SECOND AMENDMENT TO LOAN AGREEMENT,
WARRANT AGREEMENT AND WARRANTS
(Ugly Duckling)
This Amendment is entered into as of the 30th day of September, 2000
(the "Effective Date") by and among UGLY DUCKLING CORPORATION, a Delaware
corporation (the "Company") and each lender signatory hereto (each, a "Lender"
and collectively the "Lenders").
RECITALS
A. The Company and Lenders are parties to a Loan Agreement, dated
as of February 12, 1998 as amended on September 30, 1999 (as amended, the
"Loan Agreement") pursuant to which the Lenders made a loan to the Company
in the original principal amount of Fifteen Million Dollars ($15,000,000).
B. The Company and Lenders are parties to a Warrant Agreement,
dated as of February 12, 1998, as amended on June 5, 2000 (as amended,
the "Warrant Agreement") and Warrants for 575,000 shares of Company
common stock (the "Warrants"). The Company and Lenders desire to amend the
Loan Agreement, the Warrant Agreement and the Warrants on the terms and
conditions set forth in this Amendment.
C. Foremost, one of the Lenders, has requested, and the parties
agree, to the pay off of Foremost Insurance Company ("Foremost") and the
reduction of the principal amount of the Loan Agreement from $15 million to
$13.5 million.
In consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged by
each of the parties hereto, the parties agree as follows:
1. Defined Terms. Unless otherwise specified herein, all
capitalized terms used in this Amendment shall have the same meaning given to
such terms in the Loan Agreement, the Warrant Agreement and/or the Warrants,
as applicable.
2. Amendment to Section 2.2 of Loan Agreement. Effective as of
October 1, 2000, the interest rate under Section 2.02 (a) shall change from 12%
to 15%.
3. Amendment to Loan Agreement. Effective as of the Effective
Date the definitions of "Aggregate Commitment" and "Maturity Date" in the Loan
Agreement are amended in their entirety to provide as follows:
"Aggregate Commitment" means the amount of Thirteen Million
Five Hundred Thousand Dollars (($13,500,000).
"Maturity Date" means February 12, 2003.
4. Pay Off and Removal of Foremost as Lender. Company shall pay
to Foremost $1.5 million, plus accrued interest ("Pay Off Amount") by no
later than the Effective Date. Upon receipt by Foremost of the Pay Off Amount
in good funds, Foremost shall have no further interests, obligations or
liabilities under the Loan Agreement and its Warrant Agreement, Company
shall be released from any further liability to Foremost under the Loan
Agreement and the Warrant Agreement, the principal balance under the Loan
Agreement shall be reduced from $15 million to $13.5 million, the maturity date
under the Loan Agreement shall change to February 12, 2003, all of the
Warrants issued to Foremost in connection with the Warrant Agreement, and
the Warrant Agreement with Foremost, shall be void and terminated, the total
number of Warrants outstanding under the Warrant Agreement shall be 517,500, and
Foremost shall be deleted from and shall no longer be a Lender under the Loan
Agreement
5. Amendment to Section 2 of Loan Agreement. Effective as of
the date hereof, a new Section 2.08 shall be added to the Loan Agreement and
shall provide as follows:
"2.08 Principal Repayments. The Lenders may, at any time, upon 45 days
prior written notice to the Company, demand and the Company shall make, a
principal payment in the amount of Three Million Five Hundred Thousand Dollars
($3,500,000). In addition, upon at least 30 days prior written notice before the
end of a quarter (e.g., March 31, June 30, September 30 and December 31 of each
year), the Lenders may request a principal payment of no more than One Million
Dollars ($1,000,000) ("Quarterly Principal Payment") to be paid at the same time
as accrued interest is payable under Section 2.02 (b). In the event that Lenders
do not request the payment of the Quarterly Principal Payment in a quarter, such
amount shall carry forward to the following quarters ("Carry Over Amount") until
paid or the Maturity Date. For any quarter, Lenders may request the payment of
the Carry Over Amount and the current Quarterly Principal Payment; provided,
however, that in no event shall such a request for payment exceed Three Million
Dollars ($3,000,000) in any one quarter. If the Carry Over Amount plus the
current Quarterly Principal Payment in any quarter in which a Three Million
Dollar ($3,000,000) payment is requested exceeds Three Million Dollars
($3,000,000), the balance shall carry forward to subsequent quarters. For
example, assume four quarters elapse and no Quarterly Principal Payment is
requested by Lenders and in the fifth quarter, Lenders timely request a payment
of Three Million Dollars ($3,000,000). The Company would be required to pay the
Three Million Dollars ($3,000,000) and the Carry Over Amount of Two Million
Dollars ($2,000,000) would carry over to the next quarter.
6. Amendment of the Warrant Agreement and Warrants. Effective as
of the Effective Date, the number of outstanding Warrants (as modified or
amended pursuant to the terms of the Warrant Agreement), 517,500 (with the
removal of the Foremost Warrants), available to the Lenders under the Warrant
Agreement and the Warrants shall be reduced pro rata by the amount of any and
all principal reductions made by Company as follows:
(Principal reduction) = ( x ).
------------------- ---------------
$13,500,000 Original Warrant Amount
517,500 minus X equals Y (number of Warrants to be deducted from the total
outstanding). 517,500 minus Y equals the reduced aggregate outstanding number of
Warrants held by Lenders. The reduction in Warrants shall be allocated
proportionately among all Lenders. For purposes of these calculations, the
"Original Warrant Amount" used in the denominator above shall be 517,500, as
that number may be amended or modified under the terms of the Warrant Agreement
or by agreement of the parties (a "Modification"), but not as that number may be
or is modified under the terms of this Section 6. Further, if the number of
outstanding Warrants has been reduced pursuant to this Section 6, and a
Modification occurs, then the Modification shall apply proportionately to the
reduced number of outstanding Warrants, unless otherwise agreed to by the
parties.
For example, if Company makes a principal reduction of One Million Three Hundred
Fifty Thousand Dollars ($1,350,000), or ten percent (10%) of the original
principal loan balance, then the outstanding Warrants would be reduced by ten
percent (10%) or 51,750, and the total outstanding Warrants would then be
reduced from 517,500 to 465,750, the reduction to be split proportionately among
all Lenders (i.e., each Lender would have a 10% reduction in the Warrants held
by them). Assuming there was not a Modification, if there was then a subsequent
principal reduction of the same amount, then there would be another 10%
reduction in the number of outstanding Warrants of 51,750, reducing the total
outstanding number of Warrants held by Lenders to 414,000.
7. Incorporation of Amendment. The parties acknowledge and agree that
this Amendment is incorporated into and made a part of, as applicable, the Loan
Agreement, the Warrant Agreement and/or the Warrants, the terms and provisions
of which are hereby affirmed and ratified and remain in full force and effect,
except as amended hereby. To the extent that any term or provision of this
Amendment is or may be deemed inconsistent with any term or provision of the
Loan Agreement, the Warrant Agreement and/or the Warrants, as applicable, the
terms and provisions of this Amendment shall control. Each reference to the Loan
Agreement, the Warrant Agreement and/or the Warrants, shall be a reference to
the agreements as amended by this Amendment. This Amendment, taken together with
the provisions of the Loan Agreement, the Warrant Agreement and/or the Warrants,
as previously amended, which are all affirmed and ratified by the Company,
contains the entire agreement among the parties regarding the transactions
described herein and supersedes all prior agreements, written or oral, with
respect thereto.
8. Heading. The paragraph headings contained in this
Amendment are for convenience of reference only and shall not be considered a
part of this Amendment in any respect.
9. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of California.
10. Assignments, Participation, Etc. Each Lender acknowledges that it
is currently a Lender under the Loan Agreement, and parties to the Warrant
Agreement and the Warrants, that it has authority to execute and deliver this
Amendment and that it has not assigned any of its rights under the Loan
Agreement, the Warrant Agreement or the Warrants, except to another Lender which
is party to this Amendment.
11. Execution in Counterparts. This Amendment 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.
[Balance of Page Intentionally Left Blank]
<PAGE>
UGLY DUCKLING CORPORATION
By: ______________________
Its:______________________
ARBCO ASSOCIATES, L.P.
By: Kayne Anderson Capital
Advisors, L.P.
Its: General Partner
By: Kayne Anderson
Investment Management, Inc.
Its: General Partner
By: ______________________
Title: ___________________
KAYNE ANDERSON NON-
TRADITIONAL
INVESTMENTS, L.P.
By: Kayne Anderson Capital
Advisors, L.P.
Its: General Partner
By: Kayne Anderson
Investment Management, Inc.
Its: General Partner
By: ______________________
Name: ____________________
Title: ___________________
<PAGE>
KAYNE ANDERSON OFF-SHORE
LIMITED
By: Kayne Anderson Capital
Advisors, L.P.
Its: General Partner
By: Kayne Anderson
Investment Management, Inc.
Its: Manager
By: _______________________
Name: _____________________
Title: ____________________
GLACIER WATER SERVICES,
INC.
By: _______________________
Name: _____________________
Title: ____________________
FOREMOST INSURANCE COMPANY
By: _______________________
Name: _____________________
Title: ____________________
TOPA INSURANCE COMPANY
By: _______________________
Name: _____________________
Its: ______________________
