EXHIBIT 8
[UGLY DUCKLING LOGO]
December 14, 2001
Dear Ugly Duckling Stockholder:
Ugly Duckling Corporation ("Ugly Duckling" or the "Company") has entered
into a definitive agreement with Xxxxxx X. Xxxxxx XX, Xxxxxxx X. Xxxxxxxx,
UDC Holdings Corp., which is majority-owned by Xx. Xxxxxx, and UDC
Acquisition Corp., a wholly-owned subsidiary of UDC Holdings Corp.
("Acquisition Corp."), pursuant to which Acquisition Corp. will acquire all
of the outstanding shares of Ugly Duckling common stock through a revised
tender offer at $3.53 per share, leading to a subsequent merger at the same
per share price. Enclosed with this letter you will find Acquisition Corp.'s
revised tender offer materials reflecting the increased offer price and other
terms agreed with Ugly Duckling.
When Acquisition Corp. commenced its tender offer at $2.51 per share,
Ugly Duckling's Board of Directors formed a Special Transaction Committee to
evaluate the offer and make a recommendation to the Board regarding Ugly
Duckling's recommendation to stockholders. The committee is composed of those
Directors who have no affiliation with UDC Holdings Corp., Acquisition Corp.,
Xx. Xxxxxx or Xx. Xxxxxxxx (collectively, the "Buyout Group"). The committee
engaged its own legal counsel and financial advisor. The committee and its
advisors began discussions with representatives of Acquisition Corp.
regarding the proposed offer. At the same time Xx. Xxxxxx was engaged in
discussions with counsel for the plaintiffs in the pending shareholder class
action litigation. As a result of these discussions, Acquisition Corp.
agreed to revise its tender offer, and the parties entered into the
definitive merger agreement.
The committee has unanimously determined that the amended offer and merger
agreement are fair to Ugly Duckling and its stockholders, other than the Buyout
Group, and based on that determination, Ugly Duckling recommends that
stockholders accept Acquisition Corp.'s amended tender offer and approve the
merger. Ugly Duckling filed with the Securities Exchange Commission today
Amendment No. 3 to Schedule 14D-9, a copy of which is attached hereto.
Acquisition Corp. filed Amendment No. 5 to its Schedule TO, including an Amended
and Restated Offer to Purchase that is enclosed with this letter. These
documents describe the merger agreement and the amended offer in further detail.
In making its determination, the committee considered a number of factors,
including, without limitation, the following:
- Ugly Duckling's business, financial condition, results of
operations, assets, liabilities, business strategy and competitive
position, as well as various uncertainties associated with those
prospects in light of the unsettled general economic conditions.
- The current and prospective conditions and trends in Ugly Duckling's
industry and the anticipated effect of such conditions and trends on
Ugly Duckling's business and its stockholders. The committee
believes that the near term may be challenging for Ugly Duckling due
to the current economic slowdown and the effect on the economy of
national and international developments in the U.S. war on terrorism
and that there is a risk that Ugly Duckling's performance and future
value to stockholders would be adversely affected by these
conditions.
- The presentation of U.S. Bancorp Xxxxx Xxxxxxx to the committee at
its meeting on December 6, 2001, as to various financial and other
matters relevant to the committee's considerations, a copy of which
is filed as an exhibit to Ugly Duckling's Amendment No. 3 to
Schedule 14D-9 filed with the SEC on December 14, 2001.
- The opinion of U.S. Bancorp Xxxxx Xxxxxxx as of December 9, 2001, to
the effect that, based upon and subject to certain factors and
assumptions stated therein, as of such date, the $3.53 per share in
cash to be received by the holders of Ugly Duckling common stock,
other than the Buyout Group, in the amended offer and merger is
fair, from a financial point of view, to such stockholders. A copy
of U.S. Bancorp Xxxxx Xxxxxxx'x fairness opinion is attached. The
committee considered this to be an important factor in its
determination that the amended offer and merger are fair to minority
stockholders.
- The fact that the amended offer price represents a substantial
premium over recent closing sale prices of the Ugly Duckling common
stock on the Nasdaq National Market. In particular, the amended
offer price represents (a) a 41.8% premium over $2.49, the closing
price of the common stock on the Nasdaq National Market on November
15, 2001, the last day before announcement of Xx. Xxxxxx'x intent to
initiate the original tender offer, (b) a 44.7% premium over $2.44,
the average closing price of the common stock on the Nasdaq National
Market during the 30 days ending on November 15, 2001, (c) a 16.1%
premium over $3.04, the average closing price of the common stock on
the Nasdaq National Market during the 60 days ending on November 15,
2001, and (d) a 41.8% premium over $2.49, the average closing price
of the common stock on the Nasdaq National Market during the 53 days
following the date on which Xx. Xxxxxx withdrew his most recent
previous offer and ending on November 15, 2001. The committee noted
that these premiums are comparable to the implied premiums in
selected transactions as set forth in the analysis presented by U.S.
Bancorp Xxxxx Xxxxxxx. The committee considered this to be an
important factor in its determination that the amended offer and
merger are fair to minority stockholders. The committee did not
consider relevant the trading prices of the common stock during the
pendency of Xx. Xxxxxx'x April 2001 merger proposal, which was
withdrawn on September 24, 2001, because the committee believed such
trading prices were influenced by the existence of the proposed
merger in which the stockholders would have received $2.00 in cash
and $5.00 in subordinated notes. The committee did consider relevant
the historical trading prices of the common stock prior to Xx.
Xxxxxx'x April 2001 proposal, which ranged from a high of $8.88 in
the fourth quarter of 1999 to a low of $3.19 in the second quarter
of 2001. However, the committee believed that the importance of such
prior trading prices was diminished because of Ugly Duckling's
deteriorating financial performance, including a substantial
operating loss in the third quarter of 2001, and the worsening U.S.
economy over the past 12 months.
- The fact that the amended offer and the merger provide for a prompt
cash tender offer for all shares of common stock to be followed by
the merger for the same consideration, thereby enabling Ugly
Duckling's stockholders, at the earliest possible time, to obtain
the benefits of the transaction in exchange for their shares of
common stock.
- The fact that the consummation of the amended offer and the merger
is likely and there are only limited conditions to the consummation
of the amended offer and merger.
- The representation of the Buyout Group that it will have sufficient
funds to consummate the amended offer and the merger and the fact
that the amended offer and the merger are not subject to a financing
condition.
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- The judgment of the committee, based on arm's length negotiations
with Xx. Xxxxxx, that the amended offer price represented the
highest price that Xx. Xxxxxx or the Buyout Group would be willing
to pay in the amended offer.
- The fact that the amended offer price represents a 71% discount
relative to the book value of the common stock. The committee
considered this fact to weigh against determining that the amended
offer and merger are fair to minority stockholders.
- The fact that Xx. Xxxxxx presently owns a majority of the
outstanding common stock, and that it is presently proposed that, in
connection with a loan by an entity owned by Xx. Xxxxxx to Ugly
Duckling, warrants to purchase 1,500,000 shares of Ugly Duckling
common stock would be issued to Xx. Xxxxxx. If these warrants are
issued and exercised in full, Messrs. Xxxxxx and Xxxxxxxx would
beneficially own, in the aggregate, approximately 66% of the
outstanding common stock of Ugly Duckling. Due in part to Xx.
Xxxxxx'x substantial ownership, the liquidity and trading volume of
the remaining outstanding shares of common stock are relatively low.
Additionally, no investment banking firms currently publish research
reports on Ugly Duckling. Illiquidity typically has an adverse
effect on trading prices, which can be further depressed by limited
research analyst coverage. The committee believes that this lack of
liquidity, low trading volume and minimal analyst coverage is likely
to worsen as Xx. Xxxxxx acquires more shares, including shares which
may be acquired in the amended offer.
- The fact that the committee believed that there are only limited
prospects for selling Ugly Duckling to a third party at a price per
share in excess of the amended offer price, and the fact that in the
course of an earlier proposal by Xx. Xxxxxx during the Summer of
2001, a previous special committee actively sought third party
offers to acquire Ugly Duckling without success. Additionally, Xx.
Xxxxxx has indicated to the committee that he is not presently
interested in selling all or substantially all of his shares of
common stock. The committee believes that even if Xx. Xxxxxx agreed
to sell his shares, the likelihood of successfully marketing Ugly
Duckling is lower now than it was during the Summer of 2001, due to
the worsening U.S. economy and the uncertainty created by other
recent national and international events.
- The possibility that if Xx. Xxxxxx were to withdraw the amended
offer, the trading price of the common stock could decline. The last
reported closing price of the common stock on the Nasdaq National
Market before the offer was announced was $2.49.
- The fact that Xx. Xxxxxx currently has sufficient voting power to
approve an alternative transaction with an entity controlled by Xx.
Xxxxxx, which may involve a lower price than the amended offer price
and may involve other terms and conditions less favorable to Ugly
Duckling's minority stockholders than those governing the amended
offer, without the affirmative vote of any other stockholders of
Ugly Duckling.
- The fact that consummation of the merger is conditioned upon the
participation of holders of a majority of the outstanding shares of
common stock other than the Buyout Group by either tendering their
shares in the amended offer or voting in favor of the merger, and
the fact that minority stockholders would be entitled to judicial
appraisal of the value of their shares of common stock in connection
with the merger. The committee believed that these are important
procedural protections for the minority stockholders. The committee
recognized that these procedural protections would not be effective
in respect of shares of common stock not tendered if the merger is
not consummated for any reason, including a failure to satisfy any
condition precedent to the merger, and that the stockholders will
not know for certain whether or not the merger will occur at the
time shares are tendered. However, the committee believed that the
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effect of this uncertainty was diminished because the merger is
subject only to certain limited conditions precedent.
- The fact that after the amended offer and merger are consummated,
stockholders will not have the opportunity to participate in any
future growth of Ugly Duckling.
- The fact that the tender and acceptance of the shares of common
stock will be treated as a sale of the shares for federal and most
state income tax purposes, which generally will require stockholders
who tender their shares to recognize gain or loss for U.S. federal
income tax purposes equal to the difference between the cash they
receive for the shares sold and their adjusted basis in the shares.
- The fact that certain of the officers and directors of Ugly Duckling
have conflicts of interest, as described in Item 3 of the amended
Ugly Duckling Schedule 14D-9.
- The fact that the plaintiffs in the pending shareholder litigation
agreed to settle all claims if Xx. Xxxxxx proceeds with the amended
offer and merger.
- The advice of Ugly Duckling's legal advisors with respect to the
terms of the merger agreement, the amended offer and the merger.
Furthermore, given these events, the Board of Directors has decided to
indefinitely postpone Ugly Duckling's 2001 annual meeting of stockholders
currently scheduled for December 20, 2001.
Thank you for your careful consideration of this matter. We encourage you
to read Ugly Duckling's amended Schedule 14D-9 for a more thorough discussion of
Acquisition Corp.'s relationship with Ugly Duckling and the potential for
conflicts of interest.
Sincerely,
/s/ XXX X. XXXXXXXX
Vice President, Secretary
and General Counsel
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