SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. 1)
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
DE TOMASO INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
DE TOMASO INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-
11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth amount on which the
filing fee is calculated and state how it was determined):
<PAGE>
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
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/X/ Fee paid previously with preliminary materials
- --------------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which offsetting fee was
paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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<PAGE>
DE TOMASO INDUSTRIES, INC.
107 Monmouth Street
Red Bank, New Jersey 07707
(908) 842-7200
NOTICE OF
ANNUAL MEETING OF SHAREHOLDERS
------------------------------
To the Shareholders of
De Tomaso Industries, Inc.
An Annual Meeting of Shareholders of De Tomaso Industries, Inc. (the
"Company") will be held at the Marriott Marquis Hotel, 45th Street and
Broadway, New York, on August 22, 1996 at 10:00 A.M., for the following
purposes:
1. To elect a Board of nine Directors to serve until the next Annual
Meeting of Shareholders and until their successors shall be elected and shall
qualify.
2. To amend the Articles of Incorporation to increase the number of
shares of authorized common stock to 50,000,000 and change the par value to $.01
per share.
3. To amend the Articles of Incorporation to eliminate authorization for
preferred stock.
4. To amend the Articles of Incorporation to change the name of the
Company to Trident Rowan Group, Inc.
5. To approve the adoption of the 1995 Non-Qualified Stock Option Plan.
6. To approve the adoption of the 1995 Stock Option Plan for Outside
Directors.
7. To ratify the 1993 sale by O.A.M., S.p.A. (a subsidiary of the
Company) of its 51% equity interest in Maserati S.p.A. to Fiat Auto, S.p.A.
8. To act upon any other business that may properly come before the
meeting.
The shareholders of record at the close of business on July 26, 1996 will
be entitled to notice of and to vote at the Annual Meeting. The transfer books
of the Company will not be closed.
You are cordially invited to attend the meeting. Whether or not you plan
to be present, kindly fill in and sign the enclosed Proxy exactly as your name
appears on your stock certificate, and mail it promptly in order that your vote
can be recorded. A return envelope is enclosed for your convenience. The
giving of this Proxy will not affect your right to vote in person in the event
you find it convenient to attend the meeting.
By Order of the Board of Directors
Carlo Previtali
Secretary
Dated: Milan, Italy
July 26, 1996
<PAGE>
DE TOMASO INDUSTRIES, INC.
107 Monmouth Street
Red Bank, New Jersey 07707
(908) 742-7200
PROXY STATEMENT
---------------
Solicitation and Use of Proxy
- -----------------------------
The enclosed Proxy is solicited by the Board of Directors of De Tomaso
Industries, Inc. (the "Company") for use at the Annual Meeting of Shareholders
of the Company to be held on August 22, 1996 and at any adjournments thereof,
for the purposes set forth in the attached Notice of Meeting. Any shareholder
giving a Proxy may revoke it at any time prior to its use at the Annual Meeting
by filing with the Secretary of the Company an instrument revoking it or by
giving a duly executed proxy bearing a later date. Proxies, if duly signed and
received in time for voting, and not so revoked, will be voted at the Annual
Meeting. Where choices are specified by a shareholder by means of the ballot
provided on the Proxy for that purpose, the Proxy will be voted in accordance
with such specifications. In the absence of such specifications, the Proxy will
be voted FOR the slate of nominees for directors proposed by management, FOR
each of the proposals to amend the Articles of Incorporation, FOR the approval
of each of the 1995 Non-Qualified Stock Option Plan and the 1995 Stock Option
Plan for Outside Directors, and FOR the ratification of the sale by O.A.M.
S.p.A. of its 51% equity interest in Maserati S.p.A, ("Maserati") to Fiat Auto
S.p.A. (the "Maserati Sale"). The Notice of Meeting and the Proxy Statement
are being mailed to shareholders on or about July 26, 1996. Under Maryland law
and the Company's Charter and ByLaws, abstentions will be counted in determining
whether a quorum is present and broker non-votes will not be counted.
Abstentions and broker non-votes will not be counted as affirmative votes.
The cost of soliciting proxies will be borne by the Company. In addition
to solicitation by the use of the mails, certain officers of the Company may
solicit proxies personally and by telephone. The Company may request banks,
brokerage houses and custodians, nominees and fiduciaries to forward soliciting
material to their principals and will reimburse them for their out-of-pocket
expenses.
PLEASE NOTE
Information pertinent to the proposal to ratify the Maserati Sale
will be found beginning at page 42. Shareholders are urged to read such
information carefully, along with the rest of this Proxy Statement, prior
to completing and returning their proxy cards.
<PAGE>
Outstanding Shares and Voting Rights
- ------------------------------------
As of July 26, 1996, the record date fixed for the determination of
shareholders entitled to vote at the Annual Meeting, there were outstanding
4,714,332 shares of common stock, par value $2.50 per share, which constitute
the only outstanding securities of the Company having voting rights. Each
outstanding share of common stock is entitled to one vote on each matter to be
voted. A majority of the shares of common stock represented in person or by
proxy, will constitute a quorum for the transaction of business.
The affirmative vote of two-thirds of all of the votes entitled to be cast
on such matter is required to adopt the resolution to ratify the Maserati Sale
and to amend the Articles of Incorporation. The affirmative vote of a majority
of all of the votes cast at the meeting in person or by proxy is required to
approve each of the 1995 Non-Qualified Stock Option Plan and the 1995 Option
Plan for Outside Directors. Finprogetti, S.p.A. ("Finprogetti") and the trustee
(the "Trustee") of shares which had been owned by Alejandro De Tomaso, the
former Chairman of the Board of the Company, having in the aggregate, the right
to cast 49.1% of the votes which may be cast at the Annual Meeting, have agreed
to vote for ratification of the Maserati Sale, and have indicated that they will
also vote in favor of the amendments of the Articles of Incorporation.
Additionally, shares held by officers and directors of the Company, shares
separately acquired by shareholders of Finprogetti and shares held by members of
Alejandro De Tomaso's family may be expected to vote in favor of both proposals,
although the holders are not so required by any agreement, arrangement or
understanding. Those shares, together with the shares of Finprogetti and the
Trustee, aggregate 65.6% of the votes which are entitled to be cast.
Ratification of the Maserati sale, and approval of the amendment of the Articles
of Incorporation are therefore reasonably certain.
Introduction
- ------------
Since 1993, the Company has been engaged in a basic refocus of its
operations and strategic direction.
In January 1993, the Company was primarily a manufacturer of luxury Italian
automobiles under the "Maserati" brand name, and, secondarily, was a
manufacturer of Italian motorcycles under the "Moto Guzzi" brand name. After
sustaining significant losses in its operations for many years, and after trying
without success to engage in strategic relationships with larger, better
financed automobile companies, the Company sold its Maserati operations to the
large Italian automobile company, Fiat Auto S.p.A. (see "Maserati Sale" below).
The Company today, as a result of actions undertaken by the Board of
Directors, including the sale of Maserati, is profoundly different from the
Company as it existed in January 1993. While continuing to operate its Moto
Guzzi S.p.A. motorcycle business, as a result of the July 17, 1995 Finprogetti
Acquisition (see, "The Finprogetti Acquisition" below), the Company, through
---
Temporary Integrated Management, S.p.A., has established itself as a provider of
hands-on temporary management services and capital to companies which represent
"turnaround" opportunities or which otherwise present opportunistic investment
possibilities for the Company. In addition, the Company has bolstered its
capital through private investments made by certain Finprogetti investors in
connection with the Finprogetti Acquisition. Certain real estate assets
acquired from Finprogetti are intended to be liquidated and the proceeds used in
connection with the Company's new turnaround and opportunistic investment
business.
Additionally, Mr. Alejandro De Tomaso, the Company's former President and
Chairman of the Board, on July 17, 1995 resigned from all of his offices.
Previously, he had disposed of his entire interest in the Company's securities
(see "Retirement of Former Chairman; Repurchase of Former Chairman's Shares",
below).
In 1993, following the sale of Maserati, a number of shareholders held the
view that the Company no longer was engaged in the business which had attracted
them to invest. They also felt that the securities market did not reflect the
value they thought was inherent in the Company's assets. In response, the
Board, adhering to a promise made to shareholders, intends to commence a program
to accept for repurchase up to 80% of the shares of common stock in the
2
<PAGE>
hands of the public if the proposal to ratify the Maserati Sale is approved at
the shareholders' meeting (see "Planned Stock Repurchase Program" below).
Shortly after the completion of the Repurchase Program, the Company intends to
commence an offering to the public of units of common stock and warrants to
purchase common stock (see "Proposed Public Offering" below).
Planned Stock Repurchase Program
- --------------------------------
Commencing a few days following the shareholders' meeting to which this
proxy statement relates, if the proposal to ratify the Maserati Sale is
approved, the Company plans to initiate a program in which each shareholder may,
on a single occasion during a stated period, submit to the Company up to 80% of
the shares of common stock owned by such shareholder for repurchase at the price
of $12.26 per share. No shareholder will be permitted to submit all of such
person's shares, but will be permitted to submit up to 80% thereof.
Finprogetti, the Trustee, the Finprogetti shareholders who separately purchased
408,008 shares of the Company's common stock, and all of the Company's officers
and directors, have agreed not to submit their shares for repurchase. A maximum
of 1,285,714 shares will be subject to repurchase under the program. The
Company will use working capital, available lines of credit and other assets, if
necessary, to finance the repurchase program. While the repurchase program will
be initiated in furtherance of informal promises made to the shareholders, for
the long-term benefit of the Company, Management will recommend against
shareholders participating in the program. A notice of the commencement of the
repurchase program containing a detailed description of its terms and
instructions for participation will be disseminated to all shareholders of
record shortly after the shareholders meeting if the proposal to ratify the
Maserati Sale is approved. The Board has determined to set aside $11,034,000
from cash reserves on hand to satisfy repurchase obligations arising from the
repurchase program. Shareholders will receive no less than 70% of the
repurchase consideration in cash, and the balance in the form of an interest-
bearing note. Shareholders who participate in the repurchase program and tender
up to 80% of their shares will remain shareholders of the Company as to the
number of shares not tendered.
Proposed Public Offering
- ------------------------
The Company expects to make an underwritten "firm commitment" public
offering of approximately 2,000,000 shares of common stock and 2,000,000
warrants. Each warrant, as currently envisioned, will represent the right to
purchase one share of common stock of the Company at an exercise price of 120%
of the per-Unit offering price, will be exercisable during the period which
begins one year following the effective date of the public offering, and will be
redeemable by the Company under certain circumstances. The Company expects that
the public offering will occur during the second half of 1996 and intends to use
the net proceeds in furtherance of its turnaround management services business.
See "Business of The Company", below. There can be no assurance that such
- ---
public offering will, in fact, be consummated or if consummated, that the terms
will be as described above or that the proceeds therefrom will be more or less
than the amount of capital used to finance the stock repurchase program.
Business of the Company
- -----------------------
General
-------
Introduction
------------
Having effected during 1995 a basic restructuring of its operations and
strategic direction, the Company today provides an array of temporary management
and opportunistic capital investment resources to troubled businesses located
primarily in Italy. By rendering these services, the Company acquires the
ability to earn fees from its management engagements (including negotiated
bonuses in the form of cash or equity for achieving agreed upon results), and to
make investments of its capital, alone or with other strategic or financial
investors, in minority or controlling equity positions in managed companies.
3
<PAGE>
The Company plans to realize income from the operations of wholly or
majority owned companies ("Portfolio Companies") and from the disposition of its
equity interests in the Portfolio Companies and in managed companies in which it
owns minority interests at enhanced values resulting from the rendering of
management services to these companies by the Company.
The Company's new business structure enables it to apply its management and
capital investment skills to present and future Portfolio Companies as well as
to outside clients, to incentivize outside clients to make greater use of the
Company's resources, and to utilize its clients as sources for new management
engagements and capital investment opportunities.
The Company's strategic refocus is an outgrowth of the sudden illness in
1993 of the Company's former chairman, Alejandro De Tomaso, and, contemporane-
ously, the divestiture by the Company of the entirety of its controlling
interest in its then principal Italian operating subsidiary, Maserati S.p.A., to
Fiat Auto S.p.A.
In 1993, after the Maserati sale, the Company's only operating subsidiary
was G.B.M. S.p.A. (since renamed Moto Guzzi S.p.A. and referred to throughout
this Proxy Statement as "Moto Guzzi"). At that time, Moto Guzzi was a
manufacturer of medium and high priced motorcycles which for years had been both
unprofitable and undercapitalized. The Company's Board was prepared to consider
a capital investment by or joint venture with a third party, the sale of its
interest in Moto Guzzi, or some other form of business combination to repair
Moto Guzzi's capital deficiencies and financial condition.
When those efforts proved unsuccessful, the Company, in May 1994, engaged
the predecessor of Temporary Integrated Management S.p.A. ("T.I.M.") to provide
Moto Guzzi with critically needed temporary management in order to staunch
losses and to design a capital plan for future growth or sale of the subsidiary.
Management selected and installed by T.I.M. continues to operate Moto Guzzi.
As described below, under T.I.M.'s direction, Moto Guzzi increased production
and sales, reduced costs, and achieved, in 1995, virtual break-even results on
an operating basis. The Company's 100%-owned motorcycle manufacturing
subsidiary today manufactures a high priced line of motorcycles under the
trademark "Moto Guzzi", and is the successor to businesses acquired by the
Company in 1972. Moto Guzzi cycles vary in engine displacement from 300cc to
1,100cc, although the subsidiary has determined to focus its future sales and
development efforts on its larger motorcycles, having engines of 750cc or
greater.
T.I.M. is now a wholly-owned subsidiary of the Company, having been
acquired in 1995 as part of the purchase of substantially all of the operating
assets of Finprogetti, S.p.A., (see "Finprogetti Acquisition", below). While
the operations of T.I.M. to date have not been material to the consolidated
results of operations of the Company, the acquisition of T.I.M. was an essential
component of the redirection of the Company's business strategy, as it permits
the Company to combine T.I.M.'s skill and knowledge in providing capable
management to troubled businesses with the Company's abilities in analyzing
capital requirements and transaction structuring, and to apply such capabilities
to investment opportunities arising out of T.I.M.'s management engagement.
Previously, in November, 1993, T.I.M.'s management services were engaged by
Finprogetti, itself a financially troubled, privately held Italian corporation,
the capital of which was invested in real estate and financial services
ventures. Finprogetti acquired a 55% equity interest in T.I.M. in November, 1994
by buying shares from Albino Collini, T.I.M.'s founder. Sig. Collini had become
Finprogetti's managing director in November, 1993.
Finprogetti Acquisition
-----------------------
In December 1994, the Company received an offer from Finprogetti in which
it was proposed that: (a) the Company would acquire substantially all of the
operating assets of Finprogetti, including its Italian real estate interests,
its T.I.M. subsidiary, a leasing and factoring company and certain Italian tax
receivables aggregating Lit. 5,150,000,000
4
<PAGE>
($3,243,000)(1) , in exchange for newly issued shares of the Company's common
stock valued at Lit. 20,106.73 per share ($12.26 at the then-prevailing exchange
rate), and (b) Finprogetti would make or cause others to make additional equity
investments in the Company aggregating up to Lit. 15,000,000,000 ($9,446,000)
paying cash therefor at the same price of Lit. 20,106.73 per share. If
aggregate additional equity investments were less than Lit. 15,000,000,000, it
was agreed that Finprogetti would realize a reduction in the number of shares to
be issued in connection with the acquisition of the Finprogetti assets.
After the receipt of cash of Lit. 8,204 million (approximately U.S.
$5,000,000) for the subscription to 408,008 shares, the Company adjusted the
number of shares to be given so that 1,922,652 shares were issued to effect the
acquisition from Finprogetti S.p.A., in addition to the shares issued in
exchange for cash. Of the total number of shares issued of 2,330,660 for the
acquisition from Finprogetti, including the subsequent purchase of 408,008
shares, 248,673 are to be held in escrow pending realization by the Company of
the tax receivable of Lit. 5,150 million that was included in the assets
acquired.
The Lit 39,447 million total purchase price reported in the balance sheet
to effect the Finprogetti Agreement reflects Lit. 38,223 million (Lit. 16,400
per share; U.S.$10.00 per share) assigned to the 2,330,660 shares issued plus
costs of Lit. 1,224 million incurred in connection with the acquisition. The
acquisition has been accounted for by the purchase method. Accordingly, the
purchase price has been allocated to the assets purchased and the liabilities
assumed based on the fair values at the date of the acquisition. The purchase
price was allocated as follows:
US$'000 Lire m.
Cash 5,166 8,204
Real estate interests 21,479 34,109
Concession rights over real estate 2,960 4,700
Less: related long-term debt (12,238) (19,431)
Trademark and other intangible assets 3,148 5,000
Other assets and liabilities, net 3,355 5,329
Goodwill 967 1,536
--- -----
24,837 39,447
====== ======
The excess of the purchase price paid over the fair values of the net
assets acquired has been recorded as goodwill, which is being amortized in
accordance with the Company's policy. Results of the Finprogetti companies are
included in operations from July 1, 1995 and the amount of goodwill amortization
for fiscal year 1995 was Lit. 77 million.
The former Finprogetti real estate assets acquired by the Company are not
presently intended to be held long term. The Company either will seek a
strategic partner to help manage the properties or will seek to dispose of them
in due course and at maximally favorable values.
- --------------------
1 Throughout this Proxy Statement, all amounts are stated in Italian Lire,
unless otherwise stated. Amounts in Italian lire have been converted into
U.S. dollars solely for convenience at the exchange rate of 1,588 to the
U.S. dollar prevailing on December 31, 1995.
The US dollar equivalent amounts are included solely for the convenience of
the readers of the financial statements. It should not be construed that
the assets and liabilities, expressed in US dollar equivalents, can
actually be realized in or extinguished by US dollars at the exchange rates
used in the accompanying translation.
5
<PAGE>
Lita Acquisition
----------------
On July 25, 1995, in the first execution of its new business plan following
its acquisition of Finprogetti's subsidiaries the Company, through one of its
Italian subsidiaries, acquired Lita S.p.A. ("Lita"), an Italian manufacturer of
steel tubing used for automotive purposes and in the manufacture of metal
furniture. Lita's operations, while not material to the Company's consolidated
1995 results of operations, are expected to be material to the Company's
operations in 1996.
T.I.M. had been retained to manage Lita after a material decline in Lita's
operations, and to oversee its sale to a third party to be identified by T.I.M.
The physical and operational presence of T.I.M. at Lita, its ability to examine
and comprehensively analyze the managed company's operational and capital needs
and T.I.M.'s ability to its client to meet its strategic objective of selling
Lita represents an example of an investment opportunity arising from T.I.M.'s
management business. The stock of Lita was acquired at a cost of Lit. 615
million ($387,280), representing a discount of approximately Lit. 1,600 million
($1,008,000) from the book value of Lita's assets. Through management provided
to Lita by T.I.M., the Company hopes to enhance the value of Lita as a Portfolio
Company and benefit both from income generated from Lita's operations and from
an eventual disposition of the rejuvenated subsidiary.
In summary, while the strategic focus of the Company is to seek
opportunistic investments through relationships developed from its management
service business with business owners and bank creditors, today, through its
Portfolio Companies, the Company has material operations in the following
industry segments:
- the manufacture and sale of high priced motorcycles through Moto Guzzi;
- the operation and sale of operating and developmental real property
through subsidiaries acquired from Finprogetti; and
- the manufacture and sale of specialty steel tubing through Lita.
Additionally, the Company owns 84.35 % of the capital stock of O.A.M.
S.p.A., the entity which had owned Maserati S.p.A. Chrysler Corporation has
owned a 15.65% equity interest in O.A.M. since 1986.
The Company also owns 100% or controlling interests in the following
subsidiaries which are either inactive or which are being liquidated, and which
in the aggregate account for less than 1% of the consolidated net worth of the
Company: Tridentis, S.A., Newstead, Ltd., Finprogetti Servizi S.p.A., American
Finance, S.p.A. and Storm S.p.A.
Additionally, the Company's wholly-owned subsidiary, Maserati Automobiles,
Inc. ("MAI") has discontinued its operations and is being liquidated. Its only
significant asset is real estate located in Baltimore, Maryland, having a book
value of approximately $720,000, which the Company has contracted to sell at a
gain.
The Company's strategic plan is to expand substantially the size and scope
of the Company's hands-on management and financing business in "turnaround" and
opportunistic investment situations. The Company intends to engage from time to
time in strategic relationships with other enterprises which are both well-
capitalized and which finance troubled and underperforming businesses or which
are seeking "local" partners with hands-on management capabilities.
The Company was incorporated under the laws of the State of Maryland in
1917.
The following charts depict the structure of the Company prior to the
Finprogetti Acquisition, and currently as a result thereof and as a result of
subsequent acquisitions.
6
<PAGE>
DECEMBER 31, 1994 ORGANIZATION CHART
DETOMASO INDUSTRIES, INC.
100% 99.9% 99.9%
Maserati Automobile, Inc. G.B.M. S.p.a. American Finance, S.p.a.
(Delaware) (Modena, Italy) (Modena, Italy)
96.67% 100%
Centro Ricambi S.r.l. Tridentis Financiere, S.A.
(Modena, Italy) (Luxembourg)
19.893%
25% 64.029%
A+G Motorrad GmbH O.A.M. S.r.l.
(Germany) (Modena, Italy)
96.7%
Storm S.r.l.
(Ravenna, Italy)
100%
Newstead, Ltd.
(Ireland)
The following is a textual summary of the organizational chart of the
Company as at December 31, 1994. The chart in graphical form is included in the
paper version of this filing:
The Company owns 100% of the equity interest in Maserati Automobiles, Inc.,
and a 99.9% equity interest in G.B.M. S.p.A. ("GBM") and American Finance S.p.A.
("AF").
GBM owns a 99.67% equity interest in Centro Ricambi S.r.l., and a 45%
equity interest in A+G Motored GmbH.
AF owns a 100% equity interest in Tridentis Financiere, S.A. ("Tridentis"),
a 64.029% equity interest in O.A.M. S.p.A. ("OAM"), and a 96.7% equity interest
in Storm S.r.l. Tridentis owns a 100% equity interest in Newstead, Ltd. and a
19.893% equity interest in OAM.
7
<PAGE>
<TABLE>
<CAPTION>
Corporate Structure - December 31, 1995
DE TOMASO INDUSTRIES, INC.
<S> <C> <C> <C> <C> <C>
100% 99.9% 99.9% 100.0% 99.67% 100%
Maserati Automobile Moto Guzzi S.p.a. American Finance S.p.a. Finprogetti 0.33% Finprogetti Finprogetti
Inc. (Delaware) (Italy) (Italy) International Investimenti Servizi,
Holding, S.A. Immobillari, S.p.a.
(Luxembourg) S.p.a. (Italy) (Italy)
45%
96.67% 100% 0.10% 99.9% 95.54%
Centro Ricambi S.r.l. Tridentis Finannciere, Finproservice
(Italy) S.A. (Luxembourg) Pastorino Strade S.p.a.
(Italy) (Italy)
25% 83.92% 99.9% 25% 55%
A+G Motorrad O.A.M. S.p.A. LITA S.p.A. Domer S.r.l. Temporary
GmbH (Italy) (Italy) (Italy) Integrated
(Germany) Management
S.r.l.
(Italy)
99.99% 68.19%
Storm S.r.l. Interim S.p.A.
(Italy) (Italy)
100% 80%
Newstead Ltd. Grand Hotel Bitia S.r.l.
(Ireland) (Italy)
33.33% 66.67%
Immobiliare Broseta, S.r.l.
(Italy)
</TABLE>
The following is a textual summary of the current organizational chart of
the Company. The chart in graphical form is included in the paper version of
this filing:
The Company owns 100% of the equity interest in Maserati Automobiles, Inc.,
a Delaware corporation, Finprogetti International Holding, S.A. ("FIH"), a
Luxembourg corporation and Finprogetti Servizi S.p.A. ("Servizi"), an Italian
corporation. The Company owns a 99.9% equity interest in Moto Guzzi S.p.A.
("Moto Guzzi") and American Finance S.p.A. ("AF"), a 99.67% equity interest in
Finprogetti Investimenti Immobiliari S.p.A. ("Immobiliari"), and a 45% equity
interest in Temporary Integrated Management S.p.A. ("TIM") all Italian
corporations. FIH owns the remaining .33% equity interest in Immobiliari.
Servizi owns the remaining 55% equity interest in TIM.
Moto Guzzi owns a 99.67% equity interest in Centro Ricambi S.r.l., an
Italian corporation, and a 25% equity interest in A+G Motorod GmbH, a German
corporation.
AF owns a 100% equity interest in Tridentis Financiere, S.A. ("Tridentis"),
a Luxembourg corporation, an 83.92% equity interest in O.A.M. S.r.l. ("OAM"),
and a 99.9% equity interest in Storm S.r.l., Italian corporations. Tridentis
owns a 100% equity interest in Newstead, Ltd., and Ireland corporation.
Immobiliari owns a 99.9% equity interest in Pastorino Strade, S.r.l., a 25%
equity interest in Domer S.r.l., an 80% equity interest in Grand Hotel Bitia
S.r.l. and a 66.67% equity interest in Immobiliare Broseta S.r.l., all Italian
entities. FIH owns the remaining .10% equity interest in Pastorino Strade.
Domer owns a 68.19% equity interest in Interim S.p.A. which in turn owns the
remaining 33.33% equity interest in Immobiliare Broseta.
Servizi owns a 95.54% equity interest in Finproservice S.p.A., an Italian
corporation.
FIH owns a 99.9% equity interest in Lita S.p.A., an Italian corporation.
8
<PAGE>
Industry Segment Information.
----------------------------
Information on net sales, operating profit, depreciation and amortization,
capital expenditures and assets employed for each segment of the Company's
business for the three years ended December 31, 1995 is contained in Note 14 of
Notes to the Consolidated Financial Statements which accompany this Proxy
Statement.
Narrative Description of Business
- ---------------------------------
The Company has three (3) business segments: motorcycles, steel tubing and
commercial real estate development. Two such segments - motorcycles and real
estate - were material to the Company's 1995 results of operations.
(i) Motorcycles
-----------
The motorcycle segment continues to dominate reported results of
operations in 1995, accounting for approximately 89.5% of the Company's
consolidated net sales.
Moto Guzzi, the Company's 100%-owned motorcycle manufacturing
subsidiary, manufactures a high priced line of motorcycles under the trademark
"Moto Guzzi", and is the successor to businesses acquired by the Company in
1972. Moto Guzzi cycles vary in engine displacement from 300cc to 1,100cc,
although the subsidiary has made a strategic decision to concentrate development
and sales efforts on its largest motorcycles, having engines of 750cc or larger.
Moto Guzzi spare parts are distributed through Centro Ricambi S.r.l. ("Centro
Ricambi"), now a 100% owned subsidiary of Moto Guzzi following purchase of the
minority shareholding of 3.33% in the first quarter of 1996. Moto Guzzi had also
manufactured and sold smaller and lower priced cycles under the "Benelli"
trademark, but closed production of these vehicles in 1993. Moto Guzzi
continues to maintain a small inventory of Benelli motorcycles.
All motorcycle manufacturing is conducted at Moto Guzzi's Mandello,
Italy facility. Moto Guzzi manufactures certain power train components, acquires
certain other components from outside suppliers, and performs finishing work and
assembly into motorcycle bodies. Moto Guzzi's operations have been managed since
May 1994 by a T.I.M.-appointed manager.
Distribution
------------
Moto Guzzi maintains an Italian distribution network of over 200
independent dealers.
In 1995, a single importer-distributor acted as exclusive importer-
distributor for Moto Guzzi in each of France, Japan, Denmark, Finland, Germany,
Greece, Malta, New Zealand, Norway, Portugal, Sweden, Austria, Switzerland,
Australia, the U.K., the United States and Holland.
Moto Guzzi owns a 25% equity interest in A+G Motorod GmbH ("A+G"), a
German corporation, the majority of the shares of which is owned by Aprilia
S.p.A., another Italian manufacturer of motorcycles with small displacement
engines. A+G distributes the motorcycles of both Moto Guzzi and Aprilia in the
German market. An amended shareholders' agreement has extended the current
arrangement through December 31, 1996 by which time Moto Guzzi must decide to
continue the existing arrangement or to terminate it, with a view to
distributing its products in Germany directly or through another distributor.
No single Italian dealer accounted for more than 5% of the sales of
Moto Guzzi in 1995. The Italian dealers who distribute Moto Guzzi motorcycles
generally handle other brands as well.
9
<PAGE>
Net Sales
---------
From 1981 through 1993, sales and production of Moto Guzzi
motorcycles, with only occasional interruptions, had been declining
consistently. Production of Moto Guzzi's larger Moto Guzzi machines declined
from 2,935 units in 1992 to 2,175 units in 1993. Similar declines were sustained
in the smaller Benelli motorcycles (including Benelli models marketed as small
Moto Guzzi models).
In 1994, following the engagement of T.I.M. to improve manufacturing
and sales results, Moto Guzzi's overall unit sales improved by 28% and
production of the company's larger motorcycles expanded to 3,048 units. In
1995, units sales increased by 23.1% from 4,278 in 1994 to 5,266 in 1995, of
which 4,800 had engine displacements of 350cc or greater and 466 had displace-
ments of less than 350cc. Additionally, 448 Benelli motorcycles were sold from
inventory.
All sales are invoiced in Italian lire except sales to the United
States which are invoiced in US dollars. Prices are customarily reviewed and
are increased to cover increases in production costs at periodic intervals and
in light of prevailing exchange rates. Italian prices for motorcycles
traditionally have been higher than export prices. In 1995, Moto Guzzi increased
prices of its various models twice, with such increases aggregating
approximately 9% on average for domestic sales and for export sales invoiced in
lire and 4% in respect of export sales to the US, which are invoiced in US
dollars. Export sales continued to reflect lower margins than domestic Italian
sales.
Sales in 1995 of Moto Guzzi motorcycles to the Italian and other
governments were 16.2% of its total motorcycle sales revenues.
Backlogs
--------
Moto Guzzi's entire 1995 production capacity was covered by orders in
hand on January 1, 1995. Such orders were subject to cancellation without
penalty. Backlog of Moto Guzzi units for 1995 delivery at January 1, 1995 was
approximately Lit. 54,803,000,000 ($33,913,000) in the aggregate, representing
5,523 units. Backlog was approximately Lit 10,000,000,000 ($6,188,000) at
January 1, 1994. Orders for 1996 delivery exceed current production capacity
and the Company expects it will again be unable fully to satisfy demand for its
motorcycles in the current year. Such orders too are cancelable without
penalty. The Company has drawn up a sales and production plan for 1996 for
approximately 6,400 motorcycles based on supplying strategic markets and
customers. Customarily, additional orders have been received during the course
of the year. A previously obtained five year contract for special-purpose
engines has been suspended with no date set for recommencement. No amount
pertaining to this project is included as backlog.
Moto Guzzi is seeking to increase production and productivity without
increasing the size of its work force by increased use of component outsourcing.
Competition
-----------
The sale of motorcycles is a highly competitive business, with
competition typically coming from all powered passenger vehicles, as well as
motorcycles. The overall market in Italy contracted slightly in 1995, with new
vehicle registrations in Italy declining by 2.7% compared to 1994. Overall, Moto
Guzzi had a 2.3% share of the Italian domestic market in 1995 and sales of its
largest motorcycles (over 750 cc) represented approximately a 2.6% market share.
Moto Guzzi's share of the Italian market must be considered in the light of its
inability to meet demand in 1995 due to production capacity limitations, as
noted above.
The Italian market remains dominated by large, well-financed Japanese
manufacturers. A number of Italian and foreign manufacturers, principally
Cagiva, Honda, Yamaha, Kawasaki and Suzuki, sell their products in the Italian
market. In 1995, the Italian market shares of the principal competitors of Moto
Guzzi on a unit basis were as follows:
10
<PAGE>
For the largest machines (over 750cc):
Harley Davidson - 19.7%; BMW - 17.5%; Ducati - 14.6%; Honda - 14.1%;
Suzuki- 9.3%; Kawasaki - 8.0%; Moto Guzzi 2.6%; Triumph 2.5%.
For all motorcycles:
Honda - 25.4%; Yamaha - 15.2%; Aprilia - 12.1%; Suzuki - 9.0 %; BMW -
6.7%; Kawasaki - 6.6%; Ducati - 6.1%; Cagiva 5.2%; Harley Davidson - 4.1%; Motor
Guzzi 2.3%.
Moto Guzzi maintains an extremely small share of the world-wide
motorcycle market, which is dominated by many of the same manufacturers that
predominate in Italy.
Raw Materials and Components
----------------------------
The source and supply of motorcycle raw materials, including aluminum
for power train components, is not a significant business risk for Moto Guzzi.
There are multiple reliable sources for components.
The cost of imported raw materials is affected by variations in
currency exchange rates. In 1994, the value of the Italian lire had declined
relative to the currency of Italy's primary trading partners which resulted
simultaneously in an increase in the cost of imported raw materials and in an
improvement in the price competitiveness of Italian-made finished goods, such as
Moto Guzzi's motorcycles. In 1995, as a result of greater stability, currency
exchange rates had a less significant effect on costs and price competitiveness.
During 1995, the costs of materials and components for production of a
motorcycle increased by approximately 6.2% over 1994 average costs levels.
Approximately 4.8% of this was due to material cost increases, 1.2% to
outsourcing of certain components and 0.2% to technical improvements and
modifications to specifications. A significant element of the raw material price
increase was in respect of purchased aluminum components which increased by
approximately 30%, mainly due to aluminum prices.
Research and Development and Continuing Engineering
---------------------------------------------------
Moto Guzzi is continuously engaged in company-sponsored programs of
product improvement and development. Aggregate 1995 research and development
expenditures by Moto Guzzi were Lit. 861 million ($542,191) compared to Lit. 197
million ($124,055) in 1994, and Lit. 409 million ($257,557) in 1993. Of the Lit.
861 million expenditure in 1995, approximately Lit. 602 million was in respect
of development of models whose production will commence in 1996.
These on-going programs relate to developing more powerful engines
with improved performance and durability characteristics, superior braking
systems, suspensions, frames, transmissions and other components applicable to
two-wheeled vehicles.
Seasonal Nature of Business
---------------------------
Moto Guzzi's business has been turned around to the point that again
it is affected by seasonal factors. Retail market demand is highest in the
spring and early summer, whereas most sales to the Italian government take place
in the last quarter of the year. Moto Guzzi, like most Italian companies,
traditionally shuts down production in August of each year and traditionally
also has reduced production over the Christmas holidays and in the period
immediately following, while inventory is being taken. Moto Guzzi is now seeking
to reduce the production slowdown during this December-January period as part of
its effort to increase overall production levels by not suspending production
during the period of physical inventory taking.
11
<PAGE>
Working Capital Items
---------------------
Moto Guzzi is not affected by any unusual industry practices relating
to returns of merchandise or extended payment, nor are they required to carry
unusually significant inventories. Due to a strategic decision to increase
component outsourcing, inventory levels increased in 1995. See "Management's
Discussion and Analysis of Financial Conditions and Results of Operations"
below.
Patents and Trademarks
----------------------
Except as described below, the business of Moto Guzzi is not and has
not been in any material respect dependent upon patents, licenses, franchises or
concessions. The component parts of motorcycles are manufactured pursuant to
well known techniques and include components which are not unique to its
products, although some of these components are specially styled and designed.
Management believes that the trade name "Moto Guzzi" and the related trademarks
are well known and highly regarded throughout the world, and appropriate steps
have been taken to protect Moto Guzzi's rights in these trade names and
trademarks in those countries representing significant markets.
Compliance with Governmental Regulations
----------------------------------------
Moto Guzzi, along with other motorcycle manufacturers, has incurred
substantial costs in designing and testing products to comply with safety and
emissions requirements. Such standards have added, and will continue to add,
substantially to the price of the vehicles while competitive pressures have kept
export prices lower than domestic Italian sales prices.
The distribution of motorcycles in the United States is not subject to
the required federal safety equipment and damage susceptibility regulations
applicable only to automobiles, such as bumper durability, and front and side
impact resistance and passive restraint systems insofar as they relate to newly
manufactured post-1990 vehicles, nor to state or federal automobile fuel economy
or emissions regulations with respect to such vehicles.
All motorcycles produced by the Company and its subsidiaries for sale
in the United States are manufactured with the intent to comply with all
applicable federal safety standards. The Company's 1995 model year motorcycles
comply with EPA emission standards applicable in all 50 states.
Employees and Employee Relations
--------------------------------
At December 31, 1995, Moto Guzzi had 338 employees, compared to 303 at
December 31, 1994, of whom approximately 74% were engaged in factory production
and the balance in various supervisory, sales, purchasing, administrative,
design, engineering and clerical activities. At December 31, 1995, the Company's
Centro Ricambi parts subsidiary had 19 employees. Approximately 42% of Centro
Ricambi's employees are engaged in warehouse and shipping work, with the balance
engaged in supervisory, purchasing, administrative and clerical activities.
Labor hourly costs increased approximately 3.4% in 1995 at Moto Guzzi as a
result of pay rises of 2.5% and a bonus for reaching production targets of
approximately 0.9%. Annualized labor costs based on data through December 31,
1995 were approximately 17 % higher than in 1994 in the aggregate due to the
engagement of additional personnel, pay increases and increased overtime.
Overtime hours amounted to 9.6% of total hours in 1995 compared to 5.9% in 1994.
Moto Guzzi was not subjected to any strikes or work stoppages in
1995, whereas two national strikes in 1994 cost Moto Guzzi 3,217 production
hours. In Modena, the local Centro Ricambi "company" contract expired on March
31, 1994. A new contract has not yet been signed. Moto Guzzi's "company"
contract was renegotiated early in 1996. The terms of the renegotiation are not
expected to have a significant impact on labor costs. In 1995, Moto Guzzi did
not avail itself of any Italian government furlough program due to production
furloughs.
12
<PAGE>
Under Italian law, persons in a company acquire the right to severance
pay based upon salary and years of service. At December 31, 1995, the Company
was obligated to pay employees an aggregate of Lit. 8,231,00,000 ($5,183,000)
compared to Lit. 7,137,000,000 ($4,494,000) at December 31, 1994.
(ii) Steel Tubing
------------
Although not material to its 1995 consolidated operations, Lita, which
was acquired on July 25, 1995, is expected to become a material line of business
in 1996. Summary information about Lita is therefore provided in this report.
All of the stock of Lita was acquired at a cost of Lit. 615,000,000 ($387,280),
representing a sizeable discount against the book value of its assets of Lit.
2,264,000,000 ($1,426,000). Lita manufactures plain and perforated molded steel
tubes used principally in the automotive and furniture industries. The
subsidiary's factory in Torino has a production capacity of approximately 15,000
tons, but the company produced at 60% of capacity in 1995 and has achieved
capacity utilization of less than 73% since 1992. T.I.M. had been engaged by
the former owners of Lita in October 1994 to provide management assistance, and
to assist in identifying potential acquirors. Since T.I.M.'s engagement, most
of the customers lost by Lita in 1994 have been regained, supplier relationships
re-established and export relationships established. As budgeted by T.I.M.'s
managers, Lita, in 1996, is accordingly expected to realize substantially higher
revenues than in 1995, and, as a consequence, is expected to become a material
subsidiary of the Company.
(iii) Commercial Real Estate Development Segment
------------------------------------------
The Company acquired as part of the Finprogetti transaction a real
estate portfolio, which it will seek to liquidate at opportune times. The
portfolio consists of investments in four properties in Italy and a minority
shareholding in a property development company.
Commercial property at Cologne, Italy, has a book value of Lit. 16,276
million and outstanding loans secured on the property amounting to Lit. 14,546
million at December 31, 1995. The Cologne property is approximately 22,000
square meters, 80% of which is currently rented to a multinational company under
an operating lease expiring in 1998. The remaining space can only be
commercially exploited after repairs to the existing structure. A sale, at
market value, of all or a portion of the Company's 100% interest to the
Company's affiliate, Interim S.p.A. is currently being examined. In current
market conditions, the Company expects to recover the book value of the
property, after depreciation through the date of sale.
The Company has a 66.7% interest in Immobiliare Broseta S.r.l. which
owns industrial and commercial holdings and additional surrounding land
aggregating approximately 66,000 square meters in Bergamo, Italy. The remaining
33.3% is held by the Company's affiliate, Interim S.p.A. Net of minority
interests Broseta has a value of approximately Lit. 5,200 million in the
Company's balance sheet as at December 31, 1995. The real estate has a book
value of Lit. 11,949 million and outstanding loans of Lit. 4,716 million and the
major part of the property is represented by six buildings to be restructured
for residential use. The Company is negotiating to dispose of its 66.7%
interest in this property to Domer S.p.A., at market value (which is not
expected to be less than book value), in return for secured loan notes and
unsecured loan notes payable on the earlier of completion and eventual sale of
the development or three years.
The Company owns an 80% interest in unimproved land aggregating
2,539,020 square meters near Cagliari (Sardinia), Italy and which has a book
value at December 31, 1995 of Lit. 6,000 million. An unaffiliated third party
has acquired an option to purchase the Company's interest on or before June 30,
1996 for an amount above book value. The Company does not believe this option
will be exercised. The land has development potential for tourism or
residential purposes and the Company will explore its disposition following the
lapse, or otherwise of the outstanding option.
The Company owns a 100% interest in Pastorino S.r.l., which owns
concession rights over 196 spaces in a municipal parking garage in Genoa, Italy.
The book value of the concession rights is Lit. 4,641 million at December 1995.
The rights last until the year 2041 and are being depreciated over the period
from acquisition to this date. The Company has sub-contracted management of the
parking spaces under a three year contract and will consider disposition on the
termination of this contract or sooner, depending on market conditions.
13
<PAGE>
The Company owns a minority interest in Interim S.p.A. (through a 25%
indirect interest in Domer S.p.A. which owns 68.2% of Interim S.p.A.). Interim
S.p.A. is a property development company based in Brescia, Italy which has
several projects under active development as at December 31, 1995. This
investment has a value of Lit. 1,630 million as at December 31, 1995 and the
Company has no current intention to dispose of it.
Financial Information About Foreign and
Domestic (Italian) Operations and Export Sales
- ----------------------------------------------
Motorcycle Business
-------------------
All motorcycle production occurs in Italy and foreign sales are made to
distributors located outside Italy. Most foreign sales are made to Western
European countries. Although in the aggregate sales outside of Italy are
significant, sales to any particular country other than France, Germany, the
United Kingdom, Holland, Australia, Japan, Austria and Switzerland are
insignificant. In 1995, the Company had aggregate sales outside of Italy of
Lit. 35,634 million ($22,440,000) representing 65% of total motorcycle sales.
Set forth below are charts illustrating percentage of motorcycle sales
revenues attributable to various geographic areas in the three most recent
fiscal years.
Geographic Areas
----------------
Year Ended December 31
Benelli & Moto Guzzi Motorcycles 1995 1994 1993
- -------------------------------- ---- ---- ----
Italy 35% 38% 35%
Europe (other than Italy) 49% 51% 41%
United States 6% 5% 6%
Elsewhere 10% 6% 18%
Steel Tubing
------------
All sales by Lita were made within Italy.
Properties
- ----------
The following facilities were, and unless so indicated, are presently,
leased or owned by the Company in the active conduct of its business:
(a) 1,460 square feet of office space at 107 Monmouth Street, Red Bank,
New Jersey 07701, in which are located the United States
administrative offices of the Company, and which is occupied under a
month-to-month lease, at a monthly rental of $970. It is anticipated
that the Company will relocate its administrative offices closer to
the region's international airports and to the residence of the
Company's President and CEO.
(b) Factory and office facilities owned in fee and located in Mandello del
Lario, Italy in a group of one, two and three story buildings
aggregating 54,550 square meters, and which is used by Moto Guzzi.
This facility is currently operating at approximately 50% of
production capacity calculated as a percentage of available space,
compared to a utilization rate of 30% in 1994.
(c) One single-story 2,800 square meter concrete building located in
Modena, Italy and completed in late 1983 with an 8 meter ceiling,
rented on a month-to-month basis by Centro Ricambi from De Tomaso
Modena, an affiliate of Mr. Alejandro De Tomaso, at a monthly rental
of Lit. 9,000,000 ($5,569) since
14
<PAGE>
January 1, 1984. This facility has been fully utilized as a spare
parts distribution facility for Moto Guzzi. The subsidiary is seeking
to relocate its operations to other facilities.
(d) Office, retail showroom, service and warehouse space at 1501 Caton
Avenue, Baltimore, Maryland, situated on a 2.9 acre tract in a steel
and masonry building of approximately 25,000 square feet, owned by
MAI. The facility had operated at approximately 40% of capacity in
1994. Inasmuch as MAI has suspended operations, the facility became
vacant in 1995. The Company has agreed to sell the property and,
subject to obtaining a zoning variance from the City of Baltimore,
expects to consummate the sale prior to the end of the third quarter.
The agreement will expire in July 1996 if the variance has not been
obtained.
(e) A combined commercial andresidential building in Rome owned by O.A.M.
The two-story building occupies approximately 1,100 square meters. The
commercial portion (the basement, ground floor and access ramp) is
rented to a Guzzi dealership pursuant to a long-term lease. The first
floor is rented for residential purposes, and contains approximately
152 square meters of space. The Company is attempting to dispose of
the property during the current fiscal year at not less than book
value.
(f) Offices aggregating 480 square meters in Milan, Italy, used by
Finprogetti Servizi, Finprogetti Investimenti Immobiliari and T.I.M.
are leased from an entity affiliated with Francesco Pugno Vanoni, the
Chairman of the Board of the Company, and his brother, at a cost of
Lit. 130,000,000 ($82,000) in 1995 under a lease expiring on August
31, 2000. The rental is believed to be comparable to rents paid for
similar facilities elsewhere in Milan.
(g) Warehouse, offices and surrounding land aggregating 63,874 square
meters in Cologne, Italy. Approximately 80% of the 22,122 square meter
office and warehouse space is rented to a single tenant at an annual
rental of Lit. 1,280,000,000 ($806,000) and negotiations are
proceeding to rent the remainder of the space to the tenant. The
Company is negotiating the disposition of the property, which is
encumbered by a Lit. 14,546 million ($9,160,000) mortgage.
(h) Unimproved land aggregating 2,539,020 square meters in Cagliari,
Italy. The Company, through Finprogetti Immobiliari, owns an 80%
interest therein, and is exploring its disposition. An unaffiliated
third party has acquired an option to purchase the Company's interest
on or before June 30, 1996 for Lit. 10,600,000,000 ($6,675,000) less
outstanding debt.
(i) Industrial and commercial holdings and additional surrounding land
aggregating 66,301 square meters in Bergamo, Italy. The Company owns,
directly or indirectly through its Finprogetti subsidiaries, a 66.7%
interest in the property which is available for development but is
essentially unused. The sites include six structures which date from
the 17th century. The Company is currently negotiating to dispose of
this property and related debt of Lit. 4,716 million.
(j) Offices aggregating 150 square meters in Brescia, Italy used by
Finproservice S.p.A. at an annual rental of Lit. 16,000,000 ($9,901)
under a six year lease expiring in 2001.
(k) Subconcession rights to 196 spaces in a municipal parking garage in
Genoa, Italy. The spaces are managed by an unaffiliated party under an
agreement which expired in June 1995. Subsequently, the Company has
sub-contracted management of the parking spaces under a three year
contract and will consider disposition on the termination of this
contract or sooner, depending on market conditions.
(l) The Company also owns minority interests in entities which own other
property in Bergamo and Brescia.
(m) Factory and related commercial facility aggregating approximately
10,000 square meters in Torino, Italy leased by Lita, used at
approximately 60% of capacity.
15
<PAGE>
Legal Proceedings
- -----------------
The Company and its subsidiaries are involved in litigation in the normal
course of business, Management does not believe, based on the advice of its
legal advisors, that the final settlement of such litigation will have an
adverse effect on the Company's consolidated financial statements as of December
31, 1995.
Market for Registrant's Common Equity and Related Stockholder Matters
- ---------------------------------------------------------------------
As of March 28, 1996, there were 1,334 holders of record of the Company's
common stock.
The Company's common stock traded on the non-NASD over-the-counter market,
commonly called the "pink sheets" in 1993 and until September 23, 1994. Since
September 24, 1994, the common stock has traded on the NASDAQ small-
capitalization market system. The reported prices represent inter-dealer
prices, which do not include retail mark-ups, mark-downs, or any commission to
the broker-dealer, and may not necessarily represent actual transactions.
Bid Prices
----------
1993 High Bid Low Bid
---- -------- -------
1st Quarter 3 1/2 3 1/2
2nd Quarter 4 1/2 4
3rd Quarter - -
4th Quarter 2 2
1994 High Bid Low Bid
---- -------- -------
lst Quarter 3 2 1/2
2nd Quarter 5 1/2 2 1/2
3rd Quarter through September 23 5 1/2 4
September 26 through September 30 5 4 1/2
4th Quarter 9 1/4 4 1/4
1995
----
lst Quarter 9 1/2 7 3/4
2nd Quarter 9 5/8 8 1/2
3rd Quarter 9 3/4 9 3/8
4th Quarter 10 1/2 9 1/2
1996
----
January 1 through March 28 11 10 1/4
No dividends were declared or paid during 1993, 1994 or 1995. The Company
does not believe that its capital needs will permit the payment of a dividend in
the foreseeable future.
16
<PAGE>
Selected Financial Data
- -----------------------
<TABLE><CAPTION>
Year ended
December 31 Years ended December 31,
1995 1995 1994 1993 1992 1991
------------------------------------------------------------
US$(1) (Millions of Italian Lire - except for per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Net Sales $ 45,499 Lit.72,253 51,994 41,919 45,346 32,219
Loss from continuing operations
before extraordinary items (4,395) (6,980) (3,277) (6,736) (3,967) (9,811)
Net (loss)/income (4,395) (6,980) (3,277) 153,4972 (75,984) (17,320)
Loss per share from continuing
operations before extraordinary
items (1.30) (2,065) (1,593) (2,203) (1,928) (4,769)
Net (loss)/income per share (1.30) (2,065) (1,593) 50,204(2) (36,931) (8,418)
Total Assets 115,133 182,830 118,661 127,556 223,295 264,724
Long-term debt 11,397 18,098 5,004 5,738 71,9493 32,056
Cash dividends paid per
common share Dividends have not been paid in the past.
</TABLE>
1995 figures include the effects of acquisitions of certain subsidiaries and
assets from Finprogetti S.p.A. and of Lita S.p.A.
1 The above information for the year ended December 31, 1995, expressed in
Italian Lire, has been translated into U.S. Dollar equivalents in thousands
of dollars (except for per share amounts), at the rate of exchange prevailing
at December 31, 1995. The prevailing exchange rates as at the end of the
five most recently completed fiscal years is as follows:
1,588 Lire per U.S. Dollar at December 31, 1995
1,622 Lire per U.S. Dollar at December 31, 1994
1,713 Lire per U.S. Dollar at December 31, 1993
1,478 Lire per U.S. Dollar at December 31, 1992
1,147 Lire per U.S. Dollar at December 31, 1991
The high, low and average conversion rates for the years 1991-1995 are
as follows:
High Low Average
---- --- -------
1995 1,767 1,565 1,626
1994 1,689 1,539 1,612
1993 1,713 1,478 1,574
1992 1,475 1,066 1,243
1991 1,364 1,089 1,241
2 Includes a gain of Lit. 160,233 million (Lit. 52,407 per share) resulting
from the sale of the Company's 51% interest in Maserati S.p.A. to Fiat.
3 Long-term debt in 1992 includes advances from affiliates of Lit. 61,000
million.
17
<PAGE>
Management's Discussion and Analysis of
Financial Conditions and Results of Operations
- ----------------------------------------------
General
-------
The acquisition of T.I.M. as part of the Finprogetti transaction enables
the Company to apply that subsidiary's management skills to "turn around"
troubled companies, enhancing their value. The significant progress achieved at
Moto Guzzi at which an operating loss of only Lit. 45,000,000 ($28,000) was
realized in 1995, bears witness to the importance of that transaction. Based on
its 1996 production budget, Moto Guzzi's unit production and sales are expected
to increase by 20% over 1995 levels.
The acquisition of Lita S.p.A. at a price substantially below its book
value illustrates how a T.I.M. management engagement for a client can give rise
to an opportunistic investment. Lita, a manufacturer of steel tubing, expects
to realize increases in production and revenues over 1995 levels of 50% and 73%
respectively. Lita's 1996 operations are expected to be material to the
Company's operations.
T.I.M.'s management engagements frequently involve "turn around" plans
requiring financial restructurings. Such restructurings frequently involve the
need for new capital, as well as the need for creditors to forgive debt or to
convert debt into equity. Each such engagement affords the Company an
investment opportunity. What distinguishes the company from other financial
investors is that the Company, in investing its capital, relies on its own
management skills rather than those of others. The real estate holdings
acquired from Finprogetti, while currently constituting material assets on the
Company's balance sheet, are intended to be disposed of, with the net proceeds
to be utilized to make investments in companies to be managed by T.I.M.
In reviewing the information that follows, the reader should think of the
Company as the combination of management and capital resources being brought to
bear through the operation of and investments in troubled companies, with the
objective of realizing operating profits and investment gains.
Results of Operations
---------------------
Overview
Net Sales
Overall the Company has seen a growth of 38.7% in net sales in 1995
compared to 1994 as follows:
Organic growth of motorcycle segment 30.4%
Acquired businesses 14.4%
Disposed operations (5.9%)
Margins
Underlying margins in the motorcycle business, the Company's largest,
increased to 15.1% in 1995 from 13.5% in 1994. Margin growth has, however, been
contained by reserves and writeoffs for inventory and tooling resulting from
strategic decisions to concentrate on larger motorcycles and largely to abandon
the smaller "Moto Guzzi" and "Benelli" models. The motorcycle business was
still in a turnaround phase at the end of 1995 and, while results achieved in
1995 are very encouraging, further work remains to put this business on a sound
"stand-alone" basis. Margins in 1995 were also affected by a large increase in
product development costs from Lit. 197 million in 1994 to Lit. 861 million in
1995.
Margins decreased slightly in 1994 compared to 1993, due largely to a
favorable reduction of obsolescence reserves in 1993 outweighing a small
improvement in the motorcycle business in 1994.
18
<PAGE>
Selling, General and Administrative Expenses
Selling, general and administrative expenses reflect an increase of
approximately Lit. 2,200 million ($1,385,000), resulting from the Finprogetti
and Lita businesses acquired. Direct transaction costs of Lit. 1,224 million
($771,000) were capitalized as part of the purchase cost but, more generally,
costs of reorganizing the Company's operating structure have added to expense in
1995 while the anticipated benefits are expected to accrue to future periods.
The Company's new operational structure, which was put in place in the second
half of 1995, has a higher cost than in prior periods. The Company will seek to
reduce these costs by bringing certain accounting and legal functions in-house,
from retainer and success fees from services to third parties and operating
profits and investment gains from Portfolio Companies.
There have also been small increases of administrative costs at Moto Guzzi
reflecting investment in personnel for new computer systems and a management
group to control outsourcing. Reductions in selling, general and administrative
expenses in 1994 compared to 1993 largely reflect the efforts of T.I.M. in
reducing costs at Moto Guzzi during the early phase of that company's
turnaround.
Interest Income and Expense
Interest income in 1994 was significantly influenced by Lit. 2,976 million
($1,874,000) of imputed interest on the final installment of Lit. 27,000 million
due from Fiat for the sale of Maserati to Fiat in 1993 which was received on
January 1, 1995.
Interest expense has also been significantly affected by the Finprogetti
and Lita acquisitions which have resulted in an increase of approximately Lit.
1,100 million of interest expense in the six months since acquisition,
principally from real estate loans. External interest expense relative to Moto
Guzzi has also increased over 1994, due mainly to build-up of inventory levels.
Interest expense in 1994 declined from 1993 due to disposal of debt and advances
from banks relating to the disposition of Maserati.
Taxation
The Lit. 420 million tax charge on operating losses from continuing
operations of Lit. 6,110 million results from the fact that most of the
Company's operations are in Italy where companies are taxed on their individual
results without the possibility of filing consolidated returns. The Company's
corporate and tax structure will be examined in 1996 to seek to improve tax
efficiency.
Discontinued operations
In May 1993, the Company completed the disposition of its remaining equity
interest in its Maserati S.p.A. subsidiary. Maserati, which manufactured
Maserati and Innocenti automobiles, had been the Company's most significant
industry segment until its disposition.
Net Loss
The principal reasons for the increased loss in 1995 compared to 1994 are
as follows: (1) Management made a strategic decision to focus Moto Guzzi
production on a small number of large, high priced models, resulting in
increases in inventory reserve and write-offs of tooling of approximately Lit.
1,800 million ($1,134,000) and research and development expenses for new models
which was more than Lit. 600 million ($378,000) above 1994's level; (2) the
Company incurred interest expense associated with the real estate acquired from
Finprogetti of approximately Lit. 1,000 million ($630,000), and exchange losses
of approximately Lit. 900 million ($567,000) arising from a domestic currency
swap related to the planned self-tender and from short term intercompany
advances from subsidiaries.
The loss of Lit. 3,277 million in 1994, compared to Lit. 6,736 million in
1993, declined as a result of the commencement of the turnaround at Moto Guzzi
since T.I.M. managers took charge in May 1994, and net interest benefits
resulting from the proceeds from the sale of Maserati. Moto Guzzi realized a
gain of Lit. 2,841,000,000 ($1,789,000) in 1994 from the sale of certain fixed
assets, including an electric power generating plant, while the Company realized
currency exchange losses of Lit. 1,022,000,000 ($643,000), consisting of a loss
of Lit. 425,000,000 ($267,000) from a loan payable
19
<PAGE>
by American Finance S.p.A. denominated in Swiss francs (paid in 1995), and the
balance derived principally from the collection and payment by Moto Guzzi and
other Italian subsidiaries of foreign accounts receivable and payable. The
Company also realized a loss of Lit. 829,000,000 ($522,040) from a variety of
sources, no one of which was material. See Note 9 of Notes to Consolidated
Financial Statements.
Motorcycles
Summary Information (in millions of lire)
Net sales to unaffiliated customers (net of intersegment eliminations; see
Note 15 of Notes to Consolidated Financial Statements), in millions of Italian
lire:
'95-'94 '94-'93
1995 1994 Growth % 1993 Growth %
---- ---- -------- ---- --------
Motorcycles 55,218 40,714 35.6% 29,986 35.8%
Parts 9,453 8,135 16.2% 7,498 8.5%
Results:
Operating Loss (45) (632) (846)
Operating loss is defined as total revenues less operating expenses,
excluding interest, corporate expenses and other income/(expense).
Net Sales and Orders
Units sold increased to 5,266 in 1995 up from 4,278 in 1994 (excluding
clearance of old Benelli inventory), with significant growth in the sales of the
Company's larger and more expensive models (over 750 cc), where sales increased
to 4,800 units from 4,149 units. Moto Guzzi increased prices of its various
models twice in 1995, with such increases aggregating approximately 9% on
average for domestic sales Italy and for export sales invoices in lire and 4% in
respect of export sales to the United States, which are invoiced in US dollars.
Unit sales in 1994 improved 28% from 1993 unit sales.
Sales in 1995 of Moto Guzzi motorcycles to Italian and foreign government
bodies amounted to 16.2% of total motorcycle sales revenues (1994 - 17.7%).
While sales to government bodies in Italy are significant as a whole to Italian
sales, sales to no single government agency are significant.
The strong growth in motorcycle sales must be viewed in the light of
production capacity restraints. Orders in 1995 were in excess of production
capacity. Orders for 1996 delivery also exceed current production capacity and
the Company expects it will again be unable fully to satisfy demand for its
motorcycles in the current year. The Company has drawn up a sales and
production plan for 1996 based on supplying strategic markets and customers for
approximately 6,400 motorcycles. Orders received for the current fiscal year,
as in prior years, are subject to cancellation by the purchaser(s) without
penalty.
Margins
Underlying margins, excluding the effects of non-recurring items and
research and development expenditure, have improved from 13.5% in 1994 to 15.1%
in 1995. Reported margins for 1995, however, have been contained to only 11.3%
as a result of approximately Lit. 1,800 million of non-recurring reserves and
write-offs of inventory and tooling resulting from the strategic decision to
concentrate on larger motorbikes and largely abandon the smaller "Moto Guzzi"
and "Benelli" models and increased research and product development expenditures
of Lit. 861 million compared to Lit. 197 million in 1994.
The increase in underlying margins in 1995 results from generally favorable
selling price increases compared to unit cost increases. Unit production costs
have benefitted from increased volumes and reduced per unit absorption of fixed
20
<PAGE>
costs, but have been affected by inflation price increases of 4.8%, increased
labor costs from pay increases and high overtime levels and increased
outsourcing which alone has caused a 1.2% cost increase. Export sales continued
to reflect lower margins than domestic Italian sales.
The Company's plan is to continue to increase outsourcing as this will
enable higher volumes which are expected to more than compensate for the higher
cost of externally manufactured components.
Raw Material Prices
A significant element of the raw material unit price increase in 1995 over
1994 of 4.8% has been in respect of purchased aluminum components which
increased in price by approximately 30%, mainly due to the increased price of
aluminum on world markets. There have been no other significant raw material
price changes other than increases in line with inflation.
The Company's decision to outsource a larger number of components in 1995
has had a negative impact on unit prices of approximately 1.2%, compared to
1994.
Labor Costs
Annualized labor costs, based on data through December 31, 1995, were
approximately 17% higher in the aggregate than in 1994 due to the engagement of
additional personnel (357 compared to 322), pay increases and increased
overtime. Overtime hours amounted to 9.6% of total hours in 1995 compared to
5.9% in 1994. Hourly labor costs increased approximately 3.4% in 1995 as a
result of pay rises of 2.5% and a bonus for reaching production targets of
approximately 0.9%.
Two national strikes in 1994 cost 3,217 production hours. There were no
strikes or work stoppages in 1995.
Expenses
Selling, general and administrative expenses have increased from Lit. 4,931
million in 1994 to Lit. 6,378 million ($4,016,000) in 1995. This includes an
exceptional bad debt expense of Lit. 425 million ($268,000) and exchange losses
of Lit. 338 million ($218,000) as well as investments in personnel for planned
changes in information management systems and a new work group to coordinate all
aspects of outsourcing.
Operating Loss
As a result of increased revenues, increased margins and increased
productivity, Moto Guzzi reduced its operating loss significantly from 1994
levels, achieving a virtual break even operating result.
Impact of Changing Prices and Exchange Rates
Inflation continues to have an impact on the motorcycle business. As noted
above, aluminum component prices increased by approximately 30% in 1995,
compared to 1994, mainly due to the increased metal commodity price. Overall
unit material cost increases were approximately 6.2% and labor unit cost
increases were 3.2%.
Both raw material costs and export selling prices are affected by exchange
rates. Approximately 67% by units and 65.3% by sales are represented by exports
which are denominated in lire except for sales to the United States, which are
denominated in U.S. dollars and are not significant to overall sales. Exchange
rates were relatively stable in 1995 against other major currencies.
To the extent permitted by competition, the Company seeks to pass its
increased costs from changing prices on to its customers by increasing selling
prices. Currently, the Company is still benefitting from the devaluation of the
Lire in
21
<PAGE>
1993, following its exit from the European Exchange Mechanism and has been able
to pass on cost increases in 1995 in its selling prices.
The Company's properties were acquired many years ago and the depreciation
charges are significantly lower than if they were based on current prices.
Other plant and machinery will be replaced over future years at higher costs
with higher depreciation charges which, in many cases, may be offset by
technological improvements. The Company accounts for inventories on the last-
in-first-out (LIFO) method, under which the cost of sales reported in the
financial statements approximates current costs and thus provides a closer
matching of revenues and costs in periods of increasing costs.
Steel Tubing
Summary Information (in millions of lire)
1995 (five months)
----
Net Sales to unaffiliated customers 5,831
Operating profit 235
Operating profit/(loss) is defined as total revenues less operating
expenses, excluding interest, corporate expenses and other income/(expense).
General
Lita S.p.A. is located in Torino and is specialized in the production of
plain and perforated high frequency welded tubes destined for the autovehicle
sector (65%), furniture (14%), white goods (9%) and other minor market sectors
(12%). Products included aluminized steel welded tubes, aluminum clad steel
tubes, cold-rolled and hot-rolled steel welded tubes in various shapes (round,
rectangular, oval, square etc) from 10 - 65mm diameter and sold both in sections
of 6 m. (industry standard) and other lengths to meet particular client
requirements. Production takes place in a factory of approximately 10,000 m2
which is owned by the subsidiary's founding family. Annual production capacity
(two shifts) is approximately 15,000 tons.
T.I.M. has worked with Lita since 1994 in preparation for it becoming
autonomous. It was previously owned by a multinational group. As a result of
the previous owners policy, Lita did not export, volumes had constantly reduced
since 1993 and customers had been lost as its production declined. Most of the
customers lost in 1994 have now been regained, supplier relationships re-
established and the companies image in the market restored.
Net sales
The results of Lita S.p.A. are included in operations since July 26, 1995.
Considering the shut-down for most of August, net sales represent approximately
4 months results. Total net sales for fiscal 1995, including the seven months
preceding its acquisition by the Company, amounted to Lit. 14, 541 million.
Operating Profit
The results of Lita in the limited period since acquisition are be
considered very satisfactory, especially since these results are after fees paid
to T.I.M. of Lit. 184 million.
Real Estate
The Company's real estate operations were acquired from Finprogetti in
1995. The Company does not plan to remain engaged in this segment on a long-
term basis.
22
<PAGE>
Summary Information (in millions of lire)
1995 (six months)
----
Rental income 770
Operating loss (92)
Real estate book values December 31, 1995 34,227
Related loans, December 31, 1995 19,262
Operating profit/(loss) is defined as total revenues less operating
expenses, excluding interest, corporate expenses and other income/(expense).
Rental income
Rental income is in respect of one commercial property, Cologne,
approximately 80% of which is rented to a multinational company at an annual
rental of Lit. 1,280 million and income from a parking concession in Genoa.
Rentals from Cologne amounted to Lit. 690 million and from the parking
concessions, Lit. 80 million in the six months to December 31, 1995. Rentals
for Cologne are indexed to the cost of living index and the rental agreement
expires in 1988. Other properties, described briefly below, are under
development or awaiting development and have no operating income.
Profitability
The real estate business is not currently profitable due to depreciation,
real estate taxes and company administration costs exceeding rental income.
Development and Sale Prospects
The Company is seeking to dispose of two of its properties before the end
of the second quarter, with particular concern to dispose of the related
mortgage debt liabilities. Negotiations are at an advanced stage, though
currently there is no certainty that the transactions described below will be
completed.
The Company expects to sell its 66.7% owned investment in land and
contiguous industrial areas in Bergamo to its 25% affiliate, Domer S.p.A., at
book value in exchange for a purchase consideration comprised of loan notes
payable and assumption of debt due in 1996 of Lit. 4,716 million.
The Company is seeking to sell all or a portion of its 100% interest in
Cologne at book value, also to Domer S.p.A. or Interim S.p.A. The finance
structure for such transaction has yet to be agreed. In the second case,
Interim would assume responsibility for payments due on related mortgage debt
through 1996.
The Company will examine disposal opportunities of its remaining real
estate property, comprising undeveloped land in Sardinia, following expiration
or exercise of an option held by a third party (in an amount above the carrying
value of the property) which option expires on June 30, 1996.
Liquidity and Capital Resources
- -------------------------------
Corporate Resources and Commitments
The Company has approximately Lit. 24,100 million ($15,200,000) of cash and
Lit. 17,100 million ($10,705,000) of investments in certificates of deposit and
other similar securities as at December 31, 1995. A tax receivable of
approximately Lit. 5,200 million ($3,275,000) has been reimbursed to the Company
since December 31, 1995.
23
<PAGE>
Approximately Lit. 16,200 million ($10,200,000) of the investments are held
as security for a bank letter of credit issued to guarantee repurchase at a
price of $11.27 per share by the Company of 776,520 shares formerly owned by the
ex-Chairman of the Company, Mr. De Tomaso and now held by a trust. At the
exchange rates in effect on December 31, 1995, the total dollar liability is
less than Lit. 14,000 million ($8,816,000) and the Company is seeking to release
the excess security.
The Company will consider hedging the currency exposure implicit in this
commitment if and when it is considered probably or likely that it may be
obliged to fulfill its contingent purchase obligation.
The Company plans to initiate a program to accept submissions of up to 80%
of the shares held of record by each of its public shareholders at $12.26 if the
proposal to ratify the Maserati Sale is approved. Shareholders representing
66.55% of outstanding stock as at December 31, 1995 have agreed not to
participate. It is anticipated that the repurchase program will be initiated
before the end of the third quarter of 1996.
The following proforma analysis shows the effects on cash, investments and
shareholder's equity if the planned redemption offer is accepted by 100% of
those shareholders entitled to participate and the commitment to purchase the
shares formerly owned by Mr. De Tomaso were effected as at December 31, 1995:
Lit. millions
Cash Investments Equity
Financial Statements . . . . . . . . . 24,137 17,176 51,221
Shares subject to repurchase . . . . . . - (13,897) (1,348)
Redemption offer . . . . . . . . (24,564) - (24,564)
------ ------ ------
Proforma . . . . . . . . (427) 3,279 25,309
======= ====== ======
Apart from the Italian real estate properties and tax refund discussed
above, the Company expects to sell a property owned by its closed Maserati
distributor in Baltimore for a net price of approximately Lit. 1,750 million
($1,100,000) in the second quarter of 1996 and plans to undertake a public
offering of its securities which it hopes to consummate, if at all, during the
second half of the current year.
Management is confident that the Company's current liquid assets and
liquidable assets are more than adequate to enable the Company to meet all of
its intended obligations in the current fiscal year, including providing cash
for operations and its planned repurchase program. Management intends that the
net proceeds of its planned public offering of securities, if consummated, will
be used to fund opportunistic investments arising from its management
engagements.
Other corporate matters
On January 1, 1995, the Company received the final installment of Lit.
27,000 million ($17,003,000) from the sale of its Maserati subsidiary in 1993.
Lit. 23,750 million had been received in 1994 from this sale and was applied to
finance investments in securities and reductions in advances from banks.
Proceeds (advances) in 1994 had largely been applied to offset negative
operating cash flows of Maserati prior to its sale and in Moto Guzzi.
The Company received Lit. 8,204 million in 1995 from shares issued in
respect of the Finprogetti acquisition and paid Lit. 5,000 million to repurchase
shares formerly owned by its former Chairman, Mr. Alejandro De Tomaso. Both of
these cash movements are only a part of larger transactions and reference is
made to Note 3 of Notes to the Financial Statements, below, and Item 1 of the
Company's 10-K, above, for a complete description.
Tax receivables for value added taxes and taxes on income amounting to
approximately Lit. 14,500 million (of which Lit. 5,150 were acquired in the
Finprogetti transaction) have represented a significant drain on liquidity
during 1993
24
<PAGE>
to 1995. Approximately Lit. 5,200 million has been received in January 1996 and
will be applied to offset corporate expenses and to the planned redemption
offer. The timing of receipt of further amounts is uncertain.
Other corporate assets and liabilities include finance receivables and
payables acquired as part of the Finprogetti acquisition. The Company intends
not to enter into new finance transactions through the acquired Finprogetti
subsidiary with third parties and expects that these balances will rapidly
reduce in 1996 with no significant net inflows from or outflows to support these
operations.
Corporate Expenses, Less Interest Receivable
The Company's corporate expenses, less corporate income from treasury
management and recharge of services to third parties has given rise to
significant negative cash flow in 1995 and corporate net of services invoiced to
subsidiaries and third parties, will give rise to negative cash flow in 1996.
Corporate expenses, at a lower level, in 1994 were largely covered by cash
flows from operations.
Real estate
The major effects on liquidity and capital resources of real estate
activities derive from principal repayments of loans and interest on such loans.
In 1995, since acquisition in July 1995, there were negative cash flows of
approximately Lit. 2,000 million principally as a result of loan repayments and
interest.
Of the loans secured on the Company's real estate investments as at
December 31, 1995, Lit. 9,550 million (relative to the Cologne and Broseta
properties) is repayable in 1996. As noted above, the Company is seeking to
dispose of both of these properties before the end of the second quarter and,
thereby to eliminate these obligations.
If the Cologne property is not disposed of then the Company estimates that
net cash outflows for the real estate sector will total approximately Lit. 5,000
million in 1996, largely due to current loan payments.
Operating subsidiaries
Working Capital
Moto Guzzi's working capital increased significantly at December 31, 1995
over December 31, 1994 as a result of a buildup of inventory. The buildup was
the outgrowth of Moto Guzzi's strategic decision significantly to increase
component outsourcing to increase productivity. Management believes that 1995
year end inventory levels as a percentage of 1995 revenues (37%) is higher than
optimal. The 1996 outsourcing budget contemplates that by the end of the 1996
fiscal year, inventory will fall below 30% of expected revenues.
In 1995, the Company rearranged loans of Lit. 4,151 million in default as
at December 31, 1994, along with accrued interest and exchange movements for
part of the loan denominated in ECU, into a renegotiated loan facility of Lit.
5,248 million repayable in installments over five years. Trade credit
facilities, primarily lines of credit for bank advances against account
receivables have also been arranged and Moto Guzzi has total facilities of Lit.
18,300 million as at March 1996, as well as import/export facilities. In total,
facilities are sufficient for planned operations, though not for significant
capital investment (see below).
A capital increase of Moto Guzzi by way of waiver of non-interest bearing
intercompany debt was also made in 1995. This covered accumulated local losses
and increased the share capital by approximately Lit. 6,000 million. The
Company will also record a profit for local accounting purposes for 1995.
While not affecting consolidated reported results, these changes and results
have given increased respectability and access to credit in Italy to the
Company.
The Company is actively seeking financing for a capital expenditure program
which is an important part of Moto Guzzi's longer-term turnaround plan.
Currently, such financing has not been arranged.
25
<PAGE>
Lita, the steel tubing subsidiary, is autonomously financed and has access
to bank advances against trade receivables and unsecured bank borrowings.
Facilities at December 31, 1995 amounted to Lit. 6,000 million against which
Lit. 3,425 million of advances had been drawn.
Moto Guzzi is not affected by any unusual industry practices relating to
returns of merchandise or extended payment, nor are they required to carry
unusually significant inventories.
Finprogetti Acquisition
- -----------------------
Background
----------
After the announcement of the Maserati Sale, a number of the Company's
shareholders informed the Company and its management of their desire, for a
variety of reasons, including their view that the common stock price prevailing
in the public securities market did not adequately reflect the Company's value
and that the Company, having sold Maserati, was no longer in the business which
originally had attracted them to the Company, to "cash out" of their investment
at a price reflecting the fair market value of the Company's assets. The
Company's Board of Directors held the view that in light of the Maserati Sale,
resolving the future of Moto Guzzi was essential to resolving the future of the
Company itself, i.e., if Moto Guzzi were to be sold, the Company would simply
liquidate its assets, while if Moto Guzzi's financial and operational
difficulties could be solved, the Company's prospects would be markedly
improved.
The Board of Directors was nonetheless sensitive to the sentiment expressed
by some of its shareholders, and in anticipation of a possible winding-up of the
Company or cash out merger of the public shareholders of the Company, the
Company's Board of Directors investigated the applicable United States and
Italian tax law implications of a share repurchase program. The Board also
agreed that if, as a result of identifying and implementing a long-term solution
to Moto Guzzi's operational problems, the Company were to remain in operation,
the shareholders would still be offered an opportunity to liquidate part or all
of their investment. The Board resolved to discuss the various possibilities
for the Company's future at the next shareholders' meeting.
To that end, the Company engaged an international professional services
firm with experience and expertise in business and asset evaluation to assist
the Board in analyzing the Company as it existed immediately before the Maserati
Sale, and again on a then-current basis. The evaluation process commenced in
the spring of 1994 and was concluded in December of that year.
Finprogetti Proposal
--------------------
Meeting in December 1994 to fashion a proposal to present to shareholders,
the Board of Directors established a then-current value for the Company at Lit.
20,106.73 per share, based on the Board's own analysis of the Company's assets
and future business prospects. The Board relied on information available to it
and also considered the professional services firm's input. The Board then
received an offer from Finprogetti in which (a) the Company would acquire
substantially all of the operating assets of Finprogetti, including its Italian
real estate holdings, its TIM subsidiary and an aggregate of Lit. 13,000,000,000
($8,186,000) in loans and tax receivables, in exchange for newly issued shares
of DEI common stock, valued for exchange purposes at the value established by
the Board, subject to the Board's evaluation of the assets of Finprogetti to be
acquired, and (b) Finprogetti would make or cause others to make additional
equity investments in the Company aggregating up to Lit. 15,000,000,000
($9,456,000), paying cash at the same price per share. Investments of less than
Lit 15,000,000,000 in the aggregate would result in a purchase price adjustment
in the form of a reduction in the number of shares to be issued for the
Finprogetti assets.
Accepting the offer and consummating a transaction with Finprogetti
represented, for the Board, the culmination of efforts which had commenced in
1993, with the recognition of the need to dispose of Maserati, occurring
contemporaneously with the illness of the Company's former chairman, Alejandro
De Tomaso. Having disposed of Maserati, the Board determined that the Company
would be able to grow its Moto Guzzi operations and could develop as a new line
of business the rendering of management services and associated financial and
investment skills built upon the "turnaround" expertise of TIM.
26
<PAGE>
Under the agreement ultimately negotiated with Finprogetti, which closed
on July 17, 1995, and after the purchase price adjustment provided for therein,
a total of 1,922,652 shares of common stock were issued in exchange for the
Finprogetti assets, and certain of the Finprogetti shareholders purchased an
additional 408,008 shares at an aggregate cost of Lit. 8,203,706,600
(approximately $5,000,000). A portion of the 1,922,652 shares are being held in
escrow pending receipt by the Company of a Lit. 5,150,000,000 ($3,243,000)
Italian tax refund due to one of the acquired Finprogetti companies.
Finprogetti also agreed, as soon as reasonably practicable, to distribute
its holdings in the Company's stock to its own shareholders. Until that
distribution occurs, the Company agreed to nominate for the Board of Directors
five persons designated by Finprogetti and five persons designated by
Management. Each of Finprogetti, Mario Tozzi-Condivi, Albino Collini,
Howard E. Chase and Francesco Pugno Vanoni agreed to vote all shares he or it
may hold in favor of that slate of nominees, all of whom are identified in this
proxy statement. Upon the occurrence of the distribution by Finprogetti to its
shareholders of its DTI shareholdings, the voting agreement will terminate.
The shareholders of Finprogetti are not bound by any voting agreement with the
Company or with its Management.
The stock price on May 4, 1993, the last trading day for which quotations
(m)are available prior to the May 18 announcement of the execution of the
Maserati Sale agreement with Fiat, ranged from a low bid of 4 to a high ask of
6.
PROPOSAL NO. 1:
--------------
Election of Directors
Unless otherwise specified, the Proxy will be voted for each of the
nominees named below as a Director, to serve until the next Annual Meeting of
Shareholders or until his successor shall be elected and shall qualify. All of
the nominees are currently members of the Board of Directors and are persons
who Management agreed to nominate in connection with the Finprogetti
Acquisition. Management has no reason to believe that any of such nominees
will be unable to serve as a Director. In the event, however, that any of them
shall be unable to serve as a Director by reason of death, incapacity or for
any other reason, or for good cause will not serve, the appointees named in the
Proxy reserve the right to substitute another person of their choice as
nominee, in his place and stead, or to vote for such lesser number of Directors
as may be prescribed by the Board of Directors in accordance with the Company's
By-Laws. The nine nominees for director, their positions with the Company,
their term of office and their business background are as follows:
<TABLE>
<CAPTION>
Position with Company
and Business Experience Director
Name Age During Past Five Years Since
---- --- ---------------------- -----
<S> <C> <C> <C>
Giovanni Avallone 54 Director; Director of Finprogetti from February 2, 1993 1995
until June 1996; Director and President of Lita S.p.A.
since February 12, 1995; Director of Interim S.p.A.
since April 26, 1993; Director of TIM since December
16, 1994.
Howard E. Chase 59 Director; Secretary of the Company and Company counsel 1971
from 1971 until September 1, 1995; Vice-President of
the Company from 1986 to October 28, 1995; partner of
Morrison Cohen Singer & Weinstein, LLP from April 1984
until September 1, 1995; President and Chief Executive
Officer of the Company since October 28, 1995.
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Position with Company
and Business Experience Director
Name Age During Past Five Years Since
---- --- ---------------------- -----
<S> <C> <C> <C>
Albino Collini 54 Director; Executive Vice President and Chief Operating 1995
Officer of the Company since October 28, 1995; Director
of Moto Guzzi since July 24, 1995; President of TIM
S.p.A. and predecessors since 1987; Managing Director
of Finprogetti S.p.A. from July 20, 1995 until May
1996; Director of Finprogetti International Holding,
S.A. since October 29, 1993; Director of Titanus S.p.A.
since May 25, 1995.
Mario Tozzi-Condivi 71 Director; Vice Chairman since October 28, 1995; 1993
Director of Moto Guzzi, S.p.A. since July 24, 1995;
President of MAI since February 1989; Chairman of the
Board of M Maserati U.K. Ltd., 1986-1987; Independent
consultant to automobile importers, distributors and
dealers in England, Italy, Singapore and South Africa,
1984-current.
Roberto Corradi 59 Director; Chairman of Progetto S.a.A. di Roberto 1989
Corradi & Co., architectural firm, since 1987; in
private architectural practice for more than five years
prior thereto.
Carlo Garavaglia 52 Director; Member of Studio Legale Tributario 1995
Associates, a law firm in Milan, for more than five
years; Chairman of the Board of American Finance S.p.A.
since July 21, 1995; Director of AF since May 1994;
Director and President of Moto Guzzi since July 24,
1995; Director of O.A.M. since May 20, 1994; Chairman
of the Board of O.A.M since July 21, 1995; Director of
Finprogetti Investimenti Immobiliare S.p.A. since
October 8, 1993; Director of Grand Hotel Bitia S.r.l.
since March 4, 1994; Director of TIM since December 16,
1994; Director of Tridentis Financiere S.r.l. since De-
cember 20, 1990; Director of Finprogetti S.p.A. from
September 2, 1993 until June 1996.
Maria Luisa Ruzzon 49 Director of Finprogetti S.p.A. from February 2, 1993 1995
until June 1996.
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Position with Company
and Business Experience Director
Name Age During Past Five Years Since
---- --- ---------------------- -----
<S> <C> <C> <C>
Santiago De Tomaso 40 Director, President and Chief Operating Officer of the 1993
Company from 1993 to October 28,1995; Sales and Promo-
tion Manager and Member of the Board of Directors of De
Tomaso Modena S.p.A. for more than the past five years;
Vice President of Immobiliare Canalgrande S.p.A. for
more than the past five years; Administratore Unico of
Storm S.r.l. since May 18, 1992; Member of the Boards
of Directors of Moto Guzzi S.p.A. and American Finance
S.p.A., each for more than the past five years.
Francesco Pugno 66 Chairman of the Board since October 28, 1995; President 1995
Vanoni and director of Finprogetti S.p.A. for more than five
prior years until June 1996; Director of Cached, S.p.A.
and of Finceccato, S.p.A. for more than the past five
years.
</TABLE>
None of the above-described persons except Mr. Chase is a director of any
company with a class of securities registered pursuant to Section 12 of the
Securities Exchange Act of 1994 or of any company registered as an Investment
Company under the Investment Company Act of 1940. Mr. Chase, in 1987, became a
director of Thoratec Laboratories, Inc., a company with a class of securities
registered pursuant to Section 12 of the Securities Exchange Act of 1934.
There is no family relationship among any of the members of the Board of
Directors or the officers of the Company.
The Company has no standing nominating committee of the Board of
Directors, or committee performing similar functions. A compensation committee
was established on October 28, 1995; Mr. Corradi is currently its sole
member. An audit committee was established in 1989 but has not held any
meetings. In respect of all of these functions, the Board has acted as a
committee of the whole. All of the current members of the Board of Directors
who were or became directors in 1995 attended at least 75% of those meetings
held in such year during their term of service, other than Mr. Corradi. The
term of each Director will expire when his successor shall have been elected
and shall have qualified. Non-employee directors will be compensated for
their services as such, at the rate of $4,000 per year. Additionally,
Proposal No. 6 seeks shareholder approval of a stock option plan under which
non-employee directors will automatically be granted stock options. See
---
Proposal No. 6, below.
Messrs. Avallone, Collini, Corradi, Garavaglia, Previtali, Pugno Vanoni
and Ruzzon filed their respective initial Forms 3 later than November 10, 1995,
the date on which such filings were due following their election to the board
of directors, and did not file a Form 5 to indicate that such Forms 3 were
filed late. Messrs. Chase and Santiago De Tomaso filed their respective Forms
4 later than December 10, 1995, the date on which such filings were due
following the granting to them of stock options, and did not file a Form 5 to
indicate that such forms were filed late.
Principal Security Holders
- --------------------------
The following table sets forth, as at April 19, 1996, information
concerning the beneficial ownership of voting securities of the Company by each
person who is known by Management to own beneficially more than 5% of any class
of such securities:
29
<PAGE>
Name and Address of Amount Bene- Percent
Title of Class Beneficial Owner ficially Owned of Class
- -------------- ------------------- -------------- --------
Common Stock Finprogetti, S.p.A. 1,786,680(1) 37.9%
Common Stock Pirunico Trustees (Jersey)
Limited(2) 776,530 16.5
1 Of such amount, 248,673 shares are held in escrow pending satisfaction
of a condition precedent and may not be voted by Finprogetti.
Finprogetti therefore may vote 32.6% of all votes entitled to be cast.
Such amount excludes 165,972 owned beneficially by Albino Collini.
2 Pirunico Trustees (Jersey) Limited is the trustee of a trust which
acquired by gift shares formerly owned by the Company's former
principal shareholder.
Security Ownership of Management
- --------------------------------
The following table sets forth, as at April 19, 1996, information concern-
ing the beneficial ownership of voting securities of the Company by all Direc-
tors or nominees, individually, and by all Directors and Officers as a group:
Number of Shares
Title of of Common Stock Percent
Class Beneficially Owned of Class
-------- ------------------ --------
Albino Collini(1) Common 165,972 3.4
Patrick D'Angelo(2) Common 50,900 1.1
Francesco Pugno Vanoni(1) Common 32,971 0.7
All officers and
Directors as a
Group Common 388,943(3) 7.9
_____________________________
1 Mr. Collini is a former officer of, and Mr. Pugno Vanoni is a former offi-
cer and director and a current shareholder of Finprogetti, S.p.A., which
beneficially owns 1,786,680 shares. While neither has authority to dispose
of or vote the shares of Finprogetti, and disclaims beneficial ownership
thereof, since Finprogetti has agreed to vote its shares in favor of the
nominated slate of directors and in favor of ratifying the Maserati Sale,
for those purposes only, they each could be deemed to beneficially own the
shares held by Finprogetti. Of the shares owned beneficially by Mr.
Collini, 135,972 are held of record by Tairona, S.A., a Luxembourg
corporation affiliated with Mr. Collini, and 30,000 represent options
exercisable within 60 days.
2 Mr. D'Angelo was a member of the Board of Directors until April 23, 1996,
when he resigned in disagreement over the timing of and payment terms
embodied in the planned stock repurchase program being considered by the
Board of Directors.
3 Includes 228,000 shares purchasable upon exercise of options exercisable
within 60 days. Does not include 50,900 shares beneficially owned by Mr.
D'Angelo.
30
<PAGE>
Executive Officers
- ------------------
Position with Company
and Business Experience
Name Age During Past Five Years
---- --- -----------------------
Francesco Pugno Vanoni(1)
Howard E. Chase(1)
Albino Collini(1)
Santiago De Tomaso(1)
Mario Tozzi Condivi(1)
Carlo Previtali 52 Director of Finprogetti International
Holding, S.A. from November 1988 to
December 1994; Director of Nolan S.r.l.
from May 1989 to November 1990; Director
of Serfin S.r.l. from October 1989 to
July 1992; Chief Executive Officer of
Profin S.p.A. from January 1990 to
December 1995; Director of Idea Uno
S.r.l. from February 1990 to June 1992;
Director of Cem S.p.A. from March 1990
to January 1991; Chief Executive Officer
of Unifin, S.r.l. from March 1990 to
October 1991; Director of
Finpromerchant, S.r.l. from June 1990 to
October 1992; President of San Giorgio
S.r.l. (a non-executive title) from July
1990 to November 1993; Director of
Fintrade S.p.A. from September 1990 to
February 1994; Director of Finprogetti
Immobiliari, S.p.A. from May 1991 to May
1994; Director of Progetti Cosmetics
S.r.l. from June 1991 to June 1994;
Director of Oikos S.r.l. from September
1991 to March 1993; Director of Team
Finanziaria S.r.l. from October 1991 to
July 1993; Director of Codd And Date,
S.p.A. from December 1992 to February
1994; President of Penice Immobiliari
S.r.l. from January 1993 to December
1994; Chief Executive Officer of
Finprogetti Investimenti Immobiliare,
S.p.A. from February 1993 to October
1995; Director of Finproservice, S.p.A.
from March 1993 to September 1994;
Director of O.A.M., S.p.A. since July
1995; Director of American Finance,
S.p.A. since July 1995; Director of
Opticos S.r.l. from May 1983 to July
1991; President of Trimi S.r.l. from
April 1990 to October 1992; San Giorgio
S.r.l., in which Mr. Previtali held a
non-executive post until he resigned in
November 1993, has been in "controlled
administration" in Italy since 1995.
Controlled Administration is roughly
analogous to United States bankruptcy
reorganization. Officer of Finprogetti
S.p.A. from 1993 until June 1996.
Catherine D. Germano 70 Assistant Treasurer and Assistant
Secretary; Treasurer and Secretary of
the Company from 1973 until October 28,
1995.
_____________________________
1 Information relating to the ages, positions with the Company and
past business experience of Messrs. Chase, Collini, Tozzi-Cond-
ivi, Pugno Vanoni and De Tomaso is set forth above under "Direc-
tors." All executive officers will serve in their respective
capacities until their successors shall have been elected and
shall have qualified.
31
<PAGE>
Summary of Cash and Certain Other Compensation
- ----------------------------------------------
The following table shows, for the three fiscal years ended December 31,
1995, 1994 and 1993 the cash compensation paid or accrued for those years to
the President of the Company and each of the most highly compensated executive
officers of the Company other than the President whose aggregate annual salary
and bonus exceed $100,000 for the Company's last fiscal year ("Named
Executives") in all the capacities in which they served:
SUMMARY COMPENSATION TABLE
<TABLE><CAPTION>
Long-Term Compensation
----------------------------------------
Annual Compensation Awards Payouts
-------------------------- ------------------ -----------
Name and Other Restricted
Principal Annual Stock Options/ LTIP All Other
Position Year Salary(Lit./$) Bonus(Lit./$) Compensation($) Awards($) SARs (#) Payouts($) Compensation($)
- -------- ---- -------------- ------------- --------------- --------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AlejandroDe Tomaso - 1993
Lit. 659,233,333/ -0- -0- -0- -0- -0- -0-
President of the ($415,000)
Company until
April 2, 1993.
SantiagoDe Tomaso 1993
Lit. 110,000,000/ -0- -0- -0- -0- -0- -0-
President of the Company ($69,270)
from April 2, 1993 until 1994
Lit. 100,000,000/ -0- -0- -0- 30,000 -0- -0-
October 28, 1995 ($63,000)
1995
Lit. 76,500,000/
($48,000)
Howard E. Chase 1995
Lit. 155,737,000/ -0- -0- -0- 300,000 -0- -0-
President and Chief ($98,071)
Executive Officer
since October 28, 1995
Albino Collini 1995
Lit. 186,700,000/ 50,000,000 -0- -0- 150,000 -0- -0-
Executive Vice President ($117,569) ($31,486)
since October 28, 1995
Mario Tozzi Condivi 1995
Lit. 93,414,000/ -0- -0- -0- 200,000 -0- -0-
Vice Chair since ($58,825)
October 28, 1995
Domenico Costa 1995
Lit. 237,850,000/ -0- -0- -0- 60,000 -0- -0-
President of TIM ($149,781)
Arnolfo Sacchi - 1994
Lit. 192,000,000/ -0- -0- -0- -0- -0- -0-
Administratore Delegato ($120,907)
of Moto Guzzi since 1994 1995
Lit. 223,519,700/ -0- -0- -0- 60,000 -0- -0-
($140,756)
</TABLE>
32
<PAGE>
STOCK OPTION GRANTS
The following table sets forth information concerning the grant of stock
options/SARs made during the fiscal year ended December 31, 1995 to each of the
Named Executives:
<TABLE><CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
- --------------------------------------------------------------------------------------------
-
Individual Grants*
- ---------------------------------------------------------------------
Percent of Potential Realizable Value
Number of Total at Assumed Annual Rates (Alternative to
Securities Options/ of Stock Price Appreciation Potential Realizable
Underlying SARs For Option Term Value)
Options/ Granted to --------------------------------- ----------------------
SARs Employees Exercise or
Granted in Fiscal Base Price Expiration Grant Date
Name (#) Year ($/Sh) Date 0% 5% ($) 10% ($) Present Value $
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Howard E. Chase 300,000 31.25% 12.26 11/1/2000 -0- 150,000 1,155,000
Mario Tozzi Condivi 200,000 20.8% 12.26 11/1/2000 -0- 100,000 770,000
Albino Collini 150,000 15.6% 12.26 11/1/2000 -0- 75,000 577,500
Santiago De Tomaso 30,000 3.1% 12.26 11/1/2000 -0- 15,000 115,500
Domenico Costa 60,000 6.2% 12.26 11/1/2000 -0- 30,000 231,000
Arnolfo Sacchi 60,000 6.2% 12.26 11/1/2000 -0- 30,000 231,000
___________________________
</TABLE>
* All options are exercisable as to 20% of the grant cumulatively over five
years.
Stock Option Exercises
- ----------------------
None of the Named Executives exercised any stock options in the 1995 fiscal
year.
<TABLE><CAPTION>
AGGREGATE OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
Value (1) of Unexercised
Shares Number of Unexercised In-the-Money
Acquired Option/SARs at Option/SARs at
on Value FY-End (#) FY-End ($)
------------------------ ------------------------
Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Howard E. Chase - - - 300,000 - -
Mario Tozzi Condivi - - - 200,000 - -
Albino Collini - - - 150,000 - -
Santiago De Tomaso - - - 30,000 - -
Domenico Costa - - - 60,000 - -
Arnolfo Sacchi - - - 60,000 - -
- --------------------------------
</TABLE>
(1) Based on the fair market value per share of the Common Stock of
$10.375, which was the closing price of the Common Stock on the NASD
Small Capitalization Market.
33
<PAGE>
Compensation of Directors
Non-employee members of the Board of Directors of the Company will each be
paid $4,000 per year from the Company for services rendered in their capacity as
such and, subject to shareholder approval of Proposal No. 6, non-employee
directors will receive automatic grants of stock options. Officers of the
Company or its subsidiaries who are members of the Board of Directors of the
Company and employees receive compensation for services rendered in their
capacities as officers only, and, subject to shareholder approval of Proposal
No. 5, may be entitled to discretionary grants of stock options. See "Summary
---
of Cash and Certain Other Compensation", and Proposals No. 5 and 6 below.
Compensation Committee Interlocks and Insider Participation
The Company's Board of Directors established a compensation committee on
October 28, 1995, but it has not yet convened. The Company and each of its
subsidiaries has, to date, addressed all compensation issues through its or
their respective boards of directors. All members of the Board of Directors
other than Ms. Ruzzon and Mr. Corradi served as executive officers and/or
employees of the Company and/or one or more of the Company's subsidiaries in
1995. Mr. Garavaglia is President of Moto Guzzi, but receives no compensation
as such.
Messrs. Tozzi-Condivi, Chase, Pugno Vanoni, Garavaglia and Previtali
engaged in transactions with the Company during 1995 other than in the capacity
described above. See "Certain Relationships and Related Transactions" below.
---
Board Compensation Committee Report on Executive Compensation
The compensation policy implemented by the Company and its subsidiaries for
the compensation of executive officers calls for consideration of the nature of
each executive officer's work and responsibilities, unusual accomplishments or
achievements on the Company's behalf, the time expended in connection with that
executive officer's duties, years of service, and the Company's (or subsidiary-
's) financial condition generally. Historically, overall corporate performance
has not been a significant factor in establishing compensation. However, as a
result of the Finprogetti Acquisition and the many changes to the Company's
governing structure, including the creation of an Executive Committee and
Compensation Committee of the Board of Directors, other and additional factors
are likely to be included in compensation policies, including overall corporate
performance, and performance of individual units of the Company. A compensation
committee of the Board of Directors was authorized on October 28, 1995.
In November 1995 the Company entered into employment agreements with each
of Howard E. Chase, Albino Collini, Giovanni Avallone, Domenico Costa and Carlo
Previtali, an agreement for limited services with Francesco Pugno Vanoni, and a
consulting agreement with Como Consultants, Ltd., a corporation which will
provide the services of Mario Tozzi Condivi. The agreements with Mr. Chase,
Collini, Pugno Vanoni and Como Consultants are for a term of five (5) years, and
all other agreements are for a term of three years, subject, in all cases, to
early termination under certain conditions. Pursuant to such agreements Mr.
Chase serves as President and Chief Executive Officer at a base salary of
$375,000 per year, Mr. Collini serves as Chief Operating Officer at a base
salary of $250,000 per year and Mr. Tozzi-Condivi serves as Vice-Chairman of the
Board and Chairman of the Executive Committee at a base salary of $185,000 per
year. All such agreements are subject to cost-of-living increases. The
agreement with Mr. Previtali provides for his serving as Treasurer of the
Company at a salary of Lit. 240,000,000 ($148,515) per year, the agreement with
Mr. Avallone provides for his serving on a part time basis as Director of
Special Projects and Merchant Banking Group at an annual salary of Lit.
60,000,000 ($37,783), and the agreement with Mr. Pugno Vanoni provides that in
any year in which he serves on the Company's Executive Committee, he will
receive a salary of Lit. 80,000,000 ($49,505) for such year. Mr. Costa is
employed as Managing Director of TIM at a salary of Lit. 240,000,000 ($148,515)
per year.
The compensation of the Named Executives in 1995 was the result of the
negotiated employment agreements described above, and not the implementation of
a compensation policy.
34
<PAGE>
Comparative Stock Performance Graph
The following is a graph comparing the annual percentage change in the
cumulative total shareholder return of the Company's common stock with the
corresponding returns of the published Dow Jones Equity Market Index and Dow
Jones Automobile Manufacturers Index and the NASDAQ Non-Financial Index compiled
by Research Data Group for the Company's five (5) fiscal years ended December
31, 1991-1995, inclusive.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG DE TOMASO INDUSTRIES, INC., THE DOW JONES EQUITY MARKET INDEX
THE DOW AUTOMOBILE MANUFACTURERS INDEX AND THE NASDAQ NON-FINANCIAL INDEX
D 300
O 250
L 200
L 150
A 100
R 50
S 0
12/90 12/91 12/92 12/93 12/94 12/95
Cumulative Total Return
-----------------------
12/90 12/91 12/92 12/93 12/94 12/95
De Tomaso Inds Inc DTOM 100 82 82 47 218 244
DJ EQUITY MARKET INDEX IDOW 100 132 144 158 159 221
DJ AUTOMOBILE MANUFCTRS IAUT 100 98 143 238 203 241
NASDAQ NON-FINANCIAL INNF 100 161 176 203 195 268
* $100 INVESTED ON 12/31/90 IN STOCK OR INDEX -
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING DECEMBER 31.
35
<PAGE>
Retirement of Former Chairman; Repurchase of Former Chairman's Shares
On April 10, 1995, the Company entered into an agreement with Alejandro De
Tomaso, the then-Chairman of the Board of the Company, under which the Company
would repurchase Mr. De Tomaso's 1,000,000 shares of preferred stock and 480,304
shares of common stock at a negotiated price of Lit. 18,400 per share, converted
into dollars at the exchange rate in effect on the closing date of 1,637 lire
per dollar. Mr. De Tomaso thereafter conveyed his stock to an individual who
reconveyed such stock to two trusts, which assumed his obligations and rights
under the agreement.
Performance under such repurchase agreement was made conditional upon the
consummation of the Finprogetti Acquisition, which occurred on July 17, 1995.
Contemporaneously with the closing of that transaction, 703,774 of the preferred
and common shares formerly owned by Mr. De Tomaso were delivered to the Company
in exchange for the Company's interests in the Hotel Canalgrande and the Hotel
Roma, its two hotel properties, valued by the Board of Directors at Lit.
4,700,000,000 ($2,960,000) in the aggregate based upon independent appraisals, a
collection of Maserati vehicles and engines valued by the Board at Lit.
3,200,000,000 ($2,015,000) and Lit. 5,000,000,000 ($3,149,000) in cash. The
transaction was accounted for at the assets' aggregate book value of Lit.
6,629,000,000 ($4,174,000) and no gain or loss resulted. The remaining
preferred and common shares formerly held by Mr. De Tomaso were exchanged for an
equal number of shares of newly issued common stock, which the Company is
required to register for sale at the request of the holder. Each share of
preferred and common stock was valued identically because Mr. De Tomaso agreed
not to accept any premium for his preferred stock, despite its three-vote per
share preference. If those shares are not sold prior to the third anniversary
of the Finprogetti transaction, they will be acquired by the Company at the Lit.
18,400 per share price. A bank letter of credit has been obtained by the
Company to guaranty payment of the repurchase price, secured by cash and certain
investment securities owned by the Company. See also Note 3 of Notes to
Consolidated Financial Statements. Management believes that the transaction
with Mr. De Tomaso was on terms as favorable as those which would have been
available from an independent third party.
Chrysler Corporation, which had acquired an option from Mr. De Tomaso to
purchase all of his shares upon the earlier of his disability or January 1,
1996, which option expired unexercised, had also acquired a co-extensive right
of first refusal to purchase Mr. De Tomaso's equity interest in the Company on
the same terms and conditions as any potential purchaser offered. The right of
first refusal expired with the option.
Contemporaneously with the repurchase of the initial block of shares
formerly held by Mr. De Tomaso, Mr. De Tomaso resigned all directorships and
offices which he had held in the Company and all of its subsidiaries.
Certain Relationships and Related Transactions
In 1995 the Company repurchased shares formerly owned by its former
Chairman of the Board, and agreed to repurchase the remaining 776,530 shares
formerly so held. See "Retirement of Former Chairman, Repurchase of Former
---
Chairman's Shares", above.
The law firm of Morrison Cohen Singer & Weinstein, LLP, of which Howard E.
Chase, a Director of the Company and its Chief Executive Officer, was a member
until September 1, 1995, and to which he is now of counsel, was paid by the
Company and its subsidiaries in 1995 an aggregate of $714,831 in legal fees and
disbursements for services rendered in 1995 and previous years. Fees paid by
the Company and subsidiaries to Morrison Cohen Singer & Weinstein, LLP in such
period did not exceed 5% of such firm's gross revenues for that period.
Como Consultants Limited, an Isle of Jersey company which employs Mario
Tozzi-Condivi, a Director of the Company and its Vice-Chairman, was paid an
aggregate of $146,565 in 1995 for consulting services rendered to the Company
and to its MAI subsidiary by Mr. Condivi.
The law firm of which Mr. Carlo Garavaglia is a member was paid an
aggregate of Lit. 268,000,000 ($169,000) by the Company and its subsidiaries in
1995 for legal and statutory auditing services rendered.
36
<PAGE>
Mr. Pugno Vanoni and his brother own offices in Milan which are leased to
certain subsidiaries of the Company acquired from Finprogetti at a rental of Lit
130,000,000 ($82,000) per year.
Mr. Previtali was, until June 1996, an officer of Finprogetti, S.p.A. which
charged the Company office expenses of approximately $170,000 in 1995 for its
usage of Finprogetti facilities. Management believes that such expenses were
comparable to expenses which would have been charged by third parties.
Unless marked to the contrary, the shares represented by the enclosed Proxy
will be voted FOR the election as directors of the nominees set forth above.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR ALL THE
NOMINEES NAMED ABOVE FOR ELECTION TO THE BOARD OF DIRECTORS.
PROPOSAL NO. 2:
--------------
To Amend the Company's Articles of Incorporation
To Increase the Number of Authorized Shares of Common Stock
And To Reduce the Par Value Per Share to $.01.
The Board of Directors has approved a proposal to amend the Company's
Restated Articles of Incorporation to increase the number of authorized shares
of Common Stock from 10,000,000 to 50,000,000 and to reduce the par value per
share of Common Stock from $2.50 to $.01. The Board of Directors recommends a
vote FOR the proposed amendments of the Company's Restated Articles of
Incorporation. The full text of the proposed amendment is included as Appendix
A to this Proxy Statement. If approved by the shareholders, the proposed
amendment will become effective upon the filing of an amendment to the Company's
Restated Articles of Incorporation with the Secretary of the State of Maryland,
which will occur as soon as reasonably practicable. The affirmation vote of
two-thirds of the shares entitled to be cast on this matter is required for
adoption of the proposal. Adoption of Proposal No. 2 is conditioned on adoption
of Proposal No. 3.
The Board of Directors believes that it is in the Company's best interests
to increase the number of authorized shares of Common Stock in order to have
additional authorized but unissued shares available for issuance to meet
business needs as they arise. The Board of Directors believes that the
availability of such additional shares will provide the Company with the flexi-
bility to issue Common Stock for possible financings, stock dividends or
distributions, acquisitions, or other proper corporate purposes which may be
identified in the future by the Board of Directors, without the expense and
delay of a special stockholders' meeting. The issuance of additional shares of
Common Stock may have a dilutive effect on earnings per share and, for persons
who do not purchase additional shares to maintain their pro rata interest in the
Company, on such stockholders' percentage voting power.
The authorized shares of Common Stock in excess of those issued will be
available for issuance at such times and for such corporate purposes as the
Board of Directors may deem advisable without further action by the Company's
stockholders, except as may be required by applicable law or by the rules of any
stock exchange or national securities association trading system on which the
securities may be listed or traded. Upon issuance, such shares will have the
same rights as the outstanding shares of Common Stock. Holders of Common Stock
have no preemptive rights.
Although the Company presently intends to issue additional shares of Common
Stock within approximately four months of the shareholders meeting for which
this proxy statement relates, (see "Proposed Public Offering" above), it does
not intend to make acquisition of control of the Company more difficult.
Issuances of Common Stock could, nevertheless have that effect. For example,
the acquisition of shares of the Company's Common Stock by an entity in order to
acquire control of the Company might be discouraged through the public or
private issuance of additional shares of Common Stock, since such issuance would
dilute the stock ownership of the acquiring entity. Common Stock could also be
issued to existing stockholders as a dividend or privately placed with
purchasers who might side with the Board in opposing a takeover bid, thus
discouraging such a bid.
37
<PAGE>
The Board of Directors also believes that it is in the best interests of
the Company to reduce the par value per share of Common Stock from $2.50 to $.01
since the concept of high par value is essentially a historical one, dating back
to when the Company was originally incorporated in Maryland, and today has
little practical effect.
PROPOSAL NO. 3:
--------------
To amend the Company's Articles of Incorporation
to Eliminate Authorization for Preferred Stock
The Board of Directors has approved a proposal to amend the Company's
Articles of Incorporation to eliminate authorization for the presently
authorized class of preferred stock. The Board of Directors recommends a vote
FOR the proposed amendment, the full text of which is included on Appendix A to
the Proxy Statement. If approved by the shareholders, the proposed amendment
will become effective upon filing of the amendment with the Secretary of State
of Maryland. Adoption of Proposal No. 3 is conditioned on adoption of Proposal
No. 2.
In connection with the Finprogetti Acquisition, the Company agreed to
eliminate authorization for the issuance of preferred stock. Among other
preferences, the preferred shares enjoyed 3 for 1 voting rights. Alejandro De
Tomaso, who had been the sole holder of preferred stock converted such stock
into common stock in connection with his conveyance of all of his common and
preferred stock in July, 1995. There are presently no shares of preferred stock
outstanding. The affirmative vote of two-thirds of the shares entitled to be
cast on this matter is required for adoption of the proposal.
PROPOSAL NO. 4:
--------------
To Amend the Company's Articles of Incorporation
to Change the Company's Name to Trident Rowan Group, Inc.
From its formation in 1917 until is acquisition by Mr. De Tomaso, the
Company had been organized and had operated as Rowan Controller or Rowan
Industries. With the disposition of its Maserati operations and its adoption of
a new strategic focus, and the retirement of Mr. De Tomaso, the Board of
Directors has determined that the name "Trident Rowan" is more appropriate than
its current name, and accordingly has approved a proposal to amend the Restated
Articles of Incorporation to change the Company's name from De Tomaso
Industries, Inc. to Trident Rowan Group, Inc. The Board of Directors recommends
a vote FOR the proposed amendment.
The affirmative vote of two-thirds of the shares entitled to be cast on
this matter is required for adoption of the proposal.
Unless marked to the contrary, the shares represented by the enclosed Proxy
will be voted FOR the adoption of the amendments to the Restated Articles of
Incorporation set forth in Proposal Nos. 2, 3 and 4.
PROPOSAL NOS. 5 and 6:
---------------------
The 1995 Non-Qualified Stock Option Plan
and the 1995 Stock Option Plan for Outside Directors.
The Board of Directors, at meetings held on October 28, 1995 and June 18,
1996, adopted, subject to the approval of shareholders at the meeting to which
this proxy material relates, the 1995 Non-Qualified Stock Option Plan ("1995 NQ
Plan") providing for the grant of non-qualified stock options to officers and
key employees of the Company to purchase
38
<PAGE>
shares of the Company's common stock, and the 1995 Stock Option Plan for Outside
Directors ("1995 Directors Plan") providing for an automatic grant, to each non-
employee director on January 2, 1995 and on January 2 of each succeeding year
during their term of office, of 5,000 options to purchase shares of common stock
at the reported closing price of the stock on the date of grant. A director who
assumes office after January 2 of any year will be automatically granted a pro
rated amount of options. The 1995 NQ Plan and the 1995 Directors Plan are
referred to collectively as the "1995 Plans". Options to purchase an aggregate
of 2,150,000 shares of common stock (subject to antidilution adjustments under
certain circumstances) may be awarded under the 1995 Plans.
PROPOSAL NO. 5:
--------------
To Approve the 1995 Non-Qualified Stock Option Plan
The 1995 NQ Plan will be administered by a committee which will consist of
at least two members of the Board of Directors who did not themselves, for at
least one year prior to such member's commencement of service, receive any
discretionary grant of options, under the 1995 NQ Plan or otherwise. Members of
the committee will not be entitled to receive grants under the 1995 NQ Plan.
The following summary of the principal provisions of the 1995 NQ Plan is
subject in all respects to the full text thereof, a copy of which is annexed
hereto as Exhibit A.
The Board of Directors has authorized the grant of 2,000,000 options under
the 1995 NQ Plan. In connection with the execution of employment agreements, a
total of 982,500 such options were granted in 1995 to ten officers and key
employees, six of whom are also members of the Board of Directors. The maximum
number of options which any optionee may receive is 350,000 per calendar year.
See, "Options Granted" below.
- ---
All officers and employees who, in the opinion of the committee have made
or are expected to make key contributions to the success of the Company are
eligible to receive options under the Plan. The committee may determine,
subject to the terms of the 1995 NQ Plan, the persons to whom options will be
awarded, the number of shares and the specific terms of each option granted.
There is no minimum number of the remaining 1,017,500 such options which a
grantee may be awarded. Officers and key employees of companies acquired or
operated by the Company or its subsidiaries may also be option recipients.
While no maximum number of such recipients has been established, the Company
estimates that up to fifteen persons may be granted options under the 1995 NQ
Plan. Specific performance or other criteria governing the granting of the
remaining options have not yet been established by the committee.
An option granted under the 1995 NQ Plan will be nontransferable except in
the event of death and will entitle the grantee to purchase shares of the
Company's common stock at the closing reported market price of such shares on
the date of grant or at such other value as is determined by procedures adopted
by the committee.
As to each grantee, the committee may establish, among other things,
vesting requirements, the period of exercisability, the form of payment or other
consideration required upon exercise, and installment exercise limitations. No
options will be exercisable beyond ten years from the date of grant.
For a period of three months following the termination of a grantee's
employment by the Company for any reason other than death, a grantee may
exercise rights as to those options which were exercisable on the date his
employment terminated. If employment terminated due to disability, the
grantee's rights are extended to six months from employment termination. But if
employment is terminated for cause, all rights are immediately terminated. If a
grantee dies while employed or within three months after cessation of
employment, the option remains exercisable within three months of the date of
death.
39
<PAGE>
If an option expires unexercised, is surrendered by the grantee for cancel-
lation, is cancelled or otherwise becomes nonexercisable, the shares underlying
the grant will again become available for the granting of new options under the
1995 NQ Plan.
The plan is subject to amendment by a majority of those members of the
Board of Directors who are ineligible to receive options, but the Board may not
(i) change the total number of shares of stock available for options; (ii)
increase the maximum number of options; (iii) extend the duration of the plan;
(iv) decrease the minimum option price or otherwise materially increase the
benefits accruing to recipients; or (v) materially modify the eligibility
requirements.
The Board of Directors recommends a vote FOR approval of Proposal No. 5.
PROPOSAL NO. 6:
--------------
To Approve the 1995 Stock Option Plan for Outside Directors
The following summary of the principal provisions of the 1995 Directors
Plan is subject in all respects to the full text thereof, a copy of which is
annexed hereto as Exhibit B.
All non-employee directors, who were never previously employed by the
Company or eligible to receive options, will annually receive, on each January 2
beginning in 1996, options to purchase 5,000 shares under the 1995 Directors
Plan.
Each option will be nontransferable except in the event of death and will
expire upon the earlier of five years following the date of grant or three
months following the date on which the grantee ceases to serve as a director.
Options granted in 1996 are exercisable at $12.26 per share. Options
granted in 1997 and future years are exercisable at the reported closing price
of the stock on January 2 of the year of grant. Options will not be exercisable
until the later of January 2 of the year succeeding the date of grant or six
months following the date of grant.
The authority to grant options under 1995 Directors Plan will terminate on
the earlier of December 31, 2005 or upon the issuance of the maximum number of
shares of stock reserved for issuance under the plan.
The plan may be amended by the Board of Directors except that provisions
thereof concerning granting of options may not be amended more than once every
six months unless necessary to comply with the Internal Revenue Code or the
Employee Retirement Income Security Act. Amendments which require shareholder
approval under Rule 16b-3 shall be submitted for such approval, but failure to
obtain such approval will not invalidate the amendment.
The Board of Directors recommends a vote FOR approval of Proposal No. 6.
Federal Income Tax Consequences
-------------------------------
Options granted under the 1995 Plans are intended to be non-qualified stock
options for federal income tax purposes. No taxable income results to an
optionee upon the grant of such stock options. Generally, Section 83 of the
Code requires that upon exercise of an option, the optionee recognizes ordinary
income in an amount equal to the difference between the option's exercise price
and the fair market value of the shares on the date of exercise. Such amount,
subject to certain limitations, is deductible as an expense by the Company for
federal income tax purposes. The ordinary income resulting from the exercise of
such options is subject to applicable withholding taxes. Generally, any profit
or loss on the subsequent disposition of such shares shall be treated as a
short-term or long-term capital gain or loss, depending upon the holding period
for the shares.
Under the changes made by the Securities and Exchange Commission to the
rules adopted under Section 16(b) of the Exchange Act, the exercise (more than
six months after the date of the issuance of the option) of an "in-the-money"
stock
40
<PAGE>
option is no longer deemed to be a purchase under Section 16(b) of the Exchange
Act. Accordingly, as long as a non-qualified stock option has been held for
more than six months from the date of the grant, an optionee subject to Section
16 is now able to sell the underlying shares immediately following the exercise
of such an option without triggering potential liability under that Section
16(b). If a non-qualified option is exercised by a person subject to Section 16
less than six months after the date of grant, the taxable event will be deferred
until the date which is six months after the date of grant unless the optionee
files an election to be taxed on the date of exercise.
Options Granted
- ---------------
The Named Executives were granted an aggregate of 800,000 stock options
under the 1995 Plans. The Board of Directors, subject to the approval by the
shareholders of the 1995 Plans, has awarded options under the 1995 Plans to the
following Named Executives and directors:
Name Title Options Granted
- ---- ----- ---------------
Howard E. Chase Chief Executive Office 300,000
Mario Tozzi-Condivi Vice Chair of the Board 200,000
Albino Collini Executive Vice President 150,000
Santiago De Tomaso (former) President 30,000
Domenico Costa President of T.I.M. 60,000
Arnolfo Sacchi Administrative Delegato of Moto Guzzi 60,000
All current executive
officers as a group 960,000
All employees, other than
executive officers as a group 22,500
All directors who are not exe-
cutive officers as a group -
All of the foregoing options are exercisable at $12.26 per share, which the
Board has determined was the fair value of the stock on the date of grant.
No options were granted in 1995 to any of the outside directors under the
1995 Directors Plan. The automatic grant of options in 1996 under the 1995
Directors Plan is subject to approval of this proposal.
Options to be Granted
- ---------------------
As of the date of this Proxy Statement there has been no determination by
the committee regarding future stock option awards under the 1995 NQ Plan.
Accordingly, future discretionary awards are not determinable.
The affirmative vote of the majority of all votes cast at the meeting in
person or by proxy are required to approve each of the 1995 NQ Plan and the 1995
Directors Plan.
Unless marked to the contrary, the shares of Common Stock represented by
the enclosed Proxy will be voted FOR the adoption and approval of each of
Proposal No. 5 and Proposal No. 6.
41
<PAGE>
PROPOSAL NO. 7:
--------------
1993 Sale by O.A.M. S.p.A. of 51% Equity
Interest in Maserati S.p.A. to Fiat Auto S.p.A.
Background
- ----------
In January 1990, following the Company's reorganization of its Maserati
manufacturing and distribution system as part of an attempted strategic
affiliation with Fiat, Italy's largest automobile company, O.A.M. sold a 49% of
equity interest in Maserati to Fiat. On May 17, 1993, O.A.M. entered into a
definitive agreement with Fiat for the sale of its remaining 51% equity
interest in Maserati. The following table sets forth the amount and percentage
of each of total assets, sales and net income of the Company represented by
Maserati over the three fiscal years preceding the Maserati Sale:
Fiscal Year Ended December 31,
-----------------------------
<TABLE><CAPTION>
1990 1991 1992
---- ---- ----
$Amount % of $Amount % of $Amount % of
Maserati (000 omitted) Total (000 omitted) Total (000 omitted) Total
- -------- ------------- ----- ------------ ----- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
Assets 168,636 51.7 145,038 62.8 92,933 61.5
Sales 214,965 64.2 149,578 84.2 69,819 69.5
Pretax Net Income* (7,235,000) N/A (18,339,000) 47.1 (55,526,000) 60.3
</TABLE>
- -------------------
*Income (loss) before taxes, minority interest and extraordinary items.
Description of the Agreement
- ----------------------------
The following discussion summarizes certain provisions of the May 17, 1993
O.A.M. stock purchase agreement pursuant to which the remaining 51% equity
interest in Maserati S.p.A. was sold to Fiat. The summary is not intended to
be complete and is subject to, and is qualified in its entirety by reference to
all of the terms and conditions of the agreement, a copy of an English
translation of which is annexed hereto as Exhibit C. Shareholders are urged to
read the attachments carefully.
The Board of Directors has unanimously authorized, and unanimously
recommends that the shareholders ratify the consummation of the sale of the
Maserati stock to Fiat.
Under the agreement of acquisition, Fiat paid O.A.M. an aggregate of Lit.
75,750,000,000 ($47,702,000) in three installments. The first installment was
paid by the assignment to O.A.M. of debts aggregating Lit. 23,500,000,000
($14,798,000) owed to Fiat by American Finance S.p.A., another Italian
subsidiary of the Company. On January 1, 1994, Fiat paid O.A.M. the second
installment of Lit. 23,750,000,000 ($14,956,000) in cash, forgave an O.A.M.
debt of Lit. 1,500,000,000 ($945,000) and paid interest of Lit. 2,805,000,000
($1,766,000). Fiat paid its final installment of Lit. 27,000,000,000
($17,003,000) in cash, without interest, on January 1, 1995. The agreement has
been fully performed. The aggregate purchase price of Lit. 75,750,000,000 is
deemed to include imputed interest of Lit. 4,826,000,000 ($3,039,000) from the
final payment.
The agreement also contemplated, but does not require, the potential
development of a parcel of land in Milan which was and is still owned by
Maserati and which Maserati had used to manufacture Maserati and Innocenti
automobiles. The land is now owned by Fiat due to its acquisition of Maserati.
O.A.M. will be entitled to receive up to a 5.25% equity
42
<PAGE>
interest in the real estate development company formed to develop the property
if certain conditions are met, including the realization by the development
company of proceeds upon a sale of the parcel in excess of its approximate Lit.
109,800,000,000 ($69,143,000) book value. Nothing in the agreement either
requires Fiat to sell or otherwise develop the parcel or limits in any way the
price at which the parcel could be sold. No assurance can be given that O.A.M.
will receive any additional compensation relating to the development of the
land.
The agreement, as executed by O.A.M. and Fiat, was not, by its terms,
subject to the prior approval of the shareholders of the Company, and,
consequently, obtaining such approval was not a condition of O.A.M.'s or Fiat's
obligation to close. However, since the Company disposed of what was then its
single largest operating subsidiary, Management views it appropriate that share-
holders have an opportunity to meet with Management and to ratify the agreement
and its consummation. See "Shareholder Approval" below. The approval of 66-
---
2/3% of all shares of common stock entitled to vote at the Annual Meeting of
shareholders, is sought to ratify the execution and consummation of the
agreement. Two shareholders, Finprogetti S.p.A., and the trustee of Tail Trust
(the successor-in-interest to certain shares formerly held by Alejandro De
Tomaso), holding an aggregate of 49.1% of the outstanding shares of common
stock, have agreed to vote for ratification. Additionally, shares held by
officers and directors of the Company, shares separately acquired by share-
holders of Finprogetti and shares held by members of Alejandro De Tomaso's
family may be expected to vote in favor of the proposal, although such holders
are not so required by any agreement, arrangement or understanding. Those
shares, together with the shares of Finprogetti and the Trust, aggregate 65.6%
of votes which may be cast. Ratification is therefore reasonably certain.
None of the shareholders or members of Management have any financial or
pecuniary interest in the ratification of the agreement apart from their common
interest as shareholders interested in improving the financial condition of the
Company.
The Company realized a gain on the sale equal to the sum of the Company's
accumulated deficiency in assets attributable to Maserati, the then-present
value of the debt of A.F. assigned by Fiat to O.A.M. and the cash proceeds paid
by Fiat in 1994 and 1995. The Company is not in arrears of any dividend pay-
ments nor principal or interest payments on any of its securities.
Prior Negotiations
- ------------------
Negotiations resulting in the execution of the May 17, 1993 agreement
commenced in late 1992 and continued sporadically as Maserati management worked
to resolve certain then-existing labor problems and related judicial proceedings
which were hampering Maserati's recovery efforts.
Negotiations were temporarily suspended when the then-chairman of the board
of the Company and Managing Director of Maserati, Sig. Alejandro De Tomaso, was
stricken ill on January 22, 1993. The Company's Board of Directors designated
his son, Sig. Santiago De Tomaso, to continue and complete the negotiations with
Fiat, a process that resulted in the execution of the May 17, 1993 agreement.
The financial terms contained in the final agreement, as executed, were
substantially identical to those which had been negotiated between Fiat and the
elder Sig. De Tomaso prior to his illness. Other than the Panda assembly
agreement described below, and the borrowings advanced to Maserati by Fiat to
enable ongoing operations to continue (see "Reasons For The Sale" below), at the
time of the negotiations, and since 1990 when Fiat became a 49% shareholder of
Maserati, there were no, and there had not been any other material contracts,
arrangements, understandings, relationships, negotiations or transactions
between the Company or its subsidiaries and Fiat.
Regulatory Approvals
- --------------------
The sale of Maserati to Fiat was not subject to any U.S. federal, state or
local or Italian regulatory approvals. None were sought nor obtained.
43
<PAGE>
Federal Income Tax Consequences
- -------------------------------
Because the incorporation of Maserati by O.A.M. in 1989 was followed by the
immediate, and contractually pre-arranged, sale by O.A.M. of 49% of its Maserati
stock to Fiat, O.A.M. received a tax basis (as determined under U.S. income tax
principles) in its retained 51% of Maserati stock equal to such stock's then-
fair market value (pursuant to Internal Revenue Code Sections 1001 and 1012) and
not a substituted basis (pursuant to Internal Revenue Code Sections 351 and
358). Accordingly, since the sales price received by O.A.M. in the 1993 sale of
its remaining 51% of Maserati stock was concluded at a price which was lower
than O.A.M.'s tax basis on such sale under United States tax reporting purposes,
and such sale did not generate any U.S. income tax liability for either O.A.M.
or the Company.
Reasons for the Sale
- --------------------
Operations at Maserati had been disappointing for many years preceding the
Maserati Sale. With significant unused manufacturing capacity at Maserati's
Milan facility, Maserati and its predecessor, since 1984, had sought to create
and maintain a viable alliance with a larger automobile manufacturer which would
enable Maserati to make fuller and more profitable use of its plant and
equipment as a means of achieving and maintaining profitability. The
underutilization of Maserati's manufacturing capacity, with resulting high fixed
costs relative to unit sales, limited Maserati's ability to achieve additional
market share through pricing strategies. Greater utilization, it was hoped,
would permit fixed costs to be spread over a much greater volume of vehicles,
thereby improving the potential to achieve profitability. The Company's man-
agement was aware, however, that almost every other Italian manufacturer of
luxury or high performance automobiles had either ceased operations or been
acquired outright by a larger corporation. Management sought to create strate-
gic alliances to avoid the same fate as had befallen its Italian competitors.
In 1986, pursuing this goal, Maserati entered into a series of
relationships with Chrysler Corporation and certain of its subsidiaries relating
to the design, manufacture and assembly of a sports coupe, called the "TC." As
part of that relationship, Chrysler acquired a minority equity interest in the
Company's O.A.M. subsidiary and the option and right of first refusal described
earlier. That relationship, however, largely due to modest customer interest in
the car, terminated prematurely in 1988, leaving Maserati's manufacturing
capacity again underutilized and its future in doubt.
In 1989 and 1990, despite the failure of the Chrysler alliance, Maserati's
management continued to hold the view that a strategic alliance was essential to
its economic recovery. In consequence, the subsidiary entered into a series of
agreements with Fiat, pursuant to which Maserati, S.p.A. was formed as a
subsidiary of O.A.M. S.p.A., all of the operating assets of O.A.M. were
transferred to Maserati at an appraised value of Lit. 270,000,000,000
($170,025,000), and Fiat acquired 49% of the Maserati equity for Lit.
132,670,000,000 ($83,545,000), all of which was contributed to Maserati.
Maserati also agreed to assemble a Fiat "Panda" model as a contract manufacturer
for Fiat at a stated assembly fee per vehicle. Fiat agreed to purchase up to
30,000 such vehicles per year for three years.
Shortly thereafter, in mid-1990, the onset of the Gulf war and a worldwide
recession produced a major decline in European car sales generally; the luxury
segment occupied by Maserati was particularly hard hit. Fiat's Panda sales fell
substantially below expectations, reducing the need for the assembly of the
quantity of vehicles the parties had contemplated. As a result, Fiat formally
terminated the Panda production program in December 1991. Under the terms of
the production agreement, there were no financial consequences to Fiat stemming
from its having terminated the program. At the same time, the Italian economy
as a whole was especially hard hit, due in part to a national corruption scandal
involving major leaders of government, industry and finance. O.A.M.'s
management concluded, and the Company's Board of Directors concurred, that an
upturn in the European luxury car market was unlikely in the foreseeable future.
Without a significant infusion of capital, Maserati's ability to continue
operations was highly unlikely.
In 1990, Maserati lost Lit. 11,489,000,000 ($7,235,000). It lost an
additional Lit. 29,123,000,000 ($18,339,000) in 1991 and Lit. 88,176,000,000
($55,526,000) more in 1992, for an aggregate loss of Lit. 128,788,000,000
($81,101,000) during the three years between the original purchase by Fiat and
the completion of negotiations on the Maserati Sale in 1993. In fixing a price
for the 1993 sale of the remaining 51% equity interest in Maserati to Fiat,
O.A.M. considered such factors
44
<PAGE>
as the 1990 appraisal, Maserati's remaining book value of its tangible and
intangible assets, its accumulated deficiency in assets, the lack of capital to
develop and produce new car models and Maserati's projected continuing operating
losses for the foreseeable future until a recovery in the luxury sector of the
car market might occur. O.A.M. also considered the inability of the Company,
O.A.M. or any of the Company's other subsidiaries to provide needed additional
operating capital to Maserati, and that continuing Maserati operations was for
all practical purposes contingent on Fiat agreeing to provide that capital in
the form of additional loans to Maserati. In authorizing O.A.M. to execute the
May 17, 1993 acquisition agreement, the Company's board of directors, who at the
time consisted of Alejandro De Tomaso, Howard E. Chase, Paolo Donghi, Patrick
D'Angelo, Roberto Corradi, Mario Tozzi-Condivi and Santiago De Tomaso evaluated
the same information and, on April 2, 1993, unanimously concluded that the
transaction was materially beneficial to the Company and its shareholders. The
Board did not expressly assign a weight to any one of the factors and each
member of the Board may have considered some factors more persuasive than
others. The Board's decision to accept the offer from Fiat was, however, unani-
mous. The Board did not seek or obtain any other independent opinion or
appraisals in reaching its decision, basing its judgment instead on its own
analysis of the Company's business, assets and prospects.
Since acquiring its 49% interest in 1990, Fiat had provided operating
capital to Maserati in the form of loans aggregating the principal amount of
Lit. 125,000,000,000 ($78,715,000). Aggregate borrowings from all sources,
including from banks, long-term debt and Fiat advances, had grown to Lit.
196,310,000,000 ($123,621,000) by December 31, 1992. Because of the enormous
operating losses it sustained in its 1990-1992 fiscal years, Maserati
accumulated a capital deficiency by December 31, 1992 of approximately Lit.
70,486,000,000 ($44,387,000). Under Italian law, that deficiency was required
to be repaired by Maserati's shareholders, Fiat and O.A.M. Only Fiat, however,
had the financial capacity to inject capital into Maserati. Had it done so, and
had, as was highly likely, O.A.M. failed to invest sufficient capital to retain
its relative equity ownership, O.A.M.'s interest in Maserati would have been
vastly diluted, effectively resulting in the sale of O.A.M.'s equity interest in
Maserati to Fiat without O.A.M. realizing any proceeds.
If, on the other hand, neither Fiat nor O.A.M. invested the necessary
capital, and if Fiat did not continue to finance Maserati's operations through
additional loans, Maserati's ability to continue operations would have been
seriously compromised, and the cessation of its business would have been the
inevitable result.
From the consolidations and closures which the Italian specialty automobile
market had been experiencing in recent years, it was clear that an equity
investment would come, if at all, from a larger multi-national automobile
company. With Fiat already owning a 49% equity interest in Maserati and being
by far its largest creditor, equity capital from a third party was not a
realistic alternative, and the subsidiary did not seek competing bids from other
sources. O.A.M. therefore authorized Alejandro De Tomaso to explore the sale of
Maserati to Fiat.
With losses mounting at Maserati, in late 1991, its management attempted to
reduce costs by terminating 500 workers, but Milanese labor unions obtained
local judicial relief against the terminations. Labor strife plagued Maserati
throughout 1992, causing several factory shutdowns, production stoppages and
shipping delays. Losses were greatly magnified as a consequence. On January
22, 1993, after extended negotiations, Maserati, its labor unions and the
Italian government resolved the dispute and related legal proceedings which
stemmed from the 1991 terminations. The parties agreed to implement the termi-
nation of Maserati's Milan work force in three stages, concluding on April 1,
1993. On March 31, 1993, operations at Maserati's Lambrate (Milan) facility
ceased completely, thereby curtailing the single largest cause of its, and con-
sequently the Company's, operating losses. As expected, losses for the second
quarter ended June 30, 1993 were substantially lower than in prior quarters,
although the Company was still unable to operate profitably.
As part of the labor dispute resolution, the Italian government agreed to
implement existing relocation and compensation programs for the benefit of the
terminated workers; Maserati agreed to contribute Lit. 3,850,000,000
($2,424,000) in connection with these government programs.
By the time Maserati's labor problems finally were resolved, however, the
combination of the foregoing factors resulted in substantial operating losses at
Maserati which no longer could continue operations without a massive cash
infusion sufficient to cover its capital deficiency (as required by Italian law)
and to fund projected further operated losses.
45
<PAGE>
Maserati's management, having unsuccessfully explored means to further
reduce costs, in October 1992, decided to halt Innocenti production at the Milan
factory, concluded that continuing production of Maserati cars in Milan was no
longer financially viable, and decided that the most prudent course would be to
close the Milan plant completely, a process which was completed by the end of
March 1993.
Advantages and Disadvantages of the Transaction
- -----------------------------------------------
The Company's Management is of the view that there are no disadvantages to
the Maserati Sale. O.A.M. received a total of Lit. 75,750,000,000
($47,702,000), including Lit. 53,555,000,000 ($33,725,000) in cash, for the bal-
ance of the stock of the Company's principal operating subsidiary, while
simultaneously eliminating an accumulated deficiency in assets. O.A.M. may also
receive a small equity interest in a development company which may develop the
Milanese land on which Maserati formerly conducted a portion of its operations.
While the Company has effectively ceased to be engaged in any aspect of the
automobile manufacturing business (although it continues to operate in the
motorcycle business), those operations had not been profitable to the Company
for many years. Indeed, losses had accelerated rapidly in the three years pre-
ceding the Maserati Sale as a reflection of the European recession and the
progressive decline of American sales of Maserati vehicles since 1986.
The advantages of the Maserati Sale, by contrast, are significant. The
Company disposed of the single largest source of its historical operating losses
and, additionally, realized substantial value for its equity stake. Moreover,
it received a needed infusion of cash over the term of the acquisition
agreement, which benefitted all shareholders whether directly or indirectly.
Finally, the Maserati Sale was a critical component to the strategic
repositioning of the Company, enabling Management to focus resource and
attention on Moto Guzzi, which in turn resulted in the engagement of TIM and the
acquisition by the Company of the principal assets of Finprogetti. Management
believes that the transaction with Finprogetti will mark a major opportunity for
the Company.
Shareholder Approval
- --------------------
The Maserati Sale agreement was executed and consummated on May 17, 1993.
Under the terms of the agreement, prior approval by the shareholders of the
Company, a Maryland corporation and the great grandparent corporation of
Maserati, an Italian corporation, was neither required nor obtained.
There is no statutory or judicial guidance in Maryland on the question of
whether the sale, by a second level foreign subsidiary of a Maryland
corporation, of all of that subsidiary's interest in the capital stock of a
third level foreign subsidiary, requires the prior approval of the shareholders
of the Maryland corporation, even assuming, as was the case here, that the third
level foreign subsidiary was the consolidated group's most significant operating
subsidiary.
It was nevertheless the expressed view of the Company's counsel, at the
time of the 1993 sale of O.A.M. S.p.A.'s 51% equity interest in Maserati S.p.A.
to Fiat Auto S.p.A., that, on considerations principally of equity and fairness,
approval by the Company's shareholders of the sale of Maserati S.p.A. stock by
O.A.M. S.p.A.(1) to Fiat Auto S.p.A. was necessary.
Under Sections 1-101, 3-104 and 3-105 of the Maryland General Corporation
Law ("MGCL"), shareholders of a Maryland corporation have the right to approve
any transaction involving, among other things, the transfer of all or
substantially all of the corporation's assets, not in the ordinary course of its
business. While clearly the operations of Maserati, prior to the Maserati Sale,
constituted as a practical matter by far the single largest portion of the
operations of the Company on a consolidated basis, O.A.M.'s shares in Maserati,
by virtue of its three-tiered separation from the Company
- --------------------
1 Through three intermediate foreign subsidiaries of the Company, (Triden-
tis S.A., American Finance, S.p.A. and G.B.M. S.p.A.), O.A.M. is the 84.6%-owned
subsidiary of the Company. Until Fiat acquired O.A.M.'s remaining Maserati
stock, Maserati was the 51%-owned subsidiary of O.A.M.
46
<PAGE>
itself, were not an asset of the Company. Thus, the Maserati Sale arguably was
not, from a legal standpoint, a sale by the Company of substantially all of its
assets.
Looking at the significance of Maserati to the Company, however, counsel
concluded that in the absence of clear judicial precedent from Maryland, the
policy underlying the Maryland statutes would best be honored by seeking
shareholder approval. Fiat, however, an Italian corporation buying the stock of
another Italian corporation from a third Italian corporation, was bound by
neither the expressed views of Company counsel, nor by Maryland law. It did not
agree to condition the transaction upon the receipt of the approval of the
Company's shareholders, and advised O.A.M. that the Agreement was either to be
executed and consummated immediately or the offer to purchase the subsidiary
would be withdrawn. O.A.M., with the approval of the Board of Directors of the
Company, proceeded with the transaction because to do otherwise could have
jeopardized the transaction, and ultimately the viability of the Company. See
---
also, "Dissenting Shareholders' Rights" and "Right to Dissent and Appraisal,"
- ----
below.
Maserati Business
- -----------------
The following discussion describes the business of the manufacture and sale
of Maserati vehicles as it existed prior to the Maserati Sale. Maserati had
been owned and operated by Fiat since May 17, 1993, detailed current information
is not available to the Company. This information is provided so that
shareholders will have the same type of information which would have been
available had the Maserati Sale been presented to the shareholders for approval
prior to its 1993 consummation.
The manufacture and sale of Maserati and Innocenti vehicles, for many years
prior to the Maserati Sale (and to the nearly contemporaneous cessation of
Innocenti production), was marked by declining volume, increasing costs and in-
creasing losses.
Until January 1990, when the Company reorganized its manufacturing and
distribution system in conjunction with the sale to Fiat of a 49% equity
interest in Maserati, the Company's O.A.M. subsidiary (formerly known as
"Officine Alfieri Maserati S.p.A.") was responsible for the manufacture of the
Company's Maserati and Innocenti lines of automobiles. Maserati vehicles were
sold through a network of independent dealerships, and, in the United States,
Puerto Rico and Canada, through the Company's MAI subsidiary which, in turn,
sold Maserati vehicles to independent dealers. The Company's Innocenti Milano,
S.p.A. subsidiary ("Innocenti Milano") distributed Innocenti vehicles.
In an effort to increase plant utilization and develop strategic relation-
ships with larger, better financed vehicle manufacturers, O.A.M. also became a
contract manufacturer for third parties from 1989 through 1991. From January
1989 through mid-April 1990, when the program was terminated, O.A.M.
manufactured a total of 7,300 "TC" Coupes for Chrysler Corporation.
From June 1990 through December 1991, the Company assembled 19,479 "Panda"
model automobiles for Fiat. In 1990, Fiat paid Maserati an assembly fee of Lit.
1,734,000 ($1,092) for each "Panda" assembled. Additionally, because "Panda"
orders were lower than expected, Fiat paid Maserati the sum of Lit.
15,000,000,000 ($9,446,000) following negotiations over program expenses in-
curred by Maserati in connection with the shortfall in "Panda" production in
1990. Actual "Panda" production in that year was limited to 6,742 vehicles,
rather than the projected production of 30,000 vehicles. Effective January 1,
1991, the "Panda" assembly fee was increased to Lit. 1,820,000 ($1,146).
Following suspension and termination of the "Panda" production program in De-
cember 1991, the Company began negotiations with Fiat to establish mutually
agreeable compensation to Maserati. The "Panda" production contract contained
no provision for such compensation. With the consummation of the Maserati Sale,
those negotiations were rendered moot.
Models; Pricing.
---------------
Prior to the sale of Maserati to Fiat, the subsidiary manufactured seven
basic automobile models.
47
<PAGE>
Two-door coupes -- the "Ghibli," "222SR" and the "222HV";
Small four door sedans -- the "424" the "430";
Large four door sedans;
Two door convertibles -- the "Spyder 2.0" and the "Spyder 2.8";
A larger two-door coupe -- the "228";
A 2+2 coupe -- the "Shamal"; and
A mid-engine racing car, the "Barchetta".
The prices of Maserati cars to Italian dealers as of December 31, 1992
ranged from Lit. 47,000,000 ($29,597), to Lit. 76,000,000 ($47,859), excluding
an Italian government imposed value-added tax equal to 19% of the Italian
dealers' price for all vehicles sold in Italy. Until December 31, 1992, a 38%
value added tax rate was applicable to all gasoline-powered vehicles sold in
Italy with engines of over two litres capacity. Effective January 1, 1993, the
38% tax rate was reduced to 19%. In addition to the foregoing tax, a one time
registration tax ranging from Lit. 5,000,000 ($3,147) to Lit. 12,000,000
($7,557), according to engine size, was also applicable to all gasoline-powered
vehicles sold in Italy with engines of over two litres capacity.
Innocenti mini-cars were manufactured through 1992 at Maserati's Milan
facility and were sold through Innocenti Milano. The 1992 Innocenti line,
included the "Small," which consisted of three 3-cylinder engine models of 660
cc displacement, and two standard 3-cylinder models of 990 cc displacement.
During 1992, there were two price increases for these models aggregating 5%.
The basic selling prices of the 1992 line of models to Italian dealers ranged
from Lit. 5,704,000 ($3,592) to Lit. 7,313,000 ($4,605). Innocenti Milano also
marketed models manufactured by others, principally the Yugoslav-made Korel 45
and 55, which sold to dealers at prices ranging from Lit. 5,256,000 ($3,310) to
Lit. 6,044,000 ($3,807), and the Brazilian made "Elba" (1300 cc engine), ranging
in price from Lit. 9,207,000 ($5,798) to Lit. 9,708,000 ($6,113). All of these
prices exclude options, transportation charges, and both a government-imposed
value added tax equal to 19% of the dealers' prices for the vehicles and a one
time registration tax ranging from Lit. 5,000,000 ($3,147) to Lit. 12,000,000
($7,557), according to engine size. All Innocenti "mini-car" production was
terminated at the end of 1992 due to weak demand and the Company's inability to
pass along increasing costs to purchasers, thus decreasing margins to
unacceptable levels.
Until March 31, 1993, Maserati vehicles had been manufactured at two
plants, located in Modena and Milan, Italy. Innocenti production was located in
Milan until it was terminated on December 31, 1992. On March 31, 1993, the
Milan plant was closed, and all Maserati production was concentrated in Modena.
Distribution
------------
In 1992, the last full fiscal year prior to the Maserati Sale, Maserati
automobiles were distributed through approximately 47 independent dealers
throughout Italy and through 32 importer-distributors in Western Europe, South
Africa, Japan, the Middle East, the Far East and the United States. In 1992,
Maserati sold 424 cars (48%) in Italy, 262 cars (30%) in Europe outside of
Italy, 118 cars (13%) in Japan, and 80 cars (9%) elsewhere in the world, as
compared with 1991 sales of 968 cars (54%) in Italy, 427 cars (24%) in Europe
outside of Italy, 364 cars (20%) in Japan, and 41 cars (2%) elsewhere in the
world.
In 1992, no single Italian dealer or foreign importer- distributor account-
ed for more than 5% of worldwide sales, except for the distributors in Japan and
Germany.
As a result of the agreements between the Company and Fiat, Innocenti
vehicles, (before production was terminated), together with other vehicles
manufactured outside of Italy by or for the account of Fiat, were marketed
through the Innocenti dealer network by Innocenti Milano. In 1992, Innocenti
Milano distributed a total of 1,396 Yugoslav-made vehicles, 4,855 Brazilian-made
cars and 6,639 Innocenti "minis." The Brazilian "Elba" program commenced in
July 1991.
Innocenti automobiles were distributed through Innocenti Milano to
approximately 165 independent dealers throughout Italy. In 1992, there were no
sales outside Italy. No single dealer accounted for more than 2.5% of sales of
Innocenti mini-cars.
48
<PAGE>
Sales
-----
In 1992, unit sales of Maserati vehicles aggregated 884 cars, a decrease of
51% compared to 1991. In 1991, Maserati sales aggregated 1,800 cars, a decrease
of 18.5% from the 1990 level of 2,209 cars.
The Company discontinued sales of new Maserati vehicles into the United
States in 1990. Until it suspended operations, MAI sold only from its existing
inventory of prior years' models. During 1992, MAI sold 17 Maserati cars.
During 1991, MAI sold 45 Maserati cars, compared to 87 in 1990.
In 1992, 5,826 660 cc and 813 990 cc Innocenti minicars (a total of 6,639
Innocenti minicars) were sold, a 37% decrease from 1991. In 1992, Innocenti
Milano also sold 1,396 "Koral" model minis, manufactured in Yugoslavia, and
4,855 Brazilian-made cars. In 1991, 10,517 Innocenti minicars were sold, a
98.5% increase from 1990. Production of Innocenti vehicles was terminated in
December 1992.
Backlogs
--------
Backlogs were not significant with respect to Maserati cars, although
backlog conditions occurred occasionally in response to the introduction of new
models.
Competition
-----------
Competition among manufacturers of luxury cars in Europe has traditionally
been intense, involving a number of considerably larger, better financed
companies than Maserati. In the years preceding the Maserati Sale, the Italian
luxury car industry was marked by a succession of consolidations of small,
independent luxury or specialty car makers such as Ferrari and Lamborghini into
large multinational companies such as Fiat and Chrysler. Maserati was one of
the last such small specialty car manufacturers still independently controlled
at the time of the Maserati Sale. The principal competitors for Maserati were
Mercedes, Porsche, BMW, Saab, Volvo, Ferrari, Alfa-Romeo and Jaguar, all of them
owned by, or themselves being, larger corporations. Italian sales of Maserati
represented approximately 1.2% of the luxury car market in Italy and export
sales of Maserati represented a fraction of 1% of the world-wide market in the
period between 1989 and 1992.
Competition among mini-car manufacturers in Italy and throughout Europe was
also fierce, involving a number of considerably larger, better financed
companies than Innocenti located in Italy, Spain, France, Germany and the United
Kingdom. Innocenti competed in the market on the basis of styling, price and
performance. In Italy, Innocenti cars had less than a 1% share of the total
automobile market in 1992. Before ceasing production in 1992, principal
competition for the Innocenti came from Fiat and its affiliates Alfa-Romeo
/Autobianchi, with an approximate 48.2% Italian market share. Major competitors
also include Ford, Renault, Peugeot, Volkswagen-Audi and Citroen.
Raw Materials
-------------
Most of Maserati's raw materials and components requirements were available
at competitive prices from numerous suppliers, and supplies were not a
contributing factor to the growing loses and declining sales of Maserati prior
to the 1993 sale. Maserati manufactured its own engines and power train
components.
Research and Development
------------------------
Maserati conducted inhouse research and development activities to design,
develop and engineer improvements to vehicle componentry and performance, and
for new vehicles. An aggregate of Lit. 5,492,000,000 ($3,458,000) was devoted
to internal research and development in 1992, and Lit. 3,139,000,000
($1,977,000) in 1991.
49
<PAGE>
Seasonal Nature of Business
---------------------------
There was no significant seasonal variation in the business of the Company
or any of its subsidiaries except that traditionally vehicle production ceases
during August of each year in Italy.
Patents and Trademarks
----------------------
Maserati was not in any material respect dependent upon patents, licenses,
franchises or concessions. No royalties were accrued or paid in 1990, 1991 or
1992.
Pursuant to its 1990 agreement with Fiat, the Company caused the "Maserati"
name, among other assets of O.A.M., to be contributed to Maserati S.p.A. By
acquiring Maserati pursuant to the Maserati Sale, Fiat has thus acquired the
Maserati trade name as well.
Compliance with Governmental Regulations
----------------------------------------
Maserati (and its predecessors), along with other automobile manufacturers,
were required to incur substantial costs in designing and testing products to
comply with United States emissions, motor vehicle safety, fuel economy and
damage susceptibility requirements. Such standards added substantially to the
price of vehicles. There were significant resulting differences between the
vehicles sold in the United States market and those marketed elsewhere.
Among the standards required of motor vehicles for sale in the United
States as of December 31, 1992 were for automatic restraints, bumper impact
resistance, pollution control and minimum fuel mileage. Penalties could be
imposed if such standards were not met. California's Air Resource Board had
also promulgated emissions standards more stringent than federal levels.
Maserati had not sold any vehicles in California since 1990.
Employees and Employee Relations
--------------------------------
At December 31, 1992, there were a total of 1,321 employees at the Modena
and Milan facilities, compared to 1,600 at December 31, 1991, of whom
approximately 75% were engaged in factory production and the balance in various
supervisory, sales, purchasing, administrative, design, engineering and clerical
activities. However, of the 1,030 employees on the payroll at Milan, 514 were
furloughed and did not work for any substantial part of the year. The furlough
cost amounted to Lit. 15,400,000,000 ($9,698,000). During 1992, per capita
labor costs in Modena and Milan, excluding severance and furlough payments,
increased by approximately 6% in comparison to 1991.
During 1992, the plants at Milan and Modena availed themselves of an
Italian government program designed to defray part of the cost of furloughing
workers during periods of reduced production. During 1992, in addition to the
514 employees who were furloughed, other production workers were furloughed a
total of 75,604 production hours at Modena at a cost of Lit. 53,806,000
($33,883), and 237,336 production hours at Milan, at a cost of Lit. 163,000,000
($102,645). In 1991, the Modena plant furloughed a total of 6,176 production
hours at a cost to Maserati of Lit. 4,000,000 ($2,519), and 726,464 production
hours in Milan, at a cost to Maserati of Lit. 275,000,000 ($173,173).
Strikes and other labor problems at Milan in 1992, arising out of
Maserati's attempted termination of 514 workers, materially impaired operations
at that plant, exacerbating Maserati's problems with an already poor environment
for European luxury cars. Production was interrupted by repeated work
stoppages, shipments of completed cars were delayed and as a consequence, sales
were lost. Losses were magnified as a result of dramatically diminished sales,
while expenses remained high due to a judicial decree preventing Maserati from
firing the 514 furloughed workers at the Milan plant.
At December 31, 1992, Maserati, having assumed the obligation from O.A.M.,
was obligated to pay employees an aggregate of Lit. 30,245,000,000 ($19,046,000)
severance pay. As a result of the Maserati Sale, that obligation was assumed by
Fiat.
50
<PAGE>
Financial Information About Foreign and
Domestic (Italian) Operations and Export Sales
- ----------------------------------------------
Maserati Business
-----------------
The following information pertains to the fiscal years ended December 31,
1990, 1991 and 1992, the three most recent full fiscal years prior to the
Maserati Sale.
All Maserati vehicle production occurred in Italy and foreign sales were
made to distributors located outside Italy. Most foreign sales were made to
Western European countries and the U.S. Although in the aggregate foreign sales
were significant, sales to no particular country other than Switzerland and
Japan were significant. Sales to other continents were also insubstantial.
Set forth below are charts illustrating percentage Maserati vehicle sales
revenues attributable to various geographic areas.
Geographic Areas
----------------
Year Ended December 31
1992 1991 1990
---- ---- ----
Maserati Cars
-------------
Italy 48% 52% 54%
Europe (other than Italy) 32% 26% 23%
United States -- -- 1%
Japan 13% 20% --
Elsewhere 9% 2% 22%
Management's Discussion of Pro Forma Results of Operations
- ----------------------------------------------------------
The following presentation of Management's Discussion of Pro Forma Results
of Operations is based on the pro forma analysis of the effect of the Maserati
Sale as reported in the Company's Current Report on Form 8-K/A, Amendment No. 2,
filed on October 27, 1993. This is provided solely to enable shareholders to
consider the condition of the Company as at March 31, 1993, the last completed
quarter prior to the Maserati Sale, and the contribution of Maserati to results
of operations in the three months ended March 31, 1993 and the three years ended
December 31, 1992, 1991 and 1990. Readers should note that the following pro
forma information, which by its nature is purely hypothetical, is not identical
to the historical presentation of continuing operations for the same period.
The pro forma information excludes only operations attributable to Maserati.
The presentation of continuing operations, in compliance with applicable
accounting rules, also excludes automotive related operations of O.A.M.
1992 Compared to 1991
- ---------------------
On a pro forma basis in the 1992 fiscal year, excluding the operations of
Maserati, the Company lost Lit. 3,967,000,000 ($2,498,000) on net sales of Lit.
45,346,000,000 ($28,555,000), before a tax credit of approximately Lit.
4,100,000 ($2,582,000) and an extraordinary gain of Lit. 12,041,000,000
($7,582,000) from the favorable settlement by the Company's O.A.M. subsidiary of
a liability to G.E.P.I., an agency of the Italian government.
In the 1991 fiscal year, by comparison, the Company, on a pro forma basis
excluding Maserati operations lost Lit. 9,811,000,000 ($6,178,000) on net sales
of Lit. 32,219,000,000 ($20,289,000) before a tax credit of Lit. 11,508,000,000
($7,247,000) and an extraordinary gain from the early extinguishment of debt of
Lit. 2,176,000,000 ($1,370,000).
51
<PAGE>
The improvement in sales and the reduction in net loss from 1991 to 1992
were due principally to increased sales by the Company's Moto Guzzi subsidiary
of larger, more expensive motorcycles as a proportion of all units sold.
By contrast, as the Company reported in its 1992 Annual Report on Form 10-
K, on an historical and not on a pro forma basis, net sales, including at
Maserati, continued their declining trend, decreasing 27.1% in 1992 compared to
1991. The decrease was the result of a variety of factors: the suspension of
the Fiat "Panda" program in December 1991, generally weak economic conditions,
weak demand for the Company's products and interruptions of production and
shipments of finished cars and components from the Milan facility during the
second quarter of 1992 as a result of the then unresolved labor dispute.
The 30% decrease in gross profit in 1992, as compared to 1991, was the
result of the loss of the Company's economies of scale as production decreased.
The Company's fixed costs remained largely constant. Therefore, fixed costs
were spread over decreased production, increasing the fixed costs attributable
to each vehicle produced.
In 1992, variable costs, which are less significant than fixed costs, di-
minished as a result of the decreased demand for the Company's products and the
general weakening condition of the European economy. Generally, the Company
lost a substantial portion of its economies of scale which were realized only
when manufacturing a significantly greater volume of vehicles.
As a result of decreased volume, receivables and inventories decreased 25%
and 15%, respectively, in 1992 from the prior year. In the fourth quarter of
1992, Management reassessed the levels of inventories remaining and provided
additional reserves of Lit. 4,732,000,000 ($2,928,218) for obsolete and excess
inventory.
Because of such poor sales and high expenses, Maserati operations generated
huge losses. Once the accumulating losses incurred by the Company from Maserati
operations exceeded the amount which Fiat had paid for its 49% equity interest
in Maserati it acquired in 1990, O.A.M., and therefore the Company indirectly,
was required under generally accepted accounting principles to absorb, for
financial reporting purposes, 100% of the continuing losses sustained by the
Maserati S.p.A. subsidiary, further aggravating the adverse impact of Maserati's
losses on the Company's financial condition.
Losses at Maserati increased from Lit. 29,123,000,000 ($18,339,000) in 1991
to Lit. 88,176,000,000 ($55,526,000) in 1992, which could not be supported by
the Company's other operations. Even after the tax credits and extraordinary
gains, the Company recorded net losses of Lit. 75,984,000,000 ($47,849,000) in
1992 and Lit. 17,320,000,000 ($10,907,000), after minority interests.
At December 31, 1992, the Company had a deficiency in working capital of
Lit. 70,486,000,000 ($44,387,000), compared to a deficiency of Lit.
29,786,000,000 ($18,757,000) at December 31, 1991. As a result of such
increased losses, cash used in operating activities increased to Lit.
41,640,000,000 ($26,222,000) in 1992 from Lit 11,279,000,000 ($7,103,000) in
1991.
Operations at Maserati in 1992 were principally financed by the Lit.
125,000,000,000 ($78,715,000) line of credit provided to Maserati S.p.A. by Fiat
that year.
1991 Compared to 1990
- ---------------------
Net sales on a historical basis declined 46% in 1991 compared to 1990, and
76% on a pro forma basis as a result of a depressed market for luxury
automobiles and motorcycles, coupled with the termination in April, 1990 of the
Chrysler "TC" production program.
Sales by Maserati declined from Lit. 242,265,000,000 in 1990 to Lit.
171,566,000,000. Gross profits on a pro forma basis dropped 83% from 1990 to
1991 as a result of the decline in production.
52
<PAGE>
The Company, however, reported net income of Lit. 43,396,000,000 on a
historical basis, and Lit. 54,885,000,000 on a pro forma basis, due primarily to
the sale in 1990 to Fiat of a 49% equity interest in the Company's then-newly
formed Maserati subsidiary. The sale to Fiat also bolstered the Company's cash
and cash equivalents position, and working capital, as at December 31, 1990,
whereas at December 31, 1991, due to the ongoing losses, the Company had a
working capital deficiency of Lit. 29,786,000,000.
As in 1991, net sales in 1990 exclusive of Maserati consisted principally
of motorcycle sales by the Company's Moto Guzzi (then known as G.B.M.)
subsidiary. Operations in the first quarter of 1990 also included revenues
attributable to the subsequently terminated Chrysler "TC" program.
First Quarter of 1993 Compared to First Quarter of 1992
- -------------------------------------------------------
For the quarter ended March 31, 1993, the last fiscal quarter prior to the
Maserati Sale, on a pro forma basis, the Company lost Lit. 3,204,000,000
($2,018,000) on net sales of Lit.
7,197,000,000 ($4,532,000) from continuing operations. In the first quarter of
1992, on a pro forma basis, the Company lost Lit. 11,586,000,000 ($7,296,000)
from continuing operations on net sales of Lit. 12,082,000,000 ($7,608,000).
Maserati lost Lit. 21,397,000,000 ($13,474,000) on net sales of Lit.
15,621,000,000 ($9,837,000) in the first three months of 1993.
On a pro forma basis, the Company had assets of Lit. 152,250,000,000
($95,875,000) of which approximately Lit. 70,552,000,000 ($44,428,000)
represented the present value of the proceeds of the Maserati Sale. Pro forma
liabilities at March 31, 1993 were reduced by approximately Lit. 261,688,000,000
($164,791,000) as a result of the Maserati Sale.
53
<PAGE>
<TABLE><CAPTION>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1993
Pro Forma Adjustments
-----------------------------------------------
Maserati Other
---------------------- --------------------
Historical Debits Credits Debits Credits Pro Forma
---------- ------ ------- ------ ------- ---------
(Unaudited)
(In Thousands of Dollars)
ASSETS:
- ------
<S> <C> <C> <C> <C> <C> <C>
Current Assets $101,107 $63,118(1) $30,699(2) $68,687
Property and Equipment, Net 36,994 25,814(1) 11,181
Other Assets 4,161 1,883(1) 13,729(2) 16,008
-------- ------
$142,262 $95,876
======= =======
LIABILITIES AND EQUITY:
- ----------------------
Current Liabilities $135,257 $93,288(1) $41,969
Long-Term Debt, Other Liabilities
and Minority Interests 85,938 71,503(1) $7,730(2) 22,164
Shareholders Equity (Deficiency in
Assets)2 (78,932) 73,975(1,3) 36,698(2,3) 31,742
------ ------
$142,263 $95,875
======== =======
Pro Forma Adjustments
------------------------------------------------
Maserati Other
------------------- -----------------
Historical Debits Credits Debits Credits Pro Forma
---------- ------ ------- ------ ------- ---------
(Unaudited)
(In Millions of Italian Lire)
ASSETS:
- ------
Current Assets Lit. 160,558 Lit. 100,233(1) Lit. 48,750(2) Lit. 109,075
Property and Equipment, Net 58,747 40,992(1) 17,755
Other Assets 6,608 2,990(1) Lit. 21,802(2) 25,420
-------- -------
Lit. 225,913 Lit. 152,250
======= =======
LIABILITIES AND EQUITY:
- ----------------------
Current Liabilities Lit. 214,788
Lit. 148,141(1) Lit. 66,647
Long-Term Debt, Other Liabilities and
Minority Interests 136,469 113,547(1) Lit. 12,275(2) 35,197
Shareholders Equity (Deficiency in
Assets)2 (125,344)
Lit. 117,473(1,3) 58,277(2,3) 50,406
--------- --------
Lit. 225,913 Lit. 152,250
======= =======
</TABLE>
1 Reflects the assets, liabilities and operations of Maserati, the subsidiary
sold.
2 Reflects the installment payments from Fiat. Includes a present value
adjustment of the final installment from Fiat of Lit. 27,000,000,000,
payable on January 1, 1995 without interest. The Company assumed an
interest rate of 11% per annum in calculating such adjustment. Such
interest rate approximates the prevailing rate in Italy.
3 Reflects the total gain on sale of Maserati stock.
54
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1993
<TABLE><CAPTION>
Pro Forma Adjustments
---------------------
Maserati
---------------------
Historical Debits Credits Pro Forma
---------- ------ ------- ---------
(Unaudited)
(In Thousands of Dollars)
<S> <C> <C> <C> <C>
Net Sales $14,369 $9,837(1) $4,532
Cost of Products Sold 19,873 $15,722(1) 4,151
------ -----
(5,504) 381
Selling and General Administrative Expenses 2,571 992(1) 1,579
----- -----
(8,075) (1,198)
Interest Expense (3,737) 2,607(1) (1,130)
Interest and Other Income or Expense 356 45(1) 310
--------- --------
Net Income (Loss) $(11,456) ($2,018)
========= ========
<CAPTION>
Pro Forma Adjustments
---------------------
Maserati
---------------------
Historical Debits Credits Pro Forma
---------- ------ ------- ---------
(Unaudited)
(In Millions of Italian Lire)
<S> <C> <C> <C> <C>
Net Sales Lit. 22,818 Lit. 15,621(1) Lit. 7,197
Cost of Products Sold 31,559 Lit. 24,967(1) 6,592
------ -----
(8,741) 605
Selling General and Administrative Expenses 4,082 1,575(1) 2,507
------ -----
(12,823) (1,902)
Interest Expense (5,935) 4,140(1) (1,795)
Interest and Other Income or Expense 565 72(1) 493
-------- -------
Net Income(Loss) Lit. (18,193)
Lit. (3,204)
======== =======
</TABLE>
1 Reflects the assets, liabilities and operations of Maserati, the
subsidiary sold.
55
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1992
<TABLE><CAPTION>
Pro Forma Adjustments
---------------------
Maserati
---------------------
Historical Debits Credits Pro Forma
---------- ------ ------- ---------
(Unaudited)
(In Thousands of Dollars)
<S> <C> <C> <C> <C>
Net Sales $ 93,538 $64,982(1) $28,555
Cost of Products Sold 120,674 $95,887(1) 24,787
------- ------
(27,136) 3,768
Selling and General Administrative Expenses 17,940 10,915(1) 7,025
------- ------
(45,076) (3,257)
Interest Expense (15,902) 12,601(1) (3,301)
Interest and Other Income or Expense 2,982 1,106(1) 4,088
Income Tax Credit 2,564 2,564
------- -----
(55,432) 94
Extraordinary Item - Gain on Early
Extinguishment of Debt 7,582 7,582
-------- -------
Net Income (Loss) ($47,850) $7,676
======= ======
<CAPTION>
Pro Forma Adjustments
---------------------
Maserati
---------------------
Historical Debits Credits Pro Forma
---------- ------ ------- ---------
(Unaudited)
(In Millions of Italian Lire)
<S> <C> <C> <C> <C>
Net Sales Lit. 148,538 Lit. 103,192(1) Lit. 45,346
Cost of Products Sold 191,630
Lit. 152,269(1) 39,361
------- ------
(43,092) 5,985
Selling General and Administrative Expenses 28,489 17,333(1) 11,156
------ ------
(71,581) (5,171)
Interest Expense (25,252) 20,010(1) (5,242)
Interest and Other Income or Expense 4,736 1,756(1) 6,492
Income Tax Credit 4,072 4,072
------- -----
(88,025) 151(2)
Extraordinary Item - Gain on Early
Extinguishment of Debt 12,041 12,041
------ ------
Net Income(Loss) Lit. (75,984) Lit. 12,192
======== ======
</TABLE>
1 Reflects the assets, liabilities and operations of Maserati, the
subsidiary sold.
2 Income as above 151
Income tax credit; inclusive of Lit. 46 income tax payable on
continuing operations (4,118)
------
Loss from continuing operations (3,967)
56
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1991
<TABLE><CAPTION>
Pro Forma Adjustments
---------------------
Maserati
---------------------
Historical Debits Credits Pro Forma
---------- ------ ------- ---------
(Unaudited)
(In Thousands of Dollars)
<S> <C> <C> <C> <C>
Net Sales $128,328 $108,039(1) $20,289
Cost of Products Sold 126,951 $109,228(1) 17,723
------- ------
1,377 2,566
Selling and General Administrative Expenses 16,225 9,145(1) 7,080
------ -----
(14,848) (4,514)
Interest Expense (14,804) 8,205(1) (6,599)
Interest and Other Income or Expense(2) 5,134 200(1) 4,934
Income Tax Credit 7,247 7,247
----- -----
(17,271) 1,068
Extraordinary Item - Gain on Early
Extinguishment of Debt 1,370 1,370
------- -----
Net Income (Loss) ($15,901) $2,438
--------- ------
========= ======
<CAPTION>
Pro Forma Adjustments
---------------------
Maserati
---------------------
Historical Debits Credits Pro Forma
---------- ------ ------- ---------
(Unaudited)
(In Millions of Italian Lire)
<S> <C> <C> <C> <C>
Net Sales Lit. 203,785 Lit. 171,566(1) Lit. 32,219
Cost of Products Sold 201,598
Lit. 173,454(1) 28,144
------- ------
2,187 4,075
Selling General and Administrative Expenses 25,766 14,523(1) 11,243
------ ------
(23,579) (7,168)
Interest Expense (23,508) 13,029(1) (10,479)
Interest and Other Income or Expense(2) 8,153 317(1) 7,836
Income Tax Credit 11,508 11,508
------ ------
(27,426) 1,697(3)
Extraordinary Item - Gain on Early
Extinguishment of Debt 2,176 2,176
------- -----
Net Income: Lit. (25,250) Lit. 3,873
======== =====
</TABLE>
1 Reflects the assets, liabilities and operations of Maserati, the
subsidiary sold.
2 Before minority interests.
3 Income as above 1,697
Income tax credit (11,508)
--------
Loss from continuing operations (9,811)
57
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1990
<TABLE><CAPTION>
Pro Forma Adjustments
---------------------
Maserati
---------------------
Historical Debits Credits Pro Forma
---------- ------ ------- ---------
(Unaudited)
(In Thousands of Dollars)
<S> <C> <C> <C> <C>
Net Sales $237,644 $152,560(1) $ 85,084
Cost of Products Sold 244,030 $143,768(1) 100,261
------- -------
(6,386) (15,177)
Selling and General Administrative Expenses 18,984 11,115(1) 7,868
------ -------
(25,370) (23,045)
Interest Expense (14,280) 4,557(1) (9,724)
Interest and Other Income or Expense(2) 77,226 355(1) 77,581
Income Taxes (28,960) (28,960)
------- --------
8,616 15,852
Extraordinary Item - Utilization of Net
Operating Loss Carryforwards 18,712 18,712
------ ------
Net Income (Loss) $27,328 $34,564
======= =======
<CAPTION>
Pro Forma Adjustments
---------------------
Maserati
---------------------
Historical Debits Credits Pro Forma
---------- ------ ------- ---------
(Unaudited)
(In Millions of Italian Lire)
<S> <C> <C> <C> <C>
Net Sales Lit. 377,378 Lit. 242,265(1) Lit. 135,113
Cost of Products Sold 387,519
Lit. 228,304(1) 159,215
------- -------
(10,141) 24,102
Selling General and Administrative Expenses 30,146 17,651(1) 12,495
------ ------
(40,287) (36,597)
Interest Expense (22,677) 7,236(1) (15,441)
Interest and Other Income or Expense(2) 122,635 563(1) 123,198
Income Taxes (45,989) (45,989)
------ ------
13,682 25,171
Extraordinary Item - Utilization of Net
Operating Loss Carryforwards 29,714 29,714
------ ------
Net Income: Lit. 43,396 Lit. 54,885
====== ======
</TABLE>
1 Reflects the assets, liabilities and operations of Maserati, the
subsidiary sold.
2 After minority interests.
58
<PAGE>
Vote Required
- -------------
The approval of 66-2/3% of all shares of common stock entitled to vote at
the Annual Meeting of shareholders, is sought to ratify the execution and
consummation of the agreement. Two shareholders, Finprogetti S.p.A., and the
trustee of Tail Trust (the successor-in-interest to certain shares formerly held
by Alejandro De Tomaso), holding an aggregate of 49.1% of the outstanding shares
of common stock, have agreed to vote for ratification. Additionally, shares
held by officers and directors of the Company, shares separately acquired by
shareholders of Finprogetti and shares held by members of Alejandro De Tomaso's
family may be expected to vote in favor of the proposal, although such holders
are not so required by any agreement, arrangement or understanding. Those
shares, together with the shares of Finprogetti and the Trust, aggregate 65.6%
of votes which may be cast. Ratification is therefore reasonably certain.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THIS PROPOSAL.
---
Dissenting Shareholders' Rights
- -------------------------------
While the Company did not itself sell any assets in connection with the
Maserati Sale, Management believes that shareholders are entitled to an
opportunity to vote on the ratification of the Maserati Sale. Under applicable
Maryland law, shareholders of a Maryland corporation which disposes of all or
substantially all of its assets and who dissent from the transaction are
entitled to an opportunity to have the value of the shares determined through an
appraisal process. While Management can not determine for a certainty whether
the Maserati Sale would constitute such a sale by the Company (because there is
no precedential guidance from the Maryland courts or Federal courts applying
Maryland law, see "Shareholder Approval", above), some courts of other states
---
which have considered the issue have concluded that sales of assets by a
corporation's subsidiary could, under certain circumstances, constitute a sale
by the corporation itself of all or substantially all of its assets. The
Maryland courts, if presented with the question might similarly so conclude.
Other courts, however, have reached contrary conclusions. Despite the legal
uncertainty, Management does not intend to object if a shareholder of the
Company were to seek to invoke the appraisal process and, if the Maryland
Department of Corporations ("Maryland Department") does not accept for recording
the Articles of Transfer which commence certain time constraints on the
appraisal process, the Company will, to the extent that it may legally do so,
waive such requirements as a condition to invoking the appraisal process. The
Company will not, however, waive any rights relating to the appropriate value of
the Company's shares for purposes of the appraisal process, nor any failure by
shareholders to perfect appraisal rights which failures are not related to the
timing of the filing, or lack of filing, of Articles of Transfer. There can be
no assurance, moreover, that appraisal rights will be recognized in Maryland
should a shareholder seek to assert them. In such event, shareholders who
attempted to pursue such rights may either retain their shares, sell them in the
market, or participate in the planned share repurchase program which the Company
expects to initiate shortly after the shareholders' meeting.
As described below in greater detail, a shareholder who votes in favor of
ratification of the Maserati Sale could not, under any circumstances, pursue any
appraisal rights which may exist.
Right to Dissent and Appraisal
- ------------------------------
The following information is provided to advise shareholders of the
procedures required to preserve and invoke such appraisal rights as may be
available to the Company's shareholders in connection with the Maserati Sale.
Under the Maryland General Corporation Law, each holder of the Company's Common
Stock will be entitled to demand and receive payment of the fair value of his
shares in cash, if he or she (i) prior to or at the Annual Meeting, files with
the Company a written objection to the Maserati Sale, (ii) does not vote in
favor of the Maserati Sale and (iii) within 20 days after Articles of Transfer
have been accepted for recording by the Maryland Department makes written demand
on the Company for payment of his or her shares, stating the number of shares
for which payment is demanded. A written objection pursuant to clause (i) above
should be sent to the Company at De Tomaso Industries, Inc., 107 Monmouth
Street, Red Bank, New Jersey 07707, Attention: Catherine D. Germano, Assistant
Secretary. The Company will not accept a direction in the shareholder's proxy
to vote against the Maserati Sale as constituting a written objection or demand
within the meaning of clause (i) or clause (iii) above. Any shareholder who
fails to comply with the requirements described above will be bound by the terms
of the Maserati Sale. A demand for payment may be withdrawn only with the
consent of the Company.
59
<PAGE>
The Company will promptly deliver or mail to each dissenting shareholder
written notice of the date the Articles of Transfer have been accepted (or are
rejected) for recording by the Maryland Department. The Company may also
deliver or mail to each objecting shareholder a written offer to pay for his or
her stock at a price deemed by the Company to be the fair value thereof. Fair
value will be determined as of the close of business on the day preceding the
closing of the Maserati Sale. In accordance with Maryland law, the determina-
tion of fair value will not include the effect of any appreciation or
depreciation caused directly or indirectly by the Maserati Sale. The Board has
determined that the fair value on such date was between $5 and $8 per then-
outstanding share. This amount is substantially less than the amount which will
be offered in the planned stock repurchase program. Within 50 days after the
Articles of Transfer have been accepted (or are rejected) by the Maryland
Department, either the Company or any objecting shareholder who has not received
payment for his shares may petition a court of equity in Baltimore, Maryland,
for an appraisal to determine the fair value of such shares. The Company does
not presently intend to make such a petition, but reserves the right to do so. A
shareholder seeking to obtain a judicial appraisal would therefore have to make
a such a petition. If the court finds that an objecting shareholder is entitled
to an appraisal of his or her stock, the court will appoint three (3)
disinterested appraisers to determine the fair value of such shares on terms and
conditions the court determines proper, and the appraisers will, within 60 days
after appointment (or such longer period as the court may direct), file with the
court and mail to each party to the proceeding their report stating the
conclusion of the majority as to the fair value of the shares. Within 15 days
after the filing of the report, any party may object to the report and may
request a hearing thereon. The court will, upon motion of any party, enter an
order either confirming, modifying or rejecting the appraiser's report and, if
confirmed or modified, enter judgment directing the time within which payment
must be made. If the appraisers' report is rejected, the court may determine
the fair value of the shares of the objecting shareholder or may remit the
proceeding to the same or other appraisers. Any judgment entered pursuant to a
court proceeding will include interest from the date of the shareholders' vote
on the action to which objection was made, unless the court finds that the
shareholder's refusal to accept a written offer to purchase stock made by the
Company as described above was arbitrary and vexatious or not in good faith.
Costs of the proceeding (not including attorneys' fees) will be determined by
the court and will be assessed against the Company, or under certain
circumstances, the objecting shareholder, or both.
Because of uncertainty regarding the availability of appraisal rights to
objecting shareholders there can be no assurance that Articles of Transfer,
filing of which commences certain obligations of the objecting shareholder, will
be accepted for filing. The Company will notify objecting shareholders whether
or not the Articles of Transfer are accepted for filing, and will not raise an
objection relating to timeliness of such shareholders efforts to perfect
appraisal rights of the shareholder acts, with respect to the notice issued by
the Company, in the time frame otherwise required concerning shareholder
obligation with respect to the filing of Articles of Transfer.
At any time after the filing of a petition for appraisal, the court may
require any dissenting shareholder to submit his or her certificates
representing shares to the clerk of the court for notation of the pendency of
the appraisal proceedings. In order to receive payment, whether by agreement
with the Company or pursuant to a judgment, the shareholder must surrender the
stock certificates endorsed in blank and in proper form for transfer. A
shareholder demanding payment for shares will not have the right to receive any
dividends or distributions payable to holders of record after the close of
business on the date of the shareholders' vote regarding the Maserati Sale and
shall cease to have any rights as a shareholder with respect to the shares
except for the right to receive payment of the fair value thereof. The
shareholder's rights may be restored only upon the withdrawal, with the consent
of the Company, of the demand for payment, failure of either party to file a
petition for appraisal within the time required, a determination of the court
that the shareholder is not entitled to an appraisal, or the abandonment or
rescission of the Maserati Sale.
The foregoing summary of the rights of dissenting shareholders does not
purport to be a complete statement of the procedures to be followed by
shareholders desiring to exercise their dissenters' rights. The preservation
and exercise of dissenters' rights are conditioned on strict adherence to the
applicable provisions of the Maryland General Corporation Law. Each shareholder
desiring to exercise dissenters' rights should refer to Title 3, Subtitle 2,
entitled "Rights of Objecting Shareholders", of the Corporations and
Associations Article of the Annotated Code of Maryland (1985 Replacement
Volume), a copy of which is attached as Exhibit D to the Proxy Statement, for a
complete statement of the shareholder's rights and the steps which must be
followed in connection with the exercise of dissenter's rights.
60
<PAGE>
Shareholder Proposals at the Company's
Next Annual Meeting of Shareholders
- --------------------------------------
Shareholders of the Company who intend to submit proposals to the
Company's shareholders at the Company's next annual meeting of shareholders must
submit such proposals to the Company so that it is received no later than
December 10, 1996, 120 days before the anticipated date of mailing of the proxy
statement for such meeting. Shareholder proposals should be submitted to
Catherine D. Germano, Assistant Secretary, 107 Monmouth Street, Red Bank, New
Jersey 10022.
Financial Information
- ---------------------
The Company's financial statements for the years ended December 31, 1995,
1994 and 1993 are annexed to this Proxy Statement. The Company's financial
statements at March 31, 1996 and for the three months then ended are contained
in its Quarterly Report on Form 10-Q which accompanies this Proxy Statement.
The pro forma condensed consolidated balance sheet of the Company at March 31,
1993 and the pro forma condensed consolidated statements of operations of the
Company for the fiscal years ended December 31, 1992, 1991 and 1990 and for the
three months ended March 31, 1993 and 1992, all of which were filed in the
Company's Current Report on Form 8-K for the reportable event dated July 17,
1993, are included in this Proxy Statement.
Other Matters
- -------------
Management knows of no other matters to be presented at the Annual
Meeting. If any other matter does properly come before the Annual Meeting, the
appointees named in the Proxy will vote the Proxy in accordance with their best
judgment.
By Order of the Board of Directors
Carlo Previtali
Secretary
Dated: Milan, Italy
July 26, 1996
61
<PAGE>
EXHIBIT C
PRIVATE INSTRUMENT
BETWEEN
FIAT AUTO S.p.A., with headquarters in Turin, with capital of 1400 billion,
registered with the Register of Companies of the Court of Turin under No.
2387/78, Taxpayer Code No. 02285320012 (hereinafter FIAT), represented by
Engineer CANTARELLA, Paolo, born in Varallo (VC) on 12/4/1944, in the capacity
of Assistant Director with sufficient powers for this act
AND
American Finance S.p.A., with headquarters in Modena, with capital of 8.3
billions, registered with the Register of Companies of the Court of Modena under
No. 19027, Taxpayer Code No. 01492270366 (hereinafter AFI), represented by
Director DE TOMASO, Santiago, born in Buenos Aires (Argentina) on 9/25/1953,
pursuant to the decision of the Board of Directors of 5/5/1993; OAM S.p.A., with
headquarters in Modena, with capital of 58,934,610,000, registered with the
Register of Companies of the Court of Modena under No. 6048, Taxpayer Code No.
00162980361 (hereinafter OAM), represented by Vice President ROSI, Gino, born in
Serramazzoni (MO), on 3/14/1928, pursuant to the decision of the Board of
Directors of 5/5/1993,
PREMISES
1) On 11/30/1989, the parties executed a series of agreements concerning
corporate, industrial and commercial participation of FIAT in the activities of
OAM - controlled by A.D.T./D.T.I. through A.F.I. (76.43%) and G.M.B. (7.36%) -
and of the company Innocenti Milano S.p.A., which, in turn, is fully controlled
by OAM;
2) Said agreements established, among other things, that OAM would contribute to
a new company (Maserati S.p.A.) the agreed "Maserati" activities of OAM, and
that FIAT would purchase from OAM 49% of the capital of the new company, with
the remaining 51% being kept by OAM;
3) The aforementioned agreements established, among other things, that 51% of
the capital stock of Innocenti would be sold by OAM to FIAT, while the remaining
49% of said stock would be included in OAM's contribution to the new company
(Maserati S.p.A.);
4) The agreements referred to in the previous paragraph have been implemented;
5) OAM and FIAT have disagreements, among other things, concerning the
performance of the commercial tasks assumed by FIAT towards OAM, and concerning
orders (Panda and the Coupe design);
6) The parties, namely OAM and FIAT, have agreed to attribute the incomplete
execution of said orders to circumstances related to the situation of the
automotive market, including at an international level;
7) On this occasion, they have also agreed that OAM, in view of the expenses
incurred by it as a consequence of the implementation of the agreements of
11/30/1989 for the incorporation of Maserati, has no further claims following
the execution of this agreement;
8) Between the date of the agreements referred to in item 1) above and today's
date, FIAT granted A.F.I., on October 10, 1990, financing in the amount of 16
billion lire, and, on the same date, another financing in the amount of 5
billion lire, with interest, and, finally, on 1/11/1993, financing in the amount
of 2.5 billion lire with interest; and on 7/2/1992, FIAT AUTO granted OAM
financing in the amount of 1.5 billion lire with interest;
9) By this instrument, the parties wish to regulate the transfer of stock
representing 51% of the capital of Maserati S.p.A. owned by OAM.
On these premises, the following is agreed upon and set forth:
ART. 1
The premises are an integral or substantial part of this instrument with force
of agreement.
ART. 2
OAM assigns and transfers to FIAT, which purchases, 51% of the capital of
Maserati S.p.A.
<PAGE>
This agreement shall be effective between the parties as of 1/1/1993, as of
which date FIAT shall therefore be the owner of the entire capital stock of the
company, with the understanding that, as such, it is authorized to distribute
such shares as it deems fit, within the automotive group with the same name.
Consequently, as of 1/1/1993, OAM shall not be held liable for the positive or
negative results of the activities of Maserati S.p.A. The endorsement of the
stock certificates sold and purchased, and the corresponding registrations in
the book of shareholders shall take place at the latest by 5/19/1993,
confirming, moreover, that the transfer of the assets themselves has taken place
(1/1/1993).
For the purchase and sale hereunder, the stamp apposed is cancelled, exclusively
for fiscal purposes.
FIAT AUTO shall designate as it deems fit the members of the company's
management for which, to the extent applicable to OAM, the latter submits the
corresponding letters of resignation to FIAT AUTO, duly drafted and signed.
ART. 3
The price of the purchase and sale referred to in the preceding article is
established at 75,750,000,000 lire (seventy-five billion, seven hundred fifty
million) "barring adjustment" in favor of OAM, which shall be paid as follows:
1) 23,500,000,000 lire (twenty-three billion five hundred million) are to be
paid within 15 days from the execution of this instrument by FIAT AUTO and
OAM, through transfer by FIAT AUTO to OAM of the receivables held by FIAT
AUTO against A.F.I. for the following financing, referred to in item 8 of
the premise:
- 16,000,000,000 lire (sixteen billion) paid on October 10, 1990;
- 5,000,000,000 lire (five billion) paid on October 10, 1990;
- 2,500,000,000 lire (two billion five hundred million) paid on January
11, 1993.
The aforementioned transfers are made in settlement, excluding the
guarantees referred to in Art. 1266 and 1267 of the Civil Code. Pursuant
to, and for the effects of Art. 1264 of the Civil Code, A.F.I. declares as
of now that it accepts the transfers of the receivables. FIAT AUTO shall
deliver to OAM the corresponding documents referred to in Art. 1262 of the
Civil Code within 15 days from the signing of this instrument;
2) Concerning 1,500,000,000 lire (one billion five hundred million), already
paid by FIAT AUTO to OAM, and received by the latter on 7/3/1992 as loan
with interest, the parties agree to allot this amount to the principal of
the price of this purchase and sale, effective as of 1/1/1994;
3) Concerning 23,750,000,000 lire (twenty-three billion seven hundred fifty
million), it must be paid on 1/1/1994, plus interest from 1/1/1993 to the
date of payment by FIAT AUTO to OAM;
4) Concerning 27,000,000,000 lire (twenty-seven billion), this amount shall be
paid by FIAT AUTO to A.O.M. [sic] on 1/1/1995 without adding interest.
The parties agree that the interest on the amounts referred to in items 2) and
3) shall be offset: therefore, FIAT AUTO shall pay to OAM on 1/1/1994, the net
amount of 2,805,000,000 lire (two billion eight hundred five million)
corresponding to the difference between the amount owed by FIAT AUTO for the
interest referred to in item 3 above, and the amount owed by OAM to FIAT AUTO
for the interest referred to in item 2 above.
ART. 4
By signing this instrument, the entire relationship concerning the agreements
referred to in item 1) of the premise are completely defined, except for:
A) The guarantees still pending until the already agreed maturity date,
arising from the provisions of art. 3.1 of the agreement, i.e.,
exclusively, those concerning fiscal matters, which shall terminate when
the statute of limitations term lapses;
B) The provisions of Art. 5 of the agreement, exclusively limited to fiscal
matters;
C) The obligation of non-competition referred to in Art. 7 of the agreement,
until the term set forth therein;
with the further clarification, to the extent applicable, that OAM shall pay in
full all expenses, charges, indemnization and any other expenses incurred by
Maserati S.p.A. concerning, and arising from labor/pension litigation for the
period
<PAGE>
prior to the date of the contribution made by OAM to Maserati; provided such
litigation was initiated within the two-year period from the date of the
contribution to 1/1/92;
D) OAM shall continue bearing all responsibility, charges for indemnization
and expenses, for the activities related to sales made by OAM in the United
States, according to the specific laws of the latter country;
The certificates transferred by OAM to FIAT AUTO are free of any lien and
limitation.
OAM declares to know, in view of its capacity of shareholder, that the balance
sheets of Maserati S.p.A. for fiscals 1990, 1991 and 1992 are true and therefore
in compliance with the law, and without risk of being annulled.
ART. 5
The payments to be made by FIAT for the sale of the shares may not be delayed in
any manner by exceptions raised by FIAT, not even if related to possible offset,
whereby OAM is entitled to resort to any remedy to obtain such amounts by forced
execution in the event of such delay.
ART. 6
After the lapse of forty-five days from the maturity, as referred to in Art. 3
above, of any payments owed by FIAT, if OAM does not resort first to forced
execution through ordinary courts, the conflict concerning the missed payment(s)
shall be brought before an ad hoc Arbitration Board, judging under court
procedure, informally, unless cross-examinations are requested. The Board,
sitting in Milan, shall have 3 members, each party appointing one member, and
the third being appointed by the two arbitrators chosen by the parties or, in
the absence thereof, by the National President pro-tempore of the Commercial
Experts Association, which shall appoint the arbitrator not appointed or
replaced within the terms established herein.
For this purpose, the most diligent party shall communicate to the other party,
by registered letter with return receipt requested the appointment and
acceptance of its own arbitrator; the other party shall have 10 days after the
receipt date to send the first party a similar communication concerning the
appointment and acceptance of the second arbitrator. The two arbitrators so
appointed shall have 10 days from receipt of the last communication, to agree on
the appointment of the third arbitrator, who shall preside the Arbitration
Board. The award must be issued within the maximum term of 60 days from the
constitution of the Board, except in the event of unanimously accepted
extensions granted by the parties, and must be communicated in writing by
registered letter with R.R.R. to each of the parties, having the force of final
manifested will of the parties.
Therefore, each of the parties deposits, when signing this instrument, with
notary P.G. Marchetti of Milan, respectively a page signed in blank, jointly
entrusting to said notary the keep these pages and given them to the President
of the Arbitration Board, when constituted, at the latter's request.
The same arbitration procedure shall be followed by OAM and FIAT to resolve any
other conflict, (other than those arising from failure to make payments referred
to in Art. 3).
Turin, 5/17/1993
OAM S.p.A.
[Signature]
FIAT AUTO S.p.A. AFI S.p.A.
[Signature] [Signature]
<PAGE>
APPENDIX A
The following is the text of proposed Article FOURTH to the Restated
Articles of Incorporation upon approval of both Proposal No. 2 and Proposal No.
3:
"FOURTH: The total number of shares of all classes of stock which
the Corporation shall have the authority to issue is fifty million (50
million), all of which shall be common stock of the par value of $.01
per share."
