PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement --Amendment
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
MONACO FINANCE, INC.
(Name of Registrant as Specified in Its Charter)
Jay W. Enyart, Esq.
Brega & Winters P.C.
1700 Lincoln Street, Suite 2222
Denver, Colorado 80203
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(i)(2). PREVIOUSLY PAID.
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction
applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:
4) Proposed maximum aggregate value of transaction:
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
MONACO FINANCE, INC.
1996
PROXY STATEMENT
<PAGE>
PRELIMINARY COPIES
MONACO FINANCE, INC.
370 17TH STREET, SUITE 5060
DENVER, COLORADO 80202
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 10, 1996
Notice is hereby given that the Annual Meeting of Shareholders (the
"Annual Meeting") of Monaco Finance, Inc., a Colorado corporation (the
"Company"), will be held at 370 17th Street, Suite 5060, Denver, Colorado at
10:00 a.m. on Tuesday, September 10, 1996, for the following purposes:
1. To consider and act upon the election of Morris Ginsburg, Irwin L.
Sandler, Brian M. O'Meara, Craig L. Caukin and David M. Ickovic to the Board
of Directors to serve until the next annual meeting of Shareholders and until
their successors are elected and qualified;
2. To consider, ratify, confirm and approve the Purchase Agreement
and Indenture, as amended, relating to up to $10,000,000 in principal amount
of 12% Convertible Senior Subordinated Notes due 2001 ("Notes") ;
3. To consider and ratify the appointment of Ehrhardt Keefe Steiner &
Hottman P.C. as the Company's certified independent public accountants for the
fiscal year ending December 31, 1996; and
4. To consider and act upon such other matters as may properly come
before the meeting or any adjournment thereof.
Only the holders of record of shares of the Company's Class A Common
Stock, $.01 par value, and Class B Common Stock, $.01 par value, at the close
of business July 26, 1996, are entitled to notice of and to vote at the
meeting or any adjournment thereof.
You are cordially invited to attend the Annual Meeting in person. All
Shareholders, whether or not they plan to attend the Annual Meeting, are
requested to complete, date and sign the enclosed Proxy and return it promptly
in the envelope provided for that purpose. Shareholders who attend the Annual
Meeting may revoke the Proxy and vote their Proxy in person as set forth in
the Proxy Statement.
By Order of the Board of Directors
Irwin L. Sandler, Secretary
July, 1996
<PAGE>
PRELIMINARY COPIES
MONACO FINANCE, INC.
370 17th Street, Suite 5060
Denver, Colorado 80202
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
To be held September 10, 1996
INTRODUCTION
SOLICITATION, EXERCISE AND REVOCABILITY OF PROXY
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Monaco Finance, Inc. (the "Company"), for
use at the Annual Meeting of Shareholders of the Company (the "Annual
Meeting") to be held on September 10, 1996 at 10:00 a.m. local time, at the
offices of the Company located at 370 17th Street, Suite 5060, Denver,
Colorado 80202. This Proxy Statement, the accompanying form of Proxy and the
Notice of Annual Meeting will be first given or mailed to the Company's
Shareholders on or about August 9, 1996. All costs incurred in
connection with this proxy solicitation will be borne by the Company.
Because many of the Company's Shareholders may be unable to attend the
Annual Meeting in person, the Board of Directors solicits proxies by mail to
give each Shareholder an opportunity to vote on all matters presented at the
Annual Meeting. Shareholders are urged to: (i) read this Proxy Statement
carefully; (ii) specify their choice regarding each matter by marking the
appropriate box on the enclosed form of Proxy; and (iii) sign, date and return
the form of Proxy in the enclosed envelope.
All shares of the Company's Class A Common Stock, $.01 par value, and
Class B Common Stock, $.01 par value (collectively, the "Shares"), represented
by properly executed Proxies received in time for the Annual Meeting will be
voted at the Annual Meeting in accordance with the instructions marked thereon
or otherwise as provided therein, unless such Proxies have previously been
revoked. All Shares represented by valid Proxies will be voted, unless
instructions to the contrary are marked, for the election of the nominees to
the Board of Directors, for the ratification of the appointment of Ehrhardt
Keefe Steiner & Hottman P.C. as the independent public accountants for the
Company for the fiscal year ending December 31, 1996, and, in the discretion
of the persons named as Proxies, on such other matters as may properly come
before the Annual Meeting. However, Proxies voted against a proposal will not
be voted for any adjournment desired by management to afford the Company the
opportunity to seek additional proxies supporting that proposal. Any Proxy
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<PAGE>
may be revoked at any time prior to the exercise thereof by submitting another
Proxy bearing a later date or by giving written notice of revocation to the
Company at the address indicated above or by voting in person at the Annual
Meeting. Any notice of revocation sent to the Company must include the
Shareholder's name, and must be received prior to the Annual Meeting to be
effective.
VOTING
Only persons holding Shares (referred to herein as the "Shareholders") of
record at the close of business on July 26, 1996 (the "Record Date") will be
entitled to notice of and to vote at the Annual Meeting or any adjournment
thereof. Shareholders holding Class A Common Stock will be entitled to one
vote for each Share then held, and Shareholders holding Class B Common Stock
will be entitled to three votes for each Share then held. As of June 30,
1996, there were 5,640,379 Shares of the Company's Class A Common Stock
issued and outstanding having an aggregate of 5,640,379 votes and 1,311,000
Shares of the Company's Class B Common Stock issued and outstanding having an
aggregate of 3,933,000 votes. The presence, in person or by proxy, of holders
of a majority of Shares entitled to vote at the Meeting constitutes a quorum
for the transaction of business at the Annual Meeting. Shareholders are not
entitled to cumulate their votes in the election of directors.
At any meeting where a quorum is present, action may be taken by the
affirmative vote by the holders of a majority of the shares represented at the
meeting and entitled to vote thereat. Votes cast by proxy will be tabulated
by an automatic system administered by the Company's transfer agent. Votes
cast by proxy or in person at the Annual Meeting will be counted by the
persons appointed by the Company to act as election inspectors for the Annual
Meeting. Abstentions and broker non-votes are each included in the
determination of the number of shares present and voting. Each is tabulated
separately. Abstentions are counted in tabulations of the votes cast on
proposals presented to Shareholders and will have the same effect as negative
votes, whereas broker non-votes are not counted for purposes of determining
whether a proposal has been approved.
As of June 30, 1996, Messrs. Ginsburg and Sandler beneficially owned
shares of Class A and Class B Common Stock having in the aggregate
approximately 41.1% of the voting power of both classes. Messrs. Ginsburg and
Sandler have indicated their intention to vote the shares of common stock
beneficially owned by them in favor of all proposals contained in this Proxy
Statement.
PROPOSAL 1 - ELECTION OF DIRECTORS
The Board of Directors currently consists of five members, all of whom
have been nominated for re-election: Morris Ginsburg, Irwin L. Sandler, Brian
M. O'Meara, Craig L. Caukin and David M. Ickovic. The entire Board of
Directors is elected to serve until the next Annual Meeting of the
Shareholders and until their successors have been elected and qualify. It is
intended that the Shares represented by properly executed Proxies will be
voted FOR the five nominees listed below except where authority has been
withheld as to a particular nominee or as to all nominees. If any candidate
nominated in this Proxy Statement should for any reason become unavailable for
election, Proxies may be voted with discretionary authority for any substitute
- -2-
<PAGE>
designated by the Board of Directors. The election of directors requires a
majority of the votes entitled to be cast at the Annual Meeting.
Black Diamond Advisors, Inc. ("Black Diamond"), the holder of certain
Notes issued by the Company, has the right, under certain circumstances, to
require that the Board of Directors appoint, to the extent permitted by law,
one of two named individuals (Jim Walker and Steve Deckoff) to the Board of
Directors and, in any subsequent election, to require the Company to nominate
such appointee for a seat on the Board of Directors. This right is
exercisable so long as Black Diamond and certain other Note holders
collectively own at least 50% of the Notes. In June 1996 Black Diamond
exercised its right to have an observer attend meetings of the Board of
Directors, but has not exercised its right to require that the Company
nominate its appointee for election to the Board of Directors. See "Proposal 2
- - Ratification and Approval of Purchase Agreement and Indenture, as Amended,
Relating to Up to $10,000,000 in Principal Amount of 12% Convertible
Subordinated Senior Notes."
DIRECTOR NOMINEES AND EXECUTIVE OFFICERS
The executive officers and director nominees of the Company are as
follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Name Age Position
- ------------------ --- ---------------------------------------
Morris Ginsburg 65 Chairman of the Board, President, Chief
Executive Officer and Director
Irwin L. Sandler 50 Executive Vice President,
Secretary/Treasurer and Director
Craig L. Caukin 41 Executive Vice President and Director
Brian M. O'Meara 47 Director
David M. Ickovic 48 Director
Jerry L. Kelley 51 Senior Vice President,
Chief Operating Officer
Michael Feinstein 60 Senior Vice President,
Chief Financial Officer
Thurman Blizzard 54 Vice President
Robert Rolfson 44 Vice President
Mark Gengozian 42 Vice President
Stephen J. Kay 53 Vice President
<FN>
</TABLE>
There are no family relationships among any of the executive officers or
directors of the Company.
Morris Ginsburg - Mr. Ginsburg has been Chairman of the Board, President
and Chief Executive Officer of the Company since June 1, 1988. From 1955 to
1979, Mr. Ginsburg was Chairman of the Board, President, Chief Executive
Officer and owner of Bluhill American, a producer of condiments for the food
service industry. Mr. Ginsburg sold Bluhill to the Kellogg Company in 1979
and served as a director of Fearn International, a division of Kellogg, from
1979 through 1983. In 1983, Mr. Ginsburg repurchased Bluhill from Kellogg and
shortly thereafter resold it to Dean Foods. In 1981, Mr. Ginsburg formed
Container Industries, Inc., a food container company in Denver, Colorado for
which he serves as Chairman of the Board. Since 1984, Mr. Ginsburg has been
President, Chief Executive Officer and owner of Ginsburg Investments, an asset
lending company.
- -3-
<PAGE>
Irwin L. Sandler - Mr. Sandler has been Executive Vice President of the
Company since April 1, 1993 and Senior Vice President, Secretary, Treasurer
and a Director of the Company since June 1, 1988. Since 1972, Mr. Sandler has
been in the private practice of law in Denver, Colorado emphasizing
securities, corporate, contract and general business law. From 1982 through
1985, Mr. Sandler served as President and a Director of The Kober Corporation,
a publicly held company engaged in both oil and gas exploration and the
investment banking business. Mr. Sandler received his B.A. degree in 1967 and
Juris Doctorate degree in 1971 from the State University of New York at
Buffalo.
Brian M. O'Meara - Mr. O'Meara has served as a Director of the Company
since July 1990. Mr. O'Meara has been involved in various aspects of the
automobile business through family-owned businesses in the Denver, Colorado
area since May 1968. Since November 1979, he has served as President of
O'Meara Ford. Mr. O'Meara earned a Bachelors Degree in Business from the
University of Denver in 1971.
Craig L. Caukin - Mr. Caukin has been Executive Vice President and a
Director of the Company since April 1, 1995. Mr. Caukin's responsibilities
include risk management and the acquisition of debt and equity for the
Company. Mr. Caukin joined the Company as Vice President in January 1991 and
was promoted to the position of Senior Vice President in April 1993. From
February 1982 through December 1990, Mr. Caukin was employed at Guaranty Bank
and Trust Company in Denver where he was Senior Vice President responsible for
all lending. From November 1977 to January 1982, Mr. Caukin served as Branch
Manager/Officer of Old Kent Bank and Trust Company in Grand Rapids, Michigan.
Mr. Caukin received his B.S. degree in math and finance from Alma College,
Alma, Michigan, in 1976.
David M. Ickovic - Mr. Ickovic has been a director of the Company since
July 1996. Since 1976, Mr. Ickovic has been president of Ickovic &
Associates, P.C., Denver, Colorado, engaged in the business of accounting and
business consultation. From 1969 to 1976, Mr. Ickovic was a supervisor with
Ernst & Young. Mr. Ickovic has over 27 years of professional experience in the
provision of business and tax consulting services, including the tax
structuring of executive employment agreements, merger and acquisition
transactions, and business valuations for purposes of designing buy/sell
agreements, negotiating purchases and sales of businesses, and litigation. Mr.
Ickovic received a bachelor of science degree in accounting from Southern
Illinois University in 1969 and is licensed as a certified public accountant
with the State of Colorado. He has also received a designation as a personal
financial specialist with the American Institute of CPAs and a certified
financial planner with the International Board of Certified Financial
Planners.
Jerry L. Kelley - Mr. Kelley joined the Company in July 1993 as Vice
President. He was promoted to Senior Vice President and Chief Operating
Officer of the Company in August 1995. From December 1990 to June 1993, Mr.
Kelley served as president and CEO of Kars Yes, a subprime auto sales and
finance company in southern California. Mr. Kelley has over 28 years of
- -4-
<PAGE>
experience in both auto sales and auto financing, including ownership of
several new car dealerships in the Dallas/Fort Worth, Texas, area.
Michael Feinstein - Mr. Feinstein has been Chief Financial Officer/Senior
Vice President of the Company since July 1995. From September 1993 to June
1995, Mr. Feinstein served initially as Executive Vice President and
subsequently as acting President and Chief Executive Officer of American
Southwest Financial Corporation, a company engaged in the securitization and
administration of mortgage-backed bonds and certificates. From January 1983
through September 1993, Mr. Feinstein served in various senior management
positions, including, at different times, Chief Financial Officer, Treasurer,
Chief Operating Officer, and Executive and Senior Vice President of Asset
Investors Corporation, a New York Stock Exchange-listed REIT, and MDC Holdings
Inc., a New York Stock Exchange-listed national homebuilder. Prior to 1983,
Mr. Feinstein was a partner in the public accounting firm now known as
Deloitte & Touche. Mr. Feinstein has a B.S. degree in economics from the
Wharton School of the University of Pennsylvania.
Thurman Blizzard - Mr. Blizzard has been Vice President of the Company
since May 1994 and has responsibility for underwriting, collections and
operations. From November 1991 to May 1994, Mr. Blizzard was employed by
Resolution Trust Company in Newport Beach, California. Previously, Mr.
Blizzard was Chief Credit Officer/Senior Vice President at Far Western Bank
(March 1987 to April 1991) and Senior Vice President of Consumer Portfolio
Services (April 1991 to November 1991), both in Orange County, California.
Mr. Blizzard is a graduate of the University of Connecticut and the Graduate
School of Retail Bank Management, McIntyre School of Commerce, University of
Virginia (1986).
Robert Rolfson - Mr. Rolfson has been employed by the Company since
March 1993. He held the position of Controller of the Company until being
promoted to Vice President in charge of risk analysis and scorecard
development in March 1995. Mr. Rolfson has 23 years of corporate financial
analysis and management experience. From 1977 to 1982, Mr. Rolfson served as
secretary/treasurer and controller for Petro-Chem, an energy related company
with operations in 17 states, and, from April 1988 to March 1993, as
controller for Bianary Data Supply, a multi-state computer products
distributor which merged with Corporate Express in 1993.
Mark Gengozian - Mr. Gengozian has been Vice President, Information
Systems Director of the Company since August 1995. His previous work
experience as Vice President, MIS Director and consultant include directing
major systems conversions with Capital Associates International, Inc. (April
1990 to August 1995), USWEST Financial Services (January 1989 to April 1990),
Citicorp, N.A. (July 1987 to January 1989), Security Pacific Leasing (July
1987 to January 1989) and Great Western Financial (July 1987 to January 1989).
Mr. Gengozian's twenty-two years of experience encompass software, hardware,
communications and network expertise on most computer systems.
Stephen J. Kay - Mr. Kay has been a Vice President of the Company since
April 1996. His responsibilities include marketing, sales and establishing a
network of Company branch offices in various states. From July 1995 to April
1996, Mr. Kay was an Assistant Vice President-Director of Sales for First
- -5-
<PAGE>
Merchants Acceptance, engaged in the business of secondary finance. From
September 1994 to July 1995, he served as a manager for Transouth Financial,
also engaged in the business of secondary finance. Mr. Kay was self-employed
from April 1992 to September 1994. From February 1984 to October 1991, Mr.
Kay was a Vice President and Regional Manager of Green Tree Acceptance, a New
York Stock Exchange company. Mr. Kay has over 30 years of experience in the
direct and indirect financing fields.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 (the "Act") and the
rules thereunder require the Company's executive officers and directors, and
any persons who own more than ten percent of a registered class of the
Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC"). Officers,
directors and greater than ten-percent shareholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.
Based solely on its review of the copies of Form 3s, Form 4s and Form 5s
received by it, or written representations from a reporting person that no
Form 5 is required for that person, the Company believes that, during the last
fiscal year, all Section 16(a) filing requirements applicable to its executive
officers, directors and ten-percent or more beneficial owners, were complied
with, except Craig L. Caukin, who filed a Form 5 on March 6, 1996 relating to
his purchase of Class A Common Stock through the Company's Section 401(k) Plan
in January 1995 and a sale of Class B Warrants in December 1995 and Morris
Ginsburg who filed a Form 5 on March 6, 1996 relating to his sale of Class B
Warrants in November 1995.
BOARD MEETINGS AND COMMITTEES
During the fiscal year ended December 31, 1995, the Board of Directors
held no meetings and took action by unanimous written consent on nine
occasions. Significant matters were informally discussed among the directors
before the consents were signed. Since a consent to action does not afford the
same degree of interaction as does a formal meeting of the board of directors,
management expects that the Company in the future will take most significant
board actions at duly convened meetings rather than by unanimous written
consent.
The Board of Directors has a Stock Option Committee but does not
currently have standing audit, nominating or compensation committees. The
full Board of Directors performs the functions of the audit committee. The
Company's executive committee, which has broad powers to act on behalf of the
Company, consists of Messrs. Ginsburg and Sandler. The executive committee
meets informally on a regular basis.
STOCK OPTION COMMITTEE. The current members of the Stock Option
Committee are Brian M. O'Meara and David M. Ickovic. The Stock Option
Committee was established on June 30, 1992, and held no meetings in 1995. The
Stock Option Committee took action by unanimous written consent on one
occasion in 1995. The Stock Option Committee administers and interprets the
Company's 1992 Stock Option Plan and has authority to determine which persons
- -6-
<PAGE>
shall be granted options under the Company's 1992 Stock Option Plan and the
terms and conditions of the stock options granted.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE TO GRANT
AUTHORITY "FOR" THE PROPOSAL TO ELECT MESSRS. GINSBURG, SANDLER, O'MEARA,
CAUKIN AND ICKOVIC AS DIRECTORS OF THE COMPANY.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning cash
compensation paid to the Company's Chief Executive Officer and any other
executive officer whose total annual compensation exceeded $100,000 for the
fiscal year ended December 31, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
Securities
Other Annual Underlying
Name and Principal Position Year Salary Bonus Compensation Options (#)
- --------------------------- ---- -------- ------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Morris Ginsburg, 1995 $200,000 $37,891 $ 6,790 0
President and 1994 $200,000 $42,048 $ 9,046 0
Chief Executive Officer 1993 $172,150 $ 0 $ 0 0
Irwin L. Sandler, 1995 $150,000 $28,418 $ 9,373 0
Executive Vice President, 1994 $150,000 $29,408 $ 9,146 0
Secretary and Treasurer 1993 $120,400 $ 0 $ 0 0
Craig L. Caukin, 1995 $118,750 $18,945 $ 5,921 0
Executive Vice President 1994 $100,000 $20,761 $ 5,017 50,000(1)
1993 $ 85,000 $ 0 $ 0 0
Jerry L. Kelley, 1995 $110,000 $18,945 $ 7,104 0
Vice President and Chief 1994 $100,000 $21,983 $ 6,876 25,000(1)
Operating Officer 1993 $ 41,250 $ 0 $ 0 15,000(1)
Thurman Blizzard, 1995 $ 90,000 $ 8,444 $ 5,065 0
Vice President 1994 $ 57,938 $ 0 $ 19,842 0
<FN>
(1) Options to purchase Class A Common Stock of the Company.
</TABLE>
- -7-
<PAGE>
The Company did not grant stock options to its named executive officers
during the fiscal year ended December 31, 1995.
The following table sets forth the individual stock option exercises by
Messrs. Ginsburg, Sandler, Caukin and Kelley during the fiscal year ended
December 31, 1995, and the stock option values at the end of such fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised Options In-The-Money Options
at FY-End (#) at FY-End ($)
Shares
Acquired on Value
Name Exercise (#) Realized Exercisable Unexercisable Exercisable Unexercisable
- ---------------- ------------ -------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Morris Ginsburg 0 0 175,000 0 $ 416,625 0
Irwin L. Sandler 0 0 175,000 0 $ 416,625 0
Craig L. Caukin 0 0 100,000 0 $ 78,125 0
Jerry L. Kelley 0 0 40,000 0 $ 0 0
<FN>
</TABLE>
The Company's executive compensation is currently not affected by the
limitations on the deductibility of executive compensation amounts in excess
of $1,000,000 imposed by Section 162(m) of the Internal Revenue Code of 1986,
as amended (the "Code"). However, in the future the Company intends to take
any actions it deems necessary with respect to executive compensation in
consideration of Section 162(m) of the Code.
EMPLOYMENT AGREEMENTS
Messrs. Ginsburg and Sandler have each entered into employment agreements
("Employment Agreements") with the Company pursuant to which they received
annual compensation of $244,680 and $187,791, respectively, for the fiscal
year ended December 31, 1995, and will receive annual base salaries of
$200,000 and $150,000, respectively, for the fiscal year ending December 31,
1996 . In addition, both Mr. Ginsburg and Mr. Sandler are eligible to receive
discretionary bonuses, compensation increases, death and disability benefits,
life insurance with premiums payable by the Company, and two years' regular
salary in the event of certain business combinations or changes in control of
the Company.
A "business combination" generally means any merger or similar
transaction in which the voting power of the stockholders prior to the
transaction is diluted by more than 30%. A "change in control" generally means
the acquisition by any person (other than a stockholder existing when the
Employment Agreements were signed in 1990) of beneficial ownership of more
than 30% of the outstanding securities of the Company entitled to vote in the
election of directors. Upon a business combination or change in control, the
employee is entitled to two years' regular salary at the rate then in effect
(currently $200,000 per year with respect to Mr. Ginsburg and $150,000 per
year with respect to Mr. Sandler) unless the employee is reasonably assured of
- -8-
<PAGE>
continuation of his position, duties, salary and benefits with the Company or
any surviving entity for a period of at least two years.
The Employment Agreements had initial terms of five years commencing
December 15, 1990 and are automatically renewed for consecutive one-year terms
unless terminated by either party. The Company or the employee may terminate
an Employment Agreement for cause upon thirty (30) days' prior written notice.
Both of these individuals have agreed not to compete with the Company for a
period of two years following the termination of his relationship with the
Company under his respective Employment Agreement.
DIRECTOR COMPENSATION
Except as to Mr. Ickovic, directors are currently not paid a fee for
attending meetings of the Board of Directors. However, they are reimbursed
for actual travel and other expenses incurred in attending such meetings. The
Company may determine to pay other outside directors a fee for attending Board
meetings in the future. Messrs. Ginsburg, Sandler and O'Meara have also been
granted stock options, but no stock options were granted to these individuals
during the fiscal year ended December 31, 1995.
For his services as a director, the Company has agreed to pay Mr. Ickovic
a fee of $250 per month plus $700 per quarterly Board meeting attended by him.
In addition, as a member of the Stock Option Committee, he will be eligible
to participate in the Company's 1992 Stock Option Plan.
The Company's 1992 Stock Option Plan provides that options for the
purchase of 5,000 shares of Class A Common Stock shall be granted
automatically each year immediately following the annual meeting of the
Company's shareholders to each director who is a member of the Stock Option
Committee on such date. The options shall be fully exercisable six months
following the date of grant and shall be exercisable for ten years after the
date of grant. The exercise price of such options shall equal the closing bid
price of the stock as quoted on the Nasdaq Stock Market on the date of grant.
Options have not been issued to members of the Stock Option Committee for the
years 1993 through 1995.
- -9-
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information as of July 1, 1996, with
respect to the beneficial ownership of shares of Class A Common Stock and
Class B Common Stock of the Company by (a) each person known by the Company to
be the beneficial owner of more than five percent of the outstanding shares of
Class A and Class B Common Stock; (b) each executive officer and director; and
(c) all executive officers and directors as a group. Except as noted below,
each person has sole voting and investment power over the shares indicated:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF % OF COMMON STOCK % OF VOTING
BENEFICIAL OWNERSHIP(1) OWNERSHIP POWER
NAME AND ADDRESS
OF BENEFICIAL OWNER CLASS A CLASS B COMBINED(2) CLASS B COMBINED(3)
- -------------------------------- ---------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C>
Morris Ginsburg 177,025(4) 820,500(5) 14.0% 62.6% 25.7%
370 17th Street
Denver, CO 80202
Irwin L. Sandler 177,070(6) 490,500(5) 9.4% 37.4% 15.4%
370 17th Street
Denver, CO 80202
Craig L. Caukin 102,118(7) -- 1.4% -- *
370 17th Street
Denver, CO 80202
Brian M. O'Meara 30,000(8) -- * -- *
400 W. 104th Avenue
Denver, CO 80234
David M. Ickovic -- -- -- -- --
6025 So. Quebec St., #220
Englewood, CO 80111
Jerry L. Kelley 40,000(9) -- * -- *
370 17th Street
Denver, CO 80202
Robert Rolfson 20,000(10) -- * -- *
370 17th Street
Denver, CO 80202
Mark Gengozian -- -- -- -- --
370 17th Street
Denver, CO 80202
Michael Feinstein -- -- -- -- --
370 17th Street
Denver, CO 80202
Stephen J. Kay -- -- -- -- --
370 17th Street
Denver, CO 80202
William Harris Investors, Inc. 482,418(11) -- 6.5% -- *
William Harris & Co.
Employee Profit
Sharing Trust
Irving B. Harris
Steven A. Hirsh
Jerome Kahn, Jr.
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<PAGE>
2 North LaSalle Street
Suite 505
Chicago, IL 60602
Black Diamond Advisors, Inc. 1,709,910(12) -- 19.7% -- --
230 Park Avenue
New York, NY 10169
Heller Financial, Inc. 341,201(13) -- 4.9% -- --
500 West Monroe Street
Chicago, IL 60661
Bud Karsh -- 481,000(5) -- 36.7% --(5)
10000 E. Yale #60
Denver, CO 80231
All executive officers and 816,463 1,311,000 27.8% 100.0% 42.5%
directors as a group (6 persons)
<FN>
</TABLE>
* Represents less than one percent.
(1) Shares are considered beneficially owned, for purposes of this table,
only if held by the person indicated, or if such person, directly or
indirectly, through any contract, arrangement, understanding, relationship or
otherwise has or shares the power to vote, to direct the voting of and/or to
dispose of or to direct the disposition of, such security, or if the person
has the right to acquire beneficial ownership within 60 days, unless otherwise
indicated. All shares are owned of record unless otherwise indicated.
(2) Includes all shares of Class A Common Stock and Class B Common Stock
outstanding and assumes exercise of all outstanding options and warrants and
conversion of all outstanding debentures beneficially owned by the indicated
person.
(3) Includes all shares of Class A Common Stock and Class B Common Stock
outstanding. Each share of Class A Common Stock has one vote per share while
each share of Class B Common Stock has three votes per share. The Class B
Common Stock may be converted into Class A Common Stock on a share for share
basis at the option of the holder thereof, and shall automatically be
converted in the event of its sale or transfer (whether by sale, assignment,
gift, bequest, appointment or otherwise) or upon death of the holder.
Excluded, however, from the automatic conversion are transfers of the Class B
Common Stock for estate planning purposes to or for the benefit of the
original holder or members of his immediate family, provided that the original
holder retains both voting and investment power over the stock so transferred.
(4) Includes (a) options to purchase 50,000 shares of Class A Common Stock
at $2.125 per share, exercisable at any time until January 3, 2002 and (b)
options to purchase 125,000 shares of Class A Common Stock at $3.00 per share,
exercisable at any time prior to June 30, 2002.
(5) Messrs. Ginsburg, Sandler and Karsh entered into an Agreement Among
Certain Shareholders of Monaco Finance, Inc., dated April 9, 1992, in which
Mr. Karsh appointed Messrs. Ginsburg and Sandler as his proxy and
attorney-in-fact to each vote 50% of his Class B Common Stock. Messrs.
Ginsburg and Sandler are each deemed to beneficially own 240,500 shares of Mr.
Karsh's Class B Common Stock as to which they have voting rights pursuant to
the proxies.
(6) Includes options to purchase 50,000 shares of Class A Common Stock at
$2.125 per share, exercisable at any time until January 3, 2002, and options
to purchase 125,000 shares of Class A Common Stock at $3.00 per share,
exercisable at any time prior to June 30, 2002. Of the remaining shares
listed for Irwin L. Sandler, 2,070 shares were purchased by Mr. Sandler
through the custodial account of his Keogh Plan. Mr. Sandler may be deemed
the beneficial owner of these shares.
(7) Includes 2,118 shares of Class A Common Stock owned of record, options
to purchase 25,000 shares of Class A Common Stock at $2.125 per share any time
until January 2, 2002, options to purchase 25,000 shares of Class A Common
Stock at $3.00 per share, exercisable at any time prior to June 30, 2002 and
options to purchase 50,000 shares of Class A Common Stock at $6.125 per share
any time until June 28, 2004.
- -11-
<PAGE>
(8) Includes options to purchase up to 25,000 restricted shares of the
Company's Class A Common Stock at $3.00 per share exercisable any time until
July 9, 2000; provided, however, that Mr. O'Meara be a director of the Company
on the date of any such exercise. Also includes options to purchase 5,000
shares of Class A Common Stock at $3.00 per share exercisable at any time
prior to June 30, 2002.
(9) Consists of options to purchase 15,000 shares of Class A Common Stock
at $6.00 per share any time until July 1, 2003 and options to purchase 25,000
of Class A Common Stock at $6.125 per share any time until June 28, 2004.
(10) Consists of options to purchase 10,000 shares of Class A Common Stock at
$4.375 per share anytime until March 25, 2003 and options to purchase 10,000
shares of Class A Common Stock at $4.50 per share anytime until May 5, 2005.
(11) Represents 404,971 shares of Class A Common Stock issuable upon
conversion of the Company's 7% Convertible Subordinated Notes due March 1,
1998, at a conversion price of $3.42 per share. Of the securities
beneficially owned by the group (within the meaning of Rule 13d-5 promulgated
under the Securities Exchange Act of 1934, as amended) listed in the table,
William Harris Investors, Inc. may be deemed to beneficially own and to have
shared voting power with respect to 141,630 shares; William Harris & Co.
Employee Profit Sharing Trust may be deemed to beneficially own and to have
shared voting power with respect to 208,917 shares; Irving B. Harris may be
deemed to beneficially own and to have shared voting power with respect to
225,864 shares; Steven A. Hirsh may be deemed to beneficially own 321,490
shares, to have sole voting power with respect to 112,573 shares, and to have
shared voting power with respect to 208,917 shares; and Jerome Kahn, Jr. may
be deemed to beneficially own 143,981 shares, to have sole voting power with
respect to 19,298 shares, and to have shared voting power with respect to
124,683 shares.
(12) The information contained in the table and in this footnote is
derived from a Schedule 13D dated April 4, 1996, filed by Black Diamond
Advisors, Inc. ("BDA") and others with the Securities and Exchange Commission
with respect to the issuance by the Company on January 9, 1996, of $5 million
in principal amount of 12% Convertible Subordinated Senior Notes due 2001
("Convertible Notes"), convertible at any time into approximately 1,081,081
shares of the Company's Class A Common Stock at a conversion price of $4.625
per share. The conversion price is required to be reduced to the average
closing price of the Class A Common Stock for the five trading days after
public announcement by the Company of second quarter earnings for fiscal 1996,
but not to less than $4.00 per share. Concurrently, the Company agreed to
issue up to an additional $5 million in principal amount of Convertible Notes
(the "Additional Notes") upon terms and conditions agreed to by BDA and the
Company at any time on or before January 9, 1998. The Indenture relating to
the Notes provides that the conversion price of the Additional Notes shall be
the closing price on the trading day (as defined in the Indenture) prior to
the day the Company receives notice of exercise of the right to purchase the
additional Convertible Notes. If the Additional Notes had been issued on
April 29, 1996, the conversion price would have been $3.00 per share (the
closing price of the Class A Common Stock as of the last trading day, April
26, 1996), and the Additional Notes would have been convertible into 1,666,667
shares of Class A Common Stock (the "Additional Shares"). In the Schedule
13D, BDA claims that it is the beneficial owner of the Additional Shares. The
Company expresses no opinion with respect to this position. In addition,
certain of the purchasers of the Notes have entered into a profit-sharing
agreement with BDA. Also, BDA has the right to purchase the Notes (and in one
case the shares of Class A Common Stock issuable upon conversion of the Notes)
under certain circumstances not presently applicable.
Includes 43,243 shares of Class A Common Stock issuable upon conversion
of Convertible Notes owned of record by BDA and 1,666,667 Additional Shares
assuming all of the Additional Notes are issued and the conversion price of
the Additional Notes is $3.00 per share. Stephen H. Deckoff and James E.
Walker III each is an officer, director and 50% shareholder of BDA. Each of
Messrs. Deckoff and Walker disclaims beneficial ownership of the shares of
Class A Common Stock beneficially owned by BDA.
183,784 shares of Class A Common Stock are issuable upon conversion of
Convertible Notes owned of record by BDC Partners I, L.P. ("BDC Partners I").
Messrs. Deckoff and Walker and James J. Zenni are the only members of Black
Diamond Capital Management L.L.C. ("BDCM"), the sole general partner of BDC
Partners I. Accordingly, BDCM and each of Messrs. Deckoff, Walker and Zenni
may be deemed to the beneficial owner of all shares of Class A Common Stock
beneficially owned by BDC Partners I. Also, Messrs. Deckoff, Walker and Zenni
beneficially own an additional 54,050, 54,050 and 43,290 shares, respectively,
of Class A Common Stock.
The Company and Black Diamond have entered into a letter agreement which,
subject to shareholder approval, establishes the conversion price of the
Convertible Notes at $4.00 per share, and the initial conversion price of the
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<PAGE>
Additional Notes at $3.00 per share. If the transactions are not approved by
shareholders, then the option to purchase the Additional Notes shall be deemed
to have been exercised on June 28, 1996, at a conversion price of $2-7/16 per
share, in which event Black Diamond would be deemed to beneficially own a
maximum of 2,094,525 shares. See "Proposal 2 - Ratification and Approval of
Purchase Agreement and Indenture, as Amended, Relating to up to $10,000,000 in
Principal Amount of 12% Convertible Subordinated Senior Notes."
(13) Heller Financial, Inc. is the owner of Convertible Notes convertible
into 648,649 shares of Class A Common Stock, or approximately 8.5% of the
Company's outstanding common stock. However, pursuant to the terms of the
Indenture, if a holder of Notes is subject to federal banking regulations with
respect to the ownership of common stock, then the Notes held by such holder
are only convertible to such extent as would permit such holder to own at any
one time no more common stock of the Company than would constitute 4.9% of the
outstanding capital stock of the Company. Such restrictions do not apply to
any transferee of the holder if such transferee is not subject to such federal
banking regulations and such transfer would not otherwise cause such holder to
be otherwise in violation of federal banking regulations. Heller Financial,
Inc. has advised the Company that it is subject to such federal banking
regulations and, accordingly, may be deemed to beneficially own only up to
4.9% of the Company's Class A Common Stock.
CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
Effective March 24, 1994, the Company entered into a triple net lease
(the "Lease") with GSC Ltd. Liability Company, a Colorado limited liability
company ("GSC"), pursuant to which the Company has agreed to lease from GSC
real property in Aurora, Colorado, including two buildings located thereon
with total square footage of approximately 13,375 square feet, to be used by
the Company as an automobile dealership lot. The Lease will expire on March
23, 2001, unless sooner terminated or extended pursuant to the terms of the
Lease. In September, 1995, the Company amended the lease to include
additional property (vacant land) resulting in an increase in the base rent
payable under the Lease from $12,750 per month to $13,738 per month. The
monthly rent increases to $14,238 for year three; $15,238 for year four;
$16,238 for year five; and $16,738 for years six and seven. Messrs. Sandler,
Caukin and Ginsburg, each a director or executive officer of the Company, are
members of GSC. The Lease was approved by the disinterested members of the
Board of Directors. In the opinion of management, the terms of the Lease are
no less favorable to the Company than the terms which the Company could have
received from nonaffiliated third parties.
In February 1996, the Company announced that it intends to discontinue
its CarMart retail used car sales and associated financing operations as of
May 31, 1996. The leased facility described above may be used by the Company
for storage, repair and maintenance of repossessed vehicles.
A Buy-Sell Agreement dated May 14, 1993, by and among the Company, Morris
Ginsburg and Sandler Family Partners, Ltd. (the "Partnership"), provides that
(i) the Company has the obligation to purchase the shares of the Company's
common stock owned by Mr. Ginsburg or the Partnership upon the death of Mr.
Ginsburg or Irwin L. Sandler, General Partner of the Partnership,
respectively, to the extent of proceeds from insurance policies acquired by
the Company on their lives; (ii) the Company shall maintain insurance policies
in the amount of $2,000,000 each on the lives of Messrs. Ginsburg and Sandler
for the purpose of acquiring shares pursuant to the Buy-Sell Agreement; (iii)
the purchase price for any shares purchased shall be the greater of book value
or 80% of the average of the daily closing prices of the stock for the 30
consecutive trading days commencing 45 trading days prior to the date of death
- -13-
<PAGE>
of the insured; (iv) each of Mr. Ginsburg and the Partnership grant a first
right to the Company to acquire any shares which he or it may desire to sell
other than through Rule 144 under the Securities Act of 1933. In the event
the Company does not purchase any or all of the shares pursuant to such right,
the other shareholder has the option to acquire such shares; and (v) Messrs.
Ginsburg and Sandler appoint each other, upon the incapacity of either of
them, as their true and lawful attorney-in-fact and agent to vote the shares
of common stock of the Company owned by him or it and to exercise all rights
with respect thereto.
In an Agreement Among Certain Shareholders of Monaco Finance, Inc. dated
April 9, 1992, Milton Karsh appointed Morris Ginsburg and Irwin L. Sandler,
both of whom are officers and directors of the Company, as his proxy and
attorney-in-fact to each vote 50% of the Company's Class B Common Stock owned
by him. See "Security Ownership of Certain Beneficial Owners and Management."
A Buy-Sell Agreement dated April 30, 1991, by and among Morris Ginsburg,
Bud Karsh and Irwin L. Sandler as General Partner of Sandler Family Partners,
Ltd. (collectively, the "Shareholders" and individually, the "Shareholder"),
provides that (i) each Shareholder grants to the other Shareholders, on a pro
rata basis, a first right to acquire shares of the Company's common stock
owned by him under certain circumstances; and (ii) the Shareholders shall vote
their stock, under certain circumstances, in such a fashion and manner as to
cause each of them to hold positions as members of the Company's board of
directors. Mr. Karsh resigned from the board of directors in 1992.
PROPOSAL 2 - RATIFICATION AND APPROVAL OF
PURCHASE AGREEMENT AND INDENTURE, AS AMENDED,
RELATING TO UP TO $10,000,000 IN PRINCIPAL AMOUNT OF
12% CONVERTIBLE SUBORDINATED SENIOR NOTES
At the meeting, shareholders will be asked to ratify, confirm and approve
the sale by the Company on January 9, 1996, of $5,000,000 in principal amount
of 12% Convertible Senior Subordinated Notes due January 9, 2001 (the "Notes")
issued pursuant to a purchase agreement of the same date. The Notes are
subject to the terms of an indenture, also dated January 9, 1996, between the
Company and Norwest Bank Minnesota, N.A., as trustee (the "Indenture"). On or
about June 28, 1996, certain of the parties to the transaction entered into a
letter agreement modifying the terms of the purchase agreement and Indenture.
The modified terms will not become effective unless shareholders approve the
transactions.
Ratification of the issuance of the Notes and approval of the possible
issuance of up to $5,000,000 in principal amount of additional Notes (the
"Additional Notes") will require the affirmative vote by the holders of
a majority of the shares of common stock represented at the meeting in person
or by proxy. Messrs. Ginsburg and Sandler, who collectively have
approximately 41% of the voting power of the common stock, have agreed to cast
all of their votes in favor of this proposal.
- -14-
<PAGE>
ORIGINAL TERMS
Interest is payable monthly and the Notes are convertible, in whole or in
part and at any time and from time to time prior to maturity, into shares of
the Company's Class A Common Stock, par value $.01 per share, at a conversion
price of $4.625 per share. Proceeds from sale of the Notes were used for
general corporate purposes.
The business of the Company is capital intensive. It requires additional
funds not only to purchase Contracts from the Dealer Network, but also to
establish and maintain the additional administrative services required to
support expanding operations. Pursuant to the purchase agreement and
Indenture, the Company received $5,000,000 in convertible debt financing in
January 1996 with the possibility of an additional $5,000,000 in convertible
debt financing at a later date. In June 1996, the Company agreed to amend the
purchase agreement and Indenture for the primary purpose of fixing the
conversion rates of the Notes and any Additional Notes which may be issued. As
discussed herein, the amendment, if approved by shareholders, will have the
effect of reducing the maximum number of shares of Class A Common Stock
issuable upon conversion of all of these Notes from 3,301,282 to 2,916,667
shares. See "The June 28, 1996 Amendment."
Pursuant to the Indenture, the conversion price is adjusted under various
circumstances, including share splits and combinations and stock dividends.
In addition, the conversion price is required to be reduced if the Company
issues rights or warrants to substantially all holders of its common stock
entitling them to subscribe for or purchase shares of such common stock (or
securities convertible into or exchangeable for common stock) at a price per
share (or having a conversion or exchange price per share) less than the
greater of (i) the then conversion price or (ii) the current market price. In
such event, the conversion price is required to be adjusted by multiplying the
then conversion price times a fraction. The numerator of the fraction is the
number of shares of common stock outstanding at the close of business on the
record date, plus the number of shares of common stock issuable if the price
per share issued or issuable in the transaction had been at the then
conversion price. The denominator of the fraction is the number of shares of
common stock outstanding on the record date plus the number of additional
shares of common stock issued or issuable in accordance with the terms of the
transaction. No readjustment of the conversion price is required to be made
if the securities issued in the transaction are never exercised or converted.
At present, the Company has no intention of issuing rights or warrants to
substantially all stockholders. Accordingly, it is unlikely this conversion
price adjustment provision will become operative in the foreseeable future.
In addition, the conversion price is required to be adjusted at the close
of business on the fifth trading day after the Company publicly announces its
second quarter earnings for fiscal 1996 to the lesser of the conversion price
then in effect or the average closing price of the common stock for the five
trading days after such public announcement, but not less than $4.00 per
share. As of July 30, 1996, the closing price of the Company's
Class A Common Stock was $1-11/16 per share. It is anticipated
that earnings for the second quarter of fiscal 1996 will be publicly announced
on or before August 14, 1996. This provision will be eliminated if
shareholders approve the transactions.
- -15-
<PAGE>
To summarize, the floor conversion price of the Notes is $4.00 per
share. The only circumstances which could result in a lower conversion price
are (i) a stock split or transaction with similar effect or (ii) in the event
the Company should make a rights offering at a price below the greater of the
then current market price of the Class A Common Stock or the then conversion
price of the Notes. As stated above, the Company has no present intention of
making a rights offering. The only circumstance in which the conversion
price of the Notes (whether the initial conversion price or the conversion
price as thereafter adjusted) is required to be increased is in the event of a
share combination (i.e., a reverse stock split).
The Notes are subordinate to the Senior Debt of the Company which is
defined as the principal, interest and any other amounts due on indebtedness
which is not expressly subordinated to other indebtedness of the Company for
money borrowed or for the acquisition of any property or assets other than
inventory or other similar property acquired in the ordinary course of
business. Upon the occurrence of certain events including the dissolution,
winding up, insolvency or bankruptcy of the Company, the Senior Debt must be
paid in full before any payment may be made with respect to the Notes. As of
January 9, 1996, the date of issuance of the Notes, and June 30, 1996, the
Company had no Senior Debt. As of the date hereof, the Company has no plans
with respect to issuance of Senior Debt.
The parties to the Note purchase agreement are Black Diamond Advisors,
Inc. ("Black Diamond"), BDC Partners I, L.P., Heller Financial, Inc.,
Guarantee Title & Trust Co., and Lisa W. Zenni (collectively the "Initial
Purchasers"). See "Security Ownership of Certain Beneficial Owners and
Management" for additional information regarding beneficial ownership of the
Notes. There is no relationship between the Company and any of the Note
holders other than as described herein. In addition, the purchase agreement
provides that, so long as the Initial Purchasers, excluding Ms. Zenni, and
affiliates and principals of Black Diamond own at least 50% of the Notes, two
designated individuals (Jim Walker and Steve Deckoff, neither of whom have any
other relationship with the Company) shall have the right to attend meetings
of the Board of Directors of the Company as observers and, if requested by
Black Diamond, the Board of Directors shall appoint, to the extent permitted
by law, one of such individuals to the Board of Directors and, in any
subsequent election, shall nominate such appointee for a seat on the Board of
Directors. If either individual is unable or unwilling to serve, then Black
Diamond may appoint a successor reasonably acceptable to the Company.
The Indenture contains certain covenants of the Company designed to
protect the Note holders, including maintenance of key man insurance on the
lives of Messrs. Ginsburg and Caukin in the amount of $1 million, limitations
on the amount of Senior Debt, and compliance with financial statement ratios
and minimum equity requirements. The Company may not voluntarily prepay the
Notes in whole or in part at any time. The holders of a majority in principal
amount of the then outstanding Notes shall have the right to accelerate the
maturity thereof upon certain changes in control (an event whereby an
unrelated person or group of persons acquires a majority of the Company's
voting stock).
The Indenture contains certain covenants of the Company with respect to
financial statement ratios, including (i) the maintenance of stockholders'
equity equal to the greater of $12 million or $12,669,639 plus 65% of
consolidated net income for each year after December 31, 1993; (ii) interest
- -16-
<PAGE>
coverage (operating income divided by total interest expense) of less than 2:1
for not more than four consecutive fiscal quarters; and (iii) a ratio of
unrestricted cash to total interest expense of not less than 2:1 for any
fiscal quarter. In addition, the Company has agreed that Senior Debt will not
exceed 300% of the sum of the Notes plus subordinated debt (indebtedness of
the Company which, by its terms, is subordinated to Senior Debt) plus
stockholders' equity. On January 9, 1996, the date of issuance of the Notes,
and on June 30, 1996, the amount of subordinated debt was approximately $6.4
million and $6.4 million, respectively. Also, the Company agreed not to make
any distributions, defined as the declaration or payment of any cash
dividends, the purchase or retirement of capital stock, or any other
distributions with respect to the Company's capital stock other than stock
dividends.
On January 9, 1996, 5,667,279 shares of Class A Common Stock and
1,311,000 shares of Class B Common Stock were issued and outstanding, or an
aggregate of 6,978,279 shares of common stock. On that date, the closing
price of the Class A Common Stock was $4.625 per share. The Notes are
convertible at $4.625 per share into a maximum of 1,081,081 shares of Class A
Common Stock, or approximately 15.5% of the outstanding common stock on
January 9, 1996. If the conversion price is reduced to $4.00 per share, the
Notes will be convertible into a maximum of 1,250,000 shares of Class A Common
Stock, or approximately 17.9% of the outstanding common stock as of that date.
In addition, the purchase agreement provides that at any time on or
before January 9, 1998, at the written request of Black Diamond, the Company
will sell up to an additional $5,000,000 in principal amount of Notes (the
"Additional Notes") to Black Diamond and/or its designee(s) upon terms and
conditions agreed to by the Company and such purchaser. If agreement is
reached, holders of the Additional Notes shall be entitled to all of the
rights and benefits granted to the holders of the Notes under the purchase
agreement and Indenture. In the event the Company should grant a concession
or consideration to any holder of an Additional Note, it is obligated to grant
the same concession or condition to the holders of all Notes and Additional
Notes.
The Indenture provides that the conversion price of any Additional Notes
shall be equal to the closing price of the Class A Common Stock on the trading
day prior to the day the Company receives notice of exercise of the right to
purchase the Additional Notes. The current market price per share of the
Class A Common Stock on any date is deemed to be the average of the daily
closing prices for 30 consecutive trading days commencing 45 trading days
before the day in question.
The Company has agreed to register for public sale under the Securities
Act of 1933 the shares of Class A Common Stock issuable upon conversion of the
Notes and the Additional Notes and has filed a registration statement with the
Securities and Exchange Commission under the Securities Act of 1933 (File No.
333-4656) with respect to such shares. The registration statement and other
information concerning the Company can be inspected and copied at Room 1024 of
the Commis-sion's office at 450 Fifth Street, N.W., Washington, D.C. 20549,
and the Com-mission's Regional Offices in New York (Room 1228, 75 Park Place,
New York, New York 10007), and Chicago (Suite 1400, Northwestern Atrium
Center, 500 West Madison Street, Chicago, Illinois 60621-2511), and copies of
such material can be obtained from the Public Reference Section of the
- -17-
<PAGE>
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
THE JUNE 28, 1996, AMENDMENT
On or about June 28, 1996, the Company and Black Diamond entered into a
letter agreement conditionally amending their rights and obligations with
respect to the Purchase Agreement and Indenture dated January 9, 1996.
Subject to shareholder approval, Black Diamond and the Company agreed as
follows:
A. The conversion price of the $5,000,000 in principal amount of
Notes issued on or about January 9, 1996, shall be fixed at $4.00 per share.
B. The initial conversion price for up to $5,000,000 in principal
amount of any Additional Notes which hereafter may be issued shall be $3.00
per share.
C. The period of time during which Black Diamond may exercise the
option shall be extended to the later of the date which is 24 months after the
Company receives the requisite shareholder approval of the transactions or 24
months after the Company's registration statement relating to its shares of
Class A Common Stock issuable upon conversion of the notes becomes effective.
Presently, the expiration date of the option is January 9, 1998.
If the shareholders do not ratify, confirm and approve the transactions,
then (i) the option to purchase $5,000,000 in principal amount of Additional
Notes by Black Diamond or its designees shall be deemed to have been exercised
on June 28, 1996, and the conversion price shall be $2 7/16 per share, the
closing price of the Class A Common Stock on the preceding trading day, and
(ii) the conversion price of the Notes shall be determined as provided in the
Indenture filed as an exhibit to the Company's Form 8-K as of January 9, 1996.
However, if Black Diamond fails to actually exercise the option to purchase
the Additional Notes within 15 days of the receipt of written notice of the
disapproval by the shareholders, then the exercise of the option as of June
28, 1996, is deemed to have been revoked and the conversion price of any
Additional Notes which may be issued shall be determined as provided in the
Indenture. The Company and Black Diamond agreed to diligently and in good
faith seek shareholder approval of the transactions and to amend the notes,
Purchase Agreement and Indenture to accomplish the intent of the letter
agreement.
As of June 30, 1996, 5,640,379 shares of Class A Common Stock and
1,311,000 shares of Class B Common Stock were issued and outstanding. If the
transactions are approved by shareholders, if the option to purchase the
Additional Notes is exercised in full and if the entire $10,000,000 in
principal amount of the notes is converted into Class A Common Stock, then the
Company will be obligated to issue 2,916,667 shares of Class A Common Stock at
an average exercise price of $3.42. Such shares, if they had been issued as
of June 30, 1996, would have represented approximately 29.6% of the total
number of shares of common stock outstanding and approximately 23.4% of the
voting power of the common stock.
- -18-
<PAGE>
If the transactions are not approved by shareholders, if Black Diamond or
its designees timely exercise the option to purchase the Additional Notes as
of June 28, 1996, and if the entire $10,000,000 in principal amount of notes
is converted into Class A Common Stock, then the Company will be obligated to
issue 3,301,282 shares of Class A Common Stock at an average exercise price of
$3.03. Such shares, if they had been issued as of June 30, 1996, would have
represented approximately 32.2% of the total number of shares of common stock
outstanding and approximately 25.6% of the voting power of the common stock.
The Company funds a substantial amount of the its capital requirements
with debt financing. The advantage of debt financing is that it creates
leverage which can result in increased profitability without dilution to
shareholders. On the other hand, leverage also increases the risk of loss. The
conversion feature of the Notes and any Additional Notes which may be issued
was included to make these instruments marketable and to allow for reduction
of the Company's leverage by conversion of the debt to equity. The closing
price of the Class A Common Stock as of July 30, 1996, was $1-11/16. If the
proposal is approved by shareholders, the conversion price of the Notes will
be fixed at $4.00 per share and the conversion price of the Additional Notes,
if any , will be fixed at $3.00 per share. If the proposal is not approved by
shareholders, then, in all probability, the conversion price of the Notes will
be reduced to $4.00 per share and the conversion price of the Additional Notes
will be $2-7/16 per share. Also, if the proposal is not approved by
shareholders, then the option to purchase the Additional Notes shall be deemed
to have been exercised, which will result in an additional $5,000,000 in debt
financing for the Company. As of the date hereof, the Company does not require
additional funds. Accordingly, the Board of Directors has determined that the
terms of the transaction, initially and as proposed to be amended, are in the
best interests of and fair to current unaffiliated shareholders.
In the opinion of management, the foregoing describes the material terms
and conditions relating to the Notes and the Additional Notes, including the
Indenture, purchase agreement and Registration Rights Agreement. These
documents are exhibits to the Company's Forms 8-K as of January 9, 1996, and
June 28, 1996, filed with the Securities and Exchange Commission.
Certain financial information with respect to the Company is incorporated
herein by reference. See "Incorporation By Reference." Full conversion of all
notes would result in the Company saving $1,200,000 per year in interest
expense ($10,000,000 in principal amount of Notes and Additional Notes at the
rate of 12% per annum). The effect of any such conversion upon per share
earnings or loss is not determinable.
The Nasdaq Stock Market has advised the Company that the issuance of the
Notes and the Additional Notes is a single transaction which requires
shareholder approval and that, if shareholder approval is not obtained, the
Company's Class A Common Stock could be delisted from the Nasdaq Stock Market.
While the Company does not agree with this position, management has determined
that the Company should use all reasonable efforts to obtain shareholder
approval. In the unlikely event shareholder approval is not obtained, then
management will contest the position taken by the Nasdaq Stock Market, attempt
to renegotiate the terms relating to the Notes and/or the Additional Notes so
as to remove the transaction from the purview of the Nasdaq Stock Market
regulatory requirements, or take other action to avoid delisting of its Class
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A Common Stock. In the event of such delisting, it is expected that the Class
A Common Stock thereafter would trade on the Nasdaq Small Cap Market.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE IN FAVOR OF
RATIFYING AND APPROVING THE PURCHASE AGREEMENT AND INDENTURE, AS AMENDED.
PROPOSAL 3 - RATIFICATION OF APPOINTMENT
OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors has selected Ehrhardt Keefe Steiner & Hottman P.C.
as the Company's independent public accountants for the fiscal year ending
December 31, 1996. A representative of Ehrhardt Keefe Steiner & Hottman P.C.
will be present at the Annual Meeting. Such representative will have the
opportunity to make a statement if he desires to do so and will be available
to respond to appropriate questions. An affirmative vote by the holders of a
majority of the votes entitled to be cast at the Annual Meeting is necessary
to ratify the appointment of Ehrhardt Keefe Steiner & Hottman P.C.
There is no legal requirement for submitting this proposal to the
Shareholders. The Board of Directors, however, believes that it is of
sufficient importance to seek ratification. Whether the proposal is approved
or defeated, the Board of Directors may reconsider its appointment of Ehrhardt
Keefe Steiner & Hottman P.C.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE IN FAVOR OF
RATIFYING THE APPOINTMENT OF EHRHARDT KEEFE STEINER & HOTTMAN P.C. AS THE
COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS.
SUBMISSION OF PROPOSALS BY SHAREHOLDERS
In order to be eligible for inclusion in the Company's proxy statement
for the 1997 annual meeting of Shareholders, any proposal of a Shareholder
must be received by the Company at its principal offices in Denver, Colorado
by January 1, 1997.
PROXY SOLICITATION
In addition to soliciting Proxies by mail, directors, executive officers
and employees of the Company, without receiving additional compensation, may
solicit Proxies by telephone, by telegram or in person. Arrangements will
also be made with brokerage firms and other custodians, nominees and
fiduciaries to forward solicitation materials to the beneficial owners of
shares of the Class A Common Stock and the Company will reimburse such
brokerage firms and other custodians, nominees and fiduciaries for reasonable
out-of-pocket expenses incurred by them in connection with forwarding such
materials.
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<PAGE>
ANNUAL REPORT
The Company will, upon written request and without charge, provide to any
person solicited hereunder a copy of the Company's Annual Report on Form
10-KSB, as amended, for the year ended December 31, 1995, as filed with the
Securities and Exchange Commission on April 1, 1996. The Company will provide
copies of exhibits to the Form 10-KSB upon payment of a fee of $.03 per page,
which is management's estimate of the Company's reasonable related expenses.
Requests should be addressed to the Corporate Secretary, at the principal
executive office of the Company, 370 17th Street, Suite 5060, Denver, Colorado
80202.
OTHER BUSINESS
The Board of Directors does not know of any business to be presented for
consideration at the Annual Meeting other than that stated in the notice. It
is intended, however, that the persons authorized under the Board's proxies
may, in the absence of instructions to the contrary, vote or act in accordance
with their judgment with respect to any other proposal properly presented for
action at such meeting.
INCORPORATION BY REFERENCE
The following financial information with respect to the Company is
incorporated herein by reference from the Company's Annual Report to
Shareholders, which is being mailed to shareholders with this Proxy Statement:
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<PAGE>
Consolidated Balance Sheets as of December 31, 1994 and 1995.
Consolidated Statements of Operations, Statements of Stockholder's Equity and
Statements of Cash Flows for the fiscal years ended December 31, 1994 and
1995.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
NOTICE TO BANKS, BROKER-DEALERS AND
VOTING TRUSTEES AND THEIR NOMINEES
Please advise the Company whether other persons are the beneficial owners
of the Shares for which proxies are being solicited from you, and, if so, the
number of copies of this Proxy Statement and other soliciting materials you
wish to receive in order to supply copies to the beneficial owners of the
Shares.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE,
SHAREHOLDERS, WHETHER OR NOT THEY EXPECT TO ATTEND THE ANNUAL MEETING IN
PERSON, ARE REQUESTED TO COMPLETE, DATE AND SIGN THE ENCLOSED FORM OF PROXY
AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED FOR THAT PURPOSE. BY
RETURNING YOUR PROXY PROMPTLY YOU CAN HELP THE COMPANY AVOID THE EXPENSE OF
FOLLOW-UP MAILINGS TO ENSURE A QUORUM SO THAT THE ANNUAL MEETING CAN BE HELD.
SHAREHOLDERS WHO ATTEND THE ANNUAL MEETING MAY REVOKE A PRIOR PROXY IN PERSON
AS SET FORTH IN THIS PROXY STATEMENT.
BY ORDER OF THE BOARD OF DIRECTORS
Irwin L. Sandler, Secretary
Denver, Colorado
, 1996
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<PAGE>
PROXY
MONACO FINANCE, INC.
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF
MONACO FINANCE, INC.
The undersigned hereby appoints Morris Ginsburg and Irwin L. Sandler, and
each of them, as proxies for the undersigned, each with full power of
appointment and substitution, and hereby authorizes them to represent and to
vote, as designated below, all shares of the $0.01 par value Class A Common
Stock of Monaco Finance, Inc. (the "Company") which the undersigned is
entitled to vote at the Annual Meeting of Shareholders of the Company to be
held on September 10, 1996 (the "Meeting"), or at any postponements,
continuations or adjournments thereof.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned. If no direction is made, this proxy will be voted
(i) FOR the election of Messrs. Ginsburg, Sandler, O'Meara, Caukin and
Ickovic to the Board of Directors of the Company, (ii) FOR the proposal to
ratify, confirm and approve the Purchase Agreement and Indenture, as amended,
relating to up to $10,000,000 in principal amount of 12% Convertible Senior
Subordinated Notes due 2001, (iii) FOR the proposal to ratify the Board of
Directors' appointment of Ehrhardt Keefe Steiner & Hottman P.C. as the
Company's independent public accountants for the fiscal year ending December
31, 1996, and (iv) on such other matters as may properly come before the
Meeting.
1. Election of Directors
FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the to vote for all nominees
contrary below) listed below
Morris Ginsburg Irwin L. Sandler
Brian M. O'Meara David M. Ickovic
Craig L. Caukin
(Instruction: To withhold authority to vote for any individual nominee
write that nominee's name on the space provided below.)
2. Proposal to consider, ratify, confirm and approve the Purchase
Agreement and Indenture, as amended, relating to up to $10,000,000 in
principal amount of 12% Convertible Senior Subordinated Notes due 2001
("Notes") .
FOR AGAINST ABSTAIN
3. Proposal to ratify the Board of Directors' appointment of Ehrhardt
Keefe Steiner & Hottman P.C. to serve as the Company's independent public
accountants for the fiscal year ending December 31, 1996.
FOR AGAINST ABSTAIN
4. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting or at any postponements,
continuations or adjournments thereof.
Please sign exactly as your name appears hereon. If a corporation,
please sign in full corporate name by president or other authorized officer.
If a partnership, please sign partnership name by authorized person. When
signing as trustee, please give full title as such.
Dated , 1996
Authorized Signature
Title
Please mark boxes /X/ in ink. Sign, date and return this Proxy Card promptly
using the enclosed envelope.
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