<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>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] 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 18,431,820 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 18,431,820 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 of 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.
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<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
14, 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 December 2, 1996, and to 1,800,000 on March 14, 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
employees and others to those of its stockholders and by providing employees and
others 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) 68,556 shares have been issued upon exercise of
options and are included in the total number of shares of outstanding Common
Stock and (ii) option grants representing 986,256 shares were 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 stock
options, 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 $22.00 per share.
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
3
<PAGE> 6
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 a 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 nine; (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.
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<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............................................ 42,000 11.18
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.
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<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.
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
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<PAGE> 9
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(4)
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, 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.
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 Proposal No. 3.
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 stockholders of any
plan or proposal for liquidation or dissolution of the Company; or any person,
other than a current stockholder, 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)............................... 36,194 *
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(6).................... 963,500 5.2%
John Hancock Advisors(7)................................. 1,150,000 6.2%
All directors and executive officers as a group (14 5,347,530 29.0%
persons)(8)............................................
</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 18,431,820 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) The total for Mr. Jennings includes 29,750 warrants held of record 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) The address of Wellington Management Company, LLP is 75 State Street,
Boston, Massachusetts 02109. According to the Schedule 13G dated January 24,
1997, Wellington Management Company, LLP has shared voting power over
570,000 of the shares and shared dispositive power over 963,500 of the
shares. The Company makes no representation as to the accuracy or
completeness of the information provided in this footnote, which is based
solely on Wellington Management Company LLP's Schedule 13G filing.
(7) The address of John Hancock Advisors is 101 Huntington Street, Seventh
Floor, Boston, Massachusetts, 02199-7603.
(8) The total for all directors and executive officers as a group includes
73,830 shares subject to unexercised options and warrants 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, six car
lots, a 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 reduce 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
15
<PAGE> 18
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) 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 was filed on March 7, 1997. In
addition, a Form 4 required to be filed with respect to 29,750 warrants
beneficially held by Christopher D. Jennings has not yet been filed, but 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.
16
<PAGE> 19
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
17
<PAGE> 20
EXHIBIT A
AMENDMENT TO THE
CERTIFICATE OF INCORPORATION OF
UGLY DUCKLING CORPORATION
1. Article 5A 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> 21
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 ELECTION 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> 22
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.
