S-4/A
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As filed with the Securities and Exchange Commission on May 2, 2013

Registration No. 333-187581

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 2

to

Form S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

ENCORE CAPITAL GROUP, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   6153   48-1090909
(State or other jurisdiction of
incorporation)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)

3111 Camino Del Rio North, Suite 1300,

San Diego, California 92108

(877) 445-4581

(Address, including Zip Code, and Telephone Number, including Area Code, of Registrant’s Principal Executive Offices)

 

 

Gregory L. Call

Senior Vice President, General Counsel and Corporate Secretary

3111 Camino Del Rio North, Suite 1300,

San Diego, California 92108

(877) 445-4581

(Name, Address, including Zip Code, and Telephone Number, including Area Code, of Agent for Service)

 

 

With copies to:

 

Steven B. Stokdyk, Esq.

Latham & Watkins LLP

355 South Grand Avenue

Los Angeles, California 90071

(213) 485-1234

 

Daryl Lansdale, Esq.

Fulbright & Jaworski L.L.P.

300 Convent Street, Suite 2100

San Antonio, Texas 78205

(210) 224-5575

 

Edwin L. Herbert, Esq.

Asset Acceptance Capital Corp.

28405 Van Dyke Avenue

Warren, Michigan 48093

(586) 939-9600

   Jeffrey Symons, Esq.

Kirkland & Ellis LLP

601 Lexington Avenue

New York, New York 10022

(212) 446-4800

 

 

Approximate date of commencement of the proposed sale of the securities to the public: As soon as practicable after this Registration Statement becomes effective and upon completion of the merger described in the enclosed document.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, as amended, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer     ¨    Accelerated filer     x
Non-accelerated filer     ¨ (Do not check if a smaller reporting company)    Smaller reporting company     ¨

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such dates as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this proxy statement/prospectus is not complete and may be changed. We may not sell the securities offered by this proxy statement/prospectus until the registration statement filed with the United States Securities and Exchange Commission is effective. This proxy statement/prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction where an offer or solicitation is not permitted.

 

SUBJECT TO COMPLETION, DATED May             , 2013

 

LOGO

MERGER PROPOSED—YOUR VOTE IS VERY IMPORTANT

To our Stockholders:

You are cordially invited to attend a special meeting of stockholders of Asset Acceptance Capital Corp., a Delaware Corporation (“AACC”), to be held on             , 2013, at 9:00 a.m. (local time), at the offices of Kirkland & Ellis LLP located at 601 Lexington Avenue, New York, New York 10022.

At the special meeting, you will be asked to (i) adopt the Agreement and Plan of Merger (the “merger agreement”), dated as of March 6, 2013, by and among AACC, Encore Capital Group, Inc., a Delaware corporation (“Encore”), and Pinnacle Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Encore (“Merger Sub”), pursuant to which Merger Sub will be merged with and into AACC (the “merger”) with AACC continuing as the surviving corporation and a wholly owned subsidiary of Encore, and (ii) cast an advisory (non-binding) vote with respect to compensation payable to AACC named executive officers that is related to the merger (the “golden parachute” compensation).

If the merger is completed, you will be entitled to receive, at your election and subject to the terms of the merger agreement, either $6.50 in cash or 0.2162 validly issued, fully paid and nonassessable shares of Encore common stock, in each case without interest and less any applicable withholding taxes, for each share of Company common stock you own at the time of the merger. Please note that no more than 25% of the total shares of AACC common stock outstanding immediately prior to the merger may be exchanged for shares of Encore common stock (for which Encore expects that it may issue up to 1,689,372 shares of its common stock) and any shares of AACC common stock elected to be exchanged for Encore common stock in excess of such 25% limitation will be subject to proration in accordance with the terms of the merger agreement.

Upon completion of the merger, Encore will own all of AACC’s capital stock. As a result, AACC will no longer have its stock listed on the NASDAQ Global Select Stock Market (“NASDAQ”) and will no longer be required to file periodic and other reports with the United States Securities and Exchange Commission (“SEC”) with respect to AACC common stock.

Any stockholder who does not vote in favor of the adoption of the merger agreement will have the right to seek appraisal of the fair value of their shares of AACC common stock in lieu of the per share merger consideration if the merger is completed, but only if such stockholder submits a written demand for appraisal of its shares before the taking of the vote on the merger agreement at the special meeting and they comply with all requirements of Section 262 of the General Corporation Law of the State of Delaware (the “DGCL”) for exercising appraisal rights, which are summarized in this proxy statement/prospectus. Such shares of AACC common stock will not be converted into the right to receive the per share merger consideration in connection with the merger.

After careful consideration, AACC’s Board of Directors, by unanimous vote of those directors present, has determined that the merger agreement is advisable and in the best interests of AACC and its stockholders and has approved and authorized the merger agreement and the transactions contemplated thereby, including the merger. Accordingly, the Board of Directors unanimously recommends that you vote “FOR” the adoption of the merger agreement.

The accompanying proxy statement/prospectus provides you with detailed information about the special meeting, the background of and reasons for the proposed merger, the terms of the merger agreement and other important information. Please give this material your careful attention, including “Risk Factors” beginning on page 23, for a discussion of the risks relating to the proposed merger.

Your vote is very important regardless of the number of shares you own. The merger cannot be completed unless holders of a majority of the outstanding shares of AACC common stock vote “FOR” the adoption of the merger agreement. We would like you to attend the special meeting. However, whether or not you plan to attend the special meeting, it is important that your shares be represented. Accordingly, please complete, sign and submit the enclosed proxy or submit your proxy by following the instructions on the enclosed proxy card as soon as possible.

AACC’s Board of Directors also unanimously recommends that you vote “FOR” the advisory (non-binding) approval of the “golden parachute” compensation. In considering the recommendation of AACC’s Board of Directors, you should be aware that some of AACC’s directors and executive officers have interests in the merger that are different from, or in addition to, interests of AACC’s stockholders generally (for a discussion of such interests, see “AACC Proposal No. 1 – The Merger—AACC’s Directors and Officers Have Financial Interests in the Merger” that begins on page 70).

If you hold shares in “street name” or otherwise through a broker, bank or other nominee, you should follow the procedures provided by them, or they may not be unable to vote your shares. If you do not vote or instruct your broker or nominee how to vote, it will have the same effect as a vote “AGAINST” the adoption of the merger agreement and will have no effect on the advisory non-binding vote on the “golden parachute” compensation. If you complete, sign and submit your proxy card without indicating how you wish to vote, your proxy will be counted as a vote “FOR” the adoption of the merger agreement, “FOR” the advisory non-binding vote on the “golden parachute” compensation and “FOR” the approval of any adjournment of the special meeting. Remember, failing to vote has the same effect as a vote “AGAINST” the adoption of the merger agreement.

Thank you for your continued support and we look forward to seeing you on             , 2013.

 

Sincerely,
  

Rion B. Needs

President and Chief Executive Officer

Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of the merger or the Encore common stock to be issued to the holders of AACC common stock if the merger is consummated, passed upon the merits or fairness of the merger agreement or the transactions contemplated thereby, including the proposed merger, or passed upon the adequacy or accuracy of the information contained in this document or the accompanying proxy statement/prospectus. Any representation to the contrary is a criminal offense.

The date of this notice of special meeting and proxy statement/prospectus and form of proxy is             , 2013, and it is first being mailed or otherwise distributed and made available to AACC stockholders on or about             , 2013.


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LOGO

Asset Acceptance Capital Corp.

28405 Van Dyke Avenue

Warren, MI 48093

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON             , 2013

To the Stockholders of Asset Acceptance Capital Corp.:

Notice is hereby given that a special meeting of stockholders of Asset Acceptance Capital Corp., a Delaware corporation (“AACC”), will be held on             , 2013, at 9:00 a.m. (local time), at the offices of Kirkland & Ellis LLP located at 601 Lexington Avenue, New York, New York 10022:

 

  1. To consider and vote on a proposal to adopt the Agreement and Plan of Merger (the “merger agreement”), dated as of March 6, 2013, by and among AACC, Encore Capital Group, Inc., a Delaware corporation (“Encore”), and Pinnacle Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Encore (“Merger Sub”), pursuant to which Merger Sub will be merged with and into AACC (the “merger”) with AACC continuing as the surviving corporation and a wholly owned subsidiary of Encore;

 

  2. To consider and cast an advisory (non-binding) vote with respect to certain agreements or understandings with, and items of compensation payable to, AACC named executive officers that are related to the merger (the “golden parachute” compensation);

 

  3. To consider and vote upon a proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the merger agreement; and

 

  4. To consider and vote upon any other matters that properly come before the special meeting or any adjournment or postponement thereof.

Only holders of record of AACC common stock at the close of business on             , 2013, the record date of the special meeting (the “record date”), are entitled to notice of, and to vote at, the special meeting or any adjournments or postponements of the special meeting.

The merger agreement, the merger, and the “golden parachute” compensation arrangements are more fully described in the accompanying proxy statement/prospectus, which AACC urges you to read carefully and in its entirety. A copy of the merger agreement is attached as Annex A to the accompanying proxy statement/prospectus, which AACC also urges you to read carefully and in its entirety.

The merger cannot be completed without the affirmative vote of the holders of a majority of the shares of AACC common stock outstanding as of the record date to adopt the merger agreement. The approval of the “golden parachute” compensation is advisory (non-binding) and is not a condition to completion of the merger. Whether or not you plan to attend the special meeting, please complete, sign and return the enclosed proxy card or submit your proxy by Internet, by telephone, or by mail following the instructions on the proxy card.

AACC’s Board of Directors has, by a unanimous vote of those directors present, approved and authorized the merger agreement and recommends that you vote “FOR” adoption of the merger agreement. AACC’s Board of Directors recommends that you vote “FOR” approval, on any advisory (non-binding) basis, of the “golden parachute” compensation payable to AACC’s named executive officers in connection with the merger.


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Under the DGCL, AACC’s stockholders may exercise appraisal rights in connection with the merger. Record holders of AACC common stock who do not vote in favor of the proposal to adopt the merger agreement and who comply with all of the other necessary procedural requirements under the DGCL will have the right to dissent from the merger and to seek appraisal of the fair value of their shares of AACC common stock in lieu of receiving the per share merger consideration, as determined by the Delaware Court of Chancery. For a description of appraisal rights and the procedures to be followed to assert them, stockholders should review the provisions of Section 262 of the DGCL, a copy of which is included as Annex C to the accompanying proxy statement/prospectus.

The affirmative vote of a majority of the shares of AACC common stock present (in person or by proxy) and entitled to vote on the proposal is required for the approval of the advisory (non-binding) proposal on “golden parachute” compensation.

AACC urges you to read the proxy statement/prospectus and merger agreement carefully and in their entirety.

If you have questions about the merger agreement or the merger, including the procedures for voting your shares, you should contact AACC’s proxy solicitor, D.F. King & Co., Inc., toll-free (for stockholders) at (888) 644-5854 or (for banks and brokers) at (212) 269-5550.

 

BY ORDER OF THE BOARD OF DIRECTORS
 
Edwin L. Herbert. Esq.,
Vice President, General Counsel & Secretary

            , 2013

Please do not return your AACC common stock certificates with the enclosed proxy card. Rather, as more fully described in this proxy statement/prospectus, you should surrender your AACC common stock certificates only in accordance with the instructions set forth in the election form delivered to you (or, if you hold your shares in “street name”. to your broker, bank or other nominee) by the exchange agent on or about the date this proxy statement/prospectus was first mailed to AACC stockholders. See “The Merger Agreement—Election Procedures” on page 83 for additional information related to the exchange of your AACC common stock certificates for the proposed merger consideration.


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REFERENCES TO ADDITIONAL INFORMATION

This proxy statement/prospectus incorporates important business and financial information about Encore and AACC from documents that are not included in or delivered with this proxy statement/prospectus. You can obtain documents incorporated by reference in this proxy statement/prospectus, other than certain exhibits to those documents, at www.sec.gov or by requesting them in writing or by telephone from the appropriate company at the following addresses:

 

Encore Capital Group, Inc.

3111 Camino Del Rio North, Suite 1300

San Diego, California 92108

Phone: (877) 445-4581

Email: adam.sragovicz@encorecapital.com

 

Asset Acceptance Capital Corp.

28405 Van Dyke Avenue

Warren, Michigan 48093

Phone: (586) 939-9600

Email: marraf@assetacceptance.com

You will not be charged for any of these documents that you request. AACC stockholders requesting documents should do so by             , 2013 in order to receive them before the special meeting. See “Where You Can Find More Information” on page 123.


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TABLE OF CONTENTS

 

     Page  

QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING

     iii   

SUMMARY

     1   

SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA

     13   

RECENT DEVELOPMENTS

     22   

RISK FACTORS

     23   

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     29   

THE AACC SPECIAL MEETING

     32   

AACC PROPOSAL NO. 1 – THE MERGER

     36   

Background of the Merger

     36   

AACC’s Reasons for the Merger; Recommendation of the AACC Board of Directors

     46   

Encore’s Reasons for the Merger

     50   

Opinion of AACC’s Financial Advisor

     52   

Certain Unaudited Financial Forecasts Prepared by the Management of AACC

     60   

Public Trading Markets

     63   

Certain Effects of the Merger

     64   

Effects on AACC if the Merger is Not Completed

     64   

Regulatory Approvals

     65   

Merger Financing

     65   

Appraisal Rights

     66   

AACC’s Directors and Officers Have Financial Interests in the Merger

     70   

Treatment of Equity-Based Awards

     70   

Retention and Potential Severance Payments to Executive Officers

     71   

Summary of Potential Payments to AACC’s Executive Officers and Directors

     72   

Indemnification of Directors and Officers; Directors’ and Officers’ Insurance

     75   

Security Ownership of Certain Beneficial Owners and Management

     75   

Material U.S. Federal Income Tax Consequences of the Merger

     77   

Litigation Relating to the Merger

     77   

Effective Time of the Merger

     78   

Payment of Merger Consideration and Surrender of AACC Stock

     78   

Expenses and Fees

     79   

THE MERGER AGREEMENT

     80   

The Merger

     80   

Consideration to be Received in the Merger

     81   

Treatment of AACC Stock Options and Other Equity-Based Awards

     82   

Adjustments

     83   

Withholding

     83   

Election Procedures

     83   

Closing and Effective Time of the Merger

     84   

Conversion of AACC Common Stock; Exchange of Certificate

     84   

Letter of Transmittal

     85   

Lost, Stolen or Destroyed Certificates

     86   

Conditions to Complete the Merger

     86   

Reasonable Best Efforts to Obtain AACC Stockholder Approval

     86   

Solicitation of Alternative Takeover Proposals; Change of Recommendation; Matching Rights

     87   

Transaction Litigation

     89   

Other Reasonable Best Efforts Obligations; Regulatory Approvals

     90   

Termination of the Merger Agreement

     91   

Termination Fee

     92   

Remedies

     92   

Conduct of Business Pending the Merger

     93   

 

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Additional Covenants

     95   

Indemnification of Directors and Officers; Directors’ and Officers’ Insurance

     95   

Employee Matters

     95   

Representations and Warranties

     96   

Definition of Material Adverse Effect

     98   

Expenses and Fees

     98   

Amendment, Waiver and Extension of the Merger Agreement

     99   

Governing Law and Venue; Waiver of Jury Trial

     99   

Voting Agreement

     99   

ACCOUNTING TREATMENT

     99   

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

     100   

MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

     106   

AACC PROPOSAL NO. 2 – ADVISORY VOTE REGARDING GOLDEN PARACHUTE COMPENSATION

     112   

AACC PROPOSAL NO. 3 – ADJOURNMENT OF THE SPECIAL MEETING

     113   

INFORMATION ABOUT THE COMPANIES

     114   

COMPARISON OF STOCKHOLDERS’ RIGHTS

     115   

AUTHORIZED AND OUTSTANDING CAPITAL STOCK

     115   

BUSINESS COMBINATIONS

     115   

AMENDMENT TO THE CERTIFICATE OF INCORPORATION

     116   

AMENDMENT TO THE BYLAWS

     116   

SPECIAL MEETINGS OF STOCKHOLDERS

     117   

STOCKHOLDER PROPOSALS AND NOMINATIONS

     117   

STOCKHOLDER ACTION BY WRITTEN CONSENT

     118   

BOARD OF DIRECTORS

     118   

Number of Directors

     118   

Classification

     118   

Removal

     118   

Vacancies

     119   

Special Meetings of the Board

     119   

Director Liability and Indemnification

     119   

COMPARATIVE MARKET PRICES AND DIVIDENDS

     121   

LEGAL MATTERS

     122   

EXPERTS

     122   

AACC 2013 ANNUAL MEETING STOCKHOLDER PROPOSALS

     122   

DELIVERY OF DOCUMENTS TO STOCKHOLDERS SHARING AN ADDRESS

     122   

COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

     122   

WHERE YOU CAN FIND MORE INFORMATION

     123   

ANNEX A: AGREEMENT AND PLAN OF MERGER

     A-1   

ANNEX B: OPINION OF WILLIAM BLAIR & COMPANY, L.L.C.

     B-1   

ANNEX C: SECTION 262 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE

     C-1   

PART II INFORMATION NOT REQUIRED IN PROSPECTUS

     II-1   

SIGNATURES

     II-5   

EXHIBIT INDEX

     II-7   

 

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QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING

The questions and answers below, which are for your convenience only, briefly address some commonly asked questions about the merger, highlight only selected procedural information from this proxy statement/prospectus and are qualified in their entirety by the more detailed information contained elsewhere in this proxy statement/prospectus. These questions and answers may not address all of the questions, nor do they contain all of the information, that may be important to you as an AACC stockholder. You should read carefully the entire document (including the attached annexes) and the additional documents incorporated by reference into this document.

Q: Why am I receiving these materials?

A: You are receiving this proxy statement/prospectus and proxy card because you own shares of AACC common stock. AACC’s Board of Directors is providing these proxy materials to give you information to determine how to vote in connection with the special meeting of AACC’s stockholders. Additionally, this proxy statement/prospectus is being provided to assist you in determining whether to elect to receive Encore common stock as your merger consideration (as defined below).

Q: When and where is the special meeting?

A: The special meeting will be held on             , 2013, at 9:00 a.m. (local time), at the offices of Kirkland & Ellis LLP located at 601 Lexington Avenue, New York, New York 10022.

Q: Upon what am I being asked to vote at the special meeting?

A: You are being asked to consider and vote upon the following proposals:

1. To consider and vote on a proposal to adopt the merger agreement, by and among AACC, Encore and Merger Sub, pursuant to which Merger Sub will be merged with and into AACC, with AACC continuing as the surviving corporation and a wholly owned subsidiary of Encore;

2. To consider and cast an advisory (non-binding) vote with respect to certain agreements or understandings with, and items of compensation payable to, AACC named executive officers that are related to the merger (the “golden parachute” compensation);

3. To consider and vote upon a proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the merger agreement; and

4. To consider and vote upon any other matters that properly come before the special meeting or any adjournment or postponement thereof.

Q: Why is the merger being proposed?

A: AACC’s purpose in proposing the merger is to enable stockholders to receive, upon completion of the merger, the applicable merger consideration (as defined below) for each share of AACC common stock outstanding immediately prior to the merger. After careful consideration, AACC’s Board of Directors has, by unanimous vote of all directors present, (i) determined that the merger is fair to, and in the best interests of, AACC and its stockholders, (ii) approved and declared advisable the merger agreement, the merger and the other transactions contemplated by the merger agreement, (iii) resolved to recommend adoption of the merger agreement to the holders of AACC common stock and (iv) directed that the merger agreement be submitted to the holders of AACC common stock for their adoption at a stockholders’ meeting duly called and held for such purpose. For a more detailed discussion of the conclusions, determinations and reasons of AACC’s Board of Directors for recommending that AACC undertake the merger on the terms of the merger agreement, see “AACC Proposal No. 1 – The Merger—AACC’s Reasons for the Merger; Recommendation of the AACC Board of Directors” beginning on page 46.

 

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Q: What will happen in the merger?

A: If the merger is completed, Merger Sub will merge with and into AACC and AACC will continue as the surviving corporation and become a wholly owned subsidiary of Encore. As a result of the merger, AACC’s common stock will no longer be publicly traded and you will no longer have any interest in AACC’s future earnings or growth, unless you own Encore common stock (whether through the receipt of Encore common stock as merger consideration (as defined below) or otherwise). In addition, AACC common stock will be delisted from NASDAQ and deregistered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and AACC will no longer be required file periodic reports with the SEC with respect to AACC common stock, in each case in accordance with applicable law, rules and regulations.

Q: What will I receive in the merger?

A: If the merger is completed, you will be entitled, in accordance with the terms of the merger agreement, to elect to receive cash, shares of Encore common stock or a combination thereof in exchange for the shares of AACC common stock you own at the time of the merger. Specifically, each share of AACC common stock with respect to which you validly elect to receive cash (a “cash election”) will be converted into the right to receive an amount in cash equal to $6.50 without interest and less any applicable withholding taxes (the “cash consideration”). Subject to proration as described below, each share of AACC common stock with respect to which you elect to receive Encore common stock (a “stock election”) will be converted into the right to receive 0.2162 validly issued, fully paid and nonassessable shares of Encore Common Stock less any applicable withholding taxes (together with any cash in lieu of fractional shares of Encore common stock to be paid pursuant to the terms of the merger agreement, the “stock consideration” and together with the cash consideration, the “merger consideration”), which reflects the quotient determined by dividing the per share merger consideration of $6.50 by the closing stock price per share of Encore common stock on March 5, 2013 (the last trading day prior to the announcement of the merger agreement).

Please note that no more than 25% of the shares of AACC common stock outstanding as of the time of the merger may be exchanged for stock consideration (the “maximum stock election”). If you elect to receive stock consideration and the holders of AACC common stock elect in the aggregate to receive stock consideration in excess of the maximum stock election, then the number of shares of AACC common stock owned by you that will be exchanged for stock consideration will be subject to a pro rata reduction based on the total number of shares of AACC common stock for which you made a stock election compared to the total number of shares of AACC common stock for which all AACC stockholders made a stock election, such that that the aggregate number of shares of AACC common stock actually exchanged for stock consideration equals the maximum stock election. Each share of AACC common stock with respect to which neither a cash election nor a stock election has been validly made will automatically be converted into the right to receive only the cash consideration. See “The Merger Agreement—Consideration to be Received in the Merger” beginning on page 81, and “The Merger Agreement—Election Procedures” on page 83, for additional information related to the exchange of your AACC common stock for the proposed merger consideration.

The foregoing does not apply to shares owned by Encore, Merger Sub or any of their subsidiaries or any AACC stockholders who are entitled to and who properly exercise, and do not properly withdraw, their appraisal rights under the DGCL.

Q: How does the per share merger consideration compare to the market price of AACC common stock prior to announcement of the merger?

A: The $6.50 per share merger consideration (which is payable in cash or shares of Encore common stock as described above) represents a premium of approximately 24.76% relative to AACC’s closing stock price of $5.21 on March 1, 2013, the last full trading day prior to the announcement by AACC (made before the opening of NASDAQ on March 4, 2013) that AACC was rescheduling its 2012 fourth quarter and year-end earnings release and conference call, approximately 12.85% relative to AACC’s closing stock price of $5.76 on March 5, 2013,

 

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the last full trading day before the announcement of the proposed transaction, and approximately 23.57% premium over AACC’s volume-weighted average closing stock price of $5.26 over the last 30 full trading days prior to announcement of the proposed merger with Encore on the morning of March 6, 2013.

Q: What is the recommendation of AACC’s Board of Directors?

A: Based on the factors described in “AACC Proposal No. 1 – The Merger—AACC’s Reasons for the Merger; Recommendation of the AACC Board of Directors” beginning on page 46, AACC’s Board of Directors, after careful consideration, has, by a unanimous vote of all directors present, approved and authorized the merger agreement, the merger and the other transactions contemplated by the merger agreement, and determined that the merger agreement is advisable and in the best interests of the stockholders of AACC. AACC’s Board of Directors has, by a unanimous vote of all directors present, approved and authorized the merger agreement and unanimously recommends that you vote “FOR” the adoption of the merger agreement. The recommendation of AACC’s Board of Directors is based, in part, upon the unanimous recommendation of a strategic alternatives review committee of AACC’s Board of Directors consisting of four disinterested directors. AACC’s Board of Directors established the review committee for the purpose of determining which, if any, strategic alternatives AACC should pursue and, in the event that a strategic alternative was to be pursued, to, among other things, determine whether such strategic alternative is fair to and in the best interests of AACC and its stockholders and make an appropriate recommendation to AACC’s Board of Directors. AACC’s Board of Directors also recommends that you vote “FOR” the approval of the “golden parachute” compensation. See “AACC Proposal No. 1 – The Merger—AACC’s Reasons for the Merger; Recommendation of the AACC Board of Directors” beginning on page 46 and “AACC Proposal No. 2 – Advisory Vote Regarding Golden Parachute Compensation” on page 112.

Q: Who will own AACC after the merger?

A: Immediately following the merger, AACC will be a wholly owned subsidiary of Encore and the current stockholders of AACC will cease to own any shares of AACC capital stock.

Q: What are the consequences of the merger to present members of management and AACC’s Board of Directors?

A: Shares of AACC common stock owned by members of management and AACC’s Board of Directors will be treated the same as shares held by other AACC stockholders. Options, restricted stock units and deferred stock units related to AACC common stock that are held by members of management and AACC’s Board of Directors will be treated the same as outstanding options, restricted stock units and deferred stock units related to AACC common stock which are held by other AACC employees. Each such option, restricted stock unit and deferred stock unit will be cancelled in exchange for the right to receive a lump sum cash payment equal to the per share merger consideration, without interest and less any applicable exercise price per share of AACC common stock underlying such option, restricted stock unit or deferred stock unit and less any applicable withholding taxes. See “The Merger Agreement—Treatment of AACC Stock Options and Other Equity-Based Awards” beginning on page 82. For information regarding other payments and benefits to AACC’s named executive officers that are tied to or based on the merger, see “AACC Proposal No. 2 – Advisory Vote Regarding Golden Parachute Compensation” on page 112.

Q: Is the merger subject to the satisfaction of any conditions?

A: Yes. The completion of the merger is subject to the satisfaction or waiver of the conditions described in “The Merger Agreement—Conditions to Complete the Merger” beginning on page 86. These conditions include:

 

   

the adoption of the merger agreement by the holders of a majority of the of the outstanding AACC common stock;

 

   

the expiration or termination of the regulatory waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”);

 

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the absence of any order or law, judgment or ruling of any governmental entity that restrains, enjoins, prohibits or otherwise prevents the consummation of the merger;

 

   

the approval for listing on NASDAQ (subject to official notice of issuance) of the shares of Encore common stock to be issued as stock consideration;

 

   

the declaration by the SEC of the effectiveness of Encore’s registration statement on Form S-4 and the absence of any stop order suspending such effectiveness (or proceeding seeking such suspension) issued by the SEC;

 

   

the absence of a material adverse effect on each of AACC and Encore;

 

   

the accuracy of the representations and warranties of AACC, Encore and Merger Sub (subject in certain cases to certain materiality, knowledge and other qualifications); and

 

   

AACC’s, Encore’s and Merger Sub’s performance in all material respects of their respective obligations under the merger agreement.

Q: Who can attend and vote at the special meeting?

A: All holders of AACC common stock at the close of business on the record date will be entitled to vote (in person or by proxy) on the merger agreement at the special meeting or any adjournments or postponements of the special meeting. As of the record date, there were              shares of AACC Common Stock issued and outstanding.

For directions to the special meeting, please call AACC’s Investor Relations line at (586) 939-9600—option 5. We look forward to having you at the meeting.

Q: What vote is required to approve the merger agreement?

A: The merger agreement will only be adopted upon the affirmative vote of a majority of the shares of AACC common stock outstanding on the record date. Because the required vote is based on the number of shares outstanding rather than on the number of votes cast at the special meeting, failure to vote your shares (including as a result of broker non-votes) and abstentions will have the same effect as voting “AGAINST” the adoption of the merger agreement. AACC urges you to attend the special meeting to vote your shares in person. If you are not able to attend the special meeting in person, AACC urges you to either complete, execute and return the enclosed proxy card in accordance with the instructions set forth in “The Merger Agreement—Election Procedures” on page 83 or submit your proxy or voting instructions by Internet, by telephone or by mail to assure the representation of your shares at the special meeting. A “broker non-vote” occurs when a broker does not have discretion to vote on the matter and has not received instructions from the beneficial owner (i.e., you) as to how such beneficial owner’s shares are to be voted on the matter.

Q: Have any stockholders already agreed to approve the merger?

A: In connection with the merger agreement, AAC Quad-C Investors LLC (the “supporting stockholder”), which owned as of March 6, 2013, approximately 35.6% of the outstanding shares of AACC, entered into a voting agreement with Encore, dated as of March 6, 2013 (the “voting agreement”), pursuant to which the supporting stockholder has agreed to vote all of its shares of AACC common stock in favor of the adoption of the merger agreement. See “The Merger Agreement—Voting Agreement” on page 99.

Other than the supporting stockholder, to AACC’s knowledge, none of AACC’s stockholders have entered into an agreement to vote their shares of AACC common stock in favor or against the adoption of the merger agreement.

Q: Why am I being asked to cast an advisory (non-binding) vote with respect to “golden parachute” compensation payable to AACC’s named executive officers in connection with the merger?

A: The applicable rules of the SEC require AACC to seek an advisory (non-binding) vote with respect to certain payments that will be made to AACC’s named executive officers in connection with the merger.

 

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Q: What is the “golden parachute” compensation for purposes of this advisory vote?

A: The “golden parachute” compensation is certain compensation that is tied to or based on the merger and payable to AACC’s named executive officers. See “AACC Proposal No. 1 – The Merger – Summary of Potential Payments to AACC’s Executive Officers and Directors” beginning on page 72 and “AACC Proposal No. 2 – Advisory Vote Regarding Golden Parachute Compensation” on page 112.

Q: What vote is required to approve the “golden parachute” compensation payable to AACC’s named executive officers in connection with the merger?

A: The affirmative vote of a majority of the shares of AACC common stock present (in person or by proxy) and entitled to vote on the proposal is required for approval of the advisory (non-binding) proposal on “golden parachute” compensation.

Q: What will happen if stockholders do not approve the “golden parachute” compensation at the special meeting?

A: Approval of the “golden parachute” compensation is not a condition to completion of the merger. The vote with respect to the “golden parachute” compensation is an advisory vote and will not be binding on AACC or Encore. If the merger agreement is adopted by AACC stockholders and the merger is completed, the “golden parachute” compensation may be paid to AACC’s named executive officers even if stockholders fail to approve the golden parachute compensation so long as the otherwise applicable conditions to payment are satisfied. For a more detailed description of the “golden parachute” compensation and the terms and conditions applicable for payment of such compensation to be triggered, please see “AACC Proposal No. 1 – The Merger – Summary of Potential Payments to AACC’s Executive Officers and Directors” beginning on page 72.

Q: What is a quorum for the special meeting—i.e., how many shares must be present to hold the special meeting?

A: In order for AACC to convene the special meeting, a majority of the shares of AACC common stock outstanding as of             , 2013 (or              shares) must be present in person or by proxy (which shares comprise a majority in voting power of the AACC capital stock issued and outstanding and entitled to vote at the special meeting). This majority is referred to as a quorum. If a quorum is not present at the special meeting, the special meeting may be adjourned or postponed from time to time until a quorum is obtained. If you submit a proxy, your shares will be counted to determine whether AACC has a quorum even if you abstain or fail to provide voting instructions on any of the proposals listed on the proxy card. If your shares are held in the name of a nominee that submits a proxy card with regard to your shares and you do not tell the nominee how to vote your shares, these shares will be counted for purposes of determining the presence or absence of a quorum for the transaction of business.

Q: How many votes do I have?

A: You have one vote for each share of AACC common stock that you own as of the record date.

Q: How are votes counted?

A: Votes will be counted by the inspector of election appointed for the special meeting, who will separately count “FOR” and “AGAINST” votes, abstentions and broker non-votes and separately count votes in respect of each proposal. A “broker non-vote” occurs when a nominee holding shares for a beneficial owner does not receive instructions from the beneficial owner with respect to the merger proposal, or the proposal for “golden parachute” compensation, or the adjournment proposal, counted separately.

Because Delaware law and the amended and restated certificate of incorporation of AACC require the affirmative vote of holders of a majority of the outstanding shares of AACC common stock to approve the adoption of the merger agreement, the failure to vote, broker non-votes and abstentions will have the same effect as voting “AGAINST” the merger proposal. If you complete, sign and submit your proxy card without indicating how you wish to vote, your proxy will be counted as a vote “FOR” the adoption of the merger agreement.

 

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Because the advisory non-binding vote to approve the “golden parachute” compensation and the vote to approve any adjournment or postponement of the special meeting each require the affirmative vote of the holders of a majority of the shares of AACC common stock having voting power which are present (in person or by proxy) at the special meeting, the failure to vote and broker non-votes will have no effect on the “golden parachute” compensation and adjournment proposals. However, abstentions will have the same effect as a vote “AGAINST” each such proposal. If you complete, sign and submit your proxy card without indicating how you wish to vote, your proxy will be counted as a vote “FOR” the advisory non-binding vote on the “golden parachute” compensation and “FOR” the approval of any adjournment or postponement of the special meeting. See “The AACC Special Meeting—Record Date; Stockholders Entitled to Vote; Quorum; Voting Information” on page 32.

Q: How do I vote my shares of AACC common stock?

A: Before you vote, you should read this proxy statement/prospectus carefully and in its entirety, including the annexes and documents incorporated herein by reference, and carefully consider how the merger affects you. Then, mail your completed, dated and signed proxy card in the enclosed return envelope or submit your proxy by Internet, by telephone or by mail as soon as possible so that your shares can be voted at the special meeting. For more information on how to vote your shares, see “The AACC Special Meeting—How You Can Vote” beginning on page 34.

If your shares are registered in the name of a broker, bank or other nominee, follow the instructions provided by your broker, bank or nominee to vote your shares. If your shares are registered in your name:

You may vote in person at the special meeting. You may obtain directions to the special meeting in order to vote in person by calling AACC’s Investor Relations line at (586) 939-9600—option 5.

You may vote by telephone. You may vote by telephone regardless of whether you receive your special meeting materials through the mail or over the Internet. Simply follow the instructions on your proxy card or electronic access notification. If you vote by telephone, you should not vote over the Internet or mail in your proxy card.

You may vote over the Internet. You may vote over the Internet regardless of whether you receive your special meeting materials through the mail or over the Internet. Simply follow the instructions on your proxy card or electronic access notification. If you vote over the Internet, you should not vote by telephone or mail in your proxy card.

You may vote by mail. If you received proxy material through the mail, simply complete and sign the proxy card included therein and mail it in the enclosed prepaid and addressed envelope. If you mark your voting instructions on the proxy card, your shares will be voted as you instruct.

All shares of AACC common stock represented by validly executed proxies will be voted at the special meeting, and such shares will be voted in accordance with the instructions provided. If you complete, sign and submit your proxy card without indicating how you wish to vote, your proxy will be counted as a vote “FOR” the adoption of the merger agreement, “FOR” the advisory non-binding vote on the “golden parachute” compensation and “FOR” the approval of any adjournment of the special meeting. “Broker non-votes” (and other failures to vote) will have the same effect as if you had voted “AGAINST” the merger proposal and will have no effect on the outcome of the “golden parachute” compensation and adjournment proposals. Abstentions will have the same effect as if you had voted “AGAINST” the merger, “golden parachute” compensation and adjournment proposals. See “The AACC Special Meeting—Record Date; Stockholders Entitled to Vote; Quorum; Voting Information” beginning on page 32.

Q: What happens if I do not vote?

A: The vote to adopt the merger agreement is based on the total number of shares of AACC common stock outstanding on the record date, and not just the shares that are voted. If you do not vote, it will have the same effect as a vote “AGAINST” the merger proposal. If the merger is completed, whether or not you vote for the

 

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merger proposal, you will be paid the per share merger consideration for your shares of AACC common stock upon completion of the merger in accordance with the terms of the merger agreement, unless you properly exercise your appraisal rights. See “AACC Proposal No. 1 – The Merger—Appraisal Rights” beginning on page 66, and Annex C to this proxy statement/prospectus.

The vote to approve the “golden parachute” compensation is advisory only and will not be binding on AACC or Encore and is not a condition to completion of the merger. If the merger agreement is adopted by the stockholders and completed, the “golden parachute” compensation may be paid to AACC’s named executive officers even if AACC stockholders fail to approve the golden parachute compensation. See “AACC Proposal No. 2 – Advisory Vote Regarding Golden Parachute Compensation” on page 112.

Q: If the merger is completed, how will I receive the merger consideration for my shares?

A: If the merger agreement is adopted and the merger is consummated, and if you are the record holder of your shares of AACC common stock immediately prior to the effective time of the merger, you will be sent a letter of transmittal to complete and return to an exchange agent to be designated by Encore (the “exchange agent”). In order to receive the stock consideration in exchange for all or a portion of your shares of AACC common stock, you must send the exchange agent, according to the instructions provided by the exchange agent in a separate mailing, your validly completed merger consideration election form prior to the election deadline (see “The Merger Agreement—Consideration to be Received in the Merger” on page 81 and “The Merger Agreement—Election Procedures” on page 83). Even of you do not intend to make a stock election, you must submit a validly completed letter of transmittal together with your AACC common stock certificates and other required documents to the exchange agent as instructed in order to receive the per share merger consideration in exchange for your shares. Once you have properly submitted a completed letter of transmittal, you will receive the applicable merger consideration in accordance with the terms of any such validly submitted election form and the terms of the merger agreement. If your shares of AACC common stock are held in “street name” by your broker, bank or other nominee, you will receive instructions from your broker, bank or other nominee as to how to submit an election form and how to effect the surrender of your “street name” shares in order to receive the applicable merger consideration for those shares.

Q: What happens to AACC’s outstanding common stock option awards if the merger is completed?

A: At least 15 days prior to the effective time of the merger, all outstanding stock options will become fully vested and exercisable in accordance with the terms and conditions of the applicable award agreement and any equity compensation plan of AACC under which such option was granted. Upon completion of the merger, each stock option issued under AACC’s equity compensation plans will be cancelled and terminated in exchange for the right to receive a cash amount equal to the total number of shares of AACC common stock for which the option may be exercised as of immediately prior to the merger multiplied by the excess, if any, of the cash consideration over the per share option exercise price, without interest and less any applicable withholding taxes.

Q: What happens to AACC’s outstanding restricted stock units if the merger is completed?

A: Upon completion of the merger, each restricted stock unit that is issued under AACC’s equity compensation plans and outstanding immediately prior to the effective time will be cancelled and converted into the right to receive an amount in cash equal to the cash consideration multiplied by the total number of shares of AACC common stock subject to such AACC restricted stock unit (using, if applicable, the goal (100%) level of achievement under the respective award agreement to determine such number), without interest and less any applicable withholding taxes.

Q: What happens to AACC’s outstanding deferred stock units if the merger is completed?

A: Upon completion of the merger, each deferred stock unit that is issued under AACC’s equity compensation plans and outstanding immediately prior to the effective time will be cancelled and converted into the right to

 

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receive an amount in cash equal to cash consideration multiplied by the total number of shares of AACC common stock subject to such AACC deferred stock unit (using, if applicable the goal (100%) level of achievement under the respective award agreement to determine such number), without interest and less any applicable withholding taxes.

Q: What happens if the merger is not completed?

A: If the merger agreement is not adopted by the stockholders of AACC or if the merger is not completed for any other reason, the holders of AACC capital stock will not receive any payment for their shares of AACC common stock, options, restricted stock units or deferred stock units in connection with the merger. Instead, AACC will remain an independent public company, AACC common stock will continue to be listed and traded on NASDAQ and registered under Exchange Act and AACC will continue to file periodic reports with the SEC with respect to AACC common stock. Under specified circumstances, AACC may be required to pay to Encore a fee with respect to the termination of the merger agreement, as described under “The Merger Agreement—Termination Fee” beginning on page 92.

Q: How do I make a valid election to receive the merger consideration and when should I send in my stock certificates?

A: In accordance with the merger agreement, contemporaneously with the AACC’s mailing of this proxy statement/prospectus to the record holders of AACC common stock on the record date, the exchange agent will deliver to each such holder an election form, a letter of transmittal and instructions on how such holder may surrender its certificates or book-entry shares representing AACC common stock in exchange for payment of the applicable merger consideration (collectively, the “election form”). Each election form will permit the holder to specify the number of its shares of AACC common stock with respect to which a cash election is made and the number with respect to which a stock election is made.

Each share of AACC common stock with respect to which no election has been made, or for which a properly completed election form was not received by the exchange agent, before 5:00 p.m. New York local time on the date (the “election deadline”) that is four (4) business days prior to the effective time of the merger (which date will be publicly announced by Encore as soon as reasonably practicable prior to the effective time of the merger), will be automatically converted into the right to receive the cash consideration. After the consummation of the merger, the exchange agent will send each stockholder who has not submitted a valid letter of transmittal covering all of its shares of AACC common stock a letter of transmittal and instructions on how such holder may surrender any certificates or book-entry shares representing such shares in exchange for payment of the cash consideration.

You should send your stock certificates, together with a completed and executed election form, to the exchange agent, and not AACC, as far in advance of the election deadline as possible. If you hold your shares of AACC common stock in “street name”, your broker, bank or other nominee will be sent the election form and you will receive instructions from such broker, bank or other nominee on how to timely submit an election form.

Q: I do not know where my stock certificate is—how will I get my merger consideration?

A: The election form sent prior to the completion of the merger (and, should you fail to submit a valid election form prior to the election deadline, the materials you are sent after the completion of the merger) will include the procedures that you must follow if you cannot locate your stock certificate(s). This will include an affidavit that you will need to sign attesting to the loss or destruction of your stock certificate(s). The exchange agent or the surviving corporation may also require that you post a bond in an amount that Encore reasonably directs as indemnity against any claim that may be made against it with respect to such lost stock certificate.

 

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Q: What happens if I sell my shares of AACC common stock before the special meeting?

A: The record date for stockholders entitled to vote at the special meeting is earlier than the consummation of the merger. If you transfer your shares of AACC common stock after the record date but before the special meeting you will, unless special arrangements are made, retain your right to vote at the special meeting, but will transfer the right to receive the per share merger consideration to the person to whom you transfer your shares.

Q: If my shares are held in “street name” by my broker, bank or other nominee, will my broker, bank or other nominee vote my shares for me?

A: Your broker, bank or other nominee will not vote your shares of AACC common stock on your behalf unless you provide instructions to your broker, bank or nominee on how to vote. You should follow the directions provided by your broker, bank or nominee regarding how to instruct it to vote your shares of AACC common stock. Without those instructions to your nominee, your shares will not be voted, which will have the same effect as voting “AGAINST” the adoption of the merger agreement, but will have no effect for purposes of the advisory (non-binding) vote on the “golden parachute” compensation or the proposals to adjourn the special meeting, if necessary or appropriate, or to solicit additional proxies.

Q: Will my shares held in “street name” or another form of record ownership be combined for voting purposes with shares I hold of record?

A: No. Because any shares of AACC common stock you may hold in “street name” will be deemed to be held by a different stockholder than any shares you hold of record, any shares so held will not be combined for voting purposes with shares you hold of record. Similarly, if you own shares in various registered forms, such as jointly with your spouse, as trustee of a trust or as custodian for a minor, you will receive, and will need to complete, sign and return, a separate proxy card for those shares because they are held in a different form of record ownership. Shares held by a corporation or business entity must be voted by an authorized officer of the entity. Shares held in an individual retirement account must be voted under the rules governing the account.

Q: What does it mean if I receive more than one set of proxy materials?

A: This means you own shares of AACC common stock that are registered under different names or are in more than one account. For example, you may own some shares directly as a stockholder of record and other shares through a broker, bank or other nominee or you may own shares through more than one nominee. In these situations, you will receive multiple sets of proxy materials. You must vote, complete, sign and return all of the proxy cards or follow the instructions for any alternative voting procedure on each of the proxy cards that you receive in order to vote all of the shares of AACC common stock that you own. Each proxy card you receive comes with its own prepaid return envelope. If you submit your proxy by mail, make sure you return each proxy card in the return envelope that accompanies that proxy card.

Q: What if I fail to instruct my broker, bank or other nominee?

A: Without instructions from you, your broker, bank or other nominee will not vote any of your shares held in “street name.” Broker non-votes will be counted for purposes of determining the presence or absence of a quorum. Broker non-votes will have exactly the same effect as a vote “AGAINST” the merger proposal, but will have no effect on the advisory (non-binding) vote on “golden parachute” compensation or the adjournment proposal.

Q: When do you expect the merger to be completed?

A: In order to complete the merger, AACC must obtain the stockholder approval described in this proxy statement/prospectus and the other closing conditions under the merger agreement must be satisfied or waived. The parties to the merger agreement currently expect to complete the merger in the second quarter of 2013,

 

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although none of AACC, Encore or Merger Sub can assure completion by any particular date, if at all. Because the merger is subject to a number of conditions, the exact timing of completion of the merger cannot be determined at this time.

Q: What are the U.S. federal income tax consequences of the merger?

A: Your exchange of AACC common stock for the merger consideration in the merger will be a taxable transaction for U.S. federal income tax purposes and may also be taxable under state and local and non-U.S. tax laws. Accordingly, a U.S. holder (as defined in this proxy statement/prospectus) generally will recognize capital gain or loss for U.S. federal income tax purposes in an amount equal to the difference between (a) the sum of (i) the amount of cash received by such holder in the merger and (ii) the fair market value, at the effective time of the merger, of the shares of Encore common stock received by such holder in the merger, and (b) such holder’s adjusted tax basis in the shares of AACC common stock owned by such holder immediately prior to the effective time of the merger. See “Material United States Federal Income Tax Consequences of the Merger” beginning on page 106 for a discussion of material U.S. federal income tax consequences of the merger. The tax consequences of the merger to you will depend on the facts of your own situation. You should consult your tax advisor for a full understanding of the U.S. federal income tax consequences of the merger to you, as well as U.S. federal income tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.

Q: What happens if I do not return a proxy card by mail, vote via the Internet or telephone or attend the special meeting and vote in person?

A: Your (or your nominee’s) failure to return your proxy card by mail, vote via the Internet or telephone, or your (or your nominee’s) failure to attend the special meeting and vote your shares of AACC common stock in person, will have the same effect as a vote “AGAINST” adoption of the merger agreement, but will have no effect on the advisory (non-binding) vote on “golden parachute” compensation or the adjournment proposal.

Q: May I vote in person?

A: Yes. You may attend the special meeting and vote your shares in person whether or not you sign and return your proxy card. If your shares are held of record by a broker, bank or other nominee and you wish to vote at the special meeting, you must obtain a proxy from such record holder.

Q: May AACC stockholders ask questions at the special meeting?

A: Yes, representatives of AACC will answer stockholder questions of general interest at the meeting as time permits.

Q: May I change my vote after I have delivered my signed proxy card?

A: Yes. You may revoke and change your vote at any time before your proxy card is voted at the special meeting. You can do this in one of three ways:

 

   

first, you can send a written notice to AACC’s Corporate Secretary stating that you would like to revoke your proxy;

 

   

second, you can complete and submit a new, later-dated proxy by Internet, by telephone or by mail; or

 

   

third, you can attend the meeting and vote in person. Your attendance alone will not revoke your proxy.

If you have instructed a broker, bank or other nominee to vote your shares, you must follow directions received from your broker, bank or other nominee to change those instructions.

 

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Q: Can my shares of AACC common stock be voted on matters other than those described in this proxy statement/prospectus?

A; Yes, if any other item or proposal properly comes before the special meeting, the proxies received will be voted in accordance with the discretion of the persons named as proxy holders. However, as of the date of this document, we have not received proper notice of, and are unaware of, any business to be transacted at the special meeting other than as indicated in this proxy statement/prospectus.

Q: Where can I find the voting results of the special meeting?

A: We intend to announce preliminary voting results at the special meeting and publish final results in a Current Report on Form 8-K to be filed with the SEC as soon as practicable following the meeting (and in any event within four business days of the meeting).

Q: Are AACC Stockholders entitled to appraisal rights?

A: Yes. Under Section 262 of the DGCL, record holders of AACC common stock who do not vote in favor of the proposal to adopt the merger agreement will be entitled to seek appraisal rights in connection with the merger, and if the merger is completed, be entitled to receive payment based upon a valuation, together with a fair rate of interest and in lieu of any consideration to be received under the merger agreement, determined by the Court of Chancery of the State of Delaware. To exercise their appraisal rights, AACC stockholders must strictly follow the procedures prescribed by Section 262 of the DGCL. These procedures are summarized in this proxy statement/prospectus in the section entitled “AACC Proposal No. 1 – The Merger – Appraisal Rights” beginning on page 66. In addition, a copy of Section 262 of the DGCL is included as Annex C to this proxy statement/ prospectus. Failure to strictly comply with these provisions will result in the loss of appraisal rights.

Q: What rights do I have to seek a valuation of my shares?

A: Under Delaware law, holders of AACC common stock who do not vote in favor of the merger may exercise appraisal rights, but only if they do not vote in favor of the merger proposal and they otherwise comply with the procedures of Section 262 of the DGCL, which is the appraisal statute applicable to Delaware corporations. See “AACC Proposal No. 1 – The Merger—Appraisal Rights” beginning on page 66. A copy of Section 262 of the DGCL is included as Annex C to this proxy statement/prospectus.

Q: What do I need to do now?

A: You should carefully read this proxy statement/prospectus, including the annexes in their entirety, and consider how the merger would affect you. Please complete, sign, date and mail your proxy card in the enclosed postage prepaid envelope (or follow the instructions for voting your shares on the back of such proxy card) as soon as possible so that your shares may be represented at the special meeting.

Q: Who can help answer my questions?

A: If you have questions about the merger agreement or the merger, including the procedures for voting your shares at the special meeting, you should contact AACC’s proxy solicitor, D.F. King & Co., Inc., toll-free (for stockholders) at (888) 644-5854 or (for banks and brokers) at (212) 269-5550.

More information on AACC can be obtained by contacting AACC’s Investor Relations line at (586) 939-9600—option 5, going to AACC’s website at www.assetacceptance.com or writing to: Asset Acceptance Capital Corp., Attn: Investor Relations, 28405 Van Dyke Avenue, Warren, Michigan 48093.

 

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SUMMARY

This summary highlights information contained elsewhere in this document and may not contain all of the information that is important to you. Before voting, we urge you to carefully read the entire document, including the annexes, and the other documents to which we refer in order to fully understand the merger and the related transactions. AACC has included section references to direct you to more complete descriptions of the topics described in this summary. You may obtain the information incorporated by reference into this document without charge by following the instructions in “Where You Can Find More Information” on page 123.

Special Meeting of AACC Stockholders to Consider and Adopt the Merger Agreement

This document contains information related to a special meeting of the stockholders of AACC to be held on             , 2013, at 9:00 a.m. (local time), at the offices of Kirkland & Ellis LLP located at 601 Lexington Avenue, New York, New York 10022, and at any adjournments or postponements thereof. AACC is furnishing this document, which, among other things, serves as AACC’s proxy statement issued in connection with such special meeting, to holders of AACC common stock as part of the solicitation of proxies by AACC’s Board of Directors for use at the special meeting. At the special meeting you will be asked to, among other things, (i) consider and vote on the adoption of the merger agreement and (ii) cast an advisory (non-binding) vote with respect to certain agreements or understandings with, and items of compensation payable to, AACC named executive officers that are based on or otherwise related to the merger (the “golden parachute” compensation). This document is first being mailed to stockholders on or about             , 2013. The terms and conditions of the merger are contained in the merger agreement, which is attached as Annex A to this document. Please carefully read the merger agreement as it is the legal document that governs the merger. See “AACC Proposal No. 1 – The Merger” beginning on page 36 and “AACC Proposal No. 2 – Advisory Vote Regarding Golden Parachute Compensation” on page 112.

Required Vote of AACC Stockholders

Under the DGCL and AACC’s amended and restated certificate of incorporation, the affirmative vote of the record holders of a majority of the shares of AACC common stock outstanding as of the record date is required to adopt and approve the merger agreement and the merger. Abstentions and “broker non-votes” (or other failures to vote) will have the same effect as votes “AGAINST” the merger agreement and the merger.

The affirmative vote of a majority of the shares of AACC common stock present (in person or by proxy) and entitled to vote on the proposal is required for the approval of the advisory (non-binding) proposal on “golden parachute” compensation. The vote to approve the “golden parachute” compensation is advisory only and will not be binding on AACC or Encore and is not a condition to completion of the merger. If the merger agreement is adopted by AACC stockholders and completed, the “golden parachute” compensation may be paid to the AACC’s named executive officers even if AACC stockholders fail to approve the “golden parachute” compensation. “Broker non-votes” (or other failures to vote) will have no effect on the proposal to approve the “golden parachute” compensation, but abstentions will have the same effect as a vote “AGAINST” the proposal to approve the “golden parachute” compensation.

The approval of the proposal to adjourn the special meeting if there are not sufficient votes to adopt the merger agreement and the merger requires the affirmative vote of a majority of the shares of AACC common stock present (in person or by proxy) and entitled to vote on the proposal. “Broker non-votes” (or other failures to vote) will have no effect on, but abstentions will have the same effect as a vote “AGAINST”, the proposal to adjourn the special meeting.

See “AACC Proposal No. 2 – Advisory Vote Regarding Golden Parachute Compensation” on page 112 and “AACC Proposal No. 3 – Adjournment of the Special Meeting” on page 113.

 

 

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Record Date

You are entitled to vote at the special meeting of AACC’s stockholders if you owned shares of AACC common stock at the close of business on             , 2013, which is the record date for the special meeting. On the record date,              shares of AACC common stock were outstanding and entitled to vote at the special meeting. See “The AACC Special Meeting—Record Date; Stockholders Entitled to Vote; Quorum; Voting Information” beginning on page 32.

Voting Information

You will have one vote for each share of AACC common stock that you owned at the close of business on the record date. If your shares are held in “street name” by a broker, bank or other nominee, you will need to provide your broker, bank or nominee with instructions on how to vote your shares. Before voting your shares of AACC common stock, you should read this proxy statement/prospectus in its entirety, including its annexes, and carefully consider how the merger affects you. Then, submit your completed, dated and signed proxy by Internet, by telephone or by mail, as soon as possible so that your shares can be voted at the special meeting. For more information on how to vote your shares, please refer to “The AACC Special Meeting—How You Can Vote” beginning on page 34.

Merger Sub will Merge with and into AACC, Upon Completion of the Merger AACC will be a Wholly Owned Subsidiary of Encore

If the merger is completed, Merger Sub will have merged with and into AACC, with AACC continuing as the surviving corporation and a wholly owned subsidiary of Encore. Further, if the merger is completed, except as detailed below, each share of AACC common stock outstanding immediately prior to the completion of the merger will be converted into the right to receive the applicable per share merger consideration, without interest and less applicable withholding taxes, and you will cease to own any interest in AACC common stock. See “AACC Proposal No. 1 – The Merger Agreement—Conversion of AACC Common Stock; Exchange of Certificates” beginning on page 84 and “The Merger Agreement—Consideration to be Received in the Merger” beginning on page 81.

AACC Stockholders will Receive Cash and/or Shares of Encore Common Stock in the Merger Depending on Their Election and any Proration

As a result of the merger, each share of AACC common stock issued and outstanding immediately prior to the effective time of the merger, other than certain excluded shares, will be converted into, and will represent the right to receive the applicable per share merger consideration. Subject to the proration adjustment described below, each AACC stockholder will have the right, with respect to each share of AACC common stock owned by such stockholder, to elect to receive merger consideration consisting of either cash or shares of Encore common stock. See “The Merger Agreement—Consideration to be Received in the Merger” on page 81.

AACC stockholders must return their properly completed and signed election form (as defined below) to an exchange agent designated by Encore (the “exchange agent”) prior to the election deadline (as defined below). If you are an AACC stockholder and you do not return your election form by the election deadline or improperly complete or do not sign your election form, you will receive cash consideration only.

Cash Election

Each share of AACC common stock with respect to which an election to receive cash (a “cash election”) has been validly made will be converted into the right to receive an amount in cash equal to $6.50, without interest and less any applicable withholding taxes (the “cash consideration”). The proration described below does not apply to cash elections.

 

 

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Stock Election

Each share of AACC common stock with respect to which an election to receive stock consideration (a “stock election”) has been validly made will be converted, subject to a proration adjustment in accordance with the terms of the merger agreement, into the right to receive 0.2162 validly issued, fully paid and nonassessable shares of Encore common stock less any applicable withholding taxes (together with any cash in lieu of fractional shares of Encore common stock to be paid pursuant to the merger agreement, the “stock consideration”). The cash consideration and the stock consideration are collectively referred to herein from time to time as the “merger consideration”. Please note, however, that no more than 25% of the shares of AACC common stock outstanding immediately prior to the effective time of the merger will be exchanged for shares of Encore common stock (the “maximum stock election”) and any shares of AACC common stock for which a stock election has been validly made in excess of such 25% limitation will be subject to the proration adjustment described below.

The closing stock price per share of Encore common stock as of March 5, 2013, the last full trading day prior to the announcement of the merger agreement, was $30.07. The closing stock price per share of Encore common stock as of May 1, 2013, the last full trading day prior to the date of this proxy statement/prospectus, was $28.56.

Non-Election Shares

Subject to your appraisal rights under applicable law, if you are an AACC stockholder and you do not make a cash election or stock election for each share of AACC common stock owned by you in accordance with the instructions received by you (or, if you hold your shares of AACC common stock in “street name” by your broker, bank or other nominee) from the exchange agent, your elections are not received by the exchange agent by the election deadline, your election form are improperly completed and/or are not signed, or you do not send together with your election form your certificates or book-entry shares representing you shares of AACC common stock, you will be deemed not to have made a valid election and your shares will be deemed “non-election shares.” Each non-election share of AACC common stock will be converted into the right to receive the cash consideration only.

Cancelled Shares

Shares of AACC common stock which are owned by AACC (as treasury stock) or Encore or any of its subsidiaries, in each case, will be automatically cancelled, cease to exist and will not be entitled to receive any merger consideration.

Proration

If AACC stockholders elect, in the aggregate, to receive stock consideration in excess of the 25% maximum stock election, then the number of shares AACC common stock elected to be exchanged for stock consideration by each AACC stockholder validly making a stock election will be reduced on a pro rata basis among all such stockholders, such that the aggregate number of shares of AACC common stock actually exchanged equals the maximum stock election amount (i.e., the total number of shares of AACC common stock outstanding immediately prior to the merger multiplied by 0.25). If proration is required, the maximum number of shares of AACC common stock that each stockholder validly making a stock election will be permitted to exchange for stock consideration will equal the maximum stock election amount multiplied by the ratio that the number of shares for which such stockholder made a stock election bears to the total number of shares for which a stock election was made by all AACC stockholders. To the extent an AACC stockholder does not receive Encore common stock for each share in respect of which he or she made a stock election due to the imposition of the 25% maximum stock election amount limitation and the proration

 

 

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described above, such stockholder will be entitled to receive the cash consideration for each such remaining share of AACC common stock not exchanged for stock consideration. As a result, if you make an election to receive only stock consideration, you may nevertheless receive a mix of cash consideration and stock consideration.

What Holders of AACC Stock Options and Other Equity-Based Awards Will Receive

Stock Options

Each holder of an option that represents the right to acquire shares of AACC common stock granted under any equity compensation plans of AACC which is outstanding immediately prior to the effective time of the merger (whether or not then vested or exercisable) will be provided with notice pursuant to which all outstanding stock options held by such holder will become fully vested and exercisable by such holder for a period of at least 15 days prior to the effective time of the merger in accordance with the terms and conditions of the applicable award agreement and any equity compensation plan of AACC under which such option was granted. To the extent that any outstanding stock option is exercised prior to the effective time of the merger, AACC will issue to such exercising holder shares of AACC common stock in accordance with the terms of such option, which shares will be entitled to receive the per share merger consideration (as described above) upon consummation of the merger.

To the extent that any outstanding stock option is not so exercised on or prior to the effective time of the merger, such outstanding option to acquire shares of AACC common stock (whether or not then vested or exercisable) will be cancelled and terminated at the effective time of the merger in exchange for the right to receive, in full settlement of such option, a cash amount equal to the product of (i) the total number of shares of AACC common stock that may be acquired upon the full exercise of such stock option immediately prior to the effective time of the merger multiplied by (ii) the excess, if any, of the cash consideration over the exercise price per share of AACC common stock underlying such option, without interest and less any applicable withholding taxes. Please note, however, that if the per share exercise price of any such option is equal to or greater than the cash consideration, then, upon consummation of the merger, such option will be cancelled without any payment or other consideration being made in respect of such option.

Restricted Stock Units and Deferred Stock Units

Each restricted stock unit and each deferred stock unit granted with respect to shares of AACC common stock under any equity compensation plans of AACC that is outstanding immediately prior to the effective time of the merger will be cancelled and entitle the holder thereof to receive from AACC, in full settlement of such equity award, a cash amount equal to the product determined by multiplying (i) the cash consideration by (ii) the total number of shares of AACC common stock subject to such restricted stock unit or deferred stock unit, as the case may be (using, if applicable, the goal (100%) level of achievement under the respective award agreement to determine such number), in each case, less any applicable withholding taxes.

Please see “The Merger Agreement—Treatment of AACC Stock Options and Other Equity-Based Awards” on page 82 for additional information regarding the treatment of AACC’s equity-based awards in connection with the merger.

Election Procedures

At the time of mailing of this proxy statement/prospectus to the record holders of shares of AACC common stock entitled to vote at the special meeting of AACC stockholders discussed herein, Encore will, or Encore will cause the exchange agent to, mail to each such holder the “election form” (which will include (i) the election form, (ii) a letter of transmittal and (iii) instructions for surrendering the stock certificates or book-entry shares representing issued and outstanding shares of AACC common stock in exchange for payment of the applicable

 

 

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merger consideration). Each election form will permit each record holder of AACC common stock to specify the number of shares of AACC common stock with respect to which such holder is making a cash election and the number of shares of AACC common stock with respect to which such holder is making a stock election.

The “election deadline” will be publicly announced by Encore as soon as reasonably practicable (but in no event less than five business days prior to the closing date of the merger). If you wish to elect the type or mix of merger consideration you will receive in the merger, you should carefully review and follow the instructions that will be set forth in the election form. To make a valid cash election or stock election, you must submit a properly completed election form, together with stock certificates (except with respect to book-entry shares, in which case you should follow the instructions set forth in the election form), so that the election form (together with any such stock certificates) is actually received by the exchange agent at or prior to the election deadline in accordance with the instructions set forth in the election form.

If you fail to submit a validly completed and signed election form prior to the election deadline with respect to any shares of AACC common stock owned by you immediately prior to the effective time of the merger, you will be deemed not to have made an election with respect to such shares and such shares will be deemed non-election shares. After the consummation of the merger, subject to your appraisal rights under applicable law, you will only be entitled to receive the cash consideration in exchange for each non-election share you own.

Please see “The Merger Agreement—Election Procedures” on page 83 for additional information regarding procedures for making a valid cash election and/or stock election in accordance with the terms of the merger agreement.

William Blair & Company, L.L.C. has Provided an Opinion to the AACC Board of Directors Regarding the Merger Consideration

On March 5, 2013, in connection with the entry by AACC into the merger agreement, each of the Review Committee (as defined below) and the Board of Directors of AACC received an oral opinion (which opinion was subsequently confirmed in a written opinion dated March 5, 2013) from William Blair & Company, L.L.C. (“William Blair”), financial advisor retained by the Review Committee and AACC, to the effect that, as of such date, and subject to the various assumptions and qualifications set forth therein, the merger consideration to be received in the merger by holders of AACC common stock is fair from a financial point of view to the holders of AACC common stock. The full text of William Blair’s written opinion is attached to this proxy statement/prospectus as Annex B. You are encouraged to read this opinion carefully in its entirety for a description of the assumptions made, procedures followed, matters considered and qualifications and limitations on the review undertaken. William Blair’s opinion was provided to the Review Committee and the Board of Directors of AACC in connection with, and for the purposes of, its evaluation of the merger consideration from a financial point of view, does not address any other aspect or implication of the merger or the merits of the underlying decision by AACC to engage in the merger or the relative merits of any alternatives discussed by the Review Committee or the Board of Directors of AACC and does not constitute a recommendation as to any vote or action AACC or any stockholders of AACC should take in connection with the merger or any aspect thereof, or as to whether any such stockholder should elect to receive cash consideration or stock consideration. Please see “AACC Proposal No. 1 – The Merger—Opinion of AACC’s Financial Advisor” beginning on page 52 for additional information.

The AACC Board of Directors Recommends that AACC Stockholders Vote “FOR” Adoption of the Merger Agreement

AACC’s Board of Directors, after careful consideration and acting upon the unanimous recommendation of a review committee of disinterested directors of AACC, has, by a unanimous vote of all directors present, approved and authorized the merger agreement and the transactions contemplated by the merger agreement,

 

 

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including the merger, determined that the merger agreement is advisable and in the best interests of AACC stockholders, and recommends that you vote “FOR” adoption of the merger agreement, whether in person or by proxy, at the special meeting and any adjournment thereof. AACC’s Board of Directors also recommends that you vote “FOR” approval of the “golden parachute” compensation and, if necessary, “FOR” the approval of any adjournment of the special meeting. See “AACC Proposal No. 1 – The Merger—AACC’s Reasons for the Merger; Recommendation of the AACC Board of Directors” beginning on page 46 and see “AACC Proposal No. 2 – Advisory Vote Regarding Golden Parachute Compensation” on page 112.

AACC’s Directors and Officers Have Financial Interests in the Merger that may Differ from Your Interests

No stockholder is entitled to receive any special merger consideration. However, in considering the recommendation of AACC’s Board of Directors, you should be aware that some of AACC’s executive officers and directors have financial interests in the merger that may be different from, or in addition to, your interests as a stockholder (or the interests of AACC’s stockholders generally) and that may present actual or potential conflicts of interest. The AACC Board of Directors was aware of and considered these potential interests and conflicts, among other matters, in evaluating and negotiating the merger agreement and the merger, in approving the merger agreement and the transaction contemplated thereby (including the merger), and in recommending that AACC’s stockholders approve and adopt the merger agreement and the merger and the “golden parachute” compensation at the special meeting and any adjournment thereof. Please see “Risk Factors” beginning on page 23 and “AACC Proposal No. 1 – The Merger—AACC’s Directors and Officers Have Financial Interests in the Merger” beginning on page 70 for additional information about these interests.

Voting Agreement with the Supporting Stockholder

In connection with the entry into the merger agreement the supporting stockholder entered into the voting agreement with Encore that provides that the supporting stockholder will vote “FOR” adoption of the merger agreement. As of March 6, 2013, the supporting stockholder held shares of AACC common stock representing approximately 35.6% of the total issued and outstanding shares. See “The Merger Agreement—Voting Agreement” on page 99.

Appraisal Rights

Under Section 262 of the DGCL, holders of AACC common stock who oppose the merger may exercise their right to seek appraisal of the fair value of their shares of AACC common stock in connection with the merger as determined by the Court of Chancery of the State of Delaware if the merger is completed, but only if they do not vote in favor of adopting the merger agreement and otherwise comply with the procedures of Section 262 of the DGCL, which is the appraisal rights statute applicable to Delaware corporations. This appraisal amount could be more than, the same as or less than the per share merger consideration. To perfect appraisal rights, in addition to not voting for the adoption of the merger agreement, an AACC stockholder must continue to hold his, her or its shares of AACC common stock through the effective date of the merger and must strictly comply with all of the procedures required under Delaware law, including submitting a written demand for appraisal to AACC prior to the special meeting. Failure to strictly comply with Section 262 of the DGCL by an AACC stockholder will result in the loss or waiver of that stockholder’s appraisal rights. Because of the complexity of Delaware law relating to appraisal rights, if any AACC stockholder is considering exercising his, her or its appraisal rights, Encore and AACC encourage such AACC stockholder to seek the advice of his, her or its own legal counsel. A summary of the requirements under Delaware law to exercise appraisal rights is included in this document under “AACC Proposal No. 1 – The Merger—Appraisal Rights” beginning on page 66, and the text of Section 262 of the DGCL as in effect with respect to this transaction is included as Annex C to this document.

 

 

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Conditions that Must be Satisfied or Waived for the Merger to Occur

Currently, we expect to complete the merger in the second quarter of 2013, although none of AACC, Encore or Merger Sub can assure completion by any particular date, if at all. As more fully described in this document and in the merger agreement, the completion of the merger depends on a number of conditions being satisfied or, where legally permissible, waived. These conditions are described in “The Merger Agreement—Conditions to Complete the Merger” beginning on page 86 and include:

 

   

the adoption of the merger agreement by the holders of a majority of the of the outstanding AACC common stock;

 

   

the expiration or termination of the regulatory waiting periods under the HSR Act;

 

   

the absence of any order or law, judgment or ruling of any governmental entity that restrains, enjoins, prohibits or otherwise prevents the consummation of the merger;

 

   

the approval for listing on NASDAQ (subject to official notice of issuance) of the shares of Encore common stock to be issued as stock consideration;

 

   

the declaration by the SEC of the effectiveness of Encore’s registration statement on Form S-4 and the absence of any stop order suspending such effectiveness (or proceeding seeking such suspension) issued by the SEC;

 

   

the absence of a material adverse effect on each of AACC and Encore;

 

   

the accuracy of the representations and warranties of AACC, Encore and Merger Sub (subject in certain cases to certain materiality, knowledge and other qualifications); and

 

   

AACC’s, Encore’s and Merger Sub’s performance in all material respects of their respective obligations under the merger agreement.

None of AACC, Encore or Merger Sub can be certain when, or if, these conditions to the merger will be satisfied or waived, or that the merger will be completed.

Financing of the Merger

Encore has represented and warranted to AACC that, as and when needed, it will have sufficient unrestricted cash, marketable securities and other sources of immediately available funds necessary to consummate the merger and the other transactions contemplated by the merger agreement. The obligations of Encore and Merger Sub under the merger agreement, including their obligation to consummate the merger, are not subject to any conditions regarding Encore’s, Merger Sub’s or any other person’s ability to obtain financing for the consummation of the merger and the other transactions contemplated by the merger agreement. See “AACC Proposal No. 1 – The Merger—Merger Financing” beginning on page 65.

“No-Shop” Provisions of the Merger Agreement Restrict AACC from Soliciting Other Offers; Exceptions

Upon execution of the merger agreement, AACC became subject to customary “no-shop” restrictions on its, its subsidiaries’ and their respective representatives’ ability to initiate, solicit or encourage alternative acquisition proposals from third parties and to provide information to, or participate in discussions or negotiations with, third parties regarding alternative acquisition proposals. Notwithstanding such “no-shop” restrictions, AACC, its subsidiaries and their respective representatives were permitted to continue to initiate, solicit and encourage any inquiry or the making of acquisition proposals (including by providing access to non-public information), and engage or enter into or otherwise participate in any discussions or negotiations with any excluded party (as defined below) with respect to any acquisition proposal, or otherwise cooperate with, assist or participate in, or facilitate any such inquiries, proposals, discussions or negotiations or any effort or attempt to make any

 

 

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acquisition proposals, in each case, until 11:59 p.m. on March 27, 2013 (the “excluded party deadline”). “Excluded parties” means those third parties that made or were engaged with AACC in the process of making an alternative acquisition proposal as of March 6, 2013, the signing date of the merger agreement. If any excluded party makes a “superior proposal” (as defined below) on or before 11:59 p.m. on March 27, 2013, the “excluded party deadline” will automatically be extended until 11:59 p.m. on the date Encore’s matching right under the merger agreement with respect to such superior proposal expires.

Additionally, prior to the adoption of the merger agreement by AACC’s stockholders at the special meeting or any adjournment thereof, the “no-shop” provisions are subject to a “fiduciary out” exception that allows AACC, its subsidiaries and their respective representatives, subject to certain limitations, to take or otherwise engage in any or all of the actions described in the paragraph above in response to an unsolicited written acquisition proposal by any third party if AACC’s Board of Directors determines in good faith, after consultation with outside counsel and its independent financial advisors, that such proposal is or could reasonably be expected to result in a superior proposal and that the failure to engage in negotiations and discussions with, or furnish any information and other access to, such person would reasonably be expected to be a breach of its fiduciary duties under applicable law.

In addition, prior to the adoption of the merger agreement by AACC’s stockholders, if there is an intervening event or AACC receives an unsolicited written alternative acquisition proposal, AACC’s Board of directors may withhold, withdraw, qualify or modify its recommendation to AACC’s stockholders to adopt the merger agreement if AACC’s Board of Directors determines in good faith, (a) with respect to any such intervening event, after consultation with its outside counsel, that failure to do so could reasonably be expected to result in a breach of its fiduciary duties to stockholders under applicable law and (b) with respect to any such acquisition proposal, after consultation with its outside counsel and independent financial advisors, that such acquisition proposal would be more favorable to AACC’s stockholders than the merger from a financial point of view and that the failure to take such action would reasonably be expected to result in a breach of its fiduciary duties under applicable law (after taking into account all adjustments to the terms of the merger agreement that may be offered by Encore), and may also terminate the merger agreement (subject to providing Encore with prior notice, allowing Encore certain matching rights and, with respect to any such termination in connection with a superior proposal, paying Encore a termination fee). See “The Merger Agreement— Solicitation of Alternative Acquisition Proposals; Change of Recommendation; Matching Rights” beginning on page 87 and “The Merger Agreement—Termination Fee” beginning on page 92.

For purposes of this summary, the term “takeover proposal” means any bona fide inquiry, proposal or offer from any person (other than Encore, Merger Sub and any of their affiliates) or “group” (as such term is defined in Rule 13d of the Exchange Act) to purchase or otherwise acquire, in a single transaction or series of related transactions, (i) assets of AACC and its subsidiaries (including securities of subsidiaries, but excluding sales of assets in the ordinary course of business) that account for 20% or more of AACC’s consolidated assets (based on the fair market value thereof) or from which 20% or more of AACC’s revenues, earnings or cash flows on a consolidated basis are derived or (ii) 20% or more of the outstanding common stock of AACC pursuant to a merger, consolidation or other business combination, sale of shares of capital stock, tender offer, exchange offer or similar transaction.

For purposes of this summary, the term “superior proposal” means any bona fide written takeover proposal (substituting references to “20%” with “50%”) on terms which AACC’s Board of Directors (or any duly authorized committee thereof) determines in good faith, after consultation with AACC’s outside legal counsel and independent financial advisors, (i) to be more favorable to AACC stockholders than the merger from a financial point of view (after taking into account any revisions to the merger agreement set forth in any written, binding and irrevocable offer by Encore capable of being accepted by AACC), taking into account, to the extent applicable, the legal, financial, regulatory, timing and other aspects of such proposal and the merger agreement

 

 

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that AACC’s Board of Directors (or any duly authorized committee thereof) considers relevant, (ii) the financing of which is fully committed or reasonably likely to be obtained and (iii) if accepted, is reasonably likely to be consummated (in the case of each of the foregoing clauses (ii) and (iii), as determined in good faith by AACC’s Board of Directors (or any duly authorized committee thereof)).

Termination of the Merger Agreement

The merger agreement may be terminated before the completion of the merger in certain circumstances. See “The Merger Agreement—Termination of the Merger Agreement” beginning on page 91.

Termination Fee

The merger agreement contains certain termination rights for both AACC and Encore. The merger agreement provides that upon termination in connection with a “superior proposal” (as defined above) from a party which is designated as an “excluded party” (as defined above) and entered into on or prior to the “excluded party deadline” (as defined above), AACC would be required to pay Encore a termination fee equal to $4.25 million and reimburse Encore for certain of its and its subsidiaries expenses incurred in connection with its negotiation and execution of the merger agreement in an aggregate amount up to $2.0 million. Upon termination of the merger agreement under certain additional specified circumstances (not related to the circumstances described above in connection with a superior proposal by an excluded party), AACC would be required to pay Encore a termination fee in an amount equal to $7.4 million and, if the termination is in connection with accepting a superior proposal from a person other than an excluded party, reimburse Encore for certain of its and its subsidiaries’ expenses incurred in connection with its negotiation and execution of the merger agreement in an aggregate amount up to $2.0 million. The failure of AACC stockholders to adopt the merger agreement at the special meeting (or any adjournments or postponements thereof) will not, by itself, require AACC to pay Encore any termination fee. However, AACC is required to pay Encore a termination fee of $7.4 million (without any expense reimbursement) if the merger agreement is terminated by AACC or Encore due to the failure of AACC stockholders to adopt the merger agreement, there is a publicly disclosed bona fide takeover proposal (with references to “20%” substituted with “50%”) made after March 6, 2013 but prior to the termination date (or, as applicable, the date of the special meeting) and, within 12 months after such termination, AACC consummates the transactions contemplated by such takeover proposal. See “The Merger Agreement—Termination Fee” beginning on page 92.

Regulatory Approvals Required for the Merger

Encore and AACC have agreed to use their reasonable best efforts to obtain all regulatory approvals required to complete the transactions contemplated by the merger agreement. These approvals include clearance under the HSR Act as well as approval from various other regulatory authorities. Encore and AACC have completed, or will complete, the filing of applications and notifications to obtain the regulatory approvals required by law and the merger agreement to consummate the merger. However, neither AACC nor Encore can assure you that any such regulatory approvals will be obtained, and, if obtained, neither AACC nor Encore can assure you as to the date of any such approvals or the absence of any litigation challenging such approvals. See “The Merger Agreement—Other Reasonable Best Efforts Obligations; Regulatory Approvals” beginning on page 90.

Material U.S. Federal Income Tax Consequences of the Merger

A holder’s exchange of AACC common stock for the merger consideration in the merger will be a taxable transaction for U.S. federal income tax purposes and may also be taxable under state and local and non-U.S. tax laws. See “Material United States Federal Income Tax Consequences of the Merger” beginning on page 106. Accordingly, a U.S. holder (as defined in this proxy statement/prospectus) generally will recognize capital gain or loss for U.S. federal income tax purposes in an amount equal to the difference between (a) the sum of (i) the

 

 

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amount of cash received by such holder in the merger and (ii) the fair market value, at the effective time of the merger, of the shares of Encore common stock received by such holder in the merger, and (b) such holder’s adjusted tax basis in the shares of AACC common stock owned by such holder immediately prior to the effective time of the merger. See “Material United States Federal Income Tax Consequences of the Merger” beginning on page 106 for a discussion of material U.S. federal income tax consequences of the merger. The tax consequences of the merger to you will depend on the facts of your own situation. You should consult your tax advisor for a full understanding of the U.S. federal income tax consequences of the merger to you, as well as U.S. federal income tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.

The Rights of AACC Stockholders who Receive the Stock Consideration will be Governed by Encore’s Restated Certificate of Incorporation and Bylaws After the Merger

The rights of AACC stockholders will change as a result of the merger due to differences in Encore’s and AACC’s governing documents. This document contains a description of stockholder rights under each of Encore and AACC governing documents and describes the material differences between them. See “Comparison of Stockholders’ Rights” beginning on page 115 for additional information.

AACC will Hold its Special Meeting of its Stockholders on             , 2013

The special meeting of the holders of AACC common stock will be held on             , 2013, at 9:00 a.m. (local time), at the offices of Kirkland & Ellis LLP located at 601 Lexington Avenue, New York, New York 10022. At the special meeting, AACC stockholders will be asked to:

 

   

adopt the merger agreement;

 

   

consider and cast an advisory (non-binding) vote on the specified compensation that may be received by AACC’s named executive officers in connection with the merger;

 

   

approve the adjournment of the special meeting, if necessary, to solicit additional proxies in favor of the proposal to adopt the merger agreement; and

 

   

transact such other business as may properly come before the special meeting and any adjournment or postponement thereof.

Record Date. Only holders of record of AACC common stock at the close of business on             , 2013 will be entitled to vote at the special meeting. Each share of AACC common stock is entitled to one vote. As of the record date, there were approximately              shares of AACC common stock entitled to vote at the special meeting.

Required Vote. The affirmative vote of holders of a majority of the outstanding shares of AACC’s common stock entitled to vote as of the record date (approximately              shares of AACC common stock) is required to adopt the merger agreement. Abstentions and any “broker non-votes” (or other failures to vote) will have the same effect as a vote cast “AGAINST” such proposal. If you complete, sign and submit your proxy card without indicating how you wish to vote, your proxy will be counted as a vote “FOR” the adoption of the merger agreement.

The affirmative vote of a majority of the shares of AACC common stock present (in person or by proxy) and entitled to vote is required to approve, on an advisory (non-binding) basis, the “golden parachute” compensation that may be received by AACC’s named executive officers in connection with the merger. The vote to approve the “golden parachute” compensation is not a condition to the completion of the merger, and the vote of AACC’s stockholders on the proposal is advisory in nature and will not be binding on Encore or AACC. Accordingly,

 

 

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regardless of the outcome of the advisory vote, if the merger is approved and completed, the “golden parachute” compensation may be paid. Broker non-votes (or other failures to vote) will not be counted “FOR” or “AGAINST” the proposal and, accordingly, will have no effect on the proposal to approve the “golden parachute” compensation. Abstentions will have the same effect as a vote “AGAINST” the proposal. If you complete, sign and submit your proxy card without indicating how you wish to vote, your proxy will be counted as a vote “FOR” the advisory non-binding vote on the “golden parachute” compensation.

The affirmative vote of a majority of the shares of AACC common stock present (in person or by proxy) and entitled to vote as of the record date is required to approve any adjournment of the special meeting, if necessary, to solicit additional proxies in favor of the merger proposal. Broker non-votes (or other failures to vote) will not be counted “FOR” or “AGAINST” the proposal and, accordingly, will have no effect on the proposal to approve any adjournment or postponement of the special meeting. Abstentions will have the same effect as a vote “AGAINST” the proposal. If you complete, sign and submit your proxy card without indicating how you wish to vote, your proxy will be counted as a vote “FOR” any adjournment or postponement of the special meeting.

As of the record date, directors and executive officers of AACC and its affiliates had the right to vote approximately              shares of AACC common stock, or             % of the outstanding AACC common stock entitled to be voted at the special meeting.

Litigation Relating to the Merger

After the announcement of the execution of the merger agreement, three putative class actions were filed in the Macomb County Circuit Court of the State of Michigan against AACC and its directors, as well as Encore and Merger Sub. These suits were captioned Shell v. Asset Acceptance Capital Corp., 2013-0009590-CZ (the “Shell Action”), filed March 8, 2013; Neumann v. Asset Acceptance Capital Corp., 2013-001072-CZ (the “Neumann Action”), filed March 19, 2013; and Jaluka v. Asset Acceptance Capital Corp., 2013-001081-CZ (the “Jaluka Action”), filed March 20, 2013 (collectively, the “Michigan Litigation”). The plaintiffs moved to consolidate the Michigan Litigation on March 28, 2013, and a hearing was held on April 22, 2013, on the motion to consolidate the cases and to appoint lead plaintiff and counsel. Additionally, a fourth putative class action was filed on April 19, 2013 in the Chancery Court of the State of Delaware, captioned Dix v. Asset Acceptance Capital Corp., Case No. 8494 (the “Dix Action”), naming the same defendants as in the Michigan Litigation.

In each of these lawsuits, purportedly brought on behalf of all of AACC’s public stockholders, the plaintiffs allege, among other things, that AACC’s directors have breached their fiduciary duties of care, loyalty and candor, and have failed to maximize the value of AACC for its stockholders by accepting an offer to sell AACC at a price that fails to reflect the true value of AACC and that was agreed to as a result of an unfair process, thus depriving holders of AACC common stock of the reasonable, fair and adequate value of their shares. Plaintiffs in the Shell Action, the Dix Action, and the Jaluka Action further allege that AACC’s directors have breached their duties of loyalty, good faith, candor and independence owed to the stockholders of AACC because they have engaged in self-dealing and ignored or did not protect against conflicts of interest resulting from their own interrelationships or connection with the proposed acquisition. Additionally, the Dix Action alleges a series of misleading statements and omissions in this proxy statement/prospectus. Finally, all plaintiffs allege that AACC, Encore, and Merger Sub aided and abetted the directors’ breaches of their fiduciary duty. Among other things, plaintiffs in the four lawsuits seek injunctive relief prohibiting consummation of the proposed acquisition, or rescission of the proposed acquisition (in the event the transaction has already been consummated), as well as costs and disbursements, including reasonable attorneys’ and experts’ fees, and other equitable or injunctive relief as the court may deem just and proper.

 

 

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Information About the Companies

Encore Capital Group, Inc.

3111 Camino Del Rio North, Suite 1300

San Diego, California 92108

(877) 445-4581

Encore is a leading provider of debt management and recovery solutions for consumers and property owners across a broad range of assets. Through its subsidiaries, Encore purchases portfolios of consumer receivables from major banks, credit unions, and utility providers, and partners with individuals as they repay their obligations and work toward financial recovery. Through its Propel Financial Services, LLC subsidiary, Encore assists property owners who are delinquent on their property taxes by structuring affordable monthly payment plans. Headquartered in San Diego, Encore is a publicly traded NASDAQ company (ticker symbol: ECPG) and a component stock of the Russell 2000, the S&P SmallCap 600, and the Wilshire 4500.

Additional information about Encore and its subsidiaries is included in documents incorporated by reference in this document. See “Where You Can Find More Information” on page 123.

Asset Acceptance Capital Corp.

28405 Van Dyke Avenue

Warren, Michigan 48093

(586) 939-9600

AACC is a leading purchaser and collector of charged-off consumer debt. AACC helps creditors liquidate delinquent consumer receivables and assist consumers in resolving their financial challenges. In this way, AACC returns value to our credit driven economy.

For 50 years, AACC has provided credit originators, such as credit card issuers, consumer finance companies, retail merchants, utilities and others an efficient alternative in recovering defaulted consumer debt. AACC has approximately 900 associates across three offices in three states.

Additional information about AACC and its subsidiaries is included in documents incorporated by reference in this document. See “Where You Can Find More Information” on page 123.

Merger Sub

Pinnacle Sub, Inc.

c/o Encore Capital Group, Inc.

3111 Camino Del Rio North, Suite 1300

San Diego, California 92108

(877) 445-4581

Pinnacle Sub, Inc., a Delaware corporation, is a wholly owned subsidiary of Encore. Merger Sub was formed by Encore solely to complete the merger. Merger Sub has not commenced any operations, has only nominal assets and has no liabilities or contingent liabilities, nor any outstanding commitments other than as set forth in the merger agreement. In the merger, Merger Sub will merge with and into AACC, and Merger Sub will cease to exist.

 

 

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SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA

Summary Historical Consolidated Financial Data of Encore

The selected consolidated financial and operating data below is derived from Encore’s audited consolidated financial statements for each of the years ended December 31, 2012, 2011, 2010, 2009 and 2008. These historical results are not necessarily indicative of results that you can expect for any future period. You should read this data in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and Encore’s consolidated financial statements and notes thereto contained in Encore’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, which is incorporated by reference in this proxy statement/prospectus. See “Where You Can Find More Information” on page 123.

 

    As of and For The Year Ended December 31,  
    2012     2011     2010     2009     2008  
    (In thousands, except per share data)  

Revenues

         

Revenue from receivable portfolios, net(1)

  $ 545,412      $ 448,714      $ 364,294      $ 299,732      $ 240,802   

Net interest income—tax lien transfer

    10,460        —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    555,872        448,714        364,294        299,732        240,802   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

         

Salaries and employee benefits

    101,084        77,805        64,077        54,587        54,445   

Cost of legal collections

    168,703        157,050        121,085        112,570        96,187   

Other operating expenses

    48,939        35,708        32,055        22,620        20,146   

Collection agency commissions

    15,332        14,162        20,385        19,278        13,118   

General and administrative expenses

    61,798        39,760        29,798        25,738        17,928   

Depreciation and amortization

    5,840        4,081        2,552        1,771        1,707   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    401,696        328,566        269,952        236,564        203,531   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

    154,176        120,148        94,342        63,168        37,271   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other (expense) income

         

Interest expense

    (25,564     (21,116     (19,349     (16,160     (20,572

Other income (expense)

    1,713        (363     368        3,266        5,235   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense

    (23,851     (21,479     (18,981     (12,894     (15,337
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations before income taxes

    130,325        98,669        75,361        50,274        21,934   

Provision for income taxes

    (51,754     (38,076     (27,967     (19,360     (9,036
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

    78,571        60,593        47,394        30,914        12,898   

(Loss) income from discontinued operations, net of tax

    (9,094     365        1,658        2,133        948   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 69,477      $ 60,958      $ 49,052      $ 33,047      $ 13,846   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding:

         

Basic

    24,855        24,572        23,897        23,215        23,046   

Diluted

    25,836        25,690        25,091        24,082        23,577   

 

 

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    As of and For The Year Ended December 31,  
    2012     2011     2010     2009     2008  
    (In thousands, except per share data)  

Basic earnings (loss) per share from:

         

Continuing operations

  $ 3.16      $ 2.47      $ 1.98      $ 1.33      $ 0.56   

Discontinued operations

  $ (0.36   $ 0.01      $ 0.07      $ 0.09      $ 0.04   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net basic earnings per share

  $ 2.80      $ 2.48      $ 2.05      $ 1.42      $ 0.60   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings (loss) per share from:

         

Continuing operations

  $ 3.04      $ 2.36      $ 1.89      $ 1.28      $ 0.55   

Discontinued operations

  $ (0.35   $ 0.01      $ 0.06      $ 0.09      $ 0.04   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net diluted earnings per share

  $ 2.69      $ 2.37      $ 1.95      $ 1.37      $ 0.59   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flow data:

         

Cash flows provided by (used in):

         

Operating activities

  $ 98,520      $ 84,579      $ 75,475      $ 76,519      $ 63,071   

Investing activities

    (343,770     (88,088     (142,807     (79,171     (107,252

Financing activities

    254,713        651        69,849        699        45,846   

Selected operating data:

         

Purchases of receivable portfolios, at cost

  $ 562,335      $ 386,850      $ 361,957      $ 256,632      $ 230,278   

Gross collections for the period

    948,055        761,158        604,609        487,792        398,633   

Consolidated statements of financial condition data:

         

Cash and cash equivalents

  $ 17,510      $ 8,047      $ 10,905      $ 8,388      $ 10,341   

Investment in receivable portfolios, net

    873,119        716,454        644,753        526,877        461,346   

Total assets

    1,171,340        812,483        736,468        595,159        549,079   

Total debt

    706,036        388,950        385,264        303,075        303,655   

Total liabilities

    765,524        440,948        433,771        352,068        345,653   

Total stockholders’ equity

    405,816        371,535        302,697        243,091        203,426   

 

(1) Includes net allowance reversal of $4.2 million for the year ended December 31, 2012, and net allowance charges of $10.8 million, $22.2 million, $19.3 million, and $41.4 million for the years ended December 31, 2011, 2010, 2009, and 2008, respectively.

 

 

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Summary Historical Consolidated Financial Data of AACC

The selected consolidated financial and operating data shown below is derived from AACC’s audited consolidated financial statements for each of the years ended December 31, 2012, 2011, 2010, 2009 and 2008. This information is not necessarily indicative of our future results. You should read this data in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and AACC’s consolidated financial statements and notes thereto included in AACC’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, which is incorporated by reference in this proxy statement/prospectus. See “Where You Can Find More Information” on page 123.

 

    Years Ended December 31,  
  2012     2011     2010     2009     2008  
  (In thousands, except per share and dividend data)  

STATEMENT OF OPERATIONS DATA:

         

Revenues

         

Purchased receivable revenues, net

  $ 226,049      $ 216,920      $ 195,794      $ 171,275      $ 232,901   

Gain on sale of purchased receivables

    8        —          1,212        399        165   

Other revenues, net

    884        1,156        1,394        813        1,146   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    226,941        218,076        198,400        172,487        234,212   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expenses

         

Salaries and benefits

    59,501        67,476        72,389        77,666        83,348   

Collections expense

    112,830        98,705        99,298        89,095        89,459   

Occupancy

    5,595        5,722        6,730        7,588        7,727   

Administrative

    8,874        9,025        9,818        8,694        10,511   

Depreciation and amortization

    4,788        4,166        4,666        4,107        3,955   

Restructuring charges

    727        75        4,225        —          —     

Impairment of assets

    —          —          —          1,168        616   

(Gain) loss on disposal of equipment and other assets

    (167     (4     214        355        222   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    192,148        185,165        197,340        188,673        195,838   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

    34,793        32,911        1,060        (16,186     38,374   

Other income (expense)

         

Interest expense

    (20,768     (11,760     (11,204     (10,169     (13,024

Interest income

    28        —          8        34        32   

Loss on extinguishment of debt

    —          (1,111     —          —          —     

Other

    9        (32     68        130        22   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    14,062        20,008        (10,068     (26,191     25,404   

Income tax expense (benefit)

    3,144        7,983        (8,452     (9,757     9,681   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 10,918      $ 12,025      $ (1,616   $ (16,434   $ 15,723   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per share basic

  $ 0.35      $ 0.39      $ (0.05   $ (0.54   $ 0.51   

Net income (loss) per share diluted

  $ 0.35      $ 0.39      $ (0.05   $ (0.54   $ 0.51   

Weighted-average shares basic

    30,884        30,763        30,693        30,634        30,566   

Weighted-average shares diluted

    31,057        30,834        30,693        30,634        30,592   

Dividends per common share

  $ —        $ —        $ —        $ —        $ —     

 

 

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    Years Ended December 31,  
  2012     2011     2010     2009     2008  
  (In thousands, except per share and dividend data)  

FINANCIAL POSITION DATA:

         

Cash

  $ 14,013      $ 6,991      $ 5,636      $ 4,935      $ 6,043   

Purchased receivables, net

    370,900        348,711        321,318        319,772        361,809   

Total assets

    424,738        396,040        363,774        366,416        408,171   

Deferred tax liability, net

    65,422        60,474        52,864        57,525        64,470   

Total debt, including capital lease obligations

    182,948        172,344        157,462        160,301        181,550   

Total stockholders’ equity

    150,057        137,981        123,903        123,097        136,628   

OPERATING AND OTHER FINANCIAL DATA:

         

Cash collections

  $ 367,834      $ 349,998      $ 328,818      $ 334,031      $ 369,578   

Operating expenses to cash collections

    52.2     52.9     60.0     56.5     53.0

Acquisitions of purchased receivables, at cost(1)

  $ 164,657      $ 160,591      $ 135,893      $ 120,864      $ 153,445   

Acquisitions of purchased receivables, at face value

  $ 4,980,497      $ 5,320,597      $ 3,780,844      $ 4,413,689      $ 3,747,746   

Acquisitions of purchased receivables cost as a percentage of face value

    3.31     3.02     3.59     2.74     4.09

 

(1) Amount of purchased receivables at cost refers to the cash paid to a seller to acquire a portfolio less buybacks.

 

 

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Unaudited Summary Pro Forma Condensed Combined Financial Information

The following table presents unaudited summary pro forma combined financial information about Encore’s consolidated financial condition and statements of earnings, after giving effect to the merger. The information under “Summary Pro Forma Condensed Combined Earnings Information” in the table below gives effect to the merger as if it had been completed on January 1, 2012. Reclassifications have been made to AACC’s consolidated statement of operations for the year ended December 31, 2012 to conform to Encore’s financial statement presentations. The information under “Summary Pro Forma Condensed Combined Financial Condition Information” in the table below assumes the merger had been completed on December 31, 2012. This unaudited summary pro forma condensed combined financial information was prepared using the acquisition method of accounting with Encore considered the acquirer of AACC. Accordingly, the merger consideration has been allocated to assets and liabilities of AACC based upon their estimated fair values as of the assumed date of completion of the merger. Any amount of the merger consideration that is in excess of the estimated fair values of assets acquired and liabilities assumed in the merger will be recorded as goodwill in Encore’s statement of financial position after the completion of the merger. The acquisition method of accounting is dependent upon certain valuations and other studies that have yet to commence or progress to a stage where there is sufficient information for a definitive measure. Accordingly, the pro forma adjustments are preliminary, have been made solely for the purpose of providing the unaudited pro forma financial data, and are subject to revision based on a final determination of fair value as of the date of acquisition. Differences between these preliminary estimates and the final acquisition accounting may have a material impact on the accompanying pro forma financial information and the combined company’s future results of operations and financial position.

The unaudited summary pro forma condensed combined financial information has been derived from and should be read in conjunction with the more detailed unaudited pro forma condensed combined financial statements (the “Statements”) appearing elsewhere in this proxy statement/prospectus and the accompanying notes to the Statements. In addition, the Statements were based on and should be read in conjunction with the historical consolidated financial statements and related notes of each of Encore and AACC for the applicable periods, which have been incorporated in this proxy statement/prospectus by reference. See “Where You Can Find More Information” beginning on page 123 and “Unaudited Pro Forma Condensed Combined Financial Statements” beginning on page 100.

The unaudited summary pro forma condensed combined financial information is being provided for illustrative purposes only and does not purport to represent what the actual consolidated results of operations or the consolidated financial position of Encore would have been had the merger occurred on the dates assumed, nor are they necessarily indicative of Encore’s future consolidated results of operations or consolidated financial position. The unaudited summary pro forma condensed combined financial information is based upon currently available information and estimates and assumptions that Encore management believes are reasonable as of the date hereof. Any of the factors underlying these estimates and assumptions may change or prove to be materially different, and the estimates and assumptions may not be representative of facts existing at the closing date of the merger.

Summary Pro Forma Condensed Combined Earnings Information:

 

     Year Ended December 31, 2012  
     Historical      Pro Forma
Adjustments
    Pro Forma  
     Encore      AACC      (Unaudited)  

Revenues

          

Revenue from receivable portfolios, net

   $ 545,412       $ 226,057       $ (14,054 )(A)    $ 757,415   

Servicing fees and other related revenue

     —           884         —          884   

Net interest income—tax lien transfer

     10,460         —           —          10,460   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total revenues

     555,872       $ 226,941       $ (14,054     768,759   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

 

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     Year Ended December 31, 2012  
     Historical     Pro Forma
Adjustments
    Pro Forma  
     Encore     AACC     (Unaudited)  

Operating expenses

        

Salaries and employee benefits

     101,084        59,501        —          160,585   

Cost of legal collections

     168,703        53,799        (12,585 )(B)      209,917   

Other operating expenses

     48,939        18,353        —          67,292   

Collection agency commissions

     15,332        32,522        —          47,854   

General and administrative expenses

     61,798        22,626        (234 )(C)      84,190   

Depreciation and amortization

     5,840        4,788        —          10,628   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     401,696        191,589        (12,819     580,466   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     154,176        35,352        (1,235     188,293   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other (expense) income

        

Interest expense

     (25,564     (20,740     6,488 (D)      (39,816

Other income (expense)

     1,713        (550     —          1,163   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense

     (23,851     (21,290     6,488        (38,653
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations before income taxes

     130,325        14,062        5,253        149,640   

Provision for income taxes

     (51,754     (3,145     (2,085 )(E)     (56,984
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

   $ 78,571      $ 10,917      $ 3,168      $ 92,656   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding:

        

Basic

     24,855          1,663        26,518   

Diluted

     25,836          1,663        27,499   

Income from continuing operations per share:

        

Basic

   $ 3.16          $ 3.49   

Diluted

   $ 3.04          $ 3.37   

Summary Pro Forma Condensed Combined Financial Condition Information:

 

     As of December 31, 2012  
     Historical      Pro Forma
Adjustments
    Pro Forma  
     Encore      AACC      (Unaudited)  

Cash and cash equivalents

   $ 17,510       $ 14,013       $ (17,851 )(F)    $ 13,672   

Investment in receivable portfolios, net

     873,119         370,900         60,000 (G)      1,304,019   

Total assets

     1,171,340         424,738         70,836 (F)(G)(H)(I)(J)      1,666,914   

Total debt

     706,036         182,911         148,834 (K)      1,037,781   

Total liabilities

     765,524         274,681         178,869 (K)(L)(M)      1,219,074   

Total stockholders’ equity

     405,816         150,057         (108,033 )(L)(N)(O)      447,840   

Pro Forma Adjustments

(A) Encore capitalizes deferred court costs and provides a reserve for those costs that it believes will ultimately be uncollectible. Encore determines the reserve based on its analysis of court costs that have been advanced and those that have been recovered. AACC expenses court costs as they are advanced and records them as revenue upon recovery. This proforma adjustment represents the reduction in revenue for court cost recoveries included in AACC’s revenue in order to align AACC’s accounting treatment with that of Encore.

(B) Encore capitalizes deferred court costs and provides a reserve for those costs that it believes will ultimately be uncollectible. Encore determines the reserve based on its analysis of court costs that have been advanced and those that have been recovered. AACC expenses court costs as they are advanced and records them

 

 

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as revenue upon recovery. This proforma adjustment represents a reduction in court cost expense related to capitalizing court costs related to AACC’s court cost investment to align AACC’s accounting treatment with that of Encore.

(C) Represents the elimination of non-recurring deal related expenses incurred by AACC.

(D) Represents the reduction in net interest expense related to interest and amortization of capitalized loan fees on debt to be incurred by Encore to finance the acquisition, offset by the elimination of AACC’s existing interest expense, amortization of original issue discount and amortization of capitalized loan fees.

(E) Represents the provision for income taxes associated with the pro forma adjustments computed based upon an estimated combined federal and state statutory rate of 39.7% for the year ended December 31, 2012.

(F) To reflect the following cash transactions (in thousands, except per share amount):

 

Proceeds:

  

Estimated borrowings under Encore’s existing credit facility

   $ 331,745   

Estimated issuance of Encore stock

     50,000   

Uses:

  

Estimated purchase price for equity of AACC (31,401 shares at $6.50 per share)

     (204,108

Pay-off of AACC debt

     (191,650

Estimated financing costs

     (3,838
  

 

 

 

Net pro forma cash adjustment

   $ (17,851
  

 

 

 

(G) Represents the increase in investment in receivable portfolios to reflect the estimated fair value of AACC’s investment in receivable portfolios. Encore computed the fair value of AACC’s investment in receivable portfolios by discounting the estimated future cash flows, generated by Encore’s proprietary forecasting models, using an estimated market participant discount rate. This amount is an estimate that will be updated when a formal independent valuation is completed within the first year after the merger.

(H) Encore capitalizes deferred court costs and provides a reserve for those costs that it believes will ultimately be uncollectible. Encore determines the reserve based on its analysis of court costs that have been advanced and those that have been recovered. AACC expenses court costs as they are advanced and records them as revenue upon recovery. This proforma adjustment represents an increase in capitalized court costs to align AACC’s accounting treatment with that of Encore.

(I) Represents the write-off of AACC’s capitalized loan fees of $4.5 million net of the capitalization of Encore’s loan fees incurred to finance the acquisition of $3.8 million.

(J) Represents $30.0 million of estimated goodwill resulting from the excess of purchase price over the fair value of assets acquired net of liabilities assumed, net of the reversal of $14.3 million of goodwill included in AACC’s historical financial statements.

 

 

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The following table reflects the preliminary allocation of the total purchase price of AACC to the assets acquired and the liabilities assumed based on the preliminary estimates of fair value. The final purchase price allocation, which will be based in part on a detailed valuation study which has not yet been completed, may result in material adjustments. Encore expects to complete the final purchase price allocation no later than twelve months following the closing date of the merger. (in thousands):

 

Estimated purchase price

   $ 381,745   

Less fair value of:

  

Tangible assets acquired

     (465,507

Plus fair value of:

  

Liabilities assumed

     113,829   
  

 

 

 

Goodwill

   $ 30,067   
  

 

 

 

(K) Represents additional borrowings anticipated to be incurred by Encore to finance the merger. Encore estimates it will borrow $331.7 million under its existing credit facility which includes amounts to be borrowed under its accordion feature. Also reflects the elimination of AACC’s debt of $182.9 million, net of debt discount of $8.7 million that will be paid off in conjunction with the completion of the merger. Encore is currently in the final stages of negotiating an amendment to its existing credit facility that, if amended, will result in an increased credit limit sufficient to fund the merger. This amendment would also amend the borrowing base calculation, certain restrictions and covenants, and acquisition limits that will, if amended, allow for the merger.

(L) Represents a net increase in accrued liabilities for expected transaction costs of $8.0 million, offset by a reduction of $2.1 million to reflect the estimated fair value of liabilities assumed.

(M) Represents an adjustment to deferred income tax liabilities related to purchase price allocated to the investment in receivable portfolios which is not deductible for income tax purposes. The amount allocated is preliminary and subject to adjustment pending the final purchase price allocation.

(N) Represents the issuance of $50.0 million of Encore common stock using the stated exchange price of $30.07 per share, as a portion of the aggregate merger consideration for the purchase of AACC.

(O) Represents the elimination of AACC’s stockholders’ equity accounts.

Comparative Per Share Data

The following table shows, for the year ended December 31, 2012, historical and pro forma equivalent per share data for AACC common stock and historical and pro forma combined per share data for Encore common stock. The information in the table is derived from each of AACC’s and Encore’s respective historical consolidated financial statements incorporated by reference herein, as well as the unaudited pro forma condensed combined financial information included elsewhere herein.

The pro forma equivalent information shows the effect of the merger from the perspective of an owner of AACC common stock. The information was computed by multiplying the pro forma combined income from continuing operations per share and Encore’s historical cash dividends declared per share for the year ended December 31, 2012 and pro forma combined book value per share as of December 31, 2012 by the exchange ratio of the stock portion of the merger consideration of 0.2162 shares of Encore common stock for each share of AACC common stock. These computations exclude any potential benefit to AACC stockholders from receiving any amount of cash as a component of the merger consideration.

 

 

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The pro forma combined data below is presented for illustrative purposes only. The pro forma adjustments to the statement of earnings data are based on the assumption that the merger was completed on January 1, 2012, and the pro forma adjustments to the statement of financial position data are based on the assumption that the merger was completed on December 31, 2012.

Either company’s actual historical financial condition and results of operations may have been different had the companies always been combined. You should not rely on this information as being indicative of the historical financial condition and results of operations that would have actually been achieved by either Encore or AACC or of the future results of Encore or its subsidiaries after the completion of the merger.

 

     AACC Common Stock      Encore Common Stock  
     Historical      Pro Forma
Equivalent
     Historical      Pro Forma
Combined
 

Income from Continuing Operations Per Share

           

Basic

           

Year Ended December 31, 2012

   $ 0.35       $ 0.75       $ 3.16       $ 3.49   

Diluted

           

Year Ended December 31, 2012

   $ 0.35       $ 0.73       $ 3.04       $ 3.37   

Cash Dividends Declared Per Share

           

Year Ended December 31, 2012

     —           —           —           —     

Book Value Per Share

           

December 31, 2012

   $ 4.83       $ 3.52       $ 15.71       $ 16.29   

Comparative Market Value of Common Stock

Encore common stock and AACC common stock are listed for trading on NASDAQ under the symbols “ECPG” and “AACC”, respectively. The following table shows the closing prices per share of Encore common stock and AACC common stock as reported on March 1, 2013, the last full trading day prior to the announcement by AACC (made before the opening of NASDAQ on March 4, 2013) that AACC was rescheduling its 2012 fourth quarter and year-end earnings release and conference call, March 5, 2013, the final trading day prior to the public announcement of the merger, and on May 1, 2013, the latest practicable date prior to the date of this proxy statement/prospectus. This table also shows the implied value of the stock consideration for each share of AACC common stock, which was calculated by multiplying the closing price of Encore common stock on the relevant date by the exchange ratio of the stock portion of the merger consideration of 0.2162 shares of Encore common stock for each share of AACC common stock. These computations do not include any potential benefit to AACC stockholders from receiving any amount of cash as a component of merger consideration, as the implied value for each share for which a cash election is made will remain constant at $6.50.

 

    

Closing Price
of Encore
Common
Stock

  

Closing Price
of AACC
Common
Stock

  

Implied Value
of Stock
Consideration

   Implied Premium of
Stock Consideration
to Closing Price of
AACC Common
Stock

As of March 1, 2013

   $29.82    $5.21    $6.45    23.8%

As of March 5, 2013

   $30.07    $5.76    $6.50    12.8%

As of May 1, 2013

   $28.56   

$6.45

  

$6.17

   (4.3%)

The market price of Encore common stock and AACC common stock will fluctuate prior to the AACC special meeting and before the merger is completed, which will affect the implied value of the stock consideration to be paid to AACC stockholders who validly make a stock election prior to the election deadline. You should obtain current market quotations for the shares before making any decision with respect to the merger or making any election with respect to the merger consideration.

 

 

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RECENT DEVELOPMENTS

First Quarter 2013 Financial Highlights of AACC

AACC’s cash collections for the first quarter of 2013 increased 2.6% compared to the same period of the prior year, to $103.8 million.

AACC’s first quarter revenues were $55.2 million, a decrease of 10.7% from the same period of the prior year. AACC reported net impairments on purchased receivables of $0.2 million, which decreased revenues for the quarter, versus net impairment reversals of $4.5 million in the prior year period.

AACC’s operating expenses were $47.0 million, a decrease of $1.4 million compared to the prior year period. Results reflected continued investment in AACC’s legal channel and an increase in related up-front costs ahead of associated collections. AACC’s legal investments increased to $8.0 million during the quarter compared to $6.9 million in the same period of the prior year. Despite the increased legal investment, AACC’s cost to collect for the quarter was 45.3%, an improvement of 253 basis points from the first quarter of 2012. AACC’s reported operating expenses and cost to collect do not include $1.9 million of costs related to the proposed merger with Encore.

AACC reported net income of $0.4 million or $0.01 per fully diluted share during the first quarter of 2013, compared to net income of $5.4 million or $0.18 per fully diluted share in the first quarter of 2012. AACC’s quarterly effective tax rate of 70.8% included the effect of a significant amount of non-deductible costs related to the proposed merger with Encore.

During the first quarter of 2013, AACC acquired $27.1 million in charged-off consumer receivables with a face value of $431.6 million for a blended rate of 6.27% of face value. By comparison, AACC purchased $21.1 million in charged-off consumer receivables with a face value of $803.2 million during the prior year’s first quarter, representing a blended rate of 2.63% of face value. All of AACc’s purchase data is adjusted for buybacks.

 

 

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RISK FACTORS

In addition to general investment risks and the other information contained in or incorporated by reference into this proxy statement/prospectus, including the matters under the caption “Cautionary Statement Regarding Forward-Looking Statements” and the matters discussed under the caption “Risk Factors” included in the Annual Reports on Form 10-K filed by each of Encore and AACC for the year ended December 31, 2012 as updated by any subsequently filed Forms 10-Q, 10-K/A and 8-K, you should carefully consider the following factors in deciding whether to vote for adoption of the merger agreement.

AACC stockholders electing to receive Encore common stock may receive a portion of the merger consideration in cash instead.

The consideration to be received by AACC stockholders in the merger is subject to the limitation that no more than 25% of the shares of AACC common stock issued and outstanding immediately prior to the effective time of the merger may be exchanged for shares of Encore common stock. The merger agreement contains proration and allocation methods to achieve this desired result. If you elect to receive all merger consideration to which you are entitled in the form of Encore common stock (i.e., if you make a valid stock election with respect to each share of AACC common stock you own prior to the election deadline) and the Encore common stock available to be issued as merger consideration to all AACC stockholders is oversubscribed, then you will receive cash consideration in exchange for a portion of your shares for which you made a stock election. However, you will receive cash consideration in exchange for all shares for which you make a cash election. For more information, see “The Merger Agreement—Consideration to be Received in the Merger” beginning on page 81 and “The Merger Agreement—Election Procedures” beginning on page 83.

AACC stockholders who fail to submit their election form by the election deadline or improperly complete or do not sign the election form will receive their merger consideration in cash.

The merger consideration election deadline will be 5:00 p.m., New York time, on the day that is four business days prior to the completion of the merger, which date will be publicly announced by Encore as soon as reasonably practicable. AACC stockholders who wish to receive stock consideration must return their properly completed and signed election form to the exchange agent prior to the election deadline. If you are an AACC stockholder and you do not return your election form by the election deadline or you improperly complete or do not sign your election form, you will receive cash consideration only.

The value of the stock consideration portion of the merger consideration will vary with changes in the price of Encore common stock.

Subject to the limitations set forth in the merger agreement, AACC stockholders may elect to exchange their shares of AACC common stock for shares of Encore common stock in the merger. The ratio at which the shares of AACC common stock are converted into Encore common stock is fixed at 0.2162 shares of Encore common stock for each share of AACC common stock (less any applicable withholding taxes). There will be no adjustment to this exchange ratio for changes in the market price of either AACC common stock or Encore common stock. Any change in the price of Encore common stock will affect the aggregate value AACC stockholders electing to receive stock consideration will receive in the merger. Stock price changes may result from a variety of factors that are beyond the control of Encore and AACC, including changes in businesses, operations and prospects, regulatory considerations, and general market and economic conditions. Accordingly, at the time of the special meeting, you will not know the exact value of the stock consideration to be received by AACC stockholders in the merger. In addition, there may be a time period between the completion of the merger and the time at which former AACC stockholders actually receive the shares of Encore common stock representing the stock consideration they are entitled to receive as part of the merger consideration. Until such shares of Encore common stock are received, former AACC stockholders may not be able to sell their Encore shares in the open market and, therefore, may not be able to avoid losses resulting from any decrease, or secure gains resulting from any increase, in the trading price of Encore common stock during this period.

 

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The cash consideration is fixed at $6.50 and will not be adjusted to take into account any change in the business, assets, liabilities, prospects, outlook, financial condition or results of operations of AACC.

Each share of AACC common stock owned by AACC stockholders not converted into stock consideration will be converted into the right to receive the cash consideration (i.e., $6.50, without interest and less any applicable withholding taxes). The market price of the AACC common stock currently owned by you may vary between the date of this proxy statement/prospectus, the date of AACC’s special meeting and the closing of the merger due to changes in the business, assets, liabilities, prospects, outlook, financial condition or results of operations of AACC. Despite any such variations, the cash consideration AACC’s stockholders are entitled to receive upon completion of the merger will not change.

The parties may be unable to satisfy the conditions to the completion of the merger and the merger may not be completed.

Completion of the merger is conditioned on, among other things, the adoption of the merger agreement by AACC stockholders, the expiration or termination of the applicable waiting period under the HSR Act, the absence of any law or regulation that prohibits the completion of the merger, and the approval of the shares of Encore common stock to be issued in the merger for listing on NASDAQ. Each party’s obligation to close the merger is also subject to the material accuracy of the representations and warranties of the other party in the merger agreement, the compliance in all material respects of such other party with covenants in the merger agreement applicable to such other party and the absence of a material adverse effect on the other party.

Although Encore and AACC have agreed in the merger agreement to use reasonable best efforts to complete the merger as promptly as practicable, these and other conditions to the completion of the merger may fail to be satisfied. In addition, satisfying the conditions to and completion of the merger may take longer, and could cost more, than Encore and AACC expect.

Failure to complete the merger could negatively impact the market price of Encore common stock and AACC common stock, respectively, and their respective future businesses and financial results.

If the merger is not completed, the ongoing businesses of Encore and AACC may be adversely affected and Encore and AACC will be subject to several risks and consequences, including the following:

 

   

under the merger agreement, AACC may be required, under certain circumstances, to either pay Encore a termination fee of $4.25 million or $7.4 million and, under certain circumstances, reimburse up to $2.0 million of Encore’s expenses;

 

   

Encore and AACC will be required to pay certain costs relating to the merger, whether or not the merger is completed, such as legal, accounting, filing, financial advisor and printing fees;

 

   

Encore and AACC would not realize the expected benefits of the merger;

 

   

under the merger agreement, AACC is subject to certain restrictions on the conduct of its business prior to completing the merger, which may adversely affect its ability to execute certain of its business strategies; and

 

   

matters relating to the merger may require substantial commitments of time and resources by Encore and AACC management, which could otherwise have been devoted to other opportunities that may have been beneficial to Encore and AACC as independent companies.

In addition, if the merger is not completed, Encore and AACC may experience negative reactions from the financial markets and from their respective customers and employees. Encore and/or AACC could also be subject to litigation related to any failure to complete the merger or to enforcement proceedings commenced against Encore or AACC to attempt to force them to perform their respective obligations under the merger agreement.

 

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Any delay in completing the merger may substantially reduce the benefits that Encore expects to obtain from the merger.

The merger is subject to certain conditions, including obtaining the required governmental approvals that may prevent, delay, or otherwise materially adversely affect its completion. The requirements for obtaining the required approvals could delay the effective time of the merger for a significant period of time or prevent it from occurring. Any delay in completing the merger may materially adversely affect the synergies and other benefits that Encore expects to achieve if the merger and the integration of the companies’ respective businesses are completed within the expected timeframe.

AACC’s directors and executive officers have financial interests in the merger that may be different from, or in addition to, the interests of AACC stockholders.

No stockholder is entitled to receive any special merger consideration. However, in considering the information contained in this proxy statement/prospectus, including the recommendation of AACC’s Board of Directors, you should be aware that some of AACC’s executive officers and directors have financial interests in the merger that may be different from, or in addition to, your interests as a stockholder (or the interests of AACC’s stockholders generally) and that may present actual or potential conflicts of interest. For example, certain executive officers and directors of AACC will receive certain payments with respect to outstanding equity awards, certain payments conditioned on completion of the merger or severance pay and benefits upon a qualifying termination of employment. Additionally, there will be accelerated vesting of certain outstanding AACC equity awards of executive officers and directors in accordance with their existing terms. The AACC Board of Directors was aware of and considered these potential interests and conflicts, among other matters, in evaluating and negotiating the merger agreement and the merger, in approving the merger agreement and the transaction contemplated thereby (including the merger), and in recommending that AACC’s stockholders approve and adopt the merger agreement and the merger and the “golden parachute” compensation at the special meeting and any adjournment thereof. For information concerning these interests, see “AACC Proposal No. 1 – The Merger—AACC’s Directors and Officers Have Financial Interests in the Merger” beginning on page 70.

AACC will be subject to business uncertainties and contractual restrictions while the merger is pending.

Uncertainty about the effect of the merger on employees, third-party vendors who deal with AACC and other business relationships may have an adverse effect on AACC and its operations. These uncertainties may impair AACC’s ability to attract, retain and motivate key personnel until the merger is completed, and could cause third-party vendors and others who deal with AACC to seek to change existing business relationships with AACC. AACC employee retention and recruitment may be particularly challenging prior to the effective time of the merger, as employees and prospective employees may experience uncertainty about their future roles with the combined company.

The pursuit of the merger and the preparation for the integration may place a significant burden on management and internal resources. Any significant diversion of management attention away from ongoing business and any difficulties encountered in the transition and integration process could affect the financial results of AACC and Encore and, following the merger, the combined company. In addition, the merger agreement requires that AACC operate its business in the usual, regular and ordinary course consistent in all material respects with past practice and restricts AACC from taking certain actions prior to the effective time of the merger or termination of the merger agreement without the prior written consent of Encore. These restrictions may prevent AACC from pursuing attractive business opportunities that may arise prior to the completion of the merger.

The unaudited pro forma financial information included in this document is preliminary and Encore’s actual consolidated financial position and results of operations after the merger may differ materially from the unaudited pro forma financial information included in this document.

The unaudited pro forma financial information in this document is presented for illustrative purposes only and is not necessarily indicative of what the combined company’s actual financial position or results of

 

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operations would have been had the merger been completed on the dates indicated. The acquisition method of accounting is dependent upon certain valuations and other studies that have yet to commence or progress to a stage where there is sufficient information for a definitive measure. Accordingly, the pro forma adjustments are preliminary, have been made solely for the purpose of providing the unaudited pro forma financial information and are subject to revision based on a final determination of fair value as of the date of acquisition. Differences between these preliminary estimates and the final acquisition accounting may have a material impact on the accompanying unaudited pro forma financial information and the combined company’s future results of operations and financial position. The actual financial condition and results of operations of the combined company following the merger may not be consistent with, or evident from, these pro forma financial statements. In addition, the assumptions used in preparing the pro forma financial information may not prove to be accurate, and other factors may affect the combined company’s financial condition or results of operations following the merger. Any potential decline in the combined company’s financial condition or results of operations may cause significant variations in the price of Encore common stock after completion of the merger.

The termination fee and the restrictions on solicitation contained in the merger agreement may discourage third parties from trying to acquire AACC.

Until the completion of the merger, subject to certain exceptions set forth in the merger agreement and more fully discussed in this proxy statement/prospectus in “The Merger Agreement—Solicitation of Alternative Acquisition Proposals; Change of Recommendation; Matching Rights” on page 87, AACC is prohibited from soliciting, initiating, encouraging, or facilitating any inquiries or proposals from third parties that may lead to a proposal or offer for a merger or other business combination transaction with any person other than Encore. In addition, as more fully discussed herein, AACC has agreed to pay a termination fee and expense reimbursement to Encore in specified circumstances. These provisions could discourage other companies from trying to acquire AACC even though those other companies might be willing to offer greater value to AACC stockholders than Encore has offered in the merger. The payment of any termination fee and expense reimbursement could have an adverse effect on AACC that is material to the results of its operations. For more information, see “The Merger Agreement—Termination Fee” beginning on page 92.

The fairness opinion obtained by AACC from William Blair, its independent financial advisor, will not reflect changes in circumstances subsequent to the date of the fairness opinion.

The opinion obtained by the Review Committee (as defined below) and the Board of Directors of AACC from William Blair does not speak as of the time the merger will be completed or as of any date other than the date of such opinion, and AACC has not obtained an updated opinion. The opinion does not reflect changes that may occur or may have occurred after the date of the opinion, including changes to the operations and prospects of Encore or AACC, changes in general market and economic conditions or regulatory or other factors. Any such changes, or changes in other factors on which the opinion was based, may materially alter or affect the value of the merger consideration which AACC stockholders are to receive in connection with the merger. For more information regarding the opinion delivered by William Blair, see “AACC Proposal No. 1 – The Merger—Opinion of AACC’s Financial Advisor,” beginning on page 52.

Encore may fail to realize the anticipated benefits of the merger.

The success of the merger will depend on, among other things, Encore’s ability to realize anticipated cost savings and to combine the businesses of Encore and AACC in a manner that does not materially disrupt the existing business relationships of Encore or AACC nor result in decreased revenues from any disruption in its business operations. The success of the merger will also depend upon the integration of employees, systems, operating procedures and information technologies, as well as the retention of key employees. If Encore is not able to successfully achieve these objectives, the anticipated benefits of the merger may not be realized fully or at all or may take longer to realize than expected, and any such events could adversely affect the value of the Encore common stock that AACC stockholders elect to receive as part of the merger consideration.

 

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Encore and AACC have operated and, until the completion of the merger, will continue to operate, independently. It is possible that the integration process could result in the loss of key employees, the disruption of AACC’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the ability of AACC and/or Encore to maintain relationships with its third party vendors and employees or to achieve the anticipated benefits of the merger.

Unanticipated costs relating to the merger could reduce Encore’s future earnings per share.

Encore believes that it has reasonably estimated the likely costs of integrating the operations of Encore and AACC, and the incremental costs of operating as a combined company. However, it is possible that unexpected transaction costs, such as taxes, fees or professional expenses or unexpected future operating expenses such as increased personnel costs or increased taxes, as well as other types of unanticipated adverse developments, could have a material adverse effect on the results of operations and financial condition of the combined company. If unexpected costs are incurred, the merger could have a dilutive effect on the combined company’s earnings per share. In other words, if the merger is completed, the earnings per share of Encore common stock could be less than they would have been if the merger had not been completed.

Pending litigation against AACC and Encore could result in an injunction preventing completion of the merger, the payment of damages in the event that the merger is completed and/or may adversely affect the combined company’s business, financial condition or results of operations following the merger.

After the announcement of the execution of the merger agreement, the Shell Action, the Neumann Action and the Jaluka Action were filed in the Macomb County Circuit Court of the State of Michigan against AACC and its directors, as well as Encore and Merger Sub. In these lawsuits, purportedly brought on behalf of all of AACC’s public stockholders, the plaintiffs allege, among other things, that AACC’s directors have breached their fiduciary duties of care, loyalty and candor, and have failed to maximize the value of AACC for its stockholders by accepting an offer to sell AACC at a price that fails to reflect the true value of AACC and that was agreed to as a result of an unfair process, thus depriving holders of AACC common stock of the reasonable, fair and adequate value of their shares. Plaintiffs in the Shell Action and Jaluka Action further allege that AACC’s directors have breached their duties of loyalty, good faith, candor and independence owed to the stockholders of AACC because they have engaged in self-dealing and ignored or did not protect against conflicts of interest resulting from their own interrelationships or connection with the proposed acquisition. Finally, all plaintiffs allege that AACC, Encore, and Merger Sub aided and abetted the directors’ breaches of their fiduciary duty. Among other things, plaintiffs in the three lawsuits seek injunctive relief prohibiting consummation of the proposed acquisition, or rescission of the proposed acquisition (in the event the transaction has already been consummated), as well as costs and disbursements, including reasonable attorneys’ and experts’ fees, and other equitable or injunctive relief as the court may deem just and proper. Plaintiffs in the Neumann Action also seek rescissory damages as an alternative to rescission of the proposed transaction, and damages suffered as a result of the defendants’ wrongdoing.

After the merger is completed, AACC stockholders who elect to become Encore stockholders will have different rights that may be less advantageous than their current rights.

Upon completion of the merger, AACC stockholders electing to receive Encore common stock as a portion of the merger consideration to be paid to them will become Encore stockholders. Differences in AACC’s amended and restated certificate of incorporation and bylaws and Encore’s restated certificate of incorporation and bylaws will result in changes to the rights inuring to such electing AACC stockholders who become Encore stockholders as a result of the fact that they will no longer own or have any interest in AACC common stock, but will instead own Encore common stock. For more information, see “Comparison of Stockholders’ Rights” beginning on page 115 of this document.

 

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If the merger is consummated, Encore will incur additional debt to finance the cash portion of the merger consideration.

In connection with the merger, Encore will borrow up to $381.7 million under Encore’s revolving credit facility, which assumes that all of the holders of AACC common stock receive only cash consideration. On a pro forma basis, giving effect to the borrowings of $381.7 million under Encore’s revolving credit facility, Encore’s indebtedness would be approximately $1,087,800,000. This indebtedness could have important consequences to Encore’s business, including increasing its vulnerability to general adverse economic and industry conditions, limiting its flexibility in planning for, or reacting to, changes in its business and the industry in which it operates and restricting Encore from pursuing certain business opportunities.

If Encore is Unable to Amend its Existing Credit Facility, Encore May Not Be Able to Obtain the Financing Needed for the Transaction on Favorable Terms, or at all.

Encore expects to amend its existing revolving credit facility to borrow additional funds under its revolving credit facility to pay the cash consideration to holders of AACC common stock. However, if Encore is unable to amend its existing revolving credit facility or if funds under the revolving credit facility are unavailable for any reason, Encore will be forced to obtain an alternate source of financing on terms that may be less favorable to Encore, which may be more expensive for Encore, may have an adverse impact on the combined company’s capital structure or may be unavailable to provide Encore the funds necessary to consummate the merger.

In addition, under its existing credit facility, Encore is required to obtain the consent of its lenders to consummate the merger. If Encore were unable to obtain its lenders’ consent to consummate the merger, Encore would be in default of the credit facility and other financing arrangements, all which could have an adverse effect on Encore and the combined company.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This proxy statement/prospectus, the annexes hereto and the documents incorporated by reference, as well as oral statements made or to be made includes and incorporates by reference a number of statements that are not historical facts and constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, without limitation, the statements specifically identified as forward-looking statements in this document, statements regarding the financial conditions, results of operations, earnings outlook and prospects of Encore, AACC and the potential combined company, and certain statements concerning the period following the completion of the merger. These forward-looking statements are based on Encore’s and AACC’s respective current estimates and assumptions and, as such, involve certain risks and uncertainties. The ability of either Encore or AACC to predict results or the actual effects of its plans and strategies, or those of the combined company, is subject to inherent uncertainty. Forward-looking statements include the information concerning the possible or assumed future results of operations of Encore, AACC or the combined company and each party’s plans, intentions, and expectations to complete the merger and also include and typically are identified by words such as “plan,” “believe,” “expect,” “anticipate,” “intend,” “outlook,” “estimate,” “forecast,” “project,” “may,” “should,” “could,” “targets” and other similar words and expressions. They include statements relating to future revenue and expenses, the expected growth of Encore’s, AACC’s and the combined company’s business and trends and opportunities in its markets. These forward-looking statements include, among other things, whether and when the proposed merger will close and whether conditions to the proposed merger will be satisfied. These forward-looking statements also involve known and unknown risks, uncertainties and other factors that include, among others, the failure of the merger to be completed, the time at which the merger is completed, adoption of the merger agreement by AACC’s stockholders, and failure by any of AACC, Encore, or Merger Sub to satisfy conditions to the merger.

The forward-looking statements are not guarantees of future performance or that the merger will be completed as planned and actual results may differ materially from those contemplated by these forward-looking statements. In addition to the factors discussed elsewhere in this proxy statement/prospectus, other factors that could cause actual results to differ materially include industry performance, general business, economic, regulatory and market and financial conditions, all of which are difficult to predict. The risk factors discussed herein are also discussed in the documents that are incorporated by reference into this proxy statement/prospectus. These factors may cause Encore’s, AACC’s or the combined entity’s actual results, performance and achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.

Additionally, important factors could cause Encore’s, AACC’s or the combined company’s actual results to differ materially from such forward-looking statements. Such risks, uncertainties and other important factors include those set forth on page 23 under “Risk Factors,” as well as, among others, risks related to the following:

 

   

worldwide financial markets and the global economy;

 

   

unforeseen material adverse changes to AACC’s and/or Encore’s business and operations;

 

   

the ability of Encore and AACC to each purchase receivables at favorable prices or terms, or at all;

 

   

losses on portfolios consisting of new types of receivables due to AACC’s or Encore’s lack of collection experience with these receivables;

 

   

the purchase of receivable portfolios that contain unprofitable accounts and AACC’s or Encore’s ability to collect sufficient amounts to recover its costs and to fund its operations;

 

   

sellers may deliver portfolios that contain accounts that do not meet AACC’s or Encore’s account collection criteria;

 

   

a significant portion of AACC’s or Encore’s portfolio purchases during any period may be concentrated with a small number of sellers;

 

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the statistical models used by AACC and/or Encore to project remaining cash flows from their respective receivable portfolios may prove to be inaccurate and, if so, their respective financial results (and, consequently, the financial results of any combined company) may be adversely impacted;

 

   

the inability to make reasonable estimates of the timing and amount of future cash receipts potentially resulting in incorrect assigned internal rates of return and allowance charges to purchased receivables portfolios;

 

   

the possible impairment of AACC’s and/or Encore’s goodwill or amortizable intangible assets, which may require AACC and/or Encore to record a significant charge to earnings;

 

   

the extensive nature of, and possible increase in, statutory and regulatory oversight of AACC’s and/or Encore’s respective businesses;

 

   

the substantial additional federal regulation AACC and Encore will be subject to under the Dodd-Frank Wall Street Reform and Consumer Protection Act and the effect of such regulation on their (and any combined company’s) respective businesses, results of operations, cash flows, or financial condition;

 

   

the potential material or adverse effect of any pending or threatened audits and investigations by governmental authorities or self regulatory organizations on AACC’s, Encore’s and/or the combined company’s results of operations;

 

   

the potential material and adverse effect on AACC’s, Encore’s and/or the combined company’s results of operations if bankruptcy filings increase or if bankruptcy or other debt collection laws change;

 

   

AACC’s and/or Encore’s failure to comply with governmental regulation, which could result in the suspension or termination of its ability to conduct business, require the payment of significant fines and penalties, or require other significant expenditures;

 

   

AACC’s, Encore’s and/or the combined company’s dependence upon third parties to service a substantial portion of its consumer receivable portfolios;

 

   

increases in costs associated with AACC’s and/or Encore’s collections through collection litigation, which can materially raise costs associated with its collection strategies and the individual lawsuits brought against consumers to collect on judgments in AACC’s and/or Encore’s favor;

 

   

the risk that AACC’s and/or Encore’s network of third-party agencies and attorneys may not utilize amounts collected on its behalf or amounts AACC and/or Encore advances for court costs in the manner for which they were intended;

 

   

AACC’s, Encore’s and/or the combined company’s reliance upon success in individual lawsuits brought against consumers and its ability to collect on judgments in its favor to generate a significant portion of its collections;

 

   

the ongoing risks of individual and class action lawsuits under consumer credit, consumer protection, theft, privacy, collections and other laws, which may be subject to awards of substantial damages;

 

   

negative publicity associated with litigation, governmental investigations, regulatory actions and other public statements, which could damage AACC’s and/or Encore’s reputation;

 

   

the acquisitions that AACC and/or Encore have made or may make may prove to be unsuccessful or AACC’s and/or Encore’s time spent on mergers and acquisitions (including the merger) may strain or divert its resources;

 

   

AACC’s and Encore’s dependence on their respective management teams for the adoption and implementation of strategies and the potential material adverse effect on their respective businesses if AACC and/or Encore loses management’s services or if the combined company fails to retain key AACC employees after the completion of the merger;

 

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regulatory, political, and economic conditions in India, which expose the combined company to risk;

 

   

the risk that the combined company may not be able to manage its growth effectively, including the expansion of its operations in non-U.S. jurisdictions, including, as applicable, India and Costa Rica;

 

   

the possible adverse effect on the combined company’s operations if its technology and telecommunications systems were to fail, or if it is not able to successfully anticipate, invest in, or adopt technological advances within its industry;

 

   

the risk of a security breach, which could cause the business and operations or either AACC or Encore to suffer;

 

   

the risk that the combined company’s competitive advantage may be materially diminished if it is not able to adequately protect the intellectual property rights upon which it relies; and

 

   

assumptions relating to the foregoing.

These factors may cause AACC’s and/or Encore’s actual results, performance and achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. All subsequent written and oral forward-looking statements concerning the merger or other matters addressed in this document and attributable to Encore or AACC or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements throughout this proxy statement/prospectus. Except to the extent required by applicable law or regulation, Encore and AACC undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

All information contained in this proxy statement/prospectus concerning Encore or Merger Sub has been supplied by Encore and Merger Sub, as applicable, and has not been independently verified by AACC or its representatives. All information contained in this proxy statement/prospectus concerning AACC has been supplied by AACC and has not been independently verified by Encore, Merger Sub or their respective representatives.

 

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THE AACC SPECIAL MEETING

Time, Place and Purpose of the Special Meeting

The enclosed proxy is solicited on behalf of AACC’s Board of Directors for use at a special meeting of AACC’s stockholders to be held on             , 2013, at 9:00 a.m. (local time), or at any adjournments or postponements thereof, for the purposes set forth in this proxy statement/prospectus and in the accompanying notice of special meeting. The special meeting will be held at the offices of Kirkland & Ellis LLP located at 601 Lexington Avenue, New York, New York 10022.

At the special meeting, AACC’s stockholders are being asked to consider and vote upon a proposal to adopt the merger agreement. AACC’s stockholders are also being asked to approve the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the merger agreement. Further, AACC’s stockholders are being asked to cast an advisory (non-binding) vote with respect to “golden parachute” compensation payable under existing agreements to AACC’s named executive officers in connection with the merger.

AACC does not expect a vote to be taken on any other matters at the special meeting or any adjournment or postponement thereof. If any other matters are properly presented at the special meeting or any adjournment or postponement thereof for consideration, however, the holders of the proxies will have discretion to vote on these matters in accordance with their best judgment.

Board Recommendation

AACC’s Board of Directors, after careful consideration, has, by a unanimous vote of those directors present, approved and authorized the merger agreement and the transactions contemplated by the merger agreement, including the merger, determined that the merger agreement is advisable and in the best interests of the stockholders of AACC, and recommends that you vote “FOR” adoption of the merger agreement. For a discussion of the material factors considered by AACC’s Board of Directors in reaching its conclusions, see “AACC Proposal No. 1 – The Merger—AACC’s Reasons for the Merger; Recommendation of the AACC Board of Directors” beginning on page 46.

AACC’s Board of Directors recommends that you vote “FOR” the proposal to adopt the merger agreement, “FOR” the proposal to approve the “golden parachute” compensation and “FOR” the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies.

Record Date; Stockholders Entitled to Vote; Quorum; Voting Information

Only holders of record of AACC’s common stock at the close of business on             , 2013, the record date for the special meeting, are entitled to notice of and to vote at the special meeting. At the close of business on the record date,              shares of AACC’s common stock were outstanding and entitled to vote and there were no shares of AACC’s preferred stock outstanding. A list of AACC’s stockholders will be available for review at AACC’s executive offices during regular business hours after the date of this proxy statement/prospectus and through the date of the special meeting. Each holder of record of AACC’s common stock on the record date will be entitled to one vote for each share held by such holder. The presence, in person or by proxy, of the holders of a majority in voting power of the stock issued and outstanding and entitled to vote at the special meeting is necessary to constitute a quorum for the transaction of business at the special meeting.

All votes will be tabulated by the inspector of election appointed for the special meeting, who will separately tabulate affirmative and negative votes, abstentions and broker non-votes, if any.

If a stockholder’s shares are held of record by a broker, bank or other nominee and the stockholder wishes to vote at the special meeting, the stockholder must obtain from the record holder a proxy issued in the stockholder’s name. Brokers who hold shares in “street name” for clients typically have the authority to vote on

 

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“routine” proposals when they have not received instructions from beneficial owners. Absent specific instructions from the beneficial owner of the shares, however, brokers are not allowed to exercise their voting discretion with respect to the approval of non-routine matters, such as the merger agreement, the “golden parachute” compensation and the proposal to adjourn or postpone the special meeting if necessary to solicit additional proxies in support of the merger. Proxies submitted without a vote by brokers on these matters are referred to as “broker non-votes.” Abstentions and broker non-votes are counted for purposes of determining whether a quorum exists at the special meeting.

Proxies received at any time before the special meeting and not revoked or superseded before being voted will be voted at the special meeting. If the proxy indicates a specification, it will be voted in accordance with the specification. If no voting specification is indicated, the proxy will be voted “FOR” adoption of the merger agreement, “FOR” the approval of the “golden parachute” compensation, “FOR” the approval of the proposal to adjourn the special meeting if there are not sufficient votes to adopt the merger agreement, and in the discretion of the persons named in the proxy with respect to any other business that may properly come before the special meeting or any adjournment or postponement of the special meeting.

Stockholders may also vote in person by ballot at the special meeting.

The affirmative vote of holders of a majority of the outstanding shares of AACC common stock on the record date is required to adopt the merger agreement. Because adoption of the merger agreement requires the approval of stockholders representing a majority of the outstanding shares of AACC common stock, failure to vote your shares of AACC common stock (including failure to provide voting instructions if you hold through a broker, bank or other nominee) will have exactly the same effect as a vote “AGAINST” the merger agreement.

The affirmative vote of a majority of the shares of AACC common stock present (in person or by proxy) and entitled to vote on the proposal is required for the approval of each of the advisory (non-binding) proposal on “golden parachute” compensation and the proposal to adjourn the special meeting if there are not sufficient votes to adopt the merger agreement. Broker non- votes (and other failures to vote) will have no effect on the “golden parachute” compensation and adjournment proposals. However, abstentions will have the same effect as a vote “AGAINST” each such proposal.

The vote to approve the “golden parachute” compensation is advisory only and will not be binding on AACC or Encore and is not a condition to consummation of the merger. If the merger agreement is adopted by the stockholders and completed, the “golden parachute” compensation may be paid to AACC’s named executive officers even if stockholders fail to approve the golden parachute compensation.

The persons named as proxies may propose and vote for one or more adjournments of the special meeting, including adjournments to permit further solicitations of proxies.

In connection with the merger agreement, AAC Quad-C Investors LLC (the “supporting stockholder”), which held, as of March 6, 2013, approximately 35.6% of the outstanding shares of AACC, entered into the voting agreement, pursuant to which the supporting stockholder has agreed to vote all of its shares of AACC common stock in favor of the adoption of the merger agreement. See “The Merger Agreement—Voting Agreement” on page 99.

You should send your stock certificates, together with a completed and executed election form, to the exchange agent, and not AACC, as far in advance of the election deadline as possible. If you hold your shares of AACC common stock in “street name”, your broker, bank or other nominee will be sent the election form and you will receive instructions from such broker, bank or other nominee on how to timely submit an election form. If the merger is completed and you have not submitted a valid election form covering all of your shares, you will be sent a letter of transmittal regarding the procedures for exchanging such AACC common stock certificates for the merger consideration.

 

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How You Can Vote

Before you vote, you should read this proxy statement/prospectus carefully and in its entirety, including the annexes and the documents incorporated by reference herein, and carefully consider how the merger affects you. Then, mail your completed, dated and signed proxy card in the enclosed return envelope or submit your proxy by Internet, by telephone or by mail as soon as possible so that your shares can be voted at the special meeting. If your shares are registered in the name of a broker, bank or other nominee, follow the instructions provided by your broker, bank or nominee to vote your shares. If your shares are registered in your name, you may vote your shares in any of the following ways:

 

   

Submitting a Proxy by Mail. If you choose to have your shares voted at the special meeting by submitting a proxy by mail, simply mark your proxy, date and sign it, and return it in the postage-paid envelope provided.

 

   

Submitting a Proxy by Telephone. You can have your shares voted at the special meeting by submitting a proxy by telephone by calling the toll-free number on the proxy card until 11:59 p.m. Eastern Time on             , 2013. You will then be prompted to enter the control number printed on your proxy card and to follow the subsequent instructions. Submitting a proxy by telephone is available 24 hours a day. If you submit a proxy by telephone with respect to a proxy card, do not return that proxy card.

 

   

Submitting a Proxy by Internet. You can also have your shares voted at the special meeting by submitting a proxy via the Internet until 11:59 p.m. Eastern Time on             , 2013. Instructions on how to submit a proxy via the Internet are located on the proxy card enclosed with this proxy statement/prospectus. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and create an electronic voting form. If you submit a proxy via the Internet with respect to a proxy card, you should not return that proxy card.

 

   

Voting in Person. You can also vote by appearing and voting in person at the special meeting.

If you choose to have your shares of AACC common stock voted at the special meeting by submitting a proxy, your shares will be voted at the special meeting as you indicate on your proxy card. If no instructions are indicated on your signed proxy card, all of your shares of AACC common stock will be voted “FOR” the adoption of the merger agreement, “FOR” the approval of the “golden parachute” compensation and “FOR” the approval of the proposal to adjourn the special meeting, if necessary, to solicit additional proxies in the event that there are not sufficient votes at the time of the special meeting to approve the proposal to adopt the merger agreement. You should return a proxy even if you plan to attend the special meeting in person.

Proxies; Revocation

Any person giving a proxy pursuant to this solicitation has the power to revoke and change it any time before it is voted. It may be revoked and/or changed at any time before it is voted at the special meeting by:

 

   

giving written notice of revocation to AACC’s Corporate Secretary;

 

   

submitting another proper proxy by Internet, by telephone or by a later-dated written proxy; or

 

   

attending the special meeting and voting by paper ballot in person. Your attendance at the special meeting alone will not revoke your proxy.

If your shares of AACC common stock are held in the name of a bank, broker, trustee or other holder of record, including the trustee or other fiduciary of an employee benefit plan, you must obtain a proxy, executed in your favor from the holder of record, to be able to vote at the special meeting.

Expenses of Proxy Solicitation

AACC will pay for the costs of soliciting proxies for the special meeting. Officers, directors and employees of AACC may solicit proxies; however, they will not be paid additional or special compensation for soliciting

 

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proxies. AACC will also request that individuals and entities holding shares in their names, or in the names of their nominees, that are beneficially owned by others, send proxy materials to and obtain proxies from, those beneficial owners, and will reimburse those holders for their reasonable expenses in performing those services. D.F. King & Co., Inc. has been retained by AACC to assist it in the solicitation of proxies, using the means referred to above, and will receive a fee of approximately $6,500. AACC will reimburse D.F. King & Co., Inc. for certain expenses and costs incurred by it in connection with its services and will indemnify D.F. King & Co., Inc. for certain losses.

Adjournments and Postponements

Although AACC does not expect to do so, if AACC has not received sufficient proxies to constitute a quorum or sufficient votes for adoption of the merger agreement, the special meeting may be adjourned or postponed for the purpose of soliciting additional proxies. The proposal to approve the adjournment or postponement of the special meeting, if necessary or appropriate, to solicit additional proxies requires the affirmative vote of a majority of the shares of AACC common stock present or represented by proxy at the special meeting and entitled to vote on the matter. Any signed proxies received by AACC that approve the proposal to adjourn or postpone the special meeting will be voted in favor of an adjournment or postponement in these circumstances. Any adjournment or postponement of the special meeting for the purpose of soliciting additional proxies will allow stockholders who have already sent in their proxies to revoke them at any time prior to their use.

Rights of Stockholders Who Object to the Merger

Holders of AACC common stock who oppose the merger are entitled to statutory appraisal rights under the DGCL in connection with the merger. This means that holders of AACC common stock who do not vote in favor of the adoption of the merger agreement may be entitled to have the value of their shares determined by the Court of Chancery of the State of Delaware, and to receive payment based on that valuation instead of receiving the per share merger consideration. The ultimate amount received in an appraisal proceeding may be more than, the same as or less than the amount that would have been received under the merger agreement.

To exercise appraisal rights, a dissenting holder of AACC common stock must submit a written demand for appraisal to AACC before the vote is taken on the merger agreement and must NOT vote in favor of the adoption of the merger agreement. Failure to follow exactly the procedures specified under the DGCL will result in the loss of appraisal rights. See “AACC Proposal No. 1 – The Merger—Appraisal Rights” beginning on page 66 and Annex C to this proxy statement/prospectus.

Other Matters

AACC’s Board of Directors is not aware of any business to be brought before the special meeting other than that described in this proxy statement/prospectus. If, however, other matters are properly presented at the special meeting, the persons named as proxies will vote in accordance with their best judgment with respect to those matters.

Questions and Additional Information

If you have questions about the special meeting or the merger after reading this proxy, or if you would like additional copies of this proxy statement/prospectus or the proxy card, you should contact AACC’s proxy solicitor, D.F. King & Co., Inc., toll-free (for stockholders) at (888) 644-5854 or (for banks and brokers) at (212) 269-5550.

 

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AACC PROPOSAL NO. 1 – THE MERGER

Background of the Merger

From time to time, AACC has, under the supervision of AACC’s Board of Directors, evaluated strategic alternatives to AACC’s business and long-term strategic plan, each with a view towards enhancing stockholder value. Such strategic alternatives have included a possible sale of AACC, transformational combinations with large strategic parties, debt refinancings and private investments by financial sponsors in AACC. For example, in 2011, in response to an unsolicited indication of interest from a pair of financial sponsors (“Financial Buyer A”), AACC engaged William Blair & Co., L.L.C., or William Blair, a nationally recognized financial advisor, and Kirkland & Ellis LLP, or K&E, an internationally recognized law firm, as part of a thorough strategic review process that did not result in a transaction.

In early November 2012, following the release of AACC’s third quarter results and the resulting decline in AACC’s stock price, William Blair informed Mr. H. Eugene Lockhart, the Chairman of AACC’s Board of Directors, that it had received an unsolicited informal inquiry from a potential strategic purchaser, or Company A, regarding AACC’s interest in a potential strategic transaction. As a result of this inquiry, and, as part of the ongoing review and assessment of AACC’s business strategy, Mr. Lockhart asked William Blair to informally assist AACC in further investigating, on a preliminary basis, the possibility of engaging in a strategic transaction with either Company A or with Encore, which had previously expressed interest in potentially pursuing a strategic transaction involving AACC.

On November 8, 2012, William Blair contacted Encore to see if it had any interest in investigating a potential strategic transaction with AACC. During this discussion, Encore informally indicated that it would be interested in exploring the potential opportunity. Following this discussion, William Blair suggested to each of Encore and Company A that it review AACC’s publicly available information and prepare a preliminary, informal indication of AACC’s value.

On November 26, 2012, the non-executive members of AACC’s Board of Directors held a telephonic meeting to discuss AACC’s performance, growing strategic concerns and recent events, including William Blair’s communications with Encore and Company A and the likelihood that AACC would be able to refinance its existing credit facility on as favorable terms as had initially been hoped for by the Board of Directors.

Towards the end of November 2012, Encore and Company A each informed William Blair that it had completed its initial review of publicly available information and had conducted board level discussions regarding the opportunity to pursue a transaction with AACC. Encore verbally indicated that it was interested in pursuing a transaction that preliminarily valued AACC within a range from $6.50 to $6.60 per share. Company A verbally indicated that it was interested in pursuing a transaction that preliminarily valued AACC at $6.50 per share, with the potential for an increase in value depending on the results of its diligence review, and Company A requested exclusivity in order to pursue a potential transaction.

On December 7, 2012, AACC’s Board of Directors held a telephonic meeting. Mr. Lockhart provided the other directors with a brief update regarding the recent communications between William Blair and each of Encore and Company A. K&E then presented an in-depth review of the Board of Directors’ fiduciary duties under Delaware law. K&E also discussed potential or apparent conflicts of interest that could arise in connection with the evaluation and negotiation of a potential transaction involving AACC and reviewed certain conduct guidelines for directors and senior management that it recommended the Board adopt during the exploration of strategic alternatives. Following discussion, AACC’s Board of Directors decided to explore the potential for a strategic transaction involving AACC and, despite the lack of any immediately apparent conflict of interest, the Board established a board committee, or the Review Committee, composed of four disinterested directors to conduct the exploration and review of strategic alternatives, with a goal toward enhancing stockholder value. The initial mandate and authority of the Review Committee was to assess strategic alternatives available to AACC, including engaging with third parties that the Review Committee identified as likely being interested and capable

 

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of completing a transaction in order to obtain preliminary indications of the terms on which any such party might be willing to participate in a potential transaction involving AACC, and to report back to the full Board of Directors. The Review Committee was not initially authorized to enter into material negotiations with respect to any potential transaction, to approve any definitive agreement (other than non-disclosure agreements) involving or relating to any potential transaction, or to negotiate or explore in detail any potential refinancing alternatives that might be available to AACC (although the committee was authorized to take potential refinancing alternatives and their impact on AACC into account as it explored other strategic alternatives). After discussion and noting that the supporting stockholder, while interested in reducing its stake in AACC, did not need liquidity or otherwise have a conflict of interest relative to the interests of all stockholders, the members of the Board of Directors appointed to the Review Committee were Jennifer L. Adams, Philip Goodeve, Anthony R. Ignaczak (who is affiliated with the supporting stockholder) and Mr. Lockhart.

Later in the day on December 7, the Review Committee held a telephonic meeting. Mr. Lockhart was elected Chairperson of the Review Committee. Mr. Lockhart noted that, after interviewing multiple potential financial advisors, William Blair had been engaged by the Company in 2011 to assist in a review of strategic alternatives. William Blair had been selected based on, among other considerations, its familiarity with the primary debt collection industry participants and its expertise in transactions in the industry. In light of this expertise, as well as William Blair’s familiarity with AACC, its independence with respect to Encore, Company A and Financial Buyer A, and concerns with respect to maintaining the confidentiality of the Board of Directors’ consideration of a potential transaction, the Review Committee determined to again retain William Blair as a financial advisor to the Company. In addition, the Review Committee determined to retain K&E as legal advisor in connection with the review of potential strategic alternatives. William Blair then reviewed its recent communications with Encore and Company A. Following discussion, the Review Committee determined that neither party’s proposal warranted exclusivity and instructed William Blair to request that each party conduct additional diligence of AACC’s portfolio to facilitate the submission of a more informed expression of interest on December 21, 2012.

The Review Committee then discussed the merits of contacting additional potential bidders, particularly potential financial sponsors, and determined to limit the potential sale process to just Encore and Company A for the time being. In making this decision, the Review Committee took into account:

 

   

William Blair’s recent experience in strategic sales processes involving participants in the debt collection industry;

 

   

the need to maintain the confidentiality of the process;

 

   

the disruptive and competitive impact that a broad-based due diligence exercise could potentially have on AACC’s management and business, particularly if a transaction was not completed;

 

   

the difficulty that a financial sponsor would be expected to experience in financing an appealing transaction for AACC at this time, given dynamics in the debt collection industry, the state of the financial markets and the recent experience of AACC in discussing with lenders the potential refinancing of its debt;

 

   

the belief that Encore and Company A were the most likely candidates to pay the highest price given their strategic positions, ability to obtain synergies and certain market dynamics in the debt collection industry; and

 

   

the potential for AACC to use a “go-shop” provision in the definitive transaction agreement, which would permit AACC to undertake a broader market check at a later stage in the sale process.

On December 7, 2012, William Blair invited each of Encore and Company A to conduct additional diligence on AACC’s debt portfolio and to submit a refined expression of interest on or around December 21, 2012. Shortly thereafter, each of Encore and Company A entered into a confidentiality agreement with AACC and were provided with access to an electronic data room that had been established to facilitate the due diligence process.

 

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On December 14, 2012, the Review Committee held a telephonic meeting. At this meeting, William Blair provided an update regarding its recent communications with, and the work being done by, each of Encore and Company A. Following this update, the Review Committee requested that management prepare projections for fiscal years 2013 through 2017, for use by William Blair with respect to its preliminary valuation of AACC and directed William Blair to provide a letter outlining the bidding process to each of Encore and Company A.

On December 17, 2012, William Blair sent a letter to each of Encore and Company A requesting that they submit expressions of interest no later than December 21, 2012.

On December 20, 2012, the Review Committee held a telephonic meeting to review the projections for fiscal years 2013 through 2017 that management had prepared at the Review Committee’s request. Mr. Rion Needs, AACC’s President and Chief Executive Officer, Mr. Reid Simpson, AACC’s Senior Vice President and Chief Financial Officer, and Mr. Jeff Bankowski. AACC’s Vice President—Strategy, Analytics & Shared Services, discussed the historical and projected financial metrics set forth in the materials provided to the Review Committee. The Review Committee questioned the reliability of the projections, noting AACC’s recent history of underperformance as compared to Wall Street consensus estimates, and requested that Mr. Simpson provide an expanded analysis of management’s discounted estimated remaining collections (net of estimated cost to collect) per share analysis.

On December 21, 2012, Encore and Company A each submitted a preliminary indication of interest to acquire AACC. Encore’s indication of interest valued AACC at a price of $6.50 per share, to be paid in cash, although Encore did indicate a willingness to consider alternative cash/stock consideration if requested by AACC. Company A’s indication of interest valued AACC at a price of $7.30 per share, to be paid in cash, although Company A indicated that it was willing to consider including a limited number of its shares of common stock as part of the consideration if it would meaningfully improve the attractiveness of its offer. Each of Encore and Company A requested exclusivity as a condition to its willingness to continue investigating a potential transaction.

Later on December 21, the Review Committee met to discuss the preliminary indications of interest that had been received. William Blair reviewed the financial terms of the indications of interest and the potential business combination partners, as well as its preliminary financial analyses of AACC. After a discussion, the Review Committee determined to take the indications of interest back to AACC’s Board of Directors and instructed William Blair to go back to Company A to see if its proposed purchase price could be increased, potentially in exchange for obtaining exclusivity, and to Encore to let it know that AACC would likely move in a different direction unless Encore increased its proposed purchase price.

Immediately following the Review Committee’s meeting, William Blair contacted Company A and indicated that, before the Review Committee would recommend to AACC’s Board of Directors that it negotiate with Company A, and that Company A perhaps be granted exclusivity, Company A would need to both increase its proposed purchase price and add a stock component to the proposed consideration. On that same night, William Blair informed Encore that AACC would likely move in a different direction unless Encore increased its proposed purchase price. In response, Encore indicated that its price was firm based on its extensive evaluation of AACC’s debt portfolio.

Later on December 21, in response to William Blair’s request, Company A submitted a revised preliminary indication of interest in which it increased the per share purchase price it was willing to pay AACC’s stockholders to $7.50 and indicated that it was willing to provide AACC’s stockholders the right to elect to receive up to 15% of the aggregate transaction consideration in the form of Company A’s common shares. Company A also requested exclusivity through February 8, 2013, as a condition to its willingness to continue investigating a potential transaction.

On December 26, 2012, the Review Committee held a telephonic meeting. William Blair provided an update regarding the revised indication of interest received from Company A and Encore’s response to the

 

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request for additional purchase price. William Blair then again reviewed its preliminary financial analyses of AACC. The Review Committee then reviewed management’s projected discounted estimated remaining collections (net of estimated cost to collect) per share value and the comparison between historical management projections versus AACC’s actual performance which had been requested at the December 20, 2012, meeting. Following discussion, the members of the Review Committee unanimously agreed to recommend to AACC’s Board of Directors that AACC pursue a potential transaction with Company A and grant it exclusivity through February 8, 2013.

On December 27, 2012, AACC’s Board of Directors held a telephonic meeting. William Blair provided an update regarding the indications of interests received from Company A and Encore, and again reviewed its preliminary financial analyses of AACC with the Board. Mr. Lockhart then provided an overview of the steps that the Review Committee had taken to solicit and evaluate indications of interest. K&E then discussed the “go-shop” provision that the Review Committee proposed to include in any definitive agreement and again reviewed the directors’ fiduciary duties under Delaware law. Following discussion, it was unanimously agreed that AACC should proceed to negotiate with Company A to see if an agreement could be reached and that Company A should be provided with a period of exclusivity through February 8, 2013. AACC’s Board of Directors also expanded the mandate of the Review Committee, authorizing it to, among other things, determine whether a strategic transaction is fair to and in the best interests of AACC and its stockholders, bind AACC to a limited period of exclusive negotiations with a counterparty, negotiate a definitive agreement with respect to a strategic transaction and recommend to AACC’s Board of Directors whether the Board should approve a strategic transaction and recommend a transaction to AACC’s stockholders.

Following this meeting, William Blair informed Encore that AACC was moving in a different direction and Encore’s access to AACC’s electronic data room was cut off.

After negotiating for several days, AACC and Company A entered into an exclusivity agreement on January 2, 2013, which, subject to the terms and conditions thereof, provided that AACC would not negotiate a business combination transaction with anyone other than Company A prior to February 8, 2013. Amongst other provisions, the exclusivity agreement provided that AACC could terminate the agreement if Company A failed to reaffirm the material terms of its indication of interest (including price) upon AACC’s request that it do so.

From January 3 through January 23, 2013, Company A conducted additional diligence on AACC, which included various in-person meetings between representatives of Company A and AACC.

The Review Committee held a telephonic meeting January 4, 2013. At this meeting, William Blair provided an update of the status of discussions with Company A and its ongoing diligence process. The Review Committee members also discussed various matters related to AACC’s ongoing business, including the potential refinancing of AACC’s credit facility. Following discussion, the Review Committee determined to postpone any decision on the potential refinancing matter until it got a better sense of how the potential transaction with Company A was progressing.

On January 8, 2013, the Review Committee held a telephonic meeting. In the course of this meeting, William Blair provided an update with respect to Company A’s on-going process. The Review Committee then discussed certain proposed terms of the preliminary draft merger agreement, including the terms of the proposed “go-shop” provision, and the status of K&E’s diligence review of Company A. The Review Committee also discussed certain terms of a draft voting agreement involving the supporting stockholder, including whether the supporting stockholder would be willing to agree in the voting agreement to elect to receive only cash consideration in connection with a potential transaction. Mr. Ignaczak indicated that, while this had not been previously discussed by the supporting stockholder, he thought this would be acceptable. The Review Committee noted that this would potentially benefit other AACC stockholders who may be interested in electing to receive Company A shares in the merger, as it would permit them to receive a greater proportion of the merger consideration in their chosen form than would be the case if the supporting stockholder were to elect to receive Company A shares.

 

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On January 15, 2013, K&E distributed a draft merger agreement to Company A’s legal counsel. The draft agreement provided for, among other things, an election for AACC’s stockholders to receive up to 15% of the merger consideration in shares of common stock of Company A, as well as a 40 day “go-shop” period and a customary “fiduciary out” that could be exercised by AACC’s Board of Directors.

On January 18, 2013, the Review Committee held a telephonic meeting. During the course of this meeting, William Blair updated the Review Committee with respect to both Company A’s on-going diligence process and the initial comments of AACC’s accountants regarding the results of operations for the fourth quarter of the 2012 fiscal year. William Blair noted that AACC’s quarterly results were again below expectations (even after analysts had revised their expectations downward on two previous occasions) across various performance metrics, including revenue, EBITDA, Adjusted EBITDA and earnings per share. The Review Committee discussed of the potential impact of the pending results on AACC’s strategic alternatives, including the potential transaction with Company A.

On January 23, 2012, K&E received a revised draft of the merger agreement from Company A’s legal counsel.

On January 24, 2013, Company A called William Blair to inform it that Company A had substantially completed its due diligence of AACC and, based on the results of the review, could no longer support a price of $7.50 per share. Company A indicated that it continued to be interested in acquiring AACC’s debt portfolio (without acquiring the entire Company), and that any purchase of AACC as a going concern was only feasible from Company A’s perspective at a price per share below $6.00. Company A did not make a specific proposal as to what price it might be willing to pay to acquire all of AACC’s equity. Immediately after this call, William Blair informed Mr. Lockhart and K&E of Company A’s position.

On January 28, 2013, the Review Committee held a telephonic meeting. During the course of this meeting, William Blair provided the committee members with an update regarding Company A’s position and concerns, noting that Company A’s primary justifications for its diminished interest in a transaction appeared to be that Company A:

 

   

had revised its expected cash flows from AACC’s debt portfolio substantially downward, due largely to AACC’s prior collection efforts (moving more aggressively to collect earlier in the portfolio, increasing its use of the legal collection channel and settling earlier and for lower amounts than, in each case, Company A would have done);

 

   

was concerned that the application of the business practices that AACC had adopted in response to the Federal Trade Commission’s decree to Company A’s business could adversely impact Company A’s business; and

 

   

ascribed a negative value to certain forward flow portfolio acquisition contracts that AACC had recently entered into.

Following discussion, the Review Committee instructed William Blair to request that Company A either reaffirm its $7.50 per share value or acknowledge that the exclusivity agreement between AACC and Company A was terminated. The Review Committee then considered potential strategic alternatives available to AACC that did not involve Company A, including re-engaging with Encore with respect to a strategic transaction and widening the sale process to include additional potential financial and strategic purchasers. After considering the potential adverse impacts that a broad solicitation process might have on AACC’s management and business, as well as the need to maintain confidentiality and control over the strategic review process and William Blair’s recent experience running an auction for a company in the debt collection industry, the Review Committee determined that, subject to discussion with the entire the Board of Directors, William Blair should contact Encore and six potential financial purchasers in order to gauge their interests in pursuing a transaction involving AACC. The proposed financial purchasers were selected by the Review Committee and William Blair on the basis of their financial resources and industry expertise. In addition, it was decided that AACC should simultaneously

 

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pursue a refinancing of its credit facility. As part of the discussion, it was noted that one of AACC’s directors, William Jacobs, was affiliated with Financial Buyer A, who was a proposed potential purchaser. Following discussion, the Review Committee determined to ask Mr. Haider, in his capacity as the Chairman of AACC’s Nominating and Corporate Governance Committee, to speak with Mr. Jacobs regarding the potential conflict.

On January 29, 2013, Company A confirmed in writing to William Blair that it would not reaffirm the $7.50 per share valuation set forth in its December 21, 2012, indication of interest and acknowledged the termination of the exclusivity agreement between it and AACC.

On February 4, 2013, AACC’s Board of Directors held a telephonic meeting in which Mr. Jacobs voluntarily did not participate. Mr. Lockhart provided the directors with a brief overview of recent events involving Company A and informed them that the exclusivity agreement with Company A had been terminated. William Blair provided the directors with an overview of the concerns Company A had raised in connection with its price reduction. Mr. Lockhart then informed the directors that the Review Committee recommended contacting an expanded group of potential purchasers (composed of Encore and six financial purchasers) and simultaneously pursuing the refinancing of AACC’s credit facility. Following discussion with William Blair and K&E, the Board of Directors determined to reconvene on February 6 and asked William Blair to prepare an updated leveraged-buyout analysis for its consideration, as well as additional suggestions on the specifics of reaching out to the expanded group of potential purchasers.

On February 6, 2013, AACC’s Board of Directors held a telephonic meeting in which Mr. Jacobs again voluntarily did not participate. William Blair presented the updated leveraged-buyout analysis and its recommendations regarding how to reach out to the expanded group of potential purchasers, each of which had been requested at the February 4 Board of Directors meeting. The directors and William Blair discussed the management projections that had been used in the analysis (which were the same ones that had been presented to the Review Committee on December 20, 2012, but excluding AACC’s legal recovery services business, which results were excluded based upon feedback from potential purchasers who discounted the value attributable to such business, as well as the Review Committee’s belief that the business was not material to AACC’s results as a whole and that the projections for the business were highly speculative) the potential impact of the announcement of AACC’s fourth quarter results on the strategic alternatives available to AACC and William Blair’s recent experience running an auction for a company in the debt collection industry. In light of their significant equity holdings, and following discussion with the other directors, Mr. Ignaczak (who is affiliated with the supporting stockholder) and Mr. Bradley left the meeting in order to permit the remaining directors to make a determination as to the desirability of pursuing a potential transaction free from the potential perception of a conflict between the interests of the large, inside stockholders and the interests of all stockholders. Following further discussion, the remaining members of the Board of Directors (being Ms. Adams and Messrs. Goodeve, Lockhart, Needs, Wilkins and Haider) endorsed the Review Committee’s proposed plan of contacting an expanded group of potential purchasers (including Encore) and simultaneously pursuing the refinancing of AACC’s credit facility.

In the days that followed, William Blair contacted the six financial purchasers that had been identified by the Review Committee and William Blair in order to gauge their interest in a potential transaction. Of these parties, three (including Financial Buyer A) expressed interest, executed confidentiality agreements and were granted access to certain confidential information of AACC, while the other three were not interested in pursuing the opportunity at that time and/or in AACC’s industry generally. The other two financial sponsors that expressed interest in exploring a potential transaction are referred to as Financial Buyer B and Financial Buyer C.

On February 12, 2013, William Blair contacted Encore to again gauge its interest in pursuing a potential transaction with AACC. At the direction of the Review Committee, William Blair asked Encore if it would be willing to re-engage on a potential transaction on a non-exclusive basis, at an offer price above their initial per share valuation of $6.50, and to include a stock component to the consideration. Later that same day, Encore informed William Blair that certain members of its Board of Directors had a telephone conversation to discuss the opportunity and that Encore was willing to proceed on a non-exclusive basis and to add a stock component to

 

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the consideration, but was unwilling to increase its proposed price. Following this call, William Blair informally updated some members of the Review Committee regarding its conversations with Encore.

On February 13, 2013, Encore was again granted access to AACC’s electronic dataroom.

On February 22, 2013, the Review Committee held a telephonic meeting. William Blair provided the Review Committee with an update regarding its recent communications with potential purchasers. Following discussion, the Review Committee instructed K&E to distribute a draft merger agreement to Encore. The Review Committee then discussed whether to expand the transaction process at this time to include one or two additional potential purchasers. Following discussion, the Review Committee ultimately determined that William Blair should contact one additional financial purchaser, having expressed concerns regarding confidentiality and competition with respect to expanding the transaction process to include additional strategic purchasers.

During the afternoon of February 22, 2013, K&E circulated a draft merger agreement to William Blair, which William Blair forwarded to Encore for its review. The draft agreement was substantially identical to the draft circulated to Company A’s counsel on January 15, 2013.

On February 25 and 26, 2013, AACC’s Board of Directors gathered for its regularly scheduled in-person meeting. During the course of these meetings, the directors held extensive discussions with management with respect to AACC’s budget, purchasing outlook, position in the industry and the strategic challenges facing the Company, among them the disadvantages that AACC faced with respect to cost to collect and cost of capital as compared to its public company competitors. Mr. Jacobs voluntarily recused himself from portions of the meeting relating to the potential sale of AACC.

On February 25, 2013, Mr. Brandon Black, the President and Chief Executive Officer of Encore, called Mr. Lockhart to inform him that Encore was substantially done with its diligence and was close to confirming its price of $6.50 per share of AACC’s common stock. Mr. Black informed Mr. Lockhart that Encore wanted the parties to accelerate the negotiation of a potential transaction, with the goal of announcing a transaction on March 4, 2013, when AACC was scheduled to release it fourth quarter and year-end earnings. Mr. Black requested that Encore be granted exclusivity through this date.

Following this call, the non-executive directors held a meeting with William Blair and K&E to discuss the strategic review process, their discussions with management regarding the issues facing AACC and management’s plan for addressing those issues were AACC to remain an independent entity. It was noted that William Blair had not been able to contact the additional potential purchaser identified on February 22, and it was decided that this party should not be contacted at this time until there was greater certainty as to whether the transaction with Encore would proceed.

On the morning of February 26, 2013, AACC’s Board of Directors met with management, William Blair and K&E and discussed at length the approach to take to Encore’s recent proposal, as well as AACC’s performance, the financial, regulatory and competitive landscape facing AACC and the state of the debt collection industry in general. K&E again reviewed the directors’ fiduciary duties and William Blair provided an update regarding the activity of the three financial sponsors that were exploring a potential transaction involving the Company, noting that only Financial Buyer A was actively accessing AACC’s electronic data room. Following discussion, the Board of Directors (with Messrs. Bradley, Ignaczak and Jacobs recusing themselves) determined that the Review Committee should engage with Encore to negotiate the terms of a potential transaction, but without Encore being granted exclusivity; instead, the three financial sponsors would be allowed to continue their diligence efforts. The Board instructed William Blair to ask Encore to raise its proposed purchase price to $6.75 per share. William Blair was also instructed to deliver process letters to Financial Buyer A, Financial Buyer B and Financial Buyer C, requesting that they submit a preliminary indication of interest by noon eastern time on March 4, 2013. The Board of Directors then discussed its desire to retain a cash and/or stock consideration election right in any merger agreement. The Board of Directors also considered whether to postpone AACC’s earnings release, but determined to re-visit this issue depending on how the potential transaction with Encore was progressing.

 

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In accordance with the instructions of AACC’s Board of Directors, on the evening of February 26, 2013, William Blair contacted Encore and communicated the AACC Board of Directors’ requests. Encore promptly responded that it was unwilling to increase its price, pointing to the fact that AACC had increased the outstanding debt that Encore would be assuming in connection with a transaction since Encore had first proposed a $6.50 per share price back in December.

On the same date, William Blair also delivered process letters to each of Financial Buyer A, Financial Buyer B and Financial Buyer C requesting initial indications of interest no later than noon central time on March 4, 2013.

On February 27, 2013, Financial Buyer C informed William Blair that it was no longer interested in pursuing a transaction with AACC, citing its concern that it did not think it would be able to pay a meaningful premium to AACC’s then current stock price, as well as its concerns about the United States regulatory environment. Also on this date, a potential strategic purchaser, or Company B, contacted both Mr. Needs and William Blair to express its interest in participating in any potential sale process involving AACC. It was ultimately decided that Company B should not be included in the potential sale process at this time until there was greater certainty as to whether the transaction with Encore would proceed.

On the morning of February 28, 2013, Encore’s financial advisor, Morgan Stanley & Co. LLC, or Morgan Stanley, delivered to William Blair a preliminary list of material issues with respect to the draft merger agreement. Among other issues, this list noted that Encore was not willing to agree to a “go-shop” provision.

Also on that date, Financial Buyer A held a diligence conference call with management. Following the call, Financial Buyer A informed William Blair that, while it remained interested in pursuing a transaction, it would not be able to submit an offer by March 4, 2013.

Later that day, the Review Committee held a telephonic meeting. William Blair updated the Review Committee regarding recent developments with Encore, Financial Buyer A and Financial Buyer C. William Blair also informed the Review Committee that it expected that Financial Buyer B would withdraw from the process, based on is lack of activity to date. The Review Committee then reviewed the list of issues on the draft merger agreement that Encore’s advisors had delivered and again discussed in detail the terms of the draft agreement that had been sent to Encore and Encore’s proposed timing for a transaction. The committee invited management to join the call to provide their perspective on the ongoing refinancing efforts. Following discussion, management was instructed to temporarily halt the refinancing effort. The Review Committee further discussed delaying AACC’s earnings release and conference call, and again determined to revisit the issue in a few days time, depending on how the potential transaction with Encore was progressing.

Thereafter on February 28, 2013, K&E distributed a draft voting agreement to Encore’s legal counsel, Fulbright & Jaworski, L.L.P., or Fulbright, and informed Fulbright that AACC proposed that only the supporting stockholder would enter into the voting agreement with Encore. Later that evening, Fulbright sent K&E a revised draft of the merger agreement.

On March 1, 2013, the Review Committee held a telephonic meeting. William Blair updated the Review Committee on its recent discussions with Encore, and informed the members that no proposals had yet been received from either Financial Buyer A or Financial Buyer B. K&E then led a detailed discussion of the material issues raised by Encore’s revisions to the merger agreement, which included deleting the ability of AACC stockholders to choose the form of merger consideration (subject to certain limits) in favor of fixing the merger consideration mix at 75% cash and 25% stock, deleting the “go-shop” provision and including a restrictive “no shop” provision, and increasing the size of the termination fee payable by AACC as well as expanding the circumstances under which the fee would become payable. The Review Committee discussed the significance of Encore’s revisions to the draft merger agreement and again discussed the merits of having at least Financial Buyer A and Financial Buyer B excluded from the “no-shop” restrictions set forth in the merger agreement. After discussing Encore’s comments, the Review Committee determined to continue negotiations with Encore and directed William Blair and K&E to reach out to Encore’s advisors to discuss the draft merger agreement.

 

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Following several discussions with Fulbright, in the early morning of March 2, 2013, K&E circulated a revised draft of the merger agreement.

During the day on March 2, Encore requested a telephone conference between Mr. Lockhart and Mr. George Lund, Executive Chairman of Encore’s Board of Directors, to discuss various issues in the proposed transaction raised by the draft merger agreement circulated that morning by K&E. Messrs. Lockhart and Lund spoke during the evening of March 2.

On March 3, 2013, Fulbright circulated a revised draft of the merger agreement.

On March 3, 2013, the Review Committee held a telephonic meeting to discuss the revised draft merger agreement. Thereafter, at the instruction of the Review Committee, William Blair and K&E continued to negotiate the terms of the draft merger agreement with Morgan Stanley and Fulbright.

That same afternoon, at the direction of the Review Committee, William Blair contacted Company A in order to confirm that it could not be enticed back into discussing a potential transaction. In response, Company A reconfirmed that no longer had any interests in pursuing a transaction involving the acquisition of all of AACC.

Late in the evening of March 3, 2013, the Review Committee held a telephonic meeting. William Blair and K&E provided the Review Committee with an overview of their discussions that day with Encore’s representatives. Following discussion, the Review Committee determined that AACC should delay its earnings call until March 6, 2013, and that William Blair and K&E should continue to work with Encore’s advisors to try to reach agreement on a draft merger agreement.

Throughout the evening of March 3 and the early morning of March 4, 2013, K&E held several discussions with respect to the terms of the draft merger agreement. During such discussions, AACC and Encore agreed that, in addition to the customary “fiduciary out” set forth therein, the merger agreement would be revised to permit AACC to continue to provide confidential due diligence information to, and engage in discussions with, certain specified third parties (each such party is also from time to time referred to herein as an “excluded party”) who were in the process of assessing a potential transaction involving AACC as of the date of the merger agreement. At the time of such discussions, the contemplated “excluded parties” consisted of Financial Party A and Financial Party B (and would have included Financial Party C, but for its determination on February 27, 2013 not to pursue a transaction with AACC). It was agreed that such right of AACC under the merger agreement would persist through March 27, 2013 (or, if an excluded party made a superior proposal on or before March 27, 2013, such deadline would automatically be extended until the date Encore’s matching right under the merger agreement with respect to such superior proposal expires). In the early morning of March 4, 2013, K&E circulated a revised draft of the merger agreement to Fulbright and Morgan Stanley. That same morning, AACC announced the postponement of its fourth quarter and 2012 year-end earnings release and conference call.

On the evening of March 4, 2013, the Review Committee held a telephonic meeting. William Blair and K&E updated the Review Committee on their discussions with Encore’s advisors and the remaining open issues. William Blair also informed the Review Committee that Financial Buyer B had notified William Blair that day that it was no longer interested in pursuing a transaction involving AACC. Prior to signing, the merger agreement was revised to remove Financial Buyer B as an “excluded party”.

Throughout March 4, 5 and early into the morning of March 6, K&E and Fulbright, and on occasion the management of each of AACC and Encore, continued to exchange drafts of the merger agreement and voting agreement and hold negotiations regarding their terms.

Late in the afternoon of March 5, 2013, the Review Committee held a telephonic meeting to discuss the status of the alternatives review process. William Blair reviewed for the Review Committee AACC’s strategic alternatives review process. William Blair then reviewed with the Review Committee its financial analysis of the

 

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$6.50 per share merger consideration and informed the Review Committee that it was prepared to render its oral opinion to the full AACC Board of Directors that the merger consideration to be received in connection with the transaction with Encore was fair, from a financial point of view, to the holders of AACC common stock. K&E then provided an overview of the terms of the merger agreement and the voting agreement, highlighting remaining open points in each. K&E then reviewed the members’ fiduciary duties with respect to the proposed transaction. After discussion, the Review Committee unanimously voted to recommend that the Board approve and authorize the proposed transaction with Encore.

Immediately after the Review Committee meeting, AACC’s Board of Directors (with one director absent) held a telephonic meeting. William Blair reviewed for the Board AACC’s strategic alternatives review process. William Blair then reviewed with the Board its financial analysis of the $6.50 per share merger consideration and rendered its oral opinion to the Board (which was subsequently confirmed in writing), that the merger consideration to be received in connection with the transaction with Encore was fair, from a financial point of view, to the holders of AACC common stock. A discussion of William Blair’s analysis is described under “AACC Proposal No. 1 — The Merger—Opinion of AACC’s Financial Advisor” beginning on page 52. K&E then reviewed the directors’ fiduciary duties with respect to the proposed transaction. K&E then provided an overview of the terms of the merger agreement and the voting agreement, highlighting remaining open points in each. Mr. Lockhart informed the Board of Directors that the absent director, while not able to participate in the vote, had reviewed all of the materials circulated and was in favor of AACC proceeding with the proposed transaction. After considering the foregoing and each of the factors described under “AACC Proposal No. 1 — The Merger—AACC’s Reasons for the Merger; Recommendation of the AACC Board of Directors” beginning on page 46, including the recommendation of the Review Committee, AACC’s Board of Directors unanimously (of those directors present and voting) determined that the proposed merger agreement and related merger with Encore was advisable and in the best interests of AACC and its stockholders. The Board of Directors authorized the Review Committee to finalize the open points in the merger agreement.

In the early morning of March 6, 2013, Fulbright and K&E finalized terms of the merger agreement and the parties entered into the merger agreement and other transaction documents, and the transaction was publicly announced prior to the open of the stock markets on that day.

On March 7, 2013, Financial Buyer A (the only “excluded party” with whom AACC was permitted to continue discussing a transaction under the terms of the merger agreement) informed William Blair that it had determined not to pursue a potential transaction, citing that, based on its review of AACC’s portfolio and its financial modeling, it would not be able to submit a superior bid to the merger consideration offered by Encore.

On March 14, 2013, AACC received a preliminary written indication of interest from Company B concerning an alternative to the transactions contemplated by the merger agreement. On March 15, 2013, the Review Committee held a telephonic meeting to discuss Company B’s indication of interest. Following discussion, the Review Committee requested that William Blair speak with Company B’s financial advisor to clarify certain aspects of Company B’s proposal. William Blair and Company B’s financial advisor spoke later that day.

On March 20, 2013, AACC received a supplemental written indication of interest from Company B.

On March 22, 2013, the Review Committee held a telephonic meeting to discuss Company B’s proposal. Following discussion, the Review Committee confirmed that the proposal satisfied the requirements of the merger agreement that permit AACC to provide confidential due diligence information to, and engage in discussions with, Company B.

On March 26, 2013, AACC and Company B entered into a confidentiality agreement and Company B was granted access to AACC’s electronic data room. On April 10, 2013, Company B informed AACC that Company B would be unable to submit a superior proposal and that it determined not to move forward with its proposal.

 

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AACC’s Reasons for the Merger; Recommendation of the AACC Board of Directors

The Review Committee

The Review Committee, after careful consideration, has by a unanimous vote approved, and determined to recommend to AACC’s Board of Directors the approval of, the merger agreement and the transactions contemplated by the merger agreement, including the merger.

In reaching its determination, the Review Committee consulted with the Company’s management and its financial and legal advisors, considered the short-term and long-term prospects of the Company and the interests of its stockholders and considered a number of factors and potential benefits and issues, including the following:

 

   

the Review Committee’s belief that the merger consideration that would be received by AACC’s stockholders pursuant to the merger represented a fair price for the shares of common stock of AACC;

 

   

the then current and historic market prices of AACC’s common stock, including:

 

   

the fact that the per share merger consideration of $6.50 per share of AACC’s common stock represents a premium of approximately 24.8% over the closing stock price of $5.21 on March 1, 2013, the last full trading day prior to the announcement before the market opened on March 4 that AACC was rescheduling its earnings call, and of approximately 24.3% premium over the volume-weighted average stock price of $5.23 over the last 30 trading days, as of March 1, 2013, prior to announcing the proposed transaction with Encore;

 

   

the fact that 89% and 81% of the trading volume in shares of AACC’s common stock during the three years and the last twelve months, respectively, preceding the execution of the merger agreement has been at a price that is less than the per share merger consideration of $6.50 per share; and

 

   

the fact that the shares of AACC’s common stock have only traded above the per share merger consideration of $6.50 per share for just 57 days, or approximately 23% of the time, during the last twelve months preceding the execution of the merger agreement, and for just 91 days, or approximately 12% of the time, during the last three years preceding the execution of the merger agreement;

 

   

AACC’s historical and current financial performance and results of operations, AACC’s prospects and long-term strategy, AACC’s competitive position and general economic and stock market conditions (including AACC’s record with respect to meeting consensus Wall Street estimates for its performance and operations);

 

   

the Review Committee’s understanding of AACC’s businesses, assets, financial condition, results of operations and prospects (as well as the risks involved in achieving those prospects), the nature of the market for AACC’s common stock and the nature of AACC’s businesses and the industries in which AACC competes;

 

   

AACC’s financial and strategic plan and the initiatives and the potential execution risks associated with such plan, and the effects of the economy on AACC specifically, and on AACC’s industry generally, and in connection with these considerations the risks that:

 

   

additional regulations and legislative and regulatory activities could potentially impact AACC’s business, results of operations, cash flows or financial condition;

 

   

competitive and other market pressures could adversely affect the availability and pricing of receivables portfolios, as well as the availability and costs of qualified account representatives;

 

   

AACC, unlike some of its larger competitors, would be competitively challenged in overcoming structurally higher cost to collect and cost of capital; and

 

   

if AACC did not enter into the merger agreement, the price that might be received by AACC’s stockholders selling stock of AACC in the open market, both from a short-term and long-term perspective, could be less than the per share merger consideration;

 

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the sale process conducted by AACC, with the assistance of William Blair, which involved:

 

   

engaging in discussions with what the Review Committee believed were the two most likely strategic purchasers (Encore and Company A), as well as six financial purchasers, to determine their potential interest in a business combination transaction with AACC;

 

   

entering into confidentiality agreements with five parties (including both Encore and Company A); and

 

   

the fact that outside of Encore, Company A and Financial Buyer A (who had not submitted an indication as to value), no other party contacted expressed interest in pursuing an acquisition of AACC;

 

   

the fact that the price proposed by Encore represented the highest definitive price that AACC received for the acquisition of AACC;

 

   

William Blair’s extensive knowledge of the industry and awareness, based on its recent participation in potential business combination transaction processes involving industry participants, of likely potential purchasers of AACC;

 

   

William Blair’s financial analysis of the $6.50 per share merger consideration and the fact that William Blair informed the Review Committee that it was prepared to render its oral opinion to the full AACC Board of Directors, that as of March 5, 2013, and based upon and subject to the qualifications, limitations and assumptions stated in its opinion, the per share merger consideration to be paid to the holders of the outstanding shares of AACC common stock pursuant to the merger agreement was fair, from a financial point of view, to such holders;

 

   

the fact that all of AACC’s stockholders have the opportunity to elect the form of consideration they would like to receive in the form of cash, Encore stock or a mix of cash and Encore stock (subject to the limitations and proration described in the section titled “The Merger Agreement—Consideration to be Received in the Merger” beginning on page 81) which would allow AACC’s stockholders to choose a form of consideration that would all them to either receive a certain cash value for their shares and monetize their investment in AACC, participate in the potential future increase in value of an investment in Encore, or dispose of their Encore shares in the public market;

 

   

the fact that the cash consideration is fixed at $6.50 and is available to all of AACC’s stockholders without limitation;

 

   

the fact that, while the exchange ratio for Encore common shares to be received in the merger is fixed as of signing, the election mechanic permits AACC stockholders who make an election to receive some or all of their consideration in the form of Encore shares to participate in the upside of an increase in the market price of Encore common shares between the signing and closing of the merger;

 

   

the fact that the supporting stockholder has, in the voting agreement, committed to take merger consideration in the form of cash only, thereby potentially allowing other AACC stockholders who are interested in electing to receive merger consideration in whole or part in the form of Encore shares to receive a greater proportion of the merger consideration in their chosen form than would be the case if the supporting stockholder were to elect to receive Encore shares;

 

   

the financial analyses, information and perspectives provided to the Review Committee by management and AACC’s financial and legal advisors;

 

   

the fact that the completion of the merger requires the approval of AACC stockholders;

 

   

the terms and conditions of the merger agreement, including:

 

   

the fact that the merger is not subject to any financing contingencies and the assessment by the Review Committee, after consultation with William Blair, that Encore has the financial capability to fund the merger consideration entirely in cash if necessary;

 

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the limited number and nature of the conditions to Encore and Merger Sub’s obligation to consummate the merger and the limited risk of non-satisfaction of such conditions;

 

   

the amount of the termination fees payable by AACC under the circumstances set forth in the merger agreement would be unlikely to serve as a deterrent to third parties from proposing alternative business combination transactions;

 

   

the ability that AACC retains to provide confidential due diligence information to, and engage in discussions with, certain specified third parties who were in the process of assessing a potential transaction involving AACC as of the date of the merger agreement, and the fact that AACC would pay a lower termination fee to pursue a superior transaction with one of these parties;

 

   

the ability that AACC retains to provide confidential due diligence information to, and engage in discussions with, any third party that makes an unsolicited bona fide written takeover proposal, provided that the AACC Board of Directors or Review Committee determines in good faith, after consultation with its outside counsel and financial advisor, that such proposal is or could reasonably be expected to lead to a “superior proposal” and that the failure to take such action would reasonably be expected to be a breach of the AACC Board of Directors’ or Review Committee’s fiduciary duties under applicable law (see the section titled “The Merger Agreement—Solicitation of Alternative Takeover Proposals; Change of Recommendation; Matching Rights” beginning on page 87);

 

   

the fact that the AACC Board of Directors or Review Committee may change or withdraw its recommendation regarding the merger if a superior transaction proposal is received from a third party or in response to certain defined events, developments or circumstances, if in either case the AACC Board of Directors or Review Committee determines that a failure to change its recommendation would reasonably be expected to be a breach of the AACC Board of Directors’ or Review Committee’s fiduciary duties under applicable law, subject to payment of a termination fee in certain circumstances;

 

   

the ability of the AACC Board of Directors or Review Committee to terminate the merger agreement, subject to the payment of a termination fee, in order to enter into a superior proposal if AACC has complied with certain of the non-solicitation provisions, including those provisions allowing Encore the right to propose amendments to the merger agreement in such a manner that the takeover proposal no longer constitutes a superior proposal; and

 

   

the conclusion of the Review Committee that the termination fees and the circumstances in which they are payable are reasonable in light of the benefits of the proposed merger and commercial practice (see the section titled “The Merger Agreement—Termination Fee” beginning on page 92); and

 

   

the fact that AACC’s stockholders have the right to demand appraisal of their shares in accordance with the procedures established by Delaware law.

The special committee also considered and balanced against the potential benefits of the merger a number of potentially adverse factors concerning the merger including the following:

 

   

the possibility that the merger may not be completed, or that completion may be unduly delayed, due to a failure to satisfy the closing conditions for reasons that may or may not be beyond the control of AACC and Encore;

 

   

the interests of AACC’s directors and executive officers in the merger (see “AACC Proposal No. 1 – The Merger—AACC’s Directors and Officers Have Financial Interests in the Merger beginning on page 70);

 

   

the fact that, if the merger is completed:

 

   

AACC stockholders who elect to receive Encore shares will participate in the future earnings growth of a company that includes businesses with different growth rates (which are uncertain and may be better or worse) than AACC’s business; and

 

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AACC stockholders who do not elect to receive Encore common shares will not participate in any potential future earnings or growth of AACC’s business and will not benefit from any potential appreciation that may be reflected in the value of Encore’s common shares;

 

   

the restrictions on the conduct of AACC’s business prior to completion of the merger, which require AACC to conduct its business in the ordinary course and in all material respects consistent with past practice and prohibit AACC from taking numerous specified actions without Encore’s consent, and the fact that these restrictions might delay or prevent AACC from undertaking business opportunities that may arise pending completion of the merger;

 

   

the general restrictions contained in the merger agreement on the ability of AACC to actively solicit, furnish non-public information regarding AACC in connection with, and engage in negotiations regarding, alternative proposals and the requirement that AACC pay Encore a termination fee in order for AACC to accept a superior proposal;

 

   

the fact that the merger consideration will be taxable to our stockholders for U.S. federal income tax purposes;

 

   

the risk of diverting management focus and resources from other strategic opportunities and from operational matters while working to implement the Merger;

 

   

the fact that the merger agreement provides for a maximum stock amount that will be paid by Encore as merger consideration and that, therefore, if AACC stockholders elect to receive, in the aggregate, a greater amount of stock consideration, the amount of stock received by stock electing stockholders will be reduced on a pro rata basis such that they will receive a portion of their merger consideration in the form of cash; and

 

   

the possibility of management and employee disruption associated with the Merger.

After taking into account all of the factors set forth above, as well as others, the Review Committee agreed that the benefits of the merger outweigh the risks and that the merger agreement and the merger are advisable, fair to and in the best interests of AACC and its stockholders.

In view of the variety of factors and the quality and amount of information considered, as well as the complexity of these matters, the Review Committee did not find it practicable to, and did not attempt to, assign relative weights to the above factors or the other factors considered by it. In addition, the Review Committee did not reach any specific conclusion on each factor considered, but conducted an overall analysis of these factors. Individual members of the Review Committee may have given different weights to different factors.

The Board of Directors

AACC’s Board of Directors, after careful consideration, has by a unanimous vote of those directors present and voting:

 

   

approved and declared advisable the merger agreement and the transactions contemplated by the merger agreement, including the merger;

 

   

determined that the merger agreement and the transactions contemplated by the merger agreement, including the merger, are advisable, fair to and in the best interests of, holders of AACC’s common stock;

 

   

directed that the adoption of the merger agreement be submitted to a vote of AACC’s stockholders at a special meeting; and

 

   

resolved, subject to the terms of the merger agreement, to recommend that the holders of AACC’s common stock vote for the adoption of the merger agreement.

See “—Background of the Merger” for additional information on the deliberations and recommendations of the Review Committee and the AACC’s Board of Directors.

 

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In reaching this conclusion, the AACC Board of Directors consulted with the Company’s management and its financial and legal advisors, considered the short-term and long-term interests and prospects of the Company and its stockholders and considered a number of factors and potential benefits and issues, including the following:

 

   

the financial analysis provided by William Blair, including its opinion that, as of March 5, 2013, and based upon and subject to the qualifications, limitations and assumptions stated in its opinion, the per share merger consideration to be paid to the holders of the outstanding shares of AACC common stock pursuant to the merger agreement was fair, from a financial point of view, to such holders (the written opinion of William Blair is attached as Annex B to this proxy statement/prospectus and is discussed in further detail in the section titled “AACC Proposal No. 1 – The Merger—Opinion of AACC’s Financial Advisor” beginning on page 52); and

 

   

the unanimous recommendation and analysis of the Review Committee, as described above.

The foregoing discussion of the information and factors considered by the Board of Directors is not intended to be exhaustive but, we believe, includes all material factors considered by the Board of Directors. In view of the wide variety of factors considered by the Board of Directors in evaluating the merger and the complexity of these matters, our Board of Directors did not assign relative weights to the above factors or the other factors considered by it. In addition, the Board of Directors did not reach any specific conclusion on each factor considered, but conducted an overall analysis of these factors. Individual members of the Board of Directors may have given different weights to different factors.

Based on the factors outlined above, the Board of Directors determined that the merger agreement and the transactions contemplated by it, including the merger, are advisable, fair to, and in the best interests of, AACC’s stockholders.

The Board of Directors unanimously (of the directors voting) recommends that AACC’s stockholders vote “FOR” the adoption of the merger agreement.

Encore’s Reasons for the Merger

Encore is familiar with AACC, as both have similar operations and Encore has from time to time over previous years considered a business combination transaction involving AACC. Beginning in November 2012, Encore participated in AACC’s strategic alternatives review process, performing extensive due diligence on AACC’s operations and portfolio of defaulted and charged off accounts receivable. In addition, Encore’s Board of Directors met several times from December 5, 2012 through March 4, 2013, where directors discussed the merger agreement and the merger. On March 4, 2013, Encore’s Board of Directors unanimously approved the merger, the merger agreement and the other transactions contemplated by the merger agreement.

In reaching its decision, Encore’s board of directors consulted with its financial and legal advisors, as well as with Encore’s senior management, and considered a number of factors in connection with its evaluation of the proposed transaction, including the principal factors mentioned below. The explanation of Encore’s board of directors’ reasons for the proposed transaction and all other information presented in this section is forward-looking in nature and therefore should be read in light of the factors discussed under “Cautionary Statement Regarding Forward-Looking Statements” on page 29.

Familiarity with Businesses

 

   

The knowledge and experience that the members of Encore’s Board of Directors possess regarding Encore’s and AACC’s businesses, historical financial performance and condition, operations, assets, regulatory issues, competitive positions, prospects and management, as well as their knowledge of the current and prospective environment in which Encore and AACC operate; and

 

 

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The potential strategic value of AACC’s legal and collections resources to Encore’s operations.

Financial Considerations

 

   

Estimates of the potential value of AACC’s portfolio;

 

   

The view that the AACC portfolio acquired by Encore as a result of the merger would account for a significant portion of Encore’s purchasing activity for 2013;

 

   

The need for Encore to obtain debt financing from its existing lenders to finance the cash consideration in the merger, particularly in light of the fact that obligations of Encore and Merger Sub under the merger agreement, including their obligation to consummate the merger, are not subject to any conditions regarding Encore’s Merger Sub’s or any other person’s ability to obtain such financing;

 

   

The possibility that a portion of the consideration would be payable in stock, which would reduce the amount of financing necessary to consummate the transaction;

 

   

The view that Encore has the potential to drive operational efficiencies, cost advantages and increased profitability in AACC’s business; and

 

   

The pro forma effects of the merger on Encore’s results of operations.

Merger Agreement

 

   

The view that the terms and conditions of the merger agreement and the transactions contemplated therein, including the representations, warranties, covenants, closing conditions and termination provisions, are comprehensive and favorable to completing the proposed transaction and maintaining the operations of AACC; and

 

   

The expectation that the satisfaction of the conditions to completion of the merger is feasible during the second quarter of 2013.

Due Diligence

 

   

The scope of the due diligence investigation of AACC conducted by Encore’s management and outside advisors, and the results of that investigation.

Encore’s Board of Directors also considered a variety of uncertainties and risks and other potentially negative factors concerning the merger agreement and the merger, including the following:

 

   

The risk that the merger with AACC might not be completed in a timely manner or at all and the attendant adverse consequences for AACC’s business and the value of its portfolio of defaulted and charged off accounts receivable as a result of the pendency of the merger and operational disruption;

 

   

The risk that governmental authorities might seek to impose conditions on or otherwise prevent or delay the combination, or impose restrictions or requirements on the operation of the businesses of the combined company after completion of the merger or regulatory changes that could impact Encore, AACC and/or the combined entity;

 

   

The risk that another bidder may make a superior proposal or that AACC stockholders fail to approve the merger;

 

   

The risk that the potential benefits of the merger may not be fully or partially achieved, or may not be achieved within the expected timeframe;

 

   

The challenges and difficulties relating to integrating the operations of AACC with Encore;

 

   

The risk of diverting Encore management’s focus and resources from other strategic opportunities and from operational matters while working to implement the transaction with AACC, and other potential disruption associated with combining and integrating the companies, and the potential effects of such diversion and disruption on the businesses of the combined company;

 

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The risk that, because the exchange ratio is fixed, the value of the merger consideration to be paid by Encore to AACC stockholders for which a stock election has been made could fluctuate between the signing of the merger agreement and the completion of the merger;

 

   

The risk that Encore would not obtain financing or consent from its existing lenders to completed the merger, and the fact that the merger agreement did not contain a financing contingency; and

 

   

Various other risks associated with the combination and the businesses of Encore, AACC and the combined company, some of which are described under “Risk Factors” beginning on page 23.

Encore’s Board of Directors concluded that the potentially negative factors associated with the merger were outweighed by the potential benefits that it expected Encore and its stockholders to achieve as a result of the merger.

For the reasons set forth above and such other factors considered by Encore’s Board of Directors, Encore’s Board of Directors determined that the merger and the transactions contemplated by the merger agreement are consistent with, and will further, the business strategies and goals of Encore, and are in the best interests of Encore and its stockholders and, accordingly, Encore’s Board of Directors unanimously approved the merger agreement, the merger and the other transactions contemplated by the merger agreement.

The foregoing discussion of the information and factors considered by Encore’s Board of Directors is not intended to be exhaustive, but includes the material factors considered by Encore’s Board of Directors. In view of the variety of factors considered in connection with its evaluation of the merger, Encore’s Board of Directors did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determination and recommendation. In addition, individual directors may have given different weights to different factors. Encore’s Board of Directors did not undertake to make any specific determination as to whether any factor, or any particular aspect of any factor, supported or did not support its ultimate determination. Encore’s Board of Directors based its recommendation on the totality of the information presented.

Opinion of AACC’s Financial Advisor

William Blair was retained by the Review Committee to act as financial advisor to the Review Committee and AACC in connection with the merger. As part of its engagement, William Blair was asked to present various financial analyses to the Review Committee and the Board of Directors of AACC and to render an opinion to the Board of Directors of AACC as to whether, as of March 5, 2013, the merger consideration to be received by the stockholders of AACC was fair, from a financial point of view, to those stockholders. On March 5, 2013, William Blair delivered its oral opinion AACC’s Board of Directors (in their capacity as directors and not in any other capacity) and subsequently confirmed in writing, that, as of that date and based upon and subject to the assumptions made, procedures followed, matters considered, and qualifications and limitations on the review undertaken stated in its opinion, the merger consideration to be received by the stockholders of AACC was fair from a financial point of view.

William Blair provided its financial analyses and opinion for the information and assistance of the Review Committee and AACC Board of Directors (in their capacity as directors and not in any other capacity) in connection with its consideration of the merger. The substance of William Blair’s opinion and the fact that William Blair was prepared to deliver its opinion to AACC’s Board of Directors were two of many factors taken into account by the Review Committee in making its unanimous determination to recommend that AACC’s Board of Directors approve the merger. The terms of the merger agreement and the amount and form of the merger consideration to be paid pursuant to the merger agreement, however, were determined through negotiations between AACC, on the one hand, and Encore, on the other hand, and were separately approved by each the Review Committee and AACC’s Board of Directors. William Blair did not recommend any specific consideration to the Review Committee or AACC’s Board of Directors or that any specific consideration constituted the only appropriate consideration for the merger. William Blair has consented to the inclusion in this proxy statement/prospectus of its opinion and the description of its opinion appearing under this subheading “Opinion of AACC’s Financial Advisor.”

 

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The full text of William Blair’s written opinion dated March 5, 2013, is attached as Annex B to this proxy statement/prospectus and incorporated herein by reference. You are urged to read the entire opinion carefully and in its entirety to learn about the assumptions made, procedures followed, matters considered and limits on the scope of the review undertaken by William Blair in rendering its opinion. The analysis performed by William Blair should be viewed in its entirety. None of the methods of analysis should be viewed in isolation when reaching a conclusion on whether the merger consideration is fair. William Blair’s opinion was directed to the board of directors of AACC for their benefit and use in evaluating the fairness of the merger consideration to be received pursuant to the merger agreement and relates only to the fairness, as of the date of the opinion and from a financial point of view, of the merger consideration. William Blair’s opinion did not address any other aspects of the merger or any related transaction, and does not constitute a recommendation to any stockholder of AACC as to how any stockholder should vote with respect to the merger agreement or the merger or any other matter related to the merger including, without limitation, whether any such stockholder should elect to receive the cash consideration or the stock consideration. William Blair did not address the merits of the underlying decision by AACC to engage in the merger or any other aspect of the merger. The following summary of William Blair’s opinion is qualified in its entirety by reference to the full text of the opinion attached to this document as Annex B.

In connection with its review of the merger consideration and the preparation of its opinion, William Blair examined or discussed, among other things:

 

   

a draft of the merger agreement dated March 4, 2013 (and prior drafts);

 

   

certain audited historical financial statements of AACC for the four years ended December 31, 2012;

 

   

the unaudited financial statements of AACC for the period ended January 31, 2013;

 

   

certain internal business, operating, and financial information and forecasts of AACC for fiscal years 2013 through 2017 prepared by the senior management of AACC and approved by the Review Committee and AACC’s Board of Directors (the “Forecasts”);

 

   

the financial position and operating results of AACC compared with those of certain other publicly traded companies that William Blair, based on its experience and judgment as a financial advisor, deemed relevant;

 

   

certain audited historical financial statements of Encore for the three years ended December 31, 2012 and certain publicly available research analyst estimates with respect to the future financial performance of Encore for the fiscal years ending 2013 and 2014 (the “Encore Analyst Estimates”);

 

   

the current and historical market prices and trading volumes of AACC common stock and Encore common stock;

 

   

certain forecasts for cash collections for fiscal years 2013 through 2024 prepared by the senior management of AACC that are based on AACC’s then current estimated remaining collections;

 

   

information regarding publicly available financial terms of certain other business combinations that William Blair, based on its experience and judgment as a financial advisor, deemed relevant; and

 

   

certain other publicly available information regarding AACC and Encore.

William Blair also held discussions with certain members of senior management of AACC to discuss the foregoing, considered other matters which it, based on its experience and judgment as a financial advisor, deemed relevant to its inquiry, and took into account those accepted financial and investment banking procedures and considerations that it, based on its experience and judgment as a financial advisor, deemed relevant.

In rendering its opinion, William Blair assumed and relied, without independent verification, upon the accuracy and completeness of all the information examined by or otherwise reviewed or discussed with William Blair for purposes of the opinion including, without limitation, the Forecasts provided by the senior management of AACC. William Blair did not make or obtain an independent valuation or appraisal of the assets, liabilities or solvency of AACC or Encore. William Blair was advised by the senior management of AACC that the Forecasts

 

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were reasonably prepared on bases reflecting the best estimates then available to, and judgments of, the senior management of AACC. In that regard, William Blair assumed, with the consent of the senior management of AACC, that (a) the Forecasts would be achieved and (b) all material assets and liabilities (contingent or otherwise) of AACC and Encore were as set forth in AACC’s and Encore’s respective financial statements or other information made available to William Blair. William Blair expressed no opinion with respect to the Forecasts or the Encore Analyst Estimates or the estimates and judgments on which they were based. William Blair assumed, at the direction of the senior management of AACC, that the Encore Analyst Estimates were a reasonable basis upon which to evaluate the future financial performance of Encore and William Blair relied upon the Encore Analyst Estimates for purposes of its analyses and opinion.

William Blair did not consider and expressed no opinion as to the amount or nature of the compensation of any of AACC’s officers, directors or employees (or any class of such persons) relative to the merger consideration to be received by the stockholders of AACC. William Blair did not consider and expressed no opinion as to any terms or other aspects of the merger (other than the merger consideration), including, without limitation, the form or structure of the merger, or accounting consequences thereof. William Blair was not asked to consider, and its opinion did not address, the relative merits of the merger as compared to any alternative business strategies that might have existed for AACC or the effect of any other transaction in which AACC might have engaged. William Blair’s opinion was based upon economic, market, financial and other conditions existing on, and other information disclosed to William Blair, as of the date of its opinion. Although subsequent developments may affect its opinion, William Blair does not have any obligation to update, revise or reaffirm its opinion. William Blair is an independent financial advisor only and relied upon, without independent verification, the assessment of AACC and its counsel and accountants for all legal, regulatory or tax matters and William Blair expressed no opinion as to any of such advice. William Blair assumed that the final executed merger agreement would not materially differ from the draft dated March 4, 2013, that the merger would be consummated on the terms described in the merger agreement, without any amendment, modification or waiver of any material terms or conditions. William Blair assumed that the merger has the tax consequences described in discussions with, and materials furnished to it by, representatives of AACC. William Blair also assumed that the representations and warranties made by AACC and Encore in the merger agreement were and will be true and correct in all respects material to its analysis. William Blair has further assumed that all material governmental, regulatory or other consents and approvals necessary for the consummation of the merger would be obtained without any adverse effect on AACC or Encore or on the contemplated benefits of the transactions contemplated by the merger agreement. William Blair was not asked to consider, and its opinion did not address the price at which AACC common stock will trade at any future time or as to the effect of the merger on the trading price of AACC common stock.

William Blair’s investment banking services were provided for the use and benefit of the Review Committee and AACC and its opinion was provided for the use and benefit of AACC’s Board of Directors (in their capacity as directors and not in any other capacity) in connection with its consideration of the merger. William Blair’s opinion was limited to the fairness, from a financial point of view, to the stockholders of AACC of the merger consideration to be received by those stockholders in the merger pursuant to the merger agreement, and William Blair did not address the merits of the underlying decision of AACC to engage in the merger or the fairness of the cash consideration relative to the stock consideration and vice versa, and its opinion does not constitute a recommendation to any stockholder as to how such stockholder should vote with respect to the proposed merger or as to whether any such stockholder should elect to receive the cash consideration or the stock consideration. William Blair’s opinion was approved by its Fairness Opinion Committee.

The following is a summary of the material financial analyses performed and material factors considered by William Blair in connection with its opinion. William Blair performed certain procedures, including each of the financial analyses described below, and reviewed with the Review Committee and AACC’s Board of Directors the assumptions upon which such analyses were based, as well as other factors. Although the summary does not purport to describe all of the analyses performed or factors considered by William Blair in this regard, it does set forth those considered by William Blair to be material in arriving at its opinion. The financial analyses summarized below include information presented in tabular format. In order to understand fully the financial

 

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analyses performed by William Blair, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses performed by William Blair or discussed with the Review Committee and /or AACC’s Board of Directors. Considering the data set forth in the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the financial analyses performed by William Blair. The order of the summaries of the analyses described below does not represent the relative importance or weight given to those analyses by William Blair. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before March 4, 2013 (the last trading day prior to the date that William Blair delivered its opinion to AACC’s Board of Directors) and is not necessarily indicative of current market conditions.

Transaction Overview

The analyses performed by William Blair are based on the audited financial results of AACC as reported in its SEC filings for the fiscal years ended December 31, 2010, 2011 and 2012, the unaudited financial results for the one-month period ended January 31, 2013, and the Forecasts. AACC’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012 (filed with the SEC on March 7, 2013), and the financial results of AACC for the fiscal year ended December 31, 2012 set forth therein, were provided by AACC to William Blair prior to March 4, 2013. In regard to Encore, the analyses performed by William Blair are based on the financial results of Encore as reported in its SEC filings for the fiscal year ended December 31, 2010, 2011 and 2012 and the Encore Analyst Estimates.

For purposes of its analyses and opinion, William Blair calculated the following implied values:

 

   

“Implied Equity Value”—the implied value of the aggregate merger consideration for the shares AACC common stock outstanding as of March 5, 2013 (including basic shares outstanding, unvested restricted stock units and the in-the-money value of outstanding options calculated using the treasury stock method) of approximately $204.7 million. The implied value of the aggregate merger consideration was based on, among other things, the cash consideration value of $6.50 per share of AACC common stock and the implied value of the stock consideration of $6.50 per share of AACC common stock taking into account the closing stock price per share of Encore common stock on March 5, 2013.

 

   

“Implied Enterprise Value”—the Implied Equity Value plus net debt (as shown on the January 31, 2013 balance sheet of AACC provided by management of AACC) of approximately $373.2 million.

 

   

“Implied Enterprise Value (Including Deferred Tax Liability)”—the Implied Enterprise Value plus AACC’s net deferred tax liability (as shown on the January 31, 2013 balance sheet of AACC provided by management of AACC) of approximately $438.6 million.

William Blair then compared the implied aggregate value reference ranges indicated by the financial analyses with respect to AACC summarized below to the implied values indicated above.

Selected Public Company Analysis

While none of the selected companies is directly comparable to AACC, William Blair reviewed and compared certain financial information relating to AACC’s business to corresponding financial information, ratios and public market multiples for a selected group of publicly traded companies that are in the accounts receivable management industry and purchase debt for their own account. William Blair selected these companies because, based on its experience and judgment as a financial advisor, they are publicly traded companies with general business, operating and financial characteristics (including, but not limited to, the size, business lines and geographic footprint of the respective companies) deemed, for purposes of this analysis, reasonably comparable to those of AACC. William Blair also made qualitative judgments concerning differences between the business, financial and operating characteristics and prospects of AACC and the selected companies

 

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that could affect the public trading values of each in order to provide a context in which to consider the results of the quantitative analysis. The companies selected by William Blair were:

 

   

Encore Capital Group, Inc. (ECPG)

 

   

Portfolio Recovery Associates, Inc. (PRAA)

 

   

Asta Funding, Inc. (ASFI)

For the above group, forward estimates for Asta Funding, Inc. were not available.

For this group, William Blair calculated the following metrics and multiples and compared them to the similar metric for AACC at current trading levels as well as the Implied Enterprise Value of the potential transaction:

 

   

Price / Earnings;

 

   

Enterprise Value / EBITDA; and

 

   

Enterprise Value / Adjusted EBITDA (as defined below)

The enterprise value for each company was calculated as the equity value of such company, plus total debt, minority interest and preferred stock, less cash and cash equivalents.

Information regarding the multiples from William Blair’s analysis of the selected transactions is set forth in the following tables.

 

Valuation Metric

   Implied Equity
Value Multiple
    Selected Public Company
Valuation Multiples Range
 
     Min      Mean      Median      Max  

Price to Earnings Multiple

             

Price / FY2012A Earnings

     18.6x        10.7x         12.8x         11.7x         15.9x   

Price / FY2013E Earnings

    

 

11.9x

10.7x

(1) 

(2) 

    8.5x         11.0x         11.0x         13.4x   

 

(1) Based on management estimates.
(2) Based on street consensus estimates.

 

Valuation Metric

   Implied
Enterprise
Value
Multiple
    Implied
Enterprise
Value Multiple
(Including
Deferred Tax
Liability)
    Selected Public Company
Valuation Multiples Range
 
       Min      Mean      Median      Max  

Enterprise Value to EBITDA(1) Multiple

  

Enterprise Value / FY2012A EBITDA

     9.0x        10.6x        6.5x         8.2x         8.1x         10.1x   

Enterprise Value / FY2013E EBITDA

    

 

7.1x

7.0x

(2) 

(3) 

   

 

8.4x

8.2x

(2) 

(3) 

    7.5x         8.0x         8.0x         8.5x   

Enterprise Value to Adjusted EBITDA Multiple

  

Enterprise Value / FY2012A Adjusted EBITDA

     2.04x        2.39x        2.27x         2.85x         2.44x         3.83x   

Enterprise Value / FY2013E Adjusted EBITDA

    

 

1.73x

1.84x

(2) 

(3) 

   

 

2.04x

2.16x

(2) 

(3) 

    2.19x         2.72x         2.72x         3.26x   

 

(1) Non-cash stock-based compensation expense was excluded in EBITDA calculation.
(2) Based on management estimates.
(3) Based on street consensus estimates.

William Blair noted that the implied valuation multiples for AACC, both with and without the inclusion of net deferred tax liability, were generally within the range of multiples of the selected public companies.

William Blair also reviewed other operating and financial metrics for informational purposes and content, but did not rely on these additional data points in assessing fairness. Although William Blair compared the trading multiples of

 

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the selected public companies to those implied for AACC, none of the selected public companies is identical to AACC. Accordingly, any analysis of the selected publicly traded companies necessarily involved complex considerations and judgments concerning the differences in financial and operating characteristics and other factors that would necessarily affect the analysis of trading multiples of the selected publicly traded companies.

Selected Premiums Paid Analysis

William Blair reviewed the premiums paid in selected public acquisition transactions, derived by comparing the per share consideration paid in 195 selected domestic public acquisition transactions with equity values between $100 million and $300 million that were announced since 2008 in which 100% of the target’s equity was acquired to the closing price of the common stock one day, one week, one month, 60 days, and 90 days prior to the announcement of these transactions. William Blair then compared the consideration to be received by the stockholders of AACC in the merger to the closing stock price per share of AACC common stock on March 1, 2013 (the last full trading day prior to the announcement by AACC, made before the opening of business on March 4, 2013, that AACC was rescheduling its 2012 fourth quarter and year-end earnings release and conference call), and one week, one month, 60 days and 90 days prior to March 2, 2013. AACC’s earnings announcement call was rescheduled the morning of Monday, March 4, 2013 and the closing stock price per share of AACC common stock increased by 10.2% that day. As such, William Blair evaluated the implied one-day premium off of the closing price on Friday, March 1, 2013. William Blair also calculated the premium implied by the proposed merger to the 30-day volume-weighted-average-price of AACC common stock as of March 1, 2013. Information regarding the premiums from William Blair’s analysis of selected transactions is set forth in the following table.

 

Period Before Announcement

  Company
Share
Price
    Implied
Premium
at $6.50 /
Share
    Premiums Paid Percentage Data by Percentile  
      10th     20th     30th     40th     50th     60th     70th     80th     90th  

One Day Trading Prior(1)

  $ 5.21        24.8     0.8     11.4     22.2     28.2     32.1     36.1     44.8     54.5     128.0

One Week Prior

  $ 5.26        23.6     2.3     11.1     23.8     30.3     34.8     38.2     45.5     54.3     124.1

One Month Prior

  $ 5.39        20.6     2.1     19.0     24.6     28.5     31.6     39.3     42.1     83.6     106.3

60 Days Prior

  $ 4.50        44.4     (14.0 %)      7.2     15.8     30.9     34.6     41.8     50.7     72.3     116.7

90 Days Prior

  $ 5.39        20.6     (13.2 %)      11.8     20.6     23.4     40.4     47.7     53.4     66.9     137.2

 

(1) Based on the closing stock price per share of AACC common stock on March 1, 2013.

 

Offer Price per Share

      

Merger Consideration

   $ 6.50   

30 Day VWAP

   $ 5.23   

Implied Premium

     24.3

William Blair noted that the premiums implied by the proposed merger were within the range of multiples of the selected public acquisition transactions. Additionally, William Blair noted that the premium implied by the proposed merger exceeded the 30-day volume-weighted-average-price by 24.3%.

 

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Estimated Remaining Collections Run-Off Analysis

William Blair utilized the Forecasts for Estimated Remaining Collections (“ERC”), that included collections on amortizing pools and fully amortized collections, to calculate a per share net present value using a tax-effected hurdle rate. The analysis was performed using December 31, 2012 collection curves as provided by AACC management and reflected total estimated collections of $1,188.3 million over the period beginning 2013 through and including 2024 as set forth in the following table.

 

Estimated Collections ($ in thousands)

 

Year Ended December 31,

 
2013   2014     2015     2016     2017     2018     2019     2020     2021     2012     2023     2024  

$314,684

  $ 248,142      $ 189,219      $ 141,949      $ 103,411      $ 50,952      $ 49,349      $ 32,674      $ 22,872      $ 16,010      $ 11,207      $ 7,845   

William Blair applied a range of cost to collect, varying from 42.5% and 55.0%, to arrive at a stream of net cash flows over the period. The cost to collect range was selected by William Blair based on AACC’s current cost to collect and the cost to collect of the public companies used in the “Selected Public Company Analysis” described above. To discount the projected net cash flows, William Blair used tax-effected discount rates ranging from 16% to 20%. The discount rates were selected by William Blair based on the weighted average cost of capital for the public companies used in the “Selected Public Company Analysis” described above and were tax-effected using an assumed marginal tax rate of 40%. To determine the range of diluted implied equity value per share, William Blair subtracted total debt and added excess cash as of December 31, 2012. William Blair also considered the net deferred tax liability of $65.4 million as of December 31, 2012 a deduct in calculating the equity value. William Blair’s analysis did not include financing costs related to a potential merger or transaction. This analysis indicated an implied per share equity reference range of $3.56 to $7.54.

William Blair noted that the merger consideration was within the range of per share equity values implied by the ERC Run-Off Analysis.

Leveraged Acquisition Analysis

Based on the Forecasts for fiscal years 2013 through 2017, William Blair performed a leveraged acquisition analysis as of December 31, 2012 to determine, based on AACC’s ability to service a given level of debt using its projected future earnings stream and corresponding cash flows, an estimate of a theoretical purchase price that could be paid by a hypothetical financial sponsor in an acquisition of AACC, assuming such transaction was financed on customary market terms and assuming that such financial buyer would seek to realize a return on its investment in 2017. Estimated exit values were calculated by applying a range of exit value multiples from 2.0x to 2.5x of 2017 estimated Adjusted EBITDA, which exit value multiples were determined by William Blair, based on its experience and professional judgment as a financial advisor, from the multiples implied by the proposed merger and the range of multiples from the “Selected Public Company Analysis” discussed above. William Blair then derived a range of theoretical purchase prices based on assumed required internal rates of return for a buyer between 22.5% and 27.5%, which range of percentages was, in William Blair’s experience and professional judgment as a financial advisor, generally reflective of the range of required internal rates of return commonly assumed when performing a leveraged acquisition analysis of this type. William Blair also considered the net deferred tax liability of $65.4 million as of December 31, 2012 a deduct in calculating equity value at the potential closing of the transaction. This analysis indicated an implied per share equity reference range of $2.82 to $5.22. William Blair also performed the leveraged acquisition analysis described above by spreading the impact of the net deferred tax liability over a five-year period (i.e., fiscal years 2013 through 2017). The analysis indicated an implied per share equity reference range of $4.23 to $6.47.

William Blair noted that the merger consideration was above the per share equity reference range implied by the leveraged acquisition analysis in which the net deferred tax liability was considered a deduct in calculating equity value at closing as well as the analysis in which the impact of the net deferred tax liability was spread over a five-year period.

 

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Discounted Cash Flow

William Blair utilized the Forecasts to perform a discounted cash flow analysis to estimate the present value as of December 31, 2012 of AACC’s forecasted net cash flows from 2013 through 2017. William Blair calculated the assumed terminal value of the enterprise at December 31, 2017 by multiplying projected Adjusted EBITDA in the fiscal year ending December 31, 2017 by multiples ranging from 2.0x to 2.5x. William Blair selected the range of 2.0x to 2.5x based on its experience and professional judgment as a financial advisor from the multiples implied by the proposed merger and the range of multiples from the “Selected Public Company Analysis” described above.

To discount the projected net cash flows and assumed terminal value to present value, William Blair used discount rates ranging from 11% to 14%. The discount rates were selected by William Blair based on the weighted average cost of capital for the public companies used in the “Selected Public Company Analysis” described above. To determine the range of diluted implied equity value per share for AACC, William Blair subtracted total debt and added excess cash as of December 31, 2012. William Blair also considered the net deferred tax liability of $65.4 million as of December 31, 2012 a deduct in calculating equity value. The diluted equity value implied by the discounted cash flow analysis ranged from $3.38 per share to $7.88 per share, based on a range of terminal values derived by multiples of Adjusted EBITDA.

William Blair also performed the above discounted cash flow analysis by spreading the impact of the net deferred tax liability over a five year period (i.e., fiscal years 2013 through 2017). The diluted equity value implied by the discounted cash flow analysis in this scenario ranged from $3.94 per share to $8.33 per share, based on a range of terminal values derived by multiples of Adjusted EBITDA.

William Blair noted that the per share merger consideration in the proposed merger was within the per share price range of the diluted equity value derived by the discounted cash flow analysis in which the net deferred tax liability was considered a deduct in calculating equity value at closing as well as the analysis in which the impact of the net deferred tax liability was spread over a five-year period.

General

This summary is not a complete description of the analysis performed by William Blair but contains the material elements of such analysis. The preparation of an opinion regarding fairness is a complex process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances, and, therefore, such an opinion is not readily susceptible to partial analysis or summary description. The preparation of an opinion regarding fairness does not involve a mathematical evaluation or weighing of the results of the individual analyses performed, but requires William Blair to exercise its professional judgment, based on its experience and expertise as a financial advisor, in considering a wide variety of analyses taken as a whole. Each of the analyses conducted by William Blair was carried out in order to provide a different perspective on the financial terms of the merger and add to the total mix of information available. The analyses were prepared solely for the purpose of William Blair providing its opinion and do not purport to be appraisals or necessarily reflect the prices at which securities actually may be sold. William Blair did not form a conclusion as to whether any individual analysis, considered in isolation, supported or failed to support an opinion about the fairness of the merger consideration to be received by the stockholders of AACC. Rather, in reaching its conclusion, William Blair considered the results of the analyses in light of each other and ultimately reached its opinion based on the results of all analyses taken as a whole. William Blair did not place particular reliance or weight on any particular analysis, but instead concluded that its analyses, taken as a whole, supported its determination. Accordingly, notwithstanding the separate factors summarized above, William Blair believes that its analyses must be considered as a whole and that selecting portions of its analyses and the factors considered by it, without considering all analyses and factors, may create an incomplete view of the evaluation process underlying its opinion. No company or transaction used in the above analyses as a comparison is identical or directly comparable to AACC or the merger. In performing its

 

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analyses, William Blair made numerous assumptions with respect to industry performance, business and economic conditions and other matters. The analyses performed by William Blair are not necessarily indicative of future actual values and future results, which may be significantly more or less favorable than suggested by such analyses.

William Blair has been engaged in the investment banking business since 1935. William Blair continually undertakes the valuation of investment securities in connection with public offerings, private placements, business combinations, estate and gift tax valuations and similar transactions. In the ordinary course of its business, William Blair may from time to time trade the securities of AACC or Encore for its own account and for the accounts of its customers, and accordingly may at any time hold a long or short position in such securities.

The Review Committee and AACC’s Board of Directors hired William Blair based on its qualifications and expertise in providing financial advice to companies and its reputation as an internationally recognized investment banking firm. Pursuant to a letter agreement dated December 10, 2012, a fee of $0.5 million became payable to William Blair upon delivery of its opinion, and an additional fee of $1.75 million is payable to William Blair in the event the merger is consummated. In addition, AACC has agreed to reimburse William Blair for certain of its out-of-pocket expenses (including fees and expenses of its counsel) reasonably incurred by it in connection with its services and will indemnify William Blair against potential liabilities arising out of its engagement, including certain liabilities under the U.S. federal securities laws. Except as expressly described herein and for other customary financial advisory services provided to AACC during the periods in question, William Blair has not provided services to either AACC or Encore. William Blair has not (in the past two years) received any fees, expense reimbursements or other payments from either party.

Certain Unaudited Financial Forecasts Prepared by the Management of AACC

Set forth below are projections prepared by senior management of AACC and provided to Encore which projections were used by William Blair in connection with the delivery of its opinion (the “Core Business Projections”), which the Review Committee and AACC’s Board of Directors believed represented the best available estimate of future performance of AACC as an independent public company. The inclusion of the Core Business Projections and the Consolidated Business Projections (as defined below) set forth below in this proxy statement/prospectus should not be regarded as an admission or representation of AACC, Encore or Merger Sub, or an indication that any of AACC, Encore or Merger Sub or any of their respective affiliates or representatives considered, or now consider, the Core Business Projections or the Consolidated Business Projections to be a reliable prediction of actual future events or results, and such information should not be relied upon as such. The Core Business Projections are being provided in this document only because they were provided to Encore and used by William Blair in connection with its engagement as financial advisor to the Review Committee and AACC’s Board of Directors. The Consolidated Business Projections are being provided in this document only because they were provided to potential acquirors, including Encore, in connection with such parties’ diligence review of AACC and its operations. None of AACC, Encore, Merger Sub, William Blair or any of their respective affiliates or representatives assumes any responsibility for the accuracy of such projections or makes any representation to any person, entity or stockholder regarding such information, and none of them intends to update or otherwise revise such information to reflect circumstances existing after the date when made or to reflect the occurrence of future events, even in the event that any or all of the assumptions underlying these financial projections are shown to be in error.

Neither the Core Business Projections nor the Consolidated Business Projections were prepared with a view to public disclosure or complying with GAAP, the published guidelines of the SEC regarding projections or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. AACC’s independent registered public accounting firm has not examined, compiled or performed any procedures with respect to such financial projections presented in this proxy statement/prospectus, and it has not expressed any opinion or any other form of assurance of such information or the likelihood that AACC may achieve the results contained in such financial projections, and accordingly

 

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assumes no responsibility for them and disclaims any association with them. The ultimate achievability of any financial projections included herein is also subject to numerous risks and uncertainties including but not limited to the risks and uncertainties described in this proxy statement/prospectus and in AACC’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012 and subsequent filings made with the SEC. AACC has made publicly available actual results of operations for the fiscal year 2012. You should review AACC’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012 to obtain this information. Readers of this document are strongly cautioned not to place undue reliance on the financial projections set forth below.

The financial projections set forth below reflect numerous estimates and assumptions with respect to industry performance, general business, economic, regulatory, market and financial conditions, as well as matters specific to AACC’s business including AACC’s ability to purchase charged-off consumer receivables at appropriate prices or in sufficient amounts as projected in the Core Business Projections and the Consolidated Business Projections. Many of these matters are beyond AACC’s control and the continuing uncertainty surrounding general economic conditions and in the industry in which AACC operates and create significant uncertainty around these financial projections. As a result, there can be no assurance that the projected results will be realized or that actual results will not be significantly higher or lower than projected. See also “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 29. Because such financial projections cover multiple years, such information by its nature becomes less reliable with each successive year. Such financial projections do not take into account any circumstances or events occurring after the date they were prepared, including the announcement of the merger. In addition, the Core Business Projections do not include estimated results for AACC’s legal recovery services business, which results were excluded based upon feedback from potential acquirors who discounted the value attributable to (and in some cases ascribed no value to) such business in their proposals to the Review Committee and based upon the Review Committee’s belief that such business was not material to AACC’s results as a whole and that the projections for the business were highly speculative. There can be no assurance that the announcement of the merger will not affect AACC’s business. Further, these financial projections do not take into account the effect of any failure of the merger to occur and should not be viewed as accurate or continuing in that context.

In addition, these financial projections included non-GAAP financial measures under SEC rules, including “Adjusted EBITDA”, which AACC defines as net income or loss plus (a) the provision for income taxes, (b) interest expense, (c) depreciation and amortization, (d) share-based compensation, (e) gain or loss on sale of assets, net, (f) non-cash restructuring charges and impairment of assets, (g) purchased receivables amortization, (h) loss on extinguishment of debt, and (i) certain FTC related and other cash restructuring charges. Adjusted EBITDA is not a measure of liquidity calculated in accordance with accounting principles generally accepted in GAAP, and should not be considered an alternative to, or more meaningful than, net income prepared on a GAAP basis.

 

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AACC provided this information to William Blair because AACC believed it could be useful in evaluating, on a prospective basis, AACC’s potential operating performance and cash flow. This information should not be considered in isolation or in lieu of AACC’s operating and other financial information determined in accordance with GAAP. In addition, because non-GAAP financial measures are not determined consistently by all entities, the non-GAAP measures presented in these financial projections may not be comparable to similarly titled measures of other companies. In the reconciliation tables below, numbers may not sum exactly due to rounding.

 

     Years Ended December 31,  
   2013     2014     2015     2016     2017  
   ($ in thousands)  

STATEMENT OF OPERATIONS DATA:

          

Revenues

          

Purchased receivable revenues, net

   $ 239,847      $ 263,750      $ 284,466      $ 307,688      $ 332,428   

Other revenues, net

     737        786        820        856        894   

Total revenues

     240,584        264,536        285,286        308,544        333,323   

Expenses

          

Salaries and benefits

     59,961        59,497        58,902        58,313        57,730   

Collections expense

     116,590        126,070        136,105        146,847        158,677   

Occupancy

     5,064        5,013        4,963        4,913        4,864   

Administrative

     8,201        8,119        8,038        7,957        7,878   

Depreciation and amortization

     4,383        4,800        5,500        5,500        5,500   

Total operating expenses

     194,198        203,499        213,508        223,530        234,648   

Income (loss) from operations

     46,386        61,037        71,778        85,014        98,675   

Interest income (expense)

     (19,475     (18,634     (17,741     (17,010     (15,909

Income tax expense (benefit)

     9,957        15,689        19,994        25,162        30,623   

Net income (loss)

   $ 16,953      $ 26,714      $ 34,043      $ 42,843      $ 52,142   

 

     Years Ended December 31,  
     2013     2014     2015     2016     2017  
     ($ in thousands)  

OPERATING AND OTHER FINANCIAL DATA:

          

Cash collections

   $ 402,507      $ 435,240      $ 469,894      $ 506,887      $ 547,664   

Operating expenses to cash collections

     48.2     46.8     45.4     44.1     42.8

Acquisition of purchased receivables

   $ 185,402      $ 207,650      $ 232,568      $ 255,825      $ 281,407   

Purchased receivable amortization

     162,660        171,490        185,428        199,199        215,235   

Capital expenditures

     4,383        4,800        5,500        5,500        5,500   

Adjusted EBITDA

     215,125        238,608        263,974        290,968        320,652   

 

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Set forth below are additional projections that were not used by William Blair in connection with its valuation analyses of AACC that are based on the same projections provided by senior management of AACC used to create the Core Business Projection, except that such projections consolidate estimated results of AACC’s legal recovery services business with the Core Business Projections (the “Consolidated Business Projections”). The Consolidated Business Projections were provided to potential acquirors, including Encore, in connection with such potential acquirors’ diligence review of AACC and its operations. This information should not be considered in isolation or in lieu of AACC’s operating and other financial information determined in accordance with GAAP. In addition, because non-GAAP financial measures are not determined consistently by all entities, the non-GAAP measures presented in these financial projections may not be comparable to similarly titled measures of other companies. In the reconciliation tables below, numbers may not sum exactly due to rounding.

 

     Years Ended December 31,  
   2013     2014     2015     2016     2017  
   ($ in thousands)  

STATEMENT OF OPERATIONS DATA:

          

Revenues

          

Purchased receivable revenues, net

   $ 239,847      $ 263,750      $ 284,466      $ 307,688      $ 332,428   

Other revenues, net

     4,334        28,305        72,492        131,109        198,647   

Total revenues

     244,181        292,055        356,957        438,797        531,075   

Expenses

          

Salaries and benefits

     60,707        61,197        61,552        61,313        61,505   

Collections expense

     119,029        145,452        183,872        235,067        283,012   

Occupancy

     5,064        5,263        5,963        6,663        7,364   

Administrative

     8,263        8,219        8,288        8,457        8,878   

Depreciation and amortization

     4,383        4,800        5,500        5,500        5,500   

Total operating expenses

     197,446        224,931        265,175        317,001        366,258   

Income (loss) from operations

     46,734        67,124        91,783        121,796        164,817   

Interest income (expense)

     (19,475     (18,634     (17,741     (17,010     (15,909

Income tax expense (benefit)

     10,086        17,941        27,395        38,771        55,096   

Net income (loss)

   $ 17,173      $ 30,549      $ 46,646      $ 66,015      $ 93,812   
     Years Ended December 31,  
     2013     2014     2015     2016     2017  
     ($ in thousands)  

OPERATING AND OTHER FINANCIAL DATA:

          

Cash collections

   $ 402,507      $ 435,240      $ 469,894      $ 506,887      $ 547,664   

Operating expenses to cash collections

     49.1     51.7     56.4     62.5     66.9

Acquisition of purchased receivables

   $ 185,402      $ 207,650      $ 232,568      $ 255,825      $ 281,407   

Purchased receivable amortization

     162,660        171,490        185,428        199,199        215,235   

Capital expenditures

     4,383        4,800        5,500        5,500        5,500   

Adjusted EBITDA

     215,373        238,608        283,978        327,750        386,395   

Public Trading Markets

Encore common stock is quoted on NASDAQ under the symbol “ECPG.” AACC common stock is quoted on NASDAQ under the symbol “AACC.” Upon completion of the merger, the AACC common stock will be delisted from NASDAQ and deregistered under the Exchange Act. The Encore common stock issuable in the merger will be listed on NASDAQ. The shares of Encore common stock to be issued in connection with the merger as stock consideration will be freely transferable under the Securities Act of 1933, as amended (the “Securities Act”).

 

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At the close of business on             , 2013, there were              holders of record of AACC common stock. A number of AACC’s stockholders have their shares held in street name; therefore, AACC believes that there are substantially more beneficial owners of AACC common stock.

Certain Effects of the Merger

If the merger is completed, all of the issued and outstanding equity interests in AACC will be owned by Encore. Except as otherwise provided in this proxy statement/prospectus, no current AACC stockholder will have any ownership interest in, or be a stockholder of, AACC, except that (a) AACC stockholders who make a valid stock election and receive stock consideration upon consummation of the merger will have an indirect interest in AACC through their direct ownership of Encore common stock and (b) members of AACC management may be entitled to participate in equity plans of the surviving corporation or its affiliates. As a result, and except as noted above, AACC’s stockholders will no longer benefit from any increases in AACC’s value, nor will they bear the risk of any decreases in AACC’s value. Following the merger, Encore will benefit from any increases in the value of AACC and also will bear the risk of any decreases in the value of AACC. See “AACC Proposal No. 1 – The Merger—AACC’s Directors and Officers Have Financial Interests in the Merger” beginning on page 70.

If the merger is completed, except as detailed below, each share of AACC common stock outstanding immediately prior to the completion of the merger will be converted into the right to receive the per share merger consideration, as applicable. Shares of AACC common stock whose holders have not voted in favor of adopting the merger agreement and have demanded and perfected their appraisal rights under Section 262 of the DGCL will not be converted into the right to receive the per share merger consideration in connection with the merger. Shares of AACC common stock owned by AACC and its subsidiaries, Encore or Merger Sub will be cancelled and retired without any consideration in connection with the merger.

If the merger is completed, AACC common stock will be delisted from NASDAQ (and no longer publicly traded) and deregistered under the Exchange Act, and AACC will no longer file periodic reports with the SEC with respect to AACC common stock, in each case, in accordance with applicable law, rule or regulation.

Effects on AACC if the Merger is Not Completed

If the merger agreement is not adopted by AACC’s stockholders or if the merger is not completed for any other reason, AACC’s stockholders will not receive any payment for their shares of AACC common stock in connection with the merger. Instead, AACC will remain an independent public company, and AACC common stock will continue to be quoted on NASDAQ. In addition, if the merger is not completed, AACC expects that management will operate AACC’s business in a manner similar to that in which it is being operated today and that AACC’s stockholders will continue to be subject to the same risks and opportunities to which they are currently subject, including, without limitation, risks related to the highly competitive industry in which AACC operates and adverse economic conditions.

Furthermore, if the merger is not completed, and depending on the circumstances that would have caused the merger not to be completed, the price of AACC common stock may decline significantly. If that were to occur, it is uncertain when, if ever, the price of AACC common stock would return to the price at which it trades as of the date of this proxy statement/prospectus.

Accordingly, if the merger is not completed, there can be no assurance as to the effect of these risks and opportunities on the future value of your shares of AACC common stock. If the merger is not completed, AACC’s Board of Directors will continue to evaluate and review AACC’s business operations, properties, dividend policy and capitalization, among other things, make such changes as are deemed appropriate and continue to seek to identify strategic alternatives to enhance stockholder value. If the merger agreement is not adopted by AACC’s stockholders or if the merger is not completed for any other reason, there can be no assurance that any other transaction acceptable to AACC will be offered or that AACC’s business, prospects or results of operation will not be adversely impacted.

 

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In addition, if the merger agreement is terminated, under specified circumstances, AACC would be required to pay Encore a termination fee in an amount equal to $7.4 million (or $4.25 million if the termination is by AACC in order to enter into a superior proposal on or prior to March 27, 2013 (or such later date as provided by the merger agreement) with certain specifically identified third party or parties that were engaged with AACC and made or were on the process of making an alternative acquisition proposal prior to March 6, 2013), and, if the termination is by AACC in order to enter into a superior proposal, reimburse Encore for expenses in an amount up to $2.0 million. See “The Merger Agreement—Termination Fee” beginning on page 92.

Regulatory Approvals

In connection with the merger, Encore and AACC have agreed to use their reasonable best efforts to obtain all regulatory approvals required to complete the transactions contemplated by the merger agreement. These approvals include clearance under the HSR Act as well as approval from various other regulatory authorities. The parties are also required to make certain filings with, and comply with certain laws of, various federal and state governmental agencies, including filing the certificate of merger with the Secretary of State of the State of Delaware in accordance with the DGCL after the adoption of the merger agreement by AACC’s stockholders and complying with U.S. federal securities laws.

U.S. Antitrust Considerations

Under the HSR Act, certain acquisition transactions may not be consummated unless Pre-merger Notification and Report Forms have been filed with the Antitrust Division of the U.S. Department of Justice (the “Antitrust Division”) and the Federal Trade Commission (“FTC”) and certain waiting period requirements have been satisfied. The merger is subject to such requirements. AACC and Encore filed the Pre-merger Notification and Report Form required under the HSR Act with respect to the merger with the Antitrust Division and the FTC on Wednesday, March 20, 2013. The parties’ request for early termination was granted effective April 3, 2013.

At any time before or after consummation of the merger, notwithstanding any early termination of the waiting period under the HSR Act, the Antitrust Division, the FTC or state or foreign antitrust and competition authorities could take such action under applicable antitrust laws as each deems necessary or desirable in the public interest, including seeking to enjoin the consummation of the merger or seeking divestiture of substantial assets of AACC or Encore. Private parties may also seek to take legal action under the antitrust laws under certain circumstances.

Timing

We cannot assure you that all of the regulatory approvals described above will be obtained, and, if obtained, we cannot assure you as to the date of any approvals or the absence of any litigation challenging such approvals. Likewise, we cannot assure you that the Antitrust Division, the FTC or any state attorney general will not attempt to challenge the merger on antitrust grounds, and, if such a challenge is made, we cannot assure you as to its result. Encore and AACC are not aware of any material governmental approvals or actions that are required for completion of the merger other than those described above. It is presently contemplated that if any such additional governmental approvals or actions are required, those approvals or actions will be sought. There can be no assurance, however, that any additional approvals or actions will be obtained.

Merger Financing

Encore has represented and warranted to AACC that, as and when needed, it will have sufficient unrestricted cash, marketable securities and other sources of immediately available funds necessary to consummate the merger and the other transactions contemplated by the merger agreement. The obligations of Encore and Merger Sub under the merger agreement, including their obligation to consummate the merger, are not subject to any conditions regarding Encore’s, Merger Sub’s or any other person’s ability to obtain financing for the consummation of the merger and the other transactions contemplated by the merger agreement.

 

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Appraisal Rights

Holders of AACC common stock who do not vote for the adoption of the merger agreement and who otherwise comply with the applicable statutory procedures of Section 262 of the DGCL will have the right to obtain an appraisal of the value of their shares of AACC common stock in connection with the merger. This means that stockholders are entitled to obtain a judicial determination of the fair value of their AACC shares (exclusive of any element of value arising from the accomplishment or expectation of the merger) determined by the Court of Chancery of the State of Delaware (the “Court of Chancery”) and entitled to receive payment based upon that valuation, together with a fair rate of interest, in lieu of any consideration to be received under the merger agreement.

The following is intended as a brief summary of the material provisions of the Delaware statutory procedures required to be followed by a stockholder in order to perfect appraisal rights. This summary, however, is not a complete statement of law pertaining to appraisal rights under Delaware law and is qualified in its entirety by the full text of Section 262 of the DGCL, which is attached hereto as Annex C. The preservation and exercise of appraisal right requires strict and timely adherence to the applicable provisions of the DGCL. Failure to follow the requirements of Section 262 of the DGCL for perfecting appraisal rights will result in the loss of such rights. All references in this summary to a “stockholder” are to the record holder of AACC common stock on the record date for the special meeting unless otherwise indicated.

ANY STOCKHOLDER WHO WISHES TO EXERCISE APPRAISAL RIGHTS OR WHO WISHES TO PRESERVE HIS, HER OR ITS RIGHT TO DO SO SHOULD REVIEW ANNEX C CAREFULLY AND SHOULD CONSULT HIS, HER OR ITS LEGAL ADVISOR, SINCE FAILURE TO TIMELY COMPLY WITH THE PROCEDURES SET FORTH THEREIN WILL RESULT IN THE LOSS OF SUCH RIGHTS.

In order to exercise and perfect appraisal rights, a record holder of shares of AACC common stock must follow properly and in a timely manner the steps prescribed in Section 262 of the DGCL and summarized below. All demands for appraisal must be received prior to the vote on the merger agreement and should be addressed to Asset Acceptance Capital Corp., 28405 Van Dyke Avenue, Warren, Michigan 48093, Attention: Corporate Secretary, and should be executed by, or on behalf of, the record holder of the shares of AACC common stock. Holders of AACC common stock who desire to exercise their appraisal rights must not vote in favor of adoption of the merger agreement and must continuously hold their shares of AACC common stock through the effective date of the merger.

Under Section 262 of the DGCL, where a merger agreement relating to a proposed merger is to be submitted for adoption at a meeting of stockholders, as in the case of the special meeting, a corporation, not less than 20 days prior to such meeting, must notify each of its stockholders who was a stockholder on the record date for notice of such meeting with respect to shares for which appraisal rights are available, that appraisal rights are so available, and must include in each such notice a copy of Section 262 of the DGCL. This proxy statement/prospectus constitutes such notice to the holders of AACC common stock concerning the availability of appraisal rights under Section 262 of the DGCL and Section 262 of the DGCL is attached to this proxy statement/prospectus as Annex C.

If you wish to exercise appraisal rights, you must not vote for the adoption of the merger agreement and must deliver to AACC, before the vote to adopt the merger agreement, a written demand for appraisal of your shares of AACC common stock. If you sign and return a proxy card that does not contain voting instructions or submit a proxy by telephone or through the Internet that does not contain voting instructions, you will effectively waive your appraisal rights because such shares represented by the proxy will, unless the proxy is revoked, be voted “FOR” the adoption of the merger agreement. Therefore, a stockholder who submits a proxy and who wishes to exercise appraisal rights must submit a proxy containing instructions to vote “AGAINST” the adoption of the merger agreement or abstain from voting on the adoption of the merger agreement. Stockholders electing

 

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to exercise their appraisal rights must not vote “FOR” the adoption of the merger agreement. However, neither voting against the adoption of the merger agreement, nor abstaining from voting or failing to vote on the proposal to adopt the merger agreement, will in and of itself constitute a written demand for appraisal satisfying the requirements of Section 262 of the DGCL.

Stockholders who desire to exercise their appraisal rights must satisfy all of the conditions of Section 262 of the DGCL. A demand for appraisal will be sufficient if it reasonably informs AACC of the identity of the stockholder and that such stockholder intends thereby to demand appraisal of such stockholder’s shares of common stock. This written demand for appraisal must be separate from any proxy or vote abstaining from or voting against the adoption of the merger agreement. If you wish to exercise appraisal rights, you must be the record holder of such shares of AACC common stock on the date the written demand for appraisal is made and you must continue to hold such shares of record through the effective date of the merger. Accordingly, a stockholder who is the record holder of shares of common stock on the date the written demand for appraisal is made, but who thereafter transfers such shares prior to the effective date of the merger, will lose any right to appraisal in respect of such shares. A stockholder’s failure to make the written demand prior to the taking of the vote on the adoption of the merger agreement at the special meeting will constitute a waiver of appraisal rights. Moreover, because of the complexity of the procedures for exercising the right to seek appraisal of shares of AACC common stock, if a stockholder considers exercising such rights, such stockholder should seek the advice of legal counsel.

Only a holder of record of shares of AACC common stock on the record date for the special meeting is entitled to assert appraisal rights for such shares of AACC common stock registered in that holder’s name. To be effective, a demand for appraisal by a stockholder must be made and executed by, or on behalf of, such stockholder of record. The demand should set forth, fully and correctly, the stockholder’s name as it appears, with respect to shares evidenced by certificates, on his, her or its stock certificate, or, with respect to book-entry shares, on the stock ledger. Beneficial owners who do not also hold their AACC shares of record may not directly make appraisal demands to AACC. The beneficial owner must, in such cases, have the owner of record, such as a broker, bank or other nominee, submit the required demand in respect of those shares of AACC common stock. A person having a beneficial interest in AACC common stock held of record in the name of another person, such as a broker or nominee, must act promptly to cause the record holder to follow the steps summarized herein and in a timely manner to perfect whatever appraisal rights the beneficial owner may have. If shares of AACC common stock are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, the demand for appraisal should be made by or for the record owner; and if the shares of AACC common stock are owned of record by more than one person, as in a joint tenancy or tenancy in common, the demand should be executed by or for all joint owners. An authorized agent, including an authorized agent for two or more joint owners, may execute the demand for appraisal for a stockholder of record; however, the agent must identify the record owner or owners and expressly disclose the fact that, in executing the demand, he or she is acting as agent for the record owner. A record owner, such as a broker, who holds shares of AACC common stock as a nominee for others, may exercise his, her or its right of appraisal with respect to the shares of AACC common stock held for one or more beneficial owners, while not exercising this right for other beneficial owners. In that case, the written demand should state the number of shares of AACC common stock as to which appraisal is sought. Where no number of shares of AACC common stock is expressly mentioned, the demand will be presumed to cover all shares of AACC common stock held in the name of the record owner.

If you hold your shares of AACC common stock in a brokerage account or in other nominee form and you wish to exercise appraisal rights, you should consult with your broker or the other nominee to determine the appropriate procedures for the making of a demand for appraisal by the nominee. If a stockholder who demands appraisal under Delaware law withdraws its demand for appraisal or fails to perfect or otherwise loses its right of appraisal, in any case pursuant to the DGCL, each share of AACC common stock held by such stockholder will be deemed to be a non-election share for purposes of the merger agreement (and the holder thereof will thereby only be entitled to receive the cash consideration in exchange for such non-election share), unless such stockholder thereafter makes a timely stock election. If any stockholder who demands

 

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appraisal under Delaware law withdraws its demand for appraisal or fails to perfect or otherwise loses its right of appraisal after the election deadline, each share of AACC common stock held by such stockholder will be deemed to have been converted into and to have become, as of the effective time of the merger, the right to receive only cash consideration. A stockholder may withdraw his, her or its demand for appraisal and agree to accept the merger consideration by delivering to us a written withdrawal of his, her or its demand for appraisal and acceptance of the cash consideration within 60 days after the effective date of the merger (or thereafter with the consent of the surviving entity). Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery will be dismissed as to any stockholder without the approval of the Court of Chancery, and such approval may be conditioned upon such terms as the Court deems just. However, any stockholder who has not commenced an appraisal action or joined that proceeding as a named party may withdraw his, her or its demand for appraisal and agree to accept the merger consideration offered within 60 days after the effective date. If AACC does not approve a request to withdraw a demand for appraisal when that approval is required, or, except with respect to any stockholder who withdraws such stockholder’s right to appraisal in accordance with the immediately preceding sentence, if the Court does not approve the dismissal of an appraisal proceeding, the stockholder will be entitled to receive only the appraised value determined in any such appraisal proceeding, which value could be more or less than, or equal to, the consideration being offered pursuant to the merger agreement. If no petition for appraisal is filed with the court within 120 days after the effective time of the merger, stockholders’ rights to appraisal (if available) will cease and he, she or it will be entitled to receive the cash consideration for his, her or its shares pursuant to the merger agreement, as if he, she or it had not demanded appraisal of his, her or its shares. Inasmuch as AACC has no obligation to file such a petition, any stockholder who desires a petition to be filed is advised to file it on a timely basis.

Within 10 days after the effective date of the merger, the surviving entity will notify each stockholder who properly asserted appraisal rights under Section 262 of the DGCL and has not voted for the adoption of the merger agreement of the effective date of the merger. Within 120 days after the effective date of the merger, but not thereafter, either the surviving entity, or any stockholder who has complied with the requirements of Section 262 of the DGCL and who is otherwise entitled to appraisal rights, may file a petition in the Court of Chancery demanding a determination of the fair value of the shares of AACC common stock held by all stockholders entitled to appraisal. A person who is the beneficial owner of shares of AACC common stock held in a voting trust or by a nominee on behalf of such person may, in such person’s own name, file the petition described in the previous sentence. Upon the filing of the petition by a stockholder, service of a copy of such petition must be made upon the surviving entity. The surviving entity of the merger does not have an obligation to file such a petition in the event there are dissenting stockholders. Accordingly, the failure of a stockholder to file such a petition within the period specified could nullify the stockholder’s previously written demand for appraisal and if no such petition is filed within such 120-day period by any stockholder, appraisal rights will be lost for all stockholders who had previously demanded appraisal of their shares. AACC and Encore have no present intent to cause an appraisal petition to be filed, and stockholders seeking to exercise appraisal rights should not assume that the surviving entity will file such a petition or that it will initiate any negotiations with respect to the fair value of such shares of AACC common stock. Accordingly, stockholders who desire to have their shares of AACC common stock appraised should initiate any petitions necessary for the perfection of their appraisal rights within the time periods and in the manner prescribed in Section 262 of the DGCL.

The costs of the appraisal action (which do not include attorneys’ fees or the fees and expenses of experts) may be determined by the Court of Chancery and made payable by the parties as the Court of Chancery deems equitable. Upon application of a dissenting stockholder, the Court of Chancery also may order that all or a portion of the expenses incurred by any stockholder in connection with an appraisal, including, without limitation, reasonable attorneys’ fees and the fees and expenses of experts utilized in the appraisal proceeding, be charged pro rata against the value of all of the shares entitled to appraisal. In the absence of a determination or assessment, each party bears his, her or its own expenses.

If a petition for appraisal is duly filed by a stockholder and a copy of the petition is delivered to the surviving entity of the merger, such surviving entity must, within 20 days after receiving service of a copy of the

 

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petition, provide the Court of Chancery with a duly verified list containing the names and addresses of all stockholders who have demanded an appraisal of their shares of AACC common stock and with whom agreements as to the value of their shares of AACC common stock have not been reached by the surviving entity. After notice to dissenting stockholders who demanded appraisal of their shares of AACC common stock, the Court of Chancery is empowered to conduct a hearing upon the petition, and to determine those stockholders who have complied with Section 262 of the DGCL and who have become entitled to the appraisal rights provided thereby. The Court of Chancery may require the stockholders who have demanded appraisal for their shares of AACC common stock to submit their stock certificates to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings, and if any stockholder fails to comply with that direction, the Court of Chancery may dismiss the proceedings as to that stockholder.

Within 120 days after the effective date, any stockholder (including any beneficial owner of shares entitled to appraisal rights) that has complied with the requirements for exercise of appraisal rights will be entitled, upon written request, to receive from the surviving entity a statement setting forth the aggregate number of shares of AACC common stock not voted in favor of adoption of the merger agreement and with respect to which demands for appraisal have been timely received and the aggregate number of holders of those shares. These statements must be mailed to the stockholder within 10 days after a written request by such stockholder for the information has been received by the surviving entity, or within 10 days after expiration of the period for delivery of demands for appraisal under Section 262 of the DGCL, whichever is later. A person who is the beneficial owner of shares of AACC common stock held either in a voting trust or by a nominee on behalf of such person may, in such person’s own name, request from AACC the statement described in this paragraph.

After determination of the stockholders entitled to appraisal of their shares of AACC common stock, the Court of Chancery will appraise the shares of AACC common stock, determining their fair value exclusive of any element of value arising from the accomplishment or expectation of the merger, together with interest, if any. After the Court determines the holders of AACC common stock entitled to appraisal, the appraisal proceeding shall be conducted in accordance with the rules of the Court, including any rules specifically governing appraisal proceedings. Unless the Court of Chancery in its discretion determines otherwise for good cause shown, interest from the effective date through the date of payment of the judgment shall be compounded quarterly and shall accrue at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the effective date of the merger and the date of payment of the judgment. When the value is determined, the Court of Chancery will direct the payment of such value, with interest thereon accrued during the pendency of the proceeding, if the Court of Chancery so determines, to the stockholders entitled to receive the same, upon surrender by such stockholders of their certificates and book-entry shares representing AACC common stock.

In determining the fair value of the shares of AACC common stock, the Court of Chancery is required to take into account all relevant factors. Accordingly, such determination could be based upon considerations other than, or in addition to, the market value of the shares of AACC common stock, including, among other things, asset values and earning capacity. In Weinberger v. UOP, Inc., the Delaware Supreme Court stated, among other things, that “proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court” should be considered in an appraisal proceeding, and that “fair price obviously requires consideration of all relevant factors involving the value of a company.” The Supreme Court of Delaware stated that, in making this determination of fair value, the court must consider market value, asset value, dividends, earnings prospects, the nature of the enterprise and any other facts that could be ascertained as of the date of the merger that throw any light on future prospects of the merged corporation in an appraisal proceeding. The surviving entity of the merger may argue in an appraisal proceeding that, for purposes of such a proceeding, the fair value of the shares of AACC common stock is less than the merger consideration. Therefore, the value so determined in any appraisal proceeding could be the same as, or more or less than, the merger consideration the holder of such shares of AACC common stock would receive pursuant to the merger agreement if they did not seek appraisal of their shares.

 

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Section 262 of the DGCL provides that fair value is to be “exclusive of any element of value arising from the accomplishment or expectation of the merger.” In Cede & Co. v. Technicolor, Inc., the Delaware Supreme Court stated that such exclusion is a “narrow exclusion [that] does not encompass known elements of value,” but which rather applies only to the speculative elements of value arising from such accomplishment or expectation. In Weinberger, the Delaware Supreme Court construed Section 262 of the DGCL to mean that “elements of future value, including the nature of the enterprise, which are known or susceptible of proof as of the date of the merger and not the product of speculation, may be considered.” Stockholders considering seeking appraisal of their shares should note that the fair value of their shares determined under Section 262 of the DGCL could be more, or less than, or equal to, the consideration they would receive pursuant to the merger agreement if they did not seek appraisal of their shares. Although AACC believes that the per share merger consideration is fair, no representation is made as to the outcome of the appraisal of fair value as determined by the Court of Chancery. Moreover, AACC does not anticipate offering more than the per share merger consideration to any stockholder exercising appraisal rights and reserves the right to assert, in any appraisal proceeding, that for purposes of Section 262 of the DGCL, the “fair value” of a share of common stock is less than the per share merger consideration.

Any stockholder who has duly demanded and perfected an appraisal in compliance with Section 262 of the DGCL will not, after the effective date of the merger, be entitled to vote his, her or its shares of AACC common stock for any purpose or be entitled to the payment of dividends or other distributions thereon, except dividends or other distributions payable to holders of record of shares of AACC common stock as of a date prior to the effective date of the merger.

If you desire to exercise you appraisal rights, you must not vote for the adoption of the merger agreement and you must strictly comply with the procedures set forth in Section 262 of the DGCL (as reproduced in Annex C to this proxy statement/prospectus). Failure to take any required step in connection with the exercise of appraisal rights will result in the termination or waiver of such rights. In view of the complexity of Section 262 of the DGCL, stockholders of AACC who may wish to dissent from the merger and pursue appraisal rights should consult their legal advisors. To the extent there are any inconsistencies between the foregoing summary and Section 262 of the DGCL, Section  262 of the DGCL will govern.

AACC’s Directors and Officers Have Financial Interests in the Merger

No stockholder is entitled to receive any special merger consideration. However, in considering the recommendation of AACC’s Board of Directors, you should be aware that some of AACC’s executive officers and directors have financial interests in the merger that may be different from, or in addition to, your interests as a stockholder (or the interests of AACC’s stockholders generally) and that may present actual or potential conflicts of interest. The AACC Board of Directors was aware of and considered these potential interests and conflicts, among other matters, in evaluating and negotiating the merger agreement and the merger, in approving the merger agreement and the transaction contemplated thereby (including the merger), and in recommending that AACC’s stockholders vote “FOR” the approval and adoption of the merger agreement, the merger and the “golden parachute” compensation at the special meeting and any adjournment thereof.

Treatment of Equity-Based Awards

Options

The merger agreement provides that each holder of an option that represents the right to acquire shares of AACC common stock granted under any equity compensation plans of AACC which is outstanding immediately prior to the effective time of the merger (whether or not then vested or exercisable) will be provided with notice pursuant to which all outstanding stock options held by such holder will become fully vested and exercisable by such holder for a period of at least 15 days prior to the effective time of the merger in accordance with the terms

 

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and conditions of the applicable award agreement and any equity compensation plan of AACC under which such option was granted. To the extent that any outstanding stock option is exercised prior to the effective time of the merger, AACC will issue to such exercising holder shares of AACC common stock in accordance with the terms of such option, which shares will be entitled to receive the per share merger consideration (as described above) upon consummation of the merger.

The merger agreement also provides that at the completion of the merger, each outstanding and unexercised stock option to purchase shares of AACC common stock issued under any equity compensation plans of AACC will be cancelled and converted into the right to receive, in full settlement of such option, an amount in cash equal to the product of (i) the excess, if any, of $6.50 (the per share cash consideration) over the per share exercise price of the applicable stock option and (ii) the total number of shares of AACC common stock that may be acquired upon the full exercise of such stock option immediately prior to the effective time of the merger, without interest and less applicable withholding taxes. If the exercise price per share of any an option is equal to or greater than the per share cash consideration, then, upon the completion of the merger, such option will be cancelled without any payment or other consideration being made in respect thereof.

Company Stock Units

The merger agreement provides that at the completion of the merger, each restricted stock unit granted under any equity compensation plan of AACC or otherwise and each outstanding deferred stock unit will be cancelled and entitle the holder thereof to receive from AACC a cash amount equal to the product of (i) the per share cash consideration and (ii) the total number of shares of AACC common stock subject to such restricted stock units and deferred stock units (using, if applicable, the goal (100%) level of achievement under the respective award agreement to determine such number), in each case, less any applicable withholding taxes.

Retention and Potential Severance Payments to Executive Officers

Retention Agreements

In connection with the signing of the merger agreement, AACC entered into retention agreements with Reid Simpson, Deborah Everly, Edwin Herbert and Todd Langusch. Each retention agreement provides for a cash payment to be paid, subject to applicable taxes, to each executive, in the aggregate amount of $183,000, $80,750, $182,250 and $199,125, respectively, with 50% of such payment due within 30 days following the completion of the merger, and the remaining 50% due within 30 days following the earliest to occur of (i) the date such executive’s employment is terminated without “cause” (as defined in the retention agreements), (ii) six months after completion of the merger, or (iii) January 15, 2014, if the executive is employed at that time and the merger was not consummated prior to December 15, 2013.

Employment Agreements

If the merger occurs, under their existing employment agreements, Rion Needs, Reid Simpson and Deborah Everly will be entitled to increased severance payments in the event their employment is terminated without “cause” (as defined in the employment agreements) or they resign following a “substantial breach” by AACC (as defined in the employment agreements) within one year of the merger. The severance payments are conditioned on the execution of a release. A description of AACC’s existing employment arrangements with its executive officers can be found in AACC’s Annual Report on Form 10-K and 10-K/A filed with the SEC on March 7, 2013 and April 26, 2013, respectively, as supplemented by AACC’s applicable Current Reports on Form 8-K filed subsequently thereto. See “Where You Can Find More Information” beginning on page 123.

Change of Control Agreement

If the merger is completed, under his existing change of control agreement, Edwin L. Herbert will be entitled to a severance payment in the event he is terminated without “cause” (as defined in the change of control

 

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agreement) or resigns following a “substantial breach” by AACC (as defined in the change of control agreement) within one year of the merger. If Mr. Herbert is terminated without “cause” or resigns after a “substantial breach” within one year after the effective date of the merger, he is entitled to severance benefits equal to one times his regular base salary as in effect at the termination date (subject to certain adjustments), plus one times his bonus for the fiscal year immediately preceding the effective date of the “change in control”. The severance payments are conditioned on the execution of a release. “Substantial breach” under the change of control agreement includes, among other things, the assignment of the executive to a position with materially diminished duties and a material reduction in base salary.

If any payments to which Mr. Herbert is entitled pursuant to his employment agreement would otherwise constitute a parachute payment under Internal Revenue Code Section 280G, then, pursuant to the terms of the change of control agreement, such payments will be subject to reduction to the extent necessary to assure that Mr. Herbert receives the greater of (i) the amount of those payments which would not constitute such a parachute payment or (ii) the after-tax amount of benefits after taking into account any excise tax imposed on such payments. Mr. Herbert is subject to confidentiality, as well as non-competition and non-interference provisions under his change of control agreement. The non-competition and non-interference obligations continue for a period of one year after termination of employment and the confidentiality obligations continue indefinitely.

Summary of Potential Payments to AACC’s Executive Officers and Directors

The following table indicates the dollar amounts potentially payable to AACC’s executive officers and directors in connection with the completion of the merger, assuming completion of the merger on May 15, 2013. To the extent that any of the conditions to payment of the merger-based benefits described below and in the other portions of the section captioned “AACC’s Directors and Officers Have Financial Interests in the Merger” beginning on page 70 of this proxy statement/prospectus are not satisfied, such payments will not be made.

Upon completion of the merger, the executive officers and directors will be entitled to receive the accelerated vesting and payment of their outstanding equity awards in the amounts described in footnote 2 to the table. Within 30 days following the completion of the merger, the executive officers also will be entitled to the payment of the first installment of their respective retention bonuses as described in footnote 1 to the table and in the narrative contained in the section captioned “Retention and Potential Severance Payments to Executive Officers” beginning on page 71 of this proxy statement/prospectus. The foregoing payments are “single trigger” benefits and will be paid without regard to whether any termination of employment occurs on or following completion of the merger.

In addition to the foregoing, in the event that an executive officer experiences a qualifying termination of employment on or within one year following completion of the merger, the executive officer will receive (i) certain cash severance and retention benefits in the amounts described in footnote 1 to the table and in the narrative contained in the section captioned “Retention and Potential Severance Payments to Executive Officers” beginning on page 71 of this proxy statement/prospectus, and (ii) certain in-kind severance benefits, generally consisting of continued health and medical benefits, valued in the amounts set forth in the Perquisites/Benefits column of the table below. The foregoing severance payments and benefits are “double trigger” benefits and will be paid only upon a qualifying termination within one year following completion of the merger. Such transaction severance benefits will not be paid if there is a termination of employment outside the one-year post-merger protection period or if there is no qualifying termination of employment during the one-year post-merger protection period. As noted above, the executive officers will be entitled to receive the first installment of their retention bonuses within 30 days following the completion of the merger without regard to whether there is any qualifying termination of employment following completion of the merger. The second installment of the retention bonuses will be paid within 30 days following the originally scheduled payment date, as described in the narrative above under the section captioned “Retention and Potential Severance Payments to Executive Officers” beginning on page 71 of this proxy statement/prospectus, if the executive officer remains employed through such date, or within 30 days following a qualifying termination of employment, if such termination occurs prior to such originally scheduled payment date.

 

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Golden Parachute Compensation Table

 

Executive Officer

  Cash(1)     Equity(2)     Perquisites/
Benefits(3)
    Total