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CUSIP NO. 247918105				Page 2 of 7 Pages

1	NAME OF REPORTING PERSON
	S.S. OR I.R.S IDENTIFICATION NO. OF ABOVE PERSON
	ANGELO, GORDON & CO., L.P.
2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP		(a)	o
			(b)	x
3	SEC USE ONLY
4	SOURCES OF FUNDS*
	Not Applicable
5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e)			o
6	CITIZENSHIP OR PLACE OF ORGANIZATION
	Delaware
		7	SOLE VOTING POWER
			10,262,700
		8	SHARED VOTING POWER
	NUMBER OF
	SHARES		0
	BENEFICIALLY OWNED	9	SOLE DISPOSITIVE POWER
	BY EACH REPORTING
	PERSON		10,262,700
	WITH	10	SHARED DISPOSITIVE POWER
			0
11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
	10,262,700
12	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES *			o
13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
	30.5%
14	TYPE OF REPORTING PERSON
	IA; PN

 

 

 

 

I.

General.

 

Issuer:

Delta Financial Corporation (the “Company”).

 

Purchaser:

AG Special Situation Corp. and/or such affiliated entity or entities and/or accounts managed thereby as may be designated by it (“AG” or the “Purchaser”).

 

Securities:

The Company will issue (a) 10% senior secured notes (the “Notes”) in an aggregate principal amount equal to (i) $100,000,000 minus (ii) the principal amount outstanding on the closing date under the Securities Repurchase Agreement dated August 13, 2007, and (b) 40,000,000 shares of newly issued common stock (the “New Common Stock”).  The Notes and the New Common Stock will be privately placed to the Purchaser.  The New Common Stock initially may be in the form of convertible debt or convertible preferred stock to the extent necessary to comply with Nasdaq’s listing rules, the Delaware General Corporation Law or applicable regulatory requirements, as the parties may mutually agree.

 

Total Investment Amount:

$100,000,000 (consisting of the Notes, the New Common Stock and the outstanding balance under the existing financing under the Securities Repurchase Agreement dated August 13, 2007).  On the closing date, the maturity date of the existing financing under the Securities Repurchase Agreement shall be extended to the day prior to the first anniversary of the closing date.

 

Use of Proceeds:

The proceeds from the issuance shall be used by the Company for general corporate purposes.

 

Security:

The Notes shall be secured by a first priority security interest in all of the Company’s securitization residuals, BIO certificates, excess cashflow certificates as of the closing date, including the Company's interest in and to the Securities under the Securities Repurchase Agreement, and any other assets of the Company that shall be agreed upon.  The existing repurchase arrangement under the Securities Repurchase Agreement dated August 13, 2007 shall not be changed.

 

Structuring:

The definitive transaction agreements shall be designed to enable the Company to comply with its licensing and regulatory requirements, as an originator of mortgages, and the receipt of necessary consents related to such requirements (the “Mortgage Licensing Consents”).  To the extent required by such regulatory requirements in order to avoid a “change of control” with respect to certain states as to which the Mortgage Licensing Consents have not been received as of the closing date, all or a

 

 

 

Until such time as the restrictions on the voting of AG’s shares and the related control rights are restored to AG, the Company’s business and affairs shall be subject to such restrictive covenants in favor of AG as shall be agreed to by the parties in the definitive agreements in order to protect AG’s investment in the Notes and the New Common Stock.

 

II.	Reimbursement of Third Party Costs; Conditions Precedent; Board Representation and Other Covenants.

 

Third Party Costs:

All reasonable legal and out-of-pocket costs and expenses, including all due diligence costs and expenses (including the fees and disbursements of counsel, its accountants, its financial advisors and other advisors and consultants), incurred by AG or its agents after the date hereof (collectively, “AG Expenses”) shall be paid and reimbursed by the Company to AG concurrently at the closing of the Transaction; provided, that if (x) the Company and AG do not enter into definitive documentation for the Transaction by December 15, 2007, and in the six (6) months thereafter the Company enters into a Competing Transaction (as defined in the letter agreement dated November 15, 2007 (the “Letter Agreement”)), (y) the Company breaches the terms of Section 6 of the Letter Agreement, or terminates such Letter Agreement in accordance with the terms of Section 6 thereof, or (z) subsequent to entering into definitive documentation the Company terminates the Transaction and accepts a Competing Transaction, then promptly thereafter the Company shall pay and reimburse to AG all the AG Expenses.

 

Conditions Precedent:

The following conditions precedent, among others, must be satisfied at or prior to closing of the Transaction:

 

(1)

Subject to the paragraph “Structuring” above, on or before the closing date, the Board of Directors of the Company shall consist of a number of members to be agreed by the Company and the Purchaser, a majority of which shall be designated by the Purchaser.  The Company and the Purchaser shall discuss the designation of the other directors.

 

(2)

All fees and third party costs, including the AG Expenses, required to be paid by the Company shall have been paid or reimbursed by the Company.

 

 

 

(3)

The Company shall not be in default (or, solely with the passage of time or notice or both, will not be in default) of any of its material contracts as of the closing date.

 

(4)

The Company shall have not entered into an agreement with any third party in connection with a merger, consolidation, recapitalization, sale of all or substantially all its assets, or other similar business combination or transaction.

 

(5)

The Company shall have authorized the issuance of new options for shares of common stock to certain key employees of the Company, in an amount, at an exercise price and with such other terms and conditions to be agreed between the Purchaser and the Company.

 

(6)

The key employees receiving new stock options shall have entered into employment agreements with the Company satisfactory to the Purchaser.

 

(7)

The Company shall have either (a) priced a securitization (with closing conditions and commitments satisfactory to Purchaser in its sole discretion) of approximately $500 million of mortgage loans (through its own Renaissance shelf registration statement, or the shelf registration of a third party, or through private placements) on terms acceptable to the Purchaser, or (b) entered into, satisfied the conditions precedent and before or simultaneously with the AG financing closed the initial financing under one or more financing arrangements with respect to approximately $500 million of mortgage loans on terms acceptable to the Purchaser, and such securitization or financing arrangement (as applicable) shall be in full force and effect and not in default.

 

(8)

Other customary conditions, including, among others, (i) that all representations and warranties set forth in the definitive documents are true and correct in all material respects, (ii) that all covenants set forth therein are complied with in all material respects, (iii) that no material adverse change in the business, assets, liabilities, financial condition or prospects of the Company has occurred, (iv) that all material consents, approvals (including governmental approvals) and consents have been obtained (subject to such conditions as shall have been agreed to by the parties), (v) that any waiting period required under the Hart-Scott-Rodino Act has expired or has been terminated.

 

(9)

With respect to the issuance of the New Common Stock, if required by applicable law or Nasdaq, the shareholders of the Company shall have approved and ratified the issuance of the New Common Stock to the Purchaser.

 

Board Representation:

Subject to the paragraph “Structuring” above, for so long as the Purchaser and its affiliates own common stock, warrants and other securities representing a majority of the issued and outstanding shares of the Company on an as-converted basis, the Purchaser shall continue to have the right to board representation as described in clause (1) of “Conditions Precedent” above.

 

 

 

 

Financial Statements

and Reporting:

The Company will provide the Purchaser with such financial statements and information as are set forth in its existing agreements to AG.  Additional financial statements and information will be subject to agreement by the parties in the final definitive documentation.

 

Preemptive Rights:

AG shall have such pre-emptive rights as are set forth in the Company’s existing agreements with AG.  Additional pre-emptive rights will be subject to agreement by the parties in the final definitive documentation.

 

Registration Rights:

The Company will enter into an agreement in customary form with the Purchaser in which the Company will agree, at the expense of the Company, to register the shares of common stock issued on the closing date, in a manner contemplated by the Investor Rights Agreement, dated August 13, 2007.  Additional registration rights will be subject to agreement by the parties in the final definitive documentation.

 

III.	Terms of the Notes.

 

Maturity Date:

Three (3) years from the date of issuance.

 

Interest:

10% per annum, payable on a quarterly basis and payable on a payment-in-kind basis until the first anniversary of the closing date.

 

Optional Redemption:

The Company may give notice of redemption and, following a notice period of at least 15 days, may redeem the Notes at its option, in whole or in part (but not in an amount less than certain minimum thresholds to be agreed), at a price equal to 100% of their aggregate principal amount plus accrued and unpaid interest to the date of repayment.

 

Covenants:

As set forth in the Securities Repurchase Agreement, dated August 13, 2007.  Additional covenants will be subject to agreement by the parties in the final definitive documentation.

 

Indemnification:

The definitive documentation will afford AG customary indemnifications from Delta against breaches of representations, warranties or covenants, with a deductible to be determined and a cap equal to the aggregate principal amount of the Notes.

 

Events of Default:

As set forth in the Securities Repurchase Agreement, dated August 13, 2007.  Additional events of default will be subject to agreement by the parties in the final definitive documentation.

 

Default Interest:

An additional 2%.

 

Documentation:

The securities purchase agreement(s), the Notes, the security agreement and any other documentation will be in form and substance satisfactory to the Purchaser and its counsel and will include, among other things, appropriate representations and warranties, covenants, remedies, indemnification clauses relating to material adverse effect, illegality, conditions precedent, events of default, ability to seek creditor

 

 

 

 

Governing Law:

All definitive documentation shall be governed by the domestic substantive laws of New York.

 

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