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EXHIBIT 10.12
CONVERSION AGREEMENT
This Conversion Agreement (the "Agreement") is made and entered into
as of this 15th day of May, 1998, by and among TeleBanc Financial Corporation,
a Delaware corporation ("Corporation") and each of the Investors set forth on
Schedule A hereto (each, an "Investor" and, collectively, the "Investors").
R E C I T A L S
WHEREAS, each of the Investors is the beneficial holder and owner of
record of the number of shares of Series A Voting Convertible Preferred Stock,
par value $.01 per share (the "Series A Preferred Stock"), Series B Nonvoting
Convertible Preferred Stock, par value $.01 per share (the "Series B Preferred
Stock") and Series C Nonvoting Convertible Preferred Stock (the "Series C
Preferred Stock" and together with the Series A Preferred Stock and the Series
B Preferred Stock, the "Preferred Stock") of the Corporation set forth on
Schedule A hereto and issued to each such Investor pursuant to the terms of
that certain Unit Purchase Agreement dated as of February 19, 1997 among the
Corporation and the Investors (the "Unit Purchase Agreement");
WHEREAS, the Corporation is contemplating an underwritten public
offering (the "Public Offering") of shares of common stock, par value $.01 per
share (the "Common Stock") of the Corporation, for which BancAmerica Xxxxxxxxx
Xxxxxxxx, CIBC Xxxxxxxxxxx and Xxxx Xxxxx Xxxx Xxxxxx (the "Underwriters") will
act as the Underwriters;
WHEREAS, the Corporation intends to file a registration statement on
Form S-2 (the "Registration Statement") with the Securities and Exchange
Commission (the "Commission") to register the shares of Common Stock being sold
in the Public Offering for sale to the public; and
WHEREAS, the parties hereto wish to enter into this Agreement to set
forth their agreement with respect to the conversion of the outstanding shares
of Preferred Stock held by the Investor, without further action on the part of
the holder, at the date and time of consummation of the Public Offering, all
upon and subject to the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises and agreements
hereinafter set forth and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by each of the parties
hereto, the parties hereto agree as follows:
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1. CONVERSION OF PREFERRED STOCK.
(a) CONVERSION OF THE SERIES C PREFERRED STOCK. Subject to
satisfaction of each of the conditions precedent set forth in Section 1(c) of
this Agreement, each of the Investors holding shares of Series C hereby agrees
to convert each of the outstanding shares of Series C Preferred Stock into the
number of fully paid and nonassessable shares of Series A Preferred Stock or
Series B Preferred pursuant to and in accordance with the Applicable Conversion
Rate (as defined in the TeleBanc Financial Corporation Certificate of
Designation of the Series A Preferred Stock and Series B Preferred Stock and
Series C Preferred Stock (the "Certificate of Designation") adopted on February
25, 1997) prior to the Effective Time (as hereinafter defined).
(b) CONVERSION OF THE SERIES A PREFERRED STOCK AND SERIES B
PREFERRED STOCK. Each of the Investors holding shares of Series A Preferred
Stock and Series B Preferred Stock at the date and time of the consummation of
the Public Offering (the "Effective Time"), hereby agrees that, at the
Effective Time, each of the outstanding shares of such series of Preferred
Stock will automatically and without any further action on the part of the
holder thereof, convert into the number of fully paid and nonassessable shares
of voting Common Stock of the Corporation pursuant to and in accordance with
the Applicable Conversion Rate (as defined in the Certificate of Designation).
(c) CONDITIONS PRECEDENT TO CONVERSION OF PREFERRED STOCK.
The conversion of the shares of Preferred Stock set forth in subsections (a)
and (b) of this Section 1 is expressly conditioned upon the satisfaction of the
following conditions:
(i) the Corporation shall declare and pay, prior to
or at the Effective Time, a dividend (payable in the form of shares of Common
Stock) on the Preferred Stock equal to five percent (5%) of the number of
shares issuable upon conversion of the Preferred Stock (the "Special
Dividend");
(ii) the Corporation shall consummate a public
offering on or before September 30, 1998, of not fewer than 1,000,000 shares of
Common Stock at a price per share to the public equal to or greater than $25.00
(the "Minimum Price") per share (a "Qualified Public Offering"); and
(iii) all of the Investors shall have executed and
delivered this Agreement.
(d) STOCK DIVIDEND. The parties hereto acknowledge and agree
that the Corporation intends to declare and to pay a 100% stock dividend on the
outstanding shares of Common Stock prior to the Effective Time. In the event
that such stock dividend on the Common Stock is declared and paid by the
Corporation prior to the Effective Time, the numbers of shares and per share
amounts of Common Stock as set forth in this Agreement shall be subject to
appropriate adjustment.
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2. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION. As a material
inducement to each of the Investors to enter into this Agreement, the
Corporation represents and warrants to each Investor that each of the following
representations and warranties is true and correct as of the date hereof and as
of the Effective Time (to the same extent as if then made).
(a) AUTHORITY. The Corporation is a corporation, duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the corporate power and authority to execute and deliver this
Agreement and to perform its obligations hereunder. The execution, delivery
and performance of this Agreement by the Corporation has been duly authorized
by all necessary corporate action on the part of the Corporation. This
Agreement is a valid and legally binding obligation of the Corporation,
enforceable against it in accordance with its terms, except as limited by the
effect of bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the rights and remedies of creditors generally or by general
principles of equity (whether applied in a proceeding at law or in equity).
(b) DUE ISSUANCE OF COMMON STOCK. When issued pursuant to
the terms of this Agreement, the shares of Common Stock to be issued upon
conversion of the Preferred Stock and, if the Special Dividend is declared and
paid, the shares of Common Stock issued pursuant to such Special Dividend, will
be validly issued, fully paid and nonassessable, free and clear of any
restrictions on transfer (other than restrictions imposed by federal or state
securities laws and the lock-up agreement hereinafter set forth), claims,
taxes, security interests, options, warrants, rights, contracts, calls, or
commitments. The Corporation has taken all necessary corporate action to
reserve for issuance the number of shares of Common Stock issuable upon
conversion of the Preferred Stock and, prior to the Effective Time, will take
all necessary corporate action to authorize the payment of the Special
Dividend.
(c) NO VIOLATION OF LAWS OR AGREEMENTS. Neither the
execution and delivery of this Agreement by the Corporation, nor the
performance by it of its obligations hereunder, will (i) violate any statute,
regulation, rule, judgment, order, decree, stipulation, injunction, charge or
other restriction of any government, governmental agency or court to which the
Corporation is subject, (ii) violate any provision of the Amended and Restated
Certificate of Incorporation or Bylaws of the Corporation, (iii) conflict with
or result in a breach of, constitute a default under, result in the
acceleration of, or create in any person the right to accelerate, terminate,
modify or cancel, or require notice under any agreement or instrument to which
the Corporation is a party or by which the Corporation is bound, or (iv) result
in the creation or imposition of any lien, charge or encumbrance, security
interest or restriction with respect to the Corporation's assets.
3. REPRESENTATIONS AND WARRANTIES OF INVESTORS. As a material
inducement to each other Investor and to the Corporation to enter into this
Agreement, each of the Investors, severally but not jointly, represents and
warrants to each other Investor and to the Corporation that each of the
following representations and warranties is true and
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correct as of the date hereof and as of the Effective Time (to the same extent
as if then made).
(a) AUTHORITY. Each of the Investors represents and warrants
that it has full capacity and authority necessary to execute, deliver and
perform this Agreement and to perform its obligations hereunder. Each of the
Investors represents and warrants that it is duly organized, validly existing
and in good standing under the laws of the jurisdiction in which it was formed
and has the power and authority to execute and deliver this Agreement, and to
perform its obligations hereunder. The execution, delivery and performance of
this Agreement by each of the Investors has been duly authorized by all
necessary corporate or partnership action on the part of such entity. This
Agreement is a valid and legally binding obligation of each of the Investors,
enforceable against each of them in accordance with its terms, except as
limited by the effect of bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the rights and remedies of creditors generally or
by general principles of equity (whether applied in a proceeding at law or in
equity).
(b) NO VIOLATION OF LAWS OR AGREEMENTS. Each Investor
represents and warrants that neither the execution and delivery of this
Agreement, nor the performance by such Investor of its obligations hereunder,
will (i) violate any statute, regulation, rule, judgment, order, decree,
stipulation, injunction, charge or other restriction of any government,
governmental agency or court to which such Investor is subject, or (ii)
conflict with or result in a breach of, constitute a default under, result in
the acceleration of, or create in any person the right to accelerate,
terminate, modify or cancel, or require notice under any agreement or
instrument to which such Investor is a party or by which such Investor or any
of its assets are bound.
(c) ACCREDITED INVESTOR. Each of the Investors hereby
certifies that it is an "accredited investor" within the meaning of Rule 501(a)
of Regulation D promulgated under the Securities Act of 1933, as amended (the
"Securities Act"). Each of the Investors represents and warrants that it is a
bona fide resident of the state or jurisdiction indicated in the address set
forth on Schedule A to this Agreement.
(d) INVESTMENT INTENT. Each of the Investors is acquiring
the shares of Common Stock issuable upon conversion of the Preferred Stock for
the purpose of investment and not with a view to, or for resale in connection
with, any distribution thereof in violation of the Securities Act. Each of the
Investors acknowledges that the shares of Common Stock to be received upon
conversion are not registered under the Securities Act or any applicable state
securities law, and that such Common Stock may not be transferred or sold
except pursuant to the registration provisions of such Securities Act or
pursuant to an applicable exemption therefrom and pursuant to state securities
laws and regulations as applicable, and that the certificate representing the
shares of Common Stock will bear appropriate legends to that effect.
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4. LOCK-UP AGREEMENT; WAIVER OF REGISTRATION RIGHTS, RIGHT OF FIRST
OFFER AND CERTAIN ADJUSTMENTS TO APPLICABLE CONVERSION VALUE. In order to
induce the Underwriters to enter into the Underwriting Agreement to be entered
into in connection with a Qualified Public Offering, each of the Investors
agrees that from the date hereof, and continuing for a period (the "Lock-Up
Period") of one-hundred and eighty (180) days from the date of closing of the
Qualified Public Offering, it will not, without the prior written consent of
the lead underwriter of the Qualified Public Offering, offer, pledge, sell,
contract to sell, grant any option for the sale of, or otherwise dispose of,
directly or indirectly, any shares of the Corporation's Common Stock, or any
other securities of the Corporation convertible into, exercisable for, or
exchangeable for shares of Common Stock or other securities of the Corporation.
In addition, each of the Investors hereby waives (a) any registration rights to
which would be entitled during the Lock- Up Period under Section 13.01 of the
Unit Purchase Agreement, and (b) any rights of first offer (including but not
limited to any right to notice with respect thereto) under Article 14 of the
Unit Purchase Agreement in connection with the conversion of the Preferred
Stock contemplated in this Agreement or a Qualified Public Offering provided
that the price per share to the public in the Qualified Public Offering is
equal to or greater than the Minimum Price. The undersigned further agrees to
waive any right the undersigned might otherwise have to an adjustment to the
Applicable Conversion Value pursuant to Section 5(d)(i)(A) of the Certificate
of Designation as a result of the dividend to be declared and paid to the
undersigned pursuant to Section 1(c)(i) of this Agreement.
5. CONSENT TO PUBLIC OFFERING. Each of the Investors hereby consents
to the transactions contemplated in this Agreement and, to the extent required,
to the offer and sale of Common Stock of the Corporation in a Qualified Public
Offering under the Securities Act and the securities laws of various states.
6. FURTHER ASSURANCES; COOPERATION IN PUBLIC OFFERING. Each of the
parties agrees to use all reasonable efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws, rules and regulations to consummate and make
effective the transactions contemplated by this Agreement.
7. MISCELLANEOUS.
(a) AMENDMENT. This Agreement may be amended or modified
only by a written instrument executed by the parties hereto.
(b) CONFIDENTIALITY. Each of the Investors acknowledges and
agrees that the information contained in this Agreement is confidential and
constitutes material inside information regarding the Corporation under the
Securities Act and applicable federal securities laws
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(c) GOVERNING LAW. This Agreement shall be construed,
interpreted and enforced in accordance with the laws of the State of Delaware,
without regard to its conflicts of laws principles.
(d) SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
(e) EXECUTION IN COUNTERPARTS. This Agreement may be
executed in any number of counterparts and by the different parties hereto on
separate counterparts, each of which when so executed and delivered shall be an
original, but all of which shall together constitute one and the same
instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered as of the date first above written.
TELEBANC FINANCIAL CORPORATION
________________________________________
By: Xxxxxxxx Xxxxxx
Its: President and Chief Executive
Officer
INVESTORS:
CONNING INSURANCE CAPITAL LIMITED
PARTNERSHIP III
By: Conning Investment Partners Limited
Partnership III, its General Partner
By: Conning & Company, its General Partner
________________________________________
By:
Its:
CONNING INSURANCE CAPITAL
INTERNATIONAL PARTNERS III, L.P.
By: Conning Investment Partners Limited
Partnership III, its General Partner
By: Conning & Company, its General Partner
________________________________________
By:
Its:
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GENERAL AMERICAN LIFE INSURANCE COMPANY
________________________________________
By:
Its:
CIBC WG ARGOSY MERCHANT FUND 2, LLC
________________________________________
By:
Its:
PC INVESTMENT COMPANY, INC
________________________________________
By:
Its:
THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY
________________________________________
By:
Its:
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' SCHEDULE A
PREFERRED STOCK HELD BY INVESTORS PRIOR TO CONVERSION
NUMBER OF SHARES OF NUMBER OF SHARES OF NUMBER OF SHARES OF
------------------- ------------------- -------------------
SERIES A PREFERRED SERIES B PREFERRED SERIES C PREFERRED
------------------- ------------------- -------------------
NAME AND ADDRESS OF INVESTOR STOCK STOCK STOCK
---------------------------- ------------------- ------------------- -------------------
Conning Insurance Capital Limited 4,719 1,414
Partnership III
c/o Conning & Company
City Place II
000 Xxxxxx Xxxxxx
Xxxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxx
Conning Insurance Capital 667 200
International Partners III, L.P
c/o Conning & Company
City Place II
000 Xxxxxx Xxxxxx
Xxxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxx
General American Life Insurance 1,539 461
Company
000 Xxxxxx Xxxxxx
Xx. Xxxxx, XX 00000
Attn: Xxxxx Xxxxxx
PC Investment Company 6,925 1,975
000 Xxxxxxxx Xxxxx Xxxxxx
Xxx, XX 00000
Attn: Xxxxx X. Xxxxx
CIBC XX Xxxxxxxx Funds 2 7,000
LLC
000 Xxxxxxxxx Xxxxxx
0xx Xxxxx
Xxx Xxxx, XX 00000
Attn: Xxxx Xxxxxx
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NUMBER OF SHARES OF NUMBER OF SHARES OF NUMBER OF SHARES OF
------------------- ------------------- -------------------
SERIES A PREFERRED SERIES B PREFERRED SERIES C PREFERRED
------------------- ------------------- -------------------
NAME AND ADDRESS OF INVESTOR STOCK STOCK STOCK
---------------------------- ------------------- ------------------- -------------------
Northwestern Mutual Life 5,000
Insurance Company
000 Xxxx Xxxxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Attn: Xxxxx X. Xxxxxx
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