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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| Annual Report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the fiscal year ended December 31, 2000
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the transition period from ______________ to ______________
Commission File Number: 0-2642
TRIDENT ROWAN GROUP, INC.
(Exact name of registrant as specified in its charter)
Maryland 52-0466460
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
C/O FdG Associates
299 Park Avenue
16th Floor
New York, New York 10171
(Address of principal executive offices) (Zip code)
(212) 644- 4441
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |_| No |X|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to the
Form 10-K. _____
As of July 15, 2003 the aggregate market value of the voting stock held by
nonaffiliates of the registrant was $617,688.
As of July 15, 2003, there were 4,064,900 shares of the registrant's common
stock, par value US$ 0.01 per share, outstanding.
TRIDENT ROWAN GROUP, INC.
TABLE OF CONTENTS
Page
----
PART I .....................................................................1
ITEM 1. BUSINESS.............................................................1
ITEM 2. PROPERTIES..........................................................14
ITEM 3. LEGAL PROCEEDINGS...................................................15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................16
PART II ......................................................................
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.................................................17
ITEM 6. SELECTED FINANCIAL DATA.............................................18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................................20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.........................29
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.................................65
PART III ......................................................................
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..................65
ITEM 11. EXECUTIVE COMPENSATION..............................................67
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT..........................................................73
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................74
PART IV ......................................................................
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K............................................................79
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PART I
Certain matters discussed herein are "forward-looking statements" intended to
qualify for the safe harbors from liability established by the Private
Securities Litigation Reform Act of 1995. These forward-looking statements can
generally be identified as such because they include words such as the Company
"believes," "anticipates," "expects" or "estimates" or words of similar meaning.
Similarly, statements that describe the Company's future plans, objectives,
targets or goals are also forward-looking statements. By their nature,
forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ materially from those anticipated in this report.
Certain of such risks and uncertainties are described in close proximity to such
statements or elsewhere in this report. The forward-looking statements included
herein are made only as of the date of this report, and the Company undertakes
no obligation to update publicly such forward-looking statements to reflect
subsequent events or circumstances.
In October 2002 Arthur Andersen S.p.A. (now Deloitte & Touche Italia S.p.A.)
entered into an agreement with the national Italian practice of Deloitte Touche
Tohmatsu ("DTT") that provides for the association of the ex Arthur Andersen
S.p.A. with those national practices (and therefore with DTT). Deloitte & Touche
has performed the quality control procedures required for foreign associated
firms that are embodied in the requirement of the SEC Practice Section of the
American Institute of Certified Public Accountants with respect to the financial
statements for the year ended December 31, 2000, included in this Annual Report
on Form 10-K.
ITEM 1. BUSINESS
HISTORY OF THE COMPANY
Until 1993, Trident Rowan Group, Inc. (the "Company") was primarily in the
business of manufacturing luxury automobiles and mini-cars through its former
Maserati S.p.A. subsidiary ("Maserati"), and, secondarily, in motorcycle
manufacturing and distribution through Moto Guzzi Corporation ("Moto Guzzi").
After selling its 51% controlling interest in Maserati in 1993, the Company's
only remaining operating subsidiary was Moto Guzzi, which the Company had
acquired in 1972. In 1993, Moto Guzzi was a manufacturer of medium and high
priced motorcycles. For years, Moto Guzzi had been both unprofitable and
undercapitalized. The Company's Board of Directors, in 1993 and early 1994,
considered a capital investment by or joint venture with a third party, the sale
of its interest in Moto Guzzi, or some other form of business combination to
repair Moto Guzzi's capital deficiencies and financial condition. When those
efforts proved unsuccessful, the Company, in May 1994, engaged Temporary
Integrated Management S.p.A. ("TIM"), a temporary management company, to provide
Moto Guzzi with critically needed temporary management in order to staunch
losses and to provide the time and means to design and implement a capital plan
for future growth or, alternatively, a plan for the sale of the subsidiary. The
progress achieved at Moto Guzzi over the period from 1994 to 1996 permitted the
Company to seek capital for the investments in plant, machinery, products,
marketing and management needed to provide a foundation for the significant
growth of Moto Guzzi's business.
In July 1995, the Company acquired substantially all of the operating
subsidiaries of Finprogetti S.p.A. ("Finprogetti"), consisting of TIM, real
estate interests (and related debt) and a leasing and factoring company by
issuing Company common stock. Common stock was also issued to
Finprogetti-affiliated shareholders for Italian Lira 8,204 million in cash. In
total, the Company issued 2,330,660 shares with a value of Italian Lira 38,228
million as a result of those transactions.
In April 1995, the Company had entered into an agreement, contingent on
consummation of the Finprogetti acquisition, to repurchase a controlling
interest in the Company. The repurchase of the controlling interest included the
purchase of preferred and common stock held in two trusts owned by former
Chairman, Mr.
Alejandro de Tomaso. The total amount of the repurchase included 1,000,000
shares of convertible preferred stock, par value US$ 2.50 per share, and 480,304
shares of Common Stock. Contemporaneously with the closing of the Finprogetti
transaction, the Company acquired 703,774 shares of preferred and Common Stock
from the trusts, the remaining 776,530 shares of preferred stock were exchanged
for shares of Common Stock and the Company committed to repurchase such 776,530
shares on June 30, 1998 at a price of US$ 11.27 per share. The Company obtained
a bank letter of credit secured by the deposit of marketable securities to
guarantee the repurchase, which was effective in June 1998.
In July 1995, the Company began selling the real estate acquired from
Finprogetti and to expand the scope of the TIM business. The expansion of the
TIM business included international merchant banking services and real estate
services focused primarily on investing in troubled companies, enhancing the
value of such investments through its temporary management capability, and then
realizing such enhanced value through exits developed by its merchant banking
division. The acquired leasing and factoring division was wound down and the
Company began to liquidate its real estate portfolio.
The first such investment, L.I.T.A. S.p.A. ("LITA"), a producer of welded steel
tubes, was acquired in July 1995. TIM had been engaged by LITA's prior owners in
1994 to manage the company through an operational crisis and to prepare it for
sale. Since acquisition, LITA has expanded its customer base and initiated an
export program.
Beginning in July 1995, the Company made preparations to honor its pledge to
undertake a stock repurchase program to accommodate shareholders who held the
view that the Company, following the sale of Maserati, was no longer engaged in
the business activity that initially attracted them to become shareholders. This
program was completed in October 1996 with the repurchase of 761,995 shares for
approximately US$ 7,479,000 in cash and US$ 1,863,000 in the form of
non-negotiable two-year promissory notes bearing interest at 8% per annum.
In December 1996 and January 1997, the Company completed a private placement of
Moto Guzzi preferred stock and common stock purchase warrants which raised gross
proceeds of US$ 6,000,000 for development of the Moto Guzzi business. Moto Guzzi
was formed as a U.S. holding company expressly for the purpose of holding and
financing the Company's interests in the Moto Guzzi business.
In June 1997, the Company completed a public offering of its Common Stock and
Common Stock purchase warrants, raising gross proceeds of US$ 7,643,750, of
which the Board of Directors of the Company committed US$ 4,000,000 to Moto
Guzzi's growth plan. Additionally, Moto Guzzi obtained an Italian Lira 10,000
million credit facility in February 1998 to fund planned investments in plant,
machinery and product development.
In May, 1997, Finprogetti, the largest shareholder of the Company, sold
1,000,000 shares of the Company's Common Stock to Tamarix Investors. In
connection with the purchase, Tamarix granted Finprogetti a put right with
respect to an additional 635,000 shares of Common Stock owned by Finprogetti,
and Finprogetti granted Tamarix an option to purchase such shares. The put
right, which was exercisable for a one-year period beginning on May 3, 1998, was
not exercised. The purchase option, which was exercisable during the two years
ending May 2, 1999, was exercised prior to its expiration. As an inducement to
consummate the transaction with Finprogetti, the Company also issued to
Centaurus Management L.D.C., the manager of Tamarix, 1,250,000 warrants to
purchase shares of the Company's Common Stock at an exercise price of US$ 6.00
per share (the Company's per share public offering price in June 1997).
When Tamarix took control of the Company through the purchase of Finprogetti's
Common Stock, the resulting changes to the composition of the Company's Board of
Directors allowed the Company to review
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business strategies and cost structure. In early 1998, the Company's Board of
Directors decided that it would dedicate substantially all of its resources and
energies to enhance the value of its Moto Guzzi business and not to pursue any
new business opportunities. The Company's Board of Directors determined to
accelerate the disposition of its real estate and other non-core assets in
support of this decision. In 1998 and 1999 the Company disposed of its remaining
real estate interests.
On August 18, 1998, the Company's subsidiary, Moto Guzzi, and for limited
purposes the Company, entered into a merger agreement to merge Moto Guzzi with
North Atlantic Acquisition Corp. The preferred stockholders of Moto Guzzi were
also a party to the merger, which was consummated on March 5, 1999. North
Atlantic was organized in August 1995 as a specialized merger and acquisition
allocated risk company with the objective of acquiring an operative business and
had not engaged in any substantive commercial business. At the effective time of
the merger, North Atlantic had approximately $8.9 million (Italian Lira 16,006
million) in cash, from which merger expenses of approximately $0.8 million
(Italian Lira 1,400 million) were subsequently paid, to finance the operations
of Moto Guzzi. On completion of the merger, North Atlantic changed its name to
Moto Guzzi. As a result of the merger, the Company recorded a gain of Italian
Lira 25,837 million in the first quarter of 1999, including the effects of the
exchange of redeemable preferred stock of Moto Guzzi into common stock of North
Atlantic. Through December 31, 1998, the Company had accounted for the
contingent redemption of such preferred stock and included Italian Lira 13,132
million in the balance sheet at December 31, 1998 to reflect such contingent
obligation.
During the last quarter of 1998 and first two months of 1999, lack of liquidity
caused component supply shortages for Moto Guzzi which were eased by the North
Atlantic merger. However, the proceeds of the North Atlantic merger were not
sufficient to permit Moto Guzzi to make all of the necessary investments to
restore operations to profitability. The Company anticipated that the North
Atlantic merger and the listing of the merged entity on the over-the-counter
market in New York would have provided access to the additional capital, along
with an incentive to management and key personnel through a stock option plan.
Moto Guzzi was unable to raise the further funds that it required, and by August
1999, experienced liquidity difficulties. By the end of 1999, these financial
difficulties had become severe, and the consequent difficulties of component
supplies threatened operations.
In December 1999, following the breakdown of negotiations with a motorcycle
company regarding an equity investment in Moto Guzzi, the Company engaged IMI, a
leading Italian investment bank, to pursue strategic alternatives to enhance
shareholder value in its shareholding. An auction process was conducted by IMI
in the first few months of 2000, and on April 14, 2000, Moto Guzzi entered into
a Share Purchase Agreement with Aprilia, and in September 2000, Moto Guzzi
closed the sale to Aprilia of its four operating subsidiaries.
Also in 2000, as described above, the Company disposed of its other operations,
TIM and LITA.
CURRENT STATUS OF THE COMPANY
As of July 18, 2003, the date of this report, the Company has disposed of all of
its operating subsidiaries and real property. The Company's principal assets are
as follows:
o Approximately (euro)4,200,000 in cash and marketable securities, of which
approximately (euro)500,000 is restricted until December 2003;
o 140,000 shares of Centerpoint Corporation ("Centerpoint," ticker CPTX)
common stock, a publicly held Delaware corporation, whose shares are
quoted on the Over-The-Counter Bulletin Board;
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o 100,000 shares of currently unregistered common stock of Bion
Environmental Technologies, Inc., ("Bion," ticker BNET), a publicly-held
Colorado corporation whose registered shares are quoted on the
Over-The-Counter Bulletin Board, and warrants to purchase 100,000 shares
of currently unregistered common stock of Bion at US$ 9.00 per share;
o A sixty-five percent share in claims against Aprilia S.p.A.("Aprilia")
with respect to funds previously held in an escrow account relating to
alleged claims from the September 2000 sale of the Company's Moto Guzzi
operations to Aprilia;
o A sixty-five percent share of claims against Banca di Intermediazione
Mobiliare IMI S.p.A. ("IMI") to recover fees charged in connection with
the September 2000 sale of the Company's Moto Guzzi operations to Aprilia,
which the Company considers excessive and not due;
o Amounts payable to the Company by Travelers Insurance Company
("Travelers") in respect of a judgment in favor of the Company in the
amount of $1,822,799, following a claim made by the Company against
Travelers. Travelers has appealed the judgment and a final decision is
expected to be rendered in 2003.
The Company has no financial debt and the liabilities of the Company principally
consist of payables for corporate costs and litigation in respect of the claims
above.
A majority of the assets above are held by OAM S.p.A., an indirect 99.9% Italian
subsidiary owned through TRS S.p.A., an Italian intermediate holding company.
Neither Italian company has any operations, and TRS is scheduled to be merged
into OAM later this year. The current corporate structure derives from the
Company's previous operations which were principally based in Italy.
In May 2002 the Board of Directors of the Company approved the engagement of
Investec Ernst & Co. to explore investment options available to the Company and
to seek a suitable business to merge with or to acquire. The Company has
evaluated a number of business opportunities presented by Investec Ernst & Co.
The Company's Board of Directors does not consider liquidating the Company to be
a viable alternative due to the complexity of the Company's corporate structure,
and the continuing effects of past acquisitions, dispositions and restructuring,
and their related tax effects.
RECENT AND SUBSEQUENT EVENTS
Overview
o Effective January 1, 2000, the Company disposed of the TIM business to its
two managers;
o In February 2000, Centerpoint - then Moto Guzzi Corp. - the Company's then
majority owned subsidiary which owned the Moto Guzzi motorcycle business,
issued Series B Preferred Stock to provide bridge financing for operations
through their disposal. The Centerpoint Series B Preferred Stock raised
$6.0 million from external investors, the Company invested $3.5 million
and existing advances by OAM S.p.A. of $1.6 million and advances from
entities related to two directors of Centerpoint $1.25 million were also
converted into Series B Preferred Stock. The Series B Preferred Stock was
redeemed on September 30, 2000 following the sale of the Moto Guzzi
operations;
o In April 2000, Centerpoint entered into an agreement to sell its Moto
Guzzi operations to Aprilia. The sale was completed in September 2000
following Centerpoint shareholder approval.
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o In connection with the sale of Centerpoint's Moto Guzzi operations,
Centerpoint agreed with the Company to present a liquidation proposal to
shareholders as promptly as was practicable. The deadline for doing so was
extended to July 15, 2001.
o In June 2001, with the consent of the Company, Centerpoint hired Investec
Ernst & Co. to examine alternative solutions and in January 2002
Centerpoint acquired 19,000,000 shares of Bion common stock. In connection
with the acquisition, the Company waived its right to require Centerpoint
to proceed with the presentation of a liquidation proposal.
o In connection with the sale of its Moto Guzzi operations to Aprilia, the
Company is pursuing claims against IMI, a leading Italian Investment Bank,
to recover fees that the Company considers excessive and not due.
o Additionally, Centerpoint has commenced arbitration proceedings to recover
amounts paid to Aprilia for claims by Aprilia under the terms of the sale
of the Moto Guzzi operations.
o In July 2000, the Company disposed of its steel tube operations through
sale of its LITA subsidiary.
o In September 2000, the Company agreed to purchase the outstanding 15.65%
minority interest in OAM held by Daimler Chrysler Corporation for
$2,500,000. The purchase was closed in March 2001.
o In June 2001, the Company borrowed $4.2 million from Centerpoint, the
Company's then majority owned subsidiary, to fund early repayment of its
$6.25 million 5% convertible debentures due December 30, 2002. The Company
obtained a settlement discount of $1,823,750, representing an approximate
29% discount on the face value of the securities, and a 31.5% discount on
the total amount owed with respect to the securities.
o In December 2000, the Company and its co-defendant, Gould Electronics Inc,
settled the Wilson litigation for $2,050,000, provisionally paying
$1,025,000 each. The Wilson litigation was in respect of personal injury
claims in respect of a business sold by the Company in the 1950's. In July
2001, in court hearings to determine the responsibility for the claims
between the Company and Gould Electronics Inc. it was ruled that the
Company was responsible for all amounts due and the Company was ordered to
pay to Gould Electronics Inc. the $1,025,000 that Gould had advanced
towards settlement of the Wilson litigation. The Company satisfied this
judgment in full in 2002.
o In January, 2002, the judge in the Company's litigation against Travelers
arising out of the Wilson litigation determined that Travelers was liable
to the Company for $1,000,000, plus the Company's legal fees in connection
with the litigation, less a reasonable premium. Traveler's subsequently
challenged the reasonableness of the legal fees and the judge requested
explanatory submissions from both Travelers and the Company. In July, 2002
the judge ruled that the fees were reasonable, but that certain
duplications should be eliminated. In September 2002 the court rendered a
judgment in favor of the Company against Travelers in the amount of
$1,822,979. This judgment has been appealed by Travelers and a final
decision is expected to be rendered in mid-2003.
o In January 2002, the Company entered a series of transactions and
agreements with Bion. First, the Company's Centerpoint subsidiary
subscribed for 19,000,000 Bion shares for a consideration of substantially
all of its assets, which were valued in the transaction at $14,250,000.
Following this, Bion purchased from OAM S.p.A., the Company's wholly-owned
Italian subsidiary, a 57.7% ownership interest in Centerpoint owned by OAM
for a consideration consisting of:
o the $4.2 million TRG Promissory note due to Centerpoint by the
Company, as described above;
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o $3.7 million in cash;
o one million unregistered shares of Bion common stock and one million
warrants to purchase Bion shares at $0.90 per share;
o assignment of a 65% interest in the claims against IMI and Aprilia
S.p.A., as described above; and
o assignment of Centerpoint's rights under the Loan Agreement relating
to the TRG Promissory Note.
Following this transaction, the Company continued to hold directly 300,000
Centerpoint shares (approximately 5% of Centerpoint's stock). The effect
of the transactions with Bion was to dispose of the Company's majority
interest in Centerpoint, receiving assets substantially similar in total
value to those the Company would have received in an eventual liquidation
of Centerpoint.
Disposal of TIM
Effective as of January 1, 2000, the Company disposed of TIM, its temporary
management services subsidiary. The business was sold to two companies
controlled by TIM's management, including Albino Collini, a Director of the
Company through December 1999, for 55,000 shares of the Company with a fair
value of Italian Lira 320 million at the date of sale. The Company recorded an
impairment loss of Italian Lira 400 million as at December 31, 1999 in respect
of the trademarks of TIM, to reflect the post year-end disposal.
Issuance and Redemption of Series B Preferred Stock by Centerpoint (then Moto
Guzzi)
On February 25, 2000, Centerpoint issued 123,500 shares of a new Series B
Preferred Stock with an aggregate price of US$ 12,350,000 to Fineco and its
affiliates (Fineco is an Italian institutional investor), the Company, OAM,
William Spier, a director of Centerpoint and the Company, and Wheatley Partners
LP and Wheatley International Partners LP, each of which is an affiliate of
Barry Fingerhut, a director of Centerpoint, for US$ 100 per share. The shares
were issued as follows: (i) 60,000 to Fineco and its affiliates for cash, (ii)
35,000 shares to the Company for cash, (iii) 16,000 to OAM in repayment of
outstanding loans due to OAM, (iv) 2,500 shares to Mr. Spier in repayment of
loans made by him to Centerpoint, and (v) an aggregate of 10,000 shares to
Wheatley Partners LP and Wheatley International Partners LP, in repayment of
loans made by them to Centerpoint.
The holders of the Series B Preferred Stock were entitled to receive dividends
at the rate of US$ 7.00 per share per year before any dividends may be paid with
regard to Centerpoint's Class A Common Stock, and to receive distribution of US$
100 per share in liquidation of Centerpoint before any liquidation distributions
are made with regard to the Class A Common Stock. Moto Guzzi was required to
redeem the Series B Preferred Stock for US$ 100 per share plus accrued dividends
on December 28, 2001. Holders of Series B Preferred Stock did not have voting
rights, except the right to approve issuance of securities of Centerpoint, which
would affect the Series B Preferred Stock, and the incurrence of debt by
Centerpoint, other than refinancing of existing debt or lines of credit used by
Centerpoint to finance its day-to-day operations.
Each share of Series B Preferred Stock was convertible into Centerpoint Class A
Common Stock at a conversion price of US$ 5.00, based upon the liquidation
preference of the Series B Preferred Stock (US$ 100, plus accrued dividends, per
share), meaning each share of Series B Preferred Stock was convertible into
approximately 20 shares of Centerpoint Class A Common Stock.
Upon the occurrence of an event of default the dividend on the Series B
Preferred Stock increased to US$ 10 per share per year, the conversion price of
the Series B Preferred Stock reduced to US$ 2 per share of
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Centerpoint Class A Common Stock, the holders of the Series B Preferred Stock
would become entitled to elect a majority of Centerpoint's directors and
Centerpoint would be required to redeem the Series B Preferred Stock for its
liquidation preference (US$ 100 per share, plus accrued dividends).
In July 2000, Centerpoint entered into an agreement with the Series B preferred
stockholders in which it agreed to redeem the Series B preferred stock by
September 30, 2000 in exchange for their agreement not to convert their Series B
preferred stock into Class A common stock prior to that date.
Centerpoint closed on the sale of its operating subsidiaries on September 6,
2000 and in the last week of September 2000 it redeemed in full all outstanding
shares of Series B Preferred Stock for a price equal to US$ 100 per share plus
accrued dividends thereon, for a total of approximately US$ 12.6 million
(approximately Italian Lira 28,300 million at the prevailing exchange rate).
Sale of Moto Guzzi to Aprilia
Execution and Delivery by Centerpoint of the Share Purchase Agreement.
On April 14, 2000, Centerpoint signed a Share Purchase Agreement to sell its
four operating subsidiaries (Moto Guzzi S.p.A., MGI Motorcycle GmbH, Moto Guzzi
France S.a.r.l. and Moto Guzzi North America, Inc.) to Aprilia for Italian Lira
71.5 billion (approximately US$ 35.2 million) plus or minus the change in net
worth from December 31, 1999 to April 30, 2000. In addition, Aprilia satisfied
debts of the subsidiaries to Centerpoint totaling approximately Italian Lira 2.1
billion (approximately US$ 1.0 million) and released OAM from an Italian Lira 4
billion (approximately US$ 1.9 million) guarantee of obligations of the
subsidiaries. The proposed sale of the four subsidiaries was a sale of
substantially all of Centerpoint's assets, requiring the approval of a majority
of Centerpoint's outstanding Class A common stockholders.
On August 3, 2000, by way of a Letter of Agreement, Centerpoint and Aprilia
modified the terms of the Share Purchase Agreement, by adjusting the price to
reflect the aggregate net worth of the entities sold at April 30, 2000. The
Letter of Agreement also reduced the required escrow amounts under the Share
Purchase Agreement to Italian Lira 9,375 million and established that if costs
incurred in connection with the recall of certain batches of motorcycles for the
replacement of certain components is lower than Italian Lira 1,824 million, net
of all reimbursements received from insurance companies and Moto Guzzi
suppliers, then the difference between the cost sustained and Italian Lira 1,824
million would be paid by Aprilia to Centerpoint.
Approval of the Sale of the Operating Subsidiaries and change of the
subsidiaries name to Centerpoint.
On July 22, 2000, Centerpoint's Proxy Statement, which was dated July 20, 2000,
was mailed to all of Centerpoint's Class A common stockholders of record as of
July 18, 2000, the record date for the special meeting of stockholders. The
special meeting of Centerpoint's stockholders on August 11, 2000 was called to
consider the proposed sale of its operating subsidiaries and the change of the
subsidiary's name to Centerpoint Corporation from Moto Guzzi. Centerpoint Class
A Common Stock of 4,399,784 shares were represented in person or by proxy. In
total this represented 73.34% of Centerpoint's issued and outstanding shares of
Class A common stock on the record date, thereby constituting a quorum. At the
special meeting, the stockholders voted in favor of both the proposal to sell
Centerpoint's operating subsidiaries to Aprilia and the change of the
subsidiary's name to Centerpoint Corporation.
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Closing by Centerpoint on the Sale of its Operating Subsidiaries.
On September 7, 2000, Centerpoint closed the sale of its four operating
subsidiaries to Aprilia in accordance with the Share Purchase Agreement dated
April 14, 2000, as modified and integrated by the Letter of Agreement of August
3, 2000. Total proceeds from the sale were Italian Lira 79,500 million. In
accordance with the Share Purchase Agreement, Aprilia also paid Centerpoint
Italian Lira 2,074 million for loans made by Centerpoint to the operating
subsidiaries. In accordance with the Share Purchase Agreement, Italian Lira
9,375 million of the proceeds were placed into escrow for claims Aprilia may
have regarding representations and warranties made by the Centerpoint in the
Share Purchase Agreement. The funds from the escrow account were to be released
to the Centerpoint in two payments: Italian Lira 7,000 million was to be
released on September 8, 2001, and Italian Lira 2,375 million was to be released
on September 8, 2007. As described below, on June 2001, Aprilia made claims
against Centerpoint and obtained a payment of Italian Lira 7,611 million from
the escrow accounts. Centerpoint is disputing the claims and started
arbitration, as provided for in the Share Purchase Agreement.
Interests of Certain Persons in the Sale.
Certain of Moto Guzzi's directors and officers interest's with regard to the
sale of Centerpoint were different from the interests of the other stockholders.
They included:
o OAM and the Company were required to make loans to Centerpoint or to
Centerpoint's subsidiaries to sustain the business. Most of these loans
were converted into Series B preferred stock in February 2000. Also, OAM
was required to guarantee a portion of Centerpoint's debt for Italian Lira
4 billion. The sale ended the requirement for OAM and the Company to make
loans to Centerpoint and released OAM from a guarantee of Centerpoint's
bank debt. One of Centerpoint's directors was a principal officer of the
Company and two of Centerpoint's directors were directors of the Company.
o Certain of Centerpoint's officers and directors would continue to hold
positions in the subsidiaries after the sale.
o In connection with the sale, Aprilia required the terminations of certain
of Centerpoint's executives and further required that Centerpoint pay all
costs of such terminations. Accordingly, Centerpoint agreed to pay
severance to two of its directors and one of its former directors, Mark S.
Hauser and Howard E. Chase, and to Emanuel Arbib, amounts of US$ 169,500,
US$ 51,400 and US$ 37,900, respectively, in exchange for termination of
their employment and consulting agreements with Centerpoint.
o The Company, OAM, Wheatley Partners, LP and Wheatley Foreign Investment,
LP (each of which is an affiliate of Barry Fingerhut, a director of
Centerpoint and a member of the special committee) and William Spier (a
director of Centerpoint) all owned Centerpoint Series B preferred stock.
The disposal of the Moto Guzzi operations has been accounted for as a
discontinued operation. See Note 3 to the financial statements for further
details.
Centerpoint's Agreement with the Company to present a liquidation proposal to
its stockholders following the Closing of the sale of its operations to Aprilia;
Release of liquidation obligations in connection with the Bion transaction
The Share Purchase Agreement providing for the sale of Centerpoint's operating
subsidiaries to Aprilia contained a condition that OAM (the holder of
approximately 58% of the issued and outstanding shares of
8
Centerpoint's Class A common stock, and a subsidiary of the Company) agree to
vote its capital stock for the sale, and by letter to Aprilia dated April 14,
2000, OAM agreed to vote its shares for the sale.
In order to induce OAM to deliver its letter to Aprilia, Centerpoint agreed with
OAM and the Company by letter dated April 14, 2000 as amended on June 8, 2000 to
provide, among other things, that Centerpoint would, as promptly as practicable
after the closing of the sale, but in no event later than 90 days following the
closing, hold a meeting of stockholders to consider and vote upon a proposal to
liquidate all of Centerpoint's assets and dissolve itself. The date for
proceeding to propose liquidation was subsequently extended to July 15, 2001.
In June 2001, with the consent of the Company, Centerpoint engaged the
investment-banking firm of Investec Ernst & Co. to assist Centerpoint in its
evaluation of strategic alternatives, including potential acquisitions and
investments.
In December 2001, Centerpoint's Board of Directors met to evaluate the
alternative strategies and investments available to it. Investec Ernst & Co.
presented to the Centerpoint Board of Directors their conclusions on a number of
potential investments. Subsequently, the Centerpoint Board of Directors resolved
to enter into the Bion transaction described below. As part of such transaction,
the Company and OAM released Centerpoint from its obligation to proceed to
present a liquidation proposal to its stockholders.
Dispute with IMI Regarding its Fee
IMI, Centerpoint's investment adviser in connection with the sale of Moto Guzzi,
acted as fiduciary for the closing. At the Closing, but without the prior
approval, knowledge or consent of Centerpoint, IMI was paid Italian Lira 11,401
million, for fees and expenses claimed by IMI under its engagement letter with
the Company and OAM. IMI also paid Studio Carnelutti, Centerpoint's Italian
legal counsel, Italian Lira 505 million with the remaining proceeds of Italian
Lira 60,293 million paid to Centerpoint. Since early July 2000, the Company and
Centerpoint have disputed IMI's interpretation of the calculation of the fee
under its engagement letter. The dispute relates to the respective
interpretations of the Company, Centerpoint and IMI of the term "Total
Transaction Value" used in the engagement letter. Since that time, the Company
sought to negotiate with IMI concerning its fee. IMI refused to engage in
negotiations and did not present any calculation of the fee to the Company or
Centerpoint prior to the closing. After the closing and actual payment to IMI of
the alleged fee, IMI presented a calculation and an invoice to Centerpoint for
fees and expenses alleged by IMI due under the engagement letter in the amount
of Italian Lira 11,401 million. In addition to disputing the amount of the fee
paid to IMI, the Company and Centerpoint believe that IMI had no right to deduct
the fee from the sale proceeds, as Centerpoint was not a party to the engagement
letter, and did not consent to any such deduction. On February 11, 2002
Centerpoint brought a suit against IMI before the Civil Section of the Court of
Milan, Italy seeking reimbursement of Italian Lira 8,766 million (approximately
US$ 4,253,000) of the Italian Lira 11,401 million (US$ 5,532,000) paid to IMI at
the closing. At the first hearing with respect to the claims, on July 2, 2002,
IMI's legal counsel filed a Defense Pleading requesting among other things, the
rejection of the claims, and the joining of the Company as a party to the
litigation. A hearing with respect to the case was held on November 15, 2002, at
which time the judge determined that the parties were not amenable to settling
the litigation. A further hearing was held on February 6, 2003, at which time
the judge fixed May 2, 2003 as the deadline for each party to file a pleading
summarizing the such party's requests for evidences, set June 2, 2003 as the
date for each party to respond to the other party's pleading, and set October
14, 2003 as the trial date for a decision on the case.
9
Aprilia Claims under the Share Purchase Agreement; Payment by IMI; Request for
Arbitration
Pursuant to the terms, and subject to the conditions, of the Share Purchase
Agreement and the Escrow Agreement relating to the sale of Centerpoint's
operating subsidiaries, Italian Lira 9,375 million of the proceeds of the sale
were placed into escrow.
By letter dated December 21, 2000, legal counsel for Aprilia filed a claim
against Centerpoint under the Share Purchase Agreement alleging (i) that it had
failed to receive a resignation and release from Mr. Roeth, an executive and
director of MGI Motorcycle GmbH, and (ii) that the campaign recall with respect
to certain Moto Guzzi motorcycles was more serious than that forecasted in the
Management Date Financial Statements and August 3, 2000 letter. By letter dated
February 5, 2001, Centerpoint's legal counsel responded to the December 21, 2000
letter specifically denying the alleged claims and requesting that the parties
meet to negotiate a release of the escrow funds, as provided for in the August
3, 2000 letter.
In June 2001 Aprilia's legal counsel sent a letter to Centerpoint, which
reiterated the claims in its December 21, 2000 letter, and alleged the
following: (i) that the cost of the recall campaign was estimated by Aprilia to
be approximately Italian Lira 4,500 million, which exceeded the Management Date
Financial Statement amount with respect to the recall campaign by Italian Lira
2,676 million, (ii) that technical problems related to various motorcycles were
likely to cost Aprilia approximately Italian Lira 5,308 million, and that such
technical problems had not been disclosed to Aprilia in connection with the sale
of the Moto Guzzi operations to Aprilia, and that Aprilia was entitled to
reimbursement of such costs, (iii) reimbursement of Italian Lira 148.5 million
incurred by Aprilia in connection with the termination of Mr. Roth, an executive
of MGI GmbH, (iv) reimbursement of Italian Lira 378 million in respect of
unjustified credit notes issued by MGI GmbH in favor of dealers and
distributors, and (v) that unspecified breaches of accounting principles by Moto
Guzzi North America entitled it to claims against Centerpoint in the amount of
Italian Lira 1,100 million (collectively with (i), (ii), (iii) and (iv), the
"Alleged Claims").
On July 13, 2001 Centerpoint's Italian counsel sent a letter to Aprilia's
counsel contesting all of the Alleged Claims.
By letter dated July 13, 2001 Aprilia requested that IMI, the escrow agent under
the Escrow Agreement, pay them Italian Lira 7,611 million for the Alleged
Claims. On July 26, 2001, in spite of being aware of Centerpoint's contesting of
each of the Alleged Claims and its intention to seek arbitration, IMI advised
Centerpoint that it had paid Italian Lira 7,611 million from the escrow account
to Aprilia.
Pursuant to the Share Purchase Agreement and Escrow Agreement, each of which
provides that disputes among the parties be arbitrated, Centerpoint filed a
Request for Arbitration in Accordance with Article 4 of the ICC Rules of
Arbitration. The International Chamber of Commerce was notified regarding the
Alleged Claims and the payment by IMI, Centerpoint's investment adviser, and
requested restitution of the funds paid to Aprilia. The Arbitration committee
was constituted on November 16, 2001, and the Company expects a decision with
respect to the Arbitration will be rendered some time in the second half of
2003.
Disposal of steel tube operations
In July 2000, the Company disposed of LITA to Fintrebi S.r.l. and Mittel
Generale Investimenti S.p.A., companies unaffiliated with the Company, for a
total consideration of Italian Lira 1,800 million. Immediately prior to the
sale, with the agreement of the purchasers, LITA paid a dividend to the Company
of Italian Lira 670 million. The Company received Italian Lira 800 million in
cash at the closing and received the balance of Italian Lira 1,000 million in
July 2001, less warranty claims made by the buyer in the amount of Italian Lira
160 million. In connection with the disposal, the Company obtained a first call
bank
10
guarantee for Italian Lira 1,000 million through December 31, 2003 to secure any
claims the purchaser may have for breaches of representations and warranties
given by the Company. LITA has been accounted for as a discontinued operation.
See Note 4 to the financial statements.
Loan by Centerpoint to the Company; Early payment of the Company's 5%
Convertible Debentures due in December 2001
The Company's 5% Convertible Debentures in an aggregate amount of US$ 6,250,000
were scheduled to come due in December 2001. On June 13, 2001 the Company, OAM
and Centerpoint entered into a loan agreement (the "Centerpoint Loan Agreement")
wherein subject to the terms and certain conditions set forth therein
Centerpoint agreed to lend the Company US$ 4,200,000 (the "Centerpoint Loan").
On June 13, 2001 Centerpoint made the Centerpoint Loan and the Company issued
Centerpoint the Company's Promissory Note. On June 15, 2001 the Company paid the
holders of US$ 6,000,000 of the Debentures US$ 4,207,500 in cash, which the
Debenture holders accepted as payment in full (including past due interest).
This was approximately a 29.3% discount from their face value, and a 31.5%
discount on the total amount owed. In July 2001, Emanuel Arbib, the holder of
the remaining US$ 250,000 of the Debentures accepted US$ 218,750, a 14.4%
discount from its face value, as payment in full on such Debentures.
The Centerpoint Loan bears interest at a rate of 5 % per annum, is repayable in
full on June 13, 2003 and was secured by the 300,000 shares of Centerpoint
common stock then owned by the Company. The Loan Agreement also provided that
the Centerpoint Loan was to be secured by 1,200,000 of the shares of Centerpoint
common stock owned by OAM and provided that OAM was to enter into a Limited
Recourse Guaranty Agreement wherein it was to guarantee the Company's
obligations under the Centerpoint Loan Agreement. OAM's liability under the
Limited Recourse Guaranty would have been limited to the value of the
Centerpoint shares to be pledged by OAM. OAM's pledge of the 1,200,000 shares of
Centerpoint common stock and the Limited Recourse Guaranty Agreement were never,
in fact, executed.
On January 15, 2002, Centerpoint assigned the Company's Promissory Note and
rights under the Centerpoint Loan Agreement to Bion as partial consideration for
the purchase of the Bion shares. S hortly thereafter, Bion assigned the
Company's Promissory Note and rights under the Centerpoint Loan Agreement to OAM
as partial consideration for the Centerpoint shares acquired from OAM.
Settlement of Wilson Litigation
On December 19, 2000, a Settlement Agreement and Release was executed by and
between plaintiffs, the Company and I.T.E. Imperial Corporation and Gould
Electronics, Inc., the co-defendants in the Wilson Litigation. The Company and
Gould each agreed to pay 50% of the US$ 2,050,000 settlement, subject to
resolution of certain issues between them. The remaining issue, the Company's
claim against Gould for indemnification, was litigated on February 16, 2001, and
on June 15, 2001, a verdict was rendered by the Court of Common Pleas of
Philadelphia County holding that the Company was responsible for paying all
settlement funds and ordering the Company to pay Gould US$ 1,025,000 plus
interest at a rate of 7% per annum from the date Gould paid the plaintiffs. On
June 27, 2001, the Company's legal counsel advised counsel to Travelers of the
judgment and formally tendered to Travelers responsibility for deciding whether
any post-trial motions and/or notice of appeal should be filed. On June 29, 2001
legal counsel for Travelers responded that Travelers refused to take any
position on the issues. The appeal period for the judgment expired on July 15,
2001, and the judgment became due and payable to Gould on that date. Given the
status of these legal actions, the Company has recorded additional provisions of
Italian Lira 2,970 million and the full amount of the US$ 2,050,000 payable by
the Company was accrued at December 31, 1999. The Company satisfied the Gould
judgment in full in 2002.
11
In January, 2002, the judge in the Company's litigation against Travelers
resulting from the Wilson litigation determined that Travelers was liable to the
Company for US$ 1,000,000, plus Company's legal fees in connection with the
litigation, less a reasonable premium. Traveler's subsequently challenged the
reasonableness of the legal fees and the judge requested explanatory submissions
from both Travelers and the Company. In July 2002 the judge ruled that the fees
were reasonable, but that certain duplications should be eliminated. In
September 2002 the court rendered a judgment in favor of the Company against
Travelers in the amount of US$ 1,822,979. Travelers has appealed the judgment
and a final decision is expected to be rendered in 2003.
Purchase of minority interests in OAM S.p.A. from Daimler Chrysler
In September 2000, the Company agreed to purchase the outstanding 15.65%
minority interest in OAM held by Daimler Chrysler Corporation for US$ 2,500,000.
The purchase price of US$ 2,500,000 was at a discount to the net asset value of
the minority interest. The sale of the minority interests closed in March 2001.
The Bion transaction: Centerpoint Acquisition of Bion Shares; OAM Sale of
Centerpoint Shares to Bion
o In June 2001, with the consent of the Company, Centerpoint engaged the
investment-banking firm of Investec Ernst & Co. to assist Centerpoint in
its evaluation of strategic alternatives. From September 2000 through
December 2001, with the knowledge and consent of the Company, Centerpoint
examined opportunities to acquire or merge with another operating business
or businesses, as an alternative to liquidation.
o In December 2001, Centerpoint's Board of Directors met to evaluate the
alternative strategies and investments available to it. Investec Ernst &
Co., who had been hired in June 2001 to assist in this process, presented
to the Centerpoint Board of Directors their conclusions on a number of
potential investments. After review of the possible investments, the
Centerpoint Board of Directors resolved to approve the acquisition of
19,000,000 shares of Bion for a total consideration of US$ 14,250,000 (the
"Bion Investment"), subject to receipt of a fairness opinion from a
financial firm acceptable to the Centerpoint Board of Directors, receipt
of advice from the Centerpoint's counsel concerning legal due diligence
and determination by the Centerpoint Board of Directors that the results
of legal due diligence did not affect their determination that the
investment was in the best interests of Centerpoint. Centerpoint duly
received a fairness opinion from Joseph Stevens & Company, Inc., an advice
from counsel concerning the results of legal due diligence, and in a Board
of Directors meeting in late December approved and confirmed the Bion
Investment.
o In early January 2002 the Board of Directors of OAM, a subsidiary of the
Company and the majority stockholder of Centerpoint, met and approved the
sale of 3,459,997 shares of common stock, or 100% of OAM's investment in
Centerpoint, to Bion pursuant to a Stock Purchase Agreement dated as of
January 15, 2002, for the following consideration (the "Sale of the
Centerpoint Shares"): (i) 1,000,000 restricted shares of Bion Common
Stock, (ii) a warrant to purchase 1,000,000 shares of Bion Common Stock
for a purchase price of US$ 0.90 per share, (iii) US$ 3,700,000 in cash,
(iv) the assignment to OAM of the Company's US$ 4.2 million Promissory
Note, and the principal and interest payable there under, (v) assignment
of 65% of that certain litigation claim of Centerpoint against IMI, (vi)
assignment of 65% of Centerpoint's claims against Aprilia, S.p.A. and
eventual rights to balances in Escrow, and (vii) assignment of the Loan
Agreement dated June 13, 2001 by and between the Company and Centerpoint.
12
o In connection with the assignment of the claims against IMI, Aprilia and
residual claims against amounts in Escrow following the sale of
Centerpoint to Aprilia, OAM agreed that it will continue to administer any
litigation related to, settlement of, or other resolution of such claims,
to the best of its ability, on behalf of both OAM and Centerpoint as
Centerpoint's duly authorized agent.
o In connection with the Bion Investment, Centerpoint also approved the Sale
of the Centerpoint Shares and the Company and OAM waived their rights to
cause Centerpoint to proceed with liquidation and released Centerpoint
from such obligations.
o On January 15, 2002, Centerpoint closed on its purchase of 19,000,000
shares of the restricted stock of Bion (the "Bion Shares"), for an
aggregate consideration of US$ 14,250,000 comprised of the following: (i)
approximately US$ 8,500,000 in cash, (ii) assignment of the Company's US$
4.2 million Promissory Note, (iii) assignment of 65% of the Claims Against
IMI, (iv) assignment of 65% of the Claims with Respect to the Escrow
Account, and (v) and assignment of that certain Loan Agreement dated June
13, 2001 by and between the Company and Centerpoint.
o Immediately upon the consummation of the Bion Investment, OAM and Bion
closed on the Sale of the Centerpoint Shares.
o Under the Subscription Agreement relating to Bion Investment and related
Registration Rights Agreement, Bion agreed among other things (i) to file
with the SEC a Registration Statement with respect to the Bion Shares (the
"Bion Registration Statement"), as soon as practicable, and within 90 days
of the Centerpoint's filing with the SEC of its December 31, 2001 Form
10-K, and to use its best efforts to cause the Bion Registration Statement
to be declared effective as soon as practicable thereafter, (ii) to use
its best efforts to cause the Bion Shares to be distributed to the
Centerpoint's common stockholders in a tax efficient manner in accordance
with applicable law, and (iii) to use its best efforts to hold an Annual
Meeting of Bion Shareholders during 2002, in accordance with its by-laws
and applicable law.
o In July 2002, Bion affected a 10-for-1 reverse stock split with respect to
its common stock. As a result, the Company currently owns 100,000 shares
of Bion common stock, and has warrants to purchase 100,000 shares of Bion
common stock for a price of US$ 9.00 per share.
o On August 12, 2002 Bion filed an amendment to a previously filed Bion
Registration Statement to include the 100,000 shares of Common Stock and
warrants to purchase 100,000 shares of Common Stock owned by OAM. On
September 20, 2002 the SEC gave Bion comments on the Bion Registration
Statement and on October 17, 2002 Bion filed an additional amendment to
the Bion Registration Statement.
o Bion's business is described in its Form 10-K (as amended) for the fiscal
year ended June 30, 2002 as filed with the SEC, and in other documents
filed by Bion with the SEC. Bion's business and its continuation of
operations are subject to substantial risk factors, including those set
forth in the Bion Registration Statement on Form S-2 as filed with the SEC
on August 12, 2002 and as amended.
o On February 20, 2003, Bion filed a Form 8-K with the SEC stating among
other things, that (i) it had informed its employees that it does not have
funds to pay its employees beyond February 15, 2003, (ii) although Bion
was seeking outside sources of capital, it had not been able to secure
financing necessary for its current and future operations, (iii) there
could be no assurance that sufficient funds would be available from
external sources, and (iv) it would be forced to substantially curtail or
cease its current business activities unless it is able to immediately
raise capital from outside sources.
13
Settlement of Rawlings litigation
On February 11, 2002 the Company entered into a settlement agreement with
Rawling Sporting Goods Company with respect to the Rawlings litigation. Under
the settlement agreement the Company agreed to transfer 160,000 shares of
Centerpoint Common Stock owned by it to Rawlings. The Company and Rawlings
agreed to voluntarily dismiss the Rawlings litigation and to release each other
from all claims relating to the litigation, subject to the transfer of the
shares. The Centerpoint shares were transferred to Rawlings in May 2002, and the
claims against the Company have been dismissed with prejudice.
Investment Company Act Matters
Currently it is anticipated that the Company will either seek a suitable
business to acquire or merge with or invest in or proceed to present a
liquidation proposal to its stockholders. The complexity of the Company's
corporate structure, and the continuing effects of past acquisitions,
dispositions and restructuring, and related tax effects complicate any
liquidation of the Company.
As the Company no longer has any operating subsidiaries, if the Company is
unable to find a suitable business to acquire or merge with and the Company
fails to proceed to initiate the liquidation process within a reasonable time
following any determination to not proceed with an acquisition of or merger with
an operating company then the Company may become required to register as an
investment company under the Investment Company Act of 1940. There are severe
limits on what a company registered under the Investment Company Act can do,
including a prohibition against its borrowing and strict limitations upon
dealings between the company and significant stockholders.
Item 2. Properties
The following facilities were in 2000 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, and which was occupied under a lease expiring in
2001, at a monthly rental of approximately US$ 2,200. This lease was
terminated in June 2000.
(b) Factory and office facilities owned and located in Mandello del Lario,
Italy in a group of one, two and three story buildings aggregating 54,550
square meters, previously used by Moto Guzzi. This facility was disposed
of in September 2000 as part of the disposal of the Moto Guzzi operations.
(c) Moto Guzzi's parts distribution facility is located at a 3,683 square
meter facility in Modena, Italy, under a lease expiring in 2002. This
facility was disposed of in September 2000 as part of the disposal of the
Moto Guzzi operations.
(d) Offices aggregating 480 square meters in Milan, Italy, are leased from an
entity affiliated with Francesco Pugno Vanoni, the former Chairman of the
Board of Directors of the Company, and his brother, at a cost of Italian
Lira 161 million in 1998 under a lease expiring on August 31, 2000. The
rental is believed to be comparable to rents paid for similar facilities
elsewhere in Milan. From August 2000, the Company renewed this lease for a
part of the offices for a total of 100 square meters for a rental of
Italian Lira 38 million annually through July 2002. The lease was renewed
in July 2002 for an additional 2 years.
(e) Factory and related commercial facility aggregating approximately 10,000
square meters in Torino, Italy leased by LITA, at an annual rental of
Italian Lira 540 million in 1999 and used at approximately 80%
14
of production capacity, based on equipment in place. This facility was
disposed of in July 2000 as part of the disposal of the LITA operations.
Item 3. Legal Proceedings
The Company and its subsidiaries are involved in litigation in the normal course
of business. Except as follows, management does not believe that an adverse
result in any such action would have a material adverse effect on the Company.
In August 1998, an action entitled "Rawlings Sporting Goods Co., Inc. v. Trident
Rowan Group, Inc. et al.," was filed in the United States District Court for the
Northern District of New York by the owner of property located in Salisbury, New
York, seeking to hold the Company liable for costs that the owner (Rawlings
Sporting Goods Co.) has allegedly incurred in response to the release or
threatened release of allegedly hazardous substances on land allegedly owned by
the Company between 1948 and 1970, and used by a third party. In an amended
complaint served in December 2000, the plaintiff for the first time further
alleged that the Company still owns a portion of the allegedly contaminated
land. The action sought restitution of costs incurred by the plaintiff in
responding to the release or threatened release of such substances at the
property, in an amount in excess of US$ 1.7 million.
On February 11, 2002 the Company entered into a settlement agreement with
Rawlings with respect to the litigation. Under the settlement agreement the
Company agreed to transfer 160,000 shares of Centerpoint Common Stock owned by
it to Rawlings and the Company and Rawlings agreed to voluntarily dismiss the
Rawlings litigation and to release each other from all claims relating to the
litigation, subject to the transfer of the shares. The Centerpoint shares were
transferred to Rawlings in May 2002 and the claims against the Company have been
dismissed with prejudice.
In June 1997, the Company was notified that an action had been commenced against
it in the Court of Common Pleas, a Pennsylvania state court situated in
Philadelphia, entitled "John Wilson et al. v. Trident Rowan Group, Inc. et al,"
(the "Wilson Litigation"), an action eventually consolidated with a related,
companion action against other parties. As a result of detailed communications
over the ensuing months between plaintiff, the Company, the Company's insurer,
and defense counsel appointed by the insurer, it was learned that the plaintiff
was seeking damages for serious burn injuries alleged to have been sustained by
the plaintiff in 1996 from working with a starter unit claimed to have been
manufactured in the 1950's by a company once owned by a predecessor of the
Company.
In 1998, approximately one year after onset of the litigation, the Company's
insurer notified the Company that it was disclaiming coverage and defense of the
suit. The Company then retained new counsel to defend it in the action.
On December 19, 2000, a Settlement Agreement and Release was executed by and
between plaintiffs, the Company and I.T.E. Imperial Corporation and Gould
Electronics, Inc., the co-defendants in the Wilson Litigation. The Company and
Gould each agreed to pay 50% of the US$ 2,050,000 settlement amount, subject to
resolution of certain issues between them.
In March 1999, the Company separately brought suit against Travelers Casualty,
the Company's insurer, to compel it to resume coverage of the underlying claim
and to assume the costs of defense of the personal injury action. In May 2001,
the United States District Court granted summary judgment in favor of the
Company, holding that Travelers must indemnify the Company for liability
incurred and attorney's fees paid in connection with the Wilson litigation, plus
interest. Travelers may appeal this decision.
15
Pursuant to the May 2001 judgment, on June 11, 2001 legal counsel for the
Company submitted to the Court a proposed form of judgment requiring Travelers
to (i) pay the Company, US$ 2,050,000, plus interest attributable to the sums
the Company has and will have to spend in settlement of the Wilson Litigation,
(ii) US$ 764,045 plus interest representing costs and attorneys fees incurred in
defending the Wilson Litigation, and (iii) US$ 78,975, plus interest,
representing costs and attorneys fees incurred by the Company in prosecuting its
claims against Travelers.
On June 11, 2001 Travelers filed with the Court a Motion for Reconsideration of
Order or in the Alternative For Resolution of Certain Undecided Issues, seeking
reconsideration of the judgment, or in the alternative asking the Court to
confirm that Travelers liability is limited to US$ 1,000,000 and that Travelers
is entitled to charge the Company a reasonable premium for the liability
coverage. In July 2001, legal counsel for the Company filed a motion with the
Court responding to Travelers' motion.
On June 15, 2001, a verdict was rendered by the Court of Common Pleas of
Philadelphia County holding that the Company was responsible for paying all
settlement funds and ordering the Company to pay Gould US$ 1,025,000 plus
interest at a rate of 7% per annum from the date Gould paid the plaintiffs. On
June 27, 2001, the Company's legal counsel advised counsel to Travelers of the
judgment and formally tendered to Travelers responsibility for deciding whether
any post-trial motions and/or notice of appeal should be filed. On June 29, 2001
legal counsel for Travelers responded that Travelers refused to take any
position on the issues. The appeal period for the judgment expired on July 15,
2001, and the judgment became due and payable to Gould on that date. The Company
satisfied this judgment in full earlier this year.
In January, 2002, the judge in the Company's litigation against Travelers
arising out of the Wilson litigation determined that Travelers was liable to the
Company for US$ 1,000,000, plus the Company's legal fees in connection with the
litigation, less a reasonable premium. Traveler's subsequently challenged the
reasonableness of the legal fees and the judge requested explanatory submissions
from both Travelers and the Company. In July 2002 the judge ruled that the fees
were reasonable, but that certain duplications should be eliminated. In
September 2002 the court rendered a judgment in favor of the Company against
Travelers in the amount of US$ 1,822,979. Travelers has appealed the judgment
and a final decision is expected to be rendered in 2003.
Item 4. Submission of Matters to Vote of Security Holders
During the year ended December 31, 2000, the Company did not hold a stockholders
meeting or submit any matter to the vote of its stockholders.
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 Small Cap Market under the symbol TRGI. The reported prices represent
inter-dealer prices, which do not include retail mark-ups, markdowns, or any
commission to the broker-dealer, and may not necessarily represent actual
transactions. From June 5, 1997 until March 17, 1999, the common stock and the
newly issued warrants traded on the NASDAQ National Market. Since March 18,
1999, the common stock and warrants have been quoted in the Over-The-Counter
market Bulletin Board. Except as described below, all warrants expired in June
2002.
16
Common Stock
Bid Prices
--------------------------
High Bid Low Bid
-------- -------
1997 1st Quarter 9-1/2 7-3/8
2nd Quarter 8-1/2 4-7/8
3rd Quarter 7-1/4 4-1/8
4th Quarter 7-1/8 4-15/16
1998 1st Quarter 6-3/4 3-9/16
2nd Quarter 7-1/2 5
3rd Quarter 6-9/16 4
4th Quarter 5-7/16 3
1999 1st Quarter 7 4 1/8
2nd Quarter 6-7/16 4-5/8
3rd Quarter 5 1-15/16
4th Quarter 4-1/4 1-1/8
2000 1st Quarter 3.88 2.88
2nd Quarter 4.25 1.75
3rd Quarter 2.00 0.50
4th Quarter 1.16 0.41
2001 1st Quarter 1.02 0.75
2nd Quarter 1.00 0.85
3rd Quarter 1.10 0.98
4th Quarter 1.30 1.01
2002 1st Quarter 1.50 1.15
2nd Quarter 1.18 0.75
3rd Quarter 0.60 0.45
4th Quarter 0.47 0.20
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 1-1/16 9/16
2nd Quarter 13/16 7/16
3rd Quarter 15/32 7/32
4th Quarter 1-1/4 1/16
2000 1st Quarter 6/16 3/32
In February 2000, in connection with the proposed upcoming auction of Moto
Guzzi, the Company extended the expiration date of certain warrants issued by
the Company to the following persons and entities from June 2002 to June 2007
and reduced the exercise price of the warrants to US$ 3.50 per share, the then
current market price of the Company's Common Stock, as follows:
17
Original Exercise New Exercise
Name Warrants Price Price
---------------------------------------- -------- ----------------- ------------
Mark S. Hauser 152,185 $5.50 $3.50
Azzurra (Affiliate of Mark Hauser) 250,000 $5.50 $3.50
Simtov, LDC (Affiliate of Emanuel Arbib) 99,212 $5.50 $3.50
Gianni Bulgari 190,534 $5.50 $3.50
As of July 15, 2003 there were approximately 1,000 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,
except in the case that the Company is liquidated.
Item 6. Selected Financial Data
The selected consolidated financial data set forth below for the fiscal years
ended December 31, 2000, 1999, 1998, 1997 and 1996 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,
------------------------------------------------------------------------------------
2000 2000 1999 1998 1997 1996
Income Statement Data (000s) (a) (000,000s) (000,000s) (000,000s) (000,000s) (000,000s)
---------- ---------- ---------- ---------- ---------- ----------
Net Sales .......................... $ -- Lira -- Lira 1,987 Lira 3,775 Lira 2,535 Lira 2,757
Loss from continuing operations .... (3,468) (7,149) (6,610) (6,112) (13,525) (12,439)
Net profit/loss .................... 12,963 26,721 2,485 (25,019) (22,477) (15,001)
Cash dividends per common share .... -- -- -- -- -- --
Balance Sheet Data
Total assets ....................... 24,313 50,117 23,706 23,938 55,089 79,877
Long-term debt net of current
portion ............................ -- 12,634 1,271 2,316 10,839
Earnings (Loss) per share (b)
Continuing operations .............. (0.85) (1,757) (1,544) (1,333) (2,941) (2,710)
Discontinued operations ............ 4.04 8,323(c) 2,125(d) (4,124) (1,945) (559)
Figures for 1996 through 1999 have been restated to reflect the discontinuance
of the Moto Guzzi and LITA businesses.
(a) Converted solely for the convenience of the reader at Italian Lira 2,061:
US$ 1.00, the approximate rate as at December 31, 2000.
(b) As the company had losses from continuing operations in each of the years
1996 through 2000, all options, warrants and other dilutive instruments
were antidilutive for each of the years above.
(c) Includes Italian Lira 56,439 million gain on disposal of the Moto Guzzi
business, before minority interests of Italian Lira 18,796 million.
18
(d) Includes Italian Lira 21,679 million gain, net of minority interest of
Italian Lire 4,158 million, relating to the merger of the discontinued
Moto Guzzi business with North Atlantic Acquisition Corp.
Exchange Rates
Since all of the production, and much of the sales, of the Company occurred in
Italy, the Company's primary financial statements are reported in Italian Lira,
the functional currency of the Company as defined by generally accepted
accounting principles in the United States of America. The U.S. dollar
translations are provided solely for the reader's convenience and have been made
at the approximate rate of 2,061 Lira to the dollar as of December 31, 2000. In
no means is this intended to replicate or approximate the effects of Accounting
Standards Board ("FASB") Statement of Financial Accounting Standard ("SFAS") No.
52, "Foreign Currency Translation," as the translations contained within are
only at the aforementioned exchange rate.
Prior to September 1992, the Bank of Italy maintained the value of the Italian
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 Italian Lira
against other EMS currencies that continued despite intervention by the Bank of
Italy and the central banks of other nations participating in the EMS, the
Italian government, in consultation with the Bank of Italy, suspended the
Italian Lira from the ERM. Following this suspension, the value of the Italian
Lira immediately declined by approximately 20% against the main EMS currencies
with similar consequent depreciation against the U.S. dollar. The Lira was
readmitted into the ERM on November 25, 1996. On January 1, 1999, Italy
participated as one of the 11 European countries in a European common currency,
the Euro.
The following table sets forth, for the period indicated, the high, low, average
and end of period exchange rates expressed in Italian Lira per U.S. dollar
(rounded to the nearest Italian Lira):
Calendar Year High Low Average End of Period
------------- ---- --- ------- -------------
2001 2,313 2,031 2,164 2.174
2000 2,340 1,874 2,103 2,061
1999 1,933 1,631 1,819 1,924
1998 1,823 1,590 1,733 1,656
1997 1,837 1,520 1,703 1,768
1996 1,606 1,499 1,542 1,522
1995 1,767 1,565 1,626 1,588
The following table sets forth, for the period indicated, the high, low, average
and end of period exchange rates expressed in Euro per U.S. dollar since the
Italian Lira to Euro exchange rate was fixed at 1,936.27 from January 1, 2000.
19
Calendar Year High Low Average End of Period
------------- ---- --- ------- -------------
2002 1.16 0.95 1.06 0.95
2001 1.19 1.05 1.12 1.12
2000 1.21 0.97 1.09 1.06
Fluctuations in the exchange rates between the Lira to Euro and the U.S. dollar
affect the U.S. dollar equivalents of the Company's reported revenues and
earnings. The Company, which no longer has any operations, does not currently
engage in hedging activities to reduce its exposure to exchange rate
fluctuations.
Item 7. Management's Discussion and Analysis of Financial Conditions and Results
of Operations
Portions of the discussion and analysis below contain certain "forward looking"
statements, which involve risks and uncertainties. The Company's actual results
may differ significantly from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, lack of adequate capital to continue operations, changes in currency
exchange rates, other factors discussed in the report as well as factors
discussed in other filings made with the Securities and Exchange Commission.
Although the Company believes that the assumptions underlying the forward
looking statements contained herein are reasonable, any of the assumptions could
prove inaccurate, and therefore, there can be no assurance that the forward
looking statements included herein will prove to be accurate.
General
In calendar year 2000, the Company disposed of two of its industry segments with
the sale of its motorcycle and steel tube operations, as discussed in Item 1.
These have been accounted for as discontinued operations and the results of
operations for prior years have been restated to reflect the discontinuance.
20
Year ended December 31, 2000 compared to Year ended December 31, 1999
Dec. 31, Dec. 31,
2000 1999
(000,000s (000,000s
Lira). Lira).
Net sales -- 1,987 100.0%
Cost of sales -- (1,055) (53.1%)
------ -------
-- 932 46.9%
Selling, general and administrative expenses (4,529) (5,829) (293.4%)
Impairment expense (90) (900) (45.3%)
------ -------
Operating loss (4,619) (5,797) (291.8%)
Interest expense (1,197) (589) (29.6%)
Interest income 988 1,178 59.3%
Amortization of premium for redemption of
Subsidiary preferred stock (2,731) --
Subsidiary preferred stock dividends (639)
Other income, net 108 (1,245) (62.7%)
------ -------
Loss from continuing operations before Income
taxes and minority interests (8,090) (6,453) (324.8%)
Income taxes (38) (88) (4.4%)
Minority interest 979 (69) (3.5%)
------ -------
Profit/(loss) from continuing operations (7,149) (6,610) (332.7%)
Discontinued operations: 33,870 9,095 457.7%
Gain on disposal of motorcycle operations 37,643 --
Losses of motorcycle segment after income
taxes of Lira 514 and Lira 88 (4,378) (12,973) (652.9%)
Gain on merger of discontinued motorcycle
subsidiary -- 21,679 1,091.0%
Profit of steel tube segment after income
taxes of Lira and Lira 164 605 634 31.9%
Accrual for loss on disposal of steel tube
Segment -- (245) (12.3%)
------ -------
Net profit/(loss) 26,721 2,485 125.1%
------ -------
Net sales in 1999 represented sales of the Company's temporary management
services subsidiary, TIM disposed of at the start of 2000. Net sales in 1999
included sales to the steel tube operations of Italian Lira 389 million in
respect of performance based fees for TIM's management intervention.
The reduction of Italian Lira 1,300 million or 22.3% in selling general and
administrative expenses in 2000 compared to 1999 reflects the disposal of the
Company's temporary management services subsidiary and cost reductions
implemented by the Company, offset by increased legal expenses in connection
with the
21
various claims and litigation described in Item 1 and 3 and the effects of the
Lira to U.S. dollar exchange rate.
The Company's cost saving program was hindered by the need to maintain
accounting and tax compliance systems for both Italian and U.S. purposes, the
complexity of the disposal programs in 2000 and 1999 and corporate restructuring
programs. In 1999, corporate salaries included Italian Lira 481 million (US$
250,000) in respect of the issuance of a US$ 250,000 5% Debenture to Emanuel
Arbib, a director of the Company in respect of his efforts in raising US$ 6
million from the issuance of the 5% Debentures to third parties.
Cost savings achieved in 2000 were partially offset by the average $US
dollar-to-Lira exchange rate that was 15.6% higher in 2000 compared to 1999.
This had a significant impact as approximately 79% of selling, general and
administrative expenses were incurred in U.S. Dollars.
Significant elements of selling, general and administrative costs are as
follows:
Dec. 31 Dec. 31
2000 1999
000,000s) (000,000s
Lira) Lira)
Corporate salaries 1,340 1,421
Legal costs 1,198 938
Other costs 1,991 2,570
Temporary management services subsidiary -- 900
-------------------
4,529 5,829
===================
Other costs include rent and office expenses for the Company's offices in New
Jersey (closed in June 2000) and in Milan, Italy, tax, accounting and compliance
costs in the U.S. and Italy, professional fees in connection with the disposal
of operations in Italy, public company costs in the U.S. and certain statutory
costs in Italy.
In 2000, impairment costs of Italian Lira 90 million reflect the write-off of
residual amounts of goodwill. Impairment expense in 1999 reflects Italian Lira
500 million in respect of the December 1999 disposal of land in Sardinia and
Italian Lira 400 million impairment of trademarks and other intangibles of TIM,
to reflect the 2000 terms of sale of this subsidiary.
Interest expense in 2000 principally reflects interest on the Company's US$ 6.25
million 5% debentures issued in December 1999. Interest expense in 1999
principally reflects interest on residual Italian loans dating from when OAM was
operative (prior to 1993) and interest on bridge financing provided in October
1998 by Tamarix and Mr. Giovanni Bulgari repaid in November and May 1999
respectively. Final installments on the OAM loans were paid in 2001.
Interest income in 2000 is principally in respect of interest earned on the
proceeds received from the sale of Moto Guzzi and Italian Lira 306 million
receivable by OAM for the value of warrants of Moto Guzzi issued to OAM as
remuneration for the ongoing finance provisions to the disposed motorcycle
operations plus interest on other cash balances and tax receivables. The
principal elements of interest income in 1999 were Italian Lira 916 million
receivable by OAM for the value of warrants of Moto Guzzi issued to OAM as
remuneration for the ongoing finance provisions to the disposed motorcycle
operations, Italian Lira 176 million other interest paid to OAM by the disposed
motorcycle operations and, for the balance, interest receivable on cash balances
and tax receivables.
22
In 2000, the Company recorded a charge of Italian Lira 3,062 million of
amortization for the premium on redemption of Series B Preferred Stock of
Centerpoint. Such charge largely relates to exchange differences as the Series B
Preferred Stock was denominated in U.S. dollars. The Company also incurred
Italian Lira 639 million of financing costs in the form of preferred stock
dividends payable to external holders of the Series B Preferred Stock.
Significant elements of other income, net were as follows:
Dec. 31 Dec. 31
2000 1999
(000,000s (000,000s
Lira) Lira)
Foreign exchange 4 (2)
Release of reserves for claims -- 1,009
Additional reserve for U.S. litigation -- (2,970)
Rental income -- 80
Other 104 638
---------------
Other income/(expense), net 108 (1,245)
===============
An additional reserve for U.S. litigation was made in 1999 in light of
preliminary judgments. Release of reserves for claims in 1999 principally
related to reserves made for companies disposed in the early 1990's based on
final settlements of claims deriving from such disposals.
As a result of the above items, losses from continuing operations increased to
Italian Lira 7.1 billion from Italian Lira 6.6 billion in 1999.
Losses from the discontinued motorcycle operations decreased to Italian Lira 4.4
billion in 2000 compared to Italian Lira 13.0 billion in 1999 as 2000 represents
6 months of operations until disposal while 1999 represented a full 12 months.
The Company recorded a gain of Italian Lira 56.4 billion before minority
interests of Italian Lira 18.8 billion on disposal of the motorcycle operations
in 2000. In 1999, the merger of the motorcycle operations with and into North
Atlantic Acquisition Corp. generated a gain of Italian Lira 25.8 billion before
minority interests of Italian Lira 4.2 billion.
23
Year ended December 31, 1999 compared to Year ended December 31, 1998
Dec. 31, Dec. 31,
1999 1998
(000,000s (000,000s
Lira) Lira)
Net sales 1,987 100.0% 3,775 100.0%
Cost of sales (1,055) (53.1%) (2,447) (64.8%)
------- -------
932 46.9% 1,328 35.2%
Selling, general and administrative expenses (5,829) (293.4%) (6,303) (167.0%)
Impairment expense (900) (45.3%) (2,688) (71.2%)
Operating loss (5,797) (291.8%) (7,663) (203.0%)
Interest expense (589) (29.8%) (761) (20.2%)
Interest income 1,178 59.3% 1,554 41.2%
Other income, net (1,245) (62.7%) 546 14.5%
------- -------
Loss from continuing operations before Income
taxes and minority interests (6,453) (324.8%) (6,324) (167.5%)
Income taxes (88) (4.4%) (161) (4.3%)
Minority interest (69) (3.5%) 373 9.9%
------- -------
Profit/(loss) from continuing operations (6,610) (332.7%) (6,112) (161.9%)
Discontinued operations: 9,095 457.7% (18,907) (500.8%)
Losses of motorcycle segment after income
taxes of Lira 88 and Lira 519 (12,973) (652.9%) (19,267) (510.4%)
Gain on merger of motorcycle subsidiary 21,679 1091.0% --
Profit of steel tube segment after income
taxes of Lira 164 and Lira 0 634 31.9% 360 9.54%
Provision for loss on disposal of steel tube
segment (245) (12.3%) --
------- -------
Net profit/(loss) 2,485 125.1% (25,019) (662.75%)
------- -------
Net sales principally represent sales of the Company's temporary management
services subsidiary, TIM. Net sales in 1999 include sales to the steel tube
operations of Italian Lira 389 million in respect of performance based fees for
TIM's management intervention and Italian Lira 287 million in 1998 in respect of
a TIM manager who supervised the steel tube operations. The decrease in sales in
1999 compared to 1998 principally results from fact that 1998 includes a
significant intervention by TIM on behalf of a Swiss client in connection with
its acquisition of a business in Italy.
Gross margins increase as a percentage of net sales in 1999 compared to 1998 due
to the significant effect of the Italian Lira 389 million performance based fee
charged by TIM to the steel tube operations.
The reduction of Italian Lira 474 million or 7.5% in selling general and
administrative expenses in 1999 compared to 1998 reflects cost reductions
implemented by the Company. The cost saving program was hindered by the need to
maintain accounting and tax compliance systems for both Italian and U.S.
purposes,
24
the complexity of the disposal programs in 1999 and 1998 and corporate
restructuring programs. Further, in 1999, corporate salaries included an amount
of Italian Lira 481 million (US$ 250,000) for of the issuance of a US$ 250,000
5% Debenture to Emanuel Arbib, a director of the Company in respect of his
efforts in raising US$ 6 million from the issuance of the 5% Debentures to third
parties. Cost savings achieved were also partially offset by the average U.S.
dollar-to-Italian Lira exchange rate, which was 5% higher in 1999 compared to
1998. Higher legal costs were incurred in 1999 compared to 1998 principally in
connection with the U.S. litigation described in Item 3. Significant elements of
selling, general and administrative costs are as follows:
Dec. 31 Dec. 31
1999 1998
(000,000s (000,000s
Lira) Lira)
Corporate salaries 1,421 1,157
Legal costs 938 547
Other costs 2,570 3,208
Temporary management services subsidiary 900 1,391
----------------
5,829 6,303
================
Other costs include rent and office expenses for the Company's offices in New
Jersey (closed in 2000) and in Milan, Italy, tax, accounting and compliance
costs in the U.S. and Italy, professional fees in connection with the disposal
of operations in Italy, public company costs in the U.S. and certain statutory
costs in Italy.
Impairment expense in 1999 reflects Italian Lira 500 million in respect of the
December 1999 disposal of land in Sardinia and Italian Lira 400 million
impairment of trademarks and other intangibles of TIM, to reflect the 2000 terms
of sale of this subsidiary. In 1998, impairment expense reflected reserves made
for the Company's concession rights over parking spaces in Genoa in the light of
negotiations for their disposal, completed in 1999.
Interest expense in 1999 principally reflects interest on residual Italian loans
dating from when OAM was operative (prior to 1993) and interest on bridge
financing provided in October 1998 by Tamarix and Mr. Giovanni Bulgari repaid in
November and May 1999 respectively. Final installments on the OAM loans are due
to be paid in 2001. In 1998, interest principally reflects the same items as in
1999 and additionally interest on the Company loan note issued to the company
pursuant to its 1996 stock redemption program and repaid in October 1998.
The principal elements of interest income in 1999 are Italian Lira 916 million
receivable by OAM in respect of the value of warrants of Moto Guzzi issued to
OAM as remuneration for the ongoing finance provisions of the disposed
motorcycle operations, Italian Lira 176 million other interest paid to OAM by
the disposed motorcycle operations and, for the balance, interest receivable on
cash balances and tax receivables. In 1998, Italian Lira 533 million of interest
receivable is in respect of OAM financing of the disposed motorcycle operations
and the balance was principally of interest on cash and short-term fixed
interest investments.
25
Significant elements of other income, net were as follows:
Dec. 31 Dec. 31
1999 1998
(000,000s (000,000s
Lira) Lira)
Foreign exchange (2) (2)
Release of reserves for claims 1,009 714
Additional reserve for U.S. litigation (2,970) --
Rental income 80 150
Other 638 (316)
--------------------
(1,245) 546
====================
The U.S. litigation is described in Item 3 of this report. An additional reserve
was made in 1999 in light of preliminary judgments. Release of reserves for
claims principally relates to reserves made in respect of companies disposed in
the early 1990's based on final settlements of claims deriving from such
disposals.
As a result of the above items, losses from continuing operations were
substantially unchanged in 1999 compared to 1998. Losses from the discontinued
motorcycle operations decreased to Italian Lira 13.0 billion in 1999 compared to
Italian Lira 19.3 billion in 1998 principally due to share of losses charged to
minority interests of Italian Lira 10.0 billion following the merger with North
Atlantic Acquisition Corp. The merger with North Atlantic Acquisition Corp.
resulted in a gain of Italian Lira 25.8 billion before minority interests of
Italian Lira 4.2 billion. The gain resulted from the Company selling
approximately 40% of their interest in their loss generating motorcycle
operations for the cash contributed by North Atlantic Acquisition Corp. to
effect the merger. This merger and the gain are described in Note 3 to the
financial statements and in Item 1, above. The Company had hoped that the merger
and the status of Moto Guzzi as a public company would have enabled the business
to raise the further capital needed to refurbish its operations and increase
production and sales, but when such further financing was not forthcoming and
with operations affected adversely by a liquidity crisis from the second half of
1999, a merger with or disposal to another better financed party became the only
viable strategic alternatives. The motorcycle operations were sold in September
2000 following a public auction process, again described above in Item 1 and in
the Notes to the Financial Statements.
The Company also sold its steel tube operations in 2000. While this business was
profitable in 1999 and 1998, mainly due to favorable market conditions and
prices, it did not present opportunities for growth and future profits that
justified further investment. Consequently it was disposed to a trade purchaser.
Liquidity and Capital Resources
Overview
In 2000 the Consolidated Statements of Cash Flows in the Financial Statements
principally evidence the disposal of Moto Guzzi and transactions related to this
disposal, discussed in detail above, as well as the negative cash flows from
operations which are principally related to corporate costs.
In 1998 and 1999, the cash flows of the Company principally evidence raising
funds through the realization of investments, assets and receivables and from
capital markets (in 1998 from loans from related parties following unsuccessful
attempts to raise funds from public markets and in 1999 from the issuance of a
convertible debenture) which funds were then principally applied to finance the
discontinued motorcycle operations and to finance losses from continuing
operations. In 1998, the Company also applied the
26
proceeds realized from the sale of investments to meet share purchase
commitments -- secured for the major part by those investments sold -- see Note
5 to the Financial Statements.
Significant cash activities in 2000
Negative operating cash flows principally relate to corporate costs. Payments of
accruals and trade payables amounted to Italian Lira 4.9 billion in 2000 as the
Company has applied part of the proceeds of the 5% Convertible Debentures issued
by the Company in December 1999 to pay accrued legal fees and other accrued
costs.
The net increase in investments of Italian Lira 29.0 billion reflects investment
of proceeds received from the disposal of Moto Guzzi ands LITA.
US$ 3,500,000 (Italian Lira 6.9 billion at the then prevailing exchange rate) of
proceeds from the December 1999 issue of Convertible Debentures was used in
February 2000 to subscribe to Series B Preferred Stock of Centerpoint. Such
amount, along with US$ 6 million (Italian Lira 11.4 billion) from external
investors, was sufficient to finance the motorcycle operations through their
eventual disposal. The Series B Preferred Stock of Centerpoint Corporation was
redeemed in September 2000 for Italian Lira 15.9 billion reflecting the amount
received from third parties of Italian Lira 11.4 billion, as above, plus
repayments of advances of Italian Lira 2.4 billion that had been converted into
Series B Preferred Stock of Centerpoint Corporation plus a further Italian Lira
2.0 billion resulting from unfavorable exchange movements in the period from
issuing the Series B Preferred Stock through its reimbursement.
Cash from discontinued operations reflects the proceeds from the disposal of
Moto Guzzi of Italian Lira 60.3 billion, less Italian Lira 15.9 billion applied
to finance Moto Guzzi operations through disposal and Italian Lira 2.5 billion
of professional fees and other costs allocated to the discontinued motorcycle
operations plus proceeds from the disposal of LITA of Italian Lira 1.5 billion.
Italian Lira 1.0 billion of the proceeds from the disposal of LITA was
receivable in 2001 on the anniversary of the sale.
See Item 1, above and Notes to the Financial Statements for details of the
Centerpoint Series B Preferred Stock issuance and redemption and the disposal of
the Moto Guzzi and LITA operations.
Future liquidity needs
The disposals of Moto Guzzi and LITA generated sufficient cash for the Company
to maintain operations which following the disposal related only to corporate
costs in winding down the companies activities and legal fees related to various
litigation described in Item 3 above and in the financial statements.
In July 2000, the Company negotiated an agreement to purchase the shares of the
minority shareholder in OAM for US$ 2.5 million, and the Company acquired this
interest in March 2001. This purchase will enable an orderly winding-up of OAM
and the Company's corporate structure in Italy, though such winding-up may take
up to several years due to tax complications.
The Company's 5% Convertible Debentures in an aggregate amount of US$ 6,250,000
were scheduled to come due in December 2001. As the major portion of the
Company's funds were held by Centerpoint, in order to finance the redemption of
the Convertible Debentures the Company needed to utilize funds held by
Centerpoint. On June 13, 2001 the Company, OAM and Centerpoint entered into the
Centerpoint Loan Agreement wherein subject to the terms and certain conditions
set forth therein Centerpoint agreed to lend the Company US$ 4,200,000. On June
13, 2001 Centerpoint made the Centerpoint Loan and on June 15, 2001 the Company
paid the holders of US$ 6,000,000 of the Debentures US$ 4,207,500 in cash, which
the Debenture holders accepted as payment in full on the Debentures (including
past due interest), representing
27
a 31.5% discount from their face value. The Centerpoint Loan bears interest at a
rate of 5 % per annum, is repayable in full on the earlier of June 13, 2002 and
the date on which the Company causes or permits a liquidation of Centerpoint,
and was secured by the 300,000 shares of Centerpoint common stock currently
owned by the Company and 1,200,000 of the shares of Centerpoint common stock
currently owned by OAM.
As discussed in item 3 above, in December 2000, the Company and Gould, the
co-defendant in the Wilson Litigation executed a settlement agreement and
release with the plaintiff under which each of the Company and Gould paid US$
1,025,000 to settle the claims with the plaintiff. On June 15, 2001, a verdict
was rendered by the Court of Common Pleas of Philadelphia County holding that
the Company was responsible for paying all settlement funds and ordering the
Company to pay Gould US $ 1,025,000 plus interest at a rate of 7% per annum from
the date Gould paid the plaintiffs. Such amount was paid at the end of 2000 and
in 2001.
In January 2002, the Company's OAM subsidiary entered into agreements with Bion
as described in Note 18 to the Financial Statements and in Item 1 above. The
substantial effect of the agreements with Bion was that the Company disposed of
its controlling interest in Centerpoint. Centerpoint substantially received the
same value of proceeds it could have received had it liquidated Centerpoint.
Pursuant to these transactions, OAM received the Company's US$ 4.2 million
Promissory Note and approximately US$ 3.7 million of the approximately US$ 8.7
million cash held by Centerpoint at the date of the transaction with Bion.
As at May 2003, the Company has approximately Euro 4.2 million (US$ 4.6 million
at exchange rates prevailing in May 2003) of cash. Management believe such
amounts to be sufficient to fund operations which principally reflect litigation
which the company has commenced against Aprilia and against IMI as described
above and to fund corporate costs related to the winding down of the Company's
corporate structure in Italy, which is redundant following the disposal of its
Italian operations. In May 2002 the Board of Directors of the Company approved
the engagement of Investec Ernst & Co. to explore investment options available
to the Company and to seek a suitable business to acquire or merge with. The
Company has evaluated a number of business opportunities presented by Investec,
but has determined not to pursue any of them. The Company's Board of Directors
does not consider liquidating the Company to be a viable alternative due to the
complexity of the Company's corporate structure, and the continuing effects of
past acquisitions, dispositions and restructuring, and related tax effects.
28
Item 8. Financial Statements and Supplementary Data
TRIDENT ROWAN GROUP, INC.
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants..................................................31
Consolidated Balance Sheets - Assets......................................................32
Consolidated Balance Sheets - Liabilities and Shareholders' Equity (Deficit)..............33
Consolidated Statements of Operations.....................................................34
Consolidated Statements of Changes in Shareholders' Equity (Deficit)......................36
Consolidated Statements of Cash Flows.....................................................38
Notes to Consolidated Financial Statements................................................41
29
Trident Rowan Group, Inc.
Consolidated Financial Statements As of
December 31, 2000 and 1999
Together with
Report of Independent Public Accountants
30
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
Trident Rowan Group, Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of Trident Rowan
Group, Inc. (a Maryland corporation) and subsidiaries (the "Company") as of
December 31, 2000 and 1999, and the related consolidated statements of
operations, shareholders' equity (deficit), and cash flows for each of the three
years in the period ended December 31, 2000. Our audits also included the
financial statement schedules listed in the Index at Item 8. These financial
statements and financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 2000
and 1999, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly
in all material respects the information set forth therein.
As discussed in Note 18 to the financial statements, in January of 2002, the
Company acquired 1,000,000 common shares of Bion Environmental Technologies Inc.
Our audits also comprehended the translation of the Italian Lira amounts into
U.S. dollar amounts and, in our opinion, such translation has been made in
conformity with the basis stated in Note 1. The translation of the financial
statement amounts into U.S. dollars has been made solely for the convenience of
readers in the United States of America.
DELOITTE & TOUCHE ITALIA S.p.A.
(A former member firm of Andersen Worldwide.
Deloitte & Touche Italia S.p.A. has entered into an agreement
to associate with Deloitte & Touche S.p.A.)
Milan, Italy
June 2, 2003
31
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2000 and 1999
In millions of Lira or thousands of Dollars
2000 2000 1999
ASSETS
Cash and cash equivalents ..................................... $ 5,694 Lira 11,737 Lira 12,468
Marketable securities, at cost ................................ 16,212 33,417 4,066
Receivables ................................................... 462 953 1,764
Trade, less allowance ....................................... 12 25 479
Other receivables ........................................... 450 928 1,285
Prepaid Expenses .............................................. 90 186 195
-------- ------- -------
TOTAL CURRENT ASSETS .......................................... 22,920 47,246 18,493
-------- ------- -------
Property, plant and equipment ................................ 55 114 292
At cost ..................................................... 87 179 562
Less allowance for depreciation ............................. (32) (65) (270)
Trademark and other intangibles, net of amortization
of Lira 1,450 at 12-31-99 ................................... -- -- 150
Goodwill, net of amortization of Lira 445 (1999 -Lira 425) .... -- -- 110
Unamortized debt charges ...................................... 223 460 858
Tax receivables ............................................... 1,091 2,248 2,229
Restricted Cash ............................................... 1,000 --
Other assets .................................................. 1 2 36
Net assets of discontinued steel tube operations .............. -- -- 1,538
-------- ------- -------
TOTAL ASSETS .................................................. $ 24,313 Lira 50,117 Lira 23,706
======== ======= =======
See Notes to Consolidated Financial Statements
32
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2000 and 1999
In millions of Lira or thousands of Dollars
2000 2000 1999
LIABILITIES
Current portion of long-term debt ........................... $ 6,545 Lira 13,492 Lira 553
Amounts due to related parties .............................. -- -- 204
Accounts payable ............................................ 410 846 1,857
Accrued expenses and other payables ......................... 1,354 2,791 4,773
-------- -------- --------
TOTAL CURRENT LIABILITIES ................................... 8,309 17,129 7,387
-------- -------- --------
Net liabilities of discontinued motorcycle operations ....... -- -- 8,697
Long-term debt, less current portion ........................ -- -- 12,634
Provision for claims ........................................ 2,450 5,050 5,700
Minority interests .......................................... 9,474 19,527 6,362
Advances for subsidiary stock subscription .................. -- -- 2,405
SHAREHOLDERS' EQUITY/(DEFICIT) .............................. 4,080 8,411 (19,479)
Common stock, par value $0.01 per share:
Authorized 50,000,000 shares,
4,064,900 (1999 - 4,419,900) shares outstanding, .......... 51 106 106
Additional paid-in capital .................................. 51,694 106,555 104,594
Treasury stock, at cost ..................................... (23,245) (47,914) (47,524)
Cumulative translation adjustment ........................... (543) (1,119) (717)
Accumulated deficit ......................................... (23,877) (49,217) (75,938)
-------- -------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY ........................ $ 24,313 Lira 50,117 Lira 23,706
======== ======== ========
See Notes to Consolidated Financial Statements
33
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 2000, 1999 and 1998
In millions of Lira or thousands of Dollars, except per share information
2000 2000 1999 1998
(000s) (000,000s) (000,000s) (000,000s)
Net sales ..................................... $ -- Lira -- Lira 1,987 Lira 3,775
Cost of sales ................................. -- -- (1,055) (2,447)
----------- ---------- ---------- ----------
-- -- 932 1,328
Selling, general and administrative
expenses ...................................... (2,197) (4,529) (5,829) (6,303)
Impairment expense ............................ (44) (90) (900) (2,688)
----------- ---------- ---------- ----------
Operating loss ................................ (2,241) (4,619) (5,797) (7,663)
Interest expense .............................. (581) (1,197) (589) (761)
Interest income ............................... 479 988 1,178 1,554
Amortization of premium for redemption of
Subsidiary preferred stock .................... (1,325) (2,731) -- --
Subsidiary preferred stock dividends .......... (310) (639) -- --
Other income/(expense), net ................... 53 108 (1,245) 546
----------- ---------- ---------- ----------
Loss from continuing operations before
income taxes and minority interests ........... (3,925) (8,090) (6,453) (6,324)
Income taxes .................................. (18) (38) (88) (161)
Minority interests ............................ 475 979 (69) 373
----------- ---------- ---------- ----------
Loss from continuing operations ............... (3,468) (7,149) (6,610) (6,612)
Discontinued operations (Note 3) .............. 16,431 33,870 9,095 (18,907)
Loss of motorcycle operations segment
after income taxes of Lira 514,
Lira 88 and Lira 519 .................. (2,124) (4,378) (12,973) (19,267)
Gain on disposal of discontinued
motorcycle operations ................. 18,261 37,643 -- --
34
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 2000, 1999 and 1998
In millions of Lira or thousands of Dollars, except per share information
2000 2000 1999 1998
(000s) (000,000s) (000,000s) (000,000s)
Gain on merger of discontinued
motorcycle subsidiary ................. -- -- 21,679 --
Profit of steel tube segment after
income taxes of Lira 0, Lira 164
and Lira 0 ............................ 294 605 634 360
Accrual for loss on disposal of steel
tube segment .......................... -- -- (245) --
----------- ---------- ---------- ----------
Net profit/(loss) ............................. $ 12,963 Lira 26,721 Lira 2,485 Lira (25,019)
=========== ========== ========== ==========
PROFIT/(LOSS) PER SHARE
Basic
Continuing operations ......................... $ (0.85) Lira (1,757) Lira (1,544) Lira (1.333)
Discontinued operations ....................... 4.04 8,323 2,125 (4,124)
----------- ---------- ---------- ----------
3.19 6,566 581 (5,458)
=========== ========== ========== ==========
Weighted average number of shares
Outstanding during the period:
Basic ......................................... 4,069,571 4,069,571 4,280,767 4,584,237
Diluted ....................................... 4,069,571 4,069,571 4,286,687 4,696,922
=========== ========== ========== ==========
See Notes to Consolidated Financial Statements
35
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity (Deficit)
December 31, 1999, 1998 and 1997
In millions of Lira or thousands of Dollars
Additional Other Accretion
Common paid-in Treasury Comprehensive expense,
stock capital Stock Income net
------ ---------- -------- ------------- --------
At January 1, 1998 Lira 88 90,357 (29,921) (154) (2,474)
Net loss -- -- -- -- --
Translation adjustment -- -- -- 178 --
Accretion expense, net of exchange movements -- -- -- -- (253)
Repurchase of shares 14 13,203 (15,944) -- 2,727
Issuance of shares 4 1,680 -- -- --
Less: Shares not vested as at Dec. 31, 1998 -- (1,208) -- -- --
----- -------- ------- ------ ------
At Dec. 31, 1998 Lira 106 104,032 (45,865) 24 --
Net profit -- -- -- -- --
Translation adjustment -- -- -- (741) --
Repurchase of shares -- -- (1,659) -- --
Vesting of shares subject to forfeit -- 562 -- -- --
----- -------- ------- ------ ------
At December 31, 1999 Lira 106 104,594 (47,524) (717) --
Net profit -- -- -- -- --
Translation adjustment -- -- -- (402) --
Capital increase resulting from minority
acquisition -- 1,477
Repurchase of shares for sale of TIM -- -- (390) -- --
Vesting of shares subject to forfeit -- 484 -- -- --
----- -------- ------- ------ ------
At December 31, 2000 Lira 106 106,555 (47,914) (1,119) --
At December 31, 2000 (000s) $ 51 51,694 (23,245) (543) --
===== ======== ======= ====== ======
TOTAL Shares Comprehensive
Accumulated SHAREHOLDERS' subject to Income/
deficit EQUITY(DEFICIT) Repurchase (loss)
----------- --------------- ---------- -------------
At January 1, 1998 (53,404) 4,492 15,691 (27,108)
Net loss (25,019) (25,019) -- (25,019)
Translation adjustment -- 178 -- 178
Accretion expense, net of exchange movements -- (253) 253 (253)
Repurchase of shares -- -- (15,944) --
Issuance of shares -- 1,684 -- --
Less: Shares not vested as at Dec. 31, 1998 -- (1,208) -- --
------- ------- ------- -------
At Dec. 31, 1998 (78,423) (20,126) -- (25,094)
Net profit 2,485 2,485 -- 2,485
Translation adjustment -- (741) -- (741)
Repurchase of shares -- (1,659) -- --
Vesting of shares subject to forfeit -- 562 -- --
------- ------- ------- -------
At December 31, 1999 (75,938) (19,479) -- 1,744
Net profit 26,721 26,721 -- 26,721
Translation adjustment -- (402) -- (402)
Capital increase resulting from minority
acquisition 1,477
Repurchase of shares for sale of TIM -- (390) -- --
Vesting of shares subject to forfeit -- 484 -- --
------- ------- ------- -------
At December 31, 2000 (49,217) 8,411 -- 26,319
At December 31, 2000 (000s) (23,877) 4,080 -- 12,758
======= ======= ======= =======
See Notes to Consolidated Financial Statements
36
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Consolidated Statements of Cash Flows
December 31, 2000, 1999 and 1998
In millions of Lira or thousands of Dollars
2000 2000 1999 1998
Net loss from continuing operations ............................... $ (3,469) Lira (7,149) Lira (6,610) Lira (6,112)
Adjustments to reconcile net loss to net
cash provided/(used) by continuing operations:
Depreciation and amortization ..................................... 62 127 216 377
Amortization of debt charges ...................................... 228 469 -- --
Non-cash finance income from discontinued operations .............. (148) (306) (916) (443)
Minority interests ............................................. (475) (979) 69 (373)
Amortization of premium for redemption of
Subsidiary preferred stock ..................................... 975 2,010 -- --
(Gain)/Loss on disposals of subsidiaries .......................... (31) (63) 567 --
Impairment reserves ............................................... 44 90 400 2,688
Other operating activities ........................................ 509 1,049 1,486 32
Changes in operating assets and liabilities:
Receipt of tax receivable ......................................... -- -- 6,002 --
Trade and other receivables ....................................... 660 1,361 1,955 2,938
Prepaid expenses .................................................. 5 10 334 (303)
Accounts payable and accrued expenses ............................. (2,382) (4,909) (597) 83
Related party payables ............................................ (99) (204) (110) 199
-------- ------- ------- -------
Net cash (used)/providedby operating activities ................... (4,121) (8,494) 2,796 (914)
-------- ------- ------- -------
Investing activities:
Net (increase)/decrease in investments ............................ (14,054) (28,970) (3,111) 17,103
Sale of subsidiaries, less cash disposed .......................... (111) (229) 4,556 --
Proceeds from disposal of other assets ............................ -- -- 122 284
Purchases of property, plant and equipment ........................ -- -- (6) (76)
-------- ------- ------- -------
Net cash (used)/provided by investing activities .................. (14,165) (29,199) 1,561 17,311
-------- ------- ------- -------
Financing activities
Issuance of subsidiary preferred stock ............................ 5,524 11,386 2,274 --
Redemption of subsidiary preferred stock .......................... (7,702) (15,876) --
Repurchase of shares .............................................. (805) (1,659) -- (15,582)
Loans from related parties ........................................ -- -- -- 6,466
Repayment of loans to related parties ............................. -- -- (6,638) --
Proceeds from long-term debt ...................................... -- -- 10,704 --
Principal payments of long-term debt .............................. (268) (553) (1,113) (4,228)
-------- ------- ------- -------
Net cash (used)/provided by financing activities .................. (3,251) (6,702) 5,227 (13,344)
-------- ------- ------- -------
Increase/(Decrease) in cash from continuing operations ............ (21,537) (44,395) 9,584 3,053
37
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Consolidated Statements of Cash Flows
December 31, 2000, 1999 and 1998
In millions of Lira or thousands of Dollars
2000 2000 1999 1998
Cash from merger with NAAC ........................................ -- -- 16,006 --
Cash provided/(used) by discontinued operations, Cash ............. 20,786 42,847 (16,174) (3,975)
Net of Lit. 1,000 (US$ 485) restricted cash
Exchange movement on opening cash ................................. 396 817 8 (9)
Cash, beginning of period ......................................... 6,048 12,468 3,044 3,975
-------- ------- ------- -------
Cash, end of period ............................................... $ 5,693 Lira 11,737 Lira 12,468 Lira 3,044
======== ======= ======= =======
See Notes to Consolidated Financial Statements
38
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
Consolidated Statements of Cash Flows
December 31, 2000, 1999 and 1998
Supplemental Schedule of Non-Cash Activities
2000 - In July 2000, as described in Note 5, Centerpoint Corporation
("Centerpoint") issued 300,000 shares of its common stock to the Company as a
fee for arranging and sponsoring its Series B preferred stock financing in
February 2000. Also in July 2000, OAM exercised 100,000 warrants for Centerpoint
stock at US$ 0.01 per share. As a result of these shares issued by Centerpoint,
the Company recorded a gain of non-cash increase to paid in capital of Italian
Lira 1,477 million.
In February 2000, US$ 1.25 million of advances to Centerpoint were converted to
Series B Preferred Stock - see Note 5.
Italian Lira 484 million has been charged as stock compensation expense.
1999 - As described in Note 5 the Company repurchased shares for US$ 862,500
(Italian Lira 1,659 million) on December 28, 1999, payment being effected in
January 2000.
The Company issued US$ 250,000 (Italian Lira 481 million) of its 5% U.S. dollar
denominated convertible debentures to Emanuel Arbib, Joint-CEO of the Company,
in connection with the placement of US$ 6 million of such debentures with
Italian financial institutions. See Note 8.
Italian Lira 562 million has been charged as stock compensation expense.
Cash disposed of on the sales of Pastorino S.r.l. and Grand Hotel Bitia S.r.l.
aggregated Italian Lira 44 million.
1998 - Stock compensation expense amounted to Italian Lira 475 million.
Other Supplemental Information
Interest paid amounted to Italian Lira 131 million, Italian Lira 864 million and
Italian Lira 718 million in 2000, 1999 and 1998, respectively.
See Notes to Consolidated Financial Statements
39
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 2000
Notes To Consolidated Financial Statements
1. Background and Organization
Prior to its disposal of its operating subsidiaries in 2000, Trident Rowan
Group, Inc. (the "Company") was a holding company incorporated in the United
States whose subsidiaries operated primarily in Italy. The Company primarily
operated in two industry segments: the manufacture and distribution of "Moto
Guzzi" brand motorcycles in Italy, Europe and elsewhere in the world and the
manufacture and distribution of steel tubes for the automotive and furniture
markets. Additionally, the Company provided temporary management services to
third parties, which activities were also disposed in 2000.
2000 disposal of all operating subsidiaries
In 2000, in unrelated transactions, the Company disposed of all of its operating
subsidiaries. Following these disposals, the Company's only significant assets
were a 62.7% interest in Centerpoint Corporation ("Centerpoint") (Moto Guzzi
through September 2000), a publicly traded Company in the United States
(OTC/BB/CPTX) plus cash and certain receivables, principally from the disposal
of its operating subsidiaries and for Italian tax repayments. The disposals are
described in further detail in Note 3 and 4 - Discontinued Operations.
Reporting currency
The primary financial statements through the disposal of the Company's
operations were shown in Italian Lira because all of the Company's material
operating entities were based in and operated entirely in Italy. Following the
disposal of its operations, the Company invested the major part of the net
proceeds of disposal in Lira denominated short-term investments pending
evaluation of its alternatives. The primary financial statements at December 31,
2000 continue to be shown in Italian Lira. Translation of Lira amounts into U.S.
dollar amounts is included solely for the convenience of the readers of the
financial statements and has been calculated at the rate of Italian Lira 2,061
to US$ 1.00, the approximate exchange rate at December 31, 2000. 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
Italian Lira unless specifically designated in other currencies. In no means is
this intended to replicate or approximate the effects of Accounting Standards
Board ("FASB") Statement of Financial Accounting Standard ("SFAS") No. 52,
"Foreign Currency Translation," as the translations contained within are only at
the aforementioned exchange rate.
2. Significant Accounting Policies
Cash equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
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.
40
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 2000
Notes To Consolidated Financial Statements
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America 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
Assets and liabilities of subsidiaries operating outside of Italy with a
functional currency other than the Lira are translated into Lira using exchange
rates at the end of the respective period. Sales, costs and expenses are
translated at average exchange rates effective during the respective period.
Foreign currency translation gains and losses are included as a component of
accumulated other comprehensive loss. Currency transaction gains and losses are
included in the results of operations in the period incurred.
Foreign currency transactions
Transactions, receivables and payables denominated in currencies other than the
functional currency are recorded at the exchange rate in effect on the
transaction date. Such receivables and payables are adjusted to current exchange
rates as of the date paid or the balance sheet date, whichever is earlier. Gains
and losses are included in "other income, net" in the statements of operations.
Marketable and other securities
Marketable and other securities and investments consist primarily of fixed
income investments. Marketable securities as of December 31, 2000 are
represented by Euro denominated Banca Nazionale del Lavoro O/S FRN 2003 notes
for Italian Lira 28,351 million, Italian Lira 4,066 million in respect of units
in a monetary fund denominated in Euro and Italian Lira 1,000 million in respect
of Banca Nazionale del Lavoro Spot securities. Units in a monetary fund
denominated in Euro represent marketable securities as of December 31, 1999. All
marketable securities are carried at cost plus accrued interest and treated as
held-to-maturity debt securities.
Long-lived assets
The Company continually reviews the carrying value of long-lived assets and
long-lived assets to be disposed of. In 1998, based on the 1999 disposal price,
the Company recorded Italian Lira 2,688 million of impairment expense in respect
of concession rights. In 1999, impairment expense of Italian Lira 500 million
was recorded in respect of land disposed of in November 1999 and Italian Lira
400 million impairment expense was recorded in respect of trademarks and other
intangibles reflecting the planned 2000 disposal of its management services
subsidiary. In 2000, the Company expensed the residual balance of goodwill of
Italian Lira 90 million as all operating activities ceased.
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
41
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 2000
Notes To Consolidated Financial Statements
intangibles relating to the Company's temporary management subsidiary and
related goodwill (net of amounts recorded for impairment reserves) were being
amortized over 10 years. Concession rights, disposed of in 1999, which lasted
through 2041, were amortized over 40 years.
Deferred Loan Costs
Deferred loan costs are amortized using the effective interest method over the
terms of the related loans. Amortization of loan costs is recognized as interest
expense.
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.
Revenue recognition
Revenues from sale of services of the Company's temporary management operations
are recorded when the services have been performed.
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 SFAS No. 109, "Accounting for Income Taxes."
Net profit/(loss) per common share
Basic earnings per share from continuing operations exclude any dilutive effects
of options, warrants and convertible securities. Diluted earnings per share from
continuing operations gives effect to all potentially dilutive common shares
that were outstanding during the period. As the Company has incurred losses from
continuing operations in each of the years 1998 to 2000, potentially dilutive
common shares are antidilutive for each of these years.
Accumulated Other Comprehensive Income
Comprehensive income includes net income and translation difference from the
conversion of balance sheets of non-Italian entities. The Company has chosen to
disclose comprehensive income in the Consolidated Statements of Stockholders'
Equity.
2. Significant Accounting Policies (Continued)
New Accounting Standard
In 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities" SFAS No. 133 establishes accounting and reporting
standards requiring that every derivative instrument be recorded in the balance
sheet as either an asset or liability measured at its fair value. SFAS No. 133
requires that changes in the derivative's fair value be recognized in earnings
unless specific hedge accounting criteria are met. Special accounting for
qualifying hedges allows a derivative's gains
42
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 2000
Notes To Consolidated Financial Statements
and losses to offset related results on the hedged item in the income statement.
SFAS No. 133 as amended by SFAS No. 137, is effective for fiscal years beginning
after June 15, 2000 but may be adopted earlier. The Company, not having any
operations, does not intend to enter into hedging or derivative operations and
accordingly, adoption of the standard will not have any effect.
Reclassifications
Comparative figures for 1999 and 1998 have been reclassified to conform to the
2000 presentation.
3. Discontinued Motorcycle Operations
Sale of motorcycle operations
On September 7, 2000, Moto Guzzi Corporation ("Moto Guzzi"), a 62.7% owned
subsidiary, closed the sale of all its operating subsidiaries to Aprilia S.p.A.
("Aprilia"). On August 11, 2000, at a special meeting of stockholders, Moto
Guzzi's stockholders approved the sale of the operating subsidiaries and changed
the corporate name from Moto Guzzi to Centerpoint. This was approved by over
two-thirds of the Company's Class A Common Stock Stockholders
Sale of motorcycle operations
Proceeds from the sale were Italian Lira 81,574 million. The Share Purchase
Agreement required the Company to place Italian Lira 9,375 million of the total
proceeds into escrow in case of any breach of representations and warranties
claims by Aprilia. Funds from the escrow account were to be released to
Centerpoint in two payments, Italian Lira 7,000 million is to be released on
September 8, 2001 and up to Italian Lira 2,375 to be released on September 8,
2007. Aprilia undertook to evaluate, on a best efforts basis, an earlier
resolution of the escrow accounts. See Note 18, "Subsequent Events for a
discussion of subsequent claims made by Aprilia against the escrow accounts.
SIREF S.p.A. and San Paolo Finanziaria S.p.A. (both affiliates of IMI) acted as
fiduciary agents for the closing. In accordance with invoices submitted to them,
they paid IMI Italian Lira 11,401 million, in respect of fees and expenses
claimed to be due to IMI, paid Italian Lira 505 million to Carnelutti, the
Company's Italian counsel, and then paid the remaining proceeds of Italian Lira
60,293 million to Centerpoint. Since early July 2000, the Company has disputed
IMI's interpretation of the calculation of the fee due to them based on their
engagement letter. See Note 18, "Subsequent Events for further discussion
regarding disputed fees.
Centerpoint used the proceeds to settle outstanding payables of approximately
Italian Lira 2,700 million and to redeem, prior to September 30, 2000, all
outstanding Series B Preferred Stock for a price equal to US$ 100 per share plus
accrued dividends thereon, for a total of approximately US$ 12.6 million
(approximately Italian Lira 28,300 million at the then prevailing exchange
rate). The Company received approximately US$ 5.2 million (approximately Italian
Lira 11,400 million at the then prevailing exchange rate) of this amount.
Following such payment, Centerpoint had approximately Italian Lira 29.3 billion
in cash and rights to the remaining balance at the time of release of the
Italian Lira 9,375 million being held in escrow, as described above. Cash was
invested in short-term fixed interest securities pending evaluation of the
alternatives available with respect to such funds.
43
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 2000
Notes To Consolidated Financial Statements
In January 2002, in connection with the transaction with Bion Environmental
Technologies, Inc., ("Bion") described in Note 18 "Subsequent Events, OAM, a
wholly owned subsidiary and the Company waived their rights to cause a
liquidation of Centerpoint.
The measurement date of the disposal was July 1, 2000, reflecting the latest
date prior to sale for which the Company has complete financial information. Net
proceeds from the disposal exceeded the net assets of the operations sold and
the Company has recorded a gain in the third quarter of 2000 of Italian Lira
56,439 million on the disposal before minority interests of Italian Lira 18,796
million. Such gain was calculated after providing fully against eventual amounts
receivable from the escrow accounts. Moto Guzzi changed its name to Centerpoint
pursuant to the sale of its motorcycle operations to Aprilia and is listed on
the over-the-counter market in New York under the ticker "CPTX." Sales and
results of operations for the six months to the effective disposal date of July
1, 2000 and for 1999 and 1998 are as follows:
Jul. 1 Dec.31 Dec.31
2000 1999 1998
Net sales Lira 50,994 86,232 83,760
Loss before taxes (7,810) (22,888) (19,780)
Provisions for taxes (514) (88) (519)
Amortization of premium for redemption
of preferred stock -- -- (1,503)
------- ------- -------
Net loss from discontinued operations of
Motorcycle operations before minority interests Lira (8,324) (22,976) (21,802)
Minority interests 3,946 10,003 2,535
Net loss Lira (4,378) (12,973) (19,267)
======= ======= =======
The statement of operations includes interest income charged to the motorcycle
operations of Italian Lira 306 million, Italian Lira 1,088 million and Italian
Lira 533 million in 2000, 1999 and 1998, respectively.
1999 Gain on merger of discontinued motorcycle operations
On March 5, 1999, through a series of transactions, the Company sold 40% of its
interest in Moto Guzzi to the shareholders of North Atlantic Acquisition
Corporation ("North Atlantic") for approximately US$ 8.9 million (Italian Lira
16,006 million) in cash, from which merger expenses of approximately US$ 0.8
million (Italian Lira 1,400 million) were subsequently paid, to finance the
operations of Moto Guzzi. As a result, the Company recorded a gain of Italian
Lira 25,837 million in the first quarter of 1999, including the effects of the
exchange of redeemable preferred stock of Moto Guzzi into common stock of North
Atlantic, which represented Italian Lira 13,132 million at December 31, 1998.
44
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 2000
Notes To Consolidated Financial Statements
Net assets/(liabilities) of the discontinued motorcycle operations at the
effective date of disposal of July 1, 2000 and at December 31, 1999 were as
follows:
July 1 Dec. 31
2000 1999
Current assets .................................... Lira 68,361 61,926
Current liabilities ............................... (72,844) (79,385)
------- -------
Net current liabilities............................ (4,483) (17,459)
------- -------
Property, plant and equipment ..................... 12,792 14,638
Other long-term assets ............................ 2,510 889
Long-term liabilities ............................. (9,512) (10,000)
------- -------
Net non-current assets ............................ 5,790 5,527
------- -------
Net advances due from operations, sold as part of
disposal transaction............................... -- 3,235
------- -------
Net assets/liabilities of discontinued operations.. Lira 1,307 (8,697)
======= =======
In 2000 the Company provided the discontinued motorcycle operations with cash,
in the form of capital and advances, of Italian Lira 15,941 million (1999-
Italian Lire 14,331 million) to finance its operations
4. Discontinued Steel Tube Operations
In July 2000, the Company disposed of L.I.T.A. S.p.A. ("LITA") for Italian Lira
2,470 million. This was comprised of Italian Lira 1,470 million due immediately
from a dividend prior to the sale of Italian Lira 670 million and cash of
Italian Lira 800 million. The remaining Italian Lira 1,000 million was payable
in July 2001, secured by a first call bank guarantee. In connection with the
disposal, the Company has released a first call bank guarantee for Italian Lira
1,000 million through December 31, 2003 to secure any claims the purchaser may
have for breaches of representations and warranties given by the Company. In
July 2001, the Company settled Italian Lira 165 million of claims by the
purchaser against the Italian Lira 1,000 million balance due. Operations of LITA
for 1998, 1999 and in 2000 through the effective date of disposal were as
follows:
45
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 2000
Notes To Consolidated Financial Statements
July 1, Dec.31 Dec.31
2000 1999 1998
(000,000s) (000,000s) (000,000s)
Net sales Lira 10,368 22,852 23,193
Profit before taxes 706 872 428
Provisions for taxes -- (164) --
------ ------- ------
Net profit from discontinued operations
of steel tube operations before minority interests Lira 706 708 428
Minority interests 101 74 68
Net Profit 605 634 360
====== ======= ======
Included in the income statement of the Company are management fees charged to
the steel tube operations of Italian Lira 389 million and Italian Lira 287
million in 1999 and 1998, respectively.
Net assets of the discontinued steel tube operations are as follows:
July 1 Dec. 31
2000 1999
(000,000s) (000,000s)
Current assets ............................... Lira 12,522 12,378
Current liabilities .......................... (10,528) (11,005)
------- -------
Net current assets ........................... 1,994 1,373
------- -------
Property, plant and equipment ................ 1,421 1,510
Other long-term assets ....................... 208 215
Long-term liabilities ........................ (1,134) (1,315)
------- -------
Net non-current assets ....................... 495 410
------- -------
Provision for disposal ....................... -- (245)
======= =======
Net assets of discontinued operations ........ Lira 2,489 1,538
======= =======
46
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 2000
Notes To Consolidated Financial Statements
5. Capital Transactions
Issuance and redemption by Centerpoint of Series B Preferred Stock
On February 25, 2000, Centerpoint issued 123,500 shares of a new Series B
Preferred Stock to Fineco, and affiliates of Fineco, the Company, OAM, the
majority stockholder of the Company, William Spier and affiliates of Barry
Fingerhut (directors of Centerpoint until January 2002) for US$ 100 per share
(an aggregate price of US$ 12,350,000). Fineco and its affiliates purchased
60,000 shares and the Company purchased 35,000 shares, for cash. Mr. Spier and
affiliates of Mr. Fingerhut received a total of 12,500 shares in satisfaction of
advances they had made to Centerpoint in August 1999 and 16,000 shares were
issued to OAM in partial satisfaction of outstanding loans due to it.
The holders of the Centerpoint Series B Preferred Stock were entitled to receive
dividends at the rate of US$ 7 per share per year before any dividends may be
paid with regard to Centerpoint's Class A Common Stock, and to receive
distribution of US$ 100 per share in liquidation of the Centerpoint before any
liquidation distributions are made with regard to its Class A Common Stock.
Centerpoint was required to redeem the Series B Preferred Stock for US$ 100 per
share plus accrued dividends on December 28, 2001. Holders of Series B Preferred
Stock did not have voting rights, except the right to approve issuance of
securities, which would affect the Series B Preferred Stock and the incurrence
of debt, other than refinancing of existing debt or lines of credit used by
Centerpoint to finance its day-to-day operations. Each share of Series B
Preferred Stock was convertible into Class A Common Stock at a conversion price
of US$ 5.00, based upon the liquidation preference of the Series B Preferred
Stock (US$ 100, plus accrued dividends, per share), meaning each share of Series
B Preferred Stock is convertible into approximately 20 shares of Class A Common
Stock.
Centerpoint received Italian Lira 18,329 million in cash, net of Italian Lira
516 million of expenses in respect of the issuance of the Series B Preferred
Stock and also recorded Italian Lira 2,479 million in respect of the William
Spier and Barry Fingerhut advances and Italian Lira 3,174 million in respect of
the OAM loan for a total of Italian Lira 23,982 million.
Centerpoint agreed with the Series B preferred stockholders that, following the
sale to Aprilia, it would redeem the Series B preferred stock on September 30,
2000 and they agreed not to convert their Series B stock if Centerpoint redeemed
the stock by this date. Such redemption was affected, with redemption payments
made on the first business day of October 2000. The Company recorded accretion
expense of Italian Lira 2,731 million.
In connection with issuance of the Series B preferred stock, Centerpoint issued
300,000 shares of Class A common stock to the Company for a purchase price of
US$ 0.01 per share, in consideration of Trident Rowan's participation in the
Series B financing and their successful efforts to get Fineco, S.p.A. to
subscribe for Series B shares. These 300,000 shares were issued in July 2000.
This resulted in the acquisition of a portion of the minority of the minority
interest which was accounted for under the purchase method and increased paid in
capital by Italian Lira 1,477 million.. Additionally, in connection with
Fineco's purchase of the Series B shares Centerpoint paid a commission of US$
180,000 to Andrea della Valle, a director of the Company, and paid US$ 80,000 to
Investec Ernst, an investment banking firm, where Mark Segall, a director of the
Company, is an executive officer.
47
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 2000
Notes To Consolidated Financial Statements
Share Repurchases
On December 28, 1999, the Company repurchased 300,000 shares at the then market
price of US$ 2.875 per share for a total of US$ 862,500 or Italian Lira 1,659
million in connection with the issuance of US$ 6 million of two-year convertible
debentures. See Note 8.
In 1995, the Company entered into an agreement whereby they were committed to
repurchase 776,530 shares at US$ 11.27 if they had not already been sold. These
shares were accounted for similar to treasury stock and the difference between
US$ 10.00 estimated market value at the agreement date and the redemption price
of US$ 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 Italian Lira 15,374 million at the net effective
rate on closing.
The Company obtained a letter of credit to guarantee payment of the repurchase
price of the shares. This guarantee 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 US$ 10.00 (then Italian Lira
16,400 per share) as shares subject to repurchase and not included in
shareholders' equity..
In 1998, the Company also repurchased 28,350 shares for Italian Lira 570 million
pursuant to a 1996 commitment connected with the resolution of issues arising
from its 1995 acquisition of certain operations from Finprogetti S.p.A.
6. 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. Italian
Lira 6,000 million was received in February 1999.
7. Accrued Expenses and Other Payables
2000 2000 1999
(000s) (000,000s) (000,000s)
Salaries, wages and related items $ 215 Lira 444 Lira 723
Value added and other taxes 10 21 138
Due for settlement of share repurchases -- -- 1,660
Other for legal costs, interest and other
accrued expenses 1,129 2,326 2,252
------- ----- -----
$ 1,354 Lira 2,791 Lira 4,773
======= ===== =====
48
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 2000
Notes To Consolidated Financial Statements
8. Long-Term Debt
2000 2000 1999
(000s) (000,000s) (000,000s)
Convertible 5% $Debentures due
December 28, 2001, convertible
into the Company's stock at $5.00 $ 6,250 Lira 12,883 Lira 12,025
12.4% note payable in annual installments
through 2001 295 609 1,162
-------- ------- -------
6,545 13,492 13,187
Less current portion (6,545) (13,492) (553)
-------- ------- -------
$ -- Lira -- Lira 12,634
======== ======= =======
On December 28, 1999, the Company issued a US$ 6 million 5% convertible
debentures due December 28, 2001 to provide funds for Moto Guzzi and for general
corporate purposes. In connection with raising these funds, the Company paid US$
250,000, in the form of a Debenture on the same terms as for the US$ 6 million
raised, to affiliates of Emanuel Arbib, joint-CEO of the Company. The Company
also paid US$ 360,000 to an Italian intermediary and US$ 60,000 plus US$ 26,106
for legal expenses to Investec Ernst & Company in connection with the issuance.
Mark Segall, a director of the Company, is an officer of Investec Ernst &
Company. Interest on the debentures accrues at 5% and is payable annually in
arrears on each anniversary of the debenture issuance date, and are convertible
at any time, in full or in part, into stock of the Company at US$ 5.00 per
share, subject to provisions for dilution. In connection with this financing,
the Company repurchased 300,000 of its own shares from entities related to the
purchasers of the debentures for a total of US$ 862,500 (Italian Lira 1,659
million) or US$ 2.875 per share, the then prevailing share price.
9. Other Income/(Expense)
2000 2000 1999 1998
(000s) (000,000s) (000,000s) (000,000s)
Foreign exchange $ 2 Lira 4 Lira (2) Lira (2)
Release of reserves for claims -- -- 1,009 714
Additional reserve for litigation -- -- (2,970) --
Rental income -- -- 80 150
Gain from shares issued by subsidiary and
warrants in subsidiary exercised -- -- -- --
Other 51 104 638 (316)
------- ------ ------ ----
$ 53 Lira 108 Lira (1,245) Lira 546
======= ====== ====== ====
49
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 2000
Notes To Consolidated Financial Statements
Reserves for claims have been released in 1998 and 1999 as such claims,
principally relating to activities in Italy dating from businesses sold in 1993
have been closed.
10. Income Taxes
Loss before income taxes and minority interests consisted of the following:
2000 2000 1999 1998
(000s) (000,000s) (000,000s) (000,000s)
United States $(4,207) Lira (8,672) Lira (7,031) Lira (3,959)
Italy 341 704 600 (2,354)
Elsewhere (59) (122) (22) (11)
------- ------- ------- -------
$(3,925) Lira (8,090) Lira (6,453) Lira (6,324)
======= ======= ======= =======
The provision for income taxes consisted of the following:
2000 2000 1999 1998
(000s) (000,000s) (000,000s) (000,000s)
Current:
Italy $ 18 Lira 38 Lira 88 Lira 161
------- ------- ------- -------
18 38 88 161
------- ------- ------- -------
Deferred: -- -- -- --
------- ------- ------- -------
Total $ 18 Lira 38 Lira 88 Lira 161
======= ======= ======= =======
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:
2000 2000 1999 1998
US$'000 (000,000s) (000,000s) (000,000s)
Short-term reserves 567 1,169 1,482 1,482
Net operating loss carry forwards 8,756 18,047 2,867 2,867
------ ------- ------ ------
9,323 19,216 4,349 4,349
Valuation allowance (9,323) (19,216) (4,349) (4,349)
------ ------- ------ ------
Net deferred tax assets -- -- -- --
====== ======= ====== ======
50
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 2000
Notes To Consolidated Financial Statements
The effective provision for income taxes varied from the income tax credit
calculated at the statutory U.S. federal income tax rate as follows:
2000 2000 1999 1998
(000s) (000,000s) (000,000s) (000,000s)
Computed tax credit at U.S. federal rate
on losses from continuing operations (1,374) (2,832) (1,569) (2,214)
Losses and reversals of short-term
reserves for which valuation allowance
provided 1,653 3,408 1,473 3,042
Utilization of tax losses -- -- -- (123)
Non-deductible expenses and local taxes 261 538 184 (544)
------ ------ ------ ------
18 38 88 161
====== ====== ====== ======
For U.S. federal income tax purposes, the Company has net operating loss
carry-forwards of approximately U.S. US$ 20.3 million at December 31, 2000.
These losses expire from 2004 through 2020. 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.
At December 31, 2000 the Company had net operating loss carry-forwards for
Italian federal income tax purposes that expire as follows:
2000 2000
(000s) (000,000s)
2001 4 8
2004 109 225
2005 3,159 6,510
----- -----
3,272 6,743
===== =====
11. Shares issued in Connection with Employment Agreements
On March 18, 1998, the Board of Directors approved a three year employment
contract commencing May 1, 1998 with Mark S. Hauser as President and Chief
Executive Officer, a three year contract commencing May 1, 1998 with Emanuel M.
Arbib as Chief Financial Officer and a one year, renewable agreement commencing
May 1, 1998 with Tamarix Capital Corporation, which supercedes a prior existing
contract, for merchant banking services to the Company. In connection with these
contracts, the
51
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 2000
Notes To Consolidated Financial Statements
Company issued 205,000 shares with contractual transfer restrictions lapsing as
to one-third thereof on each of December 31, 1998, 1999 and 2000, and 32,000
shares with contractual transfer restrictions lapsing on December 31, 1998. The
issuance of these shares has been accounted for at the fair value of the
Company's Common Stock as of the date of the agreements of US$ 4.06 per share
and will be charged to compensation expense over the life of the contracts.
Amounts in respect of future compensation at the balance sheet date have been
included in the financial statements as a deduction from additional paid-in
capital.
12. Stock Options and Warrants
Tamarix warrant
In 1997, in connection with the purchase by Tamarix of a controlling block of
shares, the Company issued 1,250,000 warrants exercisable through May 2, 2000 at
an exercise price of US$ 6.00, subsequently revised to US$ 5.50, to the
management of Tamarix. These warrants were distributed to Messrs. Hauser,
Bulgari and Arbib or their associates in 1999 as part of a reorganization of
Tamarix.
In February 2000, in connection with the proposed upcoming auction of the Moto
Guzzi operations, the Company reduced the exercise price of the following
warrants previously issued to the following Named Executive Officers (or their
affiliates) to US$ 3.50 per share, the then current market price of the
Company's Common Stock, and extended the expiration date for the warrants from
June 2002 to June 2007:
Warrants Original New
Name Repriced Exercise Price Exercise Price
---------------------------------------- -------- -------------- --------------
Mark S. Hauser 152,185 $5.50 $3.50
Azzurra (Affiliate of Mark Hauser) 250,000 $5.50 $3.50
Simtov, LDC (Affiliate of Emanuel Arbib) 99,212 $5.50 $3.50
Gianni Bulgari 190,534 $5.50 $3.50
Publicly traded warrants (OTC/BB: TRGIW)
The Company issued 1,437,500 warrants in connection with its June 1997 public
offering. Each Warrant is exercisable for five years at an exercise price of US$
7.20 per share of Common Stock. The Company may redeem the Warrants at a price
of US$ 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 US$ 9.60 on all 20
trading days ending on the third day prior to the day on which notice is given.
All of these warrants expired in June 2002.
52
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 2000
Notes To Consolidated Financial Statements
1995 Non Qualified Plan Options
The Company's "1995 Non-Qualified Plan" provides for the grant of non-qualified
stock options for officers and key employees. The Board of Directors has
authorized a total of 2,000,000 options. Grants were made in 1996 and 1995 of
22,500 and 960,000 shares respectively, all at an exercise price of US$ 12.26.
130,000 of these options were forfeited in 1997, 60,000 forfeited in 1998 and
710,000 were exchanged in 1998 for new options at US$ 5.00, as described below.
A further 17,500 and 65,000 of the US$ 12.26 options were forfeited in 1999 and
2000 respectively and the remaining 60,000 expired unexercised.
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 US$ 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 US$ 5.00 in exchange for 710,000 previously granted options exercisable at
US$ 12.26, and granted a further 105,000 options to persons not previously
included in its "1995 Non-Qualified Plan" for officers and key executives.
65,000 and 140,000 of these options were forfeited in 1998 and 2000 respectively
pursuant to officers leaving the Company. Outstanding options under the "1995
Non-Qualified Plan" can be exercised as follows:
In February 2000, in connection with the proposed upcoming auction of the Moto
Guzzi operations, the Company reduced the exercise price of 50,000 stock options
previously granted to Mr. Hauser to US$ 3.50 per share, the then current market
price of the Company's Common Stock
Outstanding options under the "1995 Non-Qualified Plan" can be exercised as
follows:
Exercisable Exercisable
at $5.00 at $3.50
-------------------------
Currently exercisable 342,000 50,000
Exercisable at future dates -- --
1995 Director's Plan
Under the "1995 Director's Plan," 5,000 options are granted annually on January
2 of each calendar year to each non-employee Director serving at such date and a
proportionately reduced number of options, at the date of election, to Directors
initially elected at a date other than January 2. The exercise price is fixed at
the reported closing price of the stock on January 2, or date of election of
Directors for subsequent grants. All options issued prior to 2000 were forfeited
as a result of changes in the Board of Directors except for 5,834 options at an
exercise price of US$ 7.953 and 10,000 options at an exercise price of US$
4.875. 15,000 options were issued on January 3, 2000 at an exercise price of US$
3.6525 and a further 15,000 options were issued on January 2, 2001 at an
exercise price of $0.75 under the Plan. No options were issued in January 2002
or January 2003.
53
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 2000
Notes To Consolidated Financial Statements
Other options
The Company issued to GKN Securities Corp. 125,000 options exercisable through
June 10, 2002 at an exercise price of US$ 6.12 and issued 173,306 warrants
exercisable through June 10, 2000 at an exercise price of US$ 6.00 to certain
shareholders as an inducement for them to enter lock-up agreements with the
Company and GKN Securities Corp. in connection with its June 1997 public
offering.
The Company incurred losses from continuing operations in each of 1998, 1999 and
2000. All warrants and options described above are considered antidilutive. The
potentially dilutive effects of outstanding options and warrants is summarized
below:
2000 1999 1998
Weighted average number of common shares
Outstanding during the year:
Basic 4,069,571 4,280,767 4,584,237
Shares subject to restricted vesting -- 5,920 47,882
Non Qualified Plan options -- -- 39,712
1995 Director's Plan options -- -- 5,252
Tamarix warrants -- -- 19,839
GKN options and lock-up warrants -- -- --
--------- --------- ---------
Diluted 4,069,571 4,286,687 4,696,922
========= ========= =========
The Company has elected the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock Based Compensation" and applies APB Opinion No. 25 and
related interpretations in accounting for their stock option plans. Pro Forma
compensation costs under the Company's stock option plans for 2000, 1999 and
1998 based on the fair value of awards at the grant date were not material.
The fair value of the Company's options is the estimated present value at the
date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions: risk-free interest rate of approximately 5.5%;
expected volatility of approximately 60%; expected life of 4 years; and dividend
yield of 0%.
54
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 2000
Notes To Consolidated Financial Statements
The following is a summary of transactions pertaining to the Plans:
2000 1999 1998
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
(000's) Price (000's) Price (000's) Price
Outstanding, January 1 649 $ 5.76 673 $ 5.95 871 $12.16
Granted 15 $ 3.66 20 $ 4.63 637 4.99
Exercised -- -- -- -- -- --
Forfeited or exchanged (241) $ 6.45 (44) $ 8.24 (835) 11.69
Outstanding, December 31 423 $ 4.81 649 $ 5.76 673 $ 5.95
Options Exercisable, December 31 408 $ 4.86 633 $ 5.77 469 $ 6.23
The following is a summary of the status of stock options outstanding and
exercisable under the Plans as of December 31, 2000:
Stock Options Outstanding Stock Options Exercisable
Weighted
Weighted Average
Average Remaining Weighted
Range of Shares Exercise Contractual Shares Average Exercise
Exercise Price (000)'s Price Life (000's) Price
$5.00 342 $5.00 1.25 years 342 $5.00
$3.50 50 $3.50 6.50 years 50 $3.50
$3.656 - $7.95 31 $4.86 2.78 years 16 $6.01
Totals 423 $4.81 408 $4.86
55
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 2000
Notes To Consolidated Financial Statements
13. Related Party Transactions
Loans from related parties
On October 1, 1998, two bridge loans were made to the Company by Tamarix and by
Mr. Bulgari to provide financing to Moto Guzzi in anticipation of the
consummation of the merger with North Atlantic Acquisition Corp. (See Note 3).
The loans were of US$ 2 million and Italian Lira 3,000 million with interest at
10% and a flat commission of 1%. Each loan was secured by 500,000 shares of Moto
Guzzi common stock (207,337 shares of Moto Guzzi, following the merger with
North Atlantic Acquisition Corp.). As an inducement for the loans to be made,
the Centaurus warrants, which were exercisable at US$ 6.00 through May 1, 2000
were extended through May 1, 2002 and the exercise price reduced to US$ 5.50.
The closing price of the Common Stock had been at US$ 5.00 or below in the
preceding month and was at US$ 4.00 on October 1, 1998 when the loans were made.
The Company sought similar financing from unaffiliated third parties and the
terms and conditions above were more favorable than any expressions of interest
by third parties.
The Italian Lira 3,000 million loan was repayable to Mr. Bulgari on March 31,
1999, and was extended to April 30, 1999 and was repaid in May 1999. The US$ 2
million loan was repayable on completion of the merger of Moto Guzzi into North
Atlantic Acquisition Corp., which occurred on March 5, 1999 and was extended,
with particle payments of US$ 300,000 in May and August 1999, and the balance in
November 1999. At the end of 1999, the Company owed Tamarix Italian Lira 173
million.
Tamarix Capital Corporation / Mr. Mark Hauser
Details of agreements with Tamarix Capital Corporation to provide financial
services to the Company are described in Note 12. 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 provided for compensation of US$ 160,000 per year and the grant 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 US$ 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 12 months. No cash compensation under the agreements was paid in
1998. The Company met this test in 1999, paying a portion of the accrued
compensation in 1999. In March 1999, pursuant to the merger of the Company's
Moto Guzzi subsidiary with North Atlantic (See Note 3), Mark Hauser became
Executive Chairman and a director of the merged company. The position included
annual compensation of US$ 90,000 plus US$ 108,000 for expenses of maintaining
the U.S. corporate office for Moto Guzzi, and other expenses related to
administration and regulatory matters. 150,000 options to acquire stock of Moto
Guzzi at US$ 10.6875 were also issued to Mr. Hauser. This agreement was
terminated in April 2000 in connection with the sale of Moto Guzzi operations to
Aprilia.
Mr. Emanuel Arbib
As described in Note 8, Emanuel Arbib was paid US$ 250,000 in the form of 5%
convertible debentures in connection with the issuance of US$ 6 million of such
debentures to Italian institutional investors in December 1998. This loan was
repaid in July 2001 with Mr. Arbib accepting US$ 218,750 in full
56
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 2000
Notes To Consolidated Financial Statements
settlement as described in Note 18. The Company entered into a three-year
consulting contract commencing May 1, 1998 with Emanuel Arbib as Chief Financial
Officer of the Company. The terms of the contract provide for compensation of
US$ 100,000 per year, issuance of 75,000 shares of the Company with contractual
transfer restrictions lapsing as to one-third thereof on each of December 31,
1998, 1999 and 2000 and options to purchase 65,000 shares exercisable at US$
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. No cash compensation under the agreement was paid in 1998. The
Company met this financial test in 1999 and began making payments in 1999. In
December 1999, Emanuel Arbib was appointed joint-CEO of the Company, though his
compensation arrangements were unchanged. In March 1999, pursuant to the merger
of the Company's Moto Guzzi subsidiary with and into North Atlantic (See Note
3), Emanuel Arbib became a director of Moto Guzzi and entered into a consulting
contract to provide financial consulting services, with an annual compensation
of US$ 90,000. 30,000 options to acquire stock of Moto Guzzi at US$ 10.6875 were
also issued to Mr. Arbib. This agreement was terminated in April 2000 in
connection with the sale of Moto Guzzi operations to Aprilia.
Mr. William Spier
In August 1999, William Spier, a director of the Company from May 1997 to
December 1999 and director of Moto Guzzi from March 1999, made an advance of US$
250,000 to the Company's Moto Guzzi subsidiary. Entities associated with Mr.
Barry Fingerhut, a Director of Moto Guzzi from March 1999, also advanced US$
1,000,000. The total of US$ 1,250,000 (Italian Lira 2,405 million) is included
as advances for subsidiary stock subscription in the balance sheet at December
31, 1999. The advances, together with other advances to Moto Guzzi by the
Company in 2000 and funds raised from an Italian institutional investor, were
converted into Series B Preferred Stock of Moto Guzzi in February 2000. Interest
was payable at 7% on the advances through their February 2000 conversion into
Series B Preferred Stock of Moto Guzzi. The Series B Preferred Stock was
redeemed in full in September 2000. See Note 5.
TIM disposal
In January 2000, the Company sold its management services subsidiary to its
management in exchange for 55,000 shares of the Company with a fair value of
Italian Lira 390 million at the date of sale.
See "Centerpoint Loan to the Company" under Note 18 "Subsequent Events" for
additional related party transactions. Also see Note 12 above in respect of
warrants held by Messrs. Hauser, Arbib and Bulgari or their associates which
were re-priced in 2000 and their expiry date extended.
57
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 2000
Notes To Consolidated Financial Statements
14. Export sales and Geographic Information
Net sales, primarily management services, by destination were as follows:
2000 2000 1999 1998
(000s) (000,000s) (000,000s) (000,000s)
United States -- -- 91 43
Italy -- -- 1,896 3,732
------ ----- ----- -----
-- -- 1,987 3,775
====== ===== ===== =====
Identifiable assets: 2000 2000 1999
(000s) (000,000s) (000,000s)
Italy 19,342 39,871 9,344
United States 3,802 7,837 12,798
Elsewhere 1,169 2,409 1,564
------ ------ ------
24,313 50,117 23,706
====== ====== ======
Assets held elsewhere principally relate to cash and receivables held by Trident
Rowan International SA, a Luxembourg company that owned LITA until its disposal
in 2000.
15. Concentration of Credit Risks
Concentrations of credit risk with respect to trade accounts receivable are
limited due to the number of entities in the customer base. The Company
maintains cash and cash equivalents and short and long-term investments with
various financial institutions of national standing in Italy and the United
States.
16. 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 but has not entered in any other hedging transactions.
58
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 2000
Notes To Consolidated Financial Statements
Fair value of financial instruments - The following methods and assumptions were
used by the Company in estimating its fair value disclosure for financial
instruments.
o Cash and cash equivalents: the carrying amount of cash and cash
equivalents reported by the Company approximates their fair value.
o 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.
o Fixed interest securities have maturities from one to three years: fair
values for marketable quoted securities are based on market prices 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, 2000 and 1999.
17. Claims and Litigation
At December 31, 2000, the Company's claim and litigation accrual relates
primarily to two cases. The first claim, the Wilson Litigation, related to a
burn sustained by a customer who was using a starter manufactured by a former
operating entity of the Company. In 1999, the Company recorded an additional
charge of Italian Lira 2,970 million. At the end of 1999 and 2000, the total
claim amount of US$ 2,050,000 is reserved. The remaining balance at December 31,
2000 of approximately Italian Lira 824,400, relates to primarily the Rawlings
case in which the Company was potentially liable for certain hazardous waste on
a former property. See further discussion regarding claims and litigation in
Note 18 Subsequent Events.
18. Subsequent events
Purchase of minority interests in OAM Subsidiary
In March 2001, the Company purchased the outstanding minority interests in its
84.35% owned subsidiary for OAM for US$ 2,500,000 (Italian Lira 4,810 million).
The purchase price is at a discount to the net asset value of the 15.65% OAM,
which the Company will acquire and will permit the Company to rationalize its
corporate structure and eliminate certain fiscal inefficiencies.
Centerpoint Loan; Early payoff of the Company's 5% Convertible Debentures
The Company's 5% Convertible Debentures in an aggregate amount of US$ 6,250,000
were scheduled to come due in December 2001. On June 15, 2001 the Company paid
the holders of US$ 6,000,000 of the Debentures US$ 4,207,500 in cash, which the
Debenture holders accepted as payment in full on the Debentures (including past
due interest), representing a 31.5% discount from their face value and in July
paid Mr. Arbib, the holder of the remaining US$ 250,000 of the Debentures, US$
218,750 which Mr. Arbib accepted as payment in full on his Debentures.
59
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 2000
Notes To Consolidated Financial Statements
Wilson Litigation
On December 19, 2000, a Settlement Agreement and Release was executed by and
between plaintiffs, the Company and I.T.E. Imperial Corporation and Gould
Electronics, Inc., the co-defendants in the Wilson Litigation. The Company and
Gould each agreed to pay 50% of the US$ 2,050,000 settlement amount, subject to
resolution of certain issues between them. The remaining issue, the Company's
claim against Gould for indemnification, was litigated on February 16, 2001.
On June 15, 2001, a verdict was rendered by the Court of Common Pleas of
Philadelphia County holding that the Company is responsible for paying all
settlement funds and ordering the Company to pay Gould US$ 1,025,000 plus
interest at a rate of 7% per annum from the date Gould paid the plaintiffs. The
appeal period for the judgment expired on July 15, 2001, and the judgment became
due and payable to Gould on that date. The Company recorded in 1999 additional
provisions of Italian Lira 2,970 million and the full amount of the US$
2,050,000 payable by the Company was accrued at December 31, 1999. The Company
paid Gould in 2001 and in 2002 in full satisfaction of the judgment.
In January, 2002, the judge in the Company's litigation against Travelers
Insurance Company ("Travelers") arising out of the Wilson litigation determined
that Travelers was liable to the Company for US$ 1,000,000, plus the Company's
legal fees in connection with the litigation, less a reasonable premium.
Traveler's subsequently challenged the reasonableness of the legal fees and the
judge requested explanatory submissions from both Travelers and the Company. In
July, 2002 the judge ruled that the fees were reasonable, but that certain
duplications should be eliminated. In September 2002 the court rendered a
judgment in favor of the Company against Travelers in the amount of US$
1,822,979. Travelers has appealed the judgment and a final judgment is expected
to be rendered in 2003.
Rawlings Litigation
On February 11, 2002 the Company entered into a settlement agreement with
Rawlings Sporting Goods Company with respect to the Rawlings litigation. Under
the settlement agreement the Company agreed to transfer 160,000 shares of
Centerpoint Common Stock to Rawlings and the Company and Rawlings agreed to
voluntarily dismiss the Rawlings litigation and to release each other from all
claims relating to the litigation, subject to the transfer of the shares. The
Centerpoint shares were transferred to Rawlings in May 2002, and the claims
against the Company have been dismissed with prejudice.
Dispute with IMI concerning its fees
IMI, Centerpoint's investment adviser in connection with the sale of Moto Guzzi,
acted as fiduciary for the closing. At the Closing, but without the prior
approval, knowledge or consent of Centerpoint, IMI was paid Italian Lira 11,401
million, for fees and expenses claimed by IMI under its engagement letter with
the Company and OAM. IMI also paid Studio Carnelutti, Centerpoint's Italian
legal counsel, Italian Lira 505 million with the remaining proceeds of Italian
Lira 60,293 million paid to Centerpoint. Since early July 2000, the Company and
Centerpoint have disputed IMI's interpretation of the calculation of the fee
under its engagement letter. The dispute relates to the respective
interpretations of the Company, Centerpoint and IMI of the term "Total
Transaction Value" used in the engagement letter. Since that time, the Company
sought to negotiate with IMI concerning its fee. IMI refused to engage in
negotiations and did not present any calculation of the fee to the Company or
Centerpoint prior to the closing. After the closing and actual payment to IMI of
the alleged fee, IMI presented a calculation and
60
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 2000
Notes To Consolidated Financial Statements
an invoice to Centerpoint for fees and expenses alleged by IMI due under the
engagement letter in the amount of Italian Lira 11,401 million. In addition to
disputing the amount of the fee paid to IMI, the Company and Centerpoint believe
that IMI had no right to deduct the fee from the sale proceeds, as Centerpoint
was not a party to the engagement letter, and did not consent to any such
deduction. On February 11, 2002 Centerpoint brought a suit against IMI before
the Civil Section of the Court of Milan, Italy seeking reimbursement of Italian
Lira 8,766 million (approximately US$ 4,253,000) of the Italian Lira 11,401
million (US$ 5,532,000) paid to IMI at the closing. At the first hearing with
respect to the claims, on July 2, 2002, IMI's legal counsel filed a Defense
Pleading requesting among other things, the rejection of the claims, and the
joining of the Company as a party to the litigation. A hearing with respect to
the case was held on November 15, 2002, at which time the judge determined that
the parties were not amenable to settling the litigation. A further hearing was
held on February 6, 2003, at which time the judge fixed May 2, 2003 as the
deadline for each party to file a pleading summarizing the such party's requests
for evidences, set June 2, 2003 as the date for each party to respond to the
other party's pleading, and set October 14, 2003 as the trial date for a
decision on the case.
Aprilia Claims under the Share Purchase Agreement; Payment by IMI; Request for
Arbitration
Pursuant to the terms, and subject to the conditions, of the Share Purchase
Agreement and the Escrow Agreement relating to the sale of Moto Guzzi's
operating subsidiaries, Italian Lira 9,375 million of the proceeds of the sale
were placed into escrow.
By letter dated December 21, 2000, legal counsel for Aprilia filed a claim
against Centerpoint under the Share Purchase Agreement alleging (i) that it had
failed to receive a resignation and release from Mr. Roeth, an executive and
director of MGI Motorcycle GmbH, and (ii) that the recall campaign with respect
to certain Moto Guzzi motorcycles was more critical than forecast in the
Management Date Financial Statements and August 3, 2000 letter. By letter dated
February 5, 2001 Centerpoint's Italian legal counsel responded to the December
21, 2000 letter specifically denying the alleged claims and requesting that the
parties meet to negotiate a release of the escrow funds, as provided for in the
August 3, 2000 letter.
On June 4, 2001 Aprilia's legal counsel sent a letter to Centerpoint which
reiterated the claims in its December 21, 2000 letter and alleged the following:
(i) that the cost of the recall campaign was estimated by Aprilia to be
approximately Italian Lira 4,500 million, which exceeded the Management Date
Financial Statement amount with respect to the recall campaign by Italian Lira
2,676 million, (ii) that technical problems related to various motorcycles were
likely to cost Aprilia approximately Italian Lira 5,308 million, and that such
technical problems had not been disclosed to Aprilia in connection with the sale
of the Moto Guzzi operations to Aprilia, and that Aprilia was entitled to
reimbursement of such costs, (iii) that Aprilia was entitled to reimbursement of
Italian Lira 148.5 million incurred by Aprilia in connection with the
termination of Mr. Roeth, an executive of MGI Motorcycle GmbH, (iv) that Aprilia
was entitled to reimbursement of Italian Lira 378 million in respect of
unjustified credit notes issued by MGI Motorcycle GmbH in favor of dealers and
distributors, and (v) that breaches of accounting principles by Moto Guzzi North
America entitled it to claims against Centerpoint in the amount of Italian Lira
1,100 million (collectively with (i), (ii), (iii) and(iv), the "Alleged
Claims").
On July 13, 2001 Centerpoint's Italian counsel sent a letter to Aprilia's
counsel contesting all of the Alleged Claims.
61
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 2000
Notes To Consolidated Financial Statements
By letter dated July 13, 2001 Aprilia requested that IMI, the escrow agent under
the Escrow Agreement, pay them Italian Lira 7,611 million in respect of the
Alleged Claims. On July 26, 2001, in spite of being aware of Centerpoint
contesting of each of the Alleged Claims and its intention to seek arbitration,
IMI advised Centerpoint that it had paid Italian Lira 7,611 million from the
escrow account to Aprilia in respect of the Alleged Claims.
Pursuant to the Share Purchase Agreement and Escrow Agreement, each of which
provides that disputes among the parties be arbitrated, the Company filed with
the International Arbitration Court of the International Chamber of Commerce a
Request for Arbitration in Accordance with Article 4 of the ICC Rules of
Arbitration relating to the Alleged Claims and the payment by IMI. Subsequent to
the Company's filing, a committee was formed in Milan, Italy to hear the case.
The company is requesting restitution of the Italian Lira 7,611 million
(approximately US$ 3,692,000) paid to Aprilia, plus interest and costs. The
Arbitration committee was constituted on November 16, 2001, and a decision is
expected to be rendered in the second half of 2003.
Bion Transaction
The Board of Directors of Centerpoint met to evaluate the alternative strategies
and investments available to it. Investec Ernst & Co., who had been hired in
June 2001 to assist in this process, presented to the Centerpoint Board their
conclusions on a number of potential investments. In December 2001, the
Centerpoint Board resolved to approve the acquisition of 19,000,000 shares of
Bion, an environmental service company focused on the needs of confined animal
feeding operations. Bion is engaged in two main areas of activity: waste stream
remediation and organic soil and fertilizer production. Bion's waste remediation
service business provides confined animal feeding operations (primarily in the
swine and dairy industries) with treatment for the animal waste outputs. In this
regard, Bion treats their entire waste stream in a manner which cleans and
reduces the waste stream thereby mitigating pollution of the air, water (both
ground and surface) and soil, while creating value-added organic soil and
fertilizer products. Bion's soil and fertilizer products are being used for a
variety of applications including school athletic fields, golf courses and home
and garden applications. Unrestricted stock of Bion is traded on the OTC/BB
market under the ticker "BNET".
On January 15, 2002, Centerpoint closed the transaction with Bion by purchasing
19,000,000 shares of restricted stock of Bion in exchange for approximately
US$8.5 million in cash (substantially all of Centerpoint's cash), the US $4.2
million Centerpoint loan to TRG (including accrued interest), and the assignment
of 65% of Centerpoint's claims with respect to the escrow accounts from the sale
of Moto Guzzi to Aprilia and claims against IMI.
Immediately upon consummation of this transaction, Bion purchased a 57.7%
majority interest in Centerpoint from OAM. The total consideration paid by Bion
consisted of (i) US$3,700,000 in cash, (ii) the assignment of the US$4.2 million
Centerpoint loan to TRG (including accrued interest) and related loan
guarantees, (iii) the assignment of the 65% interest in the Company's claims
with respect to the escrow accounts and claims against IMI, (iv) the issuance of
1,000,000 shares of Bion's common stock, and (v) the issuance of a warrant to
acquire 1,000,000 shares of Bion's common stock at a price of US$0.90, with
expiration date of January 10, 2007. Bion agreed among other things (i) file a
with SEC a Registration Statement with respect to the Bion Shares issued in the
transactions above, as soon as practicable, and within 90 days of Centerpoint's
filing with the SEC of its December 31, 2001 Form
62
TRIDENT ROWAN GROUP, INC. and SUBSIDIARIES
December 31, 2000
Notes To Consolidated Financial Statements
10-K, and to use its best efforts to cause such Registration Statement to be
declared effective as soon as practicable thereafter.
David Mitchell, a director of Centerpoint, is the Chairman, President, Board
Member and a principal stock and warrant holder of Bion. Additionally a portion
of the proceeds of the Bion Investment were used to pay off US$ 718,485 of
indebtedness of Bion owed to Mr. Mitchell.
On January 24, 2002, David Mitchell was elected as Centerpoint's President and
CEO. David Mitchell, a former CEO, a founder, a stockholder and option holder of
the Company, was the only director of Centerpoint until January 2003. Following
the Bion Investment and Bion acquisition of Centerpoint Shares, all of
Centerpoint's directors, other than David Mitchell, resigned from their
positions on the Company's Board of Directors. Bill Spier, one of Centerpoint's
Directors until he resigned on January 24, 2002, sits on Bion's Advisory Board.
On January 21, 2002, Howard Chase, a director of Centerpoint until he resigned
on January 15, 2002, joined the Board of Directors of Bion. In January 2003 Mr.
Mitchell resigned from his positions at Centerpoint and three new Directors were
elected.
On February 20, 2003 Bion filed a Form 8-K with the SEC stating among other
things, that (i) it had informed its employees that it does not have funds to
pay its employees beyond February 15, 2003, (ii) although Bion was seeking
outside sources of capital, it had not been able to secure financing necessary
for its current and future operations, (iii) there could be no assurance that
sufficient funds would be available from external sources, and (iv) it would be
forced to substantially curtail or cease its current business activities unless
it is able to immediately raise capital from outside sources.
63
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
In October 2002 Arthur Andersen S.p.A., the Company's auditor, entered into an
agreement with the national Italian practice of Deloitte Touche Tohmatsu ("DTT")
that provides for the association of the ex Arthur Andersen S.p.A. (now Deloitte
& Touche Italia S.p.A.) with those national practices (and therefore with DTT).
PART III
Item 10. Directors and Executive Officers of the Registrant
The following information concerns the directors, officers, key employees of and
consultants to the Registrant.
Directors
As of December 31, 2000 the Directors of the Company were as follows:
Name Age Position
- ---- --- --------
Mark S. Hauser ........... 45 President and Joint Chief Executive Officer,
Director
Emanuel Arbib ............ 35 Joint Chief Executive Officer, Director
Howard E. Chase .......... 66 Director
Gianni Bulgari ........... 65 Director
Duncan Chapman(1) ....... 49 Director
Andrea Della Valle(2) .... 43 Director
Mark B. Segall(2) ........ 40 Director and Secretary
- ----------
(1) Independent director nominated by Mark Hauser in accordance with the
provisions of the Settlement Agreement.
(2) Independent director nominated by Gianni Bulgari in accordance with the
provisions of the Settlement Agreement.
Duncan Chapman resigned as a Director of the Company on April 19, 2002 and
Andrea Della Valle resigned as a Director of the Company on May 15, 2002.
Mark S. Hauser, President and Chief Executive Officer of the Company from March
1998 through December 1999, and President and Joint Chief Executive Officer of
the Company since December 1999, became a Director of the Company on May 2, 1997
upon consummation of the Tamarix/Finprogetti Acquisition Agreement. Mr. Hauser
is a Managing Director of FdG Associates, a private equity fund. He is an
attorney and a founder and Managing Director of Tamarix Capital Corporation, a
New York-based merchant and investment-banking firm. Between 1986 and 1990, Mr.
Hauser was Managing Director of Ocean Capital Corporation, an international
investment-banking firm. In 1991, Mr. Hauser founded Hauser, Richards & Company,
also an international investment banking firm.
Emanuel Arbib, was the Company's Chief Financial Officer from March 1998 through
1999, and has been the Joint Chief Executive Officer since December 1999. He
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
64
Advisors, a London-based investment company. Since June 1998, he has served as a
director of and chief executive officer of Integrated Asset Management plc, a
U.K. publicly traded company. Since January 1996, he has served as Managing
Director of BioSafe Europe, an affiliate of BioSafe International Inc., a
publicly traded company engaged in waste management and landfill reclamation.
From September 1996 to November 1997, he served as a director of International
Capital Growth Ltd., and its European subsidiary, Capital Growth (Europe) Ltd.,
investment-banking firms. From 1990 until 1991, Mr. Arbib headed the Italian
desk for Eurobond sales at Prudential Bache Securities (UK) Ltd.
Howard E. Chase has served as a Director of the Company since 1971, as Chairman
of the Board of Directors and Secretary of the Company until September 1999 and
as Company counsel from 1971 until September 1995 and as President and Chief
Executive Officer of the Company from October 1995 to March 1998. He is also
President of Carret Holdings, Inc., an asset management company. He has also
served as Vice-President of the Company from 1986 to October 1995; a partner of
Morrison Cohen Singer & Weinstein, LLP from April 1984 until September 1995; and
a director of Thoratec Corporation, a NASDAQ-traded company, since 1987 and
International Diamalt Co., Ltd., a U.K. based company. Mr. Chase became a
director of Bion, a publicly held Colorado corporation, in January 2002.
Gianni Bulgari was Chairman of the Board of Directors of FILA Holdings, S.p.A.,
a sportswear maker, from 1989 until 1998. From 1966 until 1987 he served as a
Chairman of the Board of Directors and Chief Executive Officer of "BULGARI," a
family-owned jewelry business.
Duncan Chapman has been a principal at Butler, Chapman & Co., a private New
York-based investment-banking firm for more than the past five years. Mr.
Chapman resigned as a Director of the Company on April 19, 2002.
Andrea Della Valle has served as Executive Director for Lehman Brothers (Milan)
since 1988. From 1986 until 1988 he served as director for Lehman Brothers
(Switzerland). Mr. Della Valle resigned as a Director of the Company on May 15,
2002.
Mark B. Segall was a partner at Kramer Levin Naftalis & Frankel LLP ("Kramer
Levin"), a New York law firm until October 1999. In October 1999, he became a
Senior Vice President and the General Counsel at Investec Ernst & Company, and
in October 2001 President and CEO of Investec Inc. Kramer Levin represented the
Company in its December 1999 Debenture offering, and since that time has
rendered legal services to the Company on request. Until the end of September
1999, Kramer Levin provided legal services to Gianni Bulgari in connection with
the Settlement Agreement by and among the Company, Mark Hauser, Gianni Bulgari,
Howard Chase, Emanuel Arbib and William Spier. Prior to that, Kramer Levin
provided advice to Ixion LDC (which was controlled by Gianni Bulgari and Emanuel
Arbib), an affiliate of Tamarix Investors LDC, an affiliate of Mark Hauser,
Gianni Bulgari, Emanuel Arbib and William Spier.
The Board of Directors established an Audit Committee in 1995, which until
December 6, 1999 consisted of Howard E. Chase and Deborah S. Novick. The Audit
Committee is charged with the responsibility to review the performance of the
independent accountants as auditors for the Company, discuss and review the
scope and the fees of the prospective annual audit, review with the auditors the
corporate accounting practices and policies and recommend to whom reports should
be submitted within the Company, review 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 that is charged with the responsibility to review and
make recommendations to the Board of Directors regarding salaries, compensation
and benefits of executive officers and key employees of the
65
Company. All of the current members of the Board of Directors attended at least
75% of the meetings held in each of 1998 and 1999.
Each of Messrs. Chase and Hauser were directors of Centerpoint an affiliate of
the Company and a company with a class of securities registered pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), during the years ended December 31, 2000 and December 31, 2001. Each of
Messrs. Chase and Hauser resigned from Centerpoint in January 2002 following the
Sale of the Centerpoint Shares to Bion. 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.
Executive Officers
Position with Company and Business
Name Age Experience During Past Five Years
---- --- ---------------------------------
Mark S. Hauser ........
Howard Chase ..........
Emanuel Arbib .........
Information relating to the ages, positions with the Company and past business
experience of Messrs. Hauser, Arbib and Chase, is set forth above under
"Directors." All executive officers will serve in their respective capacities in
accordance with the forms of their employment agreements, until their successors
shall have been elected and qualified.
ITEM 11. EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following table shows, for the three fiscal years ended December 31, 2000,
1999 and 1998 the cash and certain other compensation paid or accrued for those
years to the President of the Company and each of the other five most highly
compensated executive officers of the Company other than the President whose
aggregate annual salary and bonus exceeded US$ 100,000 in the Company's fiscal
year ended December 31, 2000 ("Named Executive Officers") in all the capacities
in which they served:
66
SUMMARY COMPENSATION TABLE
Long-Term
Compensation Awards
-------------------
Annual Other
Compensation Annual Restricted Options/
Name and Principal Position Year Salary (Lira/$)(1) Compensation Stock SARs (#)(6)
- --------------------------- ---- ------------------ ------------ ----- -----------
Mark S. Hauser(2) 2000 $235,000 $90,000 -0- -0-
President and Chief Executive
Officer since March 1998 1999 $235,000 $90,000 $552,000 132,000
(See
1998 $106,667 -0- -0- option/warrant
repricing below)
Emanuel Arbib(3)(5) 2000 $100,000 -0- -0- (See warrant
Chief Financial Officer since March repricing below)
1998 1999 $125,000 $250,000 $301,172
1998 $66,667 -0- -0-
Howard E. Chase(5) 2000 $0 -0- -0- -0-
President and Chief Executive
Officer from October, 1995 until
March, 1998 1999 $145,000 -0- -0- -0-
1998 $250,000 -0- -0- -0-
Albino Collini 2000 -0- -0- -0-
Executive Vice President from
October, 1995 until March 1998 1999 Lira 267,000,000 -0-
($138,773) -0- -0-
1998 Lira 381,150,000/ Lira 82,800,000/
($230,163) ($50,000) -0- -0-
Mario Tozzi-Condivi (4) 2000 -0- -0- -0- -0-
Vice Chairman from October, 1995
until March 1998 1999 $96,238 $69,000 -0- -0-
1998 Lira 199,830,000/ Lira 89,813,999/ -0- -0-
($120,670) ($54,235)
Nick Speyer (5) 2000 -0- -0- -0- -0-
Chief Financial Officer of
Centerpoint 1999 $160,000 -0- -0- -0-
1998 $113,464 -0- -0- -0-
Domenico Costa 2000 -0- -0- -0- -0-
President of TIM
1999 Lira 267,000,000 -0- -0- -0-
($138,773)
1998 Lira 412,000,000/ -0- -0- -0-
($248,792)
The aggregate amount of all perquisit es and other personal benefits paid to
each of the Named Executive Officers did not exceed the greater of US$ 50,000 or
10% of such Officer's salary.
(1) Lira amounts have been converted to dollars at the rate of 2061 Lira per
U.S. dollar, the approximate rate in effect on December 31, 2000.
67
(2) 2000 and 1999 compensation includes cash compensation received from
Centerpoint (formerly Moto Guzzi), a subsidiary of the Company through
January 15, 2002 and the value office space provided to Mr. Hauser in 1999
and 2000. Includes warrant and option repricing in 2000 described below.
(3) Other Annual Compensation for Mr. Arbib in 1999 includes the US$ 250,000
5% Convertible Debenture issued in connection with Mr. Arbib's efforts in
placing US$ 6,000,000 of such Debentures in 1999. In July 2002, Mr. Arbib
accepted US$ 218,750 as payment in full on the Debentures. Includes
warrant repricing described below
(4) 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.
(5) Compensation includes cash compensation received from Centerpoint
(formerly Moto Guzzi) , a subsidiary of the Company and other subsidiaries
of the Company.
(6) See "Warrant and Option 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. Mr. Hauser has agreed that his
compensation will terminate upon, and as of, any liquidation of the Company.
The terms of Mr. Hauser's employment contract with the Company provide for
compensation of US$ 160,000 per year and provided for the issuance of 130,000
shares of the Company's Common Stock with contractual transfer restrictions
lapsing as to one-third thereof on each of December 31, 1998, 1999 and 2000 and
130,000 options exercisable at US$ 5.00 per share. Pursuant to the Settlement
Agreement, Mr. Hauser has agreed that his compensation will terminate upon, and
as of, any liquidation of the Company.
Cash compensation under the contract with Tamarix Capital Corporation and the
employment agreement with Mr. Hauser was originally payable only when the
Company had sufficient cash to meet its financial commitments for the following
12 months, and no cash compensation under the agreements was paid in 1998.
From March 1999 through April 2000 Mr. Hauser was engaged as Executive Chairman
of Moto Guzzi, the Company's subsidiary, at a salary of US$ 90,000 per year plus
reimbursement of expenses and the grant of stock options.
In February 2000, in connection with the Company's proposed upcoming auction of
the Moto Guzzi operations, the Company and Mr. Hauser renegotiated Mr. Hauser's
employment agreement and compensation arrangements and agreed that (i) Mr.
Hauser's employment agreement with Moto Guzzi would terminate effective
immediately and that Mr. Hauser would be paid not more than US$ 250,000 in
severance in connection with such termination out of the proceeds of the Moto
Guzzi closing (US$ 169,500 was eventually received by Mr. Hauser), (ii) Mr.
Hauser would continue as Executive Chairman of Moto Guzzi without compensation,
(iii) all compensation under his employment agreement with the Company would be
deferred until such time as the Company has adequate resources to pay such
compensation, (iv) the executive office space of the Company in New Jersey would
be combined with that of Moto Guzzi in New York, and that the Company and Moto
Guzzi would pay Mr. Hauser only for his actual out of pocket expenses in
connection with maintaining such offices, (v) Mr. Hauser would continue to serve
as the Company's Co-Ceo, (vi) the exercise price of 402,185 of the 804,370
warrants issued to Mr. Hauser and his affiliates would be reduced to US$ 3.50
per share and the expiration date of
68
such warrants would be extended to June 2007, and (vii) the exercise price of
50,000 of the 137,917 options issued to Mr. Hauser would be reduced to US$ 3.50
per share. All deferred amounts under Mr. Hauser's employment agreement were
paid in 2001 and amounts are no longer deferred.
Mr. Hauser continued to serve as Executive Chairman of Centerpoint without
compensation until his resignation in January 2002 in connection with Bion's
acquisition of a controlling interest in Centerpoint.
Under the terms of the employment agreement entered into with Mr. Arbib in 1998,
Mr. Arbib is entitled to compensation of US$ 100,000 per year and the issuance
of 75,000 shares of the Company's Common Stock with contractual transfer
restrictions lapsing as to one-third thereof on each of December 31, 1998, 1999
and 2000 and 65,000 options exercisable at US$ 5.00 per share. Cash compensation
under the employment agreement was originally deferred and accrued, and no cash
compensation under the agreement was paid in 1998. Those restrictions were
satisfied in 1999 and the Company commenced payment of the accrued compensation
in 1999. Mr. Arbib has agreed that his compensation will terminate upon, and as
of, any liquidation of the Company.
From March 1999 through April 2000 Mr. Arbib was also engaged as a financial
consultant to Moto Guzzi at compensation of US$ 30,000 per year plus
reimbursement of expenses and the grant of stock options.
In February 2000, in connection with the Company's proposed upcoming auction of
the Moto Guzzi operations, the Company and Mr. Arbib renegotiated Mr. Arbib's
consulting agreement and compensation arrangements and agreed that (i) Mr.
Arbib's consulting agreement with Moto Guzzi would terminate effective
immediately and that Mr. Arbib would be paid US$ 37,900 in severance in
connection with such termination out of the proceeds of the closing, (ii) all
compensation under his employment agreement with the Company would be deferred
until such time as the Company has adequate resources to pay such compensation,
(iii) Mr. Arbib would continue to serve as the Company's Co-Ceo, and (iv) the
exercise price of 289,746 of the 645,630 warrants issued to Mr. Arbib and Gianni
Bulgari and their affiliates would be reduced to US$ 3.50 per share. All
deferred amounts under Mr. Arbib's employment agreement were paid in 2001 and
amounts are no longer deferred.
Messrs. Howard E. Chase, Albino Collini and Domenico Costa had been engaged as
executive officers of the Company or one of its subsidiaries under multi-year
employment agreements that were terminated by mutual agreement effective
December 1, 1997, in connection with the sale of TIM Messrs. Collini and Costa
continued to serve as executive employees on an at-will basis, each at a base
salary of Italian Lira 267 million. Mr. Chase was also engaged as Special
Counsel to Moto Guzzi at annual compensation of US$ 60,000 plus reimbursement of
expenses. This arrangement was terminated in April 2000 in connection with the
sale of the Moto Guzzi operations. Mr. Chase was paid US$ 51,400 in connection
with such termination, and was granted an option to purchase 10,000 shares of
the Centerpoint Common Stock at an exercise price of US$ 3.50 per share, in
consideration of his ongoing services to Centerpoint and consulting with respect
to its litigation history. Mr. Chase continued to serve as a director of
Centerpoint through January 2002. Mr. Chase resigned as a Director of
Centerpoint in January 2002.
The compensation of the Named Executive Officers in 2000 was the result of the
negotiated employment agreements described above and not the implementation of a
compensation policy.
Stock Option Plans
In order to attract and retain employees, the Board of Directors adopted, and
the shareholders approved, the 1995 Non-Qualified Stock Option Plan ("1995 NQ
Plan") and the 1995 Stock Option Plan for Outside Directors ("1995 Directors'
Plan"). The 1995 NQ Plan and the 1995 Directors' Plan are referred
69
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 Compensation Committee administers the 1995 NQ Plan. Members of the
committee are not entitled to receive grants under the 1995 NQ Plan. The maximum
number of options that 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. The committee has not yet established specific
performance or other criteria governing the granting of the remaining options.
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 of Directors 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, 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.
15,000 options were issued on January 3, 2000 at an exercise price of US$ 3.6525
and a further 15,000 options were issued on January 2, 2001 at an exercise price
of US$ 0.75 per share. No director options were issued in January 2002 or
January 2003. A total of 25,000 options under the plan were granted in 1998, and
15,000 options were granted in 1999. A total of 15,000 of the 1998 options and
all of the 1999 options have been forfeited in connection with resignations of
directors. Any options to be granted in future years will be exercisable at the
reported closing price of the stock on January 2 of the year of grant. Options
are not exercisable until the later of January 2 of the year succeeding the date
of grant or six months following the date of grant.
The authority to grant options under the 1995 Directors' Plan will terminate on
the earlier of December 1, 2005 or upon the issuance of the maximum number of
shares of stock reserved for issuance under the plan, which is 150,000, 91,249
of which remained available for issuance on December 31, 1999. As of July 18,
2003, the date of this report, 30,834 director options are issued and
outstanding and 119,166 are available for issuance.
70
The 1995 Directors' Plan may be amended by the Board of Directors' except that
provisions thereof concerning granting of options may not be amended more than
once every six months unless necessary to comply with the Internal Revenue Code
or the Employee Retirement Income Security Act.
STOCK OPTION AND WARRANT 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 US$
5.00 per share, the then current market price of the Company's Common Stock:
Name Cancelled Exercise Price Granted
-------------------------- -------- ----------------- ------------------
Howard E. Chase 300,000 $12.26 140,000
Albino Collini 150,000 $12.26 50,000
Mario Tozzi-Condivi 200,000 $12.26 50,000
Domenico Costa 60,000 $12.26 40,000
In February 2000, in connection with the proposed upcoming auction of the Moto
Guzzi operations, the Company reduced the exercise price of the following stock
options previously granted to the following Named Executive Officer to US$ 3.50
per share, the then current market price of the Company's Common Stock:
Original Exercise
Name Options Price New Exercise Price
-------------------------- -------- ----------------- ------------------
Mark S. Hauser 50,000 $5.00 $3.50
In February 2000, in connection with the proposed upcoming auction of the Moto
Guzzi operations, the Company reduced the exercise price of the following
warrants previously issued to the following Named Executive Officers (or their
affiliates) to US$ 3.50 per share, the then current market price of the
Company's Common Stock, and extended the expiration date of such Warrants from
June 2002 to June 2007:
Original Exercise
Name Warrants Price New Exercise Price
-------------------------- -------- ----------------- ------------------
Mark S. Hauser 152,185 $5.50 $3.50
Azzurra (Affiliate of Mark
Hauser) 250,000 $5.50 $3.50
Simtov, LDC (Affiliate of
Emanuel Arbib) 99,212 $5.50 $3.50
Gianni Bulgari 190,534 $5.50 $3.50
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 2000.
71
Number of Shares Number of Shares Underlying Unexercised
Name Acquired on Exercise(1) Options/SARs at Fiscal Year-End
---- ----------------------- ---------------------------------------
Exercisable Unexercisable
------------------------------------
Mark S. Hauser ................... -- 137,917
Emanuel Arbib .................... -- 72,917
Howard E. Chase .................. -- 140,000
- ----------
(1) None of the Named Executive Officers exercised any stock options in 2000.
Compensation of Directors
Non-employee members of the Board of Directors of the Company receive automatic
annual grants of stock options for services rendered in their capacity as such,
at a rate of 5000 per year. See "Stock Option Plans-1995 Directors' Plan."
Officers of the Company or its subsidiaries who are members of the Board of
Directors of the Company and employees receive compensation for services
rendered in their capacities as officers only, and may be entitled to
discretionary grants of stock options.
Compensation Committee Interlocks and Insider Participation
The Company's Board of Directors established a compensation committee on October
28, 1995. The Company and each of its subsidiaries have, to date, addressed all
compensation issues through its or their respective boards of directors. Of the
present members of the Board of Directors, Messrs. Hauser, Arbib, Chase, served
as executive officers and/or employees of the Company and/or one or more of the
Company's subsidiaries in 2000.
Each of Messrs. Chase, Hauser, Arbib and Spier engaged in transactions with the
Company during 2000 in addition to serving as a director and/or officer of the
Company. See "Certain Relationships and Related Transactions" below.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Principal Security Holders
The following table sets forth certain information concerning the beneficial
ownership of Common Stock as of May 16, 2003, the date of this report, by (i)
each person who is known by the Company to own beneficially 5% or more of the
Common Stock, (ii) each of the Company's directors and Named Executive Officers,
and (iii) all directors and executive officers as a group. Unless otherwise
indicated, each person in the table has sole voting and investment power with
respect to the shares shown.
72
Number of Shares Percentage
Name and Address of Beneficial Owner* Beneficially Owned Beneficially Owned
------------------------------------- ------------------ ------------------
Mark S. Hauser ...................... 1,571,866(1)(2) 32.6
Gianni Bulgari ...................... 1,468,827(2)(3) 33.0
c/o Gruppo G.B. Bulgari
via M. Mercati, 17A
00187 Rome, Italy
Emanuel Arbib ....................... 475,972(2)(4) 10.9
Howard E. Chase ..................... 140,000(5) 3.6
Nick Speyer ......................... 40,000(6) **
Duncan Chapman ...................... 5,000 **
Andrea della Valle .................. 5,000 **
Mark B. Segall ...................... 5,000 **
Jan H. Loeb ......................... 311,700 7.5
All directors and officers as a group 3,706,655 64.8
- ----------
* Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (the "COMMISSION") and generally
includes voting or investment power with respect to securities. Shares of
Common Stock, which would be issued upon the exercise of options or
warrants that are currently exercisable, or exercisable or convertible
within 60 days, are deemed outstanding for computing the percentage
ownership of the person holding such options or warrants but are not
deemed outstanding for computing the percentage ownership of any other
person.
** Less than one percent.
(1) Includes warrants to purchase 500,000 shares owned of record by Azzurra,
Inc., a Delaware corporation controlled by Mr. Hauser, 682,579 shares
owned of record by Tamarix Investors, LDC, a Cayman Islands Limited
duration company controlled by Mr. Hauser and presently exercisable
options to purchase 137,917 shares.
(2) As part of a reporting group, Mark Hauser, Tamarix Investors, Azzurra,
Gianni Bulgari and Emanuel Arbib report beneficial ownership of 3,516,665
shares, consisting of 2,038,831 shares and warrants and options to
purchase an additional 1,477,834 shares. Such group constitutes beneficial
ownership of approximately 63.4% 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.
(4) Includes warrants to purchase 264,563 shares owned of record by entities
controlled by Mr. Arbib and options held by Mr. Arbib to purchase 72,917
shares.
(5) Includes 140,000 presently exercisable options.
(6) Includes 40,000 presently exercisable options.
Item 13--Certain Relationships and Related Transactions
Bion Investment by Centerpoint; Sale of Centerpoint Shares by OAM to Bion
In June 2001, with the consent of the Company, Centerpoint engaged the
investment-banking firm of Investec Ernst & Co. to assist Centerpoint in its
evaluation of strategic alternatives. From September 2000 through December 2001,
with the knowledge and consent of the Company, the Company's principal
subsidiary, Centerpoint, examined opportunities to acquire or merge with another
operating business or businesses, as an alternative to liquidation.
73
In December 2001, Centerpoint's Board of Directors met to evaluate the
alternative strategies and investments available to it. Investec Ernst & Co.,
who had been hired in June 2001 to assist in this process, presented to the
Centerpoint Board of Directors their conclusions on a number of potential
investments. After review of the possible investments, the Centerpoint Board of
Directors resolved to approve the acquisition of 19,000,000 shares of Bion, a
publicly-held Colorado corporation for an aggregate consideration of US$
14,250,000 comprised of the following: (i) approximately US$ 8,500,000 in cash,
(ii) assignment of the Company's US$ 4.2 million Promissory Note, (iii)
assignment of 65% of the Claims Against IMI, (iv) assignment of 65% of the
Claims with Respect to the Escrow Account, and (v) assignment of all of
Centerpoint's rights under the Loan Agreement dated June 13, 2001 between
Centerpoint and the Company. The approval was subject to the satisfaction of a
number of conditions, including the Company's and OAM's release of Centerpoint
from its liquidation obligations under the April 14th Letter.
In early January 2002 the Board of Directors of OAM, a subsidiary of the Company
and the majority stockholder of Centerpoint, met and approved the sale of
3,459,997 shares of common stock of Centerpoint owned by OAM (representing all
of the shares of Centerpoint owned by OAM) to Bion pursuant to a Stock Purchase
Agreement dated as of January 15, 2002, for the following consideration: (i)
1,000,000 restricted shares of Bion Common Stock, (ii) a warrant to purchase
1,000,000 shares of Bion Common Stock for a purchase price of US$ 0.90 per
share, (iii) US$ 3,700,000 in cash, (iv) the assignment to OAM of the Company's
US$ 4.2 million Promissory Note, and the principal and interest payable there
under, (v) assignment of a 65% interest in the Claims Against IMI, (vi)
assignment of a 65% interest in the Claims with Respect to the Escrow Account,
and (vii) assignment of all of Centerpoint's rights under the Loan Agreement
dated June 13, 2001 between Centerpoint and the Company.
On January 15, 2002, Centerpoint closed on its purchase of the Bion Shares, and
immediately upon the consummation of the purchase of the Bion Shares, OAM and
Bion closed on the Sale of the Centerpoint Shares.
In connection with the Bion Investment, and the Sale of the Centerpoint Shares,
the Company and OAM waived their rights to cause Centerpoint to proceed with
liquidation and released Centerpoint from such obligations and Centerpoint
approved the Sale of the Centerpoint Shares by OAM.
In connection with the assignment of the Claims Against IMI and the Claims with
Respect to the Escrow Account, OAM agreed that it will continue to administer
any litigation related to, settlement of, or other resolution of such claims, to
the best of its ability, on behalf of both OAM and Centerpoint as Centerpoint's
duly authorized agent.
For further details concerning the Bion Investment and Sale of the Centerpoint
Shares, and various agreements among Bion, Centerpoint and the Company, please
see "Subsequent Events" above.
Warrant and Option Repricing
In February 2000, in connection with the proposed upcoming auction of the Moto
Guzzi operations, the Company (i) reduced the exercise price of options to
purchase 50,000 shares of the Common Stock previously granted to Mark Hauser
from US$ 5.00 per share to US$ 3.50 per share, the then current market price of
the Company's Common Stock, and (ii) reduced the exercise price of the following
warrants previously issued to the following Named Executive Officers (or their
affiliates) to US$ 3.50 per share, the then current market price of the
Company's Common Stock, and extended the expiration date of such Warrants from
June 2002 to June 2007:
74
Original Exercise New Exercise
Name Warrants Price Price
---- -------- ----------------- ------------
Mark S. Hauser 152,185 $5.50 $3.50
Azzurra (Affiliate of
Mark Hauser) 250,000 $5.50 $3.50
Simtov, LDC (Affiliate
of Emanuel Arbib) 99,212 $5.50 $3.50
Gianni Bulgari 190,534 $5.50 $3.50
Issuance of 5% Debentures and Lending of Proceeds; Centerpoint Loan and early
payoff of Debentures
On December 28, 1999, the Company issued US$ 6 million of 5% Convertible
Debentures Due December 28, 2001 to provide funds for Moto Guzzi and for general
corporate purposes. In connection with raising these funds, the Company issued a
US$ 250,000 5% Convertible Debenture on the same terms as for the US$ 6 million
raised to Emanuel Arbib, joint-CEO of the Company, for his efforts in connection
with such placement. The Company also paid US$ 360,000 to an Italian
intermediary and US$ 60,000 plus US$ 26,106 for legal expenses to Investec Ernst
in connection with the placement. Mark Segall, a director of the Company was an
executive officer of Investec Ernst at the time of the transaction and is
currently an executive officer of Investec Inc.
On June 13, 2001 the Company, OAM and Centerpoint entered into the Centerpoint
Loan Agreement wherein subject to the terms and certain conditions set forth
therein Centerpoint agreed to lend the Company US$ 4,200,000, in order to enable
to payoff the Debentures. On June 13, 2001 Centerpoint made the Centerpoint Loan
and the Company issued Centerpoint the Company's Promissory Note and on June 15,
2001 the Company paid the holders of US$ 6,000,000 of the Debentures US$
4,207,500 in cash, which the Debenture holders accepted as payment in full on
the Debentures (including past due interest), representing a 31.5% discount from
their face value. In July 2000 Emanuel Arbib, the holder of the remaining US$
250,000, accepted US$ 218,750 from the Company as payment in full on such
Debentures. Further details concerning the early payoff of the Debentures and
the Centerpoint Loan are set forth above under "Centerpoint Loan; Early Payoff
of the Company's 5% Debentures."
Issuance and Redemption of Series B Preferred Stock
On February 25, 2000, Moto Guzzi, the Company's majority owned subsidiary,
issued 123,500 shares of a new Series B Preferred Stock to Fineco Sim S.p.A., an
Italian institutional investor ("Fineco"), and affiliates of Fineco, the
Company, OAM, a majority-owned subsidiary of the Company ("OAM"), and William
Spier, a director of Moto Guzzi and the Company, and Wheatley Partners LP and
Wheatley International Partners LP, each of which is an affiliate of Barry
Fingerhut, a director of Moto Guzzi, for US$ 100 per share (an aggregate price
of US$ 12,350,000). The shares were issued as follows (i) 60,000 to Fineco and
its affiliates for cash, (ii) 35,000 shares to the Company for cash, (iii)
16,000 to OAM in repayment of outstanding loans due to OAM, (iv) an aggregate of
10,000 shares to Wheatley Partners and Wheatley International Partners, in
repayment of loans made by them to Moto Guzzi, and 2,500 shares to Mr. Spier in
repayment of loans made by him to Moto Guzzi.
In connection with issuance of the Series B preferred stock, Centerpoint agreed
to issue 300,000 shares of Class A common stock to the Company for a purchase
price of US$ 0.01 per share, in consideration of Trident Rowan's participation
in the Series B financing and their successful efforts to get Fineco, S.p.A. to
subscribe for Series B shares. These 300,000 shares were issued in July 2000 and
the amount of Italian Lira 3,347 million, representing the fair value of the
shares at the date of the issuance of the Series B Preferred Stock has been
charged to the income statement. Additionally, in connection with Fineco's
75
purchase of the Series B shares Centerpoint paid a commission of US$ 180,000 to
Andrea delle Valle, a director of the Company, and paid US$ 80,000 to Investec
Ernst, an investment banking firm, where Mark Segall, a director of the Company,
was an executive officer.
In July 2000 Moto Guzzi entered into an agreement with the Series B preferred
stockholders in which it agreed to redeem the Series B preferred stock by
September 30, 2000, in exchange for their agreement not to convert their Series
B preferred stock into Class A common stock prior to that date.
Moto Guzzi closed on the sale of its operating subsidiaries on September 6, 2000
and in the last week of September 2000 it redeemed in full all outstanding
shares of Series B Preferred Stock for a price equal to US$ 100 per share plus
accrued dividends thereon, for a total of approximately US$ 12.6 million
(approximately Italian Lira 28,300 million at the prevailing exchange rate).
April 14th Share Purchase Agreement
The Share Purchase Agreement providing for the sale of Centerpoint's operating
subsidiaries to Aprilia (described above) contained a condition that OAM (the
holder of approximately 58% of the issued and outstanding shares of
Centerpoint's Class A common stock, and a subsidiary of the Company) agree to
vote its capital stock for the sale, and by letter to Aprilia dated April 14,
2000, OAM agreed, among other things, to vote its shares for the sale.
In order to induce OAM to deliver its letter to Aprilia, Centerpoint agreed with
OAM and the Company by letter dated April 14, 2000 that, among other things, it
would pay IMI's fees in connection with the sale. The April 14th letter was
amended on June 8, 2000 to provide, among other things, that Centerpoint would,
as promptly as practicable after the closing of the sale, but in no event later
than 90 days following the closing, hold a meeting of stockholders to consider
and vote upon a proposal to liquidate all of Centerpoint's assets and dissolve
itself. The date for proceeding to propose liquidation was subsequently extended
by the Company and OAM to July 15, 2001.
In connection with the sale, Aprilia required the terminations of certain of
Moto Guzzi's executives and further required that Moto Guzzi pay all costs of
such terminations. Accordingly, Moto Guzzi agreed to pay severance to two of its
directors, Mark S. Hauser and Howard E. Chase, and to Emanuel Arbib, one of its
former directors, of US$ 169,500, US$ 51,400 and US$ 37,900, respectively, in
exchange for termination of their employment and consulting agreements with Moto
Guzzi.
Issuance of Warrant to OAM
In connection with OAM continuing to provide loans to and guaranteeing certain
credit lines to Moto Guzzi S.p.A. in 1999, in 2000 Centerpoint issued a warrant
to OAM to purchase 100,000 shares of its common stock at US$ 0.01 each. OAM
exercised this option in 2000.
Centerpoint Engagement of Investec Ernst to explore Strategic Alternatives
In June 2001, with the consent of the Company, Centerpoint engaged the
investment-banking firm of Investec Ernst & Co. to assist Centerpoint in its
evaluation of strategic alternatives, including potential acquisitions and
investments. In connection with its review of investment alternatives the
Company paid Investec US$ 125,000 in cash and issued Investec a warrant to
purchase 59,375 shares of Common Stock of Centerpoint at an exercise price of
US$ 3.00 per share. Mark Segall, a Director of the Company, was at the time of
the engagement a Senior Vice President and General Counsel of Investec Ernst,
and is currently the President and CEO of Investec Inc.
76
Company's Engagement of Investec Inc. to explore Strategic Alternatives
In May 2002 the Company engaged the investment-banking firm of Investec Inc. to
assist it in its evaluation of strategic alternatives, including potential
acquisitions and investments. Mark Segall, a Director of the Company, is the
President and CEO of Investec Inc.
Disposal of TIM to affiliates of Albino Collini, a Director of the Company
Effective January 1, 2000, the Company disposed of TIM, its temporary management
services subsidiary. TIM was sold to two companies affiliated with Albino
Collini, a Director of the Company through December 1999 for 55,000 shares of
the Company's Common Stock with a fair value of Italian Lira 320 million at the
date of sale. The Company has recorded an impairment loss of Italian Lira 400
million as at December 31, 1999 in respect of the trademarks of TIM, to reflect
the post year-end disposal.
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 that occurred in
2000, it appears that all officers and/or directors of the Company complied with
their Section 16 reporting requirements.
77
PART IV
Item 14. Controls and Procedures.
The information required by Item 307 of Regulation S-K is not required for
annual reports for the calendar year 2000.
Item 15. 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.
The Company did not file any Current Reports on Form 8-K during the three-month
period ending December 31, 2000.
(c) Exhibits.
Exhibit No. Description Page
- ----------- ----------- ----
3.1 Amendment to Restated Articles of Incorporation of the
Company, as amended. Filed as Exhibit 3.1 to the
Company's Form 10-K for the year ended December 31,
1998.
3.2 Amended and Restated Bylaws of the Company (filed as
Exhibit 3.3 to Registration Statement on Forms S-1,
Amendment No. 1, file No. 333-21595).
4.3 Warrant Agreement with Warrant Certificate, each dated
May 2, 1997, with respect to 1,250,000 shares of Common
Stock issued to Centaurus Management LDC (Filed as
Exhibits 4.1 and 4.2 to Current report on Form 8-K for
Event Dated May 2, 1997).
4.4 Loan Agreement between the Company and Tamarix Investors
LDC dated October 1, 1998 (filed as Exhibit 4.1 to
November 17, 1998 Current Report on Form 8-K).
4.5 Warrant Agreement dated October 1, 1998 between the
Company and Centaurus Management LDC (filed as Exhibit
4.2 to November 17, 1998 Current Report on Form 8-K).
4.6 Warrant Agreement dated October 1, 1998 between the
Company and Azzurra, Inc. (filed as Exhibit 4.3 to
November 17, 1998 Current Report on Form 8-K).
4.7 Warrant Agreement dated October 1, 1998 between the
Company and Ixion, LDC (filed as Exhibit 4.4 to November
17, 1998 Current Report on Form 8-K).
10.1 1995 Non-Qualified Stock Option Plan (filed as Exhibit A
to the Company's Preliminary Proxy Statement filed May
24, 1996).
10.2 1995 Director's Plan (filed as Exhibit B to the
Company's Preliminary Proxy Statement filed May 24,
1996).
10.3 Description of 8% 2-year promissory notes issued in
connection with the Company's Stock Repurchase Plan
included in the Company's Schedule 13E-4 dated September
20, 1996 (filed as Exhibit 10.23 to 1996 Annual Report
on Form 10-K).
78
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 and North Atlantic Acquisition Corp.
and the Company (filed as Exhibit 10.1 to December 11,
1998 Current Report on Form 8-K).
10.9 First Amendment dated December 3, 1998 to Agreement and
Plan of Merger dated August 18, 1998 (filed as Exhibit
10.2 to December 11, 1998 Current Report on Form 8-K).
10.10 Consulting Agreement dated March 25, 1998 with Emanuel
Arbib.
10.11 Stock Purchase Agreement by and between OAM and Bion
dated as of January 10, 2002 (incorporated by reference
to Exhibit 3 to Amendment No. 2 to the Centerpoint
Schedule 13D dated January 24, 2002).
21. Subsidiaries: The Company's significant subsidiaries,
the jurisdiction of their incorporation and nature of
their respective activities is contained in this Report.
31.1 Certification of Mark S. Mauser, President and Joint Chief
Executive Officer.
31.2 Certification of Emanuel Arbib, Joint Chief Executive Officer.
(b) None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TRIDENT ROWAN GROUP, INC.
July 18, 2003 /s/ Mark S. Hauser
--------------------
Mark S. Hauser
President and Joint Chief Executive Officer
July 18, 2003 /s/ Emanuel Arbib
-----------------------
Emanuel Arbib
Joint Chief Executive Officer
79
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.
July 18, 2003 /s/ Emanuel Arbib
--------------------------
Emanuel Arbib, Director
July 18, 2003 /s/ Howard E. Chase
--------------------------
Howard E. Chase, Director
July 18, 2003 /s/ Mark S. Hauser
--------------------------
Mark S. Hauser, Director
July 18, 2003 /s/ Gianni Bulgari
--------------------------
Gianni Bulgari, Director
July 18, 2003 /s/ Mark B. Segall
--------------------------
Mark B. Segall, Director
80
Appendix A to Item 601(c) of Regulation S-K (Article 5 of Regulation S-X)
Commercial and Industrial Companies
This schedule contains summary financial information extracted from the
unaudited financial statements dated December 31, 2000 and is qualified in its
entirety by reference to such financial statements.
Period 12 months
Fiscal Year End December 31, 2000
Period End December 31, 2000
Item No. Item Description Amount*
- -------- ---------------- ------
5-01(1) Cash and cash items 5,694,000
5-02(2) Marketable securities 16,212,000
5-02(3)(a)(1) Notes and accounts receivable - trade 12,000
5-02(3)(a)(4) Notes and accounts receivable - other 450,000
5-02(4) Allowances for doubtful accounts 0
5-02(6) Inventory 0
5-02(9) Total current assets 22,920,000
5-02(13) Property, plant and equipment 87,000
5-02(14) Accumulated depreciation 32,000
5-02(18) Total assets 24,313,000
5-02(21) Total current liabilities 8,309,000
5-02(22) Bonds, mortgages and similar debt 6,129,000
5-02(28) Preferred stock - mandatory redemption 0
5-02(30) Preferred stock - non-mandatory redemption 0
5-02(31) Common stock 51,000
5-02(32) Other stockholders' equity 4,029,000
5-03(b)(1)(a) Net sales of tangible products 0
5-03(b)(1) Total revenues 0
5-03(b)(2)(a) Cost of tangible goods sold 0
5-03(b)(2) Total costs and expenses applicable to sales and revenue 0
5-03(b)(3) Other costs and expenses 2,241,000
5-03(b)(5) Provision for doubtful accounts and notes 0
5-03(b)(8) Interest and amortization of debt discount 581,000
5-03(b)(10) Income before taxes and other items (3,925,000)
5-03(b)(11) Income tax expense (18,000)
5-03(b)(14) Income/loss continuing operations (3,469,000)
5-03(b)(15) Discontinued operations 16,431,000
5-03(b)(17) Extraordinary items 0
5-03(b)(18) Cumulative effect - changes in accounting principles 0
5-03(b)(19) Net income or loss 12,963,000
5-03(b)(20) Earnings per share - primary 3.19
5-03(b)(20) Earnings per share - fully diluted 3.19
* U.S. dollar amounts are based on conversion rate of 2,061 Lira to the U.S.
dollar, which prevailed on December 31, 2000
81
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
1. FINANCIAL STATEMENTS - The financial statements listed in the accompanying
Index to Consolidated Financial Statements and Financial Statement
Schedules are filed as part of this annual report and such Index to
Consolidated Financial Statements and Financial Statement Schedules is
incorporated herein by reference.
2. FINANCIAL STATEMENT SCHEDULES - The financial statement schedule listed in
the accompanying Index to Consolidated Financial Statements and Financial
Statement Schedules is filed as part of this annual report and such Index
to Consolidated Financial Statements and Financial Statement Schedules is
incorporated herein by reference.
3. EXHIBITS - The exhibits listed on the accompanying List of Exhibits are
filed as part of this annual report and such List of Exhibits is
incorporated herein by reference.
82
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
(Item 14(a) 1 and 2)
Page
----
Report of Independent Public Accountants 31
Consolidated Balance Sheets - Assets 32
Consolidated Balance Sheets - Liabilities and
Shareholders' Equity (Deficit) 33
Consolidated Statements of Operation 34
Consolidated Statements of Changes in the Shareholders'
Equity (Deficit) 36
Consolidated Statements of Cash Flows 38
Notes to Consolidated Financial Statements 41
All other schedules are omitted since the required information is not present or
is not present in amounts sufficient to require submission of the schedules.
83