Exhibit 10.2
EXECUTION COPY
PLEDGE AND SECURITY AGREEMENT
THIS PLEDGE AND SECURITY AGREEMENT (this “Security Agreement”) is entered into as of June 30, 2004 by
and among ENCORE CAPITAL GROUP, INC., a Delaware corporation (the “Borrower”), MIDLAND CREDIT MANAGEMENT, INC.,
a Kansas corporation, MIDLAND FUNDING NCC-2 CORPORATION, a Delaware corporation, and MIDLAND ACQUISITION
CORPORATION, a Delaware corporation (together with the Borrower, the “Initial Grantors” and together with any
additional Domestic Subsidiaries, whether now existing or hereafter formed which become parties to this Security
Agreement by executing a Supplement hereto in substantially the form of Annex I, the “Grantors”), and BANK ONE,
NA (Main Office Chicago), in its capacity as administrative agent (the “Administrative Agent”) for the lenders
party to the Credit Agreement referred to below (collectively, the “Lenders”).
PRELIMINARY STATEMENT
The Borrower, the Administrative Agent and the Lenders are entering into a Credit Agreement dated as of
the date hereof (as amended, restated, supplemented or otherwise modified from time to time, the “Credit
Agreement”). The Grantors are entering into this Security Agreement in order to induce the Lenders to enter into
and extend credit to the Borrower under the Credit Agreement.
ACCORDINGLY, the Grantors and the Administrative Agent, on behalf of the Holders of Secured Obligations,
hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1. Terms Defined in Credit Agreement. All capitalized terms used herein and not otherwise defined shall
have the meanings assigned to such terms in the Credit Agreement.
1.2. Terms Defined in New York UCC. Terms defined in the New York UCC which are not otherwise defined in
this Security Agreement are used herein as defined in the New York UCC.
1.3. Definitions of Certain Terms Used Herein. As used in this Security Agreement, in addition to the terms
defined in the Preliminary Statement, the following terms shall have the following meanings:
“Accounts” shall have the meaning set forth in Article 9 of the New York UCC.
“Article” means a numbered article of this Security Agreement, unless another document is specifically
referenced.
“Chattel Paper” shall have the meaning set forth in Article 9 of the New York UCC.
“Collateral” means all Accounts, Chattel Paper, Commercial Tort Claims, Documents, Equipment, Fixtures,
Goods, General Intangibles, Instruments, Inventory, Investment Property, Pledged Deposits, Supporting Obligations
and Other Collateral, wherever located, in which any Grantor now has or hereafter acquires any right or interest,
and the proceeds (including Stock Rights), insurance proceeds and products thereof, together with all books and
records, customer lists, credit files, computer files, programs, printouts and other computer materials and
records related thereto.
“Commercial Tort Claims” means those certain currently existing commercial tort claims of any Grantor,
including each commercial tort claim specifically described in Exhibit F.
“Control” shall have the meaning set forth in Article 8 or, if applicable, in Section 9-104, 9-105,
9-106 or 9-107 of Article 9 of the New York UCC.
“Default” means an event described in Section 5.1 hereof.
“Deposit Accounts” shall have the meaning set forth in Article 9 of the New York UCC.
“Documents” shall have the meaning set forth in Article 9 of the New York UCC.
“Equipment” shall have the meaning set forth in Article 9 of the New York UCC.
“Exhibit” refers to a specific exhibit to this Security Agreement, unless another document is
specifically referenced.
“Fixtures” shall have the meaning set forth in Article 9 of the New York UCC.
“General Intangibles” shall have the meaning set forth in Article 9 of the New York UCC.
“Goods” shall have the meaning set forth in Article 9 of the New York UCC.
“Instruments” shall have the meaning set forth in Article 9 of the New York UCC.
“Inventory” shall have the meaning set forth in Article 9 of the New York UCC.
“Investment Property” shall have the meaning set forth in Article 9 of the New York UCC.
“New York UCC” means the New York Uniform Commercial Code as in effect from time to time.
“Other Collateral” means any property of the Grantors, not included within the defined terms Accounts,
Chattel Paper, Commercial Tort Claims, Documents, Equipment, Fixtures, General Intangibles, Instruments,
Inventory, Investment Property and Pledged Deposits, including, without limitation, all cash on hand,
letter-of-credit rights, letters of credit, Stock Rights and Deposit Accounts or other deposits (general or
special, time or demand, provisional or final) with any bank or other financial institution, it being intended
that the Collateral include all real and personal property of the Grantors.
“Pledged Deposits” means all time deposits of money (other than Deposit Accounts and Instruments),
whether or not evidenced by certificates, which a Grantor may from time to time designate as pledged to the
Administrative Agent or to any Holder of Secured Obligations as security for any Obligation, and all rights to
receive interest on said deposits.
“Receivables” means the Accounts, Chattel Paper, Documents, Investment Property, Instruments or Pledged
Deposits, and any other rights or claims to receive money which are General Intangibles or which are otherwise
included as Collateral.
“Required Secured Parties” means (x) prior to an acceleration of the Secured Obligations under the
Credit Agreement, the Required Lenders, (y) after an acceleration of the Secured Obligations under the Credit
Agreement but prior to the date upon which the Credit Agreement has terminated by its terms and all of the
Secured Obligations thereunder have been paid in full, Lenders and their Affiliates holding in the aggregate more
than 50% of the total of (i) the unpaid principal amount of the outstanding Loans and LC Obligations and (ii) the
aggregate net early termination payments and all other amounts then due and unpaid from the Borrower to the
Lenders or their Affiliates under Rate Management Transactions, as determined by the Administrative Agent in its
reasonable discretion, and (z) after the Credit Agreement has terminated by its terms and all of the Secured
Obligations thereunder have been paid in full (whether or not the Secured Obligations under the Credit Agreement
were ever accelerated), Lenders and their Affiliates holding in the aggregate more than 50% of the aggregate net
early termination payments and all other amounts then due and unpaid from the Borrower to the Lenders or their
Affiliates under Rate Management Transactions, as determined by the Administrative Agent in its reasonable
discretion.
“Section” means a numbered section of this Security Agreement, unless another document is specifically
referenced.
“Security” has the meaning set forth in Article 8 of the New York UCC.
“Stock Rights” means any securities, dividends or other distributions and any other right or property
which any Grantor shall receive or shall become entitled to receive for any reason whatsoever with respect to, in
substitution for or in exchange for any securities or other ownership interests in a corporation, partnership,
joint venture or limited liability company constituting Collateral and any securities, any right to receive
securities and any right to receive earnings, in which any Grantor now has or hereafter acquires any right,
issued by an issuer of such securities.
“Supporting Obligation” shall have the meaning set forth in Article 9 of the New York UCC.
The foregoing definitions shall be equally applicable to both the singular and plural forms of the
defined terms.
ARTICLE II
GRANT OF SECURITY INTEREST
Each of the Grantors hereby pledges, assigns and grants to the Administrative Agent, on behalf of and
for the ratable benefit of the Holders of Secured Obligations and (to the extent specifically provided herein)
their Affiliates, a security interest in all of such Grantor’s right, title and interest, whether now owned or
hereafter acquired, in and to the Collateral to secure the prompt and complete payment and performance of the
Secured Obligations.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Each of the Initial Grantors represents and warrants to the Administrative Agent and the Holders of
Secured Obligations, and each Grantor that becomes a party to this Security Agreement pursuant to the execution
of a Security Agreement Supplement in substantially the form of Annex I represents and warrants (after giving
effect to supplements to each of the Exhibits hereto with respect to such subsequent Grantor as attached to such
Security Agreement Supplement), that:
3.1. Title, Authorization, Validity and Enforceability. Such Grantor has good and valid rights in or the
power to transfer the Collateral owned by it and title to the Collateral with respect to which it has purported
to grant a security interest hereunder, free and clear of all Liens except for Liens permitted under Section
4.1.6 hereof, and has full corporate, limited liability company or partnership, as applicable, power and authority
to grant to the Administrative Agent the security interest in such Collateral pursuant hereto. The execution and
delivery by such Grantor of this Security Agreement has been duly authorized by proper corporate, limited
liability company or partnership, as applicable, other proceedings, and this Security Agreement constitutes a
legal, valid and binding obligation of such Grantor and creates a security interest which is enforceable against
such Grantor in all Collateral it now owns or hereafter acquires, except as enforceability may be limited by (i)
bankruptcy, insolvency, fraudulent conveyances, reorganization or similar laws relating to or affecting the
enforcement of creditors’ rights generally, (ii) general equitable principles (whether considered in a proceeding
in equity or at law), and (iii) requirements of reasonableness, good faith and fair dealing. When financing
statements have been filed in the appropriate offices against such Grantor in the locations listed on Exhibit E,
the Administrative Agent will have a fully perfected first priority security interest in the Collateral owned by
such Grantor in which a security interest may be perfected by filing, subject only to Liens permitted under
Section 4.1.6 hereof.
3.2. Conflicting Laws and Contracts. Neither the execution and delivery by such Grantor of this Security
Agreement, the creation and perfection of the security interest in the Collateral granted hereunder, nor
compliance with the terms and provisions hereof will violate (i) any law, rule, regulation, order, writ,
judgment, injunction, decree or award binding on such Grantor, or (ii) such Grantor’s charter, articles or
by-laws (or similar constitutive documents), or (iii) the provisions of any indenture, instrument or agreement to
which such Grantor is a party or is subject, or by which it, or its Property may be bound or affected, or
conflict with or constitute a default thereunder, or result in or require the creation or imposition of any Lien
in, of or on the Property of such Grantor pursuant to the terms of any such indenture, instrument or agreement
(other than any Lien of the Administrative Agent on behalf of the Holders of Secured Obligations).
3.3. Principal Location. Such Grantor’s mailing address and the location of its place of business (if it has
only one) or its chief executive office (if it has more than one place of business), is disclosed in Exhibit A;
such Grantor has no other places of business except those set forth in Exhibit A.
3.4. Property Locations. The Inventory, Equipment and Fixtures of each Grantor are located solely at the
locations of such Grantor described in Exhibit A. All of said locations are owned by such Grantor except for
locations (i) which are leased by such Grantor as lessee and designated in Part B of Exhibit A and (ii) at which
Inventory is held in a public warehouse or is otherwise held by a bailee or on consignment by such Grantor as
designated in Part C of Exhibit A, with respect to which Inventory such Grantor has delivered bailment
agreements, warehouse receipts, financing statements or other documents satisfactory to the Administrative Agent
to protect the Administrative Agent’s and the Holders of Secured Obligations’ security interest in such
Inventory.
3.5. No Other Names. Except as set forth in Exhibit A, such Grantor has not conducted business under any
name except the name in which it has executed this Security Agreement, which is the exact name as it appears in
such Grantor’s organizational documents, as amended, as filed with such Grantor’s jurisdiction of organization as
of the Closing Date.
3.6. No Default. No Default or Unmatured Default exists.
3.7. Intentionally Omitted.
3.8. Filing Requirements. None of the Equipment owned by such Grantor is covered by any certificate of
title, except for the vehicles described in Part A of Exhibit B. None of the Collateral owned by such Grantor is
of a type for which security interests or liens may be perfected by filing under any federal statute except for
(i) the vehicles described in Part B of Exhibit B and (ii) patents, trademarks and copyrights held by such
Grantor and described in Part C of Exhibit B. The legal description, county and street address of the property
on which any Fixtures owned by such Grantor are located is set forth in Exhibit C together with the name and
address of the record owner of each such property.
3.9. No Financing Statements. No financing statement describing all or any portion of the Collateral which
has not lapsed or been terminated naming such Grantor as debtor has been filed in any jurisdiction except
financing statements (i) naming the Administrative Agent on behalf of the Holders of Secured Obligations as the
secured party and (ii) in respect of Liens permitted by Section 6.15 of the Credit Agreement; provided, that
nothing herein shall be deemed to constitute an agreement to subordinate any of the Liens of the Administrative
Agent under the Loan Documents to any Liens otherwise permitted under Section 6.15 of the Credit Agreement.
3.10. Federal Employer Identification Number; State Organization Number; Jurisdiction of Organization. Such
Grantor’s federal employer identification number is, and if such Grantor is a registered organization, such
Grantor’s State of organization, type of organization and State of organization identification number and is, as
follows:
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GRANTOR Federal Employer Type of State of State Organization
Identification Number Organization Incorporation Number
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---------------------------- ----------------------- -------------------- ----------------------- --------------------
ENCORE CAPITAL GROUP, INC. 00-0000000 Corporation Delaware 3034002
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---------------------------- ----------------------- -------------------- ----------------------- --------------------
MIDLAND CREDIT MANAGEMENT, 00-0000000 Corporation Kansas 48421
INC.
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MIDLAND FUNDING NCC-2 00-0000000 Corporation Delaware 3683366
CORPORATION
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---------------------------- ----------------------- -------------------- ----------------------- --------------------
MIDLAND ACQUISITION 00-0000000 Corporation Delaware 3225667
CORPORATION
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3.11. Pledged Securities and Other Investment Property. Exhibit D sets forth a complete and accurate list of
the Instruments, Securities and other Investment Property delivered to the Administrative Agent. Each Grantor is
the direct and beneficial owner of each Instrument, Security and other type of Investment Property listed on
Exhibit D as being owned by it, free and clear of any Liens, except for the security interest granted to the
Administrative Agent for the benefit of the Holders of Secured Obligations hereunder or as permitted under
Section 4.1.6. Each Grantor further represents and warrants that (i) all such Instruments, Securities or other
types of Investment Property which are shares of stock in a corporation or ownership interests in a partnership
or limited liability company have been (to the extent such concepts are relevant with respect to such Instrument,
Security or other type of Investment Property) duly and validly issued, are fully paid and non-assessable and
constitute the percentage of the issued and outstanding shares of stock (or other equity interests) of the
respective issuers thereof indicated on Exhibit D hereto and (ii) with respect to any certificates delivered to
the Administrative Agent representing an ownership interest in a partnership or limited liability company, either
such certificates are Securities as defined in Article 8 of the New York UCC of the applicable jurisdiction as a
result of actions by the issuer or otherwise, or, if such certificates are not Securities, such Grantor has so
informed the Administrative Agent so that the Administrative Agent may take steps to perfect its security
interest therein as a General Intangible.
ARTICLE IV
COVENANTS
From the date of this Security Agreement and thereafter until this Security Agreement is terminated,
each of the Initial Grantors agrees, and from and after the effective date of any Security Agreement Supplement
applicable to any Grantor (and after giving effect to supplements to each of the Exhibits hereto with respect to
such subsequent Grantor as attached to such Security Agreement Supplement) and thereafter until this Security
Agreement is terminated each such subsequent Grantor agrees:
4.1. General.
4.1.1 Inspection. Each Grantor will permit the Administrative Agent or any Holder of Secured Obligations (at
reasonable times and upon reasonable notice so long as no Default or Unmatured Default has occurred and
is continuing) by its representatives and agents (i) to inspect the Collateral, (ii) to examine and make
copies of the records of such Grantor relating to the Collateral and (iii) to discuss the Collateral and
the related records of such Grantor with, and to be advised as to the same by, such Grantor’s officers
and employees, all at such reasonable times and intervals as the Administrative Agent or such Holder of
Secured Obligations may determine, and all at such Grantor’s expense.
4.1.2 Taxes. Such Grantor will pay when due all taxes, assessments and governmental charges and levies upon
the Collateral owned by such Grantor, except (i) those which are being contested in good faith by
appropriate proceedings and with respect to which adequate reserves have been set aside in accordance
with Agreement Accounting Principles and with respect to which no Lien exists, (ii) those which by
reason of the amount involved or the remedies available to the taxing authority could not reasonably be
expected to have a Material Adverse Effect and (iii) those taxes disclosed in Schedule 5.6 to the Credit
Agreement.
4.1.3 Records and Reports; Notification of Default. Each Grantor shall keep and maintain complete, accurate
and proper books and records with respect to the Collateral owned by such Grantor, and furnish to the
Administrative Agent such reports relating to the Collateral as the Administrative Agent shall from time
to time reasonably request. Each Grantor will give prompt notice in writing to the Administrative Agent
and the Lenders of the occurrence of any Default or Unmatured Default and of any other development,
financial or otherwise, which might materially and adversely affect the Collateral taken as a whole.
4.1.4 Financing Statements and Other Actions; Defense of Title. Each Grantor hereby authorizes the
Administrative Agent to file, and if requested will execute and deliver to the Administrative Agent, all
financing statements describing the Collateral owned by such Grantor and other documents and take such
other actions as may from time to time reasonably be requested by the Administrative Agent in order to
maintain a first perfected security interest in and, if applicable, Control of, the Collateral owned by
such Grantor, subject to Liens permitted under Section 6.15 of the Credit Agreement; provided, that
nothing herein shall be deemed to constitute an agreement to subordinated any of the Liens of the
Administrative Agent under the Loan Documents to any Liens otherwise permitted under Section 6.15 of the
Credit Agreement. Such financing statements may describe the Collateral in the same manner as described
herein or may contain an indication or description of collateral that describes such property in any
other manner as the Administrative Agent may determine, in its sole discretion, is necessary, advisable
or prudent to ensure that the perfection of the security interest in the Collateral granted to the
Administrative Agent herein, including, without limitation, describing such property as “all assets” or
“all personal property, whether now owned or hereafter acquired.” Each Grantor will take any and all
actions necessary to defend title to the Collateral owned by such Grantor against all persons and to
defend the security interest of the Administrative Agent in such Collateral and the priority thereof
against any Lien not expressly permitted hereunder.
4.1.5 Disposition of Collateral. No Grantor will sell, lease or otherwise dispose of the Collateral owned by
such Grantor except (i) prior to the occurrence of a Default or Unmatured Default, dispositions
specifically permitted pursuant to the Credit Agreement, (ii) until such time following the occurrence
of a Default as such Grantor receives a notice from the Administrative Agent instructing such Grantor to
cease such transactions, sales of Receivables in the ordinary course of business, and (iii) until such
time as such Grantor receives a notice from the Administrative Agent pursuant to Article VII, proceeds
of Inventory and Accounts collected in the ordinary course of business.
4.1.6 Liens. No Grantor will create, incur, or suffer to exist any Lien on the Collateral owned by such
Grantor except Liens permitted pursuant to Section 6.15 of the Credit Agreement, provided, that nothing
herein shall be deemed to constitute an agreement to subordinate any of the Liens of the Administrative
Agent under the Loan Documents to any Liens otherwise permitted under Section 6.15 of the Credit
Agreement.
4.1.7 Change in Corporate Existence, Type or Jurisdiction of Organization, Location, Name. Each Grantor will,
except as permitted by the Credit Agreement:
(i) preserve its existence and corporate structure as in effect on the Closing Date;
(ii) not change its jurisdiction of organization;
(iii) not maintain its place of business (if it has only one) or its chief executive office (if it has more
than one place of business) at a location other than a location specified on Exhibit A; and
(iv) not (i) have any Inventory, Equipment or Fixtures or proceeds or products thereof (other than Inventory
and proceeds thereof disposed of as permitted by Section 4.1.5) at a location other than a
location specified in Exhibit A, (ii) change its name or taxpayer identification number or
(iii) change its mailing address,
unless, in each such case, such Grantor shall have given the Administrative Agent not less than 10 days’
prior written notice of such event or occurrence and the Administrative Agent shall have either (x)
determined that such event or occurrence will not adversely affect the validity, perfection or priority
of the Administrative Agent’s security interest in the Collateral, or (y) taken such steps (with the
cooperation of such Grantor to the extent necessary or advisable) as are necessary or advisable to
properly maintain the validity, perfection and priority of the Administrative Agent’s security interest
in the Collateral owned by such Grantor.
4.1.8 Other Financing Statements. No Grantor will suffer to exist or authorize the filing of any financing
statement naming it as debtor covering all or any portion of the Collateral owned by such Grantor,
except any Financial Statement authorized under Section 4.1.4 hereof.
4.2. Collection of Receivables. Except as otherwise provided in this Security Agreement, each Grantor will
collect and enforce, in the ordinary course of business consistent with past practice and at such Grantor’s sole
expense, amounts due or hereafter due to such Grantor under the Receivables owned by such Grantor.
4.3. Inventory and Equipment. Each Grantor will do all things necessary to maintain, preserve, protect and
keep the Inventory and the Equipment owned by such Grantor in good repair, working order and saleable condition
(ordinary wear and tear excepted) and make all necessary and proper repairs, renewals and replacements so that
its business carried on in connection therewith may be properly conducted at all times, except where the failure
to do so, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.
4.4. Instruments, Securities, Chattel Paper, Documents and Pledged Deposits. Each Grantor will (i) deliver
to the Administrative Agent immediately upon execution of this Security Agreement the originals of all Securities
constituting Collateral (if any then exist) listed on Exhibit D hereof, (ii) hold in trust for the Administrative
Agent upon receipt and immediately thereafter deliver to the Administrative Agent any Securities constituting
Collateral, (iii) upon the designation of any Pledged Deposits (as set forth in the definition thereof), deliver
to the Administrative Agent such Pledged Deposits which are evidenced by certificates included in the Collateral
endorsed in blank, marked with such legends and assigned as the Administrative Agent shall specify, and (iv) upon
the Administrative Agent’s request, after the occurrence and during the continuance of a Default, deliver to the
Administrative Agent (and thereafter hold in trust for the Administrative Agent upon receipt and immediately
deliver to the Administrative Agent) any Document evidencing or constituting Collateral.
4.5. Uncertificated Securities and Certain Other Investment Property. Each Grantor will permit the
Administrative Agent from time to time to cause the appropriate issuers (and, if held with a securities
intermediary, such securities intermediary) of uncertificated securities or other types of Investment Property
not represented by certificates which are Collateral owned by such Grantor to xxxx their books and records with
the numbers and face amounts of all such uncertificated securities or other types of Investment Property not
represented by certificates and all rollovers and replacements therefor to reflect the Lien of the Administrative
Agent granted pursuant to this Security Agreement.
4.6. Stock and Other Ownership Interests.
4.6.1 Changes in Capital Structure of Issuers. No Grantor will (i) permit or suffer any issuer of privately
held corporate securities or other ownership interests in a corporation, partnership, joint venture or
limited liability company constituting Collateral owned by such Grantor to dissolve, liquidate, retire
any of its capital stock or other Instruments or Securities evidencing ownership, reduce its capital or
merge or consolidate with any other entity, or (ii) vote any of the Instruments, Securities or other
Investment Property in favor of any of the foregoing except to the extent permitted under Section 6.11
of the Credit Agreement.
4.6.2 Issuance of Additional Securities. No Grantor will permit or suffer the issuer of privately held
corporate securities or other ownership interests in a corporation, partnership, joint venture or
limited liability company constituting Collateral to issue any such securities or other ownership
interests, any right to receive the same or any right to receive earnings, except to such Grantor;
provided, however, that the foregoing shall have no application with respect to any corporation,
partnership, joint venture or limited liability company which is not a Subsidiary of such Grantor.
4.6.3 Registration of Pledged Securities and other Investment Property. Each Grantor will permit any
registerable Collateral owned by such Grantor to be registered in the name of the Administrative Agent
or its nominee at any time at the option of the Required Secured Parties following the occurrence and
during the continuance of an Event of Default and without any further consent of such Grantor.
4.6.4 Exercise of Rights in Pledged Securities and other Investment Property. Each Grantor will permit the
Administrative Agent or its nominee at any time after the continuance of a Default, without notice, to
exercise or refrain from exercising any and all voting and other consensual rights pertaining to the
Collateral owned by such Grantor or any part thereof, and to receive all dividends and interest in
respect of such Collateral. So long as no Default has occurred and is continuing, the Grantors are
entitled to exercise any and all voting and other rights and powers relating to the Collateral.
4.7. Pledged Deposits. No Grantor will withdraw all or any portion of any Pledged Deposit or fail to
rollover said Pledged Deposit without the prior written consent of the Administrative Agent.
4.8. Letter-of-Credit Rights. Each Grantor will, upon the Administrative Agent’s request, cause each issuer
of a letter of credit, to consent to the assignment of proceeds of the letter of credit in order to give the
Administrative Agent Control of the letter-of-credit rights to such letter of credit.
4.9. Federal, State or Municipal Claims. Each Grantor will notify the Administrative Agent of any Collateral
owned by such Grantor which constitutes a claim against the United States government or any state or local
government or any instrumentality or agency thereof, the assignment of which claim is restricted by federal,
state or municipal law of which Grantor is aware.
4.10. Intellectual Property. If, after the date hereof, any Grantor obtains rights to, or applies for or
seeks registration of, any new patentable invention, trademark or copyright in addition to the patents,
trademarks and copyrights described in Part C of Exhibit B, which are all of such Grantor’s patents, trademarks
and copyrights for which registration has been sought as of the Closing Date, then such Grantor shall give the
Administrative Agent prompt notice thereof, and the security interest granted to the Administrative Agent
hereunder shall automatically apply thereto. Each Grantor agrees promptly upon request by the Administrative
Agent to execute and deliver to the Administrative Agent any supplement to this Security Agreement or any other
document reasonably requested by the Administrative Agent to evidence such security interest in a form
appropriate for recording in the applicable federal office. Each Grantor also hereby authorizes the
Administrative Agent to modify this Security Agreement unilaterally (i) by amending Part C of Exhibit B to
include any future patents, trademarks and/or copyrights of which the Administrative Agent receives notification
from such Grantor pursuant hereto and (ii) by recording, in addition to and not in substitution for this Security
Agreement, a duplicate original of this Security Agreement containing in Part C of Exhibit B a description of
such future patents, trademarks and/or copyrights.
4.11. Commercial Tort Claims. If, after the date hereof, any Grantor identifies the existence of a commercial
tort claim belonging to such Grantor that has arisen in the course of such Grantor’s business in addition to the
commercial tort claims described in Exhibit F, which are all of such Grantor’s commercial tort claims as of the
Closing Date, then such Grantor shall give the Administrative Agent prompt notice thereof, but in any event not
less frequently than quarterly. Each Grantor agrees promptly upon request by the Administrative Agent to execute
and deliver to the Administrative Agent any supplement to this Security Agreement or any other document
reasonably requested by the Administrative Agent to evidence the grant of a security interest therein in favor of
the Administrative Agent.
ARTICLE V
DEFAULT
5.1. The occurrence of any one or more of the following events shall constitute a Default:
5.1.1 Any representation or warranty made by or on behalf of any Grantor under or in connection with this
Security Agreement shall be materially false as of the date on which made.
5.1.2 The breach by any Grantor of any of the terms or provisions of Article IV or Article VII.
5.1.3 The breach by any Grantor (other than a breach which constitutes a Default under Section 5.1.1 or 5.1.2
hereof) of any of the terms or provisions of this Security Agreement which is not remedied within 10
days after the giving of written notice to such Grantor by the Administrative Agent.
5.1.4 Any material portion of the Collateral shall be transferred or otherwise disposed of, either voluntarily
or involuntarily, in any manner not permitted by Section 4.1.5 or 8.7 hereof or shall be lost, stolen,
damaged or destroyed.
5.1.5 The occurrence of any “Default” under, and as defined in, the Credit Agreement.
5.2. Acceleration and Remedies. Upon the acceleration of the Secured Obligations under the Credit Agreement
pursuant to Section 8.1 thereof, the Obligations and, to the extent provided for under the Rate Management
Transactions evidencing the same, the Rate Management Obligations, shall immediately become due and payable
without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived, and the
Administrative Agent may, with the concurrence or at the direction of the Required Secured Parties, exercise any
or all of the following rights and remedies:
5.2.1 Those rights and remedies provided in this Security Agreement, the Credit Agreement, or any other Loan
Document, provided that this Section 5.2.1 shall not be understood to limit any rights or remedies
available to the Administrative Agent and the Holders of Secured Obligations prior to a Default.
5.2.2 Those rights and remedies available to a secured party under the New York UCC (whether or not the New
York UCC applies to the affected Collateral) or under any other applicable law (including, without
limitation, any law governing the exercise of a bank’s right of setoff or bankers’ lien) when a debtor
is in default under a security agreement.
5.2.3 Without notice except as specifically provided in Section 8.1 hereof or elsewhere herein, sell, lease,
assign, grant an option or options to purchase or otherwise dispose of the Collateral or any part
thereof in one or more parcels at public or private sale, for cash, on credit or for future delivery,
and upon such other terms as the Administrative Agent may deem commercially reasonable.
The Administrative Agent, on behalf of the secured parties, may comply with any applicable state or federal law
requirements in connection with a disposition of the Collateral, and such compliance will not be considered to
adversely affect the commercial reasonableness of any sale of the Collateral.
If, after the Credit Agreement has terminated by its terms and all of the Obligations have been paid in full,
there remain Rate Management Obligations outstanding, the Required Secured Parties may exercise the remedies
provided in this Section 5.2 upon the occurrence of any event which would allow or require the termination or
acceleration of any Rate Management Obligations pursuant to the terms of the agreement governing any Rate
Management Transaction.
5.3. Grantors’ Obligations Upon Default. Upon the request of the Administrative Agent after the occurrence
of a Default, each Grantor will:
5.3.1 Assembly of Collateral. Assemble and make available to the Administrative Agent the Collateral and all
records relating thereto at any place or places specified by the Administrative Agent.
5.3.2 Secured Party Access. Permit the Administrative Agent, by the Administrative Agent’s representatives
and agents, to enter any premises where all or any part of the Collateral, or the books and records
relating thereto, or both, are located, to take possession of all or any part of the Collateral and to
remove all or any part of the Collateral.
5.4. License. The Administrative Agent is hereby granted a license or other right to use, following the
occurrence and during the continuance of a Default, without charge, each Grantor’s labels, patents, copyrights,
rights of use of any name, trade secrets, trade names, trademarks, service marks, customer lists and advertising
matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of,
advertising for sale, and selling any Collateral, and, following the occurrence and during the continuance of a
Default, such Grantor’s rights under all licenses shall inure to the Administrative Agent’s benefit.
ARTICLE VI
WAIVERS, AMENDMENTS AND REMEDIES
No delay or omission of the Administrative Agent or any Holder of Secured Obligations to exercise any
right or remedy granted under this Security Agreement shall impair such right or remedy or be construed to be a
waiver of any Default or an acquiescence therein, and any single or partial exercise of any such right or remedy
shall not preclude any other or further exercise thereof or the exercise of any other right or remedy. No
waiver, amendment or other variation of the terms, conditions or provisions of this Security Agreement whatsoever
shall be valid unless in writing signed by the Administrative Agent with the concurrence or at the direction of
the Lenders required under Section 8.2 of the Credit Agreement and each Grantor, and then only to the extent in
such writing specifically set forth, provided that the addition of any Domestic Subsidiary as a Grantor hereunder
by execution of a Security Agreement Supplement in the form of Annex I (with such modifications as shall be
acceptable to the Administrative Agent) shall not require receipt of any consent from or execution of any
documentation by any other Grantor party hereto. All rights and remedies contained in this Security Agreement or
by law afforded shall be cumulative and all shall be available to the Administrative Agent and the Holders of
Secured Obligations until the Secured Obligations have been paid in full.
ARTICLE VII
PROCEEDS; COLLECTION OF RECEIVABLES
7.1. Collection of Receivables. The Administrative Agent may at any time after the occurrence of a Default,
by giving each Grantor written notice, elect to require that the Receivables be paid directly to the
Administrative Agent for the benefit of the Holders of Secured Obligations. In such event, each Grantor shall,
and shall permit the Administrative Agent to, promptly notify the account debtors or obligors under the
Receivables owned by such Grantor of the Administrative Agent’s interest therein and direct such account debtors
or obligors to make payment of all amounts then or thereafter due under such Receivables directly to the
Administrative Agent. Upon receipt of any such notice from the Administrative Agent, each Grantor shall
thereafter hold in trust for the Administrative Agent, on behalf of the Holders of Secured Obligations, all
amounts and proceeds received by it with respect to the Receivables and Other Collateral and immediately and at
all times thereafter deliver to the Administrative Agent all such amounts and proceeds in the same form as so
received, whether by cash, check, draft or otherwise, with any necessary endorsements. The Administrative Agent
shall hold and apply funds so received as provided by the terms of Sections 7.2 hereof.
7.2. Application of Proceeds. The proceeds of the Collateral received by the Administrative Agent pursuant
to the exercise of its rights under Section 5.2 hereof shall be applied by the Administrative Agent to payment of
the Secured Obligations in the following order unless a court of competent jurisdiction shall otherwise direct:
(a) FIRST, to payment of all costs and expenses of the Administrative Agent incurred in
connection with the collection and enforcement of the Secured Obligations or of the security interest
granted to the Administrative Agent pursuant to this Security Agreement;
(b) SECOND, to payment of that portion of the Secured Obligations constituting accrued and
unpaid interest and fees, pro rata among the Lenders and their Affiliates in accordance with the amount
of such accrued and unpaid interest and fees owing to each of them;
(c) THIRD, to payment of the principal of the Secured Obligations and the net early
termination payments and any other Rate Management Obligations then due and unpaid from the Borrower to
any of the Lenders or their Affiliates, pro rata among the Lenders and their Affiliates in accordance
with the amount of such principal and such net early termination payments and other Rate Management
Obligations then due and unpaid owing to each of them;
(d) FOURTH, to payment of any Secured Obligations (other than those listed above) pro rata
among those parties to whom such Secured Obligations are due in accordance with the amounts owing to
each of them; and
(e) FIFTH, the balance, if any, after all of the Secured Obligations have been satisfied,
shall be distributed by the Administrative Agent to the applicable Grantor or at its direction.
ARTICLE VIII
GENERAL PROVISIONS
8.1. Notice of Disposition of Collateral; Condition of Collateral. Each Grantor hereby waives notice of the
time and place of any public sale or the time after which any private sale or other disposition of all or any
part of the Collateral may be made. To the extent such notice may not be waived under applicable law, any notice
made shall be deemed reasonable if sent to the Borrower, addressed as set forth in Article IX, at least ten days
prior to (i) the date of any such public sale or (ii) the time after which any such private sale or other
disposition may be made. Administrative Agent shall have no obligation to clean-up or otherwise prepare the
Collateral for sale.
8.2. Compromises and Collection of Collateral. Each Grantor and the Administrative Agent recognize that
setoffs, counterclaims, defenses and other claims may be asserted by obligors with respect to certain of the
Receivables, that certain of the Receivables may be or become uncollectible in whole or in part and that the
expense and probability of success in litigating a disputed Receivable may exceed the amount that reasonably may
be expected to be recovered with respect to a Receivable. In view of the foregoing, each Grantor agrees that the
Administrative Agent may at any time and from time to time, if a Default has occurred and is continuing,
compromise with the obligor on any Receivable, accept in full payment of any Receivable such amount as the
Administrative Agent in its sole discretion shall determine or abandon any Receivable, and any such action by the
Administrative Agent shall be commercially reasonable so long as the Administrative Agent acts in good faith
based on information known to it at the time it takes any such action.
8.3. Secured Party Performance of Grantor’s Obligations. Without having any obligation to do so, the
Administrative Agent may perform or pay any obligation which any Grantor has agreed to perform or pay in this
Security Agreement and such Grantor shall reimburse the Administrative Agent for any reasonable amounts paid by
the Administrative Agent pursuant to this Section 8.3. Each Grantor’s obligation to reimburse the Administrative
Agent pursuant to the preceding sentence shall be a Secured Obligation payable on demand.
8.4. Authorization for Secured Party to Take Certain Action. Each Grantor irrevocably authorizes the
Administrative Agent at any time and from time to time in the sole discretion of the Administrative Agent and
appoints the Administrative Agent as its attorney in fact (i) to execute on behalf of such Grantor as debtor and
to file financing statements necessary or desirable in the Administrative Agent’s sole discretion to perfect and
to maintain the perfection and priority of the Administrative Agent’s security interest in the Collateral, (ii)
after the occurrence and during the continuance of a Default, to indorse and collect any cash proceeds of the
Collateral, (iii) to file a carbon, photographic or other reproduction of this Security Agreement or any
financing statement with respect to the Collateral as a financing statement and to file any other financing
statement or amendment of a financing statement (which does not add new collateral or add a debtor) in such
offices as the Administrative Agent in its sole discretion deems necessary or desirable to perfect and to
maintain the perfection and priority of the Administrative Agent’s security interest in the Collateral, (iv)
after the occurrence and during the continuance of a Default, to contact and enter into one or more agreements
with the issuers of uncertificated securities which are Collateral owned by such Grantor and which are Securities
or with financial intermediaries holding other Investment Property as may be necessary or advisable to give the
Administrative Agent Control over such Securities or other Investment Property, (v) subject to the terms of
Section 4.1.5 hereof and after the occurrence and during the continuance of a Default, to enforce payment of the
Instruments, Accounts and Receivables in the name of the Administrative Agent or such Grantor, (vi) to apply the
proceeds of any Collateral received by the Administrative Agent to the Secured Obligations as provided in Article
VII and (vii) to discharge past due taxes, assessments, charges, fees or Liens on the Collateral (except for such
Liens as are specifically permitted hereunder or under any other Loan Document), and each Grantor agrees to
reimburse the Administrative Agent on demand for any reasonable payment made or any reasonable expense incurred
by the Administrative Agent in connection therewith, provided that this authorization shall not relieve any
Grantor of any of its obligations under this Security Agreement or under the Credit Agreement.
8.5. Specific Performance of Certain Covenants. Each Grantor acknowledges and agrees that a breach of any of
the covenants contained in Sections 4.1.5, 4.1.6, 4.4, 5.3, or 8.7 or in Article VII hereof will cause
irreparable injury to the Administrative Agent and the Holders of Secured Obligations, that the Administrative
Agent and Holders of Secured Obligations have no adequate remedy at law in respect of such breaches and therefore
agrees, without limiting the right of the Administrative Agent or the Holders of Secured Obligations to seek and
obtain specific performance of other obligations of the Grantors contained in this Security Agreement, that the
covenants of the Grantors contained in the Sections referred to in this Section 8.5 shall be specifically
enforceable against the Grantors.
8.6. Use and Possession of Certain Premises. Upon the occurrence of a Default, the Administrative Agent
shall be entitled to reasonable use and occupancy of any premises owned or leased by the Grantors where any of
the Collateral or any records relating to the Collateral are located until the Secured Obligations are paid or
the Collateral is removed therefrom, whichever first occurs, without any obligation to pay any Grantor for such
use and occupancy.
8.7. Dispositions Not Authorized. No Grantor is authorized to sell or otherwise dispose of the Collateral
except as set forth in Section 4.1.5 hereof and notwithstanding any course of dealing between any Grantor and the
Administrative Agent or other conduct of the Administrative Agent, no authorization to sell or otherwise dispose
of the Collateral (except as set forth in Section 4.1.5 hereof) shall be binding upon the Administrative Agent or
the Holders of Secured Obligations unless such authorization is in writing signed by the Administrative Agent
with the consent or at the direction of the Required Lenders.
8.8. Benefit of Agreement. The terms and provisions of this Security Agreement shall be binding upon and
inure to the benefit of the Grantors, the Administrative Agent and the Holders of Secured Obligations and their
respective successors and assigns (including all persons who become bound as a debtor to this Security
Agreement), except that the Grantors shall not have the right to assign their rights or delegate their
obligations under this Security Agreement or any interest herein, without the prior written consent of the
Administrative Agent.
8.9. Survival of Representations. All representations and warranties of the Grantors contained in this
Security Agreement shall survive the execution and delivery of this Security Agreement.
8.10. Expenses. The Grantors shall reimburse the Administrative Agent for any and all reasonable
out-of-pocket expenses and internal charges (including reasonable attorneys’, auditors’ and accountants’ fees and
reasonable time charges of attorneys, paralegals, auditors and accountants who may be employees of the
Administrative Agent) paid or incurred by the Administrative Agent in connection with the preparation, execution,
delivery, administration, collection and enforcement of this Security Agreement and in the audit, analysis,
administration, collection, preservation or sale of the Collateral (including the expenses and charges associated
with any periodic or special audit of the Collateral). Any and all costs and expenses incurred by the Grantors
in the performance of actions required pursuant to the terms hereof shall be borne solely by the Grantors.
8.11. Headings. The title of and section headings in this Security Agreement are for convenience of reference
only, and shall not govern the interpretation of any of the terms and provisions of this Security Agreement.
8.12. Termination. This Security Agreement shall continue in effect (notwithstanding the fact that from time
to time there may be no Secured Obligations outstanding) until (i) the Credit Agreement has terminated pursuant
to its express terms and (ii) all of the Secured Obligations have been indefeasibly paid and performed in full
and no commitments of the Administrative Agent or the Holders of Secured Obligations which would give rise to any
Secured Obligations are outstanding.
8.13. Entire Agreement. This Security Agreement embodies the entire agreement and understanding between the
Grantors and the Administrative Agent relating to the Collateral and supersedes all prior agreements and
understandings between the Grantors and the Administrative Agent relating to the Collateral.
8.14. CHOICE OF LAW. THIS SECURITY AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO THE CONFLICTS OF LAWS PROVISIONS) BUT GIVING EFFECT TO
FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.
8.15. Indemnity. Each Grantor hereby agrees, jointly with the other Grantors and severally, to indemnify the
Administrative Agent and the Holders of Secured Obligations (the “Indemnified Parties”), and their respective
successors, assigns, agents and employees, from and against any and all liabilities, damages, penalties, suits,
costs, and expenses of any kind and nature (including, without limitation, all expenses of litigation or
preparation therefor whether or not the Administrative Agent or any Holder of Secured Obligations is a party
thereto) imposed on, incurred by or asserted against the Administrative Agent or the Holders of Secured
Obligations, or their respective successors, assigns, agents and employees, in any way relating to or arising out
of this Security Agreement, or the manufacture, purchase, acceptance, rejection, ownership, delivery, lease,
possession, use, operation, condition, sale, return or other disposition of any Collateral (including, without
limitation, latent and other defects, whether or not discoverable by the Administrative Agent or the Holders of
Secured Obligations or any Grantor, and any claim for patent, trademark or copyright infringement), excluding any
liabilities, damages, penalties, suits, costs and expenses resulting from the gross negligence or willful
misconduct of any Indemnified Party.
8.16. Subordination of Intercompany Indebtedness. Each Grantor agrees that any and all claims of such Grantor
against any other Grantor (each an “Obligor”) with respect to any “Intercompany Indebtedness” (as hereinafter
defined), any endorser, obligor or any other guarantor of all or any part of the Secured Obligations, or against
any of its properties shall be subordinate and subject in right of payment to the prior payment, in full and in
cash, of all Secured Obligations, provided that so long as no Default has occurred and is continuing, such
Grantor may make loans to and receive payments in the ordinary course of business with respect to such
Intercompany Indebtedness from each such Obligor to the extent not prohibited by the terms of this Security
Agreement and the other Loan Documents. Notwithstanding any right of any Grantor to ask, demand, xxx for, take
or receive any payment from any Obligor, all rights, liens and security interests of such Grantor, whether now or
hereafter arising and howsoever existing, in any assets of any other Obligor shall be and are subordinated to the
rights of the Holders of Secured Obligations and the Administrative Agent in those assets. No Grantor shall have
any right to possession of any such asset or to foreclose upon any such asset, whether by judicial action or
otherwise, unless and until all of the Secured Obligations (other than contingent indemnity obligations) shall
have been fully paid and satisfied (in cash) and all Commitments and Facility LCs issued under the Credit
Agreement have terminated or expired, provided that so long as no Default has occurred and is continuing, such
Grantor may make loans to and receive payments in the ordinary course of business with respect to such
Intercompany Indebtedness from each such Obligor to the extent not prohibited by the terms of this Security
Agreement and the other Loan Documents. After the occurrence and during the continuance of a Default, if all or
any part of the assets of any Obligor, or the proceeds thereof, are subject to any distribution, division or
application to the creditors of such Obligor, whether partial or complete, voluntary or involuntary, and whether
by reason of liquidation, bankruptcy, arrangement, receivership, assignment for the benefit of creditors or any
other similar action or proceeding, then, and in any such event (such events being herein referred to as an
“Insolvency Event”), any payment or distribution of any kind or character, either in cash, securities or other
property, which shall be payable or deliverable upon or with respect to any indebtedness of any Obligor to any
Grantor (“Intercompany Indebtedness”) shall be paid or delivered directly to the Administrative Agent for
application on any of the Secured Obligations, due or to become due, until such Secured Obligations (other than
contingent indemnity obligations) shall have first been fully paid and satisfied (in cash). Should any payment,
distribution, security or instrument or proceeds thereof be received by the applicable Grantor upon or with
respect to the Intercompany Indebtedness after any Insolvency Event and prior to the satisfaction of all of the
Secured Obligations (other than contingent indemnity obligations) and the termination or expiration of all
Commitments of the Lenders and Facility LCs issued pursuant to the Credit Agreement, such Grantor shall receive
and hold the same in trust, as trustee, for the benefit of the Holders of Secured Obligations and shall forthwith
deliver the same to the Administrative Agent, for the benefit of the Holders of Secured Obligations, in precisely
the form received (except for the endorsement or assignment of the Grantor where necessary), for application to
any of the Secured Obligations, due or not due, and, until so delivered, the same shall be held in trust by the
Grantor as the property of the Holders of Secured Obligations. If any such Grantor fails to make any such
endorsement or assignment to the Administrative Agent, the Administrative Agent or any of its officers or
employees is irrevocably authorized to make the same. Each Grantor agrees that until the Secured Obligations
(other than the contingent indemnity obligations) have been paid in full (in cash) and satisfied and all
Commitments and Facility LCs issued under the Credit Agreement have terminated or expired, no Grantor will assign
or transfer to any Person (other than the Administrative Agent or the Borrower or another Grantor) any claim any
such Grantor has or may have against any Obligor.
ARTICLE IX
NOTICES
9.1. Sending Notices. Any notice required or permitted to be given under this Security Agreement shall be
sent (and deemed received) in the manner and to the addresses set forth in Article XIII of the Credit Agreement;
and any such notice delivered to the Borrower shall be deemed to have been delivered to all of the Grantors.
9.2. Change in Address for Notices. Each of the Grantors, the Administrative Agent and the Lenders may
change the address for service of notice upon it by a notice in writing to the other parties.
ARTICLE X
THE ADMINISTRATIVE AGENT
Bank One, NA (Main Office Chicago) has been appointed Administrative Agent for the Holders of Secured
Obligations hereunder pursuant to Article X of the Credit Agreement. It is expressly understood and agreed by
the parties to this Security Agreement that any authority conferred upon the Administrative Agent hereunder is
subject to the terms of the delegation of authority made by the Holders of Secured Obligations to the
Administrative Agent pursuant to the Credit Agreement, and that the Administrative Agent has agreed to act (and
any successor Administrative Agent shall act) as such hereunder only on the express conditions contained in such
Article X. Any successor Administrative Agent appointed pursuant to Article X of the Credit Agreement shall be
entitled to all the rights, interests and benefits of the Administrative Agent hereunder.
[SIGNATURE PAGES TO FOLLOW]
IN WITNESS WHEREOF, each of the Grantors and the Administrative Agent have executed this Security
Agreement as of the date first above written.
ENCORE CAPITAL GROUP, INC., as a Grantor MIDLAND CREDIT MANAGEMENT, INC., as a Grantor
By: /s/ Xxxx X. Xxxxxxx, III By: /s/ Xxxx X. Xxxxxxx, III
Name: Xxxx X. Xxxxxxx, III Name: Xxxx X. Xxxxxxx, III
Title: President&CEO Title: President & CEO
MIDLAND FUNDING NCC-2 CORPORATION, as a Grantor MIDLAND ACQUISITION CORPORATION, as a Grantor
By: /s/ Xxxx X. Xxxxxxx, III By: /s/ Xxxx X. Xxxxxxx, III
Name: Xxxx X. Xxxxxxx, III Name: Xxxx X. Xxxxxxx, III
Title: President Title: President
BANK ONE, NA, as Administrative Agent
By: /s/ Xxxxxx X. Xxxxxxxx
Name: Xxxxxx X. Xxxxxxxx
Title: First Vice President
