U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
(Mark One)
X ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
- -- OF 1934.
For the fiscal year ended DECEMBER 31, 1998
___ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from _____________________
to _____________________
Commission file number 0-18819
MONACO FINANCE, INC.
--------------------
(Name of small business issuer in its charter)
Colorado 84-1088131
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(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
370 17th Street, Suite 5060
Denver, Colorado 80202
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (303) 592-9411
SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
---------------------- ----------------------------
None
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- ----------------------------------------------------
- ----------------------------------------------------
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SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT:
Class A Common Stock, $.01 Par Value
------------------------------------------------
Title of Class
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
[X] Yes [ ] No
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $20,829,747.
State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was sold, or the average bid and asked price of such common
equity, as of a specified date within the past 60 days:
As of March 30, 1999: Approximately $243,000.
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of March 30, 1999, there
were 2,554,559 shares of Class A Common Stock, $.01 par value, and 254,743
shares of Class B Common Stock, $.01 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Transitional Small Business Disclosure Format: [ ] Yes [X]
No
Total number of pages: 16
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH THE SECTION 16(A) OF THE EXCHANGE ACT.
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --------------- ---- -----------------------------
<S> <C> <C>
Morris Ginsburg 68 Chairman of the Board,
President and Director
Irwin L. Sandler 53 Executive Vice President,
Secretary/Treasurer and Director
Bill C. Bradley 67 Director
Bobby L. Hashaway 44 Director
Joseph A. Cutrona 51 Director
William P. Clark, Jr. 63 Director
Leonard M. Snyder 51 Director
Vann R. Martin 44 Senior Vice President
<FN>
</TABLE>
There are no family relationships among any of the executive officers or
directors of the Company. Pursuant to the Option Agreement (see "Item 12.
Certain Relationships and Related Transactions"), (i) Consumer Finance
Holdings, Inc. ("CFH"), a wholly-owned subsidiary of Pacific USA Holdings
Corp. ("Pacific USA"), agreed to vote or cause to be voted certain shares of
the Company's capital stock, including the Option Shares (as defined in the
Option Agreement), to maintain Messrs. Ginsburg and Sandler as directors of
the Company, and (ii) Messrs. Ginsburg and Sandler agreed to use their best
efforts to provide CFH with the right to designate four directors to the
Company's board or such larger number as shall then be sufficient to provide
CFH with effective control of the board. In addition, so long as not less than
1,500,000 shares of Preferred Stock are issued and outstanding, holders of the
Preferred Stock have the right to elect one director of the Company. As of the
date hereof, the board consists of seven members, three of which have been
appointed by CFH (Messrs. Bradley, Hashaway and Cutrona). Mr. Clark has been
appointed by First CF Corp., an indirect wholly-owned subsidiary of Pacific
USA and the record owner of all of the Preferred Stock.
Morris Ginsburg - Mr. Ginsburg, a co-founder of the Company, has been
Chairman of the Board, and President 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.
Irwin L. Sandler - Mr. Sandler, a co-founder of the Company, 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 a publicly held company engaged in both oil and gas exploration
and the investment banking business.
Bill C. Bradley - Mr. Bradley has been a Director of the Company since
April 1998. He has been the chief executive officer and a director of Pacific
USA Holdings Corp. since 1991 and is responsible for developing its investment
and operating strategies and plans. From 1968 to 1991 he was a partner of KPMG
Peat Marwick where he served on its board of directors. From 1980 to 1991 he
was responsible for its management consulting practice in the southwest region
of the United States.
Bobby L. Hashaway - Mr. Hashaway has been a Director of the Company since
April 1998. Since 1992, he has been the executive vice president and chief
financial officer of Pacific Southwest Bank. From 1975 to 1992, he was
associated with Bank One, Texas, N.A., Dallas, Texas, with the final position
held being that of senior vice president - corporate planning. Mr. Hashaway is
a certified public accountant.
Joseph A. Cutrona - Mr. Cutrona has been a Director of the Company since
June 1998. From June 1998 to February 11, 1999, he was Chief Executive
Officer and acting Chief Financial Officer of the Company. From 1998 to the
present, he has been Executive Vice President of Pacific USA Holdings Corp.
From 1995 to 1998, he was Executive Vice President and Chief Financial Officer
of NationsCredit Corporation, the diversified finance company of NationsBank.
Prior to his retirement in 1992, he held numerous senior executive positions
from 1971 with Associates First Capital Corporation, a leading diversified
finance company, the last position being that of Executive Vice President and
Director of Associates Financial Services Company, Inc. and
President-Centralized Operations of The Associates.
William P. Clark, Jr. - Mr. Clark has been a Director of the Company
since April 1998 and has been a director of Pacific Southwest Bank since 1993.
Since 1974, he has been the president, chief executive officer, a director and
a majority shareholder of Lockhart Motor Company, which owns and operates a
Ford-Lincoln-Mercury dealership in Lockhart, Texas. In 1992 and 1993 he served
on the board of directors of the Texas Automobile Dealers Association. From
1969 to 1989 he served on the board of directors of Lockhart State Bank. Mr.
Clark is active in numerous civic and community service associations.
Leonard M. Snyder - Mr. Snyder has been a Director of the Company since
April 1998. Since 1995, Mr. Snyder has engaged in marketing, management and
financial consulting. From 1987 to October 1994, he was chairman of the board
and chief executive officer of Lamonts Apparel, Inc., a public company engaged
in the chain store apparel business. In January 1995, Lamonts filed a
voluntary petition under Chapter 11 of the Bankruptcy Code and its plan of
reorganization became effective in January 1998. Since April 1998, Mr. Snyder
has been a director of One Price Clothing Stores, Inc., a public company
engaged in the women's retail clothing business. From 1979 to 1987 he was
employed by Allied Stores Corporation, a department store chain. The final
position he held with Allied was that of corporate vice president and
executive group manager for all Midwestern United States stores.
Vann R. Martin - Mr. Martin has been Senior Vice President of the Company
since February 1998. From August 1997 to February 1998, he served as Executive
Vice President of Marketing and Operations for Search Financial Services, Inc.
From 1984 to February 1998, he was involved with a program which provided
automobile financing for marginal risk customers. From 1984 through 1993, the
program was owned and operated by First Jackson Savings Bank of Jackson,
Mississippi, where the last position held by Mr. Martin was Senior Vice
President. In 1993, the program was purchased by MS Financial, of which Mr.
Martin became President and Chief Operating Officer. In July 1997, that
company was acquired by Search Financial Services, Inc. From 1978 through
1994, Mr. Martin served in various financial and credit management positions
with Capital Bank of Louisiana and Ford Motor Credit Company.
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 Forms 3, Forms 4 and Forms 5
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.
BOARD MEETINGS AND COMMITTEES
During the fiscal year ended December 31, 1998, the Board of Directors
held five meetings and took action by unanimous written consent on 18
occasions. Significant matters were informally discussed among the directors
before the consents were signed. During 1998, no incumbent director attended
fewer than 75% of the aggregate of the total number of board meetings held
while he was a director and the total number of committee meetings of which he
was a member.
The Board of Directors has appointed a Stock Option Committee, an Audit
Committee, and a Compensation Committee, but does not currently have a
standing nominating committee. The Company's executive committee, which has
broad powers to act on behalf of the Company, consists of Messrs. Ginsburg,
Bradley, Hashaway and Cutrona. The executive committee meets informally on a
regular basis as well as formally on an intermittent basis.
The current members of the Stock Option Committee are Leonard M. Snyder
and William P. Clark, Jr. The Stock Option Committee was established on June
30, 1992, and held no meetings in 1998. However, it took action by unanimous
written consent on two occasions in 1998. The Stock Option Committee
administers and interprets the Company's 1992 Stock Option Plan and has
authority to determine which persons shall be granted options under the
Company's 1992 Stock Option Plan and the terms and conditions of the stock
options granted.
The Audit Committee was established as of June 30, 1998, and held two
meetings in 1998. The current members of the Audit Committee are Leonard M.
Snyder, Bobby L. Hashaway and William P. Clark, Jr. Previously, the full
Board of Directors performed the functions of an audit committee.
The Company also established a Compensation Committee as of June 30,
1998, whose members consist of William P. Clark, Jr. and Leonard M. Snyder.
The Compensation Committee held one meeting in 1998.
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth certain information concerning cash
compensation paid to the Company's Chief Executive Officer and the four
additional highest paid executive officers whose total annual compensation
exceeded $100,000 for the fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
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>
JOSEPH A. CUTRONA(1)
Chief Executive Officer 1998 - (1) - (1) - (1) - (1)
MORRIS GINSBURG 1998 $312,500 $ 0 $ 7,201 0
President 1997 $208,086 $ 6,317 $ 8,104 22,500(2)
1996 $200,000 $37,891 $ 8,750 10,000(2)
IRWIN L. SANDLER
Executive Vice President,
Secretary and Treasurer 1998 $292,500 $ 0 $ 8,401 0
1997 $160,330 $ 4,737 $ 10,134 22,500(2)
1996 $150,000 $27,410 $ 10,632 10,000(2)
VANN R. MARTIN
Senior Vice President 1998 $121,447 $ 0 $ 19,639 0
MARK GENGOZIAN(3)
Vice President 1998 $128,292 $ 0 $ 4,400 0
1997 $105,500 $ 1,222 $ 2,000 16,000(2)
1996 $ 96,875 $ 9,045 $ 0 3,000(2)
<FN>
_____________________
(1) Mr. Cutrona resigned as an officer of the Company subsequent to
December 31, 1998. His compensation as an officer of the Company was paid by Pacific
USA Holdings Corp. in his capacity as Executive Vice President of Pacific.
(2) Options to purchase Class A Common Stock of the Company.
(3) Mr. Gengozian resigned as an officer of the Company in November 1998.
</TABLE>
The Company did not grant stock options to its named executive officers
during the fiscal year ended December 31, 1998.
The following table sets forth the individual stock option exercises by
the named executive officers in and during the fiscal year ended December 31,
1998, and the stock option values at the end of such fiscal year.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR END OPTION VALUES
SHARES NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-
ACQUIRED ON VALUE OPTIONS AT FY-END (#) MONEY OPTIONS AT FY-END ($)
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE
<S> <C> <C> <C> <C> <C>
- ---------------- ---------------------- ---------------------- ----------- ------------- --------------------------
Morris Ginsburg 0 $ 0 67,500 0 $ 0
Irwin L. Sandler 0 $ 0 67,500 0 $ 0
Mark Gengozian 0 $ 0 14,980 4,000 $ 0
VALUE OF UNEXERCISED IN-THE-
MONEY OPTIONS AT FY-END ($)
NAME UNEXERCISABLE
<S> <C>
- ---------------- -------------------------
Morris Ginsburg $ 0
Irwin L. Sandler $ 0
Mark Gengozian $ 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
On December 4, 1997, the Company entered into Executive Employment
Agreements with Messrs. Ginsburg and Sandler (the "Executives") whereby Mr.
Ginsburg is employed as president and chairman of the board and Mr. Sandler is
employed as executive vice president. He also presently serves as corporate
secretary and treasurer. The employment agreements each have a term of three
years, beginning December 4, 1997. The employment agreements provide for
annual base salaries for Messrs. Ginsburg and Sandler of $310,000 and
$290,000, respectively, and the same fringe benefits as are provided to other
executive level employees from time to time. Benefits include, without
limitation, the right to participate in stock option grants.
The employment agreements contain confidentiality, non-competition and
non-solicitation covenants by the Executives which apply for a period of two
years following expiration of the Executive's employment for any reason other
than death. As consideration for these covenants, the Company agreed to pay
each Executive the sum of $300,000 in two equal installments without interest,
with the first installment due on the first anniversary date of the
commencement of the two-year period and the second installment due on the
second anniversary date thereof.
DIRECTOR COMPENSATION
Directors are currently not paid fees for attending meetings of the Board
of Directors or committees thereof. However, they are reimbursed for actual
travel and other expenses incurred in attending such meetings. On June 30,
1998, the Board of Directors adopted guidelines for the compensation of
outside directors. Outside directors are those directors who are not directors
and/or officers of either the Company or Pacific USA Holdings Corp. Outside
directors are entitled to the following compensation: (i) an annual cash
retainer in the amount of $15,000 to be paid quarterly on July 1, October 1,
January 1 and April 1 of each year; (ii) $1,000 for attendance at each board
and committee meeting in the amount of $1,000 per meeting, except with regard
to committee meetings which are held contemporaneously or on the same day as a
board meeting for which no additional compensation will be paid; (iii) an
initial stock grant of 2,000 shares of the Company's common stock and an
additional 1,000 shares of the Company's common stock to be granted annually;
and (iv) reimbursement for all reasonable expenses in connection with serving
as a member of the Board of Directors.
As members of the Stock Option Committee, Messrs. Snyder and Clark 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
1,000 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.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information as of April 15, 1999, 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. All of the transactions
described herein have been adjusted to take into
account the one-for-five reverse split of the Company's Class A and Class B
Common Stock effected in November 1998. Except as noted below,
each person has sole voting and investment power over the shares indicated:
<TABLE>
<CAPTION>
% OF
NAME AND ADDRESS % OF COMMON STOCK VOTING
OF BENEFICIAL OWNER AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP(1) OWNERSHIP(2) POWER
- ---------------------------------------- ----------------------- ------------------ --------------------------- -------
CLASS A CLASS B CLASS A CLASS B CLASS A
----------------------- ------------------ ------------------ -------- --------
<S> <C> <C> <C> <C> <C>
MORRIS GINSBURG
370 17th Street
Denver, CO
80202 184,040(4) 116,000(5) 6.7% 45.5% *
IRWIN L. SANDLER
370 17th Street
Denver, CO
80202 117,914(7) 50,000(5) 4.4% 19.6% *
BILL C. BRADLEY
2740 N. Dallas Pkwy, #200
Plano, TX
75093-4705 2,712,100(8) 254,743(8) 70.2% 100.0% 54.9%
JOSEPH A. CUTRONA
2740 N. Dallas Pkwy., #200
Plano, TX
75093-4705 - - - - -
BOBBY L. HASHAWAY
18524 Bay Pines Lane
Dallas, TX
75287 1,104,725(9) - 31.6% - 6.4%
WILLIAM P. CLARK, JR.
P.O. Box 208
Lockhart, TX
78644 1,110,725(10) - 31.6% - 6.4%
LEONARD M. SNYDER
6260 N. Desert Moon Loop
Tucson, AZ
85750 4,000(13) - * - *
VANN R. MARTIN
370 17th Street
Denver, CO
80202 2,000 - * - *
MARK GENGOZIAN
370 17th Street
Denver, CO
80202 15,000(11) - * - *
PACIFIC USA HOLDINGS CORP.
PACIFIC ELECTRIC WIRE & CABLE CO., LTD.
CONSUMER FINANCE HOLDINGS, INC.
5999 Summerside Drive, #106
Dallas, TX
75252 2,712,100(12) 254,743(12) 70.2% 100.0% 54.9%
BUD KARSH
10000 E. Yale #60
Denver, CO
80231 - 88,743(5) -(5) 34.9%(6) -
ALL EXECUTIVE OFFICERS
AND DIRECTORS AS A GROUP
(11 persons) 2,869,073 254,743 71.5% 100.0% 55.1%
% OF VOTING POWER
NAME AND ADDRESS ---------------------
OF BENEFICIAL OWNER CLASS B COMBINED(3)
- ---------------------------------------- -------- -----------
<S> <C> <C>
MORRIS GINSBURG
370 17th Street
Denver, CO
80202 - *(6)
IRWIN L. SANDLER
370 17th Street
Denver, CO
80202 - *(6)
BILL C. BRADLEY
2740 N. Dallas Pkwy, #200
Plano, TX
75093-4705 100.0% 65.3%
JOSEPH A. CUTRONA
2740 N. Dallas Pkwy., #200
Plano, TX
75093-4705 - -
BOBBY L. HASHAWAY
18524 Bay Pines Lane
Dallas, TX
75287 - 4.9%
WILLIAM P. CLARK, JR.
P.O. Box 208
Lockhart, TX
78644 - 4.9%
LEONARD M. SNYDER
6260 N. Desert Moon Loop
Tucson, AZ
85750 - *
VANN R. MARTIN
370 17th Street
Denver, CO
80202 - *
MARK GENGOZIAN
370 17th Street
Denver, CO
80202 - *
PACIFIC USA HOLDINGS CORP.
PACIFIC ELECTRIC WIRE & CABLE CO., LTD.
CONSUMER FINANCE HOLDINGS, INC.
5999 Summerside Drive, #106
Dallas, TX
75252 100.0% 65.3%
BUD KARSH
10000 E. Yale #60
Denver, CO
80231 - -(5)
ALL EXECUTIVE OFFICERS
AND DIRECTORS AS A GROUP
(11 persons) 100.0% 65.5%
<FN>
* 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 options to purchase 10,000 shares of Class A Common Stock at $10.625 per share, exercisable at any time
until January 3, 2002; options to purchase 25,000 shares of Class A Common Stock at $15.00 per share, exercisable at any time
prior to June 30, 2002; options to purchase 10,000 shares of Class A Common Stock at $9.375 per share exercisable at any time
prior to July 29, 2006; options to purchase 22,500 shares of Class A Common Stock at $2.655 per share exercisable at any time
prior to August 25, 2007; and 116,000 shares of Class A Common Stock issuable upon conversion of the same number of shares of
Class B Common Stock. Excludes 1,500 shares of Class A Common Stock owned by the spouse of Mr. Ginsburg as to which he
disclaims beneficial ownership.
(5) Messrs. Ginsburg, Sandler (through a family partnership of which he is sole general partner) and Karsh own
116,000, 50,000 and 88,743 shares, respectively, of Class B Common Stock. Messrs. Ginsburg and Sandler have granted an option
to Consumer Finance Holdings, Inc. ("CFH") to purchase all of their shares of Class B Common Stock exercisable until December
4, 2000.
(6) 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. On December 4, 1997, Messrs. Ginsburg and Sandler transferred their voting rights
with respect to these shares to Pacific USA, which, since it has sole voting power over those shares, may be deemed to be the
beneficial owner thereof. Mr. Karsh also may be deemed to be the beneficial owner of these shares since he retains sole
dispositive power with respect thereto.
(7) Includes options to purchase 10,000 shares of Class A Common Stock at $10.625 per share, exercisable at any time
until January 3, 2002; options to purchase 25,000 shares of Class A Common Stock at $15.00 per share, exercisable at any time
prior to June 30, 2002; options to purchase 10,000 shares of Class A Common Stock at $9.375 per share, exercisable at any
time prior to July 29, 2006; options to purchase 22,500 shares of Class A Common Stock at $2.655 per share exercisable at any
time prior to August 25, 2007; and 50,000 shares of Class A Common Stock issuable upon conversion of the same number of
shares of Class B Common Stock. Of the remaining shares listed for Irwin L. Sandler, 414 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.
(8) Mr. Bradley is a director of Pacific USA. Includes the following shares: 1,239,632 shares of Class A Common
Stock owned of record by CFH; 162,231 shares of Class A Common Stock owned of record by First CF Corp.; 235,626 shares of
Class A Common Stock issuable upon full conversion of the Preferred Stock owned by First CF Corp.; 113,000 shares of Class A
Common Stock issuable upon full exercise of a promissory note due December 31, 1998, in the principal amount of $536,750 held
by Pacific USA; and 254,743 shares of Class B Common Stock as to which CFH has sole voting power. CFH also owns an option to
purchase the 166,000 shares of Class B Common Stock owned by Messrs. Ginsburg and Sandler exercisable until December 4, 2000.
Mr. Bradley disclaims beneficial ownership of all such shares.
(9) Mr. Hashaway is a director of First CF Corp. Includes 162,231 shares of Class A Common Stock and 235,626 shares
of Class A Common Stock issuable upon full conversion of the Preferred Stock owned by that company. Mr. Hashaway disclaims
beneficial ownership of all such shares.
(10) Mr. Clark is a director of Pacific Southwest Bank. Includes 162,231 shares of Class A Common Stock and 235,626
shares of Class A Common Stock issuable upon full conversion of the Preferred Stock owned by First CF Corp., a wholly-owned
subsidiary of that bank. Mr. Clark disclaims beneficial ownership of all such shares. Also includes 3,000 shares issued to
Mr. Clark as an outside director of the Company and 1,000 shares underlying stock options issued to Mr. Clark as a member of
the Company's stock option committee.
(11) Includes options to purchase 3,000 shares of Class A Common Stock at $9.375 per share any time prior to July
29, 2006; and options to purchase 11,980 shares of Class A Common Stock at $2.655 per share exercisable at any time prior to
August 25, 2007.
(12) Except as stated below, the information contained in the table, in this footnote and elsewhere herein is
derived from a Schedule 13D dated March 16, 1998, filed by Pacific USA, Pacific Electric Wire & Cable Co., Ltd. ("Pacific
Electric") and CFH with the Securities and Exchange Commission. Pacific USA is a wholly-owned subsidiary of Pacific Electric.
CFH and First CF Corp. are direct and indirect wholly-owned subsidiaries of Pacific USA. Accordingly, Pacific Electric and
Pacific USA may be deemed to be the beneficial owners of all of the shares referred to in Note (8) above. On September 1,
1998, effective as of July 1, 1998, Pacific USA converted $4,463,250 in principal amount of a $5,000,000 loan into 939,632
shares of Class A Common Stock at a conversion price of $4.75 per share. The conversion price is the book value per share of
the Company's issued and outstanding Common Stock as of June 30, 1998. The closing price of the Class A Common Stock on the
Nasdaq Stock Market was $.50 ($2.50 post-split) per share on June 30, 1998, and $.38 ($1.90 post-split) per share on
September 1, 1998.
(13) Includes 3,000 shares issued to Mr. Snyder as an outside director of the Company and 1,000 shares underlying stock
options issued to Mr. Snyder as a member of the Company's stock option committee.
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
All of the transactions described herein have been adjusted to take into
account the one-for-five reverse split of the Company's Class A and Class B
Common Stock effected in November 1998.
PACIFIC USA TRANSACTIONS
VOTING CONTROL. On November 12, 1998, the shareholders of the Company
approved a reverse split of the Company's Class A and Class B Common Stock on
the basis of one share for each five shares issued and outstanding. On
November 19, 1998, the Company's Board of Directors reviewed and approved the
split to be effective at the open of trading on the Nasdaq Stock Market on
Monday, November 23, 1998. As of April 15, 1999, Pacific USA Holdings Corp.
("Pacific USA") had direct and indirect voting power over approximately 54.9%
of the outstanding shares of Class A Common Stock, 100% of the outstanding
shares of Class B Common Stock, approximately 65.3% of the total combined
voting power of the outstanding shares of Common Stock and 100% of the
outstanding shares of both classes of Preferred Stock.
OPTION AGREEMENT. On or about December 4, 1997 (the "Effective Date"),
(Consumer Finance Holdings, Inc. ("CFH"), a wholly-owned subsidiary of Pacific
USA, and Morris Ginsburg, Sandler Family Partners, Ltd., and Irwin L. Sandler
(collectively the "Shareholders") entered into an Option Agreement. Pursuant
to the Option Agreement, the Shareholders granted a three-year option to CFH
(the "Call Option") to purchase all, but not less than all, of the 166,000
shares of Class B Common Stock owned by the Shareholders (the "Option Shares")
at a purchase price of $20.00 per share. Concurrently, CFH granted to each
Shareholder an option (the "Put Option") to sell that portion of the Option
Shares held by each Shareholder at a price of $20.00 per share. The Put Option
is exercisable with respect to 50% of the Option Shares during the 30-day
period following the second anniversary of the Effective Date and 50% during
the 30-day period following the third anniversary of the Effective Date. In
the event that CFH or any of its affiliates exercises the Call Option, and
within 180 days after closing thereof, sells or agrees to sell any portion of
the Option Shares to a person who is not an affiliate of CFH for a price
greater than $20.00 per share, the seller shall be obligated to pay the
Shareholders 50% of such excess. The Shareholders agreed not to pledge, sell
or otherwise transfer the Option Shares at any time during the term of the
Call Option except to the extent of exercise of the Put Option. The obligation
of CFH under the Put Option is secured by funds in a segregated bank account.
Pursuant to the Option Agreement, each Shareholder granted CFH the right
to vote all Option Shares and to direct the exercise of all consensual or
other voting rights with respect to any additional shares of the Company's
capital stock as to which any Shareholder holds a proxy granted by a third
party, subject to any fiduciary duty owed to the grantor of any such proxy.
The Shareholders retain all other incidents of ownership with respect to the
Option Shares, including, but not limited to, the right to receive dividends.
The Option Agreement further provides that CFH shall vote or cause to be
voted shares of the Company's capital stock, including the Option Shares, to
maintain Messrs. Ginsburg and Sandler as directors of the Company. The
Shareholders agreed to use their best efforts to provide CFH with the right to
designate four directors to the Company's board or such larger number as shall
then be sufficient to provide CFH with effective control of the board.
Concurrently with execution of the Option Agreement, Messrs. Ginsburg and
Sandler entered into Executive Employment Agreements with the Company. See
"Item 10. Executive Compensation - Employment Agreements."
ASSET PURCHASE AGREEMENT. The Company entered into an Amended and
Restated Asset Purchase Agreement dated as of January 8, 1998 (the "Asset
Purchase Agreement"), with Pacific USA and certain of its wholly-owned or
partially-owned subsidiaries - Pacific Southwest Bank ("PSB"), NAFCO Holding
Company, L.L.C. ("NAFCO"), Advantage Funding Group, Inc. ("Advantage"), and
PCF Service, LLC - providing for, among other things, the purchase by the
Company of sub-prime automobile loans from NAFCO and Advantage having an
unpaid principal balance of approximately $81,115,233 for a purchase price of
$77,870,623 of which $73,003,709 was paid in cash. Financing was provided by
Daiwa Finance Corporation which also is entitled to receive warrants for the
purchase of 50,000 shares of Class A Common Stock. The Asset Purchase
Agreement amended and restated a similar agreement dated on or about September
30, 1997.
The Company's credit and risk departments screened the loans acquired
from NAFCO and Advantage. The credit department reviewed certain of the loan
files and verified, on a selected basis, information concerning the borrower,
the vehicle, as well as the contract terms. The credit department also matched
information contained in actual files with data transmitted to the Company
electronically. The function of the risk department is to use the Company's
proprietary risk analysis system to project cash flows from pools of loans to
determine estimated yield considering the purchase price, net of any discount;
coupon interest rate; estimated frequency and severity of defaults; and
estimated pre-payments. These investigations enabled the Company to establish
the terms for purchase of the contracts which management believes will satisfy
the Company's yield parameters and assisted in obtaining the financing
provided by Daiwa Finance Corporation. In addition, Daiwa performed an
independent review of the loan portfolio.
The balance of the purchase price, $4,866,914, was paid by the issuance
on or about March 9, 1998, of 2,433,457 shares of the Company's 8% Cumulative
Convertible Preferred Stock, Series 1998-1 (the "1998-1 Preferred Stock").
As required by the Asset Purchase Agreement, PSB entered into a Loan Loss
Reimbursement Agreement whereby it agreed to reimburse the Company for up to
15% of any losses incurred by the Company in connection with the loans
acquired from NAFCO and Advantage. In consideration therefore, the Company
paid PSB an amount equal to 2% of the principal amount of the acquired loans
in the form of 162,231 shares of the Company's Class A Common Stock valued at
$10.00 per share.
Also, the Company may be obligated to make additional payments to NAFCO
based on the performance of certain other assets acquired from NAFCO and the
results of operations, if any, with loan originators previously associated
with NAFCO. If there are any pre-tax earnings associated with these assets
and/or operations for calendar years 1998 and 1999, the Company is obligated
to pay NAFCO amounts equal to two times such pre-tax earnings in the form of
shares of the Company's Class A Common Stock valued at the average daily
closing price of such stock on the Nasdaq Stock Market for the last ten days
of such calendar year. The number of shares of Class A Common Stock which the
Company may be required to issue to NAFCO pursuant to these agreements cannot
be determined at present.
1998-1 PREFERRED STOCK. Following approval at a special meeting of
shareholders of the Company held March 4, 1998, and pursuant to the terms of
the Asset Purchase Agreement, 2,433,457 shares of the Company's 1998-1
Preferred Stock valued at $2.00 per share and 162,231 shares of the Company's
Class A Common Stock, valued at $10.00 per share, were issued to affiliates of
Pacific USA. Each ten shares of 1998-1 Preferred Stock was convertible at any
time into one share of Class A Common Stock ("Conversion Ratio"), or an
aggregate of up to 233,346 shares of Class A Common Stock. Thus, the effective
cost of the Class A Common Stock issuable upon conversion of the 1998-1
Preferred Stock would have been $20.00 per share. The Company may become
obligated to issue additional shares of Class A Common Stock to affiliates of
Pacific USA depending upon satisfaction of certain conditions described
herein. Upon exercise of either the Put Option or the Call Option, the shares
of Class B Common Stock purchased by CFH will automatically convert into the
same number of shares of Class A Common Stock thereby reducing the voting
power of Pacific USA with respect to the Common Stock.
In the event the closing price of the Class A Common Stock on the Nasdaq
Stock Market equaled or exceeded $30.00 per share on each trading day during
any period of 60 consecutive calendar days, all of the 1998-1 Preferred Stock
would have been automatically converted into shares of Class A Common Stock at
the Conversion Ratio. The Conversion Ratio is proportionately adjusted as
appropriate to reflect the effect of stock splits or combinations.
On November 12, 1998, the shareholders of the Company approved an
amendment to its articles of incorporation to (i) change the Conversion Ratio
of the 1998-1 Preferred Stock from one share of Class A Common Stock for each
ten shares of 1998-1 Preferred Stock that are converted to four shares of
Class A Common Stock for each ten shares of 1998-1 Preferred Stock that are
converted, and (ii) provide that the market price of the Class A Common Stock
that causes automatic conversion of the 1998-1 Preferred Stock into shares of
Class A Common Stock shall be proportionately adjusted in the event of any
issuance of Class A Common Stock as a dividend or other distribution or in the
event of a subdivision or combination of the outstanding shares of Class A
Common Stock.
So long as not less than 1,500,000 shares of 1998-1 Preferred Stock are
issued and outstanding, the holders of the 1998-1 Preferred Stock, voting
separately as a class, are entitled to elect one member of the Company's Board
of Directors. Holders of the 1998-1 Preferred Stock otherwise have no voting
rights except as may be required by the laws of the State of Colorado and
except with respect to any amendment to the Company's Articles of
Incorporation which would change any of the rights or preferences enjoyed by
such stock.
The holders of the 1998-1 Preferred Stock are entitled to receive when,
as and if declared by the Board of Directors, out of any funds of the Company
legally available for that purpose, cumulative dividends from the date of
issuance at the rate of 8% ($.16) per share of 1998-1 Preferred Stock per
year, payable quarterly in shares of the Company's 1998-1 Preferred Stock
valued at $2.00 per share (or in cash if no preferred shares are available for
that purpose). Dividends on the 1998-1 Preferred Stock are cumulative whether
or not the Company is legally able to pay such dividends in whole or in part.
No dividends (other than those payable solely in common stock) may be paid
with respect to the common stock of the Company unless all accumulated and
unpaid dividends on the 1998-1 Preferred Stock shall have been declared and
paid.
Upon liquidation, dissolution or winding up of the Company, the holders
of the 1998-1 Preferred Stock then issued and outstanding shall be entitled to
receive an amount equal to $2.00 per share of 1998-1 Preferred Stock plus any
accumulated but unpaid dividends before any payment or distribution of the
assets of the Company is made to or set apart for the holders of Common Stock.
CONVERSION AND RIGHTS AGREEMENT. On September 1, 1998, the Company
entered into a Conversion and Rights Agreement (the "Agreement") with Pacific
USA. In July 1998, Pacific USA loaned the Company the principal amount of
$5,000,000. Pursuant to the Agreement, $4,463,250 of the principal amount of
the loan was converted, effective June 30, 1998, into 939,632 shares (the
"Conversion Shares") of the Company's Class A Common Stock at a conversion
price of $4.75 per share. The conversion price was the book value per share of
the Company's issued and outstanding Common Stock as of June 30, 1998. The
closing price of the Class A Common Stock on the Nasdaq Stock Market was $.50
($2.50 post-split) per share on June 30, 1998, and $.38 ($1.90 post-split) per
share on September 1, 1998.
1999-1 PREFERRED STOCK. Effective as of November 30, 1998, Pacific USA
converted $536,750 of unsecured debt and $300,000 of secured debt into 418,375
shares of 8% Cumulative Subordinated Preferred Stock, Series 1999-1 (the
"1999-1 Preferred Stock") of Monaco Finance, Inc. (the "Company") valued at
$2.00 per share. Further, Pacific paid the Company $200,000 in cash and
Pacific and the Company entered into a Software License and Development
Agreement and a Data Licensing Agreement (the "License Agreements"). Pursuant
to the License Agreements, Monaco, as licensor, granted to Pacific, as
licensee, a perpetual, fully paid up, nontransferable, exclusive license
covering certain proprietary software and historical data developed by the
Company with respect to consumer automobile loans, including risk analysis
(the "Monaco Software"). Pacific acquired the right to make modifications,
changes or improvements to the Monaco Software (referred to as the "Advanced
Software"). Pacific has the right to exploit the Advanced Software as it
deems fit in its sole discretion. Pacific granted to the Company a fully paid
up, nontransferable, nonexclusive license limited to use of the Advanced
Software for the Company's internal business purposes only. This license will
terminate 90 days following any change in control of the Company. In addition,
Pacific has a right of first refusal to purchase the Monaco Software. The
purchase price shall be offset by the total costs Pacific actually incurred in
development of the Advanced Software.
The 1999-1 Preferred Stock is subordinate to the 8% Cumulative
Convertible Preferred Stock, Series 1998-1 (the "1998-1 Preferred Stock") with
respect to payment of dividends, redemption and upon any liquidation of the
Company. The 1999-1 Preferred Stock has no voting rights other than as
provided in the articles of incorporation or as required by law. The Company
has the right to redeem the 1999-1 Preferred Stock at any time and from time
to time, in whole or in part, for cash in the amount of $2.00 per share plus
accrued but unpaid dividends. However, the 1999-1 Preferred Stock shall not be
redeemed so long as any 1998-1 Preferred Stock is issued and outstanding.
Dividends on the 1999-1 Preferred Stock are at the annual rate of 9% ($.18 per
share) payable quarterly in shares of 1999-1 Preferred Stock. No dividends
other than those payable solely in common stock shall be paid with respect to
the common stock unless all accumulated and unpaid dividends on the 1999-1
Preferred Stock shall have been declared and paid in full.
REGISTRATION RIGHTS. The Company entered into a Registration Rights
Agreement with each of NAFCO, Advantage and PSB (the "RRA Holders") whereby
each has the right under certain circumstances to require that the Company
register the shares of Class A Common Stock ("Registrable Securities") owned
by it for public resale (a "demand" registration). In addition, if the Company
determines to proceed with the preparation and filing of a registration
statement that would permit the inclusion of the Registrable Securities, it is
obligated to give written notice thereof to each RRA Holder which has 30 days
thereafter in which to determine whether it wants all or any portion of its
Registrable Securities to be included in that registration statement (a
"piggyback" registration). Also, the Company has agreed to file a short form
registration statement on Form S-3 upon demand by an RRA Holder so long as the
reasonably anticipated aggregate price to the public would exceed $1,000,000
and the Company is entitled to use that short form registration. The RRA
Holders are entitled to an unlimited number of such registrations. The Company
is obligated to pay all expenses incurred in connection with the first demand
registration and each piggyback and Form S-3 registration excluding
underwriters' discounts and commissions. Each RRA Holder is obligated to pay
all expenses incurred in connection with its second demand registration.
The Company also agreed to make and keep public information available
within the meaning of Rule 144 under the Securities Act of 1933 and to use its
best efforts to timely file all reports required to be filed by it with the
Securities and Exchange Commission. The purpose of these covenants is to
enable the RRA Holders to sell shares of Class A Common Stock under Rule 144.
After a one-year holding period has been satisfied, that rule allows sales by
any single holder of the Company's common stock of up to 1% of the Company's
issued and outstanding Class A Common Stock during any 90-day period.
In connection with any registration of the Registrable Securities, the
Company and the selling RRA Holder have agreed to indemnify the other and the
other's affiliates for certain claims, costs and expenses with respect to such
registration. The registration rights may be transferred by each RRA Holder to
any person who acquires all its Registrable Securities or to any affiliate of
an RRA Holder.
AUTO DEALERSHIP LEASE
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 agreed to lease from GSC real
property at 890-894 S. Havana, 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 present or former 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. Effective June
1, 1996, the Company entered into a sublease agreement on the property at 890
S. Havana, Aurora, Colorado, for the entire lease term at an amount
approximately equal to the Company's obligation. Effective December 11, 1998,
all lease and sublease agreements were terminated upon sale of the property.
SHAREHOLDER AGREEMENTS
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
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 his true and lawful attorney-in-fact and agent to vote the shares of
common stock of the Company beneficially owned by him and to exercise all
rights with respect thereto. The parties to the Buy-Sell Agreement have agreed
that the purchase rights and obligations under the Option Agreement shall
supersede the purchase and right of first refusal provisions contained in the
Buy-Sell Agreement during the term of the Option Agreement described herein.
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 "Item 11. Security Ownership of Certain Beneficial Owners and
Management." Such rights have been transferred to Pacific USA subject to any
fiduciary duties owed to third parties.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
MONACO FINANCE, INC.
(Registrant)
April 30, 1999 By /s/ Morris Ginsburg
---------------------
Morris Ginsburg, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
April 30, 1999 /s/ Morris Ginsburg
---------------------
Morris Ginsburg, President,
Principal Executive, Financial and
Accounting Officer and Director
April 30, 1999 /s/ Irwin L. Sandler
-----------------------
Irwin L. Sandler
Executive Vice President,
Secretary/Treasurer and Director
April __, 1999 /s/
------------------------
Bill C. Bradley
Director
April 29, 1999 /s/ Bobby L. Hashaway
------------------------
Bobby L. Hashaway
Director
April __, 1999 /s/
------------------------
Joseph A. Cutrona
Director
April 30, 1999 /s/ William P. Clark, Jr
----------------------------
William P. Clark, Jr
Director
April 29, 1999 /s/ Leonard M. Snyder
------------------------
Leonard M. Snyder
Director
