UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. ___)*
MEGO Mortgage Corporation
(Name of Issuer)
Common Stock ($.01 Par Value)
(Title of Class of Securities)
585165103
(CUSIP Number)
Clinton W. Kemp, Esquire, Stevens & Lee, One Penn Square,
Lancaster, Pennsylvania 17608 (717-291-1031)
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications)
June 29, 1998
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on
Schedule 13G to report the acquisition which is the subject of
this Schedule 13D, and is filing this schedule because of
Sections 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the
following box [ ].
Note: Schedules filed in paper format shall include a signed
original and five copies of the schedule including all exhibits.
See Section 240.13d-7(b) for other parties to whom copies are to
be sent.
*The remainder of this cover page shall be filled out for a
reporting person's initial filing on this form with respect to
the subject class of securities, and for any subsequent amendment
containing information which would alter disclosures provided in
a prior cover page.
The information required on the remainder of this cover page
shall not be deemed to be "filed" for the purpose of Section 18
of the Securities Exchange Act of 1934 ("Act") or otherwise
subject to the liabilities of that section of the Act but shall
be subject to all other provisions of the Act (however, see the
Notes).
PAGE 1
<PAGE>
SCHEDULE 13D
CUSIP NO. 585165103
1. Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person
Sovereign Bancorp, Inc.
IRS Identification No.: 23-2453088
2. Check the appropriate box if a member of a group (a) [ ]
(b) [ ]
3. SEC use only
4. Source of Funds
BK AF WC
5. Check box if disclosure of legal proceedings is required
pursuant to Items 2(d) or 2(e) [ ]
6. Citizenship or place of organization
Commonwealth of Pennsylvania
Number of Shares Beneficially Owned by Each Reporting Person With
7. Sole Voting Power
6,666,667*
8. Shared Voting Power
9. Sole Dispositive Power
6,666,667*
10. Shared Dispositive Power
11. Aggregate amount beneficially owned by each reporting person
6,666,667*
12. Check box if the aggregate amount in row (11) excludes
certain shares [ ]
13. Percent of class represented by amount in row (11)
15.6%**
14. Type of reporting person
HC CO
______________
* Does not include 6,666,667 sharers of MEGO Common Stock
issuable upon conversion of 10,000 shares of Series A
Convertible Preferred Stock because such right of conversion
is not exercisable until December 15, 1998. Sovereign
Bancorp, Inc. is not deemed to be the beneficial owner of
these underlying shares of MEGO Common Stock under
Rule 13d-3 until 60 days before such date. <PAGE 1>
** After giving pro forma effect to: (i) the exercise of the
Option (as defined in "Background of Transaction" under
Item 2 herein), (ii) the conversion of 62,513 shares of
outstanding Series A Convertible Preferred Stock, and
(iii) the exercise of an option to acquire 6,666,667 shares
of MEGO Common Stock held by a third party, which option is
substantially similar to the Option.
PAGE 2
<PAGE>
SCHEDULE 13D
ITEM 1. Security and Issuer.
This Schedule 13D relates to shares of common stock,
$0.01 par value, of MEGO Mortgage Corporation (the "MEGO Common
Stock"), a business corporation incorporated under the laws of
the State of Delaware ("MEGO"). The principal executive offices
of MEGO are located at 1000 Parkwood Circle, 5th Floor, Atlanta,
Georgia.
ITEM 2. Identity and Background.
(a), (b), and (c). This Schedule 13D is filed by
Sovereign Bancorp, Inc. ("Sovereign"), a business corporation
incorporated under the laws of the Commonwealth of Pennsylvania.
Sovereign is a holding company that owns all of the outstanding
capital stock of Sovereign Bank, a Federal Savings Bank
("Sovereign Bank"). Sovereign's and Sovereign Bank's principal
executive offices are located at 1130 Berkshire Boulevard,
Wyomissing, Pennsylvania 19610.
The name, business address and present principal
occupation or employment (including the name, principal business
and address of any corporation or other organization in which
such employment is conducted) of each director and controlling
person of Sovereign are as follows:
<TABLE>
<CAPTION>
Present Principal
Name Business Address Occupation or Employment
<S> <C> <C>
Richard E. Mohn 1600 Comet Drive Chairman of the Board of
Lancaster, PA 17601 Sovereign Bank,
Chairman of Sovereign
Bank and Chairman of
Cloister Spring Water
Company
1600 Comet Drive
Lancaster, PA 17601
Rhoda S. Oberholtzer 807 Lititz Pike Retired Owner
P.O. Box 325 Stouffers of Kissel
Lititz, PA 17543 Hill
(Grocery store chain)
807 Lititz Pike
Lititz, PA 17543
<PAGE 3>
Patrick J. Petrone 430 Route 10 Retired President of
Randolph, NJ 07864 Charter Federal
Savings Bank
division of
Sovereign Bank
430 Route 10
Randolph, NJ 07864
Daniel K. Rothermel c/o Cumru Associates President and Chief
P. O. Box 6573 Executive Officer
Wyomissing, PA 19610 Cumru Associates, Inc.
P.O. Box 6573
Wyomissing, PA 19610
G. Arthur Weaver c/o George A. Weaver Real estate and
Company insurance executive
116 East Main Street George A. Weaver
New Holland, PA 17557 Company
116 East Main Street
New Holland, PA 17557
Jay S. Sidhu 1130 Berkshire Blvd. President and Chief
Wyomissing, PA 19610 Executive Officer
Sovereign
President and Chief
Executive Officer
Sovereign Bank
Cameron C. Troilo, P.O. Box 291 Owner and President of
Sr. Yardley, PA 19067 Cameron C. Troilo,
Inc.
(construction and real
estate business)
P.O. Box 291
Yardley, PA 19067
Lawrence M. 1130 Berkshire Blvd. Chief Administrative
Thompson, Jr. Wyomissing, PA 19610 Officer and Secretary
of Sovereign
Chief Operating Officer
of Sovereign Bank
Dennis S. Marlo 1130 Berkshire Blvd. Chief Financial Officer
Wyomissing, PA 19610 and Treasurer of
Sovereign
Chief Financial Officer
and Divisional President
of Sovereign Bank
</TABLE>
(d) and (e). Neither Sovereign nor any person
identified in Item 2(a), (b) and (c) hereof has ever been
convicted in a criminal proceeding (excluding traffic violations
or similar misdemeanors) or has been a party to any civil
<PAGE 4> proceeding of any judicial or administrative body which
resulted in a judgment, decree or final order against such person
enjoining him against future violations of, or prohibiting or
mandating activities subject to, federal or state securities laws
or finding any violation with respect to such laws.
(f). Each natural person identified in Item 2(a), (b)
and (c) is a citizen of the United States of America.
Background of Transaction
This filling relates to 6,666,667 shares of MEGO Common
Stock issuable to Sovereign upon exercise of the stock option
described below.
Sovereign and MEGO entered into a Preferred Stock
Purchase Agreement dated June 9, 1998 (the "Stock Purchase
Agreement"), under the terms of which, among other things, at the
closing of the Stock Purchase Agreement:
(i) Sovereign agreed to purchase at a price of $1,000
per share (representing an aggregate consideration
of $10,000,000) 10,000 shares of MEGO Series A
Convertible Preferred Stock (the "MEGO Convertible
Preferred Stock") which shares are convertible
into 6,666,667 shares of MEGO Common Stock at a
price of $1.50 per share, subject to certain
adjustments;
(ii) MEGO agreed to grant to Sovereign an option to
acquire 6,666,667 shares of MEGO Common Stock (the
"Option") pursuant to a Stock Option Agreement
(the "Stock Option Agreement"), which shares are
covered by this Schedule 13D.;
(iii) MEGO agreed to enter into a Registration Rights
Agreement with Sovereign (the "Registration Rights
Agreement");
(iv) MEGO agreed to enter into a Co-Sale Agreement with
Sovereign, City National Bank of West Virginia
("City National"), Emmanuel J. Friedman
("Friedman") and Friedman, Billings & Ramsey Co.,
Inc. ("FBR") (the "Co-Sale Agreement"); and
(v) MEGO agreed to enter into a Right of First Refusal
Agreement with Sovereign and City National (the
"Right of First Refusal Agreement").
The transactions described above were part of a
recapitalization (the "Recapitalization") under which MEGO
conducted: (i) a private offering of 16,666,667 shares of MEGO
Common Stock, and (ii) an exchange offer under which holders of
$80,000,000 in principal amount of certain MEGO senior
subordinated notes were offered an opportunity to exchange such
<PAGE 5> notes for new senior subordinated notes or shares of
Convertible Preferred Stock. The Recapitalization (including
consummation of the Stock Purchase Agreement) was closed on
June 29, 1998 (the "Closing").
The Stock Purchase Agreement also granted to Sovereign
the right at closing or at any time thereafter to designate one
person to be appointed to MEGO's Board of Directors, with the
right to designate one additional member promptly following the
acquisition by Sovereign (by exercise of the Option or otherwise)
of such number of shares of MEGO Common Stock such that following
such acquisition Sovereign would own in the aggregate fifteen
percent (15%) or more of the then outstanding shares of MEGO
Common Stock. MEGO also agreed to use its best efforts
thereafter to cause Sovereign's designee (or designees) to be
elected to MEGO's Board of Directors at each meeting of the MEGO
shareholders at which directors are to be elected. Sovereign's
designees (or one of such designees) is also required to be
elected to any executive or similar committee of MEGO's Board of
Directors. As of the date hereof, Sovereign has not designated
any person to be elected to MEGO's Board of Directors, but may
elect to do so in the future.
At the Closing, Sovereign received a letter agreement
from FBR under the terms of which FBR agreed to vote its shares
of MEGO Common Stock in favor of Sovereign's designee (or
designees) for election to MEGO's Board of Directors. A copy of
the FBR letter agreement is filed as an exhibit hereto.
The terms of the MEGO Convertible Preferred Stock are
as set forth in the Certificate of Designations, Preferences and
Rights of Series A Convertible Preferred Stock of MEGO, a copy of
which is filed as an exhibit hereto. Shares of MEGO Convertible
Preferred Stock are not entitled to vote (except as may be
required by applicable law) and are convertible at the option of
the holder at any time on or after December 15, 1998 (and will
convert automatically on June 18, 2000) into shares of MEGO
Common Stock. Specifically, each share of MEGO Convertible
Preferred Stock is convertible into such number of shares of MEGO
Common Stock as is equal to $1,000 divided by $1.50, subject to
certain adjustments. Thus, the 10,000 shares of MEGO Convertible
Preferred Stock owned by Sovereign are (subject to certain
adjustments) convertible into a total of 6,666,667 shares of MEGO
Common Stock at Sovereign's option at any time on or after
December 15, 1998 and will automatically be converted into such
number of shares on June 18, 2000 if not previously converted.
The terms of the Option are as set forth in the Stock
Option Agreement, a copy of which is filed as an exhibit hereto.
The Option is exercisable at any time, in whole or in part,
through December 15, 2000 and entitles Sovereign to acquire
6,666,667 shares of MEGO Common Stock at a price of $1.50 per
share, subject to certain adjustments.
<PAGE 6>
Shares of MEGO Common Stock acquired by Sovereign
pursuant to the exercise of the Option and pursuant to conversion
of the MEGO Convertible Preferred Stock are subject to
registration rights as set forth in the Registration Rights
Agreement, a copy of which is filed as an exhibit hereto. Under
the Registration Rights Agreement, MEGO is obligated to file a
registration statement on or before September 16, 1998 and to use
its reasonable efforts to maintain its effectiveness continuously
for a period of two years.
Under the terms of the Co-Sale Agreement (a copy of
which is filed as an exhibit hereto), FBR and Friedman have
agreed: (i) to grant to Sovereign and City National an
opportunity to participate in any subsequent sale by them (or
either of them) of shares of MEGO Common Stock, and (ii) to grant
to Sovereign and City National a right of first refusal to
purchase such shares prior to any such sale.
Under the terms of the Right of First Refusal Agreement
(a copy of which is filed as an exhibit hereto), MEGO has granted
to Sovereign and City National a right of first refusal under
which Sovereign and City National are granted the right to
negotiate with MEGO before MEGO is permitted to enter into an
acquisition agreement with another person or entity.
The description of the foregoing agreements does not
purport to be complete and each such description is qualified in
its entirety by the text of the agreement, each of which is filed
as an exhibit hereto.
At the Closing, Sovereign and MEGO also entered into a
Participation Agreement, under the terms of which Sovereign Bank
agreed to purchase from MEGO 100% participation interests in
mortgage loans, up to a maximum of $90 million, subject to
certain conditions. The initial term of the Participation
Agreement is six months and may be renewed at the option of
Sovereign Bank for up to nine additional terms of six months
each. Sovereign Bank may exercise its right of renewal at the
end of each six month term, whether or not it elects to exercise
its renewal option for the prior six month term.
At the Closing, Sovereign and MEGO also entered into a
Flow Loan Purchase Agreement, under the terms of which Sovereign
Bank is obligated annually to purchase up to $400 million of
mortgage loans originated by MEGO beginning on December 31, 1998
and for at least the next three years, subject to certain
conditions. Approximately one-half of the loans to be purchased
by Sovereign Bank will have loan-to-value ratios of up to 100%
and approximately one-half will have loan-to-value ratios between
100% and 125%.
<PAGE 7>
ITEM 3. Source and Amount of Funds or Other Consideration.
The source of funds to be used by Sovereign in making a
purchase of shares of MEGO Common Stock, upon exercise of the
Option (defined in Item 4 hereof) to which this Schedule 13D
relates, if and to the extent the Option is exercised, will be
either cash on hand at Sovereign, dividends from Sovereign Bank,
and/or nonbank subsidiaries of Sovereign, a loan from an
unaffiliated bank or other financial service company or other
borrowings, or the net proceeds of a private placement or public
offering of debt or equity securities. Sovereign has not made,
as of the date hereof, any definitive plans or arrangements
regarding the source of such funds.
Assuming that the number of shares of MEGO Common Stock
issuable upon exercise of the Option is not changed as a result
of the operation of the adjustment provisions of the Option, the
exercise of the Option in full, at an exercise price of $1.50 per
share, will result in the purchase of 6,666,667 shares for an
aggregate purchase price of $10,000,000.
ITEM 4. Purpose of Transaction.
The Option and the shares of MEGO Convertible Preferred
Stock are held by Sovereign for investment purposes. Sovereign
does not have any present plan or intention to acquire additional
securities of MEGO, other than the possible acquisition of shares
of MEGO Common Stock through the exercise of the Option or the
conversion of the shares of MEGO Convertible Preferred Stock, nor
does it have any present intention to advocate a material change
in MEGO's present capitalization or dividend policy, a material
change in MEGO's business or corporate structure, or any change
to MEGO's charter or bylaws or any similar actions. However,
Sovereign may in the future decide to sell its investment in
MEGO, or to acquire additional shares of MEGO Common Stock
pursuant to the Right of First Refusal Agreement or otherwise, or
to seek more actively to influence the management of MEGO and
MEGO's business policies and strategic objectives.
ITEM 5. Interest in Securities of the Issuer.
(a) Based upon information provided to Sovereign by
MEGO, there were 30,666,667 shares of MEGO Common Stock
outstanding on June 29, 1998 (exclusive of shares issuable upon
exercise of the Option). Sovereign is deemed to be the
beneficial owner, in the aggregate, of 6,666,667 shares of MEGO
Common Stock, all of which, though presently unissued, are
issuable in accordance with the terms and conditions of the
Option. These 6,666,667 shares would represent approximately
17.9% of the shares of MEGO Common Stock outstanding upon
issuance, assuming that no other shares are issued by MEGO,
including: (i) 6,666,667 shares issuable upon exercise of an
outstanding option held by City National, which option is
substantially similar to the Option, and (ii) 41,675,542 shares
issuable upon the conversion of 62,513 shares of outstanding MEGO
<PAGE 8> Convertible Preferred Stock. No person identified in
Item 2(a), (b) or (c) hereof is the beneficial owner of any
shares of MEGO Common Stock.
(b) Sovereign will have sole power to vote or to
direct the voting and sole power to dispose or to direct the
disposition of any shares of MEGO Common Stock that Sovereign may
acquire upon exercise of the Option.
(c) There were no transactions in MEGO Common Stock
effected by Sovereign or by any person identified in Item 2(a),
(b) or (c) hereof during the 60 days preceding the date of this
Schedule 13D.
CTW No person other than Sovereign has the right to
receive or the power to direct the receipt of dividends from, or
the proceeds from the sale of, any shares of MEGO Common Stock
that may be deemed beneficially owned by Sovereign on account of
this Option.
(e) Not applicable.
ITEM 6. Contracts, Arrangements, Understandings or Relationships
with Respect to Securities of the Issuer.
Except as described above, neither Sovereign nor any
person identified in Item 2(a), (b) or (c) hereof is a party to
any contract, arrangement, understanding or relationship (legal
or otherwise) with any person with respect to any securities of
MEGO, including, but not limited to, transfer or voting of any of
the securities, finder's fees, joint ventures, loan or option
arrangements, puts or calls, guarantees of profits, division of
profits or loss, or the giving or withholding of proxies.
ITEM 7. Material to be Filed as Exhibits.
7.1 Preferred Stock Purchase Agreement, dated June 9,
1998, between MEGO and Sovereign.
7.2 Certificate of Designations, Preferences and
Rights of Series A Convertible Preferred Stock of MEGO.
7.3 Stock Option Agreement, dated June 29, 1998,
between MEGO and Sovereign.
7.4 Registration Rights Agreement dated June 29, 1998
between MEGO and Sovereign.
7.5 Letter Agreement of FBR dated June 29, 1998, re:
Voting by FBR of shares of MEGO Common Stock.
7.6 Co-Sale Agreement, dated June 29, 1998, between
and among MEGO, Sovereign, City National, Friedman and FBR.
<PAGE 9>
7.7 Right of First Refusal Agreement, dated June 29,
1998, between and among MEGO, Sovereign and City National.
PAGE 10
<PAGE>
Signature
After reasonable inquiry and to the best of my
knowledge and belief, I certify that the information set forth in
this statement is true, complete and correct.
September 24, 1998 SOVEREIGN BANCORP, INC.
By:/s/ Mark R. McCollom
Mark R. McCollom,
Chief Accounting Officer
PAGE 11
<PAGE>
Exhibit 7.1
MEGO MORTGAGE CORPORATION
AND
SOVEREIGN BANCORP, INC.
PREFERRED STOCK
PURCHASE AGREEMENT
June 9, 1998
PAGE 12
<PAGE>
Table of Contents
Page
Section 1. Definitions..................................... 2
Section 2. Agreement to Sell and Purchase the Securities... 3
Section 3. Option Shares................................... 3
Section 4. Issuance of the Certificates Representing the
Securities...................................... 4
Section 5. Representations, Warranties and Covenants of
the Company..................................... 5
5.1. Organization and Qualification.................. 5
5.2. Authorized Capital Stock........................ 6
5.3. Due Execution, Delivery and Performance......... 7
5.4. Offering Memorandum and Additional Information.. 9
5.5. Legal Proceedings............................... 9
5.6. No Material Adverse Change...................... 10
5.7. Law and Regulation.............................. 11
5.8. Accounting Matters.............................. 11
5.9. Compliance with Securities Laws................. 13
5.10. Intangibles..................................... 13
5.11. Title........................................... 14
5.12. Contracts....................................... 14
5.13. No Violation.................................... 15
5.14. Transactions with Affiliates.................... 15
5.15. No Manipulation................................. 15
5.16. Taxes........................................... 16
5.17. Investment Company Act of 1940.................. 16
5.18. Use of Proceeds................................. 16
5.19. Board of Directors.............................. 16
5.20. Certificates.................................... 18
5.21. Rolly White..................................... 18
5.22. Mortgage-Related Asset Revaluation.............. 18
5.23. Other Transactions.............................. 19
5.24. Best Efforts.................................... 19
5.25. Due Diligence................................... 19
5.26. Waiver of Certain Claims........................ 19
Section 6. Representations, Warranties and Covenants of
Purchaser..................................... 20
6.1. Compliance with United States Securities Laws... 21
6.2. Status of Purchaser............................. 21
6.3. Restrictions on Re-Sale......................... 22
6.4. Due Execution, Delivery and Performance of the
Purchase Agreement and Other Obligations........ 23
6.5. Representations, Warranties and Covenants at
Closing......................................... 24
Section 7. Survival of Representations, Warranties,
Covenants and Agreements........................ 24
<PAGE 1>
Section 8. Conditions to Closing........................... 24
8.1. Exchange Offer.................................. 25
8.2. Additional Equity............................... 25
8.3. Purchaser Board Approval........................ 25
8.4. Waiver of Change of Control Payments............ 25
8.5. Servicing Purchase Agreements................... 25
8.6. Registration Rights Agreement................... 26
8.7. Opinion of Greenberg Traurig.................... 26
8.8. Comfort Letter.................................. 34
8.9. Offering Memorandum............................. 34
8.10. Other Transactions.............................. 34
8.11. No Material Adverse Effect...................... 34
8.12. Certificates.................................... 34
8.13. Regulatory Matters.............................. 35
8.14. Consents........................................ 35
8.15. Related Party Indebtedness...................... 36
8.16. Documents....................................... 36
8.17. Additional Matters Relating to Option Shares.... 36
8.18. Additional Conditions........................... 36
(a) Servicing Purchase Agreements.............. 36
(b) Certificate of Designation................. 36
(c) Letter from FBR............................ 37
(d) Warehouse Line Agreement................... 37
(e) Flow Loan Purchase Agreement............... 37
(f) Right of First Refusal..................... 37
(g) Amendment of Placement Agreement........... 38
(h) Agreements with FBR and Emanuel J.
Friedman................................... 38
(i) Employment and Non-Competition Agreements.. 38
(j) Option Agreement........................... 38
Section 9. Conditions to Closing........................... 39
Section 10. Compliance with the Securities Act.............. 39
10.1. Information Available........................... 39
10.2. Legend Requirement.............................. 39
Section 11. Broker's Fee.................................... 40
Section 12. Notices......................................... 41
Section 13. Amendments...................................... 42
Section 14. Headings........................................ 42
Section 15. Enforcement..................................... 42
Section 16. Governing Law................................... 43
Section 17. Severability.................................... 43
Section 18. Counterparts.................................... 44
<PAGE 2>
Section 19. Assignment...................................... 44
EXHIBITS
EXHIBIT A - TERMS OF REGISTRATION RIGHTS AGREEMENT.......... 46
EXHIBIT B - TERMS OF SERIES A PREFERRED STOCK............... 47
EXHIBIT C - TERMS OF BULK SERVICING PURCHASE AGREEMENT...... 48
EXHIBIT D - TERMS OF FLOW SERVICING PURCHASE AGREEMENT...... 49
EXHIBIT E - JURISDICTIONS OF FOREIGN QUALIFICATION.......... 52
EXHIBIT F - OTHER TRANSACTIONS.............................. 53
EXHIBIT G - FBR LETTER RE: VOTING OF SHARES ............... 54
EXHIBIT H - TERMS OF WAREHOUSE LINE AGREEMENT............... 55
EXHIBIT I - TERMS OF FLOW LOAN PURCHASE AGREEMENT........... 61
EXHIBIT J - TERMS OF RIGHT OF FIRST REFUSAL AGREEMENT....... 62
EXHIBIT K - LIST OF EMPLOYEES REQUIRED TO ENTER INTO
EMPLOYMENT AGREEMENTS........................... 65
PAGE 3
<PAGE>
MEGO MORTGAGE CORPORATION
PREFERRED STOCK
PURCHASE AGREEMENT
This Preferred Stock Purchase Agreement is made as of
June 9, 1998, by and between Sovereign Bancorp, Inc., a
Pennsylvania corporation, with its principal offices at
1130 Berkshire Boulevard, P.O. Box 12646, Reading, Pennsylvania
19612 (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,
<PAGE 1> 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;
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 10,000 shares of
Series A Preferred Stock having an aggregate liquidation amount
of $10,000,000 for a purchase price of $1,000 per share, or
$10,000,000 in aggregate;
WHEREAS, the Company wishes to grant to Purchaser an
option to purchase up to 6,666,667 shares of Common Stock at a
purchase price of $1.50 per share on the terms and conditions set
forth herein;
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 draft of the Company's Offering Memorandum, dated June 9,
1998 attached hereto as Attachment 1 (the "Offering Memorandum").
Section 2. Agreement to Sell and Purchase the
Securities. Subject to the terms and conditions of this Purchase
<PAGE 2> 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 10,000 shares (the "Initial Shares")
of Series A Preferred Stock having an aggregate liquidation
amount of $10,000,000 for a purchase price of $1,000 per share,
or $10,000,000 in the aggregate (the "Purchase Price"). The
terms of the Series A Preferred Stock will be as set forth on
Exhibit B hereto. 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
and Common Stock purchased) with certain 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. Option Shares. In addition, upon the
basis of the warranties and representations and other terms and
conditions herein set forth, the Company will at the Closing
grant an option (the "Option") to the Purchaser to purchase from
the Company up to 6,666,667 additional shares of Common Stock at
<PAGE 3> a purchase price of $1.50 per share (the "Option
Shares"), which option will be evidenced by an Option Agreement
(the "Option Agreement") which shall be delivered by the Company
to Purchaser at the Closing and which shall include antidilution
provisions in form and substance satisfactory to Purchaser. The
Option will expire 180 days after the second anniversary of the
Closing Date and may be exercised in whole or in part at any time
and from time to time upon written notice by the Purchaser to the
Company setting forth the number of Option Shares as to which the
Purchaser is then exercising the Option and the time and date of
payment and delivery for such Option Shares. Any such time and
date of delivery (a "Date of Delivery") shall be determined by
Purchaser, but shall not be later than five full business days
(nor earlier, without the consent of the Company, than three full
business days) after the exercise of said option (and the
delivery of such notice, such delivery date being referred to as
the "Notice Date"). Each closing at which the documents relating
to the purchase of Option Shares are exchanged is referred to as
an "Option Closing." The Initial Shares and the Option Shares
are referred to as the "Shares."
Section 4. Issuance of the Certificates
Representing the Securities. At the Closing and at each Option
Closing, the Company will cause to be delivered to the Purchaser,
one certificate for the Initial Shares or the Option Shares being
purchased, as applicable, 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 therefore). <PAGE 4>
Section 5. Representations, Warranties and
Covenants of the Company. The Company hereby represents and
warrants to, and covenants with, Purchaser as follows:
5.1. 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 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 5.3,
below) and to issue and sell the Securities (except as may be
required under state securities laws). The Company is duly
<PAGE 5> 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%."
5.2. 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, in the case of the Option Shares, reserved for
issuance, and, when issued and sold pursuant to this Purchase
Agreement and, in the case of the Option Shares, the Option
Agreement, will be duly and validly issued, fully paid and
nonassessable and none of them will be issued in violation of any
<PAGE 6> 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 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 of Common Stock into which the Initial
Shares are convertible (the "Underlying Common Stock") have been
duly authorized and reserved for issuance and, when issued upon
such conversion, 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. The Shares and the Common
Stock conform in all material respects to all statements in
relation thereto contained in the Offering Memorandum.
5.3. 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 and the similar Option Agreement entered into
between the Company and City National Bank of West Virginia
("City National"), the Bulk Servicing Purchase Agreement and the
Flow Servicing Purchase Agreement referred to in Section 8.5
below (the "Servicing Purchase Agreements"), the Warehouse Line
Agreement referred to in Section 8.18(d) below, and the Flow
Purchase Agreement referred to in Section 8.18(e) 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
<PAGE 7> 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 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.
5.4. Offering Memorandum and Additional
Information. The Company has furnished, and Purchasers
acknowledge receipt of the Offering Memorandum.
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
<PAGE 8> 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.
5.5. 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, suits, investigations or proceedings are threatened by
any person, corporation or governmental agency or body.
5.6. 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
<PAGE 9> 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.
5.7. 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. <PAGE 10>
5.8. 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
<PAGE 11> 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.
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.
5.9. 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
<PAGE 12> "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 that
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.
5.10. 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
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.
5.11. 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 5.8 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,
<PAGE 13> other than those described in the Offering Memorandum
and those which do not and will not have a Material Adverse
Effect.
5.12. 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 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.
5.13. 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. <PAGE 14>
5.14. 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.
5.15. 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.
5.16. 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.
5.17. 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 as
described in the Offering Memorandum under the caption "Use of
Proceeds," an "investment company" or, assuming that FBR is not
an "investment company," an entity "controlled" by an "investment
<PAGE 15> company" as such terms are defined in the Investment
Company Act of 1940, as amended (the "1940 Act").
5.18. Use of Proceeds. The Company will apply
the proceeds from the Offerings as set forth in the Offering
Memorandum.
5.19. 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 Series A Preferred 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 Series A Preferred 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
City National), 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. Promptly following the first to occur of
(i) the purchase by Purchaser pursuant to the exercise of the
Option of all of the Option Shares, or (ii) the acquisition by
<PAGE 16> Purchaser by exercise of the Option or otherwise of
such number of shares of Common Stock that Purchaser shall
immediately following such acquisition own in the aggregate 15
percent (15%) or more of the then outstanding shares of Common
Stock, the number of members of the Board of Directors shall be
increased by one and Purchaser shall be entitled to designate one
additional member of the Board of Directors, such designee to be
promptly appointed by the Board of Directors to fill the vacancy
so created. Thereafter and until the 7% Termination Date,
Purchaser shall be entitled to nominate two members of the Board
of Directors at each meeting of shareholders at which directors
are elected, and one such member designated by Purchaser shall 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. In addition, 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 Board of Directors of the
Company and all meetings of any executive or similar committee of
the Board of Directors.
5.20. 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. <PAGE 17>
5.21. Rolly White. Prior to Closing, the
Company shall offer Rolly White a senior position with the
Company with responsibilities relating to loan production and
retail acquisitions and shall use commercially reasonable efforts
to employ Mr. White in such position as soon as possible.
5.22. Mortgage-Related Asset Revaluation.
Immediately following Closing, the Company shall cooperate with
Purchaser, 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.
5.23. Other Transactions. The material terms
of all of the transactions relating to the Recapitalization are
accurately disclosed on Exhibit F.
5.24. 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.
5.25. 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
<PAGE 18> non-public information concerning the Company obtained
by reason of such access.
5.26. Waiver of Certain Claims. The Company
acknowledges that Purchaser is a unitary thrift holding company
which owns all of the outstanding capital stock of Sovereign
Bank, a federally chartered savings bank ("Sovereign Bank"),
which now and which may in the future compete directly or
indirectly with the Company. The Company hereby waives and
covenants not to sue Purchaser, Sovereign Bank and Purchaser's
other affiliated entities, and the officers, directors, employees
and agents of each of them (including, without limitation, any
person who is appointed to the Board of Directors of the Company
pursuant to Section 5.19 above) and the heirs, personal
representatives, successors and assigns of each of them
(collectively, the "Released Parties") in connection with any and
all claims, causes of action, counterclaims, set-offs and rights
of contribution, at law or in equity, which the Company (alone or
in combination with others) may in the future have against the
Released Parties or any of them for any liability for any loss,
damage, injury or expense of any kind arising from or relating to
any: (i) conflict or alleged conflict of interest, (ii) breach
or alleged breach of any fiduciary duty which may be owed to the
Company (including, without limitation any breach or alleged
breach of the duty of loyalty arising under the corporate
opportunity doctrine), or (iii) violation or alleged violation of
any similar duty or obligation which may arise by reason of the
fact that Purchaser and/or Sovereign Bank and Purchaser's other
affiliated entities will following consummation of the <PAGE 19>
transactions contemplated by this Agreement be a stockholder of
the Company, have one or more of its designees serving as
directors of the Company, be a provider of credit to the Company,
a purchaser of mortgages from the Company, a provider of services
to the Company, or otherwise.
Section 6. Representations, Warranties and
Covenants of Purchaser. Purchaser hereby represents, warrants
and covenants to the Company as follows:
6.1. Compliance with United States Securities
Laws. Purchaser understands and acknowledges that the Shares and
the Underlying Common Stock have not been registered under the
Securities Act, and that the Shares and the Underlying Common
Stock 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.
6.2. Status of Purchaser. Purchaser is purchasing
the Shares and will acquire the Underlying Common Stock 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)
<PAGE 20> 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.
6.3. Restrictions on Re-Sale. Purchaser
understands that the Shares and the Underlying Common Stock are
only transferable on the books and records of the Company and its
Transfer Agent and Registrar and that the Company and the
Transfer Agent and Registrar will not register any transfer of
the Shares or the Underlying Common Stock which the Company in
good faith believes violates the restrictions set forth in this
Section 6.3 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 or the
Underlying Common Stock 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. <PAGE 21>
Purchaser understands that the Company intends to
register the Option Shares and the Underlying Common Stock under
the Securities Act as contemplated in the Registration Rights
Agreement. After registration of the Option Shares and the
Underlying Common Stock 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 Option Shares and the Underlying Common
Stock. 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 Option Shares and the Underlying Common
Stock may be lawfully sold prior to any sale or other disposition
by Purchaser.
6.4. 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 Agreement by Purchaser, this Purchase Agreement
shall constitute the legal, valid and binding obligations of
Purchaser, enforceable against Purchaser in accordance with its
<PAGE 22> 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.
6.5. Representations, Warranties and Covenants at
Closing. Each of the representations and warranties contained in
this Section 6 is true and correct as of the date of this
Purchase Agreement and will be true and correct as of the Closing
Date or the applicable Date of Delivery 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 6 will have been performed as of the Closing Date or the
applicable Date of Delivery if performance is required as of such
date by this Section 6.
Section 7. 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 8. 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 and at
<PAGE 23> each Date of Delivery, (ii) the performance by the
Company of its obligations hereunder in all material respects,
and (iii) the following further conditions:
8.1. Exchange Offer. The Company shall have
consummated the Exchange Offer with respect to at least
$76 million in aggregate principal amount of Original Notes.
8.2. Additional Equity. The Company shall have
consummated the 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.
8.3. Purchaser Board Approval. Purchaser's Board
of Directors shall have approved this Purchase Agreement and the
transactions contemplated hereby. Purchaser warrants and
represents that such approval has been obtained as of the date
hereof.
8.4. 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.
8.5. Servicing Purchase Agreements. The Company
and City National shall have entered into a Bulk Servicing
Purchase Agreement including the terms set forth on Exhibit C and
a Flow Servicing Purchase Agreement including the terms set forth
<PAGE 24> on Exhibit D and each such Agreement shall have been
determined by Purchaser in the exercise of its sole and absolute
discretion to be satisfactory in form and substance.
8.6. 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.
8.7. Opinion of Greenberg Traurig. The Company
shall have furnished to the Purchaser on the Closing Date and on
each Date of Delivery 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 each Date of
Delivery and in form reasonably satisfactory to Stevens & Lee,
counsel for the Purchaser, stating that:
(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, <PAGE 25>
(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, in the
case of the Option Shares, reserved for issuance, and, when
issued and sold pursuant to this Purchase Agreement and, in
the case of the Option Shares, the Option Agreement, will be
duly and validly issued, fully paid and nonassessable; the
shares of Common Stock into which the Shares are convertible
have been duly authorized and reserved for issuance and,
when issued upon such conversion in accordance with the
terms thereof, 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; <PAGE 26>
(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
<PAGE 27> 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 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
<PAGE 28> 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 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
<PAGE 29> (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;
(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
<PAGE 30> 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 Common Stock 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 <PAGE 31>
Recapitalization, will become an "investment company" or,
assuming that FBR is not an "investment company," a company
"controlled" 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).
8.8. Comfort Letter. The Purchaser shall have
received from Deloitte & Touche LLP, letters relating to the
Offering Memorandum dated as of the Closing Date and each Date of
Delivery, as applicable, addressed to the Purchaser and in form
and substance satisfactory to it. <PAGE 32>
8.9. 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, 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.
8.10. Other Transactions. There shall have
been, in Purchaser's reasonable judgment, no material change in
the terms of the transactions described in Exhibit F.
8.11. No Material Adverse Effect. Between the
time of execution of this Agreement and the Closing Date or the
relevant Date of Delivery no event shall have occurred which has
had or is reasonably likely to have a Material Adverse Effect.
8.12. Certificates. The Company will, on the
Closing Date and on each Date of Delivery, 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 8.1, 8.2, 8.4, 8.10, 8.11, 8.14 and 8.15 of this
Agreement have been met. The Company shall have furnished to the
Purchaser such other documents and certificates as to the
<PAGE 33> 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 or any Date of Delivery as the Purchaser may reasonably
request.
8.13. Regulatory Matters. Purchaser shall
have received all approvals from the Office of Thrift Supervision
and any other regulatory agency having jurisdiction over
Purchaser, necessary to consummate the transactions contemplated
by this Agreement.
8.14. 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.
8.15. Related Party Indebtedness. At the
Closing, the Company shall have no outstanding indebtedness to
Mego Financial Corp.
8.16. 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. <PAGE 34>
8.17. Additional Matters Relating to Option
Shares. In connection with the purchase by Purchaser of Option
Shares, the Company shall deliver to the Purchaser on the Date of
Delivery such documents as the Purchaser may reasonably request
with respect to the good standing of the Company, the due
authorization and issuance of the Option Shares and other matters
related to the issuance of the Option Shares.
8.18. Additional Conditions. The obligations
of Purchaser hereunder are further subject to the satisfaction of
each of the following conditions:
(a) Servicing Purchase Agreements. The
Servicing Purchase Agreements entered into by the Company
and City National shall have been determined by Purchaser in
the exercise of its sole and absolute discretion to be
satisfactory in form and substance.
(b) 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.
(c) Letter from FBR. FBR shall have
delivered to Purchaser a letter in the form attached hereto
as Exhibit G.
(d) Warehouse Line Agreement. The Company
and Sovereign Bank 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
<PAGE 35> of its sole and absolute discretion to be
satisfactory in form and substance.
(e) Flow Loan Purchase Agreement. The
Company and Sovereign Bank shall have entered into a Flow
Loan Purchase Agreement, which Agreement: (i) shall
include, inter alia, the terms set forth in Exhibit I
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.
(f) Right of First Refusal. The Company and
Purchaser shall have entered into a Right of First Refusal
Agreement, which Agreement: (i) shall include, inter alia,
the terms set forth in Exhibit J 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.
(g) 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.
(h) Agreements with FBR and Emanuel J.
Friedman. Purchaser shall have entered into Agreements with
each of FBR and Emanuel J. Friedman with respect to shares
of Common Stock held by FBR in its investment account and by
Emanuel J. Friedman under the terms of which Purchaser is
granted a right of first refusal and a "tag along" right,
<PAGE 36> which Agreements shall have been determined by
Purchaser in the exercise of it sole and absolute discretion
to be satisfactory in form and substance.
(i) Employment and Non-Competition
Agreements. The Company shall have entered into an
Employment Agreement or other retention arrangement
(including a 12 month covenant not to compete) with at least
three of the four Company employees identified on Exhibit K
hereto, which Agreements or other retention arrangements
shall have been determined by Purchaser in its sole and
absolute discretion to be satisfactory in form and
substance.
(j) Option Agreement. The Option Agreement
shall have been executed by the Company and delivered to
Purchaser and shall have been determined by Purchaser in its
sole and absolute discretion to be satisfactory in form and
substance.
Section 9. 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
at each Date of Delivery, and (ii) the performance by the
Purchaser of its obligations hereunder in all material respects.
Section 10. Compliance with the Securities Act.
10.1. Information Available. So long as
Purchaser holds any shares of the Company's capital stock, the
Company will furnish to each Purchaser: <PAGE 37>
(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.
10.2. Legend Requirement. Purchaser hereby
agrees that the Shares and the Underlying Common Stock will be
subject to Section 6.3 hereof and to that effect the following
legend will appear on the Shares and any Underlying Common Stock
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 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
<PAGE 38> or an exemption from the
registration requirements of the Act is
available.
Section 11. 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
Emanuel J. Friedman) and Series A Preferred Stock sold in the
Offerings and shares of Common Stock (except for those shares
sold to Emanuel J. Friedman 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. Placement Agent
shall not receive any fee in connection with the acquisition of
shares of the Underlying Common Stock pursuant to the exercise by
Purchaser of the Option. Purchaser further acknowledges that the
Company has advised it that the Company has also agreed: (i) to
reimburse the Placement Agent on request by the Placement Agent
for the Placement Agent's out-of-pocket expenses, including,
among other things, the fees and expenses of legal counsel; and
(ii) to indemnify the Placement Agent against certain
liabilities, including liabilities under the Securities Act, and
other liabilities incurred in connection with the Offerings, and
<PAGE 39> to contribute to payments the Placement Agent 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.
Section 12. 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 1130 Berkshire
Boulevard, P.O. Box 12646, Reading, Pennsylvania 19612,
Attention: Jay S. Sidhu, or at such other address or
addresses as Purchaser may have furnished to the Company,
with a copy to Stevens & Lee, 607 Washington Street, P.O.
Box 679, Reading, Pennsylvania 19603-0679, Attention:
Joseph M. Harenza and Clinton W. Kemp; 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. <PAGE 40>
Section 13. 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 14. 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 15. 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 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 16. 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 17. 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. <PAGE 41>
Section 18. 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 19. 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.
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
SOVEREIGN BANCORP, INC.
By:/s/ Jay S. Sidhu
Name: Jay S. Sidhu
Title: President and
Chief Executive Officer
PAGE 42
<PAGE>
ATTACHMENT 1
DRAFT OF OFFERING MEMORANDUM
DATED JUNE 9, 1998
PAGE 43
<PAGE>
EXHIBIT A
TERMS OF REGISTRATION RIGHTS AGREEMENT
To be agreed upon prior to Closing and to include
substantially the terms described in the Offering Memorandum.
PAGE 44
<PAGE>
EXHIBIT B
TERMS OF SERIES A PREFERRED STOCK
To be agreed upon prior to closing and to include
substantially the terms described in the Offering Memorandum.
PAGE 45
<PAGE>
EXHIBIT C
TERMS OF BULK SERVICING PURCHASE AGREEMENT
The Bulk Servicing Purchase Agreement shall provide
that City National 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.
PAGE 46
<PAGE>
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
City National of the servicing rights referred to
in paragraph 2 and only after such time as
<PAGE 47> $1 billion in servicing has been boarded
and retained by City Mortgage Services, City
National will grant to the Company an option
expiring June 8, 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 City National in a public or private
offering or distributed to the shareholders of its
parent company, City Holding Company. City
National 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 City National acknowledge that
currently City Mortgage Services' servicing
platform is operated as a division of City
National and it is contemplated that this division
will ultimately be a separate subsidiary or stand
alone public corporation. The Company and City
National 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
<PAGE 48> 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.
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, City
National 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.
PAGE 49
<PAGE>
EXHIBIT E
JURISDICTIONS OF FOREIGN QUALIFICATION
Arizona Nebraska
Arkansas Nevada
California New Hampshire
Colorado New Jersey
Connecticut New York
District of Columbia North Carolina
Florida North Dakota
Georgia Ohio
Idaho Oklahoma
Illinois Oregon
Indiana Pennsylvania
Iowa Rhode Island
Kansas South Carolina
Kentucky South Dakota
Louisiana Tennessee
Maine Texas
Maryland Utah
Massachusetts Vermont
Michigan Virginia
Minnesota Washington
Mississippi West Virginia
Missouri Wisconsin
Montana Wyoming
PAGE 50
<PAGE>
EXHIBIT F
OTHER TRANSACTIONS
The following documents are incorporated herein by
reference:
(1) Draft of the Preferred Stock Agreement between the
Company and City National, dated June 9, 1998 (attached hereto).
(2) The material terms of all of the transactions
relating to the Recapitalization are accurately described in the
Offering Memorandum (attached as Attachment 1).
PAGE 51
<PAGE>
EXHIBIT G
FBR LETTER RE: VOTING OF SHARES
FRIEDMAN, BILLINGS, RAMSEY & COMPANY, INCORPORATED
1001 Nineteenth Street North
Arlington, Virginia 22209
June __, 1998
Sovereign Bancorp, Inc.
1130 Berkshire Boulevard
P.O. Box 12646
Reading, Pennsylvania 19612
Gentlemen:
To induce Sovereign Bancorp, Inc. to enter into the
Preferred Stock Purchase Agreement (the "Agreement"), of even
date herewith, between it 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 nominees to serve on the Company's Board of Directors
pursuant to Section 5.19 of the Agreement.
FRIEDMAN, BILLINGS, RAMSEY &
COMPANY, INCORPORATED
By:________________________________
Name:
Title:
PAGE 52
<PAGE>
EXHIBIT H
TERMS OF WAREHOUSE LINE AGREEMENT
See attached Term Sheet.
PAGE 53
<PAGE>
TERM SHEET
Warehouse Line
Size: On or before the closing, Mego Mortgage will engage
Sovereign Bank to provide a warehouse line of credit of up to a
maximum of $90 million. The portion of the warehouse line of
credit used to fund wet loans (defined below) shall not exceed
the following percentages:
50% of the first $40 million
25% of the next $20 million
30% of the next $20 million
35% of the next $10 million
The line of credit shall be used to fund 125 mortgage loans and
Title 1 loans, conventional A, B and C rated first mortgage
loans. Title 1 loans and conventional A, B and C loans shall
sometimes hereafter be referred to as "Other Loans." This
facility shall be Mego's exclusive facility for funding 125
mortgage loans and Other Loans, except as provided below under
Right of First Refusal.
Term: The initial term shall be 6 months, absent termination by
Sovereign upon the occurrence of an event of default. Sovereign
Bank shall have a semiannual right to renew such term for an
additional term of 6 months (which may be exercised or declined
in Sovereign's absolute discretion). Sovereign Bank shall have
nine such renewal options. Such renewal options shall remain
outstanding for the entire 5 year period beginning with the
inception date of the initial term and may be exercised at the
end of each scheduled 6 month term regardless of whether
Sovereign had exercised its renewal option for the prior 6 month
term.
<PAGE 54>
Collateral:
- First priority security interest, perfected by
possession by third party custodian in mortgage loan
instruments "dry"
- First priority security interest, perfected by means of
segregated possession by Mego, as Sovereign's
custodian, in mortgage loan instruments ("wet")
Right of First Refusal: If Mego needs to increase its warehouse
line, Sovereign Bank shall have the option to provide such
increase on the terms and conditions (including pricing) set
forth in this term sheet. If Sovereign elects not to exercise
this option, Mego may obtain a second line from another lender.
Mego must be fully borrowed on the Sovereign line before it
borrows on such second line. Sovereign Bank shall also have the
right to match any offer Mego receives for a warehouse line.
Advance Rate:
Wet* Dry**
"125" Mortgage Loans 93% 98%
Other Loans 95% 98%
____________________
* "Dry loans" mean eligible loans which have been originated,
with executed documents, received and certified as complete
by third party custodian with respect to which Sovereign
possesses a first priority security interest, perfected by
possession by third party custodian.
** "Wet loans" mean eligible loans which have been originated
with executed documents held by Mego with respect to which
Sovereign possess a first priority security interest by
reason of Mego's possession as a third party custodian for
Sovereign.
The Advance Rate shall become 100% for any loan which
Sovereign approves for purchase pursuant to the Flow
Purchase Agreement to be entered into between Mego
Mortgage and Sovereign.
<PAGE 55>
Rate: For the first $40 million
125 Mortgage Loans 1 month LIBOR plus 250bps
Other Loans 1 month LIBOR plus 225bps
For the next $20 million
125 Mortgage Loans 1 month LIBOR plus 237.5bps
Other Loans 1 month LIBOR plus
212.25bps
For the next $20 million
125 Mortgage Loans 1 month LIBOR plus 225bps
Other Loans 1 month LIBOR plus 200bps
For the next $10 million
125 Mortgage Loans 1 month LIBOR plus 212.25bps
Other Loans 1 month LIBOR plus
187.5bps
Fees: 0.25% per annum on amount borrowed - paid monthly.
0.50% per annum on unused daily amount of line - paid
monthly.
Eligible Loans:
125 Mortgage Loans
Title 1 Loans
Conventional A Mortgage Loans
Conventional B Mortgage Loans
Conventional C Mortgage Loans
Other Loans as approved by Sovereign
which meets underwriting criteria to be specified in the
Warehouse Agreement.
Repurchase
Obligation: The following loans must be repurchased within 7
business days of notice or discovery:
- Any loan which becomes 60 days or more delinquent
<PAGE 56>
- Any loan for which there is a first payment
default
- Any loan involving missing, incomplete, or forged
documentation
Third Party Custodian: State Street or other custodian approved
by Sovereign Bank. Fees to be paid by
Mego. Documents must be delivered by
Mego to the custodian within 7 business
days after funding.
Underwriting Standards: Satisfactory to Sovereign.
Oversight and Access: On site bi-weekly review by Sovereign
Bank
Unlimited on site access for Sovereign Bank
Conditions Precedent:
- Successful recapitalization of Mego on terms and
conditions outlined in the offering memorandum dated
June 9, 1998 (without regard to any subsequent
amendments)
- Approval of Sovereign Bank's Board of Directors
- The parties execute a warehouse line agreement and
related documentation satisfactory to Sovereign Bank in
its sole discretion, including without limitation
representations, warranties, covenants, acceleration
provisions, indemnities, repurchase provisions and
payment and nonpayment default provisions. The
warehouse line agreement may be in the form of a
traditional warehouse line agreement or in the form of
a participation agreement; which, in either case, shall
have substantially the same economic effect. <PAGE 57>
_________________________________________
This term sheet is a term sheet offering. Sovereign Bank
reserves the right to change, alter or amend this term sheet at
its own discretion and sole option. This term sheet can be
withdrawn or canceled without notice at any time by Sovereign
Bank and at its sole discretion.
The provisions of this term sheet shall control
notwithstanding any contrary description in the offering
memorandum.
PAGE 58
<PAGE>
EXHIBIT I
TERMS OF FLOW LOAN PURCHASE AGREEMENT
See attached Term Sheet.
PAGE 59
<PAGE>
EXHIBIT J
TERMS OF RIGHT OF FIRST REFUSAL AGREEMENT
Prior to entering into any Acquisition Agreement (as
defined below), the Company will proceed as follows:
(1) The Company will advise Purchaser and City
National in writing of the price and all other
essential terms and conditions under which it
would be willing to enter into an Acquisition
Agreement with Purchaser or City National (the
"Notice").
(2) Purchaser and City National shall each within ten
(10) days following receipt of the Notice advise
the Company in writing whether or not it is
willing to enter into an Acquisition Agreement
with the Company at the price and on the other
terms and conditions set forth in the Notice. In
the event that only one of Purchaser and City
National advises the Company that it is willing to
enter into such an Acquisition Agreement, the
Company and the interested party shall negotiate
in good faith with a view toward the execution of
a legally binding Acquisition Agreement.
(3) In the event that both Purchaser and City National
advise the Company that they are willing to enter
into an Acquisition Agreement with the Company at
the price and on the other terms and conditions
set forth in the Notice, the Company shall
negotiate in good faith with each of Purchaser and
City National with a view toward the execution of
a legally binding Acquisition Agreement with the
party which offers terms most favorable to the
Company. The Company's decision as to which
<PAGE 60> party's terms are most favorable shall,
if made in good faith, be final and binding upon
Purchaser and City National.
008 In the event that each of Purchaser and City
National advises the Company that it is not
willing to enter into an Acquisition Agreement
with the Company at the price and on the terms and
conditions set forth in the Notice, or fails to
advise the Company of its intentions within the
ten (10) day period referred to in Paragraph 2
above, the Company shall be free for a period of
ninety (90) days following the expiration of such
ten (10) day period to enter into an Acquisition
Agreement with a third party at a price and on
other terms and conditions no more favorable to
such third party than those set forth in the
Notice; provided, however that the Company shall
forward to Purchaser and to City National a
complete copy of the Acquisition Agreement as
negotiated with such third party at least five (5)
business days before it is signed.
(5) In the event that the Company does not enter into
an Acquisition Agreement with a third party within
the ninety (90) day period referred to in
Paragraph 4 above, the Company must once again
follow the procedure set forth herein prior to
entering into an Acquisition Agreement with any
third party.
(6) As used herein, the term "Acquisition Agreement"
shall mean an agreement which contemplates: (A) a
merger, consolidation or similar transaction
involving the Company or any of its subsidiaries
(other than a transaction solely between the
Company's subsidiaries and a transaction involving
<PAGE 61> the Company or any subsidiary in which
the voting securities of the Company outstanding
immediately prior thereto continue to represent
(by either remaining outstanding or being
converted into securities of the surviving entity
or the parent thereof) at least 75% of the
combined voting power of the voting securities of
the surviving entity or the parent thereof
outstanding immediately after the consummation of
the transaction), (B) the disposition, by sale,
lease, exchange or otherwise, other than in the
ordinary course of business, of assets of the
Company or any of its subsidiaries, representing
in either case 50% or more of the consolidated
assets of the Company and its subsidiaries, or
(C) the issuance, sale or other disposition of
(including by way of merger, consolidation, share
exchange or any similar transaction) securities
representing 50% or more of the voting power of
the Company or any of its subsidiaries.
(7) The foregoing right of first refusal shall expire
automatically: (i) as to Purchaser on the 7%
Termination Date as defined in Section 5.19 of
this Agreement, (ii) as to City National on the 7%
Termination Date as defined in Section 5.19 of the
Purchase Agreement entered into by the Company
with City National, and (iii) as to both Purchaser
and City National when the Company enters into an
Acquisition Agreement with Purchaser, City
National or a third party after having duly
followed the procedures set forth herein.
PAGE 62
<PAGE>
EXHIBIT K
LIST OF EMPLOYEES REQUIRED TO ENTER INTO EMPLOYMENT AGREEMENTS
An Employment Agreement or other retention arrangement
(including a 12 month covenant not to compete) shall be entered
into with at least three of the following four Company employees:
John R. Kostelich
David Viduna
Forrest P. Young, Jr.
Gregg Delong
PAGE 63
<PAGE>
Exhibit 7.2
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
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):
<PAGE 64>
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.
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
<PAGE 65> 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.
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
<PAGE 66> 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 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 on 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
<PAGE 67> 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.
(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
<PAGE 68> 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 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
<PAGE 69> 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.
(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.
<PAGE 70>
(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 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 <PAGE 71>
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:
(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
<PAGE 72> 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.
(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
<PAGE 73> 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 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
<PAGE 74> shares of stock of the Company or carrying a right to
subscribe to or acquire any such shares of stock.
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
By /s/Jeffrey S. Moore
Chief Executive Officer,
President and Director
Attest: /s/Robert Bellacosa
Secretary
PAGE 75
<PAGE>
Exhibit 7.3
STOCK OPTION AGREEMENT
MADE as of this 29th day of June, 1998 by MEGO MORTGAGE
CORPORATION, a Delaware corporation with its principal offices at
1000 Parkwood Circle, 5th Floor, Atlanta, Georgia 30339 (the
"Company"), in favor of CITY NATIONAL BANK OF WEST VIRGINIA, a
national banking association with its principal offices at 3601
MacCorkle Avenue, Charleston, West Virginia (the "Holder").
Background:
This Agreement is executed pursuant to the terms of a
Preferred Stock Purchase Agreement dated as of June 9, 1998
entered into by the Company and the Holder (the "Preferred Stock
Purchase Agreement"). Capitalized terms not otherwise defined
herein shall have the meanings given to them in the Preferred
Stock Purchase Agreement.
WITNESSETH:
NOW, THEREFORE, in consideration of the mutual
undertakings set forth in the Preferred Stock Purchase Agreement
and other good and valuable consideration, the Company, intending
to be legally bound, hereby agrees as follows:
1. Definitions. For purposes of this Agreement, the
following terms shall have the meanings indicated below, unless
the context otherwise requires:
(a) "Agreement" shall mean this Agreement and any
future amendments, restatements, modifications or supplements
hereof or hereto.
(b) "Board" shall mean the Board of Directors of
the Company, as comprised from time to time. <PAGE 76>
(c) "Capital Stock" shall mean the Common Stock,
and any other stock of any class, whether now or hereafter
authorized, which has the right to participate in the
distribution of earnings and assets of the Company without limit
as to amount or percentage. "Capital Stock" shall not include
any shares at any time directly or indirectly owned by the
Company.
(d) "Closing Price" with respect to the Common
Stock on any day shall mean: (i) if the Common Stock is listed
or admitted for trading on a national securities exchange (which
shall include for this purpose the Nasdaq National Market) the
reported last sales price regular way or, if no such reported
sale occurs on such day, the average of the closing bid and asked
prices regular way on such day, in each case as reported in the
principal consolidated transaction reporting system with respect
to securities listed on the principal national securities
exchange on which such class of security is listed or admitted to
trading, or (ii) if the Common Stock is not listed or admitted to
trading on any national securities exchange, the last quoted
sales price, or, if not so quoted, the average of the high bid
and low asked prices in the over-the-counter market on such day
as reported by NASDAQ or any comparable system then in use or, if
not so reported, as reported by any New York Stock Exchange
member firm reasonably selected by the Company for such purpose.
(e) "Fair Market Value" with respect to the
Common Stock on any day shall mean the average of the daily
Closing Prices of a share of Common Stock for the 10 consecutive
business days ending on the most recent business day for which a
Closing Price is available; provided, however, that in the event
that Fair Market Value is determined during a period following
the announcement by the Company of: (i) a dividend or
distribution on the Common Stock, or (ii) any subdivision,
combination or reclassification of the Common Stock and prior to
the expiration of 10 business days after the ex-dividend date for
such dividend or distribution, or the record date for such
<PAGE 77> subdivision, combination or reclassification, then, and
in each such case, the Closing Price for each day during such
period of 10 consecutive business days which falls prior to such
ex-dividend date shall be appropriately adjusted.
(f) "Option" shall mean the option herein
provided to purchase the whole block or any part of the block of
shares of Common Stock purchasable hereunder.
(g) "Option Price" shall mean the price per share
at which Common Stock is purchasable hereunder, as such price may
be adjusted from time to time pursuant hereto.
(h) "Option Stock" shall mean, individually or
collectively, as appropriate, any share or shares of Common Stock
purchased upon exercise of the Options.
2. Grant of Option. The Company hereby grants to the
Holder the right to purchase, at any time up to 180 days after
the second anniversary of the Closing Date (the "Expiration
Date"), up to 6,666,667 shares of fully paid and non-assessable
Common Stock at an exercise price of $1.50 per share (subject to
adjustment as hereinafter provided).
3. Exercise of Options. This Option may be exercised
in whole or in part (but not as to a fractional share of Common
Stock) by the surrender of this Agreement, properly endorsed, at
any office of the Company and upon payment to it by certified or
bank cashier's check of the Option Price for the shares
purchasable thereunder. The persons entitled to the shares of
Option Stock so purchased shall be treated for all purposes as
the holders of such shares as of the close of business on the
date of exercise. Certificates for the shares of Option Stock so
purchased, together with a new Agreement or Agreements of like
tenor representing in the aggregate the right to purchase the
number of shares of Common Stock with respect to which the Option
has not been exercised (each such Agreement to be for such
<PAGE 78> portion of the total shares of Option Stock as the
holder thereof shall designate), and shall be issued and
delivered to the persons so entitled within a reasonable time,
not exceeding ten (10) days, after such exercise.
4. Exchange. This Agreement is exchangeable, upon
the surrender thereof by the Holder at any office of the Company,
for a new Agreement or Agreements of like tenor representing in
the aggregate the right to purchase the number of shares of
Option Stock then purchasable hereunder, each of such new
Agreements to represent the right to subscribe for and purchase
such portion of the aggregate number of shares of Option Stock
issuable hereunder as shall be designated by the Holder at the
time of such surrender.
5. Transfer. This Agreement is transferable, in
whole or in part, at any office of the Company by the Holder in
person or by duly authorized attorney, upon presentation of the
Agreement, properly endorsed, for transfer.
6. Certain Covenants of the Company. The Company
covenants and agrees that all Option Stock which may be issued
upon the exercise of this Option will, upon issuance, be duly and
validly issued, fully paid and non-assessable and free from all
taxes, liens, encumbrances, options, preemptive rights, and other
charges with respect to the issue thereof; and, if any other
outstanding shares of the Company's Common Stock are then listed
on a national or regional securities exchange or on the Nasdaq
National Market System, will be so listed. The Company further
covenants and agrees that, during the period within which this
Option may be exercised: (a) the Company shall, at all times,
have authorized and reserved for the purpose of issue upon
exercise of the Option evidenced by this Agreement, a sufficient
number of shares of Common Stock, and (b) the Company will not,
by amendment of its Certificate of Incorporation or through any
reclassification, capital reorganization, consolidation, merger,
sale or conveyance of assets, dissolution, liquidation, issue or
<PAGE 79> sale of securities or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the
terms of this Agreement, but will at all times in good faith
assist in the carrying out of all such terms and in the taking of
all such action as may be necessary or appropriate in order to
protect the rights of the Holder hereunder.
7. Adjustment of Purchase Price and Number of Shares.
The number and kind of securities purchasable upon the exercise
of the Option and the Option Price shall be subject to adjustment
from time to time upon the occurrence of certain events as
follows:
(a) Mergers and Reclassifications. If after the
date hereof there shall be any reclassification, capital
reorganization or change of the Common Stock (other than as a
result of a subdivision, combination or stock dividend provided
for in Section 7(b) hereof), or any consolidation of the Company
with, or merger of the Company into, another corporation or other
business organization (other than a merger in which the Company
is the continuing corporation and which does not result in any
reclassification or change of the outstanding Common Stock), or
any sale or conveyance to another corporation or other business
organization of all or substantially all of the assets of the
Company, then, as a condition of such reclassification,
reorganization, change, consolidation, merger, sale or
conveyance, lawful provisions shall be made, and duly executed
documents evidencing the same from the Company or its successor
shall be delivered to the Holder, so that the Holder shall
thereafter have the right to purchase, at a total price not to
exceed that payable upon the exercise of the Option in full, the
kind and amount of shares of stock and other securities and
property which the Holder would have received upon such
reclassification, reorganization, change, consolidation, merger,
sale or conveyance if the Holder had exercised the Option in full
immediately prior to such reclassification, reorganization,
change, consolidation, merger, sale or conveyance, and in any
<PAGE 80> such case appropriate provisions shall be made with
respect to the rights and interest of the Holder to the end that
the provisions hereof (including without limitation, provisions
for the adjustment of the Option Price and the number of shares
issuable hereunder) shall thereafter be applicable in relation to
any shares of stock or other securities and property thereafter
deliverable upon exercise hereof.
(b) Dividends; Subdivisions; Combinations. If
after the date hereof the Company shall subdivide the Common
Stock, by split-up or otherwise, or combine the Common Stock, or
issue additional shares of Common Stock in payment of a stock
dividend on the Common Stock: (i) the number of shares of Option
Stock issuable upon the exercise of this Option shall forthwith
be proportionately increased in the case of a subdivision or
stock dividend, or proportionately decreased in the case of a
combination, and (ii) the Option Price shall forthwith be
proportionately decreased in the case of subdivision or stock
dividend, or proportionately increased in the case of a
combination.
(c) Adjustments for Issuances Below Option Price.
In case the Company shall at any time or from time to time after
the date hereof issue or sell any shares of Common Stock (other
than shares issued in transactions to which Sections 7(a) or 7(b)
hereof apply), for consideration per share less than the Option
Price in effect immediately prior to the time of such issue or
sale, or pay any dividend or make any other distribution upon the
Common Stock payable in cash, property or securities of the
Company other than Common Stock or in securities of a corporation
other than the Company, then forthwith upon such issue or sale,
or upon the payment of such dividend or the making of such other
distribution, as the case may be, the Option Price shall (until
another such issue or sale, or dividend or other distribution) be
reduced to a price (calculated to the nearest cent) determined by
dividing: (i) an amount equal to the sum of (x) the number of
shares of Common Stock outstanding immediately prior to such
<PAGE 81> issue or sale or the payment of such dividend or the
making of such other distribution, multiplied by the Option Price
in effect immediately prior to such event, plus (y) the
consideration, if any, received by the Company upon such issue or
sale minus (z) the aggregate amount of such dividend or other
distribution in respect of Common Stock, by (ii) the total number
of shares of Common Stock outstanding immediately after such
issue or sale or dividend or other distribution. Further, the
number of shares of Option Stock purchasable hereunder shall be
increased to a number determined by dividing: (i) the number of
shares of Option Stock purchasable hereunder immediately prior to
such issue or sale or dividend or other distribution, multiplied
by the Option Price hereunder immediately prior to such event, by
(ii) the Option Price in effect immediately after the foregoing
adjustment. Notwithstanding the foregoing, no adjustment shall
be made under this Section 7(c) if the same issuance or sale
would result in a greater adjustment under Section 7(d) below.
(d) Adjustments for Issuance Below Fair Market
Value. In case the Company shall at any time or from time to
time after the date hereof issue or sell any shares of Common
Stock (other than shares issued in transactions to which
Sections 7(a) or 7(b) hereof apply), for consideration per share
less than the Fair Market Value per share of outstanding Common
Stock on the date of such issuance or sale, or on the first date
of the announcement of such issuance or sale (whichever is less),
then, effective immediately prior to the time of such issuance,
sale or announcement, the number of shares of Common Stock
purchasable upon exercise of this Option shall be adjusted by
multiplying the number of shares of Common Stock subject to
purchase upon exercise of this Option by a fraction, the
numerator of which shall be the total number of shares of Common
stock outstanding immediately after such issuance or sale and the
denominator of which shall be an amount equal to the sum of
(A) the number of shares of Common Stock outstanding immediately
prior to such issuance or sale, plus (B) the number of shares of
Common Stock which the aggregate consideration, if any, received
<PAGE 82> by the Company upon such issuance or sale would buy at
the Fair Market Value thereof, as of the date immediately prior
to such issuance, sale or announcement (whichever is less). In
the event of any such adjustment, the Option Price shall be
adjusted to a number determined by dividing the Option Price in
effect immediately prior to such issuance or sale by the fraction
used for purposes of the aforementioned adjustment.
Notwithstanding the foregoing, there shall be no adjustment
pursuant to this Section 7(d) for the issuance of shares of
Common Stock upon exercise of the Option held by City National or
upon conversion of shares of Series A Preferred Stock, and no
adjustment shall be made under this Section 7(d) if the same
issuance or sale would result in a greater adjustment under
Section 7(c) above.
(e) Special Rules. For the purpose of
Sections 7(c) and 7(d), the following provisions shall also be
applicable:
(i) If, after the date hereof, the Company
shall in any manner offer any rights to subscribe for or to
purchase shares of Common Stock, at a price less than the
Option Price or less than the Fair Market Value per share of
Common Stock in effect immediately prior to the time of the
offering of such rights or the granting of such options, as
the case may be, all shares of Common Stock which the
holders of such rights or options shall be entitled to
subscribe for or purchase pursuant to such rights or options
shall be deemed to be issued or sold as of the date of the
offering of such rights or the granting of such options, as
the case may be, and the minimum aggregate consideration
named in such rights or options for the Common Stock covered
thereby, plus the consideration received by the Company for
such rights or options, shall be deemed to be the
consideration actually received by the Company (as of the
date of the offering of such rights or the granting of such
<PAGE 83> options, as the case may be) for the issue or sale
of such shares.
(ii) If, after the date hereof, the Company
shall in any manner issue or sell any shares of any class or
obligations directly or indirectly convertible into or
exchangeable for shares of Common Stock and the price per
share for which Common Stock is deliverable upon such
conversion or exchange (determined by dividing: (i) the
total minimum amount received or receivable by the Company
in consideration of the issue or sale of such convertible or
exchangeable shares or obligations, plus the total minimum
amount of premiums, if any, payable to the Company upon
conversion or exchange, by (ii) the total number of shares
of Common Stock necessary to effect the conversion or
exchange of all such convertible or exchangeable shares or
obligations) shall be less than Option Price or the Fair
Market Value per share of the Common Stock in effect
immediately prior to the time of such issue or sale, then
such issue or sale shall be deemed to be an issue or sale
(as of the date of issue or sale of such convertible or
exchangeable shares or obligations) of the total maximum
number of shares of Common Stock necessary to effect the
conversion or exchange of all such convertible or
exchangeable shares or obligations, and the total minimum
amount received or receivable by the Company in
consideration of the issue or sale of such convertible or
exchangeable shares or obligations, plus the total minimum
amount of premiums, if any, payable to the Company upon
exchange or conversion, shall be deemed to be the
consideration actually received (as of the date of the issue
or sale of such convertible or exchangeable shares or
obligations) for the issue or sale of such Common Stock.
(iii) In the case of any dividend or other
distribution on the Common Stock of the Company payable in
property, securities of the Company other than Common Stock
<PAGE 84> or securities of a corporation other than the
Company, such dividend or other distribution shall be deemed
to have been paid or made at a value equal to the fair
market value of the property or securities so distributed.
Any dividend or distribution referred to in this clause
(iii) shall be deemed to have been paid or made on the day
following the date fixed for determination of stockholders
entitled to receive such dividend or distribution.
(iv) In determining the amount of
consideration received by the Company for Common Stock,
securities convertible thereinto or exchangeable therefor,
or rights or options for the purchase thereof, no deduction
shall be made for expenses or underwriting discounts or
commissions paid by the Company. The Board shall determine
in good faith the fair market value of the amount of
consideration other than the money received by the Company
upon the issue by it of any of its securities. The Board
shall also determine in good faith the fair market value of
any dividend or other distribution made upon Common Stock
payable in property, securities of the Company other than
Common Stock or securities of a corporation other than the
Company. The Board shall, in the event that any Common
Stock, securities convertible thereinto or exchangeable
therefor, or rights or options for the purchase thereof are
issued with other stock, securities or assets of the
Company, determine in good faith what part of the
consideration received therefor is applicable to the issue
of the Common Stock, securities convertible thereinto or
exchangeable therefor, or rights or options for the purchase
thereof.
(v) If there shall be any change in (A) the
minimum aggregate consideration named in the rights or
options referred to in clause (i) above, (B) the
consideration received by the Company for such rights or
options, (C) the price per share for which Common Stock is
<PAGE 85> deliverable upon the conversion or exchange of the
convertible or exchangeable shares or obligations referred
to in clause (ii) above, (D) the number of shares which may
be subscribed for or purchased pursuant to the rights or
options referred to in clause (i) above, or (E) the rate at
which the convertible or exchangeable shares or obligations
referred to in clause (ii) above are convertible into or
exchangeable for Common Stock, then the Option Price in
effect at the time of such event shall be readjusted to the
Option Price which would have been in effect at such time
had such rights, options, or convertible or exchangeable
shares or obligations still outstanding provided for such
changed consideration, price per share, number of shares, or
rate of conversion or exchange, as the case may be, at the
time initially offered, granted, issued or sold, but only if
as a result of such adjustment the Option Price then in
effect hereunder is thereby reduced.
(f) Other Action Affecting Capital Stock. If,
after the date hereof, the Company shall take any action
affecting the Capital Stock, other than an action described in
any of the foregoing Sections 7(a) through 7(d) hereof inclusive,
which in the opinion of the Board would have a material adverse
effect upon the rights or economic interests of the Holder, the
Option Price and the number of shares of Option Stock purchasable
hereunder 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.
(g) No Adjustment for Certain Transactions.
Notwithstanding the foregoing, no adjustment shall be made to the
Option Price or to the number of shares of Common Stock issuable
upon exercise of this Option in connection with the following
transactions:
<PAGE 86>
(i) the Common Stock Offering, the Series A
Preferred Stock Offering, the Exchange Offer or the Rights
Offering (as such terms are defined in the Offering
Memorandum);
(ii) the issuance of up to 6,710,000 shares
of Common Stock pursuant to options granted, expected to be
granted or available to be granted to Company employees as
described in Footnote 4 on page 44 of the Offering
Memorandum; or
(iii) the issuance of up to 3,000,000 shares
of Common Stock to the Placement Agent as described in
Section 11 of the Preferred Stock Purchase Agreement.
8. Notice of Adjustments. In the event that the
Company shall take any action which pursuant to Section 7(a)
through 7(d) or Section (f) hereof may result in an adjustment of
the Option Price and the number of shares of Option Stock
purchasable upon exercise of the Option, the Company will give to
the Holder at its last address known to the Company written
notice of such action (by first class mail, postage prepaid) ten
(10) days in advance of its effective date in order to afford to
the Holder an opportunity to exercise the Option prior to the
effective date. Such notice shall contain the Company's
certificate signed by its President or Vice President and by its
Treasurer or Assistant Treasurer or its Secretary or Assistant
Secretary, setting forth, in reasonable detail, the event
requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated (including a
description of the basis on which the Board made any
determination hereunder), and the Option Price and number of
shares of Option Stock purchasable after giving effect to such
adjustment. In the event that the actual adjustment required by
such event is different from that set forth in such notice, the
Company shall promptly mail to each Holder a revised certificate
and notice in accordance with this Section 8. <PAGE 87>
9. Fractional Shares. No fractional shares of Common
Stock will be issued in connection with any purchase hereunder
but in lieu of such fractional shares, the Company shall make a
cash payment therefor equal in amount to the product of the
applicable fraction multiplied by the Option Price then in
effect.
10. Transfer to Comply with the Securities Act.
Notwithstanding any other provision contained herein, the Option
and any Option Shares may not be sold, transferred, pledged,
hypothecated or otherwise disposed of except as follows: (a) to
a person who, in the opinion of counsel to the Company, is a
person to whom the Option or the Option Shares may legally be
transferred without registration and without the delivery of a
current prospectus under the Securities Act with respect thereto
and then only against receipt of an agreement of such person to
comply with the provisions of this Section 10 with respect to any
resale or other disposition of such securities; or (b) to any
person upon delivery of a prospectus then meeting the
requirements of the Securities Act relating to such securities
and the offering thereof for such sale or disposition, and
thereafter to all successive assignees.
11. Legend. Unless the Option Shares have been
registered under the Securities Act, upon exercise of the Option
and the issuance of any of the Optin Shares, all certificates
representing such securities shall bear on the face thereof
substantially the following legend:
The securities represented by this certificate
have not been registered under the Securities Act
of 1933, as amended, and may not be sold, offered
for sale, assigned, transferred or otherwise
disposed of, unless registered pursuant to the
provisions of that Act or unless an opinion of
counsel to the Company is obtained stating that
<PAGE 88> such disposition is in compliance with
an available exemption from such registration.
12. Expiration Date. To the extent not previously
exercised, the Option provided for in this Agreement shall expire
as of the close of business on the Expiration Date and shall be
void thereafter.
13. Notices. All notices and other communications
herein shall be given in the manner required by Section 12 of the
Preferred Stock Purchase Agreement.
14. Loss, Theft, Destruction or Mutilation. Upon
receipt by the Company of reasonable evidence satisfactory to it
of the ownership of and the loss, theft, destruction or
mutilation of this Agreement and (in the case of loss, theft, or
destruction) of reasonable indemnity and (in the case of
mutilation) upon surrender and cancellation thereof, the Company
will execute and deliver, in lieu thereof, a new Agreement of
like tenor.
<PAGE 89>
15. Headings. The descriptive headings of the several
sections of this Agreement are inserted for convenience only and
do not constitute a part of this Agreement.
IN WITNESS WHEREOF, the Company, intending to be
legally bound hereby, has caused this Agreement to be signed by
its duly authorized officer.
MEGO MORTGAGE CORPORATION
By:/s/ Jeffrey S. Moore
Name: Jeffrey S. Moore
Title: President and Chief
Executive Officer
_________________________ :
:ss.
COUNTY OF _______________ :
On this ____ day of June, 1998, before me, a notary
public, the undersigned officer, personally appeared
_________________________, who acknowledged himself to be the
___________________ of MEGO MORTGAGE CORPORATION, a Delaware
corporation, and that he as such officer, being authorized to do
so, executed the foregoing instrument for the purposes therein
contained by signing the name of the corporation by himself as
such officer.
IN WITNESS WHEREOF, I have hereunto set my hand and
official seal.
___________________________________
Notary Public
PAGE 90
<PAGE>
Exhibit 7.4
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. ("FBI"), a Virginia
corporation, pursuant to which FBI 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"). <PAGE 91>
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.
"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
<PAGE 92> 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 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
<PAGE 93> 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.
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 is 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 Sovereign 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 Sovereign 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
<PAGE 94> 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 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 Sovereign 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
Sovereign 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
<PAGE 95> 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 Sovereign 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 Sovereign 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 Sovereign or
the underwriter(s), if any, shall reasonably object within
five business days after the receipt thereof. Sovereign 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 Sovereign, any
underwriter participating in any disposition pursuant to
such Registration Statement, and any attorney or accountant
retained by Sovereign or any of the underwriter(s), all
financial and other records, pertinent corporate documents
and properties of the Company and cause the Company's'
<PAGE 96> officers, directors and employees to supply all
information reasonably requested by Sovereign, 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 Sovereign 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 Sovereign 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 Sovereign 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 Sovereign 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
Sovereign 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 Sovereign or any
underwriter in connection with any sale or resale pursuant
to any Registration Statement contemplated by this
<PAGE 97> Agreement; and if the registration is an
Underwritten Registration, the Company shall:
(A) furnish to Sovereign 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, Sovereign's
representatives and Sovereign'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
<PAGE 98> 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
Sovereign and the underwriter(s), if any, if requested by
such Persons, shall confirm such advice in writing;
(x) prior to any public offering of Transfer
Restricted Securities, cooperate with Sovereign, 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 Sovereign
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
<PAGE 99> matters and transactions relating to the
Registration Statement, in any jurisdiction where it is not
now so subject;
(xi) cooperate with Sovereign 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 Sovereign 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 Sovereign 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 Sovereign with
printed certificates for the Transfer Restricted Securities
which are in a form satisfactory to Sovereign;
(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 Sovereign 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
<PAGE 100> 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 Sovereign, 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.
Sovereign 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, Sovereign will forthwith discontinue
disposition of Transfer Restricted Securities pursuant to the
applicable Registration Statement until Sovereign'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,
Sovereign will deliver to the Company (at the Company's expense)
all copies, other than permanent file copies then in Sovereign'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
Sovereign shall have received the copies of the supplemented or
amended Prospectus or shall have received the Advice.
SECTION 5. REGISTRATION EXPENSES
\CT 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 Sovereign with the NASD (and, if applicable, the
fees and expenses of any "qualified independent underwriter" and
<PAGE 101> 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,
Sovereign; (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 Sovereign, including, underwriting
discounts, commissions, and messenger and delivery services and
telephone expenses incurred by Sovereign.
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
Sovereign, as applicable, for the reasonable fees and
disbursements of not more than one counsel as may be chosen by
Sovereign.
SECTION 6. INDEMNIFICATION
(a) The Company shall indemnify and hold harmless
(i) Sovereign and (ii) each person, if any, who controls (within
the meaning of Section 15 of the Act or Section 20 of the
Exchange Act) Sovereign (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 Sovereign 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),
<PAGE 102> 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 Sovereign furnished in writing to the
Company by Sovereign or any counsel or agent of Sovereign
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. <PAGE 103>
(b) Sovereign 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 Sovereign furnished in writing
by Sovereign 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
Sovereign, Sovereign 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 Sovereign hereunder be greater in amount than
the dollar amount of the net proceeds received by Sovereign 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 Sovereign 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.
<PAGE 104>
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 Sovereign, for so long
as any Transfer Restricted Securities remain outstanding, to make
available to Sovereign in connection with any sale thereof and
any prospective purchaser of such Transfer Restricted Securities
from Sovereign, 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
Sovereign may not participate in any Underwritten
Registration hereunder unless Sovereign (a) agrees to sell
Sovereign'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 00 SELECTION OF UNDERWRITERS
Sovereign 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.
<PAGE 105>
(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 Sovereign 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
Sovereign 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 Sovereign 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 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 Sovereign:
Sovereign Bancorp
1130 Berkshire Boulevard
Post Office Box 12646
Reading, Pennsylvania 19612
Telecopier No.: (610) 320-8448
Attention: Mark R. McCollom
(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.
<PAGE 106>
(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.
MEGO MORTGAGE CORPORATION
By:/s/ Jeffrey S. Moore
Name: Jeffrey S. Moore
Title: President and Chief
Executive Officer
SOVEREIGN BANCORP, INC.
By:/s/ Jay S. Sidhu
Name: Jay S. Sidhu
<PAGE 107>
Title: President and Chief
Executive Officer
PAGE 108
<PAGE>
Exhibit 7.5
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
1001 Nineteenth Street North
Arlington, Virginia 22209
June 29, 1998
Sovereign Bancorp, Inc.
1130 Berkshire Boulevard
P.O. Box 12646
Reading, Pennsylvania 19612
Gentlemen:
To induce you, Sovereign Bancorp, Inc. 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 nominees to serve on the Company's Board of Directors
pursuant to Section 5.19 of the Agreement.
FRIEDMAN, BILLINGS, RAMSEY & CO.,
INC.
By/s/ James R. Kleeblatt
Name: James R. Kleeblatt
Title: Managing Director
PAGE 109
<PAGE>
Exhibit 7.6
CO-SALE AGREEMENT
THIS CO-SALE AGREEMENT (this "Agreement") is made this
29th day of June, 1998, by and among MEGO MORTGAGE CORPORATION, a
Delaware corporation (the "Company"), and EMANUEL J. FRIEDMAN,
FRIEDMAN, BILLINGS, RAMSEY & COMPANY, INCORPORATED, a Virginia
corporation (individually, a "Transferor" and collectively, the
"Transferors"), CITY NATIONAL BANK OF WEST VIRGINIA, a national
banking association, and SOVEREIGN BANCORP, INC., a Pennsylvania
corporation (individually, an "Investor" and collectively, the
"Investors").
RECITALS
A. Each Investor has executed a Preferred Stock
Purchase Agreement with the Company, dated June 9, 1998, which
provides for the purchase of 10,000 shares of Series A Preferred
Stock of the Company (the "Preferred Stock") for a purchase price
of $1,000 per share, or $10,000,000 in aggregate, and also
provides for the purchase of up to 6,666,667 shares of Common
Stock of the Company (the "Common Stock") at a purchase price of
$1.50 per share;
B. Emanuel J. Friedman has executed a Common Stock
Purchase Agreement with the Company, dated June 9, 1998, which
provides for the purchase of 6,666,667 shares of Common Stock at
a purchase price of $1.50 per share; and
C. The Transferors have agreed to grant the Investors
the opportunity to participate, upon the terms and conditions set
forth in this Agreement, in subsequent sales of the Common Stock
made by the Transferors to induce the Investors to make the
proposed investment.
AGREEMENT
NOW, THEREFORE, for and in consideration of the
premises, covenants and obligations contained herein, and for
other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
ARTICLE 1
SALES BY TRANSFERORS
1.1 Notice of Purchase Offers. Should any of the
Transferors propose to accept one or more bona fide offers
(collectively, the "Purchase Offer") from any persons (the
"Purchase Offeror") to purchase shares of the Company's Common
Stock from such Transferor, then the Transferor or Transferors
<PAGE 110>
shall promptly notify the Investors of its or their intent to
sell such shares and the terms and conditions of such Purchase
Offer.
1.2 Right to Participate. The Investors shall have
the right, exercisable upon written notice to such selling
Transferor or Transferors within 10 business days after receipt
of the notice of the Purchase Offer, to participate in the
Transferor's sale of Common Stock on the same terms and
conditions. To the extent any Investor exercises such right of
participation, the number of shares of Common Stock which the
Transferor may sell pursuant to the Purchase Offer shall be
correspondingly reduced. The right of participation of the
Investors shall be subject to the following terms and conditions:
(a) Each Investor may sell all or any part of
that number of shares of Common Stock equal to the product
obtained by multiplying (i) the aggregate number of shares of
Common Stock covered by the Purchase Offer by (ii) a fraction,
the numerator of which is the number of shares of Common Stock of
the Company at the time owned by such Investor and the
denominator of which is the combined number of shares of Common
Stock of the Company at the time owned by the selling Transferor
(including shares transferred to Permitted Transferees, as
defined below, in accordance herewith) and the Investors. For
purposes of such computation, the Investors shall be deemed to
own the number of shares of Common Stock into which all of their
Preferred Stock is at the time convertible.
(b) An Investor participating in the sale
pursuant to a Purchase Offer shall, if requested by the selling
Transferor or Transferors, or the Purchase Offeror, enter into a
purchase and sale agreement with the Purchase Offeror on the same
terms and conditions applicable to the selling Transferor or
Transferors or shall deliver to the selling Transferor or
Transferors for transfer to the Purchase Offeror one or more
certificates, properly endorsed for transfer, which represent:
(i) the number of shares of Common Stock
which the Investor elects and is permitted to sell pursuant
to this Section 1.2; or
(ii) the number of shares of Preferred Stock
which is at such time convertible into the number of shares
of Common Stock which the Investor elects and is permitted
to sell pursuant to this Section 1.2; provided, however,
that if the Purchase Offeror objects to the delivery of
Preferred Stock in lieu of Common Stock, the Investor shall
convert and deliver Common Stock as provided in subparagraph
(b)(i) above.
1.3 Consummation of Sale. The sale of shares to be
sold by any Investor hereunder shall be consummated as set forth
in any applicable Purchase Agreement. If such shares are instead
<PAGE 111>
to be delivered to the selling Transferor or Transferors as
provided in Section 1.2(b), the certificates representing such
shares shall be transferred by the selling Transferor or
Transferors to the Purchase Offeror in consummation of the sale
of the Common Stock pursuant to the terms and conditions
specified in the notice to the Investor pursuant to Section 1.1,
and the selling Transferor or Transferors shall promptly
thereafter remit to the Investor that portion of the sale
proceeds to which the Investor is entitled by reason of its
participation in such sale, without setoff or deduction.
1.4 Ongoing Rights. The exercise or non-exercise of
the rights of the Investor hereunder to participate in one or
more sales of Common Stock made by a Transferor shall not
adversely affect its right to participate in subsequent Common
Stock sales by a Transferor pursuant to Section 1.1 hereof.
1.5 Exceptions. The participation rights of the
Investors shall not apply to (a) any pledge of Common Stock made
by a Transferor pursuant to a bona fide loan transaction which
creates a mere security interest, (b) any transfer of Common
Stock to the Transferor's descendants or spouse or to a trustee
for their benefit, or (c) any bona fide gift of Common Stock;
provided that (i) the Transferor shall inform the Investor of
such pledge, transfer or gift prior to effecting it and (ii) the
pledgee, transferee or donee (collectively, the "Permitted
Transferees") shall furnish the Investors with a written
agreement to be bound by and comply with all provisions of this
Agreement applicable to the Transferors.
ARTICLE 2
PROHIBITED TRANSFERS
2.1 Treatment of Prohibited Transfers. If a
Transferor sells any Common Stock in contravention of the
participation rights of the Investor under this Agreement (a
"Prohibited Transfer"), the Investors, in addition to such other
remedies as may be available at law, in equity or hereunder,
shall have the put option provided in Section 2.2 below, and such
Transferor shall be bound by the applicable provisions of such
put option.
2.2 Put Option. In the event of a Prohibited
Transfer, the Investors shall have the right to sell to the
selling Transferor or Transferors a number of shares of Common
Stock (either directly or through delivery of Preferred Stock)
equal to the number of shares the Investors would have been
entitled to transfer to the Purchase Offeror in the Prohibited
Transfer pursuant to the terms hereof. Such sale shall be made
on the following terms and conditions:
(a) The price per share and terms at which the
shares are to be sold to the selling Transferor or Transferors
shall be equal to the price per share paid and terms agreed to by
<PAGE 112>
the purchaser to the selling Transferor or Transferors in the
Prohibited Transfer. The selling Transferor or Transferors shall
also reimburse the Investors for any and all fees and expenses,
including legal fees and expenses, incurred pursuant to the
exercise or the attempted exercise of the Investors' rights under
this Article 2.
(b) Within 90 days after the later of the dates
on which the Investors (i) received notice from a Transferor of
the Prohibited Transfer or (ii) otherwise became aware of the
Prohibited Transfer, the Investors shall, if exercising the put
option created hereby, deliver to the selling Transferor or
Transferors the certificate or certificates representing shares
to be sold, each certificate to be properly endorsed for
transfer.
(c) The selling Transferor or Transferors shall,
upon receipt of the certificate or certificates for the shares to
be sold by the Investor, pursuant to Section 2.2(b), pay the
aggregate purchase price therefor and the amount of reimbursable
fees and expenses, as specified in Section 2.2(a), by certified
check or bank draft made payable to the order of the Investors.
(d) Notwithstanding the foregoing, any attempt to
transfer shares of the Company in violation of Article 1 hereof,
shall be void and the Company agrees it will not effect such a
transfer nor will it treat any purported transferee as the holder
of such shares without the written consent of the Investors.
ARTICLE 3
LEGENDED CERTIFICATES
3.1 Legend. Each certificate representing shares of
the Common Stock of the Company now or hereafter owned by a
Transferor or issued to any Permitted Transferee pursuant to
Section 1.5 shall be endorsed with the following legend:
"The shares of stock represented by this certificate
are subject to a Co-Sale Agreement, by and among the
registered owner of this certificate, the Company and
certain other shareholders of the Company, copies of
which are available for inspection at the offices of
the Company."
3.2 Legend Removal. The Section 3.1 legend shall be
removed upon termination of this Agreement in accordance with the
provisions of Section 5.1.
<PAGE 113>
ARTICLE 4
RIGHT OF FIRST REFUSAL
4.1 Notice of Bona Fide Offer. If a Transferor shall
have obtained a bona fide offer in writing for the purchase, in
one or a series of related transactions, shares of Common Stock
representing 5% or more of the aggregate number of shares of
Common Stock owned by the Transferor, and the Transferor desires
to accept such offer, then such Transferor shall give notice to
the Investors of such proposed transaction (the "Option Notice").
The Option Notice shall describe the proposed transferee, the
number of shares of Common Stock proposed to be transferred (the
"Offered Stock"), the price per share, and all other material
terms and conditions of the proposed transaction, and also shall
be accompanied by a copy of the writing comprising the bona fide
offer.
4.2 Investors' Option. For a period of 15
consecutive days following their receipt of such Option Notice
(the "Option Period"), the Investors shall have the irrevocable
option, subject to the condition set forth in Section 4.4 below,
to purchase their pro rata share of the Offered Stock for the
consideration and on the terms set forth in the Option Notice.
For purposes of the preceding sentence, an Investor's "pro rata"
share shall mean a percentage determined by dividing the number
of shares of Common Stock owned by such Investor by the total
number of shares of outstanding Common Stock owned by both
Investors (assuming that the Investors own the number of shares
of Common Stock into which all of their Preferred Stock is at the
time convertible). In the event that the Option Notice specifies
that the Selling Transferor will receive non-cash consideration
in exchange for the Offered Stock, the Investors shall have the
option to purchase the Offered Stock for a cash amount equal to
the fair market value of the non-cash consideration specified in
the Option Notice, as determined by an independent investment
banking firm of national standing selected by the Investors and
the selling Transferor.
4.3 Exercise of the Option. An Investor choosing to
exercise said option shall during the Option Period notify the
Selling Transferor in writing of such election and the number of
shares it wishes to purchase, up to its pro rata share(the
"Exercise Notice"). If one but not both of the Investors
exercises the option (or exercises the option in full), the
selling Transferor shall so notify the Investor exercising its
option to purchase shares (or exercising such option in full) and
such Investor shall have an additional option for five
consecutive days following its receipt of notice to purchase all
of the Offered Stock (or the portion of the other Investor's pro
rata share of the Offered Stock for which the option was not
exercised) for the consideration and on the terms set forth in
the Option Notice and as otherwise provided herein. If both
Investors exercise the option for less than their pro rata
<PAGE 114>
shares, the Investors shall be deemed not to have exercised their
option and the selling Transferor may dispose of the Offered
Stock pursuant to Section 4.6.
4.4 Right to be Exercised in Whole. Notwithstanding
the foregoing, any Selling Transferor shall not be required to
sell any of the Offered Stock to the Investors pursuant to the
option described in Section 4.2 above unless options have been
exercised by the Investors to purchase all of the Offered Stock.
4.5 Closing of Exercise. In the event that the
Investors exercise options to purchase, in the aggregate, all of
the Offered Stock pursuant to Section 4.3 above, then a closing
shall be held with respect to such purchases within 20 days after
the date upon which the last of such options shall have been
exercised or on such other date as the Selling Transferor and the
Investors exercising such options shall mutually agree. At such
closing, the Selling Transferor shall deliver to the purchasing
Investors certificates representing the shares of Common Stock
being acquired by such Investors, together with fully executed
stock powers, endorsed in the name of the transferee, against
payment of the purchase price therefor in accordance with the
terms contained in the Option Notice. Such shares shall be
delivered by the Selling Transferor free and clear of any lien,
pledge, security interest or other encumbrance, other than as
described in this Agreement.
4.6 Sale to Third Party if Right Not Exercised. If
the Investors have not exercised their options to purchase, in
the aggregate, all of the Offered Stock pursuant to Section 4.3
above, the Selling Transferor shall have the right, for a period
of 90 days after the expiration of the option period, to sell all
(but not less than all) of the Offered Stock not purchased by the
Investors in accordance with the terms of the bona fide offer,
provided that such transferee agrees in writing to be bound by
the terms of this Agreement to the same extent as the Selling
Transferor.
4.7 Right to Participate. In the event that an
Investor does not exercise the option provided for in this
Article 4 (or is deemed under the last sentence of Section 4.3
not to have exercised such option), such Investor shall
nevertheless be entitled to exercise the right of participation
provided for in Article 1 with respect to the proposed sale
described in the Option Notice.
ARTICLE 5
MISCELLANEOUS PROVISIONS
5.1 Termination of Co-Sale Rights. The rights of each
Investor under this Agreement and the obligations of a Transferor
with respect to such Investor shall terminate at such time as the
Investor shall no longer be the owner of any shares of Common
Stock or Preferred Stock of the Company.
<PAGE 115>
5.2 Notices. Any notice required or permitted to be
given to a party pursuant to the provisions of this Agreement
shall be in writing and shall be effective upon facsimile
delivery, personal delivery or upon deposit in the U.S. mail,
postage prepaid and properly addressed to the party to be
notified as set forth below such party's signature or at such
other address as such party may designate by ten (10) days'
advance written notice to the other parties hereto.
5.3 Successors and Assigns. This Agreement and the
rights and obligations of the parties hereunder shall inure to
the benefit of, and be binding upon, their respective successors,
assigns and legal representatives.
5.4 Severability. In the event one or more of the
provisions of this Agreement should, for any reason, be held to
be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any
other provisions of this Agreement, and this Agreement shall be
construed as if such invalid, illegal or unenforceable provision
had never been contained herein.
5.5 Amendments. Any amendment or modification of this
Agreement shall be effective only if evidenced by a written
instrument executed by duly authorized representatives of the
parties hereto. Any waiver by a party of its rights hereunder
shall be effective only if evidenced by a written instrument
executed by a duly authorized representative of such party. In
no event shall such waiver of any rights hereunder constitute the
waiver of such rights in any future instance unless the waiver so
specifies in writing.
5.6 Governing Law. This Agreement shall be governed
by and construed in accordance with the internal laws of the
State of Georgia.
5.7 Other Obligations of Company. The Company agrees
to use its best efforts to enforce the terms of this Agreement,
to inform the Investors of any breach hereof and to assist the
Investors in the exercise of its rights and performance of its
obligations under Article 2 hereof.
[SIGNATURE PAGE FOLLOWS.]
PAGE 116
<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Agreement on the day and year indicated above.
THE COMPANY: MEGO MORTGAGE CORPORATION
By:/s/ Jeff S. Moore
Name: Jeff S. Moore
Title: President
THE INVESTORS: CITY NATIONAL BANK OF WEST VIRGINIA
By:/s/ Robert A. Henson
Name: Robert A. Henson
Title: Chief Financial Officer
SOVEREIGN BANCORP, INC.
By:/s/ Mark R. McCollom
Name: Mark R. McCollom
Title: Chief Accounting Officer
THE TRANSFERORS: EMANUEL J. FRIEDMAN
/s/ Emanuel J.Friedman
FRIEDMAN, BILLINGS, RAMSEY &
COMPANY, INCORPORATED
By:/s/ James R. Kleeblatt
Name: James R. Kleeblatt
Title: Managing Director
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<PAGE>
Exhibit 7.7
RIGHT OF FIRST REFUSAL AGREEMENT
This Right of First Refusal Agreement (the "Agreement")
is made as of June 29, 1998, by and among CITY NATIONAL BANK OF
WEST VIRGINIA, a national banking association, with its principal
offices at 3601 MacCorkle Avenue, Charleston, West Virginia
("City"), SOVEREIGN BANCORP, INC., a Pennsylvania corporation, with
its principal offices at 1130 Berkshire Boulevard, P.O. Box 12646,
Reading, Pennsylvania 19612 ("Sovereign"), and MEGO MORTGAGE
CORPORATION (the "Company"), a Delaware corporation, with its
principal offices at 1000 Parkwood Circle, 5th Floor, Atlanta,
Georgia.
WHEREAS, the Company has entered into a Preferred Stock
Purchase Agreement dated as of June 9, 1998 with City (the "City
Agreement");
WHEREAS, the Company has entered into a Preferred Stock
Purchase Agreement dated as of June 9, 1998 with Sovereign (the
"Sovereign Agreement"); and
WHEREAS, the City Agreement and the Sovereign Agreement
both require as a condition to closing the execution of a right of
first refusal agreement by and among the Company, City and
Sovereign;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained in this Agreement, the parties agree as
follows:
Section 1. Definitions.
A. "Acquisition Agreement" shall mean an agreement
which provides for: (i) a merger, consolidation or similar
transaction involving the Company or any of its subsidiaries (other
than transactions solely between the Company's subsidiaries and
between the Company and one or more subsidiaries and transactions
involving the Company or any subsidiary in which the voting
securities of the Company outstanding immediately prior thereto
continue to represent (by either remaining outstanding or being
converted into securities of the surviving entity or the parent
thereof) at least 75% of the combined voting power of the voting
securities of the surviving entity or the parent thereof
outstanding immediately after the consummation of the transaction),
(ii) the disposition, by sale, lease, exchange or otherwise, other
than in the ordinary course of business, of assets of the Company
or any of its subsidiaries representing in either case 50% or more
of the consolidated assets of the Company and its subsidiaries, or
(iii) the issuance, sale or other disposition of (including by way
of merger, consolidation, share exchange or any similar
transaction) securities representing 50% or more of the voting
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power of the Company or any of its subsidiaries.
Section 2. Right of First Refusal. Prior to entering
into any Acquisition Agreement, the Company will proceed as
follows:
A. The Company will advise City and Sovereign in
writing of the price and all other essential terms and conditions
under which it would be willing to enter into an Acquisition
Agreement with either City or Sovereign (the "Notice").
B. City and Sovereign shall each within ten (10) days
following receipt of the Notice advise the Company in writing
whether or not it is willing to enter into an Acquisition Agreement
with the Company at the price and on the other terms and conditions
set forth in the Notice. In the event that only one of City and
Sovereign advises the Company that it is willing to enter into such
an Acquisition Agreement, the Company and the interested party
shall negotiate in good faith with a view toward the execution of
a legally binding Acquisition Agreement.
C. In the event that both City and Sovereign advise the
Company that they are willing to enter into such an Acquisition
Agreement with the Company at the price and on the other terms and
conditions set forth in the Notice, the Company shall negotiate in
good faith with each of City and Sovereign with a view toward the
execution of a legally binding Acquisition Agreement with the party
which offers terms most favorable to the Company. The Company's
decision as to which party's terms are most favorable shall, if
made in good faith, be final and binding upon City and Sovereign.
D. In the event that each of City and Sovereign advises
the Company that it is not willing to enter into an Acquisition
Agreement with the Company at the price and on the terms and
conditions set forth in the Notice, or fails to advise the Company
of its intentions within the ten (10) day period referred to in
Paragraph B above, the Company shall be free for a period of ninety
(90) days following the expiration of such ten (10) day period to
enter into an Acquisition Agreement with a third party at a price
and on other terms and conditions no more favorable to such third
party than those set forth in the Notice; provided, however that
the Company shall forward to City and to Sovereign a complete copy
of the Acquisition Agreement as negotiated with such third party at
least five (5) business days before it is signed.
E. In the event that the Company does not enter into an
Acquisition Agreement with a third party within the ninety (90) day
period referred to in Paragraph D above, the Company must once
again follow the procedure set forth herein prior to entering into
an Acquisition Agreement with any third party.
F. The foregoing right of first refusal shall expire
automatically: (i) as to City on the 7% Termination Date as
defined in Section 5.19 of the City Agreement, (ii) as to Sovereign
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on the 7% Termination Date as defined in Section 5.19 of the
Sovereign Agreement, and (iii) as to both City and Sovereign when
the Company enters into an Acquisition Agreement with City,
Sovereign or a third party after having duly followed the
procedures set forth herein.
Section 3. 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 City, to 25 Gatewater Road, Cross Lanes, West
Virginia 25313, Attention: Robert A. Henson, Chief Financial
Officer, or at such other address or addresses as City may have
furnished to the Company, with a copy to Hunton & Williams,
951 East Byrd Street, Richmond, Virginia 23219, Attention:
Randall S. Parks;
C. if to Sovereign, to 1130 Berkshire Boulevard,
P.O. Box 12646, Reading, Pennsylvania 19612, Attention: Jay S.
Sidhu, or at such other address or addresses as City may have
furnished to the Company, with a copy to Stevens & Lee,
607 Washington Street, P.O. Box 679, Reading, Pennsylvania
19603-0679, Attention: Clinton W. Kemp; or
D. if to any transferee or transferees of City or
Sovereign, 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 4. Amendments. No amendment, interpretation or
waiver of any of the provisions of this Agreement shall be
effective unless made in writing and signed by the parties to this
Agreement.
Section 5. Headings. The headings of the sections,
subsections and subparagraphs of this Agreement are used for
convenience only and shall not affect the meaning or interpretation
of the contents of this Agreement.
Section 6. Enforcement. The failure to enforce or to
require the performance at any time of any of the provisions of
this Agreement shall in no way be construed to be a waiver of such
provisions, and shall not affect either the validity of this
Agreement or any part hereof or the right of any party thereafter
to enforce each and every provision in accordance with the terms of
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this Agreement.
Section 7. Governing Law. This Agreement and the
relationships of the parties in connection with the subject matter
of this Agreement shall be governed by and determined in accordance
with the laws of the State of Georgia in the United States of
America.
Section 8. Severability. If any severable provision of
this Agreement is held to be invalid or unenforceable by any
judgment of a tribunal of competent jurisdiction, the remainder of
this Agreement shall not be affected by such judgment, and the
Agreement shall be carried out as nearly as possible according to
its original terms and intent.
Section 9. Counterparts. This 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 Agreement
without regard to the dates or times when such counterparts may
actually have been made, executed or delivered.
Section 10. Assignment. This 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 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.
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
CITY NATIONAL BANK OF WEST VIRGINIA
By:/s/ Robert A. Henson
Name: Robert A. Henson
Title: Chief Financial
Officer
SOVEREIGN BANCORP, INC.
By:/s/ Jay S. Sidhu
Name: Jay S. Sidhu
Title: President and Chief
Executive Officer
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