<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter period ended March 31, 1998
--------------------------------------------------
OR
[ ] TRANSITION PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________to ______________________
Commission File Number 0-2642
--------------------------------------------------------
TRIDENT ROWAN GROUP, INC.
(Exact name of registrant as specified in its charter)
Maryland 52-0466460
(State or other jurisdiction of incorporation) (I.R.S. Employer
Identification No.)
Two Worlds Fair Drive, Somerset, NJ 08873
- --------------------------------------------------------------------------------
(Address of principal executive offices - Zip Code)
(732) 868-9000
-------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by court. Yes / / No / /
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. Common Stock $0.01 par
value, 4,987,780 shares.
<PAGE>
PART I
FINANCIAL INFORMATION
<PAGE>
TRIDENT ROWAN GROUP, INC
Consolidated Condensed Balance Sheets
March 31, 1998
MAR. 31 MAR. 31 DEC. 31
1998 1998 1997
US$'000 LIRE M. LIRE M.
UNAUDITED UNAUDITED NOTE
ASSETS
CASH AND CASH EQUIVALENTS $ 2,492 Lit. 4,543 Lit. 10,407
MARKETABLE SECURITIES, AT COST 2,018 3,678 3,774
RECEIVABLES 26,868 48,981 38,212
TRADE, LESS ALLOWANCE LIT. 2,053
(LIT.2,100) 18,781 34,237 22,333
RECEIVABLES FROM RELATED PARTIES 2,732 4,980 5,383
OTHER RECEIVABLES 5,355 9,764 10,496
INVENTORIES 25,156 45,859 43,450
RAW MATERIALS, PARTS AND WORK-IN-PROCESS 15,607 28,452 25,179
FINISHED PRODUCTS 9,549 17,407 18,271
PREPAID EXPENSES 698 1,272 509
-------- -------- ---------
TOTAL CURRENT ASSETS 57,232 104,333 96,352
-------- -------- ---------
PROPERTY, PLANT AND EQUIPMENT 8,864 16,159 16,011
AT COST 21,877 39,882 39,235
LESS ALLOWANCES FOR DEPRECIATION (13,013) (23,723) (23,224)
TRADEMARKS AND OTHER INTANGIBLE ASSETS,
NET OF AMORTIZATION OF LIT. 1,275
(LIT. 1,250 - 1997) 397 725 750
GOODWILL, NET OF AMORTIZATION OF
LIT. 507 (LIT. 489 - 1997) 158 290 308
REAL ESTATE FOR DEVELOPMENT, NET OF
RESERVE OF LIT. 2,500 1,920 3,500 3,500
CONCESSION RIGHTS 2,403 4,381 4,406
TAX RECEIVABLES 4,764 8,685 8,623
OTHER ASSETS 693 1,262 1,326
SECURITIES COLLATERALIZING SHARE
REPURCHASE COMMITMENTS 8,418 15,346 14,479
-------- -------- ---------
TOTAL ASSETS $84,849 LIT. 154,681 LIT. 145,755
-------- -------- ---------
-------- -------- ---------
Note: The balance sheet as at December 31, 1997 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted
accounting principles.
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
<PAGE>
TRIDENT ROWAN GROUP, INC.
Consolidated Condensed Balance Sheets
March 31, 1998
MAR. 31 MAR. 31 DEC. 31
1998 1998 1997
US$'000 LIRE M. LIRE M.
UNAUDITED UNAUDITED NOTE
LIABILITIES
ADVANCES FROM BANKS $ 23,283 Lit. 42,444 Lit. 33,423
CURRENT PORTION OF LONG-TERM DEBT 3,312 6,038 6,009
ACCOUNTS PAYABLE 17,963 32,746 31,338
ACCRUED EXPENSES AND OTHER PAYABLES 5,990 10,919 10,025
-------- -------- --------
TOTAL CURRENT LIABILITIES 50,591 92,225 80,795
-------- -------- ---------
LONG-TERM DEBT, LESS CURRENT PORTION 3,597 6,560 7,144
TERMINATION INDEMNITIES 4,724 8,614 8,917
PROVISION FOR CLAIMS 1,809 3,300 3,340
MINORITY INTERESTS 7,483 13,639 13,747
PREFERRED STOCK OF SUBSIDIARY 6,913 12,602 11,629
COMMON STOCK SUBJECT TO REPURCHASE 8,833 16,103 15,691
SHAREHOLDERS' EQUITY 899 1,638 4,492
Common stock, par value $0.01 per share:
Authorized 50,000,000 shares;
4,987,780 (4,987,780 - 1997) shares
issued and outstanding; less 804,880
(804,880 - 1997) subject to repurchase 48 88 88
Additional paid in capital 49,565 90,357 90,357
Treasury stock, at cost (16,413) (29,921) (29,921)
Cumulative translation adjustment (134) (244) (154)
Accretion expense and related exchange
movements (1,583) (2,886) (2,474)
Deficit (30,584) (55,756) (53,404)
-------- -------- ---------
$84,849 LIT. 154,681 LIT. 145,755
-------- -------- ---------
-------- -------- ---------
Note: The balance sheet as at December 31, 1997 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted
accounting principles.
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
<PAGE>
TRIDENT ROWAN GROUP, INC.
Unaudited Consolidated Condensed Statements of Operations
3 Months Ended March 31, 1998 and 1997
MAR. 31 MAR. 31 MAR. 31
1998 1998 1997
US$'000 LIRE M. LIRE M.
NET SALES $18,160 Lit. 33,106 Lit. 23,690
COST OF SALES (14,913) (27,186) (20,293)
-------- -------- --------
3,247 5,920 3,397
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (2,981) (5,435) (5,005)
RESEARCH AND DEVELOPMENT (479) (874) (442)
-------- -------- --------
(213) (389) (2,050)
INTEREST EXPENSE (595) (1,085) (1,412)
INTEREST INCOME 247 451 392
OTHER (EXPENSE)/INCOME, NET (65) (119) 2,228
-------- -------- --------
LOSS BEFORE INCOME TAXES AND
MINORITY INTERESTS (626) (1,142) (842)
INCOME TAXES (189) (345) (379)
MINORITY INTERESTS 59 108 (58)
AMORTIZATION OF PREMIUM FOR REDEMPTION OF
PREFERRED STOCK OF SUBSIDIARY (534) (973) (1,285)
-------- -------- --------
NET LOSS $(1,290)LIT. (2,352)LIT. (2,564)
-------- -------- --------
-------- -------- --------
LOSS PER SHARE US $ LIRE LIRE
BASIC AND DILUTED $(0.26)LIT. (472)LIT. (657)
-------- -------- --------
-------- -------- --------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING DURING THE PERIOD
BASIC AND DILUTED No. 4,987,780 No. 4,987,780 No.3,902,540
-------- --------- ---------
-------- --------- ---------
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
<PAGE>
TRIDENT ROWAN GROUP, INC.
Unaudited Consolidated Condensed Statements of Cash Flows
3 Months Ended March 31, 1998 and 1997
MAR. 31 MAR. 31 MAR. 31
1998 1998 1997
US$'000 LIRE M. LIRE M.
NET LOSS $(1,290)LIT. (2,352)LIT. (2,564)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH USED BY OPERATING ACTIVITIES: (5,578) (10,169) (6,166)
-------- -------- --------
NET CASH USED IN OPERATING ACTIVITIES (6,868) (12,521) (8,730)
-------- -------- --------
INVESTING ACTIVITIES:
Net decrease in investments and securities (423) (771) -
Sale of subsidiaries, net of cash disposed - - 89
Purchases of property, plant and equipment (530) (966) (996)
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES (953) (1,737) (907)
-------- -------- --------
FINANCING ACTIVITIES:
Increase in advances from banks 4,948 9,021 4,277
Sale of preferred stock of subsidiary - - 2,933
Principal payments of long-term debt (368) (670) (888)
-------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,580 8,351 6,322
-------- -------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (3,241) (5,907) 3,315
EFFECT OF EXCHANGE RATE CHANGE ON CASH AND
CASH EQUIVALENTS 24 43 116
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 5,709 10,407 8,281
-------- -------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $2,492 LIT. 4,543 LIT. 5,082
-------- -------- --------
-------- -------- --------
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
<PAGE>
TRIDENT ROWAN GROUP, INC.
Notes to the Consolidated Condensed Financial Statements
March 31, 1998
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. For a summary of the Registrant's accounting principles, and other
footnote information, reference is made to the Registrant's 1997 Annual Report
on Form 10-K. All adjustments necessary for the fair presentation of the results
of operations for the interim periods covered by this report have been included.
All of such adjustments are of a normal and recurring nature. The results of
operations for the three months ended March 31, 1998 are not necessarily
indicative of the operating results for the full year.
The primary financial statements are shown in Italian lire because all of the
Company's material operating entities are based and operate in Italy.
Translation of lire amounts into U.S. Dollar amounts is included solely for the
convenience of the readers of the financial statements and has been made at the
rate of Lire 1,823 to U.S. $1, the approximate exchange rate at March 31, 1998.
It should not be construed that the assets and liabilities, expressed in US
dollar equivalents, can actually be realized in or extinguished by U.S. dollars
at that or any other rate.
NOTE 2 - LOSS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings per Share" ("SFAS No. 128"). SFAS No. 128 replaced the calculation of
primary and diluted earnings per share with basic and diluted earnings per
share. Basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share gives effect to
all potentially dilutive common shares that were outstanding during the period.
All loss per share amounts for all periods have been presented to conform to
SFAS No. 128 requirements. There were no potentially dilutive common shares
outstanding during the periods reported and, as the Company incurred losses in
each of the periods presented, any potentially dilutive common shares would be
considered antidilutive for each of these periods.
NOTE 3 - COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued Statement No. 130,
"Reporting Comprehensive Income" ("SFAS 130"), which is effective for fiscal
years beginning after December 15, 1997. Reclassification of financial
statements for earlier periods is required. In the Company's case,
comprehensive income includes net income, foreign currency translation
adjustments and accretion expense (including related foreign currency
translation effects, net of effects of hedging transactions) in respect of
shares subject to repurchase.
<PAGE>
TRIDENT ROWAN GROUP, INC.
Notes to the Consolidated Condensed Financial Statements
March 31, 1998
NOTE 3 - COMPREHENSIVE INCOME (CONTINUED)
3 months ended March 31,
-------------------------------
1998 1998 1997
US$'000 Lire m. Lire m.
Net loss (1,290) (2,352) (2,564)
------ ------ ------
Foreign currency translation adjustment (49) (90) (1,688)
Accretion expense and related foreign
currency translation effects (226) (412) (1,384)
------ ------ ------
Total other comprehensive loss (275) (502) (3,072)
------ ------ ------
Comprehensive loss (1,565) (2,854) (5,636)
------ ------ ------
------ ------ ------
Changes in components of comprehensive loss for the three months ended March 31,
1998 are as follows:
Accumulated
Cumulative other
translation Accretion comprehensive
adjustment expense Loss
Balance, January 1, 1998 (154) (2,474) (2,628)
Change for period (90) (412) (502)
----------- --------- -------------
Balance, March 31, 1998 (254) (2,886) (3,130)
----------- --------- -------------
----------- --------- -------------
NOTE 4 - SHARES TO BE ISSUED IN CONNECTION WITH EMPLOYMENT
AGREEMENTS AND OPTION GRANTS
On March 18, 1998, the Board of Directors approved a three year employment
contract commencing May 1, 1998 with Mark S. Hauser as President and Chief
Executive Officer, a three year contract commencing May 1, 1998 with Emanuel M.
Arbib as Chief Financial Officer and a one year, renewable, agreement commencing
May 1, 1998 with Tamarix Capital Corporation, which supercedes a prior existing
contract, for provision of merchant banking services to the Company. These
agreements are more fully described in the Registrant's 1997 Annual Report on
Form 10-K. In connection with these contracts, the Company is to issue 205,000
shares with contractual transfer restrictions lapsing as to one-third thereof on
each of December 31, 1998, 1999 and 2000, and 17,000 shares with contractual
transfer restrictions lapsing on December 31, 1998. As at March 31, 1998, the
shares relative to such contracts had not been issued.
On March 18, 1998, the Company granted Messrs. Hauser and Arbib and Tamarix
options to purchase an aggregate of 212,000 shares of common stock at an
exercise price of $ 5.00, granted options to purchase 280,000 shares at an
exercise price of $5.00 in exchange for 710,000 previously granted options
exercisable at $12.26, and granted a further 105,000 options to persons not
previously included in its "Non Qualified Plan" for officers and key executives.
<PAGE>
TRIDENT ROWAN GROUP, INC.
Notes to the Consolidated Condensed Financial Statements
March 31, 1998
NOTE 5 - LIQUIDITY
In order to meet debt repayments of approximately US$ 2,000,000 (Lit. 3,646
million) due on October 23, 1998, in addition to cash on hand the Company
estimates that it needs to raise an additional $800,000 either from asset
sales, bank borrowings or other forms of debt or equity financing by such date.
While management believes that the Company will be able to realize such
liquidity, at the date of these condensed financial statements the Company does
not have any agreements for the sale of assets and has not arranged any other
financing facilities to cover such amounts.
The condensed financial statements do not include any adjustments that might be
necessary should the Company be unable to continue as a going concern.
NOTE 6 - INDUSTRY SEGMENT ANALYSIS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998 MANAGEMENT
LIRE M. MOTOR- STEEL & CORPORATE ELIMI-
CYCLES TUBES SERVICES NATIONS TOTAL
<S> <C> <C> <C> <C> <C>
Net sales 25,586 6,271 1,249 (57) 33,106
Cost of sales (20,922) (5,609) (655) - (27,186)
-------- -------- -------- -------- --------
4,664 662 594 (57) 5,920
Selling, general and administrative expenses (3,313) (517) (1,605) 57 (5,435)
Research and development (874) - - - (874)
-------- -------- -------- -------- --------
Operating profit/(loss) 477 145 (1,011) - (389)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
THREE MONTHS ENDED MARCH 31, 1997 MANAGEMENT
LIRE M. MOTOR- STEEL & CORPORATE ELIMI-
CYCLES TUBES SERVICES NATIONS TOTAL
Net sales 18,412 4,762 747 (231) 23,690
Cost of sales (15,762) (4,087) (444) - (20,293)
-------- -------- -------- -------- --------
2,650 675 303 (231) 3,397
Selling, general and administrative expenses (2,552) (525) (2,120) 192 (5,005)
Research and development (442) - - - (442)
-------- -------- -------- -------- --------
OPERATING PROFIT/(loss) (344) 150 (1,817) (39) (2,050)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
NOTE 7 - SUBSEQUENT EVENT
In April 1998 Moto Guzzi S.p.A. entered into an agreement with Philips S.p.A.
for the purchase by Moto Guzzi of Philips Vision Industries' industrial area in
Monza, Italy. The agreement, which is subject to the fulfilment of certain
conditions, contemplates a payment on or about August 1, 1998 of approximately
Lit. 26 billion, including applicable value added taxes. Financing for the
acquisition is being actively sought from Italian financial institutions and
elsewhere. While present indications are encouraging, there can be no assurance
that the purchase of this industrial area will be consummated.
<PAGE>
TRIDENT ROWAN GROUP, INC.
Management's Discussion and Analysis of Financial Conditions
and Results of Operations
RESULTS OF OPERATIONS - 3 MONTHS ENDED
MARCH 31, 1998 COMPARED TO MARCH 31, 1997
OPERATING PROFIT/(LOSS)
Analysis of net sales, cost of sales and operating expenses by industry segment
is given in Note 6 to the condensed financial statements at March 31, 1998.
MOTORCYCLE SEGMENT - MOTO GUZZI
Three months ended March 31,
---------------------------------------
1998 1997
LIRE M. LIRE M.
Net sales 25,586 100.0% 18,412 100.0%
Cost of sales (20,922) (81.8%) (15,762) (85.6%)
-------- --------
4,664 18.2% 2,650 14.4%
Selling, general and
administrative expenses (3,313) (12.9%) (2,552) (13.9%)
Research & product development (874) (3.4%) (442) (2.4%)
-------- --------
Operating profit/(loss) 477 1.9% (344) (1.9%)
-------- --------
-------- --------
The 39% increase in net sales in the three months ended March 31, 1998 compared
to the quarter ended March 31, 1997 results principally from an increase of 50%
in shipments from Moto Guzzi S.p.A. from 1,244 units in 1997 to 1,869 in 1998
and an increase in net sales at the U.S. importer-distributor of 32.7% in U.S.
Dollar terms (44.9% in Lire terms including favorable conversion effects). Net
sales include 312 units at a selling value of approximately Lit. 3.8 billion
held over from 1997 for the completion of acceptance procedures by public
administration customers.
The increase in gross margin as a percentage of sales to 18.2% from 14.4%,
reflects increased factory sales volumes spread over fixed manufacturing costs,
a favorable sales mix and higher sales by the consolidated
importer-distributors.
Increases in selling, general and administrative expenses reflect a Lit. 575
million increase due to growth in the U.S. and French importer-distributors and
increases in Italy, principally relating to new management personnel at Moto
Guzzi S.p.A.
Continuing Moto Guzzi management policy initiated in mid-1997, research and
development in the three months ended March 31, 1998, principally on new
products for 1998 and 1999 and for new engines, is at levels approximately
double those of the first quarter of 1997.
<PAGE>
TRIDENT ROWAN GROUP, INC.
Management's Discussion and Analysis of Financial Conditions
and Results of Operations
STEEL TUBING SEGMENT - L.I.T.A.
Three months ended March 31,
---------------------------------------
1998 1997
LIRE M. LIRE M.
Net sales 6,271 100.0% 4,762 100.0%
Cost of sales (5,609) (89.4%) (4,087) (85.8%)
-------- --------
662 10.6% 675 14.2%
Selling, general and
administrative expenses (517) 8.2% (525) (11.0%)
-------- --------
Operating profit 145 2.3% 150 3.1%
-------- --------
-------- --------
The increase in net sales results from volume increases of approximately 20% to
4,096 tons coupled with somewhat higher prices. A significant part of the
increase in sales came from exports, which represented almost 25% of sales
volumes for the quarter ended March 31, 1998, against approximately 19.5% in the
1997 period. Domestic (Italian) sales volumes increased 12%. Gross margin as a
percentage of sales, however, fell in the 1998 period compared to 1997,
reflecting competitive pressures preventing the Company from fully passing along
increased prices paid for raw materials. Overall, the Italian market for
replacement parts, including the tubes used for replacement mufflers, is in a
contracting phase as a result of recent increases in sales of new cars, which
has been aided by incentive programs. Selling, general and administrative
expenses have remained substantially unchanged at L.I.T.A. with the application
of strict cost controls.
MANAGEMENT AND CORPORATE SERVICES
Three months ended March 31,
---------------------------------------
1998 1997
LIRE M. LIRE M.
Net sales 1,249 100.0% 747 100.0%
Cost of sales (655) (52.4%) (444) (59.4%)
-------- --------
594 47.6% 303 40.6%
Selling, general and
administrative expenses (1,605) (128.5%) (2,120) (283.8%)
-------- --------
Operating loss (1,011) (80.9%) (1,817) 243.2%
-------- --------
-------- --------
Temporary management services evidenced a strong increase in revenues
principally as a result of a significant intervention by T.I.M. on behalf of a
Swiss client in connection with its acquisition of a business in Italy.
Corporate costs and overheads decreased by 24.3% in the 3 months ended March 31,
1998 compared to the same period in 1997 as a result of the Company's
<PAGE>
TRIDENT ROWAN GROUP, INC.
Management's Discussion and Analysis of Financial Conditions
and Results of Operations
focus on cost reduction in connection with its decision to dedicate its energies
and resources on enhancing the value of its Moto Guzzi business and not to
pursue other opportunities.
INTEREST EXPENSE, INTEREST INCOME AND OTHER INCOME STATEMENT ITEMS
Income statement items below operating profit level are compared below on a
consolidated basis and not by industry segment as their incurrence and
allocation between segments is, in large part, determined by structural
decisions independent of stand-alone operating needs and performance.
INTEREST EXPENSE AND EXPENSE
Interest expense fell in absolute terms by Lit. 317 million to Lit. 1,085
million in the first three months of 1998 compared to 1997. The principal
causes were reduced indebtedness following disposal of real estate debt in March
1997 and lower interest rates on increased advances from banks, which finance
working capital. The increase in interest income in the first three months of
1998 compared to 1997 results from higher average liquidity, though current
interest rates have fallen. Interest income has been affected less by falling
interest rates as many of the fixed interest securities held by the Company to
collateralize share repurchase commitments were purchased when interest rates
were higher.
OTHER (EXPENSE)/INCOME, NET
Other expense in the three months ended March 31, 1998 is principally comprised
of exchange losses. In the three months ended March 31, 1997, the Company
benefitted from exchange gains of approximately Lit. 1,500 million and
approximately Lit. 300 million from a one-time settlement with a third party.
Other income in the 1997 period also included rental income of Lit. 330 million
relating to a property disposed of in March 1997.
INCOME TAXES
Because Italian companies are taxed in Italy on their individual results and are
not able to file consolidated returns, certain of the Company's Italian
subsidiaries incur income tax expense in 1998 and 1997 on net income, despite
consolidated losses from operations in Italy. Further, certain business
expenses, principally finance expense and labor costs, are not deductible
against income subject to a new income tax, introduced in 1998, resulting in tax
expense at loss-making operating subsidiaries.
AMORTIZATION OF PREMIUM FOR REDEMPTION OF PREFERRED STOCK OF SUBSIDIARY
In the three months ended March 31, 1998, a non-cash charge of Lit. 973 million,
compared to Lit. 1,285 million in the corresponding period in 1997, has been
recorded as amortization of
<PAGE>
TRIDENT ROWAN GROUP, INC.
Management's Discussion and Analysis of Financial Conditions
and Results of Operations
preferred stock redemption premium relating to the Moto Guzzi Corp. preferred
stock issued at the end of 1996 and in early 1997. A significant element of
this charge in both periods results from exchange differences as the contingent
redemption obligation is denominated in U.S. dollars.
LIQUIDITY AND CAPITAL RESOURCES
OPERATIONS AND WORKING CAPITAL
The net loss of the Company of Lit. 2,352 million in the three months ended
March 31, 1998 includes a non-cash charge of Lit. 973 million for amortization
of subsidiary preferred stock premium and depreciation of Lit. 895 million. By
far the most significant factor in cash used in operations of Lit. 12,521
million resulted from changes in working capital balances.
Trade receivables at Moto Guzzi increased by approximately Lit. 10.5 billion at
March 31, 1998 compared to December 31, 1997, principally resulting from
increased sales levels and a high proportion of Italian public administration
receivables, resulting from sales in the three months ended March 31, 1998 and
the last quarter of 1997. Public administration receivables typically have
collection times in excess of three months. Trade receivables at L.I.T.A. and
T.I.M. also increased in the period by approximately Lit. 1.1 billion and Lit.
500 million reflecting increased business levels.
Inventories increased by approximately Lit. 2.3 billion at March 31, 1998
compared to December 31, 1997, reflecting increases at Moto Guzzi for seasonal
reasons, with higher inventory levels at importer-distributors and higher
component inventories at the Italian factory, and at L.I.T.A. reflecting
increased business levels.
Offsetting the effects of the above, trade and other payables increased by
approximately Lit. 2.4 billion, principally due to higher business levels.
INVESTING ACTIVITY
Expenditure on plant and equipment principally relates to Moto Guzzi.
FINANCING ACTIVITIES
The increase in advances from banks of approximately Lit. 9.0 billion is due to
financing of increased working capital balances, as noted above.
<PAGE>
TRIDENT ROWAN GROUP, INC.
Management's Discussion and Analysis of Financial Conditions
and Results of Operations
FUTURE LIQUIDITY NEEDS
Much of the production machinery at Moto Guzzi's facility is aged and in need of
extensive modification, improvement or replacement. Moto Guzzi obtained a Lit.
10,000 million ten-year credit facility in February 1998, with principal to be
repaid in the final eight years. The facility was drawn-down in April 1998.
Management intends that the proceeds will be principally applied to investments
in plant and machinery and to continuing research and product development,
though they may temporarily be applied to reducing advances from banks.
Management expects that, over the next four years, significant further capital,
in addition to the proceeds of the Lit. 10,000 million debt facilities, will be
required to complete the planned overhaul. Management believes there is
potential for improved inventory management which would also provide significant
liquidity. While anticipated increases in sales during the four-year period, if
realized, would provide a further significant portion of the needed capital,
anticipated internally generated cash and available bank financing, in the
aggregate, will not be sufficient to enable Moto Guzzi to increase production
and sales rapidly enough to generate the remaining needed capital. Hence,
management is exploring a variety of other debt and equity financing options.
No assurances can be given that such financing will be obtained on acceptable
terms, or at all.
To meet liquidity requirements other than those of Moto Guzzi, the Company
anticipates realizing capital from the disposition of certain assets, including
its Sardinia property and certain parking rights in Genoa and from the receipt
of Italian tax receivables and further proceeds from the December, 1997 sale of
the Company's 25% interest in Domer, S.r.l., a privately held Italian real
estate development company, and of promissory notes due from Domer. Further
realizations from Domer are expected in 1998 from proceeds of sale of three
apartments in Bergamo, Italy. While the Company is actively seeking to realize
these assets, the timing of any of the aforementioned realizations is
uncertain.
In order to meet debt commitments of approximately $2,000,000 (Lit. 3,646
million) on October 23, 1998 and to finance corporate expenditures through such
date, the Company estimates that it needs additionally to raise approximately
$800,000 (Lit. 1,458 million) from either asset sales, bank borrowings or other
forms of debt or equity finance.
While the Company's operations have shown a significant improvement in the three
months ended March 31, 1998, and Management believes that the Company will be
able to realize the liquidity required at October 23, 1998, the Company does not
as yet have any agreements for the sale of assets and has not arranged any other
financing facilities to cover such amounts.
<PAGE>
TRIDENT ROWAN GROUP, INC.
Management's Discussion and Analysis of Financial Conditions
and Results of Operations
CAPITAL COMMITMENTS
The Company has an obligation to repurchase on June 30, 1998 the remaining
776,530 shares of Common Stock formerly owned by the Company's former Chairman,
Mr. Alejandro DeTomaso, for an aggregate amount of $8,571,000. The Company has
deposited lire denominated investments valued at March 31, 1997 at Lit. 15,346
million, to collateralize a letter of credit issued in respect of its repurchase
obligation. The Company has entered into forward purchase contracts for
$4,000,000 to hedge partially the exchange risks deriving from the obligation.
Adverse exchange movements could result in the obligation exceeding the maturity
value of investments deposited, adding to the Company's liquidity needs.
The Company also remains obligated to repurchase 28,570 shares from Finprogetti
S.p.A. for Lit. 570 million. This commitment is recorded in the balance sheet
at March 31, 1998 at its net present value of Lit. 557 million.
In April 1998 Moto Guzzi S.p.A. entered into an agreement with Philips S.p.A.
for the purchase by Moto Guzzi of Philips Vision Industries' industrial area in
Monza, Italy. The agreement, which is subject to the fulfilment of certain
conditions, contemplates a payment on or about August 1, 1998 of approximately
Lit. 26 billion, including applicable value added taxes. Financing for the
acquisition is being actively sought from Italian financial institutions and
elsewhere. While present indications are encouraging, there can be no assurance
that the purchase of this industrial area will be consummated.
POTENTIAL EFFECTS OF THE YEAR 2000 ON THE COMPANY'S BUSINESS
Many older computer systems and electronic devices are based on software
systems which, because of how dates are stored and manipulated, assume that all
years occur only in the 20th century. Consequently, after December 31, 1999,
such devices may not function correctly. The Company, like many other
businesses and individuals, is potentially subject to adverse consequences
arising both from the incorrect functioning of any systems used in its own
business such as accounting, production control, inventory and automated
equipment and also from the incorrect functioning of systems of suppliers,
customers, utilities, banks and financial institutions and others with whom it
interacts in the normal course of its business.
The Company has over the last two years refurbished production and
inventory computer systems at Moto Guzzi, which is its most complex business and
relies to the greatest extent on computerized systems for its business. Company
management has sought assurance from suppliers that the new systems would be
compliant with requirements related to the year 2000. The Company's businesses
do not have unique or custom-tailored requirements for their accounting systems
and could rapidly and inexpensively change to "off-the-shelf" systems which are
2000 compliant, if their current systems are found not to be year 2000 compliant
despite any
<PAGE>
TRIDENT ROWAN GROUP, INC.
Management's Discussion and Analysis of Financial Conditions
and Results of Operations
assurances to the contrary. Over the next 12 months, Management will institute
procedures to address potential problems which could arise in relation to
suppliers and customers, with particular regard to suppliers' ability to provide
components on a timely basis. Management believes that it is reasonable to
assume that utility suppliers and the banks and financial institutions with
which it has relationships, generally national or large regional institutes, are
themselves addressing potential problems on a timely basis so as to be able to
provide necessary services to the Company. The Company has a number of banking
relationships and alternatives for banking services.
POTENTIAL EFFECTS OF THE PROPOSED EUROPEAN COMMON CURRENCY
ON THE COMPANY'S BUSINESS
The Company's businesses are substantially located and operate in Italy. In the
early part of May, 1998, Italy confirmed its participation as one of 11 European
countries in a proposed European common currency, the Euro.
The proposed European Common Currency is expected to have significant effects on
the Company's business. Among many potential economic factors, the proposed
common currency is expected to increase competition within the common currency
zone. Decreases in current Italian interest rates toward a currently expected
lower convergence rate of the participant countries is also expected and the
likelihood of Italy's participation is widely believed to have been a
significant factor in decreases in Italian interest rates in 1997.
Moto Guzzi makes significant export sales outside the proposed common currency
zone and the prices of certain commodities used in its manufacturing processes
may be affected by the value of the Euro. The implementation of the Euro within
the common currency zone could have unanticipated consequences on the economies
of participant countries which could affect demand for the company's products.
The common currency zone encompasses countries representing over three-quarters
of Moto Guzzi's 1997 net sales and economic consequences could have material
affects on the Company's business.
Adoption of the Euro is expected to take place over a two year transition phase
in which initially both the Lire and the Euro would be valid currencies for
business transactions in Italy.
The proposed European Common Currency could have a significant effect on the
Company's accounting systems which could require significant modification or
replacement. Management believes that the Company's businesses do not have
unique or custom-tailored requirements for accounting systems and that it could
rapidly and inexpensively change to "off-the-shelf" systems at an appropriate
time if existing systems prove not to be adequate. The Company is not able to
evaluate these matters or the effects on international financial and payment
systems with which it interacts at the present time. The company will address
these issues during the current year and
<PAGE>
in 1999 as further guidelines and information become available. Adoption of the
Euro would also lead to the Company reporting its results in that currency
instead of the Italian Lire from some point in the future, yet to be defined.
PORTIONS OF THIS REPORT CONTAIN CERTAIN "FORWARD LOOKING" STATEMENTS WHICH
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER
SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE FORWARD LOOKING STATEMENTS.
FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO,
MARKET ACCEPTANCE OF THE COMPANY'S PRODUCTS AND SERVICES, CHANGES IN CURRENCY
EXCHANGE RATES, LACK OF ADEQUATE CAPITAL TO ACHIEVE SUCH RESULTS, OTHER FACTORS
DISCUSSED IN THE REPORT AS WELL AS FACTORS DISCUSSED IN OTHER FILINGS MADE WITH
THE SECURITIES AND EXCHANGE COMMISSION. ALTHOUGH THE COMPANY BELIEVES THAT THE
ASSUMPTIONS UNDERLYING THE FORWARD LOOKING STATEMENTS CONTAINED HEREIN ARE
REASONABLE, ANY OF THE ASSUMPTIONS COULD PROVE INACCURATE, AND THEREFORE, THERE
CAN BE NO ASSURANCE THAT THE FORWARD LOOKING STATEMENTS INCLUDED HEREIN WILL
PROVE TO BE ACCURATE.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
EXHIBIT NO. DESCRIPTION
10.1 Employment Agreement dated March 25,
1998 with Mark S. Hauser
10.2 Novation dated March 25, 1998 of Agreement
dated March 7, 1997 with Tamarix Capital
Corporation
27 Financial Data Schedule
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRIDENT ROWAN GROUP, INC.
Dated: May 11, 1998 By: /s/ Howard E. Chase
---------------------------------
Howard E. Chase,
Principal Financial Officer
Dated: May 11, 1998 By: /s/ Mark S. Hauser
---------------------------------
Mark S. Hauser
President and Chief Executive Officer
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement") dated as of March 25, 1998 (the
"Effective Date") by and between Trident Rowan Group, Inc., a Maryland
corporation (the "Company"), and Mark S. Hauser, an individual residing at 83
Garden Road, Scarsdale, NY 10583 ("Executive").
W I T N E S S E T H
WHEREAS, the Company wishes to employ Executive in an executive capacity
and Executive is desirous of being so employed;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, the parties hereto agree as follows:
1. EMPLOYMENT, DUTIES AND ACCEPTANCE.
(a) The Company hereby employs Executive for the Term (as hereinafter
defined) to render his services to the Company as Chief Executive Officer of the
Company with full executive control and authority over and full responsibility
for all aspects and phases of the management, business, personnel, activities
and affairs of the Company, and, at Executive's option, any subsidiaries of the
Company that may be formed in the future. Executive's powers and authority
shall include, but not be limited to, the hiring and termination of personnel,
preparation of budgets, and the purchase and disposition of investments.
Executive's powers and authority as Chief Executive Officer of the Company shall
be co-extensive with the powers and authority of the Chairman (the "Chairman")
of the Board of Directors of the Company (the "Board") so long as the Chairman
is Howard E. Chase; provided, however, all line executives, including executives
of all significant subsidiaries, shall report to the Executive, with the
exception of the Chief Financial Officer who will report to the Chairman. In
the performance of Executive's duties, he shall report to, and be subject to the
instructions, directions and policies of the Board. During the Term, the
Company shall cause Executive to be
<PAGE>
included in the slate of nominees for the Board and to be elected a member of
the Executive Committee (if permitted by applicable law) and, at Executive's
option, a director of any subsidiary of the Company.
(b) Executive agrees to render to the Company the duties and services
referred to above, to devote such part of his working time, attention and
energies to the performance of the business of the Company and its Affiliates
(as hereinafter defined) as shall be required for the performance of his duties
hereunder, including up to substantially all of his time as and when necessary;
and Executive shall not, directly or indirectly, alone or as a member, partner,
officer, director, employee, agent of, or in any other capacity with, any Person
(as hereinafter defined) be engaged in or concerned with any other duties or
pursuits that interfere with the performance of his duties hereunder in the
judgment of the Board, except those duties or pursuits specifically authorized
by the Board and this Agreement. Provided such activities do not materially and
adversely affect the performance of his duties to the Company hereunder,
Executive shall be permitted to manage and participate in the investments and
business affairs and any successors thereto organized by or involving Executive
prior to or following the date hereof (including but not limited to, investments
held by Tamarix Capital Corporation, a Delaware corporation ("Tamarix")), to
render services to such investments and in connection with such business affairs
as he sees fit, and to serve on boards of directors related to such investments,
business affairs or otherwise, without any obligatioin to the Company except
with respect to those matters set forth in Schedule 1 hereto. Nothing herein
shall prevent Executive from engaging in additional activities in connection
with the business of Tamarix, including, but not limited to its existing and
future merchant banking activities, whether in the U.S., Italy or elsewhere, all
as set forth in a certain agreement between Tamarix and the Company, dated March
25, 1998, personal investments or community affairs that do not interfere or
conflict with his duties hereunder.
(c) The principal place of employment of Executive hereunder shall at
all times during the Term be in the greater New York, New York area or such
other
2
<PAGE>
locations as are mutually acceptable to Executive and the Company.
Notwithstanding the foregoing, Executive shall be required and agrees to travel
in connection with the performance of his duties to the extent as he, in the
reasonable exercise of his judgment, deems necessary.
(d) Executive hereby accepts such employment and agrees to render the
services described above to the best of his ability.
2. TERM OF EMPLOYMENT.
The initial period of Executive's employment under this Agreement shall be
three years. This Agreement shall automatically be renewed on the same terms
for an additional period of two years (the initial three-year period and, if the
period of employment is so renewed, such additional period of employment are
collectively referred to herein as the "Term") unless terminated by written
notice given by the Company to Executive no later than January 1, 2000.
3. COMPENSATION AND BENEFITS.
(a) As full compensation for all services to be rendered by Executive
pursuant to this Agreement, the Company agrees to pay Executive during the Term:
(1) Commencing as of May 1, 1998, a base annual salary (the
"Salary") of $160,000, payable in such installments as is the policy of the
Company with respect to executive employees of the Company but no less
frequently than monthly; provided, however such salary shall accrue until such
time as funding for the Company's Budget (as defined below), as approved by the
Board of Directors, is available for the twelve months next following the date
of payment of the first of such installments. Interest shall accrue on all such
deferred payments at the rate of 8% per annum and shall be paid to Executive
when such deferred payments are paid. For purposes of this agreement, the term
"Budget" shall mean that Budget submitted to and approved by the
3
<PAGE>
Company's Board of Directors on March 18, 1998, any modification or amendment
thereof so approved, any other such budget so approved at any time during the
term of this agreement, or any modification or amendment thereof so approved,
provided, however, the term "Budget" shall not be deemed to include any expense
or revenue item relating to any existing or future operating subsidiary of the
Company except home office charges treated as revenue items. Executive confirms
that some or all of his salary may be paid and some or all of his benefits may
be provided by Affiliates of the Company if he provides services to them
hereunder, provided that in such case, the Company shall unconditionally
guarantee any such payments made and such benefits provided by such Affiliates.
Executive may receive increases in Salary on such dates, in such amounts and on
such other terms as may be determined by the Board in its sole discretion;
provided, however, that Executive shall not have any entitlement to any such
increase. The board will consider the issue of bonus compensation for Executive
on an annual basis, taking into account such matters as financings, asset
realizations, performance of the Company's stock in the public market,
acquisitions and business combinations.
(2) 130,000 shares of the Company's common stock, par value
$.01 per share (the "Stock"), at no cost to Executive. Executive's ownership of
such Stock shall vest on the date hereof, but shall be subject to restrictions
and risk of forfeiture as provided herein, all lapsing as to 43,333 shares on
each of December 31, 1998, December 31, 1999 and December 31, 2000; provided,
however, such restrictions and risk of forfeiture shall earlier lapse in the
event of the sale of substantially all of the assets, merger or consolidation of
the Company to, with or into another entity with which neither it nor Executive
immediately prior thereto is affiliated. The restrictions referred to above
are: Executive may not sell, transfer or hypothecate any of the Stock. The
Stock shall be subject to forfeiture in the event this agreement is terminated
for Cause, pursuant to Section 7(a) hereof, if such termination occurs prior to
the lapse of such restrictions and risk of forfeiture as herein above provided.
(i) Executive has advised the Company of his intention to
make an election pursuant to Section 83(b) of the Internal Revenue Code of 1986,
as
4
<PAGE>
amended, to treat all of the Stock as taxable to Executive in 1998, utilizing
the mean average of the quoted bid and asked prices of the Company's common
shares on the Effective Date, less an appropriate discount to reflect the
restrictions described in subparagraph (2) above, for that purpose (the Section
"83(b) Price").
(ii) Executive, by written notice given to the Company, given
at least 30 days prior to April 15, 1999, may put up to 40% of the Stock to the
Company at the Section 83(b) Price; provided, however, the Company's obligation
to purchase the Stock pursuant to the exercise of the put shall be subject to
the availability of funding for the Company's Budget, as in effect on April 15,
1999, for the twelve months next following that date, plus sufficient additional
funding to cover the cost of the put.
(iii) In the event Executive shall have exercised the put and
subsequently suffers the termination of this agreement for Cause, giving rise to
the forfeiture of some or all of the Stock as provided in subparagraph (2)
above, Executive nevertheless shall be obligated promptly to redeliver to the
Company that number of shares of the Company's common stock so forfeited or,
alternatively, in lieu of any such shares not so redelivered, cash in an amount
equal to the mean average of the bid and asked prices at the close of trading on
the date this agreement is so terminated, multiplied by the number of shares not
so redelivered.
(3) Non-qualified stock options as follows: upon the date
hereof, non-qualified stock options respecting 130,000 shares of the Stock,
subject to anti-dilution protections as are provided in the Plan, with an option
exercise price of $5.00 per share, exercisable as to 43,333 shares on the date
hereof, as to 43,333 shares on January 1, 1999 and as to 43,334 shares on
January 1, 2000. All shares of Stock underlying such non-qualified stock
options shall be registered by the Company in order to permit Executive to
engage in "cashless exercise" at all times when such options are exercisable.
"Cashless exercise" shall mean a procedure by which Executive arranges to
exercise an option by directing his stockbroker simultaneously to pay the option
exercise
5
<PAGE>
price to the Company and the profit on sale to Executive out of the proceeds of
sale of the underlying shares of the Stock. If the Term is renewed, Executive
will be entitled to additional non-qualified stock options as agreed between the
Company and Executive at the time of the renewal, if any.
(b) The Company shall pay or reimburse Executive for all reasonable
expenses, actually incurred or paid by him during the Term in the performance of
his services under this Agreement, upon presentation of expense statements or
vouchers or such other supporting information as it reasonably may require,
including but not limited to: parking at or near the Company's New York City
offices Executive occupies, such rent, secretarial and other expenses as are
directly related to the performance of his duties hereunder; home office charges
including telephone, fax and Internet expenses; mobile cellular telephone in the
United States and Europe; and Italian language lessons.
(c) Executive shall be eligible under any incentive plan, stock
option plan, stock award plan, bonus, participation or extra compensation plan,
pension, group insurance or other so-called "fringe") benefits, if any, which
the Company generally provides for its executives, on terms and conditions as
may be approved by the Board, provided that such benefits are not duplicative of
the benefits otherwise provided to Executive hereunder.
(d) The Company shall provide Executive medical and dental insurance
with coverage in accordance with the plan attached hereto as Exhibit A.
(e) Executive shall be entitled to the same level of coverage (as
determined from time to time by the Board) under such directors' and officers'
liability insurance policies, and insurance for its employees against claims
arising in connection with allegations of libel, if any, or other arrangements
as are available to senior executive officers and directors of the Company or
its Affiliates, to the fullest
6
<PAGE>
extent permitted by the existing By-Laws of the Company or such Affiliates, as
the case may be. Additionally, the Company shall indemnify and hold Executive
harmless, to the fullest extent permitted by the laws of the State of the
Company's incorporation, from and against all claims, demands, costs, charges
and expenses (including reasonable attorney's fees) whatsoever or howsoever
incurred or sustained by Executive or his legal representatives in connection
with any action, suit or proceeding, whether or not groundless, to which he or
his legal representatives may be made a party by reason of his being or having
been an officer, director or employee of the Company or any of its Affiliates.
This sub-section shall survive the termination of this Agreement.
4. CONFIDENTIALITY.
(a) Executive shall not, during the Term of this Agreement, or at any
time following termination of this Agreement, directly, or indirectly, disclose
or permit to be known (other than (i) as is reasonably required in the regular
course of his duties, including disclosures to the Company's advisors and
consultants, (ii) as required by law or (iii) with the prior written consent of
the Board) to any Person, any confidential information acquired by him during
the course of, or incident to, his employment or the rendering of services
hereunder, relating to the Company or any of is Affiliates, or to any client,
investor, corporate partner, or joint venturer of, or other Person having a
business relationship with, the Company or any of its Affiliates. Such
confidential information shall include, but shall not be limited to, sales
information, operations information, financial information, administrative
information, and information regarding proprietary technology, business affairs,
trade secrets, patented processes, research and development data, know-how,
market studies and forecasts, competitive analyses, pricing policies, employee
lists, personnel policies, the substance of agreements with customers,
suppliers and others, marketing or dealership arrangements, servicing and
training programs and arrangements, customer lists and any other materials
embodying information deemed by the Company or by industry practice to be
confidential. This confidentiality obligation shall not apply to any
confidential information which becomes publicly available other than pursuant to
a breach of this Section 4 by Executive.
7
<PAGE>
(b) All information and documents relating to the Company and its
Affiliates as hereinabove described shall be the exclusive property of the
Company and upon termination of Executive's employment with the Company, all
documents, records, reports, writings and other similar documents containing
confidential information, including copies thereof and computer records, then in
Executive's possession or control shall be returned and left with the Company.
5. NONCOMPETITION; NONINTERFERENCE.
Executive agrees that during the Term of his employment by the Company and
during the period of twelve months following the termination of Executive's
employment hereunder for any reason, except for termination by Executive
pursuant to Sections 7(b)(1), (2), or (3) following which the provisions of this
Section 5 shall not apply (the "Noncompetition Period"), Executive shall not,
directly or indirectly, as owner, partner, joint venturer, stockholder,
employee, broker, agent, principal, trustee, corporate officer, director,
licensor, or in any capacity whatsoever (other than in connection with his
employment hereunder) engage in, become financially interested in, be employed
by, render any consultation or business advice with respect to, or have any
connection with (collectively, a "Relationship"), any person, firm or
corporation in connection with the manufacture, distribution or sale of
motorcycles. In addition, Executive shall not, directly or indirectly, during
the Noncompetition Period, request, induce or cause any suppliers, customers,
clients or accounts with whom the Company or any of its Affiliates has a
business relationship to cancel or terminate any such business relationship with
the Company or any of its Affiliates or have a Relationship with any Person that
solicits, interferes with or entices from the Company any employee (or former
employee) of the Company or of any of its Affiliates or which employs any
manager (or former manager) of the Company or any of its Affiliates, nor will
Executive directly or indirectly solicit, interfere with or entice any such
employee (or former employee) or employ any such manager (or former manager).
The provisions of the first sentence of this Section 5 shall not apply to any
activities permitted Executive pursuant to Section 1(b) hereof.
8
<PAGE>
6. INJUNCTION AND ENFORCEABILITY OF COVENANTS.
(a) If Executive commits a breach, or threatens to commit a breach,
of any of the provisions of Section 4, 5 or 9, the Company shall have the right
and remedy to have the provisions of this Agreement specifically enforced by the
Supreme Court of the State of New York for New York County (the "Court"), which
the parties hereby consent shall have exclusive jurisdiction over matters
arising out of this Agreement, it being acknowledged and agreed that any such
breach or threatened breach will cause irreparable injury to the Company and
that money damages will not provide an adequate remedy to the Company.
(b) If any of the covenants contained in Section 4, 5 or 9, or any
part thereof, is hereafter construed to be invalid or unenforceable by the
Court, the same shall not affect the remainder of the covenant or covenants,
which shall be given full effect without regard to the invalid portions.
(c) The existence of any claim or cause of action by Executive
against the Company or any Affiliate of the Company shall not constitute a
defense to the enforcement by the Company of the covenants contained in Sections
4, 5 or 9, but such claim or cause of action shall be litigated separately;
provided, however, that the Company shall not be entitled to enforce any of the
provisions of Sections 4, 5 or 9 in the event it has failed to make all payments
payable to Executive hereunder and provided all benefits to which he is entitled
hereunder prior to the date of the termination of his employment and upon and
following termination of his employment hereunder by the Company or by
Executive, all of which shall be deemed payable subject to claim by the Company
for reimbursement following such payment.
(d) In the event the Court, despite the parties' consent hereunder,
declines jurisdiction over matters arising out of this Agreement, the provisions
of this
9
<PAGE>
Agreement may be specifically enforced by any court of competent jurisdiction.
The Company will not raise any issue of jurisdiction with the Court.
7. TERMINATION.
(a) The Company may terminate this Agreement (i) at any time without
Cause or (ii) pursuant to Section 2 or (iii) upon written notice to Executive if
Executive acts in a manner that provides Cause for termination. For purposes of
this Agreement, the term "Cause" means (1) Executive's conviction (which,
through lapse of time or otherwise, is not subject to appeal) of any felony
under the laws of any country or political subdivision thereof or a crime or
offense involving money or property of the Company or any of its Affiliates, (2)
chronic alcoholism, drug addiction or acts of moral turpitude injurious to the
reputation of the Company, (3) embezzlement or theft of funds of the Company, or
(4) the willful breach by Executive of the terms of this Agreement or the
willful failure of the Executive to perform his duties and obligations
hereunder, that in either case materially and adversely affects the interest of
the Company, which breach continues uncured for 30 days after written notice
thereof is first given.
(b) Executive may terminate this Agreement upon written notice to the
Company if any one or more of the following shall occur:
(1) a material breach of the terms of this Agreement by the
Company, which breach continues uncured for 30 days after written notice thereof
is first given;
(2) a material breach by the Company of any other material
agreement with Executive, which breach continues for 30 days after written
notice thereof is first given;
(3) if:
10
<PAGE>
(i) during any two (2) consecutive years (A) individuals who
at the beginning of any such period constitute the directors of the Company and
(B) such other individuals as are (A) elected or nominated by greater than
seventy per cent (70%) of the Board or (B) are voted for by Executive in his
capacity as a Director or a shareholder (including votes by Persons that are
Affiliates of Executive) of the Company, collectively, cease to constitute a
majority of the Board; or
(ii) any Person or group of Persons acting together (other
than Executive, Tamarix and Tamarix Investors, acting either directly or through
any other Person (the "Excluded Persons")) own twenty-five per cent (25%) or
more of the Company's voting stock, unless the Excluded Persons own more shares
of the Company's voting stock than such Person or group of Persons; or
(iii) there is a sale of all or substantially all of the
Company's assets (other than to an Affiliate of the Company); or
(iv) there is a merger or other business combination of the
Company following which the Company and/or its shareholders immediately
preceding such merger or other business combination own less than fifty percent
(50%) of the surviving Person's voting stock; or
(v) without his consent, the Executive is removed from the
Board or Executive Committee of the Board or any board of directors or
management position with an Affiliate or subsidiary of the Company, other than
(A) by operation of law, (B) following a termination of this Agreement pursuant
to Section 7(a), (b) or (c) or (C) by virtue of a requirement imposed on the
Company by any governmental or regulatory authority having the power and
jurisdiction to impose such requirement; provided, however, that (A) Executive
shall be deemed to have irrevocably waived his right to terminate this Agreement
pursuant to Section 7(b)(3) if he does not exercise his right to terminate this
Agreement within (30) days after the event that triggered his right to terminate
this Agreement and (B) Executive shall not have the right to terminate this
11
<PAGE>
Agreement pursuant to Section 7(b)(3) if Executive, Tamarix or any Affiliate of
Executive or Tamarix directly or indirectly causes or votes in favor of the
event that triggers Executive's right to terminate this Agreement.
(c) Executive's employment shall terminate upon:
(1) Executive's death during the Term; provided that the
Company, subject to the provisions of Section 3 (a)(1), shall pay the
representative of Executive's estate the unpaid balance of Executive's total
compensation for the month of the Term in which such death has occurred.
(2) Executive becoming physically or mentally disabled so that
he is unable substantially to perform his services hereunder for (a) a period of
120 consecutive days, or (b) for shorter periods aggregating 180 days during any
twelve month period during the Term. Notwithstanding such disability the
Company, subject to the provisions of Section 3 (a)(1), shall continue to pay
Executive his total compensation through the date of such termination.
(d) Upon any termination of Executive's employment hereunder for any
reason, whether by the Company or by Executive, Executive shall be deemed to
have resigned from all positions held by him as an officer and/or director of
the Company and all of its Affiliates.
(e) All determinations of Cause by the Company pursuant to this
Section 7 shall be made by the vote of at least a 70% majority of the entire
Board and the grounds of Cause shall be described in specific detail in writing
to Executive. If the Executive disagrees with the Company's determination that
Cause exists, or if the Company disagrees with the Executive's determination
that he may terminate this Agreement under Section 7(b)(1), (2) or (3), then
such determination shall be subject to review and resolution in accordance with
Section 12 and the Company, subject to the provisions of Section 3 (a)(1), shall
continue to pay Executive all amounts payable
12
<PAGE>
hereunder while such disagreement is being resolved, provided that if the
disagreement is resolved adversely to the Executive, then Executive shall be
required to repay to the Company such amount as is so determined.
8. (a) In the event Executive's employment hereunder is terminated for
any reason, except pursuant to Section 7(a)(ii), Section 7(a)(iii) or Section
7(c), by either the Company or Executive, Executive shall be entitled to
participate in all medical, dental, long term disability, life insurance and all
other benefits provided to him hereunder for the remainder of the Term without
cost to him if permitted by law, or, if not so permitted by law, upon
contribution by him.
(b) In the event Executive terminates his employment pursuant to
Section 7(b)(3), the Company, subject to the provisions of Section 3(a)(1),
shall pay Executive (i) all of his compensation remaining unpaid at the date of
termination under each subsection of Section 3 and (ii) an amount equal to two
times his total compensation provided under Section 3(a)(1), (2) and (3); all
restrictions on restricted stock then held shall lapse; all stock transferred to
Executive pursuant to this subparagraph 8(b) shall be without restrictions and
all stock options granted theretofore or pursuant to this subparagraph 8(b)
shall be immediately exercisable for as long as permitted by the Plan; and
(c) In the event Executive's employment is terminated by the Company
pursuant to Section 7(a)(ii), Section 7(a)(iii), or Section 7(c), the Company
shall pay Executive all of his accrued Salary remaining unpaid at the date of
termination.
(d) Except as provided in this Section 8, Executive shall have no
rights to any salary, severance, bonus, benefits or other compensation upon
termination of this Agreement for any reason or by virtue of the Company's
employment of the Executive or the termination of such employment for any
reason.
9. INVENTIONS DISCOVERED BY EXECUTIVE.
13
<PAGE>
Executive shall promptly disclose to the Company any patentable or
copyrightable invention, improvement, discovery, process, formula, or method or
other intellectual property in the Company's Field of Interest (collectively,
"Inventions") made, conceived or first reduced to practice by the Executive,
either alone or jointly with others, while performing services hereunder. In
consideration of the payment of the Salary, the Bonus and the other payments and
benefits provided to Executive hereunder, Executive hereby assigns to the
Company all of his right, title and interest in and to any such Inventions.
During and after the Term, and without the payment of any additional
consideration by the Company, Executive shall execute any documents necessary to
perfect the assignment of such Inventions to the Company and to enable the
Company to apply for, obtain, and enforce patents and copyrights in any and all
countries on such Inventions. Executive hereby irrevocably designates the
counsel to the Company (or such other person as the Company may designate from
time to time) as his agent and attorney-in-fact to execute and file any such
document and to do all lawful acts necessary to apply for and obtain patents and
copyrights and to enforce the Company's rights under this Section. This Section
9 shall survive the termination of this Agreement.
10. REPRESENTATIONS AND AGREEMENTS OF EXECUTIVE AND THE COMPANY.
(a) Executive represents and warrants that he is free to enter into
this Agreement and to perform the duties required hereunder, and that there are
no employment contracts or understandings, restrictive covenants or other
restrictions, whether written or oral, preventing or in any manner affecting the
performance of his duties hereunder.
(b) Executive agrees to submit to a medical examination and to
cooperate and supply such other information and documents as may be required by
any insurance company in connection with the Company's obtaining life insurance
on the life of Executive, long term disability insurance and any other type of
insurance or fringe
14
<PAGE>
benefit that the Company is obligated to provide Executive hereunder or
otherwise shall determine from time to time to obtain.
(c) The Company represents and warrants that this Agreement has been
duly authorized by all necessary action of the Board, that no action by
shareholders of the Company is required, that no other approvals by any third
party (including but not limited to any regulatory or governmental agency) are
required, and that the performance by it hereof will not conflict with or
violate any agreement or other restriction to which the Company is a party or to
which it is subject.
11. DEFINITIONS.
As used herein, the following terms have the following meanings:
(1) "Affiliate" means, as applied to any Person, (a) any other Person
directly or indirectly controlling, controlled by or under common control with
that Person, (b) any other Person that owns or controls 5% or more of any class
of equity securities (including any equity securities issuable upon the exercise
of any option or convertible security) of that Person or any of its Affiliates,
or (c) any director, partner, officer, agent, employee or relative of such
Person. For the purposes of this definition of "Affiliate" as used in this
Agreement only, Executive, Tamarix and Tamarix Investors shall not be deemed to
be Affiliates of the Company. For the purposes of this definition, "control"
(including with correlative meanings, the terms "controlling", "controlled by"
and "under common control with") as applied to any Person, means the possession,
directly or indirectly, of the power to direct or cause the directions of the
management and policies of that Person, whether through ownership of voting
securities or by contract or otherwise.
(2) "Company's Field of Interest" means the businesses of the Company
and/or its Affiliates at any time during the Term.
15
<PAGE>
(3) "Person" means any natural person, corporation, limited liability
company, general partnership, limited partnership, proprietorship, other
business organization, trust, union, association and any other entity.
12. ARBITRATION.
Any controversy or claim arising out of or relating to this Agreement or
the breach thereof (other than disputes with respect to alleged violations of
the covenants contained in Sections 4, 5 and 9 hereof, and the Company's pursuit
of the remedies described in Section 6 hereof in connection therewith) shall be
settled by arbitration. Such arbitration is to be administered by, and
conducted in New York, New York in accordance with the rules then obtaining of
the American Arbitration Association and the arbitrators are to be selected in
accordance with such rules. Judgment upon the award rendered may be entered in
the Court. The parties shall be free to pursue any remedy before the
arbitration tribunal that they shall be otherwise permitted to pursue in a court
of competent jurisdiction. The award of the arbitrators shall be final and
binding. The prevailing party shall be entitled to have his or its costs,
including reasonable attorneys' fees, paid by the other party.
13. NOTICES.
All notices, requests, consents and other communications required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been duly given if sent by private overnight mail service (delivery confirmed by
such service), registered or certified mail (return receipt requested and
received), telecopy (confirmed receipt by return fax from the receiving party)
or delivered personally, as follows (or to such other address as either party
shall designate by notice in writing to the other in accordance herewith):
16
<PAGE>
If to the Company:
Trident Rowan Group, Inc.
2 Worlds Fair Drive
Franklin Township
Somerset, NJ 08873
Telephone: (732) 868-9000
Fax: (732) 868-0193
With a copy to:
Steven H. Levin, Esq.
Goodman Phillips & Vineberg
430 Park Avenue
New York, NY 10022
Telephone: (212) 588-5555
Fax: (212) 308-0132
If to Executive:
Mark Hauser, Esq.
83 Garden Road
Scarsdale, NY 10583
Telephone: (914) 723-3714
Fax: (914) 723-0018
With a copy to:
Charles M. Bleiberg, Esq.
Friedman, Wang & Bleiberg, P.C.
90 Park Avenue
New York, New York 10016
Telephone: (212) 682-7474
Fax: (212) 687-2329
17
<PAGE>
14. GENERAL.
(a) The Company shall reimburse Executive for all legal fees and
expenses incurred by him in connection with the negotiation of this Agreement up
to a maximum of $12,000.00.
(b) This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York applicable to agreements made
and to be performed entirely in New York. Each of the parties accepts for
himself and itself and in respect of their respective property, generally and
unconditionally, the jurisdiction of the Courts of the State of New York and
consent to a New York City venue.
(c) This Agreement sets forth the entire agreement and understanding
of the parties relating to the subject matter hereof, and supersedes all prior
agreements, arrangements, and understandings, written or oral, relating to the
subject matter hereof. No representations, promise or inducement has been made
by either party that is not embodied in this Agreement, and neither party shall
be bound by or liable for any alleged representation, promise or inducement not
so set forth.
(d) This Agreement may be amended, modified, superseded, renewed or
extended, and the terms or covenants hereof may be waived only by a written
instrument executed by the parties hereto, or in the case of a waiver, by the
party waiving compliance. The failure of a party at any time or times to
require performance of any provision hereof shall in no manner affect the right
at a later time to enforce the same. No waiver by a party of the breach of any
term or covenant contained in this Agreement, whether by conduct or otherwise,
or any one or more or continuing waivers of any such breach, shall constitute a
waiver of the breach of any other term or covenant contained in this Agreement.
(e) This Agreement may not be assigned (by operation of law or
otherwise) by either party without the written consent of the other party except
that,
18
<PAGE>
subject to Executive's rights to terminate this Agreement pursuant to Section
7(b)(3), this Agreement may be assigned to an entity to which the Company sells
all or substantially all of its assets or with which the Company may merge and
which assumes all of the Company's obligations hereunder. This Agreement shall
be binding upon the legal representatives, heirs, distributees, successors and
permitted assigns of the parties hereto.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
each party hereto as of the date first above written.
Trident Rowan Group, Inc.
By:
------------------------------
Name:
Title:
---------------------------------
Mark S. Hauser
19
<PAGE>
Exhibit 10.2
TAMARIX CAPITAL CORPORATION
444 MADISON AVENUE
38TH FLOOR
NEW YORK, NEW YORK 10022
TEL: (212)644-4441
FAX: (212) 644-5757
March 25, 1998
Trident Rowan Group, Inc.
2 Worlds Fair Drive
Somerset, NJ 08873
Attention: Mr. Howard Chase
Dear Sirs:
This letter shall constitute a novation of and, in all respects, supercedes
our understanding and agreement with respect to the retention of Tamarix Capital
Corporation ("Tamarix") as financial advisor to Trident Rowan Group, Inc.
("TRG"), reflected in our agreement, dated March 7, 1997, a copy of which is
annexed. The term "Client" shall include TRG and its subsidiaries.
1. Client hereby retains Tamarix to assist it in various financial
matters, including restructuring Client's existing activities, raising
capital, etc. This retention is subject to and shall commence on the
first day of May, 1998, (the "Commencement Date") and shall continue
for a period of one year thereafter, after which it can be renewed on
the same terms for two successive one-year periods in the sole
discretion of the Board of Directors of TRG.
2. In consideration of the advisory services to be rendered by Tamarix
and all expenses incurred in connection therewith, Client agrees to
pay Tamarix $90,000 per year, payable in increments of $22,500 at the
beginning of each quarter, the first payment being on the Commencement
Date; provided, however, such payments shall be deferred until such
time as TRG's Budget (as defined below) shall be fully funded for the
twelve-month period following the date of the first of such payments.
Interest shall accrue on all such deferred payments at the rate of 8%
per annum and shall be paid to Tamarix when such deferred payments are
paid. For purposes of this agreement, the term "Budget" shall mean
that budget submitted to and approved by the Company's Board of
Directors on March 18, 1998 and any modification or amendment thereof
so approved, provided, however, the term "Budget" shall not be deemed
to include any expense or revenue item relating to any existing or
future operating subsidiary of the Company except home
<PAGE>
office charges treated as revenue items. As additional consideration
for rendering the services contemplated hereunder, TRG shall issue to
Tamarix 32,000 restricted shares of TRG common stock, the restrictions
on which will lapse one year from the Commencement Date, and options
to purchase 17,000 TRG common shares, exercisable at a price of $5.00
each and vesting one year from the Commencement Date. Such options
shall in all other respects incorporate the terms and conditions
relating to options issued to employees pursuant to its stock option
plan for senior employees. Tamarix's ownership of the restricted
shares vest on the date hereof, but shall be subject to restrictions
and risk of forfeiture as provided herein, all lapsing twelve months
from the date hereof; provided however such restrictions and risk of
forfeiture shall earlier lapse in the event of the sale of
substantially all of the assets, merger or consolidation of TRG to,
with or into another entity with which neither it, Tamarix nor Mark S.
Hauser immediately prior thereto is affiliated. The restrictions
referred to above are: Tamarix may not sell, transfer or hypothecate
any of the restricted shares for a period of one year from the date of
the agreement.
3. Tamarix has advised TRG of its intention to make an election pursuant
to Section 83(b) of the Internal Revenue Code of 1986, as amended, to
treat all of the restricted shares as taxable to Tamarix in 1998,
utilizing the mean average of the quoted bid and asked prices of TRG's
common shares on March 25, 1998, less an appropriate discount to
reflect the restrictions described in paragragh 2. above, for that
purpose (the Section "83(b) Price"). Tamarix, by written notice given
to TRG, given at least 30 days prior to April 15, 1999, may put up to
40% of the restricted shares to TRG at the Section 83(b) Price;
provided, however, TRG's obligation to purchase the restricted shares
pursuant to the exercise of the put shall be subject to the
availability of funding for TRG's Budget, as in effect on April 15,
1999, for the twelve months next following that date, plus sufficient
additional funding to cover the cost of the put.
4. Nothing herein contained shall operate as a bar to Tamarix continuing
to engage in those business activities in which it is currently
engaged or as a bar to it engaging in any future merchant banking and
real estate investment or services activities, whether in the United
States, Italy or elsewhere, including, but not limited to, Tamarix
engaging in merchant banking and real estate investment or services
activities in Italy with any person, firm or corporation, including,
but not limited to, Unione Fiduciaria, Messrs. Bonazzi and Manetti,
Carey Winston, Norman S.r.l., and persons introduced by them to
Tamarix.
5. TRG hereby acknowledges that, pursuant to that certain agreement,
dated March 7, 1997, which agreement this agreement supercedes, there
remains due and owing by TRG to Tamarix certain fees and reimbursable
expenses, which fees and expenses TRG hereby acknowledges are due and
owing.
2
<PAGE>
6. This agreement, shall be governed by, and interpreted and enforced in
accordance with, the laws of the State of New York applicable to
instruments made and to be performed entirely within such State.
7. This agreement may be modified only in writing signed by both parties
to be charged hereunder.
8. Each party shall pay its own expenses in connection with the
negotiation and execution of this agreement.
* * *
If the foregoing correctly sets forth our agreement, please confirm this by
signing and returning to us the duplicate copy of this letter.
We appreciate this opportunity to be of service and are looking forward to
working with you on this matter.
Very truly yours,
TAMARIX CAPITAL CORPORATION
----------------------------------
Mark S. Hauser
Agreed and Accepted
as of the Effective Date
TRIDENT ROWAN GROUP, INC.
By:
-------------------------------
Howard E. Chase
3
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited financial statements dated March 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,492,000<F1>
<SECURITIES> 2,018,000
<RECEIVABLES> 19,907,000
<ALLOWANCES> 1,126,000
<INVENTORY> 25,156,000
<CURRENT-ASSETS> 57,231,000
<PP&E> 21,877,000
<DEPRECIATION> 13,013,000
<TOTAL-ASSETS> 84,849,000
<CURRENT-LIABILITIES> 50,590,000
<BONDS> 3,598,000
0
0
<COMMON> 48,000
<OTHER-SE> 9,732,000
<TOTAL-LIABILITY-AND-EQUITY> 9,732,000
<SALES> 18,160,000
<TOTAL-REVENUES> 18,160,000
<CGS> 14,913,000
<TOTAL-COSTS> 3,461,000
<OTHER-EXPENSES> (65,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 595,000
<INCOME-PRETAX> (628,000)
<INCOME-TAX> 189,000
<INCOME-CONTINUING> (818,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,290,000)
<EPS-PRIMARY> (0.26)
<EPS-DILUTED> (0.26)
<FN>
<F1>Dollar amounts are based on conversion rate of 1,823 Lire to the Dollar which
prevailed on March 31, 1998.
</FN>
</TABLE>
