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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
|X| Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1998 or
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|_| Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from to
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Commission File Number 0-2642
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TRIDENT ROWAN GROUP, INC.
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(Exact name of registrant as specified in its charter)
Maryland 52-0466460
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(State of other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
Two Worlds Fair Drive, Somerset, New Jersey 08873
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (732) 868-9000
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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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: |X| No: |_|
Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
The aggregate market value of the voting stock held by non-affiliates of the
registrant, computed by reference to the average of bid and asked price of the
stock as of May 18, 1999, was $14,427,191.
The number of shares of common stock, $0.01 par value, outstanding as of May 17,
1999 was 4,419,900.
DOCUMENTS INCORPORATED BY REFERENCE:
Certain exhibits identified in Part IV have previously been filed and are
incorporated by reference.
PART I
Item 1. BUSINESS
Overview
The Company, through intermediate subsidiaries, owns Moto Guzzi, S.p.A.
("Moto Guzzi"), an Italian manufacturer of luxury and high-performance
motorcycles, the exclusive U.S. and French importer/distributors of Moto Guzzi
products and L.I.T.A., S.p.A., an Italian manufacturer of welded steel tubes
used principally in the automobile and furniture industries, and provides
temporary management services to troubled businesses located primarily in Italy.
The Company also owns a minority interest in Moto Guzzi's German importer, and
owns commercial real estate which is being disposed as and when opportune. The
Company was incorporated in Maryland in 1917.
Moto Guzzi
Moto Guzzi is a leading Italian manufacturer, marketer and distributor of
performance and luxury motorcycles and motorcycle parts, marketed under the
"Moto Guzzi(R)" brand name.
Moto Guzzi's primary product offerings in 1998 included the following
models:
o California EV Guzzi's classic custom/cruiser with a 1064 cc
engine and traditional lines.
o Nevada Club A lower riding cruiser with a 744 cc engine and
chrome accents.
o V10 Centauro A custom performance bike with a powerful 992 cc
4-valve air-cooled engine.
o 1100 Sports Corsa A sleek sports bike with modem lines and a 1064
cc engine.
o Quota Guzzi's new entrant into 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.
The "custom" is a class of motorcycle 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 used in the
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United States. It is somewhat more aggressive in its styling, has greater
performance characteristics and has 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.
History and Recent Developments
Approximately 61% of the common stock of Moto Guzzi is owned by the
Company through its 84% owned subsidiary, O.A.M. S.p.A.
Established in 1921, Moto Guzzi is one of the oldest motorcycle brands in
the world. Between 1921 and 1966, Moto Guzzi operated as an independent
privately owned entity. In 1972, Moto Guzzi was acquired by the Company, then
called De Tomaso Industries, Inc. Because management attention was principally
focused on De Tomaso's other operating units, especially its former Maserati
S.p.A. automobile subsidiary, 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. Moto
Guzzi has experienced continuous losses for the last eleven years, and has not
generated cash from operations for over three years.
Strategy.
Moto Guzzi's strategy is 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.
Moto Guzzi believes that its reputation and rich tradition as a
technological innovator and quality manufacturer provides a solid foundation.
Moto Guzzi has built a loyal customer base over the past 77 years through the
outstanding performance and reliability of its motorcycles, as well as its
strong distribution network. The current customer base ranges from professional
motorcycle enthusiasts to government agencies, police departments and highway
patrols around the world.
Moto Guzzi intends to build on its existing product family platforms and
to develop new platforms which will be the basis for the Company's 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
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platforms will be periodically introduced. The focus of these intermediate
offerings will be significant improvements in quality, performance and
refinement.
The U.S. market represents 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 1997, U.S. registrations of
this segment of the market increased by 14.8% to 190,200 units. Moto Guzzi plans
to implement an aggressive marketing campaign targeted at U.S. consumers that is
designed to build brand value and name recognition, and to emphasize the
technical and design strengths of Moto Guzzi's motorcycles.
In the United States, Moto Guzzi also plans to expand and enhance its
distribution network. In addition to increasing the size and quality of its
dealer network, Moto Guzzi also plans to introduce new sales incentives programs
for dealers, and a floor plan financing program. Other innovations that either
have or will be introduced in the U.S. included customer purchase financing and
an extended three year warranty program.
While public administration sales have traditionally been a stable source
of revenue for Moto Guzzi, its management believes that there are unexploited
growth opportunities in this market and plans to refocus its sales and marketing
efforts in this product category.
Finally, Moto Guzzi plans 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 currently sells a
limited line of non-motorcycle merchandise. In the future, Moto Guzzi plans to
introduce a range of branded accessories such as hats, jackets, shirts and
luggage. Moto Guzzi also plans to exploit opportunities to license the "Moto
Guzzi" brand name to manufacturers and suppliers of other products and services.
If Moto Guzzi were to proceed on all of the projects it is currently
evaluating to achieve its goals, it estimates that approximately Lit. 50 billion
of development and capital expenditure would be required over the next few years
to refurbish its plant to make it more competitive and for investments in
information technology and systems. Cash flows from operations, however, are not
anticipated to be sufficient to entirely finance such expenditures. The Moto
Guzzi product development programs, therefore, will be, in part, determined by
its ability to raise further financing from outside sources.
Industry Generally. 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 larger
and more expensive, are principally targeted at the leisure segment of the
vehicular industry. The Company's management believes that the recent
recognition of motorcycling as an acceptable leisure activity is one of the
major factors behind the steady growth in Moto Guzzi's market segment over the
last three years.
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Manufacturing. Moto Guzzi today manufactures a high priced line of
motorcycles, and distributes parts and accessories, under the trademark "Moto
Guzzi(R)." Moto Guzzi motorcycles vary in engine displacement from 350cc to
1,100cc. Moto Guzzi has, in recent years, concentrated development and sales
efforts on its largest motorcycles, having engines of 750cc or larger but, as
part of its growth plan, it is currently examining the lower-cost, small engine
market. Moto Guzzi parts were distributed through Centro Ricambi, a 100% owned
subsidiary of Moto Guzzi until it was merged into Moto Guzzi in 1997.
All motorcycle manufacturing is conducted at a factory in Mandello del
Lario, Italy. Moto Guzzi manufactures certain power train components, acquires
certain other components from outside suppliers, and performs finishing work and
assembly into motorcycle bodies. Until 1994, Moto Guzzi internally produced a
majority of the components of its motorcycles. As a result of its decision to
increase outsourcing to increase production capacity, Moto Guzzi now produces
less than 40% of all components used in the assembly of its motorcycles.
Seasonal Nature of Business. Moto Guzzi's business is affected by seasonal
factors. Retail market demand is highest in the spring and early summer, whereas
most sales to the Italian government generally take place in the last quarter of
the year. Moto Guzzi, like most Italian companies, traditionally shuts down
production in August of each year and traditionally also has reduced production
over the Christmas holidays and in the period immediately following, while
inventory is being taken. As part of its effort to increase overall production
levels, Moto Guzzi did not suspend production during the December 1997-January
1998 period of physical inventory taking.
Compliance with Governmental Regulations. Moto Guzzi, along with other
motorcycle manufacturers, incurs substantial costs in designing and testing
products to comply with safety and combustion emissions requirements of the
various localities and countries where their products are sold. These standards
have added, and will continue to add, substantially to the price of the
vehicles. Competitive pressures, importation expenses and importers' margins,
however, have kept export prices lower than domestic Italian sales prices.
All Moto Guzzi motorcycles produced for sale are manufactured with the
intent to comply with all applicable governmental safety standards. All current
Moto Guzzi models comply with all emission standards applicable in all countries
in which they are sold. As new laws or regulations are adopted, Moto Guzzi will
assess their effects on current and future models and the cost of achieving
compliance with them.
Moto Guzzi is subject to a number of governmental regulations relating to
the use, storage, discharge and disposal of minerals and alloys used in
manufacturing processes and to the safety standards of its facilities and
processes. Although neither the Company nor Moto Guzzi has been subject to
material environmental or safety claims in the past and the Company believes
that the activities of its operating subsidiaries conform in all material
respects to presently applicable environmental and safety regulations, claims or
the failure to comply with present or future regulations could result in the
assessment of damages or imposition of fines against the Company, suspension of
production or cessation of certain activities. New regulations could require the
5
Company to acquire costly equipment or incur other significant expenses that
could have an adverse effect on the results of operations. Any failure by the
Company to control the use of, or adequately restrict the discharge of hazardous
substances or comply with safety requirements and legislation could subject it
to future liabilities.
Backlogs. At January 1, 1999, Moto Guzzi had firm orders for 273 units,
aggregating approximately Lit. 3 billion, which has not yet been delivered. Moto
Guzzi does not have open orders for the full 1999 year for the Italian market
where it acts directly selling motorcycles to concessionaires and where it
estimates demand based on research by its sales and marketing departments. Open
export orders are subject to cancellation without penalty. Open export orders
subject to cancellation and anticipated Italian demand, will once again exceed
production capacity.
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.
In 1996, 1997 and 1998, situations arose where Moto Guzzi's suppliers were
unable to make timely deliveries of needed components due to production problems
incurred by such suppliers. All such delays adversely affect motorcycle
production. Because of low volumes of components typically ordered by Moto
Guzzi, it is impractical for Moto Guzzi to identify and secure alternative
sources on short notice. In 1998, delivery of some components was delayed as a
result of design changes made by Moto Guzzi and due to the company's shortage of
liquidity. All of there delays adversely affect motorcycle production and, in
recent years, have likely resulted in lost sales due to the seasonality of order
placement.
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 have not had a significant adverse effect on
costs and price competitiveness in 1996, 1997 or 1998. However, Japanese
motorcycle manufacturers have enjoyed a competitive price advantage compared to
Moto Guzzi because of the weakness of the Japanese yen. On January 1, 1999,
Italy joined ten other European countries in adopting the Euro as the standard
European currency. The currencies of all participating countries was then fixed
against the Euro. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Research, Development and Continuing Engineering. Moto Guzzi, while
continuously engaged in product improvement and development, has significantly
increased its commitment to develop new products. Aggregate research and
development expenditures by Moto Guzzi were approximately Lit. 4,336 million in
1998, compared to Lit. 3,125 million in 1997 and Lit. 1,177 million in 1996.
Expenditures in 1998 related primarily to development of models scheduled for
1999 production. On-going programs relate to specific models under development
and, more generally, developing more powerful two-cylinder air-cooled and other
engines with improved performance and durability characteristics, superior
braking systems, suspensions, frames, transmissions and other components
applicable to two-wheeled vehicles.
Sales, Marketing and Inventory. Moto Guzzi primarily markets its products
through advertising in trade publications, participation in promotional events
and fairs, attendance at trade
6
shows and from editorial coverage in trade and general circulation press. All
sales are invoiced in Italian lire except sales to the United States which are
invoiced in U.S. dollars. Prices are customarily reviewed and are increased to
cover increases in production costs at periodic intervals and in light of
prevailing exchange rates. Italian prices for motorcycles traditionally have
been higher than export prices. In 1997, Moto Guzzi generally maintained its
selling prices in order to maintain market share, and increased prices by
approximately 5% effective April, 1998. 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. But
the difference did not affect Moto Guzzi's marketing strategy or minimize the
importance to it of the export market. See Note 18 of Notes to Consolidated
Financial Statements.
Moto Guzzi is not affected by any unusual industry practices relating to
returns of merchandise or extended payment. It is obliged to maintain 10 years'
inventory of parts for all motorcycles sold to Italian government agencies and,
in common with many other motor vehicle manufacturers, maintains significant
spare parts inventories for commercial reasons. Like others in its industry,
Moto Guzzi sells motorcycles under open purchase orders rather than long-term
contracts. By scheduling production in anticipation of fulfilling such orders,
it may end a given year with substantial inventory if orders are canceled or
delivery not taken.
Distribution. Moto Guzzi maintains a distribution network throughout Italy
of over 120 independent dealers. No single Italian dealer accounted for more
than 5% of the sales of Moto Guzzi in 1998. The Italian dealers who distribute
Moto Guzzi motorcycles generally handle other brands as well.
In 1998, 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 America is Moto Guzzi's exclusive importer-distributor in the United
States. Until 1996, when it was acquired by the Company and later transferred to
Moto Guzzi Corp., Moto America was an independent business. Today, Moto America
distributes through a network of 138 dealers.
In November 1996, Moto Guzzi replaced its independent French
importer-distributor with a newly created wholly-owned subsidiary of Moto Guzzi,
which commenced operations in February 1997, and now operates through
approximately 80 dealers. The French distributor is now a wholly-owned
subsidiary of Moto Guzzi Corporation.
Moto Guzzi also owns a 25% equity interest in MGI GmbH, a German
corporation which became the exclusive importer-distributor of Moto Guzzi
motorcycles and spare parts on January 1, 1997. Moto Guzzi has the right to
acquire up to a total of 90% of the equity interest of the new distributor
within three years. Until December 1996, Moto Guzzi also owned a 25% equity
interest in A+G Motorad GmbH ("A+G"), a German corporation, the majority of the
shares of which is
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owned by Aprilia S.p.A., another Italian manufacturer of motorcycles with small
displacement engines. A+G distributed the motorcycles of both Moto Guzzi and
Aprilia in the German market in 1996, but was replaced as the Moto Guzzi
distributor in 1997 by MGI GmbH.
Moto Guzzi provides support to its worldwide dealer network by, among
other things, operating a technical training and support facility at Mandello
del Lario. All dealers are required to attend training courses at the inception
of their relationship, and periodically thereafter.
Set forth below is a chart illustrating percentage of motorcycle sales
revenues attributable to various geographic areas in the three most recent
fiscal years. Sales outside Italy in 1998 were approximately Lit. 50 billion,
representing 63% of total unit sales.
Moto Guzzi Sales
Year Ended December 31
----------------------
Geographic Areas 1998 1997 1996
---------------- ---- ---- ----
Italy ........................................ 37% 37% 37%
Europe (other than Italy) .................... 43% 46% 43%
United States ................................ 13% 13% 7%
Elsewhere .................................... 7% 4% 13%
Competition. The sale of motorcycles is a highly competitive business,
with competition typically coming from all powered passenger vehicles, as well
as motorcycles. The overall motorcycle market in Italy (excluding scooters) grew
in 1998, with new vehicle registrations increasing by approximately 27.4%
compared to the same period in 1997. Moto Guzzi maintains 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
competes principally through such intangible qualities as performance,
reputation and quality of manufacture, areas in which its competitors also
excel.
The Italian market today remains dominated by large, well-financed
Japanese manufacturers. A number of Italian and foreign manufacturers,
principally Cagiva, Honda, BMW, Yamaha, Kawasaki and Suzuki, sell their products
in the Italian market. In 1998, 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:
Motorcycles
with engines
All larger than
Motorcycles 700cc
----------- -----
Honda ....................................... 22.3% 21.7%
Yamaha ...................................... 15.7% 14.0%
Suzuki ...................................... 13.1% 12.4%
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Motorcycles
with engines
All larger than
Motorcycles 700cc
----------- -----
Ducati ...................................... 9.5% 13.0%
BMW ......................................... 8.1% 15.4%
Kawasaki .................................... 7.3% 7.0%
Aprilia ..................................... 7.0% 0.3%
Harley Davidson ............................. 2.8% 7.0%
Moto Guzzi .................................. 2.4% 5.0%
Cagiva ...................................... 2.1% 0.7%
Others ...................................... 9.5% 3.7%
Product Liability. Moto Guzzi's business exposes it to possible claims for
personal injury from the use of its products. Moto Guzzi maintains liability
insurance with a per-occurrence and aggregate one-year claim limit of Lit.
18,000 million. Although no claims have been made against the subsidiary in
excess of insurance coverage, there can be no assurance that such claims will
not arise in the future or that the insurance coverage will be sufficient to pay
such claims. A partially or completely uninsured claim, if successful and of
significant magnitude, could have a material adverse effect on the Company.
Patents and Trademarks. Except as described below, the business of Moto
Guzzi is not and has not been in any material respect 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. Management believes that the registered trade name "Moto
Guzzi(R)" 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 employees are
considered by management to be good. At December 31, 1998, Moto Guzzi had 332
employees, compared to 360 at December 31, 1997, including employees of Centro
Ricambi, merged into Moto Guzzi in 1997, of whom approximately 82% 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 ($588) in respect of periods prior to the date of the
new agreement. An increase in Moto Guzzi's use of outsourced components and a
shortage in components needed for production reduced overtime hours to 2.7% of
total hours in 1998 compared to 5.2% in 1997.
Moto Guzzi was not subjected to any significant local work stoppages or
strikes in 1998. The "national" contracts are open for renegotiation in 1999 and
such renegotiation has resulted in, through May 26, 1999, strikes against Moto
Guzzi totaling 22 hours and a suspension of overtime availability.
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Under Italian law, persons in a company acquire the right to severance pay
based upon salary and years of service. At December 31, 1998, Moto Guzzi was
obligated to pay employees an aggregate of Lit. 7,573 million, and Lit. 8,003
million at December 31, 1997. See Note 2 of Notes to Consolidated Financial
Statements of the Company.
L.I.T.A.
Background. On July 25, 1995, the Company, through one of its Italian
subsidiaries, acquired L.I.T.A. The Company's temporary management business unit
had been retained to manage L.I.T.A. after a material decline in L.I.T.A.'s
operations, and to oversee its sale to a third party to be identified by the
unit. The stock of L.I.T.A. was acquired at a cost of Lit. 615 million,
representing a discount of approximately Lit. 1,600 million from the book value
of L.I.T.A.'s assets of Lit. 2,264 million.
Manufacturing. L.I.T.A. manufactures 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, L.I.T.A.'s production equaled 80% of capacity; in prior
years, however, production rarely reached 60% of capacity.
Impact of Changing Prices and Currency Movements. Steel prices have a
material effect on the business of L.I.T.A. 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, L.I.T.A. seeks to pass
increased costs from changing prices on to its customers by increasing selling
prices. The increase in steel prices early in 1998, however, were not passed on
to customers.
Exchange rates historically did not have a significant effect on the
business of L.I.T.A., as export sales were not significant to overall sales.
Export sales in 1998 amounted to 28.5% of sales and L.I.T.A. is seeking to
increase such sales. As export sales continue to increase, L.I.T.A. will become
more sensitive to exchange rates between Italy and the countries of export.
Plant and Machinery. L.I.T.A.'s plant and machinery were acquired many
years ago. When the Company acquired L.I.T.A. in July 1995, the fair value of
the assets acquired was in excess of the price paid. This excess, in accordance
with generally accepted accounting principles, was applied to reduce the
carrying values of long-term assets and fixed assets. Depreciation expenses are
therefore significantly lower than if they were based on current prices. Plant
and machinery will be replaced in future years at higher costs with higher
depreciation charges which, in many cases, may be offset by technological
improvements.
Research and Development. L.I.T.A.'s actual annual and forecast research
and development expenditure is less than 1% of actual and projected revenues.
The low level of expenditures was possible because L.I.T.A. manufactures
according to a well-known and relatively uncomplicated process.
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Sales and Marketing. L.I.T.A. distributes its products directly in all
countries except in the U.K., where it distributes through exclusive agents and
in certain regions of Italy (which represent approximately 20% of net sales).
See Note 19 to Consolidated Financial Statements.
Customers. L.I.T.A. has begun developing a market in the low-cost
furniture industry, which provides a steadier flow of production and demand than
the automotive industry. L.I.T.A. currently has a number of customers each
representing between 5% and 9% of net sales. As a consequence of the current and
planned expansion of the business, including expansion of export sales and
expansion in markets other than the automobile market, it is expected that in
the medium term the importance of any single customer will decrease.
Backlogs. L.I.T.A. has no long-term contracts with customers and orders
typically reflect the requirements of customers for the following one to two
months.
Export Sales. L.I.T.A. did not have significant export sales prior to
1996. In 1998, 71.5% of net sales were made in Italy, and most of the remaining
28.5% were made elsewhere in Europe. In 1997, 82% of net sales were made in
Italy, and most of the remaining 18% were made elsewhere in Europe.
Suppliers. There are multiple suppliers of the special clad and coated
steels used by L.I.T.A. L.I.T.A. does not have written long-term contracts with
such suppliers except in respect of a particular steel quality which is not
significant to net sales. L.I.T.A. is 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 change in supply levels, which currently can run from 12 to 18
months.
Competition. L.I.T.A.'s competitors are 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 enable them to compete aggressively in the market. L.I.T.A. competes
principally on quality, flexibility of service and timeliness of delivery,
factors which its competitors also seek to offer to the market. L.I.T.A. is
currently the leading supplier in Italy of aluminized steel tubes for automotive
exhaust systems. While automotive original equipment manufacturers are
increasing their usage of higher grade stainless steel, which L.I.T.A. does not
currently supply in material quantities, the automotive aftermarket in Italy and
elsewhere in Europe is increasing its purchases of aluminized steel tubing as a
cost-effective compromise between lower-grade cold steel tubing and the higher
priced stainless steel. Tubifici DiTermi S.p.A. is the largest supplier of
stainless steel exhaust tubing in Europe.
Seasonal Nature of Business. L.I.T.A.'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
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holiday month of August. Since 1995, L.I.T.A. has 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 L.I.T.A.'s employees are
considered by management to be excellent. L.I.T.A. was not subjected to any
strikes or work stoppages in 1997 or 1998. As of December 31, 1998, L.I.T.A. had
36 employees, of which 28 are engaged in production and 8 in management, sales
and administrative roles. At December 31, 1998, the amount of L.I.T.A.'s
severance pay obligation to employees was Lit. 1,000 million.
Compliance With Governmental Regulations. L.I.T.A. is 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. L.I.T.A. has not been the subject of
material environmental or safety claims in the past and its management believes
that L.I.T.A.'s activities conform in all respects to presently applicable
regulations. The anticipated costs of compliance with regulations are not
expected to be significant to L.I.T.A.'s operations.
Commercial Real Estate Development
The Company acquired a real estate portfolio in 1995 which it has been
disposing of and will continue to seek to liquidate at opportune times.
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. 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. 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 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, 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 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,
12
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.
The Company estimates that the aggregate of the consideration received and
to be received will at least equal the aggregate carrying value of Lit. 6,238
million of the 25% interest in Domer and the promissory notes due by Domer to
the Company.
On April 15, 1997, the Company sold its interest in Finprogetti
Investimenti Immobiliare S.p.A., ("FII"), the Italian entity which had owned
commercial property at Cologne, Italy. In addition to assuming all of the
mortgage indebtedness to which the property was subject, the purchaser agreed to
pay to the Company approximately Lit. 6,178 million, of which Lit. 4,468 million
was paid in cash in 1997. The balance was paid on December 31, 1997 by delivery
of 120,000 shares of Common Stock of the Company.
The Company owns 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. An option held by an unaffiliated
third party to purchase the Company's interest in this land, for an amount above
book value, expired unexercised on June 30, 1996. The land has development
potential for tourism or residential purposes and the Company is exploring its
disposition.
The Company owns 99.9% of Pastorino Strade S.r.l., which owns concession
rights for 196 spaces in a municipal parking garage in Genoa, Italy. The Company
agreed to dispose of the concession rights in April 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.
Recent Transactions
1999 Merger of Moto Guzzi Corp.
On March 5, 1999, the Company's majority owned subsidiary, Moto Guzzi
Corp., a holding company which in turn owned all of the equity interest in Moto
Guzzi and Moto America, merged into North Atlantic Acquisition Corp., a special
type of public shell corporation. North Atlantic was then renamed Moto Guzzi
Corporation. As a result of the merger, the Company, through its 84%-owned OAM
subsidiary, became the owner of 61% of the common stock of Moto Guzzi
Corporation, which is now, in turn, the owner of Moto Guzzi and Moto America.
From the Company's perspective, the merger was a means to make available
approximately $8 million in equity capital for Moto Guzzi's operations and
capital needs. The common stock of the newly acquired Moto Guzzi Corporation
subsidiary is quoted on the over-the-counter market, commonly called the
Bulletin Board Pink Sheets, under the symbol "GUZI." See "Management's
Discussion and Analysis of Financial Condition and Results of Operations;" and
Note 22 to Notes to Consolidated Financial Statements.
13
Transfer of Controlling Interest to Tamarix.
On May 2, 1997, Finprogetti, S.p.A., then the largest shareholder of the
Company, sold to Tamarix Investors, LDC, a Cayman Islands limited duration
company, 900,000 shares of the Company's common stock. Subsequently, Finprogetti
sold to Tamarix an additional 100,000 shares of common stock it owned. In
addition, Finprogetti delivered the resignations from the Company's Board of
Directors of certain persons it had nominated. In connection with the foregoing
the Company (a) engaged Tamarix Capital Corporation for three years to provide
certain financial advisory services to the Company at a cost of $200,000 per
year, payable quarterly, plus reasonable expenses, (b) issued to Centaurus
Management LDC, a Cayman Islands limited duration company and 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 exercisable for a
three-year period, (c) registered the shares of the Company purchased from
Finprogetti as well as the shares underlying such warrants, and (d) caused the
By-Laws or the Certificate 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 the 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
Certificate of Incorporation, and (iv) require that the Board of Directors be
expanded and limited to not more than 11 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.
As financial advisor, Tamarix will, among other things, identify potential
investment or acquisition opportunities for the Company, and sources of capital
for the Company and its subsidiaries.
In March 1998, the agreement engaging Tamarix Capital Corporation as
financial advisor was amended to provide the advisor corporation with $90,000
plus 32,000 shares of common stock and an option to purchase 17,000 shares of
common stock at $5.00 per share.
In March 1999, Tamarix underwent an internal restructuring as a result of
which it transferred to former Tamarix equity interest holders all but 365,079
of the shares it had acquired from Finprogetti. See Note 1 of Notes to
Consolidated Financial Statements.
14
Structure of the Company
The following chart depicts the current structure of the Company.
The following is a textual summary of the current organizational chart of
the Company.
The Company owns 100% of the equity interest in Temporary Integrated
Management, S.p.A., an Italian corporation, and a 99.9% equity interest in
Trident Rowan Servizi S.p.A. ("TRS"), an Italian corporation.
TRS owns an 83.92% equity interest in O.A.M. S.p.A. ("OAM"). an Italian
corporation.
OAM owns a 61.1% equity interest in Moto Guzzi Corporation, a 100% equity
interest in Trident Rowan International S.A., a Luxembourg corporation ("TRI"),
a 99.9% equity interest in Pastorino Strade, S.r.l. and an 80% equity interest
in Grand Hotel Bitia S.r.l. TRI owns the remaining 0.1% equity interest in
Pastorino Strade.
TRI owns a 99.6% equity interest in L.I.T.A. S.p.A. OAM owns the remaining
0.4% interest in L.I.T.A.
Moto Guzzi Corporation owns a 100% equity interest in Moto Guzzi S.p.A.
("Moto Guzzi"), an Italian corporation, and 100% of the equity interest in Moto
America, Inc., a North Carolina corporation, and 100% of the equity interest in
Moto Guzzi France, S.A., a french corporation.
Moto Guzzi owns a 25% equity interest in MGI GmbH, a German corporation.
15
Item 2. Properties
The following facilities were in 1998, and are presently, leased or owned
by the Company in the active conduct of its business:
(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 is occupied under a lease
expiring in 2001, at a monthly rental of approximately $2,200.
(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 is used by Moto Guzzi. This facility is currently
operating at approximately 55% of production capacity calculated as a percentage
of available space.
(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. The current
year lease obligation is Lit. 245 million, and is subject to incremental annual
increases.
(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.
(e) Unimproved land aggregating 2,539,020 square meters in Cagliari,
Italy. The Company, through OAM, owns an 80% interest therein, and is exploring
its disposition.
(f) Factory and related commercial facility aggregating approximately
10,000 square meters in Torino, Italy leased by L.I.T.A., at an annual rental of
Lit. 516 million in 1998 and used at approximately 80% of present production
capacity, based on present equipment in place.
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.," 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
(Rawling Sporting Goods Co.) has allegedly incurred and will incur in the future
in response to the release or threatened release of allegedly hazardous
substances on land allegedly owned and operated by the Company 29 years ago.
While the action is only in the preliminary stages and it is too early to assess
the likelihood that
16
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.
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 ano. v. Trident Rowan Group, Inc. et
ano," 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 the 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, which is currently in the pre-trial discovery stage. To date, no
specific damage amount has been demanded by the plaintiff.
The Company believes that it has meritorious defenses to the personal
injury action, which is predicated on a claim that the machinery in question was
defective in its design, manufacture or the warnings as to its use. If, after an
eventual trial, liability is, nevertheless, found against the Company, it is
possible that substantial damages could also be awarded, although it is
premature to evaluate the amount of such an award. The Company also believes
that if it is ultimately held liable for any injuries, third parties who have
had greater responsibility for the machinery in question will in turn be liable
to it.
In March 1999, the Company separately brought suit against the insurer to
compel it to resume coverage of the underlying claim and to assume the costs of
defense of the personal injury action. That action, entitled "Trident Rowan
Group, Inc. v. Travelers Casualty" is pending in the United States District
Court for the District of New Jersey and is in its preliminary stages. Although
the Company believes that it is likely to prevail on the merits of the action
against the insurer, there can be no assurance that it will ultimately be
awarded a judgment in its favor.
If the Company is held liable for substantial damages in the personal
injury claim, is unsuccessful in compelling its insurer to defend and cover that
claim, and if the Company is additionally unsuccessful in its efforts to hold
third parties liable to answer for the injuries sustained by the plaintiff, or
if such third parties are unable to respond to the Company in damages, the
Company is likely to be unable to satisfy any significant monetary judgment from
its liquid assets, and its other assets, consisting primarily of its equity
interest in Moto Guzzi Corporation, could be at risk.
Item 4. Submission of Matters of Vote of Security Holders
None
17
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 stock and warrants have been quoted in the Over-The-Counter market
Bulletin Board.
Common Stock
Bid Prices
----------
High Bid Low Bid
-------- -------
1996
1st Quarter .................................. 11 10 3/8
2nd Quarter .................................. 10 3/4 9 3/4
3rd Quarter .................................. 10 3/4 9
4th Quarter .................................. 10 3/4 8
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 1/2
18
Warrants
Bid Prices
----------
High Bid Low Bid
-------- -------
1997
2nd Quarter from June 5 ...................... 1 1/8 3/8
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 1/8 9/16
As of May 6, 1999, there were 1,004 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.
19
Item 6. Selected Financial Data
The selected consolidated financial data set forth below for the fiscal
years ended December 31, 1998, 1997, 1996, 1995 and 1994 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 Condition
and Results of Operations" and such financial statements, including the notes
thereto, included elsewhere in this Form 10-K.
Year ended
December 31,
1998 Year ended December 31,
---- -----------------------
US $000' 1998 1997 1996 1995 1994
(Except per ---- ---- ---- ---- ----
share data) (Millions of Italian Lire - except for per share amounts)
Net Sales ................................ $66,691 Lit. 110,441 103,369 96,806 72,253 51,994
Net loss ................................. (15,109) (25,019) (22,477) (15,001) (6,980) (3,277)
Basic loss per share from
continuing operations before
extraordinary items ...................... (3.30) (5,458) (4,886) (3,268) (2,065) (1,593)
Fully diluted loss per share ............. (3.30) (5,458) (4,886) (3,268) (2,065) (1,593)
Total assets ............................. 70,753 117,165 145,755 156,512 182,830 118,661
Long-term debt ........................... 8,609 14,257 7,144 16,468 18,098 5,004
Cash dividends paid per
common share ............................. Dividends have not been paid in the past.
1 The above information for the year ended December 31, 1998, expressed in
Italian Lire, has been translated into U.S. Dollar equivalents in
thousands of dollars (except for per share amounts), at the rate of
exchange prevailing at December 31, 1998.
Exchange Rates
Since all of the production, and much of the sales of the Company, occur
in Italy, the Company's primary financial statements are reported in Italian
Lire, 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 1,656 lire to
the dollar as of December 31, 1998.
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 the 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
20
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 11 European countries in a European common currency, the
Euro - See "Management's Discussion and Analysis of Financial Conditions and
Results of Operations."
The following table sets forth, for the period indicated, the high, low,
average and end of period exchange rates expressed in lire per dollar (rounded
to the nearest lira):
Calendar Year High Low Average End of Period
------------- ---- --- ------- -------------
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
1994 .............................. 1,689 1,539 1,612 1,622
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.
In addition, fluctuations in the exchange rates of other foreign countries
relative to the lira may affect the Company's results of operations as a
consequence of the competitiveness of the Company relative to its competitors
and due to effects on the cost of imported raw materials. See also "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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, market acceptance
of the Company's products and services, changes in currency exchange rates,
lack of adequate capital to achieve such results, 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
The Company's revenues are dominated by the results of Moto Guzzi, its
principal operating subsidiary, which represent 76% of 1997 consolidated net
sales compared to 78% in 1998. In the
21
past two years, through private and public offerings of securities and through
the March 1999 merger of the Company's former Moto Guzzi Corp. subsidiary, the
Company permitted Moto Guzzi to raise or committed to Moto Guzzi approximately
$17 million in new equity capital to enable Moto Guzzi to begin to make
necessary investments in plant, equipment and personnel and to ameliorate
liquidity shortages. 1998 Moto Guzzi operating results were adversely affected,
however, by delays in introduction of new products in the second half of 1998
and consequent liquidity difficulties and Moto Guzzi was unable to pay suppliers
on a current basis. Consequent component supply shortages further adversely
affected production and sales until the arrival of liquidity from North Atlantic
Acquisition Corp. merger in March 1999. The curtailed production and sales in
the second half of 1998 significantly affected the operating results of Moto
Guzzi, which recorded operating losses of Lit. 15.6 billion in 1998, compared to
losses of Lit. 7.4 billion in 1997. The operating loss included Lit. 4.1 billion
of reorganization expenses resulting from decisions taken by the subsidiary to
abandon certain planned products and development efforts in recognition of its
serious liquidity shortages, lack of sufficient component supply, and its
abandonment of its plan to relocate and enlarge its manufacturing facilities.
The results of L.I.T.A., the Company's steel tubing subsidiary, showed a
13.2% increase in revenues in 1998 from 1997 due to improved and stabilized
steel prices and increased volumes, mainly in export markets. This subsidiary
recorded a Lit. 1,049 million operating profit in 1998 compared to an operating
profit of Lit. 795 million in 1997.
Potential effects of the year 2000 on the Company's business
Many older computer systems and electronic devices are based on software
systems which, because of how dates are stored and manipulated, assume that all
years occur only in the 20th century. Consequently, after December 31, 1999,
such devices may not function correctly. The Company, like many other businesses
and individuals, is potentially subject to adverse consequences arising both
from the incorrect functioning of any systems used in its own business such as
accounting, production control, inventory and automated equipment and also from
the incorrect functioning of systems of suppliers, customers, utilities, banks
and financial institutions and others with whom it interacts in the normal
course of its business.
The following discussion of the effect of the Year 2000 on Moto Guzzi's
systems is based on management's best estimates, which were derived using
numerous assumptions of future events, including the continuing availability of
basic utilities and other resources, the availability of trained personnel at
reasonable cost, and the ability of third parties to cure noncompliant software
and hardware. There can be no guarantee that these assumptions will prove
accurate, and accordingly the actual results may materially differ from those
anticipated.
In analyzing its exposure to operational interruption resulting from the
advent of January 1, 2000, management of Moto Guzzi segmented its data
processing systems into three segments: Production Planning and Logistics;
Accounting; and Production Equipment.
22
Production Planning and Logistics
Moto Guzzi has completed its assessment of all data processing devices
involved in production planning and logistics and has concluded that these
systems are Year 2000 compliant.
Accounting
Operations at Moto Guzzi do not have unique or custom-tailored
requirements for their accounting systems. Nonetheless, their accounting systems
are not currently Year 2000 compliant. In connection partly with routine system
upgrade and maintenance, and partly accelerated upgrade related to the Year 2000
problem, all of Moto Guzzi's accounting systems will be upgraded during the
summer of 1999 to Year 2000 compliant status. Appropriate vendors have already
been secured for this purpose.
Production Equipment
Moto Guzzi believes it has identified all of the items of production
machinery and related equipment which are critical to uninterrupted operations,
and, in December, 1998 began to conduct a comprehensive inventory of all such
items which incorporate electronic devices, or which process dates in their
ordinary operation, to determine whether such operations will be affected by the
Year 2000 problem. Moto Guzzi will contact the relevant vendors promptly upon
completion of the inventory assessment to upgrade all deficient items. Because
of the nature of the equipment, it is not expected that modifications other than
more current and readily available circuit boards of BIOS chips will be
required, although that assessment cannot be confirmed until completion of the
inventory in second quarter of 1999.
Customer or Supplier Compliance
Moto Guzzi does not engage in material electronic data interchange with
any of its customers or component suppliers. An electronic interface is
maintained with one of Moto Guzzi's financial institutions. Moto Guzzi's
motorcycle dealers are not believed to be heavily dependent upon computer
systems other than in connection with their accounting systems.
Nevertheless, promptly following completion of its internal production
equipment compliance assessment, Moto Guzzi will poll its suppliers and
customers to determine their own state of Year 2000 compliance, a process which
it expects to complete by July, 1999, and will at that time evaluate the level
of exposure Moto Guzzi faces should it be determined that Year 2000 compliance
has not been achieved, and does not seem to be timely capable of achievement.
Contingency Planning
Moto Guzzi has not established a contingency plan to deal with the advent
of January 1, 2000 without its own systems having been rendered Year 2000
compliant, because management
23
does not believe that Moto Guzzi faces a material risk that such an event is
likely to occur, or, if it occurs, will result in significant interruption in
its operations. Moto Guzzi has not yet established a contingency plan in the
event a critical service or component supplier or customer will not achieve Year
2000 compliance. Moto Guzzi will reassess the need to establish such a
contingency plan if, following its assessment of its customer and suppliers, it
appears that one or more critical customers or suppliers will have to curtail
business with Moto Guzzi because of that customer or supplier's own Year 2000
exposure. Nevertheless, Moto Guzzi assumes that if a supplier, whether of
utility services, such as electricity, or of components, cannot provide it with
written assurance of compliance, that compliance will not be achieved. If, in
the reasonably possible, if unlikely, event that critical services are affected,
such as utilities, telecommunications or banking or if components are
unavailable and cannot be obtained from other sources which are compliant. Moto
Guzzi will have to curtail its operations.
Total Cost to Achieve Year 2000 Compliance
Moto Guzzi has, to date, spent an inconsequential amount directly
attributable to Year 2000 compliance, exclusive of routine personnel expenses.
Moto Guzzi does not expect that the aggregate cost for Moto Guzzi to achieve
Year 2000 compliance will exceed approximately Lit. 500 million ($302,000), an
amount which is not considered material to Moto Guzzi's operations. Because so
many factors are beyond the control of Moto Guzzi, however, there can be no
assurance that these costs will not be exceeded. In the worst case scenario
where essential services are lost or critical components are no longer supplied,
Moto Guzzi will curtail its operations, in which event, the loss of revenues
will greatly exceed Year 2000 remediation expenses.
Potential effects of the proposed European Common Currency on the
Company's business
The Company's businesses are substantially located and operate in Italy.
On January 1, 1999, Italy was admitted as one of 11 European countries in a
proposed European common currency, the Euro.
The European Common Currency is expected to have significant effects on
the Company's business. Among many potential economic factors, the proposed
common currency is expected to increase competition within the common currency
zone. Because the adoption of the Euro will require competitive businesses
located in different participating countries to price their products in a single
currency, the historical ability of such companies to increase or reduce prices
with affecting operating results in their home country's currently will be
largely eliminated.
The uniform currency will also likely result in the establishment of new
Euro-based pricing points, e.g., Euro 9,999 or Euro 19,999. These new pricing
points may differ from the current prices charged for such products, which could
be advantageous or disadvantageous to a company, depending upon whether the
Euro-based price point is higher or lower than the prices charged before the
adoption of the uniform currency. Moto Guzzi will have to re-evaluate its
pricing policies and model specifications to most competitively deal with the
new pricing points.
24
Moto Guzzi also expects that the introduction of the Euro will increase
consolidation within industries and industry sectors, as currency translation
risks and competitive opportunities diminish within the common currency zone.
National regulatory barriers are also likely to fall as participating countries
harmonize their rules to promote intra-member commerce and cross-border
information exchange.
The combination of pricing transparency and consolidation is likely to
increase competition within the common currency zone generally. To the extent
that competitors of Moto Guzzi participate in the expected consolidation, Moto
Guzzi may in the future face competitors which are even larger and better
capitalized than the competitors it faces now.
Additionally, interest rates are likely to stabilize across the common
currency zone. Interest rates in Italy have fallen since 1997, partly in
response to the Euro introduction.
Moto Guzzi has not yet fully evaluated the ramifications of the adoption
of the uniform currency because the Euro-Lire exchange rate was not fixed until
January 1, 1999.
Moto Guzzi also makes significant export sales outside the proposed common
currency zone and the prices of certain commodities used in its manufacturing
processes may be affected by the value of the Euro. The implementation of the
Euro within the common currency zone could have unanticipated consequences on
the economics of participant countries which could affect demand for the
company's products.
Adoption of the Euro is expected to take place over a two year transition
phase in which initially both the Lire and the Euro would be valid currencies
for business transactions in Italy.
The European Common Currency could have a significant effect on Moto
Guzzi's accounting systems which could require significant modification or
replacement. Management believes that Moto Guzzi's businesses do not have unique
or custom-tailored requirements for accounting systems and that it could rapidly
and inexpensively change to "off-the-shelf" systems at an appropriate time if
existing systems prove not to be adequate. The Company is not able to evaluate
these matters or the effects on international financial and payment systems with
which it interacts at the present time. The Company will address these issues
during the current year and in 1999 as further guidelines and information become
available. Adoption of the Euro would also lead to the Company reporting its
results in that currency instead of the Italian Lire from some point in the
future, yet to be defined.
25
Results of Operations
Year ended December 31, 1998 compared to Year ended December 31, 1997
Year Ended Year Ended
December 31, 1998 December 31, 1997
Lire m. Lire m.
Net sales ..................................... 110,441 100.0% 103,369 100.0%
Cost of sales ................................. (97,223) 88.0% (91,259) (88.1%)
------- -------
13,218 12.0% 12,380 11.9%
Selling, general and administrative expenses .. (24,360) (22.1%) (22,990) (22.2%)
Research and development ...................... (4,336) (3.9%) (3,125) (3.0%)
Impairment losses ............................. (2,688) (2.4%) (4,001) (3.9%)
Reorganization expense ........................ (4,062) (3.7%) -- --
Rental income ................................. 150 0.1% 477 0.5%
------- -------
Operating loss ................................ (22,078) (20.0%) (17,259) (16.7%)
Interest expense .............................. (4,989) (4.5%) (4,493) (4.3%)
Interest income ............................... 1,248 1.1% 2,403 2.3%
Other income, net ............................. 143 0.1% 2,007 1.9%
------- -------
Loss before income taxes and minority interests (25,676) (23.2%) (17,342) (16.7%)
Income taxes .................................. (680) (0.6%) (457) (0.4%)
Minority interests ............................ 2,840 2.6% 1,041 1.0%
Amortization of premium for redemption of
preferred stock of subsidiary ................ (1,503) (1.4%) (3,595) (3.5%)
Charge for issuance of warrants ............... -- -- (2,124) (2.0%)
------- -------
Net loss ...................................... (25,019) (22.7%) (22,477) (21.7%)
======= =======
Net Sales Operating Profit/(loss)
----------------------------- -----------------------
1998 change % 1997 1998 1997
Motorcycles 83,760 3.4% 80,988 (15,577) (7,435)
Steel Tubing 23,193 13.2% 20,480 1,049 795
Real estate -- -- (248) 201
Corporate and other 3,775 48.9% 2,535 (4,577) (6,910)
Impairment Losses -- -- (2,688) (4,001)
Intersegment eliminations (287) (364) (37) 91
------- ------- ------- -------
110,441 6.6% 103,639 (22,078) (17,259)
======= ======= ======= =======
Real estate - rentals 150 (68.6%) 477
======= =======
26
Further analysis of net sales and components of operating loss by industry
segment is included in Note 18 to the Company's Consolidated Financial
Statements at December 31, 1998.
Overview
The increase of 6.6% in consolidated net sales in 1998 compared to 1997
includes increases at both Moto Guzzi and L.I.T.A., discussed below. The
increase in corporate and other sales principally results from a significant
intervention by Temporary Integrated Management. S.p.A., the Company's
management intervention unit, in the first quarter of 1998 on behalf of a Swiss
client in connection with its acquisition of a business in Italy.
As further discussed below, gross margins as a percentage of sales
increased slightly from 11.9% to 12%, principally as a result of improvements at
L.I.T.A. and T.I.M. which more than offset a decrease in margins, as a
percentage of sales, at Moto Guzzi.
Selling, general and administrative expenses increased 6% in Lire terms in
1998 compared to 1997 and decreased slightly as a percentage of sales. The
additional expense principally reflects an increase of 16% at Moto Guzzi
connected with continuing efforts to strengthen sales, marketing and management
and to expanded overseas distributors, offset by a decrease of 25% in corporate
overhead resulting from cost cutting. Selling, general and administrative
expenses at L.I.T.A. increased in 1998 compared to 1997, reflecting increased
business activities and immaterial reclassification of certain expenses.
Moto Guzzi, in accordance with its expansion and product improvement
plans, also increased research and product development expenditures from Lit.
3,125 million in 1997 to Lit. 4,336 million in 1998.
In April 1998, Moto Guzzi entered into an agreement with Philips S.p.A.
for the purchase by Moto Guzzi of the Philips Vision Industries' plant in Monza,
Italy. The agreement, which was subject to the fulfilment of certain conditions
including the assent of certain labor unions, expired in accordance with its
terms in June 1998, though the parties continued discussions through August
1998. In September 1998, Moto Guzzi terminated the discussions as agreement with
labor unions had not been obtained and the delays in closing meant that
logistics for transferring activities were no longer favorable. Also in
September 1998, the employment contract of Oscar Cecchinato, the managing
director of Moto Guzzi was terminated.
Following these events, the Company reviewed its short-term strategies and
product plans, taking into consideration certain proposed products whose
introduction into production was connected with the potential new factory and
also other new products slated to be introduced in 1999 to replace existing
models. Pursuant to this review, the Company recorded Lit. 1,852 million of
reorganization costs in the third quarter of 1998. Following unanticipated
delays in the closing of the Moto Guzzi Corp. merger eventually consummated in
March 1999 (See "Liquidity and Capital Resources" below), management further
reviewed its short-term strategies and product plans and recorded an additional
Lit. 2,210 million of reorganization charges in the last quarter of 1998. The
reorganization charges aggregating Lit. 4,062 million, principally relate to
write-offs of tooling and
27
inventory of models which the Company no longer intends to produce in 1999 and
costs directly connected with the proposed move of the Company's plant.
In March 1998, the Company's Board of Director's had decided not to
develop its other businesses, to realize liquidity from non-strategic assets and
to focus the Company's energies and resources on its Moto Guzzi business.
Consequently, the Company recorded Lit. 4,001 million of impairment expense
relative to the temporary management intervention business in the 1997 fiscal
year. As a result of the Company reaching agreement in 1999 to sell certain
parking concessions in Genoa, Italy, the Company has recorded Lit. 2,688 million
of impairment expense.
Rental income decreased by 68.6% in 1998 compared to 1997 following the
sale of the Company's most significant rental income producing property in March
1997.
The increase in operating loss in 1998 compared to 1997 was due
principally to reductions in margins, increased selling, general and
administrative expenses, increased research and development expenditures and
reorganization expense at Moto Guzzi, as outlined below. These changes more than
offset increased operating profit at L.I.T.A. and the benefits of reductions in
the Company's overhead.
The Company has recorded decreased interest income of Lit. 1,248 million
in 1998 compared to Lit. 2,043 million in 1997 due to a decrease in liquidity
and lower interest rates. The decrease in liquidity in 1998 principally reflects
the repurchase, in June 1998, of shares formerly owned by the Company's former
principal shareholder, Alejandro De Tomaso (the "De Tomaso Shares"), for a total
of Lit. 15.6 billion. Interest expense increased from Lit. 4,493 million to Lit.
4,989 million, principally due to increased indebtedness. The significant
elements of this increased indebtedness relate to the Company's Moto Guzzi
business, where a Lit. 10.0 billion credit line was drawn down in April 1998 and
to interest relating to bridge financing for Moto Guzzi provided in October
1998. See "Liquidity and Capital Resources -- Financing Activities".
There were no significant items in other income in 1998. Other income in
1997 was principally composed of favorable exchange gains which aggregated Lit.
1,984 million, principally relating 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.
The Company recorded Lit. 1,503 million in 1998 (1997 - Lit. 3,595
million) as amortization of preferred stock redemption premiums relating to
shares of preferred stock of the former Moto Guzzi Corp. subsidiary issued at
the end of 1996 and in early 1997. A significant element of this charge results
from exchange differences as the contingent redemption obligation was
denominated in U.S. dollars. The Company also recorded, in the second quarter of
1997, a charge of Lit. 2,124 million for the issuance of warrants in connection
with the 1997 acquisition by Tamarix Investors, LDC of a controlling interest in
the Company's common stock from Finprogetti, S.p.A.
Because Italian companies are taxed in Italy on their individual results
and are not able to file consolidated returns, one of the Company's Italian
subsidiaries had income tax expense in 1998
28
and 1997 on interest income and gains on disposals of assets, despite
consolidated operating losses from operations in both years. Despite operating
losses at Moto Guzzi S.p.A. in Italy, income taxes are accrued, as certain
business expenses, principally finance expense and labor costs, are not
deductible against income for the purposes of a new income tax, introduced in
1998.
Moto Guzzi
Unit sales in 1998 increased 0.9% over 1997 to 5,647 units compared to
5,593 in 1997. Net sales increased by 3.4%, due principally to price increases
which were made effective in April, 1998. The price increases were, in part,
related to the institution by the Company of a 3 year warranty program
introduced in 1998, extended to export sales in nearly all its markets.
Previously, the Company had granted a 3% allowance on sales prices to its
foreign importers who were then responsible for warranty coverage. Unit sales of
the Company's exclusive U.S. importer increased by 5.7% to 719 units and of the
Company's exclusive French importer increased by 28% to 581 units from 453
units. Net sales in 1998 also reflected 312 units, approximately Lit. 3,800
million at sales value, of motorcycles manufactured for public administration
customers in 1997 and whose sale was planned for December 1997, but for which
the necessary technical checks and clearance were not completed until the first
quarter of 1998.
The increase in unit sales in 1998 over 1997 reflects increased sales in
the first half of the year (3,207 units compared to 2,889 units) and decreased
sales in the second half of the year (2,440 units compared to 2,704 units). The
third quarter of 1998 was adversely affected by delays in the introduction of
two revised models, the California Special and 1998 Quota 1100, principally
resulting from late supply of certain components. Because of reduced sales in
this period, Moto Guzzi experienced liquidity shortages in the fourth quarter of
1998 and was unable to pay suppliers on a current basis. This led to further
component shortages which further curtailed production and sales. In the last
quarter of 1998, unit production decreased 43% to 1,077 units from 1,879 in 1997
and unit sales decreased 26% from 1,137 units from 1,542 units. Management
estimates that as a result of these delays some 600 - 800 unit sales were lost
in 1998. The liquidity shortages and consequent component supply difficulties
continued into March 1999 until completion of the Moto Guzzi Corp. merger into
North Atlantic Acquisition Corp.
The decrease in gross margin as a percentage of sales was principally due
to fixed production costs being absorbed over lower production volumes, with
units produced falling 10% from 6,234 units in 1997 to 5,614 units in 1998.
Also, the 1998 sales price increases discussed above were offset by the cost of
the new 3 year warranty policy and, therefore, did not have any positive impact
on margins. In 1998, the Company did not pass on material and other cost
increases in its sales prices. This decision had been made to support increases
in sales volumes which were expected to accrue from the timely introductions of
the California Special and 1998 Quota 1100.
Moto Guzzi also made increased investments in development of new products
in 1998 with research and development expenditure increasing from Lit 3,125
million to Lit. 4,336 million.
29
Sales general and administrative expenses increased in 1998 compared to
1997 by Lit. 2,209 million or approximately 16%. This reflects increased
activities in its U.S. importer (increase of Lit. 268 million or 15%) and its
French importer (increase of Lit. 309 million or 37%) as well as increased sales
and marketing and general management expense at Moto Guzzi S.p.A. (increase of
Lit. 1,642 million or 15%) as the Company continues to redefine and improve its
operations in all areas.
Moto Guzzi's operating loss of Lit. 15,577 million in 1998, compared to an
operating loss of Lit. 7,435 million in 1997, can be summarized as arising
principally from the following: 1) the decision not to pass on material and cost
increases in selling prices; 2) higher incidence of fixed production costs on
reduced production volumes consequent to new model introductions and component
shortages; 3) increased research and development expenditure; 4) 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; and 5) reorganization costs connected with refocusing of short term
strategies and product offerings. Management believes that, if adequate capital
for production and marketing can be timely secured, the increased research
expenditures, resulting in the two new models introduced in late 1998 and two
further new models planned for 1999, along with further investments in
strengthening management will, with the capital deriving from the March 1999
North Atlantic Acquisition Corp. transaction described below, generate future
benefits.
L.I.T.A.
L.I.T.A. recorded a 13.2% increase in net sales in 1998 compared to 1997
due to an increase in volumes of 9.1% and a continued recovery of prices. Export
sales grew 53.8% and represented 28.5% of sales volumes in 1998 compared to 18%
in 1997. Domestic (Italian) sales of tubes overall decreased 5.8%, though
volumes of aluminized tubes, where L.I.T.A. is recognized as market leader,
increased 17.2% to 10,877 tons.
Gross margins as a percentage of sales increased in 1998 to 14.3% from
11.1% in 1997. As part of business process reorganization, certain costs have
been reanalyzed as selling, general and administrative costs in 1998 and the
incidence of selling, general and administrative costs on sales increased from
7.2% in 1997 to 9.8% in 1998. As part of its business process improvement
program, L.I.T.A. completed its quality program for ISO 9002 Certification in
1998.
Overall, the changes above have generated increased operating profits of
4.5% as an incidence on net sales in 1998 compared to 3.9% million in 1996.
30
Results of Operations
Year ended December 31, 1997 compared to Year ended December 31, 1996
Year Ended Year Ended
December 31, 1997 December 31, 1996
Lire m. Lire m.
Net sales ..................................... 103,369 100.0% 96,806 100.0%
Cost of sales ................................. (91,259) (88.1%) (84,165) (86.9%)
------- -------
12,380 11.9% 12,641 13.1%
Selling, general and administrative expenses .. (22,990) (22.2%) (21,430) (22.1%)
Research and development ...................... (3,125) (3.0%) (1,177) (1.2%)
Impairment losses ............................. (4,001) (3.9%) (4,180) (4.3%)
Rental income ................................. 477 0.5% 1,483 1.5%
------- -------
Operating loss ................................ (17,259) (16.7%) (12,663) (8.8%)
Interest expense .............................. (4,493) (4.3%) (6,563) (6.8%)
Interest income ............................... 2,403 2.3% 3,747 3.9%
Other income, net ............................. 2,007 1.9% 1,452 1.5%
------- -------
Loss before income taxes and minority interests (17,342) (16.7%) (14,027) (14.5%)
Income taxes .................................. (457) (0.4%) (595) (0.6%)
Minority interests ............................ 1,041 1.0% (379) (0.4%)
Amortization of premium for redemption of
preferred stock of subsidiary ............... (3,595) (3.5%) -- --
Charge for issuance of warrants ............... (2,124) (2.0%) -- --
------- -------
Net loss ...................................... (22,477) (21.7%) (15,001) (15.5%)
======= =======
Net Sales Operating Profit/(loss)
----------------------------- -----------------------
1997 change% 1996 1997 1996
Motorcycles 80,988 4.3% 77,620 (7,435) 478
Steel Tubing 20,480 18.3% 17,313 795 (385)
Real estate -- -- -- 201 826
Corporate and other 2,535 (10.9%) 2,846 (6,910) (9,402)
Impairment losses -- -- -- (4,001) (4,180)
Intersegment eliminations (364) (62.6%) (973) 91 --
------- ---- ------ ------- -------
103,639 7.1% 96,806 (17,259) (12,663)
======= ==== ====== ======= =======
Real estate - rentals 477 (67.8%) 1,483
======= ======
31
Further analysis of net sales and components of operating loss by industry
segment is included in Note 19 to the Company's Consolidated Financial
Statements at December 31, 1998.
Overview
The increase of 7.1% in consolidated net sales in 1997 compared to 1996
comprises increases at both Moto Guzzi and L.I.T.A., discussed below. The
decrease in corporate and other sales reflects lower than anticipated levels of
new engagements in 1997 for the Company's T.I.M. subsidiary, although T.I.M. has
obtained several new engagements since January 1, 1998. Intersegment
eliminations have decreased because of the appointment of Oscar Cecchinato as
CEO of Moto Guzzi; previously T.I.M. had provided senior management to Moto
Guzzi.
Costs of sales increased in 1997 compared to 1996 and consequently margins
fell from 13.1% to 11.9%. Increased margins at L.I.T.A. were more than offset by
decreased margins at Moto Guzzi, both discussed below.
While selling, general and administrative expenses increased in Lire terms
in 1997 compared to 1996, they were unchanged as a percentage of sales. The
additional expense reflects an increase of 35% at Moto Guzzi connected with
efforts to strengthen sales, marketing and management and to new and expanded
overseas distributors, offset by a decrease of 27% in corporate overhead
resulting from cost cutting. Selling, general and administrative expenses at
L.I.T.A. showed a slight reduction in 1997 compared to 1996.
Moto Guzzi, in accordance with its expansion and product improvement
plans, also significantly increased research and product development
expenditures from Lit. 1,177 million in 1996 to Lit. 3,125 million in 1997.
Expenditures were accelerated in the last quarter of 1997 following the
commitment by the Board of Directors of the Company of $4 million for Moto
Guzzi's expansion plans from the proceeds of a public offering of common stock
in June 1997.
Rental income decreased by 67.8% in 1997 compared to 1996 following sale
of the Company's most significant property in March 1997.
The Company's Board of Directors made a strategic decision to focus the
Company's energies and resources on its Moto Guzzi business and, consequently,
not to develop, its merchant banking and other financial services activities.
Accordingly, the Company recorded impairment adjustments which substantially
reduced the value of T.I.M. trademarks and related goodwill. In 1996 the Company
recorded impairment reserves of Lit. 4,180 million in connection with its real
estate disposal program.
The increase in operating loss in 1997 compared to 1996 was due
principally to reductions in margins, increased selling, general and
administrative expenses and increased research and development expenditures at
Moto Guzzi, as outlined below. This adverse change more than offset the
operating profit at L.I.T.A. and the reductions in the Company's overhead.
32
The Company recorded decreased interest income of Lit. 2,403 million in
1997 compared to Lit. 3,747 million in 1996 due to a decrease in liquidity and
interest rates. Interest expense decreased from Lit. 6,563 million to Lit. 4,493
million due to the elimination of real estate loans with disposal of the Cologne
property and to reductions in interest rates.
Other income increased in 1997 compared to 1996 and were principally
composed of favorable exchange gains which, in 1997 aggregated Lit. 1,984
million, principally relating to bridge financing by the Company's Italian
subsidiaries to the U.S. parent. Other income in 1996 included gains on sale of
assets of Lit. 1,211 million, a government grant of Lit. 450 million for
research carried out in prior years and miscellaneous gains, offset by exchange
losses of Lit. 848 million.
The Company recorded in 1997 two non-cash items not present in 1996. Lit.
3,595 million was recorded as amortization of preferred stock redemption
premiums relating to the Moto Guzzi Corp. preferred stock issued at the end of
1996 and in early 1997. A significant element of this charge resulted from
exchange differences as the contingent redemption obligation is denominated in
U.S. dollars. The Company also recorded, in the second quarter of 1997, a charge
of Lit. 2,124 million for the issuance of warrants in connection with the
acquisition by Tamarix of a controlling interest in the Company's common stock
from Finprogetti.
Because Italian companies are taxed in Italy on their individual results
and are not able to file consolidated returns, one of the Company's Italian
subsidiaries had income tax expense in 1997 and 1996 on interest income and
gains on disposals of assets, despite consolidated operating losses from
operations in both years.
As a result of the operating factors, impairment reserves and the non-cash
charges described above, the Company reported an increased net loss for 1997
compared to 1996.
Moto Guzzi
Despite a 7.4% decline in unit sales in 1997 over 1996, net sales at Moto
Guzzi increased by 4.3%, due principally to a more favorable sales mix. Total
unit sales in 1997 were 5,593 compared to 6,050 in 1996. Net sales in 1997 also
reflected the absence of approximately Lit. 3,800 million at sales value of
motorcycles manufactured for public administration customers whose sale was
planned for December, but for which the necessary technical checks and clearance
were not completed until the first quarter of 1998. Consolidated net sales of
parts increased 13% in 1997 over 1996.
Net sales of the Company's exclusive U.S. importer increased by 113% to
Lit. 13,000 million, reflecting a 93% increase in local currency terms and the
effects of conversion of dollars into lire.
Gross margins as a percentage of sales decreased in 1997 compared to 1996
as a result of the Company's policy substantially not to pass on increased
component costs to customers. Moto Guzzi also incurred higher charges for
inventory obsolescence in 1997 reflecting continuing moves
33
to higher quality outsourced components and modifications to model
specifications. Production increased in 1997 compared to 1996 by 3.4% from 6,027
units to 6,234 units.
Moto Guzzi has also made increased investments in development of new
products in 1997 with research and development expenditure increasing from Lit.
1,177 million to Lit. 3,125 million.
Sales general and administrative expenses increased in 1997 compared to
1996 by approximately 35%, reflecting increased activities in its U.S. importer
and its newly formed French importer as well as increased sales and marketing
and general management expense at Moto Guzzi S.p.A. as the Company seeks to
redefine and improve its operations in all areas.
Moto Guzzi's operating loss of Lit. 7,435 million in 1997, compared to an
operating profit of Lit. 478 million in 1996, arose principally from the
following: 1) the decision to maintain 1996 sales prices to support sales
objectives; 2) higher levels of inventory obsolescence resulting from product
changes and a switch to higher quality components; 3) increased research and
development expenditure; and 4) 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.
L.I.T.A.
L.I.T.A. recorded an 18.3% increase in net sales in 1997 compared to 1996
due to increased volumes and a partial recovery of prices. Part of the sales
volume increase derived from increased export sales which grew to 18% of net
sales in 1997 compared to 10% of net sales in 1996.
Gross margins as a percentage of sales almost doubled in 1997 to 11.1%
compared to 6.6% in 1996. 1996 had been adversely affected by falling steel
prices and consequent loss on finished inventories and the 1997 margins reflect
greater price stability and a small recovery in prices.
These positive changes have generated an operating profit of Lit. 795
million in 1997 compared to an operating loss of Lit. 385 million in 1996.
Liquidity and Capital Resources
Operations and working capital
Non-cash items contributed substantially to the Lit. 25,019 million net
loss recorded by the Company in 1998. The Company's negative net cash flow from
operations was Lit. 13,547 million in 1998, compared to Lit. 7,694 million in
1997, when the Company sustained a net loss of Lit. 22,477 million, which also
included significant non-cash items.
Non-cash items contributing to the loss in 1998 include Lit. 2,688 million
reserves for impairment of the Company's concession rights and Lit. 3,186
million of inventory and receivable reserves, principally in connection with
reorganization expense recorded in 1998 as a result of decisions not
34
to produce certain Moto Guzzi models in 1999. The Company also recorded
amortization of the Moto Guzzi Corp. preferred stock redemption premium of Lit.
1,503 million.
Negative operating cash flow principally reflects operating losses at Moto
Guzzi and general corporate expenses. Management is continuing on its rigorous
overhead expense cost reduction program, which began in 1997 and which resulted
in a reduction of Lit. 1,970 million, or 25%, in 1998 compared to 1997. Losses
at Moto Guzzi were, in part, related to decreased sales volumes in the second
half of 1998 caused by an inability to obtain necessary component supplies for
new model introductions and to liquidity shortages. Management expects that
these factors, which continued into March 1999 until the consummation of the
Moto Guzzi Corp. merger, will not persist through the balance of 1999.
The net effect of changes in components of working capital was a positive
contribution of Lit. 3,413 million in 1998. The principal element of this was
represented by increases in trade and other payables of Lit. 4,067 million,
primarily relating to Moto Guzzi. This increase principally relates to supplier
arrearages as the liquidity shortage at Moto Guzzi meant that it was unable to
pay its suppliers currently from the end of the third quarter of 1998.
Investing activities
The decrease in investments (certificates of deposit and similar fixed
income investments at Italian banks) principally reflects cash used to
repurchase the De Tomaso Shares in June 1998.
Investments in plant, property and equipment principally relate to Moto
Guzzi, where the Company also incurred increased research and product
development expenses in 1997 of Lit. 4,336 million which are reported in the
statement of operations. Such expenditures represent investments in new models,
two of which were introduced in late 1998 and a further two planned for 1999 and
in upgrading plant and facilities.
Financing activities
In addition to 776,530 De Tomaso Shares repurchased in June, 1998 for
$11.27 per share, the Company also repurchased 28,350 shares acquired for Lit.
570 million from Finprogetti pursuant to arrangements entered into in 1996. At
December 31, 1998, the Company had no further outstanding share repurchase
commitments.
Loans from related parties represent loans by Tamarix and by Gianni
Bulgari, a principal shareholder and formerly affiliated with Tamarix, in
October 1998 to provide bridge financing to Moto Guzzi in anticipation of the
Moto Guzzi Corp. merger. The two loans are of $2,000,000 (Lit. 3,404 million at
the then prevailing exchange rate) and Lit. 3,000 million. The $2 million
Tamarix loan was repayable on the closing of the merger and the Lit. 3,000
million loan from Mr. Bulgari was due on March 31, 1999. Due to the
unanticipated delays in closing the merger, the Company was not able to repay
either loan on their due dates. One loan was repaid in May and the other has
been extended until June 30. See "Future Liquidity Requirements", below.
35
Proceeds from long-term debt principally relate to a Moto Guzzi Lit.
10,000 million ten-year credit facility arranged in February 1998, with
principal to be repaid in the final eight years. The facility was drawn-down in
April 1998.
Principal repayments of debt principally comprise $1,863,000 (Lit. 3,085
million) in respect of a loan note payable relating to the 1996 stock repurchase
program, described in Note 4 to the Financial Statements at December 31, 1998.
The Company also repaid installments of Lit. 1,049 million in respect of Moto
Guzzi mortgage loans and Lit. 999 million for loans included among corporate
liabilities and relating originally (prior to 1993) to financing of investments
when the Company owned Maserati. The company retained certain liabilities when
it disposed of its Maserati subsidiary.
March 1999 Moto Guzzi Corp. Merger
As a result of the merger of Moto Guzzi Corp. into North Atlantic
Acquisition Corp., which was consummated on March 5, 1999, all of the common
stock and preferred stock of Moto Guzzi Corp. was exchanged for newly issued
shares of common stock of North Atlantic. OAM, which had owned all of Moto Guzzi
Corp.'s common stock before the merger, also contributed a Lit. 13,362 million
intercompany loan it had made to Moto Guzzi Corp. for additional North Atlantic
common stock, and holders of Moto Guzzi Corp. warrants received additional
shares of North Atlantic common stock when submitting their warrants for
cancellation.
The aggregate ownership by the former Moto Guzzi Corp. security holders
immediately following the merger was approximately 75%, while the security
holders of the former North Atlantic retained an approximate 25% equity
ownership interest in Moto Guzzi Corporation.
Approximately $8,000,000 in cash owned by North Atlantic, net of expenses
of the merger, became available for Moto Guzzi capital needs, of which
approximately $7,200,000 was used to pay supplier arrearages caused by Moto
Guzzi's liquidity shortage.
The transaction will be accounted for as a reverse acquisition of North
Atlantic by Moto Guzzi Corp. The Company will account for the transaction as a
sale of shares in its Moto Guzzi Corp. subsidiary and will record a gain in the
income statement in the first quarter of 1999 based on such sale. Management
expects that this gain will substantially, if not totally, eliminate the
shareholder's deficit of Lit 20,126 million as at December 31, 1998.
Management believes that this transaction, which results in Moto Guzzi
being a separately traded public company, will enhance Moto Guzzi's ability to
raise further capital and that stock option incentives to Moto Guzzi management
and employees will provide further motivation to enhance the value of the Moto
Guzzi business.
36
Future Liquidity Needs
To enable substantial further growth in production and sales, Moto Guzzi's
strategic plan contemplates total investments in research and product
development of some Lit. 50 billion (approximately $30 million) in the five year
period from 1998 through 2002. The plan also contemplates investments of Lit. 20
billion (approximately $12 million) in production plant and machinery and
information systems. Much of the production machinery at Moto Guzzi's facility
is aged and in need of extensive modification, improvement or replacement. Moto
Guzzi sought to purchase a new plant in Monza, Italy, but discontinued such
discussions in September, 1998. Moto Guzzi believes that the existing plant at
Mandello del Lario, Italy has a potential production capacity that will be
sufficient for its needs for at least the next three years and is not actively
seeking any other alternatives at the present time. Moto Guzzi will have to make
significant investments in the existing plant in order that it can operate
competitively. Such required modernization may result in production
interruptions.
Moto Guzzi expects that, over the next four years, significant further
capital will be required to complete the planned overhaul. While anticipated
increases in sales during the period, if realized, would provide a significant
portion of the needed capital, anticipated internally generated cash and
currently available bank financing, in the aggregate, will not be sufficient to
enable Moto Guzzi to increase production and sales rapidly enough to generate
the remaining needed capital. Moreover, in the four years ended December 31,
1998, Moto Guzzi has not generated cash from operations.
Following the merger, Moto Guzzi Corporation has outstanding warrants
which could provide some of this further capital. In particular, certain
warrants can be redeemed for a nominal sum in the event of the achievement of
certain share price performance criteria and which could potentially provide
further cash of approximately $10.4 million.
In February 1998 Moto Guzzi obtained a Lit. 10,000 million 10 year credit
facility, drawn down in April 1998, with principal repayments commencing from
the third year. The terms of the loan include covenants relating to the share
capital and equity (according to local Italian accounting principles) of Moto
Guzzi as at December 31, 1998. Due to the losses in 1998 and delays in closing
the merger with North Atlantic, Moto Guzzi is not in compliance with these
covenants, the consequence of which is that the lender can request immediate
repayment of the loan. The loan has been classified as a current liability in
the balance sheet as at December 31, 1998. The Company has advised the lender of
the non compliance and is in discussions to renegotiate the terms of the loan.
No assurance can be given that these negotiations will successfully conclude on
terms satisfactory to the Company.
Additionally, management estimates that Moto Guzzi requires approximately
Lit. 10,000 - 12,000 million of additional capital within the next 12 months to
fund operations and planned investments. The seasonality of Moto Guzzi's
business is such that the substantial part of such capital will be required
before the end of the third quarter of 1998. Management is exploring a variety
of debt and equity financing options, though no arrangements have been made for
any form
37
of financing. No assurances can be given that such financing will be obtained on
acceptable terms, or at all.
To meet liquidity requirements other than those of Moto Guzzi, the Company
anticipates realizing capital from the disposition of certain assets, including
its Sardinia property and certain parking rights in Genoa and from the receipt
of Italian tax receivables. Lit. 6,125 million Italian tax receivables were
received in February, 1999 and the Company entered into an agreement in April
1999 to sell its parking rights in Genoa for Lit. 1,625 million. The Company is
also continuing to receive installment payments from the December, 1997 sale of
other real estate related assets. The timing of any of the aforementioned
realizations is uncertain.
The Company has repaid the loan of Lit. 3 billion made by Mr. Bulgari in
October 1998 but is currently unable to repay the $2 million loan from Tamarix.
Tamarix has extended the term of the loan until June 30, 1998. The Company
expects to repay a portion of the loan in May from available cash reserves.
The report of the independent public accountants on the financial
statements of the Company at December 31, 1997 includes a "going concern"
qualification referring to recurring losses from operations, negative cash flows
and the Company's inability to meet certain debt payment obligations.
38
TRIDENT ROWAN GROUP, INC.
Annual Report on Form 10-K
Item 8 and Item 14(a)(1) and (2)
Consolidated Financial Statements As of
December 31, 1998 and 1997
Together with
Report of Independent Public Accountants
39
TRIDENT ROWAN GROUP, INC.
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants .................................. F-2
Consolidated Balance Sheets - Assets ...................................... F-3
Consolidated Balance Sheets - Liabilities and Shareholders'
Equity .......................................................... F-4
Consolidated Statements of Operations ..................................... F-5
Consolidated Statements of Changes in Shareholders' Equity ...... F-6
Consolidated Statements of Cash Flows ..................................... F-7
Notes to Consolidated Financial Statements ................................ F-8
40
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,
1998 and 1997, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the
period ended December 31, 1998, 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 generally accepted auditing
standards. 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, 1998 and 1997 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company continues as a going concern. As discussed in Note 1
to the consolidated financial statements, the Company has suffered recurring
losses from operations and negative cash flows. In addition, the Company has to
meet certain debt repayment obligations for which financing has yet to be
arranged. All of these matters raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The consolidated financial statements do not include
any adjustment that might result from the outcome of this uncertainty.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule appearing on page F-8 of
the Form 10-K is presented for the purpose of complying with the Securities and
Exchange Commission's rules and is not a required part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN S.p.A.
May 21, 1999
Milan, Italy
41 F-2
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1998 and 1997
ASSETS 1998 1998 1997
US$'000 Lire m. Lire m.
Cash and cash equivalents ............................. $ 2,075 Lit. 3,436 Lit. 10,407
Marketable securities, at cost ........................ 577 955 3,774
Receivables ........................................... 21,289 35,254 38,212
Trade, less allowance of Lit. 2,037 (1997, Lit. 2,100) 15,025 24,881 22,333
Receivables from related parties ..................... 2,326 3,852 5,383
Other receivables .................................... 3,938 6,521 10,496
Inventories ........................................... 24,861 41,170 43,450
Raw material, spare parts and work-in-progress ....... 14,776 24,469 25,179
Finished products .................................... 10,085 16,701 18,271
Prepaid expenses ...................................... 593 982 509
-------- ------- -------
CURRENT ASSETS ........................................ 49,395 81,797 96,352
-------- ------- -------
Property, plant and equipment ......................... 11,242 18,618 16,011
Land ................................................. 456 755 750
Buildings ............................................ 1,628 2,696 2,644
Machinery and equipment .............................. 24,863 41,174 35,841
-------- ------- -------
26,947 44,625 39,235
Less allowances for depreciation ..................... (15,705) (26,007) (23,224)
-------- ------- -------
Trademarks and other intangible assets, net of
amortization Lit. 1,350 (1997, Lit. 1,250) ........... 393 650 750
Goodwill, net of amortization Lit. 562 (1997, Lit. 490) 143 236 308
Land for development, net of reserve of Lit. 2,500 .... 2,114 3,500 3,500
Concession rights ..................................... 966 1,600 4,406
Tax receivables ....................................... 5,546 9,185 8,623
Other assets .......................................... 954 1,579 1,326
Securities collateralizing share repurchase commitments -- -- 14,479
-------- ------- -------
ASSETS $ 70,753 Lit. 117,165 Lit. 145,755
======== ======= =======
See Notes to Consolidated Financial Statements
42 F-3
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1998 and 1997
LIABILITIES AND SHAREHOLDERS' EQUITY 1998 1998 1997
US$'000 Lire m. Lire m.
Advances from banks ....................................... $19,697 Lit. 32,619 Lit. 33,423
Current portion of long-term debt ......................... 8,024 13,288 6,009
Loans due to related parties .............................. 3,812 6,312 --
Accounts payable .......................................... 21,353 35,360 31,338
Accrued expenses and other payables ....................... 5,867 9,715 10,025
------- ------- -------
CURRENT LIABILITIES ....................................... 58,753 97,294 80,795
------- ------- -------
Long-term debt, less current portion ...................... 2,571 4,257 7,144
Termination indemnities ................................... 5,182 8,581 8,917
Provision for claims ...................................... 1,884 3,120 3,340
Minority interests ........................................ 6,586 10,907 13,747
Common stock subject to repurchase ........................ -- -- 15,691
Preferred stock of subsidiary ............................. 7,930 13,132 11,629
SHAREHOLDERS' EQUITY ............................ (12,153) (20,126) 4,492
Common stock, par value $0.01 per share;
Authorized 50,000,000 shares,
4,419,900 (1997, 4,987,780) shares issued and
outstanding, less at December 31, 1997, 804,880 shares
subject to repurchase .................................... 64 106 88
Additional paid in capital ................................ 62,821 104,032 90,357
Treasury stock, at cost, 2,513,739 (1997, 1,708,859) shares (27,696) (45,865) (29,921)
Cumulative translation adjustment ......................... 14 24 (154)
Accretion expense and related exchange movements .......... -- -- (2,474)
Accumulated deficit ....................................... (47,356) (78,423) (53,404)
------- ------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
................................................. $70,753 Lit. 117,165 Lit. 145,755
======= ======= =======
See Notes to Consolidated Financial Statements
43 F-4
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Consolidated Statements of Operations
December 31, 1998, 1997 and 1996
1998 1998 1997 1996
US$'000 Lire m. Lire m. Lire m.
Net sales .................................. $ 66,691 Lit. 110,441 Lit. 103,639 Lit. 96,806
Cost of sales .............................. (58,710) (97,223) (91,259) (84,165)
---------- ---------- ---------- ----------
7,981 13,218 12,380 12,641
Selling, general and administrative expenses (14,710) (24,360) (22,990) (21,430)
Research and development ................... (2,618) (4,336) (3,125) (1,177)
Impairment losses .......................... (1,623) (2,688) (4,001) (4,180)
Reorganization and impairment expenses ..... (2,453) (4,062) -- --
Rental income .............................. 91 150 477 1,483
---------- ---------- ---------- ----------
(13,332) (22,078) (17,259) (13,663)
Interest expense ........................... (3,013) (4,989) (4,493) (6,563)
Interest income ............................ 754 1,248 2,403 3,747
Other income, net .......................... 86 143 2,007 1,452
Loss before income taxes and
minority interests ........................ (15,505) (25,676) (17,342) (14,027)
Income taxes ............................... (411) (680) (457) (595)
Minority interests ......................... 1,715 2,840 1,041 (379)
Amortization of premium for redemption
of preferred stock of subsidiary ........... (908) (1,503) (3,595) --
Charge for issuance of warrants ............ -- -- (2,124) --
---------- ---------- ---------- ----------
Net loss ................................... $ (15,109) Lit. (25,019) Lit. (22,477) Lit. (15,001)
========== ========== ========== ==========
LOSS PER SHARE: US$ Lire Lire Lire
Basic and diluted .......................... $ (3.30) Lit. (5,458) Lit. (4,886) Lit. (3,268)
========== ========== ========== ==========
Weighted average number of common shares
outstanding during the year ..............
========== ========== ========== ==========
Basic ...................................... 4,584,237 4,584,237 4,600,285 4,590,539
========== ========== ========== ==========
Diluted .................................... 4,696,922 4,696,922 4,704,003 4,590,539
========== ========== ========== ==========
See Notes to Consolidated Financial Statements
44 F-5
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity
December 31, 1998, 1997 and 1996
SHARE-
Additional Cumulative Accretion HOLDERS
Common Paid-in Accumulated Treasury Translation Expense, EQUITY
Stock Capital Deficit Stock Adjustment net (DEFICIT)
At January 1,1996 ........................Lit.m 6,744 71,332 (15,926) (11,711) 711 186 51,221
Net loss ................................. -- -- (15,001) -- -- -- (15,001)
Translation adjustment ................... -- -- -- -- 1,143 -- 1,143
Issuance of shares ....................... 44 427 -- -- -- -- 471
Change of par value to $0.01 per share ... (6,717) 6,717 -- -- -- -- --
Repurchase of shares ..................... -- 607 -- (15,585) -- 43 (14,935)
Reclassify shares subject to repurchase .. (2) (1,938) -- -- -- -- (1,940)
Accretion expense, net of foreign exchange -- -- -- -- -- (129) (129)
-------- -------- -------- -------- -------- -------- --------
At December 31, 1996 .....................Lit.m 69 77,145 (30,927) (27,411) 1,854 100 20,830
Net loss ................................. -- -- (22,477) -- -- -- (22,477)
Translation adjustment ................... -- -- -- -- (2,008) -- (2,008)
Reclassify shares subject to repurchase .. (2) (1,608) -- -- -- -- (1,610)
Repurchase of shares ..................... 2 2,459 -- (2,510) -- 49 --
Issuance of shares ....................... 19 10,237 -- -- -- -- 10,256
Issuance of warrants ..................... -- 2,124 -- -- -- -- 2,124
Accretion expense, net of foreign exchange -- -- -- -- -- (2,623) (2,623)
-------- -------- -------- -------- -------- -------- --------
At December 31, 1997 .....................Lit.m 88 90,357 (53,404) (29,921) (154) (2,474) 4,492
Net loss ................................. -- -- (25,019) -- -- -- (25,019)
Translation adjustment ................... -- -- -- -- 178 -- 178
Accretion expense, net of foreign exchange -- -- -- -- -- (253) (253)
Repurchase of shares ..................... 14 13,203 -- (15,944) -- 2,727 --
Issuance of shares ....................... 4 1,680 -- -- -- -- 1,684
Less: shares not vested .................. -- (1,208) -- -- -- -- (1,208)
-------- -------- -------- -------- -------- -------- --------
At December 31, 1998 .....................Lit.m 106 104,032 (78,423) (45,865) 24 -- (20,126)
======== ======== ======== ======== ======== ======== ========
At December 31, 1998 .....................$'000 64 62,821 (47,356) (27,696) 14 -- (12,153)
======== ======== ======== ======== ======== ======== ========
Shares Comprehensive
Subject to income/
Repurchase (loss)
At January 1,1996 ........................Lit.m 12,549 --
Net loss ................................. -- (15,001)
Translation adjustment ................... -- 1,143
Issuance of shares ....................... --
Change of par value to $0.01 per share ... --
Repurchase of shares ..................... (650)
Reclassify shares subject to repurchase .. 1,940
Accretion expense, net of foreign exchange 129 (129)
----------------------
At December 31, 1996 .....................Lit.m 13,968 (13,987)
Net loss ................................. -- (22,477)
Translation adjustment ................... -- (2,008)
Reclassify shares subject to repurchase .. 1,610
Repurchase of shares ..................... (2,510)
Issuance of shares ....................... --
Issuance of warrants ..................... --
Accretion expense, net of foreign exchange 2,623
----------------------
At December 31, 1997 .....................Lit.m 15,691 (27,108)
Net loss ................................. -- (25,019)
Translation adjustment ................... -- 178
Accretion expense, net of foreign exchange 253 (253)
Repurchase of shares ..................... (15,944)
Issuance of shares ....................... --
Less: shares not vested .................. --
----------------------
At December 31, 1998 .....................Lit.m -- (25,094)
======================
At December 31, 1998 .....................$'000 --
======================
45 F-6
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1998, 1997 and 1996
1998 1998 1997 1996
US$'000 Lire m. Lire m. Lire m.
Net loss .......................................... $(15,109) Lit.(25,019) Lit.(22,477) Lit.(15,001)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization .................... 2,405 3,983 3,457 2,811
Gain on sales of operating assets ................ (125) (207) (472) (1,122)
Minority interests in net income (loss,) ......... (1,715) (2,840) (1,041) 379
Reserves for termination indemnities ............. 688 1,140 1,326 1,264
Payments of termination indemnities .............. (891) (1,476) (438) (1,435)
Reserves for impairment losses ................... 1,623 2,688 4,001 4,180
Reserves for inventory and receivables ........... 1,924 3,186 3,243 222
Issuance of warrants ............................. -- -- 2,124 --
Amortization of preferred stock redemption ....... 908 1,503 3,595 --
Other operating activities ....................... 50 82 (1,094) (1,187)
Changes in operating assets and liabilities:
Receipt of tar receivables ....................... -- -- 956 6,245
Trade and other receivables ...................... (338) (560) 11,531 (4,835)
Related party receivables ........................ 925 1,531 (5,363) 2,714
Inventories ...................................... (678) (1,122) (12,558) (1,862)
Prepaid expenses ................................. (304) (503) 480 (129)
Accounts payable and accrued expenses ............ 2,456 4,067 5,036 2,103
Related party payables ........................... -- -- -- (492)
-------- ------- ------- -------
Net cash used in operating activities ............. (8,181) (13,547) (7,694) (6,145)
-------- ------- ------- -------
Investing activities:
Net decrease/(increase) in investments ........... 10,328 17,103 (4,025) 2,007
Sale of subsidiaries, net of cash disposed ....... -- -- 5,467 --
Proceeds on disposal of operating assets ......... 351 581 604 4,183
Purchases of property, plant and equipment ....... (4,028) (6,671) (4,406) (6,895)
-------- ------- ------- -------
Net cash provided by/(used in) investing activities 6,651 11,013 (2,360) (150)
Financing activities:
Net increase in advances from banks .............. 208 345 3,640 2,624
Proceeds from share issues ....................... -- -- 13,189 5,101
Repurchase of shares ............................. (9,409) (15,582) (2,510) (11,995)
Loans from related parties ....................... 3,867 6,404 -- --
Proceeds from long-term debt ..................... 6,272 10,386 296 1,581
Principal payments of long-term debt ............. (3,563) (5,900) (2,578) (6,718)
-------- ------- ------- -------
Net cash (used in)/provided by financing activities (2,625) (4,347) 12,037 (9,407)
-------- ------- ------- -------
(Decrease)/increase in cash and cash equivalents .. (4,155) (6,881) 1,983 (15,702)
Effect of exchange rate changes on cash
and cash equivalents ............................. (54) (90) 143 (154)
Cash and cash equivalents, beginning of year ...... 6,284 10,407 8,281 24,137
-------- ------- ------- -------
Cash and cash equivalents, end of year ............ $2,075 Lit. 3,436 Lit. 10,407 Lit. 8,281
======== ======= ======= =======
See Notes to consolidated Financial Statements
46 F-7
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Consolidated Statements of Cash Flows
December 31, 1998, 1997 and 1996
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES
1998
In 1998, as described in Note 16, 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.
476 million has been 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. See Note 5.
As an inducement for Tamarix to acquire the Company's shares from the largest
shareholder, the Company issued to the Manager of Tamarix 1,250,000 warrants
valued at Lit. 2,124 million. See Note 1.
Fixed assets for Lit. 760 million were acquired in 1997 by way of finance
leases, assuming lease obligations of Lit. 570 million, net of initial payments
at the inception of the leases.
1996
In October, 1996, the Company issued promissory notes of $1,863,000 (Lit. 2,851
million at such date) in connection with its share repurchase program -- see
Note 4. The Company also assigned a receivable of Lit. 763 million as a part of
the consideration for repurchase of shares from Finprogetti, also discussed in
Note 4.
The Company sold its 66.7% interest in Immobiliare Broseta S.r.l., receiving
promissory notes amounting to Lit. 4,708 million, net of present value
adjustments. As a result of this disposal, real estate loans of Lit. 5,049
million, real estate of Lit. 12,200 million and minority interests of Lit. 2,354
million were eliminated from the balance sheet. Cash disposed of amounted to
Lit. 22 million. See Note 5.
The Company issued 30,000 shares of its common stock with a value of Lit. 471
million to effect the acquisition of 100% of the outstanding stock of Moto
America Inc. Cash acquired amounted to Lit. 577 million. See Note 5.
Fixed assets for Lit. 1,830 million were acquired in 1996 by way of finance
leases, assuming lease obligations of Lit. 1,573 million, net of initial
payments at the inception of the leases.
OTHER SUPPLEMENTAL INFORMATION
Interest paid amounted to Lit. 4,622 million, Lit. 4,650 million and Lit. 6,721
million in 1998, 1997 and 1996, respectively.
See Notes to Consolidated Financial Statements
47
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31,1998
1. BACKGROUND AND ORGANIZATION
Activities
Trident Rowan Group, Inc. is a holding company incorporated in the United States
which owns subsidiaries that operate primarily in Italy. Trident Rowan Group,
Inc. and subsidiaries are referred to herein as the Company. The Company
primarily operates in two industry segments: the manufacture and distribution of
"Moto Guzzi(R)" 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 provides temporary management
services to third parties and to its steel tube entity and holds, for
development and sale, residual commercial real estate property. Information on
the Company's operations by segment and geographic area are included in Notes 18
and 19 to the Financial Statements.
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. Subsequent to this merger, the Company, through an
84%-owned subsidiary, owns approximately 61% of the common stock of the merged
company, Moto Guzzi Corporation, which is publicly traded in the United States
on the over-the-counter market. See Note 23 - Subsequent Events.
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 will be purchased
by Gianni Bulgari and the other 317,500 shares by Tamarix.
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 $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
48
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
1. BACKGROUND AND ORGANIZATION (CONTINUED)
1997 Change of control (Continued)
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 $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 $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 16.
The Company estimated the fair value of the warrants issued to Centaurus
Management Ltd., the manager of Tamarix Investors LDC, as an inducement to
acquiring Finprogetti S.p.A.'s shares of the Company's common stock, at $1 per
warrant. The Company accounted for the issuance of the warrants by crediting
additional paid-in capital in the amount of $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.
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 $5.50 and their duration was extended by two
years. See Note 12. See also Note 16 for a summary of the potential dilutive
effects of these warrants.
In March 1999, in connection with an internal restructuring, in which former
equity interest owners of Tamarix relinquished their interests, Tamarix
transferred 571,429 shares of the Company's common stock to Mr. Gianni Bulgari
and 63,492 shares to Mr. Emanuel Arbib. Tamarix retained ownership of 365,079
shares. Mr. Bulgari also assumed one-half of Tamarix's obligation to purchase
635,000 shares from Finprogetti pursuant to the 1997 Finprogetti/Tamarix
agreement. Tamarix and Messrs. Bulgari and Arbib report that they continue to
act as a group with respect to all of the shares of the Company's common stock
they each own.
Going concern
The Company, including its primary operating motorcycle business, Moto Guzzi,
has suffered recurring losses from operations and negative cash flows during the
last three years. In March 1999, the Company merged its Moto Guzzi business into
North Atlantic Acquisition Corp., a shell company, raising approximately US$ 8
million for the Moto Guzzi business. Subsequent to this merger, the Company,
though an 84% owned subsidiary, owns approximately 61% of the stock of the
merged company, Moto Guzzi Corporation, which is
49
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
1. BACKGROUND AND ORGANIZATION (CONTINUED)
publicly traded in the United States on the over-the-counter market. See Note 23
- - Subsequent Events. The financing raised by Moto Guzzi in this transaction,
however, is not sufficient to fund its operations and cash flow needs through
1999 and Moto Guzzi is actively seeking further financing. As discussed in Note
11, Moto Guzzi is also not in compliance with certain covenants related to a
Lit. 10,000 million credit facility which facility has been classified as a
current liability in the accompanying consolidated balance sheet. The Company is
in negotiations with the lender to define revised terms of this loan. There can
be no assurance that such negotiations will conclude on terms satisfactory to
the Company.
Excluding any requirement to repay this Lit. 10,000 million loan facility on
demand, management estimates that Moto Guzzi's financing requirements through
the end of the first quarter of 2000 will be approximately Lit. 10,000 to Lit
12,000 million and that a substantial part of this amount will be required
before the end of the third quarter of 1999. Furthermore, the Company is seeking
to realize liquidity from certain non-strategic assets in order to meet its
commitments, other than those of Moto Guzzi. At the date of these financial
statements, the Company has sufficient liquidity to meet such other commitments
through available cash and expected further realizations, except for full and
timely repayment of U.S. $2,000,000 and Lit. 3,000 million bridge loans provided
by Tamarix Investors LDC and Mr. Bulgari in October 1998 (see Note 12 below)
which became due in accordance with their terms on March 5, 1999 and March 31,
1999, respectively. The Company repaid Mr. Bulgari's loan in May 1999 and has
obtained an extension of the Tamarix loan until June 30, 1999. The Company
expects to pay a portion of the loan during May.
Available cash and expected realization of non-strategic assets are not expected
to be sufficient, however, to provide a significant part of financial support
required by the Moto Guzzi business. If revised terms of existing financing as
well as additional financing are not obtained in timely fashion, the Moto Guzzi
creditors may look to the Company to satisfy these obligations. As the Company
does not have the resources available to finance its consolidated obligations,
there is substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might be necessary
should the Company be unable to continue as a going concern.
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.
50
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
1. BACKGROUND AND ORGANIZATION (CONTINUED)
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.
Reporting currency
The primary financial statements are shown in Italian Lire because all of the
Company's material operating entities are based and operate entirely in Italy.
Translation of lire 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. 1,656 to $1.00, the approximate exchange rate at December
31, 1998. 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 Lire 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 lire 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.
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
51
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 products are recorded upon shipment, which is when title
passes.
Research and development
The Company's motorcycle business is continuously engaged in company-sponsored
programs of product improvement and development. Other businesses do not conduct
research and development activities. Research and development costs are expensed
as they are incurred.
Inventories
Inventories are stated at the lower of cost or market with cost being determined
principally by the last-in, first-out (LIFO) method applying average cost of the
year to increases in inventory quantities. If inventories had been determined by
the lower of cost or market value using the first-in, first-out (FIFO) method,
which approximates current cost, inventories would have been greater by
approximately Lit. 3,000 million in 1998 and 1997.
Long-lived assets
The Company adopted Financial Accounting Standards Board (FASB) Statement No.
121, "Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed of" in 1996. This statement requires impairment losses to
be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amounts and also addresses
the accounting for long-lived assets that are expected to be disposed of. The
effect of the initial adoption of FASB Statement No. 121 in 1996 was not
material. Subsequent to its adoption, the Company has recorded impairment losses
against the carrying values of long-lived real estate assets -- see Notes 6 and
7.
52
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company continually reviews the carrying value of long-lived assets and
long-lived assets to be disposed of In determining the undiscounted 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.
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, which last through 2041, were
being 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 and investments
Marketable and other securities and investments consist primarily of fixed
income investments which cannot be readily sold using established markets.
Marketable securities as of December 31, 1998 and 1997 are held-to-maturity and
are represented by Italian government-backed securities. Such securities are
carried at cost plus accrued interest.
Termination indemnities
All employees of the Company's Italian subsidiaries are entitled to receive
severance pay in accordance with the terms of applicable national labor law and
contracts. The liability for severance pay is accrued for service to date and is
payable immediately on termination. The liability is calculated in accordance
with the individual employee's length of service, employment category and
compensation and is adjusted annually by a cost of living index provided by the
Italian Government. There is no vesting period or funding requirement associated
with the liability. The liability recorded in the consolidated balance sheets is
the amount that the employee would be entitled to if the employee separates from
the Company immediately.
53
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
2. SIGNIFICANT ACCOUNTING POLICIES (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 loss per common share
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings per Share" ("SFAS No. 128"). SFAS No. 128 replaced the calculation of
primary and diluted earnings per share with basic and diluted earnings per
share. Basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share gives effect to
all potentially dilutive common shares that were outstanding during the period.
All loss per share amounts for all periods have been presented to conform to
SFAS No. 128 requirements. As the Company has incurred losses in each of the
years 1996 to 1998, 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 decrease/(increase) 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.
Reclassifications
Comparative figures for 1997 and 1996 have been reclassified to conform with the
1998 presentation.
3. SHARES SUBJECT TO REPURCHASE - PRO FORMA 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, 1997 and 1996, 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 1998 1997 1996
US$'000 Lire m. Lire m. Lire m.
Net loss ..................... (15,346) (25,412) (23,555) (15,855)
======= ======= ======= =======
Net loss per share ........... (3.67) (6,077) (6,206) (4,238)
======= ======= ======= =======
All shares subject to repurchase commitments were repurchased in 1998.
54
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
4. REPURCHASE OF SHARES AND SHARES SUBJECT TO REPURCHASE
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 closing date of Lit.
1,637. Prior to the closing of that transaction, Mr. De Tomaso had conveyed such
shares, subject to the De Tomaso 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 arrangements described below under "1996 commitment to repurchase
shares from Finprogetti".
1997 share repurchases
As described in Note 5, the Company repurchased 120,000 shares as of December
31, 1997 in connection with the sale of its Cologne, Italy, real estate. In
1997, the Company also repurchased 44,760 shares for Lit. 900 million pursuant
to arrangements described below under "1996 commitment to repurchase shares from
Finprogetti".
1996 Stock Repurchase Program
The Company completed a stock repurchase program on October 23, 1996. Two
mutually exclusive alternative offers were made to shareholders. The first offer
was to purchase up to 80% of a shareholder's common stock for a combination of
cash and non-negotiable promissory notes having a face value aggregating $12.26
per share ("the 80% offer") and the second offer was to purchase up to 50% of a
shareholder's common stock for $12.26 cash (the "50% offer"). Of the 4,742,865
issued shares of the
55
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
4. REPURCHASE OF SHARES AND SHARES SUBJECT TO REPURCHASE (CONTINUED)
Company at the date of the repurchase program, shareholders representing
3,167,010 shares (66.8%) had agreed in advance not to participate.
Of the remaining 1,575,855 shares, 506,359 were tendered under the 80% offer and
255,636 under the 50% offer, all of which were accepted by the Company. On
consummation of the transaction, the Company repurchased 761,995 shares for a
total amount of $7,478,658 (Lit. 11,345 million at the approximate exchange rate
on October 23, 1996 of Lire 1,517 to $1.00) in cash and $1,863,401 (Lit. 2,827
million at the exchange rate then prevailing) in the form of non-negotiable
promissory notes, bearing interest at 8% per annum, maturing on October 23,
1998.
1996 commitment to repurchase shares from Finprogetti
On November 7, 1996, the Company entered into an agreement with Finprogetti
S.p.A. to resolve certain open matters deriving from the acquisition of the
majority of Finprogetti's operating subsidiaries in July 1995 (the "Finprogetti
Acquisition") -- See Note 5. A balance due by Finprogetti of Lit. 763 million
was settled by the Company repurchasing 46,000 shares at a value of Lit. 16,587
per share ($10.89 per share). Finprogetti also agreed to accept responsibility
for a claim which was successfully brought against one of the subsidiaries
acquired in the Finprogetti Acquisition for Lit. 2,120 million. In accordance
with the terms of its agreement with Finprogetti, the Company would have paid
such claim and received in compensation 105,440 of the shares issued to
Finprogetti in July 1995. The Company and Finprogetti agreed that Finprogetti
would assume the responsibility for payments resulting from the claim, which
were payable in installments through June 1998, and that the Company would, on
the request of Finprogetti, repurchase shares for cash at the dates and in the
amounts of each installment payment.
The Company reclassified the 105,440 shares subject to repurchase outside of
shareholders' equity in the amount of the present value of the amounts payable
under the repurchase commitment applying a discount rate of 10%. The resulting
value of the 105,440 shares subject to repurchase was Lit. 1,940 million or Lit.
18,399 per share ($12.08 per share). Immediately following the agreement,
Finprogetti requested that the Company repurchase 9,950 shares for Lit. 200
million in respect of the first installment and on December 31, 1996 requested
that a further 22,380 shares be repurchased for Lit. 450 million. Finprogetti
further requested on each of June 30, 1997 and December 31, 1997 that 22,380
shares be repurchased for Lit. 450 million and that the residual 28,350 shares
be purchased on June 30, 1998 for Lit. 570 million.
5. ACQUISITIONS AND DISPOSALS
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. resulting from the 1996
disposal of Immobiliare Broseta S.r.l. (See below).
56
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
5. ACQUISITIONS AND DISPOSALS (CONTINUED)
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. The Company received Lit. 1,100 million in installment
payments from the sale of apartments in 1998.
The Company estimates that the aggregate of the consideration received and to be
received will at least equal the aggregate carrying value of Lit. 6,238 million
of the 25% interest in Domer S.r.l. and the loan notes due by Domer S.r.l. No
gain has been recorded in respect of this transaction in the financial
statements as at December 31, 1998 and the amounts due are shown in `Other
receivables' at the aggregate book value of the assets disposed less the
proceeds received.
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 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 ($960,000). At December 31, 1997, the purchaser exercised their option
to settle the final instalment by way of delivery of such 120,000 shares.
1996/7 sale of motorcycle subsidiary securities
In October 1996, the Company's newly formed wholly-owned subsidiary, Moto Guzzi
Corp., 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 $5,250,000 (Lit. 8,034
million at the then prevailing exchange rates) for Moto Guzzi Corp., net of
expenses.
57
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
5. ACQUISITIONS AND DISPOSALS (CONTINUED)
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
which raised gross proceeds of at least $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.
1996 acquisition of Moto America Inc.
Effective January 1, 1996, the Company completed its acquisition of the
outstanding shares of Moto America Inc., the sole distributor of Moto Guzzi
motorcycles in the United States. The acquisition was consummated by the
issuance of 30,000 shares of common stock of the Company and the purchase price
of Lit. 471 million reflects the shares issued at a fair value of $10.00 per
share (Lit. 15,710 per share at such date). The acquisition has been accounted
for as a purchase and the excess of the purchase consideration over the fair
value of assets acquired has been accounted for as goodwill, determined in the
amount of Lit. 262 million, which is being amortized over 5 years. The effects
of the acquisition are not material to the operations of the Company.
1996 disposal of Immobiliare Broseta S.r.l.
In June 1996, the Company sold its 66.7% equity interest in Immobiliare Broseta
S.r.l. to its 25% owned affiliate Domer S.r.l. The remaining 33.3% equity
interest in Immobiliare Broseta S.r.l. was owned by Interim S.p.A., a subsidiary
of Domer S.r.l. and was subsequently transferred to Domer S.r.l. The Company had
sought offers from third parties through an independent broker and the sale
price of Lit. 5,200 million
58
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
5. ACQUISITIONS AND DISPOSALS (CONTINUED)
offered by Domer S.r.l. was the highest of the offers received. Lit. 1,800
million of the sale price was evidenced by a promissory note of Domer S.r.l. due
December 31, 1996 (subsequently renewed until December 31,1997), bearing an
interest rate equal to the official Lire discount rate plus 3%. The balance of
Lit. 3,400 million was to have been received pro-rata from the sales of
apartments which are being developed from the Immobiliare Broseta S.r.l.
property 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. In December 1997, as described above, the Company disposed of both
its 25% interest in Domer S.r.l. and the two loan notes resulting from sale of
its 66.7% interest in Immobiliare Broseta S.r.l.
6. LAND FOR DEVELOPMENT
Undeveloped land represents 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.
7. CONCESSION RIGHTS
The concession rights expire in February, 2041 and are being amortized on a
straight-line basis over 40 years. The Company negotiated a sale of these rights
in April 1999 and has 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. 6,125
million was received in February 1999.
9. ADVANCES FROM BANKS AND CREDIT ARRANGEMENTS
The operating subsidiaries of the Company have lines of credit arrangements with
a number of Italian banks. Under these, the Company, at December 31, 1998, could
have borrowed up to approximately Lit. 52,000
59
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
9. ADVANCES FROM BANKS AND CREDIT ARRANGEMENTS (CONTINUED)
million. The line of credit arrangements do not have termination dates and are
periodically reviewed. The average interest rate on advances from banks was
approximately 6.5% and 8.25% at December 31, 1998 and 1997, respectively.
10. ACCRUED EXPENSES AND OTHER PAYABLES
1998 1998 1997
Salaries, wages and related items .......... 2,948 4,882 4,788
Warranty reserves .......................... 725 1,200 300
Value added and other non income taxes ..... 283 469 804
Other accrued expenses ..................... 1,911 3,164 4,133
----- ----- -----
5,867 9,715 10,025
===== ===== ======
11. LONG-TERM DEBT
1998 1998 1997
US$'000 Lire m. Lire m.
Mortgage note payable, secured by substantially all
fixed assets of motorcycle operations. Interest 10.08%,
payable in semi-annual installments through 2001 .......... 1,268 2,100 3,149
Mortgage note payable, secured by second mortgage over
real estate of motorcycle business. Interest 6%
payable in annual installments from 2000 to 2007 (See Note) 6,039 10,000 --
Notes payables,
Interest 12.40%, payable in semi-annual
installments through 2001 ............................... 1,005 1,665 2,121
Interest 12.36%, payable in semi-annual
installments through 1999 ............................... 368 610 1,153
Industry Ministry L. 46/82, 1.9875% through 2002 and 7.95%
thereafter, payable in installments commencing from 2002 .. 530 878 878
Unsecured loan note denominated in US$, interest 8%,
payable on October 23, 1998 ............................... -- -- 3,296
Mortgage note secured by property of Moto America
Inc., interest 8.25%, payable monthly through 2011 ........ 222 368 409
Finance leases ............................................ 811 1,343 1,817
Sundry notes payable ...................................... 352 581 330
------- ------- -------
10,595 17,545 13,153
Less current portion ...................................... (8,024) (13,288) (6,009)
------- ------- -------
2,571 4,257 7,144
======= ======= =======
60 F-21
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
11. LONG-TERM DEBT (CONTINUED)
In February 1998, Moto Guzzi S.p.A. obtained a Lit. 10,000 million 10 year
credit facility, drawn down in April 1998, with principal repayments commencing
from the third year. The terms of the loan include covenants relating to the
share capital and equity (according to local Italian accounting principles) of
Moto Guzzi S.p.A. as at December 31, 1998. Due to the losses in 1998 and delays
in closing the merger with North Atlantic Acquisition Corp., Moto Guzzi S.p.A.
is not in compliance with these covenants, the consequence of which is that the
lender can request immediate repayment of the loan. The loan has been classified
as a current liability in the consolidated balance sheet as at December 31,
1998. The Company has advised the lender of the non compliance and is in
discussions to renegotiate the terms of the loan. No assurance can be given that
these negotiations will successfully conclude on terms satisfactory to the
Company.
Maturities of long-term debt as of December 31, 1998:
US$'000 Lire m.
1999 ...................................................... 8,024 13,288
2000 ...................................................... 1,232 2,041
2001 ...................................................... 543 900
2002 ...................................................... 130 216
2003 ...................................................... 53 87
Subsequent to 2003 ........................................ 613 1,013
------ ------
10,595 17,545
====== ======
12. LOANS DUE TO RELATED PARTIES
On October 1, 1998, two bridge loans were made by Tamarix and by Mr. Bulgari to
provide finances to Moto Guzzi in anticipation of the consummation of the merger
with North Atlantic Acquisition Corp. (See Notes 1 and 22). The loans are of
Lit. 3,000 million and US$ 2,000,000 (Lit. 3,312 million) and bear interest at
10% and a flat commission of 1%. Each loan was secured by 500,000 common shares
of Moto Guzzi Corp. (now 207,337 shares, 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 $4.00 on October 1, 1998 when the loans were
made. The Company sought similar financing from third parties and the terms and
conditions above were more favorable than any expressions of interest by third
parties.
The Lit. 3,000 million loan was repayable on March 31, 1999, and was extended to
April 30, 1999. The US$ 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. The Company has repaid the loan from Mr. Bulgari and has obtained
an extension on the Tamarix loan until June 30, 1999. See Note 1.
61 F-22
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
13. OTHER INCOME
Other income includes currency exchange gains and losses, gains and losses on
disposal of assets and miscellaneous items. There were no significant items in
1998. In 1997, the principal element of other income was favorable exchange
gains which aggregated Lit. 1,984 million, principally relating 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. In 1996, the
principal components of other income were exchange losses of Lit. 848 million,
gains on sale of surplus properties in the U.S. and other assets of Lit. 1,211
million and a government grant of Lit. 450 million.
14. REORGANIZATION AND IMPAIRMENT EXPENSES
In April 1998, Moto Guzzi entered into an agreement with Philips S.p.A. for the
purchase by Moto Guzzi of the Philips Vision Industries' plant in Monza, Italy.
The agreement, which was subject to the fulfilment of certain conditions
including the assent of certain labor unions, expired in accordance with its
terms in June 1998, though the parties continued discussions through August
1998. In September 1998, Moto Guzzi terminated the discussions as agreement with
labor unions had not been obtained and the delays in closing meant that
logistics for transferring activities were no longer favorable. Also in
September 1998, the employment contract of Oscar Cecchinato, the managing
director of Moto Guzzi was terminated.
Following these events, the Company reviewed its short-term strategies and
product plans, taking into consideration certain proposed products whose
introduction into production was connected with the potential new factory and
also other new products slated to be introduced in 1999 to replace existing
models. Pursuant to this review, the Company recorded Lit. 1,852 million of
reorganization costs in the third quarter of 1998. Following unanticipated
delays in the closing of the Moto Guzzi Corp. merger eventually consummated in
March 1999 (See Note 23 "Subsequent Events") management further reviewed its
short-term strategies and product plans and recorded an additional Lit. 2,210
million of reorganization charges in the last quarter of 1998. The
reorganization charges aggregating Lit. 4,062 million, principally relate to
write-offs of tooling (Lit. 1,063 million) and inventory (Lit. 2,463 million) of
models which the Company no longer intends to produce in 1999 and costs directly
connected with the proposed move of the Company's plant (Lit. 315 million).
There are no reserves for future expenses included in the charge for
reorganization expense.
15. INCOME TAXES
Loss before income taxes and minority interests consisted of the following:
62 F-23
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
15. INCOME TAXES (CONTINUED)
1999 1998 1997 1996
US$'000 Lire m. Lire m. Lire m.
United States ...... (3,085) (5,108) (5,264) (6,589)
Italy .............. (12,420) (20,568) (12,078) (7,438)
------- ------- ------- ------
(15,505) (25,676) (17,342) (14,027)
======= ======= ======= =======
The provision for income taxes consisted of the following:
1998 1998 1997 1996
US$'000 Lire m. Lire m. Lire m.
Current:
United States ........... 9 15 40 22
Italy ................... 402 655 417 573
--- --- --- ---
411 680 457 595
=== === === ===
Deferred: .................. -- -- -- --
=== === === ===
--- --- --- ---
Total ...................... 411 680 457 595
=== === === ===
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:
1998 1998 1997
US$'000 Lire m. Lire m.
Short-term reserves .................. 3,236 5,359 3,196
Carrying value of fixed assets ....... 2,339 3,874 2,947
Net operating loss carryforwards ..... 7,520 12,453 8,620
Other ................................ 1,423 2,357 1,997
------- ------- -------
14,518 24,043 16,761
Valuation allowance .................. (14,518) (24,043) (16,761)
------- ------- -------
Net deferred tax assets .............. -- -- --
======= ======= =======
63 F-24
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
15. INCOME TAXES (CONTINUED)
The effective provision for income taxes varied from the income tax credit
calculated at the statutory U.S. federal income tax rate as follows:
1998 1998 1997 1996
US$'000 Lire m. Lire m. Lire m.
Computed tax credit at U.S. federal rate ........... (5,426) (8,987) (6,070) (4,910)
Losses and reversals of short-term reserves
for which valuation allowance provided ............. 5,703 9,444 6,512 6,125
Utilization of tax losses .......................... (165) (273) (427) (1,441)
Elimination of intercompany profits ................ 77 129 133 326
Non-deductible expenses and local taxes ............ 222 367 309 495
------ ------ ------ ------
411 680 457 595
====== ====== ====== ======
For U.S. federal income tax purposes, the Company has net operating loss
carryforwards of approximately U.S. $9 million at December 31, 1998. These
losses expire from 2003 through 2012. United States income taxes have not been
provided on unremitted earnings of subsidiaries located outside the United
States as such earnings are considered to be permanently reinvested.
Approximately Lit. 4,800 million of retained earnings of Italian subsidiaries
cannot be distributed under local laws.
At December 31, 1998 the Company had net operating loss carryforwards for
Italian federal income tax purposes which expire as follows:
1998 1998
US$'000 Lire m.
1999 ............................................. 2,306 3,818
2000 ............................................. 190 314
2001 ............................................. 5 8
2002 ............................................. 2,083 3,450
2003 ............................................. 7,691 12,737
------ ------
12,275 20,327
====== ======
16. SHARES ISSUED IN CONNECTION WITH EMPLOYMENT AGREEMENTS AND STOCK OPTIONS
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 stock as of the date of the
agreements of $4.06 per share and will be charged to compensation expense over
64 F-25
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
16. SHARES ISSUED IN CONNECTION WITH EMPLOYMENT AGREEMENTS AND STOCK OPTIONS
(CONTINUED)
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.
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 "Non Qualified Plan" for officers and key executives.
The Company's "1995 Non-Qualified Plan" stock option 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 exchanged in 1998, as described above. Outstanding options
under "1995 Non-Qualified Plan" can be exercised as follows:
Exercisable Exercisable
at $12.26 at $5.00
Currently exercisable ............................ 73,500 377,000
1999 ............................................. 4,500 155,000
2000 ............................................. 4,500 --
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 and a further
40,000 options were granted on January 2, 1998 at an exercise price of $4.875
and 25,000 on January 2, 1999 at an exercise price of $5.4375.
Additionally, 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 a price of $6.00 to
certain shareholder's 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 described in Notes 1 and 12, 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.
65 F-26
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
16. SHARES ISSUED IN CONNECTION WITH EMPLOYMENT AGREEMENTS AND STOCK OPTIONS
(CONTINUED)
As the Company incurred losses in 1996 to 1998, all warrants and options
described above are considered antidilutive. The potentially dilutive
effects of outstanding options and warrants in 1998 is summarized below:
Weighted average number of common shares
outstanding during the year
Basic ..................................................... 4,584,237
Shares subject to restricted vesting....................... 47,882
Non Qualified Plan options ................................ 39,712
Tamarix warrants .......................................... 19,839
GKN options and lock-up warrants .......................... --
1995 Director's Plan options .............................. 5,252
---------
Diluted ................................................... 4,696,922
---------
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. If the
Company had elected to recognize compensation cost based on the fair value of
awards at grant dates, the pro forma net loss and loss per share for 1998 would
have been Lit. 28,503 million ($17,211,000) and Lit. 6,218 ($3.75) per share,
respectively. Such Pro Forma loss includes Lit. 1,159 million ($700,000) in
respect of the Hauser, Arbib and Tamarix options issued in respect of employment
or consulting contracts, as described above. Proforma compensation costs under
the Company's stock option plans for 1997 based on the value of awards at the
grant date were not material. Pro forma net loss and loss per share for 1996
would have been Lit. 18,230 million and Lit. 3,971 per share.
The fair value of the Company's options at the date of grant is estimated based
on i) comparison of such options with the trading prices of its publicly traded
warrant; and ii) 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%. The
following is a summary of transactions pertaining to the Plans:
December 31, December 31, December 31,
-------------------- ------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
(000's) Price (000's) Price (000's) Price
------- ----- ------- ----- ------- -----
Outstanding, January 1 ......... 871 $12.16 1,003 $12.26 960 $12.26
Granted ........................ 637 4.99 18 7.45 43 12.26
Exercised ...................... -- -- -- -- -- --
Forfeited or exchanged ......... (835) 11.69 (150) 12.26 -- --
------ ------ ------ ------ ------ ------
Outstanding, December 31 ....... 673 $ 5.95 871 $12.16 1,003 $12.26
====== ====== ====== ====== ====== ======
Options exercisable, December 31 469 $ 6.23 389 $12.16 233 $12.26
====== ====== ====== ====== ====== ======
The following is a summary of the status of stock options outstanding and
exercisable under the Plans
66 F-27
TRIDENT ROWAN GROUP, INC. and SUBSiDiARIES
Notes to Consolidated Financial Statements
December 31, 1998
as of December 31, 1998:
16. SHARES ISSUED IN CONNECTION WITH EMPLOYMENT AGREEMENTS AND STOCK OPTIONS
(CONTINUED)
Stock Options
Stock Options Outstanding Exercisable
------------------------------------- --------------------
Weighted
Weighted Average Weighted
Average Remaining Average
Shares Exercise Contractual Shares Exercise
Range of Exercise Price (000's) Price Life (000's) Price
- ----------------------- ------- ----- ---- ------- -----
$12,26 82 $12.26 1.77 72 $12.26
$5.00 532 $5.00 3.25 377 $5.00
$4.875 - $7.95 59 $7.45 3.52 20 $7.45
--- ------ ---
673 $5.95 469 $6.23
=== ====== ===
17. RELATED PARTY TRANSACTIONS
Receivables from related parties and affiliates consists of the following:
1998 1998 1997
US$'000 Lire m. Lire m.
MGI Motorcycle GmbH ........................... 2,326 3,852 5,383
===== ===== =====
The amounts at December 31, 1998 and 1997 due from MGI Motorcycle GmbH, a 25%
owned entity acquired in 1997, resulted from the purchase of products and
services from the Company. Sales to MGI Motorcycle GmbH, consisting primarily of
motorcycles and parts were Lit. 12,715 million in 1998 and Lit. 14,410 million
in 1997.
Tamarix Capital Corporation / 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 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 commenced payment of a portion of the accrued compensation in
1999.
67 F-28
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
17. RELATED PARTY TRANSACTIONS (CONTINUED)
Emanuel Arbib
As described in Note 16, the Company entered into a 3 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 issue 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.
Deborah S. Novick
Deborah S. Novick, a Director of the Company since September 7, 1997 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 5). GKN Securities Corp. was
paid $1,368,000 in underwriting commissions and expenses in relation to these
transactions.
18. EXPORT SALES AND GEOGRAPHIC INFORMATION
Export sales
The Company's motorcycle business exports its products throughout the world.
Sales of motorcycles by geographic destination were as follows:
1998 1997 1996
Italy ................................ 37% 37% 37%
Europe other than Italy .............. 43% 46% 43%
United States ........................ 13% 13% 7%
Elsewhere ............................ 7% 4% 13%
Sales to Germany represented approximately 16.4% of motorcycle sales in 1998
(17.8% in 1997 and 19% in 1996). No other country represented over 10% of
motorcycle sales. The Company's other businesses do not have significant export
sales.
Transfers of products between geographical areas
Sales of motorcycles and parts from the Italian production facilities of the
Company's motorcycle business to its U.S. exclusive importer, Moto America Inc.,
amounted to Lit. 11,783 million in 1998 (1997 - Lit.
68 F-29
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
18. EXPORT SALES AND GEOGRAPHIC INFORMATION (CONTINUED)
10,631 million, 1996 - Lit. 5,800 million). Prior to 1996, Moto America Inc. was
an unaffiliated company. Sales to its French exclusive importer, Moto Guzzi
France Sarl, constituted in 1997, amounted to Lit. 8,604 million in 1998 (1997 -
Lit. 6,959 million). Sales prices are accounted for on a basis comparable to
those for non affiliated customers.
Identifiable assets
As of December 31, 1998 and 1997 all material operating subsidiaries of the
Company were located in Italy. The Company has assets in the United States
consisting of offices which deal with regulatory matters and its exclusive
importer of Moto Guzzi motorcycles in the United States and in France.
Identifiable assets outside of Italy are not significant to the Company.
69 F-30
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
19. INDUSTRY SEGMENT ANALYSIS
Management
1998 Motor- Steel & Corporate Real
Lire m. cycles Tubes Services Estate Eliminations Total
Sales ...................................... 104,147 23,193 4,115 -- (287) 131,168
Intrasegment sales ......................... (20,387) -- (340) -- -- (20,727)
------- ------- ------ ------ ------- -------
Net sales .................................. 83,760 23,193 3,775 -- (287) 110,441
Cost of sales .............................. (74,906) (19,870) (2,447) -- -- (97,223)
------- ------- ------ ------ ------- -------
8,854 3,323 1,328 -- (287) 13,218
Selling, general and administrative expenses (16,033) (2,274) (5,905) (398) 250 (24,360)
Research and development ................... (4,336) -- -- -- -- (4,336)
Impairment loss ............................ -- -- -- (2,688) -- (2,688)
Reorganization expense ..................... (4,062) -- -- -- -- (4,062)
Rental income .............................. -- -- -- 150 -- 150
------- ------- ------ ------ ------- -------
Operating profit/(loss) .................... (15,577) -- (4,577) (2,936) (37) (22,078)
======= ======= ====== ====== ======= =======
Management
1997 Motor- Steel & Corporate Real
Lire m. cycles Tubes Services Estate Eliminations Total
Sales ...................................... 98,578 20,480 3,633 -- (364) 122,327
Intrasegment sales ......................... (17,590) -- (1,098) -- -- (18,688)
------- ------- ------ ------ ------- -------
Net sales .................................. 80,988 20,480 2,535 -- (364) 103,639
Cost of sales .............................. (71,474) (18,215) (1,570) -- -- (91,259)
------- ------- ------ ------ ------- -------
9,514 2,265 965 -- (364) 12,380
Selling, general and administrative expenses (13,824) (1,470) (7,875) (276) 455 (22,990)
Research and development ................... (3,125) -- -- -- -- (3,125)
Impairment loss ............................ -- -- (4,001) -- -- (4,001)
Rental income .............................. -- -- -- 477 -- 477
------- ------- ------ ------ ------- -------
Operating profit/(loss) .................... (7,435) 795 (10,911) 201 91 (17,259)
======= ======= ====== ====== ======= =======
Management
1996 Motor- Steel & Corporate Real
Lire m. cycles Tubes Services Estate Eliminations Total
Sales ...................................... 91,986 17,313 3,517 -- (973) 111,843
Intrasegment sales ......................... (14,366) -- (671) -- -- (15,037)
------- ------- ------ ------ ------- -------
Net sales .................................. 77,620 17,313 2,846 -- (973) 96,806
Cost of sales .............................. (65,755) (16,105) (2,478) (103) 276 (84,165)
------- ------- ------ ------ ------- -------
11,865 1,208 368 (103) (697) 12,641
Selling, general and administrative expenses (10,210) (1,593) (10,760) (511) 1,644 (21,430)
Research and development ................... (1,177) -- -- -- -- (1,177)
Impairment loss ............................ -- -- -- (4,180) -- (4,180)
Rental income .............................. -- -- 43 1,440 -- 1,483
------- ------- ------ ------ ------- -------
Operating profit/(loss) .................... 478 (385) (10,349) (3,354) 947 (13,663)
======= ======= ====== ====== ======= =======
70 F-31
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
19. INDUSTRY SEGMENT ANALYSIS (CONTINUED)
Intrasegment sales represent sales of motorcycles and spare parts by the
Company's motorcycle production subsidiary to its US and French exclusive
importers. Intersegment sales represent management and corporate services.
Intrasegment and intersegment sales are accounted for at prices comparable to
unaffiliated customers.
Capital expenditure and depreciation expense
Capital expenditure and depreciation expense relate primarily to the Company's
motorcycle segment in 1998, 1997 and 1996.
Identifiable assets 1998 1998 1997 1996
US$'000 Lire m. Lire m. Lire m.
Motorcycles ............ 48,718 80,677 84,765 73,731
Steel tubing ........... 8,433 13,965 13,385 9,661
Real estate ............ 3,156 5,226 12,257 30,260
Corporate .............. 10,446 17,297 35,348 42,860
------- ------- ------- -------
70,753 1l7,165 145,755 156,512
======= ======= ======= =======
Identifiable assets for operating industry segments are those identifiable
assets used by those industry segments. There are no shared assets. Corporate
assets are represented by cash, investments, tax and other receivables and
financing of the operating industry segments.
20. CONCENTRATION OF CREDIT RISKS
Concentrations of credit risk with respect to trade accounts receivable are
limited due to the large number of entities in the customer base. Sales to
governmental bodies in Italy are significant as a whole, but no single
government body represents more than 10% of net sales.
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.
21. 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 and also entered into hedging operations in 1996 in respect of its
71 F-32
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
21. FINANCIAL INSTRUMENTS (CONTINUED)
planned redemption offer. 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.
22. 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.
23. SUBSEQUENT EVENTS
Merger of Moto Guzzi business with North Atlantic Acquisition Corp.
As a result of the merger of Moto Guzzi Corp. into North Atlantic Acquisition
Corp., which was consummated on March 5, 1999 pursuant to an Agreement dated
August 18, 1998, as amended December 3, 1998, all of the common stock and
preferred stock of Moto Guzzi Corp. was exchanged for newly issued shares of
common stock of North Atlantic. OAM, which had owned all of Moto Guzzi Corp.'s
common stock before the merger, also contributed a Lit. 13,362 million
intercompany loan it had made to Moto Guzzi Corp. for additional North Atlantic
common stock, and holders of Moto Guzzi Corp. warrants received additional
shares of North Atlantic common stock when submitting their warrants for
cancellation.
The aggregate ownership by the former Moto Guzzi Corp. security holders
immediately following the merger was approximately 75%, while the security
holders of the former North Atlantic retained an approximate 25% equity
ownership interest in Moto Guzzi Corporation.
72 F-33
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
23. SUBSEQUENT EVENTS (CONTINUED)
Approximately $8,000,000 in cash owned by North Atlantic, net of expenses of the
merger, became available for Moto Guzzi capital needs, of which approximately
$7,200,000 was used to pay supplier arrearages caused by Moto Guzzi's liquidity
shortage.
The transaction will be accounted for as a reverse acquisition of North Atlantic
by Moto Guzzi Corp. The Company will account for the transaction as a sale of
shares in its Moto Guzzi Corp. subsidiary and will record a gain in the income
statement in the first quarter of 1999 based on such sale. Management expects
that this gain will substantially, if not totally, eliminate the shareholder's
deficit of Lit. 20,126 million as at December 31, 1998.
Management believes that this transaction, which results in Moto Guzzi being a
separately traded public company, will enhance Moto Guzzi's ability to raise
further capital and that stock option incentives to Moto Guzzi management and
employees will provide further motivation to enhance the value of the Moto Guzzi
business.
73 F-34
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Schedule II - Valuation and Qualifying Accounts
- ------------------------------------------------------------------------------------------------------------
Col. A Col. B Col. C Col. D Col. E
- ------------------------------------------------------------------------------------------------------------
(1) (2)
Balance at Charged to Charged to Balance at
beginning costs and other end of
Description of period expenses accounts. Deductions period
- ------------------------------------------------------------------------------------------------------------
In millions of Italian Lire
Year ended December 31, 1998
Deducted from asset accounts:
Allowance for doubtful accounts .... 2,100 -- -- (63)(a) 2,037
Inventory obsolescence reserve ..... 6,799 600 -- -- 9,862
2,463(e)
Impairment losses for real estate .. 2,500 2,688 -- -- 5,188
------ ------ ----- ------ ------
11,399 5,751 -- (63) 17,087
====== ====== ===== ====== ======
Year ended December 31, 1997
Deducted from asset accounts:
Allowance for doubtful accounts .... 3,700 956 -- (2,556)(a) 2,100
Inventory obsolescence reserve ..... 5,301 2,400 -- (902)(b) 6,799
Impairment losses for real estate .. 3,680 -- -- (1,180)(d) 2,500
------ ------ ----- ------ ------
12,681 3,356 -- (4,638) 11,399
====== ====== ===== ====== ======
Year ended December 31, 1996
Deducted from asset accounts:
Allowance for doubtful accounts .... 3,468 708 -- (476)(a) 3,700
Inventory obsolescence reserve ..... 6,612 702 -- (2,013)(b) 5,301
Impairment losses for real estate .. -- 3,680 -- -- 3,680
------ ------ ----- ------ ------
10,080 5,090 -- (2,489) 12,681
====== ====== ===== ====== ======
Year ended December 31, 1995
Deducted from asset accounts:
Allowance for doubtful accounts ..... 571 19,433 2,464(c) -- 3,468
Inventory obsolescence reserve ...... 5,451 1,772 -- (611)(b) 6,612
------ ------ ----- ------ ------
6,022 21,205 2,464 (611) 10,080
====== ====== ===== ====== ======
In thousands of US Dollars
Year ended December 31, 1998
Deducted from asset accounts:
Allowance for doubtful accounts ..... 2,100 -- -- -- 2,100
Inventory obsolescence reserve ...... 6,799 600 -- -- 7,399
6,463
Impairment losses for real estate ... 2,500 2,688 -- -- 5,188
------ ------ ----- ------ ------
11,399 9,751 -- -- 14,687
====== ====== ===== ====== ======
- ----------
(a) Amounts written off
(b) Disposal of inventory
(c) Acquisitions of business
(d) Disposal of business
(e) Charged as reorganization of expense following abandonment of
product line.
74
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
Name Age Position
- ---- --- --------
William Spier 64 Director
Mario Tozzi-Condivi 74 Director
Deborah S. Novick 35 Director
Mark S. Hauser 41 President and Chief Executive Officer, Director
and member of the Executive Committee
Albino Collini 57 Director and member of the Executive Committee
Giovanni Caronia 58 Director
Howard E. Chase 62 Chairman of the Board of Directors and
member of the Executive Committee
Emanuel Arbib 32 Chief Financial Officer, Director and member
of the Executive Committee
Nicola Caiola 73 Director
William Spier became a Director of the Company on May 2, 1997 upon
consummation of the Tamarix/Finprogerti 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 has served as a Director of the Company since 1993,
and served as Vice Chairman 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 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
75
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.
Mark S. Hauser, President and Chief Executive Officer since March 1998,
became a Director of the Company on May 2, 1997 upon consummation of the
Tamarix/Finprogetti Acquisition Agreement. 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. He currently serves as a director of Integrated Technologies of
Israel, Ltd., a joint venture of an investment group and Israel Aircraft
Industries, and of Direct Language Communications, Inc., a multilingual
communications services company.
Albino Collini has served as a Director of the Company since 1995, and
Executive Vice President and Chief Operating Officer of the Company from October
1995 until March 1998. He has 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.
Howard E. Chase has served as a Director of the Company since 1971, as
Secretary of the Company 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 currently Chairman of the Board of Directors of the Company,
and President of Matrix Global Investments, Inc. 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 Laboratories, Inc., a Nasdaq-traded company, since 1987 and
International Diamalt Co., Ltd., a U.K. based company.
Emanuel Arbib, the Chief Financial Officer since March 1998, 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 has 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.
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
76
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 SpA., 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 SA., 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 Messrs. Chase, Hauser, 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.
The Audit Committee of the Board of Directors currently consists 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 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 who were directors in 1998 attended at least 75% of those meetings
held in such year during their term of service. The term of each Director will
expire when his successor shall have been elected and shall have qualified.
Non-employee directors will be compensated for their services as such, at the
rate of $4,000 per year.
Executive Officers
Position with Company
and Business Experience
Name Age 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 until their successors shall have been elected and qualified.
77
Principal Security Holders
The following table sets forth certain information concerning the
beneficial ownership of Common Stock as of May 10, 1999 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 ............................. 1,552,615(1)(2) 30.3
Gianni Bulgari
do Gruppo GB. Bulgari .................... 1,468,827(2)(3) 30.6
via M. Mercati, 17A
00187 Rome, Italy
Emanuel Arbib .............................. 446,388(2)(4) 9.4
William Spier .............................. 12,917(5) *
Howard E. Chase ............................ 130,000(6) 2.8
Albino Collini ............................. 157,305(7) 3.5
Mario Tozzi-Condivi ........................ 50,000(5) 1.1
Domenico Costa ............................. 26,667(5) *
Nicola Caiola .............................. 12,917(5) *
Giovanni Caronia ........................... 12,500(5) *
Deborah S. Novick .......................... 11,250(5) *
All directors and officers as a group ...... 2,412,559 39.6
- ----------
* 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, 365,079 shares
owned of record by Tamarix Investors, LDC, a Cayman Islands Limited
duration company controlled by Mr. Hauser and warrants owned by Tamarix
Investors to purchase 317,500 shares currently owned by Finprogetti,
S.p.A., the former controlling shareholder of the Company, which has
agreed to sell to each of Mr. Hauser and to Gianni Bulgari 317,500 of the
635,240 shares it currently owns of record.
(2) As part of a reporting group, Mark Hauser, Tamarix Investors, Azzurra,
Gianni Bulgari and Emanuel Arbib report beneficial ownership of 3,256,748
shares, consisting of 1,298,831 shares and warrants to purchase an
additional 1,957,917 shares. Such group constitutes beneficial ownership
of 52.1% 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, and
warrants to purchase 317,500 shares owned by Finprogetti S.p.A.
78
(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 43,333
shares.
(5) Represents presently exercisable options.
(6) Includes 120,000 presently exercisable options.
(7) Includes 33,333 presently exercisable options.
Summary of Cash and Certain Other Compensation
The following table shows, for the three fiscal years ended December 31,
1998, 1997 and 1996 the cash 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 exceed $100,000 for the Company's last fiscal year
("Named Executive Officers") in all the capacities in which they served:
79
SUMMARY COMPENSATION TABLE
Long-Term
Compensation Awards
Annual Other -------------------
Name and Principal Position Compensation Annual Restricted Options!
- --------------------------- Year Salary (Lit./$)(1) Compensation Stock SARs(#)(4)
---- ------------------ ------------ ----- ----------
Mark S. Hauser .............................. 1998 Lit. 176,641,000/ Lit, 864,432,000/ 132,000
President and Chief Executive Officer since ($106,667) ($552,000)
March 1998
Emanuel Arbib................................ 1998 Lit. 110,400,552/ Lit. 501,451,380/
Chief Financial Officer since March 1998 ($66,667) ($301,172)
Howard E. Chase ............................. 1996 Lit. 573,750,000/ -0- -0-
President and Chief Executive Officer from ($346,467)
October, 1995 until March, 1998 1997 Lit. 662,919,000/ -0- -0-
($400,313)
1998 Lit. 414,000,000/ -0- -0-
($250,000)
Albino Collini(2) ........................... 1996 Lit. 382,500,000/ Lit. 88,450,000/ -0-
Executive Vice President from October, 1995 ($230,978) ($53,412)
until March 1998 1997 Lit. 410,197,000/ Lit.88,450,000/ -0-
($247,704) ($53,412)
1998 Lit. 381,150,000/ Lit.82,800.000/ -0-
($230,163) ($50,000)
Mario Tozzi-Condivi(3) ...................... 1996 Lit. 283,050,000/ -0- -0-
Vice Chairman from October, 1995 until ($170,924)
March 1998 1997 Lit. 316,209,000/ -0- -0-
($190,948)
1998 Lit. 199,830,000/ Lit. 89,813,000 -0-
($120,670) ($54,235)
Domenico Costa .............................. 1996 Lit. 240,000,000/ -0- -0-
President of T.I.M. ($144,144)
1997 Lit. 240,000,000/ -0- -0-
($144,144)
1998 Lit. 412,000,000/ -0- -0-
($248,792)
Arnolfo Sacchi .............................. 1996 Lit. 240,000,000/ -0- -0-
Former Managing Director of Moto Guzzi from ($144,928)
1994 until April 1997 1997 Lit. 270,000,000/ -0- -0-
($163,043)
Oscar Cecchinato ............................ 1997 Lit. 300,000,000/ Lit. 45,000,000/ -0-
Managing Director of Moto Guzzi from ($181,159) ($27,174)
April 1997 until September 1998 1998 Lit. 294,000,000 -0-
($177,536)
- ----------
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 percent of such Officer's salary.
80
(1) Lire amounts have been converted to dollars at the rate of 1,656 lire per
U.S. Dollar, the approximate rate in effect on December 31, 1998.
(2) 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.
(3) 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.
(4) 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 terms of Mr. Hauser's employment contract with the Company provide for
compensation of US$160,000 per year and the issue 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.
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
commenced payment of a portion of the accrued compensation in 1999.
Under the terms of his consulting agreement, Mr. Arbib is entitled to
compensation of US$100,000 per year and the issue 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 65,000 options 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 commenced payment of a portion of the accrued compensation in 1999.
Messrs. Howard F. 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. Chase, Collini and Costa continue to serve
as executive employees on an at-will basis, Mr. Chase at a base salary of
$250,000 and Messrs. Collini and Costa each at a base salary of Lit. 267
million. Effective in June 1997, the Company engaged a consulting company to
provide the services of Oscar Cecchinato as Managing Director of Moto Guzzi for
a three year period at an annual base compensation of Lit. 400 million. Mr.
Cecchinato's services and his agreement were terminated in September 1998.
The compensation of the Named Executive Officers in 1998 was the result of
the negotiated employment agreements described above, and not the implementation
of a compensation policy.
81
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 a committee consisting of two members
of the Board, neither of whom for at least one year prior to such member's
commencement of service, received any discretionary grant of options under the
1995 NQ Plan or otherwise. 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;
(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, will 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 1996 and 15,000
options were granted in 1997. Options granted in 1996 are exercisable at $12.26
per share and options granted on January 2, 1997 are exercisable at $9.313 per
share, all of which were forfeited later in 1997 as a result of changes in the
composition of the Board of Directors. An aggregate of 18,751 options were
granted in 1997 to incoming members of the Board at exercise prices ranging
between $5.125 and $8 per share. An aggregate of 20,000 options were granted in
1998 to current members of the Board at an exercise price of $5.4375. 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
82
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 31, 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 remain available for issuance.
The 1995 Directors Plan maybe 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.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
During the year ended December 31, 1998, options to purchase 130,000
shares were granted to Mr. Hauser, and options to purchase 65,000 shares were
granted to Mr. Arbib. Additionally, options were granted to the then Named
Executive Officers in replacement for the cancellation of a greater number of
options previously granted. Mr. Chase was granted options to purchase 150,000
shares, Mr. Collini options for 50,000 shares and Mr. Costa 40,000 shares.
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 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
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 1998. None of the
unexercised options held by the Named Executive Officers at the end of 1998 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 Number of Shares Underlying
Acquired Unexercised Options/SARs at Fiscal Year-
on End
Name Exercise(1) Exercisable Unexercisable
- ---- ----------- ----------- -------------
Mark S. Hauser ........................ --
Emanuel Arbib ......................... --
Howard E. Chase ....................... -- 120,000 60,000
Mario Tozzi Condivi ................... -- 50,000 --
83
Number of
Shares Number of Shares Underlying
Acquired Unexercised Options/SARs at Fiscal Year-
on End
Name Exercise(1) Exercisable Unexercisable
- ---- ----------- ----------- -------------
Albino Collini ........................ -- 33,333 16,667
Domenico Costa ........................ -- 26,667 13,333
Oscar Cecchinato ...................... -- -- --
- ----------
(1) None of the Named Executive Officers exercised any stock options in 1998.
Compensation of Directors
Non-employee members of the Board of Directors of the Company will each be
paid $4,000 per year from 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, but it has not convened. The Company and each of its
subsidiaries has, 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 1998.
Each of Messrs. Tozzi-Condivi, Chase, Hauser and Arbib engaged in
transactions with the Company during 1998 in addition to serving as a director
and/or officer of the Company. See "Certain Relationships and Related
Transactions" below.
Certain Relationships and Related Transactions
Como Consultants Limited, an Isle of Jersey company which employs Mario
Tozzi-Condivi, a Director of the Company and its Vice-Chairman, was paid
$174,905 in 1998 for consulting services rendered to the Company.
Mr. Mark Hauser and Mr. William Spier, who became directors of the Company
upon consummation of the Tamarix/Finprogetti Acquisition Agreement, were
Managing Directors of Tamarix Capital Corporation in 1998. 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, the Company also agreed
to issue 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 1998, were engaged by the Company in March 1998 as its Chief
Financial Officer at an annual consulting fee of $l00,000. In connection with
such engagement, the Company also agreed to issue to Mr. Arbib or his designee
75,000 shares of Common Stock.
84
Upon consummation of the Tamarix/Finprogetti Acquisition Agreement,
Tamarix Capital Corporation, an affiliate of Tamarix, was retained by the
Company as a financial advisor for a period of three years at an annual fee of
$200,000 payable in quarterly installments. By mutual agreement, in the first
quarter of 1998, that agreement was terminated. Tamarix Capital Corporation
currently serves pursuant to a one-year agreement as an advisor to the Company
at a fee, inclusive of reimbursement for expenses, of $90,000. Additionally,
32,000 shares of Common Stock, subject to a one-year transfer restriction, were
to Tamarix Capital Corporation, and options to acquire 17,000 shares of Common
Stock were granted at an exercise price of $5 per share beginning one year from
the date of grant. Centaurus, the Manager of Tamarix, was separately granted
warrants to purchase 1,250,000 shares of Common Stock as an inducement for
Tamarix initially to agree to acquire the shares from Finprogetti and to abstain
from transferring such shares for a stated period of time. Messrs. Hauser, Spier
and Arbib collectively controlled Centaurus in 1998. Centaurus currently is
controlled by Mr. Hauser. Warrants to purchase 500,000 of such shares were
transferred by Centaurus to Ixion, LDC, an entity affiliated with Mr. Arbib and
warrants to purchase 500,000 such shares were transferred to Azzurra, Inc., an
entity affiliated with Mr. Hauser. Ixion transferred 250,000 such warrants in
1999 to Gianni Bulgari, a principal shareholder of the Company, and the other
250,000 such warrants to another entity controlled by Mr. Arbib.
All transactions between the Company and its officers, directors,
principal shareholders or other affiliates have been on terms no less favorable
than those that are generally available from unaffiliated third parties. Any
such future transactions will be on terms no less favorable to the Company than
could be obtained from an unaffiliated third party on an arm's-length basis and
will be approved by a majority of the Company's independent and disinterested
directors.
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 1998, it appears that the following officers and/or directors of the Company
did not comply with Section 16 reporting requirements:
Emanuel Arbib: as to options to purchase 65,000 shares granted in March 1998;
Nicola Caiola: as to options to purchase 5,000 shares granted in January 1998;
Giovanni Caronia: as to options to purchase 5,000 shares granted in January 1998;
Howard E. Chase: as to options to purchase 140,000 shares granted, and the
cancellation of options to purchase 300,000 shares in March
1998;
Albino Collini: as to options to purchase 50,000 shares granted, and the
cancellation of options to purchase 150,000 shares in March
1998;
Mario Tozzi-Condivi: as to options to purchase 50,000 shares granted, and the
cancellation of options to purchase 200,000 shares in March
1998;
Domenico Costa: as to options to purchase 40,000 shares granted, and the
cancellation of options to purchase 60,000 shares in March
1998;
Mark S. Hauser: as to options to purchase 130,000 shares granted in March
1998, the issuance of 32,000 shares to an affiliated entity
and the grant to the entity of options to purchase an
additional 17,000 shares;
Deborah S. Novick: as to options to purchase 5,000 shares granted in January 1998; and
William Spier: as to option to purchase 5,000 shares granted in January 1998
85
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 filed the following Current Reports on Form 8-K during the
three month period ending December31, 1998:
(1) November 17, 1998 reporting the making of a bridge loan by Tamarix
Investors LDC to the Company on October 1, 1998
(2) December 11, 1998 reporting the execution of the First Amendment to
the Agreement and Plan of Merger dated August 18, 1998 between and
among the Company, Moto Guzzi Corp. and North Atlantic Acquisition
Corp.
(c) Exhibits.
Exhibit
No. Description Page
--- ----------- ----
3.1 Amendment to Restated Articles of Incorporation of the Company, as
amended. 89
3.2 Amended and Restated Bylaws of the Company (filed as Exhibit 3.3 to
Registration Statement on Form S-1, Amendment No. 1, file No. 333-
2 1595).
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).
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).
86
Exhibit No. Description Page
- ----------- ----------- ----
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 Directors 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 as of March 25, 1998 by and between the
Registrant and Emanuel Arhib. 91
21. Subsidiaries: The Company's significant subsidiaries, the
jurisdiction of their incorporation and nature of their respective
activities is contained in this Report.
27. Financial data Schedule
(d) None.
87
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereupon duly authorized.
/s/ Mark S. Hauser
May 28, 1999 ----------------------------------------
Mark S. Hauser
President and Chief Executive Officer
/s/ Emanuel Arbib
May 28, 1999 ----------------------------------------
Emanuel Arbib
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.
/s/ Emanuel Arbib
May 28, 1999 ----------------------------------------
Emanuel Arbib - Director
/s/ Nicola Caiola
May 28, 1999 ----------------------------------------
Nicola Caiola - Director
May , 1999 ----------------------------------------
Giovanni Caronia - Director
/s/ Howard E. Chase
May 28, 1999 ----------------------------------------
Howard E. Chase - Director
/s/ Albino Collini
May 28, 1999 ----------------------------------------
Albino Collini - Director
/s/ Mark S. Hauser
May 28, 1999 ----------------------------------------
Mark S. Hauser - Director
/s/ Deborah S. Novick
May 28, 1999 ----------------------------------------
Deborah S. Novick - Director
/s/ William Spier
May 28, 1999 ----------------------------------------
William Spier - Director
May , 1999 ----------------------------------------
Mario Tozzi-Condivi - Director
88