SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| Annual Report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the fiscal year ended December 31, 1999
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the transition period from ______________ to ______________
Commission File Number: 000-22813
MOTO GUZZI CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3853272
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
445 Park Avenue
New York, NY 10022
(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:
Class A Common Stock, $.01 par value
Class A Warrants
Nominal Warrants
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Part III of this report incorporates information by reference from the
Registrant's Form 10-K/A to
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be filed by the Registrant on or before May 1, 2000.
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 April 25, 2000, the aggregate market value of the voting stock held by
nonaffiliates of the Registrant was $8,112,500.
As of April 25, 1999, there were 5,589,092 shares of the Registrant's Class A
Common Stock outstanding.
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MOTO GUZZI CORPORATION
TABLE OF CONTENTS
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PART I 1
ITEM 1. BUSINESS 1
ITEM 2. PROPERTIES 16
ITEM 3. LEGAL PROCEEDINGS 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 17
PART II 17
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 17
ITEM 6. SELECTED FINANCIAL DATA 19
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 63
PART III 63
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 63
ITEM 11. EXECUTIVE COMPENSATION 63
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 63
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 63
PART IV 63
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K 63
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PART I
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain matters discussed herein are "forward-looking statements" intended to
qualify for the safe harbors from liability established by the Private
Securities Litigation Reform Act of 1995. These forward-looking statements can
generally be identified as such because they include words such as the Company
"believes," "anticipates," "expects" or "estimates" or words of similar meaning.
Similarly, statements that describe the Company's future plans, objectives,
targets or goals are also forward-looking statements. By their nature,
forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ materially from those anticipated in this report.
Certain of such risks and uncertainties are described in close proximity to such
statements or elsewhere in this report. Risks and uncertainties which could make
actual results to differ from those anticipated in this Report include the need
for additional financing to continue operations and achieve sales growth goals,
the acceptance of the products and services of the Company in an intensely
competitive marketplace, the ability of the Company to timely deliver current
and new products of acceptable quality, relationships with foreign and domestic
suppliers and distributors, the impact of changes in world currency rates
compared to lire and the effects of the introduction of the Euro, domestic labor
relations, and the execution and delivery of the Share Purchase Agreement (as
defined below). The forward-looking statements included herein are only made as
of the date of this report, and the Company undertakes no obligation to publicly
update such forward-looking statements to reflect subsequent events or
circumstances.
ITEM 1. BUSINESS
HISTORY OF THE COMPANY
Subsequent Events
Issuance of Series B Preferred Stock
On February 25, 2000, the Moto Guzzi Corporation (the "Company") 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, Trident Rowan
Group, Inc. ("TRG"), OAM, S.p.A., the majority stockholder of the Company
("OAM"), and Barry Fingerhut and William Spier, Directors of the Company, for
$100 per share (an aggregate price of $12,350,000). Fineco and its affiliates
purchased 60,000 shares and TRG purchased 35,000 shares, for cash. Messrs.
Fingerhut and Spier received a total of 12,500 shares in satisfaction of
advances they had made to the Company in August 1999 and 16,000 shares were
issued to OAM in satisfaction of outstanding loans due to it.
The holders of the Series B Preferred Stock are entitled to receive dividends at
the rate of $7
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per share per year before any dividends may be paid with regard to the Class A
Common Stock, and to receive distribution of $100 per share in liquidation of
the Company before any liquidation distributions are made with regard to the
Class A Common Stock. The Company is required to redeem the Series B Preferred
Stock for $100 per share plus accrued dividends on December 28, 2001. Holders of
Series B Preferred Stock do not have voting rights, except that they must
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 the Company to finance its day-to-day operations.
Each share of Series B Preferred Stock is convertible into Class A Common Stock
at a conversion price of $5.00, based upon the liquidation preference of the
Series B Preferred Stock ($100, plus accrued dividends, per share), meaning each
share of Series B Preferred Stock is convertible into approximately 20 shares of
Class A Common Stock.
Under some circumstances (referred to as "Events of Default"), the dividend on
the Series B Preferred Stock will increase to $10 per share per year, the
conversion price of the Series B Preferred Stock will be reduced to $2 per share
of Class A Common Stock, the holders of the Series B Preferred Stock will be
entitled to elect a majority of the Company's directors, and the Company will be
required to redeem the Series B Preferred Stock for its liquidation preference
($100 per share, plus accrued dividends). These Events of Default include the
Company or any Subsidiary being in default on obligations totalling $250,000,
and a change of control of the Company (defined to include stockholder approval
of a sale of all or substantially all of the Company's assets). At the time of
the issuance of the Series B Preferred Stock the Company was in arrears with
regard to trade debt totaling more than $250,000. Holders of 48.6% of the
outstanding Series B Preferred Stock waived any right to treat that as an Event
of Default and similar waivers are being sought from the holders of the
remainder of the Series B Preferred Stock. The Company is not in compliance with
certain provisions of its credit agreement with Centrobanca S.p.A. If
Centrobanca S.p.A. declared a default under that credit agreement, that would
constitute an Event of Default with regard to the Series B Preferred Stock.
As described below, on April 14, 2000, the Company agreed, subject to approval
by its stockholders, to sell its four operating subsidiaries to Aprilia S.p.A.
("Aprilia"). That transaction will constitute a sale of substantially all the
Company's assets and, therefore, stockholder approval of that transaction
probably will constitute an Event of Default with regard to the Series B
Preferred Stock.
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Execution and Delivery of Share Purchase Agreement
On April 14, 2000, the Company entered into a Preliminary Share Sale and
Purchase Agreement (the "Share Purchase Agreement") with Aprilia providing for
the sale of the Company's four operating subsidiaries: (i) Moto Guzzi S.p.A.,
(ii) MGI Motorcycle GmbH, (iii) Moto Guzzi North America Inc., and (iv) Moto
Guzzi France S.a.r.l. (the "Subsidiaries") for Lit. 85.5 billion (approximately
$41.85 million) plus or minus the amount by which the Subsidiaries' net worth at
April 30, 2000 is more or less than its net worth at December 31, 1999 (which
was a negative net worth of Lit. 13.993 billion (approximately $6.85 million)).
In addition, Aprilia will satisfy debts of the Subsidiaries to the Company and
OAM totaling an estimated Lit. 19 billion (approximately $9.3 million) and will
cause OAM to be released from a Lit. 4 billion (approximately $1.95 million)
guarantee of obligations of the Subsidiaries.
Under the Share Purchase Agreement, Aprilia will oversee the Subsidiaries'
operations beginning May 1, 2000. To carry that out, Aprilia designees will be
added to the Subsidiaries' board of directors. Aprilia will lend the
Subsidiaries any funds they need to operate between May 1, 2000 and completion
of the sale of the Subsidiaries. If the sale of the Subsidiaries does not take
place, the loans will be repayable when the Share Purchase Agreement terminates.
The obligation to repay the loans will be secured by up to 25% of the shares of
the Subsidiaries.
The sale of the Subsidiaries is subject to approval by the Company's
stockholders, as well as stockholders' approval of a change of the Company's
corporate name to eliminate the words "Moto Guzzi." If the approvals are not
obtained by August 31, 2000 Aprilia may terminate the Share Purchase Agreement.
OAM, which owns approximately 61% of the Company's Class A Common Stock, and
approximately 13% of the Company's Series B Preferred Stock, has agreed to vote
all of its stock of the Company in favor of the sale of the Subsidiaries.
Assuming that no additional shares of Class A Common Stock are issued by the
Company prior to the record date for the voting on the transaction (on
conversion of the Series B Preferred Stock or otherwise), the affirmative vote
of OAM will be sufficient to ensure stockholder approval of the sale of the
Subsidiaries.
In the Share Purchase Agreement, the Company has also agreed to indemnify
Aprilia against costs or liabilities resulting from any stockholder litigation
instituted in the United States (other than by OAM) with regard to the
transaction.
History of the Company
The Company was originally incorporated in Delaware on August 9, 1995 under the
name of North Atlantic Acquisition Corporation ("NAAC") to serve as a vehicle to
effect a merger,
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exchange of capital stock, asset acquisition or other business combination with
an operating business. On August 27, 1997 the Company consummated an initial
public offering consisting of 800,000 Units and 150,000 shares of Class B Common
Stock, with each Unit consisting of one share of Class A Common Stock and one
warrant to purchase shares of Class A Common Stock, which resulted in net
proceeds to the Company of approximately $8,000,000.
Merger with Moto Guzzi Corp. ("Guzzi Corp.")
On August 18, 1998, the Company and TRG entered into a definitive agreement and
plan of merger and reorganization, as amended (the "Merger Agreement"), pursuant
to which Guzzi Corp. merged with and into the Company, with the Company as the
surviving corporation (the "Merger"). Prior to the Merger, TRG and its
majority-owned subsidiary, OAM, together owned all the outstanding common stock
of Guzzi Corp.
The Merger was approved on March 4, 1999 and consummated on March 5, 1999. On
March 4, 1999 the Company's Class B shareholders also eliminated authorization
of Class B Common Stock and approved the conversion of each share of the
Company's Class B Common Stock into two shares of Class A Common Stock and two
warrants to purchase shares of Class A Common Stock (the "Class A Warrants"). In
accordance with the Merger Agreement, the Company changed its name to Moto Guzzi
Corporation, changed its Class A Common Stock ticker symbol to "GUZI" and
changed its fiscal year end to December 31.
The Merger was treated for accounting purposes as a reverse acquisition by Guzzi
Corp. The shareholders of Guzzi Corp. received an aggregate of 4,199,092 shares
of Class A Common Stock or approximately 76.4% of the post-Merger shares of the
Company, excluding any shares of the Company's formerly designated Class A
Common Stock issuable upon exercise of any options or warrants, and Guzzi Corp.,
therefore, is the accounting acquiror.
The cost of the acquisition was based on the fair value of Guzzi Corp.'s assets
and liabilities as of the date of the Merger of Lit. 14,586 million
(approximately $8,153,000 at the then prevailing exchange rate), represented by
Lit. 16,006 million in cash ($8,947,000) less Lit. 1,420 million ($794,000) of
payables and accrued expenses, principally in respect of merger expenses.
Additionally, an aggregate of 30,000 shares of Class A Common Stock with a fair
value of Lit. 591 million ($330,000) were issued to Graubard, Mollen & Miller
and 350,000 Class A Warrants with an exercise price of $10.00 were issued to the
Company's investment bankers.
The closing of the Merger provided needed liquidity to Guzzi Corp. A lack of
liquidity had led to component supply shortages in the last quarter of 1998 and
the first two months of 1999.
Production and sales were stabilized by May 1999 as proceeds from the Merger
were applied to pay supplier arrears. The financing from the Merger was not,
however, sufficient to finance needed investments or seasonal working capital
shortages in the last four months of 1999 and the Company again experienced
component supply difficulties at the end of 1999 and particularly in the first
months of
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2000 before further financing was obtained in February. See "Issuance of Series
B Preferred Stock," above and Item 7 "Management's Discussion and Analysis of
Financial Condition and Results of Operations" below.
History of Guzzi Corp. and Moto Guzzi S.p.A.
Guzzi Corp. was a Delaware corporation formed in 1996 to acquire Moto Guzzi
S.p.A. and Moto Guzzi North America, Inc., a North Carolina corporation, the
exclusive U.S. importer and distributor of "Moto Guzzi" (Registered) brand
motorcycles and spare parts. Until the Merger, Guzzi Corp. was a majority-owned
subsidiary of OAM, a subsidiary of TRG.
Established in 1921, Moto Guzzi S.p.A. is one of the oldest motorcycle brands in
the world. Between 1921 and 1996, Moto Guzzi S.p.A. operated as an independent
privately owned entity. In 1972, Moto Guzzi S.p.A., was acquired by De Tomaso
Industries, Inc., the predecessor of TRG. Because management attention was
principally focused on De Tomaso's other operating units, especially its
Maserati automobile subsidiary, limited investment was made in Moto Guzzi's
product design and development activities and its manufacturing operations.
Sales declined from a high of 46,487 units in 1971 to 3,274 units in 1993.
Prior to the Merger with the Company in March, 1999, Moto Guzzi experienced
continuous losses for twelve years, including a loss of Lit. 20, 299 million for
the fiscal year ended December 31, 1998, and had not generated cash from
operations for over three years.
Since 1994, Moto Guzzi has made investments in reinforcing management and in
logistical and production control systems and has increased outsourcing of
components to qualified suppliers. It also introduced two new models, the
"Centauro" and "Quota," and updated versions of its "California" and "Nevada"
models which have been well received by customers. Moto Guzzi North America,
Inc., was acquired by TRG in January of 1996 and was transferred to Guzzi Corp.
in October 1996. In February 1997, Moto Guzzi France, S.a.r.l., a new
wholly-owned importer-distributor was established in France to strengthen
distribution in important markets. Also, in January 1997, distribution in
Germany was transferred to a new 25% owned affiliate, MGI Motorcycle GmbH. In
March 2000, the Company acquired the remaining 75% of MGI Motorcycle GmbH.
From 1994 to 1997 Moto Guzzi increased unit sales from approximately 4,300 to
approximately 5,600. In the fiscal years ended December 31, 1998, and December
31, 1999, unit sales amounted to 5,647 units, and 6,275 units, respectively,
although the Company continues to operate at a loss.
From 1994 through 1996, capital for Guzzi Corp. was supplied by its parent
company, TRG. In early January 1997, a private placement of Guzzi Corp.
redeemable preferred stock raising gross proceeds of $6 million was completed,
and in June 1997 TRG committed to Guzzi Corp. approximately $4 million from the
proceeds of a public offering of TRG common stock and
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common stock warrants. Further, in early 1998, Guzzi Corp. negotiated a Lit. 10
billion (approximately $5.6 million) long-term credit facility, which it drew
down in April 1998. The Company is not in compliance with certain covenants
relating to this facility. Guzzi Corp. obtained Lit. 7 billion of additional
debt financing in October 1998 as a result of loans and credit enhancements by
OAM.
With the proceeds from these financings, Guzzi Corp. started to make investments
in research and model development, expenditures on which more than doubled in
1997 compared to 1996 and increased by a further 39% in 1998 compared to 1997.
To enable substantial further growth in production and sales, the Company's
strategic plan would require total investments in research and product
development of some Lit. 50 billion (approximately $25 million) over a five-year
period, as well as investments of Lit. 20 billion (approximately $10 million) in
production plant, machinery and information systems. As a consequence of the
Company's continuing lack of liquidity, no significant part of these investments
has yet been made and research and development was curtailed in 1999 to some 66%
of 1998 expenditure levels.
Following the Merger, though the Company's financial circumstances limited its
available actions, the Company was able to introduce two new models.
Other Recent Events
In late March 1999, Mario Scandellari joined the Company as Managing Director of
Moto Guzzi S.p.A. Mr. Scandellari has had a successful executive career both in
the motorcycle industry, initially with Harley Davidson and then Cagiva/Ducati,
as well as in turnaround situations. Mr. Scandellari was named Chief Operating
Officer of the Company in May 1999.
In April 1999, the Company introduced its California Jackal model. This
"stripped down" model highlights the elegance of the Company's unique engine and
design. Reduced weight further enhances handling. Also in April, the Company's
California Special model was awarded second place in the "cruiser" category by
the premier Italian motorcycle magazine "Motociclismo."
In July 1999, the Company introduced its V-11 Sport motorcycle, a "retro sport"
model with an innovative six-speed gearbox. This motorcycle has been greeted
enthusiastically by the trade press. Shipments of this new model began in
September 1999.
On July 27, 1999, Moto Guzzi S.p.A. concluded labor negotiations resulting in a
temporary employee downsizing program that commenced in September 1999. The
program is expected to last two years while the Company restructures production
processes, overhauls its plant, grows production volumes and improves
productivity. The Company believes that these enhancements will enable the
Company to return to current employment levels with significantly increased
productivity and volumes.
In March 2000, the Company acquired the 75% equity interest that it did not
already own of MGI
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Motorcycle GmbH, the exclusive importer of Moto Guzzi motorcycles in Germany.
Germany has been for many years the most important European market outside of
Italy for Moto Guzzi's products and generally the most important European market
for large displacement motorcycles.
For other material events occurring after December 31, 1999 please see
"Subsequent Events" above.
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BUSINESS OF THE COMPANY
Business
Set forth below is a description of the Company's business and the strategy
developed by the Company's management. However, the Company does not currently
have the substantial funds required to implement the strategy and does not
expect to be able to obtain such funds in the foreseeable future and on April
14, 2000 the Company entered into a Share Purchase Agreement with Aprilia,
providing for a sale of all of its Subsidiaries to Aprilia. See "Subsequent
Events -- Execution and Delivery of Share Purchase Agreement." Accordingly, the
description of the Business of the Company set forth below is qualified in its
entirety by the information set forth under the caption "Subsequent Events --
Execution and Delivery of Share Purchase Agreement above.
The Company, through its wholly-owned subsidiary, Moto Guzzi S.p.A., and its
distribution Subsidiaries is a leading Italian manufacturer, marketer and
distributor of performance and luxury motorcycles and motorcycle parts, marketed
under the "Moto Guzzi (Registered)" brand name.
The Company's primary product offerings include the following models:
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o California Classic custom/cruisers with 1064 cc
EV/Special engine and traditional lines.
o California Jackal A 'stripped down' basic Custom/Cruiser at a
lower price point which permits customer
personalization.
o Nevada Club A lower riding cruiser with a 744 cc engine
and chrome accents.
o V10 Centauro A custom performance bike with a powerful 992 cc
4-valve air-cooled engine.
o 1100 Sport Corsa A sleek sports bike with modern lines and
a 1064 cc engine.
o V-11 Sport A "retro sport" model with an innovative six-speed
gearbox.
o Quota A model aimed at the street enduro segment.
o Police Bikes Variations of the Company's models targeted at
government agencies, national and local police
forces and highway patrols.
The "custom" class of motorcycle is designed for short trips in an urban
setting, and is distinguished by its very stylized design and upright seating
position. The term is commonly used in Europe. The "cruiser" class is similar to
the "custom" in use but is more commonly found in the United States. The cruiser
class tends to be more aggressive in its styling, have greater performance
characteristics and greater variation in rider position than "custom"
motorcycles. The "street enduro" class is the motorcycling equivalent to the
sport utility vehicle class of automobiles. These motorcycles, while designed
for ordinary road riding, have some off-road capabilities, such as a taller
frame with greater ground clearance than cruiser or custom bikes, a longer
travelling suspension system to absorb off-road bumps, and a higher seat
position. "Sport" bikes are designed for high performance and imitate the design
of professional racing machines "Retro Sport" bikes combine innovation and good
performance with traditional styling which evokes classic motorcycles of past
generations.
Strategy
The Company's strategy is to increase sales volumes and gross profits by:
o focusing on the breadth, quality and design of its product offerings,
o increasing its marketing activities,
o enhancing its distribution network, and
o leveraging its brand name.
The Company believes that Moto Guzzi's reputation and rich tradition as a
technological
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innovator and quality manufacturer provides a solid foundation. Moto Guzzi has
built a loyal customer base over the past 79 years through the outstanding
performance and reliability of its motorcycles, as well as its strong
distribution network. The current customer base ranges from professional
motorcycle enthusiasts to government agencies, police departments and highway
patrols around the world.
The Company intends to build on its existing product family platforms and to
develop new platforms which will be the basis for its next generation of
motorcycles. New power trains, which represent a significant part of planned
development activities, typically require at least three years' development
time. In the interim, new motorcycles based on the current product platforms
will be periodically introduced. The focus of these intermediate offerings will
be significant improvements in quality, performance and refinement.
Historically, the motorcycle had been an "entry level" form of transport which
has been supplanted by the automobile. Over recent years, the industry has
become established as a recognized leisure industry in developed markets and the
Company's current range of motorcycles, being in the larger and more expensive
segment of the market, are principally targeted at the leisure segment of the
vehicular industry. The management of the Company believes that this recent
recognition is one of the major factors behind the growth in the Company's
market segment over the last three years.
The Company believes that the U.S. market represents the largest expansion
opportunity for the Company. Approximately half of all motorcycles sold in the
U.S. are in the large-engine motorcycle segment. Between 1996 and 1999, U.S.
registrations in this segment of the market increased substantially and is
perceived by the Company as the U.S.'s fastest growing segment. The Company
plans to implement an aggressive marketing campaign targeted at U.S. consumers
that is designed to build brand value and name recognition, and to emphasize the
technical and design strengths of the Company's motorcycles.
The Company also plans to expand and enhance its distribution network in the
United States, In addition to increasing the size and quality of its dealer
network, the Company also plans to introduce new sales incentives programs for
dealers, and a floor plan financing program. Other innovations that either have
or will be introduced in the U.S. include customer purchase financing and an
extended, three year warranty program.
While public administration sales have traditionally been a stable source of
revenue for the Company, management believes that there are unexploited growth
opportunities in this market and plans to refocus its sales and marketing
efforts in this product category.
Finally, the Company plans to leverage the "Moto Guzzi" brand by expanding into
new products, markets and services that also offer the opportunity to enhance
its brand awareness and brand image. The Company currently sells a limited line
of non-motorcycle merchandise. In the future, the Company plans to introduce a
range of branded accessories such as hats,
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jackets, shirts and luggage. The Company also plans to exploit opportunities to
license the "Moto Guzzi" brand name to manufacturers and suppliers of other
products and services.
If the Company were to proceed on all of the projects it is currently evaluating
to achieve its goals, it estimates that approximately Lit. 50 billion of
development and capital expenditure would be required over the next few years,
including to refurbish its plant to make it more competitive and for investments
in information technology and systems. Cash flows from operations, however, will
not be sufficient to entirely finance such expenditures. The Company's product
development programs, therefore, will be dependent upon its ability to raise
further financing from outside sources.
Manufacturing
The Company manufactures a high priced line of motorcycles, and distributes
parts and accessories, under the trademark "Moto Guzzi (Registered)." The
Company's motorcycles vary in engine size from 750 cc to 1,100 cc. The Company
has, in recent years, concentrated development and sales efforts on its largest
motorcycles. As part of its growth plan, it is also considering entry into the
lower-cost, small engine market. The Company's motorcycle parts were distributed
through Centro Ricambi, a 100% owned subsidiary of Moto Guzzi until it was
merged into Moto Guzzi in 1997.
All motorcycle manufacturing is conducted as a factory in Mandello del Lario,
Italy. The Company manufactures some of the required power train components,
acquires other components from outside suppliers, and performs finishing work
and assembly into motorcycle bodies. Until 1994, Moto Guzzi internally produced
a majority of the components of its motorcycles.
Seasonal Nature of Business; Backlogs
The Company's business is affected by seasonal factors. Retail market demand is
highest in the spring and early summer, while most sales to the Italian
government generally take place in the last quarter of the year. Moto Guzzi,
S.p.A., like most Italian companies, traditionally ceases production in August
of each year and has reduced production over the Christmas holidays and in the
period immediately following, while inventory is being taken. As part of its
effort to increase overall production levels and improve cash flow, the Company
curtailed the suspension of production while inventory was taken in December
1998 and January 1999 and in December 1999 and January 2000. The Company's sales
are sensitive to successful coordination of demand and product availability.
As of December 31, 1999, the Company had firm orders from public administration
bodies for 540 motorcycles which had not yet been shipped, at an approximate
value of Lit. 6.7 billion. The Company expects to fill all such orders within
five months. The Company generally receives indicative cancelable order programs
in November and December of each year from its dealers and non-
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owned importers based on anticipation of retail demand for the forthcoming year.
While the Company seeks to plan production schedules based on these indicative
orders, production restrictions (exacerbated in recent years by component supply
difficulties) are such that the Company cannot produce sufficient motorcycles to
meet peak season demand. Typically, when the Company cannot deliver on or
shortly after the indicated dates, orders are cancelled rather than delayed due
to the seasonal nature of retail demand. Indicative orders for 2000 exceed the
Company's predictions of production capacity in each of the months January
through June 2000.
Compliance with Governmental Regulations
The Company, along with other motorcycle manufactures, incurs substantial costs
in designing and testing products to comply with vehicle safety and combustion
emissions requirements of the various countries and localities where its
products are sold. These standards have added, and will continue to add,
substantially to the price of the vehicles. Competitive pressures, importation
expenses and importers' margins, however, have kept export prices lower than
domestic Italian sales prices.
All of the Company's motorcycles are manufactured to comply with applicable
safety standards. All current Company models comply with all emission standards
applicable in all countries in which they are sold. As new laws or regulations
are adopted, the Company will assess their effects on current and future models
and the cost of achieving compliance with them.
A portion of the indicative orders become firm, and other firm orders are
placed, as the anticipated shipment dates approach. The Company uses ongoing
research from its sales and marketing departments to forecast expected order
volumes from the domestic Italian dealer network and the dealer networks of its
owned importers in France and the Unites States and does not receive long term
firm orders dealers.
Raw Materials and Components
There are many reliable sources for most motorcycle raw materials, including
aluminum for power train components. However, some significant components are
available from only one or two sources. From 1996 through April 2000 situations
have arisen where the Company's suppliers were unable to make timely deliveries
of needed components due to production problems incurred by those suppliers or
because of arrears of payment by the Company to suppliers. Components supply has
also been delayed as a result of design changes made by the Company. All of
these delays adversely affect motorcycle production and in recent years, may
have resulted in lost sales.
While the cost of imported raw materials is affected by variations in the value
of the Italian Lira relative to the currencies of Italy's primary trading
partners, currency exchange rates have not had a significant adverse effect on
costs and price competitiveness in 1997, 1998 or 1999.
Research, Development and Continuing Engineering
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Moto Guzzi, while continuously engaged in product improvement and development,
had recently increased its commitment to develop new products. In 1998, research
and development expenditures by Moto Guzzi were approximately Lit. 4,336
million, compared to Lit. 3,125 million in 1997, and Lit. 1,117 million in 1996.
Expenditures in 1999 have been curtailed as a result of the Company's restricted
cash flow and were approximately Lit. 2,874. Expenditures in 1999, 1998 and 1997
were generally incurred in developing production models as well as more powerful
two-cylinder air-cooled and other engines with improved performance and
durability and superior braking systems, suspensions, frames, transmissions and
other components.
Sales, Marketing and Inventory
The Company primarily markets its products through advertising in trade
publications, participation in promotional events and fairs, attendance at trade
shows and from editorial coverage in trade and general circulation press.
All sales by Moto Guzzi S.p.A. are invoiced in Italian lire except sales by Moto
Guzzi S.p.A. to Moto Guzzi North America Inc., which are invoiced in U.S.
dollars. Prices are customarily reviewed and, when possible, are increased to
cover increases in production costs at periodic intervals and in light of
prevailing exchange rates. In 1997, the Company generally maintained its selling
prices in order to maintain market share. In 1998, the Company increased prices
by approximately 5%, effective April. In 1999, the Company generally maintained
its 1998 selling prices and introduced a new model, the California Jackal at a
lower price point than previous models in order to gain market share. As of
January 2000 prices of all models have been increased by between 3% and 6%.
Export sales continued to reflect lower margins than domestic Italian sales due
to importer margins and transportation costs which cannot be passed through to
consumers by higher retail prices. However, this difference did not affect the
Company's marketing strategy.
The Company is not affected by any unusual industry practices relating to
returns of merchandise or extended payment. It typically extends payment terms
by between 30 and 60 days in the "out of season" winter months. The Company is
obliged to maintain 10 years' inventory of parts for all motorcycles sold to
Italian government agencies. In common with many other motor vehicle
manufacturers, the Company also maintains significant spare parts inventories
for commercial reasons. As is common in the industry, the Company sells
motorcycles under open purchase orders rather than long-term contracts. By
scheduling production in anticipation of fulfilling such orders, it may end a
given year with substantial inventory if orders are cancelled or deliveries not
taken.
Distribution
The Company maintains a distribution network throughout Italy of over 120
independent dealers. No single Italian dealer accounted for more than 5% of the
Company's sales in 1999. The Italian dealers who distribute the Company's
motorcycles generally handle other brands as
16
<PAGE>
well.
In 1999, a single importer-distributor acted as exclusive importer-distributor
for Moto Guzzi in each of Argentina, Australia, Austria, Belgium, the Czech
Republic, Denmark, Finland, France, Germany, Greece, Holland, Japan, Luxembourg,
Malaysia, Malta, New Zealand, Norway, Portugal, Singapore, Spain, Sweden,
Switzerland, the United Kingdom, and the United States.
Moto Guzzi North America is the Company's exclusive importer-distributor in the
United States. Until 1996, when it was acquired by TRG and later transferred to
Guzzi Corp., Moto Guzzi North America was an independent business. Today, Moto
Guzzi North America distributes through a network over 100 dealers.
In November 1996, Moto Guzzi replaced its independent French
importer-distributor with Moto Guzzi France S.a.r.l, a wholly-owned subsidiary
of Moto Guzzi S.p.A., which commenced operations in February 1997, and now
operates through a network of 78 dealers.
In March 2000, the Company acquired the 75% of the outstanding shares of MGI
Motorcycle GmbH that it did not already own. MGI Motorcycle GmbH is the
exclusive importer-distributor of Moto Guzzi motorcycles and spare parts in
Germany and distributes through a network of over 100 German dealers.
The Company provides support to its worldwide dealer network by, among other
things, operating a technical training and support facility at Mandello del
Lario. All dealers are required to attend training courses at the inception of
their relationship, and periodically afterwards.
Set forth below is a chart illustrating percentage of motorcycle sales revenues
attributable to various geographic areas in the three most recent fiscal years.
1999 1998 1997
Italy 33.2% 37.4% 33.9%
Other Europe 40.9% 41.0% 46.1%
Of which: France (subsidiary) 11.0% 10.2% 8.6%
Germany (affiliate) 12.9% 15.2% 17.9%
United States (subsidiary) 20.3% 16.8% 16.1%
Other 5.6% 4.8% 4.0%
Competition
The Company is in a highly competitive business, with competition typically
coming from all powered passenger vehicles, as well as motorcycles. The overall
motorcycle market in Italy (excluding scooters) grew in 1999, with new vehicle
registrations increasing by approximately 24.5% compared to the same period in
1998. The Company maintains an extremely small share of the world-wide
motorcycle market, which is dominated by many of the same manufacturers that
predominate in Italy. Many of such companies are far larger and better
17
<PAGE>
capitalized, with greater name recognition. The Company competes principally
through such intangible qualities as performance, reputation and quality of
manufacture, areas in which its competitors also excel.
The Italian market today remains dominated by large, well-financed Japanese
manufacturers. A number of Italian and foreign manufacturers, principally
Ducati, Honda, BMW, Yamaha, Kawasaki, Aprilia and Suzuki, sell their products in
the Italian market. In 1999, according to date from the Italian Ministry of
Transportation, the Italian market shares of the principal competitors of the
Company on a unit basis, excluding scooters, were as follows:
ALL LARGE
MOTORCYCLES MOTORCYCLES*
----------- ------------
Honda 23.4% 18.2%
Yamaha 20.3% 19.7%
Suzuki 11.0% 12.3%
Ducati 10.0% 10.6%
Kawasaki 8.3% 7.1%
BMW 7.7% 14.2%
Aprilia 5.0% 5.0%
Cagiva/Husqvarna 3.1% 0.7%
Harley Davidson 2.5% 4.7%
Moto Guzzi Corporation 2.0% 3.2%
Triumph 1.6% 3.0%
KTM 0.9% 0.0%
Product Liability
The Company's business exposes it to possible claims for personal injury from
the use of its products. The Company maintains liability insurance with a
per-occurrence and aggregate one-year claim limit of Lit. 18,000 million.
Patents and Trademarks
Except as described below, the business of the Company is not and has not been
in any material respect protected by or dependent upon patents, licenses,
franchises or concessions. The component parts of motorcycles are manufactured
pursuant to well known techniques and include components which are not unique to
its products, although some of these components are specially styled and
designed. The Company believes that the registered trade name "Moto Guzzi
(Registered)" and the related trademarks are well known and highly regarded
throughout the world, and appropriate steps have been taken to protect the
Company's rights in these trade names and trademarks in 67 countries, including
those countries representing significant
- --------
* The Company considers motorcycles with an engine capacity greater than 600 cc
as "Large Motorcycles".
18
<PAGE>
markets.
Employees and Employee Relations
Relations with the Company's employees are considered by its management to be
good, though they have been affected recently by the temporary lay-off program
that commenced in September 1999. At December 31, 1999, the Company had 306
employees, all of them unionized, of which 23 out of 53 employees included in
the lay-off program had been laid-off. This compares to 332 employees at
December 31, 1998. The lay-off program affects the Company's ability to benefit
from overtime work (as well as the willingness of employees themselves to do
overtime) and while it persists may also limit the Company's ability to assume
temporary or permanent employees for certain functions, if and when they might
be required to meet seasonal needs or otherwise. The Company can call on those
employees who are laid-off to return to work. Approximately 48% of the employees
were engaged in factory production and the balance in various supervisory,
sales, purchasing, administrative, design, engineering and clerical activities.
Resolution of the national metal workers union contract in 1997 resulted in a
one-time payment to workers of Lit. 900,000 in respect of periods prior to the
date of the new agreement.
Potential Effects of the European Common Currency on the Company's Business
The Company's business is substantially located in and operates in Italy. On
January 1, 1999, Italy was admitted as one of 11 European countries in to
participate in the adoption of the new European common currency, the Euro.
The Euro is expected to have significant effects on the Company's business.
Among many potential economic factors, the proposed common currency is expected
to increase competition within the common currency zone. Because the adoption of
the Euro will require competitive businesses located in different participating
countries to price their products in a single currency, the historical ability
of such companies to increase or reduce prices without affecting operating
results in their home country's currency will be largely eliminated.
The uniform currency will also likely result in the establishment of new
Euro-based pricing points, e.g., Euro 9,999 or Euro 19,999. These new pricing
points may differ from the current prices charged for such products, which could
be advantageous or disadvantageous to a company, depending upon whether the
Euro-based price point is higher or lower than the prices charged before the
pricing policies and model specifications to most competitively deal with the
new pricing points. The Company will have to re-evaluate its pricing policies
and model specifications to most competitively deal with the new pricing points.
The Company also expects that the introduction of the Euro will increase
consolidation within industries and industry sectors, as currency translation
risks and competitive opportunities diminish within the common currency zone.
National regulatory barriers are also likely to fall as participating countries
harmonize their rules to promote intra-member commerce and cross-
19
<PAGE>
border information exchange.
The combination of pricing transparency and consolidation is likely to increase
competition within the common currency zone generally. To the extent that
competitors of the Company participate in the expected consolidation, the
Company may in the future face competitors which are even larger and better
capitalized than the competitors it faces now.
Additionally, interest rates are likely to stabilize across the common currency
zone. Interest rates in Italy have fallen since 1997, partly in response to
anticipation of the introduction of the Euro.
The Company has not yet fully evaluated the ramifications of the Euro because
national European currencies continue to function as more dominant benchmarks
for pricing and commercial transactions with customers and suppliers in the
first months of the phasing in of the Euro. Adoption of the Euro is taking place
over a two-year transition phase in which both the Lire and the Euro are valid
currencies for business transaction in Italy.
The Company also makes significant export sales outside the common currency zone
and the prices of certain commodities used in its manufacturing processes may be
affected by the value of the Euro. The implementation of the Euro within the
common currency zone could have unanticipated consequences on the economies of
participant countries which could affect demand for the Company's products.
The European Common Currency could have a significant effect on the Company's
accounting systems which could require significant modification or replacement.
Management believes that the Company's businesses do not have unique or
custom-tailored requirements for accounting systems and that it could rapidly
and inexpensively change to "off-the-shelf" systems at an appropriate time if
existing systems prove not to be adequate. The Company is not able to evaluate
these matters or the effects on international financial and payment systems with
which it interacts at the present time. The Company will address these issues in
the current year and in 2001 as further guidelines and information become
available. Adoption of the Euro will also lead to the Company reporting its
results in that currency instead of the Italian Lire from the fiscal year ended
December 31, 2002, and thereafter.
ITEM 2. PROPERTIES
The following facilities are leased or owned by the Company or its subsidiaries
in the active conduct of its business:
(a) The Company's factory and office facilities are owned in fee and are
located in Mandello del Lario, Italy in a group of one, two and three
story buildings aggregating 54,550 square meters. This facility is
currently operating at approximately 50% of production capacity calculated
as a percentage of available space.
20
<PAGE>
(b) Office and warehouse facilities are owned in fee by Moto America and
are located in Angier, North Carolina. The facility aggregates 18,300
square feet, of which 2,000 square feet are used for office functions, and
the balance as a warehouse.
(c) The Company's spare parts distribution facility is located at a 3,683
square meter facility in Modena, Italy, under a lease expiring in 2002.
The current year lease obligation is Lit. 260 million, and is subject to
incremental annual increases.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are involved in litigation in the normal course
of business. Management does not believe that the final disposition of such
litigation will have a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fiscal
quarter ended December 31, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Class A Common Stock and Class A Warrants are quoted on the OTC
Bulletin Board under the symbols "GUZI" and "GUZIW," respectively.
The following table sets forth the range of high and low closing trading prices
for the Company's Class A Common Stock and Class A Warrants for the fiscal years
ended December 31, 1999 and December 31, 1998, respectively, as represented by
the OTC Bulletin Board. The OTC Bulletin Board is an inter-dealer automated
quotation system sponsored and operated by the NASD for equity securities not
included in the Nasdaq system. Such over-the-counter market quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
necessarily reflect actual transactions.
Set forth below are the trading prices for the Class A Common Stock during the
fiscal years ended December 31, 1999, and December 31, 1998, respectively:
Class A Common Stock
1999 LOW HIGH
- ---- --- ----
First quarter $ 8.00 $11.625
Second quarter $ 6.9375 $ 9.375
Third quarter $ 4.25 $ 7.18750
Fourth quarter $ 3.75 $ 7.25
21
<PAGE>
1998 LOW HIGH
- ---- --- ----
First quarter $ 8.306 $ 8.50
Second quarter $ 8.5 $ 9.306
Third quarter $ 8.61 $ 9.0
Fourth quarter $ 8.75 $10.0
Set forth below are the trading prices for the Class A Warrants during the
fiscal years ended December 31, 1999, and December 31, 1998, respectively:
1999 LOW HIGH
- ---- --- ----
First quarter $ 0.25 $ 1.25
Second quarter $ 0.75 $ 1.28125
Third quarter $ 0.50 $ 0.93750
Fourth quarter $ 0.375 $ 0.875
1998 LOW HIGH
- ---- --- ----
First quarter $ 0.50 $ 0.50
Second quarter $ 0.50 $ 0.50
Third quarter $ 0.125 $ 0.75
Fourth quarter $ 0.125 $ 0.50
The Company did not pay any dividends during the 1999, 1998 or 1997 calendar
years.
As of April 25, 2000 there were approximately 600 stockholders of record of the
Company's common stock.
22
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1999 1999 1998 1997 1996 1995
US$'000 (a) Lit.m Lit.m Lit.m Lit.m Lit.m
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data
Net Sales 44,819 86,232 83,760 80,987 77,620 64,671
Gross profit 3,606 6,939 6,391 (b) 9,514 11,865 10,071
Selling, General & Administrative 10,708 20,602 16,033 13,824 10,210 7,486
Research & Development 1,494 2,874 4,336 3,125 1,177 602
Interest expense 2,519 4,847 4,284 3,640 4,346 3,604
Net loss (11,943) (22,976) (20,299) (10,569) (1,996) (3,233)
Cash dividends per common share -- -- -- -- -- --
Balance Sheet Data
Cash and cash equivalents 1,243 2,391 217 6,352 2,210 2,718
Current Assets 34,065 65,541 62,667 69,229 60,223 52,382
Total assets 42,136 81,068 80,677 84,694 73,731 58,594
Short-term debt 21,545 41,453 38,886 29,012 23,173 15,637
Long-term debt net of current portion 1,054 2,027 2,986 4,828 5,629 4,198
Parent company financing -- -- 13,362 12,919 4,659 2,883
Shareholders equity (deficit) (7,921) (15,240) (21,104) (c) (737) c) 6,697 (c) 2,822
US$ Lit. Lit. Lit. Lit. Lit.
Loss per share
Basic and fully diluted (2.31) (4,440) (6,101) (3,177) (1,300) (672)
Weighted average number of shares:
Basic 5,174,481 5,174,481 3,327,139 3,327,139 2,487,139 2,487,139
Fully diluted 5,226,852 5,226,852 3,327,139 3,327,139 2,487,139 2,487,139
</TABLE>
(a) Converted solely for the convenience of the reader at Lit. 1,924 : $1.00,
the approximate rate as at December 31, 1999
(b) Gross margin in 1998 after Lit. 2,463 million of inventory write-offs
consequent to product abandonment.
(c) Adjusted for reclassification of redeemable preferred stock exchanged for
common stock in the March 1999 merger
23
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Significant material events with respect to the Company that impact the Company
and the discussion set forth below is subject to and qualified by the
information set forth below under "Subsequent Events -- Issuance of Series B
Preferred Stock; Execution and Delivery of Share Purchase Agreement."
Fundings and Financings From 1994 through 1999
From 1994 through 1996, capital for Moto Guzzi was supplied by its parent
company, TRG. In early January 1997, a private placement of Guzzi Corp.
redeemable preferred stock raising gross proceeds of $6 million was completed,
and in June 1997 TRG committed to Guzzi Corp. approximately $4 million from the
proceeds of a public offering of TRG common stock and common stock warrants.
Further, in early 1998, Guzzi Corp. negotiated a Lit. 10 billion (approximately
$5.6 million) long-term credit facility, which it drew down in April 1998. The
Company is not in compliance with certain covenants relating to this facility.
See Item 7 "Management's Discussion of Financial Position and Results of
Operations -- Liquidity." Guzzi Corp. obtained Lit. 7 billion of additional debt
financing in October 1998 as a result of loans and credit enhancements by OAM.
With the proceeds from these financings, Guzzi Corp. started to make investments
in research and model development, expenditures on which more than doubled in
1997 compared to 1996 and increased by a further 39% in 1998 compared to 1997.
To enable substantial further growth in production and sales, the Company's
strategic plan would require total investments in research and product
development of some Lit. 50 billion (approximately $25 million) over a five-year
period, as well as investments of Lit. 20 billion (approximately $10 million) in
production plant, machinery and information systems. As a consequence of the
Company's continuing lack of liquidity, no significant part of these investments
has yet been made and research and development was curtailed in 1999 to some 66%
of 1998 expenditure levels.
On August 18, 1998, the Company and TRG entered into a Merger Agreement,
pursuant to which Guzzi Corp. merged with and into the Company, with the Company
as the surviving corporation.
The closing of the Merger provided needed liquidity to Guzzi Corp. A lack of
liquidity had led to component supply shortages in the last quarter of 1998 and
the first two months of 1999.
Production and sales were stabilized by May 1999 as proceeds from the Merger
were applied to pay supplier arrears. The financing from the Merger was not,
however, sufficient to finance needed investments or seasonal working capital
shortages in the last four months of 1999 and the Company again experienced
component supply difficulties at the end of 1999 and particularly in the first
months of 2000 before further financing was obtained in February. See "Issuance
of Series B Preferred Stock."
24
<PAGE>
Results of Operations for the Year Ended December 31, 1999 compared to 1998
<TABLE>
<CAPTION>
Dec. 31 Dec. 31
1999 1998
Lit.m Lit.m
<S> <C> <C> <C> <C>
Net sales 86,232 100.0% 83,760 100.0%
Cost of sales (79,293) (92.0%) (77,369) (92.4%)
------- -------
6,939 8.0% 6,391 7.6%
Selling, general and administrative expenses (20,602) (23.8%) (16,033) (19.1%)
Research & development (2,874) (3.3%) (4,336) (5.2%)
Share of losses of affiliated companies (165) (0.2%) -- --
Reorganization costs (843) (1.0%) (1,599) (1.9%)
------- -------
(17,545) (20.3%) (15,577) (18.6%)
Interest expense (4,847) (5.6%) (4,284) (5.1%)
Other income, net (496) (0.6%) 81 0.1%
------- -------
Loss before income taxes (22,888) (26.5%) (19,780) (23.6%)
Income tax expense (88) (0.1%) (519) (0.6%)
------- -------
Net loss (22,976) (26.6%) (20,299) (24.2%)
======= =======
</TABLE>
Net sales for the year ended December 31, 1999 increased by Lit. 2.5 billion or
3.0% to Lit. 86.2 billion from Lit. 83.8 billion for the year ended December 31,
1998, principally due to an increase of 11.1% in unit sales to 6,275 in 1999
from 5,647 in 1998. The increase was partially offset by an unfavorable change
in sales mix, principally derived from the introduction of the lower-priced
California Jackal in April 1999. However, from the last quarter of 1999, the
introduction of the new V-11 Sport model positively affected sales mix,
offsetting the effects of the Jackal model.
In 1998 the Company recorded Lit. 3.8 billion of net sales due to an exceptional
public administration order. Excluding the effects of this order, net sales
would have increased by 9.0% in 1999 compared to 1998 on a sales units increase
of 17.6%. Sales and production from the last quarter of 1998 through April 1999
were also significantly affected by disruption in the supply of components due
to liquidity difficulties.
Gross margins increased from Lit. 6.4 billion or 7.6% in 1998 to Lit. 6.9
billion or 8.0% in 1999.
25
<PAGE>
The increase is principally due to the absence of a Lit. 2.5 billion inventory
write-off in connection with product abandonments in 1998, altered product mix
and the exceptional public administration order in the first quarter of 1998.
The most significant effect of sales mix derived from the introduction of the
California Jackal, a model with lower price and margin compared to other 1100 cc
models. Management had expected higher volumes to compensate the lower unit
margins but was unable to realize the higher production levels required. Gross
margins in both 1999 and 1998 were affected by the significantly decreased
production levels in the last three months of 1998 and first four months of 1999
resulting initially in 1998 from delayed product introductions and consequently
from the disruption in the supply of components. The consequence of these lower
production levels is that fixed production costs were absorbed over lower
production volumes, reducing gross margin. Overall, production rose from 5,614
units in 1998 to 6,036 units in 1999.
Selling, general and administrative expenses increased by 28.5% to Lit. 20.6
billion in 1999 compared to Lit. 16.0 billion in 1998. Expenses at Moto Guzzi
North America Inc. increased by Lit. 2.1 billion or 81.1% due to the
installation of the new management team in the second quarter and expenses
related to a more aggressive approach in advertising products and motivating
sales. Italy and corporate costs increased Lit 2.2 billion or 18.3% reflecting
expenses in connection with the launch of the California Jackal and costs
connected with being a public company as well as fourth quarter expenses of
approximately Lit. 0.6 billion in connection with ultimately unsuccessful
negotiations for an investment in the Company by a third party operating in the
motorcycle sector.
In 1999, the Company reduced research and development expenditure to Lit. 2.9
billion by approximately 34% compared to Lit. 4.3 billion in 1998. The principal
reason for the decrease was restraint imposed by management consequent to
financial constraints.
Share of losses of affiliated companies reflects the share of losses of MGI
Motorcycle GmbH ("MGI"). In March 2000, the Company completed negotiations
started in mid-1999 for the acquisition of the 75% of outstanding shares it did
not own of MGI. MGI will be consolidated from the second quarter of 2000.
In 1998, the Company recorded reorganization expenses of Lit. 1,599 million to
reflect charges related to an aborted move to a new plant and for changes in the
product plan made pursuant to the termination of this move. The changes in the
product plan also resulted in Lit. 2,463 million of inventory write-offs,
charged to cost of sales. In 1999, the Company recorded charges of Lit. 843
million in the fourth quarter in respect of abandonment of a development
project.
Interest expense increased from Lit. 4.3 billion in 1998 to Lit. 4.8 billion in
1999 as a result of the effects of slightly lower interest rates in 1999 being
offset by a Lit. 0.9 billion charge for a warrant to purchase shares issued in
respect of ongoing parent company financing, as
26
<PAGE>
described in Note 7 to the Financial Statements.
As a result of the above factors, net loss for the year ended December 31, 1999
increased to Lit. 23.0 billion for compared to Lit. 20.3 billion for the year
ended December 31, 1998.
Results of Operations for the Year Ended December 31, 1998 compared to 1997
<TABLE>
<CAPTION>
Dec. 31 Dec. 31
1998 1997
Lit.m Lit.m
<S> <C> <C> <C> <C>
Net sales 83,760 100.0% 80,987 100.0%
Cost of sales (77,369) (92.4%) (71,473) (88.3%)
------- -------
6,391 7.6% 9,514 11.7%
Selling, general and administrative expenses (16,033) (19.1%) (13,824) (17.1%)
Research & development (4,336) (5.2%) (3,125) (3.8%)
Reorganization costs (1,599) (1.9%) 0 0.0%
------- -------
(15,577) (18.6%) (7,435) (9.2%)
Interest expense (4,284) (5.1%) (3,640) (4.5%)
Other income, net 81 0.1% 741 0.9%
------- -------
Loss before income taxes (19,780) (23.6%) (10,334) (12.8%)
Income tax expense (519) (0.6%) (235) (0.3%)
------- -------
Net loss (20,299) (24.2%) (10,569) (13.1%)
======= =======
</TABLE>
Net unit sales for the year ended December 31, 1998 increased 0.9% over the year
ended December 31, 1997 to 5,647 units compared to 5,593 in 1997. Net sales
increased by 3.4%, due principally to price increases which were made effective
in April, 1998. The price increases were, in part, related to the implementation
by the Company of a three-year warranty program introduced in 1998, extended to
export sales in nearly all of its markets. Previously, the Company had granted a
3% allowance on sales prices to its foreign importers who were then responsible
for warranty coverage. Net sales in 1998 also reflected 312 units, approximately
Lit. 3,800 million at sales value, of motorcycles manufactured for public
administration customers in 1997 and whose sale was planned for December 1997,
but for which the necessary technical checks and clearance were not completed
until the first quarter of 1998.
Net sales for third and fourth quarters of 1998 were adversely affected by
delays in the
27
<PAGE>
introduction of two revised models, the California Special and 1998 Quota 1100,
principally resulting from late supply of certain components. Because of reduced
sales in this period, the Company experienced liquidity shortages in the fourth
quarter of 1998 and was unable to pay suppliers on a current basis. This led to
further component shortages which further curtailed production and sales. As a
result of component shortages, in the last quarter of 1998, unit production
decreased 43% to 1,077 units from 1,879 in the last quarter of 1997 and unit
sales decreased 26% from 1,137 units from 1,542 units. Management estimates that
as a result of these delays some 600 to 800 unit sales were lost in 1998. The
liquidity shortages and consequent component supply difficulties continued into
March 1999 until completion of the Guzzi Corp. merger into North Atlantic.
The decrease in gross margin as a percentage of sales was principally due to a
Lit. 2.5 billion, inventory write-off in connection with product abandonments
and fixed production costs being absorbed over lower production volumes, with
units produced falling 10% from 6,234 units in 1997 to 5,614 units in 1998.
Also, the 1998 sales price increases discussed above were offset by the cost of
the new three year warranty policy and, therefore, did not have any positive
impact on margins. In 1998, the Company did not pass on material and other cost
increases in its sales prices. This decision had been made to support increases
in sales volumes which were expected to accrue from the timely introductions of
the California Special and 1998 Quota 1100.
In April 1998 Guzzi Corp. entered into an agreement with Philips S.p.A., subject
to the fulfillment of certain conditions, for the purchase by Guzzi Corp. of the
Philips Vision Industries' plant in Monza, Italy. In September 1998, Guzzi Corp.
terminated the discussions as agreement with labor unions had not been obtained
and the delays in closing meant that logistics for transferring activities were
no longer favorable. Following these events, Guzzi Corp. reviewed its short-term
strategies and product plans, taking into consideration certain proposed
products whose introduction was connected with the potential new factory and
also other new products slated to be introduced in 1999 to replace existing
models. Management further reviewed its short-term strategies and product plans
following unanticipated delays in the closing of the merger with NAAC and
recorded reorganization charges aggregating Lit. 4,062 million in 1998,
principally relating to write-offs of inventory (Lit. 2,463 million - charged to
cost of sales) and tooling (Lit. 1,063 million) of models which the Company
terminated production in 1999 and costs directly connected with the proposed
move of the Company's plant (Lit. 315 million).
The Company also made increased investments in development of new products in
1998 with research and development expenditure increasing from Lit. 3,125
million to Lit. 4,336 million.
Sales general and administrative expenses increased in 1998 compared to 1997 by
Lit. 2.2 billion or approximately 16%. This reflects increased activities of the
Company's U.S. importer
28
<PAGE>
(increase of Lit. 0.3 billion or 15%) and its French importer (increase of Lit.
0.3 billion or 37%) as well as increased sales and marketing and general
management expense at Moto Guzzi S.p.A. (increase of Lit. 1.6 billion or 15%) as
the Company continues to redefine and improve its operations in all areas.
Interest expense increased in 1998 to Lit. 4.3 billion compared to Lit. 3.6
billion in 1997, principally as the result of increased indebtedness offsetting
the benefits of lower interest rates. In April 1998, the Company had increased
indebtedness when it drew down a credit facility of Lit. 10.0 billion.
Liquidity and Financial Resources
Operations
Cash outflows from operations in 1999 were Lit. 15.3 billion compared to Lit.
11.3 billion in 1998 period. These cash outflows principally related to losses
from operations. Working capital movements contributed a net positive Lit. 0.5
billion. Receivables increased Lit. 1.2 billion due to increased volumes in the
last quarter of 1999 compared to 1998. Related party receivables refer
principally to MGI Motorcycle GmbH and the increase of Lit. 2.7 billion results
from reduction of local bank credit lines in preparation for the sale to the
Company of the 75% of MGI it did not already own in March 2000.
Inventories decreased Lit. 3.1 billion (1998 increase Lit. 1.8 billion)
principally due to management action to contain inventory levels given scarce
liquidity in the last four months of 1999. The increase in 1998 was principally
caused by difficulties in obtaining components to complete newly introduced
models.
Trade and other payables increased Lit. 2.6 billion (compared to a 1998 increase
of Lit. 4.8 billion). In both cases, the principal causes was a lack of
liquidity and inability to make payments to suppliers on due dates. In 1999,
this situation was cured in March 1999 when the merger with NAAC closed. In
2000, the Company raised fresh finance through the issuance of preferred stock
as described in Note 16 to the Financial Statements and below under "Future
Liquidity Needs." The change in related party payables principally relates to
payments in the first quarter of 1999 of costs of the NAAC merger which had been
financed by TRG and reimbursed from the merger proceeds.
Investment activities
Capital expenditures principally related to tooling for the California Jackal
model, introduced in April 1999 and the V-11 Sport model introduced in September
1999 in Europe and routine capital maintenance expenditure. Capital expenditure
had been curtailed during all of 1999 due to the Company's lack of liquidity and
difficulty in raising finance on a timely basis.
29
<PAGE>
Financing Activities
The increase in advances from banks principally reflects advances against
increased trade receivables, as above, and an increase of Lit. 1.2 billion in a
credit line guaranteed by OAM S.p.A., a subsidiary of TRG. See Notes 4 and 7 to
the Financial Statements.
Cash from the March 1999 merger of Lit. 16 billion reflects the approximately $
8.9 million of cash in the Company at closing. Approximately Lit. 1.4 billion of
liabilities and accruals, principally for merger expenses were also acquired,
most of which were paid shortly after closing, so that net cash acquired was
approximately Lit. 14.6 billion.
In August 1999, certain directors and their affiliates advanced $ 1.25 million
(approximately Lit. 2.3 billion) for subscription to a potential preferred stock
issue, subsequently effected in February 2000 - See below and Note 16 to
Financial Statements.
Subsequent Events-- Issuance of Series B Preferred Stock; Execution and Delivery
of Share Purchase Agreement
Issuance of Series B Preferred Stock
On February 25, 2000, the Company issued 123,500 shares of a new Series B
Preferred Stock to Fineco and affiliates of Fineco, TRG, OAM, the majority
stockholder of the Company, and Barry Fingerhut and William Spier, Directors of
the Company, for $100 per share (an aggregate price of $12,350,000). Fineco and
its affiliates purchased 60,000 shares and TRG purchased 35,000 shares, for
cash. Messrs. Fingerhut and Spier received a total of 12,500 shares in
satisfaction of advances they had made to the Company in August 1999 and 16,000
shares were issued to OAM in satisfaction of outstanding loans due to it.
The holders of the Series B Preferred Stock are entitled to receive dividends at
the rate of $7 per share per year before any dividends may be paid with regard
to the Class A Common Stock, and to receive distribution of $100 per share in
liquidation of the Company before any liquidation distributions are made with
regard to the Class A Common Stock. The Company is required to redeem the Series
B Preferred Stock for $100 per share plus accrued dividends on December 28,
2001. Holders of Series B Preferred Stock do not have voting rights, except that
they must 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 the Company to finance its day-to-day
operations.
Each share of Series B Preferred Stock is convertible into Class A Common Stock
at a conversion price of $5.00, based upon the liquidation preference of the
Series B Preferred Stock ($100, plus accrued dividends, per share), meaning each
share of Series B Preferred Stock is convertible into approximately 20 shares of
Class A Common Stock.
30
<PAGE>
Under some circumstances (referred to as "Events of Default"), the dividend on
the Series B Preferred Stock will increase to $10 per share per year, the
conversion price of the Series B Preferred Stock will be reduced to $2 per share
of Class A Common Stock, the holders of the Series B Preferred Stock will be
entitled to elect a majority of the Company's directors, and the Company will be
required to redeem the Series B Preferred Stock for its liquidation preference
($100 per share, plus accrued dividends). These Events of Default include the
Company or any Subsidiary being in default on obligations totalling $250,000,
and a change of control of the Company (defined to include stockholder approval
of a sale of all or substantially all of the Company's assets). At the time of
the issuance of the Series B Preferred Stock the Company was in arrears with
regard to trade debt totaling more than $250,000. Holders of 48.6% of the
outstanding Series B Preferred Stock waived any right to treat that as an Event
of Default and similar waivers are being sought from the holders of the
remainder of the Series B Preferred Stock. The Company is not in compliance with
certain provisions of its credit agreement with Centrobanca S.p.A. If
Centrobanca S.p.A. declared a default under that credit agreement, that would
constitute an Event of Default with regard to the Series B Preferred Stock.
As described below, on April 14, 2000, the Company agreed, subject to approval
by its stockholders, to sell its four operating subsidiaries to Aprilia. That
transaction will constitute a sale of substantially all the Company's assets
and, therefore, stockholder approval of that transaction probably will
constitute an Event of Default with regard to the Series B Preferred Stock.
Execution and Delivery of Share Purchase Agreement
On April 14, 2000, the Company entered into a Share Purchase Agreement with
Aprilia providing for the sale of the Company's four operating Subsidiaries: (i)
Moto Guzzi, S.p.A., (ii) MGI Motorcycle GmbH, (iii) Moto Guzzi North America
Inc., and (iv) Moto Guzzi France S.a.r.l. for Lit. 85.5 billion (approximately
$41.85 million) plus or minus the amount by which the Subsidiaries' net worth at
April 30, 2000 is more or less than its net worth at December 31, 1999 (which
was a negative net worth of Lit. 13.993 billion (approximately $6.85 million)).
In addition, Aprilia will satisfy debts of the Subsidiaries to the Company and
OAM totaling an estimated Lit. 19 billion (approximately $9.3 million) and will
cause OAM to be released from a Lit. 4 billion (approximately $1.95 million)
guarantee of obligations of the Subsidiaries.
Under the Share Purchase Agreement, Aprilia will oversee the Subsidiaries'
operations beginning May 1, 2000. To carry that out, Aprilia designees will be
added to the Subsidiaries' board of directors. Aprilia will lend the
Subsidiaries any funds they need to operate between May 1, 2000 and completion
of the sale of the Subsidiaries. If the sale of the Subsidiaries does not take
place, the loans will be repayable when the Share Purchase Agreement terminates.
The obligation to repay the loans will be secured by up to 25% of the shares of
the Subsidiaries.
31
<PAGE>
The sale of the Subsidiaries is subject to approval by the Company's
stockholders, as well as stockholders' approval of a change of the Company's
corporate name to eliminate the words "Moto Guzzi." If the approvals are not
obtained by August 31, 2000 Aprilia may terminate the Share Purchase Agreement.
OAM, which owns approximately 61% of the Company's Class A Common Stock, and
approximately 13% of the Company's Series B Preferred Stock, has agreed to vote
all of its stock of the Company in favor of the sale of the Subsidiaries.
Assuming that no additional shares of Class A Common Stock are issued by the
Company prior to the record date for the voting on the transaction (on
conversion of the Series B Preferred Stock or otherwise), the affirmative vote
of OAM will be sufficient to ensure stockholder approval of the sale of the
Subsidiaries.
In the Share Purchase Agreement, the Company has also agreed to indemnify
Aprilia against costs or liabilities resulting from any stockholder litigation
instituted in the United States (other than by OAM) with regard to the
transaction.
The scheduled closing date for the sale of the Subsidiaries, as set forth in the
Share Purchase Agreement, is July 31, 2000, or such other date as may be agreed
upon by the parties.
There can be no assurance that the conditions to the sale of the Subsidiaries
will be met, or that the sale of the Subsidiaries will occur on the scheduled
closing date, or at all. If the sale of the Subsidiaries fails to be consummated
such failure is likely to have a material adverse effect on the Company and its
Subsidiaries.
Future Liquidity Needs
The discussion set forth below is subject to and qualified by the information
set forth above contained under the caption "Execution and Delivery of Share
Purchase Agreement".
If the Company were to implement its strategic plan to substantially increase
production and sales, it would be required to make total investments in research
and product development of some Lit. 50 billion (approximately $28 million) in
the five year period from 1999 through 2003. The plan also contemplates
investments of Lit. 20 billion (approximately $10 million) in production plant
and machinery and information systems. Much of the production machinery at Moto
Guzzi's facility is aged and in need of extensive modification, improvement or
replacement. Moto Guzzi believes that the existing plant at Mandello del Lario,
Italy has a potential production capacity that will be sufficient for its needs
for at least the next three/four years and is not actively seeking any other
alternatives at the present time. Moto Guzzi will have to make significant
investments in the existing plant in order that it can operate competitively.
Such required modernization may result in production interruptions.
The Company expects that, over the next four years, significant further capital
will be required
32
<PAGE>
to complete the planned overhaul. While anticipated increases in sales during
the period, if realized, would provide a significant portion of the needed
capital, anticipated internally generated cash and currently available bank
financing, in the aggregate, will not be sufficient to enable the Company to
increase production and sales rapidly enough to generate the remaining needed
capital. Moreover, in the five years ended December 31, 1999, Moto Guzzi has not
generated cash from operations.
In February 1998 Moto Guzzi obtained a Lit. 10,000 million 10 year credit
facility, drawn down in April 1998, with principal repayments commencing from
the third year. The terms of the loan included covenants relating to the share
capital and equity (according to local Italian accounting principles) of Moto
Guzzi S.p.A as at December 31, 1998. Due to the losses in 1998 and delays in
closing the merger, Moto Guzzi is not in compliance with these covenants, the
consequence of which is that the lender can request immediate repayment of the
loan. The loan is classified as a current liability in the balance sheet as at
December 31, 1999 and 1998. The Company has advised the lender of the
non-compliance. No assurance can be given that negotiations with the lender will
successfully conclude on terms satisfactory to the Company.
In August, 1999, certain directors and their affiliates advanced $1.25 million
(approximately Lit. 2.3 billion) to meet working capital obligations at such
date. The Company has experienced seasonal cash flow shortages in September 1999
through the February 2000 and had accumulated arrearages to suppliers of
approximately Lit. 15.0 billion by February 2000. This amount includes
approximately Lit. 5.0 billion of supplier payments for which the company
habitually has enjoyed extended credit terms beyond due payment dates, but for
which no formal arrangements for such extended credit terms exist. As described
above, the Company raised $9.5 million in February 2000 to enable it to maintain
operations.
The Share Purchase Agreement is subject to a number of material conditions,
including approval of shareholders, and there can be no assurance that it will
be consummated. If it fails to be consummated such failure is likely to have a
material adverse effect on the Company. Accordingly, there is substantial doubt
about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might be necessary should the
Company be unable to continue as a going concern.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
----
Report of Independent Public Accountants 30
Consolidated Balance Sheets - Assets 33
Consolidated Balance Sheets - Liabilities and
Shareholders' Equity (Deficit) 34
33
<PAGE>
Consolidated Statements of Operation 35
Consolidated Statements of Changes in the Shareholders'
Equity (Deficit) 36
Consolidated Statements of Cash Flows 37
Notes to Consolidated Financial Statements 39
Valuation and Qualifying Accounts 66
34
<PAGE>
Report of Independent Public Accountants
To the Shareholders and Board of Directors
Moto Guzzi Corporation:
We have audited the accompanying consolidated balance sheets of Moto Guzzi
Corporation (a Delaware corporation, formerly North Atlantic Acquisition
Corporation) (See Note 1) and subsidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of operations, shareholders' deficit and
cash flow for each of the three years in the period ended December 31, 1999,
expressed in Italian Lire. These financial statements and the schedule referred
to below are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, present fairly, in
all material respects, the financial position of Moto Guzzi Corporation and
subsidiaries as of December 31, 1999 and 1998 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company continues as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and negative cash flows. In addition, the Company has to meet
certain debt repayment obligations for which financing has yet to be arranged.
All of these matters raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are discussed in
Notes 1 and 16. Specifically, the Company entered into a Preliminary Share Sale
and Purchase Agreement with a motorcycle manufacturer whereby, if consummated,
the Purchaser will acquire all the operating subsidiaries of the Company. As
also described in Note 16, pursuant to the Preliminary Share Sale and Purchase
Agreement, the Company's majority shareholder has already agreed to vote in
favor of this transaction at the shareholders' meeting that will be called to
approve the Preliminary Share Sale and Purchase Agreement. The Preliminary Share
Sale and Purchase Agreement is subject to a number of material conditions,
including approval of shareholders, and there can no assurance that it will be
consummated. The consolidated financial statements do not include any adjustment
that might result from the outcome of this uncertainty.
35
<PAGE>
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule appearing on page 66 of the Form 10-K
is presented for the purpose of complying with the Securities and Exchange
Commission's rules and is not a required part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth in relation to the
basic financial statements taken as a whole.
Arthur Andersen SpA
April 18, 2000
Milan, Italy
36
<PAGE>
MOTO GUZZI CORPORATION
Consolidated Financial Statements
Together with
Report of Independent Public Accountants
37
<PAGE>
MOTO GUZZI CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
<TABLE>
<CAPTION>
Dec. 31 Dec. 31 Dec. 31
1999 1999 1998
ASSETS US$'000 Lit. m Lit. m
<S> <C> <C> <C>
Cash and cash equivalents $ 1,243 Lit. 2,391 Lit. 217
Receivables 14,778 28,433 24,427
Trade, less allowance of Lit. 2,350 (1998 - Lit. 2,026) 9,973 19,189 16,288
Receivables from related parties 3,558 6,846 4,167
Other receivables 1,247 2,398 3,972
Inventories 17,906 34,451 37,682
Raw materials, components and work-in-process 10,433 20,073 22,880
Finished products 7,473 14,378 14,802
Prepaid expenses 138 266 341
---------- ---------- ---------
TOTAL CURRENT ASSETS 34,065 65,541 62,667
---------- ---------- ---------
Property, plant and equipment 7,609 14,638 16,787
Land 395 760 755
Buildings 1,451 2,791 2,696
Machinery and equipment 21,394 41,162 38,949
---------- ---------- ---------
At cost 23,240 44,713 42,400
Less allowances for depreciation (15,631) (30,075) (25,613)
Goodwill net of amortization of Lit.208
(1998 - Lit 156) 28 54 106
Investments in and advances to affiliates 255 491 651
Other assets 179 344 466
---------- ---------- ---------
TOTAL ASSETS $ 42,136 Lit.81,068 Lit.80,677
========== ========== =========
</TABLE>
See Notes to Consolidated Financial Statements
38
<PAGE>
MOTO GUZZI CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
<TABLE>
<CAPTION>
Dec. 31 Dec. 31 Dec. 31
1999 1999 1998
LIABILITIES US$'000 Lit. m Lit. m
<S> <C> <C> <C>
Advances from banks $ 15,570 Lit.29,957 Lit.27,063
---------- ---------- ----------
Current portion of long-term debt 5,975 11,496 11,823
Loans due to related parties 1,691 3,254 3,082
Accounts payable 16,742 32,212 28,278
Amounts due to related and affiliated parties 42 80 1,257
Accrued expenses and other payables 3,589 6,904 6,357
---------- ---------- ----------
TOTAL CURRENT LIABILITIES 43,609 83,903 77,860
---------- ---------- ----------
Long-term debt, less current portion 1,054 2,027 2,986
Loans due to parent company -- -- 13,362
Termination indemnities 4,144 7,973 7,573
Advances for redeemable preferred stock subscription 1,250 2,405 -
SHAREHOLDERS' DEFICIT (7,921) (15,240) (21,104)
Convertible preferred stock, par value $0.01 per share:
Authorized 4,750,000 shares;
94 out of 100 Series A shares issued and converted
into 94,000 shares of common stock in 1999 -- -- --
Common stock, par value $0.01 per share:
Authorised 20,250,000 shares;
5,589,092 (1998 - 3,327,139) shares outstanding 52 100 59
Additional paid-in capital 20,704 39,834 11,011
Accumulated other comprehensive income 69 133 157
Accumulated deficit (28,746) (55,307) (32,331)
---------- ---------- ----------
LIABILITIES & SHAREHOLDERS' DEFICIT $ 42,136 Lit.81,068 Lit.80,677
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
39
<PAGE>
MOTO GUZZI CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Dec. 31 Dec. 31 Dec. 31 Dec. 31
1999 1999 1998 1997
US $'000 Lire m. Lire m. Lire m.
<S> <C> <C> <C> <C>
Net sales $ 44,819 Lit. 86,232 Lit. 83,760 80,987
Cost of sales (41,213) (79,293) (77,369) (71,473)
---------- ----------- ----------- ----------
3,606 6,939 6,391 9,514
Selling, general and administrative expenses (10,708) (20,602) (16,033) (13,824)
Research and development (1,494) (2,874) (4,336) (3,125)
Share of losses of affiliate (86) (165) -- --
Reorganization costs (438) (843) (1,599) --
---------- ----------- ----------- ----------
Operating loss (9,120) (17,545) (15,577) (7,435)
Interest expense (2,519) (4,847) (4,284) (3,640)
Other (expense)/income, net (258) (496) 81 741
---------- ----------- ----------- ----------
Loss before income taxes (11,897) (22,888) (19,780) (10,334)
Income taxes (46) (88) (519) (235)
---------- ----------- ----------- ----------
Net loss $ (11,943) Lit.(22,976) Lit.(20,299) (10,569)
========== =========== =========== ==========
LOSS PER SHARE: US $ Lire Lire Lire
Basic $ (2.31) Lit.(4,440) Lit.(6,101) (3,177)
========== =========== =========== ==========
Diluted $ (2.31) Lit.(4,440) Lit.(6,101) (3,177)
========== =========== =========== ==========
Weighted average number of common shares
outstanding during the period
Basic 5,174,481 5,174,481 3,327,139 3,327,139
========== =========== =========== ==========
</TABLE>
40
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Diluted 5,226,852 5,226,852 3,327,139 3,327,139
========== =========== =========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
41
<PAGE>
MOTO GUZZI CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT) AND
COMPREHENSIVE INCOME/(LOSS)
December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Common Stock Class A Additional Accumulated Accumulated SHARE- Compre-
Preferred Paid-In Other Deficit HOLDERS hensive
Stock Capital Comprehensive EQUITY Income/
Income (Loss)
Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
At January 1, 1997 Lit.m 3,034,889 54 -- -- 8,083 23 (1,463) 6,697
Net loss -- -- -- -- -- -- (10,569) (10,569) (10,569)
Translation adjustment -- -- -- -- -- 202 -- 202 202
Issuance of shares 292,250 5 -- -- 2,928 -- -- 2,933 --
At December 31, 1997 Lit.m 3,327,139 59 -- -- 11,011 225 (12,032) (737) (10,367)
Net loss -- -- -- -- -- -- (20,299) (20,299) (20,299)
Translation adjustment -- -- -- -- -- (68) -- (68) (68)
At December 31, 1998 Lit.m 3,327,139 59 -- -- 11,011 157 (32,331) (21,104) (20,367)
Net loss -- -- -- -- -- -- (22,976) (22,976) (22,976)
Translation adjustment -- -- -- -- -- (24) -- (24) (24)
Recapitalization -
Parent company debt exchange 871,953 16 -- -- 13,346 -- -- 13,362 --
Issuance of shares in merger 1,296,000 23 94 -- 14,563 -- -- 14,586 --
Conversion of preferred stock 94,000 2 (94) -- (2) -- -- -- --
Shares issuable for renewal
of Parent credit lines -- -- -- -- 1,222 -- -- 1,222 --
Less: Relating to future
finance expense -- -- -- -- (306) -- -- (306) --
At December 31, 1999 Lit.m 5,589,092 100 -- -- 39,834 133 (55,307) (15,240) (23,000)
At December 31, 1999 $'000 52 -- 20704 69 (28,746) (7,921) (11,954)
</TABLE>
Accumulated other comprehensive income consists of the cumulative translation
difference from the conversion of balance sheets of non-Italian entities.
See Notes to Consolidated Financial Statement
42
<PAGE>
MOTO GUZZI CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Dec. 31 Dec. 31 Dec. 31 Dec. 31
1999 1999 1998 1997
US$'000 Lit. m Lit. m Lit. m
<S> <C> <C> <C> <C>
Net loss $ (11,943) Lit.(22,976) Lit.(20,299) Lit.(10,569)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 2,277 4,381 3,509 2,480
Loss/(gain) on sales of operating assets 21 40 (207) (489)
Accruals of termination indemnities 513 987 1,020 1,221
Payments of termination indemnities (305) (587) (1,450) (372)
Share of losses of affiliates 86 165 -- --
Warrant issued for finance expense 476 916 -- --
Reserves for tooling, inventory and receivables 651 1,253 3,186 3,243
Other operating activities 16 28 464 559
Changes in operating assets and liabilities:
Trade and other receivables (647) (1,244) (2,700) 8,205
Related party receivables (1,392) (2,679) 1,531 (5,448)
Inventories 1,602 3,082 (1,773) (10,516)
Prepaid expenses 43 83 (223) (65)
Accounts payable and accrued expenses 1,348 2,594 4,831 3,769
Related party payables (701) (1,348) 829 200
---------- ----------- ----------- -----------
Net cash used by operating activities (7,955) (15,305) (11,282) (7,782)
---------- ----------- ----------- -----------
Investing activities:
Proceeds from disposal of operating assets 47 91 297 619
Purchases of property, plant and equipment (1,072) (2,062) (6,167) (3,887)
---------- ----------- ----------- -----------
Net cash used by investing activities (1,025) (1,971) (5,870) (3,268)
---------- ----------- ----------- -----------
Financing activities
Increase/(decrease) in advances from banks 1,304 2,508 (239) 5,540
Proceeds from merger 8,319 16,006 -- --
Proceeds from issuance of preferred stock -- -- -- 2,933
Advances for subscription of preferred stock 1,182 2,274 -- --
Parent company financing -- -- 3,000 7,800
Proceeds from long-term debt 195 375 10,000 212
Principal payments of long-term debt (908) (1,747) (1,663) (1,347)
---------- ----------- ----------- -----------
Net cash provided by financing activities 10,092 19,416 11,098 15,138
---------- ----------- ----------- -----------
Increase/(decrease) in cash 1,112 2,140 (6,054) 4,088
Exchange movement on opening cash 18 34 (81) 54
</TABLE>
43
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Cash, beginning of period 113 217 6,352 2,210
---------- ----------- ----------- -----------
Cash, end of period $ 1,243 2,391 217 6,352
========== =========== =========== ===========
</TABLE>
Supplemental Notes on Non-Cash Activities
Fixed assets for Lit. 760 million were acquired in 1997 by way of finance
leases, assuming lease obligations at inception of Lit. 570 million. Lit. 1,420
million of liabilities were assumed in the 1999 merger with NAAC.
Other supplemental information
Interest paid amounted to Lit. 3,595, Lit. 3,759 and Lit. 3,268 million in 1999,
1998 and 1997 respectively.
See Notes to Consolidated Financial Statements
44
<PAGE>
MOTO GUZZI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. BACKGROUND AND ORGANIZATION
Background of the Company; Merger with Guzzi Corp.
Moto Guzzi Corporation (the "Company"), was originally incorporated in Delaware
on August 9, 1995 under the name of North Atlantic Acquisition Corporation
("NAAC") to serve as a vehicle to effect a merger, exchange of capital stock,
asset acquisition or other business combination with an operating business. On
August 27, 1997 the Company consummated an initial public offering consisting of
800,000 Units and 150,000 shares of Class B Common Stock, with each Unit
consisting of one share of Class A Common Stock and one warrant to purchase
shares of Class A Common Stock, which resulted in net proceeds to the Company of
approximately $8,000,000.
On August 18, 1998, the Company and TRG, entered into a definitive agreement and
plan of merger and reorganization, as amended (the "Merger Agreement"), pursuant
to which Guzzi Corp. merged with and into the Company, with the Company as the
surviving corporation (the "Merger"). Prior to the Merger, TRG and its
majority-owned subsidiary, OAM, together owned all the outstanding common stock
of Guzzi Corp.
Background of Moto Guzzi
Moto Guzzi S.p.A., the Italian manufacturer of Moto Guzzi motorcycles, had been
a subsidiary of Trident Rowan Group, Inc. ("TRG") since 1972 and was a
wholly-owned subsidiary of TRG from July 1995 through March 5, 1999. Effective
January 1, 1996, TRG acquired 100% of the outstanding capital of Moto Guzzi
North America Inc., the exclusive importer of Moto Guzzi motorcycles in the
United States. On October 9, 1996, TRG formed Moto Guzzi Corp. ("Guzzi Corp.")
as a holding company for its interests in the Moto Guzzi motorcycle operations
and transferred its 100% interests in Moto Guzzi S.p.A. and Moto Guzzi North
America Inc. to Moto Guzzi Corporation. Guzzi Corp. was merged into a cash
shell, North Atlantic Acquisition Corp. ("NAAC", or "the Company") in March
1999. NAAC changed its name to Moto Guzzi Corporation and changed its common
stock ticker symbol to "GUZI".
While NAAC is the surviving company in the Merger, for accounting purposes the
Merger is treated as a reverse acquisition of NAAC by Guzzi Corp. Accordingly,
financial data presented for periods prior to the Merger is that of the Moto
Guzzi operations and not of NAAC.
Private Offering of Convertible Preferred Securities in 1996/1997
In December 1996 and January 1997, Guzzi Corp. had consummated a private
offering of
45
<PAGE>
redeemable convertible preferred stock and common stock purchase warrants which
raised an aggregate of approximately $5,218,000 (Lit. 8,034 million at the then
prevailing exchange rates), net of expenses. In March 1999, the preferred
stockholders were party to the Merger described below and exchanged their
preferred stock and common stock warrants for Class A Common Stock of the
Company.
March 1999 Merger of Guzzi Corp. into NAAC
On August 18, 1998, NAAC, Guzzi Corp., and for certain provisions, TRG, entered
into a Merger Agreement, pursuant to which Guzzi Corp. merged with and into
NAAC, with NAAC being the surviving corporation. The Merger was approved on
March 4, 1999 and consummated on March 5, 1999. On March 4, 1999, the Company's
Class B shareholders also eliminated authorization of NAAC's Class B Common
Stock and approved conversion of each share of Class B Common Stock into 2
shares of Common Stock and 2 Class A Warrants.
The shareholders of Guzzi Corp. received an aggregate of 4,199,092 shares or
approximately 76.4% of the post-Merger shares of the Company (excluding any
shares of the Company's formerly designated Class A Common Stock issuable upon
exercise of any options or warrants) and Guzzi Corp., is, therefore, the
accounting acquiror. The cost of the acquisition of NAAC is based on the fair
value of the Company's assets and liabilities as of the date of the Merger of
Lit. 14,586 million (approximately U.S. $8,153,000 at the then prevailing
exchange rate), represented by Lit. 16,006 million in cash ($8,947,000) less
Lit. 1,420 million ($794,000) of payables and accrued expenses, principally in
respect of merger expenses. Additionally, an aggregate of 30,000 shares of Class
A Common Stock with a fair value of Lit. 591 million ($330,000) were issued to
Graubard, Mollen & Miller, counsel to the Company, contingent upon consummation
of the Merger in payment of fees relating to the Merger and 350,000 Class A
Warrants with an exercise price of $10.00 were issued to the Company's
investment bankers.
46
<PAGE>
MOTO GUZZI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. BACKGROUND AND ORGANIZATION (CONTINUED)
Liquidity and going concern
The Company has suffered recurring losses from operations and negative cash
flows during the last three years. The Merger with NAAC in March 1999 raised
approximately Lit. 14.6 billion which, however, was not sufficient to fund its
operations and cash flow needs through 1999. As described below under
"Liquidity" certain directors and their affiliates advanced $1.25 million to the
Company in August 1999 (approximately Lit. 2.3 billion at such date). As
described in Note 16 below, on February 25, 2000, the Company raised $9.5
million (approximately Lit. 19.0 billion at such date) by way of issue of
convertible redeemable preferred stock and the $1.25 million of advances above
plus $1.6 million (approximately Lit. 3.2 billion) of loans due to OAM S.p.A.
were also converted into such securities on the same date. The terms of these
securities include an "Event of Default" clause which would penalize the
Company's common stock holders in an Event of Default.
Moto Guzzi is also not in compliance with certain covenants related to a Lit.
10,000 million credit facility which facility has been classified as a current
liability in the consolidated balance sheet. The Company disclosed this matter
to the lender at the end of 1998. The lender has not declared the loan in
default and negotiations with the lender to define revised terms of this loan
have not been concluded. There can be no assurance that such negotiations will
conclude on terms satisfactory to the Company.
Arrears of payment to suppliers, which reached approximately Lit. 15 billion in
January 2000, prior to the above financing, have also affected component supply
and production in the first quarter of 2000 and thus limited the Company's
ability to generate cash from operations. The financing raised in February is
expected to enable the Company to operate at least through July 2000. Due to
seasonal factors and continuing losses, the Company may again have difficulties
in meeting current payables to suppliers after August 2000, if it does not
obtain further finance or the sale of the Subsidiaries is not completed.
On April 14, 2000 the Company entered into a Share Purchase Agreement providing
for the sale of its four operating Subsidiaries. There can be no assurance that
the sale of the Subsidiaries will occur or that the Company will be able to
raise alternative finance on satisfactory terms, or at all. Accordingly, there
is substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments that might be necessary
should the Company be unable to continue as a going concern.
47
<PAGE>
Reporting currency
The primary financial statements are shown in Italian Lire because all of the
Company's material operating entities are based and operate entirely in Italy.
Translation of lire amounts into U.S. Dollar amounts is included solely for the
convenience of the readers of the financial statements and has been calculated
at the rate of Lit. 1,924 to $1.00, the approximate exchange rate at December
31, 1999. It should not be construed that the assets and liabilities, expressed
in U.S. dollar equivalents, can actually be realized in or extinguished in U.S.
dollars at that or any other rate. All currency amounts in these financial
statements are in Lire unless specifically designated in other currencies.
48
<PAGE>
MOTO GUZZI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
2. SIGNIFICANT ACCOUNTING POLICIES
Accounting principles
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States of America.
1996 Transfer by TRG of operating subsidiaries
The financial statements include the effects of the 1996 acquisition of Moto
North America Inc. as such transaction was reflected in the financial statements
of the parent company, TRG. Additionally, the issuance of 6,000,000 shares of
the Company's common stock to TRG in exchange for the outstanding shares of Moto
Guzzi S.p.A. and Moto North America Inc. was accounted for at TRG's carrying
value of the consolidated net assets of such companies at the effective date of
October 1, 1996.
Principles of consolidation
The consolidated financial statements include the accounts of the Company and
its majority owned subsidiaries. Significant intercompany accounts and
transactions have been eliminated in consolidation.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from these estimates.
Foreign currency translation
The financial statements of non-Italian entities have been translated from the
applicable functional currency to Italian lire using the year-end exchange rate
for balance sheet items and the average exchange rate for the year for statement
of operation items. The translation differences resulting from the change in
exchange rates from year to year have been reported separately as a component of
shareholders' equity.
Foreign currency transactions
Transactions, receivables and payables denominated in currencies other than the
functional currency
49
<PAGE>
are recorded at the exchange rate in effect on the transaction date. Such
receivables and payables are adjusted to current exchange rates as of the date
paid or the balance sheet date, whichever is earlier. Gains and losses are
included in "other income, net" in the statements of operations.
Cash equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Revenue recognition
Revenues from sale of products are recorded upon shipment, which is when title
passes.
Research and development
The Company is continuously engaged in company-sponsored programs of product
improvement and development, the costs of which are expensed as they are
incurred.
50
<PAGE>
MOTO GUZZI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Inventories
Inventories are stated at the lower of cost or market with cost being determined
principally by the last- in, first-out (LIFO) method applying average cost of
the year to increases in inventory quantities. If inventories had been
determined by the lower of cost or market value using the first-in, first-out
(FIFO) method, which approximates current cost, inventories would have been
greater by approximately Lit. 1,000 million and Lit. 3,000 million in 1998.
Long-lived assets
The Company adopted Financial Accounting Standards Board (FASB) Statement No.
121, "Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed of" in 1996. This statement requires impairment losses to
be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amounts and also addresses
the accounting for long-lived assets that are expected to be disposed of. The
Company continually reviews the carrying value of long-lived assets and
long-lived assets to be disposed of.
Goodwill
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.
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.
Termination indemnities
All employees of the Company's Italian subsidiaries are entitled to receive
severance pay in accordance with the terms of applicable national labor law and
contracts. The liability for severance pay is accrued for service to date and is
payable immediately on termination. The liability is calculated in accordance
with the individual employee's length of service, employment
51
<PAGE>
category and compensation and is adjusted annually by a cost of living index
provided by the Italian Government. There is no vesting period or funding
requirement associated with the liability. The liability recorded in the
consolidated balance sheets is the amount that the employee would be entitled to
if the employee separates from the Company immediately.
Income taxes
Income taxes are provided by each entity included in the consolidation in
accordance with local laws. Deferred income taxes have been provided using the
liability method in accordance with FASB Statement No. 109, "Accounting for
Income Taxes."
Statements of cash flows
Advances from banks arise primarily under the Company's short-term lines of
credit with its banks. These short-term obligations are payable on demand. The
cash flows for these items are included in the caption "Net increase in advances
from banks" in the Consolidated Statements of Cash Flows.
Accumulated Other Comprehensive Income
In 1997, the Financial Accounting Standards Board (the "FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income", which establishes standards for reporting comprehensive income and its
components in annual and interim financial statements. In the Company's case
comprehensive income includes net income and translation difference from the
conversion of balance sheets of non-Italian entities. The Company has chosen to
disclose comprehensive income in the Consolidated Statements of Stockholders'
Equity.
New Accounting Standard
In 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities" SFAS No. 133 which 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 recognised in earnings
unless specific hedge accounting criteria are met. Special accounting for
qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement. SFAS No. 133 as amended by
SFAS No. 137, is effective for fiscal years beginning after June 15, 2000 but
may be adopted earlier. The Company has not yet determined the effect of
adoption of SFAS No. 133 and has not determined the timing or method of
adoption.
Reclassifications
Comparative figures for 1998 and 1997 have been reclassified to conform with the
1999 presentation.
52
<PAGE>
MOTO GUZZI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
3. RECEIVABLES FROM RELATED PARTIES
Dec. 31 Dec. 31 Dec. 31
1999 1999 1998
US$'000 Lit. m Lit. m
MGI Motorcycle GmbH 3,438 6,614 3,852
OAM S.p.A. 4 7 7
Trident Rowan Group, Inc. 116 225 308
---------- ------------ ------------
$ 3,558 Lit. 6,846 Lit. 4,167
========== ===========- ============
The amounts at December 31, 1999 and 1998 due from MGI Motorcycle GmbH, a 25%
owned affiliate acquired in 1997, resulted from the purchase of products and
services from the Company. Sales to MGI Motorcycles GmbH, consisting primarily
of motorcycles and parts, were Lit. 11,236 million in 1999 and Lit. 12,715
million and Lit. 14,410 million in 1998 in 1997, respectively. In March 2000,
Moto Guzzi Corp. acquired the outstanding 75% of MGI Motorcycles GmbH it did not
already own. See Note 16.
4. ADVANCES FROM BANKS AND CREDIT ARRANGEMENTS
The operating subsidiaries of the Company have lines of credit arrangements with
a number of Italian banks. Under these, the Company, at December 31, 1999, could
have borrowed up to approximately Lit. 40 billion. Such credit lines are
principally in respect of advances against trade receivables. The line of credit
arrangements do not have termination dates and are periodically reviewed. The
average interest rate on advances from banks was approximately 6.5% both at
December 31, 1999 and 1998. Included in bank advances is a credit line amounting
to approximately Lit. 4,000 million (Lit. 2,800 million at December 31, 1998)
which is secured by deposits made by OAM S.p.A. (See Note 7).
5. ACCRUED EXPENSES AND OTHER PAYABLES
Dec. 31 Dec. 31 Dec. 31
1999 1999 1998
US$'000 Lit. m Lit. m
Salaries, wages and related items 1,758 3,383 4,245
Warranty reserves 624 1,200 1,200
Other 1,207 2,321 912
--------- ----------- ----------
$ 3,589 Lit. 6,904 Lit. 6,357
========= =========== ==========
53
<PAGE>
MOTO GUZZI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
6. LONG-TERM DEBT
<TABLE>
<CAPTION>
Dec. 31 Dec. 31 Dec. 31
1999 1999 1998
US$'000 Lit. m Lit. m
<S> <C> <C> <C>
Mortgage note payable, secured by substantially all
Italian fixed assets of motorcycle operations. Interest
10.08% payable in semi-annual installments 545 1,049 2,100
Mortgage note payable, secured by second mortgage
over Italian real estate. Interest 6% payable in
quarterly installments from 2000 through 2007 5,198 10,000 10,000
Mortgage note payable, secured by real estate of
Moto Guzzi North America, Inc. Interest 8.25%,
payable in monthly installments through 2011 211 406 368
Industry Ministry L.46/82 loan, 1.9875% through 2002,
7.95% thereafter, payable in installments from 2002 456 878 878
Finance leases 425 818 1,343
Sundry notes payable 193 372 120
-------- ------- -------
7,028 13,523 14,809
Less current portion (5,974) (11,496) (11,823)
-------- ------- -------
$ 1,054 Lit. 2,027 2,986
======== ======= =======
</TABLE>
In February 1998, Moto Guzzi S.p.A. obtained a Lit. 10,000 million 10 year
credit facility, drawn down in April 1998, with principal repayments commencing
from the third year. The terms of the loan include covenants relating to the
share capital and equity (according to local Italian accounting principles) of
Moto Guzzi S.p.A. Due to losses, Moto Guzzi S.p.A. is not in compliance with
these covenants, the consequence of which is that the lender can request
immediate repayment of the loan. The loan has been classified as a current
liability in the consolidated balance sheets at December 31, 1999 and 1998. The
Company has advised the lender of the non-compliance. No assurance can be given
that negotiations with the lender will successfully conclude on terms
satisfactory to the Company.
54
<PAGE>
Maturities of long-term debt as of December 31, 1999
Dec. 31 Dec. 31
1999 1999
US$'000 Lit. m
2000 5,975 11,496
2001 158 304
2002 112 216
2003 45 87
2004 and thereafter 738 1,420
---------- ------------
$ 7,028 Lit. 13,523
========== ============
55
<PAGE>
MOTO GUZZI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
7. LOANS DUE TO PARENT COMPANY
On October 1, 1998, a bridge loan of Lit. 3,000 million was made by Mr. Gianni
Bulgari to OAM S.p.A. who lent the proceeds to Guzzi Corp. to provide financing
in anticipation of the consummation of the merger with NAAC. The loan by OAM
S.p.A. to Guzzi Corp. was made on the same terms and conditions as the loan by
Mr. Bulgari to OAM S.p.A. and bore interest at 10% and a flat fee of 1%, through
March 31, 1999. The Company had sought similar financing from third parties and
the terms and conditions above were more favorable than any expressions of
interest by third parties. The Lit. 3,000 million loan from Mr. Bulgari was
repaid in May 1999 by OAM S.p.A.
The loan was, however, not repaid to OAM S.p.A. by the Company on its expiry of
March 31, 1999 and in July 1999, the Company agreed to issue 100,000 shares to
OAM S.p.A. at a subscription price of $0.01 each on condition that OAM S.p.A.
reduced the interest rate on this loan to 4% and maintained both this loan and
collateral of Euro 2,050,000 deposited as security for a bank credit line of
Moto Guzzi S.p.A. through March 31, 2000. The Company has accounted for the fair
value of the 100,000 shares issuable to OAM S.p.A. of Lit. 1,222 million as
finance expense to be amortized over the period for which OAM S.p.A. agreed to
maintain in place its loans and funds deposited as collateral. Amounts related
to future periods are shown in the balance sheet as a deduction from additional
paid-in capital.
On February 25, 2000, OAM S.p.A. subscribed to an issue of redeemable preferred
stock of the Company - See Note 16, making such subscription by applying
$1,600,000 of the balance of the above loan and accrued interest. As part of
such subscription agreement, the Company agreed that OAM. S.p.A. will keep all
its rights to subscribe to 100,000 shares at $0.01, above. OAM S.p.A. will
maintain its collateral deposit of Euro 2,050,000 securing part of the Company's
credit lines in place through June 30, 2000 or the closing of the sale
transaction described in Note 16.
8. AMOUNTS DUE TO RELATED PARTIES
Dec. 31 Dec. 31 Dec. 31
1999 1999 1998
US$'000 Lit. m Lit. m
Trident Rowan Group, Inc. -- -- 1,175
OAM S.p.A. 42 80 82
--------- ---------- -----------
$ 42 Lit. 80 Lit. 1,257
========= ========== ===========
9. REORGANIZATION EXPENSE
In April 1998 Guzzi Corp. entered into an agreement with Philips S.p.A., subject
to the fulfillment of certain conditions, for the purchase by Guzzi Corp. of the
Philips Vision Industries' plant in Monza, Italy. In September 1998, Guzzi Corp.
terminated the discussions as
56
<PAGE>
agreement with labor unions had not been obtained and the delays in closing
meant that logistics for transferring activities were no longer favorable.
Following these events, Guzzi Corp. reviewed its short-term strategies and
product plans, taking into consideration certain proposed products whose
introduction was connected with the potential new factory and also other new
products slated to be introduced in 1999 to replace existing models. Management
further reviewed its short-term strategies and product plans following
unanticipated delays in the closing of the merger with NAAC and recorded charges
aggregating Lit. 4,062 million in 1998, principally relating to write-offs of
tooling (Lit. 1,063 million) and inventory (Lit. 2,463 million) of models which
the Company terminated production in 1999 and costs directly connected with the
proposed move of the Company's plant (Lit. 315 million). The cost of inventory
written off has been charged to cost of sales and other costs of Lit. 1,599 are
shown in the income statement as reorganization costs.
At the end of 1999, management again reviewed its product plans, taking into
consideration continuing financial constraints, and recorded Lit. 843 million in
respect of write-offs of tooling related to development projects.
57
<PAGE>
MOTO GUZZI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
10. OTHER (EXPENSE)/INCOME
<TABLE>
<CAPTION>
Dec. 31 Dec. 31 Dec. 31 Dec. 31
1999 1999 1998 1997
US $'000 Lire m. Lire m. Lire m.
<S> <C> <C> <C> <C>
Interest income 121 233 227 288
Currency exchange gain/(loss) 153 295 (115) 133
(Loss)/gain on disposal of operating assets (21) (40) 207 489
Employee termination costs (349) (672) (221) -
Other (204) (392) (17) (169)
-------- --------- --------- ---------
$ (258) (496) 81 741
======== ========= ========= =========
11. INCOME TAXES
Loss before income taxes: Dec. 31 Dec. 31 Dec. 31 Dec. 31
1999 1999 1998 1997
US $'000 Lire m. Lire m. Lire m.
United States (1,823) (3,508) (1,149) (255)
France (57) (110) (513) (31)
Italy (10,017) (19,270) (18,118) (10,048)
-------- --------- --------- ---------
$(11,897) (22,888) (19,780) (10,334)
======== ========= ========= =========
Provision for income taxes Dec. 31 Dec. 31 Dec. 31 Dec. 31
1999 1999 1998 1997
US $'000 Lire m. Lire m. Lire m.
Current tax:
United States (40) (78) 15 235
Italy 86 166 504 -
-------- --------- --------- ---------
46 88 519 235
======== ========= ========= =========
Deferred tax -- -- -- --
-------- --------- --------- ---------
$ 46 Lit. 88 Lit 519 Lit. 235
======== ========= ========= =========
</TABLE>
58
<PAGE>
MOTO GUZZI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
11. INCOME TAXES (CONTINUED)
Deferred taxes
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:
<TABLE>
<CAPTION>
Dec. 31 Dec. 31 Dec. 31 Dec. 31
1999 1999 1998 1997
US $'000 Lire m. Lire m. Lire m.
<S> <C> <C> <C> <C>
Short-term reserves 2,628 5,056 5,083 3,136
Carrying value of fixed assets 960 1,848 1,906 1,762
Research and development 1,424 2,740 2,628 1,997
Net operating loss carryforwards 6,718 12,926 6,016 1,277
-------- ------- ------- -------
11,730 22,570 15,633 8,172
Valuation allowance (11,730) (22,570) (15,633) (8,172)
-------- ------- ------- -------
Net deferred tax assets $ -- -- -- --
======== ======= ======= =======
</TABLE>
Tax reconciliation to credit at statutory U.S. federal rate
The effective provision for income taxes varied from the income tax credit
calculated at the statutory U.S. federal income tax rate as follows:
<TABLE>
<CAPTION>
Dec. 31 Dec. 31 Dec. 31 Dec. 31
1999 1999 1998 1997
US $'000 Lire m. Lire m. Lire m.
<S> <C> <C> <C> <C>
Computed tax credit at U.S. Federal rate (4,163) (8,010) (6,923) (3,617)
Losses and timing differences for which valuation
</TABLE>
59
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
allowance provided 4,084 7,856 6,402 3,483
Elimination of inter-company profits (42) (79) 129 132
Non-deductible expenses and other 76 147 392 213
Local taxes 91 174 519 24
---------- ------------- ------------- -------------
$ 46 Lit. 88 Lit. 519 Lit. 235
========== ============= ============= =============
</TABLE>
60
<PAGE>
MOTO GUZZI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
11. INCOME TAXES (CONTINUED)
Tax losses
At December 31, 1999 the Company had net operating loss carry-forwards for
Italian federal income tax purposes which expire as follows:
Dec. 31 Dec. 31
1999 1999
US$'000 Lit. m
2002 40 77
2003 1,793 3,450
2004 6,617 12,732
2005 9,706 18,675
--------- -----------
$ 18,156 Lit. 34,934
========= ===========
12. EXPORT SALES AND GEOGRAPHIC INFORMATION
Export sales
The Company exports its products throughout the world. Sales by geographic
destination were as follows:
1999 1998 1997
Italy 33.2% 37.4% 33.9%
Other Europe 40.9% 41.0% 46.1%
Of which: France (subsidiary) 11.0% 10.2% 8.6%
Germany (affiliate) 12.9% 15.2% 17.9%
United States (subsidiary) 20.3% 16.8% 16.1%
Elsewhere 5.6% 4.8% 4.0%
Transfers of products between geographical areas
Sales of motorcycles and parts from the Italian production facilities of the
Company's motorcycle business to its U.S. exclusive importer, Moto Guzzi North
America Inc., amounted to Lit. 12,798 million in 1999 (Lit. 11,783 million and
Lit. 10,631 million in 1998 and 1997 respectively). Sales to its French
exclusive importer, Moto Guzzi France, S.a.r.l. amounted to Lit. 7,111 million
in 1999 (Lit. 8,604 million and Lit. 6,959 million in 1998 and 1997
respectively).
61
<PAGE>
Sales prices are accounted for on a basis comparable to those for non affiliated
customers.
62
<PAGE>
MOTO GUZZI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
12. EXPORT SALES AND GEOGRAPHIC INFORMATION (CONTINUED)
Identifiable assets Dec. 31 Dec. 31 Dec. 31 Dec. 31
1999 1999 1998 1997
US $'000 Lire m. Lire m. Lire m.
Italy 33,660 64,761 66,270 72,480
United States 5,565 10,706 9,036 7,770
France 2,911 5,601 5,371 4,444
--------- -------- --------- ---------
$ 42,136 81,068 80,677 84,694
========= ======== ========= =========
The Company's only production plant is based in Italy. Assets in the United
States and France are principally represented by inventories and trade
receivables. The company also owns its warehouse facility in the United States,
which has a book value of Lit. 600 million at December 31, 1999.
13. STOCK OPTIONS AND WARRANTS, EARNINGS PER SHARE AND ACCOUNTING FOR OPTIONS
Class A Warrants traded on the OTC/BB market under the ticker "GUZIW"
On August 27, 1997, NAAC sold 800,000 units ("units") and 150,000 shares of
Class B exchangeable common stock in a public offering. Each unit consisted of
one share of the Company's Class A Common Stock and one Class A Warrant. Each
Class A Warrant entitles the holder to purchase from the Company one share of
Class A Common Stock at an exercise price of $9.00; each share of Class B Common
Stock entitled the holder to receive two units in exchange for each Class B
share 90 days after the date of a business combination. The Class A Warrants
expire in August 2002 and are redeemable, as a class, in whole and not in part,
at a price of $.05 per Warrant upon 30 days' notice at any time provided that
the Company's stockholders have approved a business combination and the last
sale price of the Class A Common Stock has been $11.00 or higher for 10 of the
trading days prior to the day on which the Company gives notice of redemption.
Also, as part of the Merger, certain directors of NAAC subscribed for 30,000
Class B options prior to the closing of the Merger. The 180,000 shares of Class
B Common Stock were eliminated on the consummation of the Merger and each share
of Class B Common Stock was converted to two shares of Class A Common Stock and
two Class A Warrants, resulting in the
63
<PAGE>
issue of 360,000 Class A Warrants. The 1,160,000 Class A Warrants resulting from
NAAC's public offering and the conversion of Class B Common Stock are traded on
the OTC/BB market under the ticker "GUZIW."
Underwriter warrants and options and other NAAC options and warrants prior to
Merger
In October 1996, NAAC granted options to purchase 133,333.3 units (units
consisting of one share of Class A Common Stock and one Class A Warrant) to the
Company's two then new directors and to a founder. The options are exercisable
for a period of three (3) years from the date of a business combination at an
exercise price of $12.50 per unit. 50,000 of such options are held by David
Mitchell, a director of the Company.
The underwriters engaged by NAAC in its public offering received a warrant to
purchase 80,000 shares of Class A Common Stock and 80,000 Class A Warrants, at
an exercise price of $11.00 per share and a warrant and to purchase 15,000
shares of Class B Common Stock for $11.00 per share (the "Class B Warrant").
Pursuant to the elimination of Class B Common Stock on March 4, 1999, the Class
B Warrant now entitles the holder to purchase 30,000 shares of Class A Common
Stock and 30,000 Class A Warrants for an exercise price of $5.50 for each unit
consisting of one share of Class A Common Stock and one Class A Warrant.
Other warrants
In connection with the Merger, the Company issued 800,000 "Nominal Warrants" to
the Guzzi Corp. shareholders. Such warrants to subscribe to shares of Class A
Common Stock would be exercisable at $0.01 each only if the Company achieved
certain operating income in 1999, or a revised target in 2000. In July 1999, OAM
cancelled 100,000 of such warrants that it held in connection with agreements
for providing ongoing financing to the Company and for which it received a
separate warrant. See Note 7. The Company did not reach the operating income
target in 1999 and does not expect to achieve the target in 2000.
Upon closing of the Merger, the Company issued warrants to Allen & Company
Incorporated and EBI Securities Corporation ("EBI") to purchase 315,000 shares
of Class A Common Stock, and 35,000 shares of Class A Common Stock,
respectively, each at an exercise price of $10.00 per share. The warrants may be
exercised at any time prior to July 1, 2003.
On March 25, 1999, the Company issued a warrant to Elliott Broidy to purchase
25,000 shares of Class A Common Stock at an exercise price of $9.00 per share.
The warrant terminates on March 24, 2003. On March 31, 1999, pursuant to an
investment banking agreement between the Company and EBI, the Company issued a
warrant to EBI to purchase 225,000 shares of Class A Common Stock at an exercise
price of $9.00 per share. In connection with this agreement, EBI agreed to the
cancellation of its 35,000 warrants referred to above.
As described in Note 7, in July 1999 the Company issued OAM a warrant (the "OAM
warrant") to purchase 100,000 shares of Class A Common Stock at an exercise
price of $0.01 per share in consideration for financing provided by OAM.
Stock Option Plan
On July 23, 1998, the Company adopted the 1998 Stock Option Plan (the "1998
Plan") and the
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<PAGE>
1998 Plan for Outside Directors. Both Option Plans were subject to stockholder
approval and consummation of the Merger which duly occurred in March 1999.
The 1998 Plan provides for the grant of options to purchase up to an aggregate
of 1,250,000 shares of the Company's Common Stock to be made to employees,
officers, directors and consultants of the Company and its subsidiaries after
the Merger. The 1998 Plan provides both for incentive stock options ("Incentive
Options"), and for options not qualifying as Incentive Options ("Non Qualified
Options"). The Company's Board or the Committee will determine the exercise
price for each share of the Company's Common Stock purchasable under an
Incentive or Non Qualified Option (collectively "Options"). The exercise price
of a Non Qualified Option may be less than 100% of the fair market value on the
last trading day before the date of the grant. The exercise price of an
Incentive Option may not be less than 100% of the fair market value on the last
trading day before the date of grant (or, in the case of an Incentive Option
granted to a person possessing at the time of grant more than 10% of the total
combined voting power of all classes of stock of the Company, not less than 110%
of such fair market value). Options may only be granted within a ten-year period
which commenced on July 23, 1998 and Incentive Options may only be exercised
within ten years of the date of the grant (or within five years in the case of
an Incentive Option granted to a person who, at the time of the grant, owns
stock possessing more than 10% of the total combined voting power of all classes
of stock of the Company or of its parent or any subsidiary). Options to purchase
an aggregate of 255,000 shares of Class A Common Stock at an exercise price of
$10.8675 were issued to certain officers (directors in their capacity as
management) of the Company at the closing of the Merger. Options to purchase an
aggregate of 625,000 shares at an exercise price of $9.50 were approved by the
Board of Directors on March 8, 1999 for grant to operational management
employees, though none of these options have yet been granted.
The 1998 Plan for Outside Directors provides for the grant of non-incentive
options to purchase up to an aggregate of 400,000 shares of the Company's Class
A Common Stock, to the non-employee directors of the Company, each grant to be
on the effective date of the Merger and on each January 2, beginning January 2,
2000, of options to purchase 12,500 shares of Company's Class A Common Stock.
The options will expire upon the earlier of ten years following date of grant or
three months following the date on which the grantee ceases to serve as a
director. Options to purchase an aggregate of 100,000 shares of Class A Common
Stock at an exercise price of $10.8675 were granted to directors on the closing
of the Merger.
In summary, at December 31, 1999, total grants under the plan, all of which were
made in 1999, were for 355,000 shares, all vested, at a weighted average
exercise price of $10.8675 and an average remaining life of 9.17 years.
Earnings per share
As the Company has incurred losses from 1997 through 1999, all warrants and
options described above are considered antidilutive. The potentially dilutive
effects of outstanding options and warrants in 1999 is summarized below:
Weighted average number of common shares
outstanding during the year 5,174,481
OAM warrant 41,860
NAAC underwriter warrants 10,511
65
<PAGE>
---------
5,226,852
=========
All potentially dilutive options and warrants arose from the Merger with NAAC or
following such date and accordingly there was no potential dilution for prior
years.
Accounting for stock options
The Company has elected the disclosure-only provisions of FASB Statement No.
123, "Accounting for Stock Based Compensation" and applies APB Opinion No. 25
and related interpretations in accounting for their stock option plans.
If the Company had elected to recognize compensation cost based on the fair
value of awards of options and warrants at grant dates, the pro forma net loss
and loss per share for 1999 would have been Lit. 24,970 million ($12,978,000)
and Lit. 4,826 ($2.51) per share. The fair value of the Company's warrants and
options has been estimated based on the trading price of the Class A Warrants.
The Company believes that due to the brief trading history of the Company's
shares that this basis of estimate approximates that which would be obtained
using Black-Scholes or other option pricing models.
14. CONCENTRATION OF CREDIT RISKS
Concentrations of credit risk with respect to trade accounts receivable are
limited due to the large number of entities in the customer base. Sales to
governmental bodies in Italy are significant as a whole, but no single
government body represents more than 10% of net sales.
The Company maintains cash and cash equivalents with various financial
institutions of national standing in Italy and the United States.
15. FINANCIAL INSTRUMENTS
The Company does not enter into foreign exchange contracts in the normal course
of its operating activities. Sales by Moto Guzzi S.p.A. to Moto Guzzi North
America Inc. are made in US$ and the company typically receives bank advances of
80% against such invoices, thus effectively hedging exchange risks. All other
sales are made in Italian Lire.
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.
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<PAGE>
MOTO GUZZI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
16. SUBSEQUENT EVENTS
Issuance of Series B Preferred Stock
On February 25, 2000, the Company issued 123,500 shares of a new Series B
Preferred Stock to Fineco, and affiliates of Fineco, TRG, OAM, the majority
stockholder of the Company, and Barry Fingerhut and William Spier, Directors of
the Company, for $100 per share (an aggregate price of $12,350,000). Fineco and
its affiliates purchased 60,000 shares and TRG purchased 35,000 shares, for
cash. Messrs. Fingerhut and Spier received a total of 12,500 shares in
satisfaction of advances they had made to the Company in August 1999 and 16,000
shares were issued to OAM in satisfaction of outstanding loans due to it.
The holders of the Series B Preferred Stock are entitled to receive dividends at
the rate of $7 per share per year before any dividends may be paid with regard
to the Class A Common Stock, and to receive distribution of $100 per share in
liquidation of the Company before any liquidation distributions are made with
regard to the Class A Common Stock. The Company is required to redeem the Series
B Preferred Stock for $100 per share plus accrued dividends on December 28,
2001. Holders of Series B Preferred Stock do not have voting rights, except that
they must 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 the Company to finance its day-to-day
operations.
Each share of Series B Preferred Stock is convertible into Class A Common Stock
at a conversion price of $5.00, based upon the liquidation preference of the
Series B Preferred Stock ($100, plus accrued dividends, per share), meaning each
share of Series B Preferred Stock is convertible into approximately 20 shares of
Class A Common Stock.
Under some circumstances (referred to as "Events of Default"), the dividend on
the Series B Preferred Stock will increase to $10 per share per year, the
conversion price of the Series B Preferred Stock will be reduced to $2 per share
of Class A Common Stock, the holders of the Series B Preferred Stock will be
entitled to elect a majority of the Company's directors, and the Company will be
required to redeem the Series B Preferred Stock for its liquidation preference
($100 per share, plus accrued dividends). These Events of Default include the
Company or any Subsidiary being in default on obligations totalling $250,000,
and a change of control of the Company (defined to include stockholder approval
of a sale of all or substantially all of the Company's assets). At the time of
the issuance of the Series B Preferred Stock the Company was in arrears with
regard to trade debt totaling more than $250,000. Holders of 48.6% of the
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<PAGE>
outstanding Series B Preferred Stock waived any right to treat that as an Event
of Default and similar waivers are being sought from the holders of the
remainder of the Series B Preferred Stock. The Company is not in compliance with
certain provisions of its credit agreement with Centrobanca S.p.A. If
Centrobanca S.p.A. declared a default under that credit agreement, that would
constitute an Event of Default with regard to the Series B Preferred Stock.
As described below, on April 14, 2000, the Company agreed, subject to approval
by its stockholders, to sell its four operating subsidiaries to Aprilia. That
transaction will constitute a sale of substantially all the Company's assets
and, therefore, stockholder approval of that transaction probably will
constitute an Event of Default with regard to the Series B Preferred Stock.
Execution and Delivery of Share Purchase Agreement
On April 14, 2000, the Company entered into a Share Purchase Agreement with
Aprilia providing for the sale of the Company's four operating Subsidiaries: (i)
Moto Guzzi, S.p.A., (ii) MGI Motorcycle GmbH, (iii) Moto Guzzi North America
Inc., and (iv) Moto Guzzi France S.a.r.l. for Lit. 85.5 billion (approximately
$41.85 million) plus or minus the amount by which the Subsidiaries' net worth at
April 30, 2000 is more or less than its net worth at December 31, 1999 (which
was a negative net worth of Lit. 13.993 billion (approximately $6.85 million)).
In addition, Aprilia will satisfy debts of the Subsidiaries to the Company and
OAM totaling an estimated Lit. 19 billion (approximately $9.3 million) and will
cause OAM to be released from a Lit. 4 billion (approximately $1.95 million)
guarantee of obligations of the Subsidiaries.
Under the Share Purchase Agreement, Aprilia will oversee the Subsidiaries'
operations beginning May 1, 2000. To carry that out, Aprilia designees will be
added to the Subsidiaries' board of directors. Aprilia will lend the
Subsidiaries any funds they need to operate between May 1, 2000 and completion
of the sale of the Subsidiaries. If the sale of the Subsidiaries does not take
place, the loans will be repayable when the Share Purchase Agreement terminates.
The obligation to repay the loans will be secured by up to 25% of the shares of
the Subsidiaries.
The sale of the Subsidiaries is subject to approval by the Company's
stockholders, as well as stockholders' approval of a change of the Company's
corporate name to eliminate the words "Moto Guzzi." If the approvals are not
obtained by August 31, 2000 Aprilia may terminate the Share Purchase Agreement.
OAM, which owns approximately 61% of the Company's Class A Common Stock, and
approximately 13% of the Company's Series B Preferred Stock, has agreed to vote
all of its stock of the Company in favor of the sale of the Subsidiaries.
Assuming that no additional shares of Class A Common Stock are issued by the
Company prior to the record date for the voting on the transaction (on
conversion of the Series B Preferred Stock or otherwise), the affirmative vote
of OAM will be sufficient to ensure stockholder approval of the sale of the
Subsidiaries.
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<PAGE>
In the Share Purchase Agreement, the Company has also agreed to indemnify
Aprilia against costs or liabilities resulting from any stockholder litigation
instituted in the United States (other than by OAM) with regard to the
transaction.
Purchase of outstanding securities of MGI Motorcycle GmbH
In March 1999, the Company acquired the 75% of the outstanding securities of MGI
Motorcycle GmbH which it did not already own. The Company had previously
acquired a 25% shareholding in 1996 when MGI Motorcycle GmbH was formed as the
exclusive importer of Moto Guzzi motorcycles in Germany, replacing the former
exclusive importer for Germany. The operations of MGI Motorcycle GmbH will be
consolidated from the start of the second quarter of 2000. The effects of the
acquisition will not be material.
69
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors and Executive Officers
The information to be included in an amendment to this Form 10-K ("Form 10-K/A")
which will be filed within 120 days after the close of the Company's fiscal year
ended December 31, 1999, under the caption "Directors and Executive Officers of
the Registrant" is incorporated by reference herein.
ITEM 11. EXECUTIVE COMPENSATION
The information to be included in the Form 10-K/A under the caption "Executive
Compensation" is incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information to be included in the Form 10-K/A under the caption "Security
Ownership of Certain Beneficial Owners and Management" is incorporated by
reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information to be included in the Form 10-K/A under the caption "Certain
Relationships and Related Transactions" is incorporated by reference herein.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS - The financial statements listed in the
accompanying Index to Consolidated Financial Statements and
Financial Statement Schedules are filed as part of this annual
report and such Index to Consolidated Financial Statements and
Financial Statement Schedules is incorporated herein by reference.
2. FINANCIAL STATEMENT SCHEDULES - The financial statement schedule
listed in the accompanying Index to Consolidated Financial
Statements and Financial Statement Schedules is filed as part of
this annual report and such Index to Consolidated Financial
Statements and Financial Statement Schedules is incorporated herein
by reference.
70
<PAGE>
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.
71
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
(Item 14(a)1 and 2)
Page
----
Report of Independent Public Accountants 30
Consolidated Balance Sheets - Assets 33
Consolidated Balance Sheets - Liabilities and
Shareholders' Equity (Deficit) 34
Consolidated Statements of Operation 35
Consolidated Statements of Changes in the Shareholders'
Equity (Deficit) 36
Consolidated Statements of Cash Flows 37
Notes to Consolidated Financial Statements 39
Valuation and Qualifying Accounts 66
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.
72
<PAGE>
MOTO GUZZI CORP.
Schedule II - Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Col. A Col. B Col. C Col. D Col. E
- ------------------------------------------------------------------------------------------------------------------------------
(2)
(1) Charged to
Balance at Charged to other Balance at
beginning costs and accounts Deductions end of
Description of period expenses Describe Describe period
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
In millions of Italian Lire
Year ended December 31, 1999
Deducted from asset accounts
Allowance for doubtful accounts 2,026 350 (26) (a) 2,350
Inventory obsolescence reserve 9,762 1,035 (1,753) (b) 9,044
----------- ----------- ----------- --------- -----------
11,788 1,385 0 (1,779) 11,394
=========== =========== =========== ========= ===========
Year ended December 31, 1998
Deducted from asset accounts
Allowance for doubtful accounts 1,903 856 (18) (a) 2,741
Inventory obsolescence reserve 6,699 600 9,762
2,463(c)
----------- ----------- ----------- --------- -----------
8,602 3,919 0 (18) 12,503
=========== =========== =========== ========= ===========
Year ended December 31, 1997
Deducted from asset accounts
Allowance for doubtful accounts 1,065 856 (18) (a) 1,903
Inventory obsolescence reserve 5,201 2,400 (902) (b) 6,699
----------- ----------- ----------- --------- -----------
6,266 3,256 0 (920) 8,602
=========== =========== =========== ========= ===========
In thousands of U.S. Dollars
Year ended December 31, 1999
Deducted from asset accounts
</TABLE>
73
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts 1,053 182 (14) (a) 1,221
Inventory obsolescence reserve 5,074 538 (911) (b) 4,701
----------- ----------- ----------- --------- -----------
6,127 720 0 (925) 5,922
=========== =========== =========== ========= ===========
</TABLE>
(a) Amounts written off
(b) Disposal of inventory
(c) Reserved pursuant to abandonment of product line
74
<PAGE>
LIST OF EXHIBITS
(Items 14(a)(3) and 14(c)
Exhibit No. Description
----------- -----------
3.1 Amended and Restated Certificate of
Incorporation of the Company, as amended
3.2 Amendment to Amended and Restated Certificate
of Incorporation of the Company
3.3 Alternative Form of Article Fourth of the
Amended and Restated Certificate of
Incorporation to Effectuate the Class B
Recapitalization
3.4 Certificate of Designation of Series B
Preferred Stock
3.5 Amended and Restated By-laws of the Company
10.1 Employment Agreement dated as of March 4, 1999
by and between the Company and Mark S. Hauser *
10.2 Consulting Agreement with Emanuel Arbib dated
as of March __, 1999*
10.3 Consulting Agreement with Howard E. Chase dated
as of March __, 1999*
10.4 Consulting Agreement with David J. Mitchell
dated as of March 2, 1999*
10.5 Consulting Agreement with Como Consultants
Limited dated as of March 2, 1999
10.6 1998 Non-Qualified Stock Option Plan *
10.7 1998 Plan for Outside Directors *
10.8 Form of Class A Common Stock Warrant
10.9 Form of Nominal Warrant
10.10 Agreement and Plan of Merger dated August 18,
1998 by and between Moto Guzzi Corp. and North
Atlantic Acquisition Corporation
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<PAGE>
10.11 First Amendment dated December 3, 1998 to
Agreement and Plan of Merger dated August 18,
1998
10.12 Preliminary Share Sale and Purchase Agreement
dated as of April 14, 2000 by and among the
Company and Aprilia S.p.A.
21 List of Subsidiaries
27 Financial Data Schedule for 1999
* Represents a management contract or compensatory plan, contract or
arrangement in which a director or named executive officer of the
Company participated.
76
<PAGE>
INDEX TO EXHIBITS
(Items 14(a)(3) and 14(c)
Exhibit No. Description
----------- -----------
3.1 Amended and Restated Certificate of Incorporation
of the Company, as amended (Incorporated herein by
reference to the Registrant's Registration
Statement on Form SB-2 (File No. 33-80647)
declared effective August 22, 1997)
3.2 Amendment to Amended and Restated Certificate of
Incorporation of the Company (Incorporated herein by
reference to Annex IV to the Registrant's Form S-4 dated
February 4, 1999, as amended (File No.
333-65267))
3.3 Alternative Form of Article Fourth of the Amended and
Restated Certificate of Incorporation to Effectuate the
Class B Recapitalization (Incorporated herein by
reference to Annex VII to the Registrant's Form S-4
dated February 4, 1999, as amended (File No. 333-65267))
3.4 Certificate of Designation of Series B Preferred
Stock
3.5 Amended and Restated By-laws of the Company
(Incorporated herein by reference to Exhibit 3.3 to the
Registrant's Form S-4 dated February 4, 1999, as amended
(File No. 333-65267))
10.1 Employment Agreement dated March 4, 2000 by and
between the Company and Mark S. Hauser *
10.2 Consulting Agreement with Emanuel Arbib dated
March ___, 1999*
10.3 Consulting Agreement with Howard E. Chase dated
March ___, 1999*
10.4 Consulting Agreement with David J. Mitchell dated
as of March 2, 1999*
10.5 Consulting Agreement with Como Consultants Limited
dated as of March 2, 1999
10.6 1998 Non-Qualified Stock Option Plan (Incorporated
herein by reference to Annex V to the Registrant's Form
S-4 dated February
77
<PAGE>
4, 1999, as amended (File No. 333-65267)) *
10.7 1998 Plan for Outside Directors (Incorporated herein by
reference to Annex VI to the Registrant's Form S-4 dated
February 4, 1999, as amended (File No. 333-65267)) *
10.8 Form of Class A Common Stock Warrant (Incorporated
herein by reference to Exhibit 4.5 to the Registrant's
Form S-4 dated February 4, 1999, as amended (File No.
333-65267))
10.9 Form of Nominal Warrant (Incorporated herein by
reference to Annex III to the Registrant's Form S-4
dated February 4, 1999, as amended (File No.
333-65267))
10.10 Agreement and Plan of Merger dated August 18, 1998 by
and between Moto Guzzi Corp. and North Atlantic
Acquisition Corporation (Incorporated herein by
reference to Annex I to the Registrant's Form S-4 dated
February 4, 1999, as amended (File No.
333-65267))
10.11 First Amendment dated December 3, 1998 to
Agreement and Plan of Merger dated August 18,
1998 (Incorporated herein by reference to Annex I
to the Registrant's Form S-4 dated February 4,
1999, as amended (File No. 333-65267))
10.12 Preliminary Share Sale and Purchase Agreement dated as
of April 14, 2000 by and between the Company and Aprilia
S.p.A. (Incorporated herein by reference to Exhibit 10.1
to the Registrant's Form 8-K dated April 14, 2000)
21 List of Subsidiaries
27 Financial Data Schedule for 1999
* Represents a management contract or compensatory plan, contract or
arrangement in which a director or named executive officer of the
Company participated.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MOTO GUZZI CORPORATION
April 26, 2000 /s/ Mark S. Hauser
--------------------
Mark S. Hauser
Executive Chairman
April 26, 2000 /s/ Nick Speyer
----------------------
Nick Speyer
Chief Financial officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacity and on the dates indicated.
April 26, 2000 /s/ Gianni Bulgari
-------------------------
Gianni Bulgari, Director
April 26, 2000 /s/ Howard E. Chase
--------------------------
Howard E. Chase, Director
April 26, 2000 /s/ Barry Fingerhut
--------------------------
Barry Fingerhut, Director
April 26, 2000 /s/ Mark S. Hauser
-------------------------
Mark S. Hauser, Director
April 26, 2000 /s/ David Mitchell
-------------------------
David Mitchell, Director
79
<PAGE>
April 26, 2000 /s/ Frank O'Connell
--------------------------
Frank O'Connell, Director
April 26, 2000 /s/ William Spier
------------------------
William Spier, Director
EXHIBIT 3.4
CERTIFICATE OF DESIGNATION
OF
SERIES B PREFERRED STOCK
OF
MOTO GUZZI CORPORATION
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
The undersigned, authorized signatories of Moto Guzzi Corporation, a
corporation organized and existing under the laws of the State of Delaware (the
"Corporation"), do hereby certify that pursuant to authority conferred upon the
Board of Directors by the Certificate of Incorporation of the Corporation (the
"Certificate of Incorporation") under the provisions of Section 151 of the
General Corporation Law of the State of Delaware, the Corporation has duly
adopted the following resolution creating a series of one hundred sixty thousand
(160,000) shares of Preferred Stock, par value $0.01 per share, and designated
as Series B Preferred Stock, as follows:
RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Corporation in accordance with the provisions of the Certificate of
Incorporation, one hundred sixty thousand (160,000) of the authorized shares of
Preferred Stock are hereby designated as Series B Preferred Stock. The powers,
preferences and rights, and the qualifications, limitations and restrictions, of
the Series B Preferred Stock are as follows:
1. Rank.
(a) The Series B Preferred Stock shall, with respect to dividend rights
and rights upon the liquidation, dissolution or winding up of the Corporation,
rank senior to all classes and series of the Corporation's now or hereafter
issued Common Stock and, except as provided in the following proviso, to each
other class or series of capital stock now or hereafter created or issued
(collectively, together with the Common Stock, "Series B Junior Stock");
provided, however, that, subject to Section 12 hereof, the Board of Directors
may authorize a class or series of preferred stock on a parity in powers,
preferences and rights to the Series B Preferred Stock (collectively, "Series B
Parity Stock") or senior in powers, preferences and rights to the Series B
Preferred Stock, if approved by the affirmative vote or consent of the holders
of a majority of the outstanding shares of Series B Preferred Stock, voting as a
separate class. As used herein, the term "Common Stock" shall mean the Common
Stock, $0.01 par value per share, of the Corporation as the same exists at the
date hereof or as such stock may be constituted from time to time, except that
for the purpose of subsections 7(a), 7(b), 7(c) and 7(d) hereof, the term
"Common Stock" shall also mean and include stock of the Corporation of any
class, whether now or hereafter authorized, which shall have the right to
participate in the distribution of either dividends or assets of the Corporation
upon liquidation, dissolution or winding up, without limit as to amount or
percentage.
2. Dividends.
(a) The holders of shares of Series B Preferred Stock shall be entitled
to receive, out of funds of the Corporation therefor, cumulative dividends at a
rate of seven percent (7%) of the Liquidation Value (as hereinafter defined) per
share per annum, payable in equal quarterly installments on March 31, June 30,
September 30 and December 31 in each year, commencing March 31, 2000. Dividends
on the Series B Preferred Stock may be paid, at the option of the Corporation,
in cash or by the issuance of additional shares of Series B Preferred Stock with
an aggregate Liquidation Value equal to the amount of such dividends. Such
dividends shall be cumulative from the date of original issue of each share of
Series B Preferred Stock, whether or not there shall be funds legally available
for the payment of dividends on any quarterly payment date. If the corporation
shall make any dividend payment in both cash and by the issuance of additional
shares of Series B Preferred Stock, both the cash and the additional shares
shall be distributed pro rata to the holders of Series B Preferred Stock. Any
partial dividend payment made on the Series B Preferred Stock shall be
distributed pro rata to the holders thereof.
(b) The Corporation covenants that so long as any shares of Series B
Preferred Stock are outstanding, unless all accrued dividends on all shares of
Series B Preferred Stock for all past quarterly dividend periods shall have been
paid in full, no dividends shall be paid or declared and set aside for payment
or other distribution made upon the Common Stock or any other capital stock of
the Corporation, nor shall any shares of the Common Stock or shares of any other
capital stock of the Corporation be redeemed, retired, purchased or otherwise
acquired for consideration (or any payment made to or available for a sinking
fund for the redemption of any such shares) by the Corporation or any subsidiary
of the Corporation; provided, however, that the Corporation may acquire shares
of Common Stock solely in exchange for the issuance of other shares of Common
Stock.
3. Liquidation Preference. (a) In the event of any liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary, no payment
or distribution of assets shall be made to or set apart for the holders of
Series B Junior Stock unless the holders of shares of Series B Preferred Stock
shall have received, out of assets legally available therefor, one hundred
dollars ($100.00) per share of Series B Preferred Stock (the "Liquidation
Value") plus an amount of cash equal to the dividends accrued and unpaid thereon
to the date of final distribution to the holders of Series B Preferred Stock. If
upon any such distribution of assets in liquidation or dissolution or upon the
winding up of the affairs of the Corporation the amount which would be
distributed to the holder of the outstanding shares of Series B Preferred Stock
would be less than this amount, then such lesser amount shall be distributed pro
rata to the holders of then outstanding shares of Series B Preferred Stock and
to the holders of then outstanding shares of Series B Parity Stock, and no
distribution shall be made to the holders of Series B Junior Stock. None of the
consolidation or the merger of the Corporation, or the sale, lease or transfer
by the Corporation of all or any part of its assets for cash, securities or
other property shall be deemed to be a liquidation, dissolution or winding up of
the Corporation for purposes of this Section 3 (unless in connection therewith
the liquidation of the Corporation is specifically approved).
(b) The holder of any shares of Series B Preferred Stock shall be
entitled to receive payment owed for such shares as a result of a liquidation,
dissolution or winding up of the Corporation under this Section 3 only upon
causing to be delivered to the Corporation (i) the certificate(s) representing
such shares of Series B Preferred Stock and (ii) transfer instrument(s)
reasonably satisfactory to the Corporation and sufficient to transfer such
shares of Series B Preferred Stock to the Corporation free of any adverse
interest.
4. Voting Rights. In addition to the voting rights provided in Section 1
hereof, the holders of shares of Series B Preferred Stock shall not be entitled
to any voting rights except as described below or as otherwise required by
applicable law. The Corporation shall not, without the affirmative vote or
consent of the holders of a majority of outstanding shares of Series B Preferred
Stock, voting as a separate class, (i) enter into any agreement or issue any
other equity security or debt instrument which would impair the ability of the
Corporation to perform its obligations to the holders of the Series B Preferred
Stock or (ii) incur any indebtedness whatsoever, except for (a) indebtedness in
existence on the date of the Subscription Agreement pursuant to which the Series
B Preferred Stock is issued, (b) indebtedness in exchange for, or the net
proceeds of which are used to refund, refinance or replace, indebtedness
described in clause (a) above, and (c) bank lines of credit utilized by the
Corporation to finance its day-to-day operations.
5. Mandatory Redemption. On December 28, 2001 (the "Redemption Date"), the
Corporation shall redeem all of the shares of Series B Preferred Stock for an
aggregate purchase price per share (the "Redemption Price"), in cash, equal to
the Liquidation Value plus an amount of cash equal to the dividends accrued and
unpaid thereon to the Redemption Date. At any time on or after the Redemption
Date, a holder of shares of Series B Preferred Stock shall be entitled to
receive the Redemption Price for each share of Series B Preferred Stock owned by
such holder upon actual delivery to the Corporation of the certificates
representing such shares.
6. Conversion.
(a) Right of Conversion. The shares of Series B Preferred Stock may, at
the option of the holder, at any time and from time to time, be converted into
that number of fully paid and non-assessable shares of Common Stock of the
Corporation (calculated as to each conversion to the nearest 1/100th of a share)
obtained by dividing (i) the aggregate Liquidation Value of the Series B
Preferred Stock to be converted by (ii) the Conversion Price (as hereinafter
defined) in effect at such time.
(b) Manner of Exercise of Conversion Privilege. The conversion of shares
of Series B Preferred Stock shall be exercised by the surrender by the holder of
the certificates representing the shares being converted accompanied by the
funds, if any, required by subsection 6(e) and a written notice of conversion
signed by such holder or its duly authorized agent, at the principal office of
the Corporation (or such other office or agency of the Corporation as the
Corporation may designate by notice in writing to the holders of Series B
Preferred Stock) at any time during its usual business hours, and stating the
name or names in which such holder wishes the certificates for Common Stock to
be received upon conversion to be issued and the address to which such
certificates shall be delivered. In case such notice shall specify a name or
names other than that of the holder, such notice shall be accompanied by payment
of any and all transfer taxes payable upon the issuance of the Common Stock upon
conversion and all instruments of transfer appropriately completed to permit
such issuance.
As soon as practicable after such surrender by a record holder of such
certificates and the receipt by the Corporation of such notice, instruments of
transfer and funds, if any, as aforesaid, the Corporation shall issue and
deliver at such address as is specified by such holder a certificate or
certificates for the number of full shares of Common Stock issuable upon the
conversion of such shares of Series B Preferred Stock in accordance with the
provisions of this Section 6 and a check or cash in respect of any fractional
interest in a share of Common Stock arising upon such conversion as provided in
subsection 6(c). The conversion of shares hereunder shall be effective, subject
to the terms of this Section 6, as of the close of business on the date on which
such shares of Series B Preferred Stock shall have been surrendered and such
notice (and any applicable instruments of transfer and any required taxes)
received by the Corporation as aforesaid, and the person or persons entitled to
receive the shares issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares on such date, and such
conversion shall be at the Conversion Price in effect at such time on such date;
provided, however, that if the stock transfer books of the Corporation shall be
closed on that date, such person or persons shall be deemed to have become such
holder or holders of record at the close of business on the next succeeding day
on which such stock transfer books are open, but such conversion shall be at the
Conversion Price in effect on the date upon which such shares of Series B
Preferred Stock shall have been surrendered and such notice received by the
Corporation.
(c) Cash Payments in Lieu of Fractional Shares. No fractional shares of
Common Stock or scrip shall be issued upon conversion of shares of Series B
Preferred Stock. If more than one share of Series B Preferred Stock shall be
surrendered for conversion at any one time by the same holder, the number of
full shares of Common Stock issuable upon conversion thereof shall be computed
on the basis of the aggregate number of shares of such Series B Preferred Stock
so surrendered. Instead of any fractional shares of Common Stock which would
otherwise be issuable upon conversion of any shares of Series B Preferred Stock,
the Corporation shall pay a cash adjustment in respect of such fractional
interest in an amount equal to the then Current Market Price (as hereinafter
defined) of a share of Common Stock multiplied by such fractional interest.
Fractional interests shall not be entitled to dividends, and the holders of
fractional interests shall not be entitled to any rights as stockholders of the
Corporation in respect of such fractional interest.
(d) Reservation of Shares of Common Stock. The Corporation shall at all
times reserve and keep available, out of its authorized and unissued shares of
Common Stock, solely for the purpose of issue upon the conversion of shares of
Series B Preferred Stock as herein provided, such number of shares of Common
Stock as shall then be issuable upon the conversion of the shares of Series B
Preferred Stock. The Corporation covenants that all shares of Common Stock
issuable upon any conversion described herein shall, when issued, be duly and
validly issued, fully paid, non-assessable, free of all liens and charges and
not subject to any preemptive rights. The Corporation covenants that if any
shares of Common Stock to be provided for the purposes of conversion of shares
of Series B Preferred Stock hereunder require registration with or approval of
any governmental authority under any Federal or state law before such shares may
be validly issued upon conversion, the Corporation will in good faith and as
expeditiously as possible endeavor to secure such registration or approval, as
the case may be. The Corporation further covenants that if at any time the
Common Stock shall be listed on the New York Stock Exchange or any other
national securities exchange or quoted on the Nasdaq Stock Market, the
Corporation will exert its best efforts, so long as the Common Stock shall be so
listed on such exchange, to the extent permitted by the rules of such exchange,
to list and keep listed all shares of Common Stock issuable hereunder.
Additionally, the Corporation will take any corporate action that may, in the
option of its counsel, be necessary in order that the Corporation may validly
and legally issue fully paid and nonassessable shares of Common Stock at the
Conversion Price as so adjusted.
(e) Transfer Taxes, etc. The issuance of any shares or other securities
upon conversion of Series B Preferred Stock, and the delivery of certificates or
other instruments representing such shares or other securities, shall be made
without charge to the holder for any tax or other charge in respect of such
issuance. The Corporation shall not, however, be required to pay any tax which
may be payable in respect of any transfer involved in the issue and delivery of
any certificate in a name other than that of the holder of the Series B
Preferred Stock being converted and the Corporation shall not be required to
issue or deliver any such certificate unless and until the person or persons
requesting the issue thereof shall have paid to the Corporation the amount of
such tax or shall have established to the satisfaction of the Corporation that
such tax has been paid.
7. Conversion Price. The "Conversion Price" shall mean and be five dollars
($5.00) per share of Series B Preferred Stock, as ----------------- may be
adjusted from time to time by the Corporation as follows:
(a) Dividends, Subdivisions, Combinations and Reclassifications. In the
event that the Corporation shall (i) declare a dividend on the outstanding
Common Stock payable in shares of its Common Stock, (ii) subdivide the
outstanding Common Stock, (iii) combine the outstanding Common Stock into a
smaller number of shares, or (iv) issue by reclassification any shares of its
capital stock then, in each case, the Conversion Price in effect at the time of
the record date for such dividend or of the effective date of such subdivision
or combination, shall be proportionately adjusted so that the holder of Series B
Preferred Stock after such time shall be entitled to receive upon conversion the
aggregate number and kind of shares for such consideration which, if such Series
B Preferred Stock had been converted immediately prior to such time at the
then-current Conversion Price, he would have owned upon such conversion and been
entitled to receive by virtue of such dividend, subdivision, or combination.
Such adjustment shall be made successively whenever any event listed above shall
occur.
(b) Issuance to Stockholders of Rights, Options or Warrants Below Current
Market Price. In the event that the Corporation shall issue or fix a record date
for the issuance to all holders of Common Stock of rights, options, or warrants
to subscribe for or purchase Common Stock (or securities convertible into or
exchangeable for Common Stock) at a price per share (or having a conversion or
exchange price per share, if a security convertible into or exchangeable for
Common Stock) less than the Current Market Price per share of Common Stock on
such record date, then, in each case, the Conversion Price shall be adjusted by
multiplying the Conversion Price in effect immediately prior to such record date
by a fraction, the numerator of which shall be the number of shares of Common
Stock outstanding on such record date plus the number of shares of Common Stock
which the aggregate offering price of the total number of shares of Common Stock
so to be offered (or the aggregate initial conversion or exchange price of the
convertible or exchangeable securities so to be offered) would purchase at such
Current Market Price and the denominator of which shall be the number of shares
of Common Stock outstanding on such record date plus the number of additional
shares of Common Stock to be offered for subscription or purchase (or into which
the convertible or exchangeable securities so to be offered are initially
convertible or exchangeable); provided, however, that no such adjustment shall
be made which results in an increase in the Conversion Price. Such adjustment
shall become effective at the close of business on such record date; provided,
however, that, to the extent the shares of Common Stock (or securities
convertible into or exchangeable for shares of Common Stock) are not delivered,
the Conversion Price shall be readjusted after the expiration of such rights,
options, or warrants (but only with respect to Series B Preferred Stock
converted after such expiration) to the Conversion Price which would then be in
effect had the adjustments made upon the issuance of such rights, options, or
warrants been made upon the basis of delivery of only the number of shares of
Common Stock (or securities convertible into or exchangeable for shares of
Common Stock) actually issued. In case any subscription price may be paid in a
consideration part or all of which shall be in a form other than cash, the value
of such consideration shall be as determined in good faith by the Board of
Directors of the Corporation, whose determination shall be conclusive absent
manifest error. Shares of Common Stock owned by or held for the account of the
Corporation or any majority-owned subsidiary shall not be deemed outstanding for
the purpose of any such computation.
(c) Issuance to Stockholders of Evidence of Indebtedness, Cash or Assets.
In the event that the Corporation shall distribute to all holders of Common
Stock (including any such distribution made to the stockholders of the
Corporation in connection with a consolidation or merger in which the
Corporation is the continuing corporation) evidences of its indebtedness, cash
or assets (other than distributions and dividends payable in shares of Common
Stock), or rights, options, or warrants to subscribe for or purchase Common
Stock, or securities convertible into or changeable for shares of Common Stock
(excluding those with respect to the issuance of which an adjustment of the
Conversion Price is provided pursuant to subsection 6(a) hereof), then, in each
case, the Conversion Price shall be adjusted by multiplying the Conversion Price
in effect immediately prior to the record date for the determination of
stockholders entitled to receive such distribution by a fraction, the numerator
of which shall be the Current Market Price per share of Common Stock on such
record date, less the fair market value (as determined in good faith by the
Board of Directors of the Corporation, whose determination shall be conclusive
absent manifest error) of the portion of the evidences of indebtedness or assets
so to be distributed, or of such rights, options, or warrants or convertible or
exchangeable securities, or the amount of such cash, applicable to one share,
and the denominator of which shall be such Current Market Price per share of
Common Stock. Such adjustment shall become effective at the close of business on
such record date.
(d) Issuance of Rights, Options or Warrants. In the event that the
Corporation shall issue shares of Common Stock or rights, options, or warrants
to subscribe for or purchase Common Stock, or securities convertible into or
exchangeable for Common Stock (excluding shares, rights, options, warrants, or
convertible or exchangeable securities issued or issuable (i) in any of the
transactions with respect to which an adjustment of the Conversion Price is
provided pursuant to subsections 7(a), 7(b) or 7(c) above, (ii) upon any
issuance of securities upon conversion of Series B Preferred Stock and (iii)
upon conversion or exercise of the options, warrants or other rights
outstanding, and in accordance with their terms, as of the date of the
Subscription Agreement pursuant to which the Series B Preferred Stock is issued)
at a price per share (determined, in the case of such rights, options, warrants,
or convertible or exchangeable securities, by dividing (x) the total amount
received or receivable by the Corporation in consideration of the sale and
issuance of such rights, options, warrants, or convertible or exchangeable
securities, plus the minimum aggregate consideration payable to the Corporation
upon exercise, conversion, or exchange thereof, by (y) the maximum number of
shares covered by such rights, options, warrants, or convertible or exchangeable
securities) lower than the Current Market Price per share of Common Stock, in
effect immediately prior to such issuance, then the Conversion Price shall be
reduced on the date of such issuance to a price (calculated to the nearest cent)
determined by multiplying the Conversion Price in effect immediately prior to
such issuance by a fraction, (1) the numerator of which shall be an amount equal
to the sum of (A) the number of shares of Common Stock outstanding immediately
prior to such issuance plus (B) the quotient obtained by dividing the
consideration received by the Corporation upon such issuance by such Current
Market Price, and (2) the denominator of which shall be the total number of
shares of Common Stock outstanding immediately after such issuance; provided,
however, that no such adjustment shall be made which results in an increase in
the Conversion Price. For the purposes of such adjustments, the maximum number
of shares which the holders of any such rights, options, warrants, or
convertible or exchangeable securities shall be entitled to initially subscribe
for or purchase or convert or exchange such securities into shall be deemed to
be issued and outstanding as of the date of such issuance, and the consideration
received by the Corporation therefor shall be deemed to be the consideration
received by the Corporation for such rights, options, warrants, or convertible
or exchangeable securities, plus the minimum aggregate consideration or premiums
stated in such rights, options, warrants, or convertible or exchangeable
securities to be paid for the shares covered thereby. No further adjustment of
the Conversion Price shall be made as a result of the actual issuance of shares
of Common Stock on exercise of such rights, options, or warrants or on
conversion or exchange of such convertible or exchangeable securities. On the
expiration or the termination of such rights, options, or warrants, or the
termination of such right to convert or exchange, the Conversion Price shall be
readjusted (but only with respect to Series B Preferred Stock if converted after
such expiration or termination) to such Conversion Price as would have been
obtained had the adjustments made upon the issuance of such rights, options,
warrants, or convertible or exchangeable securities been made upon the basis of
the delivery of only the number of shares of Common Stock actually delivered
upon the exercise of such rights, options, or warrants or upon the conversion or
exchange of any such securities; and on any change of the number of shares of
Common Stock deliverable upon the exercise of any such rights, options, or
warrants or conversion or exchange of such convertible or exchangeable
securities or any change in the consideration to be received by the Corporation
upon such exercise, conversion, or exchange, including, without limitation, a
change resulting from the antidilution provisions thereof. In the event that the
Corporation shall issue shares of Common Stock or any such rights, options,
warrants, or convertible or exchangeable securities for a consideration
consisting, in whole or in part, of property other than cash or its equivalent,
then the "price per share" and the "consideration received by the Corporation"
for purposes of the first sentence of this subsection 7(d) shall be as
determined in good faith by the Board of Directors of the Corporation, whose
determination shall be conclusive absent manifest error. Shares of Common Stock
owned by or held for the account of the Corporation or any majority-owned
subsidiary shall not be deemed outstanding for the purpose of any such
computation.
(e) Event of Default. Upon the occurrence of an Event of Default (as
hereinafter defined), the Conversion Price shall be reduced on the date of such
Event of Default to a price equal to the greater of (i) forty percent (40%) of
the Conversion Price in effect immediately prior to such date and (ii) the
lowest price permissible by law as of the date of such Event of Default.
(f) Definition of Current Market Price. The "Current Market Price" per
share of Common Stock shall mean, as of any relevant date, the closing price on
the principal United States Stock Exchange (including the Nasdaq Stock Market)
on which the Common Stock is then listed, or, if the Common Stock is not then
listed on a stock exchange but is quoted on the Nasdaq Bulletin Board, the
lowest price quoted thereon on such date.
(g) Adjustments Applicable to All Series B Preferred Stock. The
adjustments provided for in this Section 7 shall be applicable to the Conversion
Price of all Series B Preferred Stock, including, without limitation, all Series
B Preferred Stock then outstanding and all Series B Preferred Stock not then
outstanding, but reserved for issuance upon exercise of warrants or otherwise.
(h) Carry-Forward of De Minimis Adjustments. No adjustment in the
Conversion Price shall be required if such adjustment is less than $.05;
provided, however, that any adjustments which by reason of this Section 7 are
not required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 7 shall be made to
the nearest cent or to the nearest one-thousandth of a share, as the case may
be.
(i) Deferral of Adjustment. In any case in which this Section 7 shall
require that an adjustment in the Conversion Price be made effective as of a
record date for a specified event, the Corporation may elect to defer, until the
occurrence of such event, issuing to the holder, if the holder converted Series
B Preferred Stock after such record date, the shares of Common Stock, if any,
issuable upon such conversion over and above the shares of Common Stock, if any,
issuable upon such conversion on the basis of the Conversion Price in effect
prior to such adjustment; provided, however, that the Corporation shall deliver
to the holder a due bill or other appropriate instrument evidencing the holder's
right to receive such additional shares upon the occurrence of the event
requiring such adjustment.
(j) Notice of Adjustments. Whenever there shall be an adjustment to the
Conversion Price as provided in this Section 7, the Corporation shall promptly
cause written notice thereof to be sent by certified mail, postage prepaid, to
the registered holders of Series B Preferred Stock, which notice shall be
accompanied by an officer's certificate setting forth the Conversion Price after
such adjustment and setting forth a brief statement of the facts requiring such
adjustment and the computation thereof, which officer's certificate shall be
conclusive evidence of the correctness of any such adjustment absent manifest
error.
(k) Adjustment of Conversion Price of Other Securities. In the event that
at any time, as a result of an adjustment made pursuant to subsection 7(a), the
holder of any share of Series B Preferred Stock hereafter surrendered for
conversion shall become entitled to receive any shares of the Corporation other
than shares of Common Stock, thereafter the Conversion Price of such other
shares so receivable upon conversion of any share of Series B Preferred Stock
shall be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to Common Stock
contained in this Section.
(l) Temporary Decrease in Conversion Price. The Corporation from time to
time may decrease the Conversion Price by any amount for any period of time if
the period is at least twenty (20) days and if the decrease is irrevocable
during the period. Whenever the Conversion Price is so decreased, the
Corporation shall mail to holders of record of shares of Series B Preferred
Stock a notice of the decrease at least fifteen (15) days before the date the
decreased Conversion Price takes effect, and such notice shall state the
decreased Conversion Price and the period it will be in effect.
(m) Valid and Legal Issuance. Before taking any action which would cause
an adjustment reducing the Conversion Price below the then par value, if any, of
the shares of Common Stock deliverable upon conversion of the shares of Series B
Preferred Stock, the Corporation will take any corporate action which may, in
the opinion of its counsel, be necessary in order that the Corporation may
validly and legally issue fully paid and non-assessable shares of Common Stock
at such adjusted Conversion Price.
8. Reclassification, Consolidation or Merger or Sale of Assets.
(a) In the event of any reclassification or change of the shares of
Common Stock issuable upon conversion of the Series B Preferred Stock (other
than a change in par value or from no par value to a specified par value, or as
a result of a subdivision or combination, but including any change in the shares
into two or more classes or series of shares), or in the event of any
consolidation or merger of another corporation into the Corporation in which the
Corporation is the continuing corporation and in which there is a
reclassification or change (including a change to the right to receive cash or
other property) of the shares of Common Stock (other than a change in par value,
or from no par value to a specified par value, or as a result of a subdivision
or combination, but including any change in the shares into two or more classes
or series of shares), the holder shall have the right thereafter to receive upon
conversion of the Series B Preferred Stock solely the kind and amount of shares
of stock and other securities, property, cash, or any combination thereof
receivable upon such reclassification, change, consolidation, or merger by a
holder of the number of shares of Common Stock into which such Series B
Preferred Stock might have been converted immediately prior to such
reclassification, change, consolidation, or merger. Thereafter, appropriate
provision shall be made for adjustments which shall be as nearly equivalent as
practicable to the adjustments in Section 7 and this Section 8.
(b) The above provisions of this Section 8 shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales, leases, or conveyances.
9. Events of Default. Notwithstanding anything to the contrary contained
herein, if one or more of the following events (each, an "Event of Default")
shall occur with respect to any holder of the Series B Preferred Stock:
(a) the Corporation shall fail to make any dividend payment in full when
due on the Series B Preferred Stock pursuant to Section 2 hereof or shall fail
to issue shares of Common Stock upon conversion of the Series B Preferred Stock
pursuant to Section 6 hereof; or
(b) the Corporation shall fail to redeem the shares of Series B Preferred
Stock on the Redemption Date; or
(c) there shall be a Change of Control (as hereinafter defined); or
(d) any registration statement, preliminary prospectus, or final
prospectus (as from time amended and supplemented), or any amendment or
supplement thereto, any quarterly report on Form 10-Q, any annual report on Form
10-K, or any other document filed by the Corporation with the Commission (each,
a "Commission Report") shall (i) contain an untrue statement of material fact or
(ii) omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, unless such statement or omission
was made in reliance upon and in conformity with written information furnished
to the Corporation with respect to the holder of Series B Preferred stock by or
on behalf of such person expressly for inclusion in any such Commission Report;
or
(e) the Corporation or any of its subsidiaries shall default on any other
outstanding obligations of the Corporation in an aggregate amount greater than
$250,000; or
(f) the Corporation shall fail to perform or observe any other covenant,
representation, warranty, condition, agreement or obligation of the Corporation
contained in this Certificate or contained in the Subscription Agreement
pursuant to which the Series B Preferred Stock is issued, and such failure shall
continue uncured for a period of thirty (30) days; or
(g) the Corporation or any of its subsidiaries:
(i) voluntarily commences any proceeding or files any petition
seeking relief under Title 11 of the United States Code or any
other Federal, state or foreign bankruptcy, insolvency,
liquidation or similar law (collectively, "Bankruptcy Law"); or
(ii) consents to an order for relief against it in an involuntary
case; or
(iii) applies for or consents to the appointment of a custodian
for it or for all or substantially all of its property; or
(iv) makes a general assignment for the benefit of its creditors;
or
(v) generally is not paying its debts as they become due; or
(h) a court of competent jurisdiction enters an order or decree under a
Bankruptcy Law that:
(i) is for relief against the Corporation or any of its
subsidiaries in an involuntary case; or
(ii) appoints a receiver, trustee, custodian or similar official
for the Corporation or any of its subsidiaries or for all or
substantially all of the property of the Corporation or any of its
subsidiaries; or
(iii)orders the liquidation of the Corporation or any of its
subsidiaries, and the order or decree remains unstayed and in
effect for sixty(60) consecutive days,
then, or at any time thereafter, and in each and every case, unless such Event
of Default shall have been waived in writing by the holder (which waiver shall
not be deemed to be a waiver of any subsequent default):
(A) dividends payable on the shares of Series B Preferred Stock shall be
payable at a rate equal to the lower of (i) ten percent (10%) per share per
annum or (ii) the highest rate permissible by law as of the date of such Event
of Default; and
(B) the Conversion Price shall be reduced as provided in subsection 7(e)
hereof; and
(C) all of the holders of Series B Preferred Stock shall be entitled to,
voting as a separate class, appoint the majority of the members of the Board of
Directors of the Corporation; and
(D) the Corporation shall redeem all of the shares of Series B Preferred
Stock on the same terms as set forth in Section 5 hereof.
The Corporation shall promptly provide the holders of Series B Preferred Stock
with written notice of any Event of Default, but in no event later than twenty
(20) days from the occurrence thereof.
For purposes hereof, the term "Change of Control" shall mean the occurrence
of any of the following: (1) any "person" as defined in Section 3(a)(9) of the
Exchange Act, and as used in Sections 13(d) and 14(d) thereof, including a
"group" as defined in Section 13(d) of the Exchange Act but excluding the
Corporation and any subsidiary and any employee benefit plan sponsored or
maintained by the Corporation or any subsidiary (including any trustee of such
plan acting as trustee), directly or indirectly, becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act) of securities of the
Corporation representing at least forty percent (40%) of the combined voting
power of the Corporation's then outstanding securities; (2) the stockholders of
the Corporation approve a merger, consolidation, recapitalization or
reorganization of the Corporation, or the consummation of any such transactions
if stockholder approval is not obtained, other than any such transaction which
would result in at least sixty percent (60%) of the total voting power
represented by the voting securities of the Corporation or the surviving entity
outstanding immediately prior to such transaction being beneficially owned by
persons who together beneficially owned at least eighty percent (80%) of the
combined voting power of the securities of the Corporation outstanding
immediately prior to such transaction, provided that for purposes of this clause
(2), such continuity of ownership (and preservation of relative voting power)
shall be deemed to be satisfied if the failure to meet such sixty percent (60%)
threshold is due solely to the acquisition of voting securities by an employee
benefit plan of the Corporation or such surviving entity; (3) the stockholders
of the Corporation approve a plan of complete liquidation of the Corporation or
an agreement for the sale or disposition by the Corporation of all or
substantially all of the its assets (or any transaction having a similar
effect); or (4) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board of Directors of the
Corporation, together with any new director (other than a director designated by
a person who has entered into an agreement with the Corporation to effect a
transaction described in clause (1), (2), or (3) of this paragraph) whose
election by the Board of Directors or nomination for election by the
Corporation's stockholders was approved by a vote of at least two-thirds (2/3)
of the directors then still in office who either were directors at the beginning
of the period or whose election of nomination for election was previously so
approved, cease for any reason to constitute a majority of the Board.
10. Registration Rights.
(a) Demand Registration. In the event that the Corporation shall receive
from the holder or holders of at least fifty-one percent (51%) of the Series B
Preferred Stock (the "Initiating Holders") a written request that the
Corporation effect a registration under the Securities Act of Registrable
Securities (as hereinafter defined), the Corporation shall: (i) promptly give
written notice of the proposed registration, qualification or compliance to all
of the other holders; (ii) as soon as practicable, use its best efforts to cause
to be declared effective a registration statement sufficient to permit the
public offering and resale, through the facilities of all securities exchanges
and the over-the-counter markets on which the Corporation's securities are
traded, of the Registrable Securities specified in such request and the
Registrable Securities of any holder or holder joining in such request as are
specified in a written request received by the Corporation within twenty (20)
days after receipt by the holders of written notice from the Corporation; and
(iii) use its best efforts to cause the Registrable Securities so registered to
be registered or qualified for sale under the securities or blue sky laws of
such jurisdictions as the holder of the Registrable Securities included in such
registration statement may reasonably request. As used herein, "Registrable
Securities" shall mean the Common Stock issuable upon conversion of the Series B
Preferred Stock, if any, which has not been previously sold pursuant to a
registration statement or Rule 144 under the Securities Act of 1933, as amended
(the "Act"). Notwithstanding the foregoing, the Corporation shall not be
obligated to take any action to effect any registration, qualification or
compliance pursuant to this subsection 10(a):
(A) in any particular jurisdiction in which the Corporation would be
required to qualify to do business and in which it is not otherwise required to
qualify to do business;
(B) in any particular jurisdiction in which the Corporation would be
required to execute a general consent to service of process, unless the
Corporation is already subject to service in such jurisdiction and except as may
be required by the Securities Act;
(C) within three (3) months following a registration effected by the
Corporation pursuant to subsection 10(b) hereof; or
(D) after the Corporation has effected three (3) such registrations
pursuant to this subsection 10(a), and such registrations have been declared or
ordered effective.
In the event that a request for registration is made pursuant to this
subsection 10(a) but the Corporation is not obligated to effect such requested
registration by virtue of the foregoing clauses (A) through (C), such request
shall not be deemed to be a demand for registration for purposes of this
subsection. Subject to the foregoing clauses (A) through (D), the Corporation
shall prepare and file a registration statement covering the Registrable
Securities so requested to be registered as soon as practicable after receipt of
a written request or requests from the Initiating Holders; provided, however,
that if the Corporation shall furnish to the Initiating Holders a certificate
signed by the Chairman of the Board of the Corporation stating that, in the good
faith judgment of the Board of Directors of the Corporation, it would be
materially detrimental to the Corporation and its stockholders for such
Registration Statement to be filed and it is therefore essential to defer the
filing of such Registration Statement, the Corporation shall have the right to
defer such filing sixty (60) days after receipt of the request of the Initiating
Holders (provided that the Corporation shall not utilize the right set forth in
this sentence more than once in any 12-month period).
(b) Piggy-Back Registration. If the Corporation at any time proposes to
file a registration statement with respect to any class of equity securities of
the Corporation, whether for its own account (other than in connection with the
registration statement contemplated by subsection 10(a) hereof or a registration
statement on Form S-8 or any successor or substantially similar form) or for the
account of a holder of securities of the Corporation pursuant to registration
rights granted by the Corporation, other than for the registration of securities
for sale on a continuous or delayed basis pursuant to Rule 415, then the
Corporation shall: (i) promptly give to each holder of Series B Preferred Stock
written notice thereof at least ten (10) days before the anticipated initial
filing date of any such registration statement, and such notice shall offer to
all holders of Series B Preferred Stock the opportunity to have any or all of
the Registrable Securities held by such holders included in such registration
statement; and (ii) include in such registration statement (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests to be included therein, made within twenty (20) days after receipt
of such written notice from the Corporation, by any holder. Each holder of
Series B Preferred Stock shall be entitled to have its Registrable Securities
included in an unlimited number of registrations pursuant to this subsection
10(b).
(c) Registration on Form S-3. In the event that the Corporation shall
receive from the Initiating Holders a written request that the Corporation file
a registration statement on Form S-3 (or any successor form to Form S-3) for a
public offering of shares of the Registrable Securities, and the Corporation is
a registrant entitled to use Form S-3 to register the Registrable Securities for
such an offering, the Corporation shall use its best efforts to cause such
Registrable Securities to be registered for the offering on such form and to
cause such Registrable Securities to be qualified in such jurisdictions as the
holder or holders may reasonable request. The Corporation shall use its
reasonable best efforts to make itself eligible to use Form S-3 and to maintain
such eligibility for so long as the Series B Preferred Stock shall be
outstanding. A request for registration on Form S-3 (or any successor form
thereto) in compliance with this subsection 10(c) shall not count as one of the
three (3) registration statements contemplated by subsection 10(a) hereof.
Notwithstanding the foregoing, the Corporation shall not be obligated to take
any action to effect any registration, qualification or compliance pursuant to
this subsection 10(c):
(A) in any particular jurisdiction in which the Corporation would be
required to qualify to do business and in which it is not otherwise required to
qualify to do business;
(B) in any particular jurisdiction in which the Corporation would be
required to execute a general consent to service of process, unless the
Corporation is already subject to service in such jurisdiction and except as may
be required by the Securities Act;
(C) within three (3) months following a registration effected by the
Corporation pursuant to subsection 10(b) hereof; or
(D) after the Corporation has effected three (3) such registrations
pursuant to this subsection 10(c), and such registrations have been declared or
ordered effective.
Subject to the foregoing clauses (A) through (D), the Corporation shall
prepare and file a registration statement covering the Registrable Securities so
requested to be registered as soon as practicable after receipt of a written
request or requests from the Initiating Holders; provided, however, that if the
Corporation shall furnish to the Initiating Holders a certificate signed by the
Chairman of the Board of the Corporation stating that, in the good faith
judgment of the Board of Directors of the Corporation, it would be materially
detrimental to the Corporation and its stockholders for such Registration
Statement to be filed and it is therefore essential to defer the filing of such
Registration Statement, the Corporation shall have the right to defer such
filing sixty (60) days after receipt of the request of the Initiating Holders
(provided that the Corporation shall not utilize the right set forth in this
sentence more than once in any 12-month period).
(d) Obligation to Maintain Effectiveness. The Corporation shall use its
best efforts to keep effective any registration or qualification contemplated
hereunder and shall from time to time amend or supplement each applicable
registration statement, preliminary prospectus, final prospectus, application,
document, and communication for such period of time as shall be required to
permit the holder of the Registrable Securities included therein to complete the
offer and sale of the Registrable Securities covered thereby. The Corporation
shall in no event be required to keep any such registration or qualification in
effect for a period in excess of six (6) months from the date on which the
holder is first free to sell such Registrable Securities taking into account any
lock-up agreed to by the Holder; provided, however, that, if the Corporation is
required to keep any such registration or qualification in effect with respect
to securities other than the Registrable Securities beyond such period, the
Corporation shall keep such registration or qualification in effect as it
relates to the Registrable Securities for so long as such registration or
qualification remains or is required to remain in effect in respect of such
other securities. The Corporation shall in no event be required to keep any such
registration or qualification in effect for a period beyond the earlier of the
date that all the Registrable Securities have been sold pursuant to such
registration statement and the date the holders thereof receive an opinion of
counsel to the Corporation that they may sell such Registrable Securities under
Rule 144 under the Act.
(e) Provision of Registration Statement. In the event of a registration
pursuant to the provisions of this Section 10, the Corporation shall furnish to
the holder of the Registrable Securities included therein such reasonable number
of copies of the registration statement and of each amendment and supplement
thereto (in each case, including all exhibits), such reasonable number of copies
of each prospectus contained in such registration statement and each supplement
or amendment thereto (including each preliminary prospectus), all of which shall
conform to the requirements of the Act and the rules and regulations thereunder,
and such other documents, as the holder of the Registrable Securities included
therein may reasonably request to facilitate the disposition of the Registrable
Securities included in such registration.
(f) Opinion of Counsel. In the event of a registration pursuant to the
provisions of this Section 10, the Corporation shall furnish the holders of
Registrable Securities included therein with an opinion of its counsel
(reasonably acceptable to such holders) to the effect that (i) the registration
statement has become effective under the Act and no order suspending the
effectiveness of the registration statement, preventing or suspending the use of
the registration statement, any preliminary prospectus, any final prospectus, or
any amendment or supplement thereto has been issued, nor to the best knowledge
of such counsel has the Commission or any securities or blue sky authority of
any jurisdiction instituted or threatened to institute any proceedings with
respect to such an order, (ii) each document, if any, incorporated by reference
in the registration statement and the prospectus included therein (except for
financial statements and related schedules, as to which such counsel need
express no opinion) complied as to form when filed with the Commission in all
material respects with the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations of the Commission thereunder, and
(iii) the registration statement and the prospectus included therein and any
supplements or amendments thereto (except for financial statements and related
schedules, as to which such counsel need express no opinion) comply as to form
in all material respects with the Act and the rules and regulations of the
Commission thereunder. In addition, such counsel shall state that it has
participated in conferences with officers and other representatives of the
Corporation, and representatives of independent accountants for the Corporation,
at which conferences such counsel made inquiries of such officers,
representatives and accountants, and discussed the contents of the preliminary
prospectus, the registration statement, the prospectus and related matters and,
although such counsel is not passing and does not assume any responsibility for
the accuracy, completeness or fairness, the statements contained in the
preliminary prospectus, the registration statement and the prospectus, on the
basis of the foregoing, no facts have come to the attention of such counsel
which lead it to believe that either the registration statement or any amendment
thereto, at the time such registration statement or amendment became effective,
or the preliminary prospectus or prospectus or amendment or any supplement
thereto, as of the date of such opinion, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading (it being understood
that such counsel need express no opinion with respect to the financial
statements and schedules and other financial and statistical data included in
the preliminary prospectus, the registration statement, or prospectus). The
Corporation shall also furnish to the holders of the Registrable Securities
included in such registration statement a cold comfort letter from the
independent certified public accountants of the Corporation in customary form
and substance.
(g) Indemnity and Contribution. In the event of a registration pursuant
to the provision of this Section 10, the Corporation and the holder of the
Registrable Securities included therein shall enter into a cross-indemnity
agreement and a contribution agreement, each in customary form, with each
underwriter, if any, and, if requested, enter into an underwriting agreement
containing conventional representations, warranties, allocation of expenses, and
customary closing conditions, including, without limitation, opinions of counsel
and accountants' cold comfort letters, with any underwriter who acquires any
Registrable Securities.
(h) Rule 144 Requirements. The Corporation agrees that, from the date
hereof and until all the Registrable Securities have been sold under a
registration statement or pursuant to Rule 144 under the Act, it shall keep
current in filing all reports, statements and other materials required to be
filed with the Commission to permit holders of the Registrable Securities to
sell such securities under Rule 144.
(i) No Grants of Senior Rights. Until such time as the Corporation shall
have fully performed its obligation under this Section 10, except for rights
granted prior to the date hereof or rights of holders of Registrable Securities,
the Corporation will not grant to any persons the right to request the
Corporation to register any securities of the Corporation without the written
consent of the holders of the Registrable Securities, provided that the
Corporation may grant such registration rights to other persons so long as such
rights are pari passu or subordinate to the rights of the holders of the
Registrable Securities.
(j) Indemnification by Corporation. Subject to the conditions set forth
below, the Corporation agrees to indemnify and hold harmless the holder of
Registrable Securities included in any registration, its officers, directors,
partners, employees, agents, and counsel, and each person, if any, who controls
any such person within the meaning of Section 15 of the Act or Section 20(a) of
the Exchange Act, from and against any and all loss, liability, charge, claim,
damage, and expense whatsoever (which shall include, for all purposes of this
Section 10, without limitation, reasonable attorneys' fees and any and all
expense whatsoever incurred in investigating, preparing, or defending against
any litigation, commenced or threatened, or any claim whatsoever, and any and
all amounts paid in settlement of any claim or litigation), as and when
incurred, arising out of, based upon, or in connection with (i) any untrue
statement or alleged untrue statement of a material fact contained (A) in any
registration statement, preliminary prospectus, or final prospectus (as from
time to time amended and supplemented), or any amendment or supplement thereto,
relating to the sale of any of the Registrable Securities, or (B) in any
application or other document or communication (in this Section 10 collectively
called an "application") executed by or on behalf of the Corporation or based
upon written information furnished by or on behalf of the Corporation filed in
any jurisdiction in order to register or qualify any of the Registrable
Securities under the securities or blue sky laws thereof or filed with the
Commission or any securities exchange; or any omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, unless such statement or omission was made in
reliance upon and in conformity with written information furnished to the
Corporation with respect to the holder of Registrable Securities included in any
registration statement by or on behalf of such person expressly for inclusion in
any registration statement, preliminary prospectus, or final prospectus, or any
amendment or supplement thereto, or in any application, as the case may be, or
(ii) any breach of any representation, warranty, covenant, or agreement of the
Corporation contained in this Certificate of Designation or in the Subscription
Agreement pursuant to which the Series B Preferred Stock is issued. The
foregoing agreement to indemnify shall be in addition to any liability the
Corporation may otherwise have, including liabilities arising pursuant to this
Certificate of Designation.
If any action is brought against the holder of Registrable Securities
included in any registration statement or any of its officers, directors,
partners, employees, agents, or counsel, or any controlling persons of such
person (an "indemnified party") in respect of which indemnity may be sought
against the Corporation pursuant to this Section, such indemnified party or
parties shall promptly notify the Corporation in writing of the institution of
such action (but the failure so to notify shall not relieve the Corporation from
any liability under this subsection 10(j) unless the Corporation shall have been
materially prejudiced by such failure, and shall not relieve the Corporation
from any liability other than pursuant to this subsection 10(j)) and the
Corporation shall promptly assume the defense of such action, including the
employment of counsel (which counsel shall be reasonably satisfactory to such
indemnified party or parties) and payment of expenses. Such indemnified party or
parties shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless the employment of such counsel shall have
been authorized in writing by the Corporation in connection with the defense of
such action or the Corporation shall not have employed counsel reasonably
satisfactory to such indemnified party or parties to have charge of the defense
of such action or such indemnified party or parties shall have reasonably
concluded that there may be one or more legal defenses available to it or them
or to other indemnified parties which are different from or additional to those
available to the Corporation, in any of which events such fees and expenses
shall be borne by the Corporation and the Corporation shall not have the right
to direct the defense of such action on behalf of the indemnified party or
parties. Anything in this Section 10 to the contrary notwithstanding, the
Corporation shall not be liable for any settlement of any such claim or action
effected without its written consent, which shall not be unreasonably withheld.
The Corporation agrees promptly to notify the holder of Registrable Securities
of the commencement of any litigation or proceedings against the Corporation or
any of its officers or directors in connection with the sale of any Registrable
Securities or any preliminary prospectus, prospectus, registration statement, or
amendment or supplement thereto, or any application relating to any sale of any
Registrable Securities.
(k) Indemnification by Holder. The holder of Registrable Securities
agrees to indemnify and hold harmless the Corporation, each director of the
Corporation, each officer of the Corporation who shall have signed any
registration statement covering Registrable Securities held by the holder, each
other person, if any, who controls the Corporation within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, and its or their respective
counsel, to the same extent as the foregoing indemnity from the Corporation to
the holder in subsection 10(j), but only with respect to statements or
omissions, if any, made in any registration statement, preliminary prospectus,
or final prospectus (as from time to time amended and supplemented), or any
amendment or supplement thereto, or in any application, in reliance upon and in
conformity with written information furnished to the Corporation with respect to
the holder of Registrable Securities by or on behalf of the holder thereof
expressly for inclusion in any such registration statement, preliminary
prospectus, or final prospectus, or any amendment or supplement thereto, or in
any application, as the case may be. If any action shall be brought against the
Corporation or any other person so indemnified based on any such registration
statement, preliminary prospectus, or final prospectus, or any amendment or
supplement thereto, or in any application, and in respect of which indemnity may
be sought against the holder pursuant to this subsection 10(k), the holder shall
have the rights and duties given to the Corporation, and the Corporation and
each other person so indemnified shall have the rights and duties given to the
indemnified parties, by the provisions of subsection 10(j).
(l) Contribution. To provide for just and equitable contribution, if (i)
an indemnified party makes a claim for indemnification pursuant to subsection
10(j) or 10(k) (subject to the limitations thereof) but it is found in a final
judicial determination, not subject to further appeal, that such indemnification
may not be enforced in such case, even though this Certificate of Designation
expressly provides for indemnification in such case, or (ii) any indemnified or
indemnifying party seeks contribution under the Act, the Exchange Act or
otherwise, then the Corporation (including for this purpose any contribution
made by or on behalf of any director of the Corporation, any officer of the
Corporation who signed any such registration statement, any controlling person
of the Corporation, and its or their respective counsel), as one entity, and the
holder of the Registrable Securities included in such registration in the
aggregate (including for this purpose any contribution by or on behalf of an
indemnified party), as a second entity, shall contribute to the losses,
liabilities, claims, damages, and expenses whatsoever to which any of them may
be subject on the basis of relevant equitable considerations such as the
relative fault of the Corporation and the holder in connection with the facts
which resulted in such losses, liabilities, claims, damages, and expenses. The
relative fault, in the case of an untrue statement, alleged untrue statement,
omission, or alleged omission, shall be determined by, among other things,
whether such statement, alleged statement, omission, or alleged omission relates
to information supplied by the Corporation or by the holder, and the parties'
relative intent, knowledge, access to information, and opportunity to correct or
prevent such statement, alleged statement, omission, or alleged omission. The
Corporation and the holder agree that it would be unjust and inequitable if the
respective obligations of the Corporation and the holder for contribution were
determined by pro rata or per capita allocation of the aggregate losses,
liabilities, claims, damages, and expenses (even if the holder and the other
indemnified parties were treated as one entity for such purpose) or by any other
method of allocation that does not reflect the equitable considerations referred
to in this subsection 10(l). No person guilty of a fraudulent misrepresentation
(within the meaning of subsection 11(f) of the Act) shall be entitled to
contribution from any person who is not guilty of such fraudulent
representation. For purposes of this subsection 10(l), each person, if any, who
controls the holder within the meaning of Section 15 of the Act or Section 20(a)
of the Exchange Act and each officer, director, partner, employee, agent, and
counsel of the holder or control person shall have the same rights to
contribution as the holder or control person and each person, if any, who
controls the Corporation within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, each officer of the Corporation who shall have signed
any such registration statement, each director of the Corporation, and its or
their respective counsel shall have the same rights to contribution as the
Corporation, subject in each case to the provisions of this subsection 10(l).
Anything in this subsection 10(l) to the contrary notwithstanding, no party
shall be liable for contribution with respect to the settlement of any claim or
action effected without its written consent. This subsection 10(l) is intended
to supersede any right to contribution under the Act, the Exchange Act or
otherwise.
11. Preemptive Rights. The Series B Preferred Stock is not entitled to any
preemptive or subscription rights in respect of any securities of the
Corporation.
12. Issuance of Additional Series B Preferred Stock. Other than the shares
of Series B Preferred Stock (i) issued on the date of the Subscription Agreement
pursuant to which the Series B Preferred Stock is issued or (ii) distributed to
the holders of Series B Preferred Stock pursuant to the provisions of Section 2
hereof, the Corporation may not at any time issue any additional shares of
Series B Preferred Stock.
13. Status of Acquired Shares. Shares of Series B Preferred Stock redeemed
by the Corporation, received upon conversion or otherwise acquired by the
Corporation will be restored to the status of authorized and unissued shares of
Preferred Stock, without designation as to series, and may thereafter be issued,
but not as shares of Series B Preferred Stock.
14. Replacement Certificates. Upon receipt by the Corporation of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
any certificate representing shares of Series B Preferred Stock, and, in the
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Corporation of all reasonable
expenses incidental thereto, and upon surrender and cancellation of such
certificate, if mutilated, the Corporation will make and deliver a replacement
certificate of like tenor. Further, if the holder exercises the conversion
rights granted hereunder in part but not in whole, the Corporation agrees that
it will deliver to the holder a replacement certificate which will entitle the
holder thereof to convert such certificate into the number of shares of Common
Stock that remain as yet unconverted on the terms and conditions set forth
herein.
15. Notice of Certain Corporate Actions. In the event that the Corporation
shall at any time propose to: (a) pay any stock dividend to the holders of its
Common Stock or to make any other distribution to the holders of its Common
Stock; (b) offer to the holders of its Common Stock rights, warrants or options
to subscribe for or to purchase any additional shares of Common Stock or shares
of stock of any class or any other securities, rights or options; (c) effect any
reclassification or change of its outstanding shares of Common Stock; (d) effect
any consolidation, merger or sale, transfer or other disposition of all or
substantially all of the assets of the Corporation; (e) effect the liquidation,
dissolution or winding-up of the Corporation; or (f) take any other action which
would cause an adjustment to the Conversion Price, then, in each such case, the
Corporation shall give written notice thereof, by certified mail, postage
prepaid, to the holder of Series B Preferred Stock at the holder's address as it
shall appear in the stock ledger of the Corporation, mailed at least twenty (20)
days prior to (i) the date as of which the holders of record of shares of Common
Stock to be entitled to receive any such dividend, distribution, rights,
warrants, or other securities are to be determined, (ii) the date on which any
such reclassification, change of outstanding shares of Common Stock,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up is expected to become effective, and the date as of
which it is expected that holders of record of shares of Common Stock shall be
entitled to exchange their shares for securities or other property, if any,
deliverable upon such reclassification, change of outstanding shares,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up, or (iii) the date of such other action which would
require an adjustment to the Conversion Price.
16. Severability of Provisions. Whenever possible, each provision hereof
shall be interpreted in a manner as to be effective and valid under applicable
law, but if any provision hereof is held to be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating or otherwise adversely affecting
the remaining provisions hereof. If a court of competent jurisdiction should
determine that a provision hereof would be valid or enforceable if a period of
time were extended or shortened or a particular percentage were increased or
decreased, then such court may make such change as shall be necessary to render
the provision in question effective and valid under applicable law.
17. Choice of Law, Etc. This Certificate shall be governed by and construed
under the laws of the State of New York, without regard to principles of
conflicts of law or choice of law thereof. The Corporation hereby (i)
irrevocably submits to the jurisdiction of the United States District Court for
the Southern District of New York and the courts of the State of New York in the
Borough of Manhattan for the purposes of any suit, action or proceeding arising
out of or relating to this Certificate and (ii) waives, and agrees not to assert
in any such suit, action or proceeding, any claim that is not personally subject
to the jurisdiction of such court, that the suit, action or proceeding is
brought in an inconvenient forum, or that the venue of the suit, action or
proceeding is improper. The Corporation consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to the Corporation at
its principal office (or such other office or agency of the Corporation as the
Corporation may designate by notice in writing to the holders of Series B
Preferred Stock) and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing in this Section 17
shall affect or limit any right to serve process in any other manner permitted
by law.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed and subscribed this
Certificate of Designation and do affirm the foregoing as true under the
penalties of perjury this ___ day of ________________, 2000.
___________________________________________
Name:
Title:
Attest:
______________________________________
Name:
Title:
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT, the ("Agreement") dated as of March 4, 1999,
between Moto Guzzi Corporation, formerly known as North Atlantic Acquisition
Corp. (the "Employer"), a Delaware corporation having its executive offices at
350 Park Avenue, New York, New York 10017 and Mark S. Hauser, an individual
residing at 83 Garden Road, Scarsdale, NY 10583 ("Employee").
WHEREAS, pursuant to the terms of an Agreement and Plan of Merger and
Reorganization dated as of August 18, 1998, as amended (the "Merger Agreement"),
Employer has agreed to merge with Moto Guzzi Corp. ("Merger") with the Employer
as the surviving corporation resulting from the Merger; and
WHEREAS, the Employer desires to employ the Employee as its Executive
Chairman; and
WHEREAS, the Employee desires to be employed by the Employer in the
aforesaid capacity; and
WHEREAS, the Employer and Employee desire to set forth in writing the terms
and conditions of their agreements and understandings.
NOW, THEREFORE, in consideration of the foregoing premises, of the mutual
covenants hereinafter contained, and of other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto, intending legally to be bound hereby, agree as follows:
1. EMPLOYMENT.
(1) The Employee shall serve the Employer faithfully, diligently and
to the best of his ability under the direction of the Board of Directors of the
Employer and agrees to devote such portion of his business time, energies and
skill to his duties hereunder and to the business and affairs of the Employer as
are reasonably necessary to perform the tasks and responsibilities assumed.
Notwithstanding the foregoing, nothing herein shall be construed to limit the
ability or right of Employee to engage or participate in any other business or
professional activities during the Term provided same do not, individually or in
the aggregate, materially interfere with the Employee's obligations to the
Employer. Employer successfully acknowledges that Employee is a principal of
Tamarix Investors LDC and is an executive officer of one or more entities
affiliated therewith, including Tamarix Capital Corporation ("TCC"), and is the
chief executive officer of Trident Rowan Group, Inc., and that Employee has and
will continue to have substantial duties therewith and will be required to
devote significant amounts of time and attention to such duties during the Term.
Employer agrees that the fulfillment of such duties does not violate this
agreement.
(2) The principal duties of the Employee shall be to serve as the
Employer's Executive Chairman and in such capacity, to render the services
normally associated with the office of the chairman of the board of directors
and to render such other services as are consistent with his position and office
as the Board of Directors of the Employer may from time to time reasonably
require. Employee shall also have the authority normally associated with the
office of president, including the authority to execute documents and other
instruments on behalf of the Employer. Employee shall not, however, have the
responsibilities normally associated with the office of the chief executive
officer of a corporation.
2. TERM OF AGREEMENT. Employment under this agreement shall commence on the
effective date of the Merger (the "Effective Date"). The initial term of
employment shall end at the close of business on the day preceding the third
anniversary of the Effective Date (the "Initial Term"). The Initial
<PAGE>
Term shall be extended for successive twelve month periods on a rolling basis
unless notice to terminate is received by either party prior to ninety days
before the termination of the then current term of this agreement. Each twelve
month period commencing on the third anniversary hereof shall be a "Renewal
Year." The Initial Term together with all Renewal Years shall be referred to as
the "Term."
3. COMPENSATION.
(1) The Employer shall pay the Employee for all services rendered a
salary of $90,000 per year, payable in accordance with Employer's customary
payroll methods. Salary payments shall be subject to withholding and other
applicable taxes. Employee shall be eligible to receive such bonus compensation
as the Board of Directors may determine to award in its discretion, including in
respect of achieving annual or other performance goals or having responsibility
for completing a material individual transaction, result or event. Employer
shall also promptly pay TCC the sum of $9,000 on the first day of each month in
exchange for TCC enabling Employer to use TCC's facilities as its corporate
office and for enabling Employee to perform his duties on behalf of the Employer
from TCC's facilities.
(2) The Employer shall grant to the Employee on the Effective Date and
option to purchase an aggregate of 150,000 shares of Employer's Class A Common
Stock, under and pursuant to Employer's 1998 Stock Option Plan ("Plan") and
pursuant to a Stock Option Grant Letter dated March 4, 1999 between the Employer
and the Employee (the "Stock Option Agreement"). In addition, the Employee shall
be eligible to receive grants of additional options under the Plan to purchase
Common Stock.
4. BENEFITS.
(1) During the Term, Employee shall be entitled to participate in all
pension, retirement and profit sharing plans, all medical, hospital, major
medical, life insurance and statutory disability coverage plans and all other
employee benefit plans which the Employer may from time to time make generally
available to other executive employees of the Employer ("Employee Benefit
Plans"), on at least the same basis as such plan or plans and benefits are made
generally available to such individuals, subject to the provisions of such
plans.
(2) The Employer agrees to reimburse Employee in full for all
reasonable and necessary business, entertainment and travel expenses incurred or
expended in connection with the performance of his duties hereunder, such
reimbursement to be made in accordance with corporate policies and procedures
with respect thereto from time to time adopted by the Employer for executive
personnel of the Employer.
(3) For each calendar year during the Term, the Employee shall be
entitled to six (6) weeks of paid vacation and shall otherwise enjoy and be
bound by the Employer's standard policies, as amended from time to time,
regarding accrual and utilization of paid vacation time.
5. TERMINATION. This agreement shall be terminable prior to expiration only
as follows:
(1) BY THE EMPLOYER. The Employer may terminate this agreement if
Employee: (i) is convicted of a crime involving larceny, embezzlement, bribery
or acts of moral turpitude; (ii) is consistently, habitually or flagrantly
derelict in the performance of his duties; or (iii) is repeatedly intoxicated or
under the influence of alcohol or drugs (other than drugs prescribed for him by
a licensed physician); or (iv) engages in actions which expose the Employer to
public ridicule; or (v) knowingly engages in actions intended by Employee to
result, and which in fact result, in substantial damage to the Employer; or (vi)
has become permanently disabled, in the good faith opinion of a physician
appointed by
<PAGE>
the Employer, from performing his duties and in such physician's opinion, will
likely be unable substantially to perform such duties for the following six
months. Termination pursuant to clauses (ii), (iii), (iv) or (v) of this
subparagraph (a) shall not take effect unless Employee has failed to cure any
violation thereof within 30 days of notice by the Employer setting forth the
specific facts constituting such violation. Upon any termination by Employer
other than as permitted hereby, all compensation otherwise payable to Employee
for the duration of the Term shall immediately become due and payable.
(2) BY EMPLOYEE. Employee may terminate this agreement if the Employer
violates any material provision of this agreement, which violation is not cured
within 30 days of the giving by the Employee of notice thereof. Upon any such
termination by Employee, all compensation otherwise payable to Employee for the
duration of the Term shall immediately become due and payable.
6. CONFIDENTIALITY. The Employee recognizes that the services to be
performed by him for the Employer may require the disclosure to Employee of
confidential information and trade secrets concerning the operations of the
Employer and its affiliates. Accordingly, the Employee agrees that he will not,
except with the prior written consent of the Employer's Board of Directors, or
as may be required by law, directly or indirectly, disclose during the Term or
any time thereafter any secret or confidential information that he has learned
by reason of his association with the Employer or use any such information to
the detriment of the Employer so long as such confidential information or trade
secrets have not been voluntarily disclosed by the Employer without restriction,
or are not otherwise in the public domain. If the Employee shall be required by
law to disclose any such confidential information, the Employee will, to the
extent reasonably practicable, notify and consult with the Employer prior to any
such disclosure.
7. NON-SOLICITATION; NON-COMPETITION. Employee agrees not to solicit or
hire, either directly or indirectly, any then-current employee, officer or
director of the Employer, or to engage in or render services (including, without
limitation, research, development, manufacturing, marketing or sales) in any
capacity, either directly or indirectly, to any person, firm, corporation or
other entity engaged in the motorcycle industry or in businesses related
thereto, in competition with the business of the Employer, for so long as this
agreement remains in effect.
8. INDEMNIFICATION. The Employer hereby agrees to indemnify and hold
harmless Employee as an officer and director of the Employer to the fullest
extent permitted by applicable law. This provision shall survive the termination
of this agreement with respect to events occurring prior thereto.
9. MISCELLANEOUS.
(1) Any and all notices or other communications required to be given
under this agreement shall be deemed to have been duly given on the date of
delivery, if delivered in person or by confirmed facsimile transmission, or
three days after mailing, if mailed within the continental United States,
postage prepaid, by registered or certified mail, to the party entitled to
receive same, at the address set forth below for such party, or to such other
address or addresses as any party hereto may specify in a notice given in
conformity with the provisions of this Section 9(a):
To Employer: Moto Guzzi Corporation
(formerly North Atlantic Acquisition Corp.)
350 Park Avenue
New York, New York 10017
<PAGE>
With a copy to: David Lerner, Esq.
Morrison Cohen Singer & Weinstein, LLP
750 Lexington Avenue
New York, New York 10022
To Employee: Mark S. Hauser
83 Garden Road
Scarsdale, NY 10583
(2) This agreement constitutes the entire agreement between the
parties hereto with respect to the matters herein provided, and this agreement
cancels and supersedes any or all prior agreements and understandings, written
or oral, between the parties with respect to such matters. No modification or
waiver of any provision hereof shall be effective unless in writing and signed
by the parties hereto.
(3) The rights and obligations of any party hereunder may not be
assigned or transferred to any third party without the prior written consent of
the other party hereto.
(4) If any provision of this agreement or application thereof to
anyone or under any circumstances is adjudicated to be invalid or unenforceable
in any jurisdiction, such invalidity or unenforceability shall not affect any
other provision or application of this agreement which can be given affect
without the invalid or unenforceable provision or application and shall not
invalidate or render unenforceable such provision or application in any other
jurisdiction.
(5) The waiver by either party of a breach of any provision of this
agreement by the other party shall not operate or be construed as a waiver of
any subsequent breach by such party. No waiver shall be valid unless in writing
and signed by the party against whom enforcement of the waiver is sought.
(6) This agreement may be executed in several counterparts, each of
which is an original and all of which shall constitute one instrument. It shall
not be necessary in making proof of this agreement or any counterpart hereof to
produce or account for any of the other counterparts.
(7) The captions and headings contained in this agreement are for
convenience only and shall not be construed as a part of the agreement.
(8) The validity, interpretation, construction, performance and
enforcement of this agreement shall be governed by the substantive law of the
State of New York, without giving effect to the conflicts of law provisions
thereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed or caused their duly
authorized agents to sign this Agreement as of the date first above written.
MOTO GUZZI CORPORATION
(formerly North Atlantic Acquisition Corp.)
By:
--------------------------------------------
Name: --------------------------------------
Title:--------------------------------------
/S/ MARK S. HAUSER
------------------
Mark S. Hauser
<PAGE>
EXHIBIT 10.2
CONSULTING AGREEMENT
This CONSULTING AGREEMENT (the "AGREEMENT"), dated as of March ___, 1999,
between Moto Guzzi Corporation, formerly known as North Atlantic Acquisition
Corp. (the "COMPANY"), a Delaware corporation having its executive offices at
350 Park Avenue, New York, New York 10017, and Emanuel Arbib, an individual
residing at ___________________________________________ (the "CONSULTANT").
WHEREAS, pursuant to the terms of an Agreement and Plan of Merger and
Reorganization dated as of August 18, 1998, as amended (the "MERGER AGREEMENT"),
Company has agreed to merge with Moto Guzzi Corp. ("MERGER") with the Company as
the surviving corporation resulting from the Merger; and
WHEREAS, the Company desires to engage the Consultant to render the
services described herein; and
WHEREAS, the Consultant desires to be engaged by the Company to perform
such services; and
WHEREAS, the Company and the Consultant desire to set forth in writing the
terms and conditions of their agreements and understandings.
NOW, THEREFORE, in consideration of the foregoing premises, of the mutual
covenants hereinafter contained, and of other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto, intending legally to be bound hereby, agree as follows:
1. ENGAGEMENT. The Consultant is hereby engaged to provide legal, advisory
and consulting services in connection with the business and operations of the
Company. The Consultant shall, during the Term (as hereinafter defined), be
deemed to be an independent contractor. Consultant shall not be permitted to
bind the Company or enter into any agreements (oral or written) on behalf of the
Company. The Consultant shall be permitted to engage in any business and perform
any services for his own account provided that Consultant will not, directly or
indirectly, engage or participate in the motorcycle industry or businesses
related thereto. The Consultant shall render services to the Company faithfully,
diligently and to the best of his ability under the supervision of the Board of
Directors or any appropriate officer of the Company. Consultant agrees to devote
such portion of his business time, energies and skill as are reasonably
necessary to perform the services agreed to be rendered. Notwithstanding the
foregoing, nothing herein shall be construed to limit the ability or right of
the Consultant to engage or participate in any other business or professional
activities during the Term provided same do not, individually or in the
aggregate, materially interfere with the Consultant's obligations to the
Company.
2. TERM OF AGREEMENT. Engagement under this agreement shall commence on the
effective date of the Merger (the "EFFECTIVE DATE"). The initial term of
employment shall end at the close of business on the day preceding the third
anniversary of the Effective Date (the "INITIAL TERM"). The Initial Term shall
be extended for successive twelve month periods on a rolling basis unless notice
to terminate is received by either party prior to ninety days before the
termination of the then current term of this agreement. Each twelve month period
commencing on the third anniversary hereof shall be a "RENEWAL YEAR." The
Initial Term together with all Renewal Years shall be referred to as the "TERM".
<PAGE>
3. COMPENSATION.
(1) In full compensation for all services to be rendered hereunder,
the Company shall pay the Consultant the amount of $30,000 per annum, payable
monthly in arrears, and shall grant to the Consultant on the Effective Date an
option to purchase an aggregate of 30,000 shares of Company's Class A Common
Stock, under and pursuant to Company's 1998 Stock Option Plan ("PLAN") and
pursuant to a Stock Option Grant Letter dated March 4, 1999 between the Company
and the Consultant (the "STOCK OPTION AGREEMENT"). In addition, the Consultant
shall be eligible to receive grants of additional options under the Plan to
purchase Common Stock.
(2) The Consultant's status with respect to the Company is that of an
independent contractor rather than an employee of the Company and it is
understood and agreed that the Company will not withhold any federal, state or
local income, Social Security, unemployment or other taxes on account of
payments made or property delivered to Consultant hereunder, but will remit the
full amount thereof to Consultant and report them on federal tax Form 1099. All
estimated tax payments and employment tax obligations arising from payments
hereunder are agreed to be those of the Consultant.
4. BENEFITS. Consistent with Consultant's status as an independent
contractor with respect to the Company, the Company shall not provide to the
Consultant any insurance, medical, pension or other employee benefits that may
be applicable to employees of the Company.
5. TERMINATION. This agreement shall be terminable prior to expiration only
as follows:
(1) BY THE COMPANY. The Company may terminate this agreement if
Consultant: (i) is convicted of a crime involving larceny, embezzlement, bribery
or acts of moral turpitude; or (ii) is consistently, habitually or flagrantly
derelict in the performance of his duties; or (iii) is repeatedly intoxicated or
under the influence of alcohol or drugs (other than drugs prescribed for him by
a licensed physician); or (iv) engages in actions which expose the Company to
public ridicule; or (v) knowingly engages in actions intended by Consultant to
result, and which in fact result, in substantial damage to the Company; or (vi)
has become permanently disabled, in the good faith opinion of a physician
appointed by the Company, from performing his duties and, in such physician's
opinion, will likely be unable substantially to perform such duties for the
following six months. Termination pursuant to clauses (ii), (iii), (iv) or (v)
of this subparagraph (a) shall not take effect unless Consultant has failed to
cure any violation thereof within 30 days of notice by the Company setting forth
the specific facts constituting such violation.
(2) BY CONSULTANT. Consultant may terminate this agreement if the
Company violates any material provision of this agreement, which violation is
not cured within 30 days of the giving by Consultant of notice thereof.
6. CONFIDENTIALITY. The Consultant recognizes that the services to be
performed by him for the Company may require the disclosure to Consultant of
confidential information and trade secrets concerning the operations of the
Company and its affiliates. Accordingly, the Consultant agrees that he will not,
except with the prior written consent of the Company's Board of Directors, or as
may be required by law, directly or indirectly, disclose during the Term or any
time thereafter any secret or confidential information that he has learned by
reason of her association with the Company or use any such information to the
detriment of the Company so long as such confidential information or trade
secrets have not been voluntarily disclosed by the Company without restriction,
or are not otherwise in the public domain. If the Consultant shall be required
by law to disclose any such confidential information, the Consultant will, to
the extent reasonably practicable, notify and consult with the Company prior to
any such disclosure.
<PAGE>
7. NON-SOLICITATION; NON-COMPETITION. Consultant agrees not to solicit or
hire, either directly or indirectly, any then-current employee, officer or
director of the Company, or to engage in or render services (including, without
limitation, research, development, manufacturing, marketing or sales) in any
capacity, either directly or indirectly, to any person, firm, corporation or
other entity engaged in the motorcycle industry or in businesses related
thereto, in competition with the business of the Company, for so long as this
agreement remains in effect.
8. MISCELLANEOUS.
(1) Any and all notices or other communications required to be given
under this agreement shall be in writing and shall be deemed to have been duly
given on the date of delivery, if delivered in person or by confirmed facsimile
transmission, or three days after mailing, if mailed within the continental
United States, postage prepaid, by registered or certified mail, to the party
entitled to receive same, at the address set forth below for such party, or to
such other address or addresses as any party hereto may specify in a notice
given in conformity with the provisions of this Section 8(a):
To Company: Moto Guzzi Corporation
(formerly North Atlantic Acquisition Corp.)
350 Park Avenue
New York, New York 10017
With a copy to: David Lerner, Esq.
Morrison Cohen Singer & Weinstein, LLP
750 Lexington Avenue
New York, New York 10022
To Consultant: Emanuel Arbib
[Address]
(2) This agreement constitutes the entire agreement between the
parties hereto with respect to the matters herein provided, and this agreement
cancels and supersedes any or all prior agreements and understandings, written
or oral, between the parties with respect to such matters. No modification or
waiver of any provision hereof shall be effective unless in writing and signed
by the parties hereto.
(3) The rights and obligations of any party hereunder may not be
assigned or transferred to any third party without the prior written consent of
the other party hereto.
(4) If any provision of this agreement or application thereof to
anyone or under any circumstances is adjudicated to be invalid or unenforceable
in any jurisdiction, such invalidity or unenforceability shall not affect any
other provision or application of this agreement which can be given affect
without the invalid or unenforceable provision or application and shall not
invalidate or render unenforceable such provision or application in any other
jurisdiction.
(5) The waiver by either party of a breach of any provision of this
agreement by the other party shall not operate or be construed as a waiver of
any subsequent breach by such party. No waiver shall be valid unless in writing
and signed by the party against whom enforcement of the waiver is sought.
(6) This agreement may be executed in several counterparts, each of
which is an original and all of which shall constitute one instrument. It shall
not be necessary in making proof of this agreement or any counterpart hereof to
produce or account for any of the other counterparts.
<PAGE>
(7) The captions and headings contained in this agreement are for
convenience only and shall not be construed as a part of the agreement.
(8) The validity, interpretation, construction, performance and
enforcement of this agreement shall be governed by the substantive law of the
State of New York, without giving effect to the conflicts of law provisions
thereof.
IN WITNESS WHEREOF, the parties hereto have signed or caused their duly
authorized agents to sign this Agreement as of the date first above written.
MOTO GUZZI CORPORATION
(formerly North Atlantic Acquisition Corp.)
By:
--------------------------------------------------
Name:
-------------------------------------------
Title:
-------------------------------------------
/S/ EMANUEL ARBIB
----------------------
Emanuel Arbib
<PAGE>
EXHIBIT 10.3
CONSULTING AGREEMENT
This CONSULTING AGREEMENT (the "AGREEMENT"), dated as of March ___, 1999,
between Moto Guzzi Corporation, formerly known as North Atlantic Acquisition
Corp. (the "COMPANY"), a Delaware corporation having its executive offices at
350 Park Avenue, New York, New York 10017, and Howard E. Chase, an individual
residing at 44 Holland Brook Road, Whitehouse Station, NJ 08899 (the
"CONSULTANT").
WHEREAS, pursuant to the terms of an Agreement and Plan of Merger and
Reorganization dated as of August 18, 1998, as amended (the "MERGER AGREEMENT"),
Company has agreed to merge with Moto Guzzi Corp. ("MERGER") with the Company as
the surviving corporation resulting from the Merger; and
WHEREAS, the Company desires to engage the Consultant to render the
services described herein; and
WHEREAS, the Consultant desires to be engaged by the Company to perform
such services; and
WHEREAS, the Company and the Consultant desire to set forth in writing the
terms and conditions of their agreements and understandings.
NOW, THEREFORE, in consideration of the foregoing premises, of the mutual
covenants hereinafter contained, and of other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto, intending legally to be bound hereby, agree as follows:
1. ENGAGEMENT. The Consultant is hereby engaged as Special Counsel to
provide legal, advisory and consulting services in connection with the business
and operations of the Company. Consultant shall not be permitted to bind the
Company or enter into any agreements (oral or written) on behalf of the Company.
The Consultant shall, during the Term (as hereinafter defined), be deemed to be
an independent contractor. The Consultant shall be permitted to engage in any
business and perform any services for his own account provided that Consultant
will not, directly or indirectly, engage or participate in the motorcycle
industry or businesses related thereto. The Consultant shall render services to
the Company faithfully, diligently and to the best of his ability under the
supervision of the Board of Directors or any appropriate officer of the Company.
Consultant agrees to devote such portion of his business time, energies and
skill as are reasonably necessary to perform the services agreed to be rendered.
Notwithstanding the foregoing, nothing herein shall be construed to limit the
ability or right of the Consultant to engage or participate in any other
business or professional activities during the Term provided same do not,
individually or in the aggregate, materially interfere with the Consultant's
obligations to the Company.
2. TERM OF AGREEMENT. Engagement under this agreement shall commence on the
effective date of the Merger (the "EFFECTIVE DATE"). The initial term of
employment shall end at the close of business on the day preceding the third
anniversary of the Effective Date (the "INITIAL TERM"). The Initial Term shall
be extended for successive twelve month periods on a rolling basis unless notice
to terminate is received by either party prior to ninety days before the
termination of the then current term of this agreement. Each twelve month period
commencing on the third anniversary hereof shall be a "RENEWAL YEAR." The
Initial Term together with all Renewal Years shall be referred to as the "TERM".
<PAGE>
3. COMPENSATION.
(1) In full compensation for all services to be rendered hereunder,
the Company shall pay the Consultant the amount of $60,000 per annum, payable
monthly in arrears. The Company shall additionally promptly reimburse Consultant
for all expenses reasonably incurred by Consultant in rendering his services
hereunder. The Company shall grant to the Consultant on the Effective Date an
option to purchase an aggregate of 45,000 shares of Company's Class A Common
Stock, under and pursuant to Company's 1998 Stock Option Plan ("PLAN") and
pursuant to a Stock Option Grant Letter dated March 4, 1999 between the Company
and the Consultant (the "STOCK OPTION Agreement"). In addition, the Consultant
shall be eligible to receive grants of additional options under the Plan to
purchase Common Stock.
(2) The Consultant's status with respect to the Company is that of an
independent contractor rather than an employee of the Company and it is
understood and agreed that the Company will not withhold any federal, state or
local income, Social Security, unemployment or other taxes on account of
payments made or property delivered to Consultant hereunder, but will remit the
full amount thereof to Consultant and report them on federal tax Form 1099. All
estimated tax payments and employment tax obligations arising from payments
hereunder are agreed to be those of the Consultant.
4. BENEFITS. Consistent with Consultant's status as an independent
contractor with respect to the Company, the Company shall not provide to the
Consultant any insurance, medical, pension or other employee benefits that may
be applicable to employees of the Company.
5. TERMINATION. This agreement shall be terminable prior to expiration only
as follows:
(1) BY THE COMPANY. The Company may terminate this agreement if
Consultant: (i) is convicted of a crime involving larceny, embezzlement, bribery
or acts of moral turpitude; or (ii) is consistently, habitually or flagrantly
derelict in the performance of his duties; or (iii) is repeatedly intoxicated or
under the influence of alcohol or drugs (other than drugs prescribed for him by
a licensed physician); or (iv) engages in actions which expose the Company to
public ridicule; or (v) knowingly engages in actions intended by Consultant to
result, and which in fact result, in substantial damage to the Company; or (vi)
has become permanently disabled, in the good faith opinion of a physician
appointed by the Company, from performing his duties and, in such physician's
opinion, will likely be unable substantially to perform such duties for the
following six months. Termination pursuant to clauses (ii), (iii), (iv) or (v)
of this subparagraph (a) shall not take effect unless Consultant has failed to
cure any violation thereof within 30 days of notice by the Company setting forth
the specific facts constituting such violation.
(2) BY CONSULTANT. Consultant may terminate this agreement if the
Company violates any material provision of this agreement, which violation is
not cured within 30 days of the giving by Consultant of notice thereof.
6. CONFIDENTIALITY. The Consultant recognizes that the services to be
performed by him for the Company may require the disclosure to Consultant of
confidential information and trade secrets concerning the operations of the
Company and its affiliates. Accordingly, the Consultant agrees that he will not,
except with the prior written consent of the Company's Board of Directors, or as
may be required by law, directly or indirectly, disclose during the Term or any
time thereafter any secret or confidential information that he has learned by
reason of her association with the Company or use any such information to the
detriment of the Company so long as such confidential information or trade
secrets have not been voluntarily disclosed by the Company without restriction,
or are not otherwise in the public domain. If the Consultant shall be required
by law to disclose any such confidential
<PAGE>
information, the Consultant will, to the extent reasonably practicable, notify
and consult with the Company prior to any such disclosure.
7. NON-SOLICITATION; NON-COMPETITION. Consultant agrees not to solicit or
hire, either directly or indirectly, any then-current employee, officer or
director of the Company, or to engage in or render services (including, without
limitation, research, development, manufacturing, marketing or sales) in any
capacity, either directly or indirectly, to any person, firm, corporation or
other entity engaged in the motorcycle industry or in businesses related
thereto, in competition with the business of the Company, for so long as this
agreement remains in effect.
8. MISCELLANEOUS.
(1) Any and all notices or other communications required to be given
under this agreement shall be in writing and shall be deemed to have been duly
given on the date of delivery, if delivered in person or by confirmed facsimile
transmission, or three days after mailing, if mailed within the continental
United States, postage prepaid, by registered or certified mail, to the party
entitled to receive same, at the address set forth below for such party, or to
such other address or addresses as any party hereto may specify in a notice
given in conformity with the provisions of this Section 8(a):
To Company: Moto Guzzi Corporation
(formerly North Atlantic Acquisition Corp.)
350 Park Avenue
New York, New York 10017
With a copy to: David Lerner, Esq.
Morrison Cohen Singer & Weinstein, LLP
750 Lexington Avenue
New York, New York 10022
To Consultant: Howard E. Chase, at the address
provided at the top of this agreement.
(2) This agreement constitutes the entire agreement between the
parties hereto with respect to the matters herein provided, and this agreement
cancels and supersedes any or all prior agreements and understandings, written
or oral, between the parties with respect to such matters. No modification or
waiver of any provision hereof shall be effective unless in writing and signed
by the parties hereto.
(3) The rights and obligations of any party hereunder may not be
assigned or transferred to any third party without the prior written consent of
the other party hereto.
(4) If any provision of this agreement or application thereof to
anyone or under any circumstances is adjudicated to be invalid or unenforceable
in any jurisdiction, such invalidity or unenforceability shall not affect any
other provision or application of this agreement which can be given affect
without the invalid or unenforceable provision or application and shall not
invalidate or render unenforceable such provision or application in any other
jurisdiction.
(5) The waiver by either party of a breach of any provision of this
agreement by the other party shall not operate or be construed as a waiver of
any subsequent breach by such party. No waiver shall be valid unless in writing
and signed by the party against whom enforcement of the waiver is sought.
<PAGE>
(6) This agreement may be executed in several counterparts, each of
which is an original and all of which shall constitute one instrument. It shall
not be necessary in making proof of this agreement or any counterpart hereof to
produce or account for any of the other counterparts.
(7) The captions and headings contained in this agreement are for
convenience only and shall not be construed as a part of the agreement.
(8) The validity, interpretation, construction, performance and
enforcement of this agreement shall be governed by the substantive law of the
State of New York, without giving effect to the conflicts of law provisions
thereof.
IN WITNESS WHEREOF, the parties hereto have signed or caused their duly
authorized agents to sign this Agreement as of the date first above written.
MOTO GUZZI CORPORATION
(formerly North Atlantic Acquisition Corp.)
By: /S/
--------------------------------------------------
Name:
-----------------------------------------
Title:
-----------------------------------------
/S/ HOWARD E. CHASE
----------------------
Howard E. Chase
<PAGE>
EXHIBIT 10.4
CONSULTING AGREEMENT
This CONSULTING AGREEMENT (the "AGREEMENT"), dated as of March ___, 1999,
between Moto Guzzi Corporation, formerly known as North Atlantic Acquisition
Corp. (the "COMPANY"), a Delaware corporation having its executive offices at
350 Park Avenue, New York, New York 10017, and David J. Mitchell, an individual
residing at 24 East 22nd Street, New York, NY 10010 (the "CONSULTANT").
WHEREAS, pursuant to the terms of an Agreement and Plan of Merger and
Reorganization dated as of August 18, 1998, as amended (the "MERGER AGREEMENT"),
Company has agreed to merge with Moto Guzzi Corp. ("MERGER") with the Company as
the surviving corporation resulting from the Merger; and
WHEREAS, the Company desires to engage the Consultant to render the
services described herein; and
WHEREAS, the Consultant desires to be engaged by the Company to perform
such services; and
WHEREAS, the Company and the Consultant desire to set forth in writing the
terms and conditions of their agreements and understandings.
NOW, THEREFORE, in consideration of the foregoing premises, of the mutual
covenants hereinafter contained, and of other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto, intending legally to be bound hereby, agree as follows:
1. ENGAGEMENT. The Consultant is hereby engaged to provide advisory and
consulting services in connection with the business and operations of the
Company. The Consultant shall, during the Term (as hereinafter defined), be
deemed to be an independent contractor. Consultant shall not be permitted to
bind the Company or enter into any agreements (oral or written) on behalf of the
Company. The Consultant shall be permitted to engage in any business and perform
any services for his own account provided that Consultant will not, directly or
indirectly, engage or participate in the motorcycle industry or businesses
related thereto. The Consultant shall render services to the Company faithfully,
diligently and to the best of his ability under the supervision of the Board of
Directors or any appropriate officer of the Company. Consultant agrees to devote
such portion of his business time, energies and skill as are reasonably
necessary to perform the services agreed to be rendered. Notwithstanding the
foregoing, nothing herein shall be construed to limit the ability or right of
the Consultant to engage or participate in any other business or professional
activities during the Term provided same do not, individually or in the
aggregate, materially interfere with the Consultant's obligations to the
Company.
2. TERM OF AGREEMENT. Engagement under this agreement shall commence on the
effective date of the Merger (the "EFFECTIVE DATE"). The initial term of
employment shall end at the close of business on the day preceding the third
anniversary of the Effective Date (the "INITIAL TERM"). The Initial Term shall
be extended for successive twelve month periods on a rolling basis unless notice
to terminate is received by either party prior to ninety days before the
termination of the then current term of this agreement. Each twelve month period
commencing on the third anniversary hereof shall be a "RENEWAL YEAR." The
Initial Term together with all Renewal Years shall be referred to as the "TERM".
<PAGE>
3. COMPENSATION.
(1) In full compensation for all services to be rendered hereunder,
the Company shall grant to the Consultant on the Effective Date an option to
purchase an aggregate of 30,000 shares of Company's Class A Common Stock, under
and pursuant to Company's 1998 Stock Option Plan ("PLAN") and pursuant to a
Stock Option Grant Letter dated March 4, 1999 between the Company and the
Consultant (the "STOCK OPTION AGREEMENT"). In addition, the Consultant shall be
eligible to receive grants of additional options under the Plan to purchase
Common Stock.
(2) The Consultant's status with respect to the Company is that of an
independent contractor rather than an employee of the Company and it is
understood and agreed that the Company will not withhold any federal, state or
local income, Social Security, unemployment or other taxes on account of
payments made or property delivered to Consultant hereunder, but will remit the
full amount thereof to Consultant and report them on federal tax Form 1099. All
estimated tax payments and employment tax obligations arising from payments
hereunder are agreed to be those of the Consultant.
4. BENEFITS. Consistent with Consultant's status as an independent
contractor with respect to the Company, the Company shall not provide to the
Consultant any insurance, medical, pension or other employee benefits that may
be applicable to employees of the Company.
5. TERMINATION. This agreement shall be terminable prior to expiration only
as follows:
(1) BY THE COMPANY. The Company may terminate this agreement if
Consultant: (i) is convicted of a crime involving larceny, embezzlement, bribery
or acts of moral turpitude; or (ii) is consistently, habitually or flagrantly
derelict in the performance of his duties; or (iii) is repeatedly intoxicated or
under the influence of alcohol or drugs (other than drugs prescribed for him by
a licensed physician); or (iv) engages in actions which expose the Company to
public ridicule; or (v) knowingly engages in actions intended by Consultant to
result, and which in fact result, in substantial damage to the Company; or (vi)
has become permanently disabled, in the good faith opinion of a physician
appointed by the Company, from performing his duties and, in such physician's
opinion, will likely be unable substantially to perform such duties for the
following six months. Termination pursuant to clauses (ii), (iii), (iv) or (v)
of this subparagraph (a) shall not take effect unless Consultant has failed to
cure any violation thereof within 30 days of notice by the Company setting forth
the specific facts constituting such violation.
(2) BY CONSULTANT. Consultant may terminate this agreement if the
Company violates any material provision of this agreement, which violation is
not cured within 30 days of the giving by Consultant of notice thereof.
6. CONFIDENTIALITY. The Consultant recognizes that the services to be
performed by him for the Company may require the disclosure to Consultant of
confidential information and trade secrets concerning the operations of the
Company and its affiliates. Accordingly, the Consultant agrees that he will not,
except with the prior written consent of the Company's Board of Directors, or as
may be required by law, directly or indirectly, disclose during the Term or any
time thereafter any secret or confidential information that he has learned by
reason of her association with the Company or use any such information to the
detriment of the Company so long as such confidential information or trade
secrets have not been voluntarily disclosed by the Company without restriction,
or are not otherwise in the public domain. If the Consultant shall be required
by law to disclose any such confidential information, the Consultant will, to
the extent reasonably practicable, notify and consult with the Company prior to
any such disclosure.
<PAGE>
7. NON-SOLICITATION; NON-COMPETITION. Consultant agrees not to solicit or
hire, either directly or indirectly, any then-current employee, officer or
director of the Company, or to engage in or render services (including, without
limitation, research, development, manufacturing, marketing or sales) in any
capacity, either directly or indirectly, to any person, firm, corporation or
other entity engaged in the motorcycle industry or in businesses related
thereto, in competition with the business of the Company, for so long as this
agreement remains in effect.
8. MISCELLANEOUS.
(1) Any and all notices or other communications required to be given
under this agreement shall be in writing and shall be deemed to have been duly
given on the date of delivery, if delivered in person or by confirmed facsimile
transmission, or three days after mailing, if mailed within the continental
United States, postage prepaid, by registered or certified mail, to the party
entitled to receive same, at the address set forth below for such party, or to
such other address or addresses as any party hereto may specify in a notice
given in conformity with the provisions of this Section 8(a):
To Company: Moto Guzzi Corporation
(formerly North Atlantic Acquisition Corp.)
350 Park Avenue
New York, New York 10017
With a copy to: David Lerner, Esq.
Morrison Cohen Singer & Weinstein, LLP
750 Lexington Avenue
New York, New York 10022
To Consultant: David J. Mitchell
24 East 22nd Street
New York, NY 10010
(2) This agreement constitutes the entire agreement between the
parties hereto with respect to the matters herein provided, and this agreement
cancels and supersedes any or all prior agreements and understandings, written
or oral, between the parties with respect to such matters. No modification or
waiver of any provision hereof shall be effective unless in writing and signed
by the parties hereto.
(3) The rights and obligations of any party hereunder may not be
assigned or transferred to any third party without the prior written consent of
the other party hereto.
(4) If any provision of this agreement or application thereof to
anyone or under any circumstances is adjudicated to be invalid or unenforceable
in any jurisdiction, such invalidity or unenforceability shall not affect any
other provision or application of this agreement which can be given affect
without the invalid or unenforceable provision or application and shall not
invalidate or render unenforceable such provision or application in any other
jurisdiction.
(5) The waiver by either party of a breach of any provision of this
agreement by the other party shall not operate or be construed as a waiver of
any subsequent breach by such party. No waiver shall be valid unless in writing
and signed by the party against whom enforcement of the waiver is sought.
<PAGE>
(6) This agreement may be executed in several counterparts, each of
which is an original and all of which shall constitute one instrument. It shall
not be necessary in making proof of this agreement or any counterpart hereof to
produce or account for any of the other counterparts.
(7) The captions and headings contained in this agreement are for
convenience only and shall not be construed as a part of the agreement.
(8) The validity, interpretation, construction, performance and
enforcement of this agreement shall be governed by the substantive law of the
State of New York, without giving effect to the conflicts of law provisions
thereof.
IN WITNESS WHEREOF, the parties hereto have signed or caused their duly
authorized agents to sign this Agreement as of the date first above written.
MOTO GUZZI CORPORATION
(formerly North Atlantic Acquisition Corp.)
By:
-------------------------------------------
Name:
------------------------------------
Title:
------------------------------------
/S/ DAVID J. MITCHELL
----------------------
David J. Mitchell
<PAGE>
EXHIBIT 10.5
THIS AGREEMENT is made the 3rd day of June One thousand nine hundred and ninety
nine BETWEEN Moto Guzzi SpA of Mandello del Lario (Lecco), Italy (hereafter
called "the Company") of the one part and Como Consultants Limited of 44
Esplanade, St. Helier, Jersey (hereafter called "Como") of the other part.
WHEREBY IT IS AGREED as follows:
1. The Company hereby engages Como to provide the services of its Consultant
Mario Tozzi-Condivi (hereinafter called "the Consultant") to serve the
Company as President of the Company and a member of the Board of Directors
with effect from the first day of January, One thousand nine hundred and
ninety nine for a period of three years.
2. During the continuance of this agreement Como undertakes that the
Consultant shall devote such time and attention to the business of the
Company as the Company may require PROVIDED that the Consultant shall not
be obliged to spend more than one hundred and twenty days in each calendar
year ending 31st December (reduced pro-rata in respect of any incomplete
calendar year during which the Consultant is employed hereunder) or such
number of days as the parties may from time to time agree and PROVIDED that
the Consultant shall not be required to attend at the Company's premises in
Italy on more than six occasions in each calendar year and on each occasion
for no longer than fifteen days.
3. Subject to the foregoing Como agrees that the Consultant shall advise and
assist the Company as required in all branches of its business more
particularly set out by the Company in writing from time to time.
4. Como will use its best endeavours to promote the interests of the Company
and shall at all times promptly give the Company (in writing if so
requested) all such information and explanations as may be required in
connection with matters relating to this agreement.
5. As remuneration for the services to be rendered by the Consultant hereunder
the Company shall pay to Como:
(a) a fee at the rate of eight thousand five hundred US Dollars
($8,500.00) per calendar month payable monthly in arrears on the last
day of every calendar month commencing on the thirty first day of
January, One thousand nine hundred and ninety nine and ending on the
thirty first day of March, One thousand nine hundred and ninety nine.
(b) a fee at the rate of five thousand seven hundred and fifty US Dollars
($5,750) per calendar month payable monthly in arrears on the last day
of every calendar month commencing on the last day of April, One
thousand nine hundred and ninety nine and ending on the thirty first
day of December, Two thousand and one.
(c) such additional sums (if any) as shall from time to time be agreed
between Como and the Company having regard to the services rendered by
the Consultant.
6. The Company shall provide the Consultant with accommodation for the period
of each of his visits to Italy in connection with the Company's business
and such accommodation shall include the use of a telephone at the
Company's expense. In addition, the Company will reimburse Como
<PAGE>
for all expenses incurred by the Consultant in connection with the
Company's business which shall include the cost of travel expenses to and
from the Isle of Man.
7. Como shall not (except in the proper performance of its duties hereunder)
during or after the termination of this engagement disclose to any person
whatsoever any information relating to the Company or its business or trade
secrets of which it has or shall hereafter become possessed.
8. This agreement shall be terminated without notice and without any payment
in lieu of notice if the Consultant shall be guilty of any serious
misconduct or any serious breach or non-observance of any of the conditions
of this agreement or shall neglect or fail or refuse to carry out the
duties assigned to him hereunder; otherwise the agreement may be terminated
by one party giving to the other three months notice in writing to their
normal place of business.
9. Como or a representative thereof shall upon the termination of this
engagement immediately deliver up to the Company all correspondence,
documents, specifications, papers and property belonging to the Company
which may be in its possession or under its control.
10. This agreement shall be governed by and interpreted in accordance with the
law of Jersey and the parties hereto submit to the non-exclusive
jurisdiction of the Courts of Jersey in connection herewith.
IN WITNESS HEREOF this agreement has been duly executed by the parties hereto
the day and year first before written in the presence of the undersigned
witnesses.
SIGNED ON BEHALF OF )
Moto Guzzi SpA )
in the presence of: )
THE COMMON SEAL OF )
Como Consultants Ltd was )
hereunto affixed in the presence of: )
EXHIBIT 21
LIST OF SUBSIDIARIES
1. Moto Guzzi, S.p.A.
2. Moto Guzzi North America Inc.
3. MGI Motorcycle GmbH
4. Moto Guzzi France, S.a.r.1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the audited
financial statements dated December 31, 1999 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,243,000
<SECURITIES> 0
<RECEIVABLES> 15,999,000
<ALLOWANCES> 1,221,000
<INVENTORY> 17,906,000
<CURRENT-ASSETS> 34,065,000
<PP&E> 23,240,000
<DEPRECIATION> 15,631,000
<TOTAL-ASSETS> 42,136,000
<CURRENT-LIABILITIES> 43,609,000
<BONDS> 1,054,000
0
0
<COMMON> 52,000
<OTHER-SE> (7,973,000)
<TOTAL-LIABILITY-AND-EQUITY> 42,136,000
<SALES> 44,819,000
<TOTAL-REVENUES> 44,819,000
<CGS> 41,213,000
<TOTAL-COSTS> 12,202,000
<OTHER-EXPENSES> 258,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,519,000
<INCOME-PRETAX> (11,897,000)
<INCOME-TAX> 46,000
<INCOME-CONTINUING> (11,943,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,943,000)
<EPS-BASIC> (2.31)
<EPS-DILUTED> (2.31)
</TABLE>
