PROSPECTUS
Ugly Duckling Corporation
446,872 Common Shares
This prospectus relates to up to 446,872 shares of common stock of Ugly
Duckling Corporation which may be sold from time to time by the selling
shareholders named herein, or their transferees, pledgees, donees or successors.
The shares are being registered to permit public secondary trading of
them and may be offered and sold from time to time by the selling shareholders.
The shareholders may sell the common stock through ordinary brokerage
transactions, directly to market makers of our shares, or through any of the
other means described in the section entitled "Plan of Distribution" beginning
on page 9.
We will not receive any of the proceeds from the sale of these shares,
although we have paid the expenses of preparing this prospectus and the related
registration statement.
Our common stock is traded on the Nasdaq National Market under the symbol "UGLY"
-----------------------------
Before purchasing any of the shares covered by this prospectus,
carefully read and consider the risk factors included in the section entitled
"Risk Factors" beginning on page 2. You should be prepared to accept any and all
of the risks associated with purchasing the shares, including a loss of all of
your investment.
Neither the Securities and Exchange Commission nor any state securities
commission has approved the sale of the common stock or determined that the
information in this prospectus is accurate or complete. It is illegal for any
person to tell you otherwise.
The date of this prospectus is November 9, 1999.
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TABLE OF CONTENTS
Page
Ugly Duckling Corporation....................................................1
Recent Developments..........................................................1
Risk Factors.................................................................2
Use of Proceeds..............................................................7
Selling Shareholders.........................................................7
Description of Securities....................................................7
Plan of Distribution.........................................................9
Legal Opinions..............................................................10
Experts................................................................... 10
Where You Can Find More Information.........................................10
You should rely only on the information contained or incorporated by
reference in this prospectus and in any accompanying prospectus supplement. No
one has been authorized to provide you with different information.
The common stock is not being offered in any jurisdiction where the
offer is not permitted.
You should not assume that the information in this prospectus or any
prospectus supplement is accurate as of any date other than the date on the
front of the documents.
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Ugly Duckling Corporation
We operate the largest chain of buy here-pay here used car dealerships
in the United States. We sell and finance our used vehicles to customers within
the sub-prime segment of the used car market. Our customers typically have
limited credit histories, low incomes or past credit problems. As of October 25,
1999, we operated 67 dealerships located in several large markets, including Los
Angeles, Atlanta, Tampa, Orlando, San Antonio, Phoenix and Dallas.
In addition to our dealerships and financing operations, we also
provide financing to other independent used car dealers through our Cygnet
dealer program, service and collect large portfolios of finance receivables
owned by others, and manage selected financial assets that we acquire from
financially distressed third parties.
From 1994 through the first quarter of 1998, we maintained a national
branch office network that acquired and services retail installment contracts
from numerous independent third party dealers. We discontinued these operations
in 1998.
Our principal executive offices are located at 2525 East Camelback
Road, Suite 500, Phoenix, Arizona 85016. The phone number of our executive
offices is 602-852-6600.
Recent Developments
On November 8, 1999, we purchased, through our subsidiary Ugly Duckling Car
Sales, Inc. a Virginia based sub-prime automobile sales and finance company. The
assets acquired include the vehicle inventory and a loan portfolio of
approximately $8.0 million. As part of the acquisition, we issued to the selling
company a promissory note in the amount of $2.7 million. The note bears interest
at a rate of 7.5% per annum and is payable on or before September 8, 2000. In
the event that we default on payment of the note, the holder of the note will
have the right to convert the note into shares of our common stock equal to the
lesser of:
o a number of shares equal to the amount outstanding under the
note divided by the closing price of our common stock as of
the default date; or
o 446,872 shares.
This prospectus relates to the resale of these shares of common stock
in the event we issue them to the holder of the promissory note.
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Risk Factors
Before purchasing any of the shares covered by this prospectus, you
should carefully read and consider the risk factors set forth below. You should
be prepared to accept any and all of the risks associated with purchasing the
shares, including a loss of all of your investment.
Future losses could impair our ability to raise capital or borrow money, as well
as affect our stock price.
o Although we recorded earnings from continuing operations of
$4.2 million for the nine months ended September 30, 1999, we
incurred a net loss of $5.7 million in 1998. We cannot assure
you that we will be profitable in future periods. Losses in
subsequent periods could impair our ability to raise
additional capital or borrow money as needed, and could
decrease our stock price.
We may not be able to continue to obtain the financing we need to fund our
operations.
Our operations require large amounts of capital. We have borrowed, and
will continue to borrow, substantial amounts to fund our operations. If we
cannot obtain the financing we need on a timely basis and on favorable terms,
our business and profitability could be materially affected. We currently obtain
our financing through three primary sources:
o a revolving credit facility with General Electric Capital
Corporation;
o securitization transactions; and
o loans from other sources, including a $38 million loan secured
by residual interests held by the company in respect of its
securitizations (the "Residual Loan").
Revolving Credit Facility with GE Capital. Our revolving facility with
GE Capital is our primary source of operating capital. We have pledged
substantially all of our assets to GE Capital to secure the borrowings we make
under this facility. Although this facility has a maximum commitment of $125
million, the amount we can borrow is limited by the amount of certain types of
assets that we own. In addition, we cannot borrow approximately $8 million
attributable to a guarantee. As of September 30, 1999, we owed approximately
$60.0 million under the revolving facility, and had the ability to borrow an
additional $29.8 million. The revolving facility expires in June 2000. Even if
we continue to satisfy the terms and conditions of the revolving facility, we
may not be able to extend its term beyond the current expiration date.
Securitization Transactions. We can restore capacity under the GE
facility from time to time by securitizing portfolios of finance receivables.
Our ability to successfully complete securitizations in the future may be
affected by several factors, including:
o the condition of securities markets generally;
o conditions in the asset-backed securities markets
specifically;
o the credit quality of our loan contract portfolio; and
o the performance of our servicing operations.
Contractual Restrictions. The revolving facility, the securitization
program, and our other credit facilities contain various restrictive covenants.
Under these credit facilities, we must also meet certain financial tests. We
believe that we are in compliance with the material terms and conditions of the
revolving facility and our other material credit facilities. Failure to satisfy
the covenants in our credit facilities and/or our securitization program, could
preclude us from further borrowing under the defaulted facility and could
prevent us from securing alternate sources of funds necessary to operate our
business.
Recent Waivers. As a result of an increase in delinquencies, the
Company recently obtained a waiver to a technical covenant breach under the
Residual Loan. Although the Company has taken actions to seek to reduce its
delinquencies, there can be no assurance that delinquencies will decline, that
future covenant breaches will not occur relating to delinquencies or other
matters, and that waivers would be obtained in such event.
We have a high risk of credit losses because of the poor creditworthiness of our
borrowers.
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Substantially all of the sales financing that we extend and the
contracts that we service are with sub-prime borrowers. Sub-prime borrowers
generally cannot obtain credit from traditional financial institutions, such as
banks, savings and loans, credit unions, or captive finance companies owned by
automobile manufacturers, because of their poor credit histories and/or low
incomes. Loans to sub-prime borrowers are difficult to collect and are subject
to a high risk of loss. We have established an allowance for credit losses to
cover our anticipated credit losses. However, we cannot assure you that we have
adequately provided for such credit risks or that we will continue to do so in
the future. A significant variation in the timing of or increase in credit
losses in our portfolio would have a material adverse effect on our net
earnings.
We also operate our Cygnet dealer program, under which we provide third
party dealers who finance the sale of used cars to sub-prime borrowers with
financing primarily secured by those dealers' retail installment contract
portfolios and/or inventory. While we require third party dealers to meet
certain minimum net worth and operating history criteria before we loan money to
them, these dealers may not otherwise be able to obtain debt financing from
traditional lending institutions. We have established an allowance for credit
losses to cover our anticipated credit losses. However, we cannot assure you
that we have adequately provided for such credit risks or that we will continue
to do so in the future. Like our other financing activities, these loans subject
us to a high risk of credit losses that could have a material adverse effect on
our net earnings and ability to meet our other financing obligations.
We are affected by various industry considerations and legal contingencies.
In recent years, several major used car finance companies have
announced major downward adjustments to their financial statements, violations
of loan covenants, related litigation, and other events. Companies in the used
vehicle sales and financing market have also been named as defendants in an
increasing number of class action lawsuits brought by customers claiming
violations of various federal and state consumer credit and similar laws and
regulations. In addition, some of these companies have filed for bankruptcy
protection. These events:
o have lowered the value of securities of sub-prime automobile
finance companies;
o have made it more difficult for sub-prime lenders to borrow
money; and
o could cause more restrictive regulation of this industry.
Compliance with additional regulatory requirements may also increase
our operating expenses and reduce our profitability.
Interest rates affect our profitability.
A substantial portion of our financing income results from the
difference between the rate of interest we pay on the funds we borrow and the
rate of interest we earn on the contracts in our portfolio. While we earn
interest on the contracts we own at a fixed rate, we pay interest on our
borrowings under our GE facility at a floating rate. When interest rates
increase, our interest expense increases and our net interest margins decrease.
Increases in our interest expense that we cannot offset by increases in interest
income will lower our profitability.
Laws that limit the interest rates we can charge can adversely affect our
profitability.
We operate in many states that do impose limits on the interest rate
that a lender may charge. When a state limits the amount of interest we can
charge on our installment sales contracts, we may not be able to offset any
increased interest expense caused by rising interest rates or greater levels of
borrowings under our credit facilities. Therefore, these interest rate
limitations can adversely affect our profitability.
Government regulation may limit our ability to recover and enforce receivables
or to repossess and sell collateral.
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We are subject to ongoing regulation, supervision, and licensing under
various federal, state, and local statutes, ordinances, and regulations. If we
do not comply with these laws, we could be fined or certain of our operations
could be interrupted or shut down. Failure to comply could, therefore, have a
material adverse effect on our operations. Among other things, these laws:
o require that we obtain and maintain certain licenses and
qualifications;
o limit or prescribe terms of the contracts that we originate
and/or purchase;
o require specified disclosures to customers;
o limit our right to repossess and sell collateral; and
o prohibit us from discriminating against certain customers.
We believe that we are currently in substantial compliance with all
applicable material federal, state, and local laws and regulations. We may not,
however, be able to remain in compliance with such laws. In addition, the
adoption of additional statutes and regulations, changes in the interpretation
of existing statutes and regulations, or our entry into jurisdictions with more
stringent regulatory requirements could also have a material adverse effect on
our operations.
We are subject to pending actions and investigations relating to our
compliance with various laws and regulations. While we do not believe that
ultimate resolution of these matters will result in a material adverse effect on
the Company (such as fines, injunctions or damages), there can be no assurance
in this regard.
We could experience problems with the recent conversion of our loan servicing
and data processing operations to a single computer system.
We recently converted our chain of dealerships and related loan
servicing data processing operations to a single computer system. These
conversions can cause various problems that can affect our servicing operations
and result in increases in contract delinquencies and charge-offs and decreases
in our servicing income. Failure to successfully complete our conversions could
materially affect our business and profitability.
Our computer systems may be subject to a Year 2000 date failure.
We could be affected by failures of our business systems, as well as
those of our suppliers and vendors, due to Year 2000 issues. Any failure could
result in a disruption of our collection efforts, which would impair our
operations. We have evaluated and remediated our mission critical computer
systems to determine our exposure to Year 2000 issues. We have made
modifications to our computer systems that we believe will allow them to
properly process transactions relating to the Year 2000 and beyond. Even though
we believe our Year 2000 issues have been resolved, there can be no assurances
that all of these modifications have been properly made or that the
modifications will not cause other system problems. We estimate that we will
spend between $2.4 million to $2.7 million for Year 2000 evaluation,
remediation, testing, and replacement. We have spent approximately $2.4 million
through September 30, 1999. We can also be adversely affected by Year 2000
issues in the business systems of our suppliers, vendors, and business partners,
such as utility suppliers, banking partners and telecommunication service
providers. We can also be adversely affected if Year 2000 issues result in
business disruptions or failures that impact our customers' ability to make
their loan payments. Failure to fully address and resolve these Year 2000 issues
could have a material adverse effect on our operations.
We could have a system failure if our current contingency plan is not adequate.
We depend on our loan servicing and collection facilities and on
long-distance and local telecommunications access to transmit and process
information among our various facilities. We use a standard program to prepare
and store off-site backup tapes of our main system applications and data files
on a routine basis. However, we believe that we need to revise our current
contingency plan because of our recent system conversions and significant
growth. Although we are updating our contingency plan during 1999, there could
be a failure in the interim. In addition, the plan as revised may not prevent a
systems failure or allow us to timely resolve any systems failure. Also, a
natural disaster, calamity, or other significant event that causes long-term
damage to any of these facilities or that interrupts our telecommunications
networks could have a material adverse effect on our operations.
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We have certain risks relating to the First Merchants transaction.
We have entered into several transactions in the bankruptcy proceedings
of First Merchants, and have certain risks in the First Merchants' bankruptcy
case:
o We purchased First Merchants ` senior bank debt and sold the
contracts securing the bank claims at a profit to a third
party purchaser (the "Contract Purchaser"). We guaranteed the
Contract Purchaser a specified return on the contracts with a
current maximum of $8 million. Although we obtained a related
guarantee from First Merchants secured by certain assets,
there is no assurance that the First Merchants guarantee will
cover all of our obligations under our guarantee to the
Contract Purchaser.
o We have made debtor-in-possession loans to First Merchants,
secured by certain assets. We have continuing obligations
under our debtor-in-possession credit facility. We have
recently negotiated a settlement with them that has cured an
asserted default and increased our funding obligation by $2.0
million, in exchange for other concessions. Although repayment
of the DIP Facility is secured by certain assets of First
Merchants, there is no guarantee that First Merchants can
fully repay the DIP Facility.
o We have the right to 17 1/2% of recoveries on the contracts
sold to the Contract Purchaser and from certain residual
interests in First Merchants' securitized loan pools, after
First Merchants pays certain other amounts ("Excess
Collections"). We entered into various agreements to service
the contracts in the securitized pools of First Merchants and
the contracts sold to the Contract Purchaser. If we lose our
right to service these contracts, our share of the Excess
Collections can be reduced or eliminated.
Each of the risks described in this section could have a material
adverse effect on our operations.
We may make acquisitions that are unsuccessful or strain or divert our
resources.
In 1999, we have completed one acquisition and have another pending. We
intend to consider additional acquisitions, alliances, and transactions
involving other companies that could complement our existing business. We may
not, however, be able to identify suitable acquisition parties, joint venture
candidates, or transaction counterparties. Additionally, even if we can identify
suitable parties, we may not be able to consummate these transactions on terms
that we find favorable.
Furthermore, we may not be able to successfully integrate any
businesses that we acquire into our existing operations. If we cannot
successfully integrate acquisitions, our operating expenses may increase in the
short-term. This increase would affect our net earnings, which could adversely
affect the value of our outstanding securities. Moreover, these types of
transactions may result in potentially dilutive issuances of equity securities,
the incurrence of additional debt, and amortization of expenses related to
goodwill and intangible assets, all of which could adversely affect our
profitability. In addition to the risks already mentioned, these transactions
involve numerous other risks, including the diversion of management attention
from other business concerns, entry into markets in which we have had no or only
limited experience, and the potential loss of key employees of acquired
companies.
Occurrence of any of these risks could have a material adverse effect on us.
Increased competition could adversely affect our operations and profitability.
Although a large number of smaller companies have historically operated
in the used car sales industry, this industry has attracted significant
attention from a number of large companies. These large companies include
AutoNation, U.S.A., CarMax, and Driver's Mart. These companies have either
entered the used car sales business or announced plans to develop large used car
sales operations. Many franchised new car dealerships have also increased their
focus on the used car market. We believe that these companies are attracted by
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the relatively high gross margins that can be achieved in this market and the
industry's lack of consolidation. Many of these companies and franchised dealers
have significantly greater financial, marketing, and other resources than we do.
Increased competition in our dealership operations could result in increased
wholesale costs for used cars, decreased retail sales prices, and lower margins.
There are numerous financial services companies serving, or capable of
serving, our market. These companies include traditional financial institutions
such as banks, savings and loans, credit unions, and captive finance companies
owned by automobile manufacturers, as well as other non-traditional consumer
finance companies, many of which have significantly greater financial and other
resources than our own. Increased competition may cause downward pressure on the
interest rates that we charge. This pressure could affect the interest rates we
charge on contracts originated by our dealerships or cause us to reduce or
eliminate the acquisition discount on the contracts we purchase from third party
dealers. Either change could have a material effect on the value of our
securities.
The success of our operations depends on certain key personnel.
We believe that our ability to successfully implement our business
strategy and to operate profitably depends on the continued employment of our
senior management team. The unexpected loss of the services of any of our key
management personnel or our inability to attract new management when necessary
could have a material adverse effect on our operations. We currently maintain
key person life insurance on our President and Chief Executive Officer, Gregory
B. Sullivan. Other than Mr. Sullivan, we do not maintain key person life
insurance on any members of our senior management team.
We may be required to issue stock in the future that will dilute the value of
our existing stock.
We have the ability to issue common stock or securities exercisable for
or convertible into common stock which may dilute the securities our existing
stockholders now hold. In particular, issuance of any or all of the following
securities may dilute the value of the securities that our existing stockholders
now hold:
o we have granted warrants to purchase a total of approximately
1.2 million shares of our common stock to various parties with
exercise prices ranging from $6.75 to $20.00 per share;
o we may issue additional warrants in connection with future
transactions;
o we may issue common stock under our various stock option
plans; and
o we may issue common stock in the First Merchants transaction
in exchange for an increased share of collection on certain
contracts that we service for First Merchants.
The voting power of our principal stockholder may limit your voting rights.
Mr. Ernest C. Garcia, II, our Chairman, or his affiliates, held
approximately 32% of our outstanding common stock as of September 30, 1999. As a
result, Mr. Garcia has a significant influence upon our activities as well as on
all matters requiring approval of our stockholders. These matters include
electing or removing members of our board of directors, engaging in transactions
with affiliated entities, causing or restricting our sale or merger, and
changing our dividend policy. The interests of Mr. Garcia may conflict with the
interests of our other stockholders.
There is a potential anti-takeover or dilutive effect if we issue preferred
stock.
Our Certificate of Incorporation authorizes us to issue "blank check"
preferred stock. Our Board of Directors may fix or change from time to time the
designation, number, voting powers, preferences, and rights of this stock. Such
issuances could make it more difficult for a third party to acquire us by
reducing the voting power or other rights of the holders of our common stock.
Preferred stock can also reduce the market value of the common stock.
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Use of Proceeds
The selling shareholders will receive all of the proceeds from the sale
of the common stock offered under this prospectus.
Selling Shareholders
Fresh Start Credit Corp. is the beneficial holder of 446,872 shares of
our common stock being offered for sale under this prospectus. All of these
shares relate to a promissory note that we issued to Fresh Start Credit Corp. in
the amount of $2.7 million. In the event we default on this note the note is
convertible into the lesser of:
o a number of shares equal to the amount outstanding under the
note divided by the closing price of our common stock as of
the default date; or
o 446,872 shares.
We issued the note as partial consideration for our purchase of certain assets
of Fresh Start Credit Corp. and related entities. (See "Recent Developments").
The following table provides information regarding Fresh Start Credit
Corp.'s ownership of our common stock as of October 28, 1999, and as adjusted to
reflect the sale of the securities offered under this prospectus. Unless we have
indicated otherwise, to our knowledge, Fresh Start Credit Corp. has sole voting
and investment power with respect to its securities. If all of the shares
offered under this prospectus are sold, Fresh Start Credit Corp. will not
beneficially own any shares of our stock.
<TABLE>
<CAPTION>
Common Shares Common Shares Offered
Beneficially Owned By this Prospectus Percentage
Name of Selling Shareholder Prior to the Offering Of Class
(Assuming all Shares
are sold)
- ------------------------------------------ --------------------------- ----------------------- -----------------
<S> <C> <C> <C>
Fresh Start Credit Corp. 446,872 446,872 0%
- ------------------------------------------ --------------------------- ----------------------- -----------------
</TABLE>
Description of Securities
We are a Delaware corporation and our affairs are governed by our
certificate of incorporation and bylaws and the Delaware General Corporation
Law. The following description of our capital stock is qualified in its entirety
by reference to the provisions of the our Certificate of Incorporation and
Bylaws, as amended.
The authorized capital stock of Ugly Duckling consists of 100,000,000
shares of common stock, par value $.001 per share, and 10,000,000 shares of
preferred stock, par value $.001 per share. As of October 28, 1999, there were
approximately 14,888,000 shares of common stock issued and outstanding. As of
October 28,1999, there were no issued and outstanding shares of preferred stock.
Common Stock
Holders of common stock are entitled to one vote for each share held of
record on all matters on which stockholders are entitled to vote. Holders of
common stock do not have cumulative voting rights, and therefore holders of a
majority of the shares voting for the election of directors can elect all of the
directors. In such event, the holders of the remaining shares will not be able
to elect any directors.
Holders of common stock are entitled to receive such dividends as may
be declared from time to time by the Board of Directors out of funds legally
available therefor. We do not anticipate paying cash dividends in the
foreseeable future.. In the event of liquidation, dissolution, or winding up of
Ugly Duckling, the holders of common stock are entitled to share ratably in any
corporate assets remaining after payment of all debts, subject to any
preferential rights of any outstanding preferred stock.
Holders of common stock have no preemptive, conversion, or redemption
rights and are not subject to further calls or assessments by us. All of the
outstanding shares of common stock are validly issued, fully paid, and
nonassessable.
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Preferred Stock
The Board of Directors of Ugly Duckling has the authority, without
further action by our stockholders, to issue from time to time up to 10,000,000
shares of preferred stock in one or more series and to fix the number of shares,
designations, voting powers, preferences, optional and other special rights, and
the restrictions or qualifications thereof. The rights, preferences, privileges,
and restrictions or qualifications of different series of preferred stock may
differ with respect to dividend rates, amounts payable on liquidation, voting
rights, conversion rights, redemption provisions, sinking fund provisions, and
other matters. The issuance of preferred stock could:
o decrease the amount of earnings and assets available for
distribution to holders of common stock;
o adversely affect the rights and powers, including voting
rights, of holders of common stock; and
o have the effect of delaying, deferring, or preventing a change
in control of Ugly Duckling.
Other Securities and Registration Rights
In connection with our initial public offering, we issued warrants to
SunAmerica to purchase 121,023 shares, as adjusted, of common stock at an
exercise price per share of $6.75 and to Cruttenden Roth to purchase 170,000
shares of common stock at an exercise price per share of $9.45. The agreements
with respect to the issuance of such warrants provide for certain registration
rights. We are required to use our best efforts to effect such registrations,
subject to certain conditions and limitations, and are required to pay all
expenses of SunAmerica and Cruttenden Roth in connection with any registration
of such securities, except for any underwriting discounts and commissions.
In connection with our initial public offering, we registered the
warrants issued to Cruttenden Roth and the shares underlying such warrants.
Under the terms of such warrants, however, Cruttenden Roth could not exercise
such warrants and sell the underlying common stock until June 21, 1997, and only
pursuant to a currently effective registration statement.
In connection with the First Merchants bankruptcy proceedings, we
issued warrants to First Merchants to purchase a total of 325,000 shares of
common stock at an exercise price of $20.00 per share, through April 1, 2001,
subject to a call provision by us. We have registered theses warrants and the
common stock issuable on exercise of these warrants under the Securities Act of
1933.
In connection with a $15.0 million loan, we issued warrants to the
lenders to purchase a total of 500,000 shares of our common stock at an exercise
price of $10.00 per share, through February 12, 2001, subject to a call
provision by us and containing certain registration rights.
In connection with our involvement in the Reliance Acceptance Group
bankruptcy proceedings, we issued warrants to Reliance to purchase 50,000 shares
of common stock at an exercise price of $12.50 per share, with certain
registration rights, and may be required to issue additional warrants in
connection with these proceedings.
We have authorized for issuance the following:
o 1,800,000 shares of common stock under our Incentive Plan, as
amended.
o 50,000 shares of common stock under our Director Incentive
Plan.
o 800,000 shares of common stock under our 1998 Executive
Incentive Plan o Limitation of Liability and Indemnification
of Directors and Officers
Our Certificate of Incorporation provides that to the fullest extent
permitted by Delaware law, a director of Ugly Duckling shall not be personally
liable to us or our stockholders for monetary damages for breach of such
director's fiduciary duty, except for liability:
o for any breach of the director's duty of loyalty to us or our
stockholders;
o for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law;
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o in respect of certain unlawful dividend payments or stock
redemptions or repurchases; and
o for any transaction from which the director derives an
improper benefit.
The effect of this provision is to eliminate our rights and the rights
of our stockholders (through stockholders' derivative suits on our behalf) to
recover monetary damages against a director for breach of the fiduciary duty of
care as a director (including breaches resulting from negligent or grossly
negligent behavior), except in the situations described above. This provision
does not limit or eliminate our rights or the rights of any stockholder to seek
non-monetary relief such as an injunction or recision in the event of a breach
of a director's duty of care. In addition, our Certificate of Incorporation
provides that we will indemnify any person who is or was a director, officer,
employee, or agent of Ugly Duckling, or who is or was serving at our request as
a director, officer, employee, or agent of another corporation or entity,
against expenses, liabilities, and losses incurred by any such person by reason
of the fact that such person is or was acting in such capacity. We have also
obtained insurance on behalf of our directors and officers for any liability
arising out of such person's actions in such capacity.
We have entered into agreements to indemnify our directors and certain
officers. These agreements, among other things, require us to indemnify our
directors and officers for certain expenses (including attorneys' fees),
judgments, fines, and settlement amounts incurred by any such person in any
action or proceeding, including any action by or in the right of Ugly Duckling,
arising out of such person's services as a director or officer of Ugly Duckling,
any of our subsidiaries, or any other company or enterprise to which such person
provides services at our request. To the extent that our Board of Directors or
stockholders may in the future wish to limit or repeal our ability to provide
indemnification as set forth in our Certificate of Incorporation, such repeal or
limitation may not be effective as to directors or officers who are parties to
the indemnification agreements because their rights to full protection would be
contractually assured by such agreements. It is anticipated that similar
contracts may be entered into from time to time with our future directors. We
believe that the protective provisions in our Certificate of Incorporation and
in the indemnification agreements are necessary to attract and retain qualified
persons as directors and officers.
Certain Bylaw Provisions
Our Bylaws, as amended, contain several provisions that regulate the
nomination of directors and the submission of proposals in connection with
stockholder meetings. Our Bylaws require that, subject to certain exceptions,
any stockholder desiring to propose business or nominate a person to the Board
of Directors at a stockholders meeting must give notice of any proposals not
less than 60 days nor more than 90 days prior to the meeting. Such notice is
required to contain certain information as set forth in the Bylaws. No business
matter shall be transacted nor shall any person be eligible for election as a
director unless proposed or nominated, as the case may be, in strict accordance
with this procedure set forth in our Bylaws.
Although the Bylaws do not give the Board of Directors any power to
approve or disapprove of stockholder nominations for the election of directors
or of any other business desired by stockholders to be conducted at an annual or
any other meeting, the Bylaws may have the effect of precluding a nomination for
the election of directors or the conduct of business at a particular annual
meeting if the proper procedures are not followed or may discourage or deter a
third party from conducting a solicitation of proxies to elect its own slate of
directors or otherwise attempting to obtain control of Ugly Duckling, even if
the conduct of such solicitation or such attempt might be beneficial to us and
our stockholders. Our procedures with respect to all stockholder proposals and
the nomination of directors will be conducted in accordance with Section 14 of
the Security Exchange Act of 1934 and the rules promulgated thereunder.
Transfer Agent and Registrar
The Transfer Agent and Registrar for our common stock is Harris Trust
Company of California, 601 S. Figueroa, Los Angeles, California 90017.
Plan of Distribution
We are registering the common stock covered by this prospectus for the
selling shareholders. As used in this prospectus, the "selling shareholders"
includes the pledgees, donees, transferees, or other successors in interest who
later hold the selling shareholders' interests. We are paying the costs and fees
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of registering the common stock, but the selling shareholders will pay any
brokerage commissions, discounts or other expenses relating to the sale of the
common stock.
The selling shareholders may sell the common stock at market prices
prevailing at the time of sale, at prices related to the prevailing market
prices, at negotiated prices, or at fixed prices, which may be changed. The
selling shareholders may sell some or all of their common stock through:
o ordinary brokers' transactions;
o transactions involving cross or block trades or otherwise on
the Nasdaq National Market;
o purchases by brokers, dealers, or underwriters as principal
and resale by those purchasers for their own accounts under
this prospectus;
o "at the market" to or through market makers or into an
existing market for the common stock;
o in other ways not involving market makers or established
trading markets, including direct sales to purchasers or sales
effected through agents; or
o any combination of the foregoing, or by any other legally
available means.
In its selling activities, the selling shareholders will be subject to
applicable provisions of the Securities Exchange Act of 1934 and its rules and
regulations, including without limitation, Regulation M, which may limit the
timing of purchases and sales of any of the shares of common stock by the
selling shareholders.
The selling shareholders may negotiate and pay broker-dealers
commissions, discounts or concessions for their services. Broker-dealers engaged
by the selling shareholders may allow other broker-dealers to participate in
resales. The selling shareholders and any broker-dealers involved in the sale or
resale of the common stock may qualify as "underwriters" within the meaning of
Section 2(11) of the Securities Act. In addition, the broker-dealers'
commissions, discounts or concession may qualify as underwriters' compensation
under the Securities Act. If the selling shareholders or any broker-dealer
qualifies as an "underwriter," they will be subject to the prospectus delivery
requirements of Rule 153 of the Securities Act, which may include delivery
through the facilities of the NASD. In conjunction with sales to or through
brokers, dealers or agents, the selling shareholders may agree to indemnify them
against liabilities arising under the Securities Act. We know of no existing
arrangements between the selling shareholders, any other shareholder, broker,
dealer, underwriter or agent relating to the sale or distribution of the common
stock.
In addition to selling their common stock under this prospectus, the
selling shareholders may:
o transfer its common stock in other ways not involving market
makers or established trading markets, including by gift,
distribution, or other transfer; or
o sell their common stock under Rule 144 of the Securities Act
rather than under this prospectus, if the transaction meets
the requirements of Rule 144.
Legal Opinions
Snell & Wilmer, L.L.P., of Phoenix, Arizona, will pass upon the
validity of the common stock offered under this prospectus.
Experts
The consolidated financial statements of Ugly Duckling Corporation as of
December 31, 1998 and 1997, and for each of the years and 3-year period ended
December 31, 1998, have been incorporated by reference herein and in the
Registration statement in reference on the report of KPMG LLP, independent
auditors, incorporated by reference, and upon the authority of said firm as
experts in accounting and auditing.
Where You Can Find More Information
Government Filings: We file annual, quarterly and special reports and
other information with the Securities and Exchange Commission. You may read and
copy any document that we file at the Commission's Public Reference Room at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at its regional
offices located at 7 World Trade Center, 13th Floor, New York, New York 10048,
and at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Please call the Commission at 1-800-SEC-0330 for more
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information about the Public Reference Rooms. Most of our filings are also
available to you free of charge at the Commission's web site at
http://www.sec.gov.
Stock Market: Our common stock is listed on the Nasdaq National Market
and similar information can be inspected and copied at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
Registration Statement: We have filed a registration statement under the
Securities Act with the Commission with respect to the common stock offered
under this prospectus. This prospectus is a part of the registration statement.
However, it does not contain all of the information contained in the
registration statement and its exhibits. You should refer to the registration
statement and its exhibits for further information about Ugly Duckling
Corporation and the common stock offered under this prospectus.
Information Incorporated by Reference: The Commission allows us to
"incorporate by reference" the information we file with it, which means that we
can disclose important information to you by referring you to those documents.
The information incorporated by reference is an important part of this
prospectus, and information that we file later with the Commission will
automatically update and supersede this information. We have filed the following
documents with the Commission and they are incorporated by reference into this
prospectus:
o our Annual Report on Form 10-K for the fiscal year ended
December 31, 1998;
o our Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1999 and June 30, 1999;
o our Proxy Statement for the 1998 Annual Meeting of Security
holders, dated April 26, 1999;
o our Current Report on Form 8-K, and its Exhibits, filed August
26, 1999; and
o our Quarterly Report on Form 10-Q/A, as amended, for the
quarter ended June 30, 1999.
Please note that all other documents and reports filed under Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act following the date of this prospectus and
prior to the termination of this offering will be deemed to be incorporated by
reference into this prospectus and to be made a part of it from the date of the
filing of our reports and documents.
You may request free copies of these filings by writing or telephoning
us at the following address:
Investor Relations
Ugly Duckling Corporation
2525 E. Camelback Road, Suite 500
Phoenix, Arizona 85016
(602) 852-6600.
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