<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): JULY 1, 1998
-------------------------------
MEGO MORTGAGE CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation)
0-21689 88-0286042
- ------------------------ ---------------------------------
(Commission File Number) (IRS Employer Identification No.)
MEGO MORTGAGE CORPORATION
1000 PARKWOOD CIRCLE, SUITE 500
ATLANTA, GEORGIA 30339
- --------------------------------------------------------------------------------
(Address of principal executive offices, including Zip Code)
Registrant's telephone number, including area code: (770) 952-6700
-----------------------------
<PAGE> 2
ITEM 1. CHANGES IN CONTROL OF THE REGISTRANT
On July 1, 1998, Mego Mortgage Corporation, a Delaware corporation (the
"Company"), completed a series of transactions intended to recapitalize the
Company (the "Recapitalization"), pursuant to which the Company generated
approximately $87.5 million of new equity and which resulted in a change in
control of the Company. Pursuant to the Recapitalization, the Company
consummated (i) a private offering of 16,666,667 shares of common stock, par
value $.01 per share (the "Common Stock"), of the Company for an aggregate
purchase price of $25.0 million ($1.50 per share) and (ii) a private offering of
an aggregate of 25,000 shares of new Series A Convertible Preferred Stock, par
value $.01 per share (the "Series A Preferred Stock"), for an aggregate purchase
price of $25.0 million (collectively, the "Offerings"). Each share of Series A
Preferred Stock is convertible into 666.67 shares of Common Stock 180 days from
the date of issuance. In addition, the shares of Series A Preferred Stock are
mandatorily convertible into Common Stock on the second anniversary of the date
of issuance. As part of the Recapitalization the Company also completed its
offer to exchange (the "Exchange Offer") new 12 1/2% Subordinated Notes due 2001
(the "New Notes") and shares of Series A Preferred Stock or a combination
thereof, subject to certain limitations, for any and all of the $80.0 million
aggregate principal amount of outstanding 12 1/2% Senior Subordinated Notes due
2001 (the "Old Notes") of the Company, pursuant to which the Company issued an
aggregate of $41.5 million of New Notes and 37,513 shares of Series A Preferred
Stock. Approximately $992,000 of Old Notes remain outstanding. As part of the
Exchange Offer, holders of New Notes collectively were granted the right to
appoint one member to the Company's Board of Directors. The proceeds generated
from the Recapitalization have been or will be used to repay indebtedness,
provide capital to originate loans and for general corporate purposes, including
the payment of interest with respect to the Old Notes. The securities issued
pursuant to the Offerings and the Exchange Offer were not registered under the
Securities Act of 1933, as amended (the "Securities Act").
Of the shares of Series A Preferred Stock sold in the Offerings, 10,000
shares were purchased by each of City National Bank of West Virginia ("City
National"), a subsidiary of City Holding Company, and Sovereign Bancorp, Inc.
("Sovereign"). In connection with their purchase of Series A Preferred Stock,
the Company granted each of City National and Sovereign (i) an option (the
"Option") to acquire approximately 6.7 million shares of Common Stock at $1.50
per share, which Option is exercisable until 180 days after the second
anniversary of the consummation of the Recapitalization, (ii) the right to
designate one member to the Company's Board of Directors (which will be
increased to two directors if the Option is exercised) and (iii) a
2
<PAGE> 3
right of first refusal to purchase the Company in the event the Board of
Directors determines to sell the Company. City National has exercised its right
to appoint a director to the Company's Board of Directors. Although, to date,
Sovereign has not exercised its right to appoint a member to the Board of
Directors, it has requested that a representative attend each meeting of the
Board.
In connection with the Recapitalization, Edward B. "Champ" Meyercord was
elected as the Company's Chairman of the Board and Chief Executive Officer. Mr.
Meyercord has been a special consultant to the Company since May 1998.
Additionally, Jerome Cohen, Don Mayerson, Robert Nederlander and Herbert Hirsch,
directors of the Company, resigned effective upon consummation of the
Recapitalization. Mr. Meyercord and the Company's then remaining directors
appointed David J. Vida, Jr., Hubert M. Stiles, Jr. and Wm. Paul Ralser as
directors in order to fill the vacancies existing on the Board of Directors
following the consummation of the Recapitalization.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired
Not Applicable
(b) Pro Forma Financial Information
Not Applicable
(c) Exhibits
99.1 Press Release of the Company dated July 6, 1998.
3
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MEGO MORTGAGE CORPORATION
Dated: July 14, 1998 By: /s/ James L. Belter
-------------------------------------
James L. Belter
Executive Vice President and Chief
Financial Officer
<PAGE> 5
EXHIBIT INDEX
99.1 Press release of the Company dated July 6, 1998.
<PAGE> 1
EXHIBIT 99.1
NEWS BULLETIN RE:
FROM: Mego Mortgage
FRB 100 Parkwood Circle
5th Floor
Atlanta, GA 30339
The Financial Relations Board Inc.
FOR FURTHER INFORMATION:
<TABLE>
<S> <C>
AT THE COMPANY AT THE FINANCIAL RELATIONS BOARD
-------------- --------------------------------
Champ Meyercord, Chief Executive Gen'l Info: Paula Schwartz/Mike Lawson (212) 661-8030
Officer and Chairman Analyst Info: Cecilia Heer/Regina Lenihan (212) 661-8030
Jeff S. Moore, President Media Info: Alicia Nieva-Woodgate (212) 661-8030
(800) 550-6346
</TABLE>
FOR IMMEDIATE RELEASE
July 6, 1998
MEGO MORTGAGE CORPORATION ANNOUNCES
SUCCESSFUL FINANCIAL RECAPITALIZATION
COMPANY PROVIDES PREVIEW OF THIRD QUARTER RESULTS
ATLANTA, GEORGIA...JULY 6, 1998 - Mego Mortgage Corporation (Nasdaq:MMGC) today
announced that it has completed its recapitalization (the "Recapitalization")
generating $87.5 million of new equity through various components. Pursuant to
the Recapitalization, two strategic partners, City National Bank of West
Virginia, a subsidiary of City Holding Company (Nasdaq:CHCO) and Sovereign
Bancorp, Inc. (Nasdaq/NMS:SVRN), each acquired $10.0 million of the Company's
Series A Convertible Preferred Stock (the "Preferred Stock"). Each of these
entities has also been granted an option, exercisable for 2 1/2 years, to
acquire an additional $10 million of the Common Stock at $1.50 per share.
Another strategic investor acquired $5.0 million of Preferred Stock. In
addition, other private investors acquired an aggregate of $25.0 million of the
Company's Common Stock at a purchase price of $1.50 per share. All of the
forgoing issuances were made pursuant to private placement transactions.
Concurrent with the sale of $50.0 million of Common and Preferred Stock, the
Company completed its previously announced Exchange Offer for any and all of
the outstanding $80.0 million principal amount of the Company's 12 1/2% Senior
Subordinated Notes due 2001 (the "Old Notes"). Pursuant to the Exchange Offer,
the Company issued approximately $37.5 million in Preferred Stock and $41.5
million in new 12 1/2% Subordinated Notes due 2001 in exchange for
approximately $79.0 million of the Old Notes. Less than $1.0 million of the
Old Notes remain outstanding.
<PAGE> 2
Mego Mortgage Announces Successful Recapitalization
Page 2
The Securities issued pursuant to the private placement and the Exchange Offer
have not been registered under the Securities Act of 1933 and may not be
offered or sold in the United States absent registration or an applicable
exemption from such registration.
CHAMP MEYERCORD ELECTED CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD
In connection with the Recapitalization, Champ Meyercord, 57, was elected Mego
Mortgage's Chairman of the Board and Chief Executive Officer. Mr. Meyercord
has been a special consultant to the Company since May 1998. For more than
four years prior to joining Mego Mortgage, Mr. Meyercord was a Senior
Investment Banker with Greenwich Capital Markets, Inc., most recently as
co-head of the Mortgage and Asset Backed Finance Group. Mr. Meyercord is
joined on the new Mego Mortgage Board 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 of West Virginia; Hubert M. Stiles,
Jr., Vice 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, California; and Spencer I. Browne, a Special Consultant
to the Company who was first elected to the Board in November 1996.
Mr. Meyercord commented, "Today marks the beginning of a new era at Mego
Mortgage Corporation. Aside from generating new equity, the Company has
arranged a significant warehouse commitment, providing the Company with the
ability to fund its anticipated loan production, and has also arranged a
forward purchase commitment for a minimum of $400 million of its loans per year
for three years. With our substantial capital and liquidity, and the
leadership of our talented management team, the Company will be able to pursue
its direct lending strategy and offer a competitive alternative to loan sources
in the B/C and 125 sector. We also believe that as a result of the
Recapitalization, the Company will be able to pursue its plan to acquire "low
cost" retail origination platforms."
ANTICIPATED THIRD QUARTER LOSS
The Company announced that it anticipates reporting an operating loss of
approximately $55 million for the three month period ended May 31, 1998. This
loss will result from a number of factors including: losses from the
disposition and reacquisition of loans in the third quarter; additional
reserves taken against the Company's remaining inventory of loans held for
sale; writedowns of capitalized fees and expenses pursuant to the
Recapitalization; interest on the Company's Old Notes; and general and
administrative expenses. A component of these losses will also result from
writedowns in the carrying value of its mortgage related securities. Changes
in the methodology used in valuing the Company's mortgage related securities
are being implemented based on information received from a number of market
sources and management's belief as to current market conditions, and do not
reflect the performance to date of the respective mortgage loan portfolios.
Allowing for the writedowns and losses previously described, the Company
anticipates that it will have a net worth of approximately $60 million, a
substantial cash position and be in full compliance with all financial
covenants contained in its various loan agreements.
<PAGE> 3
Exhibit 99.1
Mego Mortgage Announces Successful Recapitalization
Page 3
Mego Mortgage is a specialty finance company that originates, purchases,
services, sells and securitizes primarily home improvement, home equity, and
debt consolidation loans collateralized by liens on the borrower's home. The
Company is based in Atlanta, Georgia and originates its loans nationwide
through diversified origination channels.
# # #
This press release contains "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties or other factors
which may cause actual results, performance, or achievements of the Company to
be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. For more complete
information concerning factors which could affect the Company's results,
reference is made to the Company's periodic reports on Forms 8K, 10K and 10Q as
well as other documents filed with the Securities and Exchange Commission.
