<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
Ugly Duckling Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
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<PAGE> 2
UGLY DUCKLING CORPORATION
2525 EAST CAMELBACK ROAD
SUITE 1150
PHOENIX, ARIZONA 85016
------------------------
NOTICE AND PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 22, 1997
------------------------
To Our Stockholders:
The 1997 Annual Meeting of Stockholders (the "Annual Meeting") of Ugly
Duckling Corporation (the "Company") will be held at 4:00 p.m., Arizona Time, on
Tuesday, April 22, 1997, at The Ritz-Carlton, 2401 East Camelback Road, Phoenix,
Arizona 85016 for the following purposes:
1. To elect six directors for one-year terms;
2. To amend the Company's Certificate of Incorporation to increase the
authorized number of shares of Common Stock from 20,000,000 to 100,000,000
(the "Certificate Amendment");
3. To amend the Ugly Duckling Corporation Long-Term Incentive Plan to
increase the number of shares authorized for issuance thereunder from
800,000 to 1,800,000; and
4. To transact such other business as may properly come before the
Annual Meeting or any adjournment(s) thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. The Company is presently aware of no other
business to come before the Annual Meeting.
Each outstanding share of the Company's Common Stock entitles the holder of
record at the close of business on March 10, 1997 to receive notice of and to
vote at the Annual Meeting or any adjournments thereof. Shares of Common Stock
can be voted at the Annual Meeting only if the holder is present at the Annual
Meeting in person or by valid proxy. A copy of the Company's 1996 Annual Report
to Stockholders, which includes certified financial statements, is enclosed.
All stockholders are cordially invited to attend the Annual Meeting in
person.
By Order of the Board of Directors,
ERNEST C. GARCIA II
Chairman of the Board and
Chief Executive Officer
Phoenix, Arizona
March 17, 1997
IMPORTANT
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, STOCKHOLDERS ARE
REQUESTED TO SIGN, DATE AND MAIL THE ENCLOSED PROXY. A POSTAGE-PAID ENVELOPE IS
PROVIDED FOR MAILING IN THE UNITED STATES.
<PAGE> 3
UGLY DUCKLING CORPORATION
2525 EAST CAMELBACK ROAD
SUITE 1150
PHOENIX, ARIZONA 85016
------------------------
PROXY STATEMENT
1997 ANNUAL MEETING OF STOCKHOLDERS
APRIL 22, 1997
------------------------
This Proxy Statement is furnished to the stockholders of Ugly Duckling
Corporation (the "Company") in connection with the solicitation of proxies to be
used in voting at the Annual Meeting of Stockholders to be held on April 22,
1997 (the "Annual Meeting"). The enclosed proxy is solicited by the Board of
Directors of the Company. The proxy materials relating to the Annual Meeting
were mailed on or about March 17, 1997 to stockholders of record at the close of
business on March 10, 1997 (the "Record Date"). A person giving the enclosed
proxy has the power to revoke it at any time before it is exercised by: (i)
attending the Annual Meeting and voting in person; (ii) duly executing and
delivering a proxy bearing a later date; or (iii) sending written notice of
revocation to the Secretary of the Company at 2525 East Camelback Road, Suite
1150, Phoenix, AZ 85016.
The Company will bear the cost of solicitation of proxies, including the
charges and expenses of brokerage firms and others for forwarding solicitation
material to beneficial owners of the outstanding common stock, par value $.001
per share (the "Common Stock"), of the Company. In addition to the use of the
mails, proxies may be solicited by personal interview, telephone or telegraph.
VOTING SECURITIES OUTSTANDING
As of the Record Date, there were 18,407,460 shares of Common Stock
outstanding. Stockholders are entitled to one vote for each share held of record
on each matter of business to be considered at the Annual Meeting. Only holders
of record of Common Stock at the close of business on the Record Date will be
entitled to vote at the Annual Meeting, either in person or by valid proxy.
Ballots cast at the Annual Meeting will be counted by the Inspector of Elections
and determinations of whether a quorum exists and whether the proposals are
approved will be announced at the Annual Meeting. The Inspector of Elections
will treat abstentions and broker non-votes received as shares that are present
and entitled to vote for purposes of determining a quorum, but as unvoted for
purposes of determining the approval of any matter. If a broker indicates on the
proxy that it does not have discretionary authority as to certain shares to vote
on a particular matter, those shares will not be considered as present and
entitled to vote with respect to that matter.
The information included herein should be reviewed in conjunction with the
financial statements, notes to consolidated financial statements, independent
auditors' report and other information included in the Company's 1996 Annual
Report to Stockholders that was mailed with this Proxy Statement to all
stockholders of record on the Record Date.
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
The directors of the Company are elected each year for a term of one year.
At the Annual Meeting, stockholders will be asked to elect six directors for
terms that will expire at the 1998 Annual Meeting of Stockholders. The Board of
Directors has nominated Ernest C. Garcia, II, Robert J. Abrahams, Christopher D.
Jennings, John N. MacDonough, Arturo R. Moreno and Frank P. Willey for election
to the Board of Directors. They are all incumbent directors. Unless otherwise
noted thereon, the shares represented by the enclosed proxy will be voted for
the election of Messrs. Garcia, Abrahams, Jennings, MacDonough, Moreno
<PAGE> 4
and Willey as directors of the Company. The six nominees receiving the highest
number of votes cast at the Annual Meeting will be elected. If any of them
become unavailable for any reason or if a vacancy should occur before election
(which events are not anticipated), the shares represented by the enclosed proxy
may be voted for such other person or persons as may be determined by the
holders of such proxy. Each director elected will serve for one year or until
his successor is duly elected and qualified.
AMENDMENT TO THE COMPANY'S CERTIFICATE
OF INCORPORATION TO INCREASE THE AUTHORIZED
NUMBER OF SHARES OF COMMON STOCK
(PROPOSAL NO. 2)
The Company's Board of Directors has determined that it is in the best
interest of the Company and its stockholders to amend the Company's Certificate
of Incorporation (the "Certificate Amendment") to increase the authorized number
of shares of Common Stock from 20,000,000 to 100,000,000. If the Company's
stockholders approve the Certificate Amendment, the Company will be authorized
to issue a total of 110,000,000 shares of capital stock: 100,000,000 shares of
Common Stock and 10,000,000 shares of Preferred Stock.
If the Company's stockholders approve the Certificate Amendment, it will
become effective upon filing of an amendment to the Company's Certificate of
Incorporation with the Secretary of State of the State of Delaware. A copy of
the amendment to the Company's Certificate of Incorporation is attached hereto
as Exhibit A.
PURPOSE AND EFFECTS OF THE CERTIFICATE AMENDMENT
On the Record Date, there were 18,407,460 shares of Common Stock issued and
outstanding. Also on that date, the Company had reserved shares of Common Stock
for issuance as follows: (i) 1,800,000, subject to stockholder approval of
Proposal No. 3, for issuance under the Company's Long-Term Incentive Plan; (ii)
50,000 for issuance under the Company's 1996 Director Incentive Plan; and (iii)
286,000 issuable upon exercise of warrants issued in connection with the
Company's initial public offering.
The Company believes that lack of authorized Common Stock available for
issuance unnecessarily limits the Company's ability to pursue opportunities for
future financings, acquisitions, mergers and other transactions. The Company is
also limited in its ability to effectuate future stock splits or to grant stock
awards under either its Director Incentive Plan or its Long-Term Incentive Plan.
Although the Company has no commitments to issue additional shares of Common
Stock in the near future (other than upon exercise of outstanding options or
warrants), the Board of Directors believes that the increase in the authorized
shares of Common Stock is necessary to provide the Company with the flexibility
to pursue the types of opportunities described above without added delay or
expense.
If the Company's stockholders approve the Certificate Amendment, the Board
of Directors may cause the issuance of additional shares of Common Stock without
further vote of the stockholders. The issuance of additional shares of Common
Stock would decrease the proportional equity interest of the Company's current
stockholders. Current holders of Common Stock do not have preemptive or similar
rights, which means that current stockholders do not have a prior right to
purchase any new issue of Common Stock in order to maintain their proportionate
ownership level. If issued, the additional shares of Common Stock would have
rights identical to those currently outstanding shares of Common Stock.
The availability of authorized but unissued shares of Common Stock might
have the effect of preventing or discouraging an attempt by another person to
obtain control of the Company. Among other things, issuance of additional shares
could be authorized by the Board of Directors which would dilute the stock
ownership of such person. The Company has no plans for such issuances and this
proposal is not being proposed in response to a known effort to acquire control
of the Company.
2
<PAGE> 5
REQUIRED VOTE
The Certificate Amendment requires the affirmative vote of the holders of a
majority of the issued and outstanding shares of Common Stock entitled to vote
at the Annual Meeting. Because they are not affirmative votes for the
Certificate Amendment, abstentions and broker non-votes will have the same
effect as votes against the Certificate Amendment. If the Certificate Amendment
is approved, the Company intends to file an amendment to its Certificate of
Incorporation shortly after the Annual Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE
APPROVAL OF THE CERTIFICATE AMENDMENT.
AMENDMENT TO UGLY DUCKLING CORPORATION
LONG-TERM INCENTIVE PLAN
(PROPOSAL NO. 3)
The Board of Directors has approved, and recommends that the stockholders
approve, the amendment of the Ugly Duckling Corporation Long-Term Incentive Plan
(the "Plan") that would increase the total number of shares of Common Stock
available for awards from 800,000 to 1,800,000. On December 2, 1996, and March
, 1997, the Board of Directors approved amendments to the Plan, both of which
are subject to stockholder approval of this proposal, increasing the total
number of shares of Common Stock available for awards from 800,000 to 1,300,000
on and to 1,800,000 on March , 1997. The Plan authorizes grants of
incentive stock options ("ISOs"), non-qualified stock options ("NQSOs"), stock
appreciation rights, performance shares, restricted stock, dividend equivalents,
and other stock-based awards to employees, consultants, and advisors of the
Company. All of the Company's employees are eligible to participate in the Plan.
The Board of Directors believes that use of long-term incentives authorized
under the Plan is beneficial to the Company as a means of promoting the success
and enhancing the value of the Company by linking the personal interests of its
key employees and others to those of its stockholders and by providing key
employees with an incentive for outstanding performance. These incentives also
provide the Company flexibility in its ability to attract and retain the
services of employees and others upon whose judgment, interest and special
effort the successful conduct of the Company's operation is largely dependent.
As of March 10, 1997, (i) 44,196 shares have been issued upon exercise of
options and are included in the total number of shares of outstanding Common
Stock and (ii) options exercisable for 75,539 shares are currently outstanding
under the Plan. The Board believes that an increase in the number of authorized
shares is necessary for the continued optimal use of the Plan.
The Plan is administered by a committee appointed by the Board consisting
of at least two (2) non-employee directors (the "Committee"). The Committee has
the exclusive authority to administer the Plan, including the power to determine
eligibility, the types and sizes of awards, and the timing of awards.
To date, the Company has limited stock awards under the Plan to ISOs and
NQSOs, which are described below. Generally, options issued under the Plan have
been subject to vesting over a five-year period, with 20% of the options
becoming exercisable by the holder thereof on each successive anniversary date
of the grant. To date, the exercise price of all options granted under the Plan
has been equal to the fair market value of the Common Stock on the date of the
grant. On March 10, 1997, the last reported sale price of the Common Stock on
Nasdaq was $ per share.
3
<PAGE> 6
INCENTIVE STOCK OPTIONS
An ISO is a stock option that satisfies the requirements specified in
Section 422 of the Internal Revenue Code (the "Code"). Under the Code, ISOs may
only be granted to employees. In order for an option to qualify as an ISO, the
price payable to exercise the option must equal or exceed the fair market value
of the stock at the date of the grant, the option must lapse no later than 10
years from the date of the grant, and the stock subject to ISOs that are first
exercisable by an employee in any calendar year must not have a value of more
than $100,000 as of the date of grant. Certain other requirements must also be
met. The Committee determines the consideration to be paid to the Company upon
exercise of any options. The form of payment may include cash, Common Stock, or
other property.
An optionee is not treated as receiving taxable income upon either the
grant of an ISO or upon the exercise of an ISO. However, the difference between
the exercise price and the fair market value on the date of exercise is an item
of tax preference at the time of exercise in determining liability for the
alternative minimum tax, assuming that the Common Stock is either transferable
or is not subject to a substantial risk of forfeiture under Section 83 of the
Code. If at the time of exercise, the Common Stock is both nontransferable and
is subject to a substantial risk of forfeiture, the difference between the
exercise price and the fair market value of the Common Stock (determined at the
time the Common Stock becomes either transferable or not subject to a
substantial risk of forfeiture) will be a tax preference item in the year in
which the Common Stock becomes either transferable or not subject to a
substantial risk of forfeiture.
If Common Stock acquired by the exercise of an ISO is not sold or otherwise
disposed of within two years from the date of its grant and is held for at least
one year after the date such Common Stock is transferred to the optionee upon
exercise, any gain or loss resulting from its disposition is treated as
long-term capital gain or loss. If such Common Stock is disposed of before the
expiration of the above-mentioned holding periods, a "disqualifying disposition"
occurs. If a disqualifying disposition occurs, the optionee realizes ordinary
income in the year of the disposition in an amount equal to the difference
between the fair market value of the Common Stock on the date of exercise and
the exercise price, or the selling price of the Common Stock and the exercise
price, whichever is less. The balance of the optionee's gain on a disqualifying
disposition, if any, is taxed as capital gain.
The Company is not entitled to any tax deduction as a result of the grant
or exercise of an ISO, or on a later disposition of the Common Stock received,
except that in the event of a disqualifying disposition, the Company is entitled
to a deduction equal to the amount of ordinary income realized by the optionee.
NON-QUALIFIED STOCK OPTIONS
An NQSO is any stock option other than an Incentive Stock Option. Such
options are referred to as "non-qualified" because they do not meet the
requirements of, and are not eligible for, the favorable tax treatment provided
by Section 422 of the Code.
No taxable income is realized by an optionee upon the grant of an NQSO, nor
is the Company entitled to a tax deduction by reason of such grant. Upon the
exercise of an NQSO, the optionee realizes ordinary income in an amount equal to
the excess of the fair market value of the Common Stock on the date of exercise
over the exercise price and the Company is entitled to a corresponding tax
deduction.
Upon a subsequent sale or other disposition of Common Stock acquired
through exercise of an NQSO, the optionee realizes short-term or long-term
capital gain or loss to the extent of any intervening appreciation or
depreciation. Such a resale by the optionee has no tax consequence to the
Company.
The following table sets forth grants of options made under the Plan during
1996 to (i) each of the executive officers named on page six; (ii) all current
executive officers, as a group; (iii) all current directors who are not
executive officers, as a group; and (iv) all employees, including all current
officers who are not executive officers, as a group. Grants under the Plan are
made at the discretion of the Committee. Accordingly, future grants under the
Plan are not yet determinable.
4
<PAGE> 7
PLAN BENEFITS
LONG-TERM INCENTIVE PLAN
<TABLE>
<CAPTION>
NUMBER OF SHARES WEIGHTED AVERAGE
SUBJECT TO OPTIONS EXERCISE PRICE
NAME AND POSITION GRANTED(#) PER SHARE($/SH)
- ------------------------------------------------------------ ------------------ ----------------
<S> <C> <C>
Ernest C. Garcia, II........................................ -- --
Chairman of the Board and Chief Executive Officer
Steven T. Darak............................................. 40,000 14.955
Senior Vice President and Chief Financial Officer
Walter J. Vonsh............................................. 50,000 12.220
Vice President-Credit
Donald T. Addink............................................ 100,000 5.692
Vice President-Senior Analyst
Steven P. Johnson........................................... 25,000 13.314
Senior Vice President and General Counsel
Executive Officer Group..................................... 552,620 9.265
Director Group.............................................. -- --
Employee Group.............................................. 359,000 8.604
</TABLE>
REQUIRED VOTE
Approval of the amendment to the Plan requires the affirmative vote of a
majority of shares of Common Stock present at the Annual Meeting in person or by
proxy. Abstentions are considered present for this proposal, so they will have
the same effect as votes against the proposal. Broker non-votes are not
considered present for this proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE
APPROVAL OF THE AMENDMENT TO THE PLAN.
INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS
Information concerning the names, ages, terms, positions with the Company
and business experience of the Company's current directors and executive
officers is set forth below.
<TABLE>
<CAPTION>
TERM AS
DIRECTOR
NAME AGE POSITION EXPIRES
- ------------------------------------- --- ------------------------------------- -------
<S> <C> <C> <C>
Ernest C. Garcia II.................. 39 Chairman of the Board and Chief 1997
Executive Officer
Robert J. Abrahams(1)................ 70 Director 1997
Christopher D. Jennings(2)........... 43 Director 1997
John N. MacDonough................... 53 Director 1997
Arturo R. Moreno(1).................. 50 Director 1997
Frank P. Willey(2)................... 44 Director 1997
Gregory B. Sullivan.................. 38 President and Chief Operating Officer
Steven P. Johnson.................... 37 Senior Vice President and General
Counsel
Steven T. Darak...................... 49 Senior Vice President and Chief
Financial Officer
Walter T Vonsh....................... 54 Vice President -- Credit
Donald L. Addink..................... 47 Vice President -- Senior Analyst
Sheila A. Brandt..................... 31 Vice President and Chief Information
Officer
Peter R. Fratt....................... 39 Vice President -- Real Estate
Eric J. Splaver...................... 34 Corporate Controller
</TABLE>
- ---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
5
<PAGE> 8
Ernest C. Garcia, II, has served as the Chairman of the Board and Chief
Executive Officer of the Company since its founding in 1992, and served as
President from 1992 to 1996. Since 1991, Mr. Garcia has served as President of
Verde Investments, Inc. ("Verde"), a real estate investment corporation that is
also an affiliate of the Company. Prior to 1990, when he founded the Company,
Mr. Garcia was involved in various real estate, securities, and banking
ventures.
Robert J. Abrahams has served as a director of the Company since June 1996.
Mr. Abrahams has served since 1988 as a consultant to the financing industry,
including service as a consultant to the Company from 1994 to 1995. From 1960 to
1988, Mr. Abrahams was an executive officer of Heller Financial, Inc., a finance
company. Prior to joining Heller Financial, Inc., Mr. Abrahams co-founded
Financial Acceptance Company in 1948. Mr. Abrahams is also a director of HMI
Industries, a manufacturing company and Smart Choice Holdings, Inc., which is in
the automobile business. Mr. Abrahams serves as a member of the Audit Committee
of the Board of Directors.
Christopher D. Jennings has served as a director of the Company since June
1996. Mr. Jennings has served as a managing director of Cruttenden Roth
Incorporated, an investment banking firm, since 1995. From 1992 to 1994, Mr.
Jennings served as a Managing Director of investment banking at Sutro & Co., an
investment banking firm. From 1989 to 1992, Mr. Jennings served as a Senior
Managing Director at Maiden Lane Associates, Ltd., a private equity fund. Prior
to 1989, Mr. Jennings served in various positions with, among others, Dean
Witter Reynolds, Inc. and Warburg Paribas Becker, Inc., both of which are
investment banking firms. Mr. Jennings serves as a member of the Compensation
Committee of the Board of Directors.
John N. MacDonough has served as a director of the Company since June 1996.
Mr. MacDonough has served as Chairman and Chief Executive Officer of Miller
Brewing Company, a brewer and marketer of beer, since 1993, having previously
served from 1992 to 1993 as President and Chief Operating Officer. Prior to
1992, Mr. MacDonough was employed in various positions at Anheuser Busch, Inc.,
also a brewer and marketer of beer. Mr. MacDonough is also a director of M & I
Bank. Mr. MacDonough is married to the sister of Mr. Sullivan.
Arturo R. Moreno has served as a director of the Company since June 1996.
Mr. Moreno has served as the President and Chief Executive Officer of Outdoor
Systems, Inc., one of the largest outdoor media companies in the United States,
since 1984. Prior to 1984, Mr. Moreno held various executive positions in the
outdoor advertising industry. Mr. Moreno serves as a member of the Audit
Committee of the Board of Directors.
Frank P. Willey has served as a director of the Company since June 1996.
Mr. Willey has served as the President of Fidelity National Financial, Inc., one
of the nation's largest title insurance underwriters, since January 1995. From
1984 to 1994, Mr. Willey served as the Executive Vice President and General
Counsel of Fidelity National Title. Mr. Willey is also a director of CKE
Restaurants, Inc., an operator of various quick-service restaurant chains,
Southern Pacific Funding Corporation, a specialty finance company that
originates, purchases and sells high-yield, non-conforming mortgage loans and
Fidelity National Financial, Inc. Mr. Willey serves as a member of the
Compensation Committee of the Board of Directors.
Gregory B. Sullivan has served as President and Chief Operating Officer of
the Company since February 1996 after serving as a consultant to the Company
since 1995. Mr. Sullivan formerly served as President and principal stockholder
of National Sports Games, Inc., an amusement game manufacturing company that he
co-founded in 1989 and sold in 1994. Prior to 1989, Mr. Sullivan was involved in
the securities industry and practiced law with a large Arizona firm. He is a
member of the State Bar of Arizona.
Steven P. Johnson has served as Senior Vice President, Secretary, and
General Counsel of the Company since its founding in 1992. Since 1991, Mr.
Johnson has also served as the General Counsel of Verde. Prior to 1991, Mr.
Johnson practiced law in Tucson, Arizona. Mr. Johnson is licensed to practice
law in Arizona and Colorado and is married to the sister of Mr. Garcia.
6
<PAGE> 9
Steven T. Darak has served as the Senior Vice President and Chief Financial
Officer of the Company since February 1994, having joined the Company in 1994 as
Vice President and Chief Financial Officer. From 1989 to 1994, Mr. Darak owned
and operated Champion Financial Services, Inc., a used car finance company that
the Company acquired in early 1994. Prior to 1989, Mr. Darak served in various
positions in the banking industry and in public accounting.
Walter T. Vonsh has served as the Vice President -- Credit of the Company
since July 1995. Mr. Vonsh joined the Company in March 1995 as the President of
Champion Financial Services, Inc., the Company's Third Party Dealer financing
subsidiary, and also serves as the President of Champion Acceptance Corp. From
1992 to 1995, Mr. Vonsh served as a Regional Director for Mercury Finance Co., a
consumer finance company. Prior to 1992, Mr. Vonsh was President of Gemini
Leasing Corp., an equipment leasing company, and held various positions at other
finance companies.
Donald L. Addink has served as the Vice President -- Senior Analyst of the
Company since 1995 and also serves as the Vice President of Verde. From 1988 to
1995, Mr. Addink served as Executive Vice President of Pima Capital Co., a life
insurance holding company. Prior to 1988, Mr. Addink served in various
capacities with a variety of insurance companies. Mr. Addink is a Fellow of the
Society of Actuaries and a Member of the American Academy of Actuaries.
Sheila A. Brandt has served as Vice President and Chief Information Officer
of the Company since May 1996. Prior thereto, Ms. Brandt served as a Research
Scientist for the Center for the Management of Information at the University of
Arizona. From 1992 to 1995, Ms. Brandt earned an M.S. and Ph.D. in Management
Information Systems at the University of Arizona while practicing as an
independent systems consultant. Prior to 1992, Ms. Brandt held various positions
with Andersen Consulting and Eastman Kodak Company.
Peter R. Fratt has served as Vice President -- Real Estate of the Company
since October 1993. From 1989 to 1993, Mr. Fratt was an associate of CB
Commercial Real Estate Services. Prior to that time, Mr. Fratt was involved in
commercial real estate brokerage and investment.
Eric J. Splaver has served as Corporate Controller of the Company since May
1994. From 1985 to 1994, Mr. Splaver worked as a certified public accountant
with KPMG Peat Marwick LLP.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
In March 1987, Mr. Ernest C. Garcia, II, the Company's Chairman, Chief
Executive Officer, and principal stockholder, obtained $20 million in financing
from Lincoln Savings and Loan Association ("Lincoln") to repurchase stock in his
real estate development company held by a corporate investor. Subsequently, Mr.
Garcia agreed to facilitate the purchase of certain land from a Lincoln
subsidiary. The two transactions closed simultaneously. Soon thereafter, Lincoln
was placed into receivership and federal regulators from the RTC and other
government agencies began investigating numerous transactions involving Lincoln
and a variety of third parties, including Mr. Garcia.
Upon being notified of the RTC's investigation, Mr. Garcia met voluntarily
with RTC investigators, without counsel, for several months and provided full
disclosure concerning the details of his dealings with Lincoln. Nearly one year
later, the RTC asserted that the financing transaction and the land transaction,
though documented separately, were linked and that, as a result of the
transaction, Lincoln improperly recorded a gain in violation of certain
accounting rules applicable to Lincoln. As a result, in October 1990, the United
States, on behalf of the RTC, informed Mr. Garcia that it intended to charge him
with bank fraud. Mr. Garcia was never indicted for his role in the transaction,
but, facing severe financial pressures, agreed to plead guilty to one count of
bank fraud.
Prior to his sentencing in 1993, the RTC submitted a letter to the United
States District Court for the Central District of California urging that the
court take favorable account of Mr. Garcia's relative responsibility and
culpability, as well as his timely and honest cooperation, in determining an
appropriate sentence. In this letter, the RTC stated its belief that the chief
executive officer of Lincoln's parent company,
7
<PAGE> 10
Charles H. Keating, Jr., not Mr. Garcia, devised the transaction and that Mr.
Garcia was not even aware of the existence of Mr. Keating's illegal schemes and
had no reason to believe that the transaction would enable Mr. Keating to
defraud Lincoln. The RTC letter also noted Mr. Garcia's extensive cooperation
with federal investigators, which began prior to the time he was charged and
continued until his sentencing. In December 1993, the court, following the RTC's
recommendation, sentenced Mr. Garcia to three years of probation and fined him
$50 (the minimum fine that the court could assess). Under the terms of the
probation, Mr. Garcia was barred from affiliating in any way with a federally
insured banking institution without prior approval. In December 1996, Mr. Garcia
completed his probation.
In connection with the criminal action, the RTC filed a civil suit against
Mr. Garcia, which the parties settled after Mr. Garcia agreed to cooperate fully
with the RTC in its investigation and prosecution of Lincoln-related matters.
Pursuant to the terms of his settlement agreement, and in light of Mr. Garcia's
cooperation, the RTC released Mr. Garcia from civil liability. Also in
connection with this action, the Securities and Exchange Commission (the
"Commission") commenced civil and administrative actions against Mr. Garcia.
Without admitting or denying any of the Commission's allegations, Mr. Garcia
consented to a court order permanently enjoining him and his affiliates from
violating the federal securities laws and to a Commission order barring him
(with a right to reapply upon the cessation of his probation) from associating
in any capacity with any broker, dealer, municipal securities dealer, investment
adviser, or investment company.
As a result of a decline in the Arizona real estate market in the late
1980s, changes in the tax laws affecting real estate, and the 1987 stock market
crash, in April 1990 a real estate investment company controlled by Mr. Garcia,
as well as several limited partnerships organized by that company, filed
petitions for reorganization under Chapter 11 of the United States Bankruptcy
Code (the "Bankruptcy Code"). All of these reorganization proceedings were
successfully concluded by 1993. Many of the obligations of these entities were
personally guaranteed by Mr. Garcia and his wife. As a result, Mr. Garcia and
his wife filed a petition under Chapter 7 of the Bankruptcy Code in 1990, which
was discharged in October 1991.
MEETINGS OF THE BOARD AND ITS COMMITTEES
BOARD OF DIRECTORS. During the year ended December 31, 1996, the Board of
Directors of the Company met on three occasions. All but two directors attended
at least 75% of the meetings, with Messrs. Garcia and MacDonough attending two
of the three meetings. Mr. Garcia did not attend one telephonic meeting because
the meeting was related to the purchase of various properties from Verde, of
which Mr. Garcia is the President and sole stockholder.
COMPENSATION COMMITTEE. The Compensation Committee of the Board of
Directors, which consists of Messrs. Jennings and Willey, met once during 1996.
The Compensation Committee reviews executive salaries and administers bonus,
incentive compensation, and stock option plans of the Company, including the
Long-Term Incentive Plan. In addition, the Compensation Committee consults with
management of the Company regarding compensation policies and practices of the
Company. The Report of the Compensation Committee for 1996 is set forth below.
AUDIT COMMITTEE. The Audit Committee, which consists of Messrs. Abrahams
and Moreno, met once during 1996. The Audit Committee reviews the professional
services provided by the Company's independent auditors, the annual financial
statements of the Company, and the Company's system of internal controls.
OTHER COMMITTEES. The Company does not maintain a standing nominating
committee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. The
Compensation Committee of the Board of Directors during 1996 consisted of Mr.
Jennings and Mr. Willey, neither of whom was an employee of the Company during
1996.
8
<PAGE> 11
EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual and long
term compensation for services rendered in all capacities to the Company during
the two fiscal years ended December 31, 1996 of those persons who were, at
December 31, 1996: (i) the Company's Chief Executive Officer and (ii) the four
other most highly compensated executive officers of the Company (collectively,
the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION -----------------------------------
------------------- SECURITIES
SALARY UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($) BONUS($) OPTIONS(#)(1) COMPENSATION ($)(2)
- ------------------------------------- ----- -------- -------- ------------- -------------------
<S> <C> <C> <C> <C> <C>
Ernest C. Garcia II.................. 1996 $121,538 -- -- $ 3,873(3)
Chairman of the Board & Chief 1995 $100,000 -- -- $ 3,151(3)
Executive Officer
Steven T. Darak...................... 1996 $100,000 $100,000 40,000 $ 9,250(4)
Senior Vice President and 1995 $100,000 $100,000 -- $12,500
Chief Financial Officer
Walter T. Vonsh...................... 1996 $126,923 $ 30,000 50,000 $ 3,704(5)
Vice President -- Credit 1995 $ 97,692 -- -- $ 5,277(5)
Donald L. Addink..................... 1996 $122,142 $ 10,000 42,000 $ 485
Vice President -- Senior Analyst 1995 $ 71,026 $ 10,000 58,000 $ 984
Steven P. Johnson.................... 1996 $121,538 -- 25,000 $ 566
Senior Vice President and 1995 $100,000 -- -- $ 177
General Counsel
</TABLE>
- ---------------
(1) The amounts shown in this column represent stock options granted pursuant to
the Company's Long-Term Incentive Plan.
(2) The amounts shown represent the dollar value of 401(k) plan contributions
made by the Company for the benefit of the Named Executive Officers.
(3) This amount includes a $2,950 car allowance for Mr. Garcia.
(4) This amount includes $10,500 and $7,500 paid by the Company for a Phoenix
apartment for Mr. Darak during 1995 and 1996, respectively, while his full
time residence was in Tucson, Arizona, and a $1,750 car allowance.
(5) This amount includes a $2,850 and $5,000 car allowance for Mr. Vonsh during
1995 and 1996, respectively.
9
<PAGE> 12
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding stock options granted
pursuant to the Company's Long-Term Incentive Plan during the fiscal year ended
December 31, 1996, to the Named Executive Officers.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
-------------------------------------------------------------- ANNUAL RATES OF
NUMBER OF STOCK PRICE
SECURITIES PERCENTAGE OF APPRECIATION FOR
UNDERLYING TOTAL OPTIONS EXERCISE OR OPTION TERM(2)
OPTIONS GRANTED TO BASE PRICE EXPIRATION -----------------
NAME GRANTED(#)(1) EMPLOYEES IN 1996 ($/SHARE) DATE 5%($) 10%($)
- -------------------------- ------------- ------------------- ----------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Ernest C. Garcia II....... -- -- -- -- -- --
Steven T. Darak........... 10,000 1.9% $ 6.75 5/31/02 42,450 107,578
30,000 5.6% $ 17.69 12/01/02 333,754 845,799
Walter T. Vonsh........... 25,000 4.6% $ 6.75 5/31/02 106,126 268,944
25,000 4.6% $ 17.69 12/01/02 278,129 704,833
Donald L. Addink.......... 25,000 4.6% $ 6.75 5/31/02 106,126 268,944
17,000 3.2% $ 17.69 12/01/02 189,127 479,286
Steven P. Johnson......... 10,000 1.9% $ 6.75 5/31/02 42,450 107,578
15,000 2.9% $ 17.69 12/01/02 166,877 422,900
</TABLE>
- ---------------
(1) Generally, options are subject to vesting over a five-year period, with 20%
of the options becoming exercisable on each successive anniversary of the
grant.
(2) Gains are reported net of the option exercise price, but before taxes
associated with exercise. These amounts represent certain assumed rates of
appreciation. Actual gains, if any, on stock option exercises are dependent
on the future performance of the Company's Common Stock other forms of
Stock-based awards, as well as the option holder's continued employment with
the Company throughout the vesting period. The amounts reflected in this
table will not necessarily be achieved.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND OPTION VALUES AS OF DECEMBER
31, 1996
The table below sets forth information with respect to option exercises and
the number and value of options outstanding at December 31, 1996 held by the
Named Executive Officers. The Company has never issued any other forms of
stock-based awards.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES FISCAL YEAR END(#)(1) FISCAL YEAR END($)(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------- ----------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ernest C. Garcia, II........ -- -- -- -- -- --
Steven T. Darak............. -- -- -- 40,000 -- $ 181,800
Walter T. Vonsh............. -- -- -- 50,000 -- $ 364,000
Donald L. Addink............ -- -- 11,600 88,400 $ 206,248 $ 1,174,512
Steven P. Johnson........... -- -- -- 25,000 -- $ 154,650
</TABLE>
- ---------------
(1) Generally, options are subject to vesting over a five-year period, with 20%
of the options becoming exercisable on each successive anniversary of the
date of grant.
(2) Based on a fair market value of $19.50 as of December 31, 1996, the closing
sale price of the Company's Common Stock on that date as reported by Nasdaq
National Market.
LONG-TERM INCENTIVE PLAN
In June 1995, the Company's stockholders approved the Ugly Duckling
Corporation Long-Term Incentive Plan (the "Plan"). Under the Plan, the Company
may grant various stock-based awards, including incentive stock options and
non-qualified stock options to employees, consultants, and advisors of the
Company. The Plan is administered by the Compensation Committee of the Board of
Directors, which has the
10
<PAGE> 13
exclusive authority to administer the Plan, including the power to determine
eligibility, the type and number of awards to be granted, and the terms and
conditions of any award granted, including the price and timing of awards. As of
December 31, 1996, the Company had granted options to purchase 911,620 shares of
Common Stock to various of its employees. For additional information regarding
the Plan, see .
401(K) PLAN
Under the Company's 401(k) plan, adopted in October 1995, eligible
employees may direct that a portion of their compensation, up to a legally
established maximum, be withheld by the Company and contributed to their
account. All 401(k) plan contributions are placed in a trust fund to be invested
by the 401(k) plan's trustee, except that the 401(k) plan may permit
participants to direct the investment of their account balances among mutual or
investment funds available under the plan. The 401(k) plan provides a matching
contribution of 10.0% of a participant's contributions. Amounts contributed to
participant accounts under the 401(k) plan and any earnings or interest accrued
on the participant accounts are generally not subject to federal income tax
until distributed to the participant and may not be withdrawn until death,
retirement, or termination of employment.
CHANGE IN CONTROL ARRANGEMENTS
In the event of a "change of control" of the Company, all outstanding
options under the Plan will, unless otherwise determined by the Board of
Directors, become exercisable in full and all restrictions on outstanding awards
will lapse. A "change in control" under the Plan may be any consolidation or
merger of the Company in which the Company is not the continuing or surviving
entity, or pursuant to which stock would be converted into cash, securities or
other property; any sale, lease exchange or other transfer of more than 40% of
the assets or earning power of the Company; the approval by shareholders of any
plan or proposal for liquidation or dissolution of the Company; or any person,
other than a current shareholder, any affiliate thereof, any employee benefit
plan of the Company or subsidiary of the Company becomes beneficial owner of 20%
or more of the Company's outstanding stock.
EMPLOYMENT CONTRACTS
On January 1, 1996, the Company entered into a three-year employment
agreement with Mr. Ernest C. Garcia, II, the Company's Chairman and Chief
Executive Officer. The agreement establishes Mr. Garcia's base salary for 1997
at $132,000 per year and provides a minimum 10.0% increase in the base salary
each year throughout the term of the agreement. In addition, the agreement
provides for the continuation of Mr. Garcia's base salary and certain benefits
for a period of one year in the event Mr. Garcia is terminated by the Company
without cause prior to that time. The agreement also contains confidentiality
and non-compete covenants.
On April 1, 1995, the Company entered into a three-year employment
agreement with Mr. Walter T. Vonsh, the Company's Vice President -- Credit. The
agreement establishes Mr. Vonsh's base salary for 1997 at $150,000 per year. In
addition, the agreement provides for the continuation of Mr. Vonsh's base salary
and certain benefits for the term of the agreement in the event Mr. Vonsh is
terminated by the Company without cause prior to that time. The agreement also
contains confidentiality and non-compete covenants.
On June 1, 1995, the Company entered into a five-year employment agreement
with Mr. Donald L. Addink, the Company's Vice President -- Senior Analyst. The
agreement establishes Mr. Addink's base salary at $120,000 per year, adjusted
for inflation. In addition, the agreement provides for the continuation of Mr.
Addink's base salary and certain benefits for a period of one year in the event
Mr. Addink is terminated by the Company without cause prior to that time. The
agreement also contains confidentiality and non-compete covenants.
COMPENSATION OF DIRECTORS
The Company's independent directors are compensated $1,000 for attendance
at meetings of the Board of Directors and at meetings of committees of the Board
of Directors of which they are members, and are
11
<PAGE> 14
reimbursed for reasonable travel expenses incurred in connection with attendance
at each Board and committee meeting. In addition, pursuant to the Company's
Director Incentive Plan, upon appointment or election to the Board of Directors,
each independent director of the Company receives Common Stock of the Company
valued at $30,000, which is subject to vesting in equal annual increments over a
three-year period. Directors who are also officers of the Company are not
compensated for their service as directors.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's Compensation Committee is comprised entirely of independent,
outside members of the Company's Board of Directors. The Compensation Committee
reviews and approves each of the elements of the executive compensation program
of the Company and periodically assesses the effectiveness and competitiveness
of the program in total. In addition, the Compensation Committee administers the
key provisions of the executive compensation program and reviews with the Board
of Directors in detail all aspects of compensation for the Company's executives.
The Compensation Committee has furnished the following report on executive
compensation.
OVERVIEW AND PHILOSOPHY
The Company's compensation program for executive officers is primarily
comprised of base salary, bonus and long-term incentives in the form of stock
option grants. Executives also participate in various other benefit plans,
including medical and 401(k) plans, generally available to all employees of the
Company.
The Company's philosophy is to pay base salaries to executives at levels
that enable the Company to attract, motivate and retain highly qualified
executives. In addition, the Company gives bonuses as a reward for performance
based upon individual performance and overall Company financial results. Stock
option grants are intended to result in no reward if the stock price does not
appreciate, but may provide substantial rewards to executives as stockholders
benefit from stock price appreciation.
BASE SALARY AND BONUSES
Each Company executive receives a base salary, which when aggregated with
their bonus, is intended to be competitive with similarly situated executives in
the Company's industry. The Company targets base pay at the level required to
attract and retain highly qualified executives. In determining salaries, the
Compensation Committee also takes into account individual experience and
performance and specific needs particular to the Company.
In addition to base salary, executives are eligible to receive an annual
bonus. The bonuses are based upon executive performance. The Company feels that
bonuses paid in 1996 were reflective of such performance. The amount of bonus
and the performance criteria vary with the position and role of the executive
within the Company, although bonuses are significantly tied to the Company's
financial performance.
OPTIONS
The Company believes that it is important for executives to have an equity
stake in the Company and, toward this end, makes option grants to key executives
from time to time. In making option awards, the Compensation Committee reviews
the level of awards granted to executives at companies in the Company's
industry, the awards granted to other executives within the Company and the
individual officer's specific role at the Company.
In 1996, the Compensation Committee approved stock option grants to several
officers. These options were granted at fair market value with all of the
options granted in 1996 subject to vesting over a five-year period, with 20% of
the options becoming exercisable on each successive anniversary of the date of
grant, and expire ten years after the grant date.
12
<PAGE> 15
OTHER BENEFITS
Executive officers are eligible to participate in benefit programs designed
for all full time employees of the Company. These programs include medical,
disability and life insurance and a savings program qualified under Section
401(k) of the Code.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Garcia was the founder of the Company and has served as its Chief
Executive Officer since the Company's inception in 1992. On January 1, 1996, the
Company entered into a three-year employment agreement with Mr. Garcia. The
agreement established Mr. Garcia's base salary for 1996 at $121,538 and provides
for a minimum 10.0% increase in the base salary each year throughout the term of
the agreement. Mr. Garcia did not receive a bonus and did not participate in the
Company's Long-Term Incentive Plan in 1996. Mr. Garcia does receive standard
benefits under the Company's 401(k) plan. The Compensation Committee believes
that Mr. Garcia's salary is at or below the compensation paid to Chief Executive
Officers of comparable, publicly-held automobile finance companies.
COMPENSATION COMMITTEE
Christopher D. Jennings Frank P. Willey
13
<PAGE> 16
STOCK PRICE PERFORMANCE GRAPH
The graph below compares cumulative total return of the Company, the Nasdaq
Stock Market Index and the Nasdaq Retail Trade Index from June 18, 1996 to
December 31, 1996. The graph assumes that $100 was invested on June 18, 1996
(the date the Company's Common Stock began trading on Nasdaq following its
initial public offering) and that any dividends were reinvested.
<TABLE>
<CAPTION>
MEASUREMENT PERIOD UGLY NASDAQ STOCK NASDAQ
(FISCAL YEAR COVERED) DUCKLING MARKET RETAIL TRADE
<S> <C> <C> <C>
6/18/96 100 100 100
6/28/96 137 100 100
7/31/96 131 91 94
8/31/96 135 97 100
9/30/96 198 104 105
10/31/96 233 103 101
11/30/96 257 109 103
12/31/96 289 109 99
</TABLE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 10, 1997, for: (i) each
director of the Company; (ii) the Named Executive Officers of the Company; (iii)
all directors and executive officers of the Company as a group; and (iv) each
beneficial owner of more than 5% of the outstanding Common Stock. To the
knowledge of the Company, all persons listed below have sole voting and
investment power with respect to their shares, except to the extent that
authority is shared by their respective spouses under applicable law.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(1)
---------------------
NAME OF BENEFICIAL OWNER(2) NUMBER PERCENT
--------------------------------------------------------- --------- -------
<S> <C> <C>
Ernest C. Garcia, II(3).................................. 4,636,500 25.2%
Robert J. Abrahams....................................... 6,744 *
Christopher D. Jennings(4)............................... 6,444 *
John N. MacDonough....................................... 4,444 *
Arturo R. Moreno......................................... 24,444 *
Frank P. Willey.......................................... 9,444 *
Steven T. Darak.......................................... 130,000 *
Walter T. Vonsh.......................................... 72,000 *
Donald L. Addink(5)...................................... 16,600 *
Steven P. Johnson........................................ 300,000 1.6
Wellington Management Company, LLP....................... 963,500(6)
All directors and executive officers as a group (14 5,317,780 28.9%
persons)(7)............................................
</TABLE>
- ---------------
* Represents less than one percent of the outstanding Common Stock.
14
<PAGE> 17
(1) A person is deemed to be the beneficial owner of securities that can be
acquired within 60 days from the date set forth above through the exercise
of any option, warrant, or right. Shares of Common Stock subject to options,
warrants, or rights which are currently exercisable or exercisable within 60
days are deemed outstanding for computing the percentage of the person
holding such options, warrants, or rights, but are not deemed outstanding
for computing the percentage of any other person. The amounts and
percentages are based upon 18,407,460 shares of Common Stock outstanding as
of March 10, 1997.
(2) Unless otherwise noted, the address of each of the listed stockholders is
2525 East Camelback Road, Suite 1150, Phoenix, Arizona 85016.
(3) Includes 36,500 shares held by The Garcia Family Foundation, Inc., an
Arizona nonprofit corporation.
(4) Mr. Jennings disclaims beneficial ownership of warrants owned by
Cruttenden Roth, Inc., the investment banking firm of which he is managing
director.
(5) The total for Mr. Addink includes 11,600 shares of Common Stock subject to
immediately exercisable options, which have an exercise price of $1.72 per
share.
(6) This amount includes 570,000 over which Wellington Management Company, LLP
has sole voting power and 963,500 over which it has sole dispositive power.
(7) The total for all directors and executive officers as a group includes
44,080 shares subject to unexercised options that are exercisable on March
10, 1996 or within 60 days thereafter.
CERTAIN TRANSACTIONS AND RELATIONSHIPS
Since its inception, the Company has maintained business relationships and
engaged in certain transactions with the affiliated companies and parties
described below. Any future transactions between the Company and its affiliated
entities, executive officers, directors, or significant stockholders will
require the approval of a majority of the independent directors of the Company
and will be on terms no less favorable to the Company than the Company could
obtain from non-affiliated parties.
Pursuant to an agreement (the "Modification Agreement") between the Company
and Verde, effective June 21, 1996, Verde agreed to sell to the Company at any
time prior to June 21, 1997, upon receipt of financing by the Company, the six
car lots, vehicle reconditioning center, and two office buildings owned by Verde
and leased to the Company at a price equal to the lower of $7.45 million or the
appraised value of the properties (as determined by an independent third party).
Verde also agreed to the rents on such properties to an aggregate of $745,000
per year subject to cost of living adjustments if the sale did not take place.
In addition, Verde assigned to the Company its leasehold interest in two
properties it sub-leased to the Company. Previously the leases on the Verde
properties called for base monthly rents aggregating approximately $123,000 plus
contingent rents as well as all occupancy and maintenance costs, including real
estate taxes, insurance, and utilities. Rents paid to Verde pursuant to these
leases totaled $1.2 million, $1.9 million, and $1.5 million during fiscal years
1994, 1995, and 1996, respectively. On December 31, 1996, the Company purchased
the properties from Verde for $7,450,000 pursuant to the Modification Agreement.
In connection with the purchase, Verde returned security deposits which totaled
$364,000. The security deposits are included in Other Assets in the Consolidated
Balance Sheet of the Company as of December 31, 1995. Also pursuant to the
Modification Agreement, Verde lowered the interest rate on $14.0 million of the
Company's subordinated debt payable to Verde from 18.0% to 10.0% per annum and
lowered from 12.0% to 10.0% the dividend rate on $10.0 million of the Company's
Preferred Stock held by Verde. The Preferred Stock was subsequently redeemed. In
prior periods, Verde leased or subleased several facilities to the Company and
lent the Company funds through subordinated note arrangements. Mr. Ernest C.
Garcia, II, the Company's Chairman, Chief Executive Officer, and principal
stockholder, is the President and sole stockholder of Verde.
In January 1996, in connection with the sale of its Gilbert dealership, the
Company purchased the land for the Gilbert dealership from Verde for a total
price of $750,000, which the Company believes approximated fair market value.
Simultaneous with such purchase, the Company sold the land purchased from Verde
together with the dealership building and other improvements (which had been
constructed by the Company)
15
<PAGE> 18
to a third party for $512,500 in cash and a promissory note in the principal
amount of $1.2 million. The Company recognized a loss on the sale of $120,000,
for which an allowance was established as of December 31, 1995.
Mr. Christopher D. Jennings, a managing director of Cruttenden Roth
Incorporated ("Cruttenden Roth"), is a director of the Company. Cruttenden Roth
served as the sole representative in the Company's initial public offering and
one of two representatives in a secondary offering concluded in November, 1996.
In its capacity as representative, Cruttenden Roth participated in the
underwriting discount and, in connection with the initial public offering
received a non-accountable expense allowance and warrants to purchase Common
Stock.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors and persons who own more than 10% of a registered
class of the Company's equity securities, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission. Officers,
directors and greater than 10% stockholders are required by Commission
regulations to furnish the Company with copies of all Section 16(a) forms they
file. Based solely upon a review of the copies of such forms furnished to the
Company, or written representations that no forms were required, the Company
believes that all of these filing requirements were satisfied during the fiscal
year ended December 31, 1996. However two Form 4s for Eric J. Splaver, which
were due on July 10 and August 10, were filed on August 13, 1996 and one Form 4
for Arturo Moreno which was due on July 10, 1996 will be filed in March 1997.
INDEPENDENT ACCOUNTANTS
The principal independent public accounting firm utilized by the Company
during the fiscal year ended December 31, 1996 was KPMG Peat Marwick, LLP
independent certified public accountants (the "Auditors"). It is presently
contemplated that the Auditors will be retained as the principal accounting firm
to be utilized by the Company during the current fiscal year. A representative
of the Auditors will attend the Annual Meeting for the purpose of responding to
appropriate questions and will be afforded an opportunity to make a statement if
he or she so desires.
STOCKHOLDER PROPOSALS
Stockholder proposals for the 1998 Annual Meeting must be received at the
principal executive offices of the Company by November 17, 1997 to be considered
for inclusion in the Company's proxy materials relating to such meeting.
OTHER MATTERS
The Company does not intend to present at the Annual Meeting any matters
other than those described herein and does not presently know of any matters
that will be presented by other parties.
Ugly Duckling Corporation
ERNEST C. GARCIA, II
Chairman of the Board
March 17, 1997
16
<PAGE> 19
EXHIBIT A
AMENDMENT TO THE
CERTIFICATE OF INCORPORATION OF
UGLY DUCKLING CORPORATION
1. Article Five of the Amended Certificate of Incorporation is amended to
read as follows:
"A. The corporation shall be authorized to issue two classes of shares
of stock to be designated, respectively, 'Common Stock' and 'Preferred
Stock'; the total number of shares of Common Stock that the corporation
shall have authority to issue shall be 100,000,000, and each of such shares
shall have a par value of $.001; and the total number of shares of
Preferred Stock that the corporation shall have authority to issue shall be
10,000,000, and each of such shares shall have a par value of $.001."
<PAGE> 20
UGLY DUCKLING HOLDINGS, INC.
LONG-TERM INCENTIVE PLAN
ARTICLE 1 PURPOSE
1.1. GENERAL. The purpose of the Ugly Duckling Holdings, Inc.
Long-Term Incentive Plan (the "Plan") is to promote the success, and enhance the
value, of Ugly Duckling Holdings, Inc. and its subsidiaries (collectively, the
"Company") by linking the personal interests of its employees, consultants and
advisors to those of Company shareholders and by providing its employees,
consultants and advisors with an incentive for outstanding performance. The Plan
is further intended to provide flexibility to the Company in its ability to
motivate, attract, and retain the services of employees, consultants and
advisors upon whose judgment, interest, and special effort the successful
conduct of the Company's operation is largely dependent. Accordingly, the Plan
permits the grant of incentive awards from time to time to selected employees,
consultants and advisors of the Company and any Subsidiary.
ARTICLE 2 EFFECTIVE DATE
2.1. EFFECTIVE DATE. The Plan is effective as of June 30, 1995
(the "Effective Date). Within one year after the Effective Date, the Plan shall
be submitted to the shareholders of the Company for their approval. The Plan
will be deemed to be approved by the shareholders if it receives the affirmative
vote of the holders of a majority of the shares of stock of the Company present,
or represented, and entitled to vote at a meeting duly held (or by the written
consent of the holders of a majority of the shares of stock of the Company
entitled to vote) in accordance with the applicable provisions of the Arizona
General Corporation Law and the Company's Bylaws and Articles of Incorporation.
Any Awards granted under the Plan prior to shareholder approval are effective
when made (unless the Committee specifies otherwise at the time of grant), but
no Award may be exercised or settled and no restrictions relating to any Award
may lapse before shareholder approval. If the shareholders fail to approve the
Plan, any Award previously made shall be automatically canceled without any
further act.
ARTICLE 3 DEFINITIONS AND CONSTRUCTION.
3.1. DEFINITIONS. When a word or phrase appears in this Plan
with the initial letter capitalized, and the word or phrase does not commence a
sentence, the word or phrase shall generally be given the meaning ascribed to it
in this Section or in Sections 1.1 or 2.1 unless a clearly different meaning is
required by the context. The following words and phrases shall have the
following meanings:
<PAGE> 21
(a) "Award" means any Option, Stock Appreciation
Right, Restricted Stock Award, Performance Share Award,
Dividend Equivalent Award, or Other Stock-Based Award, or any
other right or interest relating to Stock or cash, granted to
a Participant under the Plan.
(b) "Award Agreement" means any written agreement,
contract, or other instrument or document evidencing an Award.
(c) "Board" means the Board of Directors of the
Company or a Committee thereof formed under Section 4, as the
case may be.
(d) "Cause" means (except as otherwise provided in on
Option Agreement) if the Board, in its reasonable and good
faith discretion, determines that the employee, consultant or
advisor (i) has developed or pursued interests substantially
adverse to the Company, (ii) materially breached any
employment, engagement or confidentiality agreement or
otherwise failed to satisfactorily discharge his or her
duties, (iii) has not devoted all or substantially all of his
or her business time, effort and attention to the affairs of
the Company (or such lesser amount as has been agreed to in
writing by the Company), (iv) is convicted of a felony
involving moral turpitude, or (v) has engaged in activities or
omissions that are detrimental to the well-being of the
Company.
(e) "Change of Control" means and includes each of
the following (except as otherwise provided in an Option
Agreement):
(1) there shall be consummated any consolidation
or merger of the Company in which the Company is
not the continuing or surviving entity, or
pursuant to which Stock would be converted into
cash, securities or other property, other than a
merger of the Company in which the holders of the
Company's Stock immediately prior to the merger
have the same proportionate ownership of
beneficial interest of common stock or other
voting securities of the surviving entity
immediately after the merger;
(2) there shall be consummated any sale, lease,
exchange or other transfer (in one transaction or
a series of related transactions) of assets or
earning power aggregating more than 40% of the
assets or earning power of the Company and its
subsidiaries (taken as a whole), other than
pursuant to a sale-leaseback, structured finance
or other form of financing transaction;
(3) the shareholders of the Company shall approve
any plan or proposal for liquidation or
dissolution of the Company;
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(4) any person (as such term is used in Section
13(d) and 14(d)(2) of the Exchange Act), other
than any current shareholder of the Company or
affiliate thereof or any employee benefit plan of
the Company or any subsidiary of the Company or
any entity holding shares of capital stock of the
Company for or pursuant to the terms of any such
employee benefit plan in its role as an agent or
trustee for such plan, shall become the beneficial
owner (within the meaning of Rule 13d-3 under the
Exchange Act) of 20% or more of the Company's
outstanding Stock; or
(5) during any period of two consecutive years,
individuals who at the beginning of such period
shall fail to constitute a majority thereof,
unless the election, or the nomination for
election by the Company's shareholders, of each
new director was approved by a vote of at least
two-thirds of the directors then still in office
who were directors at the beginning of the period.
(f) "Code" means the Internal Revenue Code of 1986,
as amended from time to time.
(g) "Committee" means the committee of the Board
described in Article 4.
(h) "Disability" shall mean any illness or other
physical or mental condition of a Participant which renders
the Participant incapable of performing his customary and
usual duties for the Company, or any medically determinable
illness or other physical or mental condition resulting from a
bodily injury, disease or mental disorder which in the
judgment of the Committee is permanent and continuous in
nature. The Committee may require such medical or other
evidence as it deems necessary to judge the nature and
permanency of the Participant's condition.
(i) "Dividend Equivalent" means a right granted to a
Participant under Article 11.
(j) "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended from time to time.
(k) "Fair Market Value" means with respect to Stock
or any other property, the fair market value of such Stock or
other property as determined by the Board in its discretion,
under one of the following methods: (i) the average of the
closing bid and asked prices for the Stock as reported on any
national securities exchange on which the Stock is then listed
(which shall include the Nasdaq National Market) for that date
or, if no prices are so reported for that date, such prices on
the next preceding date for
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which closing bid and asked prices were reported; or (ii) the
price as determined by such methods or procedures as may be
established from time to time by the Board.
(l) "Incentive Stock Option" means an Option that is
intended to meet the requirements of Section 422 of the Code
or any successor provision thereto.
(m) "Non-Qualified Stock Option" means an Option that
is not intended to be an Incentive Stock Option.
(n) "Option" means a right granted to a Participant
under Article 7 of the Plan to purchase Stock at a specified
price during specified time periods. An Option may be either
an Incentive Stock Option or a Non-Qualified Stock Option.
(o) "Other Stock-Based Award" means a right, granted
to a Participant under Article 12, that relates to or is
valued by reference to Stock or other Awards relating to
Stock.
(p) "Participant" means a person who, as an employee
of or consultant or advisor to the Company or any Subsidiary,
has been granted an Award under the Plan. A "Participant"
shall not include any Director of the Company or any
Subsidiary who is not also an employee of or consultant to the
Company or any Subsidiary.
(q) "Performance Share" means a right granted to a
Participant under Article 9, to receive cash, Stock, or other
Awards, the payment of which is contingent upon achieving
certain performance goals established by the Committee.
(r) "Plan" means the Ugly Duckling Holdings, Inc.
Long-Term Incentive Plan, as amended from time to time.
(s) "Restricted Stock Award" means Stock granted to a
Participant under Article 10 that is subject to certain
restrictions and to risk of forfeiture.
(t) "Stock" means the common stock of the Company and
such other securities of the Company that may be substituted
for Stock pursuant to Article 13.
(u) "Stock Appreciation Right" or "SAR" means a right
granted to a Participant under Article 8 to receive a payment
equal to the difference between the Fair Market Value of a
share of Stock as of the date of exercise of the SAR over the
grant price of the SAR, all as determined pursuant to Article
8.
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(v) "Subsidiary" means any corporation, domestic or
foreign, of which a majority of the outstanding voting stock or
voting power is beneficially owned directly or indirectly by the
Company.
ARTICLE 4 ADMINISTRATION
4.1. BOARD/COMMITTEE. The Plan shall be administered by the
Board of Directors or, to the extent required to comply with Rule 16b-3
promulgated under the Exchange Act, a Committee that is appointed by, and serves
at the discretion of, the Board. Any Committee shall consist of at least two
individuals who are members of the Board and are "disinterested persons," as
such term is defined in Rule 16b-3 promulgated under Section 16 of the Exchange
Act or any successor provision, except as may be otherwise permitted under
Section 16 of the Exchange Act and the regulations and rules promulgated
thereunder. For purposes of this Plan, the "Board" shall mean the Board of
Directors or the Committee, as the case may be.
4.2. ACTION BY THE BOARD. A majority of the Board shall
constitute a quorum. The acts of a majority of the members present at any
meeting at which a quorum is present and acts approved in writing by a majority
of the Board in lieu of a meeting shall be deemed the acts of the Board. Each
member of the Board is entitled to, in good faith, rely or act upon any report
or other information furnished to that member by any officer or other employee
of the Company or any Subsidiary, the Company's independent certified public
accountants, or any executive compensation consultant or other professional
retained by the Company to assist in the administration of the Plan.
4.3. AUTHORITY OF BOARD. The Board has the exclusive power,
authority and discretion to:
(a) Designate Participants;
(b) Determine the type or types of Awards to be granted
to each Participant;
(c) Determine the number of Awards to be granted and
the number of shares of Stock to which an Award will relate;
(d) Determine the terms and conditions of any Award
granted under the Plan including but not limited to, the
exercise price, grant price, or purchase price, any restrictions
or limitations on the Award, any schedule for lapse of
forfeiture restrictions or restrictions on the exercisability of
an Award, and accelerations or waivers thereof, based in each
case on such considerations as the Board in its sole discretion
determines;
(e) Determine whether, to what extent, and under what
circumstances an Award may be settled in, or the exercise price
of an Award may be paid in, cash,
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Stock, other Awards, or other property, or an Award may be
canceled, forfeited, or surrendered;
(f) Prescribe the form of each Award Agreement, which
need not be identical for each Participant;
(g) Decide all other matters that must be determined in
connection with an Award;
(h) Establish, adopt or revise any rules and
regulations as it may deem necessary or advisable to administer
the Plan; and
(i) Make all other decisions and determinations that
may be required under the Plan or as the Board deems necessary
or advisable to administer the Plan.
4.4. DECISIONS BINDING. The Board's interpretation of the Plan,
any Awards granted under the Plan, any Award Agreement and all decisions and
determinations by the Board with respect to the Plan are final, binding, and
conclusive on all parties.
ARTICLE 5 SHARES SUBJECT TO THE PLAN
5.1. NUMBER OF SHARES. Subject to adjustment provided in Section
15.1, the aggregate number of shares of Stock reserved and available for Awards
or which may be used to provide a basis of measurement for or to determine the
value of an Award (such as with a Stock Appreciation Right or Performance Share
Award) shall be 800,000.
5.2. LAPSED AWARDS. To the extent that an Award terminates,
expires or lapses for any reason, any shares of Stock subject to the Award will
again be available for the grant of an Award under the Plan and shares subject
to SARs or other Awards settled in cash will be available for the grant of an
Award under the Plan, in each case to the full extent available pursuant to the
rules and interpretations of the Securities and Exchange Commission under
Section 16 of the Exchange Act, if applicable.
5.3. STOCK DISTRIBUTED. Any Stock distributed pursuant to an
Award may consist, in whole or in part, of authorized and unissued Stock,
treasury Stock or Stock purchased on the open market.
5.4. LIMITATIONS ON AWARDS TO ANY SINGLE PARTICIPANT. No single
Participant may receive Awards covering in the aggregate more than 250,000
shares of Stock.
ARTICLE 6 ELIGIBILITY
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6.1. GENERAL. Awards may be granted only to individuals who are
employees (including employees who also are directors or officers) of the
Company or a Subsidiary or to consultants or advisors thereto, as determined by
the Board.
ARTICLE 7 STOCK OPTIONS
7.1. GENERAL. The Board is authorized to grant Options to
Participants on the following terms and conditions:
(a) EXERCISE PRICE. The exercise price per share of
Stock under an Option shall be determined by the Board.
(b) TIME AND CONDITIONS OF EXERCISE. The Board shall
determine the time or times at which an Option may be exercised
in whole or in part, provided that no Option may be exercisable
prior to six months following the date of the grant of such
Option. The Board also shall determine the performance or other
conditions, if any, that must be satisfied before all or part of
an Option may be exercised.
(c) PAYMENT. The Board shall determine the methods by
which the exercise price of an Option may be paid, the form of
payment, including, without limitation, cash, shares of Stock,
or other property (including net issuance or other "cashless
exercise" arrangements), and the methods by which shares of
Stock shall be delivered or deemed to be delivered to
Participants. Without limiting the power and discretion
conferred on the Board pursuant to the preceding sentence, the
Board may, in the exercise of its discretion, but need not,
allow a Participant to pay the Option price by directing the
Company to withhold from the shares of Stock that would
otherwise be issued upon exercise of the Option that number of
shares having a Fair Market Value on the exercise date equal to
the Option price, all as determined pursuant to rules and
procedures established by the Board.
(d) EVIDENCE OF GRANT. All Options shall be evidenced
by a written Award Agreement between the Company and the
Participant. The Award Agreement shall include such provisions
as may be specified by the Board.
7.2 INCENTIVE STOCK OPTIONS. The terms of any Incentive Stock
Options granted under the Plan must comply with the following additional rules:
(a) EXERCISE PRICE. The exercise price per share of
Stock shall be set by the Board, provided that the exercise
price for any Incentive Stock Option may not be less than the
Fair Market Value as of the date of the grant.
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(b) EXERCISE. In no event, may any Incentive Stock
Option be exercisable for more than ten years from the date of
its grant.
(c) LAPSE OF OPTION. An Incentive Stock Option shall
lapse under the following circumstances:
(1) The Incentive Stock Option shall lapse ten
(10) years after it is granted, unless an earlier time is set in
the Award Agreement.
(2) The Incentive Stock Option shall lapse upon
termination of employment for Cause or for any other reason,
other than the Participant's death or Disability, unless the
Committee determines in its discretion to extend the exercise
period for no more than ninety (90) days after the Participant's
termination of employment.
(3) In the case of the Participant's termination
of employment due to Disability or death, the Incentive Stock
Option shall lapse upon termination of employment, unless the
Committee determines in its discretion to extend the exercise
period of the Incentive Stock Option for no more than twelve
(12) months after the date the Participant terminates
employment. Upon the Participant's death, any vested and
otherwise exercisable Incentive Stock Options may be exercised
by the Participant's legal representative or representatives, by
the person or persons entitled to do so under the Participant's
last will and testament, or, if the Participant shall fail to
make testamentary disposition of such Incentive Stock Option or
shall die intestate, by the person or persons entitled to
receive said Incentive Stock Option under the applicable laws of
descent and distribution.
(d) INDIVIDUAL DOLLAR LIMITATION. The aggregate Fair
Market Value (determined as of the time an Award is made) of all
shares of Stock with respect to which Incentive Stock Options
are first exercisable by a Participant in any calendar year may
not exceed One Hundred Thousand Dollars ($100,000.00).
(e) TEN PERCENT OWNERS. An Incentive Stock Option shall
be granted to any individual who, at the date of grant, owns
stock possessing more than ten percent (10%) of the total
combined voting power of all classes of Stock of the Company
only if, at the time such Option is granted, the Option price is
at least one hundred ten percent (110%) of the Fair Market Value
of the Stock and such Option by its terms is not exercisable
after the expiration of five (5) years from the date the Option
is granted.
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(f) EXPIRATION OF INCENTIVE STOCK OPTIONS. No Award of
an Incentive Stock Option may be made pursuant to this Plan
after the tenth anniversary of the Effective Date.
(g) RIGHT TO EXERCISE. During a Participant's lifetime,
an Incentive Stock Option may be exercised only by the
Participant.
(h) EMPLOYEES ONLY. Incentive Stock Options may be
granted only to Participants who are employees of the Company or
any Subsidiary.
ARTICLE 8 STOCK APPRECIATION RIGHTS
8.1. GRANT OF SARs. The Board is authorized to grant SARs to
Participants on the following terms and conditions:
(a) RIGHT TO PAYMENT. Upon the exercise of a Stock
Appreciation Right, the Participant to whom it is granted has
the right to receive the excess, if any, of:
(1) The Fair Market Value of one share of Stock on
the date of exercise; over
(2) The grant price of the Stock Appreciation
Right as determined by the Board, which shall not be less than
the Fair Market Value of one share of Stock on the date of grant
in the case of any SAR related to any Incentive Stock Option.
(b) OTHER TERMS. All awards of Stock Appreciation
Rights shall be evidenced by an Award Agreement. The terms,
methods of exercise, methods of settlement, form of
consideration payable in settlement, and any other terms and
conditions of any Stock Appreciation Right shall be determined
by the Board at the time of the grant of the Award and shall be
reflected in the Award Agreement.
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ARTICLE 9 PERFORMANCE SHARES
9.1. GRANT OF PERFORMANCE SHARES. The Board is authorized to
grant Performance Shares to Participants on such terms and conditions as may be
selected by the Board. The Board shall have the complete discretion to determine
the number of Performance Shares granted to each Participant. All Awards of
Performance Shares shall be evidenced by an Award Agreement.
9.2. RIGHT TO PAYMENT. A grant of Performance Shares gives the
Participant rights, valued as determined by the Board, and payable to, or
exercisable by, the Participant to whom the Performance Shares are granted, in
whole or in part, as the Board shall establish at grant or thereafter. The Board
shall set performance goals and other terms or conditions to payment of the
Performance Shares in its discretion which, depending on the extent to which
they are met, will determine the number and value of Performance Shares that
will be paid to the Participant, provided that the time period during which the
performance goals must be met shall, in all cases, exceed six months.
9.3. OTHER TERMS. Performance Shares may be payable in cash,
Stock, or other property, and have such other terms and conditions as determined
by the Board and reflected in the Award Agreement.
ARTICLE 10 RESTRICTED STOCK AWARDS
10.1. GRANT OF RESTRICTED STOCK. The Board is authorized to make
Awards of Restricted Stock to Participants in such amounts and subject to such
terms and conditions as may be selected by the Board. All Awards of Restricted
Stock shall be evidenced by a Restricted Stock Award Agreement.
10.2. ISSUANCE AND RESTRICTIONS. Restricted Stock shall be
subject to such restrictions on transferability and other restrictions as the
Board may impose (including, without limitation, limitations on the right to
vote Restricted Stock or the right to receive dividends on the Restricted
Stock). These restrictions may lapse separately or in combination at such times,
under such circumstances, in such installments, or otherwise, as the Board
determines at the time of the grant of the Award or thereafter.
10.3. FORFEITURE. Except as otherwise determined by the Board at
the time of the grant of the Award or thereafter, upon termination of employment
during the applicable restriction period, Restricted Stock that is at that time
subject to restrictions shall be forfeited and reacquired by the Company,
provided, however, that the Board may provide in any Award Agreement that
restrictions or forfeiture conditions relating to Restricted Stock will be
waived in whole or in part in the event of terminations resulting from specified
causes, and the Board may in other cases waive in whole or in part restrictions
or forfeiture conditions relating to Restricted Stock.
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10.4. CERTIFICATES FOR RESTRICTED STOCK. Restricted Stock
granted under the Plan may be evidenced in such manner as the Board shall
determine. If certificates representing shares of Restricted Stock are
registered in the name of the Participant, certificates must bear an appropriate
legend referring to the terms, conditions, and restrictions applicable to such
Restricted Stock, and the Company shall retain physical possession of the
certificate until such time as all applicable restrictions lapse.
ARTICLE 11 DIVIDEND EQUIVALENTS
11.1. GRANT OF DIVIDEND EQUIVALENTS. The Board is authorized to
grant Dividend Equivalents to Participants subject to such terms and conditions
as may be selected by the Board. Dividend Equivalents shall entitle the
Participant to receive payments equal to dividends with respect to all or a
portion of the number of shares of Stock subject to an Option Award or SAR
Award, as determined by the Board. The Board may provide that Dividend
Equivalents be paid or distributed when accrued or be deemed to have been
reinvested in additional shares of Stock, or otherwise reinvested.
ARTICLE 12 OTHER STOCK-BASED AWARDS
12.1. GRANT OF OTHER STOCK-BASED AWARDS. The Board is
authorized, subject to limitations under applicable law, to grant to
Participants such other Awards that are payable in, valued in whole or in part
by reference to, or otherwise based on or related to shares of Stock, as deemed
by the Board to be consistent with the purposes of the Plan, including without
limitation shares of Stock awarded purely as a "bonus" and not subject to any
restrictions or conditions, convertible or exchangeable debt securities, other
rights convertible or exchangeable into shares of Stock, and Awards valued by
reference to book value of shares of Stock or the value of securities of or the
performance of specified Subsidiaries. The Board shall determine the terms and
conditions of such Awards.
ARTICLE 13 PROVISIONS APPLICABLE TO AWARDS
13.1. STAND-ALONE, TANDEM, AND SUBSTITUTE AWARDS. Awards granted
under the Plan may, in the discretion of the Board, be granted either alone or
in addition to, in tandem with, or in substitution for, any other Award granted
under the Plan. If an Award is granted in substitution for another Award, the
Board may require the surrender of such other Award in consideration of the
grant of the new Award. Awards granted in addition to or in tandem with other
Awards may be granted either at the same time as or at a different time from the
grant of such other Awards.
13.2. EXCHANGE PROVISIONS. The Board may at any time offer to
exchange or buy out any previously granted Award for a payment in cash, Stock,
or another Award (subject to
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Section 13.1), based on the terms and conditions the Board determines and
communicates to the Participant at the time the offer is made.
13.3. TERM OF AWARD. The term of each Award shall be for the
period as determined by the Board, provided that in no event shall the term of
any Incentive Stock Option or a Stock Appreciation Right granted in tandem with
the Incentive Stock Option exceed a period of ten years from the date of its
grant.
13.4. FORM OF PAYMENT FOR AWARDS. Subject to the terms of the
Plan and any applicable law or Award Agreement, payments or transfers to be made
by the Company or a Subsidiary on the grant or exercise of an Award may be made
in such forms as the Board determines at or after the time of grant, including
without limitation, cash, Stock, other Awards, or other property, or any
combination, and may be made in a single payment or transfer, in installments,
or on a deferred basis, in each case determined in accordance with rules adopted
by, and at the discretion of, the Board. The Board may also authorize payment in
the exercise of an Option by net issuance or other cashless exercise methods.
13.5. LIMITS ON TRANSFER. No right or interest of a Participant
in any Award may be pledged, encumbered, or hypothecated to or in favor of any
party other than the Company or a Subsidiary, or shall be subject to any lien,
obligation, or liability of such Participant to any other party other than the
Company or a Subsidiary. Except as otherwise provided below, no Award shall be
assignable or transferable by a Participant other than by will or the laws of
descent and distribution or, with the consent of the Board in its sole
discretion and except in the case of an Incentive Stock Option, pursuant to a
court order that would otherwise satisfy the requirements to be a domestic
relations order as defined in Section 414(p)(1)(B) of the Code, if the order
satisfies Section 414(p)(1)(A) of the Code notwithstanding that such an order
relates to the transfer of a stock option rather than an interest in an employee
benefit plan. In the Award Agreement for any Award other than an Award that
includes an Incentive Stock Option, the Board may allow a Participant to assign
or otherwise transfer all or a portion of the rights represented by the Award to
specified individuals or classes of individuals, or to a trust benefiting such
individuals or classes of individuals, subject to such restrictions,
limitations, or conditions as the Board deems to be appropriate.
13.6 BENEFICIARIES. Notwithstanding Section 13.5, a Participant
may, in the manner determined by the Board, designate a beneficiary to exercise
the rights of the Participant and to receive any distribution with respect to
any Award upon the Participant's death. A beneficiary, legal guardian, legal
representative, or other person claiming any rights under the Plan is subject to
all terms and conditions of the Plan and any Award Agreement applicable to the
Participant, except to the extent the Plan and Award Agreement otherwise
provide, and to any additional restrictions deemed necessary or appropriate by
the Board. If the Participant is married and resides in a jurisdiction in which
community property laws apply, a designation of a person other than the
Participant's spouse as his beneficiary with respect to more than 50 percent of
the Participant's
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interest in the Award shall not be effective without the written consent of the
Participant's spouse. If no beneficiary has been designated or survives the
Participant, payment shall be made to the person entitled thereto under the
Participant's will or the laws of descent and distribution. Subject to the
foregoing, a beneficiary designation may be changed or revoked by a Participant
at any time provided the change or revocation is filed with the Board.
13.7. STOCK CERTIFICATES. All Stock certificates delivered under
the Plan are subject to any stop-transfer orders and other restrictions as the
Board deems necessary or advisable to comply with federal or state securities
laws, rules and regulations and the rules of any national securities exchange or
automated quotation system on which the Stock is listed, quoted, or traded. The
Board may place legends on any Stock certificate to reference restrictions
applicable to the Stock.
13.8. TENDER OFFERS. In the event of a public tender for all or
any portion of the Stock, or in the event that a proposal to merge, consolidate,
or otherwise combine with another company is submitted for shareholder approval,
the Board may in its sole discretion declare previously granted Options to be
immediately exercisable. To the extent that this provision causes Incentive
Stock Options to exceed the dollar limitation set forth in Section 7.2(d), the
excess Options shall be deemed to be Non-Qualified Stock Options.
13.9. CHANGE OF CONTROL. A Change of Control shall, in the sole
discretion of the Board:
(a) Cause every Award outstanding hereunder to become
fully exercisable and all restrictions on outstanding Awards to
lapse and allow each Participant the right to exercise Awards
prior to the occurrence of the event otherwise terminating the
Awards over such period as the Board, in its sole and absolute
discretion, shall determine. To the extent that this provision
causes Incentive Stock Options to exceed the dollar limitation
set forth in Section 7.2(d), the excess Options shall be deemed
to be Non-Qualified Stock Options; or
(b) Cause every Award outstanding hereunder to
terminate, provided that the surviving or resulting corporation
shall tender an option or options to purchase its shares or
exercise such rights on terms and conditions, as to the number
of shares, rights or otherwise, which shall substantially
preserve the rights and benefits of any Award then outstanding
hereunder.
ARTICLE 14 CHANGES IN CAPITAL STRUCTURE
14.1. GENERAL. In the event a stock dividend is declared upon
the Stock, the shares of Stock then subject to each Award (and the number of
shares subject thereto) shall be increased proportionately without any change in
the aggregate purchase price therefor. Subject to Section 13.9,
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in the event the Stock shall be changed into or exchanged for a different number
or class of shares of Stock or of shares of another corporation, whether through
reorganization, recapitalization, stock split-up or combination of shares, there
shall be substituted for each such share of Stock then subject to each Award
(and for each share of Stock then subject thereto) the number and class of
shares of Stock into which each outstanding share of Stock shall be so
exchanged, all without any change in the aggregate purchase price for the shares
then subject to each Award.
ARTICLE 15 AMENDMENT, MODIFICATION AND TERMINATION
15.1. AMENDMENT, MODIFICATION AND TERMINATION. With the approval
of the Board, at any time and from time to time, the Board may terminate, amend
or modify the Plan. However, without approval of the shareholders of the Company
or other conditions (as may be required by the Code, by the insider trading
rules of Section 16 of the Exchange Act, by any national securities exchange or
system on which the Stock is listed or reported, or by a regulatory body having
jurisdiction), no such termination, amendment, or modification may:
(a) Materially increase the total number of shares of
Stock that may be issued under the Plan, except as provided in
Section 14.1;
(b) Materially modify the eligibility requirements for
participation in the Plan; or
(c) Materially increase the benefits accruing to
Participants under the Plan.
15.2. AWARDS PREVIOUSLY GRANTED. No termination, amendment, or
modification of the Plan shall adversely affect in any material way any Award
previously granted under the Plan, without the written consent of the
Participant.
ARTICLE 16 GENERAL PROVISIONS
16.1. NO RIGHTS TO AWARDS. No Participant or employee or
consultant shall have any claim to be granted any Award under the Plan, and
neither the Company nor the Board is obligated to treat Participants and
employees or consultants uniformly.
16.2. NO STOCKHOLDERS RIGHTS. No Award gives the Participant any
of the rights of a shareholder of the Company unless and until shares of Stock
are in fact issued to such person in connection with such Award.
16.3. WITHHOLDING. The Company or any Subsidiary shall have the
authority and the right to deduct or withhold, or require a Participant to remit
to the Company, an amount sufficient to satisfy United States Federal, state,
and local taxes (including the Participant's FICA
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obligation and any withholding obligation imposed by any country other than the
United States in which the Participant resides) required by law to be withheld
with respect to any taxable event arising as a result of this Plan. With respect
to withholding required upon any taxable event under the Plan, Participants may
elect, subject to the Board's approval, to satisfy the withholding requirement,
in whole or in part, by having the Company or any Subsidiary withhold shares of
Stock having a Fair Market Value on the date of withholding equal to the amount
to be withheld for tax purposes in accordance with such procedures as the Board
establishes. The Board may, at the time any Award is granted, require that any
and all applicable tax withholding requirements be satisfied by the withholding
of shares of Stock as set forth above.
16.4. NO RIGHT TO EMPLOYMENT. Nothing in the Plan or any Award
Agreement shall interfere with or limit in any way the right of the Company or
any Subsidiary to terminate any Participant's employment at any time, nor confer
upon any Participant any right to continue in the employ of the Company or any
Subsidiary.
16.5. UNFUNDED STATUS OF AWARDS. The Plan is intended to be an
"unfunded" plan for incentive and deferred compensation. With respect to any
payments not yet made to a Participant pursuant to an Award, nothing contained
in the Plan or any Award Agreement shall give the Participant any rights that
are greater than those of a general creditor of the Company or any Subsidiary.
16.6. INDEMNIFICATION. To the extent allowable under applicable
law, each member of the Committee or of the Board shall be indemnified and held
harmless by the Company from any loss, cost, liability, or expense that may be
imposed upon or reasonably incurred by such member in connection with or
resulting from any claim, action, suit, or proceeding to which he or she may be
a party or in which he or she may be involved by reason of any action or failure
to act under the Plan and against and from any and all amounts paid by him or
her in satisfaction of judgment in such action, suit, or proceeding against him
or her provided he or she gives the Company an opportunity, at its own expense,
to handle and defend the same before he or she undertakes to handle and defend
it on his or her own behalf. The foregoing right of indemnification shall not be
exclusive of any other rights of indemnification to which such persons may be
entitled under the Company's Articles of Incorporation or By-Laws, as a matter
of law, or otherwise, or any power that the Company may have to indemnify them
or hold them harmless.
16.7. RELATIONSHIP TO OTHER BENEFITS. No payment under the Plan
shall be taken into account in determining any benefits under any pension,
retirement, savings, profit sharing, group insurance, welfare or other benefit
plan of the Company or any Subsidiary.
16.8. EXPENSES. The expenses of administering the Plan shall be
borne by the Company and its Subsidiaries.
-15-
<PAGE> 35
16.9. TITLES AND HEADINGS. The titles and headings of the
Sections in the Plan are for convenience of reference only, and in the event of
any conflict, the text of the Plan, rather than such titles or headings, shall
control.
16.10. FRACTIONAL SHARES. No fractional shares of stock shall be
issued and the Board shall determine, in its discretion, whether cash shall be
given in lieu of fractional shares or whether such fractional shares shall be
eliminated by rounding up.
16.11. SECURITIES LAW COMPLIANCE. With respect to any person who
is, on the relevant date, obligated to file reports under Section 16 of the
Exchange Act, transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or its successors under the Exchange Act. To
the extent any provision of the Plan or action by the Board fails to so comply,
it shall be void to the extent permitted by law and voidable as deemed advisable
by the Board, and such provision or action shall be deemed to be modified so as
to comply with Rule 16b-3.
16.12. GOVERNMENT AND OTHER REGULATIONS. The obligation of the
Company to make payment of awards in Stock or otherwise shall be subject to all
applicable laws, rules, and regulations, and to such approvals by government
agencies as may be required. The Company shall be under no obligation to
register under the Securities Act of 1933, as amended, any of the shares of
Stock paid under the Plan. If the shares paid under the Plan may in certain
circumstances be exempt from registration under such act, the Company may
restrict the transfer of such shares in such manner as it deems advisable to
ensure the availability of any such exemption.
16.13. GOVERNING LAW. The Plan and all Award Agreements shall be
construed in accordance with and governed by the laws of the State of Arizona.
-16-
<PAGE> 36
AMENDMENT
TO THE
UGLY DUCKLING CORPORATION
1995 LONG-TERM INCENTIVE PLAN
Ugly Duckling Corporation (the "Corporation") previously adopted the
Ugly Duckling Corporation 1995 Long-Term Incentive Plan (the "Plan"). By this
instrument, the Corporation desires to amend the Plan as set forth below.
1. This Amendment shall amend only those provisions specified herein
and those provisions amended hereby shall remain in full force and effect.
2. Section 5.1 of the Plan is hereby amended and restated in its
entirety as follows:
" 5.1 NUMBER OF SHARES. Subject to adjustment provided in
Section 15.1, the aggregate number of shares of Stock reserved and
available for Awards or which may be used to provide a basis of
measurement for or to determine the value of an Award (such as with
a Stock Appreciation Right or Performance Share Award) shall be
1,300,000."
3. Section 5.4 of the Plan is hereby amended and restated in its
entirety as follows:
" 5.4 LIMITATIONS ON AWARDS TO ANY SINGLE PARTICIPANT. No
single Participant may receive Awards covering in the aggregate
more than 250,000 shares of Stock during any single calendar year."
4. This Amendment shall be effective as of the date adopted by the
Corporation's Board of Directors.
<PAGE> 37
AMENDMENT
TO THE
UGLY DUCKLING CORPORATION
1995 LONG-TERM INCENTIVE PLAN
Ugly Duckling Corporation (the "Corporation") previously adopted the
Ugly Duckling Corporation 1995 Long-Term Incentive Plan (the "Plan"). By this
instrument, the Corporation desires to amend the Plan to allow the Chief
Executive officer and the President of the Corporation, within certain
parameters defined by the Board of Directors or Committee that administers the
Plan, to grant Awards to individuals who are not subject to the restrictions
imposed by Section 16 of the Securities Exchange Act of 1934, as amended.
1. This Amendment shall amend only those provisions specified
herein and those provisions amended hereby shall remain in full force and
effect.
2. Section 4.3 of the Plan is hereby amended and restated in its
entirety as follows:
" 4.3. AUTHORITY OF BOARD. The Board shall have the full and,
except as otherwise provided below, exclusive power to interpret the
Plan and to adopt such rules, regulations, and guidelines for
carrying out the Plan as may be necessary or proper, all of which
power shall be executed in the best interests of the Company and in
keeping with the objectives of the Plan. This power includes, but is
not limited to, the following:
(a) Designate Participants;
(b) Determine the type or types of Awards to be granted
to each Participant;
(c) Determine the number of Awards to be granted and the
number of shares of Stock to which an Award will relate;
(d) Determine the terms and conditions of any Award
granted under the Plan including but not limited to, the exercise
price, grant price, or purchase price, any restrictions or
limitations on the Award, any schedule for lapse of forfeiture
restrictions or restrictions on the exercisability of an Award, and
accelerations or waivers thereof, based in each case on such
considerations as the Board in its sole discretion determines;
<PAGE> 38
(e) Determine whether, to what extent, and under what
circumstances an Award may be settled in, or the exercise price
of an Award may be paid in, cash, Stock, other Awards, or other
property, or an Award may be canceled, forfeited, or
surrendered;
(f) Prescribe the form of each Award Agreement,
which need not be identical for each Participant;
(g) Decide all other matters that must be
determined in connection with an Award;
(h) Establish, adopt or revise any rules and
regulations as it may deem necessary or advisable to administer
the Plan; and
(i) Make all other decisions and determinations that
may be required under the Plan or as the Board deems necessary
or advisable to administer the Plan.
Notwithstanding the above or anything else in the Plan to the contrary,
the Chief Executive Officer and the President of the Company, acting
together, also have the authority, subject to the terms, conditions,
and parameters set forth by the Board from time to time, to select
Award recipients and establish the terms and conditions of Awards,
provided, however, that any such Award recipient must not be a person
who, at the time the Award is granted, is subject to the restrictions
imposed by Section 16 of the Exchange Act."
4. This Amendment shall be effective as of the date adopted by
the Corporation's Board of Directors.
<PAGE> 39
AMENDMENT EXHIBIT B
TO THE
UGLY DUCKLING CORPORATION
1995 LONG-TERM INCENTIVE PLAN
Ugly Duckling Corporation (the "Corporation") previously adopted the
Ugly Duckling Corporation 1995 Long-Term Incentive Plan (the "Plan"). By this
instrument, the Corporation desires to amend the Plan as set forth below.
1. This Amendment shall amend only those provisions specified
herein and those provisions amended hereby shall remain in full force and
effect.
2. Section 5.1 of the Plan is hereby amended and restated in its
entirety as follows:
" 5.1 NUMBER OF SHARES. Subject to adjustment provided in
Section 15.1, the aggregate number of shares of Stock reserved
and available for Awards or which may be used to provide a basis
of measurement for or to determine the value of an Award (such
as with a Stock Appreciation Right or Performance Share Award)
shall be 1,800,000."
1
<PAGE> 40
PROXY PROXY
UGLY DUCKLING CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS - APRIL 22, 1997
The undersigned appoints Ernest C. Garcia, II and Gregory B. Sullivan,
and each of them, as proxies, will full power of substitution and revocation,
to vote, as designated on the reverse side hereof, all the Common Stock of Ugly
Duckling Corporation which the undersigned has power to vote, with all powers
which the undersigned would possess if personally present, at the annual
meeting of stockholders thereof to be held on April 22, 1997, or at any
adjournments thereof.
Unless otherwise marked, this proxy will be voted FOR the elections of
the nominees named and FOR Proposal Nos. 2 and 3.
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
(Continued and to be signed on reverse side.)
<PAGE> 41
Please mark [ X ]
your votes as
indicated in
this example
For All
1. ELECTION OF DIRECTORS: For Withheld Except
Robert J. Abrahams [ ] [ ] [ ]
Ernest C. Garcia, II
Christopher D. Jennings
John N. MacDonough ---------------------
Arturo R. Moreno Nominee Exception
Frank P. Willey
2. To amend the Certificate of Incorporation to For Against Abstain
increase the authorized number of shares of [ ] [ ] [ ]
Common Stock from 20,000,000 to 100,000,000.
3. To amend the Long-Term Incentive Plan to For Against Abstain
increase the number of shares authorized for [ ] [ ] [ ]
issuance thereunder from 800,000 to 1,800,000.
This proxy, when properly executed, will be voted as
specified above. If no specific directions are given, this
proxy will be voted for approval of all listed proposals
and, with respect to such other business as may properly
come before the meeting, in accordance with the discretion
of the appointed proxy. PLEASE SIGN, DATE AND RETURN THIS
PROXY PROMPTLY.
Dated: ,1997
-------------------------------------------
------------------------------------------------------
Signature
Please sign exactly as your name appears. Joint owners should both sign.
Fiduciaries, attorneys, corporate officers, etc., should state their capacities.
