-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HB2afDNWy7QAGHmdnKDAkPH5P01IFEFeaSqnSyj51CpOklYihbpcVR+46RBoGcCS ptjAYWcKVxxoBkiKs/Eskw== 0000889812-98-002393.txt : 19981005 0000889812-98-002393.hdr.sgml : 19981005 ACCESSION NUMBER: 0000889812-98-002393 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 11 REFERENCES 429: 033-80647 FILED AS OF DATE: 19981002 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTH ATLANTIC ACQUISITION CORP CENTRAL INDEX KEY: 0001004650 STANDARD INDUSTRIAL CLASSIFICATION: BLANK CHECKS [6770] IRS NUMBER: 133853272 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-65267 FILM NUMBER: 98720314 BUSINESS ADDRESS: STREET 1: 5 E 59TH ST STREET 2: 3RD FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2124864444 MAIL ADDRESS: STREET 1: 375 PARK AVE STREET 2: STE 1606 CITY: NEW YORK STATE: NY ZIP: 10022 FORMER COMPANY: FORMER CONFORMED NAME: ORION ACQUISITION CORP I DATE OF NAME CHANGE: 19951221 S-4 1 REGISTRATION STATEMENT AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 2, 1998 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ------------------------ FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ NORTH ATLANTIC ACQUISITION CORP. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 6799 13-3853272 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION NO.) IDENTIFICATION NO.)
------------------------ 5 EAST 59TH STREET, 3RD FLOOR NEW YORK, NEW YORK 10022 (212) 486-4444 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ DAVID J. MITCHELL CHAIRMAN OF THE BOARD 5 EAST 59TH STREET, 3RD FLOOR NEW YORK, NEW YORK 10022 (212) 486-4444 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ Copies to: DAVID ALAN MILLER, ESQ. DAVID LERNER, ESQ. GRAUBARD MOLLEN & MILLER MORRISON COHEN SINGER & WEINSTEIN, LLP 600 THIRD AVENUE 750 LEXINGTON AVENUE NEW YORK, NEW YORK 10016-2097 NEW YORK, NEW YORK (212) 818-8800 (212) 735-8600 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effectiveness of this Registration Statement and the satisfaction or waiver of all other conditions to the merger (the "Merger") of Moto Guzzi Corp., a Delaware corporation ("Guzzi Corp."), with and into North Atlantic Acquisition Corp., a Delaware corporation ("Registrant"), pursuant to the Agreement and Plan of Merger and Reorganization dated as of August 18, 1998 among the Registrant, Moto Guzzi and Trident Rowan Group, Inc. ("TRG"), described in the enclosed Proxy Statement/Prospectus. If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / /____. If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and the Securities Act registration statement number of the earlier effective registration statement for the same offering. / /____. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: /x/ ------------------------ CALCULATION OF REGISTRATION FEE PROPOSED MAXIMUM AMOUNT OFFERING TITLE OF EACH CLASS TO BE DOLLAR AMOUNT PRICE PER OF SECURITIES TO BE REGISTERED REGISTERED TO BE REGISTERED SECURITY Class A Common Stock, $.01 par value (1)...................... 5,000,000 -- -- Class B Preferred Stock, $.01 par value (2)................... 333,334(3) -- -- Class A Common Stock, $.01 par value.......................... 333,334(3) $5,000,010(4) -- Nominal Warrants (5).......................................... -- $9,500,000(3) -- Class A Common Stock, $.01 par value (6)...................... -- $9,500,000 -- Class A Common Stock, $.01 par value (8)...................... 360,000 -- $ 8.75 Class A Warrants (9).......................................... 360,000(3) -- $0.125 Class A Common Stock, $.01 par value (11)..................... 360,000 -- $9.00 Class A Common Stock, $.01 par value (13)..................... 15,000 -- $8.75
PROPOSED MAXIMUM TITLE OF EACH CLASS AGGREGATE AMOUNT OF OF SECURITIES TO BE REGISTERED OFFERING PRICE REGISTRATION FEE Class A Common Stock, $.01 par value (1)...................... -- Class B Preferred Stock, $.01 par value (2)................... -- $ 5.90(7) Class A Common Stock, $.01 par value.......................... $5,000,010 Nominal Warrants (5).......................................... $9,500,000 Class A Common Stock, $.01 par value (6)...................... $9,500,000 Class A Common Stock, $.01 par value (8)...................... $3,150,000 $ 929.25(10) Class A Warrants (9).......................................... $45,000 $ 13.28(10) Class A Common Stock, $.01 par value (11)..................... $3,240,000 $ 955.80(12) Class A Common Stock, $.01 par value (13)..................... $131,250 $ 38.72(14) Total Registration Fee................................................................$1942.95
(footnotes on next page) THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(A), MAY DETERMINE. ------------------------ Pursuant to Rule 429 under the Securities Act, the prospectus contained herein also relates to the Registrant's earlier Registration Statement on Form SB-2 (No. 33-80647) and updates the information contained therein. Such Registration Statement relates to, among other things, shares of Class A Common Stock of the Registrant issuable upon the exercise of certain outstanding Class A Warrants and Class A Common Stock and Class A Warrants issuable on conversion of certain outstanding shares of Class B Common Stock. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (footnotes from previous page) (1) Represents shares of Class A Common Stock issuable in the Merger. (2) Represents shares of Class B Preferred Stock issuable in the Merger. (3) Pursuant to Rule 416, there are also being registered such additional securities as may be issued pursuant to the anti-dilution provisions of the Class B Preferred Stock, the Nominal Warrants and the Class A Warrants. (4) Represents the market value of Class A Common Stock underlying the 333,334 shares of Class B Preferred Stock issuable in the Merger. (5) Represents the maximum value of the Nominal Warrants. (6) Represents the maximum value of the Class A Common Stock issuable upon the exercise of the Nominal Warrants. (7) Pursuant to Rule 457(f)(2) the registration fee of the 5,000,000 shares of Class A Common Stock, 333,334 shares of Class B Preferred Stock, the Class A Common Stock issuable on conversion of the Class B Preferred Stock, $9,500,000 maximum value of the Nominal Warrants and the Class A Common Stock issuable upon exercise of the Nominal Warrants, is based on one-third of the par value of the 6,000,000 shares of Common Stock and 1,500,000 shares of Preferred Stock being acquired from the shareholders of Guzzi Corp. which has an accumulated deficit of approximately $8,668,000 at June 30, 1998. (8) Represents 360,000 shares of Class A Common Stock issuable in the Class B Common Stock Recapitalization ("Class B Recapitalization"). (9) Represents the Class A Warrants issuable in the Class B Recapitalization. (10) Pursuant to Rule 457(f)(1), the registration fee is calculated on the basis of the market price for the securities to be received by the Registrant. (11) Represents the shares of Class A Common Stock underlying the Class A Warrants issued in the Class B Recapitalization. (12) Pursuant to Rule 457(i), the registration fee is being paid based on the $9.00 to be paid for each share of Class A Common Stock on the exercise of the Class A Warrants. (13) Represents additional shares of Class A Common Stock issued in connection with the Merger. (14) Pursuant to Rule 457(c), the registration fee is being paid based on the market price of a share of Class A Common Stock on a day within the five days immediately preceding the filing of this Registration Statement. ii NORTH ATLANTIC ACQUISITION CORP. 5 EAST 59TH STREET NEW YORK, NEW YORK 10022 ------------------------ NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON [ ] ------------------------ To the Stockholders of North Atlantic Acquisition Corp.: NOTICE IS HEREBY GIVEN that an Annual Meeting of the Stockholders of North Atlantic Acquisition Corp., a Delaware corporation ("NAAC"), will be held on [ ] at [ ] .m. local time at [ ], for the following purposes: 1. To consider and act upon a proposal to approve an Agreement and Plan of Merger and Reorganization, dated August 18, 1998 ("Merger Agreement"), providing for the merger of Moto Guzzi Corp., a Delaware corporation ("Guzzi Corp."), with and into NAAC, with NAAC being the surviving corporation ("Merger"). 2. To consider and act upon a proposal to approve the adoption of an Amended and Restated Certificate of Incorporation to effect a series of amendments to the Certificate of Incorporation of NAAC ("Certificate of Incorporation") to effect the Merger: (A) to change the name of NAAC to Moto Guzzi Corporation; (B) to increase the total number of shares which NAAC will have authority to issue to Twenty Million (20,000,000), of which (i) 15 Million (15,000,000) shall be Class A Common Stock, par value $.01 per share, (ii) Two Hundred Fifty Thousand (250,000) shall be Class B Common Stock, par value $.01 per share, and (iii) Four Million Seven Hundred and Fifty Thousand (4,750,000), shall be preferred stock, par value $.01 per share, of which One Hundred (100) shall be designated Class A Convertible Preferred Stock and Three Hundred Fifty Thousand (350,000) shall be designated as Class B Convertible Preferred Stock; (C) to provide for classification of the Board of Directors into three classes serving staggered terms; (D) to require a vote of two-thirds of the outstanding stock to amend or repeal the by-laws, or by affirmative vote of a majority of the Board of Directors, subject to certain exceptions;(E) to provide that the affirmative vote of two-thirds of all stock shall be required to fill a vacancy in the Board of Directors created by an increase in the size thereof or by termination of a director if not otherwise filled by the remaining members of the Board of Directors; (F) to provide that members of the Board of Directors may be removed only for cause and only by action of the Board of Directors or upon the affirmative vote of two-thirds of all stock; and (G) to require NAAC to indemnify its officers and directors, subject to certain exceptions required by law. 3. To elect eight directors. 4. To consider and act upon a proposal to approve the 1998 Stock Option Plan and 1998 Stock Plan for Outside Directors (together, "Stock Option Plans"). 5. To consider and act upon a proposal to amend the Certificate of Incorporation to reclassify each share of NAAC Class B Common Stock into two shares of NAAC Class A Common Stock and two NAAC Class A Warrants ("Class B Recapitalization"). 6. To transact such other business as may properly come before the Annual Meeting. The Board of Directors has fixed the close of business on [ ] as the record date for the determination of stockholders entitled to notice of and to vote at the Annual Meeting. The holders of the NAAC Class A Common Stock and NAAC Class B Common Stock vote together as a single class on all matters to be considered at the Annual Meeting other than on Proposal 5 relating to the Class B Recapitalization on which the holders of the NAAC Class B Common Stock will vote as a separate class. Each holder of record of NAAC Class A Common Stock on the record date is entitled to cast one vote for each share held. Each holder of record of NAAC Class B Common Stock on the record date is entitled to cast two votes for each share held on each i proposal. The NAAC Class A Common Stock and NAAC Class B Common Stock are collectively referred to as the "NAAC Common Stock". The affirmative vote by the holders of two-thirds in interest of NAAC Common Stock is required to approve the Merger Agreement and the Merger; however, if more than 20% of the outstanding NAAC Class A Common Stock, excluding the 106,000 shares of Class A Common Stock (the "Pre-IPO Shares") held by certain NAAC stockholders prior to NAAC's initial public offering (the "Initial NAAC Stockholders") are submitted to NAAC for redemption, NAAC will not consummate the Merger. Holders of NAAC Class A Common Stock other than the Initial NAAC Stockholders, have the right to have their shares redeemed for approximately $ per share in cash if holders of no more than 20% of the outstanding NAAC Class A Common Stock, other than the Pre-IPO Shares, seek redemption and the Merger is approved and consummated. This redemption right must be exercised as described in the accompanying Proxy Statement/Prospectus and written notice of such exercise must be given to NAAC no later than 1998, the twentieth day prior to the vote on the proposal to approve the Merger Agreement and the Merger at the Annual Meeting. The Initial NAAC Stockholders have agreed to vote their Pre-IPO Shares and any other shares of NAAC Class A Common Stock of which they are the beneficial owners on the record date for the Annual Meeting (approximately 11.7% of the outstanding shares of NAAC Class A Common Stock) in accordance with the vote of the majority in interest of all other holders of the NAAC Common Stock on the proposal to approve the Merger Agreement and the Merger. The Board of Directors unanimously recommends that stockholders vote "FOR" approval of the Merger Agreement and the Merger. The Board of Directors also unanimously recommends approval of the proposals (i) to adopt the Amended and Restated Certificate of Incorporation, (ii) to elect the eight nominees as directors to hold office commencing upon consummation of the Merger, and (iii) to adopt the Stock Option Plans. Approval of these proposals by the NAAC stockholders is a condition to the Merger and for each of these other proposals. The Board of Directors unanimously recommends approval of the Class B Recapitalization providing for the conversion of each share of NAAC Class B Common Stock into two shares of NAAC Class A Common Stock and two NAAC Class A Warrants. Approval of this proposal is not a condition to the Merger; however, the Class B Recapitalization is conditioned on consummation of the Merger. As described in the Proxy Statement under "Proposal 1: The Merger--Conflicts of Interest," certain members of the Board of Directors of NAAC have conflicts of interest arising out of certain agreements and arrangements with NAAC and their ownership of NAAC Common Stock. By Order of the Board of Directors, C. THOMAS MCMILLEN Secretary October , 1998 EACH STOCKHOLDER OF NAAC CLASS A COMMON STOCK IS URGED TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED WHITE PROXY CARD AND EACH STOCKHOLDER OF NAAC CLASS B COMMON STOCK IS URGED TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED BLUE PROXY CARD IN THE ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. A STOCKHOLDER WHO EXECUTES AND RETURNS A PROXY CAN REVOKE IT AT ANY TIME BEFORE IT IS VOTED BY PROVIDING WRITTEN NOTICE TO THE PRESIDENT, BY SUBMITTING A SUBSEQUENT PROXY RELATING TO THE SAME SHARES OR BY VOTING IN PERSON AT THE MEETING. THE GIVING OF A PROXY DOES NOT AFFECT A STOCKHOLDER'S RIGHT TO ATTEND AND VOTE IN PERSON AT THE MEETING. HOWEVER, PRESENCE AT THE MEETING WITHOUT FURTHER ACTION WILL NOT REVOKE A STOCKHOLDER'S PROXY. ii NORTH ATLANTIC ACQUISITION CORP. PROXY STATEMENT/PROSPECTUS ANNUAL MEETING OF STOCKHOLDERS TO BE HELD [ ] ------------------------ 5,000,000 SHARES OF NAAC CLASS A COMMON STOCK, 316,668 SHARES OF NAAC CLASS B PREFERRED STOCK AND NOMINAL WARRANTS ISSUABLE IN CONNECTION WITH THE MERGER, THE CONTRIBUTION OF INTERCOMPANY DEBT AND THE WARRANT EXCHANGE AND SHARES OF NAAC CLASS A COMMON STOCK ISSUABLE UPON CONVERSION OR EXERCISE OF THE NAAC CLASS B PREFERRED STOCK AND NOMINAL WARRANTS 360,000 SHARES OF NAAC CLASS A COMMON STOCK, 360,000 CLASS A WARRANTS ISSUABLE IN CONNECTION WITH THE CLASS B RECAPITALIZATION AND 360,000 SHARES OF NAAC CLASS A COMMON STOCK ISSUABLE UPON EXERCISE OF THE CLASS A WARRANTS 15,000 SHARES OF NAAC CLASS A COMMON STOCK TO BE SOLD BY THE SELLING STOCKHOLDER This Proxy Statement/Prospectus is being distributed to obtain stockholder approval of the proposed merger (the "Merger") of Moto Guzzi Corp. ("Guzzi Corp."), a Delaware corporation, with and into North Atlantic Acquisition Corp. ("NAAC"), a Delaware corporation, with NAAC as the surviving corporation pursuant to an Agreement and Plan of Merger and Reorganization dated August 18, 1998 (the "Merger Agreement") among NAAC, Guzzi Corp. and, for limited purposes, Trident Rowan Group, Inc. ("TRG"), a Maryland corporation, the majority stockholder of Guzzi Corp. This Proxy Statement/Prospectus also is being distributed to obtain stockholder approval of certain amendments to the Certificate of Incorporation, the election of eight persons as directors of NAAC, of the 1998 Stock Option Plan and 1998 Stock Plan for Outside Directors, and the recapitalization of each share of NAAC Class B Common Stock, $.01 par value ("NAAC Class B Common Stock"), into two shares of NAAC Class A Common Stock, $.01 par value ("NAAC Class A Common Stock"), and two Class A Warrants of NAAC ("NAAC Class A Warrants") ("Class B Recapitalization"). At the effective time of the Merger ("Effective Time") each share of common stock of Guzzi Corp., $.01 par value ("Guzzi Common Stock"), and each share of Class A Convertible Preferred Stock of Guzzi Corp., $.01 par value ("Guzzi Preferred Stock"), will be converted into (a) .4937 share of newly issued NAAC Class A Common Stock, (b) .0313 share of newly issued NAAC Class B Convertible Preferred Stock, $.01 par value ("NAAC Class B Preferred Stock"), having a liquidation preference of $15 per share, convertible at any time for an equal number of additional shares of NAAC Class A Common Stock, and bearing a cumulative annual dividend rate, as and when declared, of 5% of the liquidation preference, and (c) a warrant to purchase additional shares of NAAC Class A Common Stock, if any, based on the operating income of Guzzi Corp. in its 2000 fiscal year and the market price of the NAAC Class A Common Stock, at an exercise price of $.01 per share (the "Nominal Warrants"). This Proxy Statement/Prospectus is being furnished to the holders of NAAC Common Stock as of the close of business on , 1998 ("Record Date") in connection with the solicitation of proxies by the Board of Directors of NAAC for use at the Annual Meeting of Stockholders to be held on , 1998 at a.m. local time, at (with any adjournment or postponement thereof, the "Annual Meeting"). This Proxy Statement/Prospectus, Notice of Annual Meeting and the accompanying form of proxy are first being mailed to stockholders on or about , 1998. This Proxy Statement/Prospectus is also being furnished in connection with (i) the cancellation of the 1,500,000 outstanding warrants to purchase common stock of Guzzi Corp. ("Guzzi Warrants") in exchange for a maximum of 259,510 shares of NAAC Class A Common Stock, 16,436 shares of Class B Preferred Stock of NAAC ("NAAC Class B Preferred Stock") and 5.19% of the Nominal Warrants (each Guzzi Warrant accepted iii for exchange and cancellation will be exchanged into approximately .173 share of NAAC Class A Common Stock, .011 share of NAAC Class B Preferred Stock and .0000034% of the Nominal Warrants); (ii) the issuance of 1,038,040 shares of NAAC Class A Common Stock, 65,743 shares of NAAC Class B Preferred Stock and Nominal Warrants to purchase 20.76% of the NAAC Class A Common Stock thereunder in exchange for the contribution to the capital of Guzzi Corp. of certain intercompany debt held by TRG and its subsidiary O.A.M. S.p.A. ("OAM") as of the effective time of the Merger ("Effective Time"); and (iii) the proposed recapitalization of the NAAC Class B Common Stock by which each share of NAAC Class B Common Stock will be converted into two shares of NAAC Class A Common Stock and two NAAC Class A Warrants ("Class B Recapitalization") at the effective time of the Merger. This Proxy Statement/Prospectus also relates to the sale of up to 15,000 shares of NAAC Class A Common Stock by the Selling Shareholder. See "Selling Stockholder." The NAAC Class A Common Stock, NAAC Class B Common Stock and NAAC Class A Warrants are quoted on the OTC Bulletin Board, and on August 17, 1998, the last full trading day prior to the public announcement of the Merger Agreement, the last reported high bid prices for these securities were $8.625, $9.375 and $.50, respectively. On 1998, the most recent date for which it was practicable to obtain market price information prior to the printing of this Proxy Statement/Prospectus, such high bid prices for these securities were $ , and $ , respectively. THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING ON PAGE HEREOF. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY SUCH STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS , 1998 iv AVAILABLE INFORMATION NAAC is subject to the informational requirements of the Securities Exchange Act of 1934, as amended ("Exchange Act"), and accordingly files reports, proxy statements and other information with the Securities and Exchange Commission ("Commission"). Such reports, proxy statements and other information filed with the Commission are available for inspection and copying at the public reference facilities maintained by the Commission in Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices at Seven World Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material also can be obtained from the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The Web site can be reached at http://www.sec.gov. NAAC has filed with the Commission a registration statement on Form S-4 (the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), of which this Proxy Statement/Prospectus is a part. This Proxy Statement/Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto. Statements made in this Proxy Statement/Prospectus as to the contents of any contract, agreement or other document referred to herein are not necessarily complete. In each instance, for a more complete description of the matter involved, reference is made to such contract, agreement or other document filed as an exhibit to the Registration Statement or annexed to this Proxy Statement/Prospectus, and the Registration Statement shall be deemed qualified in its entirety by such reference. NAAC ANNUAL REPORT ON FORM 10-K NAAC will furnish without charge to each NAAC stockholder whose proxy is being solicited, upon written request, a copy of NAAC's annual report on Form 10-KSB, as amended, for the fiscal year ended August 31, 1997, including the financial statements and schedules thereto. Requests for copies of such report should be directed to North Atlantic Acquisition Corp., 5 East 59th Street--Third Floor, New York, New York 10022, Attention: President. All documents and reports subsequently filed by NAAC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy Statement/Prospectus and prior to the consummation of the offering made hereby shall be deemed to be incorporated by reference in this Proxy Statement/Prospectus and to be part hereof from the dates of filing of such documents or reports. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Proxy Statement/Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Proxy Statement/Prospectus. v TABLE OF CONTENTS
SECTION PAGE - ------- ---- AVAILABLE INFORMATION...................................................................................... iii NAAC ANNUAL REPORT ON FORM 10-K............................................................................ iii SUMMARY.................................................................................................... 1 NAAC................................................................................................ 1 Guzzi Corp.......................................................................................... 1 The Merger.......................................................................................... 4 The Annual Meeting.................................................................................. 6 Proxies............................................................................................. 6 Recommendations of the Board of Directors........................................................... 7 Conflicts of Interest............................................................................... 7 Redemption Rights; No Appraisal Rights.............................................................. 8 NAAC Liquidation If No Business Combination......................................................... 8 Certain Federal Income Tax Consequences............................................................. 8 Accounting Treatment................................................................................ 8 Market Price Data................................................................................... 9 Class B Recapitalization............................................................................ 9 Risk Factors........................................................................................ 9 Summary Guzzi Corp. Consolidated Financial Data..................................................... 10 Summary NAAC Historical Financial Data.............................................................. 12 RISK FACTORS............................................................................................... 13 BUSINESS OF NAAC........................................................................................... 19 Introduction........................................................................................ 19 Characteristics of a Specialized Merger and Acquisition Allocated Risk Transaction Company.......... 19 Competition......................................................................................... 20 Management.......................................................................................... 20 Properties.......................................................................................... 21 Legal Proceedings................................................................................... 21 BUSINESS OF GUZZI CORP..................................................................................... 21 Guzzi Corp. Sales................................................................................... 24 Properties.......................................................................................... 26 Legal Proceedings................................................................................... 26 Exchange Rates...................................................................................... 26 THE ANNUAL MEETING......................................................................................... 27 Purpose of the Annual Meeting....................................................................... 27 Voting Rights....................................................................................... 28 Solicitation and Revocation of Proxies.............................................................. 29 Redemption Rights................................................................................... 29 NAAC Liquidation If No Business Combination......................................................... 30 Solicitation of Proxies............................................................................. 30 PROPOSAL 1: THE MERGER..................................................................................... 31 Background of the Merger............................................................................ 31 Reasons for the Merger; Recommendations of the Board of Directors................................... 32 Fairness Opinion of Allen & Company................................................................. 33 Conflicts of Interest............................................................................... 35 Use of Funds Available upon Consummation of the Merger.............................................. 36 Certain Federal Income Tax Consequences to NAAC Stockholders........................................ 37 Certain Federal Income Tax Consequences to Guzzi Corp. Shareholders................................. 37 Accounting Treatment................................................................................ 38 Resale of NAAC Class A Common Stock; Affiliates..................................................... 38
vi
SECTION PAGE - ------- ---- COMPARISON OF RIGHTS OF HOLDERS OF SECURITIES OF GUZZI CORP. AND OF NAAC................................... 39 Guzzi Common Stock.................................................................................. 39 Guzzi Preferred Stock............................................................................... 39 Guzzi Warrants...................................................................................... 40 NAAC Class A Common Stock........................................................................... 41 NAAC Class B Common Stock........................................................................... 41 NAAC Class A Warrants............................................................................... 42 Preferred Stock..................................................................................... 42 NAAC Class A Preferred Stock........................................................................ 43 NAAC Class B Preferred Stock........................................................................ 43 Nominal Warrants.................................................................................... 44 Transfer Agent...................................................................................... 44 THE MERGER AGREEMENT....................................................................................... 44 Merger; Consideration............................................................................... 44 Representations and Warranties...................................................................... 45 Certain Covenants................................................................................... 45 Conditions.......................................................................................... 46 Amendment; Termination.............................................................................. 46 Expenses............................................................................................ 47 Interest of Certain Persons After the Merger........................................................ 47 Absence of Regulatory Filings and Approvals......................................................... 48 Exchange of Stock Certificates...................................................................... 48 Fractional Shares................................................................................... 49 Management After the Merger......................................................................... 49 Lock Up Agreements.................................................................................. 49 MARKET PRICES OF NAAC SECURITIES........................................................................... 50 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................................. 51 Beneficial Ownership of Shares of NAAC Common Stock................................................. 51 SELECTED NAAC HISTORICAL FINANCIAL DATA.................................................................... 53 MANAGEMENT'S DISCUSSION AND ANALYSIS OF NAAC'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS............... 54 SELECTED GUZZI CORP. HISTORICAL CONSOLIDATED FINANCIAL DATA................................................ 54 MANAGEMENT'S DISCUSSION AND ANALYSIS OF GUZZI CORP. FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF GUZZI CORP..................................................................................................... 56 General............................................................................................. 56 Results of Operations............................................................................... 57 Liquidity and Capital Resources..................................................................... 59 Results of Operations............................................................................... 62 Liquidity and Capital Resources..................................................................... 62 Future Liquidity Needs.............................................................................. 62 Capital Commitments................................................................................. 63 Potential Effects of the Year 2000 on Guzzi Corp.'s Business........................................ 63 Potential Effects of the European Common Currency on Guzzi Corp.'s Business......................... 64
vii
SECTION PAGE - ------- ---- PROPOSAL 2: ADOPTION OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION.................................. 69 Name Change......................................................................................... 69 Increase in Authorized Capital...................................................................... 69 Amendment or Repeal of By-Laws...................................................................... 70 Classification of the NAAC Board.................................................................... 70 Removing Directors and Fillings Vacancies........................................................... 70 Indemnification..................................................................................... 70 Anti-Takeover Considerations........................................................................ 71 PROPOSAL 3: ELECTION OF DIRECTORS.......................................................................... 72 Compensation of Directors and Executive Officers.................................................... 73 NAAC Board Meetings and Committees.................................................................. 73 Compliance with Section 16(a) of the Exchange Act................................................... 74 Certain Relationships and Related Transactions...................................................... 74 PROPOSAL 4: APPROVAL OF STOCK OPTION PLAN.................................................................. 74 Summary of the 1998 Stock Option Plan............................................................... 74 Federal Income Tax Consequences..................................................................... 76 1998 Stock Plan for Outside Directors............................................................... 77 PROPOSAL NO. 5: CLASS B RECAPITALIZATION................................................................... 78 WARRANT EXCHANGE OFFER..................................................................................... 80 Description of Guzzi Warrant........................................................................ 80 Terms of the Exchange Offer; Period for Tendering................................................... 80 Procedures for Tendering Guzzi Warrants............................................................. 80 Acceptance of the Guzzi Warrants for Exchange and Cancellation; Delivery of Warrants................ 81 Conditions to the Exchange Offer.................................................................... 81 Fees and Expenses................................................................................... 81 Transfer Taxes...................................................................................... 81 INTERCOMPANY DEBT EXCHANGE................................................................................. 82 SELLING STOCKHOLDER........................................................................................ 82 EXPERTS.................................................................................................... 82 STOCKHOLDER PROPOSALS...................................................................................... 83 INDEX TO FINANCIAL STATEMENTS.............................................................................. F-2
LIST OF ANNEXES
SCHEDULE NUMBER DESCRIPTION - ----------- ----------- Annex I Merger Agreement (without schedules and exhibits) Annex II Opinion of Allen & Company Annex III Form of Nominal Warrant Annex IV Form of Amended and Restated NAAC Certificate of Amendment Annex V Form of 1998 Stock Option Plan Annex VI Form of 1998 Stock Option Plan for Outside Directors Annex VII Alternative Form of Article Fourth of the Amended and Restated Certificate of Incorporation to Effectuate to Class B Recapitalization
viii SUMMARY The following is a summary of certain information contained elsewhere in this Proxy Statement/Prospectus. Reference is made to, and this summary is qualified in its entirety by, the more detailed information contained in this Proxy Statement/Prospectus and the Annexes hereto. Stockholders are urged to read this Proxy Statement/Prospectus and the Annexes in their entirety. Capitalized terms used herein and not defined have the meanings ascribed to them elsewhere in this Proxy Statement/Prospectus. The portions of this Proxy Statement/Prospectus that relate to future plans, events or performance are forward-looking statements. Actual results, events or performance may differ materially. Investors are cautioned that all such statements involve risks and uncertainties, including the need for additional financing to achieve sales growth goals, the acceptability of the products and services of Guzzi Corp. in an intensely competitive marketplace, the ability of Guzzi Corp. timely to deliver current and new products of acceptable quality, relationships with domestic and foreign distributors, the impact of changes in world currency rates compared to the Italian lire, domestic labor relations, and general economic conditions. These factors, and others, are discussed more fully in the Proxy Statement/Prospectus. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. NAAC undertakes no obligation to release the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events. This Proxy Statement/Prospectus is issued in connection with the proposed Merger. NAAC NAAC was organized on August 9, 1995 as a Specialized Merger and Acquisition Allocated Risk Transaction(Registered) company, the objective of which is to acquire an operating business (a "Target Business") by merger, exchange of capital stock, asset or stock acquisition or other similar type of transaction (a "Business Combination"). NAAC completed an initial public offering of Class A Common Stock ("NAAC Class A Common Stock"), Class B Common Stock ("NAAC Class B Common Stock") and Class A Warrants ("NAAC Class A Warrants") on August 22, 1997 (the "IPO") and received net proceeds of approximately $8,100,000 after payment of offering expenses. A substantial portion of such net proceeds ($8,000,000) was placed in an interest-bearing escrow account (the "Escrow Account") to be held until the earlier of NAAC's (i) consummation of a Business Combination or (ii) liquidation. The remaining net proceeds of the IPO not placed in the Escrow Account have been used by NAAC to identify, evaluate and select a suitable Target Business, and to structure, negotiate and consummate a Business Combination, as well as for general, administrative and organizational expenses. The mailing address of NAAC's principal executive office is 5 East 59th Street, New York, New York 10022, and its telephone number is (212) 486-4444. See "Business of NAAC." GUZZI CORP. Guzzi Corp., through its Moto Guzzi S.p.A subsidiary ("Moto Guzzi"), is a leading Italian manufacturer, marketer and distributor of performance and luxury motorcycles and motorcycle parts, marketed under the "Moto Guzzi(Registered)" brand name. Guzzi Corp. is a Delaware corporation formed in 1996 to acquire Moto Guzzi, its manufacturing subsidiary and Moto America Inc. ("Moto America"), the exclusive U.S. importer and distributor of "Moto Guzzi" brand motorcycles and parts. All references herein to Guzzi Corp. are deemed to include its subsidiaries, including Moto Guzzi and Moto America, Inc. ("Moto America") unless otherwise indicated. The common stock of Guzzi Corp. is owned by Trident Rowan Group, Inc., a Maryland corporation ("TRG"), whose common stock is traded on the Nasdaq National Market under the symbol "TRGI", and by O.A.M. S.p.A. ("OAM") a company owned 84% by TRG and 16% by a subsidiary of Chrysler Corporation. In addition, Guzzi Corp. has outstanding a class of Preferred Stock that is held by approximately 40 persons, as well as 1,500,000 Guzzi Warrants to purchase Guzzi Corp. common stock at $4.00 per share. Moto Guzzi is the principal operating subsidiary of Guzzi Corp. and will become the principal operating subsidiary of NAAC following the Merger. The mailing address of the principal executive office of Guzzi Corp. is c/o Trident Rowan Group, Inc., Two World's Fair Drive, Somerset, New Jersey 08873, and its telephone number is (908) 868-9000. See "Business of Guzzi Corp." Products and Distribution Moto Guzzi, over a period of more than 75 years, has earned a reputation as one of the world's elite designers and manufacturers of performance and luxury motorcycles. The Moto Guzzi models vary in engine displacement from 350cc to 1,100cc. In recent years, Moto Guzzi has focused its product design, development and sales efforts on the heavyweight segment of the market. This segment has experienced rapid growth with global new heavyweight registrations, increasing 17% in 1997. As part of the business strategy described below, Moto Guzzi is currently evaluating expansion of its product line to include lower-cost small displacement motorcycles and scooters. At present, Moto Guzzi's primary product offerings include the following models: o California EV Guzzi's classic cruiser with a 1064 cc engine and traditional lines. o Nevada Club A lower riding cruiser with a 744 cc engine and chrome accents. o V10 Centauro A performance touring bike with a powerful 992 cc 4-valve air-cooled engine. o 1100 Sport Corsa A sleek sports bike with modern lines and a 1064 cc engine. o Quota Guzzi's new entrant into the enduro segment. o Police bikes Variations of Moto Guzzi's models targeted at government agencies, national and local police forces and highway patrols.
Moto Guzzi sells its products worldwide through a network of wholly and partially owned importers and independent dealers. In Italy, Moto Guzzi maintains a network of over 140 independent distributors. In Germany, Moto Guzzi owns 25%, and has an option to buy a total of 90%, of MGI GmbH, which is the exclusive importer-distributor of Moto Guzzi motorcycles and parts in that country. In France, Moto Guzzi owns 100% of its importer-distributor. In the United States, Guzzi Corp.'s wholly owned subsidiary Moto America serves as the exclusive importer-distributor and maintains a national network of 100 dealers. Moto Guzzi's sales by region are:
YEAR ENDED DECEMBER 31, -------------------------- GEOGRAPHIC AREA 1997 1996 1995 - --------------- ---- ---- ---- Italy.......................................................... 37% 37% 35% Europe (Other than Italy)...................................... 46% 43% 49% United States.................................................. 13% 7% 6% Elsewhere...................................................... 4% 13% 10%
History and Recent Developments Established in 1921, Moto Guzzi is one of the oldest motorcycle brands in the world. Between 1921 and 1966, Moto Guzzi operated as an independent privately owned entity. In 1972, Moto Guzzi was acquired by de Tomaso Industries ("de Tomaso"), the predecessor of TRG. Concurrent with an extended period during which management attention was principally focused on de Tomaso's other operating units, especially the luxury automobile manufacturer, Maserati, and limited investment was made in Moto Guzzi's product design and development activities as well as its manufacturing operations, sales declined from a high of 46,487 units in 1971 to 3,274 units in 1993. Moto Guzzi has experienced continuous losses for the last eleven years, including a loss of Lit. 10,569 million ($5,976,000) for the fiscal year ended December 31, 1997 and Lit. 3,406 million ($1,917,000) for the six months ended June 30, 1998. In 1994, TRG retained Temporary Integrated Management S.p.A., a temporary management service, to stabilize Moto Guzzi's operations and to begin the process of developing a business plan to restore Moto Guzzi to financial health. In 1996, Mario Tozzi-Condivi was hired as President of Moto Guzzi. Mr. Tozzi-Condivi had previously been an independent consultant to automotive distributors and dealers in the United Kingdom, Italy, Singapore and South Africa for more than ten years and was Chairman of the Board of Maserati U.K. Ltd. In 1997, Oscar Cecchinato, who served as Chief Executive Officer of Aprilia, an Italian manufacturer of motor 2 scooters during the implementation of a successful turnaround between 1991 and 1995, joined Moto Guzzi as Managing Director. Oscar Cecchinato's employment as Managing Director terminated in September 1998 and his duties were assumed by Mr. Tozzi-Condivi. In addition to further developing Moto Guzzi's business plan, Messrs. Condivi and Cecchinato devoted their efforts to the recruitment of a new senior management team that includes: Dino Falciola, Chief Operating Officer and Director of Finance, who joined Moto Guzzi in November of 1997; Guido Locati, Director of Operations, who joined Moto Guzzi in December 1997; Gianluca Lanaro, Director of Marketing, who joined Moto Guzzi in May, 1995; Guido Ranalli, Director of Sales, who joined Moto Guzzi in February, 1969 and Louisa Brenna, Director of Purchasing, who joined Moto Guzzi in January, 1997. In 1997 and early 1998, Guzzi Corp. completed a private placement of the Guzzi Preferred Stock and Guzzi Warrants to purchase common stock that raised approximately $5.2 million, net of fees and expenses, secured a Lit. 10 billion ($5.6 million) debt facility from Italian financial institutions and obtained $4 million in financing from TRG. Proceeds from these financings were utilized to fund Moto Guzzi's business plan, principally for purchasing equipment to improve the efficiency of Moto Guzzi's manufacturing facility, the development of new motorcycle models and for working capital purposes. The new management team has focused its efforts on increasing sales as well as the efficiency of Moto Guzzi's production process. Capital expenditures increased from Lit. 1,801 million in 1995 to Lit. 3,887 in 1997. In the six month period ended June 30, 1998, capital expenditures totalled Lit. 5,115 million versus Lit. 1,783 during the comparable period in 1997. In an effort to enhance sales volumes by ensuring that new products meet the highest quality, design and technical standards, investment in new product design and development has recently been increased. Research and development expenditures rose to Lit. 3,125 million in 1997 from Lit. 602 million in 1995. In the six month period ended June 30, 1998, investment in research and development totalled Lit. 2,226 million versus Lit. 897 million for the comparable period in 1997. Selling, general and administrative expense increased from Lit. 7,486 million in 1995 to Lit. 13,824 in 1997, reflecting higher staff costs associated with the recruitment and employment of the new management team as well as higher marketing and sales expenditures. Unit sales volumes increased from a low of 3,274 in 1993 to 5,598 in 1997. During this period, Moto Guzzi has also experienced significant improvements in its cost structure, with gross margins improving from 13.7% in 1993 to 19.2% during the six months ended June 30, 1998. Strategy Moto Guzzi's strategy is to further increase sales volumes by (i) focusing on the breadth, quality and design of its product offerings, (ii) increasing its marketing activities, (iii) enhancing its distribution network and (iv) leveraging its brand name. Moto Guzzi believes that its reputation and rich tradition as a technological innovator and quality manufacturer provides a solid foundation for future sales increases. Moto Guzzi has built a loyal customer base over the past 77 years through the outstanding performance and reliability of its motorcycles, as well as its strong distribution network. The current customer base ranges from professional motorcycle enthusiasts to government agencies, police departments and highway patrols around the world. Moto Guzzi plans to strengthen and expand its product line by exploiting its heritage as one of the industry's design and technology innovators. For example, it plans to increase its family of products to include entry level motorcycles such as a "stripped" version of the California model, additional sports bikes and, potentially, motor scooters. Moto Guzzi also plans to enhance its core product line--the California and Nevada models. While public administration sales have traditionally been a stable source of revenue for Moto Guzzi, management believes that there are unexploited growth opportunities in this market and plans to refocus its sales and marketing efforts in this product category. In terms of enhanced marketing and promotion activities, the U.S. market represents the largest expansion opportunity for Moto Guzzi. Approximately half of all motorcycles sold in the U.S. are in the heavyweight segment. Between 1996 and 1997, U.S. registrations of new heavyweight motorcycles increased by 9.7% to 165,700 units. Moto Guzzi plans to implement an aggressive marketing campaign targeted at U.S. consumers that is designed to build brand value and name recognition, as well as to emphasize the technical and design strengths of Moto Guzzi's motorcycles. In the United States, Moto Guzzi also plans to expand and enhance its distribution network. In addition to increasing the size and quality of its dealer network, Moto Guzzi also plans to introduce new sales incentives 3 programs for dealers, as well as a floor plan financing program. Other innovations that either have been or are expected to be introduced in the U.S. include customer purchase financing and an extended, three year warranty program. Finally, Moto Guzzi plans to leverage the "Moto Guzzi" brand by expanding into new products, markets and services that also offer the opportunity to enhance its brand awareness and brand image. Moto Guzzi currently sells a limited line of non-motorcycle merchandise. In the future, Moto Guzzi plans to introduce a range of branded accessories such as hats, jackets, shirts and luggage. Management also plans to exploit opportunities to license the "Moto Guzzi" brand name to manufacturers and suppliers of other products and services. THE MERGER On August 18, 1998, NAAC entered into the Merger Agreement with Guzzi Corp. and, for limited purposes, TRG. If the Merger is consummated, Guzzi Corp. will merge with and into NAAC, with NAAC being the surviving corporation. Former shareholders of Guzzi Corp. will own approximately 80.8% of the outstanding shares of NAAC Class A Common Stock after the Merger (including the NAAC Class A Common Stock underlying the NAAC Class B Preferred Stock) assuming the Warrant Exchange is fully accepted and before taking into account the exercise of any outstanding warrants or options of NAAC. See "Proposal 1: The Merger" and "The Merger Agreement." In consideration of the Merger, NAAC will issue to the holders of Guzzi Common Stock and Guzzi Preferred Stock, an aggregate of 3,702,450 shares of NAAC Class A Common Stock, 234,489 shares of NAAC Class B Preferred Stock and 74.05% of the Nominal Warrants. If NAAC has less than $8,150,000 of cash assets at the Effective Time, it will issue additional NAAC Class B Preferred Stock as additional consideration in the Merger at the rate of one share for each $15.00 of cash assets less than $8,150,000. The consideration for the exchange and cancellation of the Guzzi Warrants will be 259,510 shares of NAAC Class A Common Stock, 16,436 Shares of NAAC Class B Preferred Stock and 5.19% of the Nominal Warrants. Pursuant to the Merger Agreement, TRG and OAM will contribute to the capital of Guzzi Corp. the outstanding balances of an intercompany loan to Guzzi Corp of Lit. 12,919 million, plus interest thereon from January 1, 1998. TRG and OAM will also contribute any amount of intercompany payables due them by Guzzi Corp. and subsidiaries in excess of $800,000. In consideration for such contributions, TRG and OAM will be issued an aggregate of 1,038,040 shares of NAAC Class A Common Stock, 65,743 shares of NAAC Class B Preferred Stock and 20.76% of the Nominal Warrants. TRG and OAM have agreed to the terms of this contribution and exchange by agreement dated August 18, 1998. Such remaining intercompany debt of up to $800,000 will be paid by NAAC promptly following the Closing. See "The Merger--Merger; Consideration" and "Intercompany Debt Exchange." The NAAC Class B Preferred Stock to be issued in connection with the Merger (i) will be entitled to receive cash dividends accruing from January 1, 1999 and payable annually commencing December 31, 1999, at the rate of 5% of the stated value of $15.00 per share, (ii) will be senior in rank to all other classes and series of capital stock of NAAC, (iii) will be convertible at the option of the holder, at any time, into an equal number of shares of NAAC Class A Common Stock, and (iv) will have a liquidation preference of the greater of $15.00 or the amount payable to the NAAC Class A Common Stock into which the NAAC Class B Preferred Stock is convertible. All the NAAC Class B Preferred Stock will be deposited into escrow at the consummation of the Merger to be available to reimburse NAAC for certain breaches of the representations and warranties of Guzzi Corp. See "Comparison of Rights of Holders of Securities of Guzzi Corp. and of NAAC--NAAC Class B Preferred Stock." The Nominal Warrants to be issued in connection with the Merger entitle the holders to purchase such number of shares of NAAC Class A Common Stock as determined by a formula, at $.01 per share, during the period June 30, 2001 through 5:00 P.M. Eastern time on September 30, 2001. The number of shares of NAAC Class A Common Stock to be issued upon exercise of the Nominal Warrants will be a function of the operating income of NAAC in the 2000 fiscal year and the market price of a share of NAAC Class A Common Stock for the 20 consecutive trading days prior to June 30, 2001. If NAAC operating income is less than Lit. 20,169,600,000 the number of shares will be zero. Otherwise, the shares to be issued upon exercise of the Nominal Warrants will have a market value between $4,750,000 and $9,500,000 based upon Moto Guzzi's operating income for the fiscal year ended December 31, 2000. The Nominal Warrants may be exercised by TRG 4 on behalf of the holders of the Nominal Warrants unless the authority to exercise is specifically withdrawn in writing by the holder. See "Comparison of Rights of Holders of Securities of Guzzi Corp. and of NAAC--Nominal Warrants." NAAC is offering to exchange approximately .173 share of NAAC Class A Common Stock, .011 share of NAAC Class B Preferred Stock and a pro rata portion of 5.19% of the Nominal Warrants for each outstanding Guzzi Warrant that is submitted to Guzzi Corp for exchange and cancellation (the "Exchange Offer"). A total of 259,510 shares of NAAC Class A Common Stock, 16,436 shares of NAAC Class B Preferred Stock and 5.19% of the Nominal Warrants will be exchanged for the Guzzi Warrants if all holders thereof participate in the Exchange Offer, Pursuant to the terms of the Merger Agreement and the agreements governing the Guzzi Warrants, those Guzzi Warrants which are not exchanged and cancelled pursuant to the Exchange Offer, will be exercisable for the same securities as are being issued to holders of Guzzi Common Stock in connection with the Merger. Guzzi Warrants not exchanged and cancelled will not be registered in this offering and will be subject to the other terms, obligations and limitations of the Guzzi Warrants, including the obligation to pay the exercise price of $4.00. See "The Exchange Offer" and "Comparison of Rights of Holders of Guzzi Corp. and NAAC." The following table provides a graphical depiction of the ownership interests of the NAAC Class A Common Stock, including NAAC Class B Preferred Stock as converted, and holding company structure of NAAC immediately following completion of the Merger. -------------------- ---------------------- ------------------ ---------------- | North Atlantic | | Old Guzzi Pfd. and | | Trident Rowan | | Chrysler | | Shareholders | | Warrant Holders | | Group, Inc. | | Corp. | -------------------- ---------------------- ------------------ ---------------- | | | \ 99.9% | | | | \ | | | | -------------------- |16.1% | | | | Trident Rowan | | | | | | Servizi, S.p.a. | | | | | -------------------- | | | | 83.9% | | | | | -------------------- | | | | | O.A.M., S.p.A. |---------- | | | -------------------- | | | | Total | | -------------- --------- | | | Class A Shares(a) 1,266,000(b) 1,063,334(c) 4,253,334(d) 6,582,668 Percent 19.2% 16.2% 64.6% 100.0% \ \ / \ \ / \ \ / \ \ / \ ------------------ \ | Moto Guzzi | \ | Corporation | ---------------------| (formerly | | NAAC) | ------------------ | ------------------------------------------ | 100.0% | | | ----------------------- ---------------------- | Moto America, Inc. | | Moto Guzzi, S.p.A. | ----------------------- ---------------------- | --------------------------- 25.0% | | 100.0% | | ------------ --------------- | MGI GmbH | | Moto Guzzi | | | | France, S.A.| ------------ ---------------
- ----------------- (a) Includes NAAC Class B Preferred as if converted (b) Pro forma for the Class B Recapitalization but prior to the exercise of the NAAC Class A Warrants. (c) Assumes full acceptance of the Warrant Exchange and does not include shares issued upon the exercise of the Nominal Warrants. (d) Does not include shares issued upon the exercise of the Nominal Warrants. 5 THE ANNUAL MEETING The Annual Meeting will be held on [ ], at [ ]---.m. local time at [ ]. At the Annual Meeting, the holders of NAAC Common Stock, voting together as a single class, will be asked (i) to consider and vote upon a proposal to approve the Merger Agreement and the Merger, (ii) to consider and act upon a proposal to amend the Certificate of Incorporation, (iii) to elect eight directors to the Board of Directors of NAAC (the "NAAC Board") as of the Effective Time, (iv) to consider and act upon a proposal to adopt the Stock Option Plans, and (v) the Class B Recapitalization. Voting separately as a class, the holders of the NAAC Class B Common Stock will also be asked to consider and approve the Class B Recapitalization. The approval by the holders of NAAC Common Stock of the proposal relating to the Merger is contingent upon the approval of all other proposals, other than the Class B Recapitalization, and implementation of all the proposals is contingent on the consummation of the Merger. The presence at the Annual Meeting, in person or by properly executed proxy, of the holders of a majority in interest of the outstanding shares of NAAC Common Stock entitled to vote at the Annual Meeting will constitute a quorum. If a quorum is present at the Annual Meeting, the affirmative vote by the holders of two-thirds in interest of the outstanding shares of NAAC Common Stock is required to approve the Merger Agreement and the Merger; however, if more than 20% of the outstanding shares of NAAC Class A Common Stock (excluding the Pre-IPO Shares), or more than 160,000 shares, are submitted to NAAC for redemption, NAAC will not consummate the Merger. Under the Delaware General Corporation Law ("DGCL"), if a quorum is present at the Annual Meeting, ( i) the affirmative vote of the holders of a majority in interest of outstanding shares is required to approve each of the amendments to the Certificate of Incorporation, (ii) those nominees for director receiving a plurality of the votes cast will be elected directors and (iii) the affirmative vote of the holders of a majority in interest of the shares present in person or represented by proxy and entitled to vote at the Annual Meeting is required to approve the Stock Option Plans. See "The Annual Meeting--Voting Rights." In respect of the Class B Recapitalization, the presence at the Annual Meeting, in person or by properly executed proxy, of the holders of a majority of the outstanding shares of NAAC Class B Common Stock entitled to vote at the Annual Meeting will constitute a quorum. If a quorum of the NAAC Class B Common Stock is present at the Annual Meeting, the affirmative vote by the holders of a majority of the outstanding shares of NAAC Class B Common Stock is required to approve the Class B Recapitalization. See "The Annual Meeting--Voting Rights." Only holders of record of NAAC Common Stock at the close of business on the Record Date will be entitled to notice of and to vote at the Annual Meeting. Each holder of record of NAAC Class A Common Stock is entitled to cast one vote, and each holder of record of Class B Common Stock is entitled to cast two votes, for each share held. On the Record Date, there were 906,000 shares of NAAC Class A Common Stock and 150,000 shares of NAAC Class B Common Stock outstanding and entitled to vote. With respect to the proposal to approve the Merger Agreement and the Merger, the initial NAAC Stockholders have agreed to vote their Pre-IPO Shares and any other shares of NAAC Class A Common Stock of which they are the beneficial owners on the Record Date (approximately 11.7% of the aggregate votes of the shares of NAAC Common Stock) in accordance with the vote of the majority in interest of all other holders of NAAC Common Stock. The holders of the NAAC Common Stock do not have any dissenters rights in connection with the transactions for which their approval is sought. PROXIES Shares of NAAC Common Stock represented at the Annual Meeting by properly executed proxies received prior to or at the Annual Meeting and not revoked will be voted at the Annual Meeting in accordance with the instructions indicated on such proxies. Holders of NAAC Class A Common Stock will be asked to use proxies on white cards. Holders of NAAC Class B Common Stock will be asked to use proxies on blue cards. IF NO INSTRUCTIONS ARE INDICATED, SUCH PROXIES WILL BE VOTED "FOR" EACH OF THE PROPOSALS TO BE VOTED ON AT THE ANNUAL MEETING AND "FOR" THE ELECTION OF THE PERSONS NOMINATED AS DIRECTORS. The NAAC Board is not aware of any other matters which are to come before the Annual Meeting. If any other matters are properly presented for consideration, the persons named in the enclosed form of proxy will have discretion to vote on such matters in accordance with their best judgement. 6 Any proxy given pursuant to this solicitation can be revoked by the person giving such proxy at any time before it is voted. Proxies can be revoked by (i) filing with the President of NAAC, at or before the taking of the vote at the Annual Meeting, a written notice of revocation bearing a later date than the proxy, (ii) duly executing a subsequent proxy relating to the same shares and delivering it to the President of NAAC before the Annual Meeting or (iii) attending the Annual Meeting and voting in person (although presence at the Annual Meeting without further action will not revoke a proxy). Any written notice revoking a proxy should be sent to: North Atlantic Acquisition Corp., 5 East 59th Street, New York, New York 10022, Attention: President, or hand delivered to the President at or prior to the vote at the Annual Meeting. Each proxy card accompanying this Proxy Statement/Prospectus calls for a vote upon a proposal to approve an adjournment or postponement of the Annual Meeting, if necessary, to permit further solicitation of proxies in the event there are not a sufficient number of votes present in person or by proxy at the Annual Meeting to approve the Merger, the amendments to the Certificate of Incorporation, authorize the issuance of preferred stock, to change the name of NAAC and to provide for classification of the Board of Directors of NAAC, elect the nominees for directors and adopt the Stock Option Plans. A NAAC stockholder opposed to any one or all of these proposals may decide to vote against the adjournment or postponement. RECOMMENDATIONS OF THE BOARD OF DIRECTORS The NAAC Board has unanimously determined that the Merger Agreement and the Merger are in the best interests of NAAC and its stockholders and unanimously recommends that holders of NAAC Class A Common Stock vote "for" approval of the Merger Agreement, and the Merger. See "Proposal 1: The Merger." The NAAC Board unanimously recommends approval of the amendments to the certificate of incorporation, the nominees for director, the stock option plans and the Class B Recapitalization. See "Proposal 2: Adoption of Amended and Restated Certificate of Incorporation," "Proposal 3: Election of Directors," "Proposal 4: Approval of NAAC 1998 Stock Option Plans," and "Proposal 5: Class B Recapitalization." CONFLICTS OF INTEREST In considering the recommendation of the NAAC Board, NAAC stockholders should be aware that members of the NAAC Board and management have various conflicts of interest arising out of their ownership of NAAC Common Stock and NAAC management options and future employment arrangements. Each of the current directors and executive officers of NAAC owns Pre-IPO Shares. Such persons hold a total of 40,000 Pre-IPO Shares, acquired for an aggregate consideration of $4,000 (or $.10 per share). In addition, David J. Mitchell, currently Chairman of the Board, Chief Executive Officer and a director of NAAC, and C. Thomas McMillen, currently Secretary, Treasurer and a director of NAAC, each holds NAAC Class A Options to acquire up to 50,000 units, each unit consisting of one share of NAAC Class A Common Stock and one NAAC Class A Warrant, exercisable at $12.50 per unit, for three years after consummation of the Merger and each holds NAAC Class B Options to acquire 15,000 shares of NAAC Class B Common Stock, exercisable at $10.00 per share, until the consummation of the Merger. Each of the holders of the NAAC Class B Options has agreed to exercise the options immediately prior to the Effective Time. If NAAC is liquidated as a result of its failure to consummate a Business Combination prior to August 22, 1999, the current directors and executive officers of NAAC would not participate in any distribution of assets with respect to their Pre-IPO Shares. Thus, unless NAAC consummates the Merger or another Business Combination, such persons' Pre-IPO Shares will have no value. If the Merger or another Business Combination is consummated, such persons would participate in any subsequent liquidation of NAAC with respect to their Pre-IPO Shares and any subsequent increase in value of their Pre-IPO Shares. If the Merger is consummated, Mr. David J. Mitchell will be employed as a consultant by Guzzi Corp. for a period of three years following the Merger. As compensation for his services, Mr. Mitchell will be granted an option to purchase up to 30,000 shares of NAAC Class A Common Stock under the proposed 1998 Stock Option Plan, at an exercise price equal to the market value on the date of grant, exercisable for ten years from the date of grant. In addition, as member of the NAAC Board following completion of the Merger, Mr. Mitchell will be granted options to purchase 12,500 shares of NAAC Class A Common Stock exercisable for ten years at the 7 prevailing market price on the date of grant for each year of service as a director. If the Merger is not approved, these options will not be granted. See "Proposal 1: The Merger--Conflicts of Interest." REDEMPTION RIGHTS; NO APPRAISAL RIGHTS Holders of NAAC Class A Common Stock, other than the Initial NAAC Stockholders, have the right to require NAAC to redeem up to a maximum of 20% of the NAAC Class A Common Stock, (other than the Pre-IPO Shares), if the Merger is approved and consummated. To be effective, this redemption right must be exercised as described in this Proxy Statement/Prospectus and written notice of such exercise must be given to NAAC on or before the close of business on [ ], the twentieth day before the Annual Meeting. The per share redemption price is $ per share of NAAC Class A Common Stock. NAAC stockholders have no appraisal or dissenters' rights with respect to the Merger. All demands for redemption should be sent or delivered to North Atlantic Acquisition Corp., 5 East 59th Street, New York, New York 10022, Attention: Chief Executive Officer. The failure of a NAAC stockholder to comply with such requirements will terminate such stockholder's redemption rights. See "The Annual Meeting-- Redemption Rights." NAAC LIQUIDATION IF NO BUSINESS COMBINATION If the Merger or another Business Combination is not consummated by August 22, 1999, NAAC will be dissolved and will distribute the amount held in the Escrow Account to all holders of Class A Common Stock in respect of their shares (excluding the Pre-IPO Shares). Following such a redemption of NAAC Class A Common Stock, each outstanding share of NAAC Class B Common Stock will be exchanged for two shares of NAAC Class A Common Stock. The NAAC Class B Common Stock does not have the right to participate in any liquidating distribution prior to the consummation of a Business Combination. The assets of NAAC (other than the escrowed assets) will be used to pay NAAC's liabilities and to redeem NAAC's outstanding Series A Preferred Stock at its liquidation value. The initial NAAC Stockholders do not have the right to participate in any liquidating distribution with respect to their Pre-IPO Shares prior to consummation of a Business Combination. See "The Annual Meeting--NAAC Liquidation If No Business Combination." CERTAIN FEDERAL INCOME TAX CONSEQUENCES NAAC stockholders whose shares of NAAC Class A Common Stock are redeemed generally will recognize gain or loss equal to the difference between the amount received from NAAC and such stockholder's adjusted tax basis in such shares. In the event that NAAC liquidates, NAAC stockholders will recognize gain or loss in an amount equal to the difference between the amount received from NAAC upon liquidation and such stockholder's adjusted tax basis. NAAC stockholders are urged to consult with their own tax advisors with respect to Federal, state, local, foreign and other tax consequences of the redemption of NAAC Common Stock or liquidation of NAAC. See "Proposal 1: The Merger--Certain Federal Income Tax Consequences." ACCOUNTING TREATMENT The Merger will be treated as a reverse acquisition of NAAC by Guzzi Corp. In a reverse acquisition, the existing shareholders of the corporation which survives the merger will own, after the Merger, less than 50% of its outstanding shares. The shareholders of Guzzi Corp. will receive approximately 80.8% of the post-Merger shares of NAAC including NAAC Class A Common Stock underlying the NAAC Class B Preferred Stock and excluding any shares of NAAC Class A Common Stock issuable upon exercise of any options or warrants and assuming all Guzzi Warrants are cancelled or exchanged. Guzzi Corp. will therefore be treated as the acquiror from an accounting standpoint. The cost of the acquisition of NAAC will be based on the fair value of NAAC's assets and liabilities as of the date of the Merger (which amounts approximate the book value). As a result of the reverse acquisition of NAAC by Guzzi Corp., the historical financial statements of the surviving corporation for periods prior to the Merger will be those of Guzzi Corp. rather than those of NAAC. See "Unaudited Pro Forma Condensed Balance Sheets" and "Proposal 1: The Merger--Accounting Treatment." Since all of the production and much of the sales of Moto Guzzi, and therefore of Guzzi Corp., occur in Italy, Guzzi Corp.'s primary financial statements are reported in Italian Lire, its functional currency as defined by generally accepted accounting principles. Upon completion of the Merger, NAAC will report results in Italian 8 Lire and, from a future date to be determined, in Euros. See "Risk Factors--Exposure of Results to Change in Exchange Rates" and "Adoption and Implementation of Euro." MARKET PRICE DATA NAAC Class A Common Stock, NAAC Class A Warrants, NAAC Class B Common Stock and units of one share of NAAC Class A Common Stock and one NAAC Class A Warrant (the "Units") are traded in the over-the-counter market and quoted on the OTC Bulletin Board, an inter-dealer automated quotation system sponsored and operated by the National Association of Securities Dealers, Inc. ("NASD") for equity securities not included in the Nasdaq System. There is no trading market for either the Guzzi Corp. Common Stock or the Guzzi Corp. Preferred Stock. If the Merger is consummated, NAAC intends to apply to the NASD to have the NAAC Class A Common Stock and the NAAC Class A Warrants included in the Nasdaq System. On August 17, 1998, the last full trading day prior to the public announcement of the execution and delivery of the Merger Agreement, the closing prices of NAAC's Class A Common Stock, NAAC Class A Warrants, NAAC Class B Common Stock and Units, as reported on the OTC Bulletin Board, were, respectively: (i) a bid of $8.625 and an ask of $9.375, (ii) a bid of $0.50 and an ask of $.75, (iii) a bid of $9.375 and an ask of $11.375 and (iv) a bid of $9.375 and an ask of $11.00. On [ ], 1998, the most recent date for which it was practicable to obtain market price information prior to the mailing of this Proxy Statement/Prospectus such closing prices were: (i) a bid of $ and an ask of $ for the NAAC Class A Common Stock, (ii) a bid of $. and an ask of $. for the NAAC Class A Warrants, (iii) a bid of $ and an ask of $ for the NAAC Class B Common Stock and (iv) a bid of $ and an ask of $ for the Units. Stockholders are urged to obtain current market information. CLASS B RECAPITALIZATION Each outstanding share of NAAC Class B Common Stock is convertible into two shares of NAAC Class A Common Stock and two NAAC Class A Warrants at any time between the 90th day after a Business Combination through the first year after a Business Combination. The Class B Recapitalization is intended to accelerate such conversion and eliminate the NAAC Class B Common Stock. The Class B Recapitalization is subject to the condition that the Merger must have been consummated. If approved and the Merger is consummated, each outstanding share of NAAC Class B Common Stock will automatically be converted into two shares of NAAC Class A Common Stock and two NAAC Class A Warrants at the Effective Time of the Merger. Holders of the NAAC Class B Common Stock need not take any further action; their certificates will represent the converted securities for all corporate purposes. See "Proposal 5: Class B Reclassification." RISK FACTORS For a discussion of certain risk factors that should be considered carefully by the NAAC stockholders in determining whether to vote in favor of the Merger Agreement, see "Risk Factors" beginning on page 12. 9 SUMMARY GUZZI CORP. CONSOLIDATED FINANCIAL DATA [IN MILLIONS OF ITALIAN LIRE AND THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA] The following table sets forth summary financial data for Guzzi Corp. on a consolidated historical basis for the periods and the dates indicated. The historical balance sheet data as of December 31, 1997 and 1996 and the statements of operations data for each of the years then ended are derived from the audited financial statements of Guzzi Corp. included in the Proxy Statement/Prospectus. The historical balance sheet data as of December 31, 1995 and the statements of operations data for the year then ended are derived from the unaudited financial statements of Guzzi Corp. for such year included in the Proxy Statement/Prospectus. The historical balance sheet data and the statements of operations data at the end of and for the six month periods ended June 30, 1998 and 1997 have been derived from unaudited consolidated financial statements and in the opinion of Guzzi Corp.'s management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial position and results of operations for such periods. Results for the six months ended June 30, 1998 are not necessarily indicative of results to be expected for the full fiscal year. The information should be read in conjunction with "Management's Discussion and Analysis of Guzzi Corp. Financial Conditions and Results of Operations" and such financial statements, including the notes thereto, included elsewhere in the Proxy Statement/Prospectus.
YEARS ENDED SIX MONTHS ENDED JUNE 30, DECEMBER 31, ------------------------------------- ------------------------------------------ 1998 1998 1997 1997 1997 1996 $000(1) LIT. M LIT. M $000(2) LIT. M LIT. M ------- ----------- ----------- ----------- ------------ ----------- INCOME STATEMENT DATA: Net sales........................ $27,006 Lit.47,989 Lit.41,665 $ 45,781 Lit.80,987 Lit.77,620 Gross profit..................... 5,197 9,234 5,851 5,378 9,514(3) 11,865 Selling, general and administrative expense......... 4,424 7,861 6,702 7,815 13,824 10,210 Research and development expenditures................... 1,253 2,226 897 1,767 3,125 1,177 Interest Expense(4).............. 1,241 2,206 2,040 2,058 3,640 4,346 Net loss......................... $(1,917) Lit.(3,406) Lit.(3,867) $ (5,967) Lit.(10,569) Lit.(1,996) 1995 LIT. M ----------- INCOME STATEMENT DATA: Net sales........................ Lit.64,671 Gross profit..................... 10,071 Selling, general and administrative expense......... 7,486 Research and development expenditures................... 602 Interest Expense(4).............. 3,604 Net loss......................... Lit.(3,233)
JUNE 30, 1998 JUNE 30, 1998 DECEMBER 31 ---------------------- --------------------------- --------------------------- AS ADJUSTED(5) ACTUAL ACTUAL ---------------------- --------------------------- --------------------------- 1998 1998 1997 1997 1997 1996 $000(1) LIT. M $000(1) LIT. M LIT. M LIT. M ------- ----------- ----------- ------------ ------------ ----------- BALANCE SHEET DATA: Cash and cash equivalents....... $ 4,191 Lit.7,447 $ 4,191 Lit.7,447 Lit.6,352 Lit.2,210 Current assets.................. 46,601 82,808 46,601 82,808 69,229 60,223 Total assets.................... 57,604 102,360 57,604 102,360 84,694 73,731 Short-term debt................. 20,032 35,597 20,032 35,597 20,012 23,173 Other current liabilities....... 20,238 35,969 20,238 35,969 30,669 26,419 Long-term debt, net of current portion....................... 7,808 13,875 7,808 13,875 4,828 5,629 Parent Company financing........ -- -- 7,451 13,241 12,919 4,659 Preferred stock subject to redemption.................... -- -- 7,252 12,886 11,629 5,101 Shareholder's equity............ $ 5,120 Lit.9,098 $ (9,583) Lit.(17,029) Lit.(12,366) Lit.1,596 1995 LIT. M ----------- BALANCE SHEET DATA: Cash and cash equivalents....... Lit.2,718 Current assets.................. 52,382 Total assets.................... 58,594 Short-term debt................. 15,637 Other current liabilities....... 25,753 Long-term debt, net of current portion....................... 4,198 Parent Company financing........ 2,883 Preferred stock subject to redemption.................... -- Shareholder's equity............ Lit.2,822
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31, ----------------------------------- ---------------------------------------------------- 1998 1998 1997 1997 1997 1996 1995 $000(1) LIT. M LIT. M $000(2) LIT. M LIT. M LIT. M ------- ---------- ---------- ---------- ---------- ---------- ---------- OTHER DATA: EBITDA(6)............................. 419 746 (297) (2,383) (4,214) 4,189 2,774 Depreciation and amortization......... 824 1,465 1,357 1,402 2,480 1,807 2,303 Capital expenditure................... 2,878 5,115 1,783 2,197 3,887 5,951 1,801 Unit sales volumes (No. of motorcycles)........................ 3,207 2,889 5,593 6,050 5,198
(Footnotes on next page) 10 (Footnotes from previous page) - ------------------ (1) Translated solely for the convenience of the reader at the approximate exchange rate as of June 30, 1998 of Lit. 1,777 to $1.00. (2) Translated solely for the convenience of the reader at the approximate exchange rate as of December 31, 1997 of Lit. 1,769 to $1.00. (3) Gross margins declined between 1996 and 1997 principally as a result of management's decision to maintain constant price levels in an attempt to increase market share. (4) Interest expense includes interest on intercompany loans from TRG and affiliates amounting to Lit.323 million and Lit.132 million in the six months to June 30, 1998 and six months to June 30, 1997, respectively, and Lit.377, Lit. 275 and Lit. 36 million in the years to December 31, 1997, 1996 and 1995. All interest bearing intercompany debt, amounting to Lit.13,241 million, including accrued interest, at June 30, 1998 is being contributed to capital as part of the merger agreement. See "Intercompany Debt Exchange". (5) The Intercompany Debt Exchange and exchange of Guzzi Corp. redeemable preferred stock for NAAC equity securities contemplated as part of the Merger Agreement substantially represent a recapitalization by the holders of the intercompany debt and of the preferred stock. The "As Adjusted" figures reflect the effects of recapitalization. See "Merger Agreement", "Intercompany Debt Exchange". (6) EBITDA is defined as earnings before income taxes, interest expense, depreciation and amortization. The Company believes that the presentation of EBITDA facilitates an investor's understanding of the Company's operations. EBITDA should not be considered by an investor as an alternative to net income as an indicator of the Company's operating performance or to cash flows as a measure of liquidity. EBITDA is not used in the presentation of financial statements prepared in accordance with generally stated accounting principles. 11 SUMMARY NAAC HISTORICAL FINANCIAL DATA The following selected historical financial data as of August 31, 1997 and for the period September 1, 1995 (inception) to August 31, 1997 and for the periods then ended are derived from the audited financial statements of NAAC included in this Proxy Statement. The selected financial data as of May 31, 1998, May 31, 1997 and for the nine months ended May 31, 1998 and May 31, 1997 and for the period September 1, 1995 (inception) to May 31, 1998 are derived from the unaudited financial statements of NAAC included in this Proxy Statement. Such unaudited data includes, in management's opinion, all normal recurring adjustments necessary to present fairly the results of operations and financial position of NAAC for such periods. Results for interim periods are not necessarily indicative of the results to be expected for an entire fiscal year. The data should be read in conjunction with the financial statements, related notes, "Management's Discussion and Analysis of NAAC's Financial Condition and Results of Operations," the pro forma financial statements of Guzzi Corp. and NAAC and other financial information included in this Proxy Statement.
NINE MONTHS NINE MONTHS SEPTEMBER 1, 1995 SEPTEMBER 1, 1995 ENDED ENDED YEAR ENDED (INCEPTION) TO (INCEPTION) TO MAY 31, 1998 MAY 31, 1997 AUGUST 31, 1997 AUGUST 31, 1996 MAY 31, 1998 ------------ ------------ --------------- ----------------- ----------------- (IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS) STATEMENT OF OPERATIONS DATA: Interest income...................... $ 324 $ -- $ -- $ -- $ 324 General, administrative, other expenses and taxes................. 166 4 39 31 236 Net income (loss).................... 126 (4) (39) (31) 56 Net income (loss) per common share... .12 (.04) (.33) (.29) Weighted average common shares outstanding........................ 1,056,000 106,000 119,014 106,000
MAY 31, 1998 MAY 31, 1997 AUGUST 31, 1997 AUGUST 31, 1996 ------------ ------------ --------------- --------------- (IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equivalents........... $ 136 $ 26 $ 402 $ 26 Short-term investments and accrued interest thereon.................. -- -- -- -- U.S. Government securities deposited in Escrow Account and accrued interest thereon.................. 8,322 -- 7,998 -- Total assets........................ 8,458 204 8,401 204 Liabilities......................... 205 187 283 181 Common stock subject to possible redemption........................ 1,664 -- 1,600 -- Stockholders' equity................ 6,589 17 6,518 23
12 RISK FACTORS The following factors should be considered carefully by the stockholders of NAAC in determining whether to vote in favor of the Merger Agreement. All amounts reported in dollars are provided solely as a convenience to the reader and is based upon a line-dollar conversion rate of Lit. 1,769 to $1.00. History of Losses; Future Operating Results. Guzzi Corp., has sustained net losses in each of the past 11 fiscal years. On a combined basis, Guzzi Corp. lost Lit. 10,569 million ($5,967,000) in the fiscal year ended December 31, 1997, and Lit. 3,406 million ($1,917,000) for the six months ended June 30, 1998. Guzzi Corp.'s business is to some extent seasonal and results for the first six months of 1998 may therefore not be indicative of the full year results. (See "Industry Cyclicality and Demand for Products and Services," below). There can be no assurance that Guzzi Corp.'s operations, on a combined basis, will become profitable. Need to Manage Growth. Guzzi Corp. is contemplating an expansion of production with a concomitant significant commitment of capital and increase of outsourcing of components and subassemblies. This expansion may require Guzzi Corp. to implement a variety of additional systems, procedures and controls to manage higher inventory levels, higher levels of outsourcing and related working capital requirements and may place significant strain on management, financial and other resources. There can be no assurance that such expansion will be successfully completed or that Guzzi Corp.'s systems, procedures, controls or resources will be adequate to support expanded operations if they occur. If Guzzi Corp. is unable to manage its contemplated expansion successfully, its business and results of operations will be adversely affected. Guzzi Corp's future operating results could also be adversely affected by an increase in fixed costs and operating expenses related to the expansion of production if revenues do not increase commensurately. The growth of Moto America and Guzzi Corp's other wholly or partially owned distributors in Germany and France is related directly to the ability of Moto Guzzi to increase both market demand and production capacity to meet such demand without sacrificing quality. Increasing penetration of the Italian, French, German, U.S. and other markets, and Moto Guzzi's ability to increase production to meet the anticipated demand, are two essential prerequisites to NAAC's future ability to achieve growth and profitability. Need for Additional Financing. Based on current operations and sales projections, Guzzi Corp. believes that its existing capital resources and the capital of NAAC at the Effective Time of the Merger, after payment of continuing intercompany debt of up to $800,000, will be sufficient to fund its operations for the next twelve months. Guzzi Corp., however, cannot provide assurance that its existing capital resources, coupled with the capital acquired as a result of this Merger, will be sufficient to meet its planned expansion of production capacity and to finance the growth in Moto Guzzi sales anticipated for the next 12 months. Because much of the production machinery at Moto Guzzi's facility at Mandello de Lario, Italy is aged and in need of extensive modification, improvement or replacement, Guzzi Corp. expects that, over the next several years, significant additional capital will be required to overhaul the facility. While increases in sales during that period should provide some of the needed capital, the existing equipment, enhanced or replaced with some or all of the capital acquired in the Merger, anticipated internally generated cash, and currently available bank financing, may not in the aggregate be sufficient to enable Moto Guzzi to increase production and sales rapidly enough to generate the remaining needed capital. Further, no assurance can be given that additional sales will be realized to absorb some of the planned costs of facility improvement and/or expansion. Moto Guzzi also currently requires capital to develop designs for new motorcycle models and parts, to fund sales and marketing programs and for working capital. Additional financing may be necessary to further develop or expand operations. The availability of additional financing will depend in part on the willingness of the banking system in Italy to continue to finance working capital by way of advances against trade receivables which financing is, therefore, dependent on short-term production levels and subject to being substantially reduced in the case of production delays or stoppages caused by any means or by any other factors which could affect sales levels. Further, Guzzi Corp. and Moto Guzzi have only limited formal arrangements in respect of Moto Guzzi's currently available bank credit lines and these could be significantly reduced by the banks at any time for any reason. For its long-term viability, NAAC, as the surviving corporation, may be required to borrow or sell additional securities or seek other new sources of financing or may be required to curtail or reduce its activities. Guzzi Corp. has no current arrangements with any sources with respect to additional medium or long-term financing. There can be no assurance that any sources of 13 additional financing will be available to Guzzi Corp. on acceptable terms, or at all. To the extent that any future financing involves the sale of equity securities, the interest of NAAC's then-stockholders could be substantially diluted. Industry Cyclicality and Demand for Products and Services. In the past, the motorcycle industry has been subject to substantial changes in demand due to changing economic conditions. Historically, the motorcycle has been an 'entry level' form of transport which has been supplanted by the automobile. Over recent years, motor-cycle riding has also become established as a recognized leisure activity in developed markets. Moto Guzzi motorcycles, being in the larger and more expensive segment of the market, are principally targeted at the leisure segment of the vehicular industry. Management believes that the recent recognition of motorcycle riding as an acceptable leisure activity is one of the major factors behind the steady growth in Moto Guzzi's market segment over the last three years. Guzzi Corp. believes that this trend is likely to continue and that its markets will not be subject to violent demand changes, although no assurance can be provided that this will be the case. Among other factors, prevailing economic conditions may unfavorably affect disposable income for leisure activities and an increase in the cost of gasoline could have a negative effect on the cost of motorcycling. Further, the introduction of the standardized Euro currency may adversely affect overall economic conditions. Accordingly, there can be no assurances that Guzzi Corp.'s markets will remain in a growth phase or remain stable. Moto Guzzi's performance is influenced by its ability to predict future demand for existing and new products and timely to develop new products to fill a perceived market niche. Guzzi Corp. plans its annual production levels and long-term product development and introduction based on anticipated demand for its products. For the majority of sales, Guzzi Corp. does not have long-term purchase commitments or non-revocable orders. Moto Guzzi relies on its own market assessment and ongoing communication with its customers to anticipate the future volumes of purchase orders. A number of factors could cause customers to delay or cancel orders. Moto Guzzi has experienced frequent delays in production and shipment. If such delays continue to occur, Moto Guzzi could suffer cancellation of orders or loss of significant customers, which would have an adverse effect on its future business, financial condition and results of operations. Moto Guzzi's operations are characterized by seasonal fluctuations in demand and production. Retail market demand is highest in the spring and early summer, whereas most sales to Italian government agencies, both federal and regional, take place in the fourth quarter. Production at Moto Guzzi, as at most Italian companies, declines materially during August, the traditional vacation month, and also declines somewhat over the Christmas holiday and shortly thereafter as inventory is taken. While Moto Guzzi's management is seeking to flatten production and sales fluctuations to improve cash flow, there can be no assurance that such plans will be successful. See "Business of Guzzi Corp.--Seasonal Nature of Business." Competition. The manufacture and sale of motorcycles is a highly competitive industry. Guzzi Corp. competes with companies which are far larger and better capitalized, and many of which have greater name recognition, including Yamaha, Kawasaki, Suzuki and Honda, the industry leaders from Japan, Ducati of Italy, BMW of Germany, and Harley Davidson of the United States. It is also considered likely by Guzzi Corp. that large manufacturers of smaller displacement motorcycles, such as Aprilia of Italy, will also compete in Moto Guzzi's large engine displacement markets in the near future. Each of these competitors has a far larger market share than Moto Guzzi, and have access to greater financial resources. Guzzi Corp. competes principally through such intangible qualities as performance, reputation and quality of manufacture, areas in which its competitors also excel. Moto Guzzi is considering entry into the small engine-displacement market. Manufacturers of such vehicles, including Honda of Japan and Aprilia of Italy, have far greater financial resources with which to preserve market share. Current competitors or new market entrants could produce new or enhanced products with features that render Moto Guzzi's products or less marketable. Moto Guzzi's ability to compete successfully will depend on its continuing research and development of new and improved products and on its ability to adapt to technological changes and advances in motorcycle transportation. There can be no assurance that Moto Guzzi will be able to compete successfully, that competitors will not develop technologies or products that render its products less marketable, or that it will be able to successfully enhance its products or develop new products. See "Business of Guzzi Corp.--Competition." 14 Environmental, Safety and other Government Regulations. Motorcycles sold in the United States, the European Union and other countries are subject to environmental emissions regulations and safety standards with which Moto Guzzi is obligated to comply. All motorcycles produced for sale are manufactured with the intent to comply with all applicable safety standards in their destination markets. All 1998 Moto Guzzi models substantially comply with all emission standards applicable in all countries in which they are sold. There can be no assurance, however, that Guzzi Corp. will be able to cost effectively comply with any emissions or safety standards which the governments may hereafter adopt (though the design of new products seeks to conform with such standards as are believed likely to be introduced), in which event, Guzzi Corp. may be unable to achieve the market growth that it desires. As a foreign subsidiary of a U.S. corporation, Moto Guzzi is subject to various U.S. laws and regulations limiting the countries into which Moto Guzzi may sell its products. The sale by Moto Guzzi of products in contravention of such laws and regulations may expose Guzzi Corp. (and consequently NAAC) to fines and penalties. Moto Guzzi is subject to a number of governmental regulations relating to the use, storage, discharge and disposal of minerals and alloys used in the manufacturing processes and to the safety standards of its facilities and processes. Moto Guzzi may be required to perform restoration and other remediation on its current facilities to ensure compliance with environmental, worker safety and other regulatory schemes and upgrade or acquire new fabrication and assembly equipment. Although Moto Guzzi has not been subject to material environmental or safety claims in the past, the assertion of such claims or the failure to comply with present or future regulations could result in the assessment of damages or imposition of fines against Moto Guzzi, suspension of production or cessation of certain activities. New regulations could require Moto Guzzi to acquire costly equipment or incur other significant expenses that could have an adverse effect on the results of operations. Any failure by Moto Guzzi to control the use of, or adequately restrict the discharge of hazardous substances or comply with safety requirements and legislation could subject it to future liabilities. See "Business of Guzzi Corp.--Compliance With Governmental Regulations." Foreign Operations Risks. All Moto Guzzi motorcycle production has heretofore been conducted, and is expected to remain, in Italy. Moto Guzzi exports a significant percentage of its production: 63% in 1997 and 1996 and 65% in 1995 respectively, principally to other European countries. As a result, NAAC, as surviving corporation, could be adversely affected by events outside its control such as increases in tariffs or duties, political circumstances and governmental policy initiatives in Italy and the other countries which represent its actual and target markets. See also below--"Exposure of Results to Changes in Exchange Rates." Adoption and Implementation of the Euro. The adoption and implementation by certain members of the European Union of the European Common Currency, or the Euro, is expected to have significant effects on Guzzi Corp.'s business, Among many potential economic factors, the Euro is expected to increase competition within the currency zone. Decreases in current Italian interest rates toward a currently expected lower convergence rate of the participant countries is also expected. Moto Guzzi makes significant export sales outside the common currency zone and the prices of certain commodities used in its manufacturing processes may be affected by the value of the Euro. The implementation of the Euro within the common currency zone could have unanticipated consequences on the economies of the participant countries which affect demand for Moto Guzzi's products. The common currency zone represents over 80% of Moto Guzzi's 1997 net sales and the economic consequences of Euro implementation could have material affects, adverse or beneficial, on Moto Guzzi's business. During the two-year implementation phase of the Euro, both the Lira and the Euro will be valid currencies for business transactions in Italy, although they will be linked for exchange rate purposes. The Euro could also have significant effects on Guzzi Corp.'s accounting systems which could require significant modification or replacement. There can be no assurance that such systems will be obtainable at reasonable cost, or will be installed in such a manner so as not to materially interfere with the ordinary operations of Guzzi Corp. Exposure of Results to Changes in Exchange Rates. Guzzi Corp.'s sales and operating profits will be affected by the impact of fluctuations in foreign currency exchange rates on product prices and certain operating 15 expenses. Fluctuations in the exchange rates of certain foreign currencies (principally the U.S. Dollar) relative to the lire or euro may have an adverse effect on Guzzi Corp.'s sales and operating results and the international competitiveness of its Italian based manufacturing operations. Furthermore, a weakening of the currencies of the countries in which Guzzi Corp.'s major competitors operate, such as the U.S. Dollar and the Japanese Yen, could negatively impact the Guzzi Corp.'s competitive position. Fluctuations in the lira or euro to dollar exchange rate will affect Moto Guzzi's reported revenues and operating results which are reported in lire or euro, Guzzi Corp.'s functional currency at the present time and for the foreseeable future. Exposure of Results to Raw Material and Commodity Prices. The operations of Moto Guzzi are significantly affected by the prices of raw materials, including commodities (principally steel and aluminum) which can be subject to considerable short-term variations in price. While Moto Guzzi generally seeks to pass on the effects of price increases of raw materials to its customers, it has in the past not always been able to do so and in the future may not be able to do so due to competitive pressures. Aluminum products, which are important in the manufacture of motorcycles by Moto Guzzi, have in the past experienced sharp price increases. The prices of raw materials and commodities, many of which are not produced or sourced in Italy, are also subject to fluctuations as a consequence of changes in foreign currency exchange rates. See "Exposure of Results to Changes in Exchange Rates," "Management's Discussion and Analysis of Guzzi Corp.'s Results of Operations and Financial Position--Impact of Changing Prices and Exchange Rates" and "Business of Guzzi Corp.--Raw Materials and Components." Dependence on Third Party Suppliers and Manufacturers. Moto Guzzi purchases many significant motorcycle components from third parties. Its management believes that there are numerous available sources of supply for most of them. While Moto Guzzi attempts to maintain alternative sources for its supplies, certain significant components are available from only one or two sources and it is therefore subject to the risk of price fluctuations and possible delays in deliveries. Failure by suppliers to continue to supply Moto Guzzi on commercially reasonable terms, or at all, would have a material adverse effect on Moto Guzzi. Moto Guzzi generally does not maintain long-term supply agreements with its suppliers and purchases required componentry pursuant to purchase orders or short-term contracts in the ordinary course of business. Failure or delay in receiving necessary raw materials and components by Moto Guzzi would adversely affect its operations and its ability in turn to deliver its products on a timely basis. There can be no assurance that adequate sources of reliable outside suppliers will be identified and engaged at advantageous terms, or on any terms at all. Reliance on Main Manufacturing Facilities. All manufacturing of Moto Guzzi motorcycles takes place at a single production facility at Mandello del Lario, Italy. A significant interruption of production at this facility due to strikes or other causes could have a material adverse effect on Moto Guzzi's business and operating results. Lack of Patent or Intellectual Property Protection. The design and technology of motorcycles manufactured and sold by Moto Guzzi are not protected by any patent, trademark or other intellectual property rights which would create a competitive advantage for Guzzi Corp. other than the registered trademark for "Moto Guzzi(R)" itself, and related trademarks which Guzzi Corp. believes are well known and highly regarded. The component parts of motorcycles are manufactured pursuant to well known techniques and include components which are not unique to its products. Guzzi Corp. relies on design, manufacturing skills and know-how to produce motorcycles which will find acceptance in the market niche sought by Guzzi Corp. There can be no assurance that a competitor of Moto Guzzi will not develop an enhancement to motorcycle transportation that will be patentable or otherwise protected from duplication by others, including Guzzi Corp. There can be no assurance that competitors do not have, or will not develop, equivalent or superior manufacturing or design skills. See "Business of Guzzi Corp.--Patents and Trademarks." Product Liability. Moto Guzzi is engaged in a business which exposes it to possible claims for personal injury from the use of its products. Moto Guzzi maintains liability insurance with a per-occurrence, and aggregate one-year claim limit of Lit. 18,000 million. Although no claims have been made against Moto Guzzi in excess of existing insurance coverage, there can be no assurance that such claims will not arise in the future or that the insurance coverage will be sufficient to pay such claims. A partially or completely uninsured claim, if successful and of significant magnitude, could have a material adverse effect on NAAC, as surviving corporation. 16 Litigation. Guzzi Corp. and its subsidiaries are involved in litigation in the normal course of business. Management does not believe that the final disposition of such litigation will have a material adverse effect on Guzzi Corp. Guzzi Corp. has advised the Office of Foreign Assets Control ("OFAC") of a contract for the sale of motorcycles by Moto Guzzi to a country to which sales are restricted under U.S. law. The OFAC may require Guzzi Corp. to terminate the contract and impose fines for violation of law. The potential loss of the value of the contract, if cancelled, could have a material adverse effect on the future operations of Moto Guzzi. The potential penalties which may be assessed under the contract by the buyer for termination are not expected to have a material adverse effect on the future operations of Moto Guzzi. RISKS RELATING TO NAAC Effect of Redemption on Capital of NAAC. The stockholders of the NAAC Class A Common Stock, other than the Initial NAAC Stockholders, have the right to have their NAAC Class A Common Stock, (other than the Pre-IPO shares), redeemed by NAAC in certain circumstances. If the Merger is consummated and the maximum number of shares of NAAC Class A Common Stock (20% or 160,000 shares) entitled to be redeemed and to share in the Escrow Account without preventing the Merger are redeemed, the amount of the funds available from the Escrow Account upon consummation of the Merger will be reduced by approximately $[ ]. Any redemption of a significant number of shares of NAAC Class A Common Stock will adversely impact the ability of NAAC to fund the future expansion and development of Guzzi Corp. Any reduction in the funds available upon consummation of the Merger will result in the need for additional funds earlier than anticipated. Merger Agreement: Indemnification of NAAC. The Merger Agreement provides for indemnification of NAAC, after the Merger, for a breach of the representations and warranties made by Guzzi Corp. and TRG as of the Effective Date, provided that the claims only may be brought (i) if the claim or claims exceed $750,000, after application of various offsets for the sale of assets of Guzzi Corp., and (ii) within periods ending in approximately March 1999 or March 2000 depending on which specified representations and warranties, if any, are breached. Any amount payable in respect of indemnification of NAAC will only be by a return and cancellation of up to 100,000 shares of NAAC Class A Common Stock issued to TRG as part of the merger consideration and/or up to all the shares of NAAC Class B Preferred Stock issued as part of the merger consideration, which will be placed in escrow at the Effective Time. Conflicts of Interests of Directors and Officers of NAAC. The directors and officers of NAAC have various conflicts of interest, in certain cases, arising out of their holdings of NAAC Class A Common Stock and the Class A Options and Class B Options of NAAC ("Management Options"). Unless NAAC completes the Merger, the securities held by these persons will have no value. Limited Prior Market for NAAC Common Stock and NAAC Class A Warrants; No Market for the Nominal Warrants. There has been only a limited trading market for the NAAC Common Stock and NAAC Class A Warrants. There is no assurance that an active or regular trading market will develop for these securities after the Merger. Consequently, the holders of NAAC Common Stock and NAAC Class A Warrants may not be able to sell them at any particular time or at a price which reflects their actual value. Although NAAC intends to apply for listing of the NAAC Class A Common Stock and NAAC Class A Warrants on the NASDAQ SmallCap Market, no assurance can be given that NAAC will be able to obtain the listing of the securities on that market. If the application is unsuccessful, the Company anticipates that its securities will continue to trade on the OTC Market. Because of the few number of holders, NAAC will not apply for a listing of the NAAC Class B Preferred Stock and Nominal Warrants. NAAC does not anticipate that there will be any market for the NAAC Class B Preferred Stock and Nominal Warrants. Adverse Effect on Market Price Resulting from Securities Eligible for Future Sales. A substantial number of shares of NAAC Class A Common Stock will be issued in the Merger. In addition, a substantial number of shares of NAAC Class A Common Stock is subject to being issued under conversion and exercise rights under outstanding NAAC Class B Common Stock, NAAC Class A Preferred Stock and NAAC Class A Warrants and certain options. After the Merger, if all the securities convertible or exercisable into NAAC Class A Common Stock are converted or exercised and assuming all Guzzi Warrants are cancelled, there would be 8,356,666 shares of NAAC Class A Common Stock outstanding (excluding the number of shares of NAAC Class A Common Stock issuable upon conversion of the NAAC Class B Preferred Stock and upon exercise of the Nominal 17 Warrants because the number of shares is not currently calculable). Under the Merger Agreement, shares of NAAC Class A Common Stock will be subject to a six month lock-up and shares of NAAC Class A Common Stock will be subject to a twelve month lock-up from the Effective Time. Dividends Unlikely. NAAC has not paid any dividends in respect of the NAAC Common Stock to date. After the consummation of the Merger, the payment of cash dividends on the NAAC Common Stock will be subject to the discretion of the NAAC Board, and the payment of cumulative cash dividends on the shares of NAAC Class B Preferred Stock. It is unlikely that cash dividends will be paid on the NAAC Common Stock in the foreseeable future. Current Prospectus and State Blue Sky Registration Required to Convert or Exercise Outstanding Securities. NAAC will be able to issue NAAC Class A Common Stock on conversion and exercise of outstanding NAAC Class B Common Stock, NAAC Class A Preferred Stock, NAAC Class B Preferred Stock, NAAC Class A Warrants and Nominal Warrants only if there is then a current prospectus relating to the security being converted or exercised or if there are appropriate exemptions available under federal and state securities laws. Although NAAC intends to have a current prospectus available and to seek to qualify for sale the securities underlying the outstanding convertible and exercisable securities under the applicable state blue sky laws, there can be no assurance that NAAC will be able to do so. In such event, the holders of the convertible and exercisable securities may be deprived of the value of the securities and the market for the securities may be limited. Control of NAAC by Certain Guzzi Corp. Shareholders. TRG and one of its majority-owned subsidiaries will own, following the Merger, approximately 64.6% of the outstanding Class A Common Stock (including the NAAC Class A Common Stock underlying the NAAC Class B Preferred Stock) and will have the ability to control the election of the Board of Directors and all other matters. Under the terms of the Merger Agreement, the initial Board of Directors of the merged corporation will consist of eight persons, of which Guzzi Corp. will nominate five persons, and NAAC will nominate two persons. The eighth member will be mutually nominated by Guzzi Corp. and NAAC. As a result of the Merger, there will be a change of control of NAAC. See "Merger Agreement and Proposal 3: Election of Directors." Potential Adverse Impact of Anti-Takeover Provisions. The proposed Amended and Restated Certificate of Incorporation contains provisions which may be deemed to have the effect of discouraging a third party from pursuing a non-negotiated takeover of NAAC because they have the effect of delaying, deterring or preventing a change of control of NAAC. These provisions include the staggered board of directors, the existence of "blank check" preferred stock with such rights and preferences as may be determined from time to time by the Board of Directors without stockholder approval, the requirement that by-laws adopted by the stockholders be adopted by a vote of two-thirds of the outstanding stock of the company entitled to vote thereon and the limitation on removal of directors only for cause. Such provisions may have an adverse impact on the price of the securities of NAAC. Limited Liability of Directors; Persons Located Outside of the United States. The Certificate of Incorporation of NAAC following the Merger limits the liability of its directors to the maximum extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be liable to the corporation or its stockholders for expenses incurred in derivative or third party actions arising from a breach of their fiduciary duties as directors, except in certain circumstances. Accordingly, except in certain circumstances, the directors will not be liable to NAAC or its stockholders for breach of such duty. The Certificate of Incorporation also provides for indemnification and advancement of expenses to the fullest extent permitted by Delaware law, incurred by officers and directors of NAAC in connection with actions against them involving their behavior on its behalf. Although NAAC is incorporated, and certain of its post-Merger directors are expected to be domiciled in the United States, certain other directors and executive officers reside outside of the United States. Moreover, a majority of NAAC's post-Merger assets will be located outside of the United States. It may be difficult for investors in the United States to enforce their legal rights, to effect service of process upon directors and executive officers of NAAC after the Merger, or to enforce judgments of United States courts predicated upon civil liabilities of such directors or officers under United States federal securities laws. Further, it is unclear if extradition treaties now in effect between the United States and Italy would permit effective enforcement of the criminal penalties of the Federal securities laws. 18 BUSINESS OF NAAC INTRODUCTION NAAC was organized on August 9, 1995 as a Specialized Merger and Acquisition Allocated Risk Transaction company, with the objective of acquiring an operating business without limitation as to industry. Since its inception, NAAC has not engaged in any substantive commercial business and its sole activities have been to evaluate and select a suitable Target Business and to structure, negotiate and consummate a Business Combination with such Target Business. On August 22, 1997, NAAC sold 800,000 Units in the IPO at $10.00 per Unit, each Unit consisting of one share of NAAC Class A Common Stock and one NAAC Class A Warrant, and 150,000 shares of Class B Common Stock, at $10.00 per share. CHARACTERISTICS OF A SPECIALIZED MERGER AND ACQUISITION ALLOCATED RISK TRANSACTION COMPANY A Specialized Merger and Acquisition Allocated Risk Transaction company is an entity incorporating the special provisions set forth below. Immediately after the consummation of a Business Combination, such special provisions will no longer apply. The proposed Merger constitutes a Business Combination. Offering Proceeds Held in Escrow Account NAAC completed the IPO on August 22, 1997 and received net proceeds of approximately $8,100,000 after payment of offering expenses. A substantial portion of such net proceeds ($8,000,000) was placed in the Escrow Account until the earlier of NAAC's (i) consummation of a Business Combination or (ii) liquidation. The remaining net proceeds of the IPO which were not placed in the Escrow Account, and the interest earned thereon, have been used by NAAC to identify, evaluate and select a suitable Target Business, and structure, negotiate and consummate a Business Combination, and for general, administrative and organizational expenses. As of July 31, 1998 there was approximately $8,422,500 in the Escrow Account. See "Proposal 1: The Merger--Use of Funds Available upon Consummation of the Merger." Fair Market Value of Target Business NAAC is not permitted to acquire a Target Business unless the fair market value of such business (as determined by the NAAC Board based upon standards generally accepted by the financial community, such as earnings and earnings potential, cash flow and book value) is equal to at least 80% of the net assets of NAAC at the time of such acquisition. The purpose of this requirement is to ensure that any such acquisition will constitute a significant business acquisition. Stockholder Approval of Business Combination NAAC, after signing a definitive agreement for the acquisition of a Target Business, but prior to the consummation of any Business Combination, is required to submit such transaction to holders of the NAAC Common Stock for approval, even if such acquisition would not ordinarily require stockholder approval under applicable state law. NAAC will only consummate a Business Combination if at least two-thirds in interest of the outstanding shares of NAAC Common Stock are voted in favor of the Business Combination and will not consummate a Business Combination if more than 20% of the outstanding shares of NAAC Class A Common Stock (excluding the Pre-IPO Shares), or more than 160,000 shares, are submitted to NAAC for redemption. The Initial NAAC Stockholders have agreed to vote their Pre-IPO Shares (approximately 11.7% of the outstanding shares of NAAC Common Stock) in accordance with the vote of the majority in interest of all other holders of NAAC Common Stock on the proposal to approve the Merger Agreement and the Merger. For this purpose they have given their proxy to the officers of NAAC. 19 Redemption Rights Holders of NAAC Class A Common Stock, other than the Initial NAAC Stockholders, have the right to have NAAC redeem up to a maximum of 20% of the NAAC Class A Common Stock (160,000 shares), other than the Pre-IPO shares, redeemed for cash, if the Merger Agreement and Merger is approved and consummated. If the Merger is not consummated, the right of redemption terminates until a future proposed Business Combination. See "The Annual Meeting--NAAC Liquidation If No Business Combination." The per-share redemption price will be approximately $[ ]. The Initial NAAC Stockholders do not have redemption rights with respect to their Pre-IPO Shares. The failure of a stockholder to comply with the redemption requirements set forth in this Proxy Statement will terminate such stockholder's redemption rights. See "The Annual Meeting--Redemption Rights." Escrow of the Pre-IPO Shares The Pre-IPO Shares (approximately 11.7% of the outstanding shares) are held in escrow with Greenbaum, Rowe, Smith, Ravin, Davis & Himmel LLP, as escrow agent, until the earlier of the consummation of the first Business Combination or August 22, 1999. During such escrow period, the Initial NAAC Stockholders are unable to sell or otherwise transfer their respective Pre-IPO Shares, except (i) in a transaction subsequent to consummation of a Business Combination which is offered to all NAAC stockholders and (ii) to family members or pursuant to the laws of descent. Accordingly, the Initial NAAC Stockholders cannot separately negotiate the purchase of any portion of their Pre-IPO Shares as part of a Business Combination. Liquidation If No Business Combination If NAAC does not consummate a Business Combination by August 22, 1999, NAAC will be dissolved and will distribute to holders of NAAC Class A Common Stock with respect to their shares (excluding the Pre-IPO Shares), the amount in the Escrow Account, including any interest earned thereon. Following such a redemption of NAAC Class A Common Stock, each outstanding share of NAAC Class B Common Stock will be exchanged for two shares of NAAC Class A Common Stock. The assets of NAAC (other than the escrowed assets) will be used to pay NAAC's liabilities and to redeem NAAC's outstanding Series A Preferred Stock at its liquidation value. The Initial NAAC Stockholders do not have the right to participate in any liquidating distribution with respect to their Pre-IPO Shares prior to consummation of a Business Combination. COMPETITION If the Merger is consummated, NAAC will become subject to competition from competitors of Guzzi Corp. See "Business of Guzzi Corp.--Competition." MANAGEMENT The current executive officers of NAAC are David J. Mitchell (Chairman of the Board, Chief Executive Officer and Director) and C. Thomas McMillen (Secretary, Treasurer and Director). Since NAAC's inception, no executive officer has received any cash compensation from NAAC for services rendered (other than as set forth under "Business of NAAC--Properties" below). Subsequent to the Merger, Mr. Mitchell will receive the compensation described under "Proposal 3: Election of Directors--Compensation of Directors and Executive Officers." Prior to the consummation of a Business Combination, none of NAAC's officers or directors has received or will receive any compensation for services other than (i) options to purchase 50,000 units, each unit consisting of one share of NAAC Class A Common Stock and one NAAC Class A Warrant granted to each of David J. Mitchell and C. Thomas McMillen and options to purchase 15,000 shares of NAAC Class B Common Stock in consideration for their service as directors and officers of NAAC and (ii) reimbursement for out-of-pocket expenses incurred in connection with NAAC's business. There is no limit on the amount of such out-of-pocket expenses, and there has not been nor will there be any review of the reasonableness of such expenses by anyone other than the Board of Directors, which includes persons who have received, and may seek, reimbursement. None of NAAC's officers or directors or Initial NAAC Stockholders or their respective affiliates will receive any consulting or finder's fee or other compensation in connection with the introduction of NAAC to, or evaluation of, a Target Business or consummation of a Business Combination. 20 PROPERTIES Mitchell & Company, Ltd. has provided office space and certain office and secretarial services to NAAC for which NAAC pays $2,500 per month. This arrangement will terminate upon consummation of the Merger. See "Proposal 1: The Merger--Conflicts of Interest." LEGAL PROCEEDINGS There are no legal proceedings pending against NAAC. BUSINESS OF GUZZI CORP. Guzzi Corp., through Moto Guzzi, is a leading Italian manufacturer, marketer and distributor of performance and luxury motorcycles and motorcycle parts, marketed under the "Moto Guzzi(Registered)" brand name. Guzzi Corp. is a Delaware corporation formed in 1996 to acquire Moto Guzzi, its manufacturing subsidiary and Moto America, the exclusive U.S. importer and distributor of "Moto Guzzi" brand motorcycles and parts. Strategy. Moto Guzzi's strategy is to further increase sales volumes by (i) focusing on the breadth, quality and design of its product offerings, (ii) increasing its marketing activities, (iii) enhancing its distribution network and (iv) leveraging its brand name. Moto Guzzi believes that its reputation and rich tradition as a technological innovator and quality manufacturer provides a solid foundation for future sales increases. Moto Guzzi has built a loyal customer base over the past 77 years through the outstanding performance and reliability of its motorcycles, as well as its strong distribution network. The current customer base ranges from professional motorcycle enthusiasts to government agencies, police departments and highway patrols around the world. Moto Guzzi plans to strengthen and expand its product line by exploiting its heritage as one of the industry's design and technology innovators. For example, it plans to increase its family of products to include entry level motorcycles such as a "stripped" version of the California model, additional sports bikes and, potentially, motor scooters. Moto Guzzi also plans to enhance its core product line--the California and Nevada models. While public administration sales have traditionally been a stable source of revenue for Moto Guzzi, management believes that there are unexploited growth opportunities in this market and plans to refocus its sales and marketing efforts in this product category. In terms of enhanced marketing and promotion activities, the U.S. market represents the largest expansion opportunity for Moto Guzzi. Approximately half of all motorcycles sold in the U.S. are in the heavyweight segment. Between 1996 and 1997, U.S. registrations of new heavyweight motorcycles increased by 9.7% to 165,700 units. Moto Guzzi plans to implement an aggressive marketing campaign targeted at U.S. consumers that is designed to build brand value and name recognition, as well as to emphasize the technical and design strengths of Moto Guzzi's motorcycles. In the United States, Moto Guzzi also plans to expand and enhance its distribution network. In addition to increasing the size and quality of its dealer network, Moto Guzzi also plans to introduce new sales incentives programs for dealers, as well as a floor plan financing program. Other innovations that either have or will be introduced in the U.S. include customer purchase financing and an extended, three year warranty program. Finally, Moto Guzzi plans to leverage the "Moto Guzzi" brand by expanding into new products, markets and services that also offer the opportunity to enhance its brand awareness and brand image. Moto Guzzi currently sells a limited line of non-motorcycle merchandise. In the future, Moto Guzzi plans to introduce a range of branded accessories such as hats, jackets, shirts and luggage. Management also plans to exploit opportunities to license the "Moto Guzzi" brand name to manufacturers and suppliers of other products and services. Motorcycle Industry Generally. Historically, the motorcycle had been an "entry level" form of transport which has been supplanted by the automobile. Over recent years, the industry has become established as a recognized leisure industry in developed markets and Guzzi Corp.'s current range of motorcycles, being in the larger and more expensive segment of the market, are principally targeted at the leisure segment of the vehicular industry. The management of Guzzi Corp. believes that the recent recognition of motorcycling as an acceptable leisure activity is one of the major factors behind the growth in Guzzi Corp.'s market segment over the last three years. The management of Guzzi Corp. believes that this trend will continue in the short and medium term and 21 that its markets will not be subject to significant demand changes, although no assurance can be provided that this will be the case. Guzzi Corp. is also exploring entry into small displacement motorcycles and scooters. Manufacturing. Guzzi Corp. today manufactures a high priced line of motorcycles, and distributes parts and accessories, under the trademark "Moto Guzzi(Registered)." Guzzi Corp. motorcycles vary in engine displacement from 350cc to 1,100cc. Guzzi Corp. has, in recent years, concentrated development and sales efforts on its largest motorcycles, having engines of 750cc or larger but, as part of its growth plan, it is considering entry into the lower-cost, small displacement market. Moto Guzzi parts were distributed through Centro Ricambi, a 100% owned subsidiary of Moto Guzzi until it was merged into Moto Guzzi in 1997. All motorcycle manufacturing is conducted at a factory in Mandello del Lario, Italy. Moto Guzzi manufactures certain power train components, acquires certain other components from outside suppliers, and performs finishing work and assembly into motorcycle bodies. Until 1994, Moto Guzzi internally produced a majority of the components of its motorcycles. As a result of its decision to increase outsourcing to increase production capacity, Moto Guzzi now produces less than 40% of all components used in the assembly of its motorcycles. Because much of the production machinery at the Mandello facility, as well as the facility itself, is aged and in need of extensive modification, improvement or replacement, the Company expects that, over the next several years, significant capital will be required to complete the planned overhaul. At the end of 1996 and the beginning of 1997, Guzzi Corp. completed a private placement of preferred stock and common stock purchase warrants from which Guzzi Corp. realized an aggregate of $5,218,000, net of expenses. Moto Guzzi also secured from Italian financial institutions, and drew upon, a Lit. 10,000 million debt facility. Additionally, TRG committed to Guzzi Corp. approximately $4 million from the proceeds of the $7 million public offering in 1997 of shares of TRG common stock and TRG common stock warrants. The cash acquired as a result of the Merger, aggregating approximately $8,000,000, if supplemented by increases in sales during the next few years if growth is realized, should provide a significant portion, but may not provide all, of the needed capital for the rehabilitation of the Mandello facility or the implementation of Guzzi Corp.'s strategic business plan and for working capital. See "Risk Factors--Need for Additional Capital." Seasonal Nature of Business. Guzzi Corp.'s business is affected by seasonal factors. Retail market demand is highest in the spring and early summer, whereas most sales to the Italian government generally take place in the last quarter of the year. Moto Guzzi, like most Italian companies, traditionally shuts down production in August of each year and traditionally also has reduced production over the Christmas holidays and in the period immediately following, while inventory is being taken. As part of its effort to increase overall production levels, Guzzi Corp. did not suspend production during the most recent December-January period of physical inventory taking. Compliance with Governmental Regulations. Moto Guzzi along with other motorcycle manufacturers, incurs substantial costs in designing and testing products to comply with safety and emissions requirements. Such standards have added, and will continue to add, substantially to the price of the vehicles although competitive pressures, importation expenses and importers margins have kept export prices lower than domestic Italian sales prices. Motorcycles sold in the United States, the European Economic Community and all other countries are subject to environmental emissions regulations and safety standards with which Guzzi Corp. is obligated to comply in order to expand its presence in such countries. All motorcycles produced for sale are manufactured with the intent to comply with all applicable safety standards. All current Moto Guzzi models comply with all emission standards applicable in all countries in which they are sold. There can be no assurance, however, that Guzzi Corp. will be able cost effectively to comply with any emissions or safety standards which the governments may hereafter adopt (though the design of new products seeks to conform with such standards as are believed likely to be introduced), in which event, Moto Guzzi may be unable to achieve the market growth that it desires. Moto Guzzi is subject to a number of governmental regulations relating to the use, storage, discharge and disposal of minerals and alloys used in manufacturing processes and to the safety standards of its facilities and 22 processes. Although Moto Guzzi has not been subject to material environmental or safety claims in the past, the assertion of such claims or the failure to comply with present or future regulations could result in the assessment of damages or imposition of fines against Moto Guzzi, suspension of production or cessation of certain activities. New regulations could require Moto Guzzi to acquire costly equipment or incur other significant expenses that could have an adverse effect on the results of operations. Any failure by Moto Guzzi to control the use of, or adequately restrict the discharge of hazardous substances or comply with safety requirements and legislation could subject it to future liabilities. As a foreign subsidiary of a U.S. corporation, Moto Guzzi is subject to various U.S. laws and regulations limiting the countries into which Moto Guzzi may sell its products. The sale by Moto Guzzi of products in contravention of such laws and regulations may expose Guzzi Corp. (and consequently NAAC) to fines and penalties. See "Business of Guzzi Corp.--Legal Proceedings." Backlogs. As of September 14, 1998, Moto Guzzi had firm orders from its dealer network for 562 motorcycles which had not yet been shipped, at an approximate value of Lit. 6,182 million. Guzzi Corp. expects to fill all such orders by year end. At September 30, 1997, Moto Guzzi had open unshipped orders of 800 motorcycles, having an approximate value of Lit. 8,800 million. All such orders were fulfilled by December 31, 1997. Moto Guzzi generally receives cancellable orders from its non-Italian dealer body in respect of its requirements for the upcoming year and uses these orders to plan production schedules. Portions of these orders become firm, and other firm orders are placed, as the anticipated shipment dates approach. Moto Guzzi uses ongoing research from its sales and marketing departments to forecast expected order volumes from the domestic Italian dealer network, and does not receive long term firm orders from the domestic market. Raw Materials and Components. There are multiple reliable sources for most motorcycle raw materials, including aluminum for power train components. However, certain significant components are available from only one or two sources. In 1996, 1997 and 1998, situations arose where Guzzi Corp.'s suppliers were unable to make timely deliveries of needed components due to production problems incurred by such suppliers. All such delays adversely affect motorcycle production. While the cost of imported raw materials is affected by variations in the value of the Italian lira relative to the currencies of Italy's primary trading partners, currency exchange rates have not had a significant adverse effect on costs and price competitiveness in 1995, 1996 or 1997. Research, Development and Continuing Engineering. Guzzi Corp., while continuously engaged in product improvement and development, has significantly increased its commitment to develop new products. Aggregate 1997 research and development expenditures by Guzzi Corp. were approximately Lit. 3,125 million, compared to Lit. 1,177 million in 1996, and Lit. 602 million in 1995. Expenditures in 1997 related primarily to development of models initially scheduled for 1998 production but subsequently deferred or reconsidered. On-going programs relate to specific models under development and, more generally, developing more powerful two-cylinder air-cooled and other engines with improved performance and durability characteristics, superior braking systems, suspensions, frames, transmissions and other components applicable to two-wheeled vehicles. Sales, Marketing and Inventory. Guzzi Corp. primarily markets its products through advertising in trade publications, participation in promotional events and fairs, attendance at trade shows and from editorial coverage in trade and general circulation press. All sales are invoiced in Italian lire except sales to the United States which are invoiced in U.S. dollars. Prices are customarily reviewed and are increased to cover increases in production costs at periodic intervals and in light of prevailing exchange rates. Italian prices for motorcycles traditionally have been higher than export prices. In March 1996, Guzzi Corp. increased prices of its various models 5% on average for domestic Italian sales and for export sales invoiced both in lire and in dollars. In 1997, Guzzi Corp. generally maintained its selling prices in order to maintain market share, and increased prices by approximately 5% effective April, 1998. Export sales continued to reflect lower margins than domestic Italian sales due to importer margins and transportation costs. Guzzi Corp. is not affected by any unusual industry practices relating to returns of merchandise or extended payment. It is obliged to maintain 10 years' inventory of parts for all motorcycles sold to Italian government agencies and, in common with many other motor vehicle manufacturers, maintains significant spare parts inventories for commercial reasons. Guzzi Corp.'s sales are pursuant to open purchase orders rather than long- 23 term contracts. By scheduling production in anticipation of fulfilling such orders, it may end a given year with substantial inventory if orders are canceled or deliveries not taken. Distribution. Moto Guzzi maintains a distribution network throughout Italy of over 120 independent dealers. No single Italian dealer accounted for more than 5% of the sales of Moto Guzzi in 1997. The Italian dealers who distribute Moto Guzzi motorcycles generally handle other brands as well. In 1997, a single importer-distributor acted as exclusive importer-distributor for Moto Guzzi in each of Argentina, Australia, Austria, Belgium, the Czech Republic, Denmark, Finland, France, Germany, Greece, Holland, Japan, Luxembourg, Malaysia, Malta, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the United States. Moto America is Guzzi Corp.'s exclusive importer-distributor in the United States. Until 1996, when it was acquired by TRG and later transferred to Guzzi Corp., Moto America was an independent business. Today, Moto America distributes through a network of 100 dealers. In November 1996, Moto Guzzi replaced its independent French importer-distributor with a newly created wholly-owned subsidiary of Moto Guzzi which commenced operations in February 1997, and now operates through a network of 78 dealers. Moto Guzzi also owns a 25% equity interest in MGI GmbH, a German corporation which became the exclusive importer-distributor of Guzzi Corp. motorcycles and spare parts on January 1, 1997. Moto Guzzi has the right to acquire up to a total of 90% of the equity interest of the new distributor within three years. Until December 1996, Moto Guzzi also owned a 25% equity interest in A+G Motorad GmbH ("A+G"), a German corporation, the majority of the shares of which is owned by Aprilia S.p.A., another Italian manufacturer of motorcycles with small displacement engines. A+G distributed the motorcycles of both Moto Guzzi and Aprilia in the German market in 1996, but was replaced as the Moto Guzzi distributor in 1997 by MGI GmbH, which distributes through a network of 105 German dealers. Guzzi Corp. provides support to its worldwide dealer network by, among other things, operating a technical training and support facility at Mandello del Lario. All dealers are required to attend training courses at the inception of their relationship, and periodically thereafter. Set forth below is a chart illustrating percentage of motorcycle sales revenues attributable to various geographic areas in the three most recent fiscal years. Sales outside Italy in 1997 were approximately Lit. 50,000 million, representing 63% of total sales. GUZZI CORP. SALES
YEAR ENDED DECEMBER 31 ---------------------- GEOGRAPHIC AREAS 1997 1996 1995 - ---------------- ---- ---- ---- Italy.......................................................................... 37% 37% 35% Europe (other than Italy)...................................................... 46% 43% 49% United States.................................................................. 13% 7% 6% Elsewhere...................................................................... 4% 13% 10%
Competition. The sale of motorcycles is a highly competitive business, with competition typically coming from all powered passenger vehicles, as well as motorcycles. The overall motorcycle market in Italy (excluding scooters) grew in 1997, with new vehicle registrations increasing by approximately 38% compared to the same period in 1996. The market in Italy for larger motorcycles, in which Guzzi Corp. is concentrating its sales and production efforts, increased by 29% in 1997 compared to 1996, according to the Italian Ministry of Transportation. Guzzi Corp. maintains an extremely small share of the world-wide motorcycle market, which is dominated by many of the same manufacturers that predominate in Italy. Many of such companies are far larger and better capitalized, with greater name recognition. Guzzi Corp. competes principally through such intangible qualities as performance, reputation and quality of manufacture, areas in which its competitors also excel. The Italian market today remains dominated by large, well-financed Japanese manufacturers. A number of Italian and foreign manufacturers, principally Ducati, Honda, BMW, Yamaha, Kawasaki, Aprilia and Suzuki, sell 24 their products in the Italian market. In 1997, according to data from the Italian Ministry of Transportation, the Italian market shares of the principal competitors of Guzzi Corp. on a unit basis, excluding scooters, were as follows:
ALL LARGE MOTORCYCLES MOTORCYCLES ----------- ----------- Honda............................................................... 26.5% 29.9% Yamaha.............................................................. 16.8% 18.4% Suzuki.............................................................. 13.8% 14.7% BMW................................................................. 8.4% 10.7% Aprilia............................................................. 7.0% 3.7% Kawasaki............................................................ 7.0% 5.3% Ducati.............................................................. 6.9% 8.7% Harley Davidson..................................................... 3.2% 4.1% Cagiva.............................................................. 1.6% 0.8% Guzzi Corp.......................................................... 2.7% 2.6% Others.............................................................. 6.1% 2.1%
Product Liability. Moto Guzzi's business exposes it to possible claims for personal injury from the use of its products. Moto Guzzi maintains liability insurance with a per-occurrence and aggregate one-year claim limit of Lit. 18,000 million. A partially or completely uninsured claim, if successful and of significant magnitude, could have a material adverse effect on Guzzi Corp. Patents and Trademarks. Except as described below, the business of Guzzi Corp. is not and has not been in any material respect dependent upon patents, licenses, franchises or concessions. The component parts of motorcycles are manufactured pursuant to well known techniques and include components which are not unique to its products, although some of these components are specially styled and designed. Management believes that the registered trade name "Moto Guzzi(Registered)" and the related trademarks are well known and highly regarded throughout the world, and appropriate steps have been taken to protect Guzzi Corp.'s rights in these trade names and trademarks in 67 countries, including those countries representing significant markets. Employees and Employee Relations. Relations with Guzzi employees are considered by its management to be good. At December 31, 1997, Moto Guzzi S.p.A. had 360 employees, compared to 358 at December 31, 1996, including employees of Centro Ricambi, merged into Moto Guzzi in 1997, of whom approximately 71% were engaged in factory production and the balance in various supervisory, sales, purchasing, administrative, design, engineering and clerical activities. Resolution of the national metal workers union contract in 1997 resulted in a one-time payment to workers of Lit. 900,000 ($588) in respect of periods prior to the date of the new agreement. An increase in Guzzi Corp.'s use of outsourced components reduced overtime hours to 5.2% of total hours in 1997 compared to 7.7% in 1996. Guzzi Corp. was not subjected to any significant local work stoppages or strikes in 1997. In December 1997, however, Guzzi S.p.A. experienced a work stoppage of one hour duration prompted by reports that management was considering alternative locations as part of its long term expansion plans. In 1996, it was subjected to strikes totaling 2 1/2 production days, all concerning the negotiation of a national contract for all workers in metal working industries. The national strikes resulted in the loss of approximately four production days because of additional time needed to restart production after each strike. Guzzi S.p.A.'s "company" contract was renegotiated early in 1996. Renegotiation of the "national" contract was completed in 1997. Under Italian law, persons in a company acquire the right to severance pay based upon salary and years of service. At December 31, 1997, Guzzi Corp. was obligated to pay employees an aggregate of Lit. 8,003 million, and Lit. 7,154 million at December 31, 1996. See Note 2 of Notes to Guzzi Corp. Consolidated Financial Statements. 25 PROPERTIES The following facilities were, and unless so indicated, are presently, leased or owned by Guzzi Corp. or its subsidiaries in the active conduct of its business: (a) Moto Guzzi's factory and office facilities are owned in fee and are located in Mandello del Lario, Italy in a group of one, two and three story buildings aggregating 54,550 square meters. This facility is currently operating at approximately 50% of production capacity calculated as a percentage of available space. The facilities are encumbered by mortgages to certain banks. See Note 9 of Notes to Consolidated Unaudited Financial Statements. (b) Office and warehouse facilities are owned in fee by Moto America and are located in Angier, North Carolina. The facility aggregates 18,300 square feet, of which 2,000 square feet are used for office functions, and the balance as a warehouse. (c) Moto Guzzi's spare parts distribution facility is located at a 3,683 square meter facility in Modena, Italy, under a six year lease expiring in 2002. The current year lease obligation is Lit. 239 million ($157,000), and is subject to incremental annual increases. LEGAL PROCEEDINGS Guzzi Corp. and its subsidiaries are involved in litigation in the normal course of business. Management does not believe that the final disposition of such litigation will have a material adverse effect on Guzzi Corp. Guzzi Corp. has advised the Office of Foreign Assets Control ("OFAC") of a contract for the sale of motorcycles by Moto Guzzi to a country to which sales are restricted under U.S. law. The OFAC may require Guzzi Corp. to terminate the contract and impose fines for violation of law. The potential loss of the value of the contract, if cancelled, could have a material adverse effect on the future operations of Moto Guzzi. The potential penalties which may be assessed under the contract by the buyer for termination are not expected to have a material adverse effect on the future operations of Moto Guzzi. EXCHANGE RATES Since all of the production, and much of the sales of Moto Guzzi occur in Italy, Guzzi Corp.'s primary financial statements are reported in Italian Lire, its functional currency as defined by generally accepted accounting principles. U.S. Dollar translations are provided solely for the reader's convenience and have been made at the approximate rate of Lit. 1,769 to one dollar which approximates the rate at December 31, 1997. The following table sets forth, for the period indicated, the high, low, average and end of period exchange rates expressed in lire per dollar (rounded to the nearest lira):
END OF CALENDAR YEAR HIGH LOW AVERAGE PERIOD - ------------- ------ ------ ------- ------ 1997 ................................................. 1,837 1,520 1,703 1,769 1996 ................................................. 1,606 1,499 1,543 1,530 1995 ................................................. 1,767 1,565 1,626 1,588 1994 ................................................. 1,689 1,539 1,612 1,622 1993 ................................................. 1,713 1,478 1,574 1,713
Fluctuations in the exchange rates between the Italian lira and the U.S. dollar will affect the dollar equivalents of Guzzi Corp.'s, and, therefore, NAAC's reported revenues and earnings. Guzzi Corp. typically draws U.S. dollars against its short term credit lines approximately 80% of amounts invoiced in U.S. dollars, thus hedging against the effects of exchange rate changes between the invoice date and collection. Sales in U.S. dollars are less than 15% of total sales. All other sales are invoiced in lire. In addition, fluctuations in the exchange rates of other foreign countries relative to the lira may affect Guzzi Corp.'s and, therefore, NAAC's, results of operations as a consequence of the competitiveness of Guzzi Corp. relative to its competitors and due to effects on the cost of imported raw materials. See also "Management's Discussion and Analysis of Guzzi Corp.'s Financial Condition and Results of Operations." 26 THE ANNUAL MEETING This Proxy Statement/Prospectus is being furnished to holders of NAAC Common Stock in connection with the solicitation of proxies by the NAAC Board for use at the Annual Meeting to be held on [ ], at [ ] .m. local time, at [ ]. PURPOSE OF THE ANNUAL MEETING At the Annual Meeting, holders of NAAC Common Stock will be asked to consider and vote upon a proposal to approve the Merger Agreement and the Merger. Approval of this proposal is a condition to the consummation of the Merger pursuant to the Merger Agreement. See "The Merger Agreement--Conditions." Holders of NAAC Common Stock, voting together as a single class, also will be asked to consider and act upon (A) a proposal to approve the adoption of an Amended and Restated Certificate of Incorporation to effect a series of amendments to the Certificate of Incorporation: (a) to change the name of NAAC to "Moto Guzzi Corporation;" (b) to increase the total number of shares which NAAC will have authority to issue to Twenty Million (20,000,000), of which (i) 15 Million (15,000,000) shall be Class A Common Stock, par value $.01 per share, (ii) Two Hundred Fifty Thousand (250,000) shall be Class B Common Stock, par value $.01 per share, and (iii) Four Million Seven Hundred and Fifty Thousand (4,750,000) shall be preferred stock, par value $.01 per share, of which One Hundred (100) shall be designated Class A Convertible Preferred Stock and Three Hundred Fifty Thousand (350,000) shall be designated as Class B Convertible Preferred Stock; (c) to provide for classification of the Board of Directors into three classes serving staggered terms; (d) to require a vote of two-thirds of the outstanding stock to amend or repeal the by-laws, or by affirmative vote of a majority of the Board of Directors, subject to certain exceptions; (e) to provide that the affirmative vote of two-thirds of all stock shall be required to fill a vacancy in the Board of Directors created by an increase in the size thereof or by termination of a director if not otherwise filled by the remaining members of the Board of Directors; (f) to provide that members of the Board of Directors may be removed only for cause and only by action of the Board of Directors or upon the affirmative vote of two-thirds of all stock; and (g) to require NAAC to indemnify its officers and directors, subject to certain exceptions required by law, (B) the election of eight persons as the directors of NAAC to take office at the Effective Time, and (C) a proposal to approve the adoption of the Stock Option Plans. The Merger is contingent upon the approval by the holders of proposals A through C above. If the Merger is not consummated for any reason, no change will be made to the Certificate of Incorporation, the current directors will continue as the directors of NAAC and the Stock Option Plans will be terminated, notwithstanding stockholder approval of the proposals. Holders of NAAC Common Stock, voting as separate classes will be asked to approve the Class B Recapitalization. The consummation of the Merger is not contingent upon approval of the Class B Recapitalization; however, the Class B Recapitalization is conditioned on the approval and consummation of the Merger. If the Merger is not consummated, the Class B Recapitalization will not be implemented, notwithstanding stockholder approval. 27 VOTING RIGHTS The NAAC Board has fixed [ ] as the record date for the Annual Meeting. Only holders of record of NAAC Common Stock at the close of business on the Record Date will be entitled to notice of and to vote at the Annual Meeting. Each holder of record of NAAC Class A Common Stock on the Record Date is entitled to cast one vote for each share held on each proposal. Each holder of record of NAAC Class B Common Stock on the Record Date is entitled to cast two votes for each share held on each proposal including the proposal for the Class B Recapitalization on which the NAAC Class B Common Stock votes as a separate class. Other than on the proposal of the Class B Recapitalization, the NAAC Class A Common Stock and NAAC Class B Common Stock will vote on all matters as a single class. The vote of the NAAC Common Stock is exercisable by stockholders acting in person or by properly executed proxy at the Annual Meeting. As of the close of business on the Record Date, there were 906,000 shares of NAAC Class A Common Stock and 150,000 shares of NAAC Class B Common Stock outstanding and entitled to vote. The presence at the Annual Meeting, in person or by properly executed proxy, of the holders of a majority in interest of outstanding shares of NAAC Common Stock entitled to vote at the Annual Meeting will constitute a quorum. The presence at the Annual Meeting, in person or by properly executed proxy, of the holders of a majority in interest of outstanding shares of NAAC Class B Common Stock entitled to vote at the Annual Meeting will constitute a quorum for the proposal relating to the Class B Recapitalization. A NAAC stockholder who abstains from a vote on a particular proposal by registering an abstention will be deemed present at the Annual Meeting for quorum purposes, but will not be deemed to have voted on the particular matter. Proxies relating to "street name" shares that are voted by brokers on only some of the proposals will nevertheless be treated as present for purposes of determining the presence of a quorum on all matters but will not be entitled to vote on any proposal as to which the broker does not have discretionary voting power and has not received instructions from the beneficial owner ("broker non-votes"). If a quorum is present at the Annual Meeting, the affirmative vote by the holders of two-thirds of the outstanding shares of NAAC Common Stock is required to approve the Merger Agreement and the Merger; however, if the holders of more than 20% (160,000) of the outstanding shares of NAAC Class A Common Stock (excluding the Pre-IPO Shares) exercise their redemption rights, NAAC will not consummate the Merger. Under the DGCL, if a quorum is present at the Annual Meeting, those nominees for director receiving a plurality of the votes cast at the Annual Meeting will be elected as directors; if the Merger is not consummated, the current directors of NAAC will continue as directors. A "plurality" means that the nominees who receive the greatest number of votes are elected as the directors up to the maximum number of directors to be elected. If a quorum is present at the Annual Meeting, the affirmative vote of the holders of a majority in interest of outstanding shares of NAAC Common Stock is required to approve the amendments to the Certificate of Incorporation and the affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote at the Annual Meeting is required to approve the Stock Option Plans. If a quorum of the NAAC Class B Common Stock is present at the Annual Meeting, the affirmative vote of the holders of a majority in interest of the outstanding shares of NAAC Class B Common Stock is required to approve the Class B Recapitalization. Abstentions may be specified on the proxy card as to each of the proposals to approve the Merger Agreement and the Merger, to elect the nominees to the NAAC Board, to approve the amendments to the Certificate of Incorporation, to approve the Stock Option Plans and, solely for the NAAC Class B Common Stock, to approve the Class B Recapitalization. Holders of NAAC Common Stock who abstain will be considered present and entitled to vote at the Annual Meeting, but will not be counted as votes cast in the affirmative. Abstentions on the proposal to approve the Merger Agreement and the Merger will have the effect of a negative vote because this proposal requires the affirmative vote of two-thirds in interest of the outstanding shares of NAAC Common Stock. Abstentions on the proposal to approve the amendments to the Certificate of Incorporation will have the effect of a negative vote because this proposal requires the affirmative vote of a majority in interest of the outstanding shares of NAAC Common Stock. Abstentions on the proposal to elect directors will have no effect because they are not counted for the purposes of determining a plurality. Abstentions on the proposal to approve the Stock Option Plans will have the effect of a negative vote because this proposal requires the affirmative vote of a majority in interest of the shares present in person or represented by proxy at the Annual Meeting. Abstentions on the proposal to approve the Class B Recapitalization will have the effect of a 28 negative vote because this proposal requires the affirmative vote of a majority in interest of the outstanding shares of NAAC Common Stock and NAAC Class B Common Stock voting separately as a class. Broker non-votes on the proposal to approve the Merger Agreement and the Merger will have the effect of a negative vote because this proposal requires the affirmative vote of two-thirds in interest of the outstanding shares of NAAC Common Stock. Broker non-votes on the proposals to approve the amendments to the Certificate of Incorporation will have the effect of a negative vote because this proposal requires the affirmative vote of a majority in interest of the outstanding shares of NAAC Common Stock. Broker non-votes on the proposals to elect directors will have no effect on the vote because directors are elected by a plurality of the votes cast. Broker non- votes on the proposal to approve the Stock Option Plan will have no effect on the vote because the shares will not be considered entitled to vote on matters as to which the brokers withhold authority. Broker non-votes on the proposal to approve the Class B Recapitalization will have the effect of a negative vote because this proposal requires the affirmative vote of a majority in interest of the outstanding shares of NAAC Common Stock and NAAC Class B Common Stock voting separately as a class. The Initial NAAC Stockholders have agreed to vote their Pre-IPO Shares (approximately 11.7% of the outstanding shares of NAAC Class A Common Stock) in accordance with the vote of the majority in interest of all other holders of NAAC Common Stock on the proposal to approve the Merger Agreement and the Merger. For this purpose they have given their proxy to the officers of NAAC. SOLICITATION AND REVOCATION OF PROXIES All shares of NAAC Common Stock represented at the Annual Meeting by properly executed proxies received prior to or at the Annual Meeting, and not revoked, will be voted at the Annual Meeting in accordance with the instructions indicated on such proxies. Holders of NAAC Class A Common Stock will be asked to use proxies on white cards. Holders of NAAC Class B Common Stock will be asked to use proxies on blue cards. IF NO INSTRUCTIONS ARE INDICATED, SUCH PROXIES WILL BE VOTED FOR EACH OF THE DIRECTOR NOMINEES AND "FOR" EACH OF THE OTHER PROPOSALS TO BE VOTED ON AT THE ANNUAL MEETING. The NAAC Board is not aware of any other matters which are to come before the Annual Meeting. If any other matters are properly presented at the Annual Meeting for consideration, the persons named in the enclosed proxy card will have discretion to vote on such matters in accordance with their best judgment. Any proxy given pursuant to this solicitation can be revoked by the person giving it at any time before it is voted. Proxies can be revoked by (i) filing with the President of NAAC, at or before the taking of the vote at the Annual Meeting, a written notice of revocation bearing a later date than the proxy, (ii) duly executing a subsequent proxy relating to the same shares and delivering it to the President of NAAC before the Annual Meeting or (iii) attending the Annual Meeting and voting in person (although presence at the Annual Meeting without further action will not revoke a proxy). Any written notice revoking a proxy should be sent to: North Atlantic Acquisition Corp., 5 East 59th Street, New York, New York 10022, Attention: President, or hand delivered to the President at or prior to the vote at the Annual Meeting. REDEMPTION RIGHTS Holders of up to 20% or 160,000 shares, of the outstanding NAAC Class A Common Stock (excluding the Pre-IPO Shares) have the right to have NAAC redeem their shares for cash if the Merger is approved and consummated provided they follow the procedure set forth below. The per-share redemption price will be $[ ]. A holder of NAAC Class A Common Stock (excluding the Pre-IPO Shares) as of the Record Date can give notice of his intention to have NAAC redeem such stockholder's shares until the close of business on [ ] the twentieth day prior to date of the Annual Meeting. A stockholder desiring to exercise the right of redemption (a "Redeeming Stockholder") must deliver a written demand for redemption to NAAC ("Redemption Notice"). The failure of a Redeeming Stockholder to satisfy the notice requirement in the specified time limit will terminate the Redeeming Stockholder's redemption right. A stockholder who purchases shares of NAAC Common Stock after the Record Date will not have a redemption right with respect to such shares. The Redemption Notice must state that the Redeeming Stockholder demands that all or a portion of such stockholder's shares be redeemed if the Merger is consummated and specify the number of shares for which 29 redemption has been requested by such stockholder and the address to which a letter of transmittal and instructions regarding redemption should be sent. The Redemption Notice must be signed by the Redeeming Stockholder (or such stockholder's duly authorized representative) exactly as the holder's name appears on the proxy card accompanying this Proxy Statement. A demand for redemption of shares owned jointly by more than one person must identify and be signed by all of such holders. Any person signing a demand for redemption on behalf of a partnership or a corporation or in any representative capacity (such as attorney-in-fact, executor, administrator, trustee or guardian) must indicate such individual's title and, if NAAC so requests, furnish written proof of such person's capacity and authority to sign the demand. Because only holders of record may exercise redemption rights, persons who beneficially own shares held of record by fiduciaries, nominees or others (e.g., "street name") who wish to exercise their redemption rights must instruct the record holders of their shares to satisfy the conditions described herein. NAAC must receive Redemption Notices no later than the close of business on [ ], at the following address: North Atlantic Acquisition Corp., 5 East 59th Street, New York, New York 10022, Attention: President. Redeeming Stockholders should send the Redemption Notice in a manner that assures such notice is received by NAAC by such time and provides a record of delivery. Upon timely receipt of a properly completed Redemption Notice, NAAC will mail to the Redeeming Stockholder a letter of transmittal and instructions to be used by such holder in forwarding certificates representing shares to be redeemed ("Certificates"). A Redeeming Stockholder should retain such stockholder's Certificates pending consummation of the Merger and receipt of instructions from NAAC on how and when to dispose of the Certificates and receive the redemption consideration, and should not deliver such Certificates to NAAC. Instructions will be provided to Redeeming Stockholders promptly following consummation of the Merger. Thereafter, NAAC will distribute to each Redeeming Stockholder an amount equal to the redemption price multiplied by the number of shares for which redemption has been requested by such Redeeming Stockholder. Upon NAAC's payment of the aggregate redemption consideration, Redeeming Stockholders will cease to have any interest for such shares. A Redeeming Stockholder may withdraw a demand for redemption at any time prior but not subsequent to the Annual Meeting. NAAC stockholders have no appraisal or dissenter's rights with respect to the Merger. NAAC LIQUIDATION IF NO BUSINESS COMBINATION If a Business Combination is not consummated by August 22, 1999, NAAC will be dissolved and will distribute to holders of NAAC Class A Common Stock in respect of their shares (excluding the Pre-IPO shares) the amount in the Escrow Account, including interest earned thereon, divided by the number of shares of NAAC Common Stock held by stockholders entitled to share in the Escrow Account. Following such redemption of NAAC Class A Common Stock, each outstanding share of NAAC Class B Common Stock will be exchanged for two shares of NAAC Class A Common Stock. The assets of NAAC (other than the escrowed assets) will be used to pay NAAC's liabilities and to redeem NAAC's outstanding Series A Preferred Stock at its liquidation value. The Initial NAAC Stockholders do not have the right to participate in any liquidating distribution with respect to their Pre-IPO Shares prior to consummation of a Business Combination. Any liquidation would occur after notice from NAAC to the trustee which would then commence liquidating the Escrow Account and distribute the proceeds to NAAC's transfer agent for distribution to stockholders. NAAC has incurred costs of $268,000 through May 31, 1998 in connection with evaluating various Target Businesses and operating expenses and is incurring additional costs in connection with the Merger. In the event NAAC is liquidated, its non-Escrow Account assets may not be sufficient to pay all of its accounts payable and accrued expenses. See "Management's Discussion and Analysis of NAAC's Financial Condition and Results of Operations." SOLICITATION OF PROXIES In addition to solicitation by mail, directors and officers of NAAC listed under "Proposal 4: Election of Directors" may solicit proxies by telephone, facsimile or telegram or in person. Arrangements will also be made with brokerage houses and other custodians, nominees and fiduciaries for the forwarding of solicitation material to the beneficial owners of stock held of record by such persons, and NAAC will reimburse such custodians, nominees and fiduciaries for reasonable out-of-pocket expenses in connection therewith. 30 [ ] will assist in the solicitation of proxies by NAAC for a fee of approximately [$ ], plus reasonable out-of-pocket expenses. PROPOSAL 1: THE MERGER BACKGROUND OF THE MERGER On August 23, 1997, NAAC initiated efforts to select and evaluate Target Businesses. In the ensuing eleven months, NAAC analyzed approximately 60 companies, and held discussions in respect of a Business Combination with representatives of approximately 30 companies. NAAC ultimately determined not to proceed with any of these businesses. In March 1998, the executives of NAAC and Guzzi Corp. commenced discussions leading to a proposal to merge Guzzi Corp. into NAAC, with NAAC as the surviving corporation. Guzzi Corp. indicated its interest in entering into the Merger for a number of reasons. In the fourth quarter of 1997, Guzzi Corp. had examined several alternative means to obtain capital needed to modernize the Mandello facility and to achieve the sales growth it desired, including the private and public securities markets, and had communications with numerous commercial and investment banks. A merger with NAAC was considered because it was believed that it would provide it with a timely and cost-effective method of securing the needed financing. Guzzi Corp. did not seek or obtain an independent valuation of its own assets, capital or financial condition. During the following months, until the signing of the Merger Agreement, each of the parties or its agents reviewed the assets, capital and financial condition of the other and negotiated the terms of the Merger Agreement and ancillary agreements. NAAC also sent its financial advisors and accountants and personnel to Italy to review the facilities, operations and records of Guzzi Corp. On July 23, 1998, the NAAC Board considered the principal terms of the Merger Agreement and the related documentation, and approved (i) the Merger Agreement in draft form as of such date, with such changes as approved by the officers of NAAC as they deemed to be in the best interests of NAAC (ii) the amendments to the Certificate of Incorporation (a) to change the name of NAAC to "Moto Guzzi Corporation;" (b) to increase the total number of shares which NAAC will have authority to issue to Twenty Million (20,000,000), of which (A) 15 Million (15,000,000) shall be Class A Common Stock, par value $.01 per share, (B) Two Hundred Fifty Thousand (250,000) shall be Class B Common Stock, par value $.01 per share, and (C) Four Million Seven Hundred and Fifty Thousand (4,750,000) shall be preferred stock, par value $.01 per share, of which One Hundred (100) shall be designated Class A Convertible Preferred Stock and Three Hundred Fifty Thousand (350,000) shall be designated as Class B Convertible Preferred Stock; (c) to require a vote of two-thirds of the outstanding stock to amend or repeal the by-laws, or by affirmative vote of a majority of the Board of Directors, subject to certain exceptions; (d) to provide for classification of the Board of Directors into three classes serving staggered terms; (e) to require NAAC to indemnify its officers and directors, subject to certain exceptions required by law; (f) to provide that the affirmative vote of two-thirds of all stock shall be required to fill a vacancy in the Board of Directors created by an increase in the size thereof or by termination of a director if not otherwise filled by the remaining members of the Board of Directors; and (g) to provide that members of the Board of Directors may be removed only for cause and only by action of the Board of Directors or upon the affirmative vote of two-thirds of all stock, (iii) the nomination of eight persons to be elected to the NAAC Board to hold office commencing upon consummation of the Merger, (iv) the Stock Option Plans, and (v) the Class B Recapitalization. The NAAC Board also approved the issuance of NAAC Class A Common Stock, NAAC Class B Preferred Stock and Nominal Warrants for the contribution of intercompany debt by TRG and OAM to the capital of Guzzi Corp. and the issuance of NAAC Class A Common Stock, NAAC Class B Preferred Stock and Nominal Warrants for the cancellation of the Guzzi Warrants. The NAAC Board voted to recommend unanimously that the stockholders of NAAC vote in favor of each proposal requiring the vote of the holders of NAAC Common Stock and for the nominees for directors. The negotiations for the Merger Agreement were concluded on August 18, 1998 and the Merger Agreement and certain related agreements were executed. NAAC and Guzzi Corp. announced the execution of the agreement and certain of its terms through press releases issued on August 18, 1998. 31 REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARD OF DIRECTORS In making its determination to approve the Merger Agreement and the Merger, the NAAC Board reviewed and discussed the results of management's due diligence investigation, and analyzed the business opportunities for NAAC and certain factors relevant to the proposed transaction. The NAAC Board gave weight to the long history of Moto Guzzi, the stature of the trademark of the Moto Guzzi name, customer loyalty and the reputation of Moto Guzzi products. The NAAC Board also gave weight to the reorganization efforts and investment of approximately Lit. 18.8 billion ($10.6 million) into Moto Guzzi by TRG since 1994. The fact that the management of Moto Guzzi had been strengthened by new employees and consultants was also a positive factor. The increase in the annual production from a low of approximately 3,300 units in 1993 to approximately 5,600 units in 1997, the market acceptance of the "Nevada" and "California" cruiser motorcycles and a sport motorcycle and the Company's plans for an off-road cycle and its consideration of developing a scooter were also considered. The fact that Moto Guzzi was investing in new production machinery, introducing new designs, and entering into a design agreement for new engines were significant in the consideration of the NAAC Board. The NAAC Board then examined other companies in the motorcycle industry to evaluate the pricing of the proposed transaction and the overall potential for the industry in the immediate future. The NAAC Board also considered the general improvement in the market for motorcycles and how they are becoming a leisure activity apart from being a simple source of transportation. The NAAC Board considered the principal risks associated with the proposed transaction. Although Moto Guzzi had commenced a turnaround of its manufacturing and marketing, it was acknowledged that there were many things to be done in the future to complete the proposed business plan and make Moto Guzzi a profitable enterprise. The NAAC Board considered various risks related to the production facilities. These included the risks associated with the expense and needed investment in machinery and the expense of maintaining the old facilities, including environmental factors. One of the principal risks examined was Moto Guzzi's financial condition and the need for the capital of NAAC and future financings. The NAAC Board evaluated the projected capital requirements and the potential sources of financing, including the possible sale of certain acquired assets, the exercise of outstanding NAAC Class A Warrants, bank loans from Italian institutional lenders and the capital markets. The NAAC Board also considered the consequences of Moto Guzzi being unable to find adequate funding for its currently proposed business plan. The cyclicality of the motorcycle industry and the growing reliance on sales of higher-end units to persons with greater disposable incomes available for leisure activities were considered. The NAAC Board also considered the sources of competition and the impact of competition on Moto Guzzi with particular reference to the need to expand its product offerings and the timing of the development of the proposed products. The NAAC Board considered the recurrent problems of Moto Guzzi in obtaining parts from suppliers, the limited number of suppliers for some essential parts, labor unrest and the importance of certain public entity procurement programs, primarily in Italy. The NAAC Board then considered the risks related to owning and operating a business located in a foreign country with approximately 63% of its current sales in many countries other than Italy. Among the specific factors considered were the differences between financial reporting in United States dollars, using United States GAAP as compared to the financial reporting by Guzzi Corp. in Italian lire, currency translation and currency risks, the advent of the Euro, the ability to find financing for foreign enterprises, the Italian labor and other regulatory regimes which are considered substantially different than those of the United States, the likelihood of communication differences and difficulties, and various import and export requirements. In view of the variety of factors considered, the NAAC Board did not find it practicable to quantify or otherwise attempt to assign relative weights to the specific factors considered in making its determination. Consequently, it did not quantify the assumptions and results of its analysis in reaching its determination that the Merger Agreement and the Merger are in the best interests of NAAC and its stockholders. However, as a general matter, the NAAC Board believed that the favorable factors about the business of Moto Guzzi supported its decision to approve the Merger Agreement and outweighed the various risk factors. The NAAC Board concluded that, notwithstanding the potentially negative factors, a Business Combination with Guzzi Corp. is in the best 32 interests of NAAC and its stockholders and is consistent with NAAC's business objective of effecting a Business Combination with a suitable Target Business. In reaching its conclusion to approve the Merger Agreement and the Merger, the NAAC Board also was aware of certain conflicts of interest of NAAC's directors and officers, including that unless NAAC consummates the Merger, such persons' Pre-IPO Shares and NAAC Management Options would have no value and Mr. David J. Mitchell would not be in a position to benefit from a future consulting arrangement dependent on the Merger being consummated. See "Proposal 1: The Merger--Conflicts of Interest." The NAAC Board did not consider liquidation as an alternative business strategy to consummating the Merger because it believed that the Merger is in the best interests of NAAC and its stockholders and is consistent with NAAC's business objective of effecting a Business Combination with a suitable Target Business. FAIRNESS OPINION OF ALLEN & COMPANY On July 23, 1998, Allen & Company delivered to NAAC's Board of Directors its written opinion to the effect that, as of such date, the terms of the Merger are fair, from a financial point of view, to the holders of NAAC Class A Common Stock. The full text of the written opinion of Allen & Company, dated July 23, 1998, is set forth as Annex II to this Proxy Statement/Prospectus and describes the assumptions made, matters considered and limits on the review undertaken. The holders of NAAC Class A Common Stock are urged to read the opinion in its entirety. Allen & Company's opinion is directed only to the fairness, from a financial point of view, of the terms of the Merger and does not constitute a recommendation of the Merger over other courses of action that may be available to NAAC or constitute a recommendation to any holder of NAAC Class A Common Stock concerning how such holder should vote with respect to the Merger. The summary of the opinion of Allen & Company set forth in this Proxy Statement/Prospectus is qualified in its entirety by reference to the full text of such opinion. In arriving at its opinion, Allen & Company (i) reviewed the terms and conditions of the Merger, including the draft Merger Agreement and the draft agreements ancillary thereto (none of which prior to the delivery of Allen & Company's opinion had been executed by the parties); (ii) analyzed publicly available historical business and financial information relating to NAAC, as presented in documents filed with the Securities and Exchange Commission; (iii) analyzed certain historical business and financial information relating to Guzzi Corp. furnished by Guzzi Corp.; (iv) reviewed certain financial forecasts and other data provided to Allen & Company by Guzzi Corp. relating to its business; (v) conducted discussions with certain members of the senior management of NAAC and Guzzi Corp. with respect to the financial condition, business operations, strategic objectives and prospects of NAAC and Guzzi Corp., as well as trends prevailing in Guzzi Corp.'s industry; (vi) reviewed and analyzed public information, including certain stock market data and financial information relating to selected public companies in lines of business which Allen & Company believed to be comparable to Guzzi Corp.'s; (vii) reviewed trends in the motorcycle industry; (viii) reviewed the trading history, market data and financial information of selected companies in industries comparable to that of Guzzi Corp.; (ix) reviewed public financial and transaction information relating to merger and acquisition transactions Allen & Company deemed to be comparable to the Merger; and (x) conducted such other financial analyses and investigations and reviewed such other materials as Allen & Company deemed necessary or appropriate for the purposes of the opinion expressed therein. In connection with its review, Allen & Company assumed and relied on the accuracy and completeness of the information it reviewed for the purpose of its opinion and did not assume any responsibility for independent verification of such information or for any independent evaluation or appraisal of the assets of NAAC or Guzzi Corp. With respect to Guzzi Corp.'s financial forecasts, Allen & Company assumed that they had been reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of Guzzi Corp., and Allen & Company expressed no opinion with respect to such forecasts or the assumptions on which they were based. Allen & Company's opinion was necessarily based upon business, market, economic and other conditions as they existed on, and could be evaluated as of, the date of its opinion. Allen & Company's opinion does not imply any conclusion as to the likely trading range of the NAAC Class A Common Stock following the consummation of the Merger, which may vary depending on, among other factors, changes in 33 interest rates, dividend rates, market conditions, general economic conditions and other factors that generally influence the price of securities. The following is a summary of the presentation made by Allen & Company to the NAAC Board of Directors in connection with the rendering of Allen & Company's fairness opinion: Transaction Overview and Analysis. Allen & Company presented an overview of the proposed transaction, including an analysis of the pro forma ownership of the combined entity resulting from the Merger and Guzzi Corp.'s historical operating results for the two years ended December 31, 1997 and its projected operating results for the five years ending December 31, 1998 through 2002. While noting that there were few publicly traded companies directly comparable to Guzzi Corp., Allen & Company performed a comparable company analysis by comparing Guzzi Corp.'s operating results to the operating results of Harley-Davidson, Inc. ("HDI"). Utilizing certain of HDI's trading multiples based upon projected 1998 operating results and based upon Guzzi Corp.'s projected operating results for such period, Allen & Company's analysis yielded a total enterprise value (the recent value of all equity securities plus long-term debt less cash) for Guzzi Corp. of between $63.8 million and $99.5 million. In addition, Allen & Company considered the enterprise values of two development-stage companies, Excelsior-Henderson Motorcycle Manufacturing Company, a company publicly traded on Nasdaq (approximately $110.4 million), and Norton Motors International Inc., a company which had filed a registration statement for an initial public offering (approximately $69.7 million, based upon the midpoint of the assumed offering range). Allen & Company also performed a discounted cash flow analysis of Guzzi Corp. based upon projections provided by Guzzi Corp. management and utilizing certain other assumptions made by Allen & Company. The discounted cash flow valuation of Guzzi Corp. was determined by adding (i) the present value of projected unleveraged cash flow valuation of Guzzi Corp. through 2003 and (ii) the present value of Guzzi Corp.'s terminal value in the year 2003. The range of terminal values for Guzzi Corp. was calculated by applying a range of multiples (from 6.0x to 8.0x) to Guzzi Corp.'s projected EBITDA. The cash flows and terminal values of Guzzi Corp. were discounted to present value using different discount rates (from 11.0% to 13.0%), chosen to reflect various assumptions regarding costs of capital. Based upon this analysis, Allen & Company derived a range of enterprise values for Guzzi Corp. of between approximately $147.7 million and $208.2 million. Allen & Company reviewed and analyzed certain financial and stock market information relating to selected merger transactions occurring in the motorcycle industry since July 1996 (the "Industry Transactions"). Allen & Company noted that the lack of available publicly disclosed information concerning the Industry Transactions limited its ability to use such transactions in evaluating the Merger. Based upon the analyses of Allen & Company described above, Allen & Company noted that the average range of enterprise values for Guzzi Corp. was from approximately $94 million to $139 million. Allen & Company noted that such valuation range would imply a value for each share of NAAC Class A Common Stock following the Merger of between approximately $11.26 and $16.07. Allen & Company also noted that such implied valuation range would exceed the approximately $10.00 plus accrued interest thereon which the holders of NAAC Class A Common Stock would be entitled to receive upon the exercise of their redemption right. No company used in the comparable company analyses summarized above is identical to Guzzi Corp., and no transaction used in the comparable transaction analysis summarized above is identical to the Merger. Accordingly, any such analysis of the value of the consideration to be paid by NAAC pursuant to the Merger involves complex considerations and judgments concerning differences in the potential financial and operating characteristics of the comparable companies and transactions and other factors in relation to the trading and acquisition values of the comparable companies. The preparation of a fairness opinion is not susceptible to partial analysis or summary description. Allen & Company believes that its analyses and the summary set forth above must be considered as a whole and that selecting portions of its analyses and the factors considered by it, without considering all analyses and factors, could create an incomplete view of the processes underlying the analysis set forth in its opinion. Allen & Company has not indicated that any of the analyses which it performed had a greater significance than any other. 34 In determining the appropriate analyses to conduct and when performing those analyses, Allen & Company made numerous assumptions with respect to industry performance, general business, financial, market and economic conditions and other matters, many of which are beyond the control of NAAC or Guzzi Corp. The analyses which Allen & Company performed are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than suggested by such analyses. Such analyses were prepared solely as part of Allen & Company's analysis of the fairness, from a financial point of view, of the terms of the Merger to the holders of NAAC Class A Common Stock. The analyses do not purport to be appraisals or to reflect the prices at which a company might actually be sold or the prices at which any securities may trade at the present time or at any time in the future. Allen & Company is a nationally recognized investment banking firm that is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive bids, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. NAAC retained Allen & Company based on such qualifications as well as its familiarity with NAAC. In addition, as a part of its investment banking and securities trading business, Allen & Company may hold positions in and trade in the securities of NAAC from time to time. NAAC entered into a letter agreement with Allen & Company as of May 4, 1998 (the "Engagement Letter"), pursuant to which Allen & Company agreed to act as NAAC's financial advisor in connection with the Merger and to render an opinion as to the fairness from a financial point of view of the terms of the Merger to the holders of NAAC Class A Common Stock. Pursuant to the Engagement Letter, NAAC agreed to pay Allen & Company a fee of $100,000 earned upon the delivery of its written fairness opinion to the NAAC Board of Directors and payable at the Effective Time. In addition, upon the closing of the Merger, NAAC has agreed pursuant to the Engagement Letter to issue to Allen & Company a warrant to purchase 350,000 shares of NAAC Class A Common Stock at an exercise price of $10.00 per share, which warrant may be exercisable at any time prior to July 1, 2003. The shares of NAAC Class A Common Stock issuable upon the exercise of such warrant may not be sold by Allen & Company prior to July 1, 2000. Whether or not the Merger is consummated, NAAC has agreed, pursuant to the Engagement Letter, to reimburse Allen & Company for all its out-of-pocket expenses up to $10,000, including the fees and disbursements of its counsel, incurred in connection with its engagement by NAAC and to indemnify Allen & Company against certain liabilities and expenses in connection with its engagement. CONFLICTS OF INTEREST Members of the NAAC Board and management have various conflicts of interest arising out of their ownership of NAAC Class A Common Stock and the NAAC Management Options and the possible consulting arrangement for Mr. Mitchell upon consummation of the Merger. The NAAC Board was aware of these interests when it approved the Merger Agreement and the Merger. 35 Each of the current directors and executive officers of NAAC owns Pre-IPO Shares which were acquired for an aggregate of $4,000 (or approximately $.10 per share). As of August 18, 1998, all directors and executive officers of NAAC as a group owned a total of 40,000 shares of NAAC Common Stock. Two directors of NAAC, Messrs. Mitchell and McMillen, also have Class B Options to purchase an aggregate of 30,000 shares of NAAC Class B Common Stock at an exercise price of $10.00 per share, which they have agreed to exercise as of the Effective Time of the Merger, and Class A Options to purchase an aggregate of 100,000 units, each unit consisting of one share of NAAC Class A Common Stock and one NAAC Class A Warrant, at an exercise price of $12.50 per unit, until the third anniversary of the Merger. NAAC has agreed to register the securities to be issued on the exercise of the Class A Options as soon as practicable after the Merger. If NAAC is liquidated as a result of its failure to consummate a Business Combination by August 22, 1999, the current directors and executive officers of NAAC would not participate in any distribution of assets with respect to their Pre-IPO Shares. Thus, unless NAAC consummates the Merger or another Business Combination, such persons' securities of NAAC will have no value. If the Merger or another Business Combination is consummated thereafter, such persons would participate in any subsequent liquidation of NAAC on the same base as other security holders of NAAC. David J. Mitchell will be engaged as a consultant after the Merger and as compensation for his services will be granted an option to purchase 30,000 shares of NAAC Class A Common Stock. The option will vest one third on the date of grant and one third each on succeeding anniversaries of the date of grant and will be exercisable at the fair market value of the NAAC Class A Common Stock on the date of grant for a period of ten years after the date of grant. In addition, as a member of the NAAC Board after the Merger, Mr. Mitchell will be granted options to purchase 12,500 shares of NAAC Class Common Stock for each year of service, exercisable for ten years at the price of a share in the public market on the date of grant. If the Merger is not approved, these options will not be granted. USE OF FUNDS AVAILABLE UPON CONSUMMATION OF THE MERGER In connection with the IPO, NAAC received net proceeds of approximately $8,100,000 after payment of offering expenses. As of July 31, 1998, the Escrow Account contained $8,422,500 which, together with any interest earned since that date, will be disbursed to NAAC upon consummation of the Merger and, among other things, will be used (i) to finance the Merger, (ii) to satisfy the redemption rights of NAAC stockholders, and (iii) for working capital of Guzzi Corp. See "Management's Discussion and Analysis of Guzzi Corp.'s Financial Condition and Results of Operations." If the Merger is consummated and the maximum number of shares of NAAC Class A Common Stock (other than the Pre-IPO Shares) entitled to be redeemed without preventing the Merger are in fact converted (160,000 shares), the amount of funds available to NAAC following consummation of the Merger would be reduced by approximately $[ ]. Additionally, there are currently outstanding NAAC Class A Warrants to purchase an aggregate of 800,000 shares of NAAC Class A Common Stock which will be increased to 1,160,000 shares of NAAC Class A Common Stock if the Class B Recapitalization is approved and effected, exercisable at $9 per share. If the trading price of the Class A Common Stock exceeds $11 for 10 consecutive trading days, the Class A Warrants may be redeemed by NAAC for $.05 per warrant unless earlier exercised. Exercise of such warrants will provide gross proceeds to NAAC of $10,440,000. An additional 243,333 Class A Warrants, each exercisable to purchase a share of Class A Common Stock at $9 per share, may be issued upon exercise of existing warrants or options. Pending consummation of the Merger, but prior to the mailing of this Proxy Statement/Prospectus, Guzzi Corp. may, with NAAC's approval, secure interim equity or debt financing which shall be repaid upon consummation of the Merger. 36 CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO NAAC STOCKHOLDERS The following discussion summarizes the material Federal income tax consequences to NAAC stockholders (i) whose stock is redeemed in accordance with the procedures set forth in this Proxy Statement or (ii) who receive a distribution upon dissolution of NAAC if a Business Combination is not consummated by August 22, 1999. This summary does not discuss all relevant aspects of Federal income taxation and thus, for example, may not be applicable to NAAC stockholders who are not U.S. citizens or residents; nor does it address the effect of any applicable state, local, foreign or other tax laws. The discussion assumes that each NAAC stockholder holds such stock as a capital asset within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended ("Code"). If a NAAC stockholder exercises the redemption right, redemption will result in a complete termination of such stockholder's interest in the NAAC Class A Common Stock being redeemed and will be treated as a sale or exchange for Federal income tax purposes. If NAAC dissolves, the distribution in complete liquidation of NAAC also will be treated as a sale or exchange for Federal income tax purposes. In either case, a NAAC stockholder will recognize capital gain or loss in an amount equal to the difference between the amount realized (the amount received from NAAC with respect to such stockholder's shares upon redemption or liquidation) and such stockholder's adjusted tax basis. Such gain or loss will be long-term capital gain or loss if such stockholder has held such shares for more than one year. Unless a NAAC stockholder complies with certain reporting and/or certification procedures or is an exempt recipient under applicable provisions of the Code and Treasury Regulations promulgated thereunder, such stockholder may be subject to "backup" withholding tax of 31% with respect to the amount received upon redemption or liquidation. Foreign stockholders should consult with their tax advisors regarding withholding taxes in general. NAAC STOCKHOLDERS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS WITH RESPECT TO FEDERAL, STATE, LOCAL, FOREIGN OR OTHER TAX CONSEQUENCES OF THE REDEMPTION OF NAAC CLASS A COMMON STOCK OR LIQUIDATION OF NAAC. CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO GUZZI CORP. SHAREHOLDERS The following discussion of certain federal income tax consequences of the Merger to the shareholders of Guzzi Corp. does not address all aspects of federal income taxation that may be relevant to a particular Guzzi Corp. shareholder in light of his personal investment circumstances and to certain types of shareholders subject to special treatment under the federal income tax laws (for example, insurance companies, tax exempt organizations, financial institutions or broker-dealers or persons who are not citizens or residents of the United States or who are foreign corporations, foreign partnerships or foreign estates or trusts) and does not discuss any aspects of state, local or foreign taxation. Further, this discussion assumes that all Guzzi Corp. shareholders will hold their shares of NAAC Class A Common Stock, Class B Preferred Stock and Nominal Warrants as capital assets as of the date of the Merger. There can be no assurance that the Internal Revenue Service (the "IRS") will not take a contrary view to those statements and conclusions expressed herein. Moreover, legislative, judicial or administrative changes or interpretations may be forthcoming that could alter or modify the statements and conclusions set forth herein. Any such changes or interpretations may or may not be retroactive and could affect the tax consequences to Guzzi Corp. shareholders. EACH GUZZI CORP. SHAREHOLDER IS URGED TO CONSULT HIS OWN TAX ADVISER AS TO THE PARTICULAR TAX CONSEQUENCES TO HIM OF THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL AND FOREIGN TAX LAWS, AND OF CHANGES IN APPLICABLE TAX LAWS. 37 It is expected that the Merger of Guzzi Corp with and into NAAC will qualify as a "reorganization" within the meaning of Section 368(a)(1) of the Code, in which event the following federal income tax consequences will obtain: 1. Both Guzzi Corp. and NAAC will be parties to the reorganization within the meaning of Section 368(b) of the Code. 2. No gain or loss will be recognized by Guzzi Corp. or NAAC solely by reason of such Merger. 3. No gain or loss will be recognized by holders of Guzzi Common Stock and Guzzi Preferred Stock as a result of the exchange of such shares, pursuant to the Merger, for NAAC Class A Common Stock, NAAC Class B Preferred Stock and Nominal Warrants, except that: (a) a Guzzi Corp. shareholder who receives cash in lieu of fractional shares will be treated as if such cash had been received in redemption for such fractional shares, such redemption being treated either as a sale or exchange resulting in capital gain or loss treatment, or, alternatively, as a dividend, depending upon each Guzzi Corp. shareholder's particular facts and circumstances; and (b) a portion of the NAAC Class A Common Stock to be received upon the exercise of the Nominal Warrants will likely be treated as taxable interest income upon such exercise. 4. The aggregate tax basis of the NAAC Class A Common Stock, NAAC Class B Preferred Stock and Nominal Warrants received in the Merger will be the same as the aggregate tax basis of the Guzzi Common Stock and Guzzi Preferred Stock surrendered in exchange therefor. 5. The holding period for the NAAC Class A Common Stock, NAAC Class B Preferred Stock and Nominal Warrants received in the Merger will include the period during which the Guzzi Common Stock and Guzzi Preferred Stock surrendered in exchange therefor were held. If the Merger were not to constitute a reorganization under Section 368(a)(1) of the Code, then (A) Guzzi Corp. would be treated as if it had sold all of its assets to NAAC at their fair market values and would recognize taxable gain equal to the excess of such values over Guzzi Corp.'s tax basis in such assets; and (B) the Guzzi Corp. shareholders would be treated as if they had received a distribution in complete liquidation of Guzzi Corp. and, in general, each would recognize taxable gain or loss equal to the difference between (i) the fair market value of the NAAC Class A Common Stock, the NAAC Class B Preferred Stock and the Nominal Warrants received in the merger, and (ii) his basis in his Guzzi Common Stock and Guzzi Preferred Stock surrendered in the Merger. The basis in the NAAC Class A Common Stock, NAAC Class B Preferred Stock and Nominal Warrants received in such case would be equal to their fair market values on the date of the merger. ACCOUNTING TREATMENT The Merger will be treated as a reverse acquisition of NAAC by Guzzi Corp. In a reverse acquisition, the shareholders of the surviving corporation will own, after the Merger, less than 50% of the post-Merger shares. The shareholders of Guzzi Corp. will receive approximately 80.8% of the post-Merger shares of NAAC, including NAAC Class A Common Stock underlying the NAAC Class B Preferred Stock and excluding any shares of NAAC Class A Common Stock issuable upon exercise of any options or warrants, and Guzzi Corp. therefore will be the accounting acquiror. The cost of the acquisition of NAAC will be based on the fair value of NAAC's assets and liabilities as of the date of the Merger (which amounts approximate the book value). As a result of the reverse acquisition of NAAC by Guzzi Corp., the historical financial statements of the surviving corporation for periods prior to the Merger will be those of Guzzi Corp. rather than those of NAAC. See "Unaudited Pro Forma Balance Sheets." Since all of the production, and much of the sales of Moto Guzzi, and, therefore, of Guzzi Corp., occur in Italy, Guzzi Corp.'s primary financial statements are reported in Italian Lire, its functional currency as defined by generally accepted accounting principles. The merged company will report results in Italian lire and, from a future date to be determined in the Euro. See "Risk Factors--Exposure of results to change in Exchange Rates," and "--Adoption and Implementation of Euro." RESALE OF NAAC CLASS A COMMON STOCK; AFFILIATES All shares of NAAC Class A Common Stock, NAAC Class B Preferred Stock and Nominal Warrants, and, upon conversion or exercise of the NAAC Class B Preferred Stock and Nominal Warrants, respectively, the NAAC Class A Common Stock received by holders of Guzzi Common Stock and Guzzi Preferred Stock in the 38 Merger, will be freely transferrable, except that NAAC Class A Common Stock, NAAC Class B Preferred Stock and Nominal Warrants and the underlying securities received by persons who are deemed to be "affiliates" (as such term is defined under the Securities Act) of NAAC or Guzzi Corp. prior to the Merger may be resold by them only in transactions permitted by the resale provisions of Rule 145 under the Securities Act with respect to affiliates of Guzzi Corp., or Rule 144 under the Securities Act with respect to persons who are or become affiliates of NAAC. Persons who may be deemed to be affiliates of NAAC or Guzzi Corp. generally include individuals or entities that control, are controlled by or are under common control with either NAAC or Guzzi Corp., as the case may be, and may include certain officers and directors of such party as well as principal stockholders of such party. Pursuant to the Merger Agreement, Guzzi Corp. is required to deliver to NAAC a letter identifying all persons who are, in Guzzi Corp.'s reasonable judgment, affiliates, and caused each of its affiliates to deliver to NAAC written agreements (the "Guzzi Affiliate Agreements") providing, among other things, that such persons will not offer to sell, sell or otherwise dispose of any of NAAC's stock issued to such person in the Merger in violation of the Securities Act and Rule 145 promulgated thereunder, as they may be amended from time to time. In addition, certain individuals, including such affiliates, are required to execute six month lockup agreements. The NAAC Class A Common Stock, NAAC Class B Common Stock and NAAC Class A Warrants are traded on the OTC Market. NAAC intends to apply for listing of the NAAC Class A Common Stock and NAAC Class A Warrants on the Nasdaq SmallCap Market, although no assurance can be given that the listing application will be accepted. NAAC will not apply for the listing of the NAAC Class B Preferred Stock or Nominal Warrants; therefore no assurance can be given that these securities will be readily tradeable. COMPARISON OF RIGHTS OF HOLDERS OF SECURITIES OF GUZZI CORP. AND OF NAAC The following discussion compares the principal rights and privileges with respect to the existing securities of Guzzi Corp. with the securities of NAAC now existing and which will be existing following consummation of the Merger. Both Guzzi Corp. and NAAC are Delaware corporations, and therefore the Merger will not affect the law applicable to the shareholders of either corporation. GUZZI COMMON STOCK Each share of Guzzi Common Stock entitles the holder thereof to one vote on all matters submitted to a vote of the stockholders. Since the holders of Guzzi Common Stock do not have cumulative voting rights, holders of more than 50% of the outstanding shares can elect all of members of Guzzi Corp.'s board of directors and holders of the remaining shares by themselves cannot elect any directors. The holders of Guzzi Common Stock do not have preemptive rights or rights to convert their Guzzi Common Stock into other securities. In the event of a liquidation, dissolution or winding up of Guzzi Corp., holders of the Guzzi Common Stock have the right to a ratable portion of the assets remaining after payment of liabilities and the liquidation preference of the holders of any Preferred Stock. The holders of shares of Guzzi Common Stock are entitled to dividends when and as declared by the Guzzi Corp. Board of Directors from funds legally available therefor. GUZZI PREFERRED STOCK The Guzzi Corp. Board of Directors has authority to issue the authorized 2,000,000 shares of Preferred Stock in one or more series, each series to have such designation and number of shares as the Board of Directors may fix prior to the issuance of any shares of such series. Each series may have such preferences and relative, participating, optional or other special rights, with such qualifications, limitations or restrictions, as are stated in the resolution or resolutions providing for the issue of such series as may be adopted from time to time by the Board of Directors prior to the issuance of any shares of such series. There is currently outstanding the series of Guzzi Preferred Stock containing, among other preferences and rights, the following: Dividends. The Guzzi Preferred Stock does not pay dividends. 39 Liquidation Preferences. Upon liquidation of Guzzi Corp. (including a sale by Guzzi Corp. of all or substantially all of its assets or a merger or consolidation of Guzzi Corp. with another company in which Guzzi Corp. is not the surviving entity), the holders of the Guzzi Preferred Stock shall be entitled to receive, prior to the distribution to the other security holders of Guzzi Corp., an amount per share equal to the greater of (i) $4.00 ("Stated Value"), or (ii) the amount they would have received had they converted the Guzzi Preferred Stock to Guzzi Common Stock on the business day immediately prior to such liquidation, merger or consolidation. Ranking. The Guzzi Preferred Stock, with respect to liquidation rights, ranks senior to all other classes of the capital stock of Guzzi Corp., including, but not limited to, any other series of Preferred Stock issued by Guzzi Corp. Conversion. Each share of Guzzi Preferred Stock may be converted, at the option of the holder thereof, into shares of Guzzi Common Stock ("Conversion Shares") at the rate of one share of Guzzi Common Stock for each share of Guzzi Preferred Stock, subject to adjustment to protect against events of dilution as described below ("Conversion Price"). Each share of Guzzi Preferred Stock shall be automatically converted into Conversion Shares upon the consummation by Guzzi Corp. of an underwritten public offering of the Guzzi Common Stock that raises gross proceeds for Guzzi Corp. of at least $8 million ("Qualified IPO"). The conversion rate in connection with the Qualified IPO ("IPO Conversion Price") will be the lesser of the then-applicable Conversion Price or 75% of the per share public offering price in a Qualified IPO. Insofar as a Qualified IPO has not been consummated by June 30, 1998, the majority holders of the Guzzi Preferred Stock have the right to elect a majority of the directors of Guzzi Corp., which right, however, has not been exercised. The proposed Merger is not a Qualified IPO. Redemption. If not previously converted to Conversion Shares, each share of Guzzi Preferred Stock outstanding shall be redeemed by Guzzi Corp., solely at the option of the holder thereof, at any time after the fifth anniversary of the issuance thereof, at a price of twice the then-Stated Value. Voting. The holders of the Guzzi Preferred Stock vote with the holders of Guzzi Common Stock on an as-converted basis, and, to the extent required by law, as a separate class. Anti-Dilution Adjustment. There shall be full adjustments to the Conversion Price for stock splits, stock dividends and any other combinations or distributions to holders of securities of Guzzi Corp. In addition, anti- dilution adjustments shall be made to the Conversion Price if securities of Guzzi Corp. are issued below the then Conversion Price, subject to certain limitations. Preemptive Rights. If at any time prior to the consummation of a Qualified IPO, Guzzi Corp. proposes to offer or sell shares, or securities convertible into or exercisable for shares of any class of its capital stock, except in connection with a Qualified IPO, Guzzi Corp. is required to offer to the holders of the Guzzi Preferred Stock the preemptive right, on the same terms as such shares (or other securities) are offered or sold to the third parties, to purchase a number of such shares (or other securities) sufficient to permit the holders of the Guzzi Preferred Stock to maintain their proportionate economic interest in Guzzi Corp. GUZZI WARRANTS Each Guzzi Warrant entitles the registered holder to purchase one share of Guzzi Common Stock at an exercise price equal to the lesser of $4.00, as adjusted, or the initial public offering price of the Guzzi Common Stock, exercisable for a period of three years from issuance of the Guzzi Warrant. Unless extended by Guzzi Corp. at its discretion, the Warrants expire at 5:00 p.m. Eastern Standard time, on the day preceding the third anniversary date of issuance thereof. In the event a holder of the Warrants fails to exercise his or her Warrants prior to their expiration, such Warrants will expire and the holder thereof will have no further rights with respect to the Warrants. A holder of the Warrants will not have any rights, privileges or liabilities as a shareholder of Guzzi Corp. prior to exercise of the Warrants. Guzzi Corp. is required to keep reserved a sufficient number of authorized shares of Guzzi Common Stock to permit the exercise of the Warrants. Subject to certain limitations, the exercise price of the Warrants and the number of shares of Guzzi Common Stock issuable upon exercise of the Warrants will be subject to a "full ratchet" adjustment to protect against dilution in the event of stock dividends, stock splits, combinations, subdivisions and reclassifications or the issuance of shares of Guzzi Common Stock for less than the then Conversion Price of the Preferred Stock. In the event of certain corporate 40 events, including a merger in which Guzzi Corp. is not the surviving entity, holders of the Guzzi Warrant continue to have the right to exercise their warrants to acquire such securities they would have received had they exercised their warrants prior to the consummation of such corporate events. In connection with the Merger, those Guzzi Warrant holders who submit their warrants for exchange and cancellation will receive their proportionate interest in 259,510 shares of Class A Common Stock, in 16,436 shares of Class B Preferred Stock and in 5.19% of the Nominal Warrants, as reduced to account for those Guzzi Warrant holders not accepting the Warrant Exchange. The securities which a Guzzi Warrant holder may acquire upon exercise following the Merger are not being registered in this Offering. Such holders must rely for market liquidity on their existing registration rights and Rule 144. NAAC CLASS A COMMON STOCK The holders of NAAC Class A Common Stock are entitled to one vote for each share held of record on all matters to be voted on by holders of the NAAC Common Stock voting together as a single class. The holders of NAAC Class A Common Stock also are entitled to vote as a separate class on all matters affecting the rights of the class independently of all the other classes. There is no cumulative voting with respect to the election of directors, with the result that the holders of more than 50% of all the voting authority of the NAAC Common Stock voted can elect all of the directors then being elected. The holders of NAAC Class A Common Stock are entitled to receive dividends when, as and if declared by the board of directors out of funds legally available therefor, subject to the dividend rights of those classes ranking superior in dividend rights. In the event of liquidation, dissolution or winding up of the Company, the holders of NAAC Class A Common Stock (except for the Initial Stockholders who have agreed with respect to any shares of Pre-IPO Stock to waive their rights in any distribution relating to a liquidation of NAAC due to the failure of NAAC to consummate a Business Combination) are entitled to share ratably in all assets remaining available for distribution to them after payment of liabilities and after provision has been made for each class of stock, if any, having preference over the NAAC Class A Common Stock. In the event of a liquidation because a Business Combination is not consummated, the NAAC Class A Common Stock would be canceled. Holders of shares of NAAC Class A Common Stock, as such, have no conversion, preemptive or other subscription rights, and except as described under "The Annual Meeting--Redemption Rights," there are no redemption provisions applicable to the NAAC Class A Common Stock. NAAC CLASS B COMMON STOCK The holders of NAAC Class B Common Stock are entitled to two votes for each share held of record on all matters to be voted on by the holders of the NAAC Common Stock, voting together as a single class. The holders of NAAC Class B Common Stock also are entitled to vote as a separate class on all matters affecting the rights of the class independently of all the other classes. There is no cumulative voting with respect to the election of directors, with the result that the holders of more than 50% of all the voting authority of the NAAC Common Stock voted together as a single class can elect all of the directors then being selected. The holders of NAAC Class B Common Stock are entitled to receive dividends when, as and if declared by the Board of directors out of funds legally available therefor, subject to the dividend rights of those classes ranking superior in dividend rights. In the event of liquidation, dissolution or winding up of the Company, the holders of NAAC Class B Common Stock are entitled to share ratably in all assets remaining available for distribution to them after payment of liabilities and after provision has been made for each class of stock, if any, having preference over the NAAC Class B Common Stock (except for a liquidation, dissolution or winding up of NAAC prior to the consummation of a Business Combination in which event they would not share in any assets of NAAC but would be the sole class of common stock outstanding after liquidation of the NAAC Class A Common Stock and would automatically convert into two shares of NAAC Class A Common Stock for each share of NAAC Class B Common Stock). Holders of shares of NAAC Class B Common Stock, as such, have no redemption, preemptive or other subscription rights. Each share of the NAAC Class B Common Stock is convertible, with no additional payment, into two shares of NAAC Class A Common Stock and two NAAC Class A Warrants, at any time from the 90th day after the first Business Combination until the end of the first year after the first Business Combination of NAAC. The proposed Merger will qualify as the first Business Combination. 41 NAAC CLASS A WARRANTS Each NAAC Class A Warrant entitles the registered holder to purchase one share of NAAC Class A Common Stock for $9.00, subject to adjustment in certain circumstances, at any time commencing on the consummation of a Business Combination and ending at 5:00 p.m., New York City time, on August 22, 2002, at which time the NAAC Class A Warrants expire. The Company may call the NAAC Class A Warrants for redemption, in whole and not in part, at a price of $.05 per NAAC Class A Warrant, at any time after they become exercisable upon notice to the warrant-holders, of not less then 30 days if the last sale price of the NAAC Class A Common Stock has been at least $11.00 ("redemption price") for the 10 consecutive trading days ending on the day immediately prior to the day on which NAAC gives notice of redemption. The warrant-holders will have exercise rights until the close of business on the date fixed for redemption. The NAAC Class A Warrants are issued in registered form under a Warrant Agency Agreement between NAAC and American Stock Transfer & Trust Company, as Warrant Agent. Reference is made to the Warrant Agency Agreement (which has been filed as an exhibit to this Registration Statement of which this Proxy Statement/Prospectus is a part) for a complete description of the terms and conditions applicable to the NAAC Class A Warrants (the description herein contained being qualified in its entirety by reference to such Warrant Agency Agreement). The exercise price and the number of shares of NAAC Class A Common Stock issuable on exercise of the NAAC Class A Warrants are subject to adjustment in certain circumstances, including a stock dividend, recapitalization, reorganization, merger or consolidation of NAAC. The NAAC Class A Warrants are not subject to adjustment for issuance of shares of NAAC Class A Common Stock or rights to purchase NAAC Class A Common Stock at prices less than the exercise price of the NAAC Class A Warrants. The NAAC Class A Warrants may be exercised upon surrender of the warrant certificates on or prior to the expiration date at the offices of the Warrant Agent, with the exercise form on the reverse side of the NAAC Class A Warrant certificate completed and executed as indicated, accompanied by full payment of the exercise price for the number of NAAC Class A Warrants being exercised. The warrant-holders do not have the rights or privileges of holders of NAAC Class A Common Stock prior to the exercise of the NAAC Class A Warrants. No NAAC Class A Warrants will be exercisable unless at the time of exercise there is a current prospectus covering the shares of NAAC Class A Common Stock issuable upon exercise of such NAAC Class A Warrants under an effective registration statement filed with the Securities and Exchange Commission and such shares have been qualified for sale or are exempt from qualification under the securities laws of the state of residence of the holder of such NAAC Class A Warrants being exercised. Although NAAC intends to have all shares so qualified for sale in those states where the NAAC Class A Warrants were offered for sale in the IPO and to maintain a current prospectus relating thereto until the expiration of the NAAC Class A Warrants, subject to the terms of the Warrant Agency Agreement, there can be no assurance that it will be able to do so. No fractional shares will be issued upon exercise of the NAAC Class A Warrants. Any fraction equal to or greater than one-half shall be rounded up to the next full share and any fraction less than one-half shall be eliminated. PREFERRED STOCK The Certificate of Incorporation authorizes the issuance of 1,000,000 shares of preferred stock ("Preferred Stock") with such designations, rights and preferences as may be determined from time to time by the NAAC Board. Accordingly, the NAAC Board is empowered, without stockholder approval, to issue Preferred Stock with dividend, liquidation, conversion, voting or other rights which could adversely affect the voting power or other rights of the holders of the NAAC Common Stock. NAAC may issue some or all of such shares in connection with a Business Combination. In addition, the Preferred Stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of NAAC. Although NAAC does not currently intend to issue any shares of Preferred Stock other than the NAAC Class B Preferred Stock to be issued in the Merger, if approved, there can be no assurance that, if the Merger is not approved, NAAC will not do so in the future. 42 NAAC CLASS A PREFERRED STOCK NAAC has designated 100 shares of the Preferred Stock as the NAAC Class A Preferred Stock and issued 94 shares of NAAC Class A Preferred Stock. The NAAC Class A Preferred Stock is non-voting, does not have a right to dividends, and has a liquidation value of $100.00 per share. Each share of the NAAC Class A Preferred Stock is convertible into 1,000 shares of NAAC Class A Common Stock for a period of one year following the consummation of a Business Combination at the option of the holder. In the event that a Business Combination does not occur prior to August 22, 1999, the NAAC Class A Preferred Stock will be redeemed by NAAC for its liquidation value of $9,400 after payment to the holders of NAAC Class A Common Stock (excluding the Pre-IPO Shares) of their liquidation payment from the Escrow Account. NAAC has agreed to register the NAAC Class A Common Stock issuable upon conversion of the NAAC Class A Preferred Stock at the time of the Business Combination, which shares, however, are not being registered hereunder or otherwise at this time. NAAC CLASS B PREFERRED STOCK The NAAC Class B Preferred Stock to be issued in connection with the Merger, the conversion of Intercompany Debt, the Warrant Exchange or in respect of the exercise of the Guzzi Warrants not submitted for cancellation will have the following preferences and rights: Dividends. The NAAC Class B Preferred Stock will be entitled to receive out of any assets legally available therefor, annual, cumulative cash dividends of 5% of the stated value of $15.00 of each share, payable annually on December 31st commencing December 31, 1999. Dividends will accrue from January 1, 1999. Ranking. The NAAC Class B Preferred Stock will rank senior to all classes and series of capital stock of NAAC now or hereinafter authorized, issued or outstanding. In addition, NAAC will not issue any class or series of any class or capital stock which ranks pari passu with the NAAC Class B Preferred Stock. Conversion. The NAAC Class B Preferred Stock will be convertible at the option of the holder, at any time, into such number of shares of NAAC Class A Common Stock as is determined by dividing (i) the stated value of $15.00 times the number of shares of NAAC Class B Preferred Stock being converted, by (ii) a conversion price of $15.00 per share (subject to adjustment in certain circumstances). Voting. The holders of the NAAC Class B Preferred Stock may vote with the holders of the NAAC Common Stock, voting as a single class, on all matters presented to the holders of NAAC Common Stock for a vote. The NAAC Class B Preferred Stock will have one vote for every whole share of NAAC Class A Common Stock into which the NAAC Class B Preferred Stock is convertible on the record date for the stockholders meeting. The NAAC Class B Preferred Stock is also entitled to vote as a separate class on matters pertaining exclusively to that class pursuant to the DGCL. Anti-Dilution Adjustment. There shall be adjustments to the conversion price for stock splits, stock dividends, and other stock combinations. Provision will also be made in the number of shares of NAAC Class A Common Stock into which the NAAC Class B Common Stock is convertible in the event of a reorganization, consolidation or merger where NAAC is not the surviving corporation. Liquidation Preference. Upon liquidation of NAAC, the holders of NAAC Class B Preferred Stock shall be entitled to receive, prior to distribution to the other security holders of NAAC, an amount equal to the greater of $15.00 plus all accrued and unpaid dividends or the amount the holders would have received if they had converted the NAAC Class B Preferred Stock into NAAC Class A Common Stock. All the NAAC Class B Preferred Stock, whether issued as Merger Consideration, as consideration for the contribution of intercompany debt, as part of the Warrant Exchange or as a result of the Guzzi Warrants not exchanged, will be deposited into escrow to provide a fund for the reimbursement of NAAC for damages as a result of the breach of a representation or warranty by Guzzi Corp. Claims by NAAC are subject to the requirement that they are made prior to approximately 60 days after the end of the 1998 and 1999 fiscal years in respect of different representations and warranties and the claims must aggregate $750,000 (subject to certain offsets for the sale of certain assets of Guzzi Corp.) before they may be made. To the extent claims are made, shares of NAAC Class B Preferred Stock for the amount of the claim will be held in escrow until final resolution. Upon final resolution, that number of shares of NAAC Class B Preferred Stock equal to the amount of the claim, 43 based on the market value of the NAAC Class A Common Stock into which such shares are convertible, plus $1.00, will be returned to NAAC for cancellation. NOMINAL WARRANTS Each Nominal Warrant entitles the registered holder to purchase at $.01 per share, such number of shares of NAAC Class A Common Stock as is determined by the below stated formula, during the period June 30, 2001 through 5:00 P.M. Eastern time on September 30, 2001. The number of shares of NAAC Class A Common Stock to be issued upon exercise of the Nominal Warrants will be a function of the operating income of NAAC in the 2000 fiscal year. If the NAAC operating income is less than Lit. 20,169,600,000, the number of shares will be zero. Otherwise, the number of shares shall be determined by dividing (i) the result of multiplying $5,700,000 by the fraction obtained when fiscal year 2000 operating income for NAAC is divided by Lit. 20,169,600,000, but such result shall not exceed $9,500,000, by (ii) the average closing sale price of the NAAC Class A Common Stock for the 20 consecutive trading days prior to June 30, 2001 and then multiplying the result by the percentage which the actual number of Nominal Warrants issued bears to the maximum number of Nominal Warrants issuable as a result of the Merger, the contribution of intercompany debt and the Warrant Exchange. The Nominal Warrants may be exercised by TRG unless the authority to exercise is specifically withdrawn in writing by the holder. A holder of the Nominal Warrants will not have any rights, privileges or liabilities as a shareholder of NAAC prior to exercise of the Nominal Warrants. NAAC is required to keep reserved a sufficient number of shares of NAAC Class A Common Stock issuable on exercise of Nominal Warrants. The Nominal Warrants are subject to anti-dilution protections in the event of stock splits, combinations, dividends and reclassifications and reorganizations, consolidations and mergers where NAAC is not the surviving company. The form of Nominal Warrant is attached to this Proxy Statement/Prospectus as Annex III. TRANSFER AGENT The transfer agent and registrar, and warrant agent, of the NAAC Class A Common Stock, NAAC Class B Common Stock and NAAC Class A Warrants is American Stock Transfer & Trust Company, 40 Wall Street, New York, New York, 10005. THE MERGER AGREEMENT The discussion below of the Merger Agreement is subject to and qualified in its entirety by reference to the Merger Agreement, a copy of which is attached to this Proxy Statement/Prospectus as Annex I. MERGER; CONSIDERATION On August 18, 1998, NAAC entered into the Merger Agreement, pursuant to which Guzzi Corp. will merge with and into NAAC, with NAAC being the surviving corporation. The consideration to be paid by NAAC to the shareholders of Guzzi Corp. for their Guzzi Common Stock and Guzzi Preferred Stock ("Merger Consideration"), at the consummation of the Merger, will consist of 3,702,450 shares of NAAC Class A Common Stock, 234,489 shares of NAAC Class B Preferred Stock, and 74.05% of all of the NAAC Class A Common Stock issuable under the Nominal Warrants. The Merger Agreement also provides for the issuance to TRG and OAM of 1,038,040 shares of NAAC Class A Common Stock, 65,743 shares of NAAC Class B Preferred Stock and 20.76% of all of the NAAC Class A Common Stock issuable under the Nominal Warrants (see "Intercompany Debt Exchange"), and the issuance to holders of Guzzi Warrants of up to 259,510 shares of NAAC Class A Common Stock, 16,436 shares of NAAC Class B Preferred Stock and 5.19% of all of the shares of NAAC Class A Common Stock issuable under the Nominal Warrants. See "Exchange Offer." The Merger Consideration and the terms of the Intercompany Debt Exchange and Warrant Exchange were determined through arm's-length negotiations among NAAC, and Guzzi Corp. The fees and expenses of the transaction, other than a portion of the fees of Graubard Mollen & Miller, counsel to NAAC, which will be paid by the issuance of shares of Class A Common Stock, and a warrant to purchase up to 350,000 shares of NAAC Class A Common Stock to be issued to Allen & Company, will be paid from NAAC's liquid assets, including Escrow Account proceeds. 44 If at the Effective Time NAAC, net of all unpaid costs and expenses other than as may be attributable to the redemption rights of stockholders of NAAC Class A Common Stock, has cash of less than $8,150,000 the number of shares of NAAC Class B Preferred Stock issuable in connection with the Merger will be increased by one share for each $15 of such shortfall. REPRESENTATIONS AND WARRANTIES The Merger Agreement contains various representations and warranties of Guzzi Corp., relating to, among other things, (i) due organization, capitalization, outstanding securities and similar corporate matters, (ii) authorization, execution, delivery, consummation and enforceability of the Merger Agreement and related matters, (iii) absence of any conflict with Guzzi Corp.'s Certificate of Incorporation and By-Laws, required consents and violations of instruments or laws, (iv) financial statements of Guzzi Corp., (v) absence of undisclosed liabilities, (vi) ownership of leasehold interests in, title to and condition of real and personal property and intangible rights, (vii) existence of certain contracts and other agreements, (viii) absence of defaults under certain contracts and other agreements, (ix) compliance with applicable law and permits, (x) filing of tax returns and payment of taxes, (xi) absence of certain changes in the business of Guzzi Corp., (xiii) absence of judicial or governmental orders or litigation, (xiii) labor relations, (xiv) absence of illegal or improper transactions, (xv) related transactions, (xvi) environmental matters and health matters, (xvii) bank accounts, (xviii) records, (xix) insurance, (xx) absence of brokers and (xxi) certain disclosure. Most of these representations and warranties are subject to various limitations based on specific criteria relating to Moto Guzzi or their material adverse effect on Guzzi Corp. taken as a whole. The Merger Agreement also contains various representations and warranties of NAAC relating to, among other things, (i) due organization and similar corporate matters with respect to NAAC, (ii) authorization, execution, delivery, consummation and enforceability of the Merger Agreement and the related matters, (iii) absence of any conflict with NAAC's Certificate of Incorporation and Bylaws, required consents and violations of instruments or laws, (iv) financial statements of NAAC, (v) reports filed with the Commission, (vi) the funds held in the Escrow Account will not be less than $8,391,000 and NAAC will have no less than $8,000,000 in cash assets at the Effective Time after payment of certain cash amounts (less payments to redeeming NAAC Class A Common Stock and dissenters of Guzzi Corp.), (vii) absence of undisclosed liabilities, (viii) absence of any conflict with NAAC's Certificate of Incorporation and By-Laws, required consents and violations of instruments or law, (ix) absence of brokers' fees, (x) absence of defaults under certain contracts and other agreements, (xi) compliance with applicable law and permits and payment of certain license fees, (xii) absence of certain changes in its business, (xiii) filing of tax returns and payment of taxes, (xiv) absence of judicial orders or litigation, (xv) absence of illegal or improper transactions, (xv) bank accounts, (xvi) records, and (xvii) disclosure. CERTAIN COVENANTS Pursuant to the Merger Agreement, Guzzi Corp. has agreed that, prior to consummation of the Merger, unless otherwise consented to by NAAC, it will conduct its business in the ordinary course, consistent with past practice and use its best efforts to preserve its business. Guzzi Corp. also agreed, among other things, (i) not to sell or transfer any rights or interests in Guzzi Corp. or the shares of Common Stock of Guzzi Corp., (ii) not to negotiate with any other purchaser of the assets or securities of Guzzi Corp., (iii) not to sell any capital securities of Guzzi Corp., and (iv) not to declare any dividend or make any distribution on the outstanding securities of Guzzi Corp. The Merger Agreement further provides that (i) NAAC will be given full access to the books, records, accounts and properties of Guzzi Corp. until the consummation of the Merger, (ii) Guzzi Corp. confidential information will be maintained in confidence by NAAC, (iii) Guzzi Corp. will not solicit, initiate or encourage submission of any bid, offer or proposal involving the sale of all or any portion of the stock or assets of Guzzi Corp. or any merger, consolidation or business combination with Guzzi Corp., (iv) Guzzi Corp. will maintain certain levels of insurance, make disclosure of certain matters affecting Guzzi Corp., (v) Guzzi Corp. will provide accurate information for use in this Proxy Statement/Prospectus, (vi) Guzzi Corp. will provide lockup agreements for certain Guzzi Corp. security holders under which they agree not to sell for six months the NAAC securities received in the Merger or intercompany debt contribution, and (vii) Guzzi Corp. will conduct a lien search on various assets located in Italy. Notwithstanding certain of the above limitations, Guzzi Corp. may 45 enter into interim financing arrangements prior to the effective date of the Registration Statement if repaid at the Effective Time or promptly thereafter, provided NAAC consents to the financing. NAAC consent is not required for any interim financing where the consideration therefor is exclusively the issuance of warrants or other equity securities that do not reduce the equity ownership of NAAC stockholders in the combined company on a post-Merger basis. NAAC has similarly agreed, among other things, to conduct its business only in the ordinary course, not to solicit or negotiate any other Business Combination transactions, to preserve the confidentiality of Guzzi Corp. information and to deliver the resignation of all the members of the current NAAC Board. In addition, NAAC agreed that it will hold a stockholders' meeting to consider the Merger Agreement and the Merger to approve certain amendments to its Certificate of Incorporation, adopt the Stock Option Plans and elect eight nominees to the NAAC Board of which five persons are Guzzi Corp. nominees and one is selected by Guzzi Corp. and NAAC together and to seek the approval of the holders of the NAAC Class B Common Stock for the Class B Reorganization. CONDITIONS The respective obligations of NAAC and Guzzi Corp. to consummate the Merger are subject to, among other things, satisfaction or waiver of (i) representations and warranties of the other party being true and correct in all material respects (as defined in the Merger Agreement), (ii) performance of and compliance in all material respects with the covenants, agreements and conditions contained in the Merger Agreement to be performed or complied with at or before consummation of the Merger, (iii) absence of any pending claim, action, suit, investigation or governmental proceeding which would render it unlawful to consummate the Merger, and (iv) receipt of all necessary consents, approvals or waivers. The obligation of NAAC to consummate the Merger is also subject to various conditions, including (i) that there has been no material adverse change (which includes certain specific events) in Guzzi Corp.'s properties, business, results of operations, financial condition and prospects, since December 31, 1997, subject to certain exceptions, (ii) approval by the stockholders of NAAC of the Merger Agreement and the Merger and all of the proposals to amend the Certificate of Incorporation, to elect the eight nominees or directors of NAAC after the Merger and to adopt the Stock Option Plans by NAAC stockholders, and (iii) the condition that holders of NAAC Class A Common Stock do not exercise their right of redemption in excess of 20% of the NAAC Class A Common Stock (other than the Pre-IPO Shares) outstanding on the date of the Merger Agreement and owned by persons other than the Initial NAAC Stockholders. AMENDMENT; TERMINATION The Merger Agreement can be amended, modified, altered or supplemented by written agreement of the parties at any time prior to consummation of the Merger. The Merger Agreement can be terminated at any time prior to consummation of the Merger (i) by mutual consent of NAAC and Guzzi Corp., (ii) by either party if the Merger is not consummated before February 18, 1999, (iii) by Guzzi Corp. if the cash assets of NAAC at the time of the Merger are less than $8,000,000 (after various cash expenses of NAAC), (iv) by the appropriate party if there is a material default or breach with respect to the due and timely performance of any of covenants and agreements which cannot be cured within a reasonable period of time, subject to various limitations and exceptions relating to materiality (as defined in the Merger Agreement), (v) by NAAC if there has been a material adverse change (as defined in the Merger Agreement) in the condition of Guzzi Corp. since the date of the Merger Agreement or there is a withdrawal of the recommendation by the Guzzi Corp. board of directors to approve the Merger, or (vi) by Guzzi Corp. if an event occurs after the date of the Merger Agreement which reflects a material adverse effect on NAAC's condition or there is a withdrawal of the recommendation by the NAAC Board to approve the Merger. If the Merger Agreement is terminated as a result of a breach of a representation, warranty or covenant by one party, the other party may seek to recover damages therefor, but Guzzi Corp. may only seek to recover up to a maximum amount measured by the amount of cash in excess of that deposited in the Escrow Account by NAAC after its IPO and required to be available for distribution to the holders of NAAC Class A Common Stock, and NAAC may only seek to recover its actual documented out-of-pocket expenses. If Guzzi Corp. enters 46 into a Business Combination agreement with another party and consummates such agreement within 365 days thereof, or refuses to consummate the Merger despite the satisfaction by NAAC of all of its conditions precedent to closing, including its performance of all obligations under the Merger Agreement, Guzzi Corp. will be obligated to pay NAAC, the greater of the sum of $500,000 as liquidated damages in lieu of any other claim or the actual documented out-of-pocket expenses of NAAC related solely and directly to the terminated Merger transaction. If Guzzi Corp. does not pay these amounts, TRG is obligated to pay them. If NAAC enters into a Business Combination transaction with another party, or refuses to consummate the Merger despite the satisfaction by Guzzi Corp. of all of its conditions precedent to closing, including its performance of all obligations under the Merger Agreement, and, within 365 days thereafter consummates a Business Combination with a third party, NAAC will be obligated to pay Guzzi Corp. the sum of $500,000 as liquidated damages in lieu of any other claim at such time as it consummates such Business Combination. In the event the Merger is consummated, most of the representations and warranties of Guzzi Corp. will survive for approximately 60 days following the completion of the audit of NAAC's 1998 fiscal year results of operations. Certain other representations and warranties will survive an additional year. All 316,668 shares of NAAC Class B Preferred Stock to be issued to the former Guzzi Corp. security holders and, if and to the extent that such shares are insufficient, 100,000 shares of NAAC Class A Common Stock issued to TRG as part of the Merger Consideration will be held by TRG in escrow to fund any claims timely asserted by NAAC arising from a breach of such representations and warranties, to the extent that, after resolution or adjudication of such claims the damages sustained by NAAC exceed $750,000, net of any realized increase in value in certain Guzzi Corp. assets owned on the Merger consummation date. Damage sustained by NAAC in excess of the value of the securities in the escrow fund will not be indemnified. EXPENSES Pursuant to the Merger Agreement, each party is solely responsible for all expenses incurred by it or on its behalf in connection with the preparation and execution of the Merger Agreement, except that TRG will pay the expenses of Guzzi Corp., which amount shall be included in the $800,000 of intercompany indebtedness that will remain after the contribution of all other intercompany indebtedness by TRG and OAM. The remaining intercompany indebtedness will be paid by NAAC promptly following the Closing. See "Intercompany Debt Exchange." INTEREST OF CERTAIN PERSONS AFTER THE MERGER Certain officers and directors of Guzzi Corp. have an interest in and may receive benefits from the Merger which may differ from the interests of the Guzzi Corp. shareholders or the benefits they may receive from the Merger. Pursuant to the Merger Agreement, Guzzi Corp. will deliver to NAAC a letter identifying all persons who are, in Guzzi Corp.'s reasonable judgment, affiliates, and cause each of its affiliates to deliver to NAAC the Guzzi affiliate agreements providing, among other things, that such persons will not offer to sell, sell or otherwise dispose of any of NAAC's stock issued to such person in the Merger in violation of the Securities Act and Rule 145 promulgated thereunder, as they may be amended from time to time. In addition, certain individuals, including such affiliates, will execute six month lockup agreements. Additionally, at the Effective Time, NAAC, as the surviving corporation, will enter into employment and/or consulting agreements with each of Mark S. Hauser, Howard E. Chase, Emanuel Arbib and David Mitchell. Messrs. Hauser, Chase and Arbib are currently directors of Guzzi Corp. and Mr. Mitchell is currently a director of NAAC. All of these persons will be directors of NAAC on and after the Effective Time. Mr. Hauser is the president and a director of TRG and an affiliate of Tamarix Investors, LDC ("Tamarix"), which in turn is an affiliate of TRG. Mr. Chase is the chairman of the board of directors of TRG. Emanuel Arbib, a director of Guzzi Corp., is also a director of TRG and an affiliate of Tamarix. Mr. Hauser will be engaged under a three year agreement as Executive Chairman at a salary of $90,000 per year, plus reimbursement of reasonable expenses. Mr. Hauser may also allocate to NAAC, as surviving corporation, a reasonable portion of his office expenses incurred at Tamarix Capital Corporation. Mr. Hauser will be granted an option to purchase up to 150,000 shares of NAAC Class A Common Stock under the 1998 Stock Option Plan. The options will vest one-third on the date of grant and one-third on each of the two succeeding 47 anniversaries. The options will be exercisable at the fair market value of the NAAC Class A Common Stock on the date of grant for a period of ten years after the date of grant. Mr. Chase will be engaged under a three year agreement as Special Counsel at compensation of $60,000 per year, plus reimbursement of reasonable expenses. Mr. Chase will be granted an option to purchase up to 45,000 shares of NAAC Class A Common Stock under the 1998 Stock Option Plan. The options will vest one third on the date of grant and one third on each of the two succeeding anniversaries. The options will be exercisable at the fair market value of the NAAC Class A Common Stock on the date of grant for a period of ten years from the date of grant. Mr. Arbib will be engaged as a financial consultant under a three year agreement at compensation of $30,000 per year. Mr. Arbib will be granted an option to purchase up to 30,000 shares of NAAC Class A Common Stock outside of the 1998 Stock Option Plan. The options will vest one third on the date of grant and one third each on succeeding anniversaries. The options will be exercisable at the fair market value of the NAAC Class A Common Stock on the date of grant for a period of ten years from the date of grant. Mr. Mitchell will be engaged as a consultant and as consideration for these services he will be granted an option to purchase up to 30,000 shares of NAAC Class A Common Stock under the 1998 Stock Option Plan. The options will vest one third on the date of grant and one third on each of the two succeeding anniversaries. The options will be exercisable at the fair market value of the NAAC Class A Common Stock on the date of grant for a period of ten years from the date of grant. Each of Messrs. Chase, Arbib and Mitchell also will be granted options to purchase up to 12,500 shares of NAAC Class A Common Stock under the 1998 Directors' Plan on the effective date of the Merger and, so long as they continue to serve as directors, on January 2, 2000 and each subsequent January 2 in each year in which they serve as directors. ABSENCE OF REGULATORY FILINGS AND APPROVALS The Merger is not subject to the requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations thereunder, which provide that certain merger transactions may not be consummated until required information and material have been furnished to the Antitrust Division of the Department of Justice and the Federal Trade Commission and certain waiting periods have expired or been terminated. Other than certain filings to be made and approvals obtained under certain state securities or "blue sky" laws, there are no federal or state regulatory requirements that must be complied with or approval obtained in connection with the Merger. EXCHANGE OF STOCK CERTIFICATES As of the Effective Time, each certificate formerly representing Guzzi Common Stock and Guzzi Preferred Stock ("Guzzi Certificates") shall be deemed for all purposes to evidence ownership of NAAC Class A Common Stock, NAAC Class B Preferred Stock and Nominal Warrants, all in proportion to the individual components of the Merger Consideration, until surrendered to the exchange agent, American Stock Transfer & Trust Company ("Exchange Agent"). As soon as practicable after the Effective Time, a letter of transmittal and instructions will be mailed to each holder of record of Guzzi Certificates to be used by such holder in forwarding the Guzzi Certificates to the Exchange Agent. Each such shareholder will be asked to return a properly completed transmittal letter, together with any Guzzi Certificates listed on the transmittal letter, to the Exchange Agent in order to receive a the number of shares of NAAC Class A Common Stock and NAAC Class B Preferred Stock and the number of Nominal Warrants to which the security holder is entitled. SHAREHOLDERS OF GUZZI CORP. SHOULD NOT SEND THEIR CERTIFICATES TO THE EXCHANGE AGENT UNTIL THEY RECEIVE A TRANSMITTAL LETTER. 48 FRACTIONAL SHARES No fractional shares will be issued as part of the Merger Consideration, but will be rounded up to the next whole share. MANAGEMENT AFTER THE MERGER As contemplated by the Merger Agreement, after the Effective Time, if all the persons nominated to be directors of NAAC are elected by the NAAC stockholders at the Annual Meeting, the NAAC Board will consist of Messrs , , Emanuel Arbib, Howard Chase and Mark Hauser, nominees of Guzzi Corp., Messrs. David J. Mitchell and Dr. Peter Hobbins, nominees of NAAC, and Mr. Frank J. O'Connell, a nominee selected by both Guzzi Corp. and NAAC. After the Effective Time, the nominees of Guzzi Corp. will represent the majority of the NAAC Board. In addition after the Effective Time, the current officers of Guzzi Corp. and TRG will be appointed to similar positions with NAAC and the officers and directors of the subsidiary corporations of Guzzi Corp., including Moto Guzzi, will continue as the officers and directors of those companies. Thus, the nominees and management of Guzzi Corp., and TRG will be in a position to direct the business affairs of NAAC after the Merger. LOCK UP AGREEMENTS The current directors and officers of NAAC have agreed not to sell publicly any of the NAAC Class A Common Stock of which they are the current owners, or which they may own in the future, for a period ending on the six month anniversary of the Effective Time. In addition, 7,500 additional shares of NAAC Class A Common Stock are subject to agreements not to sell publicly such securities until August 22, 1999. Pursuant to the Merger Agreement, certain of the persons to be issued NAAC Class A Common Stock, NAAC Class B Preferred Stock and the Nominal Warrants have agreed not to sell publicly any of the NAAC Class A Common Stock received as part of the Merger Consideration or upon conversion of the NAAC Class B Preferred Stock for a period of six months after the Merger. TRG and OAM have agreed not to sell publicly any of the NAAC Class A Common Stock received as part of the Merger Consideration or as part of the Intercompany Debt Exchange or upon conversion of the NAAC Class B Preferred Stock for a period of twelve months after the Merger. 49 MARKET PRICES OF NAAC SECURITIES NAAC Class A Common Stock, NAAC Class A Warrants, NAAC Class B Common Stock and Units are traded in the over-the-counter market and quoted on the OTC Bulletin Board under the symbols NACQA, NACQW, NACQB, NACQU, respectively. NAAC has not declared or paid any dividends on NAAC Common Stock since its inception. The following table sets forth the range of high and low closing trading prices for NAAC Class A Common Stock, NAAC Class A Warrants, NAAC Class B Common Stock and Units for the period since August 22, 1997, as reported by the OTC Bulletin Board. The OTC Bulletin Board is an inter-dealer automated quotation system sponsored and operated by the NASD for equity securities not included in the Nasdaq System. Such over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily reflect actual transactions.
CLASS A CLASS B CLASS A UNITS COMMON STOCK COMMON STOCK WARRANTS --------------- --------------- --------------- --------------- HIGH LOW HIGH LOW HIGH LOW HIGH LOW ------ ----- ------ ----- ------ ----- ------ ----- Year ended August 31, 1997: Fourth Quarter (from August 22, 1997).............................. 10.00 9.25 N/A N/A 10.00 10.00 N/A N/A Year ended August 31, 1998.............. First Quarter......................... 10.125 9.00 8.375 8.375 10.50 9.25 .50 .50 Second Quarter........................ 10.00 8.875 8.500 8.375 10.00 9.25 .50 .50 Third Quarter......................... 9.25 9.00 9.00 8.50 9.75 9.25 .50 .50 Fourth Quarter........................ 9.313 9.13 9.375 8.625 9.75 9.375 .50 .50
The Units were sold for $10.00 per Unit, and the NAAC Class B Common Stock was sold for $10.00 per share in the IPO. On August 17, 1998, the last full trading day prior to the public announcement of the execution and delivery of the Merger Agreement, the closing bid and sale prices of NAAC Class A Common Stock, NAAC Class A Warrants, NAAC Class B Common Stock and Units, as reported on the OTC Bulletin Board, were (i) for NAAC Class A Common Stock, a bid of $8.625 and ask of $9.375, (ii) for the NAAC Class A Warrants, a bid of $.50 and ask of $.75, (iii) for the NAAC Class B Common Stock, a bid of $9.375 and ask of $11.375 and (iv) for the Units, a bid of $9.375 and ask of $11.00. On [ ], the most recent date for which it was practicable to obtain market price information prior to the mailing of this Proxy Statement/Prospectus, such bid and ask closing bid prices were for (i) NAAC Class A Common Stock, a bid of $[ ] and ask of $[ ], (ii) for the NAAC Class A Warrants, a bid of $[ ] and ask of $[ ], (iii) for the Class B Common Stock, a bid of [ ] and ask of [ ] and (iv) for the Units, a bid of [$ ] and ask of [$ ]. Stockholders are urged to obtain current market quotations. As of the Record Date, there were approximately [ ], [ ] and [ ] holders of record of NAAC Class A Common Stock, NAAC Class B Common Stock and NAAC Class A Warrants, respectively. Because Units are separable into NAAC Class A Common Stock and NAAC Class A Warrants, a transfer of Units is recorded by NAAC's transfer agent only as a transfer of NAAC Class A Common Stock and NAAC Class A Warrants. Consequently, the number of holders of record of Units is not available. NAAC stockholders are urged to obtain current market quotations. 50 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding beneficial ownership of NAAC Common Stock as of [ ] by (i) each stockholder known by NAAC to be the beneficial owner of more than 5% of outstanding NAAC Common Stock, (ii) each current director and (iii) all current directors and executive officers as a group. NAAC believes that the beneficial owners of NAAC Common Stock listed below, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable. BENEFICIAL OWNERSHIP OF SHARES OF NAAC COMMON STOCK
PERCENT OF ALL PERCENT OF CLASS A COMMON STOCK CLASS A CLASS B COMMON STOCK BENEFICIALLY NAME COMMON STOCK COMMON STOCK BENEFICIALLY OWNED OWNED - ---- ------------ ------------ ------------------ -------------- David J. Mitchell(1)................. 172,500(2) 15,000(3) 16.2% 14.5% C. Thomas McMillen(1)................ 172,500(2) 15,000(3) 16.2% 14.5% A.J. Nasser(1)....................... 15,000 -0- 1.7% 1.2% All NAAC officers and directors as a 360,000(4) 30,000(4) 23.3% 26.5% group (3 persons)..................
- ------------------ * Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission ("Commission") and generally includes voting or investment power with respect to securities. Shares of common stock issuable upon the exercise of options or warrants currently exercisable, or exercisable or convertible within 60 days, are deemed outstanding for computing the percentage ownership of the person holding such options or warrants but are not deemed outstanding for computing the percentage ownership of any other person. (1) The address of each of Messrs. Mitchell, McMillen and Nasser is c/o Mitchell & Company, 3rd Floor 5 East 59th Street, New York New York 10022. (2) Includes 50,000 shares of NAAC Class A Common Stock and the 50,000 shares of NAAC Class A Common Stock underlying a like number of NAAC Class A Warrants issuable upon exercise of the Class A Options and 60,000 shares of NAAC Class A Common Stock issuable upon conversion of the NAAC Class B Common Stock and exercise of the NAAC Class A Warrants underlying the NAAC Class B Common Stock subject to the Class B Options. (3) Includes the NAAC Class B Common Stock issuable upon exercise of the Class B Option. (4) Includes the NAAC Class A Common Stock and NAAC Class B Common Stock set forth in Notes (2) and (3) above. The following table sets forth certain information regarding the beneficial ownership of NAAC Common Stock after giving effect to the consummation of the Merger, the acceptance of the Exchange Offer and the approval and effect of the Class B Recapitalization by (i) each stockholder known to NAAC to be the beneficial owner of more than 5% of the outstanding NAAC Class A Common Stock after the Merger, (ii) each nominee for election as a director of NAAC, and (iii) all directors and officers of NAAC after the Merger as a group. Except as otherwise indicated, NAAC believes that the beneficial owners of the NAAC Class A Common Stock listed below, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable. 51
NAAC CLASS A COMMON STOCK BENEFICIALLY OWNED* AFTER MERGER --------------------------- NAMES NUMBER OF SHARES PERCENT - ----- ---------------- ------- Trident Rowan Group, Inc. ............................................................ 4,253,334(1) 64.62% Two Worlds Fair Drive Somerset, New Jersey 08873 Tamarix Investors LDC ................................................................ 4,253,334(2) 64.62 444 Madison Avenue New York, New York 10022 Howard E. Chase(3).................................................................... 4,268,334(4) 64.70 Emanuel Arbib(3)...................................................................... 4,263,334(4) 64.70 Mark S. Hauser(3)..................................................................... 4,303,334(4) 64.90 David Mitchell(3)..................................................................... 182,500(5) 2.6 Peter Hobbins(3)...................................................................... -0- -0- Frank J. O'Connell(3)................................................................. -0- -0- All NAAC officers and directors as a group (8 persons after Merger)................... 4,515,834(6) 67.68
- ------------------ * Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission ("Commission") and generally includes voting or investment power with respect to securities. Shares of common stock issuable upon the exercise of options or warrants currently exercisable, or exercisable or convertible within 60 days, are deemed outstanding for computing the percentage ownership of the person holding such options or warrants but are not deemed outstanding for computing the percentage ownership of any other person. (1) Includes shares of NAAC Class A Common Stock beneficially owned by TRG and by OAM, a subsidiary thereof. (2) As the beneficial owner of approximately 55% of the common stock of TRG deemed issued and outstanding for purposes of determining beneficial ownership, Tamarix Investors LDC may be viewed as a controlling shareholder of TRG and thus the beneficial owner of all shares of NAAC Class A Common Stock of which TRG is the beneficial holder. (3) The address of Mr. Mitchell and Dr. Hobbins is c/o Mitchell & Company Ltd., 5 East 59th Street, 3rd Floor, New York, New York 10022. The address of Messrs. Arbib, Chase and Hauser is Two Worlds Fair Drive, Somerset, New Jersey 08873. The address of Mr. O'Connell is c/o Gibson Greetings, Inc., 2100 Section Road, Cincinnati, Ohio 45232. (4) As a director of TRG, the shareholder may also be viewed as a beneficial owner of all shares of NAAC Class A Common Stock beneficially owned by TRG. The total shown also includes shares subject to exercisable stock options owned individually. (5) Includes 50,000 shares of NAAC Class A Common Stock and the 50,000 shares of NAAC Class A Common Stock underlying a like number of NAAC Class A Warrants issuable upon exercise of the Class A Options and 60,000 shares of NAAC Class A Common Stock issuable upon conversion of the NAAC Class B Common Stock and exercise of the NAAC Class A Warrants underlying the NAAC Class B Common Stock subject to the Class B Options. On the post-Merger basis includes an option to purchase an additional 10,000 shares of NAAC Class A Common Stock. (6) Includes 90,000 shares of NAAC Common Stock underlying exercisable options to be issued at the Effective Time. 52 SELECTED NAAC HISTORICAL FINANCIAL DATA The following selected historical financial data as of August 31, 1997 and for the period September 1, 1995 (inception) to August 31, 1997 and for the periods then ended are derived from the audited financial statements of NAAC included in this Proxy Statement. The selected financial data as of May 31, 1998, May 31, 1997 and for the nine months ended May 31, 1998 and May 31, 1997 and for the period September 1, 1995 (inception) to May 31, 1998 are derived from the unaudited financial statements of NAAC included in this Proxy Statement. Such unaudited data includes, in management's opinion, all normal recurring adjustments necessary to present fairly the results of operations and financial position of NAAC for such periods. Results for interim periods are not necessarily indicative of the results to be expected for an entire fiscal year. The data should be read in conjunction with the financial statements, related notes, "Management's Discussion and Analysis of NAAC's Financial Condition and Results of Operations," the pro forma financial statements of Guzzi Corp. and NAAC and other financial information included in this Proxy Statement.
SEPTEMBER 1, 1995 (INCEPTION) NINE MONTHS NINE MONTHS TO SEPTEMBER 1, 1995 ENDED ENDED YEAR ENDED AUGUST 31, (INCEPTION) TO MAY 31, 1998 MAY 31, 1997 AUGUST 31, 1997 1996 MAY 31, 1998 ------------------ ------------ --------------- ------------ ------------------ (IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS) STATEMENT OF OPERATIONS DATA: Interest income.................... $ 324 $ -- $ -- $ -- $ 324 General, administrative, other expenses and taxes............... 166 4 39 31 236 Net income (loss).................. 126 (4) (39) (31) 56 Net income (loss) per common share............................ .12 (.04) (.33) (.29) -- Weighted average common shares outstanding...................... 1,056,000 106,000 119,014 106,000
AUGUST 31, MAY 31, 1998 MAY 31, 1997 AUGUST 31, 1997 1996 ------------------ ------------ --------------- ------------ (IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equivalents.......... $ 136 $ 26 $ 402 $ 26 Short-term investments and accrued interest thereon.......................... -- -- -- -- U.S. Government securities deposited in Escrow Account and accrued interest thereon......... 8,322 -- 7,998 -- Total assets....................... 8,458 204 8,401 204 Liabilities........................ 205 187 283 181 Common stock subject to possible redemption....................... 1,664 -- 1,600 -- Stockholders' equity............... 6,589 17 6,518 23
53 MANAGEMENT'S DISCUSSION AND ANALYSIS OF NAAC'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS NAAC is a Specialized Merger and Acquisition Allocated Risk Transaction company, the objective of which is to acquire a Target Business. In August 1997, NAAC raised net proceeds of approximately $8,100,000, after payment of underwriting discounts, the underwriter's non-accountable expense allowance, and other offering costs in an initial public offering. NAAC deposited approximately 90% ($8,000,000) of such net proceeds in the Escrow Account. At July 31, 1998, the Escrow Account amounted to $8,422,500. Cumulative interest earned on the Escrow Account and other funds was an aggregate of approximately $324,000 as of May 31, 1998. In the event NAAC is liquidated, the non-Escrow Account assets may not be sufficient to pay all of its accounts payable and accrued expenses. Substantially all of NAAC's working capital needs subsequent to the public offering have been attributable to the identification, evaluation and selection of a suitable Target Business and to structure, negotiate and consummate the acquisition of Guzzi Corp. NAAC has incurred costs of approximately $268,000 in connection with its business activities through May 31, 1998, and is incurring additional costs in connection with the Merger. NAAC will satisfy all of its working capital needs with its existing cash balances and working capital after consummation of the Merger. All income through May 31, 1998 has been from interest. Except for its efforts to acquire a Target Business, NAAC has not engaged in any business activities. On August 18, 1998, NAAC entered into the Merger Agreement to merge with acquire Guzzi Corp. See "Proposal 1: The Merger Agreement--Merger; Consideration." NAAC believes that subsequent to the Merger there will be sufficient funds for the working capital needs of the combined companies for 12 months. See "Management's Discussion and Analysis of Financial Condition and Results of Operation of Guzzi Corp." for a discussion of the capital requirements of Guzzi Corp. after the Merger. If NAAC does not consummate a Business Combination by August 22, 1999, it will be dissolved and will distribute the Escrow Account proceeds, inclusive of any interest thereon, plus any remaining net assets of NAAC, to the holders of the NAAC Class A Common Stock in proportion to their shares (excluding the Pre-IPO Shares). The per-share liquidation price is equal to the amount in the Escrow Account, including interest earned thereon, divided by the number of shares of NAAC Class A Common Stock held by stockholders entitled to share in the Escrow Account. Holders of NAAC Class A Common Stock (excluding the Pre-IPO Shares) have the right to redeem their shares, provided that if more than 20% of the shares are to be redeemed, the Merger will not be consummated and the right of redemption will terminated until such time as another acquisition is submitted for approval of the NAAC stockholders. Many existing computer programs use only two digits to identify a year in the date field. These programs do not consider the impact of the upcoming change in the century. Currently, the Company does not have any operations or computer systems to evaluate for year 2000 compliance. See "Management's Discussion and Analysis of Guzzi Corp. Financial Condition and Results of Operations of Guzzi Corp.--Potential Effects of the Year 2000 on Guzzi Corp.'s Business" for a discussion of the potential impact of year 2000 on the post-Merger company. SELECTED GUZZI CORP. HISTORICAL CONSOLIDATED FINANCIAL DATA The selected historical financial data for the years ended December 31, 1997 and 1996 are derived from the audited financial statements of Guzzi Corp. included in this Proxy Statement/Prospectus and should be read in conjunction with those financial statements and notes related thereto. The selected historical financial data for the year ended December 31, 1995 and for the six months ended June 30, 1998 and 1997 are derived from the unaudited financial statements of Guzzi Corp. included in this Proxy Statement/Prospectus and should be read in conjunction with those financial statements and selected information thereto. The selected historical financial data for the years ended December 31, 1994 and 1993 are derived from the unaudited financial statements for those years, which are not included in this Proxy Statement. Such unaudited data includes, in management's 54 opinion, all normal recurring adjustments, necessary to present fairly the results of operations and financial position of Guzzi Corp. for such periods. Results for interim periods are not necessarily indicative of the results to be expected for an entire fiscal year. The following data should also be read in conjunction with the financial statements, related notes, "Management's Discussion and Analysis of Guzzi Corp. Financial Condition and Results of Operations," the pro forma financial statements of Guzzi Corp. and NAAC and other financial information included in this Proxy Statement/Prospectus. SELECTED CONSOLIDATED FINANCIAL DATA
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31, ----------------------------------- ------------------------------------------------------------ 1998 1998 1997 1997 1997 1996 1995 1994 $000(1) LIT. M LIT. M $000(2) LIT. M LIT. M LIT. M LIT. M ------- ------------ ---------- ------- ----------- ---------- ---------- ---------- (UNAUDITED) (UNAUDITED) INCOME STATEMENT DATA Net sales............ $27,006 Lit. 47,989 Lit.41,665 $45,781 Lit. 80,987 Lit.77,620 Lit.64,671 Lit.48,849 Gross profit......... 5,197 9,234 5,851 5,378 9,514 11,865 10,071 4,071 Selling, general and administrative expenses........... 4,424 7,861 6,702 7,815 13,824 10,210 7,486 4,703 Research and development expenditure........ 1,253 2,226 897 1,767 3,125 1,177 602 197 Interest expense..... 1,241 2,206 2,040 2,058 3,640 4,346 3,604 3,533 Net loss............. (1,917) (3,406) (3,867) (5,976) (10,569) (1,996) (3,233) (1,671) Cash dividends per common share....... -- -- -- -- -- -- -- -- BALANCE SHEET DATA Cash and cash equivalents........ $ 4,191 Lit. 7,447 3,403 $ 3,591 Lit. 6,352 Lit. 2,210 Lit. 2,718 Lit. 3,679 Current assets....... 46,601 82,808 67,716 39,135 69,229 60,223 52,382 39,155 Total assets......... 57,604 102,360 81,040 47,877 84,694 73,731 58,594 47,607 Short-term debt...... 20,032 35,597 30,294 16,401 29,012 23,173 15,637 9,480 Long-term debt, net of current portion............ 7,808 13,875 5,065 2,729 4,828 5,629 4,198 4,151 Parent company financing.......... 7,451 13,241 5,659 7,303 12,919 4,659 2,883(4) 13,197 Preferred stock subject to redemption......... 7,252 12,886 10,017 6,574 11,629 5,101 -- -- Shareholders' equity............. $(9,583) Lit. (17,029) (4,091) $(6,991) Lit.(12,366) Lit. 1,596 Lit. 2,822(4) Lit. (7,180) OTHER DATA EBITDA............... $ 419 Lit. 746 (297) $(2,383) Lit. (4,214) Lit. 4,189 Lit. 2,774 Lit. 3,829 Depreciation and amortization....... 824 1,465 1,357 1,402 2,480 1,807 2,303 1,967 Capital expenditures....... 2,878 5,115 1,783 2,197 3,887 5,951 1,801 1,106 Number of motorcycles sold............... 3,027 2,889 5,593 6,050 5,198 4,149 1993 LIT. M ---------- INCOME STATEMENT DATA Net sales............ Lit.37,484 Gross profit......... 5,149 Selling, general and administrative expenses........... 6,012 Research and development expenditure........ 409 Interest expense..... 4,969 Net loss............. (4,058) Cash dividends per common share....... -- BALANCE SHEET DATA Cash and cash equivalents........ Lit. 329 Current assets....... 34,889 Total assets......... 41,190 Short-term debt...... 16,566(3) Long-term debt, net of current portion............ --(3) Parent company financing.......... 9,883 Preferred stock subject to redemption......... -- Shareholders' equity............. Lit. (3,122) OTHER DATA EBITDA............... Lit. -- Depreciation and amortization....... -- Capital expenditures....... -- Number of motorcycles sold............... 3,274
- ------------------ (1) Translated solely for the convenience of the reader at the approximate exchange rate as of June 30, 1998 of Lit. 1,777 to $1.00. (2) Translated solely for the convenience of the reader at the approximate exchange rate as of December 31, 1997 of Lit. 1,769 to $1.00. (3) At December 31, 1993 Moto Guzzi was past due on outstanding loans of Lit. 5,120 which were classified as current liabilities. (4) In 1995, Lit. 12,632 million of parent company financing was contributed to capital. 55 MANAGEMENT'S DISCUSSION AND ANALYSIS OF GUZZI CORP. FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF GUZZI CORP. GENERAL Guzzi Corp. is a Delaware corporation formed in 1996 to acquire Moto Guzzi, its manufacturing subsidiary, and Moto America, the exclusive U.S. importer and distributor of "Moto Guzzi"(Registered) brand motorcycles and spare parts. Guzzi Corp. is a majority-owned subsidiary of TRG. Moto Guzzi has earned a reputation as one of the elite motorcycle manufacturers in the world, and distributes its products worldwide through a network of wholly or partially owned importers and independent dealers. By the end of 1993, Moto Guzzi, then operating under the name G.B.M. S.p.A., had been suffering from many years of declining sales and production, and increasing losses, which threatened its viability. In 1994, TRG brought outside emergency temporary management services to Moto Guzzi and developed a strategic plan to restore its subsidiary to financial health. Since that initiative, Moto Guzzi has significantly increased unit sales from approximately 3,300 in 1993 to approximately 5,600 in 1997. In the four fiscal quarters ended June 30, 1998, unit sales had increased to 5,916, although the company continues to operate at a loss. Since 1994, Moto Guzzi has made investments in reinforcing management and in logistical and production control systems and has increased outsourcing of components to qualified suppliers. It has also introduced one new model, the "Centauro", and updated versions of its "California" and "Nevada" models which have been well received by customers. In January 1996, Moto America Inc., the exclusive U.S. importer and distributor was acquired and in February 1997, a new wholly-owned importer distributor was established in France as part of Guzzi Corp.'s investments to strengthen distribution in important markets. Also, in January 1997, distribution in Germany was transferred to a new 25% owned affiliate, MGI GmbH. Guzzi Corp. has a 3 year option to acquire up to 90% of this new German exclusive importer-distributor. From 1994 through 1996, financing for Guzzi Corp. was supplied by its parent company, TRG. In early January 1997, a private placement of Guzzi Corp. redeemable preferred stock provided it capital of approximately $5.2 million and in June 1997, TRG committed to Guzzi Corp. approximately US$ 4 million from the proceeds of a public offering of TRG common stock and common stock warrants. Further, in early 1998, Moto Guzzi negotiated a Lit. 10 billion (approximately US$ 5.6 million) long-term credit facility, which it drew down in April 1998. With the proceeds from the above, Moto Guzzi has started to make investments in research and model development, expenditure on which more than doubled in 1997 compared to 1996, and in plant and machinery of Lit. 3.9 billion in 1997 and Lit. 5.1 billion in the first six months of 1998. To enable substantial further growth in production and sales, Guzzi Corp.'s strategic plan contemplates total investments in research, product development, plant and machinery of approximately Lit. 50 billion (approximately US$ 28 million) in the four year period from 1997 through 2000. 56 RESULTS OF OPERATIONS 3 MONTHS ENDED JUNE 30, 1998 COMPARED TO JUNE 30, 1997
THREE MONTHS ENDED JUNE 30, ----------------------------------------- 1998 1997 LIRE M. LIRE M. ------- ------- Net sales............................................................... 22,403 100.0% 23,253 100.0% Cost of Sales........................................................... (17,833) (79.6%) (20,052) (86.2%) ------- ------- 4,570 20.4% 3,201 13.8% Selling, general and administrative expenses............................ (4,548) (20.3%) (4,150) (17.8%) Research and product development........................................ (1,352) (6.0%) (455) (2.0%) Other income, net....................................................... 243 1.1% 12 0.1% ------- ------- Operating loss.......................................................... (1,087) (4.9%) (1,392) (6.0%) Interest expense........................................................ (1,220) (5.5%) (1,019) (4.4%) ------- ------- Loss before income taxes................................................ (2,307) (10.3) (2,411) (10.4%) Income taxes............................................................ (264) (1.2%) (94) (0.4%) ------- ------- Net loss................................................................ (2,571) (11.5%) (2,505) (10.8%) ------- ------- ------- -------
The 4% decrease in net sales in the three months ended June 30, 1998 compared to the quarter ended June 30, 1997 resulted principally from a decrease of 10% in units sold from 1,660 units in 1997 to 1,490 in 1998, offset by increases in selling prices which became effective in March, 1998. Sales in the quarter were affected by delays in the introduction of two revised models, the California Special and 1998 Quota 1100, principally resulting from late supply of certain components. Management estimates that sales of approximately 400 units were lost in the quarter as a result of these delays and that, due to seasonality, many of the lost sales will not be recovered in the third quarter. Net unit sales by Moto America decreased 30% to 170 in 1998 compared to 243 in 1997, due principally to dealers reducing their inventory levels. Net unit sales at the French importer-distributor increased 23% to 176 in 1998 compared to 143 in 1997. The increase in gross margin as a percentage of sales to 20.4% from 13.8%, principally reflects fixed manufacturing costs spread over production volumes which increased from 1,644 in the three months ended June 30, 1997 to 2,016 in the comparable 1998 period and the beneficial effects of sales price increases effective from the beginning of the second quarter. In 1997, selling prices had been maintained at 1996 levels in an effort to build market share. Increases in selling, general and administrative expenses reflect increases in Italy, principally relating to new management personnel at Moto Guzzi. Continuing a management policy initiated in mid-1997, research and development in the three months ended June 30, 1998, principally on new products intended for 1998 and 1999 introduction and for new engines, is at levels approximately three times those of the second quarter of 1997. Other income in 1998 and 1997 is principally composed of interest income of Lit. 112 million in the three months ended June 30, 1998 (1997--Lit. 22 million), less exchange differences and other minor items. Interest income in 1998 derives from short-term investment in bank deposits of part of the proceeds of a Lit. 10 billion long-term loan, drawn down in April 1998. Interest expense increased by Lit. 201 million from Lit. 1,019 million in the second quarter of 1997 to Lit. 1,220 million in the second quarter of 1998. The increase reflects interest expense on the long-term loan drawn down in April 1998, on increased levels of advances from banks financing working capital and increases in loans from TRG and its subsidiaries. The effects of increased indebtedness more than offset the benefits of lower interest rates to 1998 compared to 1997. Income tax in 1998 principally relates to operations in Italy, whereas it related to operations in the U.S. in 1997. Despite operating losses at Moto Guzzi in Italy, income taxes are accrued as certain business expenses, principally finance expense and labor costs, are not deductible against income for the purposes of a new income tax, introduced in 1998. 57 RESULTS OF OPERATIONS 6 MONTHS ENDED JUNE 30, 1998 COMPARED TO JUNE 30, 1997
SIX MONTHS ENDED JUNE 30, ----------------------------------------- 1998 1997 LIRE M. LIRE M. ------- ------- Net sales............................................................... 47,989 100.% 41,665 100.0% Cost of Sales........................................................... (38,755) (80.8%) (35,814) (86.0%) ------- ------- 9,234 19.2% 5,851 14.0% Selling, general and administrative expenses............................ (7,861) (16.4%) (6,702) (16.1%) Research and product development........................................ (2,226) (4.6%) (897) (2.2%) Other income, net....................................................... 134 0.3% 94 0.2% ------- ------- Operating loss.......................................................... (719) (1.5%) (1,654) (4.0%) Interest expense........................................................ (2,206) (4.6%) (2,040) (4.9%) ------- ------- Loss before income taxes................................................ (2,925) (6.1%) (3,694) (8.9%) Income taxes............................................................ (481) (1.0%) (173) (0.4%) ------- ------- Net loss................................................................ (3,406) (7.1%) (3,867) (9.3%) ------- ------- ------- -------
The 15% increase in net sales in the six months ended June 30, 1998 compared to the six months ended June 30, 1997 resulted principally from first quarter sales activities. Units sold in the six months increased from 2,889 units in 1997 to 3,207 in 1998. As noted above, sales in May and June of 1998 were adversely affected by delays in the introduction of two revised models so that the growth in the first quarter was not maintained in the second quarter. Net unit sales at Moto America decreased 4% to 382 in 1998 compared to 399 in 1997, due principally to dealers reducing their inventory levels in the second quarter. Net unit sales at the French importer-distributor, which commenced operations in February 1997, increased 90% to 338 in 1998 compared to 178 in 1997. In the first quarter of 1998, sales by Moto Guzzi in Italy also benefitted from 312 units sold to public administration customers which sales had originally been scheduled for December 1997 delivery but which were delayed until 1998 for completion of compliance testing by the buyers. The increase in gross margin as a percentage of sales to 19.2% from 14.0%, principally reflects fixed manufacturing costs spread over production volumes which increased from 3,078 in the six months ended June 30, 1997 to 3,481 in the comparable 1998 period and the beneficial effects of price increases effective from March 1998. In 1997, selling prices had been maintained at 1996 levels in an effort to build market share. Increases in selling, general and administrative expenses reflect increases in Italy, principally relating to new management personnel at Moto Guzzi and increases, principally in the first quarter, at the wholly owned importers in the U.S. and France. Continuing a Moto Guzzi management policy initiated in mid-1997, research and development in the six months ended June 30, 1998, principally on new products intended for 1998 and 1999 introduction and for new engines, is at levels more than double those incurred in the first six months of 1997. Other income, net is principally comprised of interest income of Lit. 124 million (1997--Lit. 26 million) and foreign exchange differences. The increase in interest expense in the first half of 1998 compared to 1997, reflects interest expense on the long-term loan drawn down in April 1998, on increased levels of advances from banks financing working capital and on increases in loans from affiliates of TRG, the parent company. The effects of this increased indebtedness more than offset the benefits of lower interest rates to 1998 compared to 1997. Income tax in the first six months of 1998 principally relates to operations in Italy, whereas it related to operations in the U.S. in 1997. Despite operating losses at Moto Guzzi, income taxes are accrued as certain business expenses, principally finance expense and labor costs, are not deductible against income for the purposes of a new income tax, introduced in 1998. 58 LIQUIDITY AND CAPITAL RESOURCES Operations and working capital Losses from operations of Lit. 3.4 billion for the six months ended June 30, 1998 include depreciation and other adjustments for non-cash items of Lit. 1.5 billion. Lit. 7.5 billion of cash used in operations for the six months to June 30, 1998 results from working capital movements. Trade and other receivables increased by approximately Lit. 6.5 billion at June 30, 1998 compared to December 31, 1997. The increase principally results from sales to Italian public administration customers in the first quarter of 1998. Public administration receivables typically have collection times in excess of four months. Inventories at June 30, 1998 increased by Lit. 5.8 billion compared to December 31, 1997. This increase reflects seasonal factors and increased levels of components and partly assembled motorcycles at Moto Guzzi resulting from the delays in introducing two new models. Finished motorcycle inventories also increased at Moto America Inc. due to reduction of inventories by dealers at the end of second quarter and at Moto Guzzi France S.a.r.l. due to expansion in business volumes. Guzzi Corp. is implementing plans, including incentives to dealers and other promotions, to reduce finished goods levels at Moto America. Offsetting the effects of the above increases in working capital, trade and other payables at Moto Guzzi increased by approximately Lit. 5.2 billion, reflecting increased production levels. Investing activity Expenditure on plant and equipment principally relates to expenditure at the production facility of Moto Guzzi S.p.A. Expenditure of Lit. 5.1 billion in the first half of 1998 compared to Lit. 1.8 billion in the first half of 1997, reflects the start of investments in plant and machinery in accordance with Guzzi Corp's strategic plan. Financing activities The increase in advances from banks of approximately Lit. 6.5 billion principally reflects financing of increased trade receivables, as noted above. In April 1998, Moto Guzzi drew down Lit. 10 billion under a 10 year long-term loan facility granted by Italian banks, with principal due to be repaid over the last 8 years. At June 30, 1998, approximately Lit. 5.0 billion of these proceeds, destined for further investments in product development, plant and machinery and working capital finance were on deposit with local banks. RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
YEAR ENDED YEAR ENDED DECEMBER 31, 1997 DECEMBER 31, 1996 LIRE M. LIRE M. ------------------ ------------------ Net sales....................................................... 80,987 100.0% 77,620 100.0% Cost of sales................................................... (71,473) (88.3%) (65,755) (84.7%) ------- ------- 9,514 11.7% 11,865 15.3% Selling, general and administrative expenses.................... (13,824) (17.1%) (10,210) (13.2%) Research and development........................................ (3,125) (3.9%) (1,177) (1.5%) Other income, net............................................... 741 0.9% 1,904 2.5% ------- ------- Operating (loss)/profit......................................... (6,694) (8.3%) 2,382 3.1% Interest expense................................................ (3,640) (4.5%) (4,346) (5.6%) ------- ------- Loss before income taxes........................................ (10,334) (12.8%) (1,964) (2.5%) Income taxes.................................................... (235) (0.3%) (32) (0.0%) ------- ------- Net loss........................................................ (10,569) (13.1%) (1,996) (2.6%) ------- ------- ------- -------
Despite a 7.4% decline in unit sales in 1997 over 1996, net sales at Guzzi Corp. increased by 4.3%, due principally to a more favorable sales mix. Total unit sales in 1997 were 5,593 compared to 6,050 in 1996. One of the most significant factors leading to the decrease in units sales was lower sales to public administration bodies, 59 principally in Italy, whereas unit sales to the private sector, in both the Italian and export markets, increased over 1996. Management believes that the principal cause of such decrease of public administration sales was general economic conditions affecting public spending in Italy, including planned government expenditure reduction in order to meet the qualification criteria for Italy's participation in the European Common Currency. Net sales in 1997 also reflected that approximately Lit. 3,800 million at sales value of motorcycles manufactured for public administration customers whose sale was planned for December 1997, but for which the necessary technical checks and clearance were not completed until the first quarter of 1998 and could not be recorded in 1997. Consolidated net sales of parts increased 13% in 1997 over 1996. Net sales of Guzzi Corp.'s exclusive U.S. importer increased by 113% to Lit. 13,000 million, reflecting a 93% increase in local currency terms and the effects of conversion of dollars into lire. Gross margin as a percentage of sales decreased in 1997 compared to 1996 as a result of the Company's policy substantially not to pass on increased component costs to customers. Guzzi Corp. also incurred higher charges for inventory obsolescence in 1997 reflecting continuing moves to higher quality outsourced components and modifications to model specifications. Production increased in 1997 compared to 1996 by 3.4% from 6,027 units to 6,234 units. Guzzi Corp. also made increased investments in development of new products in 1997 with research and development expenditure increasing from Lit. 1,177 million to Lit. 3,125 million. Research and development expenditure encompasses projects for upgrades and restyling of models introduced in late 1997 and for proposed introduction in 1998 as well as longer-term projects related to new motors and new models whose introduction, if at all, will be after 1998. Sales general and administrative expenses increased in 1997 compared to 1996 by approximately 35%, reflecting increased activities in the U.S. importer and the newly formed French importer as well as increased sales and marketing and general management expense at Guzzi Corp. S.p.A. as the Company seeks to redefine and improve its operations in all areas. The principal components of Other income, net in 1997 were currency exchange gains of Lit. 133 million (1996--139 million), gains on sales of assets of Lit. 489 million (1996--Lit. 552 million) and interest income of Lit. 288 million (1996--Lit. 111 million), net of other minor items aggregating Lit. 171 million (1996--income of Lit 652 million). In 1996, the Company also received a grant for research performed in prior years of Lit. 450 million. Guzzi Corp.'s operating loss of Lit. 6,694 million in 1997, compared to an operating profit of Lit. 2,382 million in 1996, arose principally from the following: 1) the decision to maintain 1996 sales prices to support sales objectives; 2) higher levels of inventory obsolescence resulting from product changes and a switch to higher quality components; 3) increased research and development expenditure; 4) increased marketing, sales and general management in connection with expansion of operations in the U.S. and France and plans to improve all areas of its business and 5) lower levels of other income, net. Management believes the investments made in 1997 in quality and new model development and in building a strong management team will produce benefits in 1998 and future years. The decrease in interest expense in 1997 compared to 1996 is due to decreased interest rates more than compensating for higher levels of bank advances and loans from TRG companies in 1997 compared to the previous year. Income taxes relate entirely to the U.S. importer in 1997. In 1996, income taxes reflected Lit. 92 million relative to the U.S. importer and a credit of Lit. 60 million at Guzzi Corp. S.p.A. in Italy, representing a correction of estimates for prior years. 60 RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
YEAR ENDED YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1995 LIRE M. LIRE M. ------------------ ------------------ Net sales....................................................... 77,620 100.0% 64,671 100.0% Cost of sales................................................... (65,755) (84.7%) (54,600) (84.4%) ------- ------- 11,865 15.3% 10,071 15.6% Selling, general and administrative expenses.................... (10,210) (13.2%) (7,486) (11.6%) Research and development........................................ (1,177) (1.5%) (602) (0.9%) Abandonment of Benelli production line.......................... (1,631) (2.5%) Other income, net............................................... 1,904 2.5% 119 0.2% ------- ------- Operating profit................................................ 2,382 3.1% 471 0.7% Interest expense................................................ (4,346) (5.6%) (3,604) (5.6%) ------- ------- Loss before income taxes........................................ (1,964) (2.5%) (3,133) (4.8%) Income taxes.................................................... (32) (0.0%) (100) (0.2%) ------- ------- Net loss........................................................ (1,996) (2.6%) (3,233) (5.0%) ------- ------- ------- -------
Net sales of motorcycles and parts to unaffiliated third parties increased in 1996 over 1995 by 23.2% and 1.4% respectively. Growth in motorcycle sales principally was attributable to increased volumes. Units sold by Guzzi Corp. increased from 5,198 in 1995 to 6,050 in 1996 (excluding sales of old Benelli brand small motorcycle inventory in 1995). Sales of the largest units, those with engine displacement greater than 750cc, increased only by 6% in 1996 over 1995 as they were held back in 1996 by delays in introducing the new Centauro model. Sales growth in 1996 is also in part attributable to the contribution of Moto America Inc. Sales of parts by Guzzi Corp.'s Italian parts distribution business were limited by a relocation of its warehouse during the year. Margins in 1996 benefitted from higher volumes, which had the effect of lowering per-unit fixed costs, but were negatively impacted by higher costs from the outsourcing of components. Sales price increases implemented in March 1996 averaged 5%. Guzzi Corp. had hoped that the gains from volume increases in 1996 would exceed the extra cost of outsourcing, but this was not realized in 1996 due to production shortages of approximately 400 units in the autumn due to late delivery of parts by suppliers. In September, Guzzi Corp. commenced production of its new Centauro model which temporarily slowed production rate. Cost of sales at Guzzi Corp. was adversely impacted by inflationary increases in raw material prices and wages and increased costs for purchases of components which had previously been manufactured in-house. Aluminum prices, which had been a significant factor in raw material cost increases in 1995, were stable in 1996, with a decrease in the second half of the year, which helped to offset price rises of other components. Research and product development expense increased to Lit. 1,177 million in 1996 compared to Lit. 602 million in 1995 in respect of planned new models and continuing development of existing models. In 1995 Guzzi Corp. made a strategic decision to wind down production of smaller Guzzi Corp. and Benelli models leading to exceptional costs for write-downs of tooling and inventories of Lit. 1,631 million. The principal components of Other income, net in 1996 were currency exchange gains of Lit. 139 million (1995--exchange losses of Lit. 442 million), gains on sales of assets of Lit. 552 million (1995--Lit. 160 million), interest income of Lit. 111 million (1995--Lit. 133 million), a grant for research performed in prior years of Lit. 450 million plus other minor items aggregating Lit. 652 million (1995--Lit. 268 million). The increase in interest expense in 1996 compared to 1995 is due to higher levels of bank advances, principally financing working capital, compared to 1995, compensated partly by decreases in interest rates during 1996. 61 In 1996, income taxes reflected Lit. 92 million relative to the U.S. importer and a credit of Lit. 60 million at Moto Guzzi S.p.A. in Italy, representing a correction of estimates for prior years. Income taxes in 1995 were relative to Moto Guzzi S.p.A. LIQUIDITY AND CAPITAL RESOURCES Operations and working capital Negative operating cash flow at December 31, 1997 reflects operating losses at Moto Guzzi and working capital requirements. The Lit. 8.2 billion decrease in trade and other receivables principally reflects that in 1997 Guzzi Corp.'s German sales were to a new 25% owned affiliate, resulting in a corresponding increase in related party receivables of Lit. 5.4 billion. The decline in trade and related party receivables, taken together, reflects the reduction in the level of motorcycle sales in the last quarter of 1997, compared to the last quarter of 1996, principally from decreased sales to the public sector. Inventories increased by Lit. 10.5 billion from December 31, 1996 to December 31, 1997, after adjusting for non-cash reserves made in 1997 of Lit. 3.2 billion. The principal causes for the increase were: 1) the delayed delivery of certain public sector motorcycles planned for 1997 sale but were in finished goods inventories at year end; 2) an increase of 324 units in finished goods destined for various markets reflecting orders awaiting credit clearance and a build-up of buffer stocks; and 3) inventories at the newly formed French distributor and an increase due to higher activity levels at the Guzzi Corp.'s U.S. distributor. Trade payables and other payables and accruals increased by Lit. 3.8 billion at December 31, 1997, compared to December 31, 1996, reflecting longer payment terms accepted by Guzzi Corp.'s suppliers and an increase in line with increased operations. Investing activities Investments in plant, property and equipment principally relate to Guzzi Corp.'s Italian operations where it also incurred research and product development expenses in 1997 of Lit. 3.1 billion which are reported in the statement of operations. In addition to the purchase of plant and equipment for Lit. 3.9 billion, Guzzi Corp. acquired fixed assets for Lit. 760 million by way of leasing, assuming Lit. 570 million of lease obligations at the inception of such leases. Financing activities The net increase in advances from banks principally represents increases to finance working capital. Guzzi Corp. has lines of credit, with banks and other credit institutions amounting to approximately Lit. 4.6 billion, which credit lines are largely secured by trade receivables. While bank advances against receivables are invariably less than 100% of the face value of receivables, bank advances are able to exceed consolidated trade receivables, as advances are available against receivables from the consolidated U.S. and French importers and also against confirmed public administration orders. Lit. 2.9 billion was received from the sale of Guzzi Corp. convertible preferred stock and warrants in January 1997: Lit. 5.1 billion was received in December 1996 from such private placement for a total of Lit. 8.0 billion. Lit. 7.8 billion of financing from TRG, principally represents funds committed by the Board of TRG from the proceeds of its public offering of its common stock in June 1997. FUTURE LIQUIDITY NEEDS Moto Guzzi finances working capital principally by way of advances from banks against trade receivables. No financing is available in Italy for component and other inventories. As Moto Guzzi closes production for most of August, sales for that month are limited and, therefore, Moto Guzzi's ability to draw down on its bank credit lines is reduced. At the same time, trade payables reflecting purchases in June and July are at normal levels. 62 Accordingly, Moto Guzzi, having already drawn the remaining Lit. 5.0 billion liquidity from the proceeds of long-term debt, above, since June 30, will seek to extend supplier credit through this seasonal liquidity low point and will actively seek to secure interim financing pending the consummation of the Merger in order to remain current with its suppliers. While no arrangements have been made, management believes that extended payment terms, coupled with interim short-term financing, will sufficiently cover liquidity needs until consummation of the Merger and increased sales enable Guzzi Corp. to resume increased drawings against credit lines. 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 billion ten-year credit facility in February 1998, with principal to be repaid in the final eight years. Management intends that, subject to short-term cash flow needs, the proceeds, drawn down in April 1998, will be principally applied to investments in plant and machinery and to continuing research and product development. Management expects that, over the next four years, significant further capital, in addition to the amounts raised through the private placement of Guzzi Corp. preferred stock, amounts committed by TRG from proceeds of its public offering and the proceeds of the Lit. 10,000 million debt facilities, will be required to complete the planned overhaul. While anticipated increases in sales during the four-year period, if realized, would provide a significant portion of the needed capital, anticipated internally generated cash and currently available bank financing, in the aggregate, will not be sufficient to enable Moto Guzzi to increase production and sales rapidly enough to generate the remaining needed capital. The cash which will obtained by Guzzi Corp. as a result of the Merger, if consummated, would significantly enhance Guzzi Corp.'s ability to undertake the restoration and rehabilitation program. The exercise of outstanding NAAC warrants and options could, additionally, generate aggregate proceeds to the merged company in excess of U.S. $18 million. These include the NAAC Class A warrants with aggregate proceeds on exercise of over $10 million which are callable by NAAC under certain conditions related to share price performance. CAPITAL COMMITMENTS Guzzi Corp. will have to make significant investments in its existing plant at Mandello de Lario, Italy to modernize its facility in order that it can operate competitively. Such required modernization could cause production interruptions. POTENTIAL EFFECTS OF THE YEAR 2000 ON GUZZI CORP.'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. Guzzi Corp., like many other businesses and individuals, is potentially subject to adverse consequences arising both from the incorrect functioning of systems used in its own business, such as accounting, production control, inventory and automated equipment systems and also from the incorrect functioning of systems used by suppliers, customers, utilities, banks and financial institutions and others with whom it interacts in the normal course of its business. Guzzi Corp. has over the last two years refurbished production and inventory computer systems at its Moto Guzzi manufacturing operation, which relies to the greatest extent on computerized systems for its business. Management has sought assurances from suppliers that the new systems would be compliant with requirements related to the year 2000. Guzzi Corp.'s business does not have unique or custom-tailored requirements for their accounting systems and could rapidly and inexpensively change to "off-the-shelf" systems which are year 2000 compliant if their current systems are found not to be year 2000 compliant despite any 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 institutions, are themselves addressing potential problems on a timely basis so as to be able to provide necessary services to Moto Guzzi. Moto Guzzi has many banking relationships and alternatives for banking services. 63 POTENTIAL EFFECTS OF THE EUROPEAN COMMON CURRENCY ON GUZZI CORP.'S BUSINESS Guzzi Corp.'s businesses are substantially located and operate in Europe and its sole production facility is in Italy. In May 1998, Italy confirmed its participation as one of eleven European countries in a proposed European common currency, the Euro. The European Common Currency is expected to have significant effects on Guzzi Corp.'s business. Among the many potential economic implications, the proposed common currency is expected to increase competition within the common currency zone. Further small 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. Guzzi Corp. 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 against other major currencies such as the Dollar and the Yen. The value of the Euro will also affect the competitiveness of Guzzi Corp. relative to competitors operating outside the Euro zone. 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 Guzzi Corp.'s products. The common currency zone encompasses countries representing over three-quarters of Guzzi Corp.'s 1997 net sales and economic consequences could have material affects on its consolidated business. Adoption of the Euro is expected to take place over a transition phase in which, initially, both the Lira and the Euro would be valid currencies for non-cash business transactions in Italy and within the common currency zone. The European Common Currency could have a significant effect on Guzzi Corp.'s accounting systems which could require significant modification or replacement. Management believes that Guzzi Corp.'s business does 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. Guzzi Corp. is not able to evaluate these matters or the effects on international financial and payment systems with which it interacts at the present time. Guzzi Corp. will address these issues during the current year and in 1999 as further guidelines and information become available. Adoption of the Euro will also lead to Guzzi Corp. reporting its results in that currency instead of the Italian Lira from some point, as yet not defined. 64 UNAUDITED PRO FORMA BALANCE SHEETS The merger between NAAC and Guzzi Corp. will be treated as a reverse acquisition of NAAC by Moto Guzzi Corp. as the shareholders of Guzzi Corp. will hold a majority of the common stock of the post merger company. As NAAC is a shell company with substantial cash but no operations, the substance of the merger transaction is the sale or issuance of Guzzi Corp. stock for the cash and other net assets of NAAC. In consequence, no pro forma financial information is required to be presented in respect of the combination as it is not a business combination as defined by APB 16. The Merger Agreement contemplates, inter alia, an intercompany debt exchange whereby intercompany debt owed to TRG and OAM amounting to Lit. 13,241 million at June 30, 1998 will be exchanged for NAAC securities. Directors of NAAC have also agreed to exercise certain options held by them. Further, up to 160,000 of the outstanding shares of NAAC Class A Common Stock could be required to be redeemed upon closing of the Merger. If holders of more than 160,000 shares of NAAC Class A Common Stock elect for redemption of their shares, the Merger will not be consummated. See "Merger Agreement." The effects of these matters are (i) a contemporaneous recapitalization of the merged company at the Effective Time of the Merger; and (ii) uncertainty as to the liquid resources and net equity of the merged company in respect of the potential redemption of NAAC Class A Common Stock. The following Unaudited Pro Forma Balance Sheets at June 30, 1998 give effect to the matters contemplated in the Merger Agreement and the Merger as if it had occurred on such date. The Unaudited Pro Forma Balance Sheets at June 30, 1998 illustrate two scenarios: where no exercise of redemption rights is made by NAAC shareholders; and where the maximum exercise of 160,000 shares of Class Common Stock is made by NAAC shareholders. The actual number of shares of NAAC Class A Common Stock to be redeemed could be any number between 0 and 160,000. The Unaudited Pro Forma Balance Sheets at June 30, 1998 have been derived by adjusting the unaudited historical financial statements of Guzzi Corp. and NAAC for certain transactions contemplated by the Merger Agreement and for the estimated costs of the transaction, which will be expensed to capital. The Unaudited Pro Forma Balance Sheets at June 30, 1998 are stated in Italian lire as this will be the functional currency of the post merger company and should be read in conjunction with the historical financial statements of Guzzi Corp. and NAAC, included elsewhere in this Proxy Statement/Prospectus. 65 MOTO GUZZI CORP.--NORTH ATLANTIC ACQUISITION CORP. UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS ASSUMING NO EXERCISE OF REDEMPTION RIGHTS BY NAAC SHAREHOLDERS JUNE 30, 1998
NAAC INTER-COMPANY MG CORP. ACTUAL DEBT EXCHANGE RECLASSIFY SHARES ACTUAL MAY 31, 1998 CLASS B MERGER AND NO LONGER SUBJECT MERGER JUNE 30, 1998 (SEE NOTE) OPTION EXERCISE REORGANIZATION TO REDEMPTION EXPENSES LIT. M LIT. M LIT. M LIT. M LIT. M LIT. M ------------- ------------ --------------- -------------- ----------------- -------- ASSETS Cash and cash equivalents.............. 7,447 12,072 533(a) 2,958 (d) Receivables............................ 29,478 Inventories............................ 44,959 Prepaid expenses....................... 924 ------- ------ --- -------- ------- ---- Total current assets................... 82,808 12,072 533 0 2,958 0 Property, plant and equipment.......... 17,606 Cash in escrow for redemption of stock................................ 2,958(d) (d) (2,958)(d) Other assets........................... 1,946 ------- ------ --- -------- ------- ---- Total assets........................... 102,360 15,030 533 0 0 0 ------- ------ --- -------- ------- ---- ------- ------ --- -------- ------- ---- LIABILITIES AND SHAREHOLDERS' EQUITY Advances from banks.................... 33,795 Current portion of long-term debt...... 1,802 Accounts payable....................... 27,663 Accrued expenses and other payables.... 7,447 363 600(e) Amounts due to related and affiliated parties.............................. 853 ------- ------ --- -------- ------- ---- Total Current Liabilities.............. 71,560 363 0 0 0 600 Long-term debt, less current position............................. 13,875 Parent company loans................... 13,241 (13,241)(b) 0 Stock subject to redemption............ 12,886 2,958 (12,886)(c) (2,958)(d) 0 Termination indemnities................ 7,827 Shareholders' (deficit)/equity (Note (f).................................. (17,029) 11,709 533(a) 26,127 (b,c) 2,958 (d) (600)(e) ------- ------ --- -------- ------- ---- Total liabilities and (deficit)/equity..................... 102,360 15,030 533 0 0 0 ------- ------ --- -------- ------- ---- ------- ------ --- -------- ------- ---- PRO FORMA ----------------- US$ LIT. M 000 ------- ------- ASSETS Cash and cash equivalents.............. 23,010 12,949 Receivables............................ 29,478 16,589 Inventories............................ 44,959 25,301 Prepaid expenses....................... 924 520 ------- ------- Total current assets................... 98,371 55,359 Property, plant and equipment.......... 17,606 9,908 Cash in escrow for redemption of stock................................ 0 0 Other assets........................... 1,946 1,095 ------- ------- Total assets........................... 117,923 66,362 ------- ------- ------- ------- LIABILITIES AND SHAREHOLDERS' EQUITY Advances from banks.................... 33,795 18,538 Current portion of long-term debt...... 1,802 988 Accounts payable....................... 27,663 15,174 Accrued expenses and other payables.... 8,410 4,613 Amounts due to related and affiliated parties.............................. 853 468 ------- ------- Total Current Liabilities.............. 72,523 39,781 Long-term debt, less current position............................. 13,875 7,611 Parent company loans................... 0 Stock subject to redemption............ 0 Termination indemnities................ 7,827 4,292 Shareholders' (deficit)/equity (Note (f).................................. 23,698 12,999 ------- ------- Total liabilities and (deficit)/equity..................... 117,923 64,683 ------- ------- ------- -------
Note: The balance sheet of NAAC has been converted from the U.S. Dollar to the Italian Lira using the approximate exchange rate at June 30, 1998 of Lit. 1,777 to the U.S. Dollar. 66 MOTO GUZZI CORP. NORTH ATLANTIC ACQUISITION CORP. UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS ASSUMING MAXIMUM PERMITTED EXERCISE OF REDEMPTION RIGHTS BY NAAC SHAREHOLDERS JUNE 30, 1998
NAAC MG CORP. ACTUAL INTER-COMPANY REDEMPTION OF ACTUAL MAY 31, CLASS B DEBT EXCHANGE MAXIMUM NUMBER PRO JUNE 30, 1998 OPTION MERGER AND OF CLASS A MERGER FORMA 1998 (SEE NOTE) EXERCISE REORGANIZATION SHARES EXPENSES ------- LIT. M LIT. M LIT. M LIT. M LIT. M LIT. M LIT. M -------- ---------- -------- -------------- -------------- -------- ------- ASSETS Cash and cash equivalents.............. 7,447 12,072 533(a) 20,052 Receivables............................ 29,478 29,478 Inventories............................ 44,959 44,959 Prepaid expenses....................... 924 924 -------- ------ ---- -------- ------ ---- ------- Total current assets................... 82,808 12,072 533 0 0 0 95,413 Property, plant and equipment.......... 17,606 17,606 Cash in Escrow for redemption of stock................................ 2,958 (d) (2,958)(d) 0 0 Other assets........................... 1,946 1,946 -------- ------ ---- -------- ------ ---- ------- Total assets........................... 102,360 15,030 533 0 (2,958) 0 114,965 -------- ------ ---- -------- ------ ---- ------- -------- ------ ---- -------- ------ ---- ------- LIABILITIES AND SHAREHOLDERS' EQUITY Advances from banks.................... 33,795 33,795 Current portion of long-term debt...... 1,802 1,802 Accounts payable....................... 27,663 27,663 Accrued expenses and other payables.... 7,447 363 600 (e) 8,410 Amounts due to related and affiliated parties ............................. 853 853 -------- ------ ---- -------- ------ ---- ------- Total current liabilities.............. 71,560 363 0 0 0 600 72,523 Long-tern debt, less current position............................. 13,875 13,875 Parent company loans................... 13,241 (13,241)(b) 0 Stock subject to redemption............ 12,886 2,958 (12,886)(c) (2,958)(d) 0 Termination indemnities................ 7,827 7,827 Shareholders' (deficit) equity (Note (f).................................. (17,029) 11,709 533(a) 26,127 (b,c) (600)(e) 20,740 -------- ------ ---- -------- ------ ---- ------- Total liabilities and (deficit)/equity..................... 102,360 15,030 533 0 (2,958) 0 114,965 -------- ------ ---- -------- ------ ---- ------- -------- ------ ---- -------- ------ ---- ------- US$ 000 ------- ASSETS Cash and cash equivalents.............. 11,284 Receivables............................ 16,58 Inventories............................ 25,301 Prepaid expenses....................... 520 ------- Total current assets................... 55,694 Property, plant and equipment.......... 9,908 Cash in Escrow for redemption of stock................................ Other assets........................... 1,095 ------- Total assets........................... 64,697 ------- ------- LIABILITIES AND SHAREHOLDERS' EQUITY Advances from banks.................... 18,538 Current portion of long-term debt...... 988 Accounts payable....................... 15,174 Accrued expenses and other payables.... 4,613 Amounts due to related and affiliated parties ............................. 468 ------- Total current liabilities.............. 39,781 Long-tern debt, less current position............................. 7,611 Parent company loans................... 0 Stock subject to redemption............ 0 Termination indemnities................ 4,292 Shareholders' (deficit) equity (Note (f).................................. 11,377 ------- Total liabilities and (deficit)/equity..................... 63,061 ------- -------
Note: The balance sheet of NAAC has been converted from the U.S. Dollar to the Italian Lira using the approximate exchange rate at June 30, 1998 of Lit. 1,777 to the U.S. Dollar. 67 NOTES TO UNAUDITED PRO FORMA BALANCE SHEETS AT JUNE 30, 1998: (a) Represents exercise of 30,000 Class B Options for 60,000 shares of NAAC Class A Common Stock and 60,000 NAAC Class A Warrants by the officers of NAAC. The proceeds of exercise will be $300,000 (Lit. 533 million). (b) Represents the Intercompany Debt Exchange under which OAM and TRG will exchange intercompany debt due to it by Guzzi Corp. of Lit. 12,919 million plus interest accrued from January 1, 1998 for a total of Lit. 13,241 million at June 30, 1998, for 1,038,040 shares of NAAC Class A Common Stock, 65,743 shares of NAAC Class B Preferred Stock and 20.76% of the Nominal Warrants that may be issued subject to certain future performance criteria. See also note (f) below. (c) Represents the exchange of all outstanding Guzzi Corp. redeemable convertible preferred stock, classified outside shareholders equity/(deficit) in the financial statements of Guzzi Corp., for 740,490 shares of NAAC Class A Common Stock, 46,898 shares of NAAC Class B Preferred Stock and 14.81% of the Nominal Warrants that may be issued subject to certain future performance criteria. See also note (f) below. (d) In the situation where there is no exercise of redemption rights made by holders of shares of NAAC Class A Common Stock, represents termination of such redemption rights and relief of restriction over cash reserved for such contingent redemption. In the situation involving the maximum exercise of redemption rights of 160,000 shares of NAAC Class A Common Stock are made by holders of such shares, represents repurchase of such shares. (e) Represents estimated merger expenses to be incurred by NAAC, to be charged to capital. In accordance with the Merger Agreement, merger expenses incurred on behalf of Guzzi Corp. will be paid by TRG. This will be accounted for as a contribution by TRG to Guzzi Corp., recorded as a debit to merger expenses and a credit to additional paid-in capital. As the merged company will charge all merger expenses against additional paid-in capital, there will be no effect in the income statement and no net effect on shareholder's equity. (f) The merger will be accounted for as a reverse acquisition by Guzzi Corp. of NAAC. Pursuant to this: (i) Share capital and additional paid-in capital will be restated for the issuance of a total of the 3,702,450 shares of NAAC Class A Common Stock and 234,489 shares of NAAC Class B Preferred Stock in exchange for the outstanding Common Stock of Guzzi Corp. and for the shares issued in exchange for the Intercompany Debt (note (b) above) and redeemable convertible preferred stock (note (c) above) of Guzzi Corp.; (ii) The retained earnings of NAAC will be canceled against additional paid in capital at the date of the merger; and (iii) The share capital of Guzzi Corp. will eliminate against additional paid-in capital. The functional currency of the merged company will be the Italian lira* as substantially all of the Company's consolidated assets and production are in Italy and the majority of its consolidated sales will be made from Italy. As NAAC will be the parent company, its share capital and additional paid-in capital will be those reported for the consolidated entity. For financial reporting purposes, the amounts in lire* to be reported for share capital and additional paid in capital of NAAC, which maintains its accounting records in U.S. Dollars, will be fixed at the rate of exchange prevailing at the date of the merger. The above accounting will be applied retrospectively for the presentation of balance sheets at dates prior to the date of the merger. - ------------------ * Until the company elects to or is required to report in Euro (See "Guzzi Corp.: Management's Discussion and Analysis: Potential effects of proposed European Common Currency on the Company's Business") or unless its business circumstances change so as to determine a change in functional currency. 68 PROPOSAL 2: ADOPTION OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION A series of amendments to the Certificate of Incorporation of NAAC is required to be made in order to enable the Merger to be effected. Since all such changes are required, the Board of Directors of NAAC has proposed to amend and restate the Certificate of Incorporation for ease of reference, and has proposed that all such amendments be voted on in a single proposal. Collectively, the amendments would: (A) change the corporate name of NAAC to "Moto Guzzi Corporation"; (B) increase the total number of shares which NAAC will have authority to issue to Twenty Million (20,000,000), of which (i) 15 Million (15,000,000) shall be Class A Common Stock, par value $.01 per share, (ii) Two Hundred Fifty Thousand (250,000) shall be Class B Common Stock, par value $.01 per share, and (iii) Four Million Seven Hundred and Fifty Thousand (4,750,000) shall be preferred stock, par value $.01 per share, of which One Hundred (100) shall be designated Class A Convertible Preferred Stock and Three Hundred Fifty Thousand (350,000) shall be designated as Class B Convertible Preferred Stock; (C) provide for classification of the Board of Directors into three classes serving staggered terms;(D) require a vote of two-thirds of the outstanding stock to amend or repeal the by-laws, or by affirmative vote of a majority of the Board of Directors, subject to certain exceptions; (E) provide that the affirmative vote of two-thirds of all stock shall be required to fill a vacancy in the Board of Directors created by an increase in the size thereof or by termination of a director if not otherwise filled by the remaining members of the Board of Directors; (F) provide that members of the Board of Directors may be removed only for cause and only by action of the Board of Directors or upon the affirmative vote of two-thirds of all stock; and (G) require NAAC to indemnify its officers and directors, subject to certain exceptions required by law. The affirmative vote of a majority in interest of the outstanding NAAC Common Shares is required to adopt the Amended and Restated Certificate of Incorporation. If the Merger is not consummated, the Certificate of Incorporation will not be amended notwithstanding stockholder approval of such proposal. Approval of the Amended and Restated Certificate of Incorporation by the NAAC stockholders is a condition to the Merger. Consequently, if the NAAC stockholders fail to approve this proposal, the Merger will not be consummated, regardless of whether the Merger was approved, and in such event the current provisions of the NAAC Certificate of Incorporation and the Delaware General Corporation Law will continue to govern. NAME CHANGE The Board of Directors believes that, following the Merger, the name Moto Guzzi Corporation will be more representative of the business in which NAAC will be engaged. INCREASE IN AUTHORIZED CAPITAL The Certificate of Incorporation of NAAC currently authorizes an aggregate of 11,250,000 shares of stock, of which 10,250,000 are shares of common stock, $.01 par value per share, and 1,000,000 are shares of preferred stock, $.01 par value per share. Of the common stock, 10,000,000 shares are designated as NAAC Class A Common Stock, and 250,000 shares are designated as NAAC Class B Common Stock. Of the preferred stock, 100 shares are designated as Series A Convertible Preferred Stock. The Board of Directors of NAAC believes that the capital structure needs to be amended in connection with the Merger to increase the NAAC Class A Common Stock to 15,000,000 in order to permit the issuance of shares subject to existing NAAC options and warrants, to permit the issuance of sufficient shares to the shareholders of Guzzi Corp. and to enable shares of NAAC Class A Common to be used for possible future acquisitions. The Board of Directors also believes that it is appropriate to increase the number of shares of preferred stock to 5,000,000 in order to permit the issuance of sufficient shares in connection with the Merger, and to enable preferred shares to be used for possible future acquisitions or financings. There are no present plans to make any such acquisitions or to secure financings. As required by the Merger Agreement, the NAAC Class B Preferred Stock will have a stated value of $15 per share, will entitle the holders thereof to receive cumulative dividends of 5% of such stated value as and when declared by the Board of Directors, payable annually on December 31 of each year commencing in 1999. Such dividends will accrue from January 1, 1999. In the event of any voluntary or involuntary liquidation, dissolution or winding up of NAAC, the holders of NAAC Class B Preferred Stock are entitled to receive the greater of such stated value plus all accrued and unpaid dividends or the amount that would have been received had such shares 69 been converted into NAAC Class A Common Stock prior to any distributions to holders of such NAAC Class A Common Stock. The holders of NAAC Class B Preferred Stock are entitled to vote with the holders of the NAAC Common Stock as if the shares of NAAC Class B Preferred Stock had been converted. The NAAC Class B Preferred Stock will be convertible at any time into an equal number of shares of NAAC Class A Common Stock, subject to certain adjustments. No change is being made under this Proposal to the terms of the NAAC Class A Preferred Stock or the NAAC Class B Common Stock. Under Proposal No. 5, to be voted upon separately from this Proposal No. 2, the holders of the NAAC Class B Common Stock, voting separately as a class, will be asked to amend the Certificate of Incorporation to eliminate authorization of the NAAC Class B Common Stock. AMENDMENT OR REPEAL OF BY-LAWS The proposal includes a provision to require a vote of two-thirds of all outstanding shares of stock to effect the adoption of new by-laws or the amendment of any existing by-laws, in addition to the power to amend the by- laws currently held by the Board NAAC. Absent such a provision, the vote of a simple majority of the outstanding shares could effect such amendments. By-laws adopted by vote of the shareholders may not thereafter be amended by the NAAC Board. CLASSIFICATION OF THE NAAC BOARD Under the amendment, the NAAC Board will consist of three classes, each class as nearly equal as possible, serving staggered terms of three years (after expiration of an initial term which for two classes will be less than three years; see "PROPOSAL 3: ELECTION OF DIRECTORS"), with one class being elected each year. Assuming stockholder approval of this proposal, the nominees for election to the NAAC Board would be classified as recommended in Proposal 3, and the stockholders would vote for the nominees for the terms set forth in such Proposal. The NAAC Board believes that the staggered three-year term of a classified board of directors, as opposed to the one-year term that the current Certificate of Incorporation provides for, will help to assure the continuity and stability of the NAAC's policies in the future, because a majority of the directors at any given time will have prior experience as directors of NAAC. It is, additionally, a condition of the Merger. In order to establish three staggered classes, certain of the directors elected at the Annual Meeting would serve initial terms of less than three years: the term of one class of two directors (Class I) would terminate at the annual meeting of stockholders to be held during the 1999 fiscal year, the term of the second class of three directors (Class II) would terminate at the annual meeting of stockholders to be held during the 2000 fiscal year, and the term of the third class of three directors (Class III) would terminate at the annual meeting of stockholders to be held during the 2001 fiscal year. There is no cumulative voting in the election of directors; therefore, a plurality of the votes cast at a meeting for directors of a class would elect all the directors of that class. The classification provision will apply to every election of directors, whether or not a change in a majority of the board of directors arguably might be beneficial to NAAC and its stockholders and whether or not a majority of the NAAC stockholders believes that such a change might be desirable. REMOVING DIRECTORS AND FILLINGS VACANCIES The proposal will permit a member of the NAAC Board to be removed only for cause, and a vacancy created thereby or by an increase in the size of the NAAC Board may be filled, only by vote of the remaining members of the Board of Directors or by affirmative vote of two-thirds of the outstanding stock. The NAAC Board believes that these provisions facilitate attracting qualified outside directors to serve on the NAAC Board. INDEMNIFICATION The proposal includes a provision to require the Corporation to indemnify its officers and directors to the extent permitted under applicable Delaware law. The NAAC Board believes that NAAC will be better able to attract and retain qualified outside directors by adopting the indemnification provisions of the Delaware General Corporation Law. 70 ANTI-TAKEOVER CONSIDERATIONS The provisions of the proposed Certificate of Incorporation relating to the creation of a staggered board of directors, the requirement that two-thirds of the outstanding stock is needed to amend or repeal the by-laws for the stockholders to act on such a proposal, the requirement that an affirmative vote of two-thirds of the outstanding stock is needed to fill a vacancy on the board of directors not otherwise filled by the board of directors, and the provision that directors may only be removed for cause and only by action of the board of directors or upon the affirmative vote of two-thirds of all stock, may have together and independently anti-takeover effects. These proposals, if adopted, may discourage attempts by others to acquire control of NAAC without negotiation with the NAAC Board and are an attempt to insure that transactions are on terms favorable to all the stockholders of NAAC. For various reasons, however, these proposals may not always be in the best interests of NAAC or its stockholders. The Company's Certificate of Incorporation already permits the NAAC Board to issue preferred stock, with rights and powers as determined by the NAAC Board in its sole discretion. These issuances may be used as a means to discourage takeovers. The proposal to amend the Certificate of Incorporation will increase the authorized NAAC Class A Common Stock and NAAC Preferred Stock which may have anti-takeover consequences. The overall effect of the proposed amendments and certain provisions of the Certificate of Incorporation is to render more difficult a hostile takeover or tender offer attempt and to make more difficult the removal of management. None of these proposals is the result of any specific effort to accumulate securities of NAAC or to obtain control by means of merger, tender offer, solicitation in opposition to management or otherwise. Classified Board. If included in the Certificate of Incorporation, the classification of the board will apply to every future election of directors. The classification of directors will have the effect of making it more difficult to change the overall composition of the NAAC Board. At least two stockholders' meetings will be required for stockholders to effect a change in a majority of the NAAC Board. Currently, by operation of DGCL and the NAAC Certificate of Incorporation, as it would otherwise be in effect after the consummation of the Merger, only one stockholders' meeting would be required to effect a change in the majority of the NAAC Board. Although there has been no problem in the past with the continuity or stability of the NAAC Board, the NAAC Board believes that the longer time required to elect a majority of a classified board of directors will help assure continuity and stability in the management of the business and affairs of NAAC in the future, because a majority of the directors at any given time will have prior experience as directors of NAAC. A classified board of directors may also provide additional time to review any proposal for a business combination, corporate restructuring, or other significant transactions and the alternatives to such transactions. Accordingly, there would be a greater opportunity to assure that the interest of the NAAC stockholders are protected to the maximum extent possible. Under the DGCL, directors may be removed at any time without cause by the holders of a majority of the shares then entitled to vote at an election of directors unless the board of directors is classified. This proposal for a classified board of directors and the proposal to eliminate the right to remove directors other than for cause, will remove the stockholders right to remove a director without cause. Supermajority Provisions. The proposals to provide that at least two-thirds of the outstanding stock approve amendments to the by-laws by action of the stockholders, to fill a vacancy on the board of directors not otherwise filled by the board of directors, and to remove a director for cause, is designed to prevent a person holding or controlling a majority but less than two-thirds, of the outstanding stock of NAAC from avoiding the requirements of these proposed amendments by simply working around them. Under the current Certificate of Incorporation and the DGCL, these actions could be taken by simple majority vote of the outstanding stock. Although NAAC believes that the material provisions of the amendment to the Certificate of Incorporation are set forth above, reference should be made to the text of such NAAC Certificate of Amendment for the form of amendment, a copy of which is attached to this Proxy Statement/Prospectus as Annex IV. THE NAAC BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE ADOPTION OF THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION. 71 PROPOSAL 3: ELECTION OF DIRECTORS At the Annual Meeting, eight directors are to be elected to hold office commencing upon the consummation of the Merger. If the proposed amendment to the NAAC Certificate of Incorporation providing for classification of the NAAC Board into three classes, as described under "Proposal 2: Adoption of Amended and Restated Certificate of Incorporation," is adopted, two directors (Class I) will be elected for a term expiring at the annual meeting of stockholders to be held during the 1999 fiscal year, three directors (Class II) will be elected for a term expiring at the annual meeting of stockholders to be held during the 2000 fiscal year and three directors (Class III) will be elected for a term expiring at the annual meeting of stockholders to be held during the 2001 fiscal year. The Class I nominees are and Frank J. O'Connell. The Class II nominees are , Emanual Arbib and Peter Hobbins. The Class III nominees are Howard E. Chase, Mark S. Hauser and David J. Mitchell. Of the nominees, Mr. Mitchell currently serves as a director of NAAC. Upon the expiration of the initial terms of the directors in each of the classes, their successors will be elected for terms of three years. Those nominees for director in each class receiving a plurality of the votes cast at the Annual Meeting for directors for such class will be elected. If the proposed amendment to the NAAC Certificate of Incorporation providing for classification of the NAAC Board is not adopted, or if the Merger is not consummated, none of these nominees will serve as directors of NAAC except Mr. Mitchell who with the two other current directors of NAAC, Messrs. McMillen and Nasser, will continue as the board of directors of NAAC. Unless otherwise specified, the proxies solicited by NAAC will be voted "FOR" the nominees mentioned above. In case any such nominee becomes unavailable for election to the NAAC Board, which is not anticipated, the persons named in the enclosed form of proxy will have full discretion to vote or refrain from voting for any other nominee in accordance with their best judgment. The nominees, their ages, the year in which each first became a director and the positions held on the date hereof, if any, are as follows:
DIRECTOR NOMINEE AGE SINCE CURRENT POSITION - ------- --- -------- ---------------- Emanuel Arbib.............................. 31 -- Director Nominee Howard E. Chase............................ 62 -- Director Nominee Mark S. Hauser............................. 40 -- Director Nominee Peter Hobbins.............................. 69 -- Director Nominee David J. Mitchell.......................... 37 1996 Chief Executive Officer and Director Frank J. O'Connell......................... 55 -- Director Nominee .......................... -- -- Director Nominee .......................... -- -- Director Nominee
Emanuel Arbib has been the Chief Financial Officer of TRG since March 1998. He became a director of TRG on May 2, 1997. He is the Managing Director of Capital Management Ltd, an international money management firm based in Jersey, Channel Islands. He is also the co-founder and Managing Director of Global Investment Advisors, a London-based investment company. Since January 1996, he has served as managing Director of BioSafe Europe, an affiliate of BioSafe International Inc., a publicly traded company engaged in waste management and landfill reclamation. Since September, 1996, he has served as a director of International Capital Growth Ltd., and its European subsidiary Capital Growth (Europe) Ltd., investment banking firms. Howard E. Chase has served as Chairman of the Board of TRG since March 1998, as a director thereof since 1971, as Secretary and as outside counsel from 1971 until September, 1995 and as President and Chief Executive Officer thereof from October, 1995 to March 1998. He has also served as vice-president of TRG from 1986 to October, 1995; a partner of Morrison Cohen Singer & Weinstein, LLP, outside counsel to TRG, from April, 1984 until September, 1995; and a director of Thoratec Laboratories, Inc., a Nasdaq-traded company, since 1987. 72 Mark S. Hauser has been the President and Chief Executive Officer of TRG since March 1998, and a director of TRG since May 2, 1997. He is an attorney and a founder and Managing Director of Tamarix Capital Corporation, a New York-based merchant and investment banking firm. Between 1986 and 1990, Mr. Hauser was Managing Director of Ocean Capital Corporation, an international investment banking firm. He currently serves as a director of Integrated Technologies of Israel, Ltd., a joint venture of an investment group and Israel Aircraft Industries, and of Direct Language Communications, Inc., a multilingual communications services company. Dr. Peter Hobbins has been a director of Tarimco, Ltd., a Switzerland-based portfolio management firm since 1987. Dr. Hobbins also serves as a Member of the Board Strategy Committee of Danzas, a Swiss based, global forwarding and logistics corporation. From 1993 to 1995, Dr. Hobbins was a director of Corange Ltd., a company in the health care industry, and from 1990 to 1995, he was a director of Forum Corporation, a company in the field of management education. Dr. Hobbins also spent 10 years with McKinsey & Company in Europe. Dr. Hobbins is the uncle of Mr. Mitchell. David J. Mitchell has been Chairman of the Board, Chief Executive Officer and a director of the Company since October 1996. He also has been President of Mitchell & Company, Ltd., a New York-based merchant banking company founded by him in January 1991 and President of AmeriCash L.L.C., a national network of automated teller machines in non-bank locations and is co-owner of Crunch Cosmetics L.L.C., a joint venture with Crunch Fitness International, Inc. Mr. Mitchell has also been a partner of Petherton Capital Corporation, a privately owned real estate investment company, since March 1992. Mr. Mitchell is a director of Kellstrom Industries, Inc., a NASDAQ-listed company, and Bogen Communications International, Inc., an American Stock Exchange Company, as well as several private companies. Frank J. O'Connell has been Chairman of the Board of Gibson Greetings, Inc. since April, 1997 and has been Chief Executive Officer and President since August, 1996. He was a business consultant from May, 1995 to August, 1996. He served as the President and Chief Executive Officer of SkyBox International, Inc. ("SkyBox"), a trading card manufacturer, from July, 1991 to May, 1995. Prior to joining SkyBox, he was a venture capital consultant from February, 1990 to July, 1991, and served as President of Reebok Brands, North America from February, 1988 to February, 1990. COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS No executive officer of NAAC has received any cash compensation from NAAC since its inception for services rendered. David J. Mitchell and C. Thomas McMillen, in consideration for their service as directors and officers of NAAC were each granted options to purchase an aggregate of 50,000 units, each unit consisting of one share of NAAC Class A Common Stock and one NAAC Class A Warrant, at an exercise price of $12.50 per unit, until the third anniversary of a Business Combination and options to purchase an aggregate of 15,000 shares of NAAC Class B Common Stock at $10.00 per share, which each has agreed to exercise at the Effective Time of the Merger. Directors receive reimbursement for any out-of-pocket expenses incurred in connection with NAAC's business. See "The Merger Agreement--Certain Relationships and Related Transactions." The Company does not pay directors' fees. Under the Merger Agreement, non-employee directors will annually receive options to purchase 12,500 shares of NAAC Class A Common Stock commencing on the effective date of the Merger and on each January 2 in a year in which they serve as directors, commencing on January 2, 2000. NAAC BOARD MEETINGS AND COMMITTEES During the fiscal year ended August 31, 1998, the NAAC Board met or otherwise took other action on one occasion. All the members of the NAAC Board attended the meeting. The NAAC Board has established no committees. The NAAC Board has no compensation policies required to be disclosed as none of its executive officers receives any compensation. See "The Merger Agreement--Interest of Certain Persons After the Merger" for a discussion of certain compensation to be paid to the officers and directors of the post-Merger corporation. 73 COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT Section 16(a) of the Exchange Act requires officers, directors and persons who beneficially own more than 10% of a registered class of equity securities of NAAC ("10% stockholders") to file reports of ownership and changes in ownership with the Commission. Officers, directors and 10% stockholders also are required to furnish NAAC with copies of all Section 16(a) forms they file. Based solely on its review of the copies of such forms furnished to it, and written representations that no other reports were required, NAAC believes that during the fiscal year ended August 31, 1998, each of its officers, directors and 10% stockholders complied with the Section 16(a) reporting requirements. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS NAAC pays $2,500 per month to Mitchell & Company, Ltd. for office space and certain office and secretarial services. David J. Mitchell, a director, Chairman of the Board, and Chief Executive Officer of NAAC, also controls Mitchell & Company, Ltd. NAAC management believes that this arrangement is on terms at least as favorable as would be available from an unaffiliated third party. This agreement will terminate upon consummation of the Merger. Upon consummation of the Merger directors and executive officers of NAAC will receive compensation for their services in the form of stock options and reimbursement of expenses. See "THE MERGER AGREEMENT--Interest of Certain Persons After the Merger." THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ELECTION OF THE EIGHT NOMINEES LISTED ABOVE AS DIRECTORS PROPOSAL 4: APPROVAL OF STOCK OPTION PLANS On July 23, 1998, the NAAC Board adopted the Stock Option Plans, subject to tockholder approval and consummation of the Merger. The 1998 Stock Option Plan provides for the grant of options to purchase up to an aggregate of 1,250,000 shares of NAAC Class A Common Stock to be made to employees, officers, directors and consultants of NAAC and its subsidiaries after the Merger. An aggregate of 625,000 of such options will be granted at the Effective Time. The 1998 Stock Plan for Outside Directors provides for the grant of options to purchase up to an aggregate of 400,000 shares of NAAC Class A Common Stock, to the non-employee directors of NAAC, each grant to be on the effective date of the Merger and on each January 2, beginning January 2, 2000, of options to purchase 12,500 shares of NAAC Class A Common Stock. The Stock Option Plans are intended to assist NAAC and its subsidiaries after the Merger in attracting, retaining and motivating employees, officers, directors and consultants of particular merit. The affirmative vote of a majority in interest of shares of NAAC Common Stock present in person or represented by proxy at the Annual Meeting is required to approve the Stock Option Plans. Approval of the Stock Option Plans by the NAAC stockholders is a condition to the Merger. The following summaries of each plan are subject in all respects to the full texts thereof attached as Annex V and VI hereto. THE NAAC BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE STOCK OPTION PLANS SUMMARY OF THE 1998 STOCK OPTION PLAN Administration The 1998 Stock Option Plan will be administered by the NAAC Board of Directors or by a committee ("Committee") appointed by the NAAC Board, whose members will serve at the pleasure of the NAAC Board of Directors. If appointed, the Committee will have two or more members, each of whom will be a "Non- Employee Director" within the meaning of the Exchange Act, (i.e., is not an officer of the issuer, receives no 74 compensation other than as a director, has no interest in any transactions or any engagement in business relationships with the issuer or its subsidiaries requiring disclosure under the Exchange Act) and is an "outside director" within the meaning of the Code. If no Committee is so designated, then the 1998 Stock Option Plan will be administered by the NAAC Board. The NAAC Board or, if appointed, the Committee, has full authority, subject to the provisions of the Stock Option Plan, to (i) grant options and determine their exercise price, (ii) designate options as Incentive Stock Options or Non-Qualified Stock Option, and (iii) determine the grantees of the options. The Committee cannot, without approval of the NAAC Board, (i) accelerate the vesting of any options, (ii) alter the exercise price or (iii) alter any other term of an option after grant. The interpretation and construction by the Board or the Committee of any provisions of, and the determination of any questions arising under, the 1998 Stock Option Plan or any rule or regulation established by the NAAC Board or the Committee pursuant to the 1998 Stock Option Plan will be final, conclusive and binding on all persons interested in the 1998 Stock Option Plan. Shares Subject to the Plan; General Terms The 1998 Stock Option Plan provides for the issuance of options to purchase up to 1,250,000 shares of NAAC Class A Common Stock. In order to prevent the dilution or enlargement of the rights of grantees under the 1998 Stock Option Plan, the number of shares of NAAC Class A Common Stock authorized by the Stock Option Plan is subject to adjustment by the NAAC Board in the event of any increase or decrease in the number of shares of outstanding NAAC Class A Common Stock resulting from a stock dividend, stock split, reverse stock split, merger, reorganization, consolidation, recapitalization or other change in corporate structure affecting the NAAC Class A Common Stock. If any option granted under the 1998 Stock Option Plan is forfeited or terminated, the shares of NAAC Class A Common Stock that were available pursuant to such award of options will again be available for distribution in connection with awards subsequently granted under the 1998 Stock Option Plan. Eligibility Subject to the provisions of the 1998 Stock Option Plan, awards of options may be granted to key employees, officers, directors, consultants and other persons who are deemed to have rendered or to be able to render significant services to NAAC or its subsidiaries and are deemed to have contributed or to have the potential to contribute to the success of NAAC. Incentive Options (as hereinafter defined) may be awarded only to persons who, at the time of such awards, are employees of NAAC or its subsidiaries. Types of Options The 1998 Stock Option Plan provides both for "incentive stock options" ("Incentive Options") as defined in Section 422 of the Code, and for options not qualifying as Incentive Options ("Non-qualified Options"), both of which may be granted with any other stock-based award under the 1998 Stock Option Plan. The NAAC Board or the Committee will determine the exercise price for each share of NAAC Class A Common Stock purchasable under an Incentive or Non-qualified Option (collectively, "Options"). The exercise price of a Non-qualified Option may be less than 100% of the fair market value on the last trading day before the date of the grant. The exercise price of an Incentive Option may not be less than 100% of the fair market value on the last trading day before the date of grant (or, in the case of an Incentive Option granted to a person possessing at the time of grant more than 10% of the total combined voting power of all classes of stock of NAAC, not less than 110% of such fair market value). The NAAC Board or the Committee determines when Options are to be granted and when they may be exercised. However, Options may only be granted within a ten-year period commencing on July 23, 1998 and Incentive Options may only be exercised within ten years of the date of the grant (or within five years in the case of an Incentive Option granted to a person who, at the time of the grant, owns stock possessing more than 10% of the total combined voting power of all classes of stock of NAAC or of its parent or any subsidiary). Subject to any limitations or conditions of the 1998 Stock Option Plan and as imposed by the NAAC Board of Directors or the Committee, Options may be exercised, in whole or in part, during the term of the Option by giving written notice of exercise to NAAC specifying the number of shares of NAAC Class A Common Stock to be purchased. 75 Such notice must be accompanied by payment in full of the purchase price, either in cash or in securities of NAAC, or by a combination thereof. Options granted under the 1998 Stock Option Plan are exercisable only by the grantee during his or her lifetime and may not be transferred other than by will or by the laws of descent and distribution. Generally, if the grantee received an option as an employee of NAAC or a subsidiary, no Option, or any portion thereof, granted under the 1998 Stock Option Plan may be exercised by the grantee unless he or she is employed by NAAC or a subsidiary at the time of the exercise and has been so employed continuously from the time the Option was granted and for the 60 days following termination unless terminated for cause. However, in the event the holder's employment with NAAC is terminated due to disability, the grantee may still exercise his or her Option for a period of one year (or such other lesser period as the Board or the Committee may specify at the time of grant) from the date of such termination or until the expiration of the stated term of the Option, whichever period is shorter. Similarly, should a grantee die while in the employment of NAAC or a subsidiary, his or her legal representative or legatee under his or her will may exercise the decedent grantee's Option for a period of two years from death (or such other greater or lesser period as the NAAC Board or the Committee specifies at the time of grant) or until the expiration of the stated term of the Option, whichever is shorter. Withholding Taxes Upon the exercise of any option granted under the 1998 Stock Option Plan, the grantee may be required to remit to NAAC an amount sufficient to satisfy all Federal, state and local withholding tax requirements prior to delivery of any certificate or certificates for NAAC Class A Common Shares. Subject to certain stringent limitations under the 1998 Stock Option Plan and at the discretion of NAAC, the grantee may satisfy these requirements by electing to have NAAC withhold a portion of the shares to be received upon the exercise of the option having a value equal to the amount of the withholding tax due under applicable Federal, state and local laws. Agreements Options granted under the 1998 Stock Option Plan will be evidenced by agreements consistent with the 1998 Stock Option Plan in such form as the Board or the Committee may prescribe. Neither the 1998 Stock Option Plan nor agreements thereunder confer any right to continued employment upon any grantee. Term and Termination of the 1998 Stock Option Plan The 1998 Stock Option Plan will be effective as of July 23, 1998 ("Effective Date"), subject to the approval of the 1998 Stock Option Plan by the stockholders of NAAC. Unless terminated by the NAAC Board, the 1998 Stock Option Plan shall continue to remain effective until such time as no further options may be granted and all Awards granted under the 1998 Stock Option Plan are no longer outstanding. Amendments to the 1998 Stock Option Plan The NAAC Board may at any time, and from time to time, amend, alter, suspend or discontinue any of the provisions of the 1998 Stock Option Plan, but no amendment, alteration, suspension or discontinuance shall be made that would impair the rights of a grantee of any option theretofore granted, without his or her consent. FEDERAL INCOME TAX CONSEQUENCES The following discussion of the Federal income tax consequences of participation in the 1998 Stock Option Plan is only a summary of the general rules applicable to the grant and exercise of stock options and does not purport to give specific details on every variable and does not cover, among other things, state, local and foreign tax treatment of participation in the 1998 Stock Option Plan. The information is based on present law and regulations, which are subject to being changed prospectively or retroactively. 76 Incentive Options The Participant will recognize no taxable income and NAAC will not qualify for any deduction upon the grant or exercise of an Incentive Option. Upon a disposition of the shares underlying the Option after the later of two years from the date of grant or one year after the issuance of the shares to the optionee, the optionee will recognize the difference, if any, between the amount realized and the exercise price as long-term capital gain or long-term capital loss (as the case may be) if the shares are capital assets. The excess, if any, of the fair market value of the shares on the date of exercise of an Incentive Option over the exercise price will be treated as an item of adjustment in computing the alternative minimum tax for an optionee's taxable year in which the exercise occurs and may result in an alternative minimum tax liability for the optionee. If shares of NAAC Class A Common Stock are acquired upon the exercise of an Incentive Option are disposed of before expiration of the necessary holding period of two years from the date of the grant of the Option and one year after the exercise of the Option, (i) the Optionee will recognize ordinary compensation income in the taxable year of disposition in an amount equal to the excess, if any, of the lesser of the fair market value of the shares on the date of exercise or the amount realized on the disposition of the shares, over the exercise price paid for such shares; and (ii) NAAC will qualify for a deduction equal to any such amount recognized, subject to the limitation that the compensation be reasonable. To the extent the aggregate fair market value of stock with respect to which Options are exercised for the first time by an individual during any calendar year exceeds $100,000, such Options will not quality as Incentive Options. The optionee will recognize the excess, if any, of the amount realized over the fair market value of the shares on the date of exercise, if the shares are capital assets, as short-term or long-term capital gain, depending on the length of time that the optionee held the shares, and NAAC will not qualify for a deduction with respect to such excess. In the case of a disposition of shares in the same taxable year as the exercise of the Option, where the amount realized on the disposition is less than the fair market value of the shares on the date of exercise, there will be no adjustment since the amount treated as an item of adjustment, for alternative minimum tax purposes, is limited to the excess of the amount realized on such disposition over the exercise price, which is the same amount included in regular taxable income and certain limitations that apply with respect to highly compensated officers. Non-qualified Options With respect to Non-qualified Options (i) upon grant of the Option, the optionee will recognize no income; (ii) upon exercise of the Option (if the shares of NAAC Class A Common Stock are not transferable or subject to a substantial risk of forfeiture), the optionee will recognize ordinary compensation income in an amount equal to the excess, if any, of the fair market value of the shares on the date of exercise over the exercise price, and NAAC will qualify for a deduction in the same amount, subject to the requirement that the compensation be reasonable; and (iii) NAAC will be required to comply with applicable Federal income tax withholding requirements with respect to the amount of ordinary compensation income recognized by the optionee. On a disposition of the shares, the optionee will recognize gain or loss equal to the difference between the amount realized and the sum of the exercise price and the ordinary compensation income recognized. Such gain or loss will be treated as capital gain or loss if the shares are capital assets and as short-term or long-term capital gain or loss, depending upon the length of time that the optionee held the shares. If the shares acquired upon exercise of a Non-qualified Option are not transferable and subject to a substantial risk of forfeiture, the optionee will recognize income at the time when the shares become transferable or the substantial risk of forfeiture is removed and NAAC will qualify for a corresponding deduction at such time. 1998 STOCK PLAN FOR OUTSIDE DIRECTORS The following summary of the principal provisions of the 1998 Stock Option Plan for Outside Directors ("1998 Directors Plan"). The 1998 Directors Plan provides for the issuance of options to purchase up to 400,000 shares of NAAC Class A Common Stock. All options will be non-incentive options. The number of shares of NAAC Class A Common Stock are subject to adjustment by the NAAC Board in the event of any increase or decrease resulting from a stock dividend, stock split, reverse stock split, merger, reorganization, consolidation, recapitalization or other change in corporate structure affecting the NAAC Class A Common Stock. 77 All non-employee directors will annually receive, on the Effective Date of the Merger and on each January 2 beginning in 2000, options to purchase 12,500 shares under the 1998 Directors Plan. Each option will be nontransferable except in the event of death and will expire upon the earlier of ten years following the date of grant or three months following the date on which the grantee ceases to serve as a director. All options will be exercisable at the reported closing price of the NAAC Class A Common Stock on the last trading day before the date of grant. The authority to grant options under the 1998 Directors Plan will terminate on the earlier of December 31, 2008 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 NAAC Board except that provisions thereof concerning granting of options may not be amended more than once every six months unless necessary to comply with the Code or the Employee Retirement Income Security Act. Amendments which require shareholder approval under Rule 16b-3 of the Exchange Act shall be submitted for such approval, but failure to obtain such approval will not invalidate the amendment. Federal Income Tax Consequences Options granted under the 1998 Directors Plan 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 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. PROPOSAL NO. 5: CLASS B RECAPITALIZATION Under the current Certificate of Incorporation, the Corporation is authorized to issue, and has issued, shares of NAAC Class B Common Stock. The NAAC Class B Common Stock has rights identical to the NAAC Class A Common Stock with the following exceptions: it is convertible at the option of the holder from the 90th day anniversary to the one year anniversary of the consummation of a Business Combination into two shares of NAAC Class A Common Stock and two Class A NAAC Warrants, and until such conversion, it carries the right to cast two votes on any matter on which the NAAC Class A Common Stock may vote. Under the Proposal, Article FOURTH, paragraph (a) of the Amended and Restated Certificate of Incorporation will be amended to eliminate any reference to the NAAC Class B Common Stock, paragraph (d) will be deleted, and references to such paragraph (d) in other paragraphs of Article FOURTH will be eliminated. The full text of such revised Article FOURTH is annexed to this Proxy Statement/Prospectus as Annex VII. Upon the elimination of authorization of the NAAC Class B Common Stock, as described below, NAAC will issue to such holders two shares of Class A Common Stock and two NAAC Class A Warrants for each outstanding share of NAAC Class B Common Stock. The approval of the Merger and of the other proposals before the holders of NAAC Common Stock is not conditioned upon the adoption of this Proposal, but the 78 adoption of this Proposal is conditioned upon the approval of the Merger and Merger Agreement and consummation of the Merger and the filing of the Amended and Restated Certificate of Incorporation of NAAC. The NAAC Board believes that the elimination of the NAAC Class B Common Stock will result in a capital structure which is more customary in an operating manufacturing company of the size and nature of NAAC after the Merger, and thus will find greater acceptance in the public securities markets. The affirmative vote of a majority of the outstanding shares of NAAC Class B Common Stock is required to approve this Proposal No. 5. If the Class B Recapitalization is approved, holders of the NAAC Class B Common Stock need not take any further action: their certificates will represent the converted securities for all corporate purposes. If the Class B Recapitalization is approved, each holder will be sent a transmittal letter with which he may submit his certificate representing the NAAC Class B Common Stock for reissuance as the NAAC Class A Common Stock and NAAC Class A Warrants into which the NAAC Class B Common Stock was converted. It is recommended that the holders of the NAAC Class B Common Stock submit their certificates for conversion. THE NAAC BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE CLASS B RECAPITALIZATION 79 WARRANT EXCHANGE OFFER DESCRIPTION OF GUZZI WARRANT Each Guzzi Warrant entitles the registered holder to purchase one share of Guzzi Common Stock at an exercise price equal to the lesser of $4.00, as adjusted, until January 17, 2000. The holders of the Guzzi Warrants do not have any rights, privileges or liabilities as a shareholder of Guzzi Corp. prior to exercise of the Guzzi Warrants. Guzzi Corp. is required to keep reserved a sufficient number of authorized shares of Common Stock to permit the exercise of the Guzzi Warrants. If Guzzi Warrants are not submitted to Guzzi Corp. or NAAC for exchange and cancellation for the offered securities of NAAC pursuant to the Exchange Offer, then upon consummation of the Merger, the Merger Agreement and the Guzzi Warrant Agreement provides that each Guzzi Warrant will be exercisable for such number of shares of NAAC Class A Common Stock, NAAC Class B Preferred Stock and Nominal Warrants at an exercise price of $4.00, as adjusted, as would been obtained if such Guzzi Warrant had been exercised and the remaining terms and provisions of the Guzzi Warrant will continue in full force and effect, with NAAC having replaced Guzzi Corp. in the warrant agreement. The Guzzi Warrants and the underlying securities are not now and will not be registered for resales in the public securities markets, but the holders of the Guzzi Warrants have demand and "piggyback" registration rights for the underlying securities issuable on exercise as set forth in the Guzzi Warrant Agreement. TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING NAAC is offering to exchange each Guzzi Warrant for .1173 share of NAAC Class A Common Stock, .0195 shares of NAAC Class B Preferred stock and .0000034% of the Nominal Warrants. The expiration date of the Exchange Offer will be 1998 ("Expiration Date"), unless the Exchange Offer is extended without further notice in the sole discretion of NAAC, in which case the Expiration Date will be the latest date and time to which the Exchange Offer is extended. Tenders of the Guzzi Warrants may not be withdrawn. Upon the terms and subject to the conditions set forth in this Proxy Statement/Prospectus and in the Conversion Agreement, NAAC will exchange and cancel the Guzzi Warrant properly tendered on or prior to the Expiration Date. NAAC reserves the right to amend or terminate the Exchange Offer and not to accept for exchange any Guzzi Warrants not theretofore accepted upon the occurrence of any of the conditions of the Exchange Offer specified below under "Certain Conditions to the Exchange Offer." To the extent the Exchange Offer is terminated, the Guzzi Warrants not accepted for exchange and cancellation will be returned without expense to the tendering holder as promptly as practicable after the termination of the Exchange Offer. NAAC will give written notice of any amendment, non-acceptance, or termination to the registered holder of the Guzzi Warrants as promptly as practicable. PROCEDURES FOR TENDERING GUZZI WARRANTS The tender by a holder of any Guzzi Warrants as set forth below and the acceptance thereof by NAAC will constitute a binding agreement between the tendering holder and NAAC upon the terms and subject to the conditions set forth in this Proxy Statement/Prospectus and in the Conversion Agreement. Except as set forth below, a holder who wishes to tender Guzzi Warrants for exchange and cancellation pursuant to the Exchange Offer must transmit the Guzzi Warrants, together with a properly completed and duly executed Conversion Agreement, to NAAC or to TRG for delivery to NAAC at , on or prior to the expiration of the Exchange Offer. THE METHOD OF DELIVERY OF THE GUZZI WARRANTS, LETTERS OF TRANSMITTAL, AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. 80 All questions as to the validity, form, eligibility (including time of receipt), acceptance, and withdrawal of the Guzzi Warrants tendered for exchange and cancellation will be determined jointly by NAAC and TRG, which determination shall be final and binding. NAAC and TRG, jointly, reserve the absolute right to reject any and all tenders of any of the Guzzi Warrants not properly tendered or to reject any of the Guzzi Warrants, the acceptance of which might, in the judgment of NAAC or Guzzi Corp. or their respective counsel, be unlawful. NAAC and TRG also jointly reserve the absolute right to waive any defects or irregularities in the tender or conditions of the Exchange Offer as to any of the Guzzi Warrants (including the right to waive the ineligibility of any holder who seeks to tender the Guzzi Warrants in the Exchange Offer). The interpretation of the terms and conditions of the Exchange Offer (including the Letter of Transmittal and the instructions thereto) by NAAC and TRG shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Guzzi Warrants for exchange must be cured within such time as NAAC and TRG shall determine. Neither NAAC, TRG nor any other person shall be under any duty to give notification of defects or irregularities with respect to tenders of Guzzi Warrants for exchange and cancellation, nor shall any of them incur any liability for failure to give such notification. Tenders of the Guzzi Warrants will not be deemed to have been made until such irregularities have been cured or waived. If any Conversion Agreement, endorsement, or other document is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation, or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and unless waived by NAAC or TRG, proper evidence satisfactory to NAAC or TRG of such person's authority to so act must be submitted. ACCEPTANCE OF THE GUZZI WARRANTS FOR EXCHANGE AND CANCELLATION; DELIVERY OF WARRANTS Upon the consummation of the Merger and upon satisfaction or waiver of all other conditions to the Exchange Offer, NAAC will, promptly after the Merger, in exchange for all the Guzzi Warrants properly tendered and cancelled issue the shares of NAAC Class A Common Stock, NAAC Class B Preferred Stock and Nominal Warrants described above. See "Description of NAAC Capital Stock." If any tendered Guzzi Warrants are not accepted for any reason set forth in the terms and conditions of the Exchange Offer or if less than all of the Guzzi Warrants are submitted by a holder for exchange and cancellation, such unaccepted Guzzi Warrants will be returned without expense to the tendering warrant holder as promptly as practicable after the rejection of tender or the Expiration Date. CONDITIONS TO THE EXCHANGE OFFER Notwithstanding any other provision of the Exchange Offer, NAAC shall not be required to accept for exchange, or to issue the NAAC Class A Common Stock, NAAC Class B Preferred Stock and Nominal Warrants in exchange for, any Guzzi Warrants if the Merger Agreement is terminated. In addition, NAAC will not accept for exchange any Guzzi Warrants tendered, and no securities of NAAC will be issued in exchange for any such Guzzi Warrants if, at such time, any stop order shall be threatened or in effect with respect to the Registration Statement of which this Proxy Statement/Prospectus is a part. FEES AND EXPENSES NAAC will not make any payments to brokers, dealers, or others soliciting acceptances of the Exchange Offer. TRANSFER TAXES NAAC will pay all transfer taxes, if any, applicable to the exchange of Guzzi Warrants pursuant to the Exchange Offer. If, however, tendered Guzzi Warrants are registered in the name of any person other than the person signing the Letter of Transmittal or if a transfer tax is imposed for any reason other than the exchange of Guzzi Warrants pursuant to the Exchange Offer, the amount of any such transfer tax (whether imposed on the registered holder or any other person) will be payable by the tendering holder. If satisfactory evidence of payment of such tax or exemption therefrom is not submitted, the amount of such transfer tax will be billed directly to such tendering holder. 81 INTERCOMPANY DEBT EXCHANGE Pursuant to the Merger Agreement, if the Merger is consummated, TRG and OAM will contribute to the capital of Guzzi Corp. the outstanding balances of intercompany loans to Guzzi Corp. of Lit. 12.919 million, plus interest due thereon from January 1, 1998. At June 30, 1998, the intercompany debt was approximately Lit. 13,241 million. In consideration for such contributions, TRG and OAM will be issued an aggregate of 1,038,000 shares of NAAC Class A Common Stock, 65,743 shares of NAAC Class B Preferred Stock and Nominal Warrants to purchase 20.76% of the NAAC Class A Common Stock thereunder. TRG and OAM have agreed to the terms of this contribution by agreement dated August 18, 1998 contingent on the consummation of the Merger. TRG and OAM will also contribute any amount of intercompany payables due to them by Guzzi Corp. and subsidiaries in excess of $800,000. The Merger Agreement provides that the remaining intercompany debt of up to $800,000 will be paid promptly after the Closing. SELLING STOCKHOLDER In connection with the Merger, NAAC entered into an agreement ("Fee Agreement") with Graubard Mollen & Miller ("GMM"), its legal counsel, to pay a portion of GMM's fees by the issuance of shares of NAAC Class A Common Stock. NAAC has registered these shares for resale by GMM on the Registration Statement of which this Proxy Statement/Prospectus is a part. GMM possesses sole voting and investment power with respect to the shares of NAAC Class A Common Stock shown on the table below.
NUMBER OF SHARES AFTER OFFERING BENEFICIALLY -------------------------------- OWNED PRIOR TO NUMBER OF SHARES NUMBER OF SHARES NAME OFFERING TO BE SOLD BENEFICIALLY OWNED % OF CLASS - ---- ---------------- ---------------- ------------------ ---------- Graubard Mollen & Miller -0- -0-
The shares of NAAC Class A Common Stock may be offered and sold from time to time by GMM as market conditions permit in the over-the-counter market, or otherwise, at prices and terms then prevailing or at prices related to the then current market price, or in negotiated transactions. The shares of NAAC Class A Common Stock may be sold by one or more of the following methods, without limitation: (i) a block trade in which a broker or dealer so engaged will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction; (ii) purchases by a broker or dealer as principal and resale by such broker or dealer for its account pursuant to this Proxy Statement/Prospectus; (iii) ordinary brokerage transactions and transactions in which the broker solicits purchases; and (iv) face-to-face transactions between sellers and purchasers without a broker/dealer. In effecting sales, brokers or dealers engaged by GMM (including Allen & Company) may arrange for other brokers or dealers to participate. Such brokers or dealers may receive commissions or discounts from GMM in amounts to be negotiated. Such brokers and dealers and any other participating brokers or dealers may be deemed to be "underwriters" within the meaning of the Securities Act, in connection with such sales. From time to time, GMM may pledge, hypothecate or grant a security interest in some or all of the securities owned by them, and the pledgees, secured parties or persons to whom such securities have been hypothecated shall, upon foreclosure in the event of a default, be deemed to be a selling stockholder for purposes hereof. EXPERTS The consolidated financial statements of Moto Guzzi Corp. as of December 31, 1997 and 1996, have been audited by Arthur Andersen, LLP, independent public accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said report. The financial statements of NAAC as of August 31, 1997 and for each of the periods then ended have been audited by BDO Seidman, LLP, independent certified public accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts in accounting and auditing in giving such report. 82 STOCKHOLDER PROPOSALS Any NAAC stockholder who wishes to submit a proposal for presentation to the 1998 Annual Meeting of Stockholders must submit the proposal to North Atlantic Acquisition Corp., 5 East 59th Street, New York, New York 10022, Attention: President, no later than [ ], for inclusion, if appropriate, in NAAC's proxy statement and the form of proxy relating to the 1998 Annual Meeting. NAAC reserves the right to exclude any proposal which does not meet all requirements for inclusion established by the Commission in effect at that time. Stockholders are advised that NAAC's management will be permitted to exercise discretionary voting authority under proxies it solicits and obtains for the Company's 1999 Annual Meeting of Stockholders with respect to any proposal presented by a stockholder at such meeting, without any discussion of the proposal in the Company's proxy statement for such meeting, unless the Company receives notice of such proposal at its principal office in New York, New York not later than 1999. By Order of the Board of Directors, NORTH ATLANTIC ACQUISITION CORP. C. THOMAS MCMILLEN Secretary 83 NORTH ATLANTIC ACQUISITION CORP. (FORMERLY ORION ACQUISITION CORP. I) (A CORPORATION IN THE DEVELOPMENT STAGE) FINANCIAL STATEMENTS YEARS ENDED AUGUST 31, 1997 AND 1996 F-1 NORTH ATLANTIC ACQUISITION CORP. (FORMERLY ORION ACQUISITION CORP. I) (A CORPORATION IN THE DEVELOPMENT STAGE) CONTENTS
PAGE ---------- Report of independent certified public accountants................................................. F-3 Financial statements: Balance sheet.................................................................................... F-4 Statements of operations......................................................................... F-5 Statements of stockholders' equity............................................................... F-6 Statements of cash flows......................................................................... F-7 Notes to financial statements.................................................................... F-8 - F-12
F-2 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Stockholders of North Atlantic Acquisition Corp. New York, New York We have audited the accompanying balance sheet of North Atlantic Acquisition Corp. (formerly Orion Acquisition Corp. I) (a corporation in the development stage) as of August 31, 1997, and the related statements of operations, stockholders' equity, and cash flows for the years ended August 31, 1997 and 1996, and the period September 1, 1995 (date of inception) to August 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of North Atlantic Acquisition Corp. as of August 31, 1997, and the results of its operations and its cash flows for the years ended August 31, 1997 and 1996, and the period September 1, 1995 (date of inception) to August 31, 1997, in conformity with generally accepted accounting principles. BDO SEIDMAN, LLP New York, New York November 4, 1997 F-3 NORTH ATLANTIC ACQUISITION CORP. (FORMERLY ORION ACQUISITION CORP. I) (A CORPORATION IN THE DEVELOPMENT STAGE) BALANCE SHEET
AUGUST 31, 1997 ---------- ASSETS Cash.................................................................................................. $ 400,535 Cash held in escrow................................................................................... 1,676 Investment in treasury securities held in escrow (Notes 2 and 4)...................................... 7,998,324 ---------- $8,400,535 ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accrued expenses.................................................................................... $ 182,431 Notes payable (Note 6).............................................................................. 100,000 ---------- Total liabilities................................................................................ 282,431 ---------- ---------- Commitments (Note 5) Common stock subject to possible conversion, 160,000 shares at redemption value (Note 2).............. 1,600,000 Stockholders' equity (Notes 1, 2, 3 and 6): Convertible preferred stock, $.01 par value--shares authorized 1,000,000, outstanding none; subscribed 94; liquidation value--$9,400......................................................... 1 Subscription receivable............................................................................. (9,400) Class A common stock, $.01 par value--shares authorized 10,000,000; outstanding 906,000............. 9,060 Class B common stock, $.01 par value--shares authorized 250,000; issued and outstanding 150,000..... 1,500 Additional paid-in capital.......................................................................... 6,586,948 Deficit accumulated during the development stage.................................................... (70,005) ---------- Total stockholders' equity....................................................................... 6,518,104 ---------- $8,400,535 ---------- ----------
See accompanying notes to financial statements. F-4 NORTH ATLANTIC ACQUISITION CORP. (FORMERLY ORION ACQUISITION CORP. I) (A CORPORATION IN THE DEVELOPMENT STAGE) STATEMENTS OF OPERATIONS
YEAR ENDED AUGUST PERIOD FROM 31, SEPTEMBER 1, 1995 -------------------- (INCEPTION) TO 1997 1996 AUGUST 31, 1997 -------- -------- ----------------- General and administrative expenses and debt costs..................... $ 38,920 $ 31,085 $ 70,005 -------- -------- --------- Net loss............................................................... $(38,920) $(31,085) $ (70,005) -------- -------- --------- -------- -------- --------- Net loss per common share.............................................. $ (.33) $ (.29) -------- -------- -------- -------- Weighted average common shares outstanding............................. 119,014 106,000 -------- -------- -------- --------
See accompanying notes to financial statements. F-5 NORTH ATLANTIC ACQUISITION CORP. (FORMERLY ORION ACQUISITION CORP. I) (A CORPORATION IN THE DEVELOPMENT STAGE) STATEMENTS OF STOCKHOLDERS' EQUITY
DEFICIT PREFERRED CLASS A CLASS B ACCUMULATED STOCK COMMON STOCK COMMON STOCK ADDITIONAL DURING THE TOTAL -------------- SUBSCRIPTION --------------- --------------- PAID-IN DEVELOPMENT STOCKHOLDERS' SHARES AMOUNT RECEIVABLE SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE EQUITY ------ ------ ------------ ------- ------ ------- ------ ------------ ----------- ------------- Issuance of founders' shares............. -- $ -- $ -- 86,000 $ 860 -- $ -- $ 7,740 $ -- $ 8,600 Sale of common stock............ -- -- -- 20,000 200 -- -- 44,800 -- 45,000 Subscription receivable....... 94 1 (9,400) -- -- -- -- 9,399 -- -- Net loss........... -- -- -- -- -- -- -- -- (31,085) (31,085) -- ---- -------- ------- ------ ------- ------ ------------ --------- ----------- Balance, August 31, 1996............... 94 1 (9,400) 106,000 1,060 -- -- 61,939 (31,085) 22,515 Net loss........... -- -- -- -- -- -- -- -- (38,920) (38,920) Sale of common stock, net....... -- -- -- 800,000 8,000 150,000 1,500 8,125,009 -- 8,134,509 Reclassification to redeemable common stock............ -- -- -- -- -- -- -- (1,600,000) -- (1,600,000) -- ---- -------- ------- ------ ------- ------ ------------ --------- ----------- Balance, August 31, 1997............... 94 $ 1 $ (9,400) 906,000 $9,060 150,000 $1,500 $ 6,586,948 $ (70,005) $ 6,518,104 -- ---- -------- ------- ------ ------- ------ ------------ --------- ----------- -- ---- -------- ------- ------ ------- ------ ------------ --------- -----------
See accompanying notes to financial statements. F-6 NORTH ATLANTIC ACQUISITION CORP. (FORMERLY ORION ACQUISITION CORP. I) (A CORPORATION IN THE DEVELOPMENT STAGE) STATEMENTS OF CASH FLOWS
PERIOD FROM YEAR ENDED AUGUST 31, SEPTEMBER 1, 1995 -------------------------- (INCEPTION) TO 1997 1996 AUGUST 31, 1997 ----------- ----------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss....................................................... $ (38,920) $ (31,085) $ (70,005) Adjustments to reconcile net loss to net cash provided by operating activities: Amortization of deferred debt costs......................... -- 9,800 9,800 Amortization of discount on notes payable................... 17,088 17,912 35,000 Changes in assets and liabilities--accrued expenses......... 84,332 8,099 92,431 ----------- ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES................. 62,500 4,726 67,226 ----------- ----------- ----------- CASH FLOWS USED IN INVESTING ACTIVITIES: Purchase of treasury securities in escrow...................... (7,998,324) -- (7,998,324) Increase in cash held in escrow................................ (1,676) -- (1,676) ----------- ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES..................... (8,000,000) -- (8,000,000) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from sale of common stock, net........................ 8,134,509 53,600 8,188,109 Deferred costs: Registration................................................ 177,792 (87,792) 90,000 Debt........................................................ -- (9,800) (9,800) Proceeds from issuance of notes payable........................ -- 65,000 65,000 ----------- ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES................. 8,312,301 21,008 8,333,309 ----------- ----------- ----------- NET INCREASE IN CASH............................................. 374,801 25,734 400,535 CASH, BEGINNING OF PERIOD........................................ 25,734 -- -- ----------- ----------- ----------- CASH, END OF PERIOD.............................................. $ 400,535 $ 25,734 $ 400,535 ----------- ----------- ----------- ----------- ----------- ----------- SUPPLEMENTAL DISCLOSURES FOR CASH FLOW INFORMATION: Cash paid for: Interest.................................................... $ -- $ -- $ -- Taxes....................................................... -- -- --
In fiscal 1996, the Company received a note for subscribed preferred stock amounting to $9,400, which is a noncash financing activity. In fiscal 1996, the Company has recorded a $90,000 liability relating to a license agreement (Note 1), which is a noncash financing activity. See accompanying notes to financial statements. F-7 NORTH ATLANTIC ACQUISITION CORP. (FORMERLY ORION ACQUISITION CORP. I) (A CORPORATION IN THE DEVELOPMENT STAGE) NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Deferred Debt Costs Net unamortized costs incurred in connection with the notes payable (Note 5(a)) of $9,800 were amortized over six months (the estimated term of the debt) using the straight-line method. Amortization expense was $9,800 for the period from September 1, 1995 (inception) to August 31, 1996. Income Taxes The Company follows the Financial Accounting Standards Board ("FASB") Statement No. 109. This statement requires that deferred income taxes be recorded following the liability method of accounting and be adjusted periodically when income tax rates change. As of August 31, 1997 and 1996, the Company has a net operating loss carryforward of approximately $70,000 and $31,000, respectively, which results in a deferred tax asset of approximately $27,000 and $12,000, respectively, which has been offset by a valuation allowance. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Earnings Per Share Earnings per share of common stock is computed based on the weighted average number of common stock and common stock equivalent shares outstanding during the period. Common stock and warrants issued for consideration below the proposed public offering price have been included as if they had been outstanding for all periods presented. Stock equivalents have not been included since their effect would be antidilutive. Accounting for Stock-based Compensation In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-based Compensation". Beginning in 1996, SFAS No. 123 requires expanded disclosures of stock-based compensation arrangements with employees and encourages, but does not require, the recognition of employee compensation expense related to stock compensation based on the fair value of the equity instrument granted. Companies that do not adopt the fair value recognition provisions of SFAS No. 123 and continue to follow the existing APB Opinion No. 25 rules to recognize and measure compensation will be required to disclose the pro forma amounts of net income and earnings per share that would have been reported had the Company elected to follow the fair value recognition rules of SFAS No. 123. The Company has elected to continue to use the intrinsic value-based method of APB Opinion No. 25, and has adopted the disclosure requirements of SFAS No. 123. Disclosure of Fair Value of Financial Instruments The carrying amount of financial instruments including cash, treasury securities in escrow and accrued expenses approximated fair value as of August 31, 1997 because of the relatively short maturity of these instruments. F-8 NORTH ATLANTIC ACQUISITION CORP. (FORMERLY ORION ACQUISITION CORP. I) (A CORPORATION IN THE DEVELOPMENT STAGE) NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) Recent Accounting Pronouncements In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share". SFAS No. 128 is effective for financial statements issued for periods ending after December 15, 1997. SFAS No. 128 simplifies the computation of earnings per share by replacing the presentation of primary earnings per share with a presentation of basic earnings per share, as defined. The statement requires dual presentation of basic and diluted earnings per share by entities with complex capital structures. Basic earnings per share includes no dilution and is computed by dividing income available to common stockholders by the weighted average number of shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities that could share in the earnings of an entity similar to fully diluted earnings per share. SFAS No. 128 is not expected to have a significant impact on the Company's financial statements. In June 1997, SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information," were issued. SFAS No. 130 addresses standards for reporting and display of comprehensive income and its components and SFAS No. 131 requires disclosure of reportable operating segments. Both statements are effective for the Company's 1998 fiscal year. These pronouncements are not expected to affect the Company's financial statements. 2. ORGANIZATION AND BUSINESS OPERATIONS The Company was incorporated in Delaware on August 9, 1995 to acquire an operating business. Operations did not occur until September; accordingly, financial statements have been presented commencing on September 1, 1995. At August 31, 1997, the Company had not yet commenced any formal business operations and all activity to date relates to the Company's formation and fund raising. The Registration Statement for the Company's Initial Public Offering (the "Offering") became effective August 22, 1997. The Company consummated the Offering on August 27, 1997 and raised net proceeds of approximately $8,100,000 (see Note 3). The Company's management has broad discretion with respect to the specific application of the net proceeds of this Offering, although substantially all of the net proceeds of this Offering are intended to be generally applied toward consummating a business combination with an operating business ("Business Combination"). Furthermore, there is no assurance that the Company will be able to successfully effect a Business Combination. An aggregate of $8,000,000 of the net proceeds is being held in an escrow account which will be invested, until released, in short-term United States Government Securities, including treasury bills and cash and cash equivalents ("Proceeds Escrow Account"), subject to release at the earlier of (i) consummation of its first Business Combination or (ii) distribution of the Class A stock (see below). Therefore, the remaining proceeds from the Offering will be used to pay for business, legal and accounting, due diligence on prospective acquisitions, costs relating to the public offering and continuing general and administrative expenses in addition to other expenses. The Company, prior to the consummation of any Business Combination, will submit such transaction to the Company's stockholders for their approval, even if the nature of the acquisition is such as would not ordinarily require stockholder approval under applicable state law. All of the Company's prior stockholders, including all directors and the Company's executive officer, have agreed to vote their respective shares of Class A stock in accordance with the vote of the majority of the shares voted by all other stockholders of the Company ("nonaffiliated public stockholders") with respect to any such Business Combination. A Business Combination will not be consummated unless approved by a vote of two-thirds of the shares of common stock owned by nonaffiliated public stockholders. At the time the Company seeks stockholder approval of any potential Business Combination, the Company will offer ("Redemption Offer") each of the nonaffiliated public Class A stockholders the right, for a specified F-9 NORTH ATLANTIC ACQUISITION CORP. (FORMERLY ORION ACQUISITION CORP. I) (A CORPORATION IN THE DEVELOPMENT STAGE) NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 2. ORGANIZATION AND BUSINESS OPERATIONS--(CONTINUED) period of time not less than 20 calendar days, to redeem his shares of Class A stock. The per share redemption price will be determined by dividing the greater of (i) the Company's net worth or (ii) the amount of assets of the Company in the escrow account (including all interest earned thereon) by the number of shares of Class A stock held by such nonaffiliated public stockholders. In connection with the Redemption Offer, if nonaffiliated public stockholders holding less than 20% of the Class A stock elect to redeem their shares, the Company may, but will not be required to, proceed with such Business Combination and, if the Company elects to so proceed, will redeem such shares by dividing (a) the greater of (i) the Company's net worth as reflected in the Company's financial statements or (ii) the amount of the proceeds of the Company in the escrow account by (b) the number of shares of Class A stock held by nonaffiliated public stockholders ("Liquidation Value"). Accordingly, a portion of the net proceeds from the Offering (20% of the cash and treasury securities held in escrow) has been classified as common stock subject to possible redemption in the accompanying balance sheet at the estimated value. In any case, if nonaffiliated public stockholders holding 20% or more of the Class A stock elect to redeem their shares, the Company will not proceed with such potential Business Combination and will not redeem such shares. All shares of the escrowed stock outstanding immediately prior to the date of the Offering will be placed in escrow until the earlier of (i) the occurrence of the first Business Combination, (ii) 18 months from the effective date of the Offering or (iii) 24 months from the effective date of the Offering if prior to the expiration of such 18 month period the Company has become a party to a letter of intent or a definitive agreement to effect a Business Combination, in which case such period shall be extended six months. During the escrow period, the holders of escrowed shares of common stock will not be able to sell or otherwise transfer their respective shares of common stock (with certain exceptions), but will retain all other rights as stockholders of the Company, including, without limitation, the right to vote escrowed shares of Class A stock, subject to their agreement to vote their shares in accordance with a vote of a majority of the shares voted by nonaffiliated public stockholders with respect to a Business Combination or liquidation proposal. If the Company does not effect a Business Combination within 18 months from the effective date or 24 months from the effective date if the extension criteria have been satisfied, the Company will submit for stockholder consideration a proposal to distribute to the then holders of Class A stock (issued in the Offering or acquired in the open market thereafter) in redemption of such shares, the amounts in the escrow account. Following such redemption of Class A stock, each outstanding share of Class B stock will be exchanged for two shares of Class A stock. In the event of liquidation, it is likely that the per share value of the residual assets remaining available for distribution to the holders of common stock purchased in the Offering (including escrow account assets) will approximately equal the initial public offering price per unit in the Offering. 3. PUBLIC OFFERING On August 27, 1997, the Company sold 800,000 units ("Units") in the Offering and 150,000 shares of Class B exchangeable common stock. Each Unit consists of one share of the Company's Class A common stock and one Class A redeemable common stock purchase warrant ("Class A Warrant"). Each Class A Warrant entitles the holder to purchase from the Company one share of common stock at an exercise price of $9.00; each Class B Stock entitles the holder to receive two Units in exchange 90 days after the date of a Business Combination. Concurrent with the Offering, the Company amended and restated its certificate of incorporation to increase its authorized common stock to 10,250,000 shares, of which 10,000,000 shares are designated Class A stock and 250,000 shares are designated Class B stock. The Company also increased its authorized preferred stock to F-10 NORTH ATLANTIC ACQUISITION CORP. (FORMERLY ORION ACQUISITION CORP. I) (A CORPORATION IN THE DEVELOPMENT STAGE) NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 3. PUBLIC OFFERING--(CONTINUED) 1,000,000 shares. The financial statements have been retroactively adjusted for this change for all periods presented. 4. TREASURY SECURITIES HELD IN ESCROW On August 28, 1997, the Company invested the cash held in escrow into three treasury securities for a total of $7,998,324, with the excess cash of $1,676 remaining in the escrow account. The treasury securities are summarized below:
MATURITY INTEREST MATURITY COST AMOUNT RATE DATE ---------- ---------- -------- ----------------- Treasury bill......................................... $3,999,718 $4,106,000 5.12% February 26, 1998 Treasury bill......................................... 1,999,514 2,109,000 5.23 August 20, 1998 ---------- ---------- Total treasury bills............................. 5,999,232 6,215,000 Treasury note......................................... 1,999,092 2,018,000 5.00 February 15, 1999 ---------- ---------- ---- Total treasury securities held in escrow......... $7,998,324 $8,233,000 ---------- ---------- ---------- ----------
At August 31, 1997, the cost of each of the above-listed treasury securities approximated its market value. 5. COMMITMENTS The Company has entered into an oral agreement with David J. Mitchell, Chairman and Chief Executive Officer, to lease office space, as well as certain office and secretarial services, commencing upon the closing of this Offering. The Company will pay $2,500 per month to Mr. Mitchell for such services. 6. STOCKHOLDERS' EQUITY (a) Private Placement In November 1995, the Company completed a private offering to a limited group of investors which consisted, in the aggregate, of $100,000 in unsecured promissory notes bearing interest at 8% per annum. The notes are payable upon the earlier of May 1998 or the completion of an initial public offering. As of August 31, 1997, the notes, together with accrued interest, were not repaid. In addition, the Company also issued to the private placement investors 20,000 shares of common stock for $10,000. The notes were discounted $35,000 for financial reporting purposes as a result of additional fair value attributed to the common stock issued to the private placement shareholders. The effective rate on the notes is approximately 45%. (b) Preferred Stock The Company is authorized to issue 1,000,000 shares of "blank check" preferred stock with such designations, voting and other rights and preferences as may be determined from time to time by the Board of Directors. The Company has outstanding 94 shares of Series A preferred stock, owned by CDIJ Capital Partners, L.P., an indirect affiliate of Bright Licensing Corp. (Note 1). The purchase price for such shares, $100.00 per share or $9,400 in the aggregate, is payable to the Company, without interest, upon the earlier of November 15, 1996 or the closing of the Offering. As of August 31, 1997, the $9,400 was not received by the Company. The Series A preferred stock is nonvoting, does not bear a dividend and has a liquidation value of $100.00 per share. Each share of Series A preferred stock will be convertible into 1,000 shares of common stock for a period one year F-11 NORTH ATLANTIC ACQUISITION CORP. (FORMERLY ORION ACQUISITION CORP. I) (A CORPORATION IN THE DEVELOPMENT STAGE) NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 6. STOCKHOLDERS' EQUITY--(CONTINUED) following the consummation of a Business Combination. In the event that a Business Combination does not occur within 18 months from the effective date or 24 months from the effective date if the extension criteria are satisfied, the Series A preferred stock will be redeemed by the Company for its liquidation value. (c) Options The Company granted options to purchase 100,000 Units to the founders, in consideration for their service as directors, and officers of the Company. The options are exercisable for a period of three years from the date of a Business Combination at an exercise price of $12.50 per Unit. The options are fully vested. The shares issuable upon exercise of the options and underlying warrants may not be sold or otherwise transferred until 120 days after the first Business Combination. In October 1996, the Company cancelled the 100,000 options and granted additional options to purchase 133,333.3 Units to the Company's two new directors and to a founder. The options are exercisable for a period of three (3) years from the date of a Business Combination at an exercise price of $12.50 per Unit. The Company has granted options to purchase 30,000 shares of the Company's Class B Stock to two directors at an exercise price of $10.00 per share. The options will expire, if not sooner exercised, upon consummation of a Business Combination. (d) Warrants In connection with the Offering described in Note 3, the Company sold 800,000 Class A Warrants which entitle the holder to purchase one share of Class A common stock at a price of $9.00 per share. The Class A Warrants are redeemable, each as a class, in whole and not in part, at a price of $.05 per warrant upon 30 days' notice at any time provided that the Company's stockholders have approved a Business Combination and the last sale price of the common stock, if the common stock is listed for trading on all 10 of the trading days prior to the day on which the Company gives notice of redemption, has been $11.00 or higher. The Class A Warrants will become exercisable 90 days following a Business Combination and will expire on the fifth anniversary of the Offering. In addition, the Company sold to the underwriters 80,000 Units and 15,000 Class B Warrants for $15.00 (the "Representative's Warrants"). The Representative's Warrants are exercisable at a price of $11.00 per Unit and $11.00 per Class B Warrant for a period of four years commencing one year from the date of the Offering. The Units and Class B Warrants, issuable upon the exercise of the Representative's Warrants, are the same as the Units and Class B stock described in Note 3. F-12 NORTH ATLANTIC ACQUISITION CORP. (formerly Orion Acquisition Corp. I) (a corporation in the development stage) UNAUDITED FINANCIAL STATEMENTS AS OF May 31, 1998 F-13 NORTH ATLANTIC ACQUISITION CORP. (formerly Orion Acquisition Corp. I) (a corporation in the development stage) Contents Page ---- Financial statements: Balance sheets as of May 31, 1998 ............................... F-15 Statements of operations for the nine months ended May 31, 1998 and 1997 and period September 1, 1995 to May 31, 1998 ................................................ F-16 Statements of stockholders' equity for the period September 1, 1995 to May 31, 1998 .............................. F-17 Statements of cash flows for the nine months ended May 31, 1998 and period September 1, 1995 to May 31, 1998 ................................................... F-18 Notes to financial statements ................................... F-19 F-14 North Atlantic Acquisition Corp. (formerly Orion Acquisition Corp. I) (a corporation in the development stage) Balance Sheets
------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------- May 31, 1998 ------------------------------------------------------------------------------------------- (Unaudited) Assets Cash $ 135,726 Cash held in escrow 324 Investment in treasury securities held in escrow 8,321,852 ------------------------------------------------------------------------------------------- $ 8,457,902 ------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------- Liabilities and Stockholders' Equity Liabilities: Accrued expenses $ 204,499 Notes payable - ------------------------------------------------------------------------------------------- Total liabilities 204,499 ------------------------------------------------------------------------------------------- Commitments Common stock subject to possible conversion, 160,000 shares at redemption value 1,664,435 ------------------------------------------------------------------------------------------- Stockholders' equity: Convertible preferred stock, $.01 par value - shares authorized 1,000,000; outstanding none; subscribed 94; liquidation value - $9,400 1 Subscription receivable (100) Class A common stock, $.01 par value - shares authorized 10,000,000; outstanding 906,000 9,060 Class B common stock, $.01 par value - shares authorized 250,000; issued and outstanding 150,000 1,500 Additional paid-in capital 6,586,948 Earnings (deficit) accumulated during the development stage (8,441) -------------------------------------------------------------------------------------------- Total stockholders' equity 6,588,968 -------------------------------------------------------------------------------------------- $ 8,457,902 -------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------- See accompanying notes to financial statements. F-15 North Atlantic Acquisition Corp. (formerly Orion Acquisition Corp. I) (a corporation in the development stage) Statements of Operations (Unaudited)
---------------------------------------------------------------------------------- ---------------------------------------------------------------------------------- Period from September 1, Nine months ended May 31, 1995 (inception) 1998 1997 to May 31, 1998 ---------------------------------------------------------------------------------- Interest income $ 324,004 $ - $324,004 General and administrative expenses and debt costs 166,005 3,846 236,010 Income taxes 32,000 - 32,000 ---------------------------------------------------------------------------------- Net income (loss) $ 125,999 $ (3,846) $ 55,994 ---------------------------------------------------------------------------------- ---------------------------------------------------------------------------------- Net income (loss) per common share $ .12 $ (.04) ---------------------------------------------------------------------------------- ---------------------------------------------------------------------------------- Weighted average common shares outstanding 1,056,600 106,000 ---------------------------------------------------------------------------------- ----------------------------------------------------------------------------------
See accompanying notes to financial statements. F-16 North Atlantic Acquisition Corp. (formerly Orion Acquisition Corp. I) (a corporation in the development stage) Statements of Stockholders' Equity
Period from September 1, 1995 to May 31, 1998 - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- Class A Class B Preferred stock Subscription Common Stock Common Stock Shares Amount receivable Shares Amount Shares Amount - ------------------------------------------------------------------------------------------------------------------------------- Issuance of founders' shares - $ - $ - 86,000 $ 860 - $ - Sale of common stock - - - 20,000 200 - - Subscription receivable 94 1 (9,400) - - - - Net loss - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------- Balance, August 31, 1996 94 1 (9,400) 106,000 1,060 - - Net loss - - - - - - - Sale of common stock, - - - 800,000 8,000 150,000 1,500 net Reclassification to redeemable common stock - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------- Balance, August 31, 1997 (audited) 94 1 (9,400) 906,000 9,060 150,000 1,500 Subscription paid - - 9,300 - - - - Net income - - - - - - - Accretion to redemption value of common stock - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------- Balance, May 31, 1998 (unaudited) 94 $ 1 $ (100) 906,000 $ 9,060 150,000 $ 1,500 - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- Period from September 1, 1995 to May 31, 1998 - ------------------------------------------------------------------- - ------------------------------------------------------------------- Earnings (deficit) accumulated Additional during the Total paid-in development stockholders' capital stage equity - ------------------------------------------------------------------- Issuance of founders' shares $ 7,740 $ - $ 8,600 Sale of common stock 44,800 - 45,000 Subscription receivable 9,399 - - Net loss - (31,085) (31,085) - ------------------------------------------------------------------- Balance, August 31, 1996 61,939 (31,085) 22,515 Net loss - (38,920) (38,920) Sale of common stock, 8,125,009 - 8,134,509 net Reclassification to redeemable common stock (1,600,000) - (1,600,000) - ------------------------------------------------------------------- Balance, August 31, 1997 (audited) 6,586,948 (70,005) 6,518,104 Subscription paid - - 9,300 Net income - 125,999 125,999 Accretion to redemption value of common stock - (64,435) (64,435) - ------------------------------------------------------------------- Balance, May 31, 1998 (unaudited) $ 6,586,948 $ (8,441) $ 6,588,968 - ------------------------------------------------------------------- - -------------------------------------------------------------------
See accompanying notes to financial statements. F-17 North Atlantic Acquisition Corp. (formerly Orion Acquisition Corp. I) (a corporation in the development stage) Statements of Cash Flows (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ Period from September 1, 1995 Nine months ended May 31, (inception) to 1998 1997 May 31, 1998 - ------------------------------------------------------------------------------------------------------------------------------ Cash flows from operating activities: Net income (loss) $ 125,999 $ (3,846) $ 55,994 Adjustments to reconcile net income (loss) to net cash used in operating activities: Amortization of deferred debt costs - - 9,800 Amortization of discount on notes payable - 3,846 35,000 Changes in assets and liabilities: Accrued expenses 22,068 - (33,600) Interest receivable on investments (271,654) - (123,555) - ------------------------------------------------------------------------------------------------------------------------------ Net cash used in operating activities (123,587) - (56,361) - ------------------------------------------------------------------------------------------------------------------------------ Cash flows from investing activities: Purchase of treasury securities in escrow (4,157,874) - (12,156,198) Sale of treasury securities in escrow 4,106,000 - 4,104,324 Decrease in cash held in escrow 1,352 - 1,352 - ------------------------------------------------------------------------------------------------------------------------------ Net cash used in investing activities (50,522) - (8,050,522) - ------------------------------------------------------------------------------------------------------------------------------ Cash flows from financing activities: Proceeds from sale of common stock, net - - 8,188,109 Subscription paid 9,300 - 9,300 Deferred costs: Registration - - 90,000 Debt - - (9,800) Repayment of notes payable (100,000) - (100,000) Proceeds from issuance of notes payable - - 65,000 - ------------------------------------------------------------------------------------------------------------------------------ Net cash provided by (used in) financing activities (90,700) - 8,242,609 - ------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in cash (264,809) - 135,726 Cash, beginning of period 400,535 25,734 - - ------------------------------------------------------------------------------------------------------------------------------ Cash, end of period $ 135,726 $ 25,734 $ 135,726 - ------------------------------------------------------------------------------------------------------------------------------ Supplemental disclosures of cash flow information: Cash paid for: Interest $ - $ - $ - Taxes - - -
In fiscal 1996, NAAC received a note for subscribed preferred stock amounting to $9,400, which is a noncash financing activity. In fiscal 1996, NAAC has recorded a $90,000 liability relating to a license agreement, which is a noncash financing activity. See accompanying notes to financial statements. F-18 North Atlantic Acquisition Corp. (formerly Orion Acquisition Corp. I) (a corporation in the development stage) Notes to Financial Statements - ------------------------------------------------------------------------------ 1. Basis of The financial information has been prepared in Presentation accordance with NAAC's customary accounting practices and has not been audited. In the opinion of management, the information presents all adjustments necessary for a fair statement of interim results. All such adjustments are of a normal and recurring nature. The foregoing interim results are not necessarily indicative of the results of operations to be expected for a full year. 2. Investments NAAC has invested the majority of the proceeds from the initial public offering in United States Treasury Bills. These treasury bills, which were purchased at a discount, are presented at their accreted cost, which approximates its market value. F-19 MOTO GUZZI CORP. AUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997 AND 1996 UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1995 F-20 MOTO GUZZI CORP. INDEX TO FINANCIAL STATEMENTS
PAGE ---------- Report of Independent Public Accountants........................................................... F-22 Consolidated Balance Sheets--Assets................................................................ F-23 Consolidated Balance Sheets--Liabilities and Shareholders' Equity.................................. F-23 Consolidated Statements of Operations.............................................................. F-24 Consolidated Statements of Changes in Shareholders' Equity......................................... F-25 Consolidated Statements of Cash Flows.............................................................. F-26 Notes to Consolidated Financial Statements......................................................... F-27 - F-35
F-21 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors of Moto Guzzi Corp.: We have audited the accompanying consolidated balance sheets of Moto Guzzi Corp., a Delaware holding company, and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, shareholders' equity and cash flows for the years then ended, expressed in Italian Lire. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Moto Guzzi Corp. and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN Milan, July 16, 1998 F-22 MOTO GUZZI CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1997 AND 1996
1997 1997 1996 US$'000 LIRE M. LIRE M. -------- ----------- ----------- ASSETS Cash and cash equivalents................................................. $ 3,591 Lit. 6,352 Lit. 2,210 Receivables............................................................... 13,254 23,446 27,017 Trade, less allowance of Lit. 1,903 (1996, Lit. 1,065).................. 7,596 13,437 24,202 Receivables from related parties........................................ 3,162 5,594 217 Other receivables....................................................... 2,496 4,415 2,598 Inventories............................................................... 22,222 39,311 30,741 Raw material, spare parts and work-in-progress.......................... 12,944 22,898 21,275 Finished products....................................................... 9,278 16,413 9,466 Prepaid expenses.......................................................... 68 120 255 -------- ----------- ----------- CURRENT ASSETS............................................................ 39,135 69,229 60,223 -------- ----------- ----------- Property, plant and equipment............................................. 8,109 14,345 12,483 Land.................................................................... 424 750 750 Buildings............................................................... 1,495 2,644 2,554 Machinery and equipment................................................. 19,050 33,699 31,567 -------- ----------- ----------- 20,968 37,093 34,871 Less allowances for depreciation........................................ (12,859) (22,748) (22,388) -------- ----------- ----------- Goodwill, net of amortization of Lit. 104 (1996, Lit. 52)................. 89 158 210 Other assets.............................................................. 544 962 815 -------- ----------- ----------- ASSETS.................................................................... $47,877 Lit. 84,694 Lit. 73,731 -------- ----------- ----------- -------- ----------- ----------- LIABILITIES AND SHAREHOLDERS' EQUITY Advances from banks....................................................... $15,456 Lit. 27,341 Lit. 21,801 Current portion of long-term debt......................................... 945 1,671 1,372 Accounts payable.......................................................... 13,401 23,707 19,592 Amounts due to related parties............................................ 596 1,055 411 Accrued expenses and other payables....................................... 3,340 5,907 6,416 -------- ----------- ----------- CURRENT LIABILITIES....................................................... 33,737 59,681 49,592 -------- ----------- ----------- Long-term debt, less current portion...................................... 2,729 4,828 5,629 Loans from parent company and affiliates.................................. 7,303 12,919 4,659 Termination indemnities................................................... 4,525 8,003 7,154 Preferred stock subject to redemption..................................... 6,574 11,629 5,101 SHAREHOLDERS' (DEFICIT)/EQUITY............................................ (6,991) (12,366) 1,596 Series "A" preferred stock, par value $0.01 per share; Authorized 1,500,000 shares, 1,500,000 (1996, 978,125) shares issued and outstanding.......................................................... -- -- -- Common stock, par value $0.01 per share; Authorized 20,000,000 shares, 6,000,000 (1996, 6,000,000) shares issued and outstanding.... 51 91 91 Additional paid in capital.............................................. 1,665 2,945 2,945 Accretion expense and related foreign exchange.......................... (2,032) (3,595) -- Cumulative translation adjustment....................................... 127 225 23 Accumulated deficit..................................................... (6,802) (12,032) (1,463) -------- ----------- ----------- $47,877 Lit. 84,694 Lit. 73,731 -------- ----------- ----------- -------- ----------- -----------
See Notes to Consolidated Financial Statements F-23 MOTO GUZZI CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS DECEMBER 31, 1997 AND 1996, AND 1995 (UNAUDITED)
1997 1997 1996 1995 US$'000 LIRE M. LIRE M. LIRE M. ------------- ------------- ------------- ------------- UNAUDITED Net sales................................ $ 45,781 Lit. 80,987 Lit. 77,620 Lit. 64,671 Cost of sales............................ (40,403) (71,473) (65,755) (54,600) --------- ------------- ------------- ------------- 5,378 9,514 11,865 10,071 Selling, general and administrative expenses............................... (7,815) (13,824) (10,210) (7,486) Research and development expense ........ (1,767) (3,125) (1,177) (602) Abandonment of Benelli production line... -- -- -- (1,631) --------- ------------- ------------- ------------- Other income, net........................ 419 741 1,904 119 --------- ------------- ------------- ------------- (3,785) (6,694) 2,382 471 Interest expense......................... (2,058) (3,640) (4,346) (3,604) --------- ------------- ------------- ------------- Loss before income taxes................. (5,843) (10,334) (1,964) (3,133) Income taxes............................. (133) (235) (32) (100) --------- ------------- ------------- ------------- Net loss................................. $ (5,976) Lit. (10,569) Lit. (1,996) Lit. (3,233) --------- ------------- ------------- ------------- --------- ------------- ------------- -------------
See Notes to Consolidated Financial Statements F-24 MOTO GUZZI CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY/(DEFICIT) DECEMBER 31, 1997 AND 1996
ADDITIONAL CUMULATIVE PREFERRED COMMON PAID-IN ACCRETION TRANSLATION ACCUMULATED STOCK STOCK CAPITAL EXPENSE ADJUSTMENT DEFICIT TOTAL --------- ------ ---------- --------- ---------- ----------- -------- AT JANUARY 1, 1996................ Lit.m -- 91 2,731 -- -- -- 2,822 Net loss.......................... -- -- (533) -- -- (1,463) (1,996) Translation adjustment............ -- -- (18) -- 23 -- 5 Contribution of Moto America...... -- -- 765 -- -- -- 765 ----- ------ ------ ------- ---- --------- -------- AT DECEMBER 31, 1996.............. Lit.m -- 91 2,945 -- 23 (1,463) 1,596 Net loss.......................... -- -- -- -- -- (10,569) (10,569) Translation adjustment............ -- -- -- -- 202 -- 202 Accretion expense................. -- -- -- (3,595) -- -- (3,595) ----- ------ ------ ------- ---- --------- -------- AT DECEMBER 31, 1997.............. Lit.m -- 91 2,945 (3,595) 225 (12,032) (12,366) ----- ------ ------ ------- ---- --------- -------- ----- ------ ------ ------- ---- --------- -------- AT DECEMBER 31, 1997.............. $'000 -- 51 1,665 (2,032) 127 (6,802) (6,991) ----- ------ ------ ------- ---- --------- -------- ----- ------ ------ ------- ---- --------- --------
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' (DEFICIT)/EQUITY DECEMBER 31, 1995
ADDITIONAL COMMON PAID-IN STOCK CAPITAL TOTAL ------ ---------- -------- AT JANUARY 1, 1995......................................... Lit.m 91 (7,271) (7,180) Contribution of debt....................................... -- 12,632 12,632 Purchase of minorities..................................... -- 603 603 Net loss................................................... -- (3,233) (3,233) ------ -------- -------- AT DECEMBER 31, 1995....................................... Lit.m 91 2,731 2,822 ------ -------- -------- ------ -------- --------
In July 1995, an increase of capital of Moto Guzzi S.p.A. was made as required under Italian corporate law as there was a deficit in equity as calculated according to Italian accounting principles. The increase was made by contribution by Trident Rowan Group, Inc. of intercompany debt of Lit. 12,632 million. At the same time, the preemption rights of minority shareholders to participate in the recapitalization of Moto Guzzi S.p.A. were acquired by Trident Rowan Group, Inc. for Lit. 603 million, being the fair value of 30,000 shares if its common stock issued to effect the purchase. See Notes to Consolidated Financial Statements F-25 MOTO GUZZI CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1997 AND 1996, AND 1995 (UNAUDITED)
1997 1997 1996 1995 US$'000 LIRE M. LIRE M. LIRE M. ------- ---------------- --------------- --------------- (UNAUDITED) Net loss.................................................... $(5,976) Lit. (10,569) Lit. (1,996) Lit. (3,233) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization............................. 1,402 2,480 1,807 2,303 Gain on sales of operating assets......................... (276) (489) (552) -- Reserves for termination indemnities...................... 690 1,221 1,132 1,128 Payments of termination indemnities....................... (210) (372) (1,279) (882) Reserves for inventories and receivables.................. 1,833 3,243 122 2,111 Other operating activities................................ 317 559 (479) (13) Changes in operating assets and liabilities: Trade and other receivables............................... 4,638 8,205 (6,916) (3,575) Related party receivables................................. (3,080) (5,448) 2,724 (1,420) Inventories............................................... (5,945) (10,516) (3,754) (9,092) Prepaid expenses.......................................... (37) (65) (65) (63) Accounts payable and accrued expenses..................... 2,131 3,769 826 6,867 Related party payables.................................... 113 200 (1,199) (453) ------- ---------------- --------------- --------------- Net cash used in operating activities....................... (4,400) (7,782) (9,629) (6,322) ------- ---------------- --------------- --------------- Investing activities: Purchase of subsidiaries, net of cash acquired............ -- -- 555 -- Proceeds on disposal of operating assets.................. 350 619 567 -- Purchases of property, plant and equipment................ (2,197) (3,887) (5,951) (1,801) ------- ---------------- --------------- --------------- Net cash used in investing activities....................... (1,847) (3,268) (4,829) (1,801) ------- ---------------- --------------- --------------- Financing activities: Net increase/(decrease) in advances from banks............ 3,132 5,540 7,214 5,107 Proceeds from share issues................................ 1,658 2,933 5,101 -- Loans from parent company and affiliates.................. 4,409 7,800 1,500 2,580 Proceeds from long-term debt.............................. 120 212 1,248 -- Principal payments of long-term debt...................... (761) (1,347) (1,113) (525) ------- ---------------- --------------- --------------- Net cash provided by financing activities................... 8,558 15,138 13,950 7,162 ------- ---------------- --------------- --------------- Increase/(decrease) in cash and cash equivalents............ 2,311 4,088 (508) (961) Effect of exchange rate changes on cash and cash equivalents............................................... 31 54 (22) -- Cash and cash equivalents, beginning of year................ 1,249 2,210 2,740 3,679 ------- ---------------- --------------- --------------- Cash and cash equivalents, end of year...................... $ 3,591 Lit. 6,352 Lit. 2,210 Lit. 2,718 ------- ---------------- --------------- --------------- ------- ---------------- --------------- ---------------
SUPPLEMENTAL NOTES ON NON-CASH ACTIVITIES Fixed assets for Lit. 760 million were acquired in 1997 and for Lit. 1,830 million in 1996 by way of finance leases, assuming lease obligations at inception of Lit. 570 million in 1997 and Lit. 1,573 million in 1996. TRG issued 30,000 shares of its common stock valued at Lit. 471 million in 1996 to effect the acquisition of Moto America Inc. Cash acquired amounted to Lit. 555 million. See Note 4. OTHER SUPPLEMENTAL INFORMATION Interest paid amounted to Lit. 3,268 million, Lit. 4,071 million in 1997 and 1996, respectively. See Notes to Consolidated Financial Statements F-26 MOTO GUZZI CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 1. BACKGROUND AND ORGANIZATION Activities Moto Guzzi Corp., is a Delaware incorporated holding company whose subsidiaries manufacture and distribute "Moto Guzzi" brand motorcycles, parts and accessories in Italy, Europe and elsewhere in the world. The Company has a single manufacturing site at Mandello del Lario, Lecco, Italy. Corporate background Moto Guzzi S.p.A., the Italian manufacturer of Moto Guzzi motorcycles, had been a subsidiary of Trident Rowan Group, Inc. ("TRG") since 1972 and a owned wholly subsidiary of TRG from July 1995. Effective January 1, 1996, TRG acquired 100% of the outstanding capital of Moto America Inc., the exclusive importer of Moto Guzzi motorcycles in the United States. On October 9, 1996, TRG formed Moto Guzzi Corp. as a holding company for its interests in the Moto Guzzi motorcycle operations and transferred its 100% interests in Moto Guzzi S.p.A. and Moto America Inc. to Moto Guzzi Corp. in exchange for 6,000,000 shares of common stock. Private Offering of Convertible Preferred Securities in 1996/1997 In December 1996 and January 1997, Moto Guzzi Corp. consummated a private offering of redeemable convertible preferred stock and common stock purchase warrants which raised an aggregate of approximately $5,218,000 (Lit. 8,034 million at the then prevailing exchange rates), net of expenses. Moto Guzzi Corp. issued 1,500,000 units, each consisting of one share of Class A Redeemable Convertible Preferred Stock and one common stock purchase warrant exercisable for three years for the lesser of $4.00 or the initial public offering price of the common stock. The preferred stock is convertible at the option of the holder into an equal number of shares of common stock, subject to adjustment to protect against events of dilution and is automatically converted upon consummation of an initial public offering of Moto Guzzi Corp. common stock which raises gross proceeds of at least $8,000,000. The conversion rate for the preferred stock in such event will be the lesser of the then applicable conversion rate or 75% of the per share initial offering price. If such an initial public offering is not consummated by June 30, 1998, the holders of a majority of the shares of preferred stock will have the right to select a majority of the Moto Guzzi Corp. board of directors. The holders of the preferred stock also have a right to redeem their shares at $8.00 per share if no public offering is completed on or before January 16, 2002. The convertible preferred stock was recorded in the consolidated balance sheet outside shareholders' equity as "preferred stock subject to redemption" in the amount of Lit. 5,101 million at December 31, 1996 and a further Lit. 2,933 million was recorded in January 1997 as a result of the completion of the private placement. At December 31, 1997, the Company has recorded Lit. 3,595 million as accretion expense to reflect amortization of the difference between the net proceeds received and the contingent redemption of such shares in January 2002 and the effects of changing exchange rates on such repurchase commitment. Reporting currency The primary financial statements are shown in Italian Lire because substantially all the Company's material operations 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 calculated at the rate of Lit. 1,769 to $1.00, the approximate exchange rate at December 31, 1997. It should not be construed that the assets and liabilities, expressed in U.S. dollar equivalents, can actually be realized in or extinguished in U.S. dollars at that or any other rate. All currency amounts in these financial statements are in Lire unless specifically designated in other currencies. F-27 MOTO GUZZI CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997 2. SIGNIFICANT ACCOUNTING POLICIES Accounting principles The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America. Transfer by TRG of operating subsidiaries The financial statements include the effects of the 1996 acquisition of Moto America Inc. as such transaction was reflected in the financial statements of the parent company, TRG. Additionally, the issuance of 6,000,000 shares of the Company's common stock to TRG in exchange for the outstanding shares of Moto Guzzi S.p.A. and Moto America Inc. was accounted for at TRG's carrying value of the consolidated net assets of such companies at the effective date of October 1, 1996. See Notes 3 and 4. Principles of consolidation The consolidated financial statements include the accounts of the Company and its majority owned subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Foreign currency translation The financial statements of non-Italian entities have been translated from the applicable functional currency to Italian lire using the year-end exchange rate for balance sheet items and the average exchange rate for the year for statement of operation items. The translation differences resulting from the change in exchange rates from year to year have been reported separately as a component of shareholders' equity. Foreign currency transactions Transactions, receivables and payables denominated in currencies other than the functional currency are recorded at the exchange rate in effect on the transaction date. Such receivables and payables are adjusted to current exchange rates as of the date paid or the balance sheet date, whichever is earlier. Gains and losses are included in "other income, net" in the statements of operations. Cash equivalents The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Revenue recognition Revenues from sale of products are recorded upon shipment, which is when title passes. Research and development The Company is continuously engaged in company-sponsored programs of product improvement and development. Research and development costs are expensed as they are incurred. Inventories Inventories are stated at the lower of cost or market with cost being determined principally by the last- in, first-out (LIFO) method applying average cost of the year to increases in inventory quantities. If inventories had been determined by the lower of cost or market value using the first-in, first-out (FIFO) method, which F-28 MOTO GUZZI CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997 2. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) approximates current cost, inventories would have been greater by approximately Lit. 3,000 million in 1997 and Lit. 2,000 million in 1996. Long-lived assets The Company adopted Financial Accounting Standards Board (FASB) Statement No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of" in 1996. This statement requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amounts and also addresses the accounting for long-lived assets that are expected to be disposed of. The effect of the initial adoption of FASB Statement No. 121 in 1996 was not material. The Company continually reviews the carrying value of long-lived assets and long-lived assets to be disposed of. Goodwill On purchases of businesses, the excess of the purchase price over the fair value of assets acquired is accounted for as goodwill and is amortized on a straight-line basis over a period determined by the Company taking into consideration the nature of the business acquired. Property, plant and equipment Property, plant and equipment are recorded at cost. Depreciation is provided on the straight-line method over the estimated useful lives of the assets. Buildings are depreciated over 30 years and plant and machinery, tooling and computer equipment over lives ranging from 3 to 10 years. Termination indemnities All employees of the Company's Italian subsidiary are entitled to receive severance pay in accordance with the terms of applicable national labor law and contracts. The liability for severance pay is accrued for service to date and is payable immediately on termination. The liability is calculated in accordance with the individual employee's length of service, employment category and compensation and is adjusted annually by a cost of living index provided by the Italian Government. There is no vesting period or funding requirement associated with the liability. The liability recorded in the consolidated balance sheets is the amount that the employee would be entitled to if the employee separates from the Company immediately. Income taxes Income taxes are provided by each entity included in the consolidation in accordance with local laws. Deferred income taxes have been provided using the liability method in accordance with FASB Statement No. 109, "Accounting for Income Taxes." Statements of cash flows Advances from banks arise primarily under the Company's short-term lines of credit with its banks. These short-term obligations are payable on demand. The cash flows for these items are included in the caption "Net increase in advances from banks" in the Consolidated Statements of Cash Flows. 3. ACQUISITION OF MOTO GUZZI S.P.A. TRG (then Rowan Industries Inc. and subsequently De Tomaso Industries Inc. from 1972 through August 1996) acquired a controlling interest in Moto Guzzi in December 1972 and subsequently made further investments in 1974 and 1975 before purchasing the remaining minority interests in 1995. The original purchase of a controlling interest in Moto Guzzi (then S.E.I.M.M.) in 1972 was part of a series of related transactions in which TRG first loaned money to Fratelli Benelli Fabbrica Motocicli e Costruzioni Meccaniche S.p.A. (Benelli) to enable this company to purchase S.E.I.M.M. and then TRG subsequently F-29 MOTO GUZZI CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997 purchased a controlling interest in Benelli. Benelli was an Italian motorcycle manufacturer whose operations and facilities were later disposed of, though Moto Guzzi S.p.A. continued to manufacture motorcycles under the Benelli brand name until 1995. The initial 1972 acquisition of a controlling interest in Benelli and Moto Guzzi was accounted for as a purchase. The fair value of the consolidated net assets of Benelli were in excess of the fair value of the TRG shares issued to consummate the transaction and the excess was applied to reduce the fair value of trademarks, goodwill and other intangible assets acquired. In 1974 and 1975, further shares in Benelli were purchased by TRG and the fair value of the shares issued as consideration was again less than the fair value of consolidated assets and the excess applied to further reduce intangible assets. On purchase of the minority interest in Moto Guzzi in July 1995, which was consummated by the issue of 30,000 shares of its common stock by TRG to purchase the rights of the minority shareholders to participate in the recapitalization of Moto Guzzi S.p.A. then required by local law, the fair value of the shares issued of Lit. 603 million for such preemption rights was allocated to land and buildings. The Financial Statements include the effects of stating the tangible assets of Moto Guzzi S.p.A., primarily land and buildings, at their fair values at the date of purchase and the reduction of the values of long-term intangible assets acquired in respect of the excess of assets acquired over the fair value of the consideration given, less accumulated depreciation and amortization. All intangible assets acquired were fully amortized prior to 1996. 4. ACQUISITION OF MOTO AMERICA INC. Effective January 1, 1996, TRG completed its acquisition of the outstanding shares of Moto America Inc., the sole distributor of Moto Guzzi motorcycles in the United States. The acquisition was consummated by the issuance of 30,000 shares of common stock of TRG and the purchase price of Lit. 471 million reflected the shares issued at their fair value at such date. The acquisition has been accounted for as a purchase and the excess of the purchase consideration over the fair value of assets acquired has been accounted for as goodwill, determined in the amount of Lit. 262 million, which is being amortized over 5 years. Subsequently, TRG purchased from Moto Guzzi S.p.A. a receivable of U.S.$ 190,614, equal to Lit. 294 million at the then prevailing exchange rate, and made an additional investment in Moto America Inc. by way of contribution of such receivable. The results of Moto America Inc. are included in the consolidated financial statements from January 1, 1996. Goodwill amortization amounted to Lit. 52 million in each of 1997 and 1996. The effects of the acquisition are not material to the operations of the Company. 5. RECEIVABLES FROM RELATED PARTIES
1997 1997 1996 US$'000 LIRE M. LIRE M. ------- ------- ------- MGI Motorcycle GmbH........................................................ 3,043 5,383 -- Finproservice S.p.A........................................................ 113 201 30 TRG........................................................................ 6 10 187 ----- ----- ----- 3,162 5,594 217 ----- ----- ----- ----- ----- -----
The amount at December 31, 1997 due from MGI Motorcycle GmbH, a 25% owned entity acquired in 1997, resulted from the purchase of products and services from the Company. Sales to MGI Motorcycle GmbH, consisting primarily of motorcycles and parts were Lit. 14,410 million in 1997. Finproservice S.p.A. is a factoring subsidiary of TRG. The amounts above relates to residual balances collected by Finproservice from receivables sold to it by Moto Guzzi S.p.A. Management believe the charges for the factoring arrangements, which have been discontinued in 1998, are in line with market prices. The balance due from TRG relates to a receivable purchased from Moto Guzzi S.p.A., at book value, in 1996, less amounts offset by advances made by TRG to meet certain expenses of Moto Guzzi S.p.A. in 1997. F-30 MOTO GUZZI CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997 6. ADVANCES FROM BANKS AND CREDIT ARRANGEMENTS The Company's subsidiary, Moto Guzzi S.p.A., has lines of credit arrangements with a number of Italian banks and financial institutions. Under these, the Company, at December 31, 1997, could have borrowed up to approximately Lit. 46,000 million. The line of credit arrangements do not have termination dates and are periodically reviewed. The average interest rate on advances from banks was approximately 8.25% and 12.25% at December 31, 1997 and 1996, respectively. 7. AMOUNTS DUE TO RELATED PARTIES Current liabilities
1997 1997 1996 US$'000 LIRE M. LIRE M. ------- ------- ------- TRG......................................................................... 596 1,055 197 T.I.M. S.p.A................................................................ -- -- 37 OAM S.p.A................................................................... -- -- 177 ----- ------- ----- 596 1,055 411 ----- ------- ----- ----- ------- -----
The balance due to TRG is primarily for costs incurred on behalf of Moto Guzzi Corp. in connection with the private placement of Moto Guzzi Corp. convertible preferred stock in December 1996 and January 1997 and advances by TRG during 1997. T.I.M. S.p.A. and OAM S.p.A. are subsidiaries of TRG. Loans from parent company and affiliates
1997 1997 1996 US$'000 LIRE M. LIRE M. ------- ------- ------- OAM S.p.A................................................................... 7,303 12,919 4,659 ----- ------- ----- ----- ------- -----
The loans carry interest calculated in reference to market rates. Interest amounted to Lit. 377 million and Lit. 275 million in 1997 and 1996, respectively. No payments of interest were made in either 1997 or 1996. 8. ACCRUED EXPENSES AND OTHER PAYABLES
1997 1997 1996 US$'000 LIRE M. LIRE M. ------- ------- ------- Salaries, wages and related items........................................... 2,440 4,316 3,614 Value added and other non income taxes...................................... 204 361 1,692 Other accrued expenses...................................................... 813 1,437 1,180 ----- ------- ----- 3,457 6,114 6,486 ----- ------- ----- ----- ------- -----
9. LONG-TERM DEBT
1997 1997 1996 US$'000 LIRE M. LIRE M. ------- ------- ------- Notes payable, secured by second mortgage over properties of Moto Guzzi S.p.A.: Interest 12.40%, payable in semi-annual installments through 2001......... 1,780 3,149 4,198 Industry Ministry L. 46/82, 1.9875% through 2002 and 7.95% thereafter, payable in installments commencing from 2002.............................. 496 878 878 Mortgage note secured by property of Moto America Inc., interest 8.25%, payable monthly through 2011.............................................. 231 409 365 Finance leases.............................................................. 1,027 1,817 1,512 Sundry notes payable........................................................ 139 246 48 ----- ------- ------- 3,673 6,499 7,001 Less current portion........................................................ (945) (1,671) (1,372) ----- ------- ------- 2,728 4,828 5,629 ----- ------- ------- ----- ------- -------
F-31 MOTO GUZZI CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997 9. LONG-TERM DEBT--(CONTINUED) Maturities of long-term debt as of December 31, 1997:
US$'000 LIRE M ------- ------- 1998........................................................................ 945 1,671 1999........................................................................ 965 1,707 2000........................................................................ 840 1,486 2001........................................................................ 163 289 2002........................................................................ 121 214 Subsequent to 2002.......................................................... 639 1,133 ----- ------- 3,673 6,499 ----- ------- ----- -------
In February 1998, Moto Guzzi S.p.A. obtained a new 10 year loan facility from Centrobanca and Banca Agricola Mantovana collateralized by a third mortgage on its properties in Mandello del Lario, Lecco, Italy. The entire amount of the facility of Lit. 10,000 million was drawn down in April 1998. The loan is repayable in quarterly installments from May 2000 through February 2008 and bears interest at 6% through May 2000 and thereafter at the ROLINT rate plus 1.25%. 10. OTHER INCOME
1997 1997 1996 1995 US$'000 LIRE M. LIRE M. LIRE M. ------- ------- ------- --------- UNAUDITED Currency exchange gain........................................ 75 133 139 (442) Gains on sale of assets....................................... 276 489 552 160 Government grants............................................. -- -- 450 -- Interest income............................................... 163 288 111 133 Other expense/(income)........................................ (95) (171) 652 268 ------- ------- ------- ------- 419 741 1,904 119 ------- ------- ------- ------- ------- ------- ------- -------
11. INCOME TAXES (Loss)/Income before income taxes consisted of the following:
1997 1997 1996 1995 US$'000 LIRE M. LIRE M. LIRE M. ------- ------- ------- --------- UNAUDITED United States................................................. (145) (255) 204 -- Foreign, principally Italy.................................... (5,698) (10,079) (2,168) (3,133) ------- ------- ------- ------- (5,843) (10,334) (1,964) (3,133) ------- ------- ------- ------- ------- ------- ------- -------
F-32 MOTO GUZZI CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997 11. INCOME TAXES--(CONTINUED) The provision/(credit) for income taxes consisted of the following:
1997 1997 1996 1995 US$'000 LIRE M. LIRE M. LIRE M. ------- ------- ------- --------- UNAUDITED Current: United States............................................... 133 235 92 -- Foreign..................................................... -- -- (60) 100 ------- ------- ------- ------- 133 235 32 100 ------- ------- ------- ------- ------- ------- ------- ------- Deferred: .................................................... -- -- -- -- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total......................................................... 133 235 32 100 ------- ------- ------- ------- ------- ------- ------- -------
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Valuation allowances have been recorded for the deferred tax assets as management believes it more likely than not that these assets will not be realized. Significant components of the Company's deferred tax assets are as follows:
1997 1997 1996 US$'000 LIRE M. LIRE M. ------- ------- ------- Short-term reserves........................................... 1,773 3,136 1,678 Carrying value of fixed assets................................ 996 1,762 1,632 Net operating loss carryforwards.............................. 722 1,277 1,430 Research expenses capitalized for tax purposes................ 1,129 1,997 978 ------- ------- ------- 4,620 8,172 5,718 Valuation allowance........................................... (4,620) (8,172) (5,718) ------- ------- ------- Net deferred tax assets....................................... -- -- -- ------- ------- ------- ------- ------- -------
The effective provision for income taxes varied from the income tax credit calculated at the statutory U.S. federal income tax rate as follows:
1997 1997 1996 1995 US$'000 LIRE M. LIRE M. LIRE M. ------- ------- ------- --------- UNAUDITED Computed tax credit at U.S. federal rate...................... (2,045) (3,617) (688) (1,097) Losses and timing differences for which valuation allowance provided.................................................... 1,969 3,483 556 821 Elimination of intercompany profits........................... 75 132 326 496 Government grant.............................................. -- -- (158) -- Non-deductible expenses and other............................. 120 213 36 (120) Prior year adjustment......................................... -- -- (60) -- Local taxes................................................... 14 24 20 -- ------- ------- ------- ------- 133 235 32 100 ------- ------- ------- ------- ------- ------- ------- -------
At December 31, 1997 the Company had net operating loss carryforwards for Italian federal income tax purposes which expire as follows:
1997 1997 US$'000 LIRE M. ------- ------- 2002..................................................................... 1,950 3,450 ------- ------- ------- -------
F-33 MOTO GUZZI CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997 11. INCOME TAXES--(CONTINUED) As a result of the merger of Centro Ricambi Srl and Moto Guzzi S.p.A. in 1997, approximately Lit. 3,259 million of Italian net operating loss carryforwards were forfeited. 12. EXPORT SALES AND GEOGRAPHIC INFORMATION Export sales The Company's motorcycle business exports its products throughout the world. Sales of motorcycles by geographic destination were as follows:
1997 1996 1995 ---- ---- ---- Italy.............................................................................. 37% 37% 35% Europe other than Italy............................................................ 46% 43% 49% United States...................................................................... 13% 7% 6% Elsewhere.......................................................................... 4% 13% 10%
Sales to Germany represented approximately 17.8% of motorcycle sales in 1997 (19% and 14% in 1996 and 1996 respectively). No other country represented over 10% of motorcycle sales. Transfers of products between geographical areas Sales of motorcycles and parts from the Italian production facilities of the Company's motorcycle business to its U.S. exclusive importer, Moto America Inc., amounted to Lit. 10,631 million in 1997 (1996--Lit. 5,800 million). Prior to 1996, Moto America Inc. was an unaffiliated company. Sales to the French exclusive importer, Moto Guzzi France Sarl, constituted in 1997, amounted to Lit. 6,959 million in 1997. Sales prices are accounted for on a basis comparable to those for non affiliated customers. Identifiable assets At 31 December 1997 and 1996, all material operating assets of the Company were located in Italy. 13. COMMITMENTS AND CONTINGENCIES Litigation 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, 1997. Contingent preferred stock redemption obligation. As more fully described in Note 1, the Company's convertible preferred stock is redeemable at the holders behest if the Company does not complete an initial public offering of its common stock by January 16, 2002. 14. CONCENTRATION OF CREDIT RISKS Concentrations of credit risk with respect to trade accounts receivable are limited due to the large number of entities in the customer base. Sales to governmental bodies in Italy are significant as a whole, but no single government body represents more than 10% of net sales. The Company maintains cash and cash equivalents, and short and long term investments with various financial institutions of national standing in Italy and the United States. 15. FINANCIAL INSTRUMENTS The Company does not enter into foreign exchange contracts in the normal course of its operating activities. Moto Guzzi S.p.A. makes all its sales in Lire except those to Moto America Inc. which are expressed in U.S. Dollars. Moto Guzzi S.p.A. typically draws down U.S. Dollar advances up to 80% of outstanding invoices to F-34 MOTO GUZZI CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997 15. FINANCIAL INSTRUMENTS--(CONTINUED) Moto America Inc. on its short-term bank credit lines, see Note 6, thus effectively hedging 80% of short-term exchange risk through collection. Fair value of financial instruments The following methods and assumptions were used by the Company in estimating its fair value disclosure for financial instruments. Cash and cash equivalents: the carrying amount of cash and cash equivalents reported by the Company approximates their fair value. Short and long term debt: the carrying amount of the Company's borrowings under its short-term credit arrangements approximates their fair value. The fair values of the Company's long-term debt are estimated using cash flow analyses, based on the Company's incremental borrowing rates for similar types of borrowing arrangements. 16. SUBSEQUENT EVENTS Agreement to purchase industrial site at Monza, Italy 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' plant in Monza, Italy. The agreement, which is subject to the fulfilment of certain conditions including the assent of certain labor unions, contemplates a payment on or about August 1998 of approximately Lit. 26,000 million, including applicable value added taxes. Financing for the acquisition is being actively sought from Italian financial institutions and elsewhere. While indications are that funds for the purchase of the plant will be available from Italian institutions, the Company has not yet received any legally binding commitment. F-35 MOTO GUZZI CORP. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 1998 F-36 MOTO GUZZI CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS JUNE 30, 1998
JUNE 30, JUNE 30, 1998 1998 DEC. 31, US$'000' LIRE M. 1997 UNAUDITED UNAUDITED LIRE M. ----------- ------------ ------------ ASSETS Cash and cash equivalents.............................................. $ 4,191 Lit. 7,447 Lit. 6,352 Receivables............................................................ 16,589 29,478 23,446 Trade, less allowance of Lit. 1,903.................................. 11,703 20,796 13,437 Receivables from related parties..................................... 2,372 4,215 5,594 Other receivables.................................................... 2,515 4,467 4,415 Inventories............................................................ 25,301 44,959 39,311 Raw material, spare parts and work-in-progress....................... 13,947 24,784 22,898 Finished products.................................................... 11,353 20,175 16,413 Prepaid expenses....................................................... 520 924 120 --------- ------------ ------------ CURRENT ASSETS......................................................... 46,601 82,808 69,229 --------- ------------ ------------ Property, plant and equipment.......................................... 9,908 17,606 14,345 Land................................................................. 422 750 750 Buildings............................................................ 1,488 2,644 2,644 Machinery and equipment.............................................. 21,448 38,144 33,699 --------- ------------ ------------ 23,358 41,508 37,093 Less allowances for depreciation..................................... (13,450) (23,902) (22,748) --------- ------------ ------------ Goodwill, net of amortization of Lit. 130 (1997, Lit. 104)............. 45 132 158 Other assets........................................................... 1,050 1,814 962 --------- ------------ ------------ TOTAL ASSETS........................................................... $ 57,604 Lit.102,360 Lit.84,694 --------- ------------ ------------ --------- ------------ ------------ LIABILITIES AND SHAREHOLDERS' DEFICIT Advances from banks.................................................... $ 19,018 Lit. 33,795 Lit. 27,341 Current portion of long-term debt...................................... 1,014 1,802 1,671 Accounts payable....................................................... 15,567 27,663 23,707 Amounts due to related parties......................................... 480 853 1,055 Accrued expenses and other payables.................................... 4,191 7,447 5,907 --------- ------------ ------------ CURRENT LIABILITIES.................................................... 40,270 71,566 59,681 --------- ------------ ------------ Long-term debt, less current portion................................... 7,808 13,875 4,828 Loans from parent company and affiliates............................... 7,451 13,241 12,919 Termination indemnities................................................ 4,406 7,827 8,003 Preferred stock subject to redemption.................................. 7,252 12,886 11,629 SHAREHOLDERS' DEFICIT.................................................. (9,583) (17,029) (12,366) Series "A" preferred stock, par value $0.01 per share; Authorized 1,500,000 shares, 1,500,000 shares issued and outstanding.......... -- -- -- Common stock, par value $0.01 per share; Authorized 20,000,000 shares, 6,000,000 shares issued and outstanding.................... 51 91 91 Additional paid in capital........................................... 1,657 2,945 2,945 Accretion expense and related foreign exchange....................... (2,730) (4,852) (3,595) Cumulative translation adjustment.................................... 127 225 225 Accumulated deficit.................................................. (8,688) (15,438) (12,032) --------- ------------ ------------ LIABILITIES AND SHAREHOLDERS' DEFICIT.................................. $ 57,604 Lit.102,360 Lit.84,694 --------- ------------ ------------ --------- ------------ ------------
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 Unaudited Condensed Consolidated Financial Statements. F-37 MOTO GUZZI CORP. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 3 MONTHS ENDED JUNE 30, 1998 AND 1997
JUNE 30 JUNE 30 JUNE 30 1998 1998 1997 US$'000 LIRE M. LIRE M. ------------- ------------- ------------- Net sales................................................... $ 12,607 Lit. 22,403 Lit. 23,253 Cost of sales............................................... (10,035) (17,833) (20,052) --------- ------------- ------------- 2,572 4,570 3,201 Selling, general and administrative expenses................ (2,559) (4,548) (4,150) Research and development expense............................ (761) (1,352) (455) Other income, net........................................... 137 243 12 --------- ------------- ------------- (611) (1,087) (1,392) Interest expense............................................ (687) (1,220) (1,019) --------- ------------- ------------- Loss before income taxes.................................... (1,298) (2,307) (2,411) Income taxes................................................ (119) (264) (94) --------- ------------- ------------- Net loss.................................................... $ (1,447) Lit. (2,571) Lit. (2,505) --------- ------------- ------------- --------- ------------- -------------
See Notes to Unaudited Condensed Consolidated Financial Statements F-38 MOTO GUZZI CORP. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS 6 MONTHS ENDED JUNE 30, 1998 AND 1997
JUNE 30, JUNE 30, 1998 1998 JUNE 30, 1997 US$'000 LIRE M. LIRE M. ------------- ------------- ------------- Net sales............................................................ $ 27006 Lit. 47989 Lit. 41665 Cost of sales........................................................ (21,809) (38,755) (35,814) --------- ------------- ------------- 5,197 9,234 5,851 Selling, general and administrative expenses......................... (4,424) (7,861) (6,702) Research and development expense..................................... (1,253) (2,226) (897) Other income, net.................................................... 75 134 94 --------- ------------- ------------- (405) (719) (1,654) Interest expense..................................................... (1,241) (2,206) (2,040) --------- ------------- ------------- Loss before income taxes............................................. (1,646) (2,925) (3,694) Income taxes......................................................... (271) (481) (173) --------- ------------- ------------- Net loss............................................................. $ (1,917) Lit. (3,406) Lit. (3,867) --------- ------------- ------------- --------- ------------- -------------
See Notes to Unaudited Condensed Consolidated Financial Statements F-39 MOTO GUZZI CORP. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 6 MONTHS ENDED JUNE 30, 1998 AND 1997
JUNE 30 JUNE 30 JUNE 30 1998 1998 1997 US$'000 LIRE M. LIRE M. ------- --------------- --------------- Net loss................................................................... $(1,917) Lit. (3,406) Lit. (3,867) Adjustments to reconcile net loss to net cash used in operating activities:........................................................... (3,387) (6,019) (3,655) ------- --------------- --------------- Net cash used in operating activities.................................... (5,304) (9,425) (7,522) ------- --------------- --------------- Investing activities: Purchases of property, plant and equipment............................... (2,878) (5,115) (1,783) ------- --------------- --------------- Net cash used in investing activities...................................... (2,878) (5,115) (1,783) ------- --------------- --------------- Financing activities: Net increase in advances from banks...................................... 3,632 6,454 7,109 Proceeds from share issues............................................... -- -- 2,933 Loans from parent company and affiliates................................. -- -- 1,000 Proceeds fron long-term debt............................................. 5,627 10,000 -- Principal payments of long-term debt..................................... (464) (825) (596) ------- --------------- --------------- Net cash provided by financing activities.................................. 8,795 15,629 10,446 Increase in cash and cash equivalents...................................... 613 1,089 1,141 Effect of exchange rate changes on cash and cash equivalents............... 3 6 52 Cash and cash equivalents, beginning of period............................. 3,575 6,352 2,210 ------- --------------- --------------- Cash and cash equivalents, end of period................................... $ 4,191 Lit. 7,447 Lit. 3,403 ------- --------------- --------------- ------- --------------- ---------------
See Notes to Unaudited Condensed Consolidated Financial Statements F-40 MOTO GUZZI CORP. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1998 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 Company's accounting principles, and other footnote information, reference is made to the Company's 1997 audited financial statements. 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 and six months ended June 30, 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 1,777 to U.S. $1, the approximate exchange rate at June 30, 1998. It should not be construed that the assets and liabilities, expressed in US dollar equivalents, can actually be realized in or extinguished by U.S. dollars at that or any other rate. 2. COMPREHENSIVE INCOME In June 1997, the Financial Accounting Standards Board issued Statement No. 130, "Reporting Comprehensive Income" ("SFAS 130"), which is effective for fiscal years beginning after December 15, 1997. Reclassification of financial statements for earlier periods is required. In the Company's case, comprehensive income includes net losses, unrealized gains/losses from translation and accretion expense (including related foreign currency translation effects) in respect of shares of preferred stock subject to repurchase.
3 MONTHS ENDED JUNE 30, ----------------------------- 1998 1998 1997 US$'000 LIRE M. LIRE M. ------- ------- ------- Net loss................................................................... (1,447) (2,571) (2,305) ------- ------- ------- Cumulative translation adjustment.......................................... (19) (33) 17 Accretion expense and related foreign currency translation effects......... (160) (284) (698) ------- ------- ------- Total other comprehensive loss............................................. (179) (317) (681) ------- ------- ------- Comprehensive loss......................................................... (1,626) (2,888) (2,986) ------- ------- ------- ------- ------- -------
6 MONTHS ENDED JUNE 30, ----------------------------- 1998 1998 1997 US$'000 LIRE M. LIRE M. ------- ------- ------- Net loss................................................................... (1,917) (3,406) (3,867) ------- ------- ------- Cumulative translation adjustment.......................................... -- -- 163 Accretion expense and related foreign currency translation effects......... (707) (1,257) (1,983) ------- ------- ------- Total other comprehensive loss............................................. (707) (1,257) (1,820) ------- ------- ------- Comprehensive loss......................................................... (2,624) (4,663) (5,687) ------- ------- ------- ------- ------- -------
F-41 MOTO GUZZI CORP. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) JUNE 30, 1998 2. COMPREHENSIVE INCOME--(CONTINUED) Changes in components of comprehensive loss for the six months ended June 30, 1998 are as follows:
ACCUMULATED CUMULATIVE OTHER TRANSLATION ACCRETION COMPREHENSIVE ADJUSTMENT EXPENSE LOSS ---------- --------- ------------- Balance, January 1, 1998.................................................. 225 (3,595) (3,370) Change for period......................................................... -- (1,257) (1,257) ---- ------- ------- Balance, June 30, 1998.................................................... 225 (4,852) (4,627) ---- ------- ------- ---- ------- -------
3. GRANT OF PARENT COMPANY OPTIONS On March 18, 1998, Trident Rowan Group, Inc. the ultimate parent company of Moto Guzzi Corp. granted 65,000 options, exercisable at $5.00, to purchase shares of its common stock to Oscar Cecchinato, a director of the Company and the managing director of the Company's principal operating subsidiary, Moto Guzzi S.p.A. The Company and Trident Rowan Group, Inc. have both elected the disclosure-only provisions of FASB Statement No. 123, "Accounting for Stock Based Compensation" and apply, or in the Company's case, will apply, APB Opinion No. 25 and related interpretations in accounting for their stock option plans. Based on the fair value of the award at the grant date, compensation cost in respect of the parent company stock options, above, was not material. 4. AGREEMENT TO PURCHASE NEW PLANT 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' plant in Monza, Italy. While the agreement has expired in accordance with its terms, the parties are continuing in discussions which could lead to a renewal of the agreement. The agreement, was subject to the fulfilment of certain conditions including the assent of certain labour unions, contemplates a payment of approximately Lit. 26,000 million, including applicable value added taxes. Moto Guzzi continues to seek financing for the possible acquisition from Italian financial institutions and elsewhere. While negotiations with unions and other labor representatives may continue during the discusssions with Philips, they have been suspended during the traditional August closure of Moto Guzzi. There can be no assurances that such discussions, either with Philips or with the unions will be successful, or that the purchase of the plant will be consummated. 5. MERGER AGREEMENT WITH NORTH ATLANTIC ACQUISITION CORP. On August 18, 1998, Moto Guzzi Corp., and for limited purposes TRG, entered into a Merger Agreement to merge with North Atlantic Acquisition Corp. (NAAC). NAAC was organized in August 1995 as a specialized merger and acquisition allocated risk transaction company with the objective of acquiring an operating business. NAAC has not engaged in any substantive commercial business and will, at the effective time of the Merger, have approximately $8 million in cash, net of Merger expenses, to finance the operations of merged companies, although such amount could be reduced by approximately $1.7 million pursuant to certain redemption rights of existing NAAC shareholders. In addition, NAAC has outstanding warrants and options, certain of which can be redeemed by NAAC for a nominal sum, subject to achievement of certain share price performance criteria, which could potentially provide further cash of approximately $10.4 million. If consummated, Moto Guzzi Corp. will merge with and into NAAC with NAAC being the surviving corporation. Moto Guzzi Corp. shareholders will receive NAAC Class A Common Stock, NAAC Class B F-42 MOTO GUZZI CORP. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) JUNE 30, 1998 5. MERGER AGREEMENT WITH NORTH ATLANTIC ACQUISITION CORP.--(CONTINUED) Preferred Stock and Nominal Warrants entitling the holder, depending on future performance of the merged company, to purchase additional shares of NAAC Class A Common Stock on payment of a nominal amount. The Merger Agreement provides that parent company loans, shown in Moto Guzzi Corp.'s balance sheet at Lit. 13,241 million at June 30, 1998, would be exchanged for NAAC securities and also entitles holders of outstanding Moto Guzzi Corp. common stock warrants, exercisable at $4.00 through January 17, 2000, to cancel their warrants or otherwise exchange them for NAAC equity securities ("the Warrant Exchange"). The Merger is subject, among other conditions, to approval by NAAC shareholders. If consummated, the merged company intends to apply for a listing on NASDAQ, though there can be no assurance that such application would be successful. If consummated, the shareholders of Moto Guzzi Corp. will own approximately 80.8% of the merged company, including the NAAC Class A Common Stock underlying the NAAC Class B Preferred Stock and assuming the Warrant Exchange is fully accepted and that there is no exercise of any outstanding options or warrants of NAAC. The transaction will be accounted for as a reverse acquisition of NAAC by Moto Guzzi Corp. As a result of the reverse acquisition, the historical financial statements of the merged company will be those of Moto Guzzi Corp. and the primary financial statements will continue to be reported in Italian Lire. F-43 ANNEX I AGREEMENT AND PLAN OF MERGER AND REORGANIZATION AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, dated August 18, 1998, among NORTH ATLANTIC ACQUISITION CORP., a Delaware corporation, ("North"), MOTO GUZZI CORP., a Delaware corporation ("Motoguzzi") and, as to those applicable provisions of ARTICLE II, ARTICLE III, ARTICLE V, ARTICLE VI, ARTICLE VIII, ARTICLE X, ARTICLE XI AND ARTICLE XIII hereof, TRIDENT ROWAN GROUP, INC., a Maryland corporation ("TRG") and significant shareholder of Motoguzzi. WHEREAS, North was formed to serve as a vehicle to effect a merger, exchange of capital stock, acquisition or other business combination with an operating business; WHEREAS, Motoguzzi, through its wholly and partially owned subsidiaries is in the business of designing, manufacturing and selling motorcycles, spare parts and similar products; WHEREAS, subject to the terms and conditions of this Agreement and Plan of Merger and Reorganization ("Agreement"), the Parties desire to consummate a merger, as contemplated herein, pursuant to which Motoguzzi will merge with and into North, with North being the surviving corporation (North, after the consummation of the Merger, the "Surviving Corporation"); and WHEREAS, for Federal income tax purposes, the parties intend, by approving resolutions authorizing this Agreement, that such merger qualify as a reorganization under the provisions of Section 368(a)(1)(A) of the United States Internal Revenue Code of 1986, as amended (the "Code"). IT IS AGREED: ARTICLE I THE MERGER SECTION 1.01 Definitions. Certain capitalized terms used in this Agreement shall have the meanings specified in ARTICLE XII. SECTION 1.02 The Merger. Upon the terms and subject to the conditions hereof and in accordance with the relevant provisions of the General Corporation Law of the State of Delaware (the "DGCL"), at the Effective Time (as defined herein) North and Motoguzzi shall consummate a merger ("Merger") of Motoguzzi with and into North. Following the Merger, (i) North shall continue as the surviving corporation and shall continue its existence under the laws of the State of Delaware and (ii) the separate corporate existence of Motoguzzi shall cease. SECTION 1.03 Effective Time. On the Closing Date, North and Motoguzzi shall file with the Secretary of State of the State of Delaware in accordance with the DGCL an executed copy of the Certificate of Merger in the form of Exhibit A hereto (the "Certificate of Merger"). The Merger shall become effective at such time as the Certificate of Merger is filed with the Secretary of State of the State of Delaware (the "Effective Time"). SECTION 1.04 Effects of the Merger. The Merger shall have the effects set forth in Section 259 of the DGCL. SECTION 1.05 Changes to Certificate of Incorporation and By-Laws of the Surviving Corporation. The Certificate of Merger will also amend the Certificate of Incorporation of the Surviving Corporation to effect a change in the name of North from "North Atlantic Acquisition Corp." to "Moto Guzzi Corporation", to increase the authorized capital stock of the Surviving Corporation, to authorize the issuance of one or more classes of preferred stock and to provide for a board of directors with staggered terms of three years, in the form attached hereto as Exhibit A. The By-Laws of Moto Guzzi Corp. shall be the By-Laws of the Surviving Corporation. The Certificate of Incorporation as so modified and such By-Laws shall be the Certificate of Incorporation and By-Laws of the Surviving Corporation. A-I-1 SECTION 1.06 Directors and Officers of the Surviving Corporation After the Effective Time. At the Effective Time, the Board of Directors of the Surviving Corporation shall consist of eight persons, of which two will be nominated by the management of North, five will be nominated by Motoguzzi and one will be a nominee mutually acceptable to both Motoguzzi and North, each to serve until his successor is elected and qualified. Such persons, and the classes in which they shall serve, as well as certain compensation arrangements and certain options to purchase shares of Class A Common Stock to be granted to certain directors and executive officers of the Surviving Corporation (the "Executive Options") are listed in Schedule 1.06. The officers of North at the Effective Time shall consist of the persons listed in Schedule 1.06, each to serve until his or her successor is elected. Each of North and Motoguzzi may, at any time prior to the Effective Time, change their nominees. SECTION 1.07 The Closing. Subject to the terms and conditions of this Agreement, the consummation of the Merger and the other transactions contemplated by this Agreement shall take place at a closing (the "Closing") to be held at 10:00 a.m., local time, on the third Business Day after the date on which the last of the conditions to Closing set forth in Article IX hereof is fulfilled or waived by the appropriate Party, as the case may be, at the offices of Graubard Mollen & Miller, 600 Third Avenue, New York, New York 10016, or at such other time, date or place as the Parties may agree upon in writing. The date on which the Closing occurs is referred to herein as the "Closing Date." SECTION 1.08 Tax Free Reorganization. The parties intend to adopt this Agreement as a tax-free plan of reorganization and to consummate the Merger in accordance with the provisions of Section 368(a)(1)(A) of the Code, and shall not take a position on any tax return inconsistent therewith. In addition, North represents now, and as of the Closing, that it presently intends to continue Motoguzzi's historic business or use a significant portion of Motoguzzi's business assets in a business, in each case within the meaning of Treasury Regulation Section 1.368-1(d). ARTICLE II CONVERSION OF SHARES AND RELATED MATTERS SECTION 2.01 Outstanding Stock of North. Upon consummation of the Merger, the outstanding capital stock of North shall continue to be the issued and outstanding capital stock of the Surviving Corporation. SECTION 2.02 Conversion of Outstanding Stock of Motoguzzi. (a) Except as provided in Section 2.03, upon consummation of the Merger, (i) the shares of common stock, $.01 par value, ("Old Motoguzzi Common Stock") of Motoguzzi outstanding on the date of this Agreement and immediately prior to the Effective Time and the shares of preferred stock, $.01 par value, ("Old Motoguzzi Preferred Stock") of Motoguzzi outstanding on the date of this Agreement and immediately prior to the Effective Time, shall, by virtue of the Merger and without any action on the part of the holder thereof, and subject to reduction in accordance with Section 2.03 below and increase in accordance with Section 2.02(c) below, be converted into and exchanged for (A) 3,702,450 shares of the Class A Common Stock, $.01 par value ("Class A Common Stock") of North, subject to adjustment as herein provided, (B) 234,489 shares of Class B Convertible Preferred Stock having such rights and preferences as are described in the amended Certificate of Incorporation of the Surviving Corporation ("Class B Preferred Stock"), and (C) warrants in the form attached as Exhibit B hereto (the "Nominal Warrants") to purchase such number of shares of Class A Common Stock as is equal to 74.05% of the number of shares of Class A Common Stock which may be purchased under the "Maximum Nominal Warrants" (as defined below), (ii) in consideration of the contribution to the capital of Motoguzzi of certain intercompany indebtedness described in Section 2.06(b) there shall be issued to the holders of such indebtedness 1,038,040 shares of Class A Common Stock, 65,743 shares of Class B Preferred Stock and Nominal Warrants to purchase 20.76% of the number of shares of Class A Common Stock which may be purchased under the Maximum Nominal Warrants, and (iii) if all outstanding Warrants to purchase an aggregate of 1,500,000 shares of Old Motoguzzi Common Stock at $4.00 per share (the "Old Motoguzzi Warrants") are surrendered (as provided in Section 2.06(a)) there shall be issued to such surrendering warrant holders 259,510 shares of Class A Common Stock, 16,436 shares of Class B Preferred Stock and Nominal Warrants to purchase 5.19% of the number of shares of Class A Common Stock which may be purchased under the Maximum Nominal Warrants. The Class A Common Stock, the Class B Preferred Stock and the Nominal Warrants are together referred to A-I-2 herein as the "Merger Consideration". The number of shares of Class A Common Stock, Class B Preferred Stock and the number of Nominal Warrants payable as the Merger Consideration shall be rounded up or down to the nearest whole number of shares or warrants. If the holders of less than all Old Motoguzzi Warrants surrender same, then the Merger Consideration described in the preceding clause (iii) shall be reduced by multiplying the Merger Consideration in clause (iii) by the percentage of Old Motoguzzi Warrants so surrendered and each Old Motoguzzi Warrant not so surrendered shall, after the Effective Time, have such continuing rights as are provided by the terms thereof. The term "Maximum Nominal Warrants" shall mean Nominal Warrants to purchase such number of shares of Class A Common Stock as would be acquired hereunder if all Old Motoguzzi Warrants are surrendered as provided in Section 2.06(a). (b) Except as otherwise provided in this Agreement and except for shares with respect to which the holder thereof votes against the Merger ("Dissenter") and ultimately receives payment thereon pursuant to Section 262 of the DGCL ("Dissenter Securities"), each share of Old Motoguzzi Common Stock outstanding on the date hereof and immediately prior to the Effective Time and each share of Old Motoguzzi Preferred Stock outstanding on the date hereof and immediately prior to the Effective Time will be converted into .4937 shares of Class A Common Stock, .0313 shares of Class B Preferred Stock and Nominal Warrants for such number of shares of Class A Common Stock as equals the number of shares of Class A Common Stock which may be purchased under 74.05% of the Maximum Nominal Warrants multiplied by a fraction, the numerator of which is 1 and the denominator of which is 7,500,000. (c) If Available Cash (as defined in Section 4.05 below) is less than $8,150,000 at the Effective Time, the number of shares of Class B Preferred Stock issued as part of the Merger Consideration shall be increased by one share for each $15 of such shortfall, allocable pro rata as provided in Section 2.02(a). SECTION 2.03 Dissenters. (a) The Merger Consideration will be reduced, on a pro rata basis, as a result of any Dissenter seeking the appraisal rights pursuant to Section 262 of the DGCL, with respect to his shares of Old Motoguzzi Common Stock or Old Motoguzzi Preferred Stock. (b) If after the Effective Time a Dissenter loses the right to receive payment pursuant to Section 262 of the DGCL, the Dissenter Securities held by the Dissenter will be treated as if they had been converted as of the Effective Time into the Merger Consideration. (c) Motoguzzi will promptly provide North with copies of any written demand for payment to be received by a Dissenter, and North will have the right to participate in all negotiations and proceedings with respect to any demand by a Dissenter. Motoguzzi will not, except with the prior written consent of North or as may be required by law, make any payment prior to the Effective Time with respect to, or settle or offer to settle, any demand of a Dissenter. All Dissenter Securities acquired by Motoguzzi or by the Surviving Corporation will be canceled after payment therefor has been made in accordance with the DGCL. SECTION 2.04 Surrender and Payment. (a) Prior to the Effective Time, North will appoint American Stock Transfer & Trust Company, New York, New York, as its agent ("Exchange Agent") for the purpose of exchanging certificates representing the Old Motoguzzi Common Stock, Old Motoguzzi Preferred Stock and Old Motoguzzi Warrants ("Motoguzzi Securities") for certificates of Class A Common Stock, Class B Preferred Stock and Nominal Warrants representing the appropriate portion of the Merger Consideration. Promptly after the Effective Time, North will cause the Exchange Agent to send, to each holder of Motoguzzi Securities being exchanged a letter of transmittal for use in the exchange. North will make available to the Exchange Agent, as needed, stock certificates and Nominal Warrant certificates representing the Merger Consideration to be issued in respect of the Motoguzzi Securities. (b) Except as provided in Section 10.02, for each Motoguzzi Security being exchanged, upon the surrender of the certificate or certificates representing them together with a properly completed letter of transmittal, the holder will be entitled to receive certificates for the Class A Common Stock, Class B Preferred Stock and Nominal Warrants representing that portion of the Merger Consideration issuable in respect of the Motoguzzi A-I-3 Securities. Until so surrendered, each such certificate will, after the Effective Time, represent for all purposes, only the right to receive a proportionate amount of the Merger Consideration. (c) After the Effective Time, there will be no further registration of transfers of Motoguzzi Securities held prior to the Effective Time, except as may be permitted by Section 262 of the DGCL. After the Effective Time, all certificates formerly representing Motoguzzi Securities which are presented to North or the Exchange Agent will be canceled and exchanged for the consideration provided for in this Article II. SECTION 2.05 Adjustments. If, notwithstanding Section 7.01 hereof, at any time during the period between the date of this Agreement and the Effective Time, the outstanding shares of the capital stock of North is changed into a different number of shares or a different class by reason of any stock dividend, subdivision, reclassification, recapitalization, split, combination or exchange of shares, the Merger Consideration will be appropriately adjusted to reflect such stock dividend, subdivision, reclassification, recapitalization, split, combination or exchange of shares. SECTION 2.06 Surrender of Old Motoguzzi Warrants and Contribution of Intercompany Indebtedness. (a) Each holder of an Old Motoguzzi Warrant who wishes to surrender such warrant (a "Surrendered Warrant") shall do so prior to the Closing Date by delivering same to TRG together with a Warrant Surrender Agreement and such other documents as TRG and North shall reasonably require. (b) TRG covenants and agrees that Lit 12,719 million principal amount of indebtedness, plus interest thereon, owed by Motoguzzi to TRG and/or to O.A.M. S.p.A., a subsidiary of TRG ("OAM"), shall be contributed to the capital of Motoguzzi, simultaneously with the consummation of the Merger. After such capital contribution, the amount of indebtedness owed by Motoguzzi and its subsidiaries to TRG and its subsidiaries other than Motoguzzi and the Motoguzzi Subsidiaries at the Effective Time, including all interest, will not be greater than $800,000, and if such indebtedness exceeds such amount, any excess automatically and without any action on the part of TRG, OAM or TRG's subsidiaries shall be contributed to the capital of Motoguzzi at the Effective Time with no adjustment in the Merger Consideration set forth in Section 2.02(a)(ii) and the Surviving Corporation will be under no obligation whatsoever to pay same. TRG shall cause OAM to evidence its agreement to such capital contribution by executing the form of acknowledgment annexed hereto as Exhibit C. ARTICLE III REPRESENTATIONS AND WARRANTIES OF MOTOGUZZI AND TRG Motoguzzi represents and warrants to North as follows: SECTION 3.01 Organization. (a) Motoguzzi. Motoguzzi is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Except as described on any of the Motoguzzi Disclosure Schedules attached hereto, Motoguzzi does not own, directly or indirectly, any capital stock or other securities of any issuer or any equity interest in any other entity, including any partnership, limited partnership, limited liability company, business trust and any other business entity, and is not a party to any agreement to acquire any such securities or interest. Motoguzzi is qualified to do business in each state where the nature of the business it conducts or the properties it owns, leases or operates requires it to so qualify (which states are listed in SCHEDULE 3.01(ii)), except where the failure to so qualify would not, singly or in the aggregate, have a Motoguzzi Material Adverse Effect. Motoguzzi has all requisite corporate power to own, lease and operate its properties and to carry on its business as now being conducted and as presently contemplated by Motoguzzi to be conducted in the future. (b) Subsidiaries of Motoguzzi. Each Motoguzzi Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation. Each Motoguzzi Subsidiary is qualified to do business in each jurisdiction where the nature of the business it conducts or the properties it owns, leases or operates requires it to so qualify (which jurisdictions are listed in SCHEDULE 3.01 (iii)), except where the failure to so qualify would not, singly or in the aggregate, have a Motoguzzi Material Adverse Effect. Each Motoguzzi Subsidiary has all requisite corporate power to own, lease and operate its properties and to carry on its A-I-4 business as now being conducted and as presently contemplated by each of the Motoguzzi Subsidiaries in the future. Motoguzzi owns, directly or indirectly, the shares of each Motoguzzi Subsidiary as set forth in SCHEDULE 3.01(i) free and clear of any Liens. (c) Holding Company. Motoguzzi is a holding company, the only assets of which are the shares of the Motoguzzi Subsidiaries. Motoguzzi has no material liabilities other than the liabilities of the Motoguzzi Subsidiaries. Motoguzzi does not conduct any material business through any entity other than the Motoguzzi Subsidiaries. SECTION 3.02 Authority; Corporate Action. Motoguzzi has all necessary corporate power and authority to enter into this Agreement and to consummate the Merger and other transactions contemplated hereby and thereby. All action, corporate and otherwise, necessary to be taken by Motoguzzi to authorize the execution, delivery and performance of this Agreement and the other agreements and instruments delivered by Motoguzzi in connection with the transactions contemplated hereby or thereby has or at the Closing will have been duly and validly taken. Subject to the terms and conditions hereof, this Agreement and the other agreements and instruments delivered by Motoguzzi in connection with the transactions contemplated hereby shall constitute the valid, binding and enforceable obligation of Motoguzzi enforceable against it in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or similar laws of general application now or hereafter in effect affecting the rights and remedies of creditors and by general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity). SECTION 3.03 No Conflict; Required Filings and Consents. (a) The execution and delivery of this Agreement (and the other agreements contemplated hereby) by Motoguzzi does not, and the performance by Motoguzzi of its obligations under this Agreement (and any other agreement contemplated hereby) will not, (i) conflict with or violate its Certificate of Incorporation, By-laws or other organizational documents (ii) conflict with or violate any law, statute, ordinance, rule, regulation, order, judgment or decree applicable to Motoguzzi or any Motoguzzi Subsidiary or by which any of their respective properties or assets is bound or affected, or (iii) result in any breach of, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a Lien on any of the properties or assets of Motoguzzi or any Motoguzzi Subsidiary pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which Motoguzzi or any Motoguzzi Subsidiary is a party or by which Motoguzzi or any Motoguzzi Subsidiary or any of their respective properties or assets is bound or affected, except, in the case of clauses (ii) and (iii), above, for any such conflicts, violations, breaches, defaults or other occurrences that would not have, either singly or in the aggregate, a Motoguzzi Material Adverse Effect. (b) The execution and delivery of this Agreement (and the other agreements contemplated hereby) by Motoguzzi does not, and the performance of this Agreement (and the other agreements contemplated hereby) by Motoguzzi will not, require any consent, approval, authorization or permit of, or filing with or notification to, any Governmental Entity, except for (i) compliance with the applicable requirements, if any, of the DGCL and Certificate of Incorporation and Bylaws of Motoguzzi (including but not limited to, the approval of this Agreement and the Merger by the stockholders of Motoguzzi), (ii) filing and recordation of appropriate merger documents as required by the laws of the State of Delaware, (iii) those consents, approvals, authorizations, permits, filings or notifications applicable to Motoguzzi and the Motoguzzi Subsidiaries listed in SCHEDULE 3.03(b), and (iv) where failure to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications, would not (a) have either singly or in the aggregate, a Motoguzzi Material Adverse Effect or (b) affect the ability of Motoguzzi to consummate the Merger and other agreements contemplated by this Agreement. SECTION 3.04 Motoguzzi Capitalization. The total authorized capital stock of Motoguzzi consists of 20,000,000 shares of Old Motoguzzi Common Stock and 2,000,000 shares of Old Motoguzzi Preferred Stock, of which 6,000,000 shares of Old Motoguzzi Common Stock and 1,500,000 shares of Old Motoguzzi Preferred Stock are issued and outstanding. Except for Old Motoguzzi Preferred Stock and Old Motoguzzi Warrants, there are no existing options, warrants, calls, commitments or other rights of any character including conversion or A-I-5 preemptive rights relating to the acquisition of any issued or unissued capital stock or other securities of Motoguzzi. The outstanding Old Motoguzzi Warrants have been duly and validly authorized and issued. All of the outstanding shares of Old Motoguzzi Common Stock and Old Motoguzzi Preferred Stock are duly and validly authorized and issued, fully paid and non-assessable. SCHEDULE 3.04(a) correctly sets forth the record owners of all of the Old Motoguzzi Common Stock, Old Motoguzzi Preferred Stock and Old Motoguzzi Warrants. Motoguzzi complied with all applicable federal and state securities laws and regulations in connection with the offer and sale of all of the outstanding Old Motoguzzi Common Stock, Old Motoguzzi Preferred Stock and Old Motoguzzi Warrants, and there are no rescission rights relating thereto except for such of the foregoing as would not have a Motoguzzi Material Adverse Effect. There are no options, warrants, convertible securities or other rights permitting or requiring the Motoguzzi Subsidiaries to issue, or which give anyone the right to purchase any securities of the Motoguzzi Subsidiaries or rights convertible into securities of the Motoguzzi Subsidiaries and the Motoguzzi Subsidiaries have not agreed to issue or sell any shares of their capital stock or securities convertible into their capital stock. SECTION 3.05 Licenses and Permits; Compliance with Laws. Each of Motoguzzi and the Motoguzzi Subsidiaries hold all permits, licenses and approvals (collectively, the "Permits") from all federal, state and local governmental authorities in the United States, Italy, and other countries necessary for it to own, lease and operate its properties and to carry on its businesses as now being conducted, except for such of the foregoing, the absence of which would not have a Motoguzzi Material Adverse Effect. Motoguzzi has no knowledge that any such Permit has been rescinded and, to its knowledge, all such Permits are in full force and effect and listed on SCHEDULE 3.05. Except as set forth in any of the Motoguzzi Disclosure Schedules attached hereto, the business of each of Motoguzzi and the Motoguzzi Subsidiaries is being and has been conducted in compliance with the Permits and all applicable laws, statutes, ordinances, regulations judgments, orders, decrees, concessions, grants and other authorizations of any governmental authority except where any non compliance, singly or in the aggregate would not have a Motoguzzi Material Adverse Effect. Neither Motoguzzi nor the Motoguzzi Subsidiaries is in default under any of such Permits and no event has occurred and no condition exists which, with the giving of notice, the passage of time, or both, would constitute a default thereunder which would result in a Motoguzzi Material Adverse Effect. Neither the execution and delivery of this Agreement or any of the other documents contemplated hereby, nor the consummation of the transactions contemplated hereby or thereby, nor compliance by Motoguzzi and the Motoguzzi Subsidiaries with any of the provisions hereof or thereof, will result in any suspension, revocation, impairment, forfeiture or nonrenewal of any Permit, and all of which shall be in effect as of the Closing, except for such of the foregoing, the absence of which would not have a Motoguzzi Material Adverse Effect. SECTION 3.06 Financial Statements. (a) Motoguzzi has caused to be delivered to North consolidated financial statements of Motoguzzi for the years ended December 31, 1996 and 1997 audited and reported on by Arthur Andersen, LLP, and unaudited consolidated financial statements of Motoguzzi for the year ended December 31, 1995 and for the three months ended March 31, 1998 and March 31, 1997 and summary unaudited consolidated financial statements for the three and six month periods ended June 30, 1998 and June 30, 1997 (collectively, the "Motoguzzi Financial Statements"). The Motoguzzi Financial Statements, including all related notes and schedules thereto, fairly present in all material respects the consolidated financial position of Motoguzzi as at the respective dates thereof and the results of operations and cash flows of Motoguzzi for the periods indicated in accordance with United States generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods involved (except as may be noted therein) and subject, in the case of interim financial statements, to normal year-end adjustments, and in the case of summary financial statements, to omission of certain items customarily included in interim financial statements. (b) Except for liabilities, costs, expenses, debts, commitments or obligations arising in connection with this Agreement and the transactions contemplated hereby, or resulting from actions taken in furtherance of the transactions identified in Items 1 through 4 of SCHEDULE 3.08 of the Motoguzzi Disclosure Schedules attached hereto, to the knowledge of Motoguzzi, Motoguzzi, on a consolidated basis, has no debts, liabilities, commitments or obligations (including, without limitation, unasserted claims), whether absolute or contingent, liquidated or unliquidated, or due or to become due or otherwise except for liabilities and obligations (a) reflected as liabilities on the March 31, 1998 balance sheet ("Balance Sheet"), (b) that have arisen since March 31, 1998 A-I-6 in the ordinary course of business of Motoguzzi and the Motoguzzi Subsidiaries, (c) that are described herein or in any of the Motoguzzi Disclosure Schedules attached hereto, or (d) which singly or in the aggregate do not have a Motoguzzi Material Adverse Effect. SECTION 3.07 Real Property. (a) SCHEDULE 3.07 contains a true, correct and complete list and brief description of all real property owned, leased or subleased by Motoguzzi and the Motoguzzi Subsidiaries, all of which are hereinafter referred to as the "Real Property." Motoguzzi has made available to North true, correct and complete copies of the deeds and leases of the Real Property. (b) Except as set forth in any of the Motoguzzi Disclosure Schedules attached hereto, all buildings, structures, improvements, fixtures, facilities, equipment, all components of all buildings, structures and other improvements included within the Real Property owned by Motoguzzi and the Motoguzzi Subsidiaries conforms in all material respects to all applicable statutes, rules, regulations, ordinances, orders, writs, injunctions, judgments, decrees, awards and restrictions of every governmental authority having jurisdic tion over any of the Real Property owned by Motoguzzi and the Motoguzzi Subsidiaries, and every instrumentality or agency thereof (including, without limitation, applicable statutes, rules, regulations, orders and restrictions relating to zoning, land use, safety, health, environment, hazardous substances, pollution controls, employment and employment practices and access by the handicapped) (collectively, "Laws"), except where nonconformance would not have a Motoguzzi Material Adverse Effect. (c) Except as set forth in any of the Motoguzzi Disclosure Schedules attached hereto, the use and operation of the Real Property owned by Motoguzzi and the Motoguzzi Subsidiaries is in full compliance with all Laws, covenants, conditions, restrictions, easements, disposition agreements and similar matters affecting the Real Property except where non compliance would not have a Motoguzzi Material Adverse Effect. Motoguzzi and the Motoguzzi Subsidiaries have not received any notice of any violation (or claimed violation) of or investigation regarding any Laws except where such violation or claimed violation would not have a Motoguzzi Material Adverse Effect. (d) Except as set forth in any of the Motoguzzi Disclosure Schedules, Motoguzzi and the Motoguzzi Subsidiaries have not received notice of, or otherwise have knowledge of, any condemnation, fire, health, safety, building, environmental, hazardous substances, pollution control, zoning or other land use regulatory proceedings, either instituted or planned to be instituted, which would have an adverse effect on the use and operation of any portion of the Real Property or the value of any material portion of the Real Property, nor have Motoguzzi and the Motoguzzi Subsidiaries received notice of any special assessment proceedings affecting any of the Real Property except for such of the foregoing which would not have a Motoguzzi Material Adverse Effect. (e) Motoguzzi has made available for inspection by North true, correct and complete title policies and surveys with respect to the Real Property. SECTION 3.08 Material Contracts. (a) SCHEDULE 3.08(a) sets forth a complete and correct list of all agreements, including without limitation, leases, currently in effect which are material to the assets, financial condition, business or operations of Motoguzzi and the Motoguzzi Subsidiaries, taken as a whole, (collectively, the "Material Contracts"); when the foregoing representation is restated as of the Closing Date, any change to SCHEDULE 3.08(a) shall not be deemed a breach of such representation, for purposes of Article IX or Article XI hereof, unless such change, either singly or in the aggregate, would cause a Motoguzzi Material Adverse Effect. True and complete copies of all Material Contracts have been delivered to North or made available for inspection. (b) Except as set forth in any of the Motoguzzi Disclosure Schedules attached hereto, all Material Contracts are valid and in full force and effect and neither Motoguzzi nor any of the Motoguzzi Subsidiaries has received notice from any other party thereto that it has violated any provision of, or committed or failed to perform any act which with or without notice, lapse of time or both would constitute a default under the provisions of, any Material Contract, except for defaults which would not have, either singly or in the aggregate, a Motoguzzi Material Adverse Effect. None of the rights of Motoguzzi or any of the Motoguzzi Subsidiaries under any of the A-I-7 Material Contracts are subject to any Liens of record, except for Liens granted in the ordinary course of business and Liens which, either singly or in the aggregate do not have a Motoguzzi Material Adverse Effect. Except as set forth in any of the Motoguzzi Disclosure Schedules, neither Motoguzzi nor any of the Motoguzzi Subsidiaries received notice from any other party thereto that it has breached any express or implied representations, warranties or covenants in connection with the sale or provision of its services or goods, except for breaches that, either singly or in the aggregate, will not have a Motoguzzi Material Adverse Effect. SECTION 3.09 Litigation. Except as set forth in any of the Motoguzzi Disclosure Schedules attached hereto, there are no actions, suits, arbitrations, mediation or other proceedings pending or, to its knowledge, threatened against Motoguzzi or any of the Motoguzzi Subsidiaries at law or in equity before any court, Federal, state, municipal or other governmental department or agency or other tribunal and neither Motoguzzi nor any of the Motoguzzi Subsidiaries, nor any of their respective properties, is subject to any order, judgment, injunction or decree; when the foregoing representation is restated as of the Closing Date, any change to any of the Motoguzzi Disclosure Schedules shall not be deemed a breach of such representation, for purposes of Article IX or Article XI hereof, unless such change is reasonably likely to have, either singly or in the aggregate, a Motoguzzi Material Adverse Effect. SECTION 3.10 Taxes, Tax Returns and Audits. Motoguzzi and the Motoguzzi Subsidiaries have (or, in the case of returns becoming due after the date hereof and on or before the Effective Time, will have prior to the Effective Time) filed or caused to be filed, or have properly filed extensions for, all tax returns which are required to be filed and have paid or caused to be paid all taxes required therein to be paid and all assessments received by them to the extent that such taxes have become due, except taxes the validity or amount of which is being contested in good faith by appropriate proceedings and with respect to which adequate reserves have been set aside and except for such of the foregoing as would not cause a Motoguzzi Material Adverse Effect. Motoguzzi and the Motoguzzi Subsidiaries have or will have established adequate reserves on its books and records and financial statements (including the Balance Sheet) for such payment in accordance with GAAP. Motoguzzi and the Motoguzzi Subsidiaries have withheld from each payment made to any of its present or former employees, officers, directors or other party all amounts required by law to be withheld and have, where required, remitted such amounts within the applicable periods to the appropriate governmental authorities. Motoguzzi and the Motoguzzi Subsidiaries have paid or caused to be paid, or have established reserves that they reasonably believe to be adequate in all material respects, for all tax liabilities applicable to them for all fiscal years which have not been examined and reported on by the taxing authorities (or closed by applicable statutes). SECTION 3.11 Absence of Certain Changes. Since March 31, 1998, except as set forth in any of the Motoguzzi Disclosure Schedules attached hereto, and except for costs, expenses or liabilities incurred or actions taken in connection with this Agreement and the transactions contemplated hereby (which costs, expenses and liability are to be paid by TRG), or action taken in furtherance of the transactions identified in Items 1 through 4 of SCHEDULE 3.08 of the Motoguzzi Disclosure Schedules attached hereto, neither Motoguzzi nor any of the Motoguzzi Subsidiaries has: (a) issued, delivered or agreed to issue any stock, bonds or other corporate securities (whether authorized and unissued or held in the treasury), or granted or agreed to grant any options (including employee stock options), warrants or other rights for the issue thereof; (b) borrowed or agreed to borrow any funds except in the ordinary course of business consistent with past practices; (c) incurred any obligation or liability, absolute, accrued, contingent or otherwise, whether due or to become due, except current liabilities incurred in the ordinary course of business consistent with prior practice and liabilities to TRG which, together with other liabilities to TRG, OAM and their subsidiaries (other than Motoguzzi and the Motoguzzi Subsidiaries) shall not exceed $800,000 in the aggregate as of the Closing Date, or, when the foregoing representation is restated as of the Closing Date, such obligations or liabilities as do not either singly or in the aggregate, have a Motoguzzi Material Adverse Effect; (d) sold, transferred, leased to others or otherwise disposed of any assets outside of the ordinary course of business or canceled or compromised any debt or claim, or waived or released any right of substantial value; A-I-8 (e) received any notice of termination of any Material Contract or Permit or suffered any damage, destruction or loss if not covered by insurance, which, as to any of the foregoing, has resulted in a Motoguzzi Material Adverse Effect: (f) encountered any labor union organizing activity, labor disputes or had any material change in its relations with its employees or agents, clients or insurance carriers which has resulted in a Motoguzzi Material Adverse Effect; (g) paid any monies to TRG or OAM or any of their subsidiaries; (h) suffered any Motoguzzi Material Adverse Change. SECTION 3.12 Labor Relations. Except as set forth in any of the Motoguzzi Disclosure Schedules attached hereto, neither Motoguzzi nor any of the Motoguzzi Subsidiaries is a party to any collective bargaining agreement or other contract or agreement with any labor organization or other representative of any of the employees of Motoguzzi and/or any of the Motoguzzi Subsidiaries. Motoguzzi and the Motoguzzi Subsidiaries are in compliance in all material respects with all laws relating to the employment or the workplace, including, without limitation, provisions relating to wages, hours, collective bargaining, safety and health, work authorization, equal employment opportunity, immigration and the withholding of income taxes, unemployment compensation, worker's compensation, employee privacy and right to know and social security contributions, except where noncompliance would not have a Motoguzzi Material Adverse Effect. There are no pending or, to its knowledge, threatened, proceedings or grievances with respect to labor matters concerning Motoguzzi and the Motoguzzi Subsidiaries which would have, either singly or in the aggregate, a Motoguzzi Material Adverse Effect. SECTION 3.13 Insurance Policies; Claims. SCHEDULE 3.13 sets forth all insurance policies and bonds maintained by or on behalf of Motoguzzi and the Motoguzzi Subsidiaries. There are no unresolved claims have been made against Motoguzzi and/or any of the Motoguzzi Subsidiaries in respect of allegedly defective products and Motoguzzi does not know of any written assertion of any such claim, except for such of the foregoing which, if proven, would not have a Motoguzzi Material Adverse Effect. SECTION 3.14 Intellectual Property. (a) Right, Title and Interest. Motoguzzi and the Motoguzzi Subsidiaries own or possess sufficient right, title and interest in and to, or a valid and enforceable license in or other right to use all of the Intellectual Property (as defined below) to entitle them to conduct their businesses as heretofore conducted and as presently intended to be conducted in the future, except for such of the foregoing, the absence of which would not have a Motoguzzi Material Adverse Effect. To its knowledge, Motoguzzi and the Motoguzzi Subsidiaries have not infringed, misappropriated or otherwise violated any Intellectual Property of any other person except for such of the foregoing as would not have a Motoguzzi Material Adverse Effect. To its knowledge, no person is infringing upon any Intellectual Property right of Motoguzzi and the Motoguzzi Subsidiaries except for such of the foregoing as would not have a Motoguzzi Material Adverse Effect. (b) "Intellectual Property" means all patents, patent applications and patent disclosures; all inventions (whether or not patentable and whether or not reduced to practice); all trademarks, service marks, trade dress, trade names and corporate names and all the goodwill associated therewith; all registered and unregistered statutory and common law copyrights; all registrations, applications and renewals for any of the foregoing; all protocols, codes and operating systems; and all trade secrets, confidential information, know-how, technical and computer data, software, and related proprietary property. All of the material Intellectual Property of Motoguzzi and the Motoguzzi Subsidiaries is listed on SCHEDULE 3.14(b) hereto. SECTION 3.15 Properties; Assets. Except as provided in any of the Motoguzzi Disclosure Schedules attached hereto, Motoguzzi and the Motoguzzi Subsidiaries (a) have good and marketable title to all the properties and assets reflected on the Balance Sheet as being owned by Motoguzzi and the Motoguzzi Subsidiaries (except properties sold or otherwise disposed of since the date thereof in the ordinary course of business or properties sold or disposed of after the date hereof, which does not cause a Motoguzzi Material Adverse Effect), and those properties acquired after the date thereof and not thereafter disposed of, free and clear of all Liens, except (i) statutory liens securing payments not yet due, and (ii) such imperfections or irregularities of title, claims, liens, charges, security interests or encumbrances which do not materially affect the use or marketability of the properties or assets subject thereto or affected thereby or A-I-9 otherwise materially impair business operations at such properties, and (b) is the lessee of all personal property reflected on the Balance Sheet as being leased by it as of March 31, 1998 (except for leases that have expired by their terms since March 31, 1998) and those properties leased after the date thereof. Except as set forth in any of the Motoguzzi Disclosure Schedules attached hereto, the assets and properties of Motoguzzi and the Motoguzzi Subsidiaries are in good operating condition and repair (ordinary wear and tear excepted) except for such of the foregoing as do not represent a Motoguzzi Material Adverse Effect, and constitute all of the assets, right and properties which are necessary for the businesses and operations of Motoguzzi as a whole to be conducted as presently conducted. There are no Liens on any assets of Motoguzzi or of any of the Motoguzzi Subsidiaries securing indebtedness of TRG or any subsidiary thereof (other than Motoguzzi or any Motoguzzi Subsidiary; "Intercompany Liens"). SECTION 3.16 Bank Accounts. SCHEDULE 3.16 sets forth the name of each bank in which Motoguzzi and the Motoguzzi Subsidiaries have an account or safe deposit box, vault, lock-box or other arrangement, the account number and description of each account at each bank and the names of all persons authorized to draw thereon or to have access thereto; and the names of all persons, if any, holding tax or other powers of attorney from Motoguzzi and/or any of the Motoguzzi Subsidiaries. SECTION 3.17 Brokers. No broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Motoguzzi. SECTION 3.18 Records. The books of account, minute books, stock certificate books and stock transfer ledgers of Motoguzzi and the Motoguzzi Subsidiaries are complete and correct in all material respects, and there have been no material transactions involving Motoguzzi and the Motoguzzi Subsidiaries of the type typically recorded in such records which were not so recorded. SECTION 3.19 No Illegal or Improper Transactions. Neither Motoguzzi and the Motoguzzi Subsidiaries nor any officer, director, employee, agent or affiliate of Motoguzzi and the Motoguzzi Subsidiaries has offered, paid or agreed to pay to any person or entity (including any governmental official) or solicited, received or agreed to receive from any such person or entity, directly or indirectly, any money or anything of value for the purpose or with the intent of (i) obtaining or maintaining business for the benefit of Motoguzzi and the Motoguzzi Subsidiaries, (ii) illegally or improperly facilitating the purchase or sale of any product or service, or (iii) avoiding the imposition of any fine or penalty, in any manner which is in violation of any applicable ordinance, regulation or law. SECTION 3.20 Related Transactions. Except as set forth in any of the Motoguzzi Disclosure Schedules attached hereto, and for compensation and related arrangements with employees or consultants for services rendered consistent with past practices, no current or former director, officer or, to Motoguzzi's knowledge, employee of Motoguzzi and/or any of the Motoguzzi Subsidiaries is presently, or during the last two fiscal years has been, (a) a party to any transaction with Motoguzzi and/or any of the Motoguzzi Subsidiaries, (including, but not limited to, any contract, agreement or other arrangements providing for the furnishing of services by, or rental of real or personal property from, or otherwise requiring payments to, any such director, officer, employee or shareholder), or (b) the direct or, to Motoguzzi's knowledge, indirect owner of an interest in any corporation, firm, association or business organization which is a current (or potential) competitor, supplier or customer of Motoguzzi and/or any of the Motoguzzi Subsidiaries, nor, to Motoguzzi's knowledge, does any such person receive income from any source other than Motoguzzi and/or any of the Motoguzzi Subsidiaries which relates to the business of, or should properly accrue to, Motoguzzi and/or any of the Motoguzzi Subsidiaries. SECTION 3.21 Disclosure. No representation or warranty by Motoguzzi contained in this Agreement and no information contained in any schedule, financial statement or other instrument furnished or to be furnished by Motoguzzi to North pursuant to this Agreement or in connection with the transactions contemplated hereby, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained herein or therein not misleading. A-I-10 SECTION 3.22 Environmental, Health and Safety Matters. Except as set forth in any of the Motoguzzi Disclosure Schedules attached hereto: (a) Motoguzzi and the Motoguzzi Subsidiaries are in compliance with Environmental, Health and Safety Requirements, except for such noncompliance as would not reasonably be expected to have, either singly or in the aggregate, a Motoguzzi Material Adverse Effect. (b) Motoguzzi and the Motoguzzi Subsidiaries have not received any written notice, report or other information regarding any actual or alleged material violation of Environmental, Health and Safety Requirements, or any material liabilities or potential material liabilities (whether accrued, absolute, contingent, unliquidated or otherwise), including any investigatory, remedial or corrective obligations, relating to Motoguzzi or its property arising under Environmental, Health, and Safety Requirements, the subject of which would reasonably be expected to have, either singly or in the aggregate, a Motoguzzi Material Adverse Effect. SECTION 3.23 Year 2000 Compliance. Third parties have been engaged by Motoguzzi to evaluate and, if required, upgrade, all operating codes, programs, utilities and other software, as well as all hardware and systems, utilized by Motoguzzi and the Motoguzzi Subsidiaries in their businesses, or in the provisions of services, or comprising software, hardware and/or systems sold by Motoguzzi and the Motoguzzi Subsidiaries to third parties, in order to record, store, process, and present calendar dates falling on or after January 1, 2000 in the same manner, and with the same functionality, as provided on or before December 31, 1999. and Motoguzzi is relying exclusively upon the expertise of such third parties to achieve such operability. TRG represent and warrants to North as follows: SECTION 3.24 Organization. TRG (i) is a corporation duly organized, validly existing and in good standing under the laws of Maryland and (ii) owns 1,500,000 shares of Old Motoguzzi Common Stock, and OAM owns 4,500,000 shares of Old Motoguzzi Common Stock, representing 25% and 75%, respectively, of the outstanding shares on the date hereof of Old Motoguzzi Common Stock. SECTION 3.25 Authority; Corporate Action. TRG has all necessary corporate power and authority to enter into this Agreement and to consummate such of the transactions contemplated hereby as are applicable to TRG. All action, corporate and otherwise, necessary to be taken by TRG for the execution, delivery and performance of this Agreement and the other agreements and instruments delivered by TRG in connection with the transactions contemplated hereby or thereby has or at the Closing will have been duly and validly taken. Subject to the terms and conditions hereof, this Agreement and the other agreements and instruments delivered by TRG in connection with the transactions contemplated hereby shall constitute the valid, binding and enforceable obligation of TRG enforceable against it in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or similar laws of general application now or hereafter in effect affecting the rights and remedies of creditors and by general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity). SECTION 3.26 No Conflict; Required Filings and Consents. The execution and delivery of this Agreement (and the other agreements contemplated hereby) by TRG does not, and the performance by TRG of its obligations under this Agreement (and any other agreement contemplated hereby) will not, (i) conflict with or violate its Certificate of Incorporation, By-laws or other organizational documents (ii) conflict with or violate any law, statute, ordinance, rule, regulation, order, judgment or decree applicable to TRG or by which any of its properties or assets is bound or affected, or (iii) result in any breach of, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a Lien on any of the properties or assets of TRG pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which TRG is a party or by which TRG or any of its properties or assets is bound or affected, except, in the case of clauses (ii) and (iii), above, for any such conflicts, violations, breaches, defaults or other occurrences that would not have, either singly or in the aggregate, a material adverse effect on TRG and its subsidiaries, taken as a whole. A-I-11 SECTION 3.27 Brokers. No broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of TRG. SECTION 3.28 Disclosure. No representation or warranty by TRG contained in this Agreement and no information contained in any schedule, financial statement or other instrument furnished or to be furnished by TRG to North pursuant to this Agreement or in connection with the transactions contemplated hereby, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained herein or therein not misleading. SECTION 3.29 Voting Agreement. TRG and OAM have each executed and delivered to North an agreement in the form of EXHIBIT D hereto with respect to voting in favor of the consummation of the Merger at any meeting of shareholders of Motoguzzi. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF NORTH North represents and warrants to Motoguzzi as follows: SECTION 4.01 Organization. North is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. North does not own, directly or indirectly, any capital stock or other securities of any issuer or any equity interest in any other entity, including any partnership, limited partnership, limited liability company, business trust or any other business entity, and is not a party to any agreement to acquire any such securities or interest. North is qualified to do business in each state where the nature of the business it conducts or the properties it owns, leases or operates requires it to so qualify, except where the failure to so qualify would not, singly or in the aggregate, have a North Material Adverse Effect. North has all requisite corporate power to own, lease and operate its properties and to carry on its business. SECTION 4.02 Authority; Corporate Action. North has all necessary corporate power and authority to enter into this Agreement and the other agreements contemplated by this Agreement and to consummate the transactions contemplated hereby and thereby. All action, corporate and otherwise, necessary to be taken by North to authorize the execution, delivery and performance of this Agreement and all other agreements delivered or to be delivered by North in connection with the transactions contemplated hereby or thereby has, or at the Closing will have been, duly and validly taken. Subject to the terms and conditions hereof, this Agreement and all the other agreements contemplated hereby constitute valid, binding and enforceable obligations of North, as the case may be, enforceable in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or similar laws of general application now or hereafter in effect affecting the rights and remedies of creditors and by general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity). SECTION 4.03 No Conflict; Required Filings and Consents. (a) The execution and delivery of this Agreement (and the other agreements contemplated hereby) by North does not, and the performance by North of its obligations under this Agreement (and any other agreement contemplated hereby) will not, (i) conflict with or violate the Certificate of Incorporation, By-laws or other organizational documents of North, (ii) conflict with or violate any law, statute, ordinance, rule, regulation, order, judgment or decree applicable to North or by which any of its properties or assets is bound or affected, or (iii) result in any breach of or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a Lien on any of the properties or assets of North pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which North is a party or by which North or any of its properties or assets is bound or affected, except, in the case of clauses (ii) and (iii), above, for any such conflicts, violations, breaches, defaults or other occurrences that would not have, either singly or in the aggregate, a North Material Adverse Effect. (b) The execution and delivery of this Agreement and all the other agreements contemplated hereby by North does not, and the performance of this Agreement and all the other agreements contemplated hereby by A-I-12 North will not, require any consent, approval, authorization or permit of, or filing with or notification to, any Governmental Entity, except for (i) compliance with the applicable requirements, if any, of the Certificate of Incorporation and Bylaws of North (including, but not limited to, the approval of this Agreement and the Merger by the Stockholders of North), Exchange Act, Securities Act, state securities laws, state takeover laws, Nasdaq and (ii) filing and recordation of appropriate merger documents as required by the laws of the State of Delaware, and (iii) where failure to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications, would not have, either singly or in the aggregate, a North Material Adverse Effect. SECTION 4.04 North Capitalization. The number of authorized and issued shares of capital stock of North is set forth on SCHEDULE 4.04 which amount will be increased on or before the Effective Time by 30,000 shares of Class B Common Stock of North upon exercise of the Class B Options and payment to North of the aggregate of $300,000 Class B Option exercise price; (such shares of Class B Common Stock to be converted into 60,000 shares of Class A Common Stock either (i) as of the Effective Time if all of the actions described in Section 7.06 are approved, or (ii) if not, within 90 days of the Effective Time in accordance with the agreement attached hereto as EXHIBIT E). North does not have any treasury stock. Except as set forth on SCHEDULE 4.04 and except for (x) the Executive Options and (y) a warrant to purchase 350,000 shares of Class A Common Stock to be issued at the Effective Time to Allen & Company (the Executive Options and such warrant, collectively the "Closing Date Options"), there are no options, warrants, calls, commitments or other rights of any character including conversion or preemptive rights relating to the acquisition of any issued or unissued capital stock or other securities of North. All of the outstanding shares of common stock and preferred stock of North are duly and validly authorized and issued, fully paid and non-assessable. SCHEDULE 4.04 correctly sets forth the record owners of all of the options of North. North has complied with all applicable federal and state securities laws and regulations in connection with the offer and sale of all of the common stock, preferred stock, warrants and options of North and there are no rescission rights relating thereto except for such of the foregoing as would not have a North Material Adverse Effect. SCHEDULE 4.04 sets forth the registration rights of all holders of securities of North, either on a "demand" or a "piggyback" basis. SECTION 4.05 Escrow Account. As of the date hereof and at the Closing Date, North has and covenants that it will have no less than $8,391,000 invested in government securities in an escrow account with Chase Manhattan Bank. Upon consummation of the Merger, all conditions to the release of such funds from escrow will be satisfied. Immediately prior to the Closing Date, after provision for (i) all unpaid costs, expenses and liabilities of North heretofore incurred or hereafter incurred at any time prior to the Closing Date, all of which (other than those described in clause (ii) hereof) to the best of North's knowledge are set forth in SCHEDULE 4.05 hereto, and (ii) all unpaid costs and expenses incurred by North in connection with the transactions contemplated by this Agreement in an aggregate amount, to the extent payable in cash, of not more than $625,000, all of which, or reasonable estimates thereof, together with all documentation in North's possession related thereto are also set forth on SCHEDULE 4.05 (the net amount of cash so remaining is referred to herein as "Available Cash"), North covenants that it will have not less than $8,000,000 of Available Cash, less only such amounts, if any, as North is required to pay stockholders who are not officers and directors of North who elect to have their shares redeemed in accordance with the provisions of the Certificate of Incorporation of North. SCHEDULE 4.05 also lists all costs and expenses incurred by North in connection with the transactions contemplated by this Agreement and paid by North. SECTION 4.06 North Securities and Exchange Commission Reports; Financial Statement. (a) North has filed all forms, reports, statements and other documents required to be filed with the Commission when and as required to be filed, and has heretofore made them available to Motoguzzi, in the same form as filed with the Commission, together with any amendments thereto, copies of its (i) Annual Report on Form 10-K for the year ended August 31, 1997 and all Quarterly Reports on Form 10-Q filed since August 31, 1997, and (ii) all reports on Form 8-K since August 31, 1997 (collectively, the "North Reports"). As of their respective filing dates, the North Reports (i) complied as to form in all material respects with the requirements of the Exchange Act and the Securities Act and (ii) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. Except as disclosed in a filing subsequently made in accordance with the requirements of the Exchange Act prior to the date hereof and except for such filing of a report on Form 8-K as may be required to disclose this Agreement and the transactions as contemplated by this A-I-13 Agreement, no event has occurred subsequent to the date of filing of each such North Report as would make any statement contained therein materially untrue or misleading or would make any omission therefrom materially misleading in light of the occurrence of such event. (b) The financial statements of North for the year ended August 31, 1997, audited and reported on by BDO Seidman, LLP and unaudited financial statements of North for the nine months ended May 31, 1998 (collectively, the "North Financial Statements") are contained in the Annual Report on Form 10-K for the year ended August 31, 1997 and the Quarterly Report on Form 10-Q for the quarter ended May 31, 1998, respectively, each of which has been delivered to TRG as part of the North Reports. The North Financial Statements , including all related notes and schedules thereto, fairly present in all material respects the consolidated financial position of North as at the respective dates thereof and the consolidated results of operations and cash flows of North for the periods indicated in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be noted therein) and subject, in the case of interim financial statements, to normal year-end adjustments. (c) Other than as set forth on the May 31, 1998 balance sheet contained in the North Financial Statements and such of the following as are incurred in connection with the negotiation and consummation of the transactions contemplated by this Agreement, estimates of which are set forth in SCHEDULE 4.05, North has, on the date hereof and North covenants that it will have as of the Closing Date, no debts, liabilities, financial commitments or financial obligations (including, without limitation, unasserted claims) whether absolute or contingent, liquidated or unliquidated, or due or to become due or otherwise, except those incurred in the ordinary course of business, consistent with past practices, since the date of such balance sheet which are set forth in SCHEDULE 4.05. SECTION 4.07 North Material Contracts. (a) SCHEDULE 4.07(a) sets forth a complete and correct list of all agreements which are material to the assets, financial condition, business or operations of North. True and complete copies of all Material Contracts have been delivered to Motoguzzi or made available for inspection. (b) Except as set forth in any of the North Disclosure Schedules, all Material Contracts are valid and in full force and effect and North has not received notice from any other party thereto that it has violated any provision of, or committed or failed to perform any act which with or without notice, lapse of time or both would constitute a default under the provisions of, any Material Contract, except for defaults that would not reasonably be expected to have, either singly or in the aggregate, a North Material Adverse Effect. None of the rights of North under any of the Material Contracts is subject to any Liens of record. Except as set forth in any of the North Disclosure Schedules, North has not received notice from any other party thereto that it has breached any express or implied representations, warranties or covenants in connection with such Material Contracts, except for breaches that, individually and in the aggregate, will not have a North Material Adverse Effect. SECTION 4.08 Litigation Other than as set forth on any of the North Disclosure Schedules, there are no actions, suits, arbitrations, mediations or other proceedings pending or, to its knowledge, threatened against North at law or in equity before any court, Federal, state, municipal or other governmental department or agency or other tribunal. Neither North nor its property is subject to any order, judgment, injunction or decree which could have either singly or in the aggregate, a North Material Adverse Effect. SECTION 4.09 Bank Accounts. SCHEDULE 4.09 sets forth the name of each bank in which North has an account, safe deposit, vault, lock-box or other arrangement, the account number and description of each account at each bank and the names of all persons authorized to draw thereon or to have access thereto and the names of all persons, if any, holding powers of attorney over such accounts from North. SECTION 4.10 Disclosure. No representation or warranty by North contained in this Agreement and no information contained in any schedule, financial statement or other instrument furnished or to be furnished to Motoguzzi by North pursuant to this Agreement or in connection with the transactions contemplated hereby, when taken together with the North Reports, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained herein or therein not misleading. A-I-14 SECTION 4.11 Investment Bankers. Other than fees payable to and expenses of Allen & Company Incorporated, which fees and expenses will be paid solely by North, in cash and warrants as provided herein and in the North Disclosure Schedules, no broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transaction contemplated by this Agreement based upon arrangements made by or on behalf of North. SECTION 4.12 Securities Issued as Merger Consideration. The Class A Common Stock, Class B Preferred Stock and Nominal Warrants, when issued as a result of the Merger shall be duly authorized and issued by North and the Class A Common Stock and Class B Preferred Stock will be fully paid and non-assessable shares of capital stock of North. The shares of Class A Common Stock purchasable upon exercise of the Nominal Warrants and the Continuation Warrants have been duly reserved for issuance and, when issued in accordance with the terms of the Nominal Warrants and the Continuation Warrants, shall be duly authorized and issued by North and fully paid and non-assessable. SECTION 4.13 Licenses and Permits; Compliance with Laws. North holds all permits, licenses and approvals from all federal, state and local governmental authorities, foreign or domestic, necessary for it to own its properties and to carry on its business as now being conducted except for such of the foregoing, the absence of which would not have a North Material Adverse Effect. North is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended ("Investment Company Act") and is not, and has not been, required to register under the Investment Company Act. SECTION 4.14 Records. The books of account, minutes books, stock certificate ledger and stock transfer ledger of North are complete and correct in all material respects , and there have been no material transactions involving North of the type typically recorded in such records which were not so recorded. SECTION 4.15 No Illegal or Improper Transactions. Neither North, nor any officer, director, employee, agent or affiliate of North, has offered, paid or agreed to pay to any person or entity (including any governmental official) or solicited, received or agreed to receive from any such person or entity, directly or indirectly, any money or anything of value for the purpose or with the intent of (i) obtaining or maintaining business for the benefit of North, (ii) illegally or improperly facilitating the purchase or sale of any product or service, or (iii) avoiding the imposition of any fine or penalty, in any manner which is in violation of any applicable ordinance, regulation or law. SECTION 4.16 License Fee. All fees payable in connection with the use of the "Sma2rt" and or other related trademarks have been paid by North. SECTION 4.17 Indemnification Agreements. Other than as provided in the Certificate of Incorporation or By Laws of North, North is not a party to any agreement, undertaking, understanding or obligation, express or implied, to indemnify any current or former director of North arising out of any acts or events occurring prior the date hereof. SECTION 4.18 Taxes, Tax Returns and Audits. North has (or, in the case of returns becoming due after the date hereof and on or before the Effective Time, will have prior to the Effective Time) filed or caused to be filed, or have properly filed extensions for, all tax returns which are required to be filed and have paid or caused to be paid all taxes required therein to be paid and all assessments received by them to the extent that such taxes have become due, except taxes the validity or amount of which is being contested in good faith by appropriate proceedings and with respect to which adequate reserves have been set aside. North has or will have established adequate reserves on its books and records and financial statements (including the May 31, 1998 balance sheet) for such payment in accordance with GAAP. North has withheld from each payment made to any of its present or former employees, officers, directors or other party all amounts required by law to be withheld and has, where required, remitted such amounts within the applicable periods to the appropriate governmental authorities. North has paid or caused to be paid, or has established reserves that it reasonably believes to be adequate in all material respects, for all tax liabilities applicable to it for all fiscal years which have not been examined and reported on by the taxing authorities (or closed by applicable statutes). A-I-15 ARTICLE V NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF THE PARTIES. SECTION 5.01 Survival. Each statement, representation, warranty, covenant and agreement made by any Party to another under this Agreement shall remain in effect continuously until the Closing, and the representations, warranties, covenants, and agreements made by Motoguzzi and TRG shall survive the Closing and shall terminate at such time as the right of North to assert claims against the Remedy Fund (as hereinafter defined) under such statement, representation, warranty, covenant or agreement as provided in ARTICLE X so terminates, provided that such termination shall not affect North's rights in respect of any claims asserted in accordance with ARTICLE X prior to such termination, and provided further that nothing contained herein shall limit any Party's rights and remedies under ARTICLE XI. ARTICLE VI COVENANTS OF MOTOGUZZI AND TRG SECTION 6.01 Conduct of Business. Motoguzzi covenants and agrees that, from the date hereof through the Closing Date, except as otherwise set forth in or as contemplated by this Agreement, including without limitation the actions described in SECTION 6.13, and except for actions taken in furtherance of any transaction specified in any of the Motoguzzi Disclosure Schedules attached hereto, Motoguzzi and the Motoguzzi Subsidiaries shall: (a) conduct their businesses only in the ordinary course and in a manner consistent with the current practice of such business, preserve substantially intact the business organization of Motoguzzi and the Motoguzzi Subsidiaries, use their best efforts to preserve the current relationships of Motoguzzi and the Motoguzzi Subsidiaries with customers and other persons with which Motoguzzi and the Motoguzzi Subsidiaries have significant business relations, taken as a whole, preserve the goodwill of Motoguzzi and the Motoguzzi Subsidiaries, taken as a whole, and comply with all requirements of law, the violation of which are reasonably likely to have a Motoguzzi Material Adverse Effect; (b) not sell, transfer or dispose of all or any part of its capital stock; (c) not (i) issue any shares of its capital stock nor any options, obligations, rights, warrants or other securities convertible into or exchangeable for its capital stock or any other class of equity securities of Motoguzzi; or (ii) amend or otherwise modify the terms of any such securities, options, obligations, rights or warrants in a manner inconsistent with the provisions of this Agreement or if the effect thereof shall be to make such terms more favorable to the holders thereof; (d) not declare any dividend or make any distribution in cash, securities or otherwise on the outstanding shares of its capital stock, or directly or indirectly redeem or purchase any such capital stock except for dividends or distributions by a Motoguzzi Subsidiary to Motoguzzi, or redemptions or purchases of capital stock of Motoguzzi Subsidiaries; (e) not, in any manner whatsoever, advance, transfer (other than in payment for goods received or services rendered in the ordinary course of business), or distribute to any security holder of Motoguzzi, including without limitation TRG, OAM or any of their affiliates, or otherwise withdraw, cash or cash equivalents in any manner inconsistent with its established cash management practices, except to pay existing obligations of Motoguzzi and the Motoguzzi Subsidiaries in accordance with their terms; (f) not change any of its methods of accounting in effect at March 31, 1998; (g) not prepay, before the scheduled maturity thereof, any of its long-term debt, or incur any obligation for borrowed money, whether or not evidenced by a note, bond, debenture or similar instrument, other than indebtedness incurred in the ordinary course of business consistent with past practices and as contemplated by this Agreement; A-I-16 (h) not enter into, or modify in any material respect or terminate any Material Contract or Permit if same would cause a Motoguzzi Material Adverse Effect, except as required by applicable law; (i) not take any action that will, or could reasonably be expected to, result in any of its representations and warranties set forth in this Agreement being inaccurate as of the Closing Date or in any of the conditions to the Merger not being satisfied, if such inaccuracy or non-satisfaction of condition would permit termination of this Agreement by North in accordance with ARTICLE IX hereof; or (j) not agree in writing or otherwise to do any of the foregoing. SECTION 6.02 Access to Information; Confidentiality. (a) Between the date of this Agreement and the Closing Date, Motoguzzi will (i) permit North and their Representatives reasonable access to all of the books, records, reports and other related materials, offices and other facilities and properties of Motoguzzi and the Motoguzzi Subsidiaries; (ii) permit North and their Representatives to make such inspections thereof as they may reasonably request; and (iii) furnish North and their Representatives with such financial and operating data (including without limitation the work papers of Motoguzzi's accountants) and other information with respect to Motoguzzi and the Motoguzzi Subsidiaries as North may from time to time reasonably request. (b) TRG and Motoguzzi shall hold and shall cause their affiliates and Representatives to hold in strict confidence, unless compelled to disclose by judicial or administrative process or by other requirements of law, all documents and information concerning North furnished to them by North or their Representatives in connection with the transactions contemplated by this Agreement (except to the extent that such information can be shown to have been (i) previously known by TRG or Motoguzzi, (ii) in the public domain through no fault of TRG or Motoguzzi or (iii) later lawfully acquired by TRG or Motoguzzi from another source, which source shall not be the agent of North or person under confidentiality obligation to North) and, except as otherwise required by applicable law, rule or regulation, neither TRG nor Motoguzzi shall release or disclose such information to any other person, except its auditors, actuaries, attorneys, financial advisors, bankers and other consultants and advisors who need to know same in connection with this Agreement. SECTION 6.03 Maintenance of Insurance. Through the Closing Date, Motoguzzi shall maintain insurance policies providing insurance coverage for its consolidated business and the assets of Motoguzzi of substantially the same kinds, in substantially the same amounts and against substantially the same risks as are in effect on the date hereof to the extent that such coverage is available at a cost not greater than 200% of the present cost of such coverage. SECTION 6.04 No Other Negotiations. Unless and until this Agreement shall have been terminated pursuant to its terms, neither Motoguzzi nor any of its Representatives, officers, directors or affiliates shall, directly or indirectly, solicit, institute, initiate, or pursue or respond to any inquiries or enter into discussions, proposals or negotiations with any person concerning any merger, sale of substantial assets, tender offer, sale of shares of stock or similar transaction involving Motoguzzi or any of its assets or disclose, directly or indirectly, other than to the shareholders of Motoguzzi, any information not customarily disclosed to the public or such shareholders concerning Motoguzzi, or except as required by law, afford to any other person access to the properties, books or records of Motoguzzi, or otherwise assist any person preparing to make or who has made such an offer, or enter into any agreement with any third party providing for a business combination transaction, equity investment or sale of significant amount of assets of Motoguzzi or recommend to its shareholders any of the foregoing. Motoguzzi shall promptly notify North of any direct or indirect inquiries, discussions, proposals or negotiations. SECTION 6.05 No Securities Transactions. Neither Motoguzzi nor any of its affiliates shall engage in any transactions involving the securities of North prior to the Closing Date. SECTION 6.06 Fulfillment of Conditions. TRG and Motoguzzi shall use its respective commercially reasonable efforts to fulfill, or cause to be fulfilled, the conditions specified in ARTICLES VIII AND IX applicable to it to the extent that the fulfillment of such conditions is within its respective control. The foregoing obligation includes taking or refraining from such reasonable actions as may be necessary to fulfill such conditions (including Motoguzzi and the Motoguzzi Subsidiaries conducting their businesses in such manner that A-I-17 on the Closing Date the representations and warranties of TRG and Motoguzzi contained herein shall be accurate as though then made, except as contemplated or permitted by the terms hereof). SECTION 6.07 Disclosure of Certain Matters. During the period from the date hereof through the Closing Date, each of TRG and Motoguzzi shall give North prompt written notice of any event or development that occurs that (a) had it existed or been known on the date hereof would have been required to be disclosed under this Agreement, (b) would cause its respective representations and warranties contained herein to be inaccurate or otherwise misleading in a material respect, (c) could reasonably be expected to give North any reason to believe that any of the conditions set forth in ARTICLE IX will not be satisfied, or (d) is of a nature that such constitutes or may constitute a Motoguzzi Material Adverse Change. SECTION 6.08 Assignment or Transfer of Contracts, Leases and Permits. Motoguzzi shall, in consultation with North and its Representatives, promptly take all necessary action to, and shall use its commercially reasonable efforts to obtain consents under all Material Contracts and Permits which require the consent of any other party or person to the assignment or transfer thereof either by the terms thereof or as a matter of law to the extent that any assignment or transfer thereof would be deemed to have occurred thereunder by reason of the consummation of the Merger. SECTION 6.09 Information for Proxy Statement. Motoguzzi will cooperate with North in the preparation of North's Proxy and Registration Statement referred to in SECTION 7.05 and furnish to North all information concerning itself and its officers and directors as North or its counsel may reasonably request and that is required or customary for inclusion in such Proxy and Registration Statement. Motoguzzi covenants that all of such information which has been approved by TRG, Motoguzzi or their counsel (which approval will be evidenced by a writing identifying the document, by draft date or otherwise, prior to filing thereof with the Securities and Exchange Commission) and is included in such Proxy and Registration Statement and any other written information furnished by Motoguzzi for inclusion in the Proxy and Registration Statement will comply in all material respects with the applicable provisions of the Securities Exchange Act of 1934 ("Exchange Act") and will not at the time of the effectiveness of the Proxy and Registration Statement and any amendments thereof or supplements thereto and at the time of the North stockholders meeting contain any untrue statement of a material fact or omit to state any material fact required to be stated therein and necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading or necessary to correct any statement in any earlier filing with the Commission of such Proxy and Registration Statement or any amendment thereof or any supplement thereto or any earlier communication to the stockholders of North with respect to the transactions contemplated by this Agreement. SECTION 6.10 Cold Comfort Letter. Upon North providing Arthur Andersen, LLP, the accountants for Motoguzzi ("Motoguzzi Accountants"), with a representation letter in accordance with paragraphs 5, 6 and 7 of the Statement on Auditing Standards regarding Letters for Underwriters, Motoguzzi shall cause to be delivered to North a letter of Motoguzzi's Accountants, dated the effective date of the Proxy and Registration Statement, and addressed to North, in form and substance satisfactory to North (with such changes to which North shall consent, it being understood that such consent shall not be unreasonably withheld), to the effect that: (a) they are independent certified public accountants with respect to Motoguzzi within the meaning of the Exchange Act, including the applicable published regulations thereunder; (b) the consolidated financial statements of Motoguzzi certified by them and included in the Proxy and Registration Statement comply as to form in all material respects with the applicable accounting requirements of the Exchange Act, including the published regulations thereunder; and (c) they have carried out procedures to a specified date not more than five business days prior to the date of the Proxy and Registration Statement that do not constitute an audit in accordance with GAAP of the consolidated financial statements of Motoguzzi, as follows: (i) read the unaudited financial statements of Motoguzzi included in the Proxy and Registration Statement, (ii) read the unaudited consolidated financial statements of Motoguzzi for the period from the date of the most recent financial statements included in the Proxy and Registration Statement through the date of the latest available interim financial statements, (iii) read the minutes of the meetings of stockholders and Boards of Directors of Motoguzzi from the date of the most recent financial statements of Motoguzzi included in the Proxy and Registration Statement to such A-I-18 date not more than five business days prior to the date of the Proxy and Registration Statement and (iv) consulted with certain officers of Motoguzzi responsible for financial and accounting matters as to whether any of the changes or decreases referred to below has occurred, and based on such procedures, nothing has come to their attention which would cause them to believe that (A) any unaudited financial statements of Motoguzzi included in the Proxy and Registration Statement do not comply as to form in all material respects with the applicable accounting requirements of the Exchange Act and of the published regulations thereunder; (B) such unaudited financial statements are not fairly presented in conformity with GAAP applied on a basis substantially consistent with that of the audited consolidated financial statements of Motoguzzi included in the Proxy and Registration Statement; (C) as of such date not more than five business days prior to the date of the Proxy and Registration Statement, there was not, except as set forth in such letter, any (1) change in capital stock, treasury stock or long-term debt of Motoguzzi or (2) any decrease in capital in excess of par value, retained earnings, net assets, net current assets or investments of Motoguzzi, in each case as compared with the amounts shown in the most recent balance sheet of Motoguzzi included in the Proxy and Registration Statement or (D) for the period from the date of such balance sheet to the end of the month immediately preceding the date of the Proxy and Registration Statement, there were not, except as set forth in such letter, any decreases, as compared with the corresponding period in the preceding year, in revenues or in the total or per share amounts of income before extraordinary items, income before income taxes or net income of Motoguzzi. SECTION 6.11 Rule 145. Prior to the Closing Date Motoguzzi will identify in a certificate from its president to North all persons who he reasonably believes at the Effective Time will be deemed to be "affiliates" of Motoguzzi for the purposes of Rule 145 under the Securities Act. The certificates representing any securities to be issued pursuant to this Agreement to such "affiliates" will bear an appropriate legend reflecting the requirements of Rule 145. Prior to the Closing Date Motoguzzi will use its best efforts to cause each such person to enter into an agreement in form and substance reasonably acceptable to North pursuant to which each such person acknowledges his or its responsibilities as an "affiliate." SECTION 6.12 Lock-Up Agreements. At the Closing Date, Motoguzzi will deliver to North agreements from such of its common stockholders and preferred stockholders as set forth in SCHEDULE 6.12 to the effect that the those persons will not publicly sell any of the Class A Common Stock to be received upon the Merger or receivable upon conversion of the Class B Preferred Stock for a period of six months from the Effective Time without the consent of the Independent Committee (as hereinafter defined) of the Surviving Corporation. The certificates representing any securities subject to these agreements will bear an appropriate legend reflecting the terms of the agreement. SECTION 6.13 Interim Financing. Motoguzzi and the Motoguzzi Subsidiaries may enter into negotiations to obtain financing and may enter into such loan agreements and other agreements related thereto, including without limitation issuance of warrants or other equity securities, as Motoguzzi determines, provided that (i) neither Motoguzzi nor the Motoguzzi Subsidiaries shall enter into any such agreements unless North has consented thereto in writing, which consent shall not be unreasonably withheld, provided that such consent shall not be required for the issuance of (and notwithstanding anything to the contrary provided in this Agreement, Motoguzzi may issue) warrants or other equity securities issued in connection therewith if such issuance does not reduce the equity ownership by North's stockholders in the Surviving Corporation (in which event appropriate adjustment shall be made to the amount of Merger Consideration allocated among the holders of outstanding Motoguzzi securities, but the aggregate Merger Consideration shall not be increased), provided further that North's consent shall be required and same may be withheld in North's sole discretion, for the issuance of any warrants or other equity securities which would reduce the equity ownership of North's stockholders in the Surviving Corporation, (ii) such financing shall be repaid by Surviving Corporation contemporaneously with or promptly following the Closing Date, unless otherwise agreed to by North in writing and (iii) such financing shall not be entered into after the Proxy and Registration Statement has been declared effective and mailed to North's Stockholders. SECTION 6.14 Lien Search. Motoguzzi shall use its best efforts to cause a search to be made to ascertain whether there are any Intercompany Liens on any assets of any Motoguzzi Subsidiary in Italy, provided that such kind of search is generally available in Italy and the cost thereof is not greater than $10,000. A-I-19 ARTICLE VII COVENANTS OF NORTH SECTION 7.01 North Conduct of Business. North covenants and agrees that, from the date hereof through the Closing Date, except as otherwise set forth in this Agreement, it will: (a) conduct its business only in the ordinary course and in a manner consistent with the current practice of such business, preserve substantially intact the business organization of North, keep available the services of the current employees of North, preserve the current relationships with which North has significant business relations, preserve the goodwill of North and comply with all requirements of law, the violation of which could have a material adverse effect on the business or operation of North; practices of such business; (b) except for the granting of the Closing Date Options and for the issuance of shares of stock as described in SECTION 4.04, not pledge, sell, transfer, dispose of, or otherwise encumber or grant any rights or interests to others of any kind with respect to, all or any part of its capital stock or enter into any discussions or negotiations with any other party to do so; (c) not (i) issue any shares of its capital stock nor any options (other than the Closing Date Options and the issuance of shares of stock as described in SECTION 4.04), obligations, rights, warrants or other securities convertible into or exchangeable for its capital stock, or any other class of securities, whether debt or equity; or (ii) amend or otherwise modify the terms of any such securities, options, obligations, rights or warrants in a manner inconsistent with the provisions of this Agreement or if the effect thereof shall be to make such terms more favorable to the holders thereof; (d) not declare any dividend or make any distribution in cash, securities or otherwise on the outstanding shares of its capital stock, or directly or indirectly redeem or purchase any such capital stock or except as required by the Certificate of Incorporation of North in connection with the redemption of less than 20% of the outstanding shares of Class A Common Stock from persons who are not directors or officers of North. (e) not, in any manner whatsoever, advance, transfer (other than in payment for goods received or services rendered in the ordinary course of business and as set forth on Schedule 4.05), or distribute to any security holders of North or any of their affiliates, or otherwise withdraw, cash or cash equivalents in any manner inconsistent with established cash management practices, except to pay existing obligations of North in accordance with its terms; (f) not change any of its methods of accounting in effect at August 31, 1997; (g) except pursuant to this Agreement, not prepay, before the scheduled maturity thereof, any of its long-term debt, or incur any obligation for borrowed money, whether or not evidenced by a note, bond, debenture or similar instrument, other than indebtedness incurred in the ordinary course of business consistent with past practices; (h) not enter into or modify in any material respect any material contract or lease of North; (i) not take any action that will, or could reasonably be expected to, result in any of its representations and warranties set forth in this Agreement being inaccurate as of the Closing Date or in any of the conditions to the Merger not being satisfied, if such inaccuracy or non-satisfaction of condition would permit termination of this Agreement by Motoguzzi or TRG in accordance with ARTICLE IX hereof; (j) not agree in writing or otherwise to do any of the foregoing; of (k) not incur any expenses or liabilities except to the extent contemplated herein and described in SCHEDULE 4.05, without the prior written consent of Motoguzzi. SECTION 7.02 Fulfillment of Conditions. North shall use its best efforts to fulfill the conditions specified in ARTICLES VIII AND IX to the extent that the fulfillment of such conditions is within its control. The foregoing obligation includes taking or refraining from such actions as may be necessary to fulfill such conditions (including conducting the business of North in such manner that on the Closing Date the representations and warranties of North contained herein shall be accurate as though then made). A-I-20 SECTION 7.03 Filing of Initial Listing Application with Nasdaq. As soon as practicable after the execution of this Agreement, North shall file with Nasdaq an application to approve listing on the Nasdaq Stock Market of the shares of Class A Common Stock and North shall take such actions as it reasonably deems appropriate to cause such application to be approved. SECTION 7.04 Access to Information; Confidentiality. (a) Between the date of this Agreement and the Closing Date, North will (i) permit Motoguzzi and its Representatives reasonable access to all of the books, records, reports and other related materials, offices and other facilities and properties of North; (ii) permit Motoguzzi and its Representatives to make such inspections thereof as they may reasonably request; and (iii) furnish Motoguzzi and its Representatives with such financial and operating data (including without limitation the work papers of North's accountants) and other information with respect to North as Motoguzzi may from time to time reasonably request. (b) North shall hold and shall cause their Representatives to hold in strict confidence, unless compelled to disclose by judicial or administrative process or by other requirements of law, all documents and information concerning TRG or its affiliates furnished to them by Motoguzzi or its Representatives in connection with the transactions contemplated by this Agreement (except to the extent that such information can be shown to have been (i) previously known by North, (ii) in the public domain through no fault of North, or (iii) later lawfully acquired by North from another source, which source shall not be the agent of North or person under confidentiality obligation to Motoguzzi or its affiliates) and, except as otherwise required by applicable law, rule or regulation, North shall not release or disclose such information to any other person, except its auditors, actuaries, attorneys, financial advisors, bankers and other consultants and advisors who need to know same in connection with this Agreement. SECTION 7.05 Proxy and Registration Statement. (a) North will prepare and file with the Securities and Exchange Commission ("Commission") as soon as reasonably practicable after the date hereof a proxy statement to be filed under the Exchange Act ("Proxy and Registration Statement") by North, to be distributed by North in connection with the North stockholder meeting and may be distributed by Motoguzzi in connection with the Motoguzzi stockholder meeting and to register the Merger Consideration, including shares of Class A Common Stock of North issuable upon conversion of the Class B Preferred Stock and upon exercise of the Nominal Warrants. During the course of the preparation of the Proxy and Registration Statement, Motoguzzi will be given reasonable opportunity to review and comment upon drafts of the Proxy and Registration Statement and the comments of the Commission thereon and responses thereto. (b) North covenants to Motoguzzi that the Proxy and Registration Statement will comply in all material respects with the applicable provisions of the Exchange Act and will not at the time of the effectiveness of the Proxy and Registration Statement and any amendments thereof or supplements thereto and at the time of the North stockholder meeting contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading or necessary to correct any statement in any earlier filing with the Commission of such Proxy and Registration Statement or any amendment thereof or any supplement thereto or any earlier communication to the stockholders of North with respect to the transactions contemplated by this Agreement; provided, however, that no representation, covenant or agreement is made by North with respect to information supplied or approved by or on behalf of Motoguzzi or its affiliates for inclusion in the Proxy and Registration Statement, as provided in SECTION 6.09 hereof. Subject to the fiduciary duty of the Board of Directors of North, the Proxy and Registration Statement shall contain statements, where appropriate, to the effect that the Board of Directors of North has approved this Agreement and the Merger and unanimously recommends that the stockholders of North vote in favor of approving this Agreement and the Merger and the other proposals presented in the Proxy and Registration Statement. SECTION 7.06 Amendments to Certificate of Incorporation and Stock Option Plan. The Proxy and Registration Statement will include provisions for the adoption of amendments to the Certificate of Incorporation of North to change the name of North from "North Atlantic Acquisition Corp." to "Moto Guzzi Corporation," A-I-21 to increase the authorized capital stock of North, to authorize the issuance of one or more classes of preferred stock and to provide for a board of directors with staggered terms of three years (five of whom are to be nominees of Motoguzzi, two of whom are to be nominees of North and one of whom is to be a nominee mutually acceptable to both Motoguzzi and North) and for the approval of one or more stock option plans which will include the Closing Date Options, conditioned upon the consummation of the Merger. The Proxy and Registration Statement will also include provisions for the voting by shareholders for the elimination of North's Class B Common Stock, which shall be recommended by North's Board of Directors, but the consummation of the Merger shall not be conditioned upon such action being approved by North's stockholders. SECTION 7.07 No Securities Transactions. Neither North nor any of its Representatives or affiliates shall engage in any transactions involving the securities of TRG or Motoguzzi prior to the Closing Date. SECTION 7.08 No Other Negotiations. Until this Agreement shall have been terminated pursuant to its terms, neither North nor any of its Representatives, officers, directors or affiliates shall, directly or indirectly, solicit, institute, initiate, pursue or respond to any inquiries or enter into any discussions, proposals or negotiations with any person concerning any merger, sale of substantial assets, tender offer, sale of shares of stock or similar transaction involving North or any of its assets or disclose, directly or indirectly, other than to the shareholders of North, any information not customarily disclosed to the public or such shareholders concerning North, or except as required by law, afford to any other person access to the properties, books or records of North, or otherwise assist any person preparing to make or who has made such an offer, or enter into any agreement with any third party providing for a business combination transaction, equity investment or sale of significant amount of assets of North or recommend to its shareholders any of the foregoing. North shall promptly notify Motoguzzi of any direct or indirect inquiries, discussions, proposals or negotiations. SECTION 7.09 Disclosure of Certain Matters. During the period from the date hereof through the Closing Date, North shall give Motoguzzi prompt written notice of any event or development that occurs that (a) had it existed or been known on the date hereof would have been required to be disclosed under this Agreement, (b) would cause its of the representations and warranties contained herein to be inaccurate or otherwise misleading, (c) could reasonably be expected to give Motoguzzi any reason to believe that any of the conditions set forth in ARTICLE IX will not be satisfied, or (d) is of a nature that is or may be materially adverse to the operations, prospects or condition (financial or otherwise) of North. SECTION 7.10 Blue Sky Compliance. North shall make such filings in each jurisdiction wherein resides a shareholder of Motoguzzi as may be necessary under the laws of such jurisdiction to permit the issuance of the Merger Consideration thereto to the extent the laws of such jurisdiction permit such issuance. SECTION 7.11 Filing of Current Reports on Form 8-K. Promptly after execution of this Agreement, North shall file a Current Report on Form 8-K with the Commission to report the proposed Merger and the terms thereof. SECTION 7.12 Directors' and Officers' Resignations. North will obtain the resignations of all of the members of its Board of Directors and all of its officers, effective at the Effective Time. SECTION 7.13 Cold Comfort Letter. Upon Motoguzzi providing BDO Seidman, the accountants for North ("North Accountants"), with a representation letter in accordance with paragraphs 5, 6 and 7 of the Statement on Auditing Standards regarding Letters for Underwriters, North shall cause to be delivered to Motoguzzi a letter of North's Accountants, dated the effective date of the Proxy and Registration Statement, and addressed to Motoguzzi, in form and substance satisfactory to Motoguzzi (with such changes to which Motoguzzi shall consent, it being understood that such consent shall not be unreasonably withheld), to the effect that: (a) they are independent certified public accountants with respect to North within the meaning of the Exchange Act, including the applicable published regulations thereunder; (b) the consolidated financial statements of North certified by them and included in the Proxy and Registration Statement comply as to form in all material respects with the applicable accounting requirements of the Exchange Act, including the published regulations thereunder; and (c) they have carried out procedures to a specified date not more than five business days prior to the date of the Proxy and Registration Statement that do not constitute an audit in accordance with GAAP of the A-I-22 consolidated financial statements of North, as follows: (i) read the unaudited financial statements of North included in the Proxy and Registration Statement, (ii) read the unaudited consolidated financial statements of North for the period from the date of the most recent financial statements included in the Proxy and Registration Statement through the date of the latest available interim financial statements, (iii) read the minutes of the meetings of stockholders and Boards of Directors of North from the date of the most recent financial statements of North included in the Proxy and Registration Statement to such date not more than five business days prior to the date of the Proxy and Registration Statement and (iv) consulted with certain officers of North responsible for financial and accounting matters as to whether any of the changes or decreases referred to below has occurred, and based on such procedures, nothing has come to their attention which would cause them to believe that (A) any unaudited financial statements of North included in the Proxy and Registration Statement do not comply as to form in all material respects with the applicable accounting requirements of the Exchange Act and of the published regulations thereunder; (B) such unaudited financial statements are not fairly presented in conformity with GAAP applied on a basis substantially consistent with that of the audited consolidated financial statements of North included in the Proxy and Registration Statement; (C) as of such date not more than five business days prior to the date of the Proxy and Registration Statement, there was not, except as set forth in such letter, any (1) change in capital stock, treasury stock or long-term debt of North or (2) any decrease in capital in excess of par value, retained earnings, net assets, net current assets or investments of North, in each case as compared with the amounts shown in the most recent balance sheet of North included in the Proxy and Registration Statement or (D) for the period from the date of such balance sheet to the end of the month immediately preceding the date of the Proxy and Registration Statement, there were not, except as set forth in such letter, any decreases, as compared with the corresponding period in the preceding year, in revenues or in the total or per share amounts of income before extraordinary items, income before income taxes or net income of North. SECTION 7.14 Lock-Up Agreements. At the Closing Date, North will deliver to Motoguzzi agreements from all of its officers and directors to the effect that those persons will not publicly sell any of the securities of the Surviving Corporation for a period of six months from the Effective Time without the consent of the Surviving Corporation. ARTICLE VIII JOINT COVENANTS OF THE PARTIES SECTION 8.01 Further Action. Each of the Parties shall promptly execute such documents and other papers and take such further actions as may be reasonably required or desirable to carry out the provisions hereof and the transactions contemplated hereby. Upon the terms and subject to the conditions hereof, each of the Parties shall use its best efforts to take, or cause to be taken, all actions and to do, or cause to be done and make effective as promptly as practicable the transactions contemplated by this Agreement. SECTION 8.02 Schedules. The Parties shall have the obligation to supplement or amend the schedules being delivered concurrently with the execution of this Agreement and annexed hereto with respect to any matter hereafter arising or discovered which, if existing or known at the date of this Agreement, would have been required to be set forth or described in the schedules. Supplementation or amendment of a representation or warranty that has a Motoguzzi Material Adverse Effect qualifier shall not create a right to terminate this Agreement under SECTION 11.01(b) or 11.01(c) unless such supplementation or amendment reflects a Motoguzzi Material Adverse Effect. The obligations of the Parties to amend or supplement the schedules being delivered herewith shall terminate on the Closing Date. Notwithstanding any such amendment or supplementation, for purposes of ARTICLE X hereof, the representations and warranties of the Parties shall be made with reference to the schedules as they exist at the time of execution of this Agreement. SECTION 8.03 Regulatory and Other Authorizations. The Parties will promptly make all necessary filings and use their best efforts to obtain all authorizations, consents, orders and approvals of all Federal, state and other regulatory bodies and officials that are required for the consummation of the transactions contemplated by this Agreement, including but not limited to the Securities and Exchange Commission and self-regulatory agencies, and will cooperate fully with each other in connection therewith. A-I-23 SECTION 8.04 Committees of the Board of Surviving Corporation. Prior to the Closing Date, the Parties will designate (i) three persons from among the proposed directors of the Surviving Corporation to be elected to a committee ("Independent Committee") of the Board of Directors of the Surviving Corporation, which will have the authority, among other things to determine if any action should or should not be instituted to recover Damages from the Remedy Fund and (ii) such other committees of the Board of Directors as would be required by Nasdaq if the Class A Common Stock were traded on Nasdaq. The Independent Committee shall be comprised of persons who are not and have not been during the ten years prior to the Effective Time employed by, affiliated with or a shareholder of TRG, OAM, Motoguzzi or any Motoguzzi Subsidiary. SECTION 8.05 Indemnification and Director and Officer Liability Insurance. (a) North and Motoguzzi agree that all rights to indemnification for acts or omissions occurring prior to the Effective Time now existing in favor of the current directors and officers of North and Motoguzzi as provided in the certificate of incorporation or bylaws of North and Motoguzzi, respectively, shall survive the Merger and shall continue in full force and effect in accordance with their terms. (b) For a period of six (6) years after the Effective Time, the Surviving Corporation shall cause to be maintained in effect the current policies of directors' and officers' liability insurance maintained by Motoguzzi, or by TRG to the extent that such policies provide coverage for Motoguzzi directors and officers (or policies of at least the same coverage and amounts containing terms and conditions that are no less advantageous) with respect to claims arising from facts or events that occurred before the Effective Time; provided, however, that the Surviving Corporation shall not be obligated to make annual premium payments for such insurance to the extent that such premiums exceed an amount equal to 200% of the annual premiums paid as of the date hereof for such insurance and if such premiums exceed such amount the Surviving Corporation shall purchase insurance policies in amounts and with coverage as reasonably can be purchased for such amount. (c) The Surviving Corporation agrees to remain liable for any indemnification obligations to North's and Motoguzzi's current directors and officers, in all capacities in which such directors or officers served North and Motoguzzi prior to the Effective Time, as set forth in North's and Motoguzzi's certificate of incorporation and bylaws to the extent such indemnification by North and Motoguzzi is permitted under the DGCL. (d) In the event the Surviving Corporation or any of its successors or assigns (i) consolidates with or merges into any other person and shall not be the continuing or surviving corporation or entity of such consolidation or merger, or (ii) transfers or conveys all or substantially all of its properties and assets to any person, then, and in each such case, to the extent necessary, proper provision shall be made so that the successors and assigns of the Surviving Corporation assume the obligations set forth in this SECTION 8.05. (e) The provisions of this SECTION 8.05 are intended to be for the benefit of, and shall be enforceable by, each indemnified party and his or her heirs and representatives. SECTION 8.06 Payment of Intercompany Indebtedness. All indebtedness owed by Motoguzzi and the Motoguzzi Subsidiaries to TRG and its subsidiaries, up to $800,000, remaining after the actions described in SECTION 2.06(b) are taken, subject to reduction in accordance with SECTION 11.01(b), shall be paid by Motoguzzi to TRG as soon after the Effective Time as practicable. ARTICLE IX CONDITIONS TO CLOSING SECTION 9.01 Conditions to Each Party's Obligations. The respective obligations of each Party to consummate the Merger and the other transactions contemplated by this Agreement shall be subject to the fulfillment, or waiver by the other Party, at or prior to the Closing Date of the following conditions: (a) Approval by North's Stockholders. This Agreement shall have been approved by a vote of two-thirds in interest of the Class A Common Stock and Class B Common Stock (the latter of which is entitled to two votes per share), voting together as a single class in accordance with the DGCL and the Certificate of Incorporation and By-Laws of North, the other transactions contemplated hereby (other than those described in the last sentence of SECTION 7.06) shall have been approved by such vote of the Class A Common A-I-24 Stock and the Class B Common Stock as is required by the DGCL and the Certificate of Incorporation and By-Laws of North, and the aggregate number of shares of Class A Common Stock of North held by stockholders who are not officers and directors of North who exercise their right to have North redeem the shares of Class A Common Stock owned by them for cash in accordance with the Certificate of Incorporation of North shall not be more than 20% of the Class A Common Stock owned by such persons, outstanding as of the record date for approval of the transaction. (b) Approval by Motoguzzi Stockholders. The Merger will have been approved and adopted by the holders of the Old Motoguzzi Common Stock and Old Motoguzzi Preferred Stock, voting together as a single class in accordance with the DGCL and Certificate of Incorporation and By-Laws of Motoguzzi. (c) Directors and Officers of Surviving Corporation. The persons listed in SCHEDULE 1.06 shall have been elected or appointed the directors or officers of Surviving Corporation, effective upon consummation of the Merger. (d) No Governmental Order or Regulation. There shall not be in effect any order, decree or injunction (whether preliminary, final or appealable) of a United States Federal or state court of competent jurisdiction, and no regulation shall have been enacted or promulgated by any governmental authority or agency, that prohibits consummation of the Merger. (e) Dissenters. At the Closing Date, persons who are Dissenters and persons who reside in jurisdictions in which North may not legally offer the Merger Consideration will be the holders of such number of issued and outstanding Old Motoguzzi Common Stock and Old Motoguzzi Preferred Stock as would entitle them to receive, if they were not Dissenters, no more than 10% of the Merger Consideration. (f) Effectiveness of Registration Statement. The Proxy and Registration Statement shall have been declared effective under the Securities Act, no stop order suspending the effectiveness of the Proxy and Registration Statement shall have been issued, and no proceedings for that purpose shall have been instituted. (g) Blue Sky. There shall be delivered to North and Motoguzzi a Blue Sky Memorandum prepared by North's counsel indicating the jurisdictions in which the Merger Consideration may be paid to holders of Old Motoguzzi Common Stock, Old Motoguzzi Preferred Stock and Old Motoguzzi Warrants, based upon, among other things, their mailing addresses. SECTION 9.02 Conditions to Obligations of Motoguzzi and TRG. The obligations of Motoguzzi to consummate the Merger and the obligations of Motoguzzi and TRG to consummate the other transactions contemplated by this Agreement shall be subject to the fulfillment or waiver by Motoguzzi and TRG, as applicable, at or prior to the Closing, of each of the following conditions: (a) Representations and Warranties; Covenants. Without supplementation after the date hereof, the representations and warranties of North contained in this Agreement shall be, with respect to those representations and warranties qualified by any materiality standard, true and correct in all respects as of the Closing Date, and with respect to all other representations and warranties, true and correct in all material respects as of the Closing Date, with the same force and effect as if made as of the Closing Date, and all the covenants contained in this Agreement to be complied with by North on or before the Closing Date shall have been complied with in all material respects, and Motoguzzi shall have received a certificate from an appropriate officer of North to such effect. (b) Legal Opinion. Motoguzzi shall have received from Graubard Mollen & Miller, counsel to North, a legal opinion addressed to Motoguzzi and dated the Closing Date, in the form of EXHIBIT F annexed hereto. (c) Necessary Proceedings. All proceedings, corporate or otherwise, to be taken by North in connection with the consummation of the transactions contemplated by this Agreement shall have been duly and validly taken, and copies of all documents, resolutions and certificates incident thereto, duly certified by officers of North as of the Closing, shall have been delivered to Motoguzzi and TRG. A-I-25 (d) Lock-Up Agreements. Motoguzzi shall have received from North the lock up agreements from all of North's officers and directors which provide that their securities of the Surviving Corporation may not be publicly sold for six months after the Effective Time unless such public sale is approved by the Surviving Corporation. (e) Cold Comfort Letter. TRG and Motoguzzi shall have received the cold comfort letter referred to in SECTION 7.13. (f) Inducement Letters. Motoguzzi shall have received from David Mitchell, in his capacity as Chief Executive Officer and Chairman of the Board of North, and from each other North director, acting in such capacity, a letter, reasonably satisfactory to Motoguzzi, to the effect that such person has not taken any actions and is not aware of any actions taken by any other party acting on behalf of North which would cause any of the representations, warranties and agreements of North contained herein to be breached in any material respect. (g) Tax Opinion. Motoguzzi shall have received an opinion of Morrison Cohen Singer & Weinstein, LLP to the effect that the Merger will constitute a tax-free reorganization pursuant to Code Section 368(a)(1)(A) (and the officers of North and Motoguzzi shall have delivered to such counsel customary representation certificates of a kind reasonably necessary to support such an opinion). SECTION 9.03 Conditions to Obligations of North. The obligations of North to consummate the Merger and the other transactions contemplated by this Agreement shall be subject to the fulfillment or waiver by North, at or prior to the Closing, of each of the following conditions: (a) Representations and Warranties; Covenants. Without supplementation after the date hereof, except as permitted by SECTION 8.02, the representations and warranties of TRG and Motoguzzi contained in this Agreement shall be, with respect to those representations and warranties qualified by any materiality standard, true and correct in all respects as of the Closing Date, and with respect to all other representations and warranties, true and correct in all material respects as of the Closing Date with the same force and effect as if made as of the Closing Date, and all the covenants and agreements contained in this Agreement to be complied with by TRG or Motoguzzi on or before the Closing Date, shall have been complied with in all material respects by TRG and Motoguzzi, respectively, except that TRG and Motoguzzi shall not be in breach of their obligation contained herein as a result of non-compliance with a covenant or agreement which is substantively the same as a representation and warranty unless such representation and warranty is not true and correct as provided above, when restated as of the Closing Date, and North shall have received certificates from an appropriate officer of each of TRG and Motoguzzi, respectively, to such effect. (b) Legal Opinion. North shall have received from Morrison Cohen Singer & Weinstein, LLP, counsel to Motoguzzi, a legal opinion addressed to North dated the Closing Date, in the form of EXHIBIT G-1 annexed hereto. North shall have received from Italian counsel to Motoguzzi, a legal opinion relating to matters of Italian law addressed to North dated the Closing Date, in the form of EXHIBIT G-2 annexed hereto. North shall have received a legal opinion addressed to TRG and North from Maryland counsel to TRG, a copy of which is attached as EXHIBIT G-3. (c) Consents. Motoguzzi shall have obtained and delivered to North consents to the Merger of such third parties, if any, as are necessary to ensure the uninterrupted continuation of the Material Contracts, Leases and Permits with respect to the business of Motoguzzi and the Motoguzzi Subsidiaries. (d) No Motoguzzi Material Adverse Change. At the Closing, there shall have been no Motoguzzi Material Adverse Change. (e) Necessary Proceedings. All proceedings, corporate or otherwise, to be taken by TRG and Motoguzzi in connection with the consummation of the transactions contemplated by this Agreement shall have been duly and validly taken, and copies of all documents, resolutions and certificates incident thereto, duly certified by the officers of TRG and Motoguzzi as of the Closing, shall have been delivered to North. (f) Rule 145 List. North shall have received from Motoguzzi the list of deemed "affiliates" under Rule 145. A-I-26 (g) Lock-Up Agreements. North shall have received from Motoguzzi the lock up agreements from the specified holders of Old Motoguzzi Common Stock and Old Motoguzzi Preferred Stock which provides that their Merger Consideration may not be publicly sold for six months after the Effective Time unless such public sale is approved by the Independent Committee. (h) Cold Comfort Letter. North shall have received from Arthur Andersen LLP, the comfort letter referred to in SECTION 6.10. (i) Fairness Opinion. North shall have received from Allen & Company Incorporated a fairness opinion dated on or prior to the effective date of the Proxy and Registration Statement in customary form stating in substance that the terms of the proposed transaction are fair, from a financial point of view, to the holders of North's Class A Common Stock. ARTICLE X REMEDIES OF NORTH FOLLOWING MERGER SECTION 10.01 Scope of Article. This ARTICLE X shall apply solely in the event the Merger is consummated in accordance with this Agreement. This ARTICLE X is the sole and exclusive remedy for any Damages which may be suffered by any of the Parties or by the Surviving Corporation in connection with or relating to this Agreement, from and after consummation of the Merger. SECTION 10.02 Establishment of Remedy Fund. Contemporaneous with the consummation of the Merger, the Exchange Agent shall deliver in escrow to TRG, as escrow agent pursuant to the Escrow Agreement attached hereto as EXHIBIT H and subject to the provisions of SECTION 10.03, below, (x) all of the certificates for shares of Class B Preferred Stock comprising part of the Merger Consideration, (the "Preferred Escrow Shares") and (y) certificates for 100,000 shares of Class A Common Stock comprising part of the Merger Consideration registered in the name of TRG (the "TRG Escrow Shares"; together with the Preferred Escrow Shares, collectively the "Remedy Fund"). To facilitate the transfer of the Preferred Escrow Shares pursuant to the Escrow Agreement, TRG is hereby designated and appointed by each holder of Class B Preferred Stock as the agent with irrevocable power of attorney to execute such stock powers as may be required to effectuate any transfer of the Preferred Escrow Shares. The Remedy Fund shall also include any and all stock distributions made in respect of the securities in the Remedy Fund, such distributions to be held pursuant to the Escrow Agreement. Subject to the limitations set forth in this ARTICLE X, hereof, from and after the Effective Time, (i) the entire Remedy Fund shall be available to compensate the Surviving Corporation for any Damages which may be sustained, suffered or incurred by it, whether as a result of any Third Party Claim or otherwise, which arise from or are in connection with or are attributable to (x) the breach of any of the covenants, representations, warranties, agreements, obligations or undertakings of Motoguzzi contained in this Agreement, or (y) any judgment, order, government notice, government demand or other government sanction, including any remediation or other action taken in response thereto, arising out of or based upon any condition existing at the Closing Date which is not described in the Ecoservice Srl report identified in the Motoguzzi Disclosure Schedules and which violates any Laws, regardless of whether the representation in SECTION 3.07 (b) or (c) is breached, and (ii) the TRG Escrow Shares and such of the Preferred Escrow Shares as are owned by TRG shall also be available to compensate the Surviving Corporation for any Damages which may be sustained, suffered or incurred by it, whether as a result of any Third Party Claim or otherwise, which arise from or are in connection with or are attributable to the breach of any of the covenants, representations, warranties, agreements, obligations or undertakings of TRG contained in this Agreement. Upon final adjudication or resolution of a claim under this ARTICLE X, TRG shall first deliver to the Surviving Corporation, such full number of the Preferred Escrow Shares held in the Remedy Fund as equals or fractionally exceeds the adjudicated or resolved amount of such claim divided by the Market Price (as defined below) of the Class A Common Stock plus $1.00, and if the claim is not fully recompensed by the delivery of the Preferred Escrow Shares, then, additionally, that full number of TRG Escrow Shares held in the Remedy Fund as equals or fractionally exceeds the amount of such claim remaining after delivery of the Preferred Escrow Shares divided by the Market Price of the Class A Common Stock. The "Market Price" of a share of Class A Common Stock will be deemed to be the average of the last sales prices of the Class A Common Stock for the ten business days ending on the day immediately prior to the final adjudication or resolution of a claim under this ARTICLE X, as reported by The Nasdaq Stock Market or any other United States stock A-I-27 exchange on which the Class A Common Stock is listed, or in the absence of such reported prices, the determination of Market Price shall be made jointly by TRG and the Independent Committee. Any TRG Escrow Shares and Preferred Escrow Shares delivered to the Surviving Corporation in settlement of a claim under this ARTICLE X will be canceled and returned to the status of authorized and un-issued shares of capital stock of the Surviving Corporation. If the Merger is consummated, TRG shall not, in any event, have any liability to North, the Surviving Corporation, their respective stockholders or any other person for any Damages except to the extent of its interest in the Remedy Fund. SECTION 10.03 Claims Against Remedy Fund. TRG is hereby designated the agent of holders of Class B Preferred Stock for purposes of prosecuting, defending or settling any claim brought under this ARTICLE X. Actions taken or omitted to be taken, and or consents given, or omitted to be given, by TRG in connection with any such claim shall bind the interests of all of such holders of Class B Preferred Stock in respect of such claim. Upon determination by the Independent Committee that an event giving rise to a claim under SECTION 10.02 above has occurred, the Independent Committee shall give notice to TRG of such determination, specifying (i) the covenant, representation or warranty, agreement, undertaking or obligation contained herein which it asserts has been breached, (ii) in reasonable detail, the nature and dollar amount of any claim the Surviving Corporation may have against the Remedy Fund as a result thereof, and (iii) whether such claim arises from the commencement of a Third Party Claim. The Independent Committee and TRG shall, in good faith, attempt to resolve any such claim. If, within 30 days of its notification to TRG, any claim has not been resolved, the Independent Committee or TRG, individually and as agent for all holders of Class B Preferred Stock, shall have the right, but not the obligation, to seek to have the claim resolved by mediation by submission to JAMS/Endispute or its successor, and if the matter is not resolved through such mediation process within the first to occur of (i) the expiration of 60 days from such submission, or (ii) the holding of two meetings of TRG and North (acting by such independent Committee) with such mediator, then such claim shall be submitted to final and binding arbitration, provided, however, that (x) except for an action arising out of a breach by TRG of any of the representations or warranties made, or covenants given, by TRG hereunder, no mediation or arbitration shall be brought against TRG except solely in its capacity as agent for the holders of Class B Preferred Stock and (y) any claim which arises from a Third Party Claim shall not be resolved or submitted to mediation or arbitration until 30 days following resolution of such Third Party Claim, and TRG, as agent for the Surviving Corporation, (i) shall have the right to assume the defense of such Third Party Claim, by counsel reasonably acceptable to the Independent Committee, the cost thereof to be borne by the Surviving Corporation, subject to reimbursement if it is determined that the claim is compensable to the Surviving Corporation as provided in this ARTICLE X, in which event such costs shall constitute part of the Damages, recoverable as and to the extent provided in this ARTICLE X and (ii) TRG may settle any such Third Party Claim on behalf of the Surviving Corporation, subject to the reasonable approval of the Independent Committee. Upon final adjudication or settlement of any claim under SECTION 10.02, TRG shall deliver to the Surviving Corporation that number of Preferred Escrow Shares and TRG Escrow Shares sufficient to recompense Surviving Corporation in satisfaction of such claim as calculated in SECTION 10.02 above, from the Remedy Fund; provided, however, that the TRG Escrow Shares shall not be so delivered unless and until all of the Preferred Escrow Shares have been so delivered. In any action or proceeding between the Parties hereto, each Party shall bear its own costs and expense, except as otherwise provided in SECTION 10.08. SECTION 10.04 Duration of Remedy Fund. Other than claims for breach of the representations and warranties made by Motoguzzi under SECTIONS 3.01, 3.02, 3.04, 3.10, 3.22 and the first sentence of SECTION 3.15 (collectively "Core Claims"), no notice of claim against the Remedy Fund may be given and shall not be valid if given, after the 60th day following the mailing by certified mail, return receipt requested, or delivery by hand, to each then-serving member of the Board of Directors of the Surviving Corporation of the audited financial statements of the Surviving Corporation for its fiscal year ending December 31, 1998, together with the executed report of the auditors, and on such 60th day, there shall be released to TRG the TRG Escrow Shares except to the extent of the amount by which the aggregate dollar amount of all claims then asserted under this ARTICLE X exceeds the value of the Preferred Escrow Shares then remaining in the Remedy Fund as calculated in SECTION 10.02 above. Notice of Core Claims against the Remedy Fund may not be given, and shall not be valid if given, after the 60th day following the mailing by certified mail, return receipt requested, or delivery by hand, to each then-serving member of the Board of Directors of the Surviving Corporation of the audited financial statements of the Surviving Corporation for the fiscal year ending December 31, 1999, together A-I-28 with the executed report of the auditors. Except as provided hereinabove in respect of the TRG Escrow Shares, the Remedy Fund will remain in place until the later of (i) the date of final settlement or adjudication of any pending claims made against the securities in the Remedy Fund and delivery of the appropriate securities, or (ii) the date after which no notice of claims may be given. After delivery of securities from the Remedy Fund to the Surviving Corporation in full settlement of any claims, TRG shall deliver to the registered owners thereof all shares then held by it in the Remedy Fund. SECTION 10.05 Amount of Claim. No claim may be brought against the Remedy Fund unless, and then and only to the extent that, the amount of Damages suffered in respect of all claims asserted, without duplication, net of any offsets pursuant to SECTION 10.06 below exceeds $750,000. SECTION 10.06 Offset. There shall be offset against the amount of Damages otherwise recoverable under this ARTICLE X, an amount equal to the difference obtained (not less than $0) by subtracting (x) the Book Value (as defined below) of all Specified Assets (as defined below) which are sold or disposed of as provided in clause (y), from (y) the aggregate consideration paid and agreed to be paid (after deduction for sales commissions, sale expenses and sales and income taxes and any similar deductions) to Motoguzzi from the sale to a bona fide, third party purchaser in an arms-length transaction, of such Specified Assets or the receipt by Motoguzzi of insurance or condemnation proceeds in respect of the total or partial loss of or condemnation in respect of such Specified Assets, in all events at any time after December 31, 1997 and prior to resolution of any claim brought against the Remedy Fund, less the amount of any loss sustained upon a sale of a Specified Asset or upon a destruction or condemnation of a Specified Asset from the Book Value of that Specified Asset. The amount of such offset shall be further reduced by the amount of any consideration for any Specified Asset agreed to be paid to the extent that such consideration must be discounted in accordance with GAAP. In no event shall the amount of offset hereunder be less than $0. The Book Value of a Specified Asset shall be derived from the Motoguzzi Consolidated Balance Sheet as at December 31, 1997, increased by any amount actually expended by Motoguzzi since December 31, 1997 to improve its cash sale value. The Specified Assets shall include only those assets of Motoguzzi as of December 31, 1997 in the following categories: real property, fixtures, plant, equipment and machinery, and those items comprising the Motoguzzi Museum, none of which has been sold as of the date hereof, except for non-material sales which, in the aggregate, have resulted in a gain of not more than $15,000. SECTION 10.07 Representations and Warranties. For purposes of this ARTICLE X, for breach of a representation or warranty of a Party under this Agreement, the representations and warranties shall be the representations and warranties of a Party made herein, on the date hereof, without subsequent supplementation, modification or amendment. SECTION 10.08 Mediation and Arbitration. Subject to the provisions of Section 10.03, the Parties agree that any and all disputes, claims or controversies arising out of or relating to the Escrow Fund or any other claim for Damages under this ARTICLE X, including without limitation the validity of such claim or the amount of Damages, if not resolved by the Parties, will be submitted to JAMS/Endispute, or its successor, for mediation, and if the matter is not resolved through mediation, then it will be submitted for final and binding arbitration. Any such arbitration shall be final and binding arbitration, conducted in accordance with the commercial arbitration rules of the American Arbitration Association, and shall be held in New York City. The costs of mediation and arbitration shall be allocated by the mediator or by order of the arbitrators, as the case may be. ARTICLE XI TERMINATION SECTION 11.01 Methods of Termination. The transactions contemplated herein may be terminated and/or abandoned at any time prior to the Closing only as follows: (a) By mutual written consent of North on the one hand and Motoguzzi and TRG on the other hand; (b) By either Motoguzzi or TRG on the one hand or North on the other hand (if the terminating party is not then in material breach of its obligations hereunder) if (i) a material default or breach shall be made by the other Party with respect to the due and timely performance of any of its covenants and agreements contained herein and such default cannot be cured within a reasonable period of time, provided, however, A-I-29 that with respect to those covenants and agreements made by Motoguzzi or TRG which are substantively the same as representations and warranties of Motoguzzi or TRG, the foregoing shall be limited to only those covenants and agreements, the non-performance of which also results in such representation and warranty not being true and correct as provided in clause (ii) hereof, or (ii) if any of the other Party's representations and warranties (x) made without any materiality standard, are not true and correct in all material respects as of the Closing Date or (y) made with any materiality standard, are not true and correct as of the Closing Date. Notwithstanding the foregoing, if, on the Closing Date there are any Intercompany Liens, then (A) if such Intercompany Liens secure indebtedness in an aggregate amount greater than U.S. $1,500,000 then North may terminate this Agreement and (B) if such Intercompany Liens secure indebtedness in an aggregate amount greater than U.S. $550,000, then for purposes of this SECTION 11.01(b) neither Motoguzzi nor TRG shall be deemed to have breached any representation or warranty contained in this Agreement, provided that such indebtedness in excess of U.S. $550,000 shall be reduced by reduction of the $800,000 intercompany indebtedness described in Section 2.06(b), on a dollar-for-dollar basis, and application of the amount of such reduction of intercompany indebtedness to reduce the indebtedness in excess of $550,000 which is secured by such Intercompany Liens. (c) By North if (i) Motoguzzi makes an amendment or supplement to any Schedule hereto in accordance with SECTION 8.02 hereof and such amendment or supplement reflects a Motoguzzi Material Adverse Effect after the date hereof, or (ii) a Motoguzzi Material Adverse Change shall have occurred after the date hereof, or (iii) Motoguzzi enters into any agreement to effect any transaction described in SECTION 6.04 or Motoguzzi's Board of Directors withdraws its recommendation of the Merger or recommends to Motoguzzi's shareholders the approval of any such transaction other than the Merger; (d) By Motoguzzi if (i) North makes an amendment or supplement to any schedule hereto in accordance with SECTION 8.02 hereof and such amendment or supplement reflects a North Material Adverse Effect, after the date hereof, or (ii) North enters into any agreement to effect any transaction described in SECTION 7.08 or North's Board of Directors withdraws its recommendation of the Merger or recommends to North shareholders the approval of any such transaction other than the Merger; (e) By Motoguzzi or TRG on the one hand or North on the other hand if the Effective Time has not occurred within six months following the date of this Agreement for any reason unless the Parties agree to an extension in writing, provided that the right to terminate this Agreement under this Paragraph (e) shall not be available to a Party that is in breach of any representation, warranty or covenant in this Agreement, which breach would entitle any other Party to terminate this Agreement; SECTION 11.02 Effect of Termination. In the event of termination pursuant to SECTION 11.01 hereof, written notice thereof shall forthwith be given to the other Parties and all obligations (except as set forth in this SECTION 11.02) of the Parties shall terminate and no Party shall have any right against any other Party hereto. Notwithstanding the foregoing, (i) if this Agreement is so terminated by any Party under SECTION 11.01(b), (c) or (d) above, (other than a termination resulting from a breach of a representation or warranty which was true when made, but which cannot subsequently be restated as true as a result of the occurrence of events or circumstances beyond the control of the representing Party), it is expressly agreed and understood that the terminating Party's right to pursue all legal remedies for breach of contract or otherwise, including, without limitation, Damages (other than consequential damages, which damages shall not be recoverable), relating thereto, shall survive such termination unimpaired, subject however to SECTION 11.03 and to the extent North recovers any Damages against Motoguzzi, TRG will pay such Damages if not paid promptly by Motoguzzi; or (ii) if this Agreement is terminated by North under SECTION 11.01(c)(iii) and within 365 days thereafter Motoguzzi consummates any transaction described in SECTION 6.04, or if Motoguzzi refuses to consummate the Merger despite the satisfaction of all conditions precedent to Motoguzzi's obligation to do so, or Motoguzzi does not in good faith use its commercially reasonable efforts to satisfy all the conditions precedent to North's obligation to consummate the Merger which are within Motoguzzi's control, and provided that North is not in material breach of its obligations contained in this Agreement, Motoguzzi shall pay to North in lieu of any other right or remedy of North or any claim for any Damages which North might otherwise have, the greater of (A) the sum of $500,000 as liquidated damages and not as a penalty, or (B) the actual documented out-of-pocket expenses of North related solely and directly to the transaction contemplated by this Agreement (such applicable amount being referred to as the "Motoguzzi Breakup Fee") promptly following demand therefor by North and if A-I-30 Motoguzzi fails to do so, then TRG shall pay the Motoguzzi Break-Up Fee; or (iii) if this Agreement is terminated by Motoguzzi under SECTION 11.01(d)(ii) or if North refuses to consummate the Merger despite the satisfaction of all conditions precedent to North's obligation to do so, or North does not in good faith use its commercially reasonable efforts to satisfy all the conditions precedent to Motoguzzi's obligation to consummate the Merger which are within North's control, and provided that Motoguzzi is not in material breach of its obligations contained in this Agreement and if, but only if, in any such event, within 365 days thereafter North consummates any transaction described in SECTION 7.08, North shall pay to Motoguzzi, as liquidated damages and not as a penalty, and in lieu of any other right or remedy of Motoguzzi or any claim for Damages which Motoguzzi or TRG might otherwise have, the sum of $500,000 ("North Breakup Fee") promptly following demand therefor by Motoguzzi. If the transactions contemplated by this Agreement are terminated and/or abandoned as provided herein: (a) Each Party hereto will return all documents, work papers and other material (and all copies thereof) of the other Party, relating to the transactions contemplated hereby, whether so obtained before or after the execution hereof, to the Party furnishing the same; and (b) All confidential information received by either Party hereto with respect to the business of the other Party shall be treated in accordance with SECTIONS 6.02(b) and 7.04(b) hereof which sections shall survive termination and abandonment. SECTION 11.03 Limitation on Damages. Notwithstanding anything to the contrary elsewhere in this Agreement, neither TRG, Motoguzzi, any Motoguzzi Subsidiary or any officers, directors, affiliates, agents or Representatives of any of the foregoing will make any monetary claim against North to the extent that such claim would adversely affect the amount of funds available for distribution to North's Class A stockholders from the escrow funds held by Chase Manhattan Bank established with part of the proceeds of the public offering by North in August 1997, except in the circumstances in which North would be obligated to pay the North Breakup Fee (and in such event only to the extent of such North Breakup Fee). Notwithstanding anything to the contrary elsewhere in this Agreement, if the Merger is not consummated, neither North, nor any officers, directors, affiliates, agents or Representatives of North will make any monetary claim against Motoguzzi or TRG in excess of the actual documented out-of-pocket costs and expenses incurred by North in connection with the transactions contemplated by this Agreement, except in the circumstances in which Motoguzzi would be obligated to pay the Motoguzzi Breakup Fee (and in such event only to the extent of the Motoguzzi Breakup Fee). ARTICLE XII DEFINITIONS SECTION 12.01 Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings: "Business Day" means a day of the year on which banks are not required or authorized to be closed in the City of New York. "Damages" means the dollar amount of any loss, damage, expense or liability, including, without limitation, reasonable attorneys' fees and disbursements incurred by a Party in any action or proceeding between such Party and the other Party or Parties hereto or between such Party and a third party, which is determined (as provided in ARTICLE X or ARTICLE XI) to have been sustained, suffered or incurred by a Party and to have arisen from or in connection with an event or state of facts which is subject to claim under such ARTICLE X or ARTICLE XI; the amount of Damages shall be the amount finally determined by a court of competent jurisdiction or appropriate governmental administrative agency (after the exhaustion of all appeals) or the amount agreed to upon settlement in accordance with the terms of this Agreement. "Environmental, Health, and Safety Requirements" means all federal, state, local and foreign statutes, regulations, and ordinances concerning public health and safety, worker health and safety, and pollution or protection of the environment, including without limitation all those relating to the presence, use, production, generation, handling, transportation, treatment, storage, disposal, distribution, labeling, testing, A-I-31 processing, discharge, release, threatened release, control, or cleanup of any hazardous materials, substances or wastes, as such requirements are enacted and in effect on or prior to the Closing Date. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Lien" means any lien, claim, charge, option, security interest, restriction or encumbrance. "Motoguzzi Material Adverse Change" means any material adverse change in the condition, financial or otherwise, of Motoguzzi and the Motoguzzi Subsidiaries, taken as a whole, from such condition as it existed at December 31, 1997, and as reflected in Motoguzzi's December 31, 1997 Financial Statements, excluding, however, (i) any suspension of operations of Motoguzzi and the Motoguzzi Subsidiaries, taken as a whole unless such suspension continues for more than 30 consecutive business days, (ii) any decrease in sales of Motoguzzi motorcycles to unaffiliated third parties unless such decrease is at a rate, determined on a cumulative basis for the period January 1, 1998 through the end of the month immediately preceding the month in which a determination is made (the "Operating Period"), which is greater than 900 motorcycles below the Motoguzzi 1998 motorcycles sales budget for the Operating Period, provided that motorcycles which are sold at more than 30% off of Motoguzzi's suggested retail price shall not be deemed sold for purposes hereof, (iii) any recall of motorcycles unless such recall is for more than 1,000 motorcycles and requires that repairs be made which will cost greater than 20% of Motoguzzi's suggested retail price of such motorcycles, (iv) any interruption in supply of material components or other materials necessary for the manufacture and assembly of motorcycles, unless such interruption lasts for more than 60 days and results in a decrease in production of more than 500 motorcycles, or (v) the assertion after the date hereof of any claims, the incurring after the date hereof of any liabilities or the occurrence after the date hereof of any other event or circumstance unless such claims or liabilities, or losses or costs related to such events or circumstances, individually or in the aggregate are in excess of $3 million after reduction to the extent of any applicable insurance coverage and (A) if it is a claim or liability, it has a manifestly reasonable likelihood of success, and (B) if it is a claim or liability which results from a notice or demand by any governmental agency, (x) such governmental agency shall have competent jurisdiction and (y) the ability of such governmental agency to enforce against Motoguzzi any claim or liability in respect thereof would not terminate as a result of Motoguzzi relocating its manufacturing and assembly operations away from its present premises at Mondello, Italy or the substance of such claim would not be cured by Motoguzzi incurring capital expenditures which are included in its capital expenditure budget. "Motoguzzi Material Adverse Effect" means a material adverse effect on the results of operations, financial condition, business, assets or prospects of Motoguzzi and the Motoguzzi Subsidiaries (as defined hereinafter) taken as a whole; provided that if the foregoing has a financial effect then a Motoguzzi Material Adverse Effect shall be deemed to exist if such financial effect is greater than $750,000; provided further, that if the applicable event, circumstance or occurrence is included in any of clauses (i) through (v) of the definition of Motoguzzi Material Adverse Change, then only for purposes of determining whether the condition in SECTION 9.03(a) has been satisfied and whether this Agreement may be terminated as provided in SECTION 11.01(b) or SECTION 11.01(c), a Motoguzzi Material Adverse Effect shall not be caused thereby unless a Motoguzzi Material Adverse Change would have resulted therefrom. "Motoguzzi Subsidiaries" means Motoguzzi S.p.A, Moto Guzzi France S.A., and Moto America, Inc. "North Material Adverse Effect" means a material adverse effect on the results of operations, financial condition, business, assets or prospects of North. "Party" means each of North, Motoguzzi and TRG (collectively, the "Parties"). "Representatives" of either Party means such Party's employees, accountants, auditors, actuaries, counsel, financial advisors, bankers, investment bankers and consultants. "Securities Act" means the Securities Act of 1933, as amended. "Tax" or "Taxes" means all income, gross receipts, sales, stock transfer, excise, bulk transfer, use, employment, franchise, profits, property or other taxes, fees, stamp taxes and duties, assessments, levies or charges of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts imposed by any taxing authority with respect thereto. A-I-32 "Third Party Claim" means a claim, demand, suit, proceeding or action by a person, firm, corporation or government entity other than a Party or any affiliate of such Party. ARTICLE XIII GENERAL PROVISIONS SECTION 13.01 Expenses. Except as otherwise provided herein, all costs and expenses, including, without limitation, fees and disbursements of Representatives, incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the Party incurring such costs and expenses, whether or not the Closing shall have occurred. Notwithstanding the foregoing, if the Closing shall occur, then such costs and expenses incurred by TRG, Motoguzzi and the Motoguzzi Subsidiaries shall be paid by TRG and the amount thereof shall be included in the intercompany indebtedness referred to in Section 8.06. Motoguzzi and TRG acknowledge and agree that in SCHEDULE 4.05 North has disclosed that it is obligated and will become further obligated for fees and expenses (including without limitation the fees and expenses of Graubard Mollen & Miller, its counsel, Allen & Company, its investment bankers, and BDO Seidman, LLP its independent accountants) incurred by it in connection with the transactions contemplated by this Agreement. It is understood and agreed that, subject to the limitations set forth in SECTIONS 4.05 and 7.01(k) hereof, certain of such fees and expenses may be paid by North prior to the execution of this Agreement. Motoguzzi and TRG agree to refrain from taking any action which would prevent or delay the timely payment by North of reasonable fees duly and lawfully incurred, to the extent consistent with the limitations set forth in ARTICLE IV hereof. Subject to the foregoing, the Surviving Corporation shall take all action necessary to pay promptly all of the foregoing fees and expenses incurred, but not paid, by North prior to the Effective Time. SECTION 13.02 Notices. All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed to have been duly given or made as of the date delivered if delivered personally or by telecopy, one day after delivery to a nationally recognized courier, or three business days after mailed by registered mail (postage prepaid, return receipt requested), in each case, to the Parties at the following addresses (or at such other address for a Party as shall be specified by like notice, except that notices of changes of address shall be effective upon receipt): (a) If to TRG or Motoguzzi, c/o Trident Rowan Group, Inc. Two Worlds Fair Drive Franklin Township, Somerset, New Jersey 08873 in all cases with a copy to: Morrison Cohen Singer & Weinstein, LLP 750 Lexington Avenue New York, New York 10022 Attention: David Lerner, Esq. Telecopier # 212-735-8708 (b) If to North: North Atlantic Acquisition Corp. 5 East 59th Street Third Floor New York, New York 10022 Attention: David Mitchell Telecopier No.: 212-588-0286 with a copy to: Graubard Mollen & Miller 600 Third Avenue New York, New York 10016 Attention: David Alan Miller, Esq. Telecopier No.: 212-818-8881 A-I-33 SECTION 13.03 Press Release; Public Announcements. Promptly after execution of this Agreement, North and TRG may issue press releases in the form attached hereto as EXHIBIT I. The Parties shall not make any other public announcements in respect of this Agreement or the transactions contemplated herein without prior consultation and approval by the other Party as to the form and content thereof, which approval shall not be unreasonably withheld. Notwithstanding the foregoing, any Party may make any disclosure which its counsel advises is required by applicable law or regulation, in which case the other Party shall be given such reasonable advance notice as is practicable in the circumstances and the Parties shall use their best efforts to cause a mutually agreeable release or announcement to be issued. SECTION 13.04 Amendment. This Agreement may not be amended or modified except by an instrument in writing signed by the Parties. SECTION 13.05 Waiver. At any time prior to the Closing, either Party may (a) extend the time for the performance of any of the obligations or other acts of the other Party, (b) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto and (c) waive compliance with any of the agreements or conditions contained herein. Any such extension or waiver shall be valid only if set forth in an instrument in writing signed by the Party to be bound thereby. SECTION 13.06 Headings. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. SECTION 13.07 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any Party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the extent possible. SECTION 13.08 Entire Agreement. This Agreement and the schedules and exhibits hereto and the documents executed contemporaneously herewith constitute the entire agreement and supersede all prior agreements and undertakings, both written and oral, among the Parties with respect to the subject matter hereof and, except as otherwise expressly provided herein, are not intended to confer upon any other person any rights or remedies hereunder. SECTION 13.09 Benefit; Assignment. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of the Parties. This Agreement is not assignable by any Party without the express written consent of the other Parties. SECTION 13.10 Governing Law; Consent to Jurisdiction; Specific Performance. This Agreement shall be governed by, and construed in accordance with, the law of the State of New York, regardless of the laws that might otherwise govern under applicable principles of conflicts of law. Each Party hereby submits to the exclusive jurisdiction of the courts (city, state and federal) located in the County of New York, State of New York, for any action, proceeding or claim brought by any other Party pursuant to this Agreement or any other agreement, instrument or other document executed and delivered in connection with this Agreement or pursuant hereto and waives any objection to the venue of any such suit, action or proceeding and the right to assert that such forum is not a convenient forum. Service of process in any such action or proceeding brought against a Party may be made by registered mail addressed to such Party at the address set forth in SECTION 13.02 or to such other address as such Party shall notify the other Party in writing is to be used for such purpose pursuant to SECTION 13.02. Any Party may enforce any right arising hereunder by action or other appropriate proceeding, either in equity or at law, and may seek specific performance of any of the obligations arising hereunder. SECTION 13.11 Counterparts. This Agreement may be executed in one or more counterparts, and by the different Parties in separate counterparts, each of which when executed shall be deemed to be an original but all of which when taken together shall constitute one and the same agreement. A-I-34 IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the date first written above. MOTO GUZZI CORP. NORTH ATLANTIC ACQUISITION CORP. By: /s/ HOWARD CHASE By: /s/ DAVID J. MITCHELL ---------------------------- ----------------------------- Name: Howard Chase Name: David J. Mitchell Authorized Signatory Title: Chairman of the Board TRIDENT ROWAN GROUP, INC. (With respect to applicable portions of Articles II, III, V, VI, VIII, X, XI and XIII only) By: /s/ HOWARD CHASE ------------------------ Name: Howard Chase Title: President A-I-35 ANNEX II July 23, 1998 Board of Directors North Atlantic Acquisition Corporation 5 East 59th Street 3rd Floor New York, NY 10022 Gentlemen: We have been advised that North Atlantic Acquisition Corporation ("NAAC") has entered into a merger agreement (the "Merger Agreement") with Moto Guzzi Corporation ("Guzzi Corp.") whereby Guzzi Corp. would exchange all of its outstanding common and preferred stock for common shares of NAAC, convertible redeemable preferred shares of NAAC and nominal warrants (the "Merger"). Pursuant to an agreement letter dated May 8, 1998 (the "Engagement Letter"), you have asked us to render our opinion as to the fairness, from a financial point of view, of the terms of the Merger to the Class A common stockholders of NAAC. As you know, pursuant to the Engagement Letter, Allen & Company Incorporated ("Allen") has also been providing NAAC with certain financial advice and assistance in consummation of the Merger and, upon consummation of the Merger, will, at NAAC's request, provide NAAC with certain additional financial advisory services including (i) reviewing NAAC's financial plans, strategic plans and business alternatives; (ii) advising NAAC with respect to financing alternatives involving equity, debt or a combination thereof; and (iii) advising NAAC with respect to strategic acquisitions. In consideration of these services, upon consummation of the Acquisition, Allen will receive warrants to purchase 350,000 NAAC Common Shares upon the terms and conditions previously agreed. As part of its investment banking business, Allen is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, private placements and related financings, bankruptcy reorganizations and similar recapitalizations, negotiated underwritings, secondary distributions of listed and unlisted securities and valuations for corporate and other purposes. In arriving at our conclusion, we have considered, among other factors we deemed relevant, (i) the nature of the operations and financial history of Guzzi Corp., including discussions with senior management of Guzzi Corp. relating to, among other things, Guzzi Corp.'s operating budget and business plan; (ii) Guzzi Corp.'s audited and unaudited financial statements through March 31, 1998, as provided to us by Guzzi Corp.'s management; (iii) certain financial and stock market information for certain other companies in businesses we deemed comparable or related to those of Guzzi Corp.; (iv) the terms of the Merger Agreement; and (v) NAAC's audited and unaudited financial statements. In arriving at our conclusion, Allen among other things: (i) performed, a discounted cash flow analysis relating to Guzzi Corp.'s financial projections; (ii) reviewed and analyzed public information, including certain stock market data and financial information relating to selected companies with operating statistics and dynamics similar to those of Guzzi Corp.; and (iii) reviewed public financial and transaction information relating to consideration paid in certain merger and acquisition transactions for selected companies similar to Guzzi Corp. In arriving at our conclusion, we have assumed and relied upon the accuracy and completeness of the financial and other information provided by each of NAAC and Guzzi Corp., without undertaking any independent verification of such information or any independent valuation or appraisal of the value of NAAC or of the assets or businesses of Guzzi Corp. With respect to the operating budget and business plan information of Guzzi Corp. which we reviewed, we assumed such materials were reasonably prepared on a basis reflecting the A-II-1 best currently available information and judgements of the senior management of Guzzi Corp. as to the future financial performance of Guzzi Corp. Our analysis was performed at the request and solely for the benefit of the NAAC Board of Directors, and not to offer or provide advice to any other party. Our conclusion in connection therewith does not constitute a recommendation that any stockholder of NAAC vote to approve, ratify, disapprove or abstain from voting in connection with any action considered by the stockholders of NAAC. Based upon and subject to the foregoing, it is our opinion that as of the date hereof, the Merger is fair, from a financial point of view, to the Class A Common Stockholders of NAAC. Very truly yours, ALLEN & COMPANY INCORPORATED By /s/ Robert Cosgriff ---------------------------------- A-II-2 ANNEX III This Warrant entitles the Registered Holder thereof to purchase % of the aggregate number of shares of Class A Common Stock which may be acquired upon exercise of all of the Warrants of like tenor issued contemporaneously with this Warrant. No. WARRANT FOR THE PURCHASE OF SHARES OF CLASS A COMMON STOCK OF MOTO GUZZI CORPORATION (A DELAWARE CORPORATION) Moto Guzzi Corporation, a Delaware corporation (the "Company"), hereby certifies that for value received, of , or his, her or its registered assigns (the "Registered Holder"), is entitled, subject to the terms set forth below, to purchase from the Company, at any time or from time to time during the period commencing on June 30, 2001 and ending at 5:00 p.m. E.S.T. on September 30, 2001 ("Expiration Date"), such number of shares of Class A Common Stock, $.01 par value, of the Company ("Common Stock"), at a purchase price per share equal to $.01 ("Purchase Price") as is determined in accordance with Section 2 hereof. The number of shares of Common Stock which may be acquired upon exercise of this Warrant, as adjusted from time to time pursuant to the provisions of this Warrant, is hereinafter referred to as the "Warrant Shares". All rights granted hereunder shall expire on the Expiration Date. 1. CERTAIN DEFINITIONS (a) "Actual Operating Income" shall mean the profit before interest, taxes, minority interests, extraordinary items and the cumulative effects of changes in accounting policies, of the Company, on a consolidated basis, for its fiscal year ending December 31, 2000, derived from the Company's audited Statements of Income/Loss for such fiscal year, prepared in accordance with U.S. generally accepted accounting principles consistently applied, expressed in Lire. (b) "Market Price" shall mean the average closing sale price of the Company's common stock on the national securities exchange on which such securities are traded, if any, or if not traded on a national securities exchange, then as reported by the National Association of Securities Dealers, Inc.'s Automated Quotation System, in either event for the 20 consecutive trading days prior to June 30, 2001, or, if such securities are not so traded, at the fair market value thereof on such date as reasonably determined by the Board of Directors of the Company. (c) Minimum Operating Income" shall mean Lit. 20,169,600,000. (d) "Percentage Interest" shall mean % [(i) FOR WARRANTS ISSUED UNDER SECTION 2.02(a)(i), THE PRODUCT OF (x) 74.05% MULTIPLIED BY A FRACTION, THE NUMERATOR OF WHICH IS THE NUMBER OF SHARES OF CAPITAL STOCK OF MOTO GUZZI CORP. OWNED BY THE REGISTERED HOLDER AT THE MERGER EFFECTIVE TIME, AND THE DENOMINATOR OF WHICH IS 7,500,000; (ii) FOR WARRANTS ISSUED UNDER SECTION 2.02(a)(ii), 20.76%; AND (iii) FOR WARRANTS ISSUED UNDER SECTION 2.02(a)(iii), THE PRODUCT OF (x) 5.19% MULTIPLIED BY (y) A FRACTION, THE NUMERATOR OF WHICH IS THE NUMBER OF OLD MOTO GUZZI WARRANTS SURRENDERED BY THE REGISTERED HOLDER AT THE MERGER EFFECTIVE TIME AND THE DENOMINATOR OF WHICH IS 1,500,000.] (e) "Aggregate Value" shall mean: (i) zero if Actual Operating Income is less than Minimum Operating Income; A-III-1 (ii) the amount of $4,750,000 if Actual Operating Income equals Minimum Operating Income; and (iii) if Actual Operating Income exceeds Minimum Operating Income, an amount equal to $4,750,000 multiplied by 120% of the percentage which Actual Operating Income bears to Minimum Operating Income, provided, however, such Aggregate Value shall not exceed $9,500,000. 2. SCOPE OF WARRANT The number of shares of Common Stock which may be acquired by the Registered Holder upon exercise of this Warrant shall be determined by application of the following formula: (AV / MP) x PI rounded up to the next whole number of shares, where AV means the Aggregate Value, MP means the Market Price, and PI means the Percentage Interest. By way of example, if Actual Operating Income is Lit. 25,169,600,000, then the percentage which Lit 25,169,600,000 bears to Lit 20,169,600,000 is 124.79%. Such percentage, when multiplied by 120%, would equal 149.75%; application of such resulting percentage to $4,750,000, would yield an AV equal to $7,113,018; if MP were $15 then 474,201 aggregate shares of Common Stock would be purchased if all of the Warrants of like tenor, issued contemporaneously with this Warrant, were exercised. 3. NOTICE OF AGGREGATE VALUE AND EXERCISE. (a) As soon after June 30, 2001 as practicable if Actual Operating Income has exceeded Minimum Operating Income, the Company shall notify the Registered Holder hereof of the amount of the Aggregate Value, by notice given in accordance with Section 14 hereof. (b) The Registered Holder hereby appoints Trident Rowan Group, Inc. ("TRG"), with full power of substitution, as the attorney in fact of the Registered Holder and authorizes TRG to deliver to the Company any notice of exercise which may be given hereunder. Such authority shall be deemed null and void if the Registered Holder delivers written notice to TRG revoking such authority at any time prior to the date on which TRG delivers any notice of exercise hereunder. This Warrant may be exercised by the Registered Holder, in whole but not in part, or by TRG as agent for the Registered Holder, by the surrender of this Warrant (with the Notice of Exercise Form attached hereto as Exhibit I duly executed by such Registered Holder) at the principal office of the Company, or at such other office or agency as the Company may designate, accompanied by payment in full, in lawful money of the United States, of an amount equal to the then applicable Purchase Price multiplied by the whole number of Warrant Shares which may be purchased upon such exercise, together with any and all applicable taxes due in connection with such exercise. This Warrant may not be exercised by, or shares of Common Stock issued to, any Registered Holder in any state in which such exercise would be unlawful. (c) Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the day on which this Warrant shall have been surrendered to the Company as provided in subsection 3(b) above. At such time, the person or persons in whose name or names any certificates for Warrant Shares shall be issuable upon such exercise as provided in subsection 3(d) below shall be deemed to have become the holder or holders of record of the Warrant Shares represented by such certificates. (d) As soon as practicable after the exercise of the purchase right represented by this Warrant, the Company at its expense will use its best efforts to cause to be issued in the name of, and delivered to, the Registered Holder, or, subject to the terms and conditions hereof, to such other individual or entity as such Registered Holder (upon payment by such Registered Holder of any applicable transfer taxes) may direct a certificate or certificates for the number of full shares of Warrant Shares to which such Registered Holder shall be entitled upon such exercise plus, in lieu of any fractional share to which such Registered Holder would otherwise be entitled, cash in an amount determined pursuant to Section 5 hereof. 4. ADJUSTMENTS. (a) Split, Subdivision or Combination of Shares. If the Company, after the date on which this Warrant becomes initially exercisable and prior to exercise, fixes a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock without A-III-2 payment of any consideration by such holder for the additional shares of Common Stock, then, as of such record date (or the date of such dividend distribution, split or subdivision if no record date is fixed), the Purchase Price shall be appropriately decreased and the number of Warrant Shares which may be acquired hereunder shall be increased in proportion to such increase in the aggregate number of shares of Common Stock outstanding. If the number of shares of Common Stock outstanding at any time after the date hereof is decreased by a combination of the outstanding shares of Common Stock or otherwise, then, following the record date of such combination or other event, the Purchase Price shall be appropriately increased and the number of Warrant Shares which may be acquired hereunder shall be decreased in proportion to such decrease in the aggregate number of shares of Common Stock outstanding. (b) Reclassification, Reorganization, Consolidation or Merger. In the case of any reclassification of the Common Stock (other than a change in par value or a subdivision or combination as provided for in subsection 4(a) above), or any reorganization, consolidation or merger of the Company with or into another corporation (other than a merger or reorganization with respect to which the Company is the continuing corporation and which does not result in any reclassification of the Common Stock), or a transfer of all or substantially all of the assets of the Company, or the payment of a liquidating distribution then, as part of any such reorganization, reclassification, consolidation, merger, sale or liquidating distribution, lawful provision shall be made so that the Registered Holder of this Warrant shall have the right thereafter to receive upon the exercise hereof (to the extent, if any, still exercisable) the kind and amount of shares of stock or other securities or property which such Registered Holder would have been entitled to receive if, immediately prior to any such reorganization, reclassification, consolidation, merger, sale or liquidating distribution, as the case may be, such Registered Holder had held the number of shares of Common Stock which were then purchasable upon the exercise of this Warrant or if this Warrant shall not then be exerciseable, such other consideration as the Board of Directors of the Company shall reasonably determine to be of comparable value. In any such case, appropriate adjustment (as reasonably determined by the Board of Directors of the Company) shall be made in the application of the provisions set forth herein with respect to the rights and interests thereafter of the Registered Holder of this Warrant such that the provisions set forth in this Section 4 (including provisions with respect to the Purchase Price) shall thereafter be applicable, as nearly as is reasonably practicable, in relation to any shares of stock or other securities or property thereafter deliverable upon the exercise of this Warrant. (c) Price Reduction. Notwithstanding any other provision set forth in this Warrant, at any time and from time to time during the period that this Warrant is exercisable the Company in it sole discretion may reduce the Purchase Price. (d) No Impairment. The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such actions as may be necessary or appropriate in order to protect against impairment of the rights of the Registered Holder of this Warrant to adjustments in the Purchase Price. (e) Notice of Adjustment. Upon the occurrence of each adjustment or readjustment of the Purchase Price or the number of Warrant Shares which may be acquired hereunder, the Company, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish written notice thereto to the Registered Holder of this Warrant within a reasonable amount of time from the adjustment or readjustment stating the adjustment or readjustment and showing in reasonable detail the facts upon which such adjustment or readjustment is based. 5. NOTICES OF RECORD DATE. In case: (a) the Company shall take a record of the holders of its Common Stock (or other stock or securities at the time deliverable upon the exercise of this Warrant) for the purpose of entitling or enabling them to receive any dividend or other distribution (other than a dividend or distribution payable solely in capital A-III-3 stock of the Company or out of funds legally available therefor), or to receive any right to subscribe for or purchase any shares of any class or any other securities, or to receive any other right, or (b) of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the surviving entity), or any transfer of all or substantially all of the assets of the Company, or (c) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company, then, and in each such case, the Company will mail or cause to be mailed to the Registered Holder of this Warrant a notice specifying, as the case may be, (i) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such other stock or securities at the time deliverable upon the exercise of this Warrant) shall be entitled to exchange their shares of Common Stock (or such other stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up. Such notice shall be mailed at least twenty (20) days prior to the record date or effective date for the event specified in such notice, provided that the failure to mail such notice shall not affect the legality or validity of any such action. 6. RESERVATION OF STOCK. The Company will at all times reserve and keep available, solely for issuance and delivery upon the exercise of this Warrant, such shares of Warrant Shares and other stock, securities and property, as from time to time shall be issuable upon the exercise of this Warrant. 7. REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and (in the case of loss, theft or destruction) upon delivery of an indemnity agreement (with surety if reasonably required) in an amount reasonably satisfactory to the Company, or (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will issue, in lieu thereof, a new Warrant of like tenor. 8. TRANSFER AND EXCHANGE OF WARRANTS. (a) The Company will maintain a register containing the names and addresses of the Registered Holders of this Warrant. Any Registered Holder may change its, his or her address as shown on the warrant register by written notice to the Company requesting such change, given in accordance with Section 14 hereof. (b) Until any transfer of this Warrant is made in the warrant register, the Company may treat the Registered Holder of this Warrant as the absolute owner hereof for all purposes; provided, however, that if and when this Warrant is properly assigned in blank, the Company may (but shall not be obligated to) treat the bearer hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. (c) The Company shall register the transfer from time to time, of this Warrant upon the register maintained by the Company for such purpose, upon surrender of this Warrant for transfer, upon written instructions with signatures guaranteed. Upon any such transfer, a new Warrant representing an equal aggregate Percentage Interest shall be issued and this Warrant shall be canceled. (d) This Warrant may be surrendered to the Company, together with a written request for exchange, and thereupon the Company shall issue in exchange therefor one or more new Warrants as requested by the Registered Holder of this Warrant, representing in the aggregate an equal Percentage Interest; provided, however, that in the event that this Warrant bears a restrictive legend, the Company shall not cancel this Warrant nor issue a new Warrant in exchange therefor unless the Company has received an opinion of counsel stating that such transfer may be made and indicating whether the new Warrant(s) must also bear a restrictive legend. 9. NO RIGHTS AS SHAREHOLDER. Until the exercise of this Warrant, the Registered Holder of this Warrant shall not have or exercise any rights by virtue hereof as a shareholder of the Company. A-III-4 10. CHANGE OR WAIVER. Any term of this Warrant may be changed or waived only by an instrument in writing signed by the party against which enforcement of the change or waiver is sought. 11. HEADINGS. The headings in this Warrant are for purposes of reference only and shall not limit or otherwise affect the meaning of any provision of this Warrant. 12. GOVERNING LAW. This Warrant shall be governed by and construed in accordance with the laws of the State of New York as such laws are applied to contracts made and to be fully performed entirely within that state between residents of that state. 13. JURISDICTION AND VENUE. The Company (i) agrees that any legal suit, action or proceeding arising out of or relating to this Warrant shall be instituted exclusively in New York State Supreme Court, County of New York or in the United States District Court for the Southern District of New York, (ii) waives any objection to the venue of any such suit, action or proceeding and the right to assert that such forum is not a convenient forum, and (iii) irrevocably consents to the jurisdiction of the New York State Supreme Court, County of New York, and the United States District Court for the Southern District of New York in any such suit, action or proceeding, and the Company further agrees to accept and acknowledge service or any and all process which may be served in any such suit, action or proceeding in New York State Supreme Court, County of New York or in the United States District Court for the Southern District of New York and agrees that service of process upon it mailed by certified mail to its address shall be deemed in every respect effective service of process upon it in any suit, action or proceeding. 14. MAILING OF NOTICES. ETC. All notices and other communications under this Warrant (except payment) shall be in writing and shall be sufficiently given if delivered to the addressees in person, by Federal Express or similar receipt delivery, by facsimile delivery or, if mailed, postage prepaid, by certified mail, return receipt requested, as follows: Registered Holder: To his or her address on page 1 of this Warrant. Moto Guzzi Corporation c/o Trident Rowan Group, Inc. Two Worlds Fair Drive Franklin Township Somerset, NJ 08873 Attn: Mr. Mark S. Hauser, President The Company: Fax: (732) 868-0193 In either case, with a copy to: Morrison Cohen Singer & Weinstein, LLP 750 Lexington Avenue New York, NY 10022 Attn: David Lerner, Esq. Fax: (212) 735-8708 or to such other address as any of them, by notice to the others may designate from time to time. Time shall be counted to, or from, as the case may be, the delivery in person or by mailing. MOTO GUZZI CORPORATION By: ---------------------------------- Print Name: -------------------------- Title: ------------------------------- A-III-5 EXHIBIT I NOTICE OF EXERCISE To: Moto Guzzi Corporation c/o Trident Rowan Group, Inc. Two Worlds Fair Drive Franklin Township Somerset, NJ 08873 1. The undersigned hereby elects to purchase such number of shares of the Common Stock of Moto Guzzi Corporation, pursuant to the terms of the attached Warrant, as equals the undersigned's entire interest in this Warrant, and tenders herewith payment of the purchase price of such shares in full, together with all applicable transfer taxes, if any. 2. Please issue a certificate or certificates representing said shares of the Common Stock in the name of the undersigned or in such other name as is specified below: ------------------------------------- (Name) ------------------------------------- (Address) ------------------------------------- Taxpayer Identification Number) - --------------------------------------- [print name of Registered Holder] By: ------------------------------------ Title: --------------------------------- Date: ---------------------------------- A-III-6 ANNEX IV CERTIFICATE OF MERGER OF MOTO GUZZI CORP. WITH AND INTO NORTH ATLANTIC ACQUISITION CORP. Pursuant to the General Corporation Law of the State of Delaware, the undersigned corporations DO HEREBY CERTIFY that: FIRST: The name and state of incorporation of each of the constituent corporations of the merger is as follows: NAME STATE OF INCORPORATION - ------------------------------------- ------------------------------------ Moto Guzzi Corp. Delaware North Atlantic Acquisition Corp. Delaware SECOND: An Agreement and Plan of Merger and Reorganization dated as of , among Moto Guzzi Corp., a Delaware corporation, North Atlantic Acquisition Corp., a Delaware corporation, and Trident Rowan Group, Inc., a Maryland corporation (the "Agreement and Plan of Merger"), has been adopted, approved, certified, executed and acknowledged by each of the constituent corporations to the merger in accordance with the requirements of Section 251 of the General Corporation Law of the State of Delaware. THIRD: The name of the surviving corporation of the merger is North Atlantic Acquisition Corp., a Delaware corporation ("Surviving Corporation"), whose name shall be changed to Moto Guzzi Corporation. FOURTH: The Certificate of Incorporation of Surviving Corporation is hereby amended and restated to read as set forth on Exhibit A hereto. FIFTH: The executed Agreement and Plan of Merger is on file at the principal place of business of Surviving Corporation. The address of said principal place of business is 5 East 59th Street, New York, NY 10022. SIXTH: A copy of the Agreement and Plan of Merger will be furnished by the Surviving Corporation on request and without cost to any stockholder of either constituent corporation. Dated: --------------------------- Attest: NORTH ATLANTIC ACQUISITION CORP. By: ------------------------------ Title: Attest: MOTO GUZZI CORP. By: - --------------------------------- ------------------------------ Title: A-IV-1 EXHIBIT A AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF NORTH ATLANTIC ACQUISITION CORP. FIRST: The name of this corporation is: MOTO GUZZI CORPORATION SECOND: The name and address of the registered agent of the corporation in the State of Delaware is: The Corporation Trust Company 1209 Orange Street Wilmington, Delaware 19801 THIRD: The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH: (a) The total number of shares which the Corporation shall have authority to issue is Twenty Million (20,000,000) of which (i) Fifteen Million (15,000,000) shares, par value $.01 per share shall be Class A Common Stock (hereinafter called "Class A Common Stock"), (ii) Two Hundred Fifty Thousand (250,000) shares, par value $.01 per share shall be Class B Exchangeable Common Stock (hereinafter called "Class B Common Stock; the Class A Common Stock and the Class B Common Stock, hereinafter collectively, the "Common Stock"), and (iii) Four Million Seven Hundred and Fifty Thousand (4,750,000) shares, par value $.01 per share shall be Preferred Stock (hereinafter called "Preferred Stock"). One Hundred (100) shares of the Preferred Stock shall be designated as Series A Convertible Preferred Stock (hereinafter called "Class A Preferred Stock") and Three Hundred Fifty Thousand (350,000) shares of the Preferred Stock are designated as Class B Convertible Preferred Stock (hereinafter called the "Class B Preferred Stock"). (b) The Common Stock shall have the following rights, preferences, privileges and restrictions: (1) The holders of the Common Stock shall be entitled to receive such dividends as may be declared thereon from time to time by the Board of Directors, in its discretion, from any assets legally available for the payment of dividends, provided that no dividends may be paid on the Common Stock unless all accrued and unpaid dividends on all Preferred Stock are paid. (2) In the event of the dissolution of the Corporation, whether voluntary or involuntary, the holders of Common Stock shall be entitled to share ratably in the distribution of the assets of the Corporation after payment or provision for payment of such amounts as the holders of Preferred Stock shall be entitled to receive. (3) Except as provided in Section (c)(1) of Article FOURTH hereof, and as otherwise required by law, all shares of Common Stock shall have equal voting rights and shall have one vote, in person or by proxy, for each share thereof held. (c) The holders of the Class B Common Stock shall have the following rights: (1) Each share of Class B Common Stock shall be entitled to two votes per share in the election of directors and on any other matter presented to the shareholders. (2) The Class B Common Stock is exchangeable into two Units, each consisting of one share of Class A Common Stock and one Class A Purchase Warrant entitling the holder to purchase one share of Class A Common Stock at a purchase price of $9.00 per share, subject to adjustment, 90 days after the date on which this Amended and Restated Certificate of Incorporation is filed with the Secretary of State of the State of Delaware, or any earlier date that H.J. Meyers & Co., Inc., as underwriter in the initial public offering of the Common Stock of the Company, in its sole discretion so elects. This conversion privilege shall expire at 5:00 p.m., New York City time, on the first anniversary of the date on which this Amended and Restated Certificate of Incorporation is filed with the Security of State of the State of Delaware. A-1 (d) The Class A Preferred Stock shall have the following rights, preferences, privileges and restrictions: (1) The holder of shares of Class A Preferred Stock shall not be entitled to vote with respect to the election of directors or on any other matter submitted to stockholders, unless required by law. (2) Each share of the Class A Preferred Stock is convertible into Class A Common Stock of the Company at any time until 5:00 p.m. New York City time, on the first anniversary of the date on which this Amended and Restated Certificate of Incorporation is filed with the Secretary of State of the State of Delaware. (3) In the event of a liquidation or dissolution of the Corporation, the rights of the holders of the Corporation's Common Stock are subordinate to the rights of the holders of the Class A Preferred Stock. (e) The Class B Preferred Stock shall have the following rights, preferences, privileges and restrictions: (1) Rank. The Class B Preferred Stock shall, with respect to liquidation, rank senior to all classes and series of capital stock of the Corporation now or hereafter authorized, issued or outstanding, including, without limitation, any preferred stock of the Corporation or common stock, and/or any other class and series of stock of the Corporation now or hereafter authorized, issued or outstanding (collectively, the "Junior Securities"). In addition, the Corporation will not issue any class or series of any class or capital stock which ranks pari passu with the Class B Preferred Stock with respect to rights on liquidation, and winding-up or dissolution of the Corporation. (2) Dividends. A. The holders of the Class B Preferred Stock shall be entitled to receive out of any assets legally available therefor cumulative dividends at the per share rate of five percent (5%) of U.S. $15.00 (the "Stated Value") for each share of Class B Preferred Stock, per annum, payable annually on December 31 of each year, commencing December 31, 1999 (each a "Dividend Payment Date"), or if earlier, upon conversion of shares of Class B Preferred Stock, in preference and priority to any payment of any dividend on any Junior Security. Such dividends shall accrue on any given share from January 1, 1999 and thereafter from the most recent date on which a dividend has been paid with respect to such share, or if no dividends have been paid, from January 1, 1999, and such dividends shall accrue from day to day whether or not declared, based on the actual number of days elapsed. If at any time dividends on outstanding shares of Class B Preferred Stock at the rate set forth above shall not have been paid or declared and set apart for payment with respect to all preceding periods, the amount of the deficiency shall be fully paid or declared and set apart for payment, but without interest, before any distribution, whether by way of dividend or otherwise, shall be declared or paid upon or set apart for the shares of any class of Junior Security. B. In the event the Corporation shall declare a dividend or other distribution payable in something other than shares of Common Stock, then, in each such case, the holders of the Class B Preferred Stock shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock of the Corporation into which their shares of Class B Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock of the Corporation entitled to receive such distribution. The Corporation may not redeem, purchase or otherwise acquire, Junior Securities, unless and until all shares of Class B Preferred Stock are no longer outstanding, except for the redemption of the Company's Class A Purchase Warrants. (3) Liquidation, Dissolution or Winding Up, Etc. In the event of any voluntary or involuntary liquidation (including a sale by the Corporation of all or substantially all of its assets), dissolution or winding up of the Corporation, the assets of the Corporation available for distribution to shareholders, whether from capital, surplus or earnings, shall be distributed in the following order of priority: (i) The holders of Class B Preferred Stock shall be entitled to receive, prior and in preference to any distribution to the holders of any Junior Securities an amount equal to the greater of (A) the Stated Value for each share of Class B Preferred Stock then outstanding plus all accrued and unpaid dividends A-2 thereon, or (B) the amount the holders of Class B Preferred Stock would have received had they converted the Class B Preferred Stock into Common Stock as provided herein in Section (5) of paragraph (e) of Article FOURTH hereof, on the business day immediately prior to the voluntary or involuntary liquidation. (ii) If there is a distribution pursuant to the preceding Section (3)A(i), the remaining assets of the Corporation available for distribution, if any, to the shareholders of the Corporation shall be distributed to the holders of Junior Securities. (4) Voting Rights. The holders of the Class B Preferred Stock shall vote with the holders of Common Stock on all matters presented to the holders of Common Stock for a vote as if all the shares of Class B Preferred Stock have been converted as of the applicable record date, such that a holder of Class B Preferred Stock will be entitled to one vote for every whole share of Common Stock into which his or her Class B Preferred Stock is convertible and, to the extent required by applicable law, shall also be entitled to vote as a separate class. (5) Conversion of Class B Preferred Stock. A. Right to Convert. The holders of Class B Preferred Stock shall have the right, at each holders' option, at any time or from time to time, to convert any or all of such holders' shares of Class B Preferred Stock into such number of shares of Class A Common Stock ("Converted Shares") as is determined by dividing (i) the Stated Value times the number of shares of Class B Preferred Stock being converted, by (ii) a conversion price of (x) $15.00, subject to adjustment as hereinafter provided (the "Conversion Price"). B. Mechanics of Conversion. Before any holder of Class B Preferred Stock shall be entitled to convert the same into Converted Shares, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Class B Preferred Stock, and shall give written notice to the Corporation at its principal corporate office, of the election to convert the same and shall state therein the name or names in which the certificate or certificates for Converted Shares are to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Class B Preferred Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of Converted Shares to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Class B Preferred Stock to be converted, and the person or persons entitled to receive the Converted Shares shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date. C. No Fractional Shares. The Corporation shall not be required to issue fractions of Converted Shares. If any fractions of a share would, but for this Section, be issuable upon any conversion of Class B Preferred Stock, in lieu of such fractional share the Corporation will round up to the next whole Converted Share and issue the next whole share of Common Stock to the holder. D. Reservation of Shares. The Corporation shall reserve and shall at all times have reserved from its authorized but unissued shares of Common Stock sufficient shares of Common Stock to permit the conversion of the then outstanding shares of the Class B Preferred Stock pursuant to Section (5) of paragraph (e) of Article FOURTH hereof. All Converted Shares shall be validly issued, fully paid and nonassessable. E. Conversion Price Adjustments of Class B Preferred Stock. The Conversion Price in effect at any time for conversion of Class B Preferred Stock into Common Stock pursuant to Section (5) of paragraph (e) of Article FOURTH hereof shall be subject to adjustment from time to time as follows: (i) Additional Outstanding Shares. If the Corporation shall, after the date upon which any shares of Class B Preferred Stock are first issued ("Issue Date"), fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution A-3 payable in additional shares of Common Stock without payment of any consideration by such holder for the additional shares of Common Stock, then, as of such record date (or the date of such dividend distribution, split or subdivision if no record date is fixed), the Conversion Price of the Class B Preferred Stock shall be appropriately decreased so that the number of Conversion Shares issuable on conversion of each share of such Class B Preferred Stock shall be increased in proportion to such increase in the aggregate number of shares of Common Stock outstanding. (ii) Decrease of Outstanding Shares. If the number of shares of Common Stock outstanding at any time after the Issue Date is decreased by a combination of the outstanding shares of Common Stock or otherwise, then, following the record date of such combination or other event, the Conversion Price for the Class B Preferred Stock shall be appropriately increased so that the number of shares of Converted Stock issuable on conversion of each share of such Class B Preferred Stock shall be decreased in proportion to such decrease in the aggregate number of shares of Common Stock outstanding. (iii) Recapitalization. If at any time or from time to time there shall be a reclassification of the Common Stock (other than a subdivision or combination provided for in clauses (i) or (ii) above) or any reorganization, consolidation or merger of the Corporation with or into another corporation (other than a merger or reorganization with respect to which the Corporation is the continuing corporation and which does not result in any reclassification of the Common Stock), or a transfer of all or substantially all of the assets of the Corporation, or the payment of a liquidating distribution then, as part of any such reorganization, reclassification, consolidation, merger, sale or liquidating distribution, lawful provision shall be made so that the holders of the Class B Preferred Stock shall thereafter be entitled to receive, upon conversion of the Class B Preferred Stock, the kind and amount of shares of stock or other securities or property which such holder of Class B Preferred Stock would have been entitled to receive if, immediately prior to any such reorganization, reclassification, consolidation, merger, sale or liquidating distribution, as the case may be, such holder of Class B Preferred Stock had held the number of shares of Common Stock which were then deliverable upon conversion. In any such case, appropriate adjustment shall be made in the application of the provisions of Section (5) of paragraph (e) of Article FOURTH hereof with respect to the rights of the holders of the Class B Preferred Stock thereafter to the end that the provisions of Section (5) of paragraph (e) of Article FOURTH hereof (including adjustment of the Conversion Price then in effect and the number of Converted Shares issuable upon conversion of the Class B Preferred Stock) shall be applicable after that event as nearly equivalent as may be practicable. F. No Impairment. The Corporation will not, by amendment of its Certificate of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of Section (5) of Paragraph (e) of Article FOURTH hereof and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Class B Preferred Stock against impairment. G. Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price of Class B Preferred Stock pursuant to Section (5)E of Paragraph (e) of Article FOURTH hereof, the Corporation, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Class B Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Class B Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (A) such adjustment and readjustment, (B) the Conversion Price for such Class B Preferred Stock at the time in effect, and (C) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of a share of Class B Preferred Stock. A-4 H. Notices of Record Date. In the event of any setting by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Corporation shall mail to each holder of Class B Preferred Stock, at least twenty (20) days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right. I. Notices. Any notice required by the provisions of Section (5) of Paragraph (e) of Article FOURTH hereof to be given to the holders of shares of Class B Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his address appearing on the books of this Corporation. J. Cancellation. In the event any shares of Class B Preferred Stock shall be converted pursuant to Section (5) of Paragraph (e) of Article FOURTH hereof, the shares so converted shall be canceled and returned to the status of authorized and unissued shares of preferred stock, without any class designation. (f) The Board of Directors is authorized, subject to limitations prescribed by law and the provisions of this Article FOURTH, to provide for the issuance of the shares of Preferred Stock in series, and by filing a certificate pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof. The holders of shares of the Preferred Stock of each such series shall be entitled to receive, when and as declared by the Board of Directors, out of funds legally available for the payment of dividends, dividends (if any) at the rates fixed by the Board of Directors for such series, and no more, before any cash dividends shall be declared and paid, or set apart for payment, on the Common Stock with respect to the same dividend period. The holders of shares of the Preferred Stock of each such series shall be entitled upon liquidation or dissolution or upon the distribution of the assets of the Corporation to such preferences as provided in the resolution or resolutions creating such series of Preferred Stock, and no more, before any distribution of the assets of the Corporation shall be made to the holders of shares of the Common Stock. Whenever the holders of shares of the Preferred Stock of each such series shall have been paid the full amounts to which they shall be entitled, the holders of shares of the Common Stock shall be entitled to share ratably in all remaining assets of the Corporation. The authority of the Board of Directors with respect to each such series shall include, but not be limited to, the determination or fixing of the following: (1) The distinctive designation and number of shares comprising such series, which number may (except where otherwise provided by the Board of Directors in creating such series) be increased or decreased (but not below the number of shares then outstanding) from time to time by like action of the Board of Directors; (2) The dividend rate of such series, the conditions and time upon which such dividends shall be payable, the relation which such dividends shall bear to the dividends payable on any other class or classes of stock or series thereof, or any other series of the same class, and whether such dividends shall be cumulative or non-cumulative; (3) The conditions upon which the shares of such series shall be subject to redemption by the Corporation and the times, prices and other terms and provisions upon which the shares of the series may be redeemed including the date or date upon or after which they may be redeemed, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; (4) Whether or not the shares of the series shall be subject to the operation of a retirement or sinking fund to be applied to the purchase or redemption of such shares and, if such retirement or sinking fund be established, the annual amount thereof and the terms and provisions relative to the operation thereof; A-5 (5) Whether or not the shares of the series shall be convertible into or exchangeable for shares of any other class or classes, with or without par value, or of any other series of the same class, and, if provision is made for conversion or exchange, the times, prices, rates, adjustments, and other terms and conditions of such conversion or exchange as the Board of Directors shall determine; (1) Whether or not the shares of the series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; (2) The rights of the shares of the series in the event of voluntary or involuntary liquidation, dissolution or the winding up of the Corporation, and the relative rights of priority, if any, of payment of shares of that series; (3) Any other powers, preferences and relative participating, optional or other special rights, and qualifications, limitations or restrictions thereof, of the shares of such series, as the Board of Directors may deem advisable and as shall not be inconsistent with the provisions of this Certificate of Incorporation. FIFTH: The Corporation is to have perpetual existence. SIXTH: New By-laws may be adopted or the By-laws may be amended or repealed by a vote of holders of two-thirds (66-2/3%) of the outstanding stock of the Corporation entitled to vote thereon. By-laws may also be adopted, amended or repealed by resolutions adopted by the affirmative vote of a majority of the directors and as provided or permitted by law; provided, however, that (a) the Board of Directors may not repeal or amend a Bylaw adopted by the shareholders; and (b) any By-law amendment adopted, amended or repealed by the Board of Directors increasing or reducing the authorized number of directors shall require a resolution adopted by the affirmative vote of not less than two-thirds (66-2/3%) of the directors. SEVENTH: (a) The number of directors of the Corporation shall be the number fixed from time to time in the manner provided by the By-laws of the Corporation, pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time such resolution in presented to the Board for adoption), but in no event shall such number be fewer than three (3) nor more than ten (10). (b) The Board of Directors shall be divided into three classes with each class to be as nearly equal in number as possible, with the term of office of the first class to expire at the first annual meeting of stockholders held after the annual or special meeting of stockholders at which the Board is first classified, the term of office of the second class to expire at the second annual meeting of stockholders held after the annual or special meeting of stockholders at which the Board is first classified and the term of office of the third class to expire at the third annual meeting of stockholders held after the annual or special meeting of stockholders at which the Board is first classified. At each annual meeting following that at which the Board is initially classified and elected in three classes, directors elected to succeed those directors whose terms expire shall be elected for a term expiring at the third succeeding annual meeting of stockholders after their election, and until their successors shall be elected and qualified. No increase in the number of directors shall shorten the term of any incumbent director. (c) Except as otherwise fixed pursuant to the provisions of Article SEVENTH hereof, newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause may be filled (i) by the affirmative vote of a majority of the remaining directors then in office even though less than a quorum of the Board of Directors, or by a sole remaining director, or (ii) by the affirmative vote of the holders of at least two thirds (66-2/3%) of the total voting power of all outstanding shares of stock entitled to vote generally in the election of directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the directorship for which the vacancy occurred and until such director's successor shall have been elected and qualified. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent directors. (d) Except as otherwise fixed pursuant to the provisions of Article SEVENTH hereof, any director, or the entire Board of Directors, may be removed from office at any time only for cause and only (i) by the affirmative vote of the holders of not less than two-thirds (66- 2/3%) of the total voting power of all outstanding shares of A-6 stock entitled to vote generally in the election of directors, voting together as a single class, or (ii) by action of the Board of Directors. EIGHTH: A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived any improper personal benefit. The Corporation shall indemnify any and all of its directors or officers or former directors, or officers or any person who may have served at its request as a director or officer of another corporation in which it owns shares of capital stock or of which it is a creditor, against expenses actually and necessarily incurred by them in connection with the defense of any action, suit or proceeding, civil or criminal, in which they, or any of them, are made parties, or a party, by reason of being or having been directors or officers or a director or officer of the Corporation, or of such other corporation, except in relation to matters as to which any such director or officer or former director or officer or person shall be adjudged in such action, suit or proceeding, civil or criminal, to be liable for any breach of the director's duty of loyalty to the Corporation or its stockholders, for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, under section 174 of the General Corporation Law of Delaware or for any transaction from which such officer or director derived an improper benefit. Such indemnification shall not be deemed exclusive of any other rights to which those hereby indemnified may be entitled, under any By-law, agreement, vote of stockholders or otherwise. NINTH: No holder of any share or shares of any class of stock of the Corporation shall have any preemptive right to subscribe for any shares of stock of any class of the Corporation now or hereafter authorized or for any bonds, debentures, or other evidences of indebtedness whether or not convertible into or exchangeable for shares of stock of any class or for any securities, warrants or options convertible into or carrying any rights to purchase any shares of stock of any class of the Corporation now or hereafter authorized; provided, however, that no provision of this Certificate of Incorporation shall be deemed to deny to the Board of Directors the right, in its discretion, to grant to its employees and to the holders of shares of any class of stock at the time outstanding the right to purchase or subscribe for shares of stock of any class or any other securities or any evidence of indebtedness of the Corporation now or hereafter authorized, at such prices and upon such other terms and conditions as the Board of Directors, in its discretion, may fix. TENTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred on stockholders herein are granted subject to this reservation. Notwithstanding the foregoing, the provisions set forth in Articles FIFTH, SIXTH, SEVENTH, EIGHTH and this Article TENTH may not be repealed or amended in any respect unless such repeal or amendment is approved by the affirmative vote of the holders of not less than two thirds (66 2/3%) of the total voting power of all outstanding shares of voting stock entitled to vote generally in the election of directors, voting as a single class. IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation has been duly executed by the Corporation as of the day of , 1998. NORTH ATLANTIC ACQUISITION CORP. By: ---------------------------------- Name: Title: A-7 ANNEX V MOTO GUZZI CORPORATION 1998 STOCK OPTION PLAN A-V-1 MOTO GUZZI CORPORATION 1998 STOCK OPTION PLAN ARTICLE 1 ESTABLISHMENT AND PURPOSES 1.1 Establishment and Effective Date. Moto Guzzi Corporation, a Delaware corporation (the "Corporation"), hereby establishes a stock option plan to be known as the Moto Guzzi Corporation 1998 Stock Option Plan (the "Plan"). The Plan shall become effective as of July 23, 1998, subject to the approval of the stockholders of the Corporation (which is to be obtained within twelve (12) months from the effective date of the Plan). Upon approval of the Plan by the Board of Directors of the Corporation (the "Board"), awards may be made through the agency of the committee appointed by the Board under Article 3 of the Plan (the "Committee"). In the event that such stockholder approval is not obtained within such 12 month period, any awards made hereunder shall be canceled and all rights of optionees hereunder ("Optionees") with respect to such awards shall thereupon automatically cease. 1.2 Purposes. The purposes of the Plan are (i) to encourage and enable employees, directors and consultants (subject to such requirements as may be prescribed by the Committee) of the Corporation, its subsidiaries and its affiliates to acquire a proprietary interest in the growth and performance of the Corporation, (ii) to generate an increased incentive for key employees, directors and consultants to contribute to the Corporation's future success and prosperity (as well as the success and prosperity of its subsidiaries and affiliates), thus enhancing the value of the Corporation for the benefit of its stockholders, and (iii) to enhance the ability of the Corporation, its subsidiaries and its affiliates to attract and retain key employees, directors and consultants who are essential to the progress, growth and profitability of the Corporation, its subsidiaries and its affiliates, in each case through the ownership of the Corporation's common stock ("Common Stock"), and certain other rights relating to the Common Stock. 1.3 References to Law. References to specific provisions of law shall be deemed to include references to amendments or supplements thereto or subsequent provisions of law of similar import. ARTICLE 2 AWARDS 2.1 Form of Awards. Awards under the Plan may be granted in either or both of the following forms: (i) incentive stock options ("Incentive Stock Options") meeting the requirements of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") and the terms of Sections 5.3 and 5.7 of this Plan.; and (ii) non-qualified stock options ("Non-qualified Stock Options") (unless otherwise indicated, references in the Plan to "Options" shall include both Incentive Stock Options and Non-qualified Stock Options). 2.2 Maximum Shares Available; Maximum Annual Awards. The maximum aggregate number of shares of Common Stock available for award under the Plan (pursuant to the granting of Options) is 1,250,000, subject to adjustment pursuant to Article 8 hereof. The maximum aggregate number of shares of Common Stock that may be awarded under the Plan (pursuant to the granting of Options) to any individual during any calender year is 210,000, subject to the limitations of Section 5.7 as to Incentive Stock Options and also subject to adjustment pursuant to Article 8 hereof. Shares of Common Stock issued under the Plan (pursuant to the granting of Options) may be either authorized but unissued shares or issued shares reacquired by the Corporation. In the event that prior to the end of the period during which Options may be granted under the Plan, any Option under the Plan expires unexercised or is terminated, surrendered or canceled without being exercised in whole or in part for any reason, then such unexercised shares shall be available for subsequent awards under the Plan upon such terms and conditions as the Committee may determine. 2.3 Return of Prior Awards. As a condition to any subsequent award to an Optionee under the Plan, the Committee shall have the right, in its sole discretion, to require the Optionee to return to the Corporation awards previously granted under the Plan. Subject to the provisions of the Plan, such new award shall be upon such terms and conditions as are specified by the Committee at the time the new award is granted. A-V-2 ARTICLE 3 ADMINISTRATION 3.1 Committee. Awards of Options shall be determined, and the Plan shall be administered by the Committee. The Committee shall be appointed from time to time by the Board and shall serve at the pleasure of the Board. The Committee shall consist solely of two or more persons, each of whom shall qualify as (i) a "Non-Employee Director", as that term is defined in subparagraph (b)(3)(i) of Rule 16b-3 ("Rule 16b-3") promulgated under the Securities Exchange Act of 1934, as amended (the "1934 Act"), and (ii) an "outside director", within the meaning of Section 162(m) of the Code. 3.2 Powers of the Committee. Subject to the express provisions of the Plan, the Committee shall have the power and authority: (i) to grant Options and to determine the purchase price of the shares of Common Stock covered by each Option, the term of each Option, the number of shares of Common Stock to be covered by each Option, the time or times at which each Option shall become exercisable and the duration of the exercise period applicable to each Option; (ii) to designate Options as Incentive Stock Options or Non-qualified Stock Options; (iii) to determine the employees, directors and consultants to whom, and the time or times at which, Options shall be granted or made and; and (iv) to take all other actions contemplated to be taken by the Committee under the Plan, including, but not limited to, interpreting the Plan and authorizing any written agreement relating to any award made hereunder, as well as any amendment thereto. Notwithstanding the foregoing, (i) any acceleration of vesting as set forth herein, (ii) any change in the purchase price per share of Common Stock under an Option and (iii) any change in any of the provisions of any Option after such Option has been granted, if effectuated by the Committee, must be approved by the Board, in addition to the Committee. 3.3 Delegation. The Committee may delegate to one or more of its respective members or to any other person or persons such ministerial duties hereunder as it may deem advisable; PROVIDED, HOWEVER, that the Committee may not delegate any of its responsibilities hereunder to any person who is not both a "Non-Employee Director", as that term is defined in subparagraph (b)(3)(i) of Rule 16b-3, and an "outside director", within the meaning of Section 162(m) of the Code. The Committee may also employ attorneys, consultants, accountants or other professional advisors and shall be entitled reasonably to rely upon the advice opinions or valuations of any such advisors. 3.4 Interpretations. The Committee shall have discretionary authority to interpret the terms of the Plan, to adopt and revise rules, regulations and policies to administer the Plan and to make any other factual determinations which it believes to be necessary or advisable for the administration of the Plan. All actions taken and interpretations and determinations made by the Committee in good faith shall be final and binding upon the Corporation, all Optionees and all other interested persons. 3.5 Liability; Indemnification. No member of the Board or the Committee, nor any person to whom ministerial duties have been delegated, shall be personally liable for any action, interpretation or determination made with respect to the Plan or awards made thereunder, and each member of the Committee shall be fully indemnified, held harmless and protected by the Corporation with respect to any liability he or she may incur with respect to any such action, interpretation or determination, to the extent permitted by applicable law and, in addition, to the extent provided in the Corporation's articles of incorporation and by-laws, as amended from time to time, or under any agreement between any such member and the Corporation. ARTICLE 4 ELIGIBILITY Awards may be made to all full-time or part-time employees and all directors of and all consultants to the Corporation or any of its subsidiaries or affiliates (subject to such requirements as may be prescribed by the Committee). In determining the employees, directors and consultants to whom awards shall be granted and the number of shares of Common Stock to be covered by each award the Committee shall take into account the nature of the services rendered by such employees, directors and consultants, their present and potential contributions to the success of the Corporation, its subsidiaries and its affiliates and such other factors as the Committee in its sole discretion shall deem relevant. Notwithstanding the foregoing, only employees of the Corporation and any corporation which is a "subsidiary corporation" of the Corporation (as such term is defined in Section 424(f) of the Code) shall be eligible to receive Incentive Stock Options. A-V-3 ARTICLE 5 STOCK OPTIONS 5.1 Grant of Options. Options may be granted under the Plan for the purchase of shares of Common Stock. Options shall be granted in such form and upon such terms and conditions, including the satisfaction of corporate or individual performance objectives and other vesting standards as the Committee shall from time to time determine. 5.2 Designation as Non-qualified Stock Option or Incentive Stock Option. In connection with any grant of Options, the Committee shall designate in the written agreement required pursuant to Article 10 hereof whether the Options granted shall be Incentive Stock Options or Non-qualified Stock Options, or in case both are granted, the number of shares of Common Stock of each. 5.3 Purchase Price. The purchase price per share of Common Stock under each Incentive Stock Option shall be not less than the Market Price (as hereinafter defined) of the Common Stock on the date the Incentive Stock Option is granted. The purchase price per share of Common Stock under each Non-Qualified Stock Option shall be determined by the Committee. In the case of an Incentive Stock Option granted to an Optionee owning (actually or constructively under Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Corporation or of a subsidiary (a "10% Stockholder"), the purchase price shall not be less than 110% of the Market Price of the Common Stock on the date of grant. "Market Price" shall mean the per share value of the Common Stock and shall be determined as follows: (i) if the Common Stock is not listed on a national stock exchange, quoted on NASDAQ or reported on by the National Quotation Bureau, Inc., the Market Price on any day shall be the fair market value of one share of Common Stock on such day as determined by the Committee, which shall take into account any valuation of the Common Stock by an independent valuation firm made within 90 days of such determination; (ii) if the Common Stock is listed on a national securities exchange or quoted through the NASDAQ National Market System, the Market Price on any day shall be, in the sole discretion of the Committee, either (x) the average of the high and low reported consolidated trading sales prices, or if no such sale is made on such day, the average of the closing bid and asked prices reported on the consolidated trading listing for such day or (y) the closing price reported on the consolidated trading listing for such day; (iii) if the Common Stock is quoted on the NASDAQ interdealer quotation system, the Market Price on any day shall be the average of the representative bid and asked prices at the close of business for such day; or (iv) if the Common Stock is not listed on a national stock exchange or quoted on NASDAQ, the Market Price on any day shall be the average of the high bid and low asked prices reported by the National Quotation Bureau, Inc. for such day. In no event shall the Market Price of a share of Common Stock subject to an Incentive Stock Option be less than the fair market value as determined for purposes of Section 422(b)(4) of the Code. 5.4 Exercise and Payment. Options may be exercised in whole or in part. Shares of Common Stock purchased upon the exercise of Options shall be paid for at the time of purchase. Such payment may be made as follows (or by any combination of the following), in the sole discretion of the Committee: (i) in United States currency by delivery of a certified check, bank draft or postal or express money order payable to the order of the Corporation, (ii) by surrender of a number of Mature Shares (as defined below) of Common Stock held by the optionee exercising the Option equal to the quotient obtained by dividing (A) the aggregate purchase price payable with respect to the Options then being exercised by (B) the Market Price on the date of exercise or (iii) if the Corporation has established a program for the cashless exercise of Options through a broker or other similar arrangements or programs, then in accordance with the terms and conditions of such programs and arrangements. Any shares so delivered shall be valued at their Market Price on the date of exercise. Upon receipt of a notice of exercise and payment in accordance with procedures set forth above, the Corporation or its agent shall deliver to the persons exercising the Option(s) (or his or her designee) a certificate for such Shares. In the event that payment for exercised Options is made through the surrender of Mature Shares of Common Stock, the Committee in accordance with procedures established by it may grant Non-qualified Stock Options ("Restoration Options") to the person exercising the Option(s) for the purchase of a number of shares equal to the number of shares of Common Stock delivered to the Corporation in connection with the payment of the exercise price of the Option(s) and the payment of or surrender of shares for any withholding taxes due upon such exercise. The purchase price per share under each Restoration Option shall be the Market Price of the Common Stock on the date the Restoration Option is granted. "Mature Shares" shall mean shares of Common Stock owned by the A-V-4 optionee for a period of at least six consecutive months prior to the exercise of the Option(s) in question. The Committee may in its sole discretion, pursuant to a general program established by it in connection with the Plan and made available to all Optionees under the Plan, lend money to an optionee, the proceeds of which shall be used by the Optionee to exercise all or a portion of the Options granted hereunder. If a loan is made by the Corporation to the Optionee as contemplated in the foregoing sentence, the Optionee shall execute a promissory note evidencing such loan and such note shall (i) provide for full recourse to the maker, (ii) be secured by collateral which is satisfactory to the Committee (other than the pledge of the shares of Common Stock issued upon exercise of the option), (iii) bear interest at a rate no less than the applicable Federal rate (within the meaning of Section 1274 of the Code, and (iv) contain such other terms as the Committee in its sole discretion shall require. 5.5 Vesting. Options granted to Optionees shall vest in whole when granted or in such number of periodic installments as the Committee may establish. 5.6 No Rights as a Stockholder. A recipient of Options shall have no rights as a stockholder with respect to any shares issuable or transferable upon exercise thereof until the date a stock certificate representing such shares is issued to such recipient. Except as otherwise expressly provided in the Plan or by the Committee, no adjustment shall be made for cash dividends or other rights for which the record date is prior to the date such stock certificate is issued. 5.7 Incentive Stock Options. The terms of any Incentive Stock Option granted under the Plan shall comply in all respects with the provisions of Section 422 of the Code, or any successor provision thereto, and any regulations promulgated thereunder and the Plan shall be interpreted accordingly. The aggregate Market Price (determined at the time of grant of the Incentive Stock Option) of the Common Stock with respect to which the Incentive Stock Options become exercisable for the first time by an optionee in any calendar year (under all plans of the Corporation and its subsidiaries) shall not exceed $100,000. Any Option grants that exceed such amount shall be granted as Non-qualified Options. No grant of an Incentive Stock Option shall be made under the Plan more than ten (10) years after the effective date of the Plan, nor shall any Incentive Stock Option be exercisable after the expiration of ten (10) years from the date such Option is granted, or 5 years from the date the Option is granted in the case of a 10% Stockholder (as defined in Section 5.3). 5.8 Conversion of Incentive Stock Options. The Committee, at the written request of any Optionee, may in its discretion, take such actions as may be necessary to convert such Optionee's Incentive Stock Options (or any portions thereof) that have not been exercised on the date of conversion into Non-qualified Options at any time prior to the expiration of such Incentive Stock Options. At the time of such conversion, the Committee may impose such conditions on the exercise of the resulting Non-qualified Options, consistent with this Plan, as the Committee in its discretion may determine. Nothing in the Plan shall be deemed to give any Optionee the right to have such Optionee's Incentive Stock Options converted into Non-qualified Options. ARTICLE 6 NONTRANSFERABILITY OF OPTIONS No Option may be transferred, assigned, pledged or hypothecated (whether by operation of law or otherwise), except as provided by will or the applicable laws of descent and distribution, and no Option shall be subject to execution, attachment or similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition of an Option not specifically permitted herein shall be null and void and without effect. An Option may be exercised only by the recipient during his or her lifetime, or following his or her death pursuant to Section 7.3 hereof. Notwithstanding anything to the contrary in the preceding paragraph, the Committee may, in its sole discretion, cause the written agreement relating to any Non-qualified Stock Options granted hereunder to provide that the recipient of such Non-qualified Stock Options may transfer any of such Non-qualified Stock Options other than by will or the laws of descent and distribution in any manner authorized under applicable law; PROVIDED, HOWEVER, that in no event may the Committee permit any transfers which would cause the Plan to fail to satisfy the applicable requirements of Rule 16b-3 under the 1934 Act or which would cause any recipient of awards hereunder to fail to be entitled to the benefits Rule 16b-3 or other exemptive rules under Section 16 of the 1934 Act or be subject to liability thereunder. A-V-5 ARTICLE 7 EFFECT OF TERMINATION OF EMPLOYMENT, DISABILITY, RETIREMENT, OR DEATH 7.1 General Rule. Except as expressly provided in the written agreement relating to any Option or as otherwise expressly determined by the Committee in its sole discretion, in the event an Optionee ceases to be an employee or director of the Corporation, its subsidiaries or affiliates (a "Terminated Person") for any reason other than Disability or Retirement (as hereinafter defined) or death, any Options which were held by such Terminated Person on the date on which he or she ceased to be an employee or director (the "Termination Date") and which were otherwise exercisable on such date shall terminate unless exercised within the period of 60 days following the Termination Date, but in no event after the expiration of the exercise period of such Options. Except as expressly provided in the written agreement relating to the Options or as otherwise expressly determined by the Committee in its sole discretion, it may cause any Option to be forfeited upon an employee's termination of employment or a director's removal from the Board or any board of directors of a subsidiary or affiliate of the Corporation, or termination of a consultant's engagement by the Corporation or any subsidiary or affiliate of the Corporation if the Optionee was terminated for "cause". For purposes of this Section 7.1, the term "cause" shall mean any one (or more) of the following: (i) the Optionee's commission of any fraud, misappropriation or misconduct which causes demonstrable injury to the Corporation or a subsidiary or affiliate; or (ii) an act of dishonesty by the Optionee resulting or intended to result, directly or indirectly, in gain or personal enrichment at the expense of the Corporation or a subsidiary or affiliate; or (iii) in the case of an employee or consultant such meaning, if any, as set forth in any employment agreement or consulting agreement between the employee or the consultant, respectively, and the Corporation. It shall be within the sole discretion of the Committee to determine whether an employee's termination was for one of the foregoing reasons, and its decision shall be final and conclusive. 7.2 Disability or Retirement. Except as expressly provided otherwise in the written agreement relating to any Options granted under the Plan or as otherwise determined by the Committee in its sole discretion, in the event of a termination of employment arrangement of a Terminated Person due to the Disability (as defined below) or Retirement (as defined below) of such Person, any Options which were held by such Person on the Termination Date and which were otherwise exercisable on such date shall expire unless exercised within the period of 365 days following such date, but in no event after the expiration date of the exercise period of such Options; PROVIDED, HOWEVER, that any Incentive Stock Option of such Terminated Person shall no longer be treated as an Incentive Stock Option unless exercised within three (3) months of the Termination Date (or within one (1) year of the Termination Date, in the case of an employee whose termination of employment occurs by reason of a Disability). "Disability" shall have the meaning set forth in Section 22(e)(3) of the Code. "Retirement" shall mean a termination of employment or consulting arrangement with the Corporation or a subsidiary or affiliate with the written consent of the Committee in its sole discretion. The decision of the Committee shall be final and conclusive. 7.3 Death. Except as expressly provided in the written agreement relating to the Options or as otherwise expressly determined by the Committee in its sole discretion, in the event of the death of a recipient of Options, any Options which were held by such Terminated Person at the date of death and which were otherwise exercisable on such date shall be exercisable by the beneficiary designated by the Optionee for such purpose (the "Designated Beneficiary") or if no Designated Beneficiary shall be appointed or if the Designated Beneficiary shall predecease the Optionee, by the Optionee's personal representatives, heirs or legatees for a period of two (2) years from the date of death, but in no event later than the expiration date of the exercise period of such Options, at which time such Options shall expire. 7.4 Termination of Unvested Options. All Options which were not exercisable by a Terminated Person as of the Termination Date of such Terminated Person shall terminate as of such date, except as expressly provided in the written agreement relating to the Options or as otherwise expressly determined by the Committee in its sole discretion. Options shall not be affected by any change of employment so long as the recipient continues to be employed by either the Corporation or a subsidiary or affiliate. A-V-6 ARTICLE 8 ADJUSTMENT UPON CHANGES IN CAPITALIZATION, ETC. 8.1 Adjustments. Upon the occurrence of any of the events described in subparagraphs 8.2, 8.3 or 8.4, an Optionee's rights with respect to Options shall be adjusted as and to the extent hereinafter required, unless otherwise specifically provided in the written agreement between the Optionee and the Corporation relating to such Option. 8.2 Stock-dividends and Stock Splits. If the shares of Common Stock shall be subdivided or combined into a greater or smaller number of shares or if the Corporation shall issue any shares of Common Stock as a stock dividend on its outstanding Common Stock, the number of shares of Common Stock deliverable upon the exercise of Options shall be appropriately increased or decreased proportionately and appropriate adjustments shall be made in the purchase price per share to reflect such subdivision, combination or stock dividend. 8.3 Consolidation, Acquisition or Merger. If the Corporation is to be consolidated with or acquired by another entity in a merger, sale of all or substantially all of the Corporation's assets or otherwise (an "Acquisition"), the Committee or the board of directors of any entity assuming the obligations of the Corporation hereunder (the "Successor Board"), shall, as to outstanding Options, either (i) make appropriate provision for the continuation of such Options by substitution on an equitable basis for the shares then subject to such Options the consideration payable with respect to the outstanding shares of Common Stock in connection with the Acquisition; (ii) upon written notice to the Optionees, provide that all Options must be exercised, to the extent then exercisable (or in the discretion of the Committee or the Successor Board, also provide that all unvested options shall be, or become at the time which the Committee shall determine, either immediately exercisable or immediately terminate), within a specified number of days of the date of such notice, at the end of which period the Options shall terminate; or (iii) terminate all Options in exchange for a cash payment or other consideration equal to the excess of the Market Price of the shares subject to such Options (to the extent then exercisable, or in the discretion of the Committee or the Successor Board, whether or not then exercisable) over the exercise price thereof. 8.4 Recapitalization or Reorganization. In the event of a recapitalization or reorganization of the Corporation (other than a transaction described in subparagraph 8.3 above) pursuant to which securities of the Corporation or of another corporation are issued with respect to the outstanding shares of Common Stock, an Optionee upon exercising an Option shall be entitled to receive for the purchase price paid upon such exercise, the securities he would have received if he had exercised his Option immediately prior to such recapitalization or reorganization. 8.5 Modification of ISOs. Notwithstanding the foregoing, any adjustments made pursuant to subparagraphs 8.2, 8.3 or 8.4 with respect to Incentive Stock Options shall be made only after the Committee, after consulting with counsel for the Corporation, determines whether such adjustments would constitute a "modification" of such Incentive Stock Options (as that term is defined in Section 424 of the Code) or would cause any adverse tax consequences for the holders of such Incentive Stock Options. If the Committee determines that such adjustments made with respect to Incentive Stock Options would constitute a modification of such Incentive Stock Options, it may refrain from making such adjustments. 8.6 Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Corporation, each Option will terminate immediately prior to the consummation of such proposed action or at such other time and subject to such other conditions as shall be determined by the Committee. 8.7 Issuances of Securities. Except as expressly provided herein, no issuance by the Corporation of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares subject to Options. No adjustments shall be made for dividends paid in cash or in property other than securities of the Corporation. 8.8 Fractional Shares. No fractional shares shall be issued under the Plan and the Optionee shall receive from the Corporation cash in lieu of such fractional shares. 8.9 Adjustments. Upon the happening of any of the events described in subparagraphs 8.2, 8.3 or 8.4 above, the class and aggregate number of shares set forth in Section 2.2 hereof that are subject to Options which previously have been or subsequently may be granted under the Plan shall also be appropriately adjusted to reflect the events described in such subparagraphs. If changes in the capitalization of the Corporation shall occur A-V-7 other than those referred to above in this Article 8, the Committee shall make such adjustments, if any, in the number of shares covered by each Option and in the per share purchase price as the Committee in its discretion may consider appropriate. The Committee or, if applicable, the Successor Board, shall determine the specific adjustments to be made under this Section 8 and its determination shall be conclusive. ARTICLE 9 TERM; AMENDMENT AND TERMINATION No Option shall be granted under the Plan after the earlier of (i) ten (10) years from the effective date of the Plan, or (ii) the termination of the Plan pursuant to this Article 9. However, unless otherwise expressly provided in the Plan or in an applicable written agreement required pursuant to Article 10, any Option theretofore granted may extend beyond such date, and any authority of the Committee to amend, alter, suspend, discontinue or terminate any such Option, or to waive any conditions or rights under any such Option and the authority of the Board to amend the Plan, shall extend beyond such date. The Board may suspend, terminate, modify or amend the Plan, provided that any amendment that would (i) materially increase the aggregate number of shares which may be issued under the Plan, (ii) materially increase the benefits accruing to Optionees under the Plan, or (iii) materially modify the requirements as to eligibility for participation in the Plan, shall be subject to the approval of the Corporation's stockholders, except that any such increase or modification that may result from adjustments authorized by Article 8 hereof shall not require such stockholder approval. If the Plan is terminated, the terms of the Plan shall, notwithstanding such termination, continue to apply to awards granted prior to such termination. No suspension, termination, modification or amendment of the Plan may, without the consent of the Optionee to whom an award shall theretofore have been granted, adversely affect the rights of such under such award and provided further that if any amendment would require stockholder approval to satisfy the requirements of Rule 16 b-3 under the 1934 Act, then such amendment shall be presented to stockholders for approval, provided however that failure to obtain such approval shall not affect the validity of this Plan or the options granted hereunder. ARTICLE 10 WRITTEN AGREEMENT Each award of Options shall be evidenced by a written agreement containing such restrictions, terms and conditions, if any, as the Committee may require. In the event of any conflict between a written agreement and the Plan, the terms of the Plan shall govern. ARTICLE 11 MISCELLANEOUS PROVISIONS 11.1 Tax Withholding. The Corporation shall have the right to require Optionees or their beneficiaries or legal representatives to remit to the Corporation an amount sufficient to satisfy Federal, state and local withholding tax requirements, or to deduct from all payments under the Plan amounts sufficient to satisfy all withholding tax requirements. Whenever payments under the Plan are to be made to an Optionee in cash, such payments shall be net of any amounts sufficient to satisfy all Federal, state and local withholding tax requirements. The Committee may, in its sole discretion, permit an Optionee to satisfy his or her tax withholding obligations either by (i) surrendering of Common Stock owned by the Optionee or (ii) having the Corporation withhold from shares of Common Stock, or other compensation, otherwise deliverable or payable to the Optionee. Shares of Common Stock surrendered or withheld shall be valued at their Market Price as of the date on which income is required to be recognized for income tax purposes. 11.2 Securities Laws. Each Option granted under the Plan shall be subject to the requirement that, if at any time the Board shall determine, in its sole discretion, that the listing, registration or qualification of the shares of Common Stock issuable or transferable upon exercise thereof upon any securities exchange or under any state or Federal law, including without limitation the Securities Act of 1933, as amended, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such Option or the issue, transfer, or purchase of the shares of Common Stock thereunder, such Option may A-V-8 not be exercised in whole or in part unless such listing, registration, qualification, consent, or approval shall have been effected or obtained free of any conditions not acceptable to the Board. The foregoing shall not be construed to require the Corporation to effect or obtain any such listing, registration, qualification, consent or approval. The Committee may, in connection with the granting of any Option, require the individual to whom the Option is to be granted to enter into an agreement with the Corporation stating that as a condition precedent to each exercise of the Option, in whole or in part, such individual shall if then required by the Corporation, represent to the Corporation in writing that such exercise is for investment only and not with a view to distribution, and also setting forth such other terms and conditions as the Committee may prescribe. 11.3 Compliance with Section 16(b). In the case of Optionees who are or may be subject to Section 16 of the 1934 Act, it is the intent of the Corporation that the Plan and any award granted hereunder satisfy and be interpreted in a manner that satisfies the applicable requirements of Rule 16b-3 so that such persons will be entitled to the benefits of Rule 16b-3 or other exemptive rules under Section 16 of the 1934 Act and will not be subjected to liability thereunder. If any provision of the Plan or any award would otherwise conflict with the intent expressed herein, that provision, to the extent possible, shall be interpreted and deemed amended so as to avoid such conflict. To the extent of any remaining irreconcilable conflict with such intent, such provision shall be deemed void as applicable to Optionees who are or may be subject to Section 16 of the 1934 Act. 11.4 Successors. The obligations of the Corporation under the Plan shall be binding upon any successor corporation or organization resulting from the merger, consolidation or other reorganization of the Corporation, or upon any successor corporation or organization succeeding to all or substantially all of the assets and business of the Corporation. In the event of any of the foregoing, the Committee may, in its discretion prior to the consummation of the transaction and subject to Article 8 hereof, cancel, offer to purchase, exchange, adjust or modify any outstanding awards, at such time and in such manner as the Committee deems appropriate and in accordance with applicable law. 11.5 General Creditor Status. Optionees shall have no right, title, or interest whatsoever in or to any investments which the Corporation may make to aid it in meeting its obligations under the Plan. Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Corporation and any Optionee, beneficiary or legal representative of such Optionee. To the extent that any person acquires a right to receive payments from the Corporation under the Plan, such right shall be no greater than the right of an unsecured general creditor of the Corporation. All payments to be made hereunder shall be paid from the general funds of the Corporation and no special or separate fund shall be established and no segregation of assets shall be made to assure payment of such amounts except as expressly set forth in the Plan. 11.6 No Right to Employment. Nothing in the Plan or in any written agreement entered into pursuant to Article 10 hereof, nor the grant of any award, shall confer upon any Optionee any right to continue in the employ of or engagement by the Corporation or a subsidiary or affiliate or to be entitled to any remuneration or benefits not set forth in the Plan or such written agreement or interfere with or limit the right of the Corporation or a subsidiary or affiliate to modify the terms of or terminate such Optionee's employment or engagement at any time. 11.7 Notices. Notices required or permitted to be given under the Plan shall be sufficiently given if in writing and personally delivered to the Optionee or sent by regular mail addressed (a) to the Optionee at the Optionee's address as set forth in the books and records of the Corporation or its subsidiaries or affiliates, or (b) to the Corporation or the Committee at the principal office of the Corporation clearly marked "Attention: Compensation Committee." 11.8 Severability. In the event that any provision of the Plan shall be held illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. 11.9 Governing Law. To the extent not preempted by Federal law, the Plan, and all agreements hereunder, shall be construed in accordance with and governed by the laws of the state of Delaware. A-V-9 ANNEX VI MOTO GUZZI CORPORATION 1998 STOCK OPTION PLAN FOR OUTSIDE DIRECTORS I. PURPOSE. The purpose of the Moto Guzzi Corporation ("Company") 1998 Stock Option Plan for Outside Directors (the "Outside Directors' Option Plan") is to promote the growth and profitability of the Company and to provide outside directors of the Company with an incentive to achieve the long-term objectives of the Company, attract and retain non-employee directors of outstanding competence and to provide such outside directors with an opportunity to acquire an equity interest in the Company. Options granted under the Outside Directors' Option Plan are not intended to be characterized as incentive stock options under Internal Revenue Code Section 422. II. GRANT OF OPTIONS. (a) Initial Grant. Each member of the Board of Directors of the Company who is not an employee of the Company ("Outside Director") shall, on the earliest practicable date following shareholder approval of this plan, be granted stock options to purchase 12,500 shares of the Company's Class A Common Stock, $0.001 par value per share (as such par value may be changed from time to time, "Common Stock"), subject to adjustment as provided in Section IV (the "Initial Grant"). The purchase price per share of the Common Stock deliverable upon the exercise of each stock option shall be the Fair Market Value (as defined below) of the Common Stock on the date of the grant of the option being exercised. As used herein, "Fair Market Value" shall mean the closing price of the Common Stock as reported by the National Association of Securities Dealers (as published by the Wall Street Journal, if published). (b) Grants Subsequent to Initial Grant. Each person who is an Outside Director of the Corporation on the effective date of the merger of Moto Guzzi Corp. with and into the Corporation shall be granted on such effective date, and each person who is an Outside Director on January 2 of each calendar year subsequent to the year in which the shareholders have approved this Outside Directors' Option Plan, other than January 2, 1999, shall be granted on each such January 2 stock options to purchase 12,500 shares of Common Stock, subject to adjustment pursuant to Section IV. The purchase price per share of the Common Stock deliverable upon the exercise of each such option shall be the Fair Market Value of the Common Stock on the date of the grant of the option being exercised. (c) Ineligibility. An option under the Outside Directors' Option Plan shall not be granted to any Outside Director who at any previous time was an employee of the Company or was eligible to receive any options to purchase Common Stock. (d) Continuing Plan. The Outside Directors' Option Plan and the grant of options subsequent to the Initial Grant pursuant thereto are part of a continuing plan. III. TERMS AND CONDITIONS. (a) Option Agreement. Each option shall be evidenced by a written option agreement between the Company and the Outside Director specifying the number of shares of Common Stock that may be acquired through its exercise and containing such other terms and conditions which are not inconsistent with the terms of this Outside Directors' Option Plan. (b) Termination of Option. Each option shall expire upon the earlier of (i) ten (10) years following the date of grant, or (ii) three (3) months following the date on which the Outside Director ceases to serve in such capacity for any reason other than removal for cause. If the Outside Director dies before fully exercising any portion of an option then exercisable, such option may be exercised by such Outside Director's personal representative(s), designee(s), heir(s) or devisee(s) at any time within the one (1) year period following his or her death; provided, however, that in no event shall the option be exercisable more than ten (10) years after the date of its grant. If the Outside Director is removed for cause all options awarded to him shall expire upon such termination. A-VI-1 (c) Limitations on and Manner of Exercise. Each option may be exercised, in whole or part, in accordance with the terms of the instrument of grant. Subject to the foregoing, any option may be exercised from time to time, in whole or in part, by delivering a written notice of exercise to the Chief Executive Officer or the Chief Financial Officer of the Company. Such notice is irrevocable and must be accompanied by full payment of the purchase price in cash or shares of previously acquired Common Stock of the Company. If previously acquired shares of Common Stock are tendered in payment of all or part of the exercise price, the value of such shares shall be the Fair Market Value of such shares determined as of the date of such exercise. (d) Transferability. Each option granted hereby is not transferable by the optionee and may be exercised only by the Outside Director to whom it is issued or in the event of the Outside Director's death, his or her personal representative(s) designee(s), heir(s), or devisee(s) pursuant to the terms of Section III(b). (e) Six Month Holding Period. In accordance with Rule 16b-3(c)(1) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), Outside Directors shall not be permitted to dispose of Common Stock underlying an option granted pursuant to this Outside Directors' Option Plan during the six month period commencing from the date of the acquisition of such option. (f) Conditions Upon Issuance of Shares of Common Stock. No shares of Common Stock shall be delivered pursuant to the exercise of any option granted under this Outside Directors' Option Plan unless the delivery of such shares shall comply (in the opinion of counsel to the Company) with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended (the "Act"), the rules and regulations promulgated thereunder, any applicable state securities laws, and the requirements of any stock exchange upon which the Common Stock may then be listed. As a condition to the exercise of an option, the Company may require the exercising optionee to make such written representations and warranties as may be necessary to assure the availability of an exemption from any registration requirements of federal or state securities laws. Certificates representing shares of Common Stock issued upon the exercise of any option may bear a legend restricting transfer of the shares except in compliance with federal and state securities statutes or an exemption therefrom, if available. The failure of any certificates to contain such a legend shall not constitute a waiver by the Company of any such registration requirements. IV. COMMON STOCK SUBJECT TO THE OUTSIDE DIRECTORS' OPTION PLAN. The shares of Common Stock which shall be issued and delivered upon exercise of options granted under the Outside Directors' Option Plan may be either authorized and unissued shares of Common Stock or authorized and issued shares of Common Stock held by the Company as treasury stock. The number of shares of Common Stock reserved for issuance under the Outside Directors' Option Plan shall not exceed four hundred thousand (400,000) shares of the Common Stock of the Company subject to adjustment pursuant to this Section IV. Any shares of Common Stock subject to an option which for any reason either terminates unexercised or expires, shall again be available for issuance under the Outside Directors' Option Plan. In the event of any change or changes in the outstanding Common Stock of the Company by reason of any stock dividend or split, recapitalization, reorganization, merger, consolidation, split-off, combination or any similar corporate change, or other increase or decrease in such shares effected without receipt or payment of consideration by the Company, the number of shares of Common Stock which may be issued under this Outside Directors' Option Plan, the number of shares of Common Stock subject to options granted under this Outside Directors' Option Plan and the option price of such options, shall be automatically adjusted to prevent dilution or enlargement of the rights granted to an Outside Director under the Outside Directors' Option Plan. V. EFFECTIVE DATE OF THE PLAN; STOCKHOLDER APPROVAL. The Outside Directors' Option Plan has been adopted by the Board of Directors and shall become effective on the date that the Outside Directors' Option Plan is approved by the vote of the Company's stockholders holding a majority of the shares of Common Stock entitled to vote thereon. The Outside Directors' Option Plan shall be presented to stockholders of the Company for approval for purposes of obtaining favorable treatment under Section 16(b) of the Exchange Act. A-VI-2 VI. TERMINATION OF THE PLAN. The right to grant options under the Outside Directors' Option Plan shall terminate upon the earlier of December 31, 2008 and the issuance of the Common Stock or exercise of options equal to the maximum number of shares of Common Stock reserved for under this Outside Directors' Option Plan. VII. AMENDMENT OF THE PLAN. The Outside Directors' Option Plan may be amended, from time to time, by the Board of Directors of the Company, provided that Section II, "Grant of Options", shall not be amended more than once every six months other than to comport with the Internal Revenue Code of 1986, as amended, or the Employee Retirement Income Security Act of 1974, as amended, or the rules promulgated thereunder. Except as provided in Section IV hereof, rights and obligations under any option granted before an amendment shall not be altered or impaired by such amendment without the written consent of the optionee. If the Outside Directors' Option Plan becomes qualified under Rule 16b-3 promulgated under the Exchange Act and an amendment would require stockholder approval under such Rule 16b-3 to retain the Outside Directors' Option Plan's qualification, then such amendment shall be presented to stockholders for approval; provided, however, the failure to obtain stockholder approval shall not affect the validity of this Outside Directors' Option Plan as so amended and the options granted thereunder. VIII. APPLICABLE LAW. This Outside Directors' Plan shall be administered, construed and interpreted in accordance with the laws of the State of New York, without giving effect to principles of conflict of laws. IX. ADMINISTRATION. Awards of options under this Outside Directors' Option Plan are automatic. This Outside Directors' Option Plan is intended to be a "Formula Award" plan as recognized by Rule 16b-3(c)(2)(ii) promulgated under the Exchange Act, and shall be interpreted accordingly. X. REGISTRATION OF SHARES. Nothing contained in this Outside Directors' Option Plan shall be construed to require the Company to register under the Act any shares of Common Stock underlying options granted under this Outside Directors' Option Plan. XI. HEADINGS. The headings contained herein are for the purpose of convenience only and are not intended to define or limit the contents of this Outside Directors' Option Plan. A-VI-3 ANNEX VII ALTERNATIVE FORM OF ARTICLE FOURTH OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION (TO EFFECTUATE CLASS B RECAPITALIZATION) FOURTH: (a) The total number of shares which the Corporation shall have authority to issue is Twenty Million (20,000,000) of which (i) Fifteen Million Two Hundred Fifty Thousand (15,250,000) shares, par value $.01 per share shall be Common Stock (hereinafter called "Common Stock"), and (ii) Four Million Seven Hundred and Fifty Thousand (4,750,000) shares, par value $.01 per share shall be Preferred Stock (hereinafter called "Preferred Stock"). One Hundred (100) shares of the Preferred Stock shall be designated as Series A Convertible Preferred Stock (hereinafter called "Class A Preferred Stock") and Three Hundred Fifty Thousand (350,000) shares of the Preferred Stock are designated as Class B Convertible Preferred Stock (hereinafter called the "Class B Preferred Stock"). (b) The Common Stock shall have the following rights, preferences, privileges and restrictions: (1) The holders of the Common Stock shall be entitled to receive such dividends as may be declared thereon from time to time by the Board of Directors, in its discretion, from any assets legally available for the payment of dividends, provided that no dividends may be paid on the Common Stock unless all accrued and unpaid dividends on all Preferred Stock are paid. (2) In the event of the dissolution of the Corporation, whether voluntary or involuntary, the holders of Common Stock shall be entitled to share ratably in the distribution of the assets of the Corporation after payment or provision for payment of such amounts as the holders of Preferred Stock shall be entitled to receive. (3) All shares of Common Stock shall have equal voting rights and shall have one vote, in person or by proxy, for each share thereof held. (c) The Class A Preferred Stock shall have the following rights, preferences, privileges and restrictions: (1) The holder of shares of Class A Preferred Stock shall not be entitled to vote with respect to the election of directors or on any other matter submitted to stockholders, unless required by law. (2) Each share of the Class A Preferred Stock is convertible into Common Stock of the Company at any time until 5:00 p.m. New York City time, on the first anniversary of the date on which this Amended and Restated Certificate of Incorporation is filed with the Secretary of State of the State of Delaware. (3) In the event of a liquidation or dissolution of the Corporation, the rights of the holders of the Corporation's Common Stock are subordinate to the rights of the holders of the Class A Preferred Stock. (d) [Reserved] (e) The Class B Preferred Stock shall have the following rights, preferences, privileges and restrictions: (1) Rank. The Class B Preferred Stock shall, with respect to liquidation, rank senior to all classes and series of capital stock of the Corporation now or hereafter authorized, issued or outstanding, including, without limitation, any preferred stock of the Corporation or common stock, and/or any other class and series of stock of the Corporation now or hereafter authorized, issued or outstanding (collectively, the "Junior Securities"). In addition, the Corporation will not issue any class or series of any class or capital stock which ranks pari passu with the Class B Preferred Stock with respect to rights on liquidation, and winding-up or dissolution of the Corporation. (2) Dividends. A-VII-1 A. The holders of the Class B Preferred Stock shall be entitled to receive out of any assets legally available therefor cumulative dividends at the per share rate of five percent (5%) of U.S. $15.00 (the "Stated Value") for each share of Class B Preferred Stock, per annum, payable annually on December 31 of each year, commencing December 31, 1999 (each a "Dividend Payment Date"), or if earlier, upon conversion of shares of Class B Preferred Stock, in preference and priority to any payment of any dividend on any Junior Security. Such dividends shall accrue on any given share from January 1, 1999 and thereafter from the most recent date on which a dividend has been paid with respect to such share, or if no dividends have been paid, from January 1, 1999, and such dividends shall accrue from day to day whether or not declared, based on the actual number of days elapsed. If at any time dividends on outstanding shares of Class B Preferred Stock at the rate set forth above shall not have been paid or declared and set apart for payment with respect to all preceding periods, the amount of the deficiency shall be fully paid or declared and set apart for payment, but without interest, before any distribution, whether by way of dividend or otherwise, shall be declared or paid upon or set apart for the shares of any class of Junior Security. B. In the event the Corporation shall declare a dividend or other distribution payable in something other than shares of Common Stock, then, in each such case, the holders of the Class B Preferred Stock shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock of the Corporation into which their shares of Class B Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock of the Corporation entitled to receive such distribution. The Corporation may not redeem, purchase or otherwise acquire, Junior Securities, unless and until all shares of Class B Preferred Stock are no longer outstanding, except for the redemption of the Company's Class A Purchase Warrants. (3) Liquidation, Dissolution or Winding Up, Etc. In the event of any voluntary or involuntary liquidation (including a sale by the Corporation of all or substantially all of its assets), dissolution or winding up of the Corporation, the assets of the Corporation available for distribution to shareholders, whether from capital, surplus or earnings, shall be distributed in the following order of priority: (i) The holders of Class B Preferred Stock shall be entitled to receive, prior and in preference to any distribution to the holders of any Junior Securities an amount equal to the greater of (A) the Stated Value for each share of Class B Preferred Stock then outstanding plus all accrued and unpaid dividends thereon, or (B) the amount the holders of Class B Preferred Stock would have received had they converted the Class B Preferred Stock into Common Stock as provided herein in Section (5) of paragraph (e) of Article FOURTH hereof, on the business day immediately prior to the voluntary or involuntary liquidation. (ii) If there is a distribution pursuant to the preceding Section (3)A(i), the remaining assets of the Corporation available for distribution, if any, to the shareholders of the Corporation shall be distributed to the holders of Junior Securities. (4) Voting Rights. The holders of the Class B Preferred Stock shall vote with the holders of Common Stock on all matters presented to the holders of Common Stock for a vote as if all the shares of Class B Preferred Stock have been converted as of the applicable record date, such that a holder of Class B Preferred Stock will be entitled to one vote for every whole share of Common Stock into which his or her Class B Preferred Stock is convertible and, to the extent required by applicable law, shall also be entitled to vote as a separate class. (5) Conversion of Class B Preferred Stock. A. Right to Convert. The holders of Class B Preferred Stock shall have the right, at each holders' option, at any time or from time to time, to convert any or all of such holders' shares of Class B Preferred Stock into such number of shares of Common Stock ("Converted Shares") as is determined by dividing (i) the Stated Value times the number of shares of Class B Preferred Stock being converted, by (ii) a conversion price of (x) $15.00, subject to adjustment as hereinafter provided (the "Conversion Price"). A-VII-2 B. Mechanics of Conversion. Before any holder of Class B Preferred Stock shall be entitled to convert the same into Converted Shares, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Class B Preferred Stock, and shall give written notice to the Corporation at its principal corporate office, of the election to convert the same and shall state therein the name or names in which the certificate or certificates for Converted Shares are to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Class B Preferred Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of Converted Shares to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Class B Preferred Stock to be converted, and the person or persons entitled to receive the Converted Shares shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date. C. No Fractional Shares. The Corporation shall not be required to issue fractions of Converted Shares. If any fractions of a share would, but for this Section, be issuable upon any conversion of Class B Preferred Stock, in lieu of such fractional share the Corporation will round up to the next whole Converted Share and issue the next whole share of Common Stock to the holder. D. Reservation of Shares. The Corporation shall reserve and shall at all times have reserved from its authorized but unissued shares of Common Stock sufficient shares of Common Stock to permit the conversion of the then outstanding shares of the Class B Preferred Stock pursuant to Section (5) of paragraph (e) of Article FOURTH hereof. All Converted Shares shall be validly issued, fully paid and nonassessable. E. Conversion Price Adjustments of Class B Preferred Stock. The Conversion Price in effect at any time for conversion of Class B Preferred Stock into Common Stock pursuant to Section (5) of paragraph (e) of Article FOURTH hereof shall be subject to adjustment from time to time as follows: (i) Additional Outstanding Shares. If the Corporation shall, after the date upon which any shares of Class B Preferred Stock are first issued ("Issue Date"), fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock without payment of any consideration by such holder for the additional shares of Common Stock, then, as of such record date (or the date of such dividend distribution, split or subdivision if no record date is fixed), the Conversion Price of the Class B Preferred Stock shall be appropriately decreased so that the number of Conversion Shares issuable on conversion of each share of such Class B Preferred Stock shall be increased in proportion to such increase in the aggregate number of shares of Common Stock outstanding. (ii) Decrease of Outstanding Shares. If the number of shares of Common Stock outstanding at any time after the Issue Date is decreased by a combination of the outstanding shares of Common Stock or otherwise, then, following the record date of such combination or other event, the Conversion Price for the Class B Preferred Stock shall be appropriately increased so that the number of shares of Converted Stock issuable on conversion of each share of such Class B Preferred Stock shall be decreased in proportion to such decrease in the aggregate number of shares of Common Stock outstanding. (iii) Recapitalization. If at any time or from time to time there shall be a reclassification of the Common Stock (other than a subdivision or combination provided for in clauses (i) or (ii) above) or any reorganization, consolidation or merger of the Corporation with or into another corporation (other than a merger or reorganization with respect to which the Corporation is the continuing corporation and which does not result in any reclassification of the Common Stock), or a transfer of all or substantially all of the assets of the Corporation, or the payment of a liquidating distribution then, as part of any such reorganization, reclassification, consolidation, merger, sale or liquidating distribution, lawful provision shall be made so that the holders of the Class B Preferred Stock shall thereafter be entitled to receive, upon conversion of the Class B Preferred Stock, the A-VII-3 kind and amount of shares of stock or other securities or property which such holder of Class B Preferred Stock would have been entitled to receive if, immediately prior to any such reorganization, reclassification, consolidation, merger, sale or liquidating distribution, as the case may be, such holder of Class B Preferred Stock had held the number of shares of Common Stock which were then deliverable upon conversion. In any such case, appropriate adjustment shall be made in the application of the provisions of Section (5) of paragraph (e) of Article FOURTH hereof with respect to the rights of the holders of the Class B Preferred Stock thereafter to the end that the provisions of Section (5) of paragraph (e) of Article FOURTH hereof (including adjustment of the Conversion Price then in effect and the number of Converted Shares issuable upon conversion of the Class B Preferred Stock) shall be applicable after that event as nearly equivalent as may be practicable. F. No Impairment. The Corporation will not, by amendment of its Certificate of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of Section (5) of Paragraph (e) of Article FOURTH hereof and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Class B Preferred Stock against impairment. G. Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price of Class B Preferred Stock pursuant to Section (5)E of Paragraph (e) of Article FOURTH hereof, the Corporation, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Class B Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Class B Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (A) such adjustment and readjustment, (B) the Conversion Price for such Class B Preferred Stock at the time in effect, and (C) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of a share of Class B Preferred Stock. H. Notices of Record Date. In the event of any setting by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Corporation shall mail to each holder of Class B Preferred Stock, at least twenty (20) days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right. I. Notices. Any notice required by the provisions of Section (5) of Paragraph (e) of Article FOURTH hereof to be given to the holders of shares of Class B Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his address appearing on the books of this Corporation. J. Cancellation. In the event any shares of Class B Preferred Stock shall be converted pursuant to Section (5) of Paragraph (e) of Article FOURTH hereof, the shares so converted shall be canceled and returned to the status of authorized and unissued shares of preferred stock, without any class designation. (f) The Board of Directors is authorized, subject to limitations prescribed by law and the provisions of this Article FOURTH, to provide for the issuance of the shares of Preferred Stock in series, and by filing a certificate pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof. The holders of shares of the Preferred Stock of each such series shall be entitled to receive, when and as declared by the Board of A-VII-4 Directors, out of funds legally available for the payment of dividends, dividends (if any) at the rates fixed by the Board of Directors for such series, and no more, before any cash dividends shall be declared and paid, or set apart for payment, on the Common Stock with respect to the same dividend period. The holders of shares of the Preferred Stock of each such series shall be entitled upon liquidation or dissolution or upon the distribution of the assets of the Corporation to such preferences as provided in the resolution or resolutions creating such series of Preferred Stock, and no more, before any distribution of the assets of the Corporation shall be made to the holders of shares of the Common Stock. Whenever the holders of shares of the Preferred Stock of each such series shall have been paid the full amounts to which they shall be entitled, the holders of shares of the Common Stock shall be entitled to share ratably in all remaining assets of the Corporation. The authority of the Board of Directors with respect to each such series shall include, but not be limited to, the determination or fixing of the following: (1) The distinctive designation and number of shares comprising such series, which number may (except where otherwise provided by the Board of Directors in creating such series) be increased or decreased (but not below the number of shares then outstanding) from time to time by like action of the Board of Directors; (2) The dividend rate of such series, the conditions and time upon which such dividends shall be payable, the relation which such dividends shall bear to the dividends payable on any other class or classes of stock or series thereof, or any other series of the same class, and whether such dividends shall be cumulative or non-cumulative; (3) The conditions upon which the shares of such series shall be subject to redemption by the Corporation and the times, prices and other terms and provisions upon which the shares of the series may be redeemed including the date or date upon or after which they may be redeemed, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; (4) Whether or not the shares of the series shall be subject to the operation of a retirement or sinking fund to be applied to the purchase or redemption of such shares and, if such retirement or sinking fund be established, the annual amount thereof and the terms and provisions relative to the operation thereof; (5) Whether or not the shares of the series shall be convertible into or exchangeable for shares of any other class or classes, with or without par value, or of any other series of the same class, and, if provision is made for conversion or exchange, the times, prices, rates, adjustments, and other terms and conditions of such conversion or exchange as the Board of Directors shall determine; (6) Whether or not the shares of the series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; (7) The rights of the shares of the series in the event of voluntary or involuntary liquidation, dissolution or the winding up of the Corporation, and the relative rights of priority, if any, of payment of shares of that series; (8) Any other powers, preferences and relative participating, optional or other special rights, and qualifications, limitations or restrictions thereof, of the shares of such series, as the Board of Directors may deem advisable and as shall not be inconsistent with the provisions of this Certificate of Incorporation. (g) All outstanding shares of "Class B Common Stock" as described in and authorized under the Certificate of Incorporation in effect prior to the effective date of the Amended and Restated Certificate of Incorporation of the Company which includes this Article FOURTH shall be automatically converted as of such effective date, without any action having to be taken by the holders thereof, into such securities of the Company into which the Class B Common Stock was convertible in accordance with the Certificate of Incorporation as in effective prior to the effective date of the Amended and Restated Certificate of Incorporation. A-VII-5 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICER Section 145 of the Delaware General Corporation Law ("Section 145") permits indemnification of directors, officers, employees, agents and controlling persons of a corporation under certain conditions and subject to certain limitations. Section 145 empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director, officer or agent of the corporation or another enterprise if serving at the request of the corporation. Depending on the character of the proceeding, a corporation may indemnify against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with such action, suit or proceeding if the person indemnified acted in good faith and in a manner he reasonably believed to be in or not opposed to, the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. In the case of an action by or in the right of the corporation, no indemnification may be made with respect to any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the court of chancery or the court in which such action or suit was brought shall determine that despite the adjudication of liability such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper. Section 145 further provides that to the extent a director or officer of a corporation has been successful in the defense of any action, suit or proceeding referred to above or in the defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. Section 3.13 of the Company's By-laws (Exhibit 3.2 hereto) provides for the indemnification of directors, officers and other authorized representatives of the Company to the maximum extent permitted by the Delaware General Corporation Law, as may be amended (but in the case of such amendment, only to the extent that such amendment permits the Company to provide broader indemnification rights than the law permitted the Corporation to provide prior to the Amendment) against all expense, loss and liability (including, without limitation, judgments, fines, amounts paid in settlement and reasonable expenses, including attorneys' fees), actually and necessarily incurred or suffered by such person in connection with the defense of or as a result of such proceeding, or in connection with any appeal therein. Section 3.13 of the Company's By-laws permit it to purchase insurance for the indemnification of directors, officers and employees to the full extent permitted by the Delaware General Corporation Law. The By-laws provide that the right to indemnification conferred in the By-laws are contract rights and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that if the Delaware General Corporation Law requires: the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the Corporation of an undertaking by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Bylaw or otherwise. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits:
EXHIBIT NUMBER DESCRIPTION - ---------- --------------------------------------------------------------------------------------------------- 2.1* Agreement and Plan of Reorganization, dated August 18, 1995 3.1 Amended and Restated Certificate of Incorporation of the Registrant (Exhibit 3.1)(1) 3.2 By-laws of the Registrant (Exhibit 3.2)(1)
II-1
EXHIBIT NUMBER DESCRIPTION - ---------- --------------------------------------------------------------------------------------------------- 3.3* By-laws of the Registrant upon consummation of the Merger 4.1 Warrant Agency Agreement dated May 28, 1996 between American Stock Transfer & Company and the Registrant (Exhibit 4.2)(1) 4.2 Form of Representative's Warrant Agreement of Registrant (Exhibit 4.5)(1) 4.3 Form of Class A Common Stock Certificate of Registrant (Exhibit 4.1)(1) 4.4 Form of Class B Stock Certificate of the Registrant (Exhibit 4.4)(1) 4.5 Form of Class A Common Stock Purchase Warrant Certificate of the Registrant (Exhibit 4.3)(1) 4.6* Form of Warrant (Nominal Warrant) to Purchase Shares of Class A Common Stock 5.1+ Opinion of Graubard Mollen and Miller 10.1 Underwriting Agreement (Exhibit 1.1)(1) 10.2 Form of Escrow Agreement for proceeds from sale of Units (Exhibit 10.1)(1) 10.3 Amended and Restated License Agreement, dated May 9, 1997, between Bright Capital, Ltd. and the Company (Exhibit 10.3)(1) 10.4 Management Unit Purchase Option Plan (Exhibit 10.4)(1) 10.5 Form of Class B Stock Option Agreement (Exhibit 10.5)(1) 10.6* Form of Registration Rights Agreement, undated 10.7 Form of Escrow Agreement for outstanding Common Stock (Exhibit 10.2)(1) 10.8* Form of Subscription Agreement, dated August 29, 1995 between the Company and Investors 10.9* Form of Escrow Agreement for Class B Preferred Stock and certain shares of Class A Common Stock to be dated the Merger Effective Time. 23.1+ Consent of Graubard Mollen & Miller (included in its opinion filed as Exhibit 5.1 hereto) 23.2* Consent of BDO Seidman, LLP regarding the Registrant 23.3* Consent of Arthur Andersen, LLP regarding Moto Guzzi 23.4* Consent of Allen & Company regarding their Fairness Opinion (included in its opinion filed as Annex II to the Proxy Statement/Prospectus) 24.1* Powers of Attorney (included on signature page) 27.1* Financial Data Schedule 99.1* Form of Proxy Card
- ------------------ * Filed herewith. + To be filed by amendment. (1) Filed as an Exhibit to the Registrant's Registration Statement on Form SB-2 (No. 33-80647) declared effective August 22, 1997. (b) Financial Statement Schedules: All schedules are omitted because of the absence of conditions under which they are required or because the required information is given in the financial statements or notes thereto. ITEM 22. UNDERTAKINGS (1) The undersigned registrant hereby undertakes: (a) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; II-2 (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; provided, however, that paragraphs (1)(a)(i) and (1)(a)(ii) do not apply if the registration statement is on Form S-3, Form S-8 or Form F-3, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the registration pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement. (b) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (2) The undersigned registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (3) The registrant undertakes that every prospectus (a) that is filed pursuant to paragraph (2) immediately preceding, or (b) that purports to meet the requirements of section 10(a)(3) of the Securities Act of 1933 and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at the time shall be deemed to be the initial bona fide offering thereof. (4) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plans, annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (5) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to II-3 a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (6) The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purposes of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (7) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (8) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-4 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN NEW YORK, NEW YORK, ON OCTOBER 2, 1998. By: /s/ David J. Mitchell ---------------------------------- David J. Mitchell Chairman of the Board and Chief Executive Officer PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATE INDICATED. EACH PERSON WHOSE SIGNATURE APPEARS BELOW IN SO SIGNING ALSO MAKES, CONSTITUTES AND APPOINTS DAVID J. MITCHELL AND C. THOMAS MCMILLEN, AND EACH OF THEM ACTING ALONE, HIS TRUE AND LAWFUL ATTORNEY-IN-FACT, WITH FULL POWER OF SUBSTITUTION, FOR HIM IN ANY AND ALL CAPACITIES, TO EXECUTE AND CAUSE TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ANY OR ALL AMENDMENTS AND POST-EFFECTIVE AMENDMENTS TO THIS REGISTRATION STATEMENT, WITH EXHIBITS THERETO AND OTHER DOCUMENTS IN CONNECTION THEREWITH, AND HEREBY RATIFIES AND CONFIRMS ALL THAT SAID ATTORNEY-IN-FACT OR HIS SUBSTITUTE OR SUBSTITUTES MAY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
SIGNATURE TITLE DATE - ------------------------------------------ ------------------------------------------------- --------------- /s/ David J. Mitchell Chairman of the Board, Chief Executive Officer October 2, 1998 - ------------------------------------------ and Director (Principal Executive Officer) David J. Mitchell /s/ C. Thomas McMillen Secretary, Treasurer and Director (Principal October 2, 1998 - ------------------------------------------ Accounting Officer) C. Thomas McMillen /s/ A. J. Nasser Director October 2, 1998 - ------------------------------------------ A. J. Nasser
II-5 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------ ---------------------------------------------------------------------------------------------------------- 2.1* -- Agreement and Plan of Reorganization, dated August 18, 1995 3.1 -- Amended and Restated Certificate of Incorporation of the Registrant (Exhibit 3.1)(1) 3.2 -- By-laws of the Registrant (Exhibit 3.2)(1) 3.3* -- By-laws of the Registrant upon consummation of the Merger 4.1 -- Warrant Agency Agreement dated May 28, 1996 between American Stock Transfer & Company and the Registrant (Exhibit 4.2)(1) 4.2 -- Form of Representative's Warrant Agreement of Registrant (Exhibit 4.5)(1) 4.3 -- Form of Class A Common Stock Certificate of Registrant (Exhibit 4.1)(1) 4.4 -- Form of Class B Stock Certificate of the Registrant (Exhibit 4.4)(1) 4.5 -- Form of Class A Common Stock Purchase Warrant Certificate of the Registrant (Exhibit 4.3)(1) 4.6* -- Form of Warrant (Nominal Warrant) to Purchase Shares of Class A Common Stock 5.1+ -- Opinion of Graubard Mollen and Miller 10.1 -- Underwriting Agreement (Exhibit 1.1)(1) 10.2 -- Form of Escrow Agreement for proceeds from sale of Units (Exhibit 10.1)(1) 10.3 -- Amended and Restated License Agreement, dated May 9, 1997, between Bright Capital, Ltd. and the Company (Exhibit 10.3)(1) 10.4 -- Management Unit Purchase Option Plan (Exhibit 10.4)(1) 10.5 -- Form of Class B Stock Option Agreement (Exhibit 10.5)(1) 10.6* -- Form of Registration Rights Agreement, undated 10.7 -- Form of Escrow Agreement for outstanding Common Stock (Exhibit 10.2)(1) 10.8* -- Form of Subscription Agreement, dated August 29, 1995 between the Company and Investors 10.9* -- Form of Escrow Agreement for Class B Preferred Stock and certain shares of Class A Common Stock to be dated the Merger Effective Time. 23.1+ -- Consent of Graubard Mollen & Miller (included in its opinion filed as Exhibit 5.1 hereto) 23.2* -- Consent of BDO Seidman, LLP regarding the Registrant 23.3* -- Consent of Arthur Andersen, LLP regarding Moto Guzzi 23.4* -- Consent of Allen & Company regarding their Fairness Opinion (included in its opinion filed as Annex II to the Proxy Statement/Prospectus) 24.1* -- Powers of Attorney (included on signature page) 27.1* -- Financial Data Schedule 99.1* -- Form of Proxy Card
- ------------------ * Filed herewith. + To be filed by amendment. (1) Filed as an Exhibit to the Registrant's Registration Statement on Form SB-2 (No. 33-80647) declared effective August 22, 1997. EX-2.1 2 AGREEMENT AND PLAN OF MERGER AND REORGANIZATION AGREEMENT AND PLAN OF MERGER AND REORGANIZATION AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, dated August 18, 1998, among NORTH ATLANTIC ACQUISITION CORP., a Delaware corporation, ("North"), MOTO GUZZI CORP., a Delaware corporation ("Motoguzzi") and, as to those applicable provisions of ARTICLE II, ARTICLE III, ARTICLE V, ARTICLE VI, ARTICLE VIII, ARTICLE X, ARTICLE XI AND ARTICLE XIII hereof, TRIDENT ROWAN GROUP, INC., a Maryland corporation ("TRG") and significant shareholder of Motoguzzi. WHEREAS, North was formed to serve as a vehicle to effect a merger, exchange of capital stock, acquisition or other business combination with an operating business; WHEREAS, Motoguzzi, through its wholly and partially owned subsidiaries is in the business of designing, manufacturing and selling motorcycles, spare parts and similar products; WHEREAS, subject to the terms and conditions of this Agreement and Plan of Merger and Reorganization ("Agreement"), the Parties desire to consummate a merger, as contemplated herein, pursuant to which Motoguzzi will merge with and into North, with North being the surviving corporation (North, after the consummation of the Merger, the "Surviving Corporation"); and WHEREAS, for Federal income tax purposes, the parties intend, by approving resolutions authorizing this Agreement, that such merger qualify as a reorganization under the provisions of Section 368(a)(1)(A) of the United States Internal Revenue Code of 1986, as amended (the "Code"). IT IS AGREED: ARTICLE I THE MERGER SECTION 1.01 Definitions. Certain capitalized terms used in this Agreement shall have the meanings specified in ARTICLE XII. SECTION 1.02 The Merger. Upon the terms and subject to the conditions hereof and in accordance with the relevant provisions of the General Corporation Law of the State of Delaware (the "DGCL"), at the Effective Time (as defined herein) North and Motoguzzi shall consummate a merger ("Merger") of Motoguzzi with and into North. Following the Merger, (i) North shall continue as the surviving corporation and shall continue its existence under the laws of the State of Delaware and (ii) the separate corporate existence of Motoguzzi shall cease. SECTION 1.03 Effective Time. On the Closing Date, North and Motoguzzi shall file with the Secretary of State of the State of Delaware in accordance with the DGCL an executed copy of the Certificate of Merger in the form of EXHIBIT A hereto (the "Certificate of Merger"). The Merger shall become effective at such time as the Certificate of Merger is filed with the Secretary of State of the State of Delaware (the "Effective Time"). SECTION 1.04 Effects of the Merger. The Merger shall have the effects set forth in Section 259 of the DGCL. SECTION 1.05 Changes to Certificate of Incorporation and By-Laws of the Surviving Corporation. The Certificate of Merger will also amend the Certificate of Incorporation of the Surviving Corporation to effect a change in the name of North from "North Atlantic Acquisition Corp." to "Moto Guzzi Corporation", to increase the authorized capital stock of the Surviving Corporation, to authorize the issuance of one or more classes of preferred stock and to provide for a board of directors with staggered terms of three years, in the form attached hereto as EXHIBIT A. The By-Laws of Moto Guzzi Corp. shall be the By-Laws of the Surviving Corporation. The Certificate of Incorporation as so modified and such By-Laws shall be the Certificate of Incorporation and By-Laws of the Surviving Corporation. SECTION 1.06 Directors and Officers of the Surviving Corporation After the Effective Time. At the Effective Time, the Board of Directors of the Surviving Corporation shall consist of eight persons, of which two will be nominated by the management of North, five will be nominated by Motoguzzi and one will be a nominee mutually acceptable to both Motoguzzi and North, each to serve until his successor is elected and qualified. Such persons, and the classes in which they shall serve, as well as certain compensation arrangements and certain options to purchase shares of Class A Common Stock to be granted to certain directors and executive officers of the Surviving Corporation (the "Executive Options") are listed in SCHEDULE 1.06. The officers of North at the Effective Time shall consist of the persons listed in SCHEDULE 1.06, each to serve until his or her successor is elected. Each of North and Motoguzzi may, at any time prior to the Effective Time, change their nominees. SECTION 1.07 The Closing. Subject to the terms and conditions of this Agreement, the consummation of the Merger and the other transactions contemplated by this Agreement shall take place at a closing (the "Closing") to be held at 10:00 a.m., local time, on the third Business Day after the date on which the last of the conditions to Closing set forth in ARTICLE IX hereof is fulfilled or waived by the appropriate Party, as the case may be, at the offices of Graubard Mollen & Miller, 600 Third Avenue, New York, New York 10016, or at such other time, date or place as the Parties may agree upon in writing. The date on which the Closing occurs is referred to herein as the "Closing Date." 2 SECTION 1.08 Tax Free Reorganization. The parties intend to adopt this Agreement as a tax-free plan of reorganization and to consummate the Merger in accordance with the provisions of Section 368(a)(1)(A) of the Code, and shall not take a position on any tax return inconsistent therewith. In addition, North represents now, and as of the Closing, that it presently intends to continue Motoguzzi's historic business or use a significant portion of Motoguzzi's business assets in a business, in each case within the meaning of Treasury Regulation Section 1.368-1(d). ARTICLE II CONVERSION OF SHARES AND RELATED MATTERS SECTION 2.01 Outstanding Stock of North. Upon consummation of the Merger, the outstanding capital stock of North shall continue to be the issued and outstanding capital stock of the Surviving Corporation. SECTION 2.02 Conversion of Outstanding Stock of Motoguzzi. (a) Except as provided in SECTION 2.03, upon consummation of the Merger, (i) the shares of common stock, $.01 par value, ("Old Motoguzzi Common Stock") of Motoguzzi outstanding on the date of this Agreement and immediately prior to the Effective Time and the shares of preferred stock, $.01 par value, ("Old Motoguzzi Preferred Stock") of Motoguzzi outstanding on the date of this Agreement and immediately prior to the Effective Time, shall, by virtue of the Merger and without any action on the part of the holder thereof, and subject to reduction in accordance with Section 2.03 below and increase in accordance with Section 2.02(c) below, be converted into and exchanged for (A) 3,702,450 shares of the Class A Common Stock, $.01 par value ("Class A Common Stock") of North, subject to adjustment as herein provided, (B) 234,489 shares of Class B Convertible Preferred Stock having such rights and preferences as are described in the amended Certificate of Incorporation of the Surviving Corporation ("Class B Preferred Stock"), and (C) warrants in the form attached as EXHIBIT B hereto (the "Nominal Warrants") to purchase such number of shares of Class A Common Stock as is equal to 74.05% of the number of shares of Class A Common Stock which may be purchased under the "Maximum Nominal Warrants" (as defined below), (ii) in consideration of the contribution to the capital of Motoguzzi of certain intercompany indebtedness described in Section 2.06(b) there shall be issued to the holders of such indebtedness 1,038,040 shares of Class A Common Stock, 65,743 shares of Class B Preferred Stock and Nominal Warrants to purchase 20.76% of the number of shares of Class A Common Stock which may be purchased under the Maximum Nominal Warrants, and (iii) if all outstanding Warrants to purchase an aggregate of 1,500,000 shares of Old Motoguzzi Common Stock at $4.00 per share (the "Old Motoguzzi Warrants") are surrendered (as provided in Section 2.06(a)) there shall be issued to such surrendering warrant holders 259,510 shares of Class A Common Stock, 16,436 shares of Class B Preferred Stock and Nominal Warrants 3 to purchase 5.19% of the number of shares of Class A Common Stock which may be purchased under the Maximum Nominal Warrants. The Class A Common Stock, the Class B Preferred Stock and the Nominal Warrants are together referred to herein as the "Merger Consideration". The number of shares of Class A Common Stock, Class B Preferred Stock and the number of Nominal Warrants payable as the Merger Consideration shall be rounded up or down to the nearest whole number of shares or warrants. If the holders of less than all Old Motoguzzi Warrants surrender same, then the Merger Consideration described in the preceding clause (iii) shall be reduced by multiplying the Merger Consideration in clause (iii) by the percentage of Old Motoguzzi Warrants so surrendered and each Old Motoguzzi Warrant not so surrendered shall, after the Effective Time, have such continuing rights as are provided by the terms thereof. The term "Maximum Nominal Warrants" shall mean Nominal Warrants to purchase such number of shares of Class A Common Stock as would be acquired hereunder if all Old Motoguzzi Warrants are surrendered as provided in Section 2.06(a). (b) Except as otherwise provided in this Agreement and except for shares with respect to which the holder thereof votes against the Merger ("Dissenter") and ultimately receives payment thereon pursuant to Section 262 of the DGCL ("Dissenter Securities"), each share of Old Motoguzzi Common Stock outstanding on the date hereof and immediately prior to the Effective Time and each share of Old Motoguzzi Preferred Stock outstanding on the date hereof and immediately prior to the Effective Time will be converted into .4937 shares of Class A Common Stock, .0313 shares of Class B Preferred Stock and Nominal Warrants for such number of shares of Class A Common Stock as equals the number of shares of Class A Common Stock which may be purchased under 74.05% of the Maximum Nominal Warrants multiplied by a fraction, the numerator of which is 1 and the denominator of which is 7,500,000. (c) If Available Cash (as defined in Section 4.05 below) is less than $8,150,000 at the Effective Time, the number of shares of Class B Preferred Stock issued as part of the Merger Consideration shall be increased by one share for each $15 of such shortfall, allocable pro rata as provided in SECTION 2.02(a). SECTION 2.03 Dissenters. (a) The Merger Consideration will be reduced, on a pro rata basis, as a result of any Dissenter seeking the appraisal rights pursuant to Section 262 of the DGCL, with respect to his shares of Old Motoguzzi Common Stock or Old Motoguzzi Preferred Stock. (b) If after the Effective Time a Dissenter loses the right to receive payment pursuant to Section 262 of the DGCL, the Dissenter Securities held by the Dissenter will be treated as if they had been converted as of the Effective Time into the Merger Consideration. 4 (c) Motoguzzi will promptly provide North with copies of any written demand for payment to be received by a Dissenter, and North will have the right to participate in all negotiations and proceedings with respect to any demand by a Dissenter. Motoguzzi will not, except with the prior written consent of North or as may be required by law, make any payment prior to the Effective Time with respect to, or settle or offer to settle, any demand of a Dissenter. All Dissenter Securities acquired by Motoguzzi or by the Surviving Corporation will be canceled after payment therefor has been made in accordance with the DGCL. SECTION 2.04 Surrender and Payment. (a) Prior to the Effective Time, North will appoint American Stock Transfer & Trust Company, New York, New York, as its agent ("Exchange Agent') for the purpose of exchanging certificates representing the Old Motoguzzi Common Stock, Old Motoguzzi Preferred Stock and Old Motoguzzi Warrants ("Motoguzzi Securities") for certificates of Class A Common Stock, Class B Preferred Stock and Nominal Warrants representing the appropriate portion of the Merger Consideration. Promptly after the Effective Time, North will cause the Exchange Agent to send, to each holder of Motoguzzi Securities being exchanged a letter of transmittal for use in the exchange. North will make available to the Exchange Agent, as needed, stock certificates and Nominal Warrant certificates representing the Merger Consideration to be issued in respect of the Motoguzzi Securities. (b) Except as provided in SECTION 10.02, for each Motoguzzi Security being exchanged, upon the surrender of the certificate or certificates representing them together with a properly completed letter of transmittal, the holder will be entitled to receive certificates for the Class A Common Stock, Class B Preferred Stock and Nominal Warrants representing that portion of the Merger Consideration issuable in respect of the Motoguzzi Securities. Until so surrendered, each such certificate will, after the Effective Time, represent for all purposes, only the right to receive a proportionate amount of the Merger Consideration. (c) After the Effective Time, there will be no further registration of transfers of Motoguzzi Securities held prior to the Effective Time, except as may be permitted by Section 262 of the DGCL. After the Effective Time, all certificates formerly representing Motoguzzi Securities which are presented to North or the Exchange Agent will be canceled and exchanged for the consideration provided for in this ARTICLE II. SECTION 2.05 Adjustments. If, notwithstanding SECTION 7.01 hereof, at any time during the period between the date of this Agreement and the Effective Time, the outstanding shares of the capital stock of North is changed into a different number of shares or a different class by reason of any stock dividend, subdivision, reclassification, recapitalization, split, combination or exchange of shares, the Merger 5 Consideration will be appropriately adjusted to reflect such stock dividend, subdivision, reclassification, recapitalization, split, combination or exchange of shares. SECTION 2.06 Surrender of Old Motoguzzi Warrants and Contribution of Intercompany Indebtedness. (a) Each holder of an Old Motoguzzi Warrant who wishes to surrender such warrant (a "Surrendered Warrant") shall do so prior to the Closing Date by delivering same to TRG together with a Warrant Surrender Agreement and such other documents as TRG and North shall reasonably require. (b) TRG covenants and agrees that Lit 12,719 million principal amount of indebtedness, plus interest thereon, owed by Motoguzzi to TRG and/or to O.A.M. S.p.A., a subsidiary of TRG ("OAM"), shall be contributed to the capital of Motoguzzi, simultaneously with the consummation of the Merger. After such capital contribution, the amount of indebtedness owed by Motoguzzi and its subsidiaries to TRG and its subsidiaries other than Motoguzzi and the Motoguzzi Subsidiaries at the Effective Time, including all interest, will not be greater than $800,000, and if such indebtedness exceeds such amount, any excess automatically and without any action on the part of TRG, OAM or TRG's subsidiaries shall be contributed to the capital of Motoguzzi at the Effective Time with no adjustment in the Merger Consideration set forth in SECTION 2.02 (a)(ii) and the Surviving Corporation will be under no obligation whatsoever to pay same. TRG shall cause OAM to evidence its agreement to such capital contribution by executing the form of acknowledgment annexed hereto as EXHIBIT C. ARTICLE III REPRESENTATIONS AND WARRANTIES OF MOTOGUZZI AND TRG Motoguzzi represents and warrants to North as follows: SECTION 3.01 Organization. (a) Motoguzzi. Motoguzzi is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Except as described on any of the Motoguzzi Disclosure Schedules attached hereto, Motoguzzi does not own, directly or indirectly, any capital stock or other securities of any issuer or any equity interest in any other entity, including any partnership, limited partnership, limited liability company, business trust and any other business entity, and is not a party to any agreement to acquire any such securities or interest. Motoguzzi is qualified to do business in each state where the nature of the business it conducts or the properties it owns, leases or operates requires it to so qualify (which states are listed in SCHEDULE 3.01(ii)), except where the failure to so qualify would not, singly or in the aggregate, have a Motoguzzi Material Adverse Effect. Motoguzzi has all requisite corporate power to own, lease and operate 6 its properties and to carry on its business as now being conducted and as presently contemplated by Motoguzzi to be conducted in the future. (b) Subsidiaries of Motoguzzi. Each Motoguzzi Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation. Each Motoguzzi Subsidiary is qualified to do business in each jurisdiction where the nature of the business it conducts or the properties it owns, leases or operates requires it to so qualify (which jurisdictions are listed in SCHEDULE 3.01 (iii)), except where the failure to so qualify would not, singly or in the aggregate, have a Motoguzzi Material Adverse Effect. Each Motoguzzi Subsidiary has all requisite corporate power to own, lease and operate its properties and to carry on its business as now being conducted and as presently contemplated by each of the Motoguzzi Subsidiaries in the future. Motoguzzi owns, directly or indirectly, the shares of each Motoguzzi Subsidiary as set forth in SCHEDULE 3.01(i) free and clear of any Liens. (c) Holding Company. Motoguzzi is a holding company, the only assets of which are the shares of the Motoguzzi Subsidiaries. Motoguzzi has no material liabilities other than the liabilities of the Motoguzzi Subsidiaries. Motoguzzi does not conduct any material business through any entity other than the Motoguzzi Subsidiaries. SECTION 3.02 Authority; Corporate Action. Motoguzzi has all necessary corporate power and authority to enter into this Agreement and to consummate the Merger and other transactions contemplated hereby and thereby. All action, corporate and otherwise, necessary to be taken by Motoguzzi to authorize the execution, delivery and performance of this Agreement and the other agreements and instruments delivered by Motoguzzi in connection with the transactions contemplated hereby or thereby has or at the Closing will have been duly and validly taken. Subject to the terms and conditions hereof, this Agreement and the other agreements and instruments delivered by Motoguzzi in connection with the transactions contemplated hereby shall constitute the valid, binding and enforceable obligation of Motoguzzi enforceable against it in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or similar laws of general application now or hereafter in effect affecting the rights and remedies of creditors and by general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity). SECTION 3.03 No Conflict; Required Filings and Consents. (a) The execution and delivery of this Agreement (and the other agreements contemplated hereby) by Motoguzzi does not, and the performance by Motoguzzi of its obligations under this Agreement (and any other agreement contemplated hereby) will not, (i) conflict with or violate its Certificate of Incorporation, By-laws or other organizational documents (ii) conflict with or violate any law, statute, ordinance, rule, regulation, order, judgment or decree applicable to Motoguzzi or any Motoguzzi Subsidiary 7 or by which any of their respective properties or assets is bound or affected, or (iii) result in any breach of, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a Lien on any of the properties or assets of Motoguzzi or any Motoguzzi Subsidiary pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which Motoguzzi or any Motoguzzi Subsidiary is a party or by which Motoguzzi or any Motoguzzi Subsidiary or any of their respective properties or assets is bound or affected, except, in the case of clauses (ii) and (iii), above, for any such conflicts, violations, breaches, defaults or other occurrences that would not have, either singly or in the aggregate, a Motoguzzi Material Adverse Effect. (b) The execution and delivery of this Agreement (and the other agreements contemplated hereby) by Motoguzzi does not, and the performance of this Agreement (and the other agreements contemplated hereby) by Motoguzzi will not, require any consent, approval, authorization or permit of, or filing with or notification to, any Governmental Entity, except for (i) compliance with the applicable requirements, if any, of the DGCL and Certificate of Incorporation and Bylaws of Motoguzzi (including but not limited to, the approval of this Agreement and the Merger by the stockholders of Motoguzzi), (ii) filing and recordation of appropriate merger documents as required by the laws of the State of Delaware, (iii) those consents, approvals, authorizations, permits, filings or notifications applicable to Motoguzzi and the Motoguzzi Subsidiaries listed in SCHEDULE 3.03(b), and (iv) where failure to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications, would not (a) have either singly or in the aggregate, a Motoguzzi Material Adverse Effect or (b) affect the ability of Motoguzzi to consummate the Merger and other agreements contemplated by this Agreement. SECTION 3.04 Motoguzzi Capitalization. The total authorized capital stock of Motoguzzi consists of 20,000,000 shares of Old Motoguzzi Common Stock and 2,000,000 shares of Old Motoguzzi Preferred Stock, of which 6,000,000 shares of Old Motoguzzi Common Stock and 1,500,000 shares of Old Motoguzzi Preferred Stock are issued and outstanding. Except for Old Motoguzzi Preferred Stock and Old Motoguzzi Warrants, there are no existing options, warrants, calls, commitments or other rights of any character including conversion or preemptive rights relating to the acquisition of any issued or unissued capital stock or other securities of Motoguzzi. The outstanding Old Motoguzzi Warrants have been duly and validly authorized and issued. All of the outstanding shares of Old Motoguzzi Common Stock and Old Motoguzzi Preferred Stock are duly and validly authorized and issued, fully paid and non-assessable. SCHEDULE 3.04(a) correctly sets forth the record owners of all of the Old Motoguzzi Common Stock, Old Motoguzzi Preferred Stock and Old Motoguzzi Warrants. Motoguzzi complied with all applicable federal and state securities laws and regulations in connection with the offer and sale of all of the outstanding Old Motoguzzi Common Stock, Old Motoguzzi Preferred Stock and Old Motoguzzi Warrants, and there are no rescission rights relating thereto except for such of the foregoing as would not have a Motoguzzi Material Adverse Effect. There are no options, warrants, convertible securities or other rights permitting or requiring the Motoguzzi Subsidiaries to issue, or which give 8 anyone the right to purchase any securities of the Motoguzzi Subsidiaries or rights convertible into securities of the Motoguzzi Subsidiaries and the Motoguzzi Subsidiaries have not agreed to issue or sell any shares of their capital stock or securities convertible into their capital stock. SECTION 3.05 Licenses and Permits; Compliance with Laws. Each of Motoguzzi and the Motoguzzi Subsidiaries hold all permits, licenses and approvals (collectively, the "Permits") from all federal, state and local governmental authorities in the United States, Italy, and other countries necessary for it to own, lease and operate its properties and to carry on its businesses as now being conducted, except for such of the foregoing, the absence of which would not have a Motoguzzi Material Adverse Effect. Motoguzzi has no knowledge that any such Permit has been rescinded and, to its knowledge, all such Permits are in full force and effect and listed on SCHEDULE 3.05. Except as set forth in any of the Motoguzzi Disclosure Schedules attached hereto, the business of each of Motoguzzi and the Motoguzzi Subsidiaries is being and has been conducted in compliance with the Permits and all applicable laws, statutes, ordinances, regulations judgments, orders, decrees, concessions, grants and other authorizations of any governmental authority except where any non compliance, singly or in the aggregate would not have a Motoguzzi Material Adverse Effect. Neither Motoguzzi nor the Motoguzzi Subsidiaries is in default under any of such Permits and no event has occurred and no condition exists which, with the giving of notice, the passage of time, or both, would constitute a default thereunder which would result in a Motoguzzi Material Adverse Effect. Neither the execution and delivery of this Agreement or any of the other documents contemplated hereby, nor the consummation of the transactions contemplated hereby or thereby, nor compliance by Motoguzzi and the Motoguzzi Subsidiaries with any of the provisions hereof or thereof, will result in any suspension, revocation, impairment, forfeiture or nonrenewal of any Permit, and all of which shall be in effect as of the Closing, except for such of the foregoing, the absence of which would not have a Motoguzzi Material Adverse Effect. SECTION 3.06 Financial Statements. (a) Motoguzzi has caused to be delivered to North consolidated financial statements of Motoguzzi for the years ended December 31, 1996 and 1997 audited and reported on by Arthur Andersen, LLP, and unaudited consolidated financial statements of Motoguzzi for the year ended December 31, 1995 and for the three months ended March 31, 1998 and March 31, 1997 and summary unaudited consolidated financial statements for the three and six month periods ended June 30, 1998 and June 30, 1997 (collectively, the "Motoguzzi Financial Statements"). The Motoguzzi Financial Statements, including all related notes and schedules thereto, fairly present in all material respects the consolidated financial position of Motoguzzi as at the respective dates thereof and the results of operations and cash flows of Motoguzzi for the periods indicated in accordance with United States generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods involved (except as may be noted therein) and subject, in the case of interim financial statements, to normal year-end adjustments, and in the case of summary financial statements, to omission of certain items customarily included in interim financial statements. 9 (b) Except for liabilities, costs, expenses, debts, commitments or obligations arising in connection with this Agreement and the transactions contemplated hereby, or resulting from actions taken in furtherance of the transactions identified in Items 1 through 4 of SCHEDULE 3.08 of the Motoguzzi Disclosure Schedules attached hereto, to the knowledge of Motoguzzi, Motoguzzi, on a consolidated basis, has no debts, liabilities, commitments or obligations (including, without limitation, unasserted claims), whether absolute or contingent, liquidated or unliquidated, or due or to become due or otherwise except for liabilities and obligations (a) reflected as liabilities on the March 31, 1998 balance sheet ("Balance Sheet"), (b) that have arisen since March 31, 1998 in the ordinary course of business of Motoguzzi and the Motoguzzi Subsidiaries, (c) that are described herein or in any of the Motoguzzi Disclosure Schedules attached hereto, or (d) which singly or in the aggregate do not have a Motoguzzi Material Adverse Effect. SECTION 3.07 Real Property. (a) SCHEDULE 3.07 contains a true, correct and complete list and brief description of all real property owned, leased or subleased by Motoguzzi and the Motoguzzi Subsidiaries, all of which are hereinafter referred to as the "Real Property." Motoguzzi has made available to North true, correct and complete copies of the deeds and leases of the Real Property. (b) Except as set forth in any of the Motoguzzi Disclosure Schedules attached hereto, all buildings, structures, improvements, fixtures, facilities, equipment, all components of all buildings, structures and other improvements included within the Real Property owned by Motoguzzi and the Motoguzzi Subsidiaries conforms in all material respects to all applicable statutes, rules, regulations, ordinances, orders, writs, injunctions, judgments, decrees, awards and restrictions of every governmental authority having jurisdic tion over any of the Real Property owned by Motoguzzi and the Motoguzzi Subsidiaries, and every instrumentality or agency thereof (including, without limitation, applicable statutes, rules, regulations, orders and restrictions relating to zoning, land use, safety, health, environment, hazardous substances, pollution controls, employment and employment practices and access by the handicapped) (collectively, "Laws"), except where nonconformance would not have a Motoguzzi Material Adverse Effect. (c) Except as set forth in any of the Motoguzzi Disclosure Schedules attached hereto, the use and operation of the Real Property owned by Motoguzzi and the Motoguzzi Subsidiaries is in full compliance with all Laws, covenants, conditions, restrictions, easements, disposition agreements and similar matters affecting the Real Property except where non compliance would not have a Motoguzzi Material Adverse Effect. Motoguzzi and the Motoguzzi Subsidiaries have not received any notice of any violation (or claimed violation) of or investigation regarding any Laws except where such violation or claimed violation would not have a Motoguzzi Material Adverse Effect. 10 (d) Except as set forth in any of the Motoguzzi Disclosure Schedules, Motoguzzi and the Motoguzzi Subsidiaries have not received notice of, or otherwise have knowledge of, any condemnation, fire, health, safety, building, environmental, hazardous substances, pollution control, zoning or other land use regulatory proceedings, either instituted or planned to be instituted, which would have an adverse effect on the use and operation of any portion of the Real Property or the value of any material portion of the Real Property, nor have Motoguzzi and the Motoguzzi Subsidiaries received notice of any special assessment proceedings affecting any of the Real Property except for such of the foregoing which would not have a Motoguzzi Material Adverse Effect. (e) Motoguzzi has made available for inspection by North true, correct and complete title policies and surveys with respect to the Real Property. SECTION 3.08 Material Contracts. (a) SCHEDULE 3.08(a) sets forth a complete and correct list of all agreements, including without limitation, leases, currently in effect which are material to the assets, financial condition, business or operations of Motoguzzi and the Motoguzzi Subsidiaries, taken as a whole, (collectively, the "Material Contracts"); when the foregoing representation is restated as of the Closing Date, any change to SCHEDULE 3.08(a) shall not be deemed a breach of such representation, for purposes of Article IX or Article XI hereof, unless such change, either singly or in the aggregate, would cause a Motoguzzi Material Adverse Effect. True and complete copies of all Material Contracts have been delivered to North or made available for inspection. (b) Except as set forth in any of the Motoguzzi Disclosure Schedules attached hereto, all Material Contracts are valid and in full force and effect and neither Motoguzzi nor any of the Motoguzzi Subsidiaries has received notice from any other party thereto that it has violated any provision of, or committed or failed to perform any act which with or without notice, lapse of time or both would constitute a default under the provisions of, any Material Contract, except for defaults which would not have, either singly or in the aggregate, a Motoguzzi Material Adverse Effect. None of the rights of Motoguzzi or any of the Motoguzzi Subsidiaries under any of the Material Contracts are subject to any Liens of record, except for Liens granted in the ordinary course of business and Liens which, either singly or in the aggregate do not have a Motoguzzi Material Adverse Effect. Except as set forth in any of the Motoguzzi Disclosure Schedules, neither Motoguzzi nor any of the Motoguzzi Subsidiaries received notice from any other party thereto that it has breached any express or implied representations, warranties or covenants in connection with the sale or provision of its services or goods, except for breaches that, either singly or in the aggregate, will not have a Motoguzzi Material Adverse Effect. 11 SECTION 3.09 Litigation. Except as set forth in any of the Motoguzzi Disclosure Schedules attached hereto, there are no actions, suits, arbitrations, mediation or other proceedings pending or, to its knowledge, threatened against Motoguzzi or any of the Motoguzzi Subsidiaries at law or in equity before any court, Federal, state, municipal or other governmental department or agency or other tribunal and neither Motoguzzi nor any of the Motoguzzi Subsidiaries, nor any of their respective properties, is subject to any order, judgment, injunction or decree; when the foregoing representation is restated as of the Closing Date, any change to any of the Motoguzzi Disclosure Schedules shall not be deemed a breach of such representation, for purposes of Article IX or Article XI hereof, unless such change is reasonably likely to have, either singly or in the aggregate, a Motoguzzi Material Adverse Effect. SECTION 3.10 Taxes, Tax Returns and Audits. Motoguzzi and the Motoguzzi Subsidiaries have (or, in the case of returns becoming due after the date hereof and on or before the Effective Time, will have prior to the Effective Time) filed or caused to be filed, or have properly filed extensions for, all tax returns which are required to be filed and have paid or caused to be paid all taxes required therein to be paid and all assessments received by them to the extent that such taxes have become due, except taxes the validity or amount of which is being contested in good faith by appropriate proceedings and with respect to which adequate reserves have been set aside and except for such of the foregoing as would not cause a Motoguzzi Material Adverse Effect. Motoguzzi and the Motoguzzi Subsidiaries have or will have established adequate reserves on its books and records and financial statements (including the Balance Sheet) for such payment in accordance with GAAP. Motoguzzi and the Motoguzzi Subsidiaries have withheld from each payment made to any of its present or former employees, officers, directors or other party all amounts required by law to be withheld and have, where required, remitted such amounts within the applicable periods to the appropriate governmental authorities. Motoguzzi and the Motoguzzi Subsidiaries have paid or caused to be paid, or have established reserves that they reasonably believe to be adequate in all material respects, for all tax liabilities applicable to them for all fiscal years which have not been examined and reported on by the taxing authorities (or closed by applicable statutes). SECTION 3.11 Absence of Certain Changes. Since March 31, 1998, except as set forth in any of the Motoguzzi Disclosure Schedules attached hereto, and except for costs, expenses or liabilities incurred or actions taken in connection with this Agreement and the transactions contemplated hereby (which costs, expenses and liability are to be paid by TRG), or action taken in furtherance of the transactions identified in Items 1 through 4 of SCHEDULE 3.08 of the Motoguzzi Disclosure Schedules attached hereto, neither Motoguzzi nor any of the Motoguzzi Subsidiaries has: (a) issued, delivered or agreed to issue any stock, bonds or other corporate securities (whether authorized and unissued or held in the treasury), or granted or agreed to grant any options (including employee stock options), warrants or other rights for the issue thereof; 12 (b) borrowed or agreed to borrow any funds except in the ordinary course of business consistent with past practices; (c) incurred any obligation or liability, absolute, accrued, contingent or otherwise, whether due or to become due, except current liabilities incurred in the ordinary course of business consistent with prior practice and liabilities to TRG which, together with other liabilities to TRG, OAM and their subsidiaries (other than Motoguzzi and the Motoguzzi Subsidiaries) shall not exceed $800,000 in the aggregate as of the Closing Date, or, when the foregoing representation is restated as of the Closing Date, such obligations or liabilities as do not either singly or in the aggregate, have a Motoguzzi Material Adverse Effect; (d) sold, transferred, leased to others or otherwise disposed of any assets outside of the ordinary course of business or canceled or compromised any debt or claim, or waived or released any right of substantial value; (e) received any notice of termination of any Material Contract or Permit or suffered any damage, destruction or loss if not covered by insurance, which, as to any of the foregoing, has resulted in a Motoguzzi Material Adverse Effect: (f) encountered any labor union organizing activity, labor disputes or had any material change in its relations with its employees or agents, clients or insurance carriers which has resulted in a Motoguzzi Material Adverse Effect; (g) paid any monies to TRG or OAM or any of their subsidiaries; (h) suffered any Motoguzzi Material Adverse Change. SECTION 3.12 Labor Relations. Except as set forth in any of the Motoguzzi Disclosure Schedules attached hereto, neither Motoguzzi nor any of the Motoguzzi Subsidiaries is a party to any collective bargaining agreement or other contract or agreement with any labor organization or other representative of any of the employees of Motoguzzi and/or any of the Motoguzzi Subsidiaries. Motoguzzi and the Motoguzzi Subsidiaries are in compliance in all material respects with all laws relating to the employment or the workplace, including, without limitation, provisions relating to wages, hours, collective bargaining, safety and health, work authorization, equal employment opportunity, immigration and the withholding of income taxes, unemployment compensation, worker's compensation, employee privacy and right to know and social security contributions, except where noncompliance would not have a Motoguzzi Material Adverse Effect. There are no pending or, to its knowledge, threatened, proceedings or grievances with respect to labor matters concerning Motoguzzi 13 and the Motoguzzi Subsidiaries which would have, either singly or in the aggregate, a Motoguzzi Material Adverse Effect. SECTION 3.13 Insurance Policies; Claims. SCHEDULE 3.13 sets forth all insurance policies and bonds maintained by or on behalf of Motoguzzi and the Motoguzzi Subsidiaries. There are no unresolved claims have been made against Motoguzzi and/or any of the Motoguzzi Subsidiaries in respect of allegedly defective products and Motoguzzi does not know of any written assertion of any such claim, except for such of the foregoing which, if proven, would not have a Motoguzzi Material Adverse Effect. SECTION 3.14 Intellectual Property. (a) Right, Title and Interest. Motoguzzi and the Motoguzzi Subsidiaries own or possess sufficient right, title and interest in and to, or a valid and enforceable license in or other right to use all of the Intellectual Property (as defined below) to entitle them to conduct their businesses as heretofore conducted and as presently intended to be conducted in the future, except for such of the foregoing, the absence of which would not have a Motoguzzi Material Adverse Effect. To its knowledge, Motoguzzi and the Motoguzzi Subsidiaries have not infringed, misappropriated or otherwise violated any Intellectual Property of any other person except for such of the foregoing as would not have a Motoguzzi Material Adverse Effect. To its knowledge, no person is infringing upon any Intellectual Property right of Motoguzzi and the Motoguzzi Subsidiaries except for such of the foregoing as would not have a Motoguzzi Material Adverse Effect. (b) "Intellectual Property" means all patents, patent applications and patent disclosures; all inventions (whether or not patentable and whether or not reduced to practice); all trademarks, service marks, trade dress, trade names and corporate names and all the goodwill associated therewith; all registered and unregistered statutory and common law copyrights; all registrations, applications and renewals for any of the foregoing; all protocols, codes and operating systems; and all trade secrets, confidential information, know-how, technical and computer data, software, and related proprietary property. All of the material Intellectual Property of Motoguzzi and the Motoguzzi Subsidiaries is listed on SCHEDULE 3.14(b) hereto. SECTION 3.15 Properties; Assets. Except as provided in any of the Motoguzzi Disclosure Schedules attached hereto, Motoguzzi and the Motoguzzi Subsidiaries (a) have good and marketable title to all the properties and assets reflected on the Balance Sheet as being owned by Motoguzzi and the Motoguzzi Subsidiaries (except properties sold or otherwise disposed of since the date thereof in the ordinary course of business or properties sold or disposed of after the date hereof, which does not cause a Motoguzzi Material Adverse Effect), and those properties acquired after the date thereof and not thereafter disposed of, free and clear of all Liens, except (i) statutory liens securing payments not yet due, and (ii) such imperfections or irregularities of title, claims, liens, charges, security interests or encumbrances which do not materially affect 14 the use or marketability of the properties or assets subject thereto or affected thereby or otherwise materially impair business operations at such properties, and (b) is the lessee of all personal property reflected on the Balance Sheet as being leased by it as of March 31, 1998 (except for leases that have expired by their terms since March 31, 1998) and those properties leased after the date thereof. Except as set forth in any of the Motoguzzi Disclosure Schedules attached hereto, the assets and properties of Motoguzzi and the Motoguzzi Subsidiaries are in good operating condition and repair (ordinary wear and tear excepted) except for such of the foregoing as do not represent a Motoguzzi Material Adverse Effect, and constitute all of the assets, right and properties which are necessary for the businesses and operations of Motoguzzi as a whole to be conducted as presently conducted. There are no Liens on any assets of Motoguzzi or of any of the Motoguzzi Subsidiaries securing indebtedness of TRG or any subsidiary thereof (other than Motoguzzi or any Motoguzzi Subsidiary; "Intercompany Liens"). SECTION 3.16 Bank Accounts. SCHEDULE 3.16 sets forth the name of each bank in which Motoguzzi and the Motoguzzi Subsidiaries have an account or safe deposit box, vault, lock-box or other arrangement, the account number and description of each account at each bank and the names of all persons authorized to draw thereon or to have access thereto; and the names of all persons, if any, holding tax or other powers of attorney from Motoguzzi and/or any of the Motoguzzi Subsidiaries. SECTION 3.17 Brokers. No broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Motoguzzi. SECTION 3.18 Records. The books of account, minute books, stock certificate books and stock transfer ledgers of Motoguzzi and the Motoguzzi Subsidiaries are complete and correct in all material respects, and there have been no material transactions involving Motoguzzi and the Motoguzzi Subsidiaries of the type typically recorded in such records which were not so recorded. SECTION 3.19 No Illegal or Improper Transactions. Neither Motoguzzi and the Motoguzzi Subsidiaries nor any officer, director, employee, agent or affiliate of Motoguzzi and the Motoguzzi Subsidiaries has offered, paid or agreed to pay to any person or entity (including any governmental official) or solicited, received or agreed to receive from any such person or entity, directly or indirectly, any money or anything of value for the purpose or with the intent of (i) obtaining or maintaining business for the benefit of Motoguzzi and the Motoguzzi Subsidiaries, (ii) illegally or improperly facilitating the purchase or sale of any product or service, or (iii) avoiding the imposition of any fine or penalty, in any manner which is in violation of any applicable ordinance, regulation or law. SECTION 3.20 Related Transactions. Except as set forth in any of the Motoguzzi Disclosure Schedules attached hereto, and for compensation and related arrangements with employees or consultants 15 for services rendered consistent with past practices, no current or former director, officer or, to Motoguzzi's knowledge, employee of Motoguzzi and/or any of the Motoguzzi Subsidiaries is presently, or during the last two fiscal years has been, (a) a party to any transaction with Motoguzzi and/or any of the Motoguzzi Subsidiaries, (including, but not limited to, any contract, agreement or other arrangements providing for the furnishing of services by, or rental of real or personal property from, or otherwise requiring payments to, any such director, officer, employee or shareholder), or (b) the direct or, to Motoguzzi's knowledge, indirect owner of an interest in any corporation, firm, association or business organization which is a current (or potential) competitor, supplier or customer of Motoguzzi and/or any of the Motoguzzi Subsidiaries, nor, to Motoguzzi's knowledge, does any such person receive income from any source other than Motoguzzi and/or any of the Motoguzzi Subsidiaries which relates to the business of, or should properly accrue to, Motoguzzi and/or any of the Motoguzzi Subsidiaries. SECTION 3.21 Disclosure. No representation or warranty by Motoguzzi contained in this Agreement and no information contained in any schedule, financial statement or other instrument furnished or to be furnished by Motoguzzi to North pursuant to this Agreement or in connection with the transactions contemplated hereby, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained herein or therein not misleading. SECTION 3.22 Environmental, Health and Safety Matters. Except as set forth in any of the Motoguzzi Disclosure Schedules attached hereto: (a) Motoguzzi and the Motoguzzi Subsidiaries are in compliance with Environmental, Health and Safety Requirements, except for such noncompliance as would not reasonably be expected to have, either singly or in the aggregate, a Motoguzzi Material Adverse Effect. (b) Motoguzzi and the Motoguzzi Subsidiaries have not received any written notice, report or other information regarding any actual or alleged material violation of Environmental, Health and Safety Requirements, or any material liabilities or potential material liabilities (whether accrued, absolute, contingent, unliquidated or otherwise), including any investigatory, remedial or corrective obligations, relating to Motoguzzi or its property arising under Environmental, Health, and Safety Requirements, the subject of which would reasonably be expected to have, either singly or in the aggregate, a Motoguzzi Material Adverse Effect. SECTION 3.23 Year 2000 Compliance. Third parties have been engaged by Motoguzzi to evaluate and, if required, upgrade, all operating codes, programs, utilities and other software, as well as all hardware and systems, utilized by Motoguzzi and the Motoguzzi Subsidiaries in their businesses, or in the provisions of services, or comprising software, hardware and/or systems sold by Motoguzzi and the Motoguzzi Subsidiaries to third parties, in order to record, store, process, and present calendar dates falling 16 on or after January 1, 2000 in the same manner, and with the same functionality, as provided on or before December 31, 1999. and Motoguzzi is relying exclusively upon the expertise of such third parties to achieve such operability. TRG represent and warrants to North as follows: SECTION 3.24 Organization. TRG (i) is a corporation duly organized, validly existing and in good standing under the laws of Maryland and (ii) owns 1,500,000 shares of Old Motoguzzi Common Stock, and OAM owns 4,500,000 shares of Old Motoguzzi Common Stock, representing 25% and 75%, respectively, of the outstanding shares on the date hereof of Old Motoguzzi Common Stock. SECTION 3.25 Authority; Corporate Action. TRG has all necessary corporate power and authority to enter into this Agreement and to consummate such of the transactions contemplated hereby as are applicable to TRG. All action, corporate and otherwise, necessary to be taken by TRG for the execution, delivery and performance of this Agreement and the other agreements and instruments delivered by TRG in connection with the transactions contemplated hereby or thereby has or at the Closing will have been duly and validly taken. Subject to the terms and conditions hereof, this Agreement and the other agreements and instruments delivered by TRG in connection with the transactions contemplated hereby shall constitute the valid, binding and enforceable obligation of TRG enforceable against it in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or similar laws of general application now or hereafter in effect affecting the rights and remedies of creditors and by general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity). SECTION 3.26 No Conflict; Required Filings and Consents. The execution and delivery of this Agreement (and the other agreements contemplated hereby) by TRG does not, and the performance by TRG of its obligations under this Agreement (and any other agreement contemplated hereby) will not, (i) conflict with or violate its Certificate of Incorporation, By-laws or other organizational documents (ii) conflict with or violate any law, statute, ordinance, rule, regulation, order, judgment or decree applicable to TRG or by which any of its properties or assets is bound or affected, or (iii) result in any breach of, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a Lien on any of the properties or assets of TRG pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which TRG is a party or by which TRG or any of its properties or assets is bound or affected, except, in the case of clauses (ii) and (iii), above, for any such conflicts, violations, breaches, defaults or other occurrences that would not have, either singly or in the aggregate, a material adverse effect on TRG and its subsidiaries, taken as a whole. 17 SECTION 3.27 Brokers. No broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of TRG. SECTION 3.28 Disclosure. No representation or warranty by TRG contained in this Agreement and no information contained in any schedule, financial statement or other instrument furnished or to be furnished by TRG to North pursuant to this Agreement or in connection with the transactions contemplated hereby, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained herein or therein not misleading. SECTION 3.29 Voting Agreement. TRG and OAM have each executed and delivered to North an agreement in the form of EXHIBIT D hereto with respect to voting in favor of the consummation of the Merger at any meeting of shareholders of Motoguzzi. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF NORTH North represents and warrants to Motoguzzi as follows: SECTION 4.01 Organization. North is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. North does not own, directly or indirectly, any capital stock or other securities of any issuer or any equity interest in any other entity, including any partnership, limited partnership, limited liability company, business trust or any other business entity, and is not a party to any agreement to acquire any such securities or interest. North is qualified to do business in each state where the nature of the business it conducts or the properties it owns, leases or operates requires it to so qualify, except where the failure to so qualify would not, singly or in the aggregate, have a North Material Adverse Effect. North has all requisite corporate power to own, lease and operate its properties and to carry on its business. SECTION 4.02 Authority; Corporate Action. North has all necessary corporate power and authority to enter into this Agreement and the other agreements contemplated by this Agreement and to consummate the transactions contemplated hereby and thereby. All action, corporate and otherwise, necessary to be taken by North to authorize the execution, delivery and performance of this Agreement and all other agreements delivered or to be delivered by North in connection with the transactions contemplated hereby or thereby has, or at the Closing will have been, duly and validly taken. Subject to the terms and conditions hereof, this Agreement and all the other agreements contemplated hereby constitute valid, binding and enforceable obligations of North, as the case may be, enforceable in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent 18 transfer or similar laws of general application now or hereafter in effect affecting the rights and remedies of creditors and by general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity). SECTION 4.03 No Conflict; Required Filings and Consents. (a) The execution and delivery of this Agreement (and the other agreements contemplated hereby) by North does not, and the performance by North of its obligations under this Agreement (and any other agreement contemplated hereby) will not, (i) conflict with or violate the Certificate of Incorporation, By-laws or other organizational documents of North, (ii) conflict with or violate any law, statute, ordinance, rule, regulation, order, judgment or decree applicable to North or by which any of its properties or assets is bound or affected, or (iii) result in any breach of or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a Lien on any of the properties or assets of North pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which North is a party or by which North or any of its properties or assets is bound or affected, except, in the case of clauses (ii) and (iii), above, for any such conflicts, violations, breaches, defaults or other occurrences that would not have, either singly or in the aggregate, a North Material Adverse Effect. (b) The execution and delivery of this Agreement and all the other agreements contemplated hereby by North does not, and the performance of this Agreement and all the other agreements contemplated hereby by North will not, require any consent, approval, authorization or permit of, or filing with or notification to, any Governmental Entity, except for (i) compliance with the applicable requirements, if any, of the Certificate of Incorporation and Bylaws of North (including, but not limited to, the approval of this Agreement and the Merger by the Stockholders of North), Exchange Act, Securities Act, state securities laws, state takeover laws, Nasdaq and (ii) filing and recordation of appropriate merger documents as required by the laws of the State of Delaware, and (iii) where failure to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications, would not have, either singly or in the aggregate, a North Material Adverse Effect. SECTION 4.04 North Capitalization. The number of authorized and issued shares of capital stock of North is set forth on SCHEDULE 4.04 which amount will be increased on or before the Effective Time by 30,000 shares of Class B Common Stock of North upon exercise of the Class B Options and payment to North of the aggregate of $300,000 Class B Option exercise price; (such shares of Class B Common Stock to be converted into 60,000 shares of Class A Common Stock either (i) as of the Effective Time if all of the actions described in Section 7.06 are approved, or (ii) if not, within 90 days of the Effective Time in accordance with the agreement attached hereto as EXHIBIT E). North does not have any treasury stock. Except as set forth 19 on SCHEDULE 4.04 and except for (x) the Executive Options and (y) a warrant to purchase 350,000 shares of Class A Common Stock to be issued at the Effective Time to Allen & Company (the Executive Options and such warrant, collectively the "Closing Date Options"), there are no options, warrants, calls, commitments or other rights of any character including conversion or preemptive rights relating to the acquisition of any issued or unissued capital stock or other securities of North. All of the outstanding shares of common stock and preferred stock of North are duly and validly authorized and issued, fully paid and non-assessable. SCHEDULE 4.04 correctly sets forth the record owners of all of the options of North. North has complied with all applicable federal and state securities laws and regulations in connection with the offer and sale of all of the common stock, preferred stock, warrants and options of North and there are no rescission rights relating thereto except for such of the foregoing as would not have a North Material Adverse Effect. SCHEDULE 4.04 sets forth the registration rights of all holders of securities of North, either on a "demand" or a "piggyback" basis. SECTION 4.05 Escrow Account. As of the date hereof and at the Closing Date, North has and covenants that it will have no less than $8,391,000 invested in government securities in an escrow account with Chase Manhattan Bank. Upon consummation of the Merger, all conditions to the release of such funds from escrow will be satisfied. Immediately prior to the Closing Date, after provision for (i) all unpaid costs, expenses and liabilities of North heretofore incurred or hereafter incurred at any time prior to the Closing Date, all of which (other than those described in clause (ii) hereof) to the best of North's knowledge are set forth in SCHEDULE 4.05 hereto, and (ii) all unpaid costs and expenses incurred by North in connection with the transactions contemplated by this Agreement in an aggregate amount, to the extent payable in cash, of not more than $625,000, all of which, or reasonable estimates thereof, together with all documentation in North's possession related thereto are also set forth on SCHEDULE 4.05 (the net amount of cash so remaining is referred to herein as "Available Cash"), North covenants that it will have not less than $8,000,000 of Available Cash, less only such amounts, if any, as North is required to pay stockholders who are not officers and directors of North who elect to have their shares redeemed in accordance with the provisions of the Certificate of Incorporation of North. SCHEDULE 4.05 also lists all costs and expenses incurred by North in connection with the transactions contemplated by this Agreement and paid by North. SECTION 4.06 North Securities and Exchange Commission Reports; Financial Statement. (a) North has filed all forms, reports, statements and other documents required to be filed with the Commission when and as required to be filed, and has heretofore made them available to Motoguzzi, in the same form as filed with the Commission, together with any amendments thereto, copies of its (i) Annual Report on Form 10-K for the year ended August 31, 1997 and all Quarterly Reports on Form 10-Q filed since August 31, 1997, and (ii) all reports on Form 8-K since August 31, 1997 (collectively, the "North Reports"). As of their respective filing dates, the North Reports (i) complied as to form in all material respects with the requirements of the Exchange Act and the Securities Act and (ii) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the 20 statements therein, in the light of the circumstances under which they were made, not misleading. Except as disclosed in a filing subsequently made in accordance with the requirements of the Exchange Act prior to the date hereof and except for such filing of a report on Form 8-K as may be required to disclose this Agreement and the transactions as contemplated by this Agreement, no event has occurred subsequent to the date of filing of each such North Report as would make any statement contained therein materially untrue or misleading or would make any omission therefrom materially misleading in light of the occurrence of such event. (b) The financial statements of North for the year ended August 31, 1997, audited and reported on by BDO Seidman, LLP and unaudited financial statements of North for the nine months ended May 31, 1998 (collectively, the "North Financial Statements") are contained in the Annual Report on Form 10-K for the year ended August 31, 1997 and the Quarterly Report on Form 10-Q for the quarter ended May 31, 1998, respectively, each of which has been delivered to TRG as part of the North Reports. The North Financial Statements , including all related notes and schedules thereto, fairly present in all material respects the consolidated financial position of North as at the respective dates thereof and the consolidated results of operations and cash flows of North for the periods indicated in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be noted therein) and subject, in the case of interim financial statements, to normal year-end adjustments. (c) Other than as set forth on the May 31, 1998 balance sheet contained in the North Financial Statements and such of the following as are incurred in connection with the negotiation and consummation of the transactions contemplated by this Agreement, estimates of which are set forth in SCHEDULE 4.05, North has, on the date hereof and North covenants that it will have as of the Closing Date, no debts, liabilities, financial commitments or financial obligations (including, without limitation, unasserted claims) whether absolute or contingent, liquidated or unliquidated, or due or to become due or otherwise, except those incurred in the ordinary course of business, consistent with past practices, since the date of such balance sheet which are set forth in SCHEDULE 4.05. SECTION 4.07 North Material Contracts. (a) SCHEDULE 4.07(a) sets forth a complete and correct list of all agreements which are material to the assets, financial condition, business or operations of North. True and complete copies of all Material Contracts have been delivered to Motoguzzi or made available for inspection. (b) Except as set forth in any of the North Disclosure Schedules, all Material Contracts are valid and in full force and effect and North has not received notice from any other party thereto that it has violated any provision of, or committed or failed to perform any act which with or without notice, lapse of time or both would constitute a default under the provisions of, any Material Contract, except for defaults that would 21 not reasonably be expected to have, either singly or in the aggregate, a North Material Adverse Effect. None of the rights of North under any of the Material Contracts is subject to any Liens of record. Except as set forth in any of the North Disclosure Schedules, North has not received notice from any other party thereto that it has breached any express or implied representations, warranties or covenants in connection with such Material Contracts, except for breaches that, individually and in the aggregate, will not have a North Material Adverse Effect. SECTION 4.08 Litigation. Other than as set forth on any of the North Disclosure Schedules, there are no actions, suits, arbitrations, mediations or other proceedings pending or, to its knowledge, threatened against North at law or in equity before any court, Federal, state, municipal or other governmental department or agency or other tribunal. Neither North nor its property is subject to any order, judgment, injunction or decree which could have either singly or in the aggregate, a North Material Adverse Effect. SECTION 4.09 Bank Accounts. SCHEDULE 4.09 sets forth the name of each bank in which North has an account, safe deposit, vault, lock-box or other arrangement, the account number and description of each account at each bank and the names of all persons authorized to draw thereon or to have access thereto and the names of all persons, if any, holding powers of attorney over such accounts from North. SECTION 4.10 Disclosure. No representation or warranty by North contained in this Agreement and no information contained in any schedule, financial statement or other instrument furnished or to be furnished to Motoguzzi by North pursuant to this Agreement or in connection with the transactions contemplated hereby, when taken together with the North Reports, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained herein or therein not misleading. SECTION 4.11 Investment Bankers. Other than fees payable to and expenses of Allen & Company Incorporated, which fees and expenses will be paid solely by North, in cash and warrants as provided herein and in the North Disclosure Schedules, no broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transaction contemplated by this Agreement based upon arrangements made by or on behalf of North. SECTION 4.12 Securities Issued as Merger Consideration. The Class A Common Stock, Class B Preferred Stock and Nominal Warrants, when issued as a result of the Merger shall be duly authorized and issued by North and the Class A Common Stock and Class B Preferred Stock will be fully paid and non-assessable shares of capital stock of North. The shares of Class A Common Stock purchasable upon exercise of the Nominal Warrants and the Continuation Warrants have been duly reserved for issuance and, when issued in accordance with the terms of the Nominal Warrants and the Continuation Warrants, shall be duly authorized and issued by North and fully paid and non-assessable. 22 SECTION 4.13 Licenses and Permits; Compliance with Laws. North holds all permits, licenses and approvals from all federal, state and local governmental authorities, foreign or domestic, necessary for it to own its properties and to carry on its business as now being conducted except for such of the foregoing, the absence of which would not have a North Material Adverse Effect. North is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended ("Investment Company Act") and is not, and has not been, required to register under the Investment Company Act. SECTION 4.14 Records. The books of account, minutes books, stock certificate ledger and stock transfer ledger of North are complete and correct in all material respects , and there have been no material transactions involving North of the type typically recorded in such records which were not so recorded. SECTION 4.15 No Illegal or Improper Transactions. Neither North, nor any officer, director, employee, agent or affiliate of North, has offered, paid or agreed to pay to any person or entity (including any governmental official) or solicited, received or agreed to receive from any such person or entity, directly or indirectly, any money or anything of value for the purpose or with the intent of (i) obtaining or maintaining business for the benefit of North, (ii) illegally or improperly facilitating the purchase or sale of any product or service, or (iii) avoiding the imposition of any fine or penalty, in any manner which is in violation of any applicable ordinance, regulation or law. SECTION 4.16 License Fee. All fees payable in connection with the use of the "Sma2rt" and or other related trademarks have been paid by North. SECTION 4.17 Indemnification Agreements. Other than as provided in the Certificate of Incorporation or By Laws of North, North is not a party to any agreement, undertaking, understanding or obligation, express or implied, to indemnify any current or former director of North arising out of any acts or events occurring prior the date hereof. SECTION 4.18 Taxes, Tax Returns and Audits. North has (or, in the case of returns becoming due after the date hereof and on or before the Effective Time, will have prior to the Effective Time) filed or caused to be filed, or have properly filed extensions for, all tax returns which are required to be filed and have paid or caused to be paid all taxes required therein to be paid and all assessments received by them to the extent that such taxes have become due, except taxes the validity or amount of which is being contested in good faith by appropriate proceedings and with respect to which adequate reserves have been set aside. North has or will have established adequate reserves on its books and records and financial statements (including the May 31, 1998 balance sheet) for such payment in accordance with GAAP. North has withheld from each payment made to any of its present or former employees, officers, directors or other party all amounts required by law to be withheld and has, where required, remitted such amounts within the applicable 23 periods to the appropriate governmental authorities. North has paid or caused to be paid, or has established reserves that it reasonably believes to be adequate in all material respects, for all tax liabilities applicable to it for all fiscal years which have not been examined and reported on by the taxing authorities (or closed by applicable statutes). ARTICLE V NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF THE PARTIES. SECTION 5.01 Survival. Each statement, representation, warranty, covenant and agreement made by any Party to another under this Agreement shall remain in effect continuously until the Closing, and the representations, warranties, covenants, and agreements made by Motoguzzi and TRG shall survive the Closing and shall terminate at such time as the right of North to assert claims against the Remedy Fund (as hereinafter defined) under such statement, representation, warranty, covenant or agreement as provided in ARTICLE X so terminates, provided that such termination shall not affect North's rights in respect of any claims asserted in accordance with ARTICLE X prior to such termination, and provided further that nothing contained herein shall limit any Party's rights and remedies under ARTICLE XI. ARTICLE VI COVENANTS OF MOTOGUZZI AND TRG SECTION 6.01 Conduct of Business. Motoguzzi covenants and agrees that, from the date hereof through the Closing Date, except as otherwise set forth in or as contemplated by this Agreement, including without limitation the actions described in SECTION 6.13, and except for actions taken in furtherance of any transaction specified in any of the Motoguzzi Disclosure Schedules attached hereto, Motoguzzi and the Motoguzzi Subsidiaries shall: (a) conduct their businesses only in the ordinary course and in a manner consistent with the current practice of such business, preserve substantially intact the business organization of Motoguzzi and the Motoguzzi Subsidiaries, use their best efforts to preserve the current relationships of Motoguzzi and the Motoguzzi Subsidiaries with customers and other persons with which Motoguzzi and the Motoguzzi Subsidiaries have significant business relations, taken as a whole, preserve the goodwill of Motoguzzi and the Motoguzzi Subsidiaries, taken as a whole, and comply with all requirements of law, the violation of which are reasonably likely to have a Motoguzzi Material Adverse Effect; (b) not sell, transfer or dispose of all or any part of its capital stock; 24 (c) not (i) issue any shares of its capital stock nor any options, obligations, rights, warrants or other securities convertible into or exchangeable for its capital stock or any other class of equity securities of Motoguzzi; or (ii) amend or otherwise modify the terms of any such securities, options, obligations, rights or warrants in a manner inconsistent with the provisions of this Agreement or if the effect thereof shall be to make such terms more favorable to the holders thereof; (d) not declare any dividend or make any distribution in cash, securities or otherwise on the outstanding shares of its capital stock, or directly or indirectly redeem or purchase any such capital stock except for dividends or distributions by a Motoguzzi Subsidiary to Motoguzzi, or redemptions or purchases of capital stock of Motoguzzi Subsidiaries; (e) not, in any manner whatsoever, advance, transfer (other than in payment for goods received or services rendered in the ordinary course of business), or distribute to any security holder of Motoguzzi, including without limitation TRG, OAM or any of their affiliates, or otherwise withdraw, cash or cash equivalents in any manner inconsistent with its established cash management practices, except to pay existing obligations of Motoguzzi and the Motoguzzi Subsidiaries in accordance with their terms; (f) not change any of its methods of accounting in effect at March 31, 1998; (g) not prepay, before the scheduled maturity thereof, any of its long-term debt, or incur any obligation for borrowed money, whether or not evidenced by a note, bond, debenture or similar instrument, other than indebtedness incurred in the ordinary course of business consistent with past practices and as contemplated by this Agreement; (h) not enter into, or modify in any material respect or terminate any Material Contract or Permit if same would cause a Motoguzzi Material Adverse Effect, except as required by applicable law; (i) not take any action that will, or could reasonably be expected to, result in any of its representations and warranties set forth in this Agreement being inaccurate as of the Closing Date or in any of the conditions to the Merger not being satisfied, if such inaccuracy or non-satisfaction of condition would permit termination of this Agreement by North in accordance with ARTICLE IX hereof; or (j) not agree in writing or otherwise to do any of the foregoing. SECTION 6.02 Access to Information; Confidentiality. (a) Between the date of this Agreement and the Closing Date, Motoguzzi will (i) permit North and their Representatives reasonable access to all of the books, records, reports and other related 25 materials, offices and other facilities and properties of Motoguzzi and the Motoguzzi Subsidiaries; (ii) permit North and their Representatives to make such inspections thereof as they may reasonably request; and (iii) furnish North and their Representatives with such financial and operating data (including without limitation the work papers of Motoguzzi's accountants) and other information with respect to Motoguzzi and the Motoguzzi Subsidiaries as North may from time to time reasonably request. (b) TRG and Motoguzzi shall hold and shall cause their affiliates and Representatives to hold in strict confidence, unless compelled to disclose by judicial or administrative process or by other requirements of law, all documents and information concerning North furnished to them by North or their Representatives in connection with the transactions contemplated by this Agreement (except to the extent that such information can be shown to have been (i) previously known by TRG or Motoguzzi, (ii) in the public domain through no fault of TRG or Motoguzzi or (iii) later lawfully acquired by TRG or Motoguzzi from another source, which source shall not be the agent of North or person under confidentiality obligation to North) and, except as otherwise required by applicable law, rule or regulation, neither TRG nor Motoguzzi shall release or disclose such information to any other person, except its auditors, actuaries, attorneys, financial advisors, bankers and other consultants and advisors who need to know same in connection with this Agreement. SECTION 6.03 Maintenance of Insurance. Through the Closing Date, Motoguzzi shall maintain insurance policies providing insurance coverage for its consolidated business and the assets of Motoguzzi of substantially the same kinds, in substantially the same amounts and against substantially the same risks as are in effect on the date hereof to the extent that such coverage is available at a cost not greater than 200% of the present cost of such coverage. SECTION 6.04 No Other Negotiations. Unless and until this Agreement shall have been terminated pursuant to its terms, neither Motoguzzi nor any of its Representatives, officers, directors or affiliates shall, directly or indirectly, solicit, institute, initiate, or pursue or respond to any inquiries or enter into discussions, proposals or negotiations with any person concerning any merger, sale of substantial assets, tender offer, sale of shares of stock or similar transaction involving Motoguzzi or any of its assets or disclose, directly or indirectly, other than to the shareholders of Motoguzzi, any information not customarily disclosed to the public or such shareholders concerning Motoguzzi, or except as required by law, afford to any other person access to the properties, books or records of Motoguzzi, or otherwise assist any person preparing to make or who has made such an offer, or enter into any agreement with any third party providing for a business combination transaction, equity investment or sale of significant amount of assets of Motoguzzi or recommend to its shareholders any of the foregoing. Motoguzzi shall promptly notify North of any direct or indirect inquiries, discussions, proposals or negotiations. SECTION 6.05 No Securities Transactions. Neither Motoguzzi nor any of its affiliates shall engage in any transactions involving the securities of North prior to the Closing Date. 26 SECTION 6.06 Fulfillment of Conditions. TRG and Motoguzzi shall use its respective commercially reasonable efforts to fulfill, or cause to be fulfilled, the conditions specified in ARTICLES VIII AND IX applicable to it to the extent that the fulfillment of such conditions is within its respective control. The foregoing obligation includes taking or refraining from such reasonable actions as may be necessary to fulfill such conditions (including Motoguzzi and the Motoguzzi Subsidiaries conducting their businesses in such manner that on the Closing Date the representations and warranties of TRG and Motoguzzi contained herein shall be accurate as though then made, except as contemplated or permitted by the terms hereof). SECTION 6.07 Disclosure of Certain Matters. During the period from the date hereof through the Closing Date, each of TRG and Motoguzzi shall give North prompt written notice of any event or development that occurs that (a) had it existed or been known on the date hereof would have been required to be disclosed under this Agreement, (b) would cause its respective representations and warranties contained herein to be inaccurate or otherwise misleading in a material respect, (c) could reasonably be expected to give North any reason to believe that any of the conditions set forth in ARTICLE IX will not be satisfied, or (d) is of a nature that such constitutes or may constitute a Motoguzzi Material Adverse Change. SECTION 6.08 Assignment or Transfer of Contracts, Leases and Permits. Motoguzzi shall, in consultation with North and its Representatives, promptly take all necessary action to, and shall use its commercially reasonable efforts to obtain consents under all Material Contracts and Permits which require the consent of any other party or person to the assignment or transfer thereof either by the terms thereof or as a matter of law to the extent that any assignment or transfer thereof would be deemed to have occurred thereunder by reason of the consummation of the Merger. SECTION 6.09 Information for Proxy Statement. Motoguzzi will cooperate with North in the preparation of North's Proxy and Registration Statement referred to in SECTION 7.05 and furnish to North all information concerning itself and its officers and directors as North or its counsel may reasonably request and that is required or customary for inclusion in such Proxy and Registration Statement. Motoguzzi covenants that all of such information which has been approved by TRG, Motoguzzi or their counsel (which approval will be evidenced by a writing identifying the document, by draft date or otherwise, prior to filing thereof with the Securities and Exchange Commission) and is included in such Proxy and Registration Statement and any other written information furnished by Motoguzzi for inclusion in the Proxy and Registration Statement will comply in all material respects with the applicable provisions of the Securities Exchange Act of 1934 ("Exchange Act") and will not at the time of the effectiveness of the Proxy and Registration Statement and any amendments thereof or supplements thereto and at the time of the North stockholders meeting contain any untrue statement of a material fact or omit to state any material fact required to be stated therein and necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading or necessary to correct any statement in any earlier filing with the Commission of such 27 Proxy and Registration Statement or any amendment thereof or any supplement thereto or any earlier communication to the stockholders of North with respect to the transactions contemplated by this Agreement. SECTION 6.10 Cold Comfort Letter. Upon North providing Arthur Andersen, LLP, the accountants for Motoguzzi ("Motoguzzi Accountants"), with a representation letter in accordance with paragraphs 5, 6 and 7 of the Statement on Auditing Standards regarding Letters for Underwriters, Motoguzzi shall cause to be delivered to North a letter of Motoguzzi's Accountants, dated the effective date of the Proxy and Registration Statement, and addressed to North, in form and substance satisfactory to North (with such changes to which North shall consent, it being understood that such consent shall not be unreasonably withheld), to the effect that: (a) they are independent certified public accountants with respect to Motoguzzi within the meaning of the Exchange Act, including the applicable published regulations thereunder; (b) the consolidated financial statements of Motoguzzi certified by them and included in the Proxy and Registration Statement comply as to form in all material respects with the applicable accounting requirements of the Exchange Act, including the published regulations thereunder; and (c) they have carried out procedures to a specified date not more than five business days prior to the date of the Proxy and Registration Statement that do not constitute an audit in accordance with GAAP of the consolidated financial statements of Motoguzzi, as follows: (i) read the unaudited financial statements of Motoguzzi included in the Proxy and Registration Statement, (ii) read the unaudited consolidated financial statements of Motoguzzi for the period from the date of the most recent financial statements included in the Proxy and Registration Statement through the date of the latest available interim financial statements, (iii) read the minutes of the meetings of stockholders and Boards of Directors of Motoguzzi from the date of the most recent financial statements of Motoguzzi included in the Proxy and Registration Statement to such date not more than five business days prior to the date of the Proxy and Registration Statement and (iv) consulted with certain officers of Motoguzzi responsible for financial and accounting matters as to whether any of the changes or decreases referred to below has occurred, and based on such procedures, nothing has come to their attention which would cause them to believe that (A) any unaudited financial statements of Motoguzzi included in the Proxy and Registration Statement do not comply as to form in all material respects with the applicable accounting requirements of the Exchange Act and of the published regulations thereunder; (B) such unaudited financial statements are not fairly presented in conformity with GAAP applied on a basis substantially consistent with that of the audited consolidated financial statements of Motoguzzi included in the Proxy and Registration Statement; (C) as of such date not more than five business days prior to the date of the Proxy and Registration Statement, there was not, except as set forth in such letter, any (1) change in capital stock, treasury stock or long-term debt of Motoguzzi or (2) any decrease in capital in excess of par value, retained earnings, net assets, net current assets or investments 28 of Motoguzzi, in each case as compared with the amounts shown in the most recent balance sheet of Motoguzzi included in the Proxy and Registration Statement or (D) for the period from the date of such balance sheet to the end of the month immediately preceding the date of the Proxy and Registration Statement, there were not, except as set forth in such letter, any decreases, as compared with the corresponding period in the preceding year, in revenues or in the total or per share amounts of income before extraordinary items, income before income taxes or net income of Motoguzzi. SECTION 6.11 Rule 145. Prior to the Closing Date Motoguzzi will identify in a certificate from its president to North all persons who he reasonably believes at the Effective Time will be deemed to be "affiliates" of Motoguzzi for the purposes of Rule 145 under the Securities Act. The certificates representing any securities to be issued pursuant to this Agreement to such "affiliates" will bear an appropriate legend reflecting the requirements of Rule 145. Prior to the Closing Date Motoguzzi will use its best efforts to cause each such person to enter into an agreement in form and substance reasonably acceptable to North pursuant to which each such person acknowledges his or its responsibilities as an "affiliate." SECTION 6.12 Lock-Up Agreements. At the Closing Date, Motoguzzi will deliver to North agreements from such of its common stockholders and preferred stockholders as set forth in SCHEDULE 6.12 to the effect that the those persons will not publicly sell any of the Class A Common Stock to be received upon the Merger or receivable upon conversion of the Class B Preferred Stock for a period of six months from the Effective Time without the consent of the Independent Committee (as hereinafter defined) of the Surviving Corporation. The certificates representing any securities subject to these agreements will bear an appropriate legend reflecting the terms of the agreement. SECTION 6.13 Interim Financing. Motoguzzi and the Motoguzzi Subsidiaries may enter into negotiations to obtain financing and may enter into such loan agreements and other agreements related thereto, including without limitation issuance of warrants or other equity securities, as Motoguzzi determines, provided that (i) neither Motoguzzi nor the Motoguzzi Subsidiaries shall enter into any such agreements unless North has consented thereto in writing, which consent shall not be unreasonably withheld, provided that such consent shall not be required for the issuance of (and notwithstanding anything to the contrary provided in this Agreement, Motoguzzi may issue) warrants or other equity securities issued in connection therewith if such issuance does not reduce the equity ownership by North's stockholders in the Surviving Corporation (in which event appropriate adjustment shall be made to the amount of Merger Consideration allocated among the holders of outstanding Motoguzzi securities, but the aggregate Merger Consideration shall not be increased), provided further that North's consent shall be required and same may be withheld in North's sole discretion, for the issuance of any warrants or other equity securities which would reduce the equity ownership of North's stockholders in the Surviving Corporation, (ii) such financing shall be repaid by Surviving Corporation contemporaneously with or promptly following the Closing Date, unless otherwise agreed to by North in writing 29 and (iii) such financing shall not be entered into after the Proxy and Registration Statement has been declared effective and mailed to North's Stockholders. SECTION 6.14 Lien Search. Motoguzzi shall use its best efforts to cause a search to be made to ascertain whether there are any Intercompany Liens on any assets of any Motoguzzi Subsidiary in Italy, provided that such kind of search is generally available in Italy and the cost thereof is not greater than $10,000. ARTICLE VII COVENANTS OF NORTH SECTION 7.01 North Conduct of Business. North covenants and agrees that, from the date hereof through the Closing Date, except as otherwise set forth in this Agreement, it will: (a) conduct its business only in the ordinary course and in a manner consistent with the current practice of such business, preserve substantially intact the business organization of North, keep available the services of the current employees of North, preserve the current relationships with which North has significant business relations, preserve the goodwill of North and comply with all requirements of law, the violation of which could have a material adverse effect on the business or operation of North; practices of such business; (b) except for the granting of the Closing Date Options and for the issuance of shares of stock as described in SECTION 4.04, not pledge, sell, transfer, dispose of, or otherwise encumber or grant any rights or interests to others of any kind with respect to, all or any part of its capital stock or enter into any discussions or negotiations with any other party to do so; (c) not (i) issue any shares of its capital stock nor any options (other than the Closing Date Options and the issuance of shares of stock as described in SECTION 4.04), obligations, rights, warrants or other securities convertible into or exchangeable for its capital stock, or any other class of securities, whether debt or equity; or (ii) amend or otherwise modify the terms of any such securities, options, obligations, rights or warrants in a manner inconsistent with the provisions of this Agreement or if the effect thereof shall be to make such terms more favorable to the holders thereof; (d) not declare any dividend or make any distribution in cash, securities or otherwise on the outstanding shares of its capital stock, or directly or indirectly redeem or purchase any such capital stock or except as required by the Certificate of Incorporation of North in connection with the redemption of less than 20% of the outstanding shares of Class A Common Stock from persons who are not directors or officers of North. 30 (e) not, in any manner whatsoever, advance, transfer (other than in payment for goods received or services rendered in the ordinary course of business and as set forth on Schedule 4.05), or distribute to any security holders of North or any of their affiliates, or otherwise withdraw, cash or cash equivalents in any manner inconsistent with established cash management practices, except to pay existing obligations of North in accordance with its terms; (f) not change any of its methods of accounting in effect at August 31, 1997; (g) except pursuant to this Agreement, not prepay, before the scheduled maturity thereof, any of its long-term debt, or incur any obligation for borrowed money, whether or not evidenced by a note, bond, debenture or similar instrument, other than indebtedness incurred in the ordinary course of business consistent with past practices; (h) not enter into or modify in any material respect any material contract or lease of North; (i) not take any action that will, or could reasonably be expected to, result in any of its representations and warranties set forth in this Agreement being inaccurate as of the Closing Date or in any of the conditions to the Merger not being satisfied, if such inaccuracy or non-satisfaction of condition would permit termination of this Agreement by Motoguzzi or TRG in accordance with ARTICLE IX hereof; (j) not agree in writing or otherwise to do any of the foregoing; of (k) not incur any expenses or liabilities except to the extent contemplated herein and described in SCHEDULE 4.05, without the prior written consent of Motoguzzi. SECTION 7.02 Fulfillment of Conditions. North shall use its best efforts to fulfill the conditions specified in ARTICLES VIII AND IX to the extent that the fulfillment of such conditions is within its control. The foregoing obligation includes taking or refraining from such actions as may be necessary to fulfill such conditions (including conducting the business of North in such manner that on the Closing Date the representations and warranties of North contained herein shall be accurate as though then made). SECTION 7.03 Filing of Initial Listing Application with Nasdaq. As soon as practicable after the execution of this Agreement, North shall file with Nasdaq an application to approve listing on the Nasdaq Stock Market of the shares of Class A Common Stock and North shall take such actions as it reasonably deems appropriate to cause such application to be approved. 31 SECTION 7.04 Access to Information; Confidentiality. (a) Between the date of this Agreement and the Closing Date, North will (i) permit Motoguzzi and its Representatives reasonable access to all of the books, records, reports and other related materials, offices and other facilities and properties of North; (ii) permit Motoguzzi and its Representatives to make such inspections thereof as they may reasonably request; and (iii) furnish Motoguzzi and its Representatives with such financial and operating data (including without limitation the work papers of North's accountants) and other information with respect to North as Motoguzzi may from time to time reasonably request. (b) North shall hold and shall cause their Representatives to hold in strict confidence, unless compelled to disclose by judicial or administrative process or by other requirements of law, all documents and information concerning TRG or its affiliates furnished to them by Motoguzzi or its Representatives in connection with the transactions contemplated by this Agreement (except to the extent that such information can be shown to have been (i) previously known by North, (ii) in the public domain through no fault of North, or (iii) later lawfully acquired by North from another source, which source shall not be the agent of North or person under confidentiality obligation to Motoguzzi or its affiliates) and, except as otherwise required by applicable law, rule or regulation, North shall not release or disclose such information to any other person, except its auditors, actuaries, attorneys, financial advisors, bankers and other consultants and advisors who need to know same in connection with this Agreement. SECTION 7.05 Proxy and Registration Statement. (a) North will prepare and file with the Securities and Exchange Commission ("Commission") as soon as reasonably practicable after the date hereof a proxy statement to be filed under the Exchange Act ("Proxy and Registration Statement") by North, to be distributed by North in connection with the North stockholder meeting and may be distributed by Motoguzzi in connection with the Motoguzzi stockholder meeting and to register the Merger Consideration, including shares of Class A Common Stock of North issuable upon conversion of the Class B Preferred Stock and upon exercise of the Nominal Warrants. During the course of the preparation of the Proxy and Registration Statement, Motoguzzi will be given reasonable opportunity to review and comment upon drafts of the Proxy and Registration Statement and the comments of the Commission thereon and responses thereto. (b) North covenants to Motoguzzi that the Proxy and Registration Statement will comply in all material respects with the applicable provisions of the Exchange Act and will not at the time of the effectiveness of the Proxy and Registration Statement and any amendments thereof or supplements thereto and at the time of the North stockholder meeting contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements 32 therein, in light of the circumstances under which they were made, not misleading or necessary to correct any statement in any earlier filing with the Commission of such Proxy and Registration Statement or any amendment thereof or any supplement thereto or any earlier communication to the stockholders of North with respect to the transactions contemplated by this Agreement; provided, however, that no representation, covenant or agreement is made by North with respect to information supplied or approved by or on behalf of Motoguzzi or its affiliates for inclusion in the Proxy and Registration Statement, as provided in SECTION 6.09 hereof. Subject to the fiduciary duty of the Board of Directors of North, the Proxy and Registration Statement shall contain statements, where appropriate, to the effect that the Board of Directors of North has approved this Agreement and the Merger and unanimously recommends that the stockholders of North vote in favor of approving this Agreement and the Merger and the other proposals presented in the Proxy and Registration Statement. SECTION 7.06 Amendments to Certificate of Incorporation and Stock Option Plan. The Proxy and Registration Statement will include provisions for the adoption of amendments to the Certificate of Incorporation of North to change the name of North from "North Atlantic Acquisition Corp." to "Moto Guzzi Corporation," to increase the authorized capital stock of North, to authorize the issuance of one or more classes of preferred stock and to provide for a board of directors with staggered terms of three years (five of whom are to be nominees of Motoguzzi, two of whom are to be nominees of North and one of whom is to be a nominee mutually acceptable to both Motoguzzi and North) and for the approval of one or more stock option plans which will include the Closing Date Options, conditioned upon the consummation of the Merger. The Proxy and Registration Statement will also include provisions for the voting by shareholders for the elimination of North's Class B Common Stock, which shall be recommended by North's Board of Directors, but the consummation of the Merger shall not be conditioned upon such action being approved by North's stockholders. SECTION 7.07 No Securities Transactions. Neither North nor any of its Representatives or affiliates shall engage in any transactions involving the securities of TRG or Motoguzzi prior to the Closing Date. SECTION 7.08 No Other Negotiations. Until this Agreement shall have been terminated pursuant to its terms, neither North nor any of its Representatives, officers, directors or affiliates shall, directly or indirectly, solicit, institute, initiate, pursue or respond to any inquiries or enter into any discussions, proposals or negotiations with any person concerning any merger, sale of substantial assets, tender offer, sale of shares of stock or similar transaction involving North or any of its assets or disclose, directly or indirectly, other than to the shareholders of North, any information not customarily disclosed to the public or such shareholders concerning North, or except as required by law, afford to any other person access to the properties, books or records of North, or otherwise assist any person preparing to make or who has made such an offer, or enter into any agreement with any third party providing for a business combination transaction, equity investment 33 or sale of significant amount of assets of North or recommend to its shareholders any of the foregoing. North shall promptly notify Motoguzzi of any direct or indirect inquiries, discussions, proposals or negotiations. SECTION 7.09 Disclosure of Certain Matters. During the period from the date hereof through the Closing Date, North shall give Motoguzzi prompt written notice of any event or development that occurs that (a) had it existed or been known on the date hereof would have been required to be disclosed under this Agreement, (b) would cause its of the representations and warranties contained herein to be inaccurate or otherwise misleading, (c) could reasonably be expected to give Motoguzzi any reason to believe that any of the conditions set forth in ARTICLE IX will not be satisfied, or (d) is of a nature that is or may be materially adverse to the operations, prospects or condition (financial or otherwise) of North. SECTION 7.10 Blue Sky Compliance. North shall make such filings in each jurisdiction wherein resides a shareholder of Motoguzzi as may be necessary under the laws of such jurisdiction to permit the issuance of the Merger Consideration thereto to the extent the laws of such jurisdiction permit such issuance. SECTION 7.11 Filing of Current Reports on Form 8-K. Promptly after execution of this Agreement, North shall file a Current Report on Form 8-K with the Commission to report the proposed Merger and the terms thereof. SECTION 7.12 Directors' and Officers' Resignations. North will obtain the resignations of all of the members of its Board of Directors and all of its officers, effective at the Effective Time. SECTION 7.13 Cold Comfort Letter. Upon Motoguzzi providing BDO Seidman, the accountants for North ("North Accountants"), with a representation letter in accordance with paragraphs 5, 6 and 7 of the Statement on Auditing Standards regarding Letters for Underwriters, North shall cause to be delivered to Motoguzzi a letter of North's Accountants, dated the effective date of the Proxy and Registration Statement, and addressed to Motoguzzi, in form and substance satisfactory to Motoguzzi (with such changes to which Motoguzzi shall consent, it being understood that such consent shall not be unreasonably withheld), to the effect that: (a) they are independent certified public accountants with respect to North within the meaning of the Exchange Act, including the applicable published regulations thereunder; (b) the consolidated financial statements of North certified by them and included in the Proxy and Registration Statement comply as to form in all material respects with the applicable accounting requirements of the Exchange Act, including the published regulations thereunder; and 34 (c) they have carried out procedures to a specified date not more than five business days prior to the date of the Proxy and Registration Statement that do not constitute an audit in accordance with GAAP of the consolidated financial statements of North, as follows: (i) read the unaudited financial statements of North included in the Proxy and Registration Statement, (ii) read the unaudited consolidated financial statements of North for the period from the date of the most recent financial statements included in the Proxy and Registration Statement through the date of the latest available interim financial statements, (iii) read the minutes of the meetings of stockholders and Boards of Directors of North from the date of the most recent financial statements of North included in the Proxy and Registration Statement to such date not more than five business days prior to the date of the Proxy and Registration Statement and (iv) consulted with certain officers of North responsible for financial and accounting matters as to whether any of the changes or decreases referred to below has occurred, and based on such procedures, nothing has come to their attention which would cause them to believe that (A) any unaudited financial statements of North included in the Proxy and Registration Statement do not comply as to form in all material respects with the applicable accounting requirements of the Exchange Act and of the published regulations thereunder; (B) such unaudited financial statements are not fairly presented in conformity with GAAP applied on a basis substantially consistent with that of the audited consolidated financial statements of North included in the Proxy and Registration Statement; (C) as of such date not more than five business days prior to the date of the Proxy and Registration Statement, there was not, except as set forth in such letter, any (1) change in capital stock, treasury stock or long-term debt of North or (2) any decrease in capital in excess of par value, retained earnings, net assets, net current assets or investments of North, in each case as compared with the amounts shown in the most recent balance sheet of North included in the Proxy and Registration Statement or (D) for the period from the date of such balance sheet to the end of the month immediately preceding the date of the Proxy and Registration Statement, there were not, except as set forth in such letter, any decreases, as compared with the corresponding period in the preceding year, in revenues or in the total or per share amounts of income before extraordinary items, income before income taxes or net income of North. SECTION 7.14 Lock-Up Agreements. At the Closing Date, North will deliver to Motoguzzi agreements from all of its officers and directors to the effect that those persons will not publicly sell any of the securities of the Surviving Corporation for a period of six months from the Effective Time without the consent of the Surviving Corporation. ARTICLE VIII JOINT COVENANTS OF THE PARTIES SECTION 8.01 Further Action. Each of the Parties shall promptly execute such documents and other papers and take such further actions as may be reasonably required or desirable to carry out the provisions hereof and the transactions contemplated hereby. Upon the terms and subject to the conditions hereof, each of the Parties shall use its best efforts to take, or cause to be taken, all actions and to do, or 35 cause to be done, all other things necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement. SECTION 8.02 Schedules. The Parties shall have the obligation to supplement or amend the schedules being delivered concurrently with the execution of this Agreement and annexed hereto with respect to any matter hereafter arising or discovered which, if existing or known at the date of this Agreement, would have been required to be set forth or described in the schedules. Supplementation or amendment of a representation or warranty that has a Motoguzzi Material Adverse Effect qualifier shall not create a right to terminate this Agreement under SECTION 11.01(b) or 11.01(c) unless such supplementation or amendment reflects a Motoguzzi Material Adverse Effect. The obligations of the Parties to amend or supplement the schedules being delivered herewith shall terminate on the Closing Date. Notwithstanding any such amendment or supplementation, for purposes of ARTICLE X hereof, the representations and warranties of the Parties shall be made with reference to the schedules as they exist at the time of execution of this Agreement. SECTION 8.03 Regulatory and Other Authorizations. The Parties will promptly make all necessary filings and use their best efforts to obtain all authorizations, consents, orders and approvals of all Federal, state and other regulatory bodies and officials that are required for the consummation of the transactions contemplated by this Agreement, including but not limited to the Securities and Exchange Commission and self-regulatory agencies, and will cooperate fully with each other in connection therewith. SECTION 8.04 Committees of the Board of Surviving Corporation. Prior to the Closing Date, the Parties will designate (i) three persons from among the proposed directors of the Surviving Corporation to be elected to a committee ("Independent Committee") of the Board of Directors of the Surviving Corporation, which will have the authority, among other things to determine if any action should or should not be instituted to recover Damages from the Remedy Fund and (ii) such other committees of the Board of Directors as would be required by Nasdaq if the Class A Common Stock were traded on Nasdaq. The Independent Committee shall be comprised of persons who are not and have not been during the ten years prior to the Effective Time employed by, affiliated with or a shareholder of TRG, OAM, Motoguzzi or any Motoguzzi Subsidiary. SECTION 8.05 Indemnification and Director and Officer Liability Insurance. (a) North and Motoguzzi agree that all rights to indemnification for acts or omissions occurring prior to the Effective Time now existing in favor of the current directors and officers of North and Motoguzzi as provided in the certificate of incorporation or bylaws of North and Motoguzzi, respectively, shall survive the Merger and shall continue in full force and effect in accordance with their terms. 36 (b) For a period of six (6) years after the Effective Time, the Surviving Corporation shall cause to be maintained in effect the current policies of directors' and officers' liability insurance maintained by Motoguzzi, or by TRG to the extent that such policies provide coverage for Motoguzzi directors and officers (or policies of at least the same coverage and amounts containing terms and conditions that are no less advantageous) with respect to claims arising from facts or events that occurred before the Effective Time; provided, however, that the Surviving Corporation shall not be obligated to make annual premium payments for such insurance to the extent that such premiums exceed an amount equal to 200% of the annual premiums paid as of the date hereof for such insurance and if such premiums exceed such amount the Surviving Corporation shall purchase insurance policies in amounts and with coverage as reasonably can be purchased for such amount. (c) The Surviving Corporation agrees to remain liable for any indemnification obligations to North's and Motoguzzi's current directors and officers, in all capacities in which such directors or officers served North and Motoguzzi prior to the Effective Time, as set forth in North's and Motoguzzi's certificate of incorporation and bylaws to the extent such indemnification by North and Motoguzzi is permitted under the DGCL. (d) In the event the Surviving Corporation or any of its successors or assigns (i) consolidates with or merges into any other person and shall not be the continuing or surviving corporation or entity of such consolidation or merger, or (ii) transfers or conveys all or substantially all of its properties and assets to any person, then, and in each such case, to the extent necessary, proper provision shall be made so that the successors and assigns of the Surviving Corporation assume the obligations set forth in this SECTION 8.05. (e) The provisions of this SECTION 8.05 are intended to be for the benefit of, and shall be enforceable by, each indemnified party and his or her heirs and representatives. SECTION 8.06 Payment of Intercompany Indebtedness. All indebtedness owed by Motoguzzi and the Motoguzzi Subsidiaries to TRG and its subsidiaries, up to $800,000, remaining after the actions described in SECTION 2.06(b) are taken, subject to reduction in accordance with SECTION 11.01(b), shall be paid by Motoguzzi to TRG as soon after the Effective Time as practicable. ARTICLE IX CONDITIONS TO CLOSING SECTION 9.01 Conditions to Each Party's Obligations. The respective obligations of each Party to consummate the Merger and the other transactions contemplated by this Agreement shall be subject to the fulfillment, or waiver by the other Party, at or prior to the Closing Date of the following conditions: 37 (a) Approval by North's Stockholders. This Agreement shall have been approved by a vote of two-thirds in interest of the Class A Common Stock and Class B Common Stock (the latter of which is entitled to two votes per share), voting together as a single class in accordance with the DGCL and the Certificate of Incorporation and By-Laws of North, the other transactions contemplated hereby (other than those described in the last sentence of SECTION 7.06) shall have been approved by such vote of the Class A Common Stock and the Class B Common Stock as is required by the DGCL and the Certificate of Incorporation and By-Laws of North, and the aggregate number of shares of Class A Common Stock of North held by stockholders who are not officers and directors of North who exercise their right to have North redeem the shares of Class A Common Stock owned by them for cash in accordance with the Certificate of Incorporation of North shall not be more than 20% of the Class A Common Stock owned by such persons, outstanding as of the record date for approval of the transaction. (b) Approval by Motoguzzi Stockholders. The Merger will have been approved and adopted by the holders of the Old Motoguzzi Common Stock and Old Motoguzzi Preferred Stock, voting together as a single class in accordance with the DGCL and Certificate of Incorporation and By-Laws of Motoguzzi. (c) Directors and Officers of Surviving Corporation. The persons listed in SCHEDULE 1.06 shall have been elected or appointed the directors or officers of Surviving Corporation, effective upon consummation of the Merger. (d) No Governmental Order or Regulation. There shall not be in effect any order, decree or injunction (whether preliminary, final or appealable) of a United States Federal or state court of competent jurisdiction, and no regulation shall have been enacted or promulgated by any governmental authority or agency, that prohibits consummation of the Merger. (e) Dissenters. At the Closing Date, persons who are Dissenters and persons who reside in jurisdictions in which North may not legally offer the Merger Consideration will be the holders of such number of issued and outstanding Old Motoguzzi Common Stock and Old Motoguzzi Preferred Stock as would entitle them to receive, if they were not Dissenters, no more than 10% of the Merger Consideration. (f) Effectiveness of Registration Statement. The Proxy and Registration Statement shall have been declared effective under the Securities Act, no stop order suspending the effectiveness of the Proxy and Registration Statement shall have been issued, and no proceedings for that purpose shall have been instituted. 38 (g) Blue Sky. There shall be delivered to North and Motoguzzi a Blue Sky Memorandum prepared by North's counsel indicating the jurisdictions in which the Merger Consideration may be paid to holders of Old Motoguzzi Common Stock, Old Motoguzzi Preferred Stock and Old Motoguzzi Warrants, based upon, among other things, their mailing addresses. SECTION 9.02 Conditions to Obligations of Motoguzzi and TRG. The obligations of Motoguzzi to consummate the Merger and the obligations of Motoguzzi and TRG to consummate the other transactions contemplated by this Agreement shall be subject to the fulfillment or waiver by Motoguzzi and TRG, as applicable, at or prior to the Closing, of each of the following conditions: (a) Representations and Warranties; Covenants. Without supplementation after the date hereof, the representations and warranties of North contained in this Agreement shall be, with respect to those representations and warranties qualified by any materiality standard, true and correct in all respects as of the Closing Date, and with respect to all other representations and warranties, true and correct in all material respects as of the Closing Date, with the same force and effect as if made as of the Closing Date, and all the covenants contained in this Agreement to be complied with by North on or before the Closing Date shall have been complied with in all material respects, and Motoguzzi shall have received a certificate from an appropriate officer of North to such effect. (b) Legal Opinion. Motoguzzi shall have received from Graubard Mollen & Miller, counsel to North, a legal opinion addressed to Motoguzzi and dated the Closing Date, in the form of EXHIBIT F annexed hereto. (c) Necessary Proceedings. All proceedings, corporate or otherwise, to be taken by North in connection with the consummation of the transactions contemplated by this Agreement shall have been duly and validly taken, and copies of all documents, resolutions and certificates incident thereto, duly certified by officers of North as of the Closing, shall have been delivered to Motoguzzi and TRG. (d) Lock-Up Agreements. Motoguzzi shall have received from North the lock up agreements from all of North's officers and directors which provide that their securities of the Surviving Corporation may not be publicly sold for six months after the Effective Time unless such public sale is approved by the Surviving Corporation. (e) Cold Comfort Letter. TRG and Motoguzzi shall have received the cold comfort letter referred to in SECTION 7.13. (f) Inducement Letters. Motoguzzi shall have received from David Mitchell, in his capacity as Chief Executive Officer and Chairman of the Board of North, and from each other North director, 39 acting in such capacity, a letter, reasonably satisfactory to Motoguzzi, to the effect that such person has not taken any actions and is not aware of any actions taken by any other party acting on behalf of North which would cause any of the representations, warranties and agreements of North contained herein to be breached in any material respect. (g) Tax Opinion. Motoguzzi shall have received an opinion of Morrison Cohen Singer & Weinstein, LLP to the effect that the Merger will constitute a tax-free reorganization pursuant to Code Section 368(a)(1)(A) (and the officers of North and Motoguzzi shall have delivered to such counsel customary representation certificates of a kind reasonably necessary to support such an opinion). SECTION 9.03 Conditions to Obligations of North. The obligations of North to consummate the Merger and the other transactions contemplated by this Agreement shall be subject to the fulfillment or waiver by North, at or prior to the Closing, of each of the following conditions. (a) Representations and Warranties; Covenants. Without supplementation after the date hereof, except as permitted by SECTION 8.02, the representations and warranties of TRG and Motoguzzi contained in this Agreement shall be, with respect to those representations and warranties qualified by any materiality standard, true and correct in all respects as of the Closing Date, and with respect to all other representations and warranties, true and correct in all material respects as of the Closing Date with the same force and effect as if made as of the Closing Date, and all the covenants and agreements contained in this Agreement to be complied with by TRG or Motoguzzi on or before the Closing Date, shall have been complied with in all material respects by TRG and Motoguzzi, respectively, except that TRG and Motoguzzi shall not be in breach of their obligation contained herein as a result of non-compliance with a covenant or agreement which is substantively the same as a representation and warranty unless such representation and warranty is not true and correct as provided above, when restated as of the Closing Date, and North shall have received certificates from an appropriate officer of each of TRG and Motoguzzi, respectively, to such effect. (b) Legal Opinion. North shall have received from Morrison Cohen Singer & Weinstein, LLP, counsel to Motoguzzi, a legal opinion addressed to North dated the Closing Date, in the form of EXHIBIT G-1 annexed hereto. North shall have received from Italian counsel to Motoguzzi, a legal opinion relating to matters of Italian law addressed to North dated the Closing Date, in the form of EXHIBIT G-2 annexed hereto. North shall have received a legal opinion addressed to TRG and North from Maryland counsel to TRG, a copy of which is attached as EXHIBIT G-3. (c) Consents. Motoguzzi shall have obtained and delivered to North consents to the Merger of such third parties, if any, as are necessary to ensure the uninterrupted continuation of the Material Contracts, Leases and Permits with respect to the business of Motoguzzi and the Motoguzzi Subsidiaries. 40 (d) No Motoguzzi Material Adverse Change. At the Closing, there shall have been no Motoguzzi Material Adverse Change. (e) Necessary Proceedings. All proceedings, corporate or otherwise, to be taken by TRG and Motoguzzi in connection with the consummation of the transactions contemplated by this Agreement shall have been duly and validly taken, and copies of all documents, resolutions and certificates incident thereto, duly certified by the officers of TRG and Motoguzzi as of the Closing, shall have been delivered to North. (f) Rule 145 List. North shall have received from Motoguzzi the list of deemed "affiliates" under Rule 145. (g) Lock-Up Agreements. North shall have received from Motoguzzi the lock up agreements from the specified holders of Old Motoguzzi Common Stock and Old Motoguzzi Preferred Stock which provides that their Merger Consideration may not be publicly sold for six months after the Effective Time unless such public sale is approved by the Independent Committee. (h) Cold Comfort Letter. North shall have received from Arthur Andersen LLP, the comfort letter referred to in SECTION 6.10. (i) Fairness Opinion. North shall have received from Allen & Company Incorporated a fairness opinion dated on or prior to the effective date of the Proxy and Registration Statement in customary form stating in substance that the terms of the proposed transaction are fair, from a financial point of view, to the holders of North's Class A Common Stock. ARTICLE X REMEDIES OF NORTH FOLLOWING MERGER SECTION 10.01 Scope of Article. This ARTICLE X shall apply solely in the event the Merger is consummated in accordance with this Agreement. This ARTICLE X is the sole and exclusive remedy for any Damages which may be suffered by any of the Parties or by the Surviving Corporation in connection with or relating to this Agreement, from and after consummation of the Merger. SECTION 10.02 Establishment of Remedy Fund. Contemporaneous with the consummation of the Merger, the Exchange Agent shall deliver in escrow to TRG, as escrow agent pursuant to the Escrow Agreement attached hereto as EXHIBIT H and subject to the provisions of SECTION 10.03, below, (x) all of the certificates for shares of Class B Preferred Stock comprising part of the Merger Consideration, (the "Preferred 41 Escrow Shares") and (y) certificates for 100,000 shares of Class A Common Stock comprising part of the Merger Consideration registered in the name of TRG (the "TRG Escrow Shares"; together with the Preferred Escrow Shares, collectively the "Remedy Fund"). To facilitate the transfer of the Preferred Escrow Shares pursuant to the Escrow Agreement, TRG is hereby designated and appointed by each holder of Class B Preferred Stock as the agent with irrevocable power of attorney to execute such stock powers as may be required to effectuate any transfer of the Preferred Escrow Shares. The Remedy Fund shall also include any and all stock distributions made in respect of the securities in the Remedy Fund, such distributions to be held pursuant to the Escrow Agreement. Subject to the limitations set forth in this ARTICLE X, hereof, from and after the Effective Time, (i) the entire Remedy Fund shall be available to compensate the Surviving Corporation for any Damages which may be sustained, suffered or incurred by it, whether as a result of any Third Party Claim or otherwise, which arise from or are in connection with or are attributable to (x) the breach of any of the covenants, representations, warranties, agreements, obligations or undertakings of Motoguzzi contained in this Agreement, or (y) any judgment, order, government notice, government demand or other government sanction, including any remediation or other action taken in response thereto, arising out of or based upon any condition existing at the Closing Date which is not described in the Ecoservice Srl report identified in the Motoguzzi Disclosure Schedules and which violates any Laws, regardless of whether the representation in SECTION 3.07 (b) or (c) is breached, and (ii) the TRG Escrow Shares and such of the Preferred Escrow Shares as are owned by TRG shall also be available to compensate the Surviving Corporation for any Damages which may be sustained, suffered or incurred by it, whether as a result of any Third Party Claim or otherwise, which arise from or are in connection with or are attributable to the breach of any of the covenants, representations, warranties, agreements, obligations or undertakings of TRG contained in this Agreement. Upon final adjudication or resolution of a claim under this ARTICLE X, TRG shall first deliver to the Surviving Corporation, such full number of the Preferred Escrow Shares held in the Remedy Fund as equals or fractionally exceeds the adjudicated or resolved amount of such claim divided by the Market Price (as defined below) of the Class A Common Stock plus $1.00, and if the claim is not fully recompensed by the delivery of the Preferred Escrow Shares, then, additionally, that full number of TRG Escrow Shares held in the Remedy Fund as equals or fractionally exceeds the amount of such claim remaining after delivery of the Preferred Escrow Shares divided by the Market Price of the Class A Common Stock. The "Market Price" of a share of Class A Common Stock will be deemed to be the average of the last sales prices of the Class A Common Stock for the ten business days ending on the day immediately prior to the final adjudication or resolution of a claim under this ARTICLE X, as reported by The Nasdaq Stock Market or any other United States stock exchange on which the Class A Common Stock is listed, or in the absence of such reported prices, the determination of Market Price shall be made jointly by TRG and the Independent Committee. Any TRG Escrow Shares and Preferred Escrow Shares delivered to the Surviving Corporation in settlement of a claim under this ARTICLE X will be canceled and returned to the status of authorized and un-issued shares of capital stock of the Surviving Corporation. If the Merger is consummated, TRG shall not, in any event, have any liability to North, the Surviving Corporation, their respective stockholders or any other person for any Damages except to the extent of its interest in the Remedy Fund. 42 SECTION 10.03 Claims Against Remedy Fund. TRG is hereby designated the agent of holders of Class B Preferred Stock for purposes of prosecuting, defending or settling any claim brought under this ARTICLE X. Actions taken or omitted to be taken, and or consents given, or omitted to be given, by TRG in connection with any such claim shall bind the interests of all of such holders of Class B Preferred Stock in respect of such claim. Upon determination by the Independent Committee that an event giving rise to a claim under SECTION 10.02 above has occurred, the Independent Committee shall give notice to TRG of such determination, specifying (i) the covenant, representation or warranty, agreement, undertaking or obligation contained herein which it asserts has been breached, (ii) in reasonable detail, the nature and dollar amount of any claim the Surviving Corporation may have against the Remedy Fund as a result thereof, and (iii) whether such claim arises from the commencement of a Third Party Claim. The Independent Committee and TRG shall, in good faith, attempt to resolve any such claim. If, within 30 days of its notification to TRG, any claim has not been resolved, the Independent Committee or TRG, individually and as agent for all holders of Class B Preferred Stock, shall have the right, but not the obligation, to seek to have the claim resolved by mediation by submission to JAMS/Endispute or its successor, and if the matter is not resolved through such mediation process within the first to occur of (i) the expiration of 60 days from such submission, or (ii) the holding of two meetings of TRG and North (acting by such independent Committee) with such mediator, then such claim shall be submitted to final and binding arbitration, provided, however, that (x) except for an action arising out of a breach by TRG of any of the representations or warranties made, or covenants given, by TRG hereunder, no mediation or arbitration shall be brought against TRG except solely in its capacity as agent for the holders of Class B Preferred Stock and (y) any claim which arises from a Third Party Claim shall not be resolved or submitted to mediation or arbitration until 30 days following resolution of such Third Party Claim, and TRG, as agent for the Surviving Corporation, (i) shall have the right to assume the defense of such Third Party Claim, by counsel reasonably acceptable to the Independent Committee, the cost thereof to be borne by the Surviving Corporation, subject to reimbursement if it is determined that the claim is compensable to the Surviving Corporation as provided in this ARTICLE X, in which event such costs shall constitute part of the Damages, recoverable as and to the extent provided in this ARTICLE X and (ii) TRG may settle any such Third Party Claim on behalf of the Surviving Corporation, subject to the reasonable approval of the Independent Committee. Upon final adjudication or settlement of any claim under SECTION 10.02, TRG shall deliver to the Surviving Corporation that number of Preferred Escrow Shares and TRG Escrow Shares sufficient to recompense Surviving Corporation in satisfaction of such claim as calculated in SECTION 10.02 above, from the Remedy Fund; provided, however, that the TRG Escrow Shares shall not be so delivered unless and until all of the Preferred Escrow Shares have been so delivered. In any action or proceeding between the Parties hereto, each Party shall bear its own costs and expense, except as otherwise provided in SECTION 10.08. SECTION 10.04 Duration of Remedy Fund. Other than claims for breach of the representations and warranties made by Motoguzzi under SECTIONS 3.01, 3.02, 3.04, 3.10, 3.22 and the first sentence of SECTION 3.15 (collectively "Core Claims"), no notice of claim against the Remedy Fund may be given and shall 43 not be valid if given, after the 60th day following the mailing by certified mail, return receipt requested, or delivery by hand, to each then-serving member of the Board of Directors of the Surviving Corporation of the audited financial statements of the Surviving Corporation for its fiscal year ending December 31, 1998, together with the executed report of the auditors, and on such 60th day, there shall be released to TRG the TRG Escrow Shares except to the extent of the amount by which the aggregate dollar amount of all claims then asserted under this ARTICLE X exceeds the value of the Preferred Escrow Shares then remaining in the Remedy Fund as calculated in SECTION 10.02 above. Notice of Core Claims against the Remedy Fund may not be given, and shall not be valid if given, after the 60th day following the mailing by certified mail, return receipt requested, or delivery by hand, to each then-serving member of the Board of Directors of the Surviving Corporation of the audited financial statements of the Surviving Corporation for the fiscal year ending December 31, 1999, together with the executed report of the auditors. Except as provided hereinabove in respect of the TRG Escrow Shares, the Remedy Fund will remain in place until the later of (i) the date of final settlement or adjudication of any pending claims made against the securities in the Remedy Fund and delivery of the appropriate securities, or (ii) the date after which no notice of claims may be given. After delivery of securities from the Remedy Fund to the Surviving Corporation in full settlement of any claims, TRG shall deliver to the registered owners thereof all shares then held by it in the Remedy Fund. SECTION 10.05 Amount of Claim. No claim may be brought against the Remedy Fund unless, and then and only to the extent that, the amount of Damages suffered in respect of all claims asserted, without duplication, net of any offsets pursuant to SECTION 10.06 below exceeds $750,000. SECTION 10.06 Offset. There shall be offset against the amount of Damages otherwise recoverable under this ARTICLE X, an amount equal to the difference obtained (not less than $0) by subtracting (x) the Book Value (as defined below) of all Specified Assets (as defined below) which are sold or disposed of as provided in clause (y), from (y) the aggregate consideration paid and agreed to be paid (after deduction for sales commissions, sale expenses and sales and income taxes and any similar deductions) to Motoguzzi from the sale to a bona fide, third party purchaser in an arms-length transaction, of such Specified Assets or the receipt by Motoguzzi of insurance or condemnation proceeds in respect of the total or partial loss of or condemnation in respect of such Specified Assets, in all events at any time after December 31, 1997 and prior to resolution of any claim brought against the Remedy Fund, less the amount of any loss sustained upon a sale of a Specified Asset or upon a destruction or condemnation of a Specified Asset from the Book Value of that Specified Asset. The amount of such offset shall be further reduced by the amount of any consideration for any Specified Asset agreed to be paid to the extent that such consideration must be discounted in accordance with GAAP. In no event shall the amount of offset hereunder be less than $0. The Book Value of a Specified Asset shall be derived from the Motoguzzi Consolidated Balance Sheet as at December 31, 1997, increased by any amount actually expended by Motoguzzi since December 31, 1997 to improve its cash sale value. The Specified Assets shall include only those assets of Motoguzzi as of December 31, 1997 in the following categories: real property, fixtures, plant, equipment and machinery, and 44 those items comprising the Motoguzzi Museum, none of which has been sold as of the date hereof, except for non-material sales which, in the aggregate, have resulted in a gain of not more than $15,000. SECTION 10.07 Representations and Warranties. For purposes of this ARTICLE X, for breach of a representation or warranty of a Party under this Agreement, the representations and warranties shall be the representations and warranties of a Party made herein, on the date hereof, without subsequent supplementation, modification or amendment. SECTION 10.08 Mediation and Arbitration. Subject to the provisions of Section 10.03, the Parties agree that any and all disputes, claims or controversies arising out of or relating to the Escrow Fund or any other claim for Damages under this ARTICLE X, including without limitation the validity of such claim or the amount of Damages, if not resolved by the Parties, will be submitted to JAMS/Endispute, or its successor, for mediation, and if the matter is not resolved through mediation, then it will be submitted for final and binding arbitration. Any such arbitration shall be final and binding arbitration, conducted in accordance with the commercial arbitration rules of the American Arbitration Association, and shall be held in New York City. The costs of mediation and arbitration shall be allocated by the mediator or by order of the arbitrators, as the case may be. ARTICLE XI TERMINATION SECTION 11.01 Methods of Termination. The transactions contemplated herein may be terminated and/or abandoned at any time prior to the Closing only as follows: (a) By mutual written consent of North on the one hand and Motoguzzi and TRG on the other hand; (b) By either Motoguzzi or TRG on the one hand or North on the other hand (if the terminating party is not then in material breach of its obligations hereunder) if (i) a material default or breach shall be made by the other Party with respect to the due and timely performance of any of its covenants and agreements contained herein and such default cannot be cured within a reasonable period of time, provided, however, that with respect to those covenants and agreements made by Motoguzzi or TRG which are substantively the same as representations and warranties of Motoguzzi or TRG, the foregoing shall be limited to only those covenants and agreements, the non-performance of which also results in such representation and warranty not being true and correct as provided in clause (ii) hereof, or (ii) if any of the other Party's representations and warranties (x) made without any materiality standard, are not true and correct in all material respects as of the Closing Date or (y) made with any materiality standard, are not true and correct as of the Closing Date. Notwithstanding the foregoing, if, on the Closing Date there are any Intercompany 45 Liens, then (A) if such Intercompany Liens secure indebtedness in an aggregate amount greater than U.S. $1,500,000 then North may terminate this Agreement and (B) if such Intercompany Liens secure indebtedness in an aggregate amount greater than U.S. $550,000, then for purposes of this SECTION 11.01(b) neither Motoguzzi nor TRG shall be deemed to have breached any representation or warranty contained in this Agreement, provided that such indebtedness in excess of U.S. $550,000 shall be reduced by reduction of the $800,000 intercompany indebtedness described in Section 2.06(b), on a dollar-for-dollar basis, and application of the amount of such reduction of intercompany indebtedness to reduce the indebtedness in excess of $550,000 which is secured by such Intercompany Liens. (c) By North if (i) Motoguzzi makes an amendment or supplement to any Schedule hereto in accordance with SECTION 8.02 hereof and such amendment or supplement reflects a Motoguzzi Material Adverse Effect after the date hereof, or (ii) a Motoguzzi Material Adverse Change shall have occurred after the date hereof, or (iii) Motoguzzi enters into any agreement to effect any transaction described in SECTION 6.04 or Motoguzzi's Board of Directors withdraws its recommendation of the Merger or recommends to Motoguzzi's shareholders the approval of any such transaction other than the Merger; (d) By Motoguzzi if (i) North makes an amendment or supplement to any schedule hereto in accordance with SECTION 8.02 hereof and such amendment or supplement reflects a North Material Adverse Effect, after the date hereof, or (ii) North enters into any agreement to effect any transaction described in SECTION 7.08 or North's Board of Directors withdraws its recommendation of the Merger or recommends to North shareholders the approval of any such transaction other than the Merger; (e) By Motoguzzi or TRG on the one hand or North on the other hand if the Effective Time has not occurred within six months following the date of this Agreement for any reason unless the Parties agree to an extension in writing, provided that the right to terminate this Agreement under this Paragraph (e) shall not be available to a Party that is in breach of any representation, warranty or covenant in this Agreement, which breach would entitle any other Party to terminate this Agreement; SECTION 11.02 Effect of Termination. In the event of termination pursuant to SECTION 11.01 hereof, written notice thereof shall forthwith be given to the other Parties and all obligations (except as set forth in this SECTION 11.02) of the Parties shall terminate and no Party shall have any right against any other Party hereto. Notwithstanding the foregoing, (i) if this Agreement is so terminated by any Party under SECTION 11.01(b), (c) or (d) above, (other than a termination resulting from a breach of a representation or warranty which was true when made, but which cannot subsequently be restated as true as a result of the occurrence of events or circumstances beyond the control of the representing Party), it is expressly agreed and understood that the terminating Party's right to pursue all legal remedies for breach of contract or otherwise, including, without limitation, Damages (other than consequential damages, which damages shall not be recoverable), relating thereto, shall survive such termination unimpaired, subject however to SECTION 11.03 46 and to the extent North recovers any Damages against Motoguzzi, TRG will pay such Damages if not paid promptly by Motoguzzi; or (ii) if this Agreement is terminated by North under SECTION 11.01(c)(iii) and within 365 days thereafter Motoguzzi consummates any transaction described in SECTION 6.04, or if Motoguzzi refuses to consummate the Merger despite the satisfaction of all conditions precedent to Motoguzzi's obligation to do so, or Motoguzzi does not in good faith use its commercially reasonable efforts to satisfy all the conditions precedent to North's obligation to consummate the Merger which are within Motoguzzi's control, and provided that North is not in material breach of its obligations contained in this Agreement, Motoguzzi shall pay to North in lieu of any other right or remedy of North or any claim for any Damages which North might otherwise have, the greater of (A) the sum of $500,000 as liquidated damages and not as a penalty, or (B) the actual documented out-of-pocket expenses of North related solely and directly to the transaction contemplated by this Agreement (such applicable amount being referred to as the "Motoguzzi Breakup Fee") promptly following demand therefor by North and if Motoguzzi fails to do so, then TRG shall pay the Motoguzzi Break-Up Fee; or (iii) if this Agreement is terminated by Motoguzzi under SECTION 11.01(d)(ii) or if North refuses to consummate the Merger despite the satisfaction of all conditions precedent to North's obligation to do so, or North does not in good faith use its commercially reasonable efforts to satisfy all the conditions precedent to Motoguzzi's obligation to consummate the Merger which are within North's control, and provided that Motoguzzi is not in material breach of its obligations contained in this Agreement and if, but only if, in any such event, within 365 days thereafter North consummates any transaction described in SECTION 7.08, North shall pay to Motoguzzi, as liquidated damages and not as a penalty, and in lieu of any other right or remedy of Motoguzzi or any claim for Damages which Motoguzzi or TRG might otherwise have, the sum of $500,000 ("North Breakup Fee") promptly following demand therefor by Motoguzzi. If the transactions contemplated by this Agreement are terminated and/or abandoned as provided herein: (a) Each Party hereto will return all documents, work papers and other material (and all copies thereof) of the other Party, relating to the transactions contemplated hereby, whether so obtained before or after the execution hereof, to the Party furnishing the same; and (b) All confidential information received by either Party hereto with respect to the business of the other Party shall be treated in accordance with SECTIONS 6.02(b) and 7.04(b) hereof which sections shall survive termination and abandonment. SECTION 11.03 Limitation on Damages. Notwithstanding anything to the contrary elsewhere in this Agreement, neither TRG, Motoguzzi, any Motoguzzi Subsidiary or any officers, directors, affiliates, agents or Representatives of any of the foregoing will make any monetary claim against North to the extent that such claim would adversely affect the amount of funds available for distribution to North's Class A stockholders from the escrow funds held by Chase Manhattan Bank established with part of the proceeds of the public offering by North in August 1997, except in the circumstances in which North would be obligated to pay the 47 North Breakup Fee (and in such event only to the extent of such North Breakup Fee). Notwithstanding anything to the contrary elsewhere in this Agreement, if the Merger is not consummated, neither North, nor any officers, directors, affiliates, agents or Representatives of North will make any monetary claim against Motoguzzi or TRG in excess of the actual documented out-of-pocket costs and expenses incurred by North in connection with the transactions contemplated by this Agreement, except in the circumstances in which Motoguzzi would be obligated to pay the Motoguzzi Breakup Fee (and in such event only to the extent of the Motoguzzi Breakup Fee). ARTICLE XII DEFINITIONS SECTION 12.01 Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings: "Business Day" means a day of the year on which banks are not required or authorized to be closed in the City of New York. "Damages" means the dollar amount of any loss, damage, expense or liability, including, without limitation, reasonable attorneys' fees and disbursements incurred by a Party in any action or proceeding between such Party and the other Party or Parties hereto or between such Party and a third party, which is determined (as provided in ARTICLE X or ARTICLE XI) to have been sustained, suffered or incurred by a Party and to have arisen from or in connection with an event or state of facts which is subject to claim under such ARTICLE X or ARTICLE XI; the amount of Damages shall be the amount finally determined by a court of competent jurisdiction or appropriate governmental administrative agency (after the exhaustion of all appeals) or the amount agreed to upon settlement in accordance with the terms of this Agreement. "Environmental, Health, and Safety Requirements" means all federal, state, local and foreign statutes, regulations, and ordinances concerning public health and safety, worker health and safety, and pollution or protection of the environment, including without limitation all those relating to the presence, use, production, generation, handling, transportation, treatment, storage, disposal, distribution, labeling, testing, processing, discharge, release, threatened release, control, or cleanup of any hazardous materials, substances or wastes, as such requirements are enacted and in effect on or prior to the Closing Date. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Lien" means any lien, claim, charge, option, security interest, restriction or encumbrance. 48 "Motoguzzi Material Adverse Change" means any material adverse change in the condition, financial or otherwise, of Motoguzzi and the Motoguzzi Subsidiaries, taken as a whole, from such condition as it existed at December 31, 1997, and as reflected in Motoguzzi's December 31, 1997 Financial Statements, excluding, however, (i) any suspension of operations of Motoguzzi and the Motoguzzi Subsidiaries, taken as a whole unless such suspension continues for more than 30 consecutive business days, (ii) any decrease in sales of Motoguzzi motorcycles to unaffiliated third parties unless such decrease is at a rate, determined on a cumulative basis for the period January 1, 1998 through the end of the month immediately preceding the month in which a determination is made (the "Operating Period"), which is greater than 900 motorcycles below the Motoguzzi 1998 motorcycles sales budget for the Operating Period, provided that motorcycles which are sold at more than 30% off of Motoguzzi's suggested retail price shall not be deemed sold for purposes hereof, (iii) any recall of motorcycles unless such recall is for more than 1,000 motorcycles and requires that repairs be made which will cost greater than 20% of Motoguzzi's suggested retail price of such motorcycles, (iv) any interruption in supply of material components or other materials necessary for the manufacture and assembly of motorcycles, unless such interruption lasts for more than 60 days and results in a decrease in production of more than 500 motorcycles, or (v) the assertion after the date hereof of any claims, the incurring after the date hereof of any liabilities or the occurrence after the date hereof of any other event or circumstance unless such claims or liabilities, or losses or costs related to such events or circumstances, individually or in the aggregate are in excess of $3 million after reduction to the extent of any applicable insurance coverage and (A) if it is a claim or liability, it has a manifestly reasonable likelihood of success, and (B) if it is a claim or liability which results from a notice or demand by any governmental agency, (x) such governmental agency shall have competent jurisdiction and (y) the ability of such governmental agency to enforce against Motoguzzi any claim or liability in respect thereof would not terminate as a result of Motoguzzi relocating its manufacturing and assembly operations away from its present premises at Mondello, Italy or the substance of such claim would not be cured by Motoguzzi incurring capital expenditures which are included in its capital expenditure budget. "Motoguzzi Material Adverse Effect" means a material adverse effect on the results of operations, financial condition, business, assets or prospects of Motoguzzi and the Motoguzzi Subsidiaries (as defined hereinafter) taken as a whole; provided that if the foregoing has a financial effect then a Motoguzzi Material Adverse Effect shall be deemed to exist if such financial effect is greater than $750,000; provided further, that if the applicable event, circumstance or occurrence is included in any of clauses (i) through (v) of the definition of Motoguzzi Material Adverse Change, then only for purposes of determining whether the condition in SECTION 9.03(a) has been satisfied and whether this Agreement may be terminated as provided in SECTION 11.01(b) or SECTION 11.01(c), a Motoguzzi Material Adverse Effect shall not be caused thereby unless a Motoguzzi Material Adverse Change would have resulted therefrom. "Motoguzzi Subsidiaries" means Motoguzzi S.p.A, Moto Guzzi France S.A., and Moto America, Inc. 49 "North Material Adverse Effect" means a material adverse effect on the results of operations, financial condition, business, assets or prospects of North. "Party" means each of North, Motoguzzi and TRG (collectively, the "Parties"). "Representatives" of either Party means such Party's employees, accountants, auditors, actuaries, counsel, financial advisors, bankers, investment bankers and consultants. "Securities Act" means the Securities Act of 1933, as amended. "Tax" or "Taxes" means all income, gross receipts, sales, stock transfer, excise, bulk transfer, use, employment, franchise, profits, property or other taxes, fees, stamp taxes and duties, assessments, levies or charges of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts imposed by any taxing authority with respect thereto. "Third Party Claim" means a claim, demand, suit, proceeding or action by a person, firm, corporation or government entity other than a Party or any affiliate of such Party. ARTICLE XIII GENERAL PROVISIONS SECTION 13.01 Expenses. Except as otherwise provided herein, all costs and expenses, including, without limitation, fees and disbursements of Representatives, incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the Party incurring such costs and expenses, whether or not the Closing shall have occurred. Notwithstanding the foregoing, if the Closing shall occur, then such costs and expenses incurred by TRG, Motoguzzi and the Motoguzzi Subsidiaries shall be paid by TRG and the amount thereof shall be included in the intercompany indebtedness referred to in Section 8.06. Motoguzzi and TRG acknowledge and agree that in SCHEDULE 4.05 North has disclosed that it is obligated and will become further obligated for fees and expenses (including without limitation the fees and expenses of Graubard Mollen & Miller, its counsel, Allen & Company, its investment bankers, and BDO Seidman, LLP its independent accountants) incurred by it in connection with the transactions contemplated by this Agreement. It is understood and agreed that, subject to the limitations set forth in SECTIONS 4.05 and 7.01(k) hereof, certain of such fees and expenses may be paid by North prior to the execution of this Agreement. Motoguzzi and TRG agree to refrain from taking any action which would prevent or delay the timely payment by North of reasonable fees duly and lawfully incurred, to the extent consistent with the limitations set forth in ARTICLE IV hereof. Subject to the foregoing, the Surviving Corporation shall take all action 50 necessary to pay promptly all of the foregoing fees and expenses incurred, but not paid, by North prior to the Effective Time. SECTION 13.02 Notices. All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed to have been duly given or made as of the date delivered if delivered personally or by telecopy, one day after delivery to a nationally recognized courier, or three business days after mailed by registered mail (postage prepaid, return receipt requested), in each case, to the Parties at the following addresses (or at such other address for a Party as shall be specified by like notice, except that notices of changes of address shall be effective upon receipt): (a) If to TRG or Motoguzzi, c/o Trident Rowan Group, Inc. Two Worlds Fair Drive Franklin Township, Somerset, New Jersey 08873 in all cases with a copy to: Morrison Cohen Singer & Weinstein, LLP 750 Lexington Avenue New York, New York 10022 Attention: David Lerner, Esq. Telecopier # 212-735-8708 (b) If to North: North Atlantic Acquisition Corp. 5 East 59th Street Third Floor New York, New York 10022 Attention: David Mitchell Telecopier No.: 212-588-0286 with a copy to: Graubard Mollen & Miller 600 Third Avenue New York, New York 10016 Attention: David Alan Miller, Esq. Telecopier No.: 212-818-8881 51 SECTION 13.03 Press Release; Public Announcements. Promptly after execution of this Agreement, North and TRG may issue press releases in the form attached hereto as EXHIBIT I. The Parties shall not make any other public announcements in respect of this Agreement or the transactions contemplated herein without prior consultation and approval by the other Party as to the form and content thereof, which approval shall not be unreasonably withheld. Notwithstanding the foregoing, any Party may make any disclosure which its counsel advises is required by applicable law or regulation, in which case the other Party shall be given such reasonable advance notice as is practicable in the circumstances and the Parties shall use their best efforts to cause a mutually agreeable release or announcement to be issued. SECTION 13.04 Amendment. This Agreement may not be amended or modified except by an instrument in writing signed by the Parties. SECTION 13.05 Waiver. At any time prior to the Closing, either Party may (a) extend the time for the performance of any of the obligations or other acts of the other Party, (b) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto and (c) waive compliance with any of the agreements or conditions contained herein. Any such extension or waiver shall be valid only if set forth in an instrument in writing signed by the Party to be bound thereby. SECTION 13.06 Headings. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. SECTION 13.07 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any Party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the extent possible. SECTION 13.08 Entire Agreement. This Agreement and the schedules and exhibits hereto and the documents executed contemporaneously herewith constitute the entire agreement and supersede all prior agreements and undertakings, both written and oral, among the Parties with respect to the subject matter hereof and, except as otherwise expressly provided herein, are not intended to confer upon any other person any rights or remedies hereunder. 52 SECTION 13.09 Benefit; Assignment. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of the Parties. This Agreement is not assignable by any Party without the express written consent of the other Parties. SECTION 13.10 Governing Law; Consent to Jurisdiction; Specific Performance. This Agreement shall be governed by, and construed in accordance with, the law of the State of New York, regardless of the laws that might otherwise govern under applicable principles of conflicts of law. Each Party hereby submits to the exclusive jurisdiction of the courts (city, state and federal) located in the County of New York, State of New York, for any action, proceeding or claim brought by any other Party pursuant to this Agreement or any other agreement, instrument or other document executed and delivered in connection with this Agreement or pursuant hereto and waives any objection to the venue of any such suit, action or proceeding and the right to assert that such forum is not a convenient forum. Service of process in any such action or proceeding brought against a Party may be made by registered mail addressed to such Party at the address set forth in SECTION 13.02 or to such other address as such Party shall notify the other Party in writing is to be used for such purpose pursuant to SECTION 13.02. Any Party may enforce any right arising hereunder by action or other appropriate proceeding, either in equity or at law, and may seek specific performance of any of the obligations arising hereunder. SECTION 13.11 Counterparts. This Agreement may be executed in one or more counterparts, and by the different Parties in separate counterparts, each of which when executed shall be deemed to be an original but all of which when taken together shall constitute one and the same agreement. IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the date first written above. MOTO GUZZI CORP. NORTH ATLANTIC ACQUISITION CORP. By: /s/ Howard Chase By: /s/ David J. Mitchell ------------------------------- ----------------------------- Name: Howard Chase Name: David J. Mitchell Title: Authorized Signatory Title: Chairman of the Board TRIDENT ROWAN GROUP, INC. (With respect to applicable portions of Articles II, III, V, VI, VIII, X, XI and XIII only) By: /s/ Howard Chase ------------------------------- Name: Howard Chase Title: President 53 EX-3.3 3 BY-LAWS OF MOTO GUZZI CORPORATION BY-LAWS OF MOTO GUZZI CORPORATION (A DELAWARE CORPORATION) ------------------------ ARTICLE 1 DEFINITIONS As used in these By-laws, unless the context otherwise requires, the term: 1.1 "Assistant Secretary" means an Assistant Secretary of the Corporation. 1.2 "Assistant Treasurer" means an Assistant Treasurer of the Corporation. 1.3 "Board" means the Board of the Corporation. 1.4 "By-laws" means the initial By-laws of the Corporation, as amended from time to time. 1.5 "Certificate of Incorporation" means the initial certificate of incorporation of the Corporation, as amended, supplemented or restated from time to time. 1.6 "Corporation" means Moto Guzzi Corporation. 1.7 "Directors" means directors of the Corporation. 1.8 "General Corporation Law" means the General Corporation Law of the State of Delaware, as amended from time to time. 1.9 "Office of the Corporation" means executive office of the Corporation, anything in Section 131 of the General Corporation Law to the contrary notwithstanding. 1.10 "President" means the President of the Corporation. 1.11 "Secretary" means the Secretary of the Corporation. 1.12 "Stockholders" means stockholders of the Corporation. 1.13 "Treasurer" means the Treasurer of the Corporation. ARTICLE 2 STOCKHOLDERS 2.1 Place of Meetings. Every meeting of the stockholders shall be held at the office of the Corporation or at such other place within or without the State of Delaware as shall be specified or fixed in the notice of such meeting or in the waiver of notice thereof. 2.2 Annual Meeting. A meeting of stockholders shall be held annually for the election of directors or the transaction of other business at such hour and on such business day in December as may be determined by the Board and designated in the notice of meeting. 2.3 Deferred Meeting for Election of Directors, Etc. If the annual meeting of stockholders for the election of directors and the transaction of other business is not held on the date fixed in Section 2.2, the Board shall call a meeting of stockholders for the election of directors and the transaction of other business as soon thereafter as convenient. 2.4 Other Special Meetings. A special meeting of stockholders (other than a special meeting for the election of directors), unless otherwise prescribed by statute, may be called at any time by the Board or by the President or by the Secretary. At any special meeting of stockholders only such business may be transacted which is related to the purpose or purposes of such meeting set forth in the notice thereof given pursuant to Section 2.6 of the By-laws or in any waiver of notice thereof given pursuant to Section 2.7 of the By-laws. 1 2.5 Fixing Record Date. For all purposes of action, the Board may fix, in advance, a date as the record date for any determination by stockholders. If no such record date is fixed, the record date for determining stockholders: (a) entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; (b) entitled to express consent to corporate action in writing without a meeting, when no prior action by the Board is necessary, shall be the day on which the first written consent is expressed; (c) for any purpose other than that specified in Sections (a) and (b) shall be at the close of business on the day on which the Board adopts the resolution relating thereto. When a determination of stockholders entitled to notice of or to vote at any meeting of stockholders has been made as provided in this Section 2.5, such determination shall apply to any adjournment thereof. 2.6 Notice of Meetings of Stockholders. Except as otherwise provided in Sections 2.5 and 2.7 of the By-laws, whenever under the General Corporation Law or the Certificate of Incorporation or the By-laws, stockholders are required or permitted to take any action at a meeting, written notice shall be given stating the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. A copy of the notice of any meeting shall be given, personally or by mail, not less than ten nor more than sixty days before the date of the meeting, to each stockholder entitled to notice of or to vote at such meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail, with postage prepaid, directed to the stockholder at his address as it appears on the records of the Corporation. An affidavit of the Secretary or an Assistant Secretary or of the transfer agent of the Corporation that the notice required by this section has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. When a meeting is adjourned to another time or place, notice shall be given of the adjourned meeting, and at the adjourned meeting any business may be transacted that might have been transacted at the meeting as originally called. 2.7 Waivers of Notice. Whenever notice is required to be given to any stockholder under any provision of the General Corporation Law or of the Certificate of Incorporation or the By-laws, a written waiver thereof, signed by the stockholder entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a stockholder at a meeting shall constitute a waiver of notice of such meeting, except when the stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice. 2.8 Quorum of Stockholders; Adjournment. The holders of two-thirds of the shares of stock entitled to vote at any meeting of stockholders, present in person or represented by proxy, shall constitute a quorum for the transaction of any business at such meeting. When a quorum is once present to organize a meeting of stockholders, it is not broken by the subsequent withdrawal of any stockholders. The holders of a majority of the shares of stock present in person or represented by proxy at any meeting of stockholders, including an adjourned meeting, whether or not a quorum is present, may adjourn such meeting to another time and place. 2.9 Voting; Proxies. Unless otherwise provided in the Certificate of Incorporation every stockholder of record shall be entitled at every meeting of stockholders to one vote for each share of capital stock standing in his or her name on the record of stockholders determined in accordance with Section 2.5 of the By-laws. If the Certificate of Incorporation provides for more or less than one vote for any share on any matter, every reference in the By-laws or the General Corporation Law to a majority or other proportion of stock shall refer to such majority or other proportion of the votes of such stock. The provisions of Sections 212 and 217 of the General Corporation Law shall apply in determining whether any shares of capital stock may be voted and the persons, if any, entitled to vote such shares; but the Corporation shall be protected in treating the persons in whose names shares of capital stock stand on the record of stockholders as owners thereof for all purposes. At any meeting of stockholders (at which a quorum was present to organize the meeting), all matters, except as otherwise provided by law or by the Certificate of Incorporation or by the By-laws, shall be decided by a 2 majority of the votes cast at such meeting by the holders of shares present in person or represented by proxy and entitled to vote thereon, whether or not a quorum is present when the vote is taken. All elections of directors shall be written ballot unless otherwise provided in the Certificate of Incorporation. In voting on any other question on which a vote by ballot is required by law or is demanded by any stockholder entitled to vote, the voting shall be by ballot. Each ballot shall be signed by the stockholder voting or by his proxy, and shall state the number of shares voted. On all other questions, the voting may be viva voce. Every stockholder entitled to vote at a meeting of stockholders or to express consent or dissent without a meeting may authorize another person or persons to act for him by proxy. The validity and enforceability of any proxy shall be determined in accordance with Section 212 of the General Corporation Law. 2.10 Selection and Duties of the Inspectors at Meetings of Stockholders. As required by law, the Board, in advance of any meeting of stockholders, may appoint one or more inspectors to act at the meeting or any adjournment thereof and to act in attendance therein. 2.11 Organization. At every meeting of stockholders, the President, or in the absence of the President a Vice President, and in case more than one Vice President shall be present, that Vice President designated by the Board (or in the absence of any such designation, the most senior Vice President, based on age, present) shall act as chairperson of the meeting. The Secretary, or in his or her absence one of the Assistant Secretaries, shall act as secretary of the meeting. In case none of the officers above designated to act as chairperson or secretary of the meeting, respectively, shall be present, a chairperson or secretary of the meeting, as the case may be, shall be chosen by a majority of the votes cast at such meeting by the holders of shares of capital stock present in person or represented by proxy and entitled to vote at the meeting. 2.12 Order of Business. The order of business at all meetings of stockholders shall be determined by the chairperson of the meeting, but the order of business to be followed at any meeting at which a quorum is present may be changed by a majority of the votes cast at such meeting by the holders of shares of capital stock present in person or represented by proxy and entitled to vote at the meeting. 2.13 Written Consent of Stockholders Without a Meeting. Unless otherwise provided in the Certificate of Incorporation, any action required by the General Corporation Law to be taken at any annual or special meeting of stockholders of the Corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE 3 DIRECTORS 3.1 General Powers. Except as otherwise provided in the Certificate of Incorporation, the business and affairs of the Corporation shall be managed by or under the direction of the Board. The Board may adopt such rules and regulations, not inconsistent with the Certificate of Incorporation or the By-laws or applicable laws, as it may deem proper for the conduct of its meetings and the management of the Corporation. In addition to the powers expressly conferred by the By-laws, the Board may exercise all powers and perform all acts which are not required, by the By-laws or the Certificate of Incorporation or by law, to be exercised and performed by the stockholders. 3.2 Number; Qualification; Term of Office. The Board shall consist of one or more members, but not less than the number of stockholders, unless there are more than three stockholders. The number of directors shall be fixed initially by the incorporator and may thereafter be changed from time to time by action of the stockholders or of the Board. Directors need not be stockholders. Each director shall hold office until his or her successor is elected and qualified or until his or her earlier death, resignation or removal. 3 3.3 Election. Directors shall, except as otherwise required by law or by the Certificate of Incorporation, be elected by a plurality of the votes cast at a meeting of stockholders by the holders of shares entitled to vote in the election. 3.4 Newly Created Directorships and Vacancies. Unless otherwise provided in the Certificate of Incorporation, newly created directorships resulting from an increase in the number of directors and vacancies occurring in the Board for any reason, including the removal of directors without cause, may be filled by vote of a majority of the directors then in office, although less than a quorum, or by a sole remaining director, any meeting of the Board or may be elected by a plurality of the votes cast by the holders of shares of capital stock entitled to vote in the election at a special meeting of stockholders called for that purpose. A director elected to fill a vacancy shall be elected to hold office until his or her successor is elected and qualified, or until his or her earlier death, resignation or removal. 3.5 Resignations. Any director may resign at any time by written notice to the Corporation. Such resignation shall take effect at the time therein specified, and, unless otherwise specified, the acceptance of such resignation shall not be necessary to make it effective. 3.6 Removal of Directors. Unless otherwise provided in the Certificate of Incorporation and except as otherwise provided by law, any or all of the directors may be removed with or without cause, by vote of the holders of a majority of the shares then entitled to vote at an election of directors. 3.7 Compensation. Each director, in consideration of his or her service as such, shall be entitled to receive from the Corporation such amount per annum or such fees for attendance at directors' meetings, or both, as the Board may from time to time determine, together with reimbursement for the reasonable expenses incurred by him or her in connection with the performance of such director's duties. Each director who shall serve as a member of any committee of directors in consideration of his or her serving as such shall be entitled to such additional amount per annum or such fees for attendance at committee meetings, or both, as the Board may from time to time determine, together with reimbursement for the reasonable expenses incurred by him or her in the performance of such director's duties. Nothing in this section contained shall preclude any director from serving the Corporation or its subsidiaries in any other capacity and receiving proper compensation therefor. 3.8 Place and Time of Meetings of the Board. Meetings of the Board, regular or special, may be held at any place within or without the State of Delaware. The times and places for holding meetings of the Board may be fixed from time to time by resolution of the Board or (unless contrary to resolution of the Board) in the notice of the meeting. 3.9 Annual Meetings. On the day when and at the place where the annual meeting of stockholders for the election of directors is held, and as soon as practicable thereafter, the Board may hold its annual meeting, without notice of such meeting, for the purpose of organization, the election of officers and the transaction of other business. The annual meeting of the Board may be held at any other time and place specified in a notice given as provided in Section 3.11 of the By-laws for special meetings of the Board or in a waiver of notice thereof. 3.10 Regular Meetings. Regular meetings of the Board may be held at such times and places as may be fixed from time to time by the Board. Unless otherwise required by the Board, regular meetings of the Board may be held without notice. If any day fixed for a regular meeting of the Board be a Saturday or Sunday or a legal holiday at the place where such meeting is to be held, then such meeting shall be held at the same hour at the same place on the first business day thereafter which is not a Saturday, Sunday or legal holiday. 3.11 Special Meetings. Special meetings of the Board shall be held whenever called by the President or the Secretary or by any two or more directors. Notice of each special meeting of the Board shall, if mailed, be addressed to each director at the address designated by him or her for that purpose or, if none is designated, at such director's last known address at least two days before the date on which the meeting is to be held; or such notice shall be sent to each director at such address by telegraph, cable or wireless, or be delivered to him or her personally, not later than the day before the date on which such meeting is to be held. Every such notice shall state the time, place and the purposes of the meeting. If mailed, each notice shall be deemed given when deposited, with postage thereon prepaid, in a post office official depository or with a private expedited post service. Such mailing shall be by first class mail if sent by official mail. Such notice may be given by verified tele-facsimile and shall be deemed given as of the day following its transmission. 4 3.12 Adjourned Meetings. A majority of the directors present at any meeting of the Board, including an adjourned meeting, whether or not a quorum is present, may adjourn such meeting to another time and place. Notice of any adjourned meeting of the Board need not be given to any director whether or not present at the time of the adjournment. Any business may be transacted at any adjourned meeting that might have been transacted at the meeting as originally called. 3.13 Waiver of Notice. Whenever notice is required to be given to any director or member of a committee of directors under any provision of the General Corporation Law or the Certificate of Incorporation or By-laws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice. 3.14 Organization. At each meeting of the Board, the President of the Corporation, or in the absence of the President, a chairperson chosen by the majority of the directors present, shall preside. The Secretary shall act as secretary at each meeting of the Board. In case the Secretary shall be absent from any meeting of the Board, an Assistant Secretary shall perform the duties of secretary at such meeting; and in the absence from any such meeting of the Secretary and Assistant Secretaries, the person presiding at the meeting may appoint any person to act as secretary of the meeting. 3.15 Quorum of Directors. Two-thirds of the directors then in office shall constitute a quorum for the transaction of business or of any specified item of business at any meeting of the Board. 3.16 Action by the Board. All corporate action taken by the Board or any committee thereof shall be taken at a meeting of the Board, or of such committee, as the case may be, except that any action required or permitted to be taken at any meeting of the Board, or of any committee thereof, may be taken without a meeting if the requisite number of members of the Board or committee, as the case may be, consent thereto in writing, the writing or writings are filed with the minutes of proceedings of the Board or committee. Members of the Board, or any committee designated by the Board, may participate in a meeting of the Board, or of such committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 3.16 shall constitute presence in person at such meeting. Except as otherwise provided by the Certificate of Incorporation or by law, the vote of a majority of the directors present (including those who participate by means of conference telephone or similar communications equipment) at the time of the vote, if a quorum is present at such time, shall be the act of the Board. 5 ARTICLE 4 COMMITTEES OF THE BOARD The Board may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the corporation. Any such committee, to the extent provided in the resolution of the Board, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stock holders a dissolution of the Corporation or revocation of a dissolution, amending the By-laws of the Corporation, or declaring a dividend or authorizing the issuance or redemption of stock. ARTICLE 5 OFFICERS 5.1 Officers. The Board shall elect a President, a Secretary and a Treasurer, and may elect or appoint one or more Vice Presidents and such other officers as it may determine. The Board may designate one or more Vice Presidents as Executive Vice Presidents, and may use descriptive words or phrases to designate the standing, seniority or area of special competence of the Vice Presidents elected by or appointed by it. Each officer shall hold his office until his or her successor is elected and qualified or until such officer's earlier death, resignation or removal in the manner provided in Section 5.2 of the By-laws. Any two or more offices may be held in the same person. All officers, as between themselves and the Corporation, shall have such authority and perform such duties in the management of the Corporation as may be provided in the By-laws or as the Board may from time to time determine. 5.2 Removal of Officers. Any officers elected or appointed by Board may be removed by the Board with or without cause. The removal of an officer without cause shall be without prejudice to such officer's contract rights, if any. The election or appointment of an officer shall not of itself create contract rights. 5.3 Resignations. Any officer may resign at any time in writing by notifying the Board or the President or the Secretary. Such resignation shall take effect at the date of receipt of such notice or at such later time as is therein specified, and, unless otherwise specified, the acceptance of such resignation shall not be necessary to make it effective. The resignation of an officer shall be without prejudice to the contract rights of the Corporation, if any. 5.4 Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled for the unexpired portion of the term in the manner prescribed in the By-laws for the regular election or appointment to such office. 5.5 Compensation. Salaries or other compensation of the officers may be fixed from time to time by the Board. No officer shall be prevented from receiving a salary or other compensation by reason of the fact that such officer is also a director. 5.6 President. The President shall be the chief executive officer of the Corporation and shall have general supervision over the business of the Corporation, subject, however, to the control of the Board and of any duly authorized committee of directors. The President shall, if present, preside at all meetings of the stockholders and at all meetings of the Board. The President may, with the Secretary or the Treasurer or an Assistant Secretary or an Assistant Treasurer, sign certificates for shares of capital stock of the Corporation. The President may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts and other instruments, except in cases where the signing and execution thereof shall be expressly delegated by the Board or by the By-laws to some other officer or agent of the Corporation, or shall be required by law otherwise to be signed or executed; and, in general the President shall perform all duties incident to the office of President and such other duties as from time to time may be assigned to the President by the Board. 6 5.7 Vice Presidents. At the request of the President, or in the President's absence, at the request of the Board, the Vice President(s) shall (in such order as may be designated by the Board or in the absence of any such designation in order of seniority based on age) perform all of the duties of the President and so acting shall have all the powers of and be subject to all restrictions upon the President. Any Vice President may also, with the Secretary or Treasurer or an Assistant Secretary or an Assistant Treasurer, sign certificates for shares of capital stock of the Corporation; may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts or other instruments authorized by the Board, except in cases where the signing and execution thereof shall be expressly delegated by the Board or by the By-laws to some other officer or agent of the Corporation, or shall be required by law otherwise to be signed or executed; and shall perform such other duties as from time to time may be assigned to him or her by the Board or by the President. 5.8 Secretary. The Secretary, if present, shall act as secretary of all meetings of the stockholders and of the Board, and shall keep the minutes thereof in the proper book or books to be provided for that purpose; the Secretary shall see that all notices required to be given by the Corporation are duly given and served; the Secretary may, with the President or Vice President, sign certificates for shares of capital stock of the Corporation; the Secretary shall be custodian of the seal of the Corporation, or facsimile thereof, all certificates for shares of capital stock of the Corporation and all documents the execution of which on behalf of the Corporation under its corporate seal is authorized in accordance with the provisions of the By-laws; the Secretary shall have charge of the stock ledger and also of the other books, records and papers of the Corporation relating to its organization and management as a Corporation, and shall see that the reports, statements and other documents required by law are properly kept and filed; and shall, in general, perform all the duties incident to the office of Secretary and such other duties as from time to time may be assigned to the Secretary by the Board or by the President. 5.9 Treasurer. The Treasurer shall have charge and custody of, and be responsible for, all funds, securities and notes of the Corporation; receive and give receipts for moneys due and payable to the Corporation from any sources whatsoever; deposit all such moneys in the name of the Corporation in such banks, trust companies or other depositaries as shall be selected in accordance with these By-laws; against proper vouchers, cause such funds to be disbursed by checks or drafts on the authorized depositaries of the Corporation signed in such manner as shall be determined in accordance with any provisions of the By-laws, and be responsible for the accuracy of the amounts of all moneys so disbursed; regularly enter or cause to be entered in books to be kept by the Treasurer or under the Treasurer's direction full and adequate account of all moneys received or paid by the Treasurer for the account of the Cor poration; have the right to require, from time to time, reports or statements giving such information as the Treasurer may desire with respect to any and all financial transactions of the Corporation from the officers or agents transacting the same; render to the President or the Board, whenever the President or the Board, respectively, shall require the Treasurer so to do, an account of the financial condition of the Corporation and of all his or her transactions as Treasurer; exhibit at all reasonable times his or her books of account and other records to any of the directors upon application at the office of the Corporation where such books and records are kept; and in general, perform all the duties incident to the office or Treasurer and such other duties as from time to time may be assigned to the Treasurer by the Board or by the President; and the Treasurer may sign, with the President, or a Vice President certificates for shares of capital stock of the Corporation. 5.10 Assistant Secretaries and Assistant Treasurers. Assistant Secretaries and Assistant Treasurers shall perform such duties as shall be assigned to them by the Secretary or by the Treasurer, respectively, or by the Board or by the President. Assistant Secretaries and Assistant Treasurers may, with the President or a Vice President, sign certificates for shares of capital stock of the Corporation. ARTICLE 6 CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC. 6.1 Execution of Contracts. The Board may authorize any officer, employee or agent, in the name and on behalf of the Corporation, to enter into any contract or execute and satisfy any instruments, and any such authority may be general or confined to specific instances, or otherwise limited. 7 6.2 Loans. The President or any other officer, employee or agent authorized by the By-laws or by the Board may effect loans and advances at any time for the Corporation from any bank, trust company or other institution or from any firm, corporation or individual and for such loans and advances may make, execute and deliver promissory notes, bonds or other certificates or evidences of indebtedness of the Corporation, and when authorized so to do may pledge and hypothecate or transfer any securities or other property of the Corporation as security for any such loans or advances. Such authority conferred by the Board may be general or confined to specific instances or otherwise limited. 6.3 Checks, Drafts, Etc. All checks, drafts and other orders for the payment of money out of the funds of the Corporation and all notes or other evidences of indebtedness of the Corporation shall be signed on behalf of the Corporation in such manner as shall from time to time be determined by resolution of the Board. 6.4 Deposits. The funds of the Corporation not otherwise employed shall be deposited from time to time to the order of the Corporation in such banks, trust companies or other depositaries as the Board may select or as may be selected by an officer, employee or agent of the Corporation to whom such power may from time to time be delegated by the Board. ARTICLE 7 STOCK AND DIVIDENDS 7.1 Certificates Representing Shares. The shares of capital stock of the Corporation shall be represented by certificates in such form (consistent with the provisions of Section 158 of the General Corporation Law) as shall be approved by the Board. Such certificates shall be signed by the President or a Vice President and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer, and may be sealed with the seal of the Corporation or a facsimile thereof. The signatures of the officers upon a certificate may be facsimiles, if the certificate is countersigned by a transfer agent or registrar or other than the Corporation itself or its employee. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon any certificate shall have ceased to be such offices, transfer agent or registrar before such certificate is issued, such certificate may, unless otherwise ordered by the Board, be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. 7.2 Transfer of Shares. Transfers of shares of capital stock of the Corporation shall be made only on the books of the Corporation by the holder thereof or by such holder's duly authorized attorney appointed by a power of attorney duly executed and filed with the Secretary or a transfer agent of the Corporation, and on surrender of the certificate or certificates representing such shares of capital stock properly endorsed for transfer and upon payment of all necessary transfer taxes. Every certificate exchanged, returned or surrendered to the Corporation shall be marked "Cancelled," with the date of cancellation, by the Secretary or an Assistant Secretary or the transfer agent of the Corporation. A person in whose name shares of capital stock shall stand on the books of the Corporation shall be deemed the owner thereof to receive dividends, to vote as such owner and for all other purposes as respects the Corporation. No transfer of shares of capital stock shall be valid as against the Corporation, its stockholders and creditors for any purpose, except to render the transferee liable for the debts of the Corporation to the extent provided by law, until such transfer shall have been entered on the books of the Corporation by an entry showing from and to whom transferred. 7.3 Transfer and Registry Agents. The Corporation may from time to time maintain one or more transfer offices or agent and registry offices or agents at such place or places as may be determined from time to time by the Board. 7.4 Lost, Destroyed, Stolen and Mutilated Certificates. The holder of any shares of capital stock of the Corporation shall immediately notify the Corporation of any loss, destruction, theft or mutilation of the certificate representing such shares, and the Corporation may issue a new certificate to replace the certificate alleged to have been lost, stolen or mutilated. The Board may, in its discretion, as a condition to the issue of any such new certificate require the owner of the lost, stolen or mutilated certificate, or such owner's legal representatives, to make proof satisfactory to the Board of such loss, destruction, theft or mutilation and to advertise such fact in such manner as the Board may require, and to give the Corporation and its transfer agents and registrars, or such of them as the Board may require, a bond in such form, in such sum and with such surety or sureties as the Board 8 may direct, to indemnify the Corporation and its transfer agents and registrars against any claims that may be made against any of them on account of the continued existence of any such certificate so alleged to have been lost, destroyed, stolen or mutilated and against any expense in connection with such claim. 7.5 Regulations. The Board may make such rules and regulations as it may deem expedient, not inconsistent with the By-laws or with the Certificate of Incorporation, concerning the issue, transfer and registration of certificates representing shares of its capital stock. 7.6 Restriction on Transfer of Stock. A written restriction on the transfer or registration of transfer of capital stock of the Corporation, if permitted by Section 202 of the General Corporation Law and noted conspicuously on the certificate representing such capital stock, may be enforced against the holder of the restricted capital stock or any successor or transferee of the holder including an executor, administrator, trustee, guardian or other fiduciary entrusted with like responsibility for the person or estate of the holder. Unless noted conspicuously on the certificate representing such capital stock, a restriction, even though permitted by Section 202 of the General Corporation Law, shall be ineffective except against a person with actual knowledge of the restriction. A restriction on the transfer or registration of transfer of capital stock of the Corporation may be imposed either by the Certificate of Incorporation or by an agreement among any number of stockholders or among such stockholders and the Corporation. No restriction so imposed shall be binding with respect to capital stock issued prior to the adoption of the restriction unless the holders of such capital stock are parties to an agreement or voted in favor of the restriction. 7.7 Dividends, Surplus, Etc. Subject to the provisions of the Certificate of Incorporation and of law, the Board: 7.7.1 May declare and pay dividends or make other distributions on the outstanding shares of capital stock in such amounts and at such time or times as, in its discretion, the condition of the affairs of the Corporation shall render advisable; 7.7.2 May use and apply, in its discretion, any of the surplus of the Corporation in purchasing or acquiring any shares of capital stock of the Corporation, or purchase warrants therefor, in accordance with law, or any of its bonds, debentures, notes, scrip or other securities or evidences of indebtedness; 7.7.3 May set aside from time to time out of such surplus or net profits such sum or sums as, in its discretion, it may think proper, as a reserve fund to meet contingencies, or for equalizing dividends or for the purpose of maintaining or increasing the property or business of the Corporation, or for any purpose it may think conducive to the best interests of the Corporation. ARTICLE 8 INDEMNIFICATION 8.1 Indemnification of Officers and Directors. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director or an officer of the Corporation, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding to the fullest extent and in the manner set forth in and permitted by the General Corporation Law, and any other applicable law, as from time to time in effect. Such right of indemnification shall not be deemed exclusive of any other rights to which such director or officer may be entitled apart from the foregoing provisions. The foregoing provisions of this Section 8.1 shall be deemed to be a contract between the Corporation and each director and officer who serves in such capacity at any time while this Article 8 and the relevant provisions of the General Corporation Law and other applicable law, if any, are in effect and any repeal or modification thereof shall not affect any rights or obligations then existing with respect to any state of facts then or theretofore existing or any action, suit or proceeding theretofore or thereafter brought or threatened based in whole or in part upon any such state of facts. 8.2 Indemnification of Other Persons. The Corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether 9 civil, criminal, administrative or investigative by reason of the fact that he is or was an employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another Corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding to the extent and in the manner set forth in and permitted by the General Corporation Law, and any other applicable law, as from time to time in effect. Such right of indemnification shall not be deemed exclusive of any other rights to which such person may be entitled apart from the foregoing provisions. 8.3 Insurance. The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation or a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have power to indemnify him against such liability under the provisions of Section 8.1 and 8.2 of the By-laws or under Section 145 of the General Corporation Law or any other provision of Law. ARTICLE 9 BOOKS AND RECORDS 9.1 Books and Records. The Corporation shall keep correct and complete books and records of account and shall keep minutes of the proceedings of the stockholders, the Board and any committee of the Board. The Corporation shall keep at the office designated in the Certificate of Incorporation or at the office of the transfer agent or registrar of the Corporation in Delaware, a record containing the names and addresses of all stockholders, the number and class of shares held by each and the dates when they respectively became the owners of record thereof. 9.2 Form of Records. Any records maintained by the Corporation in the regular course of its business including its stock ledger, books of account, and minute books, may be kept on, or be in the form of, diskettes, magnetic tape, photographs, microphotographs, or any other information storage device, provided that the records so kept can be converted into clearly legible written form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect the same. 9.3 Inspection of Books and Records. Except as otherwise provided by law, the Board shall determine from time to time whether, and, if allowed, when and under what conditions and regulations the accounts, books, minutes and other records of the Corporation shall be open to the inspection of any stockholder or director. ARTICLE 10 SEAL The Board may adopt a corporate seal which shall be in the form of a circle and shall bear the full name of the Corporation, the year of its incorporation and the word "Delaware." ARTICLE 11 FISCAL YEAR The fiscal year of the Corporation shall be determined, and may be changed, by resolution of the Board. ARTICLE 12 VOTING OF SHARES HELD Unless otherwise provided by resolution of the Board, the President may, from time to time, appoint one or more attorneys or agents of the Corporation, in the name and on behalf of the Corporation, to cast the votes which the Corporation may be entitled to cast as a stockholder or otherwise in any other corporation, any of whose shares or securities may be held by the Corporation, at meetings of the holders of stock or other securities of such other corporation, or to consent in writing to any action by any such other corporation, and may instruct 10 the person or persons so appointed as to the manner of casting such votes or giving such consent, and may execute or cause to be executed on behalf of the Corporation and under its corporate seal, or otherwise, such written proxies, consents, waivers or other instruments as the President may deem necessary or proper in the premises; or the President may attend in person any meeting of the holders of the stock or other securities of any such other corporation and thereat vote or exercise any or all other powers of the Corporation as the holder of such stock or other securities of such other corporation. ARTICLE 13 AMENDMENTS Unless otherwise provided in the Certificate of Incorporation, the By-laws may be altered, amended, supplemented or repealed, or new By-laws may be adopted, by vote of the holders of the shares entitled to vote in the election of directors. The By-laws may be altered, amended, supplemented, repealed, or new By-laws may be adopted, by the Board, provided that the vote of a majority of the entire Board shall be required to change the number of authorized directors. Any By-laws adopted, altered, amended or supplemented by the Board may be altered, amended or supplemented or repealed by the stockholders entitled to vote thereon. 11 EX-4.6 4 WARRANT FOR THE PURCHASE OF SHARES OF CLASS A COMMON STOCK OF MOTO GUZZI CORPORATION ANNEX III This Warrant entitles the Registered Holder thereof to purchase __% of the aggregate number of shares of Class A Common Stock which may be acquired upon exercise of all of the Warrants of like tenor issued contemporaneously with this Warrant. No. __ WARRANT FOR THE PURCHASE OF SHARES OF CLASS A COMMON STOCK OF MOTO GUZZI CORPORATION (A Delaware corporation) Moto Guzzi Corporation, a Delaware corporation (the "Company"), hereby certifies that for value received, __________ of ____________, or his, her or its registered assigns (the "Registered Holder"), is entitled, subject to the terms set forth below, to purchase from the Company, at any time or from time to time during the period commencing on June 30, 2001 and ending at 5:00 p.m. E.S.T. on September 30, 2001 ("Expiration Date"), such number of shares of Class A Common Stock, $.01 par value, of the Company ("Common Stock"), at a purchase price per share equal to $.01 ("Purchase Price") as is determined in accordance with Section 2 hereof. The number of shares of Common Stock which may be acquired upon exercise of this Warrant, as adjusted from time to time pursuant to the provisions of this Warrant, is hereinafter referred to as the "Warrant Shares". All rights granted hereunder shall expire on the Expiration Date. 1. CERTAIN DEFINITIONS (a) "Actual Operating Income" shall mean the profit before interest, taxes, minority interests, extraordinary items and the cumulative effects of changes in accounting policies, of the Company, on a consolidated basis, for its fiscal year ending December 31, 2000, derived from 1 the Company's audited Statements of Income/Loss for such fiscal year, prepared in accordance with U.S. generally accepted accounting principles consistently applied, expressed in Lire. (b) "Market Price" shall mean the average closing sale price of the Company's common stock on the national securities exchange on which such securities are traded, if any, or if not traded on a national securities exchange, then as reported by the National Association of Securities Dealers, Inc.'s Automated Quotation System, in either event for the 20 consecutive trading days prior to June 30, 2001, or, if such securities are not so traded, at the fair market value thereof on such date as reasonably determined by the Board of Directors of the Company. (c) Minimum Operating Income" shall mean Lit. 20,169,600,000. (d) "Percentage Interest" shall mean _____% [(i) FOR WARRANTS ISSUED UNDER SECTION 2.02(a)(i), THE PRODUCT OF (x) 74.05% MULTIPLIED BY A FRACTION, THE NUMERATOR OF WHICH IS THE NUMBER OF SHARES OF CAPITAL STOCK OF MOTO GUZZI CORP. OWNED BY THE REGISTERED HOLDER AT THE MERGER EFFECTIVE TIME, AND THE DENOMINATOR OF WHICH IS 7,500,000; (ii) FOR WARRANTS ISSUED UNDER SECTION 2.02(a)(ii), 20.76%; AND (iii) FOR WARRANTS ISSUED UNDER SECTION 2.02(a)(iii), THE PRODUCT OF (x) 5.19% MULTIPLIED BY (y) A FRACTION, THE NUMERATOR OF WHICH IS THE NUMBER OF OLD MOTO GUZZI WARRANTS SURRENDERED BY THE REGISTERED HOLDER AT THE MERGER EFFECTIVE TIME AND THE DENOMINATOR OF WHICH IS 1,500,000.] (e) "Aggregate Value" shall mean: (i) zero if Actual Operating Income is less than Minimum Operating Income; (ii) the amount of $4,750,000 if Actual Operating Income equals Minimum Operating Income; and 2 (iii) if Actual Operating Income exceeds Minimum Operating Income, an amount equal to $4,750,000 multiplied by 120% of the percentage which Actual Operating Income bears to Minimum Operating Income, provided, however, such Aggregate Value shall not exceed $9,500,000. 2. SCOPE OF WARRANT The number of shares of Common Stock which may be acquired by the Registered Holder upon exercise of this Warrant shall be determined by application of the following formula: (AV / MP) x PI rounded up to the next whole number of shares, where AV means the Aggregate Value, MP means the Market Price, and PI means the Percentage Interest. By way of example, if Actual Operating Income is Lit. 25,169,600,000, then the percentage which Lit 25,169,600,000 bears to Lit 20,169,600,000 is 124.79%. Such percentage, when multiplied by 120%, would equal 149.75%; application of such resulting percentage to $4,750,000, would yield an AV equal to $7,113,018; if MP were $15 then 474,201 aggregate shares of Common Stock would be purchased if all of the Warrants of like tenor, issued contemporaneously with this Warrant, were exercised. 3. NOTICE OF AGGREGATE VALUE AND EXERCISE. (a) As soon after June 30, 2001 as practicable if Actual Operating Income has exceeded Minimum Operating Income, the Company shall notify the Registered Holder hereof of the amount of the Aggregate Value, by notice given in accordance with Section 14 hereof. (b) The Registered Holder hereby appoints Trident Rowan Group, Inc. ("TRG"), with full power of substitution, as the attorney in fact of the Registered Holder and authorizes TRG to deliver to the Company any notice of exercise which may be given hereunder. Such authority shall be deemed null and void if the Registered Holder delivers written notice to TRG revoking such 3 authority at any time prior to the date on which TRG delivers any notice of exercise hereunder. This Warrant may be exercised by the Registered Holder, in whole but not in part, or by TRG as agent for the Registered Holder, by the surrender of this Warrant (with the Notice of Exercise Form attached hereto as Exhibit I duly executed by such Registered Holder) at the principal office of the Company, or at such other office or agency as the Company may designate, accompanied by payment in full, in lawful money of the United States, of an amount equal to the then applicable Purchase Price multiplied by the whole number of Warrant Shares which may be purchased upon such exercise, together with any and all applicable taxes due in connection with such exercise. This Warrant may not be exercised by, or shares of Common Stock issued to, any Registered Holder in any state in which such exercise would be unlawful. (c) Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the day on which this Warrant shall have been surrendered to the Company as provided in subsection 3(b) above. At such time, the person or persons in whose name or names any certificates for Warrant Shares shall be issuable upon such exercise as provided in subsection 3(d) below shall be deemed to have become the holder or holders of record of the Warrant Shares represented by such certificates. (d) As soon as practicable after the exercise of the purchase right represented by this Warrant, the Company at its expense will use its best efforts to cause to be issued in the name of, and delivered to, the Registered Holder, or, subject to the terms and conditions hereof, to such other individual or entity as such Registered Holder (upon payment by such Registered Holder of any applicable transfer taxes) may direct a certificate or certificates for the number of full shares of Warrant Shares to which such Registered Holder shall be entitled upon such exercise plus, in lieu of any fractional share to which such Registered Holder would otherwise be entitled, cash in an amount determined pursuant to Section 5 hereof. 4 4. ADJUSTMENTS. (a) Split, Subdivision or Combination of Shares. If the Company, after the date on which this Warrant becomes initially exercisable and prior to exercise, fixes a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock without payment of any consideration by such holder for the additional shares of Common Stock, then, as of such record date (or the date of such dividend distribution, split or subdivision if no record date is fixed), the Purchase Price shall be appropriately decreased and the number of Warrant Shares which may be acquired hereunder shall be increased in proportion to such increase in the aggregate number of shares of Common Stock outstanding. If the number of shares of Common Stock outstanding at any time after the date hereof is decreased by a combination of the outstanding shares of Common Stock or otherwise, then, following the record date of such combination or other event, the Purchase Price shall be appropriately increased and the number of Warrant Shares which may be acquired hereunder shall be decreased in proportion to such decrease in the aggregate number of shares of Common Stock outstanding. (b) Reclassification, Reorganization, Consolidation or Merger. In the case of any reclassification of the Common Stock (other than a change in par value or a subdivision or combination as provided for in subsection 4(a) above), or any reorganization, consolidation or merger of the Company with or into another corporation (other than a merger or reorganization with respect to which the Company is the continuing corporation and which does not result in any reclassification of the Common Stock), or a transfer of all or substantially all of the assets of the Company, or the payment of a liquidating distribution then, as part of any such reorganization, reclassification, consolidation, merger, sale or liquidating distribution, lawful provision shall be made so that the Registered Holder of this Warrant shall have the right thereafter to receive upon the exercise hereof (to the extent, if any, still exercisable) the kind and amount of shares of stock or other securities or property which such Registered Holder would have been entitled to receive if, 5 immediately prior to any such reorganization, reclassification, consolidation, merger, sale or liquidating distribution, as the case may be, such Registered Holder had held the number of shares of Common Stock which were then purchasable upon the exercise of this Warrant or if this Warrant shall not then be exerciseable, such other consideration as the Board of Directors of the Company shall reasonably determine to be of comparable value. In any such case, appropriate adjustment (as reasonably determined by the Board of Directors of the Company) shall be made in the application of the provisions set forth herein with respect to the rights and interests thereafter of the Registered Holder of this Warrant such that the provisions set forth in this Section 4 (including provisions with respect to the Purchase Price) shall thereafter be applicable, as nearly as is reasonably practicable, in relation to any shares of stock or other securities or property thereafter deliverable upon the exercise of this Warrant. (c) Price Reduction. Notwithstanding any other provision set forth in this Warrant, at any time and from time to time during the period that this Warrant is exercisable the Company in it sole discretion may reduce the Purchase Price. (d) No Impairment. The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such actions as may be necessary or appropriate in order to protect against impairment of the rights of the Registered Holder of this Warrant to adjustments in the Purchase Price. (e) Notice of Adjustment. Upon the occurrence of each adjustment or readjustment of the Purchase Price or the number of Warrant Shares which may be acquired hereunder, the Company, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish written notice thereto to the Registered 6 Holder of this Warrant within a reasonable amount of time from the adjustment or readjustment stating the adjustment or readjustment and showing in reasonable detail the facts upon which such adjustment or readjustment is based. 5. NOTICES OF RECORD DATE. In case: (a) the Company shall take a record of the holders of its Common Stock (or other stock or securities at the time deliverable upon the exercise of this Warrant) for the purpose of entitling or enabling them to receive any dividend or other distribution (other than a dividend or distribution payable solely in capital stock of the Company or out of funds legally available therefor), or to receive any right to subscribe for or purchase any shares of any class or any other securities, or to receive any other right, or (b) of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the surviving entity), or any transfer of all or substantially all of the assets of the Company, or (c) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company, then, and in each such case, the Company will mail or cause to be mailed to the Registered Holder of this Warrant a notice specifying, as the case may be, (i) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such 7 other stock or securities at the time deliverable upon the exercise of this Warrant) shall be entitled to exchange their shares of Common Stock (or such other stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up. Such notice shall be mailed at least twenty (20) days prior to the record date or effective date for the event specified in such notice, provided that the failure to mail such notice shall not affect the legality or validity of any such action. 6. RESERVATION OF STOCK. The Company will at all times reserve and keep available, solely for issuance and delivery upon the exercise of this Warrant, such shares of Warrant Shares and other stock, securities and property, as from time to time shall be issuable upon the exercise of this Warrant. 7. REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and (in the case of loss, theft or destruction) upon delivery of an indemnity agreement (with surety if reasonably required) in an amount reasonably satisfactory to the Company, or (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will issue, in lieu thereof, a new Warrant of like tenor. 8. TRANSFER AND EXCHANGE OF WARRANTS. (a) The Company will maintain a register containing the names and addresses of the Registered Holders of this Warrant. Any Registered Holder may change its, his or her address as shown on the warrant register by written notice to the Company requesting such change, given in accordance with Section 14 hereof. (b) Until any transfer of this Warrant is made in the warrant register, the Company may treat the Registered Holder of this Warrant as the absolute owner hereof for all purposes; provided, however, that if and when this Warrant is properly assigned in blank, the 8 Company may (but shall not be obligated to) treat the bearer hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. (c) The Company shall register the transfer from time to time, of this Warrant upon the register maintained by the Company for such purpose, upon surrender of this Warrant for transfer, upon written instructions with signatures guaranteed. Upon any such transfer, a new Warrant representing an equal aggregate Percentage Interest shall be issued and this Warrant shall be canceled. (d) This Warrant may be surrendered to the Company, together with a written request for exchange, and thereupon the Company shall issue in exchange therefor one or more new Warrants as requested by the Registered Holder of this Warrant, representing in the aggregate an equal Percentage Interest; provided, however, that in the event that this Warrant bears a restrictive legend, the Company shall not cancel this Warrant nor issue a new Warrant in exchange therefor unless the Company has received an opinion of counsel stating that such transfer may be made and indicating whether the new Warrant(s) must also bear a restrictive legend. 9. NO RIGHTS AS SHAREHOLDER. Until the exercise of this Warrant, the Registered Holder of this Warrant shall not have or exercise any rights by virtue hereof as a shareholder of the Company. 10. CHANGE OR WAIVER. Any term of this Warrant may be changed or waived only by an instrument in writing signed by the party against which enforcement of the change or waiver is sought. 11. HEADINGS. The headings in this Warrant are for purposes of reference only and shall not limit or otherwise affect the meaning of any provision of this Warrant. 9 12. GOVERNING LAW. This Warrant shall be governed by and construed in accordance with the laws of the State of New York as such laws are applied to contracts made and to be fully performed entirely within that state between residents of that state. 13. JURISDICTION AND VENUE. The Company (i) agrees that any legal suit, action or proceeding arising out of or relating to this Warrant shall be instituted exclusively in New York State Supreme Court, County of New York or in the United States District Court for the Southern District of New York, (ii) waives any objection to the venue of any such suit, action or proceeding and the right to assert that such forum is not a convenient forum, and (iii) irrevocably consents to the jurisdiction of the New York State Supreme Court, County of New York, and the United States District Court for the Southern District of New York in any such suit, action or proceeding, and the Company further agrees to accept and acknowledge service or any and all process which may be served in any such suit, action or proceeding in New York State Supreme Court, County of New York or in the United States District Court for the Southern District of New York and agrees that service of process upon it mailed by certified mail to its address shall be deemed in every respect effective service of process upon it in any suit, action or proceeding. 14. MAILING OF NOTICES. ETC. All notices and other communications under this Warrant (except payment) shall be in writing and shall be sufficiently given if delivered to the addressees in person, by Federal Express or similar receipt delivery, by facsimile delivery or, if mailed, postage prepaid, by certified mail, return receipt requested, as follows: Registered Holder: To his or her address on page 1 of this Warrant. The Company: Moto Guzzi Corporation c/o Trident Rowan Group, Inc. Two Worlds Fair Drive Franklin Township Somerset, NJ 08873 Attn: Mr. Mark S. Hauser, President Fax: (732) 868-0193 10 In either case, with a copy to: Morrison Cohen Singer & Weinstein, LLP 750 Lexington Avenue New York, NY 10022 Attn: David Lerner, Esq. Fax: (212) 735-8708 or to such other address as any of them, by notice to the others may designate from time to time. Time shall be counted to, or from, as the case may be, the delivery in person or by mailing. MOTO GUZZI CORPORATION By:____________________________________ Print Name:____________________________ Title:_________________________________ EXHIBIT I NOTICE OF EXERCISE To: Moto Guzzi Corporation c/o Trident Rowan Group, Inc. Two Worlds Fair Drive Franklin Township Somerset, NJ 08873 1. The undersigned hereby elects to purchase such number of shares of the Common Stock of Moto Guzzi Corporation, pursuant to the terms of the attached Warrant, as equals the undersigned's entire interest in this Warrant, and tenders herewith payment of the purchase price of such shares in full, together with all applicable transfer taxes, if any. 11 2. Please issue a certificate or certificates representing said shares of the Common Stock in the name of the undersigned or in such other name as is specified below: --------------------------------------- (Name) --------------------------------------- (Address) --------------------------------------- Taxpayer Identification Number) - --------------------------------- [print name of Registered Holder] By: ------------------------------ Title: --------------------------- Date: --------------------------- 12 EX-10.6 5 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT Dated as of , 1995 relating to 21,000 Shares of Common Stock and 94,000 Shares of Common Stock which will be issued upon Conversion of 94 Shares of Series A Preferred Stock by and between Orion Acquisition Corp. I and The Several Shareholders listed on Schedule A hereto This Registration Rights Agreement (the "Agreement") is made and entered into as of , 1995, by and between Orion Acquisition Corp I, a Delaware corporation (the "Company") and The Several Shareholders listed on Schedule A attached hereto (the "Shareholders") who have purchased 21,000 shares of the Common Stock of the Company and 94 Shares of Series A Preferred Stock which are convertible into 94,000 shares of common stock ("Shares") in private transactions. As an inducement to the Shareholders to purchase the Shares, the Company has agreed to provide the registration rights set forth in this Agreement. The parties hereby agree as follows: SECTION 1. DEFINITIONS As used in this Agreement, the following capitalized following meanings: Act: The Securities Act of 1933, as amended. Business Combination: A merger, exchange of capital stock, asset acquisition or other business combination between the Company and an operating business. Closing Date: The date on which a Business Combination is consummated. Commission: The Securities and Exchange Commission. Common Stock: The voting Common Stock, par value $.01 per share, of the Company. Effectiveness Target Date: As defined in Section 4. Exchange Act: The Securities Exchange Act of 1934, as amended. Holders: As defined in Section 2(b) hereof. NASD: National Association of Securities Dealers, Inc. Offering Memorandum: The Offering Memorandum, dated October , 1993, and all amendments and supplements thereto, relating to the Shares and prepared by the Company. Person: An individual, partnership, corporation, trust or unincorporated organization, or a government or agency or political subdivision thereof. Prospectus: The prospectus included in the Registration Statement (as defined herein), as amended or supplemented by any prospectus supplement with respect to the terms of the offering of any portion of the Transfer Restricted Securities (as defined herein) covered by the Registration Statement and by all other amendments and supplements to the prospectus, including post-effective amendments, and all material which may be incorporated by reference into such prospectus. 2 Record Holders: Holders of Transfer Restricted Securities as set forth on the books and records of the Company on the Closing Date. Registration Statement: As defined in Section 3(a) hereof. Transfer Restricted Securities: Each Share of Common Stock of the Company until such Shares (i) have been effectively registered under the Securities Act and disposed of in accordance with the Registration Statement covering it, (ii) are distributed to the public pursuant to Rule 144 or (iii) may be sold or transferred pursuant to Rule 144(k) (or any similar provisions then in force) under the Securities Act or otherwise. Underwriter: Any Underwriter, placement agent, selling broker, dealer manager, qualified independent Underwriter or similar securities industry professional. Underwritten Registration or Underwritten Offering: An offering in which securities of the Company are sold to an Underwriter or with the assistance of such Underwriter for reoffering to the public on a firm commitment or best efforts basis. SECTIONS 2. SECURITIES SUBJECT TO THIS AGREEMENT (a) Transfer Restricted Securities. The securities entitled to the benefits of this Agreement are the Transfer Restricted Securities. (b) Holders of Transfer Restricted Securities. A Person is deemed to be a holder of Transfer Restricted Securities (each, a "Holder") whenever such Person owns Transfer Restricted Securities. SECTION 3. REGISTRATION (a) The Company shall cause to filed with the Commission on or prior to 75 days after the Closing Date, a registration statement under the Act (the "Registration Statement") on Form S-1 to cover resales of Transfer Restricted Securities by the Holders thereof who satisfy certain conditions relating to the provision of information in connection with the Registration Statement. The Holders of such Transfer Restricted Securities shall have provided the representations required pursuant to Section 3(g) hereof. The Company shall use its best efforts to cause such Registration Statement to be declared effective by the Commission on or prior to 150 days after the Closing Date. The Company further agrees to use its best efforts to prevent the happening of any event that would cause the Registration Statement to contain a material misstatement or omission or to be not effective and usable for resale of the Transfer Restricted Securities during the period that such Registration Statement is required to be effective and usable. Upon the occurrence of any event that would cause the Registration Statement (i) to contain a material misstatement or omission or (ii) to be not effective and usable for resale of Transfer Restricted Securities during the period that such Registration Statement is required to be effective and usable, the Company shall promptly as reasonably practicable file an 3 amendment to the Registration Statement, in the case of clause (i), correcting any such misstatement or omission, and in the case of either clause (i) or (ii), use its best efforts to cause such amendment to be declared effective and such Registration Statement to become usable as soon as practicable thereafter. (b) None of the Company nor any of its security holders (other than the Holders of Transfer Restricted Securities in such capacity) shall have the right to include any of the Company's securities in the Registration Statement. (c) If holder of a majority of the shares of Common Stock to be registered in the Registration Statement so elect, an offering of Transfer Restricted Securities pursuant to the Registration Statement may be effected in the form of an Underwriting Offering. In such event, and if the Underwriter advises the Company and the Holders of such Transfer Restricted Securities in writing that in their opinion the amount of Transfer Restricted Securities proposed to be sold in such offering exceeds the amount of Transfer Restricted Securities which can be sold in such offering, there shall be included in such Underwritten Offering the amount of such Transfer Restricted Securities which in the opinion of such Underwriters can be sold, and such amount or number of shares shall be allocated pro rata among the Holders of such Transfer Restricted Securities, as the case may be, requested to be included by such Holders. The Holders of the Transfer Restricted Securities to be registered shall pay all underwriting discounts and commissions of such Underwriters. (d) If any of the Transfer Restricted Securities covered by the Registration Statement are to be sold in an Underwritten Offering, the Underwriter(s) that will administer the offering will be selected by the Holders of a majority of the shares of Common Stock, provided, however, that such Underwriter(s) shall be reasonably satisfactory to the Company. (e) Each Holder whose Transfer Restricted Securities are covered by a Registration Statement filed pursuant to this Section 3 agrees, upon the request of the Underwriter(s) in any Underwritten Offering, not to effect any public sale or distribution of securities of the Company of the same class as the securities included in such Registration Statement, including a sale pursuant to Rule 144 under the Act (except as part of such registration), during the 10-day period prior to, and during the 90-day period beginning on, the closing date of any Underwritten Offering made pursuant to such Registration Statement, to the extent timely notified in writing by such Underwriter(s); provided, however, that each Holder of Transfer Restricted Securities shall be subject to the hold-back restrictions of this Section 3(e) only once during the term of this Agreement. The foregoing provisions of this Section 3(e) shall also apply to any Holder of Transfer Restricted Securities if such Holder is prevented by applicable statute or regulation from entering into any such agreement; provided, however, that any such Holder shall undertake, in its request to participate in any such Underwritten Offering, not to effect any public or sale or distribution of any of its Transfer Restricted Securities commencing on the date of sale of Transfer Restricted Securities unless it has provided 90 days written notice of such sale or distribution to the Underwriter(s). 4 (f) The Company agrees (i) not to effect any public or private offer, sale or distribution of Securities of the same quality and nature of the Transfer Restricted Securities to be registered in an Underwritten Offering including a sale pursuant to Regulation D under the Act, during the 10-day period prior to, and during the 90-day period beginning on, the closing date of each Underwritten Offering made pursuant to the Registration Statement, to the extent timely notified in writing by the Underwriter(s) (except as part of such registration, if permitted), unless the Underwriter(s) shall consent in writing to a shorter period of time; provided, however, that the foregoing provisions of this Section 3(f)(i) shall not be applicable during the 180 days following the termination of any such period in connection with an Underwritten Offering made pursuant to the Registration Statement and, provided, further, that any such agreement shall permit (A) the issuance by the Company of any shares of Common Stock issued to employees of the Company or any of its Subsidiaries or to any other eligible person pursuant to any employee stock option plan, stock ownership plan, stock bonus plan, stock compensation plan, stock purchase plan or dividend reinvestment plan of the Company in effect on the date of such Underwritten Offering, (B) the issuance by the Company of Common Stock upon the conversion of securities, or the exercise of options or warrants, outstanding at the date of such Underwritten Offering, and (c) the issuance by the Company of Common Stock in one or more private placements not to exceed in aggregate 5% of the fully diluted outstanding Common Stock of the Company as of the date of such Underwritten Offering solely in exchange for property other than cash; and (ii) to cause each holder of its privately placed subordinated debt, Common Stock and any security convertible into or exchangeable or exercisable for subordinated debt or Common Stock purchased from the Company at any time on or after the date of this Agreement to agree not to effect any public sale or distribution of any such securities during such period, including a sale pursuant to Rule 144 under the Act (except as part of such Underwritten Offering, if permitted). (g) No Holder of Transfer Restricted Securities may include any of its Transfer Restricted Securities in any Registration Statement pursuant to this Agreement unless such Holder furnishes to the Company in writing, within 10 business days after receipt of a request therefor, such information as the Company may reasonably request for use in connection with any Registration Statement or Prospectus or preliminary Prospectus included therein. SECTION 4. LIQUIDATED DAMAGES If (i) the Registration Statement is not filed with the Commission on or prior to 75 days after the Closing Date, (ii) the Registration Statement has not been declared effective by the Commissioner within 150 days after the Closing Date (the "Effectiveness Target Date"), or (iii) the Registration Statement is filed and declared effective but shall thereafter cease to be effective or useable for resale without being succeeded immediately by any additional Registration Statement filed and declared effective (each such event referred to in clause (i) through (iii), a "Registration Default"), the Company will pay liquidated damages to each Holder of Transfer Restricted Securities who has complied with such Holder's obligations under this Agreement, during the first 90-day period immediately following the occurrence of such Registration Default in an amount equal to $.01 per week per share (subject to adjustment in the event of stock splits, stock recombinations, stock dividends and the like) of Common Stock constituting Transfer Restricted Securities held by such Holder. The amount of the liquidated 5 damages will increase by an additional $.01 per week per share (subject to adjustment as set forth above) of Common Stock constituting Transfer Restricted Securities for each subsequent 90 day period until the applicable Registration Statement is filed and the applicable Registration Statement is declared effective, or the Registration Statement again becomes effective, as the case may be, up to a maximum amount of liquidated damages of $.05 per week per share (subject to adjustment as set forth above) of Common Stock constituting Transfer Restricted Securities. All accrued liquidated damages shall be paid to Record Holders by wire transfer of immediately available funds or by Federal funds check by the Company on each Damages Payment Date. Following the cure of a Registration Default, liquidated damages will cease to accrue with respect to such Registration Defaults. No Liquidated Damages shall be payable with respect to any week commencing three years or more after the Closing Date. All of the Company's obligations set forth in the preceding paragraph which are outstanding with respect to any Transfer Restricted Security at the time such security ceases to be a Transfer Restricted Security shall survive until such time as all such obligations with respect to such security shall have been satisfied in full. SECTION 5. REGISTRATION PROCEDURES In connection with the Registration Statement, the Company will use its best efforts to effect such registration to permit the sale of the Transfer Restricted Securities being sold in accordance with the intended method or methods of distribution or disposition thereof, and pursuant thereto the Company will as expeditiously as possible; (a) prepare and file with the Commission a Registration Statement relating to the registration on any appropriate form under the Act, which form shall be available for the sale of the Transfer Restricted Securities in accordance with the intended method or methods of distribution thereof and shall include all financial statements; cooperate and assist in any filings required to be made with the NASD and use its reasonable best efforts to cause such Registration Statement to become effective and approved by such government agencies or authorities as may be necessary to enable the selling Holders to consummate the disposition of such Transfer Restricted Securities; provided, however, that before filing a Registration Statement or any Prospectus, or any amendments or supplements (other than documents incorporated by reference after the initial filing of the Registration Statement), the Company will furnish to the Holders and the Underwriter(s), if any, copies of all such documents proposed to be filed, and the Company will not file any Registration Statement or amendment thereto or any Prospectus or supplement thereto which (i) the Underwriter(s), if any, shall reasonably object or (ii) if there are no Underwriters, Holders of a majority of the shares of Common Stock so registered in the Registration Statement shall reasonably object, in such case within five business days after the receipt thereof. A Holder or Underwriter, if any, shall be deemed to have reasonably objected to such filing if the Registration Statement, amendment, Prospectus or supplement, as applicable, as proposed to be filed contains a material misstatement or omission which misstatement or omission is specifically identified to the Company in writing within such five business days; (b) prepare and file with the Commission such amendments and post-effective amendments to the Registration Statement as may be necessary to keep the Registration 6 Statement effective for the applicable period set forth in Section 3(a) hereof, or such shorter period as will terminate when all Transfer Restricted Securities covered by such Registration Statement have been sold; cause the Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Act, and to comply fully with the applicable provisions of Rules 424 and 430A under the Act in a timely manner; and comply with the provisions of the Act with respect to the disposition of all securities covered by such Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the sellers thereof set forth in such Registration Statement or supplement to the Prospectus; (c) if requested by the Holders of Transfer Restricted Securities being sold in an Underwritten Offering or the Underwriter(s) thereof, promptly incorporate in a Prospectus supplement or post-effective amendment such information as such Underwriter(s) and the Holders of Transfer Restricted Securities being sold agree should be included therein relating to the plan of distribution of the Transfer Restricted Securities, including, without limitation, information with respect to the principal amount of Transfer Restricted Securities being sold to such Underwriter(s), the purchase price being paid therefor and with respect to any other terms of the offering of the Transfer Restricted Securities to be sold in such offering; and make all required filings of such Prospectus supplement or post-effective amendment as soon as practicable after the Company is notified of the matters to be incorporated in such Prospectus supplement or post-effective amendment; (d) advise the Underwriter(s), if any, and selling Holders promptly and, if requested by such Persons, to confirm such advice in writing, (i) when the Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to the Registration Statement or any post-effective amendment thereto, when the same has become effective, (ii) of any request by the Commission for amendments the Registration Statement or any amendments or supplements to the Prospectus or for additional information relating thereto, (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement under the Act or of the suspension by any state securities commission of the qualification of the Transfer Restricted Securities for offering or sale in any jurisdiction, or the initiation of any proceeding for any of the preceding purposes, (iv) if at any time the representations and warranties of the Company contemplated by paragraph (m)(i) below cease to be true and correct, and (v) of the existence of any fact and the happening of any event that makes any statement of a material fact made in the Registration Statement, the Prospectus, any amendment or supplement thereto, or any document incorporated by reference therein untrue, or that requires the making of any additions to or changes in the Registration Statement or the Prospectus in order to make the statements therein not misleading. If at any time the Commission shall issue any stop order suspending the effectiveness of the Registration Statement, or any state securities commission or other regulatory authority shall issue an order suspending the qualification or exemption from qualification of the Transfer Restricted Securities under state securities or Blue Sky laws, the Company shall use their best efforts to obtain the withdrawal or lifting of such order at earliest possible time; (e) promptly following the filing of any document that is to be incorporated by reference into the Registration Statement or the Prospectus (after initial filing of the 7 Registration Statement), provide copies of such document to the Holders; (f) furnish to each Holder and each of the Underwriter(s), if any, without charge, at least one copy of the Registration Statement, as first filed with the Commission, and of each amendment thereto, including all documents incorporated by reference therein and all exhibits (excluding exhibits incorporated therein by reference unless requested by such Holder); (g) deliver to each selling Holder and each of the Underwriter(s), if any, without charge, as many copies of the Prospectus (including each preliminary prospectus) and any amendment or supplement thereto as such Persons may reasonably request; the Company consents to the use of the Prospectus and any amendment or supplement thereto by each of the selling Holders and each of the Underwriter(s), if any, in connection with the public offering and the sale of the Transfer Restricted Securities covered by the Prospectus or any amendment or supplement thereto; (h) prior to any public offering of Transfer Restricted Securities, cooperate with the selling Holders, the Underwriter(s), if any, and their respective counsel in connection with the registration and qualification of the Transfer Restricted Securities under the securities or Blue Sky laws of such jurisdictions as the selling Holders or Underwriter(s) may request and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Transfer Restricted Securities covered by the Registration Statement; provided, however, that the Company shall not be required (i) to register or qualify as a foreign corporation where it is now so qualified, (ii) to take any action that would subject it to the service or process in suits, other than as to matters and transactions relating to the Registration Statement, in any jurisdiction where it is not so subject, or (iii) to take any action that would subject it to taxation in any jurisdiction in an amount greater it would be so subject without having taken such action; (i) cooperate with the selling Holders and the Underwriter(s), if any, to facilitate the timely preparation and delivery of certificates representing Transfer Restricted Securities to be sold and not bearing any restrictive legends; and enable such Transfer Restricted Securities to be in such denominations and registered in such names as the Holders or the Underwriter(s), if any, may request at least two business days prior to any sale or Transfer Restricted Securities made by such Underwriter(s); (j) use its best efforts to cause the Transfer Restricted Securities covered by the Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof or the Underwriter(s), if any, to consummate the disposition of such Transfer Restricted Securities, subject to the proviso contained in clause (h) above; (k) if any fact or event contemplated by clause (d)(v) above shall exist or have occurred, prepare a supplement or post-effective amendment to the Registration Statement or related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of Transfer Restricted Securities, the Prospectus will not contain an untrue statement of a material fact or omit to state any material 8 fact necessary to make the statements therein not misleading; (l) provide a CUSIP number for all Transfer Restricted Securities not later than the effective date of the Registration Statement and provide the transfer agent for the Common Stock with printed certificates for the Transfer Restricted Securities; (m) enter in such agreements (including an underwriting agreement) and take all such other actions in connection therewith as may reasonably be required in order to expedite or facilitate the disposition of the Transfer Restricted Securities pursuant to the Registration Agreement, in connection with an Underwritten Registration, and (i) make such representations and warranties to the Holders and the Underwriter(s), in form, substance arid scope as they may reasonably request and as are customarily made by issuers to Underwriters in primary Underwritten Offerings and covering matters including, but not limited to, those set forth in an underwriting agreement; (ii) obtain opinions of counsel to the Company and updates thereof in customary form and covering matters reasonably requested by the Underwriter(s) of the type customarily covered in legal opinions to Underwriters in connection with primary underwritten offerings addressed to each selling Holder and the Underwriter requesting the same and covering the matters as may be reasonably requested by such Holders and Underwriters; (iii) obtain "cold comfort" letters and updates thereof from the Company's independent certified public accountants addressed to the selling Holders of Transfer Restricted Securities and Underwriters requesting the same, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters to Underwriters in connection with primary underwritten offerings; (iv) set forth in full or incorporate by reference in the underwriting agreement the indemnification provisions and procedures of Section 7 hereof with respect to all parties to be indemnified pursuant to said Section; and (v) deliver such documents and certificates as may be reasonably requested by the Holders of the Transfer Restricted Securities being sold or the Underwriter(s) of such Underwritten Offering to evidence compliance with clause (i) above and with any customary conditions contained in the underwriting agreement entered into by the Company pursuant to this clause (m). The above shall be done at each closing under such underwriting agreement, as and to the extent required thereunder. (n) make available at reasonable times and in a reasonable manner for inspection by a representative of the Holders of the Transfer Restricted Securities, any Underwriter participating in any disposition pursuant to such Registration Statement, and any attorney or accountant retained by such selling Holders or any of the Underwriters, all financial and other records, pertinent corporate documents and properties of the Company and cause the Company's officers, directors and employees to supply all information reasonably requested by any such Holder, Underwriter, attorney or accountant in connection with such Registration Statement subsequent to the filing thereof and prior to its effectiveness, provided, however, that such representatives, attorneys or accountants shall agree to keep confidential (which agreement shall be confirmed in writing in advance to the Company if the Company shall so request) all information, records or documents made available to such persons which is not otherwise available to the general public unless disclosure of such records, information or documents is required by court or administrative order (of which the Company shall have been given prior notice and an opportunity to defend) after the exhaustion of all appeals therefrom, and to use such information obtained pursuant to this provision only in connection with the transaction for 9 which such information was obtained, and not for any other purpose; (o) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission, and make generally available to its security holders, as soon as practicable, a consolidated earnings statement (which need not be audited) for the twelve-month period (i) commencing at the end of any fiscal quarter in which Transfer Restricted Securities are sold to Underwriters in a firm or best efforts Underwritten Offering or (ii) if not sold to Underwriters in such an offering, beginning with the first month of the Company's first fiscal quarter commencing after the effective date of the Registration Statement; (p) make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of the Registration Statement at the earliest possible moment; (q) cause all Transfer Restricted Securities covered by the Registration Statement to be listed on each securities exchange or quotation system on which similar securities issued by the Company are then listed if requested by the Holders of a majority in aggregate principal amount of such Transfer Restricted Securities or the Underwriters, if any; (r) cause the Transfer Restricted Securities covered by the Registration Statement to be rated with the appropriate rating agencies, if so requested by the Holders of a majority in aggregate principal amount of such Transfer Restricted Securities or the Underwriters, if any; and (s) cooperate and assist in any filings required to be made with the NASD and in the performance of any due diligence investigation by any Underwriter (including any "qualified independent Underwriter" that is required to be retained in accordance with the rules and regulations of the NASD). Each Holder as to which any Registration Statement is being effected agrees to furnish promptly to the Company all information required to be disclosed in order to make the information previously furnished to the Company by such Holder not materially misleading. Each Holder agrees by acquisition of such Transfer Restricted Securities that, upon receipt of any notice from the Company of the existence of any fact of the kind described in Section 5(d)(v) hereof, such Holder will forthwith discontinue disposition of Transfer Restricted Securities until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 5(k) hereof, or until it is advised in writing (the "Advice") by the Company that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings which are incorporated by reference in the Prospectus. If so directed by the Company, each Holder will deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Transfer Restricted Securities current at the time of receipt of such notice. In the event the Company shall give any such notice, the time period regarding the effectiveness of the Registration Statement set forth in Section 3(a) hereof shall be extended by the number of days during the period from and including the date of the giving of such notice pursuant to Section 5(d)(v) hereof to and including the date when each selling Holder covered by such Registration 10 Statement shall have received the copies of the supplemented or amended Prospectus contemplated by Section 5(k) hereof or shall have received the Advice. SECTION 6. REGISTRATION EXPENSES (a) All expenses incident to the Company's performance of or compliance with this Agreement will be borne by the Company, regardless whether a Registration Statement becomes effective, including without limitation: (i) all registration and filing fees and expenses (including filings made with the NASD); (ii) fees and expenses of compliance with federal securities or state blue sky laws; (iii) expenses of printing including, without limitation, expenses of printing or engraving certificates for the Transfer Restricted Securities and of printing prospectuses), messenger and delivery service and telephone; (iv) reasonable fees and disbursements of counsel for the Company and for the Holders of the Transfer Restricted Securities (subject to the provisions of Section 5(b) hereof); (v) fees and disbursements of all independent certified public accountants of the Company (including the expenses of any special audit and "cold comfort" letters required by or incident to such performance); (vi) fees and expenses associated with any NASD filing required to be made in connection with the Registration Statement, including, if applicable, the fees and expenses of any "qualified independent Underwriter" (and its counsel) that is required to be retained in accordance with the rules and regulations of the NASD; and (vii) fees and expenses of listing the Transfer Restricted Securities on any securities exchange or quotation system in accordance with Section 5(m) hereof. All such expenses being herein called "Registration Expense." The Company will, in any event, bear its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting dues), the expenses of any annual audit, rating agency fees and the fees and expenses of any Person, including special experts, retained by the Company. The Holders of Transfer Restricted Securities shall bear the expense of any broker's commission or Underwriters' discount or commission. (b) In connection with the Registration Statement, the Company will reimburse the Holders of Transfer Restricted Securities being registered pursuant to such Registration Statement for the fees and disbursements of not more than one counsel chosen by the Holders 11 of a majority of the shares of Common Stock to be included in such Underwritten Offering. Notwithstanding the provisions of this Section 6, each Holder of Transfer Restricted Securities shall pay all registration expenses to the extent required by applicable law. SECTION 7. INDEMNIFICATION (a) The Company agrees to indemnify and hold harmless each Holder (each such Holder an "Indemnified Holder") and in the case of an Underwritten Offering, each Underwriter participating in the distribution (each such Underwriter an "Indemnified Underwriter") and each person that controls each Indemnified Holder or Indemnified Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, and agents, employees, officers and directors or any such controlling person of any Indemnified Holder or Indemnified Underwriter from and against any and all losses, claims, damages, judgments, liabilities and expenses (including the reasonable fees and expenses of counsel and other expenses in connection with investigating, defending or settling any such action or claim) as they are incurred arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or the Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or any preliminary Prospectus or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except (i) the Company shall not be liable to any Indemnified Holder or Indemnified Underwriter in any such case insofar as such losses, claims, damages, judgments, liabilities or expenses arise out of, or are based upon any such untrue statement or omission or alleged untrue statement or omission based upon information relating to such Indemnified Holder or Indemnified Underwriter furnished in writing by such Indemnified Holder or Indemnified Underwriter to the Company expressly for use therein and (ii) the Company shall not be liable to any Indemnified Holder or Indemnified Underwriter under the indemnity agreement in this Section 7(a) with respect to any preliminary Prospectus to the extent that any such loss, claim, damage, judgment, liability or expense results solely from the fact that any Indemnified Holder or Indemnified underwriter sold Transfer Restricted Securities to a person to whom there was not sent or given, at or prior to the written confirmation of such sale, a copy of the Prospectus as then amended or supplemented, if the Company has previously furnished sufficient copies thereof to the Indemnified Holder or Indemnified Underwriter. 12 (b) If any action or proceeding (including any governmental or regulatory investigation or proceeding) shall be brought or asserted against any Indemnified Holder or Indemnified Underwriter with respect to which indemnity may be sought against the Company pursuant to this Section 7(b), such Indemnified Holder or Indemnified Underwriter shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof, including the employment of counsel reasonably satisfactory of such Indemnified Holder or Indemnified Underwriter and payment of all fees and expenses; provided, however, that the omission so to notify the Company shall not relieve the Company from any liability that they may have to any Indemnified Holder or Indemnified Underwriter (except to the extent that the Company is materially prejudiced or otherwise forfeits substantive rights or defenses by reason of such failure). An Indemnified Holder or Indemnified Underwriter shall have the right to employ separate counsel in any such action or proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Holder or Indemnified Underwriter, unless (i) the Company agrees in writing to pay such fees and expenses, (ii) the Company has failed promptly to assume the defense and employ counsel satisfactory to the Indemnified Holder or Indemnified Underwriter or (iii) the named parties to any such action or proceeding (including any impleaded parties) include both the Indemnified Holder or Indemnified Underwriter and the Company and such Indemnified Holder and Indemnified Underwriter shall have been advised in writing by its counsel that representation of them and the Company by the same counsel would be inappropriate under applicable standards of professional conduct (whether or not such representation has been proposed) due to actual or potential differing interests between them (in which case the Company shall not have the right to assume the defense of such action on behalf of such Indemnified Holder or Indemnified Underwriter). It is understood that the Company shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) at any time for such Indemnified Holders or Indemnified Underwriters, which firm shall be designated in writing by the Holders of the majority of the number of shares of Common Stock, as the case may be, on behalf of, and that all such fees and expenses shall be reimbursed as they are incurred. The Company shall not be liable for any settlement of any such action effected without the written consent of the Company, but if settled with the written consent of the Company, or if there is a final judgment with respect thereto, the Company agrees to indemnify and hold harmless each Indemnified Holder or Indemnified Underwriter from and against any loss or Liability by reason of such settlement or judgment. The Company shall not, without the prior written consent of each Indemnified Holder or Indemnified Underwriter affected thereby, effect any settlement of any pending or threatened proceeding in which such Indemnified Holder or Indemnified Underwriter has sought indemnity hereunder, unless such settlement includes an unconditional release of such Indemnified Holder or Indemnified Underwriter from all liability arising out of such action, claim, litigation or proceeding. (c) Each Indemnified Holder and Indemnified Underwriter agrees to indemnify and hold harmless the Company, its directors, its officers who sign the Registration Statement and any person controlling the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act (collectively, the "Company Indemnified Parties") to the same extent as the foregoing indemnity from the Company to any Indemnified Holder or Indemnified 13 Underwriter, but only with respect to information relating to each Indemnified Holder or Indemnified Underwriter furnished to the Company in writing by each Indemnified Holder or Indemnified Underwriter, respectively, expressly for use in the Registration Statement, Prospectus (or any amendment of supplement thereto), or any preliminary Prospectus. In case any action shall be brought against any Company Indemnified Party based on the Registration Statement, Prospectus (or any amendment of supplement), or any preliminary Prospectus and in respect of which indemnification may be sought against each Indemnified Holder and Indemnified Underwriter pursuant to this Section 7(c), each Indemnified Holder and Indemnified Underwriter shall have the rights and duties given to the Company by Section 7(a) (except that if the Company shall have assumed the defense thereof, each Indemnified Holder and Indemnified Underwriter may, but shall not be required to employ separate counsel therein and participate in the defense thereof and the fees and expenses of such counsel shall be at the expense of the Indemnified Holder or Indemnified Underwriter) and the Company Indemnified Parties shall have the rights and duties given to the Indemnified Holders or Indemnified Underwriters by Section 7(b). (d) If the indemnification provided for in this Section 7 is unavailable to any party entitled to indemnification pursuant to Section 7(a) or 7(c), then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, judgments, liabilities and expenses (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and each Indemnified Holder or Indemnified Underwriter on the other from the offering of the Transfer Restricted Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and each Indemnified Holder or Indemnified Underwriter on the other in connection with the statements or omissions which resulted in such losses, claims, damages, judgments, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and each Indemnified Holder or Indemnified Underwriter on the other hand shall be deemed to be in the same proportions as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total net discounts and commissions received by each Indemnified Holder or Indemnified Underwriter, in each case as set forth in the table on the cover page of the Prospectus. The relative fault of the Company on the one hand and each Indemnified Holder and Indemnified Underwriter on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or by each Indemnified Holder and Indemnified Underwriter on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. (e) The Company and each Indemnified Holder and Indemnified Underwriter agree that it would not be just and equitable if contribution pursuant to Section 7(d) were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in Section 7(d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or expenses referred to 14 in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. No person found guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not found guilty of such fraudulent misrepresentation. (f) The indemnity and contribution agreements contained in this Section 7 are in addition to any liability. that any indemnifying party may otherwise have to any indemnified party. SECTION 8. RULE 144A The Company hereby agrees with each Holder, for so long as any of the shares of Common Stock that are Transfer Restricted Securities remain outstanding and during any period in which the Company is not subject to Section 13 or 15(d) of the Exchange Act, to make available to the Shareholders of the shares of such Common Stock in connection with any sale thereof and any prospective purchaser of such Common Stock from such Shareholders, the information required by Rule 144A(d)(4) under the Act in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144A. SECTION 9. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS No Holder may participate in any Underwritten Offering hereunder unless such Holder (a) agrees to sell such Holder's Transfer Restricted Securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements, (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements and (c) furnishes the Company in writing information in accordance with Section 3(g) and agrees to indemnify and hold harmless the Company, its directors, its officers who sign the Registration Statement and any person controlling the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act as contemplated by Section 7(c). SECTION 10. SELECTION OF UNDERWRITERS The Holders of Transfer Restricted Securities covered by the Registration Statement who desire to do so may sell such Transfer Restricted Securities in an Underwritten Offering. In any such Underwritten Offering, the Underwriter(s) that will administer the offering will be selected by the Holders of the Transfer Restricted Securities included in such offering in the manner specified in Section 3(c); provided, however, that such Underwriters must be reasonably satisfactory to the Company. SECTION 11. MISCELLANEOUS (a) Remedies. Each Holder or Transfer Restricted Securities, in addition to being entitled to exercise all rights provided herein, and as provided in the Purchase Agreement and granted by law, including recovery of damages, will be entitled to specific performance of 15 such Holder's rights under this Agreement. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. (b) No Inconsistent Agreements. The Company will not on or after the date of this Agreement enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders of Transfer Restricted Securities in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders or Transfer Restricted Securities hereunder do not in any way conflict with and are not inconsistent with the rights granted to the Holders of the Company's securities under any other agreements. (c) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless the Company has obtained the written consent of Holders of a majority of the Holders of the shares of Common Stock constituting Transfer Restricted Securities affected by such amendment, modification, supplement, waiver or departure. Notwithstanding the foregoing, a waiver or consent to departure from the provisions hereof that relates exclusively to the rights of Holders of Transfer Restricted Securities whose securities are being sold pursuant to such Registration Statement and that does not directly or indirectly affect the rights of other Holders of Transfer Restricted Securities shall be valid only with the written consent of Holders of at least 66-2/3% of the Transfer Restricted Securities being sold, in each case calculated in accordance with the provisions of Section 3(e). (d) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, first-class mail (registered or certified, return receipt requested), telex, telecopier, or air courier guaranteeing overnight delivery; (i) if to a Holder of Transfer Restricted Securities, at the address set forth on the records of the Company, with a copy to the Registrar, and (ii) if to the Company at the principal offices of the Company; and (iii) if to the Shareholders, initially at each address as set forth on Schedule A hereto and thereafter at such other address, notice of which is given in accordance with the provisions of this Section. All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt acknowledged, if telecopied; and on the next business day, if timely delivered to an air courier guaranteeing overnight delivery. 16 (e) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including without limitation and without the need for an express assignment, subsequent Holders of Transfer Restricted Securities; provided. however, that this Agreement shall not inure to the benefit of or be binding upon a successor or assign of a Holder of Transfer Restricted Securities unless and to the extent such successor or assign acquired Transfer Restricted Securities from such Holder; and provided further that nothing herein shall be deemed to permit any assignment, transfer or any disposition of Transfer Restricted Securities, in any manner, whether by operation of law or otherwise, such Transfer Restricted Securities shall be held subject to all of the terms of this Agreement and by taking and holding such Transfer Restricted Securities such person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement and such Person shall be entitled to receive the benefits hereof. (f) Counterparts. This Agreement may be executed in any number of counterparts by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (g) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE AND PROCEDURAL LAWS OF THE STATE OF NEW JERSEY, WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF. (i) Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. (j) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are restrictions, promises, warranties or undertakings, other than those set forth or referred to herein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. ORION ACQUISITION CORP. I By:_______________________________ Arthur H. Goldberg, Chairman 17 SHAREHOLDERS: ------------------------------ ------------------------------ ------------------------------ ------------------------------ 18 EX-10.8 6 SUBSCRIPTION AGREEMENT SUBSCRIPTION AGREEMENT ACQUISITION CORPORATION II RE: ACQUISITION CORPORATION II (the "Company") Gentlemen: 1. Receipt of Description Statement. The undersigned ("Undersigned" or "Subscriber") hereby acknowledges receipt of one copy of the Description Statement for the Company, dated August 29, 1995 (the "Statement"). All of the terms and provisions of the Statement are incorporated herein by reference and the Undersigned acknowledges that the Undersigned has read the same. 2. Acceptance of Subscription. 2.1 Execution of this Agreement by the Undersigned shall constitute an offer by the Undersigned to subscribe for shares of the Company ("Shares") in the amount and on the terms and conditions specified herein. It is understood and agreed that the Company, in its sole discretion and for any reason whatsoever, shall have the right to accept or reject this Subscription, in whole or in part, and that the same shall be deemed to be accepted by the Company only when it is signed by the president of the Company. 2.2 Deposit and collection of the check paid simultaneously herewith shall not be deemed acceptance of the offer by the Undersigned to subscribe for the Shares. The sole evidence for such acceptance is a counterpart of this Subscription Agreement duly executed by the Company and delivered to the Undersigned. The Undersigned acknowledges that until such execution and delivery, such offer has not been accepted and that no sale to him of a Unit has occurred. 3. Subscription for Shares: Delivery of the Capital Contribution; Escrow Thereof. 3.1 The Undersigned hereby subscribes for and agrees to purchase ____________ Shares and irrevocably tenders this Subscription Agreement together with a check in the amount of $___________ ($0.10 per Share) representing payment of the Capital Contribution for said Shares. 3.2 The delivery of the check, payable to Acquisition Corporation II, and this Agreement, is being made and sent to W. Raymond Felton, Esq., c/o Greenbaum, Rowe, Smith, Ravin & Davis, P.O. Box 5600, Woodbridge, New Jersey 07095. In the alternative, the Capital Contribution may be made by wire transfer pursuant to instructions which may be obtained from the Company. 4. Representations and Warranties of the Undersigned. The undersigned hereby represents and warrants to the Company, the following facts and understandings: 4.1 The Undersigned has received and read and is familiar with the Statement. The Undersigned is not relying on any offering literature or prospectus other than the Statement and no oral representations or warranties have been made to him. The Company assumes no responsibility for the accuracy or adequacy of the information contained in the Statement. 4.2 The Undersigned is familiar with the activities of the Company and recognizes that the Company is now being organized for this venture and has no material history and an investment in the Shares involves a substantial degree of risk. 4.3 The Undersigned has been advised by the Company to consult with the Undersigned's own personal tax advisor to determine the effect of an investment in the Company on the Undersigned's Federal income tax status. 4.4 All documents, records and books pertaining to this investment have been made available for inspection by the Undersigned or, if applicable, Undersigned's attorney and/or accountant and/or "Purchaser Representative" (as set forth in Paragraph 4.15 hereof); and the Undersigned understands that the books and records of the Company will be available during reasonable business hours at its principal place of business. 4.5 The Undersigned and/or his attorney and/or accountant and/or Purchaser Representative has had the opportunity to obtain any additional information requested necessary to verify the accuracy of the contents of the Statement, and to confer with the officers of the Company and to ask questions of, and receive answers from, the Company or a person authorized to act on its behalf concerning the terms and conditions of the transaction or the Statement, and any additional information requested was supplied to the Undersigned and/or such attorney and/or accountant and/or Purchaser Representative. 4.6 The Undersigned understands that the Offering of Units and the operation of the Company's proposed business is subject to numerous conflicts of interest and risks and has carefully read the description of certain of these conflicts and risks contained in the Statement. The Undersigned is able to bear the economic risk of the investment (i.e., he can afford a complete loss of his investment). 4.7 The Undersigned is familiar with the nature of and risks incident to investment in real estate and securities, and has determined (either alone or if need be on the basis of consultation with his business and tax advisors) that the purchase of his Shares is consistent with his investment objectives and income prospects. 4.8 The Shares for which the Undersigned subscribes will be acquired for investment and not with a view to the resale or distribution of such Shares; and such Shares is being acquired by the Undersigned for the Undersigned's own account and with the 2 Undersigned's own funds and no person, other than the Undersigned, has a direct or indirect beneficial interest in such Shares. 4.9 The Undersigned further understands that holding the investment for any pre-defined period of time does not constitute holding for investment or an agreement to hold the Shares for investment and not with a view to resale or distribution. 4.10 The Undersigned has adequate means of providing for the Undersigned's current needs and foreseeable personal contingencies, has no need for liquidity in this investment, and anticipates no need now or in the foreseeable future to sell the Shares for which the Undersigned hereby subscribes. 4.11 The Undersigned has a net worth of at least $1,000,000 (exclusive of home, home furnishings and automobile), or has and anticipates that the Undersigned will continue to have in the next few years, annual taxable income of at least $200,000. 4.12 The Undersigned understands that the Company will engage in a highly competitive business and there can be no assurance that it will be able to operate profitably. This investment involves a high degree of risk and is not recommended for any investor (a) whose marginal Federal income tax bracket, after taking into account the losses incurred as a result of this investment, is not at least 31% for 1994, or (b) who has significant "tax preference items." 4.13 The Undersigned understands that the Shares have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), in reliance on an exemption for private offerings and the fact that the Undersigned is purchasing Shares in the Company without being furnished any offering literature or prospectus other than the Statement. Because the Company has no obligation to effect such registration the Undersigned may have to continue to bear the economic risk of the Undersigned's investment in such Shares for an indefinite period; and the Undersigned will not be permitted to transfer Shares in the absence of an opinion of counsel satisfactory to counsel for the Company that registration is not required under the Securities Act or under applicable state securities laws and unless the Members have waived their right of first refusal pursuant to the provisions of the Statement. 4.14 The Undersigned understands that this Offering of the Shares in the Company has not been registered with securities agencies of any State in which they are offered in reliance upon exemptions from registration as a private placement. The Offering of Shares has not been approved or disapproved by the local security authorities passed upon the accuracy or adequacy of the Statement. 4.15 (If applicable). ____________________________ has acted as the Undersigned's "Purchaser Representative" defined in Rule 501 promulgated under the Securities Act; and 3 The Undersigned has relied upon the advice of the Purchaser Representative as to the merits of an investment in the Company and the suitability of that investment for the Undersigned. The Purchaser Representative has confirmed to the Undersigned, in writing, any past, present or future material relationship, actual or contemplated, between the Purchaser Representative and the Company and its affiliates, and any compensation received or to be received as a result of such relationship. 4.16 (If 4.15 is not applicable). The Undersigned has, by virtue of the Undersigned's own investment acumen, business experience or independent financial and tax advice, the capability of evaluating the risks and merits of investing in the Units; and the decision of the Undersigned to purchase a Unit in the Company is based upon the Undersigned's independent analysis of the Statement, the Undersigned's financial objectives and the advice of the Undersigned's business and tax advisors. 4.17 No assurances are or have been made regarding the tax advantages which may inure to the benefit of the Unit holders nor has any assurance been made that existing tax laws and regulations will not be modified in the future, thus denying to the Unit holders or the Company all or a portion of the tax benefits which may presently be available under existing tax laws and regulations and if all or any part of such tax benefits are disallowed by the Internal Revenue Service, the undersigned may have to pay substantial additional income taxes. 4.18 The Undersigned has received no representations or warranties from the Company other than those contained in the Statement. 4.19 The address set forth below is the Undersigned's true and correct residence, and the Undersigned has no present intention of becoming a resident of any other state or jurisdiction. 4.20 The Undersigned acknowledges that Greenbaum, Rowe, Smith, Ravin & Davis has represented the Company in this transaction and has not acted as counsel to the Undersigned in connection with his investment in the Company. The Undersigned has been advised of his right to retain independent counsel in connection with this investment. 4.21 The Undersigned represents, if an individual, that the undersigned is at least 21 years of age. 4.22 The Undersigned covenants that the foregoing representations and warrants will be true and accurate as of, and acknowledge that such representations and warranties shall survive, the date of his admission as a member. 5. Acknowledgments of the Undersigned. Subscribers residing in one of the states noted below acknowledge and/or represent as follows: 4 NOTICE TO RESIDENTS OF ALL STATES: IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. NOTICE TO RESIDENTS OF NEW YORK ONLY: THIS PRIVATE OFFERING MEMORANDUM HAS NOT BEEN REVIEWED BY THE ATTORNEY GENERAL PRIOR TO ITS ISSUANCE AND USE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. 6. Indemnification by the Undersigned. The Undersigned acknowledges that the Undersigned understands the meaning and legal consequences of the representation and warranties in Paragraphs 4 and 5 hereof and the Undersigned hereby agrees to indemnify and hold harmless the Company and its directors and officers thereof from and against any and all loss, damage or liability due to or arising out of a breach of any such representations or warranties. Notwithstanding the foregoing, however, no representation, warranty, acknowledgment or agreement made herein by the Undersigned shall in any manner be deemed to constitute a waiver of any rights granted to him under federal or state securities laws. 7. Share Escrow; Voting. (a) Subscriber hereby acknowledges and agrees that not later than the effective date (the "Effective Date") of the registration statement with respect to the Company's initial public offering (the "Initial Public Offering"), all Shares purchased by Subscriber pursuant hereto will be placed in escrow, in accordance with the terms of an escrow agreement, substantially in the form attached hereto as Exhibit A, until the earlier of (i) the occurrence of the first merger, exchange of capital stock, asset acquisition or other similar business 5 combination (a "Business Combination"), (ii) 18 months from the Effective Date or (iii) 24 months from the Effective Date if prior to the expiration of such 18-month period the Company has become a party to a letter of intent or a definitive agreement to effect a Business Combination, in which case such period shall be extended by six months. (b) In connection with any stockholder vote relating to the approval of a Business Combination, the Subscriber by his signature below hereby agrees with respect to the Shares and to any other shares of Common Stock hereafter owned, beneficially or of record, by him, his successors or to vote such shares of Common Stock in accordance with the vote with respect to such Business Combination of the majority of the shares beneficially owned by stockholders other than officers and directors and purchasers of shares from the Company in offerings preceding the Initial Public Offering made in reliance on exemptions from the registration requirements of the Act (the "non-affiliated stockholders"). (c) In connection with any stockholder vote relating to a liquidation of the Company (a "Liquidation Proposal") or due to the failure of the Company to effect a Business Combination within 18 months of the Effective Date or 24 months of the Effective Date, if prior to the expiration of such 18-month period the Company has become a party to a letter of intent or a definitive agreement to effect a Business Combination, the Subscriber by his signature below hereby agrees with respect to the Shares and to any other shares of Common Stock hereafter owned, beneficially or of record, by him, his successors or assigns to vote all such shares of Common Stock in accordance with the vote with respect to such Liquidation Proposal of the majority of the shares beneficially owned by non-affiliated stockholders. (d) Subscriber hereby waives his right (i) to receive any distribution with respect to the Shares if a Liquidation Proposal is approved and (ii) to participate in an offer by the Company to Stockholders to redeem their Share of Common Stock in connection with a Business Combination. (e) If, in connection with the Initial Public Offering, the staff of the SEC, the National Association of Securities Dealers, Inc. or any other governmental agency or body (collectively, the "Authorities") requires, as a condition to its approval of the Initial Public Offering or the listing of the Company's securities on the National Association of Securities Dealers, Inc. Automated Quotation System, a reduction in the aggregate number of shares owned by the officers, directors and initial stockholders (the total number of shares to be purchased thereby being 85,000), the Subscriber hereby agrees (i) that the number of shares owned by each such person (and including the Subscriber) shall be reduced pro rata, based upon the number of shares owned by each such person as a percentage of the shares owned by all of them (or by such other method as may be required by any of the Authorities) and (ii) the Subscriber shall return to the Company the number of shares of Common Stock by which the Shares are so reduced (the determination of the Company in respect thereto to be final and conclusive, absent manifest error), subject to the return of the portion of the Subscription Price allocable thereto. (f) Subscriber hereby agrees, that (i) Subscriber will not sell, transfer or convey any shares purchased hereby for a period of two years from the Effective Date without the prior written consent of the Company (and if Comprehensive Capital Corporation (the 6 "Proposed Underwriter") is the managing or principal underwriter of the Initial Public Offering, of the Proposed Underwriter); provided that subject to compliance with applicable securities laws, any such Subscriber may transfer his or her stock to a member of his or her family (with the consent of the Proposed Underwriter which will not be unreasonably withheld) or in the event of death by will or operation of law, provided that any such transferee shall agree as a condition to such transfer to be bound by the restrictions on transfer applicable to the Subscriber and the Subscriber continues to be deemed the beneficial owner of the shares so transferred in accordance with Rule 13d-3 promulgated by the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, and (ii) if the Proposed Underwriter is the managing or principal underwriter of the Initial Public Offering, that (x) for a period of three years commencing two years after the Effective Date, all public sales of shares of Common Stock purchased pursuant hereto will be effected through or with the Proposed Underwriter on an exclusive basis, provided that the Proposed Underwriter's services are reasonably competitive with those of other brokerage firms as to both price and execution and (y) for a period of three years commencing two years from the Effective Date, if Subscriber proposes to sell the shares of Common Stock purchased pursuant hereto in a private transaction pursuant to a bona fide third party offer, then the investor will so notify the Proposed Underwriter in writing, which will have the right, for a five-day period after receipt of such notice, to purchase (or sell to a suitable purchaser) such shares on the same terms as contained in such offer; provided, if, thereafter, the terms of the sale are modified in any material respect, Subscriber will so notify the Proposed Underwriter which will have the same rights as with respect to the original proposed sale as set forth above. 8. Responsibility. The Company and its directors and officers shall not be liable, responsible or accountable in damages or otherwise to the Undersigned for any act or omission performed or omitted by them in good faith on behalf of the Company and in a manner reasonably believed by them to be within the scope of the authority granted to them by this Agreement and in the best interests of the Company, provided that the Company and its directors and officers were not guilty of gross negligence, willful misconduct, fraud or bad faith with respect to such acts or omissions. 9. Miscellaneous. 9.1 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware. 9.2 Entire Agreement. This Agreement, contains the entire agreement between the parties hereto with respect to the subject matter hereof. The provisions of this Agreement may not be modified or waived except in writing and signed by the party to be charged. 9.3 Headings. The headings of this Agreement are for convenient reference only and they shall not limit or otherwise affect the interpretation or effect of any term or provision hereof. 7 9.4 Heirs and Assigns. This Agreement and the rights, powers and duties set forth herein, binds and inures to the benefit of the heirs, executors, administrators, legal representatives, successors and assigns of the parties hereto. 9.5 Assignment. The Undersigned may not assign any of his rights or participation in and under this Agreement without the prior written consent of the Company and any attempted assignment without such consent shall be void and without effect. IN NO EVENT, EXCEPT IN THE EVENT OF FRAUD, GROSS NEGLIGENCE OR WILLFUL MISREPRESENTATION, WILL THE COMPANY, ITS DIRECTORS AND OFFICERS, ANY SUBSIDIARIES, AFFILIATES, OFFICERS OR DIRECTORS THEREOF, OR PROFESSIONAL ADVISORS ENGAGED BY ANY OF THEM BE LIABLE IF FOR ANY REASON IT SHALL BE DETERMINED THAT THE TAX AND ECONOMIC BENEFITS CONTEMPLATED TO BE AFFORDED TO THE MEMBERS AS A RESULT OF THE PROPOSED INVESTMENT ARE NOT AVAILABLE IN WHOLE OR IN PART. IN WITNESS WHEREOF, the Undersigned has executed this Subscription Agreement as of the 29th day of August, 1995. - --------------------------------- --------------------------------- WITNESS SIGNATURE - --------------------------------- --------------------------------- SOCIAL SECURITY NUMBER NAMED TYPED OR PRINTED - --------------------------------- --------------------------------- MAILING ADDRESS RESIDENCE ADDRESS - --------------------------------- --------------------------------- CITY, STATE AND ZIP CODE CITY, STATE AND ZIP CODE Accepted and Agreed to: Acquisition Corporation II BY: ------------------------------- Arthur H. Goldberg, Chairman 8 EX-10.9 7 ESCROW AGREEMENT Exhibit 10.9 ESCROW AGREEMENT ESCROW AGREEMENT dated ________, 1998 between NORTH ATLANTIC ACQUISITION CORP., a Delaware corporation ("North"), and TRIDENT ROWAN GROUP, INC, a Maryland corporation ("TRG"), for itself and as escrow agent (the "Escrow Agent") and the persons set forth on Schedule 1 hereto ("Stockholders"). WHEREAS, North, TRG and Moto Guzzi Corp., a Delaware corporation ("Motoguzzi") are the parties to an Agreement and Plan of Merger and Reorganization dated as of_______, 1998 (the "Merger Agreement") pursuant to which Motoguzzi merged into North, with North being the surviving corporation; WHEREAS, pursuant to the Merger Agreement, a portion of the Merger Consideration is to be placed in an escrow fund ("Escrow Fund") for the indemnification of North, as the surviving corporation, for breaches of the representations and warranties of Motoguzzi and TRG as set forth in the Merger Agreement; WHEREAS, the parties desire to establish the Escrow Fund as collateral security for the indemnification obligation under Article X of the Merger Agreement. The parties agree as follows: 1. (a) Capitalized terms used herein which are not otherwise defined herein shall have the meanings ascribed to them in the Merger Agreement. (b) Concurrently with the execution hereof, (i) each of the Stockholders has caused to be delivered to the Escrow Agent the number of shares of Class B Preferred Stock of North set forth against the name of the Stockholder on Schedule 1, representing all the Class B Preferred Stock issued by North to such Stockholders pursuant to the Merger Agreement and (ii) TRG has delivered to the Escrow Agent 100,000 shares of Class A Common Stock of North issued by North to TRG pursuant to the Merger Agreement ("Escrow Stock"). Such Escrow Stock will include any stock dividends and distributions made by North with respect to the Escrow Stock. (c) The Escrow Agent hereby agrees to act as the escrow agent and to hold, safeguard and disburse the Escrow Fund pursuant to the terms and conditions hereof. Its duties hereunder shall cease upon its distribution of the entire Escrow Fund in accordance with this Agreement. 2. (a) The Independent Committee of the Board of Directors of North may give notice of a claim for indemnification pursuant to Section 10.03 of the Merger Agreement ("Indemnity Claim") and for distribution of Escrow Stock from the Escrow Fund by giving notice (a "Notice") of the claim to TRG on behalf of North, specifying (i) the covenant, representation or warranty, agreement, undertaking or obligation contained in the Merger Agreement which it asserts has been breached, (ii) in reasonable detail, the nature and dollar amount of any claim which may result in a distribution from the Escrow Fund, and (iii) whether the claim arises from a Third Party Claim. The procedure for resolving any claim is set forth in paragraphs (b) and (c) below. Any distribution from the Escrow Fund by reason of a claim shall be made in accordance with paragraph (e) below. (b) After giving of a Notice, the Independent Committee and TRG shall attempt to resolve such dispute by voluntary settlement. If the Independent Committee and TRG reach a settlement with respect to any such dispute, they will jointly execute a written notice of such settlement specifying the terms thereof which shall be deemed an Established Claim (as hereinafter defined). If the Independent Committee and TRG are unable to reach a settlement with respect to a dispute, such dispute shall be resolved in accordance with paragraph (c) below. (c) (i) North and TRG agree that any and all claims arising out of or relating to Article X of the Merger Agreement that are not Third Party claims which are not resolved in accordance with paragraph (b) above shall be submitted to JAMS/ENDISPUTE, or its successor, for mediation. If the matter is not resolved in mediation after two sessions which must be held within 60 days of the request for mediation, then either party may submit the claim for final and binding arbitration as provided in paragraph (c) (ii) below. Either party may commence mediation by providing to JAMS/ENDISPUTE and the other party with a written request for mediation. The parties will cooperate with JAMS/ENDISPUTE and with one another in selecting a mediator from JAMS/ENDISPUTE's panel of neutral mediators, and in scheduling the mediation proceedings. The parties covenant that they will participate in the mediation in good faith, and that they will share equally in the cost, unless the mediator recommends otherwise. All offers, promises, conduct and statements, whether oral or written, made in the course of the mediation by any of the parties, their agents, employees, experts and attorneys, and by the mediator or any JAMS/ENDISPUTE employees, are confidential, privileged and inadmissible for any purpose, including impeachment, in any arbitration or other proceeding involving the parties, provided that evidence that is otherwise admissible or discoverable shall not be rendered inadmissible or non-discoverable as a result of its use in the mediation. The mediation may continue after the commencement of arbitration if the parties so desire. Unless otherwise agreed by the parties, the mediator shall be disqualified from serving as arbitrator in the case. The provisions of this paragraph may be enforced in any court of competent jurisdiction and the party seeking enforcement shall be entitled to an award of all costs, fees and expenses, including attorney's fees, to be paid by the party against whom enforcement is ordered. (ii) For claims that are Third Party Claims or for claims that cannot be resolved in accordance with paragraph (c) (i) above, the resolution thereof shall be by final and binding arbitration before a single arbitrator in New York City in accordance with the commercial arbitration rules of the American Arbitration Association then in effect. The parties shall attempt to agree upon an arbitrator; if the parties are unable to agree upon an arbitrator within 10 days after the proposed list of arbitrators is submitted to the parties, then any of the parties to the arbitration may apply for appointment of an arbitrator by the American Arbitration Association (or any successor thereto). Each party shall pay the fees and expenses of counsel used by it and 50% of 2 the fees and expenses of the arbitrator and of other expenses of the arbitration. The arbitrator shall render his decision within 90 days after his appointment and, notwithstanding the foregoing sentence, may award costs to any of the parties if, in his sole opinion, the claims made by any other party or parties had no reasonable basis and were arbitrary and capricious. Such decision and award shall be in writing and shall be final and conclusive on the parties, and counterpart copies thereof shall be delivered to each of the parties. Judgment may be obtained on the deci sion of the arbitrator so rendered in any court having jurisdiction and may be enforced in accordance with the laws of the State of New York. If the arbitrator shall fail to render his decision or award within such 90-day period, either North or TRG may apply to any New York or federal court then having jurisdiction by action, proceeding or otherwise, as may be proper to determine the matter in dispute consistently with the provisions of this Agreement. The parties consent to the jurisdiction of the New York courts sitting in the Borough of Manhattan and the United States District Court for the Southern District of New York for this purpose. The prevailing party (or either party, in the case of a decision or award rendered in part for each party) shall send a copy of the arbitration decision or of any judgment of the New York or federal court to the Escrow Agent. (d) As used in this Agreement, "Established Claim" means any (i) claim deemed established pursuant to the penultimate sentence of paragraph 2(b) above, (ii) any claim established by mediation or arbitration pursuant to paragraph 2 (c) above, resulting in a dollar award to North, (iii) a Third Party Claim which has been sustained by a final determination by arbitration pursuant to paragraph 2 (c) (ii) above, or (v) a Third Party Claim which the Independent Committee and TRG have jointly notified the Escrow Agent has been settled by settlement of the parties. (e) (i) Promptly after a claim becomes an Established Claim, the Independent Committee shall deliver a notice to the Escrow Agent directing the Escrow Agent to deliver to North such number of the Class B Preferred Stock in the Escrow Fund for cancellation as equals or fractionally exceeds the adjudicated or resolved amount of the claim, divided by the Market Price of the Class A Common Stock, plus $1.00, and if the claim is not fully recompensed by the delivery of the Class B Preferred Stock, then, additionally, that full number of shares of Class A Common Stock in the Escrow Fund as equals or fractionally exceeds the amount of the claim remaining after delivery of the Class B Preferred Stock divided by the Market Price of the Class A Common Stock. To the extent shares of Class B Preferred are to be delivered to North, they shall be delivered pro rata among all the Stockholders holding Class B Preferred Stock, in respect of an Established Claim. (ii) If the amount of an Established Claim against the Escrow Fund is greater than the value of the Escrow Stock in the Escrow Fund, the Stockholders and TRG will not remain liable to North for the deficiency thereof. 3. On the 61st day after the mailing by certified mail, return receipt requested, or delivery by hand, to each of the then serving members of the Board of Directors of North, of the audited financial statements of North (with copies of the signed report of the independent auditors of North) for its fiscal year ending December 31, 1998, the Escrow Agent shall release to TRG, the Class A Common Stock in the Escrow Fund, except to the extent that the aggregate dollar amount of all Indemnity Claims then asserted exceeds the value of the shares of Class 3 B Preferred Stock then remaining in the Escrow Fund, in accordance with Section 2(e) above, and on the 61st day after mailing by certified mail, return receipt requested, or delivery by hand, to each of the then serving members of the Board of Directors of North, of the audited financial statements of North (with copies of the signed report of the independent auditors of North) of its fiscal year ending December 31, 1999, the Escrow Agent shall release from the Escrow Fund all the Escrow Stock, except to the extent of the value of Escrow Shares equal to the amount of any Indemnity Claims against the Escrow Fund with respect to which Notices have been received but which have not been resolved pursuant to Section 2 hereof ("Pending Claims"). Thereafter, if any Pending Claim becomes an Established Claim, the Escrow Agent shall promptly deliver to North that number of shares of Escrow Stock equal to the number determined in accordance with paragraph 2(e) above. Subject to this paragraph, no Escrow Stock will be delivered to TRG on behalf of itself and the Stockholders if there are any Pending Claims. Upon resolution of all Pending Claims, by whatever means or procedures used, the Escrow Agent shall distribute to TRG on behalf of itself and the Stockholders the Escrow Stock remaining in the Escrow Fund. 4. The Escrow Agent shall cooperate in all respects with the Independent Committee in the calculation of any amounts determined to be distributable to North in accordance with this Agreement. 5. (a) The Escrow Agent undertakes to perform only such duties as are expressly set forth herein. (b) The Escrow Agent may rely and shall be protected in acting or refraining from acting upon any written notice, instruction or request furnished to it hereunder and believed by it to be genuine and to have been signed or presented by the proper party or parties, including an award made by an arbitration or a judgment entered by a court of competent jurisdiction. The Escrow Agent may conclusively presume that the undersigned representative of any party hereto which is a legal entity other than a natural person has full power and authority to instruct the Escrow Agent on behalf of that party unless written notice to the contrary is received by the Escrow Agent. (c) The Escrow Agent's sole responsibility upon receipt of any notice requiring any delivery of Escrow Stock to North pursuant to paragraph 2(e) of this Agreement is to deliver to North the number of shares of Escrow Stock as determined in accordance with this Agreement, and the Escrow Agent shall have no duty to determine the validity, authenticity or enforceability of any specification or certification made in such notice. (d) The Escrow Agent shall not be liable for any action taken by it in good faith and believed by it to be authorized or within the rights or powers conferred upon it by this Agreement, and may consult with counsel of its own choice and shall have full and complete authorization and protection for any action taken or suffered by it hereunder in good faith and in accordance with the opinion of such counsel. (e) The Escrow Agent may resign and be discharged from its duties or obligations hereunder by giving notice in writing of such resignation specifying a date upon which such resignation shall take effect, whereupon a successor Escrow Agent, which shall be 4 a bank or trust company with an office in New York City and a combined capital and surplus of not less than $50,000,000, shall be appointed by the Independent Committee. (f) In the event of a dispute between the parties as to the proper disposition of the Escrow Fund, the Escrow Agent shall be entitled (but not required) to deliver the Escrow Fund into the United States District Court for the Southern District of New York and, giving notice to North, the Independent Committee and TRG (if TRG is no longer the Escrow Agent) of such action, shall thereupon be relieved of all further responsibility. (g) As long as TRG is the Escrow Agent, there shall be no fees or expenses payable to the Escrow Agent for its services hereunder. If the Escrow Agent is not TRG or an affiliate of TRG, North and TRG each agree to pay or reimburse the Escrow Agent, upon request, for 50% of all expenses, disbursements and advances, including reasonable attorneys' fees, incurred or made by it in connection with the performance of its duties hereunder. 6. This Agreement expressly sets forth all the duties of the Escrow Agent with respect to any and all matters pertinent hereto. No implied duties or obligations shall be read into this Agreement against the Escrow Agent. The Escrow Agent shall not be bound by the provisions of any agreement among the parties hereto except this Agreement and shall have no duty to inquire into the terms and conditions of any agreement made or entered into in connection with this Agreement, including, without limitation, the Merger Agreement. 7. This Agreement shall inure to the benefit of and be binding upon the parties and their respective heirs, successors, assigns and legal representatives, shall be governed by and construed in accordance with the law of New York applicable to contracts made and to be performed therein and cannot be changed or terminated except by a writing signed by North (with the written consent of the Independent Committee), TRG and the Escrow Agent (if no longer TRG). 8. Any claim or controversy arising out of this Agreement shall be submitted to arbitration in the manner provided by paragraph 2 (c) (ii) above. 9. All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed to have been duly given or made as of the date delivered or mailed if delivered personally or by telecopy, one day after delivery to a nationally recognized courier, or three business days after mailed by registered mail (postage prepaid, return receipt requested), in each case, to the parties at the following addresses (or at such other address for a party as shall be specified by like notice, except that notices of changes of address shall be effective upon receipt): A. If to North or the Independent Committee, to it at North Atlantic Acquisition Corp. 5 East 59th Street, 3rd Floor New York, New York 10022 Attention: David Jan Mitchell 5 Telecopier No.: 212-588-0286 with a copy to: Graubard Mollen & Miller 600 Third Avenue New York, New York 10016 Attention: David Alan Miller, Esq. Telecopier No.: 212-818-8881 B. If to the or the Escrow Agent, to it at: Trident Rowan Group, Inc. Two Worlds Fair Drive Franklin Township, Somerset New Jersey 08878 Attention: Howard Chase, Esq. with a copy to: Morrison Cohen Singer & Weinstein, LLP 750 Lexington Avenue New York, New York 10022 Attention: David Lerner, Esq. Telecopier: 212-753-8708 or to such other person or address as any of the parties hereto shall specify by notice in writing to all the other parties hereto. 10. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original instrument and all of which together shall constitute a single agreement. IN WITNESS WHEREOF, each of the parties hereto has duly executed this Agreement on the date first above written. NORTH ATLANTIC ACQUISITION CORP. By:____________________________ Name: David Jan Mitchell Title: Chief Executive Officer TRIDENT ROWAN GROUP, INC., For itself, as agent for the stockholders and as escrow agent 6 By:________________________________ Name: Title: 7 SCHEDULE I Number of Shares and Stock Name of Issuee Address Certificate Number - -------------- ------- ------------------ Subtotal EX-23.2 8 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS EXHIBIT 23.2 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS North Atlantic Acquisition Corp. New York, New York We hereby consent to the use in the Prospectus constituting a part of this Registration Statement on Form S-4 of our report dated November 4, 1997 relating to the financial statements of North Atlantic Acquisition Corp., appearing in the Company's Annual Report on Form 10-KSB for the year ended August 31, 1997, which is contained in that prospectus. We also consent to the reference to us under the caption "Experts" in the Prospectus. BDO Seidman, LLP New York, New York October 1, 1998 EX-23.3 9 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS ----------------------------------------- To Moto Guzzi Corp.: As independent public accountants, we hereby consent to the use of our reports and to all references to our firm included in or made a part of this prospectus. ARTHUR ANDERSEN LLP Milan, Italy October 1, 1998 EX-27.1 10 FINANCIAL DATA SCHEDULE
5 12-MOS AUG-31-1997 AUG-31-1997 402,211 7,998,324 0 0 0 6,401,443 0 0 8,400,535 282,431 0 0 1 10,560 6,507,543 8,400,535 0 0 0 0 38,920 0 0 0 0 0 0 0 0 (38,920) (0.33) 0.00
EX-99.1 11 PROXY PROXY NORTH ATLANTIC ACQUISITION CORP - PROXY Solicited by the Board of Directors for the Annual Meeting of Stockholders to be Held on ________, 1998 The undersigned Stockholder(s) of NORTH ATLANTIC ACQUISITION CORP., a Delaware corporation ("NAAC"), hereby appoints David J. Mitchell and C. Thomas McMillen, or either of them, with full power of substitution and to act without the other, as the agents, attorneys and proxies of the undersigned, to vote the shares standing in the name of the undersigned at the Annual Meeting of Stockholders of NAAC to be held on ______, 1998 and at all adjournments thereof. This proxy will be voted and will be voted in accordance with the instructions given below. If no instructions are given, this proxy will be voted FOR all of the following proposals. 1. To approve the Merger Agreement, dated August 18, 1998, providing for the merger of Moto Guzzi Corp., with and into NAAC, with NAAC continuing as the surviving corporation. FOR |_| AGAINST |_| ABSTAIN |_| 2. To adopt an Amended and Restated Certificate of Incorporation to effect a series of amendments to the Certificate of Incorporation of NAAC. FOR |_| AGAINST |_| ABSTAIN |_| 3. Election of the following Directors: FOR all nominees listed below except WITHHOLD AUTHORITY to vote for all as marked to the contrary below |_| nominees listed below |_| _____ and Frank J. O'Connell (Class I), _____, Emanual Arbib and Peter Hobbins (Class II), and Howard E. Chase, Mark S. Hauser and David J. Mitchell (Class III) (If Proposal 2 above is approved, the directors will serve in the classes indicated.) INSTRUCTIONS: To withhold authority to vote for any individual nominee, write that nominee's name in the space below. ----------------------------------------------------- 4. To approve the 1998 Stock Option Plan and 1998 Stock Plan for Outside Directors: FOR |_| AGAINST |_| ABSTAIN |_| 5. To adopt an amendment to the Certificate of Incorporation to reclassify each share of NAAC Class B Common Stock into two shares of NAAC Class A Common Stock and two NAAC Class A Warrants. FOR |_| AGAINST |_| ABSTAIN |_| 6. In their discretion, the proxies are authorized to vote upon such other business as may come before the meeting or any adjournment thereof. |_| I plan on attending the Annual Meeting of Stockholders. Date 1998 -----------------------------, ---------------------------------------- Signature ---------------------------------------- Signature if held jointly Please sign exactly as name appears above. When shares are held by joint tenants, both should sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by President or other authorized officer. If a partnership, please sign in partnership name by authorized person. -----END PRIVACY-ENHANCED MESSAGE-----