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:
[X] Preliminary Proxy Statement [ ]Confidential, For Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Rule 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:
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[UDC COMPANY LOGO]
Greg Sullivan
CEO and
President
April 10, 2000
To our Stockholders:
I am pleased to invite you to attend the annual meeting of stockholders of Ugly
Duckling Corporation on Tuesday, May 23, 2000 at 4 o'clock in the afternoon at
the Hilton Squaw Peak located at 16th Street and Morton, Phoenix, Arizona.
At this meeting, we are asking you to vote on the election of our directors and
on an amendment to our Certificate of Incorporation to authorize our Board of
Directors to create additional series of common stock. You should read the
enclosed Proxy Statement carefully before you vote.
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,
Greg Sullivan
Chief Executive Officer
And President
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2000 ANNUAL MEETING OF STOCKHOLDERS
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT
TABLE OF CONTENTS
<TABLE>
<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 and item no. 2 - create serial common stock............. 5
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..................................................... 12
BENEFICIAL OWNERSHIP TABLE...................................................................................... 17
Section 16(a) Beneficial Ownership Reporting Compliance......................................................... 19
COMPENSATION OF EXECUTIVE OFFICERS, BENEFITS AND RELATED MATTERS
SUMMARY COMPENSATION TABLE...................................................................................... 20
OPTION GRANTS IN LAST FISCAL YEAR............................................................................... 21
RECENT OPTION GRANTS IN 1999.................................................................................... 21
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES............................... 22
Long Term Incentive Plan........................................................................................ 22
1998 Executive Incentive Plan................................................................................... 23
401(k) Plans.................................................................................................... 23
Contracts with Directors and Executive Officers and Severance Arrangements...................................... 24
Change of Control Arrangements.................................................................................. 25
Compensation Committee Report on Executive Compensation......................................................... 25
Stockholder Return Performance Graph............................................................................ 30
Compensation Committee Interlocks and Insider Participation..................................................... 31
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS........................................................................... 31
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................................................................... 31
ADDITIONAL INFORMATION............................................................................................. 32
</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>
12
UGLY DUCKLING CORPORATION
2525 East Camelback Road, Suite 500
Phoenix, AZ 85016
(602) 852-6600
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
o DATE & TIME Tuesday, May 23, 2000 From 4:00 - 6:00 p.m.
o PLACE Hilton Squaw Peak
16th Street and Morton
Phoenix, AZ 85020
o ITEMS OF BUSINESS * Proposal to be Voted on Item No. 1 - Election
of Directors: To elect 5 directors for 1-year
terms;
* Proposal to be voted on Item No. 2 - Approve and
adopt an amendment to our certificate of
incorporation to authorize the creation of a
series of "blank check" common stock; and
* 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 and
Item No. 2 proposed by the board are in the best
interests of Ugly Duckling and its stockholders,
and so recommends a vote "FOR" Item No. 1 and Item
No. 2 on the enclosed proxy card.
o RECORD DATE Monday, April 3, 2000. 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 page _ of this proxy
statement and the instructions
on the proxy card.
By Order of the Board of Directors
Jon D. Ehlinger
General Counsel and Secretary
Phoenix, Arizona
April 3, 2000
We are distributing this proxy statement and accompanying proxy card on or about
April 10, 2000.
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.
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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: May 23, 2000, Hilton Squaw Peak, 4:00 - 6:00 p.m.,
16th Street & Morton, Phoenix, AZ 85020
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. The
The description of this Item begins on page ___.
o Item 2. Approve and adopt an amendment to our
certificate of incorporation authorizing our
board of directors to create and issue common
stock in one or more series, with such limitations
and restrictions as the board of directors may
determine, without further authorization from our
stockholders. The description of this Item begins
on page ____.
* Item 3. 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. The
election of directors 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.
The amendment to our certificate of incorporation
requires the affirmative vote of a majority of the
outstanding shares of our common stock.
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 and
"FOR" Item No. 2. The board or proxy holders will
use their discretion on other matters.
o Proxies Solicited by: Our board of directors.
o Record Date: April 3, 2000. 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
10, 2000.
o Revoking Your Proxy: You may revoke your proxy before it is voted at
the meeting. For specific instructions, please
refer to page ___ 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.
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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. As to Item No. 2 (amendment to our
certificate of incorporation), you may vote for or against the proposal or
abstain from voting. 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 and "FOR" Item No. 2.
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 and Item No. 2
are 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.
The affirmative vote of a majority of the outstanding shares of common stock
entitled to vote is required to approve the amendment to our certificate of
incorporation (Item No. 2). Abstentions and broker " non-votes" will have the
same effect as a negative vote on Item No. 2.
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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 3, 2000 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 3, 2000 by bringing either --
o a copy of the voting instruction card provided by your broker, or
o a copy of 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 Tuesday, May 23, 2000 at Hilton Squaw Peak, 16th Street
and Morton in Phoenix, Arizona.
BOARD OF DIRECTORS, BOARD COMMITTEES AND OTHER BOARD INFORMATION
Board of Directors
During the year ended December 31, 1999, our board of directors met on 19
occasions (including committee meetings and actions by unanimous written consent
in lieu of a special meeting). 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 standing
committees, including a nominating or similar committee. The board also had a
Special Transaction Committee in 1999 for limited purposes. 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
Ernest C. Garcia II
Employee Directors:
Gregory B. Sullivan
Audit Committee
The Audit Committee met as part of our full board several times last year.
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.
Robert J. 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.
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Compensation Committee
The Compensation Committee of our board met 3 times in 1999. 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 1999 is set forth
below under the caption "Compensation Committee Report on Executive
Compensation." No former or present Ugly Duckling officer was a member of the
Compensation Committee.
Special Transaction Committee
The board established a Special Transaction Committee in December of 1998 to
pursue the sale of an operating subsidiary, Cygnet Dealer Finance. The Special
Transaction Committee was composed of two members, Mr. Willey and Mr. Jennings,
and met three times in 1999.
Director Attendance
During 1999, 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 meetings by
telephone. 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. 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.
We are currently reviewing the compensation of our outside board members and we
expect to make a proposal for board consideration and approval at our April,
2000 board meeting. We do not believe the current level of board compensation is
reasonable when compared with director compensation at similarly situated
companies. This review will include an analysis of what directors are paid at
similarly situated companies and for publicly traded companies headquartered in
Arizona.
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
2001 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 1999 annual meeting. During 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:
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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.
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<TABLE>
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- ------------------------- -------- --------------------------------------------------------------- ---------
Name Age Business Experience Since
- ------------------------- -------- --------------------------------------------------------------- ---------
- ------------------------- -------- --------------------------------------------------------------- ---------
Ernest C. Garcia II 42 Chairman of the Board of Ugly Duckling since its founding in 1996
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 "Involvement in Certain
Legal Proceedings" and "Certain Relationships and Related
Transactions."
- ------------------------- -------- --------------------------------------------------------------- ---------
- ------------------------- -------- --------------------------------------------------------------- ---------
Christopher D. Jennings 46 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 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 Miller Brewing 1996
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.
- ------------------------- -------- --------------------------------------------------------------- ---------
- ------------------------- -------- --------------------------------------------------------------- ---------
Gregory B. Sullivan 41 Ugly Duckling Corporation's President since March 1996 and 1998
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 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 and
Audit Committees of the board
- ------------------------- -------- --------------------------------------------------------------- ---------
</TABLE>
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PROPOSAL TO BE VOTED ON
ITEM NO. 2--
AMENDMENT TO CERTIFICATE OF INCORPORATION
Our Board Of Directors Recommends A Vote "FOR" The Amendment To The Certificate
Of Incorporation Authorizing The Creation Of "Blank Check" Common Stock As
Described In This Proposal.
GENERAL
On March 15, 2000, our board of directors unanimously approved an amendment to
Article V of Ugly Duckling's Certificate of Incorporation authorizing our board
of directors to create and cause Ugly Duckling to issue common stock in one or
more series (the "Amendment").
The purpose of the Amendment is to provide us with greater flexibility to raise
capital and respond to strategic opportunities. The full text of the Amendment
is attached to this proxy statement as Annex A. The description of the Amendment
in this proxy statement is qualified in its entirety by, and should be read in
conjunction with, the proposed Amendment to Ugly Duckling's certificate of
incorporation attached hereto as Annex A.
Our board of directors has the right to abandon this proposal at any time prior
to the effectiveness of the filing of the Amendment with the Delaware Secretary
of State, notwithstanding shareholder approval and without any further action by
our shareholders.
DESCRIPTION OF THE PROPOSAL
Under the Amendment, subject to provisions of our Certificate of Incorporation
and provisions of law, Ugly Duckling will have the authority to issue 100
million shares of common stock in such series as the board of directors of Ugly
Duckling may determine, in its discretion. Initially, there will be one series
of common stock, designated as Series A Common Stock, par value $.001 per share
("Series A Common Stock"). Of the 100 million shares of common stock authorized,
75 million shares will be designated as Series A Common Stock. When the
Amendment becomes effective, each share of our existing common stock outstanding
immediately prior to the Amendment becoming effective will automatically be
converted into one share of Series A Common Stock, and all warrants, options and
other rights to acquire shares of our existing common stock will be converted
into a right to acquire the same number of shares of Series A Common Stock on
the same terms and conditions. Outstanding certificates that immediately prior
to such effectiveness represented shares of our existing common stock will
automatically and without any action by the holders of such stock be deemed to
represent an equivalent number of shares of Series A Common Stock despite the
absence of any indication in the certificate to that effect.
Under the terms of the Amendment, our board of directors, or a committee of our
board of directors that is so authorized by the board of directors, will have
the power to adopt resolutions authorizing the creation and issuance from time
to time of one or more series of common stock in addition to the Series A Common
Stock and to fix:
o the designation, voting powers, preferences and relative, participating,
optional and other rights, if any, of each such series;
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o the qualifications, limitations or restrictions, if any, of each such series;
and
o the number of shares constituting each such series.
Our board or any committee of the board that is so authorized by the board of
directors will also have the power to increase or decrease the number of shares
of any series, subject to the limitations in our Certificate of Incorporation
and to provisions of law. The total number of shares of such series of common
stock in additional to the Series A Common Stock that Ugly Duckling will have
the authority to issue will be 25 million.
Among the voting powers, preferences, rights, qualifications, limitations and
restrictions that the board of directors may fix when creating one or more new
series of common stock are the following:
o Creation of Tracking Stock
The board of directors of Ugly Duckling may choose to designate one or more
series of common stock of Ugly Duckling that tracks the operating and
finanicial performance of a distinct business or revenue stream relating to
specified assets and liabilites of Ugly Duckling or one or more of its
subsidiaries. This type of series of stock is often referred to as
"tracking stock."
o Dividends and Distributions
The board may determine how dividends will be paid on the various series,
including the determination of an available dividend amount for any such
series, including the Series A Common Stock. It may determine that
dividends can be paid equally or in unequal amounts and at different times
on the various series, including the Series A Common Stock. It may also
determine how other distributions, such as in property, securities or other
assets, can be made on the stock of the various series.
o Change of Control or Disposition of Assets
The board may determine that mandatory or optional consequences will follow
a change of control or disposition of assets, including that special
dividend, redemption, or conversion rights will relate to shares of the
various series.
o Redemption Rights
The board may determine whether and at what times the shares of such
series are subject to redemption.
o Voting Rights
The board may determine the voting rights, if any, for the various series
o Liquidation Rights
The board may determine the relative liquidation rights of each such
series and the Series A Common Stock.
o Conversion Rights
The board may determine the convertibility of each such series into any
other securities of Ugly Duckling or one or more of its subsidiaries and
the terms and conditions relating thereto, including the payment of any
premium in connection therewith.
PURPOSE OF THE PROPOSAL
Our board of directors believes that the proposed Amendment authorizing the
board to create one or more series of common stock may assist Ugly Duckling in
achieving enhanced flexibility to raise capital and respond to strategic
opportunities. For example, our board may determine to create and issue one or
more new series of common stock for any proper corporate purpose, including,
among other purposes to:
o raise additional capital,
o monetize certain groupings of assets or aspects of our business,
o issue options or other stock related benefits to our management or employees
that reflect the performance of particular aspects of our business, or
o make acquisitions or respond to other opportunities.
If the issuance of a new series of common stock is deemed advisable, having the
authority to issue the shares may avoid the time, delay and expense of a special
stockholders' meeting to authorize the issuance. No further action or
authorization by our stockholders would be necessary prior to issuance of such
stock, except as may be required for a particular transaction by applicable law
or regulation.
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At this time, our board of directors has made no firm commitments to create any
new series of common stock. However, the board of directors may consider the
creation of new series of stock in the future, including so-called "tracking
stock." Tracking stock is a type of common stock that reflects, or "tracks", the
performance of a particular business or group of assets. A tracking stock allows
a company to monetize some of the value of a particular business and grouping of
assets while preserving the financial, tax, operational, strategic, and other
benefits of being a single consolidated entity. Specifically, the issuance of a
tracking stock can enable a company to raise equity capital to use either in the
business to which the tracking stock relates, or in other businesses that need
additional capital.
Over the past few years, a number of companies have issued tracking stock
intended to reflect the performance of their e-commerce business. As an example,
our board of directors may consider the feasibility of an offering of common
stock intended to reflect the performance of our e-commerce business -
www.uglyduckling.com. Our e-commerce business currently consists primarily of
sales of used cars initiated through internet contacts from customers applying
for credit through our web site. We have experimented with an on-line credit
application on our web site since January 1999. In 1999, we accepted 12,846
Internet credit applications resulting in 989 sales or approximately 2% of the
total unit sales. In the first two months of this year we accepted 4,246
applications, made 435 sales, and generated approximately $3.6 million in
revenues.
POTENTIAL EFFECTS OF THE AMENDMENT
In addition to adding to our financial flexibility, the creation of new series
of common stock could have other effects, some of which are set forth below.
The following is intended only as a general summary of potential effects. There
may be other business, legal, economic, tax, and accounting consequences of
issuing additional series of common stock.
GENERAL
By approving the Amendment, you will be granting the Ugly Duckling board of
directors broad authority to create new series of common stock that may
negatively affect your rights and the value of your common stock.
If stockholders approve the Amendment, the board can authorize new series of
common stock without further stockholder approval. Depending on the rights and
terms of any new series created, and the reaction of the market to the series,
your rights or the value of your common stock could be negatively affected. For
example, subject to law and the regulations of Nasdaq or any other stock
exchange or association on which the common stock is then listed, the board
could create a series of common stock with preferential or superior rights to
dividends or assets on liquidation, or with superior voting rights to the
existing common stock.
By approving the Amendment, you will be granting the Ugly Duckling board of
directors broad authority to create and issue one or more series of common stock
that track the performance of certain assets or business of Ugly Duckling. If
you vote "FOR" the Amendment, you may be forfeiting your right to challenge the
authority of the board of directors of Ugly Duckling to issue such "tracking
stock."
If stockholders approve the Amendment, the board would have the authority to
create what is known as a "tracking" stock. The board would have broad authority
to allocate any portion of the current or future business and related assets and
liabilities, including preferred stock, of Ugly Duckling or its subsidiaries to
a newly created series of common stock. You would not have the right to a new
vote if you believed that the board was allocating too great a portion of our
business or assets or too valuable a grouping of businesses or assets to the new
series. After the creation and issuance of any new series of "tracking" common
stock by the board of directors, the holders of existing common stock or other
series of common stock of Ugly Duckling will no longer share in the gains or
losses attributed by the board of directors to the new series of "tracking"
common stock. However, holders of existing common stock, holders of other series
of common stock and holders of any such new series of "tracking" common stock
will continue to be common stockholders of Ugly Duckling and, as such, will be
subject to all of the risks associated with an investment in Ugly Duckling and
all of our businesses, assets and liabilities.
The market could react unfavorably to the Amendment because of the broad
authority being given to our board of directors, and the value of your stock
could be negatively affected even if the board never authorizes or creates an
additional series of common stock.
Page 10
<PAGE>
The market could react unfavorably to the Amendment for a variety of reasons.
Because of the broad authority given to the board and the uncertainty as to what
actions the board may take under the Amendment and how such actions could impact
the existing common stock, the value of the existing common stock could be
negatively affected now or at any time, even if the board never authorizes and
creates a new series of common stock. The market could also negatively react to
the fact that it is relatively rare for a company to have a provision for "blank
check" common stock in its certificate of incorporation.
If the board creates and issues a new series of common stock, and you want to
participate in the offering of that stock, you may have to pay new money to
purchase such stock.
If Ugly Duckling creates and issues a new series of common stock, it will have
no obligation to offer this stock to existing stockholders. If the stock is made
generally available and you wanted to participate in such an offering, you would
have to purchase such stock on the same terms as persons who are not existing
stockholders.
If a new series of common stock is created and issued, Ugly Duckling's capital
structure will increase in complexity and administrative costs will increase,
which could negatively impact our financial condition and the value of your
common stock.
If we create a new series of common stock, including a tracking stock, the
complexity of our capital structure will increase. In the case of a tracking
stock, we will have to keep separate financial statements for the assets and
liabilities allocated to the existing common stock and to other series of common
stock and the assets and liabilities allocated to the tracking stock.
Accounting, legal and general administrative expenses would increase in such a
case, which could impact our financial condition. There is no guarantee that the
economic benefits gained from the offering and sale of the new series of common
stock would offset the initial and ongoing expenses incurred.
Having mulitple series of common stock could create potential conflicts of
interest and Ugly Duckling's board of directors could make decisions that
adversely affect holders of our existing common stock.
Having multiple series of common stock could give rise to occasions when the
interests of holders of one series might diverge or appear to diverge from the
interests of holders of another series. For example, the board of directors may
have to decide:
o how to allocate consideration received in connection with a merger involving
Ugly Duckling between holders of different series of common stock;
o whether and when to approve dispositions of assets related to the various
series;
o whether and when to convert one series of securities into another series;
o whether and when to declare and pay dividends on the various series of common
stock;
o whether and when to offer premiums in connection with any conversions;
o whether and how to allocate cash, assets and resources and make transfers
of funds between the various grouping of assets related to different series
of common stock; and
o other operational, tax and financial matters that could be considered
detrimental to one series or another.
If members of Ugly Duckling's board of directors own disproportionate interests,
in percentage or value terms, in different series of common stock, it could
create, or appear to create, potential conflicts of interest when they are faced
with decisions that could have different implications for the different series.
Holders of common stock relating to any group of assets, including the Series A
Common Stock, will likely not have title or any preferential rights in the
specified assets of the group and would likely not be entitled to such assets on
liquidation, or on a change of control.
Any allocation of assets between or among groups of assets relating to series of
common stock will generally not change legal title to the assets or
responsibility for any liabilities and will not affect the rights of any of our
creditors. Depending on the terms established at the time of creation of a new
series, in any liquidation, shareholders may receive a share of Ugly Duckling's
net assets based on the relative trading prices of the various series of common
stock or based on other factors, rather than on any assessment of the actual
value of any group of assets relating to a specific series of common stock.
Page 11
<PAGE>
POSSIBLE ANTI-TAKEOVER EFFECTS OF THE AMENDMENT
Approval of the Amendment may be viewed as being an "anti-takeover" device. Ugly
Duckling could issue series common stock with terms that could make a takeover
attempt by a third party more difficult to complete. Blank check common stock
may also be used in connection with the issuance of a stockholder rights plan,
sometimes called a poison pill. Our board of directors has not approved any plan
to issue any new series of common stock for this or any other purpose, and we do
not intend to issue any common stock except on terms that the directors deem to
be in the best interest of us and our stockholders.
The potential anti-takeover effects relating to the Amendment should be read in
conjunction with our other anti-takeover devices currently in place, which
include:
o our board of directors' ability to issue, without stockholder approval, up to
10,000,000 shares of Preferred Stock, which could also have the effect of
delaying, deferring, or preventing a change in control of Ugly Duckling,
including through implementation of a "poison pill"; and
o our bylaws, which require that any stockholders desiring to propose
business or nominate a person to the board of directors at a stockholders
meeting must give notice not less than 60 days nor more than 90 days prior
to the meeting may have the effect of discouraging or deterring any last
minute attempts by a third party to obtain control of Ugly Duckling.
VOTE REQUIRED
The board of directors believes that the flexibility created by the proposed
Amendment is in the best interests of the stockholders, and requests that you
vote "FOR" the proposal.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table gives information as of March 15, 2000, unless another date
is indicated, concerning:
o each beneficial owner of more than 5% of our common stock;
o beneficial ownership by all our directors and all our other executive
officers named in the Summary Compensation Table on page __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 15, 2000 (60 days after March 15, 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 March 15, 2000.
Page 12
<PAGE>
<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, (5) Chairman of the Board and 5% Owner, 4,500,000 Direct
indirect ownership consists of 136,500 shares held by The 294,500 Indirect 32.2%
Garcia Family Foundation, Inc., an Arizona nonprofit 20,000 Vested Options
----------
corporation, and 158,000 shares held by Verde, an affiliate 4, 814,500 Total
==========
of ours and Mr. Garcia.
- ------------------ -------------------------------------------------------------- --------------------------------- -------------
Common Stock Harris Associates L.P. (Harris) and an affiliate Harris 1,962,000 Direct 13.19%
Associates Investment Trust (Harris Trust), series 0 Indirect
designated The Oakmark Small Cap Fund (4), 5% Owner, based 0 Vested Options
----------
on Schedule 13G filing filed February 7, 2000 and effective 1,962,000 Total
==========
as of December 31, 1999. According to this Schedule 13G,
Harris 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 5.78%
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 264,600 860,000 Total
==========
shares of our common stock and shared 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 50,800 Direct 2.4%
Officer 0 Indirect
307,800 Vested Options
----------
358,600 Total
- ------------------ -------------------------------------------------------------- --------------------------------- -------------
Common Stock Steven T. Darak, Senior Vice President and Chief Financial 140,000 Direct 1.1%
Officer 0 Indirect
28,999 Vested Options
----------
168,999 Total
- ------------------ -------------------------------------------------------------- --------------------------------- -------------
13
<PAGE>
Title of Class Amount and Nature of Percent of
--------------
Name of Beneficial Owner, Address and Other Information(1) Beneficial Ownership(#)(2)(3)(4) Class(2)(3)(4)
- ------------------ -------------------------------------------------------------- --------------------------------- -------------
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, (6) 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 31,277 Total
==========
warrants are convertible into our common stock at any time
through June 21, 2001 at an exercise price of $9.45 per
share and are fully vested
- ------------------ -------------------------------------------------------------- --------------------------------- -------------
Common Stock John N. MacDonough, (6) 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, (6)(7) Director 27,144 Direct *
147,400 Indirect
5,000 Vested Options
----------
179,544 Total
- ------------------ -------------------------------------------------------------- --------------------------------- -------------
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) 5,729,229 37.3%
- ------------------ -------------------------------------------------------------- --------------------------------- -------------
<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 15, 2000. These options were issued under either the
Director's Plan, 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 May 15, 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 14,929,552 shares of our common
stock outstanding as of March 15, 2000, net of shares we hold in our treasury. We have commenced an exchange offer that will
close sometime after March 15, 2000 and if successful will reduce the number of outstanding shares by up to 2,500,000 shares.
(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) On February 22, 2000, we commenced an exchange offer in connection with which Mr. Garcia agreed to tender the 294,500 shares of
stock he holds indirectly if the maximum number of shares are tendered and if less than the maximum number of shares are
tendered Mr. Garcia will tender the greater of 294,500 or 25% of the shares tendered.
(6) 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).
(7) Possible indirect ownership of shares of Ugly Duckling acquired by Fidelity National Financial, Inc. Mr. Willey disclaims
beneficial ownership of such shares.
</FN>
</TABLE>
14
<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 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).
o 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 $7.71 without Mr. Willey's knowledge. After becoming
aware of the transaction, a Form 4 filing was done on December 8, 1999.
Fidelity now has a process for the timely reporting of transactions in Ugly
Duckling stock. Mr. Willey disclaims any beneficial ownership in these or
any other shares of Ugly Duckling owned by Fidelity.
o We prepared Form 5'sand inadvertently filed them two days after the
required filing date for the following individuals: Greg Sullivan, Steve
Darak, Don Addink, Jon Ehlinger, Ernie Garcia, Christopher Jennings, John
MacDonough, and Frank Willey. Steps have been taken to ensure this does not
happen again.
15
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS, BENEFITS AND
RELATED MATTERS
SUMMARY COMPENSATION TABLE
The table below sets forth information concerning the annual and
long-term compensation for services rendered in all capacities for us during the
three fiscal years ended December 31, 1999 of our Named Executive Officers.
"Named Executive Officers" consist of (1) each person serving as our Chief
Executive Officer during 1999, (2) our 4 next most highly compensated executive
officers serving as executive officers at December 31, 1999, and (3) 2
additional individuals who would have been reported under (2) above but for the
fact that the individuals were not serving as executive officers for Ugly
Duckling at December 31, 1999.
<TABLE>
<CAPTION>
- ----------------------------------------- -------- ----------------------------------- -------------------------- ----------
Annual Compensation Long-Term Compensation
----------------------------------- --------------------------
Awards
------------- ------------
Other Securities
Annual Restricted Under- All Other
Name And Principal Compen- Stock Lying Compen-
Position Year Salary Bonus Sation Award(s) Options sation
($) ($) ($) (#)(1) ($)(2)
- ----------------------------------------- -------- ----------- ----------- ----------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Ernest C. Garcia II 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, Cygnet Dealer Finance 1998 $147,115 $761 $1,500(11)
-------- ----------- ----------- ----------- ------------- ------------ ----------
1997 $132,692 -- $11,000(11) -- -- --
- ----------------------------------------- -------- ----------- ----------- ----------- ------------- ------------ ----------
<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 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.
(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. This 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.
16
<PAGE>
(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 $6.88 per share as reported by Nasdaq).
(11) This amount is for car allowances in 1999, 1998 and 1997.
</FN>
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information on option grants for the
fiscal year ended December 31, 1999 to each of our Named Executive Officers.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------ --------------------------------
Potential Realizable Value At
Individual Grants Assumed Annual Rates Of Stock
Price Appreciation For Option
Term(1)
- ------------------------------------------------------------------------------------------ --------------------------------
Percent Of
Number Of Total
Securities Options Granted
Underlying To Employees Exercise
Options In Fiscal Year Price Expiration
Name Granted (#) ($/Sh) Date 5% ($) 10% ($)
- --------------------------- --------------- ----------------- ----------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Ernest C. Garcia II 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 -- -- -- -- -- --
- --------------------------- --------------- ----------------- ----------- ---------------- --------------- ----------------
<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 March 15, 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" and " - Compensation Committee Report on Executive Compensation" for additional information on these
grants and 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" and " --- Compensation Committee Report on Executive Compensation" for additional
information on this grant and our Incentive Plan.
</FN>
</TABLE>
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 19,000 shares of our
common stock at an exercise price of $8.438 per share. The options did not
include awards to any Named Executive Officers.
17
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
The table below sets forth information with respect to option exercises
and the number and value of options outstanding at December 31, 1999 held by our
Named Executive Officers. Generally, we have not issued any other forms of stock
based awards.
<TABLE>
<CAPTION>
- --------------------------- ---------------- ----------------- ---------------------------------- ----------------------------------
Number of Securities Value Of Unexercised
Underlying Options At In-The-Money Options At
Fiscal Year End (#)(1) Fiscal Year End ($)(2)
- --------------------------- ---------------------------------- ----------------------------------
----------------- ---------------- ----------------- ----------------
Shares
Acquired On Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
- --------------------------- ---------------- ----------------- ----------------- ---------------- ----------------- ----------------
Ernest C. Garcia II -- -- -- 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
- --------------------------- ---------------- ----------------- ----------------- ---------------- ----------------- ----------------
<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. 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.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, 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 March 15, 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.
</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 -
18
<PAGE>
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 1999, the Compensation Committee granted, subject to certain conditions,
approximately 312,250 options under the Incentive Plan. On February 15, 2000 we
granted 19,000 options under the Incentive Plan.
At March 15, 2000 we had granted options under the plan to purchase
approximately 1,422,265 shares of our common stock (net of canceled and lapsed
grants) to various of our employees, of which approximately 1,137,097 were
outstanding. Also at March 15, 2000, there were approximately 358,735 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
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 December 31, 1999, we had granted options under the plan to purchase 660,000
shares of our common stock (net of canceled and lapsed grants) 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 March 15,
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.
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<PAGE>
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 $10,000
bonus payment upon execution of the restated agreement, certain benefits, and
the continuation of Mr. Addink's base salary and certain benefits for a period
of 1 year (but not to exceed the expiration date of the agreement) in the event
Mr. Addink is terminated by us without cause prior to expiration of the restated
agreement. It also contains confidentiality and non-compete covenants. Further,
it accelerated the vesting of Mr. Addink's 100,000 stock options previously
granted under the Incentive Plan, as set forth in the table below. These options
were originally granted pursuant to the Incentive Plan's general 5-year vesting
schedule with 20% vesting each year.
Original grant date Number Exercise price Accelerated
Of shares(#) Per share($) 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
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:
o he terminates his employment with us within 12 months after the change of
control; or
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."
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<PAGE>
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."
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.
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__. No member of
our committee has 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
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<PAGE>
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.
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
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<PAGE>
factors. Among the factors considered by us are the recommendations of the
Chairman of the Board, Mr. Garcia, and the Chief Executive Officer and
President, Mr. Sullivan, 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.
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)).
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 $161,043 was paid to our Named Executive Officers
during 1999 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 1999 properly took
into account these factors. The amount of bonus and the performance criteria
vary with the position, role and situation of the executive. Base salary and
cash bonuses to Ugly Duckling's executives for 1999 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.
On February 16, 2000 we approved 2000 annual base salaries and bonuses effective
for 2000, for our Named Executive Officers who continue to be employed by us.
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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."
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 (1998 Option Grants). 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 January 15, 2000, the price hurdles for the
first two vesting periods had already been satisfied.
On March 2, 1999 and July 28, 1999, we considered and approved grants under our
Incentive Plan and Executive Plan to several Ugly Duckling officers and
employees of options to purchase approximately 612,250 shares of Ugly Duckling's
common stock at exercise prices of $5.56 and $8.19, respectively, subject to
several conditions.
Included in these grants, and approved by this Committee, were 300,000
performance-based stock options under the Executive Plan (1999 Executive
Grants). These grants vest and become exercisable in full on March 2, 2006 (ie.,
"cliff vesting" of options). These grants vest over a five year period if
certain stock price hurdles or company internal target financial measures are
met. Once a stock price hurdle is met, a participant is not penalized due to any
subsequent decline in Ugly Duckling's stock price. These grants vest one hundred
percent regardless of whether these targets are met as of March 2, 2006 (i.e.,
"cliff vesting" of options). At March 2, 2000, the requirements for the first
vesting period were not satisfied. All grants under the Executive Plan are
performance shares intended to qualify as performance-based compensation under
Section 162(m) of the Internal Revenue Code
The following chart shows how the 1999 Executive Grants vest:
<TABLE>
<S> <C> <C>
% of Initial Grants That Date of Vesting Value of Ugly Duckling Stock for at Least 10
Vest Consecutive Trading Days at Any Time Before,
on or After the Vesting Date (1)
First 20% March 2, 2000 $10.28 per share or internal targets
Second 20% March 2, 2001 $11.30 per share or internal targets
Third 20% March 2, 2002 $12.43 per share or internal targets
Fourth 20% March 2, 2003 $13.67 per share or internal targets
Fifth 20% March 2, 2004 $15.04 per share or internal targets
or 100% March 2, 2006 No condition
</TABLE>
(1) Vesting requires meeting either the stock price target (as set forth in the
table) or certain "internal targets". The internal targets are 70% of budgeted
profit and at least 100% of an established collection results measure for a
given year as established by the Compensation Committee. Management will propose
to the chairman for the Compensation Committee's review and approval new
"budgeted profit" and "collection results" measures for years two through five
consistent with and substantially similar to those established in year one,
absent changes for which management must justify and obtain approval.
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.
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<PAGE>
During 1999, we also considered and approved stock option grants under Ugly
Duckling's Incentive Plan to several of our other officers and employees who
were not executive officers. These options to non-executive officers were
granted at or above fair market value with all of the 1999 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 February 15, 2000, we considered and approved certain 2000 stock option
awards. See " - Compensation of Executive Officers, Benefits and Related Matters
- - Recent Option Grants In 1999." Stock option grants to Ugly Duckling officers
for 1999 and thus far in 2000 were made in accordance with the compensation
philosophy and specific objectives discussed in this report. See " -- Overview
of Compensation Philosophy and Objectives"
Senior management is currently developing for the Board's review and
Compensation Committee approval a comprehensive stock option incentive program
and methodology that will be designed to accomplish the following objectives,
among others: 1) attract and retain talented management and directors; 2) incent
current senior management members and other key employees throughout the
company; and 3) ensure consistent incentive treatment of comparably positioned
management and key employees.
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.
Chief Executive Officer Compensation
Mr. Garcia was Ugly Duckling's founder and served as the Company's Chief
Executive Officer from Ugly Duckling's start in 1992 until July of 1999. On an
annual basis, we reviewed and approved the compensation of Mr. Garcia. For 1999,
Mr. Garcia was paid $92,416. We reviewed in advance and gave prior approval for
this salary. 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 and on the terms described for the 1999 Executive Grants. The
Garcia stock option will continue to vest as long as Mr. Garcia remains Chairman
of Ugly Duckling. 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.
Mr. Sullivan has been the President of Ugly Duckling since March of 1996 and
became the Chief Executive Officer in July of 1999. We reviewed and approved Mr.
Sullivan's compensation throughout this time frame. In 1999, Mr. Sullivan was
paid a base salary of $200,000, a bonus of $60,000 and he received 125,000
options under the Executive Plan (as previously noted). In addition to the above
compensation, Mr. Sullivan receives the use of a company car and standard
benefits, including participation in Ugly Duckling's 401(k) plan. In February of
2000, we reviewed and approved for Mr. Sullivan for 2000 a salary of $250,000
and a performance based bonus program tied to the achievements of key company
objectives related to loan performance, earnings per share and profitability
that could result in the payment to him of up to an additional $150,000.
We believe that the compensation of our chief executive officers in 1999 and for
2000 (including base salary, cash bonuses and stock option awards) were and are
below the level of compensation paid to chief executive officers of comparable,
publicly-held automobile finance companies, and other companies comparable to
Ugly Duckling.
As the members of the Compensation Committee, we approved the compensation of
Mr. Garcia, Mr. Sullivan and Ugly Duckling's other executive officers for 1999,
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.
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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, 1998, and 1999. 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.
[Graph of Stockholder Return Performance]
6/18/96 12/31/96 12/31/97 12/31/98 12/31/99
Ugly Duckling 100.00 209.40 91.28 49.66 73.83
MG Group Index 744 100.00 99.18 116.50 141.01 137.1
Nasdaq Market Index 100.00 107.59 131.61 185.62 327.38
SIC Code Index 100.00 107.59 70.39 84.78 55.32
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.
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
Page 27
<PAGE>
$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.
<TABLE>
<S> <C> <C> <C> <C>
Name & title of executive officer Nature of debt Date debt Principal Balance Of Debt Number of
incurred At 12/31/ Shares
Purchased (#)
Gregory B. Sullivan, CEO, President, & 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, former Sr VP, Genl Counsel D&O Stock Purchase 11/97 $100,000 10,000
& Secretary(1) Program
Donald L. Addink, Sr. VP - Treasurer 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
Other Senior Officers(1) D&O Stock Purchase 11/97 $100,000 10,000
Program
TOTAL for D&O Stock Purchase Program D&O Stock Purchase 11/97 & 5/98 $696,252 70,000
Program
Steven T. Darak, Sr. VP & CFO Employee Advance 9/98, $368,684 --
10/98 & 8/99
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. Johnson's and Mr. Fidel's exchanges occurred in March of 2000.
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 3, 2000, ________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
$______, 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, 1999 was KPMG LLP. We have retained 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 2001
annual meeting must be received by us no later than February 23, 2001 and notice
of other matters to be brought before the meeting must be received no earlier
than February 23, 2001 and no later than March 24, 2001. 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 2001 proxy statement, the proposal must
be received by us at our principal executive offices at the address set forth
below no later than December 5, 2000. Generally, proposals we receive after that
date would not be included in the proxy statement or acted upon at our 2001
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.
Annual Report/Form 10-K
We have provided to each person whose proxy is being solicited a copy of our
1999 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.
Page 29
<PAGE>
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,
Jon D. Ehlinger
General Counsel and
Secretary
Phoenix, Arizona
April 10, 2000
Page 30
<PAGE>
ANNEX A
PROPOSED AMENDMENT TO
THE CERTIFICATE OF INCORPORATION
OF
UGLY DUCKLING CORPORATION
1. Article V is hereby amended to read in its entirety:
ARTICLE FIVE
A. The corporation shall be authorized to issue two classes of shares of stock
to be designated, respectively, "Common Stock" and "Preferred Stock"; the total
number of shares of Common Stock that the corporation shall have authority to
issue shall be [100,000,000], and each of such shares shall have a par value of
$.001; and the total number of shares of Preferred Stock that the corporation
shall have the authority to issue shall be 10,000,000, and each of such shares
shall have a par value of $.001.
B. Shares of Common Stock may be issued out of unissued shares of Common Stock
from time to time in one or more series as may from time to time be determined
by the Board of Directors of the corporation, by resolution or resolutions, each
of said series to be distinctly designated. The voting powers, preferences and
relative, participating, optional, and other special rights, and the
qualifications, limitations, or restrictions thereof, if any, of each such
series may differ from those of any and all other series of Common Stock at any
time outstanding, and the Board of Directors is hereby expressly granted
authority to fix or alter, by resolution or resolutions, the designation,
number, voting powers, preferences, and relative, participating, optional, and
other special rights, and the qualifications, limitations, and restrictions
thereof, if any, of each such series. One series of Common Stock shall be
designated as Series A Common Stock ("Series A Common Stock"). The total number
of shares of Series A Common Stock which the corporation shall have the
authority to issue shall initially be 75 million, and the total number of shares
which the corporation shall have the authority to issue for all other series of
Common Stock shall initially be 25 million. When the filing of this Amendment to
the amended and restated certificate of incorporation becomes effective, each
share of Common Stock outstanding immediately prior thereto shall thereupon
automatically be converted without any action by the holder thereof into one
share of Series A Common Stock, and all warrants, options and other rights to
acquire shares of Common Stock existing immediately prior to the Amendment
becoming effective, will be converted into a right to acquire the same number of
shares of Series A Common Stock (and outstanding certificates that immediately
prior to the Amendment becoming effective had represented shares of Common Stock
shall thereupon without any action by the holder thereof represent an equivalent
number of shares of Series A Common Stock despite the absence of any indication
thereon to that effect).
C. Shares of Preferred Stock may be issued from time to time in one or more
series as may from time to time be determined by the Board of Directors of the
corporation, each of said series to be distinctly designated. The voting powers,
preferences and relative, participating, optional, and other special rights, and
1
<PAGE>
the qualifications, limitations, or restrictions thereof, if any, of each such
series may differ from those of any and all other series of Preferred Stock at
any time outstanding, and the Board of Directors is hereby expressly granted
authority to fix or alter, by resolution or resolutions, the designation,
number, voting powers, preferences, and relative, participating, optional, and
other special rights, and the qualifications, limitations, and restrictions
thereof, of each such series.
D. The corporation hereby designates 1,000,000 shares of Preferred Stock as
Series A Preferred Stock, which shares shall have the following rights, powers,
privileges, preferences, designations and limitations:
1. Designation and Rank.
The Series A Preferred Stock shall rank prior to the Common Stock and to
all other classes and series of equity securities of the corporation now or
hereafter authorized, issued or outstanding (such other classes and series of
equity securities collectively may be referred to herein as the "Junior Stock"),
other than any classes or series of equity securities of the corporation ranking
on a parity with (the "Parity Stock") or senior to (the "Senior Stock") the
Series A Preferred Stock as to dividend rights and rights upon liquidation,
winding up or dissolution of the corporation. The Series A Preferred Stock shall
be junior to all outstanding debt of the corporation. The Series A Preferred
Stock shall be subject to creation of Senior Stock, Parity Stock and Junior
Stock to the extent not expressly prohibited herein, and the provisions hereof.
2. Dividends.
A. The holders of record of shares of the Series A Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors of the
corporation, out of any funds of the corporation legally available therefor,
cumulative cash dividends ("Dividends") at the per annum rates set forth below,
which shall accrue from December 31, 1995, and be payable quarterly in arrears
on the last day of March, June, September and December, in each year, commencing
March 31, 1996, or, if such day is a non-business day, on the next business day,
without interest (each of such dates, a "Dividend Payment Date").
January 1, 1996 - December 31, 1996 12%
January 1, 1997 - December 31, 1997 13%
January 1, 1998 - December 31, 1998 14%
January 1, 1999 - December 31, 1999 15%
January 1, 2000 - December 31, 2000 16%
January 1, 2001 - December 31, 2001 17%
January 1, 2002 and thereafter 18%
Each declared Dividend shall be payable to holders of record as they appear
on the stock books of the corporation at the close of business on the applicable
record date, which shall be not more than 30 nor less than 10 calendar days
preceding the Dividend Payment Date therefor, as determined by the Board or a
duly authorized committee thereof (each of such dates, a "Record Date").
Dividends on each share of Series A Preferred Stock shall accrue and be
cumulative from the date of issuance thereof, whether or not there shall be
2
<PAGE>
profits, surplus or other funds of the corporation legally available for the
payment of such Dividends at the time such Dividends shall accrue or become due
and whether or not such Dividends are declared. Accrued and unpaid Dividends for
any prior Dividend periods may be declared and paid at any time, without
reference to any regular Dividend Payment Date, to holders of record on such
date, not exceeding 45 days preceding the payment date thereof, as may be fixed
by the Board.
B. Unless full Dividends on the Series A Preferred Stock at the rates set forth
in paragraph C.2.A. above shall have been paid or declared and a sum sufficient
for the payment thereof set apart: (i) no dividend whatsoever shall be paid or
declared, and no distribution shall be made, on any Common Stock or any other
Junior Stock and (ii) no Common Stock shall be purchased, redeemed or acquired
by the corporation and no monies shall be paid into or set aside or made
available for a sinking fund for the purchase, redemption or acquisition
thereof; provided, however, that this restriction shall not apply to the
repurchase of shares of Common Stock or any other Junior Stock from directors,
officers or employees of the corporation pursuant to agreements under which the
corporation has the option to repurchase such shares upon the occurrence of
certain events, including the termination of employment.
3. Liquidation Preference.
A. In the event of any liquidation, dissolution or winding up of the
corporation, either voluntarily or involuntarily, the holders of Series A
Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of any of the assets or surplus funds of the corporation to the
holders of Common Stock of the corporation or any other Junior Stock, an amount
equal to the Issuance Price for each share of Series A Preferred Stock plus all
Dividends due and not paid on such shares (the "Liquidation Payment"). If upon
such liquidation, dissolution or winding up of the corporation the assets of the
corporation are insufficient to pay the Liquidation Payment in full on each
share of Series A Preferred Stock, then such assets as are available for
distribution to the holders of the Series A Preferred Stock shall be distributed
ratably among such holders. Unless specifically designated as Junior Stock or
Senior Stock with respect to the distribution of assets, all other series or
classes of Preferred Stock shall rank on a parity with the Series A Preferred
Stock with respect to the distribution of assets. All of the preferential
amounts to be paid to the holders of the Series A Preferred Stock and any Parity
Stock under this paragraph shall be paid or set apart for payment before the
payment or setting apart for payment of any amount for or the distribution of
any assets of the corporation to the holders of the Common Stock in connection
with such liquidation, dissolution or winding up.
B. A consolidation or merger of the corporation with or into any other
corporation where less than 50% of the outstanding voting securities of the
surviving corporation are held by the shareholders of the corporation existing
immediately prior to the consolidation or merger or a sale of all or
substantially all of the assets of the corporation, shall be deemed to be a
liquidation, dissolution or winding up of the corporation within the meaning of
this paragraph C.3.
4. Voting Rights.
A. Except as provided in C.4.B. below, or as otherwise from time to time
required by applicable law, the shares of Series A Preferred Stock shall
not entitle the holder thereof to any voting rights in the corporation.
B. The approval of 662/3% of the outstanding shares of the Series A Preferred
Stock, voting separately as a class, shall be required to authorize any
action of the corporation which (i) changes the rights, preferences or
privileges of the shares of the Series A Preferred Stock, or (ii) creates
any new class of stock having preference over or being on a parity with the
3
<PAGE>
shares of the Series A Preferred Stock as to distributions upon the
liquidation, winding up or dissolution of the corporation. If Dividends for
an entire calendar year have not been declared and paid within 30 days
after the end of the calendar year, then until said Dividends are paid,
holders of Series A Preferred Stock shall be entitled to vote in the
election of members of the Board of Directors of the corporation. In such
event, each share of Series A Preferred Stock shall entitle the holder
thereof to ten votes in the election of members of the Board of Directors
and said votes may be cumulated in accordance with applicable law. At any
time that holders of Series A Preferred Stock are entitled to vote in the
election of members of the Board of Directors, the holders of 25% of the
outstanding shares of the interest of Series A Preferred Stock may call a
special meeting of the Board of Directors in accordance with the Bylaws of
the corporation.
5. Right of Redemption. The corporation shall have the right to redeem the
Series A Preferred Stock, in whole or in part, from time to time at any time,
except as otherwise prohibited by law, at the Issuance Price per share, plus an
amount equal to all accrued and unpaid Dividends (whether or not any such
Dividend has been declared, but without interest thereon) to the date such
payment is made available in full to holder of shares of Series A Preferred
Stock (the "Redemption Price"). If fewer than all of the shares of Series A
Preferred Stock are to be redeemed at any time, selection of shares for
redemption shall be made by the Board of Directors of the corporation on a pro
rata basis or in such other equitable manner as the Board shall determine. The
corporation shall cause a notice of the record date set by the Board of
Directors for the payment of the Redemption Price (the "Redemption Date") to be
mailed to the holders of the Series A Preferred Stock to be redeemed at least 30
days prior to the Redemption Date. Following the Redemption Date, unless this
corporation defaults in payment the Redemption Price on the Redemption Date, the
holders of the shares of Series A Preferred Stock called for redemption shall
cease to have any rights as stockholders of the corporation with respect to such
shares called for redemption except the right to receive the Redemption Price
upon surrender of the certificate or certificates representing the shares of
Series A Preferred Stock called for redemption, endorsed for transfer to the
corporation, and such shares shall not be deemed to be outstanding for any
purpose whatsoever.
6. Transfer. The corporation shall keep a register in which the corporation
shall register the transfer of any shares of Series A Preferred Stock. Upon
presentment for registration of transfer of a certificate representing shares of
Series A Preferred Stock (accompanied by such stock assignments or stock powers
as the corporation may require), the corporation shall cancel such certificate
and shall execute and issue to the transferor and/or transferee new certificates
aggregating a number of shares of Series A Preferred Stock as is equal to the
number represented by the canceled certificate.
4
<PAGE>
PROXY PROXY
UGLY DUCKLING CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS - May 23, 2000
I appoint Gregory B. Sullivan, Steven Darak and Jon D. Ehlinger, 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 Hilton Squaw Peak, 16th Street and
Morton, Phoenix, Arizona 85020 on May 23, 2000, 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 and the amendment to the certificate of incorporation to
authorize the creation of "blank check" common stock.
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.
2. AMENDMENT TO CERTIFICATE OF INCORPORATION FOR AGAINST ABSTAIN
[ ] [ ] [ ]
To approve and adopt an amendment to our certificate of incorporation to
authorize the creation of "blank check" common stock.
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.
- -----------------
Date
- --------------------------------------
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
