Sprentd\PHX\785667.7 6
Sprentd\PHX\785667.7
As of February 15, 2000
SAI Investment Adviser, Inc.
1 SunAmerica Center, 34th Floor
Century City
Los Angeles, CA 90067-6022
SunAmerica Life Insurance Company
1 SunAmerica Center, 34th Floor
Century City
Los Angeles, CA 90067-6022
KZH Soleil-2 LLC
c/o The Chase Manhattan Bank
450 West 33rd Street, 15th Floor
New York, New York 10001
Harris Trust & Savings Bank
111 West Monroe Street
Chicago, Illinois 60603
Ladies and Gentlemen:
Reference is made to that certain Senior Secured Loan Agreement dated
as of May 14, 1999 (as previously amended, the "Loan Agreement") among Ugly
Duckling Corporation, a Delaware corporation ("Borrower"), Harris Trust &
Savings Bank, as Collateral Agent (the "Collateral Agent") and the Lenders party
thereto (together with their respective successors and assigns, "Lenders").
Reference is also made to that certain letter, dated February 7, 2000 from
Borrower to John Lapham of SunAmerica Life Insurance Company (the "Request
Letter") which describes a proposed tender offer (the "Tender Offer") under
which the Borrower would tender for up to 2.5 million shares of the Borrower's
stock at a price of $11 per share (the "Exchange") and pursuant to which the
purchase price would be paid in subordinated debt securities of the Borrower
(the "Exchange Debt"). All capitalized terms used herein and not otherwise
defined shall have the meanings given to such terms in the Loan Agreement.
For good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the Loan Documents are, upon execution hereof by
Collateral Agent and the Required Lenders, hereby amended as follows:
1. The Lenders and Collateral Agent hereby consent to the Tender Offer
and the Exchange, as described in the Request Letter, notwithstanding any
provision of the Loan Agreement or the Loan Documents to the contrary including,
without limitation, Section 7.8 of the Loan Agreement (Distributions) and
Section 7.13 of the Loan Agreement (Transactions With Affiliates) (which may be
applicable by virtue of the fact that the Tender Offer and the Exchange involves
a transaction with Borrower's shareholders, who include Ernest C. Garcia II and
certain other directors and officers). The Lenders also agree that so long as
the Exchange Debt is (a) subject to the subordination provisions of the
Indenture, dated October 15, 1998 (the "Indenture"), from Borrower to Harris
Trust and Savings Bank, as trustee (pursuant to which existing Subordinated Debt
described on Exhibit G to the Loan Agreement was issued and the Exchange Debt
will be issued) as in effect on the date hereof and (b) issued pursuant to a
supplemental indenture in substantially the form delivered to the Lenders prior
to the date hereof, the Exchange Debt shall be Subordinated Debt as defined in
the Loan Agreement. Borrower hereby designates the Loan as "Designated Senior
Indebtedness" pursuant to the Indenture and agrees to maintain such designation
at all times. Borrower will promptly notify the trustee under the Indenture of
such designation and in connection with each supplemental indenture hereafter
entered into in connection with the Indenture, Borrower will cause such
supplemental indenture to provide that the Loan is included as "Designated
Senior Indebtedness."
2. Section 6.13 of the Loan Agreement is hereby amended in its entirety to
provide as follows:
6.13. Tangible Net Worth. Borrower shall maintain a
consolidated Tangible Net Worth of not less than the sum of (i)
$100,000,000, plus (ii) 50% of the cumulative net earnings (but only to
the extent positive) after taxes of the Borrower and its Subsidiaries
on a consolidated basis determined in accordance with generally
accepted accounting principles for each period ending after December
31, 1999, plus (iii) 75% of the cumulative net proceeds of the issuance
of any additional shares of capital stock of Borrower after February
15, 2000, and minus (iv) the cumulative amount of payments received by
Borrower pursuant to that Promissory Note, dated December 30, 1999 made
by Cygnet Capital Corporation to Ugly Duckling Finance Corporation in
the original principal amount of $12,000,000 through the retirement of
stock in Borrower held by Ernest C. Garcia II. As used in this Section
6.13, "net proceeds" of the issuance of capital stock shall mean the
gross cash proceeds of such issuance less reasonable and customary fees
and expenses actually incurred in connection therewith, including,
without limitation, underwriting fees, investment banking fees,
attorneys' and accountant's fees, regulatory and listing fees and due
diligence costs and expenses.
3. A new Section 6.13A is hereby added to the Loan Agreement to provide as
follows:
6.13A. Tangible Net Worth and Subordinated Debt. The sum of
(i) the consolidated Tangible Net Worth of Borrower and (ii) the
outstanding amount of indebtedness of Borrower as to which the
repayment of principal and interest is subordinated to repayment of the
Loan, shall not be less than $150,000,000.
4. Section 6.14 of the Loan Agreement is hereby amended in its entirety to
provide as follows:
6.14 Consolidated EBITDA to Consolidated Interest Expense. As
of the end of each quarterly fiscal period of Borrower for the fiscal
quarter then ended and the immediately preceding three (3) fiscal
quarters taken as a whole (each a "Test Period"), Borrower shall
maintain a ratio of Consolidated EBITDA to Consolidated Interest
Expense of not less than the amount set forth below for each Test
Period ending during the period set forth below:
Period Ratio
Closing to and including June 30, 1999 0.60 to 1.0
July 1, 1999 to and including September 30, 1999 0.85 to 1.0
October 1, 1999 to and including December 31, 1999 1.00 to 1.0
January 1, 2000 to and including March 31, 2000 1.35 to 1.0
April 1, 2000 and thereafter 1.50 to 1.0
5. A new Section 6.14A is hereby added to the Loan Agreement to provide as
follows:
6.14A. Quarterly Consolidated EBITDA to Consolidated Interest
Expense. As of the end of each fiscal quarter of Borrower commencing
with the fiscal quarter ending March 31, 2000, Borrower shall maintain
a ratio of Consolidated EBITDA to Consolidated Interest Expense of not
less than 1.1 to 1.0 for such fiscal quarter.
Except as specifically modified by this agreement, all of the terms and
provisions of the Loan Agreement, each other Loan Document and each of the
documents referred to therein or delivered in connection therewith shall remain
in full force and effect. The amendments set forth herein shall be limited
precisely as written and shall not be deemed, except as expressly set forth
herein, (a) to be a consent to any modification or waiver of other terms or
conditions of the Loan Agreement, any other Loan Document or any of the
documents referred to therein or delivered in connection therewith or (b) to
prejudice any right, remedy, power or privilege which any party hereto or any
party consenting hereto now has or may have in the future under or in connection
with the Loan Agreement, any other Loan Document or any of the documents
referred to therein or delivered in connection therewith. Without limiting the
generality of the foregoing, the Security Documents and all of the Collateral
described therein do and shall, to the extent set forth therein, continue to
secure the payment of all obligations and liabilities of the Borrower under the
Loan Agreement and/or any of the other Loan Documents, in each case as amended
hereby.
The Borrower shall promptly pay the reasonable out-of-pocket expenses
incurred by the Collateral Agent and the Lenders in connection with the
preparation of this agreement including the reasonable fees, disbursements and
other charges of its counsel. The Borrower agrees to pay a modification fee of
$25,000 to the Lenders upon the execution and delivery of this agreement by the
parties hereto.
This Letter Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
Borrower hereby represents and warrants to Collateral Agent and Lenders
as follows:
(i) The execution, delivery and performance of this Letter Agreement by
Borrower and Guarantor has been duly authorized by all necessary corporate
action of Borrower and Guarantor.
(ii) This Letter Agreement has been duly executed and delivered by
Borrower and Guarantor and constitutes the legal, valid and binding obligation
of Borrower and Guarantor in accordance with its terms, except as enforcement
may be limited by equitable principles or by bankruptcy, insolvency,
reorganization, moratorium, or similar laws relating to or limiting creditors'
rights generally.
(iii) As of the date hereof, the representations and warranties of
Borrower and Guarantor set forth in the Loan Documents are true and correct in
all material respects.
(iv) As of the date hereof and after giving effect to the execution and
delivery of this Letter Agreement by Borrower, Collateral Agent and Lenders, no
Default or Event of Default has occurred and is continuing.
This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which taken
together shall constitute one and the same instrument.
Please sign and return the enclosed copy of this letter.
Very truly yours,
UGLY DUCKLING CORPORATION, a Delaware corporation
By: /S/ Jon D. Ehlinger
-----------------------
Name: Jon E. Ehlinger
Title: Secretary
CONSENTED:
GALAXY CLO 1999-1, LTD.
By: SAI Investment Adviser, Inc.,
its Collateral Manager
By:
Name:
Title:
SUNAMERICA LIFE INSURANCE
COMPANY
By:
Name:
Title:
KZH SOLEIL-2 LLC
By:
Name:
Title:
HARRIS TRUST & SAVINGS BANK,
as Collateral Agent
By:
Name:
Title:
Guarantor hereby consents and agrees to the foregoing and agrees that
the Guaranty remains in full force and effect and that the Guaranteed
Obligations (as defined in the Guaranty) include, without limitation, payment of
the obligations of Borrower pursuant to the foregoing Letter Agreement and the
Loan Documents as amended by the foregoing Letter Agreement.
UGLY DUCKLING CAR SALES AND FINANCE
CORPORATION, an Arizona corporation
By: /S/ JON D. EHLINGER
-----------------------
Name: Jon D. Ehlinger
Title: Secretary