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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________.
Commission File Number 0-20841
UGLY DUCKLING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 86-0721358
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2525 E. Camelback Road, Suite 500,
Phoenix, Arizona 85016
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (602) 852-6600
Securities registered pursuant to Section 12(b) of the act:
Title of Class Name of Each Exchange On Which Registered
-------------- -----------------------------------------
12% Subordinated Debentures Due 2003 American Stock Exchange
11% Subordinated Debentures Due 2007 American Stock Exchange
Securities registered pursuant to Section 12(g) of the act:
Title of Class Name of Each Exchange On Which Registered
-------------- -----------------------------------------
Common Stock, $.001 Par Value The Nasdaq Stock Market
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of May 1, 2000, the aggregate market value of common stock held by
non-affiliates of the registrant was approximately $73,202,715.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ ] No [ ]
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
As of May 1, 2000, there were approximately 13,895,965 shares of common
stock of the Registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
DIRECTORS
The following table gives the name, age, principal occupation and business
experience of our 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.
<TABLE>
<CAPTION>
NAME AGE BUSINESS EXPERIENCE SINCE
- ---- --- ------------------- -----
<S> <C> <C> <C>
ERNEST C. GARCIA II (1) 42 CHAIRMAN OF THE BOARD OF UGLY DUCKLING since its 1996
founding in 1992. Mr. Garcia also served as Chief
Executive Officer until July 1999 and 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. See "Certain
Relationships and Related Transactions."
CHRISTOPHER D. JENNINGS 46 CO-CHIEF EXECUTIVE OFFICER OF GLOBAL EURONET GROUP, 1996
a venture capital/investment banking internet
company, beginning in May 2000. Prior to that time,
he was a Managing Director of Friedman, Billings,
Ramsey & Co., Inc., 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 also a director of Global Netfinancial.com. 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 56 FORMER CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF 1996
MILLER BREWING COMPANY, a brewer and marketer of
beer, from 1993 until April of 1999. 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.
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
NAME AGE BUSINESS EXPERIENCE SINCE
- ---- --- ------------------- -----
<S> <C> <C> <C>
GREGORY B. SULLIVAN 41 UGLY DUCKLING CORPORATION'S PRESIDENT SINCE MARCH 1998
1996 AND CHIEF EXECUTIVE OFFICER SINCE JULY 1999.
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 46 PRESIDENT OF FIDELITY NATIONAL FINANCIAL, INC., a 1996
title 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 and
Audit Committees of the board
</TABLE>
(1) 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.
2
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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 1999, 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).
* Mr. Willey is the President and Director of Fidelity National
Financial, Inc. (Fidelity). A subsidiary of Fidelity purchased 147,400
shares of stock of Ugly Duckling on various dates between April and
July of 1999, at prices ranging from $5.30 to $7.71 without Mr.
Willey's knowledge. After becoming aware of the transaction, a Form 4
filing was done on December 8, 1999. Fidelity now has a process for
the timely reporting of transactions in Ugly Duckling stock. Mr.
Willey disclaims any beneficial ownership in these or any other shares
of Ugly Duckling owned by Fidelity.
* We prepared Form 5's and inadvertently filed them two days after the
required filing date for the following individuals: Greg Sullivan,
Steve Darak, Don Addink, Jon Ehlinger, Ernie Garcia, Christopher
Jennings, John MacDonough, and Frank Willey. Steps have been taken to
ensure this does not happen again.
3
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
COMPENSATION OF EXECUTIVE OFFICERS, BENEFITS AND
RELATED MATTERS
SUMMARY COMPENSATION TABLE
The table below sets forth information concerning the annual and long-term
compensation for services rendered in all capacities for us during the three
fiscal years ended December 31, 1999 of our Named Executive Officers. "Named
Executive Officers" consist of (1) each person serving as our Chief Executive
Officer during 1999, (2) our 4 next most highly compensated executive officers
serving as executive officers at December 31, 1999, and (3) 2 additional
individuals who would have been reported under (2) above but for the fact that
the individuals were not serving as executive officers for Ugly Duckling at
December 31, 1999.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------------- ---------------------
AWARDS
---------------------
OTHER SECURITIES
ANNUAL RESTRICTED UNDER- ALL OTHER
COMPEN- STOCK LYING COMPEN-
NAME AND PRINCIPAL SALARY SATION AWARD(S) OPTIONS SATION
POSITION YEAR ($) BONUS ($) ($) (#)(1) ($)(2)
-------- ---- -------- ------- ------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Ernest C. Garcia II 1999 $ 93,416 -- $ 3,258(3) 100,000 --
Chairman of the Board and 1998 $150,462 -- $ 3,228(3) -- -- $1,000
former Chief Executive Officer 1997 $131,677 -- $ 2,985(3) -- -- $ 950
Gregory B. Sullivan 1999 $200,000 $60,000 $ 4,850(4) -- 125,000 $ 688
President and Chief 1998 $208,308 -- $ 1,156(4) -- 500,000 $ 833
Executive Officer 1997 $197,846 -- -- -- -- $ 554
Steven T. Darak 1999 $175,000 $49,950 $ 870(5) -- 35,000 --
Senior Vice President, and 1998 $180,961 -- $ 1,750(5) -- 65,001(6) --
Chief Financial Officer 1997 $148,654 $25,000 $ 1,750(5) -- -- --
Donald L. Addink 1999 $169,230 $18,000 -- -- 45,000 --
Senior Vice President -- 1998 $171,346 $40,000 -- -- 33,500(7) $1,000
Treasurer 1997 $139,671 $10,000 -- -- -- $ 950
Steven A. Tesdahl(8) 1999 $198,941 $11,658 $ 220
Senior Vice President 1998 $187,115 -- -- -- 75,000(9) $1,000
and Chief Information Officer 1997 $ 53,846 -- -- $100,000(10) 100,000 --
Jon Ehlinger 1999 $135,076 $17,081 -- -- 10,000 $ 172
Vice President, 1998 $ 56,307 -- -- -- 10,000 --
General Counsel and Secretary 1997 -- -- -- -- -- --
Ray Fidel 1999 $174,999 $ 4,354 $ 6,000(11) -- -- --
Former President, 1998 $147,115 $ 761 $ 1,500(11)
Cygnet Dealer Finance 1997 $132,692 -- $11,000(11) -- -- --
</TABLE>
(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 and /or internal financial
performance targets. Regardless of the preceding vesting schedule being met
for the Executive Plan options, such options also fully vest at a set date
in the future. (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.
4
<PAGE>
(2) The amounts shown in this column include the dollar value of 401(k) plan
contributions in Ugly Duckling common stock made by Ugly Duckling for the
benefit of our Named Executive Officers. The stock related portion of this
amount only includes vested stock as of December 31, 1999 and the value is
calculated with a share price of $6.88, the closing price of the stock as
of December 31, 1999 (as reported by Nasdaq).
(3) These amounts include car allowances as follows: (a) Mr. Garcia -- a $3,258
car allowance during 1999, a $3,228 car allowance during 1998, and a $2,985
car allowance during 1997.
(4) These amounts include $4,850 for Mr. Sullivan's personal use of a company
car for 1999 and $1,156 for a portion of 1998.
(5) These amounts include an $850 car allowance in 1999 and a $1,750 car
allowance during each of 1998 and 1997.
(6) Includes 15,001 options that were cancelled and reissued on November 17,
1998.
(7) Includes 8,500 options that were cancelled and reissued on November 17,
1998.
(8) Employment changes occurred for this officer as follows: Mr. Tesdahl became
Senior Vice President and Chief Information Officer of Ugly Duckling on
February 15, 2000. Prior to that time, effective November 1998, we revised
our officer structure and as part of that process, Mr. Tesdahl stopped
being an executive officer for Ugly Duckling. Mr. Tesdahl began his
employment as an executive officer of Ugly Duckling in September 1997.
(9) Includes 50,000 options that were cancelled and reissued on November 17,
1998.
(10) 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, 1999, Mr. Tesdahl retained 4,565 shares from the
restricted stock award, valued at $31,407 (based on the December 31, 1999
closing price of our stock of $6.88 per share as reported by Nasdaq).
(11) This amount is for car allowances in 1999, 1998 and 1997.
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information on option grants for the
fiscal year ended December 31, 1999 to each of our Named Executive Officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT
---------------------------------------------------- ASSUMED ANNUAL
NUMBER OF PERCENT OF RATES OF STOCK
SECURITIES TOTAL PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE FOR OPTION TERM(1)
OPTIONS TO EMPLOYEES PRICE EXPIRATION --------------------
NAME GRANTED (#) IN FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
---- ----------- -------------- ------ ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Ernest C. Garcia II 100,000(2) 3.3% $5.56 3/2/2009 349,665 886,121
Gregory B. Sullivan 125,000(2) 20.4% $5.56 3/2/2009 437,082 1,107,651
Steven T. Darak 35,000(2) 5.7% $5.56 3/2/2009 122,383 310,142
Jon Ehlinger 7,500(3) 1.2% $5.56 3/2/2009 26,225 66,454
2,500(3) 0.4% 8.19 7/28/2009 12,876 32,632
Donald L. Addink 35,000(2) 5.7% $5.56 3/2/2009 122,383 310,142
10,000(3) 1.6% 8.19 7/28/2009 51,506 130,528
Ray Fidel -- -- -- -- -- --
Steven A. Tesdahl -- -- -- -- -- --
</TABLE>
(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
5
<PAGE>
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 May 1, 2000 was $7.50 per share (as reported by Nasdaq).
(2) On March 2, 1999 Mr. Garcia was granted these options under the Executive
Plan at an exercise price equal to the fair value of the shares on the date
of the 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. On March 2, 1999, Mr. Sullivan, Mr. Darak
and Mr. Addink were granted these performance-based stock option awards
under the Executive Plan. They vest over a 5-year period, subject to
vesting hurdles based on the market price of our common stock as traded on
Nasdaq and certain internal target financial performance measures. However,
even if the hurdles are not met, these options fully vest on March 2, 2006
(i.e., "cliff vesting"). The options have 10-year terms. See "Compensation
of Executive Officers, Benefits and Related Matters - 1998 Executive
Incentive Plan" for additional information on our Executive Plan.
(3) These options were granted to the Named Executive Officers 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" for additional
information on our Incentive Plan.
6
<PAGE>
RECENT OPTION GRANTS IN 2000
On February 15, 2000, 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 15,000 shares of our
common stock at an exercise price of $8.438 per share. The options did not
include awards to any Named Executive Officers.
On April 17, 2000, the Compensation Committee reviewed and approved a grant
of stock options to an employee. The grant included the right to acquire
approximately 5,000 shares of our common stock at an exercise price of $7.406
per share. The Board and Compensation Committee also approved a grant of 5,000
options under the Executive Plan to each independent director on April 17, 2000.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
The table below sets forth information with respect to option exercises and
the number and value of options outstanding at December 31, 1999 held by our
Named Executive Officers. Generally, we have not issued any other forms of stock
based awards.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES FISCAL YEAR END (#)(1) FISCAL YEAR END ($)(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ernest C. Garcia II -- -- -- 100,000 -- $132,000.00
Gregory B. Sullivan -- -- 207,800 558,200 $400,062.00 $265,828.00
Steven T. Darak -- -- 18,999 91,002 $ 6,028.25 $ 67,723.50
Jon D. Ehlinger -- -- 2,000 18,000 $ 0.00 $ 9,900.00
Donald L. Addink -- -- 6,700 71,800 $ 2,975.00 $ 58,100.00
Ray Fidel (3) -- -- -- -- $ 0.00 $ 0.00
Steven A. Tesdahl -- -- 15,000 60,000 $ 17,500.00 $ 70,000.00
</TABLE>
(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. Under 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 and/or
certain internal target financial performance measures. In any event, such
options fully vest on January 15, 2005 or March 2, 2006 (i.e., "cliff
vesting"), depending upon their issuance date. 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.
(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, 1999. The market price of our common stock
on December 31, 1999 was $6.88 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 May 1, 2000 was $7.50 per share.
(3) Prior to December 30, 1999, Mr. Fidel was the President of Ugly Duckling's
Cygnet Dealer Finance division. As of December 30, 1999 Cygnet Dealer
Finance was sold to an affiliate of Mr. Garcia and Mr. Fidel's options were
forfeited as part of the transaction by Mr. Fidel.
7
<PAGE>
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:
* incentive stock options (ISOs),
* nonqualified stock options (NQSOs),
* performance shares,
* restricted stock, and
* 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 -
* eligibility,
* type and number of awards to be granted, and
* 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 1999, the Compensation Committee granted, subject to certain conditions,
approximately 312,250 options under the Incentive Plan. On February 15, 2000 we
granted 15,000 options and on April 17, 2000 we granted 5,000 options under the
Incentive Plan.
At May 1, 2000 we had granted options under the plan to purchase
approximately 1,391,485 shares of our common stock (net of canceled and lapsed
grants) to various of our employees, of which approximately 1,005,365 were
outstanding. Also at May 1, 2000, there were approximately 408,515 of our shares
that remained available for grant under the plan.
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 as noted previously. The total number
8
<PAGE>
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."
At May 1, 2000, we had granted options under the plan to purchase 635,000
shares of our common stock (net of canceled and lapsed grants) under the
Executive Plan to various officers of Ugly Duckling, of which 635,000 are still
outstanding. There were 165,000 shares that remain available for grant under the
plan as of May 1, 2000.
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. Until June 1, 1999, the 401(k) plans provided 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. Beginning June 1, 1999, the 401(k) plans provide a matching contribution
of Ugly Duckling stock of up to 50% for up to the first six percent of a
participant's pre-tax contributions. The matching contribution vesting and
percentage match are based upon years of service with one hundred percent
vesting and fifty percent matching at five years. 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 provided a minimum
10.0% increase in the base salary each year throughout the term of the
agreement. In addition, the agreement provided for the continuation of Mr.
Garcia's base salary and certain benefits for a period of 1 year in the event
Mr. Garcia was terminated by us without cause prior to the expiration of the
agreement. It also contained confidentiality and non-compete covenants. Mr.
Garcia stepped down from his position as Chief Executive Officer of Ugly
Duckling in July of 1999 and this agreement terminated at that time.
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. This restated agreement expires May 31, 2000.
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 $10,000
bonus payment upon execution of the restated agreement, certain benefits, and
the continuation of Mr. Addink's base salary and certain benefits for a period
of 1 year (but not to exceed the expiration date of the agreement) in the event
Mr. Addink is terminated by us without cause prior to expiration of the restated
agreement. It also contains confidentiality and non-compete covenants. Further,
it accelerated the vesting of Mr. Addink's 100,000 stock options previously
granted under the Incentive Plan, as set forth in the table below. These options
were originally granted pursuant to the Incentive Plan's general 5-year vesting
schedule with 20% vesting each year.
9
<PAGE>
NUMBER EXERCISE PRICE ACCELERATED
ORIGINAL GRANT DATE OF SHARES(#) PER SHARE($) 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
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 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:
* he terminates his employment with us within 12 months after the change
of control; or
* 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" and " -
1998 Executive Incentive Plan."
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 -
* 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
* 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.
10
<PAGE>
Under the Incentive Plan, a "change of control" occurs upon any of the
following events:
* 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;
* with certain exceptions, any sale, lease, or other transfer of more
than 40% of our assets or our earning power;
* our stockholders approve a plan of complete liquidation or
dissolution;
* 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
* 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.
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 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."
COMPENSATION OF OUR DIRECTORS
We pay our independent directors:
* an annual retainer of $7,500 per year;
* $2,000 for physical attendance at meetings of the board and $1,000 for
physical attendance at meetings of committees of the board on which
they serve; and
* $1,000 for their attendance by telephone at meetings of the board and
$500 for telephonic attendance at committee meetings.
We also reimburse these directors for reasonable travel expenses for their
attendance at these meetings. 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. 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.
11
<PAGE>
On April 20, 1999, our board and the Compensation Committee approved
additional compensation for each of our independent directors. On that date it
was determined that each independent director would receive a stock option to
purchase 5,000 shares of Ugly Duckling common stock under the Incentive Plan.
The options were granted effective June 21, 1999 at an exercise price of $6.28
per share (the closing price per Nasdaq and the fair market value of our stock
on April 20, 1999), and fully vested as of June 21, 1999. In 2000, each of our
independent directors were also granted 5,000 options under the Executive Plan.
These options are non-qualified stock options, and it is our current intention
to have annual option awards to our independent directors.
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.
12
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table gives information as of May 1, 2000, unless another
date is indicated, concerning:
* each beneficial owner of more than 5% of our common stock;
* beneficial ownership by all our directors and all our other executive
officers named in the Summary Compensation Table on page 4 of this
report (Named Executive Officers); and
* 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 July 1, 2000 (60 days after May 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 May
1, 2000.
13
<PAGE>
BENEFICIAL OWNERSHIP TABLE
<TABLE>
<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 ERNEST C. GARCIA II, Chairman of the Board and 5% Owner. 4,500,000 Direct 32.48%
0 Indirect
20,000 Vested Options
----------
4,520,000 Total
==========
Common Stock HARRIS ASSOCIATES L.P. (Harris) and an affiliate Harris 1,962,000 Direct 14.12%
Associates Investment Trust (Harris Trust), series designated 0 Indirect
The Oakmark Small Cap Fund (4), 5% Owner, based on Schedule 0 Vested Options
13G filing filed February 7, 2000 and effective as of ----------
December 31, 1999. According to this Schedule 13G, Harris 1,962,000 Total
Trust has shared voting and dispositive power over 1,750,000 ==========
shares of our common stock and Harris has
beneficial ownership of 1,962,000, including the shares
beneficially owned by Harris Trust.
Two North LaSalle Street, Suite 500
Chicago, Illinois 60602-3790
Common Stock WELLINGTON MANAGEMENT COMPANY, LLP, (4) 5% Owner, based on a 860,000 Direct 6.19%
Schedule 13G filing as of December 31, 1999, by Wellington 0 Indirect
Management Company, LLP. According to the filing, Wellington 0 Vested Options
Management Company, LLP has shared voting power ----------
over 264,600 shares of our common stock and shared 860,000 Total
dispositive power over 860,000 shares of our common stock. ==========
75 State Street
Boston, Massachusetts 02109
Common Stock GREGORY B. SULLIVAN, Director, President and Chief Executive 59,800 Direct 2.58%
Officer 0 Indirect
307,800 Vested Options
----------
367,600 Total
==========
Common Stock STEVEN T. DARAK, Senior Vice President and Chief Financial 140,000 Direct 1.21%
Officer 0 Indirect
28,999 Vested Options
----------
168,999 Total
==========
Common Stock DONALD L. ADDINK, Senior Vice President and Treasurer 98,000 Direct *
0 Indirect
18,700 Vested Options
----------
116,700 Total
==========
Common Stock STEVEN A. TESDAHL, Senior Vice President and Chief 14,565 Direct *
Information Officer 0 Indirect
20,000 Vested Options
----------
34,565 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 5,000 Vested Options
banking firm and previous employer of Mr. Jennings. The ----------
warrants are convertible into our common stock at any time 31,277 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. 5,000 Vested Options
----------
9,544 Total
==========
Common Stock FRANK P. WILLEY, (5)(6) Director 27,144 Direct 1.29%
147,400 Indirect
5,000 Vested Options
----------
179,544 Total
==========
</TABLE>
14
<PAGE>
<TABLE>
<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 JON D. EHLINGER, Vice President, Secretary and General 2,000 Direct *
Counsel 0 Indirect
3,500 Vested Options
----------
5,500 Total
==========
Common Stock RAY FIDEL, Former President, Cygnet Dealer Finance 10,000 Direct *
0 Indirect
0 Vested Options
----------
10,000 Total
==========
All directors and executive officers as a group
(10 persons) 5,443,729 38.04%
</TABLE>
* 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 July 1,
2000. These options were issued under either the Incentive Plan or the
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 July 1, 2000) 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 13,895,965 shares of our common stock
outstanding as of May 1, 2000, 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 effective as
of December 31, 1999, 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) Possible indirect ownership of shares of Ugly Duckling acquired by Fidelity
National Financial, Inc. Mr. Willey disclaims beneficial ownership of such
shares.
15
<PAGE>
ITEM 13. 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.
On December 30, 1999 Ugly Duckling sold its Cygnet Dealer Finance division
(CDF) to an entity controlled by Mr. Garcia for an amount equal to the book
value of CDF, approximately $37.5 million. This transaction occurred after
several attempts by Ugly Duckling to sell or finance CDF, including the
retention and effort of an investment banking firm to sell CDF in the first
quarter of 1999. The purchase price of CDF was paid through the assumption by
the buyer of approximately $8 million of outstanding debt owed by the Company to
Verde Investments, Inc., an affiliate of Mr. Garcia; a $12 million, ten-year
promissory note from the buyer to the Company that is guaranteed by Verde; and
the remainder in cash. The Company also received warrants to acquire up to 50%
of the buyer for $1, exercisable beginning two years from close though five
years after the note is paid in full. The warrants would be forfeited in the
event that the $12 million note is repaid in full within one year. The
percentage of the buyer purchasable under the warrants would be reduced to 25%
if the note were reduced to $4 million within two years and to 10% if the
warrant were paid in full within two years.
As part of the transaction, the board requested and received a fairness
opinion from an investment banking firm and the transaction was reviewed by the
Special Transaction Committee of the Board.
In December, 1999, Verde Investments Inc., an affiliated company owned by
Ernest C. Garcia, II, the Company's Chairman, acquired at a 10% discount all of
the sale-leaseback properties sold to an unrelated investment company in March
of 1998. We acquired the option to purchase these properties at Verde's purchase
price at any time until December 31, 2000. Under the terms of the sale of Cygnet
Dealer, the term of the option was extended and now the option expires
simultaneously with our receiving payment in full of the $12 million note
receivable arising from the sale of Cygnet Dealer or December 31, 2000,
whichever comes later.
Verde has been one of our lenders for several years. As noted above, Ugly
Duckling was released of all liability under its loan with Verde as part of the
Cygnet Dealer Finance sale. Mr. Garcia, our Chairman and Chief Executive
Officer, is also the President and sole stockholder of Verde.
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 provided 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, and interest and principal
payments due at the end of each loan term. These loans were amended to make them
due on demand by Ugly Duckling effective in 1999. 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 March 15, 2000 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 as of
year-end 1999.
During August of 1999, we made loans to Mr. Darak, our Senior Vice
President and Chief Financial Officer, and to Mr. Addink, our Senior Vice
President and Treasurer. The loans were employee advances. 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 or
Mr. Addink to Ugly Duckling since the inception of the loans, or on the
September 1998 or October 1998 loans to Mr. Darak. The table that follows
provides additional information on outstanding loans to our executive officers.
16
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL NUMBER OF
DATE DEBT BALANCE OF DEBT SHARES
NAME & TITLE OF EXECUTIVE OFFICER NATURE OF DEBT INCURRED AT 12/31/ PURCHASED (#)
- --------------------------------- -------------- -------- --------- -------------
<S> <C> <C> <C> <C>
Gregory B. Sullivan, CEO, D&O Stock Purchase Program 11/97 & 5/98 $198,126 20,000
President, & Director
Steven T. Darak, Sr. VP & CFO D&O Stock Purchase Program 11/97 $100,000 10,000
Steven P. Johnson, former Sr. VP, D&O Stock Purchase Program 11/97 $100,000 10,000
General Counsel & Secretary(1)
Donald L. Addink, Sr. VP - Treasurer D&O Stock Purchase Program 11/97 $100,000 10,000
Steven A. Tesdahl, Sr. VP & CIO D&O Stock Purchase Program 5/98 $ 98,126 10,000
of Ugly Duckling Car Sales
Other Senior Officers(1) D&O Stock Purchase Program 11/97 $100,000 10,000
TOTAL for D&O Stock Purchase Program D&O Stock Purchase Program 11/97 & 5/98 $696,252 70,000
Steven T. Darak, Sr. VP & CFO Employee Advance 9/98, 10/98 & 8/99 $368,684 --
Don Addink, Sr. VP-Treasurer Employee Advance 8/99 $218,942 --
</TABLE>
(1) As of December 31, 1999, Mr. Johnson and Ugly Duckling mutually agreed to
terminate their employment relationship. In addition, Mr. Ray Fidel and
Ugly Duckling also terminated their employment relationship on December 30,
1999. In connection with these terminations, the principal balance of the
debt was reduced to zero in exchange for the company receiving the Ugly
Duckling stock initially purchased by them under the D&O Stock Purchase
Program. Mr. Fidel's exchange occurred in March of 2000 and Mr. Johnson's
exchange occurred in May of 2000.
From April 1998 to May 2000, Mr. Jennings, one of our directors, was 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.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
UGLY DUCKLING CORPORATION,
a Delaware corporation
By: /s/ GREGORY B. SULLIVAN
------------------------------------
Gregory B. Sullivan
Its: Chief Executive Officer
Date: May 10, 2000
18
