SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| Annual Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1999
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the transition period from ______________ to ______________
Commission File Number: 0-2642
TRIDENT ROWAN GROUP, INC.
(Exact name of registrant as specified in its charter)
Maryland 52-0466460
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
299 Park Avenue
16th Floor
New York, New York 10171
(Address of principal executive offices) (Zip code)
(212) 644- 4441
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes No X
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of the Form 10-K or
any amendment to the Form 10-K. _____
As of August 7, 2001 the aggregate market value of the voting stock held by
nonaffiliates of the registrant was $2,278,176.
As of August 7, 2001, there were 4,119,900 shares of the registrant's common
stock, par value $0.01 per share, outstanding.
TRIDENT ROWAN GROUP, INC.
TABLE OF CONTENTS
Page
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PART I .................................................................. 1
ITEM 1. BUSINESS.......................................................... 19
ITEM 2. PROPERTIES........................................................ 31
ITEM 3. LEGAL PROCEEDINGS................................................. 32
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............... 34
PART II ..................................................................
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS........................................................... 36
ITEM 6. SELECTED FINANCIAL DATA........................................... 37
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS............................................. 39
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................... 50
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.............................................. 85
PART III ..................................................................
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT................ 85
ITEM 11. EXECUTIVE COMPENSATION............................................ 89
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.... 95
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................... 96
PART IV ..................................................................
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K... 100
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PART I
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain matters discussed herein are "forward-looking statements" intended to
qualify for the safe harbors from liability established by the Private
Securities Litigation Reform Act of 1995. These forward-looking statements can
generally be identified as such because they include words such as the Company
"believes," "anticipates," "expects" or "estimates" or words of similar meaning.
Similarly, statements that describe the Company's future plans, objectives,
targets or goals are also forward-looking statements. By their nature,
forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ materially from those anticipated in this report.
Certain of such risks and uncertainties are described in close proximity to such
statements or elsewhere in this report. The forward-looking statements included
herein are made only as of the date of this report, and the Company undertakes
no obligation to update publicly such forward-looking statements to reflect
subsequent events or circumstances.
ITEM 1. BUSINESS
HISTORY OF THE COMPANY
Overview
The Company's Business as of December 31, 1999
As of December 31, 1999, the Company, through intermediate subsidiaries, was the
owner of (i) Moto Guzzi Corporation ("Moto Guzzi") an Italian manufacturer of
luxury and high-performance motorcycles, and its four operating subsidiaries,
Moto Guzzi S.p.A., Moto Guzzi North America Inc, Moto Guzzi France Sarl, and MGI
GmbH, (ii) L.I.T.A., S.p.A. ("LITA"), an Italian manufacturer of welded steel
tubes used principally in the automobile and furniture industries, and (iii)
Temporary Integrated Management, S.p.A. ("TIM"), an Italian temporary management
services company, which provided services to troubled businesses located
primarily in Italy. Each of Moto Guzzi and LITA represented an industry segment
of the Company, while the operations of TIM were not material to the Company.
The Company was incorporated in Maryland in 1917.
Current status of the Company
o As of August 10, 2001, the date of this report, the Company has disposed of
all of its operating subsidiaries and real property, and its principal
assets are represented by the cash proceeds of such disposals, receivables
and rights to escrow accounts deriving from the disposals and tax and other
receivables. The major part of cash and other assets of the Company are
held by its majority owned subsidiary, Centerpoint Corporation
(OTC/BB:CPTX) ("Centerpoint").
o The Company is currently examining opportunities to acquire or merge with
another operating business or businesses. Such acquisition or merger may be
made through Centerpoint. In June 2001, with the consent of the Company,
Centerpoint engaged the investment banking firm of Investec Ernst & Co. to
assist Centerpoint in its evaluation of strategic alternatives.
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o Alternatively, if Centerpoint is unable to find a suitable business to
acquire or merge with acceptable to the Company, it is anticipated that the
Company will require Centerpoint to present a liquidation proposal to its
stockholders. As a holder of a majority of the shares of Centerpoint, the
Company has the ability to approve or reject a liquidation proposal without
the vote of any other stockholder. If Centerpoint is liquidated and
liquidating proceeds are paid to its stockholders, then it is anticipated
that the Company will either itself seek a suitable business to acquire or
merge with or present a liquidation proposal to its stockholders. Any
liquidation of the Company is complicated by the complexity of the
Company's corporate structure, the continuing effects of past acquisitions,
dispositions and restructurings, and related tax effects. For instance, one
of the escrow accounts relating to the sale of the Moto Guzzi operations
must be maintained until 2007.
o As the Company no longer has any operating subsidiaries, if the Company
(through Centerpoint or otherwise) is unable to find a suitable business to
acquire or merge with, and Centerpoint and the Company fail to initiate the
liquidation process within twelve months of the closing of the Moto Guzzi
sale, then the Company and Centerpoint may become required to register as
investment companies under the Investment Company Act of 1940.
Disposal of the Company's motorcycle operations
o In September 2000, the Company's majority owned subsidiary, Centerpoint -
then Moto Guzzi Corporation -closed on the sale of its Moto Guzzi
motorcycle operations to Aprilia S.p.A. ("Aprilia"), pursuant to an April
14, 2000 share purchase agreement. Moto Guzzi received Lit. 60,293 million
in cash from the sale after deduction of Lit. 11,401 million paid to Banca
di Intermediazione Mobiliare IMI SpA ("IMI"), Moto Guzzi's investment
advisor, and the placement of Lit. 7,000 million and Lit. 2,375 million,
respectively, in escrow to secure certain warranties given by Moto Guzzi in
the sale agreement.
o The motorcycle operations represented the principal industry segment of the
Company and have been accounted for as discontinued operations in the
financial statements at December 31, 1999.
o In order to finance Moto Guzzi operations through the date of sale, in
December 1999 the Company raised US$ 6 million through issuance of
convertible debentures due in December 2001 and in February 2000,
Centerpoint (then Moto Guzzi) raised US$ 6 million from third parties
through the issuance of Series B preferred stock. The Company and its
majority owned subsidiary, OAM S.p.A. ("OAM"), and two Centerpoint
directors were included in the subscribers for the Series B preferred
stock, which was redeemed in full by Centerpoint in September 2000.
o The net proceeds from the sale of the Moto Guzzi motorcycle operations have
been invested by Centerpoint in short-term interest bearing securities
pending decisions by its Board of Directors, the Company, or Centerpoint's
stockholders as appropriate, as to Centerpoint's future plans.
o The Company and Centerpoint are in dispute with IMI, the investment bankers
for the sale of the Moto Guzzi operations, regarding IMI's fees in
connection with the sale. IMI caused a fee to be deducted from the sale
proceeds payable to Centerpoint that the Company and Centerpoint consider
to be excessive and inconsistent with the provisions and intentions of the
engagement agreement.
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Centerpoint is seeking to settle this dispute with IMI and is preparing to
litigate to seek satisfaction if no acceptable settlement can be obtained
otherwise.
Disposal of the Company's steel tube operations
o In July 2000, the Company sold its 100% interest in LITA to Fintrebi S.r.l.
and Mittel Generale Investimenti S.p.A., companies unaffiliated with the
Company, for a total consideration of Lit. 1,800 million. Immediately prior
to the sale, with the agreement of the purchasers, LITA paid a dividend to
the Company of Lit. 670 million. The Company received Lit. 800 million in
cash and a further Lit. 1,000 million is receivable in July 2001. In
connection with the sale, the Company issued a Lit. 1,000 million bank
guarantee to the purchasers to secure certain warranties given as part of
the sale agreement.
o The steel tube operations of LITA represented an industry segment of the
Company and have been accounted for as discontinued operations in the
financial statements at December 31, 1999.
Disposal of other businesses and assets
o Effective as of January 1, 2000, the Company disposed of TIM, its temporary
management business, selling this business to its management in exchange
for 80,000 of the Company's shares with a fair value at such date of
approximately Lit. 320 million.
o In July 1999, the Company disposed of its interest in concession rights
over parking spaces in Genoa for Lit. 1,600 million.
o In December 1999, the Company completed its real estate disposal program
with the sale of land in Sardinia for Lit. 3,000 million.
Purchase of minority interest in OAM subsidiary
o In July 2000, the Company agreed to purchase the minority interests in OAM
held by Daimler Chrysler Corporation for US$ 2,500,000. The purchase was
completed in March 2001.
Centerpoint Loan; Early payment of the Company's 5% Convertible Debentures due
in December 2001
The Company's 5% Convertible Debentures in an aggregate amount of US$ 6,250,000
were scheduled to come due in December 2001. On June 13, 2001 the Company, OAM
and Centerpoint entered into the Centerpoint Loan Agreement wherein Centerpoint
agreed to lend the Company US$ 4,200,000. On June 13, 2001 Centerpoint loaned
the Company US$ 4,200,000 and on June 15, 2001 the Company paid the holders of
US$ 6,000,000 of the Debentures US$ 4,207,500 in cash, which the Debenture
holders accepted as payment in full on the Debentures, representing a 31.5%
discount from their face value. US$ 250,000 of the Debentures remains
outstanding.
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Settlement of Wilson Litigation
In December 2000, the Company and Gould, the co-defendant in the Wilson
Litigation executed a settlement agreement and release with the plaintiff under
which each of the Company and Gould paid US $1,025,000 to settle the claims with
the plaintiff. On June 15, 2001, a verdict was rendered by the Court of Common
Pleas of Philadelphia County holding that the Company was responsible for paying
all settlement funds and ordering the Company to pay Gould US $1,025,000 plus
interest at a rate of 7% per annum from the date Gould paid the plaintiffs.
Aprilia Claims under the Share Purchase Agreement; Payment by IMI; Request for
Arbitration
On June 2001 Aprilia's legal counsel sent a letter to Centerpoint which alleged
that it had various claims under the Share Purchase Agreement aggregating
approximately Lit. 9,600 million.
On July 13, 2001 Centerpoint's Italian counsel sent a letter to Aprilia's
counsel contesting all of the Alleged Claims.
On July 13, 2001 Aprilia requested that IMI, the escrow agent under the Escrow
Agreement, pay them Lit. 7,611 million in respect of the Alleged Claims. On July
26, 2001, in spite of being aware of Centerpoint contesting of each of the
Alleged Claims and its intention to seek arbitration, IMI advised Centerpoint
that it had paid Lit. 7,611 million from the escrow account to Aprilia in
respect of the Alleged Claims.
Pursuant to the Share Purchase Agreement and Escrow Agreement, which provides
that disputes among the parties be arbitrated, Centerpoint has prepared a
Request for Arbitration in Accordance with Article 4 of the ICC Rules of
Arbitration relating to the Alleged Claims and the payment by IMI and requesting
restitution of the funds paid to Aprilia, which Centerpoint is in the process of
filing with the International Chamber of Commerce. Centerpoint has advised the
Company that it expects a decision by the ICC with respect to the request will
be rendered approximately twelve to eighteen months after the filing of the
request.
Subsequent Events
Centerpoint's (then Moto Guzzi) Agreement with the Company and OAM to present a
liquidation proposal to its stockholders following the Closing of the sale of
its operations to Aprilia
The Share Purchase Agreement providing for the sale of Centerpoint's operating
subsidiaries to Aprilia (described below) contained a condition that OAM (the
holder of approximately 58% of the issued and outstanding shares of
Centerpoint's Class A common stock, and a subsidiary of the Company) agree to
vote its capital stock for the sale, and by letter to Aprilia dated April 14,
2000, OAM agreed to vote its shares for the sale.
In order to induce OAM to deliver its letter to Aprilia, Centerpoint agreed with
OAM and the Company by letter dated April 14, 2000 (the "April 14th letter")
that, among other things, it would pay IMI's fees in connection with the sale.
The April 14th letter was amended on June 8, 2000 to provide, among other
things, that Centerpoint would, as promptly as practicable after the closing of
the sale, but in no event later than 90 days following the closing, hold a
meeting of stockholders to consider and vote upon a
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proposal to liquidate all of Centerpoint's assets and dissolve itself. The date
for proceeding to propose a liquidation was subsequently extended by the Company
and OAM to July 15, 2001.
Under Delaware Law, any liquidation of Centerpoint will require the approval of
the holders of a majority of Centerpoint's Class A common stock, and compliance
by Centerpoint with applicable Securities and Exchange Commission regulations
concerning any proposed liquidation. However, because OAM owns 58% of
Centerpoint's Class A common stock, it can approve a liquidation even if no
other Centerpoint stockholders vote in favor of it. Conversely, a liquidation
will not be approved unless OAM votes in favor of it. Although OAM and the
Company originally insisted that Centerpoint agree to submit a liquidation
proposal to its stockholders, OAM is not committed to vote its shares of Class A
common stock for a liquidation proposal. Unless the Company and OAM amend the
April 14th letter to eliminate the requirement that Centerpoint submit a
liquidation proposal to its stockholders, or otherwise terminate the letter,
Centerpoint will be required to submit a liquidation proposal to its
stockholders.
Centerpoint's consideration of a potential acquisition of or merger with an
operating company
Following the sale of the Moto Guzzi operations, Centerpoint invested the
proceeds of the sale in short-term fixed interest Euro denominated securities.
Since the closing of the sale, with the knowledge and consent of the Company,
Centerpoint has sought to find a suitable operating company to acquire or merge
with using the proceeds from the sale. Centerpoint has advised the Company that
if it finds a suitable acquisition or merger candidate then it will probably
propose the acquisition of, or merger with, such entity as an alternative to
liquidation. Any such acquisition or merger would require that the Company and
OAM terminate or further amend the April 14th letter (which is within the
Company's and OAM's sole discretion), and would need to be made in accordance
with the requirements of Delaware law and applicable SEC regulations. Whether
Centerpoint will be required under Delaware law to obtain approval of its
stockholders in connection with any proposed acquisition or merger will depend
upon the structure of the proposed transaction.
In June 2001, with the consent of the Company, Centerpoint engaged the
investment banking firm of Investec Ernst & Co. ("Investec") to assist
Centerpoint in its evaluation of strategic alternatives, including potential
acquisitions and investments. While Centerpoint has, as of the date of this
report, identified several acquisition/merger candidates, it has not entered
into a binding agreement or letter of intent with respect to any such
transaction, and has not presented any such transaction to the Company and OAM.
The Company anticipates that within six months of the date of the filing of this
report (i) Centerpoint will propose one or more potential acquisition/merger
transactions with one or more operating companies, one of which will be
acceptable to the Company and OAM, in which event the Company and OAM will
amend, or otherwise terminate, the April 14th letter in order to permit the
transaction, or (ii) the Company and OAM will require Centerpoint to proceed
with a liquidation proposal in accordance with Delaware law, and the rules and
regulations of the SEC. As Delaware law requires stockholder approval for a
liquidation of a company, any liquidation of Centerpoint will require
stockholder approval. In accordance with SEC rules and regulations, Centerpoint
will be required to hold a special meeting of stockholders, distribute required
proxy materials to its stockholders and otherwise comply with such rules and
regulations.
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Limitations on OAM's and the Company's ability to distribute any liquidation
proceeds or dividend received from Centerpoint;Centerpoint right of offset
If Centerpoint proceeds with a liquidation proposal that is approved by its
stockholders, it is expected that Centerpoint will pay off all of its remaining
obligations and pay an initial liquidating dividend to its stockholders within
90 days of such approval. Escrow amounts being held in connection with the sale
of the Moto Guzzi operations would be distributed to Centerpoint's stockholders
if and when available. The Company and OAM, as stockholders of Centerpoint, are
each entitled to receive their pro-rata share of any liquidating dividends paid
by Centerpoint. Pursuant to the terms of the Centerpoint Loan Agreement
described below, however, Centerpoint will be able to offset any dividends due
to OAM and the Company against amounts payable under the Centerpoint Loan
Agreement, and the Company anticipates that Centerpoint will exercise this right
in connection with the payment of any liquidating dividends. Should Centerpoint
liquidate and pay liquidating dividends, the Company anticipates that funds
remaining in the Company will not be sufficient to enable it to proceed with a
merger or acquisition of an operating company, leaving liquidation as the
Company's most likely course of action. However, due to its ownership structure
and tax complications relating to prior transactions and restructurings, the
Company anticipates that OAM and Trident Rowan Servizi S.p.A., an intermediate
holding company between the Company and OAM, would not be able to proceed with
liquidations or pay liquidating dividends for a period currently envisaged as at
least two years.
Centerpoint Loan; Early payment of the Company's 5% Convertible Debentures due
in December 2001
The Company's 5% Convertible Debentures in an aggregate amount of US$ 6,250,000
were scheduled to come due in December 2001. On June 13, 2001 the Company, OAM
and Centerpoint entered into a loan agreement (the "Centerpoint Loan Agreement")
wherein subject to the terms and certain conditions set forth therein
Centerpoint agreed to lend the Company $4,200,000 (the "Centerpoint Loan"). On
June 13, 2001 Centerpoint made the Centerpoint Loan and on June 15, 2001 the
Company paid the holders of $6,000,000 of the Debentures $4,207,500 in cash,
which the Debenture holders accepted as payment in full on the Debentures
(including past due interest), representing a 31.5% discount from their face
value. $250,000 of the Debentures remains outstanding. The Centerpoint Loan
bears interest at a rate of 5 % per annum, is repayable in full on the earlier
of June 13, 2002 and the date on which the Company causes or permits a
liquidation of Centerpoint, and is secured by the 300,000 shares of Centerpoint
common stock currently owned by the Company and 1,200,000 of the shares of
Centerpoint common stock currently owned by OAM. In connection with the
Centerpoint Loan, OAM also entered into a Limited Recourse Guaranty Agreement
(the "OAM Guaranty") wherein it guaranteed the Company's obligations under the
Centerpoint Loan Agreement. OAM's liability under the OAM Guaranty is limited to
the value of the Centerpoint shares pledged by OAM, as that term is used in the
OAM pledge agreement.
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Investment Company Act Matters
If the Company (through Centerpoint or otherwise) is unable to find a suitable
company to acquire or merge with, and Centerpoint fails to initiate liquidation
proceedings by September 2001, the Company and Centerpoint are likely to become
required to register as investment companies under the Investment Company Act of
1940. Even if Centerpoint does find a company to acquire or merge with, if the
Company fails to maintain majority ownership of Centerpoint following such
acquisition or merger, the Company may become subject to the registration
requirements. There are severe limits on what a company registered under the
Investment Company Act can do, including a prohibition against its borrowing and
strict limitations upon dealings between the company and significant
stockholders. If Centerpoint and the Company were required to register under the
Investment Company Act, and following registration Centerpoint determined to
acquire or merge with an operating business, Centerpoint and the Company
(provided it maintains majority ownership of Centerpoint) could terminate their
respective registrations under the Investment Company Act and cease being
subject to its restrictions. However, Centerpoint's registration as an
investment company could delay or complicate the process of Centerpoint
acquiring or merging with an operating business.
Settlement of Wilson Litigation; Judgment
On December 19, 2000, a Settlement Agreement and Release was executed by and
between plaintiffs, the Company and I.T.E. Imperial Corporation and Gould
Electronics, Inc., the co-defendants in the Wilson Litigation. The Company and
Gould each agreed to pay 50% of the $2,050,000 settlement amount, subject to
resolution of certain issues between them. The remaining issue, the Company's
claim against Gould for indemnification, was litigated on February 16, 2001.
On June 15, 2001, a verdict was rendered by the Court of Common Pleas of
Philadelphia County holding that the Company is responsible for paying all
settlement funds and ordering the Company to pay Gould $1,025,000 plus interest
at a rate of 7% per annum from the date Gould paid the plaintiffs. The appeal
period for the judgment expired on July 15, 2001, and the judgment became due
and payable to Gould on that date.
Given the status of these legal actions, the Company has recorded additional
provisions of Lit. 2,970 million and the full amount of the $2,050,000 payable
by the Company is accrued at December 31, 1999. Although no judgment has been
rendered with respect to the Company's claims against Travelers relating to the
Wilson Litigation, and it is possible that the Company may recover significant
amounts from Travelers, no amounts have been offset or accouted for as
receivables in respect of these claims.
Aprilia Claims under the Share Purchase Agreement; Payment by IMI; Request for
Arbitration
Pursuant to the terms, and subject to the conditions, of the Share Purchase
Agreement and the Escrow Agreement relating to the sale of Moto Guzzi's
operating subsidiaries, Lit. 9,375 million of the proceeds of the sale were
placed into escrow.
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By letter dated December 21, 2000, legal counsel for Aprilia filed a claim
against Centerpoint under the Share Purchase Agreement alleging (i) that it had
failed to receive a resignation and release from Mr. Roth, an executive and
director of MGI GmbH, and (ii) that the campaign recall with respect to certain
Moto Guzzi motorcycles was more critical than that forecast in the Management
Date Financial Statements and August 3, 2000 letter. By letter dated February 5,
2001 Centerpoint's Italian legal counsel responded to the December 21, 2000
letter specifically denying the alleged claims and requesting that the parties
meet to negotiate a release of the escrow funds, as provided for in the August
3, 2000 letter.
On June 2001 Aprilia's legal counsel sent a letter to Centerpoint which
reiterated the claims in its December 21, 2000 letter and alleged the following:
(i) that the cost of the recall campaign was estimated by Aprilia to be
approximately Lit. 4,500 million, which exceeded the Management Date Financial
Statement amount with respect to the recall campaign by Lit. 2,676 million, (ii)
that technical problems related to various motorcycles were likely to cost
Aprilia approximately Lit. 5,308 million, and that such technical problems had
not been disclosed to Aprilia in connection with the sale of the Moto Guzzi
operations to Aprilia, and that Aprilia was entitled to reimbursement of such
costs, (iii) that Aprilia was entitled to reimbursement of Lit. 148.5 million
incurred by Aprilia in connection with the termination of Mr. Roth, an executive
of MGI GmbH, (iv) that Aprilia was entitled to reimbursement of Lit. 378 million
in respect of unjustified credit notes issued by MGI GmbH in favor of dealers
and distributors, and (v) that breaches of accounting principles by Moto Guzzi
North America entitled it to claims against Centerpoint in the amount of Lit.
1,100 million (collectively with (i), (ii), (iii) and(iv), the "Alleged
Claims").
On July 13, 2001 Centerpoint's Italian counsel sent a letter to Aprilia's
counsel contesting all of the Alleged Claims.
By letter dated July 13, 2001 Aprilia requested that IMI, the escrow agent under
the Escrow Agreement, pay them Lit. 7,611 million in respect of the Alleged
Claims. On July 26, 2001, in spite of being aware of Centerpoint contesting of
each of the Alleged Claims and its intention to seek arbitration, IMI advised
Centerpoint that it had paid Lit. 7,611 million from the escrow account to
Aprilia in respect of the Alleged Claims.
Pursuant to the Share Purchase Agreement and Escrow Agreement, which provides
that disputes among the parties be arbitrated, Centerpoint has prepared a
Request for Arbitration in Accordance with Article 4 of the ICC Rules of
Arbitration relating to the Alleged Claims and the payment by IMI and requesting
restitution of the funds paid to Aprilia, which Centerpoint is in the process of
filing with the International Chamber of Commerce. Centerpoint has advised the
Company that it expects a decision by the ICC with respect to the request will
be rendered approximately twelve to eighteen months after the filing of the
request.
Closing by Moto Guzzi (now Centerpoint) on the Sale of its Operating
Subsidiaries; Dispute with IMI Regarding its Fee
On September 7, 2000, Moto Guzzi closed on the sale of all its operating
subsidiaries, Moto Guzzi S.p.A., Moto Guzzi North America Inc, Moto Guzzi France
Sarl, and MG Motorcycle GmbH, to Aprilia in
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accordance with the Share Purchase Agreement dated April 14, 2000 as modified
and integrated by the Letter Agreement of August 3, 2000.
Total proceeds from the sale were Lit. 79,500 million. In accordance with the
Share Purchase Agreement, Aprilia also paid Moto Guzzi Lit. 2,074 million on
behalf of the operating subsidiaries, representing the amount owed to Moto Guzzi
by the operating subsidiaries pursuant to loans made by Moto Guzzi to them. In
accordance with the Share Purchase Agreement, Lit. 9,375 million of the total
proceeds was placed in escrow to cover any claims Aprilia might have in the
future in respect of representations and warranties made by Moto Guzzi in the
Share Purchase Agreement. Subject to any claims Aprilia may have in respect of
Moto Guzzi's representations and warranties (including claims and payments made
as of the date of this report as described above), funds from the escrow account
will be released to Moto Guzzi in two tranches: up to Lit. 7,000 million is to
be released on September 8, 2001; and up to Lit. 2,375 is to be released on
September 8, 2007. Aprilia has undertaken to evaluate, on a best efforts basis,
an earlier resolution of any future claims it may have to funds in the escrow
account.
SIREF S.p.A. and San Paolo Finanziaria S.p.A., each of which is an affiliate of
IMI, Moto Guzzi's investment adviser, acted as fiduciary agents for the closing.
At the closing, pursuant to an invoice submitted to them by IMI prior to the
closing, but without the prior knowledge, consent or approval of Moto Guzzi or
the Company, the fiduciary agents paid IMI Lit. 11,401 million, in respect of
fees and expenses claimed by IMI to be due it under its engagement letter with
the Company and OAM. The fiduciary agents then paid Carnelutti Lit. 505 million
and paid the balance of the proceeds of Lit. 60,293 million to Moto Guzzi. Since
early July 2000, the Company and Moto Guzzi have disputed IMI's interpretation
of the calculation of the fee due it under its engagement letter, following
indication by IMI of its basis of calculation. The dispute relates to the
respective interpretations of the Company, Moto Guzzi and IMI of the term "Total
Enterprise Value" of the Company, Moto Guzzi and IMI, as that term is used in
the engagement letter. Since that time, the Company and Moto Guzzi discussed and
sought to negotiate with IMI concerning its alleged amount of the fee. IMI
refused to engage in negotiations and did not present any calculation of the fee
prior to the closing. After the closing and actual payment to IMI of the alleged
fee by the fiduciary agents, IMI then presented a calculation and an invoice to
Moto Guzzi for fees and expenses alleged by IMI to be due it under the
engagement letter in the amount of Lit. 11,401 million. In addition to disputing
the amount of the fee paid to IMI, the Company and Moto Guzzi believe that IMI
had no right to cause its fee to be deducted from the Moto Guzzi proceeds, as
Moto Guzzi was not a party to the engagement letter. The Company and Centerpoint
are currently evaluating possible courses of action against IMI and the
fiduciary agents, including initiating legal proceedings in Italy and the United
States.
The Lit. 60,293 million net proceeds received by Moto Guzzi from the sale was
applied first to payment of amounts due for transaction expenses in connection
with the sale and other payables and obligations estimated in the aggregate to
be approximately Lit. 2,700 million and second to the redemption prior to
September 30, 2000 of all outstanding shares of Series B preferred stock for a
price equal to $100 per share plus accrued dividends thereon, for a total of
approximately US$ 12.6 million (approximately Lit. 28,300 million at the
prevailing exchange rate). This left Moto Guzzi with approximately Lit. 29,300
million in cash, and rights, subject to any claims of Aprilia, to the Lit. 9,375
million being held in escrow, and whatever it realizes on its claims against
IMI. Remaining proceeds were invested in short-term fixed
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income Euro denominated securities pending Moto Guzzi's evaluation of the
alternatives available to it with respect to such funds.
On September 19, 2000, pursuant to the Share Purchase Agreement and stockholder
approval, Moto Guzzi Corporation filed an amendment to its Certificate of
Incorporation to change its name to Centerpoint Corporation, effective at the
time of filing.
Approval of the Sale of the Moto Guzzi Operating Subsidiaries by Moto Guzzi
Stockholders
On July 22, 2000 Moto Guzzi's Proxy Statement dated July 20, 2000 relating to
the proposed sale of Moto Guzzi's operating subsidiaries and the change of Moto
Guzzi's name to Centerpoint Corporation was mailed to all of Moto Guzzi's Class
A stockholders of record as of July 18, 2000, the record date for the special
meeting of stockholders to consider such proposals. The special meeting of Moto
Guzzi's stockholders to consider the proposals was held on August 11, 2000.
4,399,784 shares of Moto Guzzi's Class A common stock were represented in person
or by proxy, representing 73.34% of Moto Guzzi's issued and outstanding shares
of Class A common stock on the record date, thereby constituting a quorum.
At the special meeting, the holders of 4,399,774 shares of Moto Guzzi's Class A
common stock (representing 73.33% of shares of record) voted in favor of the
proposal to sell Moto Guzzi's operating subsidiaries to Aprilia, and the holders
of 4,397,314 shares of Moto Guzzi's Class A common stock (representing 73.31% of
shares of record) voted in favor of the proposal to change Moto Guzzi's name to
"Centerpoint Corporation," thereby approving the proposals.
Execution and Delivery by Moto Guzzi of Share Purchase Agreement
On April 14, 2000, Moto Guzzi signed a sale agreement in which it agreed to sell
its four operating subsidiaries (Moto Guzzi, S.p.A., MGI Motorcycle GmbH, Moto
Guzzi France S.a.r.l. and Moto Guzzi North America, Inc.) to Aprilia for Lit.
71.5 billion (approximately US$35.2 million) plus or minus the amount by which
the subsidiaries' net worth at April 30, 2000 is more or less than their net
worth at December 31, 1999. In addition, Aprilia agreed to satisfy debts of the
subsidiaries to Moto Guzzi totaling approximately Lit. 2.1 billion
(approximately US$1.0 million) and to cause OAM to be released from a Lit. 4
billion (approximately US$1.9 million) guarantee of obligations of the
subsidiaries. Because the proposed sale of the four subsidiaries was a sale of
substantially all Moto Guzzi's assets, the sale was subject to approval of
holders of a majority of Moto Guzzi's outstanding Class A common stock.
Background of the sale
Prior to the sale, Moto Guzzi had suffered recurring losses from operations and
negative cash flows during the three years prior to the sale. Arrears of payment
to suppliers, which reached approximately Lit.15 billion (approximately $7.4
million) in January 2000, affected component supply and production in the first
quarter of 2000 and thus limited Moto Guzzi's ability to generate cash from
operations.
In December 1999, following the termination of negotiations with a company in
the motorcycle business concerning a possible equity investment in Moto Guzzi,
and with Moto Guzzi's knowledge and consent, the Company and OAM, the Company's
majority owned subsidiary, engaged IMI, an Italian investment
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bank, to seek short term financing for Moto Guzzi and to pursue strategic
alternatives to enhance Moto Guzzi's shareholder value.
During January 2000, representatives of IMI contacted over thirty potential
buyers and investors concerning a possible transaction with Moto Guzzi. By the
third week of January, 17 potential buyers and investors executed the
confidentiality agreements requested by IMI. IMI distributed an information
memorandum on Moto Guzzi to each of these parties and requested that these
parties submit written, non-binding offers for a possible transaction with Moto
Guzzi by February 11, 2000.
The deadline of February 11th was subsequently extended by one week to February
18th.
During January and February, Moto Guzzi's operations were at risk as a result of
a failure to timely pay its suppliers, and IMI believed that public knowledge of
this fact was interfering with IMI's ability to conduct the auction process. On
February 16th IMI advised Moto Guzzi that Moto Guzzi needed substantial new
funds to ensure the completion of the sale process. In response, on February 25,
2000, Moto Guzzi issued an aggregate of US$12.35 million in Series B Preferred
Stock to Fineco Sim, S.p.A. ("Fineco"), the Company, Wheatley Partners, LP and
Wheatley Foreign Partners, LP (each of which is an affiliate of Barry Fingerhut,
one of Moto Guzzi's directors) and William Spier (a director of Moto Guzzi and a
director of the Company through December 1999). Of this, shares with a
liquidation value of US$6.0 million were issued for cash to Fineco, US$3.5
million were issued for cash to the Company, and shares with a liquidation value
of US$2.85 million were issued in consideration of the conversion of outstanding
indebtedness. See "Issuance and Redemption of Series B Preferred Stock by Moto
Guzzi " below.
By February 18th, IMI had received preliminary offers from four parties, each
relating to a proposed acquisition of 100% of Moto Guzzi's shares. Three of
these parties continued in negotiations with Moto Guzzi and engaged in due
diligence.
Following subsequent feedback from one potential buyer that it would only
entertain the purchase of the four operating subsidiaries and no other
transaction structure, IMI communicated to potential buyers that it would
entertain bids for the four subsidiaries but would give preference to bids for
Moto Guzzi's shares if the offer price were similar.
Each of the parties that had expressed an interest was provided with access to a
data room and Moto Guzzi's material documents, oral presentations by management,
legal presentations and access to Moto Guzzi's facilities. A deadline of April
7th was set for the submission of final proposals, which were requested to be in
the form of draft purchase agreements containing all principal terms.
On April 7th, IMI received three firm offers. The most competitive offer (which
was from Aprilia) was for cash and ready for signature with negotiated
schedules. The second offer was in line with the first offer economically but
was made subject to the buyer's ability to raise financing and to certain open
contractual matters and with schedules and other details still to be negotiated.
The third offer was lower economically, was in part in cash and in part in
stock, and was without schedules and with some key parts of the contract to be
negotiated.
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On April 9th, members of a special committee of Moto Guzzi's board comprised of
Barry Fingerhut, David Mitchell and Frank O'Connell, representatives of IMI,
Clifford Chance Rogers & Wells LLP, Moto Guzzi's U.S. counsel, and Studio
Carnelutti, Moto Guzzi's Italian counsel, and the Company, met. Representatives
of IMI and Studio Carnelutti explained in detail the underlying auction process,
which had led to the presentation of the offers by Aprilia and by two other
trade buyers. There was a further analysis and discussion about the terms and
conditions of each of the offers. Aprilia's offer was considered by the special
committee to be the most attractive from both an economic and a legal point of
view. The committee, however, expressed a desire to eliminate the proposed
escrow account following the sale.
In the morning of April 10th, the board of the Company met in the presence of
representatives of IMI, Kramer Levin Naftalis & Frankel LLP, the Company's U.S.
counsel, and Studio Carnelutti. The Company's board approved a proposed side
letter to be signed by OAM, which, among other things, committed OAM to vote in
favor of the sale of the subsidiaries at Moto Guzzi's stockholder meeting which
would be required to be held to authorize the sale, subject to Moto Guzzi
entering into a side letter with OAM and the Company in which Moto Guzzi agreed,
among other things, to pay IMI's fees in connection with the sale. In addition,
the Company's board authorized IMI to complete a final auction based on the
April 7th offers.
In the afternoon of April 10th, Moto Guzzi's board of directors, including the
special committee of the board, and representatives from Clifford Chance Rogers
& Wells LLP, IMI, Studio Carnelutti and Kramer Levin Naftalis &Frankel LLP met
to discuss and review the bids submitted by the final bidding companies. In the
hours before this board of directors meeting, two of the bidders had improved
their offers.
IMI presented Moto Guzzi's board and the special committee with its analysis of
the bids and delivered its oral opinion that each of the bids was fair from a
financial point of view to Moto Guzzi's stockholders. After discussion, the
Aprilia offer was selected as the best by both Moto Guzzi's special committee
and by Moto Guzzi's board of directors. They also approved permitting Aprilia to
assume management control of the subsidiaries beginning May 1, 2000 if it would
assume responsibility for the subsidiaries' operating results from that date.
On the morning of April 14th, OAM signed its side letter with Aprilia, and Moto
Guzzi signed its side letter with OAM and the Company. In the afternoon, the
sale agreement was signed by Mr. Bulgari, a Director of Moto Guzzi, on behalf of
Moto Guzzi and by Aprilia.
On May 2nd, an initial payment by Aprilia of Lit. 71.5 billion (approximately
US$35.2 million) was placed in escrow with IMI while the shares of the
subsidiaries were placed in the custody of San Paolo a Finanziaria, S.p.A. and
Siref, S.p.A.
Moto Guzzi's Reasons for the sale; Recommendations of Moto Guzzi's Board of
Directors
The special committee of Moto Guzzi's board of directors determined that the
sale was in Moto Guzzi's best interests and in the best interests of Moto
Guzzi's stockholders and unanimously recommended that Moto Guzzi's board approve
the sale. Moto Guzzi's board of directors determined that the sale was
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advisable, fair to and in Moto Guzzi's best interests and in the best interests
of Moto Guzzi's stockholders and unanimously approved the sale.
In reaching their respective determinations, Moto Guzzi's special committee and
Moto Guzzi's board of directors considered a number of factors, without
assigning any relative weights to them. They included the following:
o historical information concerning the business, financial performance
and condition, management, competitive position and prospects of the
subsidiaries;
o Moto Guzzi's historical stock prices and operating performance;
o that IMI was able to induce Aprilia to increase the purchase price
above what it had initially proposed;
o that Moto Guzzi had announced in February 2000 that it had engaged IMI
to seek interim financing and to pursue strategic alternatives and the
possibility of Moto Guzzi being sold, and IMI had contacted a large
number of possible purchasers and had conducted an auction among those
who expressed interest in a possible transaction in which potential
purchasers were afforded sufficient time and information to submit
proposals; with the result that three firm proposals were received of
which Aprilia's was the most attractive;
o that IMI had informed Moto Guzzi's special committee and Moto Guzzi's
board, (subsequently confirmed in writing) that the sale consideration
to be received from Aprilia is fair, from a financial point of view,
to Moto Guzzi's stockholders; and
o the determination that Moto Guzzi would not be able to achieve, on a
stand-alone basis, stockholder value equal to the sale consideration
being paid by Aprilia.
In reaching their respective conclusions, Moto Guzzi's special committee and
Moto Guzzi's board also considered the following factors, which they believed
mitigated against the sale:
o the fact that Moto Guzzi would have no operating business after the
sale;
o the fact that Moto Guzzi would have to pay substantial transaction
costs in connection with the sale;
o the fact that a portion of the sale proceeds would be held in escrow
for up to seven years;
o the possibility that Aprilia might make changes to Moto Guzzi's
subsidiaries before the sale takes place which, if the sale is not
completed, will make it even more difficult than it had been to make
the subsidiaries operate successfully;
o the possibility that if the sale was not completed, Moto Guzzi would
not be able to repay sums Aprilia lends to the subsidiaries between
May 2, 2000 and the time the efforts to complete the sale terminate;
o the fact that Moto Guzzi's need to complete a transaction quickly may
have limited Moto Guzzi's ability to be sure it was getting the
highest possible price for the subsidiaries;
o the risk that the sale would not be completed; and
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o the risk that the announcement of the sale and the efforts necessary
to complete the transaction could disrupt operations by, among other
things, diverting management and other resources from day-to-day
operations.
In making its determination to enter into the sale agreement, Moto Guzzi's
special committee and Moto Guzzi's board weighed the factors described above,
both positive and negative, and determined that the positive factors clearly
outweighed the negative factors. In view of the wide variety of information and
factors considered, the special committee and the board did not find it
practical to, and did not, assign any relative or specific weights to any of the
factors, and individual directors may have had different views as to which
factors were more significant than others.
In reaching their conclusions, Moto Guzzi's special committee and Moto Guzzi's
board were aware of the potential benefits to be realized by its officers,
directors and certain stockholders from the sale, which are described below
under the caption "Interests of Certain Persons in the Sale."
Moto Guzzi's board of directors, acting on the recommendation of a special
committee of its members, unanimously approved the sale agreement and the sale
and unanimously recommended to the stockholders that they approve the sale.
Opinion of Financial Advisor
The Company retained IMI to act as its exclusive financial advisor in connection
with a review of Moto Guzzi's strategic alternatives and the proposed sale
transaction based upon IMI's substantial experience with transactions similar to
the sale transaction. On April 14, 2000, IMI delivered to Moto Guzzi's board and
Moto Guzzi's special committee its oral opinion that the estimated total cash
payment (the "Estimated Total Consideration") from Aprilia contained in the sale
agreement was fair from a financial point of view to the holders of Moto Guzzi's
stock. IMI subsequently delivered to Moto Guzzi's board and Moto Guzzi's special
committee its written opinion, dated April 14, 2000, that, based upon and
subject to the factors and assumptions set forth therein, as of such date, the
Estimated Total Consideration was fair from a financial point of view to the
holders of Moto Guzzi's stock.
Interests of Certain Persons in the Sale
Certain of Moto Guzzi's directors and officers had interests with regard to the
sale that were different from the interests of the other stockholders. They
included:
o OAM and the Company, which had been required to make loans to Moto
Guzzi or to Moto Guzzi's subsidiaries to provide the funds needed to
stay in business. Most of these loans were converted into Series B
preferred stock in February 2000. Also, OAM had been required to
guarantee some of Moto Guzzi's debt. The sale ended the need for OAM
and the Company to make loans to Moto Guzzi and in OAM's being
released from a guarantee of Lit. 4 billion of Moto Guzzi's
subsidiaries' bank debt. One of Moto Guzzi's directors was a principal
officer of the Company and an additional two of Moto Guzzi's directors
were directors of the Company.
o Certain of Moto Guzzi's officers and directors would continue to hold
positions in the subsidiaries after the sale.
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o In connection with the sale, Aprilia required the terminations of
certain of Moto Guzzi's executives and further required that Moto
Guzzi pay all costs of such terminations. Accordingly, Moto Guzzi
agreed to pay severance to two of its directors, Mark S. Hauser and
Howard E. Chase, and to Emanuel Arbib, one of its former directors, of
US$169,500, US$51,400 and US$37,900, respectively, in exchange for
termination of their employment and consulting agreements with Moto
Guzzi.
o The Company (of which one of Moto Guzzi's directors is a principal
officer and an additional two of Moto Guzzi's directors serve as
directors), OAM, Wheatley Partners, LP and Wheatley Foreign
Investment, LP (each of which is an affiliate of Barry Fingerhut, a
director of Moto Guzzi and a member of the special committee) and
William Spier (a director of Moto Guzzi) all own Series B preferred
stock.
Additional Provisions of the Share Purchase Agreement and consequences of the
sale
August 2, 2000 Letter Supplementing the Share Purchase Agreement.
On August 3, 2000, Moto Guzzi and Aprilia entered into a Side Letter dated
August 2, 2000 which supplemented the Share Purchase Agreement and provided
among other things as follows:
(i) that the net worth of Moto Guzzi's subsidiaries at April 30, 2000 is
minus Lit. 6,000,000,000, that the difference between the net worth of
Moto Guzzi's subsidiaries as shown in the Interim Financial Statements
dated December 31, 1999 and the Management Date Financial Statements
dated April 30, 2000 is plus Lit. 7,993,000,000 and that in accordance
with article 3.6 of the Share Purchase Agreement Aprilia shall pay
into the Escrow Account Lit. 7,993,000,000;
(ii) that with respect to costs to be incurred in connection with the
recall of certain batches of motorcycles to replace certain of their
components if, at completion of the recall campaigns, the cost
sustained less any reimbursement received from insurance companies and
Moto Guzzi suppliers is lower than Lit. 1,824,000,000, then the
difference between the cost sustained and Lit. 1,824,000,000 will be
paid by Aprilia to Moto Guzzi;
(iii)that the amount of shareholders' loans at the Management date was
Lit. 2,074,000,000, which amounts shall be paid to Moto Guzzi at the
closing date in accordance with article 3.4.2 (iv) of the Share
Purchase Agreement;
(iv) that with respect to the Escrow Agreement, at the closing date the
Escrow Amount shall be reduced to Lit 9,375,000,000, and the amount of
the first tranche of the Escrow Fund indicated in article 5.1 (a) of
the Escrow Agreement is Lit. 7,000,000,000;
(v) that as soon as practicable after the Closing Date and before December
31, 2000, Moto Guzzi and Aprilia will discuss in good faith the
possibility of an early release to Moto Guzzi of the first tranche of
the Escrow Amount, net of the amount of any claims agreed to at that
time;
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(vi) that immediately after the Closing Date, Aprilia will cause Moto Guzzi
SpA to fully co-operate in Moto Guzzi's efforts to obtain tax
amnesties and tax clearance certificates from the fiscal authorities,
at Moto Guzzi's expense, and should such certificates be obtained Moto
Guzzi and Aprilia will immediately discuss in good faith an early
release of a substantial part of the second tranche of the Escrow
Amount;
(vii) that Moto Guzzi and Aprilia would use all efforts to cause the
closing of the sale of the Subsidiaries to occur on or before August
31, 2000, and that in any case the closing shall take place before
September 15, 2000, thereby modifying the original August 31st
deadline for the closing.
Covenant not to Compete
Moto Guzzi agreed for a period of three years after April 30, 2000 not to engage
worldwide, directly or indirectly, in the business of manufacturing, selling,
distributing or marketing motorcycles, or components or spare parts for them.
Moto Guzzi also agreed to cause our directors to enter into similar agreements.
Indemnification for Breaches of Representations and Warranties
Aprilia and Moto Guzzi each agreed to indemnify the other for any damages
arising from the breach of any of the representations and warranties in the sale
agreement. However, neither company is required to indemnify the other for
damages totaling less than Lit. 1.0 billion (approximately US$0.5 million) and
Moto Guzzi's total indemnification is limited to Lit. 10.5 billion
(approximately US$5.2 million). Moto Guzzi also agreed to indemnify Aprilia
against costs or liabilities from stockholder litigation instituted in the
United States with respect to the sale agreement.
Indemnification of Directors
Aprilia agreed that it would not cause any action to be brought against anyone
who served on the board of directors of any of the subsidiaries in the five
years prior to April 30, 2000. Aprilia agreed to indemnify those directors if an
action is brought.
Italian Antitrust
The sale required that Moto Guzzi and Aprilia notify and furnish certain
information to the Autorita Garante della Concorrenza e del Mercato (the Italian
antitrust authority). Moto Guzzi filed notification forms with the Italian
antitrust authority in May 2000, and on June 28, 2000 Moto Guzzi received
clearance of the sale from them.
Absence of Appraisal Rights
Under Delaware law, Moto Guzzi's stockholders did not have dissenters' appraisal
rights as a result of the sale.
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Change of Corporate Name
Aprilia's obligation to purchase the subsidiaries was subject to Moto Guzzi
removing the words "Moto Guzzi" from its corporate name, and on August 11, 2000
Moto Guzzi's stockholders approved an amendment to Moto Guzzi's certificate of
incorporation to change its name to "Centerpoint Corporation." On September 19,
2000, Moto Guzzi filed a certificate of amendment to its certificate of
incorporation changing its name to Centerpoint Corporation.
Disposal of steel tube operations
In July 2000, the Company disposed of LITA to Fintrebi S.r.l. and Mittel
Generale Investimenti S.p.A., companies unaffiliated with the Company, for a
total consideration of Lit. 1,800 million. Immediately prior to the sale, with
the agreement of the purchasers, LITA paid a dividend to the Company of Lit. 670
million. The Company received Lit. 800 million in cash, leaving Lit. 1,000
million due in July 2001, secured by a first call bank guarantee. In connection
with the disposal, the Company obtained a first call bank guarantee for Lit.
1,000 million through December 31, 2003 to secure any claims the purchaser may
have for breaches of representations and warranties given by the Company. LITA
has been accounted for as a discontinued operation. See Note 3 to the financial
statements.
Disposal of temporary management operations
Effective as of January 1, 2000, the Company disposed of TIM, its temporary
management services subsidiary to two companies controlled by TIM's management,
including Albino Collini, a Director of the Company through December 1999, for
80,000 shares of the Company with a fair value of Lit. 320 million at the date
of sale. The Company has recorded an impairment loss of Lit. 400 million as at
December 31, 1999 in respect of the trademarks of TIM, to reflect the post
year-end disposal.
Purchase of minority interest in OAM
In September 2000, the Company agreed to purchase the outstanding minority
interest in OAM for US$ 2,500,000 held by Daimler Chrysler Corporation. The
purchase price is at a discount to the net asset value of the 15.65% ownership
interest OAM and will permit the Company to rationalize its corporate structure
and eliminate certain fiscal inefficiencies. The sale of the minority interests
closed in March 2001.
Issuance and Redemption of Series B Preferred Stock by Moto Guzzi
On February 25, 2000, Moto Guzzi, the Company's majority owned subsidiary,
issued 123,500 shares of a new Series B Preferred Stock to Fineco, an Italian
institutional investor, and affiliates of Fineco, the Company, OAM, and William
Spier, a director of Moto Guzzi and the Company, and Wheatley Partners LP and
Wheatley International Partners LP, each of which is an affiliate of Barry
Fingerhut, a director of Moto Guzzi, for $100 per share (an aggregate price of
US$12,350,000). The shares were issued as follows: (i) 60,000 to Fineco and its
affiliates for cash, (ii) 35,000 shares to the Company for cash, (iii) 16,000 to
OAM in repayment of outstanding loans due to OAM, (iv) an aggregate of 10,000
shares to Wheatley Partners and Wheatley International Partners, in repayment of
loans made by them to Moto Guzzi, and (v) 2,500 shares to Mr. Spier in repayment
of loans made by him to Moto Guzzi.
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In July 2000, Moto Guzzi entered into an agreement with the Series B preferred
stockholders in which it agreed to redeem the Series B preferred stock by
September 30, 2000 in exchange for their agreement not to convert their Series B
preferred stock into Class A common stock prior to that date.
Moto Guzzi closed on the sale of its operating subsidiaries on September 6, 2000
and in the last week of September 2000 it redeemed in full all outstanding
shares of Series B Preferred Stock for a price equal to $100 per share plus
accrued dividends thereon, for a total of approximately US$ 12.6 million
(approximately Lit. 28,300 million at the prevailing exchange rate).
The holders of the Series B Preferred Stock were entitled to receive dividends
at the rate of $7.00 per share per year before any dividends may be paid with
regard to Moto Guzzi's Class A Common Stock, and to receive distribution of $100
per share in liquidation of Moto Guzzi before any liquidation distributions are
made with regard to the Class A Common Stock. Moto Guzzi was required to redeem
the Series B Preferred Stock for $100 per share plus accrued dividends on
December 28, 2001. Holders of Series B Preferred Stock did not have voting
rights, except the right to approve issuance of securities of Moto Guzzi which
would affect the Series B Preferred Stock and the incurrence of debt by Moto
Guzzi, other than refinancing of existing debt or lines of credit used by Moto
Guzzi to finance its day-to-day operations.
Each share of Series B Preferred Stock was convertible into Moto Guzzi Class A
Common Stock at a conversion price of $5.00, based upon the liquidation
preference of the Series B Preferred Stock ($100, plus accrued dividends, per
share), meaning each share of Series B Preferred Stock was convertible into
approximately 20 shares of Moto Guzzi Class A Common Stock.
Upon the occurrence of an event of default the dividend on the Series B
Preferred Stock increased to $10 per share per year, the conversion price of the
Series B Preferred Stock reduced to $2 per share of Moto Guzzi Class A Common
Stock, the holders of the Series B Preferred Stock would become entitled to
elect a majority of Moto Guzzi's directors and Moto Guzzi would be required to
redeem the Series B Preferred Stock for its liquidation preference ($100 per
share, plus accrued dividends).
History of Moto Guzzi Corporation
Moto Guzzi Corporation was originally incorporated in Delaware on August 9, 1995
under the name of North Atlantic Acquisition Corporation ("North Atlantic") to
serve as a vehicle to effect a merger, exchange of capital stock, asset
acquisition or other business combination with an operating business. On August
27, 1997, North Atlantic consummated an initial public offering consisting of
800,000 Units and 150,000 shares of Class B Common Stock, with each Unit
consisting of one share of Class A Common Stock and one warrant to purchase
shares of Class A Common Stock, which resulted in net proceeds to North Atlantic
of approximately $8,000,000.
Merger with Moto Guzzi Corp.
On August 18, 1998, the Company's subsidiary, Moto Guzzi Corp., and for limited
purposes the Company, entered into a merger agreement to merge Moto Guzzi Corp.
with North Atlantic. The preferred stockholders of Moto Guzzi Corp. were also a
party to the merger, which was consummated on March 5, 1999. North Atlantic was
organized in August 1995 as a specialized merger and acquisition
-18-
allocated risk company with the objective of acquiring an operative business and
had not engaged in any substantive commercial business. At the effective time of
the merger, North Atlantic had approximately US$8.9 million (Lit. 16,006
million) in cash, from which merger expenses of approximately US$0.8 million
(Lit. 1,400 million) were subsequently paid, to finance the operations of Moto
Guzzi. On completion of the merger, North Atlantic changed its name to Moto
Guzzi Corporation. As a result of the merger, the Company recorded a gain of
Lit. 25,837 million in the first quarter of 1999, including the effects of the
exchange of redeemable preferred stock of Moto Guzzi Corp. into common stock of
North Atlantic. Through December 31, 1998, the Company had accounted for the
contingent redemption of such preferred stock and included Lit. 13,132 million
in the balance sheet at December 31, 1998 to reflect such contingent obligation.
The closing of the merger provided needed liquidity to Moto Guzzi Corp. A lack
of liquidity had led to component supply shortages in the last quarter of 1998
and the first two months of 1999.
Production and sales were stabilized by May 1999 as proceeds from the Merger
were applied to pay supplier arrears. The financing from the merger was not,
however, sufficient to finance needed investments or seasonal working capital
shortages in the last four months of 1999, and Moto Guzzi again experienced
component supply difficulties at the end of 1999 and particularly in the first
months of 2000 before further financing was obtained in February. See "Issuance
and Redemption of Series B Preferred Stock by Moto Guzzi," above and Item 7
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" below.
History of Moto Guzzi Corp. and Moto Guzzi S.p.A.
Moto Guzzi Corp. was a Delaware corporation formed by the Company in 1996 to
acquire Moto Guzzi S.p.A. and Moto Guzzi North America, Inc., a North Carolina
corporation, the exclusive U.S. importer and distributor of "Moto Guzzi"
(Registered) brand motorcycles and spare parts.
Established in 1921, Moto Guzzi S.p.A. is one of the oldest motorcycle brands in
the world. Between 1921 and 1972, Moto Guzzi S.p.A. operated as an independent
privately owned entity. In 1972, Moto Guzzi S.p.A., was acquired by the Company,
then known as De Tomaso Industries, Inc. Because management attention was
principally focused on the Company's other operating units, especially its
Maserati automobile subsidiary (disposed of in 1993), limited investment was
made in Moto Guzzi's product design and development activities and its
manufacturing operations. Sales declined from a high of 46,487 units in 1971 to
3,274 units in 1993.
Prior to the merger with North Atlantic in March 1999, Moto Guzzi experienced
continuous losses for twelve years, including a loss of Lit. 20,299 million for
the fiscal year ended December 31, 1998, and had not generated cash from
operations for over three years.
Since 1994, Moto Guzzi has made investments in reinforcing management and in
logistical and production control systems and has increased outsourcing of
components to qualified suppliers. It also introduced two new models, the
"Centauro" and "Quota," and updated versions of its "California" and "Nevada"
models which have been well received by customers. Moto Guzzi North America,
Inc. was acquired by the Company in January of 1996 and was transferred to Moto
Guzzi Corp. in October 1996. In February 1997, Moto Guzzi France, S.a.r.l., a
new wholly-owned importer-distributor was established
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in France to strengthen distribution in important markets. Also, in January
1997, distribution in Germany was transferred to a new 25% owned affiliate of
Moto Guzzi, MGI Motorcycle GmbH. In March 2000, Moto Guzzi acquired the
remaining 75% of MGI Motorcycle GmbH.
From 1994 to 1997 Moto Guzzi increased unit sales from approximately 4,300 to
approximately 5,600. In the fiscal years ended December 31, 1998, and December
31, 1999, unit sales amounted to 5,647 units, and 6,275 units, respectively,
although Moto Guzzi continues to operate at a loss.
From 1994 through 1996, capital for Moto Guzzi was supplied by the Company. In
early January 1997, a private placement of Moto Guzzi Corp. redeemable preferred
stock raising gross proceeds of US$6 million was completed, and in June 1997 the
Company committed to Moto Guzzi Corp. approximately US$4 million from the
proceeds of a public offering of the Company's common stock and common stock
warrants. Further, in early 1998, Moto Guzzi Corp. negotiated a Lit. 10 billion
(approximately US$5.6 million) long-term credit facility, which it drew down in
April 1998. From and after December 31, 1998, Moto Guzzi was not in compliance
with certain covenants relating to this facility. Moto Guzzi Corp. obtained Lit.
7 billion of additional debt financing in October 1998 as a result of loans and
credit enhancements by OAM.
With the proceeds from these financings, Moto Guzzi Corp. started to make
investments in research and model development, expenditures on which more than
doubled in 1997 compared to 1996 and increased by a further 39% in 1998 compared
to 1997. To enable substantial further growth in production and sales, the Moto
Guzzi strategic plan would have required total investments in research and
product development of some Lit. 50 billion (approximately US$25 million) over a
five-year period, as well as investments of Lit. 20 billion (approximately US$10
million) in production plant, machinery and information systems. As a
consequence of Moto Guzzi's continuing lack of liquidity, no significant part of
these investments was ever made, and research and development was curtailed in
1999 to some 66% of 1998 expenditure levels.
The proceeds of the merger with North Atlantic were not sufficient to permit
Moto Guzzi to make all of the investments needed to restore its operations to
profitability. The Company had hoped that the merger with North Atlantic and the
listing of the merged entity on the over-the-counter market in New York would
have given access to the additional capital required, and would have provided an
incentive to management and key personnel through a stock option plan. Moto
Guzzi was unable to raise the further funds that it required, and by August
1999, was again experiencing liquidity difficulties. By the end of 1999, these
financial difficulties had become severe, and the consequent difficulties of
component supplies threatened operations.
In December 1999, following the breakdown of negotiations with another
motorcycle company regarding an equity investment in Moto Guzzi, the Company
engaged IMI, a leading Italian investment bank, to pursue strategic alternatives
to enhance shareholder value in its shareholding. An auction process was
conducted by IMI in the first few months of 2000, and on April 14, 2000, Moto
Guzzi entered into a Share Purchase Agreement with Aprilia, and in September
2000, Moto Guzzi closed the sale to Aprilia of its four operating subsidiaries.
-20-
For other material events occurring after December 31, 1999 please see
"Subsequent Events" above.
BUSINESS OF THE COMPANY
Business of Moto Guzzi
Set forth below is a description of Moto Guzzi's business and the strategy
developed by Moto Guzzi's management as of December 31, 1999. On April 14, 2000,
Moto Guzzi entered into a Share Purchase Agreement with Aprilia, providing for a
sale of all of its Subsidiaries to Aprilia, and on September 6, 2000, Moto Guzzi
closed on the sale of the Subsidiaries. See "Subsequent Events -- Closing by
Moto Guzzi (now Centerpoint) on the Sale of its Operating Subsidiaries; Dispute
with IMI Regarding its Fee" above. Accordingly, the description of the Business
of Moto Guzzi set forth below is qualified in its entirety by the information
set forth under such caption. On September 19, 2000, pursuant to the Share
Purchase Agreement, Moto Guzzi changed its name to Centerpoint Corporation.
Since the closing of the sale, with the knowledge and consent of the Company,
Centerpoint has sought to find a suitable operating company to acquire or merge
with using the proceeds from the sale.
The description of the business of Moto Guzzi below refers to the strategies and
operations of the Moto Guzzi business prior to its sale to Aprilia in September
2000 and does not in any way describe or seek to describe the strategies and
operations of Moto Guzzi under its current owners.
Moto Guzzi S.p.A., along with its distribution operations in Italy, the United
States, France and Germany, is a leading Italian manufacturer, marketer and
distributor of performance and luxury motorcycles and motorcycle parts, marketed
under the "Moto Guzzi (Registered)" brand name. Moto Guzzi's primary product
offerings through the date of sale in 2000 included the following models:
o California EV/Special Classic custom/cruisers with 1064 cc
engine and traditional lines.
o California Jackal A 'stripped down' basic Custom/Cruiser
at a lower price point which permits
customer personalization.
o Nevada Club A lower riding cruiser with a 744 cc
engine and chrome accents.
o V-10 Centauro A custom performance bike with a
powerful 992 cc 4-valve air-cooled
engine.
o 1100 Sport Corsa A sleek sports bike with modern lines
and a 1064 cc engine.
o V-11 Sport A "retro sport" model with an innovative
six-speed gearbox.
o Quota A model aimed at the street enduro segment.
o Police Bikes Variations of Moto Guzzi's models
targeted at government agencies,
national and local police forces and
highway patrols.
-21-
The "custom" class of motorcycle is designed for short trips in an urban setting
and is distinguished by its very stylized design and upright seating position.
The term is commonly used in Europe. The "cruiser" class is similar to the
"custom" in use but is more commonly found in the United States. The cruiser
class tends to be more aggressive in its styling, have greater performance
characteristics and greater variation in rider position than "custom"
motorcycles. The "street enduro" class is the motorcycling equivalent to the
sport utility vehicle class of automobiles. These motorcycles, while designed
for ordinary road riding, have some off-road capabilities, such as a taller
frame with greater ground clearance than cruiser or custom bikes, a longer
traveling suspension system to absorb off-road bumps, and a higher seat
position. "Sport" bikes are designed for high performance and imitate the design
of professional racing machines. "Retro Sport" bikes combine innovation and good
performance with traditional styling which evokes classic motorcycles of past
generations.
Strategy
Moto Guzzi's strategy was to increase sales volumes and gross profits by:
o focusing on the breadth, quality and design of its product offerings,
o increasing its marketing activities,
o enhancing its distribution network, and
o leveraging its brand name.
The Company believed that Moto Guzzi's reputation and rich tradition as a
technological innovator and quality manufacturer provided a solid foundation.
Moto Guzzi had built a loyal customer base over the past 79 years through the
outstanding performance and reliability of its motorcycles, as well as its
strong distribution network. The current customer base ranged from professional
motorcycle enthusiasts to government agencies, police departments and highway
patrols around the world.
Moto Guzzi intended to build on its existing product family platforms and to
develop new platforms which would be the basis for its next generation of
motorcycles. New power trains, which represent a significant part of planned
development activities, typically require at least three years' development
time. In the interim, new motorcycles based on the current product platforms
were to be periodically introduced. The focus of these intermediate offerings
was to be on significant improvements in quality, performance and refinement.
Historically, the motorcycle had been an "entry level" form of transport which
has been supplanted by the automobile. Over recent years, the industry has
become established as a recognized leisure industry in developed markets, and
Moto Guzzi's current range of motorcycles, being in the larger and more
expensive segment of the market, are principally targeted at the leisure segment
of the vehicular industry. The management of Moto Guzzi believed that this
recent recognition was one of the major factors behind the growth in the
Company's market segment over the period 1995-1999.
-22-
The Company believed that the U.S. market represented the largest expansion
opportunity for Moto Guzzi. Approximately half of all motorcycles sold in the
U.S. are in the large-engine motorcycle segment. Between 1996 and 1999, U.S.
registrations in this segment of the market increased substantially. Moto Guzzi
planned to implement an aggressive marketing campaign targeted at U.S. consumers
designed to build brand value and name recognition, and to emphasize the
technical and design strengths of Moto Guzzi motorcycles.
Moto Guzzi also planned to expand and enhance its distribution network in the
United States. In addition to increasing the size and quality of its dealer
network, Moto Guzzi planned to introduce new sales incentives programs for
dealers and a floor plan financing program. Other innovations that either had
been or were intended to be introduced in the U.S. included customer purchase
financing and an extended, three-year warranty program.
While public administration sales had traditionally been a stable source of
revenue for Moto Guzzi, management believed that there were unexploited growth
opportunities in this market and planned to refocus its sales and marketing
efforts in this product category.
Finally, Moto Guzzi planned to leverage the "Moto Guzzi" brand by expanding into
new products, markets and services that also offer the opportunity to enhance
its brand awareness and brand image. Moto Guzzi sold a limited line of
non-motorcycle merchandise. In the future, the Company planned to introduce a
range of branded accessories such as hats, jackets, shirts and luggage and
planned to exploit opportunities to license the "Moto Guzzi" brand name to
manufacturers and suppliers of other products and services.
If Moto Guzzi were to have proceeded on all of the projects it was evaluating to
achieve its goals, it estimated that approximately Lit. 50 billion of
development and capital expenditures would have been required over the next few
years, in order to, among other things, refurbish its plant to make it more
competitive and make investments in information technology and systems. Cash
flows from operations, however, would not have been sufficient to finance
entirely such expenditures. Moto Guzzi's product development programs,
therefore, would have been dependent upon its ability to raise further financing
from outside sources.
As described above, when this further financing was not forthcoming in 1999 and
early in September 2000, the Company disposed of the motorcycle operations.
Manufacturing
Moto Guzzi manufactured a high-priced line of motorcycles and distributed parts
and accessories under the trademark "Moto Guzzi (Registered)." Moto Guzzi's
motorcycles varied in engine size from 750 cc to 1,100 cc. Moto Guzzi had, in
recent years, concentrated development and sales efforts on its largest
motorcycles.
All motorcycle manufacturing was conducted in a factory in Mandello del Lario,
Italy. Moto Guzzi manufactured some of the required power train components,
acquired other components from outside suppliers, and performed finishing work
and assembly into motorcycle bodies.
-23-
Seasonal Nature of Business; Backlogs
Moto Guzzi's business was affected by seasonal factors. Retail market demand was
highest in the spring and early summer, while most sales to the Italian
government generally took place in the last quarter of the year. Moto Guzzi,
S.p.A., like most Italian companies, traditionally ceased production in August
of each year and reduced production over the Christmas holidays and during the
period immediately following, while inventory was being taken.
Moto Guzzi's sales were sensitive to successful coordination of demand and
product availability.
As of December 31, 1999, Moto Guzzi had firm orders from public administration
bodies for 540 motorcycles which had not yet been shipped, at an approximate
value of Lit. 6.7 billion. Moto Guzzi expected to fill all such orders within
five months. Moto Guzzi generally received indicative cancelable order programs
in November and December of each year from its dealers and non-owned importers
based on anticipation of retail demand for the forthcoming year.
While Moto Guzzi sought to plan production schedules based on these indicative
orders, production restrictions (exacerbated in recent years by component supply
difficulties) were such that Moto Guzzi frequently could not produce sufficient
motorcycles to meet peak season demand. Typically, when Moto Guzzi could not
deliver on or shortly after the indicated dates, orders were cancelled rather
than delayed due to the seasonal nature of retail demand.
Indicative orders for 2000 exceeded Moto Guzzi's predictions of production
capacity in each of the months January through June 2000. A portion of
indicative orders become firm, and other firm orders are placed, as the
anticipated shipment dates approach. Moto Guzzi used ongoing research from its
sales and marketing departments to forecast expected order volumes from the
domestic Italian dealer network and the dealer networks of its owned importers
in France and the United States and did not receive long term firm orders from
dealers.
Compliance with Governmental Regulations
Moto Guzzi, along with other motorcycle manufacturers, incurred substantial
costs in designing and testing products to comply with vehicle safety and
combustion emissions requirements of the various countries and localities where
its products were sold. These standards added substantially to the price of the
vehicles. Competitive pressures, importation expenses and importers' margins,
however, kept export prices lower than domestic Italian sales prices.
All of Moto Guzzi's motorcycles were manufactured to comply with applicable
safety standards. All Moto Guzzi models complied with all emission standards
applicable in all countries in which they were sold.
Raw Materials and Components
There are many reliable sources for most motorcycle raw materials, including
aluminum for power train components. However, some significant components are
available from only one or two sources. From 1996 through April 2000, situations
arose where Moto Guzzi's suppliers were unable to make timely deliveries of
needed components due to production problems incurred by those suppliers or
because of
-24-
arrears of payment by Moto Guzzi to suppliers. Components supply was also
delayed as a result of design changes made by Moto Guzzi. All of these delays
adversely affected motorcycle production, and in recent years, may have resulted
in lost sales.
While the cost of imported raw materials is affected by variations in the value
of the Italian Lira relative to the currencies of Italy's primary trading
partners, currency exchange rates did not have a significant adverse effect on
costs and price competitiveness in 1997, 1998 or 1999.
Research, Development and Continuing Engineering
Moto Guzzi, while continuously engaged in product improvement and development,
had sought to increase its commitment to develop new products. In 1998, research
and development expenditures by Moto Guzzi were approximately Lit. 4,336
million, compared to Lit. 3,125 million in 1997 and Lit. 1,117 million in 1996.
Expenditures in 1999 were curtailed as a result of Moto Guzzi's restricted cash
flow and were approximately Lit. 2,874. Expenditures in 1999, 1998 and 1997 were
generally incurred in developing production models as well as more powerful
two-cylinder air-cooled and other engines with improved performance and
durability and superior braking systems, suspensions, frames, transmissions and
other components.
Sales, Marketing and Inventory
Moto Guzzi marketed its products primarily through advertising in trade
publications, participation in promotional events and fairs, attendance at trade
shows and from editorial coverage in trade and general circulation press.
All sales by Moto Guzzi S.p.A. were invoiced in Italian Lira except sales by
Moto Guzzi S.p.A. to Moto Guzzi North America, Inc., which were invoiced in U.S.
dollars. Prices were customarily reviewed and, whenever possible, increased to
cover increases in production costs at periodic intervals and in light of
prevailing exchange rates. In 1997, Moto Guzzi generally maintained its selling
prices in order to maintain market share. In 1998, Moto Guzzi increased prices
by approximately 5%, effective in April of that year. In 1999, Moto Guzzi
generally maintained its 1998 selling prices and introduced a new model, the
California Jackal, at a lower price point than previous models in order to gain
market share. As of January 2000, prices of all models were increased by between
3% and 6%. Export sales continued to reflect lower margins than domestic Italian
sales due to importer margins and transportation costs which cannot be passed
through to consumers by higher retail prices. However, this difference did not
affect the Company's marketing strategy.
Moto Guzzi was not affected by any unusual industry practices relating to
returns of merchandise or extended payment. It typically extended payment terms
by between 30 and 60 days in the "out of season" winter months. Moto Guzzi was
obliged to maintain 10 years' inventory of parts for all motorcycles sold to
Italian government agencies. In common with many other motor vehicle
manufacturers, Moto Guzzi also maintained significant spare parts inventories
for commercial reasons. As is common in the industry, Moto Guzzi sold
motorcycles under open purchase orders rather than long-term contracts.
-25-
Distribution
Moto Guzzi maintained a distribution network throughout Italy of over 120
independent dealers. No single Italian dealer accounted for more than 5% of Moto
Guzzi's sales in 1999. The Italian dealers who distributed Moto Guzzi's
motorcycles generally handled other brands as well.
In 1999, a single importer-distributor acted as exclusive importer-distributor
for Moto Guzzi in each of Argentina, Australia, Austria, Belgium, the Czech
Republic, Denmark, Finland, France, Germany, Greece, Holland, Japan, Luxembourg,
Malaysia, Malta, New Zealand, Norway, Portugal, Singapore, Spain, Sweden,
Switzerland, the United Kingdom and the United States.
Moto Guzzi North America was Moto Guzzi's exclusive importer-distributor in the
United States. In 1999, Moto Guzzi North America distributed through a network
of over 100 dealers.
In November 1996, Moto Guzzi replaced its independent French
importer-distributor with Moto Guzzi France S.a.r.l, a wholly-owned subsidiary
of Moto Guzzi S.p.A., which commenced operations in February 1997, and operated
through a network of 78 dealers at the end of 1999.
In March 2000, Moto Guzzi acquired the 75% of the outstanding shares of MGI
Motorcycle GmbH that it did not already own. MGI Motorcycle GmbH was the
exclusive importer-distributor of Moto Guzzi motorcycles and spare parts in
Germany and distributed through a network of over 100 German dealers.
Moto Guzzi provided support to its worldwide dealer network by, among other
things, operating a technical training and support facility at Mandello del
Lario. All dealers were required to attend training courses at the inception of
their relationship and periodically afterwards.
Set forth below is a chart illustrating percentage of motorcycle sales revenues
attributable to various geographic areas in the fiscal years 1997 to 1999.
1999 1998 1997
Italy 33.2% 37.4% 33.9%
Other: Europe ............................. 40.9% 41.0% 46.1%
Of which: France (subsidiary) .............. 11.0% 10.2% 8.8%
Germany (affiliate) ............... 12.9% 15.2% 17.9%
United States (subsidiary) ................. 20.3% 16.8% 16.1%
Other ................................... 5.6% 4.8% 4.0%
Competition
Moto Guzzi was in a highly competitive business, with competition typically
coming from all powered passenger vehicles as well as other motorcycles. The
overall motorcycle market in Italy (excluding scooters) grew in 1999, with new
vehicle registrations increasing by approximately 24.5% compared to the same
period in 1998. Moto Guzzi maintained an extremely small share of the world-wide
motorcycle market, which is dominated by many of the same manufacturers that
predominate in Italy. Many of such companies are far larger and better
capitalized, with greater name recognition. Moto Guzzi competed principally
through such intangible qualities as performance, reputation and quality of
manufacture -- areas in which its competitors also excel.
-26-
The Italian market through 1999 was dominated by large, well-financed Japanese
manufacturers. A number of Italian and foreign manufacturers, principally
Ducati, Honda, BMW, Yamaha, Kawasaki, Aprilia and Suzuki, sell their products in
the Italian market. In 1999, according to data from the Italian Ministry of
Transportation, the Italian market shares of the principal competitors of Moto
Guzzi on a unit basis, excluding scooters, were as follows:
ALL LARGE
MOTORCYCLES MOTORCYCLES*
------------------------------
Honda....................................... 23.4% 18.2%
Yamaha...................................... 20.3% 19.7%
Suzuki...................................... 11.0% 12.3%
Ducati...................................... 10.0% 10.6%
Kawasaki.................................... 8.3% 7.1%
BMW......................................... 7.7% 14.2%
Aprilia..................................... 5.0% 5.0%
Cagiva/Husqvarna............................ 3.1% 0.7%
Harley Davidson............................. 2.5% 4.7%
Moto Guzzi Corporation...................... 2.0% 3.2%
Triumph..................................... 1.6% 3.0%
KTM......................................... 0.9% 0.0%
- --------------------------------
* The Company considers motorcycles with an engine capacity greater than 600
cc as "Large Motorcycles."
Product Liability
Moto Guzzi's business exposed it to possible claims for personal injury from the
use of its products. Moto Guzzi maintained liability insurance with a
per-occurrence and aggregate one-year claim limit of Lit. 18,000 million.
Patents and Trademarks
Except as described below, the business of Moto Guzzi was not and has not been
in any material respect protected by or dependent upon patents, licenses,
franchises or concessions. The component parts of motorcycles are manufactured
pursuant to well known techniques and include components which are not unique to
its products, although some of these components are specially styled and
designed. Moto Guzzi believed that the registered trade name "Moto Guzzi
(Registered)" and the related trademarks are well known and highly regarded
throughout the world, and appropriate steps have been taken to protect Moto
Guzzi's rights in these trade names and trademarks in 67 countries, including
those countries representing significant markets.
Employees and Employee Relations
Relations with Moto Guzzi's employees were considered by its management to be
good, though they had been affected by the temporary lay-off program that
commenced in September 1999. At December 31, 1999, Moto Guzzi had 306 employees,
all of them unionized, of which 23 out of 53 employees included in the lay-off
program had been laid-off. This compares to 332 employees at December 31, 1998.
The
-27-
lay-off program affected Moto Guzzi's ability to benefit from overtime work (as
well as the willingness of employees themselves to do overtime) and while it
persisted, it limited Moto Guzzi's ability to assume temporary or permanent
employees for certain functions, if and when they might have been required to
meet seasonal needs or otherwise. Moto Guzzi could call on those employees who
are laid-off to return to work. Approximately 48% of the employees were engaged
in factory production and the balance in various supervisory, sales, purchasing,
administrative, design, engineering and clerical activities. Resolution of the
national metal workers union contract in 1997 resulted in a one-time payment to
workers of Lit. 900,000 in respect of periods prior to the date of the new
agreement.
Business of LITA
o Set forth below is a description of LITA's business and the strategy
developed by LITA's management as of December 31, 1999. In July 2000 the
Company sold 100% of the shares of LITA to Fintrebi S.r.l. and Mittel
Generale Investimenti S.p.A., companies unaffiliated with the Company. See
"Subsequent Events -- Sale of LITA." Accordingly, the description of the
Business of LITA set forth below is qualified in its entirety by the
information set forth under such caption.
o The description of the business of LITA below refers to the strategies and
operations of the LITA business prior to its sale in July 2000 and does not
in any way describe or seek to describe the strategies and operations of
LITA under its current owners.
Background
On July 25, 1995, the Company, through one of its Italian subsidiaries, acquired
LITA. The Company's temporary management business unit had been retained to
manage LITA after a material decline in LITA's operations and to oversee its
sale to a third party to be identified by the unit. The stock of LITA was
acquired at a cost of Lit. 615 million, representing a discount of approximately
Lit. 1,600 million from the book value of LITA's assets of Lit. 2,264 million.
Manufacturing
LITA manufactured plain and perforated welded specialty steel tubes used
principally in the automotive and furniture industries. The subsidiary's 10,000
square meter factory in Torino has a two-shift production capacity of
approximately 15,000 tons. Beginning in 1996, after the Company's management
intervention, LITA's production equaled approximately 80% of capacity; in prior
years, however, production rarely reached 60% of capacity.
Impact of Changing Prices and Currency Movements
Steel prices had a material effect on the business of LITA. Finished product
prices are affected by the cost of steel; market and competitive pressures are
such that selling prices react quickly to changes in the price of steel. Steel
prices increased modestly early in 1998, stabilized at mid-year, and declined
slightly towards the year-end. To the extent permitted by competition, LITA
sought to pass increased costs from
-28-
changing prices on to its customers by increasing selling prices. The increase
in steel prices in early 1998, however, was not passed on to customers. The
effects of steel prices were not significant to LITA's business in 1999.
Exchange rates historically did not have a significant effect on the business of
LITA, as export sales were not significant to overall sales. Export sales in
1999 amounted to 32.4% of sales and LITA was seeking to increase such sales in
year 2000. As export sales continued to increase, LITA became more sensitive to
exchange rates between Italy and the countries of export.
Plant and Machinery
Much of LITA's plant and machinery were acquired many years ago. LITA did not
have the financial ability to significantly renovate its plant and machinery.
While such machinery continued to function, maintenance costs were higher and
productivity was lower than with newer machinery.
Sales and Marketing
LITA distributed its products directly in all countries except in the U.K.,
where it distributed through exclusive agents, and in certain regions of Italy
(which represented approximately 20% of net sales).
Customers
LITA had begun developing a market in the low-cost furniture industry, which
provides a steadier flow of production and demand than the automotive industry.
In 1997 through 1999, LITA had a number of customers each representing between
5% and 9% of net sales. As a consequence of the recent and planned expansion of
the business, including expansion of export sales and expansion in markets other
than the automobile market, it was expected that in the medium term the
importance of any single customer would have decreased.
Backlogs
LITA had no long-term contracts with customers, and orders typically reflected
the requirements of customers for the following one to two months.
Export Sales
LITA did not have significant export sales prior to 1996. In 1999, 67.6% of net
sales were made in Italy and most of the remaining 32.4% were made elsewhere in
Europe. In 1998, 71.5% of net sales were made in Italy, and most of the
remaining 28.5% were made elsewhere in Europe.
Suppliers
There are multiple suppliers of the special clad and coated steels used by LITA.
LITA did not have written long-term contracts with such suppliers except in
respect of a particular steel quality which was not significant to net sales.
LITA was seeking to formalize its arrangements with major suppliers to reduce
the business risks associated with its planned expansion and to reflect the fact
that close collaboration with the steel suppliers is required to ensure
consistent quality and to shorten lead times for significant changes in supply
levels, which could run from 12 to 18 months.
-29-
Competition
LITA's competitors were principally larger companies, many of them subsidiaries
of Italian steel manufacturers, including Profilmec, S.p.A., Ispadue S.p.A.,
Lombarda Tubi (a division of the Marcegaglia Group) and ITAS, S.p.A. The size of
these competitors and the support of their parent companies enabled them to
compete aggressively in the market. LITA competed principally on quality,
flexibility of service and timeliness of delivery, factors which its competitors
also sought to offer to the market. LITA was in 1997 through 1999 the leading
supplier in Italy of aluminized steel tubes for automotive exhaust systems.
While automotive original equipment manufacturers were increasing their usage of
higher grade stainless steel, which LITA did not currently supply in material
quantities, the automotive aftermarket in Italy and elsewhere in Europe was
increasing its purchases of aluminized steel tubing as a cost-effective
compromise between lower-grade cold steel tubing and the higher priced stainless
steel.
Seasonal Nature of Business
LITA's operations historically have been characterized by seasonal factors due
to the company's dependence on the automobile industry. Demand is lowest over
the period from November to February and is also significantly reduced in the
traditional holiday month of August. Since 1995, LITA sought to reduce this
seasonality by expanding its markets in the furniture industry, which is less
seasonal, but which is more price sensitive and less profitable.
Number of Employees
Labor relations with LITA's employees were considered by management to be
excellent. LITA was not subjected to any strikes or work stoppages in 1998 or
1999. As of December 31, 1999, LITA had 38 employees, of which 30 were engaged
in production and 8 in management, sales and administrative roles. At December
31, 1999, the amount of LITA's severance pay obligation to employees was Lit.
981 million
Compliance With Governmental Regulations
LITA was subject to a number of governmental regulations relating to the use,
storage, discharge and disposal of minerals and alloys used in its manufacturing
processes and to the safety standards of its facilities and processes. LITA had
not been the subject of material environmental or safety claims in the past and
its management believed that LITA's activities conformed in all respects to
presently applicable regulations. The costs of compliance with regulations were
not significant to LITA's operations.
Commercial Real Estate Development Business
The Company acquired a real estate portfolio in 1995 which it had disposed of by
the end of 1999.
In June 1996, the Company sold its 66.7% equity interest in Immobiliare Broseta
S.r.l. which owns industrial and commercial holdings and additional surrounding
land aggregating approximately 66,000 square meters in Bergamo, Italy to its
then 25%-owned affiliate Domer S.r.l. ("Domer") The remaining 33.3% equity
interest in Immobiliare Broseta S.r.l. was owned by Interim S.p.A., a subsidiary
of Domer, and was transferred to Domer. The Company had sought offers from third
parties through an independent broker, and the sale price of Lit. 5,200 million
offered by Domer was the highest of the offers received.
-30-
Domer issued a promissory note for Lit. 1,800 million of the sale price, due
December 31, 1996, which note was subsequently extended for another year,
bearing an interest rate equal to the official Lira discount rate plus 3%. The
balance due of Lit. 3,400 million was to be received from the sales of
apartments to be developed from the Immobiliare Broseta S.r.l. property when
such sales occurred or on June 30, 1999, whichever occurred earlier. This amount
of Lit. 3,400 million carried an interest rate of 6%, payable bi-annually, and
was accounted for at its estimated net present value of Lit. 2,908 million,
applying a discount rate of 12%, considered to be a fair market rate for similar
notes receivable. The book value of the 66.7% interest in Immobiliare Broseta
S.r.l. was Lit. 4,708 million and no gain or loss was recorded on the
transaction.
In December 1997, the Company entered into an agreement to dispose of its 25%
interest in Domer and the promissory notes due from Domer deriving from the
Company's 1996 disposal of Immobiliare Broseta S.r.l.described above. The
consideration for such sale consisted of Lit. 2,900 million in cash, of which
Lit. 1,400 million was paid on December 31, 1997 and Lit. 1,500 million on March
31, 1998, plus the proceeds of sale of 45,977 shares of the Company's Common
Stock, plus the proceeds from the sale of certain apartments located in Bergamo.
The Company received Lit. 1.1 billion in installment payments from the sale of
apartments in 1998 and Lit. 1.4 billion in 1999.
The Company owned an 80% interest in unimproved land aggregating 2,539,020
square meters near Cagliari (Sardinia), Italy which had a book value at December
31, 1998 of Lit. 3,500 million, net of reserves for risks connected with the
permitted use of the land and its development. In November 1999, the Company
sold this land for Lit. 3,000 billion to Finprogetti S.p.A.
The Company owns 100% of Pastorino Strade S.r.l., which owned concession rights
for 196 spaces in a municipal parking garage in Genoa, Italy. The Company
disposed of the concession rights in July 1999. The book value of the concession
rights was lowered to Lit. 1,600 million at December 31, 1998, reflecting the
sale price agreed to.
Structure of the Company
The following is a textual summary of the organizational chart of the Company as
of the date of this report.
The Company owns a 99.9% equity interest in Trident Rowan Servizi S.p.A.
("TRS"), an Italian corporation.
TRS owns a 99.9% equity interest in O.A.M. S.p.A., an Italian corporation. In
March 2001, the Company purchased a 16.35% equity interest in OAM from Daimler
Chrysler Corporation.
OAM owns a 57.7% equity interest in Centerpoint Corporation (in which the
Company also owns a 5% interest) and a 100% equity interest in Trident Rowan
International S.A., a Luxembourg corporation.
Item 2. Properties
The following facilities were in 1999 leased or owned by the Company in the
active conduct of its business:
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(a) 1,700 square feet of office space at Two Worlds Fair Drive, Franklin
Township, Somerset, NJ 08873, in which are located the United States
administrative office of the Company, and which was occupied under a lease
expiring in 2001, at a monthly rental of approximately $2,200. This lease
was terminated in June 2000.
(b) Factory and office facilities owned in fee and located in Mandello del
Lario, Italy in a group of one, two and three story buildings aggregating
54,550 square meters, and which was used by Moto Guzzi. This facility was
disposed of in September 2000 as part of the disposal of the Moto Guzzi
operations.
(c) Moto Guzzi's parts distribution facility is located at a 3,683 square meter
facility in Modena, Italy, under a lease expiring in 2002. This facility
was disposed of in September 2000 as part of the disposal of the Moto Guzzi
operations.
(d) Offices aggregating 480 square meters in Milan, Italy, are leased from an
entity affiliated with Francesco Pugno Vanoni, the former Chairman of the
Board of the Company, and his brother, at a cost of Lit. 161 million in
1998 under a lease expiring on August 31, 2000. The rental is believed to
be comparable to rents paid for similar facilities elsewhere in Milan. From
August 2000, the Company renewed this lease for a part of the offices for a
total of 100 square meters for a rental of Lit. 38 million annually through
July 2002.
(e) Factory and related commercial facility aggregating approximately 10,000
square meters in Torino, Italy leased by LITA, at an annual rental of Lit.
540 million in 1999 and used at approximately 80% of production capacity,
based on equipment in place. This facility was disposed of in July 2000 as
part of the disposal of the LITA operations.
Item 3. Legal Proceedings
The Company and its subsidiaries are involved in litigation in the normal course
of business. Except as follows, management does not believe that an adverse
result in any such action would have a material adverse effect on the Company.
In August 1998, an action entitled "Rawlings Sporting Goods Co., Inc. v. Trident
Rowan Group, Inc. et al.," was commenced in the United States District Court for
the Northern District of New York by the owner of property located in Salisbury,
New York, seeking to hold the Company liable for costs that the owner (Rawlings
Sporting Goods Co.) has allegedly incurred in response to the release or
threatened release of allegedly hazardous substances on land allegedly owned by
the Company between 1948 and 1970, and used by a third party. In an amended
complaint served in December 2000, the plaintiff for the first time further
alleged that the Company still owns a portion of the allegedly contaminated
land.
The action seeks restitution of costs incurred by the plaintiff in responding to
the release or threatened release of such substances at the property, in an
amount in excess of US$ 1.7 million. The action is in the discovery phase, and
the Company intends to contest the action vigorously.
While it is too early to assess the likelihood that the Company will suffer any
liability, the Company believes it has meritorious defenses to the action and
will contest all claims vigorously. An answer has been filed denying all
liability.
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In June 1997, the Company was notified that an action had been commenced against
it in the Court of Common Pleas, a Pennsylvania state court situated in
Philadelphia, entitled "John Wilson et al. v. Trident Rowan Group, Inc. et al,"
(the "Wilson Litigation"), an action eventually consolidated with a related,
companion action against other parties. As a result of detailed communications
over the ensuing months between plaintiff, the Company, the Company's insurer,
and defense counsel appointed by the insurer, it was learned that the plaintiff
was seeking damages for serious burn injuries alleged to have been sustained by
the plaintiff in 1996 from working with a starter unit claimed to have been
manufactured in the 1950's by a company once owned by a predecessor of the
Company.
In mid-1998, approximately one year after onset of the litigation, the Company's
insurer notified the Company that it was disclaiming coverage and defense of the
suit. The Company then retained new counsel to defend it in the action.
On December 19, 2000, a Settlement Agreement and Release was executed by and
between plaintiffs, the Company and I.T.E. Imperial Corporation and Gould
Electronics, Inc., the co-defendants in the Wilson Litigation. The Company and
Gould each agreed to pay 50% of the $2,050,000 settlement amount, subject to
resolution of certain issues between them. The remaining issue, the Company's
claim against Gould for indemnification, was litigated on February 16, 2001.
In March 1999, the Company separately brought suit against Travelers Casualty,
the Company's insurer, to compel it to resume coverage of the underlying claim
and to assume the costs of defense of the personal injury action. In May 2001,
the United States District Court granted summary judgment in favor of the
Company, holding that Travelers must indemnify the Company for liability
incurred and attorney's fees paid in connection with the Wilson litigation, plus
interest. Travelers may appeal this decision.
Pursuant to the May 2001 judgment, on June 11, 2001 legal counsel for the
Company submitted to the Court a proposed form of judgment requiring Travelers
to (i) pay the Company, $2,050,000, plus interest attributable to the sums the
Company has and will have to spend in settlement of the Wilson Litigation, (ii)
$764,045 plus interest representing costs and attorneys fees incurred in
defending the Wilson Litigation, and (iii) $78, 975, plus interest, representing
costs and attorneys fees incurred by the Company in prosecuting its claims
against Travelers.
On June 11, 2001 Travelers filed with the Court a Motion for Reconsideration of
Order or in the Alternative For Resolution of Certain Undecided Issues, seeking
reconsideration of the judgment, or in the alternative asking the Court to
confirm that Travelers liability is limited to $1,000,000 and that Travelers is
entitled to charge the Company a reasonable premium for the liability coverage.
In July 2001, legal counsel for the Company filed a motion with the Court
responding to Travelers' motion.
On June 15, 2001, a verdict was rendered by the Court of Common Pleas of
Philadelphia County holding that the Company is responsible for paying all
settlement funds and ordering the Company to pay Gould $1,025,000 plus interest
at a rate of 7% per annum from the date Gould paid the plaintiffs. On June 27,
2001, the Company's legal counsel advised counsel to Travelers of the judgment
and formally tendered to Travelers responsibility for deciding whether any
post-trial motions and/or notice of appeal should be filed. On June 29, 2001
legal counsel for Travelers responded that Travelers refused to take any
position
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on the issues. The appeal period for the judgment expired on July 15, 2001, and
the judgment became due and payable to Gould on that date.
Item 4. Submission of Matters to Vote of Security Holders
At the 1999 Annual Meeting of Shareholders held at the offices of Kramer, Levin,
Naftalis & Frankel, 919 Third Avenue, 41st Floor, New York, NY 10022 at 10:00
a.m. on December 6, 1999 the Company's stockholders were presented with five
proposals, as set forth below:
PROPOSALS NO. 1 THROUGH NO. 4:
PROPOSAL NO. 1: TO ESTABLISH THE SIZE OF THE BOARD
The Board proposed to amend the Articles of Incorporation to eliminate
provisions fixing the minimum number of directors under certain circumstances.
PROPOSAL NO. 2
TO ELIMINATE THE REQUIREMENT FOR AT LEAST THREE INDEPENDENT DIRECTORS
The Board proposed to amend the Articles of Incorporation to eliminate the
requirement that at least three members of the Board of Directors be independent
directors.
PROPOSAL NO. 3
TO ELIMINATE A STAGGERED BOARD OF THREE CLASSES
The Board proposed to amend the Articles of Incorporation to eliminate the
staggered Board of Directors and to provide for the Board to consist of a single
class being elected each year.
PROPOSAL NO. 4
TO ELIMINATE PROVISIONS ENTITLING TAMARIX
TO NOMINATE UP TO THREE DIRECTORS
The Board proposed to amend the Articles of Incorporation to eliminate
provisions giving Tamarix the right under certain circumstances to nominate
members of the various classes of directors.
The Company's stockholders were permitted to vote separately with respect to
each proposal, but the adoption of each of proposals 1 through 4 was conditioned
upon the adoption of the other proposals.
PROPOSAL NO. 5
To elect the following persons as Directors of the Company to serve until the
Company's 2000 Annual Meeting and until their successors are elected and
qualified:
Emanuel Arbib
Gianni Bulgari
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Duncan Chapman
Howard E. Chase
Andrea Della Valle
Mark S. Hauser
Mark B. Segall
The adoption of Proposal No. 5 was conditioned upon the adoption of proposals 1
through 4.
At the special meeting:
(i) the holders of 3,041,442 shares of the Company's Common Stock
(representing 69% of shares of record) voted in favor of Proposal 1;
(ii) the holders of 3,035,108 shares of the Company's Common Stock
(representing 69% of shares of record) voted in favor of Proposal 2;
(iii) the holders of 3,041,442 shares of the Company's Common Stock
(representing 69% of shares of record) voted in favor of Proposal 3;
(iv) the holders of 3,037,871 shares of the Company's Common Stock
(representing 69% of shares of record) voted in favor of Proposal 4;
(v) the holders of 3,667,066 shares of the Company's Common Stock
(representing 83% of shares of record) voted in favor of electing
Emanuel Arbib, Gianni Bulgari, Duncan Chapman, Andrea Della Valle,
Mark Hauser and Mark Segall as directors of the Company; and
(vi) the holders of 3,667,016 shares of the Company's Common Stock
(representing 83% of shares of record) voted in favor of electing
Howard Chase as a director of the Company;
thereby approving each of the Proposals.
PURPOSES AND EFFECTS OF THE AMENDMENTS TO THE ARTICLES OF INCORPORATION
On May 2, 1997, pursuant to an agreement between Tamarix and Finprogetti, S.p.A.
("Finprogetti") dated March 7, 1997 (the "Tamarix/Finprogetti Acquisition
Agreement"), Finprogetti sold to Tamarix 1,000,000 shares of the Company's
Common Stock owned by Finprogetti. Tamarix and Finprogetti agreed that
Finprogetti would have a put right and Tamarix would have a call right with
respect to an additional 635,000 shares of Common Stock owned by Finprogetti.
Tamarix assigned to Gianni Bulgari its rights and obligations as to 317,500
shares in February 1999, who subsequently acquired such shares from Finprogetti.
In connection with the Tamarix/Finprogetti Acquisition Agreement, pursuant to an
agreement dated April 8, 1997, by and between the Company and Tamarix Capital
Corporation (the "Inducement Agreement"), the Company amended its By-Laws, and
following shareholder approval at the Annual Meeting of Shareholders on December
9, 1997, the Articles of Incorporation of the Company were amended to provide
(i) for a staggered Board of Directors which includes one or more persons
nominated
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by Tamarix in each of the three classes, (ii) for a representative of Tamarix to
be Chairman of the Board of the Company and (iii) that the Board of Directors be
expanded and limited to not more than 11 members, under certain circumstances,
and otherwise to be limited to 10 members, such Board to include three Tamarix
nominees and an additional three independent directors who are experienced in
business matters and otherwise reasonably acceptable to Tamarix. These
amendments were all included in individual paragraphs of Article 5 of the
Company's Articles of Incorporation and together constitute substantially all of
Article 5.
On March 9, 1999, Tamarix distributed to entities controlled by two of its
principals, Gianni Bulgari and Emanuel Arbib, 634,921 shares of Common Stock of
the Company theretofore owned by Tamarix pursuant to a December 1998 amendment
to an agreement among the Tamarix shareholders. In connection with the
resolution of certain disputes between Mr. Bulgari and the Company, Messrs.
Hauser, Bulgari, Arbib, Spier and Chase entered into an agreement on September
21, 1999 (the "Settlement Agreement") with the Company providing that among
other things, the Company would propose for election the director nominees
described above under Proposal 5 and would vote their shares of the Company in
support of the election of such persons and the proposed amendments to the
Articles of Incorporation set forth above. The parties to the Settlement
Agreement beneficially owned, in the aggregate, approximately 58.4% of the
outstanding shares of Common Stock of the Company. See "Principal Security
Holders." The Settlement Agreement was approved by the Board of Directors after
determining that it was in the Company's best interests. The amendments to the
Articles of Incorporation were intended to eliminate the governance changes in
the Articles of Incorporation, which had been adopted in 1997 to assure
Tamarix's continued participation in the governance of the Company and which are
inconsistent with the terms of the Settlement Agreement. As a result of the
amendments, it is anticipated that it may be easier to effect a change in a
majority of the members of the Board of Directors.
The Company's By-Laws were also amended, subject to approval of the above
proposals, to eliminate all amendments adopted in accordance with the Inducement
Agreement granting special rights to Tamarix.
THE BOARD OF DIRECTORS RECOMMENDED A VOTE FOR THE APPROVAL OF THE ABOVE
DESCRIBED PROPOSALS.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
From August 22, 1996 until June 5, 1997, the Company's Common Stock traded on
the Nasdaq SmallCap Market under the symbol TRGI. The reported prices represent
inter-dealer prices, which do not include retail mark-ups, mark-downs, or any
commission to the broker-dealer, and may not necessarily represent actual
transactions. From June 5, 1997 until March 17, 1999, the Common Stock and the
newly issued Warrants traded on the Nasdaq National Market. Since March 18,
1999, the Common Stock and Warrants have been quoted in the Over-The-Counter
market Bulletin Board.
-36-
Common Stock
Bid Prices
---------------------------
High Bid Low Bid
-------- -------
1997 1st Quarter 9-1/2 7-3/8
2nd Quarter 8-1/2 4-7/8
3rd Quarter 7-1/4 4-1/8
4th Quarter 7-1/8 4-15/16
1998 1st Quarter 6-3/4 3-9/16
2nd Quarter 7-1/2 5
3rd Quarter 6-9/16 4
4th Quarter 5-7/16 3
1999 1st Quarter 7 4 1/8
2nd Quarter 6-7/16 4-5/8
3rd Quarter 5 1-15/16
4th Quarter 4-1/4 1-1/8
2000 1st Quarter 3-3/4 2-7/8
Warrants
Bid Prices
---------------------------
High Bid Low Bid
-------- -------
1997 2nd Quarter from 1-1/8 3/8
June 5
3rd Quarter 1-7/16 11/32
4th Quarter 1-3/8 3/4
1998 1st Quarter 1 7/16
2nd Quarter 1-7/16 3/4
3rd Quarter 15/16 3/8
4th Quarter 27/32 3/16
1999 1st Quarter 1-1/16 9/16
2nd Quarter 13/16 7/16
3rd Quarter 15/32 7/32
4th Quarter 1-1/4 1/16
2000 1st Quarter 6/16 3/32
As of August 8, 2001 there were approximately 1000 holders of record of the
Company's Common Stock.
DIVIDEND POLICY
The Company has not paid any dividends since its inception and does not
anticipate paying any dividends on its Common Stock for the foreseeable future.
Management intends to retain earnings, if any, for use in its business and to
support development and expansion of the Company's business. Under an agreement
with Tamarix, the approval of the Tamarix-designated directors is required as a
condition of paying dividends.
Item 6. Selected Financial Data
The selected consolidated financial data set forth below for the fiscal years
ended December 31, 1999, 1998, 1997, 1996 and 1995 have been derived from the
Company's audited financial statements. The information should be read in
conjunction with "Management's Discussion and Analysis of Financial
-37-
Condition and Results of Operations" and such financial statements, including
the notes thereto, included elsewhere in this Form 10-K.
Year ended December 31,
----------------------------------------------------------------------
1999 1999 1998 1997 1996 1995
Income Statement Data US$000(a) Lit.m Lit.m Lit.m Lit.m Lit.m
--------- ----- ----- ----- ----- -----
Net Sales(b) .................... $ 1,033 Lit.1,987 Lit.3,775 Lit.2,535 Lit.2,757 Lit.2,085
Loss from continuing operations . (3,400) (6,541) (6,485) (9,803) (11,202) (5,458)
Net profit/loss ................. 1,292(c) 2,485(c) (25,019) (22,477) (15,001) (6,980)
Cash dividends per common share . -- -- -- -- -- --
Balance Sheet Data
Total assets .................... 12,322 23,706 23,938 55,089 79,877 122,180
Long-term debt net of current
portion ......................... 6,5678,609 12,634 1,271 2,316 10,839 13,900
Loss per share(b)
Continuing operations ........... (0.79) (1,528) (1,415) (2,131) (2,440) (1,615)
Discontinued operations ......... 1.10(c) 2,109(c) (4,043) (2,755) (828) (450)
Figures for 1995 through 1999 have been restated to reflect the discontinuance
of the Moto Guzzi and LITA businesses.
(a) Converted solely for the convenience of the reader at Lit. 1,924 : US$
1.00, the approximate rate as at December 31, 1999.
(b) As the company had losses from continuing operations in each of the
years 1995 through 1999, all options, warrants and other dilutive
instruments were antidilutive for each of the years above.
(c) Includes US$ 13,429/Lit. 25,837 gain relating to the merger of the
discontinued Moto Guzzi business with North Atlantic Acquisition Corp.
equal to US$ 3.14/Lit. 6,036 per share.
Exchange Rates
Since all of the production, and much of the sales, of the Company occurred in
Italy, the Company's primary financial statements are reported in Italian Lira,
the functional currency of the Company as defined by generally accepted
accounting principles. U.S. Dollar translations are provided solely for the
reader's convenience and have been made at the approximate rate of 1,924 Lira to
the dollar as of December 31, 1999.
Prior to September 1992, the Bank of Italy maintained the value of the Lira
within the narrow band contemplated by the Exchange Rate Mechanism (the "ERM")
of the European Monetary System (the "EMS"). On September 17, 1992, in response
to strong downward pressure on the exchange rate of the Lira against other EMS
currencies that continued despite intervention by the Bank of Italy and the
central banks of other nations participating in the EMS, the Italian government,
in consultation with the Bank of Italy, suspended the Lira from the ERM.
Following this suspension, the value of the Lira immediately declined by
approximately 20% against the main EMS currencies with similar consequent
depreciation against the U.S. Dollar. The Lira was readmitted into the ERM on
November 25, 1996. On January 1, 1999, Italy participated as one of the 11
European countries in a European common currency, the Euro.
-38-
The following table sets forth, for the period indicated, the high, low, average
and end of period exchange rates expressed in Lira per dollar (rounded to the
nearest Lira):
Calendar Year High Low Average End of Period
------------- ---- --- ------- -------------
2000 2,340 1,874 2,103 2,061
1999 1,933 1,631 1,819 1,924
1998 1,823 1,590 1,733 1,656
1997 1,837 1,520 1,703 1,768
1996 1,606 1,499 1,542 1,522
1995 1,767 1,565 1,626 1,588
Fluctuations in the exchange rates between the Lira and the Dollar will affect
the Dollar equivalents of the Company's reported revenues and earnings. The
Company does not currently engage in hedging activities to reduce its exposure
to exchange rate fluctuations.
Item 7. Management's Discussion and Analysis of Financial Conditions and Results
of Operations
Portions of the discussion and analysis below contain certain "forward looking"
statements which involve risks and uncertainties. The Company's actual results
may differ significantly from the results discussed in the forward looking
statements. Factors that might cause such a difference include, but are not
limited to, lack of adequate capital to continue operations, changes in currency
exchange rates, other factors discussed in the report as well as factors
discussed in other filings made with the Securities and Exchange Commission.
Although the Company believes that the assumptions underlying the forward
looking statements contained herein are reasonable, any of the assumptions could
prove inaccurate, and therefore, there can be no assurance that the forward
looking statements included herein will prove to be accurate.
General
In calendar year 2000, the Company disposed of two of its industry segments with
the sale of its motorcycle and steel tube operations, as discussed in Item 1.
These have been accounted for as discontinued operations and the results of
operations for 1999 and prior years have been restated to reflect the
discontinuance.
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Year ended December 31, 1999 compared to Year ended December 31, 1998
Dec. 31,
1999 Dec. 31, 1998
Lira m. Lira m.
-------- --------------
Net sales ....................................... 1,987 100.0% 3,775 100.0%
Cost of sales ................................... (1,055) (53.1%) (2,447) (64.8%)
932 46.9% 1,328 35.2%
Selling, general and administrative expenses .... (5,829) (293.4%) (6,303) (167.0%)
Impairment expense .............................. (900) (45.3%) (2,688) (71.2%)
Operating loss .................................. (5,797) (291.8%) (7,663) (203.0%)
Interest expense ................................ (589) (29.6%) (761) (20.2%)
Interest income ................................. 1,178 59.3% 1,554 41.2%
Other income, net ............................... (1,245) (62.7%) 546 14.5%
Loss from continuing operations before Income taxes (6,453) (324.8%) (6,324) (167.5%)
and minority interests ......................
Income taxes .................................... (88) (4.4%) (161) (4.3%)
Profit/(loss) from continuing operations ........ (6,541) (329.2%) (6,485) (171.8%)
Discontinued operations: ........................ 3,324 (21,374)
Losses of motorcycle segment after income taxes of (22,976) (21,802)
Lit. 88 and Lit. 519 ........................
Gain on merger of motorcycle subsidiary ......... 25,837 --
Profit of steel tube segment after income taxes of 708 428
Lit. 164 and Lit. 0 .........................
Provision for loss on disposal of steel tube (245) --
segment .....................................
Minority interests .............................. 5,702 2,840
Net profit/(loss) ............................... 2,485 (25,019)
Net sales principally represent sales of the Company's temporary management
services subsidiary, TIM. Net sales in 1999 include sales to the steel tube
operations of Lit. 389 million in respect of performance based fees for TIM's
management intervention and Lit. 287 million in 1998 in respect of a TIM manager
who supervised the steel tube operations. The decrease in sales in 1999 compared
to 1998 principally results from fact that 1998 includes a significant
intervention by TIM on behalf of a Swiss client in connection with its
acquisition of a business in Italy.
Gross margins increase as ant incidence of net sales in 1999 compared to 1998
due to the significant effect of the Lit. 389 million performance-based fee
charged by TIM to the steel tube operations.
The reduction of Lit. 474 million or 7.5% in selling general and administrative
expenses in 1999 compared to 1998 reflects cost reductions implemented by the
Company. The cost saving program is hindered by the need to maintain accounting
and tax compliance systems for both Italian and U.S. purposes and the complexity
of the disposal programs in 1999 and 1998 and of corporate restructuring
programs. Further, in 1999, corporate salaries included an amount of Lit. 481
million (US$250,000) in respect of the issuance of a $250,000 5% Debenture to
Emanual Arbib, a director of the Company in respect of his efforts in raising $6
million from the issuance of the 5% Debentures to third parties. Cost savings
achieved were also partially offset by the average US$ : Lira exchange rate
which was 5% higher in 1999 compared to 1998. Higher legal costs were incurred
in 1999 compared to 1998 principally in
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connection with the U.S. litigation described in Item 3. Significant elements of
selling, general and administrative costs are as follows:
Dec. 31 1999 Dec. 31 1998
Lit. m Lit. m
---------------------------
Corporate salaries ............................ 1,421 1,157
Legal costs ................................... 938 547
Other costs.................................... 2,570 3,208
Temporary management services subsidiary ...... 900 1,391
---------------------------
5,829 6,303
===========================
Other costs include rent and office expenses for the Company's offices in New
Jersey (closed in 2000) and in Milan, Italy, tax, accounting and compliance
costs in the U.S. and Italy, professional fees in connection with the disposal
of operations in Italy, public company costs in the U.S. and certain statutory
costs in Italy.
Impairment expense in 1999 reflects Lit. 500 million in respect of the December
1999 disposal of land in Sardinia and Lit. 400 million impairment of trademarks
and other intangibles of TIM, to reflect the 2000 terms of sale of this
subsidiary. In 1998, impairment expense reflected reserves made for the
Company's concession rights over parking spaces in Genoa in the light of
negotiations for their disposal, completed in 1999.
Interest expense in 1999 principally reflects interest on residual Italian loans
dating from when OAM was operative (prior to 1993) and interest on bridge
financing provided in October 1998 by Tamarix and Mr. Giovanni Bulgari repaid in
November and May 1999 respectively. Final installments on the OAM loans are due
to be paid in 2001. In 1998, interest principally reflects the same items as in
1999 and additionally interest on the Company loan note issued to the company
pursuant to its 1996 stock redemption program and repaid in October 1998.
The principal elements of interest income in 1999 are Lit. 916 million
receivable by OAM in respect of the value of warrants of Moto Guzzi Corporation
issued to OAM as remuneration for the ongoing provision of finance to the
disposed motorcycle operations, Lit. 176 million other interest paid to OAM by
the disposed motorcycle operations and, for the balance, interest receivable on
cash balances and tax receivables. In 1998, Lit. 533 million of interest
receivable is in respect of OAM financing of the disposed motorcycle operations
and the balance was principally of interest on cash and short-term fixed
interest investments.
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Significant elements of other income, net were as follows:
Dec. 31 1999 Dec. 31 1998
Lit. m Lit. m
-----------------------------
Foreign exchange ................................. (2) (2)
Release of reserves for claims ................... 1,009 714
Additional reserve for U.S. litigation............ (2,970) --
Rental income .................................... 80 150
Other ............................................ 638 (316)
-----------------------------
(1,245) 546
=============================
The U.S. litigation is described in Item 3 of this report. Additional reserve
was made in 1999 in light of preliminary judgments -see Item 3 which is hereby
incorporated by reference. Release of reserves for claims principally relates to
reserves made in respect of companies disposed in the early 1990's based on
final settlements of claims deriving from such disposals.
As a result of the above items, losses from continuing operations were
substantially unchanged at Lit. 6.5 billion in 1999 compared to 1998. Losses
from the discontinued motorcycle operations increased to Lit. 23.0 billion in
1999 compared to Lit. 21.8 billion in 1998 as benefits from an 11% increase in
unit sales volumes were offset by the effects of product mix and higher selling,
general and administrative expenses from increased U.S. selling expenses,
marketing costs for a new product launch and the higher costs of being a quoted
company from March 1999 following the merger of the motorcycle operations with
and into North Atlantic Acquisition Corp., which merger generated a gain of Lit
25.8 billion. This merger and the gain is described in Note 3 to the financial
statements and in Item 1, above. The Company had hoped that the merger and the
status of Moto Guzzi as a public company would have enabled the business to
raise the further capital needed to refurbish its operations and increase
production and sales, but when such further financing was not forthcoming and
with operations affected adversely by a liquidity crisis from the second half of
1999, a merger with or disposal to another better financed party became the only
viable strategic alternatives. The motorcycle operations were sold in September
2000 following a public auction process, again described above in Item 1 and in
the Notes to the Financial Statements.
The Company also sold its steel tube operations in 2000. While this business was
profitable in 1999 and 1998, mainly due to favorable market conditions and
prices, it did not present opportunities for growth and future profits which
justified further investment. Consequently it was disposed to a trade purchaser.
The Company has classified minority interests after losses from continuing
operations, as substantially all of the minority interests reflect minority
shareholders' interests in the discontinued motorcycle operations.
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Year ended December 31, 1998 compared to Year ended December 31, 1997
Dec. 31 Dec. 31
1998 1997
Lira m. Lira m.
------- -------
Net sales ........................................ 3,775 100.0% 2,535 100.0%
Cost of sales .................................... (2,447) (64.8%) (1,570) (61.9%)
1,328 35.2% 965 38.1%
Selling, general and administrative
expenses .................................... (6,303) (167.0%) (8,151) (321.5%)
Impairment expense ............................... (2,688) (71.2%) (4,001) (157.8%)
Operating loss ................................... (7,663) (203.0%) (11,187) (441.3%)
Interest expense ................................. (761) (20.2%) (832) (32.8%)
Interest income .................................. 1,554 41.2% 2,516 99.3%
Other income, net ................................ 546 14.5% 2,046 80.7%
Loss from continuing operations before income taxes
and minority interests ...................... (6,324) (167.5%) (7,457) (294.2%)
Income taxes ..................................... (161) (4.3%) (222) (8.8%)
Charge for issuance of warrants .................. -- (4.3%) (2,124) (83.8%)
Loss from continuing operations .................. (6,485) (171.8%) (9,803) (386.7%)
Discontinued operations: ......................... (21,374) (13,715)
Losses of motorcycle segment after income taxes of
Lit. 519 and Lit. 235 ....................... (21,802) (14,164)
Profit of steel tube segment after income taxes of
Lit. 0 and Lit. 0 ........................... 428 449
Minority interests ............................... 2,840 1,041
Net loss ......................................... (25,019) (22,477)
Net sales principally represent sales of the Company's temporary management
services subsidiary, TIM. Net sales in 1998 and 1997 include sales to the steel
tube operations of Lit. 287 million and Lit. 204 million in respect of a TIM
manager who supervised the steel tube operations. The increase in sales in 1998
compared to 1997 principally results from a significant intervention by TIM on
behalf of a Swiss client in connection with its acquisition of a business in
Italy in the first quarter of 1998.
The reduction of Lit. 1,848 million or 22.7% in selling, general and
administrative expenses in 1998 compared to 1997 reflects cost reductions
implemented by the Company following its decision to focus resources on its Moto
Guzzi motorcycle business and not invest in its other businesses.
The cost saving program is hindered by the need to maintain accounting and tax
compliance systems for both Italian and U.S. purposes and the complexity of the
disposal programs and corporate restructuring programs. Significant elements of
selling, general and administrative costs are as follows:
-43-
Dec. 31 Dec. 31
1998 1997
Lit. m Lit. m
-----------------
Corporate salaries ..................... 1,157 1,442
Legal costs ............................ 547 280
Other costs ............................ 3,208 5,328
Temporary management services subsidiary 1,391 1,101
-----------------
6,303 8,151
=================
Other corporate costs include rent and office expenses for the Company's offices
in New Jersey and in Milan, Italy, tax, accounting and compliance costs in the
U.S. and Italy, professional fees in connection with the disposal of operations
in Italy, public company costs in the U.S. and certain statutory costs in Italy.
The principal areas of reduction in 1998 compared to 1997 resulted from the
trimming of administrative staff in the Milan, Italy, office and New Jersey
offices and reductions in travel and related expenses.
Impairment expense in 1998 reflected reserves made for the Company's concession
rights over parking spaces in Genoa in the light of negotiations for their
disposal, completed in 1999. In 1997, consequent to decisions to focus resources
only on the Moto Guzzi business, impairment expense reflected Lit. 3,000 million
in respect of trademarks and other intangibles of TIM and Lit. 1,001 million in
respect of goodwill.
Interest expense in 1998 principally reflects interest on residual Italian loans
dating from when OAM was operative, interest on bridge financing provided in
October 1998 by Tamarix and Mr. Giovanni Bulgari repaid in November and May 1999
respectively and interest on the Company loan note issued to the Company
pursuant to its 1996 stock redemption program and repaid in October 1998. In
1997, interest principally related to the OAM loans, the Company loan note to
the Company and on real estate loans for the first quarter of 1997 when such
loans were disposed along with the real estate.
The principal elements of interest income in 1998 and 1997 are interest
receivable on cash balances and tax receivables. Interest income also includes
Lit. 533 million and Lit. 371 million in 1998 and 1997 respectively of interest
receivable in respect of OAM financing of the disposed motorcycle operations.
Interest income was greater in 1997 than 1998 due to higher interest rates and
also increased cash and short-term investments in 1997. In part, increased
interest income results from the effects of interest for the whole of 1997 as
compared to 6 months of 1998 on certain funds pledged as collateral for share
repurchases effected in 1997 - See Note 4 to the Financial Statements.
-44-
Significant elements of other income, net were as follows.
Dec. 31 Dec. 31
1998 1997
Lit. m Lit. m
---------------------
Foreign exchange ............. (2) 1,851
Release of reserves for claims 714 --
Rental income ................ 150 477
Other ........................ (316) (282)
---------------------
546 2,046
=====================
Exchange gains were principally in respect of bridge financing, until completion
of the Company's June 1997 public Common Stock offering, by the Company's
Italian subsidiaries to the U.S. parent.. Release of reserves for claims
principally relates to reserves made in respect of companies disposed in the
early 1990's based on final settlements of claims deriving from such disposals.
The Company booked a charge in 1997 of Lit. 2,124 million in respect of
1,250,000 warrants issued to the manager of Tamarix in connection with a change
of control of the Company - see Note 1 to the Financial Statements.
As a result of the above items, losses from continuing operations decreased to
Lit. 6.5 billion in 1998 from Lit. 9.8 billion in 1997.
Losses from the discontinued motorcycle operations increased to Lit. 21.8
billion in 1998 compared to Lit. 14.2 billion in 1997. In summary, the increased
loss resulted firstly from a decision to grow the business, along with the
decision not to pass on material and cost increases in selling prices, increased
research and development expenditure and increased marketing, sales and general
management in connection with expansion of operations in the U.S. and France and
plans to improve all areas of its business. Moto Guzzi then incurred losses
related to inefficiencies deriving from inadequate funds to pursue such a growth
strategy (a higher incidence of fixed production costs on reduced production
volumes consequent to new model introductions and component shortages related to
liquidity shortages, reorganization costs connected with refocusing of short
term strategies and product offerings in line with limited availability of funds
reduced finance). As discussed above, the financial restraints and consequences
evidenced in 1998 persisted and led to the decision to dispose of the
operations.
The Company has classified minority interests after losses from continuing
operations, as substantially all of the minority interests reflect minority
shareholders' interests in the discontinued motorcycle operations.
Liquidity and Capital Resources
Overview
The Consolidated Statements of Cash Flows in the Financial Statements evidence a
consistent trend in 1997 to 1999 of the Company raising funds through the
realization of investments, assets and receivables and from capital markets (in
1997 from a public offering of its shares, in 1998 from loans from related
parties following unsuccessful attempts to raise funds from public markets and
in 1999 from the issuance
-45-
of a convertible debenture) which funds were then principally applied to finance
the discontinued motorcycle operations and to finance losses from continuing
operations. In 1998, the Company also applied the proceeds realized from the
sale of investments to meet share purchase commitments -- secured for the major
part by those investments sold -- see Note 4 to the Financial Statements.
Significant cash activities in 1999
In 1999, the principal asset realizations were Lit. 6.0 billion of tax
receivables and proceeds from the sales of the Company's concession rights over
parking spaces in Genoa (Lit. 1.6 billion) and land in Sardinia (Lit. 3.0
billion). The Company also continued to collect receivables, principally
installments from the sale of real estate in prior years for Lit. 2.0 billion.
From such proceeds, the Company was able to fund 1999 losses, repay Lit. 6.6
billion in respect of related party loans (which had been raised in 1998 to fund
the motorcycle operations and the Company loan note repayments to the Company),
pay down debt installments of its OAM subsidiary and set aside Lit. 3.1 billion
in short-term investments to meet the estimated remaining loan installments and
expenses through eventual closure of its OAM subsidiary.
The discontinued motorcycle operations were financed in the first part of 1999
by the proceeds from the merger of the Company's Moto Guzzi Corp. subsidiary
with and into North Atlantic Acquisition Corp., as described in Item 1, above
and Note 3 to the Financial Statements. In August 2000, certain Moto Guzzi
directors and their affiliates provided US$ 1.25 million (Lit. 2.3 billion) to
meet urgent cash needs of the motorcycle operations. By the end of 1999, the
motorcycle operations were again suffering from a liquidity crisis which
threatened the Company's ability to effect an orderly disposal. The Company
raised Lit. 10.7 billion, net, from issuance in December 1999 of a 5%
convertible debenturebond (See Note 10 to the Financial Statements) to partly
meet these needs.
Of the proceeds of the 5% Convertible Debentures issued by the Company in
December 1999, US$3,500,000 (Lit. 6.9 billion at the then prevailing exchange
rate) was used in February 2000 to subscribe to Series B Preferred Stock of
Centerpoint Corporatation, which along with US$ 6 million from external
investors, was sufficient to finance the motorcycle operations through their
eventual disposal. See Item 1, above and Notes to the Financial Statements for
details of the Centerpoinyt Series B Preferred Stock issuance and the disposal
of the motorcycle operations.
Future liquidity needs
Upon disposal of the motorcycle operations, the Company's 62.7% subsidiary
received Lit. 60.3 billion in net proceeds. It also has the right to receive, in
September 2001 and 2007, any remaining part of two escrow accounts containing a
total of Lit. 9.4 billion, after satisfaction of any valid claims, pursuant to
the sale agreement, on such escrow accounts by the purchaser of the motorcycle
operations.
From these proceeds, Centerpoint redeemed its Series B Preferred Stock, along
with accrued dividends, on September 30, 2000. The Company received the proceeds
of US$ 3.5 million (Lit. 7.7 million at the then prevailing exchange rate) from
the redemption of such stock, and its OAM subsidiary received US$ 1.6 million
(Lit. 3.5 billion). The Company also received Lit. 1.5 billion and will receive
a further Lit.1.0 billion in 2001 from the sale of its steel tube operations.
-46-
In July 2000, the Company negotiated an agreement to purchase the shares of the
minority shareholder in OAM for US$ 2.5 million, and the Company acquired this
interest in March 2001. This purchase will enable an orderly winding-up of OAM
and the Company's corporate structure in Italy, though such winding-up is likely
to may take up to several years due to tax complications.
Centerpoint's (then Moto Guzzi's) Agreement with the Company and OAM to present
a liquidation proposal to its stockholders following the Closing of the Sale of
its operations to Aprilia
In order to induce OAM to deliver its letter to Aprilia, Centerpoint agreed with
OAM and the Company by letter dated April 14, 2000 that, among other things, it
would pay IMI's fees in connection with the sale. The April 14th letter was
amended on June 8, 2000 to provide, among other things, that Centerpoint would,
as promptly as practicable after the closing of the sale, but in no event later
than 90 days following the closing, hold a meeting of stockholders to consider
and vote upon a proposal to liquidate all of Centerpoint's assets and dissolve
itself. The date for proceeding to propose a liquidation was subsequently
extended by the Company and OAM to July 15, 2001.
Since the closing of the sale, with the knowledge and consent of the Company,
Centerpoint has sought to find a suitable operating company to acquire or merge
with using the proceeds from the sale. Centerpoint has advised the Company that
if it finds a suitable acquisition or merger candidate then it will probably
propose the acquisition of, or merger with, such entity as an alternative to
liquidation.
Under Delaware Law, any liquidation of Centerpoint will require the approval of
the holders of a majority of Centerpoint's Class A common stock, and compliance
by Centerpoint with applicable Securities and Exchange Commission regulations
concerning any proposed liquidation. However, because OAM owns 58% of
Centerpoint's Class A common stock, it can approve a liquidation even if no
other Centerpoint stockholders vote in favor of it. Conversely, a liquidation
will not be approved unless OAM votes in favor of it. Although OAM and the
Company originally insisted that Centerpoint agree to submit a liquidation
proposal its stockholders, OAM is not committed to vote its shares of Class A
common stock for a liquidation proposal. Unless the Company and OAM amend the
April 14th letter to eliminate the requirement that Centerpoint submit a
liquidation proposal to its stockholders, or otherwise terminate the letter,
Centerpoint will be required to submit a liquidation proposal to its
stockholders.
Centerpoint Loan; Early payoff of the Company's 5% Convertible Debentures
The Company's 5% Convertible Debentures in an aggregate amount of US$ 6,250,000
were scheduled to come due in December 2001. On June 13, 2001 the Company, OAM
and Centerpoint entered into the Centerpoint Loan Agreement wherein subject to
the terms and certain conditions set forth therein Centerpoint agreed to lend
the Company $4,200,000. On June 13, 2001 Centerpoint made the Centerpoint Loan
and on June 15, 2001 the Company paid the holders of $6,000,000 of the
Debentures $4,207,500 in cash, which the Debenture holders accepted as payment
in full on the Debentures (including past due interest), representing a 31.5%
discount from their face value. $250,000 of the Debentures remains outstanding.
The Centerpoint Loan bears interest at a rate of 5 % per annum, is repayable in
full on the earlier of June 13, 2002 and the date on which the Company causes or
permits a liquidation of Centerpoint, and is secured by the 300,000 shares of
Centerpoint common stock currently
-47-
owned by the Company and 1,200,000 of the shares of Centerpoint common stock
currently owned by OAM.
Settlement of Wilson Litigation
As discussed in item 3 above, in December 2000, the Company and Gould, the
co-defendant in the Wilson Litigation executed a settlement agreement and
release with the plaintiff under which each of the Company and Gould paid US
$1,025,000 to settle the claims with the plaintiff. On June 15, 2001, a verdict
was rendered by the Court of Common Pleas of Philadelphia County holding that
the Company was responsible for paying all settlement funds and ordering the
Company to pay Gould US $1,025,000 plus interest at a rate of 7% per annum from
the date Gould paid the plaintiffs.
-48-
Item 8. Financial Statements and Supplementary Data
TRIDENT ROWAN GROUP, INC.
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants ............................. 51
Consolidated Balance Sheets - Assets.................................. 52
Consolidated Balance Sheets - Liabilities and Shareholders'
Equity (Deficit) ..................................................... 53
Consolidated Statements of Operations ................................ 54
Consolidated Statements of Changes in Shareholders'
Equity (Deficit) ..................................................... 55
Consolidated Statements of Cash Flows ................................ 56
Notes to Consolidated Financial Statements ........................... 58
-49-
TRIDENT ROWAN GROUP, INC.
Consolidated Financial Statements As of
December 31, 1999 and 1998
Together with
Report of Independent Public Accountants
-50-
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
Trident Rowan Group, Inc.:
We have audited the accompanying consolidated balance sheets of Trident
Rowan Group, Inc. (a Maryland corporation) and subsidiaries as of December 31,
1999 and 1998, and the related consolidated statements of operations,
shareholders' deficit and cash flows for each of the three years in the period
ended December 31, 1999, expressed in Italian Lire. These financial statements
and the schedule referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above, present fairly,
in all material respects, the financial position of Trident Rowan Group, Inc.
and subsidiaries as of December 31, 1999 and 1998 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
In our auditors' report dated May 21, 1999, our opinion on the 1998
consolidated financial statements included an explanatory fourth paragraph to
call attention on the recurring losses from operations and negative cash flows
suffered by the Company. In addition, the Company had to meet certain debt
repayment obligations for which financing had yet to be arranged. All of these
matters raised substantial doubt about its ability to continue as a going
concern. The consolidated financial statements did not include any adjustment
that might result from the outcome of this uncertainty. As explained in Note 21,
on September 7, 2000, Centerpoint Corporation (formerly Moto Guzzi Corporation),
a subsidiary of Trident Rowan Group, closed the sale of all its operating
subsidiaries.
-51-
Total proceeds from the sale were Lire 79,500 million (approximately US$
35.6 million). As a result of this transaction, in our present opinion on the
1998 consolidated financial statements, as presented herein, this explanatory
fourth paragraph has been removed.
ARTHUR ANDERSEN S.p.A.
October 16, 2000
(except with respect to the matters discussed in Note 21
"Centerpoint Loan: Early payoff of the Company's
5% Convertible Debentures" , "United States Litigation"
and "Aprilia Claims under the Share Purchase Agreement;
Payment by IMI; Request for Arbitration"
as to which the date is July 26, 2001)
Milan, Italy
-52-
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1999 and 1998
Dec. 31 Dec. 31
1999 1999 1998
-------- ---------- ----------
US$'000 Lit. m Lit. m
ASSETS
Cash and cash equivalents ................................ $ 6,480 Lit.12,468 Lit.3,044
Marketable securities, at cost ........................... 2,113 4,066 955
Receivables .............................................. 917 1,764 3,255
Trade ............................................... 249 478 681
Other receivables ................................... 668 1,285 2,574
Prepaid Expenses ......................................... 101 195 629
-------- ---------- ----------
TOTAL CURRENT ASSETS ..................................... 9,611 18,493 7,883
-------- ---------- ----------
Property, plant and equipment ........................... 152 292 418
At cost ............................................. 292 562 606
Less allowance for depreciation ..................... (140) (270) (188)
Trademark and other intangibles, net of amortization of
Lit. 1,450 (1998 - Lit. 1,350 million) .............. 78 150 650
Goodwill, net of amortization of Lit. 425 (1998 - Lit 405) 57 110 130
Unamortized debt charges ................................. 446 858 --
Land for development ..................................... -- -- 3,500
Concession rights ........................................ -- -- 1,600
Tax receivables .......................................... 1,159 2,229 8,351
Other assets ............................................. 19 36 331
Net assets of discontinued steel tube operations ......... 800 1,538 1,075
-------- ---------- ----------
TOTAL ASSETS ............................................. $ 12,322 Lit.23,706 Lit.23,938
======== ========== ==========
See Notes to Consolidated Financial Statements
-53-
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1999 and 1998
Dec. 31 Dec. 31
1999 Dec. 31 1999 1998
US$'000 Lit. m Lit. m
-------- ----------- -----------
LIABILITIES
Current portion of long-term debt ....................... 287 553 1,004
Amounts due to related parties .......................... 90 173 6,411
Accounts payable ........................................ 981 1,888 2,433
Accrued expenses and other payables ..................... 2,481 4,773 2,121
-------- ----------- -----------
TOTAL CURRENT LIABILITIES ............................... 3,839 7,387 11,969
-------- ----------- -----------
Net liabilities of discontinued motorcycle operations ... 4,521 8,697 3,665
Long-term debt, less current portion .................... 6,567 12,634 1,271
Provision for claims .................................... 2,963 5,700 3,120
Minority interests ...................................... 3,306 6,362 10,907
Advances for subsidiary stock subscription .............. 1,250 2,405 --
Preferred stock of subsidiary ........................... -- 13,132
SHAREHOLDERS' DEFICIT ................................... (10,124) (19,479) (20,126)
Common stock, par value $0.01 per share:
Authorized 50,000,000 shares,4,119,900 (1998 - 4,419,900)
shares outstanding, ................................ 55 106 106
Additional paid-in capital .............................. 54,363 104,594 104,032
Treasury stock, at cost ................................. (24,701) (47,524) (45,865)
Accumulated other comprehensive income .................. (373) (717) 24
Accumulated deficit ..................................... (39,468) (75,938) (78,423)
-------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' DEFICIT ................... $ 12,322 Lit. 23,706 Lit. 23,938
======== =========== ===========
See Notes to Consolidated Financial Statements
-54-
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1999, 1998 and 1997
Dec. 31 1999 Dec. 31 1999 Dec. 31 1998 Dec. 31 1997
------------ ------------ ------------ ------------
US$'000 Lit. m Lit. m Lit. m
Net sales .............................. 1,033 Lit. 1,987 Lit. 3,775 Lit. 2,535
Cost of sales .......................... (548) (1,055) (2,447) (1,570)
--------- ---------- ------------ ------------
485 932 1,328 965
Selling, general and administrative
expenses .......................... (3,030) (5,829) (6,303) (8,151)
Impairment expense ..................... (468) (900) (2,688) (4,001)
--------- ---------- ------------ ------------
Operating loss ......................... (3,013) (5,797) (7,663) (11,187)
Interest expense ....................... (306) (589) (761) (832)
Interest income ........................ 612 1,178 1,554 2,516
Other income, net ...................... (647) (1,245) 546 2,046
--------- ---------- ------------ ------------
Loss from continuing operations before
income taxes ...................... (3,354) (6,453) (6,324) (7,457)
Income taxes ........................... (46) (88) (161) (222)
Charge for issuance of warrants ........ -- -- -- (2,124)
--------- ---------- ------------ ------------
Loss from continuing operations ........ (3,400) (6,541) (6,485) (9,803)
Discontinued operations (Note 3) ....... 1,728 3,324 (21,374) (13,715)
Loss of motorcycle operations after
income taxes of Lit. 88, Lit. 519
and Lit. 235 ...................... (11,942) (22,976) (21,802) (14,164)
Gain on merger of motorcycle
operations ........................ 13,429 25,837 -- --
Profit of steel tube operations
after income taxes of Lit. 164,
Lit. 0 and Lit. 0 ................. 368 708 428 449
Provision for loss on disposal .... (127) (245) -- --
Minority interests ..................... 2,964 5,702 2,840 1,041
--------- ---------- ------------ ------------
Net profit/(loss) ...................... $1,292 Lit. 2,485 Lit.(25,019) Lit. (22,477)
========= ========== ============ =============
PROFIT/(LOSS) PER SHARE ........... US$ Lit. Lit. Lit.
Continuing operations .................. (0.79) Lit. (1,528) Lit. (1,415) Lit. (2,131)
Discontinued operations & minority
interest .......................... 1.10 2,109 (4,043) (2,755)
0.31 581 (5,458) (4,886)
========= ========== ============ ============
Weighted average number of shares
Outstanding during the period:
Basic .................................. 4,280,767 4,280,767 4,584,237 4,600,285
========= ========== ============ ============
Fully diluted .......................... 4,286,687 4,286,687 4,696,922 4,704,003
========= ========== ============ ============
See Notes to Consolidated Financial Statements
-55-
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity (Deficit)
And Comprehensive Income/(Loss)
Years ended December 31, 1999, 1998 and 1997
Additional
Common paid-in Treasury Translation
Lire million stock Capital stock adjustment
-------- -------- -------- --------
At January 1, 1997 Lit.m 69 77,145 (27,411) 1,854
Net loss -- -- -- --
Translation adjustment -- -- -- (2,008)
Reclassify shares subject to repurchase (2) (1,608) -- --
Repurchase of shares 2 2,459 (2,510) --
Issuance of warrants -- 2,124 -- --
Issuance of shares 19 10,237 -- --
Accretion expense, net of exchange movements -- -- -- --
-------- -------- -------- --------
At December 31, 1998 Lit.m 88 90,357 (29,921) (154)
Net loss -- -- -- --
Translation adjustment -- -- -- 178
Accretion expense, net of exchange movements -- -- -- --
Repurchase of shares 14 13,203 (15,944) --
Issuance of shares 4 1,680 -- --
Less: Shares not vested as at Dec. 31, 1998 -- (1,208) -- --
-------- -------- -------- --------
At Dec. 31, 1999 Lit.m 106 104,032 (45,865) 24
Net profit -- -- -- --
Translation adjustment -- -- -- (741)
Vesting of shares subject to forfeit -- 562 -- --
Repurchase of shares -- -- (1,659) --
-------- -------- -------- --------
At December 31, 1999 Lit.m 106 104,594 (47,524) (717)
At December 31, 1999 $'000 55 54,363 (24,701) (373)
======== ======== ======== ========
Accretion TOTAL Shares Comprehensive
expense, Accumulated SHAREHOLDERS' subject to income/
Net deficit EQUITY Repurchase (loss)
-------- -------- -------- -------- --------
At January 1, 1997 Lit.m 100 (30,927) 20,830 13,968
Net loss -- (22,477) (22,477) -- (22,477)
Translation adjustment -- -- (2,008) -- (2,008)
Reclassify shares subject to repurchase -- -- (1,610) 1,610 --
Repurchase of shares 49 -- 0 (2,510) --
Issuance of warrants -- -- 2,124 -- --
Issuance of shares -- -- 10,256 -- --
Accretion expense, net of exchange movements (2,623) -- (2,623) 2,623 (2,623)
-------- -------- -------- -------- --------
At December 31, 1998 Lit.m (2,474) (53,404) 4,492 15,691 (27,108)
Net loss -- (25,019) (25,019) -- (25,019)
Translation adjustment -- -- 178 -- 178
Accretion expense, net of exchange movements (253) -- (253) 253 (253)
Repurchase of shares 2,727 -- -- (15,944) --
Issuance of shares -- -- 1,684 -- --
Less: Shares not vested as at Dec. 31, 1998 -- -- (1,208) -- --
-------- -------- -------- -------- --------
At Dec. 31, 1999 Lit.m -- (78,423) (20,126) -- (25,094)
Net profit -- 2,485 2,4855 -- 2,485
Translation adjustment -- -- (741) -- (741)
Vesting of shares subject to forfeit -- -- 562 -- --
Repurchase of shares -- -- (1,659) -- --
-------- -------- -------- -------- --------
At December 31, 1999 Lit.m -- (75,938) (19,479) -- 1,744
At December 31, 1999 $'000 -- (39,468) (10,124) -- 906
======== ======== ======== ======== ========
See Notes to Consolidated Financial Statements
-56-
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Consolidated Statements of Cash Flows
December 31, 1999, 1998 and 1997
Dec.31 Dec.31 Dec.31 Dec.31
1999 1999 1998 1997
US$'000 Lit. m Lit.m Lit.m
------------------------------------------------
Net loss from continuing operations ................ (3,400) (6,541) (6,485) (9,803)
Adjustments to reconcile net loss to net cash
provided/(used) by continuing operations:
Depreciation and amortization ...................... 112 216 377 894
Non-cash finance income from discontinued operations (476) (916) (443) (179)
Issuance of Tamarix warrant ........................ -- -- -- 2,124
Loss on disposals of subsidiaries .................. 295 567 -- --
Impairment reserves ................................ 208 400 2,688 4,001
Other operating activities ......................... 772 1,486 32 (954)
Changes in operating assets and liabilities:
Receipt of tax receivable .......................... 3,120 6,002 -- 956
Trade and other receivables ........................ 1,016 1,955 2,938 4,682
Prepaid expenses ................................... 175 334 (303) 582
Accounts payable and accrued expenses .............. (310) (597) 83 (606)
Related party payables ............................. (57) (110) 199 87
------------------------------------------------
Net cash provided/(used) by operating activities ... 1,455 2,796 (914) 1,784
------------------------------------------------
Investing activities:
Net (increase)/ decrease in investments ............ (1,617) (3,111) 17,103 (4,025)
Sale of subsidiaries, less cash disposed ........... 2,368 4,556 -- 5,467
Proceeds from disposal of other assets ............. 63 122 284 --
Purchases of property, plant and equipment ......... (3) (6) (76) (128)
------------------------------------------------
Net cash provided/(used) by investing activities ... 811 1,561 17,311 1,314
------------------------------------------------
Financing activities
Decrease in advances from banks .................... -- -- -- (3,329)
Proceeds from share issuance ....................... -- -- -- 10,256
Repurchase of shares ............................... -- -- (15,582) (2,510)
Advances/proceeds Guzzi preferred stock issuance ... 1,182 2,274 -- 2,933
Loans from related parties ......................... -- -- 6,466 --
Repayment of loans to related parties .............. (3,450) (6,638) -- --
Proceeds from long-term debt ....................... 5,563 10,704 -- --
Principal payments of long-term debt ............... (578) (1,113) (4,228) (1,231)
------------------------------------------------
Net cash provided by financing activities .......... 1,535 5,227 (13,344) 6,119
------------------------------------------------
Increase in cash from continuing operations ........ 4,983 9,584 3,053 9,217
Cash from merger with NAAC ......................... 8,319 16,006 -- --
Cash used by discontinued operations ............... (8,407) (16,174) (3,975) (11,400)
Exchange movement on opening cash .................. 4 8 (9) 89
Cash, beginning of period .......................... 1,581 3,044 3,975 6,069
------------------------------------------------
Cash, end of period ................................ $ 6,480 Lit. 12,468 Lit. 3,044 Lit. 3,975
================================================
See Notes to Consolidated Financial Statements
-57-
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES
1999 - As described in Note 10, the Company repurchased shares for US$ 862,500
(Lit. 1,659 million) on December 28, 1999, payment being effected in January
2000.
The Company issued US$ 250,000 (Lit. 481 million) of its 5% US$ denominated
convertible debentures to Emanuel Arbib, Joint-CEO of the Company, in connection
with the placement of US$ 6 million of such debentures with Italian financial
institutions. See Note 10.
Lit. 562 million has been charged as compensation expense in respect of shares
issued in 1998, as described below and in Note 14.
Cash disposed of on the sales of Pastorino S.r.l. and Grand Hotel Bitia S.r.l.
aggregated Lit. 44 million.
1998 - In 1998, as described in Note 14, in relation to employment contracts,
the Company issued 205,000 shares with contractual transfer restrictions lapsing
as to one-third thereof on each of December 31, 1998, 1999 and 2000, and 32,000
shares with contractual transfer restrictions lapsing on December 31, 1998. Lit.
475 million was charged as compensation expense in 1998 in respect of these
shares.
1997 - In March 1997, the Company disposed of its Finprogetti Investimenti
Immobiliari S.p.A. subsidiary which owned its Cologne, Italy property. Part of
the sale price was settled by way of delivery of 120,000 shares of the Company's
common stock, valued at Lit. 1,610 million at the date of the transaction.
Pursuant to the disposal, the Company eliminated real estate of Lit. 15,100
million and real estate loans of Lit. 9,379 million from its balance sheet. Cash
disposed of was Lit. 411 million.
As an inducement for Tamarix to acquire the Company's shares from the then
largest shareholder, the Company issued to the Manager of Tamarix 1,250,000
warrants valued at Lit. 2,124 million. See Note 1.
OTHER SUPPLEMENTAL INFORMATION
Interest paid amounted to Lit. 864 million, Lit. 718 million and Lit. 933
million in 1999, 1998 and 1997, respectively.
See Notes to Consolidated Financial Statements
-58-
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 1999
Notes To Consolidated Financial Statements
1. BACKGROUND AND ORGANIZATION
2000 disposal of all operating subsidiaries - In 2000, in unrelated
transactions, the Company disposed of all of its operating subsidiaries.
Following these disposals, the Company's only significant assets are a 62.7%
interest in Centerpoint Corporation (Moto Guzzi Corporation through September
2000), a publicly traded company in the United States (OTC/BB/CPTX) plus cash
and certain receivables, principally from the disposal of its operating
subsidiaries and for Italian tax repayments. The disposals are described in
further detail in Note 3 - Discontinued Operations and Note 21 - Subsequent
events. The Company has not yet made any decisions as to its future activities.
Activities - Through the 2000 disposals of its operating subsidiaries, Trident
Rowan Group, Inc. was a holding company incorporated in the United States whose
subsidiaries operated primarily in Italy. Trident Rowan Group, Inc. and
subsidiaries are referred to herein as the Company. The Company primarily
operated in two industry segments: the manufacture and distribution of "Moto
Guzzi" brand motorcycles in Italy, Europe and elsewhere in the world and the
manufacture and distribution of steel tubes for the automotive and furniture
markets. Additionally, the Company provided temporary management services to
third parties, which activities were also disposed in 2000. Information on the
Company's operations by geographic area are included in Note 17 to the Financial
Statements.
Merger of Moto Guzzi Corp. subsidiary - In March 1999, the Company merged its
Moto Guzzi Corp. subsidiary into North Atlantic Acquisition Corp., a shell
company, raising approximately US$ 8 million for the Moto Guzzi business. In
September 2000, Moto Guzzi Corporation changed its corporate name to Centerpoint
Corporation in August 2000 and sold its operating subsidiaries to Aprilia S.p.A.
See Note 3 - Discontinued operations and Note 21 - Subsequent events.
1997 Public offering of the Company's securities - On June 6, 1997, the Company
completed a public offering of its securities (the "Offering"), issuing
1,250,000 shares of common stock at $6.00 per share and 1,437,500 Redeemable
Common Stock Purchase Warrants at $0.10 per Warrant. Each Warrant is exercisable
for five years at an exercise price of $7.20 per share of Common Stock. The
Company may redeem the Warrants at a price of $0.01 per Warrant at any time if
notice of not less than 30 days is given and the last sale price of the Common
Stock has been at least $9.60 on all 20 trading days ending on the third day
prior to the day on which notice is given. The Company also sold for $100 to GKN
Securities Corp., the Company's Representative for the Offering, an option to
purchase up to 125,000 shares of Common Stock and/or 125,000 Warrants. The
option is exercisable for four years commencing June 6, 1998 at an exercise
price of $6.12 per share of Common Stock and $0.102 per Warrant. The gross
proceeds of the Offering amounted to $7,643,750 and the net proceeds, after
underwriting commissions and other costs, received by the Company amounted to
approximately $6,037,000, equivalent to Lit. 10,256 million at the then
prevailing exchange rate.
-59-
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 1999
Notes To Consolidated Financial Statements (continued)
1997 Change of control - Finprogetti S.p.A., then the largest shareholder of the
Company, sold to Tamarix Investors, LDC on May 2, 1997, 900,000 shares of the
Company's common stock and subsequently a further 100,000 shares. Tamarix and
Finprogetti agreed that Finprogetti shall have a put right and Tamarix shall
have a call right with respect to an additional 635,000 shares of common stock
owned by Finprogetti. During such two-year period, Tamarix has a proxy from
Finprogetti to vote such 635,000 shares. The put option was exercised in May 3,
1998, and a settlement date in the second quarter of 1999 was negotiated. In
connection with a restructuring of Tamarix, discussed below, 317,500 such shares
were purchased by Mr. Giovanni Bulgari and the other 317,500 shares by Tamarix
in 1999.
In addition, Finprogetti delivered the resignations from the Company's Board of
Directors of five persons who had been nominated at the request of Finprogetti.
In connection with the foregoing, the Company entered into an agreement on April
8, 1997 to: (a) engage Tamarix Capital Corporation to provide financial advisory
services to the Company at a cost of US$ 200,000 per year; (b) issue to
Centaurus Management LDC, the Manager of Tamarix, a warrant to purchase
1,250,000 shares of common stock with an exercise price equal to the offering
price per share of common stock of $6.00 in the public securities offering of
the Company completed on June 6, 1997, exercisable for a three year period; (c)
register the shares of the Company purchased from Finprogetti as well as the
shares underlying such warrants; and (d) cause the By-Laws or the Articles of
Incorporation of the Company to be amended to provide for: (i) a staggered Board
of Directors which shall include at least one person nominated by Tamarix in
each of three classes; (ii) provide for a representative of Tamarix to be
Chairman of the Board of the Company; (iii) provide that Tamarix's consent will
be required to further amend the Company's Articles of Incorporation; and (iv)
require that the Board of Directors be expanded and limited to not more than 11
members, such Board to include the Tamarix nominees and an additional three
independent directors who are experienced in business matters and otherwise
reasonably acceptable to Tamarix.
In March 1998, the terms for the engagement of Tamarix Capital Corporation to
provide financial advisory services to the Company at a cost of US$ 200,000 per
year was amended. The terms of the revised agreement require Tamarix Capital
Corporation to provide financial advisory services for a period of one year from
May 1, 1998. Compensation for the period of the agreement is US$ 90,000 plus
32,000 shares of the Company. Options to purchase 17,000 shares, exercisable at
$5.00, were also issued to Tamarix Capital Corporation. - See Note 15.
The Company estimated the fair value of the warrants issued to Centaurus
Management Ltd., the manager of Tamarix Investors LDC, as an inducement to
acquire Finprogetti S.p.A's shares of the Company's Common Stock, at US$ 1.00
per warrant. The Company accounted for the issuance of the warrants by crediting
additional paid-in capital in the amount of US$ 1,250,000 (Lit. 2,124 million at
the then prevailing exchange rate) and charging such amount to the statement of
operations as a charge for issuance of warrants.
-60-
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 1999
Notes To Consolidated Financial Statements (continued)
In October 1998, in connection with bridge loans provided by Tamarix and Mr.
Gianni Bulgari, formerly an affiliate of Tamarix, the exercise price of the
1,250,000 warrants was reduced to $5.50 and their duration was extended by two
years. See Note 15 for a summary of the potential dilutive effects of these
warrants.
In March 1999, in connection with an internal restructuring in which former
equity interest owners of Tamarix relinquished their interests, Tamarix
transferred 571,429 shares of the Company's Common Stock to Mr. Giovanni Bulgari
and 63,492 shares to Mr. Emanuel Arbib. Tamarix retained ownership of 365,079
shares. Mr. Bulgari also assumed one-half of Tamarix's obligation to purchase
635,000 shares from Finprogetti pursuant to the 1997 Finprogetti/Tamarix
agreement. Tamarix and Messrs. Bulgari and Arbib report that they continue to
act as a group with respect to all of the shares of the Company's Common Stock
they each own.
Reporting currency - The primary financial statements are shown in Italian Lira
because all of the Company's material operating entities are based and operate
entirely in Italy. Translation of Lira amounts into U.S. Dollar amounts is
included solely for the convenience of the readers of the financial statements
and has been calculated at the rate of Lit. 1,924 to US$ 1.00, the approximate
exchange rate at December 31, 1999. It should not be construed that the assets
and liabilities, expressed in U.S. dollar equivalents, can actually be realized
in or extinguished in U.S. dollars at that or any other rate. All currency
amounts in these financial statements are in Lira unless specifically designated
in other currencies.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation - The consolidated financial statements include the
accounts of the Company and its majority owned subsidiaries. Significant
intercompany accounts and transactions have been eliminated in consolidation.
Use of estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
Foreign currency translation - The financial statements of non-Italian entities
have been translated from the applicable functional currency to Italian Lira
using the year-end exchange rate for balance sheet items and the average
exchange rate for the year for statement of operation items. The translation
differences resulting from the change in exchange rates from year to year have
been reported separately as a component of shareholders' equity.
-61-
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 1999
Notes To Consolidated Financial Statements (continued)
Foreign currency transactions - Transactions, receivables and payables
denominated in currencies other than the functional currency are recorded at the
exchange rate in effect on the transaction date. Such receivables and payables
are adjusted to current exchange rates as of the date paid or the balance sheet
date, whichever is earlier. Gains and losses are included in "other income, net"
in the statements of operations.
Cash equivalents - The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
Revenue recognition - Revenues from sale of services of the Company's temporary
management operations are recorded when the services have been performed.
Long-lived assets - The Company records impairment losses against the carrying
values of long-lived real estate assets to reflect their eventual disposal
values -- see Notes 6 and 7. The Company continually reviews the carrying value
of long-lived assets and long-lived assets to be disposed of. In determining the
un-discounted cash flows estimated to be generated by the Company's temporary
management subsidiary, the Company considers estimated cash flows from services
to third parties and from eventual realization of managed portfolio companies
through divestiture. The Company made, at December 31, 1997, impairment
adjustments to write down the trademarks and other intangible assets of its
temporary management subsidiary by Lit. 3,000 million and to write down related
goodwill by Lit. 1,001 million. In the fourth quarter of 1999 the Company
recorded a further impairment adjustment of Lit. 400 million in respect of
trademarks of its temporary management subsidiary, reflecting the 2000 sale
price for this business.
Goodwill and other intangibles - On purchases of businesses, the excess of the
purchase price over the fair value of assets acquired is accounted for as
goodwill and is amortized on a straight-line basis over a period determined by
the Company taking into consideration the nature of the business acquired.
Trademarks and other intangibles relating to the Company's temporary management
subsidiary and related goodwill, net of amounts recorded for impairment reserves
above, were being amortized over 10 years. Concession rights, disposed of in
1999, which last through 2041, were amortized over 40 years.
Property, plant and equipment - Property, plant and equipment are recorded at
cost. Depreciation is provided on the straight-line method over the estimated
useful lives of the assets. Buildings are depreciated over 30 years and plant
and machinery, tooling and computer equipment over lives ranging from 3 to 10
years.
Marketable and other securities - Marketable and other securities and
investments consist primarily of fixed income investments. Marketable securities
as of December 31, 1999 are represented by units in a monetary fund denominated
in Euro and are carried at cost plus accrued interest.
-62-
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 1999
Notes To Consolidated Financial Statements (continued)
Income taxes - Income taxes are provided by each entity included in the
consolidation in accordance with local laws. Deferred income taxes have been
provided using the liability method in accordance with FASB Statement No. 109,
"Accounting for Income Taxes."
Net profit/(loss) per common share -Basic earnings per share from continuing
operations excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share from continuing operations gives effect
to all potentially dilutive common shares that were outstanding during the
period. As the Company has incurred losses from continuing operations in each of
the years 1997 to 1999, potentially dilutive common shares are antidilutive for
each of these years.
Statements of cash flows - The cash flows for the roll-over of maturing
fixed-term securities into new securities is included in the caption "Net
(increase)/decrease in investments" in the Consolidated Statements of Cash
Flows. Advances from banks arise primarily under the Company's short-term lines
of credit with its banks. These short-term obligations are payable on demand.
The cash flows for these items are included in the caption "Net increase in
advances from banks" in the Consolidated Statements of Cash Flows.
Accumulated Other Comprehensive Income - Comprehensive income includes net
income and translation difference from the conversion of balance sheets of
non-Italian entities. The Company has chosen to disclose comprehensive income in
the Consolidated Statements of Stockholders' Equity.
New Accounting Standard - In 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" SFAS No. 133 establishes
accounting and reporting standards requiring that every derivative instrument be
recorded in the balance sheet as either an asset or liability measured at its
fair value. SFAS No. 133 requires that changes in the derivative's fair value be
recognized in earnings unless specific hedge accounting criteria are met.
Special accounting for qualifying hedges allows a derivative's gains and losses
to offset related results on the hedged item in the income statement. SFAS No.
133 as amended by SFAS No. 137, is effective for fiscal years beginning after
June 15, 2000 but may be adopted earlier. The Company has not yet determined the
effect of adoption of SFAS No. 133 and has not determined the timing or method
of adoption.
Reclassifications - Comparative figures for 1998 and 1997 have been reclassified
to conform with the 1999 presentation.
3. DISCONTINUED OPERATIONS
Discontinued Steel Tube Operations
In July 2000, as detailed in Note 21 - Subsequent Events, the Company sold its
LITA subsidiary, thus exiting from the steel tube segment.
-63-
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 1999
Notes To Consolidated Financial Statements (continued)
Discontinued Motorcycle Operations
In September 2000, the Company's 62.7% owned subsidiary, Moto Guzzi Corporation
closed its sale of all "Moto Guzzi" motorcycle operations to Aprilia. From May
2, 2000 through the date of sale, Moto Guzzi's operations were under the control
of Aprilia management. The measurement date of the disposal will be July 1,
2000, reflecting the latest date prior to sale for which the Company has
complete financial information. Net proceeds from the disposal exceed the net
assets of the operations sold and the Company will record a gain in the third
quarter of 2000. The results of Moto Guzzi are reflected in discontinued
operations in the financial statements. Moto Guzzi Corporation changed its name
to Centerpoint Corporation pursuant to the sale of its motorcycle operations to
Aprilia and is listed on the over-the-counter market in New York under the
ticker "CPTX." The Company owns, directly and through its OAM subsidiary,
approximately 62.7% of the outstanding common stock of Centerpoint Corporation.
The sale to Aprilia is discussed in more detail in Note 21 - Subsequent Events.
Dec.31 Dec.31 Dec.31 Dec.31
1999 1999 1998 1997
-----------------------------------------------
US$'000 Lit.m Lit.m Lit.m
Net sales ................................ 44,819 86,232 83,760 80,987
Loss before taxes ........................ (11,896) (22,888) (19,780) (10,334)
Provisions for taxes ..................... (46) (88) (519) (235)
Amortization of premium for redemption of
preferred stock ..................... -- (1,503) (3,595)
-----------------------------------------------
Net loss from discontinued operations of
Motorcycle operations ............... (11,942) (22,976) (21,802) (14,164)
===============================================
The statement of operations includes interest income charged to the motorcycle
operations of Lit. 1,088 million, Lit. 533 million and Lit. 371 million in 1999,
1998 and 1997 respectively.
Gain on merger of discontinued motorcycle operations
On August 18, 1998, the Company's subsidiary, Moto Guzzi Corp., and for limited
purposes, the Company, entered into a merger agreement to merge with North
Atlantic Acquisition Corp. ("North Atlantic"). The preferred stockholders of
Moto Guzzi Corp. were also a party to the merger, which was consummated on March
5, 1999. North Atlantic was organized in August 1995 as a specialized merger and
acquisition allocated risk company with the objective of acquiring an operative
business and had not engaged in any substantive commercial business. At the
effective time of the merger, North Atlantic had approximately US$ 8.9 million
(Lit. 16,006 million) in cash, from which merger expenses of approximately US$
0.8 million (Lit. 1,400 million) were subsequently paid, to finance the
operations of Moto Guzzi. On completion of the merger, North Atlantic changed
its name to Moto Guzzi Corporation. As a result of the merger, the Company
recorded a gain of Lit. 25,837 million in the first quarter of 1999, including
the effects of the exchange of redeemable preferred stock of Moto Guzzi Corp.
into common
-64-
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 1999
Notes To Consolidated Financial Statements (continued)
stock of North Atlantic. Through December 31, 1998, the Company had accounted
for the contingent redemption of such preferred stock and included Lit. 13,132
million in the balance sheet at December 31, 1998 to reflect such contingent
obligation.
In October 1996, the Company's newly formed wholly-owned subsidiary, Moto Guzzi
Corp., had acquired all of the equity interest of the Company in Moto Guzzi
S.p.A. and in Moto America Inc. in exchange for 6,000,000 shares of common stock
of Moto Guzzi Corp. In December 1996 and January 1997, Moto Guzzi Corp.
consummated a private offering of convertible preferred stock and common stock
purchase warrants which raised an aggregate of approximately US$ 5,250,000 (Lit.
8,034 million at the then prevailing exchange rate) for Moto Guzzi Corp., net of
expenses.
Moto Guzzi Corp. issued 1,500,000 units, each consisting of one share of Class A
Convertible Preferred Stock and one Common Stock purchase warrant exercisable
for three years for the lesser of $4.00 or the initial public offering price of
the Common Stock. The Preferred Stock was convertible at the option of the
holder into an equal number of shares of Common Stock, subject to adjustment to
protect against events of dilution and was to be automatically converted upon
consummation of an initial public offering of Moto Guzzi Corp. Common Stock that
raised gross proceeds of at least US$ 8,000,000. The conversion rate for the
Preferred Stock in such event would be the lesser of the then applicable
conversion rate or 75% of the per share initial offering price. If such an
initial public offering was not consummated by June 30, 1998, the holders of a
majority of the shares of Preferred Stock would have the right to select a
majority of the Moto Guzzi Corp. board of directors. The holders of the
Preferred Stock would also have a right to redeem their shares at $8.00 per
share if no public offering was completed on or before January 16, 2002.
The Moto Guzzi Corp. Preferred Stock was recorded in the consolidated balance
sheet as preferred stock of subsidiary in the amount of Lit. 5,101 million at
December 31, 1996, and a further Lit. 2,933 million was recorded in January 1997
as a result of the completion of the private placement. The Company recorded
Lit. 3,595 million in 1997 and Lit.1,503 million in 1998 as accretion expense in
the statement of operations to reflect amortization of the difference between
the net proceeds received and the contingent redemption of such shares in
January 2002 and the effects of changing exchange rates on such repurchase
commitment. As part of the merger of Moto Guzzi Corp. with and into North
Atlantic Acquisition Corp. in March 1999, the Preferred Stock and the warrants
to purchase Common Stock were exchanged for shares of Common Stock of the
surviving company.
-65-
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 1999
Notes To Consolidated Financial Statements (continued)
Net liabilities of the discontinued motorcycle operations are as follows:
Dec.31 1999 Dec.31 1999 Dec.31 1998
---------------------------------------
US$'000 Lit.m Lit.m
Current assets ........................... 32,186 61,926 58,480
Property, plant and equipment ............ 7,608 14,638 16,787
Other assets ............................. 462 889 1,988
Current liabilities ...................... (41,260) (79,385) (73,128)
Other liabilities ........................ (5,198) (10,000) (10,559)
Net advances due from operations, sold as
part of disposal transaction ........ 1,681 3,235 2,767
------------------------ ------------
Net liabilities of discontinued motorcycle
operations .......................... $ (4,521) Lit. (8,697) Lit. (3,665)
======================== ============
In 1999 the Company provided the discontinued motorcycle operations with cash,
in the form of capital and advances, of Lit. 14,331 million to finance its
operations.
Discontinued steel tube operations
Dec.31 Dec.31 Dec.31 Dec.31
1999 1999 1998 1997
--------------------------------------------
US$'000 Lit.m Lit.m Lit.m
Net sales ........................................... 11,877 22,852 23,193 20,480
Profit before taxes ................................. 453 872 428 449
Provisions for taxes ................................ (85) (164) -- --
Net profit from discontinued operations of steel
tube operations ................................ 368 708 428 449
Included in the income statement of the Company are management fees charged to
the steel tube operations of Lit. 389 million, Lit. 287 million and Lit. 204
million in 1999, 1998 and 1997 respectively. Net assets of the discontinued
steel tube operations are as follows:
-66-
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 1999
Notes To Consolidated Financial Statements (continued)
Dec.31 Dec.31 Dec.31
1999 1999 1998
------------------------------------
US$'000 Lit.m Lit.m
Current assets ................................. 6,433 12,378 12,270
Property, plant and equipment .................. 785 1,510 1,413
Other assets ................................... 112 215 282
Current liabilities ............................ (5,720) (11,005) (11,429)
Other liabilities .............................. (683) (1,315) (1,461)
Provision for loss on disposal ................. (127) (245) --
------------------------------------
Net assets of discontinued steel tube operations 800 1,538 1,075
====================================
4. REPURCHASE OF SHARES AND SHARES SUBJECT TO REPURCHASE
1999 share repurchases - On December 28, 1999, the Company repurchased 300,000
shares at the then market price of US$ 2.875 per share for a total of US$
862,500 or Lit. 1,659 million in connection with the issuance of US$ 6 million
of two year convertible debentures. See Note 10.
1998 share repurchases - In April 1995, the Company entered into an agreement
with Mr. Alejandro De Tomaso (De Tomaso Agreement), the then Chairman of the
Board, under which the Company would repurchase Mr. De Tomaso's 1,000,000 shares
of preferred stock and 480,304 shares of common stock at a negotiated price of
Lit. 18,400 per share, converted into dollars at the exchange rate in effect on
the closing date of Lit. 1,637. Prior to the closing of that transaction, Mr. De
Tomaso had conveyed such shares, subject to the DeTomaso Agreement, by gift to
two trusts.
703,774 of the preferred and common shares formerly owned by Mr. De Tomaso were
repurchased by the Company in July 1995. The remaining preferred and common
shares formerly owned by Mr. De Tomaso were exchanged for an equal number --
776,530 shares -- of newly issued common stock. Under the terms of the De Tomaso
Agreement, if these remaining 776,530 shares were not sold by their current
owner prior to June 30, 1998, the Company committed to acquire the shares at
$11.27 per share. The Company obtained a letter of credit to guarantee payment
of the repurchase price which was collateralized by certain investment
securities owned by the Company. The 776,530 shares were recorded on the balance
sheet at June 30, 1995 at estimated market value of $10.00 (then Lit. 16,400 per
share) as shares subject to repurchase and were not included in shareholders'
equity. The difference between $10.00 and the redemption price of $11.27 was
amortized over the period to June 30, 1998. In June 1998, the trust owning the
shares exercised its right to have the Company repurchase them for a total of
US$ 8,751,000 or Lit. 15,374 million at the net effective rate on closing.
In 1998, the Company also repurchased 28,350 shares for Lit. 570 million
pursuant to a 1996 commitment connected with the resolution of issues arising
from its 1995 acquisition of certain operations from Finprogetti S.p.A.
-67-
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 1999
Notes To Consolidated Financial Statements (continued)
1997 share repurchases - As described in Note 5, below, the Company repurchased
120,000 shares as of December 31, 1997 in connection with the sale of its
Cologne, Italy real estate and also repurchased 44,760 shares for Lit. 900
million pursuant to a 1996 commitment connected with the resolution of issues
arising from its 1995 acquisition of certain operations from Finprogetti S.p.A.
Pro forma loss and loss per share information
Interest income on investments securing share repurchase commitments and on cash
and investments maintained against unsecured share repurchase commitments is
included in the statements of operations. On a pro forma basis, the net loss and
the net loss per share for 1998 and 1997, as if all shares subject to repurchase
had been repurchased as of the earlier of the date on which repurchase
commitments were made or January 1 of each respective year, would have been as
follows.
1998 1997
Lira m. Lira m.
------------------
Net loss...................................... (25,412) (23,555)
==================
Net loss per share............................ (6,077) (6,206)
==================
All shares subject to repurchase commitments were repurchased in 1998.
5. MERGERS, ACQUISITIONS AND DISPOSALS
The March 1999 merger of the Company's Moto Guzzi Corp. subsidiary with and into
North Atlantic and the 1996/1997 issuance of convertible preferred stock by Moto
Guzzi Corp. are described in Note 3 - Discontinued operations.
1997 agreement to sell real estate affiliate and loans due by such affiliate -
In December 1997, the Company entered into an agreement to dispose of its 25%
interest in Domer S.r.l. and loans due by Domer S.r.l. The consideration for
such sale was Lit. 2,900 million in cash, of which Lit. 1,400 million was paid
on December 31, 1997 and Lit. 1,500 million was paid on March 31, 1998, plus the
proceeds from the sale of 45,977 shares of the Company's Common Stock, plus the
proceeds from the sale of certain apartments located in Bergamo, Italy. The
Company received Lit. 980 million in installment payments from the sale of
apartments in 1998, Lit. 1,681 million in 1999 and the balance of Lit. 910
million in 2000 for a total of Lit. 6,470 million, compared to the carrying
value of the disposed shares and loans of Lit. 6,236 million.
1997 sale of real estate subsidiary - On March 18, 1997, the Company entered
into an agreement to sell its Cologne, Italy property to a company affiliated
with Rag. Bertoni, a shareholder of the Company and of Finprogetti, the
Company's then largest shareholder. The agreement was consummated on April 15,
1997 by transfer of the shares of Finprogetti Investimenti Immobiliari S.p.A.,
the subsidiary holding the Cologne property. Under the terms of the agreement,
the purchaser assumed the mortgage loans over the
-68-
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 1999
Notes To Consolidated Financial Statements (continued)
property and paid Lit. 500 million on March 18, 1997, Lit. 1,928 million on
April 15, 1997 and Lit. 2,040 million on July 1, 1997. As part of the terms of
sale, the Company granted the purchaser an option to settle the final
installment in cash of Lit. 2,040 million or by way of paying in up to 120,000
shares of the Company's Common Stock to be valued at the higher of $10.00 or the
market value of the shares as at December 31, 1997. The Company reclassified
these 120,000 shares subject to the option from "Shareholders' equity" to
"Shares subject to repurchase" at their estimated fair value at the date of the
transaction of $8.00 (Lit. 13,416) per share for an amount of Lit. 1,610 million
(US$ 960,000). At December 31, 1997, the purchaser exercised its option to
settle the final installment by way of delivery of such 120,000 shares.
6. LAND FOR DEVELOPMENT
Undeveloped land represented an area in Sardinia for development of hotel and
leisure facilities and is owned by the Company through an 80% interest in Grand
Hotel Bitia S.r.l. In accordance with FASB Statement No. 121, the Company
recorded a reserve of Lit. 2,500 million against the property in the third
quarter of 1996 to reflect development uncertainties and a further Lit. 500
million in the third quarter of 1999 to reflect the November 1999 disposal price
of Lit. 3,000 million.
7. CONCESSION RIGHTS
The Company sold these rights in July 1999 for Lit. 1,600 million. The Company
has previously recorded impairment expense of Lit. 2,688 million in the last
quarter of 1998 to reflect the sale price.
8. TAX RECEIVABLES
Tax receivables represent amounts for which reimbursement has been requested.
The times for reimbursement in Italy have, in the recent past, invariably been
in excess of 12 months and, accordingly, amounts for which reimbursement has
been requested are not classified as current assets. Interest accrues on these
receivables at rates set from time to time by the Italian Government. Lit. 6,000
million was received in February 1999.
-69-
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 1999
Notes To Consolidated Financial Statements (continued)
9. ACCRUED EXPENSES AND OTHER PAYABLES
Dec. 31 1999 Dec. 31 1999 Dec. 31 1998
--------------------------------------
US$'000 Lit. m Lit. m
Salaries, wages and related items ..................... 376 723 478
Value added and other taxes ........................... 72 138 217
Due for settlement of share repurchases ............... 863 1,660 --
Other ................................................. 1,170 2,252 1,426
-------------------------------------
2,481 4,773 2,121
=====================================
10. LONG-TERM DEBT
Dec. 31 Dec. 31 Dec. 31
1999 1999 1998
US$'000 Lit. m Lit. m
--------------------------------
Convertible 5% US$ Debentures due December 28, 2001,
Convertible into TRG stock at $5.00.................... 6,250 12,025 --
12.4% note payable in annual installments through 2001.......... 604 1,162 1,665
12.36% note payable in annual installments through 1999......... -- -- 610
--------------------------------
6,854 13,187 2,275
Less current portion ........................................... (287) (553) (1,271)
--------------------------------
6,567 12,634 1,004
================================
On December 28, 1999, the Company issued a US$ 6 million 5% convertible
debentures due December 28, 2001 to provide funds for Moto Guzzi Corporation and
for general corporate purposes. In connection with raising these funds, the
Company paid $250,000, in the form of a Debenture on the same terms as for the
$6 million raised, to affiliates of Emanuel Arbib, joint-CEO of the Company. The
Company also paid $360,000 to an Italian intermediary and $60,000 plus $26,106
for legal expenses to Investec Ernst & Company in connection with the issuance.
Mark Segall, a director of the Company is an officer of Investec Ernst &
Company. Interest on the debentures at 5% is payable annually in arrears on each
anniversary of the debenture issuance date, and the debentures are convertible
at any time, in full or in part, into stock of the Company at $5.00 per share,
subject to provisions for dilution. In connection with this financing, the
Company repurchased 300,000 of its own shares from entities related to the
purchasers of the debentures for a total of US$ 862,500 (Lit. 1,659 million) or
$2.875 per share, the then prevailing share price.
The Company's 5% Convertible Debentures in an aggregate amount of US$ 6,250,000
were scheduled to come due in December 2001. On June 13, 2001 the Company, OAM
and Centerpoint entered into the Centerpoint Loan Agreement wherein subject to
the terms and certain conditions set forth therein Centerpoint agreed to lend
the Company $4,200,000. On June 13, 2001 Centerpoint made the Centerpoint Loan
and on June 15, 2001 the Company paid the holders of $6,000,000 of the
Debentures
-70-
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 1999
Notes To Consolidated Financial Statements (continued)
$4,207,500 in cash, which the Debenture holders accepted as payment in full on
the Debentures (including past due interest), representing a 31.5% discount from
their face value. $250,000 of the Debentures remains outstanding. The
Centerpoint Loan bears interest at a rate of 6 % per annum, is repayable in full
on the earlier of June 13, 2002 and the date on which the Company causes or
permits a liquidation of Centerpoint, and is secured by the 300,000 shares of
Centerpoint common stock currently owned by the Company and 1,200,000 of the
shares of Centerpoint common stock currently owned by OAM.
Maturities of long-term debt as of December 31, 1999:
1999 1999
--------------------
US$'000 Lira m.
2000 287 553
2001 6,567 12,634
--------------------
6,854 13,187
11. AMOUNTS DUE TO RELATED PARTIES
Dec. 31 1999 Dec. 31 1999 Dec. 31 1998
----------------------------------------
US$'000 Lit. m Lit. m
Loan due to Dr. Giovanni Bulgari ..... -- -- 3,000
Loan due to Tamarix .................. -- -- 3,312
Other amounts due to Tamarix ......... 90 173 99
----------------------------------------
90 173 6,411
========================================
On October 1, 1998, two bridge loans were made by Tamarix and by Mr. Bulgari to
provide financing to Moto Guzzi in anticipation of the consummation of the
merger with North Atlantic Acquisition Corp. (See Notes 1 and 3). The loans were
of US$ 2,000,000 (Lit. 3,312 million) and Lit. 3,000 million and bore interest
at 10% and a flat commission of 1%. Each loan was secured by 500,000 common
shares of Moto Guzzi Corp. (207,337 shares of Moto Guzzi Corporation, following
the merger with North Atlantic Acquisition Corp.). As an inducement for the
loans to be made, the Centaurus warrants (See Note 1), which were exercisable at
$6.00 through May 1, 2000, were extended through May 1, 2002 and the exercise
price reduced to $5.50. The closing price of the Company's Common Stock had been
at $5.00 or below in the preceding month and was at $4.00 on October 1, 1998
when the loans were made. The Company sought similar financing from third
parties, and the terms and conditions above were more favorable than any
expressions of interest by third parties.
The Lit. 3,000 million loan was repayable to Mr. Bulgari on March 31, 1999 and
was extended to April 30, 1999 and repaid in May 1999. The US$ 2,000,000 loan
was repayable on completion of the merger of Moto Guzzi Corp. into North
Atlantic Acquisition Corp., which occurred on March 5, 1999 and was extended,
with part payments of $300,000 in May and August 1999, and the balance repaid in
December 1999.
-71-
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 1999
Notes To Consolidated Financial Statements (continued)
As described in Note 10, Lit. 481 million ($US 250,000) of the Company's 5%
convertible debentures are held by entities affiliated with Emanuel Arbib, a
director of the Company.
12. OTHER INCOME
Dec. 31 1999 Dec. 31 1999 Dec. 31 1998 Dec. 31 1997
------------------------------------------------------
US$'000 Lit. m Lit. m Lit. m
Foreign exchange ................... (1) (2) (2) 1,851
Release of reserves for claims ..... 524 1,009 714 --
Additional reserve for litigation .. (1,544) (2,970) -- --
Rental income ...................... 42 80 150 477
Net expense of finance activities in
liquidation ................... -- -- -- (295)
Other .............................. 332 638 (316) 13
------------------------------------------------------
(647) (1,245) 546 2,046
======================================================
In 1997, the principal element of favorable exchange gains of Lit. 1,851 related
to bridge financing, until completion of the Company's June 1997 public Common
Stock offering, by the Company's Italian subsidiaries to the U.S. parent.
Reserves for claims have been released in 1998 and 1999 as such claims,
principally relating to activities in Italy dating from businesses sold in 1993
have been closed. Additional reserves of Lit. 2,970 million have been made in
1999 in respect of the litigation in the Unites States detailed in Part I, Item
3 of this report, which is incorporated herein by reference. Other includes
differences in estimated impairment losses on disposals of assets and
subsidiaries and miscellaneous.
13. INCOME TAXES
Profit/(loss) before income taxes and minority interests consisted of the
following:
1999 1999 1998 1997
--------------------------------------------------
US$'000 Lira m. Lira m. Lira m.
United States.................. (3,404) (7,031) (3,959) (5,009)
Italy.......................... 312 600 (2,354) (2,442)
Elsewhere...................... (11) (22) (11) (6)
--------------------------------------------------
(3,353) (6,453) (6,324) (7,457)
==================================================
-72-
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 1999
Notes To Consolidated Financial Statements (continued)
The provision for income taxes consisted of the following:
1999 1999 1998 1997
-----------------------------------
US$'000 Lira m. Lira m. Lira m.
Current:
United States -- -- -- (195)
Italy ....... -- 88 161 417
-----------------------------------
46 88 161 222
-----------------------------------
Deferred: .......... -- -- -- --
-----------------------------------
Total .............. 46 88 161 222
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Valuation allowances have
been recorded for the deferred tax assets, as management believes it more likely
than not that these assets will not be realized. Significant components of the
Company's deferred tax assets are as follows:
1999 1999 1998 1997
------- ------- ------- -------
US$'000 Lira m. Lira m. Lira m.
Short-term reserves ............. 770 1,482 948 60
Carrying value of fixed assets .. -- -- 2,164 1,186
Net operating loss carry forwards 1,490 2,867 6,463 8,250
------- ------- ------- -------
2,260 4,349 9,575 9,496
Valuation allowance ............. (2,260) (4,349) (9,575) (9,496)
------- ------- ------- -------
Net deferred tax assets ......... -- -- -- --
------- ------- ------- -------
The effective provision for income taxes varied from the income tax credit
calculated at the statutory U.S. federal income tax rate as follows:
1999 1999 1998 1997
------- ------- ------- -------
US'000 Lira m. Lira m. Lira m.
Computed tax credit at U.S. federal rate on losses from
continuing operations ................................. (815) (1,569) (2,214) (2,610)
Losses and reversals of short-term reserves for which
valuation allowance provided .......................... 765 1,473 3,042 3,029
Utilization of tax losses .................................. (123) (270)
Non-deductible expenses and local taxes .................... 96 184 (544) 73
--- ----- ----- -----
46 88 161 222
=== ===== ===== =====
For U.S. federal income tax purposes, the Company has net operating loss
carry-forwards of approximately U.S. $1.0 million at December 31, 1999. These
losses expire from 2004 through 2013. United States income taxes have not been
provided on unremitted earnings of subsidiaries located outside
-73-
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 1999
Notes To Consolidated Financial Statements (continued)
the United States as such earnings are considered to be permanently reinvested.
Approximately Lit. 4,800 million of retained earnings of Italian subsidiaries
cannot be distributed under local laws.
AT DECEMBER 31, 1999 THE COMPANY HAD NET OPERATING LOSS CARRY-FORWARDS FOR
ITALIAN FEDERAL INCOME TAX PURPOSES WHICH EXPIRE AS FOLLOWS:
1999 1999
US$000's Liram.
-------- ------
2000 ..............................
2001 .............................. 4 8
2002 .............................. -- --
2003 .............................. -- --
2004 .............................. 117 225
2005 .............................. 3,384 6,511
---- ----- -----
4,027 7,749
===== =====
14. SHARES ISSUED IN CONNECTION WITH EMPLOYMENT AGREEMENTS
On March 18, 1998, the Board of Directors approved a three year employment
contract commencing May 1, 1998 with Mark S. Hauser as President and Chief
Executive Officer, a three year contract commencing May 1, 1998 with Emanuel M.
Arbib as Chief Financial Officer and a one year, renewable agreement commencing
May 1, 1998 with Tamarix Capital Corporation, which supercedes a prior existing
contract, for provision of merchant banking services to the Company. In
connection with these contracts, the Company issued 205,000 shares with
contractual transfer restrictions lapsing as to one-third thereof on each of
December 31, 1998, 1999 and 2000, and 32,000 shares with contractual transfer
restrictions lapsing on December 31, 1998. The issuance of these shares has been
accounted for at the fair value of the Company's Common Stock as of the date of
the agreements of $4.06 per share and will be charged to compensation expense
over the life of the contracts. Amounts in respect of future compensation at the
balance sheet date have been included in the financial statements as a deduction
from additional paid-in capital.
15. STOCK OPTIONS AND WARRANTS
Tamarix warrant - As described in Note 1, the Company also issued 1,250,000
Warrants exercisable through May 2, 2000 at an exercise price of $6.00,
subsequently revised to $5.50, to the manager of Tamarix.
Publicly traded warrants (OTC/BB: TRGIW) - As discussed in Note 1, the Company
issued 1,437,500 Warrants in connection with its June 1997 public offering. Each
Warrant is exercisable for five years at an exercise price of $7.20 per share of
Common Stock. The Company may redeem the Warrants at a price of $0.01 per
Warrant at any time if notice of not less than 30 days is given, and the last
sale price of
-74-
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 1999
Notes To Consolidated Financial Statements (continued)
the Common Stock has been at least $9.60 on all 20 trading days ending on the
third day prior to the day on which notice is given.
1995 Non Qualified Plan Options - The Company's "1995 Non-Qualified Plan"
provides for the grant of non-qualified stock options for officers and key
employees. Total options of 2,000,000 shares have been authorized by the Board.
Grants were made in 1996 and 1995 of 22,500 and 960,000 shares respectively, all
at an exercise price of $12.26. 130,000 of these options were forfeited in 1997,
60,000 forfeited in 1998 and 710,000 were exchanged in 1998 for new options at
$5.00, as described below. A further 17,500 of the $12.26 options were forfeited
in 1999.
On March 18, 1998, the Company granted Messrs. Hauser and Arbib and Tamarix
options to purchase an aggregate of 212,000 shares of Common Stock at an
exercise price of $ 5.00, granted to other officers of and consultants to the
Company options to purchase an aggregate of 280,000 shares at an exercise price
of $5.00 in exchange for 710,000 previously granted options exercisable at
$12.26, and granted a further 105,000 options to persons not previously included
in its "1995 Non-Qualified Plan" for officers and key executives.
Outstanding options under the "1995 Non-Qualified Plan" can be exercised as
follows:
Exercisable Exercisable
at $12.26 at $5.00
------------------------
Currently exercisable ..... 64,000 532,000
Exercisable at future dates 1,000 --
1995 Director's Plan - Under the "1995 Director's Plan," 5,000 options are
granted annually on January 2 of each calendar year to each non-employee
Director serving at such date and a proportionately reduced number of options,
at the date of election, to Directors initially elected at a date other than
January 2. The exercise price is fixed at the reported closing price of the
stock on January 2, or date of election of Directors for subsequent grants. All
options granted on January 2, 1996 and January 2, 1997 were forfeited in 1997
pursuant to changes in the composition of the Board. A total of 18,751 options
were granted in 1997 at a weighted average exercise price of $7.446 in respect
of incoming Board members of which 6,250 were forfeited in 1999 and 6,667 in
January 2000. 40,000 options were granted on January 2, 1998 at an exercise
price of $4.875, of which 15,000 were forfeited in 1999 and 15,000 in January
2000. 20,000 options were issued on January 2, 1999 at an exercise price of
$4.625 of which 5,000 were forfeited in 1999 and 15,000 in January 2000. A
further 20,000 options were issued on January 3, 2000 at an exercise price of
$3.6525.
Other options
The Company issued to GKN Securities Corp. 125,000 options exercisable
through June 10, 2002 at an exercise price of $6.12 and issued 173,306 warrants
exercisable through June 10, 2000 at an exercise
-75-
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 1999
Notes To Consolidated Financial Statements (continued)
price of $6.00 to certain shareholders as an inducement for them to enter
lock-up agreements with the Company and with GKN Securities Corp. in connection
with its June 1997 public offering.
As the Company incurred losses from continuing operations in each of 1997, 1998
and 1999, all warrants and options described above are considered antidilutive.
The potentially dilutive effects of outstanding options and warrants in 1999 is
summarized below:
1999 1998 1997
---------------------------------------
Weighted average number of common shares
outstanding during the year:
Basic .................................. 4,280,767 4,584,237 4,600,205
Shares subject to restricted vesting ... 5,920 47,882 --
Non Qualified Plan options ............. -- 39,712 --
1995 Director's Plan options ........... -- 5,252 619
Tamarix warrants ....................... -- 19,839 85,116
GKN options and lock-up warrants ....... -- -- 17,983
--------- --------- ---------
Diluted ................................ 4,286,687 4,696,922 4,704,003
========= ========= =========
The Company has elected the disclosure-only provisions of FASB Statement No.
123, "Accounting for Stock Based Compensation" and applies APB Opinion No. 25
and related interpretations in accounting for their stock option plans. Pro
Forma compensation costs under the Company's stock option plans for 1999, 1998
and 1997 based on the value of awards at the grant date were not material.
The fair value of the Company's options is the estimated present value at the
date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions: risk-free interest rate of approximately 5.5%;
expected volatility of approximately 60%; expected life of 4 years; and dividend
yield of 0%.
-76-
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 1999
Notes To Consolidated Financial Statements (continued)
The following is a summary of transactions pertaining to the Plans:
December 31, 1999 December 31, 1998 December 31, 1997
----------------- ----------------- -----------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
(000's) Price (000's) Price (000's) Price
------- -------- ------- -------- ------- --------
Outstanding,
January 1 673 $5.95 871 $12.16 1,003 $12.26
Granted 20 $4.63 637 4.99 18 7.45
Exercised -- -- -- -- -- --
Forfeited or
exchanged (44) $8.24 (835) 11.69 (150) 12.26
----- ------ ----- ------- ------ -------
Outstanding,
December 31 649 $5.76 673 $ 5.95 871 $12.16
===== ====== ===== ======= ====== =======
Options
Exercisable,
December 31 633 $5.77 469 $ 6.23 389 $12.16
===== ====== ===== ======= ====== =======
The following is a summary of the status of stock options outstanding and
exercisable under the Plans as of December 31, 1999:
Stock Options Outstanding Stock Options Exercisable
------------------------- -------------------------
Weighted
Weighted Average
Average Remaining
Range of Shares Exercise Contractual Shares Weighted Average
Exercise Price (000)'s Price Life (000's) Exercise Price
-------------- ------- ------- ---------- -------- --------------
$12.26 65 $12.26 0.00 years 64 $12.26
$5.00 532 $5.00 2.25 years 532 $5.00
$5.125 - $7.95 52 $5.35 2.14 years 37 $5.64
---- ------ ---- ------
649 $5.76 633 $5.77
16. RELATED PARTY TRANSACTIONS
Loans from related parties - As described in Note 11, both Tamarix and Dr.
Giovanni Bulgari made loans to the Company in October 1998, repaid in 1999.
Tamarix Capital Corporation / Mr. Mark Hauser - Details of agreements with
Tamarix Capital Corporation to provide financial services to the Company are
described in Note 1. Mark Hauser, a principal of Tamarix Capital Corporation,
became Chief Executive Officer of the Company commencing May 1, 1998. The terms
of his 3 year employment contract with the Company provide for compensation of
US$ 160,000 per year and the issue of 130,000 shares of the Company with
contractual transfer
-77-
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 1999
Notes To Consolidated Financial Statements (continued)
restrictions lapsing as to one-third thereof on each of December 31, 1998, 1999
and 2000 and 130,000 options exercisable at $5.00. Cash compensation under the
contract with Tamarix Capital Corporation and the employment contract with Mark
Hauser is payable only when the Company has sufficient cash to meet its
financial commitments for the following 12 months, and no cash compensation
under the agreements was paid in 1998. The Company met this test in 1999 and
commenced payment of a portion of the accrued compensation in 1999. In March
1999, pursuant to the merger of the Company's Moto Guzzi Corp. subsidiary with
and into North Atlantic (See Note 3), Mark Hauser became Executive Chairman and
a director of the merged company, with an annual compensation of US$ 90,000 plus
US$ 108,000 in respect of the expense of maintaining the U.S. corporate office
for Moto Guzzi, and in respect of handling administrative and regulatory matters
for Moto Guzzi. 150,000 options to acquire stock of Moto Guzzi Corporation at
$10.6875 were also issued to Mr. Hauser. This agreement was terminated in April
2000 in connection with the sale of Moto Guzzi operations to Aprilia.
Mr. Emanuel Arbib - As described in Note 10, Emanuel Arbib was paid US$ 250,000
in the form of 5% convertible debentures in connection with the issue of US$ 6
million of such debentures to Italian institutional investors in December 1998.
As described in Note 1, the Company entered into a three-year consulting
contract commencing May 1, 1998 with Emanuel Arbib as Chief Financial Officer of
the Company. The terms of the contract provide for compensation of US$ 100,000
per year and the issuance of 75,000 shares of the Company with contractual
transfer restrictions lapsing as to one-third thereof on each of December 31,
1998, 1999 and 2000 and options to purchase 65,000 shares exercisable at $5.00.
Cash compensation under the employment agreement is deferred until the Company
has sufficient cash to meet its financial commitments for the following 12
months, and no cash compensation under the agreement was paid in 1998. The
Company met this financial test in 1999 and began making payments in 1999. In
December 1999, Emanuel Arbib was appointed joint-CEO of the Company, though his
compensation arrangements were unchanged. In March 1999, pursuant to the merger
of the Company's Moto Guzzi Corp. subsidiary with and into North Atlantic (See
Note 3), Emanuel Arbib became a director of Moto Guzzi and entered into a
consulting contract to provide financial consulting services, with an annual
compensation of US$ 90,000. 30,000 options to acquire stock of Moto Guzzi at
$10.6875 were also issued to Mr. Arbib.
Mr. William Spier - In August 1999, William Spier, a director of the Company
from May 1997 to December 1999 and director of Moto Guzzi from March 1999, made
an advance of $250,000 to the Company's Moto Guzzi subsidiary. Entities
associated with Mr. Barry Fingerhut, a Director of Moto Guzzi. from March 1999,
also advanced $1,000,000. The total of US$ 1,250,000 (Lit. 2,405 million) is
included as advances for subsidiary stock subscription in the balance sheet at
December 31, 1999. The advances, together with other advances to Moto Guzzi by
the Company in 2000 and funds raised from an Italian institutional investor,
were converted into Series B Preferred Stock of Moto Guzzi in February 2000.
Interest is payable at 7% on the advances through their February 2000 conversion
into Series B Preferred Stock of Moto Guzzi. The Series B Preferred Stock was
redeemed in full in September 2000. See Note 21 - Subsequent events, for further
description of the issuance of Series B Preferred Stock by Moto Guzzi in
February 2000.
-78-
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 1999
Notes To Consolidated Financial Statements (continued)
Deborah S. Novick - Deborah S. Novick, a Director of the Company from September
7, 1997 to December 6, 1999 is Executive Vice President Investment Banking for
GKN Securities Corp., who acted as underwriters for the public offering of the
Company's Common Stock in June 1997 (see Note 1) and for the private placement
of Moto Guzzi Corp. preferred stock in December 1996 and January 1997 (see Note
3). GKN Securities Corp. was paid $1,368,000 in underwriting commissions and
expenses in relation to these transactions.
17. EXPORT SALES AND GEOGRAPHIC INFORMATION
Net sales, primarily management services, by destination were as follows:
1999 1999 1998 1997
US$'000 Lira m. Lira m. Lira m.
----------------------------------------------
United States........... 47 91 43 68
Italy................... 986 1,896 3,732 2,467
----------------------------------------------
1,033 1,987 3,775 2,535
==============================================
Identifiable assets Dec. 31 Dec. 31 Dec. 31
1999 1999 1998
US $'000 Lira m. Lira m.
--------------------------------
Italy .............................. 4,857 9,344 20,563
United States ...................... 6,652 12,798 2,274
Elsewhere .......................... 813 1,564 1,101
--------------------------------
12,322 23,706 23,998
================================
Assets held elsewhere principally relate to the investment in LITA, held through
Trident Rowan International SA, a Luxembourg company.
18. CONCENTRATION OF CREDIT RISKS
Concentrations of credit risk with respect to trade accounts receivable are
limited due to the number of entities in the customer base. The Company
maintains cash and cash equivalents and short and long-term investments with
various financial institutions of national standing in Italy and the United
States.
-79-
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 1999
Notes To Consolidated Financial Statements (continued)
19. FINANCIAL INSTRUMENTS
The Company does not enter into foreign exchange contracts in the normal course
of its operating activities. In 1998, the Company made forward purchases of US$
4,000,000 as partial coverage of its US Dollar share repurchase commitments at
June 30, 1998. The Company has not hedged against foreign exchange risk on its
US Dollar denominated bridge loan, incurred in October 1998.
Fair value of financial instruments - The following methods and assumptions were
used by the Company in estimating its fair value disclosure for financial
instruments.
Cash and cash equivalents: the carrying amount of cash and cash equivalents
reported by the Company approximates their fair value.
Short and long term debt: the carrying amount of the Company's borrowings under
its short-term credit arrangements approximates their fair value. The fair
values of the Company's long-term debt are estimated using cash flow analyses,
based on the Company's incremental borrowing rates for similar types of
borrowing arrangements.
Fixed interest securities which have maturities from one to three years: fair
value for marketable quoted securities is based on market price and for
non-marketable securities, is estimated using discounted cash flow analysis
based on similar investments available as at the balance sheet date. There are
no significant differences between fair value and carrying value for any of the
Company's financial instruments as at December 31, 1998 and 1997.
20. LEGAL PROCEEDINGS
The Company is a defendant in two pending lawsuits which are described in detail
in Item 3 of Part I of this Report, which is incorporated herein by reference.
-80-
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 1999
Notes To Consolidated Financial Statements (continued)
21. SUBSEQUENT EVENTS
Disposal of motorcycle operations
In December 1999, the Company engaged IMI, a leading Italian investment bank, to
pursue strategic alternatives to enhance shareholder value in its shareholding
in Centerpoint (Moto Guzzi through September 18, 2000).
The Moto Guzzi motor cycle operations were sold to Aprilia pursuant to an April
14, 2000 Preliminary Sale and Purchase Agreement, closed in September 2000. In
this transaction, Centerpoint, in which the Company owns a 62.7% interest, held
directly and indirectly through a subsidiary, sold its operating subsidiaries to
Aprilia. To finance operations through the date of sale, Centerpoint raised
bridge financing in February 2000 by way of issuance of Series B 7.0 % Preferred
Stock, redeemable December 2001, which was subscribed for cash by the Company
with US$ 3,500,000 (from funds raised in December 1999 by way of issuance of its
5% convertible debentures) and for $6,000,000 by Fineco, a third party Italian
institutional investor group. Certain existing advances by the Company's OAM
subsidiary of $1,600,000 and by Messrs. Fingerhut and Spier of $1,250,000 were
also applied to subscribe to the Series B Preferred Stock. Centerpoint agreed
with holders of the Series B Preferred Stock to redeem such Series B Preferred
Stock on September 30, 2000, following the closing of the sale by Centerpoint of
its operating subsidiaries. See Item 1 of Part 1 of this report for fuller
details of these events.
On September 7, 2000, Centerpoint closed the sale of all its operating
subsidiaries. On August 11, 2000, at a special meeting of stockholders, Moto
Guzzi's stockholders had approved the sale of the operating subsidiaries and the
change of corporate name from Moto Guzzi to Centerpoint Corporation, with
stockholders holding in excess of two-thirds of all outstanding shares of Class
A Common Stock voting for the sale and the name change.
Total proceeds from the sale were Lit. 79,500 million. In accordance with the
Share Purchase Agreement, Aprilia also reimbursed Centerpoint Lit. 2,074
million, the amount owed to Centerpoint by the operating subsidiaries pursuant
to loans made to them. Lit. 9,375 million of the total proceeds was placed in
escrow to cover any claims Aprilia might have in the future in respect of the
representations and warranties given by Centerpoint in the Share Purchase
Agreement. Funds from the escrow account will be released to Centerpoint in two
tranches, subject to any claims Aprilia may have in respect of Centerpoint's
representations and warranties: up to Lit. 7,000 million is to be released on
September 8, 2001; and up to Lit. 2,375 is to be released on September 8, 2007.
Aprilia has undertaken to evaluate, on a best efforts basis, an earlier
resolution of the escrow accounts.
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TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 1999
Notes To Consolidated Financial Statements (continued)
SIREF S.p.A. and San Paolo Finanziaria S.p.A. (both affiliates of IMI) acted as
fiduciary agents for the closing. In accordance with invoices submitted to them,
they paid IMI Lit. 11,401 million, in respect of fees and expenses claimed to be
due to IMI, paid Lit. 505 million to Carnelutti, the Company's Italian counsel,
and then paid the remaining proceeds of Lit. 60,293 million to Centerpoint. The
Company has since early July 2000 disputed IMI's interpretation of the
calculation of the fee due to them under their engagement letter, following
indication by IMI of their basis of calculation. See "Subsequent Events--Closing
by Moto Guzzi (now Centerpoint) on the sale of its Operating Subsidiaries to
Aprilia; Dispute With IMI concerning its fee", in item 1 above, which is
incorporated herein by reference.
The Lit. 60,293 million received by Centerpoint was applied first to pay amounts
due for transaction expenses and other payables and obligations estimated in the
aggregate to be approximately Lit. 2,700 million and to redeem, prior to
September 30, 2000, all outstanding shares of Series B Preferred Stock for a
price equal to $100 per share plus any accrued and unpaid dividends thereon, for
a total of approximately US$ 12.6 million (approximately Lit. 28,300 million at
the then prevailing exchange rate). Of such redemption, the Company received
approximately US$ 5.2 million (approximately Lit. 11,400 million at the then
prevailing exchange rate). Following such redemption, Centerpoint has
approximately Lit. 29.3 billion in cash and rights to the remaining balance at
the time of release of the Lit. 9,375 million being held in escrow, as described
above. Cash has been invested in short-term fixed interest securities pending
evaluation of the alternatives available with respect to such funds.
The Share Purchase Agreement providing for the sale of Centerpoint's operating
subsidiaries to Aprilia (described below) contained a condition that OAM (the
holder of approximately 58% of the issued and outstanding shares of
Centerpoint's Class A common stock, and a subsidiary of the Company) agree to
vote its capital stock for the sale, and by letter to Aprilia dated April 14,
2000, OAM agreed to vote its shares for the sale.
In order to induce OAM to deliver its letter to Aprilia, Centerpoint agreed with
OAM and the Company by letter dated April 14, 2000 (the "April 14th letter")
that, among other things, it would pay IMI's fees in connection with the sale.
The April 14th letter was amended on June 8, 2000 to provide, among other
things, that Centerpoint would, as promptly as practicable after the closing of
the sale, but in no event later than 90 days following the closing, hold a
meeting of stockholders to consider and vote upon a proposal to liquidate all of
Centerpoint's assets and dissolve itself. The date for proceeding to propose a
liquidation was subsequently extended by the Company and OAM to July 15, 2001.
Disposal of steel tube operations
In July 2000, the Company disposed of LITA. Lit. 1,470 million of the total
consideration of Lit. 2,470 million was paid for at the time of sale by way of a
dividend of Lit. 670 million paid immediately prior to the sale and Lit. 800
million paid by the purchaser in cash. Lit. 1,000 million is due in July 2001,
secured
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TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 1999
Notes To Consolidated Financial Statements (continued)
by a first call bank guarantee. In connection with the disposal, the Company has
released a first call bank guarantee for Lit. 1,000 million through December 31,
2003 to secure any claims the purchaser may have for breaches of representations
and warranties given by the Company. LITA has been accounted for as a
discontinued operation - See Note 3.
Disposal of temporary management operations
Effective January 1, 2000, the Company disposed of TIM, its temporary management
services subsidiary. TIM was sold to affiliates of Albino Collini, a Director of
the Company through December 2000 for 80,000 shares of the Company with a fair
value of Lit. 320 million at the date of sale. The Company has recorded an
impairment loss of Lit. 400 million as at December 31, 1999 in respect of the
trademarks of TIM to reflect the post year-end disposal.
Purchase of minority interests
In September 2000, the Company agreed to purchase the outstanding minority
interests in its 84.35% owned subsidiary for OAM for US$ 2,500,000 (Lit. 4,810
million). The purchase price is at a discount to the net asset value of the
15.65% OAM, which the Company will acquire and will permit the Company to
rationalize its corporate structure and eliminate certain fiscal inefficiencies.
The agreement to purchase the minority interests closed in March 2001.
Centerpoint Loan; Early payoff of the Company's 5% Convertible Debentures
The Company's 5% Convertible Debentures in an aggregate amount of US$ 6,250,000
were scheduled to come due in December 2001. On June 13, 2001 the Company, OAM
and Centerpoint entered into the Centerpoint Loan Agreement wherein subject to
the terms and certain conditions set forth therein Centerpoint agreed to lend
the Company $4,200,000. On June 13, 2001 Centerpoint made the Centerpoint Loan
and on June 15, 2001 the Company paid the holders of $6,000,000 of the
Debentures $4,207,500 in cash, which the Debenture holders accepted as payment
in full on the Debentures (including past due interest), representing a 31.5%
discount from their face value. $250,000 of the Debentures remains outstanding.
The Centerpoint Loan bears interest at a rate of 5 % per annum, is repayable in
full on the earlier of June 13, 2002 and the date on which the Company causes or
permits a liquidation of Centerpoint, and is secured by the 300,000 shares of
Centerpoint common stock currently owned by the Company and 1,200,000 of the
shares of Centerpoint common stock currently owned by OAM. In connection with
the Centerpoint Loan, OAM also entered into the OAM Guaranty wherein it
guaranteed the Company's obligations under the Centerpoint Loan Agreement. OAM's
liability under the OAM Guaranty is limited to the value of the Centerpoint
shares pledged by OAM, as that term is used in the OAM pledge agreement.
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TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 1999
Notes To Consolidated Financial Statements (continued)
United States Litigation
On December 19, 2000, a Settlement Agreement and Release was executed by and
between plaintiffs, the Company and I.T.E. Imperial Corporation and Gould
Electronics, Inc., the co-defendants in the Wilson Litigation. The Company and
Gould each agreed to pay 50% of the $2,050,000 settlement amount, subject to
resolution of certain issues between them. The remaining issue, the Company's
claim against Gould for indemnification, was litigated on February 16, 2001.
On June 15, 2001, a verdict was rendered by the Court of Common Pleas of
Philadelphia County holding that the Company is responsible for paying all
settlement funds and ordering the Company to pay Gould $1,025,000 plus interest
at a rate of 7% per annum from the date Gould paid the plaintiffs. The appeal
period for the judgment expired on July 15, 2001, and the judgment became due
and payable to Gould on that date.
Given the status of these legal actions, the Company has recorded additional
provisions of Lit. 2,970 million and the full amount of the $2,050,000 payable
by the Company is accrued at December 31, 1999. Although no judgment has been
rendered with respect to the Company's claims against Travelers relating to the
Wilson Litigation, and it is possible that the Company may recover significant
amounts from Travelers, no amounts have been offset or accouted for as
receivables in respect of these claims.
Aprilia Claims under the Share Purchase Agreement; Payment by IMI; Request for
Arbitration
On June 2001 Aprilia's legal counsel sent a letter to Centerpoint which alleged
that it had various claims under the Share Purchase Agreement aggregating
approximately Lit. 9,600 million.
On July 13, 2001 Centerpoint's Italian counsel sent a letter to Aprilia's
counsel contesting all of the Alleged Claims.
On July 13, 2001 Aprilia requested that IMI, the escrow agent under the Escrow
Agreement, pay them Lit. 7.611 million in respect of the Alleged Claims. On July
26, 2001, in spite of being aware of Centerpoint contesting of each of the
Alleged Claims and its intention to seek arbitration, IMI advised Centerpoint
that it had paid Lit. 7,611 million from the escrow account to Aprilia in
respect of the Alleged Claims.
Pursuant to the Share Purchase Agreement and Escrow Agreement, which provides
that disputes among the parties be arbitrated, Centerpoint has prepared a
Request for Arbitration in Accordance with Article 4 of the ICC Rules of
Arbitration relating to the Alleged Claims and the payment by IMI and requesting
restitution of the funds paid to Aprilia, which Centerpoint is in the process of
filing with the International Chamber of Commerce. Centerpoint has advised the
Company that it expects a decision by the ICC with respect to the request will
be rendered approximately twelve to eighteen months after the filing of the
request.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The following information concerns the directors, officers, key employees of and
consultants to the Registrant.
Directors
As of December 31, 1999, and as of the date of this report, the Directors of the
Company were as follows:
Name Age Position
- ---- --- --------
Mark S. Hauser ................ 43 President and Joint Chief Executive
Officer, Director
Emanuel Arbib ................. 34 Joint Chief Executive Officer, Chief
Financial Officer, Director
Howard E. Chase ............... 64 Director
Gianni Bulgari ................ 64 Director
Duncan Chapman(1) ............ 47 Director
Andrea Della Valle(2) ......... 42 Director
Mark B. Segall(2) ............. 38 Director and Secretary
- -----------------------------
(1) Independent director nominated by Mark Hauser in accordance with the
provisions of the Settlement Agreement.
(2) Independent director nominated by Gianni Bulgari in accordance with the
provisions of the Settlement Agreement.
Mark S. Hauser, President and Chief Executive Officer of the Company from March
1998 through December 1999, and President and Joint Chief Executive Officer of
the Company since December 1999, became a Director of the Company on May 2, 1997
upon consummation of the Tamarix/Finprogetti Acquisition Agreement. Mr. Hauser
is a Managing Director of FdG Associates, a private equity fund. He is an
attorney and a founder and Managing Director of Tamarix Capital Corporation, a
New York-based merchant and investment banking firm. Between 1986 and 1990, Mr.
Hauser was Managing Director of Ocean Capital Corporation, an international
investment banking firm. In 1991, Mr. Hauser founded Hauser, Richards & Company,
also an international investment banking firm.
-85-
Emanuel Arbib, the Chief Financial Officer since March 1998, and the Joint Chief
Executive Officer since December 1999, became a Director of the Company on May
2, 1997 upon consummation of the Tamarix/Finprogetti Acquisition Agreement. He
is the Managing Director of Capital Management Ltd, an international money
management firm based in Jersey, Channel Islands. He is also the co-founder and
Managing Director of Global Investment Advisors, a London-based investment
company. Since June 1998, he has served as a director of and chief executive
officer of Integrated Asset Management plc, a U.K. publicly traded company.
Since January 1996, he has served as Managing Director of BioSafe Europe, an
affiliate of BioSafe International Inc., a publicly traded company engaged in
waste management and landfill reclamation. From September 1996 to November 1997,
he served as a director of International Capital Growth Ltd., and its European
subsidiary, Capital Growth (Europe) Ltd., investment banking firms. From 1990
until 1991, Mr. Arbib headed the Italian desk for Eurobond sales at Prudential
Bache Securities (UK) Ltd.
Howard E. Chase has served as a Director of the Company since 1971, as Chairman
of the Board and Secretary of the Company until September 1999 and as Company
counsel from 1971 until September 1995 and as President and Chief Executive
Officer of the Company from October 1995 to March 1998. He is also President of
Carret Holdings, Inc., an asset management company. He has also served as
Vice-President of the Company from 1986 to October 1995; a partner of Morrison
Cohen Singer & Weinstein, LLP from April 1984 until September 1995; and a
director of Thoratec Corporation, a Nasdaq-traded company, since 1987 and
International Diamalt Co., Ltd., a U.K. based company.
Gianni Bulgari was Chairman of the Board of FILA Holdings, S.p.A., maker of
sportswear, from 1989 until 1998. From 1966 until 1987 he served as a Chairman
of the Board and Chief Executive Officer of "BULGARI," a family-owned jewelry
business.
Duncan Chapman has been a principal at Butler, Chapman & Co., a private New
York-based investment banking firm for more than the past five years.
Andrea Della Valle has served as Executive Director for Lehman Brothers (Milan)
since 1988. From 1986 until 1988 he served as director for Lehman Brothers
(Switzerland).
Mark B. Segall has been a partner at Kramer Levin Naftalis & Frankel LLP
("Kramer Levin"), a New York law firm for more than the past five years. In
October 1999, he became a Senior Vice President and the General Counsel at
Investec Ernst & Company. Kramer Levin represented the Company in its December
1999 Debenture offering, and since that time has rendered legal services to the
Company on request. Until the end of September 1999, Kramer Levin provided legal
services to Gianni Bulgari in connection with the Settlement Agreement by and
among the Company, Mark Hauser, Gianni Bulgari, Howard Chase, Emanuel Arbib and
William Spier. Prior to that, Kramer Levin provided advice to Ixion LDC (which
was controlled by Gianni Bulgari and Emanuel Arbib), an affiliate of Tamarix
Investors LDC, an affiliate of Mark Hauser, Gianni Bulgari, Emanuel Arbib and
William Spier.
The Board of Directors established an Audit Committee in 1995, which until
December 6, 1999 consisted of Howard E. Chase and Deborah S. Novick. The Audit
Committee is charged with the responsibility to review the performance of the
independent accountants as auditors for the Company, discuss and review the
scope and the fees of the prospective annual audit, review with the auditors the
corporate accounting practices and policies and recommend to whom reports should
be submitted within the Company, review
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their final report with the auditors, review with the auditors overall
accounting and financial controls, and be available to the auditors during the
year for consultation purposes. In addition, the Audit Committee is charged with
conducting an appropriate review of all related party transactions on an ongoing
basis and a review of potential conflict of interest situations. The Board of
Directors has established a Compensation Committee which is charged with the
responsibility to review and make recommendations to the Board regarding
salaries, compensation and benefits of executive officers and key employees of
the Company. All of the current members of the Board of Directors attended at
least 75% of the meetings held in each of 1998 and 1999.
Non-employee directors are compensated for their services as such, at the rate
of $4,000 per year.
Each of Messrs. Chase and Hauser is a director of Centerpoint Corporation an
affiliate of the Company and a company with a class of securities registered
pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). None of the other above-described persons is a director of such
a company or of any company registered as an Investment Company under the
Investment Company Act of 1940.
The following persons were Directors of the Registrant from January 1, 1999
through December 6, 1999, but were not re-elected as Directors at the
Registrant's Annual Meeting of Shareholders held on December 6, 1999:
Name Age Position
---- --- --------
William Spier 66 Director
Mario Tozzi-Condivi 76 Director
Deborah S. Novick 37 Director
Albino Collini 59 Director and member of the Executive
Committee
Giovanni Caronia 60 Director
Nicola Caiola 75 Director
William Spier became a Director of the Company on May 2, 1997 upon consummation
of the Tamarix/Finprogetti Acquisition Agreement and served as Chairman of the
Board until March 1998. From May 1991 until September 1996, he was chairman and
chief executive officer of DeSoto, Inc., a manufacturer of household cleaners
and detergents. DeSoto was acquired by Keystone Consolidated Industries, Inc., a
Texas-based manufacturer of steel and wire rods, of which Mr. Spier is a
director. Mr. Spier is also currently the chairman of the board of directors of
Geotek Communications, Inc., a wireless telecommunications company, and acting
chief executive officer and a director of Integrated Technology USA, Inc., a
computer peripheral and telecommunications device and software company. From
1982 until 1989, Mr. Spier was a private investor and retired as Vice Chairman
of Phibro-Salomon, Inc. in 1982.
Mario Tozzi-Condivi served as a Director of the Company from 1993 through
December 1999, and served as Vice Chairman of the Company from October 1995
until March 1998. He has also served as Director of Moto Guzzi since July 1995;
President of Maserati Automobiles Incorporated, the Company's former subsidiary,
from February 1989 until 1996; Chairman of the Board of Maserati U.K. Ltd., 1986
to
-87-
1987; and has been an independent consultant to automobile importers,
distributors and dealers in England, Italy, Singapore and South Africa, since
1984.
Deborah S. Novick has been Vice President Investment Banking for GKN Securities
Corp. for more than the past five years. She is also a director of Netplex Group
Inc., a Nasdaq traded networked information systems company, and of Dalewood
Associates, Inc., the corporate general partner of Dalewood Associates, L.P., an
investment partnership. She became a Director of the Company on September 7,
1997 and served as a Director through December 1999.
Albino Collini served as a Director of the Company from 1995 through December
1999, and Executive Vice President and Chief Operating Officer of the Company
from October 1995 until March 1998. He also served as a Director of Moto Guzzi
since July 1995; founder and President of T.I.M. and predecessors since 1987;
Managing Director of Finprogetti from July 1995 until May 1996; and Director of
Finprogetti International Holding, S.A. since October 1993.
Nicola Caiola became a Director of the Company on May 2, 1997 upon consummation
of the Tamarix/Finprogetti Acquisition Agreement. He has been the sole
shareholder, chairman and Managing Director of Sefin-Services Financiers S.A., a
Swiss private financial consulting firm in the mergers and acquisitions field,
since 1979.
Giovanni Caronia became a Director of the Company in June 1997 and served as
Chairman of the Board of Finprogetti since July 1996. He served as Managing
Director or Eurotecnica S.p.A. (a holding company operating in different fields
such as engineering and contracting, real estate, financing) from March 1981 to
October 1996, when he was appointed Chairman of the Board of Eurotecnica
Contractors and Engineers S.p.A. He has also served as Chairman of the Board of
A.S.T. S.p.A., a manufacturer of valves, since May 1985, as Auditor of
Assocapital S.p.A., an investment company, since September 1985, as Director of
Caio Co. N.V. (Curacao, Netherlands) from May 1992 to November 1995, as Director
of Eascon S.p.A., a process control software development company, from September
1989 to May 1996, as Director of Etiam S.r.l. since December 1994, as Director
of Eurotecnica USA Inc. (Chicago) for over fifteen years, as Director of Euro
P.A. S.r.l. from October 1991 to October 1994, as Chairman of the Board of
Fiblog S.A., a Luxembourg based holding company, since July 1990, as Chief
Executive Officer of Fiborg S.p.A. since April 1993, as Director of Indograsco
(Santo Domingo) since March 1988, as Auditor of Iniziativa S.r.l. from 1991 to
1992, as Director of Sacit S.p.A., a high technology air conditioning systems
manufacturer, since December 1991, as Director of Savon Holding Participation
B.V. (Amsterdam, Holland) from July 1990 to July 1997, and as Auditor of Tegia
since June 1996.
Each of Mr. Spier and Ms. Novick is a director of a company with a class of
securities registered pursuant to Section 12 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). None of the other above-described persons
is a director of such a company or of any company registered as an Investment
Company under the Investment Company Act of 1940.
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Executive Officers
Position with Company and Business
Name Age Experience During Past Five Years
---- --- ---------------------------------
Mark S. Hauser (1)...........
Howard Chase (1) ............
Emanuel Arbib (1) ...........
(1) Information relating to the ages, positions with the Company and past
business experience of Messrs. Hauser, Arbib and Chase, is set forth
above under "Directors." All executive officers will serve in their
respective capacities in accordance with the forms of their employment
agreements, until their successors shall have been elected and
qualified.
ITEM 11. EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following table shows, for the three fiscal years ended December 31, 1999,
1998 and 1997 the cash and certain other compensation paid or accrued for those
years to the President of the Company and each of the other five most highly
compensated executive officers of the Company other than the President whose
aggregate annual salary and bonus exceeded $100,000 in the Company's fiscal year
ended December 31, 1999 ("Named Executive Officers") in all the capacities in
which they served:
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SUMMARY COMPENSATION TABLE
Long-Term
Compensation Awards
-------------------
Annual Other
Compensation Annual Restricted Options/
Name and Principal Position Year Salary (Lit./$)(1) Compensation Stock SARs(#)(7)
- --------------------------- ---- ------------------ ------------ ----- ----------
Mark S. Hauser(2) 1999 $235,000 $90,000
President and Chief Executive
Officer since March 1998 1998 $106,667 $552,000 132,000
Emanuel Arbib(3) 1999 $125,000 $250,000
Chief Financial Officer since March
1998 1998 $66,667 -0- $301,172 -0-
Howard E. Chase 1999 $145,000 -0- -0- -0-
President and Chief Executive
Officer from October, 1995 until
March, 1998 1998 $250,000 -0- -0- -0-
1997 $400,313 -0- -0- -0-
Albino Collini(4) 1999 Lit.267,000,000 -0- -0- -0-
Executive Vice President from ($138,773)
October, 1995 until March 1998
1998 Lit. 381,150,000/ Lit.82,800,000/ -0- -0-
($230,163) ($50,000)
1997 Lit. 410,197,000/ Lit.88,450,000/ -0- -0-
($247,704) ($53,412)
Mario Tozzi-Condivi(5) 1999 $96,238 $69,000 -0- -0-
Vice Chairman from October, 1995
until March 1998 1998 Lit.199,830,000/ Lit. 89,813,999/ -0- -0-
($120,670) ($54,235)
1997 Lit. 316,209,000/ -0- -0-
($190,948)
Nick Speyer(6) 1999 $160,000 -0- -0- -0-
Chief Financial Officer of
Centerpoint Corporation 1998 $113,464 -0- -0- -0-
1997 $103,000 -0- -0- -0-
Domenico Costa 1999 Lit.267,000,000 -0- -0- -0-
President of T.I.M. ($138,773)
1998 Lit. 412,000,000/ -0- -0- -0-
($248,792)
1997 Lit. 240,000,000/ -0- -0- -0-
($144,144)
- -----------
The aggregate amount of all perquisites and other personal benefits paid to
each of the Named Executive Officers did not exceed the greater of $50,000
or 10% of such Officer's salary.
(1) Lira amounts have been converted to dollars at the rate of 1,924 Lira per
U.S. Dollar, the approximate rate in effect on December 31, 1999.
(2) 1999 compensation includes cash compensation received from Centerpoint
Corporation (formerly Moto Guzzi Corporation) , a subsidiary of the Company
and the value office space provided to Mr. Hauser in 1999.
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(3) Other Annual Compensation for Mr. Arbib in 1999 includes the $250,000 5%
Convertible Debenture issued in connection with Mr. Arbib's efforts in
placing $6,000,000 of such Debentures in 1999.
(4) Does not include Lit. 376,767,000 ($227,516) received in respect of a
certain T.I.M. engagement predating the Company's acquisition of T.I.M. as
part of the Finprogetti Acquisition.
(5) The above amounts plus expenses were paid to Como Consultants Limited, an
Isle of Jersey company, which provides the Company with the services of Mr.
Tozzi-Condivi. No other form of compensation was paid to Como Consultants
or to Mr. Tozzi-Condivi.
(6) Compensation includes cash compensation received from Centerpoint
Corporation (formerly Moto Guzzi Corporation) , a subsidiary of the Company
and other subsidiaries of the Company.
(7) See "Options/SARs Repricing, " below.
Employment Contracts
On March 18, 1998, the Board of Directors approved a three year employment
contract commencing May 1, 1998 with Mark S. Hauser as President and Chief
Executive Officer, a three year consulting contract commencing May 1, 1998 with
Emanuel M. Arbib as Chief Financial Officer and a one year, renewable agreement
commencing May 1, 1998 with Tamarix Capital Corporation, a company controlled by
Mr. Hauser, which supercedes a prior existing contract, for provision of
merchant banking services to the Company. The employment agreement with Mr.
Hauser, which was amended on July 15, 1999, and the consulting agreement with
Mr. Arbib, which was amended on July 6, 1999, has been further amended, in
connection with the Settlement Agreement as described below.
The terms of Mr. Hauser's employment contract with the Company provide for
compensation of US$ 160,000 per year and provided for the issuance of 130,000
shares of the Company's Common Stock with contractual transfer restrictions
lapsing as to one-third thereof on each of December 31, 1998, 1999 and 2000 and
130,000 options exercisable at $5.00 per share. Pursuant to the Settlement
Agreement, Mr. Hauser has agreed that his compensation will terminate upon, and
as of, any liquidation of the Company.
Cash compensation under the contract with Tamarix Capital Corporation and the
employment agreement with Mr. Hauser was originally payable only when the
Company had sufficient cash to meet its financial commitments for the following
12 months, and no cash compensation under the agreements was paid in 1998. From
March 1999 through April 2000 Mr. Hauser was engaged as Executive Chairman of
Moto Guzzi at a salary of US$ 90,000 per year plus reimbursement of expenses and
the grant of stock options. Mr. Hauser's employment agreement with Moto Guzzi
was terminated in April 2000 in connection with the proposed sale to Aprilia.
Mr. Hauser was paid $169,500 in severance in connection with such termination of
his employment agreement. Mr. Hauser continues to serve as Executive Chairman of
Centerpoint without compensation.
Under the terms of the consulting agreement with Mr. Arbib, Mr. Arbib is
entitled to compensation of US$ 100,000 per year and the issuance of 75,000
shares of the Company's Common Stock with contractual transfer restrictions
lapsing as to one-third thereof on each of December 31, 1998, 1999 and 2000 and
65,000 options exercisable at $5.00 per share. Cash compensation under the
employment agreement was originally deferred and accrued, and no cash
compensation under the agreement was paid in 1998. Those restrictions were
satisfied in 1999 and the Company commenced payment of the accrued compensation
in 1999. Pursuant to the Settlement Agreement, Mr. Arbib has agreed that his
compensation will terminate upon, and as of, any liquidation of the Company
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From March 1999 through April 2000 Mr. Arbib was also engaged as a financial
consultant to Moto Guzzi at compensation of US$ 30,000 per year plus
reimbursement of expenses and the grant of stock options. The employment
agreement with Mr. Arbib was terminated in April 2000 in connection with the
proposed sale to Aprilia. Mr. Arbib was paid $37,900 severance in connection
with such termination.
Messrs. Howard E. Chase, Albino Collini and Domenico Costa had been engaged as
executive officers of the Company or one of its subsidiaries under multi-year
employment agreements which were terminated by mutual agreement effective
December 1, 1997. Messrs. Collini and Costa continue to serve as executive
employees on an at-will basis, each at a base salary of Lit. 267 million. Mr.
Chase was also engaged as Special Counsel to Moto Guzzzi at annual compensation
of US$ 60,000 plus reimbursement of expenses. This arrangement was terminated in
September 2000 in connection with the sale of the Moto Guzzi operations. Mr.
Chase was paid US$ 51,400 in connection with such termination. Mr. Chase
continues to serve as a director of the Company, without compensation.
The compensation of the Named Executive Officers in 1999 was the result of the
negotiated employment agreements described above and not the implementation of a
compensation policy.
Stock Option Plans
In order to attract and retain employees, the Board of Directors adopted, and
the shareholders approved, the 1995 Non-Qualified Stock Option Plan ("1995 NQ
Plan") and the 1995 Stock Option Plan for Outside Directors ("1995 Directors'
Plan"). The 1995 NQ Plan and the 1995 Directors' Plan are referred to
collectively as the "1995 Plans." Options to purchase an aggregate of 2,150,000
shares of Common Stock (subject to antidilution adjustments under certain
circumstances) may be awarded under the 1995 Plans.
1995 NQ Plan
The 1995 NQ Plan is administered by the Compensation Committee. Members of the
committee are not entitled to receive grants under the 1995 NQ Plan. The maximum
number of options which any optionee may receive is 350,000 per calendar year.
All officers and employees who, in the opinion of the committee have made or are
expected to make key contributions to the success of the Company are eligible to
receive options under the Plan. The committee may determine, subject to the
terms of the 1995 NQ Plan, the persons to whom options will be awarded, the
number of shares and the specific terms of each option granted. Officers and key
employees of companies acquired or operated by the Company or its subsidiaries
may also be option recipients. Specific performance or other criteria governing
the granting of the remaining options have not yet been established by the
committee. Options may not be granted at an exercise price below the fair market
value on the date of grant.
If an option expires unexercised, is surrendered by the grantee for
cancellation, is canceled or otherwise becomes unexercisable, the shares
underlying the grant will again become available for the granting of new options
under the 1995 NQ Plan.
The plan is subject to amendment by a majority of those members of the Board of
Directors who are ineligible to receive options, but the Board may not (i)
change the total number of shares of stock available for options; (ii) increase
the maximum number of options; (iii) extend the duration of the plan;
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(iv) decrease the minimum option price or otherwise materially increase the
benefits accruing to recipients; or (v) materially modify the eligibility
requirements.
1995 Directors' Plan
All non-employee directors, who were never previously employed by the Company or
eligible to receive options, annually receive, on each January 2, options to
purchase 5,000 shares under the 1995 Directors' Plan. Newly appointed or elected
non-employee directors receive a grant upon taking office.
A total of 20,000 options under the plan were granted in 1999 and 1998, and
15,000 options were granted in January 1997 and 18,751 options were granted in
the balance of 1997. Options granted in 1999 are exercisable at $4.625 per
share, options granted in 1998 are exercisable at $5.4375 per share, and 1997
options were exercisable at $9.313 per share. The January 1997 options were
forfeited later in 1997 as a result of changes in the composition of the Board
of Directors. The 18,751 options granted in 1997 to incoming members of the
Board were granted at exercise prices ranging between $5.125 and $8 per share.
Options to be granted in future years will be exercisable at the reported
closing price of the stock on January 2 of the year of grant. Options are not
exercisable until the later of January 2 of the year succeeding the date of
grant or six months following the date of grant.
The authority to grant options under the 1995 Directors' Plan will terminate on
the earlier of December 1, 2005 or upon the issuance of the maximum number of
shares of stock reserved for issuance under the plan, which is 150,000, 91,249
of which remained available for issuance on Decvember 31, 1999.
The 1995 Directors' Plan may be amended by the Board of Directors' except that
provisions thereof concerning granting of options may not be amended more than
once every six months unless necessary to comply with the Internal Revenue Code
or the Employee Retirement Income Security Act.
STOCK OPTION REPRICING
In 1998, the Company cancelled stock options previously granted to the following
Named Executive Officers, and issued new options at an exercise price of $5.00
per share, the then current market price of the Company's Common Stock:
Name Cancelled Exercise Price Granted
---------------- ------------ ---------------- ---------
Howard E. Chase 300,000 $12.26 140,000
Albino Collini 150,000 $12.26 50,000
Mario Tozzi-Condivi 200,000 $12.26 50,000
Domenico Costa 60,000 $12.26 40,000
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AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
The following table summarizes the number of exercisable and unexercisable
options held by the Named Executive Officers at the end of 1999. None of the
unexercised options held by the Named Executive Officers at the end of 1999 were
exercisable at a price equal to or less than the market price of the Common
Stock on the date of issuance.
Number of Shares Underlying Unexercised
Options/SARs at Fiscal Year-End
Number of Shares ---------------------------------------
Name Acquired on Exercise(1) Exercisable Unexercisable
---- ----------------------- ----------- -------------
Mark S. Hauser.................... - 130,000
Emanuel Arbib..................... - 65,000
Howard E. Chase................... - 140,000
Mario Tozzi Condivi............... - 50,000
Albino Collini.................... - 50,000
Domenico Costa.................... - 40,000
Nick Speyer ...................... - 40,000
- -----------
(1) None of the Named Executive Officers exercised any stock options in 1999.
Compensation of Directors
Non-employee members of the Board of Directors of the Company will each be paid
$4,000 per year by the Company for services rendered in their capacity as such
and will receive automatic grants of stock options. See "Stock Option Plans-1995
Directors' Plan." Officers of the Company or its subsidiaries who are members of
the Board of Directors of the Company and employees receive compensation for
services rendered in their capacities as officers only, and may be entitled to
discretionary grants of stock options.
Compensation Committee Interlocks and Insider Participation
The Company's Board of Directors established a compensation committee on October
28, 1995. The Company and each of its subsidiaries have, to date, addressed all
compensation issues through its or their respective boards of directors. Of the
present members of the Board of Directors, Messrs. Hauser, Arbib, Chase, Collini
and Tozzi-Condivi served as executive officers and/or employees of the Company
and/or one or more of the Company's subsidiaries in 1999.
Each of Messrs. Tozzi-Condivi, Chase, Collini, Hauser , Arbib and Spier engaged
in transactions with the Company during 1999 in addition to serving as a
director and/or officer of the Company. See "Certain Relationships and Related
Transactions" below.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Principal Security Holders
The following table sets forth certain information concerning the beneficial
ownership of Common Stock as of June 28, 2001, the date of this report, by (i)
each person who is known by the Company to own beneficially 5% or more of the
Common Stock, (ii) each of the Company's directors and Named Executive Officers,
and (iii) all directors and executive officers as a group. Unless otherwise
indicated, each person in the table has sole voting and investment power with
respect to the shares shown.
Number of Shares Percentage
Name and Address of Beneficial Owner* Beneficially Owned Beneficially Owned
---------------------------------------------------------------------------------------------
Mark S. Hauser .................................. 1,571,866(1)(2) 32.2
Gianni Bulgari .................................. 1,468,827(2)(3) 32.6
c/o Gruppo G.B. Bulgari
via M. Mercati, 17A
00187 Rome, Italy
Emanuel Arbib ................................... 475,972(2)(4) 10.7
Howard E. Chase ................................. 150,000(5) 2.8
Albino Collini................................... 173,972(6) 3.5
Mario Tozzi-Condivi.............................. 50,000(7) 1.1
Domenico Costa................................... 40,000(7) **
Nick Speyer ..................................... 40,000(7) **
Duncan Chapman 5,000 **
Andrea della Valle 5,000 **
Mark B. Segall 5,000 **
All directors and officers as a group ........... 3,985,637 71.2
- -------------------
* Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (the "COMMISSION") and generally
includes voting or investment power with respect to securities. Shares of
Common Stock issuable upon the exercise of options or warrants currently
exercisable, or exercisable or convertible within 60 days, are deemed
outstanding for computing the percentage ownership of the person holding
such options or warrants but are not deemed outstanding for computing the
percentage ownership of any other person.
** Less than one percent.
(1) Includes warrants to purchase 500,000 shares owned of record by Azzurra,
Inc., a Delaware corporation controlled by Mr. Hauser, 682,579 shares owned
of record by Tamarix Investors, LDC, a Cayman Islands Limited duration
company controlled by Mr. Hauser and presently exercisable options to
purchase 137,917 shares.
(2) As part of a reporting group, Mark Hauser, Tamarix Investors, Azzurra,
Gianni Bulgari and Emanuel Arbib report beneficial ownership of 3,516,665
shares, consisting of 2,062,831 shares and warrants and options to purchase
an additional 1,477,834 shares. Such group constitutes beneficial ownership
of approximately 62.8% of all shares outstanding on a diluted basis
pursuant to Regulation 13D-G under the Securities Exchange Act of 1934, as
amended.
(3) Includes warrants to purchase 381,067 shares from the Company.
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(4) Includes warrants to purchase 264,563 shares owned of record by entities
controlled by Mr. Arbib and options held by Mr. Arbib to purchase 72,917
shares.
(5) Includes 140,000 presently exercisable options.
(6) Includes 50,000 presently exercisable options.
(7) Represents presently exercisable options.
Item 13--Certain Relationships and Related Transactions
Settlement Agreement and Charter Amendments
On March 9, 1999, Tamarix distributed to entities controlled by two of its
principals, Gianni Bulgari and Emanuel Arbib, 634,921 shares of common stock of
the Company theretofore owned by Tamarix pursuant to a December 1998 amendment
to an agreement among the Tamarix shareholders. In connection with the
resolution of certain disputes between Mr. Bulgari and the Company, Messrs.
Hauser, Bulgari, Arbib, Spier and Chase entered into an agreement on September
21, 1999 (the "Settlement Agreement ") with the Company providing that, among
other things, the Company would propose for election a new slate of director
nominees and would vote their shares of the Company in support of the election
of such persons and certain proposed amendments to the Company's Articles of
Incorporation.
The parties to the Settlement Agreement beneficially owned, in the aggregate,
approximately 58.4% of the outstanding shares of Common Stock of the Company.
See "Principal Security Holders." The Settlement Agreement was approved by the
Board of Directors after determining that it was in the Company's best
interests.
The amendments, which were intended to eliminate the governance changes in the
Articles of Incorporation which had been adopted in 1997 to assure Tamarix's
continued participation in the governance of the Company were deemed
inconsistent with the terms of the Settlement Agreement. As a result of the
amendments it is anticipated that it may be easier to effect a change in a
majority of the members of the Board of Directors. The amendments are described
above in "Matters Submitted to a Vote of Security Holders".
The Company's By-Laws were also amended to eliminate all amendments adopted in
accordance with the Inducement Agreement granting special rights to Tamarix.
Loans to the Company by Tamarix and Bulgari
On October 1, 1998, two bridge loans were made to the Company by Tamarix and by
Mr. Bulgari to provide financing to Moto Guzzi Corp. in anticipation of the
consummation of the merger with North Atlantic Acquisition Corp. (See Notes 1
and 11). The loans were of Lit. 3,000 million and US$2,000,000, respectively,
and bore interest at 10% and a flat commission of 1%. Each loan was secured by
500,000 shares of Moto Guzzi Corp. common stock (207,337 shares of Moto Guzzi
Corporation, following the merger with North Atlantic Acquisition Corp.). As an
inducement for the loans to be made, the Centaurus warrants, which were
exercisable at $6.00 through May 1, 2000 were extended through May 1, 2002 and
the exercise price reduced to $5.50. The closing price of the Company's common
stock had been at $5.00 or below in the preceding month and was at $4.00 on
October 1, 1998 when the loans were made. The
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Company sought similar financing from unaffiliated third parties and the terms
and conditions above were more favorable than any expressions of interest by
third parties. The Lit. 3,000 million loan was repayable to Mr. Bulgari on March
31, 1999, and was extended to April 30, 1999 and was repaid in May 1999. The
US$2,000,000 loan was repayable on completion of the merger of Moto Guzzi Corp.
into North Atlantic Acquisition Corporation, which occurred on March 5, 1999 and
was extended, with part payments of $300,000 in May and August 1999, and the
balance repaid in November 1999.
Loans by Spier, Fingerhut Affiliates and the Company to Moto Guzzi
In August 1999, William Spier, a director of the Company from May 1997 to
December 1999 and director of Moto Guzzi Corporation from March 1999 made an
advance of $250,000 to the Company's Moto Guzzi subsidiary. Entities associated
with Mr. Barry Fingerhut, a Director of Moto Guzzi Corporation from March 1999,
also advanced $1,000,000 in 1999. The advances, together with advances to Moto
Guzzi Corporation by the Company in 1999 and in 2000 and funds raised from an
Italian institutional investor, were converted into Series B Preferred Stock of
Moto Guzzi Corporation in February 2000.
Issuance of 5% Debentures and Lending of Proceeds
On December 28, 1999, the Company issued US$ 6 million of 5% Convertible
Debentures Due December 28, 2001 to provide funds for Moto Guzzi Corporation and
for general corporate purposes. In connection with raising these funds, the
Company issued a $250,000 5% Convertible Debenture on the same terms as for the
$6 million raised to Emanuel Arbib, joint-CEO of the Company, for his efforts in
connection with such placement. The Company also paid $360,000 to an Italian
intermediary and $60,000 plus $26,106 for legal expenses to Investec Ernst &
Company. Mark Segall, a director of the Company is an officer of Investec Ernst
& Company.
Issuance and Redemption of Series B Preferred Stock
On February 25, 2000, Moto Guzzi Corporation, the Company's majority owned
subsidiary, issued 123,500 shares of a new Series B Preferred Stock to Fineco
Sim S.p.A., an Italian institutional investor ("Fineco"), and affiliates of
Fineco, the Company, OAM, S.p.A., a majority-owned subsidiary of the Company
("OAM"), and William Spier, a director of Moto Guzzi and the Company, and
Wheatley Partners LP and Wheatley International Partners LP, each of which is an
affiliate of Barry Fingerhut, a director of Moto Guzzi, for $100 per share (an
aggregate price of $12,350,000). The shares were issued as follows (i) 60,000 to
Fineco and its affiliates for cash, (ii) 35,000 shares to the Company for cash,
(iii) 16,000 to OAM in repayment of outstanding loans due to OAM, (iv) an
aggregate of 10,000 shares to Wheatley Partners and Wheatley International
Partners, in repayment of loans made by them to Moto Guzzi, and 2,500 shares to
Mr. Spier in repayment of loans made by him to Moto Guzzi.
In July 2000 Moto Guzzi entered into an agreement with the Series B preferred
stockholders in which it agreed to redeem the Series B preferred stock by
September 30, 2000, in exchange for their agreement not to convert their Series
B preferred stock into Class A common stock prior to that date.
Moto Guzzi closed on the sale of its operating subsidiaries on September 6, 2000
and in the last week of September 2000 it redeemed in full all outstanding
shares of Series B Preferred Stock for a price equal to
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$100 per share plus accrued dividends thereon, for a total of approximately US$
12.6 million (approximately Lit. 28,300 million at the prevailing exchange
rate).
April 14th Share Purchase Agreement
The Share Purchase Agreement providing for the sale of Centerpoint's operating
subsidiaries to Aprilia (described below) contained a condition that OAM, S.p.A.
(the holder of approximately 58% of the issued and outstanding shares of
Centerpoint's Class A common stock, and a subsidiary of the Company) agree to
vote its capital stock for the sale, and by letter to Aprilia dated April 14,
2000, OAM agreed, among other things, to vote its shares for the sale.
In order to induce OAM to deliver its letter to Aprilia, Centerpoint agreed with
OAM and the Company by letter dated April 14, 2000 that, among other things, it
would pay IMI's fees in connection with the sale. The April 14th letter was
amended on June 8, 2000 to provide, among other things, that Centerpoint would,
as promptly as practicable after the closing of the sale, but in no event later
than 90 days following the closing, hold a meeting of stockholders to consider
and vote upon a proposal to liquidate all of Centerpoint's assets and dissolve
itself. The date for proceeding to propose a liquidation was subsequently
extended by the Company and OAM to July 15, 2001.
In connection with the sale, Aprilia required the terminations of certain of
Moto Guzzi's executives and further required that Moto Guzzi pay all costs of
such terminations. Accordingly, Moto Guzzi agreed to pay severance to two of its
directors, Mark S. Hauser and Howard E. Chase, and to Emanuel Arbib, one of its
former directors, of $169,500, $51,400 and $37,900, respectively, in exchange
for termination of their employment and consulting agreements with Moto Guzzi.
See "Subsequent Events -- Execution and Delivery by Moto Guzzi of Share Purchase
Agreement and -- "Centerpoint's (then Moto Guzzi) Agreement with the Company and
OAM to present a liquidation proposal to its stockholders following the Closing
of the sale of its operations to Aprilia" for further details.
Centerpoint Loan; Early payoff of the Company's 5% Convertible Debentures
The Company's 5% Convertible Debentures in an aggregate amount of US$ 6,250,000
were scheduled to come due in December 2001. On June 13, 2001 the Company, OAM
and Centerpoint entered into the Centerpoint Loan Agreement wherein subject to
the terms and certain conditions set forth therein Centerpoint agreed to lend
the Company $4,200,000. On June 13, 2001 Centerpoint made the Centerpoint Loan
and on June 15, 2001 the Company paid the holders of $6,000,000 of the
Debentures $4,207,500 in cash, which the Debenture holders accepted as payment
in full on the Debentures (including past due interest), representing a 31.5%
discount from their face value. The Centerpoint Loan bears interest at a rate of
5 % per annum, is repayable in full on the earlier of June 13, 2002 and the date
on which the Company causes or permits a liquidation of Centerpoint, and is
secured by the 300,000 shares of Centerpoint common stock currently owned by the
Company and 1,200,000 of the shares of Centerpoint common stock currently owned
by OAM. In connection with the Centerpoint Loan, OAM also entered into the OAM
Guaranty wherein it guaranteed the Company's obligations under the Centerpoint
Loan Agreement. OAM's liability under the OAM Guaranty is limited to the value
of the Centerpoint shares pledged by OAM, as that term is used in the OAM pledge
agreement.
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Centerpoint Engagement of Investec Ernst to explore Strategic Alternatives
In June 2001, with the consent of the Company, Centerpoint engaged the
investment banking firm of Investec Ernst & Co. to assist Centerpoint in its
evaluation of strategic alternatives, including potential acquisitions and
investments. Mark Segall, a Director of the Company, is a Senior Vice President
and General Counsel of Investec Ernst.
Other Transactions
Messrs. Mark Hauser and William Spier, who became directors of the Company upon
consummation of the Tamarix/Finprogetti Acquisition Agreement, were Managing
Directors of Tamarix Capital Corporation in 1999. Mr. Hauser became the
President and Chief Executive Officer of the Company in March 1998 at an annual
salary of $160,000. In connection with his engagement, in March 1998, the
Company also issued to Mr. Hauser 130,000 shares of Common Stock. The consulting
services of Mr. Emanuel Arbib, who, with Messrs. Hauser and Spier, was
affiliated with Tamarix in 1999, was engaged by the Company in March 1998 as its
Chief Financial Officer at an annual consulting fee of US$ 100,000. In
connection with this engagement, in March 1998, the Company also issued to Mr.
Arbib 75,000 shares of Common Stock.
In March 1999, pursuant to the merger of the Company's Moto Guzzi Corp.
subsidiary with and into North Atlantic (See Note 3), Mark Hauser became
Executive Chairman and a director of the merged company, with an annual
compensation of US$ 90,000 plus US$ 108,000 in respect of the expense of
maintaining the U.S. corporate offices for Moto Guzzi, and in respect of
handling administrative and regulatory matters for Moto Guzzi. 150,000 options
to acquire stock of Moto Guzzi at $10.6875 were also issued to Mr. Hauser. This
agreement was terminated in April 2000 in connection with the sale of Moto Guzzi
operations to Aprilia.
In March 1999, pursuant to the merger of the Company's Moto Guzzi Corp.
subsidiary with and into North Atlantic, Emanuel Arbib became a director of Moto
Guzzi entered into a consulting contract to provide financial consulting
services with an annual compensation of US$ 90,000 and was issued options to
acquire 30,000 shares of Moto Guzzi Common Stock at $10.6875 per share. This
agreement was terminated in April 2000 in connection with the sale of Moto Guzzi
operations to Aprilia.
Disposal of TIM to affiliates of Albino Collini, a Director of the Company
Effective January 1, 2000, the Company disposed of TIM, its temporary management
services subsidiary. TIM was sold to two companies affiliated with Albino
Collini, a Director of the Company through December 1999 for 80,000 shares of
the Company's Common Stock with a fair value of Lit. 320 million at the date of
sale. The Company has recorded an impairment loss of Lit. 400 million as at
December 31, 1999 in respect of the trademarks of TIM, to reflect the post
year-end disposal.
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Section 16(a) Beneficial Ownership Reporting Compliance
Based on a review of the Forms 3, 4 and 5 which have been filed with the
Securities and Exchange Commission with respect to transactions which occurred
in 1999, it appears that the following officers and/or directors of the Company
did not comply with Section 16 reporting requirements:
Nicola Caiola: as to options to purchase 5,000 shares granted in
January 1999;
Giovanni Caronia: as to options to purchase 5,000 shares granted in
January 1999;
Deborah S. Novick: as to options to purchase 5,000 shares granted in
January 1999; and
William Spier: as to option to purchase 5,000 shares granted in
January 1999.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) Contained in Item 8 of this Report.
(2) Contained in Item 8 of this Report.
(3) Contained in paragraph (c) below.
(b) The Company did not file any Current Reports on Form 8-K
during the three month period ending December 31, 1999.
(c) Exhibits.
Exhibit No. Description Page
----------- ----------- ----
3.1 Amendment to Restated Articles of Incorporation of the
Company, as amended. Filed as Exhibit 3.1 to the Company's Form
10-K for the year ended December 31, 1998.
3.2 Amended and Restated Bylaws of the Company (filed as Exhibit
3.3 to Registration Statement on Forms S-1, Amendment No. 1, file
No. 333-21595).
4.3 Warrant Agreement with Warrant Certificate, each dated May 2,
1997, with respect to 1,250,000 shares of Common Stock issued to
Centaurus Management LDC (Filed as Exhibits 4.1 and 4.2 to
Current report on Form 8-K for Event Dated May 2, 1997).
4.4 Loan Agreement between the Company and Tamarix Investors LDC
dated October 1, 1998 (filed as Exhibit 4.1 to November 17, 1998
Current Report on Form 8-K).
4.5 Warrant Agreement dated October 1, 1998 between the Company
and Centaurus Management LDC (filed as Exhibit 4.2 to November
17, 1998 Current Report on Form 8-K).
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4.6 Warrant Agreement dated October 1, 1998 between the Company
and Azzurra, Inc. (filed as Exhibit 4.3 to November 17, 1998
Current Report on Form 8-K).
4.7 Warrant Agreement dated October 1, 1998 between the Company
and Ixion, LDC (filed as Exhibit 4.4 to November 17, 1998 Current
Report on Form 8-K).
10.1 1995 Non-Qualified Stock Option Plan (filed as Exhibit A to
the Company's Preliminary Proxy Statement filed May 24, 1996).
10.2 1995 Director's Plan (filed as Exhibit B to the Company's
Preliminary Proxy Statement filed May 24, 1996).
10.3 Description of 8% 2 year promissory notes issued in
connection with the Company's Stock Repurchase Plan included in
the Company's Schedule 13E-4 dated September 20, 1996 (filed as
Exhibit 10.23 to 1996 Annual Report on Form 10-K).
10.4 Retainer Agreement dated March 7, 1997 between the
Registrant and Tamarix Capital Corporation (filed as Exhibit
10.24 to Registration Statement on Form S-1, Amendment No. 1,
file No. 333-21595).
10.5 Inducement Agreement dated April 8, 1997 between the
Registrant and Tamarix Investors LDC (filed as Exhibit 10.25 to
Registration Statement on Form S-1, Amendment No. 1, File No.
333-21558).
10.6 Employment Agreement dated March 25, 1998 with Mark S.
Hauser (filed as Exhibit 10.1 to the March 31, 1998 Quarterly
Report on Form 10-Q).
10.7 Novation of March 7, 1997 agreement with Tamarix Capital
Corp. (filed as Exhibit 10.2 to March 31, 1998 Quarterly Report
on Form 10-Q).
10.8 Agreement and Plan of Merger dated August 18, 1998 between
Moto Guzzi Corp. and North Atlantic Acquisition Corp. and the
Company (filed as Exhibit 10.1 to December 11, 1998 Current
Report on Form 8-K).
10.9 First Amendment dated December 3, 1998 to Agreement and Plan
of Merger dated August 18, 1998 (filed as Exhibit 10.2 to
December 11, 1998 Current Report on Form 8-K).
10.10 Consulting Agreement dated March 25, 1998 with Emanuel
Arbib.
21. Subsidiaries: The Company's significant subsidiaries, the
jurisdiction of their incorporation and nature of their
respective activities is contained in this Report.
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27. Financial Data Schedule.
(c) None.
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.
TRIDENT ROWAN GROUP, INC.
August 10, 2001 /s/ Mark S. Hauser
--------------------
Mark S. Hauser
President and Joint Chief Executive Officer
August 10, 2001 /s/ Emanuel Arbib
-----------------------
Emanuel Arbib
Joint Chief Executive Officer and Chief
Financial officer
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 capacity and on the dates indicated.
August 10, 2001 /s/ Emanuel Arbib
-----------------------
Emanuel Arbib, Director
August 10, 2001 /s/ Howard E. Chase
--------------------------
Howard E. Chase, Director
August 10, 2001 /s/ Mark S. Hauser
-------------------------
Mark S. Hauser, Director
August 10, 2001 /s/ Gianni Bulgari
------------------------
Gianni Bulgari, Director
August 10, 2001 /s/ Duncan Chapman
-------------------------
Duncan Chapman, Director
August 10, 2001 /s/ Andrea Della Valle
--------------------------
Andrea Della Valle, Director
August 10, 2001 /s/ Mark B. Segall
-------------------------
Mark B. Segall, Director
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ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS - The financial statements listed in the
accompanying Index to Consolidated Financial Statements and Financial
Statement Schedules are filed as part of this annual report and such Index
to Consolidated Financial Statements and Financial Statement Schedules is
incorporated herein by reference.
2. FINANCIAL STATEMENT SCHEDULES - The financial statement schedule listed
in the accompanying Index to Consolidated Financial Statements and
Financial Statement Schedules is filed as part of this annual report and
such Index to Consolidated Financial Statements and Financial Statement
Schedules is incorporated herein by reference.
3. EXHIBITS - The exhibits listed on the accompanying List of Exhibits are
filed as part of this annual report and such List of Exhibits is
incorporated herein by reference.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
(Item 14(a)1 and 2)
Page
----
Report of Independent Public Accountants 51
Consolidated Balance Sheets - Assets 52
Consolidated Balance Sheets - Liabilities and 53
Shareholders' Equity (Deficit)
Consolidated Statements of Operation 54
Consolidated Statements of Changes in the Shareholders' 55
Equity (Deficit)
Consolidated Statements of Cash Flows 56
Notes to Consolidated Financial Statements 58
All other schedules are omitted since the required information is not present or
is not present in amounts sufficient to require submission of the schedules.
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