EXHIBIT 12
PREFERRED STOCK CONVERSION AGREEMENT
This Preferred Stock Conversion Agreement (this "Agreement") is made as
of August 29, 2003 by and among Encore Capital Group, Inc., a Delaware
corporation (the "Company"), and the Purchasers identified in the signature
pages attached hereto (each, a "Purchaser" and, collectively, the "Purchasers").
RECITALS
A. The Purchasers own shares (the "Preferred Shares") of Series A
Senior Cumulative Participating Convertible Preferred Stock.
B. The Company is pursuing a public offering of its common stock
(the "Offering").
C. The underwriters have informed the Company that the Preferred
Shares will need to be converted to shares of common stock (the "Common Shares")
in conjunction with the Offering.
D. The Purchasers have agreed to exercise their rights to convert
the Preferred Shares into Common Shares to ensure a successful Offering.
NOW, THEREFORE, in consideration of the mutual covenants contained in
this Agreement and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and the Purchasers agree
as follows:
ARTICLE I.
PURCHASE, ESCROW AND CLOSINGS
1.1 Conversion of Preferred Stock. Effective as of the closing of the
Offering, the Purchasers agree to convert all of their Preferred Stock into the
Common Shares in accordance with the terms of the Preferred Stock, which
entitles the Purchasers to receive ten (10) Common Shares in exchange for each
share of Preferred Stock so converted.
1.2 Escrow.
(a) The parties shall designate an escrow agent (the "Escrow
Agent") and establish an escrow account (the "Escrow Account") pursuant to an
escrow agreement substantially in the form attached hereto as Exhibit A (the
"Escrow Agreement").
(b) Within six (6) business days of the last signature hereto,
each Purchaser will deliver to the Escrow Agent to be held in accordance with
the Escrow Agreement:
(i) each Purchaser's certificates for Preferred
Stock; and
(ii) any other documents required to be duly and
validly executed and delivered by the Purchasers pursuant to the Escrow
Agreement.
(c) Prior to the Closing, the Company will:
(i) deposit into the Escrow Account the accrued
and unpaid dividends with respect to the Preferred Stock through the Closing
date;
(ii) deliver to the Escrow Agent the certificates
for the Common Shares; and
(iii) deliver to the Escrow Agent all documents
required to be duly and validly executed and delivered by the Company pursuant
to the Escrow Agreement.
1.3 Closing. Upon satisfaction of the conditions set forth in Section
1.4, the Closing of the conversion of the Preferred Shares shall occur at the
offices of the Company. At the Closing, the Escrow Agent shall deliver or cause
to be delivered the following in accordance with the escrow instructions
contained in the Escrow Agreement:
(a) to each of the Purchasers, certificates evidencing the
Common Shares (excluding the shares to be included in the Offering) duly
endorsed in blank (or alternatively, at each Purchaser's election, if feasible,
evidence of transfer may be effected through the facilities of the Depository
Trust Company or other means acceptable to the Company), which certificate will
have an appropriate restrictive legend.
(b) to the Company, the certificates for the Preferred Shares,
for cancellation.
1.4 Closing Conditions. The Closing of the conversion of Preferred
Shares and issuance of the Common Shares is subject to:
(a) Closing of the Offering.
(b) All documents, certificates and instruments required to be
duly and validly executed and delivered by the all of the holders of the
Preferred Shares pursuant to the Escrow Agreement and all amounts required to be
deposited by the Company with the Escrow Agent shall have been deposited with
and received by the Escrow Agent.
(c) All representations and warranties of the parties
contained herein shall remain true and correct in all material respects as of
the Closing Date.
(d) As of the Closing Date, there shall have been no Material
Adverse Effect (as defined in Section 2.1(c)) with respect to the Company since
the date hereof.
(e) From the date hereof to the Closing Date, trading in the
Company's common stock shall not have been suspended or limited, minimum prices
shall not have been established on the Nasdaq National Market, nor shall a
banking moratorium have been declared either by the United States or applicable
state authorities.
1.5 Termination. If the Closing of the Offering has not occurred by
November 30, 2003 or if the Offering is sooner terminated, this Agreement will
be terminated and have no further force and effect. In that event, the return of
all deposits, documents, certificates and other instruments shall be governed by
the terms of the Escrow Agreement.
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ARTICLE II.
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of the Company. The Company hereby
makes the following representations and warranties as of the date hereof , and
as of the Closing Date, to each of the Purchasers (and any permitted assignees):
(a) Organization. The Company is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization, with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently conducted.
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated hereby and otherwise to carry out its obligations hereunder. The
execution and delivery of this Agreement by the Company and the consummation by
it of the transactions contemplated thereby have been duly authorized by all
necessary action on the part of the Company and no further action is required by
the Company in connection therewith. This Agreement has been duly executed and
delivered by the Company and constitutes a valid and binding obligation of the
Company enforceable against it in accordance with its terms, except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors' rights
generally and (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies (the "Enforceability
Exceptions").
(c) No Conflicts. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby do not and will not (i) conflict with or
violate any provision of the Company's certificate or articles of incorporation,
bylaws or other organizational or charter documents, or (ii) conflict with, or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation (with or without notice, lapse of time
or both) of, any agreement, credit facility, debt or other instrument or other
understanding to which the Company is a party or by which any property or asset
of the Company is bound or affected, or (iii) result in a violation of any law,
rule, regulation, order, judgment, injunction, decree or other restriction of
any court or governmental authority to which the Company is subject (including
federal and state securities laws and regulations), or by which any property or
asset of the Company is bound or affected; except in the case of each of clauses
(ii) and (iii), such as would not have or reasonably be expected to result in a
material adverse effect on (x) the condition, financial or otherwise, earnings,
business, operations or prospects of the Company taken as a whole, (y) the
legality, validity or enforceability of this Agreement, or (z) adversely impair
the Company's ability to perform in any material respect on a timely basis its
obligations under this Agreement (any of (x), (y) or (z), a "Material Adverse
Effect").
(d) No Consents. No consent, approval, authorization or order
of, or any filing or declaration with, any court or governmental agency or body
is required in connection with the consummation by the Company of the
transactions on its part contemplated by this Agreement,
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except such as may be required under the Securities Act of 1933 or the rules and
regulations promulgated thereunder (the "Securities Act"), state securities or
blue sky laws, and the by-laws and rules of the Nasdaq National Market, all of
which shall be timely made or obtained.
(e) SEC Reports. The Company has filed all reports required to
be filed by it under the Securities Xxxxxxxx Xxx 0000, including pursuant to
Section 13(a) or 15(d) thereof, and the rules and regulations thereunder (the
"Exchange Act") for the two years preceding the date hereof (the foregoing
materials and any materials incorporated therein by reference being collectively
referred to herein as the "SEC Reports") on a timely basis or has received a
valid extension of such time of filing and has filed any such SEC Reports prior
to the expiration of any such extension. As of their respective dates, the SEC
Reports complied in all material respects with the requirements of the
Securities Act and the Exchange Act and the rules and regulations of the
Securities and Exchange Commission (the "Commission") promulgated thereunder,
and none of the SEC Reports, when filed, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(f) Financial Statements. The financial statements filed with
the Commission as a part of the SEC Reports present fairly, in all material
respects, the financial position of the Company and its consolidated
subsidiaries as of and at the dates indicated and the results of their
operations and cash flows for the periods specified therein, subject, in the
case of interim financial statements, to the normal year-end adjustments which
are not expected to be material in amount. Such financial statements have been
prepared in conformity with generally accepted accounting principles as applied
in the United States and in effect as of the date of the applicable financial
statements and supporting schedules, as applicable, applied on a consistent
basis throughout the periods involved, except as may be expressly stated in the
related notes thereto, and comply in all material respects with the Securities
Act, the Exchange Act and the applicable rules and regulations of the Commission
thereunder.
(g) Listing. As of or immediately following the Closing, the
Common Shares will be listed on the Nasdaq National Market.
2.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby severally and not jointly makes the following representations and
warranties to the Company as of the date hereof, and as of the Closing Date:
(a) Organization. If an entity, such Purchaser is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with full right, corporate, partnership or
other power and authority to enter into and to consummate the transactions
contemplated by this Agreement and otherwise to carry out its obligations
thereunder.
(b) Authorization; Enforcement. Such Purchaser has the
requisite power and authority to enter into and to consummate the transactions
contemplated hereby and otherwise to carry out its obligations hereunder. The
execution, delivery and performance by such Purchaser of the transactions
contemplated by this Agreement has been duly authorized by all necessary action
on the part of the Purchaser. This Agreement has been duly executed by such
Purchaser,
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and constitutes the valid and legally binding obligation of such Purchaser,
enforceable against it in accordance with its terms, except for the
Enforceability Exceptions.
(c) Investment Intent. Such Purchaser understands that the
Common Shares will be "restricted securities" and have not been registered under
the Securities Act or any applicable state securities law. Such Purchaser is
acquiring the Common Shares as principal for its own account for investment
purposes only and not with a view to the distribution thereof, except pursuant
to a valid and effective registration statement.
(d) Purchaser Status. The Purchaser is an Accredited Investor
or a Qualified Institutional Buyer, as defined under the Securities Act.
(e) Experience of Such Purchaser. Such Purchaser, either alone
or together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Common Shares, and has
evaluated the merits and risks of such investment. Such Purchaser is able to
bear the economic risk of an investment in the Common Shares and is able to
afford a complete loss of such investment.
ARTICLE III.
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions.
(a) The Common Shares may only be disposed of in compliance
with state and federal securities laws. In connection with any transfer of
Common Shares other than pursuant to an effective registration statement, to the
Company, to an affiliate (as defined under the federal securities laws) of a
Purchaser or in connection with a pledge as contemplated in Section 3.1(b), the
Company may require the transferor thereof to provide to the Company an opinion
of counsel selected by the transferor, the form and substance of which opinion
shall be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration of such transferred Common Shares under
the Securities Act. As a condition of transfer, any such transferee shall agree
in writing to be bound by the terms of this Agreement and shall have the rights
of a Purchaser under this Agreement.
(b)(i) The Purchasers understand that so long as is required
by this Section 3.1(b), a legend shall be placed on the Common Shares in the
following form:
These securities have not been registered with the
Securities and Exchange Commission or the securities
commission of any state in reliance upon an exemption
from registration under the Securities Act of 1933, as
amended and, accordingly, may not be offered or sold
except pursuant to an effective registration statement
under the Securities Act or pursuant to any available
exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act and in
accordance with applicable state securities laws as
evidenced by a legal opinion of counsel to the
transferor to such effect, the substance of which shall
be reasonably acceptable
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to the Company. These securities may be pledged in
connection with a bona fide margin account with a
registered broker-dealer or other loan with a
financial institution that is an accredited investor
or qualified institutional buyer as defined under the
Securities Act.
(ii) The Company acknowledges and agrees that a Purchaser may
from time to time pledge pursuant to a bona fide margin agreement with
a registered broker-dealer or grant a security interest in some or all
of the Common Shares to a financial institution that is an Accredited
Investor or Qualified Institutional Buyer as defined under the
Securities Act and, if required under the terms of such arrangement,
such Purchaser may transfer pledged or secured Common Shares to the
pledgees or secured parties. Such a pledge or transfer would not be
subject to approval of the Company and no opinion of legal counsel of
the pledgee, secured party or pledgor shall be required in connection
therewith. At the appropriate Purchaser's expense, the Company will
execute and deliver such reasonable documentation as a pledgee or
secured party of the Common Shares may reasonably request in connection
with a pledge or transfer of the Common Shares.
(c) Certificates evidencing the Common Shares shall not
contain any legend (including the legend set forth in Section 3.1(b)), (i) while
a registration statement covering the resale of such security is effective under
the Securities Act, or (ii) following any sale of such Securities pursuant to
Rule 144, unless otherwise required by applicable law or (iii) if such Common
Shares are eligible for sale under Rule 144(k), or (iv) if such legend is not
required under applicable requirements of the Securities Act. In such event, the
Company shall cause its counsel to issue a legal opinion to the Company's
transfer agent to the extent necessary to effect the removal of the legend
hereunder. The Company agrees that at such time as the legend is no longer
required under this Section 3.1(c), it will, no later than 3 trading days
following the delivery by a Purchaser to the Company or the Company's transfer
agent of a certificate representing shares of Company Common Stock issued with a
restrictive legend (and such documents as the Company may reasonably request to
permit a sale pursuant to Rule 144, if applicable), deliver or cause to be
delivered to such Purchaser a certificate representing such shares that is free
from all restrictive legends.
ARTICLE IV.
MISCELLANEOUS
4.1 Fees and Expenses. The Company shall pay the fees and expenses of
the Company's advisers, counsel, accountants and other experts, if any, the
Purchaser's counsel, and all other expenses incurred by the Company, incident to
the negotiation, preparation, execution, delivery and performance of this
Agreement.
4.2 Entire Agreement. This Agreement, together with the exhibits and
schedules thereto, contain the entire understanding of the parties with respect
to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
4.3 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective
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on the earliest of (a) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile number specified in this Section
prior to 3:30 p.m. (California time) on a trading day, (b) the next trading day
after the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number specified in this Section on a day that is not
a trading day or later than 3:30 p.m. (California time) on any trading day, (c)
the trading day following the date of mailing, if sent by U.S. nationally
recognized overnight courier service, or (d) upon actual receipt by the party to
whom such notice is required to be given. The address for such notices and
communications shall be as set forth on the signature pages attached hereto.
4.4 Amendments; Waivers. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by the Company and a majority in interest of the Purchasers or, in the case of a
waiver, by the party against whom enforcement of any such waiver is sought. No
waiver of any default with respect to any provision, condition or requirement of
this Agreement shall be deemed to be a continuing waiver in the future or a
waiver of any subsequent default or a waiver of any other provision, condition
or requirement hereof, nor shall any delay or omission of either party to
exercise any right hereunder in any manner impair the exercise of any such
right.
4.5 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
construed and enforced in accordance with the internal laws of Delaware, without
regard to the principles of conflicts of law thereof.
4.6 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement, it being understood that all parties need not sign the same
counterpart. In the event that any signature is delivered by facsimile or email
transmission, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile or email signature page were an original
thereof.
4.7 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under this Agreement are several and not joint
with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under this Agreement. Nothing contained herein, and no action taken by
any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as
a partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert or as
a group with respect to such obligations or the transactions contemplated by
this Agreement. Each Purchaser shall be entitled to independently protect and
enforce its rights, including without limitation, the rights arising out of this
Agreement, and it shall not be necessary for any other Purchaser to be joined as
an additional party in any proceeding for such purpose.
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IN WITNESS WHEREOF, the parties hereto have caused this Preferred Stock
Conversion Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
ENCORE CAPITAL GROUP, INC.
By: /s/ Xxxx X. Xxxxxxx, III
------------------------
Name: Xxxx X. Xxxxxxx, III
Title: President and CEO
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE OF PURCHASERS FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this Preferred Stock
Conversion Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
[PURCHASER] CP INTERNATIONAL INVESTMENTS LIMITED
By: /s/ Xxxxx Xxxx Xxxxxxx
----------------------
Name: Xxxxx Xxxx Xxxxxxx
Title: Director
* Number of Preferred Shares to
be converted: 400,000
Address for Notice:
Attn: Xxxxx X. Xxxxxxx, Esq.
00-00 Xxxx Xxxxxx
Xxxxxx, XXX 0000
Xxxxxxxxx
Telephone No.: (000) 000 0000 0000
Facsimile No.: (000) 000 0000 0000
With copies to: Debevoise & Xxxxxxxx
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx
Facsimile No.: (000) 000-0000
Attn: Xxxxx Xxxxxx
* Must be all your shares.
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