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EXHIBIT 1
October 3, 2000
Board of Directors
Ugly Duckling Corporation
2525 East Camelback Road, Suite 500
Phoenix, Arizona 85016
Re: Merger Proposal
Gentlemen:
The purpose of this letter is to propose the principal terms of the
acquisition of all outstanding common stock of Ugly Duckling Corporation not
already owned by me through a merger with Ugly Duckling Corporation.
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MERGER: Ugly Duckling Corporation ("UDC") shall
merge with a new corporation owned by me
("UDC Acquisition Corp.") in a merger
transaction where UDC Acquisition Corp. will
be the surviving entity (the "Merger"). Greg
Sullivan will have an option to acquire a
20% interest in UDC Acquisition Corp. and
will continue to operate UDC's business as
Chief Executive Officer. I do not expect
that any personnel of UDC will be terminated
as a result of the transaction, and I will
continue UDC's business.
UDC SHARES: As part of the Merger, UDC Acquisition Corp.
shall issue to the holders of all
outstanding shares of common stock of UDC
not held by me (the "UDC Shares") $8.50 per
UDC share (the "Merger Price"). The Merger
Price represents a premium of nearly 50%
over the current market price of the UDC
Shares. The Merger Price shall be paid
partially in cash in the amount of $2.50 per
UDC Share and the balance of $6.00 per UDC
Share shall be paid by the promissory notes
of UDC Acquisition Corp. to the holders of
the UDC Shares (the "Merger Notes"). The
Merger Notes shall accrue interest at 10%,
be payable in semi-annual installments of
interest only and mature in 10 years. The
Merger Notes shall be unsecured and
subordinate to all other existing
indebtedness of UDC and/or UDC Acquisition
Corp.
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CONDITIONS: The Merger is conditioned upon satisfaction
of the following primary contingencies:
UDC Board Approval. Approval of the Merger
by the Board of Directors of UDC. I
understand that the Board of Directors of
UDC may require a fairness opinion before
granting approval.
UDC Shareholder Approval. Approval of the
Merger by the holders of the required number
of UDC Shares.
Appraisal Rights. If the holders of 5% or
more of the UDC Shares exercise statutory
appraisal rights, then I may elect to
terminate the Merger.
Regulatory Approvals. The receipt of any
approvals required of any applicable
governmental agencies.
DISCLOSURE: I intend to revise the Schedule 13D I
recently filed with the Securities Exchange
Commission regarding my possible intention
to acquire additional UDC Shares to disclose
this proposal. Each party agrees that it
will not issue any press release or other
disclosure relating to the proposed
transaction without the prior approval of
the other, which shall not be unreasonably
withheld or delayed, unless such disclosure
is required by applicable securities laws
(in which event prior notice of the contents
of the proposed disclosure shall be
furnished).
DOCUMENTATION: This proposal of the principal terms of the
Merger is not an offer and does not create
any legally binding obligation (except that
the last sentence of the preceding paragraph
shall be binding upon the parties). However,
we agree to use good faith efforts to
prepare and execute mutually acceptable
merger documents and neither party shall
have any legally binding obligation to
complete the proposed transaction unless and
until mutually acceptable Merger Documents
are executed.
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Please respond by October 16, 2000. You may contact me at 602-778-5001
if you any questions or comments regarding the proposed Merger.
Very truly yours,
/s/ Ernest C. Garcia, II
Ernest C. Garcia, II
