UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 30, 1999
UGLY DUCKLING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 000-20841 86-0721358
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
2525 E. Camelback Road, Suite 500, Phoenix, Arizona 85016
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (602) 852-6600
Not applicable.
(Former name or former address, if changed since last report.)
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Item 2. Acquisition or Disposition of Assets
Attached hereto as Exhibit 99.1 is a copy of Ugly Duckling Corporation's
press release dated December 31, 1999 titled "Ugly Duckling Announces
Divestiture of Cygnet Dealer Finance Subsidiary for $38 Million," which
describes the sale of stock of Cygnet Dealer Finance, Inc. to a company
controlled by Ernest C. Garcia II, Ugly Duckling's chairman and principal
stockholder.
Item 7. Exhibits
(a) Financial Statements of Business Acquired.
Not Applicable
(b) Pro Forma Financial Information.
It is impractical to provide the required proforma financial
information at the time of filing this report. The required pro forma
financial information will be filed by amendment to this Form 8-K no
later than March 14, 2000.
(c) Exhibits
EXHIBIT NO. DESCRIPTION
2.1 Stock Purchase Agreement, by and among Ugly Duckling Corporation,
Ugly Duckling Car Sales & Finance Corporation, Ugly Duckling
Finance Corporation ("UDFC"), Cygnet Dealer Finance, Inc.
("CDF"), and Cygnet Capital Corporation ("CCC"), dated as of
December 30, 1999.
2.2 Promissory Note dated December 30, 1999 from CCC to UDFC.
2.3 Pledge Agreement dated December 30, 1999 from CCC to UDFC.
2.4 Verde Guaranty dated December 30, 1999.
2.5 CDF Guaranty dated December 30, 1999.
2.6 Warrant dated December 30, 1999 from CCC to UDFC.
99.1 Press Release dated December 31, 1999.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
UGLY DUCKLING CORPORATION
Date: January 5,2000 By: \s\ Jon D. Ehlinger
-------------------
Vice President, Secretary and
General Counsel
STOCK PURCHASE AGREEMENT
by and among
UGLY DUCKLING CORPORATION
UGLY DUCKLING CAR SALES AND FINANCE CORPORATION
UGLY DUCKLING FINANCE CORPORATION
CYGNET DEALER FINANCE, INC.
and
CYGNET CAPITAL CORPORATION
December 30, 1999
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TABLE OF CONTENTS
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<S> <C> <C> <C>
ARTICLE 1 OVERVIEW..................................................................................1
ARTICLE 2 THE TRANSACTION...........................................................................1
2.1 Purchase and Sale of Shares....................................................................1
2.2 Purchase Price.................................................................................2
2.3 Payment of Purchase Price......................................................................2
2.4 Transition.....................................................................................2
ARTICLE 3 CONDUCT PENDING THE CLOSING...............................................................2
3.1 Operation of Business in Ordinary Course.......................................................2
3.2 No Negotiations................................................................................2
3.3 Public Announcements...........................................................................3
3.4 Access to Information; Confidentiality.........................................................3
3.5 HSR Act........................................................................................4
3.6 Permits........................................................................................4
ARTICLE 4 THE PARTIES' OBLIGATIONS AT THE CLOSING...................................................4
4.1 The Closing....................................................................................4
4.2 Conditions to Obligations of the Parties.......................................................4
4.3 Seller's and the Company's Obligations.........................................................5
4.4 Buyer's Obligations............................................................................5
ARTICLE 5 REPRESENTATIONS, WARRANTIES AND INDEMNIFICATION...........................................6
5.1 Representations Relating to the Business.......................................................6
5.2 Representations of Buyer.......................................................................6
5.3 Nature and Survival of Representations and Warranties..........................................6
5.4 General Indemnification by Seller..............................................................6
5.5 Special Indemnification by Seller..............................................................7
5.6 General Indemnification by Buyer...............................................................7
5.7 Agreement and Special Indemnification by Buyer.................................................7
5.8 Limits on Indemnification......................................................................7
5.9 Procedure for Indemnification..................................................................7
ARTICLE 6 ADDITIONAL AGREEMENTS.....................................................................7
6.1 Termination....................................................................................7
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6.2 Trademark......................................................................................8
6.3 Compliance with Warrant........................................................................8
6.4 Books and Records..............................................................................8
6.5 Notices........................................................................................8
6.6 Governing Law and Attorneys' Fees..............................................................9
6.7 Arbitration....................................................................................9
6.8 Assignment....................................................................................10
6.9 Intent to be Binding..........................................................................10
6.10 Waiver of Provisions..........................................................................10
Schedule 2.2. Purchase Price Components
Exhibit A. Definitions
Exhibit B. Representations and Warranties of Seller and the Company
Exhibit C. Representations and Warranties of Buyer
Exhibit D. Procedure for Indemnification
Exhibit E-1. Certificate of Parent, Seller and the Company Pursuant to Section 4.3(c)
Exhibit E-2. Certificate of Buyer Pursuant to Section 4.4(h)
Exhibit F. Promissory Note
Exhibit G. Verde Guaranty
Exhibit H. Warrant
Exhibit I. Pledge Agreement
Exhibit J. Company Guaranty
</TABLE>
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STOCK PURCHASE AGREEMENT
This Agreement is made of as of December 30, 1999, by and among the
following parties:
o Cygnet Dealer Finance, Inc., an Arizona corporation (the "Company");
o Ugly Duckling Corporation, a Delaware corporation (the "Parent");
o Ugly Duckling Car Sales and Finance Corporation, an Arizona corporation
(the "Seller");
o Ugly Duckling Finance Corporation ("Finance"); and
o Cygnet Capital Corporation, an Arizona corporation (the "Buyer").
ARTICLE 1.
OVERVIEW
1.1 The Company engages in the business (the "Business") of (i) providing
operating credit lines to used car dealers secured by the dealers' retail
installment portfolios, and (ii) purchasing and/or servicing third party dealer
contract portfolios.
1.2 Seller owns all of the capital stock of the Company.
1.3 By this Agreement, Buyer desires to acquire, and Seller desires to sell, all
of the capital stock of the Company.
1.4 For purposes of this Agreement, certain capitalized terms have the meanings
ascribed to them in Exhibit A. Other terms are defined in the body of this
Agreement.
ARTICLE 2.
THE TRANSACTION
2.1 Purchase and Sale of Shares. Seller agrees to sell, and Buyer agrees to
purchase, all of the outstanding capital stock of the Company (the "Shares").
2.2 Purchase Price. On the Closing date, Buyer will pay to Seller an amount
equal to the sum of the book value of the Company and the amount of those
certain assets described in Schedule 2.2 hereto ("Purchase Price"). At the
Closing, Seller will deliver to Buyer a closing balance sheet dated as of the
Closing (the "Closing Balance Sheet") which will set forth a reasonable estimate
of the book value of the Company. Within 90 days after the Closing, Seller will
prepare and Seller and Buyer will agree on a final Closing Balance Sheet. If
Buyer and Seller cannot agree on a final Closing Balance Sheet, any unresolved
disputed items shall be promptly referred to an independent accounting firm
acceptable to the parties to resolve the disputed issues. The resolution of the
independent accounting firm will be final and binding on the parties. The fees
and expenses of such independent accounting firm will be borne equally by Buyer
and Seller. In the event that the actual book value of the Company is adjusted
pursuant to the determination above, then any payment shall be paid by the
appropriate party within two business days of final determination hereunder.
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2.3 Payment of Purchase Price. Buyer will pay the Purchase Price as follows:
(a) Buyer will assume the $14 million unsecured 10% note of the Parent (the
"Subordinated Note"), which, as of the Closing, will have outstanding principal
of $8,000,000 and Verde Investments, Inc. ("Verde") will release Parent from all
obligations thereunder; and
(b) The balance of the Purchase Price shall be paid in cash utilizing the
proceeds of new financing secured by the assets of the Company and the proceeds
of financing acquired from Finance in accordance with Section 4.2(h).
2.4 Transition. Following the Closing, for a period of 45 days, Seller will use
reasonable commercial efforts to assist Buyer with transitioning the Business,
including (i) permitting Buyer to access and use of Seller's facilities and
equipment as reasonably necessary, and (ii) making available to Buyer certain
employees of Seller, in each case, upon the payment by Buyer to Seller of
reasonable compensation for such accommodations.
ARTICLE 3.
CONDUCT PENDING THE CLOSING
3.1 Operation of Business in Ordinary Course. Prior to the Closing, the Company
will conduct its business and affairs only in the ordinary course and consistent
with its prior practice, including but not limited to:
(a) using its reasonable best efforts to maintain its business and employees,
sales representatives, customers, assets, suppliers, licenses and operations in
accordance with past custom and practice;
(b) not incurring any debt other than in the ordinary course of business and in
amounts consistent with past practices; or
(c) increasing the compensation, incentive arrangements or other benefits of any
employee other than in the ordinary course of business consistent with past
practices.
3.2 No Negotiations.
(a) The Seller, Parent and Company shall not, nor shall it permit the Company
to, nor shall it authorize or permit any Representative of the Seller, Parent or
the Company to, (i) solicit, initiate or knowingly encourage the submission of
any Takeover Proposal, (ii) enter into any agreement with respect to a Takeover
Proposal or (iii) participate in any discussions or negotiations regarding, or
furnish to any Person any information with respect to, or take any other action
to facilitate any inquiries or the making of any proposal that constitutes, or
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may reasonably be expected to lead to, any Takeover Proposal; provided, however,
that to the extent required by the fiduciary obligations of the Board of
Directors of the Parent, as determined in good faith by a majority of the
members thereof or a majority of the special transaction committee formed to
evaluate the transactions contemplated in this Agreement (after receipt of
advice from the Parent's legal counsel), the Parent may, in response to
unsolicited requests therefor, participate in discussions or negotiations with,
or furnish information pursuant to a confidentiality agreement to, any Person
who indicates a willingness to make a Superior Proposal. For all purposes of
this Agreement, "Takeover Proposal" means any proposal for a merger,
consolidation, share exchange, business combination or other similar transaction
involving the Company or any of its subsidiaries or any proposal or offer to
acquire, directly or indirectly, an equity interest in, any voting securities
of, or a substantial portion of the assets of, the Company or any of its
subsidiaries, other than the transactions contemplated by this Agreement. For
all purposes of this Agreement, "Superior Proposal" means a bona fide written
proposal made by a third party to acquire the Company pursuant to a tender or
exchange offer, a merger, a share exchange, a sale of all or substantially all
its assets or otherwise on terms which a majority of the members of the Board of
Directors of the Parent or a majority of the special transaction committee
formed to evaluate the transactions contemplated in this Agreement determines in
good faith (taking into account the advice of independent financial advisors) to
be more favorable to the Company and its stockholders than the transactions
contemplated in this Agreement.
(b) Neither the Board of Directors of the Parent nor any committee thereof shall
(i) withdraw or modify, or propose to withdraw or modify, the approval or
recommendation by the Board of Directors of the Parent or any such committee of
the transactions contemplated in this Agreement or (ii) approve or recommend, or
propose to approve or recommend, any Takeover Proposal. Notwithstanding the
foregoing, the Board of Directors of the Parent or any committee thereof, to the
extent required by its fiduciary obligations, as determined in good faith by a
majority of the members thereof (after receipt of advice from the Parent's
outside legal counsel), may approve or recommend a Superior Proposal and, in
connection therewith, withdraw or modify its approval or recommendation of the
transactions contemplated in this Agreement.
3.3 Public Announcements. The parties will not issue any press release or public
announcement, including announcements to employees or customers, with respect to
this Agreement without the prior written consent (which consent will not be
withheld unreasonably) of Buyer, the Company, Seller or Parent, as the case may
be, except that the Parent may make any disclosure or announcement that, in the
opinion of its counsel, it is obligated to make pursuant to applicable law or
regulation of the Nasdaq Stock Market, Inc. or any national securities exchange,
as applicable, in which case the Parent will provide a copy to Buyer prior to
making such disclosure or announcement.
3.4 Access to Information; Confidentiality.
(a) Each party shall have the opportunity to make a complete review of the
books, records, business and affairs of the other party. To facilitate such
review, each party shall provide to the other and its agents complete access to
all of its records and documents, shall provide to the other party with
personal, bank and professional references, and shall use reasonable efforts to
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make available for consultation customers, employees, suppliers and distribution
channels.
(b) Each party agrees that all non-public information provided to the other will
be treated as confidential, and if this Agreement is terminated, will return to
the other party all confidential documents (and all copies thereof) in its
possession, or will certify to the other that all such documents not returned
have been destroyed. Further, regardless of whether this Agreement is
terminated, each party shall continue to hold all confidential information of
the other in strictest confidence.
3.5 HSR Act. To the extent required by law, Parent, Seller and the Company on
the one hand and Buyer on the other shall each file or cause to be filed with
the FTC and the DOJ any notifications required to be filed by their respective
"ultimate parent entities" under the HSR Act, with respect to the transactions
contemplated herein. Each party shall be responsible for all expenses incurred
in the preparation of their respective HSR Act filings and the filing fees to be
paid in connection with the HSR Act filings. The parties shall use their
reasonable best efforts to make such filings promptly, to respond to any
requests for additional information made by either the FTC or DOJ, and to cause
the waiting periods under the HSR Act to terminate or expire at the earliest
possible date.
3.6 Permits. Buyer will have made provision for any Permits required to be
obtained by Buyer or the Company and for any amendments to or other approvals
required in connection with existing Permits of the Company, and Seller will not
be responsible for any Permits of the Company following the Closing.
ARTICLE 4.
THE PARTIES' OBLIGATIONS AT THE CLOSING
4.1 The Closing. The closing ("Closing") of these transactions will be held on
December 30, 1999, or such other date as the parties mutually agree.
4.2 Conditions to Obligations of the Parties. The obligations of the parties to
consummate the transactions contemplated hereby will be subject to the
fulfillment on or prior to the Closing of the following conditions:
(a) HSR Act Notification. In respect of any necessary notifications of the
parties pursuant to the HSR Act, the applicable waiting period and any
extensions thereof shall have expired or been terminated.
(b) No Injunction, etc. Consummation of the transactions contemplated hereby
shall not have been restrained, enjoined, or otherwise prohibited by any
Applicable Law, including any order, injunction, decree, or judgment of any
court or other governmental authority. No court or other governmental authority
shall have determined any Applicable Law to make illegal the consummation of the
transactions contemplated hereby, and no proceeding with respect to the
application of any such Applicable Law to such effect will be pending.
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(c) Parent shall have obtained any required consents, including the consent of
General Electric Capital Corporation.
(d) Seller shall have received a favorable fairness opinion.
(e) The transaction shall have been approved by Parent's, Seller's and Company's
board of directors.
(f) The Agreement shall not have been terminated pursuant to Section 6.1.
(g) Buyer shall have obtained satisfactory financing secured by the assets of
the Company.
(h) Finance Loan. Buyer shall have obtained a loan in the principal amount of
$12 million from Finance which shall be evidenced by a promissory note of Buyer
payable to Finance (the "Promissory Note") attached as Exhibit F. The Promissory
Note will be secured by the Shares as evidenced by the Pledge Agreement (the
"Pledge Agreement") attached as Exhibit I to be executed by Buyer in favor of
Finance. The Note will be subordinated to the primary financing of the Company
secured by the assets of the Company. The Promissory Note shall be guaranteed by
Verde pursuant to the Guaranty in the form attached as Exhibit G (the "Verde
Guaranty") and by the Company pursuant to the Guaranty in the form attached as
Exhibit J (the "Company Guaranty"). The Buyer will issue to Finance a warrant to
purchase up to 50% of the Buyer's common stock, as set forth in the warrant
agreement attached as Exhibit H (the "Warrant").
4.3 Seller's and the Company's Obligations. At the Closing, Parent, Seller
and/or the Company will deliver the following:
(a) the Shares (subject to delivery of the Shares back to Seller pursuant to the
Pledge Agreement), and all releases required to convey the Shares free and clear
of all liens;
(b) all releases of liens required for all assets of the Company to be free of
all liens of creditors of Seller;
(c) a certificate from Parent, Seller and the Company, attached as Exhibit E-1,
in which each certifies that the representations and warranties referred to in
Section 5.1 remain true and correct as of the Closing date;
(d) certified resolutions of the Board of Directors of Parent, Seller, and
Company approving this Agreement; and
(e) an assignment of the Cygnet tradename/trademark.
The parties further agree that they will execute and deliver any further
documents and instruments of transfer reasonably requested by CCC, and will take
any other action reasonably requested by CCC consistent with the terms of this
Assignment, for the assigning and conveying to CCC the rights contemplated
herein.
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4.4 Buyer's Obligations. At the Closing, Buyer will deliver the following:
(a) evidence of the assumption and release of the Subordinated Note as
contemplated by Section 2.3(a);
(b) the executed Promissory Note as contemplated by Section 4.2(h);
(c) the executed Verde Guaranty and the executed Company Guaranty as
contemplated by Section 4.2(h);
(d) the executed Pledge Agreement as contemplated by Section 4.2(h);
(e) the cash payment as contemplated by Section 2.3(b);
(f) the executed Warrant as contemplated by Section 4.2(h);
(g) certified resolutions of the Board of Directors of Buyer necessary to
approve this Agreement and of Verde necessary to approve the Verde Guaranty; and
(h) a certificate from Buyer, attached as Exhibit E-2, in which Buyer certifies
that the representations and warranties referred to in Section 5.2 remain true
and correct as of the Closing date.
ARTICLE 5.
REPRESENTATIONS, WARRANTIES AND INDEMNIFICATION
5.1 Representations Relating to the Business. Parent, Seller and the Company
warrant to Buyer that each of the representations and warranties contained in
Exhibit B are true and correct in all material respects on the date of this
Agreement, and will again be true and correct in all material respects on the
Closing date.
5.2 Representations of Buyer. Buyer warrants to Parent, Seller, Company and
Finance that each of the representations and warranties contained in Exhibit C
are true and correct in all material respects on the date of this Agreement, and
will again be true and correct in all material respects on the Closing date.
5.3 Nature and Survival of Representations and Warranties. Each statement and
agreement made by any of the parties in this Agreement or in any document or
other instrument delivered by or on behalf any of the parties pursuant to this
Agreement will survive the Closing of this Agreement for the term of the
applicable indemnification obligations under this Agreement or other express
term stated herein.
5.4 General Indemnification by Seller. Parent and Seller agree to indemnify and
hold Buyer harmless from and against any Loss incurred by Buyer in connection
with or alleged to result from the following:
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(a) a breach by Parent, Seller or the Company of any representation or warranty
made pursuant to Section 5.1 above or otherwise in this Agreement or other
document or certificate delivered pursuant to this Agreement except the Company
Guaranty (without giving effect to any qualifications as to the materiality of
such statements);
(b) a breach by Parent, Seller or the Company of any of its other obligations or
covenants contained in this Agreement or other document delivered in connection
with this Agreement except the Company Guaranty and except for any obligation to
be performed following the Closing Date; or
(c) any liability or obligation of Parent or Seller.
5.5 Special Indemnification by Seller. Seller and Buyer acknowledge and agree
that after the Closing date there may be certain expenses or liabilities that
arise that relate solely to the operations of the Company prior to the Closing
date (the "Operating Liabilities"), but that are not disclosed in the financial
statements provided by Seller to Buyer hereunder and that neither Buyer nor
Seller may know about until after the Closing date. The Operating Liabilities
shall not include contingent liabilities such as litigation or claims against
the Company, or any matter that is reserved for on the financial statements,
regardless of the adequacy of the reserve. Seller shall indemnify Buyer for any
Operating Liabilities for a period of up to one year after the date of this
Agreement.
5.6 General Indemnification by Buyer. Buyer agrees to indemnify and hold Parent,
Seller, and Finance harmless from and against any Loss incurred by any of them
in connection with or alleged to result from the following:
(a) a breach by Buyer of any representation or warranty made pursuant to Section
5.2 above or otherwise in this Agreement or other document or certificate
delivered pursuant to this Agreement (without giving effect to any
qualifications as to the materiality of such statements);
(b) a breach by Buyer (or following the Closing Date, the Company) of any of its
obligations or covenants contained in this Agreement or other document delivered
in connection with this Agreement; or
(c) any liability or obligation of Buyer (or following the Closing Date, the
Company).
5.7 Agreement and Special Indemnification by Buyer. Buyer agrees that following
the Closing, it will use its reasonable best efforts to obtain releases of
Parent and Seller and any of their Subsidiaries as guarantors of any obligations
of the Company. If it is unable to obtain any such releases, Buyer will
indemnify Parent and Seller and each of their Subsidiaries from any continuing
liabilities under any such guarantees for the remaining term of such guarantees.
5.8 Limits on Indemnification. All indemnification obligations of the parties
(except under Section 5.7 above) shall terminate December 31, 2000.
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5.9 Procedure for Indemnification. The party that is entitled to be indemnified
hereunder shall follow the procedures set forth in Exhibit D.
ARTICLE 6.
ADDITIONAL AGREEMENTS
6.1 Termination. This Agreement may be terminated at any time prior to the
Closing:
(a) by mutual written consent of Buyer and Parent;
(b) by either Buyer or Parent if the other party (in the case of Parent,
including Seller or the Company) breaches any of its material representations,
warranties, or covenants contained in this Agreement and, if the breach is
curable, the breach is not cured within five (5) business days after notice;
(c) by either Buyer or Parent if the Closing does not occur on or before
December 30, 1999, unless the parties otherwise agree to extend the Closing date
(except that no party shall have the right to terminate this Agreement
unilaterally if the event giving rise to the non-occurrence of the Closing is
primarily attributable to that party or to any affiliated party);
(d) by Parent if the Board of Directors of Parent shall have withdrawn or
modified its approval or recommendation of the sale of the shares to Buyer as
permitted by Section 3.2; or
(e) by either Buyer or Parent if any of the conditions set forth in Section 4.2
have not been satisfied.
If this Agreement is terminated as provided above, this Agreement will
become void and none of the parties or their Representatives will have any
further liability or obligation except as set forth below and except for
liability arising from a breach of this Agreement.
6.2 Trademark. Parent and Seller shall not use the Cygnet name or mark except
for the current uses by their Subsidiaries and/or affiliates and shall cease all
use of the Cygnet name and mark upon the termination or discontinuance of the
business activities for which it is currently being used. On the Closing date,
Seller and Parent shall assign to Buyer the Cygnet trademark and tradename but
Parent, Seller and their affiliates and/or subsidiaries shall have the limited
right to use such as set forth above.
6.3 Compliance with Warrant. The Buyer will comply with all of its obligations
under the Warrant for the full term of the Warrant. Buyer agrees that it will
not sell, transfer or otherwise dispose of any of the capital stock of the
Company and will continue to own 100% of the capital stock of the Company for
the full term of the Warrant. Buyer agrees that it will not allow the Company to
sell, transfer or otherwise dispose of all or substantially all of its assets,
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without the prior written consent of Seller. The above provisions of this
Section 6.3 will survive for the full term of the Warrant. Buyer further agrees
that, at any time while the Note is outstanding, it will not, and will not allow
the Company to: (i) make any payment of principal or interest on any
indebtedness owed to Verde or any other affiliate of Ernest C. Garcia II (with
Verde, each a "Garcia Affiliate"), until such time as the principal amount
outstanding on the Note does not exceed $4 million and all accrued interest on
the Note has been paid, (ii) make any interest payment on any indebtedness owed
to any Garcia Affiliate in excess of 11% per annum, (iii) make any principal
payment on any indebtedness owed to any Garcia Affiliate without the consent of
Finance, (iv) make any payment of any kind or nature on any indebtedness owed to
any Garcia Affiliate while there has occurred and is continuing any Event of
Default or event that with notice or lapse of time or both would become an Event
of Default under the Note, (v) amend the subordination provisions of any
subordinated indebtedness approved by Finance without the consent of Finance or
(vi) pay any dividends or make any other distribution to its shareholders,
except dividends in an amount not exceeding the amount necessary to allow
Buyer's shareholders to discharge applicable income tax liabilities then due and
owing solely as a result of income attributable to Buyer. The provisions of the
immediately preceding sentence will survive for the full term of the Note.
6.4 Books and Records. The parties will make reasonably available to one another
any records or documents that they maintain with respect to the Business for
purposes of compliance with applicable tax laws or in defending any third-party
litigation arising in respect of this Agreement.
6.5 Notices. All notices, and other communications hereunder will be in writing
and deemed to have been given when (i) delivered by hand, (ii) sent by
telecopier (with receipt confirmed), provided that a copy is mailed by
registered mail, postage pre-paid return receipt requested, or (iii) when
actually received by the addressee, in each case to the following:
If to Parent, Ugly Duckling Corporation
Seller, or Finance: 2525 East Camelback Road
Suite 500
Phoenix, Arizona 85016
Phone: (602) 852-6600
FAX: (602) 852-6686
Attn: Jon D. Ehlinger, Esq.
With a copy to: Snell & Wilmer L.L.P.
One Arizona Center
Phoenix, Arizona 85004-0001
Phone: (602) 382-6252
FAX: (602) 382-6070
Attn:Steven D. Pidgeon,Esq.
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If to Buyer: Cygnet Capital Corporation
2525 E. Camelback Road, Suite 1150
Phoenix, Arizona 85016
Phone: (602) 522-3101
FAX: (602) 522-3159
Attn: Steven P. Johnson, Esq.
With a copy to: Streich Lang
Two N. Central
Phoenix, Arizona 85004
Phone: (602) 229-5200
FAX: (602) 229-5690
Attn: Nancy White, Esq.
6.6 Governing Law and Attorneys' Fees. The validity, construction, and
enforceability of this Agreement shall be governed in all respects by the laws
of the State of Arizona, without regard to its conflict of laws rules. If any
legal action or any arbitration or other proceeding is brought in connection
with this Agreement, the prevailing party will be entitled to recover reasonable
attorneys' fees, accounting fees, and other costs incurred in that action or
proceeding, in addition to any other relief to which it may be entitled.
6.7 Arbitration. Any controversy relating to this Agreement or relating to the
breach hereof shall be settled by arbitration conducted in Phoenix, Arizona in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association then in effect. The award rendered by the arbitrator(s) shall be
final and judgment upon the award rendered by the arbitrator(s) may be entered
upon it in any court having jurisdiction thereof. The arbitrator(s) shall
possess the powers to issue mandatory orders and restraining orders in
connection with such arbitration. The expenses of the arbitration shall be borne
by the losing party unless otherwise allocated by the arbitrator(s). The
agreement to arbitrate shall be specifically enforceable under the prevailing
arbitration law. During the continuance of any arbitration proceedings, the
parties shall continue to perform their respective obligations under this
Agreement.
6.8 Assignment. This Agreement will not be assigned by operation of law or
otherwise, except that Buyer may assign all or any portion of its rights under
this Agreement to any wholly owned subsidiary, but no such assignment will
relieve Buyer of its obligations hereunder, and except that this Agreement may
be assigned by operation of law to any corporation or entity with or into which
Buyer may be merged or consolidated or to which Buyer transfers all or
substantially all of its assets, and such corporation or entity assumes this
Agreement and all obligations and undertakings of Buyer hereunder.
6.9 Intent to be Binding. The Schedules and Exhibits referred to herein are
incorporated herein by reference as if fully set forth in the text of this
Agreement. This Agreement may be executed in any number of counterparts, and
each counterpart constitutes an original instrument, but all such separate
counterparts constitute one and the same agreement. This Agreement may not be
amended except by an instrument in writing approved by Parent, Buyer, Seller,
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and the Company. If any term, provision, covenant, or restriction of this
Agreement is held by a court to be invalid or unenforceable, the remainder of
the terms, provisions, covenants, and restrictions of this Agreement will remain
in full force and effect and will in no way be affected or invalidated and the
court will modify this Agreement or, in the absence thereof, the parties agree
to negotiate in good faith to modify this Agreement to preserve each party's
anticipated benefits under this Agreement.
6.10 Waiver of Provisions. The terms, covenants, representations, warranties,
and conditions of this Agreement may be waived only by a written instrument
executed by the party waiving compliance. The failure of any party at any time
to require performance of any provisions hereof will, in no manner, affect the
right at a later date to enforce the same. No waiver by any party of any
condition, or breach of any provision, term, covenant, representation, or
warranty contained in this Agreement, whether by conduct or otherwise, in any
one or more instances, will be deemed to be or construed as a further or
continuing waiver of any such condition or of the breach of any other provision,
term, covenant, representation, or warranty of this Agreement.
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Parent, Seller, Company and Buyer have executed this Agreement on the
date first written above. By signing below, each individual represents that he
or she is a duly elected officer of the company and is authorized to sign in
that capacity.
UGLY DUCKLING CORPORATION, a Delaware corporation
By: /S/ GREGORY B. SULLIVAN
-----------------------
Name: Gregory B. Sullivan
Title: President
UGLY DUCKLING CAR SALES AND FINANCE CORPORATION, an
Arizona corporation
By: /S/ GREGORY B. SULLIVAN
-----------------------
Name: Gregory B. Sullivan
Title: President
UGLY DUCKLING FINANCE CORPORATION, an Arizona corporation
By: /S/ GREGORY B. SULLIVAN
-----------------------
Name: Gregory B. Sullivan
Title: President
CYGNET DEALER FINANCE, INC., an Arizona corporation
By: /S/ STEVEN P. JOHNSON
-----------------------
Name: Steven P. Johnson
Title: Secretary
CYGNET CAPITAL CORPORATION, an Arizona corporation
By: /S/ STEVEN P. JOHNSON
-----------------------
Name: Steven P. Johnson
Title: Secretary
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EXHIBIT A
DEFINITIONS
1. Definitions. For purposes of this Agreement, the following terms have
the following meanings.
"Applicable Laws" means all laws and regulations of foreign, federal,
state, and local governments and all agencies regulating or otherwise affecting
the Business, including, without limitation, employee health and safety, the
discharge of pollutants or wastes, and employee benefit plans.
"DOJ" means the United States Department of Justice.
"FTC" means the United States Federal Trade Commission.
"GAAP" means generally accepted United States accounting principles,
applied on a basis consistent with the basis on which the Closing Balance Sheet
and the other financial statements were prepared.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976 or any successor law, and regulations and rules issued pursuant to that Act
or any successor law.
"Indemnified Party" means the party which is entitled to be indemnified
under this Agreement.
"Indemnifying Party" means the party required to indemnify under this
Agreement.
"Loss" mean all costs, expenses, losses, damages, fines, penalties,
liabilities, lost profits or other losses (including, without limitation,
interest which may be imposed in connection therewith, court costs, litigation
expenses, and reasonable attorneys' and accounting fees).
"Permits" means all government or municipal licenses, certificates,
permits, approvals, and registrations required for the operation of the
Business.
"Person" means any individual, corporation, partnership or other entity.
"Representative" means any officer, director, principal, attorney,
agent, employee or other representative.
"Subsidiary" of any Person means any corporation of which securities
having a majority of the ordinary voting power in electing directors are owned
by such Person directly or through another Subsidiary.
"UCC" means the Uniform Commercial Code as in effect in the state of
Arizona.
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EXHIBIT B
REPRESENTATIONS AND WARRANTIES OF SELLER AND
THE COMPANY
Parent, Seller and the Company represent and warrant to Buyer as
follows:
1. Organization and Qualification.
(a) Seller is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Arizona, and has the requisite corporate
power and authority to own and operate its properties and to carry on its
business as now conducted. Seller is duly qualified to do business and is in
good standing in the State of Arizona, the only jurisdiction where the failure
to be so qualified would have a material adverse effect on its business,
properties, or ability to conduct the business currently conducted by it.
(b) The Company is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Arizona, and has the requisite corporate
power and authority to own and operate its properties and to carry on its
business as now conducted. The Company is duly qualified to do business in each
jurisdiction where the failure to be so qualified would have a material adverse
effect on its business, properties, or ability to conduct the business currently
conducted by it.
(c) The Parent is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Delaware, and has the requisite
corporate power and authority to own and operate its properties and to carry on
its business as now conducted. The Parent is duly qualified to do business in
each jurisdiction where the failure to be so qualified would have a material
adverse effect on its business, properties, or ability to conduct the business
currently conducted by it.
2. Authority Relative to this Agreement. Each of Parent, Seller and the Company
has the requisite corporate power and authority to enter into this Agreement and
to carry out its obligations hereunder. The execution and delivery of this
Agreement by each of Parent, Seller and the Company and the consummation by each
of Parent, Seller and the Company of these transactions has been duly authorized
by the Board of Directors of each of Parent, Seller and the Company and has been
duly approved by all necessary action of the shareholders of Seller and Parent,
and no other corporate proceedings on the part of Seller are necessary to
authorize this Agreement and such transactions. This Agreement has been duly
executed and delivered by Parent, Seller and the Company, and constitutes a
valid and binding obligation of each of Parent, Seller and the Company,
enforceable against each in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, reorganization,
or other similar laws relating to the enforcement of creditors' rights generally
and by general principles of equity.
3. No Conflicts. Except for the needed consents of third parties identified in
Section 4.2(c) and except for the matters described in Section 3.6, neither
Parent nor Seller is subject to, or obligated under, any provision of (a) its
Articles of Incorporation, Bylaws, or other organizational documents, (b) any
agreement, arrangement, or understanding, (c) any license, franchise, or permit,
B-1
<PAGE>
or (d) any Applicable Law which would be breached or violated, or in respect of
which a right of termination or acceleration would arise, or pursuant to which
any encumbrance on any of its assets would be created, by its execution,
delivery, and performance of this Agreement and the consummation by it of the
transactions contemplated hereby.
4. No Consents. Except as provided in the HSR Act and as provided in Section
3.6, no authorization, consent, or approval of, or filing with, any public body,
court, or authority is necessary on the part of Parent or Seller for the
consummation by Parent, Seller and the Company of the transactions contemplated
by this Agreement.
5. Capitalization. The Shares represent all of the issued and outstanding shares
of capital stock of the Company and there are no other shares of capital stock
of the Company outstanding. Other than the Warrant, there are no outstanding
subscriptions, options, rights, warrants, convertible securities, or other
agreements or commitments obligating the Company to issue or to transfer from
treasury any additional shares of its capital stock. Except for liens in favor
of GE Capital, the Shares are owned free and clear by Seller.
6. Financial Statements. Seller has provided to Buyer the Company's 1998
year-end unaudited financial statements and the Company's most current monthly
financial statements. All of these financial statements have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
involved and fairly present the financial position of the Company as of the
dates thereof and the results of its operations and cash flows for the periods
then ended, subject, in the case of interim financial statements, to normal
recurring year-end adjustment and the absence of notes.
7. Subsidiaries. Except for Cygnet Dealer Finance Florida, Inc. and Cygnet
Dealer Finance Alabama, Inc., the Company has no Subsidiaries. Each Subsidiary
is a corporation duly organized, validly existing, and in good standing under
its state of incorporation.
8. Good Title to and Condition of the Company's Assets.
(a) The Company does not own any real estate.
(b) The Company's tangible assets (i) are in good condition and repair, ordinary
wear and tear excepted, (ii) are usable in the ordinary course of business, and
(iii) are satisfactory for the conduct of the Business.
(c) The Company owns all of its assets free and clear of all liens, encumbrances
and security interests, except those liens Seller has agreed to have released as
a condition of this transaction and Permitted Liens, or leases such equipment
under valid leases. As used herein, "Permitted Liens" means (i) liens reserved
against in the Company's financial statements, and (ii) liens for current taxes
and assessments not yet due and payable or being contested in good faith by
appropriate proceedings.
B-2
<PAGE>
9. Brokers' Fees. Neither Seller nor the Company have dealt with any broker,
finder, or other person entitled to any brokerage commissions, finders' fees, or
similar compensation in connection with the transactions contemplated by this
Agreement.
B-3
<PAGE>
EXHIBIT C
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Parent, Seller and Finance each of the
following:
1. Organization and Qualification. Buyer is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Arizona,
and has the requisite corporate power and authority to own and operate its
properties and to carry on its business as now conducted in every jurisdiction
where the failure to do so would have a material adverse effect on its business,
properties, or ability to conduct the business currently conducted by it.
2. Authority Relative to this Agreement. Buyer has the requisite corporate power
and authority to enter into this Agreement and to carry out its obligations
hereunder. The execution and delivery of this Agreement by Buyer and the
consummation by Buyer of the transactions contemplated hereby have been duly
authorized by Buyer, and, to the extent required, by its shareholders and no
other corporate proceedings on the part of Buyer are necessary to authorize this
Agreement and such transactions. This Agreement has been duly executed and
delivered by Buyer and constitutes a valid and binding obligation of Buyer,
enforceable in accordance with its terms, except as the enforceability thereof
may be limited by bankruptcy, insolvency, reorganization, or other similar laws
relating to the enforcement of creditors' rights generally and by general
principles of equity.
3. No Conflicts. Buyer is not subject to, or obligated under, any provision of
(a) its Certificate of Incorporation or Bylaws, (b) any material agreement,
arrangement, or understanding, (c) any material license, franchise, or permit,
or (d) any law, regulation, order, judgment, or decree, which would be breached
or violated, or in respect of which a right of termination or acceleration would
arise, or pursuant to which any encumbrance on any of its or any of its
subsidiaries' material assets would be created, by its execution, delivery, and
performance of this Agreement and the consummation by it of the transactions
contemplated hereby.
4. No Consents. Except for such filings to be made pursuant to federal or state
securities or other laws and regulations, including any required filing under
the HSR Act, all of which have been made or will be made prior to the Closing,
no authorization, consent, or approval of, or filing with, any public body,
court, or authority is necessary on the part of Buyer for the consummation by
Buyer of the transactions contemplated by this Agreement.
5. Buyer's Review of Seller's and Company Information. Buyer acknowledges that
its controlling-shareholder has been involved in the day-to-day operations of
the Company since the Company's formation. Buyer acknowledges that, except for
the representations set forth on Exhibit B, neither Seller nor the Company nor
any of their Representatives have made any other representations regarding the
Company upon which Buyer has relied, and Buyer desires no further information
pertaining to the Company. Buyer acknowledges that its investment in the Company
involves a significant degree of risk, and that it is able to bear the risk of
loss of this investment.
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EXHIBIT D
PROCEDURE FOR INDEMNIFICATION
1. The Indemnified Party will promptly give notice hereunder to the Indemnifying
Party after obtaining written notice of any claim as to which recovery may be
sought against the Indemnifying Party.
2. If the indemnity claim arises from the claim of a third-party, the
Indemnified Party will permit the Indemnifying Party to assume the defense of
any such claim and any litigation resulting from such claim. If the Indemnifying
Party assumes the defense of a third-party claim, the obligations of the
Indemnifying Party as to such claim will include taking all steps necessary in
the defense or settlement of such claim or litigation and holding the
Indemnified Party harmless from and against any and all damages caused by or
arising out of any settlement approved by the Indemnifying Party or any judgment
in connection with such claim or litigation. The Indemnifying Party shall not,
in the defense of such claim or any litigation resulting therefrom, consent to
entry of any judgment (other than a judgment of dismissal on the merits without
costs) except with the written consent of the Indemnified Party, or enter into
any settlement (except with the written consent of the Indemnified Party) which
does not include as an unconditional term thereof the giving by the claimant or
the plaintiff to the Indemnified Party a release from all liability in respect
of such claim or litigation. The Indemnified Party may, with counsel of its
choice and at its expense, participate in the defense of any such claim or
litigation.
3. If the Indemnifying Party does not assume the defense of any such claim by a
third-party or resulting litigation after receipt of notice from the Indemnified
Party, the Indemnified Party may defend against such claim or litigation in such
manner as it deems appropriate, and unless the Indemnifying Party deposits with
the Indemnified Party a sum equivalent to the total amount demanded in such
claim or litigation plus the Indemnified Party's estimate of the costs of
defending the same, the Indemnified Party may settle such claim or litigation on
such terms as it may deem appropriate and the Indemnifying Party will promptly
reimburse the Indemnified Party for the amount of such settlement and for all
damages incurred by the Indemnified Party in connection with the defense against
or settlement of such claim or litigation. If the Indemnifying Party fails to
notify an Indemnified Party of its election to defend any such claim or action
by a third party within 15 days after the Indemnifying Party received noticed of
such claim or action, then the Indemnifying Party will be deemed to have waived
its right to defend such claim or action.
4. Except as otherwise expressly provided herein, the Indemnifying Party will
promptly reimburse the Indemnified Party for the amount of any judgment rendered
with respect to any claim by a third-party in such litigation and for all damage
incurred by the Indemnified Party in connection with the defense against such
claim or litigation, whether or not resulting from or arising out of the act of
a third-party.
5. The right to indemnification hereunder will not be affected by any failure of
an Indemnified Party to give such notice, or delay by an Indemnified Party in
giving such notice, unless, and then only to the extent that, the rights and
remedies of the Indemnifying Party will have been prejudiced as a result of the
failure to give, or delay in giving, such notice.
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EXHIBIT E-1
CERTIFICATE OF PARENT, SELLER AND THE COMPANY PURSUANT
TO SECTION 4.3(c)
Ugly Duckling Corporation, a Delaware corporation, Ugly Duckling Car
Sales and Finance Corporation, an Arizona corporation, and Cygnet Dealer
Finance, Inc., an Arizona corporation, each hereby certifies that the
representations and warranties referred to in Section 5.1 of the Stock Purchase
Agreement between Ugly Duckling Corporation, Ugly Duckling Car Sales and Finance
Corporation, Ugly Duckling Finance Corporation, Cygnet Dealer Finance, Inc., and
Cygnet Capital Corporation, dated December 30, 1999, remain true and correct
as of the Closing date.
UGLY DUCKLING CORPORATION
By:
Name:
Title:
UGLY DUCKLING CAR SALES AND FINANCE CORPORATION
By:
Name:
Title:
CYGNET DEALER FINANCE, INC.
By:
Name:
Title:
<PAGE>
EXHIBIT E-2
CERTIFICATE OF BUYER PURSUANT
TO SECTION 4.4(h)
Cygnet Capital Corporation, an Arizona corporation, hereby certifies
that the representations and warranties referred to in Section 5.2 of the Stock
Purchase Agreement between Ugly Duckling Corporation, a Delaware corporation,
Ugly Duckling Car Sales and Finance Corporation, an Arizona corporation, Ugly
Duckling Finance Corporation, an Arizona corporation, Cygnet Dealer Finance,
Inc., an Arizona corporation, and Cygnet Capital Corporation, dated
December 30, 1999, remain true and correct as of the Closing date.
CYGNET CAPITAL CORPORATION
By:
Name:
Title:
PROMISSORY NOTE
$12,000,000.00 December 30, 1999
FOR VALUE RECEIVED, CYGNET CAPITAL CORPORATION, an Arizona corporation
("Cygnet"), promises to pay to UGLY DUCKLING FINANCE CORPORATION, an Arizona
corporation ("UD"), or order, at 2525 East Camelback Road, Suite 500, Phoenix,
Arizona 85016, the sum of TWELVE MILLION DOLLARS ($12,000,000.00).
This Promissory Note is payable as follows:
1. Principal and Interest. Interest shall accrue on the unpaid principal at the
rate of nine percent (9.0%) per annum. The accrued interest shall be payable
quarterly commencing on March 31, 2000, and continuing on the last day of each
quarter thereafter until the Maturity Date or until the Promissory Note is paid
in full. In any event, the entire principal balance together with accrued and
unpaid interest shall become due and payable on December 30, 2009 ("Maturity
Date"). If any payment of interest required hereunder is not paid when due and
within five (5) days of written notice of non-payment, then Cygnet shall pay a
"late fee" equal to five percent (5%) of the amount of the payment. This late
fee may be assessed without notice, shall be immediately due and payable and
shall be in addition to all other rights and remedies available to UD.
2. Payment by Redemption of Stock. Cygnet may make payment of up to Eight
Million Dollars ($8,000,000) of the principal amount in Ugly Duckling
Corporation common stock ("Stock") held by Ernest C. Garcia II valued at 98% of
the average of the closing prices of the common stock on the Nasdaq National
Market (or, if the stock is not then traded on the Nasdaq National Market, on
the then principal trading market for the stock) for the ten (10) trading days
prior to the execution and delivery of the Exercise Form attached hereto as
Exhibit A; provided, however, that no such payment in Stock then violates any
covenant, term or condition of any document or agreement or provision of law to
which Ugly Duckling Corporation, or any of its subsidiaries or affiliates, is a
party or is subject. Cygnet must confirm with UD a reasonable time in advance of
any payment in stock that the proviso in the immediately preceding sentence does
not apply and that the calculations set forth in the Exercise Form are accurate.
3. Subordination. This Promissory Note will be subordinated to the primary
financing of Cygnet secured by the assets of Cygnet Dealer Finance, Inc.
("CDF"), an Arizona corporation (the "Senior Debt"). Notwithstanding this
subordination, Cygnet may continue to make regular payments of interest and may
make principal prepayments as long as there is no default on the Senior Debt.
Cygnet agrees that it will not incur any other indebtedness (other than trade
accounts payable and similar obligations) unless the indebtedness is subordinate
to this Promissory Note on terms reasonably satisfactory to UD. Except as
otherwise expressly agreed, Cygnet may make regularly scheduled payments of
interest on subordinated indebtedness approved by UD if Cygnet is not in default
on this Promissory Note, but may not make any other payments, including payments
of principal, on such subordinated indebtedness without the consent of UD.
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4. Prepayment.
(a) Cygnet may prepay this note and any accrued interest either in its entirety
or in part at any time, without penalty to Cygnet.
(b) If the Sale Leaseback Properties (defined below) are not purchased by Ernest
C. Garcia II or one of his affiliates (the "Garcia Purchase") by March 31, 2000,
Cygnet must prepay on or prior to that date the principal amount of Four Million
Dollars ($4,000,000) of this Promissory Note. At any time while this Promissory
Note is outstanding, or at such time as it is prepaid, if the Garcia Purchase
has occurred, whether before or after March 31, 2000, UD or any of its
affiliates may purchase the Sale Leaseback Properties from Mr. Garcia or the
purchasing affiliates of Mr. Garcia for the purchase price paid by Mr. Garcia or
such affiliates. The "Sale Leaseback Properties" are those 17 properties in
Arizona, New Mexico, and Texas sold to Imperial Credit Commercial Mortgage
Investment Corp. ("Imperial") in 1998 and leased back from Imperial under long
term leases in two sale/leaseback transactions.
5. Security and Guaranty.
(a) This Promissory Note is secured by a Pledge Agreement which pledges all of
Cygnet's shares of the capital stock of CDF as collateral for Cygnet's
obligations hereunder.
(b) This Promissory Note is guaranteed by a Guaranty executed on even date
herewith by Verde Investments, Inc., an Arizona corporation ("Verde") and by a
Guaranty of even date herewith executed by CDF.
6. Event of Default. Other than as stated in Section 1, each of the following
events shall constitute an event of default ("Event of Default") under this
Promissory Note:
(a) notwithstanding the provisions of Section 3 hereof, the failure of Cygnet to
pay or perform any of Cygnet's liabilities or obligations to UD under this
Promissory Note which failure shall remain uncured for five (5) days after
Cygnet's receipt of written notice of such failure;
(b) a material breach by Cygnet of any covenant, term or provision under this
Promissory Note or the Pledge Agreement;
(c) a material breach by Cygnet of any covenant, term or provision of any
indebtedness of Cygnet which is outstanding in a principal amount of at least
$5,000,000 (but excluding indebtedness evidenced by this Promissory Note), and
such breach shall continue after the applicable grace period, if any, specified
in the agreement or instrument relating to such indebtedness; and
(d) in the event Verde (i) fails to maintain a minimum Net Worth (as defined in
the Guaranty) of Thirty Million Dollars ($30,000,000.00) at all times until this
Promissory Note is paid in full; or (ii) breaches any material provision of the
Guaranty;
(e) in the event CDF breaches any material provision of the Guaranty;
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<PAGE>
(f) a material breach by Cygnet of any covenant, term or provision of the Stock
Purchase Agreement of even date herewith among Cygnet, UD and other parties
relating to the sale of CDF stock to Cygnet; and
(g) if either Cygnet, CDF or Verde becomes insolvent or bankrupt or admits in
writing its inability to pay its debts as they mature, or makes an assignment
for the benefit of creditors, or applies for or consents to the appointment of a
trustee or receiver over a substantial part of its property; or if either
Cygnet, CDF or Verde commences any proceeding relating to any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceeding under the law
of any jurisdiction; or if any such application or proceeding referred to in the
preceding clause is commenced against it and it indicates its approval, consent
or acquiescence; or if any order is entered appointing a trustee or receiver
over any of Cygnet's, CDF's or Verde's property or adjudicating Cygnet, CDF or
Verde bankrupt or insolvent, or approving the petition in any such proceeding,
and such order remains in effect for thirty (30) days; or if any judgment, writ
of attachment or any other legal process or proceeding for the execution upon,
seizure of, or imposition of a lien upon, any of Cygnet's, CDF's or Verde's
assets is entered or issued against Cygnet, CDF or Verde or against any of
Cygnet's, CDF's or Verde's assets, which process or proceeding remains
undismissed, unvacated, unbonded or unstayed for a period of thirty (30) days.
7. Acceleration. Upon the occurrence of an Event of Default, at UD's option,
exercisable in its sole discretion (and automatically in the event of an Event
of Default under Section 6(g)), all sums of principal and interest under this
Promissory Note shall become immediately due and payable without notice of
default, presentment or demand for payment, protest or notice of nonpayment or
dishonor, or other notices of demand of any kind or character. Upon the
occurrence of an Event of Default, UD shall also have the right to review all
books and records relating to Cygnet.
8. Financial Covenant. For so long as any amount under this Promissory Note
remains outstanding, Cygnet shall at all times maintain a minimum Net Worth of
Eight Million Dollars ($8,000,000). "Net Worth" shall mean the total
shareholders' equity (including capital stock, additional paid-in capital and
retained earnings and subordinated debt other than this Promissory Note and any
subordinated debt senior to this Promissory Note) less the total amount of loans
and debts due from affiliate companies, shareholders, officers, and employees.
9. Notice. Any notice to Cygnet provided for in this Promissory Note shall be
given by mailing such notice by certified mail addressed to Cygnet Capital
Corporation, 2525 East Camelback Road, Suite 1150, Phoenix, Arizona 85016,
Attention: Mr. Steven P. Johnson, Esq., or to such other address as Cygnet may
designate by written notice to UD. Any notice to UD shall be given by mailing
such notice by certified mail, return receipt requested, to UD at the address
stated in the first paragraph of this Promissory Note, Attention: Jon Ehlinger,
Esq., with a copy to Snell & Wilmer, L.L.P., One Arizona Center, Phoenix,
Arizona 85004-2202, Attention: Steven D. Pidgeon, Esq., or at such other address
as may have been designated by written notice to Cygnet.
10. Waiver. Neither Cygnet nor UD shall by any act of commission or omission be
deemed to waive any of their respective rights or remedies hereunder unless such
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<PAGE>
waiver be in writing and signed by the party to be bound thereby, and then only
to the extent specifically set forth therein; a waiver of one event shall not be
construed as continuing or as a bar to or waiver of such right or remedy on a
subsequent event. Notwithstanding anything to the contrary in this Section,
Cygnet hereby waives presentment, demand, protest, or other notice of any kind
in the collection of this Note and in filing suit hereon.
11. Expenses. Cygnet shall pay the reasonable attorneys' fees and costs incurred
by UD in connection with the collection, enforcement and/or protection of its
rights under this Note.
12. Governing Law. THIS NOTE WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE DOMESTIC LAWS OF THE STATE OF ARIZONA, WITHOUT GIVING EFFECT TO ANY
CHOICE OF LAW OR CONFLICTING PROVISIONS OR RULE THAT WOULD CAUSE THE LAWS OF ANY
JURISDICTION OTHER THAN THE STATE OF ARIZONA TO BE APPLIED. IN FURTHERANCE OF
THE FOREGOING, THE INTERNAL LAW OF THE STATE OF ARIZONA WILL CONTROL THE
INTERPRETATION AND CONSTRUCTION OF THIS NOTE, EVEN IF UNDER SUCH JURISDICTION'S
CHOICE OF LAW OR CONFLICT OF LAW ANALYSIS, THE SUBSTANTIVE LAW OF SOME OTHER
JURISDICTION WOULD ORDINARILY APPLY.
13. Counterparts. This Promissory Note may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
14. Headings. The headings of the Sections of this Promissory Note are for
convenience only and shall not by themselves determine the interpretation of
this Promissory Note.
15. Arbitration. Any controversy relating to this Promissory Note or relating to
an Event of Default hereunder shall be settled by arbitration conducted in
Phoenix, Arizona in accordance with the Commercial Arbitration Rules of the
American Arbitration Association then in effect. The award rendered by the
arbitrator(s) shall be final and judgment upon the award rendered by the
arbitrator(s) may be entered upon it in any court having jurisdiction thereof.
The arbitrator(s) shall possess the powers to issue mandatory orders and
restraining orders in connection with such arbitration. The expenses of the
arbitration shall be borne by the losing party unless otherwise allocated by the
arbitrator(s). The agreement to arbitrate shall be specifically enforceable
under the prevailing arbitration law. During the continuance of any arbitration
proceedings, the parties shall continue to perform their respective obligations
under the Promissory Note.
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IN WITNESS WHEREOF, the undersigned has caused this Promissory Note to
be executed as of the date above set forth, and, if executed by a corporation,
association, or partnership, by officers or partners thereof, properly
authorized in accordance with the enabling instruments of such entity, and a
duly-adopted resolution of the governing body of such entity.
CYGNET CAPITAL CORPORATION, an Arizona corporation
By: /S/ STEVEN P. JOHNSON
---------------------------
Name: Steven P. Johnson
Its: Secretary
ATTEST:
/S/ MARK SAUDER
- ---------------
Mark Sauder
ACCEPTED AND AGREED TO:
UGLY DUCKLING FINANCE
CORPORATION, an Arizona corporation
By: /S/ GREGORY B. SULLIVAN
------------------------------
Name: Gregory B. Sullivan
Its: President
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EXHIBIT A
EXERCISE FORM
To: Ugly Duckling Finance Corporation
1. The undersigned hereby elects to make payment of the principal amount
pursuant to the Promissory Note dated December __, 1999, by tendering ______
shares of Ugly Duckling Common Stock, valued in accordance with Section 2 of the
Promissory Note, as set forth below:
[describe calculation pursuant to Section 2]
Dated:
Ernest C. Garcia II
CYGNET CAPITAL CORPORATION, an Arizona corporation
By:
Name:
Its:
STOCK PLEDGE AGREEMENT
DATE: December 30, 1999
PARTIES:
Pledgor: Cygnet Capital Corporation
2525 E. Camelback Road
Suite 1150
Phoenix, Arizona 85016
Secured Party: Ugly Duckling Finance Corporation
2525 E. Camelback Road
Suite 500
Phoenix, Arizona 85016
RECITALS:
A. In connection with that certain Stock Purchase Agreement of even date
herewith (the "Purchase Agreement"), among Ugly Duckling Corporation, a Delaware
corporation, Ugly Duckling Car Sales and Finance Corporation, an Arizona
corporation, Secured Party, Cygnet Dealer Finance, Inc., an Arizona corporation
("Cygnet"), and Pledgor, Pledgor is purchasing all of the outstanding common
stock of Cygnet (the "Shares").
B. As part of the financing for the transaction, Pledgor has executed and
delivered to Secured Party its promissory note of even date herewith (the
"Note") in the principal amount of Twelve Million Dollars ($12,000,000) (the
"Loan"). All documents evidencing and/or securing the Loan may be referred to as
the "Loan Documents".
C. In order to induce Secured Party to make the Loan to Pledgor, Pledgor desires
to grant a security interest in, and, pledge, sign and transfer, all of
Pledgor's right, title and interest in and to the Shares, to Secured Party.
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties agree as follows:
1. Pledge. Pledgor hereby grants to Secured Party a security interest in the
Shares together with all rights thereof or arising therefrom, all additions
thereto, dividends, options, warrants and payments arising thereunder, all
proceeds from the sale or other disposition thereof, and all substitutions
therefor (collectively the "Collateral"), as security for all of the Pledgor's
obligations to Secured Party under the Note and any and all of the Loan
Documents. Upon execution of this Agreement, Pledgor shall deliver to Secured
Party stock power(s) and assignment(s) separate from certificate for the
certificates representing the Shares endorsed in blank. The books of Cygnet
shall contain a legend to reflect such pledge of the Shares hereunder.
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2. Covenants and Representations. Pledgor agrees to take no action which would
adversely affect the value of the Collateral or which would encumber, dilute or
cloud Pledgor's title or interest therein. Pledgor represents and agrees to the
following:
(a) Pledgor is and will continue to be the owner of the Collateral, free of
any liens, security interests or assignments other than the security
interest created by this Agreement;
(b) Pledgor shall deliver to Secured Party and Secured Party shall retain
physical possession of all stock certificates and other instruments and
documents representing or evidencing any of the Collateral, which stock
certificates shall be duly endorsed in blank;
(c) Pledgor will not modify or amend the instruments or documents
constituting the Collateral or make any compromise, adjustment,
settlement or termination in connection therewith;
(d) Pledgor will at all times defend the Collateral against any and all
claims of any person, adverse to the claims of Secured Party;
(e) upon the occurrence of an Event of Default Pledgor will accept no
payments, distributions or dividends on the Collateral and shall remit
to Secured Party any payment or distribution received;
(f) the execution and delivery of this Agreement, and the performance of
its terms, will not result in any violation of or constitute a default
under the terms of any agreement, or other instrument, license,
judgment, order, statute, ordinance or other governmental rule or
regulation applicable to the Pledgor or the Collateral;
(g) upon its execution and delivery, this Agreement shall create an
enforceable and valid lien in the Collateral;
(h) Pledgor has the full power and authority to enter into this Agreement,
and the persons executing this Agreement on behalf of Pledgor have been
duly authorized to act on behalf of Pledgor in the execution hereof;
(i) other than Pledgor, there are no parties who assert any type of
ownership interest whatsoever in the Shares;
(j) other than this Agreement, there are no agreements which impose any
conditions or restrictions on the Shares;
(k) all of the Shares have been duly authorized, validly issued and are
fully paid and non-assessable;
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(l) the granting by Pledgor to Secured Party of the security interest in
the Collateral as evidenced by this Agreement complies with all
applicable federal and state securities laws or qualifies for an
exemption from such registration;
(m) Pledgor, as stockholder, owner, part owner, or in any other capacity,
shall not vote for, ratify, accept, accede to, or approve any proposed
transaction concerning the Collateral which would have an adverse
effect on the rights of Secured Party hereunder; and
(n) The Shares represent all of the issued and outstanding stock of Cygnet,
and there are no agreements in effect which require or obligate Cygnet
to issue any additional shares of its stock and there are no
outstanding options to purchase any shares of stock of Cygnet. There
will be no agreements in effect which require or obligate Cygnet to
issue any additional shares of stock of Cygnet and there will be no
outstanding options to purchase any shares of stock of Cygnet.
3. Delivery of Instruments; Adjustments. Pledgor has delivered to Secured Party,
all stock certificates and all documents evidencing any ownership of the
Collateral or which are necessary or convenient for Secured Party to exercise
any of Secured Party's rights hereunder. If, during the term of this Agreement,
any stock dividends, reclassification, readjustments or other changes are
declared or made in the capital structure of any corporation represented by the
Collateral, or if any subscription or other options are exercisable with respect
to the Collateral, all such new, substitute or additional shares or other
securities, rights or interests issued shall be delivered to and held by Secured
Party subject to this Agreement in the same manner as the Collateral.
4. Voting. So long as Pledgor is not in default hereunder, any Collateral may be
voted by the Pledgor at all meetings of stockholders, subject to the
restrictions of Paragraph 2(m).
5. Events of Default. Any one or more of the following will constitute an event
of default ("Event of Default") under this Agreement:
(a) any event occurs which constitutes an Event of Default under any of the
Loan Documents;
(b) if Pledgor fails to pay or perform any of its obligations contained in
this Agreement;
(c) any covenant, condition, agreement, representation or warranty made by
Pledgor to Secured Party in this Agreement proves untrue in any
material respect or is breached;
(d) if Pledgor becomes insolvent or bankrupt or admits in writing Pledgor's
inability to pay Pledgor's debts as they mature, or makes an assignment
for the benefit of creditors, or applies for or consents to the
appointment of a trustee or receiver over a substantial part of
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Pledgor's property; or if Pledgor commences any proceeding relating to
any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceeding under the law of any jurisdiction.
(e) if any such application or proceeding referred to in the preceding
paragraph (d) is commenced against Pledgor and Pledgor indicates
Pledgor's approval, consent or acquiescence; or if any order is entered
appointing a trustee or receiver over any of Pledgor's property or
adjudicating Pledgor bankrupt or insolvent, or approving the petition
in any such proceeding, and such order remains in effect for thirty
(30) days.
(f) if any judgment, writ of attachment or any other legal process or
proceeding for the execution upon, seizure of, or imposition of a lien
upon, any of Pledgor's assets is entered or issued against Pledgor or
against any of Pledgor's assets, which process or proceeding remains
undismissed, unvacated, unbonded or unstayed for a period of thirty
(30) days.
6. Remedies on Default. Upon the occurrence and during the continuance of an
Event of Default, Secured Party may exercise any or all of the rights and
remedies provided (a) by this Agreement, and/or (b) by any other applicable law.
Without limiting the generality of the foregoing, upon the occurrence and
continuance of an Event of Default, Secured Party may (i) instruct the secretary
of Cygnet to pay all dividends to Secured Party, and (ii) sell the Collateral or
any part thereof, without recourse to judicial proceedings, with the right to
bid for and buy, free from any right of redemption, upon ten (10) days' notice
(which notice is agreed to be reasonable notice for the purposes hereof) to the
Pledgor, of the time and place of sale, for cash, upon credit or for future
delivery, at Secured Party's option and in Secured Party's complete discretion:
(a) at a public sale, including a sale at any broker's board or exchange;
(b) at private sale in any commercially reasonable manner which will not
require the Collateral, or any part thereof, to be registered in
accordance with the Securities Act of 1933, as amended, or the rules
and regulations promulgated thereunder, or any other law or regulation.
Secured Party is also hereby authorized, but not obligated, to take
such actions, give such notices, obtain such consents, and do such
other things as it may deem required or appropriate in the event of
sale or disposition of any of the Collateral.
In connection with the sale of any of the Collateral, Secured Party is
authorized, but not obligated, to limit prospective purchasers to the extent
deemed necessary or desirable by Secured Party to render such sale exempt from
the registration requirements of the Securities Act of 1933, as amended, and any
applicable state securities laws, and any sale of the Collateral so made in good
faith by Secured Party shall be deemed to be commercially reasonable. In
connection with any such sale or other disposition in accordance with the
provision hereof, Secured Party shall be authorized to deliver the Shares to or
upon the order of Secured Party.
7. Taxes. Pledgor shall pay promptly, when due, any and all property taxes,
excise taxes (however called) and other taxes, assessments, duties and other
charges, which, if unpaid, might by law or otherwise become a lien or charge
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upon the Collateral (including any and all interest, penalties and related
provisional fees) imposed, levied or assessed against the Collateral, or upon or
measured by the use, ownership, possession or operation thereof, or in respect
to this Agreement or the security interest in the Collateral granted and
conveyed herein.
8. Pledgor's Failure to Pay Taxes and Other Items. If Pledgor fails to make any
payment or do any act required of it under this Agreement, then Secured Party
shall have the right, but not the obligation, upon three (3) days notice to
Pledgor, and without releasing Pledgor from any obligation under this Agreement,
to make or do the same, and to pay, purchase, contest or compromise any lien
which in Secured Party's judgment places its security interest in the Collateral
or Pledgor's title to the Collateral in jeopardy, and in exercising any such
rights, to expend whatever reasonable amounts of Secured Party in its sole
discretion may deem necessary therefor. Any amounts expended by Secured Party
pursuant to this Section 8 shall be a demand obligation owing by Pledgor, which
shall bear interest at the default rate (as defined in the Loan Documents) from
the date Secured Party expends such amount until repaid.
9. Indemnification. Pledgor agrees to indemnify Secured Party for from and
against all losses, claims, demands and liabilities of every kind and nature
arising by reason of the assignment and security interest granted and the
Collateral, excluding any of the same arising from the negligence or willful
misconduct of the Secured Party, and agrees to pay all expenses, including,
without limitation, expert witness fees and attorneys fees, incurred by Secured
Party in the preservation, realization, enforcement or exercise of any of its
rights, powers or remedies hereunder.
10. Unregistered Securities. Pledgor acknowledges that the Shares constitute
unregistered securities subject to legal restrictions upon the transfer thereof
which will render a public sale of the Shares unavailable. If, upon an Event of
Default, Secured Party exercises its right to sell the shares, Pledgor waives
all rights to public sale and agrees to the private placement of the Shares to
any qualified third-party buyer at a commercially reasonable price therefor.
Pledgor further acknowledges that the legal restrictions upon transfer of the
Shares adversely affect the marketability of the Shares and any commercially
reasonable price for the shares will include a discount from the proportionate
part of the net asset value of the issuer represented by the Shares to reflect
those restrictions upon marketability.
11. Irrevocable Proxy. Pledgor does hereby irrevocably constitute and appoint
Secured Party and Secured Party's successors and assigns as its proxy, with full
power, in the same manner, to the same extent, and with the same effect as if
they were to do the same:
(a) to attend any and all meetings of the shareholders of Cygnet held from
the date hereof, and to vote the Collateral at any such meeting in such
manner as Secured Party shall, in its sole discretion, deem
appropriate;
(b) to consent, in the sole discretion of Secured Party, to any and all
actions by or with respect to Pledgor for which the consent of the
Pledgor is or may be necessary or appropriate;
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(c) without limitation, to do all things which Pledgor can or could do as a
shareholder of Cygnet, giving to Secured Party full power and
substitution and revocation; provided, however, that this proxy shall
not be exercisable by Secured Party, and Pledgor alone shall have the
foregoing powers, so long as there is no Event of Default hereunder
pursuant to which Secured Party has notified Pledgor that Secured Party
is exercising its rights under this section, and provided further that
this proxy shall terminate at such time as this Agreement is
terminated. Pledgor hereby revokes any proxy or proxies heretofore
given to any person or persons and agrees not to give any other proxy
in derogation hereof until such time as this Agreement is terminated.
Pledgor and Secured Party hereby specifically agree that the proxy
granted hereunder shall be deemed to be valid and irrevocable until
this Agreement shall be terminated.
12. Attorney-in-Fact. Pledgor hereby appoints Secured Party as Pledgor's
Attorney-in-Fact (without imposing any obligations on Secured Party), to perform
all acts which Secured Party deems appropriate to perfect and continue the
security interest granted hereunder. The Power of Attorney granted herein is
coupled with an interest and is irrevocable until this Agreement is terminated.
13. Miscellaneous. This Agreement and all other Loan Documents constitute the
entire agreement among the parties hereto with respect to the subject matter
hereof and shall supersede all other prior agreements, written or oral, with
respect thereto.
(a) This Agreement shall be binding on and inure to the benefit of the
parties hereto and their respective successors and assigns; provided,
however, that Pledgor shall not have the right to assign or transfer
respective rights or obligations under this Agreement except with the
prior written consent of Secured Party. Secured Party, at any time, may
sell, assign, grant or otherwise transfer, in whole or in part, the
indebtedness secured hereby and Secured Party's rights, interest and
obligations under this Agreement or the Collateral and in such event,
the transferee shall have the same rights, powers and authority with
respect to this Agreement and the Collateral so transferred as are
hereby given to Secured Party.
(b) This Agreement may be amended modified, renewed or extended but only by
a written instrument, executed by all of the parties hereto in the
manner of the execution of this Agreement.
(c) THIS AGREEMENT SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF ARIZONA, AND, TO THE EXTENT
THEY PREEMPT SUCH LAWS, THE LAWS OF THE UNITED STATES.
(d) All parties hereto shall, from time to time, do and perform such other
and further acts and execute and deliver any and all such other and
further instruments as may be required or reasonably requested by any
other party to establish, maintain and protect the respective rights
and remedies of such other party and to carry out and effect the
intents and purposes of this Agreement.
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(e) All documents, agreements, certificates and instruments herein required
shall be in form and substance satisfactory in all respects to Secured
Party in its sole discretion and shall be provided at the sole cost and
expense of Pledgor.
(f) The representations and warranties hereunder shall survive the
execution hereof and Secured Party may enforce such representations and
warranties at any time. Pledgor's covenants shall survive the execution
hereof and shall be performed fully and faithfully by Pledgor at all
times. The indemnities of Pledgor shall survive repayment of the
indebtedness secured hereby.
(g) If any term or provision of this Agreement, or the application thereof
to any circumstance, shall be invalid, illegal or unenforceable to any
extent, such term or provision shall not invalidate or render
unenforceable any other term or provision of this Agreement, or the
application of such term or provision to any other circumstance. To the
extent permitted by law, the parties hereto hereby waive any provision
of law that renders any term or provision hereof invalid or
unenforceable in any respect.
(h) Time is of the essence of this Agreement.
(i) Any notice, demand or any other instruments authorized by this
Agreement to be served on or given shall be sufficiently served or
given for all purposes on the earlier of: (a) when personally delivered
to any officer of the party to whom it is addressed; (b) when sent by
certified, registered or first class mail, postage prepaid, addressed
to each party at its address set forth above or at such other address
as has been furnished in writing by a party to the other in the manner
provided in this Section; or (c) by overnight courier.
14. Counterparts. This Agreement may be executed in any number of counterparts,
each of which, when so executed and delivered, shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
15. Headings. The headings of the sections and paragraphs of this Agreement have
been inserted for convenience of reference only and shall in no way restrict or
otherwise modify any of the terms or provisions hereof.
16. Construction. All references to the singular shall include the plural and
vice versa and all references to the masculine shall include the neuter or
feminine and vice versa. This Agreement has been reviewed and negotiated by
counsel for each party and no ambiguity in this Agreement shall be construed
against any party based upon its having prepared the same.
17. Termination. This Agreement shall terminate upon full satisfaction of the
indebtedness hereby secured, and, upon such termination, Secured Party shall
return to Pledgor any of the Collateral held by Secured Party pursuant to this
Agreement, and the original executed copy of this Agreement which contains an
irrevocable proxy.
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18. Acknowledgment. Pledgor acknowledges that Secured Party would not agree to
make the Loan to Pledgor without the execution, delivery and performance of this
Agreement by Pledgor. Pledgor further acknowledges that it has received good and
sufficient consideration for the execution, delivery and performance of this
Agreement.
19. No Duty to Protect. This is a pledge and assignment of Pledgor's rights and
benefits in the Collateral without an assumption by Secured Party of any of
Pledgor's duties or obligations attendant thereto. Except for physical
safeguarding of the stock certificate(s) included in the Collateral delivered to
Secured Party, Secured Party shall have no duty to protect, insure, collect or
realize upon the Collateral or any proceeds therefrom nor shall Secured Party
have any obligations to any third party by virtue of Secured Party's possession
of the Collateral.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
PLEDGORS: CYGNET CAPITAL CORPORATION, an Arizona corporation
By: /S/ STEVEN P. JOHNSON
---------------------------
Its: Secretary
SECURED PARTY: UGLY DUCKLING FINANCE CORPORATION, an Arizona corporation
By: /S/ GREGORY B. SULLIVAN
-----------------------------
Its: President
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IRREVOCABLE STOCK POWER
Certificate No.
FOR VALUE RECEIVED, Cygnet Capital Corporation, an Arizona corporation
("Pledgor"), hereby assigns and transfers to UGLY DUCKLING FINANCE CORPORATION,
an Arizona corporation ("Secured Party"), pursuant to the Stock Pledge
Agreement, dated as of December __, 1999 (the "Pledge Agreement"), between the
Pledgor and Secured Party, _________ shares of common stock of Cygnet Dealer
Finance, Inc. as security for the Loan (as defined in the Pledge Agreement).
The undersigned does hereby irrevocably constitute and appoint UGLY
DUCKLING FINANCE CORPORATION as its attorney-in-fact to transfer the said stock
on the books of Cygnet Dealer Finance, Inc. with full power of substitution in
the premises.
Dated: December __, 1999
CYGNET CAPITAL CORPORATION, an Arizona corporation
By: _____________________
Its: _____________________
GUARANTY
THE UNDERSIGNED ("Guarantor") HEREBY agrees to unconditionally and
irrevocably guarantee the payment of the amount due and the performance of the
obligations of Cygnet Capital Corporation ("Cygnet"), an Arizona corporation,
under the Promissory Note dated December 30, 1999 (the "Note"), from Cygnet to
Ugly Duckling Finance Corporation ("UD"), an Arizona corporation.
Guarantor hereby waives notice of demand, protest or notice of any
kind, including but not limited to notice of nonpayment, nonperformance or
nonobservance, or proof of notice or demand. Guarantor expressly agrees that the
UD may proceed against the Guarantor separately or jointly, before, or
simultaneously with proceedings against Cygnet for default under the Note. This
Guaranty shall be absolute and unconditional and shall remain and continue in
full force and effect as to any renewal, extension, amendment, addition, or
other modification of the Note, regardless of whether the same was made with or
without Guarantor's consent and until the payment in full of the Note. Guarantor
also waives any and all rights or defenses of guarantors arising in law or
equity, other than the actual payment or performance of the Note, including but
not limited to all of Guarantor's rights under Arizona Revised Statutes Sections
12-1641, et. seq., 44-142 and 47-3605.
Guarantor shall maintain a minimum Net Worth of Thirty Million Dollars
($30,000,000.00) at all times until the Note is paid in full. "Net Worth" shall
mean the total of shareholders' equity (including capital stock, additional
paid-in capital and retained earnings, and the junior subordinated debenture
from Cygnet to Verde which will replace the unsecured 10% subordinate debenture
of Ugly Duckling Corporation to Verde with a remaining principal balance
outstanding of $8 million assumed by Cygnet) less the total amount of loans and
debts due from affiliate companies, shareholders, officers, and employees and
the total amount of any intangible assets.
During the term of this Guaranty, Guarantor shall:
(i) deliver to UD as soon as practicable after the end of each of the first
three quarterly fiscal periods in each fiscal year of Guarantor, but, in any
event, within 45 days thereafter, (a) an unaudited consolidated balance sheet of
Guarantor as at the end of such quarter, and (b) unaudited consolidated
statements of income, retained earnings and cash flows of Guarantor, for such
quarter and for the portion of the fiscal year ending with such quarter, setting
forth in comparative form in each case the corresponding figures for the
comparable period of the prior fiscal year. Such statements shall be (1)
prepared in accordance with GAAP consistently applied, subject to normal
year-end adjustments and the absence of footnote disclosure, (2) in reasonable
detail, and (3) certified by the principal financial or accounting officer of
Guarantor; and
(ii) deliver to UD as soon as practicable after the end of each fiscal year of
Guarantor, but, in any event, within 90 days thereafter (a) an audited
consolidated balance sheet of Guarantor as at the end of such year, and (b)
audited consolidated statements of income, retained earnings and cash flows of
Guarantor for such year. Such statements shall be (1) prepared in accordance
with GAAP consistently applied, (2) in reasonable detail, and (3) certified by
KPMG LLP or such other firm of independent certified public accountants of
recognized national standing selected by Guarantor and reasonably acceptable to
UD.
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Any controversy relating to this Guaranty or relating to any breach
hereof shall be settled by arbitration conducted in Phoenix, Arizona in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association then in effect. The award rendered by the arbitrator(s) shall be
final and judgment upon the award rendered by the arbitrator(s) may be entered
upon it in any court having jurisdiction thereof. The arbitrator(s) shall
possess the powers to issue mandatory orders and restraining orders in
connection with such arbitration. The expenses of the arbitration shall be borne
by the losing party unless otherwise allocated by the arbitrator(s). The
agreement to arbitrate shall be specifically enforceable under the prevailing
arbitration law. During the continuance of any arbitration proceedings, the
parties shall continue to perform their respective obligations under this
Guaranty.
This Guaranty shall be binding upon the heirs, legal representatives,
successors and assigns of the Guarantor.
This Guaranty shall be governed by and construed in accordance with the
laws of the State of Arizona, and Guarantor hereby consents to venue for any
action arising out of this Guaranty in the state and federal courts in the State
of Arizona. Guarantor shall pay the reasonable attorney's fees incurred by UD in
connection with the collection, enforcement and/or protection of its rights
under this Guaranty.
Dated this 30th day of December, 1999.
VERDE INVESTMENTS, INC., an Arizona corporation
By: /S/ STEVEN P. JOHNSON
----------------------------
Name: Steven P. Johnson
Its: Secretary
GUARANTY
THE UNDERSIGNED ("Guarantor") HEREBY agrees to unconditionally and
irrevocably guarantee the payment of the amount due and the performance of the
obligations of Cygnet Capital Corporation ("Cygnet"), an Arizona corporation,
under the Promissory Note dated December 30, 1999 (the "Note"), from Cygnet to
Ugly Duckling Finance Corporation ("UD"), an Arizona corporation.
Guarantor hereby waives notice of demand, protest or notice of any
kind, including but not limited to notice of nonpayment, nonperformance or
nonobservance, or proof of notice or demand. Guarantor expressly agrees that the
UD may proceed against the Guarantor separately or jointly, before, or
simultaneously with proceedings against Cygnet for default under the Note. This
Guaranty shall be absolute and unconditional and shall remain and continue in
full force and effect as to any renewal, extension, amendment, addition, or
other modification of the Note, regardless of whether the same was made with or
without Guarantor's consent and until the payment in full of the Note. Guarantor
also waives any and all rights or defenses of guarantors arising in law or
equity, other than the actual payment or performance of the Note, including but
not limited to all of Guarantor's rights under Arizona Revised Statutes Sections
12-1641, et. seq., 44-142 and 47-3605.
This Guaranty will be subordinated to the primary financing of the
undersigned secured by the assets of the undersigned to the extent set forth in
that certain Subordination Agreement of even date herewith among the
undersigned, as Borrower, UD, as Creditor, and Finova Capital Corporation, as
Lender.
During the term of this Guaranty, Guarantor shall:
(i) deliver to UD as soon as practicable after the end of each of the first
three quarterly fiscal periods in each fiscal year of Guarantor, but, in any
event, within 45 days thereafter, (a) an unaudited consolidated balance sheet of
Guarantor as at the end of such quarter, and (b) unaudited consolidated
statements of income, retained earnings and cash flows of Guarantor, for such
quarter and for the portion of the fiscal year ending with such quarter, setting
forth in comparative form in each case the corresponding figures for the
comparable period of the prior fiscal year. Such statements shall be (1)
prepared in accordance with GAAP consistently applied, subject to normal
year-end adjustments and the absence of footnote disclosure, (2) in reasonable
detail, and (3) certified by the principal financial or accounting officer of
Guarantor; and
(ii) deliver to UD as soon as practicable after the end of each fiscal year of
Guarantor, but, in any event, within 90 days thereafter (a) an audited
consolidated balance sheet of Guarantor as at the end of such year, and (b)
audited consolidated statements of income, retained earnings and cash flows of
Guarantor for such year. Such statements shall be (1) prepared in accordance
with GAAP consistently applied, (2) in reasonable detail, and (3) certified by
KPMG LLP or such other firm of independent certified public accountants of
recognized national standing selected by Guarantor and reasonably acceptable to
UD.
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Any controversy relating to this Guaranty or relating to any breach
hereof shall be settled by arbitration conducted in Phoenix, Arizona in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association then in effect. The award rendered by the arbitrator(s) shall be
final and judgment upon the award rendered by the arbitrator(s) may be entered
upon it in any court having jurisdiction thereof. The arbitrator(s) shall
possess the powers to issue mandatory orders and restraining orders in
connection with such arbitration. The expenses of the arbitration shall be borne
by the losing party unless otherwise allocated by the arbitrator(s). The
agreement to arbitrate shall be specifically enforceable under the prevailing
arbitration law. During the continuance of any arbitration proceedings, the
parties shall continue to perform their respective obligations under this
Guaranty.
This Guaranty shall be binding upon the heirs, legal representatives,
successors and assigns of the Guarantor.
This Guaranty shall be governed by and construed in accordance with the
laws of the State of Arizona, and Guarantor hereby consents to venue for any
action arising out of this Guaranty in the state and federal courts in the State
of Arizona. Guarantor shall pay the reasonable attorney's fees incurred by UD in
connection with the collection, enforcement and/or protection of its rights
under this Guaranty.
Dated this 30th day of December, 1999.
CYGNET DEALER FINANCE, INC., an Arizona corporation
By: /S/ STEVEN P. JOHNSON
----------------------------
Name: Steven P. Johnson
Its: Secretary
2
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE
AND SCOPE REASONABLY ACCEPTABLE TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO
RULE 144 UNDER SAID ACT.
CYGNET CAPITAL CORPORATION
STOCK PURCHASE WARRANT
Date of Issuance: December 30, 1999 Number of Shares: 50%
For value received, Cygnet Capital Corporation, an Arizona corporation
(the "Company"), hereby grants to Ugly Duckling Finance Corporation ("UD") or
its registered assigns (the "Registered Holder") the right to purchase from the
Company the number of shares of the Company's common stock (the "Common Stock")
that represents fifty percent (50%) of the outstanding shares of the Company's
Common Stock immediately following exercise (the "Warrant Shares"), subject to
certain limitations as set forth in Section 1A. The total consideration payable
by Registered Holder for the Common Stock issuable hereunder shall be $1.00 (the
"Exercise Price"). This Warrant is subject to the following provisions:
Section 1. Exercise of Warrant.
1A. Exercise Period. The Registered Holder may exercise, in whole or in part,
the purchase rights represented by this Warrant at any time beginning on
December 31, 2001 and continuing through the date that is five (5) years after
the full payment on the Promissory Note dated December 30, 1999, from the
Company to the Registered Holder (the "Exercise Period"). However, in the event
the Promissory Note is paid down to a principal amount of $4,000,000 or less by
December 30, 2001, the Registered Holder's right to purchase outstanding shares
of the Company's Common Stock shall be reduced from fifty percent (50%) to
twenty-five percent (25%). If the Promissory Note is paid in full by December
30, 2001, the right to purchase outstanding shares of the Company's Common Stock
will be reduced to ten percent (10%). This Warrant shall be terminated if the
Promissory Note is paid in full by December 30, 2000.
1B. Exercise Procedure.
(i) This Warrant shall be deemed to have been exercised when the Company has
received all of the following items (the "Exercise Time"):
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(a) a completed Exercise Agreement, as described in Section 1C below,
executed by the Registered Holder;
(b) this Warrant;
(c) if the shares issuable upon exercise of this Warrant are to be
registered in the name of a person other than the Registered Holder, an
Assignment or Assignments in the form set forth in Exhibit B hereto
evidencing the assignment of this Warrant to such person, in which case
the Registered Holder shall have complied with the provisions set forth
in Section 11 hereof (the person to whom shares are to be issued on
exercise of this Warrant may be referred to as the "Purchaser").
(ii) A certificate for shares of Common Stock purchased upon exercise of this
Warrant shall be delivered by the Company to the Purchaser within ten (10)
business days after the date of the Exercise Time. Unless this Warrant has
expired or all of the purchase rights represented hereby have been exercised,
the Company shall prepare a new Warrant, substantially identical hereto,
representing the rights formerly represented by this Warrant which have not
expired or been exercised and shall, within such ten-day period, deliver such
new Warrant to the person designated for delivery in the Exercise Agreement.
(iii) The Common Stock issuable upon the exercise of this Warrant shall be
deemed to have been issued to the Purchaser at the Exercise Time, and the
Purchaser shall be deemed for all purposes to have become the record holder of
such Common Stock at the Exercise Time.
(iv) The issuance of certificates for shares of Common Stock upon exercise of
this Warrant shall be made without charge to the Registered Holder or the
Purchaser for any issuance tax in respect thereof or other cost incurred by the
Company in connection with such exercise and the related issuance of shares of
Common Stock. Each share of Common Stock issuable upon exercise of this Warrant
shall, upon payment of the Exercise Price therefor, be fully paid and
nonassessable and free from all liens and charges with respect to the issuance
thereof.
(v) The Company shall not close its books against the transfer of this Warrant
or of any share of Common Stock issued or issuable upon the exercise of this
Warrant in any manner which interferes with the timely exercise of this Warrant,
except as required in order to comply with applicable federal and state
securities laws. The Company shall assist and cooperate with any Registered
Holder or Purchaser required to make any governmental filings or obtain any
governmental approvals prior to or in connection with any exercise of this
Warrant (including, without limitation, making any filings required to be made
by the Company).
(vi) Notwithstanding any other provision hereof, if an exercise of any portion
of this Warrant is to be made in connection with a registered public offering or
the sale of the Company, the exercise of any portion of this Warrant may, at the
election of the holder hereof, be conditioned upon the consummation of the
public offering or sale of the Company in which case such exercise shall not be
deemed to be effective until the consummation of such transaction.
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(vii) The Company shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock solely for the purpose of
issuance upon the exercise of the Warrants, such number of shares of Common
Stock issuable upon the exercise of all outstanding Warrants. All shares of
Common Stock which are so issuable shall, when issued, be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens and charges.
The Company shall take all such actions as may be necessary to assure that all
such shares of Common Stock may be so issued without violation of any applicable
law or governmental regulation or any requirements of any domestic securities
exchange upon which shares of Common Stock may be listed (except for official
notice of issuance which shall be immediately delivered by the Company upon each
such issuance). The Company shall not take any action which would cause the
number of authorized but unissued shares of Common Stock to be less than the
number of such shares required to be reserved hereunder for issuance upon
exercise of the Warrant.
1C. Exercise Agreement. Upon any exercise of this Warrant, the Exercise
Agreement shall be substantially in the form set forth in Exhibit A hereto,
except that if the shares of Common Stock are not to be issued in the name of
the Registered Holder, the Exercise Agreement shall also state the name of the
Person to whom the certificates for the shares of Common Stock are to be issued,
and if the number of shares of Common Stock to be issued does not include all
the shares of Common Stock purchasable hereunder, it shall also state the name
of the person to whom a new Warrant for the unexercised portion of the rights
hereunder is to be delivered. Such Exercise Agreement shall be dated the actual
date of execution thereof.
Section 2. The Warrant Shares.
2A. Calculation of Number of Warrant Shares. The number of Warrant Shares
issuable pursuant to this Warrant shall be determined by calculating the
outstanding shares of the Company's Common Stock on a fully diluted basis. In
this regard, all options for the purchase of Common Stock or any stock or
securities convertible into or exchangeable for Common Stock (whether or not
such rights or warrants or options or the right to convert or exchange or any
such convertible securities are immediately exercisable) shall be deemed to be
outstanding and have been issued.
2B. Reorganization, Reclassification, Consolidation, Merger or Sale. Any
recapitalization, reorganization, reclassification, consolidation, merger, sale
of all or substantially all of the Company's assets or other transaction, which
in each case is effected in such a way that the holders of Common Stock are
entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock is referred
to herein as an "Organic Change." Prior to the consummation of any Organic
Change, the Company shall make appropriate provision (in form and substance
satisfactory to the Registered Holders of the Warrants representing a majority
of the Common Stock obtainable upon exercise of all Warrants then outstanding)
to insure that each of the Registered Holders of the Warrants shall thereafter
have the right to acquire and receive, in lieu of or addition to (as the case
may be) the shares of Common Stock immediately theretofore acquirable and
receivable upon the exercise of such holder's Warrant, such shares of stock,
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<PAGE>
securities or assets as may be issued or payable with respect to or in exchange
for the number of shares of Common Stock immediately theretofore acquirable and
receivable upon exercise of such holder's Warrant had such Organic Change not
taken place. In any such case, the Company shall make appropriate provision (in
form and substance satisfactory to the Registered Holders of the Warrants
representing a majority of the Common Stock obtainable upon exercise of all
Warrants then outstanding) with respect to such holders' rights and interests to
insure that the provisions of this Section 2 and Section 3 and Section 4 hereof
shall thereafter be applicable to the Warrants. The Company shall not effect any
such consolidation, merger or sale, unless prior to the consummation thereof,
the successor entity (if other than the Company) resulting from consolidation or
merger or the entity purchasing such assets assumes by written instrument (in
form and substance satisfactory to the Registered Holders of Warrants
representing a majority of the Common Stock obtainable upon exercise of all of
the Warrants then outstanding), the obligation to deliver to each such holder
such shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to acquire.
2C. Notices.
(i) The Company shall give written notice of any event described in Section 2B,
Section 3 or Section 4 to the Registered Holder, setting forth the circumstances
of such event in reasonable detail and the effect thereof on the Warrants.
(ii) The Company shall give written notice to the Registered Holder at least 20
days prior to the date on which the Company closes its books or takes a record
(A) with respect to any pro rata subscription offer to holders of Common Stock
or (B) for determining rights to vote with respect to any Organic Change,
dissolution or liquidation.
(iii) The Company shall also give written notice to the Registered Holders at
least 20 days prior to the date on which any Organic Change, dissolution or
liquidation shall take place.
Section 3. Liquidating Dividends. If at any time on or after the date this
Warrant becomes exercisable the Company declares or pays a dividend upon the
Common Stock payable otherwise than in cash out of earnings or earned surplus
(determined in accordance with generally accepted accounting principles,
consistently applied) except for a stock dividend payable in shares of Common
Stock (a "Liquidating Dividend"), then the Company shall pay to the Registered
Holder of this Warrant at the time of payment thereof the Liquidating Dividend
which would have been paid to such Registered Holder on the Common Stock had
this Warrant been fully exercised immediately prior to the date on which a
record is taken for such Liquidating Dividend, or, if no record is taken, the
date as of which the record holders of Common Stock entitled to such dividends
are to be determined.
Section 4. Purchase Rights. If at any time on or after the date this Warrant
becomes exercisable the Company grants, issues or sells any rights to purchase
stock, warrants, securities or other property (other than Common Stock) pro rata
to the record holders of any class of Common Stock (the "Purchase Rights"), then
the Registered Holder of this Warrant shall be entitled to acquire, upon the
terms applicable to such Purchase Rights, the aggregate Purchase Rights which
such holder could have acquired if such holder had held the number of shares of
Common Stock acquirable upon complete exercise of this Warrant immediately
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before the date on which a record is taken for the grant, issuance or sale of
such Purchase Rights, or, if no such record is taken, the date as of which the
record holders of Common Stock are to be determined for the grant, issue or sale
of such Purchase Rights.
Section 5. Avoidance of Certain Actions. The Company will not, by amendment of
its Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, issue or sale of securities or otherwise, avoid or take
any action which would have the effect of avoiding the observance or performance
of any of the terms to be observed or performed hereunder by the Company, but
will at all times in good faith assist in carrying out all of the provisions of
this Warrant and in taking all of such action as may be necessary or appropriate
in order to protect the rights of the Registered Holder against dilution or
other impairment of its rights hereunder.
Section 6. Listing on Securities Exchanges, Registration. If, and so long as,
any class of the Company's Common Stock shall be listed on any national
securities exchange (as defined in the Exchange Act), the Company will, at its
expense, obtain and maintain the approval for listing upon official notice of
issuance of all Warrant Shares and maintain the listing of Warrant Shares after
their issuance, and the Company will so list on such national securities
exchange, will register under the Securities Exchange Act of 1934 ("Exchange
Act") (or any similar statute then in effect), and will maintain such listing
of, any other securities that at any time are issuable upon exercise of this
Warrant if and at the time any securities of the same class shall be listed on
such national securities exchange by the Company.
Section 7. Information Rights. So long as the Registered Holder holds this
Warrant and/or any of the Warrant Shares, the Company shall deliver to the
Registered Holder (i) promptly after mailing, copies of all communications to
the shareholders of the Company, (ii) within ninety (90) days after the end of
each fiscal year of the Company, the annual audited financial statements of the
Company certified by the independent public accountants of recognized standing,
and (iii) within forty-five (45) days after the end of each of the first three
quarters of each fiscal year, the Company's quarterly, unaudited financial
statements.
Section 8. Compliance with Law. The Company shall comply with all applicable
laws, rules and regulations of the United States and of all states,
municipalities and agencies of any other jurisdiction applicable to the Company
and shall do all things necessary to preserve, renew and keep in full force and
effect and in good standing its corporate existence and authority necessary to
continue its business.
Section 9. Registration Rights.
9A. Required Registration. For so long as the Registered Holder owns any Warrant
Shares, at any time after the earliest of (a) six months after any registration
statement covering a public offering of securities of the Company under the
Securities Act of 1933 ("Securities Act") shall have become effective, and (b)
six months after the Company shall have become a reporting company under Section
12 of the Exchange Act, the Registered Holder may request the Company to
register under the Securities Act all or any portion of the Warrant Shares for
sale in the manner specified in such notice. If such method of disposition shall
be an underwritten public offering, the Registered Holder may designate the
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managing underwriter of such offering, subject to the approval of the Company,
which approval shall not be unreasonably withheld or delayed.
9B. Piggyback Registrations. If at any time or times after the date hereof, the
Company shall determine to register any of its Common Stock or securities
convertible into or exchangeable for Common Stock under the Securities Act,
whether in connection with a public offering of securities by the Company (a
"primary offering"), a public offering thereof by stockholders (a "secondary
offering"), or both (but not in connection with a registration effected solely
to implement an employee benefit plan or a transaction to which Rule 145 or any
other similar rule of the Securities and Exchange Commission ("Commission")
under the Securities Act is applicable), the Company will promptly give written
notice thereof to the Registered Holder and will use its best efforts to effect
the registration under the Securities Act of all Warrant Shares which the
Registered Holder may request in a writing delivered to the Company within
fifteen (15) days after the notice given by the Company; provided, however, that
in the event that any registration pursuant to this Section 9B shall be, in
whole or in part, an underwritten public offering of Common Stock, the number of
Warrant Shares to be included in such an underwriting may be reduced if and to
the extent that the managing underwriter shall be of the opinion that such
inclusion would adversely affect the marketing of the securities to be sold by
the Company therein.
9C. Form S-3. If the Company becomes eligible to use Form S-3, the Company shall
use its reasonable efforts to continue to qualify at all times for registration
on Form S-3. If and when the Company becomes entitled to use Form S-3, the
Registered Holder shall have the right to request and have effected not more
than two registrations per year of Warrant Shares held by it on Form S-3 for a
public offering of Warrant Shares having an aggregate proposed offering price of
not less than $500,000. The Company shall not be required to cause a
registration statement requested pursuant to this Section 9C to become effective
prior to 90 days following the effective date of a registration statement
initiated by the Company, if the request for registration has been received by
the Company subsequent to the giving of written notice by the Company, made in
good faith, to the Registered Holder to the effect that the Company is
commencing to prepare a Company-initiated registration statement (other than a
registration effected solely to implement an employee benefit plan or a
transaction to which Rule 145 or any other similar rule of the Commission under
the Securities Act is applicable); provided, however, that the Company shall use
its best efforts to achieve such effectiveness promptly following such 90-day
period if the request pursuant to this Section 9C has been made prior to the
expiration of such 90-day period.
9D. Registration Expenses. All expenses of registration of the Warrant Shares
and offering thereof including, without limitation, printing expenses, fees and
disbursements of counsel, including one counsel for the selling Registered
Holder, and independent public accountants, fees and expenses (including counsel
fees incurred in connection with complying with state securities or "blue sky"
laws, fees of the National Association of Securities Dealers, Inc. and fees of
transfer agents and registrars), shall be borne by the Company, except that the
Registered Holder shall bear underwriting commissions and discounts attributable
to their Warrant Shares being registered.
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9E. Further Obligations of the Company. Whenever under the preceding sections of
this Agreement the Company is required hereunder to register Warrant Shares, it
agrees that it shall also do the following:
(i) Use its best efforts to diligently prepare for filing with the Commission a
registration statement and such amendments and supplements to said registration
statement and the prospectus used in connection therewith as may be necessary to
keep said registration statement effective and to comply with the provisions of
the Securities Act with respect to the sale of securities covered by said
registration statement for the period necessary to complete the proposed public
offering;
(ii) Furnish to the Registered Holder such copies of each preliminary and final
prospectus and such other documents as such holder may reasonably request to
facilitate the public offering of the Warrant Shares;
(iii) Enter into any underwriting agreement with provisions reasonably required
by the proposed underwriter for the Registered Holder, if any; and
(iv) Use its best efforts to register or qualify the Warrant Shares covered by
said registration statement under the securities or "blue-sky" laws of such
jurisdictions as the Registered Holder may reasonably request, provided that the
Company shall not be required to register in any states which shall require it
to qualify to do business or subject itself to general service of process as a
condition of such registration.
Section 10. Indemnification. Incident to any registration referred to in this
Agreement, and subject to applicable law, the Company will indemnify the
Registered Holder, each underwriter, and each person controlling any of them
against all claims, losses, damages and liabilities, including legal and other
expenses reasonably incurred in investigating or defending against the same,
arising out of any untrue statement of a material fact contained in any
prospectus or other document (including any related registration statement) or
any omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or arising out of any
violation by the Company of the Securities Act, any state securities or
"blue-sky" laws or any rule or regulation thereunder in connection with such
registration.
Section 11. Rule 144 Requirements. If the Company becomes subject to the
reporting requirements of either Section 13 or Section 15(d) of the Exchange
Act, the Company will use its best efforts to file with the Commission such
information as the Commission may require under either of said Sections; and in
such event, the Company shall use its best efforts to take all action as may be
required as a condition to the availability of Rule 144 under the Securities Act
(or any successor exemptive rule hereinafter in effect). The Company shall
furnish to the Registered Holder upon request, a written statement executed by
the Company as to the steps it has taken to comply with the current public
information requirements of Rule 144.
Section 12. Warrant Transferable. Subject to the transfer conditions referred to
in the legend endorsed hereon, this Warrant and all rights hereunder are
transferable, in whole or in part, without charge to the Registered Holder, upon
surrender of this Warrant with a properly executed Assignment (in the form of
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Exhibit B hereto) at the principal office of the Company, subject to compliance
with applicable federal and state securities laws. Notwithstanding the
foregoing, this Warrant may only be transferred in connection with a transfer of
the Promissory Note.
Section 13. Warrant Exchangeable for Different Denominations. This Warrant is
exchangeable, upon the surrender hereof by the Registered Holder at the
principal office of the Company, for new Warrants of like tenor representing in
the aggregate the purchase rights hereunder, and each of such new Warrants shall
represent such portion of such rights as is designated by the Registered Holder
at the time of such surrender. The date the Company initially issues this
Warrant shall be deemed to be the "Date of Issuance" hereof regardless of the
number of times new certificates representing the unexpired and unexercised
rights formerly represented by this Warrant shall be issued. All Warrants
representing portions of the rights hereunder are referred to herein as the
"Warrants."
Section 14. Replacement. Upon receipt of evidence reasonably satisfactory to the
Company (an affidavit of the Registered Holder shall be satisfactory) of the
ownership and the loss, theft, destruction or mutilation of any certificate
evidencing this Warrant, and in the case of any such loss, theft or destruction,
upon receipt of indemnity reasonably satisfactory to the Company (provided that
if the holder is UD or a financial institution or other institutional investor
its own agreement shall be satisfactory), or, in the case of any such mutilation
upon surrender of such certificate, the Company shall (at its expense) execute
and deliver in lieu of such certificate a new certificate of like kind
representing the same rights represented by such lost, stolen, destroyed or
mutilated certificate and dated the date of such lost, stolen, destroyed or
mutilated certificate.
Section 15. Notices. Except as otherwise expressly provided herein, all notices
referred to in this Warrant shall be in writing and shall be delivered
personally, sent by reputable overnight courier service (charges prepaid) or
sent by registered or certified mail, return receipt requested, postage prepaid
and shall be deemed to have been given when received (if hand delivered) or sent
by overnight courier or five days after being delivered, sent or deposited in
the U.S. Mail (i) to the Company, at its principal executive offices and (ii) to
the Registered Holder of this Warrant, at such holder's address as it appears in
the records of the Company (unless otherwise indicated by any such holder).
Section 16. Amendment and Waiver. Except as otherwise provided herein, the
provisions of the Warrants may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of the Registered
Holders of Warrants representing a majority of the shares of Common Stock
obtainable upon exercise of the Warrants; provided that no such action may
change the Exercise Price of the Warrants or the number of shares or class of
stock obtainable upon exercise of each Warrant without the written consent of
all Registered Holders.
Section 17. Descriptive Headings; Governing Law. The descriptive headings of the
several Sections and paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant. The corporation laws of the
State of Arizona shall govern all issues concerning the relative rights of the
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Company and its stockholders. All other questions concerning the construction,
validity, enforcement and interpretation of this Warrant shall be governed by
the internal law of the State of Arizona, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of Arizona or any
other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of Arizona.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
and attested by its duly authorized officers under its corporate seal and to be
dated the Date of Issuance hereof.
CYGNET CAPITAL CORPORATION
By: /S/ MARK SAUDER
---------------------
Its Vice President
Attest:
/S/ STEVEN P. JOHNSON
---------------------
Secretary
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EXHIBIT A
EXERCISE AGREEMENT
To: Dated:________
The undersigned, pursuant to the provisions set forth in the attached
Warrant, hereby agrees to subscribe for the purchase of ______ shares of the
Common Stock covered by such Warrant and makes payment herewith in full therefor
at the price per share provided by such Warrant.
Signature ________________________
Address ________________________
<PAGE>
EXHIBIT B
ASSIGNMENT
FOR VALUE RECEIVED, _____________________________ hereby sells, assigns
and transfers all of the rights of the undersigned under the attached Warrant
with respect to the number of shares of the Common Stock covered thereby set
forth below, unto:
Names of Assignee Address No. of Shares
- --------------------- ------------- ---------------
Dated: Signature ______________________
Witness ______________________
FOR IMMEDIATE RELEASE
December 31, 1999
UGLY DUCKLING ANNOUNCES DIVESTITURE
OF CYGNET DEALER FINANCE SUBSIDIARY FOR $38 MILLION
PHOENIX - December 31, 1999 - Ugly Duckling Corporation (Nasdaq: UGLY), the
largest and fastest growing used car sales company focused exclusively on the
sub-prime market, today announced it has sold its Cygnet Dealer Finance (CDF)
subsidiary to an entity controlled by Ernest C. Garcia II, Chairman and
principal shareholder of Ugly Duckling Corporation, for approximately $37.5
million, the estimated book value of the Company's investment in CDF.
CDF provides receivable backed financing to small, independent buy here-pay here
dealers throughout the country. "While we believe CDF is a very good business
with excellent potential, we believe that we are better off focusing our
management and capital on continuing to build the country's largest chain of
used car dealerships targeted exclusively to the sub-prime market. Our core
business has tremendous growth potential and we are focused on exploiting that
potential," said Greg Sullivan, Chairman and Chief Executive Officer of Ugly
Duckling Corporation.
"In this regard, we recently completed a process in which Cygnet Financial
Services (CFS), which acquired economic interests in distressed sub-prime auto
portfolios and serviced those portfolios, was absorbed into the loan servicing
operations of Ugly Duckling. We closed CFS's loan servicing operations in
Nashville and Denver, consolidating all CFS loan servicing into Dallas, where
Ugly Duckling already has a loan servicing center," Mr. Sullivan concluded. "The
divestiture of CDF completes the process and enables management and the
investment community to focus exclusively on our core business."
The purchase price of CDF was paid through the assumption by the buyer of
approximately $8 million of outstanding debt owed by the Company to Verde
Investments, Inc., an affiliate of Mr. Garcia; a $12 million, ten-year
promissory note from the buyer to the Company that is guaranteed by Verde; and
the remainder in cash. The $12 million note is subordinate to senior secured
financing to CDF and senior to the debt to Verde assumed by buyer. The Company
also received warrants to acquire up to 50% of the buyer for $1, exercisable
beginning two years from close though five years after the note is paid in full.
The warrants would be forfeited in the event that the $12 million note is repaid
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in full within one year. The percentage of the buyer purchasable under the
warrants would be reduced to 25% if the note were reduced to $4 million within
two years and to 10% if the warrant were paid in full within two years.
The transaction was approved by a Special Transaction Committee of the Board of
Directors made up of independent directors, which received a fairness opinion
from an investment banking firm that the transaction was financially fair to
Ugly Duckling. Commented Mr. Sullivan, "We had previously tried to market CDF to
third parties with no luck. Fortunately, Ernie was very interested in this
business and made an offer to purchase it on terms that were satisfactory. I
really feel like this is a win/win transaction. I believe that CDF will do
better with the focus and attention it will get as a separate company, while I
am confident that it is in the best interests of Ugly Duckling to get our
capital out of CDF and focus on our core business."
Headquartered in Phoenix, Arizona, Ugly Duckling Corporation is the largest and
fastest growing operator of used car dealerships focused exclusively on the
sub-prime market.
*****
This news release includes statements that constitute forward-looking statements
within the meaning of the safe harbor provisions of the Private Securities
Litigation Reform Act of n1995. Forward-looking statements are often
characterized by the words "believes," "estimates," "projects," "expects" or
similar expressions. Forward-looking statements in this release relate, among
other matters, to growth potential in the Company's core business. Factors that
could cause or contribute to differences from these forward-looking statements
include, but are not limited to: any decline in consumer acceptance of the
Company's car sales strategies or marketing campaigns; any inability of the
Company to finance its operations in light of a tight credit market for the
sub-prime industry and any deterioration in the used-car finance industry or
increased competition in the used-car sales and finance industry. Other factors
are detailed in the sections titled "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Risk Factors," "Factors That
May Affect Future Results d Financial Condition" and "Factors That May Affect
Future Stock performance" in Ugly Duckling's most recent reports on Form 10-K
and Form 10Q (including Exhibit 99 to any such Form 10-Q), and elsewhere in Ugly
Duckling's Securities and Exchange Commission filings. By making these
forward-looking statements, the Company undertakes no obligation to update these
statements for revisions or changes after the date of this news release.
References to Ugly Duckling as the largest and fastest-growing operator of
used-car dealerships focused exclusively on the sub-prime market is management's
belief based upon its knowledge of the industry and not on any current
independent third-party study.
For additional information on Ugly Duckling Corporation, via fax at no
charge, call 800/PRO-INFO and enter ticker symbol UGLY or visit the Company's
web-site at
WWW.UGLYDUCKLING.COM.
# # #
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