<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
November 14, 1997
(Date of earliest event reported)
Ugly Duckling Corporation
(Exact name of registrant as specified in its charter)
Delaware 000-20841 86-0721358
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification Number)
Ugly Duckling Corporation
2525 East Camelback, Suite 1150
Phoenix,Arizona 85016
(Address of principal executive offices) (Zip Code)
602-852-6600
(Registrant's telephone number, including area code)
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Item 2. Acquisition or Disposition of Assets.
On November 14, 1997, Ugly Duckling Corporation ("Company"), First Merchants
Acceptance Corporation ("FMAC") and the Official Committee of Creditors in the
Bankruptcy Case ("Committee") entered into a letter agreement entitled Binding
Agreement to Propose and Support Modified Plan Agreement ("Plan Agreement")
whereby they agreed to the framework of a plan of reorganization for FMAC
("Plan") to be filed with the United States Bankruptcy Court for the
District of Delaware ("Court") as early as late November 1997. FMAC had
originally filed for reorganization under Chapter 11 of the Federal Bankruptcy
Code on July 11, 1997. The Plan Agreement sets out several agreements related
to FMAC's secured senior bank debt ("Senior Debt") and other aspects of the
operations of FMAC. As previously disclosed, in August 1997 the Company had
closed the purchase of approximately 78% of the Senior Debt from a group of
commercial banks at a 10% discount. Also as previously disclosed, this month
the Company entered into an agreement to purchase the remaining 22% of FMAC's
Senior Bank Debt, subject to certain conditions precedent. The principal
balance of the Senior Bank Debt currently totals approximately $85 million. The
Company which owns approximately 2 -1/2% of FMAC's outstanding common stock
with a cost basis of approximately $1.5 million, also agreed in July 1997 to
provide up to $10 million of "debtor in possession" financing ("DIP Loan") of
which approximately $7.5 million was outstanding at November 13, 1997. The Plan
Agreement is attached hereto as Exhibit 2 and incorporated herein by reference
in its entirety. Some of the more significant and basic terms of the Plan
Agreement are summarized in the following paragraphs of this Item 2. This
foregoing summary does not purport to be complete and is qualified in its
entirety by reference to Exhibit 2.
Certain of the more significant and basic terms of the Plan Agreement include,
but are not limited to, the following: (1) the sale of the retail installment
sales contracts that secure the Senior Debt to the Agent of the senior bank
group of FMAC ("Bank Group") or a third party in satisfaction for the Senior
Debt; (2) release of its liens on the remaining assets of FMAC securing the
Senior Debt in exchange for a replacement lien on other assets of FMAC; and (3)
FMAC is to provide a guaranty of the recovery on the sold contracts to be
secured by a lien on all of FMAC's interest in First Merchants Auto Receivables
Corp. I and First Merchants Auto Receivables Corp. II, the special purpose
subsidiaries of FMAC that have retained residual interests and equity
certificates relating to various securitized pools of retail installment sales
contracts ("Securitized Residual Interest"). The Plan Agreement, if approved as
part of the Plan, will provide, among other things, that: (1) the Company will
begin providing servicing and/or consulting services on the securitized pools
and all other retail installment sales contracts owned by FMAC; (2) the Company
will increase its DIP Loan to up to $16.5 million, with interest to accrue at
the rate of ten percent (10%) per annum and to continue to be secured by the
current collateral, including an expected tax refund of FMAC; (3) after payment
in full to the Company of the DIP Loan and an amount equal to the Senior Debt
(plus an 11% per annum return and a servicing allowance), the Agent for the
Bank Group will be paid 20% of the receipts thereafter on the Securitized
Residual Interests; (4) the possible issuance of stock warrants to the
bankruptcy estate of FMAC to purchase 325,000 shares of registered common stock
of the Company at an exercise price of $20.00 per share over a 36-month term
and subject to a call feature by the Company; and (5) the waiver by the
Company, under certain circumstances, of its $1 million commitment fee and its
2
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DIP Loan fee. Income tax refunds, which have been applied for, of approximately
$10 million, when received by FMAC, will be applied to repayment of the DIP
Loan. The Plan Agreement is subject to: (1) execution and filing with the Court
of a definitive plan agreement (including the form of the Company management,
servicing or consulting agreement, structure of the reorganized FMAC and
resolution of remaining issues between FMAC, FMAC's equityholders and the
Committee) and approval by the Court; and (2) subject to the Company's
unilateral waiver, approval of the Securitized Pools' servicing fee by certain
interested parties.
A third party is negotiating the purchase of the collateral securing the Senior
Debt from the Agent of the Bank Group upon the Agent's purchase of such
collateral from FMAC pursuant to the Plan Agreement. The proceeds from the sale
would be utilized to satisfy the Senior Debt. Although there can be no
assurance in this regard, based upon the terms under discussion, if as
expected, the Company ultimately receives the proceeds from the transaction,
the Company expects to record a pre-tax gain of $6 to $7 million in the fourth
quarter of 1997.
If either the sale of the contracts is not allowed or a credit bid of
the Senior Debt is not made or is not successful, the Company's portion of the
Senior Debt would continue to be subject to the reorganization proceedings of
FMAC under applicable laws. The Senior Debt is being paid down on a periodic
basis pursuant to a Court order in an amount depending on FMAC's net
collections on the retail installment sales contracts.
# # # #
This Form 8-K includes statements that may constitute forward-looking
statements, usually containing the words "believe," "estimate," "project,"
"expect" or similar expressions. These statements are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. The
potential gain to be recognized upon satisfaction of the Senior Debt via sale
of the underlying collateral is a forward-looking statement subject to a number
of contingencies, such as finalization of terms, preparation and consummation
of a definitive sale agreement and receipt of any necessary third-party or
regulatory approvals. Forward-looking statements inherently involve risks and
uncertainties that could cause actual results to differ materially from the
forward-looking statements. By making these forward-looking statements, the
Company undertakes no obligation to update these statements for revisions or
changes after the date of this release. Investors should also consider factors
that would cause or contribute to such differences, which include, but are not
limited to, factors detailed in the section entitled "Risk Factors" in the
Company's Prospectus, dated August 1, 1997, and in the sections entitled
"Factors That May Affect Future Results and Financial Condition" and "Factors
That May Affect Future Stock Performance" and elsewhere in the Company's most
recent reports on Form 10-K/A and Form 10-Q, and in Ugly Duckling Corporation's
other Securities and Exchange Commission filings.
Item 7. Financial Statements, Pro Forma
Financial Information and Exhibits.
(a) Financial Statements of Businesses Acquired
Not applicable.
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(b) Pro Forma Financial Information
Not applicable.
(c) Exhibits
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
2 Binding Agreement To Propose and Support Modified Plan
Agreement, dated November 14, 1997, by and among First
Merchants Acceptance Corporation, The Official Committee of
Unsecured Creditors of First Merchants Acceptance Corporation,
and Ugly Duckling Corporation.
</TABLE>
4
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UGLY DUCKLING CORPORATION
-------------------------
(Registrant)
Date: November 19, 1997
By /s/ STEVEN P. JOHNSON
----------------------
Steven P. Johnson
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
2 Binding Agreement To Propose and Support Modified Plan
Agreement, dated November 14, 1997, by and among First
Merchants Acceptance Corporation, The Official Committee
of Unsecured Creditors of First Merchants Acceptance
Corporation, and Ugly Duckling Corporation.
</TABLE>
6
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Exhibit 2
November 14, 1997
Binding Agreement To Propose
and Support Modified Plan Agreement
VIA FACSIMILE TO 312-876-7934
Robert E. Richards, Esq.
Sonnenschein Nath & Rosenthal
233 S. Wacker Dr., Ste. 8000
Chicago, IL 60606
VIA FACSIMILE TO 302-571-1253
Laura Davis Jones, Esq.
YOUNG CONAWAY STARGATT & TAYLOR, LLP
PO Box 391
Wilmington, DE 19899-0391
VIA FACSIMILE TO 612-336-3026
Stephen M. Mertz, Esq.
FAEGRE & BENSON LLP
90 S. Seventh St., #2200
Minneapolis, MN 55402-3901
Re: Ugly Duckling Corporation/
In re First Merchants Acceptance Corp.
Dear Laura, Bob and Steve:
WHEREAS, First Merchants Acceptance Corporation (the Debtor ), Ugly
Duckling Corporation ("UDC") and the Official Committee of Unsecured Creditors
of First Merchants Acceptance Corporation (the "Committee") have engaged in
intensive discussions regarding a possible consensual chapter 11 plan of the
Debtor.
<PAGE> 2
Robert E. Richards, Esq.
November 14, 1997
Page 2
WHEREAS, the basis for that discussion is that certain agreement reached
between UDC and the Debtor, as embodied in that letter from me to Bob Richards
and Laura Jones dated October 22, 1997, for a chapter 11 plan ("Plan
Agreement").
WHEREAS, the Committee has expressed an interest in joining the Debtor and
UDC in such proposed chapter 11 plan, and actively supporting such plan, if UDC
and the Debtor would agree to certain modifications.
WHEREAS, both UDC and the Debtor have generally agreed, subject to
execution of a binding agreement, to make certain modifications to their Plan
Agreement, subject to the express agreement of the Committee to support such
modified Plan Agreement, the terms of which are set forth in this letter
("Modified Plan Agreement");
THEREFORE, the Committee, the Debtor and UDC agree that any such Modified
Plan Agreement must first be memorialized in a formal written agreement prior to
any agreement by the Debtor and/or UDC to deviate from the existing Plan
Agreement. Consequently, the following terms and conditions are acceptable to
both UDC and the Debtor as a modification of the existing Plan Agreement.
Signatures by the Chairperson of the Committee to this Modified Plan Agreement
will be accepted by the Debtor and UDC as a binding commitment and agreement by
the Committee to support confirmation of a chapter 11 plan containing terms
consistent with the terms of this Modified Plan Agreement ("Chapter 11 Plan"),
except as otherwise provided in paragraphs 16, 17, 20 and 21 of this Modified
Plan Agreement. Absent such binding agreement by the Committee, UDC and the
Debtor reject such Modified Plan Agreement, and will file and seek approval of
the Plan Agreement as previously disclosed to the Committee.
OPERATIVE TERMS
1. Sale of the Bank Group Collateral.
A. Credit Bid by Bank Group. A hearing to approve a sale pursuant to 11
U.S.C. Section 363 (the "Sale") of (i) the Debtor's owned retail
installment automobile loan contracts ("Contracts"), whether current,
delinquent or charged off, together with all related repossessed vehicles
(collectively hereinafter referred to as the "Owned Loans" provided,
however, that as used herein, Owned Loans shall not include the Contracts
and related vehicles ("Greenwich Collateral") pledged to Greenwich
Financial Products, Inc. ("Greenwich")), and (ii) the Debtor's uncollected
state and federal income tax refunds for 1996 and previous years (the "Tax
Refunds"), is scheduled for November 14, 1997 (the "Sale Date"). The
revised terms of a sale consistent with this Letter Agreement will be
announced in open court on November 14, 1997 and current drafts of the
definitive documents will be served on the master service list on November
14, 1997 with a
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Robert E. Richards, Esq.
November 14, 1997
Page 3
deadline objection of noon on November 21, 1997. Provided the parties agree
on the final forms of the definitive documents implementing the Sale and
there are no timely filed objections to the Sale, the parties hereto
contemplated submitting a consent order on November 24, 1997 approving the
Sale, otherwise, a hearing will be held on that day to approve the Sale.
UDC, as Majority Lender (as defined in that certain "Fourth Amended and
Restated Loan and Security Agreement" dated as of February 28, 1996 (the
"Bank Group Facility") by and among the Debtor and the Bank Group (as
defined in the Bank Group Facility)), will cause LaSalle National Bank, as
Agent (the "Agent") to credit bid the entire amount of the Bank Group's
indebtedness, including, but not limited to any and all outstanding
principal, accrued and unpaid interest (including default interest from and
after July 11, 1997 (the "Petition Date") through and including the Sale
Date), and an agreed amount of $150,000.00 of pre-petition attorneys' fees,
costs and expenses of the Bank Group stipulated as allowable under 11
U.S.C. Section 506(b) plus all post-petition attorneys fees, costs and
expenses of the Bank Group allowable under 11 U.S.C. Section 506(b)
(collectively, the "Purchase Price"), for the Owned Loans at the Sale, and
the Agent, on behalf of the Bank Group will acquire the Owned Loans in
exchange for the credit bid of the Purchase Price. Post-petition attorneys
fees and costs of the Bank Group will be assumed to be $450,000 for
purposes of the determining the Purchase Price, but subject to adjustment
under paragraph 8 hereof if there are objections to such fees by the
Debtor, the Committee or any other party-in-interest after review of
detailed supporting invoices. No other assets of the Debtor will be sold at
the Sale, and all other assets of the Debtor, including, but not limited
to, the Tax Refunds and other tax attributes, the Greenwich Collateral and
the Debtor's furniture, fixtures, equipment, general intangibles and causes
of action (collectively, the "Retained Property") will remain the property
of the Debtor, the disposition of which will be effected pursuant to the
terms of the Chapter 11 Plan. In consideration of the credit bid equal to
the Purchase Price and the Debtor's retention of the Retained Property, the
Agent will be granted the Replacement Lien (defined below) to secure the
Secured Claim Recovery Amount (defined below), unless GE (as defined below)
purchases the Owned Loans directly from the Debtor at the Sale.
B. GE Collateral Purchase. As an alternative to the Bank Group's
purchase of the Owned Loans, UDC and the Debtor anticipate the possibility
of General Electric Capital Corporation ("GE") agreeing with the Debtor to
purchase the Owned Loans at the Sale or from the Agent after the Sale. GE
has expressed an interest to pay the total amount of the Purchase Price to
acquire the Owned Loans. GE will pay the Purchase Price to the Debtor in
cash. The Debtor will pay the Purchase Price to the Agent for full and
final satisfaction of the then outstanding total Bank Group Facility.
Thereafter, either UDC will agree to service the Owned Loans for GE, or the
Debtor will agree to service the Owned Loans for GE with the additional
management and/or consultation of UDC. In consideration of (i) GE's cash
bid to acquire only the Owned Loans, (ii) the Debtor
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Robert E. Richards, Esq.
November 14, 1997
Page 4
retaining the Retained Property, and (iii) UDC's guaranty to GE that GE
will recover 100% of the Secured Claim Recovery Amount (defined below), UDC
will be granted the Replacement Lien to secure the Secured Claim Recovery
Amount, as both are defined below.
Whether the Bank Group or GE is the successful purchaser at the Sale,
UDC (as servicer of the Owned Loans and with the consent of the Bank Group
or GE, as appropriate) will share with the Debtor's unsecured creditors the
80%-20% Split (described below) on the Owned Loans. In any event, if GE is
not a bidder, or is not the ultimate purchaser of the Owned Loans, for cash
at the Sale, the Agent intends to credit bid (on behalf of the Bank Group)
the Purchase Price and acquire the Owned Loans.
2. Release of Lien on and Application of Tax Refunds to Payment of DIP
Facility, Assessment of Modified Financing and Overadvance Fee and Granting
of Additional or Replacement Lien to Bank Group or UDC.
A. Release of Lien and Application of Tax Refunds. Upon entry of a
court order, pursuant to 11 U.S.C. Section 363, approving the sale of the
Owned Loans to either the Bank Group or GE, the Bank Group, through the
Agent, will release its pre-petition lien on the Retained Property. In
exchange, the Chapter 11 Plan will reaffirm the lien on the Retained
Property, including the Tax Refunds, in favor of UDC as collateral for
repayment of any and all outstanding amounts due UDC pursuant to that
certain "Final Order (1) Authorizing Debtor in Possession Financing; (2)
Granting Liens and Superpriority Administrative Claims; (3) Modifying the
Automatic Stay; (4) Specifying Use of Cash Collateral; and (5) Granting
Adequate Protection Therefor Pursuant to Sections 361 and 363 of the
Bankruptcy Code" dated August 28, 1997 including any amendment providing
for overadvances under the Overadvance Cap ("DIP Facility"). The Debtor
covenants and agrees to utilize the Tax Refunds for no other purpose but
toward the repayment of the outstanding amount due under the DIP Facility
at the time the Tax Refunds are collected, unless and until such amount is
fully paid.
B. Modified Financing and Overadvance Cap Fee. In consideration of (i)
UDC's agreement to waive the maturity date of the DIP Facility, if
necessary, and (ii) agreeing to the Overadvance Cap (as defined below), the
Committee and the Debtor stipulate and agree that the Debtor will pay UDC
on a non-recourse basis a $550,000.00 flat fee, payable prior to initiation
of the 80%-20% Split (as defined below) solely from collections from the B
Piece and secured by a pledge of the B Piece subordinate to the DIP
Facility and the Secured Claim Recovery Amount (the "Modified UDC Fee").
C. Grant of Replacement or Additional Lien to UDC. In exchange for the
Bank Group's release of its liens on the Retained Property, and/or if GE
purchases the Owned
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Robert E. Richards, Esq.
November 14, 1997
Page 5
Loans at the Sale for cash and UDC guarantees GE's 100% return on the
Secured Claim Recovery Amount (described below), the Debtor will (i)
guarantee full and timely payment to the Bank Group, or to UDC (if GE
purchases the Owned Loans at the Sale) of the Secured Claim Recovery Amount
(as defined below), non-recourse and (ii) grant the Agent for the Bank
Group (if it is the purchaser by credit bid), or UDC (if GE purchases at
the Sale or otherwise) a lien (the "Replacement Lien") on the stock of
First Merchants Auto Receivables Corporation ("FMARC") and First Merchants
Auto Receivables Corporation II ("FMARC II"), the holders of the residual
interests and certain equity certificates (collectively herein referred to
as the "B Pieces") of the Debtor's various securitized loan pools (the
"Securitized Pools"). The Replacement Lien will secure payment of any
shortfall between (i) collections and proceeds of the Owned Loans and (ii)
the Purchase Price plus interest at the rate of 11% from and after the Sale
Date until paid in full, plus an additional charge (the "Owned Loan
Servicing Fee"), calculated on a monthly basis, of the greater of 1/12 of
3-1/4% of the outstanding principal balance of the Owned Loans, or $15.00
per Contract, applied only to Contracts which are less than 120 days past
due at the end of such month and for which the related vehicle has not been
repossessed (collectively, the "Secured Claim Recovery Amount"). In the
event that UDC withdraws its support for, or is unable or unwilling to
consummate the Chapter 11 Plan for any reason, the Replacement Lien will be
null and void and, notwithstanding any other provisions of this Modified
Plan Agreement, neither UDC, the Bank Group nor GE will be entitled to any
distributions from the B Pieces to cover any shortfalls on the Secured
Claim Recovery Amount. In all other circumstances, including whether no
plan is confirmed or a competing plan not involving UDC is confirmed, the
Agent or, UDC as applicable will retain the Replacement Lien. UDC, the
Debtor and the Committee further acknowledge and agree, if, and as long as,
UDC services the Owned Loans, that the Owned Loan Servicing Fee will be
payable to UDC rather than the Bank Group or GE and will be payable solely
from the proceeds of the Owned Loans and the Replacement Lien.
3. Servicing of Bank Group Collateral, Greenwich Collateral and Securitized
Pools. Upon completion of the Sale, UDC will become involved immediately in
all servicing of the Owned Loans, the Greenwich Collateral and the
Securitized Pools. UDC will either service the Owned Loans itself, or UDC
(or GE if GE is the successful purchaser) will contract with the Debtor to
allow the Debtor to service the Owned Loans with supervision or
consultation by UDC. As to the Greenwich Collateral and the Securitized
Pools, the Debtor will continue to service with the management,
supervision, or consultation of UDC until confirmation of the Chapter 11
Plan ("Plan Confirmation"). Prior to Plan Confirmation, UDC and the Debtor
will enter into (a) an interim management or consulting agreement allowing
UDC and/or the Debtor to service the Owned Loans (either on behalf of UDC
as the Majority Lender of the Bank Group, or for GE) and (b) an interim
management or consulting agreement allowing UDC to
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Robert E. Richards, Esq.
November 14, 1997
Page 6
oversee the Debtor's servicing of the Greenwich Collateral and the
Securitized Pools. Upon Plan Confirmation, UDC will acquire that portion of
the Retained Property and only that portion of the Retained Property
comprising the Debtor's servicing platform to allow UDC (subject to
approval by Financial Security Assurance, Inc. ("FSA")) to continue to
service the Owned Loans, the Greenwich Collateral and the Securitized Pools
in consideration of the terms of this Modified Plan Agreement.
4. Increased Securitized Pool Servicing Fee. Subject to FSA approval (or
any other consents required pursuant to governing documents), UDC and the
Debtor will require immediate adjustment of the base percentage fee to the
greater of 1/12 of 3 1/4%, or $15.00 per Contract, calculated on a monthly
basis, on the outstanding principal balance of the Securitized Pools and
the Greenwich Collateral applied only to Contracts which are less than 120
days past due at the end of such month, and for which the related vehicle
has not been repossessed (the "Securitized Pools Servicing Fee") for
servicing and collection of the Securitized Pools. Prior to Plan
Confirmation, the Securitized Pools Servicing Fee will be received by the
Debtor. After Plan Confirmation, the Securitized Pools Servicing Fee will
be received by UDC. UDC acknowledges that the pre-Plan Confirmation and
post-Plan Confirmation management and/or servicing agreements between UDC
and the Debtor must be acceptable to the Committee to ensure optimal
collections for the benefit of all parties.
5. 80%-20% Contribution Agreement. As to collections and proceeds of the
Owned Loans, once either the Bank Group or GE collects the Secured Claim
Recovery Amount, UDC, or the Debtor (with the consultation and assistance
of UDC) as the servicer of the Owned Loans, with the consent of the Bank
Group or GE, as applicable, will share with the Debtor's unsecured
creditors 80%-20% (80% to the unsecured creditors and 20% to UDC) on all
collections and proceeds received from the Owned Loans ("80%-20% Split").
The first distributions to the Debtor from the B Pieces (to which the
Debtor is entitled directly or by dividend or other transfer from FMARC and
FMARC II) will be utilized to first retire the Secured Claim Recovery
Amount, to the extent that the Secured Claim Recovery Amount remains
outstanding. Any excess distributions to the Debtor from the B Pieces of
the Securitized Pools will be used to satisfy in full any remaining
indebtedness to UDC under the DIP Facility (including any advance within
the Overadvance Cap, as defined below), if any (after application of the
Tax Refunds). After payment of the Secured Claim Recovery Amount and the
DIP Facility the next proceeds from the B Pieces will be utilized to
satisfy the Modified UDC Fee in full. After application of the
distributions to the Debtor from the B Pieces as set forth above, UDC will
share with the Debtor's unsecured creditors all remaining collections on
the B Pieces on an 80%-20% Split.
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Robert E. Richards, Esq.
November 14, 1997
Page 7
The Chapter 11 Plan will also provide for any and all collections and
proceeds received on the Greenwich Collateral, after payment of the debt to
Greenwich, to be contributed first toward repayment of the DIP Facility,
then to the Debtor's post-Plan Confirmation operating expenses.
6. Advance Under the DIP Facility to Pay Administrative and
Post-Confirmation Operating Expenses. UDC agrees to allow the Debtor to
utilize the DIP Facility to pay all administrative expenses required to be
paid under the chapter 11 Plan (including professional fees charged to the
bankruptcy estate), plus post-Plan Confirmation operating expenses of the
Debtor. UDC hereby agrees to make additional advances under the DIP
Facility (in excess of the current limit of $10,000,000 on such advances)
to pay administrative and post-Plan Confirmation operating expenses of the
Debtor; provided, however, that the total amount of the advances under the
DIP Facility shall not exceed $16,500,000.00 (the Overadvance Cap).
Included in such administrative expenses to be paid on the effective date
of the Chapter 11 Plan is a payment to UDC for reimbursement of UDC's
out-of-pocket expenses related to the DIP Facility not to exceed $100,000
and subject to submission to the Debtor and the Committee of detailed
supporting documentation. No administrative and post-Plan Confirmation
operating expenses of the Debtor can be paid by the Debtor through the DIP
Facility in excess of the Overadvance Cap.
7. Press Releases. All parties will work cooperatively with one another
regarding sharing of expected public disclosure of this Modified Plan
Agreement to provide each party sufficient time to prepare for the reaction
to such public disclosure. This provision does not, however, apply to
announcements or other disclosures by the Debtor to its employees.
8. Agreement as to Allowance of Professional Fees. Subject to paragraph
1(A), above, the Debtor, the Committee and UDC agree to confer with one
another and attempt to mutually agree upon the amount of the professional
fees and costs for all parties that are to be incorporated into and paid in
this bankruptcy case, subject to appropriate court approval. This includes
the fees and costs of the Debtor and Committee professionals, as well as
fees and costs to be charged to the DIP Facility. Absent such agreement,
UDC and the Committee's and Debtor's professionals reserve the right to
seek court approval of all such fees upon motion, notice and a hearing. As
to the Purchase Price, if (i) no agreement is reached as to the
post-petition fees and costs to be included, (ii) UDC, the Debtor, the
Committee or some other party in interest files an objection to such fees
and expenses, and (iii) at a subsequent hearing, the court reduces or
increases the amount of the post-petition fees and costs that may
reasonably be included in the Purchase Price (the "Adjusted Amount"), the
Purchase Price will be reduced by an amount equal to the Adjusted Amount
for the purpose of calculating the Secured Claim Recovery Amount.
<PAGE> 8
Robert E. Richards, Esq.
November 14, 1997
Page 8
9. Modification of DIP Facility Interest Rate Upon Confirmation. Commencing
upon the date of Plan Confirmation, the total outstanding principal amount
then due under the DIP Facility (including any advance within the
Overadvance Cap) shall accrue interest (until paid in full) at the rate of
ten percent (10%) per annum.
10. Contribution of Warrants. UDC will agree to provide to the Debtor's
estate 325,000 3-year warrants to purchase UDC common stock at a price of
$20.00 per share ("UDC Warrants"). The UDC Warrants will be callable by UDC
when UDC common stock trades at a price of $28.50 per share, or greater,
for 10 consecutive days. The UDC Warrants and the common stock to be issued
on exercise of the UDC Warrants will be registered pursuant to the
Securities Act of 1933, prior to any solicitation with respect thereto. All
registration expenses will be paid by UDC. UDC shall use its best efforts
to ensure that such registration shall be effective for three (3) years
after the effective date of the Chapter 11 Plan.
11. UDC Waiver of $1 Million Fee, and Elimination of DIP Facility
Commitment Fee. UDC agrees to waive its required $1 million one time only
commitment fee as contemplated under the Plan Agreement, and (subject to
paragraph 17 herein) further agrees to waive its DIP Facility commitment
fee.
12. Chapter 11 Plan. Each of UDC, the Debtor and the Committee will support
confirmation of the Chapter 11 Plan consistent with the terms of this
Modified Plan Agreement and which further provides that the UDC Warrants
and the net liquidation proceeds (after payment of the Greenwich debt from
proceeds of the Greenwich Collateral) of all Retained Property including
the Debtor's distributions from the B Pieces not otherwise dealt with in
this Modified Plan Agreement will be distributed to the Debtor's unsecured
creditors, subject to reallocation of UDC Warrants to equity of the Debtor
("Equity") pursuant to paragraph 18, herein, and Equity's right to receive
remaining Retained Property after allowed unsecured claims are paid in
full.
13. UDC, Bank Group and D&O Releases. The order approving the sale of the
Owned Loans to either the Bank Group or GE will expressly provide that, at
the time of the Sale, the Bank Group possessed a valid, enforceable, first
priority lien in the Owned Loans. Upon confirmation of the Chapter 11 Plan,
the Debtor and any creditor class receiving a distribution or other payment
under the Chapter 11 Plan shall be deemed to grant (i) UDC and the Bank
Group a complete and unconditional release and waiver of any and all claims
and causes of action; such release shall not extend to liability arising
from any unsecured swap or interest rate obligations, or to LaSalle
National Bank as indenture trustee for the subordinate noteholders, but
shall extend to any successor liability of UDC as a member, Agent or
participant of the Bank Group; and (ii) post-petition directors and
<PAGE> 9
Robert E. Richards, Esq.
November 14, 1997
Page 9
officers and agents of the Debtor a complete and unconditional release and
waiver of any and all causes of action related to the Debtor. The
Committee's agreement to support the releases of post-petition directors,
officers and agents is subject to the Debtor's agreement to a meeting or
phone conference to review detail on the Overadvance budget and provision
of weekly updates thereafter until Plan Confirmation.
14. Continuance of Pending 9019 Motion. Upon execution of this Modified
Plan Agreement, the request by the Bank Group, UDC and the Debtor to
approve the settlement agreement and releases pursuant to that certain
Joint Motion for Order Authorizing and Approving (1) Settlement and
Compromise Pursuant to Bankruptcy Rule 9019 Between and Among the Debtor,
the Bank Group and Ugly Duckling Corporation Regarding DIP Financing; and
(2) Sale and Transfer of the Bank Group's Secured Claim Against the Debtor
to Ugly Duckling Corporation Pursuant to Bankruptcy Rule 3001(e) (the "9019
Motion") will be continued until Plan Confirmation, and all Bank Group and
UDC releases will be dealt with and acquired through the confirmed Chapter
11 Plan, at which time the 9019 Motion will be dismissed.
15. Interim Expansion of $500,000.00 Carve Out. UDC will agree during the
pendency of the Chapter 11 Plan confirmation process that, notwithstanding
UDC's interpretation of the $500,000.00 professional fee carve out in the
DIP Facility, professionals of the Debtor and Committee may be paid 80% of
their reasonable fees and 100% of their costs on an interim basis, and be
entitled to full payment of such fees and expenses on the effective date of
the Chapter 11 Plan, subject to Court approval, even though such payment
exceeds the existing $500,000.00 cap. This agreement to modify UDC's
interpretation of the existing professional fee limitation is contingent
upon the parties executing this binding agreement.
16. No Shop. The Debtor and the Committee agree and are hereby prohibited
from further shopping this Modified Plan Agreement to third parties and,
except as otherwise provided herein, later withdrawing its support of the
Modified Plan Agreement. However, neither the Committee nor the Debtor is
prohibited from analyzing and supporting competing third-party proposals if
such proposal provides a higher percentage return to creditors of the
bankruptcy estate.
17. Breakup Fee. If a competing plan (other than the Chapter 11 Plan) is
confirmed, UDC will be entitled to recover as a breakup fee on a
superpriority basis (a) its $500,000.00 commitment fee under the DIP
Facility; and (b) in addition to all other fees and costs recoverable under
the DIP Facility and the Bank Group Facility, all of its attorneys' fees
and costs incurred involving any and all matters related to negotiation,
documentation and prosecution of the Plan Agreement, the Modified Plan
Agreement and the Chapter 11 Plan.
<PAGE> 10
Robert E. Richards, Esq.
November 14, 1997
Page 10
18. Cure of Executory Contracts and Unexpired Leases. All payments
necessary to cure defaults as a precondition to the Debtor assuming and
assigning to UDC the ALLTELL Contract (the "ALLTELL Cure Costs") will be
paid by the Debtor. Any and all other payments necessary to cure defaults
as a precondition to the Debtor assuming and assigning leases and contracts
to UDC pursuant to the Chapter 11 Plan (or otherwise) will be paid by UDC.
In the event that the amount of the ALLTELL Cure Costs to be paid by the
Debtor are less than $524,782.32 (the "Base ALLTELL Cure Costs"), a
percentage of the UDC Warrants equal to the percentage reduction in the
ALLTELL Cure Costs below the Base ALLTELL Cure Costs will be reapportioned
between and among the Debtor's unsecured creditors and the holders of the
equity ownership in the Debtor at Plan Confirmation.
19. Extension of 11 U.S.C. Section 1121 Exclusivity. The Committee and UDC
stipulate and agree to the entry of an order extending for an additional
ninety (90) days, both the Debtor's 120 and 180 day exclusivity periods for
filing a plan and soliciting acceptances pursuant to 11 U.S.C. Sections
1121(b), and (c)(3); provided, however, that nothing contained herein shall
be construed as a waiver of the Committee's right to file a motion to
terminate the Debtor's extended exclusivity period.
20. Prior Approval. This Modified Plan Agreement is expressly subject to:
(a) execution and filing with the bankruptcy court of a definitive plan
agreement (including the form of the UDC management, servicing or
consulting agreements, structure of the reorganized Debtor and resolution
of remaining issues between the Debtor, the Debtor's equityholders and the
Committee) and approval by the bankruptcy court; and (b) approval of the
Securitized Pool's Servicing Fee (provided that UDC may unilaterally waive
this Section 20 (b)).
21. Acceptance. By signing this letter where appropriate below, UDC, the
Debtor and the Committee agree that this letter will suffice as an
agreement binding the signatories to support a plan of reorganization
containing these terms, and not containing other provisions materially
altering the provisions herein, subject only to the fiduciary obligations,
if any, of the Debtor and the Committee to consider higher and better
offers, if any.
22. Counterparts. This Agreement can be signed by all parties in
counterparts. Facsimile signatures are acceptable.
<PAGE> 11
Robert E. Richards, Esq.
November 14, 1997
Page 11
Sincerely,
SNELL & WILMER
/s/
--------------------------------
Christopher H. Bayley
CHB:mjm
Expressly reviewed, accepted, acknowledged and agreed to.
FAEGRE & BENSON LLP FIRST MERCHANTS ACCEPTANCE CORP.
DEBTOR AND DEBTOR IN POSSESSION
By /s/ By /s/
------------------------------------- -----------------------------------
Stephen M. Mertz William Plamondon, President and
Michael R. Stewart CEO
Attorneys for Official Committee of
Unsecured Creditors
SONNENSCHEIN NATH & ROSENTHAL
By /s/
-------------------------------------
Robert E. Richards
Attorneys for the Debtor and Debtor
in Possession
THE OFFICIAL COMMITTEE OF UNSECURED UGLY DUCKLING CORPORATION
CREDITORS OF FIRST MERCHANTS
ACCEPTANCE CORPORATION
By /s/ By /s/
------------------------------------- ---------------------------------
James Graves Gregory B. Sullivan
Its Chairperson Its President
<PAGE> 12
Robert E. Richards, Esq.
November 14, 1997
Page 12
SNELL & WILMER L.L.P.
By /s/
-------------------------------------
Christopher H. Bayley
Attorneys for Ugly Duckling
Corporation
