrument transferring to
such successor Trustee all the rights, powers and trusts of the retiring Trustee
and shall duly assign, transfer and deliver to such successor Trustee all
property and money held by such retiring Trustee hereunder.
(b) Upon request of any such successor Trustee, the Company
shall execute any and all instruments for more fully and certainly vesting in
and confirming to such successor Trustee all such rights, powers and trusts
referred to in paragraph (a) of this Section.
(c) No successor Trustee shall accept its appointment unless
at the time of such acceptance such successor Trustee shall be qualified and
eligible under this Article.
Section 6.12 Merger, Conversion, Consolidation
or Succession to Business.
Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Trustee shall be a
party, or any corporation succeeding to all or substantially all the corporate
trust business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Notes shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Notes so authenticated with the same effect
as if such successor Trustee had itself authenticated such Notes.
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Section 6.13 Preferential Collection of Claims Against
Company.
If and when the Trustee shall be or become a creditor of the
Company (or any other obligor upon the Notes), the Trustee shall be subject to
the provisions of the Trust Indenture Act regarding the collection of claims
against the Company (or any such other obligor).
Section 6.14 Appointment of Authenticating Agent.
The Trustee may appoint an Authenticating Agent or Agents
(which may be an affiliate of the Company) with respect to the Notes which shall
be authorized to act on behalf of the Trustee to authenticate Notes issued upon
original issue and upon exchange, registration of transfer or partial redemption
thereof or pursuant to Section 3.7, and Notes so authenticated shall be entitled
to the benefits of this Indenture and shall be valid and obligatory for all
purposes as if authenticated by the Trustee hereunder. Wherever reference is
made in this Indenture to the authentication and delivery of Notes by the
Trustee or the Trustee's certificate of authentication, such reference shall be
deemed to include authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an Authenticating Agent. Each Authenticating Agent shall be
acceptable to the Company and shall at all times be a corporation organized and
doing business under the laws of the United States of America, any state thereof
or the District of Columbia, authorized under such laws to act as Authenticating
Agent, having a combined capital and surplus of not less than $10,000,000 and
subject to supervision or examination by federal or state authority. If such
Authenticating Agent publishes reports of condition at least annually, pursuant
to law or to the requirements of said supervising or examining authority, then
for the purposes of this Section, the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time an
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be
merged or converted or with which it may be consolidated, or any corporation
resulting from any merger, conversion or consolidation to which such
Authenticating Agent shall be a party, or any corporation succeeding to the
corporate agency or corporate trust business of an Authenticating Agent, shall
continue to be an Authenticating Agent, provided such corporation shall be
otherwise eligible under this Section, without the execution or filing of any
paper or any further act on the part of the Trustee or the Authenticating Agent.
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An Authenticating Agent may resign at any time by giving
written notice thereof to the Trustee and to the Company. The Trustee may at any
time terminate the agency of an Authenticating Agent by giving written notice
thereof to such Authenticating Agent and to the Company. Upon receiving such a
notice of resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall mail written notice of
such appointment by first-class mail, postage prepaid, to all Holders of Notes
with respect to which such Authenticating Agent will serve, as their names and
addresses appear in the Note Register. Any successor Authenticating Agent upon
acceptance of its appointment hereunder shall become vested with all the rights,
powers and duties of its predecessor hereunder, with like effect as if
originally named as an Authenticating Agent. No successor Authenticating Agent
shall be appointed unless eligible under the provisions of this Section.
Unless the Authenticating Agent has been appointed by the
Trustee at the request of the Company, the Trustee agrees to pay to each
Authenticating Agent from time to time reasonable compensation for its services
under this Section, and the Trustee shall be entitled to be reimbursed for such
payments, subject to the provisions of Section 6.7.
If an appointment is made pursuant to this Section, the Notes
may have endorsed thereon, in addition to the Trustee's certificate of
authentication, an alternative certificate of authentication in the following
form:
This is one of the Notes designated and referred to in the
within-mentioned Indenture.
AMERICAN STOCK TRANSFER & TRUST COMPANY
as Trustee
By
----------------------------------------
As Authenticating Agent
By
----------------------------------------
Authorized Officer
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ARTICLE SEVEN -
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 7.1 Company to Furnish Trustee Names
and Addresses of Holders,
(a) The Company will furnish or cause to be furnished to
the Trustee:
(i) semi-annually, not later than five Business Days
after each Regular Record Date, a list, in such form as the Trustee may
reasonably require, of the names and addresses of the Holders of Notes
as of such Regular Record Date, and
(ii) at such other times as the Trustee may request
in writing, within 30 days after the receipt by the Company of any such
request, a list of similar form and content as of a date not more than
15 days prior to the time such list is furnished;
excluding from any such list names and addresses received by the Trustee in its
capacity as Note Registrar.
(b) If and whenever the Company or any Affiliate acquires any
Notes, the Company shall within 10 Business Days after such acquisition by the
Company and within 10 Business Days after the date on which it obtains knowledge
of any such acquisition by an Affiliate, provide the Trustee with written notice
of such acquisition, the aggregate principal amount acquired (to the extent
known by the Company), the Holder from whom such Notes were acquired and the
date of such acquisition.
Section 7.2 Preservation of Information; Communications
to Holders.
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(a) The Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of Holders contained in the most
recent list furnished to the Trustee as provided in Section 7.1 and the names
and addresses of Holders received by the Trustee in its capacity as Note
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 7.1 upon receipt of a new list so furnished.
(b) The rights of the Holders to communicate with other
Holders with respect to their rights under this Indenture or under the Notes,
and the corresponding rights and privileges of the Trustee, shall be as provided
by the Trust Indenture Act.
(c) Every Holder of Notes, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company nor the Trustee
nor any agent of either of them shall be held accountable by reason of any
disclosure of information as to names and addresses of Holders made pursuant to
the Trust Indenture Act.
Section 7.3 Reports by Trustee.
(a) The Trustee shall transmit to Holders such reports
concerning the Trustee and its actions under this Indenture as may be required
pursuant to the Trust Indenture Act at the times and in the manner provided
pursuant thereto. To the extent that any such report is required by the Trust
Indenture Act with respect to any 12-month period, such report shall cover the
12-month period ending December 31 and shall be transmitted by the next
succeeding March 1.
(b) A copy of each such report shall, at the time of such
transmission to Holders, be filed by the Trustee with each stock exchange upon
which any Notes are listed, with the SEC and with the Company. The Company will
notify the Trustee when any Notes are listed on any stock exchange.
Section 7.4 Reports by Company.
The Company shall file with the SEC and shall furnish to the
Trustee and the Holders, within 15 days after it files them with the SEC, copies
of its annual report and the information, documents and other reports which the
Company is required to file with the SEC pursuant to Section
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13 or 15(d) of the Exchange Act. Notwithstanding that the Company may not be
required to remain subject to the reporting requirements of Section 13 or 15(d)
of the Exchange Act, the Company shall continue to file with the SEC and to
provide to the Trustee and the Holders the annual reports and the information,
documents and other reports which are specified in Section 13 or 15(d) of the
Exchange Act and applicable to a US corporation subject to such sections, such
information, documents and other reports to be filed and provided at the times
specified for the filing of such information, documents and reports under such
section. The Company also shall comply with the other provisions of TIA ss.
314(a).
ARTICLE EIGHT -
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 8.1 Supplemental Indentures Without Consent of
Holders.
Without the consent of any Holders, the Obligors, when
authorized by a Board Resolution, and the Trustee, at any time and from time to
time, may enter into one or more indentures supplemental hereto, in form
satisfactory to the Trustee, for any of the following purposes:
(a) to evidence the succession of another Person to any
Obligor, and the assumption by any such successor of the covenants of
such Obligor herein and in the Notes;
(b) to provide for uncertificated Notes in addition to or
in place of certificated Notes (provided, that such uncertificated
Notes are issued in registered form for purposes of Section 163(f) of
the Code, or in a manner such that the uncertificated Notes are
described in Section 163(f)(2)(B) of the Code);
(c) to add to the covenants of the Obligors for the
benefit of the Holders, to surrender any right or power herein
conferred upon any Obligor with respect to the Notes;
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(d) to cure any ambiguity, to correct or supplement any
provision herein that may be defective or inconsistent with any other
provision herein, or to make any other provisions with respect to
matters or questions arising under this Indenture that shall not be
inconsistent with the provisions of this Indenture; provided that, in
each case, such provisions shall not adversely affect the interests of
the Holders;
(e) to evidence, and provide for the acceptance of, the
appointment of a successor Trustee hereunder;
(f) to comply with Section 9.20;
(g) to modify the provisions relating to Global Notes,
restrictions on transfer and legends set forth herein with respect to
any series of Notes not then outstanding; or
(h) to comply with any requirement of the SEC or state
securities regulators in connection with the qualification of this
Indenture under the Trust Indenture Act or any registration or
qualification of the Notes under the Securities Act or state securities
laws.
Section 8.2 Supplemental Indentures with Consent of
Holders.
(a) Except as otherwise provided in Section 8.2(b), with
the written consent of the Holders of a majority in principal amount of
the Outstanding Notes, by Act of such Holders delivered to the Company
and the Trustee, the Obligors, when authorized by a Board Resolution,
and the Trustee may enter into an indenture or indentures supplemental
hereto for the purpose of adding any provisions to or changing in any
manner or eliminating or waiving any of the provisions of this
Indenture or of modifying in any manner the rights of the Holders under
this Indenture; provided, however, that no such supplemental indenture
shall, without the consent of the Holder of each Outstanding Note
affected thereby,
(A) extend the Stated Maturity of the principal
of, or the stated maturity of any installment of interest on,
any Note, or reduce the principal amount thereof or the rate
of interest thereon or any premium payable upon the redemption
or repurchase thereof, or change the coin or currency in which
the principal of any Note
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or any premium or the interest thereon is payable, or impair
the right to institute suit for the enforcement of any such
payment after the Stated Maturity or due date thereof (or, in
the case of redemption, after the Redemption Date or, in the
case of repurchase, after the Purchase Date), or affect the
ranking (in terms of right or time of payment) of the Notes,
(B) reduce the percentage in principal amount of
the Outstanding Notes the consent of whose Holders is required
for any such supplemental indenture, or the consent of whose
Holders is required for any waiver (of compliance with the
provisions of this Indenture or Defaults hereunder and their
consequences) provided for in this Indenture,
(C) modify any provision of Article Eleven with
respect to the subordination of the Notes;
(D) modify any provision of Section 12.2 or the
definitions used therein if the effect of such modification or
waiver is to decrease the amount of any payment required to be
made by the Company thereunder or extend the maturity date of
such payment, or
(E) modify any of the provisions of this Section
or Section 5.12, except to increase any such percentage or to
provide that certain other provisions of this Indenture cannot
be modified or waived without the consent of the Holder of
each Note affected thereby.
(b) It shall not be necessary for any Act of Holders
under this Section to approve the particular form of any proposed
supplemental indenture, but it shall be sufficient if such Act and such
notice shall approve the substance thereof.
Section 8.3 Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by,
any supplemental indenture permitted by this Article or the modifications
thereby of the trusts created by this Indenture, the
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Trustee shall receive, and (subject to Section 6.1) shall be fully protected in
relying upon, an Opinion of Counsel stating that this Indenture, as amended by
such supplemental indenture, constitutes the legal, valid and binding obligation
of all Obligors, enforceable against each of them in accordance with its terms.
Section 8.4 Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this
Article, this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes; and
every Holder of Notes theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby and entitled to the benefits thereof.
Section 8.5 Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article
shall conform to the requirements of the Trust Indenture Act as then in effect.
Section 8.6 Reference in Notes to Supplemental
Indentures.
Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form acceptable to the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Notes so modified as to conform, in the opinion of the Trustee and the Board
of Directors, to any such supplemental indenture may be prepared and executed by
the Obligors and authenticated and delivered by the Trustee in exchange for
Outstanding Notes.
Section 8.7 Notice of Supplemental Indenture.
After an supplemental indenture hereunder becomes effective,
the Company shall mail to Holders a notice briefly describing such supplemental
indenture; provided, that the failure
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to give such notice to all Holders, or any defect therein, will not impair or
affect the validity of the supplemental indenture.
ARTICLE NINE -
COVENANTS
Section 9.1 Payment of Principal, Premium and Interest.
All payments of principal, premium, if any, and interest with
respect to the Notes will be made by the Company in immediately available funds.
The Notes shall be included in the Same-Day Funds Settlement System of The
Depository Trust Company until maturity, provided that all payments with respect
to Notes the Holders of which have given wire transfer instructions to the
Company will be required to be made by wire transfer of immediately available
funds to the accounts specified by such Persons.
Section 9.2 Maintenance of Office or Agency.
The Company will maintain in the Borough of Manhattan, City of
New York, State of New York, an office or agency where Notes may be presented or
surrendered for payment (a "PLACE OF PAYMENT"), where Notes may be surrendered
for registration of transfer or exchange and where notices and demands to or
upon the Obligors in respect of the Notes and this Indenture may be served.
Initially, the Company hereby designates the Corporate Trust Office of the
Trustee for all such purposes, and the Company hereby designates the Trustee as
the initial Paying Agent. The Company will give prompt written notice to the
Trustee of the location, and any change in the location, of such office or
agency. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee, and the Company hereby appoints the
Trustee as its agent to receive all such presentations, surrenders, notices and
demands.
The Company may also from time to time designate one or more
other offices or agencies where the Notes may be presented or surrendered for
any or all such purposes and may
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from time to time rescind such designations; provided, however, that no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in each Place of Payment for Notes
for such purposes. The Company will give prompt written notice to the Trustee of
any such designation or rescission and of any change in the location of any such
other office or agency.
Section 9.3 Money for Notes Payments to Be Held in
Trust.
If the Company shall at any time act as its own Paying Agent
with respect to the Notes, it will, on or before each due date of the principal
of or any premium or interest on any of the Notes, segregate and hold in trust
for the benefit of the Persons entitled thereto a sum sufficient to pay the
principal and any premium and interest so becoming due until such sums shall be
paid to such Persons or otherwise disposed of as herein provided and will
promptly notify the Trustee of its action or failure to act.
Whenever the Company shall have one or more Paying Agents for
the Notes, it will, prior to each due date of the principal of or any premium or
interest on any Notes, deposit with a Paying Agent, in immediately available
funds, a sum sufficient to pay such amount, such sum to be held as provided by
the Trust Indenture Act, and (unless such Paying Agent is the Trustee) the
Company will promptly notify the Trustee of its action or failure to act.
The Company will cause each Paying Agent other than the
Trustee to execute and deliver to the Trustee an instrument in which such Paying
Agent shall agree with the Trustee, subject to the provisions of this Section
that such Paying Agent will:
(1) hold all sums held by it for the payment of principal of
(and premium, if any) or interest on Notes in trust for the benefit of
the Persons entitled thereto until such sums shall be paid to such
Persons or otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or
any other obligor upon the Notes) in the making of any such payment of
principal (and premium, if any) or interest; and
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(3) at any time during the continuance of any such default,
upon the written request of the Trustee, forthwith pay to the Trustee
all sums so held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of or any
premium or interest on any Note and remaining unclaimed for two years after such
principal, premium or interest has become due and payable shall be paid to the
Company on Company Request, or (if then held by the Company) shall be discharged
from such trust; and the Holder of such Note shall thereafter, as an unsecured
general creditor, look only to the Company for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money,
and all liability of the Company as trustee thereof, shall thereupon cease;
provided, however, that the Trustee or such Paying Agent, before being required
to make any such repayment, may at the expense of the Company cause to be
published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in the Borough of
Manhattan, the City of New York, notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date of such publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
Section 9.4 Statement by Officers as to Default.
(a) The Company will deliver to the Trustee, within 120 days
after the end of each fiscal year of the Company ending after the date hereof,
an Officers' Certificate (one of the signers of which shall be the principal
executive officer, principal financial officer or principal accounting officer
of the Company), stating whether or not to the best knowledge of the signers
thereof the Company is, or was during the preceding year, in default in the
performance and observance of any of the terms, provisions and conditions of
this Indenture (without regard to any period of grace or requirement of notice
provided hereunder) and, if the Company shall be or shall have been in default,
specifying all such defaults and the nature and status thereof of which they may
have knowledge.
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(b) When any Default has occurred and is continuing under this
Indenture, or if the trustee for or the holder of any other evidence of
Indebtedness of the Company or any Subsidiary gives notice or takes any other
action with respect to a claimed default, the Company shall deliver to the
Trustee by registered or certified mail, or by facsimile transmission, its
status, and what action the Company or such Subsidiary is taking or proposes to
take in respect thereof within 30 days after a Senior Officer of the Company or
any Subsidiary becomes aware of the occurrence thereof, an Officers' Certificate
specifying such event, notice or other action.
Section 9.5 Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (1) all taxes, assessments
and governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary, and (2)
all lawful claims for labor, materials and supplies which, if unpaid, might by
law become a lien upon the property of the Company or any Subsidiary; provided,
however, that the Company shall not be required to pay or discharge or cause to
be paid or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings and for which adequate reserves (in the good faith judgment of the
Board of Directors) have been made.
Section 9.6 Maintenance of Properties.
The Company will cause all properties owned by the Company or
any Subsidiary or used or held for use in the conduct of its business or the
business of any Subsidiary to be maintained and kept in good condition, repair
and working order and supplied with all necessary equipment and will cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; provided, however, that nothing in this Section shall
prevent the Company or any Subsidiary from discontinuing the operation or
maintenance of any of such properties if such discontinuance is, in the judgment
of the Board of Directors (or, in the case of real estate owned properties, in
the judgment of a Senior Officer), desirable in the conduct of its business or
the business of the Company or such Subsidiary and not disadvantageous in any
material respect to the Holders.
Section 9.7 Corporate Existence; Keeping of Books.
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Subject to Article Ten , the Company will do or cause to be
done all things necessary to preserve and keep in full force and effect the
existence, rights (charter and statutory) and franchises of the Company and its
Restricted Subsidiaries; provided, however, that the existence of any Subsidiary
and any such right or franchise of the Company or any Subsidiary may be
terminated if the Board of Directors shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the Company and
its Restricted Subsidiaries and that the loss thereof is not and is not
reasonably likely to be disadvantageous in any material respect to the Holders.
The Company shall keep, and cause each Subsidiary to keep,
proper books and records, in which full and correct entries shall be made of all
financial transactions and the assets, liabilities and business of the Company
and its Subsidiaries, in each case in accordance with GAAP.
Section 9.8 Insurance.
The Company will at all times maintain and will cause each of
its Restricted Subsidiaries to maintain (either in the name of the Company or in
such Subsidiary's own name) with financially sound and reputable insurers,
insurance on all its properties in such amounts as management of the Company
reasonably determines is appropriate under the circumstances.
Section 9.9 Limitations on Indebtedness.
(a) The Company will not Incur, and the Company will not
permit any Restricted Subsidiary to Incur, directly or indirectly, any
Indebtedness or Disqualified Stock if, on the date of such Incurrence and after
giving effect thereto, the Consolidated Leverage Ratio exceeds 1.5 to 1.0 (2.0
to 1.0 through March 31, 1999, if less than $40 million is raised in the Rights
Offering and the Offerings.
(b) Notwithstanding the foregoing paragraph (a), the Company
and its Subsidiaries may Incur the following Indebtedness and Disqualified Stock
while no Default or Event of Default exists:
(1) Permitted Warehouse Indebtedness and Guarantees
by the Company of any Permitted Warehouse Indebtedness of
Subsidiaries, provided that to the extent
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any such Indebtedness ceases to constitute Permitted Warehouse
Indebtedness of the Company or a Subsidiary, such event shall
be deemed to constitute the Incurrence of such Indebtedness
(and any such Guarantees, but without duplication) by the
Company or such Subsidiary, as the case may be;
(2) the Notes;
(3) Hedging Obligations directly related to: (i)
Indebtedness permitted to be Incurred by the Company or its
Subsidiaries pursuant to this Section; (ii) Receivables held
by the Company or its Subsidiaries pending sale or that have
been sold pursuant to a Warehouse Facility; or (iii)
Receivables with respect to which the Company or any
Subsidiary has an outstanding purchase or offer commitment,
financing commitment or security interest;
(4) the Original Notes and other Indebtedness
outstanding on the Issue Date (other than Permitted Warehouse
Indebtedness and Guarantees thereof, which shall be
permissible under this paragraph (b) only pursuant to clause
(1) above);
(5) Indebtedness or Disqualified Stock issued to and
held by the Company or a Wholly Owned Subsidiary; provided,
however, that any subsequent issuance or transfer of any
Capital Stock that results in any such Wholly Owned Subsidiary
ceasing to be a Wholly Owned Subsidiary or any subsequent
transfer of such Indebtedness or Disqualified Stock (other
than to the Company or a Wholly Owned Subsidiary) will be
deemed, in each case, to constitute the Incurrence of such
Indebtedness or issuance of such Disqualified Stock by the
issuer thereof;
(6) Indebtedness under Capital Lease Obligations
incurred in the ordinary course of business in connection with
the acquisition of equipment;
(7) Permitted Excess Spread Receivables Indebtedness;
and
(8) Refinancing Indebtedness in respect of
Indebtedness Incurred pursuant to paragraph (a) or clause (4),
(6) or (7) of this paragraph (b).
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(c) Notwithstanding the foregoing, (i) the Company and its
Subsidiaries may not Incur any Indebtedness (other than the Notes) if
such Indebtedness is subordinate or junior in ranking in any respect to
any Senior Indebtedness unless such Indebtedness is pari passu with the
Notes or constitutes a Junior Subordinated Obligation, (ii) the Company
shall not Incur any Indebtedness if the proceeds thereof are used,
directly or indirectly, to Refinance any Junior Subordinated
Obligations unless such Indebtedness shall be subordinated to the Notes
to at least the same extent as such Junior Subordinated Obligations.
Unsecured Indebtedness is not deemed to be subordinate or junior to
secured Indebtedness merely because it is unsecured.
(d) For purposes of determining compliance with the foregoing
covenant: (i) in the event that an item of Indebtedness meets the
criteria of more than one of the types of Indebtedness described above,
the Company, in good faith, will classify such item of Indebtedness and
be required to include the amount and type of such Indebtedness in one
of the above clauses; and (ii) an item of Indebtedness may be divided
and classified in more than one of the types of Indebtedness described
above.
Section 9.10 Limitation on Transactions with Affiliates.
The Company will not, and will not permit any Subsidiary to,
enter into or permit to exist any transaction (including without limitation the
making of any loan, advance, Guarantee or capital contribution to or for the
benefit of, the purchase, sale, lease or exchange of any property with, the
entering into or amending of employee compensation arrangements with, or the
rendering of any service with or for the benefit of, any Affiliate of the
Company) (an "AFFILIATE TRANSACTION") unless the terms thereof: (i) are in the
ordinary course of business and consistent with past practice; (ii) are fair to
the Company and are no less favorable to the Company or such Subsidiary than
those that could be obtained at the time of such transaction in arm's-length
dealings with a Person who is not an Affiliate; and (iii) if such Affiliate
Transaction involves an amount in excess of $2,000,000, (A) are set forth in
writing and (B) have been approved by a majority of the members of the Board of
Directors having no personal stake in such Affiliate Transaction.
The provisions of the foregoing paragraph shall not apply to
(a) transactions exclusively between or among the Company and any Wholly Owned
Subsidiary or between or among Wholly Owned Subsidiaries, (b) any employment or
related arrangement entered into by the Company in the ordinary course of
business on terms customary in the consumer finance business, provided any such
arrangement is approved by the disinterested members of the Board of Directors,
(c) customary directors fees and indemnities, (d) payments required by the Tax
Sharing Agreement or any renewal thereof on substantially similar terms, and (e)
all payments to stockholders or holders
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of Original Notes in connection with the Recapitalization to the extent
described in the Offering Memorandum (including the payment of fees and expenses
to the Placement Agent and its Affiliates as described in the Offering
Memorandum).
Section 9.11 Limitations on Liens.
The Company will not, directly or indirectly, Incur or permit
to exist any Lien of any nature whatsoever on any of its properties (including
Capital Stock of a Subsidiary), whether owned at the Issue Date or thereafter
acquired, other than Permitted Liens, without effectively providing that the
Notes shall be secured by a Lien on the same property as secures the obligations
so secured, in each case until such time as such other obligations are no longer
secured by a Lien, provided (i) if such other obligations constitute Senior
Indebtedness or are otherwise senior or prior in right of payment to the
obligations contained herein and in the New Notes, such Lien is expressly made
junior and subordinate in priority to the Lien securing such other obligations;
(ii) if such other obligations constitute Junior Subordinated Obligations or are
otherwise subordinate or junior in right of payment to the obligations contained
herein and in the New Notes, such Lien is expressly made prior and senior in
priority to the Lien securing such other obligations; or (iii) in any other
case, such Lien ranks equally and ratably with the Lien securing such other
obligations so secured.
Section 9.12 Limitation on Investment Company Status.
The Company shall not take, and shall not permit any
Subsidiary to take, any action, or otherwise permit to exist any circumstance,
that would require the Company or such Subsidiary to register as an "investment
company" under the Investment Company Act of 1940, as amended.
Section 9.13 Line of Business.
The Company will not engage, and will not permit any
Subsidiary to engage, in any line of business that is not a Related Business.
Section 9.14 Payments for Consent.
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The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any Holder as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of this Indenture or the Notes unless such consideration is offered to be paid
or agreed to be paid to all Holders that provide such consent or so waive or
agree to amend in the time frames set forth in the solicitation documents
relating to such consent, waiver or agreement.
ARTICLE TEN -
MERGER, CONSOLIDATION AND TRANSFER OF ASSETS
Section 10.1 Merger, Consolidation or Transfer of Assets
of the Company.
(a) The Company shall not consolidate with or merge with or
into, or convey, transfer or lease, in one transaction or a series of related
transactions, all or substantially all its assets to, any Person, unless: (i)
the resulting, surviving or transferee Person (the "SUCCESSOR COMPANY") shall be
a Person organized and existing under the laws of the United States of America
or any state thereof and the Successor Company (if not the Company) shall
expressly assume, by an indenture supplemental hereto, executed and delivered to
the Trustee, in form satisfactory to the Trustee, all of the Company's
obligations under the Notes and this Indenture; (ii) immediately after giving
effect to such transaction (and treating any Indebtedness that becomes an
obligation of the Successor Company as a result of such transaction as having
been Incurred by such Successor Company at the time of such transaction), no
Default shall have occurred and be continuing; (iii) immediately after giving
effect to such transaction, the Successor Company would be able to incur an
additional $1.00 of Indebtedness pursuant to paragraph (a) of Section 9.9 (iv)
immediately after giving effect to such transaction, the Successor Company shall
have Consolidated Net Worth in an amount that is not less than the Consolidated
Net Worth of the Company prior to such transaction; and (v) the Company shall
have delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that such consolidation, merger or transfer and such
supplemental indenture (if any) comply with this Indenture.
(b) The Successor Company shall be the successor to the
Company and shall succeed to, and be substituted for, and may exercise every
right and power of, the Company under this Indenture, but the predecessor
Company, in the case of a lease, shall not be released from the obligation to
pay the principal of, premium, if any, and interest on the Notes.
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Section 10.2 Merger, Consolidation or Transfer of Assets
of Subsidiaries.
No Subsidiary may consolidate with or merge with or into
(whether or not such Subsidiary is the surviving Person) another Person, whether
or not affiliated with such Subsidiary, unless (i) subject to the provisions of
the following paragraph, the Person formed by or surviving any such
consolidation or merger (if other than such Subsidiary) assumes all the
obligations of such Subsidiary, pursuant to a supplemental indenture, in form
and substance satisfactory to the Trustee, under this Indenture; (ii)
immediately after giving effect to such transaction, no Default or Event of
Default exists; (iii) such Subsidiary, or any Person formed by or surviving any
such consolidation or merger, would have Consolidated Net Worth (immediately
after giving effect to such transaction) equal to or greater than the
Consolidated Net Worth of such Subsidiary immediately preceding the transaction;
and (iv) the Subsidiary would be permitted, immediately after giving effect to
such transaction, to Incur at least $1.00 of additional Indebtedness pursuant to
paragraph (a) of Section 9.9; provided that the foregoing provisions will not
restrict the ability of a Subsidiary to consolidate or merge with the Company or
a Wholly Owned Subsidiary.
ARTICLE ELEVEN -
SUBORDINATION
Section 11.1 Notes Subordinate to Senior Indebtedness.
(a) The Company covenants and agrees, and each Holder of a
Note, by his acceptance thereof, likewise covenants and agrees, that, to the
extent and in the manner hereinafter set forth in this Article, the Indebtedness
represented by the Notes and the payment of the principal of and premium (if
any) and interest on each and all of the Notes are hereby expressly made
subordinate and subject in right of payment to the prior payment in full of
existing and future Senior Indebtedness of the Company, including without
limitation all obligations of the Company under any Warehouse Facility, and will
be senior in right of payment to Junior Subordinated Obligations. If any Senior
Indebtedness is disallowed, avoided or subordinated pursuant to the provisions
of Section 548 of the Bankruptcy Code or any applicable state fraudulent
conveyance law, such Indebtedness nevertheless will constitute Senior
Indebtedness for purposes of this Indenture. For purposes of this Article, (i) a
"PAYMENT" includes any payment with respect to principal of,
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premium, if any, or interest on, the Notes, any deposit pursuant to Article
Thirteen, and any repurchase, redemption, defeasance or other retirement of any
Notes, and (ii) "PRINCIPAL", if used with respect to the Notes, shall include,
without limitation, the principal portion of the Redemption Price and Purchase
Price of Notes. Notwithstanding any other provision of this Indenture, the Notes
shall rank pari passu with the Original Notes.
(b) Notwithstanding anything in this Article to the contrary,
nothing herein shall apply to any payments made out of the assets of any trust
referred to in paragraph (a) of Section 13.4.
Section 11.2 Payment Over of Proceeds Upon Dissolution,
Etc.
(a) Upon any payment or distribution of the assets of the
Company to creditors upon a total or partial liquidation or total or partial
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property
(whether voluntary or involuntary), (i) the holders of Senior Indebtedness of
the Company shall be entitled to receive payment in full before the holders of
the Notes are entitled to receive any payment, and (ii) until the Senior
Indebtedness of the Company is paid in full, any payment to which the Holders of
the Notes would be entitled but for this Section will be made to holders of
Senior Indebtedness as their interests may appear, except that Holders may
receive shares of stock or Indebtedness of the Company that is subordinated to
Senior Indebtedness of the Company to at least the same extent as the Notes.
(b) In the event that, notwithstanding the foregoing
provisions of this Section, the Trustee or the Holder of any Note shall have
received any payment or distribution of any kind or character, whether in cash,
securities or other property, before all Senior Indebtedness is paid in full,
then and in such event such payment or distribution shall be paid over or
delivered forthwith to the trustee in bankruptcy, receiver, liquidating trustee,
custodian, assignee, agent or other official for application to the payment of
all Senior Indebtedness remaining unpaid, to the extent necessary to pay all
Senior Indebtedness in full, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness.
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Section 11.3 No Payment When Senior Indebtedness in
Default.
(a) Note Payments. The Company may not make any payment with
respect to the Notes if (i) any Senior Indebtedness of the Company is not paid
when due or (ii) any other default on any such Senior Indebtedness occurs and
the maturity thereof has been accelerated in accordance with its terms, unless,
in either case, (x) the default has been cured or waived and any such
acceleration has been rescinded or (y) such Senior Indebtedness has been paid in
full. During the continuance of any default (other than a default described in
clause (i) or (ii) of the preceding sentence) with respect to any Designated
Senior Indebtedness of the Company pursuant to which the maturity thereof may be
accelerated immediately without further notice (except such notice as may be
required to effect such acceleration) or the expiration of any applicable grace
periods, the Company may not make a payment with respect to the Notes for a
period (a "PAYMENT BLOCKAGE PERIOD") commencing upon the receipt by the Company
and the Trustee of written notice of such default from the Representative of any
Designated Senior Indebtedness specifying an election to effect a Payment
Blockage Period (a "PAYMENT BLOCKAGE NOTICE") and ending 179 days thereafter (or
earlier if such Payment Blockage Period is terminated (i) by written notice to
the Trustee and the Company from the Person or Persons who gave such Blockage
Notice, (ii) by repayment in full of such Designated Senior Indebtedness or
(iii) because the default giving rise to such Blockage Notice is no longer
continuing). Notwithstanding the provisions described in the immediately
preceding sentence (but subject to the provisions of the first sentence of this
subsection), unless the holders of such Designated Senior Indebtedness or the
Representative of such holders shall have accelerated the maturity of such
Designated Senior Indebtedness, the Company may resume payments on the Notes
after such Payment Blockage Period.
Not more than one Blockage Notice may be given in any
consecutive 360-day period, irrespective of the number of defaults with respect
to Designated Senior Indebtedness during such period.
(b) Application. The provisions of this Section shall not
apply to any payment with respect to which Section 11.2 would be applicable.
Section 11.4 Payment Permitted If No Default.
Nothing contained in this Article or elsewhere in this
Indenture or in any of the Notes shall prevent (a) the Company, at any time
except during the pending of any liquidation, dissolution or proceeding referred
to in Section 11.2 or under the conditions described in Section 11.3, from
making payments at any time of principal of (or premium, if any) or interest on
the Notes, or (b) the
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application by the Trustee of any money deposited with it hereunder to the
payment of or on account of the principal (and premium, if any) or interest on
the Notes or the retention of such payment by the Holders, if, at the time of
such application by the Trustee, it did not have knowledge that such payment
would have been prohibited by the provisions of this Article.
Section 11.5 Subrogation to Rights of Holders
and Beneficiaries of Senior Indebtedness.
Subject to the payment in full of all Senior Indebtedness, the
Holders of the Notes shall be subrogated to the extent of the payments or
distributions made to the holders of such Senior Indebtedness pursuant to the
provisions of this Article to the rights of the holders of such Senior
Indebtedness to receive payments and distributions of cash, property and
securities applicable to the Senior Indebtedness until the principal of (and
premium, if any) and interest on the Notes and any other Obligations shall be
paid in full. For purposes of such subrogation, no payments or distributions to
the holders of the Senior Indebtedness of any cash, property or securities to
which the Holders of the Notes, the Trustee or any Beneficiaries would be
entitled except for the provisions of this Article shall, as among the Company,
its creditors other than the holders of Senior Indebtedness, and the Holders of
the Notes, be deemed to be payment or distribution by the Company to or on
account of the Senior Indebtedness.
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Section 11.6 Provisions Solely to Define Relative Rights.
The provisions of this Article are and are intended solely for
the purpose of defining the relative rights of the Holders of the Notes, and the
holders of the Senior Indebtedness. Nothing contained in this Article or
elsewhere in this Indenture or in the Notes is intended to or shall (a) impair,
as among the Company, its creditors other than holders of Senior Indebtedness,
the Holders of the Notes, the obligations of the Company or any other Obligor,
which are absolute and unconditional, to pay to the Holders of the Notes the
principal of (and premium, if any) and interest on the Notes as and when the
same shall become due and payable in accordance with their terms; or (b) affect
the relative rights against the Company or any other Obligor of the Holders of
the Notes and creditors of the Company other than the holders of Senior
Indebtedness; or (c) prevent the Trustee or the Holder of any Note from
exercising all remedies otherwise permitted by applicable law upon an Event of
Default, subject to the rights, if any, under this Article of the holders of the
Senior Indebtedness to receive cash, property and securities otherwise payable
or deliverable to the Trustee, such Holder.
Section 11.7 Trustee to Effectuate Subordination.
Each Holder of a Note by his acceptance thereof authorizes and
directs the Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article and
appoints the Trustee his attorney-in-fact for any and all such purposes.
Section 11.8 No Waiver of Subordination Provisions.
No right of any present or future holder of any Senior
Indebtedness to enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Company or other Obligor or by any act or failure to act, in good faith, by
any such holder, or by any non-compliance by the Company or other Obligor with
the terms, provisions and covenants of this Indenture, regardless of any
knowledge thereof any such holder may have or be otherwise charged with.
Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Indebtedness may, at any time and from time to
time, without the consent of or notice to the Trustee or the Holders of the
Notes, without incurring responsibility to the Holders of the Notes and without
impairing or releasing the subordination provided in this Article or the
obligations
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hereunder of the Holders of the Notes to the holders of Senior Indebtedness, do
any one or more of the following: (i) change the manner, place, amount or terms
of payment or extend the time of payment of, or renew or alter, Senior
Indebtedness, or otherwise amend or supplement in any manner Senior Indebtedness
or any instrument evidencing the same or any agreement under which Senior
Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with
any property pledged, mortgaged or otherwise securing Senior Indebtedness; (iii)
release any Person liable in any manner for the collection of Senior
Indebtedness; and (iv) exercise or refrain from exercising any rights against
the Company and any other Person.
Section 11.9 Notice to Trustee.
The Company shall give prompt written notice to the Trustee of
any fact known to the Company which would prohibit the making of any payment to
or by the Trustee in respect of the Notes pursuant to this Article.
Notwithstanding the provisions of this Article or any other provision of this
Indenture, the Trustee shall not be charged with knowledge of the existence of
any facts which would prohibit the making of any payment to or by the Trustee in
respect of the Notes, unless and until the Trustee shall have received written
notice thereof from the Company or a holder of Senior Indebtedness or from any
Representative thereof; and, prior to the receipt of any such written notice,
the Trustee, subject to the provisions of Article Six, shall be entitled in all
respects to assume that no such facts exist; provided, however, that if the
Trustee shall not have received the notice provided for in this Section at least
three Business Days prior to the date upon which by the terms hereof any money
may become payable for any purpose (including, without limitation, the payment
of the principal (and premium, if any) or interest on any Note), then, anything
herein contained to the contrary notwithstanding, the Trustee shall have full
power and authority to receive such money and to apply the same to the purpose
for which such money was received and shall not be affected by any notice to the
contrary which may be received by it within three Business Days prior to such
date.
Subject to the provisions of Article Six, the Trustee shall be
entitled to rely on the delivery to it of a written notice by a Person
representing himself to be a Representative of Senior Indebtedness to establish
that such notice has been given by a holder of Senior Indebtedness (or a trustee
therefor or other representative thereof). In the event that the Trustee
determines in good faith that further evidence is required with respect to the
right of any Person as a holder of Senior Indebtedness to participate in any
payment or distribution pursuant to this Article, the Trustee may request such
Person to furnish evidence to the reasonable satisfaction of the Trustee as to
the amount of Senior Indebtedness held by such Person, the extent to which such
Person is entitled to participate in such payment or distribution and any other
facts pertinent to the rights of such Person under this Article, and if such
evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment or distribution.
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Section 11.10 Reliance on Judicial Order or Certificate
of Liquidating Agent.
Upon any payment or distribution of assets of the Company
referred to in this Article, the Trustee, subject to the provisions of Article
Six, and the Holders of the Notes shall be entitled to rely upon any order or
decree entered by any court of competent jurisdiction in which such insolvency,
bankruptcy, receivership, liquidation, reorganization, dissolution, winding up
or similar case or proceeding is pending, or a certificate of the trustee in
bankruptcy, receiver or other Person making such payment or distribution,
delivered to the Trustee or to the Holders of Notes, for the purpose of
ascertaining the Person entitled to participate in such payment or distribution,
the holders of the Senior Indebtedness and other indebtedness of the Company,
the amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article.
Section 11.11 Trustee Not Fiduciary for Holders of Senior
Indebtedness.
The Trustee shall not be deemed to owe any fiduciary duty to
the holders of Senior Indebtedness and shall not be liable to any such holders
if it shall in good faith mistakenly pay over or distribute to Holders of Notes
or to the Company or to any other Person cash, property or securities to which
any holders of Senior Indebtedness shall be entitled by virtue of this Article
or otherwise.
Section 11.12 Rights of Trustee as Holder of Senior
Indebtedness.
The Trustee in its individual capacity shall be entitled to
all the rights set forth in this Article with respect to any Senior Indebtedness
which may at any time be held by it, to the same extent as any other holder of
Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of
any of its rights as such holder.
Nothing in this Article shall apply to claims of, or payments
to, the Trustee pursuant to Section 6.7.
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Section 11.13 Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee
shall have been appointed by the Company and be then acting hereunder, the term
"TRUSTEE" as used in this Article shall in such case (unless the context
otherwise requires) be construed as extending to and including such Paying Agent
within its meaning as fully for all intents and purposes as if such Paying Agent
were named in this Article in addition to or in place of Trustee; provided,
however, that Section 11.12 shall not apply to the Company or any Affiliate of
the Company if it or such Affiliate acts as Paying Agent.
ARTICLE TWELVE -
REDEMPTION OF NOTES
Section 12.1 Applicability of Article.
Any redemption of Notes before their Stated Maturity shall be
in accordance with their terms and in accordance with this Article.
Section 12.2 Optional Redemption.
The Notes will not be redeemable prior to their Stated
Maturity, except as provided on the reverse of the Form of Note set forth in
Section 2.3.
Section 12.3 Election to Redeem.
Any election to redeem Notes shall be evidenced by a Board
Resolution which shall specify a Redemption Date. The Company shall at least 40
but no more than 60 days prior to the Redemption Date (unless a shorter period
shall be satisfactory to the Trustee) notify the Trustee in writing of the
applicable Redemption Date.
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Section 12.4 Notice of Redemption.
Notice of redemption shall be given by first-class mail,
postage prepaid, mailed not less than 30 nor more than 60 days prior to the
Redemption Date, to each Holder of Notes, at his address appearing in the Note
Register.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price and accrued interest, if any,
(3) that on the Redemption Date the Redemption Price and
accrued but unpaid interest, if any, will become due and payable upon
each such Note to be redeemed and, if applicable, that interest thereon
will cease to accrue on and after said date,
(4) the place or places where such Notes are to be
surrendered for payment of the Redemption Price and accrued interest,
if any, and
(5) the CUSIP numbers, if any, of the Notes to be
redeemed.
Notice of redemption at the election of the Company shall be
given by the Company or, at the Company's request, by the Trustee in the name
and at the expense of the Company and shall be irrevocable.
Section 12.5 Deposit of Redemption Price.
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Prior to any Redemption Date, the Company shall deposit with
the Trustee or with a Paying Agent (or, if the Company is acting as its own
Paying Agent, segregate and hold in trust as provided in Section 9. 3) an amount
of money in immediately available funds sufficient to pay the Redemption Price
of, and (except if the Redemption Date shall be an Interest Payment Date)
accrued but unpaid interest on, all the Notes.
Section 12.6 Notes Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Notes
shall, on the Redemption Date, become due and payable at the Redemption Price
therein specified, and from and after such date (unless the Company shall
default in the payment of the Redemption Price and accrued interest) such Notes
shall cease to bear interest. Upon surrender of any such Note for redemption in
accordance with said notice, such Note shall be paid by the Company at the
Redemption Price, together with accrued but unpaid interest to the Redemption
Date; provided, however, that, installments of interest whose stated maturity is
on or prior to the Redemption Date shall be payable to the Holders of such
Notes, or one or more Predecessor Notes, registered as such at the close of
business on the relevant Record Dates according to their terms and the
provisions of Section 3.8.
If any Note called for redemption shall not be so paid upon
surrender thereof for redemption, the principal and any premium shall, until
paid, bear interest from the Redemption Date at the rate prescribed therefor in
the Note.
ARTICLE THIRTEEN -
DEFEASANCE AND COVENANT DEFEASANCE
Section 13.1 Option to Effect Legal Defeasance or
Covenant Defeasance.
The Company may, at the option of its Board of Directors
evidenced by a Board Resolution, at any time, elect to have either Section 13.2
or 13.3 be applied to all Outstanding Notes upon compliance with the conditions
set forth below in this Article.
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Section 13.2 Legal Defeasance and Discharge.
Upon the Company's exercise under Section 13.1 of the option
applicable to this Section, the Company shall, subject to the satisfaction of
the conditions set forth in Section 13.4, be deemed to have been discharged from
its obligations with respect to all Outstanding Notes on the date the conditions
set forth below are satisfied (hereinafter, "LEGAL DEFEASANCE"). For this
purpose, Legal Defeasance means that the Company shall be deemed to have paid
and discharged the entire Indebtedness represented by the Outstanding Notes,
which shall thereafter be deemed to be "OUTSTANDING" only for the purposes of
Section 13.5 and the other Sections of this Indenture referred to in (a) and (b)
below, and the Company shall be deemed to have satisfied all its other
obligations under the Notes and this Indenture (and the Trustee, on demand of
and at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following provisions which shall survive
until otherwise terminated or discharged hereunder: (a) the rights of Holders of
Outstanding Notes to receive solely from the trust fund described in Section
13.4, and as more fully set forth in such Section, payments in respect of the
principal of, premium, if any, and interest on such Notes as and when such
payments are due, (b) the Company's obligations with respect to such Notes under
Articles One, Two, Three and Four and Section 9.3, (c) the rights, powers,
trusts, duties and immunities of the Trustee hereunder and the Company's
obligations in connection therewith and (d) this Article. Subject to compliance
with this Article, the Company may exercise its option under this Section
notwithstanding the prior exercise of its option under Section 13.3.
Section 13.3 Covenant Defeasance.
Upon the Company's exercise under Section 13.1 of the option
applicable to this Section, the Company shall, subject to the satisfaction of
the conditions set forth in Section 13.4, be released from its obligations under
the covenants contained in Article Nine (except Sections 9.1, 9.2, 9.5 and 9.7)
with respect to the Outstanding Notes on and after the date the conditions set
forth below are satisfied (hereinafter, "COVENANT DEFEASANCE"), and the Notes
shall thereafter be deemed not Outstanding for the purposes of any direction,
waiver, consent or declaration or act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
Outstanding for all other purposes hereunder (it being understood that such
Notes shall not be deemed outstanding for accounting purposes). For this
purpose, Covenant Defeasance means that, with respect to the Outstanding Notes
and the Subsidiary Guarantees, the Company may omit to comply with and shall
have no liability in respect of any term, condition or limitation set forth in
any such covenant, whether directly or indirectly, by reason of any reference
elsewhere herein to any such covenant or by reason of any reference in any such
covenant to any other provision herein or in any other document and such
omission to comply shall not constitute a Default or an Event of Default under
Section 5.1, but, except as specified above, the remainder of this Indenture and
such Notes shall be unaffected thereby. In addition, upon any such Covenant
Defeasance, the events
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specified in paragraphs (f), (g) (with respect to Subsidiaries only) and (h)
shall not constitute Defaults.
Section 13.4 Conditions to Legal or Covenant Defeasance.
The following shall be the conditions precedent to the
effectiveness of any Legal Defeasance or Covenant Defeasance:
(a) the Company shall (i) irrevocably deposit with the
Trustee, in trust, for the benefit of the Holders, unencumbered cash in
United States dollars, unencumbered U.S. Government Obligations, or a
combination thereof, in such amounts as will be sufficient, in a
written opinion of a nationally recognized firm of independent public
accountants delivered to the Trustee, to pay the principal of, premium,
if any, and interest on the outstanding Notes on the stated date for
payment thereof or on the applicable Redemption Date, as the case may
be, and the Company must specify whether the Notes are being defeased
to maturity or to a particular Redemption Date, and (ii) irrevocably
instruct the Trustee to apply such cash and U.S. Government Obligations
to such payments with respect to the Notes;
(b) in the case of an election under Section 13.2, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United
States reasonably acceptable to the Trustee confirming that (A) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling or (B) since the date of this Indenture, there
has been a change in the applicable federal income tax law, in either
case to the effect that, and based thereon such Opinion of Counsel
shall confirm that, the Holders of the Outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a
result of such Legal Defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred;
(c) in the case of an election under Section 13.3 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel in
the United States reasonably acceptable to the Trustee confirming that
the Holders of the Outstanding Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such Covenant Defeasance has not occurred;
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(d) no Default or Event of Default shall have occurred and be
continuing on (i) the date of such deposit (other than a Default or
Event of Default resulting from the Incurrence of Indebtedness all or a
portion of the proceeds of which will be used to defease the Notes
pursuant to this Article concurrently with such Incurrence) and (ii)
insofar as Section 5.1(g) hereof is concerned, at any time during the
period ending on the 91st day after the date of deposit (such condition
not being satisfied until such 91st day) ;
(e) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a default under, any
material agreement or instrument (other than this Indenture) to which
the Company or any of its Subsidiaries is a party or by which the
Company or any of its Subsidiaries is bound;
(f) the Obligors shall have delivered to the Trustee an
Opinion of Counsel to the effect that on the 91st day following the
deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally;
(g) the Obligors shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the
Company with the intent of preferring the Holders over any other
creditors of the Obligors or with the intent of defeating, hindering,
delaying or defrauding any other creditors of the Obligors; and
(h) the Obligors shall have delivered to the Trustee Officers'
Certificates and an Opinion of Counsel, each stating that all
conditions precedent provided for or relating to the Legal Defeasance
or the Covenant Defeasance have been complied with.
Section 13.5 Deposited Money and U.S. Government
Obligations to be Held in Trust; Other
Miscellaneous Provisions.
Subject to Section 13.6, all money and U.S. Government
Obligations (including the proceeds thereof) deposited with the Trustee (or
other qualifying trustee, collectively for purposes of this Section, the
"TRUSTEE") pursuant to Section 13.4 in respect of the Outstanding Notes shall be
held in trust and applied by the Trustee, in accordance with the provisions of
the Notes and this Indenture, to the payment, either directly or through any
Paying Agent (excluding any Obligor acting
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as Paying Agent) as the Trustee may determine, to the Holders of such Notes of
all sums due and to become due thereon in respect of principal, premium, if any,
and interest, but such money need not be segregated from other funds except to
the extent required by law.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the cash or U.S.
Government Obligations deposited pursuant to Section 13.4 or the principal and
interest received in respect thereof.
Anything in this Article to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the request
of the Company any money or U.S. Government Obligations held by it as provided
in Section 13.4 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee (which may be the opinion delivered under Section
13.4), are in excess of the amount thereof that would then be required to be
deposited to effect an equivalent Legal Defeasance or Covenant Defeasance.
Section 13.6 Repayment to Company.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of, premium,
if any, or interest on any Note and remaining unclaimed for two years after such
principal, and premium, if any, or interest has become due and payable shall be
paid to the Company on its request or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Note shall thereafter, as a
creditor, look only to the Company for payment thereof, and all liability of the
Trustee or such Paying Agent with respect to such trust money, and all liability
of the Company as trustee thereof, shall thereupon cease; provided, however,
that the Trustee or such Paying Agent, before being required to make any such
repayment, may at the expense of the Company cause to be published once, in The
New York Times and The Wall Street Journal (national edition), notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such notification or publication, any
unclaimed balance of such money then remaining will be repaid to the Company.
Section 13.7 Reinstatement.
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If the Trustee or Paying Agent is unable to apply any United
States Dollars or U.S. Government Obligations in accordance with Section 13.2 or
13.3, as the case may be, by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Obligors' obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 13. 2 or 13.3 until such time as the Trustee or Paying Agent is
permitted to apply all such money in accordance with Section 13.2 or 13.3, as
the case may be; provided, however, that, if the Company makes any payment of
principal of, premium, if any, or interest on any Note following the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Notes to receive such payment from the money held by the
Trustee or Paying Agent.
ARTICLE FOURTEEN -
MISCELLANEOUS
Section 14.1 No Recourse Against Others.
A director, officer, employee, stockholder or incorporator, as
such, of any Obligor shall not have any liability for any obligations of such
Obligor under the Notes or this Indenture or for any claim based on, in respect
of or by reason of such obligations or their creation. Each Holder by accepting
a Note waives and releases all such liability.
Section 14.2 Execution in Counterparts.
This instrument may be executed in any number of counterparts,
each of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
Section 14.3. Waiver of Trial by Jury.
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EACH OF THE PARTIES TO THIS INDENTURE WAIVES THE RIGHT TO A
TRIAL BY JURY IN ANY ACTION UNDER THIS INDENTURE, THE NOTES OR ANY SUBSIDIARY
GUARANTEE OR ANY ACTION ARISING OUT OF THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY, REGARDLESS OF WHICH PARTY INITIATES SUCH ACTION OR ACTIONS.
* * * * *
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture
to be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
MEGO MORTGAGE CORPORATION
By: /s/ Jeffrey S. Moore
------------------------------------
Name: Jeffrey S. Moore
Title: President and Chief Executive
Officer
Attest:
By:
--------------------------------
Title:
AMERICAN STOCK TRANSFER & TRUST
COMPANY, as Trustee
By: /s/ Herbert J. Lemmer
----------------------------
Name: Herbert J. Lemmer
Title: Vice President
Attest:
By:
------------------------------
Title:
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<PAGE> 110
STATE OF FLORIDA )
) ss.:
COUNTY OF ________ )
On the _____ day of June, 1998 before me personally came
Jerome J. Cohen, to me known, who, being by me duly sworn, did depose and say
that he is Chief Executive Officer of Mego Mortgage Corporation, one of the
corporations described in and which executed the foregoing instrument; that he
knows the seal of said corporation; that the seal affixed to said instrument is
such corporate seal; that it was so affixed by authority of the Board of
Directors of said corporation, and that he signed his name thereto by like
authority.
-------------------------------
Notary Public
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STATE OF NEW YORK )
) ss.:
COUNTY OF ________ )
On the ____ day of June, 1998 before me personally came
Herbert J. Lemmer, to me known, who, being by me duly sworn, did depose and say
that he is a Vice President of American Stock Transfer & Trust Company, one of
the corporations described in and which executed the foregoing instrument, that
he knows the seal of said corporation; that the seal affixed to said instrument
is such corporate seal; that it was so affixed by authority of the Board of
Directors of said corporation, and that he signed his name thereto by like
authority.
----------------------------------
Notary Public
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Annex A
Form of Certificate To Be Delivered
in Connection with Transfers to Non-U.S. Persons
Pursuant to Regulation S
-----------------------, ----
American Stock Transfer & Trust Company
40 Wall Street
New York, NY 10005
Attention: Corporate Trust Administration
Re: 12 1/2% Subordinated Notes due 2001 (the "Notes") of
Mego Mortgage Corporation, a Delaware corporation
(the "Company")
Ladies and Gentlemen:
In connection with our proposed transfer of $___________
aggregate principal amount of the Notes (the "Transfer"), we confirm that (i) we
are familiar with the transfer provisions of the Indenture, dated as of June 29,
1998, as amended, by and among the Company, the Persons who from time to time
become Subsidiary Guarantors and you, as Trustee (the "Indenture"), and (ii)
such Transfer has been effected in compliance with Regulation S under the
Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, we
represent that:
(1) the offer of the Notes was not made to a
person in the United States;
(2) either (a) at the time the buy offer or
order was originated, the transferee was outside the United States or
we and any person acting on our behalf
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<PAGE> 113
reasonably believed that the transferee was outside the United States,
or (b) the transaction was executed in, on or through the facilities of
a designated off-shore securities market and neither we nor any person
acting on our behalf knows that the transaction has been prearranged
with a buyer in the United States;
(3) no directed selling efforts have been made
in the United States in contravention of the requirements of Rule
903(b) or Rule 904(b) of Regulation S, as applicable;
(4) the Transfer is not part of a plan or scheme
to evade the registration requirements of the Securities Act;
(5) we have advised the transferee of the
transfer restrictions applicable to the Notes; and
(6) if the Transfer will occur prior to the
expiration of the Restricted Period (as defined in the Indenture), the
interest transferred will be held by a "Non-US Person" (as defined in
the Indenture).
You and the Company are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby. Terms used in this certificate have
the meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:
------------------------------
Authorized Signature
A-2
<PAGE> 114
Annex B
Form of Certificate To Be Delivered
in Connection with Transfers to QIBs
-----------------------, ----
American Stock Transfer & Trust Company
40 Wall Street
New York, NY 10005
Attention: Corporate Trust Administration
Re: 12 1/2% Subordinated Notes due 2001 (the "Notes") of
Mego Mortgage Corporation, a Delaware corporation
(the "Company")
Ladies and Gentlemen:
In connection with our proposed transfer of $___________
aggregate principal amount of the Notes (the "Transfer"), we confirm that (i) we
are familiar with the transfer provisions of the Indenture, dated as of June 29,
1998, as amended, by and among the Company, the Persons who from time to time
become Subsidiary Guarantors and you, as Trustee (the "Indenture"), and (ii)
such Transfer has been effected in compliance with Rule 144A under the
Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, we
represent that:
(1) the Transfer is being made to a person whom we
reasonably believe is purchasing for its own account or accounts as to
which it exercises sole investment
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<PAGE> 115
discretion and that such person and each such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the
Securities Act; and
(2) the Transfer otherwise complies with the
requirements of Rule 144A.
You and the Company are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby. Terms used in this certificate have
the meanings set forth in Rule 144A.
Very truly yours,
[Name of Transferor]
By:
----------------------------------
Authorized Signature
B-2
<PAGE> 116
Annex C
Form of Certificate To Be Delivered
in Connection with Transfers to Accredited Investors
Mego Mortgage Corporation
1000 Parkwood Circle
Suite 500
Atlanta, Georgia 30339
Ladies and Gentlemen:
In connection with our proposed purchase of $ ___________ in
principal amount of the 12 1/2% Subordinated Notes due 2001 (the "Notes") of
Mego Mortgage Corporation, a Delaware corporation (the "Company"), we confirm
that:
1. we are an "accredited investor" (as defined in Rule
501(a)(1), (2), (3), (5), (6) or (7) under the Securities Act of 1933, as
amended (the "Securities Act")) (an "Accredited Investor");
2. the purchase of the Notes is for our own account or
for the account of one or more other Accredited Investors;
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<PAGE> 117
3. we have such knowledge and experience in financial
and business matters as to be capable of evaluating the merits and risks of our
investment in the Notes;
4. we and any accounts for which we are acting are each
able to bear the economic risk of our or its investment and can afford the
complete loss of such investment; and
5. we are acquiring the Notes for investment purposes
and not with a view to distribution thereof or with any present intention of
offering or selling any of the Notes in violation of the Securities Act.
We understand that the Notes have been issued in a transaction
not involving any public offering within the United States within the meaning of
the Securities Act and that the Notes have not been registered under the
Securities Act and, unless so registered, may not be sold except as permitted in
the following sentence. We agree, on our own behalf and on behalf of each
account for which we acquire any Notes, that if in the future we decide to
offer, resell, pledge or otherwise transfer such Notes, prior to the date which
is two years after the later of the date of original issue and the last date on
which the Company or any affiliate of the Company was the owner of such Notes
(or any predecessor thereto) (the "Restriction Termination Date"), such Notes
may be offered, resold, pledged or otherwise transferred only (a) to the Company
or a subsidiary thereof, (b) pursuant to a registration statement that has been
declared effective under the Securities Act, (c) for so long as the Notes are
eligible for resale pursuant to Rule 144A, to a person whom we reasonably
believe is a qualified institutional buyer under Rule 144A (a "QIB") that
purchases for its own account or for the account of a QIB and to whom notice is
given that the offer, resale, pledge or transfer is being made in reliance on
Rule 144A, (d) pursuant to offers and sales that occur outside the United States
within the meaning of Regulation S under the Securities Act, (e) to an
Accredited Investor that is purchasing for his, her or its own account or for
the account of an Institutional Accredited Investor, or (f) pursuant to any
other available exemption from the registration requirements of the Securities
Act, subject in each of the foregoing cases to any requirement of law that the
disposition of our property or the property of such investor account or accounts
be at all times within our or their control and to compliance with any
applicable state securities laws. The foregoing restrictions on resale will not
apply subsequent to the Restriction Termination Date. If any resale or other
transfer of the Notes is proposed to be made pursuant to clause (e) above prior
to the Restriction Termination Date, the transferor shall deliver a letter from
the transferee substantially in the form of this letter to the Company. In the
case of certain offers, sales or other transfers referred to in clause (c) or
(d) above, the transferor must make certain certifications to the Trustee to
confirm that such transfers are being made pursuant an exemption from, or in a
transaction not subject to, the registration requirements of the Securities Act.
We understand that the registrar and transfer agent for the Notes will not be
required to accept for registration of transfer any Notes acquired by us, except
upon
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<PAGE> 118
presentation of evidence satisfactory to the Company and the transfer agent that
the foregoing restrictions on transfer have been complied with. We further
understand that any Notes acquired by us will be in the form of definitive
physical certificates and that such certificates will bear a legend reflecting
the substance of this paragraph. Each purchaser acknowledges that the Company
and the Trustee reserve the right prior to any offer, sale or other transfer
prior to the Restriction Termination Date of the Notes pursuant to clause (f)
above to require the delivery of an opinion of counsel, certifications and/or
other information satisfactory to the Company and the Trustee.
We acknowledge that you, the Company and others will rely upon
our confirmation, acknowledgments and agreements set forth herein and we agree
to notify you promptly if any of our representations or warranties herein ceases
to be accurate and complete.
You are entitled to rely upon this letter and you are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceeding or official inquiry with respect
to the matters covered hereby.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAWS THAT WOULD REQUIRE THE APPLICATION OF THE LAW OF ANY OTHER
STATE.
Date:
-----------------------------
(Name of Purchaser)
Upon transfer, the Notes should be registered in the name of the new
beneficial owner as follows:
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<PAGE> 119
Name:
------------------------------------
Address:
---------------------------------
---------------------------------
Taxpayer ID number:
----------------------
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<PAGE> 1
EXHIBIT 10.95
This Note is a Global Note within the meaning of the Indenture hereinafter
referred to and is registered in the name of a Depositary or a nominee thereof.
This Note may not be transferred to, or registered or exchanged for Notes
registered in the name of, any Person other than the Depositary or a nominee
thereof or a successor of such Depositary or a nominee of such successor and no
such transfer may be registered, except in the limited circumstances described
in the Indenture. Every Note authenticated and delivered upon registration of
transfer of, or in exchange for or in lieu of, this Note shall be a Global Note
subject to the foregoing, except in such limited circumstances.
Unless this Note is presented by an authorized representative of The Depository
Trust Company, a New York Corporation ("DTC"), to Mego Mortgage Corporation or
its agent for registration of transfer, exchange or payment, and any Note
issued is registered in the name of Cede & Co. or such other name as is
requested by an authorized representative of DTC (and any payment is made to
Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO A PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE OR UNLESS A REGISTRATION
STATEMENT UNDER THE SECURITIES ACT IS IN EFFECT WITH RESPECT TO THIS NOTE. BY
ITS ACQUISITION HEREBY (BUT SUBJECT TO CERTAIN RIGHTS TO REQUIRE REGISTRATION
OF THE NOTES), THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (B) IT
IS AN "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3), (5), (6)
OR (7) UNDER THE SECURITIES ACT) OR (C) IT IS A "NON-US PERSON" (AS DEFINED IN
REGULATION S UNDER THE SECURITIES ACT); (2) AGREES THAT IT WILL NOT PRIOR TO
THE LATER TO OCCUR OF (I) TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THE NOTE
EVIDENCED HEREBY OR (II) ACQUISITION THEREOF FROM AN AFFILIATE OF THE COMPANY
(THE "RESTRICTION TERMINATION DATE") RESELL OR OTHERWISE TRANSFER THE NOTE
EVIDENCED HEREBY OR ANY INTEREST THEREIN, EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR IN A TRANSACTION NOT
REQUIRING REGISTRATION UNDER THE SECURITIES ACT (A) TO MEGO MORTGAGE
CORPORATION OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A
QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH
<PAGE> 2
RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN
ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE
UNDER THE INDENTURE RELATING TO THIS NOTE (THE "TRUSTEE") A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTION
ON TRANSFER OF THE NOTES EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE
OBTAINED FROM MEGO MORTGAGE CORPORATION OR THE TRUSTEE), (D) OUTSIDE THE UNITED
STATES IN COMPLIANCE WITH REGULATION S PROMULGATED UNDER THE SECURITIES ACT,
(E) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, INCLUDING THE EXEMPTION PROVIDED BY RULE
144 UNDER THE SECURITIES ACT (IF AVAILABLE), SUBJECT IN EACH OF THE FOREGOING
CASES TO ANY REQUIREMENT OF LAW THAT THE DISPOSITION OF THE PROPERTY OF SUCH
HOLDER BE AT ALL TIMES WITHIN SUCH HOLDER'S CONTROL AND IN COMPLIANCE WITH ANY
APPLICABLE STATE SECURITIES LAWS; AND (3) AGREES THAT IT WILL DELIVER TO EACH
PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF
THIS LEGEND, IN CONNECTION WITH ANY TRANSFER OF THE NOTE EVIDENCED HEREBY PRIOR
TO THE RESTRICTION TERMINATION DATE. IN THE CASE OF CERTAIN TRANSFERS PURSUANT
TO CLAUSE (2)(B) OR (2)(D), THE HOLDER MUST MAKE CERTAIN CERTIFICATIONS TO THE
TRUSTEE TO CONFIRM THAT SUCH TRANSFERS ARE BEING MADE PURSUANT AN EXEMPTION
FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT. IN ADDITION, IN THE CASE OF ANY TRANSFER REFERRED TO IN CLAUSE
(2)(E) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER FURNISH TO THE TRUSTEE
SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE COMPANY OR THE
TRUSTEE MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE
PURSUANT TO AN EXEMPTION FROM OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
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<PAGE> 3
CUSIP No.
MEGO MORTGAGE CORPORATION
12 1/2% SUBORDINATED NOTES DUE 2001
No. $
Mego Mortgage Corporation, a corporation duly organized and existing
under the laws of Delaware (herein called the "Company", which term includes
any Successor Company under the Indenture hereinafter referred to), for value
received, hereby promises to pay to Cede & Co., or registered assigns, the
principal sum of __________________ Dollars ($_____________) on December 1,
2001, and to pay interest thereon from June 1, 1998, or from the most recent
Interest Payment Date to which interest has been paid or duly provided for,
semi-annually on June 1 and December 1 in each year, commencing December 1,
1998, at the rate of 12 1/2% per annum, until the principal hereof is paid or
made available for payment, and at the rate of 1% over the rate set forth above
per annum on any overdue principal and (to the extent that the payment of such
interest shall be legally enforceable) on any overdue installment of interest.
The interest so payable, and punctually paid or duly provided for, on any
Interest Payment Date will, as provided in such Indenture, be paid to the
Person in whose name this Note (or one or more Predecessor Notes) is registered
at the close of business on the Regular Record Date for such interest, which
shall be the May 15 or November 15 (whether or not a Business Day), as the case
may be, next preceding such Interest Payment Date. Any such interest not so
punctually paid or duly provided for will forthwith cease to be payable to the
Holder on such Regular Record Date and may either be paid to the Person in
whose name this Note (or one or more Predecessor Notes) is registered at the
close of business on a Special Record Date for the payment of such Defaulted
Interest to be fixed by the Trustee, notice whereof shall be given to Holders
of Notes not less than 10 days prior to such Special Record Date, or be paid at
any time in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Notes may be listed, and upon such notice
as may be required by such exchange, all as more fully provided in said
Indenture.
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<PAGE> 4
Payment of the principal of (and premium, if any) and any such
interest on this Note will be made at the office or agency of the Company
maintained for that purpose in the City of New York, Borough of Manhattan, in
such coin or currency of the United States of America as at the time of payment
is legal tender for payment of public and private debts.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this Note
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
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<PAGE> 5
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed under its corporate seal.
Dated:
MEGO MORTGAGE CORPORATION
By:________________________
Attest:
______________________
Authenticated:
AMERICAN STOCK TRANSFER & TRUST COMPANY, as Trustee
______________________
By:
Its:
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<PAGE> 6
[Reverse of Note]
This Note is one of a duly authorized issue of securities of the
Company (herein called the "Notes"), issued under an Indenture, dated as of
June 26, 1998 (herein called the "Indenture"), by and between the Company, and
American Stock Transfer & Trust Company, as Trustee (herein called the
"Trustee", which term includes any successor trustee under the Indenture), to
which Indenture and all indentures supplemental thereto reference is hereby
made for a statement of the respective rights, limitations of rights, duties
and immunities thereunder of the Company, the Trustee and the Holders of the
Notes and of the terms upon which the Notes are, and are to be, authenticated
and delivered. This Note is one of the Notes designated on the face hereof,
limited in aggregate principal amount to $82,990,000.00.
The Notes are redeemable, in whole but not in part, prior to
maturity at the option of the Company at any time and from time to time at a
redemption price (the "Redemption Price") (expressed as a percentage of
principal amount), (i) prior to December 1, 1999, of 100% and (ii) after
December 1, 1999 but prior to December 1, 2001, of 106%, in either case plus
accrued and unpaid interest (including Added Interest, if any) to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest (including Added Interest, if any) due on the
relevant interest payment date).
The Notes are subordinated in right of payment, in the manner and to
the extent set forth in the Indenture, to the prior payment in full of all
Senior Indebtedness of the Company, whether out standing on the date of the
Indenture or thereafter created, incurred, assumed or guaranteed. Each Holder
by his acceptance hereof agrees to be bound by such provisions and authorizes
and expressly directs the Trustee, on his behalf, to take such action as may be
necessary or appropriate to effectuate the subordination provided for in the
Indenture and appoints the Trustee his attorney-in-fact for such purposes.
The Indenture contains provisions for defeasance at any time of (a)
the entire indebtedness evidenced by this Note and (b) certain restrictive
covenants, in each case upon compliance by the Company with certain conditions
set forth therein, which provisions apply to this Note.
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<PAGE> 7
If an Event of Default with respect to Notes shall occur and be
continuing, the principal of the Notes may be declared due and payable in the
manner and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Notes to be affected under the
Indenture at any time by the Company and the Trustee with the consent of the
Holders of a majority in principal amount of the Notes at the time Outstanding.
The Indenture also contains provisions permitting the Holders of specified
percentages in principal amount of the Notes at the time Outstanding, on behalf
of the Holders of all Notes of such series, to waive certain past defaults
under the Indenture and their consequences. Any such consent or waiver by the
Holder of this Note shall be conclusive and binding upon such Holder and upon
all future Holders of this Note and of any Note issued upon the registration of
transfer hereof or in exchange herefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Note.
No reference herein to the Indenture and no provision of this Note
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of and any premium and
interest on this Note at the times, place and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Note is registrable in the Note
Register, upon surrender of this Note for registration of transfer at the
office or agency of the Company in any place where the principal of and any
premium and interest on this Note are payable, duly endorsed by, or accompanied
by a written instrument of transfer in form satisfactory to the Company and the
Note Registrar duly executed by, the Holder hereof or his attorney duly
authorized in writing, and thereupon one or more new Notes of like tenor, of
authorized denominations and for the same aggregate principal amount, will be
issued to the designated transferee or transferees.
The Notes are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, Notes are
exchangeable for a like aggregate principal amount of Notes of like tenor of a
different authorized denomination, as requested by the Holder surrendering the
same.
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<PAGE> 8
No service charge shall be made for any such registration of
transfer or exchange, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Note for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name this Note is registered as the owner hereof for all
purposes, whether or not this Note be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
All terms used in this Note which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
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<PAGE> 9
ASSIGNMENT
(TO BE EXECUTED BY THE REGISTERED HOLDER
IF SUCH HOLDER DESIRES TO TRANSFER THIS NOTE)
FOR VALUE RECEIVED ___________________________ hereby sells, assigns
and transfers unto _____________________________________________________.
PLEASE INSERT SOCIAL SECURITY OR OTHER
TAX IDENTIFYING NUMBER OF TRANSFEREE
(PLEASE PRINT NAME AND ADDRESS OF TRANSFEREE)
This Note, together with all right, title and interest herein, and
does hereby irrevocably constitute and appoint ___________________ Attorney to
transfer this Note on the Note Register, with full power of substitution.
Dated: ________________________
Signature of Holder ________________________________ Signature Guaranteed:
___________________________
NOTICE: The signature to the foregoing Assignment must correspond to the Name
as written upon the face of this Note in every particular, without
alteration or any change whatsoever.
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<PAGE> 1
EXHIBIT 10.96
REGISTRATION RIGHTS AGREEMENT
DATED AS OF JUNE 29, 1998
BETWEEN
MEGO MORTGAGE CORPORATION
AS ISSUER
AND
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
AS PLACEMENT AGENT
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement"), is made and
entered into as of June 29, 1998, between MEGO MORTGAGE CORPORATION, a Delaware
corporation (the "Issuer") and FRIEDMAN, BILLINGS, RAMSEY & CO., INC. (the
"Placement Agent").
This Agreement is being made in conjunction with an exchange offer
by the Issuer (the "Issuer Exchange Offer") pursuant to which the Issuer is
offering to exchange shares of its Series A convertible preferred stock, par
value $.01 per share and its 12 1/2% Subordinated Notes Due 2001, or a
combination thereof for all of the Issuer's $80.0 aggregate principal amount of
12 1/2% Senior Subordinated Notes Due 2001 ("New Notes"). This Agreement
provides certain registration rights to persons who receive 12 1/2%
Subordinated Notes Due 2001 in the Issuer Exchange Offer. The Issuer Exchange
Offer is part of a broad plan to recapitalize the Issuer as more fully
described in Issuer's offering memorandum dated June 9, 1998. The parties hereby
agree as follows:
1. Definitions
As used in this Agreement, the following terms shall have the
following meanings (and, unless otherwise indicated, capitalized terms used
herein without definition shall have the respective meanings ascribed to them
in the Purchase Agreement):
Added Interest: See Section 4(a) hereof.
Applicable Period: See Section 2 hereof.
Business Day: Any day except a Saturday, Sunday or other day in the
City of New York, or in the city of the corporate trust office of the Trustee,
on which banks are authorized to close.
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<PAGE> 3
Closing Date: The Closing Date as defined in the Offering
Memorandum.
Direct Broker-Dealer Buyer: See Section 2(b) hereof.
Effectiveness Target Date: March 15, 1999.
Exchange Act: The Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC promulgated thereunder, and any succeeding
provisions thereto.
Exchange Notes: See Section 2(a) hereof.
Exchange Offer: See Section 2(a) hereof.
Exchange Offer Completion Date: April 14, 1999.
Exchange Offer Registration Statement: See Section 2(a) hereof.
Filing Date: December 15, 1998.
Holder: Any holder of Transfer Restricted Securities.
Indemnified Party: See Section 7 hereof.
Indemnifying Party: See Section 7 hereof.
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<PAGE> 4
Indenture: The Indenture, dated as of June __, 1998, by and among
the Issuer and American Stock Transfer & Trust Company, as Trustee, as it may
be further amended or supplemented from time to time in accordance with the
terms thereof.
Inspectors: See Section 5(m) hereof.
Issuer: See the introductory paragraph to this Agreement.
Issuer Affiliate: See Section 2(b) hereof.
Issuer Exchange Offer: See the second paragraph to this Agreement.
New Notes: See the second paragraph to this Agreement.
Offering Memorandum: The Issuer's Offering Memorandum dated June 9,
1998.
Participating Broker-Dealer: Any broker-dealer (as defined in the
Exchange Act), other than a Direct Broker-Dealer Buyer, that is a Holder or
beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of New Notes
acquired for its own account as a result of market-making activities or other
trading activities that are tendered for exchange in the Exchange Offer and
that thereafter holds Exchange Notes issued in exchange therefor.
Placement Agent: See the introductory paragraph to this Agreement.
Person or person: An individual, trustee, corporation, partnership,
joint stock company, trust, unincorporated association, union, business
association, limited liability company, limited liability partnership, firm or
other legal entity.
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<PAGE> 5
Prospectus: The prospectus included in any Registration Statement
(including, without limitation, any prospectus subject to completion and a
prospectus that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act), as amended or supplemented by any
prospectus supplement, with respect to the terms of the offering of any portion
of the Exchange Notes and/or the Transfer Restricted Securities (as
applicable), covered by such Registration Statement, and all other amendments
and supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.
Purchaser Indemnitee: See Section 7 hereof.
Records: See Section 5(m) hereof.
Registration Default: See Section 4(a) hereof.
Registration Statement: Any registration statement of the Issuer,
including, but not limited to, the Exchange Offer Registration Statement, the
Shelf Registration Statement or a registration statement of the Issuer that
otherwise covers any of the Transfer Restricted Securities pursuant to the
provisions of this Agreement, including the Prospectus, amendments and
supplements to such registration statement, including post-effective
amendments, all exhibits, and all material incorporated by reference or deemed
to be incorporated by reference in such registration statement.
Rule 144: Rule 144 promulgated pursuant to the Securities Act, as
currently in effect, as such rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the SEC.
Rule 144A: Rule 144A promulgated pursuant to the Securities Act, as
currently in effect, as such rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the SEC.
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<PAGE> 6
Rule 415: Rule 415 promulgated pursuant to the Securities Act, as
such rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder, and any succeeding
provisions thereto.
Shelf Effectiveness Period: See Section 3(a) hereof.
Shelf Notice: See Section 2(g) hereof.
Shelf Registration Statement: See Section 3(a) hereof.
TIA: The Trust Indenture Act of 1939, as amended, and the rules and
regulations of the SEC promulgated thereunder.
Transfer Restricted Securities: The New Notes upon original issuance
thereof and at all times subsequent thereto, until (i) a Registration Statement
covering such New Notes has been declared effective by the SEC and such New
Notes have been disposed of in accordance with such effective Registration
Statement, (ii) such New Notes are sold in compliance with Rule 144, (iii) such
New Notes cease to be outstanding or (iv) such New Notes have been exchanged
for Exchange Notes.
Trustee: The trustee under the Indenture and, if existent, the
trustee under any indenture governing the Exchange Notes.
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<PAGE> 7
Underwritten registration or underwritten offering: A registration
in which securities of the Issuer are sold to an underwriter or underwriters
for reoffering to the public.
2. Exchange Offer
(a) The Issuer agrees to file with the SEC as soon as practicable
after the Closing Date, but in no event later than the Filing Date, an offer to
exchange (the "Exchange Offer") any and all of the Transfer Restricted
Securities for a like aggregate principal amount of debt securities of the
Issuer (the "Exchange Notes"), which Exchange Notes will be (i) substantially
identical in all material respects to the New Notes, except that such Exchange
Notes will not contain terms with respect to transfer restrictions,
registration rights or the obligation to pay any Added Interest, (ii) entitled
to the benefits of the Indenture or a trust indenture which is identical to the
Indenture (other than such changes to the Indenture or any such identical trust
indenture as are necessary to comply with any requirements of the SEC or to
effect or maintain the qualification thereof under the TIA), and which, in
either case, has been qualified under the TIA, and (iii) registered pursuant to
an effective Registration Statement in compliance with the Securities Act. The
Exchange Offer will be registered pursuant to the Securities Act on an
appropriate form of Registration Statement (the "Exchange Offer Registration
Statement"), and will comply with all applicable tender offer rules and
regulations promulgated pursuant to the Exchange Act and shall be duly
registered or qualified pursuant to all applicable state securities or Blue Sky
laws. The Exchange Offer shall not be subject to any condition, other than that
the Exchange Offer does not violate any applicable law, policy or
interpretation of the staff of the SEC. No securities shall be included in the
Exchange Offer Registration Statement other than the Exchange Notes. The Issuer
agrees to (x) use its best efforts to cause the Exchange Offer Registration
Statement to be declared effective on or prior to the Effectiveness Target Date
and to cause the Exchange Offer to be consummated on or prior to the Exchange
Offer Completion Date and (y) keep the Exchange Offer open for not less than 30
days (or such longer period required by applicable law), after the date that
the notice of the Exchange Offer referred to below is mailed to Holders.
(b) Each Holder who participates in the Exchange Offer will be
required to represent (which representation may be contained in the letter of
transmittal contemplated by the Exchange Offer Registration Statement) that (i)
any Exchange Notes received by it will be acquired in the ordinary course of
its business, (ii) at the time of the consummation of the Exchange Offer such
Holder is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, the
distribution of the Exchange Notes, and (iii) such Holder is not (1) an
"affiliate" of the Issuer (an "Issuer Affiliate") or, (2) the Placement Agent
or any other broker-dealer that acquired such Transfer Restricted Securities
directly from the Issuer or any Issuer Affiliate for resale pursuant to Rule
144A, Regulation S or another available exemption from the
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<PAGE> 8
registration requirements of the Securities Act (a "Direct Broker-Dealer
Buyer"). As used herein, "affiliate" shall be as defined in Rule 405 under the
Securities Act. Each Holder hereby acknowledges and agrees that any Issuer
Affiliate, any Direct Broker-Dealer Buyer, and any such Holder intending to use
the Exchange Offer to participate in a distribution of the securities to be
acquired in the Exchange Offer (i) could not under SEC policy as in effect on
the date of this Agreement participate in the Exchange Offer, and (ii) must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction and that such
a secondary resale transaction of such Holder's New Notes should be covered by
an effective registration statement containing the selling security holder and
other information required by Item 507 and 508, as applicable, of Regulation
S-K under the Securities Act.
(c) Prior to the effectiveness of the Exchange Offer Registration
Statement, the Issuer shall provide a supplemental letter to the SEC (A)
stating that the Issuer is seeking to register the Exchange Offer on the basis
of the position of the SEC enunciated in Morgan Stanley and Co., Inc.
(available June 5, 1991), Exxon Capital Holdings Corporation (available May 13,
1988), and Shearman & Sterling (available July 2, 1993), and similar no-action
letters and (B) including a representation that the Issuer has not entered into
any arrangement or understanding with any person to distribute the Exchange
Notes to be received in the Exchange Offer and that, to the best of the
Issuer's knowledge, each Holder intending to participate in the Exchange Offer
is acquiring the Exchange Notes in its ordinary course of business and has no
arrangement or understanding with any person to participate in the distribution
of the Exchange Notes received in the Exchange Offer.
(d) The Issuer hereby agrees for a period of at least 180 days after
consummation of the Exchange Offer to make available, upon written request
therefor, a prospectus meeting the requirements of the Securities Act to any
Participating Broker-Dealer for use in connection with resales of Exchange
Notes. Upon consummation of the Exchange Offer in accordance with this
Agreement, the Issuer shall have no further obligation to register Transfer
Restricted Securities pursuant to Section 3 of this Agreement, unless the
Issuer is otherwise obligated to file a Shelf Registration Statement pursuant
to clause 3 of subsection (g) of this Section 2.
(e) The Issuer shall include within the Prospectus contained in the
Exchange Offer Registration Statement a Section entitled "Plan of
Distribution," reasonably acceptable to the Placement Agent, which shall
contain a summary statement of the positions taken or policies made by the
staff of the SEC with respect to the potential "underwriter" status of any
Participating Broker-Dealer with respect to the Exchange Notes. Such "Plan of
Distribution" Section shall also allow the use of the Prospectus by all persons
subject to the prospectus delivery requirements of the Securities Act,
including all Participating Broker-Dealers, and include a statement describing
the means by which Participating Broker-Dealers may resell the Exchange Notes.
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<PAGE> 9
(f) The Issuer shall use its best efforts to keep the Exchange Offer
Registration Statement effective and to amend and supplement the Prospectus
contained therein, in order to permit such Prospectus to be lawfully delivered
by all persons subject to the prospectus delivery requirements of the
Securities Act for such period of time as such persons must comply with such
requirements in order to resell the Exchange Notes; provided that such period
shall not exceed 180 days after consummation of the Exchange Offer (or such
longer period if extended pursuant to Section 5(j) hereof) (the "Applicable
Period").
In connection with the Exchange Offer, the Issuer shall:
(i) mail as promptly as practicable to each Holder a copy
of the Prospectus forming part of the Exchange Offer Registration
Statement, together with an appropriate letter of transmittal and
related documents;
(ii) utilize the services of a depositary for the Exchange
Offer with an address in the Borough of Manhattan, The City of New
York; and
(iii) permit Holders to withdraw tendered New Notes at any
time prior to the close of business, New York time, on the last
Business Day on which the Exchange Offer shall remain open by
sending to the institution and at the address (located in the
Borough of Manhattan, The City of New York) specified in the notice,
a telegram, telex, facsimile transmission or letter setting forth
the name of such Holder, the principal amount of Transfer Restricted
Securities delivered for exchange and a statement that such Holder
is withdrawing his or her election to have such Transfer Restricted
Securities exchanged.
As soon as practicable after the close of the Exchange Offer, the
Issuer shall:
(i) accept for exchange all New Notes validly tendered and
not validly withdrawn in accordance with the Exchange Offer;
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<PAGE> 10
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation all New Notes so accepted for exchange; and
(iii) cause the Trustee to authenticate and deliver
promptly to each Holder of New Notes, Exchange Notes equal in
principal amount to the New Notes of such Holder so accepted for
exchange.
(g) If (1) prior to the consummation of the Exchange Offer,
applicable interpretations of the staff of the SEC do not permit the Issuer to
effect the Exchange Offer, (2) for any other reason the Exchange Offer is not
consummated on or prior to the Exchange Offer Completion Date, or (3) any
Holder of Transfer Restricted Securities shall notify the Issuer within 20
Business Days of the consummation of the Exchange Offer (and confirm such
notice in writing within five Business Days thereafter) that such Holder is a
Direct Broker-Dealer Buyer, then the Issuer shall promptly deliver to the
Holders of any Transfer Restricted Securities and the Trustee written notice
thereof (the "Shelf Notice"), and the Issuer shall file a Registration
Statement pursuant to Section 3 hereof following the delivery to the Holders of
Transfer Restricted Securities of a Shelf Notice, the Issuer shall not have any
further obligation to conduct the Exchange Offer pursuant to this Section 2(g),
provided, that the Issuer shall have the right, nonetheless, to proceed to
consummate the Exchange Offer notwithstanding its obligation pursuant to this
Section 2(g) (and, upon such consummation, any obligation to file a Shelf
Registration Statement arising from clause (1) or (2) (but not clause (3)) of
this Section 2(g) shall terminate) and provided that any Shelf Notice delivered
to the Holders of Transfer Restricted Securities pursuant to clause (3) of this
Section 2(g) shall result in the termination of the obligations of the Issuer
to conduct the Exchange Offer only with respect to the Holders described in
clause (3) of this Section 2(g).
3. Shelf Registration Statement
If the Issuer is required to deliver a Shelf Notice as contemplated
by Section 2(g) hereof, then:
(a) Shelf Registration Statement. The Issuer shall prepare and file
with the SEC, as promptly as practicable following the Shelf Notice, a
Registration Statement for an offering to be made on a continuous basis
pursuant to Rule 415 covering all of the Transfer Restricted Securities, which
registration statement, if the Shelf Notice is given pursuant to Section
2(g)(1) or (2), may be
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<PAGE> 11
an amendment to the Exchange Offer Registration Statement (the "Shelf
Registration Statement"). The Shelf Registration Statement shall be on Form S-1
or another appropriate form permitting registration of the Transfer Restricted
Securities for resale by the Holders in the manner or manners reasonably
designated by them (including, without limitation, one or more underwritten
offerings). The Issuer shall not permit any securities other than the Transfer
Restricted Securities to be included in the Shelf Registration Statement. The
Issuer shall use its best efforts, as described in Section 5(b) hereof, to
cause the Shelf Registration Statement to be declared effective pursuant to the
Securities Act as promptly as practicable after the filing of such Shelf
Registration Statement, but in no event later than the Effectiveness Target
Date (or in the case of a Shelf Registration Statement filed pursuant to
Section 2(g)(3) hereof, by the later of the Effectiveness Target Date or 60
days of receipt by the Issuer of the notice contemplated by Section 2(g)(3)),
and to keep the Shelf Registration Statement continuously effective under the
Securities Act until the earlier of (i) the date which is 24 months after its
effective date (or 12 months after such effective date if such Shelf
Registration Statement is filed pursuant to Section 2(g)(3) at the request of
the Placement Agent), (ii) the date that all Transfer Restricted Securities
covered by the Shelf Registration Statement have been sold in the manner set
forth and as contemplated in the Shelf Registration Statement, (iii) the date
that there ceases to be securities outstanding that constitute Transfer
Restricted Securities, or (iv) the date on which all Transfer Restricted
Securities covered by the Shelf Registration Statement become tradeable under
Rule 144 without regard to volume limitations (the "Shelf Effectiveness
Period").
(b) Supplements and Amendments. Subject to Section 3(a) above, the
Issuer shall use its best efforts to keep the Shelf Registration Statement
continuously effective by supplementing and amending the Shelf Registration
Statement if required by the rules, regulations or instructions applicable to
the registration form used for such Shelf Registration Statement, if required
by the Securities Act, or if reasonably requested by the Holders of a majority
in aggregate principal amount of the Transfer Restricted Securities covered by
such Registration Statement or by any underwriter of such Transfer Restricted
Securities.
4. Added Interest
(a) The Issuer and the Placement Agent agree that the Holders of
Transfer Restricted Securities will suffer damages if the Issuer fails to
fulfill its obligations pursuant to Section 2 or Section 3 hereof and that it
would not be possible to ascertain the extent of such damages. Accordingly, in
the event of such failure by the Issuer to fulfill such obligations, the Issuer
agrees to pay liquidated damages ("Added Interest") to each Holder of Transfer
Restricted Securities under the circumstances and to the extent set forth
below:
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<PAGE> 12
(i) if the Exchange Offer Registration Statement has not
been filed with the SEC on or prior to the Filing Date; or
(ii) if the Exchange Offer Registration Statement is not
declared effective by the SEC on or prior to the Effectiveness
Target Date; or
(iii) if the Exchange Offer has not been consummated and
the Issuer has not exchanged Exchange Notes for all New Notes
validly tendered in accordance with the terms of the Exchange Offer
on or prior to the Exchange Offer Completion Date or a Shelf
Registration Statement has not been declared effective by the SEC
prior to the Exchange Offer Completion Date;
(any of the foregoing, a "Registration Default"), then, the Issuer shall pay to
each Holder of Transfer Restricted Securities, accruing from December 15, 1998
in the case of clause (i) above, March 15, 1999 in the case of clause (ii)
above or April 14, 1999 in the case of clause (iii) above, Added Interest in an
amount equal to one-half of one percent (0.5%) per annum of the principal
amount of Transfer Restricted Securities held by such Holder; which rate will
be increased by an additional one-half of one percent (0.5%) per annum for each
90-day period that any such Added Interest continues to accrue; provided,
however that Added Interest shall not at any time exceed one percent (1.0%) per
annum of the principal amount of Transfer Restricted Securities. Upon the
filing of the Exchange Offer Registration Statement after December 15, 1998,
(y) the effectiveness of the Exchange Offer Registration Statement after March
15, 1999 or (z) the day before the date of the consummation of the Exchange
Offer or the effectiveness of a Shelf Registration Statement, as the case may
be, after April 14, 1999, the interest rate borne by the New Notes from the
date of such filing, effectiveness or the day before the date of such
consummation or effectiveness, as the case may be, will be reduced by the full
amount of the related increase from, but not to less than, the original
interest rate set forth on the cover page of the Offering Memorandum; provided,
however, that (a) if after any such reduction in interest rate, a different
event specified in clause (i), (ii) or (iii) above occurs, the interest rate
may again be increased and thereafter reduced pursuant to the foregoing
provisions, and (b) such rate will also be reduced to the rate set forth on the
cover page of the Offering Memorandum on the date on which the New Notes become
eligible for sale under Rule 144 without limitation as to volume.
(b) The Issuer shall notify the Trustee within one Business Day
after each and every date on which a Registration Default first occurs. Payment
of Added Interest, if any, will initially be due at the offices of the Paying
Agent (as defined in the Indenture), provided that, at the option of the
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<PAGE> 13
Issuer, Added Interest may be paid by check mailed to Holders at their
registered addresses, provided further that (i) all payments with respect to
Global New Notes (as defined in the Indenture) are required to be made in same
day funds in accordance with the policies of the Depository (as defined in the
Indenture) and (ii) all payments with respect to New Notes, the Holders of
which have given wire transfer instructions to the Issuer, will be required to
be made by wire transfer of immediately available funds to the accounts
specified by such Holders. Added Interest shall be paid on or before the
semi-annual interest payment date provided in the Indenture and on each payment
date provided in the Indenture including, without limitation, whether upon
redemption, maturity (by acceleration or otherwise) or purchase upon a Change
of Control. Each obligation to pay Added Interest shall be deemed to commence
accruing on the date of the applicable Registration Default and to cease
accruing when all Registration Defaults have been cured. In no event shall the
Issuer pay Added Interest in excess of the applicable maximum amount set forth
above, regardless of whether one or multiple Registration Defaults exist.
(c) The parties hereto agree that the Added Interest provided for in
this Section 4 constitutes a reasonable estimate of the damages that will be
suffered by Holders by reason of the failure to file the Exchange Offer
Registration Statement or the Shelf Registration Statement, the failure of the
Exchange Offer Registration Statement or the Shelf Registration Statement to be
declared effective, the failure to consummate the Exchange Offer or the failure
of the Shelf Registration Statement to remain effective, as the case may be, in
accordance with this Agreement. No monetary damages in addition to Added
Interest shall be payable by the Issuer to Holders by reason of the failure of
the actions set forth in this Section 4(c) to occur as set forth herein.
5. Registration Procedures
In connection with the registration of any Exchange Notes or
Transfer Restricted Securities pursuant to Sections 2 or 3 hereof, the Issuer
shall effect such registration to permit the exchange of such Exchange Notes
for New Notes or the sale of such Transfer Restricted Securities (as
applicable), in accordance with the intended method or methods of exchange or
disposition thereof, and pursuant thereto the Issuer shall:
(a) prepare and file with the SEC a Registration Statement or
Registration Statements as prescribed by Section 2 or Section 3 hereof, and use
its best efforts to cause such Registration Statement to become effective and
remain effective as provided herein; provided that, if (1) such filing is
pursuant to Section 3 hereof, or (2) a Prospectus contained in an Exchange
Offer Registration Statement filed pursuant to Section 2 hereof is required to
be delivered under the
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<PAGE> 14
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Notes during the Applicable Period, before filing any Registration Statement or
Prospectus or any amendments or supplements thereto, the Issuer shall furnish
to and afford the Holders of the Transfer Restricted Securities and each such
Participating Broker-Dealer, as the case may be, covered by such Registration
Statement, their counsel and the managing underwriters, if any, a reasonable
opportunity to review copies of all such documents (including copies of any
documents to be incorporated by reference therein and all exhibits thereto),
proposed to be filed (at least 5 Business Days prior to such filing, or such
later date as is reasonable under the circumstances). The Issuer shall not file
any Registration Statement or Prospectus or any amendments or supplements
thereto in respect of which the Holders, pursuant to this Agreement, must be
afforded an opportunity to review prior to the filing of such document, if the
Holders of a majority in aggregate principal amount of the Transfer Restricted
Securities covered by such Registration Statement, or such Participating
Broker-Dealer, as the case may be, their counsel, or the managing underwriters,
if any, shall reasonably object on a timely basis (except that documents filed
as exhibits that are incorporated by reference or deemed to be incorporated by
reference shall not be subject to such objections);
(b) prepare and file with the SEC such amendments and post-effective
amendments to each Shelf Registration Statement or Exchange Offer Registration
Statement, as the case may be, as may be necessary to keep such Registration
Statement continuously effective for the Shelf Effectiveness Period or the
Applicable Period, as the case may be, or such shorter period as will terminate
when all Transfer Restricted Securities covered by such Registration Statement
have been sold; cause the related Prospectus to be supplemented by any required
prospectus supplement, and as so supplemented to be filed pursuant to Rule 424
(or any similar provisions then in force), under the Securities Act; and comply
with the provisions of the Securities Act, the Exchange Act and the rules and
regulations of the SEC promulgated thereunder with respect to the disposition
of all securities covered by such Registration Statement, as so amended, or in
such Prospectus, as so supplemented, and with respect to the subsequent resale
of any Exchange Notes being sold by a Participating Broker-Dealer covered by
any such Prospectus; the Issuer shall be deemed not to have used its best
efforts to keep a Registration Statement effective during the Applicable Period
or the Shelf Effectiveness Period or otherwise when required to use its best
efforts under Sections 2, 3 and 5 hereof if the Issuer voluntarily takes any
action that would result in selling Holders of the Transfer Restricted
Securities covered thereby or Participating Broker-Dealers seeking to sell
Exchange Notes not being able to sell such Transfer Restricted Securities or
such Exchange Notes during that period, unless (i) such action is required by
applicable law, or (ii) such action is taken by the Issuer in good faith and
for valid business reasons (not including avoidance of its obligations
hereunder), including the acquisition or divestiture of assets or the
preservation of the confidentiality of information the disclosure of which may
have a material adverse effect on the assets, business, financial condition or
prospects of the Issuer and any other direct or indirect subsidiary of the
Issuer, taken as a whole;
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<PAGE> 15
(c) if (1) a Shelf Registration Statement is filed pursuant to
Section 3 hereof, or (2) a Prospectus contained in an Exchange Offer
Registration Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any Participating Broker-Dealer who seeks
to sell Exchange Notes during the Applicable Period, notify the selling Holders
of Transfer Restricted Securities, or each known Participating Broker-Dealer,
as the case may be, their counsel and the managing underwriters, if any,
promptly and confirm such notice in writing, (i) when a Prospectus, any
prospectus supplement or post-effective amendment has been filed, and, with
respect to a Registration Statement or any post-effective amendment, when the
same has become effective (including in such notice a written statement that
any Holder may, upon request, obtain, without charge, one conformed copy of
such Registration Statement or post-effective amendment including financial
statements and schedules, documents incorporated or deemed to be incorporated
by reference and exhibits), (ii) of the issuance by the SEC of any stop order
suspending the effectiveness of a Registration Statement or of any order
preventing or suspending the use of any preliminary prospectus or the
initiation of any proceedings for that purpose, (iii) if at any time when a
Prospectus is required by the Securities Act to be delivered in connection with
sales of the Transfer Restricted Securities the representations and warranties
of the Issuer contained in any agreement (including any underwriting agreement)
contemplated by Section 5(l) hereof cease to be true and correct in any
material respect, (iv) of the receipt by the Issuer of any notification with
respect to the suspension of the qualification or exemption from qualification
of a Registration Statement or any of the Transfer Restricted Securities or the
Exchange Notes to be sold by any Participating Broker-Dealer for offer or sale
in any jurisdiction, or the initiation of any proceeding for such purpose, (v)
of the happening of any event or any information becoming known that makes any
statement made in such Registration Statement or related Prospectus or any
document incorporated or deemed to be incorporated therein by reference untrue
in any material respect or that requires the making of any changes in such
Registration Statement, Prospectus or documents so that, in the case of the
Registration Statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case
of the Prospectus, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, and (vi) of the reasonable determination of the
Issuer that a post-effective amendment to a Registration Statement would be
appropriate;
(d) if (1) a Shelf Registration Statement is filed pursuant to
Section 3 hereof, or (2) a Prospectus contained in an Exchange Offer
Registration Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any Participating Broker-Dealer who seeks
to sell Exchange Notes during the Applicable Period, use its best efforts to
prevent the issuance of any order suspending the effectiveness of a
Registration Statement or of any order preventing or suspending the use of a
Prospectus or suspending the qualification (or exemption from qualification),
of any of the Transfer Restricted Securities or the Exchange Notes (as
applicable), to be sold by any
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<PAGE> 16
Participating Broker-Dealer, for sale in any jurisdiction, and, if any such
order is issued, to use its best efforts to obtain the withdrawal of any such
order at the earliest possible moment;
(e) if a Shelf Registration Statement is filed pursuant to Section 3
hereof and if requested by the managing underwriters, if any, or the Holders of
a majority in aggregate principal amount of the Transfer Restricted Securities
being sold in connection with an underwritten offering, (i) promptly
incorporate in a prospectus supplement or post-effective amendment such
information relating to underwriters, if any, any Holder of Transfer Restricted
Securities or the plan of distribution of the Transfer Restricted Securities as
the managing underwriter, if any, or such Holders may reasonably request to be
included therein, (ii) make all required filings of such prospectus supplement
or such post-effective amendment as soon as practicable after the Issuer has
received notification of the matters to be incorporated in such prospectus
supplement or post-effective amendment pursuant to clause (i), and (iii)
supplement or make amendments to such Registration Statement with such
information as is required in connection with any request made pursuant to
clause (i);
(f) if (1) a Shelf Registration Statement is filed pursuant to
Section 3 hereof, or (2) a Prospectus contained in an Exchange Offer
Registration Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any Participating Broker-Dealer who seeks
to sell Exchange Notes during the Applicable Period, furnish to each selling
Holder of Transfer Restricted Securities and to each such Participating
Broker-Dealer who so requests and to counsel and each managing underwriter, if
any, without charge, one conformed copy of the Registration Statement or
Registration Statements and each post-effective amendment thereto, including
financial statements and schedules, and, if requested, all documents
incorporated or deemed to be incorporated therein by reference and all
exhibits.
(g) if (1) a Shelf Registration Statement is filed pursuant to
Section 3 hereof, or (2) a Prospectus contained in an Exchange Offer
Registration Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any Participating Broker-Dealer who seeks
to sell Exchange Notes during the Applicable Period, deliver to each selling
Holder of Transfer Restricted Securities, or each such Participating
Broker-Dealer, as the case may be, its counsel, and the underwriters, if any,
without charge, as many copies of the Prospectus or Prospectuses (including
each form of preliminary Prospectus), and each amendment or supplement thereto
and any documents incorporated by reference therein, as such Persons may
reasonably request; and, subject to the last paragraph of this Section 5
hereof, the Issuer hereby consents to the use of such Prospectus and each
amendment or supplement thereto by each of the selling Holders of Transfer
Restricted Securities or each such Participating Broker-Dealer, as the case may
be, and their underwriters or agents, if any, and dealers, if any, in
connection with the offering and sale of the Transfer Restricted
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<PAGE> 17
Securities covered by or the sale by Participating Broker-Dealers of the
Exchange Notes pursuant to such Prospectus and any amendment or supplement
thereto;
(h) prior to any public offering of Transfer Restricted Securities
or any delivery of a Prospectus contained in the Exchange Offer Registration
Statement by any Participating Broker-Dealer who seeks to sell Exchange Notes
during the Applicable Period, to use its reasonable best efforts to register or
qualify, and to cooperate with the selling Holders of Transfer Restricted
Securities or each such Participating Broker-Dealer, as the case may be, the
underwriters, if any, and their respective counsel in connection with the
registration or qualification (or exemption from such registration or
qualification), of such Transfer Restricted Securities for offer and sale under
the securities or Blue Sky laws of such jurisdictions as any selling Holder,
Participating Broker-Dealer or the managing underwriters reasonably request in
writing; keep each such registration or qualification (or exemption therefrom)
effective during the period such Registration Statement is required to be kept
effective and do any and all other acts or things reasonably necessary or
advisable to enable the disposition in such jurisdictions of the Exchange Notes
held by Participating Broker-Dealers or the Transfer Restricted Securities
covered by the applicable Registration Statement; provided that the Issuer
shall not be required to (A) qualify generally to do business in any
jurisdiction where it is not then so qualified, (B) take any action that would
subject it to general service of process in any such jurisdiction where it is
not then so subject or (C) subject it to taxation in any such jurisdiction
where it is not so subject;
(i) if a Shelf Registration Statement is filed pursuant to Section 3
hereof, cooperate with the selling Holders of Transfer Restricted Securities
and the managing underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Transfer Restricted Securities to be
sold, which certificates shall not bear any restrictive legends with respect to
transfer and shall be in a form eligible for deposit with The Depository Trust
Company, ("DTC"), and enable such Transfer Restricted Securities to be in such
denominations and registered in such names as the managing underwriters, if
any, or Holders may reasonably request at least two Business Days prior to any
sale of the Transfer Restricted Securities, for delivery in connection with the
closing of such sale of Transfer Restricted Securities pursuant to such Shelf
Registration Statement;
(j) if (1) a Shelf Registration Statement is filed pursuant to
Section 3 hereof, or (2) a Prospectus contained in an Exchange Offer
Registration Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any Participating Broker-Dealer who seeks
to sell Exchange Notes during the Applicable Period, upon the occurrence of any
event contemplated by paragraph 5(c)(v) or 5(c)(vi) above, as promptly as
practicable prepare and (subject to Section 5(a) hereof) file with the SEC, at
the expense of the Issuer, a post-effective amendment to the Registration
Statement or a supplement to the related Prospectus or any document
incorporated
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<PAGE> 18
or deemed to be incorporated therein by reference, or file any other required
document so that, as thereafter delivered to the purchasers of the Transfer
Restricted Securities being sold thereunder or to the purchasers of the
Exchange Notes to whom such Prospectus will be delivered by a Participating
Broker-Dealer, any such Prospectus will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; provided, however, that:
(A) the Issuer may delay such preparation and filing of
such supplement or post-effective amendment pursuant to this Section
5(j) if (i) such action is required by applicable law, or (ii) such
action is taken by it in good faith and for valid business reasons
(not including avoidance of its obligations hereunder), including
the acquisition or divestiture of assets or the preservation of the
confidentiality of information the disclosure of which may have a
material adverse effect on the assets, business, financial condition
or prospects of the Issuer and any other direct or indirect
subsidiaries of the Issuer, taken as a whole (in any such case, an
"Amendment Delay");
(B) the Issuer may effect, in the aggregate, no more than
one Amendment Delay during the Applicable Period and such Amendment
Delay shall be for no longer than 45 Business Days;
(C) the Issuer may effect, in the aggregate, no more than
two Amendment Delays during the Shelf Effectiveness Period, provided
that no more than one Amendment Delay shall be effected during any
twelve-month period, and each such Amendment Delay shall be for no
longer than 45 Business Days; and
(D) to the extent that the Issuer effects one or more
Amendment Delays, the duration of the Shelf Effectiveness Period (if
such duration is determined pursuant to clause (i) of the definition
thereof or the maximum duration of the Applicable Period, as the
case may be, shall be extended for the aggregate amount of time that
any such Amendment Delays were in effect;
(k) prior to the effective date of the first Registration Statement
relating to the Transfer Restricted Securities, (i) provide the Trustee with
certificates for the Transfer Restricted Securities
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<PAGE> 19
in a form eligible for deposit with DTC and (ii) use its best efforts to
provide a CUSIP number for the Transfer Restricted Securities;
(l) in connection with an underwritten offering of Transfer
Restricted Securities pursuant to a Shelf Registration Statement, enter into an
underwriting agreement as is customary in underwritten offerings and take all
such other actions as are reasonably requested by the managing underwriters in
order to expedite or facilitate the registration or the disposition of such
Transfer Restricted Securities, and in such connection, (i) make such
representations and warranties to the underwriters, with respect to the
business of the Issuer, the Registration Statement, Prospectus and documents,
if any, incorporated or deemed to be incorporated by reference therein, in each
case, as are customarily made by issuers to underwriters in underwritten
offerings, and confirm the same if and when requested; (ii) obtain opinions of
counsel to the Issuer and updates thereof in form and substance reasonably
satisfactory to the managing underwriters, addressed to the underwriters
covering the matters customarily covered in opinions requested in underwritten
offerings and such other matters as may be reasonably requested by
underwriters; (iii) obtain "cold comfort" letters and updates thereof in form
and substance reasonably satisfactory to the managing underwriters from the
Independent certified public accountants of the Issuer (and, if necessary, any
other independent certified public accountants with respect to any business for
which financial statements and financial data are, or are required to be,
included in the Registration Statement), addressed to each of the underwriters,
such letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with underwritten
offerings and such other matters as are reasonably requested by underwriters as
permitted by Statement on Auditing Standards No. 72; and (iv) if an
underwriting agreement is entered into, the same shall contain indemnification
provisions and procedures no less favorable than those set forth in Section 7
hereof (or such other provisions and procedures acceptable to Holders of a
majority in aggregate principal amount of outstanding Transfer Restricted
Securities covered by such Registration Statement and the managing underwriters
or agents), with respect to all parties to be indemnified pursuant to said
Section. The above shall be done at each closing under such underwriting
agreement, or as and to the extent required thereunder;
(m) if (1) a Shelf Registration Statement is filed pursuant to
Section 3 hereof, or (2) a Prospectus contained in an Exchange Offer
Registration Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any Participating Broker-Dealer who seeks
to sell Exchange Notes during the Applicable Period, make available for
inspection by any selling Holder of such Transfer Restricted Securities being
sold, or each such Participating Broker-Dealer, as the case may be, any
underwriter participating in any such disposition of Transfer Restricted
Securities, if any, and any attorney, accountant or other agent retained by any
such selling Holder or each such Participating Broker-Dealer, as the case may
be, or underwriter (collectively, the "Inspectors"), at the offices where
normally kept, during reasonable business hours, all financial and
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<PAGE> 20
other records, pertinent corporate documents and properties of the Issuer
(collectively, the "Records"), solely as shall be reasonably necessary to
enable them to exercise any applicable due diligence responsibilities, and
cause the officers, directors and employees of the Issuer and any of its
respective subsidiaries to supply all information in each case reasonably
requested by any such Inspector in connection with such Registration Statement,
subject to such reasonable confidentiality requirements as the Issuer or any of
its respective subsidiaries may impose with respect thereto;
(n) provide an indenture trustee for the Transfer Restricted
Securities or the Exchange Notes, as the case may be, and cause the Indenture
to be qualified under the TIA not later than the effective date of the Exchange
Offer or the first Registration Statement relating to the Transfer Restricted
Securities; and in connection therewith, cooperate with the trustee under any
such indenture and the Holders of the Transfer Restricted Securities, to effect
such changes to such indenture as may be required for such indenture to be so
qualified in accordance with the terms of the TIA; and execute, and use its
best efforts to cause such trustee to execute, all customary documents as may
be required to effect such changes, and all other forms and documents required
to be filed with the SEC to enable such indenture to be so qualified in a
timely manner;
(o) comply with all applicable rules and regulations of the SEC and,
as soon as reasonably practicable, make generally available to the holders of
Exchange Notes and the Holders, if any, consolidated earning statements of the
Issuer that satisfy the provisions of Section 11(a) of the Securities Act and
Rule 158 thereunder;
(p) if an Exchange Offer is to be consummated, upon delivery of the
Transfer Restricted Securities by Holders to the Issuer (or to such other
Person as directed by the Issuer), in exchange for the Exchange Notes, the
Issuer shall mark, or cause to be marked, on such Transfer Restricted
Securities that such Transfer Restricted Securities are being canceled in
exchange for the Exchange Notes; in no event shall such Transfer Restricted
Securities be marked as paid or otherwise satisfied;
(q) reasonably cooperate with each seller of Transfer Restricted
Securities covered by any Registration Statement and each underwriter, if any,
participating in the disposition of such Transfer Restricted Securities and
their respective counsel in connection with any filings required to be made
with the National Association of Securities Dealers, Inc. (the "NASD");
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<PAGE> 21
(r) use its best efforts to take all other steps necessary to effect
the registration of the Transfer Restricted Securities or the Exchange Notes
covered by a Registration Statement contemplated hereby; and
(s) use its best efforts to cause the Transfer Restricted Securities
or the Exchange Notes, as applicable, covered by an effective registration
statement required by Section 2 or Section 3 hereof to be rated with the
appropriate rating agencies, if so requested by the Holders of a majority in
aggregate principal amount of Transfer Restricted Securities relating to such
registration statement or the managing underwriters in connection therewith, if
any.
The Issuer may require each seller of Transfer Restricted Securities
or Participating Broker-Dealer as to which any registration is being effected
to furnish to the Issuer such information regarding such seller or
Participating Broker-Dealer and the distribution of such Transfer Restricted
Securities or Exchange Notes to be sold by such Participating Broker-Dealer, as
the case may be, as required to be included in a Registration Statement
prepared in accordance with the Securities Act or as the Issuer may, from time
to time, reasonably request. The Issuer may exclude from such registration the
Transfer Restricted Securities or Exchange Notes of any seller or Participating
Broker-Dealer, as the case may be, who fails to furnish such information within
a reasonable time after receiving such request.
Each Holder of Transfer Restricted Securities and each Participating
Broker-Dealer agrees by acquisition of such Transfer Restricted Securities or
Exchange Notes to be sold by such Participating Broker-Dealer, as the case may
be, that, upon receipt of any notice from the Issuer of the happening of any
event of the kind described in Section 5(c)(ii), 5(c)(iv), 5(c)(v) or 5(c)(vi)
hereof, such Holder or such Participating Broker-Dealer shall forthwith
discontinue disposition of such Transfer Restricted Securities covered by such
Registration Statement or Prospectus or such Exchange Notes to be sold by such
Participating Broker-Dealer, as the case may be, until such Holder's or such
Participating Broker-Dealer's receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 5(j) hereof, or until it is advised
in writing by the Issuer that the use of the applicable Prospectus may be
resumed, and has received copies of any amendments or supplements thereto.
6. Registration Expenses
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<PAGE> 22
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Issuer shall be borne by the Issuer,
whether or not the Exchange Offer or a Shelf Registration Statement is filed or
becomes effective, including, without limitation, (i) all registration and
filing fees (including, without limitation, (a) fees with respect to filings
required to be made with the NASD in connection with an underwritten offering
and (b) fees and expenses of compliance with state securities or Blue Sky laws
(including, without limitation, reasonable fees and disbursements of counsel in
connection with Blue Sky qualifications of the Transfer Restricted Securities
or Exchange Notes (x) where the Holders of Transfer Restricted Securities are
located, in the case of the Exchange Notes, or (y) as provided in Section 5(h)
hereof, in the case of Transfer Restricted Securities or Exchange Notes to be
sold by a Participating Broker-Dealer during the Applicable Period)), (ii)
printing expenses (including, without limitation, expenses of printing
certificates for Transfer Restricted Securities or Exchange Notes in a form
eligible for deposit with DTC and of printing Prospectuses if the printing of
Prospectuses is requested by the managing underwriters, if any, or, in respect
of Transfer Restricted Securities or Exchange Notes to be sold by any
Participating Broker-Dealer during the Applicable Period, by the Holders of a
majority in aggregate principal amount of the Transfer Restricted Securities
included in any Registration Statement or of such Exchange Notes, as the case
may be), (iii) messenger, telephone and delivery expenses, (iv) fees and
disbursements of counsel for the Issuer and, subject to Section 6(b) below,
Holders of Transfer Restricted Securities, (v) fees and disbursements of all
independent certified public accountants referred to in Section 5(l)(iii)
hereof (including, without limitation, the expenses of any special audit and
"cold comfort" letters required by or incident to such performance), (vi)
rating agency fees, (vii) Securities Act liability insurance, if the Issuer
desires such insurance, (viii) fees and expenses of all other Persons retained
by the Issuer, except as otherwise agreed with respect to Friedman, Billings,
Ramsey & Co., Inc., (ix) internal expenses of the Issuer (including, without
limitation, all salaries and expenses of officers and employees of the Issuer
performing legal or accounting duties), (x) the expense of any annual audit and
(xi) the fees and expenses incurred in connection with the listing of the
securities to be registered on any securities exchange. Nothing contained in
this Section 6 shall create an obligation on the part of the Issuer to pay or
reimburse any Holder for any underwriting commission or discount, brokers' fees
or accountable or non-accountable expense reimbursement attributable to any
such Holder's Transfer Restricted Securities included in an underwritten
offering pursuant to a Registration Statement filed in accordance with the
terms of this Agreement, or to guarantee such Holder any profit or proceeds
from the sale of such New Notes.
(b) In connection with any Registration Statement hereunder, the
Issuer shall reimburse the Holders of the Transfer Restricted Securities being
registered in such registration for the reasonable fees and disbursements of
not more than one counsel (in addition to appropriate local counsel), chosen by
the Holders of a majority in aggregate principal amount of the Transfer
Restricted Securities to be included in such Registration Statement.
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<PAGE> 23
7. Indemnification
The Issuer agrees to indemnify and hold harmless (i) the Placement
Agent and each Holder of Transfer Restricted Securities, each initial Holder of
Exchange Notes and each Participating Broker-Dealer, (ii) each person, if any,
who controls (within the meaning of Section 15 of the Securities Act or Section
20(a) of the Exchange Act), any such Person (any of the persons referred to in
this clause (ii) being hereinafter referred to as a "controlling person"), and
(iii) the respective officers, directors, partners, employees, representatives
and agents of any of such Person or any controlling person (any person referred
to in clause (i), (ii) or (iii) may hereinafter be referred to as an "Purchaser
Indemnitee"), to the fullest extent lawful, from and against any and all
losses, claims, damages, judgments, actions, out-of-pocket expenses, and other
liabilities (the "Liabilities"), including without limitation and as incurred,
reimbursement of all reasonable costs of investigating, preparing, pursuing or
defending any claim or action, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, including the reasonable
fees and expenses of counsel to any Purchaser Indemnitee, joint or several,
directly or indirectly related to, based upon, arising out of or in connection
with any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement or Prospectus (as amended or
supplemented if the Issuer shall have furnished to such Purchaser Indemnitee
any amendments or supplements thereto), or any preliminary prospectus, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except insofar as
such Liabilities arise out of or are based upon (x) any untrue statement or
omission or alleged untrue statement or omission made in reliance upon and in
conformity with information relating to any Purchaser Indemnitee furnished to
the Issuer or any underwriter in writing by such Purchaser Indemnitee expressly
for use therein, or (y) any untrue statement contained in or omission from a
preliminary prospectus if a copy of the Prospectus (as then amended or
supplemented, if the Issuer shall have furnished to or on behalf of the Holder
participating in the distribution relating to the relevant Registration
Statement any amendments or supplements thereto) was not sent or given by or on
behalf of such Holder to the person asserting any such Liabilities who
purchased New Notes, if such Prospectus (or Prospectus as amended or
supplemented) is required by law to be sent or given at or prior to the written
confirmation of the sale of such New Notes to such person and the untrue
statement contained in or omission from such preliminary prospectus was
corrected in the Prospectus (or the Prospectus as amended or supplemented). The
Issuer shall notify the Holders promptly of the institution, threat or
assertion of any claim, proceeding (including any governmental investigation),
or litigation of which it shall have become aware in connection with the
matters addressed by this Agreement which involves the Issuer or a Purchaser
Indemnitee.
In connection with any Registration Statement in which a Holder of
Transfer Restricted Securities or a Participating Broker-Dealer is
participating, such Holder of Transfer Restricted
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<PAGE> 24
Securities or Participating Broker-Dealer agrees, severally and not jointly, to
indemnify and hold harmless the Issuer, each person who controls the Issuer
within the meaning of Section 15 of the Securities Act or Section 20(a) of the
Exchange Act and the respective partners, directors, officers, members,
representatives, employees and agents of such person or controlling person to
the same extent as the foregoing indemnity from the Issuer to each Purchaser
Indemnitee, but only with reference to information relating to such Purchaser
Indemnitee furnished to the Issuer in writing by such Purchaser Indemnitee
expressly for use in any Registration Statement or Prospectus, any amendment or
supplement thereto, or any preliminary Prospectus. The liability of any
Purchaser Indemnitee pursuant to this paragraph shall in no event exceed the
net proceeds received by such Purchaser Indemnitee from sales of Transfer
Restricted Securities giving rise to such obligations.
If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any person in respect of which indemnity may be sought pursuant to either of
the two preceding paragraphs, such person (the "Indemnified Party"), shall
promptly notify the person against whom such indemnity may be sought (the
"Indemnifying Party"), in writing of the commencement thereof (but the failure
to so notify an Indemnifying Party shall not relieve it from any liability
which it may have under this Section 7, except to the extent the Indemnifying
Party is materially prejudiced by the failure to give notice), and the
Indemnifying Party, upon request of the Indemnified Party, shall retain counsel
reasonably satisfactory to the Indemnified Party to represent the Indemnified
Party and any others the Indemnifying Party may reasonably designate in such
proceeding and shall pay the reasonable fees and expenses actually incurred by
such counsel related to such proceeding. Notwithstanding the foregoing, in any
such proceeding, any Indemnified Party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Party, unless (i) the Indemnifying Party and the Indemnified
Party shall have mutually agreed in writing to the contrary, (ii) the
Indemnifying Party failed within a reasonable time after notice of commencement
of the action to assume the defense and employ counsel reasonably satisfactory
to the Indemnified Party or (iii) the named parties to any such action
(including any impleaded parties), include both such Indemnified Party and the
Indemnifying Party, or any affiliate of the Indemnifying Party, and such
Indemnified Party shall have been reasonably advised by counsel that, either
(x) there may be one or more legal defenses available to it which are different
from or additional to those available to the Indemnifying Party or such
affiliate of the Indemnifying Party or (y) a conflict may exist between such
Indemnified Party and the Indemnifying Party or such affiliate of the
Indemnifying Party (in which case the Indemnifying Party shall not have the
right to assume the defense of such action on behalf of such Indemnified Party,
it being understood, however, that the Indemnifying Party shall not, in
connection with any one such action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more than
one separate firm of attorneys (in addition to any local counsel), for all such
indemnified parties, which firm shall be designated in writing by those
indemnified parties who sold a majority in outstanding aggregate principal
amount of Transfer Restricted Securities sold by all such indemnified parties
and any such separate firm for the Issuer, the
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<PAGE> 25
directors, the officers and such control persons of the Issuer as shall be
designated in writing by the Issuer. The Indemnifying Party shall not be liable
for any settlement of any proceeding effected without its written consent,
which consent shall not be unreasonably withheld, but if settled with such
consent or if there be a final judgment for the plaintiff, the Indemnifying
Party agrees to indemnify any Indemnified Party from and against any loss or
liability by reason of such settlement or judgment. No Indemnifying Party
shall, without the prior written consent of the Indemnified Party, effect any
settlement of any pending or threatened proceeding in respect of which any
Indemnified Party is or could have been a party and indemnity could have been
sought hereunder by such Indemnified Party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability on claims
that are the subject matter of such proceeding.
If the indemnification provided for in the first and second
paragraphs of this Section 7 is for any reason held to be unavailable to an
Indemnified Party in respect of any Liabilities referred to therein (other than
by reason of the exceptions provided therein) or is insufficient to hold
harmless a party indemnified thereunder, then each Indemnifying Party under
such paragraphs, in lieu of indemnifying such Indemnified Party thereunder,
shall contribute to the amount paid or payable by such Indemnified Party as a
result of such Liabilities (i) in such proportion as is appropriate to reflect
the relative benefits of the Indemnified Party on the one hand and the
Indemnifying Party(ies) on the other in connection with the statements or
omissions that resulted in such Liabilities, or (ii) if the allocation provided
by clause (i) above is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of the Indemnifying Party(ies) and the
Indemnified Party, as well as any other relevant equitable considerations. The
relative fault of the Issuer on the one hand and any Purchaser Indemnitees on
the other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Issuer or by such Purchaser Indemnitees and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The parties agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata allocation
(even if such indemnified parties were treated as one entity for such purpose),
or by any other method of allocation that does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an Indemnified Party as a result of any
Liabilities referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any reasonable legal or
other expenses actually incurred by such Indemnified Party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 7, in no event shall a Purchaser Indemnitee be
required to contribute any amount in excess of the amount by which proceeds
received by such Purchaser Indemnitee from sales of Transfer
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<PAGE> 26
Restricted Securities or Exchange Notes exceeds the amount of any damages that
such Purchaser Indemnitee has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. For
purposes of this Section 7, each person, if any, who controls (within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act) the
Placement Agent, a Holder of Transfer Restricted Securities, an initial Holder
of Exchange Notes or a Participating Broker-Dealer shall have the same rights
to contribution as such Placement Agent, such Holder of Transfer Restricted
Securities, such initial Holder of Exchange Notes or such Participating
Broker-Dealer, as the case may be, and each person, if any, who controls
(within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act) the Issuer, and each officer, director, partner, employee, representative,
agent or manager of the Issuer shall have the same rights to contribution as
the Issuer. Any party entitled to contribution will, promptly after receipt of
notice of commencement of any action, suit or proceeding against such party in
respect of which a claim for contribution may be made against another party or
parties, notify each party or parties from whom contribution may be sought, but
the omission to so notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any obligation it or they may
have under this Section 7 or otherwise, except to the extent that any party is
materially prejudiced by the failure to give notice. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act), shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section
7 will be in addition to any liability which the indemnifying parties may
otherwise have to the indemnified parties referred to above. The Purchaser
Indemnitee's obligations to contribute pursuant to this Section 7 are several
in proportion to the respective principal amount of New Notes sold by each of
the Purchaser Indemnitees hereunder and not joint.
8. Rules 144 and 144A
The Issuer covenants that, for so long as any Transfer Restricted
Securities remain outstanding, it will file the reports, if any, required to be
filed by it pursuant to the Securities Act and the Exchange Act and the rules
and regulations adopted by the SEC thereunder in a timely manner and, if at any
time the Issuer is not required to file such reports, it will, upon the request
of any Holder of Transfer Restricted Securities, make available information
with respect to it required by Rule 144 and Rule 144A under the Securities Act
in order to permit sales pursuant to Rule 144 and Rule 144A. The Issuer further
covenants that it will take such further action as any Holder of Transfer
Restricted Securities may reasonably request, all to the extent required from
time to time to enable such Holder to sell Transfer Restricted Securities
without registration under the Securities
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<PAGE> 27
Act within the limitation of the exemptions provided by (a) Rule 144 and Rule
144A or (b) any similar rule or regulation hereafter adopted by the SEC.
9. Underwritten Registrations
If any of the Transfer Restricted Securities covered by any Shelf
Registration Statement are to be sold in an underwritten offering, the
investment banker or investment bankers and manager or managers that will
manage the offering will be selected by the Holders of a majority in aggregate
principal amount of such Transfer Restricted Securities included in such
offering and shall be reasonably acceptable to the Issuer.
No Holder of Transfer Restricted Securities may participate in any
underwritten registration hereunder, unless such Holder (a) agrees to sell such
Holder's Transfer Restricted Securities on the basis provided in any
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements.
10. Miscellaneous
(a) Remedies. In the event of a breach by the Issuer of any of its
obligations under this Agreement, each Holder of Transfer Restricted Securities
and each Participating Broker-Dealer holding Exchange Notes, in addition to
being entitled to exercise all rights provided herein, in the Indenture or, in
the case of the Placement Agent, in the Purchase Agreement, or granted by law,
including recovery of damages, will be entitled to specific performance of its
rights under this Agreement. Subject to Section 4, the Issuer agrees that
monetary damages would not be adequate compensation for any loss incurred by
reason of a breach by it of any of the provisions of this Agreement and hereby
further agree that, in the event of any action for specific performance in
respect of such breach, it shall waive the defense that a remedy at law would
be adequate.
(b) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers of consents
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<PAGE> 28
to or departures from the provisions hereof may not be given, unless the Issuer
has obtained the written consent of holders of at least a majority of the then
outstanding aggregate principal amount of Transfer Restricted Securities and
Exchange Notes held by Participating Broker-Dealers taken as one class.
Notwithstanding the foregoing, a waiver or consent to or departure from the
provisions hereof with respect to a matter that relates exclusively to the
rights of Holders and Participating Broker-Dealers holding Exchange Notes whose
securities are being sold pursuant to a Registration Statement and that does
not directly or indirectly affect, impair, limit or compromise the rights of
other Holders and Participating Broker-Dealers holding Exchange Notes may be
given by holders of at least a majority in aggregate principal amount of the
Transfer Restricted Securities and Exchange Notes held by Participating
Broker-Dealers being sold by such Holders and Participating Broker-Dealers
pursuant to such Registration Statement; provided that the provisions of this
sentence may not be amended, modified or supplemented except in accordance with
the provisions of the immediately preceding sentence.
(c) Notices. All notices and other communications (including,
without limitation, any notices or other communications to the Trustee),
provided for or permitted hereunder shall be made in writing by delivered by
facsimile (with receipt confirmed), overnight courier or registered or
certified mail, return receipt requested, or by telegram:
(i) if to a Holder of Transfer Restricted Securities, at
the most current address given by the Trustee to the Issuer; and
(ii) if to the Issuer at the offices of the Company at
1000 Parkwood Circle, Suite 500, Atlanta, Georgia 30339, Attention:
Executive Vice President; (facsimile:
800-694-6346).
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee under the
Indenture at the address specified in such Indenture.
d) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties
hereto, including, without limitation and without the need for an express
assignment or assumption, subsequent Holders of Transfer Restricted Securities.
The Issuer agrees that the Holders of Transfer Restricted Securities and
Participating
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<PAGE> 29
Broker-Dealers holding Exchange Notes shall be third party beneficiaries to the
agreements made hereunder by the Placement Agent and the Issuer, and each
Holder and Participating Broker-Dealer shall have the right to enforce such
agreements directly to the extent it deems such enforcement necessary or
advisable to protect its rights hereunder; provided, however, that such Holder
or Participating Broker-Dealer fulfills all of its obligations hereunder.
(e) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(f) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS
MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY SUBMITS TO
THE JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF
MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH
OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND IRREVOCABLY
ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. EACH OF THE PARTIES
HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER
APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING
OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT
AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH
COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(h) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the
parties hereto shall use their best efforts to find and employ an alternative
means to achieve the same or substantially the same result
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<PAGE> 30
as that contemplated by such term, provision, covenant or restriction. It is
hereby stipulated and declared to be the intention of the parties hereto that
they would have executed the remaining terms, provisions, covenants and
restrictions without including any of such that may be hereafter declared
invalid, illegal, void or unenforceable.
(i) Entire Agreement. This Agreement, together with the Purchase
Agreement, is intended by the parties hereto as a final expression of their
agreement, and is intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein and therein.
(j) Transfer Restricted Securities Held by the Issuer or its
Affiliates. Whenever the consent or approval of Holders of a specified
percentage of Transfer Restricted Securities is required hereunder, Transfer
Restricted Securities held by the Issuer or its affiliates (as such term is
defined in Rule 405 under the Securities Act), shall not be counted in
determining whether such consent or approval was given by the Holders of such
required percentage.
(k) Survival. This Agreement is intended to survive the consummation
of the transactions contemplated by the Issuer Exchange Offer. The
indemnification and contribution obligations under Section 7 of this Agreement
shall survive the termination of the Issuer's obligations under Sections 2 and
3 of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
ISSUER
MEGO MORTGAGE CORPORATION
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<PAGE> 31
By: /s/ Jeffrey S. Moore
--------------------------------
Name: Jeffrey S. Moore
Title: President and Chief
Executive Officer
PLACEMENT AGENT
FRIEDMAN, BILLINGS, RAMSEY &
CO., INC.
By: /s/ James R. Kleeblatt
--------------------------------
Name: James R. Kleeblatt
Title: Managing Director
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<PAGE> 1
EXHIBIT 10.97
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of June 29, 1998 by and among Mego Mortgage Corporation, a
Delaware corporation (the "Company"), and Friedman, Billings, Ramsey & Co.,
Inc. ("FBR"), on behalf of the Persons (individually a "Purchaser" and
collectively the "Purchasers") who purchase the Company's common stock, par
value $.01 per share (the "Common Stock") and/or purchase or receive the
Company's Series A Convertible Preferred Stock (the "Series A Preferred Stock")
in any of the transactions comprising the Company's Recapitalization (as
defined below).
WHEREAS, the Company is engaging in a plan of recapitalization (the
"Recapitalization") which includes the following: (i) a private offering (the
"Common Stock Offering") of shares of its Common Stock; (ii) a private offering
(the "Series A Preferred Stock Offering") by the Company of shares of its
Series A Preferred Stock; and (iii) an offer occurring concurrently with the
Common Stock Offering and the Series A Preferred Stock Offering (together, the
"Offerings") and as a condition thereto to exchange shares of Series A
Preferred Stock and/or new 12 1/2% Subordinated Notes Due 2001 (the "New
Notes") of the Company or a combination thereof, subject to certain
limitations, for any and all of the Company's outstanding 12 1/2% Senior
Subordinated Notes Due 2001 of the Company, subject to certain conditions (the
"Exchange Offer");
WHEREAS, the Company has entered into a Placement Agreement dated as
of June 9, 1998 (the "Placement Agreement"), with Friedman, Billings, Ramsey &
Co., Inc. ("FBR"), a Virginia corporation, pursuant to which FBR will act as
placement agent in connection with the issue and sale of the Common Stock and
Series A Preferred Stock;
WHEREAS, the Company has entered into various Purchase Agreements
(each a "Purchase Agreement") with certain purchasers of Common Stock and
Series A Preferred Stock in conjunction with the Offerings; and
<PAGE> 2
WHEREAS, as an incentive to induce investors to participate in the
Recapitalization, the Company has agreed to provide registration rights to
holders of Common Stock acquired in the Offerings and holders of Series A
Preferred Stock issued in the Offerings and the Exchange Offer relating to the
shares of Common Stock underlying the Series A Preferred Stock (such shares of
Common Stock and shares of Common Stock underlying the Series A Preferred Stock
are referred to herein as the "Securities").
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are acknowledged
by all parties hereto, the parties, intending to be legally obligated, hereby
agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall
have the following meanings:
"Act": The Securities Act of 1933, as amended.
"Broker-Dealer": Any broker or dealer registered as such under the
Exchange Act.
"Closing Date": The date of this Agreement.
"Commission" or "SEC": The United States Securities and Exchange
Commission.
"DTC": The Depository Trust Company.
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<PAGE> 3
"Exchange Act": The Securities Exchange Act of 1934, as amended.
"Holders": As defined in Section 2(b) hereof.
"Indemnified Holder": As defined in Section 7(a) hereof.
"NASD": National Association of Securities Dealers, Inc.
"Person": An individual, partnership, corporation, trust or
unincorporated organization, or a government or an agency, authority or
political subdivision thereof.
"Prospectus": The prospectus included in a Registration Statement,
as amended or supplemented, including post-effective amendments, therein.
"Registration Default": As defined in Section 4 hereof.
"Resale Filing Deadline": As defined in Section 3 hereof.
"Resale Registration Statement": As defined in Section 3 hereof.
"Securities": As defined in the preamble hereto.
"Transfer Restricted Securities": Each Security, until the earliest
to occur of (a) the date on which such Security has been effectively registered
under the Act and disposed of in accordance with a Resale Registration
Statement or such other applicable registration statement, (b) the date on
which such Security is available for sale without restriction to the public
pursuant to Rule 144 under the
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<PAGE> 4
Act or by a Broker-Dealer pursuant to the "Plan of Distribution" contemplated
in the Resale Registration Statement.
"Underlying Common Stock": The shares of Company Common Stock into
which the Series A Preferred Stock may be converted.
"Underwritten Registration" or "Underwritten Offering": An offering
in which securities of the Company are sold to an underwriter for reoffering to
the public pursuant to an effective registration statement filed with the
Commission.
SECTION 2. SECURITIES SUBJECT TO THIS AGREEMENT
(a) Transfer Restricted Securities. The Securities are the Transfer
Restricted Securities.
(b) Holders of Transfer Restricted Securities. A Person is deemed to
be a holder of Transfer Restricted Securities (each, a "Holder") whenever such
Person owns Transfer Restricted Securities, whether directly in certified form
or through the DTC book-entry system.
SECTION 3. RESALE REGISTRATION STATEMENT
(a) Registration. The Company shall:
(x) cause to be filed one or more registration statements
on Form S-1, S-2, S-3 or S-4, if the use of such form is then
available (each a "Resale Registration Statement") pursuant to Rule
415 under the Act, on or prior to September 16, 1998 (the "Resale
Filing Deadline"),
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which Resale Registration Statements shall provide for resales of
all Transfer Restricted Securities, the Holders of which shall have
provided the information required pursuant to Section 3(b) hereof;
and
(y) use its reasonable best efforts to cause such Resale
Registration Statements to be declared effective by the Commission
on or before the 180th day after the Closing Date.
The Company shall use its reasonable best efforts to keep such Resale
Registration Statement continuously effective, supplemented and amended to the
extent necessary to ensure that it is available for resales of Securities by
the Holders of Transfer Restricted Securities entitled to the benefit of this
Section 3(a), and to ensure that it conforms with the requirements of this
Agreement, the Act and the policies, rules and regulations of the Commission as
announced from time to time, until the earlier of (i) a period of at least two
years following the Closing Date or (ii) the date on which all Transfer
Restricted Securities may be sold without restriction.
(b) Provision by Holders of Certain Information in Connection with
the Shelf Registration Statement. No Holder of Transfer Restricted Securities
may include any of its Transfer Restricted Securities in any Resale
Registration Statement pursuant to this Agreement unless and until such Holder
furnishes to the Company in writing, within 20 business days after receipt of a
request therefor, such information as the Company may reasonably request for
use in connection with any Resale Registration Statement or Prospectus or
preliminary Prospectus included therein. No Holder of Transfer Restricted
Securities shall be entitled to Liquidated Damages pursuant to Section 4 hereof
unless and until such Holder shall have used its best efforts to provide all
such reasonably requested information. Each Holder as to which any Resale
Registration Statement is being effected agrees to promptly furnish to the
Company any and all information required to be disclosed in order to make the
information previously furnished to the Company by such Holder not materially
misleading.
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SECTION 4. LIQUIDATED DAMAGES
Subject to the provisions of Section 3(b) hereof, if (i) the
applicable Resale Registration Statements required by this Agreement are not
filed with the Commission on or prior to the date specified for such filing in
this Agreement or (ii) any Resale Registration Statement required by this
Agreement is filed and declared effective but shall thereafter cease to be
effective or fail to be usable for its intended purpose without being restored
to effectiveness by amendment or otherwise within thirty (30) business days or
succeeded immediately by an additional Resale Registration Statement that cures
such failure and that is itself immediately declared effective within thirty
(30) business days (each such event referred to in clauses (i) and (ii), a
"Registration Default"), the Company shall pay liquidated damages to each
Holder of Transfer Restricted Securities with respect to the first 90- day
period immediately following the occurrence of such Registration Default, in an
amount equal to $.05 per share per week in the case of holders of Common Stock
and per share of Underlying Common Stock in the case of holders of Series A
Preferred Stock. The amount of the liquidated damages shall increase by an
additional $.05 per week with respect to each subsequent 90-day period until
all Registration Defaults have been cured, up to a maximum amount of liquidated
damages of $.50 per share per week. All accrued liquidated damages shall be
paid to Record Holders by the Company by wire transfer of immediately available
funds or by federal funds check on the 91st day following the occurrence of a
Registration Default. Following the cure of all Registration Defaults relating
to any particular Transfer Restricted Securities, the accrual of liquidated
damages with respect to such Transfer Restricted Securities will cease.
All obligations of the Company set forth in the preceding paragraph
that are outstanding with respect to any Transfer Restricted Security at the
time such Security ceases to be a Transfer Restricted Security shall survive
until such time as all such obligations with respect to such Security shall
have been satisfied in full.
SECTION 5. REGISTRATION PROCEDURES
(a) Resale Registration Statement. In connection with each Resale
Registration Statement, the Company shall comply with all the provisions of
Section 5(c) below and shall use all reasonable efforts to effect such
registration to permit the sale of the Transfer Restricted Securities being
sold in accordance with the intended methods thereof. In this regard, the
Company will, by September 16, 1998, prepare and file with the Commission a
Resale Registration Statement relating
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to the registration on any appropriate form under the Act, which form shall be
available for the sale of the Transfer Restricted Securities in accordance with
such intended methods of resale.
(b) General Provisions. In connection with any Resale Registration
Statement and any Prospectus required by this Agreement to permit the sale or
resale of Transfer Restricted Securities (including, without limitation, any
Registration Statement and the related Prospectus required to permit resales of
the Securities by Broker-Dealers), the Company shall:
(i) use its reasonable best efforts to keep such
Registration Statement continuously effective and provide all
requisite financial statements for the period specified in Section 3
of this Agreement, and upon the occurrence of any event that would
cause any such Registration Statement or the Prospectus contained
therein (A) to contain a material misstatement or omission or (B)
not to be effective and usable for resale of Transfer Restricted
Securities during the period required by this Agreement, the Company
shall file promptly, and as appropriate, an amendment or supplement
to such Registration Statement, in the case of clause (A),
correcting any such misstatement or omission, and, in the case of
either clause (A) or (B), use all reasonable efforts to cause such
amendment to be declared effective and such Registration Statement
and the related Prospectus to become usable for their intended
purpose(s) as soon as practicable thereafter;
(ii) prepare and file with the Commission such amendments
and post-effective amendments to the Registration Statement as may
be necessary to keep the Registration Statement effective for the
applicable period set forth in Section 3 hereof or such shorter
period as will terminate when all Transfer Restricted Securities
covered by such Registration Statement cease to be Transfer
Restricted Securities; cause the Prospectus to be supplemented by
any required Prospectus supplement, and as so supplemented to be
filed pursuant to Rule 424 under the Act in a timely manner, and
reasonably assisting Holders in complying with the provisions of the
Act with respect to the disposition of all Securities covered by
such Registration Statement during the applicable period in
accordance with the intended method of methods of distribution by
the sellers thereof set forth in such Registration Statement or
supplement to the Prospectus;
(iii) advise the underwriter(s), if any, and selling
Holders promptly and, if requested by such Persons in writing, to
confirm such advice in writing, (A) when the Prospectus or any
Prospectus supplement or post-effective amendment has been filed,
and, with respect to any Registration Statement or any
post-effective amendment thereto, when
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<PAGE> 8
the same has become effective, (B) of any request by the Commission
for amendments to the Registration Statement or amendments or
supplements to the Prospectus or for additional information relating
thereto, (C) of the issuance by the Commission of any stop order or
other order or action suspending the effectiveness of the
Registration Statement under the Act or of the suspension by any
state securities or Blue Sky commission of the exemption,
qualification or registration of the Transfer Restricted Securities
for offering or sale in any jurisdiction, or the initiation of any
proceeding for any of the preceding purposes, or (D) of the
existence of any fact or the happening or any event that makes any
statement of a material fact made in the Registration Statement, the
Prospectus, any amendment or supplement thereto, or any document
incorporated by reference therein untrue, or that requires the
making of any additions to or changes in the Registration Statement
or the Prospectus in order to make the statements therein not
misleading. If at any time the Commission shall issue any stop order
or other order or take other action suspending the effectiveness of
the Registration Statement, or any state securities commission or
other regulatory authority shall issue an order suspending the
exemption, qualification or registration of the Transfer Restricted
Securities under state securities or Blue Sky laws, the Company
shall use all reasonable efforts to obtain the withdrawal or lifting
of such order at the earliest possible time;
(iv) furnish to each of the selling Holders and each of
the underwriter(s), if any, before filing with the Commission,
copies of any Registration Statement or any Prospectus included
therein or any amendments or supplements to any such Registration
Statement or Prospectus (including all documents incorporated by
reference after the initial filing of such Registration Statement),
which documents will be subject to the review of such Holders and
underwriter(s), if any, for a period of at least five business days,
and the Company will not file any such Registration Statement or
Prospectus or any amendment or supplement to any such Registration
Statement or Prospectus (including all such documents incorporated
by reference) to which a selling Holder of Transfer Restricted
Securities covered by such Registration Statement or the
underwriter(s), if any, shall reasonably object within five business
days after the receipt thereof. A selling Holder or underwriter, if
any, shall be deemed to have reasonably objected to such filing if
such Registration Statement, amendment, Prospectus or supplement, as
applicable, as proposed to be filed, contains a material
misstatement or omission;
(v) make available at reasonable times and upon reasonable
notice for inspection by the selling Holders, any underwriter
participating in any disposition pursuant to such Registration
Statement, and any attorney or accountant retained by such selling
Holders or any of the underwriter(s), all financial and other
records, pertinent corporate documents and properties of the Company
and cause the Company's' officers, directors and employees to
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<PAGE> 9
supply all information reasonably requested by any such Holder,
underwriter, attorney or accountant in connection with such
Registration Statement subsequent to the filing thereof and prior to
its effectiveness;
(vi) if requested by any selling Holders or the
underwriter(s), if any, promptly incorporate in any Registration
Statement or Prospectus, pursuant to a supplement or post-effective
amendment if necessary, such information as such selling Holders and
underwriter(s), if any, may reasonably request to have included
therein, provided such information is usual and customary in such a
document, including, without limitation, information relating to the
"Plan of Distribution" of the Transfer Restricted Securities,
information with respect to the principal amount of Transfer
Restricted Securities being sold to such underwriter(s), the
purchase price being paid therefor and any other terms of the
offering of the Transfer Restricted Securities to be sold in such
offering; and make all required filings of such Prospectus
supplement or post-effective amendment as soon as practicable after
the Company is notified of the matters to be incorporated in such
Prospectus supplement or post-effective amendment;
(vii) furnish to each selling Holder and each of the
underwriter(s), if any, without charge, one copy of the Registration
Statement, as first filed with the Commission, and of each amendment
thereto, including all documents incorporated by reference therein
and all exhibits;
(viii) deliver to each selling Holder and each of the
underwriter(s), if any, without charge, as many copies of the
Prospectus (including each preliminary prospectus) and any amendment
or supplement thereto as such Persons reasonably may request; and
the Company hereby consent to the use of the Prospectus and any
amendment or supplement thereto (other than in those states or
jurisdictions in which the Company has not complied with or
satisfied the requirements of the relevant "blue sky" securities
laws) by each of the selling Holders and each of the underwriter(s),
if any, in connection with the offering and the sale of the Transfer
Restricted Securities covered by the Prospectus or any amendment or
supplement thereto;
(ix) enter into such agreements (including an underwriting
agreement), and make such representations and warranties, and take
all such other actions in connection therewith in order to expedite
or facilitate the disposition of the Transfer Restricted Securities
pursuant to any Registration Statement contemplated by this
Agreement, to the extent reasonably and
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<PAGE> 10
customary in this type of offering and as may be reasonably
requested by the Purchaser or by any Holder of Transfer Restricted
Securities or underwriter in connection with any sale or resale
pursuant to any Registration Statement contemplated by this
Agreement; and if the registration is an Underwritten Registration,
the Company shall:
(A) furnish to each Purchaser, each selling
Holder and each underwriter, if any, in such substance and
scope as they may request and as are customarily made by
issuers to underwriters in primary underwritten offerings,
upon the date of the effectiveness of the Resale
Registration Statement:
(1) a certificate, dated the date of
effectiveness of the Resale Registration
Statement, as the case may be, signed by (i) the
President or any Vice President and (ii) a
principal financial or accounting officer of the
Company, confirming, as of the date thereof, the
matters set forth in paragraph (c) of Section 5
of the Placement Agreement and such other
matters as such parties may reasonably request;
(2) an opinion, dated the date of
effectiveness of the Resale Registration
Statement, as the case may be, of counsel for
the Company, covering the matters set forth in
paragraph (a) of Section 5 of the Placement
Agreement and such other matter as such parties
may reasonably request, and in any event
including a statement to the effect that such
counsel has participated in conferences with
officers and other representatives of the
Company, representatives of the independent
public accountants for the Company, the
Purchasers' representatives and the Purchaser's
counsel in connection with the preparation of
such Registration Statement and the related
Prospectus and have considered the matters
required to be stated therein and the statements
contained therein, although such counsel has not
independently verified the accuracy,
completeness or fairness of such statements; and
that such counsel advises that, on the basis of
the foregoing, no facts came to such counsel's
attention that caused such counsel to believe
that the applicable Registration Statement, at
the time such Registration Statement or any
post-effective amendment thereto become
effective, contained an untrue statement of a
material fact or omitted to state a material
fact required to be stated therein or necessary
to make the statements therein not misleading,
or that the Prospectus contained in such
Registration Statement as of its date, an untrue
statement of a material fact or omitted to state
a material fact necessary in order to make the
statements therein, in light
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<PAGE> 11
of the circumstances under which they were made,
not misleading. Without limiting the foregoing,
such counsel may state further that such counsel
assumes no responsibility for, and has not
independently verified, the accuracy,
completeness or fairness of the financial
statements, notes and schedules and other
financial data included in any Registration
Statement contemplated by this Agreement or the
related Prospectus; and
(3) a customary comfort letter, dated
as of the date of effectiveness of the Resale
Registration Statement, as the case may be, from
the Company's independent accountants, in the
customary form and covering matters of the type
customarily covered in comfort letters by
underwriters in connection with primary
underwritten offerings, and affirming the
matters set forth in the comfort letters
delivered pursuant to Section 5(b) of the
Placement Agreement, without exception;
(B) set forth in full or incorporate by
reference in the underwriting agreement, if any, the
indemnification provisions and procedures of Section 7
hereof with respect to all parties to be indemnified
pursuant to said Section; and
(C) deliver such other documents and
certificates as may be reasonably requested by such
parties to evidence compliance with clause (A) above and
with any customary conditions contained in the
underwriting agreement or other agreement entered into by
the Company pursuant to this clause (ix), if any.
If at any time the covenants of the Company contemplated
in clause (A)(1) above cease to be true and correct, the Company shall so
advise the Purchasers and the underwriter(s), if any, and each selling Holder
promptly and, if requested by such Persons, shall confirm such advice in
writing;
(x) prior to any public offering of Transfer Restricted
Securities, cooperate with the selling Holders, the underwriter(s),
if any, and their respective counsel in connection with the
registration and qualification of the Transfer Restricted Securities
under the securities or Blue Sky and securities laws of such
jurisdictions as the selling Holders or underwriter(s) may
reasonably request and do any and all other acts or things necessary
or advisable to
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<PAGE> 12
enable the disposition in such jurisdictions of the Transfer
Restricted Securities covered by the Resale Registration Statement;
provided, that the Company shall not be required to register or
qualify as a foreign corporation where it is not now so qualified or
to take any action that would subject it to the service of process
in suits or to taxation, other than as to matters and transactions
relating to the Registration Statement, in any jurisdiction where it
is not now so subject;
(xi) cooperate with the selling Holders and the
underwriter(s), if any, to facilitate the timely preparation and
delivery of certificates representing Transfer Restricted Securities
to be sold and not bearing any restrictive legends; and enable such
Transfer Restricted Securities to be in such denominations and
registered in such names as the Holders or the underwriter(s), if
any, may reasonably request at least two business days prior to any
sale of Transfer Restricted Securities made by such underwriter(s);
(xii) use its reasonable best efforts to cause the
Transfer Restricted Securities covered by the Registration Statement
to be registered with or approved by such other governmental
agencies or authorities as may be necessary to enable the seller or
sellers thereof or the underwriter(s), if any, to consummate the
disposition of such Transfer Restricted Securities, subject to the
proviso contained in paragraph (x) above;
(xiii) if any fact or event contemplated by paragraph
(b)(iii)(D) above shall exist or have occurred, prepare a supplement
or post-effective amendment to the Registration Statement or related
Prospectus or any document incorporated therein by reference or file
any other required document so that, as thereafter delivered to the
purchasers of Transfer Restricted Securities, the Prospectus will
not contain an untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein not
misleading;
(xiv) provide a CUSIP number for shares of Common Stock
and Underlying Common Stock that are Transfer Restricted Securities
not later than the effective date of the Registration Statement;
(xv) cooperate and assist in any filings required to be
made with the NASD and in the performance of any due diligence
investigation by any underwriter (including any "qualified
independent underwriter") that is required to be retained in
accordance with the
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<PAGE> 13
rules and regulations of the NASD, and use its reasonable best
efforts to cause such Registration Statement to become effective and
approved by such governmental agencies or authorities as may be
necessary to enable the Holders selling Transfer Restricted
Securities to consummate the disposition of such Transfer Restricted
Securities;
(xvi) otherwise comply with all applicable rules and
regulations of the Commission, and make generally available to its
security holders, as soon as practicable, a consolidated earnings
statement meeting the requirements of Rule 158 (which need not be
audited) for the twelve-month period (A) commencing at the end of
any fiscal quarter in which Transfer Restricted Securities are sold
to underwriters in a firm or best efforts Underwritten Offering or
(B) if not sold to underwriters in such an offering, beginning with
the first month of the Company's first fiscal quarter commencing
after the effective date of the Registration Statement;
(xvii) cause all shares of Transfer Restricted Securities
covered by the Registration Statement to be listed on each
securities exchange or market, if applicable, on which similar
securities issued by the Company are then listed if requested by the
Holders of a majority in aggregate principal amount of the Notes or
the managing underwriter(s); and
(xviii) provide promptly to each Holder upon request each
document filed with the Commission pursuant to the requirements of
Sections 13, 14 and 15 of the Exchange Act for a period of three
years from the Closing Date.
Each Holder agrees by acquisition of a Transfer Restricted Security
that, upon receipt of any notice from the Company of the existence of any fact
of the kind described in Section 5(b)(iii)(D) hereof, such Holder will
forthwith discontinue disposition of Transfer Restricted Securities pursuant to
the applicable Registration Statement until such Holder's receipt of the copies
of the supplemented or amended Prospectus, or until it is advised in writing
(the "Advice") by the Company that the use of the Prospectus may be resumed,
and has received copies of any additional or supplemental filings that are
incorporated by reference in the Prospectus. If so directed by the Company,
each Holder will deliver to the Company (at the Company's expense) all copies,
other than permanent file copies then in such Holder's possession, of the
Prospectus covering such Transfer Restricted Securities that was current
immediately prior to the time of receipt of such notice. In the event the
Company shall give any such notice, the time period regarding the effectiveness
of such Registration Statement set forth in Section 3, shall be extended by the
number of days during the period from and including the date of the giving of
such notice pursuant to Section 5(c)(iii)(D) hereof to and including the date
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when each selling Holder covered by such Registration Statement shall have
received the copies of the supplemented or amended Prospectus or shall have
received the Advice.
SECTION 6. REGISTRATION EXPENSES
(a) All expenses incident to the Company's performance of or
compliance with this Agreement will be borne by the Company, as the case may
be, regardless of whether a Registration Statement becomes effective, including
without limitation: (i) all registration and filing fees and expenses
(including filings made by any Purchaser or Holder with the NASD (and, if
applicable, the fees and expenses of any "qualified independent underwriter"
and its counsel that may be required by the NASD)); (ii) all fees and expenses
of compliance with federal securities, foreign securities and state Blue Sky or
securities laws; (iii) all expenses of printing (including the printing of
Prospectuses), messenger and delivery services and telephone incurred by the
Company; (iv) all fees and disbursements of counsel for the Company and,
subject to Section 6(b) below, the Holders of Transfer Restricted Securities;
(v) all application and filing fees in connection with listing the shares of
the Common Stock or Underlying Common Stock on a national securities exchange
or automated quotation system pursuant to the requirements hereof; (vi) all
fees and disbursements of independent certified public accountants of the
Company (including the expenses of any special audit and comfort letters
required by or incident to such performance); and (vii) all fees and charges of
the Rating Agencies, if any; provided, that the Company will not bear certain
personal expenses of a Holder who sells Transfer Restricted Securities,
including, underwriting discounts, commissions, and messenger and delivery
services and telephone expenses incurred by such selling Holders.
The Company will, in any event, bear its internal expense
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expenses of any annual
audit, all trustee and Rating Agency fees and charges and the fees and expenses
of any Person, including special experts, retained by the Company.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Resale Registration Statement),
the Company will reimburse the Purchasers and the Holders of Transfer
Restricted Securities being resold pursuant to registration pursuant to the
Resale Registration Statement, as applicable, for the reasonable fees and
disbursements of not more than one counsel, such counsel to be chosen by the
Holders of a majority of the Transfer Restricted Securities (excluding, for
this determination, Sovereign Bancorp, Inc., City National Bank
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<PAGE> 15
of West Virginia and Emanuel J. Friedman) for whose benefit such Registration
Statement is being prepared.
SECTION 7. INDEMNIFICATION
(a) The Company shall indemnify and hold harmless (i) each Holder
and (ii) each person, if any, who controls (within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act) any Holder (any of the persons
referred to in this clause (ii) being hereinafter referred to as a "Controlling
Person") and (iii) the respective officers, directors, partners, employees,
representatives and agents of any Holder or any Controlling Person (any person
referred to in clause (i), (ii) or (iii) may hereinafter be referred to as an
"Indemnified Holder"), to the fullest extent lawful, from and against any and
all losses, claims, damages, liabilities, judgments, actions and expenses
(including without limitation, reimbursement of all reasonable costs of
investigating, preparing, pursuing or defending any claim or action, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, including the reasonable fees and charges of one counsel to all
Indemnified Holders as a group) directly or indirectly caused by, related to,
based upon, arising out of or in connection with any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement or Prospectus (or any amendment or supplement thereto), or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or expenses are
caused by an untrue statement or omission or alleged untrue statement or
omission that is made in reliance upon and in conformity with information
relating to any of the Holders furnished in writing to the Company by any of
the Holders or counsel or agents of Holders expressly for use therein.
In case any action or proceeding (including any governmental or
regulatory investigation or proceeding) shall be brought or asserted against
any of the Indemnified Holders with respect to which indemnity may be sought
against the Company, such Indemnified Holder (or the Indemnified Holder
controlled by such controlling person) shall promptly notify the Company in
writing (provided, that the failure to give such notice shall not relieve the
Company of its obligations pursuant to this Agreement unless and to the extent
materially and adversely affected). Such Indemnified Holder shall have the
right to employ its own counsel in any such action and the fees and expenses of
such counsel shall be paid, as incurred, by the Company (regardless of whether
it is ultimately determined that an Indemnified Holder is not entitled to
indemnification hereunder); provided, that if the Indemnified Holder is not
successful and it is determined that such Indemnified Holder is not entitled to
indemnification hereunder, then such Indemnified Holder shall reimburse
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<PAGE> 16
the Company for all monies advanced by the Company to which such Indemnified
Holder was not entitled. The Company shall not, in connection with any one such
action or proceeding or separate but substantially similar or related actions
or proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel) at
any time for such Indemnified Holders, which firm shall be designated by the
Holders of a majority of the shares of Common Stock, Series A Preferred Stock,
or Underlying Common Stock that are subject to, or affected by, such action or
proceeding. The Company shall not be liable for any settlement of any such
action or proceeding effected without the Company's prior written consent,
which consent shall not be withheld unreasonably, and subject to the limitation
contained in the prior paragraph the Company will indemnify and hold harmless
any Indemnified Holder from and against any loss, claim, damage, liability or
expense by reason of any settlement of any action effected with the prior
written consent of the Company. The Company shall not, without the prior
written consent of each Indemnified Holder, settle or compromise or consent to
the entry of judgment in or otherwise seek to terminate any pending or
threatened action, claim, litigation or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not any
Indemnified Holder is a party thereto), unless such settlement, compromise,
consent or termination includes an unconditional release of each Indemnified
Holder from all liability arising out of such action, claim, litigation or
proceeding.
(b) Each Holder agrees, severally and not jointly, to indemnify and
hold harmless the Company, and its respective directors, officers and any
person controlling (within the meaning of Section 15 of the Act or Section 20
of the Exchange Act) the Company, and the respective officers, directors,
partners, employees, representatives and agents of each such person, to the
same extent as the foregoing indemnity from the Company to each of the
Indemnified Holders, but only with respect to claims and actions based on
information relating to such Holder furnished in writing by such Holder
expressly for use in any Registration Statement. In case any action or
proceeding shall be brought against the Company or its directors or officers or
any such controlling person in respect of which indemnity may be sought against
a Holder of Transfer Restricted Securities, such Holder shall have the rights
and duties given the Company and the Company or its directors or officers or
such controlling person shall have the rights and duties given to each Holder
by the preceding paragraph. In no event shall the liability of any selling
Holder hereunder be greater in amount than the dollar amount of the net
proceeds received by such Holder upon the sale of the Restricted Securities
giving rise to such indemnification obligation.
(c) If the indemnification provided for in this Section 7 is
unavailable to an indemnified party under Section 7(a) or Section 7(b) hereof
(other than by reason of the exceptions provided therein) in respect of any
losses, claims, damages, liabilities or expenses referred to therein, then each
applicable indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute
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to the amount paid or payable by such indemnified party as a result of such
losses, claims, damages, liabilities or expenses in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand, and the Holders on the other hand from their purchase of Transfer
Restricted Securities or if such allocation is not permitted by applicable law,
the relative fault of the Company on the one hand and of the Indemnified Holder
on the other in connection with the statements or omissions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of the Company on the one
hand, and of the Indemnified Holder on the other, shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company or by the
Indemnified Holder and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include,
subject to the limitations set forth in the second paragraph of Section 7(a),
any legal or other fees, expenses or charges reasonably incurred by such party
in connection with investigating or defending any action or claim.
The Company and each Holder of Transfer Restricted Securities agree
that it would not be just and equitable if contribution pursuant to this
Section 7(c) were determined by pro rata allocation (even if the Holders were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, liabilities or expenses
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Holders' obligations to contribute pursuant to this
Section 7(c) are several in proportion to the respective principal amount of
Securities held by each of the Holders hereunder and are not joint.
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<PAGE> 18
SECTION 8. RULE 144
The Company hereby agrees with each Holder, for so long as any
Transfer Restricted Securities remain outstanding, to make available to any
Holder or beneficial owner of Transfer Restricted Securities in connection with
any sale thereof and any prospective purchaser of such Transfer Restricted
Securities from such Holder or beneficial owner, the information required by
Rule 144 under the Act in order to permit resales of such Transfer Restricted
Securities pursuant to Rule 144.
SECTION 9. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS
No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted
Securities on the basis provided in any underwriting arrangements provided by
the Persons entitled hereunder to approve such arrangements and (b) completes
and executes all reasonable questionnaires, powers of attorney, indemnities,
underwriting agreements, lock-up letters and other documents required under the
terms of such underwriting arrangements.
SECTION 10. SELECTION OF UNDERWRITERS
The Holders of Transfer Restricted Securities covered by the Resale
Registration Statement who desire to do so may sell such Transfer Restricted
Securities in an Underwritten Offering. In any such Underwritten Offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be selected by the Holders of a majority in
aggregate principal amount of the Transfer Restricted Securities included in
such offering; provided, that such investment bankers and managers must be
reasonably satisfactory to the Company.
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<PAGE> 19
SECTION 11. MISCELLANEOUS
(a) Remedies. The Company agrees that monetary damages (including
the liquidated damages contemplated hereby) would not be adequate compensation
for any loss incurred by reason of a breach by it of the provisions of this
Agreement and hereby agree to waive the defense in any action for specific
performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company will not, on or after
the date of this Agreement, enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the Holders in this
Agreement or otherwise conflicts with the provisions hereof. The Company has
not previously entered into any agreement granting any registration rights with
respect to its securities to any Person, except as contemplated by the Offering
Memorandum. The rights granted to the Holders hereunder do not in any way
breach or conflict with and are not inconsistent with the rights granted to the
holders of the Company's securities under any agreement in effect on the date
hereof.
(c) Adjustments Affecting the Securities Common Stock. The Company
will not take any action, or permit any change to occur, with respect to the
Securities that would materially and adversely affect the ability of the
Holders to resell such Securities.
(d) Amendments and Waivers. The provisions of this Agreement may not
be amended, modified or supplemented, and waivers or consents to or departures
from the provisions hereof may not be given unless the Company had obtained the
written consent of Holders of a majority of the outstanding Transfer Restricted
Securities. Notwithstanding the foregoing, a waiver or consent to departure
from the provisions hereof that relates exclusively to the rights of Holders
whose securities are being resold pursuant to the Resale Registration Statement
and that does not affect directly or indirectly the rights of other Holders
whose securities are not reselling pursuant to such Registration Statement may
be given by the Holders of a majority of the outstanding Transfer Restricted
Securities being resold pursuant to such Resale Registration Statement.
(e) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class or
certified mail, telex, telecopier, or reliable overnight delivery service:
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<PAGE> 20
(i) if to a Holder, at the address set forth on the
records of the Registrar under the Indenture, with a copy to the Registrar
under the Indenture; and
(ii) If to the Company:
Mego Mortgage Corporation
Fifth Floor
1000 Parkwood Circle
Atlanta, Georgia 30339
Telecopier No.: (800) 694-6346
Attention: Edward B. Meyercord
With a copy to:
Friedman, Billings, Ramsey & Co., Inc.
1001 Nineteenth Street North
Arlington, Virginia 22209
Telecopier No.: (703) 312-9698
Attention: F. Burke Dempsey
All such notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; five
business days after being deposited in the mail, postage prepaid, if mailed;
when answered back, if telexed; when receipt acknowledged, if telecopied; and
on the next business day, if sent via a reliable overnight delivery service.
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<PAGE> 21
(f) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent Holders of Transfer Restricted Securities.
(g) Counterparts. This Agreement may be executed in any number of
counterparts, by the parties hereto, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF GEORGIA,
WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof, in any circumstances,
is held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be affected or impaired
thereby.
(k) Entire Agreement. This Agreement together with the Purchase
Agreement, and the Placement Agreement (as defined in the Purchase Agreement)
is intended by the parties as a final expression of their agreement and
intended to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter hereof.
There are no restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein with respect to the registration rights
granted by the Company with respect to the Transfer Restricted Securities. This
Agreement supersedes all prior agreements and understandings between the
parties with respect to such subject matter.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
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<PAGE> 22
MEGO MORTGAGE CORPORATION
By: /s/ Jeffrey S. Moore
-------------------------------
Name: Jeffrey S. Moore
Title: President and Chief
Executive Officer
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
By: /s/ James R. Kleeblatt
-------------------------------
Name: James R. Kleeblatt
Title: Managing Director
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<PAGE> 1
EXHIBIT 10.98
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
MEGO MORTGAGE CORPORATION
PURSUANT TO SECTION 151 OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
I, Jeffrey S. Moore, being the Chief Executive Officer, President
and Director of Mego Mortgage Corporation, a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "Company"), in
accordance with the provisions of Sections 103 and 151 thereof, DO HEREBY
CERTIFY:
That pursuant to the authority conferred upon the Board of Directors
by the Certificate of Incorporation of the Company, the Board of Directors of
the Company, at a meeting duly called and held on May 13, 1998, at which a
quorum was present and acting throughout, duly adopted the following resolution
creating a series of 65,000 shares of Preferred Stock, par value $.01 per
share, designated "Series A Convertible Preferred Stock":
RESOLVED THAT, pursuant to the authority vested
in the Board of Directors of the Company by the
Certificate of Incorporation, the Board of Directors does
hereby provide for the issue of a series of Preferred
Stock, par value $.01 per share, of the Company, to be
designated "Series A Convertible Preferred Stock"
(hereinafter referred to as the "Series A Preferred Stock"
or "this
<PAGE> 2
series"), initially consisting of 65,000 shares, and to
the extent that the designations, powers, preferences and
relative and other special rights and the qualifications,
limitations and restrictions of the Series A Preferred
Stock are not stated and expressed in the Certificate of
Incorporation, does hereby fix and herein state and
express such designations, powers, preferences and
relative and special rights and the qualifications,
limitations and restrictions thereof, as follows (all
terms used herein which are defined in the Certificate of
Incorporation shall be deemed to have the meanings
provided therein):
SECTION 1. DESIGNATION AND AMOUNT.
The series shall be designated "Series A Convertible Preferred
Stock" par value $.01 per share (hereinafter called "Series A Preferred Stock")
and the number of shares constituting such series shall be 65,000. Such number
of shares may be increased or decreased by resolution of the Board of Directors
of the Company ("Board of Directors"); provided, that no decrease shall reduce
the number of Series A Preferred Stock to a number less than the number of
shares of the series then outstanding.
SECTION 2. RANK.
The Series A Preferred Stock, with respect to dividend rights, will
rank on a parity with the $.01 par value common stock of the Company (the
"Common Stock") and all other classes and series of equity securities of the
Company now authorized, issued and outstanding. No class or series of equity
securities may rank senior to the Series A Preferred Stock as to the payment of
dividends. The Series A Preferred Stock, with respect to rights upon
liquidation, dissolution or winding up of the Company, ranks senior to the
Common Stock and to all other classes and series of equity securities of the
Company now authorized, issued and outstanding.
SECTION 3. DIVIDENDS.
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<PAGE> 3
Holders of shares of Series A Preferred Stock are entitled to
receive when, as and if declared by the Board of Directors and out of funds of
the Company legally available for the payment of dividends, cash dividends
equal to the amount of dividends payable on the number of shares of Common
Stock into which each share of Series A Preferred Stock is convertible. Cash
dividends or distributions on the Series A Preferred Stock shall be declared
simultaneously with the declaration of any cash dividends or distributions on
the Common Stock. The record date and payment date for any cash dividend
declared on the Series A Preferred Stock shall be the same as the record date
and payment date for the corresponding cash dividend declared on the Common
Stock.
SECTION 4. LIQUIDATION RIGHTS.
In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company, the holders of shares of Series A
Preferred Stock are entitled to receive out of assets of the Company available
for distribution to stockholders under applicable law, before any payment or
distribution of assets is made to holders of Common Stock or any other class or
series of stock ranking junior to the Series A Preferred Stock upon
liquidation, liquidating distributions in the amount of $1,000 per share plus
accrued and unpaid dividends (whether or not earned) to the date fixed for such
liquidation, dissolution or winding up ("Liquidation Preference"). If upon any
voluntary or involuntary liquidation, dissolution or winding up of the Company,
the amounts payable with respect to the Series A Preferred Stock and any other
shares of stock of the Company ranking as to any such distribution on a parity
with the Series A Preferred Stock, are not paid in full, the holders of the
Series A Preferred Stock and of such other shares will share ratably in any
such distribution of assets of the Company in proportion to the full respective
preferential amounts to which they are entitled. After payment of the full
amount of the liquidating distribution to which they are entitled, the holders
of shares of Series A Preferred Stock will not be entitled to any further
participation in any distribution of assets by the Company.
SECTION 5. REDEMPTION.
Series A Preferred Stock is not redeemable.
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<PAGE> 4
SECTION 6. VOTING RIGHTS.
Except as expressly required by applicable law, the holders of the
Series A Preferred Stock will not be entitled to vote.
On any matter on which the holders of Series A Preferred Stock may
vote, they will be entitled to one vote for each share held. The holders of
Series A Preferred Stock may vote only as a separate class, and their votes
will not be counted together with the holders of the Common Stock or any other
class or series of Preferred Stock as a single class.
The holders of the Series A Preferred Stock are entitled to
dissenters' rights pursuant to, and to the fullest extent permitted by, Section
262 of the General Corporation Law of the State of Delaware in the event of a
merger or consolidation in which the Company is a constituent corporation or
the sale of substantially all of the assets of the Company.
SECTION 7. CONVERSION RIGHTS.
(a) Subject to and upon compliance with the provisions of this
Section 7, each outstanding share of Series A Preferred Stock will be
convertible at the option of the holder on or after December 15, 1998 by
surrendering the shares to be converted (in the manner provided in paragraph
(b) of this Section 7 below), and will automatically convert on June 18, 2000,
into a number of shares of Common Stock equal to $1,000 divided by the
Conversion Price as defined in paragraph (d) of this Section 7 below).
(b) (1) In order to exercise the conversion privilege, the holder of
each share of the Series A Preferred Stock to be converted shall surrender the
certificate representing such share to the Conversion Agent for the Series A
Preferred Stock appointed for such purpose by the Company (the "Conversion
Agent"), or, if no Conversion Agent has been appointed or if the holder has not
received notice of such appointment, then to the Company, with the Notice of
Election to Convert on the back of said certificate duly completed and signed,
at the principal office of the Conversion Agent or the Company, as the case may
be. Unless the shares issuable on conversion are to be issued in the same name
as the name in which the shares of the Series A Preferred Stock are registered,
each
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<PAGE> 5
share surrendered for conversion shall be accompanied by instruments of
transfer, in form satisfactory to the Company, duly executed by the holder or
its duly authorized attorney and by funds in an amount sufficient to pay any
transfer or similar tax.
(2) The holders of shares of the Series A Preferred Stock at the
close of business on a record date for the payment of dividends (each a
"Dividend Record Date") shall be entitled to receive the dividend payable on
those shares on the corresponding Dividend Payment Date notwithstanding the
conversion of the shares after the Dividend Record Date or the Company's
default in payment of the dividend due on the Dividend Payment Date. Except as
provided above, the Company shall make no payment or adjustment for accrued and
unpaid dividends on shares of the Series A Preferred Stock whether or not in
arrears, on conversion of those shares or for dividends on the shares of Common
Stock issued upon the conversion.
(3) As promptly as practicable after the surrender by a holder
of any certificates for shares of the Series A Preferred Stock in accordance
with this paragraph (b), the Company shall issue and shall deliver at the
office of the Conversion Agent to the holder, or on its written order, a
certificate or certificates for the number of full shares of Common Stock
issuable upon the conversion of those shares in accordance with the provisions
of this paragraph (b)(3), and any fractional interest in respect of a share of
Common Stock arising upon the conversion shall be settled as provided in
paragraph (c) of this Section 7 below.
(4) Each conversion shall be deemed to have been effected as of
the close of business on the date on which all of the conditions specified in
paragraph (b)(1) of this Section 7 above shall have been satisfied and the
person or persons in whose name or names any certificate or certificates for
shares of Common Stock shall be issuable upon such conversion shall be deemed
to have become the holder or holders of record of the shares of Common Stock
represented by those certificates at such time on such date and such conversion
shall be at the Conversion Price in effect at such time as provided, that if
the stock transfer books of the Company are not open on the date of such
conversion, then such conversion shall be effective for all purposes at the
opening of business on the next succeeding day on which such stock transfer
books are open. All shares of Common Stock delivered upon conversion of the
Series A Preferred Stock will upon delivery be duly and validly issued and
fully paid and nonassessable, free of all liens and charges and not subject to
any preemptive rights. Upon the surrender of certificates representing shares
of the Series A Preferred Stock to be converted, the shares shall no longer be
deemed to be outstanding and all rights of a holder with respect to the shares
surrendered for conversion shall immediately terminate except the right to
receive the Common Stock or other securities, cash or other assets (including
without limitation any dividend payable as specified in paragraph (b)(2) of
this Section 7 above) as herein provided.
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<PAGE> 6
(c) No fractional shares or securities representing fractional
shares of Common Stock shall be issued upon conversion of the Series A
Preferred Stock. Any fractional shares of Common Stock resulting from
conversion of a share of the Series A Preferred Stock shall be paid in cash
(computed to the nearest cent) based on the Current Market Price (as defined in
paragraph (d)(4) of this Section 7 below) of the Common Stock one the Trading
Day (as defined in paragraph (d)(4) of this Section (7) below) next preceding
the day of conversion. If more than one share of Series A Preferred Stock shall
be surrendered for conversion at one time by the same holder, the number of
whole shares of Common Stock issuable upon the conversion shall be calculated
based on the aggregate number of shares of Series A Preferred Stock so
surrendered.
(d) The "Conversion Price" per share of the Series A Preferred Stock
shall be $1.50, subject to adjustment from time to time as follows:
(1) In case the Company shall (1) pay a dividend or make a
distribution on its Common Stock in shares of its Common Stock, (2)
subdivide its outstanding Common Stock into a greater number of
shares, or (3) combine its outstanding Common Stock into a smaller
number of shares, the Conversion Price in effect immediately prior
to such event shall be proportionally adjusted so that the holder of
any share of the Series A Preferred Stock thereafter surrendered for
conversion shall be entitled to receive the number and kind of
shares of Common Stock of the Company which such holder would have
been entitled to receive had the share been converted immediately
prior to the happening of such event. An adjustment made pursuant to
this paragraph (d)(1) shall become effective immediately after the
record date in the case of a dividend or distribution except as
provided in paragraph (d)(7) of this Section 7 below, and shall
become effective immediately after the effective date in the case of
subdivision or combination. If any dividend or distribution is not
paid or made, the Conversion Price then in effect shall be
appropriately readjusted.
(2) Except with respect to the issuance of rights announced prior
to the date of this Certificate of Designation, in case the Company
shall distribute or issue options, rights or warrants to all holders
of its Common Stock entitling them to subscribe for or purchase
Common Stock at a price per share less than the Current Market Price
(as defined in paragraph (d)(4) of this Section 7 below) of the
Common Stock at the record date for the determination of
stockholders entitled to receive the options, rights or warrants,
the Conversion Price in effect immediately prior to the distribution
or issuance of such options, rights or warrants shall be adjusted so
that it shall equal the price determined by multiplying the
Conversion Price in effect immediately prior to the date of
distribution or issuance of the options, rights or warrants by a
fraction of which the numerator shall be the number of shares of
Common Stock outstanding on the date of distribution or issuance of
the options, rights
-6-
<PAGE> 7
or warrants plus the number of shares of Common Stock which may be
purchased at the Current Market Price based upon the aggregate
offering price of such options, rights or warrants and the
denominator shall be the total number of shares of Common Stock then
outstanding plus the number of additional shares of Common Stock
issuable upon the exercise of such options, rights and warrants. The
adjustment provided for in this paragraph (d)(2) shall be made
successively whenever any such options, rights or warrants are
distributed or issued, and shall become effective immediately,
except as provided in paragraph (d)(7) of this Section 7 below,
after such record date. In determining whether any rights or
warrants entitle the holders of the Common Stock to subscribe for or
purchase shares of Common Stock at less than the Current Market
Price, and in determining the aggregate offering price of the shares
of Common Stock so offered, there shall be taken into account any
consideration received by the Company for such rights or warrants,
the value of such consideration, if other than cash, to be
determined by the Board of Directors (whose determination, if made
in good faith, shall be conclusive). If any or all of such options,
rights or warrants are not so distributed or issued or expire or
terminate (within 45 days after the same shall have been issued by
the Company) without having been exercised, the Conversion Price
then in effect shall be appropriately readjusted to the Conversion
Price that would have been in effect if no adjustment had been made
on account of such issuance or distribution which was not made or
such distribution or issuance of options, rights or warrants which
expired or terminated..
(3) In case the Company shall distribute to all holders of
its Common Stock any shares of capital stock of the Company (other
than Common Stock) or evidences of indebtedness or assets (excluding
cash dividends or distributions paid from retained earnings of the
Company) or options, rights or warrants to subscribe for or purchase
any of its securities (excluding those referred to in paragraph
(d)(2) of this Section 7 above) then, in each such case, the
Conversion Price shall be adjusted so that it shall equal the price
determined by multiplying the Conversion Price in effect immediately
prior to the date of the distribution by a fraction the numerator of
which shall be the Current Market Price of the Common Stock on the
record date mentioned below less the then fair market value per
share (as determined by the Board of Directors, whose determination,
if made in good faith, shall be conclusive) of the capital stock or
assets or evidences of indebtedness or option, rights or warrants so
distributed and the denominator of which shall be the Current Market
Price of the Common Stock on the record date. Such adjustment shall
become effective immediately, except as provided in paragraph (d)(4)
of this Section 7 below, after the record date for the determination
of stockholders entitled to receive such distribution. If any such
distribution is not made or if any or all of such options, rights or
warrants expire or terminate without having been exercised, the
Conversion Price then in effect shall be appropriately readjusted to
the Conversion Price that would have been in effect if no adjustment
had been made on account of such distribution which was not made or
such distribution of options, rights or warrants which expired or
terminated.
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<PAGE> 8
(4) For the purpose of any computation under paragraphs
(d)(2) or (d)(3) of this Section 7 above, the "Current Market Price"
of the Common Stock at any date shall be the average of the last
reported sale prices per share for the ten consecutive Trading Days
(as defined below) preceding the date of such computation. The last
reported sale price for each day shall be (i) the last reported sale
price of the Common Stock on The Nasdaq National Market (the "Nasdaq
National Market"), or any similar system of automated dissemination
of quotations of securities prices then in common use, if so quoted,
or (ii) if not quoted as described in clause (i), the mean between
the high bid and low asked quotations for the Common Stock as
reported by the National Quotation Bureau Incorporated if at least
two securities dealers have inserted both bid and asked quotations
for the Common Stock on at least five of the ten preceding days, or
(iii) if the Common Stock is listed or admitted for trading on any
national securities exchange, the last sale price, or the closing
bid price if no sale occurred, of the Common Stock on the principal
securities exchange on which the Common Stock is listed. If the
Common Stock is quoted on a national securities or central market
system, in lieu of a market or quotation system described above, the
last reported sale price shall be determined in the manner set forth
in clause (ii) of the preceding sentence if bid and asked quotations
are reported but actual transactions are not, and in the manner set
forth in clause (iii) of the preceding sentence if actual
transactions are reported. If none of the conditions set forth above
is met, the last reported sale price of the Common Stock on any date
or the average of such last reported sale prices for any period
shall be the fair market value of such class of stock as determined
by a member firm of the New York Stock Exchange, Inc. selected by
the Company. As used herein the term "Trading Days" means (x) if the
Common Stock is quoted on the Nasdaq National Market or any similar
system of automated dissemination of quotations of securities
prices, days on which trades may be made on such system, or (y) if
not quoted as described in clause (x), days on which quotations are
reported by the National Quotation Bureau Incorporated, or (z) if
the Common Stock is listed or admitted for trading on any national
securities exchange, days on which such national securities exchange
is open for business.
(5) No adjustment in the Conversion Price shall be
required unless such adjustment would require a change of at least
one percent in the Conversion Price; provided, however, that any
adjustments which by reason of this paragraph (d)(5) are not
required to be made shall be carried forward and taken into account
in any subsequent adjustment; and provided, further, that adjustment
shall be required and made in accordance with the provisions of this
Section 7 (other than this paragraph (d)(5)) not later than such
time as may be required in order to preserve the tax free nature of
a distribution to the holders of shares of Common Stock. All
calculations under this Section 7 shall be made to the nearest cent
or the nearest one hundredth of a share, as the case may be.
Anything in this paragraph (d) to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Conversion
Price, in addition to those required by this paragraph (d), as it in
its discretion shall determine to be advisable in order that any
stock dividend, subdivision or combination
-8-
<PAGE> 9
of shares, distribution of capital stock or options, rights or
warrants to purchase stock or securities, or distribution of
evidences of indebtedness or assets (other than cash dividends or
distributions paid from retained earnings) hereinafter made by the
Company to its stockholders shall be a tax free distribution for
federal income tax purposes.
(6) Whenever the Conversion Price is adjusted, as herein
provided, the Company shall promptly file with the Conversion Agent
an officers' certificate setting forth the Conversion Price after
the adjustment and setting forth a brief statement of the facts
requiring the adjustment. Promptly after delivery of the
certificate, the Company shall prepare a notice of the adjustment of
the Conversion Price setting forth the adjusted Conversion Price and
the date on which the adjustment becomes effective and shall mail
the notice of such adjustment of the Conversion Price to the holder
of each outstanding share of the Series A Preferred Stock at such
holder's last address as shown on the stock transfer books of the
Company.
(7) In any case in which this paragraph (d) provides that
an adjustment shall become effective immediately after a record date
for an event, the Company may defer until the occurrence of the
event (i) issuing, to the holder of any share of the Series A
Preferred Stock converted after the record date and before the
occurrence of the event, the additional shares of Common Stock
issuable upon the conversion by reason of the adjustment required by
the event over and above the Common Stock issuable upon such
conversion before giving effect to the adjustment and (ii) paying to
the holder any amount in cash in lieu of any fractional share
pursuant to paragraph (c) of this Section 7 above.
(8) If, after the date hereof, the Company shall take any
action affecting the Series A Preferred Stock, other than an action
specifically contemplated in this Certificate of Designation, which
in the opinion of the Board would have a material adverse effect
upon the rights or economic interests of the holders of the Series A
Preferred Stock, the Conversion Price shall be adjusted in such
manner and at such time as the Board on the advice of the Company's
independent public accountants may in good faith determine to be
equitable in the circumstances.
(e) If:
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<PAGE> 10
(1) the Company shall authorize the granting to the
holders of the Common Stock of options, rights or warrants to
subscribe for or purchase any shares of any class or any other
options, rights or warrants; or
(2) there shall be any reclassification of the Common
Stock (other than a subdivision or combination of the outstanding
Common Stock and other than a change in the par value, or from par
value to no par value, or from no par value to par value), or any
consolidation, merger, or statutory share exchange to which the
Company is a party, or any sale or transfer of all or substantially
all the assets of the Company; or
(3) there shall be a voluntary or an involuntary
dissolution, liquidation or winding up of the Company;
then the Company shall cause to be filed with the Conversion Agent, and shall
cause to be mailed to the holders of outstanding shares of the Series A
Preferred Stock at their addresses as shown on the stock transfer books of the
Company, at least 15 days prior to the applicable date hereinafter specified, a
notice stating (i) the date on which a record is to be taken for the purpose of
the dividend, distribution of options, rights or warrants, or, if a record is
not to be taken, the date as of which the holders of Common Stock of record to
be entitled to the dividend, distribution or options, rights or warrants are to
be determined or (ii) the date on which the reclassification, consolidation,
merger, statutory share exchange, sale, transfer, dissolution, liquidation or
winding up is expected to become effective, and the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other property deliverable upon
the reclassification, consolidation, merger, statutory share exchange, sale,
transfer, dissolution, liquidation or winding up. Failure to give any such
notice or any defect in the notice shall not affect the legality or validity of
the proceedings described in this paragraph (e).
(f) (1) The Company covenants that it will at all times reserve and
keep available, free from preemptive rights, out of the aggregate of its
authorized but unissued shares of Common Stock or its issued shares of Common
Stock held in its treasury, or both, for the purpose of effecting conversions
of the Series A Preferred Stock the full number of shares of Common Stock
deliverable upon the conversion of all outstanding shares of the Series A
Preferred Stock not theretofore converted. For purposes of this paragraph (f),
the number of shares of Common Stock which shall be deliverable upon the
conversion of all outstanding shares of the Series A Preferred Stock shall be
computed as if at the time of computation all the outstanding shares were held
by a single holder.
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(2) Before taking any action which would cause an adjustment
reducing the Conversion Price below the then par value (if any) of the shares
of Common Stock deliverable upon conversion of the Series A Preferred Stock,
the Company will take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Company may validly and legally issue
fully paid and nonassessable shares of Common Stock at the adjusted Conversion
Price.
(3) the Company will list the shares of Common Stock required to
be delivered upon conversion of the Series A Preferred Stock, prior to the
delivery, upon each national securities exchange, if any, upon which the
outstanding Common Stock is listed at the time of delivery.
(4) Prior to the delivery of any securities which the Company
shall be obligated to deliver upon conversion of the Series A Preferred Stock,
the Company will endeavor, in good faith and as expeditiously as possible, to
comply with all federal and state laws and regulations thereunder requiring the
registration of those securities with, or any approval of or consent to the
delivery thereof by, any governmental authority.
(g) The Company will pay any and all documentary stamp or similar
issue or transfer taxes payable in respect of the issue or delivery of shares
of Common Stock on conversion of the Series A Preferred Stock pursuant hereto;
provided, however, that the Company shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issue or delivery of
shares of Common Stock in a name other than that of the holder of the Series A
Preferred Stock to be converted and no such issue or delivery shall be made
unless and until the person requesting the issue or delivery has paid to the
Company the amount of any such tax or has established, to the satisfaction of
the Company, that the tax has been paid.
(h) In case of any reclassification or change of outstanding shares
of Common Stock (other than change in par value, or as a result of subdivision
or combination), or in case of any consolidation of the Company with, or merger
of the Company with or into, any other entity that requires the vote of the
holders of Common Stock or that results in a reclassification, change,
conversion, exchange or cancellation of outstanding shares of Common Stock or
any sale or transfer of all or substantially all of the assets of the Company,
each holder of shares of the Series A Preferred Stock then outstanding shall,
in connection with such transaction, have the right to convert the shares of
the Series A Preferred Stock held by the holder into the kind and amount of
securities, cash and other property which the holder would have been entitled
to receive upon such reclassification, change, consolidation, merger, sale or
transfer if the holder had held the Common
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Stock issuable upon the conversion of the shares of the Series A Preferred
Stock immediately prior to the reclassification, change, consolidation, merger,
sale or transfer.
(i) In the event that the Company shall consummate any consolidation
or merger or similar business combination, pursuant to which the outstanding
shares of Common Stock are by operation of law exchanged solely for or changed,
reclassified or converted into stock, securities or cash or any other property,
or any combination thereof, then provision shall be made so that shares of the
Series A Preferred Stock that are not immediately converted and that do not
receive the consideration provided in paragraph (h) of this Section 7, shall,
in connection with such consolidation, merger or similar business combination,
be assumed by and shall become preferred stock of such successor or resulting
corporation, having in respect of such corporation, insofar as possible, the
same powers, preferences and relative rights, and the qualifications,
limitations or restrictions thereon, that the Series A Preferred Stock had
immediately prior to such transaction, except that after such transaction each
share of the Series A Preferred Stock shall be immediately convertible,
otherwise on the terms and conditions provided by this Section 7, into the
nature and kind of consideration so receivable by a holder of the number of
shares of Common Stock into which such shares of the Series A Preferred Stock
if such shares of the Series A Preferred Stock had been converted immediately
prior to such transaction. The rights of the Series A Preferred Stock as
preferred stock of such successor or resulting corporation shall successively
be subject to adjustments pursuant to the terms and conditions provided by this
Section 7 hereof after any such transaction as nearly equivalent as practicable
to the adjustment provided for by this Section 7 prior to such transaction. The
Company shall not consummate any such merger, consolidation or similar
transaction unless all then outstanding shares of the Series A Preferred Stock
(other than such shares that are converted pursuant to paragraph (h) of this
Section 7) shall be assumed and authorized by the successor or resulting
corporation as aforesaid.
SECTION 8. PREEMPTIVE RIGHTS.
The holders of shares of Series A Preferred Stock shall not have any
preemptive right to acquire any unissued shares of any stock of the Company,
now or hereafter authorized, or any other securities of the Company, whether or
not convertible into shares of stock of the Company or carrying a right to
subscribe to or acquire any such shares of stock.
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IN WITNESS WHEREOF, Mego Mortgage Corporation has caused this
certificate to be executed by its Chief Executive Officer, President and
Director and attested by its Secretary this 29th day of June, 1998.
MEGO MORTGAGE CORPORATION
Attest:
By: /s/ Robert Bellacosa By: /s/ Jeffrey S. Moore
------------------------------ -----------------------------------
Name: Robert Bellacosa Name: Jeffrey S. Moore
Title: Secretary Title: Chief Executive Officer,
President and Director
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EXHIBIT 10.2A
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered into on
this 23 day of June, 1998 by and between MEGO MORTGAGE CORPORATION, a Delaware
corporation (the "Company"), and EDWARD B. "CHAMP" MEYERCORD (hereinafter
called the "Executive").
R E C I T A L S
A. The Company wishes to employ Executive as the Chairman of the
Board of Directors and Chief Executive Officer of the Company.
B. The Executive is willing to make his services available to the
Company and on the terms and conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual
covenants set forth herein, the parties agree as follows:
1. Employment.
1.1 Employment and Term. The Company hereby agrees to
employ the Executive and the Executive hereby agrees to serve the Company on
the terms and conditions set forth herein.
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1.2 Duties of Executive. During the term of this
Agreement, the Executive shall serve as Chairman of the Board and Chief
Executive Officer of the Company, shall diligently perform all services as may
be assigned to him by the Board, and shall exercise such power and authority as
may from time to time be delegated to him by the Board. The Executive shall
devote his full time and attention to the business and affairs of the Company,
render such services to the best of his ability, and use his best efforts to
promote the interests of the Company. The Executive shall have the authority to
hire a Chief Financial Officer, Chief Operating Officer, and other managerial
personnel, that will report directly to him, subject to the prior consent and
approval of the Board.
2. Term.
2.1 Initial Term. The initial term of this Agreement, and
the employment of the Executive hereunder, shall commence at the "Financial
Closing", which shall be the date on which the Company successfully obtains at
least $32 million of additional financing from new and/or existing investors
(the "Commencement Date") and shall expire on December 31, 2001, unless sooner
terminated in accordance with the terms and conditions hereof (the "Initial
Term").
2.2 Expiration Date. The date on which the term of this
Agreement shall expire (including any extensions pursuant to Section 2.3
hereof), is referred to in this Agreement as the Expiration Date.
2.3 Extension of Term. The term of this Agreement shall
automatically extend on the last day of the Initial Term, and on the last day
of each twelve (12) month period for which the term is extended pursuant to
this Section 2.3, for another twelve (12) months unless written notice is
given, at least twelve (12) months but no more than eighteen (18) months prior
to the date on which the term of the Agreement otherwise would expire, by
either party communicating an intent not to extend the term of the Agreement.
3. Compensation.
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3.1 Base Salary. The Executive shall receive a base salary
at the annual rate of $300,000 (the "Base Salary") during the term of this
Agreement, with such Base Salary payable in installments consistent with the
Company's normal payroll schedule, subject to applicable withholding and other
taxes. The Base Salary shall be reviewed, at least annually, for merit
increases and may, by action and in the reasonable discretion of the Board, be
increased at any time or from time to time, based upon a competitive market
analysis of comparable companies, as well as published survey data, with
respect to compensation paid to individuals similarly situated to the
Executive.
3.2 Bonuses.
(a) For the period from the Commencement Date through
December 31, 1998, the Company shall pay the Executive a bonus that is not less
than $250,000 or such higher amount as shall be determined by the Company in
its discretion, payable in cash by no later than March 15, 1999.
(b) Commencing January 1, 1999, for each calendar year
during the term of this Agreement, the Executive shall be eligible to receive
bonuses pursuant to a management incentive compensation plan (the "Plan") to be
established by the Company with the approval of its Board of Directors by no
later than September 30, 1998. The annual bonuses, if any, under the Plan shall
be based upon the achievement of various financial and operational targets as
the Board, or the Compensation Committee of the Board, in its sole and absolute
discretion, shall set forth from time to time, and shall be payable to the
Executive in cash and/or to the extent agreed upon by the Executive with common
stock ("Common Stock") of the Company by no later than March 15 of the year
following the calendar year for which the bonus is payable, or such later date
as provided in Section 10 hereof. Notwithstanding the foregoing, if the bonus
awarded to the Executive under the Plan when added to his Base Salary, would
cause the Executive's total amount of cash compensation (i.e. salary and bonus)
received pursuant to Sections 3.1 and 3.2 hereof for the calendar year, to
exceed one million dollars ($1,000,000), then that portion of the bonus equal
to such excess amount (the "Excess") shall be payable by the Company to the
Executive in shares of Common Stock of the Company (the "Shares") equal in
value to the Excess. For this purpose, the fair market value of a Share shall
be determined on the last day of the calendar year for which the bonus is
payable. Any bonuses payable pursuant to this Section 3.2 are sometimes
hereinafter referred to as "Incentive Compensation." Each calendar year for
which Incentive Compensation shall be payable under the Plan shall be referred
to herein as a "Bonus Period."
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4. Expense Reimbursement and Other Benefits.
4.1 Reimbursement of Expenses. During the term of this
Agreement, upon the submission of proper substantiation (including all relevant
receipts, invoices and other evidence reasonably requested by the Company) by
the Executive, and subject to such rules and guidelines as the Company may from
time to time adopt, the Company shall reimburse the Executive for all of the
following:
(a) reasonable expenses actually paid or incurred by
the Executive in the course of and pursuant to the business of the Company;
(b) the non-exclusive use of a two-bedroom apartment in
Atlanta, Georgia, owned or leased by the Company for use by the Executive and
his family while the Executive is providing services pursuant to this
Agreement; and
(c) reasonable costs to relocate to a destination at
the reasonable request of the Company.
4.2 Compensation/Benefit Programs. During the term of this
Agreement, the Executive shall participate in all basic health, major medical,
dental, hospitalization, accidental death and dismemberment, disability, travel
and life insurance plans, and any and all other plans as are presently and
hereinafter offered by the Company to its executives, including savings,
pension, profit-sharing and deferred compensation plans, subject to the general
eligibility and participation provisions set forth in such plans. With respect
to the life insurance plans, the Company shall provide the Executive with term
life insurance, subject to insurability, in an amount equal to five (5) times
his Base Salary, as defined in Section 3.1 hereof. With respect to disability
insurance, the Company shall use reasonable efforts to provide Executive with
coverage equal to sixty percent (60%) of the Executive's Base Salary, or such
lower amount that is within standard underwriting limitations for such
coverage. In the event that the Executive is not insurable at the standard
rates, then the amount of life insurance or disability insurance coverage
provided to the Executive shall be reduced to the amount of coverage, if any,
that can be purchased for the Executive for a premium equal to the premium that
would be payable for such coverage if it could be purchased at standard rates
from the insurer issuing the policy. In addition, the Executive shall receive
those perquisites
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and supplemental benefits that would typically accrue to executives in the
Executive's position within the peer group.
4.3 Working Facilities. During the term of this Agreement,
the Company shall furnish the Executive with an office, secretarial help and
such other facilities and services suitable to his position and adequate for
the performance of his duties hereunder.
4.4 Automobile. During the term of this Agreement, the
Company shall provide the Executive with an automobile appropriate to the
Executive's position within the peer group.
4.5 Stock Options.
(a) The Executive shall be granted options ("Stock
Options") to purchase five percent (5%) of the total outstanding shares of
Common Stock of the Company after the Financial Closing on a fully diluted
basis, including in this computation any rights offered by the Company
subsequent to the Financial Closing. During the term of this Agreement, the
Executive shall be eligible to be granted additional Stock Options to purchase
Common Stock of the Company under (and therefore subject to all terms and
conditions of) the Company's Omnibus Stock Plan and any successor plan thereto
(the "Stock Option Plan") and all rules of regulation of the Securities and
Exchange Commission applicable to stock option plans then in effect. The Stock
Option Plan will provide for the granting to management personnel of the
Company, including the Executive, of options to purchase an aggregate of twelve
percent (12%) of the issued and outstanding shares of Common Stock of the
Company, determined as of the Financial Closing.
(b) The Stock Options granted to the Executive shall be
granted as of the Commencement Date and have the following vesting schedule:
(i) one third (1/3) will be exercisable on the first anniversary of the date of
grant; (ii) one third (1/3) will be exercisable on the second anniversary of
the date of grant; and (iii) one third (1/3) will be exercisable on the third
anniversary of the date of grant. Notwithstanding the foregoing, any and all
Stock Options granted to the Executive shall become immediately vested and
fully exercisable in the event of a Change in Control of the Company (as
defined in Section 5.6 herein). The Stock Options granted as of the
Commencement Date shall be granted with an option price equal to the price at
which the Common Stock is sold by the Company at the Financial Closing. The
Stock Options shall be granted as Incentive Stock Options within the meaning of
Section 422(b) of the Code, if and to the extent they do not exceed the limits
under Section 422(d) of the Code and provided that the option price as
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determined in the preceding sentence is not less than the fair market value of
the Common Stock on the Commencement Date.
(c) The Stock Options granted to the Executive shall
terminate on the earliest of: (i) three (3) months after the date on which the
Executive's employment with the Company is terminated for any reason other than
for Cause (as defined in Section 5.1 herein), death or disability; (ii)
immediately in the event that the Executive's employment with the Company is
terminated for Cause; (iii) twelve (12) months after the date on which the
Executive's employment with the Company is terminated due to death, retirement
or disability; and (iv) ten (10) years from the date of grant.
4.6 Other Benefits. The Executive shall be entitled to
vacation each calendar year during the term of this Agreement, consistent with
industry norms for comparable positions to be taken at such times as the
Executive and the Company shall mutually determine and provided that no
vacation time shall interfere with the duties required to be rendered by the
Executive hereunder. Any vacation time not taken by Executive during any
calendar year may not be carried forward into any succeeding calendar year
without the express approval of the Board of the Company. The Executive shall
receive such additional benefits, if any, as the Board of the Company shall
from time to time determine. The Company shall cover the Executive under its
Directors and Officers liability insurance policy during the period he is
employed by the Company.
5. Termination.
5.1 Termination for Cause. The Company shall at all times
have the right, upon written notice to the Executive, to terminate the
Executive's employment hereunder, for Cause. For purposes of this Agreement,
the term "Cause" shall mean (i) an action or omission of the Executive which
constitutes a willful and material breach of this Agreement which is not cured
within thirty (30) days after receipt by the Executive of written notice of
same, (ii) fraud, embezzlement, misappropriation of funds or breach of trust in
connection with his services hereunder, (iii) conviction of any crime which
involves dishonesty or a breach of trust, (iv) gross negligence in connection
with the performance of the Executive's duties hereunder, or (v) the material
and willful refusal (other than as a result of a disability) by the Executive
to perform his duties hereunder. Any termination for cause shall be made in
writing to the Executive, which notice shall set forth in detail all acts or
omissions upon which the Company is relying for such termination. The Executive
shall have the right to address the Board regarding the acts set forth in the
notice of termination. Upon any termination pursuant to this Section 5.1, the
Company shall (i) pay to the Executive his Base
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Salary to the date of termination and (ii) pay to the Executive his determined
but unpaid Incentive Compensation, if any, for any Bonus Period ending on or
before the date of the termination of Executive's employment with the Company.
The Company shall have no further liability hereunder (other than for
reimbursement for reasonable business expenses incurred prior to the date of
termination, subject, however, to the provisions of Section 4.1).
5.2 Disability. The Company shall at all times have the
right, upon written notice to the Executive, to terminate the Executive's
employment hereunder, if the Executive shall become entitled to benefits under
the disability insurance policy the Company maintains on behalf of such
executive pursuant to Subsection 4.6(c) hereof as then in effect, or, if the
Executive shall as the result of mental or physical incapacity, illness or
disability, become unable to perform his obligations hereunder for a period of
180 days in any 12-month period. The Company shall have sole discretion based
upon competent medical advice to determine whether the Executive continues to
be disabled. Upon any termination pursuant to this Section 5.2, the Company
shall (i) pay to the Executive any unpaid Base Salary through the effective
date of termination specified in such notice, (ii) pay to the Executive his
accrued but unpaid Incentive Compensation, if any, for any Bonus Period ending
on or before the date of termination of the Executive's employment with the
Company, (iii) continue to pay the Executive for a period of twelve (12) months
following the termination of the Executive's employment with the Company, an
amount equal to the excess, if any, of (A) the Base Salary he was receiving at
the time of his Disability, over (B) any benefits the Executive is entitled to
receive during such period under any disability insurance policies provided to
the Executive by the Company, such amount to be paid in the manner and at such
times as the Base Salary otherwise would have been payable to the Executive,
and (iv) continue to pay the Executive Incentive Compensation and continue to
provide the Executive with the benefits he was receiving under Section 4.2
hereof (the "Benefits") for a period of twelve (12) months following the
termination of the Executive's employment with the Company, in the manner and
at such times as the compensation or Benefits otherwise would have been payable
or provided to the Executive, provided that the amounts payable to the
Executive pursuant to the foregoing clauses (i) through (iv) shall be reduced
by the amount payable to the Executive pursuant to the disability insurance
referred to in Section 4.2 hereof. The Incentive Compensation payable under
clause (iv) of this Section 5.2 shall be equal to the amount of Incentive
Compensation payable to the Executive for the calendar year immediately
preceding the termination of Executive's employment hereunder, but in no event
less than $500,000 per annum and the Benefits shall be the Benefits provided to
the Executive for the calendar year in which the Executive's employment
hereunder terminates. Vesting of any unvested Stock Options granted to the
Executive as of the Commencement Date pursuant to Section 4.5(a) of this
Agreement shall be accelerated and become immediately vested, subject to
exercise prior to the termination of the Stock Options pursuant to Section
4.5(c) of this Agreement. The Company shall have no further liability hereunder
(other than for reimbursement for reasonable business expenses incurred prior
to the date of termination, subject, however to the provisions of Section 4.1).
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5.3 Death. In the event of the death of the Executive
during the term of his employment hereunder, the Company shall (i) pay to the
estate of the deceased Executive any unpaid Base Salary through the Executive's
date of death, (ii) pay to the estate of the deceased Executive his accrued but
unpaid Incentive Compensation, if any, for any Bonus Period ending on or before
the Executive's date of death, (iii) continue to pay to the estate of the
deceased Executive the Base Salary the Executive was receiving prior to his
death under Section 3.1 hereof for a period of twelve (12) months following the
Executive's death, in the manner and at such times as the Base Salary otherwise
would have been payable to the Executive, and (iv) continue to pay to the
estate of the deceased Executive Incentive Compensation, in the manner and at
such times as the compensation would have been payable or provided to the
Executive, provided that the amounts payable pursuant to the foregoing clauses
(iii) and (iv) shall be reduced by the amount payable pursuant to the life
insurance plans referred to in Section 4.2. The Incentive Compensation payable
under clause (iv) of this Section 5.3 shall be equal to the amount of Incentive
Compensation payable to the Executive for the calendar year immediately
preceding the Executive's death. Vesting of any unvested Stock Options granted
to the Executive as of the Commencement Date pursuant to Section 4.5(a) of this
Agreement shall be accelerated and become immediately vested, subject to
exercise prior to the termination of the Stock Options pursuant to Section
4.5(c) of this Agreement. The Company shall have no further liability hereunder
(other than for reimbursement for reasonable business expenses incurred prior
to the date of termination, subject, however to the provisions of Section 4.1).
5.4 Termination Without Cause. At any time the Company
shall have the right to terminate the Executive's employment hereunder by
written notice to the Executive. Upon any termination pursuant to this Section
5.4 (that is not a termination under any of Sections 5.1, 5.2, 5.3, or 5.5),
the Company shall (i) pay to the Executive any unpaid Base Salary through the
effective date of termination specified in such notice, (ii) pay to the
Executive the accrued but unpaid Incentive Compensation, if any, for any Bonus
Period ending on or before the date of the termination of the Executive's
employment with the Company, (iii) continue to pay the Executive's Base Salary
and Incentive Compensation through the Expiration Date, in the manner and at
such time as the Base Salary and Incentive Compensation otherwise would have
been payable to the Executive, and (iv) continue to provide the Executive with
the benefits he was receiving under Section 4.2 hereof (the "Benefits") through
the Expiration Date, in the manner and at such times as the Benefits otherwise
would have been payable or provided to the Executive. The Incentive
Compensation payable under clause (iii) of this Section 5.4 shall be equal to
the amount of Incentive Compensation payable to the Executive for the calendar
year immediately preceding the termination of Executive's employment hereunder,
and the Benefits shall be the Benefits provided to the Executive for the
calendar year in which the Executive's employment hereunder terminates. In the
event that the Company is unable to provide the Executive with any Benefits
required hereunder by reason of the termination of the Executive's employment
pursuant to this Section 5.4, then the Company shall pay the Executive cash
equal to the value of the Benefit (based upon the cost to the Executive to
obtain comparable benefits at standard rates) that otherwise would have accrued
for the Executive's benefit under the plan, for the period during which such
Benefits could not be provided under the plans, said cash payments
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to be made within 45 days after the end of the year for which such
contributions would have been made or would have accrued. The Company's good
faith determination of the amount that would have been contributed or the value
of any Benefits that would have accrued under any plan shall be binding and
conclusive on the Executive. Vesting of any unvested Stock Options granted to
the Executive as of the Commencement Date pursuant to Section 4.5(a) of this
Agreement shall be accelerated and become immediately vested, subject to
exercise prior to the termination of the Stock Options pursuant to Section
4.5(c) of this Agreement. The Company shall have no further liability hereunder
(other than for reimbursement for reasonable business expenses incurred prior
to the date of termination, subject, however, to the provisions of Section
4.1).
5.5 Termination by Executive.
(a) The Executive shall at all times have the right,
upon six (6) months written notice to the Company, to terminate his employment
hereunder.
(b) Upon any termination pursuant to this Section 5.5
by the Executive, the Company shall (i) pay to the Executive any unpaid Base
Salary through the effective date of termination specified in such notice and
(ii) pay to the Executive his accrued but unpaid Incentive Compensation, if
any, for any Bonus Period ending on or before the termination of Executive's
employment with the Company. The Company shall have no further liability
hereunder (other than for reimbursement for reasonable business expenses
incurred prior to the date of termination, subject, however, to the provisions
of Section 4.1.)
5.6 Change in Control of the Company.
(a) In the event that a Change in Control (as defined
in paragraph (b) of this Section 5.6) in the Company shall occur prior to the
Expiration Date, and within two years after the date of the Change in Control,
either (i) the Executive's employment with the Company is terminated by the
Company without Cause, as defined in Section 5.1 (and other than pursuant to
Section 5.2 by reason of the Executive's disability or Section 5.3 by reason of
the Executive's death) or (ii) the Executive terminates his employment with the
Company for Good Reason, as defined in Subsection 5.6(c) hereof, the Company
shall pay to the Executive those amounts Executive would be entitled to under
Section 5.4 hereof if his employment was terminated by the Company without
Cause. Vesting of any unvested Stock Options granted to the Executive as of the
Commencement
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Date pursuant to Section 4.5(a) of this Agreement shall be accelerated and
become immediately vested upon termination of the Executive's employment
pursuant to this Section 5.6, subject to exercise prior to the termination of
the Stock Options pursuant to Section 4.5(c) of this Agreement.
(b) For purposes of this Agreement, the term "Change in
Control" shall mean:
(i) Approval by the shareholders of the Company of
(x) a reorganization, merger, consolidation or other form of corporate
transaction or series of transactions, in each case, with respect to which
persons who were the shareholders of the Company immediately prior to such
reorganization, merger or consolidation or other transaction do not,
immediately thereafter, own more than 50% of the combined voting power entitled
to vote generally in the election of directors of the reorganized, merged or
consolidated company's then outstanding voting securities, or (y) a liquidation
or dissolution of the Company or (z) the sale of all or substantially all of
the assets of the Company (unless such reorganization, merger, consolidation or
other corporate transaction, liquidation, dissolution or sale is subsequently
abandoned); or
(ii) Individuals who, immediately following the
Financial Closing, constitute the Board (as of the date hereof the "Incumbent
Board") cease for any reason to constitute at least a majority of the Board,
provided that any person becoming a director subsequent to the date hereof
whose election, or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors then comprising the
Incumbent Board (other than an election or nomination of an individual whose
initial assumption of office is in connection with an actual or threatened
election contest relating to the election of the Directors of the Company, as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Securities Exchange Act) shall be, for purposes of this Agreement, considered
as though such person were a member of the Incumbent Board.
(c) For purposes of this Agreement, "Good Reason" shall
mean (i) the assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as contemplated
by Section 1.2 of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive; (ii) any
failure by the
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Company to comply with any of the provisions of Article 3 of this Agreement,
other than an isolated, insubstantial and inadvertent failure not occurring in
bad faith and which is remedied by the Company promptly after receipt of notice
thereof given by the Executive; (iii) the Company's requiring the Executive to
be based at any office or location more than fifty (50) miles outside of any
major metropolitan area without the Executive's prior agreement, except for
travel reasonably required in the performance of the Executive's
responsibilities; (iv) any purported termination by the Company of the
Executive's employment otherwise than for Cause pursuant to Section 5.1, or by
reason of the Executive's disability pursuant to Section 5.2 of this Agreement
prior to the Expiration Date.
5.7 Resignation. Upon any termination of employment
pursuant to this Article 5, the Executive shall be deemed to have resigned as
an officer, and if he or she was then serving as a director of the Company, as
a director, and if required by the Board, the Executive hereby agrees to
immediately execute a resignation letter to the Board.
5.8 Survival. The provisions of this Article 5 shall
survive the termination of this Agreement, as applicable.
6. Restrictive Covenants.
6.1 Non-competition. At all times while the Executive is
employed by the Company and for the lesser of (a) the two (2) year period after
the termination of the Executive's employment with the Company for any reason,
and or (b) the period of time during which the Executive is entitled to receive
any Base Salary continuation pursuant to Sections 5.2, 5.4 and 5.6 hereof, the
Executive shall not, directly or indirectly, engage in or have any interest in
any sole proprietorship, partnership, corporation or business or any other
person or entity (whether as an employee, officer, director, partner, agent,
security holder, creditor, consultant or otherwise) that directly or indirectly
(or through any affiliated entity) engages in competition with the Company;
provided that such provision shall not apply to the Executive's ownership of
Common Stock of the Company or the acquisition by the Executive, solely as an
investment, of securities of any issuer that is registered under Section 12(b)
or 12(g) of the Securities Exchange Act of 1934, as amended, and that are
listed or admitted for trading on any United States national securities
exchange or that are quoted on the National Association of Securities Dealers
Automated Quotations System, or any similar system or automated dissemination
of quotations of securities prices in common use, so long as the Executive does
not control, acquire a controlling interest in or become a member of a group
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which exercises direct or indirect control or, more than five percent of any
class of capital stock of such corporation.
6.2 Nondisclosure. The Executive shall not at any time
divulge, communicate, use to the detriment of the Company or for the benefit of
any other person or persons, or misuse in any way, any Confidential Information
(as hereinafter defined) pertaining to the business of the Company. Any
Confidential Information or data now or hereafter acquired by the Executive
with respect to the business of the Company (which shall include, but not be
limited to, information concerning the Company's financial condition,
prospects, technology, customers, suppliers, sources of leads and methods of
doing business) shall be deemed a valuable, special and unique asset of the
Company that is received by the Executive in confidence and as a fiduciary, and
Executive shall remain a fiduciary to the Company with respect to all of such
information. For purposes of this Agreement, "Confidential Information" means
information disclosed to the Executive or known by the Executive as a
consequence of or through his employment by the Company (including information
conceived, originated, discovered or developed by the Executive) prior to or
after the date hereof, and not generally known, about the Company or its
business. Notwithstanding the foregoing, nothing herein shall be deemed to
restrict the Executive from disclosing Confidential Information to the extent
required by law.
6.3 Nonsolicitation of Employees and Clients. At all
times while the Executive is employed by the Company and for the lesser of (a)
the two (2) year period after the termination of the Executive's employment
with the Company for any reason, or (b) the period of time during which the
Executive is entitled to receive salary continuation pursuant to Sections 5.2,
5.4 and 5.6 hereof, the Executive shall not, directly or indirectly, for
himself or for any other person, firm, corporation, partnership, association or
other entity (a) employ or attempt to employ or enter into any contractual
arrangement with any employee or former employee of the Company, unless such
employee or former employee has not been employed by the Company for a period
in excess of six months, and/or (b) call on or solicit any of the [actual or
targeted] prospective clients of the Company on behalf of any person or entity
in connection with any business competitive with the business of the Company,
nor shall the Executive make known the names and addresses of such clients or
any information relating in any manner to the Company's trade or business
relationships with such customers, other than in connection with the
performance of Executive's duties under this Agreement.
6.4 Books and Records. All books, records, and accounts
relating in any manner to the customers or clients of the Company, whether
prepared by the Executive or otherwise coming into the Executive's possession,
shall be the exclusive property of the Company and shall be returned
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immediately to the Company on termination of the Executive's employment
hereunder or on the Company's request at any time.
6.5 Definition of Company. Solely for purposes of this
Article 6, the term "Company" also shall include any existing or future
subsidiaries of the Company that are operating during the time periods
described herein and any other entities that directly or indirectly, through
one or more intermediaries, control, are controlled by or are under common
control with the Company during the periods described herein.
6.6 Acknowledgment by Executive. The Executive
acknowledges and confirms that (a) the restrictive covenants contained in this
Article 6 are reasonably necessary to protect the legitimate business interests
of the Company, and (b) the restrictions contained in this Article 6 (including
without limitation the length of the term of the provisions of this Article 6)
are not overbroad, overlong, or unfair and are not the result of overreaching,
duress or coercion of any kind. The Executive further acknowledges and confirms
that his full, uninhibited and faithful observance of each of the covenants
contained in this Article 6 will not cause him any undue hardship, financial or
otherwise, and that enforcement of each of the covenants contained herein will
not impair his ability to obtain employment commensurate with his abilities and
on terms fully acceptable to him or otherwise to obtain income required for the
comfortable support of him and his family and the satisfaction of the needs of
his creditors. The Executive acknowledges and confirms that his special
knowledge of the business of the Company is such as would cause the Company
serious injury or loss if he were to use such ability and knowledge to the
benefit of a competitor or were to compete with the Company in violation of the
terms of this Article 6. The Executive further acknowledges that the
restrictions contained in this Article 6 are intended to be, and shall be, for
the benefit of and shall be enforceable by, the Company's successors and
assigns.
6.7 Survival. The provisions of this Article 6 shall
survive the termination of this Agreement, as applicable.
7. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by binding
arbitration in the county in which the principal office of the Company is
located, in accordance with the Rules of the American Arbitration Association
then in effect (except to the extent that the procedures outlined below differ
from such rules). Within thirty (30) days after written notice by either party
has been given that a dispute exists and that arbitration is required, each
party must select an arbitrator and those two arbitrators shall promptly, but
in no event later than thirty (30) days after their selection, select a third
arbitrator. The
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parties agree to act as expeditiously as possible to select arbitrators and
conclude the dispute. The selected arbitrators must render their decision in
writing. In the event that either party hereto brings suit for the collection
of any judgement resulting from any binding arbitration, then the prevailing
party shall be reimbursed for all attorney's fees and related costs incurred by
the prevailing party in connection with such action. If advances are required,
each party will advance one-half of the estimated fees and expenses of the
arbitrators. Judgment may be entered on the arbitrators' award in any court
having jurisdiction.
8. Section 162(m) Limits. Notwithstanding any other provision of
this Agreement to the contrary, if and to the extent that any remuneration
payable by the Company to the Executive for any year would exceed the maximum
amount of remuneration that the Company may deduct for that year under Section
162(m) ("Section 162(m)") of the Internal Revenue Code of 1986, as amended (the
"Code"), payment of the portion of the remuneration for that year that would
not be so deductible under Section 162(m) shall, in the sole discretion of the
Board, be deferred and become payable at such time or times as the Board
determines that it first would be deductible by the Company under Section
162(m), with interest at the "short-term applicable rate" as such term is
defined in Section 1274(d) of the Code. The limitation set forth under this
Section 8 shall not apply with respect to any amounts payable to the Executive
pursuant to Article 5 hereof.
9. Assignment. Neither party shall have the right to assign or
delegate his rights or obligations hereunder, or any portion thereof, to any
other person. The Executive shall, however, be permitted to transfer by gift
his rights under any Stock Options granted by the Company as of the
Commencement Date to the Executive under Section 4.5 of this Agreement to any
family member of the Executive or to any trust, partnership or other entity of
which the Executive and/or his family are the sole beneficial owners, for
estate planning purposes.
10. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New Jersey.
11. Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and, upon its effectiveness, shall supersede all prior agreements,
understandings and arrangements, both oral and written, between the Executive
and the Company (or any of its affiliates) with respect to such subject matter.
This Agreement may not be modified in any way unless by a written instrument
signed by both the Company and the Executive.
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<PAGE> 15
12. Notices: All notices required or permitted to be given hereunder
shall be in writing and shall be personally delivered by courier, sent by
registered or certified mail, return receipt requested or sent by confirmed
facsimile transmission addressed as set forth herein. Notices personally
delivered, sent by facsimile or sent by overnight courier shall be deemed given
on the date of delivery and notices mailed in accordance with the foregoing
shall be deemed given upon the earlier of receipt by the addressee, as
evidenced by the return receipt thereof, or three (3) days after deposit in the
U.S. mail. Notice shall be sent (i) if to the Company, addressed to 1000
Parkwood Circle, 5th Floor, Atlanta, Georgia 30339, Attention: Corporate
Secretary, and (ii) if to the Executive, to his address as reflected on the
payroll records of the Company, or to such other address as either party hereto
may from time to time give notice of to the other.
13. Benefits; Binding Effect. This Agreement shall be for the
benefit of and binding upon the parties hereto and their respective heirs,
personal representatives, legal representatives, successors and, where
applicable, assigns, including, without limitation, any successor to the
Company, whether by merger, consolidation, sale of stock, sale of assets or
otherwise.
14. Severability. The invalidity of any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall not
affect the enforceability of the remaining portions of this Agreement or any
part thereof, all of which are inserted conditionally on their being valid in
law, and, in the event that any one or more of the words, phrases, sentences,
clauses or sections contained in this Agreement shall be declared invalid, this
Agreement shall be construed as if such invalid word or words, phrase or
phrases, sentence or sentences, clause or clauses, or section or sections had
not been inserted. If such invalidity is caused by length of time or size of
area, or both, the otherwise invalid provision will be considered to be reduced
to a period or area which would cure such invalidity.
15. Waivers. The waiver by either party hereto of a breach or
violation of any term or provision of this Agreement shall not operate nor be
construed as a waiver of any subsequent breach or violation.
16. Section Headings. The section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
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17. No Third Party Beneficiary. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person
other than, the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and assigns, any rights or
remedies under or by reason of this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement
as of the date first above written.
COMPANY:
MEGO MORTGAGE CORPORATION
By: /s/ Jeffrey S. Moore
---------------------------------------
Name: Jeffrey S. Moore
Title: President and Chief Executive
Officer
EXECUTIVE:
/s/ Edward B. "Champ" Meyercord
-------------------------------------------
EDWARD B. "CHAMP" MEYERCORD
46 Ox Bow Lane
Summit, New Jersey 07901
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