SUBORDINATION AND STANDSTILL AGREEMENT
THIS SUBORDINATION AND STANDSTILL AGREEMENT ("Agreement") is entered into
by and among UGLY DUCKLING CORPORATION, a Delaware corporation ("UDC"), UGLY
DUCKLING CAR SALES AND FINANCE CORPORATION, an Arizona corporation ("UDCSFC"),
VERDE INVESTMENTS, INC., an Arizona corporation ("Verde") and BNY MIDWEST TRUST
COMPANY, as Collateral Agent ("Collateral Agent") for the Lenders ("Senior
Lenders") under that certain Senior Secured Loan Agreement dated January 11,
2001.
RECITALS
A. UDC is or will be borrowing money and obtaining credit from Verde
pursuant to that certain Loan Agreement dated January 11, 2001 among UDC and
Verde ("Junior Loan Agreement");
B. UDC is also in the process of obtaining a loan from the Senior Lenders
pursuant to the Senior Loan Agreement (as defined below); and
C. The Senior Lenders have indicated that they will enter into the Senior
Loan Agreement if certain conditions are met, including, without limitation, the
requirement that Verde execute this Agreement.
NOW, THEREFORE, as an inducement to the Senior Lenders to enter into the
Senior Loan Agreement and for other valuable consideration, the parties hereto
agree as follows:
1. INDEBTEDNESS AND LIENS SUBORDINATED. Verde subordinates (i) all
indebtedness and other obligations of every type and nature created under
or in connection with the Junior Loan Agreement, including any amendments
or modifications thereto, and now or at any time hereafter owing from UDC
to Verde pursuant to the Junior Loan Agreement (including, without
limitation, interest thereon which may accrue subsequent to UDC becoming
subject to any state or federal debtor-relief statute) ("Junior Debt") and
(ii) all liens and/or security interests held by Verde in any Collateral
("Junior Liens") to the prior payment in full in cash of all Senior Debt
(as defined below) and all liens and/or security interests held by the
Senior Lenders in the Collateral ("Senior Liens"). Subject to the
provisions of Section 3, Verde irrevocably agrees and directs that all
Senior Debt shall be paid in full in cash prior to UDC making any payment
on any Junior Debt, unless the Senior Lenders authorize such payments on
the Junior Debt. Verde will, and the Collateral Agent is authorized in the
name of Verde from time to time to, execute and file such financing
statements and other documents as the Collateral Agent may require in order
to give notice to other persons and entities of the terms and provisions of
this Agreement. For purposes hereof, the term "Senior Debt" means the
"Obligations" (as such term is defined in the Senior Loan Agreement),
together with (a) any partial or complete refinancing of the Obligations,
(b) any amendments, restatements, modifications, renewals or extensions of
any of the foregoing, and (c) any interest accruing on any of the foregoing
before or after the commencement of any bankruptcy, insolvency,
reorganization or similar proceeding, without regard to whether or not such
interest is an allowed claim. For purposes hereof, the term "Senior Loan
Agreement" means that certain Senior Secured Loan Agreement dated as of
January 11, 2001 by and among UDC, certain Lenders and Collateral Agent, as
the same may be amended, supplemented or otherwise modified from time to
time. For purposes hereof, the term "Senior Debt Documents" means the
Senior Loan Agreement and all other documents, instruments and agreements
evidencing, pertaining to or securing all or any portion of the Senior
Debt.
2. COLLATERAL. The word "Collateral" shall have the same meaning as
specified in the Senior Loan Agreement. If share certificates or other
instruments representing the Collateral were delivered to the Collateral
Agent to effect perfection of the Senior Liens as provided under the terms
of that certain Stock Pledge Agreement dated January 11, 2001 among UDC,
UDCSFC, Ugly Duckling Receivables II, Ugly Duckling Receivables Corp. III
and the Collateral Agent (as the same may be amended, modified or replaced,
the "Senior Stock Pledge Agreement") and Senior Lenders, the Collateral
Agent acknowledges and agrees, that in addition to holding such
certificates to perfect the Senior Lien, it is holding the share
certificates or other instruments representing the Collateral on behalf of
Verde to perfect Verde's Junior Liens. Further, the Collateral Agent agrees
that it will not deliver or return to UDC, UDCSFC or, except pursuant to
foreclosure or similar proceedings under the Senior Stock Pledge Agreement,
any other party and UDC and UDCSFC agree that they will not accept or
receive the share certificates or other instruments representing the
Collateral. Instead, except pursuant to foreclosure or similar proceeding
under the Senior Stock Pledge Agreement, the same shall be returned only to
Verde according to the terms of that certain Stock Pledge Agreement dated
January 11, 2001 among UDC, UDCSFC and Verde, unless otherwise agreed in
writing by Verde. Except for the obligation to deliver the share
certificates or other instruments representing the Collateral to Verde as
provided herein, the Collateral Agent owes no further duty and has no other
obligation to Verde with respect to the share certificates or other
instruments and shall have no liability to Verde unless Collateral Agent's
actions or omissions with respect to the same constitute gross negligence
or willful misconduct.
3. RESTRICTION OF PAYMENT OF JUNIOR DEBT; DISPOSITION OF PAYMENTS
RECEIVED BY VERDE. UDC will not make, and Verde will not accept or receive,
any payment or benefit in cash or otherwise (or exercise any right of, or
permit any set-off with respect to, the Junior Debt), directly or
indirectly, on account of any amounts owing on the Junior Debt. However,
UDC may make, and Verde may accept, (i) payments of interest only owing in
accordance with the terms of the Junior Debt and (ii) payments of principal
to the extent permitted under the Senior Loan Agreement, in each case
provided that (a) at the time of such payment and after giving effect
thereto, no Event of Default under the Senior Loan Agreement shall have
occurred and be continuing, and (b) both before and after giving effect to
such payments, UDC will remain in compliance with the covenants set forth
in Sections 6.13 to 6.18 of the Senior Loan Agreement. In the event payment
is made in violation of this Paragraph, Verde shall promptly deliver the
same to the Collateral Agent in the form received, with any endorsement or
assignment necessary for the transfer of such payment from Verde to the
Collateral Agent, to be either (in the Collateral Agent's sole discretion)
held as cash collateral securing the Senior Debt or applied in reduction of
the Senior Debt in such order as the Collateral Agent shall determine, and
until so delivered, Verde shall hold such payment in trust for and on
behalf of, and as the property of, the Collateral Agent for the benefit of
the holders of the Senior Debt. In the event that Verde shall exercise any
right of set-off which Verde is not permitted to exercise under the
provisions of this Agreement, Verde shall promptly pay over to the
Collateral Agent, in immediately available funds, an amount equal to the
amount of the claims or obligations offset. If Verde fails to make any
endorsement required under this Agreement, the Collateral Agent is hereby
irrevocably appointed as the attorney in-fact (which appointment is coupled
with an interest) for Verde to make such endorsement in Verde's name.
4. ACTION ON SUBORDINATED DEBT. As long as this Agreement is in
effect, Verde will not take any action or initiate any proceedings,
judicial or otherwise, to enforce Verde's rights or remedies with respect
to any Junior Debt and/or Junior Liens, including, without limitation, any
action to enforce remedies with respect to any Collateral or to obtain any
judgment or prejudgment remedy against UDC or any of its Subsidiaries or
any such Collateral. Further, Verde will not commence any action or
proceeding against UDC or any of its Subsidiaries to recover all or any
part of the Junior Debt, or join with any other creditor (unless the
Collateral Agent shall so join) in bringing any proceeding against UDC or
any of its Subsidiaries under any bankruptcy, reorganization, readjustment
of debt, arrangement of debt receivership, liquidation or insolvency law or
statute of the federal or any state government, or take possession of,
sell, or dispose of any Collateral, or exercise or enforce any right or
remedy available to Verde with respect to any such Collateral, unless and
until the Senior Debt has been paid in full in cash. Nothing in this
Agreement restricts Verde in giving any notice of default and/or
acceleration of payment of the Junior Debt or taking any other action to
preserve and enforce its rights under the Junior Loan Agreement, provided
such actions do not result in any payment on the Junior Debt not expressly
permitted hereunder prior to payment of the Senior Debt in full in cash.
Nothing in this Agreement restricts Verde and/or its affiliates in
enforcing any rights and remedies against UDC and/or its affiliates under
any other agreements between Verde and/or its affiliates and UDC and/or its
affiliates to the extent such other agreements do not relate to, and do not
have the effect, directly or indirectly, of repaying the Junior Debt.
5. DISPOSITION OF EVIDENCE OF INDEBTEDNESS. If there is any existing
promissory note or other evidence of any Junior Debt, or if any promissory
note or other evidence of the Junior Debt is executed at any time hereafter
with respect thereto, then UDC and Verde will xxxx the same with a legend
stating that it is subject to this Agreement. Verde shall not, without the
Collateral Agent's prior written consent, assign, transfer, hypothecate or
otherwise dispose of any claim it now has or may at any time hereafter have
against UDC at any time that any Senior Debt remains outstanding and/or the
Senior Lenders remain committed to extend any credit to UDC.
6. CONTINUING EFFECT. This Agreement shall constitute a continuing
agreement of subordination, and the Senior Lenders may, without notice to
or consent by Verde, modify any term of the Senior Debt in reliance upon
this Agreement. Without limiting the generality of the foregoing, the
Collateral Agent and Senior Lenders may, at any time and from time to time,
without the consent of or notice to Verde and without incurring
responsibility to Verde or impairing or releasing any of the Senior
Lenders' or Collateral Agent's rights or any of Verde's obligations
hereunder:
(a) change the interest rate, change the amount of payment, make
further advances to UDC under the Senior Debt, extend the time for
payment or renew or otherwise alter the terms of the Senior Debt or
any instrument evidencing the same in any manner;
(b) sell, exchange, release or otherwise deal with any property
at any time securing payment of the Senior Debt or any part thereof;
(c) release anyone liable in any manner for the payment or collection
of the Senior Debt or any part thereof; (d) exercise or refrain from
exercising any right against UDC or any other person (including
Verde); (e) and apply any sums received by the Collateral Agent, by
whomsoever paid and however realized, to the Senior Debt in such
manner as the Collateral Agent shall deem appropriate.
7. ADDITIONAL WAIVERS BY VERDE. Verde hereby waives notice of the
creation, existence, renewal, or modification or extension of the time of
payment, of the Senior Debt. Verde agrees that the Senior Lenders, at any
time and from time to time, either before or after revocation of this
Agreement, may enter into such agreement or agreements with UDC and its
affiliates, as the Senior Lenders may deem proper, extending the time of
payment or renewing or otherwise altering the terms of all or any of the
obligations of UDC to the Senior Lenders, or affecting the Senior Liens, or
may exchange, sell or surrender or otherwise deal with any such security,
or may release any balance of funds of UDC with the Senior Lenders, without
notice to Verde and without in any way impairing or affecting this
Agreement.
8. FORECLOSURE OF COLLATERAL. Notwithstanding the Junior Liens, any
other provision hereof or any security interest hereafter acquired by
Verde, the Collateral Agent may take possession of, sell, dispose of, and
otherwise deal with all or any part of the Collateral, and may enforce any
right or remedy available to it with respect to the Collateral, all without
notice to or consent of Verde except as specifically required by applicable
law. Except as provided in Section 2, the Collateral Agent shall have no
duty to preserve, protect, care for, insure, take possession of, collect,
dispose of, or otherwise realize upon any of the Collateral, and in no
event shall the Collateral Agent be deemed Verde's agent with respect to
the Collateral. All proceeds received by the Collateral Agent with respect
to any Collateral may be applied, first, to pay or reimburse the Collateral
Agent for all costs and expenses (including reasonable attorneys' fees and
costs) incurred by the Collateral Agent in connection with the collection
of such proceeds, and, second, to any indebtedness secured by the Senior
Liens in any order that it may choose.
9. INFORMATION. Verde has established adequate, independent means of
obtaining from UDC on a continuing basis financial and other information
pertaining to UDC's financial condition. Verde agrees to keep adequately
informed from such means of any facts, events or circumstances which might
in any way affect Verde's risks hereunder, and Verde agrees that the Senior
Lenders and the Collateral Agent shall have no obligation to disclose to
Verde information or material about UDC which is acquired by the Senior
Lenders or Collateral Agent in any manner. The Senior Lenders and the
Collateral Agent may, at their sole option and without obligation to do so,
disclose to Verde any information or material relating to UDC which is
acquired by them by any means, and UDC hereby agrees to and authorizes any
such disclosure.
10. TRANSFER OF ASSETS OR REORGANIZATION OF UDC. In the event of any
distribution, division, or application, partial or complete, voluntary or
involuntary, by operation of law or otherwise, of all or any part of the
assets of UDC or any of its Subsidiaries, or the proceeds thereof, to
creditors of UDC or any of its Subsidiaries, by reason of the liquidation,
dissolution, or other winding up of UDC's or any of its Subsidiaries'
business, or in the event of any sale, receivership, insolvency or
bankruptcy proceedings by or against UDC or any of its Subsidiaries, or
assignment for the benefit of creditors, or of any proceedings by or
against UDC or any of its Subsidiaries for any relief under any bankruptcy
or insolvency laws, or relating to the relief of debtors, readjustment of
indebtedness, reorganizations, arrangements, compositions or extensions, or
of any other event whereby it becomes necessary or desirable to file or
present claims against UDC or any of its Subsidiaries for the purpose of
receiving payment thereof, or on account thereof, then and in any such
event, any payment or distribution of any kind or character, either in cash
or other property, which shall thereafter be made or shall thereafter be
payable with respect to any Junior Debt shall be paid over to Collateral
Agent for application to the payment of the Senior Debt, whether due or not
due, and no payments shall be made upon or in respect of Junior Debt unless
and until the Senior Debt shall have been paid and satisfied in full in
cash. In any such event, all claims of the Collateral Agent and all claims
of Verde shall, at the option of the Senior Lenders, forthwith become due
and payable without demand or notice.
11. REPRESENTATIONS AND WARRANTIES. Verde hereby represents and
warrants:
(a) Verde owns the Junior Debt and Junior Liens free and clear of
any lien, security interest or other encumbrance; (b) Verde has all
requisite power and authority to execute, deliver and perform this
Agreement; (c) The execution, delivery and performance by Verde of
this Agreement is not and will not contravene any law or governmental
regulation or any contractual restriction binding on or effecting
Verde; (d) No authorization or approval or other action by, or notice
to, or filing with any governmental authority or other regulatory body
or consent of any other person is required for the due execution,
delivery and performance by Verde of this Agreement; and (e) This
Agreement constitutes the legal, valid and binding obligation of
Verde, enforceable against it in accordance with its terms.
12. POWER OF ATTORNEY. Verde irrevocably authorizes and empowers
Collateral Agent, or any person Collateral Agent may designate, to act as
attorney for Verde with full power and authority in the name of Verde, or
otherwise, to make and present such claims or proofs of claims against UDC
on account of the Junior Debt as Collateral Agent, or its appointee, may
deem expedient and proper and, if necessary, to vote such claims in any
proceedings and to receive and collect any and all dividends or other
payments and disbursements made thereon in whatever form they may be paid
or issued, and to give acquittance therefor and to apply same to the Senior
Debt, and Verde hereby agrees, from time to time and upon request, to make,
execute and deliver to Collateral Agent such powers of attorney,
assignments, endorsements, proofs of claim, pleadings, verifications,
affidavits, consents, agreements or other instruments as may be reasonably
requested by Collateral Agent in order to enable the Collateral Agent to
enforce any and all claims upon, or with respect to, the Junior Debt, and
to collect and receive any and all payments or distributions which may be
payable or deliverable at any time upon or with respect to the Junior Debt.
13. OTHER AGREEMENTS; NO THIRD PARTY BENEFICIARIES. Verde understands
that there may be various agreements between the Senior Lenders and UDC
evidencing and governing the Senior Debt, and Verde acknowledges and agrees
that such agreements are not intended to confer any benefits on Verde.
Verde further acknowledges that the Collateral Agent may administer the
Senior Debt and any of the Senior Lenders' agreements with UDC in any way
the Collateral Agent may deem appropriate, without regard to Verde or the
Junior Debt, except as may be required by applicable law. Verde waives any
right Verde might otherwise have to require a marshalling of any security
held by the Collateral Agent for all or any part of the Senior Debt or to
direct or affect the manner or timing with which the Collateral Agent
enforces any of their security.
14. BREACH OF AGREEMENT BY UDC OR VERDE. In the event of any breach of
this Agreement by UDC or Verde, then and at any time thereafter the
Collateral Agent shall have the right to declare immediately due and
payable all or any portion of the Senior Debt without presentment, demand,
protest or notice of dishonor, all of which are hereby expressly waived by
UDC and Verde. No delay, failure or discontinuance of the Collateral Agent
in exercising any right, privilege, power or remedy hereunder shall be
deemed a waiver of such right, privilege, power or remedy; nor shall any
single or partial exercise of any such right, privilege, power or remedy
preclude, waive or otherwise affect the further exercise thereof or the
exercise of any other right, privilege, power or remedy. Any waiver,
permit, consent or approval of any kind by the Collateral Agent with
respect to this Agreement must be in writing and shall be effective only to
the extent set forth in such writing.
15. DISCLOSURE OF SUBORDINATION. Verde and UDC agree to make and
maintain in their books of account notations reasonably satisfactory to the
Collateral Agent of the rights and priorities of the Senior Lenders
hereunder, and from time to time, upon request, to furnish the Collateral
Agent with sworn financial statements. Collateral Agent may inspect the
books of account and any records of the UDC at any time during business
hours. Verde and UDC agree that any instrument evidencing the Junior Debt
shall be marked with a specific statement that the indebtedness thereby
evidenced is subject to the provisions of this Subordination Agreement.
16. SENIOR LENDERS' RELIANCE. Verde consents and agrees that all
Senior Debt shall be deemed to have been made or incurred at the request of
Verde and in reliance upon this Agreement; provided, however, that neither
the foregoing provision, nor any other provision contained in this
Agreement, shall be deemed or construed to constitute, either directly or
by implication, a guaranty by Verde of any debts, obligations or
liabilities incurred by UDC to the Senior Lenders.
17. MISCELLANEOUS. This Agreement shall be binding upon and inure to
the benefit of the heirs, executors, administrators, legal representatives,
successors and assigns of the parties. All words used herein in the
singular shall be deemed to have been used in the plural where the context
so requires.
18. COSTS, EXPENSES AND ATTORNEYS' FEES. If any party hereto
institutes any judicial or administrative action or proceeding to enforce
any provisions of this Agreement, or alleging any breach of any provision
hereof or seeking damages or any other judicial or administrative remedy,
the prevailing party or parties in such action or proceeding shall be
entitled to receive from the losing party or parties all costs and
expenses, including reasonable attorneys' fees (to include outside counsel
fees and all allocated costs of such party's in-house counsel), incurred in
connection with such action or proceeding.
19. CONFLICT IN AGREEMENTS. If the subordination provisions of any
instrument evidencing the Junior Debt conflict with the terms of this
Agreement, the terms of this Agreement shall govern the relationship
between the Senior Lenders and Verde
20. NO WAIVER. No waiver shall be deemed to be made by the Senior
Lenders of any of its rights hereunder unless the same shall be in writing
signed on behalf of the Senior Lenders, and each such waiver, if any, shall
be a waiver only with respect to the specific matter or matters to which
the waiver relates and shall in no way impair the rights of the Senior
Lenders or the obligations of Verde to the Senior Lenders in any other
respect at any time.
21. BINDING EFFECT; ACCEPTANCE. This Agreement shall be binding upon
Verde and its heirs, legal representatives, successors and assigns and
shall inure to the benefit of the Senior Lenders and their participants,
successors and assigns irrespective of whether this or any similar
agreement is executed by any other creditor of the UDC. Notice of
acceptance by the Senior Lenders of this Agreement or of reliance by the
Senior Lenders upon this Agreement is hereby waived by Verde. 22. GOVERNING
LAW. This Agreement shall be governed by and construed in accordance with
the laws of the State of Arizona.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
January 11, 2001.
UGLY DUCKLING CAR SALES AND FINANCE CORPORATION,
an Arizona corporation
By:
Name:
Title:
UGLY DUCKLING CORPORATION,
a Delaware corporation
By:
Name:
Title:
VERDE INVESTMENTS, INC.,
an Arizona corporation
By:
Name:
Title:
BNY MIDWEST TRUST COMPANY
By:
Name:
Title:
