SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE TO
ISSUER TENDER OFFER STATEMENT
UNDER SECTION 14(d)(1) or Section 13(e)(1)OF THE SECURITIES EXCHANGE ACT OF 1934
UGLY DUCKLING CORPORATION
(NAME OF ISSUER)
UGLY DUCKLING CORPORATION
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK
$.001 PAR VALUE
(TITLE OF CLASS OF SECURITIES)
903512101
(CUSIP NUMBER OF CLASS OF SECURITIES)
GREGORY B. SULLIVAN
CHIEF EXECUTIVE OFFICER AND PRESIDENT
UGLY DUCKLING CORPORATION
2525 EAST CAMELBACK ROAD, SUITE 500
PHOENIX, ARIZONA 85016
(602) 852-6600
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED
TO RECEIVE NOTICE AND COMMUNICATIONS ON BEHALF
OF THE PERSON(S) FILING STATEMENT)
COPY TO:
STEVEN D. PIDGEON
SNELL & WILMER L.L.P.
ONE ARIZONA CENTER
PHOENIX, ARIZONA 85004-0001
(602) 382-6252
CALCULATION OF FILING FEE
- ---------------------------------------------- ---------------------------------
TRANSACTION VALUATION* AMOUNT OF FILING FEE**
- ---------------------------------------------- ---------------------------------
- ---------------------------------------------- ---------------------------------
$27,500,000 $5,500.00
- ---------------------------------------------- ---------------------------------
* Assumes purchase of 2,500,000 Shares of Common Stock at $11.00 per share.
** Calculated based on the transaction valuation multiplied by one-fiftieth of
one percent.
[ ] Check the box if any part of the fee is offset as provided by Rule
0-11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
<PAGE>
Amount Previously Paid: N/A Filing Party: N/A
Form or Registration No.: N/A Date Filed: N/A
[ ] Check the box if the filing relates solely to preliminary communications
made before the commencement of a tender offer.
Check the appropriate boxes below to designate any transactions to
which the statement relates:
[ ] third-party tender offer subject to Rules 14d-1.
[x] issuer tender offer subject to Rule 13e-4.
[ ] going-private transaction subject to Rule 13e-3.
[ ] amendment to Schedule 13D under Rule 13d-2.
Check the following box if the filing is a final amendment reporting
the results of the tender offer: [ ]
All information in the Offering Circular dated February 22, 2000
attached hereto as Exhibit 12(a)-1 ("Offering Circular") is incorporated herein
by reference in answer to some or all of the items below.
ITEM 1. SUMMARY TERM SHEET.
See Offering Circular.
ITEM 2. SUBJECT COMPANY INFORMATION.
See Offering Circular.
ITEM 3. IDENTIFY AND BACKGROUNDS OF FILING PERSON.
(a) This statement is being filed by the issuer subject company. The names and
mailing addresses of the directors and executive officers of Ugly Duckling
Corporation (the "Issuer"), who are the persons specified in Instruction C to
Schedule TO, are set forth below:
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NAME ADDRESS OFFICE
---- ------- ------
<S> <C> <C>
Ernest C. Garcia II 2525 E. Camelback Rd. Chairman of the Board of Directors
Suite 500
Phoenix, Arizona 85016
Gregory B. Sullivan 2525 E. Camelback Rd. President, Chief Executive Officer
Suite 500 and Director
Phoenix, Arizona 85016
2
<PAGE>
Steven T. Darak 2525 E. Camelback Rd. Chief Financial Officer, Senior Vice
Suite 500 President and Principal Accounting
Phoenix, Arizona 65016 Officer
Donald L. Addink 2525 E. Camelback Rd. Senior Vice President and Treasurer
Suite 500
Phoenix, Arizona 85016
Jon D. Ehlinger 2525 E. Camelback Rd. Vice President, Secretary and
Suite 500 General Counsel
Phoenix, Arizona 85016
Steven A. Tesdahl 2525 E. Camelback Rd. Senior Vice President and Chief
Suite 500 Information Officer
Phoenix, Arizona 85016
Christopher D. Jennings 2525 E. Camelback Rd. Independent Director
Suite 500
Phoenix, Arizona 85016
John N. MacDonough 2525 E. Camelback Rd. Independent Director
Suite 500
Phoenix, Arizona 85016
Frank P. Willey 2525 E. Camelback Rd. Independent Director
Suite 500
Phoenix, Arizona 85016
</TABLE>
ITEM 4. TERMS OF THE TRANSACTION.
See Offering Circular.
ITEM 5. PAST CONTRACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS.
Neither the Issuer nor, to the best of the Issuer's knowledge, any of
its directors or executive officers is party to any agreement, arrangement or
understanding, whether or not legally enforceable, with any other person with
respect to any securities of the Issuer.
ITEM 6. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS
(a) With respect to the primary purpose of the Exchange Offer, see the Offering
Circular.
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<PAGE>
(b) The Shares of Common Stock acquired in the Exchange Offer will be held in
treasury.
(c) Any current plans, proposals, or negotiations of the Issuer, and, to the
extent known to the Issuer, its executive officers and directors, with
respect to the following are described below:
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- ------------------------------------------------------------ ---------------------------------------------------------
ITEM PLANS, PROPOSALS, NEGOTIATIONS
---- ------------------------------
- ------------------------------------------------------------ ---------------------------------------------------------
- ------------------------------------------------------------ ---------------------------------------------------------
(1) Any extraordinary transaction, such as a merger, None.
reorganization or liquidation, involving the
subject company or any of its subsidiaries.
- ------------------------------------------------------------ ---------------------------------------------------------
- ------------------------------------------------------------ ---------------------------------------------------------
(2) Any purchase, sale or transfer of a material None.
amount of assets of the subject company or any of
its subsidiaries.
- ------------------------------------------------------------ ---------------------------------------------------------
- ------------------------------------------------------------ ---------------------------------------------------------
(3) Any material change in the present dividend rate With respect to contemplated changes in capitalization,
or policy, or indebtedness or capitalization of see the Offering Circular. In addition, the Company is
the subject company. currently developing for its board of directors' review
and approval a comprehensive stock option incentive
program that could include the establishment of a broad
based employee stock option plan which, in conjunction
with the Company's current plans, will be designed to
incent and retain senior management and key employees
and ensure consistent treatment of comparably
positioned management and key employees.
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- ------------------------------------------------------------ ---------------------------------------------------------
(4) Any change in the present board of directors or In response to the new Audit Committee requirements
management of the subject company, including, but established by the SEC and NASDAQ, the Company is
not limited to, any plans or proposals to change exploring options to change the number and composition
the number or the term of directors or to fill of its present board of directors.
any existing vacancies on the board or to change
any material term of the employment contract of
any executive officer.
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4
<PAGE>
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(5) Any other material change in the subject The Issuer recently determined to transfer all of its
company's corporate structure or business. remaining third party dealer operations to discontinued
operations as described in the press release filed with
the SEC under cover of Schedule TO on February 16,
2000.
- ------------------------------------------------------------ ---------------------------------------------------------
- ------------------------------------------------------------ ---------------------------------------------------------
(6) Any class of equity securities of the subject None.
company to be delisted from a national
securities exchange or cease to be authorized to
be quoted in an automated quotations system
operated by a national securities association.
- ------------------------------------------------------------ ---------------------------------------------------------
- ------------------------------------------------------------ ---------------------------------------------------------
(7) Any class of equity securities of the subject None.
company becoming eligible for termination of
registration under section 12(g)(4) of the Act
(15 U.S.C. 78l).
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- ------------------------------------------------------------ ---------------------------------------------------------
(8) The suspension of the subject company's None.
obligation to file reports under Section 15(d) of
the Act (15 U.S.C. 78o).
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- ------------------------------------------------------------ ---------------------------------------------------------
(9) The acquisition by any person of additional See Offering Circular and (3) above.
securities of the subject company, or the
disposition of securities of the subject company.
- ------------------------------------------------------------ ---------------------------------------------------------
- ------------------------------------------------------------ ---------------------------------------------------------
(10) Any changes in the subject company's charter, The Issuer amended its Bylaws on July 26, 1999. The
bylaws or other governing instruments or other revised Bylaws of the Issuer are filed as Exhibit T3B
actions that could impede the acquisition of to the Form T-3 filed by
control of the subject company. the Issuer with the SEC on February 22, 2000.
- ------------------------------------------------------------ ---------------------------------------------------------
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ITEM 7. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
See Offering Circular.
ITEM 8. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
(a) See Offering Circular.
(b) Neither the Issuer nor, to the best of the Issuer's knowledge, any of its
directors or executive officers, or any of the executive officers or directors
of any of its subsidiaries, or any associate or majority-owned subsidiary of the
Issuer, has engaged in any transaction involving shares of the Issuer's Common
Stock during the period of 60 business days prior to the date hereof.
5
<PAGE>
ITEM 9. PERSONS/ASSETS, RETAINED, EMPLOYED, COMPENSATED OR USED.
(a) No persons or classes of persons have been directly or indirectly employed,
retained, or are to be compensated to make solicitations or recommendations in
connection with the transaction.
ITEM 10. FINANCIAL STATEMENTS.
(a) The Consolidated Financial Statements included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998, and Item 1 of
the Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1999, entitled "Financial Statements" are hereby incorporated herein by
reference. The remaining financial information required is contained in the
Offering Circular.
(b) See Offering Circular for the proforma financial information required.
ITEM 11. ADDITIONAL INFORMATION.
(a)
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ITEM RESPONSE
- ------------------------------------------------------------ ---------------------------------------------------------
- ------------------------------------------------------------ ---------------------------------------------------------
(1) Any present or proposed material agreement, See description of transactions effected in connection
arrangement, understanding or relationship with the sale of Cygnet Dealer Finance to Ernest C.
between the offeror or any of its executive Garcia II contained in the Issuer's Form 8-K Report
officers, directors, controlling persons or dated December 30, 1999 which is incorporated by
subsidiaries and the subject company or any of reference herein. As to the participation of the
its executive officers, directors, controlling Issuer's executive officers and directors in the
persons or subsidiaries (other than any exchange offer, see the Offering Circular.
agreement, arrangement or understanding disclosed
under any other sections of Regulation M-A (Sec.
229.1000 through 229.1016.))
- ------------------------------------------------------------ ---------------------------------------------------------
- ------------------------------------------------------------ ---------------------------------------------------------
(2) To the extent known by the offeror after With respect to regulatory requirements, the Indenture
reasonable investigation, the applicable under which the Debentures are issued must be qualified
regulatory requirements which must be complied under the Trust Indenture Act of 1939. The Company has
with or approvals which must be obtained in filed a Form T-3 for this purpose.
connection with the tender offer.
- ------------------------------------------------------------ ---------------------------------------------------------
- ------------------------------------------------------------ ---------------------------------------------------------
(3) The applicability of any anti-trust laws. None.
- ------------------------------------------------------------ ---------------------------------------------------------
6
<PAGE>
- ------------------------------------------------------------ ---------------------------------------------------------
(4) The applicability of margin requirements under With respect to margin requirements, see the Offering
section 7 of the Act (15 U.S.C. 78g) and the Circular.
applicable regulations.
- ------------------------------------------------------------ ---------------------------------------------------------
- ------------------------------------------------------------ ---------------------------------------------------------
(5) Any material pending legal proceedings relating None.
to the tender offer, including the name and
location of the court or agency in which
the proceedings are pending, the date
instituted, the principal parties, and a brief
summary of the proceedings and the relief sought.
- ------------------------------------------------------------ ---------------------------------------------------------
(b) Additional information with respect to the exchange offer and related matters is included in the Offering Circular.
ITEM 12. EXHIBITS.
12(a)-1 Offering Circular, dated February 22, 2000.
12(a)-2 Form of Letter of Transmittal.
12(a)-3 Form of Notice of Guaranteed Delivery.
12(a)-4 Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and other Nominees dated February
22,2000.
12(a)-5 Form of Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and other
Nominees dated February 22, 2000.
12(a)-6 Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9.
(b) Not applicable.
(d) Not applicable.
(g) Not applicable.
(h) Not applicable.
</TABLE>
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<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
Dated: February 21, 2000.
UGLY DUCKLING CORPORATION
A Delaware corporation
By /S/ JON D. EHLINGER
----------------------
Jon D. Ehlinger
Secretary and General Counsel
<PAGE>
EXHIBIT INDEX
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<S> <C>
EXHIBIT NO. DESCRIPTION
12(a)-1 Offering Circular, dated February 22, 2000.
12(a)-2 Form of Letter of Transmittal.
12(a)-3 Form of Notice of Guaranteed Delivery.
12(a)-4 Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and other Nominees dated
February 22, 2000.
12(a)-5 Form of Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and other
Nominees dated February 22, 2000.
12(a)-6 Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9.
(b) Not applicable.
(d) Not applicable.
(g) Not applicable.
(h) Not applicable.
</TABLE>
<PAGE>
Exhibit 12(a)-1
Ugly Duckling Corporation
2525 East Camelback Road, Suite 500
Phoenix, Arizona 85016
To the Holders of Our Common Stock:
Enclosed are materials relating to our offer to exchange up to
$27,500,000 aggregate principal amount of our 11% Subordinated Debentures due
2007 (the "Debentures") for up to 2,500,000 shares of our common stock, par
value $.001 per share ("Common Stock"), as described in the enclosed Offering
Circular dated February 22, 2000 (the "Exchange Offer").
This exchange would be made on the following basis:
- --------------------------------------------------------------------------------
$11.00 PRINCIPAL AMOUNT OF DEBENTURES
FOR EACH SHARE OF COMMON STOCK
- --------------------------------------------------------------------------------
Interest on the Debentures will accrue from their date of issuance, and
will be payable in cash semiannually on each April 15 and October 15, commencing
April 15, 2000, until the Debentures are paid in full.
The principal purpose of the Exchange Offer is to reduce the number of
shares of Common Stock outstanding, thereby offering the potential for increased
earnings per share in the future. To effect this reduction, the Company is
offering to purchase outstanding shares of its Common Stock at a purchase price
paid in Debentures of $11.00 per share, representing a premium of approximately
38% above its market price as reported on the Nasdaq National Market on February
14, 2000. The Company does not believe the current market price adequately
reflects the underlying value of its Common Stock, all as more fully described
in the enclosed materials. Among other conditions, the Exchange Offer is
contingent upon the valid tender of at least 500,000 shares of Common Stock.
Ernest C. Garcia II, the chairman and principal stockholder of the Company, has
advised the Company that he will tender shares of Common Stock in the Exchange
Offer.
PLEASE READ THE ENCLOSED MATERIALS CAREFULLY.
For further assistance or additional copies of any of the enclosed
materials, please call Corporate Investor Communications, Inc. at 1-877-977-6192
(toll free).
Very truly yours,
GREGORY B. SULLIVAN
President and Chief Executive Officer
Ugly Duckling Corporation
February 22, 2000
Phoenix, Arizona
<PAGE>
Ugly Duckling Corporation
Offer to Exchange
up to $27,500,000 aggregate principal amount of its
11% Subordinated Debentures due 2007
for up to 2,500,000 shares of its
Common Stock
Ugly Duckling Corporation, a Delaware corporation ("Ugly Duckling" or
the "Company"), hereby offers to exchange, upon the terms and subject to the
conditions set forth herein and in the accompanying Letter of Transmittal (which
together constitute the "Exchange Offer"), up to $27,500,000 aggregate principal
amount of its 11% Subordinated Debentures due 2007 (the "Debentures") for up to
2,500,000 shares ("Shares") of its common stock, $.001 par value per share
("Common Stock") on the basis of $11.00 principal amount of Debentures for each
share of Common Stock.
On February 14, 2000, the closing price of the Common Stock as reported
on Nasdaq's National Market System ("Nasdaq") was $8.00. For a further
description of the Common Stock, see "Description of Capital Stock." The Company
has applied for listing of the Debentures on the American Stock Exchange. There
can be no assurance that Ugly Duckling will be able to effect the listing or
that any public market will develop for the Debentures.
See "Risk Factors-- Possible Lack of Trading Market for the Debentures."
The Debentures will be unsecured obligations of the Company
subordinated and subject in right of payment to all existing and future senior
indebtedness of the Company. As of December 31, 1999, the Company's outstanding
senior indebtedness aggregated approximately $94 million (not including on
balance sheet indebtedness related to the Company's securitizations). The
Debentures will bear interest at 11% per annum from their date of issuance,
payable semiannually on each April 15 and October 15, commencing April 15, 2000,
until the Debentures are paid in full. The Company will be required to repay the
principal amount of the Debentures on April 15, 2007. The Debentures will be
redeemable, at the Company's option, in whole at any time or in part from time
to time, at the principal amount to be redeemed plus accrued and unpaid interest
thereon to the redemption date. The Debentures will be issued pursuant to an
Indenture between the Company and Harris Trust and Savings Bank, as Trustee. The
Company will be subject to certain limited financial covenants as more fully
described in the Indenture. See "Description of the Debentures."
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON TUESDAY,
MARCH 21, 2000, UNLESS EXTENDED.
The Company will accept up to 2,500,000 Shares if tendered
(representing approximately 17% of the Shares outstanding as of February 14,
2000). If more than 2,500,000 shares of Common Stock are tendered, the Company
will accept no more than 2,500,000 of the tendered Shares, to be allocated among
tendering stockholders on a pro rata basis. The Exchange Offer is contingent
upon the tender of at least 500,000 Shares of Common Stock. If less than 500,000
Shares of Common Stock are tendered, the Company will accept none of the Shares
tendered. The Exchange Offer is subject to a number of additional conditions as
described herein and may be amended or withdrawn in certain circumstances. See
"The Exchange Offer -- Conditions to and Amendment of the Exchange Offer."
THESE SECURITIES ARE BEING OFFERED PURSUANT TO AN EXEMPTION FROM
REGISTRATION WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (THE
"COMMISSION"). THE COMMISSION DOES NOT PASS UPON THE MERITS OF ANY SECURITIES
NOR DOES IT PASS UPON THE ACCURACY OR COMPLETENESS OF ANY OFFERING CIRCULAR OR
OTHER SELLING LITERATURE.
The date of this Offering Circular is February 22, 2000
<PAGE>
For a discussion of certain risks and other factors to be considered in
connection with the Exchange Offer, see "Risk Factors."
The Company, its Board of Directors and its executive officers make no
recommendations as to whether any stockholders should tender any or all of such
stockholders' Shares pursuant to the Exchange Offer. Each stockholder must make
his, her or its own decision whether to tender Shares of Common Stock and, if
so, how many Shares to tender. Ernest C. Garcia II, the Company's chairman and
principal stockholder, has advised the Company that he intends to tender Shares
in the Exchange Offer. See "The Exchange Offer - Executive Officer and Director
Participation."
The Company has made no arrangements for and has no understanding with
any dealer, salesman or other person regarding the solicitation of tenders
hereunder, and no person has been authorized to give any information or to make
any representation not contained in this Offering Circular in connection with
the Exchange Offer, and, if given or made, such information or representation
must not be relied upon as having been authorized by the Company or any other
person. Neither the delivery of this Offering Circular nor any exchange or sale
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company since the respective dates as of which
information is given.
This Offering Circular does not constitute an offer to exchange or
sell, or a solicitation of an offer to exchange or buy, any securities other
than the securities covered by this Offering Circular by the Company or any
other person, or any such offer or solicitation of such securities by the
Company or any such other person in any state or other jurisdiction to any
person to whom it is unlawful to make any such offer or solicitation. In any
state or other jurisdiction where it is required that the securities offered by
this Offering Circular be qualified for offering or that the offering be
approved pursuant to tender offer statutes in such state or jurisdiction, no
offer is hereby being made to, and tenders will not be accepted from residents
of any such state or jurisdiction unless and until such requirements have been
satisfied.
<PAGE>
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TABLE OF CONTENTS
Page
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AVAILABLE INFORMATION............................................................................................1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE..................................................................1
SUMMARY OF EXCHANGE OFFER........................................................................................1
The Company......................................................................................................1
Background, Purpose and Effect of the Exchange Offer.............................................................2
The Exchange Offer...............................................................................................2
RISK FACTORS.....................................................................................................5
Exchange Offer Subject to Certain Contingencies.........................................................5
Loss of Rights Associated with Common Stock.............................................................5
Market Issues...........................................................................................5
Possible Lack of Trading Market for Debentures..........................................................5
Increased Percentage of Shares Held by Management.......................................................6
Restrictions Imposed by Terms of Debentures.............................................................6
Arbitrary Determination of Terms of Debentures..........................................................6
No Assurance of Increased Earnings Per Share............................................................6
Marginability...........................................................................................7
Increased Leverage and Debt Service Obligations.........................................................7
Subordination...........................................................................................8
Holding Company Structure; Effects of Asset Encumbrances................................................9
Risk of Prepayment......................................................................................9
Fraudulent Transfer Statutes............................................................................9
Certain United States Federal Income Tax Risks.........................................................10
Tax Consequences of Exchange Offer............................................................10
Interest on Debentures-- General..............................................................11
Original Issue Discount on Debentures.........................................................11
Market Discount...............................................................................11
Forward Looking Statements.............................................................................12
THE EXCHANGE OFFER..............................................................................................13
General ..............................................................................................13
Executive Officer and Director Participation...........................................................14
Expiration Time, Extensions, Termination and Amendments................................................14
How to Tender..........................................................................................14
Withdrawal Rights......................................................................................16
Acceptance of Shares for Exchange; Delivery of Debentures to be Exchanged..............................16
<PAGE>
TABLE OF CONTENTS
(continued) Page
Denominations; Fractional Interests....................................................................17
Proration if Shares Tendered Exceed Maximum............................................................17
Conditions to and Amendment of the Exchange Offer......................................................17
Exchange Agent.........................................................................................18
Harris Trust and Savings Bank..........................................................................18
Information Agent......................................................................................18
No Financial Advisor...................................................................................18
Payment of Expenses....................................................................................18
BACKGROUND, PURPOSE AND EFFECT OF THE EXCHANGE OFFER............................................................20
CAPITALIZATION..................................................................................................22
SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA....................................................................23
CERTAIN PRO FORMA FINANCIAL INFORMATION.........................................................................25
PRICE RANGE OF COMMON STOCK.....................................................................................27
DIVIDENDS.......................................................................................................27
BUSINESS 28
General ..............................................................................................28
Recent Developments....................................................................................28
DESCRIPTION OF THE DEBENTURES...................................................................................30
Principal, Maturity and Interest.......................................................................30
Payment and Paying Agents..............................................................................30
Form, Exchange, and Transfer...........................................................................30
Redemption.............................................................................................31
Selection and Notice of Redemption.....................................................................31
Subordination..........................................................................................31
Certain Covenants......................................................................................34
Events of Default......................................................................................34
Modification and Waiver................................................................................35
Defeasance and Covenant Defeasance.....................................................................36
Satisfaction and Discharge.............................................................................37
Notices ..............................................................................................37
Title ..............................................................................................37
Governing Law..........................................................................................37
Regarding the Trustee..................................................................................37
<PAGE>
TABLE OF CONTENTS
(continued) Page
DESCRIPTION OF CAPITAL STOCK....................................................................................38
Common Stock...........................................................................................38
Preferred Stock........................................................................................38
EXECUTIVE OFFICER AND DIRECTOR BENEFICIAL OWNERSHIP.............................................................39
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES...........................................................41
General ..............................................................................................41
Scope ..............................................................................................41
Certain Federal Income Tax Consequences to Tendering Stockholders......................................41
Characterization of the Exchange..............................................................41
Constructive Ownership of Stock...............................................................42
Section 302 Tests.............................................................................42
"Issue Price" of Debentures Defined...........................................................43
Corporate Stockholder Dividend Treatment......................................................44
Certain Federal Income Tax Consequences to Prospective Holders of Debentures...........................45
Interest on the Debentures-- General..........................................................45
Original Issue Discount on Debentures.........................................................45
Taxation of Original Issue Discount on Debentures - General...................................45
Acquisition Premium...........................................................................46
Election .....................................................................................46
Market Discount...............................................................................46
Redemption or Sale of Debentures..............................................................47
Backup Withholding............................................................................47
Tax Consequences to Company............................................................................47
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<PAGE>
AVAILABLE INFORMATION
Corporate Investor Communications, Inc. (toll free telephone no.
1-877-977-6192) will act as Information Agent in connection with the Exchange
Offer. See "The Exchange Offer-- Information Agent."
Ugly Duckling is subject to the periodic reporting and other
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, NW, Washington, D.C. 20549, and at the following regional offices of the
Commission: Seven World Trade Center, Suite 1300, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such materials can be obtained by mail from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, NW,
Washington, D.C. 20549, at prescribed rates. In addition, the Commission
maintains a site on the World Wide Web that contains reports, proxy and
information statements and other information filed electronically by Ugly
Duckling with the Commission which can be accessed over the Internet at
http:\\www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission are incorporated by
reference into this Offering Circular: (i) Ugly Duckling's Annual Report on Form
10-K for the fiscal year ended December 31, 1998; (ii) Ugly Duckling's Quarterly
Reports on Form 10-Q for the quarters ended March 31, June 30, and September 30,
1999; (iii) Ugly Duckling's Reports on Form 8-K filed with the Commission on
March 16, 1999, August 26, 1999, November 9, 1999, December 21, 1999, January 5,
2000 and February 17, 2000; and (iv) Ugly Duckling's Notice and Proxy Statement
dated April 26, 1999. If any statement contained in any of the foregoing
documents is modified or superseded by a statement in this Offering Circular or
in any document subsequently filed and incorporated by reference herein, the
statement in any such foregoing document will be deemed for the purposes of this
Offering Circular to have been modified or superseded by such statement in this
Offering Circular or subsequently filed document, and the statement in any such
foregoing document is incorporated by reference herein only as modified or to
the extent it is not superseded. All documents subsequently filed by the Company
during the period of the Exchange Offer pursuant to Sections 13, 14 or 15(d) of
the Exchange Act shall be deemed to be incorporated by reference in and made a
part of this Offering Circular from the date of filing such documents.
SUMMARY OF EXCHANGE OFFER
The following is a summary of certain features of the Exchange Offer
and other matters, and all statements contained herein are qualified in their
entirety by reference to the more detailed information and financial statements
hereinafter set forth.
The Company
We operate a chain of buy here-pay here used car dealerships and
underwrite, finance and service retail installment contracts generated from the
sale of used cars by our dealerships. We target our products and services to the
sub-prime segment of the automobile financing industry, which focuses on selling
and financing the sale of used cars to persons who have limited credit
histories, low incomes, or past credit problems. For additional information
about our business and certain recent developments, see "Business."
<PAGE>
Background, Purpose and Effect of the Exchange Offer
We do not believe the current market price adequately reflects the
underlying value of our common stock. The principal purpose of the Exchange
Offer is to reduce the number of shares of common stock outstanding by offering
to purchase shares in the Exchange Offer, thereby offering the potential for
increased earnings per share in the future. Holders of shares of common stock
electing to participate in the Exchange Offer should consider the additional
considerations set forth under "Background, Purpose and Effect of the Exchange
Offer."
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The Exchange Offer
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Expiration Time.......................... 5:00 p.m., New York City time, on March 21, 2000, unless extended (the "Expiration
Time").
Exchange Ratio........................... $11.00 principal amount of debentures for each share of common stock validly tendered.
Acceptance of Shares; We will accept up to 2,500,000 shares in the Exchange Offer. This represents
Conditions of the Exchange Offer......... approximately 17% of our outstanding common stock as of February 14, 2000. If less than
500,000 shares are duly tendered, we will not accept any of the shares tendered. If
more than 2,500,000 shares are tendered, we will only accept 2,500,000 shares of common
stock, to be allocated among the tendering stockholders on a pro rata basis. The
Exchange Offer is subject to a number of conditions. See "The Exchange Offer --
Conditions to and Amendment of the Exchange Offer."
Description of Debentures................ o Unsecured.
o Subordinate to all our existing and future senior indebtedness. Our
senior indebtedness aggregated approximately $94 million at December 31,
1999 (not including on balance sheet indebtedness related to our
securitization transactions).
o Interest at 11% per annum from date of issuances, payable semiannually
on April 15 and October 15 of each year, beginning April 15, 2000.
o The debentures will mature on April 15, 2007.
o We can redeem all or any part of the debentures at any time at the
principal amount to be redeemed plus accrued and unpaid interest to the
redemption date.
o We will issue the debentures under the Indenture dated as of October 15,
1998 between us and Harris Trust and Savings Bank, as Trustee.
o We will be subject to limited financial covenants under the Indenture.
See "Description of the Debentures."
Officer and Director Participation....... Our chairman, Ernest C. Garcia II, will tender the greater of 294,500 Shares or 25% of
the Shares tendered. See "The Exchange Offer - Executive Officer and Director
Participation."
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How to Tender............................ If you wish to accept the exchange offer and your shares of common stock are registered
in your name, you must:
o complete the accompanying Letter of Transmittal; and
o send the Letter of Transmittal, the shares you want to tender, and other
required documents to Harris Trust and Savings Bank, the Exchange Agent.
If your shares are registered in the name of a broker, dealer, bank, trust company, or
other nominee, you must contact that institution to tender the shares.
You can make physical delivery of your shares up to three Nasdaq trading days after the
expiration of the offer if you follow our guaranteed delivery procedures. We will also
accept confirmation of book-entry transfers of the shares if delivered to the Exchange
Agent's account at The Depository Trust Company ("DTC") in a timely fashion. See "The
Exchange Offer -- How to Tender."
Delivery of Securities................... We will deliver debentures in exchange for shares that you tender as soon as
practicable after the Expiration Time. See "The Exchange Offer-- Acceptance of Shares
for Exchange; Delivery of Debentures to be Exchanged."
Withdrawal Rights........................ You can withdraw tenders of shares pursuant to the Exchange Offer:
o prior to 5:00 p.m., New York City time, on March 21, 2000;
and
o if we have not previously accepted such shares for
exchange, after April 17, 2000.
Except for these rights of withdrawal, all tenders are irrevocable. See "The Exchange
Offer - Withdrawal Rights."
Certain United States Federal Income The exchange of Shares for Debentures by a tendering stockholder will be a taxable
Tax Consequences......................... event treated for United States federal income tax purposes as either (i) a sale or
exchange of the stockholder's Shares or (ii) a deemed distribution of property by the
Company with respect to such Shares.
Stated interest on the Debentures will be taxable as ordinary income to holders of
Debentures at the time such amounts are received or accrued in accordance with the
holder's method of accounting. Additionally, the Debentures may be issued with
significant original issue discount ("OID"). As a consequence of the rules governing
OID, holders of Debentures may be required to recognize significant amounts of ordinary
income in advance of receipt of the cash payments to which the income is attributable
for United States federal income tax purposes.
See "Certain United States Federal Income Tax Consequences" for a discussion of certain
federal income tax consequences associated with the Exchange Offer and the ownership of
the Debentures, and "Risk Factors -- Certain United States Federal Income Tax Risks."
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Listing and Trading of Securities ....... Our common stock (symbol: UGLY) is listed on Nasdaq's National Market System. On
February 14, 2000, two business days before the announcement of the Exchange Offer, the
closing per share price for the common stock as reported by Nasdaq was $8.00. We have
applied to list the debentures for trading on AMEX. However, we cannot assure you that
AMEX will list the debentures or that any trading market will develop for the
debentures. If a trading market does develop, we cannot assure you as to any price at
which the debentures will trade. See "Risk Factors-- Possible Lack of Trading Market
for the Debentures."
Exemption from Registration Requirements. In making the exchange offer, we are relying on the exemption from the registration
requirements of the Securities Act of 1933 contained in Section 3(a)(9) of that Act for
the debentures. Under that exemption, if common stock tendered is freely tradable, the
debentures received in the exchange will be freely tradable. If the common stock
tendered in the exchange is restricted, the debentures will be restricted to the same
degree.
Exchange Agent and Trustee............... Harris Trust and Savings Bank will serve as the Exchange Agent for the Exchange Offer
and as Trustee under the Indenture. See "The Exchange Offer-- Exchange Agent" and
"Description of the Debentures -- Regarding the Trustee."
Information Agent........................ Corporate Investor Communications, Inc. will serve as the Information Agent in
connection with the Exchange Offer. The Information Agent's telephone no. is
1-877-977-6192 (toll-free). See "The Exchange Offer-- Information Agent."
Common Stock Outstanding................. Approximately 14,906,152 shares of common stock were outstanding as of February 14,
2000.
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RISK FACTORS
Investment in the Debentures is subject to certain risks and other
factors, including but not limited to those set forth below. In considering the
Exchange Offer, an investor should carefully consider the following risk
factors, as well as the risk factors appearing in the Company's filings with the
Commission and incorporated herein by reference, including the Company's
Quarterly Report on Form 10-Q for the period ended September 30, 1999, and all
other information appearing in this Offering Circular, as well as his or her
particular financial circumstances, investment objectives and tax situation.
Exchange Offer Subject to Certain Contingencies
The Exchange Offer is subject to certain contingencies that are not
within the control of the Company. First, the Exchange Offer is subject to the
condition that holders of at least 500,000 Shares validly tender their Shares.
If less than 500,000 Shares are validly tendered, the Company will accept none
of the Shares and the Exchange Offer will be terminated or extended. If more
than 2,500,000 Shares are validly tendered, the Company will allocate Debentures
among the tendering stockholders on a pro-rata basis based on the number of
Shares tendered. In addition, the Exchange Offer requires qualification of the
Indenture under the Trust Indenture Act and may require certain approvals or
consents from government regulatory agencies, self regulatory organizations, and
other third parties. Certain consents may be obtained only if the Company is
willing to provide certain concessions to third parties. There can be no
assurance that all required conditions, consents, or regulatory approvals will
be obtained or achieved in a timely manner. Moreover, the Exchange Offer may be
modified or withdrawn in certain circumstances subject to the discretion of the
Company's Board of Directors.
See "The Exchange Offer-- Conditions to and Amendment of the Exchange Offer."
Loss of Rights Associated with Common Stock
To the extent that stockholders exchange their Shares for Debentures,
they will be relinquishing certain rights available to holders of Common Stock
in exchange for acquiring rights as holders of debt. Stockholders whose Shares
are validly tendered and accepted for exchange will lose the right to share in
any capital appreciation of the Company's Common Stock, will not be entitled to
vote upon any matters submitted to the Company's stockholders, and will no
longer be entitled to dividends paid, if any, on the Company's Common Stock. In
addition, even if the Debentures can be listed, it is likely that trading in the
Debentures will be thin and that the liquidity of a tendering stockholder's
investment in the Company will be reduced.
Market Issues
If successful, the Exchange Offer will reduce the Company's
stockholder's equity and increase its indebtedness, thereby increasing the
Company's debt to equity ratio and its debt service obligations. There can be no
assurance that the market will not regard these results unfavorably and that the
price of the Company's Common Stock will not be adversely affected. To the
extent that the market does not regard the Exchange Offer as favorable, the
market price of the Debentures also could be adversely affected. In addition,
although the Company believes that the Exchange Offer complies with all
applicable listing and maintenance requirements imposed by the Nasdaq National
Market, there can be no assurance that issues regarding the Common Stock's
listing status will not arise.
Possible Lack of Trading Market for Debentures
No market currently exists for the Debentures. Although the Company has
applied to list the Debentures on AMEX, there is no assurance that such listing
will be accomplished, or, if listed, as to the extent of trading that will
develop in the Debentures. Accordingly, no assurance can be given as to the
liquidity of the Debentures after their issuance or the prices at which they may
trade, or that a trading market will develop.
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Increased Percentage of Shares Held by Management
As of February 14, 2000, the Company's executive officers and directors
beneficially owned approximately 34% of the outstanding Shares of the Company's
Common Stock, with Mr. Ernest Garcia II, the Company's Chairman of the Board,
beneficially owning approximately 32%. Mr. Garcia has advised the Company that
he will participate in the Exchange Offer. See "The Exchange Offer - Executive
Officer and Director Participation." If Mr. Garcia tenders the maximum number of
shares that he has advised us he will tender, and:
o........assuming the minimum number of Shares are exchanged in the Exchange
Offer, the Company's executive officers and directors will
beneficially own (without inclusion of vested options)
approximately 33% of the Company's outstanding Shares of Common
Stock (with Mr. Garcia owning approximately 31%); and
o assuming the maximum number of Shares are exchanged in the
Exchange Offer (and assuming Mr. Garcia tenders 25% of the shares
exchanged), the Company's executive officers and directors will
beneficially own approximately 36% of the Company's outstanding
Shares of Common Stock (with Mr. Garcia owning approximately 33%).
Restrictions Imposed by Terms of Debentures
The Indenture will contain certain covenants that, among other things,
will require the Company to maintain at all times a Consolidated Net Worth (as
defined herein) of at least $100,000,000. If the Company fails to meet this
covenant, such failure will constitute an Event of Default (as defined herein)
under the Indenture. See "Description of the Debentures." As of December 31,
1999, the Company's Consolidated Net Worth was $165.7 million. If the maximum
Shares are tendered and $27,500,000 of Debentures are issued, the Company's
Consolidated Net Worth will be approximately $143.0 million (depending on the
stock price at the time the Debentures are issued) and if the minimum Shares are
issued, the Company's Consolidated Net Worth will be approximately $161.0
million (depending on the stock price at the time the Debentures are issued).
There can be no assurance that the Company will be able to satisfy this
financial covenant and any other covenants contained in the Indenture in the
future. If the Company is unable to cure an Event of Default on a timely basis,
the principal amount of the Debentures may be declared immediately due and
payable. There can also be no assurance that this financial covenant will not
materially and adversely affect the Company's ability to finance its future
operations or capital needs or to engage in other business activities, including
implementation of its business and growth strategies.
Arbitrary Determination of Terms of Debentures
The Company has determined the terms of the Debentures without
retaining any independent financial advisor or investment banking firm.
Accordingly, there can be no assurance that the terms of the Debentures are fair
from a financial point of view to tendering stockholders. In this regard, there
can be no assurance that if the Company were to issue subordinated debt in the
capital markets, the interest rate on such debt would not be higher than 11% per
annum, or that the financial and other covenants would not be more restrictive.
For example, companies that issue unsecured, non-investment grade subordinated
debt similar to the Debentures typically are subject to more restrictions than
those imposed by the Indenture with respect to the Debentures, including
restrictions on incurring additional indebtedness above a specified amount or in
violation of a specified formula, paying dividends or making certain other
distributions, payments and investments, creating liens, and engaging in
transactions with affiliates or in unrelated businesses, among others. In
addition, the terms of such securities typically include a change of control
provision, which typically provides a right to debt holders to force a company
to redeem their debt in the event of a change of control of that company's
voting securities. As a result, stockholders who tender their Shares in exchange
for Debentures may not receive the same level of protection that typically would
be afforded to holders of unsecured, non-investment grade subordinated debt
issued by other similarly situated companies. In addition, the relative lack of
standard restrictive covenants may adversely affect the liquidity and the
trading price of the Debentures.
No Assurance of Increased Earnings Per Share
Although the primary purpose of the Exchange Offer is to reduce the
number of the Company's outstanding shares of Common Stock, thereby offering the
potential for increased earnings per share in the future, the reduction in
equity and corresponding increase in indebtedness could have a negative effect
on earnings per share. In this regard, the table set forth in the Section
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entitled "Certain Pro Forma Financial Information," which shows the pro forma
effects of the Exchange Offer on the Company's financial results assuming the
minimum and maximum number of Shares tendered, indicates that earnings per share
from continuing operations for the year ended December 31, 1999 would have
decreased slightly on a pro forma basis. For the year ended December 31, 1998,
the table shows that earnings per share from continuing operations would have
decreased significantly assuming the maximum number of Shares was exchanged.
Further, following the Exchange Offer, the Company expects that the Debentures
will be recorded at the fair market value of the Shares tendered in exchange as
of the date the Shares are exchanged, with the difference being amortized over
the term of the Debentures as additional interest expense, which would have a
negative effect on earnings per share.
Marginability
Generally speaking, the Debentures should be margin stock for purposes
of Regulation T which governs the extension of credit by brokers and dealers
and, to the extent the Debentures are listed on a national securities exchange,
for Regulation U which governs the extension of credit by other lenders. Under
Regulation U, the Debentures will likely not be margin stock if they are not
listed on a national securities exchange. Under Regulation T, the required
margin for the Debentures will likely be the margin required by the creditor in
good faith or the percentage set by the regulatory authority where the trade
occurs, whichever is greater. Under Regulation U, the maximum loan value of
margin stock is fifty percent (50%) of its current market value, while the
maximum loan value of non-margin stock and other collateral is their good faith
loan value.
In addition, under Regulation U, to enable a customer to participate in
an exchange offer that is made to holders of an issue of margin stock, a lender
may allow substitution of the securities received in the exchange, and a
non-margin, non-exempted security acquired in exchange for a margin stock will
be treated as if it were a margin stock for a period of 60 days following the
exchange.
Stockholders contemplating an exchange of Common Stock for Debentures
should consult with their brokers concerning the marginability of the Debentures
and the required margin.
Increased Leverage and Debt Service Obligations
Following the Exchange Offer, the Company will be more highly leveraged
and will have incurred substantial additional debt service in addition to
operating expenses and planned capital expenditures. At December 31, 1999, as
adjusted to give effect to the issuance of the maximum $27,500,000 principal
amount of the Debentures, the total indebtedness of the Company would have been
approximately $363.6 million. Assuming the issuance of the maximum $27,500,000
principal amount of the Debentures pursuant to the Exchange Offer, the Company
would incur additional debt service of approximately $3.0 million annually.
The Company's increased level of indebtedness may have several
important effects on its future operations, including, without limitation, (i) a
substantial portion of the Company's cash flow from operations must be dedicated
to the payment of interest and principal on its indebtedness, reducing the funds
available for operations and for capital expenditures, including acquisitions,
(ii) covenants contained in the Indenture will require the Company to meet
certain financial tests, and other restrictions may limit its ability to borrow
additional funds or to dispose of assets, and may affect the Company's
flexibility in planning for, and reacting to, changes in its business, including
possible acquisition activities, (iii) the Company's leveraged position will
substantially increase its vulnerability to adverse changes in general economic,
industry and competitive conditions, (iv) the Company's ability to obtain
additional financing for working capital, capital expenditures, acquisitions,
general corporate and other purposes may be limited, and (v) the Company's
leveraged position and the various covenants contained in the Indenture may
place the Company at a relative competitive disadvantage as compared to certain
of its competitors. The Company's ability to meet its debt service obligations
and to reduce its total indebtedness will be dependent upon the Company's future
performance, which will be subject to general economic, industry and competitive
conditions and to financial, business and other factors affecting the operations
of the Company, many of which are beyond its control, or its ability to raise
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additional equity. There can be no assurance that the Company's business will
continue to generate cash flow at or above current levels. If the Company is
unable to generate sufficient cash flow from operations in the future to service
its debt, it may be required, among other things, to seek additional financing
in the debt or equity markets, to refinance or restructure all or a portion of
its indebtedness, including the Debentures, to sell selected assets, or to
reduce or delay planned capital expenditures and growth or business strategies.
There can be no assurance that any such measures would be sufficient to enable
the Company to service its debt, or that any of these measures could be effected
on satisfactory terms, if at all.
If the Company fails to pay any required payment of interest or
principal with respect to the Debentures on a timely basis, such failure will
constitute a default under the terms of the Indenture. An event of default under
the Indenture also may trigger an event of default under certain other existing
obligations of the Company, including its revolving credit facility (the
"Revolving Facility") with General Electric Capital Corporation ("GE Capital").
As a result, the incurrence of additional debt resulting from the Exchange Offer
will increase the risk of possible default by the Company with respect to its
current and future obligations.
Subordination
The Debentures will be unsecured obligations of the Company and will be
subordinated in right of payment to all existing and future Senior Indebtedness
(as defined in the Indenture), which includes virtually all of the Company's
existing indebtedness, except its 12% Subordinated Debentures due 2003
previously issued under the Indenture (the "12% Debentures"). The Debentures
will rank pari passu with the 12% Debentures. The Debentures will rank senior
only to other indebtedness of the Company that expressly provides that it is
subordinated in right of payment to the Debentures, if any. In the event of
bankruptcy, liquidation, insolvency, reorganization or similar proceeding
relating to the Company, the assets of the Company will be available to pay
obligations on the Debentures only after all Senior Indebtedness has been paid
in full, and there may not be sufficient assets remaining to pay amounts due on
any or all of the Debentures outstanding. The Company may not pay principal of
or interest on the Debentures, make any deposit pursuant to defeasance
provisions or repurchase or redeem or otherwise retire any Debentures (i) if any
payment obligation on Senior Indebtedness is not paid when due or (ii) if any
other event of default on Senior Indebtedness occurs that permits the holders of
such Senior Indebtedness to accelerate the maturity of such Senior Indebtedness,
in accordance with its terms, and the Trustee for the Debentures receives a
notice of such default unless, in either case, the default has been cured or
waived, any such acceleration has been rescinded or such Senior Indebtedness has
been paid in full or, in the case of any default other than a payment default,
179 days have passed since the default notice is given. In addition, if there
exists an event of default as such term is defined in any instrument creating or
evidencing any Designated Senior Indebtedness (described below), on any
Designated Senior Indebtedness or if an executive officer of the Company has
actual knowledge of a default on any Designated Senior Indebtedness, which with
notice or lapse of time or both would become an event of default, then no
payment can be made on the Debentures for a period of 179 days from the date of
such event of default or the date that an executive officer of the Company
obtains actual knowledge that there is such a default unless such default is
cured or waived or a representative of such Designated Senior Indebtedness
terminates the payment blockage period. Moreover, even if there is an event of
default with respect to the Debentures and the Debentures are declared due and
payable as a result thereof, no payment can be made on the Debentures while any
Designated Senior Indebtedness is outstanding without the consent of the
Designated Senior Indebtedness. In the event that there is an event of default
under the Designated Senior Indebtedness or an executive officer of the Company
has actual knowledge of a default under Designated Senior Indebtedness and a
payment is made on the Debentures in violation of the above provisions, holders
of Debentures receiving such payment may be required to return the monies paid
for the benefit of the Senior Indebtedness. In addition, in an insolvency,
bankruptcy or liquidation scenario, there is always the risk that senior
creditors would seek to recover any monies paid on the Debentures. Designated
Senior Indebtedness includes the Revolving Facility with GE Capital and certain
indebtedness secured by the stock of the Company's securitization subsidiaries
and certain other residual interests, as amended from time to time and any
refundings or replacements thereof, as well as any other Senior Indebtedness
designated by the Company from time to time as Designated Senior Indebtedness.
There are no restrictions in the Indenture on the ability of the Company to
designate Senior Indebtedness as Designated Senior Indebtedness. As of December
31, 1999, without including any indebtedness under the Debentures or the 12%
Debentures, the Company had approximately $341.1 million of indebtedness
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outstanding, approximately $94 million of which would be Senior Indebtedness
(not including the on balance sheet indebtedness related to the Company's
securitizations) and approximately $76 million of which would be Designated
Senior Indebtedness. Additional Senior Indebtedness and Designated Senior
Indebtedness may be incurred by the Company and its subsidiaries from time to
time, subject to certain restrictions imposed by the Indenture, the Revolving
Facility with GE Capital and other agreements of the Company. See "Description
of the Debentures -- Subordination" and "-- Certain Covenants."
Holding Company Structure; Effects of Asset Encumbrances
The Debentures will be unsecured obligations of the Company and will be
subordinated in right of payment to all existing and future Senior Indebtedness
of the Company. The Debentures will also be structurally subordinated to all
indebtedness and other liabilities of the Company's subsidiaries. Substantially
all of the Company's operating income is generated by its subsidiaries and the
Company generally does not hold assets other than the stock of its subsidiaries.
As a result, the Company will rely on dividends and other payments received from
its subsidiaries to provide substantially all of the funds necessary to meet its
debt service obligations, including the payment of principal of and interest on
the Debentures. Certain agreements of the Company may now or in the future limit
the ability of its subsidiaries in certain situations to pay dividends to the
Company or to repay intercompany debt. The Debentures are not guaranteed by any
of the subsidiaries of the Company, and therefore, should the Company fail to
satisfy any payment obligation under the Debentures, the holders would not have
a direct claim therefor against the subsidiaries. Any indebtedness incurred
directly by the subsidiaries of the Company, including guarantees, will be
senior in right of payment to the common stock of such subsidiaries. This means
that in the event of any liquidation or bankruptcy of a subsidiary, all debt of
such subsidiary would be entitled to be paid before any amounts would be
available to the Company by virtue of ownership of the common stock. Except as
described above under "Risk Factors -- Restrictions Imposed by Terms of
Debentures" and under "Description of the Debentures -- Certain Covenants," the
Indenture will not limit the ability of the Company and its subsidiaries to
incur additional indebtedness, including Senior Indebtedness. Moreover, certain
Senior Indebtedness of the Company is now and may in the future be guaranteed
by, and secured by the assets of, the Company's subsidiaries. In the event of a
default under any such Senior Indebtedness, the lenders thereunder would be
entitled to a claim on the assets securing such indebtedness. Accordingly,
because of any or all of the above, the Company may not have sufficient monies
available from its subsidiaries or from other means, or assets remaining after
payment of prior claims from time to time, to pay amounts due on the Debentures.
In addition, the Company has pledged the stock of Ugly Duckling Receivables
Corporation ("UDRC") and Ugly Duckling Receivables Corporation II ("UDRC II"),
which are the Company's wholly-owned special purpose "bankruptcy remote"
entities, to secure a $38 million loan with certain third party lenders. Their
assets, including assets in discontinued operations, are comprised of Residuals
in Finance Receivables Sold and Investments Held In Trust, in the amounts of
approximately $16.7 million and $11.9 million, respectively, at December 31,
1999. These amounts would not be available to satisfy claims of creditors of the
Company on a consolidated basis even if the stock of such subsidiaries were not
pledged.
Risk of Prepayment
The Debentures are subject to redemption at the option of the Company
in whole at any time or in part from time to time without penalty or premium
upon notice to the holders of the Debentures. As a result, the holders of the
Debentures will be subject to a risk of prepayment at a time when interest rates
may be generally declining. In such case, holders of Debentures that are
redeemed who tendered their Shares to acquire an interest-bearing security will
no longer have the right to receive interest and may be forced to reinvest the
redemption proceeds in securities with a lower rate of interest.
Fraudulent Transfer Statutes
Various fraudulent conveyance laws enacted for the protection of
creditors may apply to the issuance of the Debentures. Under federal or state
fraudulent transfer laws, if a court were to find that, at the time the
Debentures were issued, the Company (i) issued the Debentures with the intent of
hindering, delaying or defrauding current or future creditors or (ii) (A)
received less than fair consideration or reasonably equivalent value for
incurring the indebtedness represented by the Debentures and (B) (1) was
insolvent or was rendered insolvent or contemplated insolvency by reason of the
issuance of the Debentures, (2) was engaged, or about to engage, in a business
or transaction for which its assets or capital were unreasonably small or (3)
intended to incur, or believed (or should have believed) it would incur, debts
beyond its ability to pay as such debts mature (as all of the foregoing terms
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are defined in or interpreted under such fraudulent transfer statutes), such
court could void all or a portion of the Company's obligations to the holders of
the Debentures, or void or subordinate the Company's obligations to the holders
of the Debentures, and take other action detrimental to the holders of the
Debentures, including in certain circumstances, invalidating the Debentures. In
that event, there would be no assurance that any repayment on the Debentures
would ever be recovered by the holders of the Debentures.
The definition of insolvency for purposes of the foregoing
consideration varies among jurisdictions depending upon the federal or state law
that is being applied in any such proceeding. Generally, however, the Company
would be considered insolvent at the time it incurs the indebtedness
constituting the Debentures, if (i) the fair market value (or fair saleable
value) of its assets is less than the amount required to pay its total existing
debts and liabilities (including the probable liability on contingent
liabilities) as they become absolute or matured or (ii) it is incurring debts
beyond its ability to pay as such debts mature. Based upon financial and other
information, the Company believes that it is solvent and will continue to be
solvent after issuing the Debentures, will have sufficient capital for carrying
on its business after such issuance and will be able to pay its debts as they
mature. There can be no assurance, however, that a court passing on such
standards would agree with the Company. There can also be no assurance as to
what standard a court would apply in order to determine whether the Company was
"insolvent" as of the date the Debentures were issued, or that, regardless of
the method of valuation, a court would not determine that the Company was
insolvent on that date or otherwise agree with the Company with respect to the
above standards.
Certain United States Federal Income Tax Risks
Tax Consequences of Exchange Offer
The exchange of Shares for Debentures by a tendering stockholder
pursuant to the Exchange Offer will be a taxable event treated for United States
federal income tax purposes as either (1) a sale or exchange of the
stockholder's Shares or (2) a deemed distribution of property by the Company
with respect to such Shares.
Sale or exchange treatment will result if a tendering stockholder
satisfies any of three tests under Section 302 of the Code which measure
reductions in a stockholder's overall equity interest. If treated as a sale or
exchange, a stockholder should recognize capital gain or loss in an amount equal
to the difference between (a) the "issue price" of the Debentures, and (b) the
stockholder's adjusted tax basis of the Shares exchanged pursuant to the
Exchange Offer. Depending upon the particular circumstances, the "issue price"
of the Debentures will be either (a) the fair market value of the Debentures as
of the date of the Exchange, (b) the fair market value of the Shares as of the
date of the Exchange, (c) the "stated redemption price at maturity" of the
Debentures (generally the face amount of the Debentures), or (d) the present
value of all payments to be made on the Debentures, discounted at the applicable
federal rate.
If none of the Section 302 tests is satisfied, then to the extent of
the Company's current or accumulated "earnings and profits" (as determined for
federal income tax purposes), a tendering stockholder will be treated as having
received a dividend taxable as ordinary income in an amount equal to the fair
market value of the Debentures received without reduction for the adjusted tax
basis of the Shares exchanged pursuant to the Exchange Offer. The stockholder's
adjusted tax basis in the Shares exchanged will be added to the stockholder's
remaining Shares; however, if the stockholder retains no Shares following the
exchange, the benefit of such basis will be permanently lost. To the extent, if
any, that the fair market value of the Debentures exceeds the Company's current
and accumulated earnings and profits (as determined for federal income tax
purposes), the excess will be treated first as a tax-free return of such
stockholder's tax basis in the Shares and thereafter as capital gain. Corporate
stockholders receiving a dividend must assess the applicability of the
dividends-received deduction to the extent applicable and the impact of Section
1059 governing "extraordinary dividends."
In determining whether any one of the Section 302 tests is satisfied, a
tendering stockholder must take into account not only the Shares actually owned
by such stockholder but also Shares which are constructively owned by the
stockholder by reason of attribution rules contained in Section 318 of the Code.
The Company cannot predict whether or to what extent the Exchange Offer will be
oversubscribed. If the Exchange Offer is oversubscribed, proration of the
tenders pursuant to the Exchange Offer will cause the Company to accept fewer
Shares than are tendered. Therefore, a stockholder can be given no assurance
10
<PAGE>
that a sufficient number of such stockholder's Shares will be exchanged pursuant
to the Exchange Offer to ensure that such exchange will satisfy one or more of
the Section 302 tests and be treated as a sale, rather than as a dividend, for
United States federal income tax purposes.
If a stockholder sells Shares to persons other than the Company at or
about the same time such holder also exchanges Shares pursuant to the Exchange
Offer and the various sales effected by the stockholder are part of a plan to
reduce or terminate the stockholder's proportionate equity interest in the
Company, then sales to persons other than the Company may, for United States
federal income tax purposes, be integrated with the stockholder's exchange of
Shares pursuant to the Exchange Offer and, if integrated, should be taken into
account in determining whether a tendering stockholder satisfies any of the
Section 302 tests.
Because a tendering stockholder will receive no cash pursuant to the
Exchange Offer, a stockholder will need to use other cash resources of the
stockholder to satisfy any tax liability arising from an exchange of Shares for
Debentures.
See "Certain United States Federal Income Tax Consequences" -- "Certain
Federal Income Tax Consequences to Tendering Stockholders" -- "Characterization
of the Exchange."
Interest on Debentures -- General
In general, stated interest on the Debentures will be taxable as
ordinary income to holders of Debentures at the time such amounts are accrued or
received in accordance with the holder's method of accounting. See "Certain
United States Federal Income Tax Consequences" -- "Certain Federal Income Tax
Consequences to Prospective Holders of Debentures" -- "Interest on the
Debentures -- General". Depending upon a stockholder's particular circumstances,
the tax consequences of holding Debentures may be less advantageous than the
consequences of holding Shares because, for example, interest payments on the
Debentures will not be eligible for any dividends-received deduction that might
otherwise be available to corporate stockholders.
Original Issue Discount on Debentures
The Debentures may be issued with significant "original issue discount"
("OID") for United States federal income tax purposes. Consequently, holders of
the Debentures may be required to recognize significant amounts of ordinary
income in advance of receipt of the cash payments to which the income is
attributable for United States federal income tax consequences, regardless of
the holders' methods of accounting. See "Certain United States Federal Income
Tax Consequences" -- "Certain Federal Income Tax Consequences to Prospective
Holders of Debentures" -- "Original Issue Discount on Debentures" and "Taxation
of Original Issue Discount on Debentures."
Market Discount
If the "issue price" of a Debenture exceeds the holder's adjusted tax
basis in the Debentures at the time of the exchange of Shares for Debentures,
the Debenture will be considered issued with "market discount" unless such
excess is less than a specified de minimis amount. Under the market discount
rules, a holder of a market discount Debenture will be required to treat any
principal payment on the Debenture or any gain on a sale, exchange or other
disposition of the Debenture as ordinary income to the extent of the market
discount which has not previously been included in income and which is treated
as having accrued on the Debenture at the time of such payment or disposition.
Additionally, a holder of such a Debenture may be required to defer, until the
maturity of the Debenture or its earlier disposition in a taxable transaction,
the deduction of all or a portion of the interest expense on any indebtedness
incurred or continued to purchase or carry the Debenture. See "Certain United
States Federal Income Tax Consequences" -- "Certain Federal Income Tax
Consequences to Prospective Holders of Debentures" - "Market Discount."
STOCKHOLDERS CONTEMPLATING AN EXCHANGE OF SHARES FOR DEBENTURES
PURSUANT TO THE EXCHANGE OFFER ARE URGED TO CONSULT THEIR OWN TAX ADVISORS TO
DETERMINE THE SPECIFIC FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES
OF EXCHANGES MADE BY THEM PURSUANT TO THE EXCHANGE OFFER AS WELL AS THE SPECIFIC
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES ASSOCIATED WITH THE
OWNERSHIP OF DEBENTURES RECEIVABLE IN THE EXCHANGE.
11
<PAGE>
Forward Looking Statements
This Offering Circular contains certain forward looking statements.
Additional written or oral forward looking statements may be made by the Company
from time to time in filings with the Commission or otherwise. Such statements
may include, but not be limited to, estimates of the value of the Company's
Common Stock, projections of revenues, income, earnings per share, loss, capital
expenditures, plans for future operations, financing needs or plans, the
Company's ability to service its debt obligations, and plans relating to
products or services of the Company as well as assumptions relating to the
foregoing. The words "believe," "expect," "anticipate," "estimate," "project,"
and similar expressions identify forward looking statements. Forward looking
statements are inherently subject to risks and uncertainties, some of which
cannot be predicted or quantified. Future events and actual results could differ
materially from those set forth in, contemplated by, or underlying the forward
looking statements. Statements in this Offering Circular, including those
contained in the section entitled "Risk Factors," and in the section entitled
"Background, Purpose and Effect of the Exchange Offer," describe factors, among
others, that could contribute to or cause such differences. The Company
undertakes no obligation to update any forward looking statements.
12
<PAGE>
THE EXCHANGE OFFER
General
The Company hereby offers, upon the terms and subject to the conditions
set forth herein and in the accompanying Letter of Transmittal, to exchange up
to $27,500,000 aggregate principal amount of its Debentures for up to 2,500,000
Shares of its outstanding Common Stock on the basis of $11.00 principal amount
of Debentures for each Share of Common Stock outstanding.
If more than 2,500,000 Shares are tendered, the Company will accept no
more than 2,500,000 Shares of Common Stock, with Debentures to be allocated
among the tendering stockholders on a pro rata basis. If less than 500,000
Shares are tendered, the Company will not accept any of the Shares tendered and
the Exchange Offer will be terminated, unless it is extended. The Exchange Offer
is subject to a number of additional conditions. See "The Exchange Offer --
Conditions to and Amendment of the Exchange Offer."
Stockholders who do not tender will retain their Shares of Common Stock
and stockholders who tender will receive Debentures with the following rights
compared to those associated with the ownership of Common Stock.
<TABLE>
<CAPTION>
Common Stock Debentures
- ------------------------------------------------------- ---------------------------------------------------
<S> <C>
Equity; pro rata claim to assets of the Company after Debt; right to receive specified principal amount
payment of all debt obligations, plus right to share with senior claim to assets of the Company compared
in capital appreciation. to holders of equity, but subordinated to all other
senior debt obligations of the Company, plus the right
to receive interest, but no right to capital
appreciation. The Debentures will rank pari passu
with the 12% Subordinated Debentures due 2003
previously issued under the Indenture.
No interest payable on Common Stock, although Interest at 11% year annum, payable semiannually
dividends are possible. in cash on each April 15 and October 15,
commencing April 15, 2000.
Voting rights on all matters submitted to No voting rights.
stockholders.
Shares are listed on Nasdaq and are subject to The Company has applied to list the Debentures on
established trading market. AMEX; no assurance of such listing or of any
effective trading market even if listing is
effected.
</TABLE>
The foregoing table is set forth for comparative purposes only and does
not take into account all factors relating to a comparison of the Shares to the
Debentures, nor does it take into account any factors relating to the tax
consequences of accepting the Exchange Offer. For a more complete description of
the Debentures and the Common Stock, see "Description of the Debentures" and
"Description of Capital Stock." See also "Certain United States Federal Income
Tax Consequences."
Tendering stockholders will not be obligated to pay brokerage
commissions or fees or, subject to Instruction 9 of the Letter of Transmittal,
transfer taxes with respect to the exchange of Shares for Debentures pursuant to
the Exchange Offer. The Company will pay all charges and expenses of the
Exchange Agent, the Information Agent, and the Trustee in connection with the
Exchange Offer. See "The Exchange Offer -- Payment of Expenses."
13
<PAGE>
Executive Officer and Director Participation
The executive officers and directors of the Company have advised the
Company that they will participate in the Exchange Offer as follows:
<TABLE>
<CAPTION>
- ---------------------------------------- -------------------------------------- --------------------------------------
NAME TITLE PARTICIPATION
---- ----- -------------
- ---------------------------------------- -------------------------------------- --------------------------------------
- ---------------------------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
Ernest C. Garcia II Chairman of the Board 294,500 shares, if the maximum
number of shares are tendered. If
less than the maximum number of
shares are tendered, Mr. Garcia will
tender the greater of 294,500 Shares
or 25% of the Shares tendered.
- ---------------------------------------- -------------------------------------- --------------------------------------
</TABLE>
Expiration Time, Extensions, Termination and Amendments
The Exchange Offer will terminate at 5:00 p.m., New York City time, on
March 21, 2000, unless extended by the Company in its sole discretion. During
any extension of the Exchange Offer, all Shares previously tendered and not yet
exchanged will remain subject to the Exchange Offer (subject to withdrawal
rights specified herein) and may be accepted for exchange by the Company. The
later of 5:00 p.m., New York City time, on March 21, 2000, or the latest time
and date to which the Exchange Offer may be extended, is referred to herein as
the "Expiration Time."
The Company expressly reserves the right, at any time or from time to
time, to extend the period of time for which the Exchange Offer is to remain
open by giving oral or written notice to Harris Trust and Savings Bank (the
"Exchange Agent") of such extension prior to 9:00 am., New York City time, on
the business day after the previously scheduled Expiration Time. The Company
also expressly reserves the right (i) to terminate the Exchange Offer and not
accept for exchange any Shares not theretofore accepted for exchange upon the
occurrence of any of the events set forth herein under "The Exchange Offer --
Conditions to and Amendment of the Exchange Offer" or (ii) to amend the Exchange
Offer. Any such extension, termination or amendment will be followed as promptly
as practicable by public announcement thereof, such announcement in the case of
an extension to be issued no later than 9:00 am., New York City time, on the
next business day after the previously scheduled Expiration Time. Without
limiting the manner in which the Company may choose to make such public
announcement, the Company shall not, unless otherwise required by law, have an
obligation to publish, advertise or otherwise communicate any such public
announcement other than by making a release to the Dow Jones News Service.
How to Tender
Except as set forth below, for a stockholder to duly tender Shares
pursuant to the Exchange Offer, certificates representing the Shares (or a
confirmation of a book-entry transfer of the Shares into the Exchange Agent's
account at The Depository Trust Company ("DTC") as described below), together
with a properly completed and duly executed Letter of Transmittal or manually
signed facsimile thereof, with any required signature guarantees, or an Agent's
Message in the case of a book-entry transfer, and any other required documents,
must be transmitted to and received by the Exchange Agent on or prior to the
Expiration Time at one of the addresses specified below under "The Exchange
Offer -- Exchange Agent." LETTERS OF TRANSMITTAL AND CERTIFICATES REPRESENTING
THE SHARES SHOULD NOT BE SENT TO UGLY DUCKLING OR TO THE INFORMATION AGENT.
Signatures on Letters of Transmittal need not be guaranteed by a firm which is a
member of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. ("NASD") or by a commercial bank or
trust company having an office in the United States ("Eligible Institution"),
provided the Shares tendered pursuant thereto are tendered (i) by a registered
holder of the Shares who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In all other cases, signatures
must be guaranteed by an Eligible Institution. If Shares are registered in the
name of a person other than the signer of the Letter of Transmittal, the
certificates representing the Shares must be endorsed by, or be accompanied by,
a written instrument or instruments of transfer or exchange in form satisfactory
to the Company, duly executed by the registered holder, with the signature
thereon guaranteed as aforesaid.
14
<PAGE>
The Exchange Agent has established an account with respect to the
Shares at DTC and any financial institution which is a participant in the DTC
system may make book-entry delivery of the Shares by causing DTC to transfer
such Shares into the Exchange Agent's account in accordance with DTC's procedure
for such transfer. However, although delivery of Shares may be effected through
book-entry transfer into the Exchange Agent's account at DTC, the Letter of
Transmittal (or manually signed facsimile thereof), with any required signature
guarantees, or an Agent's Message in the case of a book-entry thereof, and any
other required documents, must in any case be transmitted to and received by the
Exchange Agent prior to the Expiration Time at one of the addresses specified
below under "The Exchange Offer -- Exchange Agent", or the guaranteed delivery
procedure described below must be complied with. Delivery of documents to DTC in
accordance with DTC's procedures does not constitute delivery to the Exchange
Agent.
Tendering stockholders are required under federal income tax law to
provide a correct Taxpayer Identification Number on a Substitute Form W-9, which
is included, together with guidelines relating to the form, with the Letter of
Transmittal. Failure to complete and return this Substitute Form W-9 to the
Exchange Agent may subject a stockholder to a $50 penalty imposed by the
Internal Revenue Service and will result in backup withholding of 31% on
interest and other payments with respect to the Debentures and cash in lieu of
fractional interests in the Debentures.
The method of delivery of certificates representing the Shares and all
other required documents is at the election and risk of the tendering
stockholder but delivery by registered mail with return receipt requested,
properly insured, is recommended.
If a stockholder desires to tender Shares and certificates representing
the Shares are not immediately available or time will not permit such holder's
Letter of Transmittal, certificates representing the Shares or other required
documents to reach the Exchange Agent before the Expiration Time, such holder's
tender may be effected if:
(a) such tender is made through an Eligible Institution;
(b) a properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form made available by the Company, is received
prior to the Expiration Time by the Exchange Agent as provided below;
and
(c) the Common Stock Certificates (or a Book-Entry Confirmation) evidencing
all tendered Common Stock, in proper form for transfer, in each case
together with the Letter of Transmittal (or a manually signed facsimile
thereof), properly completed and duly executed, with any required
signature guarantees (or, in the case of a book-entry transfer, an
Agent's Message) and any other documents required by the Letter of
Transmittal are received by the Exchange Agent within three Nasdaq
National Market trading days of the date of execution of such Notice of
Guaranteed Delivery. A "trading day" is any day on which the Nasdaq
National Market is open for business.
The acceptance by a stockholder of the Exchange Offer pursuant to one
of the procedures set forth above will constitute an agreement between the
stockholder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the accompanying Letter of Transmittal.
The Company will accept Shares by giving notice thereof to the Exchange
Agent.
All questions as to the form of all documents and the validity
(including time of receipt) and acceptance of all tenders will be determined by
the Company, in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
not in proper form or the acceptance of which would, in the opinion of the
Company's counsel, be unlawful. The Company also reserves the absolute right to
waive any of the conditions of the Exchange Offer or any defect or irregularity
in the tender of any of the Shares. The Company's interpretation of the terms
15
<PAGE>
and conditions of the Exchange Offer (including the Letter of Transmittal and
the instructions thereto) will be final. No tender of Shares will be deemed to
have been properly made until all defects and irregularities have been cured or
waived. Neither the Company, the Information Agent, the Exchange Agent nor any
other person shall be under any duty to give notification of any defects or
irregularities in tenders, nor shall any of them incur any liability for failure
to give such notification.
Withdrawal Rights
All tenders duly and validly made are irrevocable, except that Shares
tendered pursuant to the Exchange Offer may be withdrawn prior to the Expiration
Time, and, unless theretofore accepted for exchange as provided in the Exchange
Offer, may also be withdrawn after 5:00 p.m., New York City time, on April 17,
2000.
To be effective, a written, telegraphic or facsimile transmission
notice of withdrawal must be received by the Exchange Agent on a timely basis at
one of the addresses specified under "The Exchange Offer -- Exchange Agent." Any
notice of withdrawal must specify the name of the person having tendered the
Shares to be withdrawn, the names in which the Shares are registered if
different from that of the tendering stockholder and the number of Shares to be
withdrawn. If certificates representing the Shares have been physically
delivered to the Exchange Agent, then prior to the release of such certificates,
the tendering stockholder must also submit the certificate number of the
certificates representing the Shares to be withdrawn and the signature on such
holder's notice of withdrawal must be guaranteed by an Eligible Institution. If
certificates representing the Shares have been delivered pursuant to the
book-entry procedures set forth above under "The Exchange Offer -- How to
Tender," any notice of withdrawal must specify the name and number of the
participant's account at DTC to be credited with the withdrawn Shares. All
questions as to validity, form and eligibility (including time of receipt) of
notices of withdrawal will be determined by the Company, in its sole discretion,
which determination shall be final and binding. Any Shares effectively withdrawn
will be deemed not to have been duly tendered for purposes of the Exchange
Offer.
None of the Company, the Exchange Agent, the Information Agent or any
other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give such notification. However, the Exchange Agent will attempt to correct any
defective tenders by contacting the tendering stockholder. Withdrawals of
tenders of Shares may not be rescinded, and any Shares properly withdrawn will
thereafter be deemed not validly tendered for purposes of the Exchange Offer.
However, withdrawn Shares may be retendered by following one of the procedures
described under "The Exchange Offer -- How to Tender" at any time prior to the
Expiration Time.
Acceptance of Shares for Exchange; Delivery of Debentures to be Exchanged
Upon the terms and subject to the conditions of the Exchange Offer, the
acceptance for exchange of Shares validly tendered and not withdrawn will be
made promptly after the Expiration Time. For purposes of the Exchange Offer, the
Company will be deemed to have accepted for exchange validly tendered Shares
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering
stockholders for the purposes of receiving Debentures from the Company and
transmitting such securities to such stockholders. If the Company should extend
the Exchange Offer or be delayed in consummation of the Exchange Offer for any
reason, then, without prejudice to the Company's rights under the Exchange
Offer, the Exchange Agent acting on behalf of the Company may retain tendered
Shares, and such Shares may not be withdrawn, subject to the withdrawal rights
of tendering stockholders set forth above under "The Exchange Offer --
Withdrawal Rights." Tendered Shares not accepted for exchange by the Company
because of an invalid tender, the termination of the Exchange Offer as a result
of the existence of a condition set forth below under "The Exchange Offer --
Conditions to and Amendment of the Exchange Offer" or for any other reason, will
be returned without expense to the tendering stockholders (or, in the case of
Shares delivered by book-entry transfer within DTC, will be credited to the
account maintained within DTC by the participant in the DTC system who delivered
such Shares) as promptly as practicable following the expiration or termination
of the Exchange Offer.
Delivery of Debentures in exchange for Shares tendered pursuant to the
Exchange Offer will be made by the Company to the Exchange Agent, as agent for
the tendering stockholders, only after receipt by the Exchange Agent of
16
<PAGE>
certificates representing the tendered Shares (or confirmation of the book-entry
transfer of such Shares into the Exchange Agent's account at DTC), a properly
completed and duly executed Letter of Transmittal (or manually signed facsimile
thereof), or an Agent's Message, in the case of a book-entry transfer, and any
other required documents.
Denominations; Fractional Interests
The Debentures will be issued only in denominations of $1.00 and
integral multiples thereof.
Proration if Shares Tendered Exceed Maximum
If stockholders tendering Shares validly tender more than 2,500,000
Shares, the Company will accept for exchange no more than 2,500,000 Shares. In
such event, Debentures will be allocated to tendering stockholders on a pro rata
basis based on the number of Shares tendered by each tendering stockholder. The
Company will accept from each tendering stockholder that number of Shares equal
to 2,500,000 multiplied by a fraction, the numerator of which is the total
number of Shares validly tendered by such tendering stockholder and the
denominator of which is the total number of Shares validly tendered by all
tendering stockholders. The number of Shares will be rounded up or down as
nearly as practicable to result in the tender of whole Shares rather than
fractional Shares. Any Shares not accepted by the Company as a result of the
allocation described above will be returned promptly to the tendering
stockholder.
Conditions to and Amendment of the Exchange Offer
The Exchange Offer is subject to the tender of a minimum of 500,000
Shares, and to the other conditions described below.
An application will be filed with the Commission for qualification of
the Indenture under which the Debentures will be issued under the Trust
Indenture Act of 1939 (the "Trust Indenture Act"). The Exchange Offer is
conditioned upon the Indenture being qualified under the Trust Indenture Act. In
addition to the foregoing conditions, the Company may decline to accept any
Shares in exchange for Debentures and may withdraw the Exchange Offer as to
Shares not then accepted if, before the time of acceptance, there shall have
occurred any of the following events which, in the Company's sole judgment,
makes it inadvisable to proceed with such acceptance:
(a) any government agency or other person shall have instituted or
threatened any action or proceeding before any court or administrative
agency (i) challenging the acquisition of Shares pursuant to the
Exchange Offer or otherwise in any manner relating to the Exchange
Offer or (ii) otherwise materially adversely affecting the Company, or
there shall have occurred any existing action or proceeding with
respect to the Company; or
(b) any statute, rule or regulation shall have been proposed or enacted, or
any action shall have been taken by any governmental authority, which
would or might prohibit, restrict or delay consummation of the Exchange
Offer or materially impair the contemplated benefits of the Exchange
Offer to the Company; or
(c) any state of war, national emergency, banking moratorium or suspension
of payments by banks in the State of New York shall have occurred, or
any currency or exchange control laws or regulations or general
suspension of trading or limitation on prices on Nasdaq shall have been
imposed or there shall have occurred a material adverse change in the
securities markets generally; or
(d) any required consents or approvals from third parties or government
regulatory agencies shall not have been obtained; or
(e) the Exchange Offer would result in the Company's Shares being delisted
from the Nasdaq National Market; or
(f) any material change, or development involving a prospective material
change, in or affecting the business or financial affairs of the
Company shall have occurred.
17
<PAGE>
The Company reserves the right to waive any of the foregoing
conditions. The Company will determine that these conditions (except for certain
regulatory approvals) have been satisfied or waived prior to the Expiration
Time. The Company also reserves the right to amend the Exchange Offer by public
announcement of any amendment. The Exchange Offer, however, may not be amended
or withdrawn unless the amendment or the circumstances described above regarding
withdrawal occur prior to the Expiration Time.
Exchange Agent
Harris Trust and Savings Bank has been appointed as Exchange Agent for
the Exchange Offer. All correspondence in connection with the Exchange Offer and
the Letter of Transmittal should be addressed to the Exchange Agent, as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Harris Trust and Savings Bank
Mailing Address: Facsimile Copy Number (For Hand/Overnight Delivery:
c/o Harris Trust Eligible Institutions Only):
Company of New York 212-701-7636 c/o Harris Trust Company of
Wall Street Station Confirm Receipt of Facsimile By New York
P.O. Box 1010 Telephone 88 Pine Street, 19th Floor
New York, N.Y. 10268-1010 212-701-7624 New York, NY 10005
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE
WILL NOT CONSTITUTE VALID DELIVERY.
Information Agent
Corporate Investor Communications. Inc. will act as Information Agent in connection with the Exchange
Offer. For further assistance or additional copies of documents call the Information Agent toll-free at
1-877-977-6192 or write to the Information Agent at:
Mailing Address: Facsimile Copy Number Hand Delivery:
Corporate Investor 201-804-8693 Corporate Investor
Communications, Inc. Communications, Inc.
111 Commerce Road 111 Commerce Road
Carlstadt, NJ 01072-2586 Carlstadt, NJ 01072-2586
LETTERS OF TRANSMITTAL AND CERTIFICATES REPRESENTING THE SHARES SHOULD NOT BE SENT TO THE INFORMATION AGENT. See "The
Exchange Offer-- How to Tender."
</TABLE>
No Financial Advisor
No financial advisor has been retained to render, and no financial
advisor has rendered, an opinion as to the fairness of the Exchange Offer to
holders of the Company's Common Stock or to solicit exchanges of Common Stock
for Debentures.
Payment of Expenses
The Exchange Offer is being made by the Company in reliance on the
exemption from the registration requirements of the Securities Act of 1933, as
amended, afforded by Section 3(a) (9) thereof. Therefore, the Company will not
pay any commission or other remuneration to any broker, dealer, salesman or
other person for soliciting tenders of the Shares. However, regular employees of
the Company (who will not be additionally compensated therefor) may solicit
tenders and will answer inquiries concerning the Exchange Offer.
18
<PAGE>
The Company will pay the Exchange Agent and the Information Agent
reasonable and customary fees for their services and will reimburse such parties
for their reasonable out-of-pocket expenses in connection therewith. The Company
will also pay brokerage houses and other custodians, nominees and fiduciaries
the reasonable out-of-pocket expenses incurred by them in forwarding copies of
this Offering Circular and related documents to the beneficial owners of the
Shares held of record by such persons and in handling or forwarding tenders for
their customers.
19
<PAGE>
BACKGROUND, PURPOSE AND EFFECT OF THE EXCHANGE OFFER
Ugly Duckling completed its initial public offering in June 1996 with
the sale of 2,300,000 Shares of its Common Stock at a price of $6.75 per share.
Following the initial public offering, the price of the Company's Common Stock
increased significantly, to a high of $25.75 per share in the first quarter of
1997, reflecting a stock market with generally increasing stock prices, a
healthy used car sales and finance industry, and growth in the Company's
revenues and earnings. Subsequently, however, the used car sales and financing
industry has encountered difficulties, with several subprime companies
announcing major downward adjustments to their financial statements, violations
of loan covenants, related litigation, and other events. In addition, certain of
these companies have filed for bankruptcy protection. These difficulties have
corresponded with a general decline in the stock prices of companies involved in
this industry. Consistent with this decline, the 52 week price range of the
Company's Common Stock as of February 14, 2000 was approximately $4.00 to $9.00
per share. As of February 14, 2000, the closing price of the common stock on
Nasdaq was $8.00.
The Company does not believe that recent prices reflect the underlying
value of its Common Stock. In this regard, in establishing a tender price that
is significantly higher than the market price of the Shares as of February 14,
2000, the Company considered the following factors, among others.
o The closing price of $8.00 per Share as of February 14, 2000,
two business days prior to the announcement of the Exchange
Offer, represents a 69% decline from its all-time high in the
first quarter of 1997 and a 11% decline from its high in 1999.
See "Price Range of Common Stock."
o The recent Share price reflects a discount of approximately
28% to the Company's book value per share of $11.13 as of
December 31, 1999. See "Summary Selected Consolidated
Financial Data."
o The Company's recent and historical financial results,
including the Company's increase in revenues ($467,275,000
million compared to $332,553,000 million) and diluted earnings
per share from continuing operations ($0.57 compared to $0.19)
for the twelve month period ended December 31, 1999 as
compared to the twelve month period ended December 31, 1998.
See "Summary Selected Consolidated Financial Data."
The principal purpose of the Exchange Offer is to reduce the number of
Shares of Common Stock outstanding by offering to purchase Shares in the
Exchange Offer, thereby offering the potential for increased earnings per share
in the future. However, see "Risk Factors - No Assurance of Increased Earnings
Per Share" and "Certain Pro Forma Financial Information." In addition, see
"Business - Recent Developments - Status of FMAC Transaction" for a description
of the relation of the exchange offer to the possible issuance of additional
shares of common stock to First Merchants Acceptance Corporation. The Company
believes that if it is able to increase earnings per share, this development
could have a positive influence on the price of its Common Stock. The increased
indebtedness resulting from the Exchange Offer, however, will significantly
increase the Company's debt service requirements and could negatively affect
earnings per share. See "Risk Factors -- Increased Leverage and Debt Service
Obligations" and "-- No Assurance of Increased Earnings Per Share."
Holders of Shares of Common Stock electing to participate in the
Exchange Offer will realize the following benefits.
o In exchange for Shares, tendering stockholders will receive
a debt security with a principal amount approximately 38%
greater than the market price of the Shares as of February
14, 2000.
o The Debentures will bear interest at 11% per annum, payable
each April 15 and October 15 until the Debentures are paid
in full.
o The Debentures, although subordinated in right of payment to
all other existing and future senior indebtedness of the
Company, represent a claim on the Company's assets senior to
any claim of the holders of the Company's Common Stock.
20
<PAGE>
Notwithstanding the benefits to tendering stockholders summarized
above, holders of Shares contemplating the Exchange Offer should take into
account the following considerations.
o Tendering stockholders receiving Debentures will relinquish
the right to share in any capital appreciation of the
Company's Common Stock.
o Unlike the Shares, even if the Debentures can be listed on
AMEX, it is highly unlikely that trading in the Debentures
will be as liquid as trading in the Common Stock.
o Unlike holders of Common Stock, holders of the Debentures will
have no rights to vote on matters submitted to the Company's
stockholders.
o The Company has the right to prepay the Debentures at any time
without penalty or premium by paying the unpaid principal
amount and accrued interest on the Debentures.
o Tendering stockholders will be subject to certain tax
consequences that may differ from those that would be realized
if the Shares were sold for cash.
Finally, holders of Shares contemplating the Exchange Offer should
consider that the Company has not retained any financial advisor or investment
banking firm to assist the Company in determining the price and terms of the
Indentures or whether the consideration offered in the Exchange Offer is
adequate to tendering stockholders. The Company also has not requested any
report, opinion, or appraisal relating to the fairness of the consideration
being offered pursuant to the Exchange Offer. For a discussion of risk factors
which should be taken into account in considering the Exchange Offer, see "Risk
Factors."
If the Exchange Offer is completed, the Shares accepted for exchange
will be held by the Company as treasury stock.
21
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at December 31,
1999 and pro forma to give effect to the exchange of Debentures assuming the
minimum and maximum number of Shares were tendered, respectively, as if such
exchanges had occurred on December 31, 1999 and were valued at $9.00 per share.
<TABLE>
<CAPTION>
As Adjusted
-------------------------------------
Maximum Minimum
No. of No. of
Shares Shares
Actual Exchanged Exchanged
------------------ ------------------ -----------------
Debt: (In thousands and unaudited)
<S> <C> <C> <C>
Revolving Facility...................................... $ 41,717 $ 41,717 $ 41,717
Notes Payable........................................... 270,215 270,215 270,215
Subordinated Notes Payable.............................. 29,217 29,217 29,217
11% Subordinated Debentures due 2010.................... -- 22,500 4,500
---------------- ---------------- ----------------
Total Debt........................................ 341,149 363,649 345,649
------------------ ------------------ -----------------
Stockholders' Equity:
Common Stock; $.001 par value, 100,000 shares authorized, 14,890,000 issued
and outstanding (Actual), 12,390,000 and 14,390,000 issued and
outstanding, respectively (As Adjusted)................. 152,971 130,271 148,271
Retained Earnings................................................ 12,715 $ 12,715 $ 12,715
---------------- ---------------- ----------------
Total Stockholders' Equity.................................. 165,686 142,986 160,986
------------------ ------------------ -----------------
Total Capitalization........................................ $ 506,835 $ 506,635 $ 506,635
================== ================== =================
</TABLE>
22
<PAGE>
SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA
The selected data presented below under the captions "Statement of Operations
Data" and "Balance Sheet Data" for, and as of the end of, each of the years in
the four-year period ended December 31, 1998 are derived from the consolidated
financial statements of the Company, which consolidated financial statements
have been audited by KPMG LLP, independent auditors. The selected data as of and
for the year ended December 31, 1999 are derived from the unaudited condensed
consolidated financial statements of the Company. The information presented
below under the caption "Dealership Operating Data" is unaudited. In the opinion
of management, such unaudited data reflect all adjustments, consisting only of
normally recurring adjustments, necessary to fairly present the Company's
financial position and results of operations for the periods presented. Certain
reclassifications have been made to the prior year financial statements to
conform to current year presentation.
<TABLE>
<CAPTION>
Year Ended December 31,
(in thousands)
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------------------------------------------------------------------
Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Sales of Used Cars........................ $ 389,908 $ 287,618 $ 123,814 $ 53,768 $ 47,824
Less:
Cost of Used Cars Sold.................... 219,071 167,014 72,358 31,879 29,733
Provision for Credit Losses............... 102,955 65,318 22,354 9,657 8,359
-------------------------------------------------------------------------
67,882 55,286 29,102 12,232 9,732
-------------------------------------------------------------------------
Net Interest Income....................... 51,172 14,404 12,384 8,597 8,227
Gain on Sale of Loans..................... -- 12,093 6,721 3,925 --
Servicing and Other Income................ 8,793 16,335 12,325 2,537 308
-------------------------------------------------------------------------
-------------------------------------------------------------------------
59,965 42,832 31,430 15,059 8,535
-------------------------------------------------------------------------
Income before Operating Expenses.......... 127,847 98,118 60,532 27,291 18,267
Operating Expenses:
Selling and Marketing..................... 23,752 20,285 10,538 3,585 3,856
General and Administrative................ 82,236 66,977 39,413 12,221 11,677
Depreciation and Amortization............. 6,948 4,912 3,148 1,382 1,225
-------------------------------------------------------------------------
-------------------------------------------------------------------------
112,936 92,174 53,099 17,188 16,758
-------------------------------------------------------------------------
Income before Interest Expense............ 14,911 5,944 7,433 10,103 1,509
Interest Expense.......................... 224 138 531 2,429 5,328
-------------------------------------------------------------------------
Earnings (Loss) before Income Taxes 14,687 5,806 6,902 7,674 (3,819)
Income Taxes (Benefit).................... 6,000 2,351 2,820 694 --
----------- ----------- ----------- ----------- -----------
Earnings (Loss) from Continuing Operations
8,687 3,455 4,082 6,980 (3,819)
Discontinued Operations:
Earnings (Loss) from Discontinued
Operations, net of income taxes....... 580 (9,158) 5,363 (1,114) (153)
-------------------------------------------------------------------------
Net Earnings (Loss)....................... $ 9,267 $ (5,703) $ 9,445 $ 5,866 $ (3,972)
=========================================================================
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------
------------ ----------- ------------ ----------- ------------
1999 1998 1997 1996 1995
------------ ----------- ------------ ----------- ------------
Earnings (Loss) per Common Share from
Continuing Operations:
<S> <C> <C> <C> <C> <C>
Basic..................................... $ 0.58 $ 0.19 $ 0.23 $ 0.89 $ (0.69)
============ =========== ============ =========== ============
Diluted................................... $ 0.57 $ 0.19 $ 0.22 $ 0.84 $ (0.69)
============ =========== ============ =========== ============
Net Earnings (Loss) per Common Share:
Basic..................................... $ 0.61 $ (0.32) $ 0.53 $ 0.74 $ (0.72)
============ =========== ============ =========== ============
Diluted................................... $ 0.62 $ (0.31) $ 0.52 $ 0.71 $ (0.72)
============ =========== ============ =========== ============
Shares Used in Computation - Continuing
Operations
Basic Shares.............................. 15,093 18,082 17,832 7,887 5,522
============ =========== ============ =========== ============
Diluted Shares............................ 15,329 18,405 18,234 8,298 5,522
============ =========== ============ =========== ============
Shares Used in Computation - Net
Earnings (Loss)
============ =========== ============ =========== ============
Basic Shares.............................. 15,093 18,082 17,832 7,887 5,522
============ =========== ============ =========== ============
Diluted Shares............................ 15,329 18,045 18,234 8,298 5,522
============ =========== ============ =========== ============
Earnings to Fixed Charges(1).............. 3.19 2.22 3.91 2.62 (2)
============ =========== ============ =========== ============
Balance Sheet Data:
Cash and Cash Equivalents................. $ 3,683 $ 2,544 $ 3,537 $ 18,455 $ 1,419
Finance Receivables, Net.................. 365,586 126,168 60,778 14,186 27,732
Total Assets............................. 537,950 338,306 275,633 117,629 60,712
Subordinated Notes Payable................ 29,217 38,741 12,000 14,000 14,553
Total Debt............................... 341,149 156,636 77,171 26,904 49,754
Preferred Stock........................... -- -- -- -- 10,000
Common Stock.............................. 152,971 159,318 172,622 82,612 127
Total Stockholders' Equity............... 165,686 162,767 181,774 82,319 4,884
Principal Balances Serviced
Dealership Sales.......................... 358,818 93,936 55,965 7,068 34,226
Securitized with Servicing Retained....... 61,484 198,747 238,025 51,662 --
Discontinued Operations................... 25,725 73,770 29,965 49,772 13,805
Servicing on Behalf of Others............. 12,983 47,947 127,322 -- --
------------ ----------- ------------ ----------- ------------
Total Serviced Portfolios................. $ 459,010 $ 414,400 $ 451,277 $ 108,502 $ 48,031
============ =========== ============ =========== ============
Dealership Operating Data (unaudited):
Average Sales Price per Car............... 8,454 7,997 7,443 7,107 6,478
Number of Used Cars Sold.................. 46,120 35,964 16,636 7,565 7,383
Company Dealerships....................... 72 56 41 8 8
Number of Contracts Originated............ 45,756 35,560 29,251 6,929 6,129
Principal Balances Originated (dollars
in thousands)......................... 382,335 277,226 172,230 48,996 36,568
Retained Portfolio:
Number of Contracts Outstanding........... 53,081 12,415 7,993 1,045 8,049
Allowance as % of Outstanding Principal... 21.0% 26.4% 18.5% 23.0% 21.9%
Average Yield on Contracts................ 26.0% 25.8% 26.7% 29.2% 28.0%
Delinquencies - Retained Portfolio:
Principal Balances 31 to 60 Days.......... 5.0% 2.3% 2.2% 2.3% 4.2%
Principal Balances over 60 days........... 4.9% 0.5% 0.6% 0.6% 1.1%
<FN>
(1) Ratio of Earnings to Fixed Charges for September 30, 1999 was 3.04.
(2) Earnings did not cover Fixed Charges by $3.9 million in the year ended December 31, 1995.
</FN>
</TABLE>
24
<PAGE>
CERTAIN PRO FORMA FINANCIAL INFORMATION
The table set forth below shows the pro forma effects the Exchange Offer would
have had on the adjusted financial condition and results of operations of the
Company for the years ended December 31, 1999 and December 31, 1998, and the
nine months ended September 30, 1999, assuming the maximum and minimum number of
Shares had been exchanged on the first day of the respective periods and are
valued at $9.00 per share. Certain reclassifications have been made to the prior
year financial statements to conform to current year presentation.
<TABLE>
<CAPTION>
Year Ended December 31, 1999 Nine Months Ended September 30, 1999
----------------------------------------- -----------------------------------------
--------------------------- ---------------------------
Pro Forma Pro Forma
--------------------------- ---------------------------
Maximum Minimum Maximum Minimum
No. of No. of No. of No. of
Shares Shares Shares Shares
Exchanged Exchanged Actual Exchanged Exchanged
------------- ------------- ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Sales of Used Cars $ 389,908 $ 389,908 $ 389,908 $ 307,633 $ 307,633 $ 307,633
Less:
Cost of Used Cars Sold 219,071 219,071 219,071 173,429 173,429 173,429
Provision for Credit Losses 102,955 102,955 102,955 81,113 81,113 81,113
------------- ------------- ------------ ------------- ------------- ------------
67,882 67,882 67,882 53,091 53,091 53,091
------------- ------------- ------------ ------------- ------------- ------------
Interest Income 51,172 51,172 51,172 34,914 34,914 34,914
Gain on Sale of Loans -- -- -- -- -- --
Servicing and Other Income 8,793 8,793 8,793 7,290 7,290 7,290
------------- ------------- ------------ ------------- ------------- ------------
Other Income 59,965 59,965 59,965 42,204 42,204 42,204
------------- ------------- ------------ ------------- ------------- ------------
Income before Operating Expenses 127,847 127,847 127,847 95,295 95,295 95,295
Operating Expenses
Selling and Marketing 23,752 23,752 23,752 18,577 18,577 18,577
General and Administrative 82,236 82,236 82,236 61,413 61,413 61,413
Depreciation and Amortization 6,948 6,948 6,948 5,037 5,037 5,037
------------- ------------- ------------ ------------- ------------- ------------
112,936 112,936 112,936 85,027 85,027 85,027
------------- ------------- ------------ ------------- ------------- ------------
Operating Income 14,911 14,911 14,911 10,268 10,268 10,268
Interest Expense 224 3,672 914 -- 2,586 518
------------- ------------- ------------ ------------- ------------- ------------
Earnings (Loss) before Income Taxes 14,687 11,239 13,997 10,268 7,682 9,750
Income Taxes (Benefit) 6,000 4,586 5,717 4,200 3,140 3,988
------------- ------------- ------------ ------------- ------------- ------------
Earnings (Loss) from Continuing
Operations $ 8,687 $ 6,653 $ 8,280 $ 6,068 $ 4,542 $ 5,762
============= ============= ============ ============= ============= ============
Earnings (Loss) per Common Share from
Continuing Operations:
Basic $ 0.58 $ 0.53 $ 0.57 $ 0.40 $ 0.36 $ 0.39
============= ============= ============ ============= ============= ============
Diluted $ 0.57 $ 0.52 $ 0.56 $ 0.39 $ 0.35 $ 0.39
============= ============= ============ ============= ============= ============
Shares Used in Computation -
Continuing Operations:
Basic Shares 15,093 12,593 14,593 15,161 12,661 14,661
============= ============= ============ ============= ============= ============
Diluted Shares 15,329 12,829 14,829 15,384 12,884 14,884
============= ============= ============ ============= ============= ============
25
<PAGE>
Year Ended December 31, 1998
-----------------------------------------
---------------------------
Pro Forma
---------------------------
Maximum Minimum
No. of No. of
Shares Shares
Actual Exchanged Exchanged
------------- ------------- -------------
Sales of Used Cars $ 287,618 $ 287,618 $ 287,618
Less:
Cost of Used Cars Sold 167,014 167,014 167,014
Provision for Credit Losses 65,318 65,318 65,318
------------- ------------- -------------
55,286 55,286 55,286
------------- ------------- -------------
Interest Income 14,404 14,404 14,404
Gain on Sale of Loans 12,093 12,093 12,093
Servicing and Other Income 16,335 16,335 16,335
------------- ------------- -------------
Other Income 42,832 42,832 42,832
------------- ------------- -------------
Income before Operating Expenses 98,118 98,118 98,118
Operating Expenses
Selling and Marketing 20,285 20,285 20,285
General and Administrative 66,977 66,977 66,977
Depreciation and Amortization 4,912 4,912 4,912
------------- ------------- -------------
92,174 92,174 92,174
------------- ------------- -------------
Operating Income 5,944 5,944 5,944
Interest Expense 138 3,586 828
------------- ------------- -------------
Earnings (Loss) before Income Taxes 5,806 2,358 5,116
Income Taxes (Benefit) 2,351 937 2,068
------------- ------------- -------------
Earnings (Loss) from Continuing
Operations $ 3,455 $ 1,421 $ 3,048
============= ============= =============
Earnings (Loss) per Common Share from
Continuing Operations:
Basic $ 0.19 $ 0.09 $ 0.17
============= ============= =============
Diluted $ 0.19 $ 0.09 $ 0.17
============= ============= =============
Shares Used in Computation -
Continuing Operations:
Basic Shares 18,082 15,582 17,582
============= ============= =============
Diluted Shares 18,405 15,905 17,905
============= ============= =============
</TABLE>
25A
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, 1999 Nine Months Ended September 30, 1999
----------------------------------------- -----------------------------------------
--------------------------- ---------------------------
Pro Forma Pro Forma
--------------------------- ---------------------------
Maximum Minimum Maximum Minimum
No. of No. of No. of No. of
Shares Shares Shares Shares
Exchanged Exchanged Actual Exchanged Exchanged
------------- ------------- ------------ ------------- ------------- ------------
Balance Sheet Data:
<S> <C> <C> <C> <C> <C> <C>
Cash and Cash Equivalents............ $ 3,683 3,683 3,683 2,293 2,293 2,293
Finance Receivables, Net............. 365,586 365,586 365,586 260,026 260,026 260,026
Total Assets..................... 537,950 537,950 537,950 518,765 518,765 518,765
Subordinated Notes Payable........... 29,217 51,717 33,717 37,077 59,577 41,577
Total Debt....................... 341,149 363,649 345,649 317,440 339,940 321,940
Preferred Stock...................... -- -- -- -- -- --
Common Stock......................... 152,971 130,271 148,271 152,955 130,255 148,255
Total Stockholders' Equity....... 165,686 142,986 160,986 162,477 139,777 157,777
Common Shares Outstanding............ 14,890 12,390 14,390 15,834 13,334 15,334
Book Value per share................. 11.13 11.54 11.19 10.26 10.48 10.29
Year Ended December 31, 1999 Nine Months Ended September 30, 1999
---------------------------------------- ----------------------------------------
Maximum Minimum Maximum Minimum
No. of No. of No. of No. of
Shares Shares Shares Shares
Exchanged Exchanged Exchanged Exchanged
------------------- ------------------- ------------------- -------------------
Par Value of Debentures Issued........ $ 27,500 $ 5,500 $ 27,500 $ 5,500
=================== =================== =================== ===================
Interest Incurred During the period
at 11%............................ $ 3,025 $ 605 $ 2,269 $ 454
------------------- ------------------- ------------------- -------------------
Amortization of the Discount of
$5,000,000 and $1,000,000 for
the Maximum and Minimum Shares
Exchanged, Respectively........... 423 85 317 64
------------------- ------------------- ------------------- -------------------
Interest Expense Adjustment........... $ 3,448 $ 690 $ 2,586 $ 518
=================== =================== =================== ===================
Year Ended December 31, 1999 Nine Months Ended September 30, 1999
---------------------------------------- ----------------------------------------
Maximum Minimum Maximum Minimum
No. of No. of No. of No. of
Shares Shares Shares Shares
Exchanged Exchanged Exchanged Exchanged
------------------- ------------------- ------------------- -------------------
Par Value of Subordinated Debentures.. $ 27,500 $ 5,500 $ 27,500 $ 5,500
Less: Discount........................ 5,000 1,000 5,000 1,000
------------------- ------------------- ------------------- -------------------
Carrying Value of Subordinated Notes
Payable........................... 22,500 4,500 22,500 4,500
Estimated Stock Acquisition Costs..... 200 200 200 200
------------------- ------------------- ------------------- -------------------
Common Stock Acquired................. $ 22,700 $ 4,700 $ 22,700 $ 4,700
=================== =================== =================== ===================
26
<PAGE>
Year Ended December 31, 1998
-----------------------------------------
---------------------------
Pro Forma
---------------------------
Maximum Minimum
No. of No. of
Shares Shares
Actual Exchanged Exchanged
------------- ------------- -------------
Balance Sheet Data:
Cash and Cash Equivalents............ 2,544 2,544 2,544
Finance Receivables, Net............. 127,733 127,733 127,733
Total Assets..................... 338,306 338,306 338,306
Subordinated Notes Payable........... 38,741 61,241 43,241
Total Debt....................... 156,636 179,136 161,136
Preferred Stock...................... -- -- --
Common Stock......................... 159,318 136,618 154,618
Total Stockholders' Equity....... 162,767 140,067 158,067
Common Shares Outstanding............ 15,845 13,345 15,345
Book Value per share................. 10.27 10.50 10.30
Year Ended December 31, 1998
----------------------------------------
Maximum Minimum
No. of No. of
Shares Shares
Exchanged Exchanged
------------------- -------------------
Par Value of Debentures Issued........ $ 27,500 $ 5,500
=================== ===================
Interest Incurred During the period
at 11%............................ $ 3,025 $ 605
------------------- -------------------
Amortization of the Discount of
$5,000,000 and $1,000,000 for
the Maximum and Minimum Shares
Exchanged, Respectively........... 423 85
------------------- -------------------
Interest Expense Adjustment........... $ 3,448 $ 690
=================== ===================
Year Ended December 31, 1998
----------------------------------------
Maximum Minimum
No. of No. of
Shares Shares
Exchanged Exchanged
------------------- -------------------
Par Value of Subordinated Debentures.. $ 27,500 $ 5,500
Less: Discount........................ 5,000 1,000
------------------- -------------------
Carrying Value of Subordinated Notes
Payable........................... 22,500 4,500
Estimated Stock Acquisition Costs..... 200 200
------------------- -------------------
Common Stock Acquired................. $ 22,700 $ 4,700
=================== ===================
</TABLE>
26A
<PAGE>
34
PRICE RANGE OF COMMON STOCK
The Company's Common Stock trades on the Nasdaq Stock Market under the
symbol "UGLY." The Company's initial public offering was effected on June 17,
1996 at a price of $6.75 per share. The high and low closing sales prices of the
Common Stock as reported by Nasdaq since that date are reported below.
<TABLE>
<CAPTION>
Market Price
High Low
<S> <C> <C>
Fiscal Year 1996:
Second Quarter (from June 18, 1996) $10.00 $ 8.50
Third Quarter $15.50 $ 8.13
Fourth Quarter $21.63 $13.00
Fiscal Year 1997:
First Quarter $25.75 $16.25
Second Quarter $18.06 $13.13
Third Quarter $17.00 $12.50
Fourth Quarter $16.75 $ 7.69
Fiscal Year 1998:
First Quarter $10.88 $ 6.31
Second Quarter $12.70 $ 8.00
Third Quarter $ 9.13 $ 4.63
Fourth Quarter $ 6.00 $ 4.25
Fiscal Year 1999:
First Quarter $ 6.50 $ 4.25
Second Quarter $ 7.69 $ 5.13
Third Quarter $ 9.00 $ 6.88
Fourth Quarter $ 8.88 $ 6.81
</TABLE>
On February 14, 2000, there were approximately 77 holders of record of
the Company's Common Stock.
Ugly Duckling's capital stock consists of 100,000,000 shares of Common
Stock, of which approximately 14,906,152 shares were outstanding as of February
14, 2000 and 10,000,000 shares of Preferred Stock, none of which were issued and
outstanding as of February 14, 2000.
DIVIDENDS
Cash dividends have never been paid on Ugly Duckling's Common Stock.
The Company presently intends to retain earnings and does not anticipate that
cash dividends will be paid on its Common Stock in the foreseeable future. Under
the terms of the Revolving Facility with GE Capital, the Company may not declare
or pay dividends in excess of 15% of each year's net earnings available for
distribution.
27
<PAGE>
BUSINESS
General
The Company operates a chain of buy here-pay here used car dealerships
and underwrites, finances and services retail installment contracts generated
from the sale of used cars by its Company dealerships. The Company targets its
products and services to the sub-prime segment of the automobile financing
industry, which focuses on selling and financing the sale of used cars to
persons who have limited credit histories, low incomes, or past credit problems.
Dealership Operations and Related Securitization Program. As of the
date of this Offering Circular, the Company was operating 74 used car
dealerships ("Company Dealerships") located in 11 metropolitan areas and 8
states. The Company distinguishes its Company Dealership operations from those
of typical buy here -- pay here dealers through its network of multiple
locations, upgraded facilities, large inventories of used cars, regional
centralized purchasing, value-added marketing programs, and dedication to
customer service. Company Dealerships are typically located in high visibility,
high traffic commercial areas, and generally are newer and cleaner in appearance
than other buy here -- pay here dealers, helping promote the Company's image as
a friendly and reputable business. For the 12 months ended December 31, 1999,
the Company generated revenues from its continuing dealership operations of
$467.3 million and net earnings of $8.7 million, compared to $332.6 million in
revenues and $3.5 million in net earnings, respectively, for the 12 months ended
December 31, 1998.
The address and telephone number of our principal executive office is
2525 East Camelback Road, Suite 500, Phoenix, Arizona 85016, telephone
1-800-THE-DUCK.
Recent Developments
Sale of Cygnet Dealer. The Company's Cygnet Dealer program provided
qualified used car dealers with warehouse purchase facilities and revolving
lines of credit primarily secured by the dealers finance receivable portfolios.
In December, 1999, the Company sold Cygnet Dealer to an entity controlled by
Ernest C. Garcia II, the Company's Chairman and principal shareholder, for
approximately $38 million, the estimated book value of Cygnet Dealer plus the
value of certain receivables for advances to Cygnet Dealer. The purchase price
of Cygnet Dealer was paid through assumption by the buyer of approximately $8
million of outstanding debt the Company owed to Verde Investments, Inc., an
affiliate of Mr. Garcia; a $12 million, 10-year promissory note from the buyer
bearing interest at 9.0% per year that is guaranteed by Verde and Cygnet Dealer
and secured by a pledge of the stock of Cygnet Dealer, and the remainder in
cash. The note is subordinate to the initial financing obtained by Cygnet
Dealer. The Company also received warrants to acquire up to 50% of the buyer for
$1 beginning two years after close until five years after the note is paid in
full. The warrants would be forfeited in the event that the note is repaid
within one year. The percentage of Cygnet Dealer purchasable will be reduced to
25% if the note is reduced to $4 million within two years, and to 10% if the
note is paid in full within two years.
Discontinued Operations. In 1994, the Company acquired Champion
Financial Services, Inc., an independent automobile finance company. In April
1995, the Company began to expand Champion's branch office network and, by
December 31, 1997, the Company operated 83 branch offices across the country. In
February 1998, the Company announced its intention to close the branch office
network and exit this line of business in the first quarter of 1998. The Company
recorded a pre-tax charge to discontinued operations totaling approximately $9.1
million (approximately $5.6 million net of income taxes) during the first
quarter of 1998. In addition, a $6.0 million charge (approximately $3.6 million
net of income taxes) was taken during the third quarter of 1998 and a $2.5
million charge (approximately $1.5 million net of income taxes) was taken during
the fourth quarter of 1999, due primarily to higher than anticipated loan losses
and servicing expenses. The branch office closure was substantially complete by
the end of the first quarter of 1998.
Effective December 31, 1999, the Company adopted a formal plan to
abandon any effort for its third party dealer operations to acquire loans or
servicing rights to additional portfolios. Accordingly, our Cygnet Servicing and
the associated Cygnet Corporate segment also are reported as components of
discontinued operations. The Company plans to complete servicing the portfolios
28
<PAGE>
that it currently services. For 1999, the Cygnet Servicing and Cygnet Corporate
segments incurred net earnings of $1.4 million and $2.3 million for the fourth
quarter and year ended December 1999, respectively. No loss has been recorded on
the disposal of this segment as the Company anticipates that over the run-off
period, expected to be approximately 30 months, it will ultimately realize a net
gain.
Status of FMAC Transaction. The Company has entered into several
transactions in the bankruptcy proceedings of First Merchants Acceptance
Corporation. The Company has the right to 17 1/2% of the recoveries on First
Merchants' residual interests in certain securitized loan pools and other
contracts after First Merchants pays off certain prior debt and other amounts.
In addition, if the Company meets certain conditions (including a minimum stock
price of 8.00 per share), the Company has the right to issue its common stock at
a small discount to the market price to First Merchants or its unsecured
creditors or equity holders in exchange for a portion of First Merchants' 82
1/2% share of collections on the residual interests. The Company is considering
exercising this right sometime after April of this year. The Company estimates
having to issue approximately $30 million of its common stock to do so. The
exchange offer complements this exercise by reducing the number of outstanding
Shares of its common stock making it more likely the Company's stock price will
rise and allowing it to meet the stock price condition to the exercise. In
addition, an increase in stock price will allow the Company to issue a lower
number of shares in the First Merchants transaction. The exchange offer also has
the potential of reducing the dilutive effect on the Company's earnings per
share of the exercise.
29
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DESCRIPTION OF THE DEBENTURES
The Debentures will be issued under an Indenture, as supplemented and
amended by the First Supplemental Indenture thereto and the Second Supplemental
Indenture thereto (collectively, the "Indenture"), by and between the Company
and Harris Trust and Savings Bank, as Trustee (the "Trustee"). The following
summary of certain provisions of the Indenture does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, the Trust
Indenture Act, and to all of the provisions of the Indenture, including the
definitions of certain terms therein and those terms made a part of the
Indenture by reference to the Trust Indenture Act as in effect on the date of
the Indenture. A copy of the Indenture will be filed with the Commission as an
exhibit to the Form T-3 filed in connection with the qualification of the
Indenture under the Trust Indenture Act.
The Indenture allows the issuance of debt securities of the Company
("Debt Securities"), in one or more series, in an aggregate principal amount up
to $100,000,000. The Second Supplemental Indenture establishes the Debentures as
a series of Debt Securities under the Indenture.
Principal, Maturity and Interest
The Debentures are limited in aggregate principal amount to
$27,500,000, and will mature on April 15, 2007. Interest on the Debentures will
accrue from the date of original issuance at the rate of 11% per annum and will
be payable semiannually in cash on each April 15 and October 15 (each, an
"Interest Payment Date"), commencing on April 15, 2000, to the registered
holders of the Debentures ("Holders") at the close of business on the April 1
and October 1 immediately preceding the applicable Interest Payment Date.
Interest is payable on the Debentures from the most recent date to which
interest has been paid or, if no interest has been paid, from and including the
date of issuance.
The Debentures will be unsecured obligations of the Company and will
not be entitled to the benefit of any mandatory sinking fund.
Payment and Paying Agents
Payment of interest on a Debenture on any Interest Payment Date will be
made to the Person in whose name such Debenture (or one or more Predecessor
Debentures) is registered at the close of business on the Regular Record Date
for such interest. (Section 307).
Principal of and interest on the Debentures will be payable at the
office of such Paying Agent or Paying Agents as the Company may designate for
such purpose from time to time, except that at the option of the Company payment
of any interest may be made by check mailed to the address of the Person
entitled thereto as such address appears in the Security Register. (Section
307). The corporate trust office of the Trustee in Chicago, Illinois will be
designated as the Company's Paying Agent for payments with respect to the
Debentures. The Company may at any time designate additional Paying Agents or
rescind the designation of any Paying Agent or approve a change in the office
through which any Paying Agent acts, except that the Company will be required to
maintain a Paying Agent in each Place of Payment for the Debentures. (Section
1002).
All moneys paid by the Company to a Paying Agent for the payment of the
principal of or any premium or interest on any Debentures which remain unclaimed
at the end of two years after such principal, premium, or interest has become
due and payable will be repaid to the Company, subject to certain publication
requirements, and the Holder of such Debentures thereafter may look only to the
Company for payment thereof (Section 1003).
Form, Exchange, and Transfer
The Debentures will be issuable only in fully registered form without
coupons and in denominations of $1.00 and any integral multiple thereof.
(Section 302).
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At the option of the Holder, subject to the terms of the Indenture,
Debentures will be exchangeable for other Debentures, of any authorized
denomination and of like tenor and aggregate principal amount. (Section 305).
Subject to the terms of the Indenture, Debentures may be presented for exchange
as provided above or for registration of transfer (duly endorsed or with the
form of transfer endorsed thereon duly executed) at the office of any transfer
agent designated by the Company for such purpose. No service charge will be made
for any registration of transfer or exchange of Debentures, but, with certain
limited exceptions, the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith. The
Company has appointed the Trustee as Security Registrar and transfer agent for
the Debentures. (Section 305). The Company may at any time designate additional
transfer agents or rescind the designation of any transfer agent or approve a
change in the office through which any transfer agent acts, except that the
Company will be required to maintain a transfer agent in each Place of Payment
for the Debentures. (Section 1002).
If the Debentures are to be redeemed, the Company will not be required
to (i) issue, register the transfer of, or exchange any Debentures during a
period beginning at the opening of business 15 days before the day of mailing of
a notice of redemption of any such Debentures that may be selected for
redemption and ending at the close of business on the day of such mailing or
(ii) register the transfer of or exchange any Debenture so selected for
redemption, in whole or in part, except the unredeemed portion of any such
Debenture being redeemed in part. (Section 305).
Redemption
The Debentures will be redeemable, at the Company's option, in whole at
any time or in part from time to time, upon not less than 30 nor more than 60
days' notice, at the principal amount to be redeemed, plus, in each case,
accrued and unpaid interest thereon, if any, to the date of redemption.
Selection and Notice of Redemption
In the event that less than all of the Debentures are to be redeemed at
any time, selection of such Debentures for redemption will be made by the
Trustee, on a pro rata basis, by lot or by such method as the Trustee shall deem
fair and appropriate. Notice of redemption shall be mailed by first-class mail
at least 30 but not more than 60 days before the redemption date to each Holder
of Debentures to be redeemed at its registered address. If any Debenture is to
be redeemed in part only, the notice of redemption that relates to such
Debenture shall state the portion of the principal amount thereof to be
redeemed. A new Debenture in a principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original Debenture. On and after the redemption date, interest will cease to
accrue on Debentures or portions thereof called for redemption as long as the
Company has deposited with the Paying Agent funds in satisfaction of the
applicable redemption price pursuant to the Indenture. Each notice of redemption
may include a statement that such redemption shall be conditional upon the
receipt by the Trustee on or prior to the Redemption Date of amounts sufficient
to pay principal of, and interest on, the Debentures to be redeemed, and that if
such amounts shall not have been so received, said notice shall be of no force
and effect, the Debentures to be redeemed will not become due and payable on the
Redemption Date, and the Company shall not be required to redeem such Debentures
on such date. If such a Conditional Notice is given, failure by the Company to
deposit money necessary to effect the redemption on or prior to the Redemption
Date will not result in a default under the Indenture.
Subordination
The payment of all obligations on the Debentures is subordinated in
right of payment to the prior payment in full of all obligations on Senior
Indebtedness. Upon any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities, to creditors upon
any liquidation, dissolution, winding up, assignment for the benefit of
creditors or marshaling of assets of the Company or in a bankruptcy,
reorganization, insolvency, receivership or other similar proceeding relating to
the Company or its property, whether voluntary or involuntary, all Obligations
(as hereafter defined) due or to become due upon all Senior Indebtedness shall
first be paid in full, or such payment duly provided for to the satisfaction of
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the holders of Senior Indebtedness, before any payment or distribution of any
kind or character is made on account of any Obligations on the Debentures, or
for the acquisition of any of the Debentures for cash or property or otherwise.
If any default occurs and is continuing in the payment when due, whether at
maturity, upon any redemption, by acceleration or otherwise, of any principal
of, or premium or interest on any Senior Indebtedness, no payment of any kind or
character shall be made by or on behalf of the Company or any other Person on
its behalf with respect to any Obligations on the Debentures or to acquire any
of the Debentures for cash or property or otherwise.
In addition, if any other event of default occurs and is continuing
with respect to any Senior Indebtedness, other than the Designated Senior
Indebtedness (as hereafter defined), as such event of default is defined in the
instrument creating or evidencing such Senior Indebtedness, permitting the
holders of such Senior Indebtedness then outstanding to immediately accelerate
the maturity thereof and if a representative for such issue of Senior
Indebtedness gives written notice of the event of default to the Trustee (a
"Default Notice"), then, unless and until all events of default with respect to
such Senior Indebtedness have been cured or waived in writing or have ceased to
exist or the Trustee receives notice from such representative for the respective
issue of Senior Indebtedness terminating the Blockage Period (as defined below),
during the 179 days after the delivery of such Default Notice (the "Blockage
Period"), neither the Company nor any other Person on its behalf shall (x) make
any payment of any kind or character with respect to any Obligations on the
Debentures or (y) acquire any of the Debentures for cash or property or
otherwise. Notwithstanding the above, in no event will a Blockage Period extend
beyond 179 days from the date the payment on the Debentures was due and only one
such Blockage Period may be commenced within any 365 consecutive days
irrespective of the number of defaults with respect to Senior Indebtedness
during such period. In no event may the total number of days during which any
Blockage Period is or Blockage Periods are in effect exceed 179 days in the
aggregate during any consecutive 365 day period. No event of default which
existed or was continuing on the date of the commencement of any Blockage Period
with respect to the Senior Indebtedness shall be, or be made, the basis for
commencement of a second Blockage Period by a representative of such Senior
Indebtedness unless such event of default shall have been cured or waived for a
period of not less than 90 consecutive days. However, any subsequent action, or
any breach of any financial covenants for a period commencing after the date of
commencement of such Blockage Period that, in either case, would give rise to an
event of default pursuant to any provisions under which an event of default
previously existed or was continuing shall constitute a new event of default for
this purpose.
In addition, if any event of default (as defined in the instrument
creating or evidencing any Designated Senior Indebtedness) occurs and is
continuing with respect to any Designated Senior Indebtedness or an executive
officer of the Company has actual knowledge of a default under any Designated
Senior Indebtedness, which with notice or lapse of time or both would result in
an event of default under such Designated Senior Indebtedness, then the Company
shall give notice thereof to the Trustee and, regardless of the giving of such
notice, no payment of any kind or character shall be made by or on behalf of the
Company or any other Person on its behalf with respect to any Obligations on the
Debentures or to acquire any of the Debentures for cash or property or otherwise
for a period of 179 days from the date of each such event of default or the date
that an executive officer obtains actual knowledge that there is such a default
(a "Designated Senior Indebtedness Blockage Period"), unless and until all such
events of defaults or defaults with respect to such Designated Senior
Indebtedness have been cured or waived in writing pursuant to the Designated
Senior Indebtedness or have ceased to exist or the Trustee receives notice from
a representative for the applicable issue of Designated Senior Indebtedness
terminating the Designated Senior Indebtedness Blockage Period. In the event any
Debenture is declared due and payable before its expressed maturity under
Section 502 of the Indenture, (i) the Company will give prompt notice in writing
of such happening to the holders of Designated Senior Indebtedness and (ii) no
payment of any kind or character shall be made by or on behalf of the Company or
any other Person on its behalf with respect to any obligations on the Debentures
or to assume any of the Debentures for cash or property or otherwise without the
consent of the Designated Senior Indebtedness.
By reason of such subordination, in the event of the insolvency of the
Company, creditors of the Company who are not holders of Senior Indebtedness,
including the Holders of the Debentures, may recover less, ratably, than holders
of Senior Indebtedness. See also "Risk Factors -- Subordination."
For purposes of the subordination provisions of the Debentures, the
following definitions apply:
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"Capitalized Lease Obligation" means, as to any Person, the obligations
of such Person under a lease that are required to be classified and accounted
for as capital lease obligations under GAAP and, for purposes of this
definition, the amount of such obligations at any date shall be the capitalized
amount of such obligations at such date, determined in accordance with GAAP.
"Credit Agreement" means the Amended and Restated Motor Vehicle
Installment Contract Loan and Security Agreement dated as of August 15, 1997
among the Company, General Electric Capital Corporation, and certain other
parties, as such agreement may be amended, restated, modified, renewed,
refunded, replaced or refinanced from time to time, including any notes,
guarantees, security or pledge agreements, letters of credit and other documents
or instruments executed pursuant thereto and any exhibits or schedules to any of
the foregoing.
"Designated Senior Indebtedness" means (i) all Indebtedness outstanding
under the Credit Agreement and (ii) any other Senior Indebtedness designated by
the Company as "Designated Senior Indebtedness" from time to time.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect from time to time.
"Indebtedness" means with respect to any Person, without duplication,
(i) all Obligations of such Person for borrowed money, (ii) all Obligations of
such Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all Capitalized Lease Obligations of such Person, (iv) all obligations of
such Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all Obligations under any title retention
agreement (but excluding trade accounts payable and other similar accrued
liabilities arising in the ordinary course of business and payable in accordance
with customary terms), (v) all obligations for the reimbursement of any obligor
on any letter of credit, banker's acceptance or similar credit transaction, (vi)
guarantees and other contingent obligations in respect of Indebtedness referred
to in clauses (i) through (v) above and clause (viii) below, (vii) all
obligations of any other Person of the type referred to in clauses (i) through
(vi) which are secured by any lien on any property or asset of such Person, the
amount of such obligation being deemed to be the lesser of the fair market value
of such property or asset or the amount of the obligation so secured, and (viii)
all obligations under currency agreements and interest swap agreements of such
Person.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Senior Indebtedness" means all Obligations on any Indebtedness of the
Company, whether outstanding on the date of original issuance of the Debentures
or thereafter created, incurred or assumed, unless, in the case of any
particular Indebtedness, the instrument creating or evidencing the same or
pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to the Debentures.
Notwithstanding the foregoing, "Senior Indebtedness" shall not include (i) any
Indebtedness of the Company to a Subsidiary of the Company, (ii) Indebtedness
to, or guaranteed on behalf of, any shareholder, director, officer or employee
of the Company (including, without limitation, amounts owed for compensation),
(iii) any liability for federal, state, local or other taxes owed or owing by
the Company, and (iv) Indebtedness which, when incurred and without respect to
any election under Section 1111(b) of Title 11, United States Code, is without
recourse to the Company.
Except to the extent described below under "Certain Covenants," the
Indenture does not limit the aggregate amount of Senior Indebtedness that the
Company may issue. As of December 31, 1999, outstanding Senior Indebtedness of
the Company was approximately $94 million and Designated Senior Indebtedness
aggregated approximately $76 million.
The subordination provisions apply only to Debentures that are
Outstanding. Debentures will not be deemed to be Outstanding if, among other
circumstances, money in the necessary amount has been deposited with the Trustee
or any Paying Agent (other than the Company) in trust, or set aside and
segregated in trust by the Company (if it acts as its own Paying Agent) for the
redemption of such Debentures and notice of redemption has been given as
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required in the Indenture or provision therefor satisfactory to the Trustee has
been made. In addition, upon the effectiveness of any Defeasance or Covenant
Defeasance as described below under the heading "Defeasance and Covenant
Defeasance," the Debentures then Outstanding shall cease to be subordinated
under the Indenture.
Certain Covenants
The Indenture will contain, among others, the following covenant
provided for the Debentures:
Minimum Equity. The Company will at all times maintain Consolidated Net
Worth (defined above) of at least $100,000,000.
Events of Default
Each of the following will constitute an Event of Default under the
Indenture with respect to Debt Securities of any series: (a) failure to pay
principal of or any premium on any Debt Securities of that series when due; (b)
failure to pay any interest on any Debt Securities of that series when due,
continued for 30 days; (c) failure to deposit any sinking fund payment, when
due, in respect of any Debt Securities of that series; (d) failure to perform
any other covenant of the Company in the Indenture (other than a covenant
included in the Indenture solely for the benefit of a series other than that
series), that continues for 90 days after written notice has been given by the
Trustee, or the Holders of at least 25% in principal amount of the Outstanding
Debt Securities of that series, as provided in the Indenture; (e) certain events
in bankruptcy, insolvency, or reorganization, and (f) any other Event of Default
specified for such series in the supplemental indenture or Board Resolution
creating or governing such series. (Section 501). There are no additional Events
of Default provided for the Debentures.
If an Event of Default (other than an Event of Default described in
clause (e) above) with respect to the Debt Securities of any series at the time
Outstanding shall occur and be continuing, either the Trustee or the Holders of
at least 25% in aggregate principal amount of the Outstanding Debt Securities of
that series by notice as provided in the Indenture may declare the principal
amount of the Debt Securities of that series (or, in the case of any Debt
Security that is an Original Issue Discount Security or the principal amount of
which is not then determinable, such portion of the principal amount of such
Debt Security, or such other amount in lieu of such principal amount, as may be
specified in the terms of such Debt Security) to be due and payable immediately.
If an Event of Default described in clause (e) above with respect to the Debt
Securities of any series at the time Outstanding shall occur, the principal
amount of all the Debt Securities of that series (or, in the case of any such
Original Issue Discount Security or other Debt Security, such specified amount)
will automatically, and without any action by the Trustee or any Holder, become
immediately due and payable. After any such acceleration, but before a judgment
or decree based on acceleration, the Holders of a majority in aggregate
principal amount of the Outstanding Debt Securities of that series may rescind
and annul such acceleration if all Events of Default, other than the non-payment
of accelerated principal (or other specified amount), have been cured or waived
as provided in the Indenture and payment of all overdue interest and certain
other payments are made by the Company. (Section 502). For information as to
waiver of defaults, see "Modification and Waiver."
Subject to the provisions of the Indenture relating to the duties of
the Trustee, in case an Event of Default shall occur and be continuing, the
Trustee will be under no obligation to exercise any of its rights or powers
under the Indenture at the request or direction of any of the Holders, unless
such Holders shall have offered to the Trustee reasonable indemnity. (Section
603). Subject to such provisions for the indemnification of the Trustee and to
certain other conditions, the Holders of a majority in principal amount of the
Outstanding Debt Securities of any series will have the right to direct the
time, method, and place of conducting any proceeding for any remedy available to
the Trustee, or exercising any trust or power conferred on the Trustee, with
respect to the Debt Securities of that series. (Section 512).
No Holder of a Debt Security of any series will have any right to
institute any proceeding with respect to the Indenture, or for the appointment
of a receiver or a trustee, or for any other remedy thereunder, unless (i) such
Holder has previously given to the Trustee written notice of a continuing Event
of Default with respect to the Debt Securities of that series, (ii) the Holders
of at least 25% in aggregate principal amount of the Outstanding Debt Securities
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of that series have made written request, and such Holder or Holders have
offered reasonable indemnity, to the Trustee to institute such proceeding as
trustee, and (iii) the Trustee has failed to institute such proceeding, and has
not received from the Holders of a majority in aggregate principal amount of the
Outstanding Debt Securities of that series a direction inconsistent with such
request, within 60 days after such notice, request, and offer. (Section 507).
However, such limitations do not apply to a suit instituted by a Holder of a
Debt Security for the enforcement of payment of the principal of or any premium
or interest on such Debt Security on or after the applicable due date specified
in such Debt Security. (Section 508).
The Company will be required to furnish to the Trustee annually a
statement by certain of its officers as to whether or not the Company, to their
knowledge, is in default in the performance or observance of any of the terms,
provisions, and conditions of the Indenture and, if so, specifying all such
known defaults. (Section 1004).
If a default occurs under the Indenture with respect to Debt Securities
of any series, the Trustee shall give the Holders of Securities of such series
notice of such default as required by the Trust Indenture Act, provided that in
the case of a default described in clause (d) in the first paragraph under
"Events of Default" herein, no such notice to Holders shall be given until at
least 30 days after the occurrence of such default.
Modification and Waiver
Modifications and amendments of the Indenture may be made by the
Company and the Trustee at any time and from time to time without the consent of
the Holders of any of the Debt Securities in certain limited cases. (Section
901). In addition, modifications and amendments of the Indenture may be made by
the Company and the Trustee with the consent of the Holders of not less than a
majority in aggregate principal amount of the Outstanding Debt Securities of
each series affected by such modification or amendment; provided, however, that
no such modification or amendment may, without the consent of the Holder of each
Outstanding Debt Security affected thereby, (a) change the Stated Maturity of
the principal of, or any installment of principal of or interest on, any Debt
Security, (b) reduce the principal amount of, or any premium or interest on, any
Debt Security, (c) reduce the amount of principal of an Original Issue Discount
Security or any other Debt Security payable upon acceleration of the Maturity
thereof, (d) change the place or currency of payment of principal of, or any
premium or interest on, any Debt Security, (e) impair the right to institute
suit for the enforcement of any payment on or with respect to any Debt Security,
(f) reduce the percentage in principal amount of Outstanding Debt Securities of
any series, the consent of whose Holders is required for modification or
amendment of the Indenture, reduce the percentage in principal amount of
Outstanding Debt Securities of any series necessary for waiver of compliance
with certain provisions of the Indenture or for waiver of certain defaults, or
modify such provisions with respect to modification and waiver. (Section 902).
The Holders of not less than a majority in aggregate principal amount
of the Outstanding Debt Securities of any series may waive compliance by the
Company with certain restrictive provisions of the Indenture. (Section 1008).
The Holders of a majority in principal amount of the Outstanding Debt Securities
of any series may waive any past default under the Indenture with respect to
such series, except a default in the payment of principal, premium, or interest
and certain covenants and provisions of the Indenture which cannot be amended
without the consent of the Holder of each Outstanding Debt Security of such
series affected. (Section 513).
The Indenture provides that in determining whether the Holders of the
requisite principal amount of the Outstanding Debt Securities have given or
taken any request, demand, authorization, direction, notice, consent, waiver, or
other action under the Indenture as of any date, (i) the principal amount of an
Original Issue Discount Security that will be deemed to be Outstanding will be
the amount of the principal thereof that would be due and payable as of such
date upon acceleration of the Maturity thereof to such date, (ii) if, as of such
date, the principal amount payable at the Stated Maturity of a Debt Security is
not determinable (for example, because it is based on an index), the principal
amount of such Debt Security deemed to be Outstanding as of such date will be an
amount determined in the manner prescribed for such Debt Security, and (iii) the
principal amount of a Debt Security denominated in one or more foreign
currencies or currency units that will be deemed to be Outstanding will be the
U.S. dollar equivalent, determined as of such date in the manner prescribed for
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such Debt Security, of the principal amount of such Debt Security (or, in the
case of a Debt Security described in clause (i) or (ii) above, of the amount
described in such clause). Certain Debt Securities, including those for whose
payment or redemption money has been deposited or set aside in trust for the
Holders and those that have been fully defeased pursuant to Section 1302 of the
Indenture, will not be deemed to be Outstanding. (Section 101).
Except in certain limited circumstances, the Company will be entitled
to set any day as a record date for the purpose of determining the Holders of
Outstanding Debt Securities of any series entitled to give or take any request,
demand, authorization, direction, notice, consent, waiver, or other action under
the Indenture, in the manner and subject to the limitations provided in the
Indenture. In certain limited circumstances, the Trustee will be entitled to set
a record date for action by Holders. If a record date is set for any action to
be taken by Holders of a particular series, such action may be taken only by
persons who are Holders of Outstanding Debt Securities of that series on the
record date. To be effective, such action must be taken by Holders of the
requisite principal amount of such Debt Securities within a specified period
following the record date. For any particular record date, this period will be
180 days or such other shorter period as may be specified by the Company (or the
Trustee, if it sets the record date), and may be shortened or lengthened (but
not beyond 180 days) from time to time. (Section 104).
Defeasance and Covenant Defeasance
The provisions of Section 1302, relating to defeasance and discharge of
indebtedness, and Section 1303, relating to defeasance of certain restrictive
covenants in the Indenture, will apply to the Debentures.
Defeasance and Discharge. Pursuant to Section 1302, the Company will be
discharged from all its obligations with respect to the Debentures (except for
certain obligations to exchange or register the transfer of Debentures, to
replace stolen, lost, or mutilated Debentures, to maintain paying agencies, and
to hold moneys for payment in trust) upon satisfaction of certain conditions,
including the deposit in trust for the benefit of the Holders of Debentures of
money or U.S. Government Obligations, or both, which, through the payment of
principal and interest in respect thereof in accordance with their terms, will
provide money in an amount sufficient to pay the principal of and any premium
and interest on the Debentures on the respective Stated Maturities or on any
Redemption Date established for the Debentures in accordance with the terms of
the Indenture and such Debentures. Such defeasance or discharge may occur only
if, among other things, the Company has delivered to the Trustee an Opinion of
Counsel to the effect that the Company has received from, or there has been
published by, the Internal Revenue Service a ruling, or there has been a change
in tax law, in either case to the effect that Holders of the Debentures will not
recognize gain or loss for federal income tax purposes as a result of such
deposit, defeasance, and discharge and will be subject to federal income tax on
the same amount, in the same manner, and at the same times as would have been
the case if such deposit, defeasance, and discharge were not to occur. (Sections
1302 and 1304).
Defeasance of Certain Covenants. Pursuant to Section 1303, if certain
conditions are satisfied, the Company may omit to comply with certain
restrictive covenants in the Indenture, and the occurrence of certain Events of
Default, which are described above in clause (d) (with respect to such
restrictive covenants) under "Events of Default," will be deemed not to be or
result in an Event of Default and the provisions of Article Fourteen relating to
subordination will cease to be effective, in each case with respect to the
Debentures. The Company, in order to exercise such option, will be required to
deposit, in trust for the benefit of the Holders of the Debentures, money or
U.S. Government Obligations, or both, which, through the payment of principal
and interest in respect thereof in accordance with their terms, will provide
money in an amount sufficient to pay the principal of and any premium and
interest on the Debentures on the respective Stated Maturities or on any
Redemption Dates established for the Debentures in accordance with the terms of
the Indenture and the Debentures. The Company will also be required, among other
things, to deliver to the Trustee an Opinion of Counsel to the effect that
Holders of the Debentures will not recognize gain or loss for federal income tax
purposes as a result of such deposit and defeasance of certain obligations and
will be subject to federal income tax on the same amount, in the same manner,
and at the same times as would have been the case if such deposit and defeasance
were not to occur. In the event the Company exercised this option with respect
to the Debentures and the Debentures were declared due and payable because of
the occurrence of any Event of Default, the amount of money and U.S. Government
Obligations so deposited in trust would be sufficient to pay amounts due on the
Debentures at the time of their respective Stated Maturities, but may not be
sufficient to pay amounts due on the Debentures upon any acceleration resulting
from such Event of Default. In such case, the Company would remain liable for
such payments. (Sections 1303 and 1304).
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Satisfaction and Discharge
The Indenture will also be deemed to be satisfied and discharged,
except as to certain limited provisions, as to Debentures that have become due
and payable or will become due and payable at their Stated Maturity within one
year from the date of determination or are to be called for redemption within
one year under arrangements satisfactory to the Trustee, but only if the Company
deposits money in an amount sufficient to pay the entire principal, premium, and
interest to the date of deposit (as to Debentures that have become due and
payable) or to the Stated Maturity or Redemption Date, as the case may be, and
certain other conditions are satisfied. (Section 401). See also "Defeasance and
Covenant Defeasance."
Notices
Notices to Holders of Debentures will be given by mail to the addresses
of such Holders as they may appear in the Security Register. (Sections 101 and
106).
Title
The Company, the Trustee, and any agent of the Company or the Trustee
may treat the Person in whose name a Debenture is registered as the absolute
owner thereof (whether or not such an Debenture may be overdue) for the purpose
of making payment and for all other purposes. (Section 308).
Governing Law
The Indenture and the Debt Securities will be governed by, and
construed in accordance with, the law of the State of Arizona (Section 112).
Regarding the Trustee
The Trustee under the Indenture is Harris Trust and Savings Bank. The
Company maintains normal banking arrangements with the Trustee, which include
the use of an affiliated company, Harris Trust Company of California, as the
transfer agent for the Common Stock. In addition, Harris Trust and Savings Bank
acts as trustee for the Company's securitization transactions.
37
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company is a Delaware corporation and its affairs are governed by
its Certificate of Incorporation and Bylaws and the Delaware General Corporation
Law. The following description of the Company's capital stock, which is complete
in all material respects, is qualified in its entirety by reference to the
provisions of the Company's Certificate of Incorporation and Bylaws, as amended.
The authorized capital stock of the Company 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 February 14, 2000,
approximately 14,906,152 shares of Common Stock were issued and outstanding. As
of February 14, 2000, 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. The Company does not anticipate paying cash dividends in the
foreseeable future. See "Dividend Policy." In the event of liquidation,
dissolution, or winding up of the Company, 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 the Company. All
of the outstanding shares of Common Stock are validly issued, fully paid, and
nonassessable.
Preferred Stock
The Board of Directors of the Company has the authority, without
further action by the Company's 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: (i)
decrease the amount of earnings and assets available for distribution to holders
of Common Stock; (ii) adversely affect the rights and powers, including voting
rights, of holders of Common Stock; and (iii) have the effect of delaying,
deferring, or preventing a change in control of the Company.
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<PAGE>
<TABLE>
<CAPTION>
EXECUTIVE OFFICER AND DIRECTOR BENEFICIAL OWNERSHIP
The following table shows the beneficial ownership of common stock of
the Company by the Company's executive officers and directors as of February 14,
2000:
<S> <C> <C> <C>
- --------------------- --------------------------------------- ------------------------------------- ------------------
Name of Beneficial Owner, Address and Amount and Nature of Beneficial Percent of
Title of Class Other Information (1) Ownership (#)(2)(3) Class (2)(3)
- --------------------- --------------------------------------- ------------------------------------- ------------------
Common Stock Ernest C. Garcia II, Chairman of the 4,500,000 Direct 32%
Board and 5% Owner, indirect 294,500 Indirect
ownership consists of 136,500 shares 20,000 Vested Options
held by The Garcia Family Foundation, -----------
Inc., an Arizona nonprofit 4,814,500 Total
corporation, and 158,000 shares held ===========
by Verde, an affiliate of Mr. Garcia.
- --------------------- --------------------------------------- ------------------------------------- ------------------
Common Stock Gregory B. Sullivan, Director, 50,800 Direct 2.35%
President and Chief Executive Officer 0 Indirect
307,800 Vested Options
358,600 Total
- --------------------- --------------------------------------- ------------------------------------- ------------------
Common Stock Steven T. Darak, Senior Vice 140,000 Direct 1.1%
President - Chief Financial Officer 0 Indirect
_28,999 Vested Options
168,999 Total
- --------------------- --------------------------------------- ------------------------------------- ------------------
Common Stock Donald L. Addink, Senior Vice 98,000 Direct *
President - Treasurer 0 Indirect
_18,700 Vested Options
116,700 Total
- --------------------- --------------------------------------- ------------------------------------- ------------------
Common Stock Steven A. Tesdahl, Senior Vice 14,565 Direct *
President and Chief Information 0 Indirect
Officer 20,000 Vested Options
------
34,565 Total
- --------------------- --------------------------------------- ------------------------------------- ------------------
Common Stock Jon D. Ehlinger, Vice President, 2,000 Direct
Secretary and General Counsel 0 Indirect
_3,500 Vested Options
_5,500 Total
- --------------------- --------------------------------------- ------------------------------------- ------------------
Common Stock Christopher D. Jennings, (4) 6,444 Direct *
Director, indirect ownership of a 19,833 Indirect
warrant to purchase 19,833 shares of 5,000 Vested Options
our common stock held on behalf of ------
Mr. Jennings by Cruttenden Roth, an 31,277 Total
investment banking firm and previous ======
employer of Mr. Jennings. The
warrants are convertible into our
common stock at any time through June
21, 2001 at an exercise price of
$9.45 per share and are fully vested
- --------------------- --------------------------------------- ------------------------------------- ------------------
39
<PAGE>
- --------------------- --------------------------------------- ------------------------------------- ------------------
Name of Beneficial Owner, Address and Amount and Nature of Beneficial Percent of
Title of Class Other Information (1) Ownership (#)(2)(3) Class (2)(3)
- --------------------- --------------------------------------- ------------------------------------- ------------------
Common Stock John N. MacDonough, (4) Director, 4,444 Direct *
indirect ownership consists of shares 100 Indirect
of our common stock acquired by Mr. 5,000 Vested Options
MacDonough's son. -----
9,544 Total
=====
- --------------------- --------------------------------------- ------------------------------------- ------------------
Common Stock Frank P. Willey,(4),(5) Director 27,144 Direct *
0 Indirect
5,000 Vested Options
------
32,144 Total
======
- --------------------- --------------------------------------- ------------------------------------- ------------------
<FN>
* Represents less than one percent of the outstanding common stock.
(1) Unless otherwise noted, the address of each of the listed beneficial owners of our common stock is 2525 East Camelback Road,
Suite 500, Phoenix, Arizona 85016.
(2) "Vested Options" are options that the holder can exercise as of April 13, 2000. These options were issued under either the
Company's Long Term Incentive Plan, Director's Stock Option Plan or 1998 Executive Incentive Plan and their related terms and
conditions, including vesting schedules.
(3) Shares of the Company's common stock that are subject to options, warrants or other rights which are currently exercisable or
exercisable as of April 13, 2000 are treated as outstanding for purposes of computing the percentage of the person holding
the option, warrant or other right, but are not treated as outstanding for computing the percentage of any other person.
Except as indicated in footnote (4) below, the amounts and percentages are based upon 14,906,152 shares of the Company's
common stock outstanding as of February 14, 2000, net of shares the Company holds in treasury.
(4) The total and direct ownership for each independent board member includes 4,444 shares of the Company's common stock that the
Company granted under its Director Plan. The Company granted and issued shares having a value of $30,000 on or about the date
of grant (i.e., 4,444 shares of common stock) to each independent board member upon his appointment or election to the
Company's board in June 1996. Under the Director Plan, these shares generally vest over a 3-year period at an annual rate of
33%, beginning on the first anniversary date after the grant date (June 1996).
(5) Possible indirect ownership of shares of Ugly Duckling acquired by Fidelity National Financial, Inc., an affiliate of Mr.
Willey. Mr. Willey disclaims beneficial ownership of such shares.
</FN>
</TABLE>
40
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
General
The following discussion summarizes certain United States federal
income tax consequences associated with the Exchange Offer and the ownership of
Debentures. The discussion is intended only as a summary and does not purport to
be a complete analysis of all potential tax considerations that may be relevant
in connection with the Exchange Offer. The discussion is based upon the Internal
Revenue Code of 1986, as amended to the date hereof (the "Code"), existing and
proposed United States Treasury regulations promulgated thereunder, current
administrative pronouncements and judicial decisions, changes to any of which
could materially affect the continued validity of the discussion herein and
could be made on a retroactive basis. No rulings will be sought from the
Internal Revenue Service with respect to the treatment of the Exchange Offer and
no assurance may be given that contrary positions may not be taken by the
Internal Revenue Service or by a court of law.
Scope
The discussion relating to stockholders who participate in the Exchange
Offer addresses only stockholders who are "United States persons" and who hold
Shares as capital assets within the meaning of Section 1221 of the Code, and
does not address all of the tax consequences that may be relevant to particular
stockholders in light of their personal circumstances, or to certain types of
stockholders (such as certain financial institutions, dealers in securities or
commodities, insurance companies, tax-exempt organizations, persons who acquired
Shares as compensation and persons who hold Shares as a position in a "straddle"
or as a part of a "hedging" or "conversion" transaction for United States
federal income tax purposes). In the context of the discussion pertaining to the
Debentures, the discussion describes certain tax consequences applicable only to
original holders of the Debentures. The discussion does not include any
description of the tax laws of any state, local, or non-U.S. government that may
be applicable to a particular stockholder. As used herein, a "United States
person" means (i) a citizen or resident of the United States, (ii) a
corporation, partnership or other entity created or organized in or under the
laws of the United States, any State or any political subdivision thereof, (iii)
an estate the income of which is subject to United States federal income
taxation regardless of its source, or (iv) a trust if a court within the United
States is able to exercise primary supervision of the administration of the
trust and one or more United States persons have the authority to control all
substantial decisions of the trust.
THE SUMMARY DISCUSSION SET FORTH HEREIN IS INCLUDED FOR GENERAL
INFORMATION ONLY. THE TAX CONSEQUENCES OF AN EXCHANGE OF SHARES FOR DEBENTURES
PURSUANT TO THE EXCHANGE OFFER MAY VARY DEPENDING UPON, AMONG OTHER THINGS, THE
PARTICULAR SITUATION AND CIRCUMSTANCES OF THE TENDERING STOCKHOLDER. ALL
STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE
SPECIFIC FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF EXCHANGES
MADE BY THEM PURSUANT TO THE EXCHANGE OFFER, INCLUDING THE EFFECT OF THE STOCK
OWNERSHIP ATTRIBUTION RULES DESCRIBED HEREIN.
Certain Federal Income Tax Consequences to Tendering Stockholders
Characterization of the Exchange
An exchange of Shares for Debentures by a stockholder pursuant to the
Exchange Offer will be a taxable transaction for United States federal income
tax purposes. The United States federal income tax consequences of such exchange
to a Stockholder may vary depending upon the Stockholder's particular facts and
circumstances. Depending on such facts and circumstances, the exchange will be
treated as either a sale or a distribution for United States federal income tax
purposes.
Under Section 302 of the Code, an exchange of Shares for Debentures
pursuant to the Exchange Offer will be treated as a "sale or exchange" of such
Shares for United States federal income tax purposes (rather than as a deemed
distribution by the Company with respect to Shares continued to be held (or
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<PAGE>
deemed to be held) by the tendering stockholder) if the receipt of Debentures
upon such exchange (i) is "substantially disproportionate" with respect to the
stockholder, (ii) results in a "complete termination" of the stockholder's
interest in the Company, or (iii) is "not essentially equivalent to a dividend"
with respect to the stockholder. These tests (the "Section 302 Tests") are
explained more fully below. See "Section 302 Tests" below.
If any of the Section 302 Tests is satisfied and the exchange of the
tendered Shares for Debentures is, therefore, treated as a "sale or exchange" of
such Shares for United States federal income tax purposes, the tendering
stockholder will recognize capital gain or loss equal to the difference between
(a) the "issue price" of the Debentures received by the stockholder and (b) the
stockholder's adjusted tax basis in the Shares exchanged pursuant to the
Exchange Offer. For a discussion of the "issue price" of the Debentures, see
"Issue Price of Debentures - Defined" below. Such capital gain or loss will
generally be long-term capital gain or loss if the tendering stockholder held
the tendered Shares for more than 12 months. Under current law, any such gain or
loss recognized by individuals, trusts or estates will be subject to a maximum
20 percent federal tax rate if the Shares have been held for more than 12
months.
If none of the Section 302 Tests is satisfied, then, to the extent of
the Company's current and accumulated earnings and profits (as determined for
federal income tax purposes), the tendering stockholder will generally be
treated as having received a dividend taxable as ordinary income in an amount
equal to the fair market value of the Debentures (determined as of the date of
the Exchange) received by the stockholder pursuant to the Exchange Offer
(without reduction for the adjusted tax basis of the Shares tendered pursuant to
the Exchange Offer), no loss will be recognized, and (subject to reduction as
described below for corporate stockholders eligible for the dividends-received
deduction), the tendering stockholder's adjusted tax basis in the Shares
exchanged pursuant to the Exchange Offer will be added to such stockholder's
adjusted tax basis in the stockholder's remaining Shares, if any. If a tendering
stockholder does not retain any Shares, such stockholder may lose tax basis
entirely. If the exchange of Shares by a stockholder is not treated as a sale or
exchange for federal income tax purposes, the amount (if any) by which the fair
market value of the Debentures exceeds the current or accumulated earnings and
profits of the Company (as determined for federal income tax purposes) will be
treated, first, as a nontaxable return of capital to the extent of the
stockholder's basis in the Shares, and thereafter, as taxable capital gain.
Constructive Ownership of Stock
In determining whether any of the Section 302 Tests is satisfied, a
stockholder must take into account not only the Shares which are actually owned
by the stockholder, but also Shares which are constructively owned by the
stockholder by reason of the attribution rules contained in Section 318 of the
Code. Under Section 318 of the Code, a stockholder may be treated as owning (i)
Shares that are actually owned, and in some cases constructively owned, by
certain related individuals or entities in which the stockholder owns an
interest, or, in the case of stockholders that are entities, by certain
individuals or entities that own an interest in the stockholder and (ii) Shares
which the stockholder has the right to acquire by exercise of an option or a
conversion right contained in another instrument held by the stockholder.
Section 302 Tests
One of the following tests must be satisfied in order for the exchange
of Shares pursuant to the Exchange Offer to be treated as a sale or exchange for
federal income tax purposes.
a. Substantially Disproportionate Test. The exchange of Shares for
Debentures by a stockholder will be "substantially disproportionate" if
the percentage of the outstanding Shares actually and constructively
owned by the stockholder immediately following the exchange of Shares
pursuant to the Exchange Offer (treating as not being outstanding all
Shares exchanged pursuant to the Exchange Offer) is less than 80% of the
percentage of the outstanding Shares actually and constructively owned by
such stockholder immediately before the exchange of Shares pursuant to
the Exchange Offer (treating as outstanding all Shares exchanged pursuant
to the Exchange Offer). Stockholders should consult their own tax
advisors with respect to the application of the "substantially
disproportionate" test to their particular situation and circumstances.
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<PAGE>
b. Complete Termination Test. The exchange of Shares for Debentures will be
a "complete termination" of a stockholder's interest in the Company if
either (i) all of the Shares actually and constructively owned by the
stockholder are exchanged pursuant to the Exchange Offer or (ii) all of
the Shares actually owned by the stockholder are exchanged pursuant to
the Exchange Offer and, with respect to the Shares constructively owned
by the stockholder which are not exchanged pursuant to the Exchange
Offer, the stockholder is eligible to waive (and effectively waives)
constructive ownership of all such Shares under procedures described in
Section 302(c) of the Code. Stockholders considering making such a waiver
should do so in consultation with their own tax advisors.
c. Not Essentially Equivalent to a Dividend Test. Even if the exchange of
Shares for Debentures fails to result in satisfaction of the
"substantially disproportionate" test and the "complete termination"
test, a stockholder may nevertheless satisfy the "not essentially
equivalent to a dividend" test if the stockholder's exchange of Shares
pursuant to the Exchange Offer results in a "meaningful reduction" in the
stockholder's proportionate interest in the Company. Whether the receipt
of Debentures by a stockholder who exchanges Shares pursuant to the
Exchange Offer will be "not essentially equivalent to a dividend" will
depend upon the stockholder's particular facts and circumstances. The
Internal Revenue Service has indicated in published revenue rulings that
even a small reduction in the proportionate interest of a small minority
stockholder in a publicly held corporation who exercises no control over
corporate affairs may constitute such a "meaningful reduction." The
Internal Revenue Service held, for example, in Rev. Rul. 76-385, 1976-2
C.B. 92, that a reduction in the percentage ownership interest of a
stockholder in a publicly held corporation from .0001118% to .0001081% (a
reduction of only 3.3% in the stockholder's prior percentage ownership
interest) would constitute a "meaningful reduction." Stockholders
expecting to rely on the "not essentially equivalent to a dividend" test
should consult their own tax advisors as to its application to their
particular situation and circumstances.
The Company cannot predict whether or to what extent the Exchange Offer
will be oversubscribed. If the Exchange Offer is oversubscribed, proration of
the tenders pursuant to the Exchange Offer will cause the Company to accept
fewer Shares than are tendered. Therefore, a stockholder can be given no
assurance that a sufficient number of such stockholder's Shares will be
exchanged pursuant to the Exchange Offer to ensure that such exchange will
satisfy one or more of the Section 302 Tests and be treated as a sale or
exchange rather than as a dividend, for United States federal income tax
purposes pursuant to the rules discussed above.
Contemporaneous dispositions or acquisitions of Shares by a stockholder
or related individuals or entities may be deemed to be part of a single
integrated transaction which will be taken into account in determining whether
any of the Section 302 Tests has been satisfied in connection with Shares
exchanged pursuant to the Exchange Offer. Thus, for example, if a stockholder
sells Shares to persons other than the Company at or about the time such
stockholder also exchanges Shares pursuant to the Exchange Offer, and the
various sales effected by the stockholder are part of an overall plan to reduce
or terminate such stockholder's proportionate interest in the Company, then the
sales to persons other than the Company may, for United States federal income
tax purposes, be integrated with the stockholder's exchange of Shares pursuant
to the Exchange Offer and, if integrated, should be taken into account in
determining whether the holder satisfies any of the Section 302 Tests described
above.
"Issue Price" of Debentures Defined
If the Debentures are listed on the AMEX at any time during the period
ending 30 days after the Exchange, the "issue price" of the Debentures will be
the fair market value of the Debentures as of the date of the Exchange. In
determining the fair market value of the Debentures as of the date of the
Exchange, the Company intends to rely on the trading value of the Debentures on
the AMEX on such date if the Debentures are traded on the AMEX on such date. In
the absence of trading of the Debentures on the date of the Exchange, the
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<PAGE>
Company intends to rely on other evidence probative of the fair market value of
the Debentures as of such date to determine the "issue price" of the Debentures
in such situation.
If the Debentures are not listed on the AMEX at any time during the
period ending 30 days after the Exchange but the Shares are listed on NASDAQ at
any time during the 60-day period ending 30 days after the Exchange, the "issue
price" of the Debentures will be the fair market value of the Shares on the date
of the Exchange.
If the Debentures are not listed on the AMEX and the Shares are not
listed on NASDAQ, each within the applicable time periods described above, the
"issue price" of the Debentures will be the "stated redemption price at
maturity" of the Debentures (generally the face amount of the Debentures) unless
either (i) the Debentures do not bear "adequate stated interest" within the
meaning of Section 1274 of the Code, which is unlikely or (ii) also unlikely,
the Debentures are issued in a so-called "potentially abusive situation" as
defined in the Treasury Regulations under Section 1274 of the Code, in which
case the "issue price" of the Debentures would be the present value of all
payments to be made on the Debentures, discounted at the applicable federal
rate.
Because a tendering stockholder will receive no cash pursuant to the
Exchange Offer, a stockholder will need to use other cash resources of the
stockholder to satisfy any tax liabilities arising from an exchange of Shares
for Debentures.
Tendering stockholders seeking information regarding the actual "issue
price" of the Debentures in determining the tax consequences associated with
their exchange of Shares for Debentures may contact the Company. Further, on or
before January 31, 2001, the Company will furnish or cause to be furnished to
tendering stockholders IRS Form 1099 which will reflect the "issue price" of the
Debentures and certain additional information. Tendering stockholders who do not
qualify for sale or exchange treatment in connection with an exchange of Shares
for Debentures and who will, as a consequence thereof, recognize dividend income
in connection with the Exchange Offer are advised that if the Debentures are not
listed on the AMEX at any time within the 30 day period following the Exchange,
the amount of dividend income could exceed the "issue price" of the Debentures.
STOCKHOLDERS CONTEMPLATING AN EXCHANGE OF DEBENTURES FOR SHARES ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE SECTION 302 TESTS,
INCLUDING THE EFFECT OF THE ATTRIBUTION RULES AND THE POSSIBILITY THAT A
SUBSTANTIALLY CONTEMPORANEOUS SALE OF SHARES TO PERSONS OTHER THAN THE COMPANY
MAY ASSIST IN SATISFYING ONE OR MORE OF THE SECTION 302 TESTS, AS WELL AS THE
SPECIFIC FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF EXCHANGES
MADE BY THEM PURSUANT TO THE EXCHANGE OFFER.
Corporate Stockholder Dividend Treatment
If an exchange of Shares pursuant to the Exchange Offer by a corporate
stockholder is treated as a dividend, the corporate stockholder (other than an S
corporation) may be entitled to claim the dividends-received deduction
(generally 70%, but 80% under certain circumstances) with respect to the gross
dividend under Section 243 of the Code, subject to applicable limitations. With
respect to specific limitations on claiming the dividends-received deduction,
corporate stockholders should consider the effect of Section 246(c) of the Code,
which disallows the dividends-received deduction with respect to any dividend on
any share of stock that is held for 45 days or less during the 90-day period
beginning on the date which is 45 days before the date on which such share
becomes ex-dividend with respect to such dividend. For this purpose, the length
of time a taxpayer is deemed to have held stock may be reduced by periods during
which the taxpayer's risk of loss with respect to the stock is diminished by
reason of the existence of certain options or other hedging transactions.
Additionally, corporate stockholders that have incurred indebtedness directly
attributable to an investment in Shares should consider the effect of Section
246A of the Code which reduces the dividends-received deduction by a percentage
generally computed based on the amount of such indebtedness and the
stockholder's total adjusted tax basis in the Shares.
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<PAGE>
In addition, any amount received by a corporate stockholder pursuant to
the Exchange Offer that is treated as a dividend may constitute an
"extraordinary dividend" under Section 1059 of the Code. Accordingly, a
corporate stockholder may be required under Section 1059(a) of the Code to
reduce its adjusted tax basis (but not below zero) in its Shares by the
non-taxed portion of the extraordinary dividend (i.e. the portion of the
dividend for which a deduction is allowed), and, if such portion exceeds the
stockholder's adjusted tax basis in its Shares, to treat the excess as gain from
the sale of such Shares in the year in which the dividend is received. These
basis reductions and gain recognition rules would be applied by taking account
only the stockholder's adjusted tax basis in the Shares that were exchanged,
without regard to other Shares that the stockholder may continue to own.
CORPORATE STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE
APPLICATION OF SECTION 1059 OF THE CODE TO THE EXCHANGE OFFER AND ANY DIVIDENDS
WHICH MAY BE TREATED AS PAID WITH RESPECT TO SHARES EXCHANGED PURSUANT TO THE
EXCHANGE OFFER.
Certain Federal Income Tax Consequences to Prospective Holders of Debentures
Interest on the Debentures -- General
With respect to stockholders who exchange Shares for Debentures in the
Exchange Offer, stated interest on the Debentures will be taxable as ordinary
interest income at the time such amounts are accrued or received in accordance
with the holder's method of accounting for United States federal income tax
purposes.
Depending upon a stockholder's particular circumstances, the tax
consequences of holding Debentures may be less advantageous than the
consequences of holding Shares because, for example, interest payments on the
Debentures will not be eligible for any dividends-received deduction that might
otherwise be available to corporate stockholders, if dividends were issued with
respect to the Shares.
Original Issue Discount on Debentures
If the "stated redemption price at maturity" of the Debentures exceeds
the "issue price" of the Debentures by more than a de minimis amount (0.25% of
the "stated redemption price at maturity" multiplied by the number of years to
maturity), the Debentures will be treated as having original issue discount
("OID") to the extent of such excess.
The "stated redemption price at maturity" of the Debentures will equal
the total of all payments under the Debentures, other than payments of
"qualified stated interest." "Qualified stated interest" generally is stated
interest that is unconditionally payable in cash or other property (other than
an additional debt instrument of the issuer) at least annually at a single fixed
rate. Stated interest on the Debentures will be treated as "qualified stated
interest" for this purpose.
The "issue price" of the Debentures is defined generally above under
the caption "Issue Price of Debentures - Defined."
Accordingly, depending upon the determination of the actual "issue
price" of the Debentures, the Debentures may have significant OID.
Taxation of Original Issue Discount on Debentures - General
If the Debentures have OID, each holder of a Debenture will be required
to include in gross income an amount equal to the sum of the "daily portions" of
the OID for all days during the taxable year in which such holder holds or is
deemed to hold the Debenture regardless of the holder's method of accounting and
even though the cash to which such income is attributable may not be received
until the sale, redemption, or maturity of the Debenture. The daily portions of
OID required to be included in a holder's gross income in a taxable year will be
determined under a constant yield method by allocating to each day during the
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<PAGE>
taxable year in which the holder holds or is deemed to hold the Debenture a pro
rata portion of the OID thereon which is attributable to the accrual period in
which such day is included. The amount of the OID attributable to each accrual
period will be the "adjusted issue price" of the Debenture at the beginning of
such accrual period multiplied by the "yield to maturity" of the Debenture
(properly adjusted for the length of the accrual period). The adjusted issue
price of a Debenture at the beginning of an accrual period will be the original
"issue price" of the Debenture plus the aggregate amount of OID that accrued in
all prior accrual periods, less any cash payments on the Debenture. The "yield
to maturity" is the discount rate that, when used in computing the present value
of all principal and interest payments to be made under the Debentures, produces
an amount equal to the "issue price" of the Debentures.
The Company will cause to be furnished annually to the Internal Revenue
Service and to record holders of the Debentures information relating to the OID,
if any, accruing during the calendar year.
Acquisition Premium
A debt instrument is considered "purchased" at an "acquisition premium"
if its adjusted tax basis immediately after the purchase is (i) less than or
equal to the sum of all amounts payable on the instrument after the purchase
(other than payments of "qualified stated interest") and (ii) greater than the
instrument's "issue price." An exchange of Shares for Debentures pursuant to the
Exchange Offer will be considered a "purchase" of the Debentures for this
purpose. Thus, for example, a Debenture will be considered purchased at an
"acquisition premium" if (a) the exchange of Shares for Debentures is not
treated as a "sale or exchange" of the Shares under the Section 302 Tests and
(b) the fair market value of the Debentures (and hence the adjusted tax basis)
as of the date of the Exchange of the Shares exceeds the "issue price" of the
Debentures.
If a Debenture is purchased at an "acquisition premium," the holder
may, pursuant to Section 1272(a)(7) of the Code, reduce the amount of OID
includable as gross income each day by a fraction (a) the numerator of which is
the excess of (1) the adjusted basis of the Debenture immediately after its
purchase over (2) the adjusted "issue price" of the Debenture, and (b) the
denominator of which is the excess of (1) the sum all amounts payable on the
Debenture (other than "qualified stated interest") over (2) the adjusted "issue
price" of the Debenture. But for such reduction in the amount of OID includable
in gross income, the sum of the holder's adjusted tax basis of the Debentures
(immediately after the Exchange) and the amount of OID would exceed the "stated
redemption price at maturity" of the Debentures.
Election
A U.S. holder of a Debenture may elect to treat all interest that
accrues on a Debenture as OID and calculate the amount includable in gross
income under the constant yield method described above. See "Taxation of
Original Issue Discount or Debentures - General" above. For purposes of this
election, interest includes stated interest, OID, de minimis OID, market
discount, de minimis market discount, as adjusted (as relevant) for acquisition
premium. The election is to be made for the taxable year in which the holder
acquires the Debenture, and may not be revoked without the consent of the
Internal Revenue Service.
BECAUSE THE RULES GOVERNING OID MAY REQUIRE HOLDERS OF DEBENTURES TO
PAY SIGNIFICANT FEDERAL INCOME TAXES ON INCOME IN ADVANCE OF RECEIPT OF THE CASH
ATTRIBUTABLE TO SUCH INCOME, STOCKHOLDERS CONTEMPLATING AN EXCHANGE OF SHARES
FOR DEBENTURES PURSUANT TO THE EXCHANGE OFFER ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS REGARDING OID, THE RELEVANCE OF ACQUISITION PREMIUM AND THE ADVANTAGES
AND DISADVANTAGES OF ALL RELEVANT ELECTIONS.
Market Discount
If the "issue price" of a Debenture exceeds the holder's adjusted tax
basis in the Debentures at the time of the exchange of Shares for Debentures,
the Debenture will be considered issued with "market discount" unless such
excess is less than a specified de minimis amount. Under the market discount
rules, a holder of a market discount Debenture will be required to treat any
principal payment on the Debenture or any gain on a sale, exchange or other
disposition of the Debenture as ordinary income to the extent of the market
discount which has not previously been included in income and is treated as
having accrued on the Debenture at the time of such payment or disposition.
46
<PAGE>
Additionally, a holder of such a Debenture may be required to defer, until the
maturity of the Debenture or its earlier disposition in a taxable transaction,
the deduction of all or a portion of the interest expense on any indebtedness
incurred or continued to purchase or carry the Debenture.
Any market discount will be considered to accrue ratably during the
period from the date of the Exchange to the maturity date of the Debenture
unless the holder elects to accrue on a constant yield basis.
A holder may elect to include market discount in income as its accrues
(on either a ratable or a constant yield method), in which case the rule
described above regarding deferral of interest deductions will not apply. The
election to include market discount in income currently, once made, applies to
all market discount obligations acquired on or after the first taxable year to
which the election applies and may not be revoked without the consent of the
Internal Revenue Service.
A Department of Treasury legislative proposal would require accrual
basis taxpayers to include market discount in income as it accrues. The holder's
yield for purposes of determining market discount in such case would be limited
to the greater of (a) the original yield-to-maturity of the debt instrument plus
five (5) percentage points or (b) the applicable Federal rate at the time the
holder acquired the debt instrument plus five (5) percentage points. The
proposal would be effective for debt instruments acquired on or after the date
of enactment.
BECAUSE OF THE SIGNIFICANCE OF THE RULES REGARDING MARKET DISCOUNT,
STOCKHOLDERS CONTEMPLATING AN EXCHANGE OF SHARES FOR DEBENTURES ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS REGARDING THE RELEVANCE OF MARKET DISCOUNT.
Redemption or Sale of Debentures
Generally, any redemption (including the payment of the principal on
the Debentures) or sale of the Debentures by a holder will result in taxable
gain or loss equal to the difference between the sum of the amount of cash and
the fair market value of the other property received (except to the extent
attributable to accrued but previously untaxed interest) and the holder's
adjusted tax basis in the Debentures. A holder's initial tax basis in the
Debentures will be increased by any OID with respect to the Debentures included
in the holder's income prior to sale or redemption of the Debentures and will be
reduced by any cash payments other than payments of "qualified stated interest."
Except to the extent attributable to accrued but previously untaxed
interest and except with respect to "accrued market discount" (See "Market
Discount" above), such gain or loss (if any) will generally be long-term capital
gain or loss if the holder's holding period for the Debentures exceeds twelve
months and if the Debenture is held as a capital asset by the holder.
Backup Withholding
Backup withholding at a rate of 31% may apply to interest (including
OID) payments and the proceeds from a redemption of the Debentures unless the
holder (i) is a corporation or comes within certain other exempt categories and
demonstrates such fact or (ii) provides a correct taxpayer identification
number, certifies as to no loss of exemption from backup withholding, and
otherwise complies with all applicable requirements of the backup withholding
rules. The backup withholding tax is not an additional tax and may be credited
against a holder's United States federal income tax liability provided that
correct information is provided to the Internal Revenue Service. Stockholders
may furnish their correct taxpayer identification number and otherwise comply
with the backup withholding rules by completing and returning the Substitute
Form W-9, included as a part of the Letter of Transmittal.
Tax Consequences to Company
The Company will recognize no gain or loss in connection with the
acquisition of Shares in exchange for Debentures.
<PAGE>
Exhibit 12(a)-2
LETTER OF TRANSMITTAL
To Tender
Of
UGLY DUCKLING CORPORATION
Pursuant to the Offering Circular Dated February 22, 2000
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT
5:00 P.M., NEW YORK CITY TIME,
ON MARCH 21, 2000, UNLESS EXTENDED.
- --------------------------------------------------------------------------------
The Exchange Agent:
Harris Trust and Savings Bank
<TABLE>
<CAPTION>
<S> <C> <C>
By Mail By Facsimile By Hand/Overnight Delivery:
Harris Trust and Savings Bank Harris Trust and Savings Bank Harris Trust and Savings Bank
c/o Harris Trust Company c/o Harris Trust Company c/o Harris Trust Company
of New York of New York of New York
Wall Street Station 212-701-7636 88 Pine Street
P.O. Box 1010 Confirm Receipt of Facsimile By 19th Floor
New York, New York 10268-1010 Telephone to 212-701-7624 New York, New York 10005
---------- ---------- ----------
</TABLE>
Delivery of this Instrument to an address other than
as set forth above does not constitute a valid delivery.
This Letter of Transmittal is to be completed by holders of Common
Stock of Ugly Duckling Corporation either if Certificates representing Shares of
Common Stock ("Common Stock Certificates") are to be forwarded herewith or if
delivery of Common Stock is to be made by book-entry transfer to the account
maintained by the Exchange Agent at The Depository Trust Company ("DTC")
pursuant to the procedures set forth in the Offering Circular under "The
Exchange Offer -- How to Tender." Stockholders whose Common Stock Certificates
are not immediately available or who cannot transmit their Common Stock
Certificates (or confirm a book-entry transfer of such Common Stock into the
Exchange Agent's account at DTC) and transmit any other documents required
hereby to the Exchange Agent so that they are received prior to the Expiration
Time (as defined in the Exchange Offer) must tender their Common Stock according
to the guaranteed delivery procedures set forth in the Offering Circular under
"The Exchange Offer -- How to Tender." See Instruction 2 to this Letter of
Transmittal.
[ ] CHECK HERE IF COMMON STOCK IS BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE
TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT AT DTC AND COMPLETE THE
FOLLOWING (ONLY PARTICIPANTS IN DTC MAY DELIVER COMMON STOCK BY BOOK-ENTRY
TRANSFER):
Name of Tendering Institution _________________________________________
DTC Account Number ___________________________________________________
Transaction Code Number _______________________________________________
<PAGE>
[ ] CHECK HERE IF THE COMMON STOCK IS BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT.
Name(s) of Registered Holder(s)________________________________________
Window Ticket No. (if any)_____________________________________________
Date of Execution of Notice of Guaranteed Delivery_____________________
Name of Institution which Guaranteed Delivery__________________________
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF COMMON STOCK TENDERED
- ----------------------------------------------------------------------------------------------------------------------
- -------------------------------------------- -------------------------------------------------------------------------
Name(s) and Address(es) of Holder(s) Common Stock Tendered
(Please fill in, if blank) (Attach additional list, if necessary)
- -------------------------------------------- -------------------------------------------------------------------------
- -------------------------------------------- ----------------------- ---------------------------- --------------------
Certificate Total Shares Represented Number of Shares
Number(s) * by Certificate(s) Tendered**
--------------------
----------------------- ---------------------------- --------------------
--------------------
----------------------- ---------------------------- --------------------
--------------------
----------------------- ---------------------------- --------------------
--------------------
-------------------------------------------------------------------------
Total Number of Shares Tendered
- -------------------------------------------- -------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
*Need not be completed by Stockholders who deliver Common Stock by book-entry
transfer.
**Unless otherwise indicated, the total number of shares represented by
Certificate will be deemed to have been tendered.
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
EXCHANGE RATIO FOR DEBENTURES
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
$11.00 PRINCIPAL AMOUNT OF 11% SUBORDINATED DEBENTURES DUE 2007 (BEARING
INTEREST AT 11% PER ANNUM FROM THE DATE OF ISSUE PAYABLE SEMIANNUALLY ON EACH
APRIL 15 AND OCTOBER 15, COMMENCING APRIL 15, 2000, UNTIL THE DEBENTURES ARE
PAID
IN FULL) FOR EACH SHARE OF COMMON STOCK
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------ -- -------------------------------------------------------
SPECIAL ISSUANCE SPECIAL DELIVERY
INSTRUCTIONS INSTRUCTIONS
(See Instructions 8, 9 and 11) (See Instructions 8, 9 and 11)
-------------------------------------------------------
- ------------------------------------------------------------ -- -------------------------------------------------------
To be completed ONLY if Common Stock not exchanged To be completed ONLY if
Common Stock not and/or Debentures are to be issued in the name of and sent
exchanged and/or Debentures issued in the name of the to someone other than the
undersigned: undersigned are to be sent to someone other than the
undersigned or to the undersigned at an address other
than that shown above.
-------------------------------------------------------
- ------------------------------------------------------------ -- -------------------------------------------------------
Issue and Send Mail
-------------------------------------------------------
- ------------------------------------------------------------ -- -------------------------------------------------------
to: to:
-------------------------------------------------------
- ------------------------------------------------------------ -- -------------------------------------------------------
Name Name
-----------------------------------------------------
(Please Print) (Please Print)
Address Address
--------------------------------------------------
Zip Code Zip Code
Tax Identification or Social Security No.
- ------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
STOCKHOLDERS SIGN HERE
(See instruction 1)
________________________________________________________________________________
Signature(s) of Owner(s)
Dated: ________________________________
Must be signed by holder(s) as name(s) appear(s) on Common Stock
Certificate(s) or by person(s) authorized to become holder(s) by endorsements
and other documents transmitted. If signature is by trustee, executor,
administrator, guardian, officer or other person acting in a fiduciary or
representative capacity, please set forth full title. See Instruction 8.
Name(s) ________________________________________________________________________
________________________________________________________________________________
Please Print
Capacity _______________________________________________________________________
Address ________________________________________________________________________
Include Zip Code
Area Code and Tel. No. _________________________________________________________
Tax Identification or Social Security No. ______________________________________
SIGNATURE GUARANTEE
(If required by Instruction 8)
Authorized Signature ___________________________________________________________
Name of Firm ___________________________________________________________________
Please Print
Dated:______________________________
- --------------------------------------------------------------------------------
IMPORTANT TAX INFORMATION
Under the federal income tax law, a Stockholder whose tendered Common
Stock is accepted for exchange is required to provide the Exchange Agent with
such Stockholder's correct TIN on Substitute Form W-9. If such Stockholder is an
individual, the TIN is his social security number. If the Exchange Agent is not
provided with the correct TIN, the Stockholder may be subject to a $50 penalty
imposed by federal law. In addition, payments with respect to the Debentures
<PAGE>
(including interest) may be subject to backup withholding of 31%. Backup
withholding is not an additional tax. Rather, the federal income tax liability
of persons subject to backup withholding may be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained.
Certain holders of securities (including, among others, all
corporations and certain foreign individuals) are not subject to backup
withholding. In order for a foreign person to qualify as an exempt recipient,
that Stockholder must attest under penalties of perjury to that person's exempt
status. Other exempt recipients can establish their exemptions from backup
withholding in the manner described in the enclosed Guidelines for Certification
of Taxpayer Identification Number on Substitute Form W-9.
Purpose of Substitute Form W-9
To prevent backup withholding on payments that are made to a
Stockholder with respect to Debentures acquired pursuant to the Exchange Offer,
the Stockholder is required to notify the Exchange Agent of his correct TIN (or
that such Stockholder is awaiting a TIN) by completing and signing the
Substitute Form W-9.
What Number to Give the Exchange Agent
The Stockholder is required to give the Exchange Agent the TIN of the
record owner of the Common Stock. If the Common Stock is in more than one name
or is not in the name of the actual owner, consult the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional guidance on which number to report. If "Special Issuance
Instructions" above have been completed, the TINs of the person(s) in whose name
the Debentures are to be registered and the payee of the check for fractional
interests, as specified therein, are required to be given to the Exchange Agent.
<PAGE>
- --------------------------------------------------------------------------------
SUBSTITUTE FORM W-9
PAYER'S REQUEST FOR TAXPAYER IDENTIFICATION NUMBER
(Please read Guidelines for Certification
of Taxpayer Identification Number
on Substitute Form W-9
("Guidelines") before completing
this form)
AFTER COMPLETING THE FORM, RETURN TO EXCHANGE AGENT
- --------------------------------------------------------------------------------
Name (If joint names, list first and circle name of the person or entity whose
number you enter in Part I below.)
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City, State, and ZIP Code
- --------------------------------------------------------------------------------
Part I Taxpayer Identification Number Part II For Payees Exempt
From Backup
Withholding (See
Guidelines)
- ------------------------- ------------------------------------------------------
- ---------------------------------------------- ------------------------------ --
Enter your taxpayer identification number in the appropriate box. For
individuals, this is your social security number. However, if you are a resident
alien OR a sole proprietor, see Guidelines. For other entities, it is your
employer identification number. If you do not have a number, see Guidelines.
Note: If the account is in more than one
name, see Guidelines for instructions on
whose number to enter.
- ----------------------------------------------
- ---------------------------------------------- ------------------------------
Social security number
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------------------
- ---------------------------------------------- ------------------------------
or
- ---------------------------------------------- ------------------------------
- ----------------------------------------------
Employer identification
number
- ----------------------------------------------
- ----------------------------------------------
- ---------------------------------------------- -- -- -- ---- --- --- -- --- -
- ---------------------------------------------- ------------------------------
- ---------------------------------------------- ------------------------------ --
- ------------------------------ -------------------------------------------------
Part III Certification
- ------------------------------ -------------------------------------------------
- --------------------------------------------------------------------------------
Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct taxpayer identification number
(or I am waiting for a number to be issued to me) and
(2) I am not subject to backup withholding because (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue
Service (the "IRS") that I am subject to backup withholding as a result of
a failure to report all interest or dividends, or (c) the IRS has notified
me that I am no longer subject to backup withholding.
Certification Instructions - You must cross out item (2) above if you have been
notified by the IRS that you are currently subject to backup withholding because
you have failed to report all interest or dividends on your tax return.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Sign here
- --------------------------------------------------------------------------------
<PAGE>
Ladies and Gentlemen:
The Common Stockholder(s) whose signature(s) appear(s) hereon (the
"Stockholder") hereby tenders to Ugly Duckling Corporation, Inc., a Delaware
corporation (the "Company"), Common Stock pursuant to the Company's offer as
contained in the Offering Circular dated February 22, 2000 (the "Exchange
Offer"), receipt of which is hereby acknowledged, and in this Letter of
Transmittal (which together constitute the "Offer"), in exchange for 11%
Subordinated Debentures due 2007 (the "Debentures") on the basis of $11.00
principal amount of Debentures for each Share of Common Stock. Capitalized terms
not defined herein have the meanings set forth in the Offering Circular,
Upon the terms and subject to the conditions of the Exchange Offer, the
Stockholder deposits with you the above-described Common Stock. The Stockholder
hereby sells, assigns and transfers to, or upon the order of, the Company all
right, title and interest in and to such Shares of Common Stock as are being
tendered hereby (and any and all shares of capital stock or other securities
issued or issuable in respect of such Common Stock) after the acceptance for
exchange of such Shares of Common Stock. The Stockholder hereby irrevocably
constitutes and appoints the Exchange Agent the true and lawful agent and
attorney-in-fact of the Stockholder (with full knowledge that such Exchange
Agent also acts as the agent of the Company) with respect to such Shares of
Common Stock and any such securities with full power of substitution (such power
of attorney being deemed to be an irrevocable power coupled with an interest) to
(a) deliver such Shares of Common Stock or transfer ownership of such Shares of
Common Stock on the account books maintained by DTC, together in either case
with all accompanying evidences of transfer and authenticity to or upon the
order of the Company upon receipt by the Exchange Agent as the Stockholder's
agent of the Debentures in the exchange ratio specified above for exchange and
(b) receive all benefits (including without limitation, all interest, shares and
other securities resulting from any distribution, combination or exchange
involving such Shares of Common Stock) and otherwise exercise all rights of
beneficial ownership of such Shares of Common Stock and any such securities, all
in accordance with the terms of the Exchange Offer.
The Stockholder hereby represents and warrants that the Stockholder has
full power and authority to tender, sell, assign and transfer the Shares of
Common Stock tendered hereby (and such shares of capital stock or other
securities issued in respect thereof) and that the Company will acquire good and
unencumbered title thereto, free and clear of all liens, restrictions, charges
and encumbrances and not subject to any adverse claim when the same are
purchased by the Company. The Stockholder will, upon request, execute and
deliver any additional documents deemed by the Exchange Agent or the Company to
be necessary or desirable to complete the sale, assignment and transfer of the
Shares of Common Stock and any such securities tendered hereby.
All authority herein conferred or agreed to be conferred shall survive
the death or incapacity of the Stockholder and every obligation of the
Stockholder hereunder shall be binding upon the heirs, personal representatives,
successors and assigns of the Stockholder. Except as stated in the Offering
Circular, this tender is irrevocable.
The Stockholder understands that the tender of Common Stock pursuant to
any one of the procedures described under in the Offering Circular under "The
Exchange Offer -- How to Tender" and in the instructions hereto will constitute
an agreement between the Stockholder and the Company upon the terms and subject
to the conditions of the Exchange Offer.
Unless otherwise indicated in the box entitled "Special Issuance
Instructions," please deliver Debentures (and, if applicable, Common Stock not
exchanged in an over-subscription) registered in the name of the Stockholder to
<PAGE>
the Stockholder. Similarly, unless otherwise indicated in the box entitled
"Special Delivery Instructions," please send Debentures (and, if applicable,
Common Stock not exchanged in an over-subscription) to the Stockholder at the
address shown below the signature of the Stockholder. The Stockholder recognizes
that the Company has no obligation pursuant to the Special Issuance Instructions
to transfer any Common Stock from the name of the registered holder thereof if
the Company accepts none of the Common Stock for exchange.
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Exchange Offer
1. Delivery of Letter of Transmittal and Common Stock. Common Stock Certificates
(or confirmation of a book-entry transfer of such Common Stock into the Exchange
Agent's account at DTC), together with a properly completed and duly executed
Letter of Transmittal or manually signed facsimile thereof, or an Agent's
Message, in the case of a book-entry transfer, and any other documents required
by this Letter of Transmittal should be transmitted to the Exchange Agent at the
appropriate address set forth herein and must be received by the Exchange Agent
prior to the Expiration Time (as defined in the Offering Circular).
2. Guarantee of Delivery. Stockholders who cannot deliver their Common Stock
Certificates and all other required documents to the Exchange Agent by the
Expiration Time must tender their Common Stock pursuant to the guaranteed
delivery procedure set forth in the Offering Circular under "The Exchange Offer
- -- How to Tender." Pursuant to such procedure: (a) such tender must be made by
or through an Eligible Institution; (b) a properly completed and duly executed
Notice of Guaranteed Delivery, substantially in the form provided by the
Company, must be received by the Exchange Agent prior to the Expiration Time;
and (c) the Common Stock Certificates evidencing all tendered Common Stock in
proper form for tender, or a confirmation of a book-entry transfer into the
Exchange Agent's account at DTC of all Common Stock delivered electronically, in
each case together with a properly completed and duly executed Letter of
Transmittal (or a manually signed facsimile thereof), with any required
signature guarantees (or, in the case of a book-entry transfer, an Agent's
Message), and any other documents required by this Letter of Transmittal, must
be received by the Exchange Agent within three Nasdaq National Market trading
days of the date of execution of such Notice of Guaranteed Delivery, all as
provided in the Offering Circular under "The Exchange Offer - How to Tender."
Issuance of Debentures in exchange for Common Stock tendered and
accepted for exchange pursuant to the Exchange Offer will be made only against
timely deposit of Common Stock Certificates (or confirmation of a book entry
transfer of such Common Stock into the Exchange Agent's account at DTC), a
properly completed and duly executed Letter of Transmittal, or an Agent's
Message, in the case of a book-entry transfer, and any other required documents.
3. Method of Delivery of Letter of Transmittal and Certificates. The method of
delivery of this Letter of Transmittal, the Common Stock Certificates (or
confirmation of a book-entry transfer of such Common Stock into the Exchange
Agent's account at DTC), and any other required documents is at the option and
risk of the Stockholder but, except as otherwise provided in Instruction 2
above, the delivery will be deemed made only when actually received by the
Exchange Agent. If such delivery is by mail, it is suggested that registered
mail with return receipt requested, properly insured, be used.
4. No Conditional Tenders. The Company is not obligated to accept any
alternative, conditional, irregular or contingent tenders.
5. Inadequate Space. If the space provided in the box entitled "Description of
Common Stock Tendered" of this Letter of Transmittal is inadequate, the Common
Stock Certificate numbers and number of shares should be listed on a separate
signed schedule to be affixed hereto.
<PAGE>
6. Partial Tenders. Issuance of Debentures in exchange for Shares of Common
Stock will be made only against deposit of tendered Shares of Common Stock. If
less than the entire number of Shares of Common Stock evidenced by a submitted
Common Stock Certificate is tendered, the tendering Stockholder should fill in
the number of Shares of Common Stock tendered in the appropriate boxes above
entitled "Number of Shares Tendered." The Exchange Agent will then issue and
send to the tendering holder (unless otherwise requested by the holder under
"Special Issuance Instructions" and "Special Delivery Instructions" in this
Letter of Transmittal), a newly issued Common Stock Certificate for Shares of
Common Stock submitted but not tendered, together with any tendered Shares of
Common Stock that were not accepted for exchange because of proration or
otherwise. The entire number of all Shares of Common Stock deposited with the
Exchange Agent will be deemed to have been tendered unless otherwise indicated.
Tendered Shares of Common Stock not accepted for exchange by the
Company, including as a result of proration, if any, will be returned without
expense to the tendering holder of such Shares of Common Stock (or, in the case
of the Shares of Common Stock tendered by book-entry transfer into the Exchange
Agent's account at DTC, such Shares of Common Stock will be credited to an
account maintained at DTC) as promptly as practicable following the Expiration
Time, subject to delays, if any, resulting from proration.
7. Denominations. The Debentures will be issued only in denominations of $1.00
and any integral multiple thereof.
8. Signatures on Letter of Transmittal and Endorsements; Guarantee or
Signatures. If the Letter of Transmittal is signed by the holder of the Common
Stock tendered hereby, the signature must correspond with the name as written on
the face of the Common Stock Certificates without alteration, enlargement or any
change whatsoever.
If the Shares of Common Stock tendered hereby are owned of record by
two or more joint owners, all such owners must sign this Letter of Transmittal.
When this Letter of Transmittal is signed by the holder or holders of
the Common Stock Certificates transmitted hereby, no endorsement of Common Stock
Certificates is required. If, however, the Debentures are to be issued, or the
Common Stock reissued to someone other than the registered holder, then
endorsements of Common Stock Certificates transmitted hereby are required.
Signatures on such Certificates must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
holder or holders of the Common Stock Certificates tendered hereby, the Common
Stock Certificates must be endorsed and signed exactly as the name or names of
the holder or holders appear on the Common Stock Certificates. Signatures on
such Certificates must be guaranteed by an Eligible Institution.
If this Letter of Transmittal or any Common Stock Certificates are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and proper evidence
satisfactory to the Company of their authority so to act must be submitted.
Signatures on Common Stock Certificates required by this Instruction 8
must be guaranteed by an Eligible Institution.
<PAGE>
Signatures on this Letter of Transmittal need not be guaranteed by an
Eligible Institution, provided the Common Stock Certificates are tendered (i) by
a holder of such Shares who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on this Letter of Transmittal
or (ii) for the account of an Eligible Institution.
9. Transfer Taxes. The Company will pay any transfer taxes applicable to the
transfer of Common Stock to it or its order pursuant to the Exchange Offer. If,
however, delivery of Debentures is to be made to, or is to be registered or
issued in the name of any person other than the holder of the Common Stock
tendered hereby, or if the Common Stock tendered hereby is registered in the
name of any person other than the person signing this Letter of Transmittal, or
if for any other reason other than the transfer of Common Stock to the Company
or its order pursuant to the Exchange Offer a transfer tax is imposed, the
amount of any such transfer taxes (whether imposed on the holder or any other
person) will be payable by the tendering Stockholder. If satisfactory evidence
of payment of such taxes or exemption therefrom is not submitted herewith, the
amount of such transfer taxes due will be billed directly to such tendering
Stockholder.
Except as provided in this Instruction 9, it will not be necessary for
transfer tax stamps to be affixed to the Common Stock Certificates listed in
this Letter of Transmittal.
10. Substitute Form W-9. The tendering Stockholder is required to provide the
Exchange Agent with a correct Taxpayer Identification Number ("TIN") on
Substitute Form W-9, unless an exemption applies. Failure to provide the
information on the form may subject the tendering Stockholder to backup
withholding tax of 31% on payments with respect to the Debentures (including
interest). If the tendering Stockholder has not been issued a TIN and has
applied for a number, the tendering Stockholder should write "Applied for" on
the face of the Substitute Form W-9. If the Exchange Agent is not provided with
a TIN within 60 days, the Exchange Agent will withhold 31% of all such payments
until a TIN is provided to the Exchange Agent. See "Important Tax Information"
on the enclosed "Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9" for additional information concerning Substitute Form
W-9 and 31% backup withholding, including information on exemptions from backup
withholding.
11. Special Issuance and Delivery Instructions. If Debentures and/or Shares of
Common Stock and/or a check for payment for fractional interests in respect of
Debentures are to be issued in the name of or delivered to a person other than
the signer of the Letter of Transmittal or to an address other than that shown
above, the appropriate boxes on the Letter of Transmittal should be completed.
12. Waiver of Conditions. The Company reserves the absolute right to waive any
of the specified conditions in the Exchange Offer in the case of any Shares of
Common Stock tendered.
13. Requests for Assistance or Additional Copies. Requests for assistance or
additional copies of the Offering Circular and the Letter of Transmittal may be
directed to the Information Agent at the address and telephone number set forth
below or to your broker, dealer, commercial bank or trust company.
IMPORTANT: This Letter of Transmittal or a manually signed facsimile
thereof (together with Common Stock Certificates or confirmation of a book-entry
transfer of such Common Stock into the account of the Exchange Agent at The
Depository Trust Company) and all other required documents must be received by
the Exchange Agent or a Notice of Guaranteed Delivery must be received by the
Exchange Agent, prior to the Expiration Time, all as defined in the Offering
Circular.
<PAGE>
THE INFORMATION AGENT IS:
CORPORATE INVESTOR
COMMUNICATIONS, INC.
111 Commerce Road
Carlstadt, New Jersey 07072-2586
-----------------
Toll Free: 1-877-977-6192
<PAGE>
Exhibit 12(a)-3
NOTICE OF GUARANTEED DELIVERY
UGLY DUCKLING CORPORATION
Offer to Exchange
Up to $27,500,000 Aggregate Principal Amount of its
11% Subordinated Debentures due 2007
for
Up to 2,500,000 Shares of its Common Stock
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME,
ON MARCH 21, 2000, UNLESS EXTENDED.
- --------------------------------------------------------------------------------
As set forth in the Offering Circular dated February 22, 2000 (the
"Offering Circular") under "The Exchange Offer -- How to Tender," this form or
one substantially equivalent hereto must be used to accept the Exchange Offer
(as defined below) of Ugly Duckling Corporation, a Delaware corporation (the
"Company"), if certificates representing Shares of Common Stock ("Common Stock
Certificates") are not immediately available (or the procedures for book-entry
transfer cannot be completed on a timely basis) or the shareholders cannot
deliver their Common Stock Certificates, Letter of Transmittal and other
required documents to the Exchange Agent (as defined in the Offering Circular)
on or prior to 5:00 p.m., New York City time, on March 21, 2000, unless extended
as described in the Offering Circular (the "Expiration Time"). Such form may be
delivered by hand or transmitted by facsimile transmission or mailed prior to
the Expiration Time:
To: HARRIS TRUST AND SAVINGS BANK
(the "Exchange Agent")
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By Hand By Facsimile Transmission: By Mail:
or Overnight Courier: Harris Trust and Savings Bank c/o
Harris Trust and Savings Bank c/o Harris Trust Company Harris Trust and Savings Bank c/o
Harris Trust Company of New York Harris Trust Company
of New York 212-701-7636 of New York
88 Pine Street Confirm Receipt of Facsimile Wall Street Station
19th Floor By P.O. Box 1010
New York, New York 10005 Telephone to 212-701-7624 New York, New York 10268-1010
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For information call
Corporate Investor Communications, Inc.
1-877-977-6192
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<PAGE>
Delivery of this instrument to an address or transmission of instruction
via a facsimile number other than as set forth above will not constitute a valid
delivery.
This form is not to be used to guarantee signatures. The Eligible
Institution (as defined in the Letter of Transmittal) that completes this form
must communicate the guarantee to the Exchange Agent and must deliver the Letter
of Transmittal and Common Stock Certificates to the Exchange Agent within the
time period shown herein. Failure to do so could result in a financial loss to
such Eligible Institution.
The undersigned hereby tenders to the Company, upon the terms and
conditions set forth in the Offering Circular and related Letter of Transmittal
(which together constitute the "Exchange Offer"), receipt of which is hereby
acknowledged, ________________ Shares of Common Stock pursuant to the guaranteed
delivery procedure described in the Offering Circular under "The Exchange Offer
- -- How to Tender."
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(PLEASE TYPE OR PRINT ALL INFORMATION BELOW)
- --------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------- --------------------------------------------------------
Signature(s): Common Stock Certificate No(s) (if available):
--------------------------------------
Name(s) of Record Holder(s) Total Number of Shares Represented by Certificate(s):
------------------------
Address(es): Name of Tendering Institution:
---------------------------------------
Account Number:
- ---------------------------------------------------
Zip Code
Area Code and Tel. No(s):
Dated:
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<PAGE>
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GUARANTEE
(DO NOT USE FOR SIGNATURE GUARANTEE)
The undersigned, a bank, broker, dealer, credit union, savings
association or other entity which is a member in good standing of the Securities
Transfer Agents Medallion Program or a bank, broker, dealer, credit union,
savings association or other entity which is an "eligible guarantor
institution," as such term is defined in Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended (each of the foregoing constituting an
"Eligible Institution"), guarantees the delivery to the Exchange Agent of the
Common Stock tendered hereby, together with a properly completed and duly
executed Letter of Transmittal (or a manually signed facsimile thereof), or an
Agent's Message, in the case of a book-entry transfer of Common Stock, and any
other required documents, all within three Nasdaq National Market trading days
of the date hereof.
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- ----------------------------------------------------------- --------------------------------------------------------
Name of Firm Authorized Signature
Address Title
Zip Code Name: Please Type or Print
Area Code and Tel. No. Dated
---------------------------------
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NOTE: DO NOT SEND COMMON STOCK CERTIFICATES WITH THIS FORM.
CERTIFICATES MUST BE SENT WITH THE LETTER OF TRANSMITTAL
</TABLE>
<PAGE>
Exhibit 12(a)-4
UGLY DUCKLING CORPORATION
Offer to Exchange
Up to $27,500,000 Aggregate Principal Amount of its
11% Subordinated Debentures due 2007
for
Up to 2,500,000 Shares of its Common Stock
THE EXCHANGE OFFER WILL EXPIRE AT
5:00 P.M., NEW YORK CITY TIME, ON
MARCH 21, 2000, UNLESS EXTENDED.
February 22, 2000
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
Ugly Duckling Corporation, a Delaware corporation (the "Company"), is
offering, upon the terms and conditions set forth in the enclosed Offering
Circular dated February 22, 2000 (the "Offering Circular") and the enclosed
Letter of Transmittal relating to an exchange offer as described therein (which
together constitute the "Exchange Offer"), to exchange up to $27,500,000
aggregate principal amount of its 11% Subordinated Debentures due 2007 (the
"Debentures") for up to 2,500,000 shares ("Shares") of its Common Stock, $.00l
par value per share ("Common Stock"), on the basis of $11.00 principal amount of
Debentures for each Share of Common Stock. The Offer will terminate at 5:00
p.m., New York City time, on March 21, 2000, unless extended by the Company (the
"Expiration Time").
We are asking you to contact your clients for whom you hold Common
Stock registered in your name or in the name of your nominee.
The Company will not pay any fees or commissions to any broker or
dealer or other person for soliciting tenders of Common Stock pursuant to the
Offer. However, you will be reimbursed for customary mailing and handling
expenses incurred by you in forwarding any of the enclosed materials to your
clients.
The Company will pay or cause to be paid all transfer taxes, if any,
applicable to the sale of Common Stock to it or its order, except as otherwise
provided in Instruction 9 of the Letter of Transmittal.
For your information and for forwarding to your clients for whom you
hold Common Stock registered in your name or in the name of your nominee or who
hold Common Stock registered in their own names, we are enclosing the following
documents:
1. The Offering Circular,
2. A Letter of Transmittal (to be used to accept the Exchange Offer);
3. A form of letter that may be sent to your clients for whose accounts you
hold Common Stock registered in your name or in the name of your nominee,
with space provided for obtaining such client's instructions with regard to
the Exchange Offer,
<PAGE>
4. A Notice of Guaranteed Delivery;
5. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9; and
6. A return envelope addressed to the Exchange Agent.
WE URGE YOU TO CONTACT YOUR CLIENTS AS SOON AS POSSIBLE. The Exchange
Offer will expire at 5:00 p.m., New York City time, on March 21, 2000, unless
extended.
A stockholder wishing to tender Common Stock pursuant to the Exchange
Offer should (i) complete and execute the Letter of Transmittal (or facsimile
thereof), and have the signature thereon guaranteed if required by the
instructions thereto, and deliver such Letter of Transmittal, together with
certificates representing the Shares of Common Stock to be tendered and any
other required documents, to the Exchange Agent at or prior to the Expiration
Time, or (ii) request his broker, dealer, commercial bank, trust company or
other nominee to effect the transaction for him. See the Offering Circular under
"The Exchange Offer -- How to Tender."
Stockholders who wish to tender their Common Stock pursuant to the
Exchange Offer and (i) whose Common Stock Certificates are not immediately
available, or (ii) who cannot deliver their Common Stock Certificates and Letter
of Transmittal to the Exchange Agent on or prior to the Expiration Time, must
tender their Common Stock according to the guaranteed delivery procedures set
forth in the Offering Circular under "The Exchange Offer -- How to Tender."
Any inquiries you may have with respect to the Exchange Offer or
requests for additional copies of the above documents should be addressed to
Corporate Investor Communications, Inc., 111 Commerce Road, Carlstadt, New
Jersey 07072-2586, toll free at 1-(877)-977-6192.
Very truly yours,
UGLY DUCKLING CORPORATION
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR
ANY PERSON AS AN AGENT OF THE COMPANY OR AUTHORIZE YOU OR ANY OTHER PERSON TO
USE ANY DOCUMENT OR MAKE ANY REPRESENTATION ON BEHALF OF IT WITH RESPECT TO THE
EXCHANGE OFFER NOT MADE IN THE OFFERING CIRCULAR OR THE LETTER OF TRANSMITTAL.
<PAGE>
Exhibit 12(a)-5
UGLY DUCKLING CORPORATION
Offer to Exchange
Up to $27,500,000 Aggregate Principal Amount of its
11% Subordinated Debentures due 2007
for
Up to 2,500,000 Shares of its Common Stock
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON MARCH 21, 2000, UNLESS EXTENDED.
- --------------------------------------------------------------------------------
February 22, 2000
To Our Clients:
Enclosed for your consideration are an Offering Circular dated February
22, 2000 (the "Offering Circular") and a Letter of Transmittal relating to an
exchange offer as described therein (which together constitute the "Exchange
Offer") of Ugly Duckling Corporation, a Delaware corporation (the "Company"), to
exchange up to $27,500,000 aggregate principal amount of its 11% Subordinated
Debentures due 2007 (the "Debentures") for up to 2,500,000 shares ("Shares") of
its Common Stock, $.001 par value per share ("Common Stock") on the basis of
$11.00 principal amount of Debentures for each Share of Common Stock. The Offer
will terminate at 5:00 p.m., New York City time, on March 21, 2000, unless
extended by the Company (the "Expiration Time").
This material is being forwarded to you as the beneficial owner of
Common Stock held by us in your account but not registered in your name. A
tender with respect to such Common Stock may only be made by us as the holder of
record and pursuant to your instructions.
Accordingly, we request instructions as to whether you wish us to
tender any or all of your Shares of Common Stock of Ugly Duckling Corporation
held by us for your account pursuant to the terms and conditions of the Exchange
Offer. Your instructions to us should be forwarded as promptly as possible in
order to permit us to tender your Common Stock on your behalf in accordance with
the provisions of the Exchange Offer.
Tenders of Common Stock pursuant to the Exchange Offer may be withdrawn
by holders at any time prior to the Expiration Time.
We urge you to read the enclosed Offering Circular and related Letter
of Transmittal carefully before instructing us to tender your Common Stock.
If you wish to have us tender any or all of your Common Stock, please
so instruct us by completing, executing, detaching and returning to us the
attached instruction form. The accompanying form of Letter of Transmittal is
furnished to you for your information only and may not be used by you to tender
your Common Stock.
<PAGE>
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INSTRUCTIONS
The undersigned acknowledges receipt of your letter enclosing the
Offering Circular and the Letter of Transmittal relating to the Exchange Offer
by Ugly Duckling Corporation to exchange its 11% Subordinated Debentures for
Shares of its Common Stock.
This will instruct you to tender the number of Shares of Common Stock
indicated below (or, if no number is indicated below, the entire number of
Shares) that are held by you for the account of the undersigned, upon the terms
and subject to the conditions set forth in the Offering Circular and related
Letter of Transmittal.
Aggregate number of Shares of Common Stock to be tendered:___________________(1)
SIGN HERE
Signature(s)
Name(s)
Address(es)
Zip Code
Area Code and Telephone No(s).
Taxpayer Identification or Social Security No(s).
Dated:
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(1) I/we understand that if I/we sign without indicating a lesser amount in
the space above, the entire number of Shares of Common Stock held by
you for my/our account will be tendered.
<PAGE>
Exhibit 12(a)-6
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Guidelines for Determining the Proper Identification Number to Give the
Payer.--Social Security numbers have nine digits separated by two hyphens: i.e.
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e. 00-0000000. The table below will help determine the number to
give the payer.
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For this type of account: Give name and the Social For this type of account: Give name and the
Security Number of -- Employer Identification
Number of --
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1. Individual The individual 6. Sole proprietorship The owner (3)
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2. Two or more individuals The actual owner of the 7. A valid trust, estate Legal entity (4)
(joint account) account or, if combined or pension trust
funds, the first
individual on the
account (1)
- ------------------------------
3. Custodian account of a The minor (2) 8. Corporate The corporation
minor (Uniform
Transfers to Minors Act)
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4. a. The usual revocable The grantor-trustee (1) 9. Partnership The partnership
savings trust
(grantor is also
trustee)
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b. So-called trust The actual owner (1) 10. Association, club or The organization
account that is not other tax-exempt
a legal or valid organization
trust under state
law
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5. Sole proprietorship The owner (3) 11. A broker or The broker or nominee
registered nominee
- ------------------------------
12. Account with the The public entity
Department of
Agriculture in the
name of a public
entity (such as a
state or local
government, school
district, or prison)
that receives
agricultural program
payments
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(1) List first and circle the name of the person whose number you furnish. If only one person on a joint account has a Social
Security Number, that person's number must be furnished.
(2) Circle the minor's name and furnish the minor's Social Security Number.
(3) You must show your individual name, but may also enter your business or "doing business as" name. You may use your Social
Security Number or your Employer Identification Number (if you have one).
(4) List first and circle the name of the legal trust, estate, or pension trust. (Do not furnish the taxpayer identification number
of the personal representative or trustee unless the legal entity itself is not designated in the account title.)
Note: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed.
</FN>
</TABLE>
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
How To Obtain a Taxpayer Identification Number
If you do not have a taxpayer identification number, apply for one immediately.
To apply for a Social Security Number, obtain Form SS-5 from your local Social
Security office. Obtain Form SS-4 to apply for an employer identification
number.
Payees Exempt from Backup Withholding
Payees specifically exempted from backup withholding include the following:
o An organization exempt from tax under section 501(a), any IRA, or a
custodial account under section 403(b)(7) if the account satisfies the
requirements of section 401(f)(2).
o The United States or any of its agencies or instrumentalities.
o A state, the District of Columbia, a possession of the United States,
or any of their political subdivisions or instrumentalities.
o A foreign government or any of its political subdivisions, agencies,
or instrumentalities.
o An international organization or any of its agencies or
instrumentalities.
Payees that may be exempt from backup withholding include the following:
o A corporation.
o A foreign central bank of issue.
o A dealer in securities or commodities required to register in the
United States, the District of Columbia, or a possession of the United
States.
o A futures commission merchant registered with the Commodity Futures
Trading Commission.
o A real estate investment trust. o An entity registered at all times
during the tax year under the Investment Company Act of 1940.
o A common trust fund operated by a bank under section 584(a). o A
financial institution.
o A middleman known in the investment community as a nominee or
custodian.
o A trust exempt from tax under section 664 or described in section
4947.
Exempt payees described above should still complete the substitute Form W-9
enclosed herewith to avoid possible erroneous backup withholding. EXEMPT PAYEES
SHOULD FURNISH THEIR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT' IN PART II
OF THE FORM, SIGN AND DATE THE FORM, AND RETURN IT TO THE EXCHANGE AGENT.
Nonresident Alien and Foreign Corporations.--If you are a nonresident alien or a
foreign entity not subject to withholding, furnish the Exchange Agent a complete
IRS Form W-8, "Certificate of Foreign Status."
Privacy Act Notice.--Section 6109 of the Internal Revenue Code requires most
recipients of dividends, interest, or other payments to give taxpayer
identification numbers to payers who must report the payments to the IRS. The
IRS uses the numbers for identification purposes and to help verify the accuracy
of your tax return. Payers must be given the numbers whether or not recipients
are required to file tax returns. Payers must generally withhold 31% of taxable
interest, dividend, and certain other payments to a payee who does not furnish a
taxpayer identification number to a payer. Certain penalties may also apply.
Penalties
(1) Penalty for Failure to Furnish Taxpayer Identification Number--If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) Civil Penalty for False Information With Respect to Withholding--If you make
a false statement with no reasonable basis that results in no imposition of
backup withholding, you are subject to a penalty of $500.
(3) Criminal Penalty
for Falsifying Information--Willfully falsifying certifications or affirmations
may subject you to criminal penalties including fines and/or imprisonment.
FOR ADDITIONAL INFORMATION, CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
