SCHEDULE 14A
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:
[ ] 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
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)(1) 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:
<PAGE>
[UDC COMPANY LOGO]
Ernest C. Garcia II
Chairman and
Chief Executive Officer
April 26, 1999
To our Stockholders:
I am pleased to invite you to attend the annual meeting of stockholders of Ugly
Duckling Corporation on Wednesday, June 2, 1999 at 4 o'clock in the afternoon at
The Arizona Biltmore located at 24th Street and Missouri, Phoenix, Arizona.
The accompanying Notice of Annual Meeting and Proxy Statement contains details
regarding admission to the meeting, voting for the meeting and the business to
be conducted at the meeting.
Your vote is important. Whether or not you plan to attend the annual meeting, I
hope you will vote as soon as possible. Please vote by mail using the enclosed
proxy card to ensure your representation at the annual meeting, if you do not
attend in person.
Thank you for your ongoing support of Ugly Duckling.
Very truly yours,
/S/ ERNEST C. GARCIA II
Ernest C. Garcia II
<PAGE>
<TABLE>
<CAPTION>
1999 ANNUAL MEETING OF STOCKHOLDERS
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT
TABLE OF CONTENTS
<S> <C>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS...........................................................................................1
SUMMARY............................................................................................................................2
GENERAL INFORMATION................................................................................................................3
BOARD OF DIRECTORS, BOARD COMMITTEES AND OTHER BOARD INFORMATION...................................................................4
PROPOSAL TO BE VOTED ON ITEM NO. 1 -ELECTION OF DIRECTORS..........................................................................6
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.....................................................................8
BENEFICIAL OWNERSHIP TABLE......................................................................................................9
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE........................................................................11
COMPENSATION OF EXECUTIVE OFFICERS, BENEFITS AND RELATED MATTERS..................................................................12
SUMMARY COMPENSATION TABLE.....................................................................................................12
OPTION GRANTS IN LAST FISCAL YEAR..............................................................................................13
RECENT OPTION GRANTS IN 1999...................................................................................................14
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES..............................................14
LONG TERM INCENTIVE PLAN.......................................................................................................15
1998 EXECUTIVE INCENTIVE PLAN..................................................................................................16
401(K) PLANS...................................................................................................................16
CONTRACTS WITH DIRECTORS AND EXECUTIVE OFFICERS AND SEVERANCE ARRANGEMENTS.....................................................16
CHANGE OF CONTROL ARRANGEMENTS.................................................................................................18
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION........................................................................19
STOCKHOLDER RETURN PERFORMANCE GRAPH...........................................................................................26
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION....................................................................27
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS..........................................................................................27
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................................................................................27
ADDITIONAL INFORMATION............................................................................................................28
</TABLE>
In accordance with Securities and Exchange Commission initiatives to
simplify the presentation of complex financial information, we have
prepared this proxy statement and accompanying proxy card using "plain
English" guidelines.
<PAGE>
UGLY DUCKLING CORPORATION
2525 East Camelback Road, Suite 500
Phoenix, AZ 85016
(602) 852-6600
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
o DATE & TIME Wednesday, June 2, 1999 at 4:00 p.m.
o PLACE The Arizona Biltmore
24th Street and Missouri
Phoenix, AZ 85016
o ITEMS OF BUSINESS o Proposal to be Voted on Item No. 1 - Election of
Directors: To elect 5 directors for 1-year terms;
and
o To consider other business as may properly come
before the meeting, or any adjournment(s) or
postponement(s) of the meeting.
We are not presently aware of any other business to
come before the meeting. Your Board of Directors
unanimously believes that Item No. 1 proposed by
the board is in the best interests of Ugly Duckling
and its stockholders, and, so recommends a vote
"FOR" Item No. 1 on the enclosed proxy card.
o RECORD DATE Friday, April 16, 1999. You are entitled to vote if
you were a stockholder at the close of business on
this record date.
o VOTING BY PROXY Please submit a proxy as soon as possible so that
your shares can be voted at the meeting in
accordance with your instructions. You may submit
your proxy by mail. For specific instructions,
please refer to pages 2-4 of this proxy statement
and the instructions on the proxy card.
By Order of the Board of Directors
/S/ STEVEN P. JOHNSON
---------------------
Steven P. Johnson
General Counsel and Secretary
Phoenix, Arizona
April 26, 1999
We are distributing this proxy statement and accompanying proxy card on or about
April 26, 1999.
- --------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT: WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING.
PLEASE PROMPTLY SIGN, DATE AND MAIL THE ENCLOSED PROXY. WE ARE PROVIDING A
POSTAGE-PAID ENVELOPE FOR MAILING IN THE UNITED STATES.
- --------------------------------------------------------------------------------
PAGE 1
<PAGE>
SUMMARY
The following is a summary of certain information contained in this proxy
statement. This summary is not intended to be complete and is qualified in its
entirety by reference to the more detailed information included elsewhere in
this proxy statement.
o 1999 ANNUAL MEETING: June 2, 1999, The Arizona Biltmore, 4:00
p.m., 24th Street and Missouri, Phoenix, AZ
85016
o PURPOSE OF THE MEETING: To consider and vote on the items described
below.
o AGENDA/PROPOSAL: o Item 1. Elect 5 directors for 1-year terms.
All director candidates are incumbent
directors.
o Item 2. Any other proper business.
o VOTING: You are entitled to vote if you are a holder
of our common stock, as recorded in our stock
register, on the record date. You get one
vote for each share of common stock held.
Election of directors (Item No. 1) requires
the affirmative vote of a plurality of the
shares of common stock present in person or
by proxy at the meeting and entitled to vote
in the election of directors.
o PROXIES: Unless you tell us on the proxy card to vote
differently, we will vote your signed and
returned proxies "FOR" the board's nominees.
The board or proxy holders will use their
discretion on other matters.
o PROXIES SOLICITED BY: Our board of directors.
o RECORD DATE: April 16, 1999. If you were a stockholder at
the close of business on that date, you may
vote at the meeting.
o FIRST MAILING DATE: We anticipate first mailing this proxy
statement and the accompanying proxy card on
or about April 26, 1999.
o REVOKING YOUR PROXY: You may revoke your proxy before it is voted
at the meeting. For specific instructions,
please refer to page 3 of this proxy
statement.
o PROXY SOLICITATION: Corporate Investors Communications, Inc. will
help us solicit proxies for a fee, plus their
expenses. We will reimburse banks, brokers
and other nominees and fiduciaries for
expenses they incur in sending these
materials to you and obtaining your voting
instructions, if you are a beneficial holder
of our common stock. Our directors and
employees may also help us solicit for no
additional compensation.
PAGE 2
<PAGE>
GENERAL INFORMATION
WHO MAY VOTE
Common stock is our only class of voting securities. As one of our stockholders,
you are entitled to one vote for each share of common stock you hold "of record"
on each matter of business at the meeting. "Of record" means as recorded in our
stock register. Only holders of record of our common stock at the close of
business on the record date will be entitled to vote at the meeting, either in
person or by valid proxy.
HOW TO VOTE
You may vote in person at the meeting or by proxy. The only way to vote by proxy
is by mail. Instructions are provided below and on your proxy card. We recommend
that you vote by proxy even if you plan to attend the meeting. You can always
change your vote at the meeting, if you want to change.
HOW PROXIES WORK
Our board of directors is asking for your proxy. Giving us your proxy means you
authorize us to vote your shares at the meeting in the manner you direct on your
proxy card. As to Item No.1 (Election of Directors), you may vote for all, some,
or none of our director candidates. A proxy in the accompanying form which you
properly execute, return and do not revoke will be voted in accordance with your
direction. If you return a properly signed and dated proxy card but do not mark
any choices on a particular item, we will vote your shares in accordance with
the recommendations of the board. The board has recommended a vote "FOR" each of
our director candidates.
You may receive more than one proxy card in the mail depending on how you hold
your shares. Also, if you have shares that are held by your stockbroker or
through another nominee you may get material from them asking how you want to
vote.
QUORUM
To carry on the business of the meeting, we must have "a quorum." This means at
least a majority of the outstanding shares entitled to vote must be represented
at the meeting, either in person or by proxy. Shares owned by Ugly Duckling are
not voted and do not count for this purpose.
ADDITIONAL VOTING INFORMATION
Our Inspector of Elections will count ballots cast at the annual meeting. The
Inspector of Elections will also determine whether a quorum exists and will
announce on a tentative basis at the meeting whether Item No. 1 is approved. 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 with respect to a particular matter, but will not count such shares as
voting for that matter. A broker non-vote occurs when a nominee holding shares
of common stock for a beneficial owner does not vote on a particular proposal
because the nominee does not have discretionary voting power with respect to
that item and has not received instructions from the beneficial owner.
VOTES NEEDED
The affirmative vote of a plurality of the shares of common stock present in
person or by proxy at the meeting and entitled to vote on the proposal to elect
directors (Item No. 1) is required to elect each director. Accordingly, if a
quorum is present at the meeting, the 5 persons receiving the greatest number of
votes will be elected to serve as directors. Therefore, withholding authority to
vote for one or more directors and non-voted shares will not affect the outcome
of the election of directors. As indicated above, you may vote for all, some, or
none of our director candidates.
PAGE 3
<PAGE>
REVOKING A PROXY
You may revoke your proxy before it is voted at the meeting in several ways. To
revoke:
o attend the annual meeting and vote in person;
o duly execute and deliver a proxy bearing a later date; or
o deliver a signed, written revocation letter, dated later than the
proxy, to our Secretary at the address on page 1 of this proxy
statement.
ATTENDING IN PERSON
You may attend the meeting only if:
o you are listed as a stockholder of record as of April 16, 1999 and
bring proof of identification; or
o you hold your shares through a stockbroker or other nominee and provide
proof of ownership as of April 16, 1999 by bringing either --
o a copy of the voting instruction card provided by your broker,
or
o a copy of a brokerage statement showing your share ownership.
If you have any questions, please contact the Ugly Duckling Secretary at our
address or telephone number on page 1 of this document. The meeting will begin
promptly at 4 o'clock on Wednesday, June 2, 1999 at The Arizona Biltmore in
Phoenix, Arizona.
BOARD OF DIRECTORS, BOARD COMMITTEES AND OTHER BOARD INFORMATION
BOARD OF DIRECTORS
During the year ended December 31, 1998, our board of directors met on 18
occasions. No Ugly Duckling officer or former officer was a member of the board,
except for Messrs. Garcia and Sullivan. Our board has standing audit and
compensation committees. The board has no other committees, including a
nominating or similar committee. The following table shows the membership of and
other information on our board's 2 standing committees.
------------------------------------------------------------------------------
COMMITTEE MEMBERSHIP ROSTER
------------------------------------------------------------------------------
-------------------------------- ------------------ -----------------------
NAME OF DIRECTOR AUDIT COMPENSATION
-------------------------------- ------------------ -----------------------
-------------------------------- ------------------ -----------------------
NON-EMPLOYEE DIRECTORS:
-------------------------------- ------------------ -----------------------
-------------------------------- ------------------ -----------------------
Christopher D. Jennings X X
-------------------------------- ------------------ -----------------------
-------------------------------- ------------------ -----------------------
John N. MacDonough
-------------------------------- ------------------ -----------------------
-------------------------------- ------------------ -----------------------
Frank P. Willey X X
-------------------------------- ------------------ -----------------------
-------------------------------- ------------------ -----------------------
EMPLOYEE DIRECTORS:
-------------------------------- ------------------ -----------------------
-------------------------------- ------------------ -----------------------
Ernest C. Garcia II
-------------------------------- ------------------ -----------------------
-------------------------------- ------------------ -----------------------
Gregory B. Sullivan
-------------------------------- ------------------ -----------------------
AUDIT COMMITTEE
The Audit Committee met as part of our full board several times last year. In
addition to discussing with the auditors the scope and results of Ugly
PAGE 4
<PAGE>
Duckling's audit for fiscal 1997, and the audit plan for fiscal 1998, the
committee members and our full board discussed and approved several important
accounting decisions, including the change in the way we structure our
securitization transactions for accounting purposes, the discontinuation of
certain of our non-dealership operations and related charges, and similar
matters. Generally, the Audit Committee reviews the professional services
provided by our independent auditors, our annual financial statements and our
system of internal controls. No company officer or former officer was a member
of the committee. Until June 1998, Robert J. Abrahams and Arturo Moreno, both of
whom are former directors of Ugly Duckling, were the 2 members of the Audit
Committee. When Mr. Moreno stepped down from the board in June 1998, Mr.
Abrahams served as the sole member of the committee until Mr. Jennings'
appointment in March 1999. In April of 1999, Mr. Abrahams stepped down from the
board and Mr. Willey was appointed to the Audit Committee in his place.
COMPENSATION COMMITTEE
The Compensation Committee of our board met 12 times in 1998. The Compensation
Committee reviews our executives' salaries and administers our bonus, incentive
compensation, and stock option plans, including the Long Term Incentive Plan
(Incentive Plan) and the 1998 Executive Incentive Plan (Executive Plan). In
addition, the committee consults with our management on compensation policies
and practices. The report of the Compensation Committee for 1998 is set forth
below under the caption "Compensation Committee Report on Executive
Compensation." No Ugly Duckling officer or former officer was a member of the
Compensation Committee.
DIRECTOR ATTENDANCE
During 1998, the incumbent directors attended 75% or more of both the meetings
of the board and board committees on which they served. Board and board
committee meetings include regular and special meetings and actions by unanimous
written consent. In addition to board and committee meetings, directors
discharge their responsibilities throughout the year by personal meetings and
telephone contact with our executive officers and others regarding the business
and affairs of Ugly Duckling.
COMPENSATION OF OUR DIRECTORS AND THE DIRECTOR INCENTIVE PLAN
We pay our independent directors $1,000 for physical attendance at meetings of
the board and at meetings of committees of the board on which they serve, and we
reimburse them for reasonable travel expenses for such meetings. We do not
compensate board and committee members for their attendance at telephonic
meetings. If a board and committee meeting are held on the same day, a member
who attends both meetings will receive a combined total compensation of $1,000.
In addition, under Ugly Duckling's Director Incentive Plan (Director Plan), upon
initial appointment or initial election to the board, each of our independent
directors receives Ugly Duckling common stock valued at $30,000 (Director
Stock). Director Stock generally vests in increments of 1/3 over a three-year
period. As stated above, Mr. Moreno stepped down from our board in June 1998 due
to time constraints relating to his family and other business interests. In
consideration for Mr. Moreno's invaluable services as a director over the past
two years, we accelerated the vesting of the final one-third of Mr. Moreno's
Director Stock. Similarly, when Mr. Abrahams resigned from the board in April of
1999, we accelerated the vesting of the final one-third of Mr. Abrahams'
Director Stock in recognition of his services to us as a director. We do not
compensate directors who are also officers of Ugly Duckling for their service as
directors and such directors are not eligible to participate in our Director
Plan.
PAGE 5
<PAGE>
PROPOSAL TO BE VOTED ON
ITEM NO. 1 -
ELECTION OF DIRECTORS
Our Board of Directors Recommends a Vote "FOR" the Director Nominees Named in
This Proposal for the Election of Directors.
Our directors are elected each year for a term of 1 year. At the annual meeting,
you will be asked to elect 5 directors for terms that will expire at the year
2000 annual meeting of stockholders. Our board has nominated Ernest C. Garcia
II, Christopher D. Jennings, John N. MacDonough, Gregory B. Sullivan and Frank
P. Willey for election to the board of directors. All are incumbent directors
and were elected by the stockholders at the 1998 annual meeting. During 1998 and
a portion of 1999, Robert J. Abrahams also served on our board of directors.
Effective on or around April 16, 1999, Mr. Abrahams resigned from the board
because of personal reasons, other business commitments and related matters.
Nominees for director were selected on the basis of:
o outstanding achievement in their personal careers,
o broad experience,
o wisdom,
o integrity,
o ability to make independent, analytical inquiries,
o understanding of the business environment, and
o willingness to devote adequate time to board duties.
If any of our nominees become unavailable for any reason (which we do not
anticipate), the proxy holders will vote the shares represented by the
accompanying proxy for such other person or persons as they determine. Each
director elected will serve until the following year's annual meeting, until his
successor is duly elected and qualified, or until retirement, resignation or
removal. See "Board of Directors, Board Committees and Other Board Information"
and "Security Ownership of Certain Beneficial Owners and Management" for other
information on the nominees.
You can withhold authority to vote for all nominees for director or for certain
nominees for director. In order to be elected, a nominee must receive the vote
of a plurality of the outstanding shares of common stock voted for directors.
See "General Information - Votes Needed." Therefore, shares that are withheld
and broker non-votes will have no effect on the outcome of the election of
directors. Unless otherwise noted by instruction of the voting stockholder on
the accompanying proxy, the shares represented by the enclosed proxy will be
voted "FOR" the election of Messrs. Garcia, Jennings, MacDonough, Sullivan and
Willey as our directors.
The following table gives the name, age, principal occupation and business
experience of the nominees for election as directors. Also, included for each
director is the year in which he became a director for us, his positions and
offices with us, family relationships, other directorships and certain other
biographical information.
PAGE 6
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<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ---------------------------------- -------- --------------------------------------------------------------- ---------
NAME AGE BUSINESS EXPERIENCE SINCE
- ---------------------------------- -------- --------------------------------------------------------------- ---------
- ---------------------------------- -------- --------------------------------------------------------------- ---------
ERNEST C. GARCIA II 41 CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER OF UGLY 1996
DUCKLING since its founding in 1992. Mr. Garcia also 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 an affiliate of
Ugly Duckling. Mr. Garcia's sister is married to Mr. Johnson,
our General Counsel and Secretary. See "Involvement in
Certain Legal Proceedings" and "Certain Relationships and
Related Transactions."
- ---------------------------------- -------- --------------------------------------------------------------- ---------
- ---------------------------------- -------- --------------------------------------------------------------- ---------
- ---------------------------------- -------- --------------------------------------------------------------- ---------
CHRISTOPHER D. JENNINGS 45 MANAGING DIRECTOR OF FRIEDMAN, BILLINGS, RAMSEY & CO., INC., 1996
an investment banking firm, since April 1998. Mr. Jennings
served as a managing director of Cruttenden Roth Incorporated
(Cruttenden Roth), also an investment banking firm, from 1995
to April 1998. From 1992 to 1994, Mr. Jennings served as a
Managing Director at the investment banking firm, Sutro & Co.
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 is a member of the Compensation Committee
of the board and effective March 1999 is also a member of the
Audit Committee. See "Certain Relationships and Related
Transactions" and "Security Ownership of Certain Beneficial
Owners and Management."
- ---------------------------------- -------- --------------------------------------------------------------- ---------
- ---------------------------------- -------- --------------------------------------------------------------- ---------
- ---------------------------------- -------- --------------------------------------------------------------- ---------
JOHN N. MACDONOUGH 55 FORMER CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF MILLER BREWING 1996
COMPANY, a brewer and marketer of beer, from 1993 until
earlier this month. Mr. MacDonough previously served from
1992 to 1993 as Miller Brewing's President and Chief
Operating Officer. Prior to 1992, he was employed in various
positions at Anheuser Busch, Inc., also a brewer and marketer
of beer. Mr. MacDonough is also a director of Marshall &
Ilsley Bank and Wisconsin Energy Corporation, a utility
engaged in the generation, transmission, distribution and
sale of electric energy. He is married to the sister of Mr.
Sullivan.
- ---------------------------------- -------- --------------------------------------------------------------- ---------
PAGE 7
<PAGE>
- ---------------------------------- -------- --------------------------------------------------------------- ---------
- ---------------------------------- -------- --------------------------------------------------------------- ---------
GREGORY B. SULLIVAN 40 PRESIDENT AND CHIEF OPERATING OFFICER OF UGLY DUCKLING 1998
CORPORATION, since March 1996. Mr. Sullivan has also served
as President of Ugly Duckling Car Sales, Inc. since December
1996. From 1995 through February 1996, Mr. Sullivan was a
consultant for us. He 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 an inactive member of the State Bar
of Arizona. Mr. Sullivan's sister is married to Mr.
MacDonough.
- ---------------------------------- -------- --------------------------------------------------------------- ---------
- ---------------------------------- -------- --------------------------------------------------------------- ---------
- ---------------------------------- -------- --------------------------------------------------------------- ---------
FRANK P. WILLEY 45 PRESIDENT OF FIDELITY NATIONAL FINANCIAL, INC., a title 1996
insurance underwriter, since 1995. From 1984 to 1995, Mr.
Willey served as the Executive Vice President and General
Counsel of Fidelity National Title. Mr. Willey is also a
director of Fidelity National Financial, Inc. and CKE
Restaurants, Inc., an operator of various quick-service
restaurant chains. He is a member of the Compensation
Committee of the board and effective on or around April 16,
1999 is also a member of the Audit Committee.
- ---------------------------------- -------- --------------------------------------------------------------- ---------
</TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table gives information as of April 1, 1999, unless another date
is indicated, concerning:
o each beneficial owner of more than 5% of our common stock: Ernest C.
Garcia II, Harris Associates L.P., FMR Corp., Merrill Lynch & Co., Inc.
and Wellington Management Company, LLP;
o beneficial ownership by all our directors and all our other executive
officers named in the Summary Compensation Table on page 11 of this
proxy statement (Named Executive Officers); and
o beneficial ownership by all our directors and executive officers as a
group.
The number of shares beneficially owned by each entity, person, director or
executive officer is determined under rules of the Securities and Exchange
Commission, and the information does not necessarily indicate beneficial
ownership for any other purpose. Under these rules, beneficial ownership
includes any shares as to which the individual has the sole or shared voting
power or investment power and also any shares which the individual has the right
to acquire as of May 31, 1999 (60 days after April 1, 1999) through the exercise
of any stock option, warrant or other right. Unless otherwise indicated, each
person has sole investment and voting power (or shares these powers with his
spouse) with respect to the shares set forth in the following table. Other than
as set forth below, we know of no other 5% owner of our common stock as of April
1, 1999.
PAGE 8
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<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP TABLE
AMOUNT AND NATURE OF Percent of
TITLE OF CLASS NAME OF BENEFICIAL OWNER, ADDRESS AND OTHER INFORMATION(1) BENEFICIAL OWNERSHIP(#)(2)(3)(4) CLASS(2)(3)(4)
<S> <C> <C> <C> <C>
- ------------------ -------------------------------------------------------------- ------------ ------------------ -------------
Common Stock ERNEST C. GARCIA II, Chairman of the Board and Chief 4,500,000 Direct
Executive Officer and 5% Owner, indirect ownership consists 274,500 Indirect 31.9%
of 136,500 shares held by The Garcia Family Foundation, 0 Vested Options
Inc., an Arizona nonprofit corporation, and 138,000 shares ----------
held by Verde, an affiliate of ours and Mr. Garcia. 4,774,500 Total
==========
- ------------------ -------------------------------------------------------------- ------------ ------------------ -------------
Common Stock HARRIS ASSOCIATES L.P.,(4) 5% Owner, based on Schedule 13G 1,825,000 Direct 11.4%
filings as of December 31, 1998, by Harris Associates L.P. 0 Indirect
(Harris) and an affiliate of Harris, Harris Associates 0 Vested Options
Investment Trust and related funds (Harris Trust). According ----------
to these Schedule 13Gs, each of Harris and Harris Trust has 1,825,000 Total
shared voting and dispositive power over 1,750,000 shares of ==========
our common stock and Harris has shared voting and sole
dispositive power over an additional 75,000 shares of our
common stock.
Two North LaSalle Street, Suite 500
Chicago, Illinois 60602
- ------------------ -------------------------------------------------------------- ------------ ------------------ -------------
Common Stock FMR CORP.,(4) 5% Owner, based on a Schedule 13G filing as of 1,172,800 Direct 7.3%
December 31, 1998, by FMR Corp., along with certain of its 0 Indirect
affiliates (FMR). According to the Schedule 13G, FMR has no 0 Vested Options
voting power over shares and has sole dispositive power over ----------
1,172,800 shares of our common stock. 1,172,800 Total
82 Devonshire Street ==========
Boston, Massachusetts 02019
- ------------------ -------------------------------------------------------------- ------------ ------------------ -------------
Common Stock MERRILL LYNCH & CO., INC.,(4) 5% Owner, based on a Schedule 1,055,000 Direct 6.6%
13G filing as of December 31, 1998, by Merrill Lynch & Co., 0 Indirect
Inc. on behalf of Merrill Lynch Asset Management Group 0 Vested Options
(Merrill Parent) and Merrill Lynch Global Allocation Fund, ----------
Inc. (Merrill Global). Merrill Parent is located at 250 1,055,000 Total
Vesey Street, New York, New York 10281. Merrill Global is ==========
located at the below address. According to the Schedule 13G,
Merrill Global has shared voting and dispositive power over
1,000,000 shares of our common stock and Merrill Parent has
shared voting and dispositive power over 1,055,000 shares of
our common stock.
800 Scudders Mill Rd.
Plainsboro, New Jersey 08536
- ------------------ -------------------------------------------------------------- ------------ ------------------ -------------
Common Stock WELLINGTON MANAGEMENT COMPANY, LLP,(4) 5% Owner, based on a 1,041,000 Direct 6.5%
Schedule 13G filing as of December 31, 1998, by Wellington 0 Indirect
Management Company, LLP. According to the filing, Wellington 0 Vested Options
Management Company, LLP has shared voting power over 403,200 ----------
shares of our common stock and shared dispositive power over 1,041,000 Total
1,041,000 shares of our common stock. ==========
75 State Street
Boston, Massachusetts 02109
- ------------------ -------------------------------------------------------------- ------------ ------------------ -------------
Common Stock GREGORY B. SULLIVAN, Director, President and Chief Operating 50,800 Direct 1.5%
Officer 0 Indirect
179,600 Vested Options
----------
230,400 Total
==========
- ------------------ -------------------------------------------------------------- ------------ ------------------ -------------
Common Stock STEVEN P. JOHNSON, Senior Vice President, General Counsel 313,000 Direct 2.1%
and Secretary 0 Indirect
5,000 Vested Options
----------
318,000 Total
==========
- ------------------ -------------------------------------------------------------- ------------ ------------------ -------------
Common Stock STEVEN T. DARAK, Senior Vice President, Chief Financial 140,000 Direct 1.0%
Officer and Treasurer 0 Indirect
14,000 Vested Options
----------
154,000 Total
==========
- ------------------ -------------------------------------------------------------- ----------- ------------------- -------------
Common Stock DONALD L. ADDINK, Senior Vice President - Senior Analyst 98,000 Direct *
0 Indirect
5,000 Vested Options
----------
103,000 Total
==========
- ------------------ -------------------------------------------------------------- ------------ ------------------ -------------
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<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
TITLE OF CLASS NAME OF BENEFICIAL OWNER, ADDRESS AND OTHER INFORMATION(1) BENEFICIAL OWNERSHIP(#)(2)(3)(4) CLASS(2)(3)(4)
<S> <C> <C> <C> <C>
- ------------------ -------------------------------------------------------------- ------------ ------------------ -------------
Common Stock WALTER T. VONSH, Former Senior Vice President - Credit 14,000 Direct *
0 Indirect
20,000 Vested Options
----------
34,000 Total
==========
- ------------------ -------------------------------------------------------------- ------------ ------------------ -------------
Common Stock STEVEN A. TESDAHL, Senior Vice President and Chief 14,565 Direct *
Information Officer of Ugly Duckling Car Sales and Finance 0 Indirect
Corporation (Ugly Duckling Car Sales) 5,000 Vested Options
----------
19,565 Total
==========
- ------------------ -------------------------------------------------------------- ------------ ------------------ -------------
Common Stock ROBERT J. ABRAHAMS, (5) Former Director (6), indirect 8,244 Direct *
ownership consists of shares of our common stock acquired by 700 Indirect
Mr. Abrahams' spouse. 0 Vested Options
----------
8,944 Total
==========
- ------------------ -------------------------------------------------------------- ------------ ------------------ -------------
Common Stock CHRISTOPHER D. JENNINGS, (5) Director, indirect ownership of 6,444 Direct *
a warrant to purchase 19,833 shares of our common stock held 19,833 Indirect
on behalf of Mr. Jennings by Cruttenden Roth, an investment 0 Vested Options
banking firm and previous employer of Mr. Jennings. The ----------
warrants are convertible into our common stock at any time 26,277 Total
through June 21, 2001 at an exercise price of $9.45 per share ==========
and are fully vested
- ------------------ -------------------------------------------------------------- ------------ ------------------ -------------
Common Stock JOHN N. MACDONOUGH, (5) Director, indirect ownership 4,444 Direct *
consists of shares of our common stock acquired by Mr. 100 Indirect
MacDonough's son. 0 Vested Options
-----------
4,544 Total
===========
- ------------------ -------------------------------------------------------------- ------------ ------------------ -------------
Common Stock FRANK P. WILLEY,(5) Director 27,144 Direct *
0 Indirect
0 Vested Options
----------
27,144 Total
==========
- ------------------ -------------------------------------------------------------- ------------ ------------------ -------------
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP 5,646,809 37.3%
(9 PERSONS)
- ------------------ -------------------------------------------------------------- ------------ ------------------ -------------
<FN>
- ----------
* Represents less than one percent of the outstanding common stock.
(1) Unless otherwise noted, the address of each of the listed beneficial owners
of our common stock is 2525 East Camelback Road, Suite 500, Phoenix,
Arizona 85016.
(2) "Vested Options" are options that the holder can exercise as of May 31,
1999. These options were issued under either the Incentive Plan or
Executive Plan and their related terms and conditions, including vesting
schedules. See "Compensation of Executive Officers, Benefits and Related
Matters - Long Term Incentive Plan" and " - 1998 Executive Incentive Plan."
(3) Shares of our common stock that are subject to options, warrants or other
rights which are currently exercisable or exercisable within 60 days (i.e.,
as of May 31, 1999) are treated as outstanding for purposes of computing
the percentage of the person holding the option, warrant or other right,
but are not treated as outstanding for computing the percentage of any
other person. Except as indicated in footnote (4) below, the amounts and
percentages are based upon 14,938,557 shares of our common stock
outstanding as of April 1, 1999, net of shares we hold in our treasury.
(4) Information in the table that is described as based on Schedule 13G and/or
amendment filings was provided to us by the beneficial owner as of December
31, 1998, including the amount of securities beneficially owned and the
percentage of class. We make no representation as to the accuracy or
completeness of the information provided in these Schedule 13Gs and/or
amendments or the information in the beneficial ownership table which is
based solely on the filings.
(5) The total and direct ownership for each independent board member includes
4,444 shares of our common stock that we granted under the Director Plan.
We granted and issued shares having a value of $30,000 on or about the date
of grant (i.e., 4,444 shares of our common stock) to each independent board
member upon his appointment or election to our board in June 1996. Under
the Director Plan, these shares generally vest over a 3-year period at an
annual rate of 33%, beginning on the first anniversary date after the grant
date (June 1996).
(6) Mr. Abrahams resigned from the board effective on or around April 16, 1999
because of personal reasons, other business commitments and related
matters.
</FN>
</TABLE>
PAGE 10
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our directors,
executive officers, and persons who own more than 10% of our common stock to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission. We are not aware of any failure of our directors, officers
and 10% stockholders to comply with all Section 16(a) reporting requirements
during 1998, except as set forth below. In making this statement, we have relied
upon the written representation of our directors, officers and 10% stockholders
who are our affiliates. We disclaim any responsibility for determining whether
any person, other than Ernest C. Garcia II, who has filed a Schedule 13G or
Schedule 13D reporting more than 10% beneficial ownership for purposes of
Section 13(d) or Section 13(g) of the Securities Exchange Act of 1934 is also a
more than 10% owner for purposes of Section 16(a) of the Securities Exchange Act
of 1934 and we make no representations as to whether any such person has made
all required filings under Section 16(a).
o 1 late Form 4 filing for Mr. Abrahams, one of our former directors. The
form was filed in March 1999. The late filing was due to an oversight
in reporting a purchase of our common stock by Mr. Abrahams' spouse.
o 1 late Form 4 filing for Mr. Robert Sicina, one of our former officers.
The form was filed in March 1999. After Mr. Sicina's employment with us
ended, he purchased our common stock and failed to report the purchase
in a timely manner.
PAGE 11
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS, BENEFITS AND
RELATED MATTERS
SUMMARY COMPENSATION TABLE
The table below sets forth information concerning the annual and long-term
compensation for services rendered in all capacities for us during the three
fiscal years ended December 31, 1998 of our Named Executive Officers. "Named
Executive Officers" consist of (1) our Chairman of the Board and Chief Executive
Officer, (2) our 4 next most highly compensated executive officers serving as
executive officers at December 31, 1998, and (3) 2 additional individuals who
would have been reported under (2) above but for the fact that the individuals
were not serving as executive officers for Ugly Duckling at December 31, 1998.
<TABLE>
<CAPTION>
- ----------------------------------------- -------- ----------------------------------- -------------------------- ----------
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------------------- --------------------------
AWARDS
------------- ------------
OTHER SECURITIES
ANNUAL RESTRICTED UNDER- ALL OTHER
NAME AND PRINCIPAL COMPEN- STOCK LYING COMPEN-
POSITION YEAR SALARY BONUS SATION AWARD(S) OPTIONS SATION
($) ($) ($) (#)(1) ($)(2)
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------- -------- ----------- ----------- ----------- ------------- ------------ ----------
Ernest C. Garcia II 1998 $150,462 -- $ 3,228(3) -- -- $ 1,000
Chairman of the Board and -------- ----------- ----------- ----------- ------------- ------------ ----------
Chief Executive Officer 1997 131,677 -- 2,985(3) -- -- 950
-------- ----------- ----------- ----------- ------------- ------------ ----------
1996 121,538 -- 2,950(3) -- -- 923
-------- ----------- ----------- ----------- ------------- ------------ ----------
- ----------------------------------------- -------- ----------- ----------- ----------- ------------- ------------ ----------
Gregory B. Sullivan 1998 $208,308 -- $ 1,156(4) -- 500,000 $ 833
President and Chief -------- ----------- ----------- ----------- ------------- ------------ ----------
Operating Officer 1997 197,846 -- -- -- -- 554
-------- ----------- ----------- ----------- ------------- ------------ ----------
1996 97,385(4) --(4) --(4) -- 125,000 --
-------- ----------- ----------- ----------- ------------- ------------ ----------
- ----------------------------------------- -------- ----------- ----------- ----------- ------------- ------------ ----------
Steven T. Darak 1998 $180,961 -- $ 1,750(5) -- 65,001(6) --
Senior Vice President, -------- ----------- ----------- ----------- ------------- ------------ ----------
Chief Financial Officer and 1997 148,654 $ 25,000 1,750(5) -- -- --
Treasurer -------- ----------- ----------- ----------- ------------- ------------ ----------
1996 100,000 100,000 9,250(5) -- 40,000 --
-------- ----------- ----------- ----------- ------------- ------------ ----------
- ----------------------------------------- -------- ----------- ----------- ----------- ------------- ------------ ----------
Steven P. Johnson 1998 $179,023 -- -- -- 42,500(7) $ 1,252
Senior Vice President, -------- ----------- ----------- ----------- ------------- ------------ ----------
General Counsel and Secretary 1997 131,677 -- -- -- 20,000 820
-------- ----------- ----------- ----------- ------------- ------------ ----------
1996 121,538 -- -- -- 25,000 566
-------- ----------- ----------- ----------- ------------- ------------ ----------
- ----------------------------------------- -------- ----------- ----------- ----------- ------------- ------------ ----------
Donald L. Addink 1998 $171,346 $ 40,000 -- -- 33,500(8) $ 1,000
Senior Vice President -- -------- ----------- ----------- ----------- ------------- ------------ ----------
Senior Analyst 1997 139,671 10,000 -- -- -- 950
-------- ----------- ----------- ----------- ------------- ------------ ----------
1996 122,142 10,000 -- -- 42,000 985
-------- ----------- ----------- ----------- ------------- ------------ ----------
- ----------------------------------------- -------- ----------- ----------- ----------- ------------- ------------ ----------
Walter T. Vonsh(10) 1998 $155,869 $ 81,000 $ 1,125(3) -- -- $ 1,000
Former Senior Vice President -------- ----------- ----------- ----------- ------------- ------------ ----------
--- Credit 1997 150,000 -- 2,550(3) -- -- 889
-------- ----------- ----------- ----------- ------------- ------------ ----------
1996 126,923 30,000 5,000(3) -- 50,000 277
-------- ----------- ----------- ----------- ------------- ------------ ----------
- ----------------------------------------- -------- ----------- ----------- ----------- ------------- ------------ ----------
Steven A. Tesdahl(10) 1998 $187,115 -- -- -- 75,000(9) $ 1,000
Senior Vice President -------- ----------- ----------- ----------- ------------- ------------ ----------
and Chief Information Officer 1997 53,846 -- -- $100,000(11) 100,000 --
of Ugly Duckling Car Sales -------- ----------- ----------- ----------- ------------- ------------ ----------
1996 -- -- -- -- -- --
- ----------------------------------------- -------- ----------- ----------- ----------- ------------- ------------ ----------
<FN>
- ----------
(1) The amounts shown in this column represent stock options granted either
pursuant to the Incentive Plan or the Executive Plan. For the Incentive
Plan, options generally vest over a 5-year period, with 20.0% of the
options becoming exercisable on each successive anniversary of the date
of grant. For the Executive Plan, options vest over a 5-year period,
with 20.0% becoming exercisable on each successive anniversary of the
date of grant, but subject to additional vesting hurdles based on the
market price of our common stock as traded on Nasdaq. Regardless of the
preceding vesting schedule being met for the Executive Plan options,
such options fully vest on January 15, 2005 (i.e., "cliff vest"). See
"Compensation of Executive Officers, Benefits and Related Matters -
Long Term Incentive Plan" and " --- 1998 Executive Incentive Plan" for
a discussion of the Incentive Plan and Executive Plan, respectively.
(2) The amounts shown in this column include the dollar value of 401(k)
plan contributions made by Ugly Duckling for the benefit of our Named
Executive Officers.
(3) These amounts include car allowances as follows: (a) Mr. Garcia -- a
$3,228 car allowance during 1998, a $2,985 car allowance during 1997
and a $2,950 car allowance during 1996; and (b) Mr. Vonsh a $1,125 car
allowance during 1998, a $2,550 car allowance during 1997, and a $5,000
car allowance during 1996.
(4) Mr. Sullivan became an executive officer of Ugly Duckling during March
1996. Prior to that, he was an independent contractor for us.
Therefore, the above table does not reflect the Annual Compensation
paid to Mr. Sullivan while he was an independent contractor in 1996.
Other Annual Compensation includes $1,156 for Mr. Sullivan's personal
use of a company car for a portion of 1998.
(5) These amounts include $7,500 that we paid for a Phoenix apartment for
Mr. Darak during 1996, while his full time residence was in Tucson,
Arizona, and a $1,750 car allowance during each of 1998, 1997 and 1996.
(6) Includes 15,001 options that were cancelled and reissued on November
17, 1998. See "--Compensation Committee Report on Executive
Compensation - Report on Repricing of Options."
PAGE 12
<PAGE>
(7) Includes 17,500 options that were cancelled and reissued on November
17, 1998. See "--Compensation Committee Report on Executive
Compensation - Report on Repricing of Options."
(8) Includes 8,500 options that were cancelled and reissued on November 17,
1998. See "--Compensation Committee Report on Executive Compensation -
Report on Repricing of Options."
(9) Includes 50,000 options that were cancelled and reissued on November
17, 1998. See "--Compensation Committee Report on Executive
Compensation - Report on Repricing of Options."
(10) Employment changes occurred for these officers as follows: (a) Mr.
Vonsh -- effective March 1998, resigned his officer position of Senior
Vice President -- Credit for Ugly Duckling, but he continues to be
employed by us in other positions and capacities; and (b) Mr. Tesdahl
-- effective November 1998, we revised our officer structure and as
part of that process, Mr. Tesdahl stopped being an executive officer
for Ugly Duckling. He continues to be employed by us as a Senior Vice
President and Chief Information Officer of Ugly Duckling Car Sales. Mr.
Tesdahl began his employment and became an executive officer of Ugly
Duckling in September 1997.
(11) The dollar amount shown represents the market value as of the grant
date of restricted stock awarded to Mr. Tesdahl upon his initial hiring
in September 1997. The grant was pursuant to his employment agreement
with us and was made outside of the Incentive Plan and the Executive
Plan. The award was for approximately 7,692 shares at $13.00 per share
(based on the closing price of our stock on the grant date as reported
by Nasdaq). Under Mr. Tesdahl's employment agreement, these shares
vested 100% in January 1998. At December 31, 1998, Mr. Tesdahl retained
4,565 shares from the restricted stock award, valued at $21,136 (based
on the December 31, 1998 closing price of our stock of $4.63 per share
as reported by Nasdaq).
</FN>
</TABLE>
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information on option grants for the fiscal year
ended December 31, 1998 to each of our Named Executive Officers.
- ------------------------------------------------------------------------------------------ --------------------------------
POTENTIAL REALIZABLE VALUE AT
INDIVIDUAL GRANTS ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR OPTION
TERM(1)
- --------------------------- --------------- ----------------- ----------- ---------------- --------------- ----------------
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS GRANTED
UNDERLYING TO EMPLOYEES EXERCISE
OPTIONS IN FISCAL YEAR PRICE EXPIRATION
NAME GRANTED (#) ($/SH) DATE 5% ($) 10% ($)
<S> <C> <C> <C> <C> <C> <C>
- --------------------------- --------- ----- ----------- ---------------- ---------- ----------
Ernest C. Garcia II -- -- -- -- -- --
- --------------------------- --------- ----- ----------- ---------------- ---------- ----------
Gregory B. Sullivan 250,000(2) 17.2% $ 8.25 1/15/2008 $1,297,095 $3,287,094
250,000(3) 17.2% 8.25 1/15/2008 1,297,095 3,287,094
- --------------------------- --------- ----- ----------- ---------------- ---------- ----------
Steven T. Darak 50,000(2) 3.5% $ 8.25 1/15/2008 $ 259,419 $ 657,419
15,001(4) 1.0% 5.13 11/17/2004(4) 26,172 59,376
- --------------------------- --------- ----- ----------- ---------------- ---------- ----------
Steven P. Johnson 25,000(2) 1.7% $ 8.25 1/15/2008 $ 129,710 $ 328,709
17,500(4) 1.2% 5.13 11/17/2004(4) 30,532 69,267
- --------------------------- --------- ----- ----------- ---------------- ---------- ----------
Donald L. Addink 25,000(2) 1.7% $ 8.25 1/15/2008 $ 129,710 $ 328,709
8,500(4) 0.6% 5.13 11/17/2004(4) 14,830 33,644
- --------------------------- --------- ----- ----------- ---------------- ---------- ----------
Walter T. Vonsh -- -- -- -- -- --
- --------------------------- --------- ----- ----------- ---------------- ---------- ----------
Steven A. Tesdahl 25,000(2) 1.7% $ 8.25 1/15/2008 $ 129,710 $ 328,709
50,000(4) 3.5% 5.13 11/17/2004(4) 87,235 197,905
- --------------------------- --------- ----- ----------- ---------------- ---------- ----------
<FN>
- ----------
(1) Potential Realized Values are net of the exercise price, but before
taxes associated with the exercise. Amounts represent hypothetical
gains that could be achieved for the respective options if exercised at
the end of the option term. The assumed 5% and 10% rates of stock price
appreciation are provided in accordance with the rules of the
Securities and Exchange Commission and do not represent our estimate or
projection of the future price of our common stock. Actual gains, if
any, on stock option exercises will depend upon the future market
prices of our common stock on the date of exercise. Accordingly, there
can be no assurance that the values shown in the last 2 columns will be
realized. The closing price of our common stock on April 1, 1999 was
$5.31 per share.
(2) On January 15, 1998, these Named Executive Officers of Ugly Duckling
were granted these performance-based stock option awards under the
Executive Plan. They are part of the initial grants that were approved
by our board, the Compensation Committee and ultimately our
stockholders at the 1998 annual meeting. The initial grants have
exercise prices equal to the fair value of our common stock on the date
of grant. They vest over a 5-year period, with 20.0% becoming
exercisable on each successive anniversary of the date of grant, but
subject to additional vesting hurdles based on the market price of our
common stock as traded on Nasdaq. However, even if the market price
hurdles are not met, these options fully vest on January 15, 2005
(i.e., "cliff vest"). The options have 10-year terms. See "Compensation
of Executive Officers, Benefits and Related Matters - 1998 Executive
Incentive Plan" and " - Compensation Committee Report on Executive
Compensation" for additional information on these initial grants and
our Executive Plan.
PAGE 13
<PAGE>
(3) These options were granted to Mr. Sullivan under the Incentive Plan at
an exercise price equal to the fair value of the shares on the date of
grant. The options have a 10-year term. The options vest over a 5-year
period, with 20.0% becoming exercisable on each successive anniversary
of the date of grant. See "Compensation of Executive Officers, Benefits
and Related Matters - Long Term Incentive Plan" and " --- Compensation
Committee Report on Executive Compensation" for additional information
on this grant and our Incentive Plan.
(4) In November 1998, we repriced certain outstanding options. As a
condition to the repricing, the optionee was required to reduce the
number of shares underlying the repriced grant by 50%. The number in
the table represents the repriced options remaining after the
reduction. See "Compensation Committee Report on Executive Compensation
- Report on Repricing of Options."
</FN>
</TABLE>
RECENT OPTION GRANTS IN 1999
On March 2, 1999, the Compensation Committee reviewed and approved, in advance,
grants of stock options to Ugly Duckling employees. These grants include the
right to acquire an aggregate of approximately 452,400 shares of our common
stock. The options include awards to the following Named Executive Officers to
acquire our common stock at an exercise price of $5.56 per share: (1) a 100,000
share option to Ernest C. Garcia II; (2) a 125,000 share option to Gregory B.
Sullivan; (3) a 35,000 share option to Steven T. Darak; (4) a 20,000 share
option to Steven P. Johnson; and (5) a 35,000 share option to Donald L. Addink.
The grants to Messrs. Sullivan and Darak are performance-based stock options
with cliff vesting. The exercise price for these grants equaled the fair value
of the shares on the date of grant.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
The table below sets forth information with respect to option exercises
and the number and value of options outstanding at December 31, 1998 held by our
Named Executive Officers. Generally, we have not issued any other forms of stock
based awards.
<TABLE>
<CAPTION>
- --------------------------- ---------------- ----------------- ---------------------------------- ----------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR END (#)(1) FISCAL YEAR END ($)(2)
----------------- ---------------- ----------------- ----------------
SHARES
ACQUIRED ON VALUE
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
- --------------------------- ---------------- ----------------- ----------------- ---------------- ----------------- ----------------
Ernest C. Garcia II -- -- -- -- -- --
- --------------------------- ---------------- ----------------- ----------------- ---------------- ----------------- ----------------
Gregory B. Sullivan -- -- 79,600 561,400 $141,984 $94,656
- --------------------------- ---------------- ----------------- ----------------- ---------------- ----------------- ----------------
Steven T. Darak -- -- 4,000 71,001 -- --
- --------------------------- ---------------- ----------------- ----------------- ---------------- ----------------- ----------------
Steven P. Johnson 4,000 $13,820(4) -- 48,500 -- --
- --------------------------- ---------------- ----------------- ----------------- ---------------- ----------------- ----------------
Donald L. Addink 20,000(3) $30,000(4) -- 33,500 -- --
- --------------------------- ---------------- ----------------- ----------------- ---------------- ----------------- ----------------
Walter T. Vonsh -- -- 20,000 30,000 -- --
- --------------------------- ---------------- ----------------- ----------------- ---------------- ----------------- ----------------
Steven A. Tesdahl -- -- -- 75,000 -- --
- --------------------------- ---------------- ----------------- ----------------- ---------------- ----------------- ----------------
<FN>
- ----------
(1) For the Incentive Plan, generally, options vest over a 5-year period,
with 20% of the options becoming exercisable on each successive
anniversary of the date of grant. For the Executive Plan, options vest
over a 5-year period, with 20% of the options becoming exercisable on
each successive anniversary of the date of grant, but subject to
additional vesting hurdles based on the market price of our common
stock as traded on Nasdaq. In any event, such options fully vest on
January 15, 2005 (i.e., "cliff vest"). See "Compensation of Executive
Officers, Benefits and Related Matters- Long Term Incentive Plan" and "
--- 1998 Executive Incentive Plan" for additional information on the
Incentive Plan and Executive Plan, respectively. Also see " -
Compensation Committee Report on Executive Compensation."
(2) In-the-money options are options for which the option exercise price
(the fair market value on the date of grant) was lower than the market
price of our common stock on December 31, 1998. The market price of our
common stock on December 31, 1998 was $4.63 per share based on the
closing price of our stock on that date as reported by Nasdaq. The
values in the last two columns have not been, and may never be,
received by the Named Executive Officers. Actual gains, if any, on
option exercises will depend on the value of the common stock on the
exercise dates. Accordingly, there can be no assurance that the values
shown in the last 2 columns will be realized. The closing price of our
common stock on April 1, 1999 was $5.31 per share.
(3) In January 1998, Mr. Addink exercised 20,000 stock options at an
exercise price of $6.75 per share. As discussed in this proxy
statement, these options were subject to accelerated vesting pursuant
to Mr. Addink's restated employment agreement with us. See "-Contracts
with Directors and Executive Officers and Severance Arrangements -
Donald L. Addink."
(4) The value realized represents the value of stock options exercised
during the last fiscal year. The value realized was calculated by
PAGE 14
<PAGE>
subtracting the exercise price of each relevant option from the fair
market value of the common stock underlying the options as of the
exercise date. The fair market value of our common stock was based on
the closing price of Ugly Duckling stock on the date of exercise as
reported by Nasdaq. Under Ugly Duckling's plans, the exercise date is
the date the participant provides notice to us of his/her exercise and
method of payment.
</FN>
</TABLE>
LONG TERM INCENTIVE PLAN
In June 1995, our stockholders approved the Long Term Incentive Plan (Incentive
Plan). We believe that our Incentive Plan promotes the success and enhances the
value of Ugly Duckling by (1) linking the personal interests of participants to
those of our stockholders, and (2) providing participants with an incentive for
outstanding performance. Under the Incentive Plan, we may grant various types of
awards to our employees, consultants and advisors, including:
o incentive stock options (ISOs),
o nonqualified stock options (NQSOs),
o performance shares,
o restricted stock, and
o performance-based awards.
The Incentive Plan is administered by our board or a board committee (i.e.,
Compensation Committee), whose membership qualifies as non-employee directors
and outside directors. The Compensation Committee has the authority to
administer the plan, including the power to determine -
o eligibility,
o type and number of awards to be granted, and
o terms and conditions of any award granted, including the price and
timing of awards, vesting and acceleration of such awards (other than
performance-based awards).
Thus far, we have only granted ISOs and NQSOs under this plan. Generally, these
stock options have been subject to vesting over a 5-year period, with 20.0% of
the options becoming exercisable by the holder on each successive anniversary
date of the grant. The options generally expire 10 years after the grant date.
The total number of shares of our common stock initially available for awards
under the Incentive Plan was 1,800,000. The exercise price of all options
granted under the plan in the past has equaled or exceeded the fair market value
of our common stock on the date of grant. The plan has a "change of control"
provision that is summarized below in this proxy statement. See "Compensation of
Executive Officers, Benefits and Related Matters -- Change of Control
Arrangements."
In January 1998, the Compensation Committee granted, subject to certain
conditions, approximately 775,000 options to purchase common stock to several of
our officers, 250,000 of which were granted under the Incentive Plan and the
remaining 525,000 of which were granted under the 1998 Executive Incentive Plan.
In March 1999, the Compensation Committee granted, subject to certain
conditions, approximately 152,400 options under the Incentive Plan. Also in
January 1998 and later in November 1998, we repriced certain options under the
Incentive Plan after the Compensation Committee approved the repricings. See " -
Compensation Committee Report on Executive Compensation."
At April 1, 1999, we had granted options under the plan to purchase
approximately 1,414,000 shares of our common stock (net of canceled and lapsed
grants) to various of our employees, of which approximately 1,147,000 were
outstanding. Also at April 1, 1999, there were approximately 386,000 of our
shares that remained available for grant under the plan.
PAGE 15
<PAGE>
1998 EXECUTIVE INCENTIVE PLAN
The 1998 Executive Incentive Plan (Executive Plan) was approved by our
stockholders at our 1998 annual meeting. The plan became effective as of January
1998. Under the Executive Plan, Ugly Duckling may grant ISOs, NQSOs, SARs,
performance shares, restricted stock, and performance-based awards to its
employees, consultants and advisors. Although the Executive Plan allows broad
based awards to be granted and thus is similar to the Incentive Plan, we
currently intend to utilize the Executive Plan primarily for performance-based
awards to our executives and key employees. The total number of shares of our
common stock initially available for awards under the Executive Plan was
800,000. The exercise price of all options granted under the Executive Plan in
the past has been equal to the fair market value of our common stock on the date
of grant. The plan is administered by the Compensation Committee and has a
"change of control" provision that is summarized below in this proxy statement.
See "-- Change of Control Arrangements."
In January 1998, the Compensation Committee granted, subject to certain
conditions, approximately 775,000 options to purchase our common stock to
several of our officers, 525,000 of which were granted under the Executive Plan
and the remaining 250,000 of which were granted under the Incentive Plan. In
March 1999, the Compensation Committee granted, subject to certain conditions,
approximately 300,000 options under the Executive Plan. See " - Compensation
Committee Report on Executive Compensation."
At April 1, 1999, we had granted options under the plan to purchase 800,000
shares of our common stock (net of canceled and lapsed grants) to various
officers of Ugly Duckling, all of which are outstanding. Also at April 1, 1999,
there are no shares that remain available for grant under the plan.
Other than as summarized and noted above, the Executive Plan is similar to the
Incentive Plan as described in this proxy statement.
401(K) PLANS
Under both of our 401(k) plans, eligible employees may direct that we withhold a
portion of their compensation, up to a legally established maximum, and
contribute this amount to their accounts. We place all 401(k) plan contributions
in trust funds within our 401(k) plans. Participants may direct the investment
of their account balances among mutual or investment funds available under the
plans. The 401(k) plans provide a matching contribution ranging from 10.0% to
25.0% of a participant's pretax contributions and discretionary additional
matchings by us, if we authorize them. Amounts contributed to participant
accounts under the 401(k) plans and any earnings or interest accrued on the
participant accounts are generally not subject to federal income tax until
distributed to the participant and, except in limited cases, the participant may
not withdraw such amounts until death, retirement or termination of employment.
CONTRACTS WITH DIRECTORS AND EXECUTIVE OFFICERS
AND SEVERANCE ARRANGEMENTS
ERNEST C. GARCIA II
On January 1, 1996, we entered into a 3-year employment agreement with Mr.
Garcia, our Chairman and Chief Executive Officer. This agreement was extended
for another 3-year term effective December 31, 1998. The agreement established
Mr. Garcia's base salary for 1996 at $120,000 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 1 year in the event
Mr. Garcia is terminated by us without cause prior to the expiration of the
agreement. It also contains confidentiality and non-compete covenants.
PAGE 16
<PAGE>
Mr. Garcia has advised the Board of Directors that during 1999 he intends to
step down from his position as Chief Executive Officer of Ugly Duckling. He will
remain as our Chairman of the Board. Mr. Garcia plans to transition his CEO
duties to Gregory B. Sullivan in anticipation of Mr. Sullivan being appointed as
the new Chief Executive Officer of Ugly Duckling.
DONALD L. ADDINK
On June 1, 1995, we entered into a 5-year employment agreement with Mr. Addink,
our Senior Vice President -- Senior Analyst, that was amended and restated
effective August 1, 1997. The restated agreement establishes Mr. Addink's base
salary at $165,000 per year beginning on or around the effective date of the
restated agreement, a $10,000 bonus payment upon execution of the restated
agreement, certain benefits, and the continuation of Mr. Addink's base salary
and certain benefits for a period of 1 year in the event Mr. Addink is
terminated by us without cause prior to expiration of the restated agreement. It
also contains confidentiality and non-compete covenants. Further, it accelerated
the vesting of Mr. Addink's 100,000 stock options previously granted under the
Incentive Plan, as set forth in the table below. These options were originally
granted pursuant to the Incentive Plan's general 5-year vesting schedule with
20% vesting each year.
ORIGINAL GRANT DATE NUMBER EXERCISE PRICE ACCELERATED
OF SHARES(#) PER SHARE($) VESTING DATE
- --------------------- ----------------- ---------------- ----------------------
June 1995 58,000 $ 1.72 August 1, 1997
- --------------------- ----------------- ---------------- ----------------------
June 1996 25,000 6.75 January 15, 1998
- --------------------- ----------------- ---------------- ----------------------
December 1996 17,000 17.69 August 1, 1997
- --------------------- ----------------- ---------------- ----------------------
WALTER T. VONSH
On April 1, 1995, we entered into a 3-year employment agreement with Mr. Vonsh,
our former Senior Vice President -- Credit, that was modified on or about April
1, 1996, August 6, 1997 and May 26, 1998. Mr. Vonsh is no longer our Senior Vice
President -- Credit, but continues to be employed by us in other capacities. The
modified agreement provides for a base salary of $150,000 per year through June
30, 2001 and certain other compensation and benefits, including a one-time cash
bonus of $81,000 that was paid on May 26, 1998. The modified agreement also
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 us without
cause prior to that time. It also contains confidentiality and non-compete
covenants.
STEVEN A. TESDAHL
On August 16, 1997, we entered into an employment agreement with Mr. Tesdahl
that was amended as of May 21, 1998. Mr. Tesdahl is Senior Vice President and
Chief Information Officer of our Ugly Duckling Car Sales subsidiary and the
former Senior Vice President and Chief Information Officer of Ugly Duckling. The
agreement provides for no minimum or maximum term of employment. But it does
provide for: (1) his annual base salary at $175,000 per year with a minimum 10%
increase on each anniversary of the hire date; (2) an initial stock option grant
to acquire 100,000 shares of our common stock under the Incentive Plan, with
terms and conditions consistent with the plan's general terms; (3) a grant of
restricted stock valued at $100,000 on the approximate effective date of Mr.
Tesdahl's employment with us, which fully vested as of January 15, 1998; and (4)
certain other benefits. The agreement provides for the continuation of Mr.
Tesdahl's base salary for a limited period in the event he is terminated by us
without cause. The potential severance benefit decreases over time, and goes to
zero after September 1, 2000. The agreement has a "change of control" provision
that provides for certain rights and benefits to Mr. Tesdahl upon such an event
occurring and either:
o he terminates his employment with us within 12 months after the change
of control; or
PAGE 17
<PAGE>
o we terminate him without cause within 90 days prior to the change of
control or within 12 months after the event.
If these events occur, Mr. Tesdahl will receive a termination fee equal to 200%
of his then current salary, and at the time of the change of control, his
initial option will fully vest. The agreement adopts the Incentive Plan's
definition of a "change of control" and adds an additional change of control
event if neither Ernest C. Garcia II nor Gregory B. Sullivan is Chief Executive
Officer of Ugly Duckling. See " -- Change of Control Arrangements."
GENERALLY
For additional information on option grants to our executive officers under the
Incentive Plan and Executive Plan, see " - Long Term Incentive Plan", " - 1998
Executive Incentive Plan" and " - Compensation Committee Report on Executive
Compensation." For information on stock repricings that occurred during 1998,
see " -- Compensation Committee Report on Executive Compensation."
CHANGE OF CONTROL ARRANGEMENTS
LONG TERM INCENTIVE PLAN
The term "change of control" is defined in the Incentive Plan and is summarized
in the next paragraph of this proxy statement. Upon a change of control of Ugly
Duckling the Compensation Committee, in its discretion, will either --
o cause all outstanding options and awards to be fully vested and
exercisable and all restrictions to lapse, allowing participants the
right to exercise options and awards before the change of control
occurs (which event would otherwise terminate participants' options and
awards); or
o cause all outstanding options and awards to terminate, if the surviving
or resulting corporation agrees to assume the options and awards on
terms that substantially preserve the rights and benefits of
outstanding options and awards.
Under the Incentive Plan, a "change of control" occurs upon any of the following
events:
o a merger or consolidation of Ugly Duckling with another corporation
where we are not the surviving entity or where our stock would be
converted into cash, securities or other property, other than a merger
in which our stockholders before the merger have the same proportionate
ownership after the merger;
o with certain exceptions, any sale, lease, or other transfer of more
than 40% of our assets or our earning power;
o our stockholders approve a plan of complete liquidation or dissolution;
o any person (other than a current stockholder or any employee benefit
plan) becoming the beneficial owner of 20% or more of our common stock;
or
o during any 2-year period, the persons who are on our board at the
beginning of such period and any new person whose election or
nomination was approved by two-thirds of such directors cease to
constitute a majority of the persons serving on our board.
PAGE 18
<PAGE>
1998 EXECUTIVE INCENTIVE PLAN
The Executive Plan provides that in the event of a "change of control" of Ugly
Duckling, all outstanding options and awards will be fully vested and
exercisable and all restrictions will lapse unless the surviving or resulting
corporation agrees to assume the options and awards on terms that substantially
preserve the rights and benefits of outstanding options and awards. The
Executive Plan and the Incentive Plan have the same definition for the term
"change of control."
GENERALLY
For additional information on change of control and severance arrangements, see
" -- Contracts with Directors and Executive Officers and Severance
Arrangements."
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
RESPONSIBILITY AND COMPOSITION OF THE COMPENSATION COMMITTEE
This is a report of the Compensation Committee. We are a committee of 2
directors and our names appear at the end of this report on page 23. No member
of our committee has ever served as an officer of Ugly Duckling. We are
responsible for: (1) reviewing and approving each of the elements of Ugly
Duckling's executive compensation program; (2) administering and maintaining the
key provisions of Ugly Duckling's executive compensation program; and (3)
reviewing with our board all significant aspects of compensation for Ugly
Duckling's executives. In addition, we determine the compensation of Ugly
Duckling's executive officers.
OVERVIEW OF COMPENSATION PHILOSOPHY AND OBJECTIVES
We believe that compensation for Ugly Duckling executive officers should be
determined according to a competitive framework that helps build value for the
company's stockholders. With this in mind, our philosophy is to have Ugly
Duckling pay base salaries to its executives at levels that enable it to
attract, motivate and retain highly qualified executives. In addition, we may
direct and/or approve Ugly Duckling's payment of cash bonuses and granting of
stock options as a component of competitive compensation and/or as a reward for
performance based upon -
o individual performance,
o Ugly Duckling's and/or a business unit's operating and financial
results, or
o other performance measures.
Stock option grants are intended to result in no reward if the stock price does
not appreciate, but may provide substantial rewards to Ugly Duckling's
executives as stockholders benefit from stock price appreciation. Within this
overall philosophy, we have the following specific objectives:
o Align the financial interests of Ugly Duckling's executive officers
with those of stockholders by providing significant equity-based
long-term incentives.
o Provide annual variable compensation awards that take into account Ugly
Duckling's overall performance and individual contributions, teamwork
and business unit results that help create value for its stockholders.
o Offer a total compensation program that takes into account the
compensation practices and financial performance of companies in Ugly
Duckling's industry and other comparable companies.
PAGE 19
<PAGE>
o Emphasize performance-based and equity-based compensation as the level
of Ugly Duckling executive officer increases. This leads to executive
officers and certain other senior officers having a greater proportion
of their total compensation at risk, meaning that payments will vary
depending upon Ugly Duckling's overall performance, teamwork and
individual and business unit contributions. In particular, as officer
levels increase, we --
o focus more on Ugly Duckling's performance, teamwork,
individual contributions and business unit results and less on
comparable marketplace compensation comparisons,
o emphasize more variable, performance-based compensation versus
fixed compensation, and
o provide a significantly greater proportion of total
compensation that is equity-based.
COMPENSATION COMPONENTS AND PROCESS
There are 3 major components of executive officer compensation at Ugly Duckling-
o base salary,
o cash bonus awards, and
o long term incentive awards, generally in the form of stock option
grants.
Executive officers also receive certain perquisites, and participate in various
other Ugly Ducklings benefit plans, including medical and 401(k) plans,
typically available to all of Ugly Duckling's eligible employees.
As a committee, we use subjective judgment in determining executive officers'
compensation levels for all of these components and take into account both
qualitative and quantitative factors. We do not assign specific weights to these
factors. Among the factors considered by us are the recommendations of the
Chairman of the Board and Chief Executive Officer, Mr. Garcia, with respect to
the compensation of other key executive officers at Ugly Duckling. However, we
make the final compensation decisions concerning Ugly Duckling's executive
officers.
In making compensation decisions, we consider compensation practices and
financial performance of companies in Ugly Duckling's industry and other
comparable companies. This information provides guidance and a framework for us,
but the committee does not target total executive compensation or any component
thereof to any particular point within, or outside, the range of companies in
Ugly Duckling's industry and other comparable companies' results. Specific
compensation for Ugly Duckling's individual officers will vary from these levels
as the result of subjective factors considered by us unrelated to compensation
practices of comparable companies. See " -- Overview of Compensation Philosophy
and Objectives" above. In making compensation decisions, we also from time to
time receive assessments and advice regarding Ugly Duckling's compensation
practices and those of others from independent compensation consultants. In 1998
we retained a compensation consultant to advise us in connection with the
January 15, 1998 repricing of certain stock options and the January 15, 1998
stock option grants to certain of Ugly Duckling's officers. See " - Stock
Options" and " - Report on Repricing of Options."
POLICY ON DEDUCTIBILITY OF COMPENSATION
Section 162(m) of the Internal Revenue Code limits the tax deductibility by a
company of compensation in excess of $1 million paid to any of its 5 most highly
compensated executive officers. However, performance-based compensation that has
been approved by stockholders is excluded from the $1 million limit if, among
other requirements, the compensation is payable only upon attainment of
pre-established, objective performance goals and the board committee that
establishes such goals consists only of "outside directors" (as defined for
purposes of Section 162(m)).
PAGE 20
<PAGE>
As members of the Compensation Committee, we believe we each qualify as an
"outside director" under Section 162(m). We also believe that the full amount of
compensation resulting from the grant/exercise of options under Ugly Duckling's
Incentive Plan and Executive Plan continue to be deductible. All other forms of
awards under these plans must meet the general requirements described in the
previous paragraph in order to avoid the deduction limitations of Section
162(m). Any future employee incentive plan being considered for adoption by us
will be evaluated prior to any such adoption to determine its anticipated
compliance with the Section 162(m) limitation and this policy.
While the tax impact of any compensation arrangement is one factor to be
considered, we evaluate such impact in light of our committee's overall
compensation philosophy. We intend to establish executive officer compensation
programs that will maximize Ugly Duckling's deduction, if we determine (with the
assistance of company management) that maximization of Ugly Duckling's deduction
is consistent with our committee's philosophy and is in Ugly Duckling's and its
stockholders' best interests. Consequently, from time to time we may award
compensation which is not fully deductible, if we determine that the award is
consistent with our philosophy and is in the best interests of Ugly Duckling and
its stockholders. To the extent possible and when there is an issue or concern,
we will state our belief as to the deductibility of compensation paid to Ugly
Duckling executive officers for the pertinent reporting period(s) in Ugly
Duckling's annual proxy statements.
BASE SALARY AND CASH BONUSES
Each of Ugly Duckling's executives receives a base salary, which when aggregated
with his bonus, is intended to be competitive with similarly situated executives
in its industry and executives at other comparable companies. We target base pay
at the level required to attract and retain highly qualified executives. In
determining salaries, we also take into account, among other factors, individual
experience and performance and specific needs particular to Ugly Duckling.
In addition to base salary, Ugly Duckling executives are eligible to receive
cash bonuses. A total of $121,000 was paid to our Named Executive Officers
during 1998 as cash bonuses. The bonuses are based upon executive performance,
special compensation situations and/or circumstances, and certain other factors.
We believe that bonuses paid to Ugly Duckling executives in 1998 properly took
into account these factors. The amount of bonus and the performance criteria
vary with the position, role and situation of the executive.
On January 15, 1998, we approved 1998 annual base salaries, effective for 1998,
for our Named Executive Officers, including Mr. Garcia, Ugly Duckling's Chairman
of the Board and Chief Executive Officer. On March 2, 1999, we approved 1999
annual base salaries, effective for 1999, for our Named Executive Officers,
including Mr. Garcia's salary.
Base salary and cash bonuses to Ugly Duckling's executives for 1998 were
determined and paid in accordance with the compensation philosophy and specific
objectives discussed in this report. See " -- Overview of Compensation
Philosophy and Objectives" above.
STOCK OPTIONS
We believe that it is important for Ugly Duckling executives to have an equity
stake in their company and, toward this end, Ugly Duckling proposes and we
review and approve stock option grants to key executives from time to time. In
reviewing and approving option awards, we consider and review the level of
awards granted to executives at companies in Ugly Duckling's industry and
executives at other comparable companies, the awards granted to other executives
within Ugly Duckling and the individual officer's specific role and contribution
at Ugly Duckling. We also consider and may take into account options previously
granted to an executive. Ugly Duckling presently has 2 long-term incentive award
plans, the Incentive Plan and the Executive Plan. The plans are summarized in
this proxy statement under the captions "Long Term Incentive Plan" and "1998
Executive Incentive Plan."
PAGE 21
<PAGE>
In January 1998, Ugly Duckling's board, upon our recommendation, approved the
Executive Plan, subject to stockholder approval. Stockholder approval was
obtained in August 1998, during Ugly Duckling's 1998 annual meeting. Also on
January 15, 1998, we considered and approved the grant to several Ugly Duckling
officers of options to purchase approximately 775,000 shares of Ugly Duckling's
common stock at an exercise price of $8.25 per share, subject to several
conditions (January 1998 Option Grants). The exercise price was equal to the
market value of Ugly Ducking's stock on the January 15th grant date. These
January 1998 Option Grants are performance shares intended to qualify as
performance-based compensation under Section 162(m) of the Internal Revenue
Code. Included in this grant, and approved by our stockholders, were 525,000
performance-based stock options under the Executive Plan for initial grants to
certain officers (Initial Grants). The Initial Grants vest and become
exercisable in full on January 15, 2005 (i.e., "cliff vesting" of options).
These grants will vest sooner in equal increments over a 5-year period, but only
if certain stock price hurdles are also satisfied. Once a price hurdle is met, a
participant will not be penalized due to any subsequent decline in Ugly
Duckling's stock price. At April 1, 1999, the price hurdles for the first 2
vesting periods had already been satisfied. Ugly Duckling believes that these
option grants are material in the aggregate. As such, they will have the effect
of diluting the ownership interest of Ugly Duckling's existing stockholders. The
following chart shows how the Initial Grants vest:
<TABLE>
<CAPTION>
- ---------------------------- ---------------------------- ---------------------------------------------
% OF INITIAL GRANTS THAT DATE OF VESTING VALUE OF UGLY DUCKLING STOCK FOR AT LEAST
VEST 10 CONSECUTIVE TRADING DAYS AT ANY TIME
BEFORE, ON OR AFTER THE VESTING DATE
- ---------------------------- ---------------------------- ---------------------------------------------
<S> <C> <C>
- ---------------------------- ---------------------------- ---------------------------------------------
First 20% January 15, 1999 $9.90 per share
- ---------------------------- ---------------------------- ---------------------------------------------
Second 20% January 15, 2000 $11.55 per share
- ---------------------------- ---------------------------- ---------------------------------------------
Third 20% January 15, 2001 $13.20 per share
- ---------------------------- ---------------------------- ---------------------------------------------
Fourth 20% January 15, 2002 $14.85 per share
- ---------------------------- ---------------------------- ---------------------------------------------
Fifth 20% January 15, 2003 $16.50 per share
- ---------------------------- ---------------------------- ---------------------------------------------
or 100% January 15, 2005 No condition
- ---------------------------- ---------------------------- ---------------------------------------------
</TABLE>
Included in the January 1998 Option Grants was a total award of 500,000 options
to Gregory B. Sullivan, an Ugly Duckling Director and its President and Chief
Operating Officer (250,000 of the 500,000 options were granted under the
Incentive Plan and 250,000 were granted under the Executive Plan, as an Initial
Grant). The January 1998 Option Grants to Mr. Sullivan were made in recognition
of his role at Ugly Duckling, his increasing importance to the company, his
other compensation from Ugly Duckling, and other factors. We believe it is
important to incentivize Mr. Sullivan and in this regard his Initial Grant for
250,000 shares is performance-based. We retained a compensation consultant to
advise us on the design of the performance-base aspects of the Initial Grants
and the appropriateness of the January 1998 Option Grants to Mr. Sullivan. The
Initial Grant to Mr. Sullivan was approved by Ugly Duckling's stockholders
during its 1998 annual meeting.
On March 2, 1999, we considered and approved certain 1999 stock option awards.
See " - Compensation of Executive Officers, Benefits and Related Matters -
Recent Option Grants In 1999."
During 1998 and 1999, we considered and approved stock option grants under Ugly
Duckling's Incentive Plan to several of our other officers who were not
executive officers. These options to non-executive officers were granted at or
above fair market value with all of the 1998 grants subject to vesting over a 5
year period, with 20% of the options becoming exercisable on each successive
anniversary of the date of grant, and expiring 10 years after the grant date.
On January 15, 1998 and November 17, 1998, we considered and approved 2 separate
repricings of certain stock options held by certain of Ugly Duckling's executive
officers and other employees. These repricings are summarized below in this
proxy statement under the caption "Report on Repricing of Options."
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<PAGE>
Stock option grants to Ugly Duckling officers for 1998 and the repricing of
stock options during 1998 were made in accordance with the compensation
philosophy and specific objectives discussed in this report. See " -- Overview
of Compensation Philosophy and Objectives" and " - Report on Repricing of
Options."
OTHER BENEFITS
Ugly Duckling's executive officers receive certain perquisites. They are also
eligible to participate in benefit programs designed for all of Ugly Duckling's
full time employees. These programs include medical, disability and life
insurance and savings programs qualified under Section 401(k) of the Internal
Revenue Code.
REPORT ON REPRICING OF OPTIONS
During 1998, we approved 2 separate plans to reprice certain outstanding stock
options under the Incentive Plan. The first repricing occurred on January 15,
1998 and excluded Ugly Duckling's executive officers from the repricing program
(January Repricing). In connection with the January Repricing we retained a
compensation consultant who advised us on the reasonableness and appropriateness
of the repricing. The second repricing occurred on November 17, 1998 and
included certain executive officers in the program (November Repricing). Both
the January Repricing and November Repricing were offered to a broad base of
Ugly Duckling's non-executive officers and other employees holding options under
the Incentive Plan. As part of both repricings, the exercise price of the
options was reduced to equal or exceed the then fair market value of Ugly
Duckling's stock on the date of the repricing, as measured by the closing price
of its stock on such date per Nasdaq.
We believe it is important for key employees of Ugly Duckling to have an equity
stake in the business. Stock options are an important component of compensation
for key employees at Ugly Duckling. They are intended to provide incentives to
employees to work to achieve long-term success for Ugly Duckling. Options
normally increase employee morale and lead to the retention by Ugly Duckling of
its key employees. During 1997 and 1998, Ugly Duckling's stock declined leaving
many key employees with options that had exercise prices significantly above the
trading range of the company's stock (i.e., the options were "underwater"). We
believe the decline in Ugly Duckling's stock is primarily related to the
broad-based decline in smallcap companies' stock prices, especially those in the
specialty finance sector. The decline in Ugly Duckling's stock price defeated
the purpose of the underwater options - the underwater options had lost their
incentive value to the holders. With the repricings, we restored the incentive
value to the eligible option holders who elected to participate in the
repricings. Thus we believe that the January Repricing and the November
Repricing were in the best interest of Ugly Duckling and its stockholders.
The January Repricing covered only non-executive officers of Ugly Duckling.
Eligible options were repriced to $9.75 per share. The repriced exercise price
was at a premium over the market price of Ugly Duckling's stock on the date of
the reprice. On the date of the repricing, Ugly Duckling's stock closed at $8.25
per share. The repricing did not change any other term of the eligible options,
including vesting. The repricing was a benefit to key employees and allowed Ugly
Duckling to grant fewer new options as part of its annual review of compensation
for its key employees.
The November Repricing included Named Executive Officers, executive officers and
other key employees. This repricing was appropriate because, subsequent to the
January Repricing, the market value of Ugly Duckling's common stock again
declined significantly. In light of this, we decided to give certain optionees
(including executive officers) a new opportunity to cancel and reprice certain
underwater options. Generally, this repricing allowed optionees with grants at
exercise prices of $9.75 and above the choice of repricing specific grants to an
exercise price of $5.13, the closing price of Ugly Duckling's stock on the date
of the repricing. The term of each repriced option began anew on the date of
repricing. In exchange for the lower exercise price and extended term, the
optionees were required to (1) reduce their number of eligible shares under each
grant by 50%, and (2) start the original vesting schedule over again.
PAGE 23
<PAGE>
The January Repricing and November Repricing were made in accordance with the
compensation philosophy and specific objectives discussed in this report. See "
- -- Overview of Compensation Philosophy and Objectives."
The following table sets forth information with respect to the repricing of
options held by any Ugly Duckling executive officer during the last 10 completed
fiscal years. Other than the 2 repricings that occurred in 1998, Ugly Duckling
has not repriced any options held by any of its employees.
<TABLE>
<CAPTION>
TEN YEAR OPTION REPRICINGS
- --------------------- ---------- ---------------- -------------- -------------- --------------- ---------- -----------------
NUMBER OF LENGTH OF
ORIGINAL NUMBER SECURITIES MARKET PRICE ORIGINAL OPTION
OF SECURITIES UNDERLYING OF STOCK AT EXERCISE PRICE TERM REMAINING
UNDERLYING OPTIONS TIME OF AT TIME OF NEW AT DATE OF
OPTIONS PRIOR REPRICED OR REPRICING OR REPRICING OR EXERCISE REPRICING OR
NAME AND TITLE DATE TO REPRICING(#)(1) AMENDED(#)(1) AMENDMENT ($) AMENDMENT ($) PRICE ($) AMENDMENT
-------------- ---- ------------------ -------- ------------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------- ---------- ---------------- -------------- -------------- --------------- ---------- -----------------
Ernest C. Garcia II, -- -- -- -- -- -- --
Chairman of the
Board and Chief
Executive Officer
- --------------------- ---------- ---------------- -------------- -------------- --------------- ---------- -----------------
Gregory B. Sullivan, -- -- -- -- -- -- --
President and Chief
Operating Officer
- --------------------- ---------- ---------------- -------------- -------------- --------------- ---------- -----------------
Steven T. Darak, 11/17/98 30,000 15,001 $5.13 $17.69 $5.13 4 Years/15 Days
Senior Vice President,
Chief Financial Officer
and Treasurer
- --------------------- ---------- ---------------- -------------- -------------- --------------- ---------- -----------------
Steven P. Johnson, 11/17/98 15,000 7,500 $5.13 $17.69 $5.13 4 Years/15 Days
Senior Vice President, 11/17/98 20,000 10,000 5.13 15.75 5.13 4 Years/191 Days
General Counsel and
Secretary
- --------------------- ---------- ---------------- -------------- -------------- --------------- ---------- -----------------
Donald L. Addink, 11/17/98 17,000 8,500 $5.13 $17.69 $5.13 4 Years/15 Days
Senior Vice President
Senior Analyst
- --------------------- ---------- ---------------- -------------- -------------- --------------- ---------- -----------------
Walter T. Vonsh, -- -- -- -- -- -- --
Former Senior Vice
President - Credit(2)
- --------------------- ---------- ---------------- -------------- -------------- --------------- ---------- -----------------
Steven A. Tesdahl, 11/17/98 100,000 50,000 $5.13 $13.00 $5.13 4 Years/289 Days
Senior Vice President
and Chief Information
Officer of Ugly Duckling
Car Sales(2)
- --------------------- ---------- ---------------- -------------- -------------- --------------- ---------- -----------------
Eric J. Splaver, 11/17/98 2,500 1,250 $5.13 $17.69 $5.13 4 Years/15 Days
Chief Financial Officer
and Treasurer of Cygnet
Financial Corporation(2)
- --------------------- ---------- ---------------- -------------- -------------- --------------- ---------- -----------------
Peter R. Fratt, Vice 11/17/98 20,000 10,000 $5.13 $11.88 $5.13 3 Years/300 Days
President of Ugly 11/17/98 10,000 5,000 5.13 17.69 5.13 4 Years/15 Days
Duckling Car Sales(2)
- --------------------- ---------- ---------------- -------------- -------------- --------------- ---------- -----------------
<FN>
- ----------
(1) Of the shares underlying repriced options, 50% were repriced and the
remaining 50% were cancelled as a condition to the repricing. The third
column of this table represents the total repriced options outstanding
before the repricing, and the fourth column of this table represents
the total repriced options that were outstanding after the repricing.
Each repricing reflected in the table was made under the November
Repricing program.
(2) Messrs. Tesdahl, Splaver and Fratt are executive officers of the Ugly
Duckling subsidiaries noted by their names. Although not presently an
executive officer of Ugly Duckling, during the last 10 completed fiscal
years, each of them at some point in time has served as an Ugly
Duckling executive officer. Mr. Vonsh was also one of our previous
executive officers. He remains employed with the company in a
non-officer position.
</FN>
</TABLE>
PAGE 24
<PAGE>
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Garcia was Ugly Duckling's founder and has served as the company's Chief
Executive Officer since Ugly Duckling's start in 1992. On an annual basis, we
review and approve the compensation of Mr. Garcia. On January 1, 1996, Ugly
Duckling entered into a 3-year employment agreement with Mr. Garcia. Effective
December 31, 1998, this agreement was extended by Ugly Duckling for another 3
year period, under the same terms and conditions as the January 1996 agreement.
We reviewed and approved the extension prior to Mr. Garcia and Ugly Duckling
entering into the extension agreement. The original agreement established Mr.
Garcia's base salary for 1996 at $120,000 and provides for a minimum 10.0%
increase in his base salary each year throughout the term of the agreement. For
1998 Mr. Garcia's base salary was approximately $150,000 and for 1999 should be
approximately $160,000. We reviewed in advance and gave prior approval for these
salaries. Mr. Garcia did not receive a bonus in 1998. Prior to 1999, he had
never participated in either Ugly Duckling's Incentive Plan or Executive Plan.
On March 2, 1999, we determined and approved a stock option grant to Mr. Garcia
for 100,000 shares of Ugly Duckling common stock (Garcia Stock Option). The
Garcia Stock Option was granted under the Executive Plan at an exercise price
equal to the fair market value on the grant date and is subject to vesting over
a 5-year period with 20.0% of the option becoming exercisable by Mr. Garcia on
each successive anniversary date of the grant. The Garcia Stock Option expires
10 years after the grant date. In addition to the above compensation, Mr. Garcia
has the use of a company car. Mr. Garcia also receives standard benefits,
including participation in Ugly Duckling's 401(k) plan.
We believe that Mr. Garcia's 1998 compensation (including his base salary, lack
of cash bonuses and minimal number of stock option awards) is reasonable in
relation to the compensation paid to chief executive officers of comparable,
publicly-held automobile finance companies, and other companies comparable to
Ugly Duckling. Nonetheless, Mr. Garcia is Ugly Duckling's most significant
stockholder, and to the extent his performance as Chief Executive Officer
translates into an increase in the value of Ugly Duckling's stock, all
stockholders, including him, share the benefits.
As the members of the Compensation Committee, we approved the compensation of
Mr. Garcia and Ugly Duckling's other executive officers for 1998, following the
principles and procedures outlined in this report.(1)
COMPENSATION COMMITTEE
Christopher D. Jennings Frank P. Willey
(1) Pursuant to Item 402(a)(9) of Regulation S-K promulgated by the Securities
and Exchange Commission, neither the "Compensation Committee Report on Executive
Compensation" nor the material under the caption "Stockholder Return Performance
Graph" shall be deemed to be filed with the Commission for purposes of the
Securities Exchange Act of 1934, nor shall such report or such material be
deemed to be incorporated by reference in any past or future filing by Ugly
Duckling under the Securities Exchange Act of 1934 or the Securities Act of
1933.
PAGE 25
<PAGE>
STOCKHOLDER RETURN PERFORMANCE GRAPH
Set forth below is a line graph comparing the percentage change during the
relevant period in the cumulative total stockholder return on our common stock
against the cumulative return on the Nasdaq Market Index as well as the MG Group
Index 744 -- Auto Dealerships (Industry Group Index). We use the MG Group Index
744 -- Auto Dealerships because we believe it closely reflects our peer group.
The Industry Group Index is composed of companies engaged in the specialty
retail of new and used automobiles and other vehicles through the operation
and/or franchising of dealerships. The relevant performance period for the graph
is for the period June 18, 1996 through December 31, 1996, and for the years
ended December 31, 1997 and 1998. The graph assumes that $100 was invested on
June 18, 1996 (the date our common stock began trading on Nasdaq following our
initial public offering) in our stock and in each of the indices, and that any
dividends were reinvested quarterly. Ugly Duckling has never paid any dividends.
The data source for the below graph and table is Media General Financial
Services, Inc.
[STOCKHOLDER RETURN PERFORMANCE GRAPH OMITTED]
[SEE TABLE BELOW]
----------------------------------------------------------------------
6/18/96 12/31/96 12/31/97 12/31/98
----------------------------------------------------------------------
----------------------------------------------------------------------
Ugly Duckling 100.00 209.40 91.28 49.66
----------------------------------------------------------------------
----------------------------------------------------------------------
MG Group Index 744 100.00 102.40 64.79 79.41
----------------------------------------------------------------------
----------------------------------------------------------------------
Nasdaq Market Index 100.00 107.93 132.02 186.21
----------------------------------------------------------------------
PAGE 26
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
There are no compensation committee interlocks and no officer or former officer
of ours has ever been a member of our board's Compensation Committee. See
"Certain Relationships and Related Transactions."
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
Prior to 1992, when he founded Ugly Duckling, Ernest C. Garcia II was involved
in various real estate, securities, and banking ventures. Arising out of two
transactions in 1987 between Lincoln Savings and Loan Association (Lincoln) and
entities controlled by Mr. Garcia, the Resolution Trust Corporation, which
ultimately took over Lincoln, asserted that Lincoln improperly accounted for the
transactions and that Mr. Garcia's participation in the transactions facilitated
the improper accounting. Facing severe financial pressures, Mr. Garcia agreed to
plead guilty to one count of bank fraud, but in light of his cooperation with
authorities both before and after he was charged, was sentenced to only three
years probation, which has expired, was fined $50 (the minimum fine the court
could assess), and during the period of his probation, which ended in 1996, was
banned from becoming an officer, director or employee of any federally-insured
financial institution or a securities firm without governmental approval. In
separate actions arising out of this matter Mr. Garcia agreed not to violate the
securities laws, and filed for bankruptcy both personally and with respect to
certain entities he controlled. The bankruptcies were discharged by 1993.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In the most recent fiscal year, we have maintained business relationships and
engaged in certain transactions with the affiliated companies and parties
described below. Our plan is that any significant future transactions between us
and our affiliated entities, executive officers, directors, or significant
stockholders will receive approval of a majority of our independent directors,
will be fair and generally will be on terms no less favorable to us than we
could obtain from non-affiliated parties.
Verde has been and continues to be one of our lenders. As mentioned above in
this proxy statement, Mr. Garcia, our Chairman and Chief Executive Officer, is
also the President and sole stockholder of Verde. Generally, we have used the
Verde loan proceeds to fund working capital and other corporate needs. The loan
is represented by a $14 million unsecured note with interest payable monthly at
a rate of 10% per year and annual principal payments of $2 million. The Verde
debt matures in June 2003. At January 1, 1998, the balance of the debt was $12.0
million. At December 31, 1998 and at April 1, 1999, the balance of the debt was
$10.0 million. For the year ended 1998, we paid Verde $2.0 million of principal
and approximately $1.1 million of interest in connection with the debt. The
Verde loan is subordinate to all of our other indebtedness except our 12%
Subordinated Debentures due 2003 issued in the fourth quarter of 1998.
We believe that it is important for our directors and officers to be
stakeholders in Ugly Duckling. With this in mind, in September 1997, our board
approved a directors' and officers' stock repurchase program (D&O Stock Purchase
Program). The program provides loans of up to $1.0 million in total to our
directors and senior officers to assist them in purchasing our common stock on
the open market from time-to-time. The D&O Stock Purchase Program provides for
unsecured loans, with interest at 10% per year, interest and principal payments
due at the end of each loan term, and maturity dates of either December 31, 1999
or May 31, 2000. During 1997, senior officers purchased 50,000 shares of common
stock under the program and we advanced $500,000 for these purchases. During
1998, senior officers purchased an additional 40,000 shares of common stock
under the program and we advanced approximately $400,000 for these purchases.
Through April 1, 1999 there were no additional purchases of common stock under
the program. In addition, there have been no principal payments and minimal
interest payments made to Ugly Duckling since the program began. The table that
follows provides additional information on the D&O Stock Purchase Program for
each of our executive officers.
PAGE 27
<PAGE>
During September 1998 and October 1998 we loaned a total of $285,500 to Mr.
Darak, our Senior Vice President and Chief Financial Officer. The loan is an
employee advance to Mr. Darak. The indebtedness is unsecured, with interest at
10% per year, and principal and interest due upon demand. There have been no
interest or principal payments made by Mr. Darak to Ugly Duckling since the
inception of the loan. The table that follows provides additional information on
this loan.
<TABLE>
<CAPTION>
- ----------------------------------------------- -------------------- ------------- --------------------------- --------------
NAME & TITLE OF EXECUTIVE OFFICER NATURE OF DEBT DATE DEBT PRINCIPAL BALANCE OF DEBT NUMBER OF
INCURRED AT 12/31/98 & 4/1/99 SHARES
(unless otherwise PURCHASED (#)
indicated) ($)
- ----------------------------------------------- -------------------- ------------- --------------------------- --------------
<S> <C> <C> <C> <C>
- ----------------------------------------------- -------------------- ------------- --------------------------- --------------
Gregory B. Sullivan, President, COO & D&O Stock Purchase 11/97 & 5/98 $198,126 20,000
Director Program
- ----------------------------------------------- -------------------- ------------- --------------------------- --------------
Steven T. Darak, Sr. VP & CFO D&O Stock Purchase 11/97 $100,000 10,000
Program
- ----------------------------------------------- -------------------- ------------- --------------------------- --------------
Steven P. Johnson, Sr VP, Genl Counsel & D&O Stock Purchase 11/97 $100,000 10,000
Secretary Program
- ----------------------------------------------- -------------------- ------------- --------------------------- --------------
Donald L. Addink, Sr. VP - Sr. Analyst D&O Stock Purchase 11/97 $100,000 10,000
Program
- ----------------------------------------------- -------------------- ------------- --------------------------- --------------
Steven A. Tesdahl, Sr. VP & CIO of Ugly D&O Stock Purchase 5/98 $98,126 10,000
Duckling Car Sales Program
- ----------------------------------------------- -------------------- ------------- --------------------------- --------------
Russell J. Grisanti, former Ex VP - D&O Stock Purchase 5/98 $98,126(1) 10,000
Operations(1) Program
- ----------------------------------------------- -------------------- ------------- --------------------------- --------------
Other Senior Officers D&O Stock Purchase 11/97 & 5/98 $198,126 20,000
Program
- ----------------------------------------------- -------------------- ------------- --------------------------- --------------
TOTAL for D&O Stock Purchase Program D&O Stock Purchase 11/97 & 5/98 $892,504 90,000
Program
- ----------------------------------------------- -------------------- ------------- --------------------------- --------------
- ----------------------------------------------- -------------------- ------------- --------------------------- --------------
Steven T. Darak, Sr. VP & CFO Employee Advance 9/98 & 10/98 $285,500
- ----------------------------------------------- -------------------- ------------- --------------------------- --------------
<FN>
- ----------
(1) In October 1998, Mr. Grisanti and Ugly Duckling mutually agreed to
terminate their employment relationship. In connection with this
termination, the principal balance of the debt was reduced to zero during
March 1999 in exchange for the company receiving the Ugly Duckling stock
initially purchased by Mr. Grisanti under the D&O Stock Purchase Program.
</FN>
</TABLE>
Since April 1998, Mr. Jennings, one of our directors, has been a managing
director of Friedman, Billings, Ramsey & Co., Inc., which makes a market in our
common stock and from time to time may provide investment banking and other
services to us.
ADDITIONAL INFORMATION
MATTERS WHICH MAY COME BEFORE THE MEETING
Presently, we know of no matters to be presented for action at the meeting other
than items listed on the proxy card. If, however, other matters not mentioned in
this proxy statement properly come before the meeting, the persons named in the
accompanying proxy card will vote on these other matters in accordance with
their judgment. By signing the proxy card, you are conferring the authority to
vote upon the persons indicated on the card. This authority includes
discretionary authority to vote your shares in accordance with the proxy
holders' judgment with respect to all matters which properly come before the
meeting in addition to the scheduled items.
OUTSTANDING SHARES
On the record date, April 16, 1999, 14,938,557 shares of common stock, par value
$.001 per share, were outstanding net of shares we hold in our treasury. Each
share is entitled to one vote. We have no other voting securities outstanding.
PAGE 28
<PAGE>
HOW WE SOLICIT PROXIES
We pay the cost of proxy solicitation with solicitation made by use of mail,
personally, or by telephone or telegraph. In addition, we have retained
Corporate Investor Communications, Inc. to help solicit proxies for a fee of
$4,000, plus out-of-pocket expenses. We also reimburse banks, brokers and other
nominees for their expenses in mailing these materials to you and obtaining your
voting instructions. We may ask our directors and employees to solicit proxies
without compensating them for their efforts.
INDEPENDENT ACCOUNTANTS
Our principal independent public accounting firm for the fiscal year ended
December 31, 1998 was KPMG LLP. We plan to retain KPMG as our principal
accounting firm for the current fiscal year. A KPMG representative will attend
the meeting to respond to questions and to make any statement he or she would
like to make.
PROPOSALS OF STOCKHOLDERS
To permit us and our stockholders to deal with stockholder proposals in an
informed and orderly manner, our By-Laws establish advance notice procedures and
requirements for any proposal (other than by or at the direction of our board)
to nominate candidates for election to the board of directors and with regard to
certain matters to be brought before any annual meeting of stockholders. These
advance notices require, among other things, that:
o Notice to nominate candidates for the board: Candidates for the board
require notice to be received by us not less than 90 days prior to the
anniversary date of the immediately preceding annual meeting.
o Notice with regard to certain matters: Certain matters to be brought before
a meeting require notice to be received by us not less than 60 days nor
more than 90 days prior to the anniversary date of the immediately
preceding annual meeting. However, in the event the annual meeting date is
not within 30 days before or after the anniversary date, notice by the
stockholder must be received by us not later than the close of business on
the 10th day following the day on which the notice of the date of the
annual meeting was mailed or the public disclosure of the annual meeting
date, whichever occurs first.
Under these provisions, any nomination for the board of directors for our 2000
annual meeting must be received by us no later than March 4, 2000 and notice of
other matters to be brought before the meeting must be received no earlier than
March 4, 2000 and no later than April 3, 2000. Notice must be in writing and
received by our Secretary. A copy of the applicable By-Law provisions may be
obtained, without charge, upon written request to our Secretary at the address
set forth below.
For us to include a proposal in the proxy statement, the proponent and the
proposal must comply with the proxy proposal submission rules of the Securities
and Exchange Commission. One of the requirements is that proposals be received
by us in a timely manner as prescribed by the rules. If you want to submit a
proposal for possible inclusion in our 2000 proxy statement, the proposal must
be received by us at our principal executive offices at the address set forth
below no later than December 28, 1999. Generally, proposals we receive after
that date would not be included in the proxy statement or acted upon at our 2000
annual meeting.
LIST OF STOCKHOLDERS OF RECORD
A list of our stockholders of record will be available at the meeting and for 10
days prior to the meeting at our address provided below.
PAGE 29
<PAGE>
ANNUAL REPORT/FORM 10-K
We have provided to each person whose proxy is being solicited a copy of our
1998 Annual Report to Stockholders (including our Form 10-K with financial
statements and schedules, and a list of exhibits to the 10-K). If you did not
receive a copy of our Annual Report or if you would like an additional copy, we
will provide you one free of charge, if you write to our Chief Financial Officer
at Ugly Duckling Corporation, 2525 East Camelback Road, Suite 500, Phoenix, AZ
85016. The Form 10-K exhibits are also available, if you make your request for
these in writing and you reimburse us for photocopying.
Stockholders are invited to keep current on Ugly Duckling's latest news releases
and other developments throughout the year by way of the Internet. Our
corporation web site can be accessed by setting your World Wide Web browser to
http://www.uglyduckling.com for regularly updated information.
QUESTIONS?
If you have questions or need more information about the meeting, write to:
Ugly Duckling Corporation
2525 East Camelback Road, Suite 500
Phoenix, Arizona 85016
Attn: Secretary
Or call us at (602)852-6600.
YOUR VOTE IS IMPORTANT
Your vote is important. Please fill out, sign, date and return the accompanying
proxy card in the envelope provided as soon as possible whether or not you plan
to attend the meeting.
By order of the Board of Directors,
/S/ STEVEN P. JOHNSON
- ---------------------
Steven P. Johnson
General Counsel and
Secretary
Phoenix, Arizona
April 26, 1999
PAGE 30
<PAGE>
PROXY PROXY
UGLY DUCKLING CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS - JUNE 2, 1999
I appoint Ernest C. Garcia II, Gregory B. Sullivan and Steven P. Johnson,
individually and together, proxies with full power of substitution, to vote all
my common stock of Ugly Duckling Corporation which I have the power to vote, at
the Annual Meeting of Stockholders to be held at The Arizona Biltmore, 24th
Street and Missouri, Phoenix, Arizona 85016 on June 2, 1999, at 4:00 p.m.
(Arizona Time) and at any adjournments or postponements of the meeting. In the
absence of specific voting directions from me, my proxies will vote in
accordance with the Directors' recommendations on the reverse side of this card.
My proxies may vote according to their discretion on any other matter which may
properly come before the meeting. I revoke any proxy previously given and
acknowledge that I may revoke this proxy prior to its exercise.
UNLESS OTHERWISE MARKED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF DIRECTOR
NOMINEES.
YOUR VOTE IS IMPORTANT: PLEASE SIGN AND DATE THE OTHER SIDE OF THIS PROXY CARD
AND RETURN IT PROMPTLY USING THE ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
UGLY DUCKLING CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.[ ]
The Board of Directors recommends a vote FOR Proposal 1.
1. ELECTION OF DIRECTORS: For Withhold For All Nominees
All All Except Those
Nominees Nominees Written Below
[ ] [ ] [ ]
Nominees: Ernest C. Garcia II,
Christopher D. Jennings, John N. MacDonough,
Gregory B. Sullivan, Frank P. Willey
--------------------------------------------
Except nominee(s) written above. To
withhold authority to vote for any
individual nominee, write name(s) of
nominee(s) above.
Please sign exactly as name(s) appear on
your common stock certificates. If acting as
an executor, administrator, trustee,
custodian, guardian, etc., you should so
indicate in signing. If the stockholder is a
corporation, please sign the full corporate
name, by a duly authorized officer. If
shares are held jointly, each stockholder
named should sign
Dated:_____________________________, 1999
_________________________________________
Signature
_________________________________________
Signature
This proxy, when properly executed will be voted as you specify above. IF NO
SPECIFIC VOTING DIRECTIONS ARE GIVEN BY YOU, THIS PROXY WILL BE VOTED FOR THE
LISTED PROPOSAL(S) AND, WITH RESPECT TO SUCH OTHER BUSINESS AS MAY PROPERLY COME
BEFORE THE MEETING, OR ANY ADJOURNMENTS OR POSTPONEMENTS IN ACCORDANCE WITH THE
DISCRETION OF THE APPOINTED PROXY. PLEASE SIGN, DATE AND RETURN THIS PROXY
PROMPTLY
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE