SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED
IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant ☒
Filed by a Party other than the Registrant ☐
Check the appropriate box:
☒ |
Preliminary Proxy Statement |
☐ |
Confidential, For Use
of the Commission Only |
☐ |
Definitive Proxy Statement |
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(as permitted by Rule 14a-6(e)(2)) |
☐ |
Definitive Additional Materials |
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☐ |
Soliciting Material Under Rule 14a-12 |
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GARNERO GROUP ACQUISITION COMPANY
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement,
if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
☒ |
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
| (1) | Title of each class of securities to which transaction applies: |
| | Ordinary shares of Garnero Group
Acquisition Company (“GGAC”) |
| (2) | Aggregate number of securities to which transaction applies: |
| | 4,000,000 GGAC ordinary shares |
| (3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on
which the filing fee is calculated and state how it was determined): |
| | $9.79 (average of high and low
prices on The Nasdaq Capital Market on December 17, 2015) |
| (4) | Proposed maximum aggregate value of transaction: |
| | $39,160,000 in GGAC ordinary shares |
| (5) | Total fee paid: |
| | $3,943.41 |
☐ |
Fee paid previously with preliminary materials: |
☐ |
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of
its filing. |
| (1) | Amount previously paid: |
| (2) | Form, Schedule or Registration Statement No.: |
PRELIMINARY PROXY STATEMENT
SUBJECT TO COMPLETION,
DATED DECEMBER 22, 2015
GARNERO GROUP ACQUISITION COMPANY
Av Brig. Faria Lima 1485 - 19 Andar
Brasilinvest Plaza
Sao Paulo-SP, CEP 01452-002
Brazil
NOTICE OF EXTRAORDINARY GENERAL MEETING
OF SHAREHOLDERS
TO BE HELD ON [●], 2016
TO THE SHAREHOLDERS OF GARNERO GROUP ACQUISITION COMPANY:
NOTICE IS HEREBY GIVEN that an extraordinary general meeting of
shareholders of Garnero Group Acquisition Company (“GGAC”), a Cayman Islands exempted company, will be held at [●]
[a/p].m. eastern time, on [●], 2016, at the offices of Graubard Miller, GGAC’s U.S. counsel, at The Chrysler Building,
405 Lexington Avenue, 11th Floor, New York, New York 10174. You are cordially invited to attend the extraordinary general
meeting, which will be held for the following purposes:
| (1) | to consider and vote upon a proposal to adopt and approve the First Amended and Restated Investment Agreement (“Investment
Agreement”), dated as of December 17, 2015, by and among GGAC, Q1 Comercial de Roupas S.A. (“Grupo Colombo”),
Alvaro Jabur Maluf Jr. and Paulo Jabur Maluf (the “Controlling Persons”) and the persons listed under the caption “Optionholder”
on the signature pages thereto (the “Optionholders”), which provides, among other things, for the Controlling Persons
and the Optionholders to contribute to GGAC all of Grupo Colombo’s equity, as a result of which Grupo Colombo will become
a wholly-owned subsidiary of GGAC, and to approve the business combination contemplated by the Investment Agreement – we
refer to this proposal as the “business combination proposal”; |
| (2) | to consider and vote upon separate proposals to approve by special resolution amendments to the amended and restated memorandum
and articles of association of GGAC, effective following the business combination, to (i) change the name of GGAC from “Garnero
Group Acquisition Company” to “Garnero Colombo Inc.”; (ii) adjust the existing classification of directors to
conform with the classification described in the director election proposal below; and (iii) remove provisions that will no longer
be applicable to GGAC after the business combination and make certain other immaterial changes — we refer to these proposals
collectively as the “charter amendment proposals”; |
| (3) | to consider and vote upon a proposal to approve by special resolution, effective immediately upon consummation of the business
combination and approval of the charter amendment proposals, the amendment and restatement of GGAC’s amended and restated
articles of association by their deletion in their entirety and the substitution in their place of the second amended and restated
memorandum and articles of association to (among other matters) reflect the changes effected by the charter amendment proposals
— we refer to this proposal as the “articles restatement proposal”; |
| (4) | to consider and vote upon a proposal to approve by ordinary resolution the 2015 Long-Term Incentive Plan, which is an incentive
compensation plan for directors, officers, employees and consultants of GGAC and its subsidiaries — we refer to this proposal
as the “incentive compensation plan proposal”; |
| (5) | to elect by ordinary resolution, effective upon the consummation of the business combination, five directors to GGAC’s
board of directors, effective upon the consummation of the business combination, of whom one will be a Class A director serving
until the general meeting of shareholders to be held in 2017, two will be Class B directors serving until the general meeting to
be held in 2018 and two will be Class C directors serving until the general meeting to be held in 2019 and, in each case, until
their successors are elected and qualified — we refer to this proposal as the “director election proposal”; and |
| (6) | to consider and vote upon a proposal to adjourn the extraordinary general meeting to a later date or dates, if necessary, to
permit further solicitation and vote of proxies if, based upon the tabulated vote or elections to convert at the time of the extraordinary
general meeting, GGAC is not authorized to consummate the business combination or the closing conditions under the Investment Agreement
are not met — we refer to this proposal as the “adjournment proposal.” |
These items of business are described in the attached proxy statement,
which we encourage you to read in its entirety before voting. Only holders of record of GGAC’s ordinary shares at the close
of business on [●], 2016 are entitled to notice of the extraordinary general meeting and to vote and have their votes counted
at the extraordinary general meeting and any adjournments or postponements of the extraordinary general meeting.
After careful consideration, GGAC’s board of directors has
determined that the business combination proposal and the other proposals are fair to and in the best interests of GGAC and its
shareholders and unanimously recommends that you vote or give instruction to vote “FOR” the business combination proposal,
“FOR” each of the charter amendment proposals, “FOR” the articles restatement proposal, “FOR”
the incentive compensation plan proposal, “FOR” the election of all of the persons nominated by GGAC’s management
for election as directors, and “FOR” the adjournment proposal, if presented.
All GGAC shareholders are cordially invited to attend the extraordinary
general meeting in person. To ensure your representation at the extraordinary general meeting, however, you are urged to complete,
sign, date and return the enclosed proxy card as soon as possible. If you are a shareholder of record of GGAC’s ordinary
shares, you may also cast your vote in person at the extraordinary general meeting. If your shares are held in an account at a
brokerage firm or bank, you must instruct your broker or bank on how to vote your shares or, if you wish to attend the extraordinary
general meeting and vote in person, obtain a proxy from your broker or bank.
Your vote is important regardless of the number of shares you own.
Whether you plan to attend the extraordinary general meeting or not, please sign, date and return the enclosed proxy card as soon
as possible in the envelope provided. If your shares are held in “street name” or are in a margin or similar account,
you should contact your broker to ensure that votes related to the shares you beneficially own are properly counted.
Thank you for your participation. We look forward to your continued
support.
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By Order of the Board of Directors |
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[●] |
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Mario Garnero |
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Chief Executive Officer |
[●], 2016
IF YOU RETURN YOUR PROXY CARD WITHOUT AN INDICATION OF HOW YOU
WISH TO VOTE, YOUR SHARES WILL BE VOTED IN FAVOR OF EACH OF THE PROPOSALS, AND YOU WILL NOT BE ELIGIBLE TO HAVE YOUR SHARES CONVERTED
INTO CASH. TO EXERCISE YOUR CONVERSION RIGHTS, YOU MUST AFFIRMATIVELY VOTE EITHER FOR OR AGAINST THE BUSINESS COMBINATION PROPOSAL
AND DEMAND THAT GGAC CONVERT YOUR SHARES INTO CASH NO LATER THAN THE CLOSE OF THE VOTE ON THE BUSINESS COMBINATION PROPOSAL BY
MARKING YOUR PROXY CARD WHERE INDICATED THEREIN FOR REQUESTING CONVERSION AND TENDERING YOUR SHARES TO GGAC’S TRANSFER AGENT
PRIOR TO THE VOTE AT THE MEETING. YOU MAY TENDER YOUR SHARES BY EITHER DELIVERING YOUR SHARE CERTIFICATE TO THE TRANSFER AGENT
OR BY DELIVERING YOUR SHARES ELECTRONICALLY USING DEPOSITORY TRUST COMPANY’S DWAC (DEPOSIT WITHDRAWAL AT CUSTODIAN) SYSTEM.
IF THE BUSINESS COMBINATION IS NOT COMPLETED, THEN THESE SHARES WILL NOT BE CONVERTED INTO CASH. IF YOU HOLD THE SHARES IN STREET
NAME, YOU WILL NEED TO INSTRUCT THE ACCOUNT EXECUTIVE AT YOUR BANK OR BROKER TO WITHDRAW THE SHARES FROM YOUR ACCOUNT IN ORDER
TO EXERCISE YOUR CONVERSION RIGHTS. SEE “EXTRAORDINARY GENERAL MEETING OF GGAC SHAREHOLDERS — CONVERSION RIGHTS”
FOR MORE SPECIFIC INSTRUCTIONS.
This proxy statement is dated [●], 2016 and is first being
mailed to Garnero Group Acquisition Company shareholders on or about [●], 2016.
TABLE OF CONTENTS
Annex A |
— Amended and Restated Investment Agreement |
Annex B |
— Second Amended and Restated Memorandum and Articles of Association |
Annex C |
— 2015 Long-Term Incentive Plan |
Annex D |
— Opinion of Hirashima & Associados |
Annex E |
— Opinion of Graubard Miller |
Annex F |
— Text of Resolutions |
Annex G |
— Audit Committee Charter |
Annex H |
— Nominating Committee Charter |
Annex I |
— Compensation Committee Charter |
SUMMARY OF THE MATERIAL TERMS OF THE BUSINESS
COMBINATION
| ● | Garnero Group Acquisition Company (“GGAC”) and Q1 Comercial de Roupas S.A. (“Grupo Colombo”) have
agreed to a business combination under the terms of a First Amended and Restated Investment Agreement, dated as of December
17, 2015. This agreement, as further amended or supplemented from time to time, is referred to in this proxy statement as the
“Investment Agreement.” The parties to the Investment Agreement are GGAC, Grupo Colombo, Álvaro Jabur
Maluf Jr. and Paulo Jabur Maluf (the “Controlling Persons”) and the persons listed under the caption
“Optionholder” on the signature pages to the Investment Agreement (the “Optionholders”). Pursuant to
the Investment Agreement, the Controlling Persons and the Optionholders will contribute to GGAC all of Grupo Colombo’s
equity, as a result of which Grupo Colombo will become a wholly-owned subsidiary of GGAC. See the section entitled
“The Business Combination Proposal.” |
| ● | Headquartered in São Paulo, Grupo Colombo is one of Brazil’s leading retailers focusing on menswear, with over
400 stores throughout the country. Grupo Colombo has recently diversified from formalwear into smart casual clothes and has strengthened
its online presence to become, according to Exame Magazine, one of the three most valuable brands within the Brazilian apparel
retail sector. See the section entitled “Business of Grupo Colombo.” |
| ● | Under the Investment Agreement, at the closing of the transactions contemplated thereby (the “Closing”), (A) the
Controlling Persons will contribute all of the issued and outstanding ordinary shares of Grupo Colombo (the “Outstanding
Shares”) to GGAC (the “Share Contribution”) and will receive in consideration an aggregate of 3,640,000 newly
issued ordinary shares of GGAC (“GGAC ordinary shares”) and (B) the Optionholders will exercise certain options held
by them, will contribute the underlying ordinary shares of Grupo Colombo to GGAC (the “Option Contribution,” and together
with the Share Contribution, the “Contributions”), and will receive in consideration an aggregate of 360,000 GGAC ordinary
shares. See the section entitled “The Business Combination Proposal — Structure of the Business Combination.” |
| ● | Prior to the Closing, the Controlling Persons will use their commercially reasonable best efforts to effect a
reorganization (the “Reorganization”) in accordance with the Investment Agreement, as a result of which the
Controlling Persons will become the direct owners of all of the Outstanding Shares, Grupo Colombo will not incur any
indebtedness or other liabilities and Grupo Colombo will have accrued goodwill amortizable under applicable tax law in the
amount of R$200,000,000. The tax benefit, currently held by a shareholder company of Grupo Colombo (the “Colombo
Shareholder”), will be retained and reflected in the consolidated financial statements of Grupo Colombo after the
Reorganization, as a consequence of the Colombo Shareholder merging into Grupo Colombo. The Colombo Shareholder will cease to
exist as a result of that said Reorganization. See the section entitled “The Business Combination Proposal —
Structure of the Business Combination.” |
| ● | The Controlling Persons have committed to use their commercially reasonable best efforts to purchase, directly or indirectly,
at least US$30 million of GGAC ordinary shares in the open market, and to vote such shares in favor of the business combination
and not to exercise their conversion rights with respect to such shares. See the section entitled “The Business Combination
Proposal — Structure of the Business combination.” |
| ● | To provide a fund for payment to GGAC with respect to its post-closing rights to indemnification under the Investment Agreement,
there will be placed in escrow (with an independent escrow agent) an aggregate of 200,000 of the GGAC ordinary shares issuable
to the Controlling Persons and the Optionholders at Closing (the “Escrow Shares”). The Escrow Shares will be allocated
among the Controlling Persons and the Optionholders in the same proportion as the number of GGAC ordinary shares being issued to
them in the business combination. See the section entitled “The Business Combination Proposal — Indemnification
of GGAC and the Controlling Persons and Optionholders.” |
| ● | The Investment Agreement provides that either GGAC or the Controlling Persons may terminate the agreement if the Contributions
shall not have been consummated by March 31, 2016. Additionally, the Investment Agreement may be terminated, among other reasons,
by either GGAC or the Controlling Persons upon material breach by the other party. See the section entitled “The Investment
Agreement — Termination.” |
| ● | In addition to voting on the business combination, the shareholders of GGAC will vote on separate proposals to amend its amended
and restated memorandum and articles of association, effective immediately upon consummation of the business combination, to (i)
change GGAC’s name to “Garnero Colombo Inc.”; (ii) adjust the existing classification of directors to conform
with the classification described in the director election proposal below; and (iii) remove provisions that will no longer be applicable
to GGAC after the business combination and make certain other immaterial changes. To the extent such proposals are approved, the
shareholders of GGAC will also vote on a proposal to approve the amendment and restatement of GGAC's amended and restated memorandum
and articles of association to (among other matters) reflect the foregoing amendments. The shareholders of GGAC will also vote
on proposals to (A) approve an incentive compensation plan, (B) elect five directors to GGAC’s board of directors, of whom
one will be a Class A director serving until the general meeting of shareholders to be held in 2017, two will be Class B directors
serving until the general meeting to be held in 2018 and two will be Class C directors serving until the general meeting to be
held in 2019, and (C) approve, if necessary, an adjournment of the meeting. See the sections entitled “The Charter
Amendment Proposals,” “The Articles Restatement Proposal,” “The Incentive Compensation Plan
Proposal,” “The Director Election Proposal” and “The Adjournment Proposal.” |
| ● | After the business combination, if management’s nominees are elected, the directors of GGAC will be Álvaro Jabur
Maluf Jr., who was designated for nomination as director by Grupo Colombo, and Mario Garnero, Amir Adnani, John Tonelli and Nelson
Narciso Filho, who were designated by GGAC. See the section entitled “The Director Election Proposal.” |
| ● | Upon completion of the business combination, certain officers of Grupo Colombo will become officers of GGAC, holding positions
similar to the positions such officers currently hold, and will continue to hold after the Contributions, with Grupo Colombo. These
officers are Álvaro Jabur Maluf Jr., who will become Chief Executive Officer of GGAC, Paulo Jabur Maluf, who will become
Vice President of GGAC and Denis Piovezan, who will become Chief Financial Officer of GGAC. Each of these persons will enter into
an employment agreement with GGAC. See the section entitled “The Director Election Proposal — GGAC Executive Officer
and Director Compensation — New Employment Agreements.” |
| ● | The Controlling Persons and Optionholders have agreed not to sell any of the GGAC ordinary shares that they receive as a result
of the business combination until (1) with respect to 50% of the shares, the earlier of one year after the closing and the date
on which the closing price of the shares equals or exceeds US$13.00 per share for any 20 trading days within any 30-trading day
period commencing after the closing date and (2) with respect to the remaining 50% of the shares, one year after the closing date,
pursuant to lockup agreements they signed simultaneously with the execution of the Investment Agreement (the “Lockup Agreements”).
These restrictions are substantially the same as the restrictions imposed on GGAC’s shareholders from prior to its initial
public offering (the “initial shareholders”) with respect to the GGAC ordinary shares received by them prior to the
initial public offering (the “initial shares”). See the section entitled “The Business Combination Proposal
— Sale Restriction; Resale Registration.” |
| ● | At the closing of the business combination, GGAC will enter into an amended and restated registration rights agreement (the
“Registration Rights Agreement”) amending and restating the registration rights agreement entered into by GGAC in connection
with its initial public offering. The registration rights will cover the initial shares, all of the units (the “private units”)
sold in the private placement conducted concurrently with GGAC’s initial public offering (and underlying GGAC ordinary shares
and warrants), the units (the “working capital units”) issuable upon conversion of the convertible promissory notes
(the “working capital notes”) evidencing US$500,000 in working capital loans made by Mario Garnero since the closing
of the initial public offering (and underlying GGAC ordinary shares and warrants), all of the GGAC ordinary shares and warrants
underlying the unit purchase option granted to the representative of the underwriters in GGAC’s initial public offering and
all of the GGAC ordinary shares issued to the Controlling Persons and the Optionholders under the Investment Agreement (collectively,
the “registrable securities”). Pursuant to the Registration Rights Agreement, no later than 30 days following the Closing,
GGAC will prepare and file with the Securities and Exchange Commission (the “SEC”) a registration statement covering
the resale of such securities. Following the expiration of the lockup period under the Lockup Agreements, in addition to ordinary
resales under the registration statement in the public trading markets, the holders of such securities will be entitled to sell
such securities in underwritten public offerings under the registration statement, so long as any such underwritten public offering
is for at least US$10 million in the aggregate. The holders of such securities also will have certain customary “piggyback”
registration rights. See the section entitled “The Business Combination Proposal — Sale Restriction; Resale Registration.” |
QUESTIONS AND ANSWERS ABOUT THE PROPOSALS
| Q. | Why am I receiving this proxy statement? |
| A. | GGAC and Grupo Colombo have agreed to a business combination under the terms of the Investment Agreement. The Investment Agreement
provides that, among other things, the Controlling Persons and the Optionholders will contribute to GGAC all of Grupo Colombo’s
equity, as a result of which Grupo Colombo will become a wholly-owned subsidiary of GGAC. GGAC’s shareholders are being asked
to consider and vote upon a proposal to adopt the Investment Agreement and approve the business combination contemplated thereby
(the “business combination proposal”). Shareholder approval of the Investment Agreement and the transactions contemplated
thereby is required by GGAC’s amended and restated memorandum and articles of association. A copy of the Investment Agreement
is attached to this proxy statement as Annex A, and GGAC encourages its shareholders to read it in its entirety. See the
section entitled “The Business Combination Proposal.” |
GGAC’s shareholders are also being requested to
consider and vote upon proposals:
| ● | To approve by special resolution separate amendments to the amended and restated memorandum and articles of association of
GGAC, effective following the business combination, to (i) change the name of GGAC from “Garnero Group Acquisition Company”
to “Garnero Colombo Inc.”; (ii) adjust the existing classification of directors to conform with the classification
described in the director election proposal below; and (iii) remove provisions that will no longer be applicable to GGAC after
the business combination and make certain other immaterial changes (the “charter amendment proposals”). See the section
entitled “The Charter Amendment Proposals.” |
| ● | To approve by special resolution, effective immediately upon consummation of the business combination and approval of the charter
amendment proposals, the amendment and restatement of GGAC’s amended and restated articles of association by their deletion
in their entirety and the substitution in their place of the second amended and restated memorandum and articles of association
to (among other matters) reflect the changes effected by the charter amendment proposals (the “articles restatement proposal”).
GGAC’s second amended and restated memorandum and articles of association, as it will appear if the charter amendment proposals
and articles restatement proposal are approved, is attached to this proxy statement as Annex B, and GGAC encourages its
shareholders to read it in its entirety. See the section entitled “The Articles Restatement Proposal.” |
| ● | To approve by ordinary resolution the 2015 Long-Term Incentive Plan (the “2015 Plan”), which is an incentive compensation
plan for directors, officers, employees and consultants of GGAC and its subsidiaries (the “incentive compensation plan proposal”).
The incentive compensation plan is attached to this proxy statement as Annex C, and GGAC encourages its shareholders to
read it in its entirety. See the section entitled “The Incentive Compensation Plan Proposal.” |
| ● | To elect by ordinary resolution, effective upon the consummation of the business combination, five directors to GGAC’s
board of directors, of whom one will be a Class A director serving until the general meeting of shareholders to be held in 2017,
two will be Class B directors serving until the general meeting to be held in 2018 and two will be Class C directors serving until
the general meeting to be held in 2019 and, in each case, until their successors are elected and qualified (the “director
election proposal”). See the section entitled “The Director Election Proposal.” |
| ● | To adjourn the extraordinary general meeting to a later date or dates, if necessary, to permit further solicitation and vote
of proxies if, based upon the tabulated vote or elections to convert at the time of the extraordinary general meeting, GGAC is
not authorized to consummate the business combination or the closing conditions under the Investment Agreement are not met (the
“adjournment proposal”). See the section entitled “The Adjournment Proposal.” |
Pursuant to the Investment Agreement, the approval of
the business combination proposal is a condition to the consummation of the business combination. If the business combination proposal
is not approved, the other proposals (except the adjournment proposal, as described below) will not be presented to the shareholders
for a vote and the business combination will not be consummated.
GGAC is holding the extraordinary general meeting of its
shareholders to consider and vote upon these proposals. This proxy statement contains important information about the proposed
business combination and the other matters to be acted upon at the extraordinary general meeting. You should read it carefully.
Your vote is important. You are encouraged to vote
as soon as possible after carefully reviewing this proxy statement.
| Q. | Why is GGAC proposing the business combination? |
| A. | GGAC was organized to effect a merger, share exchange, asset acquisition, share purchase, recapitalization, reorganization
or other similar business combination with one or more businesses or entities. |
On June 25, 2014, GGAC consummated its initial public
offering of 12,500,000 units (the “units”). Each unit consists of one GGAC ordinary share, one right to receive one-tenth
of an ordinary share on the consummation of an initial business combination (the “rights”), and one warrant to purchase
one-half of one ordinary share at an exercise price of US$11.50 per full share (the “warrants”). The units sold in
the the initial public offering, including the units sold pursuant to the over-allotment option described below, and the underlying
GGAC ordinarys shares, rights and warrants are sometimes referred to herein as the “public units,” “public shares,”
“public rights” and “public warrants,” respectfully. Simultaneously with the consummation of the initial
public offering, GGAC consummated the private placement of 563,750 private units at a price of US$10.00 per unit, generating total
proceeds of US$5,637,500. The private units are identical to the units sold in GGAC’s initial public offering, except that
the warrants underlying the private units (the “private warrants”) are exercisable for cash or on a cashless basis,
at the holder’s option, and are not redeemable by GGAC, in each case so long as they are still held by the initial purchasers
or their affiliates. On July 7, 2014, GGAC consummated the closing of the sale of 1,875,000 units which were sold subject to the
underwriters’ over-allotment option. Simultaneously with the consummation of the over-allotment option, GGAC consummated
a private placement of an additional 70,313 private units at a price of US$703,130. The 14,375,000 units sold in the initial public
offering, including the 1,875,000 units sold subject to the over-allotment option, were sold at an offering price of US$10.00 per
unit, generating total gross proceeds of US$143,750,000. Of the gross proceeds of the initial public offering and private placements,
US$144,468,755 (or US$10.05 per share) was placed in an account at Barclays, maintained by Continental Stock Transfer & Trust
Company, acting as trustee (the “trust account”). Except for certain limited exceptions, the funds in the trust account
may not be released to GGAC until the earlier of the completion of an initial business combination and GGAC’s liquidation
upon its failure to consummate a business combination within the required time period.
Headquartered in São Paulo, Grupo Colombo is one
of Brazil’s leading retailers focusing on menswear, with over 400 stores throughout the country. Grupo Colombo has recently
diversified from formalwear into smart casual clothes and has strengthened its online presence to become, according to Exame Magazine,
one of the three most valuable brands within the Brazilian apparel retail sector. As a result, GGAC believes that a business combination
with Grupo Colombo will provide GGAC shareholders with an opportunity to participate in a leading company with significant growth
potential. See the section entitled “The Business Combination Proposal — GGAC’s Board of Directors’
Reasons for Approval of the Business Combination.”
If the business combination with Grupo Colombo is consummated,
GGAC intends to use funds held in the trust account to pay the holders of public shares (the “public shareholders”)
who exercise conversion rights, to pay expenses incurred in connection with the business combination, including up to US$4,600,000
in fees to GGAC’s investment bankers in connection with the transaction, and for working capital of GGAC and Grupo Colombo
and other general corporate purposes after the business combination. Such funds may also be used to reduce the indebtedness of
the combined company.
Pursuant to the terms of GGAC’s amended and restated
memorandum and articles of association, if GGAC does not complete the business combination with Grupo Colombo or another business
combination by June 25, 2016, it will trigger GGAC’s automatic winding up, dissolution and liquidation. This will have the
same effect as if GGAC had formally gone through a voluntary liquidation procedure under the Companies Law (2013 Revision) of the
Cayman Islands (the “Companies Law”).
| Q. | How will GGAC’s initial shareholders vote in connection with the business combination proposal? |
| A. | All of GGAC’s initial shareholders, as well as all of its officers and directors, have agreed to vote the ordinary shares
owned by them in favor of the business combination proposal. Additionally, GGAC’s initial shareholders, as well as all of
its officers and directors, have agreed not to convert any shares in connection with the shareholder vote to approve the business
combination. The initial shares and shares (the “private shares”) underlying the private units held by the initial
shareholders currently constitute approximately 22.3% of the outstanding GGAC ordinary shares. GGAC’s initial shareholders,
as of the date of this proxy statement, have not acquired any GGAC ordinary shares in the aftermarket. However, any subsequent
purchase by the initial shareholders of GGAC ordinary shares in the aftermarket will make it more likely that the business combination
proposal is approved as such shares would be voted in favor of the business combination. Furthermore, the Controlling Persons have
committed to use their commercially reasonable best efforts to purchase at least US$30 million of GGAC ordinary shares in the open
market, and to vote such shares in favor of the business combination and not to exercise their conversion rights with respect to
such shares. |
| Q. | Do I have conversion rights? |
| A. | Public shareholders may seek to convert their shares, regardless of whether they vote for or against the business combination.
All conversions will be effectuated as repurchases under GGAC’s amended and restated memorandum and articles of association
and Cayman Islands law. Any public shareholder who affirmatively votes either for or against the business combination proposal
will have the right to demand that his shares be converted for pro rata share of the aggregate amount then on deposit in the trust
account, less any taxes then due but not yet paid (which GGAC expects will be approximately US$144,469,000, or approximately US$10.05
per share, at the consummation of the business combination). However, the proceeds held in the trust account could be subject to
claims that could take priority over those of GGAC’s public shareholders exercising conversion rights, regardless of whether
such holders vote for or against the business combination proposal. Therefore, the per-share distribution from the trust account
in such a situation may be less than originally anticipated due to such claims. A public shareholder will be entitled to receive
cash for these shares only if the business combination is consummated. |
Under section 48.2 of GGAC’s amended and restated
memorandum and articles of association, the business combination may only be consummated if GGAC has net tangible assets of at
least US$5,000,001 upon such consummation. GGAC estimates that this condition will be met if holders of no more than 13,762,388
of the public shares (representing approximately 95.7% of the public shares) properly demand conversion of their shares into cash.
These rights to demand conversion of the public shares
into cash are sometimes referred to herein as “conversion rights.”
| Q. | Is there a limit on the number of shares I may convert? |
| A. | A public shareholder, together with any affiliate of his or any other person with whom he is acting in concert or as a “group”
(as defined in Section 13(d)(3) of the Exchange Act) will be restricted from seeking conversion rights with respect to 30% or more
of public shares. Accordingly, all shares in excess of 30% owned by a holder will not be converted to cash. On the other hand,
a public shareholder who holds less than 30% of the public shares may convert all of the public shares held by him to cash. |
| Q. | How do I exercise my conversion rights? |
| A. | If you are a holder of public shares and you seek to convert your shares, you must (i) affirmatively vote either for or
against the business combination proposal and (ii) demand that GGAC convert your shares into cash no later than the close of the
vote on the business combination proposal, by either checking the box on the proxy card or submitting your request in writing to
GGAC’s transfer agent, at the address listed at the end of this section, and delivering your shares to GGAC’s transfer
agent physically or electronically using Depository Trust Company’s DWAC (Deposit Withdrawal at Custodian) System prior to
the vote at the meeting. |
If you (i) initially do not vote with respect to the business
combination proposal but then wish to vote for or against it, or (ii) wish to exercise your conversion rights but initially do
not check the box on the proxy card providing for the exercise of your conversion rights and do not send a written request to GGAC’s
transfer agent to exercise your conversion rights, you may request GGAC to send you another proxy card on which you may indicate
your intended vote or your intention to exercise your conversion rights. You may make such request by contacting GGAC at the phone
number or address listed at the end of this section.
Any request for conversion, once made by a holder of public
shares, may be withdrawn at any time up to the time the vote is taken with respect to the business combination proposal at the
extraordinary general meeting. In addition, if you deliver your shares for conversion to GGAC’s transfer agent and later
decide prior to the extraordinary general meeting not to elect conversion, you may request that GGAC’s transfer agent return
the shares (physically or electronically). You may make such request by contacting GGAC’s transfer agent at the phone number
or address listed at the end of this section.
Any corrected or changed proxy card or written demand
of conversion rights must be received by GGAC’s secretary prior to the vote taken on the business combination proposal at
the extraordinary general meeting. No demand for conversion will be honored unless the holder’s shares have been delivered
(either physically or electronically) to the transfer agent prior to the vote at the meeting.
If a holder of public shares votes for or against the
business combination proposal and properly demands conversion as described above, then, if the business combination is consummated,
GGAC will convert these shares into cash. Such amount will be paid promptly after consummation of the business combination. If
you exercise your conversion rights, then you will be exchanging your GGAC ordinary shares for cash and will no longer own these
shares following the business combination.
If you are a holder of public shares and you exercise
your conversion rights, it will not result in either the exercise or loss of any GGAC warrants or rights that you may hold. Your
warrants and rights will continue to be outstanding following a conversion of your GGAC ordinary shares and will become exercisable
or exchangeable, respectively, upon consummation of the business combination.
| Q. | Do I have appraisal rights if I object to the proposed business combination? |
| A. | No. GGAC’s shareholders do not have appraisal rights under the Companies Law in connection with the business combination
or the other proposals. |
| Q. | What happens to the funds deposited in the trust account after consummation of the business combination? |
| A. | After consummation of the business combination, the funds in the trust account will be used to pay holders of the public shares
who exercise conversion rights, to pay transaction expenses incurred in connection with the business combination with Grupo Colombo,
including up to US$4,600,000 in fees to GGAC’s investment bankers in connection with the transaction, and for working capital
of GGAC and Grupo Colombo and general corporate purposes of the combined company. Such funds may also be used to reduce the indebtedness
of the combined company. |
| Q. | What happens if a substantial number of public shareholders vote in favor of the business combination proposal and exercise
their conversion rights? |
| A. | GGAC’s public shareholders may vote in favor of the business combination and still exercise their conversion rights.
Accordingly, the business combination may be consummated even though the funds available from the trust account and the number
of public shareholders are substantially reduced as a result of conversions by public shareholders. With fewer public shares and
public shareholders, the trading market for GGAC ordinary shares may be less liquid and GGAC may not be able to meet the listing
standards for Nasdaq or another national securities exchange. Furthermore, the funds available from the trust account for working
capital purposes of the combined company after the business combination may not be sufficient for its future operations and may
not allow the combined company to reduce Grupo Colombo’s indebtedness and/or pursue its strategy for growth. See the section
entitled “Management's Discussion and Analysis of Financial Condition and Results of Operations of Grupo Colombo —
Liquidity and Capital Resources.” |
| Q. | What happens if the business combination is not consummated? |
| A. | If GGAC does not complete the business combination with Grupo Colombo or another business combination by June 25, 2016, it
will trigger GGAC’s automatic dissolution and liquidation pursuant to the terms of its amended and restated memorandum and
articles of association. As a result, this has the same effect as if GGAC had formally gone through a voluntary liquidation procedure
under the Companies Law. Accordingly, no vote would be required from GGAC’s shareholders to commence such a voluntary winding
up and dissolution. |
The amount in the trust account (less US$1,438 representing
the aggregate nominal par value of the public shares) under the Companies Law will be treated as share premium which is distributable
under the Companies Law provided that immediately following the date on which the distribution is proposed to be made, GGAC is
able to pay its debts as they fall due in the ordinary course of business.
If GGAC is forced to liquidate
the trust account, a holder of public shares will receive its pro rata share of the trust account upon liquidation. GGAC expects
the amount in the trust account will be approximately US$144,469,000, or approximately US$10.05 per share, at the time of liquidation.
Prior to such distribution, GGAC would be required to assess all claims that may be potentially brought against it by its creditors
for amounts they are actually owed and make provision for such amounts, as creditors take priority over its public shareholders
with respect to amounts that are owed to them. GGAC cannot assure its shareholders that it will properly assess all claims that
may be potentially brought against it. As such, GGAC’s shareholders could potentially
be liable for any claims of creditors to the extent of distributions received by them as an unlawful payment in the event GGAC
enters an insolvent liquidation.
Each of GGAC’s initial shareholders has agreed to
waive its rights to participate in any liquidation of the trust account or other assets with respect to the initial shares.
Mario Garnero, GGAC’s Chairman of the Board, has
personally agreed that, if GGAC liquidates the trust account prior to the consummation of a business combination, he will be liable
to pay debts and obligations to target businesses or vendors or other entities that are owed money by GGAC for services rendered
or contracted for or products sold to GGAC in excess of amounts held by GGAC outside the trust account, but only to the extent
necessary to ensure that such debts or obligations do not reduce the amounts in the trust account and only to the extent such target
businesses or vendors or other entities did not sign an agreement waiving all claims to any funds held in the trust account. GGAC
cannot assure its shareholders that Mr. Garnero will be able to satisfy those obligations if he is required to do so. See the section
entitled “Other Information Related to GGAC — Liquidation If No Business Combination” for additional information.
There will be no distribution from the trust account with
respect to GGAC’s warrants or rights. If the business combination with Grupo Colombo or another business combination is not
consummated within the required time period, the warrants and rights will not become exercisable or exchangeable, respectively,
and will expire worthless.
| Q. | When do you expect the business combination to be completed? |
| A. | It is currently anticipated that the business combination will be consummated promptly following the GGAC extraordinary general
meeting on [●], 2016. For a description of the conditions for the completion of the business combination, see the section
entitled “The Investment Agreement — Conditions to the Closing of the Business Combination.” |
| Q. | What do I need to do now? |
| A. | GGAC urges you to read carefully and consider the information contained in this proxy statement, including the annexes, and
to consider how the business combination will affect you as a shareholder of GGAC. Shareholders should then vote as soon as possible
in accordance with the instructions provided in this proxy statement and on the enclosed proxy card. |
| A. | If you are a holder of record of GGAC ordinary shares, you may vote in person at the extraordinary general meeting or by submitting
a proxy for the extraordinary general meeting. You may submit your proxy by completing, signing, dating and returning the enclosed
proxy card in the accompanying pre-addressed postage paid envelope. If you hold your shares in “street name,” which
means your shares are held of record by a broker, bank or nominee, you should contact your broker, bank or nominee to ensure that
votes related to the shares you beneficially own are properly counted. In this regard, you must provide the broker, bank or nominee
with instructions on how to vote your shares (by submitting a voting instruction card or through another means provided by your
broker, bank or nominee) or, if you wish to attend the meeting and vote in person, obtain a legal proxy from your broker, bank
or nominee. |
| Q. | If my shares are held in “street name,” will my broker, bank or nominee automatically vote my shares for me? |
| A. | No. Your broker, bank or nominee cannot vote your shares unless you provide instructions on how to vote in accordance with
the information and procedures provided to you by your broker, bank or nominee. |
| Q. | May I change my vote after I have mailed my signed proxy card? |
| A. | Yes. Send a later-dated, signed proxy card to GGAC’s secretary at the address set forth below so that it is received
by GGAC’s secretary prior to the vote at the extraordinary general meeting or attend the extraordinary general meeting and
vote in person. Shareholders also may revoke their proxy by sending a notice of revocation to GGAC’s secretary, which must
be received by GGAC’s secretary prior to the vote at the extraordinary general meeting. If your shares are held in “street
name,” you should contact your broker for information on how to change or revoke your voting instructions. |
| Q. | What should I do with my share certificates? |
| A. | GGAC shareholders who do not elect to have their shares converted for a pro rata share of the trust account should not submit
their share certificates now or after the business combination, because their shares will not be converted or exchanged in the
business combination. GGAC shareholders who exercise their conversion rights must deliver their share certificates to GGAC’s
transfer agent (either physically or electronically) prior to the vote at the meeting in order to properly demand conversion of
their shares. |
| Q. | What should I do if I receive more than one set of voting materials? |
| A. | Shareholders may receive more than one set of voting materials, including multiple copies of this proxy statement and multiple
proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you will receive
a separate voting instruction card for each brokerage account in which you hold shares. If you are a holder of record and your
shares are registered in more than one name, you will receive more than one proxy card. Please complete, sign, date and return
each proxy card and voting instruction card that you receive in order to cast a vote with respect to all of your GGAC shares. |
| Q. | Who can help answer my questions? |
| A. | If you have questions about the business combination or if you need additional copies of the proxy statement or the enclosed
proxy card you should contact: |
Javier Martin Riva
Chief Financial Officer, Chief Information Officer & Secretary
Garnero Group Acquisition Company
Av Brig. Faria Lima 1485 – 19 Andar
Brasilinvest Plaza
Sao Paulo-SP, CEP 01452-002
Brazil
Tel: +55 (11) 3094-7970
Fax: +55 (11) 3094-4000 ext. 4028
or:
[●]
[●]
[●]
Tel: [●]
Fax: [●]
You may also obtain additional information about GGAC
from documents filed with the Securities and Exchange Commission (“SEC”) by following the instructions in “Where
You Can Find More Information.” If you are a holder of public shares and you intend to seek conversion of your shares,
you will need to demand conversion by checking the box on your proxy card and delivering your shares (either physically or electronically)
to GGAC’s transfer agent at the address below prior to the vote at the extraordinary general meeting. If you have questions
regarding the certification of your position or delivery of your shares, please contact:
Mr. Mark Zimkind
Continental Stock Transfer & Trust Company
17 Battery Place
New York, New York 10004
E-mail: mzimkind@continentalshare.com
SUMMARY OF THE PROXY STATEMENT
This summary highlights selected information from this proxy statement
and does not contain all of the information that is important to you. To better understand the proposals to be submitted for a
vote at the extraordinary general meeting, including the business combination, you should read this entire document carefully,
including the Investment Agreement attached as Annex A to this proxy statement. The Investment Agreement is the legal document
that governs the business combination and the other transactions that will be undertaken in connection with the business combination.
It is also described in detail in this proxy statement in the section entitled “The Investment Agreement.”
The Parties
GGAC
Garnero Group Acquisition Company is a blank check exempted company
incorporated in the Cayman Islands on February 11, 2014 in order to effect a business combination, share exchange, asset acquisition,
share purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities.
On June 25, 2014, GGAC closed its initial public offering of 12,500,000
units, with each unit consisting of one GGAC ordinary share, one right to receive one-tenth of an ordinary share on the consummation
of an initial business combination, and one warrant to purchase one-half of one GGAC ordinary share at an exercise price of US$11.50
per full share. On July 7, 2014, GGAC consummated the closing of the sale of an additional 1,875,000 units which were sold subject
to the underwriters’ over-allotment option. The 14,375,000 units sold in the initial public offering, including the units
sold subject to the over-allotment option, were sold at an offering price of US$10.00 per unit, generating total gross proceeds
of US$143,750,000. Simultaneously with the consummation of the initial public offering and over-allotment option, GGAC consummated
a private placement of an aggregate of 634,063 private units at a price of US$10.00 per unit for gross proceeds of US$6,340,630.
Of the proceeds of the offering and private placements, US$144,468,755 was deposited into the trust account. The remaining net
proceeds became available to be used as working capital to provide for business, legal and accounting due diligence on prospective
business combinations and continuing general and administrative expenses. The initial public offering was conducted pursuant to
a registration statement on Form S-1 (Reg. No. 333-196117), that became effective on June 25, 2014. As of September 30, 2015, there
was approximately US$144,621,000 held in the trust account (which included approximately $152,000 of interest available to GGAC
which is intended to be withdrawn prior to the special meeting).
The funds held in the trust account will be used to pay the holders
of the public shares who exercise conversion rights, to pay the Capital Contribution to Grupo Colombo in accordance with the Investment
Agreement and to pay transaction expenses incurred in connection with the business combination, including fees to GGAC’s
investment bankers in connection with the business combination. The remaining proceeds will be used for working capital and general
corporate purposes, including funding for organic growth and acquisitions. Such funds may also be used to reduce the indebtedness
of the combined company.
If GGAC does not complete the business combination with Grupo Colombo
or another business combination by June 25, 2016, it will trigger GGAC’s automatic winding up, dissolution and liquidation,
as described in the section entitled “Other Information Related to GGAC— Liquidation If No Business Combination.”
GGAC’s ordinary shares, rights, warrants and units are listed
on Nasdaq under the symbol GGAC, GGACR, GGACW, and GGACU, respectively.
The mailing address of GGAC’s principal executive office
is Av. Brig. Faria Lima, 1485 – 19 Andar, Brasilinvest Plaza, Sao Paulo-SP, CEP 01452-002, Brazil. Its telephone number
is +55 (11) 3094-7970. After the consummation of the business combination, GGAC’s principal executive office will be at
Rua São Tomé 119 – 3 Andar, Vila Olímpia, São Paulo-SP, CEP 04551-080, Brazil and its telephone
number will be +55 (11) 3048- 0701.
Grupo Colombo
Headquartered in São Paulo, Grupo Colombo is one of Brazil’s
leading retailers focusing on menswear, with over 400 stores throughout the country. Grupo Colombo has recently diversified from
formalwear into smart casual clothes and has strengthened its online presence to become, according to Exame Magazine, one of the
three most valuable brands within the Brazilian apparel retail sector.
Grupo Colombo’s principal executive offices are located at
Rua São Tomé 119 – 3 Andar, Vila Olímpia, São Paulo-SP, CEP 04551-080, Brazil. Its telephone
number is +55 (11) 3048- 0701, and its web address is http://www.camisariacolombo.com.br. GGAC does not intend for information
contained in Grupo Colombo’s website to be a part of this proxy statement.
The Business Combination Proposal
The Investment Agreement provides for a business combination transaction
by means of the Controlling Persons and the Optionholders contributing to GGAC all of Grupo Colombo’s equity, as a result
of which Grupo Colombo will become a wholly-owned subsidiary of GGAC.
Pursuant to the Investment Agreement, (A) the Controlling Persons
will contribute all of the Outstanding Shares to GGAC and will receive in consideration an aggregate of 3,640,000 newly issued
GGAC ordinary shares and (B) the Optionholders will exercise certain options held by them, will contribute the underlying ordinary
shares of Grupo Colombo to GGAC, and will receive in consideration an aggregate of 360,000 GGAC ordinary shares.
Prior to the Closing, the Controlling Persons will use their commercially
reasonable best efforts to effect the Reorganization in accordance with the Investment Agreement, as a result of which the Controlling
Persons will become the direct owners of all of the outstanding ordinary shares of Grupo Colombo, Grupo Colombo will not incur
any indebtedness or other liabilities and Grupo Colombo will have accrued goodwill amortizable under applicable tax law in the
amount of R$200,000,000.
In connection with the transactions contemplated by the Investment
Agreement, the Controlling Persons have committed to use their commercially reasonable best efforts to purchase, directly or indirectly,
at least US$30 million of GGAC ordinary shares in the open market.
To provide a fund for payment to GGAC with respect to its post-closing
rights to indemnification under the Investment Agreement, there will be placed in escrow (with an independent escrow agent) an
aggregate of 200,000 Escrow Shares. The shares to be placed in escrow will be allocated among the Controlling Persons and the Optionholders
in the same proportion as the number of GGAC ordinary shares being issued to them in the business combination.
GGAC and Grupo Colombo plan to complete the business combination
promptly after the GGAC extraordinary general meeting, provided that:
| ● | GGAC’s shareholders have approved the business combination proposal; |
| ● | GGAC has net tangible assets of US$5,000,001 upon such consummation, after giving effect to payments to public shareholders
who exercise their conversion rights; and |
| ● | the other conditions specified in the Investment Agreement have been satisfied or waived. |
After consideration of the factors identified and discussed in the
section entitled “The Business Combination Proposal — GGAC’s Board of Directors’ Reasons for Approval
of the Business Combination,” GGAC’s board of directors concluded that the business combination met all of the
requirements disclosed in the prospectus for its initial public offering, including that such business had a fair market value
of at least 80% of the balance of the funds in the trust account at the time of execution of the Investment Agreement.
Immediately after consummation of the business combination, assuming
that (i) no shareholders of GGAC elect to convert their public shares into cash and (ii) the Controlling Persons make the full
US$30 million of open market purchases at prices equal to approximately US$10.05 per share, the former shareholders and management
of Grupo Colombo will own approximately 29.0% of the outstanding GGAC ordinary shares and the current shareholders of GGAC will
own approximately 71.0% of the outstanding GGAC ordinary shares. If all of the public shares are converted into cash as permitted
by GGAC’s amended and restated memorandum and articles of association other than those held by the Controlling Persons, and
the other assumptions remain the same, such percentages will be approximately 54.9% and 45.1%, respectively. The foregoing
takes into account the automatic exchange of the public rights upon consummation of the business combination and assumes the issuance
of the working capital units upon conversion of the working capital notes (and the issuance of the shares underlying the rights
included in such units), but does not take into account the shares underlying the GGAC warrants that are presently outstanding,
the shares underlying the unit purchase options held by the underwriters of GGAC’s initial public offering or the shares
underlying the warrants included in the working capital units.
If the business combination proposal is not approved by GGAC’s
shareholders at the extraordinary general meeting, the other proposals (except an adjournment proposal, as discussed below) will
not be presented at the extraordinary general meeting for a vote.
The Charter Amendment Proposals and the Articles Restatement
Proposal
The proposed amendments to GGAC’s amended and restated memorandum
and articles of association would, effective immediately upon consummation of the business combination, (i) change GGAC’s
name to “Garnero Colombo Inc.”; (ii) adjust the existing classification of directors to conform with the classification
described in the director election proposal below; and (iii) remove provisions that will no longer be applicable to GGAC after
the business combination and make certain other immaterial changes. To the extent the charter amendment proposals are approved,
the proposed amendment and restatement of GGAC’s amended and restated memorandum and articles of association would, effective
immediately upon consummation of the business combination, delete such memorandum and articles in their entirety and substitute
in their place the second amended and restated memorandum and articles of association. See the sections entitled “The
Charter Amendment Proposals” and “The Articles Restatement Proposal.”
The Incentive Compensation Plan Proposal
The proposed 2015 Plan will reserve [●] GGAC ordinary shares
for issuance in accordance with the plan’s terms. The purpose of the plan is to enable GGAC to offer its and its subsidiaries’
employees, officers, directors and consultants whose past, present and/or potential future contributions to GGAC have been, are
or will be important to the success of GGAC, an opportunity to acquire a proprietary interest in GGAC. The various types of incentive
awards that may be provided under the plan are intended to enable GGAC to respond to changes in compensation practices, tax laws,
accounting regulations and the size and diversity of its business. The plan is attached to this proxy statement as Annex C.
You are encouraged to read the plan in its entirety. See the section entitled “The Incentive Compensation Plan Proposal.”
The Director Election Proposal
At the extraordinary general meeting, five directors will be elected
to GGAC’s board of directors, effective upon the consummation of the business combination, of whom one will be a Class A
director serving until the annual general meeting of shareholders to be held in 2017, two will be Class B directors serving until
the annual general meeting of shareholders to be held in 2018 and two will be Class C directors serving until the annual general
meeting of shareholders to be held in 2019 and, in each case, until their successors are elected and qualified. Upon consummation
of the business combination, if the individuals nominated by GGAC’s nominating committee are elected, the directors of GGAC
will be as follows:
| ● | Class A (serving until 2017): John Tonelli; |
| ● | Class B (serving until 2018): Nelson Narciso Filho and Amir Adnani; and |
| ● | Class C (serving until 2019): Mario Garnero and Álvaro Jabur Maluf Jr. |
Upon the consummation of the business combination, the executive
officers of GGAC will be Mario Garnero, who will remain Chairman of GGAC, Álvaro Jabur Maluf Jr., who will become Chief
Executive Officer of GGAC, Paulo Jabur Maluf, who will become Vice President of GGAC, and Denis Piovezan, who will become Chief
Financial Officer of GGAC. Each of such persons will enter into an employment agreement with GGAC on consummation of the business
combination. See the section entitled “The Director Election Proposal.”
The Adjournment Proposal
If, based upon the tabulated vote or elections to convert at the
time of the extraordinary general meeting, GGAC is not authorized to consummate the business combination or the closing conditions
under the Investment Agreement are not met, GGAC’s board of directors may submit a proposal to adjourn the special meeting
to a later date or dates, if necessary, to permit further solicitation of proxies. See the section entitled “The Adjournment
Proposal.”
GGAC Initial Shareholders
As of the record date, GGAC’s initial shareholders, including
all of GGAC’s officers and directors, beneficially owned and were entitled to vote an aggregate of 3,593,750 initial shares
that were issued prior to GGAC’s initial public offering. In addition, GGAC’s initial shareholders and EarlyBirdCapital,
Inc. (“EarlyBirdCapital”), the representative of the underwriters of the initial public offering, own 634,063 private
shares included in the private units. The initial shares and private shares issued to the GGAC initial shareholders currently constitute
approximately 22.3% of the outstanding GGAC ordinary shares. The initial share and private shares issued to the GGAC initial shareholders
and EarlyBirdCapital currently constitute approximately 22.7% of the outstanding GGAC ordinary shares.
In connection with the initial public offering, GGAC and EarlyBirdCapital
entered into agreements with each of the GGAC initial shareholders pursuant to which each GGAC initial shareholder agreed to vote
the initial shares and shares underlying the private units, as well as any GGAC ordinary shares acquired in the aftermarket, in
favor of the business combination proposal. The GGAC initial shareholders have also indicated that they intend to vote their initial
shares in favor of all other proposals being presented at the meeting. Each of GGAC’s initial shareholders has agreed to
waive its rights to participate in any liquidation of the trust account or other assets with respect to the insider shares and
GGAC ordinary shares included in the private units, which will be worthless if no business combination is effected by GGAC.
In addition, in connection with the initial public offering, the
GGAC initial shareholders entered into an escrow agreement pursuant to which, subject to certain exceptions, their initial shares
will be held until (1) with respect to 50% of the initial shares, the earlier of one year after the date of the consummation of
the business combination with Grupo Colombo (or another initial business combination) and the date on which the closing price of
the GGAC ordinary shares equals or exceeds US$13.00 per share (as adjusted for share splits, share dividends, reorganizations and
recapitalizations) for any 20 trading days within any 30-trading day period commencing after such business combination and (2)
with respect to the remaining 50% of the initial shares, one year after the date of the consummation of the business combination
with Grupo Colombo (or another initial business combination), or earlier, in either case, if, subsequent to such initial business
combination, GGAC consummates a liquidation, merger, share exchange or other similar transaction which results in all of its shareholders
having the right to exchange their shares for cash, securities or other property.
The GGAC initial shareholders have not purchased any ordinary shares
in the open market. If the GGAC initial shareholders believe it would be desirable for them or their affiliates to purchase additional
shares in advance of the extraordinary general meeting, they may do so. Such determination would be based on factors such as the
likelihood of approval or disapproval of the business combination proposal, the number of shares for which conversion may be requested
and the financial resources available to such prospective purchasers.
Date, Time and Place of Extraordinary General Meeting of GGAC’s
Shareholders
The extraordinary general meeting of shareholders will be held on
[●], 2016, at [●] [a/p].m., Eastern Time, at the offices of Graubard Miller, GGAC’s U.S. counsel, at The Chrysler
Building, 405 Lexington Avenue, 11th Floor, New York, New York 10174, to consider and vote upon the business combination
proposal, the charter amendment proposals, the articles restatement proposal, the incentive compensation plan proposal and the
director election proposal. The adjournment proposal may be presented, if necessary, to permit further solicitation and vote of
proxies if, based upon the tabulated vote or elections to convert at the time of the extraordinary general meeting, GGAC is not
authorized to consummate the business combination or the closing conditions under the Investment Agreement are not met.
Voting Power; Record Date
Shareholders will be entitled to vote or direct votes to be cast
at the extraordinary general meeting if they owned GGAC ordinary shares at the close of business on [●], 2016, which is the
record date for the meeting. Shareholders will have one vote for each GGAC ordinary share owned by them at the close of business
on the record date. If you are a holder of record of GGAC ordinary shares, you may vote in person at the extraordinary general
meeting or by submitting a proxy for the extraordinary general meeting. You may submit your proxy by completing, signing, dating
and returning the enclosed proxy card in the accompanying pre-addressed postage paid envelope. If you sign and return your proxy
card, but do not provide instructions as to how to vote your shares, the proxies solicited by the board of directors will be voted
“FOR” all of the proposals. On the record date, there were 18,602,813 GGAC ordinary shares outstanding. GGAC rights
and warrants do not have voting rights.
If your GGAC ordinary shares are held in “street name”
or are in a margin or similar account, you should contact your broker to ensure that votes related to the shares you beneficially
own are properly counted.
Quorum and Vote of GGAC Shareholders
A quorum of shareholders is necessary to transact business at a
general meeting. The presence in person or by proxy or, if a corporation or other non-natural person, by its duly authorized representative,
of the holders of a majority of the GGAC ordinary shares constitutes a quorum. Abstentions and broker non-votes will count as present
for the purposes of establishing a quorum.
The proposals presented at the special meeting will require the
following votes:
| ● | Pursuant to GGAC’s amended and restated memorandum and articles of association, the approval of the business combination
proposal will require the affirmative vote of the holders of a majority of the GGAC ordinary shares voted on such proposal at the
extraordinary general meeting. In addition, the business combination will not be consummated if GGAC does not have net tangible
assets of at least US$5,000,001 upon such consummation, after giving effect to payments to public shareholders who exercise their
conversion rights. GGAC estimates that this condition will be met if holders of no more than 13,762,388 of the public shares (representing
approximately 95.7% of the public shares) properly demand conversion of their shares into cash. |
| ● | The approval by special resolution of the charter amendment proposals and the articles restatement proposal will require the
affirmative vote of the holders of not less than two-thirds of the GGAC ordinary shares entitled to vote and voting in person or
by proxy on such proposal at the extraordinary general meeting. |
| ● | The approval by ordinary resolution of the incentive compensation plan proposal and the adjournment proposal (if presented),
and the election by ordinary resolution of five directors, will require the affirmative vote of the holders of a majority of the
GGAC ordinary shares entitled to vote and voting in person or by proxy on such proposal at the extraordinary general meeting. |
Abstentions and broker non-votes, while considered present for the
purposes of establishing a quorum, are not treated as votes cast and will have no effect on the business combination proposal,
the charter amendment proposals, the articles restatement proposal, the incentive compensation plan proposal, the director election
proposal or the adjournment proposal (if presented). Please note that holders of the public shares cannot seek conversion of their
shares unless they affirmatively vote for or against the business combination proposal.
The GGAC initial shareholders hold approximately 22.3% of the GGAC
ordinary shares outstanding. Such shares, as well as any additional shares acquired in the aftermarket by the GGAC initial shareholders,
will be voted in favor of the business combination proposal and all of the other proposals. Furthermore, the Controlling Persons
have committed to use their commercially reasonable best efforts to purchase at least US$30 million of GGAC ordinary shares in
the open market, and to vote such shares in favor of the business combination and not to exercise their conversion rights with
respect to such shares.
Pursuant to the Investment Agreement, the transactions are conditioned
upon approval of the business combination proposal but not upon the approval of the other proposals being presented. However, such
proposals will not be presented for a vote at the special meeting unless the business combination proposal is approved.
Conversion Rights
Public shareholders may seek to convert their shares, regardless
of whether they vote for or against the business combination. All conversions will be effectuated as repurchases under GGAC’s
amended and restated memorandum and articles of association and Cayman Islands law. Any public shareholder who affirmatively votes
either for or against the business combination proposal will have the right to demand that his shares be converted for a full pro
rata share of the aggregate amount then on deposit in the trust account, less any taxes then due but not yet paid (which GGAC expects
will be approximately US$144,469,000, or approximately US$10.05 per share, at the consummation of the business combination). A
public shareholder will be entitled to receive cash for these shares only if the business combination is consummated.
A public shareholder, together with any affiliate of his or any
other person with whom he is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Exchange Act)
will be restricted from seeking conversion rights with respect to 30% or more of the public shares. Accordingly, all shares in
excess of 30% owned by a holder will not be converted to cash. On the other hand, a public shareholder who holds less than 30%
of the public shares may convert all of the public shares held by him to cash.
If you are a holder of public shares and you seek to convert your
shares, you must (i) affirmatively vote either for or against the business combination proposal and (ii) demand that GGAC convert
your shares into cash no later than the close of the vote on the business combination proposal, by either checking the box on the
proxy card or by submitting your request in writing to GGAC’s transfer agent and delivering your shares to GGAC’s transfer
agent physically or electronically using Depository Trust Company’s DWAC (Deposit Withdrawal at Custodian) System prior to
the vote at the meeting.
If a holder of public shares votes for or against the business combination
proposal and properly demands conversion as described above, then, if the business combination is consummated, GGAC will convert
these shares for cash. If you exercise your conversion rights, then you will be exchanging your shares of GGAC ordinary shares
for cash and will no longer own these shares following the business combination. The business combination will be consummated only
if the business combination proposal is approved, GGAC would have net tangible assets of at least US$5,000,001 upon such consummation,
after giving effect to payments to public shareholders who exercise their conversion rights, and the other conditions to the business
combination set forth in the Investment Agreement are satisfied or waived.
If GGAC is unable to complete the business combination with Grupo
Colombo or another business combination by June 25, 2016, it will trigger GGAC’s automatic dissolution and liquidation pursuant
to the terms of its amended and restated memorandum and articles of association. As a result, this has the same effect as if GGAC
had formally gone through a voluntary liquidation procedure under the Companies Law. The amount that a holder would receive upon
liquidation in the event a business combination is not effected in the required period may be more or less than the estimated US$10.05
per share that a holder would receive upon conversion of its shares in connection with the business combination because (i) there
may be greater earned interest in the trust account at the time of the liquidation since it would occur at a later date than a
conversion and (ii) GGAC may incur expenses it otherwise would not incur if GGAC consummates the business combination, including,
potentially, claims requiring payment from the trust account by creditors who have not waived their rights against the trust account.
Mario Garnero has personally agreed that, if GGAC liquidates the trust account prior to the consummation of the business combination
with Grupo Colombo or another business combination, he will be liable to pay debts and obligations to target businesses or vendors
or other entities that are owed money by GGAC for services rendered or contracted for or products sold to GGAC in excess of the
net proceeds of the initial public offering not held in the trust account, but only to the extent necessary to ensure that such
debts or obligations do not reduce the amounts in the trust account and only if the target businesses or vendors or other entities
did not execute an agreement waiving all right to the funds held in the trust account. GGAC cannot assure its shareholders that
Mr. Garnero will be able to satisfy those obligations if he is required to do so. See the section entitled “Other Information
Related to GGAC — Liquidation If No Business Combination” for additional information.
Appraisal Rights
GGAC’s shareholders do not have appraisal rights under the
Companies Law in connection with the business combination or the other proposals.
Proxy Solicitation
GGAC is soliciting proxies on behalf of its board of directors.
GGAC will bear all of the costs of the solicitation. Proxies may be solicited by mail, telephone or in person. GGAC has engaged
[●] to assist in the solicitation of proxies.
If a shareholder grants a proxy, it may still vote its shares in
person if it revokes its proxy before the special meeting. A shareholder may also change its vote by submitting a later-dated proxy
as described in the section entitled “Extraordinary General Meeting of GGAC Shareholders — Revoking Your
Proxy.”
Interests of GGAC’s Directors and Officers and Others
in the Business combination
When you consider the recommendation of GGAC’s board of directors
in favor of approval of the business combination proposal and the other proposals, you should keep in mind that GGAC’s initial
shareholders, including its directors and officers, have interests in such proposals that are different from, or in addition to,
your interests as a shareholder. These interests include, among other things:
| ● | If the business combination with Grupo Colombo or another business combination is not consummated by June 25, 2016, it will
trigger GGAC’s automatic dissolution and liquidation pursuant to the terms of its amended and restated memorandum and articles
of association. In such event, the 3,593,750 initial shares held by GGAC’s initial shareholders, including its directors
and officers, which were acquired for an aggregate purchase price of US$25,000 prior to GGAC’s initial public offering, would
be worthless because GGAC’s initial shareholders are not entitled to participate in any redemption distribution with respect
to such shares. Such shares had an aggregate market value of US$35,182,813 based upon the closing price of US$9.79 per share on
Nasdaq on December 17, 2015. |
| ● | An affiliate of Mario Garnero, GGAC’s Chief Executive Officer, and EarlyBirdCapital, the underwriter in GGAC’s
initial public offering, purchased an aggregate of 634,063 private units at a price of US$10.00 per unit (US$6,340,630 in the aggregate).
These purchases took place on a private placement basis simultaneously with the consummation of GGAC’s initial public offering.
The private warrants and the rights (the “private rights”) underlying the private units will only become exercisable
or exchangeable in connection with an initial business combination. Furthermore, the holders of the private units have agreed that
the underlying private shares will not participate in any liquidating distribution upon winding up if a business combination is
not consummated. Accordingly, the private units (including the private shares, private rights and private warrants) will become
worthless if the business combination with Grupo Colombo or another business combination is not consummated (as will the remainder
of the public rights and public warrants). Such units had an aggregate market value of US$6,245,521 based upon the closing price
of US$9.85 per unit on Nasdaq on December 17, 2015. |
| ● | Mario Garnero, Amir Adnani, John Tonelli and Nelson Narciso Filho will continue as directors of GGAC following consummation
of the business combination. As such, in the future each will receive any cash fees, share options or share awards that the GGAC
board of directors determines to pay to its officers and directors. |
| ● | If a business combination is not consummated within the required time period, Mario Garnero, GGAC’s Chairman of the Board,
will be personally liable to ensure that the proceeds in the trust account are not reduced by the claims of target businesses or
claims of vendors or other entities that are owed money by GGAC for services rendered or contracted for or products sold to GGAC
and which have not executed a waiver agreement. |
| ● | Mario Garnero has loaned approximately US$1,228,650 to GGAC, and may in the future loan additional amounts to GGAC in order
to meet GGAC’s working capital needs prior to the closing of the business combination with Grupo Colombo. If GGAC fails to
consummate the business combination with Grupo Colombo or another business combination, the loans would become unsecured liabilities
of GGAC; however, Mr. Garnero has waived any claim against the trust account. Accordingly, GGAC will not be able to repay these
loans if the business combination is not completed. In addition, upon consummation of a business combination, US$500,000 of such
loans is convertible at the election of Mr. Garnero into working capital units at a conversion price of US$10.00 per unit. The
working capital units are identical to the private units. Accordingly, if a business combination is not consummated, Mr. Garnero
also will lose the opportunity to acquire an additional 50,000 units, which would have an aggregate market value of US$492,500
based upon the closing price of US$9.85 per unit on Nasdaq on December 17, 2015. |
| ● | GGAC’s officers, directors, initial shareholders and their affiliates are entitled to reimbursement of out-of-pocket
expenses incurred by them in connection with certain activities on GGAC’s behalf, such as identifying and investigating possible
business targets and business combinations. However, if GGAC fails to consummate a business combination, they will not have any
claim against the trust account for the reimbursement of these expenses. Accordingly, GGAC will not be able to reimburse these
expenses if the business combination with Grupo Colombo or another business combination is not completed. As of the date of this
proxy statement, GGAC’s officers, directors, initial shareholders and their affiliates have incurred approximately $40,000
of unpaid reimbursable expenses. |
At any time prior to the extraordinary general meeting, during a
period when they are not then aware of any material nonpublic information regarding GGAC or its securities, the GGAC initial shareholders,
the Controlling Persons or the Optionholders and/or their respective affiliates may purchase shares from institutional and other
investors who vote, or indicate an intention to vote, against the business combination proposal or to seek, or indicate an intention
to seek, conversion of their shares, or they may enter into transactions with such investors and others to provide them with incentives
to acquire GGAC ordinary shares or vote their shares in favor of the business combination proposal and not seek conversion. While
the exact nature of any such incentives has not been determined as of the date of this proxy statement, they might include, without
limitation, arrangements to protect such investors or holders against potential loss in value of their shares, including the granting
of put options and the transfer to such investors or holders of shares or warrants owned by the GGAC initial shareholders for nominal
value. The funds for any such purchases or incentives will either come from cash available to such purchasing parties or from third
party financing, none of which has been sought at this time.
The purpose of such share purchases and other transactions would
be to increase the likelihood of satisfaction of the requirements that the holders of a majority of the GGAC ordinary shares voted
on the business combination proposal at the extraordinary general meeting vote in its favor and that GGAC has net tangible assets
of at least US$5,000,001 upon the consummation of the business combination with Grupo Colombo, after giving effect to payments
to public shareholders who exercise their conversion rights, where it appears that such requirements would otherwise not be met.
Purchases of shares or the entry into other transactions by the persons described above would allow them to exert more influence
over the approval of the business combination proposal and other proposals to be presented at the extraordinary general meeting
and therefore would increase the chances that such proposals would be approved. Moreover, any such purchases or other transactions
would reduce the number of GGAC shareholders who exercise their conversion rights and therefore would increase the chances that
GGAC has net tangible assets of at least US$5,000,001 upon the consummation of the business combination with Grupo Colombo. Accordingly,
if such share purchases and other transactions are effected, the consequence could be to cause the business combination to be authorized
in circumstances where such authorization could not otherwise be obtained.
Entering into any such incentive arrangements may have a depressive
effect on GGAC’s ordinary shares. For example, as a result of these arrangements, an investor or holder may have the ability
to effectively purchase shares at a price lower than market and may therefore be more likely to sell the shares he owns, either
prior to or immediately after the extraordinary general meeting.
Pursuant to the Investment Agreement, the Controlling Persons have
committed to use their commercially reasonable best efforts to purchase, directly or indirectly, at least US$30,000,000 of GGAC
ordinary shares in the open market, and to vote such shares in favor of the business combination and not to exercise their conversion
rights with respect to such shares. As of the date of this proxy statement, there have been no other discussions or agreements
between the GGAC initial shareholders, the Controlling Persons or the Optionholders and/or their respective affiliates and any
investor or holder of GGAC ordinary shares regarding any share purchase or other transactions described above. GGAC will file a
Current Report on Form 8-K to disclose any arrangements entered into or significant purchases made by any of the aforementioned
persons that would affect the vote on the business combination or the conversion threshold. Any such report will include descriptions
of any arrangements entered into or significant purchases by any of the aforementioned persons.
Opinion of Financial Advisor to the GGAC Board of Directors
GGAC engaged Hirashima & Associados Consultoria em Transações
Societárias Ltda. (“H&A”) to render an opinion as to, as of December 16, 2015, (i) the fairness, from a
financial point of view, to shareholders of GGAC of the consideration to be paid by GGAC pursuant to the Investment Agreement with
Grupo Colombo and (ii) whether Grupo Colombo had a fair market value equal to at least 80% of the balance of funds in GGAC’s
trust account. H&A is a consulting firm that regularly is engaged in valuation of business and their securities in connections
with acquisitions, corporate restructuring and accounting valuations. GGAC’s board of directors decide to utilize the services
of H&A because it is a recognized consulting firm that has substantial experience in similar matters.
H&A rendered its oral opinion to GGAC’s board of directors
on December 16, 2015 (which was subsequently confirmed in writing by delivery of H&A’s written opinion dated the same
date) that, as of December 16, 2015, (i) the consideration to be paid by GGAC pursuant to the Investment Agreement was fair, from
a financial point of view, to GGAC shareholders and (ii) Grupo Colombo had a fair market value equal to at least 80% of the balance
of funds in GGAC’s trust account. For purposes of H&A’s opinion, “consideration” refers to 4,000,000
GGAC ordinary shares.
The amount of the consideration to be paid by GGAC to Grupo Colombo’s
shareholders was determined pursuant to negotiations between GGAC and Grupo Colombo and not pursuant to recommendations of H&A.
The opinion was provided for the use and benefit of the GGAC board
in connection with its consideration of the Investment Agreement and only addressed (i) the fairness, from a financial point of
view, to GGAC shareholders of the consideration to be paid by GGAC pursuant to the Investment Agreement and (ii) whether Grupo
Colombo had a fair market value equal to at least 80% of the balance of funds in GGAC’s trust account, in each case as of
the date of the opinion, and did not address any other aspect or implication of the Investment Agreement. The summary of H&A’s
opinion in this proxy statement is qualified in its entirety by reference to the full text of the written opinion, which is included
as Annex D to this proxy statement and sets forth the procedures followed, assumptions made, qualifications and limitations
on the review undertaken and other matters considered by H&A in preparing its opinion. However, neither H&A’s written
opinion nor the summary of its opinion and the related analyses set forth in this proxy statement are intended to be, and do not
constitute, advice or a recommendation to any shareholder as to how such shareholder should act or vote with respect to any matter
relating to the proposed business combination.
Recommendation to Shareholders
GGAC’s board of directors believes that the business combination
proposal and the other proposals to be presented at the extraordinary general meeting are fair to and in the best interest of GGAC’s
shareholders and unanimously recommends that its shareholders vote “FOR” the business combination proposal, “FOR”
each of the charter amendment proposals, “FOR” the articles restatement proposal, “FOR” the incentive compensation
plan proposal, “FOR” the persons nominated by management for election as directors and “FOR” the adjournment
proposal, if presented.
Conditions to the Closing of the Business Combination
General Conditions
Consummation of the business combination is conditioned on, among
other things, (i) the business combination proposal having been duly approved and adopted by the GGAC shareholders by the requisite
vote under the Companies Law of the Cayman Islands and GGAC’s amended and restated memorandum and articles of association,
(ii) GGAC having net tangible assets of at least US$5 million upon the consummation of the business combination with Grupo Colombo,
after giving effect to payments to public shareholders who exercise their conversion rights, (iii) no governmental entity having
enacted, issued, promulgated, enforced or entered any statute, rule, regulation, executive order, decree, injunction or other order
which is in effect and would prohibit consummation of the Contributions, and and (iv) the Company having completed the Reorganization.
Controlling Persons and Optionholders’ Conditions
to Closing
The obligations of Controlling Persons and the Optionholders to
consummate the transactions contemplated by the Investment Agreement also are conditioned upon, among other things:
| ● | the representations and warranties of GGAC being true
and correct on the date of the Investment Agreement and on the date of the consummation of the business combination, subject to
qualification as to a Material Adverse Effect (as defined in the Investment
Agreement), GGAC having performed in all material respects all covenants required under the Investment Agreement to be
performed on or prior to the consummation of the business combination, GGAC having obtained certain consents of third parties
required to be obtained in connection with the Contributions, and GGAC having delivered an officer’s certificate with respect
to foregoing; |
| ● | no Material Adverse Effect having occurred with respect to GGAC since the date of the Investment Agreement; |
| ● | GGAC being in compliance with the reporting requirements under the Exchange Act; |
| ● | Grupo Colombo having received an opinion of GGAC’s counsel in agreed form; |
| ● | the Registration Rights Agreement having been executed by the parties thereto; and |
| ● | the officers of GGAC having resigned from certain positions of GGAC. |
GGAC’s Conditions to Closing
The obligations of GGAC to consummate the transactions contemplated
by the Investment Agreement also are conditioned upon each of the following, among other things:
| ● | the representations and warranties of Grupo Colombo being true and correct on the date of the Investment Agreement and on the
date of the consummation of the business combination, subject to qualification as to a Material Adverse Effect, Grupo Colombo,
the Controlling Persons and the Optionholders having performed in all material respects all covenants required under the Investment
Agreement to be performed on or prior to the consummation of the business combination, Grupo Colombo having obtained certain consents
of third parties required to be obtained in connection with the Contributions, and GGAC have delivered an officer’s certificate
with respect to foregoing; |
| ● | no Material Adverse Effect having occurred with respect to Grupo Colombo since the date of the Investment Agreement; |
| ● | the Lockup Agreements being in full force and effect; |
| ● | the irrevocable instructions to exercise their options in full at the Closing and instrument of assignment directing the underlying
ordinary shares of Grupo Colombo to be issued in the name of GGAC that were delivered by the Optionholders simultaneously with
the execution of the Investment Agreement (the “Irrevocable Instructions”) being in full force and effect; |
| ● | the purchase by the Controlling Persons or their affiliates of US$30 million in GGAC ordinary shares in the open market having
occurred; |
| ● | GGAC having received an opinion of Grupo Colombo’s counsel in agreed upon form; |
| ● | (i) all outstanding indebtedness owned by any Grupo Colombo insider shall have been repaid in full; (ii) all guaranteed or
similar arrangements pursuant to which Grupo Colombo has guaranteed the payment or performance of any obligations of any Grupo
Colombo insider to a third party shall have been terminated; and (iii) no Controlling Person or Grupo Colombo insider shall own
any direct equity interests in any subsidiary of Grupo Colombo; |
| ● | release letters that provide for the release of, among other encumbrances, certain liens on the outstanding ordinary shares
of Grupo Colombo held by the Controlling Persons (the “Release Letters”), being in full force and effect; |
| ● | the transfer of certain trademarks by Grupo Colombo having been cancelled; |
| ● | the Reorganization having satisfied the conditions that Grupo Colombo not incur any indebtedness or other liabilities and accrue
goodwill amortizable under applicable tax law in the amount of R$200,000,000; and |
| ● | the waivers of certain financial covenants applicable to
Grupo Colombo for at least sixty days after the consummation of the business combination being in full force and effect. |
Termination; Waiver
The Investment Agreement may be terminated at any time, but not
later than the closing, as follows:
| ● | by mutual written consent of GGAC and the Controlling Persons; |
| ● | by either GGAC or the Controlling Persons if the Contributions shall not have been consummated for any reason by March 31,
2016, provided that the terminating party’s actions did not principally cause the delay and constitute a breach of the Investment
Agreement; |
| ● | by either GGAC or the Controlling Persons if a governmental entity shall have issued an order, decree, judgment or ruling or
taken any other action, in any case having the effect of permanently restraining, enjoining or otherwise prohibiting the business
combination, which order, decree, ruling or other action is final and nonappealable, provided that the terminating party’s
was not the principal cause of such action being final and nonappealable; |
| ● | by either GGAC or the Controlling Persons if the other party has breached any of its covenants or representations and warranties,
such that the conditions set forth above would not be satisfied, and has not cured its breach within 30 days of the notice of an
intent to terminate, provided that the terminating party is itself not in breach; or |
| ● | by either GGAC or the Controlling Persons if, at the extraordinary general meeting, the business combination proposal is not
approved, or GGAC would not have at least US$5 million of net tangible assets upon consummation of the business combination, after
giving effect to payments to public shareholders who exercise their conversion rights. |
The Investment Agreement does not specifically address the rights
of a party (other than termination) in the event of a material breach by a party of its covenants or warranties or a refusal or
wrongful failure of the other party to consummate the business combination. However, either party would be entitled to assert its
legal rights for breach of contract against the other party, including the right to seek specific performance of the agreement.
If permitted under the applicable law, either Grupo Colombo or GGAC
may, in writing, waive any inaccuracies in the representations and warranties made to such party contained in the Investment Agreement
or in any document delivered pursuant to the Investment Agreement, and waive compliance with any agreements or conditions for the
benefit of itself contained in the Investment Agreement or in any document delivered pursuant to the Investment Agreement. The
condition requiring that GGAC having net tangible assets of at least US$5 million upon the consummation of the business combination
with Grupo Colombo, after giving effect to payments to public shareholders who exercise their conversion rights, may not be waived.
GGAC cannot assure you that all of the conditions will be satisfied or waived.
The existence of the financial and personal interests of the directors
may result in a conflict of interest on the part of one or more of them between what he may believe is best for GGAC and what he
may believe is best for himself in determining whether or not to grant a waiver in a specific situation. See the section entitled
“Risk Factors” for a fuller discussion of this and other risks.
Tax Consequences of the Business Combination
GGAC has received an opinion from its counsel, Graubard Miller,
that, for U.S. federal income tax purposes:
| ● | No gain or loss will be recognized by shareholders of GGAC who do not elect conversion of their public shares; and |
| ● | A shareholder of GGAC who exercises conversion rights and effects a termination of the shareholder’s interest in GGAC
will be required to recognize capital gain or loss upon the exchange of that shareholder’s GGAC ordinary shares for cash,
if such shares were held as a capital asset on the date of the business combination. Such gain or loss will be measured by the
difference between the amount of cash received and the tax basis of that shareholder’s GGAC ordinary shares. |
The tax opinion is attached to this proxy statement as Annex
E. Graubard Miller has consented to the use of its opinion in this proxy statement. For a description of the material U.S.
federal income tax consequences of the business combination, please see the information set forth in “The Business Combination
Proposal — Material Federal Income Tax Consequences of the Business combination to GGAC and its Shareholders.”
Anticipated Accounting Treatment
The transactions contemplated by the Investment Agreement are considered
to be a business combination to be accounted for under the acquisition method in accordance with U.S. Generally Accepted Accounting
Principles (“GAAP”) with GGAC being the acquirer and Colombo being the acquired company. Under this method, the consideration
transferred and the tangible and intangible identifiable assets acquired and liabilities assumed are recorded at fair value on
the acquisition date. The amount of the consideration transferred in excess of the net assets acquired is recognized as goodwill.
Regulatory Matters
The business combination and the transactions contemplated by the
Investment Agreement are not subject to any additional federal or state regulatory requirement or approval, except for filings
with the Cayman Islands necessary to effectuate the amendment and restatement of GGAC’s memorandum and articles of incorporation
and filings with the Board of Trade of the State of Mato Grosso (Junta Comercial do Estado do Mato Grosso) necessary to
effectuate certain amendments to Grupo Colombo’s by-laws.
Risk Factors
In evaluating the proposals to be presented at the extraordinary
general meeting, a shareholder should carefully read this proxy statement and especially consider the factors discussed in the
section entitled “Risk Factors.”
SELECTED HISTORICAL FINANCIAL INFORMATION
GGAC is providing the following selected historical financial information
to assist you in your analysis of the financial aspects of the business combination.
GGAC’s balance sheet data as of September 30, 2015 and statement
of operations data for the three months ended September 30, 2015 are derived from GGAC’s unaudited financial statements,
which are included elsewhere in this proxy statement. GGAC’s balance sheet data as of June 30, 2015 and statement of operations
data for the year ended June 30, 2015 and the period from February 11, 2014 (inception) to June 30, 2014 are derived from GGAC’s
audited financial statements, which are included elsewhere in this proxy statement.
Grupo Colombo’s consolidated balance sheet data as of September
30, 2015 and consolidated statement of operations data for the nine months ended September 30, 2015 are derived from Grupo Colombo’s
unaudited consolidated financial statements, which are included elsewhere in this proxy statement. Grupo Colombo’s consolidated
balance sheet data as of December 31, 2014 and 2013 and consolidated statement of operations data for the years ended December
31, 2014 and 2013 are derived from Grupo Colombo’s audited consolidated financial statements, which are included elsewhere
in this proxy statement.
The information is only a summary and should be read in conjunction
with each of Grupo Colombo’s and GGAC’s consolidated financial statements and related notes and “Other Information
Related to GGAC — GGAC’s Management’s Discussion and Analysis of Financial Condition and Results of Operations”
and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Grupo Colombo”
contained elsewhere herein. The historical results included below and elsewhere in this proxy statement are not indicative of
the future performance of Grupo Colombo or GGAC.
Selected Financial Information — GGAC
In U.S. Dollars | |
For the Three Months Ended September 30, 2015 | | |
For the Year Ended June 30,
2015 | | |
For the period from February 11, 2014 (Inception) through June 30,
2014 | |
| |
| | |
| | |
| |
Loss from operations | |
$ | (392,363 | ) | |
$ | (1,204,763 | ) | |
$ | (8,958 | ) |
Net loss | |
$ | (322,940 | ) | |
$ | (1,091,626 | ) | |
$ | (8,958 | ) |
Basic and diluted loss per share | |
$ | (0.07 | ) | |
$ | (0.23 | ) | |
$ | (0.00 | ) |
| |
September 30,
2015 | | |
June 30,
2015 | | |
June 30,
2014 | |
| |
| | |
| | |
| |
Cash and cash equivalents | |
$ | 20,283 | | |
$ | 278 | | |
$ | 160 | |
Restricted cash and cash equivalents held in trust account | |
$ | 144,621,160 | | |
$ | 144,551,737 | | |
$ | - | |
Total assets | |
$ | 144,681,110 | | |
$ | 144,600,682 | | |
$ | 283,274 | |
Total liabilities | |
$ | 1,223,188 | | |
$ | 819,821 | | |
$ | 267,232 | |
Common stock subject to possible conversion | |
$ | 138,457,915 | | |
$ | 138,780,852 | | |
$ | - | |
Shareholders’ equity | |
$ | 5,000,007 | | |
$ | 5,000,009 | | |
$ | 16,042 | |
Selected Financial Information — Grupo
Colombo
| |
For the Nine Months ended September 30, | | |
For the years ended
December 31, | |
In Thousands of U.S Dollars | |
2015 | | |
2014 | | |
2013 | |
Income Statement Data | |
| | |
| | |
| |
Net Revenue | |
| 101,450 | | |
| 234,461 | | |
| 220,119 | |
Gross Profit | |
| 61,093 | | |
| 129,065 | | |
| 120,617 | |
Total Operating Expenses | |
| (50,218 | ) | |
| (95,405 | ) | |
| (100,483 | ) |
Income From Operations | |
| 10,875 | | |
| 33,660 | | |
| 20,134 | |
Total Other Expense | |
| (60,311 | ) | |
| (59,812 | ) | |
| (39,701 | ) |
Net Loss | |
| (49,723 | ) | |
| (32,272 | ) | |
| (21,446 | ) |
Weighted Average Number of Common Shares Outstanding - Basic and Diluted | |
| 52,606,785 | | |
| 48,664,321 | | |
| 33,785,542 | |
| |
For the Nine Months ended September 30, | | |
For the years ended
December 31, | |
In Thousands of U.S. Dollars | |
2015 | | |
2014 | | |
2013 | |
Net Loss | |
| (49,723 | ) | |
| (32,272 | ) | |
| (21,446 | ) |
Other Comprehensive Income (Loss): | |
| | | |
| | | |
| | |
Foreign currency translation adjustments | |
| 61,171 | | |
| 16,426 | | |
| 25,791 | |
Total Comprehensive Income (Loss) | |
| 11,448 | | |
| (15,846 | ) | |
| 4,345 | |
| |
September 30, | | |
December 31, | | |
December 31, | |
In Thousands of U.S. Dollars | |
2015 | | |
2014 | | |
2013 | |
Balance Sheet Data | |
| | |
| | |
| |
Total Assets | |
| 108,770 | | |
| 204,196 | | |
| 217,364 | |
Total Liabilities | |
| 249,706 | | |
| 356,580 | | |
| 398,962 | |
Common stock, no par value | |
| 103,726 | | |
| 103,726 | | |
| 58,666 | |
Total Stockholders' Deficiency | |
| (140,936 | ) | |
| (152,384 | ) | |
| (181,598 | ) |
Total Liabilities and Stockholders' Deficiency | |
| 108,770 | | |
| 204,196 | | |
| 217,364 | |
SELECTED UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
The following selected unaudited pro forma condensed combined financial
information has been derived from, and should be read in conjunction with, the unaudited pro forma condensed combined financial
statements included elsewhere in this proxy statement.
The pro forma condensed combined financial statements do not necessarily
reflect what the combined company’s financial condition or results of operations would have been had the acquisition occurred.
They also may not be useful in predicting the future financial condition and results of operations of the combined company. The
actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to
a variety of factors.
The following unaudited pro forma condensed combined financial statements
of GGAC and Grupo Colombo are provided to assist you in your analysis of the financial aspects of the transactions described in
the Investment Agreement between GGAC Grupo Colombo.
The unaudited pro forma condensed combined statement of operations
for the year ended June 30, 2015 combined the historical statements of operations of GGAC for the year ended June 30, 2015 with
the adjusted historical statement of operations of Grupo Colombo, after adjusting Grupo Colombo from a December 31 fiscal year
end to a June 30 year end, giving effect to the acquisitions as if they had occurred on July 1, 2014.
The unaudited pro forma condensed combined statement of operations
for the three months ended September 30, 2015 combined the historical statements of operations of GGAC for the three months ended
September 30, 2015 with the adjusted historical statement of operations of Grupo Colombo, after adjusting Grupo Colombo from December
31 fiscal year end to a June 30 year end, giving effect to the acquisitions as if they had occurred on July 1, 2015.
The unaudited pro forma condensed combined balance sheet combines
the historical balance sheets of GGAC, and Grupo Colombo as of September 30, 2015 giving effect to the transactions described in
the Investment Agreement between GGAC and Grupo Colombo as if they had occurred on September 30, 2015.
The historical financial information has been adjusted to give effect
to pro forma events that are related and/or directly attributable to the acquisitions, are factually supportable and, in the case
of the unaudited pro forma statements of operations data, are expected to have a continuing impact on the combined results. The
adjustments presented on the unaudited pro forma condensed combined financial information have been identified and presented in
“Unaudited Pro Forma Condensed Combined Financial Statements” to provide relevant information necessary for
an accurate understanding of the combined company upon consummation of the business combination.
The unaudited pro forma condensed combined balance sheet as of September
30, 2015 and the unaudited pro forma condensed combined statements of operations for the year ended June 30, 2015 and the three
months ended September 30, 2015 have been prepared using three different levels of approval of the transaction by public shareholders
as follows:
| ● | Assuming No Redemptions: This presentation assumes that no public shareholders seek conversion of their GGAC ordinary
shares into a pro rata share of the trust account. |
| ● | Assuming Maximum Unaffiliated Redemptions: This presentation assumes that the Controlling Persons make the full US$30
million of open market purchases and all public shareholders, other than the Controlling Persons, seek conversion of their GGAC
ordinary shares into a pro rata share of the trust account. |
| ● | Assuming Maximum Redemptions: This presentation assumes that a number of public shareholders seek conversion of their
GGAC ordinary shares into a pro rata share of the trust account, such that GGAC will have net tangible assets of US$5,000,001 upon
consummation of the business combination with Grupo Colombo, after giving effect to such conversions. |
GGAC is providing this information to aid you in your analysis of
the financial aspects of the transaction. The unaudited pro forma financial statements are not necessarily indicative of the financial
position or results of operations that may have actually occurred had the transaction taken place on the dates noted, or the future
financial position or operating results of the combined company.
The following selected unaudited pro forma financial information
should be read together with Grupo Colombo’s and GGAC’s audited financial statements and related notes, “Unaudited
Pro Forma Condensed Combined Financial Statements,” “Management’s Discussion and Analysis of Financial
Condition and Results of Operations of Grupo Colombo,” “Other Information Related to GGAC — GGAC’s
Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the other financial
information included elsewhere in this proxy statement.
| |
Combined Assuming No Redemptions | | |
Combined Assuming Maximum Redemptions | | |
Combined Assuming Maximum Unaffiliated Redemptions | |
In Thousands of U.S. Dollars | |
For the Three Months Ended September 30, 2015 | | |
For the Year Ended
June 30,
2015 | | |
For the Three Months Ended September 30, 2015 | | |
For the Year Ended
June 30,
2015 | | |
For the Three Months Ended September 30, 2015 | | |
For the Year Ended
June 30,
2015 | |
Income Statement Data | |
| | |
| | |
| | |
| | |
| | |
| |
Net Revenue | |
$ | 30,776 | | |
$ | 205,823 | | |
$ | 30,776 | | |
$ | 205,823 | | |
$ | 30,776 | | |
$ | 205,823 | |
Gross Profit | |
| 19,733 | | |
| 116,797 | | |
| 19,733 | | |
| 116,797 | | |
| 19,733 | | |
| 116,797 | |
Operating Expenses | |
| 15,755 | | |
| 83,994 | | |
| 15,755 | | |
| 83,994 | | |
| 15,755 | | |
| 83,994 | |
Income From Operations | |
| 3,586 | | |
| 31,598 | | |
| 3,586 | | |
| 31,598 | | |
| 3,586 | | |
| 31,598 | |
Total Other Expense | |
| (13,012 | ) | |
| (78,670 | ) | |
| (13,012 | ) | |
| (78,670 | ) | |
| (13,012 | ) | |
| (78,670 | ) |
Net Loss | |
| (10,395 | ) | |
| (50,008 | ) | |
| (10,395 | ) | |
| (50,008 | ) | |
| (10,395 | ) | |
| (50,008 | ) |
Basic and Diluted Net Loss Per Share | |
| (0.46 | ) | |
| (2.22 | ) | |
| (1.18 | ) | |
| (5.73 | ) | |
| (0.92 | ) | |
| (4.46 | ) |
| |
Combined Assuming No Redemptions | | |
Combined Assuming Maximum Redemptions | | |
Combined Assuming Maximum Unaffiliated Redemptions | |
In Thousands of U.S. Dollars | |
For the Three Months Ended September 30, 2015 | | |
For the
Year Ended
June 30,
2015 | | |
For the Three Months Ended September 30, 2015 | | |
For the
Year Ended
June 30,
2015 | | |
For the Three Months Ended September 30, 2015 | | |
For the
Year Ended
June 30,
2015 | |
Balance Sheet Data | |
| | |
| | |
| | |
| | |
| | |
| |
Cash and Cash Equivalents | |
$ | 137,966 | | |
$ | - | | |
$ | 2,508 | | |
$ | - | | |
$ | 24,508 | | |
$ | - | |
Total Assets | |
| 451,076 | | |
| - | | |
| 315,618 | | |
| - | | |
| 337,618 | | |
| - | |
Total Liabilities | |
| 280,929 | | |
| - | | |
| 280,929 | | |
| - | | |
| 280,929 | | |
| - | |
Shareholders' Equity | |
| 170,147 | | |
| - | | |
| 34,689 | | |
| - | | |
| 56,689 | | |
| - | |
COMPARATIVE PER SHARE DATA
The following table sets forth the historical per share data of
GGAC and Grupo Colombo on a stand-alone basis for the three months ended September 30, 2015 and the year ended June 30, 2015 and
the unaudited pro forma combined per share data of GGAC and Grupo Colombo for the for the three months ended September 30, 2015
and the year ended June 30, 2015, after giving effect to the business combination. The unaudited pro forma combined per share data
are provided for each of the no redemptions scenario, the maximum unaffiliated redemptions scenario and the maximum redemptions
scenario.
You should read the information in the following table in conjunction
with the selected historical financial information summary included elsewhere in this proxy statement, and the historical financial
statements of GGAC and Grupo Colombo and related notes that are included elsewhere in this proxy statement. The unaudited pro forma
combined per share information for GGAC and Grupo Colombo is derived from, and should be read in conjunction with, the unaudited
pro forma condensed combined financial statements and related notes included elsewhere in this proxy statement.
The unaudited pro forma combined earnings per share information
below does not purport to represent the earnings per share which would have occurred had the companies been combined during the
periods presented, nor earnings per share for any future date or period. The unaudited pro forma combined book value per share
information below does not purport to represent what the value of GGAC and Grupo Colombo would have been had the companies been
combined during the period presented.
| |
GGAC | | |
Grupo Colombo | | |
Combined Assuming No Redemptions | | |
Combined Assuming Maximum Redemptions | | |
Combined Assuming Maximum Unaffiliated Redemptions | |
| |
| | |
| | |
| | |
| | |
| |
Net income (loss) for the year ended June 30, 2015 | |
$ | (1,092 | ) | |
$ | (45,413 | ) | |
$ | (50,008 | ) | |
$ | (50,008 | ) | |
$ | (50,008 | ) |
Weighted average shares outstanding – basic | |
| 4,728,666 | | |
| 50,635,653 | | |
| 22,537,706 | | |
| 8,728,666 | | |
| 11,216,228 | |
Income (loss) per share – basic, for the year ended June 30, 2015 | |
| (0.23 | ) | |
| (0.90 | ) | |
| (2.22 | ) | |
| (5.73 | ) | |
| (4.46 | ) |
Net income (loss) for the three months September 30, 2015 | |
| (323 | ) | |
| (8,680 | ) | |
| (10,395 | ) | |
| (10,395 | ) | |
| (10,395 | ) |
Income (loss), or pro forma earnings per share – basic, for the three months ended September 30, 2015 | |
| (0.07 | ) | |
| (0.16 | ) | |
| (0.46 | ) | |
| (1.18 | ) | |
| (0.92 | ) |
Share outstanding on September 30, 2015 | |
| 4,794,280 | | |
| 52,606,985 | | |
| 22,556,668 | | |
| 8,793,980 | | |
| 11,281,542 | |
Book value per share or pro forma book value per share | |
| 1,042.91 | | |
| (2.68 | ) | |
| 7.54 | | |
| 3.74 | | |
| 4.87 | |
RISK FACTORS
Shareholders should carefully consider the following risk factors,
together with all of the other information included in this proxy statement, before they decide whether to vote or instruct their
vote to be cast to approve the proposals described in this proxy statement.
The value of your investment in GGAC following consummation of
the business combination will be subject to the significant risks affecting, among other things, Grupo Colombo and its operations,
the Brazilian economy and the Brazilian retail market. If any of the events described below occur, GGAC’s post-business combination
business and financial results could be adversely affected in a material way. This could cause the trading price of its ordinary
shares to decline, perhaps significantly, and you therefore may lose all or part of your investment.
As used in this section, references to “we,”
“us” and “our” are intended to refer to Grupo Colombo unless the context clearly indicates otherwise.
Risks Relating to the Brazilian Economy and Retail Market
The Brazilian government has historically exercised, and continues
to exercise, significant influence over the Brazilian economy. Brazilian political and economic conditions may adversely affect
the value of Grupo Colombo and the trading price of the shares issued by GGAC.
The Brazilian government’s economic policies may have important
effects on Brazilian companies, including Grupo Colombo, and on market conditions and prices of Brazilian securities. Grupo Colombo’s
financial condition and results of operations may be adversely affected by the following factors and the Brazilian government’s
response to these factors:
| ● | exchange rate and currency fluctuations; |
| ● | liquidity of the domestic capital and lending markets; |
| ● | tax and regulatory policies; and |
| ● | other political, social and economic developments in or affecting Brazil. |
Uncertainty over whether the Brazilian government will implement
changes in policy or regulation affecting these or other factors creates instability in the Brazilian economy, increasing the volatility
of the Brazilian securities markets, which may have an adverse effect on Grupo Colombo. Recent economic and political instability
has led to legislative or regulatory changes that resulted in increased economic uncertainty, a negative perception of the Brazilian
economy and outlook and heightened volatility in the Brazilian securities markets, which may adversely affect its financial condition
and the trading prices of the post business combination company’s securities.
Political crises in Brazil have in the past adversely affected the
development of the Brazilian economy and resulted in a decline in the confidence of foreign investors, as well as the Brazilian
public in general. Recent popular unrest in Brazil has led to large demonstrations, which is an example of the Brazilian population’s
growing dissatisfaction with corruption and certain political measures. Political crises in Brazil could adversely affect the market
for Grupo Colombo’s products and result in a material adverse effect to its financial condition and results of operation.
The Brazilian government’s efforts to combat inflation
may hinder the growth of the Brazilian economy and could harm the value of Grupo Colombo and the trading price of GGAC’s
securities.
Brazil has in the past experienced extremely high rates of inflation
and has therefore followed monetary policies that have resulted in one of the highest real interest rates in the world. Between
2005 and 2014, the base interest rate (Sistema Especial de Liquidação e de Custódia), or SELIC rate,
in Brazil varied between 19.75% per annum and 7.25% per annum. Inflation and the Brazilian government’s measures to fight
it, mainly through Brazil’s central bank, have had and may have significant effects on the Brazilian economy and Grupo Colombo’s
business. Tight monetary policies with high interest rates may restrict Brazil’s growth and the availability of credit. Conversely,
more lenient government and Central Bank of Brazil policies and interest rate decreases may trigger increases in inflation, which
could negatively affect Grupo Colombo’s business. Grupo Colombo may not be able to adjust the prices it charges its customers
to offset the effects of inflation on its cost structure. Brazilian government measures to combat inflation that result in an increase
in interest rates may have an adverse effect on Grupo Colombo as its indebtedness is indexed to the interbank deposit certificate
(Certificados de Depósito Interbancário), or CDI, rate. Inflationary pressures may also hinder Grupo Colombo’s
ability to access foreign financial markets or lead to government policies to combat inflation that could harm Grupo Colombo or
adversely affect the trading price of GGAC’s securities.
Exchange rate instability may have a material adverse effect
on the Brazilian economy and Grupo Colombo.
The Brazilian currency fluctuates in relation to the U.S. dollar
and other foreign currencies. The Brazilian government has in the past used different exchange rate regimes, including sudden devaluations,
periodic mini-devaluations (during which the frequency of adjustments
has ranged from daily to monthly), exchange controls, dual exchange rate markets and a floating exchange rate system. Since 1999,
Brazil has adopted a floating exchange rate system with interventions by the Central Bank of Brazil in buying or selling foreign
currency. From time to time there have been significant fluctuations in the exchange rate between the real and the U.S.
dollar and other currencies. For example, the real appreciated 11.8%, 8.7% and 17.2% against the U.S. dollar in 2005, 2006
and 2007, respectively. In 2008, as a result of the worsening global economic crisis, the real depreciated 32% against the
U.S. dollar, closing at R$2.337 to US$1.00 on December 31, 2008. For the years ended December 31, 2009 and 2010, the real appreciated
25.5% and 4.2%, respectively, against the U.S. dollar, closing at R$1.741 and R$1.666 to US$1.00 on December 31, 2009 and 2010,
respectively. For the years ended December 31, 2011, 2012, 2013 and 2014 the real depreciated 12.6%, 8.9%, 14.6% and 13.4%,
respectively, against the U.S. dollar, closing at R$1.876, R$2.044, R$2.343 and R$2.656 to US$1.00, respectively. The real may
substantially depreciate or appreciate against the U.S. dollar in the future. Exchange rate instability may have a material adverse
effect on Grupo Colombo. Depreciation of the real against the U.S. dollar could create inflationary pressures in Brazil
and cause increases in interest rates, which could negatively affect the growth of the Brazilian economy as a whole and result
in a material adverse effect on Grupo Colombo. Depreciation would also reduce the U.S. dollar value of distributions and dividends
to GGAC as the single shareholder of Grupo Colombo (and, accordingly, the U.S. dollar value of dividends to GGAC shareholders,
in the event GGAC’s board of directors decides to pay any such dividends). The depreciation of the U.S. dollar also may impact
on the price of goods that are currently purchased by Grupo Colombo in China in connection with the conduct of its ordinary business.
In addition, because the combined company’s operations will be conducted primarily in reals, but its financial statements
will be reported in U.S. dollars, depreciation may adversely affect the combined company’s reported results, even if there
is no underlying change in the combined company’s business, which could cause the market price of GGAC ordinary shares to
decline.
Fluctuations in interest rates could increase the cost of
servicing Grupo Colombo’s debt and negatively affect its overall financial performance.
Grupo Colombo’s financial results are affected by changes
in interest rates, such as the Brazilian Interbank Deposit Certificate (Certificado de Depósito Interbancário), or
CDI. The CDI rate has fluctuated significantly in the past in response to the expansion or contraction of the Brazilian economy,
inflation control purpose, Brazilian government policies and other factors. The CDI rate was 11.57% p.a., 9.77% p.a.and 6.90% p.a.
as of December 31, 2014, 2013 and 2012, respectively. A significant increase in interest rates would have a material adverse effect
on Grupo Colombo’s financial expenses as a significant part of our debt is linked to these rates. On the other hand, a significant
reduction in the CDI rate could adversely impact the financial revenues derived from Grupo Colombo’s investment activities
since a relevant part of its cash is invested Brazilian money market, linked to CDI.
Changes in Brazilian tax laws may have an adverse impact on
the taxes applicable to Grupo Colombo’s business.
The Brazilian government frequently implements changes to tax regimes
that may affect Grupo Colombo and its customers. These include changes in prevailing tax rates and, occasionally, enactment of
temporary taxes, the proceeds of which are earmarked for designated governmental purposes.
Some of these changes may result in increases in Grupo Colombo’s
tax payments, which could adversely affect industry profitability and increase the prices of its products, restrict its ability
to do business in its existing and target markets and cause its financial results to suffer. There can be no assurance that Grupo
Colombo will be able to maintain its projected cash flow and profitability following any increases in Brazilian taxes applicable
to Grupo Colombo and its operations.
If Grupo Colombo does not successfully comply with laws and
regulations designed to combat governmental corruption in countries in which it sells its products, it could become subject to
fines, penalties or other regulatory sanctions, as well as to adverse press coverage, which could cause its reputation and sales
to suffer.
Although Grupo Colombo is committed to conducting business in a
legal and ethical manner in compliance with local and international statutory requirements and standards applicable to its business,
there is a risk that our management, employees or representatives may take actions that violate applicable laws and regulations
prohibiting the making of improper payments to foreign government officials for the purpose of obtaining or keeping business, including
laws relating to the 1997 OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions
such as the U.S. Foreign Corrupt Practices Act, or the FCPA.
In addition, on January 29, 2014, the Brazilian government enacted
Law No. 12,846/13 imposing strict liability on companies for acts of corruption perpetrated by their employees, or the Brazilian
Antibribery Act. According to the Brazilian Antibribery Act, companies found guilty of bribery could face fines of up to 20% of
their gross annual income for the previous year or, if gross income cannot be estimated, such fines could range from R$6 thousand
to R$60 million. Among other penalties, the Brazilian Antibribery Act also provides for the disgorgement of illegally obtained
benefits, the suspension of corporate operations, asset confiscation and corporate dissolution. The adoption of an effective compliance
program may be taken into consideration by Brazilian authorities when applying a penalty under the Brazilian Antibribery Act.
Although Grupos Colombo has implemented what it believes to be effective
compliance and anti-corruption program to detect and prevent violations of applicable anti-corruption laws, which includes a strict
requirement prohibiting our employees and agents from violating these laws, there remains some degree of risk that improper conduct
could occur, thereby exposing Grupo Colombo to potential liability and the costs associated with investigating potential misconduct.
Another potential negative result from having Grupo Colombo’s name or brands associated with any misconduct is adverse press
coverage, which, even if unwarranted or baseless, could damage its reputation and sales. Therefore, if Grupo Colombo becomes involved
in any investigations under the FCPA, the Brazilian Antibribery Act or other applicable anti-corruption statutes, its business
could be adversely affected.
Developments and the perception of risk in other countries,
especially in the U.S., the European Union and in emerging market countries, may adversely affect the business of Grupo Colombo.
The market price of securities of Brazilian companies is affected
by economic and market conditions in other countries, including the U.S. and emerging market countries. Although economic conditions
in those countries may differ significantly from economic conditions in Brazil, investors’ reactions to developments in other
countries may have an adverse effect on the market price of securities of Brazilian companies. Crises in the U.S., the European
Union or emerging market countries may diminish investor interest in securities of Brazilian companies. This could make it more
difficult for Grupo Colombo to access the capital markets and finance its operations in the future on acceptable terms or at all.
The laws of Brazil will likely govern almost all of Grupo
Colombo’s material agreements and the combined company may not be able to enforce its legal rights.
The laws of Brazil will govern almost all of the material agreements
relating to the combined company’s operations. There can be no assurance that Grupo Colombo will be able to enforce any of
its material agreements or that remedies will be available in Brazil. The system of laws and the enforcement of existing laws in
Brazil is not as certain in implementation and interpretation as in the U.S. The inability to enforce or obtain a remedy under
any of Grupo Colombo’s future agreements could result in a significant loss of business, business opportunities or capital.
Additionally, because substantially all of GGAC’s assets will be located outside of the U.S. and most of its officers and
directors will reside outside of the U.S., it may not be possible for investors in the U.S. to enforce their legal rights, to effect
service of process upon GGAC’s directors or officers or to enforce judgments of U.S. courts predicated upon civil liabilities
and criminal penalties of GGAC’s directors and officers under Federal securities laws.
Risks Related to Grupo Colombo and its Operations
Grupo Colombo faces market competition, which may adversely
affect its market share and net income.
Grupo Colombo operates mainly in the apparel retail sector. The
apparel retail sector in Brazil is highly competitive. Grupo Colombo faces competition from small retailers, especially from those
that operate in the informal segment of the Brazilian economy. Acquisitions or consolidations within the industry may also increase
competition and adversely affect Grupo Colombo’s market share and net income.
In the e-commerce segment, Grupo Colombo competes with other companies
that, similar to it, offer a wide range of products in the clothing segment, as well as with specialized retailers that focus on
one or a few products. Because barriers to entry are much lower than in traditional retail, competition in the e-commerce market
in Brazil is even more intense and if Grupo Colombo is unable to respond to changes in these markets its market share and net income
may be adversely affected.
Grupo Colombo is subject to customs, advertising, consumer
protection, data privacy, product safety, zoning and occupancy and labor and employment laws that could require it to modify its
current business practices, incur increased costs or harm its reputation if it does not comply.
Grupo Colombo is subject to numerous laws and regulations, including
customs, truth-in-advertising, consumer protection, general data privacy, health information privacy, identity theft, online privacy,
product safety, unsolicited commercial communication and zoning and occupancy laws and ordinances that regulate retailers generally
and/or govern the importation, promotion and sale of merchandise and the operation of retail stores and warehouse facilities. If
these regulations were to change or were violated by Grupo Colombo’s management, associates, suppliers, buying agents or
trading companies, the costs of certain goods could increase, or it could experience delays in shipments of its goods, be subject
to fines or penalties, or suffer reputational harm, which could reduce demand for its merchandise and hurt its business and results
of operations. Failure to protect personally identifiable information of Grupo Colombo’s customers or associates could subject
it to considerable reputational harm as well as significant fines, penalties and sanctions. In addition, changes in federal and
state minimum wage laws and other laws relating to employee benefits could cause it to incur additional wage and benefits costs,
which could hurt its profitability.
Legal requirements frequently change and are subject to interpretation,
and Grupo Colombo is unable to predict the ultimate cost of compliance with these requirements or their effect on Grupo Colombo’s
operations. Failure to define clear roles and responsibilities or to regularly communicate with and train its associates may result
in noncompliance with applicable laws and regulations. Grupo Colombo may be required to make significant expenditures or modify
its business practices to comply with existing or future laws and regulations, which may increase its costs and materially limit
its ability to operate its business. Grupo Colombo expects the costs of compliance and risks to its business in this area to increase
as it expands its international and e-commerce business.
Grupo Colombo’s business depends on strong brands. Grupo
Colombo may not be able to maintain and enhance its brands, or it may receive unfavorable customer complaints or negative publicity,
which could adversely affect its brands.
Grupo Colombo believes that its Colombo, Colombo Woman,
Upper and Armazém do Homem brands contribute significantly to the success of its business and that maintaining
and enhancing these brands is critical to maintaining and expanding its base of customers. Maintaining and enhancing Grupo Colombo’s
brands will also depend largely on its ability to continue to create the best customer experience, based on competitive pricing,
large assortment of products, the range and convenience of the delivery options it offers and providing a user-friendly buying
experience, including having dedicated customer service teams available.
Customer complaints or negative publicity about the sites, product
offerings, services, delivery times, customer data handling and security practices or customer support of Grupo Colombo, if not
carefully treated and resolved, could harm its reputation and diminish consumer use of its sites, and consumer confidence in Grupo
Colombo. A diminution in the strength of Grupo Colombo’s brands and reputation could have a material adverse effect on its
business, financial condition and operating results.
Grupo Colombo may not be able to renew or maintain the totality
of its stores’ lease agreements on acceptable terms.
All of Grupo Colombo’s stores are leased and the company is
entitled to compulsory renewal on at least 90% of its leased stores. The strategic location of its stores is key to the development
of Grupo Colombo’s business strategy (being 75% located into shopping malls) and, as a result, Grupo Colombo could be adversely
affected if a significant number of its lease agreements are terminated and Grupo Colombo fails to renew these lease agreements
on acceptable terms. In addition, as per contract terms or applicable law, landlords may revise rent periodically, typcially every
three years. A significant increase in the rent of its leased properties may adversely affect Grupo Colombo’s financial condition
and results of operation.
Grupo Colombo faces risks related to its distribution center.
All of Grupo Colombo’s products are distributed through its
leased distribution center located in the State of São Paulo, Brazil. Through its current capacity, Grupo Colombo is able
to serve up to 900 stores, without any requirements for distribution center expansion. The operations at this center may be adversely
affected by factors beyond Grupo Colombo’s control, such as fire, natural disasters, power shortages, failures in the systems,
among others, and in the event that Grupo Colombo is not able to retain another distribution center to meet the demand of the region
affected, the distribution of products to the stores supplied by such distribution center will be impaired, which may adversely
affect Grupo Colombo’s financial condition and results of operation.
In the e-commerce segment, product order fulfillment is essential
to Grupo Colombo’s ability to provide a high level of service to its customers. If Grupo Colombo does not optimize and operate
its distribution centers successfully and efficiently, it could result in excess or insufficient fulfillment capacity, an increase
in costs or impairment charges and a reduction in its gross profit margin, excluding shipping cost, or harm its business in other
ways. If Grupo Colombo does not have sufficient order fulfillment capacity or experiences a problem fulfilling orders in a timely
manner, because of such reasons as a failure of mechanized equipment at its distribution center, or if certain products are out
of stock, its customers may experience delays in receiving their purchases, which could harm its reputation and the relationship
with its customers.
Grupo Colombo’s ability to source its merchandise profitably
or at all could be hurt if new trade restrictions are imposed, existing trade restrictions become more burdensome or disruption
occur at its suppliers or at the ports.
Trade restrictions, including increased tariffs, safeguards or quotas,
on apparel and accessories could increase the cost or reduce the supply of merchandise available to Grupo Colombo. Grupo Colombo
sources its merchandise through buying agents and by purchasing directly from trading companies and manufacturers, predominately
in various foreign countries. There are quotas and trade restrictions on certain categories of goods and apparel from China and
countries that are not subject to the World Trade Organization Agreement, which could have a significant impact on Grupo Colombo’s
sourcing patterns in the future. New initiatives may be proposed that may have an impact on our sourcing from certain countries
and may include retaliatory duties or other trade sanctions that, if enacted, would increase the cost of products Grupo Colombo
purchases. Grupo Colombo cannot predict whether any of the countries in which its merchandise is currently manufactured or may
be manufactured in the future will be subject to additional trade restrictions imposed by the U.S. and foreign governments, nor
can it predict the likelihood, type or effect of any such restrictions. Trade restrictions, including increased tariffs or quotas,
embargoes, safeguards and customs restrictions against apparel items could increase the cost, delay shipping or reduce the supply
of apparel available to Grupo Colombo or may require us to modify our current business practices, any of which could hurt its profitability.
Grupo Colombo relies on its suppliers to manufacture and ship the
products they produce for it in a timely manner. Grupo Colombo also relies on the free flow of goods through open and operational
ports worldwide. Labor disputes at various ports or at our suppliers could increase costs for it and delay its receipt of merchandise,
particularly if these disputes result in work slowdowns, lockouts, strikes or other disruptions.
Grupo Colombo is exposed to risks related to customer financing
and loans.
Grupo Colombo has a financial partnership with HSBC Bank (Losango),
through which the financial institution has offered credit cards at Grupo Colombo’s stores. In addition, installment sales
are widely used in the Brazilian apparel retail market. HSBC Bank (Losango) is subject to the risks normally associated with providing
these types of financing. If HSBC Bank (Losango) were to experience losses due to the failure of Grupo Colombo’s customers
to pay their debts, HSBC Bank (Losango) could terminate its relationship with Grupo Colombo, which could have a material adverse
effect on Grupo Colombo’s ability to extend credit to its customers, which could adversely affect Grupo Colombo’s financial
condition and results of operation
The retail segment is sensitive to decreases in consumer purchasing
power and unfavorable economic cycles.
Historically, the retail segment has experienced periods of economic
slowdown that led to declines in consumer expenditures. The success of operations in the apparel retail sector depends on various
factors related to consumer expenditures and consumers' income, including general business conditions, interest rates, inflation,
consumer credit availability, taxation, consumer confidence in future economic conditions, employment and salary levels. Reductions
in credit availability and more stringent credit policies by Grupo Colombo and credit card companies may negatively affect its
sales. Unfavorable economic conditions in Brazil, or unfavorable economic conditions worldwide reflected in the Brazilian economy,
may significantly reduce consumer expenditure and available income, particularly in the lower income classes, who have relatively
less credit access than higher income classes, more limited debt refinancing conditions and more susceptibility to increases in
the unemployment rate. These conditions may have a material adverse effect on Grupo Colombo’s financial condition and results
of operation.
Because the Brazilian retail industry is perceived as essentially
growth-oriented, Grupo Colombo is dependent on the growth rate of Brazil's urban population and its different income levels. Any
decrease or slowdown in growth may adversely affect Grupo Colombo’s sales and results of operation.
Reductions in the volume of mall traffic or closing of shopping
malls as a result of unfavorable economic conditions or changing demographic patterns could significantly reduce Grupo Colombo’s
sales and leave it with excess inventory.
Most of Grupo Colombo’s stores are located in shopping malls
or outlet centers. Sales at these stores are derived, in part, from the volume of traffic in those locations. Grupo Colombo’s
stores benefit from the ability of the malls’ “anchor” tenants, generally large department stores and other area
attractions, to generate consumer traffic in the vicinity of its stores and the continuing popularity of the malls as shopping
destinations. Unfavorable economic conditions, particularly in certain regions, have adversely affected mall traffic and resulted
in the closing of certain anchor stores and has threatened the viability of certain commercial real estate firms which operate
major shopping malls. A continuation of this trend, including failure of a large commercial landlord or continued declines in the
popularity of mall shopping generally among our customers, would reduce Grupo Colombo’s sales and leave it with excess inventory.
Grupo Colombo may respond by increasing markdowns or initiating marketing promotions to reduce excess inventory, which would further
decrease our gross profits and net income.
Unauthorized disclosure of customer data through breach of
computer systems or otherwise could have a material adverse effect on Grupo Colombo.
One of the main e-commerce issues is the safe transmission of confidential
information of customers on the servers and the safe data storage on systems that are connected to the servers of Grupo Colombo.
Grupo Colombo depends on the efficient and uninterrupted operation of numerous systems, including its computer systems and software,
as well as the data centers through which it collects, maintains, transmits and stores data about its customers, including payment
information and personally identifiable information, as well as other confidential and proprietary information. Because the technology
systems of Grupo Colombo are highly complex, they are subject to failure.
The cybersecurity measures of Grupo Colombo may not detect or prevent
all attempts to compromise its systems. Breaches of its cybersecurity measures could result in unauthorized access to its systems,
misappropriation of information or data, deletion or modification of client information, or a denial-of-service or other interruption
to its business operations, which could result in a shutdown of its sites for a short or extended period and have a material adverse
effect on its business. As techniques used to obtain unauthorized access to or sabotage systems change frequently and may not be
known until launched against its or its third-party service providers, Grupo Colombo may be unable to anticipate or implement adequate
measures to protect against these attacks.
Grupo Colombo has in the past been, and is likely again in the future
to be, subject to these types of attacks, although to date no such attack has resulted in any breach of its systems, material damages
or remediation costs. If Grupo Colombo is unable to avert these attacks and security breaches, it could be subject to significant
legal and financial liability, its reputation would be harmed and it could sustain substantial revenue loss from lost sales and
customer dissatisfaction. Grupo Colombo may not have the resources or technical sophistication to anticipate or prevent rapidly
evolving types of cyber-attacks.
Cyber-attacks may target Grupo Colombo, its suppliers, buyers or
other participants, or the communication infrastructure on which it depends. In addition, security breaches can also occur as a
result of non-technical issues, including intentional or inadvertent breaches by its employees or by persons with whom it has commercial
relationships. Any compromise or breach of the security measures of Grupo Colombo, or those of its third-party service providers,
could result in Grupo Colombo violating applicable privacy, data security and other laws, and cause significant legal and financial
exposure, adverse publicity and a loss of confidence in its security measures, which could have an adverse and material effect
on the business, financial condition and operating results of Grupo Colombo.
Grupo Colombo depends on the transportation system and infrastructure
to deliver the products to its stores.
Grupo Colombo’s products are distributed through its distribution
center located in the State of São Paulo, Brazil. The transportation system and infrastructure in Brazil are underdeveloped
and need significant investment to operate efficiently and to meet the business needs of Grupo Colombo. In the e-commerce segment,
the reputation and ability to retain, acquire and serve customers of Grupo Colombo are dependent upon the reliable uninterrupted
performance of its sites and the underlying infrastructure of the Internet, including fixed-line and mobile communications networks
operated by third parties over which it has no control.
Any significant interruptions or reduction in the use of transportation
infrastructure or in its operations in the city where the distribution center of Grupo Colombo is located, as a result of natural
disasters, fire, accidents, systemic failures or other unexpected causes, may delay or affect its ability to distribute products
to its stores and may decrease its sales, which may have a material adverse effect on Grupo Colombo. Furthermore, any damage to,
or failure of, its third-party communication networks or data centers, whether due to system failures, computer viruses, physical
or electronic break-ins or other unexpected events or disruptions, could cause system interruption, delays and loss of critical
data, prevent Grupo Colombo from providing its services on a timely basis or limit or prevent access to its sites and cause partial
or complete shutdowns of its sites, which could have a material adverse effect on its business, financial condition and operating
results.
Grupo Colombo may not be able to adapt to changing consumer
habits.
Grupo Colombo competes with other retailers based on price, product
mix, store location and layout and services. Consumer habits are constantly changing and it may not be able to anticipate and quickly
respond to these changes.
If Grupo Colombo is unable to adapt its store format mix or layout,
identify locations and open stores in preferred areas, quickly adjust its product mix or prices under each of its banners and segments
or otherwise adjust to changing consumer preferences, such as shopping on mobile devices, its business and results of operation
could be materially adversely affected.
Grupo Colombo depends on a small number of suppliers
In 2014, the largest supplier in the apparel retail segment represented
20% of the sales of Grupo Colombo and the ten largest suppliers represented 70% of the sales of Grupo Colombo. If any of these
suppliers are unable to sell these products in the quantity and frequency Grupo Colombo requires and as a consequence it has an
insufficient stock of any category of product, Grupo Colombo may be unable to maintain the level of sales of such product which
may have a material adverse effect on the business and results of operations of Grupo Colombo.
Grupo Colombo relies on key management personnel
The loss of members of Grupo Colombo’s senior management or
its failure to attract and retain qualified personnel could adversely affect its financial condition and results of operations.
Grupo Colombo cannot assure you that its highly qualified senior management, whose performance is highly integral to its success,
will remain with Grupo Colombo in the future. Grupo Colombo cannot guarantee that it will be able to successfully attract and retain
qualified personnel to replace its key senior managers. The loss of any member of its senior management or its failure to attract
and retain qualified personnel to replace them may adversely affect Grupo Colombo’s financial condition and results of operations.
The level of indebtedness could make Grupo Colombo more vulnerable
to downturns in its business and adversely impact its ability to service its debt.
Grupo Colombo’s net debt (total indebtedness less cash, and
financial investments) was US$210.065 million and US$204.287 million as of December 31, 2013 and December 31, 2014, respectively,
and US$189,380 as of September 30, 2015. Grupo Colombo’s net debt to adjusted EBITDA ratio was 7.9 and 5.2 for the twelve
months ended December 31, 2013 and December 31, 2014, respectively, and 5.3 as of September 30, 2015. The level of Grupo Colombo’s
indebtedness and its repayment profile could have important consequences, certain of which could have a material adverse effect
on its activities. Specifically, the significant level of its indebtedness could: (i) limit Grupo Colombo’s flexibility to
plan for, or react to, competition and/or changes in its business or industry; (ii) require Grupo Colombo to dedicate a substantial
portion of its cash flows to service its debt, reducing the ability to use its cash flows to fund working capital, capital expenditures
and other general corporate purposes; (iii) limit Grupo Colombo’s ability to obtain financing on terms favorable to it or
increase its funding costs; (iv) restrict Grupo Colombo’s access to the capital markets; (v) prevent Grupo Colombo from obtaining
financing; (vi) restrict Grupo Colombo’s ability to make strategic acquisitions or non-strategic divestitures; (vii) place
Grupo Colombo at a competitive disadvantage relative to some of its competitors that are less leveraged; (viii) increase its vulnerability
to downturns in its business; and (ix) impact Grupo Colombo’s credit rating and the condition under which additional financing
is available to it. In addition, the debentures issued by Grupo Colombo in the past years are subject to certain financial covenants
set forth in item “Liquidity and Capital Resources” of this proxy statement, which may also restrict Grupo Colombo’s
ability to obtain new financing for its activities.
Grupo Colombo may not be able to generate sufficient cash
to service all of its indebtedness and fund its working capital and capital expenditures, and it may be forced to take other actions
to satisfy its obligations under its indebtedness, which may not be successful.
Grupo Colombo’s ability to make scheduled payments on its
indebtedness will depend upon its future operating performance and on its ability to generate cash flow in the future, which is
subject to general economic, financial, business, competitive, legislative, regulatory and other factors that are beyond its control.
Grupo Colombo cannot assure you that its business will generate sufficient cash flow from operations, or that future borrowings
will be available to it in an amount sufficient to enable it to pay its indebtedness or to fund its other liquidity needs. See
“Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”
If Grupo Colombo’s cash flows and capital resources are insufficient
to fund its debt service obligations, it could face substantial liquidity problems and could be forced to reduce or delay investment
and capital expenditures or to dispose of material assets or operations, seek additional equity capital or restructure or refinance
its indebtedness. Grupo Colombo may not be able to affect any such alternative measures, if necessary, on commercially reasonable
terms or at all and, even if successful, such alternative actions may not allow it to meet its debt service obligations.
If Grupo Colombo cannot make scheduled payments on its debt, it
will be in default and, as a result, the holders of the debentures could accelerate the indebtedness, and it could be forced into
bankruptcy or liquidation.
If Grupo Colombo’s indebtedness is accelerated, it may need
to refinance all or a portion of its indebtedness before maturity. Grupo Colombo cannot assure you that it will be able to refinance
any of its indebtedness on commercially reasonable terms or at all. Grupo Colombo cannot assure you that it will be able to obtain
sufficient funds to enable it to repay or refinance its debt obligations on commercially reasonable terms, or at all.
Risks Related to the Business Combination
While the working capital of the combined company immediately
after the business combination will increase, the amount of the increase depends on the extent to which the GGAC shareholders exercise
their right to convert their shares into cash.
Pursuant to GGAC’s amended and restated memorandum and articles
of association, holders of public shares may either vote for or against the business combination proposal and demand that GGAC
convert their shares into a pro rata share of the trust account where a substantial portion of the net proceeds of GGAC’s
initial public offering are held, calculated as of two business days prior to the anticipated consummation of the business combination.
GGAC and Grupo Colombo will not consummate the business combination if GGAC does not have net tangible assets of at least US$5,000,001
upon such consummation, after giving effect to payments to public shareholders who exercise such conversion rights. GGAC estimates
that this condition will be met if holders of no more than 13,762,388 of the public shares properly demand conversion of their
shares into cash.
If no holders elect to convert their public shares, the trust account
is expected to have approximately US$144,469,000 at the closing, and the combined company will have an increase in working capital
of US$137,469,000, after accounting for the payment of an estimated US$7,000,000 in transaction expenses incurred in connection
with the business combination. To the extent the business combination is consummated and holders have demanded to convert their
shares, there will be a corresponding reduction in the amount of funds available to the combined company. If conversion rights
are exercised with respect to 13,762,388 of the public shares, the maximum potential conversion cost would be approximately US$138,458,000.
If, and to the extent, public shareholders elect to convert their shares, the amount of any increase in working capital available
to the combined company after the business combination will be reduced. However, if the Controlling Persons make the open market
purchases required by the Investment Agreement at approximately US$10.05 per share, and the holders of all other public shares
elect to convert, the trust account is expected to have approximately US$30,000,000 at the closing, and the combined company will
have an increase in working capital of US$26,000,000, after accounting for the payment of an estimated US$4,000,000 in transaction
expenses incurred in connection with the business combination.
While such funds may be used to reduce the indebtedness of the combined
company, such funds could be put to a variety of purposes, including the expansion the combined company’s operations, for
strategic acquisitions or for marketing, research and development of existing or new products. Management will have broad discretion
in the application of the net proceeds, and may use these proceeds in ways with which you may disagree. The failure by GGAC’s
management to apply these funds effectively could have a material adverse effect on the combined company’s business, financial
condition and results of operation.
Future resales of the GGAC ordinary shares may cause the market
price of GGAC’s securities to drop significantly, even if GGAC’s business is doing well.
The Controlling Persons and Optionholders will receive an aggregate
of 4,000,000 GGAC ordinary shares at the closing of the business combination. The Controlling Persons and Optionholders have agreed
that they will not sell any of the GGAC ordinary shares that they receive as a result of the business combination until (1) with
respect to 50% of the shares, the earlier of one year after the closing and the date on which the closing price of the shares equals
or exceeds US$13.00 per share for any 20 trading days within any 30-trading day period commencing after the closing date and (2)
with respect to the remaining 50% of the shares, one year after the closing date, and the Controlling Persons and Optionholders
have entered into the Lockup Agreements to such effect. See the section entitled “The Business combination Proposal —
Sale Restriction; Resale Registration.”
These restrictions are substantially the same as the restrictions
imposed on the initial shareholders with respect to the 3,593,750 initial shares held by them. In addition, the initial shareholders
and EarlyBirdCapital have agreed not sell any of the 634,063 private shares held by them until the consummation of the business
combination with Grupo Colombo.
GGAC will enter into the Registration Rights Agreement with the
Controlling Persons, Optionholders and initial shareholders, among others, upon the consummation of the business combination with
Grupo Colombo. Pursuant to the Registration Rights Agreement, no later than 30 days following the Closing, GGAC will prepare and
file with the SEC a registration statement covering the resale of the initial shares, the private shares and the GGAC ordinary
shares issued pursuant to the Investment Agreement, as well as the other registrable securities. Following the expiration of the
lockup period under the Lockup Agreements, in addition to ordinary resales under the registration statement in the public trading
markets, the holders of such securities will be entitled to sell such securities in underwritten public offerings under the registration
statement, so long as any such underwritten public offering is for at least US$10 million in the aggregate. The holders of such
securities also will have certain customary “piggyback” registration rights. See the section entitled “The
Business Combination Proposal — Sale Restriction; Resale Registration.”
Furthermore, the initial shareholders, EarlyBirdCapital, the Controlling
Persons and the Optionsholders may sell GGAC ordinary shares pursuant to Rule 144 under the Securities Act, if available, rather
than under a registration statement. In these cases, the resales must meet the criteria and conform to the requirements of that
rule, including, because GGAC is currently a shell company, waiting until one year after GGAC’s filing with the SEC of a
Current Report on Form 8-K containing Form 10 type information reflecting the business combination with Grupo Colombo.
Accordingly, upon expiration of the applicable lockup periods, and
upon effectiveness of the registration statement GGAC files pursuant to the Registration Rights Agreement or upon satisfaction
of the requirements of Rule 144 under the Securities Act, the initial shareholders, the Controlling Persons and Optionholders may
sell large amounts of GGAC ordinary shares in underwritten offerings, in the open market or in privately negotiated transactions,
which could have the effect of increasing the volatility in GGAC’s share price or putting significant downward pressure on
the price of GGAC’s shares.
GGAC’s rights will convert, its working capital notes
will become convertible and its warrants and unit purchase options will become exercisable in connection with the closing of the
business combination with Grupo Colombo, which will increase the number of shares eligible for future resale in the public market
and result in dilution to GGAC shareholders.
Upon the closing of the business combination with Grupo Colombo,
GGAC’s rights, including (i) the 14,375,000 rights issued in GGAC’s initial public offering and (ii) the 634,063 rights
issued as part of the private units in a private placement concurrent with GGAC’s initial public offering, will each be automatically
exchanged for one-tenth of a GGAC ordinary share. In addition, assuming Mr. Garnero elects to convert the working capital notes
into 50,000 working capital units, Mr. Garnero will be issued 55,000 shares (including 5,000 shares issuable upon the automatic
exchange of the rights included in such units) and 50,000 warrants. Furthermore, GGAC’s warrants, including (i) the 14,375,000
warrants issued in GGAC’s initial public offering, (ii) the 634,063 warrants issued as part of the private units in a private
placement concurrent with GGAC’s initial public offering and (iii) the 50,000 warrants that may be issued to Mr. Garnero
upon conversion of the aforementioned notes, will become exercisable after the closing of the business combination and will permit
the holders to purchase an aggregate of 7,529,532 at an exercise price of US$11.50 per full share. GGAC’s unit purchase options,
which will become exercisable after the business combination, permit the holders to purchase an additional 1,250,000 units, consisting
of 1,375,000 GGAC ordinary shares (including the 125,000 shares issuable upon the automatic exchange of the rights included in
such units) and 1,250,000 warrants, at an exercise price of US$10.00 per unit. The warrants and the unit purchase options likely
will be exercised only if the exercise price is below the market price of the underlying securities. To the extent such warrants
and unit purchase options are exercised, additional GGAC ordinary shares will be issued. These issuances of shares will result
in dilution to GGAC’s shareholders and increase the number of shares eligible for resale in the public market.
If GGAC shareholders fail to properly demand conversion, they
will not be entitled to convert their GGAC ordinary shares into a pro rata portion of the trust account.
GGAC shareholders holding public shares who affirmatively vote for
or against the business combination proposal may demand that GGAC convert their shares into a pro rata portion of the trust account,
calculated as of two business days prior to the anticipated consummation of the business combination. To demand conversion, GGAC
shareholders must either check the box on the proxy card or submit a request in writing to GGAC’s transfer agent and deliver
their shares to GGAC’s transfer agent physically or electronically using Depository Trust Company’s DWAC (Deposit Withdrawal
at Custodian) System prior to the vote at the meeting. Any GGAC shareholder who fails to affirmatively vote for or against the
business combination proposal or who fails to properly demand conversion will not be entitled to convert his or her shares into
a pro rata portion of the trust account. See the section entitled “Extraordinary General Meeting of GGAC Shareholders
— Conversion Rights” for the procedures to be followed if you wish to convert your shares to cash.
Public shareholders, together with any affiliates of theirs
or any other person with whom they are acting in concert or as a “group,” will be restricted from seeking conversion
rights with respect to more than 30% of the public shares.
A public shareholder, together with any affiliate of his or any
other person with whom he is acting in concert or as a “group,” will be restricted from seeking conversion rights with
respect to more than 30% of the public shares. Accordingly, if you hold more than 30% of the public shares and the business combination
proposal is approved, you will not be able to seek conversion rights with respect to the full amount of your shares and may be
forced to hold the shares in excess of 30% or sell them in the open market. GGAC cannot assure you that the value of such excess
shares will appreciate over time following a business combination or that the market price of GGAC’s ordinary shares will
exceed the per-share conversion price.
Nasdaq may delist the GGAC ordinary shares and warrants from
quotation on its exchange. Failure to maintain Nasdaq listing could limit investors’ ability to make transactions in its
securities and subject GGAC to additional trading restrictions.
In connection with the business combination, Nasdaq requires GGAC,
on behalf of Grupo Colombo, to file an initial listing application and meet its initial listing requirements as opposed to its
more lenient continued listing requirements. Grupo Colombo may not be able to meet those initial listing requirements and, even
if it is able to meet the initial listing requirements, it may not be able to meet the continued listing requirements for its ordinary
shares and warrants in the future.
Failure to meet the initial or continued listing requirements could
result in Nasdaq delisting GGAC’s securities from trading on its exchange. If this should happen, GGAC could face significant
material adverse consequences, including:
| ● | a limited availability of market quotations for its securities; |
| ● | a limited amount of news and analyst coverage for the company; and |
| ● | a decreased ability to issue additional securities or obtain additional financing in the future. |
The price of GGAC’s ordinary share and warrants may
fluctuate significantly following consummation of the transaction.
Following consummation of the transaction, GGAC’s ordinary
share and warrant price may fluctuate significantly. Factors affecting the trading price of the securities may include:
| ● | actual or anticipated fluctuations in quarterly financial results or the quarterly financial results of companies perceived
to be similar to GGAC; |
| ● | changes in the market’s expectations about operating results; |
| ● | operating results failing to meet the expectation of securities analysts or investors in a particular period; |
| ● | changes in financial estimates and recommendations by securities analysts concerning GGAC; |
| ● | operating and stock price performance of other companies that investors deem comparable to GGAC; |
| ● | the company’s ability to market new and enhanced products on a timely basis; |
| ● | changes in laws and regulations affecting the combined company’s business; |
| ● | commencement of, or involvement in, litigation; |
| ● | changes in capital structure, such as future issuances of securities or the incurrence of additional debt; |
| ● | the volume of ordinary shares available for public sale; |
| ● | any major change in the board or management; |
| ● | sales of substantial amounts of ordinary shares by insiders or the perception that such sales could occur; and |
| ● | general economic and political conditions such as recessions, interest rates, fuel prices, international currency fluctuations
and acts of war or terrorism. |
Broad market and industry factors may materially harm the market
price of GGAC’s securities irrespective of its operating performance. The stock market in general, and Nasdaq have experienced
price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular
companies affected. The trading prices and valuations of these stocks, and of GGAC’s securities, may not be predictable.
A loss of investor confidence in the market for retail stocks or the stocks of other companies which investors perceive to be similar
to GGAC could depress the share price regardless of its business, prospects, financial conditions or results of operations. A decline
in the market price of GGAC’s securities also could adversely affect its ability to issue additional securities and to obtain
additional financing in the future.
GGAC’s ability to request indemnification from the Controlling
Persons and Optionholders for damages arising out of the business combination is generally limited in certain instances to those
claims where damages exceed US$600,000 and is also limited to the shares placed in escrow plus an additional amount in cash.
At the closing of the business combination, 200,000 of the ordinary
shares issuable to the Controlling Persons and Optionholders will be deposited in escrow to provide a fund for payment to GGAC
with respect to its post-closing rights to indemnification under the Investment Agreement for breaches of representations and warranties
and covenants by the Company, the Controlling Persons or the Optionholders. Claims for indemnification generally may only be asserted
by GGAC once the aggregate amount of all damages exceeds a US$600,000 deductible (in which event the amount payable shall be the
full amount and not just the amount in excess of the amount of the deductible). In addition, claims for indemnification generally
may only be asserted by GGAC once the amount of damages on any single claim or series of related claims exceeds a threshold of
US$30,000 (except such amounts will count toward the deductible). Certain claims, including those relating to the Company’s
due authorization of the transactions and capitalization and the Controlling Person and Optionsholders’ ownership of the
ordinary shares of Grupo Colombo, are not subject to the foregoing limitations. Nevertheless, it is possible that GGAC will not
be entitled to indemnification even if the Company, the Controlling Persons or Optionholders are found to have breached their respective
representations and warranties and covenants contained in the Investment Agreement, if such breach would only result in damages
to GGAC of less than US$600,000 in the aggregate or US$30,000 in connection with a single claim or series of related claims.
Also, GGAC’s rights to indemnification under the Investment
Agreement are generally limited to the Escrow Shares plus an additional $2,000,000. On the date that is 30 days after the date
on which Grupo Colombo delivers to GGAC its audited financial statements for its 2016 fiscal year, the Escrow Agent shall release
100,000 of the original number of Escrow Shares, less that number of Escrow Shares applied in satisfaction of, or reserved with
respect to, indemnification claims made prior to such date, to the the owners thereof. The remaining Escrow Shares plus an additional
$1,000,000 (less any amounts in excess of $1,000,000 paid with respect to indemnification claims previously brought) shall be available
for indemnification only with respect to indemnification claims relating to taxes. On the date that is 30 days after the date on
which Grupo Colombo delivers to GGAC its audited financial statements for its 2017 fiscal year, the Escrow Agent shall deliver
the remaining shares held in escrow, less any of such shares applied in satisfaction of, or reserved with respect to, an indemnification
claim related to taxes made prior to such date, to the owners thereof.
GGAC’s current directors and executive officers own
ordinary shares, rights and warrants that will be worthless and have incurred reimbursable expenses and made loans to GGAC that
may not be reimbursed or repaid if the business combination is not approved. Such interests may have influenced their decision
to approve the business combination with Grupo Colombo.
GGAC’s officers, directors, and/or their affiliates beneficially
own 3,593,750 initial shares that they purchased prior to GGAC’s initial public offering. Additionally, certain of GGAC’s
officers, directors and/or their affiliates purchased 562,188 private units in a private placement that occurred simultaneously
with its initial public offering at a price of US$10.00 per unit. GGAC’s executive officers and directors and their affiliates
have no redemption rights with respect to the initial shares or the GGAC ordinary shares included in the private units in the event
a business combination is not effected in the required time period. Therefore, if the business combination with Grupo Colombo or
another business combination is not consummated within the required time period, such shares, as well as the private rights and
private warrants included in the private units, will be worthless. As of December 17, 2015, GGAC’s directors and officers
held US$35,182,813 in ordinary shares (based on a market price of US$9.79) and US$5,537,552 in private units (based on a market
price of US$9.85).
In addition, Mario Garnero has loaned approximately US$1,228,650
to GGAC, and may in the future loan additional amounts to GGAC in order to meet GGAC’s working capital needs prior to the
closing of the business combination with Grupo Colombo. The loans are non interest bearing and are payable at the consummation
of a business combination. If GGAC fails to consummate a business combination, the loans would become unsecured liabilities of
GGAC; however, Mr. Garnero has waived any claim against the trust account. Accordingly, GGAC will not be able to repay these loans
if a business combination is not completed.
Furthermore, GGAC’s officers, directors, initial shareholders
and their affiliates are entitled to reimbursement of out-of-pocket expenses incurred by them in connection with certain activities
on GGAC’s behalf, such as identifying and investigating possible business targets and business combinations. These expenses
will be repaid upon completion of the business combination with Grupo Colombo. However, if GGAC fails to consummate the business
combination, they will not have any claim against the trust account for reimbursement. Accordingly, GGAC will not be able to reimburse
these expenses if a business combination is not completed. As of the date of this proxy statement, GGAC’s officers, directors,
initial shareholders and their affiliates have incurred approximately $40,000 of unpaid reimbursable expenses. See the section
entitled “The Business Combination Proposal — Interests of GGAC’s Directors and Officers and Others in the
Business Combination.”
These financial interests may have influenced the decision of GGAC’s
directors and officers to approve the business combination with Grupo Colombo and to continue to pursue such business combination.
In considering the recommendations of GGAC’s board of directors to vote for the business combination proposal and other proposals,
its shareholders should consider these interests.
GGAC’s Chairman of the Board is liable to ensure that
proceeds of the trust are not reduced by vendor claims in the event the business combination is not consummated. Such liability
may have influenced the board of director’s decision to approve the business combination with Grupo Colombo.
If the business combination with Grupo Colombo or another business
combination is not consummated by June 25, 2016, Mario Garnero, GGAC’s Chairman of the Board, will be personally liable to
ensure that the proceeds in the trust account are not reduced by the claims of target businesses or claims of vendors or other
entities that are owed money by GGAC for services rendered or contracted for or products sold to GGAC, but only if such a vendor
or target business has not executed such a waiver. If GGAC consummates a business combination, on the other hand, GGAC will be
liable for all such claims. GGAC has no reason to believe that Mr. Garnero will not be able to fulfill his indemnity obligations
to GGAC. See the section entitled “Other Information Related to GGAC — GGAC’s Plan of Operation”
for further information.
These personal obligations of Mr. Garnero may have influenced GGAC’s
board of director’s decision to approve the business combination with Grupo Colombo and to continue to pursue such business
combination. In considering the recommendations of GGAC’s board of directors to vote for the business combination proposal
and other proposals, GGAC’s shareholders should consider these interests.
The exercise of GGAC’s directors’ and officers’
discretion in agreeing to changes or waivers in the terms of the business combination may result in a conflict of interest when
determining whether such changes to the terms of the business combination or waivers of conditions are appropriate and in GGAC’s
shareholders’ best interest.
In the period leading up to the closing of the business combination,
events may occur that, pursuant to the Investment Agreement, would require GGAC to agree to amend the Investment Agreement, to
consent to certain actions taken by Grupo Colombo or to waive rights that GGAC is entitled to under the Investment Agreement. Such
events could arise because of changes in the course of Grupo Colombo’s business, a request by Grupo Colombo to undertake
actions that would otherwise be prohibited by the terms of the Investment Agreement or the occurrence of other events that would
have a material adverse effect on Grupo Colombo’s business and would entitle GGAC to terminate the Investment Agreement.
In any of such circumstances, it would be at GGAC’s discretion, acting through its board of directors, to grant its consent
or waive those rights. The existence of the financial and personal interests of the directors described in the preceding risk factors
may result in a conflict of interest on the part of one or more of the directors between what he or they may believe is best for
GGAC and what he or they may believe is best for himself or themselves in determining whether or not to take the requested action.
As of the date of this proxy statement, GGAC does not believe there will be any changes or waivers that GGAC’s directors
and officers would be likely to make after shareholder approval of the business combination proposal has been obtained. While certain
changes could be made without further shareholder approval, GGAC will circulate a new or amended proxy statement and resolicit
GGAC’s shareholders if changes to the terms of the transaction are made that would have a material impact on its shareholders
are required prior to the vote on the business combination proposal.
Activities taken by existing GGAC initial shareholders, the
Controlling Persons or the Optionholders and/or their respective affiliates to increase the likelihood of approval of the business
combination proposal and other proposals could have a depressive effect on GGAC’s shares.
The Controlling Persons have committed to use their commercially
reasonable best efforts to purchase at least US$30 million of GGAC ordinary shares in the open market, and to vote such shares
in favor of the business combination and not to exercise their conversion rights with respect to such shares. In addition, at any
time prior to the extraordinary general meeting, during a period when they are not then aware of any material nonpublic information
regarding GGAC or its securities, GGAC initial shareholders, the Controlling Persons or the Optionholders and/or their respective
affiliates may purchase additional shares from institutional and other investors who vote, or indicate an intention to vote, against
the business combination proposal, or execute agreements to purchase such shares from such investors in the future, or they may
enter into transactions with such investors and others to provide them with incentives to acquire GGAC ordinary shares or vote
their shares in favor of the business combination proposal. The purpose and effect of such share purchases and other transactions
would be to increase the likelihood of satisfaction of the requirements that the holders of a majority of the GGAC ordinary shares
voted on the business combination proposal at the extraordinary general meeting vote in its favor and that GGAC has net tangible
assets of at least US$5,000,001 upon the consummation of the business combination with Grupo Colombo, after giving effect to payments
to public shareholders who exercise such conversion rights, where it appears that such requirements would otherwise not be met.
Entering into any such arrangements may have a depressive effect on GGAC’s ordinary shares. For example, as a result of these
arrangements, an investor or holder may have the ability to effectively purchase shares at a price lower than market and may therefore
be more likely to sell the shares he owns, either prior to or immediately after the extraordinary general meeting. See the section
entitled “The Extraordinary General Meeting — GGAC Initial Shareholders.”
Because GGAC is incorporated under the laws of the Cayman
Islands, you may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. Federal
courts may be limited.
GGAC is an exempted company incorporated under the laws of the Cayman
Islands. In addition, certain of GGAC’s directors and officers are nationals or residents of jurisdictions other than the
U.S. and all or a substantial portion of their assets are located outside the U.S. As a result, it may be difficult for investors
to effect service of process within the U.S. upon GGAC’s directors or executive officers, or enforce judgments obtained in
the U.S. courts against GGAC’s directors or officers.
GGAC’s corporate affairs will be governed by its amended and
restated memorandum and articles of association, the Companies Law (as the same may be supplemented or amended from time to time)
or the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders
and the fiduciary responsibilities of GGAC’s directors to GGAC under Cayman Islands law are to a large extent governed by
the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial
precedent in the Cayman Islands as well as from English common law, the decisions of whose courts are of persuasive authority,
but are not binding on a court in the Cayman Islands. The rights of GGAC’s shareholders and the fiduciary responsibilities
of GGAC’s directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent
in some jurisdictions in the U.S. In particular, the Cayman Islands has a less developed body of securities laws as compared to
the U.S., and certain states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law. In
addition, Cayman Islands companies may not have standing to initiate a shareholders derivative action in a Federal court of the
U.S.
GGAC has been advised by its Cayman Islands legal counsel that the
courts of the Cayman Islands are unlikely (i) to recognize or enforce against GGAC judgments of courts of the U.S. predicated upon
the civil liability provisions of the federal securities laws of the U.S. or any state; and (ii) in original actions brought in
the Cayman Islands, to impose liabilities against GGAC predicated upon the civil liability provisions of the federal securities
laws of the U.S. or any state, so far as the liabilities imposed by those provisions are penal in nature. In those circumstances,
although there is no statutory enforcement in the Cayman Islands of judgments obtained in the U.S., the courts of the Cayman Islands
will recognise and enforce a foreign money judgment of a foreign court of competent jurisdiction without retrial on the merits
based on the principle that a judgment of a competent foreign court imposes upon the judgment debtor an obligation to pay the sum
for which judgment has been given provided certain conditions are met. For a foreign judgment to be enforced in the Cayman Islands,
such judgment must be final and conclusive and for a liquidated sum, and must not be in respect of taxes or a fine or penalty,
inconsistent with a Cayman Islands judgment in respect of the same matter, impeachable on the grounds of fraud or obtained in a
manner, and or be of a kind the enforcement of which is, contrary to natural justice or the public policy of the Cayman Islands
(awards of punitive or multiple damages may well be held to be contrary to public policy). A Cayman Islands Court may stay enforcement
proceedings if concurrent proceedings are being brought elsewhere. There is recent Privy Council authority (which is binding on
the Cayman Islands Court) in the context of a reorganisation plan approved by the New York Bankruptcy Court which suggests that
due to the universal nature of bankruptcy/insolvency proceedings, foreign money judgments obtained in foreign bankruptcy/insolvency
proceedings may be enforced without applying the principles outlined above. However, a more recent English Supreme Court authority
(which is highly persuasive but not binding on the Cayman Islands Court), has expressly rejected that approach in the context of
a default judgment obtained in an adversary proceeding brought in the New York Bankruptcy Court by the receivers of the bankruptcy
debtor against a third party, and which would not have been enforceable upon the application of the traditional common law principles
summarised above and held that foreign money judgments obtained in bankruptcy/insolvency proceedings should be enforced by applying
the principles set out above, and not by the simple exercise of the Courts’ discretion. Those cases have now been considered
by the Cayman Islands Court. The Cayman Islands Court was not asked to consider the specific question of whether a judgment of
a bankruptcy court in an adversary proceeding would be enforceable in the Cayman Islands, but it did endorse the need for active
assistance of overseas bankruptcy proceedings. GGAC understands that the Cayman Islands Court’s decision in that case has
been appealed and it remains the case that the law regarding the enforcement of bankruptcy/insolvency related judgments is still
in a state of uncertainty.
As a result of all of the above, public shareholders may have more
difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling
shareholders than they would as public shareholders of a U.S. company.
GGAC is, and will continue to be after the business combination
with Grupo Colombo, an “emerging growth company” and GGAC cannot be certain if the reduced disclosure requirements
applicable to emerging growth companies will make its securities less attractive to investors.
GGAC is, and will continue to be after the business combination
with Grupo Colombo, an “emerging growth company,” as defined in the JOBS Act. GGAC could remain an “emerging
growth company” until June 30, 2019. However, if its non-convertible debt issued within a three-year period or revenues exceeds
US$1 billion, or the market value of the GGAC ordinary shares that are held by non-affiliates exceeds US$700 million on the last
day of the second fiscal quarter of any given fiscal year, GGAC would cease to be an emerging growth company as of the following
fiscal year. As an emerging growth company, GGAC is not being required to comply with the auditor attestation requirements of section
404 of the Sarbanes-Oxley Act, GGAC has reduced disclosure obligations regarding executive compensation in its periodic reports
and proxy statements, and GGAC is exempt from the requirements of holding a nonbinding advisory vote on executive compensation
and shareholder approval of any golden parachute payments not previously approved. Additionally, as an emerging growth company,
GGAC has elected to delay the adoption of new or revised accounting standards that have different effective dates for public and
private companies until those standards apply to private companies. As such, GGAC’s financial statements may not be comparable
to companies that comply with public company effective dates. GGAC cannot predict if investors will find its shares less attractive
because it may rely on these provisions. If some investors find its shares less attractive as a result, there may be a less active
trading market for its shares and its share price may be more volatile.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth
companies from being required to comply with new or revised financial accounting standards until private companies (that is, those
that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under
the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company
can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies
but any such an election to opt out is irrevocable. GGAC has elected not to opt out of such extended transition period which means
that when a standard is issued or revised and it has different application dates for public or private companies, GGAC, as an emerging
growth company, will not adopt the new or revised standard until the time private companies are required to adopt the new or revised
standard. This may make comparison of GGAC’s financial statements with another public company which is neither an emerging
growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible
because of the potential differences in accountant standards used.
If GGAC does not maintain a current and effective prospectus
relating to the GGAC ordinary shares issuable upon exercise of the warrants, public holders will only be able to exercise such
warrants on a “cashless basis” which would result in a fewer number of shares being issued to the holder had such holder
exercised the warrants for cash.
If GGAC does not maintain a current and effective prospectus relating
to the GGAC ordinary shares issuable upon exercise of the public warrants at the time that holders wish to exercise such warrants,
they will only be able to exercise them on a “cashless basis” provided that an exemption from registration is available.
As a result, the number of GGAC ordinary shares that a holder will receive upon exercise of its public warrants will be fewer than
it would have been had such holder exercised its warrant for cash. Further, if an exemption from registration is not available,
holders would not be able to exercise their warrants on a cashless basis and would only be able to exercise their warrants for
cash if a current and effective prospectus relating to the ordinary shares issuable upon exercise of the warrants is available.
Under the terms of the warrant agreement, GGAC has agreed to use tis best efforts to meet these conditions and to maintain a current
and effective prospectus relating to the ordinary shares issuable upon exercise of the warrants until the expiration of the warrants.
However, GGAC cannot assure you that it will be able to do so. If GGAC is unable to do so, the potential “upside” of
the holder’s investment in GGAC may be reduced or the warrants may expire worthless. Notwithstanding the foregoing, the private
warrants may be exercisable for unregistered GGAC ordinary shares for cash even if the prospectus relating to the GGAC ordinary
shares issuable upon exercise of the warrants is not current and effective.
An investor will only be able to exercise a warrant if the
issuance of ordinary shares upon such exercise has been registered or qualified or is deemed exempt under the securities laws of
the state of residence of the holder of the warrants.
No public warrants will be exercisable for cash and GGAC will not
be obligated to issue GGAC ordinary shares unless the GGAC ordinary shares issuable upon such exercise have been registered or
qualified or deemed to be exempt under the securities laws of the state of residence of the holder of the warrants. At the time
that the warrants become exercisable, GGAC expects to continue to be listed on a national securities exchange, which would provide
an exemption from registration in every state. However, GGAC cannot assure you of this fact. If the GGAC ordinary shares issuable
upon exercise of the warrants are not qualified or exempt from qualification in the jurisdictions in which the holders of the warrants
reside, the warrants may be deprived of any value, the market for the warrants may be limited and they may expire worthless if
they cannot be sold.
GGAC’s management’s ability to require holders
of its warrants to exercise such warrants on a cashless basis will cause holders to receive fewer ordinary shares upon their exercise
of the warrants than they would have received had they been able to exercise their warrants for cash.
If GGAC calls its public warrants for redemption after the redemption
criteria described elsewhere in this proxy statement have been satisfied, its management will have the option to require any holder
that wishes to exercise his warrant (including any warrants held by the initial shareholders or their permitted transferees) to
do so on a “cashless basis.” If GGAC’s management chooses to require holders to exercise their warrants on a
cashless basis, the number of ordinary shares received by a holder upon exercise will be fewer than it would have been had such
holder exercised his warrant for cash. This will have the effect of reducing the potential “upside” of the holder’s
investment in GGAC.
GGAC may amend the terms of the warrants in a way that may
be adverse to holders with the approval of the holders of a majority of the then outstanding warrants.
GGAC’s warrants re issued in registered form under a warrant
agreement between Continental Stock Transfer & Trust Company, as warrant agent, and GGAC. The warrant agreement provides that
the terms of the warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision.
The warrant agreement requires the approval by the holders of a majority of the then outstanding warrants (including the private
warrants) in order to make any change that adversely affects the interests of the registered holders.
GGAC may redeem the warrants at a time that is not beneficial
to public investors.
GGAC may call the public warrants for redemption at any time after
the redemption criteria described elsewhere in this proxy statement have been satisfied. If GGAC calls the public warrants for
redemption, public shareholders may be forced to accept a nominal redemption price or sell or exercise the warrants when they may
not wish to do so.
If GGAC does not consummate the business combination with
Grupo Colombo or another target business by June 25, 2016, it will trigger GGAC’s automatic winding up, dissolution and liquidation.
In such event, third parties bring claims against GGAC, the proceeds held in trust could be reduced and the per-share liquidation
price received by shareholders may be less than US$10.05.
If GGAC does not consummate the business combination with Grupo
Colombo or another target business by June 25, 2016, it will trigger GGAC’s automatic winding up, dissolution and liquidation.
The liquidation amount is expected to be approximately US$10.05 per share. However, the fact that funds are held in the trust account
may not protect those funds from third party claims against GGAC. Although GGAC has obtained and will continue to seek to have
all vendors and service providers it engages and prospective target businesses it negotiates with execute agreements with GGAC
waiving any right, title, interest or claim of any kind in or to any monies held in the trust account for the benefit of the public
shareholders, they may not execute such agreements. Furthermore, even if such entities execute such agreements with GGAC, they
may seek recourse against the monies held in the trust account. A court may not uphold the validity of such agreements. Accordingly,
the proceeds held in trust could be subject to claims which could take priority over those of the public shareholders. If GGAC
liquidates the trust account before the completion of a business combination, Mario Garnero, GGAC’s Chief Executive Officer,
has agreed that he will be personally liable to ensure that the proceeds in the trust account are not reduced by the claims of
target businesses or claims of vendors or other entities that are owed money by GGAC for services rendered or contracted for or
products sold to GGAC and which have not executed a waiver agreement. However, he may not be able to meet such obligation. Therefore,
the per-share distribution from the trust account in such a situation may be less than $10.05, plus interest, due to such claims.
Additionally, if GGAC is forced to file a bankruptcy case or an
involuntary bankruptcy case is filed against it which is not dismissed, or if GGAC otherwise enters compulsory or court supervised
liquidation, the proceeds held in the trust account could be subject to applicable bankruptcy law, and may be included in GGAC’s
bankruptcy estate and subject to the claims of third parties with priority over the claims of the shareholders. To the extent any
bankruptcy claims deplete the trust account, GGAC may not be able to return to the public shareholders at least US$10.05.
GGAC’s shareholders may be held liable for claims by
third parties against GGAC to the extent of distributions received by them.
GGAC’s amended and restated memorandum and articles of association
provide that it will continue in existence only until June 25, 2016 unless it completes an initial business combination with Grupo
Colombo or another target business by such date. If GGAC does not consummate the business combination with Grupo Colombo or another
target business by June 25, 2016, it will trigger GGAC’s automatic winding up, dissolution and liquidation.
As such, GGAC’s shareholders could potentially be liable for
any claims to the extent of distributions received by them pursuant to such process and any liability of its shareholders may extend
beyond the date of such distribution. Accordingly, GGAC cannot assure you that third parties, or GGAC under the control of an official
liquidator, will not seek to recover from the shareholders amounts owed to them by GGAC.
If GGAC is unable to consummate a transaction within the required
time period, upon notice from GGAC, the trustee of the trust account will distribute the amount in the trust account to the public
shareholders. Concurrently, GGAC shall pay, or reserve for payment, from funds not held in trust, its liabilities and obligations,
although GGAC cannot assure you that there will be sufficient funds for such purpose. If there are insufficient funds held outside
the trust account for such purpose, Mario Garnero has agreed that he will be personally liable to ensure that the proceeds in the
trust account are not reduced by the claims of target businesses or claims of vendors or other entities that are owed money by
GGAC for services rendered or contracted for or products sold to GGAC and which have not executed a waiver agreement.
If GGAC is forced to enter into an insolvent liquidation, any distributions
received by shareholders could be viewed as an unlawful payment if it was proved that immediately following the date on which the
distribution was made, GGAC was unable to pay its debts as they fall due in the ordinary course of business. As a result, a liquidator
could seek to recover all amounts received by the shareholders. Furthermore, GGAC’s directors may be viewed as having breached
their fiduciary duties to GGAC or its creditors and/or may have acted in bad faith, and thereby exposing themselves and GGAC to
claims, by paying public shareholders from the trust account prior to addressing the claims of creditors. GGAC cannot assure you
that claims will not be brought against GGAC for these reasons. GGAC and its directors and officers who knowingly and willfully
authorized or permitted any distribution to be paid out of GGAC’s share premium account while GGAC was unable to pay its
debts as they fall due in the ordinary course of business would be guilty of an offence and may be liable to a fine of US$15,000
and to imprisonment for five years in the Cayman Islands.
Risks If the Adjournment Proposal Is Not Approved
If the adjournment proposal is not approved, and based upon
the tabulated vote or elections to convert at the time of the extraordinary general meeting, GGAC is not authorized to consummate
the business combination or the closing conditions under the Investment Agreement are not met, GGAC’s board of directors
will not have the ability to adjourn the extraordinary general meeting to a later date in order to solicit further votes, and,
therefore, the business combination will not be approved.
GGAC’s board of directors is seeking approval to adjourn the
extraordinary general meeting to a later date or dates if, at the extraordinary general meeting, based upon the tabulated vote
or elections to convert at the time of the extraordinary general meeting, GGAC is not authorized to consummate the business combination
or the closing conditions under the Investment Agreement are not met. If the adjournment proposal is not approved, GGAC’s
board will not have the ability to adjourn the extraordinary general meeting to a later date and, therefore, will not have more
time to solicit votes to approve the consummation of the business combination or to seek to have fewer shareholders elect to convert.
In such event, the business combination with Grupo Colombo would not be completed and, if another business combination is not consummated
by June 25, 2016, it will trigger GGAC’s automatic winding up, dissolution and liquidation, as described in the section entitled
“Other Information Related to GGAC— Liquidation If No Business Combination.”
FORWARD-LOOKING STATEMENTS
GGAC believes that some of the information in this proxy statement
constitutes forward-looking statements within the definition of the Private Securities Litigation Reform Act of 1995. However,
because GGAC is a “blank check” company, the safe-harbor provisions of that act do not apply to statements made in
this proxy statement. You can identify these statements by forward-looking words such as “may,” “expect,”
“anticipate,” “contemplate,” “believe,” “estimate,” “intends,” and
“continue” or similar words. You should read statements that contain these words carefully because they:
| ● | discuss future expectations; |
| ● | contain projections of future results of operations or financial condition; or |
| ● | state other “forward-looking” information. |
GGAC believes it is important to communicate its expectations to
its shareholders. However, there may be events in the future that GGAC is not able to predict accurately or over which it has no
control. The risk factors and cautionary language discussed in this proxy statement provide examples of risks, uncertainties and
events that may cause actual results to differ materially from the expectations described by GGAC or Grupo Colombo in such forward-looking
statements, including among other things:
| ● | the number and percentage of its shareholders voting against the business combination proposal; |
| ● | the number and percentage of its shareholders seeking conversion; |
| ● | changes adversely affecting the business in which Grupo Colombo is engaged; |
| ● | general economic conditions; |
| ● | Grupo Colombo’s business strategy and plans; and |
| ● | the result of future financing efforts. |
You are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this proxy statement.
All forward-looking statements included herein attributable to any
of GGAC, Grupo Colombo or any person acting on either party’s behalf are expressly qualified in their entirety by the cautionary
statements contained or referred to in this section. Except to the extent required by applicable laws and regulations, GGAC and
Grupo Colombo undertake no obligations to update these forward-looking statements to reflect events or circumstances after the
date of this proxy statement or to reflect the occurrence of unanticipated events.
Before a shareholder grants its proxy or instructs how its vote
should be cast or vote on the business combination proposal or any of the other proposals, it should be aware that the occurrence
of the events described in the “Risk Factors” section and elsewhere in this proxy statement may adversely affect
GGAC and/or Grupo Colombo.
EXTRAORDINARY GENERAL MEETING OF GGAC SHAREHOLDERS
General
GGAC is furnishing this proxy statement to its shareholders as part
of the solicitation of proxies by GGAC’s board of directors for use at the extraordinary general meeting of GGAC shareholders
to be held on [●], 2016, and at any adjournment or postponement thereof. This proxy statement provides GGAC’s shareholders
with information they need to know to be able to vote or instruct their vote to be cast at the extraordinary general meeting.
Date, Time and Place
The extraordinary general meeting of shareholders will be held on
[●], 2016, at [●] [a/p].m., Eastern Time, at the offices of Graubard Miller, GGAC’s U.S. counsel,
at The Chrysler Building, 405 Lexington Avenue, 11th Floor, New York, New York 10174.
Purpose of the GGAC Extraordinary General Meeting
At the extraordinary general meeting, GGAC is asking holders of
its ordinary shares to:
| ● | consider and vote upon a proposal to adopt and approve the Investment Agreement, and to approve the business combination contemplated
by the Investment Agreement (the business combination proposal); |
| ● | consider and vote upon separate proposals to approve by special resolution amendments to the amended and restated memorandum
and articles of association of GGAC, effective following the business combination, to (i) change the name of GGAC from “Garnero
Group Acquisition Company” to “Garnero Colombo Inc.”; (ii) adjust the existing classification of directors to
conform with the classification described in the director election proposal below; and (iii) remove provisions that will no longer
be applicable to GGAC after the business combination and make certain other immaterial changes (the charter amendment proposals); |
| ● | consider and vote upon a proposal to approve by special resolution, effective immediately upon consummation of the business
combination and approval of the charter amendment proposals, the amendment and restatement of GGAC’s amended and restated
articles of association by their deletion in their entirety and the substitution in their place of the second amended and restated
memorandum and articles of association to (among other matters) reflect the changes effected by the charter amendment proposals
(the articles restatement proposal); |
| ● | consider and vote upon a proposal to approve the 2015 Plan, which is an incentive compensation plan for directors, officers,
employees and consultants of GGAC and its subsidiaries (the incentive compensation plan proposal); |
| ● | elect five directors to GGAC’s board of directors, effective upon the consummation of the business combination, of whom
one will be a Class A director serving until the general meeting of shareholders to be held in 2017, two will be Class B directors
serving until the general meeting to be held in 2018 and two will be Class C directors serving until the general meeting to be
held in 2019 and, in each case, until their successors are elected and qualified (the director election proposal); and |
| ● | consider and vote upon a proposal to adjourn the extraordinary general meeting to a later date or dates, if necessary, to permit
further solicitation and vote of proxies if, based upon the tabulated vote or elections to convert at the time of the extraordinary
general meeting, GGAC is not authorized to consummate the business combination or the closing conditions under the Investment Agreement
are not met (the adjournment proposal). |
Recommendation of GGAC Board of Directors
GGAC’s board of directors has unanimously determined that
each of the proposals is fair to and in the best interests of GGAC and its shareholders, and has unanimously approved such proposals.
GGAC’s board of directors unanimously recommends that shareholders:
| ● | vote “FOR” the business combination proposal; |
| ● | vote “FOR” each of the charter amendment proposals; |
| ● | vote “FOR” the articles restatement proposal; |
| ● | vote “FOR” the incentive compensation plan proposal; |
| ● | vote “FOR” the persons listed herein as nominees for election as directors; and |
| ● | vote “FOR” the adjournment proposal, if it is presented to the meeting. |
Record Date; Who is Entitled to Vote
GGAC has fixed the close of business on [●], 2016, as the
“record date” for determining GGAC shareholders entitled to notice of and to attend and vote at the extraordinary general
meeting. As of the close of business on [●], 2016, there were 18,602,813 of GGAC ordinary shares outstanding and entitled
to vote. Each GGAC ordinary share is entitled to one vote per share at the extraordinary general meeting.
Pursuant to agreements with GGAC, the 3,593,750 initial shares and
the 562,188 GGAC ordinary shares included in the private units held by the initial shareholders, as well as any ordinary shares
acquired in the aftermarket by such shareholders, will be voted in favor of the business combination proposal. GGAC’s initial
shareholders, as of the date of this proxy statement, have not acquired any GGAC ordinary shares in the aftermarket. However, any
subsequent purchase by the initial shareholders of GGAC ordinary shares in the aftermarket will make it more likely that the business
combination proposal is approved. Furthermore, the Controlling Persons have committed to use their commercially reasonable best
efforts to purchase at least US$30 million of GGAC ordinary shares in the open market, and to vote such shares in favor of the
business combination and not to exercise their conversion rights with respect to such shares.
Quorum
A quorum of shareholders is necessary to transact business at a
general meeting. The presence in person or by proxy or, if a corporation or other non-natural person, by its duly authorized representative,
of the holders of a majority of the GGAC ordinary shares constitutes a quorum.
Abstentions and Broker Non-Votes
Proxies that are marked “abstain” and proxies relating
to “street name” shares that are returned to GGAC but marked by brokers as “not voted” will be treated
as shares present for purposes of determining the presence of a quorum on all matters. Abstensions and broker non-votes will not
be treated as votes cast on any matter. If a shareholder does not give the broker voting instructions, under applicable self-regulatory
organization rules, its broker may not vote its shares on “non-routine” proposals, such as the business combination
proposal, the charter amendment proposals, the articles restatement proposal, the incentive compensation plan proposal, the director
election proposal, the say-on-pay proposal and the frequency of say-on-pay proposal.
Vote Required
The approval of the business combination proposal will require the
affirmative vote of the holders of a majority of the GGAC ordinary shares voted on such proposal at the extraordinary general meeting.
In addition, the business combination will not be consummated if GGAC does not have net tangible assets of at least US$5,000,001
upon such consummation, after giving effect to payments to public shareholders who exercise such conversion rights. GGAC estimates
that this condition will be met if holders of no more than 13,762,388 of the public shares (representing approximately 95.7% of
the public shares) properly demand conversion of their shares into cash.
The approval by special resolution of the charter amendment proposals
and the articles restatement proposal will require the affirmative vote of the holders of not less than two-thirds of the GGAC
ordinary shares entitled to vote and voting in person or by proxy on such proposal at the extraordinary general meeting.
The approval by ordinary resolution of the incentive compensation
plan proposal and the adjournment proposal (if presented), and the election by ordinary resolution of five directors, will require
the affirmative vote of the holders of a majority of the GGAC ordinary shares entitled to vote and voting in person or by proxy
on such proposal at the extraordinary general meeting.
Abstensions and broker non-votes, while considered present for the
purposes of establishing a quorum, are not treated as votes cast and will have no effect on the the business combination proposal,
charter amendment proposals, the articles restatement proposal, the incentive compensation plan proposal, the director election
proposal or the adjournment proposal (if presented).
Voting Your Shares
Each GGAC ordinary share that you own in your name entitles you
to one vote.
If you are a record owner of your shares, there are two ways to
vote your GGAC ordinary shares at the extraordinary general meeting:
| ● | You Can Vote By Signing and Returning the Enclosed Proxy Card. If you vote by proxy card, your “proxy,”
whose name is listed on the proxy card, will vote your shares as you instruct on the proxy card. If you sign and return the proxy
card but do not give instructions on how to vote your shares, your shares will be voted as recommended by GGAC’s board “FOR”
the business combination proposal, the charter amendment proposals, the incentive compensation plan proposal, the persons listed
herein as nominees for election as directors and the adjournment proposal (if presented). Votes received after a matter has been
voted upon at the extraordinary general meeting will not be counted. |
| ● | You Can Attend the Extraordinary General Meeting and Vote in Person. When you arrive, you will receive a ballot that
you may use to cast your vote. |
If your shares are held in “street name” or are in a
margin or similar account, you should contact your broker to ensure that votes related to the shares you beneficially own are properly
counted. If you wish to attend the meeting and vote in person and your shares are held in “street name,” you must obtain
a legal proxy from your broker, bank or nominee. That is the only way GGAC can be sure that the broker, bank or nominee has not
already voted your shares.
Revoking Your Proxy
If you are a record owner of your shares and you give a proxy, you
may change or revoke it at any time before it is exercised by doing any one of the following:
| ● | you may send another proxy card with a later date; |
| ● | you may notify GGAC’s secretary in writing before the extraordinary general meeting that you have revoked your proxy;
or |
| ● | you may attend the extraordinary general meeting, revoke your proxy, and vote in person as described above. |
If your shares are held in “street name” or are in a
margin or similar account, you should contact your broker for information on how to change or revoke your voting instructions.
Who Can Answer Your Questions About Voting Your Shares
If you are a shareholder and have any questions about how to vote
or direct a vote in respect of your GGAC ordinary shares, you may call [●], GGAC’s proxy solicitor, at [●].
Conversion Rights
Public shareholders may seek to convert their shares, regardless
of whether they vote for or against the business combination. All conversions would be effectuated as repurchases under Cayman
Islands law. Any public shareholder who affirmatively votes either for or against the business combination proposal will have the
right to demand that his shares be converted for a full pro rata share of the aggregate amount then on deposit in the trust account,
less any taxes then due but not yet paid (which GGAC expects will be approximately US$144,469,000, or approximately US$10.05 per
share, at the consummation of the business combination). A public shareholder will be entitled to receive cash for these shares
only if the business combination is consummated.
Notwithstanding the foregoing, a public shareholder, together with
any affiliate of his or any other person with whom he is acting in concert or as a “group” (as defined in Section 13(d)(3)
of the Exchange Act) will be restricted from seeking conversion rights with respect to 30% or more of GGAC’s ordinary shares.
Accordingly, all shares in excess of 30% held by a shareholder will not be converted to cash.
The initial shareholders will not have conversion rights with respect
to any ordinary shares owned by them, directly or indirectly, whether acquired prior to this offering or purchased by them in this
offering or in the aftermarket. EarlyBirdCapital will not have conversion rights with respect to the private shares.
GGAC shareholders who seek to convert their public shares must:
| ● | Affirmatively vote for or against the business combination proposal. GGAC shareholders who do not vote with respect to the
business combination proposal, including as a result of an abstention or a broker non-vote, may not convert their shares into cash. |
| ● | Demand conversion no later than the close of the vote on the business combination proposal by (A) either checking the box on
their proxy card or submitting their request in writing to GGAC’s transfer agent and (B) delivering their ordinary shares,
either physically or electronically using Depository Trust Company’s DWAC System, at the holder’s option, to GGAC’s
transfer agent prior to the vote at the meeting. If you hold the shares in street name, you will have to coordinate with your broker
to have your shares certificated or delivered electronically. Certificates that have not been tendered (either physically or electronically)
in accordance with these procedures will not be converted into cash. There is a nominal cost associated with this tendering process
and the act of certificating the shares or delivering them through the DWAC system. The transfer agent will typically charge the
tendering broker US$45 and it would be up to the broker whether or not to pass this cost on to the converting shareholder. In the
event the proposed business combination is not consummated this may result in an additional cost to shareholders for the return
of their shares. |
Any demand to convert such shares once made, may be withdrawn at
any time up to the vote on the proposed business combination. Furthermore, if a holder of public shares demands conversion of such
shares and subsequently decides prior to the applicable date not to elect to exercise such rights, he may simply request that the
transfer agent return the shares (physically or electronically).
A public shareholder will be entitled to receive cash for these
shares only if the shareholder properly demands conversion as described above and the business combination is consummated. If a
public shareholder properly seeks conversion and the business combination is consummated, GGAC will convert these shares for cash
and the holder will no longer own these shares following the business combination. If the business combination is not consummated
for any reason, then the public shareholders who exercised their conversion rights will not be entitled to receive cash for their
shares. In such case, GGAC will promptly return any shares delivered by public shareholders. GGAC will not be authorized to consummate
the business combination with Grupo Colombo if it does not have net tangible assets of at least US$5,000,001 upon such consummation,
after giving effect to payments to public shareholders who exercise such conversion rights. GGAC estimates that this condition
will not be met if holders of more than 13,762,388 of the public shares (representing approximately 95.7% of the public shares)
properly demand conversion of their shares into cash.
The closing price of GGAC ordinary shares on December 17, 2015 was
US$9.79. The cash held in the trust account on such date was approximately US$10.05 per public share (after accounting for
interest available to GGAC which is intended to be withdrawn prior to the special meeting). Prior to exercising conversion rights,
shareholders should verify the market price of GGAC ordinary shares as they may receive higher proceeds from the sale of their
shares in the public market than from exercising their conversion rights if the market price per share is higher than the conversion
price. GGAC cannot assure its shareholders that they will be able to sell their GGAC ordinary shares in the open market, even if
the market price per share is higher than the conversion price stated above, as there may not be sufficient liquidity in its securities
when its shareholders wish to sell their shares. A holder of public shares who voted either for or against the business combination
shall be entitled to receive a full pro rata portion of the trust account, less any amounts necessary to pay GGAC’s taxes.
Appraisal Rights
GGAC’s shareholders do not have appraisal rights under the
Companies Law in connection with the business combination or the other proposals.
Proxy Solicitation Costs
GGAC is soliciting proxies on behalf of its board of directors.
GGAC will bear all of the costs of the solicitation.
This solicitation is being made by mail but also may be made by
telephone or in person. GGAC and its directors, officers and employees may also solicit proxies in person, by telephone or by other
electronic means. GGAC also has hired [●] to assist in the proxy solicitation process. GGAC will pay that firm a fee of US$[●]
plus disbursements. Such fee will be paid with funds from outside the trust account.
GGAC will ask banks, brokers and other institutions, nominees and
fiduciaries to forward the proxy materials to their principals and to obtain their authority to execute proxies and voting instructions.
GGAC will reimburse them for their reasonable expenses.
GGAC Initial Shareholders
As of the record date, GGAC’s initial shareholders, including
all of GGAC’s officers and directors, beneficially owned and were entitled to vote an aggregate of 3,593,750 initial shares
that were issued prior to GGAC’s initial public offering. In addition, GGAC’s initial shareholders and EarlyBirdCapital,
the representative of the underwriters of the initial public offering, own 634,063 private shares included in the private units.
The initial shares and private shares issued to the GGAC initial shareholders currently constitute approximately 22.3% of the outstanding
GGAC ordinary shares. The initial share and private shares issued to the GGAC initial shareholders and EarlyBirdCapital currently
constitute approximately 22.7% of the outstanding GGAC ordinary shares.
In connection with the initial public offering, GGAC and EarlyBirdCapital
entered into agreements with each of the GGAC initial shareholders pursuant to which each GGAC initial shareholder agreed to vote
the initial shares and shares underlying the private units, as well as any GGAC ordinary shares acquired in the aftermarket, in
favor of the business combination proposal. The GGAC initial shareholders have also indicated that they intend to vote their initial
shares in favor of all other proposals being presented at the meeting. The initial shares have no right to participate in any liquidation
of the trust account or other assets and will be worthless if no business combination is effected by GGAC.
In addition, in connection with the initial public offering, the
GGAC initial shareholders entered into an escrow agreement pursuant to which, subject to certain exceptions, their initial shares
will be held until (1) with respect to 50% of the initial shares, the earlier of one year after the date of the consummation of
the business combination with Grupo Colombo (or another initial business combination) and the date on which the closing price of
the GGAC ordinary shares equals or exceeds US$13.00 per share (as adjusted for share splits, share dividends, reorganizations and
recapitalizations) for any 20 trading days within any 30-trading day period commencing after such business combination and (2)
with respect to the remaining 50% of the initial shares, one year after the date of the consummation of the business combination
with Grupo Colombo (or another initial business combination), or earlier, in either case, if, subsequent to such initial business
combination, GGAC consummates a liquidation, merger, share exchange or other similar transaction which results in all of its shareholders
having the right to exchange their shares for cash, securities or other property.
At any time prior to the extraordinary general meeting, during a
period when they are not then aware of any material nonpublic information regarding GGAC or its securities, the GGAC initial shareholders,
the Controlling Persons or the Optionholders and/or their respective affiliates may purchase shares from institutional and other
investors who vote, or indicate an intention to vote, against the business combination proposal or to seek, or indicate an intention
to seek, conversion of their shares, or they may enter into transactions with such investors and others to provide them with incentives
to acquire GGAC ordinary shares or vote their shares in favor of the business combination proposal and not seek conversion. While
the exact nature of any such incentives has not been determined as of the date of this proxy statement, they might include, without
limitation, arrangements to protect such investors or holders against potential loss in value of their shares, including the granting
of put options and the transfer to such investors or holders of shares or warrants owned by the GGAC initial shareholders for nominal
value. The funds for any such purchases or incentives will either come from cash available to such purchasing parties or from third
party financing, none of which has been sought at this time.
The purpose of such share purchases and other transactions would
be to increase the likelihood of satisfaction of the requirements that the holders of a majority of the GGAC ordinary shares voted
on the business combination proposal at the extraordinary general meeting vote in its favor and that GGAC has net tangible assets
of at least US$5,000,001 upon the consummation of the business combination with Grupo Colombo, after giving effect to payments
to public shareholders who exercise such conversion rights, where it appears that such requirements would otherwise not be met.
Purchases of shares or the entry into other transactions by the persons described above would allow them to exert more influence
over the approval of the business combination proposal and other proposals to be presented at the extraordinary general meeting
and therefore would increase the chances that such proposals would be approved. Moreover, any such purchases or other transactions
would reduce the number of GGAC shareholders who exercise their conversion rights and therefore would increase the chances that
GGAC has net tangible assets of at least US$5,000,001 upon the consummation of the business combination with Grupo Colombo. Accordingly,
if such share purchases and other transactions are effected, the consequence could be to cause the business combination to be authorized
in circumstances where such authorization could not otherwise be obtained.
Entering into any such incentive arrangements may have a depressive
effect on GGAC’s ordinary shares. For example, as a result of these arrangements, an investor or holder may have the ability
to effectively purchase shares at a price lower than market and may therefore be more likely to sell the shares he owns, either
prior to or immediately after the extraordinary general meeting.
Pursuant to the Investment Agreement, the Controlling Persons have
committed to use their commercially reasonable best efforts to purchase, directly or indirectly, at least US$30,000,000 of GGAC
ordinary shares in the open market, and to vote such shares in favor of the business combination and not to exercise their conversion
rights with respect to such shares. As of the date of this proxy statement, there have been no other discussions or agreements
between the GGAC initial shareholders, the Controlling Persons or the Optionholders and/or their respective affiliates and any
investor or holder of GGAC ordinary shares regarding any share purchase or other transactions described above. GGAC will file
a Current Report on Form 8-K to disclose any arrangements entered into or significant purchases made by any of the aforementioned
persons that would affect the vote on the business combination or the conversion threshold. Any such report will include descriptions
of any arrangements entered into or significant purchases by any of the aforementioned persons.
THE BUSINESS COMBINATION PROPOSAL
At the extraordinary general meeting, GGAC will ask its shareholders
to consider and vote upon a proposal to adopt and approve the Investment Agreement, and to approve the business combination contemplated
by the Investment Agreement. The discussion in this proxy statement of the business combination and the principal terms of the
Investment Agreement is subject to, and is qualified in its entirety by reference to, the Investment Agreement. A copy of the Investment
Agreement is attached as Annex A to this proxy statement. The text of the business combination proposal to be considered
at the extraordinary general meeting is set forth in Annex F.
Structure of the Business Combination
The Investment Agreement provides for a business combination transaction
by means of the Controlling Persons and the Optionholders contributing to GGAC all of Grupo Colombo’s equity, as a result
of which Grupo Colombo will become a wholly-owned subsidiary of GGAC.
Pursuant to the Investment Agreement, (A) the Controlling Persons
will contribute all of the issued and outstanding ordinary shares of Grupo Colombo to GGAC and will receive in consideration an
aggregate of 3,640,000 newly issued GGAC ordinary shares and (B) the Optionholders will exercise certain options held by them,
will contribute the underlying ordinary shares of Grupo Colombo to GGAC, and will receive in consideration an aggregate of 360,000
GGAC ordinary shares.
Name; Headquarters; Share Symbols
After completion of the business combination and assuming all proposals
are approved:
| ● | the name of GGAC will be “Garnero Colombo Inc.”; |
| ● | the corporate headquarters and principal executive offices of GGAC will be located at Rua São Tomé 119 –
3 Andar, Vila Olímpia, São Paulo-SP, CEP 04551-080, Brazil; |
| ● | GGAC’s ordinary shares and warrants, which are currently traded on Nasdaq under the symbols GGAC and GGACW, respectively,
will continue to be traded on Nasdaq if an application made by GGAC to such effect is granted, while GGAC’s units and rights
will no longer trade; and |
| ● | the symbols for GGAC’s ordinary shares and warrants will change following GGAC’s name change to [●] and [●],
respectively. |
Reorganization
Prior to the Closing, the Controlling Persons will use their commercially
reasonable best efforts to effect a reorganization in accordance with the Investment Agreement, as a result of which the Controlling
Persons will become the direct owners of all of the outstanding ordinary shares of Grupo Colombo, Grupo Colombo will not incur
any indebtedness or other liabilities and Grupo Colombo will have accrued goodwill amortizable under applicable tax law in the
amount of R$200,000,000.
Open Market Purchases
In addition, the Controlling Persons have committed to use their
commercially reasonable best efforts to purchase, directly or indirectly, at least US$30 million of GGAC ordinary shares in the
open market. Any such open market purchases would be effected either (i) pursuant to a 10b5-1 trading plan or (ii) at a time when
Grupo Colombo and the buyer are not aware of any material nonpublic information regarding Grupo Colombo or the securities.
Indemnification; Escrow
The Controlling Persons and the Optionholders, on one hand, and
GGAC, on the other hand, have agreed to indemnify and hold each other harmless for certain inaccuracies or breaches of the representations
and warranties or for the non-fulfillment or breach of certain covenants and agreements contained in the Investment Agreement,
in each case, pursuant to the terms of the Investment Agreement. GGAC’s rights to indemnification are limited to the number
of Escrow Shares plus an additional $2,000,000, subject to certain exceptions. The Controlling Persons and Optionholder’s
rights to indemnification are limited to a number of newly issued GGAC ordinary shares equal to the number of Escrow Shares plus
an additional $2,000,000. Any claims for indemnification will be settled first in shares and then in cash.
To provide a fund for payment to GGAC with respect to its post-closing
rights to indemnification under the Investment Agreement, there will be placed in escrow (with an independent escrow agent) an
aggregate of 200,000 of the GGAC ordinary shares issuable to the Controlling Persons and the Optionholders under the Investment
Agreement. On the date that is 30 days after the date on which Grupo Colombo delivers to GGAC its audited financial statements
for its 2016 fiscal year, the Escrow Agent shall release 100,000 of the original number of Escrow Shares, less that number of Escrow
Shares applied in satisfaction of, or reserved with respect to, indemnification claims made prior to such date, to the owners thereof.
The remaining Escrow Shares plus an additional $1,000,000 (less any amounts in excess of $1,000,000 paid with respect to indemnification
claims previously brought) shall be available for indemnification only with respect to indemnification claims relating to taxes.
On the date that is 30 days after the date on which Grupo Colombo delivers to GGAC its audited financial statements for its 2017
fiscal year, the Escrow Agent shall deliver the remaining shares held in escrow, less any of such shares applied in satisfaction
of, or reserved with respect to, an indemnification claims relating to taxes made prior to such date, to the owners thereof. Any
Escrow Shares reserved with respect to any unresolved claim for indemnification and not applied as indemnification with respect
to such claim upon its resolution shall be delivered to such owners promptly upon such resolution.
No amount for indemnification will be payable by an indemnifying
party (i) unless and until the aggregate amount of all indemnifiable losses otherwise payable exceeds a deductible of US$600,000,
in which event the amount payable shall be the full amount (and not just the amount in excess of the amount of the deductible),
and (ii) unless the amount of all indemnifiable losses otherwise payable on any single claim or series of related claims exceeds
a threshold of US$30,000 (except such amounts will count toward the deductible), subject to certain exceptions.
Certain claims, including those relating to the Company’s
due authorization of the transactions and capitalization and the Controlling Person and Optionsholders’ ownership of the
ordinary shares of Grupo Colombo, are not limited to the Escrow Shares and the additional maximum cash amounts and are not subject
to deductible and threshold amounts described above.
Employment Agreements
As contemplated by the Investment Agreement, effective as of the
consummation of the business combination, each of Álvaro Jabur Maluf Jr., Paulo Jabur Maluf and Denis Piovezan will enter
into an employment agreement with GGAC. See the section entitled “The Director Election Proposal — GGAC Executive
Officer and Director Compensation — New Employment Agreements” for further details regarding these agreements.
Sale Restriction; Resale Registration
The Controlling Persons and Optionholders may not sell any of the
GGAC ordinary shares that they receive as a result of the business combination until (1) with respect to 50% of the shares, the
earlier of one year after the closing and the date on which the closing price of the shares equals or exceeds US$13.00 per share
for any 20 trading days within any 30-trading day period commencing after the closing date and (2) with respect to the remaining
50% of the shares, one year after the closing date, pursuant to Lockup Agreements they signed simultaneously with the execution
of the Investment Agreement. The certificates representing the consideration will be legended to such effect.
At the closing of the business combination, GGAC will enter into
the Registration Rights Agreement covering the registrable securities, which include the initial shares, the private units (and
underlying GGAC ordinary shares and warrants), the working capital units (and underlying GGAC ordinary shares and warrants), all
of the GGAC ordinary shares and warrants underlying the unit purchase option granted to the representative of the underwriters
in GGAC’s initial public offering and all of the GGAC ordinary shares issued to the Controlling Persons and the Optionholders
under the Investment Agreement. Pursuant to the Registration Rights Agreement, no later than 30 days following the Closing, GGAC
will prepare and file with the SEC a registration statement covering the resale of such securities. Following the expiration of
the lockup period under the Lockup Agreements, in addition to ordinary resales under the registration statement in the public trading
markets, the holders of such securities will be entitled to sell such securities in underwritten public offerings under the registration
statement, so long as any such underwritten public offering is for at least US$10 million in the aggregate. The holders of such
securities also will have certain customary “piggyback” registration rights.
Background of the Business Combination
The terms of the Investment Agreement are the result of arm’s-length
negotiations between representatives of GGAC and Grupo Colombo. The following is a brief discussion of the background of these
negotiations, the Investment Agreement and related transactions.
GGAC was incorporated in the Cayman Islands on February 11, 2014
as a blank check company whose objective is to acquire, through a merger, share exchange, asset acquisition, share purchase, recapitalization,
reorganization or other similar business combination, one or more businesses or entities. Promptly following GGAC’s initial
public offering in July 2014, GGAC’s officers and directors contacted a wide range of investment bankers, private equity
firms, consulting firms, legal and accounting firms, as well as several other persons and entities know to GGAC’s officers
through their business relationships. Through these efforts, GGAC’s officers evaluated numerous potential transactions from
a wide range of industry segments including consumer products, retail, financial, technology, telecom, media, real estate, industrial,
pharmaceuticals and energy.
As a result of these efforts, on October 30, 2014, GGAC entered
into a Share Purchase Agreement (the “SPA”) with WISeKey SA (“WISeKey”), WISeTrust SA (“WISeTrust”),
and certain shareholders and option holders of WISeKey. Simultaneously with the execution of the SPA, GGAC entered into an Asset
Purchase Agreement (the “APA”) by and among GGAC, WISeKey and WISeTrust. The parties thereafter began work on the items
necessary to consummate the proposed business combination contemplated by the agreements. However, on February 26, 2015, the parties
mutually agreed to terminate the SPA and the APA. GGAC then began the process of searching for an alternative business combination
to consummate.
GGAC continued its analysis and evaluation of numerous opportunities
and entered into substantial discussions with Grupo Colombo and two other potential target businesses. The discussions with the
other two target business advanced as far as negotiations regarding the type and amount of consideration to be paid in a potential
transaction but did not progress any further due to GGAC selecting Grupo Colombo as a business combination partner described below.
On March 2015, a Brazilian banker (the “Brazilian Banker”)
contacted Fernando Garnero, a son of Mario Garnero, GGAC’s Chairman and Chief Executive Officer, and a Director of Brasilinvest
Group, an entity controlled by Mr. Garnero, to discuss Grupo Colombo as a potential target for GGAC. After GGAC indicated an interest
in learning more about the opportunity, the Brazilian Banker organized an introductory meeting for GGAC, represented by Fernando
Garnero and Samsao Woiler, a consultant to GGAC, with Messrs. Alvaro Jabur Maluf Jr. and Paulo Jabur Maluf, the Controlling Persons
and the Chief Executive Officer and Chief Operating Officer, respectively, of Grupo Colombo.
After that first meeting and for the next forty-five days, the GGAC
team conducted a preliminary analysis of Grupo Colombo and the potential transaction, including the industry sector and Grupo Colombo’s
positioning in the market, in order to make an initial assessment regarding expected investor perception of the opportunity. As
part of that effort, the GGAC team contacted representatives of EarlyBirdCapital, GGAC’s financial advisor and the representative
of the underwriters in its initial public offering, Graubard Miller, U.S. counsel to GGAC, and other advisors and consultants to
GGAC. UBS Securities, LLC (“UBS”), Grupo Colombo’s financial advisor, also provided GGAC with additional information
on Grupo Colombo, including the company’s historical financials and its business plan.
On May 7 and 8, 2015, Mr. Jabur Maluf Jr. and Denis Piovezan, the
Chief Financial Officer of Grupo Colombo, together with UBS and the Brazilian Banker, travelled to New York and met with representatives
of EarlyBirdCapital, Javier Martin Riva, GGAC’s Chief Financial Officer and Chief Investment Officer, Mauro Conijeski, a
consultant to GGAC, and Mario Bernardo Garnero, another son of Mario Garnero and a Director of Brasilinvest Group. During these
meetings, Mr. Jabur Maluf Jr. and Mr. Piovezan provided a brief overview of Grupo Colombo’s history, products and businesses,
financial situation and future prospects following a business combination with GGAC. Steven Levine, the Head of Investment Banking
at EarlyBirdCapital, and Mr. Martin Riva also provided information regarding GGAC and explained some of the prerequisites for GGAC
to explore a potential transaction.
On May 12 and 13, 2015, Mr. Levine and Mr. Martin Riva travelled
to Sao Paulo to conduct a preliminary due diligence review of Grupo Colombo, including a visit to Grupo Colombo’s headquarters,
two operating stores and its distribution center. Also, on May 13, 2015, Messrs. Mario Garnero and Jabur Maluf Jr. met at Brasilinvest’s
offices to discuss valuation and structuring of a potential combination. Over the next several days, the parties continued discussing
a potential transaction and Grupo Colombo’s business plan, capital structure and liquidity needs. During this time, GGAC
and Graubard Miller prepared a non-binding letter of intent setting forth the terms of the proposed transaction, which was presented
to Grupo Colombo and Messrs. Alvaro Jabur Maluf Jr. and Paulo Jabur Maluf on May 19, 2015.
Between May 19, 2015 and May 27, 2015, the parties further discussed
Grupo Colombo’s business plan, the capital markets aspects of the transaction and a proposed timeline to complete the transaction
while finalizing the negotiations of the terms of the letter of intent.
On May 28, 2015, representatives of GGAC and Grupo Colombo met in
Campinas, Brazil to finalize the remaining open items in the letter of intent and thereafter executed such letter of intent. Attending
the meeting were Messrs. Mario Garnero, Fernando Garnero, Woiler and Martin Riva on behalf of GGAC and Messrs. Alvaro Jabur Maluf
Jr., Paulo Jabur Maluf and Piovezan and Mr, Thiago Chaves Ribeiro, Grupo Colombo’s treasurer, and Ms Marina Balaban, Grupo
Colombo’s in-house counsel, on behalf of Grupo Colombo, as well as the Brazilian Banker and a representative of Souza Cescon,
Grupo Colombo’s Brazilian outside counsel. The letter of intent provided for $110,000,000 of total consideration to Grupo
Colombo’s equity holders in the form of $50,000,000 of cash and approximately $60,000,000 of GGAC ordinary shares.
Om June 8, June 9, and June 10, 2015, Messrs. Jabur Maluf Jr., Piovezan,
Martin Riva, Conijeski and Levine, along with Edward Kovary of EarlyBirdCapital, met several banking institutions in Brazil, including,
among others, the relationship banks and creditors of Grupo Colombo, with the purpose of hiring a lead bank that could arrange
a private placement of up to $100,000,000 of GGAC equity securities to be consummated concurrently with the business combination
between the companies.
On June 17 and June 18, 2015, Graubard Miller and GGAC sent their
respective due diligence request lists to Grupo Colombo. Over the next several weeks, GGAC conducted diligence on Grupo Colombo’s
businesses including procurement, financial matters, legal matters, human resources and accounting activities.
From July 13 to July16, 2015, presentations by Grupo Colombo’s
management were held at Grupo Colombo’s offices so that GGAC could conclude most of the diligence on Grupo Colombo’s
business. Present at the meetings were Mr. Conijeski and Mr. Woiler and several executives of Grupo Colombo.
On July 17, 2015, GGAC sent an updated list of diligence questions
to Grupo Colombo with pending unanswered questions and missing requested documentation, which Grupo Colombo subsequently addressed.
Also, on July 17, 2015, GGAC sent a draft of the investment agreement
to Alvaro Jabur Maluf Jr. and Paulo Jabur Maluf.
From July 20 until August 3, 2015, representatives of GGAC and Grupo
Colombo discussed several aspects of the draft investment agreement, including the conditions to closing, the release of certain
liens and guarantees, the requirement for open market purchases, the minimum size of the private placement and the conditions for
release of shares placed in escrow.
On August 5, 2015, representatives of GGAC and Grupo Colombo, together
with their counsels and consultants, held a meeting to discuss the open items in the draft investment agreement. Present at the
meeting were Messrs. Jabur Maluf Jr. and Piovezan and Ms Balaban of Grupo Colombo, Mr. Martin Riva of GGAC, Messrs. Conijeski and
Woiler, consultants to GGAC, Mr. Levine of EarlyBirdCapital, Messrs. Jeffrey Gallant and Eric Schwartz of Graubard Miller, Mr.
Joaquim Oliveira from Souza Cescon, and Messrs. Robert Cohen and Meir Lewittes from McDermott Will & Emery, U.S. counsel to
Grupo Colombo.
From August 6 to August 17, 2015, the parties and their respective
legal counsels continued to negotiate the remaining open items in the draft investment agreement. During this period, the parties
also exchanged drafts of the ancillary agreements and documents, including drafts of the lockup agreements, the registration rights
agreement, the escrow agreement and the opinions of counsel to be delivered at closing. GGAC also continued to conduct due diligence
on Grupo Colombo and to analyze Grupo Colombo’s audited financial statements and business plan.
On August 18, 2015, a conference call was held between Mr. Piovezan
from Grupo Colombo, Messrs. Conijeski and Woiler, consultants to GGAC, Mr. Levine of EarlyBirdCapital, and representatives of the
two banks selected to conduct the private placement. The primary purpose of the meeting was to review the expected market reaction
to the proposed business combination and private placement, likely investors for the transactions, the trading performance of comparable
companies and their valuations and the pricing of the business combination. As a result of this meeting, and given the devaluation
of the Brazilian currency since signing the letter of intent, the parties agreed to a modification of the cash consideration in
the proposed business combination, changing it to R$120,000,000, which effectively reduced the cash portion of the consideration
to approximately US$34,000,000 as of that date.
On August 21, 2014, GGAC’s board of directors met to consider
the proposed transaction with Grupo Colombo. In addition to the GGAC board members, Messrs. Conijeski and Woiler, consultants to
GGAC, Messrs. Gallant and Schwartz of Graubard Miller, Mr. Levine of EarlyBirdCapital and Taiki Hirashima and Graciliano da Luz
of H&A participated in the meeting. Prior to the meeting, copies of the most recent drafts of the significant transaction documents,
in substantially final form, were delivered to the directors as well as the due diligence report and a presentation on the transaction.
Mr. Martin Riva opened the discussion, reviewed the agenda, and explained how Grupo Colombo was selected as a business combination
candidate. Mr. Conijeski then reviewed in detail the business of Grupo Colombo, the contemplated transaction with Grupo Colombo
and various process considerations (e.g. valuations, sensitivities, timeline and due diligence findings). Mr. Levine was then invited
to provide his firm’s view on the transaction. At the request of GGAC’s board, H&A, the firm engaged to render
a fairness opinion to GGAC, then reviewed and discussed its financial analyses with respect to Grupo Colombo and rendered its oral
opinion to the GGAC Board (which was confirmed in writing by delivery of H&A’s written fairness opinion dated the same
date), as to, as of August 21, 2015, the fairness, from a financial point of view, to GGAC of the consideration to be paid by GGAC
in the business combination and that the fair market value of Grupo Colombo was equal to at least 80% of the funds held in GGAC’s
trust account. After an extensive discussion and numerous questions from the GGAC board members, the draft investment agreement
and related documents were unanimously approved.
The Investment Agreement was signed on August 26, 2015. The business
terms of the investment agreement did not differ from the business terms of the draft investment agreement as approved at the August
21, 2015 meeting of the board of directors.
Prior to the market open on August 27, 2015, GGAC and Grupo Colombo
jointly issued a press release announcing the signing of the Investment Agreement and GGAC filed a Current Report on Form 8-K announcing
the execution of the Investment Agreement and discussing the key terms of the Investment Agreement in detail. Thereafter, on August
28, 2015, GGAC filed an amendment to the Current Report on Form 8-K replacing Exhibit 2.1, the original version of which contained
certain non-material errors.
Subsuquently, material changes occurred in the Brazilian economy,
mainly with respect to the value of its currency. As a consequence, the parties began to discuss modifying the terms of the Investment
Agreement to reflect these macroeconomic trends.
On October 7, 2015, a meeting was held at Grupo Colombo’s
office in Sao Paulo, at which Messrs. Levine, Conijeski, and Woiler were present on behalf of GGAC, and Messrs. Jabur Maluf Jr.
and Piovezan were present on behalf of Grupo Colombo. At the meeting it was agreed by the parties that certain terms included in
the original Investment Agreement (the cash consideration of R$120,000,000 and the simultaneous private placement) would be eliminated.
Later that day, Messrs. Levine, Conijeski, Woiler, Jabur Maluf Jr.
and Piovezan held another meeting at a financial institution in Sao Paulo with representatives from the banks, private placement
advisors and merger & acquisition advisors for the transaction, the purpose of which was to review the current market conditions
for the proposed business combination and the trading performance of comparable companies. At that meeting, it was suggested that
the new terms of the Investment Agreement also provide for a reduction in the total number of shares post-closing to incorporate
the effects of the change in the value of the Brazilian currency since signing the initial Investment Agreement.
On October 15, 2015, a meeting was held at the offices of Brasilinvest
Group, at which Messrs. Mario Garnero, Fernando Garnero and Woiler were present from GGAC and Messrs. Jabur Maluf Jr. and Piovezan
were present from Grupo Colombo. At this meeting, the parties discussed the previously communicated suggestions of the transaction
advisors. At the meeting, the parties agreed to reduce the consideration payable to the equity holders of Grupo Colombo from 6,000,000
GGAC ordinary shares to 4,000,000 GGAC ordinary shares, to eliminate the adjustment based on Grupo Colombo’s 2016 EBITDA
performance and to reduce the indemnity escrow account.
On October 23, 2015, a conference call was held between Mr. Piovezan
from Grupo Colombo, Messrs. Conijeski and Woiler, consultants to GGAC, Mr. Levine of EarlyBirdCapital, and representatives of the
banks, private placement advisors and M&A advisors. The primary purpose of the meeting was to arrange for revised roles for
the advisors in light of the transaction changes, to review the trading performance of comparable companies and the advisors’
valuations with respect to the pricing of the business combination and to discuss the marketing of the transaction.
On December 2, 2015, Messrs. Levine and Conijeski, on behalf of
GGAC, met with Messrs. Álvaro Jabur Maluf Jr., Paulo Jabur Maluf and Piovezan and Ms. Marina Balaban, on behalf of Grupo
Colombo, at Grupo Colombo’s offices in Sao Poalo. The purpose of the meeting was to discuss the amendment and restatement
of the Investment Agreement and related documents. Over the next several days, legal counsel to GGAC and Grupo Colombo prepared
the revised agreements.
On December 16, 2015, GGAC’s board of directors met to consider
the new terms of the proposed transaction. In addition to the GGAC board members, Messrs. Conijeski, Woiler, Jeffrey Gallant and
Eric Schwartz, of Graubard Miller, and Mr. Levine, of EarlyBirdCapital, participated in the meeting. Prior to the meeting, copies
of the most recent drafts of the significant transaction documents, in substantially final form, were delivered to the directors.
Management reviewed with the GGAC board of the changes to the transaction documents and the timeline of the transaction, as well
as the changes in the Brazilian economy that prompted the revisions to the transaction. Mr. Levine was then invited to provide
his firm’s view on the revised transaction. At the request of GGAC’s board, H&A, the firm engaged to render a fairness
opinion to GGAC, then reviewed and discussed its updated financial analyses with respect to Grupo Colombo and rendered its oral
opinion to the GGAC Board (which was confirmed in writing by delivery of H&A’s updated written fairness opinion dated
the same date), as to, as of December 16, 2015, the fairness, from a financial point of view, to GGAC of the consideration to be
paid by GGAC in the business combination and that the fair market value of Grupo Colombo was equal to at least 80% of the funds
held in GGAC’s trust account. The full text of the updated written fairness opinion of H&A, which describes, among other
things, the assumptions, qualifications, limitations and other matters considered in connection with the preparation of its opinion
is attached as Annex D. After an extensive discussion and numerous questions from the GGAC board members, the draft amended
and restated Investment Agreement and related revised documents were unanimously approved.
The amended and restated Investment Agreement was signed on December
17, 2015 with the same business terms as approved at the meeting of the board of directors. Prior to the market open on December
21, 2015, GGAC and Grupo Colombo jointly issued a press release announcing the signing of the amended and restated Investment
Agreement and GGAC filed a Current Report on Form 8-K announcing the execution of the amended and restated Investment Agreement
and discussing the key terms of the amendments.
GGAC’s Board of Directors’ Reasons for Approval
of the Business Combination
The final agreed-upon consideration in the business combination
was determined by several factors. GGAC’s board of directors, together with its consultants and advisors, reviewed various
business and financial data in order to determine that the consideration to be paid to the Controlling Persons and Optionholders
was reasonable and that the transaction was in the best interests of GGAC’s shareholders. In connection with this determination,
GGAC, together with its consultants and advisors, conducted a due diligence review of Grupo Colombo that included an evaluation
of Grupo Colombo’s existing business model, accounting and tax policies, historical financial statements, capitalization
and indebtedness, personnel, outstanding litigation, and operations, including its merchandise procurement, leasing and distribution
practices. GGAC also reviewed the tax implications of the business combination and certain benefits that might accrue.
GGAC’s board considered a variety of factors weighing positively
and negatively in connection with the business combination. In light of the number and wide variety of factors considered in connection
with its evaluation of the transactions, the GGAC board did not consider it practicable to, and did not attempt to, quantify or
otherwise assign relative weights to the specific factors it considered in reaching its determination. The GGAC board viewed its
position as being based on all of the information available and the factors presented to and considered by it. In addition, individual
directors may have given different weight to different factors. This explanation of GGAC’s reasons for the business combination
and all other information presented in this section is forward-looking in nature and, therefore, should be read in light of the
factors discussed under “Forward-Looking Statements.”
In considering the business combination, the GGAC board of directors
gave considerable weight to the following factors:
| ● | Track record of growth. Grupo Colombo has a strong track record of organic growth in revenues and stores, having opened
more than 200 stores since 2010. |
| ● | Multiple avenues for future growth. Grupo Colombo has multiple avenues for continued growth, including: (i) continued
organic growth through the addition of new stores; (ii) expansion into women’s clothing, which represented 8% of sales in
May 2015; (iii) expansion of e-commerce sales, which commenced in 2013 and by early 2015 already generated more revenue than any
single store; and (iv) expansion of its financial services offerings, including co-branded credit cards, gift and pre-paid cards
and insurance products. |
| ● | Leadership in the Brazilian menswear apparel retail segment. Management believes that Grupo Colombo is the largest seller
of men’s shirts and suits in Brazil. Grupo Colombo has a presence in every Brazilian state, with approximately 400 stores. |
| ● | Brand value and awareness. Grupo Colombo has strong brand awareness in Brazil, as a large scale retailer in the formal
wear segment. According to Exame Magazine, Grupo Colombo is one of the three most valuable Brazilian retail brands. |
| ● | Demographics. Attractive demographic focus as Grupo Colombo targets customers in the mass-market and the fastest-growing
income classes in Brazil. |
| ● | Experienced management team. Grupo Colombo has a seasoned management team with specialized knowledge of the markets
within which it operates, and the ability to lead a company in an ever-changing environment. Álvaro Jabur Maluf Jr. and
Paulo Jabur Maluf each have more than 25 years of experience with Grupo Colombo. They have overseen its growth from a single store
to a national chain with more approximately 400 stores. |
| ● | Strong product portfolio. Grupo Colombo has basic product lines, with low exposure to fashion trends and limited dependency
on weather, and with a focus on products with high turnover. |
| ● | Bargaining power. Due to the size of its operations, it has superior bargaining power with suppliers. |
| ● | Equity interest. The current shareholders and management of Grupo Colombo will maintain a substantial equity interest
in the combined company, which the GGAC board believes reflects their belief in and commitment to the continued growth prospects
of the combined company. |
| ● | Capital structure. The influx of cash from the trust account will be used to improve the capital structure of the combined
company, providing flexibility for growth and reducing financing costs. |
| ● | Valuation. The valuation analysis conducted by GGAC’s management through a discounted cash flow methodology, and
the review of enterprise value multiples for Colombo based on EBITDA and earnings, which compared favorably with the valuations
of similar public companies. |
| ● | Fairness opinion. The oral opinion of H&A to the GGAC board (which was subsequently confirmed in writing by delivery
of H&A’s written opinion), as to, as of December 16, 2015, the fairness, from a financial point of view, to GGAC of the
consideration to be paid by GGAC pursuant to the Investment Agreement. |
The GGAC board of directors also gave considerable weight to the
following negative factors applicable to Grupo Colombo:
| ● | Economic conditions. Macroeconomic uncertainty, including the recent Brazilian recession, and the effects it could have
on the combined company’s revenues. |
| ● | Foreign currency exchange rate. The fact that the combined company will operate in Brazilian reals but report in U.S.
dollars, and the attendant risk that fluctuations in the foreign currency exchange rate could materially adversely effect the combined
company’s reported operating results and its perception in the U.S. securities markets, especially given recent trends in
the value of the Brazilian real. |
| ● | Capitalization. The risk that the proceeds from the trust account are insufficient to provide a substantial increase
in working capital or a substantial reduction of indebtedness in the combined company. |
| ● | Execution risk. Execution risk of the combined company’s business plans as described in this proxy statement. |
Notwithstanding the foregoing, the GGAC board of directors believed
the positive aspects of a transaction with Grupo Colombo outweighed the negative aspects set forth above.
Valuation
GGAC’s management team performed a discounted cash flow analysis
to determine the approximate enterprise value of Grupo Colombo. GGAC used Grupo Colombo’s internally generated projections
through fiscal year 2020 as the basis for GGAC’s free cash flow assumptions. Based on these estimates, revenues and EBITDA
are anticipated to grow at a 17% and 19% annual rate, respectively, from 2015 through 2020. From this projected EBITDA, GGAC made
adjustments for, among other items, changes in working capital, capital expenditures and taxes. In order to arrive at a present
value of Grupo Colombo, GGAC’s management discounted the free cash flow and the terminal value back to present at a rate
of approximately 16.3%. This relatively high discount rate is due to the risks inherent in projecting future free cash flows in
Brazilian reais. The discounted cash flow analysis yielded a present value of the future cash flows, or enterprise value,
of approximately US$255.
Projections
Grupo Colombo provided GGAC with its internally prepared projections
for each of the years in the six-year period ending December 31, 2020. The projections were not prepared with a view to public
disclosure or under GAAP, the published guidelines of the SEC or the guidelines established by the American Institute of Certified
Public Accountants for preparation and presentation of prospective financial information. These projections were prepared solely
for internal use and capital budgeting and other management purposes, are subjective in many respects and therefore susceptible
to varying interpretations and the need for periodic revision based on actual experience and business developments, and were not
intended for third-party use, including by investors or holders of GGAC securities. You are cautioned not to rely on the projections
in making a decision regarding the transaction, as the projections may be materially different than actual results.
The financial projections are forward-looking statements that reflect
numerous assumptions including assumptions with respect to general business, economic, market, regulatory and financial conditions
and various other factors inherently subject to significant uncertainties, all of which are difficult to predict and many of which
are beyond Grupo Colombo’s control, such as the risks and uncertainties contained in the section entitled “Risk
Factors.”
The financial projections included in this proxy statement are based
upon general assumptions regarding the future outlook and prospects for Grupo Colombo’s operations for the fiscal years 2016
to 2020, including, without limitation:
| ● | Revenue growth for 2016 is projected to be influenced by a net increase in store opening after a year of re-evaluation and
streamlining of the existing sites. In addition, the company expects marketing efforts to return to the levels experienced in 2012
and 2013, given its national campaigns have significant impact on the performance of its stores. From 2017 until 2020, revenue
is expected to growth at 15% per year, further supported by a recovery of the overall economy. |
| ● | Despite the macroeconomic situation, margins have improved during 2015 due to the cost-cutting effort implemented throughout
the year. The carry-over of those measures will result in an additional 1% increase in EBITDA margin for 2016. Beyond 2016, slight
margin improvements are expected as a result of ongoing efficiencies and the larger scale of the business to dilute fixed costs. |
| ● | The anticipating recapitalization of the business combination and the use of available carry-forward tax-losses are projected
to increase net income during years 2016 to 2020. |
While all projections are necessarily speculative, Grupo Colombo
believes that the prospective financial information covering periods beyond twelve months from its date of preparation carries
increasingly higher levels of uncertainty and should be read in that context. There will be differences between actual and projected
results, and actual results may be materially greater or materially less than those contained in the projections. The inclusion
of the projections in this proxy statement should not be regarded as an indication that Grupo Colombo or its representatives considered
or consider the projections to be a reliable prediction of future events, and reliance should not be placed on the projections.
The projections were requested by, and disclosed to, GGAC for use
as a component in its overall evaluation of Grupo Colombo, and are included in this proxy statement on that account. Grupo Colombo
has not warranted the accuracy, reliability, appropriateness or completeness of the projections to anyone, including to GGAC. Neither
Grupo Colombo’s management nor any of its representatives has made or makes any representation to any person regarding the
ultimate performance of Grupo Colombo compared to the information contained in the projections, and none of them intends to or
undertakes any obligation to update or otherwise revise the projections to reflect circumstances existing after the date when made
or to reflect the occurrence of future events in the event that any or all of the assumptions underlying the projections are shown
to be in error. Accordingly, they should not be looked upon as “guidance” of any sort. GGAC and Grupo Colombo will
not refer back to these forecasts in its future periodic reports filed under the Exchange Act.
The projections were prepared by, and are the responsibility of,
Grupo Colombo’s management. Marcum LLP (“Marcum”), Grupo Colombo’s auditor, has not examined, compiled
or performed any other procedures with respect to the projections. Accordingly, Marcum does not express an opinion or any other
form of assurance with respect thereto. The report furnished by Marcum included in this proxy statement relate to historical financial
information of Grupo Colombo. They do not extend to the projections and should not be read as if they do.
The key budgeted projections provided to GGAC are (in millions of
Brazilian reais):
| |
2016E | | |
2017E | | |
2018E | | |
2019E | | |
2020E | |
Net Revenues | |
| 588.6 | | |
| 691.4 | | |
| 795.5 | | |
| 913.0 | | |
| 1,046.2 | |
% Growth | |
| 23.9 | % | |
| 17.5 | % | |
| 15.0 | % | |
| 14.8 | % | |
| 14.6 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | |
EBITDA | |
| 158.1 | | |
| 191.2 | | |
| 223.6 | | |
| 259.7 | | |
| 297.4 | |
% Margin | |
| 26.9 | % | |
| 27.7 | % | |
| 28.1 | % | |
| 28.4 | % | |
| 28.4 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Effective Net Income | |
| 86.4 | | |
| 115.4 | | |
| 140.1 | | |
| 168.4 | | |
| 203.2 | |
% Margin | |
| 14.7 | % | |
| 16.7 | % | |
| 17.6 | % | |
| 18.4 | % | |
| 19.4 | % |
EBITDA is defined as earnings before interest, taxes, depreciation
and amortization. GGAC believes that EBITDA is customarily used by investors and analysts to evaluate the financial performance
of companies in SAE’s industry. GGAC’s management also believes that EBITDA is useful in evaluating Grupo Colombo’s
core operating results. However, EBITDA is not a measure of financial performance under GAAP and should not be considered an alternative
to operating income or net income as an indicator of Grupo Colombo’s operating performance. Because EBITDA is not calculated
identically by all companies, the presentation in this proxy statement may not be comparable to those disclosed by other companies.
Below is a table that reconciles EBITDA to net income (in millions
of Brazilian reais):
| |
2016E | | |
2017E | | |
2018E | | |
2019E | | |
2020E | |
EBITDA | |
| 158.1 | | |
| 191.2 | | |
| 223.6 | | |
| 259.7 | | |
| 297.4 | |
Depreciation and amortization | |
| 29.1 | | |
| 34.8 | | |
| 40.7 | | |
| 49.0 | | |
| 51.5 | |
Net financial results | |
| 22.0 | | |
| 13.6 | | |
| 9.5 | | |
| 2.1 | | |
| (5.6 | ) |
Income tax | |
| 20.6 | | |
| 27.5 | | |
| 33.4 | | |
| 40.1 | | |
| 48.4 | |
Net income | |
| 86.4 | | |
| 115.4 | | |
| 140.1 | | |
| 168.4 | | |
| 203.2 | |
Fairness Opinion
On December 16, H&A rendered its oral opinion to the GGAC board
(which was confirmed in writing by delivery of GGAC’s written opinion dated such date), that, as of December 16, 2015, (i)
the consideration to be paid by GGAC pursuant to the Investment Agreement was fair, from a financial point of view, to GGAC shareholders
and (ii) Grupo Colombo had a fair market value equal to at least 80% of the balance of funds in GGAC’s trust account.
The summary of the opinion in this proxy statement is qualified
in its entirety by reference to the full text of the written opinion, which is included as Annex D to this proxy statement
and sets forth the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters
considered by H&A in preparing its opinion.
The opinion was addressed to the GGAC board for the use and benefit
of the members of the GGAC board (solely in their capacities as such) in connection with the GGAC board’s evaluation of the
business combination. H&A’s opinion may not be used for any other purpose without H&A’s prior written consent.
Neither the opinion nor the summary of the opinion and related analyses set forth in this proxy statement is intended to and they
do not constitute advice or a recommendation to any of GGAC’s shareholders or any other security holders as to how such holder
should vote or act with respect to any matter relating to the Investment Agreement or otherwise. H&A’s opinion should
not be construed as creating any fiduciary duty on H&A’s part to GGAC or any other party to the Investment Agreement,
any security holder of GGAC or such other party, any creditor of GGAC or such other party, or any other person.
The opinion only addressed whether, as of the date of such opinion,
(i) the consideration to be paid by GGAC pursuant to the Investment Agreement was fair, from a financial point of view, to GGAC
shareholders and (ii) Grupo Colombo had a fair market value equal to at least 80% of the balance of funds in GGAC’s trust
account. It did not address any other terms, aspects, or implications of the Investment Agreement, including, without limitation,
(i) the fairness of the Investment Agreement or all or any portion of the consideration, to any security holders of GGAC, Grupo
Colombo or any other person or any creditors or other constituencies of GGAC, Grupo Colombo or any other person, and (ii) the fairness
of the amount or nature, or any other aspect, of any compensation or consideration payable to or received by any officers, directors,
or employees of any parties to the Investment Agreement, or any class of such persons, relative to the consideration to be paid
by GGAC pursuant to the Investment Agreement, or otherwise, nor did H&A advise the GGAC board of directors or any other party
with respect to alternatives to the business combination with Grupo Colombo. H&A did not express any opinion as to what the
value of the GGAC ordinary shares actually will be when issued to the holders of Grupo Colombo ordinary shares pursuant to the
Investment Agreement or the prices at which GGAC ordinary shares may trade, be purchased or sold at any time, and H&A made
no representation or warranty regarding the adequacy of H&A’s opinion or the analyses underlying H&A’s opinion
for the purpose of GGAC’s compliance with the terms of its amended and restated certificate of incorporation or any other
general or particular purpose.
The opinion did not address the relative merits of the Investment
Agreement as compared to any alternative transaction or business strategy that might exist for GGAC, or the merits of the underlying
decision by GGAC to engage in or consummate the business combination. The financial and other terms of the Investment Agreement,
including the amount of the consideration, were determined pursuant to negotiations between the parties to the Investment Agreement
and were not determined by or pursuant to any recommendation from H&A. H&A was not authorized to, and did not, solicit
indications of interest from third parties regarding a potential transaction involving GGAC.
H&A’s analysis and opinion were necessarily based upon
market, economic, and other conditions, as they exist on, and could be evaluated as of the date of the opinion. Accordingly, although
subsequent developments could arise that would otherwise affect its opinion, H&A did not assume any obligation to update, review,
or reaffirm the opinion to the GGAC board or any other person or otherwise to comment on or consider events occurring or coming
to H&A’s attention after the date of the opinion.
In arriving at its opinion, H&A made such reviews, analyses,
and inquiries as H&A deemed necessary and appropriate under the circumstances. Among other things, H&A:
| ● | Discussed the operations, financial conditions, future prospects and projected operations and performance of GGAC and Grupo
Colombo, respectively, and the proposed transaction with the management of Grupo Colombo and the GGAC; |
| ● | Reviewed certain publicly available financial statements and other business and financial information of GGAC and Grupo Colombo,
respectively, and the industries in which Grupo Colombo operates; |
| ● | Reviewed, among other things, the financial statements for the two years ended 2014, which were limited reviewed by independent
auditors, and other financial and operating data concerning Grupo Colombo which GGAC and Grupo Colombo have respectively identified
as being the most current financial statements available; |
| ● | Reviewed certain financial forecasts as prepared by the management of GGAC and Grupo Colombo (“Grupo Colombo’s
Projections”); |
| ● | Reviewed the draft of the Investment Agreement as provided on December 11, 2015, including certain exhibits and schedules reference
therein and included therewith; |
| ● | Reviewed the historical trading price and trading volume of GGAC ordinary shares and the publicly traded securities of certain
other companies that we deemed relevant; |
| ● | Compared the financial performance of Grupo Colombo with that of certain other publicly traded companies that we deemed relevant; |
| ● | Compared certain financial terms of the proposed transaction to financial terms, to the extent publicly available, of certain
other business combination transactions that we deemed relevant; |
| ● | Considered and applied three valuation methodologies to Grupo Colombo: |
| o | Guideline Public Companies Method; |
| o | Guideline Transaction Method; and |
| o | Discounted Cash Flow Method. |
| ● | Conducted such other analyses and considered such other factors as deemed appropriate. |
For purposes of its analysis and opinion, H&A, with the GGAC
board’s consent, evaluated whether, as of the date of its opinion, Grupo Colombo had a fair market value equal to at least
80% of the balance of funds in GGAC’s trust account solely upon the basis of a comparison of the implied equity value reference
ranges indicated by H&A’s financial analysis with the balance of the funds remaining in GGAC’s trust account, which
the GGAC board advised H&A and H&A, for purposes of its analysis and opinion, assumed did not and would not exceed $144,468,755.
In arriving at its opinion, H&A, with the GGAC board’s
consent, relied upon and assumed, without independently verifying, the accuracy and completeness of all of the financial and other
information that was supplied or otherwise made available to it or available from public sources, and H&A further relied upon
the assurances of GGAC’s and Grupo Colombo’s management that they were not aware of any facts or circumstances that
would have made any such information inaccurate or misleading. H&A is not a legal, tax, environmental, or regulatory advisor
and, H&A did not express any views or opinions as to any legal, tax, environmental, or regulatory matters relating to GGAC,
Grupo Colombo, the Investment Agreement, or otherwise. H&A understood and assumed that GGAC had obtained or would obtain such
advice as it deemed necessary or appropriate from qualified legal, tax, environmental, regulatory, and other professionals. H&A
assumed, with the GGAC board’s consent, that Grupo Colombo’s Projections were reasonably prepared on a basis reflecting
the best currently available estimates and judgments of management of Grupo Colombo with respect to the future financial performance
of Grupo Colombo, and that such information provided a reasonable basis upon which to analyze and evaluate Grupo Colombo and form
an opinion. H&A expressed no view with respect to Grupo Colombo’s Projections or the assumptions on which they were based.
H&A did not evaluate the solvency of GGAC, Grupo Colombo or any other party to the Investment Agreement, the fair value of
GGAC or any of Grupo Colombo’s respective assets or liabilities, or whether GGAC or Grupo Colombo or any other party to the
Investment Agreement is paying or receiving reasonably equivalent value in the Investment Agreement under any applicable foreign,
state, or federal laws relating to bankruptcy, insolvency, fraudulent transfer, or similar matters, nor did H&A evaluate, in
any way, the ability of GGAC, Grupo Colombo or any other party to the Investment Agreement to pay its obligations when they come
due. H&A did not physically inspect GGAC’s, or Grupo Colombos’s properties or facilities and did not make or obtain
any evaluations or appraisals of GGAC’s or Grupo Colombos’s assets or liabilities (including any contingent, derivative,
or off-balance-sheet assets and liabilities). H&A did not attempt to confirm whether GGAC or Grupo Colombo had good title to
their respective assets. H&A’s role in reviewing any information was limited solely to performing such reviews as H&A
deemed necessary to support its own advice and analysis and was not on behalf of the GGAC board, GGAC, or any other party.
H&A assumed, with the GGAC board’s consent, that the Investment
Agreement would be consummated in a manner that complies in all respects with applicable foreign, federal, state, and local laws,
rules, and regulations and that, in the course of obtaining any regulatory or third party consents, approvals, or agreements in
connection with the Investment Agreement, no delay, limitation, restriction, or condition would be imposed that would have an adverse
effect on GGAC, Grupo Colombo or the Investment Agreement. H&A also assumed, with the GGAC board’s consent, that the
final executed form of the Investment Agreement would not differ in any material respect from the draft H&A reviewed and that
the business combination would be consummated on the terms set forth in the Investment Agreement, without waiver, modification,
or amendment of any term, condition, or agreement thereof material to H&A’s analyses or H&A’s opinion. H&A
also assumed that the representations and warranties of the parties to the Investment Agreement contained therein were true and
correct and that each such party would perform all of the covenants and agreements to be performed by it under the Investment Agreement.
H&A offered no opinion as to the contractual terms of the Investment Agreement or the likelihood that the conditions to the
consummation of the business combination set forth in the Investment Agreement would be satisfied.
In connection with preparing its opinion, H&A performed a variety
of financial analyses. The following is a summary of the material financial analyses performed by H&A in connection with the
preparation of its opinion. It is not a complete description of all analyses underlying such opinion. The preparation of an opinion
is a complex process involving various determinations as to the most appropriate and relevant methods of financial analysis and
the application of those methods to the particular circumstances. As a consequence, neither H&A’s opinion nor the respective
analyses underlying its opinion is readily susceptible to partial analysis or summary description. In arriving at its opinion,
H&A assessed as a whole the results of all analyses undertaken by it with respect to the opinion. While it took into account
the results of each analysis in reaching its overall conclusions, H&A did not draw, in isolation, conclusions from or with
regard to any individual analysis or factor. Therefore, H&A believes that the analyses underlying the opinion must be considered
as a whole and that selecting portions of its analyses or the factors it considered, without considering all analyses and factors
underlying the opinion collectively, could create a misleading or incomplete view of the analyses performed by H&A in preparing
the opinion.
The implied valuation reference ranges indicated by H&A’s
analyses are not necessarily indicative of actual values nor predictive of future results, which may be significantly more or less
favorable than those suggested by such analyses. Much of the information used in, and accordingly the results of, H&A’s
analyses are inherently subject to substantial uncertainty.
The following summary of the material financial analyses performed
by H&A in connection with the preparation of its opinion includes information presented in tabular format. The tables alone
do not constitute a complete description of these analyses. Considering the data in the tables below without considering the full
narrative description of the analyses, as well as the methodologies and assumptions underlying the analyses, could create a misleading
or incomplete view of the financial analyses H&A performed.
For purposes of its analyses, H&A reviewed a number of financial
metrics including:
| ● | Enterprise Value — Generally the value as of a specified date of the relevant company’s outstanding equity securities
(taking into account its options and other outstanding convertible securities) plus the value as of such date of its net debt (the
value of its outstanding indebtedness, preferred stock and minority interests less the amount of cash on its balance sheet). |
| ● | Sales — Generally the amount of the company’s revenues after merchandise and service discounts, and applicable
sales taxes for a specified time period. |
| ● | EBITDA — Generally the amount of the relevant company’s earnings before interest, taxes, depreciation and amortization
for a specified time period. |
| ● | EBIT — Generally the amount of the relevant company’s earnings before interest and taxes for a specified time period. |
For purposes of its analyses, H&A considered the implied value
of the business combination consideration of $39,360,000, assuming the issuance of 4,000,000 GGAC ordinary shares with a value
of $9.84 per share, which H&A, with the consent of the GGAC board, assumed was a reasonable basis upon which to evaluate the
GGAC ordinary shares.
Unless the context indicates otherwise, share prices for the selected
companies used in the analyses described below were as of December 11, 2015, and estimates of financial performance for Grupo Colombo
for the years ending December 31, 2016 to 2020 were based on Grupo Colombo’s Projections.
Discounted Cash Flows Analysis
H&A performed a discounted cash flow analysis of Grupo Colombo
by calculating the estimated net present value of Grupo Colombo’s free cash flows from 2016 to 2020 and an estimate of the
terminal value of Grupo Colombo after 2020 using Grupo Colombo’s Projections. In performing this analysis, H&A applied
discount rates ranging from 15.5% to 16.5% and perpetual growth rates ranging from 5.9% to 7.9% to Grupo Colombo’s projected
free cash flows. This analysis indicated an implied equity value reference range of $83,000,000 to $174,000,000 for Grupo Colombo.
Selected Companies Analysis
H&A considered certain financial data for Grupo Colombo and
selected companies with publicly-traded equity securities H&A deemed relevant. The selected companies with publicly-traded
equity securities were:
| ● | Restoque Comércio e Confecções de Roupas S.A |
| ● | Guararapes Confecções S.A. |
The financial data reviewed included:
| ● | Enterprise Value as multiple of LTM (Last Twelve Months) EBITDA as of December 11, 2015, or “LTM EBITDA.” |
| ● | Enterprise Value as multiple of LTM Sales as of December 11, 2015, or “LTM Sales.” |
H&A calculated the following enterprise value multiples with
respect to the selected companies:
Enterprise Value Multiple of | |
High | | |
Mean | | |
Median | | |
Low | |
LTM EBITDA | |
| 11.7 | x | |
| 9.0 | x | |
| 8.8 | x | |
| 5.3 | x |
LTM Sales | |
| 2.3 | x | |
| 1.5 | x | |
| 1.5 | x | |
| 0.8 | x |
H&A applied multiples based on the selected companies analysis
to corresponding financial data for Grupo Colombo based on the Grupo Colombo historical results. H&A applied the average multiples
from the selected companies to Grupo Colombo’s 2016 EBITDA and Grupo Colombo’s 2016 Sales, with 90% weight to the EBITDA
multiple and 10% weight to the Sales multiple, which resulted in an implied equity value reference of $137,000,000 for Grupo Colombo.
None of the selected companies has characteristics identical to
Grupo Colombo. An analysis of selected publicly-traded companies is not mathematical; rather it involves complex consideration
and judgments concerning differences in financial and operating characteristics of the selected companies and other factors that
could affect the public trading values of the companies reviewed. For instance, even though H&A included only companies located
in Brazil in order to avoid differences in accounting principles, such companies are not entirely free of accounting variations
and such differences may affect the valuation reached under this analysis. Accordingly, H&A placed significantly less weight
on the results of this analysis compared to the results of the discounted cash flow analysis.
Selected Transactions Analysis
H&A considered certain financial data from a single transaction
and calculated an equity value multiple (based on the consideration paid in the transaction) from 2016 EBITDA and 2016 Sales. The
transaction was an arms’-length transaction between Gávea Investimentos and Grupo Colombo. Based on the selected transaction
analysis, H&A applied multiples of 12.5x to Grupo Colombo 2016 EBITDA and 1.8x to Grupo Colombo 2016 Sales, which resulted
in an implied equity value reference range of $107,000,000 to $274,000,000 for Grupo Colombo.
Other Matters Relating to H&A’s Opinion
As part of its consulting business, H&A regularly is
engaged in the evaluation of businesses and their securities in connection with mergers, acquisitions, corporate
restructurings and other purposes. H&A is a recognized consulting firm that has substantial experience in providing
financial advice in connection with mergers, acquisitions, sales of companies, businesses and other assets and other
transactions. H&A received a fee of R$200,000 for rendering its opinion, no portion of which was contingent upon the
completion of the business combination. GGAC also agreed to reimburse H&A for certain expenses incurred by it in
connection with its engagement and to indemnify H&A and its related parties for certain liabilities that may arise out of
its engagement or the rendering of its opinion. In addition, GGAC has engaged H&A to assist it in preparing the pro forma financial information that is
included in this proxy statement. GGAC will pay H&A a fee of R$40,000 for this work, no portion of which is contingent upon
completion of the business combination. H&A has not performed any other services for GGAC during the past two
years.
Satisfaction of 80% Test
It is a requirement under GGAC’s amended and restated memorandum
and articles of association that any business acquired by GGAC have a fair market value equal to at least 80% of the balance of
the funds in the trust account at the time of the execution of a definitive agreement for an initial business combination. Based
on the financial analysis of Grupo Colombo considered in approving the transaction, including a comparison of comparable companies
and a discounted cash flow analysis, the GGAC board of directors determined that Grupo Colombo had a fair market value of approximately
US$255 million. As of December 17, 2015, the date the Investment Agreement was executed, the balance of the funds in the trust
account was approximately US$144,599,000 and the threshold amount for satisfaction of the 80% test was therefore approximately
US$115,679,200. Accordingly, the GGAC board of directors determined that such test was met. GGAC’s board of directors believes
that the financial skills and background of its members qualify it to conclude that the business combination with Grupo Colombo
met this test. However, in addition, the GGAC board of directors considered the financial analysis reviewed by H&A with the
GGAC board, and the oral opinion of H&A to the GGAC board (which was subsequently confirmed in writing by delivery of H&A’s
written opinion dated the same date), as to, as of December 16, 2015, whether Grupo Colombo had a fair market value equal to at
least 80% of the balance of funds in GGAC’s trust account.
Interests of GGAC’s Directors and Officers and Others
in the Business Combination
In considering the recommendation of the board of directors of GGAC
to vote in favor of approval of the business combination proposal and the other proposals, shareholders should keep in mind that
GGAC’s initial shareholders, including its directors and officers have interests in such proposals that are different from,
or in addition to, those of GGAC shareholders generally. In particular:
| ● | If the business combination with Grupo Colombo or another business combination is not consummated by June 25, 2016, it will
trigger GGAC’s automatic dissolution and liquidation pursuant to the terms of its amended and restated memorandum and articles
of association. In such event, the 3,593,750 initial shares held by GGAC’s initial shareholders, including its directors
and officers, which were acquired for an aggregate purchase price of US$25,000 prior to GGAC’s initial public offering, would
be worthless because GGAC’s initial shareholders are not entitled to participate in any redemption distribution with respect
to such shares. Such shares had an aggregate market value of US$35,182,813 based upon the closing price of US$9.79 per share on
Nasdaq on December 17, 2015. |
| ● | An affiliate of Mario Garnero, GGAC’s Chief Executive Officer, and EarlyBirdCapital, the underwriter in GGAC’s
initial public offering, purchased an aggregate of 634,063 private units at a price of US$10.00 per unit (US$6,340,630 in the aggregate).
These purchases took place on a private placement basis simultaneously with the consummation of GGAC’s initial public offering.
The private warrants and the private rights underlying the private units will only become exercisable or exchangeable in connection
with an initial business combination. Furthermore, the holders of the private units have agreed that the underlying private shares
will not participate in any liquidating distribution upon winding up if a business combination is not consummated. Accordingly,
the private units (including the private shares, private rights and private warrants) will become worthless if the business combination
with Grupo Colombo or another business combination is not consummated (as will the remainder of the public rights and public warrants).
Such units had an aggregate market value of US$6,245,521 based upon the closing price of US$9.85 per unit on Nasdaq on December
17, 2015. |
| ● | Mario Garnero, Amir Adnani, John Tonelli and Nelson Narciso Filho will continue as directors of GGAC following consummation
of the business combination. As such, in the future each will receive any cash fees, share options or share awards that the GGAC
board of directors determines to pay to its officers and directors. |
| ● | If a business combination is not consummated within the required time period, Mario Garnero, GGAC’s Chairman of the Board,
will be personally liable to ensure that the proceeds in the trust account are not reduced by the claims of target businesses or
claims of vendors or other entities that are owed money by GGAC for services rendered or contracted for or products sold to GGAC
and which have not executed a waiver agreement. |
| ● | Mario Garnero has loaned approximately US$1,228,650 to GGAC, and may in the future loan additional amounts to GGAC in order
to meet GGAC’s working capital needs prior to the closing of the business combination with Grupo Colombo. If GGAC fails to
consummate the business combination with Grupo Colombo or another business combination, the loans would become unsecured liabilities
of GGAC; however, Mr. Garnero has waived any claim against the trust account. Accordingly, GGAC will not be able to repay these
loans if the business combination is not completed. In addition, upon consummation of a business combination, US$500,000 of such
loans is convertible at the election of Mr. Garnero into private units at a conversion price of US$10.00 per unit. Accordingly,
if a business combination is not consummated, Mr. Garnero also will lose the opportunity to acquire an additional 50,000 units,
which would have an aggregate market value of US$492,500 based upon the closing price of US$9.85 per unit on Nasdaq on December
17, 2015. |
| ● | GGAC’s officers, directors, initial shareholders and their affiliates are entitled to reimbursement of out-of-pocket
expenses incurred by them in connection with certain activities on GGAC’s behalf, such as identifying and investigating possible
business targets and business combinations. However, if GGAC fails to consummate a business combination, they will not have any
claim against the trust account for the reimbursement of these expenses. Accordingly, GGAC will not be able to reimburse these
expenses if the business combination with Grupo Garnero or another business combination is not completed. As of the date of this
proxy statement, GGAC’s officers, directors, initial shareholders and their affiliates have incurred approximately $40,000
of unpaid reimbursable expenses. |
Recommendation of GGAC’s Board of Directors
After careful consideration of the matters described above, particularly
the facts discussed above under the heading “GGAC’s Board of Directors’ Reasons for Approval of the Business
Combination,” GGAC’s board of directors determined unanimously that each of the proposals presented at this meeting
was fair to and in the best interests of GGAC and its shareholders. GGAC’s board of directors has approved and declared advisable
and unanimously recommend that you vote or give instructions to vote “FOR” each of these proposals.
The foregoing discussion of the information and factors considered
by the GGAC board of directors is not meant to be exhaustive, but includes the material information and factors considered by the
GGAC board of directors.
Material Federal Income Tax Consequences of the Business Combination
to GGAC and Its Shareholders
The following section is a summary of the opinion of Graubard Miller,
counsel to GGAC, regarding material U.S. federal income tax consequences of the business combination to holders of GGAC ordinary
shares. This discussion addresses only those GGAC security holders that hold their securities as a capital asset within
the meaning of Section 1221 of the Internal Revenue Code, and does not address all the U.S. federal income tax consequences that
may be relevant to particular holders in light of their individual circumstances or to holders that are subject to special rules,
such as:
| ● | investors in pass-through entities; |
| ● | tax-exempt organizations; |
| ● | dealers in securities or currencies; |
| ● | traders in securities that elect to use a mark to market method of accounting; |
| ● | persons that hold GGAC ordinary shares as part of a straddle, hedge, constructive sale or conversion transaction; and |
| ● | persons who are not citizens or residents of the U.S. |
The Graubard Miller opinion is based upon the Internal Revenue Code,
applicable treasury regulations thereunder, published rulings and court decisions, all as currently in effect as of the date of
its opinion, and all of which are subject to change, possibly with retroactive effect. Tax considerations under state, local and
foreign laws, or federal laws other than those pertaining to the income tax, are not addressed.
Neither GGAC nor Grupo Colombo intends to request any ruling from
the Internal Revenue Service as to the U.S. federal income tax consequences of the business combination.
It is the opinion of Graubard Miller that:
| ● | No gain or loss will be recognized by GGAC or by the shareholders of GGAC if their conversion rights are not exercised. |
| ● | A shareholder of GGAC who exercises conversion rights and effects a termination of the shareholder’s interest in GGAC
will be required to recognize gain or loss upon the exchange of that shareholder’s GGAC ordinary shares for cash. Such gain
or loss will be measured by the difference between the amount of cash received and the tax basis of that shareholder’s GGAC
ordinary shares. This gain or loss will be a capital gain or loss if such shares were held as a capital asset on the date of the
business combination and will be a long-term capital gain or loss if the holding period for the GGAC ordinary shares is more than
one year. |
The tax opinion issued to GGAC by Graubard Miller, its counsel,
is attached to this proxy statement as Annex E. Graubard Miller has consented to the use of its opinion in this proxy statement.
This discussion is intended to provide only a summary of the material
U.S. federal income tax consequences of the business combination. It does not address tax consequences that may vary with, or are
contingent on, your individual circumstances. In addition, the discussion does not address any non-income tax or any foreign, state
or local tax consequences of the business combination. Accordingly, you are strongly urged to consult with your tax advisor to
determine the particular U.S. federal, state, local or foreign income or other tax consequences to you of the business combination.
Anticipated Accounting Treatment
The transactions contemplated by the Investment Agreement are considered
to be a business combination to be accounted for under the acquisition method in accordance with U.S. GAAP with GGAC being the
acquirer and Colombo being the acquired company. Under this method, the consideration transferred and the tangible and intangible
identifiable assets acquired and liabilities assumed are recorded at fair value on the acquisition date. The amount of the consideration
transferred in excess of the net assets acquired is recognized as goodwill.
Regulatory Matters
The business combination and the transactions contemplated by the
Investment Agreement are not subject to any additional federal or state regulatory requirement or approval, except for filings
with the Cayman Islands necessary to effectuate the amendment and restatement of GGAC’s memorandum and articles of incorporation
and filings with the Board of Trade of the State of Mato Grosso (Junta Comercial do Estado do Mato Grosso) necessary to
effectuate certain amendments to Grupo Colombo’s by-laws.
Recommendation and Vote Required
The approval of the business combination proposal will require the
affirmative vote of the holders of a majority of the GGAC ordinary shares voted on such proposal at the extraordinary general meeting.
In addition, the business combination will not be consummated if GGAC does not have net tangible assets of at least US$5,000,001
upon such consummation, after giving effect to payments to public shareholders who exercise their conversion rights. GGAC estimates
that this condition will be met if holders of no more than 13,762,388 of the public shares (representing approximately 95.7% of
the public shares) properly demand conversion of their shares into cash.
If the business combination proposal is not approved, the other
proposals (except an adjournment proposal, as described below) will not be presented to the shareholders for a vote.
GGAC’S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
GGAC SHAREHOLDERS VOTE “FOR” THE APPROVAL OF THE BUSINESS COMBINATION PROPOSAL.
THE INVESTMENT AGREEMENT
For a discussion of the structure, consideration and indemnification
provisions of the Investment Agreement, see the section entitled “The Business Combination Proposal.” Such discussion
and the following summary of other material provisions of the Investment Agreement are qualified by reference to the complete text
of the Investment Agreement, a copy of which is attached as Annex A to this proxy statement. All shareholders are encouraged
to read the Investment Agreement in its entirety for a more complete description of the terms and conditions of the business combination.
Closing of the Investment Agreement
The closing of the Investment Agreement will take place on the third
business day following the satisfaction or waiver of the conditions described below under the subsection entitled “Conditions
to the Closing of the Investment Agreement,” unless GGAC and Grupo Colombo agree in writing to another time. The Investment
Agreement is expected to be consummated as soon as practicable after the extraordinary general meeting of GGAC’s shareholders
described in this proxy statement.
Representations and Warranties
Except as limited below, the Investment Agreement contains representations
and warranties of GGAC, on one hand, and Grupo Colombo and the Controlling Persons, on the other hand, generally relating, among
other things, to:
| ● | proper organization and corporate matters; |
| ● | capital structure of each company; |
| ● | compliance with laws and other legal requirements; |
| ● | absence of undisclosed liabilities; |
| ● | absence of certain changes or events; |
| ● | restrictions on business activities; |
| ● | real property, leases and personal property; |
| ● | brokerage and similar fees; |
| ● | contracts and commitments; |
| ● | interested party transactions; |
| ● | with respect to Grupo Colombo, absence of illegal or improper transactions; and |
| ● | with respect to GGAC, its SEC filings, the trust account, its indebtedness, the listing of its securities and board approval
of the transactions. |
The Investment Agreement also contains customary representations
and warranties by the Controlling Persons and Optionholders relating to, among other things, authority and similar matters, absence
of conflicts, ownership of the securities of Grupo Colombo and certain investment-related matters.
Covenants
GGAC and Grupo Colombo have each agreed to take such actions as
are necessary, proper or advisable to consummate the business combination. Each of them has also agreed to continue to operate
their respective businesses in the ordinary course consistent with past practices prior to the closing and not to take the following
actions, among others, except as permitted by the agreement, without the prior written consent of the other party:
| ● | waive any stock repurchase rights, accelerate, amend or change the period of exercisability of options or restricted stock,
or reprice options granted under any employee, consultant, director or other stock plans or authorize cash payments in exchange
for any options granted under any of such plans; |
| ● | grant any severance or termination pay to any officer or employee outside the ordinary course of business except pursuant to
applicable law, written agreements outstanding, or policies existing on the date hereof and as previously or concurrently disclosed
in writing or made available to the other party, or adopt any new severance plan, or amend or modify or alter in any manner any
severance plan, agreement or arrangement existing on the date hereof; |
| ● | transfer or license to any person or otherwise extend, amend or modify any material rights to any intellectual property, or
enter into grants to transfer or license to any person material future patent rights, other than in the ordinary course of business
consistent with past practices, provided that in no event shall Grupo Colombo, its subsidiaries or GGAC license on an exclusive
basis or sell any intellectual property of the Grupo Colombo or its subsidiaries or GGAC as applicable; |
| ● | declare, set aside or pay any dividend on or make any other distribution (whether in cash, share capital, equity securities
or property) with respect to any share capital or split, combine or reclassify any shares of capital stock or issue or authorize
the issuance of any other securities with respect to, in lieu of or in substitution for any share capital; |
| ● | purchase, redeem or otherwise acquire, directly or indirectly, any shares of capital stock of such party; |
| ● | except as permitted in the Investment Agreement, issue, deliver, sell, authorize, pledge or otherwise encumber, or agree to
any of the foregoing with respect to, any shares of capital stock or any securities convertible into or exchangeable for shares
of capital stock, or subscriptions, rights, warrants or options to acquire any shares of capital stock or any securities convertible
into or exchangeable for shares of capital stock, or enter into other agreements obligating it to issue any such shares or convertible
or exchangeable securities; |
| ● | amend such party’s Charter Documents, except for the corporate documents and amendments necessary to effect the Reorganization; |
| ● | acquire or agree to acquire by merging or consolidating with, or by purchasing any equity interest in or a portion of the assets
of, or by any other manner, any business or any corporation, partnership, association or other business organization or division
thereof, or acquire or agree to acquire any assets which are material, individually or in the aggregate, to the business of GGAC,
Grupo Colombo or its subsidiaries as applicable, or enter into any joint ventures, strategic partnerships or alliances or other
arrangements that provide for exclusivity of territory or otherwise restrict such party’s ability to compete or to offer
or sell any products or services; |
| ● | sell, lease, license, encumber or otherwise dispose of any material properties or assets, except (A) sales of inventory, property,
plant and equipment or other assets in the ordinary course of business consistent with past practice, and (B) the sale, lease,
license or disposition of property or assets that are not material, individually or in the aggregate, to the business of such party; |
| ● | except in the ordinary course of business consistent with past practices, incur any indebtedness for borrowed money or guarantee
any such indebtedness of another person or persons, issue or sell any debt securities or options, warrants, calls or other rights
to acquire any debt securities of such party or its subsidiaries, or enter into any “keep well” or other agreement
to maintain any financial statement condition or enter into any arrangement having the economic effect of any of the foregoing; |
| ● | except for the 2015 Plan or any new or amended employment agreements mutually agreed between GGAC, Grupo Colombo and the applicable
employee, adopt or amend any employee benefit plan, policy or arrangement, any employee stock purchase or employee stock option
plan, or enter into any employment contract or collective bargaining agreement (other than offer letters and letter agreements
entered into in the ordinary course of business consistent with past practice with employees who are terminable “at will”),
pay any special bonus or special remuneration to any director or employee, or increase the salaries or wage rates or fringe benefits
(including rights to severance or indemnification) of its directors, officers, employees or consultants, except in the ordinary
course of business consistent with past practices; |
| ● | pay, discharge, settle or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent
or otherwise), or litigation (whether or not commenced prior to the date of the Investment Agreement) other than the payment, discharge,
settlement or satisfaction of claims, obligations or litigations in the ordinary course of business consistent with past practices
or in accordance with their terms, or liabilities recognized or disclosed in the audited financial statements delivered by Grupo
Colombo or in the most recent financial statements included in the GGAC SEC Reports filed prior to the date of the Investment Agreement,
as applicable, or incurred since the date of such financial statements; |
| ● | waive the benefits of, agree to modify in any manner, terminate, release any person from or knowingly fail to enforce any confidentiality
or similar agreement to which such party or its subsidiaries is a party or of which such party or its subsidiaries is a beneficiary; |
| ● | except in the ordinary course of business consistent with past practices, modify, amend or terminate any material contracts,
or waive, delay the exercise of, release or assign any material rights or claims thereunder; |
| ● | except as required by U.S. GAAP, revalue any of its assets or make any change in accounting methods, principles or practices; |
| ● | except in the ordinary course of business consistent with past practices, incur or enter into any agreement, contract or commitment
requiring such party or its subsidiaries to pay in excess of US$3,000,000 in any 12 month period; |
| ● | settle any litigation where the consideration given is other than monetary or to which an Insider is a party; |
| ● | make or rescind any tax elections that, individually or in the aggregate, could be reasonably likely to adversely affect in
any material respect the tax liability or tax attributes of such party, settle or compromise any material income tax liability
materially change any method of accounting for tax purposes or prepare or file any return in a manner inconsistent with past practice; |
| ● | form, establish or acquire any subsidiary; |
| ● | permit any Person to exercise any of its discretionary rights under any employee benefit plan to provide for the automatic
acceleration of any outstanding options, the termination of any outstanding repurchase rights or the termination of any cancellation
rights issued pursuant to such plans; |
| ● | make capital expenditures in excess of US$3,000,000 in the aggregate; |
| ● | make or omit to take any action which would be reasonably anticipated to have a Material Adverse Effect on such party; |
| ● | enter into any transaction with or distribute or advance any assets or property to any of its officers, directors, partners,
shareholders or other affiliates other than the payment of salary and benefits in the ordinary course of business consistent with
prior practice, or, in the case of GGAC, advancement or reimbursement of expenses in connection with GGAC’s search for a
business combination; or |
| ● | agree in writing or otherwise agree, commit or resolve to take any of the foregoing actions. |
The Investment Agreement also contains additional covenants of the
parties, including covenants providing for:
| ● | GGAC to prepare and file this proxy statement, to be used for the purpose of soliciting proxies from the GGAC shareholders
for the matters to be acted upon at the extraordinary general meeting; |
| ● | GGAC and Grupo Colombo to use their commercially reasonable best efforts to minimize the number of GGAC ordinary shares as
to which conversion rights are exercised; |
| ● | the Controlling Persons to use commercially reasonable best efforts to effect the Reorganization. See the section entitled
“The Business Combination Proposal — Reorganization”; |
| ● | the parties to protect each other’s confidential information and, subject to the confidentiality requirements, to provide
reasonable access to information. See the section entitled “The Investment Agreement — Confidentiality; Access to
Information”; |
| ● | the parties to use commercially reasonable best efforts to do all things necessary, proper or advisable to consummate and make
effective the business combination and the other transactions contemplated by the Investment Agreement, including obtaining all
necessary approvals from governmental agencies and other third parties; |
| ● | the parties agree to enter into the Registration Rights Agreement pursuant to which GGAC will under certain circumstances agree
to register for resale under the Securities Act the GGAC ordinary shares to be issued to the Controlling Persons and the Optionholders
pursuant to the Investment Agreement. See the section entitled “The Business Combination Proposal — Sale Restriction;
Resale Registration”; |
| ● | Grupo Colombo, the Controlling Persons and the Optionholders to waive their rights to make claims against GGAC to collect from
the trust account any monies that may be owed to them by GGAC; |
| ● | GGAC to use commercially reasonable best efforts to maintain the listing for trading on Nasdaq of its securities and to cause
the GGAC ordinary shares to be approved for listing on Nasdaq; |
| ● | Grupo Colombo, the Controlling Persons and the Optionholders not to solicit or enter into discussions or transactions with
any third party regarding any business combination, sale of ownership interests or assets of Grupo Colombo, recapitalization or
similar transaction; |
| ● | GGAC to maintain its current directors’ and officers’ liability insurance policies for a period of six years following
the closing date, and to provide for the assumption of such obligations by successor entities in certain circumstances; |
| ● | the Controlling Persons and the Optionholders, at or prior to closing, (i) to repay to Grupo Colombo any loan by Grupo Colombo
to such Person and any other amount owed by such Person to Grupo Colombo; (ii) to cause any guaranty or similar arrangement pursuant
to which Grupo Colombo has guaranteed the payment or performance of any obligations of such Person to a third party to be terminated;
and (iii) to cease to own, directly or indirectly (except through ownership of the Company), any equity interests in any subsidiary
of Grupo Colombo; |
| ● | Grupo Colombo to provide periodic financial information to GGAC through the closing; |
| ● | GGAC to be permitted to borrow from its directors, executive officers, initial shareholders or their respective affiliates,
with any such loans to be made only as reasonably required by the operation of GGAC in due course on a non-interest bearing basis
and repayable at the closing in cash (or convertible into private units); |
| ● | GGAC to cause the trust account to be disbursed to GGAC and as otherwise contemplated by the Investment Agreement immediately
upon consummation of the business combination; |
| ● | GGAC to create and have its board of directors adopt the 2015 Plan; |
| ● | the Optionholders to deliver to the Company the Irrevocable Instructions simultaneously with the execution of the Investment
Agreement; |
| ● | simultaneously with the closing, subject to the GGAC shareholders approval and adoption of the charter amendment proposals
and the articles restatement proposal, GGAC to file an amendment and restatement of its memorandum and articles of association
that effectuates the amendments described in the section entitled “The Charter Amendments Proposal”; |
| ● | the board of directors of GGAC from and after the closing to consist of the directors identified in this proxy statement; |
| ● | the Controlling Persons to use their commercially reasonable best efforts to complete the open market purchases as described
in the section entitled “The Business Combination Proposal — Open Market Purchases”; |
| ● | Grupo Colombo to use commercially reasonable best efforts to obtain the Release Letters, together with any related release
documentation, in form and substance reasonably satisfactory to GGAC, providing for the release of and termination of certain liens; |
| ● | the Controlling Persons to hold a general shareholders meeting of Grupo Colombo in order to approve, among other things, certain
matters relating to the exercise of the options held by the Optionholders, and the Controlling Persons to irrevocably vote, or
cause their affiliates to irrevocably vote, all ordinary shares of Grupo Colombo held by them in favor of such matters; |
| ● | the Controlling Persons to take all measures necessary in order to cancel the transfer of certain trademarks identified in the
Investment Agreement; |
| ● | Grupo Colombo to repay to the Controlling Persons the loans made by such Controlling Persons and any other amount owed by Grupo
Colombo to such Persons at or prior to the closing; |
| ● | according to the terms of the consulting agreement entered into between Grupo Colombo, GGAC and MZHCI, LLC on July 1, 2015,
GGAC to issue in favor of MZHCI, LLC a one-year warrant to purchase up to 60,000 GGAC ordinary shares exercisable at US$11.50 per
share. The warrant shall become exercisable in four quarterly installments of 15,000 shares provided that the closing price of
the GGAC ordinary shares at each quarterly installment date is at or above 130% of the last sale price of the GGAC ordinary shares
on the Closing Date; and |
| ● | Grupo Colombo to use its commercially reasonable best efforts to maintain the waivers of certain covenants applicable to Grupo
Colombo for at least sixty days after the consummation of the business combination. |
In addition, GGAC acknowledged that none of Grupo Colombo, the Controlling
Persons, their respective affiliates or any other person had made any representations or warranties with respect to the projections,
forecasts or information provided by them (it being understood that such acknowledgment did not cover any underlying facts or information
which are addressed by any of the representations and warranties made by Grupo Colombo in the Investment Agreement). Furthermore,
the parties agreed that GGAC would transfer at least one share of Grupo Colombo to a second shareholder by the date of the annual
meeting of shareholders of Grupo Colombo that shall resolve on the audited financial statements of Grupo Colombo for its 2015 fiscal
year.
Conditions to Closing of the Investment Agreement
General Conditions
Consummation of the business combination is conditioned on, among
other things, (i) the business combination proposal having been duly approved and adopted by the GGAC shareholders by the requisite
vote under the Companies Law of the Cayman Islands and GGAC’s amended and restated memorandum and articles of association,
(ii) immediately prior to the closing, GGAC having net tangible assets of at least US$5 million upon the consummation of the business
combination with Grupo Colombo, after giving effect to payments to public shareholders who exercise such conversion rights, (iii)
no governmental entity having enacted, issued, promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction or other order which is in effect and would prohibit consummation of the Contributions, and and (iv) Grupo Colombo
having completed the Reorganization.
The Controlling Persons’ and the Optionholders’
Conditions to Closing
The obligations of Controlling Persons and the Optionholders to
consummate the transactions contemplated by the Investment Agreement also are conditioned upon, among other things:
| ● | the representations and warranties of GGAC being true and correct on the date of the Investment Agreement and on the date of
the consummation of the business combination, subject to qualification as to a Material Adverse Effect (as defined in “The
Investment Agreement—Conditions to Closing”), GGAC having performed in all material respects all covenants required
under the Investment Agreement to be performed on or prior to the consummation of the business combination, GGAC having obtained
certain consents of third parties required to be obtained in connection with the Contributions, and GGAC have delivered an officer’s
certificate with respect to foregoing; |
| ● | no Material Adverse Effect having occurred with respect to GGAC since the date of the Investment Agreement; |
| ● | GGAC being in compliance with the reporting requirements under the Exchange Act; |
| ● | Grupo Colombo having received an opinion of GGAC’s counsel in agreed form; |
| ● | the Registration Rights Agreement having been executed by the parties thereto; and |
| ● | the officers of GGAC having resigned from certain positions of GGAC. |
GGAC’s Conditions to Closing
The obligations of GGAC to consummate the transactions contemplated
by the Investment Agreement also are conditioned upon each of the following, among other things:
| ● | the representations and warranties of Grupo Colombo being true and correct on the date of the Investment Agreement and on the
date of the consummation of the business combination, subject to qualification as to a Material Adverse Effect, Grupo Colombo,
the Controlling Persons and the Optionholders having performed in all material respects all covenants required under the Investment
Agreement to be performed on or prior to the consummation of the business combination, Grupo Colombo having obtained certain consents
of third parties required to be obtained in connection with the Contributions, and GGAC have delivered an officer’s certificate
with respect to foregoing; |
| ● | no Material Adverse Effect having occurred with respect to Grupo Colombo since the date of the Investment Agreement; |
| ● | the Lockup Agreements being in full force and effect; |
| ● | the irrevocable instructions to exercise their options in full at the Closing and instrument of assignment directing the underlying
ordinary shares of Grupo Colombo to be issued in the name of GGAC that were delivered by the Optionholders simultaneously with
the execution of the Investment Agreement (the “Irrevocable Instructions”) being in full force and effect; |
| ● | the purchase by the Controlling Persons or their affiliates of US$30 million in GGAC ordinary shares in the open market having
occurred; |
| ● | GGAC having received an opinion of Grupo Colombo’s counsel in agreed upon form; |
| ● | (i) all outstanding indebtedness owned by any Grupo Colombo insider shall have been repaid in full; (ii) all guaranteed or
similar arrangements pursuant to which Grupo Colombo has guaranteed the payment or performance of any obligations of any Grupo
Colombo insider to a third party shall have been terminated; and (iii) no Controlling Person or Grupo Colombo insider shall own
any direct equity interests in any subsidiary of Grupo Colombo; |
| ● | the release letters related to certain indebtedness, which provide for the release of, among other encumbrances, certain liens
on the outstanding ordinary shares of Grupo Colombo held by the Controlling Persons (the “Release Letters”), being
in full force and effect; |
| ● | the transfer of certain trademarks by Grupo Colombo having been cancelled; |
| ● | the Reorganization having satisfied the conditions that Grupo Colombo will not incur any indebtedness or other liabilities
and Grupo Colombo will have accrued goodwill amortizable under applicable tax law in the amount of R$200,000,000; and |
| ● | the waivers of certain financial covenants applicable to
Grupo Colombo for at least sixty days after the consummation of the business combination being in full force and effect. |
Waiver
If permitted under applicable law, either party may, in writing,
waive any inaccuracies in the representations and warranties made to such party contained in the Investment Agreement or in any
document delivered pursuant to the Investment Agreement, and waive compliance with any agreements or conditions for the benefit
of itself contained in the Investment Agreement or in any document delivered pursuant to the Investment Agreement. The conditions
applicable to both parties’ obligations may only be waived by mutual agreement of both parties. The condition requiring GGAC
have net tangible assets of at least US$5 million upon the consummation of the business combination with Grupo Colombo, after giving
effect to payments to public shareholders who exercise such conversion rights, may not be waived. GGAC cannot assure you that all
of the conditions will be satisfied or waived.
At any time prior to the closing, either party may, in writing,
to the extent legally allowed, extend the time for the performance of any of the obligations or other acts of the other parties
to the Investment Agreement.
The existence of the financial and personal interests of the directors
may result in a conflict of interest on the part of one or more of them between what he may believe is best for GGAC and what he
may believe is best for himself in determining whether or not to grant a waiver in a specific situation.
Termination
The Investment Agreement may be terminated at any time, but not
later than the closing, as follows:
| ● | by mutual written consent of GGAC and the Controlling Persons; |
| ● | by either GGAC or the Controlling Persons if the Contributions shall not have been consummated for any reason by March 31,
2016, provided that the terminating party’s actions did not principally cause the delay and constitute a breach of the Investment
Agreement; |
| ● | by either GGAC or the Controlling Persons if a governmental entity shall have issued an order, decree, judgment or ruling or
taken any other action, in any case having the effect of permanently restraining, enjoining or otherwise prohibiting the business
combination, which order, decree, ruling or other action is final and nonappealable, provided that the terminating party’s
was not the principal cause of such action being final and nonappealable; |
| ● | by either GGAC or the Controlling Persons if the other party has breached any of its covenants or representations and warranties,
such that the conditions set forth above would not be satisfied, and has not cured its breach within 30 days of the notice of an
intent to terminate, provided that the terminating party is itself not in breach; or |
| ● | by either GGAC or the Controlling Persons if, at the extraordinary general meeting, the business combination proposal is not
approved, or GGAC would not have at least US$5 million of net tangible assets following the exercise by holders of GGAC ordinary
shares of their right to convert their shares into a pro rata share of GGAC’s trust fund. |
Effect of Termination
In the event of proper termination by either GGAC or the Controlling
Persons, the Investment Agreement will be of no further force or effect and the business combination with Grupo Colombo will be
abandoned, except that:
| ● | the parties’ confidentiality obligations set forth in the Investment Agreement will survive. See the section entitled
“The Investment Agreement — Confidentiality; Access to Information”; |
| ● | the waiver by Grupo Colombo, the Controlling Persons and the Optionholders of their rights to make claims against GGAC to collect
from the trust account any monies that may be owed to them by GGAC will survive; |
| ● | the obligation of each party to pay its own fees and expenses incurred by such party in connection with the Investment Agreement,
except in certain circumstances, will survive. See the section entitled “The Investment Agreement — Fees and Expenses”;
and |
| ● | each party’s liability for breach of the Investment Agreement will survive. |
Fees and Expenses
All fees and expenses incurred in connection with the Investment
Agreement and the transactions contemplated thereby will be paid by the party incurring such expenses whether or not the business
combination is consummated. Notwithstanding the foregoing, if all of the general conditions to closing and all of the Controlling
Persons and Optionholders’ conditions to closing have been satisfied, but GGAC’s conditions to closing relating to
the required consents, the Release Letters or the financial covenant waivers have not been satisfied and the Investment Agreement
is terminated by GGAC, the Company shall pay all reasonable and documented out of pocket fees and expenses incurred by GGAC in
connection with this Agreement up to a maximum of US$1,000,000. This amount shall be the sole liability of Grupo Colombo, the Controlling
Persons and the Optionholders for any failure to obtain the Release Letters or any third party consents.
Confidentiality; Access to Information
GGAC and Grupo Colombo will afford to the other party and its financial
advisors, accountants, counsel and other representatives reasonable access during normal business hours, upon reasonable notice,
to all of their respective properties, books, records and personnel during the period prior to the closing to obtain all information
concerning the business, including the status of business development efforts, properties, results of operations and personnel,
as each party may reasonably request. GGAC and Grupo Colombo will maintain in confidence any non-public information received from
the other party, and use such non-public information only for purposes of consummating the transactions contemplated by the Investment
Agreement.
Amendments
The Investment Agreement may be amended by the parties thereto at
any time prior to the closing of the business combination by execution of an instrument in writing signed on behalf of each of
the parties; provided that the Controlling Persons may amend the schedules to the Investment Agreement as necessary to account
for changes in the ownership of GGAC ordinary shares as a result of the Reorganization, without the consent of any other party.
After the closing, the agreement may be amended only with the consent of the representative of the Controlling Persons and Optionholders
and the committee to be appointed to act on behalf of GGAC by the board of directors of GGAC prior to the closing.
Governing Law; Consent to Jurisdiction
The Investment Agreement is governed by and construed in accordance
with the law of the state of New York, regardless of the law that might otherwise govern under applicable principles of the conflicts
of laws of New York. The parties agreed that any action, proceeding or claim arising out of or relating in any way to the Investment
Agreement would be resolved through final and binding arbitration in accordance with the International Arbitration Rules of the
International Centre for Dispute Resolution of the American Arbitration Association.
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements
are based on GGAC’s historical financial statements and Grupo Colombo’s historical consolidated financial
statements, as adjusted to give effect acquisition of Grupo Colombo.
The pro forma condensed combined financial statements do not
necessarily reflect what the combined company’s financial condition or results of operations would have been had the
acquisition occurred. They also may not be useful in predicting the future financial condition and results of operations of
the combined company. The actual financial position and results of operations may differ significantly from the pro forma
amounts reflected herein due to a variety of factors.
The following unaudited pro forma condensed combined financial statements
of GGAC and Grupo Colombo are provided to assist you in your analysis of the financial aspects of the transactions described in
the Investment Agreement between GGAC Grupo Colombo.
The unaudited pro forma condensed combined statement
of operations for the year ended June 30, 2015 combined the historical statement of operations of GGAC for the year ended
June 30, 2015 with the adjusted historical consolidated statement of operations of Grupo Colombo, after adjusting Grupo
Colombo from a December 31 fiscal year end to a June 30 year end, giving effect to the business combination as if it had
occurred on July 1, 2014.
The unaudited pro forma condensed combined statement
of operations for the three months ended September 30, 2015 combined the historical statement of operations of GGAC for
the three months ended September 30, 2015 with the adjusted historical consolidated statement of operations of Grupo
Colombo, after adjusting Grupo Colombo from a December 31 fiscal year end to a June 30 year end, giving effect to the
acquisitions as if they had occurred on July 1, 2015.
The unaudited pro forma condensed combined balance sheet combines
the historical balance sheets of GGAC, and Grupo Colombo as of September 30, 2015 giving effect to the transactions described in
the Investment Agreement between GGAC and Grupo Colombo as if they had occurred on September 30, 2015.
At the closing of the transactions contemplated by the Investment
Agreement, the sellers of Grupo Colombo will be issued 4,000,000 GGAC ordinary shares. The detailed terms of the business combination
with Grupo Colombo are set forth in “The Business Combination Proposal” and “The Investment Agreement.”
In addition, a copy of the Investment Agreement between GGAC and Grupo Colombo, is attached to this proxy statement as Annex
A, and you are encouraged to read it in its entirety.
The historical financial information has been adjusted to give effect
to pro forma events that are related and/or directly attributable to the acquisitions, are factually supportable and, in the case
of the unaudited pro forma statements of operations data, are expected to have a continuing impact on the combined results. The
adjustments presented on the unaudited pro forma condensed combined financial information have been identified and presented herein
to provide relevant information necessary for an accurate understanding of the combined company upon consummation of the acquisitions.
The unaudited pro forma condensed combined balance sheet as of September
30, 2015 and the unaudited pro forma condensed combined statements of operation for the year ended June 30, 2015 and the three
months ended September 30, 2015 have been prepared using three different levels of approval of the transaction by public shareholders
as follows:
| ● | Assuming No Redemptions: This presentation assumes that no public shareholder seek conversion of their GGAC ordinary
shares that are converted into a pro rata share of the trust account; |
| ● | Assuming Maximum Unaffiliated Redemptions: This presentation assumes that the Controlling Persons make the full $30
million of open market purchase and all public shareholders, other than the Controlling Persons, seek conversion of their GGAC
ordinary shares into a pro rata share of the trust account. |
| ● | Assuming Maximum Redemptions: This presentation assumes that a number of public shareholders seek conversion of their
GGAC ordinary shares into a pro rata share of the trust account, such that GGAC will have net tangible assets of $5,000,001
upon consummation of the business combination with Grupo Colombo, after giving effect to such conversions. |
The aggregate purchase price as of September 30, 2015 for the net
assets of Grupo Colombo (in thousands) based upon the pro forma assumptions contained herein is as follows:
Value of shares of GGAC as consideration to selling | |
| 39,440 | |
Stockholders | |
| | |
Less: net assets acquired | |
| (140,936 | ) |
| |
| 180,376 | |
Add: deferred taxliability | |
| 30,000 | |
Total amount to be allocated to assets acquired | |
| 210,376 | |
Based upon a preliminary allocation, utilizing currently available
information and contingent upon the closing of the acquisitions, $210,376,000 of the excess of the purchase price of the net assets
acquired over the carrying value of the acquired net assets as of September 30, 2015 has been allocated to identifiable intangible
assets and to goodwill.
Upon the closing of the business combination, GGAC will engage a
firm to prepare a final valuation of the assets acquired, both identified and unidentified and the allocation to identifiable intangible
assets is subject to change.
The unaudited condensed combined financial information is for illustrative
purposes only. The financial results may have been different had the companies always been combined. You should not rely on the
unaudited pro forma condensed combined financial information as being indicative of the historical results that would have been
achieved had the companies always been combined or the future results that the combined company will experience.
The following selected unaudited pro forma financial information
should be read together with Grupo Colombo’s and GGAC’s audited financial statements and related notes, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations of Grupo Colombo”, “Other Information
Related to GGAC – GGAC Management’s Discussion and Analysis of Financial Condition and Results of Operations”
and the other financial information included elsewhere in this proxy statement
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE
SHEET
September 30, 2015 (in thousands, except share and per share data)
| |
CGAC | | |
GC | | |
Pro
forma
adjustments | | |
Note # | |
Combined
Assuming
No
Redemptions | | |
Pro
forma
adjustments | | |
Note # | |
Combined
Assuming
Maximum
Redemptions | | |
Pro
forma
adjustments | | |
Note # | |
Combined
Assuming
Maximum
Unaffiliated
Redemptions | |
Assets | |
| | |
| | |
| | |
| |
| | |
| | |
| |
| | |
| | |
| |
| |
Current
assets: | |
| | |
| | |
| | |
| |
| | |
| | |
| |
| | |
| | |
| |
| |
Cash
and cash equivalents | |
$ | 20 | | |
$ | 325 | | |
$ | 144,621 | | |
A | |
$ | 137,966 | | |
$ | (138,458 | ) | |
E | |
$ | 2,508 | | |
$ | 25,000 | | |
G | |
$ | 24,508 | |
| |
| | | |
| | | |
| (7,000 | ) | |
C | |
| | | |
| 3,000 | | |
C | |
| | | |
| (3,000 | ) | |
| |
| | |
Investments | |
| | | |
| 3,393 | | |
| | | |
| |
| 3,393 | | |
| | | |
| |
| 3,393 | | |
| | | |
| |
| 3,393 | |
Accounts
receivable, net | |
| - | | |
| 172 | | |
| | | |
| |
| 172 | | |
| | | |
| |
| 172 | | |
| | | |
| |
| 172 | |
Inventories,
net | |
| - | | |
| 46,918 | | |
| | | |
| |
| 46,918 | | |
| | | |
| |
| 46,918 | | |
| | | |
| |
| 46,918 | |
Prepaid
expenses | |
| 40 | | |
| 13,580 | | |
| | | |
| |
| 13,620 | | |
| | | |
| |
| 13,620 | | |
| | | |
| |
| 13,620 | |
Total
current assets | |
| 60 | | |
| 64,388 | | |
| 137,621 | | |
| |
| 202,069 | | |
| (135,458 | ) | |
| |
| 66,611 | | |
| 22,000 | | |
| |
| 88,611 | |
| |
| | | |
| | | |
| | | |
| |
| | | |
| | | |
| |
| | | |
| | | |
| |
| | |
Property
and equipment, net | |
| - | | |
| 36,498 | | |
| | | |
| |
| 36,498 | | |
| | | |
| |
| 36,498 | | |
| | | |
| |
| 36,498 | |
Intangible
assets, net | |
| - | | |
| 1,955 | | |
| | | |
| |
| 1,955 | | |
| | | |
| |
| 1,955 | | |
| | | |
| |
| 1,955 | |
Other
assets | |
| - | | |
| 5,929 | | |
| (5,751 | ) | |
D | |
| 178 | | |
| | | |
| |
| 178 | | |
| | | |
| |
| 178 | |
Restricted
cash and cash equivalents held in trust | |
| 144,621 | | |
| - | | |
| (144,621 | ) | |
A | |
| - | | |
| | | |
| |
| - | | |
| | | |
| |
| - | |
Trademark | |
| | | |
| | | |
| 75,000 | | |
D | |
| 75,000 | | |
| | | |
| |
| 75,000 | | |
| | | |
| |
| 75,000 | |
Lease
rights | |
| | | |
| | | |
| 23,000 | | |
D | |
| 23,000 | | |
| | | |
| |
| 23,000 | | |
| | | |
| |
| 23,000 | |
Goodwill | |
| | | |
| | | |
| 112,376 | | |
D | |
| 112,376 | | |
| | | |
| |
| 112,376 | | |
| | | |
| |
| 112,376 | |
Total
assets | |
$ | 144,681 | | |
$ | 108,770 | | |
$ | 197,625 | | |
| |
$ | 451,076 | | |
$ | (135,458 | ) | |
| |
$ | 315,618 | | |
$ | 22,000 | | |
| |
$ | 337,618 | |
| |
| | | |
| | | |
| | | |
| |
| | | |
| | | |
| |
| | | |
| | | |
| |
| | |
Liabilities
and Shareholders' Equity | |
| | | |
| | | |
| | | |
| |
| | | |
| | | |
| |
| | | |
| | | |
| |
| | |
Current
Liabilities: | |
| | | |
| | | |
| | | |
| |
| | | |
| | | |
| |
| | | |
| | | |
| |
| | |
Accounts
payable | |
$ | - | | |
$ | 28,420 | | |
$ | | | |
| |
$ | 28,420 | | |
$ | | | |
| |
$ | 28,420 | | |
$ | | | |
| |
$ | 28,420 | |
Tax
obligations | |
| - | | |
| 14,743 | | |
| | | |
| |
| 14,743 | | |
| | | |
| |
| 14,743 | | |
| | | |
| |
| 14,743 | |
Debentures
payable | |
| - | | |
| 114,181 | | |
| | | |
| |
| 114,181 | | |
| | | |
| |
| 114,181 | | |
| | | |
| |
| 114,181 | |
Working
capital loans | |
| - | | |
| 56,513 | | |
| | | |
| |
| 56,513 | | |
| | | |
| |
| 56,513 | | |
| | | |
| |
| 56,513 | |
Stockholders'
loan | |
| - | | |
| 7,435 | | |
| | | |
| |
| 7,435 | | |
| | | |
| |
| 7,435 | | |
| | | |
| |
| 7,435 | |
Obligations
under capital leases | |
| - | | |
| 441 | | |
| | | |
| |
| 441 | | |
| | | |
| |
| 441 | | |
| | | |
| |
| 441 | |
Interest
payable | |
| - | | |
| 14,969 | | |
| | | |
| |
| 14,969 | | |
| | | |
| |
| 14,969 | | |
| | | |
| |
| 14,969 | |
Accounts
payable and accrued expenses | |
| 144 | | |
| 6,670 | | |
| | | |
| |
| 6,814 | | |
| | | |
| |
| 6,814 | | |
| | | |
| |
| 6,814 | |
Advances
from related party | |
| 1,079 | | |
| - | | |
| | | |
| |
| 1,079 | | |
| | | |
| |
| 1,079 | | |
| | | |
| |
| 1,079 | |
Total
Current Liabilities | |
| 1,223 | | |
| 243,372 | | |
| - | | |
| |
| 244,595 | | |
| - | | |
| |
| 244,595 | | |
| - | | |
| |
| 244,595 | |
Deferred
taxes | |
| - | | |
| - | | |
| 30,000 | | |
I | |
| 30,000 | | |
| | | |
| |
| 30,000 | | |
| | | |
| |
| 30,000 | |
Tax
obligations, non current | |
| - | | |
| 3,043 | | |
| | | |
| |
| 3,043 | | |
| | | |
| |
| 3,043 | | |
| | | |
| |
| 3,043 | |
Other
liabilities | |
| - | | |
| 3,291 | | |
| | | |
| |
| 3,291 | | |
| | | |
| |
| 3,291 | | |
| | | |
| |
| 3,291 | |
Total
Liabilities | |
| 1,223 | | |
| 249,706 | | |
| 30,000 | | |
| |
| 280,929 | | |
| - | | |
| |
| 280,929 | | |
| - | | |
| |
| 280,929 | |
| |
| | | |
| | | |
| | | |
| |
| | | |
| | | |
| |
| | | |
| | | |
| |
| | |
Commitments | |
| | | |
| | | |
| | | |
| |
| | | |
| | | |
| |
| | | |
| | | |
| |
| | |
Ordinary
shares subject to possible conversion | |
| 138,458 | | |
| - | | |
| (138,458 | ) | |
B | |
| - | | |
| - | | |
| |
| - | | |
| - | | |
| |
| - | |
Shareholders’
Equity: | |
| | | |
| | | |
| | | |
| |
| | | |
| | | |
| |
| | | |
| | | |
| |
| | |
Preferred
shares, $.0001 par value; | |
| - | | |
| - | | |
| | | |
| |
| - | | |
| - | | |
| |
| - | | |
| - | | |
| |
| - | |
Ordinary
shares, $.0001 par value; | |
| - | | |
| - | | |
| 1 | | |
B | |
| 2 | | |
| (2 | ) | |
B | |
| - | | |
| 1 | | |
B | |
| 1 | |
Common
stock, no par value; | |
| - | | |
| 103,726 | | |
| (103,726 | ) | |
B | |
| - | | |
| - | | |
| |
| - | | |
| - | | |
| |
| - | |
Accumulated
other comprehensive income | |
| - | | |
| 140,917 | | |
| (140,917 | ) | |
B | |
| - | | |
| - | | |
| |
| - | | |
| - | | |
| |
| - | |
Additional
paid-in capital | |
| 6,423 | | |
| | | |
| 138,457 | | |
B | |
| 184,320 | | |
| (138,456 | ) | |
F | |
| 45,863 | | |
| 24,999 | | |
H | |
| 70,862 | |
| |
| | | |
| | | |
| 39,440 | | |
B | |
| | | |
| | | |
| |
| | | |
| | | |
| |
| | |
Accumulated
deficit | |
| (1,424 | ) | |
| (385,579 | ) | |
| 385,579 | | |
B | |
| (14,175 | ) | |
| - | | |
| |
| (11,175 | ) | |
| - | | |
| |
| (14,175 | ) |
| |
| | | |
| | | |
| (5,751 | ) | |
D | |
| | | |
| | | |
| |
| | | |
| | | |
| |
| | |
| |
| | | |
| | | |
| (7,000 | ) | |
C | |
| | | |
| 3,000 | | |
| |
| | | |
| (3,000 | ) | |
| |
| | |
Total
Shareholders' Equity | |
| 5,000 | | |
| (140,936 | ) | |
| 306,083 | | |
| |
| 170,147 | | |
| (135,458 | ) | |
| |
| 34,689 | | |
| 22,000 | | |
| |
| 56,688 | |
Total
Liabilities and Shareholders' Equity | |
$ | 144,681 | | |
$ | 108,770 | | |
$ | 197,625 | | |
| |
$ | 451,076 | | |
$ | (135,458 | ) | |
| |
$ | 315,618 | | |
$ | 22,000 | | |
| |
$ | 337,618 | |
UNAUDITED PRO FORMA CONDENSED
STATEMENT OF OPERATIONS
Twelve Months ended June 30, 2015 (in thousands, except share and per share data)
| |
CGAC | | |
GC | | |
Pro
forma
adjustments | | |
Note # | | |
Combined
Assuming
No
Redemptions | | |
Pro
forma
adjustments | |
Note # | |
Combined
Assuming
Maximum
Redemptions | |
|
Pro
forma
adjustments |
|
Note # |
|
Combined
Assuming
Maximum
Unaffiliated
Redemptions | |
| |
| | |
| | |
| | |
| | |
| | |
| |
| |
| |
|
|
|
|
|
|
| |
Net
Revenue | |
$ | - | | |
$ | 205,823 | | |
$ | | | |
| | | |
$ | 205,823 | | |
$ | | |
| $ |
205,823 | |
|
$ |
|
|
|
|
$ | 205,823 | |
Cost
of goods sold | |
| - | | |
| 89,026 | | |
| | | |
| | | |
| 89,026 | | |
| | |
| |
89,026 | |
|
|
|
|
|
|
| 89,026 | |
Gross
Profit | |
| - | | |
| 116,797 | | |
| | | |
| | | |
| 116,797 | | |
| | |
| |
116,797 | |
|
|
|
|
|
|
| 116,797 | |
Operating
Expenses | |
| | | |
| 81,380 | | |
| (3,603 | ) | |
1 | | |
| 83,994 | | |
| | |
| |
83,994 | |
|
|
|
|
|
|
| 83,994 | |
| |
| | | |
| | | |
| 6,216 | | |
1 | | |
| | | |
| | |
| |
| |
|
|
|
|
|
|
| | |
Legal
and professional fees | |
| 755 | | |
| - | | |
| | | |
| | | |
| 755 | | |
| | |
| |
755 | |
|
|
|
|
|
|
| 755 | |
General
and administrative | |
| 330 | | |
| - | | |
| | | |
| | | |
| 330 | | |
| | |
| |
330 | |
|
|
|
|
|
|
| 330 | |
Office
expense – related party | |
| 120 | | |
| - | | |
| | | |
| | | |
| 120 | | |
| | |
| |
120 | |
|
|
|
|
|
|
| 120 | |
Income
From Operations | |
| (1,205 | ) | |
| 35,417 | | |
| (2,614 | ) | |
| | | |
| 31,598 | | |
| | |
| |
31,598 | |
|
|
|
|
|
|
| 31,598 | |
Other
Income (Expense ) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| |
|
|
|
|
|
|
| | |
Interest
income | |
| 113 | | |
| 1,922 | | |
| | | |
| | | |
| 2,035 | | |
| | |
| |
2,035 | |
|
|
|
|
|
|
| 2,035 | |
Debt
and other interest expense | |
| - | | |
| (59,430 | ) | |
| | | |
| | | |
| (59,430 | ) | |
| | |
| |
(59,430 | ) |
|
|
|
|
|
|
| (59,430 | ) |
Vendor
interest expense | |
| - | | |
| (15,394 | ) | |
| | | |
| | | |
| (15,394 | ) | |
| | |
| |
(15,394 | ) |
|
|
|
|
|
|
| (15,394 | ) |
Credit
card fees | |
| - | | |
| (4,250 | ) | |
| | | |
| | | |
| (4,250 | ) | |
| | |
| |
(4,250 | ) |
|
|
|
|
|
|
| (4,250 | ) |
Other
(expense) income | |
| - | | |
| (1,631 | ) | |
| | | |
| | | |
| (1,631 | ) | |
| | |
| |
(1,631 | ) |
|
|
|
|
|
|
| (1,631 | ) |
Total
Other Expense | |
| 113 | | |
| (78,783 | ) | |
| - | | |
| | | |
| (78,670 | ) | |
| - | |
| |
(78,670 | ) |
|
|
- |
|
|
|
| (78,670 | ) |
Loss
Before Provision For Income Taxes | |
| (1,092 | ) | |
| (43,366 | ) | |
| (2,614 | ) | |
| | | |
| (47,072 | ) | |
| | |
| |
(47,072) | |
|
|
|
|
|
|
| (47,072 | ) |
Income
Tax (Provision) | |
| | | |
| (2,047 | ) | |
| (889 | ) | |
2 | | |
| (2,936 | ) | |
| | |
| |
(2,936) | |
|
|
|
|
|
|
| (2,936 | ) |
Net
Loss | |
$ | (1,092 | ) | |
$ | (45,413 | ) | |
$ | (3,502 | ) | |
| | | |
$ | (50,008 | ) | |
$ | - | |
| $ |
(50,008 | ) |
|
$ |
- |
|
|
|
$ | (50,008 | ) |
Net
Loss Per Share | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| |
|
|
|
|
|
|
| | |
Basic
and Diluted | |
$ | (0.23 | ) | |
| | | |
| | | |
| | | |
$ | (2.22 | ) | |
| | |
| $ |
(5.73 | ) |
|
|
|
|
|
|
$ | (4.46 | ) |
Weighted
Average Number of Common Shares Outstanding | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| |
|
|
|
|
|
|
| | |
Basic
and Diluted | |
| 4,728,666 | | |
| | | |
| 17,809,040 | | |
3 | | |
| 22,537,706 | | |
| (13,809,040 | ) |
3 | |
8,728,666 | |
|
|
2,487,562 |
|
3 |
|
| 11,216,228 | |
UNAUDITED PRO FORMA CONDENSED
STATEMENT OF OPERATIONS
Three Months ended September 30, 2015 (in thousands, except share and per share data)
| |
CGAC | | |
GC | | |
Pro
forma
adjustments | | |
Note # | | |
Combined
Assuming
No
Redemptions | | |
Pro
forma
adjustments | | |
Note # | | |
Combined
Assuming
Maximum
Redemptions | |
| Pro
forma adjustments |
|
Note # | | |
Combined
Assuming
Maximum
Unaffiliated
Redemptions | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| |
|
|
| | |
| |
Net
Revenue | |
$ | - | | |
$ | 30,776 | | |
$ | | | |
| | | |
$ | 30,776 | | |
$ | | | |
| | | |
$ | 30,776 | |
| $ |
|
|
| | | |
$ | 30,776 | |
Cost
of goods sold | |
| - | | |
| 11,043 | | |
| | | |
| | | |
| 11,043 | | |
| | | |
| | | |
| 11,043 | |
| |
|
|
| | | |
| 11,043 | |
Gross
Profit | |
| - | | |
| 19,733 | | |
| | | |
| | | |
| 19,733 | | |
| | | |
| | | |
| 19,733 | |
| |
|
|
| | | |
| 19,733 | |
Operating
Expenses | |
| | | |
| 14,716 | | |
| (515 | ) | |
1 | | |
| 15,755 | | |
| | | |
| | | |
| 15,755 | |
| |
|
|
| | | |
| 15,755 | |
| |
| | | |
| | | |
| 1,554 | | |
1 | | |
| | | |
| | | |
| | | |
| | |
| |
|
|
| | | |
| | |
Legal
and professional fees | |
| 344 | | |
| - | | |
| | | |
| | | |
| 344 | | |
| | | |
| | | |
| 344 | |
| |
|
|
| | | |
| 344 | |
General
and administrative | |
| 19 | | |
| - | | |
| | | |
| | | |
| 19 | | |
| | | |
| | | |
| 19 | |
| |
|
|
| | | |
| 19 | |
Office
expense – related party | |
| 30 | | |
| - | | |
| | | |
| | | |
| 30 | | |
| | | |
| | | |
| 30 | |
| |
|
|
| | | |
| 30 | |
Income
From Operations | |
| (392 | ) | |
| 5,017 | | |
| | | |
| | | |
| 3,586 | | |
| | | |
| | | |
| 3,586 | |
| |
|
|
| | | |
| 3,586 | |
Other
Income (Expense ) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
|
|
| | | |
| | |
Interest
income | |
| 69 | | |
| 134 | | |
| | | |
| | | |
| 203 | | |
| | | |
| | | |
| 203 | |
| |
|
|
| | | |
| 203 | |
Debt
interest expense | |
| - | | |
| (10,375 | ) | |
| | | |
| | | |
| (10,375 | ) | |
| | | |
| | | |
| (10,375 | ) |
| |
|
|
| | | |
| (10,375 | ) |
Vendor
interest expense | |
| - | | |
| (2,918 | ) | |
| | | |
| | | |
| (2,918 | ) | |
| | | |
| | | |
| (2,918 | ) |
| |
|
|
| | | |
| (2,918 | ) |
ICMS
and INSS interest expense | |
| - | | |
| 1,009 | | |
| | | |
| | | |
| 1,009 | | |
| | | |
| | | |
| 1,009 | |
| |
|
|
| | | |
| 1,009 | |
Credit
card fees | |
| - | | |
| (725 | ) | |
| | | |
| | | |
| (725 | ) | |
| | | |
| | | |
| (725 | ) |
| |
|
|
| | | |
| (725 | ) |
Other
(expense) income | |
| - | | |
| (206 | ) | |
| | | |
| | | |
| (206 | ) | |
| | | |
| | | |
| (206 | ) |
| |
|
|
| | | |
| (206 | ) |
Total
Other Expense | |
| 69 | | |
| (13,081 | ) | |
| - | | |
| | | |
| (13,012 | ) | |
| - | | |
| | | |
| (13,012 | ) |
| |
- |
|
| | | |
| (13,012 | ) |
Loss
Before Provision For Income Taxes | |
| (323 | ) | |
| (8,064 | ) | |
| | | |
| | | |
| (9,426 | ) | |
| | | |
| | | |
| (9,426 | ) |
| |
|
|
| | | |
| (9,426 | ) |
Income
Tax (Provision) Benefit | |
| | | |
| (616 | ) | |
| (353 | ) | |
2 | | |
| (969 | ) | |
| | | |
| | | |
| (969 | ) |
| |
|
|
| | | |
| (969 | ) |
Net
Loss | |
$ | (323 | ) | |
$ | (8,680 | ) | |
$ | (353 | ) | |
| | | |
$ | (10,395 | ) | |
$ | - | | |
| | | |
$ | (10,395 | ) |
| $ |
- |
|
| | | |
$ | (10,395 | ) |
Net Loss Per Share | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
|
|
| | | |
| | |
Basic
and Diluted | |
$ | (0.07 | ) | |
| | | |
| | | |
| | | |
$ | (0.46 | ) | |
| | | |
| | | |
$ | (1.18 | ) |
| |
|
|
| | | |
$ | (0.92 | ) |
Weighted
Average Number of Common Shares Outstanding | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
|
|
| | | |
| | |
Basic
and Diluted | |
| 4,794,280 | | |
| | | |
| 17,762,388 | | |
3 | | |
| 22,556,668 | | |
| (13,762,388 | ) | |
3 | | |
| 8,793,980 | |
| |
2,487,562 |
|
3 | | |
| 11,281,542 | |
Notes to Unaudited Pro Forma Condensed Combined Balance Sheet |
|
Note A |
Upon the completion of the Transaction, funds held restricted in the Trust Account will be released to GGAC. If there is no redemption of the Public Stockholders, the total amount in the Trust will be available for GGAC usage. |
|
|
Note B |
Assuming no redemptions, to reclassify
ordinary shares subject to redemption, (13,762,388 and 13,809,040 shares at conversion value) at $ 138,458 to permanent
capital. Par value equals $0.0001 per share after conversion. |
|
|
Note C |
Represents the estimated costs of
completing the merger, including legal, accounting, consultants, proxy solicitation and financial advisory services for
approximately total fees of $7 million. If maximum redemptions occur, the estimated fees to completed the business combination
will be $4 million. |
|
|
Note D |
Represents the pro forma entries to
record the acquisition of Grupo Colombo, recording the common stock to be issued in excess of the fair value of acquired assets.
The combination constitutes a purchase
transaction under U.S. GAAP, with GGAC purchasing Grupo Colombo. Securities to be issued to the stockholders of the
companies to be acquired are shown in the following table.
In accordance with U.S. GAAP, the securities issued to the sellers of Grupo Colombo have been
valued at fair value, the best measure of which is the closing market price of the Public Shares on December 11, 2015 which was $9.86.
|
Consideration
(in thousands, except share and per share data)
|
| |
Total | |
|
Common stock consideration to be issued at closing | |
| |
|
Shares to be issued | |
| 4,000,000 | |
|
Fair value at December 11, 2015 of shares to be issued | |
| 9.86 | |
|
| |
| | |
|
Total common stock consideration to be issued | |
| 39,440 | |
|
| |
| | |
|
Total consideration due to sellers | |
| 39,440 | |
Calculation of purchase price in excess of net assets acquired
(in thousands, except share and per share data)
|
| |
Total | |
|
| |
| |
|
Total consideration to sellers | |
| 39,440 | |
|
| |
| | |
|
Net assets acquired: | |
| | |
|
| |
| | |
|
Total assets, September 30, 2015 | |
| 108,770 | |
|
| |
| | |
|
Less Net liabilities: | |
| | |
|
| |
| | |
|
Total liabilities, September 30, 2015 | |
| 249,706 | |
|
| |
| | |
|
Net book value, per books as adjusted, September 30, 2015 | |
| (140,936 | ) |
|
| |
| | |
|
Excess of purchase price over net book value of assets acquired before reallocation to identifiable intangibles | |
| 180,376 | |
|
While a final determination of the
value of identifiable intangibles has not been completed, management has made an initial determination that approximately $75,000
of the excess of cost over the net book value of the net assets should be allocated to identifiable intangible assets as shown
in the table below: |
Estimated Identifiable Intangible Assets
(in thousands, except share and per share data)
|
| |
Total | |
|
Trademark | |
| 75,000 | |
|
Lease rights | |
| 23,000 | |
|
Total initially estimated identifiable intangible assets | |
| 98,000 | |
|
Management has also made the initial determination
that all other assets and liabilities to be acquired are primarily estimated to be stated at their fair values, which approximates
their recorded cost. |
|
|
|
Based on the above estimate of identifiable
intangibles, the unidentified excess of purchase price over fair value of assets acquired is as shown below and has been recorded
as goodwill: |
|
Total excess of purchase price over fair value of assets acquired | |
| 180,376 | |
|
Less estimated identified intangibles: | |
| | |
|
Trademark | |
| 75,000 | |
|
Lease rights | |
| 23,000 | |
|
| |
| | |
|
Unidentified excess of purchase price over fair value of assets acquired (goodwill) | |
| 82,376 | |
|
Management believes the
Grupo Colombo’s trademark value is not recognized on Grupo Colombo’s books. The initial determination is based on
the estimate of the value based on the income approach and on the relief from royalties methodology using a 6% rate on net projected
net revenue and a discount rate of 17.4%. |
|
|
|
Additionally, management believes that for certain stores rented by
Grupo Colombo it is possible to receive payment for the lease rights (key money) in case the stores are sold.
Therefore, another intangible that management believes that should be recorded, based on the separability criterion, is
the lease rights. Lease rights were calculated based on the locations that management believes it is possible to sell the
lease rights and the probable amount received when the lease rights are sold. The amount was based on recent
transactions completed by Grupo Colombo during 2015. |
|
Lease rights are already accounted
for in Grupo Colombo’s financial statement at their historical cost. Total amount as of September 30, 2015 was $5,751. Therefore,
such amount was deducted in order to account only for the increase in value when book value is adjusted to the fair value.
The initial values to be attributed to the
identified intangibles are subject to formal appraisal and valuation subsequent to the closing of the transaction and are subject
to change.
|
Note E |
Assuming maximum redemption: this presentation
assumes that holders of all except for $5 million of shares of GGAC Public Shares issued in the IPO exercise their right to have
their shares redeemed and that such shares are converted into their pro rata share of the trust account.
One of the conditions to the Transaction is
that GGAC shall have at least $5 million of net tangible assets following the exercise by holders of GGAC Ordinary Shares issued
in GGAC’s initial public offering of securities and outstanding immediately before the Closing of their right to convert
their shares into a pro rata share of the Trust Fund in accordance with GGAC’s Charter Documents |
|
|
Note F |
In case of maximum redemption, only $5
million of the Trust Account amount will be available after the redemption and converted to permanent capital. $138,458 will
be used to pay converting shareholders reducing shareholders equity. |
|
|
Note G |
Assuming maximum redemption plus $25 million
from Grupo Colombo’s Previous Stockholders: this presentation assumes that holders of all shares
of GGAC Public Shares issued in the IPO exercise their right to have their shares redeemed and that such shares are converted into
their pro rata share of the trust account and Grupo Colombo’s Previous Shareholders will pay converting shareholders $30 million.
According to the Investment Agreement, certain
officers, directors, shareholders and/or their affiliates of Grupo Colombo have committed to purchase at least $30 million of GGAC
Ordinary Shares in the open market. |
|
|
Note H |
In case of maximum redemption, only $5 million of the Trust Account amount will be available after the redemption and converted to permanent capital plus $25 million committed by Grupo Colombo’s previous stockholders. $114,621 will be used to pay off the leaving shareholders reducing shareholders equity. |
|
|
Note I |
Because there is no step up in tax basis due
to the nature of the transactions, there is a permanent difference between amortization recorded for GAAP and tax. This permanent
tax difference will be reduced for annual amortization of the amortizable intangibles recorded in the transaction and will be reduced
only for impairment of Goodwill or sale of the assets.
This entry recording the long term deferred
tax liability reflects the permanent long term deferred tax liability |
Notes to Unaudited Pro Forma Condensed Combined Statements of Operations |
|
Note 1 |
Since lease rights are an amortizable intangible
asset, the amortization expense was adjusted to incorporate the revaluation of the asset to its fair value.
As Grupo Colombo have already recognized expenses
based on the book value of the intangible asset, such amount should be removed and the amortization based on the fair value should
be added.
The estimated useful live was approximately
4 years, based on the information about the book values in Grupo Colombo’s financial statements. |
|
|
Note 2 |
To adjust the income tax due to the effect of the higher amortization expense. |
Note
3 |
Shares
were calculated based on the weighted average shares of GGAC for the year ended on June 30, 2015 and for
the three month period ended September 30, 2015. |
|
|
|
No
redemption case: All shares possible to convert into permanent capital were converted, they were 13,809,040 as of June 30,
2015 and 13,762,388 as of September 30, 2015.
Maximum
redemption case: All shares possible to convert into permanent capital assume to be redeemed, except for shares representing $5,000,001.
To calculate the number of shares we estimated the pro rata amount of the trust account attributable to each share.
Maximum
unaffiliated redemption: All shares possible to convert into permanent capital assume to be redeemed, except for shares representing
$30,000,000. To calculate the number of shares we estimated the pro rata amount of the trust account attributable to each share.
|
|
| |
Year Ended June 30, 2015 | | |
| | |
| |
|
|
|
Before
Consummation
of Transaction |
|
|
Combined
Assuming No
Redemptions |
|
|
Combined
Assuming
Maximum
Redemptions |
|
|
Combined
Assuming
Maximum Unaffiliated
Redemptions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GGAC pro forma weighted average shares | |
| 4,728,666 | | |
| 4,728,666 | | |
| 4,728,666 | | |
| 4,728,666 | |
|
Weighted average of shares issued in transactions | |
| | | |
| 4,000,000 | | |
| 4,000,000 | | |
| 4,000,000 | |
|
Shares converted to capital | |
| | | |
| 13,809,040 | | |
| 13,809,040 | | |
| 13,809,040 | |
|
Weighted average of shares redeemed | |
| | | |
| | | |
| (13,809,040 | ) | |
| (11,321,478 | ) |
|
GGAC pro forma weighted average shares - basic and diluted | |
| 4,728,666 | | |
| 22,537,706 | | |
| 8,728,666 | | |
| 11,216,228 | |
|
| |
Three Months Ended
September 30, 2015 | | |
| | |
| |
|
|
|
Before
Consummation
of Transaction |
|
|
Combined
Assuming No
Redemptions |
|
|
Combined
Assuming
Maximum
Redemptions |
|
|
Combined
Assuming
Maximum Unaffiliated
Redemptions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GGAC pro forma weighted average shares | |
| 4,794,280 | | |
| 4,794,280 | | |
| 4,794,280 | | |
| 4,794,280 | |
|
Weighted average of shares issued in transactions | |
| | | |
| 4,000,000 | | |
| 4,000,000 | | |
| 4,000,000 | |
|
Shares converted to capital | |
| | | |
| 13,762,388 | | |
| 13,762,388 | | |
| 13,762,388 | |
|
Weighted average of shares issued in transactions | |
| | | |
| | | |
| (13,762,388 | ) | |
| (11,275,126 | ) |
|
GGAC pro forma weighted average shares - basic and diluted | |
| 4,794,280 | | |
| 22,556,668 | | |
| 8,793,980 | | |
| 11,281,542 | |
THE CHARTER AMENDMENT PROPOSALS
At the extraordinary general meeting, GGAC will ask its shareholders
to consider and vote upon separate proposals to approve by special resolution amendments to the amended and restated memorandum
and articles of association of GGAC, effective following the business combination, to (i) change the name of GGAC from “Garnero
Group Acquisition Company” to “Garnero Colombo Inc.”; (ii) adjust the existing classification of directors to
conform with the classification described in the director election proposal below; and (iii) remove provisions that will no longer
be applicable to GGAC after the business combination and make certain other immaterial changes.
Proposal to Change GGAC’s Name
If the proposal to change GGAC’s name is approved, effective
following the business combination, all references to “Garnero Group Acquisition Company” in GGAC’s amended and
restated memorandum and articles of association will be deleted and replaced with “Garnero Colombo Inc.” The text of
the proposal to change GGAC’s name to be considered at the extraordinary general meeting is set forth in Annex F.
In the judgment of GGAC’s board of directors, the change of
GGAC’s corporate name is desirable to reflect the business combination with Grupo Colombo. The name “Colombo”
has been associated with the menswear retailer for many years.
Shareholders will not be required to exchange outstanding share
certificates for new share certificates if the amendment is adopted.
Proposal to Adjust the Classification of Directors
If the proposal to adjust the classification of GGAC’s directors
is approved, effective following the business combination, Section 48.10 of GGAC’s amended and restated memorandum and articles
of association, which provides for a classified board of directors, will be deleted and the text of such provision will be inserted
as a new paragraph at the end of Section 26, with such modifications as are necessary for the classes to have the terms set forth
in the director election proposal described below. The text of the proposal to adjust the classification of directors to be considered
at the extraordinary general meeting is set forth in Annex F.
In the judgment of GGAC’s board of directors, the change in
the terms of the directors is desirable to reflect the fact that the entire board of directors will be elected at this extraordinary
general meeting.
Proposal to Remove Inapplicable Provisions and Make Certain
Immaterial Changes
The provisions that are proposed to be deleted apply only during
the period that will terminate upon the consummation of the business combination with Grupo Colombo. Those provisions are:
| ● | the definition in Section 1.1 of terms that are no longer used once the following amendments have been effected; |
| ● | the portion of Section 3.3 that prohibits the ordinary shares, rights, and warrants underlying the units sold in the initial
public offering from being separated until 90 days after the date of the prospectus related to such initial public offering unless
the underwriters in such initial public offering determined an earlier date was acceptable; |
| ● | the portion of Section 8.1 that relates to the repurchase of GGAC’s ordinary shares either in connection with redemption
under Section 48.3 (described below) or mandatory repurchase of certain shares held by the initial shareholders in the event the
underwriters had not exercised the over-allotment in the initial public offering to its full extent; |
| ● | the reference in Section 17.3 to Section 48.13; |
| ● | Section 48.1, which provides that Section 48 applies during the period commencing upon the adoption of such provision and ending
upon either the consummation of a business combination or liquidation of the trust fund in accordance with the provisions of Section
48, and that such section may not be amended prior to a business combination; |
| ● | Section 48.2, which requires that GGAC submit such business combination to its shareholders for approval. In the case of a
meeting called to approve such business combination, Section 48.2 further provides that any business combination approved by a
majority of shares may not be consummated unless GGAC has net tangible assets of at least US$5,000,001 upon such consummation; |
| ● | Section 48.3, which provides that, upon a vote to approve a business combination, the holders of public shares, other than
initial shareholders, officers and directors, may elect to have their public shares repurchased by GGAC for cash at a price equal
to such person’s pro rata share of the trust fund. Section 48.3, however, prohibits a shareholder, acting alone or together
with an affiliate or in concert with another person for the purpose of acquiring, holding or disposing of GGAC ordinary shares,
from exercising this redemption right with respect to more than 30% of GGAC public shares; |
| ● | Section 48.4, which establishes the required time period within which GGAC must consummate a business combination and, if it
fails to do so within such period, requires GGAC to distribute the proceeds of the trust fund to the public shareholders on a pro
rata basis, subject to any funds set aside for claims of creditors, and dissolve; |
| ● | Section 48.5, which specifies that holders of public shares are entitled to receive distributions from the trust account only
upon a repurchase by GGAC in connection with the consummation of a business combination, after a meeting of shareholders approving
such transaction, or upon liquidation of the trust account in the event a business combination is not effected within the required
time period; |
| ● | Section 48.6, which prohibits the directors of GGAC from issuing additional shares that would be permitted to participate in
any manner in the trust account or that would vote as a class with the shares issued in the initial public offering on any business
combination; |
| ● | Section 48.7, which requires approval of uninterested, independent directors of any transaction between GGAC and (i) any shareholder
owning an interest in GGAC’s voting securities that gives such holder a significant influence over GGAC and (ii) any director
or executive officer or any affiliate of GGAC’s directors and executive officers; |
| ● | Section 48.8, which requires review and approval of any payments made to GGAC’s audit committee, with any interested
directors abstaining; |
| ● | Section 48.9, which permits a director of GGAC to vote in respect to an evaluation of a business combination in which he may
have a conflict of interest, provided that such conflict of interest is disclosed to the other directors and that such director
may not vote in connection with the business combination; and |
| ● | Section 48.11, which specifies that the GGAC audit committee will monitor compliance with the terms of the initial public offering
and will take all action necessary to rectify any identified events of non-compliance or otherwise cause compliance with the terms
of the initial public offering. |
If this proposal is approved, effective following the business combination,
the foregoing provisions will be deleted. The other immaterial changes that GGAC proposes to make are:
| ● | to insert language in Section 40.1 to clarify that books of account include material underlying documentation including contracts
and invoices; and |
| ● | to insert language in Section 40.1 to require that books of account be retained for a minimum of five years from the date on
which they are prepared. |
If this proposal is approved, effective following the business combination,
the foregoing provisions will be inserted. The text of the proposal to remove inapplicable provisions and make certain immaterial
changes to be considered at the extraordinary general meeting is set forth in Annex F.
In the judgment of GGAC’s board of directors, each of the
foregoing amendments is desirable for the following reasons:
| ● | the portion of Section 3.3 proposed to be deleted relates to the voluntary separation of GGAC’s units into their component
parts for trading, which took place on July 23, 2014; |
| ● | the other provisions proposed to be deleted relate to the operation of GGAC as a blank check company prior to the consummation
of a business combination and will not be applicable after consummation of the business combination with Grupo Colombo. Accordingly,
such sections will serve no further purpose; and |
| ● | the provisions to be inserted will ensure that proper corporate records are prepared and maintained. |
Recommendation and Vote Required
Each of the charter amendment proposals must be approved by special
resolution by the affirmative vote of the holders of not less than two-thirds of the GGAC ordinary shares entitled to vote and
voting in person or by proxy on such proposal at the extraordinary general meeting.
If the business combination proposal is not approved, the charter
amendment proposals will not be presented at the meeting.
GGAC’S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT GGAC
SHAREHOLDERS VOTE “FOR” THE APPROVAL OF EACH OF THE CHARTER AMENDMENT PROPOSALS.
THE ARTICLES RESTATEMENT PROPOSAL
As indicated above, in addition to the business combination proposal,
certain changes to GGAC’s amended and restated memorandum and articles of association are being proposed to be considered
by GGAC’s shareholders for approval, including the charter amendment proposals. The board of directors of GGAC believes each
of the foregoing is desirable. The GGAC board of directors further believes that, upon consummation of the business combination
and approval of the charter amendment proposals, it is desirable to adopt a second amended and restated memorandum and articles
of association that will incorporate such approved changes, so that a single document exists that fully states the provisions that
constitute GGAC’s memorandum and articles of association.
Accordingly, at the extraordinary general meeting, GGAC will its
our shareholders to consider and vote upon a proposal to approve by special resolution, effective immediately upon consummation
of the business combination and approval of the charter amendment proposals, the amendment and restatement of GGAC’s amended
and restated articles of association by their deletion in their entirety and the substitution in their place of the second amended
and restated memorandum and articles of association to (among other matters) reflect the changes effected by the charter amendment
proposals.
A copy of GGAC’s second amended and restated memorandum and
articles of association, as it will be in effect assuming consummation of the business combination and approval of the charter
amendment proposals is attached hereto as Annex B. The exact text of the charter amendment proposals and the articles restatement
proposal to be considered at the extraordinary general meeting is set forth in Annex F.
Required Vote
The articles amendment proposal must be approved by special resolution
by the affirmative vote of the holders of not less than two-thirds of the GGAC ordinary shares entitled to vote and voting in person
or by proxy on such proposal at the extraordinary general meeting.
If the business combination proposal and the charter amendment proposals
are not approved, the articles restatement proposal will not be presented at the extraordinary general meeting.
GGAC’S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
GGAC SHAREHOLDERS VOTE “FOR” THE APPROVAL OF THE ARTICLES RESTATEMENT PROPOSAL.
THE INCENTIVE COMPENSATION PLAN PROPOSAL
At the extraordinary general meeting, GGAC will ask its shareholders
to consider and vote upon a proposal to approve by ordinary resolution the 2015 Plan.
Background
GGAC’s 2015 Plan has been approved by GGAC’s board of
directors and will take effect upon consummation of the business combination, provided that it is approved by the shareholders
at the extraordinary general meeting. GGAC is submitting the plan to its shareholders for their approval in accordance with the
requirements of the Nasdaq listing standards and so that options granted under the plan may qualify for treatment as incentive
share options and awards under the plan may constitute performance-based compensation not subject to Section 162(m) of the Internal
Revenue Code of 1986, as amended (“IRC”).
A summary of the principal features of the plan is provided below,
but is qualified in its entirety by reference to the full text of the plan, which is attached to this proxy statement as Annex
C. The text of the incentive compensation plan proposal to be considered at the extraordinary general meeting is set forth
in Annex F.
Description of the Plan
The purpose of the plan is to enable GGAC to offer its and its subsidiaries’
employees, officers, directors and consultants whose past, present and/or potential future contributions to GGAC have been, are
or will be important to the success of GGAC, an opportunity to acquire a proprietary interest in GGAC. The various types of incentive
awards that may be provided under the plan are intended to enable GGAC to respond to changes in compensation practices, tax laws,
accounting regulations and the size and diversity of its business.
Administration
The 2015 Plan shall be administered by the board of directors or
a committee of the board. All references in the plan to “committee” mean the board, if no committee has been designated
to administer the plan. If administered by a committee, such committee shall be composed of at least two directors, all of whom
are “outside directors” within the meaning of the regulations issued under Section 162(m) of the IRC and “non-employee”
directors within the meaning of Rule 16b-3 under the Exchange Act. Initially, the compensation committee will administer the plan.
Subject to the provisions of the plan, the committee determines,
among other things, the persons to whom from time to time awards may be granted, the specific type of awards to be granted, the
number of shares subject to each award, share prices, any restrictions or limitations on the awards, and any vesting, exchange,
deferral, surrender, cancellation, acceleration, termination, exercise or forfeiture provisions related to the awards.
Shares Subject to the 2015 Plan
The 2015 Plan will reserve [●] GGAC ordinary shares for issuance
in accordance with the plan’s terms. Ordinary shares subject to other awards that are forfeited or terminated will be available
for future award grants under the plan. Ordinary shares that are surrendered by a holder or withheld by GGAC as full or partial
payment in connection with any award under the plan, as well as any ordinary shares surrendered by a holder or withheld by GGAC
or one of its subsidiaries to satisfy the tax withholding obligations related to any award under the plan, shall not be available
for subsequent awards under the plan.
Under the 2015 Plan, on a change in the number of ordinary shares
outstanding as a result of a dividend on ordinary shares payable in ordinary shares, share forward split or reverse split or other
extraordinary or unusual event that results in a change in the ordinary shares as a whole, the terms of the outstanding award will
be proportionately adjusted.
Eligibility
GGAC may grant awards under the plan to employees, officers, directors
and consultants who are deemed to have rendered or to be able to render significant services to GGAC or its subsidiaries and who
are deemed to have contributed or to have the potential to contribute to the success of GGAC. An incentive share option may be
granted under the 2015 Plan only to a person who, at the time of the grant, is an employee of GGAC or a related company.
Types of Awards
Options. The 2015 Plan provides both for “incentive”
share options as defined in Section 422 of the IRC, and for options not qualifying as incentive options, both of which may be granted
with any other share based award under the plan.
The board or committee determines the exercise price per ordinary
share purchasable under an incentive or non-qualified share option, which may not be less than 100% of the fair market value on
the day of the grant or, if greater, the par value of an ordinary share. However, the exercise price of an incentive share option
granted to a person possessing more than 10% of the total combined voting power of all classes of GGAC’s share capital may
not be less than 110% of the fair market value on the date of grant. The aggregate fair market value of all ordinary shares with
respect to which incentive share options are exercisable by a participant for the first time during any calendar year (under all
of GGAC’s plans), measured at the date of the grant, may not exceed US$100,000 or such other amount as may be subsequently
specified under the IRC or the regulations thereunder.
An incentive share option may only be granted within a ten-year
period from the effective date of the 2015 Plan and may only be exercised within ten years from the date of the grant, or within
five years in the case of an incentive share option granted to a person who, at the time of the grant, owns ordinary shares possessing
more than 10% of the total combined voting power of all classes of GGAC’s share capital.
Subject to any limitations or conditions the board or committee
may impose, share options may be exercised, in whole or in part, at any time during the term of the share option by giving written
notice of exercise to GGAC specifying the number of ordinary shares to be purchased. The notice must be accompanied by payment
in full of the purchase price, either in cash or, if provided in the agreement, in GGAC’s securities or in combination of
the two.
Generally, share options granted under the 2015 Plan may not be
transferred other than by will or by the laws of descent and distribution and all share options are exercisable, during the holder’s
lifetime, only by the holder (or in the event of legal incapacity or incompetency, the holder’s guardian or legal representative).
However, a holder, with the approval of the board or committee, may transfer a non-qualified share option by gift to a family member
of the holder, by domestic relations order to a family member of the holder or by transfer to an entity in which more than 50%
of the voting interests are owned by family members of the holder or the holder.
Generally, if the holder is an employee, no share options granted
under the 2015 Plan may be exercised by the holder unless he or she is employed by GGAC or one of its subsidiaries at the time
of the exercise and has been so employed continuously from the time the share options were granted. However, in the event the holder’s
employment is terminated due to disability, the holder may still exercise his or her vested share options for a period of 12 months
or such other greater or lesser period as the board or committee may determine, from the date of termination or until the expiration
of the stated term of the share option, whichever period is shorter. Similarly, should a holder die while employed by GGAC or a
subsidiary, his or her legal representative or legatee under his or her will may exercise the decedent holder’s vested share
options for a period of 12 months from the date of his or her death, or such other greater or lesser period as the board or committee
may determine or until the expiration of the stated term of the share option, whichever period is shorter. If the holder’s
employment is terminated due to normal retirement, the holder may still exercise his or her vested share options for a period of
12 months from the date of termination or until the expiration of the stated term of the share option, whichever period is shorter.
If the holder’s employment is terminated for any reason other than death, disability or normal retirement, the share option
will automatically terminate, except that if the holder’s employment is terminated by GGAC without cause, then the portion
of any share option that is vested on the date of termination may be exercised for a period of three months (or such other greater
or lesser period as the committee may specify in the award agreement) from the date of such termination or until the expiration
of the stated term of the share option, whichever period is shorter.
Share Appreciation Rights. Under the 2015 Plan, the committee
may grant share appreciation rights in tandem with a share option or alone and unrelated to a share option. The committee may grant
share appreciation rights to participants who have been, or are being, granted share options under the plan as a means of allowing
the participants to exercise their share options without the need to pay the exercise price in cash. In conjunction with non-qualified
share options, share appreciation rights may be granted either at or after the time of the grant of the non-qualified share options.
In conjunction with incentive share options, share appreciation rights may be granted only at the time of the grant of the incentive
share options. A share appreciation right entitles the holder to receive a number of ordinary shares having a fair market value
equal to the excess fair market value of one ordinary share over the exercise price of the related share option, multiplied by
the number of shares subject to the share appreciation right. The granting of a share appreciation right in tandem with a share
option will not affect the number of ordinary shares available for awards under the 2015 Plan. The number of shares available for
awards under the plan will, however, be reduced by the number of ordinary shares acquirable upon exercise of the share option to
which the share appreciation right relates.
Restricted Shares. Under the 2015 Plan, the committee may
award restricted shares either alone or in addition to other awards granted under the plan. The board or committee determines the
persons to whom grants of restricted shares are made, the number of shares to be awarded, the price if any to be paid for the restricted
shares by the person receiving the shares, the time or times within which awards of restricted shares may be subject to forfeiture,
the vesting schedule and rights to acceleration thereof, and all other terms and conditions of the restricted share awards.
The 2015 Plan requires that all restricted shares awarded to a holder
remain in GGAC’s physical custody until the restrictions have terminated and all vesting requirements with respect to the
restricted shares have been fulfilled. GGAC will retain custody of all dividends or distributions made or declared with respect
to the restricted shares during the restriction period. A breach of any restriction regarding the restricted shares will cause
a forfeiture of the restricted shares and any retained distributions. Except for the foregoing restrictions, the holder will, even
during the restriction period, have all of the rights of a shareholder, including the right to vote the shares.
Other Share-Based Awards. Under the 2015 Plan, the committee
may grant other share-based awards, subject to limitations under applicable law, that are denominated or payable in, valued in
whole or in part by reference to, or otherwise based on, or related to, ordinary shares, as deemed consistent with the purposes
of the plan. These other share-based awards may be in the form of purchase rights, ordinary shares awarded that are not subject
to any restrictions or conditions, convertible or exchangeable debentures or other rights convertible into ordinary shares and
awards valued by reference to the value of securities of, or the performance of, one of GGAC’s subsidiaries. These other
share-based awards may include performance shares or options, whose award is tied to specific performance criteria. These other
share-based awards may be awarded either alone, in addition to, or in tandem with any other awards under the 2015 Plan or any of
GGAC’s other plans.
Accelerated Vesting and Exercisability
If any one person, or more than one person acting as a group, acquires
the ownership of GGAC ordinary shares that, together with the shares held by such person or group, constitutes more than 50% of
the total fair market value or combined voting power of GGAC ordinary shares, and GGAC’s board of directors does not authorize
or otherwise approve such acquisition, then the vesting periods of any and all share options and other awards granted and outstanding
under the 2015 Plan shall be accelerated and all such share options and awards will immediately and entirely vest, and the respective
holders thereof will have the immediate right to purchase and/or receive any and all ordinary shares subject to such share options
and awards on the terms set forth in the plan and the respective agreements respecting such share options and awards. An increase
in the percentage of shares owned by any one person, or persons acting as a group, as a result of a transaction in which GGAC acquires
its shares in exchange for property is not treated as an acquisition of shares.
The committee may, in the event of an acquisition by any one person,
or more than one person acting as a group, together with acquisitions during the 12-month period ending on the date of the most
recent acquisition by such person or persons, of assets from GGAC that have a total gross fair market value equal to or more than
50% of the total gross fair market value of all of the assets of GGAC immediately before such acquisition or acquisitions, or if
any one person, or more than one person acting as a group, acquires the ownership of GGAC ordinary shares that, together with the
shares held by such person or group, constitutes more than 50% of the total fair market value or combined voting power of GGAC
ordinary shares, which has been approved by GGAC’s board of directors, (i) accelerate the vesting of any and all share options
and other awards granted and outstanding under the 2015 Plan, or (ii) require a holder of any award granted under the 2015 Plan
to relinquish such award to GGAC upon the tender by GGAC to the holder of cash in an amount equal to the repurchase value of such
award. For this purpose, “gross fair market value” means the value of the assets of GGAC, or the value of the assets
being disposed of, determined without regard to any liabilities associated with such assets and “repurchase value”
means the aggregate fair market value of the shares (if the award to be settled is comprised of ordinary shares) or the aggregate
difference between the fair market value of the shares and the exercise price of the award (if the award is a share option or share
appreciation right).
Notwithstanding any provisions of the 2015 Plan or any award granted
thereunder to the contrary, no acceleration shall occur with respect to any award to the extent such acceleration would cause the
plan or an award granted thereunder to fail to comply with Section 409A of the IRC.
Award Limitation
No participant may be granted awards for more than [●] shares
available for award under the 2015 Plan in any calendar year.
Other Limitations
The board or committee may not modify or amend any outstanding option
or share appreciation right to reduce the exercise price of such option or share appreciation right, as applicable, below the exercise
price as of the date of grant of such option or share appreciation right. In addition, no option or share appreciation right may
be granted in exchange for the cancellation or surrender of an option or share appreciation right or other award having a higher
exercise price.
Withholding Taxes
Upon the exercise of any award granted under the 2015 Plan, the
holder may be required to remit to GGAC an amount sufficient to satisfy all federal, state and local withholding tax requirements
prior to delivery of any certificate or certificates for ordinary shares.
Term and Amendments
Unless terminated by the board, the 2015 Plan shall continue to
remain effective until no further awards may be granted and all awards granted under the plan are no longer outstanding. Notwithstanding
the foregoing, grants of incentive share options may be made only until ten years from the date of the consummation of the acquisition.
The board may at any time, and from time to time, amend the 2015 Plan, provided that no amendment will be made that would impair
the rights of a holder under any agreement entered into pursuant to the plan without the holder’s consent.
New Plan Benefits
To date, no awards have been granted under the 2015 Plan. All awards
under the plan will be at the discretion of the committee and, should the plan receive shareholder approval, no participant would
be guaranteed any award. Therefore, it is not presently possible to determine the benefits or amounts that will be received in
the future pursuant to the plan by GGAC’s named executive officers or any other group.
U.S. Federal Income Tax Consequences
The following discussion of the U.S. federal income tax consequences
of participation in the 2015 Plan is only a summary of the general rules applicable to the grant and exercise of share options
and other awards and does not give specific details or cover, among other things, state, local and foreign tax treatment of participation
in the 2015 Plan. The information contained in this section is based on present law and regulations, which are subject to being
changed prospectively or retroactively.
Incentive Share Options. Participants will recognize no taxable
income upon the grant of an incentive share option. The participant generally will realize no taxable income when the incentive
share option is exercised. The excess, if any, of the fair market value of the shares on the date of exercise of an incentive share
option over the exercise price will be treated as an item of adjustment for a participant’s taxable year in which the exercise
occurs and may result in an alternative minimum tax liability for the participant. GGAC will not qualify for any deduction in connection
with the grant or exercise of incentive share options. Upon a disposition of the shares after the later of two years from the date
of grant or one year after the transfer of the shares to a participant, the participant 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.
If ordinary shares acquired upon the exercise of an incentive share
option is disposed of prior to the expiration of the holding periods described above, the participant will recognize ordinary compensation
income in the taxable year of disposition 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 paid for the shares; and GGAC will qualify for a deduction equal to any amount recognized,
subject to the limitation that the compensation be reasonable.
Non-Qualified Share Options. With respect to non-qualified
share options:
| ● | upon grant of the share option, the participant will recognize no income provided that the exercise price was not less than
the fair market value of GGAC ordinary shares on the date of grant; |
| ● | upon exercise of the share option, if the ordinary shares are not subject to a substantial risk of forfeiture, the participant
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 GGAC will qualify for a deduction in the same amount, subject to the requirement
that the compensation be reasonable; and |
| ● | GGAC will be required to comply with applicable federal income tax withholding requirements with respect to the amount of ordinary
compensation income recognized by the participant. |
On a disposition of the shares, the participant 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. The 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 participant held the shares.
If the shares acquired upon exercise of a non-qualified share option
are subject to a substantial risk of forfeiture, the participant will recognize ordinary income at the time when the substantial
risk of forfeiture is removed, unless the participant timely files under Section 83(b) of the IRC to elect to be taxed on the receipt
of shares, and GGAC will qualify for a corresponding deduction at that time. The amount of ordinary income will be equal to the
excess of the fair market value of the shares at the time the income is recognized over the amount, if any, paid for the shares.
Share Appreciation Rights. Upon the grant of a share appreciation
right, the participant recognizes no taxable income and GGAC receives no deduction. The participant recognizes ordinary income
and GGAC receives a deduction at the time of exercise equal to the cash and fair market value of ordinary shares payable upon the
exercise.
Restricted Shares. A participant who receives restricted
shares will recognize no income on the grant of the restricted shares and GGAC will not qualify for any deduction. At the time
the restricted shares are no longer subject to a substantial risk of forfeiture, a participant will recognize ordinary compensation
income in an amount equal to the excess, if any, of the fair market value of the restricted shares at the time the restriction
lapses over the consideration paid for the restricted shares. A participant’s shares are treated as being subject to a substantial
risk of forfeiture so long as his or her sale of the shares at a profit could subject him or her to a suit under Section 16(b)
of the Exchange Act. The holding period to determine whether the participant has long-term or short-term capital gain or loss begins
when the restriction period expires, and the tax basis for the shares will generally be the fair market value of the shares on
this date.
A participant may elect under Section 83(b) of the IRC, within 30
days of the transfer of the restricted shares, to recognize ordinary compensation income on the date of transfer in an amount equal
to the excess, if any, of the fair market value on the date of transfer of the restricted shares, as determined without regard
to the restrictions, over the consideration paid for the restricted shares. If a participant makes an election and thereafter forfeits
the shares, no ordinary loss deduction will be allowed. The forfeiture will be treated as a sale or exchange upon which there is
realized loss equal to the excess, if any, of the consideration paid for the shares over the amount realized on such forfeiture.
The loss will be a capital loss if the shares are capital assets. If a participant makes an election under Section 83(b), the holding
period will commence on the day after the date of transfer and the tax basis will equal the fair market value of shares, as determined
without regard to the restrictions, on the date of transfer.
On a disposition of the shares, a participant will recognize gain
or loss equal to the difference between the amount realized and the tax basis for the shares.
Whether or not the participant makes an election under Section 83(b),
GGAC generally will qualify for a deduction, subject to the reasonableness of compensation limitation, equal to the amount that
is taxable as ordinary income to the participant, in the taxable year in which the income is included in the participant’s
gross income. The income recognized by the participant will be subject to applicable withholding tax requirements.
Dividends paid on restricted shares that are subject to a substantial
risk of forfeiture generally will be treated as compensation that is taxable as ordinary compensation income to the participant
and will be deductible by GGAC subject to the reasonableness limitation. If, however, the participant makes a Section 83(b) election,
the dividends will be treated as dividends and taxable as ordinary income to the participant, but will not be deductible by GGAC.
Other Share-Based Awards. The federal income tax treatment
of other share-based awards will depend on the nature and restrictions applicable to the award.
Section 162(m) Limits. Section 162(m) of the IRC places a
limit of US$1,000,000 on the amount of compensation that a publicly traded company may deduct in any one year with respect to each
of its chief executive officer and 4 most highly paid executive officers. Certain performance-based compensation approved by shareholders
is not subject to the deduction limit. The 2015 Plan is qualified such that awards under the plan may constitute performance-based
compensation not subject to Section 162(m) of the IRC. One of the requirements for equity compensation plans is that there must
be a limit to the number of shares granted to any one individual under the plan. Accordingly, the 2015 Plan provides that the maximum
number of shares for which awards may be made to any employee in any calendar year is [●]. Under the 2015 Plan the board
of directors or the compensation committee has the power to impose restrictions on awards to ensure that such awards satisfy the
requirements for performance-based compensation under Section 162(m) of the IRC.
Certain Awards Deferring or Accelerating the Receipt of Compensation.
Section 409A of the IRC, enacted as part of the American Jobs Creation Act of 2004, imposes certain new requirements applicable
to “nonqualified deferred compensation plans.” If a nonqualified deferred compensation plan subject to Section 409A
fails to meet, or is not operated in accordance with, these new requirements, then all compensation deferred under the plan may
become immediately taxable. Share appreciation rights and deferred share awards that may be granted under the plan may constitute
deferred compensation subject to the Section 409A requirements. It is GGAC’s intention that any award agreement governing
awards subject to Section 409A will comply with these rules.
Recommendation and Vote Required
The incentive compensation plan proposal must be approved by ordinary
resolution by the affirmative vote of the holders of a majority of the GGAC ordinary shares entitled to vote and voting in person
or by proxy on such proposal at the extraordinary general meeting.
If the business combination proposal is not approved, the incentive
compensation proposal will not be presented at the meeting.
GGAC’S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
GGAC SHAREHOLDERS VOTE “FOR” THE APPROVAL OF THE INCENTIVE COMPENSATION PLAN PROPOSAL.
THE DIRECTOR ELECTION PROPOSAL
Election of Directors
At the extraordinary general meeting, five directors will be elected
to GGAC’s board of directors, effective upon the consummation of the business combination, of whom one will be Class A directors
serving until the annual general meeting of shareholders to be held in 2017, two will be Class B directors serving until the annual
general meeting to be held in 2018 and two will be Class C directors serving until the annual general meeting to be held in 2019
and, in each case, until their successors are elected and qualified.
Upon consummation of the business combination, if the individuals
nominated by GGAC’s nominating committee are elected, the directors of GGAC will be as follows:
| ● | Class A (serving until 2017): John Tonelli; |
| ● | Class B (serving until 2018): Nelson Narciso Filho and Amir Adnani; and |
| ● | Class C (serving until 2019): Mario Garnero and Álvaro Jabur Maluf Jr. |
The exact text of the director election proposal to be considered
at the extraordinary general meeting is set forth in Annex F.
Recommendation and Vote Required
The election of each director must be approved by ordinary resolution
by the affirmative vote of the holders of a majority of the GGAC ordinary shares entitled to vote and voting in person or by proxy
on such proposal at the extraordinary general meeting.
In case any of the nominees becomes unavailable for election to
the board of directors, an event that is not anticipated, the persons named as proxies, or their substitutes, will have full discretion
and authority to vote or refrain from voting for any other candidate in accordance with their judgment.
If the business combination proposal is not approved, the director
election proposal will not be presented at the meeting.
GGAC’S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT GGAC
SHAREHOLDERS VOTE “FOR” EACH OF THE NOMINEES LISTED IN THIS PROXY STATEMENT.
Information about Executive Officers, Directors and Nominees
Currently, GGAC’s board of directors consists of Messrs. Mario
Garnero, Javier Martin Riva, Amir Adnani, John Tonelli and Nelson Narciso Filho. Mr. Mario Garnero also serves as GGAC’s
Chairman of the Board and Chief Executive Officer.
At the effective time of the business combination, in accordance
with the terms of the Investment Agreement, and assuming the election of the nominees set forth in “The Director Election
Proposal,” the board of directors and executive officers of GGAC will be as follows:
Name |
|
Age |
|
Position |
Mario Garnero |
|
78 |
|
Chairman of the Board |
Álvaro Jabur Maluf Jr. |
|
50 |
|
Chief Executive Officer and Director |
Paulo Jabur Maluf |
|
47 |
|
Vice President |
Denis Piovezan |
|
40 |
|
Chief Financial Officer |
Amir Adnani |
|
37 |
|
Director |
Nelson Narciso Filho |
|
60 |
|
Director |
John Tonelli |
|
51 |
|
Director |
Mario Garnero has served as GGAC’s Chairman
of the Board and Chief Executive Officer since GGAC’s inception. GGAC believes Mr. Garnero is well-qualified to serve as
a member of the board due to his business leadership, operational experience and contacts, as well as his diverse activities in
Brazil. Mr. Garnero is the Chairman and Founder of the Brasilinvest Group. The Brasilinvest Group is a business organization established
in 1975 as a private business enterprise operating along the lines of a classic “banquet d’affaires” or merchant
bank. The establishment of the Brasilinvest Group, with activities in energy, alternative energy, real estate, transportation,
agriculture, information technology and telecommunications, has over the years attracted direct investments to Brazil of approximately
US$16 billion, and gathered partners and business associates from 28 different countries, many of which are still minority shareholders
of Brasilinvest. Mr. Garnero is also the President of Jurisul – the Interamerican Institute for Juridical Studies on Mercosur,
Fórum das Américas – a think-tank group established in 1978 to promote and improve global awareness of environmental
issues, and President of the United Nations Association-Brazil, a non-governmental, non-profit organization formed to improve ties
between Brazil and the United Nations. Mr. Garnero was formerly the co-non-Executive Chairman of the Board of Green Power Enterprises,
Inc., a blank check company formed to complete a business combination with one or more businesses or entities. Due to market conditions,
Green Power Enterprises, Inc. never completed its initial public offering and never engaged in any substantive operations. From
1981 to 1991, Mr. Garnero served as Chairman of the Board of NEC do Brasil S/A, a joint-venture between the Brasilinvest Group
and the Japanese NEC, telecommunication company specializing in heavy switchboards and mobile phone technology. From 1982 to 1984,
Mr. Garnero served as President of the National Confederation of Brazilian Industries (CNI), the representative body from the industrial
sector in Brazil, responsible for the first business plan on Ethanol Transportation. During this period a document which contained
the signatures of over 800 prominent leaders of the Brazilian economy, all in support of the production of the ethanol empowered
automobile was produced by CNI. From 1979 to 1981, Mr. Garnero served as President of the National Association of Automotive Vehicle
Manufacturers of Brazil, which included the most important automotive producers in Brazil, such as General Motors, Ford, FIAT and
Volkswagen. From 1981 to 1982, Mr. Garnero served as a member of the National Energy Commission of Brazil. From 1978 to 1981, Mr.
Garnero served as Chairman of ITT-Standard Electric S/A, former subsidiary of ITT (telecommunications sector) in Brazil acquired
by Brasilinvest Group. Mr. Garnero has been the recipient of awards and recognitions such as the Industry Metal of Merit-State
of Piaui Federation of Industry Man of the Year from the Brazilian American Chamber of Commerce, New York, and Citizen of Sao Paulo.
Mr. Garnero graduated from the Law School of Pontific Catholic University of Sao Paulo. Mr. Garnero is fluent in English, French,
Italian, Spanish and Portuguese.
Álvaro Jabur Maluf Jr. has been in the
retail market and in Camisaria Colombo for 27 years. Mr. Jabur Maluf Jr. graduated as a business administrator at Universidade
Mackenzie, in São Paulo, Brazil. Since 1986 he has worked in Colombo Group, having started as a salesperson until he
assumed the management in 1991, together with his brother, Paulo Jabur Maluf. Under Mr. Jabur Maluf’s and Mr. Jabur Maluf
Jr.’s leadership, Grupo Colombo started its expansion process, opening more than 400 stores over the years and assuming a
presence in all Brazilian states. Mr. Jabur Maluf Jr. played a key role in the development of Grupo Colombo’s products, trademark
and opening of stores all over the country, leading the company’s significant expansion in the Brazilian retail market.
Paulo Jabur Maluf has been in the retail market and
in Grupo Colombo for 25 years. He graduated as an engineer at Escola Politécnica da Universidade de São Paulo, in
São Paulo, Brazil. Since 1988 he has worked in the Colombo Group, having assumed its co-management with his brother Álvaro.
Over Mr. Jabur Maluf’s and Mr. Jabur Maluf Jr.’s command the company started its expansion process, opening more than
400 stores over the years and assuming a presence in all Brazilian states. Mr. Jabur Maluf played a key role in the development
of Grupo Colombo’s systems and management controls, as well as on the evolution of the financial services and logistics systems
which allowed Grupo Colombo’s growth.
Denis Piovezan has experience in the retail market
for 11 years and for two years in Grupo Colombo. He graduated as a civil engineer at Universidade Mackenzie and as an economist
at Faculdade de Economia e Administração da Universidade de São Paulo, both in São Paulo, Brazil. He
also has an MBA from New York University – Stern Business School. Previously, Denis has worked in leadership positions in
Ibi Bank (C&A Retail Financial Services), Walmart and Losango (retail arm of HSBC). Mr. Piovezan joined Colombo Group in July
2013 as its Chief Financial Officer, leading Grupo Colombo’s debt restructuring in 2014 through the issuance of debentures.
Amir Adnani has served as a member of GGAC’s
board of directors since June 2014. GGAC believes Mr. Adnani is well-qualified to serve as a member of the board due to his extensive
experience in business development and marketing. Mr. Adnani is a co-founder of Uranium Energy Corp. and has served as President,
Chief Executive Officer, Principal Executive Officer and a director of the company since January 2005. Uranium Energy Corp. is
engaged in uranium mining and related activities, including exploration, pre-extraction, extraction and processing, on uranium
projects located in the U.S. and Paraguay. In September 2004, Mr. Adnani founded and was the sole shareholder, a director and President
of Blender Media Inc., a Vancouver based company that provides strategic marketing and financial communications services to public
companies and investors in mineral exploration, mining, and energy sectors, and served in such capacities until October 2006. In
June 2001, Mr. Adnani co-founded, and from June 2001 to September 2004, was a director and officer of Fort Sun Investments Inc.,
a strategic marketing and financial communications services company for public companies. Mr. Adnani has served as a director and
chairman of the board of Brazil Resources Inc., a mining company listed on the TSX-V, since August 2010. Mr. Adnani holds a Bachelor
of Science degree from the University of British Columbia.
Nelson Narciso Filho has served as a member of GGAC’s
board of directors since February 2014. GGAC believes Mr. Filho is well-qualified to serve as a member of the board due to his
extensive business experience and contacts. Since June 2006, Mr. Filho has served as Director of the ANP, the Brazilian regulatory
agency for the oil, natural gas and biofuels industry. From May 2005 to June 2006, Mr. Filho served as Global Director of Halliburton
Angola. From January 1995 to February 2005, Mr. Filho served as General Manager in Angola and Brazil for ABB Oil, Gas & Petrochemicals,
an engineering, drilling and production equipment company. Mr. Filho studied as a Naval Structures Technician at the Colegio Industrial
Henrique Lage, he graduated in Mechanical Engineering from Faculdade de Engenharia Souza Marques and did post graduation studies
in Industrial Administration and Economical Engineering at the Federal University of Rio de Janeiro.
John Tonelli has served as a member of GGAC’s
board of directors since May 2014. GGAC believes Mr. Tonelli is well-qualified to serve as a member of the board due to his specialized
expertise in finance and emerging markets. Mr. Tonelli has been the Chief Executive Officer of Advanced Global Investments, Ltd.,
a private investment-company with holdings in Eastern Europe, the Middle East and Latin America, since 2009. He is also Chairman
of Advanced Global Securities, a FINRA registered Broker-Dealer based in New York. Mr. Tonelli has over twenty years of experience
in finance, working both as an investment banker and as an attorney. Mr. Tonelli has advised numerous companies and governments
on direct investments, securities issuance, privatizations and infrastructure financings. He has been a director of Converse Bank
since 2009 and a director of Argo Group International Holdings, Ltd. since 2010. From 2003 to 2009, Mr. Tonelli was a Senior Managing
Director with J.P. Morgan & Co., Inc. and Bear Stearns & Co. Inc. where he was Head of International Project Finance and
Emerging Markets Structured Finance. From 1999 to 2003, he was CEO of International Venture Partners, LLC, an NASD member broker-dealer
specializing in emerging markets. From 1992 to 1999, Mr. Tonelli was an attorney with Cadwalader, Wickersham & Taft where he
was head of the Latin American practice group. Mr. Tonelli received a B.A. from Columbia University and a J.D./M.B.A. from Fordham
University.
Meetings and Committees of the Board of Directors of GGAC
During the fiscal year ended June 30, 2015, GGAC’s board of
directors held three meetings, and it held two meetings subsequent to such date. GGAC expects its directors to attend all board
meetings and any meetings of committees of which they are members and to spend the time needed and meet as frequently as necessary
to properly discharge their responsibilities. Each of GGAC’s current directors attended at least 75% of the aggregate number
of meetings of the board and meetings of committees of which he was a member in the last fiscal year. Although GGAC does not have
any formal policy regarding director attendance at general meetings, GGAC will attempt to schedule its meetings so that all of
its directors can attend.
GGAC has a separately standing audit committee, nominating committee
and compensation committee.
Independence of Directors
GGAC adheres to the Nasdaq listing standards in determining whether
a director is independent. The board of directors of GGAC consults with its counsel to ensure that the board’s determinations
are consistent with those rules and all relevant securities and other laws and regulations regarding the independence of directors.
The Nasdaq listing standards define an “independent director” as a person, other than an executive officer of a company
or any other individual having a relationship which, in the opinion of the issuer’s board of directors, would interfere with
the exercise of independent judgment in carrying out the responsibilities of a director. Consistent with these considerations,
the board of directors of GGAC has affirmatively determined that, upon their election to the board of directors and upon consummation
of the business combination, John Tonelli, Amir Adnani, and Nelson Narciso Filho will
be the independent directors of GGAC. Messrs. Tonelli, Adnani and Narciso Filho also
are the current independent directors of GGAC. GGAC’s independent directors have regularly scheduled meetings at which only
independent directors are present.
Board Leadership Structure and Role in Risk Oversight
Upon consummation of the business combination, GGAC intends to keep
the roles of Chairman of the Board and Chief Executive Officer separate. This will permit GGAC’s Chief Executive Officer
to concentrate his efforts primarily on managing the combined company’s business operations and development, while GGAC’s
Chairman of the Board can oversee, among other things, the communications and relations between the board of directors and senior
management, the consideration of GGAC’s strategies and policies and the evaluation of its Chief Executive Officer.
GGAC’s board of directors’ primary function is one of
oversight. Its board of directors as a whole has responsibility for risk oversight and reviews management’s risk assessment
and risk management policies and procedures. The audit committee discusses with management GGAC’s major financial risk exposures
and the committee reports findings to GGAC’s board of directors in connection with its risk oversight review. The compensation
committee strives to create incentives that encourage behavior consistent with GGAC’s business strategy, without encouraging
undue risk-taking.
Audit Committee Information
Effective June 25, 2014, GGAC established an audit committee of
the board of directors, which presently consists of John Tonelli, Amir Adnani, and Nelson
Narciso Filho. Upon consummation of the business combination, the audit committee will continue to consist of Messrs.
Tonelli, Adnani and Narciso Filho, with Mr. Adnani serving as chairman. Each of the members of the audit committee are,
and each of the members of the audit committee upon consummation of the business combination will be, independent under the applicable
Nasdaq listing standards. During the fiscal year ended June 30, 2015, GGAC’s audit committee held two meetings, and it held
two meetings subsequent to such date. Each of GGAC’s audit committee members attended all of the meetings of the audit committee
in fiscal year ended June 30, 2015.
The audit committee has a written charter, which is attached to
this proxy statement as Annex G. The purpose of the audit committee is to appoint, retain, set compensation of, and supervise
GGAC’s independent accountants, review the results and scope of the audit and other accounting related services and review
GGAC’s accounting practices and systems of internal accounting and disclosure controls. The audit committee’s duties,
which are specified in the audit committee charter, include, but are not limited to:
| ● | reviewing and discussing with management and the independent auditor the annual audited financial statements, and recommending
to the board whether the audited financial statements should be included in GGAC’s Form 10-K; |
| ● | discussing with management and the independent auditor significant financial reporting issues and judgments made in connection
with the preparation of GGAC’s financial statements; |
| ● | discussing with management major risk assessment and risk management policies; |
| ● | monitoring the independence of the independent auditor; |
| ● | verifying the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit
partner responsible for reviewing the audit as required by law; |
| ● | reviewing and approving all related-party transactions; |
| ● | inquiring and discussing with management GGAC’s compliance with applicable laws and regulations; |
| ● | pre-approving all audit services and permitted non-audit services to be performed by GGAC’s independent auditor, including
the fees and terms of the services to be performed; |
| ● | appointing or replacing the independent auditor; |
| ● | determining the compensation and oversight of the work of the independent auditor (including resolution of disagreements between
management and the independent auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or
related work; |
| ● | establishing procedures for the receipt, retention and treatment of complaints received by GGAC regarding accounting, internal
accounting controls or reports which raise material issues regarding its financial statements or accounting policies; and |
| ● | approving reimbursement of expenses incurred by GGAC’s management team in identifying potential target businesses. |
Financial Experts on Audit Committee
The audit committee will at all times be composed exclusively of
“independent directors,” as defined for audit committee members under the Nasdaq listing standards and the rules and
regulations of the SEC, who are “financially literate,” as defined under Nasdaq’s listing standards. Nasdaq’s
listing standards define “financially literate” as being able to read and understand fundamental financial statements,
including a company’s balance sheet, income statement and cash flow statement. In addition, GGAC will be required to certify
to Nasdaq that the committee has, and will continue to have, at least one member who has past employment experience in finance
or accounting, requisite professional certification in accounting, or other comparable experience or background that results in
the individual’s financial sophistication. Currently, John Tonelli satisfies
Nasdaq’s definition of financial sophistication and also qualifies as an “audit committee financial expert” as
defined under rules and regulations of the SEC. The board of directors has determined that, upon consummation of the business combination,
Mr. Tonelli will continue to the member of the audit committee satisfying Nasdaq’s definition of financial sophistication
and also qualifying as an “audit committee financial expert” as defined under rules and regulations of the SEC.
Independent Auditors’ Fees
The firm of Marcum LLP (“Marcum”) acts as the independent
registered public accounting firm for GGAC and Grupo Colombo. The following is a summary of fees paid or to be paid to Marcum for
services rendered to GGAC. Marcum has not waived its right to make claims against the funds in GGAC’s trust account for fees
of any nature owed to it.
Audit Fees. During the fiscal year ended June 30, 2015, fees
for GGAC’s independent registered public accounting firm were US$48,000 for the services they performed in connection with
the review of GGAC’s quarterly information on Forms 10-Q and the audit of its June 30, 2015 financial statements included
in its Annual Report on Form 10-K. During the period from February 11, 2014 (inception) through June 30, 2014, fees for its independent
registered public accounting firm were US$63,500 for the services they performed in connection with GGAC’s initial public
offering, including the financial statements included in the Form 8-K filed with the Securities and Exchange Commission on July
8, 2014, the review of GGAC’s March 31, 2014 quarterly information on Form 10-Q and the audit of GGAC’s June 30, 2014
financial statements included in its Annual Report on Form 10-K.
Audit-Related Fees. During the fiscal year ended June 30,
2015, fees for GGAC’s independent registered public accounting firm for audit related services were US$7,400. During the
period from February 11, 2014 (inception) through June 30, 2014, GGAC’s independent registered public accounting firm did
not render audit related services that are not reported as audit fees.
Tax Fees. During the fiscal year ended June 30, 2015 and
the period from February 11, 2014 (inception) through June 30, 2014, GGAC’s independent registered public accounting firm
did not render services to GGAC for tax compliance, tax advice and tax planning.
All Other Fees. During the fiscal year ended June 30, 2015
and the period from February 11, 2014 (inception) through June 30, 2014, there were no fees billed for products and services provided
by GGAC’s independent registered public accounting firm other than those set forth above.
Audit Committee Pre-Approval Policies and Procedures. Since
GGAC’s audit committee was not formed until June 25, 2014, any services rendered prior to its formation were approved by
GGAC’s board of directors. Subsequent to the formation of the audit committee, in accordance with Section 10A(i) of the Exchange
Act, all audit or non-audit services provided by GGAC’s independent accountant have been pre-approved by GGAC’s audit
committee.
Audit Committee Report
GGAC’s audit committee is responsible for supervising GGAC’s
independent accountants, reviewing the results and scope of the audit and other accounting related services and reviewing GGAC’s
accounting practices and systems of internal accounting and disclosure controls, among other things. These responsibilities include
reviewing and discussing with management and the independent auditor the annual audited financial statements. The audit committee
does not itself prepare financial statements or perform audits, and its members are not auditors or certifiers of GGAC’s
financial statements.
In fulfilling its oversight responsibility of appointing and reviewing
the services performed by GGAC’s independent registered public accounting firm, the audit committee carefully reviews the
policies and procedures for the engagement of the independent registered public accounting firm, including the scope of the audit,
audit fees, auditor independence matters and the extent to which the independent registered public accounting firm may be retained
to perform non-audit related services.
The audit committee has reviewed and discussed the audited financial
statements for the year ended June 30, 2015 with GGAC’s management and Marcum, GGAC’s independent registered public
accounting firm. The audit committee also has discussed with Marcum the matters required to be discussed by the Statement on Auditing
Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1, AU Section 380), as adopted by the Public Company Accounting
Oversight Board (U.S.) in Rule 3200T regarding “Communication with Audit Committees.”
The audit committee also has received and reviewed the written disclosures
and the letter from Marcum required by applicable requirements of the Public Company Accounting Oversight Board regarding Marcum’s
communications with the audit committee concerning independence, and has discussed with Marcum its independence from GGAC.
Based on the reviews and discussions referred to above, the audit
committee recommended to the board that the financial statements referred to above be included in GGAC’s annual report on
Form 10-K for the year ended June 30, 2015.
|
Members of the Audit Committee: |
|
|
|
John Tonelli |
|
Amir Adnani |
|
Nelson Narciso Filho |
Nominating Committee Information
Effective June 25, 2014, GGAC established a nominating committee
of the board of directors, which presently consists of John Tonelli, Amir Adnani and Nelson
Narciso Filho. Upon consummation of the business combination, the nominating committee will continue to consist of Messrs.
Tonelli, Adnani and Narciso Filho, with [●] serving as chairman. Each of the members of the nominating committee is
independent under the applicable Nasdaq listing standards. During the fiscal year ended June 30, 2015, GGAC’s nominating
committee did not hold any meetings, but held one meeting subsequent to such date.
The nominating committee has a written charter, which is attached
to this proxy statement as Annex H. The nominating committee is responsible for overseeing the selection of persons to be
nominated to serve on GGAC’s board of directors.
Guidelines for Selecting Director Nominees
The nominating committee considers persons identified by its members,
management, shareholders, investment bankers and others. Currently, the guidelines for selecting nominees, which are specified
in the nominating committee charter, generally provide that persons to be nominated:
| ● | should have demonstrated notable or significant achievements in business, education or public service; |
| ● | should possess the requisite intelligence, education and experience to make a significant contribution to the board of directors
and bring a range of skills, diverse perspectives and backgrounds to its deliberations; and |
| ● | should have the highest ethical standards, a strong sense of professionalism and intense dedication to serving the interests
of the shareholders. |
The nominating committee will consider a number of qualifications
relating to management and leadership experience, background and integrity and professionalism in evaluating a person’s candidacy
for membership on the board of directors. The nominating committee may require certain skills or attributes, such as financial
or accounting experience, to meet specific board needs that arise from time to time and will also consider the overall experience
and makeup of its members to obtain a broad and diverse mix of board members. The nominating committee does not distinguish among
nominees recommended by shareholders and other persons.
Shareholders who wish to recommend a candidate for election to the
board of directors in 2016 should send their letters to Garnero Group Acquisition Company, Av Brig. Faria Lima, 1485 –19
Andar, Brasilinvest Plaza, Sao Paulo-SP, CEP 01452-002, Brazil, Attention: Secretary (if sent before the business combination)
or to Garnero Colombo Inc., Rua São Tomé 119 – 3 Andar, Vila Olímpia, São Paulo-SP, CEP 04551-080,
Brazil (if sent after the business combination). GGAC’s secretary will promptly forward all such letters to the members of
the nominating committee. The secretary must receive the shareholder’s letter no later than thirty days after the end of
GGAC’s fiscal year and the letter must contain the information described in the nominating committee charter.
Each of the nominees for director listed in this proxy statement
were nominated for election by GGAC’s nominating committee.
Compensation Committee Information
Effective as of September 9, 2014, GGAC established a compensation
committee of the board of directors, which consists of John Tonelli, Amir Adnani and Nelson Narciso Filho. Upon consummation of
the business combination, the nominating committee will continue to consist of Messrs. Tonelli,
Adnani and Narciso Filho, with [●] serving as chairman. Each of the members of the nominating committee is independent
under the applicable Nasdaq listing standards. During the fiscal year ended June 30, 2015, GGAC’s compensation committee
did not hold any meetings.
The compensation committee has a written charter, which is attached
to this proxy statement as Annex I. The purpose of the compensation committee will be to oversee GGAC’s compensation
and employee benefit plans and practices, including its executive, director and other incentive and equity-based compensation plans
and, if required, to review and discuss with management GGAC’s compensation discussion and analysis and to prepare a Compensation
Committee Report. A description of the compensation committee’s processes and procedures, including the roles of GGAC’s
executive officers and compensation consultants in the compensation committee’s decision-making process, are set forth in
the “Executive Officer and Director Compensation — Executive Officer and Director Compensation Following the Business
Combination.” The compensation committee’s duties, which are specified in the compensation committee charter, include,
but are not limited to:
| ● | reviewing and approving on an annual basis the corporate goals and objectives relevant to the Chief Executive Officer’s
compensation, evaluating the Chief Executive Officer’s performance in light of such goals and objectives and determining
and approving the remuneration (if any) of the Chief Executive Officer based on such evaluation; |
| ● | reviewing and approving the compensation of all of GGAC’s other executive officers; |
| ● | reviewing GGAC’s executive compensation policies and plans; |
| ● | implementing and administering GGAC’s incentive compensation equity-based remuneration plans; |
| ● | assisting management in complying with GGAC’s proxy statement and annual report disclosure requirements; |
| ● | approving all special perquisites, special cash payments and other special compensation and benefit arrangements for GGAC’s
executive officers and employees; |
| ● | if required, producing a report on executive compensation to be included in GGAC’s annual proxy statement; and |
| ● | reviewing, evaluating and recommending changes, if appropriate, to the remuneration for directors. |
Code of Ethics
On June 25, 2014, GGAC’s board of directors adopted a code
of ethics that applies to GGAC’s directors, officers, and employees and of any subsidiaries GGAC may have in the future (including
its principal executive officer, its principal financial officer, its principal accounting officer or controller, and persons performing
similar functions). GGAC will provide, without charge, upon request, copies of its code of ethics. Requests for copies of GGAC’s
code of ethics should be sent in writing to Garnero Group Acquisition Company, Av Brig. Faria Lima, 1485 – 19 Andar, Brasilinvest
Plaza, Sao Paulo-SP, CEP 01452-002, Brazil, Attention: Secretary (if sent before the business combination), or to Garnero Colombo
Inc., Rua São Tomé 119 – 3 Andar, Vila Olímpia, São Paulo-SP, CEP 04551-080, Brazil (if sent
after the business combination).
EXECUTIVE OFFICER AND DIRECTOR COMPENSATION
This section provides compensation information pursuant to the
scaled disclosure rules applicable to “emerging growth companies” under the rules of the SEC.
Executive Officer and Director Compensation of GGAC
No executive officer or director of GGAC has received any compensation
for services rendered to GGAC. Commencing on the date of GGAC’s prospectus through the business combination, GGAC has and
will pay Brasilinvest Group, an affiliate of Mario Garnero, a fee of US$10,000 per month for providing GGAC with office space and
certain office and secretarial services. This arrangement is solely for GGAC’s benefit and is not intended to provide Mr.
Garnero compensation in lieu of a salary. No compensation or fees of any kind, including finders, consulting or other similar fees,
will be paid to any of GGAC’s existing shareholders, including its officers and directors, or any of their respective affiliates,
prior to, or for any services they render in order to effectuate, the consummation of the business combination. Since its formation,
GGAC has not granted any share options or share appreciation rights or any other awards under long-term incentive plans to any
of its executive officers or directors.
GGAC’s executive officers are reimbursed for any out-of-pocket
expenses incurred in connection with activities on GGAC’s behalf such as identifying potential target businesses and performing
due diligence on suitable business combinations. There is no limit on the amount of these out-of-pocket expenses and there will
be no review of the reasonableness of the expenses by anyone other than GGAC’s board of directors, which includes persons
who may seek reimbursement, or a court of competent jurisdiction if such reimbursement is challenged. Because of the foregoing,
GGAC generally does not have the benefit of independent directors examining the propriety of expenses incurred on its behalf and
subject to reimbursement. As of the date of this proxy statement, GGAC’s officers and directors have been reimbursed for
$[●] in expenses incurred by them and have incurred approximately $40,000 of unpaid reimbursable expenses.
Executive Officer and Director Compensation of Grupo Colombo
Executive Officers and Directors
The following table sets forth the names of the current board of
directors of Grupo Colombo, as well as the name, position and the year of election of each of its executive officers.
Name |
|
Position |
|
Since |
Álvaro Jabur Maluf Jr. |
|
Chairman of the Board of Directors and Chief Executive Officer |
|
1988 |
Paulo Jabur Maluf |
|
Director and Vice Chief Executive Officer |
|
1990 |
Denis Nieto Piovezan |
|
Chief Financial Officer |
|
2013 |
Biographical descriptions for the
directors and executive officers are set forth in “The Director Election Proposal— Information
about Executive Officers, Directors and Nominees.”
Compensation
For the year ended December 31, 2014, the aggregate compensation
paid in cash to the executive officers and directors of Grupo Colombo was R$5,230,000. Non-cash benefits in the year ended December
31, 2014 included reimbursements of medical expenses to its directors and executive officers.
Compensation of the Executive Officers and Directors
The table below indicates the compensation for members of the board
of directors and executive officers for the year ended December 31, 2014:
| |
Board of Directors | | |
Executive officers | | |
Total | |
Number of members | |
| 4 | | |
| 3 | | |
| 7 | |
Fixed annual compensation | |
| N/A | | |
| 4,330,000 | | |
| 4,330,000 | |
Benefits | |
| N/A | | |
| 300,000 | | |
| 300,000 | |
Variable compensation | |
| N/A | | |
| 600,000 | | |
| 600,000 | |
Total compensation | |
| N/A | | |
| 5,230,000 | | |
| 5,230,000 | |
Variable Compensation of the Executive Officers and
Directors
The table below indicates the variable compensation for the executive
officers and board of directors for the year ended December 31, 2014.
| |
Board of Directors | | |
Executive officers | |
Number of members | |
| 4 | | |
| 3 | |
Profit sharing | |
| N/A | | |
| 600,000 | |
Minimum expected amount | |
| N/A | | |
| 0 | |
Maximum expected amount | |
| N/A | | |
| 4,700,000 | |
Expected amount – goals achieved | |
| N/A | | |
| 12.77 | % |
Amount actually recognized | |
| N/A | | |
| 12.77 | % |
Stock Option Agreements
At an extraordinary general meeting of Grupo Colombo held on March
31, 2015 the shareholders of Grupo Colombo approved stock option agreements, which were executed by between Grupo Colombo and Mr.
Denis Nieto Piovezan, Mrs. Marina Balaban Spiero and Mr. Thiago Chaves Ribeiro, as beneficiaries. The options vest and become exercisable
with respect to 100% of the underlying shares upon the occurrence of the change of control of Grupo Colombo or of a liquidity event
that occurs during term of the beneficiary’s employment agreement.
The purpose of the stock option agreements is to: (i) attract and
retain highly qualified executive officers and professionals; (ii) enable its managers and employees to participate in the share
capital of Grupo Colombo and in equity increases arising from the results these managers and employees have generated to Grupo
Colombo; and (iii) to align the interests of its key employees with those of its shareholders, encouraging these professionals
to better perform while ensuring continuity in the management of Grupo Colombo and its subsidiaries.
Employment Agreements
On June 1, 2014, Grupo Colombo executed employment agreements with
Mr. Álvaro Jabur Maluf Jr. and Mr. Paulo Jabur Maluf, for an indefinite term, in order to regulate their rights and obligations
as directors and executive officers of Grupo Colombo. The employment agreements set forth the payment of a fixed monthly gross
amount of R$ 50,000 to each of Mr. Álvaro Jabur Maluf Jr. and Mr. Paulo Jabur Maluf as well as a variable amount, according
to the performance of the executives. The employment agreements provide for a minimum term of five years, commencing on June 1,
2014.
Insurance
Grupo Colombo has a D&O insurance policy with Itaú
Seguros e Soluções Corporativas S.A., effective from December 19, 2014 until December 19, 2015, covering the
managers against damages attributed to them in the exercise of their functions. Coverage is limited to R$ 30,000,000. This policy
also covers the subsidiaries of Grupo Colombo.
Executive Officer and Director Compensation Following the Business
Combination
New Employment Agreements
At the closing effective upon consummation of the business combination,
GGAC and Grupo Colombo will enter into new employment agreements with certain members of its senior management. GGAC and Grupo
Colombo expect that each employment agreement will provide for a mutually agreed upon compensation package and customary restrictive
covenants relating to noncompetition and nonsolicitation.
Director Compensation
GGAC currently does not have a definitive compensation plan for
its future directors or consultants. GGAC, working with the compensation committee, anticipates setting director and consultant
compensation at a level comparable with those directors and consultants with similar positions at comparable companies. It is
currently anticipated that such compensation will be based on cash and/or equity compensation under the 2015 Plan.
THE ADJOURNMENT PROPOSAL
At the extraordinary general meeting, GGAC will ask its shareholders
to consider and vote upon a proposal to adjourn the extraordinary general meeting to a later date or dates, if necessary, to permit
further solicitation and vote of proxies if, based upon the tabulated vote or elections to convert at the time of the extraordinary
general meeting, GGAC is not authorized to consummate the business combination or the closing conditions under the Investment Agreement
are not met. In no event will GGAC solicit proxies to adjourn the extraordinary general meeting or consummate the business combination
beyond the date by which it may properly do so under its amended and restated memorandum and articles of association and the Companies
Law. The text of the adjournment proposal to be considered at the extraordinary general meeting is set forth in Annex F.
Purpose of the Adjournment Proposal
The purpose of the adjournment proposal is to provide more time
for the GGAC initial shareholders, the Controlling Persons or the Optionholders and/or their respective affiliates to make purchases
of public shares or other arrangements that would increase the likelihood of obtaining a favorable vote on the business combination
proposal and to meet the requirement that GGAC have net tangible assets of at least US$5,000,001 upon the consummation of the business
combination with Grupo Colombo, after giving effect to payments to public shareholders who exercise their conversion rights. GGAC
estimates that the latter condition will be met if holders of no more than 13,762,388 of the public shares (representing approximately
95.7% of the public shares) properly demand conversion of their shares into cash. See the section entitled “The Business
Combination Proposal — Interests of GGAC’s Directors, Officers and Others in the Business Combination.”
In addition to an adjournment of the extraordinary general meeting
upon approval of an adjournment proposal, the board of directors of GGAC is empowered under the Companies Law to postpone the meeting
at any time prior to the meeting being called to order. In such event, GGAC will issue a press release and take such other steps
as it believes are necessary and practical in the circumstances to inform its shareholders of the postponement.
Consequences if the Adjournment Proposal is Not Approved
If an adjournment proposal is presented to the meeting and is not
approved by the shareholders, GGAC’s board of directors may not be able to adjourn the extraordinary general meeting to a
later date in the event that, based on the tabulated votes or elections to convert at the time of the extraordinary general meeting,
there are not sufficient votes at the time of the extraordinary general meeting to approve the consummation of the business combination
or as a result of conversions GGAC would have net tangible assets of less than US$5,000,001 upon the consummation of the business
combination, after giving effect to payments to public shareholders who exercise their conversion rights. In any such event, the
business combination would not be completed and, unless GGAC were able to consummate a business combination with another party
no later than June 25, 2016, it would trigger GGAC’s automatic dissolution and liquidation pursuant to the terms of its amended
and restated memorandum and articles of association. This has the same effect as if GGAC had formally gone through a voluntary
liquidation procedure under the Companies Law.
Recommendation and Vote Required
The adjournment proposal must be approved by ordinary resolution
by the affirmative vote of the holders of a majority of the GGAC ordinary shares entitled to vote and voting in person or by proxy
on such proposal at the extraordinary general meeting.
The adjournment proposal will not be submitted if the business combination
proposal is approved.
THE GGAC BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT GGAC
SHAREHOLDERS VOTE “FOR” THE APPROVAL OF THE ADJOURNMENT PROPOSAL.
OTHER INFORMATION RELATED TO GGAC
Introduction
GGAC is a blank check company formed on February 11, 2014 for the
purpose of entering into a merger, share exchange, asset acquisition, share purchase, recapitalization, reorganization or similar
business combination with one or more target businesses.
Formation
In February 2014, GGAC issued one ordinary share in connection with
its formation. On March 26, 2014, GGAC issued an aggregate of 3,593,749 initial shares for US$25,000 in cash, at a purchase price
of approximately US$0.01 share.
Initial Public Offering
On July 1, 2014, GGAC closed its initial public offering of 12,500,000
units, with each unit consisting of one GGAC ordinary share, one right to receive one-tenth of one GGAC ordinary share upon consummation
of an initial business combination and one warrant entitling the holder to purchase one-half of one GGAC ordinary share at a price
of US$11.50 per full share commencing on GGAC’s completion of an initial business combination. Simultaneous with the consummation
of the initial public offering, GGAC consummated the private placement of 563,750 private units at a price of US$10.00 per unit,
generating total proceeds of US$5,637,500. Of the private units, 501,250 were purchased by an affiliate of Mario Garnero, GGAC’s
Chief Executive officer, and 62,500 were purchased by EarlyBirdCapital, the representative of the underwriters in the initial public
offering.
On July 7, 2014, GGAC consummated the closing of an additional 1,875,000
units which were subject to the over-allotment option. The units from the initial public offering (including the over-allotment
option) were sold at an offering price of US$10.00 per unit, generating total gross proceeds of US$143,750,000. In a private sale
that took place simultaneously with the consummation of the exercise of the over-allotment option, the same affiliate of Mario
Garnero and EarlyBirdCapital purchased an additional 70,313 private units at US$10.00 per unit for US$703,130.
After deducting the underwriting discounts and commissions and the
offering expenses, the total net proceeds to GGAC from the offering (including the over-allotment option) and private placements
were US$145,144,227, of which US$144,468,755 was deposited into the trust account and the remaining proceeds of US$675,472 were
deposited in GGAC’s operating account. Approximately US$275,000 of this amounts was used to repay loans and advances from
a related party and pay accounts payable, leaving approximately US$400,000 available to be used to provide for business, legal
and accounting due diligence on prospective business combinations and continuing general and administrative expenses. Through June
30, 2015, GGAC had used all of the net proceeds that were not deposited into the trust fund and had borrowed approximately US$726,000
from related parties to provide for the above mentioned expenses. As of September 30, 2015, there was US$144,621,160 held in the
trust account.
Effecting a Business Combination
General
GGAC is not presently engaged in, and GGAC will not engage in, any
substantive commercial business until it completes the business combination with Grupo Colombo or another target business.
Fair Market Value of Target Business
Pursuant to Nasdaq listing rules, the target business or businesses
that GGAC acquires must collectively have a fair market value equal to at least 80% of the balance of the funds in the trust account
at the time of the execution of a definitive agreement for GGAC’s initial business combination. GGAC’s board of directors
determined that this test was met in connection with its business combination with Grupo Colombo.
Shareholder Approval of Business Combination
In connection with the business combination with Grupo Colombo (or
any other proposed business combination, if such business combination is not completed), GGAC must seek shareholder approval of
such business combination at a meeting called for such purpose at which shareholders may seek to convert their shares, regardless
of whether they vote for or against the proposed business combination, into their pro rata share of the aggregate amount then on
deposit in the trust account, less any taxes then due but not yet paid. Such conversion rights must be effected under GGAC’s
amended and restated memorandum and articles of association and Cayman Islands law as repurchases. Accordingly, GGAC is seeking
shareholder approval of the business combination with Grupo Colombo at the extraordinary general meeting to which this proxy statement
relates and, in connection with such meeting, holders of public shares may convert their shares into cash in accordance with the
procedures described in this proxy statement.
GGAC will consummate the business combination with Grupo
Colombo (or any other proposed business combination, if such business combination is not completed) only if it has net
tangible assets of at least US$5,000,001 upon such consummation, after giving effect to payments to public shareholders who
exercise their conversion rights, and a majority of the outstanding ordinary shares voted are voted in favor of the business
combination. GGAC estimates that the net tangible assets condition will be met if holders of no more than 13,762,388 of the
public shares (representing approximately 95.7% of the public shares) properly demand conversion of their shares into cash.
GGAC chose the net tangible asset threshold of US$5,000,001 to ensure that it would avoid being subject to Rule 419
promulgated under the Securities Act of 1933, as amended. Even though the Controlling Persons have committed to make
US$30,000,000 in open market purchases, GGAC cannot assure you that the net tangible assets condition or the other conditions
to the business combination will be met. As a result, GGAC may not be able to consummate the business combination with Grupo
Colombo and it may not be able to locate another suitable target within the applicable time period, if at all. Public
shareholders may therefore have to wait until June 25, 2016 in order to be able to receive a pro rata share of the trust
account.
The initial shareholders and GGAC’s officers and directors
have agreed (1) to vote any ordinary shares owned by them in favor of any proposed business combination and (2) not to convert
any ordinary shares in connection with a shareholder vote to approve a proposed initial business combination or a vote to amend
the provisions of GGAC’s amended and restated memorandum and articles of association relating to shareholders’ rights
or pre-business combination activity.
At any time prior to the extraordinary general meeting, during a
period when they are not then aware of any material nonpublic information regarding GGAC or its securities, the GGAC initial shareholders,
the Controlling Persons or the Optionholders and/or their respective affiliates may purchase shares from institutional and other
investors who vote, or indicate an intention to vote, against the business combination proposal or to seek, or indicate an intention
to seek, conversion of their shares, or they may enter into transactions with such investors and others to provide them with incentives
to acquire GGAC ordinary shares or vote their shares in favor of the business combination proposal and not seek conversion. While
the exact nature of any such incentives has not been determined as of the date of this proxy statement, they might include, without
limitation, arrangements to protect such investors or holders against potential loss in value of their shares, including the granting
of put options and the transfer to such investors or holders of shares or warrants owned by the GGAC initial shareholders for nominal
value. The funds for any such purchases or incentives will either come from cash available to such purchasing parties or from third
party financing, none of which has been sought at this time. The purpose of such share purchases and other transactions would be
to increase the likelihood of satisfaction of the requirements that the holders of a majority of the GGAC ordinary shares voted
on the business combination proposal at the extraordinary general meeting vote in its favor and that GGAC has net tangible assets
of at least US$5,000,001 upon the consummation of the business combination with Grupo Colombo, after giving effect to payments
to public shareholders who exercise their conversion rights, where it appears that such requirements would otherwise not be met.
Pursuant to the Investment Agreement, the Controlling Persons have
committed to use their commercially reasonable best efforts to purchase, directly or indirectly, at least US$30 million of GGAC
ordinary shares in the open market, and to vote such shares in favor of the business combination and not to exercise their conversion
rights with respect to such shares. As of the date of this proxy statement, there have been no other discussions or agreements
between the GGAC initial shareholders, the Controlling Persons or the Optionholders and/or their respective affiliates and any
investor or holder of GGAC ordinary shares regarding any share purchase or other transactions described above. GGAC will file a
Current Report on Form 8-K to disclose any arrangements entered into or significant purchases made by any of the aforementioned
persons that would affect the vote on the business combination or the conversion threshold. Any such report will include descriptions
of any arrangements entered into or significant purchases by any of the aforementioned persons.
Automatic Liquidation of Trust Account if No Business
Combination
If GGAC does not complete the business combination with Grupo Colombo
(or another target business, if such business combination is not completed) by June 25, 2016, it will trigger GGAC’s automatic
winding up, dissolution and liquidation pursuant to the terms of its amended and restated memorandum and articles of association.
As a result, this has the same effect as if GGAC had formally gone through a voluntary liquidation procedure under the Companies
Law. Accordingly, no vote would be required from GGAC’s shareholders to commence such a voluntary winding up, dissolution
and liquidation.
The amount in the trust account (less US$1,438 representing the
aggregate nominal par value of the public shares) under the Companies Law will be treated as share premium which is distributable
under the Cayman Companies Law provided that immediately following the date on which the proposed distribution is proposed to be
made, GGAC is able to pay its debts as they fall due in the ordinary course of business. If GGAC is forced to liquidate the trust
account, GGAC anticipate that it would distribute to its public shareholders the amount in the trust account calculated as of the
date that is two days prior to the distribution date (including any accrued interest). Prior to such distribution, GGAC would be
required to assess all claims that may be potentially brought against it by its creditors for amounts they are actually owed and
make provision for such amounts, as creditors take priority over the public shareholders with respect to amounts that are owed
to them. GGAC cannot assure you that it will properly assess all claims that may be potentially brought against it. As such, shareholders
could potentially be liable for any claims of creditors to the extent of distributions received by them as an unlawful payment
in the event GGAC enters an insolvent liquidation. Furthermore, while GGAC has obtained and it will continue to seek to have all
vendors and service providers (which would include any third parties it engaged to assist it in any way in connection with its
search for a target business) and prospective target businesses execute agreements with GGAC waiving any right, title, interest
or claim of any kind they may have in or to any monies held in the trust account, there is no guarantee that they will execute
such agreements. Nor is there any guarantee that, even if such entities execute such agreements with GGAC, they will not seek recourse
against the trust account or that a court would conclude that such agreements are legally enforceable.
The initial shareholders have agreed to waive their rights to participate
in any liquidation of GGAC’s trust account or other assets with respect to the initial shares and private shares held by
them and to vote their initial shares and private shares in favor of any dissolution and plan of distribution which GGAC submits
to a vote of shareholders. There will be no distribution from the trust account with respect to GGAC’s warrants and rights,
which will expire worthless.
If GGAC is unable to complete an initial business combination with
Grupo Colombo or another target business and expends all of the net proceeds of its initial public offering, other than the proceeds
deposited in the trust account, and without taking into account interest, if any, earned on the trust account, the per-share distribution
from the trust account would be approximately US$10.05.
The proceeds deposited in the trust account could, however, become
subject to the claims of GGAC’s creditors which would be prior to the claims of the public shareholders. Although GGAC has
obtained and will continue to seek to have all vendors, including lenders for money borrowed, prospective target businesses or
other entities GGAC engages execute agreements with GGAC waiving any right, title, interest or claim of any kind in or to any monies
held in the trust account for the benefit of the public shareholders, there is no guarantee that they will execute such agreements
or even if they execute such agreements that they would be prevented from bringing claims against the trust account, including
but not limited to, fraudulent inducement, breach of fiduciary responsibility or other similar claims, as well as claims challenging
the enforceability of the waiver, in each case in order to gain an advantage with a claim against GGAC’s assets, including
the funds held in the trust account.
Mario Garnero has personally agreed that, if GGAC liquidates the
trust account prior to the consummation of a business combination, he will be liable to pay debts and obligations to target businesses
or vendors or other entities that are owed money by GGAC for services rendered or contracted for or products sold to it in excess
of the net proceeds of the initial public offering not held in the trust account, but only to the extent necessary to ensure that
such debts or obligations do not reduce the amounts in the trust account and only if such parties have not executed a waiver agreement.
However, GGAC cannot assure you that Mr. Garnero will be able to satisfy those obligations if he is required to do so. Accordingly,
the actual per-share distribution could be less than US$10.05, plus interest, due to claims of creditors. Additionally, if GGAC
is forced to file a bankruptcy case or an involuntary bankruptcy case is filed against it which is not dismissed, the proceeds
held in the trust account could be subject to applicable bankruptcy law, and may be included in GGAC’s bankruptcy estate
and subject to the claims of third parties with priority over the claims of the shareholders. To the extent any bankruptcy claims
deplete the trust account, GGAC cannot assure you it will be able to return to the public shareholders at least US$10.05 per share.
Employees
GGAC has two executive officers. These individuals are not obligated
to devote any specific number of hours to GGAC’s matters and intend to devote only as much time as they deem necessary to
its affairs. GGAC does not intend to have any full time employees prior to the consummation of a business combination.
Facilities
GGAC maintains its principal executive offices at Av Brig. Faria
Lima, 1485 – 19 Andar, Brasilinvest Plaza, Sao Paulo-SP, CEP 01452-002, Brazil. The cost for this space is included in the
US$10,000 per-month fee Brasilinvest Group began charging GGAC for general and administrative services commencing on the effective
date of its initial public offering pursuant to a letter agreement between GGAC and Brasilinvest Group. GGAC believes, based on
rents and fees for similar services in Sao Paulo, Brazil, that the fee charged by Brasilinvest Group is at least as favorable as
it could have obtained from an unaffiliated person. GGAC considers its current office space, combined with the other office space
otherwise available to its executive officers, adequate for its current operations. Upon consummation of the business combination,
the principal executive offices of GGAC will be located at Rua São Tomé 119 – 3 Andar, Vila Olímpia,
São Paulo-SP, CEP 04551-080, Brazil.
Legal Proceedings
There are no legal proceedings pending against GGAC.
Periodic Reporting and Audited Financial Statements
GGAC has registered its units, ordinary shares, rights, and warrants
under the Exchange Act and has reporting obligations, including the requirement to file annual and quarterly reports with the SEC.
In accordance with the requirements of the Exchange Act, GGAC’s annual reports contain financial statements audited and reported
on by GGAC’s independent registered public accounting firm. GGAC has filed with the SEC its Annual Report on Form 10-K covering
the fiscal year ended June 30, 2015 and its Quarterly Report on Form 10-Q covering the three months ended September 30, 2015.
GGAC’s Management’s Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion of GGAC’s financial condition
and results of operations should be read in conjunction with GGAC’s consolidated financial statements and notes to those
statements included in this proxy statement. This discussion contains forward-looking statements that involve risks and uncertainties.
Please see “Forward-Looking Statements” and “Risk Factors” in this proxy statement/information statement.
Overview
GGAC is a blank check company, formed on February 11, 2014 to acquire,
through a merger, share exchange, asset acquisition, stock purchase, plan of arrangement, recapitalization, reorganization or other
similar business combination, one or more businesses or entities. Since its initial public offering, its activity has been limited
to the evaluation of business combination candidates and negotiating, structuring and pursuing the consummation of the business
combination with Grupo Colombo, and GGAC will not be generating any operating revenues until the closing and completion of its
business combination with Grupo Colombo or another target business.
GGAC presently has no revenue, has had losses since inception from
incurring formation costs and has no other operations other than the active solicitation of a target business with which to complete
a business combination. GGAC has relied upon the sale of its securities and loans from its officers and directors to fund its operations.
On July 1, 2014, GGAC closed its initial public offering of 12,500,000
units with each unit consisting of one GGAC ordinary share, one right and one warrant. Simultaneous with the consummation of the
initial public offering, GGAC consummated the private placement of 563,750 private units at a price of US$10.00 per unit, generating
total proceeds of US$5,637,500. Of the private units, 501,250 were purchased by an affiliate of Mario Garnero, GGAC’s Chief
Executive officer, and 62,500 were purchased by EarlyBirdCapital, the representative of the underwriters in the initial public
offering.
On July 7, 2014, GGAC consummated the closing of an additional 1,875,000
units which were subject to the over-allotment option. The units from the initial public offering (including the over-allotment
option) were sold at an offering price of US$10.00 per unit, generating total gross proceeds of US$143,750,000. In a private sale
that took place simultaneously with the consummation of the exercise of the over-allotment option, the same affiliate of Mario
Garnero and EarlyBirdCapital, Inc. purchased an additional 70,313 private units at US$10.00 per unit for US$703,130.
After deducting the underwriting discounts and commissions and the
offering expenses, the total net proceeds to GGAC from the offering (including the over-allotment option) and private placements
were US$145,144,227, of which US$144,468,755 was deposited into the trust account and the remaining proceeds of US$675,472 were
deposited in GGAC’s operating account. Approximately US$275,000 of this amount was used to repay loans and advances from
a related party and pay accounts payable, leaving approximately US$400,000 available to be used to provide for business, legal
and accounting due diligence on prospective business combinations and continuing general and administrative expenses.
GGAC’s management has broad discretion with respect to the
specific application of the net proceeds of the offering and the Private Placement, although substantially all of the net proceeds
are intended to be applied generally towards consummating a business combination successfully.
On October 30, 2014, GGAC entered into the SPA with WISeKey, WISeTrust,
and certain shareholders and option holders of WISeKey. Simultaneously with the execution of the SPA, GGAC entered into the APA
by and among GGAC, WISeKey and WISeTrust. On February 26, 2015, the parties mutually agreed to terminate the SPA and the APA. GGAC
then began the process of searching for an alternative business combination to consummate.
On August 26, 2015, GGAC entered into the Investment Agreement,
which was amended and restated on December 17, 2015. Pursuant to the Investment Agreement, (A) the Controlling Persons will make
the Share Contribution and will receive in consideration an aggregate of 3,640,000 newly issued GGAC ordinary shares and (B) the
Optionholders will make the Option Contribution and will receive in consideration an aggregate of 360,000 newly issued GGAC ordinary
shares. A complete description of the terms related to the transaction with Grupo Colombo are set forth elsewhere in this proxy
statement.
Critical Accounting Policy
Ordinary Shares Subject to Possible Conversion
GGAC accounts for its ordinary shares subject to possible conversion
in accordance with the guidance provided in ASC 480 “Distinguishing Liabilities from Equity.” Ordinary shares subject
to mandatory conversion (if any) are classified as a liability instrument and measured at fair value. Conditionally convertible
ordinary shares (including ordinary shares that feature conversion rights that are either within the control of the holder or subject
to conversion upon the occurrence of uncertain events not solely within GGAC’s control) are classified as temporary equity.
At all other times, ordinary shares are classified as stockholders’ equity. GGAC’s ordinary shares feature certain
conversion rights that are considered by it to be outside of GGAC’s control and subject to the occurrence of uncertain future
events. Accordingly at September 30, 2015, the ordinary shares subject to possible conversion are presented as temporary equity,
outside of the shareholders’ equity section of GGAC’s balance sheet.
Results of Operations
GGAC has neither engaged in any business operations nor generated
any revenues to date. Its entire activity from inception up to the closing of the initial public offering on July 1, 2014 was in
preparation for that event. Subsequent to the initial public offering, GGAC’s activity has been limited to the evaluation
of business combination candidates, and GGAC will not be generating any operating revenues until the closing and completion of
an initial business combination. GGAC has, and expects to continue to, generate small amounts of non-operating income in the form
of interest income on cash and cash equivalents. Interest income is not expected to be significant in view of current low interest
rates on risk-free investments (treasury securities). GGAC expects to incur increased expenses as a result of being a public company
(for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses.
For the three months ended September 30, 2015, GGAC had net losses
of $322,940, which consisted of operating expenses of $392,363 offset by interest income from the trust account of $69,423. For
the three months ended September 30, 2014, GGAC had net losses of $221,936, which consisted of operating expenses of $247,065 offset
by interest income from the trust account of $25,129. GGAC’s operating expenses for both periods principally consisted of
expenses related to its public filings and listing and identification and due diligence related to a potential target business,
and to a lesser extent, general operating expenses including rent, insurance and office expenses. Until GGAC consummates a business
combination, it will have no operating revenues.
For the year ended June 30, 2015, GGAC had net losses of US$1,091,626,
which consisted of operating expenses of US$1,204,763 offset by interest income from its trust account of US$113,137. GGAC’s
operating expenses principally consisted of expenses related to its public filings and listing and identification and due diligence
related to a potential target business, and to a lesser extent, general operating expenses including rent, insurance and office
expenses. Until GGAC consummates a business combination, it will have no operating revenues. For the period from February 11,
2014 (inception) through June 30, 2014, GGAC had net losses of US$8,958, which consisted of formation and operating costs.
Liquidity and Capital Resources
As of September 30, 2015 and June 30, 2015, GGAC had cash of US$20,283
and US$278, respectively.
Through September 30, 2015, GGAC’s liquidity needs were satisfied
through receipt of US$25,000 from the sale of the insider shares, approximately US$30,000 of interest earned on the trust account
which was transferred to GGAC’s operating account, loans and advances from Brasilinvest International LLC, an affiliate of
GGAC’s Chief Executive Officer, and other entities controlled by GGAC’s Chief Executive Officer, in an aggregate amount
of US$1,303,721 (of which US$224,971 was repaid with proceeds of the initial public offering), and the initial public offering,
which resulted in approximately US$400,000 of net proceeds held outside of the trust account (after the payment of all costs related
to the offering and the repayment of the loan from Brasilinvest International LLC).
GGAC intends to use substantially all of the net proceeds of the
initial public offering, including the funds held in the trust account, to acquire Grupo Colombo or another target business or
businesses and to pay its expenses relating thereto, including a fee payable to EarlyBirdCapital in an amount up to US$4,600,000
(exclusive of any applicable finders’ fees which might become payable) upon consummation of the initial business combination
for assisting GGAC in connection therewith. If the business combination with Grupo Colombo is completed, such funds may be used
to pay the holders of the public shares who exercise conversion rights, to pay expenses incurred in connection with the business
combination with Grupo Colombo and for working capital of GGAC and Grupo Colombo and other general corporate purposes after the
business combination. If the business combination with Grupo Colombo is not consummated, but GGAC consummates an alternate business
combination, such funds also may be used to pay any cash consideration in such alternate businesss combination. To the extent that
the proceeds from the trust account are not used for such purposes, the remaining proceeds held in the trust account as well as
any other net proceeds not expended will be used as working capital to finance the operations of the target business. Such working
capital funds could be used in a variety of ways including continuing or expanding the target business’ operations, repayment
of existing indebtedness of the company, for strategic acquisitions and for marketing, research and development of existing or
new products. Such funds could also be used to repay any operating expenses or finders’ fees which GGAC had incurred prior
to the completion of the initial business combination if the funds available to GGAC outside of the trust account were insufficient
to cover such expenses.
Interest earned on the trust account balance through September 30,
2015 available to be released to GGAC amounted to approximately $152,000. Interest to be earned on the trust account balance to
be released to GGAC to fund working capital requirements from October 1, 2015 through June 25, 2016 is estimated to be approximately
$208,000.
Prior to the consummation of the initial business combination, GGAC
will have available to it, in addition to the US$20,283 in its operating account at September 30, 2015, the interest earned on
the trust account balance (net of income, and other tax obligations) through September 30, 2015 available to be released to GGAC
of approximately $152,000, and interest expected to be earned in the trust account balance (net of income, and other tax obligations)
that may be released to us to fund our working capital requirements from October 1, 2015 through June 25, 2016, which we anticipate
will be approximately $208,000. In addition, GGAC’s Chief Executive Officer, Mario Garnero, who had loaned GGAC $1,078,750
as September 30, 2015 and has loaned GGAC an additional $149,900 through the date of this proxy statement, may in the future loan
additional amounts to GGAC in order to meet GGAC’s working capital needs prior to the closing of a business combination.
$725,878 of these loans were evidenced by notes entered into on September 28, 2015. All loans will either be repaid upon the consummation
of a business combination or, at the option of the holder, up to $500,000 may be converted into additional working capital units
at a price of $10.00 per unit.
Based on the foregoing, GGAC believes it will have sufficient cash
to meet its needs through the earlier of consummation of a business combination or June 26, 2016, the date its liquidation will
be triggered if a business combination is not consummated. Over this time period, GGAC will be using such funds to pay existing
accounts payable and to consummate the business combination with Grupo Colombo. If the business combination with Grupo Colombo
is not completed, GGAC also will be using these funds for identifying and evaluating prospective acquisition candidates, performing
business due diligence on prospective target businesses, traveling to and from the offices, plants or similar locations of prospective
target businesses, reviewing corporate documents and material agreements of prospective target businesses, selecting the target
business to acquire and structuring, negotiating and consummating an alternate business combination.
If GGAC’s estimates of the costs of completing an initial
business combination are less than the actual amounts necessary to do so, or the amount of interest available to GGAC from the
trust account is less than it expects as a result of the current interest rate environment, and it is not able to obtain additional
financing, GGAC may have insufficient funds available to operate its business prior to its initial business combination. Furthermore,
following the initial business combination, if cash on hand is insufficient, GGAC may need to obtain additional financing in order
to meet its obligations.
Contractual Obligations
| |
Payments due by period | |
| |
Total | | |
Within 1 year | | |
1+ years | |
| |
| | |
| | |
| |
Fee payable to Brasilinvest International LLC for office space and general and administrative services | |
$ | 90,000 | | |
$ | 90,000 | | |
$ | - | |
| |
| | | |
| | | |
| | |
TOTAL | |
$ | 90,000 | | |
$ | 90,000 | | |
$ | - | |
Off-Balance Sheet Arrangements
GGAC did not have any off-balance sheet arrangements as of September
30, 2015.
Market Risk
As of September 30, 2015, GGAC was not subject to any market or
interest rate risk. Following the consummation of the its initial public offering, the net proceeds of its initial public offering,
including amounts in the trust account, have been invested in U.S. government treasury bills, bonds or notes having a maturity
of 180 days or less, or in certain money market funds that invest solely in U.S. treasuries. Due to the short-term nature of these
investments, GGAC believes there will be no associated material exposure to interest rate risk.
BUSINESS OF GRUPO COLOMBO
Overview
Grupo Colombo was incorporated in Brazil under Brazilian law and
has been a pioneer in the Brazilian apparel retail sector, opening its first store in 1917, in the city of São Paulo, under
the name Camisaria Colombo by the immigrant Aziz Jabur. Grupo Colombo moved from its founding location in 1965 and opened
its first subsidiary in the Ibirapuera Shopping in 1990. On August 8th, 2007 the business of Grupo Colombo was conducted by Q1
Comercial de Roupas Ltda., a Brazilian limited liability company (sociedade empresária limitada) owned by Mr. Aziz
grandchildren, Alvaro Jabur Maluf Jr. and Paulo Jabur Maluf, which was subsequently converted into a closely-held corporation (sociedade
por ações de capital fechado) and renamed to Q1 Comercial de Roupas S.A. on January 4th, 2011. Grupo Colombo’s
headquarters is located at Avenida Historiador Rubens de Mendonça, no 1,894, room 106, Cuiabá, MT, Brazil. Its principal
executive office is located at Rua São Tomé, no. 119, 3rd floor, São Paulo, SP, Brazil (telephone:
55 11 3048-0700).
Brazilian economic reforms implemented in 1994, including the introduction
of the real as the Brazilian currency and the drastic reduction of inflation rates, resulted in an unprecedented growth
in local consumer markets. This increase in available income and the resulting increase in consumer confidence broadened the potential
customer base and provided Grupo Colombo with growth opportunities.
Grupo Colombo responded to these changes by strengthening its capital
structure, increasing its logistics and technology investments and implementing an expansion strategy focused on the consumer preferences
of the emerging classes B and C of the Brazilian population (see table in item “The Brazilian Retail Industry” below
for a description of the social classes in Brazil).
Grupo Colombo has been growing at an accelerated rate since 1990.
The following table shows the number of stores at various intervals since that 1990.
Year | |
No. of Stores | |
1990 | |
| 1 | |
1995 | |
| 6 | |
2000 | |
| 15 | |
2005 | |
| 66 | |
2010 | |
| 209 | |
2014 | |
| 434 | |
2015* | |
| 397 | |
* Through December 16, 2015.
Grupo Colombo believes its rapid growth was possible due to the
certain principles adopted by senior management over the years, including (a) offering basic products with low exposure to fashion
trends; (b) focusing on products with high turnover and low dependency on weather conditions; and (c) offering the best value for
money among the apparel retail of the Brazilian market.
In order to enable its growth in number of stores and to implement
the investment strategy outlined for Grupo Colombo, Grupo Colombo’s controlling shareholders entered into a partnership with
Gávea Investimentos in 2011. Gávea Investimentos made investments in Grupo Colombo in 2011 and again in 2014, acquiring
an aggregate equity stake of 49.9%. After the investment by Gávea Investimentos in 2014, Grupo’s controlling shareholders
held 51.1% of the equity issued by Grupo Colombo.
In 2015, the Grupo Colombo shares held by Gávea
Investimentos were acquired by Grupo Colombo’s current controlling shareholders, Álvaro Jabur Maluf Jr. and Paulo
Jabur Maluf. Currently, Mr. Jabur Maluf Jr. and Mr. Jabur Maluf own 100% of the total capital stock of Grupo Colombo.
Grupo Colombo is currently one of the largest retailers of men’s
shirts (5,000,000 per year) and suits (over 500,000 per year) in Latin America and the only large scale retailer in formal wear
segment in Brazil focused on the social classes B and C. According to the Exame Magazine, Grupo Colombo is one of the 3 most valuable
brands in the Brazilian apparel retail sector (Exame / Dom Strategy Partners).
Organizational Structure
Grupo Colombo conducts its operations through Q1 Comercial de Roupas
S.A. and its subsidiaries (AMD Comércio de Roupas Ltda., ADM Comércio de Roupas Ltda., Q1 Serviço
e Recebimento Ltda. and Q1 Comercial de Roupas da Amazônia Ltda.). The share capital of the subsidiaries is wholly
owned by Grupo Colombo (except for the minority equity interest, less than 1%, held by the controlling shareholders in order to
comply with the regulation applied to Brazilian limited liability companies). Messrs. Jabur Maluf Jr. and Jabur Maluf each own
50% of the outstanding shares of Grupo Colombo.
Capital Expenditures and Investment Plan
As part of its capital expenditures and investment plan, Grupo Colombo
has invested approximately R$ 211 million in its operations in the three years ended December 31, 2014. Its capital expenditure
and investment plan for 2015 contemplates capital expenditures and investments for 2015 in the total amount of approximately R$ 48
million relating to (i) the opening of new stores, (ii) the renovation of existing stores, and (iii) improvements to information
technology, logistics and other infrastructure-related capital expenditures and investments. Grupo Colombo has historically financed
its capital expenditures and investments primarily through by debt financing. Grupo Colombo plans to continue financing its capital
expenditures and investments principally with cash flow from its operations, as the Business Combination is expected to reduce
the outstanding indebtedness of Grupo Colombo, improving its current capital structure. Grupo Colombo’s investments in the
last three years have included:
| ● | Opening new stores – Grupo Colombo opened new stores from 2012 through 2014. The total cost of opening these new
stores from 2012 through 2014 was approximately R$ 110 million. |
| ● | Renovating existing stores – Grupo Colombo usually remodels a number of stores every year. Through its renovation
program Grupo Colombo creates a more modern, customer-friendly and efficient environment, and outfit its stores with advanced information
technology systems. The total cost of renovating stores from 2012 through 2014 was approximately R$ 15 million. |
| ● | Improvements to information technology – Grupo Colombo views technology as an important tool for efficiency and
security in the flow of information among stores, distribution centers, suppliers and corporate headquarters. It has made significant
investments in information technology in an aggregate amount of approximately R$ 21.7 million from 2012 through 2014. For
more information on its information technology, see the subheading “Technology” below. |
| ● | Expansion of distribution facilities – Since 2010, Grupo Colobmo has opened a distribution center in the city
of Araçariguama, State of São Paulo. The increase and improvement in storage space enables it to further centralize
purchasing for its stores and, together with improvements to its information technology, improve the overall efficiency of its
inventory flow. Grupo Colombo invested an aggregate of approximately R$ 30.9 million on its distribution facilities from 2012
through 2014. |
The Brazilian Retail Industry
The Brazilian apparel retail industry represented approximately
1.6% of Brazil’s gross domestic product, or GDP, in 2014. According to the Euromonitor International, the apparel retail
industry in Brazil had gross revenues of approximately R$ 89.7 billion in 2014, representing a 2.74% nominal increase compared
with 2013.
The Brazilian apparel and footwear retail industry is highly fragmented.
Despite consolidation within the industry, according to Euromonitor International, the 5 largest chains represented approximately
19.1% of the apparel retail industry in 2014, as compared to 18.2% in 2013. Grupo Colombo’s consolidated gross sales represented
0.5% of the gross sales of the entire apparel retail industry in 2014, also according to Euromonitor International.
According to reports published by Euromonitor International, the
volume of sales in the Brazilian apparel retail sector decreased by 0.7% in 2014 compared to 2013. This data mainly reflects the
economic slowdown, which led to negative expectations and impacted consumer decision making. It also encouraged consumers to prioritise
debt payment over consumption, leaving their remaining disposable income for daily staples and necessities, moving away from discretionary
spending.
According to the Brazilian Institute of Geography and Statistics,
or IBGE, the total population of Brazil was approximately 203 million in 2014, a 17.6% increase since 2001. Because more than 84%
of the population lives in urban areas (where most of Grupo Colombo’s stores are located) and the urban population has been
increasing at a greater rate than the population as a whole, Grupo Colombo believes its business is particularly well positioned
to benefit from Brazil’s urban growth and economies of scale related to urban growth. According to an IBGE estimate for 2014,
the State of São Paulo has a population of approximately 44 million. São Paulo is the largest state in Brazil, representing
21.7% of the Brazilian population and is Grupo Colombo’s largest consumer market. However, in the past three years, Grupo
Colombo has experienced significant growth in the Northeast region which already represents 25% of its total sales.
According to IBGE, gross income in Brazil increased approximately
4.4% in 2014 compared to 2013. During the same period, private consumption increased 0.9%, and Brazil’s GDP also increased
0.1%. Among the reasons cited for the growth are the 2.7% increase in average real income and the 7.2% increase in household credit
as a percentage of GDP.
According to the Getúlio Vargas Foundation (Fundação
Getúlio Vargas), or FGV, the Gini index, a measure of income inequality, in Brazil has decreased for the 12th consecutive
year, in January 2012 reaching the lowest level since the 1960’s (0.5190). During the past 10 years, income for the poorest
50% in Brazil increased 68%, while it increased only 10% for the richest 10%.
The Brazilian retail industry is perceived as essentially growth-oriented,
because retail margins are substantially more constrained compared to other industries. Grupo Colombo is therefore intrinsically
dependent on the growth rate of Brazil’s urban population and its different income levels. However, Grupo Colombo believes
that it is able to deliver margins that are higher than the industry average because its business allows for increased scale. While
living expenses in Brazil are lower than those in North America, Western Europe and Japan, Brazilian household income levels are
also substantially lower.
The following table sets forth the different income class levels
of Brazilian households, according to the Consumption Potential Index (Índice de Potencial de Consumo), or IPC, Maps
2013.
Class Level | |
Average Monthly
Income (in R$) | |
A1 | |
| 24,770 | |
A2 | |
| 13,261 | |
B1 | |
| 11,110 | |
B2 | |
| 4,335 | |
C1 | |
| 2,321 | |
C2 | |
| 1,470 | |
D | |
| 1,070 | |
E | |
| 732 | |
According to a study by IPC Maps 2013, classes A1 and A2 households
will account for only 4.6% of the urban population and classes B1 and B2 households will account for 33.4% of the urban population.
Classes C1, C2, D and E will collectively represent 62.0% of all urban households. In recent years, the number of class C, D and
E households has increased in terms of total urban households and their average purchasing power has increased.
Grupo Colombo expects that increased consumption by the lower income
class levels will occur over time as a result of a steadily growing population and new markets penetration. The Brazilian monthly
minimum wage increased 8.8% from R$724.00 in January 2014 to R$788.00 in January 2015. The management of Grupo Colombo believes
based on internal data for the years immediately following the introduction of the real in 1994, that even small purchasing
power increments generally result in significant increases in consumption in absolute terms, as well as increased expenditures
in the products sold by Grupo Colombo.
Grupo Colombo’s Market Share and Geographic Reach
Grupo Colombo is one of the largest apparel retailers in Brazil,
with a market share of approximately 1.8%, with a potential to reach 5.9% among the B and C social classes in 2014, according to
the Brazilian Institute of Public Opinion and Statistics, or IBOPE. As of December 31, 2014, Grupo Colombo’s total gross
sales totaled R$ 730 million. As of that date, it operated 434 stores in all of the Brazilian states and the Federal District,
in addition to a distribution center located in the City of Araçariguama, State of São Paulo, Brazil.
Grupo Colombo currently has the capacity to supply up to 900 stores,
without any requirements or distribution center expansion. Nonetheless, Grupo Colombo was granted by the government of the State
of Mato Grosso, Brazil, the right to construct and explore a 30,000 m2 land property located in the State of Mato Grosso, Brazil,
which is owned by the local government in order to build a new distribution center (warehouse).
Furthermore, the State of Mato Grosso has granted Grupo Colombo
a tax benefit for the collection of the tax on circulation of goods (ICMS tax) over imported products, reducing the rate of such
tax to 2% over the FOB price (against 18% over the full price in the State of São Paulo).
Grupo Colombo focuses its activities in the Brazilian market, the
largest apparel market in Latin America. Nonetheless, Grupo Colombo aims at expanding its operation in Latin America through the
opening of new stores, e-commerce, local partners and multi-brand stores.
According to a market study developed by IBOPE, there is a potential
for 1,085 men’s Grupo Colombo stores in Brazil. The study also indicated a potential market for women’s Grupo Colombo
stores in every city where Grupo Colombo already has its men’s store. This results in a potential of over 2,000 Grupo Colombo
stores in the country.
Assuming that the investment to be made in connection with the Business
Combination will also be used for its organic growth, Grupo Colombo expects to open 10 stores in 2015 and 140 stores in 2016 and
2017.
Grupo Colombo also considers (a) an increase in the e-commerce sales
in the upcoming years due to higher on-line marketing investments, (b) acquisition of a potential competitor (inorganic expansion),
(c) the start of operations in other Latin America countries through multi-brand stores, as well as (d) to explore/convert stores
into franchises.
Number of Stores
The following table sets forth the total number of stores at the
end of the following years:
As of December 31, | |
No. of Stores | |
2011 | |
| 276 | |
2012 | |
| 353 | |
2013 | |
| 393 | |
2014 | |
| 434 | |
2015* | |
| 397 | |
* Through December 16,
2015.
Geographic Distribution of Stores
Grupo Colombo has stores in all of the regions of Brazil, but operates
mainly in the Southeast region, which consists of the states of São Paulo, Rio de Janeiro, Minas Gerais and Espírito
Santo. The Southeast region accounted for 56.5% of Grupo Colombo’s consolidated net revenue for the year ended December 31,
2014, while the other Brazilian regions (North, Northeast, Center West and South regions) in the aggregate accounted for the remaining
consolidated net operating revenue for the year ended December 31, 2014. In addition, none of these regions represents individually
more than 25% of the consolidated net operating revenue.
The following table sets forth the number of Grupo Colombo’s
stores by region as of December 31, 2014:
| |
Southeast Region(1) | | |
South
Region(2) | | |
Northeast
Region(3) | | |
North
Region(4) | | |
Middlewest Region(5) | |
Colombo Stores | |
| 260 | | |
| 40 | | |
| 78 | | |
| 26 | | |
| 30 | |
% of Revenues | |
| 56.5 | % | |
| 6.5 | % | |
| 22.6 | % | |
| 6.7 | % | |
| 7.7 | % |
(1) This area comprises the states of São Paulo, Rio de Janeiro,
Espírito Santo and Minas Gerais.
(2) This area comprises the states of Paraná, Rio Grande
do Sul and Santa Catarina.
(3) This area comprises the states of Alagoas, Bahia, Ceará,
Paraíba, Pernambuco, Piauí, Rio Grande do Norte and Sergipe.
(4) This area comprises the states of Amazonas, Pará, Tocantins,
Maranhão, Amapá, Roraima, Rondônia and Acre.
(4) This area comprises the states of Goiás, Mato Grosso,
Mato Grosso do Sul and the Federal District.
Grupo Colombo’s Business and Operations
Grupo Colombo’s stores specialize in the sale of formal wear
and smart casual men’s and women’s apparel. As of December 31, 2014, Grupo Colombo operated 434 stores. In the year
ended December 31, 2014, Colombo stores’ gross sales totaled R$ 730 million, an increase of 12,4% compared to
the year ended December 31, 2013.
Grupo Colombo’s stores target middle- and lower-income
customers (B and C income classes), who are attracted by flexible payment alternatives, including installment plans. The Grupo
Colombo’s stores also offer a range of value-added services, such as insurances, prepaid cell phones recharges, prepaid cards,
gift cards, during and after sales.
In the year ended December 31, 2014, Grupo Colombo opened 75 new
stores, of which 62 stores located in shopping malls and 13 street stores. In December 2014, Grupo Colombo owned 338 stores located
in shopping malls and 96 street stores, across all the regions of Brazil.
Consistent with its strategy to expand its share of the sales of
apparel through e-commerce, in 2013 Grupo Colombo implemented its e-commerce sales channel, which consisted of remote sales of
a broad product mix through the website www.camisariacolombo.com.br.
In the year ended December 31, 2014, Grupo
Colombo’s e-commerce service had net operating revenue of R$10.8 million, approximately 1.9% of total revenue. For the month
of December 2014, the e-commerce sale channel generated the largest amount of revenue of any of Grupo Colombo’s
physical stores.
Grupo Colombo expects its e-commerce sale channel to reach 5.3%
of the total sales by 2017, due to higher on-line marketing investments and improvements in the online purchase experience to its
customers.
Apart from direct sales in its stores and sales through e-commerce,
in 2014, Grupo Colombo increased its efforts in the multi-brand and business-to-business (B2B) sales channel, by hiring dedicated
salespersons to sell packs of products to multi-brand stores and marketplace platforms, such as Americanas.com and Netshoes. Grupo
Colombo considers this sales channel to have the potential in the upcoming years to achieve R$20 million and multi-brand sales
to achieve R$10 million by the end of 2017.
Seasonality
Grupo Colombo has historically experienced seasonality in its results
of operations, principally due to traditionally stronger sales in the fourth quarter holiday season and August Father’s day.
Average sales revenues during the fourth quarter are typically 67% above average sales revenues during the other quarters.
Products
Grupo Colombo does not manufacture the products sold under its own
exclusive brands. These products are manufactured by suppliers who are carefully selected by Grupo Colombo, after it has thoroughly
evaluated the quality of their service and their capacity to meet its demand. The development of products carrying Colombo’s
label is guided by a detailed process aimed at standardizing its products and ensuring the products’ manufacturing and launch
within the commercial and strategic targets of its brands and compliance with Grupo Colombo’s quality standards.
All of the products of Grupo Colombo are ready-for-sale products
that it purchases and resells to its end-user consumers or to corporations or multi-brand stores, as the case may be.
Suppliers
The purchasing of men’s and women’s apparel for Colombo
stores is centralized and Grupo Colombo purchases substantially from a range of suppliers, distributed between Brazilian
and Chinese suppliers.
In the year ended December 31, 2014, the largest supplier in the
apparel retail segment represented 20% of the sales of Grupo Colombo and the ten largest suppliers represented 70% of the sales.
Distribution and Logistics
In order to efficiently distribute its products, Grupo Colombo operates
a distribution center in the city of Araçariguama, State of São Paulo with a total storage capacity of approximately
17 million pieces. The location of its distribution center enables Grupo Colombo to make weekly deliveries to stores, which allows
to optimize logistics costs, and limits stock products at store level.
The distribution center of Grupo Colombo is significantly supported
by “SISLOJA” software, a technology platform, which links the computer automated ordering system of Grupo Colombo to
the distribution center and stores in order to automatically replenish the inventory of each store.
In 2014, Grupo Colombo continued focusing on capturing synergies
in its logistics network, by acting in three main areas: (1) transforming its logistics network so that it can service all of its
businesses, optimizing space and existing processes; (2) improving its logistics network by taking into consideration the
structure and environment; and (3) promoting operational efficiencies.
The logistics and distribution processes of Grupo Colombo are organized
in accordance with the products and services sold under its brands. Accordingly, its distribution processes are guided by the procedures
described below.
Marketing
Grupo Colombo conducts integrated marketing campaigns that are structured
and directed at the target market for each store. These efforts include holiday sales and scheduled clearance sales. The marketing
teams of Grupo Colombo are media experts dedicated to developing quality marketing campaigns to emphasize its strengths in terms
of selection, service and competitive prices. In the years ended December 31, 2012, 2013 and 2014, Grupo Colombo spent approximately
R$2.5 million, R$3.2 million and R$2.5 million, respectively, on advertising (approximately 0.63%, 0.65% and 0.45%, respectively,
of total net operating revenue in each year) accounted for as sales expenses.
Association with HSBC Brasil (Losango)
Grupo Colombo has entered into an association with HSBC Brasil (Losango)
in 2011, with the purpose of issuance by the financial institution of credit cards with Colombo’s brand.
HSBC Brasil (Losango) has exclusive rights to offer credit cards,
at Colombo’s stores. HSBC Brasil (Losango) has been operating for more than 40 years and as of December 31, 2014 had
a portfolio of over 40 million customers (including the customer base of Grupo Colombo).
As of December 2014, the customers of Grupo Colombo have issued
over 560,000 cards with HSBC Brasil (Losango), of which 375,000 are ready-to-buy cards and 178,000 are active cards. As a result
of such figures, Grupo Colombo is the main credit card issuer of HSBC Brasil (Losango).
The commission fee for the offer and first activation of the card
inside Colombo’s stores is between R$ 25 and R$ 30 according to the number of issued cards on a monthly basis, and for use
outside of the stores corresponds to 0.65% of the transaction value. In 2014, the total revenue with Colombo’s credit
cards was R$ 6.68 million. Grupo Colombo expects this amount to reach R$ 8.28 million by the end of 2015.
Grupo Colombo maintains its strategy to increase HSBC Brasil (Losango)
card’s share of sales over its total sales and to make it the preferred payment option in Colombo’s stores and e-commerce
operations, with exclusive benefits and advantages for card holders.
The table below sets forth the breakdown of cards issued by HSBC
Brasil (Losango) in 2012, 2013 and 2014:
Total number of cards (in thousands) | |
2012 | | |
2013 | | |
2014 | |
Credit cards | |
| 176 | | |
| 326 | | |
| 553 | |
Credit Sales
In the year ended December 31, 2014, 43% of the net operating revenue
of Grupo Colombo was represented by credit sales, principally in the form of credit card sales and installment sales, as described
below:
| ● | Credit card sales. Grupo Colombo’s store formats and its e-commerce operations accept payment for purchases with
main credit cards, such as MasterCard, Visa, Diners Club, American Express, Hipercard, Elo and cobranded credit cards issued by
HSBC Brasil (Losango). Sales to customers using credit cards accounted for 48%, 46% and 42% of the consolidated net operating revenue
in 2012, 2013 and 2014, respectively. Of this total, sales through the HSBC Brazil (Losango) cobranded credit cards accounted for
8% of the total revenues in 2014. An allowance for doubtful accounts is not required as credit risks are assumed by credit card
companies or issuing banks. |
| ● | Installment credit card sales. Grupo Colombo’s stores offer attractive consumer financing conditions to its customers
to purchase products on an installment basis through its cobranded and private label credit cards, as well as third-party credit
cards. Sales to customers using credit cards on an installment basis accounted for 74%, 73% and 71% of the total credit card sales
of Grupo Colombo (mentioned above) in 2012, 2013 and 2014, respectively. An allowance for doubtful accounts is not required as
credit risks for all installments are assumed by credit card companies or issuing banks. |
Technology
Grupo Colombo invested R$6.2 million, R$6.1 million and R$9.3 million
in information technology in the years ended December 31, 2012, 2013 and 2014, respectively. Grupo Colombo is identifying opportunities
and mapping the efficiency gains by integrating its various operating segments, with a focus on governance and the customer. In
the coming years, Grupo Colombo expects to optimize in the integration of the stores by harmonizing systems/processes, unifying
strategic services and projects and focusing on innovations to improve customer service and productivity.
Intellectual Property
Grupo Colombo considers its brands to be one of its most valuable
assets and it has worked extensively to define the characteristics of its brands with respect to the expectations, consumption
patterns and purchasing power of the different income levels in Brazil.
In Brazil, to acquire a brand it is necessary to officially register
it with the National Industrial Property Institute (Instituto Nacional de Propriedade Industrial), or INPI. This registration
gives the owner the exclusive right to use the trademark throughout Brazil for a renewable period of time.
As of December 31, 2014, Grupo Colombo’s most important trademarks
(Colombo, Colombo Woman, Upper and Armazém do Homem, among others) were duly registered with INPI
and we had approximately 26 trademarks registered or in the process of being registered in Brazil. Grupo Colombo did not have
any registered patents as of December 31, 2014.
The business of Grupo Colombo relies on intellectual property that
includes the content of its sites, its registered domain names and its registered and unregistered trademarks. Grupo Colombo believes
that the domain names it uses in its e-commerce business, as well as its private labels, are valuable assets and essential to the
identity of its business. Grupo Colombo further believes that its technology infrastructure is an important asset of its e-commerce
business.
Grupo Colombo owns the following domain names, among others: www.camisariacolombo.com.br,
www.grupocolomboti.com.br and www.grupocolombo.com.br. Note that these domain names are for informative purposes only and the information
contained in these websites is not incorporated by reference in this proxy statement.
Competition
The Brazilian apparel retail industry is highly competitive and
fragmented. The principal competitors of the Colombo’s stores in the formal wear and smart casual apparel retail segment
are TNG, Cia. do Terno, Confecção Dorinhos, Garbo and Polo Play.
In e-commerce, Grupo Colombo competes with both e-commerce businesses,
including direct sales e-commerce platforms and marketplaces, and traditional retailers, including with their storefronts and e-commerce
platforms. The main competitors of Grupo Colombo in the e-commerce business is TNG, on the full range of Colombo’s
products.
Regulatory Matters
Grupo Colombo is subject to a wide range of governmental regulation
and supervision generally applicable to companies engaged in business in Brazil, including federal, state and municipal regulation,
such as labor laws, public health and environmental laws. In order to open and operate its stores, Grupo Colombo needs a business
permit and site approval and an inspection certificate from the local fire department, as well as health and safety permits. Grupo
Colombo’s stores are subject to inspection by city authorities. Grupo Colombo believes that it is in compliance in all material
respects with all applicable statutory and administrative regulations with respect to its business. In addition, Grupo Colombo
has internal policies that in some instances go beyond what is required by law, particularly with respect to social and community
matters
The business of Grupo Colombo is primarily affected by a set of
consumer protection rules regulating matters such as advertising, labeling and consumer credit. Grupo Colombo believes it is in
compliance in all material respects with these consumer protection regulations.
Grupo Colombo’s e-commerce business is subject to laws and
regulations related to the Internet, e-commerce, m-commerce, consumer protection, data privacy, data protection and information
technology. However, laws and regulations in these areas are not fully settled and are currently undergoing rapid development.
While this makes it difficult at present to fully ascertain to what extent new developments in the law will affect its business,
there has been a trend toward increased consumer and data privacy protection. In addition, it is possible that general business
regulations and laws, or those specifically governing the Internet, e-commerce or m-commerce, may be interpreted and applied in
a manner that may place restrictions on the conduct of its business.
Properties
Grupo Colombo has 419 stores (as of August 2015), which are distributed
in all Brazilian states. Grupo Colombo leases its distribution center (warehouse) located in the City of Araçariguama, State
of São Paulo, with a total area of 18,000 m2 and a built area of 12,876 m2. Grupo Colombo also has
the right to construct and explore a 30,000 m2 in the State of Mato Grosso, Brazil, which was conceded to it by the
local government in order to build a new warehouse. The stores of Grupo Colombo are leased from third parties. Leases are usually
for a term of five to 10 years, and provide for monthly rent payments based on a percentage of sales above an agreed minimum value.
Grupo Colombo has 8 leases expiring by the end of 2015. Based on its prior experience and Brazilian law and leasing practices,
Grupo Colombo does not anticipate any material change in the general terms of its leases or any material difficulty in renewing
them.
Employees
As of June 30, 2015, Grupo Colombo had 2.903 full-time employees,
100% covered by a collective bargaining agreement. Grupo Colombo believes that its relations with its employees are excellent.
Grupo Colombo makes diligent efforts to comply with all employment and labor regulations, in the many jurisdictions in which it
conducts its operations.
Legal Proceedings
Grupo Colombo is party to various legal proceedings arising from
normal business activities. Management believes that the ultimate resolution of these matters will not have a material adverse
effect on Grupo Colombo’s financial condition, results of operations or cash flows.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF GRUPO COLOMBO
The following discussion of Grupo Colombo’s
financial condition and results of operations should be read in conjunction with Grupo Colombo’s consolidated financial statements
and notes to those statements included in this proxy statement. This discussion contains forward-looking statements that involve
risks and uncertainties. Please see the sections entitled “Forward-Looking Statements” and “Risk Factors”
in this proxy statement. References in this section to the “Company”, “we”, “us” and “our”
are to Grupo Colombo, unless the context otherwise requires, with its consolidated subsidiaries.
Overview of the Brazilian Economy
Since all of our operations are in Brazil, our results of operations
are affected by macroeconomic conditions in Brazil, including the inflation rate, interest rates, Brazilian gross domestic product,
or GDP, employment rates, wage levels, consumer confidence and credit availability.
For the period from 2012 through 2014, Brazilian GDP increased by
an average of 1.1% annually (0.9% in 2012, 2.37% in 2013 and 0.1% in 2014). Inflation, as measured by the broad consumer price
index, or IPCA (Índice Nacional de Preços ao Consumidor Amplo), was 5.8%, 5.9% and 6.4% in 2012, 2013 and
2014, respectively. From January 2012 through December 2014, the Brazilian Real depreciated 41.6% against the U.S. dollar. The
Brazilian unemployment rate decreased from 5.5% in January 2012 to 4.3% in December 2014 and Brazilian international reserves increased
from US$358.8 billion to US$363.6 billion from 2013 to 2014.
According to IBGE, the average real income of Brazil’s workforce
in 2014 was estimated at R$1,983.80, the highest since 2004, with a 4.1% growth over 2013. Between 2004 and 2014, the purchasing
power related to the average real income of Brazil’s workforce increased 40.7% (in 2004 the figure was R$1,409.84), while
unemployment fell from 9.6% in December 2004 to 4.3% in December 2014. The accumulated inflation rate as measured by the IPCA was
6.4% in December 2014, at the top of the targeted range. The Committee on Monetary Policy (Comitê de Política Monetária),
or COPOM, increased the SELIC rate from 7.25% at the end of 2012 to 9.50% at the end of 2013 and to 11.75% at the end of 2014.
On November 25, 2015, the COPOM raised the rate again to 14.25%.
In the second half of 2015, Brazilian economic conditions worsened
significantly, in light of an increasing public deficit and inflationary pressures. The immediate effects on the Brazilian economy
included reduced growth and depreciation of the real, which decreased 46.20% between January and September 2015 (from R$2.66/US$1.00
on January 1, 2015 to R$3.88/US$1.00 on November 30, 2015). The crisis also adversely affected the Brazilian capital markets, as
reflected by a decrease in the Ibovespa index of 9.77% between January and November 2015.
Additionally, on September 9, 2015, Standard & Poor’s
downgraded Brazil’s credit rating, citing slower growth as well as deteriorating fiscal accounts and political conditions.
The following table sets forth data on real GDP growth, inflation
and interest rates, and the U.S. dollar exchange rate for the indicated periods:
| |
December 31, | |
| |
2012 | | |
2013 | | |
2014 | |
GDP Growth(1) | |
| 1.8 | % | |
| 2.7 | % | |
| 0.1 | % |
Inflation (IGP-M) (%)(2) | |
| 7.8 | % | |
| 5.5 | % | |
| 3.7 | % |
Inflation (IPCA) (%)(3) | |
| 5.8 | % | |
| 5.9 | % | |
| 6.4 | % |
CDI (%)(4) | |
| 8.4 | % | |
| 8.1 | % | |
| 10.8 | % |
TJLP (%)(5) | |
| 5.5 | % | |
| 5.0 | % | |
| 5.0 | % |
SELIC rate (%)(6) | |
| 7.25 | % | |
| 9.50 | % | |
| 11.75 | % |
Appreciation (depreciation) of real before USD (%) | |
| (8.9 | )% | |
| (14.6 | )% | |
| (13.4 | )% |
Exchange rate (closing) R$ per USD 1.00(7) | |
| 2.044 | | |
| 2.343 | | |
| 2.656 | |
Average exchange rate R$ per USD 1.00(8) | |
| 1.955 | | |
| 2.161 | | |
| 2.353 | |
(1)
Source: IBGE.
(2)
The General Market Price Index (Índice Geral de PreçosMercado), or IGPM, is measured by FGV.
(3)
Inflation (IPCA) is a broad consumer price index measured by IBGE.
(4)
The CDI is the accumulated rate of the interbank deposits in Brazil during each year.
(5)
The official longterm interest rate (taxa de juros de longo prazo), or TJLP, is required by Brazil’s National Development
Bank (Banco Nacional de Desenvolvimento Econômico e Social), or BNDES, for longterm financing (end of the period
data).
(6)
Annual average interest rate. Source: Central Bank.
(7)
Exchange rate (for sale) of the last day of the period. Source: Central Bank.
(8)
Average of exchange rates (for sale) of the period. Source: Central Bank.
Financial
Presentation and Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements include all of
the accounts of the Company and its consolidated subsidiaries. All significant intercompany balances and transactions have been
eliminated in the consolidated financial statements.
Use of Estimates
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Management bases its estimates on historical experience and on various assumptions that are believed
to be reasonable under the circumstances, the results of which form the basis for making judgements about the carrying values of
assets and liabilities that are not readily apparent from other sources. The most significant estimates included: revenue recognition,
inventory valuation and obsolescence; valuation and recoverability of long-lived assets, including the values assigned to intangible
assets, other assets (including lease rights), and property and equipment; fair value calculations, including contingencies, including
accruals for the outcome of current litigation and assessments and income taxes, including uncertain income tax positions and recoverability
of deferred income taxes and any limitations as to net operating losses (“NOL”). Actual results could differ from these
estimates.
Foreign Currency Translation
The Company’s functional currency is the Brazilian Real and
its reporting currency is the United States Dollar. There has been a steady devaluation of the Brazilian Real relative to the United
States Dollar in recent years. Assets and liabilities are translated into U.S. dollars using the exchange rate at the balance sheet
date (0.2481, 0.3722 and 0.4232 at September 30, 2015, and December 31, 2014, and 2013, respectively) and revenue and expense accounts
are translated at the weighted average exchange rate for the period or for the year then ended (0.3202 and 0.4367 for the nine
months ended September 30, 2015 and 2014, respectively and 0.4257, 0.4645 and 0.5133 for the years ended December 31, 2014, 2013
and 2012, respectively). Resulting translation adjustments are made directly to accumulated other comprehensive income (loss).
Losses arising from exchange rate fluctuations on transactions denominated in a currency other than the functional currency of
$0 and $38 for the nine months ended September 30, 2015 and 2014, respectively, and $37, $1,571 and $697 for years ended December
31, 2014, 2013 and 2012, respectively, are recognized within other income (expense) in the consolidated statements of operations.
Investments
Investments represent securities purchased under agreements to resell,
which are accounted for as collateralized financing transactions and are recorded at their contracted resale or repurchase amount.
The Company earns interest over the term of the agreements, which is reflected in Interest income in the Consolidated Statements
of Operations on an accrual basis. The Company makes such redemptions and related redemptions on a daily basis.
Accounts Receivable
The Company’s accounts receivable are primarily from vendors
tasked with accepting credit card payments for purchases from its customers and are reported at the amount due from the vendor.
Due to the nature of these funds, the Company expects credit card receivables to be fully collectible. The Company also carries
receivables from wholesale sales (primarily uniforms) to other businesses. The Company does not carry any accounts receivable directly
from any of its retail customers. Accounts receivable are recorded at carrying value, which approximates fair value, net of allowances
for doubtful wholesale accounts of $0, $423, and $122 at September 30, 2015, December 31, 2014 and December 31, 2013, respectively.
Inventory
The Company maintains inventory both on hand at its distribution
facility and its retail stores that is sold in the stores and e-commerce sites directly to consumers. Inventory is stated at the
lower of cost or net realizable value, with cost primarily determined on a weighted average basis, which approximates first-in,
first-out (“FIFO”). The Company records allowances for slow moving inventory based on historical and projected usage
trends.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets include tax credits arising
from the purchase of raw materials, intermediary products and packaging materials (“Recoverable Taxes”), which can
be used to offset tax obligations arising from product sales. The Company offsets certain tax obligations against Recoverable Taxes
in accordance with applicable local tax laws. In assessing the realization of the Recoverable Taxes, management considers whether
it is more likely than not that some portion or all of the Recoverable Taxes will not be realized. Based on this assessment, management
believes that Recoverable Taxes as recorded on the balance sheet are fully realizable.
Deferred Financing Costs
Certain costs incurred with the issuance of debt securities are
capitalized and are reported net of accumulated amortization. Amortization is charged to interest expense over the term of the
applicable debt issues, using the effective interest method.
Property and Equipment, net
Property and equipment are stated at cost, net of accumulated depreciation
and accumulated impairment losses, if any. Construction work in progress is recorded at cost until the corresponding asset is placed
into service and depreciation begins. Depreciation is calculated by the straight-line method based upon the estimated useful life
of assets, which range from five to ten years. Leasehold improvements are depreciated over the shorter of the estimated useful
lives of the respective assets or the term of the lease. All repair and maintenance costs are expensed as incurred.
Lease Rights
Lease rights are the costs incurred to acquire the right to lease
a specific property. These rights can be subsequently sold to a new tenant, or under certain conditions, be recovered from the
landlord. Substantially all of the Company’s store leases were determined to be operating leases. Lease rights are recorded
at cost, are included in other assets on the consolidated balance sheets and are amortized over the corresponding lease term. The
amortization of lease rights is recorded as an occupancy cost within operating expenses.
Rent Expense
Minimum rental expense are recognized over the term of the lease.
We recognize minimum rent starting when possession of the property is taken from the landlord, which normally includes a construction
period prior to store opening. When a lease contains a predetermined fixed escalation of the minimum rent, we recognize the related
rent expense on a straight-line basis and record the difference between recognized rental expense and the amounts payable under
the lease as deferred rent liability. We also may receive tenant allowances, with the short-term portion included in accrued expenses
and other current liabilities and the long-term portion included in lease incentives and other liabilities on the Consolidated
Balance Sheets. Tenant allowances are amortized as reduction to rent expense in the Statements of Operations over the term of the
lease.
Certain leases provide for contingents rents that are not measurable
at inception. These contingent rents are primarily based on a percentage of sales that are in excess of predetermined level. These
amounts are excluded from minimum rent and are included in the determination of rent expense when it is probable that the expense
have been incurred and the amount is reasonably estimable.
Income Taxes
Income taxes are recorded under the asset and liability method,
whereby deferred tax assets and liabilities are recognized based on the expected future tax consequences of (a) temporary differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and (b) net
operating losses and tax credit carryforwards. A valuation allowance is recorded when it is more likely than not that the deferred
tax assets will not be realized.
Significant judgment is required in evaluating tax positions and
determining the provision for income taxes. During the ordinary course of business, there are many transactions and calculations
for which the ultimate tax determination is uncertain. Accounting standards regarding uncertainty in income taxes provides a two-step
approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition
by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on
audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit
as the largest amount which is more than 50% likely, based solely on the technical merits, of being sustained on examinations.
The Company’s management considers many factors when evaluating and estimating tax positions and tax benefits, which may
require periodic adjustments and which may not accurately anticipate actual outcomes. Interest and penalties, if any, are recorded
within interest expense.
Capital Leases
The Company leases certain equipment and facilities, including all
of its retail locations. Leases without substantial transfer to the Company of all risks and benefits relating to the ownership
of an asset are classified as operating leases. If the terms of the lease transfer substantively all of the risks and benefits
relating to ownership of the leased asset to the lessee, the Company records the asset and the related capital lease obligation
on the consolidated balance sheets. Obligations under capital leases are amortized over the lease term using the effective interest
method. Assets held under capital leases are depreciated over their useful lives.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”)
issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” (“ASU
2014-09”). ASU 2014-09 supersedes the revenue recognition requirements in ASC 605 and most industry-specific guidance throughout
ASC 605. The standard requires that an entity recognize revenue to depict the transfer of promised goods or services to customers
in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.
ASU 2014-09 is effective on January 1, 2017 and should be applied retrospectively to each prior reporting period presented or retrospectively
with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application. The Company is currently
evaluating the impact of the adoption of ASU 2014-09 on its consolidated financial position and results of operations.
On August 2014, the FASB issued Accounting Standard Update No. 2014-15,
Presentation of Financial Statements - Going Concerns (Subtopic 205-40): Disclosures of Uncertainties about an Entity's Ability
to Continue as a Going Concern. The amendments require management to assess an entity's ability to continue as a going concern
by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments
(1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods,
(3) provide principles for considering the mitigating effect of management's plans, (4) require certain disclosures when substantial
doubt is alleviated as a result of consideration of management's plans, (5) require an express statement and other disclosures
when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial
statements are issued (or available to be issued). The amendments in this Update are effective for the annual period ending after
December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company is currently
evaluating the impact of the adoption of ASU 2014-15 on its consolidated financial position and results of operations.
In February 2015, the FASB issued Accounting Standards Update (“ASU”)
No. 2015-2 “Consolidation” (“ASU 2015-2”). ASU 2015-2 includes amendments that are intended to improve
targeted areas of consolidation for legal entities including reducing the number of consolidation models from four to two and simplifying
the FASB Accounting Standards Codification (“ASC”). The provisions of ASU 2015-2 are effective for annual reporting
periods beginning after December 15, 2015. The amendments may be applied retrospectively in previously issued financial statements
for one or more years with a cumulative effect adjustment to retained earnings as of the beginning of the first year restated.
Early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU 2015-2 will have on its financial
position, results of operation, cash flows and financial disclosures.
In April 2015, the FASB issued ASU No. 2015-03, “Interest
- Imputation of Interest (Topic 835): Simplifying the Presentation of Debt Issuance Costs,” (“ASU 2015-03”).
This ASU will require that debt issuance costs are presented as a direct deduction to the related debt in the liability section
of the balance sheet, rather than presented as an asset. ASU 2015-03 will be effective for annual periods beginning after December
15, 2015, and interim periods within those years. Earlier adoption is permitted. The adoption of this standard is not expected
to have a significant impact on the Company’s financial statements, other than presentation.
In July 2015, the FASB issued ASU No. 2015-11, “Inventory
(Topic 330): Simplifying the Measurement of Inventory,” (“ASU 2015-11”). ASU 2015-11 amends the existing guidance
to require that inventory should be measured at the lower of cost and net realizable value. Net realizable value is the estimated
selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.
Subsequent measurement is unchanged for inventory measured using last-in, first-out or the retail inventory method. ASU 2015-11
is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company
does not anticipate that the adoption of this standard will have a material impact on its consolidated financial statements.
In November 2015, the FASB issued ASU No. 2015-17, “Balance
Sheet Classification of Deferred Taxes.” (“ASU 2015-17”). The ASU requires entities to classify deferred tax
liabilities and assets as noncurrent in a classified statement of financial position. This ASU is effective for fiscal years beginning
after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for all entities as of the
beginning of an interim or annual reporting period. The adoption of this guidance by the Company is not expected to have a material
impact on its consolidated financial statements.
Results of Operations
In 2014, the Company continued to face a challenging macroeconomic
environment marked by low GDP growth in Brazil and rising interest rates, mainly as a mechanism to control inflation.
Despite this adverse scenario, the Company was able to adjust its
strategy to market conditions and deliver results accompanied by market share gains.
The Company invested in organic growth by opening 56 new stores.
The Company also improved its operational efficiencies, gaining better control of its working capital and optimizing its capital
expenditures, as a result of which the Company was able to reduce its capital expenditures relating to the opening of new stores.
Given the worsening of the macroeconomics in Brazil and the challenges
posed by this scenario, since the end of 2014 and beginning of 2015, the Company has worked to improve its profitability through
(i) occupancy renegotiations, benefiting from the soft economy; (ii) costs reduction; and (iii) continuous personnel adjustments.
This process has led the Company to close over 30 non-profitable stores in 2015 seeking to revamp of its business.
The Company has reported negative working capital and accumulated
net losses historicallybecause of the Company’s high level of indebtness andnegative equity.
Results of Operations for Nine Months Ended September 30, 2015
and 2014
(In Thousands) | |
For The Nine Months Ended | |
| |
September 30, | |
| |
2015 | | |
2014 | |
| |
(unaudited) | | |
(unaudited) | |
| |
| | |
| |
Net Revenue | |
$ | 101,450 | | |
$ | 158,313 | |
Cost of goods sold | |
| 40,357 | | |
| 70,926 | |
| |
| | | |
| | |
Gross Profit | |
| 61,093 | | |
| 87,387 | |
| |
| | | |
| | |
Operating Expenses, net | |
| 50,218 | | |
| 71,930 | |
| |
| | | |
| | |
Income From Operations | |
| 10,875 | | |
| 15,457 | |
| |
| | | |
| | |
Other Income (Expenses) | |
| | | |
| | |
Interest income | |
| 582 | | |
| 2,938 | |
Debt interest expense | |
| (26,812 | ) | |
| (26,439 | ) |
Vendor interest expense | |
| (11,539 | ) | |
| (14,269 | ) |
ICMS and INSS interest expense | |
| (18,944 | ) | |
| (5,281 | ) |
Credit card fees | |
| (1,970 | ) | |
| (3,509 | ) |
Other (expense) income | |
| (1,628 | ) | |
| (1,088 | ) |
Total Other Expense, net | |
| (60,311 | ) | |
| (47,648 | ) |
| |
| | | |
| | |
Loss Before Provision For Income Taxes | |
| (49,436 | ) | |
| (32,191 | ) |
| |
| | | |
| | |
Income Tax Provision | |
| (287 | ) | |
| (5,014 | ) |
| |
| | | |
| | |
Net Loss | |
$ | (49,723 | ) | |
$ | (37,205 | ) |
| |
| | | |
| | |
Net Loss Per Share | |
| | | |
| | |
- Basic and Diluted | |
$ | (0.95 | ) | |
$ | (0.79 | ) |
| |
| | | |
| | |
Weighted Average Number of Common Shares Outstanding | |
| | | |
| | |
- Basic and Diluted | |
| 52,606,785 | | |
| 47,335,457 | |
Net revenue. Net revenue decreased 35.92%, or US$ 56.863
million, from US$ 158.313 million in the nine months ended September 30, 2014 to US$ 101.450 million in the nine months ended September
30, 2015, of which 5.82% of the decrease was due to the closing of non-profitable stores, 8.60% was due to the freezing on marketing
investments and 21.5% was a due to the foreign exchange rate.
Gross profit. Gross profit decreased 30.09%, or US$ 26.294
million, from US$ 87.387 million in the nine months ended September 30, 2014 to US$ 61.093 million in the nine months ended September
30, 2015. It is important to note that given the continuous improvement of inventory management and price positioning, gross margins
reached 60.2% in the nine months ended September 30, 2015 against 55.20% in the nine months ended September 30, 2014.
Selling, general and administrative expenses. Selling, general
and administrative expenses decreased 31.83%, or US$ 21.194 million, from US$ 66.575 million in the nine months ended September
30, 2014 to US$ 45.381 million in the nine months ended September 30, 2015. This decrease was mainly due to the reduction in occupancy
costs by negotiating better lease terms as wells gains of efficiency at store level by reducing the average headcount, which had
a non-recurring impact of US$0.9 million.
Depreciation and amortization. Depreciation and amortization
in US dollars decreased by 9.67%, or US$ 0.52 million, from US$ 5.355 million in the nine months ended September 30, 2014 to US$
4.837 million in the nine months ended September 30, 2015.
Other expenses, net. Other expenses, net, increased 26.58%,
or US$ 12.663 million, from US$ 47.648 million in the nine months ended September 30, 2014 to US$ 60.311 million in the nine months
ended September 30, 2015.
Loss before income tax and social contribution. Loss before
income tax and social contributionhave increased US$ 17.245, or 53.57%, from negative US$ 32.191 million in the nine months ended
September 30, 2014 to negative US$ 49.436 million in the nine months ended September 30, 2015, primarily due to the increase on
financing costs and decrease on net sales.
Income tax and social contribution. Income tax and social
contribution, reached US$ 0.29 million in the nine months ended September 30, 2015 decreasing 94.28%, from negative US$ 5.014 million
in the nine months ended September 30, 2014. The decrease was primarily due to the restructuring of the company’s debt in
2014.
Net loss. Net losses for the nine months ended September
30, 2015 was US$ 49.723 million, an increase of 33.65% or US$ 12.518 million, from US$ 37.205 million in the nine months ended
September 30, 2014. The increase was primarily due to an increase in local interest rates as well as tax penalties and interest.
Results of Operations for Years Ended December 31, 2014, 2013
and 2012
(In Thousands) | |
For The Years Ended | |
| |
December 31, | |
| |
2014 | | |
2013 | | |
2012 | |
| |
| | |
| | |
| |
| |
| | |
| | |
| |
Net Revenue | |
$ | 234,461 | | |
$ | 220,119 | | |
$ | 203,010 | |
Cost of goods sold | |
| 105,396 | | |
| 99,502 | | |
| 88,449 | |
| |
| | | |
| | | |
| | |
Gross Profit | |
| 129,065 | | |
| 120,617 | | |
| 114,561 | |
| |
| | | |
| | | |
| | |
Operating Expenses, net | |
| 95,405 | | |
| 100,483 | | |
| 95,160 | |
| |
| | | |
| | | |
| | |
Income From Operations | |
| 33,660 | | |
| 20,134 | | |
| 19,401 | |
| |
| | | |
| | | |
| | |
Other Income (Expenses) | |
| | | |
| | | |
| | |
Interest income | |
| 3,446 | | |
| 2,283 | | |
| 3,579 | |
Debt interest expense | |
| (37,248 | ) | |
| (27,676 | ) | |
| (36,188 | ) |
Vendor interest expense | |
| (13,908 | ) | |
| (10,133 | ) | |
| (19,273 | ) |
ICMS and INSS interest expense | |
| (5,604 | ) | |
| (1,520 | ) | |
| (1,838 | ) |
Credit card fees | |
| (5,015 | ) | |
| (3,799 | ) | |
| (3,453 | ) |
Other expense | |
| (1,483 | ) | |
| 1,144 | | |
| (2,242 | ) |
Total Other Expense | |
| (59,812 | ) | |
| (39,701 | ) | |
| (59,415 | ) |
| |
| | | |
| | | |
| | |
Loss Before Provision For Income Taxes | |
| (26,152 | ) | |
| (19,567 | ) | |
| (40,014 | ) |
| |
| | | |
| | | |
| | |
Income Tax Provision | |
| (6,120 | ) | |
| (1,879 | ) | |
| (2,928 | ) |
| |
| | | |
| | | |
| | |
Net Loss | |
$ | (32,272 | ) | |
$ | (21,446 | ) | |
$ | (42,942 | ) |
| |
| | | |
| | | |
| | |
Net Loss Per Share | |
| | | |
| | | |
| | |
- Basic and Diluted | |
$ | (0.66 | ) | |
$ | (0.63 | ) | |
$ | (1.84 | ) |
| |
| | | |
| | | |
| | |
Weighted Average Number of Common Shares Outstanding | |
| | | |
| | | |
| | |
- Basic and Diluted | |
| 48,664,321 | | |
| 33,785,741 | | |
| 23,340,800 | |
Year Ended December 31, 2014 Compared to Year Ended
December 31, 2013
Net revenue. Net revenue increased by 6.52%, or US$ 14.342
million, from US$ 220.119 million in 2013 to US$ 234.461 million in 2014, mainly due to the increase of same store sales and the
opening of 56 new stores primarily in the northeast region of Brazil.
Gross profit. Gross profit increased by 7.00%, or US$ 8.448
million, from US$ 120.617 million in 2013 to US$ 129.065 million in 2014. In the same period, our gross margin increased to 55.05%
of net operating revenue in 2014 from 54.80% in 2013. This increase was primarily due to our strategy to adjust prices and improve
merchandise management at point of sale.
Selling, general and administrative expenses. Selling, general
and administrative expenses decreased by 6.35%, or US$ 5.988 million, from US$ 94.298 million in 2013 to US$ 88.310 million in
2014. This decrease was mainly due to the reduction in occupancy costs by negotiating better lease terms as well as gains of efficiency
at the store level by reducing the average headcount.
Depreciation and amortization. Depreciation and amortization
increased by 14.70%, or US$ 0.91 million, from US$ 6.185 million in 2013 to US$ 7.094 million in 2014, mainly due to the depreciation
of acquired assets in connection with the opening and renewal of stores.
Other expenses, net. Other expenses, net, increased by 50.66%,
or US$ 20.111 million, from US$ 39.701 million in 2013 to US$ 59.812 million in 2014. This increase was mainly due to higher financing
costs.
Loss before income tax and social contribution. Losses before
income tax and social contribution were negative US$ 26.152, increasing by 33.65%, or US$ 6.585 million, from negative US$ 19.567
million in 2013, primarily due to the increase in financial expenses and depreciation and amortization related to the opening and
renewal of stores.
Income tax and social contribution. Income tax and social
contribution increased by 225.71%, or US$ 4.241 million, from US$ 1.879 million in 2013 to US$ 6.120 million in 2014. The increase
was primarily due to the restructuring of the Company’s debt in 2014.
Net loss. Net losses for the year increased by 50.48%, or
US$ 10.826 million, from negative US$ 21.446 million in 2013 to negative US$ 32.272 million in 2014, primarily due to the increase
of financing costs.
Year Ended December 31, 2013 Compared to Year Ended
December 31, 2012
Net revenue. Net revenue increased by 8.43%%, or US$ 17.109
million, from US$ 203.010 million in 2012 to US$ 220.119 million in 2013, mainly due to gains of efficiency at store level, same-store
sales growth and 44 new store openings.
Gross profit. Gross profit increased by 5.29%, or US$6.056
million, from US$ 114.561 million in 2012 to US$ 120.617 million in 2013. In the same period, our gross margin decreased to 54.80%
of net operating revenue in 2013 from 56.43% in 2012. The decrease was primarily the result of our efforts to decrease our reserves.
Selling, general and administrative expenses. Selling, general
and administrative expenses increased by 4.56%, or US$ 4.109 million, from US$ 90.189 million in 2012 to US$ 94.298 million in
2013. The increase was primarily due to the new stores which impacted occupancy costs and personel costs.
Depreciation and amortization. Depreciation and amortization
increased by 24.42%, or US$ 1.214 million, from US$ 4.971 million in 2012 to US$ 6.185 million in 2013, primarily due to the depreciation
of acquired assets in connection with the opening and renewal of stores as well as new assets at the distribution center.
Other expenses, net. Other expenses, net, decreased by 33.18%,
or US$ 19.714 million, from US$ 59.415 million in 2012 to US$ 39.701 million in 2013. This decrease was mainly due to more favorable
financing terms and re-payment of debt.
Loss before income tax and social contribution. Loss before
income tax and social contribution decreased by 51.10%, or US$ 20.447 million, from negative US$ 40.014 million in 2012 to negative
US$ 19.567 million in 2013, primarily due to the increase in net operating revenue, gains of scale given an increase in the number
of stores, as partially offset by the increase in selling, general and administrative expenses.
Income tax and social contribution. Income tax and social
contribution deferred tax benefit, given the negative results of the company, decreased by 35.83%, or US$ 1.049 million, from US$
2.928 million in 2012 to US$ 1.879 million in 2013. The decrease was primarily due to the decrease on profitability of one of the
Company’s affiliates.
Net loss. Net loss for the year decreased by 50.06%, or US$
21.496 million, from US$ 42.942 million in 2012 to US$ 21.446 million in 2013, primarily due to the increase in net operating revenue
and better financing conditions.
Liquidity and Capital Resources
We have funded our operations and capital expenditures mainly from
our operating cash flow and sale of receivables entered into with financial institutions (banks and credit card merchant acquirers).
Additionally, we have issued debentures in the local markets and obtained loans from banks.
As of December 31, 2014, we had US$ 28.744 million in cash and investments.
We have a policy of maintaining cash and investments to meet short-term liquidity needs. Historically, a significant portion of
our cash is generated during the fourth quarter of the year, and our cash level decreases between the second and third quarter
of each year.
Our main cash needs include:
| ● | the servicing of our indebtedness; |
| ● | capital expenditures, including the construction and remodeling of new stores and investments in our infrastructure; and |
Our primary sources of liquidity have historically been cash flow
from our operating activities. However, during the past three years, the Company has used proceeds from debt financing in order
to support its expansion. Net cash from operating activities and financing activities were as follows: US$ 22.900 million in 2014,
US$ 43.870 million in 2013 and US$ 29,477 in 2012. In 2014, these cash flows were primarily used for sustaining the Company’s
growth and working capital.
Our working capital requirements, or the difference between suppliers
and inventories, improved by 160 days in 2014, as compared to 2013, due to a better management over accounts payable as a result
of better terms and conditions for purchasing
Our total cash and investment position as of December 31, 2014,
decreased by 24.91%, or US$ 9.535 million, from US$ 38.279 million in 2013 to US$28.744 million in 2014.
Our outstanding debt as of December 31, 2014 was US$ 238.807, compared
to US$ 242.566 million as of December 31, 2013, including outstanding loans to shareholders. As a result of our debt being denominated
in Brazilian reais, the Company does not have any foreign exchange risk embedded on its balance sheet.
Our debt interest expense was US$ 37.248 million for the year ended
December 31, 2014, compared to US$ 27.676 million for the year ended December 31, 2013.
On April 1, 2011, we issued two series of debentures in Brazil.
The conversion right within the debentures expired in 2013. The total amount of the issuance was of R$ 60.000 million, divided
into sixty debentures, such that 36 were issued in the first series and 24 were issued in the second series. The Company and its
subsidiaries have granted a guaranty to the holders of the debentures of the first series, which consisted of the fiduciary transfer
(alienação fiduciária) of its inventory, through the execution of an inventory pledge agreement and
a fiduciary transfer agreement. All debentures of this issuance were subscribed by GIF IV Fundo de Investimento em Participações
(Gávea). The interest rate of the debentures of the first series was fixed at 100% of the CDI rate, accrued by a surcharge
of 3.30% per year. The interest rate of the debentures of the second series was fixed at 100% of the CDI rate, accrued by a surcharge
of 8% per year. The maturity date of the debentures of the first and second series is July 1st, 2019. The debentures
related to the second series were liquidated.
The financial covenants of the first issuance of debentures of the
Company are the following:
| (A) | Consolidated Net Debt/EBITDA lower or equal to: |
Fiscal Year |
2014 |
2015 |
2016 |
2017 |
2018 |
2019 |
(x) |
4.00 |
3.70 |
3.20 |
2.60 |
2.15 |
2.0 |
| (B) | EBITDA/Net Financial Expenses higher or equal to: |
Fiscal Year |
2014 |
2015 |
2016 |
2017 |
2018 |
(x) |
1.10 |
1.80 |
2.15 |
2.75 |
2.75 |
The following definitions are applicable for the calculation of
the financial covenants:
“Net Debt” means the sum of the balances of loans,
financing and other onerous financial debts, including, without limitation, the debentures of the 4th issuance, acquisitions
to pay, the net balance of the asset and liability operations with derivatives in which the issuer is a party, classified in the
current liability and long term liabilities of the Company, as well as personal guarantees, surety and other guarantees rendered
in favor of companies not consolidated in the audited financial statements of the issuer, less the available funding.
“EBITDA” means the net profit (loss) before the
income tax and social contribution, added by (i) non operating expenses; (ii) financial expenses; (iii) expenses with amortizations
and depreciations (calculated by the cash flow indirect method); and excluding (i) non operating revenues; (ii) financial revenues,
and (iii) non recurring-items; determined based on the last 12 months as from the base-date of the index calculation, provided
that based on the financial statements of the fiscal year ending on December 31st, 2012 the Issuer shall present a minimum
EBITDA of R$ 79,000,000.00.
“Net Financial Expense” means the result of the
financial expenses in module, less the financial income in module, based on the last 12 months as from the base date of the index
calculation, excluding the coordinators of the 4th issuance of debentures offer’s fee and the applicable taxes,
as defined in the placement agreement of the 4th issuance of debentures. If the Net Financial Expense is negative, the
referred index shall not be considered in the respective period.
As of December 31, 2014, we had nonconvertible debentures of the
first issuance outstanding, totaling R$ 41.271 million (US$ 15.361 million).
On April 25, 2013, we issued a third series of nonconvertible debentures
pursuant to a public offering in Brazil. The total amount of the issuance was of R$ 24,000,000.00, divided into 24 debentures.
All debentures of this issuance were subscribed by HSBC Bank Brasil S.A., which is represented by Pentágono S.A. Distribuidora
de Títulos e Valores Mobiliários. The interest rate of the debentures was fixed at 100% of the CDI rate, accrued
by a surcharge of 3.00% per year. The maturity date of the debentures is on July 6th, 2018.
The financial covenants of the third issuance of debentures of the
Company are the following:
(A) Consolidated Net Debt/EBITDA lower or equal to:
Fiscal Year |
2013 |
2014 |
2015 |
2016 |
2017 |
(x) |
3.85 |
2.85 |
2.50 |
2.25 |
2.00 |
| (B) | EBITDA/Net Financial Expenses higher or equal to: |
Fiscal Year |
2013 |
2014 |
2015 |
2016 |
2017 |
(x) |
1.10 |
1.50 |
2.00 |
2.75 |
2.75 |
The following definitions are applicable for the calculation of
the financial covenants:
“Net Debt” means the sum
of the balances of loans, financing and other onerous financial debts, including, without limitation, to the Debentures of the
2nd issuance, acquisitions to pay, the net balance of the asset and liability operations with derivatives in which the
issuer is a party, classified in the current liability and long term liabilities of the Issuer, as well as personal guarantees,
surety and other guarantees rendered in favor of companies not consolidated in the audited financial statements of the issuer,
less the available funding. It is established that the Debentures shall not be considered for the effect of the calculation of
Company’s Net Debt.
“EBITDA” means the net profit (loss) before the
income tax and social contribution, added by (i) non operating expenses; (ii) financial expenses; (iii) expenses with amortizations
and depreciations (calculated by the cash flow indirect method); and excluding (i) non operating revenues; (ii) financial revenues,
and (iii) non recurrent-items; determined based on the last 12 months as from the base-date of the index calculation, observing
that based on the financial demonstrations of the fiscal year ending on December 31st, 2012 the Issuer shall present
a minimum EBITDA R$ 79,000,000.00.
“Net Financial Expense” means the result of the
financial expenses in module, less the financial income in module, based on the last 12 months as from the base date of the index
calculation, excluding the coordinators of the offer’s fee and the applicable taxes, as defined in the Placement Agreement.
If the Net Financial Expense is negative, the referred index shall not be considered in the respective period.
As of December 31, 2014, we had debentures outstanding of the third
issuance, totaling R$ 23.993 million (US$ 8.930 million).
On September 12th, 2014, we issued a series of nonconvertible
debentures in a public offering in Brazil. The holders of the debentures (Itaú Unibanco S.A., HSBC Bank Brasil S.A. –
Banco Múltiplo and Banco Santander (BRASIL) S.A.) are represented by Pentágono S.A. Distribuidora de Títulos
e Valores Mobiliários. The total amount of the issuance was of R$ 500,000,000.00, divided into 500 debentures. The Company
and its subsidiaries have granted a guaranty to the holders of the debentures of this issuance, which consists of fiduciary assignment
(cessão fiduciária) of credit rights of the Company and its subsidiaries related to the sale of goods and
rendering of services, which were paid through credit card transactions. The interest rate of the debentures was fixed at 100%
of the CDI rate, accrued by a surcharge of 3.05% per year. The maturity date of the debentures is June 30, 2019.
The financial covenants of the fourth issuance of debentures of
the Company are the following:
| (A) | Consolidated Net Debt/EBITDA lower or equal to: |
Fiscal Year |
2014 |
2015 |
2016 |
2017 |
2018 |
2019 |
(x) |
4.00 |
3.70 |
3.20 |
2.60 |
2.15 |
2.0 |
| (B) | EBITDA/Net Financial Expenses higher or equal to: |
Fiscal Year |
2014 |
2015 |
2016 |
2017 |
2018 |
(x) |
1.10 |
1.80 |
2.15 |
2.75 |
2.75 |
The following definitions are applicable for the calculation of
the financial covenants:
“Net Debt” means the sum
of the balances of loans, financing and other onerous financial debts, including, without limitation, the Debentures, acquisitions
to pay, the net balance of the asset and liability operations with derivatives in which the Company is a party, classified in the
current liability and long term liabilities of the Company, as well as personal guarantees, surety and other guarantees rendered
in favor of companies not consolidated in the audited financial statements of the Issuer, less the available funding.
“EBITDA” means the net profit (loss) before the
income tax and social contribution, added by (i) non operating expenses; (ii) financial expenses; (iii) expenses with amortizations
and depreciations (calculated by the cash flow indirect method); and excluding (i) non operating revenues; (ii) financial revenues,
and (iii) non recurrent-items; determined bases on the last twelve (12) months as from the base-date of the index calculation.
“Net Financial Expense” means the result of the
financial expenses in module, less the financial income in module, based on the last twelve (12) months counting from the base
date of the index calculation, excluding the Coordinators’ Fee and Taxes, as defined in the Placement Agreement. If the Net
Financial Expense is negative, the referred index shall not be considered in the respective period.
As of December 31, 2014, we had debentures outstanding of the fourth
issuance, totaling R$400 million (US$ 148. 96 million).
Capital Expenditures
In 2014, our capital expenditures totaled US$ 22.452 million. These
investment projects were financed with our operating and financing cash flows. Our capital expenditures were US$ 21.008 million
in 2013. Such investments were on their totality focused on company’s expansion.
Investment Plan
We believe that existing resources and operating income will be
sufficient for our capital expenditure and investment plan and meet our liquidity requirements for the next 12 months. However,
our capital expenditure and investment plan is subject to a number of contingencies, many of which are beyond our control, including
the continued growth and stability of the Brazilian economy. We cannot assure you that we will successfully complete all of or
any portion of our capital expenditure and investment plan. In addition, we may participate in acquisitions not budgeted in the
capital expenditure and investment plan, and we may modify these plans.
BENEFICIAL OWNERSHIP OF SECURITIES
The following table sets forth information regarding the beneficial
ownership of GGAC ordinary shares as of December 17, 2015 and immediately following consummation of the business combination by:
| ● | each person known by GGAC to be the beneficial owner of more than 5% of GGAC’s outstanding ordinary shares either on
the record date or after the consummation of the business combination; |
| ● | each of GGAC’s current executive officers and directors; |
| ● | each person who will become an executive officer or a director upon consummation of the business combination; |
| ● | all of GGAC’s current executive officers and directors as a group; and |
| ● | all of GGAC’s executive officers and directors as a group after the consummation of the business combination. |
At any time prior to the extraordinary general meeting, during a
period when they are not then aware of any material nonpublic information regarding GGAC or its securities, the GGAC initial shareholders,
the Controlling Persons, the Optionholders and/or their affiliates, may enter into a written plan to purchase GGAC securities pursuant
to Rule 10b5-1 of the Exchange Act, and may engage in other public market purchases, as well as private purchases, of securities
at any time prior to the extraordinary general meeting of shareholders.
In addition, at any time prior to the extraordinary general meeting,
during a period when they are not then aware of any material nonpublic information regarding GGAC or its securities, the GGAC initial
shareholders, the Controlling Persons or the Optionholders and/or their respective affiliates may purchase shares from institutional
and other investors who vote, or indicate an intention to vote, against the business combination proposal or to seek, or indicate
an intention to seek, conversion of their shares, or they may enter into transactions with such investors and others to provide
them with incentives to acquire GGAC ordinary shares or vote their shares in favor of the business combination proposal and not
seek conversion. While the exact nature of any such incentives has not been determined as of the date of this proxy statement,
they might include, without limitation, arrangements to protect such investors or holders against potential loss in value of their
shares, including the granting of put options and the transfer to such investors or holders of shares or warrants owned by the
GGAC initial shareholders for nominal value. The funds for any such purchases or incentives will either come from cash available
to such purchasing parties or from third party financing, none of which has been sought at this time.
The purpose of such share purchases and other transactions would
be to increase the likelihood of satisfaction of the requirements that the holders of a majority of the GGAC ordinary shares voted
on the business combination proposal at the extraordinary general meeting vote in its favor and that GGAC has net tangible assets
of at least US$5,000,001 upon the consummation of the business combination with Grupo Colombo, after giving effect to payments
to public shareholders who exercise their conversion rights, where it appears that such requirements would otherwise not be met.
Purchases of shares or the entry into other transactions by the persons described above would allow them to exert more influence
over the approval of the business combination proposal and other proposals to be presented at the extraordinary general meeting
and therefore would increase the chances that such proposals would be approved. Moreover, any such purchases or other transactions
would reduce the number of GGAC shareholders who exercise their conversion rights and therefore would increase the chances that
GGAC has net tangible assets of at least US$5,000,001 upon the consummation of the business combination with Grupo Colombo. Accordingly,
if such share purchases and other transactions are effected, the consequence could be to cause the business combination to be authorized
in circumstances where such authorization could not otherwise be obtained.
Entering into any such incentive arrangements may have a depressive
effect on GGAC’s ordinary shares. For example, as a result of these arrangements, an investor or holder may have the ability
to effectively purchase shares at a price lower than market and may therefore be more likely to sell the shares he owns, either
prior to or immediately after the extraordinary general meeting.
Pursuant to the Investment Agreement, the Controlling Persons have
committed to use their commercially reasonable best efforts to purchase, directly or indirectly, at least US$30,000,000 of GGAC
ordinary shares in the open market, and to vote such shares in favor of the business combination and not to exercise their conversion
rights with respect to such shares. As of the date of this proxy statement, there have been no other discussions or agreements
between the GGAC initial shareholders, the Controlling Persons or the Optionholders and/or their respective affiliates and any
investor or holder of GGAC ordinary shares regarding any share purchase or other transactions described above. GGAC will file a
Current Report on Form 8-K to disclose any arrangements entered into or significant purchases made by any of the aforementioned
persons that would affect the vote on the business combination or the conversion threshold. Any such report will include descriptions
of any arrangements entered into or significant purchases by any of the aforementioned persons.
The following table does not reflect record of beneficial ownership
of any ordinary shares issuable upon exercise of warrants or the exchange of GGAC’s rights, as such securities are not exercisable
or exchangeable within 60 days of the date of this proxy statement.
| |
Pre-Business combination(1) | | |
Post-Business combination(2) | |
Name and Address of Beneficial Owner | |
Amount and Nature of Beneficial Ownership | | |
Approximate Percentage of Outstanding Ordinary Shares | | |
Amount and Nature of Beneficial Ownership | | |
Approximate Percentage of Outstanding Ordinary Shares | |
Directors and Executive Officers Pre-Business combination:(3) | |
| | |
| | |
| | |
| |
Mario Garnero | |
| 3,931,328 | (4) | |
| 21.1 | % | |
| 4,348,641 | (5) | |
| 17.8 | % |
Javier Martin Riva | |
| 89,844 | | |
| * | | |
| 89,844 | | |
| * | |
John Tonelli | |
| 44,922 | | |
| * | | |
| 44,922 | | |
| * | |
Amir Adnani | |
| 44,922 | | |
| * | | |
| 44,922 | | |
| * | |
Nelson Narciso Filho | |
| 44,922 | | |
| * | | |
| 44,922 | | |
| * | |
All directors and executive officers prior to the business combination as a group (five individuals) | |
| 4,155,938 | | |
| 22.3 | % | |
| 4,573,251 | (6) | |
| 18.7 | % |
| |
| | | |
| | | |
| | | |
| | |
Directors and Executive Officers Post-Business combination:(7) | |
| | | |
| | | |
| | | |
| | |
Mario Garnero | |
| 3,931,328 | (4) | |
| 21.1 | % | |
| 4,348,641 | (5) | |
| 17.8 | % |
John Tonelli | |
| 44,922 | | |
| * | | |
| 44,922 | | |
| * | |
Amir Adnani | |
| 44,922 | | |
| * | | |
| 44,922 | | |
| * | |
Nelson Narciso Filho | |
| 44,922 | | |
| * | | |
| 44,922 | | |
| * | |
Alvaro Jabur Maluf Jr. | |
| – | | |
| 0 | % | |
| 3,312,537 | (8) | |
| 13.7 | % |
Paulo Jabur Maluf | |
| – | | |
| 0 | % | |
| 3,312,537 | (8) | |
| 13.7 | % |
Denis Piovezan | |
| – | | |
| 0 | % | |
| 180,000 | | |
| * | |
All directors and executive officers post-business combination as a group (7 individuals) | |
| 4,066,094 | | |
| 21.9 | % | |
| 11,288,481 | (6) | |
| 46.1 | % |
| |
| | | |
| | | |
| | | |
| | |
Five Percent Holders: | |
| | | |
| | | |
| | | |
| | |
AQR Capital Management, LLC Two Greenwich Plaza, 3rd Floor Greenwich, CT 06830 | |
| 2,370,000 | (9) | |
| 12.7 | % | |
| 2,370,000 | (9) | |
| 9.8 | % |
Polar Securities, Inc. 401 Bay Street, Suite 1900 PO Box 19 Toronto, Ontario M5H 2Y4 Canada | |
| 2,273,841 | (10) | |
| 12.2 | % | |
| 2,273,841 | (10) | |
| 9.4 | % |
*Less than one percent.
| (1) | The pre-business combination percentage of beneficial ownership in the table below is calculated based on 18,602,813 ordinary
shares outstanding as of the record date. Unless otherwise indicated, GGAC believes that all persons named in the table have sole
voting and investment power with respect to all ordinary shares beneficially owned by them prior to the business combination. |
| (2) | The post-business combination percentage of beneficial ownership is calculated based on 24,158,719 ordinary shares outstanding.
Such amount includes shares to be issued in exchange for rights that are presently outstanding. In addition, such amount assumes
that no public shareholders properly elect to convert their shares into cash and that Mr. Garnero elects to convert $500,000 of
his working capital note into working capital units. Unless otherwise indicated, GGAC believes that all persons named in the table
have sole voting and investment power with respect to all ordinary shares beneficially owned by them upon consummation of the business
combination. |
| (3) | Unless otherwise indicated, the business address of each of the individuals is c/o Garnero Group Acquisition Company, Av. Brig.
Faria Lima, 1485 – 19 Andar, Brasilinvest Plaza, Sao Paulo-SP, CEP 01452-002, Brazil. |
| (4) | Includes 562,188 GGAC ordinary shares held by Garnero Group Holding Company, over which Mr. Garnero has voting and dispositive
control. |
| (5) | Includes (i) 618,407 GGAC ordinary shares held by Garnero Group Holding Company, over which Mr. Garnero has voting and dispositive
control, (ii) 281,094 GGAC ordinary shares issuable upon the exercise of warrants held by Garnero Group Holding Company, over which
Mr. Garnero has voting and dispositive control, and (iii) 25,000 GGAC ordinary shares issuable upon the exercise of warrants held
by Mr. Garnero. Assumes Mr. Garnero elects to convert $500,000 of his working capital note into working capital units. |
| (6) | Includes 306,094 GGAC ordinary shares issuable upon the exercise of warrants. |
| (7) | Unless otherwise indicated, the business address of each of the individuals is c/o Garnero Colombo Inc., Rua São Tomé
119 – 3 Andar, Vila Olímpia, São Paulo-SP, CEP 04551-080, Brazil. |
| (8) | Assumes that each of Alvaro Jabur Maluf Jr. and Paulo Jabur Maluf purchases $15 million of GGAC ordinary shares in the open
market at prices of $10.05 per share, pursuant to the requirement under the Investment Agreement that the Controlling Persons purchase
$30 million shares in the open market. |
| (9) | Includes GGAC ordinary shares held by AQR Diversified Arbitrage Fund, for which AQR Capital Management, LLC serves as investment
manager. Information derived from a Schedule 13G/A filed on February 17, 2015. |
| (10) | Includes GGAC ordinary shares held by North Pole Capital Master Fund, for which Polar Securities Inc. serves as the investment
manager. Information derived from a Schedule 13G/A filed on November 4, 2014. |
GGAC’s initial shareholders beneficially own approximately
22.3% of its issued and outstanding ordinary shares. Because of the ownership block held by the initial shareholders, such individuals
may be able to effectively exercise influence over all matters requiring approval by GGAC’s shareholders, including the election
of directors and approval of significant corporate transactions other than approval of an initial business combination. Furthermore,
the Controlling Persons have committed to use their commercially reasonable best efforts to purchase at least US$30 million of
GGAC ordinary shares in the open market, and to vote such shares in favor of the business combination and not to exercise their
conversion rights with respect to such shares.
All of the initial shares outstanding prior to the date of GGAC’s
initial public offering were placed in escrow with Continental Stock Transfer & Trust Company, as escrow agent, to be held
(1) with respect to 50% of the initial shares, the earlier of one year after the date of the consummation of the business combination
with Grupo Colombo (or another initial business combination) and the date on which the closing price of the GGAC ordinary shares
equals or exceeds US$13.00 per share (as adjusted for share splits, share dividends, reorganizations and recapitalizations) for
any 20 trading days within any 30-trading day period commencing after such business combination and (2) with respect to the remaining
50% of the initial shares, one year after the date of the consummation of the business combination with Grupo Colombo (or another
initial business combination), or earlier, in either case, if, subsequent to such initial business combination, GGAC consummates
a liquidation, merger, share exchange or other similar transaction which results in all of its shareholders having the right to
exchange their shares for cash, securities or other property.
During the escrow period, the holders of the initial shares are
not able to sell or transfer their securities except (i) for transfers to an entity’s members upon its liquidation, (ii)
to relatives and trusts for estate planning purposes, (iii) by virtue of the laws of descent and distribution upon death, (iv)
pursuant to a qualified domestic relations order, (v) by certain pledges to secure obligations incurred in connection with purchases
of GGAC’s securities, (vi) by private sales made at or prior to the consummation of a business combination at prices no greater
than the price at which the shares were originally purchased or (vii) to GGAC for no value for cancellation in connection with
the consummation of an initial business combination, in each case (except for clause (vii)) where the transferee agrees to the
terms of the escrow agreement, but will retain all other rights as GGAC shareholders, including, without limitation, the right
to vote their ordinary shares and the right to receive cash dividends, if declared. If dividends are declared and payable in ordinary
shares, such dividends will also be placed in escrow. If GGAC is unable to effect a business combination and liquidate the trust
account, none of its initial shareholders will receive any portion of the liquidation proceeds with respect to their initial shares.
Certain of the initial shareholders (or their affiliates) purchased
an aggregate of 634,063 private units at a price of US$10.00 per unit, generating total proceeds of US$6,340,630. These units
are identical to the public units except that the warrants underlying the private units are exercisable for cash or on a cashless
basis, at the holder’s option, and are not redeemable by GGAC, in each case so long as such warrants are held by the initial
purchasers or their affiliates. The purchasers agreed not to sell or transfer the private units (except to certain permitted transferees)
until after GGAC has completed a business combination.
In addition, as part of the underwriters’ compensation for
its initial public offering, GGAC sold to the EarlyBirdCapital and its designees, for a price of US$100, an option to purchase
up to 1,250,000 units exercisable at US$10.00 per unit. The units underlying the purchase options are identical to the units sold
in the initial public offering, except that the warrants included in the units underlying the second option are not redeemable
so long as they are held by EarlyBirdCapital and/or its designees and their respective affiliates. The purchase option is exercisable
upon a business combination and expires June 25, 2019.
In order to meet GGAC’s working capital needs, Mario Garnero
has loaned GGAC funds. Each loan is evidenced by a working capital note. The notes will either be paid upon consummation of GGAC’s
initial business combination, without interest, or, at Mr. Garnero’s discretion, up to US$500,000 of the working capital
notes may be converted into working capital units at a price of US$10.00 per unit. The working capital units are identical to
the private units. If GGAC does not complete a business combination, the loans will not be repaid.
CERTAIN RELATIONSHIPS AND RELATED PERSON
TRANSACTIONS
Related Person Policy
GGAC’s Code of Ethics requires GGAC to avoid, wherever possible,
all related party transactions that could result in actual or potential conflicts of interests, except under guidelines approved
by the board of directors (or the audit committee). Related-party transactions are defined as transactions in which (1) the aggregate
amount involved will or may be expected to exceed US$120,000 in any calendar year, (2) GGAC or any of its subsidiaries is a participant,
and (3) any (a) executive officer, director or nominee for election as a director, (b) greater than 5% beneficial owner of GGAC’s
ordinary shares, or (c) immediate family member, of the persons referred to in clauses (a) and (b), has or will have a direct or
indirect material interest (other than solely as a result of being a director or a less than 10% beneficial owner of another entity).
A conflict of interest situation can arise when a person takes actions or has interests that may make it difficult to perform his
or her work objectively and effectively. Conflicts of interest may also arise if a person, or a member of his or her family, receives
improper personal benefits as a result of his or her position.
GGAC’s audit committee, pursuant to its written charter, is
responsible for reviewing and approving related-party transactions to the extent GGAC enters into such transactions. The audit
committee will consider all relevant factors when determining whether to approve a related party transaction, including whether
the related party transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under
the same or similar circumstances and the extent of the related party’s interest in the transaction. No director may participate
in the approval of any transaction in which he is a related party, but that director is required to provide the audit committee
with all material information concerning the transaction. Additionally, GGAC requires each of its directors and executive officers
to complete an annual directors’ and officers’ questionnaire that elicits information about related party transactions.
These procedures are intended to determine whether any such related
party transaction impairs the independence of a director or presents a conflict of interest on the part of a director, employee
or officer.
GGAC Related Person Transactions
In February 2014, GGAC issued one ordinary share to Mario Garnero,
the Chairman of the Board and Chief Executive Officer of GGAC, in connection with its formation and then on March 26, 2014, GGAC
issued an aggregate of 3,593,749 ordinary shares to Mr. Garnero, Javier Martin Riva, the Chief Financial Officer, Chief Information
Officer and a director of GGAC, Samsao Woiler and Corrado Clini, each a former director of GGAC, and Nelson Narciso Filho, a director
of GGAC, for US$25,000 in cash, at a purchase price of approximately US$0.01 share. In May 2014, Mr. Woiler transferred his shares
to John Tonelli upon Mr. Tonelli’s appointment as a director of GGAC. In June 2014, Mr. Clini transferred his shares to Amir
Adnani upon Mr. Adnani’s appointment to as a director of GGAC.
An affiliate of Mario Garnero and EarlyBirdCapital, the representative
of the underwriters in GGAC’s initial public offering, purchased an aggregate of 563,750 private units at a price of US$10.00
per unit (US$5,637,500 in the aggregate) in a private placement simultaneously with the closing of the initial public offering.
Of the private units, 501,250 were purchased by an affiliate of Mario Garnero and 62,500 were purchased by EarlyBirdCapital. Upon
the exercise of the over-allotment option by the underwriters, they also purchased from GGAC at a price of US$10.00 per unit an
additional 70,313 private units. The private units are identical to the public units except the private warrants will be non-redeemable
and may be exercised on a cashless basis, in each case so long as they continue to be held by the initial purchasers or their permitted
transferees. Additionally, the holders have agreed (A) to vote their private shares in favor of any proposed business combination,
(B) not to propose, or vote in favor of, an amendment to GGAC’s amended and restated memorandum and articles of association
with respect to GGAC’s pre-business combination activities prior to the consummation of such a business combination, (C)
not to convert any private shares into the right to receive cash from the trust account in connection with a shareholder vote to
approve GGAC’s proposed initial business combination or a vote to amend the provisions of GGAC’s amended and restated
memorandum and articles of association relating to shareholders’ rights or pre-business combination activity and (D) that
the private shares shall not participate in any liquidating distribution upon winding up if a business combination is not consummated.
The purchasers have also agreed not to transfer, assign or sell any of the private units or underlying securities (except to the
same permitted transferees as the insider shares and provided the transferees agree to the same terms and restrictions as the permitted
transferees of the insider shares must agree to, each as described above) until the completion of GGAC’s initial business
combination.
In order to meet GGAC’s working capital needs, the initial
shareholders, officers and directors and their respective affiliates may, but are not obligated to, loan GGAC funds, from time
to time or at any time, in whatever amount they deem reasonable in their sole discretion. On October 10, 2014, November 19, 2014,
February 16, 2015 and May 15, 2015, Mario Garnero, executed four separate commitment letters to provide loans to GGAC of up to
an aggregate of US$920,000, of which US$725,878 was loaned to GGAC through June 30, 2015. These loans were evidenced by notes entered
into on September 28, 2015, and will either be repaid upon the consummation of a business combination or, at the option of the
holder, up to US$500,000 may be converted into additional working capital units at a price of US$10.00 per unit (which, for example,
would result in the holder being issued 55,000 ordinary shares if US$500,000 of notes were so converted since the 50,000 rights
included in the private units would result in the issuance of 5,000 shares upon the closing of GGAC’s business combination,
as well as 50,000 warrants to purchase 25,000 shares). GGAC’s shareholders have approved the issuance of the working capital
units and underlying securities upon conversion of such notes, to the extent the holder wishes to so convert them at the time of
the consummation of the initial business combination with Grupo Colombo. If GGAC does not complete the business combination with
Grupo Colombo or another target business within the required time period, the loans will not be repaid.
The initial shareholders, as well as the holders of the private
units (and all underlying securities) and any working capital units (and all underlying securities), will be entitled to registration
rights pursuant to an agreement signed on the effective date of the initial public offering. The holders of a majority of these
securities are entitled to make up to two demands that GGAC register such securities. The holders of the majority of the initial
shares can elect to exercise these registration rights at any time commencing three months prior to the date on which these ordinary
shares are to be released from escrow. The holders of a majority of the private units or working capital units can elect to exercise
these registration rights at any time after GGAC consummates a business combination. In addition, the holders have certain “piggy-back”
registration rights with respect to registration statements filed subsequent to GGAC’s consummation of a business combination.
GGAC will bear the expenses incurred in connection with the filing of any such registration statements. GGAC also granted to the
holders of the unit purchase option issued to EarlyBirdCapital as the representative of the underwriters in the initial public
offer, demand and “piggy back” registration rights for periods of five and seven years, respectively, from the effective
date of this Proposed Public Offering, including securities directly and indirectly issuable upon exercise of the unit purchase
option. At the closing of the business combination with Grupo Colombo, GGAC will enter into the Registration Rights Agreement with
the initial shareholders, the holders of the private units (and all underlying securities) and the holders of any working capital
units (and all underlying securities), along with the Controlling Persons and Optionholders and EarlyBirdCapital, which will supersede
the foregoing registration rights. See the section entitled “The Business Combination Proposal — Sale Restriction;
Resale Registration.
As of February 18, 2014, Brasilinvest International LLC, an affiliate
of Mario Garnero, loaned to GGAC an aggregate of US$125,000 to cover expenses related to the initial public offering. The loan
was repaid from the proceeds of the initial public offering.
Brasilinvest Group, of which Mario Garnero is the Chairman, agreed
to make available to GGAC, commencing on the effective date of the initial public offering through the earlier of the consummation
of a business combination or GGAC’s liquidation, certain general and administrative services, including office space, utilities
and administrative support, as GGAC may require from time to time. GGAC pays Brasilinvest Group US$10,000 per month for these services,
for an aggregate of US$180,000 since the consummation of the initial public offering. Mr. Garnero will benefit from the transaction
to the extent of his interest in Brasilinvest Group. However, this arrangement is solely for GGAC’s benefit and is not intended
to provide Mr. Garnero compensation in lieu of a salary. GGAC believes, based on rents and fees for similar services in Sao Paulo,
Brazil, that the fee charged by Brasilinvest Group is at least as favorable as GGAC could have obtained from an unaffiliated person.
GGAC will reimburse its officers and directors for any reasonable
out-of-pocket business expenses incurred by them in connection with certain activities on GGAC’s behalf such as identifying
and investigating possible target businesses and business combinations. There is no limit on the amount of out-of-pocket expenses
reimbursable by GGAC. As of the date of this proxy statement, GGAC’s officers and directors have been reimbursed for $[●]
in expenses incurred by them and have incurred approximately $40,000 of unpaid reimbursable expenses. No compensation or fees of
any kind, including finder’s fees, consulting fees or other similar compensation, have been or will be paid to any of GGAC’s
existing shareholders, officers or directors who owned GGAC’s ordinary shares prior to GGAC’s initial public offering,
or to any of their respective affiliates, prior to or with respect to the business combination (regardless of the type of transaction
that it is).
All ongoing and future transactions between GGAC and any of its
officers and directors or their respective affiliates will be on terms believed by GGAC to be no less favorable to GGAC than are
available from unaffiliated third parties. Such transactions, including the payment of any compensation, will require prior approval
by a majority of GGAC’s uninterested “independent” directors (to the extent it has any) or the members of the
GGAC board who do not have an interest in the transaction, in either case who had access, at GGAC’s expense, to GGAC’s
attorneys or independent legal counsel. GGAC will not enter into any such transaction unless its disinterested “independent”
directors (or, if there are no “independent” directors, its disinterested directors) determine that the terms of such
transaction are no less favorable to GGAC than those that would be available to GGAC with respect to such a transaction from unaffiliated
third parties.
Grupo Colombo Related Person Transactions
Álvaro Jabur Maluf Jr. has entered into loan agreements with,
and advanced funds to, Grupo Colombo and certain its subsidiaries, as set forth below. These loans do not bear interest.
Date of
Loan Agreement |
|
Borrower |
|
Amount |
|
Maturity
Date |
December 29, 2014, as amended on June 29, 2015 |
|
AMD Comércio de Roupas Ltda. |
|
US$ 1,471,501.19 |
|
December 29, 2015 |
March 17, 2015, as amended on September 16, 2015 |
|
Q1 Comercial de Roupas S.A. |
|
US$ 649,451.37 |
|
March 16, 2016 |
April 6, 2015, as amended on October 5, 2015 |
|
Q1 Comercial de Roupas S.A. |
|
US$ 748,517.70 |
|
April 5, 2016 |
July 1, 2015 |
|
Q1 Comercial de Roupas S.A. |
|
US$ 522,246.42 |
|
January 1, 2016 |
July 21, 2015 |
|
Q1 Comercial de Roupas S.A. |
|
US$ 136,351.49 |
|
January 21, 2016 |
August 20, 2015 |
|
Q1 Comercial de Roupas S.A. |
|
US$ 73,094.97 |
|
February 20, 2016 |
August 25, 2015 |
|
Q1 Serviço e Recebimento Ltda. |
|
US$ 111,119.05 |
|
February 25, 2016 |
September 18, 2015 |
|
Q1 Serviço e Recebimento Ltda. |
|
US$ 1,025,899.16 |
|
March 18, 2016 |
September 21, 2015 |
|
Q1 Comercial de Roupas S.A. |
|
US$ 102,071.96 |
|
March 21, 2016 |
September 22, 2015 |
|
Q1 Serviço e Recebimento Ltda. |
|
US$ 270,719.96 |
|
March 22, 2016 |
Paulo Jabur Maluf also has entered into loan agreements with, and
advanced funds to, Grupo Colombo and certain its subsidiaries, as set forth below. These loans also do not bear interest.
Date of
Loan Agreement |
|
Borrower |
|
Amount |
|
Maturity
Date |
December 29, 2014, as amended on June 29, 2015 |
|
AMD Comércio de Roupas Ltda. |
|
US$ 1,007,017.80 |
|
December 29, 2015 |
March 17, 2015, as amended on September 16, 2015 |
|
Q1 Comercial de Roupas S.A. |
|
US$ 406,735.14 |
|
March 16, 2016 |
August 25, 2015 |
|
Q1 Serviço e Recebimento Ltda. |
|
US$ 1,141,635.68 |
|
February 25, 2016 |
September 22, 2015 |
|
Q1 Serviço e Recebimento Ltda. |
|
US$ 140,586.76 |
|
March 22, 2016 |
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires GGAC directors, officers
and persons owning more than 10% of GGAC’s ordinary shares to file reports of ownership and changes of ownership with the
SEC. Based on its review of the copies of such reports furnished to GGAC, or representations from certain reporting persons that
no other reports were required, GGAC believes that all applicable filing requirements were complied with during the fiscal year
ended June 30, 2015.
DESCRIPTION OF GGAC ORDINARY SHARES AND
OTHER SECURITIES
General
GGAC is authorized to issue 120,000,000 GGAC ordinary shares and
1,000,000 preferred shares, par value US$0.0001. As of the record date, 18,602,813 GGAC ordinary shares are outstanding, held by
21 shareholders of record, and no preferred shares are outstanding.
Units
Each unit consists of one ordinary share, one right and one warrant.
Each right entities the holder thereof to receive one-tenth of a share automatically on the consummation of an initial business
combination. Each warrant entitles the holder to purchase one half of one ordinary share. Pursuant to the warrant agreement governing
the warrants, a warrantholder may exercise its warrants only for a whole number of shares. This means that only an even number
of warrants may be exercised at any given time by a warrantholder. For example, if a warrantholder holds one warrant to purchase
one-half of one share, such warrant will not be exercisable. If a warrantholder holds two warrants, such warrants will be exercisable
for one share.
Ordinary Shares
GGAC’s shareholders of record are entitled to one vote for
each share held on all matters to be voted on by shareholders. In connection with any vote held to approve an initial business
combination, all of GGAC’s initial shareholders, as well as all of its officers and directors, have agreed to vote their
respective initial shares and any shares purchased in the open market in favor of the proposed business combination.
GGAC will proceed with the business combination only if GGAC has
net tangible assets of at least US$5,000,001 upon consummation of such business combination and a majority of the ordinary shares
voted are voted in favor of the business combination. At least five days’ notice must be given for each general meeting (although
GGAC will provide whatever minimum number of days are required under Federal securities laws). Shareholders may vote at meetings
in person or by proxy.
GGAC’s board of directors is divided into three classes, each
of which will generally serve for a term of three years with only one class of directors being elected in each year. There is no
cumulative voting with respect to the election of directors, with the result that the holders of more than 50% of the shares eligible
to vote for the election of directors can elect all of the directors.
Pursuant to GGAC’s amended and restated memorandum and articles
of association, if GGAC does not consummate a business combination by June 25, 2016, it will trigger GGAC’s automatic winding
up, dissolution and liquidation. The initial shareholders have agreed to waive their rights to share in any distribution from the
trust account with respect to their initial shares upon GGAC’s winding up, dissolution and liquidation.
GGAC’s shareholders have no conversion, preemptive or other
subscription rights and there are no sinking fund or redemption provisions applicable to the ordinary shares, except that public
shareholders have the right to have their shares converted to cash if they vote on the proposed business combination, properly
demand conversion of their shares as described in this proxy statement and the business combination is completed. Public shareholders
who convert their shares still have the right to exercise the warrants that they received as part of the units.
Register of Members
Under Cayman Islands law, GGAC must keep a register of members and
there shall be entered therein:
| (a) | the names and addresses of the members, a statement of the shares held by each member, and of the amount paid or agreed to
be considered as paid, on the shares of each member; |
| (b) | the date on which the name of any person was entered on the register as a member; and |
| (c) | the date on which any person ceased to be a member. |
Under Cayman Islands law, the register of members of GGAC is prima
facie evidence of the matters set out therein (i.e. the register of members will raise a presumption of fact on the matters referred
to above unless rebutted) and a member registered in the register of members shall be deemed as a matter of Cayman Islands law
to have legal title to the shares as set against its name in the register of members. The register of members is immediately updated
to reflect the issue of any shares by GGAC. Once the register of members has been updated, the shareholders recorded in the register
of members shall be deemed to have legal title to the shares set against their name.
However, there are certain limited circumstances where an application
may be made to a Cayman Islands court for a determination on whether the register of members reflects the correct legal position.
Further, the Cayman Islands court has the power to order that the register of members maintained by a company should be rectified
where it considers that the register of members does not reflect the correct legal position. If an application for an order for
rectification of the register of members were made in respect of GGAC’s ordinary shares, then the validity of such shares
may be subject to re-examination by a Cayman Islands court.
Preferred Shares
GGAC’s amended and restated memorandum and articles of association
authorizes the issuance of 1,000,000 preferred shares with such designation, rights and preferences as may be determined from time
to time by GGAC’s board of directors. Accordingly, the board of directors is empowered, without shareholder approval, to
issue preferred shares with dividend, liquidation, conversion, voting or other rights which could adversely affect the voting power
or other rights of the holders of ordinary shares. However, the underwriting agreement for GGAC’s initial public offering
prohibits it, prior to a business combination, from issuing preferred shares which participate in any manner in the proceeds of
the trust account, or which vote as a class with the ordinary shares on a business combination. GGAC may issue some or all of the
preferred shares to effect a business combination, but is not issuing any preferred shares in connection with the business combination
with Grupo Colombo. In addition, the preferred shares could be utilized as a method of discouraging, delaying or preventing a change
in control of GGAC. Although GGAC does not currently intend to issue any preferred shares, it cannot assure you that it will not
do so in the future.
Warrants
As of the record date, 15,009,063 warrants are outstanding, including
14,375,000 public warrants and 634,063 private warrants, held by three holders of record. Each public warrant entitles the registered
holder to purchase one-half of one ordinary share at a price of US$11.50 per full share, subject to adjustment as discussed below,
at any time commencing upon the completion of a business combination. Pursuant to the warrant agreement, a warrantholder may exercise
its warrants only for a whole number of shares. This means that only an even number of warrants may be exercised at any given time
by a warrantholder. However, no public warrants will be exercisable for cash unless GGAC has an effective and current registration
statement covering the ordinary shares issuable upon exercise of the warrants and a current prospectus relating to such ordinary
shares. Notwithstanding the foregoing, if a registration statement covering the ordinary shares issuable upon exercise of the public
warrants is not effective within 90 days from the consummation of GGAC’s initial business combination, warrant holders may,
until such time as there is an effective registration statement and during any period when GGAC shall have failed to maintain an
effective registration statement, exercise warrants on a cashless basis pursuant to an available exemption from registration under
the Securities Act. If an exemption from registration is not available, holders will not be able to exercise their warrants on
a cashless basis. The warrants will expire five years from the consummation of an initial business combination at 5:00 p.m., New
York City time.
The private warrants and the warrants underlying the working capital
units will be identical to the public warrants except that such warrants will be exercisable for cash (even if a registration statement
covering the ordinary shares issuable upon exercise of such warrants is not effective) or on a cashless basis, at the holder’s
option, and will not be redeemable by GGAC, in each case so long as they are still held by the initial purchasers or their affiliates.
GGAC may call the warrants for redemption (excluding the private
warrants and the warrants underlying the working capital units, but including any outstanding warrants issued upon exercise of
the unit purchase option issued to EarlyBirdCapital), in whole and not in part, at a price of US$0.01 per warrant,
| ● | at any time while the warrants are exercisable, |
| ● | upon not less than 30 days’ prior written notice of redemption to each warrant holder, |
| ● | if, and only if, the reported last sale price of the ordinary shares equals or exceeds US$21.00 per share, for any 20 trading
days within a 30-day trading period ending on the third business day prior to the notice of redemption to warrant holders, and |
| ● | if, and only if, there is a current registration statement in effect with respect to the ordinary shares underlying such warrants
commencing five business days prior to the 30-day trading period and continuing each day thereafter until the date of redemption. |
The right to exercise will be forfeited unless the warrants are
exercised prior to the date specified in the notice of redemption. On and after the redemption date, a record holder of a warrant
will have no further rights except to receive the redemption price for such holder’s warrant upon surrender of such warrant.
The redemption criteria for GGAC’s warrants have been established
at a price which is intended to provide warrant holders a reasonable premium to the initial exercise price and provide a sufficient
differential between the then-prevailing share price and the warrant exercise price so that if the share price declines as a result
of GGAC’s redemption call, the redemption will not cause the share price to drop below the exercise price of the warrants.
If GGAC calls the warrants for redemption as described above, its
management will have the option to require all holders that wish to exercise warrants to do so on a “cashless basis.”
In such event, each holder would pay the exercise price by surrendering the warrants for that number of ordinary shares equal to
the quotient obtained by dividing (x) the product of the number of ordinary shares underlying the warrants, multiplied by the difference
between the exercise price of the warrants and the “fair market value” (defined below) by (y) the fair market value.
The “fair market value” shall mean the average reported last sale price of the ordinary shares for the 10 trading days
ending on the third trading day prior to the date on which the notice of redemption is sent to the holders of warrants. Whether
GGAC will exercise its option to require all holders to exercise their warrants on a “cashless basis” will depend on
a variety of factors including the price of the ordinary shares at the time the warrants are called for redemption, GGAC’s
cash needs at such time and concerns regarding dilutive share issuances.
The warrants are issued in registered form under a warrant agreement
between Continental Stock Transfer & Trust Company, as warrant agent, and GGAC. The warrant agreement provides that the terms
of the warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision, but
requires the approval, by written consent or vote, of the holders of a majority of the then outstanding public warrants in order
to make any change that adversely affects the interests of the registered holders.
The exercise price and number of ordinary shares issuable on exercise
of the warrants may be adjusted in certain circumstances including in the event of a share dividend, extraordinary dividend or
GGAC’s recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for issuances
of ordinary shares at a price below their respective exercise prices.
The warrants may be exercised upon surrender of the warrant certificate
on or prior to the expiration date at the offices of the warrant agent, with the exercise form on the reverse side of the warrant
certificate completed and executed as indicated, accompanied by full payment of the exercise price, by certified or official bank
check payable to GGAC, for the number of warrants being exercised. The warrant holders do not have the rights or privileges of
holders of ordinary shares and any voting rights until they exercise their warrants and receive ordinary shares. After the issuance
of ordinary shares upon exercise of the warrants, each holder will be entitled to one vote for each share held of record on all
matters to be voted on by shareholders.
Except as described above, no public warrants will be exercisable
and GGAC will not be obligated to issue ordinary shares unless at the time a holder seeks to exercise such warrant, a prospectus
relating to the ordinary shares issuable upon exercise of the warrants is current and the ordinary shares have been registered
or qualified or deemed to be exempt under the securities laws of the state of residence of the holder of the warrants. Under the
terms of the warrant agreement, GGAC has agreed to use its best efforts to meet these conditions and to maintain a current prospectus
relating to the ordinary shares issuable upon exercise of the warrants until the expiration of the warrants. However, GGAC cannot
assure you that it will be able to do so and, if it does not maintain a current prospectus relating to the ordinary shares issuable
upon exercise of the warrants, holders will be unable to exercise their warrants. If the prospectus relating to the ordinary shares
issuable upon the exercise of the warrants is not current or if the ordinary shares are not qualified or exempt from qualification
in the jurisdictions in which the holders of the warrants reside, GGAC will not be required to net cash settle or cash settle the
warrant exercise, the warrants may have no value, the market for the warrants may be limited and the warrants may expire worthless.
Warrant holders may elect to be subject to a restriction on the
exercise of their warrants such that an electing warrant holder would not be able to exercise their warrants to the extent that,
after giving effect to such exercise, such holder would beneficially own in excess of 9.8% of the ordinary shares outstanding.
No fractional shares will be issued upon exercise of the warrants.
If, upon exercise of the warrants, a holder would be entitled to receive a fractional interest in a share, GGAC will, upon exercise,
round up or down to the nearest whole number the number of ordinary shares to be issued to the warrant holder.
Rights
As of the record date, 15,009,063 rights are outstanding, including
14,375,000 public rights and 634,063 private placement rights, held by three holders of record. Each holder of a right will receive
one-tenth of a share upon consummation of the business combination with Grupo Colombo or another initial business combination,
even if the holder of such right converted all ordinary shares held by him, her or it in connection with the initial business combination.
No additional consideration will be required to be paid by a holder of rights in order to receive his, her or its additional shares
upon consummation of an initial business combination as the consideration related thereto has been included in the unit purchase
price paid for by investors in this offering. The shares issuable upon exchange of the rights will be freely tradable (except to
the extent held by affiliates of ours). If GGAC is unable to complete an initial business combination within the required time
period and liquidates the funds held in the trust account, holders of rights will not receive any of such funds with respect to
their rights, nor will they receive any distribution from GGAC’s assets held outside of the trust account with respect to
such rights, and the rights will expire worthless. Further, there are no contractual penalties for failure to deliver securities
to the holders of the rights upon consummation of an initial business combination. Additionally, in no event will GGAC be required
to net cash settle the rights. Because GGAC will only issue a whole number of shares, you will not receive any fractional shares
to the extent the number of rights held by you upon consummation of an initial business combination is not divisible by ten.
Purchase Options
In connection with the initial public offering, GGAC sold to EarlyBirdCapital,
for US$100, an option to purchase up to 1,250,000 units. The units issuable upon exercise of this option are identical to those
offered by this prospectus. This option is exercisable at US$10.00 per unit, and may be exercised on a cashless basis, in whole
or in part, commencing on the consummation of a business combination. The option expires on June 25, 2019. Since the option is
not exercisable until at the earliest the consummation of a business combination, and the rights will automatically result in the
issuance of shares upon consummation of a business combination, the option will effectively represent the right to purchase 1,375,000
ordinary shares (which includes the 125,000 ordinary shares issuable for the rights included in the units), and 1,250,000 warrants
to purchase 625,000 full shares, for US$12,500,000. Notwithstanding anything to the contrary, neither the option nor the warrants
underlying the option shall be exercisable after June 25, 2019. The option and the 1,250,000 units, the 2,000,000 ordinary shares
and the 1,250,000 warrants underlying such units, and the 625,000 ordinary shares underlying such warrants and 125,000 shares relating
to the rights that are automatically issuable upon consummation of an initial business combination, were deemed compensation by
FINRA. Although the purchase option and its underlying securities were registered under the registration statement for the initial
public offering, the option grants to holders demand and “piggy back” rights for periods ending on June 25, 2019 and
June 25, 2021, respectively, with respect to the registration under the Securities Act of the securities directly and indirectly
issuable upon exercise of the option. GGAC will bear all fees and expenses attendant to registering the securities, other than
underwriting commissions which will be paid for by the holders themselves. GGAC will have no obligation to net cash settle the
exercise of the purchase option or the warrants underlying the purchase option. The holder of the purchase option will not be entitled
to exercise the purchase option or the warrants underlying the purchase option unless a registration statement covering the securities
underlying the purchase option is effective or an exemption from registration is available. If the holder is unable to exercise
the purchase option or underlying warrants, the purchase option or warrants, as applicable, will expire worthless.
The exercise price and number of units issuable upon exercise of
the option may be adjusted in certain circumstances including in the event of a share dividend, or GGAC’s recapitalization,
reorganization, merger or consolidation. However, the option will not be adjusted for issuances of ordinary shares at a price below
its exercise price.
Dividends
GGAC has not paid any cash dividends on its ordinary shares to date
and does not intend to pay cash dividends prior to the business combination. The payment of cash dividends in the future, including
after the business combination with Grupo Colombo, will be dependent upon GGAC’s revenues and earnings, if any, capital requirements
and general financial condition subsequent to completion of the business combination. The payment of any dividends subsequent to
the business combination will be within the discretion of GGAC’s then board of directors. It is the present intention of
GGAC’s board of directors to retain all earnings, if any, for use in GGAC’s business operations and, accordingly, the
board does not anticipate declaring any dividends in the foreseeable future.
Transfer Agent and Warrant Agent
The transfer agent for GGAC’s securities and warrant agent
for its warrants is Continental Stock Transfer & Trust Company, 17 Battery Place, New York, New York 10004.
Listing of GGAC’s Securities
The units, and the ordinary shares and warrants are listed on the
Nasdaq Capital Market under the symbols “GGACU,” “GGAC,” “GGACR” and “GGACW,” respectively.
GGAC cannot assure you that its securities will continue to be listed on the Nasdaq Capital Markets as it might not in the future
meet certain continued listing standards.
Certain Differences in Corporate Law
Cayman Islands companies are governed by the Companies Law. The
Companies Law is modeled on English Law but does not follow recent English Law statutory enactments, and differs from laws applicable
to U.S. corporations and their shareholders. Set forth below is a summary of the material differences between the provisions of
the Companies Law applicable to GGAC and the laws applicable to companies incorporated in the U.S. and their shareholders.
Mergers and Similar Arrangements. In certain circumstances,
the Companies Law allows for mergers or consolidations between two Cayman Islands companies, or between a Cayman Islands company
and a company incorporated in another jurisdiction (provided that is facilitated by the laws of that other jurisdiction).
Where the merger or consolidation is between two Cayman Islands
companies, the directors of each company must approve a written plan of merger or consolidation containing certain prescribed information.
That plan or merger or consolidation must then be authorized by either (a) a special resolution (usually a majority of 66 2/3 %
in value) of the shareholders of each company; or (b) such other authorisation, if any, as may be specified in such constituent
company’s articles of association. A shareholder has the right to vote on a merger or consolidation regardless of whether
the shares that he holds otherwise give him voting rights. No shareholder resolution is required for a merger between a parent
company (i.e., a company that owns at least 90% of the issued shares of each class in a subsidiary company) and its subsidiary
company. The consent of each holder of a fixed or floating security interest of a constituent company must be obtained, unless
the court waives such requirement. If the Cayman Islands Registrar of Companies is satisfied that the requirements of the Companies
Law (which includes certain other formalities) have been complied with, the Registrar of Companies will register the plan of merger
or consolidation.
Where the merger or consolidation involves a foreign company, the
procedure is similar, save that with respect to the foreign company, the director of the Cayman Islands company is required to
make a declaration to the effect that, having made due enquiry, he is of the opinion that the requirements set out below have
been met: (i) that the merger or consolidation is permitted or not prohibited by the constitutional documents of the foreign company
and by the laws of the jurisdiction in which the foreign company is incorporated, and that those laws and any requirements of
those constitutional documents have been or will be complied with; (ii) that no petition or other similar proceeding has been
filed and remains outstanding or order made or resolution adopted to wind up or liquidate the foreign company in any jurisdictions;
(iii) that no receiver, trustee, administrator or other similar person has been appointed in any jurisdiction and is acting in
respect of the foreign company, its affairs or its property or any part thereof; (iv) that no scheme, order, compromise or other
similar arrangement has been entered into or made in any jurisdiction whereby the rights of creditors of the foreign company are
and continue to be suspended or restricted.
Where the surviving company is the Cayman Islands company, the director
of the Cayman Islands company is further required to make a declaration to the effect that, having made due enquiry, he is of the
opinion that the requirements set out below have been met: (i) that the foreign company is able to pay its debts as they fall due
and that the merger or consolidated is bona fide and not intended to defraud unsecured creditors of the foreign company; (ii) that
in respect of the transfer of any security interest granted by the foreign company to the surviving or consolidated company (a)
consent or approval to the transfer has been obtained, released or waived; (b) the transfer is permitted by and has been approved
in accordance with the constitutional documents of the foreign company; and (c) the laws of the jurisdiction of the foreign company
with respect to the transfer have been or will be complied with; (iii) that the foreign company will, upon the merger or consolidation
becoming effective, cease to be incorporated, registered or exist under the laws of the relevant foreign jurisdiction; and (iv)
that there is no other reason why it would be against the public interest to permit the merger or consolidation.
Where the above procedures are adopted, the Companies Law provides
for a right of dissenting shareholders to be paid a payment of the fair value of his shares upon their dissenting to the merger
or consolidation if they follow a prescribed procedure. In essence, that procedure is as follows (a) the shareholder must give
his written objection to the merger or consolidation to the constituent company before the vote on the merger or consolidation,
including a statement that the shareholder proposes to demand payment for his shares if the merger or consolidation is authorized
by the vote; (b) within 20 days following the date on which the merger or consolidation is approved by the shareholders, the constituent
company must give written notice to each shareholder who made a written objection; (c) a shareholder must within 20 days following
receipt of such notice from the constituent company, give the constituent company a written notice of his intention to dissent
including, among other details, a demand for payment of the fair value of his shares; (d) within seven days following the date
of the expiration of the period set out in paragraph (b) above or seven days following the date on which the plan of merger or
consolidation is filed, whichever is later, the constituent company, the surviving company or the consolidated company must make
a written offer to each dissenting shareholder to purchase his shares at a price that the company determines is the fair value
and if the company and the shareholder agree the price within 30 days following the date on which the offer was made, the company
must pay the shareholder such amount; (e) if the company and the shareholder fail to agree a price within such 30 day period, within
20 days following the date on which such 30 day period expires, the company (and any dissenting shareholder) must file a petition
with the Cayman Islands Grand Court to determine the fair value and such petition must be accompanied by a list of the names and
addresses of the dissenting shareholders with whom agreements as to the fair value of their shares have not been reached by the
company. At the hearing of that petition, the court has the power to determine the fair value of the shares together with a fair
rate of interest, if any, to be paid by the company upon the amount determined to be the fair value. Any dissenting shareholder
whose name appears on the list filed by the company may participate fully in all proceedings until the determination of fair value
is reached. These rights of a dissenting shareholder are not be available in certain circumstances, for example, to dissenters
holding shares of any class in respect of which an open market exists on a recognized stock exchange or recognized interdealer
quotation system at the relevant date or where the consideration for such shares to be contributed are shares of any company listed
on a national securities exchange or shares of the surviving or consolidated company.
Moreover, Cayman Islands law also has separate statutory provisions
that facilitate the reconstruction or amalgamation of companies in certain circumstances, schemes of arrangement will generally
be more suited for complex mergers or other transactions involving widely held companies, commonly referred to in the Cayman Islands
as a “scheme of arrangement” which may be tantamount to a merger. In the event that a merger was sought pursuant to
a scheme of arrangement (the procedure of which are more rigorous and take longer to complete than the procedures typically required
to consummate a merger in the U.S.), the arrangement in question must be approved by a majority in number of each class of shareholders
and creditors with whom the arrangement is to be made and who must in addition represent three-fourths in value of each such class
of shareholders or creditors, as the case may be, that are present and voting either in person or by proxy at a meeting, or meeting
summoned for that purpose. The convening of the meetings and subsequently the terms of the arrangement must be sanctioned by the
Grand Court of the Cayman Islands. While a dissenting shareholder would have the right to express to the court the view that the
transaction should not be approved, the court can be expected to approve the arrangement if it satisfies itself that:
| ● | the company not proposing to act illegally or beyond the scope of its corporate authority and the statutory provisions as to
majority vote have been complied with; |
| ● | the shareholders have been fairly represented at the meeting in question; |
| ● | the arrangement is such as a businessman would reasonably approve; and |
| ● | the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Law or that would
amount to a “fraud on the minority.” |
If a scheme of arrangement or takeover offer (as described below)
is approved, any dissenting shareholder would have no rights comparable to appraisal rights, which would otherwise ordinarily be
available to dissenting shareholders of U.S. corporations, providing rights to receive payment in cash for the judicially determined
value of the shares.
Squeeze-out Provisions. When a takeover offer is made and
accepted by holders of 90% of the shares to whom the offer is made within four months, the offeror may, within a two-month period,
require the holders of the remaining shares to transfer such shares on the terms of the offer. An objection can be made to the
Grand Court of the Cayman Islands but this is unlikely to succeed unless there is evidence of fraud, bad faith, collusion or inequitable
treatment of the shareholders.
Further, transactions similar to a merger, reconstruction and/or
an amalgamation may in some circumstances be achieved through other means to these statutory provisions, such as a share capital
exchange, asset acquisition or control, through contractual arrangements, of an operating business.
Shareholders’ Suits. GGAC’s Cayman Islands counsel
is not aware of any reported class action having been brought in a Cayman Islands court. Derivative actions have been brought in
the Cayman Islands courts, and the Cayman Islands courts have confirmed the availability for such actions. In most cases, GGAC
will be the proper plaintiff in any claim based on a breach of duty owed to it, and a claim against (for example) GGAC’s
officers or directors usually may not be brought by a shareholder. However, based both on Cayman Islands authorities and on English
authorities, which would in all likelihood be of persuasive authority and be applied by a court in the Cayman Islands, exceptions
to the foregoing principle apply in circumstances in which:
| ● | a company is acting, or proposing to act, illegally or beyond the scope of its authority; |
| ● | the act complained of, although not beyond the scope of the authority, could be effected if duly authorized by more than the
number of votes which have actually been obtained; or |
| ● | those who control the company are perpetrating a “fraud on the minority.” |
A shareholder may have a direct right of action against GGAC where
the individual rights of that shareholder have been infringed or are about to be infringed.
Enforcement of civil liabilities. The Cayman Islands has
a different body of securities laws as compared to the U.S. and provides less protection to investors. Additionally, Cayman Islands
companies may not have standing to sue before the Federal courts of the U.S.
GGAC has been advised by its Cayman Islands legal counsel that the
courts of the Cayman Islands are unlikely (i) to recognise or enforce against GGAC judgments of courts of the U.S. predicated upon
the civil liability provisions of the federal securities laws of the U.S. or any state; and (ii) in original actions brought in
the Cayman Islands, to impose liabilities against GGAC predicated upon the civil liability provisions of the federal securities
laws of the U.S. or any state, so far as the liabilities imposed by those provisions are penal in nature. In those circumstances,
although there is no statutory enforcement in the Cayman Islands of judgments obtained in the U.S., the courts of the Cayman Islands
will recognise and enforce a foreign money judgment of a foreign court of competent jurisdiction without retrial on the merits
based on the principle that a judgment of a competent foreign court imposes upon the judgment debtor an obligation to pay the sum
for which judgment has been given provided certain conditions are met. For a foreign judgment to be enforced in the Cayman Islands,
such judgment must be final and conclusive and for a liquidated sum, and must not be in respect of taxes or a fine or penalty,
inconsistent with a Cayman Islands judgment in respect of the same matter, impeachable on the grounds of fraud or obtained in a
manner, and or be of a kind the enforcement of which is, contrary to natural justice or the public policy of the Cayman Islands
(awards of punitive or multiple damages may well be held to be contrary to public policy). A Cayman Islands Court may stay enforcement
proceedings if concurrent proceedings are being brought elsewhere. There is recent Privy Council authority (which is binding on
the Cayman Islands Court) in the context of a reorganisation plan approved by the New York Bankruptcy Court which suggests that
due to the universal nature of bankruptcy/insolvency proceedings, foreign money judgments obtained in foreign bankruptcy/insolvency
proceedings may be enforced without applying the principles outlined above. However, a more recent English Supreme Court authority
(which is highly persuasive but not binding on the Cayman Islands Court), has expressly rejected that approach in the context of
a default judgment obtained in an adversary proceeding brought in the New York Bankruptcy Court by the receivers of the bankruptcy
debtor against a third party, and which would not have been enforceable upon the application of the traditional common law principles
summarised above and held that foreign money judgments obtained in bankruptcy/insolvency proceedings should be enforced by applying
the principles set out above, and not by the simple exercise of the Courts’ discretion. Those cases have now been considered
by the Cayman Islands Court. The Cayman Islands Court was not asked to consider the specific question of whether a judgment of
a bankruptcy court in an adversary proceeding would be enforceable in the Cayman Islands, but it did endorse the need for active
assistance of overseas bankruptcy proceedings. GGAC understands that the Cayman Islands Court’s decision in that case has
been appealed and it remains the case that the law regarding the enforcement of bankruptcy/insolvency related judgments is still
in a state of uncertainty.
Special Considerations for Exempted Companies. GGAC is an
exempted company with limited liability under the Companies Law. The Companies Law distinguishes between ordinary resident companies
and exempted companies. Any company that is registered in the Cayman Islands but conducts business mainly outside of the Cayman
Islands may apply to be registered as an exempted company. The requirements for an exempted company are essentially the same as
for an ordinary company except for the exemptions and privileges listed below:
| ● | annual reporting requirements are minimal and consist mainly of a statement that the company has conducted its operations mainly
outside of the Cayman Islands and has complied with the provisions of the Companies Law; |
| ● | an exempted company’s register of members is not open to inspection; |
| ● | an exempted company does not have to hold an annual general meeting; |
| ● | an exempted company may issue negotiable or bearer shares or shares with no par value; |
| ● | an exempted company may obtain an undertaking against the imposition of any future taxation (such undertakings are usually
given for 20 years in the first instance); |
| ● | an exempted company may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands; |
| ● | an exempted company may register as a limited duration company; and |
| ● | an exempted company may register as a segregated portfolio company. |
Amended and Restated Memorandum and Articles of Association
GGAC’s amended and restated memorandum and articles of association
filed under the laws of the Cayman Islands contain provisions designed to provide certain rights and protections to its shareholders
prior to the consummation of a business combination. The following are the material rights and protections contained in GGAC’s
amended and restated memorandum and articles of association:
| ● | the right of public shareholders to exercise conversion rights and surrender their shares in lieu of participating in a proposed
business combination; |
| ● | a prohibition against completing a business combination unless GGAC has net tangible assets of at least US$5,000,001 upon consummation
of such business combination; |
| ● | a requirement that if GGAC seeks shareholder approval of any business combination, a majority of the outstanding ordinary shares
voted must be voted in favor of such business combination; |
| ● | the separation of GGAC’s board of directors into three classes and the establishment of related procedures regarding
the standing and election of such directors; |
| ● | a requirement that GGAC’s management take all actions necessary to liquidate GGAC’s trust account in the event
GGAC does not consummate a business combination by June 25, 2016; and |
| ● | limitation on shareholders’ rights to receive a portion of the trust account. |
The Companies Law permits a company incorporated in the Cayman Islands
to amend its memorandum and articles of association with the approval of the holders of at least two-thirds of such company’s
outstanding ordinary shares. A company’s articles of association may specify that the approval of a higher majority is required
but, provided the approval of the required majority is obtained, any Cayman Islands company may amend its memorandum and articles
of association regardless of whether its memorandum and articles of association provides otherwise. Accordingly, although GGAC
could amend any of the provisions relating to its proposed offering, structure and business plan which are contained in its amended
and restated memorandum and articles of association, GGAC views all of these provisions as binding obligations to its shareholders
and neither GGAC, nor its officers or directors, will take any action to amend or waive any of these provisions prior to the consummation
of an initial business combination.
Upon the closing of the business combination with Grupo Colombo,
if the charter amendment proposals are approved, the foregoing provisions will be removed from GGAC’s memorandum and articles
of association, as they will no longer be applicable.
PRICE RANGE OF GGAC SECURITIES AND DIVIDENDS
Market Price of Units, Ordinary Shares and Warrants
GGAC’s units, ordinary shares, rights and warrants are traded
on Nasdaq under the symbol GGACU, GGAC, GGACR and GGACW, respectively. Upon the closing of the business combination, GGAC’s
rights will automatically be exchange for ordinary shares and will cease public trading. The following table sets forth the high
and low sales prices for the periods indicated since the units commenced trading June 26, 2014 and since the ordinary shares, rights
and warrants commenced public trading separately on July 23, 2014.
The closing price for the units, ordinary shares, rights and warrants
on December 18, 2015, the last trading day before announcement of the execution of the Investment Agreement, was US$9.85, US$9.79,
US$0.15 and US$0.10, respectively. As of [●], 2016, the record date, the closing price for the units, ordinary shares, rights
and warrants of GGAC was US$[●], US$[●], US$[●] and US$[●], respectively.
In U.S. Dollars | |
| | |
| | |
| | |
| |
| |
Ordinary Shares | | |
Warrants | | |
Rights | | |
Units | |
Period | |
High | | |
Low | | |
High | | |
Low | | |
High | | |
Low | | |
High | | |
Low | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
2016 Fiscal Year: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Second Quarter* | |
$ | 9.95 | | |
$ | 9.75 | | |
$ | 0.14 | | |
$ | 0.05 | | |
$ | 0.24 | | |
$ | 0.10 | | |
$ | 10.29 | | |
$ | 9.85 | |
First Quarter | |
$ | 9.95 | | |
$ | 9.75 | | |
$ | 0.30 | | |
$ | 0.05 | | |
$ | 0.33 | | |
$ | 0.16 | | |
$ | 10.31 | | |
$ | 10.02 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
2015 Fiscal Year: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Fourth Quarter | |
$ | 9.85 | | |
$ | 9.57 | | |
$ | 0.18 | | |
$ | 0.10 | | |
$ | 0.90 | | |
$ | 0.11 | | |
$ | 10.25 | | |
$ | 9.90 | |
Third Quarter | |
$ | 9.79 | | |
$ | 9.41 | | |
$ | 0.15 | | |
$ | 0.08 | | |
$ | 0.30 | | |
$ | 0.11 | | |
$ | 10.06 | | |
$ | 9.82 | |
Second Quarter | |
$ | 9.70 | | |
$ | 9.50 | | |
$ | 0.23 | | |
$ | 0.12 | | |
$ | 0.85 | | |
$ | 0.27 | | |
$ | 10.16 | | |
$ | 9.73 | |
First Quarter** | |
$ | 9.75 | | |
$ | 9.10 | | |
$ | 0.24 | | |
$ | 0.12 | | |
$ | 0.36 | | |
$ | 0.26 | | |
$ | 10.06 | | |
$ | 9.75 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
2014 Fiscal Year: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Fourth Quarter*** | |
| N/A | | |
| N/A | | |
| N/A | | |
| N/A | | |
| N/A | | |
| N/A | | |
$ | 10.06 | | |
$ | 10.00 | |
| * | Through December 18, 2015. |
| ** | Period commences July 23, 2014 for GGAC’s ordinary shares, rights and warrants. |
| *** | Period commences June 26, 2014 for GGAC’s units. |
Holders of GGAC units, ordinary shares, rights and warrants should
obtain current market quotations for their securities. The market price of GGAC units, ordinary shares, rights and warrants could
vary at any time before the business combination with Grupo Colombo.
Holders
As of the record date, there were 21 holders of record of GGAC’s
ordinary shares, three holders of record of GGAC’s rights and three holders of record of GGAC’s warrants.
Dividends
GGAC has not paid any cash dividends on its ordinary shares to date
and does not intend to pay dividends prior or subsequent to the completion of the business combination. It is the present intention
of GGAC’s board of directors to retain all earnings, if any, for use in GGAC’s business operations and, accordingly,
GGAC’s board does not anticipate declaring any dividends in the foreseeable future. The payment of dividends subsequent to
the business combination will be within the discretion of GGAC’s then board of directors and will be contingent upon GGAC’s
revenues and earnings, if any, capital requirements and general financial condition subsequent to completion of the business combination.
APPRAISAL RIGHTS
GGAC’s shareholders do not have appraisal rights under the
Companies Law in connection with the business combination or the other proposals.
SHAREHOLDER PROPOSALS
The GGAC 2017 annual general meeting of shareholders will be held
on or about [●], 2017 unless the date is changed by the board of directors. If you are a shareholder and you want to include
a proposal in the proxy statement for the 2017 annual general meeting, you need to provide it to GGAC by [●], 2017. If you
are a shareholder and you want to present a matter to be considered at the 2016 annual general meeting, and you do not give notice
of the matter to GGAC by [●], 2017, GGAC may confer discretionary authority to vote on such matter with respect to all of
the proxies solicited by it. You should direct any proposals or notices to GGAC’s secretary at Av. Brig. Faria Lima, 1485
– 19 Andar, Brasilinvest Plaza, Sao Paulo-SP, CEP 01452-002, Brazil (if sent before the business combination) or at Rua São
Tomé 119 – 3 Andar, Vila Olímpia, São Paulo-SP, CEP 04551-080, Brazil (if sent after the business combination).
If GGAC does not consummate a business combination transaction by June 25, 2016, there will be no annual general meeting in 2017.
OTHER SHAREHOLDER COMMUNICATIONS
Shareholders and interested parties may communicate with GGAC’s
board of directors, any committee chairperson or the non-management directors as a group by writing to the board or committee chairperson
in care of Garnero Group Acquisition Company, Av. Brig. Faria Lima, 1485 – 19 Andar, Brasilinvest Plaza, Sao Paulo-SP, CEP
01452-002, Brazil (if sent before the business combination) or Rua São Tomé 119 – 3 Andar, Vila Olímpia,
São Paulo-SP, CEP 04551-080, Brazil (if sent after the business combination). Each communication will be forwarded, depending
on the subject matter, to the board of directors, the appropriate committee chairperson or all non-management directors.
INDEPENDENT AUDITORS
The consolidated financial statements of Grupo Colombo at December
31, 2014 and 2013, and for each of the two years in the period ended December 31, 2014, appearing in this proxy statement have
been audited by Marcum LLP, independent registered public accounting firm, as set forth in their report, and are included in reliance
on such report given on the authority of such firm as an expert in auditing and accounting.
The consolidated financial statements of Garnero Group Acquisition
Company (a company in the development stage) for the year ended June 30, 2015 and the period from February 11, 2014 (inception)
to June 30, 2014, appearing in this proxy statement have been audited by Marcum LLP, independent registered public accounting firm,
as set forth in their report, and are included in reliance on such report given on the authority of such firm as an expert in auditing
and accounting.
Representatives of Marcum LLP will be present at the shareholder
meeting or will be available by telephone with the opportunity to make statements and to respond to appropriate questions.
DELIVERY OF DOCUMENTS TO SHAREHOLDERS
Pursuant to the rules of the SEC, GGAC and the services that it
employs to deliver communications to its shareholders are permitted to deliver to two or more shareholders sharing the same address
a single copy of each of GGAC’s annual report to shareholders and GGAC’s proxy statement. Upon written or oral request,
GGAC will deliver a separate copy of the annual report to shareholder and/or proxy statement to any shareholder at a shared address
to which a single copy of each document was delivered and who wishes to receive separate copies of such documents. Shareholders
receiving multiple copies of such documents may likewise request that GGAC deliver single copies of such documents in the future.
Shareholders receiving multiple copies of such documents may request that GGAC deliver single copies of such documents in the future.
Shareholders may notify GGAC of their requests by calling or writing GGAC at its principal executive offices at Garnero Group Acquisition
Company, Av. Brig. Faria Lima, 1485 – 19 Andar, Brasilinvest Plaza, Sao Paulo-SP, CEP 01452-002, Brazil, Telephone: (55)
1130947970 (if before the business combination) or Garnero Colombo Inc., Rua São Tomé 119 – 3 Andar, Vila Olímpia,
São Paulo-SP, CEP 04551-080, Brazil (if after the business combination).
WHERE YOU CAN FIND MORE INFORMATION
GGAC files reports, proxy statements and other information with
the SEC as required by the Exchange Act. You may read and copy reports, proxy statements and other information filed by GGAC with
the Securities SEC at the SEC public reference room located at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information
on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. You may also obtain copies of the materials
described above at prescribed rates by writing to the Securities and Exchange Commission, Public Reference Section, 100 F Street,
N.E., Washington, D.C. 20549. You may access information on GGAC at the SEC web site containing reports, proxy statements and other
information at: http://www.sec.gov.
Information and statements contained in this proxy statement or
any annex to this proxy statement are qualified in all respects by reference to the copy of the relevant contract or other annex
filed as an exhibit to this proxy statement.
All information contained in this document relating to GGAC has
been supplied by GGAC, and all such information relating to Grupo Colombo has been supplied by Grupo Colombo. Information provided
by one another does not constitute any representation, estimate or projection of the other.
If you would like additional copies of this document or if you have
questions about the business combination, you should contact via phone or in writing:
Javier Martin Riva
Chief Financial Officer, Chief Information Officer & Secretary
Garnero Group Acquisition Company
Av Brig. Faria Lima 1485 – 19 Andar
Brasilinvest Plaza
Sao Paulo-SP, CEP 01452-002
Brazil
Tel: +55 (11) 3094-7970
Fax: +55 (11) 3094-4000 ext. 4028
Index to Financial Statements
Garnero Group Acquisition Company |
|
|
|
Condensed Balance Sheets as of September 30, 2015 (Unaudited) and December 31, 2015 |
FS-1 |
Condensed Statements of Operations for the Three Months Ended September 30, 2015 and 2014 (Unaudited) |
FS-2 |
Condensed Statements of Cash Flows for the Three Months Ended September 30, 2015 and 2014 (Unaudited) |
FS-3 |
Notes to Condensed Financial Statements (Unaudited) |
FS-4 - FS-12 |
|
|
Report of Independent Registered Public Accounting Firm |
FS-13 |
Balance Sheets as of June 30, 2015 and 2015 |
FS-14 |
Statements of Operations for the Year Ended June 30, 2015 and for the period from February 11, 2014 (Inception) through June 30, 2014 |
FS-15 |
Statement of Changes in Shareholders’ Equity for the Period from February 11, 2014 (Inception) through June 30, 2015 |
FS-16 |
Statements of Cash Flows for the Year Ended June 30, 2015 and for the period from February 11, 2014 (Inception) through June 30, 2014 |
FS-17 |
Notes to Financial Statements |
FS-18 - FS-28 |
|
|
Q1 Comercial de Roupas S.A. |
|
|
|
Report of Independent Registered Public Accounting Firm |
FS-29 |
Consolidated Balance Sheets as of September 30, 2015 (unaudited) and December 31, 2014 and 2013 |
FS-30 |
Consolidated Statements of Operations for the Nine Months Ended September 30, 2015 and 2014 (unaudited) and the Years Ended December 31, 2014, 2013 and 2012 |
FS-31 |
Consolidated Statements of Comprehensive Income (Loss) for the Nine Months Ended September 30, 2015 and 2014 (unaudited) and the Years Ended December 31, 2014, 2013 and 2012 |
FS-32 |
Consolidated Statements of Changes in Stockholders' Deficiency for the Nine Months Ended September 30, 2015 (unaudited) and the Years Ended December 31, 2014, 2013 and 2012 |
FS-33 |
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2015 and 2014 (unaudited) and the Years Ended December 31, 2014, 2013 and 2012 |
FS-34 |
Notes to Consolidated Financial Statements |
FS-36 - FS-65 |
Garnero Group Acquisition Company
Condensed Balance Sheets
| |
As of | |
| |
September 30,
2015 | | |
June 30, 2015 | |
| |
(unaudited) | | |
| |
Assets | |
| |
| |
| | |
| |
Current assets: | |
| | |
| |
Cash and cash equivalents | |
$ | 20,283 | | |
$ | 278 | |
Prepaid expenses | |
| 39,667 | | |
| 48,667 | |
Total current assets | |
| 59,950 | | |
| 48,945 | |
Restricted cash and cash equivalents held in trust | |
| 144,621,160 | | |
| 144,551,737 | |
| |
| | | |
| | |
Total assets | |
$ | 144,681,110 | | |
$ | 144,600,682 | |
| |
| | | |
| | |
Liabilities and Shareholders' Equity | |
| | | |
| | |
| |
| | | |
| | |
Current Liabilities: | |
| | | |
| | |
Accounts payable and accrued expenses | |
$ | 144,438 | | |
$ | 93,943 | |
Advances from related party | |
| 1,078,750 | | |
| 725,878 | |
| |
| | | |
| | |
Total liabilities | |
| 1,223,188 | | |
| 819,821 | |
| |
| | | |
| | |
Commitments | |
| | | |
| | |
Ordinary shares subject to
possible conversion (13,762,388 and 13,809,040 shares at conversion value) | |
| 138,457,915 | | |
| 138,780,852 | |
Shareholders’ Equity: | |
| | | |
| | |
Preferred shares, $.0001 par
value; 1,000,000 shares authorized; none issued and outstanding | |
| - | | |
| - | |
Ordinary shares, $.0001 par
value; 120,000,000 shares authorized;4,840,425 and 4,793,773 shares issued and outstanding (excluding 13,762,388 and 13,809,040
shares subject to possible conversion) at September 30, 2015 and June 30, 2015 | |
| 484 | | |
| 479 | |
Additional paid-in capital | |
| 6,423,047 | | |
| 6,100,114 | |
Accumulated deficit | |
| (1,423,524 | ) | |
| (1,100,584 | ) |
| |
| | | |
| | |
Total Shareholders' Equity | |
| 5,000,007 | | |
| 5,000,009 | |
| |
| | | |
| | |
Total Liabilities and Shareholders'
Equity | |
$ | 144,681,110 | | |
$ | 144,600,682 | |
The accompanying
notes are an integral part of these condensed financial statements.
Garnero
Group Acquisition Company
Condensed
Statements of Operations
(Unaudited)
| |
For
the Three Months Ended
September 30, 2015 | | |
For
the Three Months Ended
September 30, 2014 | |
| |
| | |
| |
Formation and operating costs | |
| | |
| |
Legal and professional fees | |
$ | 343,819 | | |
$ | 141,217 | |
General and administrative | |
| 18,544 | | |
| 75,578 | |
Office expense – related party | |
| 30,000 | | |
| 30,270 | |
Loss from operations | |
| (392,363 | ) | |
| (247,065 | ) |
| |
| | | |
| | |
Interest income | |
| 69,423 | | |
| 25,129 | |
| |
| | | |
| | |
Net loss | |
$ | (322,940 | ) | |
$ | (221,936 | ) |
| |
| | | |
| | |
Weighted average shares
outstanding, basic and diluted (1) | |
| 4,794,280 | | |
| 3,696,113 | |
| |
| | | |
| | |
Basic and diluted net loss per ordinary share | |
$ | (0.07 | ) | |
$ | (0.06 | ) |
(1) | For the three months ended September 30, 2015 and 2014,
weighted average shares outstanding excluded 13,762,388 and 13,895,577 shares subject to possible conversion. |
The accompanying
notes are an integral part of these condensed financial statements.
Garnero
Group Acquisition Company
Condensed
Statements of Cash Flows
(Unaudited)
| |
For the Three
Months Ended September 30, | | |
For the Three Months
Ended September 30, | |
| |
2015 | | |
2014 | |
Operating Activities | |
| | |
| |
Net loss | |
$ | (322,940 | ) | |
$ | (221,936 | ) |
Adjustments to reconcile net
loss to net cash used in operating activities: | |
| | | |
| | |
Expenses paid by related party on behalf of the Company | |
| 123,072 | | |
| - | |
Interest income in restricted cash and cash equivalents
held in trust | |
| (69,423 | ) | |
| (25,129 | ) |
Changes in operating assets and liabilities: | |
| | | |
| | |
Prepaid expenses | |
| 9,000 | | |
| (131,368 | ) |
Accounts payable and accrued
expenses | |
| 50,496 | | |
| (12,656 | ) |
| |
| | | |
| | |
Net
Cash Used in Operating Activities | |
| (209,795 | ) | |
| (391,089 | ) |
| |
| | | |
| | |
Investing Activities | |
| | | |
| | |
Purchase of restricted
cash and cash equivalents held in trust | |
| - | | |
| (144,468,775 | ) |
| |
| | | |
| | |
Net
Cash Used in Investing Activities | |
| - | | |
| (144,468,775 | ) |
| |
| | | |
| | |
Financing Activities | |
| | | |
| | |
Proceeds from advances from related party | |
| 229,800 | | |
| - | |
Proceeds from public offering, net of costs | |
| - | | |
| 145,139,559 | |
Repayments of notes payable to related party | |
| - | | |
| (125,000 | ) |
Repayments of advances from related party | |
| - | | |
| (87,500 | ) |
| |
| | | |
| | |
| |
| | | |
| | |
Net
Cash Provided by Financing Activities | |
| 229,800 | | |
| 144,927,059 | |
| |
| | | |
| | |
Net increase in cash and cash equivalents | |
| 20,005 | | |
| 67,215 | |
| |
| | | |
| | |
Cash and cash equivalents - beginning | |
| 278 | | |
| 160 | |
| |
| | | |
| | |
Cash and cash equivalents
- ending | |
$ | 20,283 | | |
$ | 67,375 | |
Supplemental
disclosure of noncash investing and financing activities:
Three
Months Ended September 30, 2014
$283,114
of deferred offering costs was recorded to additional paid-in capital upon completion of the Company’s public offering.
$139,650,549
of proceeds from the Company’s public offering was recorded as ordinary shares subject to possible conversion.
The accompanying
notes are an integral part of these condensed financial statements.
Garnero Group Acquisition Company
Notes to Condensed Financial Statements
(Unaudited)
Note
1 — Organization and Plan of Business Operations
Garnero
Group Acquisition Company (the “Company”) was incorporated in the Cayman Islands on February 11, 2014 as a blank check
company whose objective is to acquire, through a merger, share exchange, asset acquisition, stock purchase, recapitalization,
reorganization or other similar business combination, one or more businesses or entities (a “Business Combination”).
The Company’s efforts to identify a prospective target business will not be limited to a particular industry or geographic
region of the world although the Company is currently focusing on target businesses located in Latin America or Europe operating
in the energy (including renewables) and biotechnology industries or target businesses in such industries operating outside of
those geographic locations which the Company believes would benefit from expanding their operations to such locations.
All
activity through September 30, 2015 relates to the Company’s formation, issuance of ordinary shares to the initial shareholders
of the Company (“Initial Shareholders”), the offering described below and identification and due diligence related
to a potential target business.
The
registration statement for the Company’s initial public offering (“Initial Public Offering”) was declared effective
on June 25, 2014. The Company consummated the Initial Public Offering of 12,500,000 units on July 1, 2014 at an offering price
of $10 per unit, generating gross proceeds of $125,000,000 and net proceeds of $120,375,090 after deducting $4,624,910 of transaction
costs, which is discussed in Note 5. Simultaneously with the consummation of the Initial Public Offering, the Company consummated
a private placement of 563,750 units (“Private Units”) generating gross proceeds of $5,637,500 to an affiliate of
one of the Initial Shareholders and the underwriters which is described in Note 6.
On
July 1, 2014, the underwriters exercised their full over-allotment option to the extent of 1,875,000 units and on July 7, 2014,
the Company consummated the closing of the overallotment option (“Overallotment”). The Initial Public Offering and
the Overallotment are collectively referred to as the “Offering.” The 1,875,000 units sold pursuant to the Overallotment
were sold at an offering price of $10.00 per Unit, generating gross proceeds of $18,750,000 and net proceeds of $18,140,625 after
deducting the underwriter’s discount of $609,375. In a private placement that took place simultaneously with the consummation
of the exercise of the Overallotment, the affiliate of one of the Initial Shareholders and the underwriters purchased an additional
70,313 Private Units at $10.00 per unit generating gross proceeds of $703,130.
Following
the closing of the Overallotment on July 7, 2014, an amount of $144,468,755 (or $10.05 per share sold to the public in the Offering)
from the sale of the units in the Offering and the Private Units was placed in a trust account (“Trust Account”) and
was invested in United States government treasury bills having a maturity of 180 days or less or in money market funds meeting
the applicable conditions of Rule 2a-7 promulgated under the Investment Company Act of 1940, as amended. The $144,468,755 placed
into the Trust Account may not be released until the earlier of (i) the consummation of the Company’s initial Business Combination
and (ii) the Company’s failure to consummate a Business Combination within the prescribed time. Placing funds in the Trust
Account may not protect those funds from third party claims against the Company. Although the Company has obtained and will continue
to seek to have all vendors, service providers, prospective target businesses or other entities it engages, execute agreements
with the Company waiving any claim of any kind in or to any monies held in the Trust Account, there is no guarantee that such
persons will execute such agreements. The Company’s Chief Executive Officer has agreed that he will be liable under certain
circumstances to ensure that the proceeds in the Trust Account are not reduced by the claims of target businesses or vendors or
other entities that are owed money by the Company for services rendered, contracted for or products sold to the Company. However,
there can be no assurance that he will be able to satisfy those obligations should they arise. The remaining net proceeds (not
held in the Trust Account) may be used to pay for business, legal and accounting due diligence on prospective acquisitions and
continuing general and administrative expenses. In addition, (i) interest income on the funds held in the Trust Account can be
released to the Company to pay its income and other tax obligations and (ii) interest income on the funds held in the Trust Account
of up to $500,000 after payment of taxes can be released to the Company to pay for its working capital requirements in connection
with searching for a Business Combination.
Garnero Group Acquisition Company
Notes to Condensed Financial Statements
(Unaudited)
The
Company’s management has broad discretion with respect to the specific application of the net proceeds of the Offering and
Private Units, although substantially all of the net proceeds are intended to be generally applied toward consummating a Business
Combination. The Company’s Units are listed on the Nasdaq Capital Market (“NASDAQ”). Pursuant to the NASDAQ
listing rules, the Company’s initial Business Combination must be with a target business or businesses whose collective
fair market value is at least equal to 80% of the balance in the Trust Account at the time of the execution of a definitive agreement
for such Business Combination, although this may entail simultaneous acquisitions of several target businesses. There is no assurance
that the Company will be able to effect a Business Combination successfully.
The
Company, after signing a definitive agreement for the acquisition of a target business (see Note 4), is required to provide shareholders
who acquired ordinary shares in the Offering (“Public Shareholders”) with the opportunity to convert their shares
(“Public Shares”) for a pro rata share of the Trust Account. However, the Company is not permitted to consummate an
initial Business Combination unless it has at least $5,000,001 of net tangible assets upon the close of such Business Combination
and a majority of the outstanding ordinary shares voted are voted in favor of the business combination. The Initial Shareholders
have agreed that they will vote any shares they then hold in favor of any proposed Business Combination and will waive any conversion
rights with respect to such shares.
In
connection with any proposed Business Combination, the Company will seek shareholder approval of an initial Business Combination
at a meeting called for such purpose at which shareholders may seek to convert their shares, regardless of whether they vote for
or against the proposed Business Combination. If the Company seeks shareholder approval of an initial Business Combination, any
Public Shareholder voting either for or against such proposed Business Combination will be entitled to demand that his ordinary
shares be converted into a full pro rata portion of the amount then in the Trust Account (initially $10.05 per share, plus any
pro rata interest earned on the funds held in the Trust Account and not previously released to the Company or necessary to pay
its taxes). The Rights and Warrants (discussed in Note 5 – Initial Public Offering) sold as part of the Units will not be
entitled to vote on the proposed Business Combination and will have no conversion or liquidation rights.
Notwithstanding
the foregoing, a Public Shareholder, together with any affiliate or other person with whom such Public Shareholder is acting in
concert or as a “group” (within the meaning of Section 13 of the Securities Act of 1934, as amended), will be restricted
from seeking conversion rights with respect to 30% or more of the shares of ordinary shares sold in the Offering. A “group”
will be deemed to exist if Public Shareholders (i) file a Schedule 13D or 13G indicated the presence of a group or (ii) acknowledge
to the Company that they are acting, or intend to act, as a group.
Pursuant
to the Company’s amended and restated memorandum and articles of association, if the Company does not consummate a Business
Combination by June 25, 2016, it will trigger the Company’s automatic winding up, dissolution and liquidation. As a result,
this has the same effect as if the Company had formally gone through a voluntary liquidation procedure under the Companies Law.
Accordingly, no vote would be required from the Company’s shareholders to commence such a voluntary winding up, dissolution
and liquidation. If the Company is unable to consummate an initial Business Combination, each holder will receive a full pro rata
portion of the amount then in the Trust Account, plus any pro rata interest earned on the funds held in the Trust Account and
not previously released to the Company or necessary to pay any of its taxes. Holders of Rights, Warrants and unit purchase options
will receive no proceeds in connection with the liquidation with respect to such rights. The Initial Shareholders and the holders
of Private Units will not participate in any distribution with respect to their initial shares and Private Units, including the
ordinary shares included in the Private Units.
Garnero Group Acquisition Company
Notes to Condensed Financial Statements
(Unaudited)
If
the Company is unable to conclude its initial Business Combination and expends all of the net proceeds of the Offering not deposited
in the Trust Account, without taking into account any interest earned on the Trust Account, the Company expects that the initial
per-share liquidation price of ordinary shares will be $10.05. The proceeds deposited in the Trust Account could, however, become
subject to claims of the Company’s creditors that are in preference to the claims of the Company’s shareholders. In
addition, if the Company is forced to file a bankruptcy case or an involuntary bankruptcy case is filed against it that is not
dismissed, the proceeds held in the Trust Account could be subject to applicable bankruptcy law, and may be included in its bankruptcy
estate and subject to the claims of third parties with priority over the claims of the Company’s ordinary shareholders.
Therefore, the actual per-share liquidation price may be less than $10.05.
The
Company has principally financed its operations from inception using proceeds from the sale of its equity securities to its initial
shareholders, proceeds from the Offering and loans from a related party. As of September 30, 2015, the Company had $20,283 in
its operating account. Interest earned on the Trust Account balance through September 30, 2015 available to be released to the
Company amounted to approximately $152,000. Interest to be earned on the Trust Account balance to be released to the Company to
fund working capital requirements from October 1, 2015 through June 25, 2016 is estimated to be approximately $208,000. The Company’s
Chief Executive Officer, Mario Garnero, has also committed to provide loans to the Company of up to $1,120,000, of which $1,078,750
was loaned to the Company through September 30, 2015. $725,878 of these loans was evidenced by notes entered into on September
28, 2015. All loans will either be repaid upon the consummation of a Business Combination or, at the option of the holder, up
to $500,000 may be converted into additional Private Units at a price of $10.00 per Private Unit. Based on the foregoing, the
Company believes it will have sufficient cash to meet its needs through the earlier of consummation of a Business Combination
or June 26, 2016, the date the Company’s liquidation will be triggered if a Business Combination is not consummated.
Note
2 — Significant Accounting Policies
Basis
of Presentation
The
accompanying unaudited condensed financial statements have been prepared in accordance with U.S. GAAP for interim financial information
and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP.
In the opinion of management, all adjustments (consisting of normal accruals) considered for a fair presentation have been included.
Operating results for the three months ended September 30, 2015 are not necessarily indicative of the results that may be expected
for the year ending June 30, 2016. For further information refer to the financial statements and footnotes thereto included in
the Company’s Annual Report on Form 10-K for the year ended June 30, 2015.
Cash
and Cash Equivalents
The
Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents.
The Company maintains cash balances that at times may be uninsured or in deposit accounts that exceed Federal Deposit Insurance
Corporation limits. The Company maintains its cash deposits with major financial institutions.
Restricted
Cash and Cash Equivalents Held in Trust
The
amounts held in the Trust Account represent substantially all of the proceeds of the Offering and are classified as restricted
assets since such amounts can only be used by the Company in connection with the consummation of a Business Combination. As of
September 30, 2015, cash and cash equivalents held in the Trust Account consisted of $144,620,876 in United States Treasury Bills
and $284 in cash. At September 30, 2015, there was approximately $152,000 of interest income held in the Trust Account available
to be released to the Company.
Garnero Group Acquisition Company
Notes to Condensed Financial Statements
(Unaudited)
Ordinary
Shares Subject to Possible Conversion
The
Company accounts for its ordinary shares subject to possible conversion in accordance with the guidance provided in Accounting
Standards Codification (“ASC”) 480 “Distinguishing Liabilities from Equity”. Ordinary shares subject to
mandatory conversion (if any) are classified as a liability instrument and measured at fair value. Conditionally convertible ordinary
shares (including ordinary shares that feature conversion rights that are either within the control of the holder or subject to
conversion upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary
equity. At all other times, ordinary shares are classified as stockholders’ equity. The Company’s ordinary shares
feature certain conversion rights that are considered by the Company to be outside of the Company’s control and subject
to the occurrence of uncertain future events. Accordingly at September 30, 2015, the ordinary shares subject to possible conversion
are presented as temporary equity, outside of the shareholders’ equity section of the Company’s balance sheet.
Loss
per Share
Loss
per share is computed by dividing net loss by the weighted-average number of ordinary shares outstanding during the period. Ordinary
shares subject to possible conversion of 13,762,388 and 13,895,577 shares at September 30, 2015 and 2014 have been excluded from
the calculation of basic loss per share since such shares, if converted, only participate in their pro rata share of the Trust
Account earnings. The Company has not considered the effect of (i) warrants and rights included in the units sold in the Offering
to acquire 9,005,438 Ordinary Shares and (ii) 1,250,000 Ordinary Shares and warrants and rights to acquire 750,000 Ordinary Shares
included in the unit purchase option sold to the underwriter, in the calculation of diluted loss per share, since the exercise
of the warrants and automatic conversion of the rights are contingent on the occurrence of future events.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting
period. Actual results could differ from those estimates.
Income
Taxes
The
Company accounts for income taxes under ASC Topic 740 “Income Taxes” (“ASC 740”). ASC 740 requires the
recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statement
and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry
forwards. ASC 740 additionally requires a valuation allowance to be established when it is more likely than not that all or a
portion of deferred tax assets will not be realized.
ASC
740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and
prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not
to be sustained upon examination by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest
and penalties, accounting in interim periods, disclosure and transition. The Company determined that the Cayman Islands is its
only major tax jurisdiction. Based on the Company’s evaluation, it has been concluded that there are no significant uncertain
tax positions requiring recognition in the Company’s financial statements for the tax periods ended September 30, 2015 and
2014. Since the Company was incorporated on February 11, 2014, the evaluation was performed for the period from February 11, 2014
through September 30, 2015. The Company believes that its income tax positions would be sustained on audit and does not anticipate
any adjustments that would result in material changes to its financial position.
The
Company’s policy for recording interest and penalties associated with audits is to record such expense as a component of
income tax expense. There were no amounts accrued for penalties or interest as of or during the periods ended September 30, 2015
and 2014. Management is currently unaware of any issues under review that could result in significant payments, accruals or material
deviations from its position.
Garnero Group Acquisition Company
Notes to Condensed Financial Statements
(Unaudited)
Recent
Accounting Pronouncements
Management
does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material
impact on the accompanying financial statements.
Subsequent
Events
The
Company evaluates events that have occurred after the balance sheet date through the date which these financial
statements were issued. Based upon the review, except as disclosed in Note 9 - Subsequent Event, the Company did not
identify any other recognized or non-recognized subsequent events that would have required adjustment or disclosure in the
financial statements.
Note
3 — Shareholder Commitment
On
October 10, 2014, November 19, 2014, February 16, 2015, May 15, 2015 and September 29, 2015, the Company’s Chief Executive
Officer, Mario Garnero, executed five separate commitment letters to provide loans to the Company of up to an aggregate of $1,120,000,
of which $1,078,750 was loaned to the Company through September 30, 2015. $725,878 of these loans were evidenced by notes entered
into on September 28, 2015. All loans will either be repaid upon the consummation of a Business Combination or, at the option
of the holder, up to $500,000 may be converted into additional Private Units at a price of $10.00 per Private Unit.
At
June 30, 2014, the Company had a $125,000 principal amount unsecured promissory note to an entity controlled by the Company’s
Chief Executive Officer (“Affiliate”). The note was non-interest bearing and payable on the earlier of (i) February
18, 2015, (ii) the consummation of the Offering or (iii) the date on which the Company determined not to proceed with the Offering.
The Company repaid this note in July 2014.
Additionally,
prior to June 30, 2014, the Affiliate advanced the Company $87,500 for payment of certain deferred offering costs. These advances
were non-interest bearing and due on demand. The Company repaid these advances in July 2014.
Note
4 — Investment Agreement
On
August 26, 2015, the Company entered into an Investment Agreement (the “Investment Agreement”) with, Q1 Comercial
de Roupas S.A., a Brazilian company (“Colombo”), Alvaro Jabur Maluf Junior and Paulo Jabur Maluf (the “Controlling
Persons”) and the persons listed under the caption “Optionholder” on the signature pages in the Investment Agreement
(the “Optionholders”). See Note 9 - Subsequent Event
Pursuant
to the Investment Agreement, (A) the Controlling Persons will contribute all of the issued and outstanding ordinary shares of
Colombo (the “Outstanding Shares”) to the Company (the “Share Contribution”) and will receive in consideration
an aggregate of 5,460,000 newly issued ordinary shares of the Company (“GGAC Ordinary Shares”) and (B) the Optionholders
will exercise certain options held by them, will contribute the underlying ordinary shares of Colombo to the Company (the “Option
Contribution,” and together with the Share Contribution, the “Equity Contributions”), and will receive in consideration
an aggregate of 540,000 GGAC Ordinary Shares. The number of GGAC Ordinary Shares to be received by the Controlling Persons and
the Optionholders is subject to an EBITDA Adjustment, as described in the Investment Agreement. In addition, at the closing of
the transactions contemplated by the Investment Agreement (the “Closing”) and immediately after the completion of
the Equity Contributions, the Company will contribute to Colombo, as a capital increase, an aggregate of R$120,000,000 (approximately
US$29,200,000 as of September 30, 2015) in cash (the “Capital Contribution,” and together with the Equity Contributions,
the “Contributions”), which amount shall be used by Colombo to immediately repay certain indebtedness of Colombo and
to release certain liens on the Outstanding Shares.
Garnero Group Acquisition Company
Notes to Condensed Financial Statements
(Unaudited)
In
connection with the transactions contemplated by the Investment Agreement, the Company and Colombo will use their commercially
reasonable best efforts to consummate, simultaneously with the Closing, a private placement of up to US$100,000,000 of equity
securities, or securities exercisable or exchangeable for, or convertible into, equity securities, of the Company (the “Private
Placement”), with the assistance of a syndicate of financial institutions that have been identified and agreed to by the
Company and Colombo. In addition, the Controlling Persons have committed to use their commercially reasonable best efforts to
purchase, directly or indirectly, at least US$30,000,000 of the Company’s Ordinary Shares in the open market. To the extent
the Controlling Persons make less than US$30,000,000 in open market purchases, the Controlling Persons, directly or indirectly,
will purchase an amount of securities in the Private Placement equal to such deficiency.
If
the Contributions are consummated, Colombo will become a wholly-owned subsidiary of the Company, the Company will change its name
to “Garnero Colombo Inc.” and the former stockholders and management of Colombo will own approximately 25% of the
outstanding GGAC Ordinary Shares (assuming no holder of GGAC Ordinary Shares exercises his redemption rights as set forth in the
Company’s charter documents and the Controlling Persons make the full US$30 million of open market purchases and/or purchases
in the Private Placement).
The
Contributions are subject to approval by the Company’s shareholders and certain other conditions, as described in the Investment
Agreement.
The
GGAC Ordinary Shares payable to the Controlling Persons and Optionholders are subject to adjustment based on Colombo’s future
EBITDA performance (the EBITDA Adjustment”). If Colombo’s EBITDA for the twelve months ending December 31, 2016, as
determined in accordance with the Investment Agreement, is less than R$155,000,000 (approximately US$37,800,000 as of September
30, 2015), the Controlling Persons and Optionholders have agreed to surrender to the Company for cancellation 50,000 GGAC Ordinary
Shares for each R$1,000,000 (approximately US$244,000 as of September 30, 2015) of such deficiency, up to a maximum of 300,000
GGAC Ordinary Shares and pro-rata for partial amounts. If Colombo’s EBITDA for such period is lower than R$149,000,000 (approximately
US$36,300,000 as of September 30, 2015), an additional 300,000 GGAC Ordinary Shares will be surrendered to the Company for cancellation.
An aggregate of 600,000 GGAC Ordinary Shares will be held in escrow pending calculation and settlement of the EBITDA Adjustment.
Note
5 — Initial Public Offering
On
July 1, 2014, the Company sold 12,500,000 units (“Units”) at a price of $10 per Unit in the Initial Public Offering.
Each unit consists of one share of the Company’s ordinary shares, par value $0.0001, one right (“Right”) and
one warrant (“Warrant”). Each Right entitles the holder to receive one-tenth (1/10) of a share of ordinary shares
on the consummation of an initial business combination. Each Warrant entitles the holder to purchase one-half of one ordinary
share at a price of $11.50 per full share. Each Warrant will become exercisable on the later of the completion of an initial business
combination or June 25, 2015, and will expire five years after the completion of an initial business combination. The Company
will not issue fractional shares.
On
July 1, 2014, the underwriters exercised their full over-allotment option to the extent of 1,875,000 units and on July 7, 2014,
the Company consummated the closing of the Overallotment. The 1,875,000 units sold pursuant to the Overallotment were sold at
an offering price of $10.00 per Unit.
Garnero Group Acquisition Company
Notes to Condensed Financial Statements
(Unaudited)
The
Company may redeem the Warrants at a price of $0.01 per Warrant upon 30 days’ notice, only in the event that the last sale
price of the ordinary shares is at least $21.00 per share for any 20 trading days within a 30-trading day period (“30-Day
Trading Period”) ending on the third day prior to the date on which notice of redemption is given, provided there is a current
registration statement in effect with respect to the ordinary shares underlying such Warrants commencing five business days prior
to the 30-Day Trading Period and continuing each day thereafter until the date of redemption. If the Company redeems the Warrants
as described above, management will have the option to require all holders that wish to exercise Warrants to do so on a “cashless
basis.” In accordance with the warrant agreement relating to the Warrants sold and issued in the Offering, the Company is
only required to use its best efforts to maintain the effectiveness of the registration statement covering the Warrants. If a
registration statement is not effective within 90 days following the consummation of a Business Combination, Warrant holders may,
until such time as there is an effective registration statement and during any period when the Company shall have failed to maintain
an effective registration statement, exercise Warrants on a cashless basis. In the event that a registration statement is not
effective at the time of exercise, the holder of such Warrant shall not be entitled to exercise such Warrant for cash and in no
event (whether in the case of a registration statement being effective or otherwise) will the Company be required to net cash
settle the Warrant exercise.
The
Company paid the underwriters in the Offering an underwriting discount of 3.25% ($4,671,875) comprised of $4,062,500 of the $125,000,000
of proceeds from the Initial Public Offering and $609,375 of the $18,750,000 of proceeds from the Overallotment. The Company also
issued, for $100, a unit purchase option to purchase up to a total of 1,250,000 units exercisable at $10.00 per unit (or an aggregate
exercise price of $12,500,000) commencing on the later of the consummation of a Business Combination and June 25, 2015. The unit
purchase option expires June 25, 2019. The units issuable upon exercise of this option are identical to the Units in the Offering.
Accordingly, after the Business Combination, the purchase option will be to purchase 1,375,000 ordinary shares (which includes
125,000 ordinary shares to be issued for the rights included in the units) and 1,250,000 Warrants to purchase 625,000 ordinary
shares. The Company has agreed to grant to the holders of the unit purchase option, demand and “piggy back” registration
rights for periods of five and seven years, respectively, from June 25, 2014, including securities directly and indirectly issuable
upon exercise of the unit purchase option.
The
Company accounted for the fair value of the unit purchase option, inclusive of the receipt of a $100 cash payment, as an expense
of the Offering resulting in a charge directly to shareholders’ equity. The Company estimated that the fair value of this
unit purchase option was approximately $4,175,000 (or $3.34 per unit) using the Black-Scholes option-pricing model. The fair value
of the unit purchase option was estimated as of the date of grant using the following assumptions: (1) expected volatility of
35%, (2) risk-free interest rate of 1.70% and (3) expected life of five years. The unit purchase option may be exercised for cash
or on a “cashless” basis, at the holder’s option (except in the case of a forced cashless exercise upon the
Company’s redemption of the Warrants, as described above), such that the holder may use the appreciated value of the unit
purchase option (the difference between the exercise prices of the unit purchase option and the underlying Warrants and the market
price of the Units and underlying ordinary shares) to exercise the unit purchase option without the payment of any cash. The Company
will have no obligation to net cash settle the exercise of the unit purchase option or the Warrants underlying the unit purchase
option. The holder of the unit purchase option will not be entitled to exercise the unit purchase option or the Warrants underlying
the unit purchase option unless a registration statement covering the securities underlying the unit purchase option is effective
or an exemption from registration is available. If the holder is unable to exercise the unit purchase option or underlying Warrants,
the unit purchase option or Warrants, as applicable, will expire worthless.
Note
6 — Private Units
Simultaneously
with the Initial Public Offering, an affiliate of one of the Initial Shareholders of the Company and the underwriters purchased
an aggregate of 563,750 Private Units at $10.00 per Private Unit (for an aggregate purchase price of $5,637,500) from the Company.
In a private sale that took place simultaneously with the consummation of the Overallotment, an affiliate of one of the Initial
Shareholders of the Company and the underwriters purchased an additional 70,313 Private Units at $10.00 per Private Unit for an
aggregate purchase price of $703,130. All of the proceeds received from these purchases were placed in the Trust Account.
Garnero Group Acquisition Company
Notes to Condensed Financial Statements
(Unaudited)
The
Private Units are identical to the Units sold in the Offering except the Warrants included in the Private Units will be non-redeemable
and may be exercised on a cashless basis, in each case so long as they continue to be held by the initial purchasers or their
permitted transferees. Additionally, the holders of the Private Units have agreed (A) to vote the shares underlying their Private
Units in favor of any proposed Business Combination, (B) not to propose, or vote in favor of, an amendment to the Company’s
amended and restated memorandum and articles of association with respect to the Company’s pre-Business Combination activities
prior to the consummation of such a Business Combination, (C) not to convert any shares underlying the Private Units into the
right to receive cash from the Trust Account in connection with a shareholder vote to approve an initial Business Combination
or a vote to amend the provisions of the Company’s amended and restated memorandum and articles of association relating
to shareholders’ rights or pre-Business Combination activity and (D) that the shares underlying the Private Units shall
not participate in any liquidating distribution upon winding up if a Business Combination is not consummated. The purchasers have
also agreed not to transfer, assign or sell any of the Private Units or underlying securities (except to the same permitted transferees
as the insider shares and provided the transferees agree to the same terms and restrictions as the permitted transferees of the
insider shares must agree to, each as described above) until the completion of an initial Business Combination.
Note
7 — Commitments and Contingencies
Business
Combination Consulting
The
Company has engaged the representative of the underwriters (“Representative”) to assist the Company with its initial
Business Combination. Pursuant to this arrangement, the Company anticipates that the Representative will assist the Company in
holding meetings with shareholders to discuss the potential Business Combination and the target business’ attributes, introduce
the Company to potential investors that are interested in purchasing the Company’s securities, assist the Company in obtaining
shareholder approval for the Business Combination and assist the Company with its press releases and public filings in connection
with the Business Combination. The Company will pay the Representative a cash fee of $4,600,000 for such services upon the consummation
of its initial Business Combination (exclusive of any applicable finders’ fees which might become payable).
Registration
Rights
The
Initial Shareholders and the holders of the Private Units (or underlying securities) are entitled to registration rights with
respect to their Initial Shares and Private Units (or underlying securities) pursuant to agreements signed on June 25, 2014. The
holders of the majority of the Initial Shares are entitled to demand that the Company register these shares at any time commencing
three months prior to the first anniversary of the consummation of a Business Combination. The holders of the Private Units (or
underlying securities) are entitled to demand that the Company register these securities at any time after the Company consummates
a Business Combination. In addition, the Initial Shareholders and holders of the Private Units (or underlying securities) have
certain “piggy-back” registration rights on registration statements filed after the Company’s consummation of
a Business Combination.
Office
Space
The
Company presently occupies office space provided by the Affiliate. Such Affiliate has agreed that, until the Company consummates
a Business Combination, it will make such office space, as well as certain office and secretarial services, available to the Company,
as may be required by the Company from time to time. The Company has agreed to pay such Affiliate $10,000 per month for such services
commencing on July 1, 2014. During each of the three month periods ended September 30, 2015 and 2014, the Company incurred approximately
$30,000 for such rent and services, which is reflected in the Statement of Operations as Office expense – related party.
Garnero Group Acquisition Company
Notes to Condensed Financial Statements
(Unaudited)
Note
8 — Shareholders’ Equity
Preferred
Shares
The
Company is authorized to issue 1,000,000 preferred shares with a par value of $0.0001 per share with such designation, rights
and preferences as may be determined from time to time by the Company’s board of directors.
As
of September 30, 2015, there are no preferred shares issued or outstanding.
Ordinary
Shares
The
Company is authorized to issue 120,000,000 ordinary shares with a par value of $0.0001 per share.
Note
9 — Subsequent Event
On
December 17, 2015, the Company, entered into a First Amended and Restated Investment Agreement (the “New
Agreement”) by and among the Company, Q1 Comercial de Roupas S.A., a Brazilian company (“Grupo
Colombo”), Alvaro Jabor
Maluf Junior and Paulo Jabur Maluf (the “Controlling Persons”) and the persons listed under the caption
“Optionholder” on the signature pages thereto (the “Optionholders”). The New Agreement amended and
restated the previously disclosed Investment Agreement (the “Original Agreement”), dated as of August 26, 2015, by
and among the Company, Grupo
Colombo, the Controlling Persons and the Optionholders. The New Agreement amended the Original Agreement
by:
● |
Adjusting,
from 5,460,000 shares to 3,640,000 shares, the number of newly issued ordinary shares of the Company (“GGAC Ordinary
Shares”) to be received by the Controlling Persons as consideration for the Share Contribution. |
● |
Adjusting, from
540,000 shares to 360,000 shares, the number of newly issued GGAC Ordinary Shares to be received by the Optionholders as
consideration for the Option Contribution. |
● |
Eliminating
the EBITDA Adjustment and the Capital Contribution in their entirety. |
● |
Eliminating
the requirement for the parties to use their commercially reasonable best efforts to consummate, simultaneously with the
closing of the Contributions, a private placement of the Company’s equity securities. |
● |
Modifying the Reorganization to require that no
indebtedness or other liabilities be incurred by Grupo
Colombo in connection therewith. |
● |
Extending
the termination date to March 31, 2016. |
In
addition, the New Agreement (A) reduced, from 600,000 shares to 200,000 shares, the number of GGAC Ordinary Shares to he held
in escrow as a fund to satisfy the Controlling Persons and Optionholders’ indemnification obligations; (B) reduced,
from 600,000 shares to 200,000 shares, the number of newly issued GGAC Ordinary Shares that the Company could be required to issue
to satisfy its indemnification obligations; and (C) modified the indemnification obligations of the Controlling Persons
and Optionholders to allow the Company to seek up to US$2,000,000 in excess of the number of escrow shares, and correspondingly
modified the indemnification obligations of the Company to allow the Controlling Persons and Optionholders to seek up to
US$2,000,000 in excess of the 200,000 newly issued GGAC Ordinary Shares. In addition, the form of escrow agreement attached
as an exhibit to the New Agreement was revised to make conforming changes.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Audit Committee of the Board of Directors and Shareholders
of Garnero Group Acquisition Company
We have audited the accompanying balance
sheets of Garnero Group Acquisition Company (the “Company”) as of June 30, 2015 and 2014, and the related statements
of operations, changes in shareholders’ equity and cash flows for the year ended June 30, 2015 and the period from February
11, 2014 (inception) through June 30, 2014. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, 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 Garnero Group Acquisition Company as of June
30, 2015 and 2014, and the results of its operations and its cash flows for the year ended June 30, 2015 and the period from February
11, 2014 (inception) through June 30, 2014 in conformity with accounting principles generally accepted in the United States of
America.
/s/ Marcum LLP
Marcum LLP
New York, NY
September 29, 2015
Garnero Group Acquisition Company
Balance Sheets
| |
As
of | |
| |
June
30,
2015 | | |
June
30,
2014 | |
Assets | |
| |
| |
| | |
| |
Current assets: | |
| | |
| |
Cash
and cash equivalents | |
$ | 278 | | |
$ | 160 | |
Prepaid
expenses | |
| 48,667 | | |
| - | |
Total
current assets | |
| 48,945 | | |
| 160 | |
| |
| | | |
| | |
Restricted
cash and cash equivalents held in trust | |
| 144,551,737 | | |
| - | |
Deferred
offering costs | |
| - | | |
| 283,114 | |
| |
| | | |
| | |
Total
assets | |
$ | 144,600,682 | | |
$ | 283,274 | |
| |
| | | |
| | |
Liabilities
and Shareholders' Equity | |
| | | |
| | |
| |
| | | |
| | |
Current
Liabilities: | |
| | | |
| | |
Accounts
payable and accrued expenses | |
$ | 93,943 | | |
$ | 54,732 | |
Advances
from related party | |
| 725,878 | | |
| 87,500 | |
Note
payable to related party | |
| - | | |
| 125,000 | |
| |
| | | |
| | |
Total
liabilities | |
| 819,821 | | |
| 267,232 | |
| |
| | | |
| | |
Commitments | |
| | | |
| | |
Ordinary
shares subject to possible conversion (13,809,040 shares at conversion value) | |
| 138,780,852 | | |
| - | |
| |
| | | |
| | |
Shareholders’
Equity: | |
| | | |
| | |
Preferred
shares, $.0001 par value; 1,000,000 shares authorized; none issued and outstanding | |
| - | | |
| - | |
Ordinary
shares, $.0001 par value; 120,000,000 shares authorized; 4,793,773 shares issued and outstanding (excluding 13,809,040
shares subject to possible conversion) at June 30, 2015 and 3,593,750 shares issued and outstanding at June 30,
2014 | |
| 479 | | |
| 359 | |
Additional
paid-in capital | |
| 6,100,114 | | |
| 24,641 | |
Accumulated
deficit | |
| (1,100,584 | ) | |
| (8,958 | ) |
| |
| | | |
| | |
Total
Shareholders' Equity | |
| 5,000,009 | | |
| 16,042 | |
| |
| | | |
| | |
Total
Liabilities and Shareholders' Equity | |
$ | 144,600,682 | | |
$ | 283,274 | |
The accompanying notes are an integral
part of these financial statements.
Garnero Group Acquisition Company
Statements of Operations
| |
For the Year Ended
June 30,
2015 | | |
For the
period from February 11, 2014 (Inception) through
June 30,
2014 | |
| |
| | |
| |
Formation and operating costs | |
| | |
| |
Legal and professional fees | |
$ | 754,330 | | |
$ | - | |
General and administrative | |
| 330,433 | | |
| 8,958 | |
Office expense – related party | |
| 120,000 | | |
| - | |
Loss from operations | |
| (1,204,763 | ) | |
| (8,958 | ) |
| |
| | | |
| | |
Interest income | |
| 113,137 | | |
| - | |
| |
| | | |
| | |
Net loss | |
$ | (1,091,626 | ) | |
$ | (8,958 | ) |
| |
| | | |
| | |
Weighted average shares outstanding, basic and diluted (1) | |
| 4,728,666 | | |
| 3,593,750 | |
| |
| | | |
| | |
Basic and diluted net loss per ordinary share | |
$ | (0.23 | ) | |
$ | (0.00 | ) |
(1) |
For
the year ended June 30, 2015, weighted average shares outstanding excluded 13,809,040 shares subject to possible
conversion. |
The accompanying notes are an integral
part of these financial statements.
Garnero Group Acquisition Company
Statement of Changes in Shareholders'
Equity
For The Period from February 11, 2014
(Inception) through June 30, 2015
| |
| | |
| | |
Additional | | |
| | |
Total | |
| |
Ordinary Shares | | |
Paid-In | | |
Accumulated | | |
Shareholders' | |
| |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Equity | |
| |
| | |
| | |
| | |
| | |
| |
Ordinary shares issued to initial shareholders | |
| 3,593,750 | | |
$ | 359 | | |
$ | 24,641 | | |
$ | - | | |
$ | 25,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss – February 11, 2014 (inception) through June 30, 2014 | |
| | | |
| | | |
| | | |
| (8,958 | ) | |
| (8,958 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Balance – June 30, 2014 | |
| 3,593,750 | | |
| 359 | | |
| 24,641 | | |
| (8,958 | ) | |
| 16,042 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Sale of units, net of underwriters’ discounts and offering costs | |
| 15,009,063 | | |
| 1,501 | | |
| 144,854,844 | | |
| - | | |
| 144,856,345 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Sale of unit purchase option | |
| - | | |
| - | | |
| 100 | | |
| - | | |
| 100 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Net proceeds subject to possible conversion of 13,809,040 shares at conversion value | |
| (13,809,040 | ) | |
| (1,381 | ) | |
| (138,779,471 | ) | |
| - | | |
| (138,780,852 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| | | |
| | | |
| | | |
| (1,091,626 | ) | |
| (1,091,626 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Balance – June 30, 2015 | |
| 4,793,773 | | |
$ | 479 | | |
$ | 6,100,114 | | |
$ | (1,100,584 | ) | |
$ | 5,000,009 | |
The accompanying notes are an integral
part of these financial statements.
Garnero Group Acquisition Company
Statements of Cash Flows
| |
For The Year Ended June 30, 2015 | |
For the period from February 11, 2014 (Inception) through June 30, 2014 |
Operating Activities | |
| | | |
| | |
Net loss | |
$ | (1,091,626 | ) | |
$ | (8,958 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Expenses paid by related party on behalf of the Company | |
| 444,369 | | |
| 5,000 | |
Interest income remaining in restricted cash and cash equivalents held in trust | |
| (82,982 | ) | |
| – | |
Changes in operating assets and liabilities | |
| | | |
| | |
Prepaid expenses | |
| (48,667 | ) | |
| – | |
Accounts payable and accrued expenses | |
| 39,211 | | |
| 3,713 | |
| |
| | | |
| | |
Net Cash Used in Operating Activities | |
| (739,695 | ) | |
| (245 | ) |
| |
| | | |
| | |
Investing Activities | |
| | | |
| | |
Purchase of restricted cash and cash equivalents held in trust | |
| (144,468,755 | ) | |
| – | |
| |
| | | |
| | |
Net Cash Used in Investing Activities | |
| (144,468,755 | ) | |
| – | |
| |
| | | |
| | |
Financing Activities | |
| | | |
| | |
Proceeds from note payable to related party | |
| – | | |
| 50,000 | |
Proceeds from advances from related party | |
| 293,980 | | |
| 17,500 | |
Proceeds from public offering, net of costs | |
| 145,139,559 | | |
| – | |
Repayments of notes payable to related party | |
| (125,000 | ) | |
| – | |
Repayments of advances from related party | |
| (99,971 | ) | |
| – | |
Payment of deferred offering costs | |
| – | | |
| (92,095 | ) |
Proceeds from issuance of ordinary shares to initial shareholders | |
| – | | |
| 25,000 | |
| |
| | | |
| | |
Net Cash Provided by Financing Activities | |
| 145,208,568 | | |
| 405 | |
| |
| | | |
| | |
Net increase in cash and cash equivalents | |
| 118 | | |
| 160 | |
| |
| | | |
| | |
Cash and cash equivalents - beginning | |
| 160 | | |
| – | |
| |
| | | |
| | |
Cash and cash equivalents - ending | |
$ | 278 | | |
$ | 160 | |
Supplemental disclosure of noncash investing and
financing activities:
Year Ended June 30, 2015
$283,114 of deferred offering costs was reclassified
to additional paid-in capital upon completion of the Company’s public offering.
$138,780,852 of proceeds from the Company’s public
offering was recorded as ordinary shares subject to possible conversion.
Period from February 11, 2014 (Inception) through
June 30, 2014
The Company incurred $51,019 of deferred offering costs
were unpaid at June 30, 2014 and included in accounts payable.
Deferred offering costs of $140,000 and organizational
expenses of $5,000 were paid by a related party of which $75,000 is included in note payable to related party and $70,000 is included
in advances from related party.
The accompanying notes are an
integral part of these financial statements.
Garnero Group Acquisition Company
Notes to Financial Statements
Note
1 — Organization and Plan of Business Operations
Garnero
Group Acquisition Company (the “Company”) was incorporated in the Cayman Islands on February 11, 2014 as a blank check
company whose objective is to acquire, through a merger, share exchange, asset acquisition, stock purchase, recapitalization,
reorganization or other similar business combination, one or more businesses or entities (a “Business Combination”).
The Company’s efforts to identify a prospective target business will not be limited to a particular industry or geographic
region of the world although the Company is currently focusing on target businesses located in Latin America or Europe operating
in the energy (including renewables) and biotechnology industries or target businesses in such industries operating outside of
those geographic locations which the Company believes would benefit from expanding their operations to such locations.
All
activity through June 30, 2015 relates to the Company’s formation, issuance of ordinary shares to the initial shareholders
of the Company (“Initial Shareholders”), the offering described below and identification and due diligence related
to a potential target business.
The
registration statement for the Company’s initial public offering (“Initial Public Offering”) was declared effective
on June 25, 2014. The Company consummated the Initial Public Offering of 12,500,000 units on July 1, 2014 at an offering price
of $10 per unit, generating gross proceeds of $125,000,000 and net proceeds of $120,375,090 after deducting $4,624,910 of transaction
costs, which is discussed in Note 5. Simultaneously with the consummation of the Initial Public Offering, the Company consummated
a private placement of 563,750 units (“Private Units”) generating gross proceeds of $5,637,500 to an affiliate of
one of the Initial Shareholders and the underwriters which is described in Note 6.
On
July 1, 2014, the underwriters exercised their full over-allotment option to the extent of 1,875,000 units and on July 7, 2014,
the Company consummated the closing of the overallotment option (“Overallotment”). The Initial Public Offering and
the Overallotment are collectively referred to as the “Offering.” The 1,875,000 units sold pursuant to the Overallotment
were sold at an offering price of $10.00 per Unit, generating gross proceeds of $18,750,000 and net proceeds of $18,140,625 after
deducting the underwriter’s discount of $609,375. In a private placement that took place simultaneously with the consummation
of the exercise of the Overallotment, the affiliate of one of the Initial Shareholders and the underwriters purchased an additional
70,313 Private Units at $10.00 per unit generating gross proceeds of $703,130.
Following
the closing of the Overallotment on July 7, 2014, an amount of $144,468,755 (or $10.05 per share sold to the public in the Offering)
from the sale of the units in the Offering and the Private Units was placed in a trust account (“Trust Account”) and
was invested in United States government treasury bills having a maturity of 180 days or less or in money market funds meeting
the applicable conditions of Rule 2a-7 promulgated under the Investment Company Act of 1940, as amended. The $144,468,755 placed
into the Trust Account may not be released until the earlier of (i) the consummation of the Company’s initial Business Combination
and (ii) the Company’s failure to consummate a Business Combination within the prescribed time. Placing funds in the Trust
Account may not protect those funds from third party claims against the Company. Although the Company has obtained and will continue
to seek to have all vendors, service providers, prospective target businesses or other entities it engages, execute agreements
with the Company waiving any claim of any kind in or to any monies held in the Trust Account, there is no guarantee that such
persons will execute such agreements. The Company’s Chief Executive Officer has agreed that he will be liable under certain
circumstances to ensure that the proceeds in the Trust Account are not reduced by the claims of target businesses or vendors or
other entities that are owed money by the Company for services rendered, contracted for or products sold to the Company. However,
there can be no assurance that he will be able to satisfy those obligations should they arise. The remaining net proceeds (not
held in the Trust Account) may be used to pay for business, legal and accounting due diligence on prospective acquisitions and
continuing general and administrative expenses. In addition, (i) interest income on the funds held in the Trust Account can be
released to the Company to pay its income and other tax obligations and (ii) interest income on the funds held in the Trust Account
of up to $500,000 after payment of taxes can be released to the Company to pay for its working capital requirements in connection
with searching for a Business Combination.
Garnero Group Acquisition Company
Notes to Financial Statements
The
Company’s management has broad discretion with respect to the specific application of the net proceeds of the Offering and
Private Units, although substantially all of the net proceeds are intended to be generally applied toward consummating a Business
Combination. The Company’s Units are listed on the Nasdaq Capital Market (“NASDAQ”). Pursuant to the NASDAQ
listing rules, the Company’s initial Business Combination must be with a target business or businesses whose collective
fair market value is at least equal to 80% of the balance in the Trust Account at the time of the execution of a definitive agreement
for such Business Combination, although this may entail simultaneous acquisitions of several target businesses. There is no assurance
that the Company will be able to effect a Business Combination successfully.
The
Company, after signing a definitive agreement for the acquisition of a target business (see Note 4), is required to provide shareholders
who acquired ordinary shares in the Offering (“Public Shareholders”) with the opportunity to convert their shares
(“Public Shares”) for a pro rata share of the Trust Account. However, the Company is not permitted to consummate an
initial Business Combination unless it has at least $5,000,001 of net tangible assets upon the close of such Business Combination
and a majority of the outstanding ordinary shares voted are voted in favor of the business combination. The Initial Shareholders
have agreed that they will vote any shares they then hold in favor of any proposed Business Combination and will waive any conversion
rights with respect to such shares.
In
connection with any proposed Business Combination, the Company will seek shareholder approval of an initial Business Combination
at a meeting called for such purpose at which shareholders may seek to convert their shares, regardless of whether they vote for
or against the proposed Business Combination. If the Company seeks shareholder approval of an initial Business Combination, any
Public Shareholder voting either for or against such proposed Business Combination will be entitled to demand that his ordinary
shares be converted into a full pro rata portion of the amount then in the Trust Account (initially $10.05 per share, plus any
pro rata interest earned on the funds held in the Trust Account and not previously released to the Company or necessary to pay
its taxes). The Rights and Warrants (discussed in Note 5 – Initial Public Offering) sold as part of the Units will not be
entitled to vote on the proposed Business Combination and will have no conversion or liquidation rights.
Notwithstanding
the foregoing, a Public Shareholder, together with any affiliate or other person with whom such Public Shareholder is acting in
concert or as a “group” (within the meaning of Section 13 of the Securities Act of 1934, as amended), will be restricted
from seeking conversion rights with respect to 30% or more of the shares of ordinary shares sold in the Offering. A “group”
will be deemed to exist if Public Shareholders (i) file a Schedule 13D or 13G indicated the presence of a group or (ii) acknowledge
to the Company that they are acting, or intend to act, as a group.
Pursuant
to the Company’s amended and restated memorandum and articles of association, if the Company does not consummate a
Business Combination by June 25, 2016, it will trigger the Company’s automatic winding up, dissolution and liquidation.
As a result, this has the same effect as if the Company had formally gone through a voluntary liquidation procedure under the
Companies Law. Accordingly, no vote would be required from the Company’s shareholders to commence such a voluntary
winding up, dissolution and liquidation. If the Company is unable to consummate an initial Business Combination, each holder
will receive a full pro rata portion of the amount then in the Trust Account, plus any pro rata interest earned on the funds
held in the Trust Account and not previously released to the Company or necessary to pay any of its taxes. Holders of Rights,
Warrants and unit purchase options will receive no proceeds in connection with the liquidation with respect to such rights.
The Initial Shareholders and the holders of Private Units will not participate in any distribution with respect to their
initial shares and Private Units, including the ordinary shares included in the Private Units.
Garnero
Group Acquisition Company
Notes to Financial Statements
If
the Company is unable to conclude its initial Business Combination and expends all of the net proceeds of the Offering not deposited
in the Trust Account, without taking into account any interest earned on the Trust Account, the Company expects that the initial
per-share liquidation price of ordinary shares will be $10.05. The proceeds deposited in the Trust Account could, however, become
subject to claims of the Company’s creditors that are in preference to the claims of the Company’s shareholders. In
addition, if the Company is forced to file a bankruptcy case or an involuntary bankruptcy case is filed against it that is not
dismissed, the proceeds held in the Trust Account could be subject to applicable bankruptcy law, and may be included in its bankruptcy
estate and subject to the claims of third parties with priority over the claims of the Company’s ordinary shareholders.
Therefore, the actual per-share liquidation price may be less than $10.05.
The Company has principally financed its operations
from inception using proceeds from the sale of its equity securities to its initial shareholders, proceeds from the Offering and
loans from a related party. As of June 30, 2015, the Company had $278 in its operating account. Interest to be earned on the Trust
Account balance to be released to the Company to fund working capital requirements from July 1, 2015 through June 25, 2016 is
estimated to be approximately $289,000. The Company’s Chief Executive Officer, Mario Garnero, has also committed to provide
loans to the Company of up to $1,120,000, of which $725,878 was loaned to the Company through June 30, 2015. These loans were
evidenced by notes entered into on September 28, 2015, and will either be repaid upon the consummation of a Business Combination
or, at the option of the holder, up to $500,000 may be converted into additional Private Units at a price of $10.00 per Private
Unit. Mario Garnero has loaned the Company an additional $230,000 from July 1, 2015 through September 29, 2015, which loans will
be evidenced by notes and will be repaid upon the consummation of a Business Combination. Based on the foregoing, the Company
believes it will have sufficient cash to meet its needs through the earlier of consummation of a Business Combination or June
26, 2016, the date the Company’s liquidation will be triggered if a Business Combination is not consummated.
Note
2 — Significant Accounting Policies
Basis
of Presentation
The
accompanying financial statements are presented in U.S. dollars and have been prepared in accordance with accounting principles
generally accepted in the United States of America (“US GAAP”) and pursuant to the accounting and disclosure rules
and regulations of the U.S. Securities and Exchange Commission (the “SEC”).
Cash
and Cash Equivalents
The
Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents.
The Company maintains cash balances that at times may be uninsured or in deposit accounts that exceed Federal Deposit Insurance
Corporation limits. The Company maintains its cash deposits with major financial institutions.
Restricted
Cash and Cash Equivalents Held in Trust
The
amounts held in the Trust Account represent substantially all of the proceeds of the Offering and are classified as restricted
assets since such amounts can only be used by the Company in connection with the consummation of a Business Combination. As of
June 30, 2015, cash and cash equivalents held in the Trust Account consisted of $144,551,453 in United States Treasury Bills and
$284 in cash. During the year ended June 30, 2015, approximately $30,000 of interest income was transferred from the Trust Account
to the Company’s operating account. At June 30, 2015, there was approximately $83,000 of interest income held in the Trust
Account available to be released to the Company.
Garnero Group Acquisition Company
Notes to Financial Statements
Ordinary
Shares Subject to Possible Conversion
The
Company accounts for its ordinary shares subject to possible conversion in accordance with the guidance provided in Accounting
Standards Codification (“ASC”) 480 “Distinguishing Liabilities from Equity”. Ordinary shares subject to
mandatory conversion (if any) are classified as a liability instrument and measured at fair value. Conditionally convertible ordinary
shares (including ordinary shares that feature conversion rights that are either within the control of the holder or subject to
conversion upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary
equity. At all other times, ordinary shares are classified as stockholders’ equity. The Company’s ordinary shares
feature certain conversion rights that are considered by the Company to be outside of the Company’s control and subject
to the occurrence of uncertain future events. Accordingly at June 30, 2015, the ordinary shares subject to possible conversion
are presented as temporary equity, outside of the shareholders’ equity section of the Company’s balance sheet.
Loss
per Share
Loss per share is computed by dividing
net loss by the weighted-average number of ordinary shares outstanding during the period. Ordinary shares subject to possible
conversion of 13,809,040 shares at June 30, 2015 have been excluded from the calculation of basic loss per share since such shares,
if converted, only participate in their pro rata share of the Trust Account earnings. The Company has not considered the effect
of (i) Warrants and Rights included in the units sold in the Offering to acquire 9,005,438 Ordinary Shares and (ii) 1,250,000
Ordinary Shares and Warrants and Rights to acquire 750,000 Ordinary Shares included in the unit purchase option sold to the underwriter,
in the calculation of diluted loss per share, since the exercise of the Warrants and automatic conversion of the Rights are contingent
on the occurrence of future events.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting
period. Actual results could differ from those estimates.
Income
Taxes
The
Company accounts for income taxes under ASC Topic 740 “Income Taxes” (“ASC 740”). ASC 740 requires the
recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statement
and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry
forwards. ASC 740 additionally requires a valuation allowance to be established when it is more likely than not that all or a
portion of deferred tax assets will not be realized.
ASC
740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and
prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not
to be sustained upon examination by taxing authorities. ASC 740 also provides guidance on derecoginition, classification, interest
and penalties, accounting in interim periods, disclosure and transition. The Company determined that the Cayman Islands is its
only major tax jurisdiction. Based on the Company’s evaluation, it has been concluded that there are no significant uncertain
tax positions requiring recognition in the Company’s financial statements for the tax periods ended June 30, 2015 and 2014.
Since the Company was incorporated on February 11, 2014, the evaluation was performed for the period from February 11, 2014 through
June 30, 2015. The Company believes that its income tax positions would be sustained on audit and does not anticipate any adjustments
that would result in material changes to its financial position.
The
Company’s policy for recording interest and penalties associated with audits is to record such expense as a component of
income tax expense. There were no amounts accrued for penalties or interest as of or during the periods ended June 30, 2015 and
2014. Management is currently unaware of any issues under review that could result in significant payments, accruals or material
deviations from its position.
Garnero Group Acquisition Company
Notes to Financial Statements
Recent
Accounting Pronouncements
The
FASB has issued ASU No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties
about an Entity’s Ability to Continue as a Going Concern. This standard is intended to define management’s responsibility
to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide
related footnote disclosures. Under U.S. GAAP, financial statements are prepared under the presumption that the reporting organization
will continue to operate as a going concern, except in limited circumstances. Financial reporting under this presumption is commonly
referred to as the going concern basis of accounting. The going concern basis of accounting is critical to financial reporting
because it establishes the fundamental basis for measuring and classifying assets and liabilities. Currently, U.S. GAAP lacks
guidance about management’s responsibility to evaluate whether there is substantial doubt about the organization’s
ability to continue as a going concern or to provide related footnote disclosures. This ASU provides guidance to an organization’s
management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that
are commonly provided by organizations today in the financial statement footnotes. The amendments are effective for annual periods
ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early application
is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. The adoption
of this standard is not expected to have a material impact on the Company’s financial position and results of operations.
Management
does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have
a material impact on the accompanying financial statements.
Subsequent
Events
The
Company evaluates events that have occurred after the balance sheet date through the date which these financial statements were
issued. Based upon the review, other than as disclosed in Note 4, the Company did not identify any recognized or non-recognized
subsequent events that would have required adjustment or disclosure in the financial statements.
Note
3 — Shareholder Commitment
On October 10, 2014, November 19, 2014,
February 16, 2015, May 15, 2015 and September 29, 2015, the Company’s Chief Executive Officer, Mario Garnero, executed five
separate commitment letters to provide loans to the Company of up to an aggregate of $1,120,000, of which $725,878 was loaned
to the Company through June 30, 2015. These loans were evidenced by notes entered into on September 28, 2015, and will either
be repaid upon the consummation of a Business Combination or, at the option of the holder, up to $500,000 may be converted into
additional Private Units at a price of $10.00 per Private Unit. Mario Garnero has loaned the Company an additional $230,000 from
July 1, 2015 through September 29, 2015, which loans will be evidenced by notes and will be repaid upon the consummation of a
Business Combination.
At
June 30, 2014, the Company had a $125,000 principal amount unsecured promissory note to an entity controlled by the Company’s
Chief Executive Officer (“Affiliate”). The note was non-interest bearing and payable on the earlier of (i) February
18, 2015, (ii) the consummation of the Offering or (iii) the date on which the Company determined not to proceed with the Offering.
The Company repaid this note in July 2014.
Additionally,
the Affiliate advanced the Company $87,500 for payment of certain deferred offering costs. These advances were non-interest bearing
and due on demand. The Company repaid these advances in July 2014.
Note
4 — Investment Agreement
On
August 26, 2015, the Company entered into an Investment Agreement (the “Investment Agreement”) with, Q1 Comercial
de Roupas S.A., a Brazilian company (“Colombo”), Alvaro Jabur Maluf Junior and Paulo Jabur Maluf (the “Controlling
Persons”) and the persons listed under the caption “Optionholder” on the signature pages in the Investment Agreement
(the “Optionholders”).
Headquartered
in São Paulo, Colombo is one of Brazil’s leading retailers focusing on menswear, with over 400 stores throughout
the country. Colombo has recently diversified from formalwear into smart casual clothes and has strengthened its online presence
to become, according to Exame Magazine, one of the three most valuable brands within the Brazilian apparel retail sector.
Garnero Group Acquisition Company
Notes to Financial Statements
Pursuant
to the Investment Agreement, (A) the Controlling Persons will contribute all of the issued and outstanding ordinary shares of
Colombo (the “Outstanding Shares”) to the Company (the “Share Contribution”) and will receive in consideration
an aggregate of 5,460,000 newly issued ordinary shares of the Company (“GGAC Ordinary Shares”) and (B) the Optionholders
will exercise certain options held by them, will contribute the underlying ordinary shares of Colombo to the Company (the “Option
Contribution,” and together with the Share Contribution, the “Equity Contributions”), and will receive in consideration
an aggregate of 540,000 GGAC Ordinary Shares. The number of GGAC Ordinary Shares to be received by the Controlling Persons and
the Optionholders is subject to an EBITDA Adjustment, as described in the Investment Agreement. In addition, at the closing of
the transactions contemplated by the Investment Agreement (the “Closing”) and immediately after the completion of
the Equity Contributions, the Company will contribute to Colombo, as a capital increase, an aggregate of R$120,000,000 (approximately
US$29,900,000 as of September 22, 2015) in cash (the “Capital Contribution,” and together with the Equity Contributions,
the “Contributions”), which amount shall be used by Colombo to immediately repay certain indebtedness of Colombo and
to release certain liens on the Outstanding Shares.
In
connection with the transactions contemplated by the Investment Agreement, the Company and Colombo will use their commercially
reasonable best efforts to consummate, simultaneously with the Closing, a private placement of up to US$100,000,000 of equity
securities, or securities exercisable or exchangeable for, or convertible into, equity securities, of the Company (the “Private
Placement”), with the assistance of a syndicate of financial institutions that have been identified and agreed to by the
Company and Colombo. In addition, the Controlling Persons have committed to use their commercially reasonable best efforts to
purchase, directly or indirectly, at least US$30,000,000 of the Company’s Ordinary Shares in the open market. To the extent
the Controlling Persons make less than US$30,000,000 in open market purchases, the Controlling Persons, directly or indirectly,
will purchase an amount of securities in the Private Placement equal to such deficiency
If
the Contributions are consummated, Colombo will become a wholly-owned subsidiary of the Company, the Company will change its name
to “Garnero Colombo Inc.” and the former stockholders and management of Colombo will own approximately 25% of the
outstanding GGAC Ordinary Shares (assuming no holder of GGAC Ordinary Shares exercises his redemption rights as set forth in the Company’s charter documents and the Controlling Persons make the full US$30 million of open market purchases and/or purchases in the Private
Placement).
The
Contributions are expected to be consummated in the fourth calendar quarter of 2015, assuming the required approval of the Company’s
shareholders is obtained and certain other conditions, as described in the Investment Agreement, are satisfied or waived.
The
GGAC Ordinary Shares payable to the Controlling Persons and Optionholders are subject to adjustment based on Colombo’s future
EBITDA performance (the EBITDA Adjustment”). If Colombo’s EBITDA for the twelve months ending December 31, 2016, as
determined in accordance with the Investment Agreement, is less than R$155,000,000 (approximately US$38,600,000 as of September
22, 2015), the Controlling Persons and Optionholders have agreed to surrender to the Company for cancellation 50,000 GGAC Ordinary
Shares for each R$1,000,000 (approximately US$249,000 as of September 22, 2015) of such deficiency, up to a maximum of 300,000
GGAC Ordinary Shares and pro-rata for partial amounts. If Colombo’s EBITDA for such period is lower than R$149,000,000 (approximately
US$37,100,000 as of September 22, 2015), an additional 300,000 GGAC Ordinary Shares will be surrendered to the Company for cancellation.
An aggregate of 600,000 GGAC Ordinary Shares will be held in escrow pending calculation and settlement of the EBITDA Adjustment.
Note
5 — Initial Public Offering
On
July 1, 2014, the Company sold 12,500,000 units (“Units”) at a price of $10 per Unit in the Initial Public Offering.
Each unit consists of one share of the Company’s ordinary shares, par value $0.0001, one right (“Right”) and
one warrant (“Warrant”). Each Right entitles the holder to receive one-tenth (1/10) of a share of ordinary shares
on the consummation of an initial business combination. Each Warrant entitles the holder to purchase one-half of one ordinary
share at a price of $11.50 per full share. Each Warrant will become exercisable on the later of the completion of an initial business
combination or June 25, 2015, and will expire five years after the completion of an initial business combination. The Company
will not issue fractional shares.
Garnero Group Acquisition Company
Notes to Financial Statements
On
July 1, 2014, the underwriters exercised their full over-allotment option to the extent of 1,875,000 units and on July 7, 2014,
the Company consummated the closing of the Overallotment. The 1,875,000 units sold pursuant to the Overallotment were sold at
an offering price of $10.00 per Unit.
The
Company may redeem the Warrants at a price of $0.01 per Warrant upon 30 days’ notice, only in the event that the last sale
price of the ordinary shares is at least $21.00 per share for any 20 trading days within a 30-trading day period (“30-Day
Trading Period”) ending on the third day prior to the date on which notice of redemption is given, provided there is a current
registration statement in effect with respect to the ordinary shares underlying such Warrants commencing five business days prior
to the 30-Day Trading Period and continuing each day thereafter until the date of redemption. If the Company redeems the Warrants
as described above, management will have the option to require all holders that wish to exercise Warrants to do so on a “cashless
basis.” In accordance with the warrant agreement relating to the Warrants sold and issued in the Offering, the Company is
only required to use its best efforts to maintain the effectiveness of the registration statement covering the Warrants. If a
registration statement is not effective within 90 days following the consummation of a Business Combination, Warrant holders may,
until such time as there is an effective registration statement and during any period when the Company shall have failed to maintain
an effective registration statement, exercise Warrants on a cashless basis. In the event that a registration statement is not
effective at the time of exercise, the holder of such Warrant shall not be entitled to exercise such Warrant for cash and in no
event (whether in the case of a registration statement being effective or otherwise) will the Company be required to net cash
settle the Warrant exercise.
The
Company paid the underwriters in the Offering an underwriting discount of 3.25% ($4,671,875) comprised of $4,062,500 of the $125,000,000
of proceeds from the Initial Public Offering and $609,375 of the $18,750,000 of proceeds from the Overallotment. The Company also
issued, for $100, a unit purchase option to purchase up to a total of 1,250,000 units exercisable at $10.00 per unit (or an aggregate
exercise price of $12,500,000) commencing on the later of the consummation of a Business Combination and June 25, 2015. The unit
purchase option expires June 25, 2019. The units issuable upon exercise of this option are identical to the Units in the Offering.
Accordingly, after the Business Combination, the purchase option will be to purchase 1,375,000 ordinary shares (which includes
125,000 ordinary shares to be issued for the rights included in the units) and 1,250,000 Warrants to purchase 625,000 ordinary
shares. The Company has agreed to grant to the holders of the unit purchase option, demand and “piggy back” registration
rights for periods of five and seven years, respectively, from June 25, 2014, including securities directly and indirectly issuable
upon exercise of the unit purchase option.
The
Company accounted for the fair value of the unit purchase option, inclusive of the receipt of a $100 cash payment, as an expense
of the Offering resulting in a charge directly to shareholders’ equity. The Company estimated that the fair value of this
unit purchase option was approximately $4,175,000 (or $3.34 per unit) using the Black-Scholes option-pricing model. The fair value
of the unit purchase option was estimated as of the date of grant using the following assumptions: (1) expected volatility of
35%, (2) risk-free interest rate of 1.70% and (3) expected life of five years. The unit purchase option may be exercised for cash
or on a “cashless” basis, at the holder’s option (except in the case of a forced cashless exercise upon the
Company’s redemption of the Warrants, as described above), such that the holder may use the appreciated value of the unit
purchase option (the difference between the exercise prices of the unit purchase option and the underlying Warrants and the market
price of the Units and underlying ordinary shares) to exercise the unit purchase option without the payment of any cash. The Company
will have no obligation to net cash settle the exercise of the unit purchase option or the Warrants underlying the unit purchase
option. The holder of the unit purchase option will not be entitled to exercise the unit purchase option or the Warrants underlying
the unit purchase option unless a registration statement covering the securities underlying the unit purchase option is effective
or an exemption from registration is available. If the holder is unable to exercise the unit purchase option or underlying Warrants,
the unit purchase option or Warrants, as applicable, will expire worthless.
Garnero Group Acquisition Company
Notes to Financial Statements
Note
6 — Private Units
Simultaneously
with the Initial Public Offering, an affiliate of one of the Initial Shareholders of the Company and the underwriters purchased
an aggregate of 563,750 Private Units at $10.00 per Private Unit (for an aggregate purchase price of $5,637,500) from the Company.
In a private sale that took place simultaneously with the consummation of the Overallotment, an affiliate of one of the Initial
Shareholders of the Company and the underwriters purchased an additional 70,313 Private Units at $10.00 per Private Unit for an
aggregate purchase price of $703,130. All of the proceeds received from these purchases were placed in the Trust Account.
The
Private Units are identical to the Units sold in the Offering except the Warrants included in the Private Units will be non-redeemable
and may be exercised on a cashless basis, in each case so long as they continue to be held by the initial purchasers or their
permitted transferees. Additionally, the holders of the Private Units have agreed (A) to vote the shares underlying their Private
Units in favor of any proposed Business Combination, (B) not to propose, or vote in favor of, an amendment to the Company’s
amended and restated memorandum and articles of association with respect to the Company’s pre-Business Combination activities
prior to the consummation of such a Business Combination, (C) not to convert any shares underlying the Private Units into the
right to receive cash from the Trust Account in connection with a shareholder vote to approve an initial Business Combination
or a vote to amend the provisions of the Company’s amended and restated memorandum and articles of association relating
to shareholders’ rights or pre-Business Combination activity and (D) that the shares underlying the Private Units shall
not participate in any liquidating distribution upon winding up if a Business Combination is not consummated. The purchasers have
also agreed not to transfer, assign or sell any of the Private Units or underlying securities (except to the same permitted transferees
as the insider shares and provided the transferees agree to the same terms and restrictions as the permitted transferees of the
insider shares must agree to, each as described above) until the completion of an initial Business Combination.
Note
7 — Deferred Offering Costs
Deferred
offering costs at June 30, 2014 consisted principally of legal, accounting and underwriting costs incurred through June 30, 2014
that were directly related to the Offering and that were charged to shareholders’ equity upon the receipt of the capital
raised.
Note
8 — Commitments and Contingencies
Business
Combination Consulting
The
Company has engaged the representative of the underwriters (“Representative”) to assist the Company with its initial
Business Combination. Pursuant to this arrangement, the Company anticipates that the Representative will assist the Company in
holding meetings with shareholders to discuss the potential Business Combination and the target business’ attributes, introduce
the Company to potential investors that are interested in purchasing the Company’s securities, assist the Company in obtaining
shareholder approval for the Business Combination and assist the Company with its press releases and public filings in connection
with the Business Combination. The Company will pay the Representative a cash fee of $4,600,000 for such services upon the consummation
of its initial Business Combination (exclusive of any applicable finders’ fees which might become payable).
Garnero Group Acquisition Company
Notes to Financial Statements
Registration
Rights
The
Initial Shareholders and the holders of the Private Units (or underlying securities) are entitled to registration rights with
respect to their Initial Shares and Private Units (or underlying securities) pursuant to agreements signed on June 25, 2014. The
holders of the majority of the Initial Shares are entitled to demand that the Company register these shares at any time commencing
three months prior to the first anniversary of the consummation of a Business Combination. The holders of the Private Units (or
underlying securities) are entitled to demand that the Company register these securities at any time after the Company consummates
a Business Combination. In addition, the Initial Shareholders and holders of the Private Units (or underlying securities) have
certain “piggy-back” registration rights on registration statements filed after the Company’s consummation of
a Business Combination.
Office
Space
The
Company presently occupies office space provided by the Affiliate. Such Affiliate has agreed that, until the Company consummates
a Business Combination, it will make such office space, as well as certain office and secretarial services, available to the Company,
as may be required by the Company from time to time. The Company has agreed to pay such Affiliate $10,000 per month for such services
commencing on July 1, 2014. During the year ended June 30, 2015, the Company incurred approximately $120,000 for such rent and
services, which is reflected in the Statement of Operations as Office expense – related party. Additionally, at June 30,
2015, the Company prepaid $6,000 to the related party which amount is included in prepaid expenses in the Balance Sheet.
Note
9 — Shareholders’ Equity
Preferred
Shares
The
Company is authorized to issue 1,000,000 preferred shares with a par value of $0.0001 per share with such designation, rights
and preferences as may be determined from time to time by the Company’s board of directors.
As
of June 30, 2015, there are no preferred shares issued or outstanding.
Ordinary
Shares
The
Company is authorized to issue 120,000,000 ordinary shares with a par value of $0.0001 per share.
In
connection with the organization of the Company, on March 26, 2014 a total of 3,593,750 ordinary shares were sold to the initial
shareholders at a price of approximately $0.01 per share for an aggregate of $25,000.
Note
10 — Income Taxes
The
domestic and foreign components of income (loss) before income taxes from continuing operations for the periods ended June 30,
2015 and 2014 are as follows:
| |
Year ended June 30,
2015 | | |
Period from February 11, 2014 (inception) through June 30,
2104 | |
Domestic | |
$ | - | | |
$ | - | |
Foreign | |
| (1,091,626 | ) | |
| (8,958 | ) |
Loss from continuing operations before income taxes | |
$ | (1,091,626 | ) | |
$ | (8,958 | ) |
Garnero Group Acquisition Company
Notes to Financial Statements
The Company’s tax provision is zero because the Company is organized in the Cayman Islands with no connection
to any other taxable jurisdiction.
A
reconciliation of the statutory United States federal income tax rate to the Company’s effective tax rate is as follows:
| |
Year ended June 30,
2015 | | |
Period from February 11, 2014 (inception) through
June 30,
2104 | |
Statutory federal income tax rate | |
| 34 | % | |
| 34 | % |
Income and expenses not subject to US taxation | |
| (34 | %) | |
| (34 | %) |
Income tax provision (benefit) | |
$ | - | | |
$ | - | |
The
Company is considered to be an exempted Cayman Islands Company, and is presently not subject to income taxes or income tax filing
requirements in the Cayman Islands or the United States.
Garnero Group Acquisition Company
Notes to Financial Statements
Note
11 — Selected Quarterly Information (Unaudited)
The
following table presents summarized unaudited quarterly financial data for each of the four quarters in the year ended June 30,
2015 and for the period from February 11, 2014 (inception) through June 30, 2014. The data has been derived from our unaudited
financial statements that, in management's opinion, include all adjustments (consisting of normal recurring adjustments) necessary
for a fair presentation of such information when read in conjunction with the Financial Statements and Notes thereto. The results
of operations for any quarter are not necessarily indicative of the results of operations for any future period.
| |
First
Quarter | | |
Second
Quarter | | |
Third
Quarter | | |
Fourth
Quarter | |
Year ended June 30, 2015 | |
| | |
| | |
| | |
| |
Operating expenses | |
$ | 247,065 | | |
$ | 600,943 | | |
$ | 163,733 | | |
$ | 193,022 | |
Interest income | |
$ | 25,129 | | |
$ | 5,027 | | |
$ | - | | |
$ | 82,981 | |
Net loss | |
$ | (221,936 | ) | |
$ | (595,916 | ) | |
$ | (163,733 | ) | |
$ | (110,041 | ) |
Basic and diluted loss per share | |
$ | (0.06 | ) | |
$ | (0.13 | ) | |
$ | (0.03 | ) | |
$ | (0.02 | ) |
| |
| | | |
| | | |
| | | |
| | |
Period from February 11, 2014 (inception) through June 30, 2014 | |
| | | |
| | | |
| | | |
| | |
Operating expenses | |
$ | - | | |
$ | - | | |
$ | 8,723 | | |
$ | 235 | |
Net loss | |
$ | - | | |
$ | - | | |
$ | (8,723 | ) | |
$ | (235 | ) |
Basic and diluted loss per share | |
$ | - | | |
$ | - | | |
$ | (0.00 | ) | |
$ | (0.00 | ) |
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders of Q1 Comercial de Roupas S.A. and Subsidiaries,
We
have audited the accompanying consolidated balance sheets of Q1 Comercial de Roupas S.A. and Subsidiaries (the “Company”)
as of December 31, 2014 and 2013, and the related consolidated statements of operations, changes in stockholders’ deficiency,
comprehensive income (loss) and cash flows for the years ended December 31, 2014, 2013 and 2012. These consolidated financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits included consideration of internal control over financial reporting
as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements, 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated
financial position of Q1 Comercial de Roupas S.A. and Subsidiaries as of December 31, 2014 and 2013, and the consolidated results
of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in
the United States of America.
The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
As more fully discussed in Note 2, the Company has sustained recurring losses from operations and has experienced a decline in
working capital, that raise substantial doubt about the Company’s ability to continue as a going concern. Management’s
plans in regard to these matters are described in Note 2. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/
Marcum LLP
Marcum
LLP
New
York, NY
December
22, 2015
Q1 COMERCIAL DE ROUPAS S.A.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except shares
and per share amounts)
| |
September
30, | | |
December
31, | |
| |
2015 | | |
2014 | | |
2013 | |
| |
(unaudited) | | |
| | |
| |
Assets | |
| | |
| | |
| |
Current Assets: | |
| | |
| | |
| |
Cash | |
$ | 325 | | |
$ | 1,861 | | |
$ | 3,788 | |
Investments | |
| 3,393 | | |
| 26,883 | | |
| 34,491 | |
Accounts receivable, net | |
| 172 | | |
| 2,164 | | |
| 3,304 | |
Inventories, net | |
| 46,918 | | |
| 91,370 | | |
| 96,838 | |
Prepaid
expenses and other current assets | |
| 13,580 | | |
| 7,920 | | |
| 9,955 | |
Total Current Assets | |
| 64,388 | | |
| 130,198 | | |
| 148,376 | |
| |
| | | |
| | | |
| | |
Property and equipment, net | |
| 36,498 | | |
| 59,642 | | |
| 52,785 | |
Intangible assets, net | |
| 1,955 | | |
| 2,320 | | |
| 1,356 | |
Other assets | |
| 5,929 | | |
| 12,036 | | |
| 14,847 | |
| |
| | | |
| | | |
| | |
Total Assets | |
$ | 108,770 | | |
$ | 204,196 | | |
$ | 217,364 | |
| |
| | | |
| | | |
| | |
Liabilities and Stockholders' Deficiency | |
| | | |
| | | |
| | |
Current Liabilities: | |
| | | |
| | | |
| | |
Accounts payable | |
$ | 28,420 | | |
$ | 65,639 | | |
$ | 112,253 | |
Accrued expenses and other current
liabilities | |
| 6,670 | | |
| 7,948 | | |
| 11,119 | |
Debentures payable | |
| 114,181 | | |
| 171,294 | | |
| 184,092 | |
Working capital loans | |
| 56,513 | | |
| 63,795 | | |
| 58,474 | |
Stockholders' loans payable | |
| 7,435 | | |
| 3,718 | | |
| - | |
Tax obligations | |
| 14,743 | | |
| 16,529 | | |
| 8,720 | |
Obligations under capital leases | |
| 441 | | |
| 795 | | |
| 234 | |
Interest
payable | |
| 14,969 | | |
| 1,961 | | |
| 4,867 | |
Total Current Liabilities | |
| 243,372 | | |
| 331,679 | | |
| 379,759 | |
Tax obligations, non current | |
| 3,043 | | |
| 20,191 | | |
| 13,345 | |
Other liabilities | |
| 3,291 | | |
| 4,710 | | |
| 5,858 | |
| |
| | | |
| | | |
| | |
Total Liabilities | |
| 249,706 | | |
| 356,580 | | |
| 398,962 | |
| |
| | | |
| | | |
| | |
Commitments and Contingencies | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | |
Stockholders' Deficiency: | |
| | | |
| | | |
| | |
Common stock, no par value; | |
| | | |
| | | |
| | |
52,606,785, 52,606,785 and 38,901,333
shares issued and outstanding at September 30, 2015, December 31, 2014 and December 31, 2013. | |
| 103,726 | | |
| 103,726 | | |
| 58,666 | |
Accumulated deficit | |
| (385,579 | ) | |
| (335,856 | ) | |
| (303,584 | ) |
Accumulated
other comprehensive income | |
| 140,917 | | |
| 79,746 | | |
| 63,320 | |
| |
| | | |
| | | |
| | |
Total Stockholders'
Deficiency | |
| (140,936 | ) | |
| (152,384 | ) | |
| (181,598 | ) |
| |
| | | |
| | | |
| | |
Total Liabilities
and Stockholders' Deficiency | |
$ | 108,770 | | |
$ | 204,196 | | |
$ | 217,364 | |
Q1 COMERCIAL DE ROUPAS S.A.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF OPERATIONS
(in thousands, except shares
and per share amounts)
| |
For The Nine Months Ended | | |
For The Years Ended | |
| |
September
30, | | |
December
31, | |
| |
2015 | | |
2014 | | |
2014 | | |
2013 | | |
2012 | |
| |
(unaudited) | | |
(unaudited) | | |
| | |
| | |
| |
| |
| | |
| | |
| | |
| | |
| |
Net Revenue | |
$ | 101,450 | | |
$ | 158,313 | | |
$ | 234,461 | | |
$ | 220,119 | | |
$ | 203,010 | |
Cost of goods sold | |
| 40,357 | | |
| 70,926 | | |
| 105,396 | | |
| 99,502 | | |
| 88,449 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Gross Profit | |
| 61,093 | | |
| 87,387 | | |
| 129,065 | | |
| 120,617 | | |
| 114,561 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Operating Expenses, net | |
| 50,218 | | |
| 71,930 | | |
| 95,405 | | |
| 100,483 | | |
| 95,160 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Income From Operations | |
| 10,875 | | |
| 15,457 | | |
| 33,660 | | |
| 20,134 | | |
| 19,401 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Other Income (Expenses) | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest income | |
| 582 | | |
| 2,938 | | |
| 3,446 | | |
| 2,283 | | |
| 3,579 | |
Debt interest expense | |
| (26,812 | ) | |
| (26,439 | ) | |
| (37,248 | ) | |
| (27,676 | ) | |
| (36,188 | ) |
Vendor interest expense | |
| (11,539 | ) | |
| (14,269 | ) | |
| (13,908 | ) | |
| (10,133 | ) | |
| (19,273 | ) |
ICMS and INSS interest expense | |
| (18,944 | ) | |
| (5,281 | ) | |
| (5,604 | ) | |
| (1,520 | ) | |
| (1,838 | ) |
Credit card fees | |
| (1,970 | ) | |
| (3,509 | ) | |
| (5,015 | ) | |
| (3,799 | ) | |
| (3,453 | ) |
Other (expense)
income | |
| (1,628 | ) | |
| (1,088 | ) | |
| (1,483 | ) | |
| 1,144 | | |
| (2,242 | ) |
Total Other
Expense | |
| (60,311 | ) | |
| (47,648 | ) | |
| (59,812 | ) | |
| (39,701 | ) | |
| (59,415 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Loss Before Provision For Income
Taxes | |
| (49,436 | ) | |
| (32,191 | ) | |
| (26,152 | ) | |
| (19,567 | ) | |
| (40,014 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Income Tax Provision | |
| (287 | ) | |
| (5,014 | ) | |
| (6,120 | ) | |
| (1,879 | ) | |
| (2,928 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Net Loss | |
$ | (49,723 | ) | |
$ | (37,205 | ) | |
$ | (32,272 | ) | |
$ | (21,446 | ) | |
$ | (42,942 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Net Loss Per Share | |
| | | |
| | | |
| | | |
| | | |
| | |
- Basic and
Diluted | |
$ | (0.95 | ) | |
$ | (0.79 | ) | |
$ | (0.66 | ) | |
$ | (0.63 | ) | |
$ | (1.84 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Weighted Average Number of Common
Shares Outstanding | |
| | | |
| | | |
| | | |
| | | |
| | |
- Basic and
Diluted | |
| 52,606,785 | | |
| 47,335,457 | | |
| 48,664,321 | | |
| 33,785,542 | | |
| 23,340,800 | |
Q1 COMERCIAL DE ROUPAS S.A.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
| |
For The Nine Months Ended | | |
For The Years Ended | |
| |
September
30, | | |
December
31, | |
| |
2015 | | |
2014 | | |
2014 | | |
2013 | | |
2012 | |
| |
(unaudited) | | |
(unaudited) | | |
| | |
| | |
| |
| |
| | |
| | |
| | |
| | |
| |
Net Loss | |
$ | (49,723 | ) | |
$ | (37,205 | ) | |
$ | (32,272 | ) | |
$ | (21,446 | ) | |
$ | (42,942 | ) |
Other Comprehensive Income (Loss): | |
| | | |
| | | |
| | | |
| | | |
| | |
Foreign
currency translation adjustments | |
| 61,171 | | |
| 929 | | |
| 16,426 | | |
| 25,791 | | |
| 12,749 | |
Total Comprehensive Income (Loss) | |
$ | 11,448 | | |
$ | (36,276 | ) | |
$ | (15,846 | ) | |
$ | 4,345 | | |
$ | (30,193 | ) |
Q1 COMERCIAL DE ROUPAS S.A.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF STOCKHOLDERS’ DEFICIENCY
(in thousands, except shares)
| |
| | |
| | |
| | |
Accumulated Other | | |
| |
| |
Common
Stock | | |
Accumulated | | |
Comprehensive | | |
| |
| |
Shares | | |
Amount | | |
Deficit | | |
Income | | |
Total | |
Balances at December 31, 2011 | |
| 23,340,800 | | |
$ | 13,972 | | |
$ | (239,196 | ) | |
$ | 24,780 | | |
$ | (200,444 | ) |
Cash dividend | |
| - | | |
| (5,206 | ) | |
| - | | |
| - | | |
| (5,206 | ) |
Comprehensive income (loss): | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| - | | |
| - | | |
| (42,942 | ) | |
| - | | |
| (42,942 | ) |
Other comprehensive
income | |
| - | | |
| - | | |
| - | | |
| 12,749 | | |
| 12,749 | |
Balances at December 31, 2012 | |
| 23,340,800 | | |
| 8,766 | | |
| (282,138 | ) | |
| 37,529 | | |
| (235,843 | ) |
Sale of common stock | |
| 15,560,533 | | |
| 49,900 | | |
| - | | |
| - | | |
| 49,900 | |
Comprehensive income (loss): | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| - | | |
| - | | |
| (21,446 | ) | |
| - | | |
| (21,446 | ) |
Other comprehensive
income | |
| - | | |
| - | | |
| - | | |
| 25,791 | | |
| 25,791 | |
Balances at December 31, 2013 | |
| 38,901,333 | | |
| 58,666 | | |
| (303,584 | ) | |
| 63,320 | | |
| (181,598 | ) |
Sale of common stock | |
| 13,705,452 | | |
| 45,060 | | |
| - | | |
| - | | |
| 45,060 | |
Comprehensive income (loss): | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| - | | |
| - | | |
| (32,272 | ) | |
| - | | |
| (32,272 | ) |
Other comprehensive
income | |
| - | | |
| - | | |
| - | | |
| 16,426 | | |
| 16,426 | |
Balances at December 31, 2014 | |
| 52,606,785 | | |
| 103,726 | | |
| (335,856 | ) | |
| 79,746 | | |
| (152,384 | ) |
Comprehensive income (loss): | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| - | | |
| - | | |
| (49,723 | ) | |
| - | | |
| (49,723 | ) |
Other comprehensive
income | |
| - | | |
| - | | |
| | | |
| 61,171 | | |
| 61,171 | |
Balances at September 30, 2015 (unaudited) | |
| 52,606,785 | | |
$ | 103,726 | | |
$ | (385,579 | ) | |
$ | 140,917 | | |
$ | (140,936 | ) |
Q1 COMERCIAL DE ROUPAS S.A.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(in thousands)
| |
For The Nine Months Ended | | |
For The Years Ended | |
| |
September
30, | | |
December
31, | |
| |
2015 | | |
2014 | | |
2014 | | |
2013 | | |
2012 | |
| |
(unaudited) | | |
(unaudited) | | |
| | |
| | |
| |
| |
| | |
| | |
| | |
| | |
| |
Cash Flows From Operating Activities | |
| | |
| | |
| | |
| | |
| |
Net loss | |
$ | (49,723 | ) | |
$ | (37,205 | ) | |
$ | (32,272 | ) | |
$ | (21,446 | ) | |
$ | (42,942 | ) |
Adjustments
to reconcile net loss to net cash used in operating activities: | |
| | | |
| | | |
| | | |
| | | |
| | |
Depreciation and amortization | |
| 5,498 | | |
| 5,867 | | |
| 7,860 | | |
| 7,131 | | |
| 5,631 | |
Amortization of lease rights | |
| 1,994 | | |
| 3,215 | | |
| 4,250 | | |
| 4,549 | | |
| 4,676 | |
Amortization of deferred financing
costs | |
| 294 | | |
| 401 | | |
| 521 | | |
| 426 | | |
| - | |
Gain on sale of lease rights | |
| (2,056 | ) | |
| (1,047 | ) | |
| (1,347 | ) | |
| (1,844 | ) | |
| (143 | ) |
(Gain) loss on sale of property
and equipment | |
| (1,376 | ) | |
| (1,211 | ) | |
| (1,335 | ) | |
| 406 | | |
| (11 | ) |
Provision for uncollectible accounts
receivable | |
| - | | |
| 386 | | |
| 448 | | |
| - | | |
| - | |
Provision for slow moving inventory | |
| 701 | | |
| (726 | ) | |
| (79 | ) | |
| 3,609 | | |
| (277 | ) |
Decrease (increase) in assets: | |
| | | |
| | | |
| - | | |
| - | | |
| - | |
Accounts receivable | |
| 1,640 | | |
| 2,057 | | |
| 400 | | |
| 16,737 | | |
| (8,710 | ) |
Inventory | |
| 17,351 | | |
| (15,592 | ) | |
| (7,014 | ) | |
| (38,255 | ) | |
| (15,737 | ) |
Prepaid expenses and other current
assets | |
| (11,007 | ) | |
| (6,374 | ) | |
| 434 | | |
| (2,864 | ) | |
| (3,970 | ) |
Deposits | |
| 67 | | |
| 47 | | |
| 84 | | |
| (313 | ) | |
| (114 | ) |
Increase (decrease) in liabilities: | |
| | | |
| | | |
| - | | |
| - | | |
| - | |
Accounts payable and accrued expenses | |
| (8,574 | ) | |
| 13,053 | | |
| (25,283 | ) | |
| 10,860 | | |
| 45,290 | |
Other liabilities | |
| 195 | | |
| (949 | ) | |
| (506 | ) | |
| 1,629 | | |
| 4,178 | |
Total Adjustments | |
| 4,727 | | |
| (873 | ) | |
| (21,567 | ) | |
| 2,071 | | |
| 30,813 | |
Net
Cash Used in Operating Activities | |
| (44,996 | ) | |
| (38,078 | ) | |
| (53,839 | ) | |
| (19,375 | ) | |
| (12,129 | ) |
Cash Flows From Investing Activities | |
| | | |
| | | |
| | | |
| | | |
| | |
Investment in securities, net | |
| 18,748 | | |
| 13,247 | | |
| 3,947 | | |
| (4,042 | ) | |
| 17,342 | |
Purchase of intangible assets | |
| (1,156 | ) | |
| (1,464 | ) | |
| (2,047 | ) | |
| (98 | ) | |
| (756 | ) |
Purchase of property and equipment | |
| (4,882 | ) | |
| (15,782 | ) | |
| (22,452 | ) | |
| (21,008 | ) | |
| (29,755 | ) |
Proceeds from sale of property
and equipment | |
| 5,677 | | |
| 3,405 | | |
| 2,338 | | |
| 3,006 | | |
| 543 | |
Purchase of lease rights | |
| (180 | ) | |
| (3,717 | ) | |
| (3,870 | ) | |
| (6,429 | ) | |
| (9,049 | ) |
Proceeds
from sale of lease rights | |
| 2,881 | | |
| 1,422 | | |
| 2,050 | | |
| 1,964 | | |
| 180 | |
Net
Cash Provided by (Used in) Investing Activities | |
| 21,088 | | |
| (2,889 | ) | |
| (20,034 | ) | |
| (26,607 | ) | |
| (21,495 | ) |
Cash Flows From Financing Activities | |
| | | |
| | | |
| | | |
| | | |
| | |
Dividends paid | |
| - | | |
| - | | |
| - | | |
| - | | |
| (5,206 | ) |
Payment of deferred financing costs | |
| - | | |
| - | | |
| - | | |
| (2,866 | ) | |
| - | |
Proceeds from shareholder loan | |
| 6,397 | | |
| - | | |
| 4,252 | | |
| - | | |
| - | |
Proceeds from working capital loans | |
| 27,201 | | |
| 36,958 | | |
| 64,712 | | |
| 49,592 | | |
| 107,114 | |
Repayments of working capital loans | |
| (9,593 | ) | |
| (33,504 | ) | |
| (48,066 | ) | |
| (218,942 | ) | |
| (60,176 | ) |
Proceeds from issuance of debentures | |
| - | | |
| - | | |
| 173,216 | | |
| 185,663 | | |
| - | |
Repayment of debentures | |
| - | | |
| - | | |
| (162,300 | ) | |
| - | | |
| - | |
Repayment of capital lease obligations | |
| (201 | ) | |
| (98 | ) | |
| (135 | ) | |
| (102 | ) | |
| (126 | ) |
Proceeds
from sale of capital stock | |
| - | | |
| 45,060 | | |
| 45,060 | | |
| 49,900 | | |
| - | |
Net Cash Provided by Financing
Activities | |
| 23,804 | | |
| 48,416 | | |
| 76,739 | | |
| 63,245 | | |
| 41,606 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Effect of Exchange Rate
Changes on Cash | |
| (1,432 | ) | |
| (4,717 | ) | |
| (4,793 | ) | |
| (15,084 | ) | |
| (8,030 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Net (Decrease) Increase in Cash | |
| (1,536 | ) | |
| 2,732 | | |
| (1,927 | ) | |
| 2,179 | | |
| (48 | ) |
Cash - Beginning of Period | |
| 1,861 | | |
| 3,788 | | |
| 3,788 | | |
| 1,609 | | |
| 1,657 | |
Cash - End of Period | |
$ | 325 | | |
$ | 6,520 | | |
$ | 1,861 | | |
$ | 3,788 | | |
$ | 1,609 | |
Q1 COMERCIAL DE ROUPAS S.A.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF CASH FLOWS, continued
(in thousands)
| |
For The Nine Months Ended | | |
For The Years Ended | |
| |
September
30, | | |
December
31, | |
| |
2015 | | |
2014 | | |
2014 | | |
2013 | | |
2012 | |
| |
(unaudited) | | |
(unaudited) | | |
| | |
| | |
| |
Supplemental
Disclosures of Cash Flow Information: | |
| | |
| | |
| | |
| | |
| |
Interest
paid | |
$ | 8,826 | | |
$ | 22,821 | | |
$ | 48,430 | | |
$ | 37,511 | | |
$ | 26,347 | |
Income
taxes paid | |
$ | - | | |
$ | 948 | | |
$ | 1,260 | | |
$ | 21 | | |
$ | 68 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Non-Cash
Investing and Financing Activity: | |
| | | |
| | | |
| | | |
| | | |
| | |
Assets
acquired under capital lease obligations | |
$ | 87 | | |
$ | 772 | | |
$ | 755 | | |
$ | 41 | | |
$ | 27 | |
Q1
COMERCIAL DE ROUPAS S.A. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
(in
thousands, except share amounts)
| 1. | Business
Organization and Nature of Operations |
Q1
Comercial de Roupas S.A, (“Q1 Comercial” and together with its subsidiaries “the Company” or “Grupo
Colombo”) was formed in 1917 as a ready-made clothing distributor. Grupo Colombo currently operates 397 stores in 26 Brazilian
states. Grupo Colombo is headquartered at Av Historiador Rubens de Mendonça, 1894, Brazil, and its primary office is located
at 119 Rua São Tomé, in São Paulo, Brazil.
Q1
Comercial operates through the following four subsidiaries (together, the “Operating Subsidiaries”): ADM Comércio
de Roupas Ltda. ("ADM”), AMD Comércio de Roupas Ltda. ( "AMD" ), and Q1 Comercial de Roupas da Amazônia
Ltda. ("Q1 Amazônia " ), which purchase ready-made clothing for subsequent distribution, and Q1 Serviço
e Recebimento Ltda. ("Q1 Service") which provides administrative services to support the Company's financial operations.
| 2. | Liquidity
and Management’s Plans |
The
Company’ s cash requirements relate primarily to working capital needed to operate and grow the business, including funding
operating expenses, growth in inventory, and continued expansion. The ability to achieve profitability and meet future liquidity
needs and capital requirements will depend upon numerous factors, including the timing and quantity of product and timing and
costs of product sourcing requirements; the timing and amount of operating expenses, including marketing and staff expenses, and
the timing and costs of store expansions, as well as any changes in strategy or planned activities.
The
Company has recurring net losses, a working capital deficiency as of September 30, 2015, December 31, 2014 and 2013 of $178,984,
$201,481 and $231,383, respectively, and cash used in operations of $44,996, $38,078, $53,839, $19,375 and $12,129 for the nine
months ended September 30, 2015 and 2014, and the years ended December 31, 2014, 2013 and 2012, respectively. In addition, as
of September 30, 2015, the Company has an accumulated deficit of $385,579. These conditions raise substantial doubt about the
Company’s ability to continue as a going concern.
The
consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United
States of America (“U.S. GAAP”), which contemplate continuation of the Company as a going concern and the realization
of assets and satisfaction of liabilities in the normal course of business. The ability of the Company to continue its operations
is dependent on management’s plans, which include the raising of capital through debt and/or equity markets with some additional
funding from other traditional financing sources, including term notes, until such time that funds provided by operations are
sufficient to fund working capital requirements. If the Company were not to continue as a going concern, it would likely not be
able to realize its assets at values comparable to the carrying value or the fair value estimates reflected in the balances set
out in the consolidated financial statements.
Q1
COMERCIAL DE ROUPAS S.A. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
(in
thousands, except share amounts)
| 2. | Liquidity
and Management’s Plans, continued |
There
can be no assurance that the Company will be successful in generating additional cash from equity or other sources to be used
for operations. The consolidated financial statements do not include any adjustments relating to the recoverability of assets
and classification of assets and liabilities that might be necessary. Based on the Company’s current resources, the Company
will not be able to continue to operate without additional funding. Should the Company not be successful in obtaining the necessary
financing to fund its operations, the Company will need to curtail certain or all operational activities and/or contemplate the
sale of its assets if necessary.
See
footnote 19 for discussion of proposed merger.
| 3. | Summary
of Significant Accounting Policies |
Basis
of Presentation and Principles of Consolidation
The
accompanying consolidated financial statements include all of the accounts of the Company and its consolidated subsidiaries. All
significant intercompany balances and transactions have been eliminated in the consolidated financial statements.
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates on historical
experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the
basis for making judgements about the carrying values of assets and liabilities that are not readily apparent from other sources.
The most significant estimates included: revenue recognition, inventory valuation and obsolescence; valuation and recoverability
of long-lived assets, including the values assigned to intangible assets, other assets (including lease rights), and property
and equipment; fair value calculations, including contingencies, including accruals for the outcome of current litigation and
assessments and income taxes, including uncertain income tax positions and recoverability of deferred income taxes and any limitations
as to net operating losses (“NOL”). Actual results could differ from these estimates.
Q1
COMERCIAL DE ROUPAS S.A. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
(in
thousands, except share amounts)
| 3. | Summary
of Significant Accounting Policies, continued |
Foreign
Currency Translation
The
Company’s functional currency is the Brazilian Real and its reporting currency is the United States Dollar. There has been
a steady devaluation of the Brazilian Real relative to the United States Dollar in recent years. Assets and liabilities are translated
into U.S. dollars using the exchange rate at the balance sheet date (0.2481, 0.3722 and 0.4232 at September 30, 2015, and December
31, 2014, and 2013, respectively) and revenue and expense accounts are translated at the weighted average exchange rate for the
period or for the year then ended (0.3202 and 0.4367 for the nine months ended September 30, 2015 and 2014, respectively and 0.4257,
0.4645 and 0.5133 for the years ended December 31, 2014, 2013 and 2012, respectively). Resulting translation adjustments are made
directly to accumulated other comprehensive income (loss). Losses arising from exchange rate fluctuations on transactions denominated
in a currency other than the functional currency of $0 and $38 for the nine months ended September 30, 2015 and 2014, respectively,
and $37, $1,571 and $697 for years ended December 31, 2014, 2013 and 2012, respectively, are recognized within other income (expense)
in the consolidated statements of operations.
Investments
Investments
represent securities purchased under agreements to resell, which are accounted for as collateralized financing transactions and
are recorded at their contracted resale or repurchase amount. The Company earns interest over the term of the agreements, which
is reflected in Interest income in the Consolidated Statements of Operations on an accrual basis. The investments mature at various
dates through 2036; however, the Company has the ability to redeem such investments earlier than the stated maturity dates. The
Company makes such purchases and related redemptions on a daily basis, including redemption of any earned interest. The company
is subject to Imposto de Renda Retido na Fonte (“IRRF”) tax which is withheld from the proceeds of the redemptions.
The tax withheld may then be available as a tax credit to the Company in its annual tax filings.
Accounts
Receivable
The
Company’s accounts receivable are primarily from vendors tasked with accepting credit card payments
for purchases from its customers and are reported at the amount due from the vendor. Due to the nature of these funds, the Company
expects credit card receivables to be fully collectible. The Company also carries receivables from wholesale sales (primarily
uniforms) to other businesses. The Company does not carry any accounts receivable directly from any of its retail customers. Accounts
receivable are recorded at carrying value, which approximates fair value, net of allowances for doubtful wholesale accounts of
$0, $423, and $122 at September 30, 2015, December 31, 2014 and December 31, 2013, respectively.
Q1
COMERCIAL DE ROUPAS S.A. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
(in
thousands, except share amounts)
| 3. | Summary
of Significant Accounting Policies, continued |
Inventory
The
Company maintains inventory both on hand at its distribution facility and its retail stores that is sold in the stores and e-commerce
sites directly to consumers. Inventory is stated at the lower of cost or net realizable value, with cost primarily determined
on a weighted average basis, which approximates first-in, first-out (“FIFO”). The Company records allowances for slow
moving inventory based on historical and projected usage trends.
Prepaid
Expenses and Other Current Assets
Prepaid
expenses and other current assets include tax credits arising from the purchase of raw materials, intermediary products and packaging
materials (“Recoverable Taxes”), which can be used to offset tax obligations arising from product sales. The Company
offsets certain tax obligations against Recoverable Taxes in accordance with applicable local tax laws. In assessing the realization
of the Recoverable Taxes, management considers whether it is more likely than not that some portion or all of the Recoverable
Taxes will not be realized. Based on this assessment, management believes that Recoverable Taxes as recorded on the balance sheet
are fully realizable.
Deferred
Financing Costs
Certain costs
incurred with the issuance of debt securities are capitalized and are reported net of accumulated amortization. Amortization
is charged to interest expense over the term of the applicable debt issues, using the effective interest method.
During
2013, the Company incurred $2,867 of direct financing costs for professional and legal fees related to the issuance of the 2013
Debentures (see Note 9), which were recorded as deferred financing costs. Interest expense related to the amortization of deferred
financing costs was $294 and $401 during the nine months ended September 30, 2015 and 2014, and $521, $426 and $0 for the years
ended December 31, 2014, 2013 and 2012, respectively.
Q1
COMERCIAL DE ROUPAS S.A. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
(in
thousands, except share amounts)
| 3. | Summary
of Significant Accounting Policies, continued |
Property
and Equipment, net
Property
and equipment are stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. Construction work
in progress is recorded at cost until the corresponding asset is placed into service and depreciation begins. Depreciation is
calculated by the straight-line method based upon the estimated useful life of assets, which range from five to ten years. Leasehold
improvements are depreciated over the shorter of the estimated useful lives of the respective assets or the term of the lease.
All repair and maintenance costs are expensed as incurred.
Intangible assets,
net
Intangible
assets are shown at cost, net of accumulated amortization. Finite-lived intangible assets relate to internally developed software,
including enterprise resource planning software applications (“ERP”). Costs related to the development of ERP software,
are capitalized and recorded at cost until the corresponding ERP application is placed into service and amortization begins.
Finite-lived
assets are amortized over their useful lives, which range from 5 to 6 years, and are evaluated for impairment whenever events
or changes in circumstances indicate that their related carrying values may not be fully recoverable.
Impairment
of Long-Lived Assets
Property
and equipment, intangible assets and other long-lived assets, are evaluated for impairment on an annual basis, or whenever events
or changes in circumstances indicate that their related carrying values may not be fully recoverable. In evaluating long-lived
assets for recoverability, the Company uses its best estimate of future cash flows expected to result from the use of the asset
and its eventual disposition. To the extent that estimated future undiscounted net cash flows attributable to the asset are less
than its carrying value, an impairment loss is recognized equal to the difference between the carrying value of such asset and
its fair value.
Lease
Rights
Lease
rights are the costs incurred to acquire the right to lease a specific property. These rights can be subsequently sold to a new
tenant, or under certain conditions, be recovered from the landlord. Substantially all of the Company’s store leases were
determined to be operating leases. Lease rights are recorded at cost, are included in other assets on the consolidated balance
sheets and are amortized over the corresponding lease term. The amortization of lease rights is recorded as an occupancy cost
within operating expenses.
The
Company recorded $2,056, $1,047, $1,347, $1,844 and $143 gains on the sale of lease rights during the nine months ended September
30, 2015 and 2014 and the years ended December 31, 2014, 2013 and 2012, respectively.
Q1
COMERCIAL DE ROUPAS S.A. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
(in
thousands, except share amounts)
| 3. | Summary
of Significant Accounting Policies, continued |
Rent
Expense
Minimum
rental expense are recognized over the term of the lease. We recognize minimum rent starting when possession of the property is
taken from the landlord, which normally includes a construction period prior to store opening. When a lease contains a predetermined
fixed escalation of the minimum rent, we recognize the related rent expense on a straight-line basis and record the difference
between recognized rental expense and the amounts payable under the lease as deferred rent liability. We also may receive tenant
allowances, with the short-term portion included in accrued expenses and other current liabilities and the long-term portion included
in lease incentives and other liabilities on the Consolidated Balance Sheets. Tenant allowances are amortized as reduction to
rent expense in the Statements of Operations over the term of the lease.
Certain
leases provide for contingents rents that are not measurable at inception. These contingent rents are primarily based on a percentage
of sales that are in excess of predetermined level. These amounts are excluded from minimum rent and are included in the determination
of rent expense when it is probable that the expense have been incurred and the amount is reasonably estimable.
Vendor
Rebates
The
Company receives rebates in the form of credits from vendors based on purchases, to be utilized within 360 days from the date
of issuance. Vendor rebates and allowances are recorded as a reduction to inventory and accounts payable, and reduce cost of goods
sold as product is sold.
Income
Taxes
Income
taxes are recorded under the asset and liability method, whereby deferred tax assets and liabilities are recognized based on the
expected future tax consequences of (a) temporary differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases, and (b) net operating losses and tax credit carryforwards. A valuation allowance
is recorded when it is more likely than not that the deferred tax assets will not be realized.
Significant
judgment is required in evaluating tax positions and determining the provision for income taxes. During the ordinary course of
business, there are many transactions and calculations for which the ultimate tax determination is uncertain. Accounting standards
regarding uncertainty in income taxes provides a two-step approach to recognizing and measuring uncertain tax positions. The first
step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely
than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any.
The second step is to measure the tax benefit as the largest amount which is more than 50% likely, based solely on the technical
merits, of being sustained on examinations. The Company’s management considers many factors when evaluating and estimating
tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes.
Interest and penalties, if any, are recorded within interest expense.
Q1
COMERCIAL DE ROUPAS S.A. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
(in
thousands, except share amounts)
| 3. | Summary
of Significant Accounting Policies, continued |
Advertising
Expense
The
Company does not defer advertising expenses, but expenses them as incurred. Advertising expenses were $258 and $512 during the
nine months ended September 30, 2015 and 2014, respectively, and were $619, $1,470 and $1,282 during the years ended December
31, 2015, 2013 and 2012, respectively.
Earnings
per Share
Basic
earnings per share is computed as net income divided by the weighted average number of common shares outstanding for the period.
Diluted earnings per share is computed as net income divided by the weighted average number of common shares outstanding for the
period, including common stock equivalents. In all periods presented, basic and diluted earnings per share were the same. There
are no common stock equivalents outstanding.
Concentrations
The
Company’s concentration risk (10% or more of a total) consists primarily of cash, (the amounts of which may, at
times, exceed federally insured limits), accounts receivable (including credit card receivables) and concentrations with
primary vendors (vendors accounting for 10% or more of the Company’s inventory purchases).
During
the nine months ended September 30, 2015 three vendors accounted for 23%, 22% and 10% of the Company’s inventory purchases
and during the nine months ended September 30, 2014 two vendors accounted for 21%, and 11% of the Company’s inventory purchases.
Primary vendors during the years ended December 31, 2014, 2013 and 2012 were as follows. During 2014: two vendors with 20% and
11%; during 2013: three vendors with 17%, 15% and 13% and during 2012: one vendor with 63% of the Company’s inventory purchases.
The
Company maintains cash with major financial institutions in Brazil. Cash held in Brazilian banks are insured by the Fundo Garantido
de Credito (the Credit Guarantee Fund or “FGC”) for up to R$ 250,000 (Brazilian reais) at each bank. There were aggregate
uninsured cash balances of $234, $1,963 and $3,301 as of September 30, 2015, December 31, 2014 and 2013, respectively.
The
Company’s accounts receivable are primarily from vendors tasked with accepting credit card payments
for purchases from its customers. During the nine months ended September 30, 2015, two such vendors accounted for 52% and 13%
of gross accounts receivable and during the nine months ended September 30, 2014, two vendors accounted for 22%, and 21% of gross
accounts receivable. During the year ended December 31, 2014, two vendors accounts for 52% and 12%, during the year ended December
31, 2013 one vendor accounted for 54% of gross accounts receivable, and during the year ended December 31, 2012, one vendor accounted
for 89% of gross accounts receivable.
Q1
COMERCIAL DE ROUPAS S.A. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
(in
thousands, except share amounts)
| 3. | Summary
of Significant Accounting Policies, continued |
Capital
Leases
The
Company leases certain equipment and facilities, including all of its retail locations. Leases without substantial transfer to
the Company of all risks and benefits relating to the ownership of an asset are classified as operating leases. If the terms of
the lease transfer substantively all of the risks and benefits relating to ownership of the leased asset to the lessee, the Company
records the asset and the related capital lease obligation on the consolidated balance sheets. Obligations under capital leases
are amortized over the lease term using the effective interest method. Assets held under capital leases are depreciated over their
useful lives.
Revenue
Recognition
Revenue
is recognized by the Company when there is persuasive evidence of an arrangement, delivery has occurred (and risks and rewards
of ownership have been transferred to the buyer), price has been fixed or is determinable, and collectability is reasonably assured.
Retail store revenue is recognized at the point of sale in retail stores.
Fair
Value of Financial Instruments
Fair
value is the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between
market participants at the measurement date. In determining fair value, the Company often utilizes certain assumptions that market
participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs
to the valuation technique. These inputs can be readily observable, market corroborated, or developed by the Company. The fair
value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities
carried at fair value are classified and disclosed in one of the following three categories:
Level
1 - Valued based on quoted prices at the measurement date for identical assets or liabilities trading in active markets. Financial
instruments in this category generally include actively traded equity securities.
Level
2 - Valued based on (a) quoted prices for similar assets or liabilities in active markets; (b) quoted prices for identical or
similar assets or liabilities in markets that are not active; (c) inputs other than quoted prices that are observable for the
asset or liability; or (d) from market corroborated inputs. Financial instruments in this category include certain corporate equities
that are not actively traded or are otherwise restricted.
Level
3 - Valued based on valuation techniques in which one or more significant inputs is not readily observable. Included in this category
are certain corporate debt instruments, certain private equity investments, and certain commitments and guarantees.
Q1
COMERCIAL DE ROUPAS S.A. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
(in
thousands, except share amounts)
| 3. | Summary
of Significant Accounting Policies, continued |
Fair
Value of Financial Instruments, continued
The
Company bases its fair value determinations of the carrying value of financial assets and liabilities on an evaluation of their
particular facts and circumstances and valuation techniques that require judgments and estimates. The Company’s Chief Financial
Officer is responsible for the review and approval of inputs and assumptions related to the fair value measurements. Valuation
techniques used to measure fair value maximize the use of relevant observable inputs and minimize the use of unobservable inputs.
The fair value hierarchy gives the highest priority to observable inputs such as quoted prices in active markets for identical
assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The level in the fair value hierarchy
within which the fair value measurement falls is determined based on the lowest level input that is significant to the valuation
technique.
The
following table summarizes the Company's financial assets and liabilities that were measured and recorded at fair value on a recurring
basis:
|
As of December 31, 2013 | |
Level 1 | | |
Level 2 | | |
Level 3 | |
|
Foreign currency exchange contracts | |
$ | - | | |
$ | 1,127 | | |
$ | - | |
The
carrying amounts reflected in the consolidated balance sheets for cash, investments, accounts receivable, accounts payable, accrued
expenses and debentures payable and capital lease obligations approximate the respective fair value due to the short-term maturities
of these items.
Derivative
Financial Instruments
In
2013, the Company entered into foreign currency exchange contracts to reduce its risk related to exchange rate fluctuations, which
matured in January 2014. To the extent forward foreign currency exchange contracts designated as cash flow hedges are highly
effective in offsetting changes in the value of the hedged item, the related gains or losses were initially deferred in equity
as a component of accumulated other comprehensive income ("AOCI") and were recognized in earnings, within other income
(expense), in the period that the hedged liability was settled. Derivative assets and liabilities are recorded at fair value and
are classified in other assets or accrued expenses and other current liabilities, respectively.
Q1
COMERCIAL DE ROUPAS S.A. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
(in
thousands, except share amounts)
| 3. | Summary
of Significant Accounting Policies, continued |
Recent
Accounting Pronouncements
In
May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2014-09, “Revenue from Contracts with Customers,” (“ASU 2014-09”). ASU 2014-09 supersedes the revenue
recognition requirements in ASC 605 and most industry-specific guidance throughout ASC 605. The standard requires that an entity
recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration
to which the company expects to be entitled in exchange for those goods or services. ASU 2014-09 is effective on January 1, 2017
and should be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of
initially applying ASU 2014-09 recognized at the date of initial application. The Company is currently evaluating the impact of
the adoption of ASU 2014-09 on its consolidated financial position and results of operations.
On
August 2014, the FASB issued Accounting Standard Update No. 2014-15, Presentation of Financial Statements - Going Concerns (Subtopic
205-40): Disclosures of Uncertainties about an Entity's Ability to Continue as a Going Concern. The amendments require management
to assess an entity's ability to continue as a going concern by incorporating and expanding upon certain principles that are currently
in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an
evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management's
plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management's plans,
(5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment
for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in
this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter.
Early application is permitted. The Company is currently evaluating the impact of the adoption of ASU 2014-15 on its consolidated
financial position and results of operations.
In
February 2015, the FASB issued Accounting Standards Update (“ASU”) No. 2015-2 “Consolidation” (“ASU
2015-2”). ASU 2015-2 includes amendments that are intended to improve targeted areas of consolidation for legal entities
including reducing the number of consolidation models from four to two and simplifying the FASB Accounting Standards Codification (“ASC”). The
provisions of ASU 2015-2 are effective for annual reporting periods beginning after December 15, 2015. The
amendments may be applied retrospectively in previously issued financial statements for one or more years with a cumulative effect
adjustment to retained earnings as of the beginning of the first year restated. Early adoption is permitted. The Company
is currently evaluating the impact that the adoption of ASU 2015-2 will have on its financial position, results of operation,
cash flows and financial disclosures.
Q1
COMERCIAL DE ROUPAS S.A. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
(in
thousands, except share amounts)
| 3. | Summary
of Significant Accounting Policies, continued |
Recent
Accounting Pronouncements, continued
In
April 2015, the FASB issued ASU No. 2015-03, “Interest - Imputation of Interest (Topic 835): Simplifying the Presentation
of Debt Issuance Costs,” (“ASU 2015-03”). This ASU will require that debt issuance costs are presented
as a direct deduction to the related debt in the liability section of the balance sheet, rather than presented as an asset. ASU
2015-03 will be effective for annual periods beginning after December 15, 2015, and interim periods within those years. Earlier
adoption is permitted. The adoption of this standard is not expected to have a significant impact on the Company’s financial
statements, other than presentation.
In
July 2015, the FASB issued ASU No. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory,” (“ASU
2015-11”). ASU 2015-11 amends the existing guidance to require that inventory should be measured at the lower of cost and
net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably
predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using
last-in, first-out or the retail inventory method. ASU 2015-11 is effective for fiscal years beginning after December 15, 2016,
including interim periods within those fiscal years. The Company does not anticipate that the adoption of this standard will have
a material impact on its consolidated financial statements.
In
November 2015, the FASB issued ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes.” (“ASU
2015-17”). The ASU requires entities to classify deferred tax liabilities and assets as noncurrent in a classified statement
of financial position. This ASU is effective for fiscal years beginning after December 15, 2016, and interim periods within those
annual periods. Early adoption is permitted for all entities as of the beginning of an interim or annual reporting period. The
adoption of this guidance by the Company is not expected to have a material impact on its consolidated financial statements.
Q1
COMERCIAL DE ROUPAS S.A. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
(in
thousands, except share amounts)
The Company's
inventory consists primarily of finished goods held for resale, net of an allowance for slow moving inventory. All inventory is
pledged as collateral of the Company’s debt at September 30, 2015 and December 31, 2014 and 2013.
The
following table details the Company’s inventory at September 30, 2015, December 31, 2014 and December 31, 2013:
|
| |
September 30, | | |
December 31, | |
|
| |
2015 | | |
2014 | | |
2013 | |
|
| |
(unaudited) | | |
| | |
| |
|
Clothing | |
$ | 50,042 | | |
$ | 95,010 | | |
$ | 102,791 | |
|
Packaging materials | |
| 2,215 | | |
| 3,677 | | |
| 2,445 | |
|
Allowances for slow moving inventory | |
| (5,339 | ) | |
| (7,317 | ) | |
| (8,398 | ) |
|
| |
$ | 46,918 | | |
$ | 91,370 | | |
$ | 96,838 | |
5. |
Prepaid
Expenses and Other Current Assets |
Prepaid
expenses and other current assets consist of the following:
|
| |
September 30, | | |
December
31, | |
|
| |
2015 | | |
2014 | | |
2013 | |
|
| |
(unaudited) | | |
| | |
| |
|
ICMS
tax recoverable | |
$ | 6,140 | | |
$ | - | | |
$ | 722 | |
|
PIS/Cofins
tax recoverable | |
| 2,742 | | |
| 14 | | |
| 945 | |
|
Corporate
income tax recoverable | |
| 1,751 | | |
| 2,628 | | |
| 4,666 | |
|
Other
recoverable taxes | |
| 35 | | |
| 34 | | |
| 188 | |
|
Deferred
financing costs, current portion | |
| 773 | | |
| 1,501 | | |
| 2,223 | |
|
Prepaid
insurance | |
| 42 | | |
| 36 | | |
| 84 | |
|
Foreign
currency exchange contracts | |
| - | | |
| - | | |
| 1,127 | |
|
Receivables
from sale of assets | |
| 2,097 | | |
| 3,707 | | |
| - | |
|
| |
$ | 13,580 | | |
$ | 7,920 | | |
$ | 9,955 | |
Q1
COMERCIAL DE ROUPAS S.A. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
(in
thousands, except share amounts)
6. |
Property
and Equipment, net |
Property
and equipment, net, consists of the following:
|
| |
September 30, | | |
December
31, | |
|
| |
2015 | | |
2014 | | |
2013 | |
|
| |
(unaudited) | | |
| | |
| |
|
Leasehold
improvements | |
$ | 43,386 | | |
$ | 64,246 | | |
$ | 47,992 | |
|
Machines
and equipment | |
| 830 | | |
| 1,246 | | |
| 1,346 | |
|
Computer
hardware | |
| 3,271 | | |
| 4,625 | | |
| 4,952 | |
|
Furniture
and fixtures | |
| 1,165 | | |
| 1,719 | | |
| 1,899 | |
|
Vehicles | |
| 300 | | |
| 445 | | |
| 506 | |
|
Store
fixtures | |
| 1,010 | | |
| 1,508 | | |
| 1,485 | |
|
Construction
work in progress | |
| 2,318 | | |
| 5,141 | | |
| 9,723 | |
|
| |
| 52,280 | | |
| 78,930 | | |
| 67,903 | |
|
Less:
Accumulated depreciation | |
| (15,782 | ) | |
| (19,288 | ) | |
| (15,118 | ) |
|
Property
and equipment, net | |
$ | 36,498 | | |
$ | 59,642 | | |
$ | 52,785 | |
Depreciation
and amortization of property and equipment was $4,210 and $4,801 for the nine months ended September 30, 2015 and 2014, respectively,
and was $6,305, $5,562 and $4,347, for the years ended December 31, 2014, 2013 and 2012 respectively. The gross cost of property
and equipment declined during the nine months ended September 30, 2015 due to the devaluation of the Brazilian Real relative to
the United States dollar.
Q1
COMERCIAL DE ROUPAS S.A. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
(in
thousands, except share amounts)
Intangible
assets, net are comprised of the following:
|
| |
Other
Software | | |
ERP
Software | | |
Accumulated
Amortization | | |
Total | |
|
Balance as
of December 31, 2011 | |
$ | 2,781 | | |
$ | - | | |
$ | (596 | ) | |
$ | 2,185 | |
|
Additions | |
| 756 | | |
| - | | |
| - | | |
| 756 | |
|
Amortization
expense | |
| - | | |
| - | | |
| (624 | ) | |
| (624 | ) |
|
Effect
of exchange rate fluctuations | |
| (285 | ) | |
| - | | |
| 84 | | |
| (201 | ) |
|
Balance as
of December 31, 2012 | |
| 3,252 | | |
| - | | |
| (1,136 | ) | |
| 2,116 | |
|
Additions | |
| 98 | | |
| - | | |
| - | | |
| 98 | |
|
Amortization
expense | |
| - | | |
| - | | |
| (623 | ) | |
| (623 | ) |
|
Effect
of exchange rate fluctuations | |
| (440 | ) | |
| - | | |
| 205 | | |
| (235 | ) |
|
Balance as
of December 31, 2013 | |
| 2,910 | | |
| - | | |
| (1,554 | ) | |
| 1,356 | |
|
Additions | |
| - | | |
| 2,105 | | |
| - | | |
| 2,105 | |
|
Disposals | |
| (58 | ) | |
| - | | |
| - | | |
| (58 | ) |
|
Amortization
expense | |
| - | | |
| - | | |
| (759 | ) | |
| (759 | ) |
|
Effect
of exchange rate fluctuations | |
| (344 | ) | |
| (264 | ) | |
| 284 | | |
| (324 | ) |
|
Balance as
of December 31, 2014 | |
| 2,508 | | |
| 1,841 | | |
| (2,029 | ) | |
| 2,320 | |
|
Additions | |
| 83 | | |
| 1,073 | | |
| - | | |
| 1,156 | |
|
Amortization
expense | |
| - | | |
| - | | |
| (627 | ) | |
| (627 | ) |
|
Effect
of exchange rate fluctuations | |
| (855 | ) | |
| (856 | ) | |
| 817 | | |
| (894 | ) |
|
Balance
as of September 30, 2015 (unaudited) | |
$ | 1,736 | | |
$ | 2,058 | | |
$ | (1,839 | ) | |
$ | 1,955 | |
|
Weighted
average remaining amortization period at September 30,
2015 | |
| 2.3 | | |
| 4.2 | | |
| | | |
| 2.3 | |
The
estimated future amortization of ERP and software as of December 31, 2014 is as follows:
|
For the years ending December 31, | |
Other Software | | |
ERP Software | | |
Total | |
|
2015 | |
$ | 512 | | |
$ | 368 | | |
$ | 880 | |
|
2016 | |
| 125 | | |
| 368 | | |
| 493 | |
|
2017 | |
| 16 | | |
| 368 | | |
| 384 | |
|
2018 | |
| 10 | | |
| 368 | | |
| 378 | |
|
2019 | |
| - | | |
| 185 | | |
| 185 | |
|
Total | |
$ | 663 | | |
$ | 1,657 | | |
$ | 2,320 | |
Q1
COMERCIAL DE ROUPAS S.A. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
(in
thousands, except share amounts)
Other
assets consist of deposits of $178, $344 and $475 at September 30, 2015, December 31, 2014 and 2013, respectively, as well as
lease rights which are comprised of the following:
|
| |
Lease
Rights | | |
Accumulated
Amortization | | |
Total | |
|
Balance as
of December 31, 2011 | |
$ | 50,818 | | |
$ | (39,182 | ) | |
$ | 11,636 | |
|
Additions | |
| 9,049 | | |
| - | | |
| 9,049 | |
|
Disposals | |
| (155 | ) | |
| 118 | | |
| (37 | ) |
|
Amortization
expense | |
| - | | |
| (4,676 | ) | |
| (4,676 | ) |
|
Effect
of exchange rate fluctuations | |
| (4,964 | ) | |
| 3,715 | | |
| (1,248 | ) |
|
Balance as
of December 31, 2012 | |
| 54,748 | | |
| (40,025 | ) | |
| 14,723 | |
|
Additions | |
| 6,429 | | |
| - | | |
| 6,429 | |
|
Disposals | |
| (1,624 | ) | |
| 1,504 | | |
| (120 | ) |
|
Amortization
expense | |
| - | | |
| (4,549 | ) | |
| (4,549 | ) |
|
Effect
of exchange rate fluctuations | |
| (7,697 | ) | |
| 5,585 | | |
| (2,111 | ) |
|
Balance as
of December 31, 2013 | |
| 51,856 | | |
| (37,485 | ) | |
| 14,372 | |
|
Additions | |
| 3,870 | | |
| - | | |
| 3,870 | |
|
Disposals | |
| (1,446 | ) | |
| 743 | | |
| (703 | ) |
|
Amortization
expense | |
| - | | |
| (4,251 | ) | |
| (4,251 | ) |
|
Effect
of exchange rate fluctuations | |
| (6,554 | ) | |
| 4,959 | | |
| (1,596 | ) |
|
Balance as
of December 31, 2014 | |
| 47,726 | | |
| (36,034 | ) | |
| 11,692 | |
|
Additions | |
| 180 | | |
| - | | |
| 180 | |
|
Disposals | |
| (2,878 | ) | |
| 2,056 | | |
| (822 | ) |
|
Amortization
expense | |
| - | | |
| (1,992 | ) | |
| (1,992 | ) |
|
Effect
of exchange rate fluctuations | |
| (15,305 | ) | |
| 11,998 | | |
| (3,307 | ) |
|
Balance
as of September 30, 2015 (unaudited) | |
$ | 29,723 | | |
$ | (23,972 | ) | |
$ | 5,751 | |
|
| |
| | | |
| | | |
| | |
|
Weighted
average remaining amortization period at September 30, 2015 | |
| 3.4 | | |
| | | |
| | |
Q1
COMERCIAL DE ROUPAS S.A. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
(in
thousands, except share amounts)
| 8. | Other
assets, net, continued |
The
Company recognized occupancy costs related to the amortization of lease rights of $1,992 and $3,215 for the nine months ended September
30, 2015 and 2014, respectively, and $4,251, $4,549, and $4,676 during the years ended December 31, 2014, 2013, and 2012, respectively.
The
estimated future amortization of lease rights as of December 31, 2014 is as follows:
|
For
the years ending December 31, | |
| |
|
2015 | |
$ | 3,135 | |
|
2016 | |
| 2,932 | |
|
2017 | |
| 2,683 | |
|
2018 | |
| 1,753 | |
|
2019 | |
| 988 | |
|
Thereafter | |
| 201 | |
|
Total | |
$ | 11,692 | |
Working
Capital Loans
The
Company has working capital loans from several local financial institutions, which are secured by stockholders’ properties
and surety bonds, as well as the Company’s investments, inventories and credit card receivables. The Company is required
to comply with certain financial and non-financial covenants in connection with the working capital loans. As of September 30,
2015, December 31, 2014 and 2013 the Company was not in compliance with these covenants and, as a result, the working capital
loans were payable on demand, and are included in current liabilities in accompanying consolidated balance sheets at September
30, 2015, December 31, 2014 and 2013.
Interest
rates related to the working capital loans range from 0.25% plus CDI (the Brazilian interbank deposit certificate rate) to 8.696%
per month. The working capital loans expire at various dates through 2019.
Q1
COMERCIAL DE ROUPAS S.A. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
(in
thousands, except share amounts)
Debentures
On
March 28, 2013, the Company repaid various short term indebtedness with various financial institutions by issuing debentures to
different financial institutions (the “2013 Debentures”) totaling $185,663, which mature on April 2, 2018. The 2013
Debentures bore semi-annual interest at the CDI rate, plus 3.3%. Principal on the 2013 Debentures was payable in three equal installments
due in April 2016, April 2017 and April 2018. The debentures were secured by 20% of the Company’s accounts receivable and/or
investments. The Company incurred $2,867 of financing costs in connection with the issuance of the 2013 Debentures, which were
deferred are recorded in other current assets on the accompany consolidated balance sheet. The deferred financing costs are amortized
over the term of the related debt, using the effective interest rate method. Amortization of deferred financing costs was $294,
$521 and $426 for the nine months ended September 30, 2015 and the years ended December 31, 2014 and 2013, respectively. Unamortized
deferred financing costs are $772, $1,501 and $2,223 as of September 30, 2015, December 31, 2014 and 2013 respectively.
Pursuant
to the 2013 Debentures agreement, the Company was required to comply with certain financial and non-financial covenants in connection
with the issuance. Pursuant to the terms of the debt agreements financial information relating to covenant compliance is compiled
based upon accounting principles generally accepted in Brazil (“Brazilian GAAP”), and must be provided annually within
90 days of year end. As of December 31, 2013, the Company was not in compliance with its debt covenant; as a result the 2013 Debentures
were payable on demand, and are included in current liabilities in accompanying consolidated balance sheet at December 31, 2013.
On
September 15, 2014, the Company issued debentures (the “2014 Debentures”) totaling, in the aggregate $173,216. Of
the total proceeds, $162,300 was used to pay off the entire outstanding balance of the 2013 Debentures, in order to extend the
maturity of, and reduce the interest rates on the Company’s debt. (The outstanding balance on the 2013 Debentures as stated
in U.S. dollars decreased from the March 28, 2013 issuance date due to changes in the currency exchange rate). The 2014 Debentures
bear interest at the CDI rate, plus 3.07% per annum, payable semi-annually. Principal on the 2014 Debentures is payable in three
equal installments due December 31, 2017, December 31, 2018 and June 30, 2019. The debentures are secured by 15% of the Company’s
accounts receivable and/or investments. It was determined that the issuance of the 2014 Debentures was not a substantial modification
of debt pursuant to ASC 470, because the cash flow effect of the exchange of 2014 Debentures for the 2013 Debentures was less
than 10 percent. Accordingly, the deferred financing cost are amortized over the remaining term of the refinanced debt.
Q1
COMERCIAL DE ROUPAS S.A. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
(in
thousands, except share amounts)
Debentures,
continued
Pursuant
to the 2014 Debentures agreement, the Company was required to comply with certain financial and non-financial covenants in connection
with the issuance in Brazilian GAAP. As of September 30, 2015 and December 31, 2014, the Company was not in compliance with this
debt covenant. On August 7, 2015 the Company received a waiver from the 2014 Debenture holders related to historical
non-compliance with the debt covenant, which expired on September 10, 2015. The Company is expecting to receive a further extension
of default; however, there can be no assurance that such further extensions will be obtained. Debenture obligations have been
classified as current obligations on the consolidated balance sheets, as they are determined to be payable on demand.
Principal
outstanding on the debentures as of September 30, 2015 and December 31, 2014 and 2013, is as follows:
|
| |
September 30, | | |
December
31, | |
|
| |
2015 | | |
2014 | | |
2013 | |
|
| |
(unaudited) | | |
| | |
| |
|
2013 Debentures | |
$ | - | | |
$ | - | | |
$ | 158,700 | |
|
2014 Debentures | |
| 99,295 | | |
| 148,962 | | |
| - | |
|
Other | |
| 14,886 | | |
| 22,332 | | |
| 25,392 | |
|
Total | |
$ | 114,181 | | |
$ | 171,294 | | |
$ | 184,092 | |
The
decrease in the balances of the debentures from their date of issuance is the result of exchange rate fluctuations, and is recorded
in other comprehensive income (loss).
Interest
on debt
The
Company incurred interest expense on debentures and working capital loans of $26,812, $26,439 and $37,248, $27,676 and $36,188
for the nine months ended September 30, 2015 and 2014 and for the years ended December 31, 2014, 2013 and 2012, respectively.
Q1
COMERCIAL DE ROUPAS S.A. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
(in
thousands, except share amounts)
10. |
Obligations
under Capital Leases |
The
Company has entered into capital lease agreements with certain store lessors for its sales facilities. The lease payment amounts
are the higher of the minimum rental amount or, in some cases, a percentage of store sales, as indicated in the applicable lease
agreement.
Minimum
annual future lease payments under capital leases as of December 31, 2014 are as follows:
|
For
the years ending | |
| |
|
December
31, | |
| |
|
2015 | |
$ | 352 | |
|
2016 | |
| 358 | |
|
2017 | |
| 85 | |
|
Total | |
$ | 795 | |
On
December 29, 2014, the Company received loans from two shareholders of the Company, totaling, in the aggregate, $3,743. The loans
are non-interest bearing, and were due in their entirety on the original maturity date of June 27, 2015, which was subsequently
extended to December 24, 2015.
On
March 17, 2015 the Company received loans from two shareholders of the Company, totaling, in the aggregate, $1,312. The loans
are non-interest bearing, and were due in their entirety on the original maturity date of September 13, 2015, which was subsequently
extended to March 11, 2016.
On
April 6, 2015, the Company received a $963 non-interest bearing loan from a shareholder of the Company originally due in its entirety
on October 3, 2015. The maturity date was subsequently extended to March 31, 2016.
During
the three months ended September 30, 2015, the Company received loans from two shareholders of the Company, totaling, in the aggregate,
$4,794. The loans are non-interest bearing and are due in their entirety six months from the date of issuance.
As
of September 20, 2015 and December 31, 2014 the aggregate amount outstanding on the stockholders’ loans was $7,435 and $3,718,
respectively. No amounts have been repaid related to the shareholder loans. The variation in the balances of the loans from their
date of issuance is the result of exchange rate fluctuations, which is recorded in other comprehensive income (loss).
Q1
COMERCIAL DE ROUPAS S.A. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
(in
thousands, except share amounts)
Tax
obligations include the following at September 30, 2015, December 31, 2014 and December 31, 2013:
|
| |
September 30, | | |
December
31, | |
|
| |
2015 | | |
2014 | | |
2013 | |
|
| |
(unaudited) | | |
| | |
| |
|
ICMS
tax payable | |
$ | - | | |
$ | 2,174 | | |
$ | - | |
|
PIS/Cofins
tax payable | |
| 8,981 | | |
| 5,450 | | |
| 1,112 | |
|
Corporate
income taxes payable | |
| 2,967 | | |
| 4,470 | | |
| 814 | |
|
Other
taxes payable | |
| 66 | | |
| 116 | | |
| 2,512 | |
|
subtotal | |
| 12,014 | | |
| 12,210 | | |
| 4,438 | |
|
Current
portion of financed tax obligations | |
| 2,729 | | |
| 4,319 | | |
| 4,282 | |
|
Total
tax obligations, current portion | |
$ | 14,743 | | |
$ | 16,529 | | |
$ | 8,720 | |
In
addition, during the years ended December 31, 2014 and 2013 the Company financed $9,585 and $10,719, respectively of ICMS (sales
tax) and INSS (payroll tax) obligations under the Brazil tax amnesty programs. Such tax obligations are financed for terms ranging
up to sixty months, with monthly interest rates up to a maximum of the Brazil SELIC rate plus 1%, expiring at various dates through
September 2016. During the nine months ended September 30, 2015, the Company incurred $12,138 of finance charges resulting from
a default on payment of financed tax obligations, During the nine months ended September 30, 2015 and 2014, and the years ended
December 310, 2014, 2013 and 2012, the Company incurred $6,806 $5,281, $5,604, $1,520 and 1,838 of interest charges related to
these financed tax obligations.
Financed
tax obligations are comprised of the following:
|
| |
September 30, | | |
December
31, | |
|
| |
2015 | | |
2014 | | |
2013 | |
|
| |
(unaudited) | | |
| | |
| |
|
ICMS
tax payable | |
$ | 2,015 | | |
$ | 18,627 | | |
$ | 11,195 | |
|
INSS
tax payable | |
| 3,757 | | |
| 5,883 | | |
| 6,432 | |
|
Total
finance tax obligations | |
| 5,772 | | |
| 24,510 | | |
| 17,627 | |
|
Less:
current portion | |
| (2,729 | ) | |
| (4,319 | ) | |
| (4,282 | ) |
|
Total
tax obligations, non-current | |
$ | 3,043 | | |
$ | 20,191 | | |
$ | 13,345 | |
Q1
COMERCIAL DE ROUPAS S.A. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
(in
thousands, except share amounts)
| 12. | Tax
Obligations, continued |
As
of December, 31, 2014, the future minimum payments of these outstanding tax obligations are as follows:
|
For
the years ending | |
| |
|
December
31, | |
| |
|
2015 | |
$ | 19,185 | |
|
2016 | |
| 2,360 | |
|
2017 | |
| 935 | |
|
2018 | |
| 935 | |
|
2019 | |
| 935 | |
|
2020 | |
| 160 | |
|
| |
$ | 24,510 | |
Current
maturities of financed tax obligations went into default during 2015. The defaulted amounts are included in the minimum payments
due during 2015 in the above table.
Accounts
payable include $15,851, $31,882 and $43,753 of financed vendor accounts payable at September 30, 2015 and December 31, 2014 and
2013, respectively. Financed vendor accounts payable are due within twelve months and have an implied interest rate of approximately
17%.
| 14. | Accrued
Expenses and Other Current Liabilities |
Accrued
expenses and other current liabilities consist of the following:
|
| |
September 30, | | |
December
31, | |
|
| |
2015 | | |
2014 | | |
2013 | |
|
| |
(unaudited) | | |
| | |
| |
|
Accrued
payroll and payroll taxes | |
$ | 5,016 | | |
$ | 5,072 | | |
$ | 5,780 | |
|
Accrued
occupancy costs | |
| 1,549 | | |
| 2,404 | | |
| 4,243 | |
|
Other
accrued expenses | |
| 105 | | |
| 472 | | |
| 1,096 | |
|
Total | |
$ | 6,670 | | |
$ | 7,948 | | |
$ | 11,119 | |
Q1
COMERCIAL DE ROUPAS S.A. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
(in
thousands, except share amounts)
The
Company is subject to Brazilian federal corporate income tax (“IRPJ”) and a social contribution tax on profits (“CSLL”)
that is levied on a taxable base that is very similar to that utilized for the federal corporate income tax. The Company files
separate stand-alone income tax returns as consolidated income tax returns are not permitted in Brazil.
The
income tax (provision) benefit for the years ended December 31, 2014, 2013 and 2012 consists of the following:
|
| |
For The Years Ended | |
|
| |
December 31, | |
|
| |
2014 | | |
2013 | | |
2012 | |
|
Federal: | |
| | |
| | |
| |
|
Current | |
$ | (4,039 | ) | |
$ | (812 | ) | |
$ | (1,496 | ) |
|
Deferred | |
| (362 | ) | |
| (2,474 | ) | |
| 5,220 | |
|
| |
| | | |
| | | |
| | |
|
Social contribution: | |
| | | |
| | | |
| | |
|
Current | |
| (1,454 | ) | |
| (293 | ) | |
| (539 | ) |
|
Deferred | |
| (130 | ) | |
| (890 | ) | |
| 1,880 | |
|
| |
| (5,985 | ) | |
| (4,469 | ) | |
| 5,065 | |
|
Change in valuation allowance | |
| (135 | ) | |
| 2,590 | | |
| (7,993 | ) |
|
Income tax provision | |
$ | (6,120 | ) | |
$ | (1,879 | ) | |
$ | (2,928 | ) |
|
| |
| | | |
| | | |
| | |
|
Current | |
| (5,493 | ) | |
| (1,105 | ) | |
| (2,035 | ) |
|
Deferred | |
| (627 | ) | |
| (774 | ) | |
| (893 | ) |
|
Total | |
| (6,120 | ) | |
| (1,879 | ) | |
| (2,928 | ) |
A
reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows:
|
| |
For
The Years Ended | |
|
| |
December
31, | |
|
| |
2014 | | |
2013 | | |
2012 | |
|
| |
| | |
| | |
| |
|
Tax
benefit at federal statutory rate | |
| 25.0 | % | |
| 25.0 | % | |
| 25.0 | % |
|
Tax
benefit at social contribution rate | |
| 9.0 | % | |
| 9.0 | % | |
| 9.0 | % |
|
Permanent
differences | |
| (4.8 | )% | |
| (6.4 | )% | |
| (3.9 | )% |
|
IRFF
tax credit | |
| (2.4 | )% | |
| (4.0 | )% | |
| (2.2 | )% |
|
Tax
on entities with taxable income | |
| (21.0 | )% | |
| (5.6 | )% | |
| (5.1 | )% |
|
Exchange
rate effect and other | |
| (0.3 | )% | |
| (0.2 | )% | |
| 2.2 | % |
|
Change
in valuation allowance | |
| (28.9 | )% | |
| (27.4 | )% | |
| (32.3 | )% |
|
Effective
income tax rate | |
| (23.4 | )% | |
| (9.6 | )% | |
| (7.3 | )% |
Q1
COMERCIAL DE ROUPAS S.A. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
(in
thousands, except share amounts)
| 15. | Income
Taxes, continued |
The
tax effects of temporary differences that give rise to deferred tax assets are presented below:
|
| |
For
The Years Ended | |
|
| |
December
31, | |
|
| |
2014 | | |
2013 | |
|
Deferred Tax
Assets: | |
| | |
| |
|
Net
operating loss carryforward | |
$ | 46,790 | | |
$ | 49,647 | |
|
Vendor
credits reserve | |
| 3,032 | | |
| 1,937 | |
|
Inventory
reserve | |
| 5,135 | | |
| 5,213 | |
|
Tax
credits | |
| 549 | | |
| 706 | |
|
Impairment
reserve | |
| - | | |
| 810 | |
|
Other
reserves | |
| 1,507 | | |
| 1,635 | |
|
Gross
deferred tax assets | |
| 57,013 | | |
| 59,948 | |
|
| |
| | | |
| | |
|
Deferred
Tax Liabilities: | |
| | | |
| | |
|
Fixed
assets | |
| (2,303 | ) | |
| (3,369 | ) |
|
Resale
of goods between related parties | |
| (851 | ) | |
| (2,855 | ) |
|
Gross
deferred tax liabilities | |
| (3,154 | ) | |
| (6,224 | ) |
|
| |
| | | |
| | |
|
Net
deferred tax assets | |
| 53,859 | | |
| 53,724 | |
|
| |
| | | |
| | |
|
Valuation
allowance | |
| (53,859 | ) | |
| (53,724 | ) |
|
| |
| | | |
| | |
|
Deferred
tax asset, net of valuation allowance | |
$ | - | | |
$ | - | |
|
| |
| | | |
| | |
|
Valuation
allowance - current period change | |
$ | (7,558 | ) | |
$ | (5,365 | ) |
|
Valuation
allowance - exchange rate effect | |
| 7,423 | | |
| 7,955 | |
|
Valuation
allowance - total change | |
$ | (135 | ) | |
$ | 2,590 | |
At
December 31, 2014 and 2013, the Company had approximately $137,619 and $146,020, respectively, of Brazilian net operating losses
(“NOLs”) that may be available to offset 30% of future taxable income per tax period, indefinitely.
The
Company assesses the likelihood that deferred tax assets will be realized. ASC 740, “Income Taxes” requires that a
valuation allowance be established when it is “more likely than not” that all, or a portion of, deferred tax assets
will not be realized. A review of all available positive and negative evidence needs to be considered, including the scheduled
reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies. After consideration of all
the information available, management believes that uncertainty exists with respect to future realization of its deferred tax
assets and has, therefore, established a full valuation allowance as of September 30, 2015, December 31, 2014 and 2013.
Q1
COMERCIAL DE ROUPAS S.A. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
(in
thousands, except share amounts)
| 15. | Income
Taxes, continued |
The
Company’s tax returns are subject to examination by tax authorities beginning with the year ended December 31, 2010.
16. |
Stockholder’s
Deficiency |
Capital
Stock
Capital
stock issued - non-related parties
The
Company’s capital stock consists of a single class of no par value common stock On April 30, 2013, the Company issued 15,560,533
shares of its common stock at $3.21 per share to an unrelated third party for cash proceeds of $49,900.
Capital
stock issued - related parties
On
April 15, 2014, the Company issued 13,705,452 shares of its common stock at $3.29 per share to companies under the control of
the Company’s founders for cash proceeds of $45,060.
Accumulated
Other Comprehensive Income
The
Company recorded foreign currency translation adjustments of $61,171 and $929 during the nine months ended September 2015 and
2014, respectively, and recorded currency translation adjustments of $16,426, $25,791 and $12,749, during the years ended December
31, 2014, 2013 and 2012, respectively, as other comprehensive income (loss).
Stock
Option Agreements
On
March 31, 2015 the shareholders of Grupo Colombo approved stock option agreements, which were executed between Grupo Colombo
and Mr. Denis Nieto Piovezan, Mrs. Marina Balaban Spiero and Mr. Thiago Chaves Ribeiro, as beneficiaries. The stock option agreements
grant 2,368,000 options to Mr. Piovezan, 473,760 options to Mrs. Balaban Spiero and 1,895,040 options to Mr. Ribeiro. Each option
is exercisable for one common share of Grupo Colombo at an exercise price of $0.31 per share. The stock option agreements provide
for a lockup period during which the shares issued upon exercise of the options may not be transferred for one to three years
(being 33.33% of the option shares transferrable after each year as of the exercise date). The options vest and become exercisable
with respect to 100% of the underlying shares upon the occurrence of a change of control of Grupo Colombo or a liquidity
event that occurs during the term of the beneficiary’s employment agreement. The option agreements also contain put right
features only available if such events occur. No compensation cost will be recognized in the consolidated financial statements
since the exercise right is contingent upon a change of control or a liquidity event.
Q1
COMERCIAL DE ROUPAS S.A. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
(in
thousands, except share amounts)
17. |
Commitments
and Contingencies |
Rent
The
Company has operating leases for certain facilities, including all of its retail locations. Certain sales facility leases provided
for contingent rents, which are determined as a percentage of revenues with a guaranteed minimum. Future minimum lease payments
under operating leases are as follows as of December 31, 2014:
|
For
the years ending | |
| |
|
December
31, | |
| |
|
2015 | |
$ | 13,681 | |
|
2016 | |
| 12,169 | |
|
2017 | |
| 9,250 | |
|
2018 | |
| 6,112 | |
|
2019 | |
| 3,175 | |
|
2020
and thereafter | |
| 3,718 | |
|
| |
$ | 48,105 | |
Occupancy
costs, including contingent rent and other charges, for the nine months ended September 30, 2015 and 2014 was $23,253 and $29,624,
respectively inclusive of amortization of lease rights of $1,992 and $3,215, respectively. Occupancy costs for the years ended
December 31, 2014, 2013 and 2012 was $38,882 $38,830 and $36,038, respectively, inclusive of amortization of lease rights of $4,251
$4,549 and $4,676 respectively.
Collective
bargaining agreement
The
Company operates under certain collective bargaining agreements, which covers most employees. Under these arrangements the Company
may be required to pay its employees compensation and related benefits, under certain conditions. No amounts have been provided
for, as the Company does not believe that any payments under these provisions are currently probable or can be estimated.
Q1
COMERCIAL DE ROUPAS S.A. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
(in
thousands, except share amounts)
17. |
Commitments
and Contingencies, continued |
Litigation
From
time to time, the Company may be subject to various legal actions arising in the ordinary course of business. Many of these legal
actions raise complex factual and legal issues, which are subject to uncertainties. Management is unable to predict with reasonable
assurance the outcome of legal actions brought against the Company. Accordingly, any settlements or resolutions in these legal
actions may occur and affect operating results in the period of such settlement or resolution.
On
February 9, 2008, the Company filed a lawsuit against Cetelem Brasil S/A Credito Financiamento E Inventimento ("Cetelem")
in the Lower Court (39A Vara Civel do Forum Joao Mendes Junior), alleging claims for breach of contract related to the Company's
credit card receivables which resulted in an aggregate of $8,897 that is owed to the Company by Cetelem, plus legal costs and
other fees. As of September 30, 2015, the amount claimed by the Company was $34,428, inclusive of legal costs and other fees.
As of the date of filing, the lawsuit is pending the decision of the judge.
On
July 8, 2008, the Company was named as a defendant in a lawsuit originally filed in the Lower Court (40A Vara Civel do Forum Joao
Mendes Junior) by Cetelem. The lawsuit alleged that the Company owed Cetelem $570 arising from the agreement between the parties.
On September 2, 2015 the court ruled in favor of Cetelem. As a result, Cetelem requested the judiciary mortgage of two real estates
owned by Mr. Alvaro Jabur Maluf, which was accepted by the court. The Company filed a recourse against the decision, which is
still pending judgment before the Superior Court. Cetelem started the execution process, claiming it was now owed $1,421, which
has been recorded by the Company as a liability, and inserted the Company's name on a public blacklist. As a result, the Company
filed two other lawsuits against Cetelem in order to remove its name from the public blacklist, both of which were denied by the
court.
The
Company records amounts associated with loss contingencies when it is both (i) probable that a loss has occurred and (ii) the
amount of the loss can be reasonably estimated in accordance with ASC 450, and has accrued for all probable and estimable
settlements.
Q1
COMERCIAL DE ROUPAS S.A. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
(in
thousands, except share amounts)
18. |
Supplemental
Operating Expense Information |
The
following table summarizes operating expenses incurred during the nine months ended September 30, 2015 and 2014, and during the
years ended December 31, 2014, 2013 and 2012.
|
| |
For
The Nine Months Ended | | |
For
The Years Ended | |
|
| |
September
30, | | |
December
31, | |
|
| |
2015 | | |
2014 | | |
2014 | | |
2013 | | |
2012 | |
|
| |
(unaudited) | | |
(unaudited) | | |
| | |
| | |
| |
|
| |
| | |
| | |
| | |
| | |
| |
|
Depreciation
and amortization | |
$ | 4,837 | | |
$ | 5,354 | | |
$ | 7,094 | | |
$ | 6,185 | | |
$ | 4,971 | |
|
Shipping
and logistics | |
| 2,706 | | |
| 5,708 | | |
| 7,707 | | |
| 7,545 | | |
| 6,554 | |
|
General
and administrative | |
| 808 | | |
| 1,554 | | |
| 2,088 | | |
| 2,557 | | |
| 2,752 | |
|
Marketing | |
| 258 | | |
| 512 | | |
| 619 | | |
| 1,470 | | |
| 1,282 | |
|
Occupancy
costs | |
| 23,253 | | |
| 29,624 | | |
| 38,882 | | |
| 38,831 | | |
| 36,038 | |
|
Payroll
and related benefits | |
| 19,462 | | |
| 27,609 | | |
| 37,768 | | |
| 35,917 | | |
| 37,920 | |
|
Professional
services | |
| 1,089 | | |
| 1,496 | | |
| 2,031 | | |
| 3,224 | | |
| 2,227 | |
|
Other | |
| 1,237 | | |
| 2,331 | | |
| 1,898 | | |
| 6,192 | | |
| 3,570 | |
|
(Gain)
loss on sale of fixed assets | |
| (1,376 | ) | |
| (1,211 | ) | |
| (1,335 | ) | |
| 406 | | |
| (11 | ) |
|
Gain
on sale of lease rights | |
| (2,056 | ) | |
| (1,047 | ) | |
| (1,347 | ) | |
| (1,844 | ) | |
| (143 | ) |
|
Total
operating expenses, net | |
$ | 50,218 | | |
$ | 71,930 | | |
$ | 95,405 | | |
$ | 100,483 | | |
$ | 95,160 | |
Proposed
Merger
General;
Structure of Business Combination
On
August 26, 2015, Garnero Group Acquisition Company, a Cayman Islands exempted company ("GGAC"), entered into an Investment
Agreement (the "Investment Agreement") by and among GGAC, Q1 Comercial de Roupas S.A., (the "Company"), Alvaro
Jabur Maluf Junior and Paulo Jabur Maluf (the "Controlling Persons") and the persons listed under the caption "Optionholder"
on the signature pages thereto (the "Optionholders").
Q1
COMERCIAL DE ROUPAS S.A. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
(in
thousands, except share amounts)
19. |
Subsequent
Events, continued |
Proposed
Merger, continued
Pursuant
to the Investment Agreement, (A) the Controlling Persons will contribute all of the issued and outstanding ordinary shares of
the Company (the "Outstanding Shares") to GGAC (the "Share Contribution") and will receive in consideration
an aggregate of 3,640,000 newly issued ordinary shares of GGAC ("GGAC Ordinary Shares") and (B) the Optionholders will
exercise certain options held by them, will contribute the underlying ordinary shares of the Company to GGAC (the "Option
Contribution," and together with the Share Contribution, the "Equity Contributions"), and will receive in consideration
an aggregate of 360,000 GGAC Ordinary Shares. At the closing of the transactions contemplated by the Investment Agreement (the
"Closing") and immediately after the completion of the Equity Contributions, GGAC will contribute to the Company, as
a capital increase, an aggregate of up to $140 million in cash (the "Capital Contribution," which, together with the
Equity Contributions, the "Contributions"), shall be used by the Company to immediately repay certain indebtedness of
the Company. In addition, the Controlling Persons have committed to purchase, directly or indirectly, at least US$30 million of
GGAC Ordinary Shares in the open market.
If
the Contributions are consummated, the Company will become a wholly-owned subsidiary of GGAC, GGAC will change its name to "Garnero
Colombo Inc." and the former stockholders and management of the Company will own approximately 25% of the outstanding GGAC
Ordinary Shares (assuming no holder of GGAC Ordinary Shares exercises his redemption rights as set forth in GGAC's charter documents
and the Controlling Persons make the full US$30 million of open market purchases of shares)
The
Contributions are expected to be consummated in the first quarter of 2016, assuming the required approval of the GGAC shareholders
is obtained and certain other conditions, as described herein and in the Investment Agreement, are satisfied or waived.
The
following summaries of the Investment Agreement and the other agreements to be entered into by the parties in connection with
the business combination are qualified in their entirety by reference to the text of the agreements, certain of which are attached
as exhibits hereto and are incorporated herein by reference.
Q1
COMERCIAL DE ROUPAS S.A. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
(in
thousands, except share amounts)
19. |
Subsequent
Events, continued |
Proposed
Merger, continued
Lock-Up
Simultaneously
with the execution of the Investment Agreement, the Controlling Persons and the Optionholders entered into lockup agreements (the
"Lockup Agreements") with GGAC, pursuant to which they agreed not to sell any of the GGAC Ordinary Shares received by
them in connection with the Investment Agreement for one year after the closing, subject to certain exceptions.
Registration
Rights
At
the Closing, GGAC, the Controlling Persons, the Optionholders, certain of GGAC's founders and the representative of the underwriters
in GGAC's initial public offering will enter into an Amended and Restated Registration Rights Agreement (the "Registration
Rights Agreement"). Pursuant to the Registration Rights Agreement, no later than 30 days following the Closing, GGAC will
prepare and file with the Securities and Exchange Commission (the "SEC") a registration statement on Form S-3, or other
appropriate form, covering the resale of the Registrable Securities (as defined below), and will use its reasonable best efforts
to cause the registration statement to be declared effective and remain effective on a continuous basis until all Registrable
Securities have been sold. Following the expiration of the lockup period under the Lockup Agreements, in addition to ordinary
resales under the registration statement in the public trading markets, the holders of the Registrable Securities will be entitled
to sell the Registrable Securities in underwritten public offerings under the registration statement, so long as any such underwritten
public offering is for at least US$10 million of the Registrable Securities in the aggregate. The holders of the Registrable Securities
also will have certain customary "piggyback" registration rights.
The
"Registrable Securities" include the GGAC Ordinary Shares sold prior to GGAC's initial public offering, all of the GGAC
Ordinary Shares and warrants underlying the unit purchase option granted to the representative of the underwriters in GGAC's initial
public offering and all of the GGAC Ordinary Shares issued to the Controlling Persons and the Optionholders under the Investment
Agreement.
Notwithstanding
the foregoing, the Registrable Securities held by the Controlling Persons and Optionholders will remain subject to the Lockup
Agreement.
Q1
COMERCIAL DE ROUPAS S.A. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
(in
thousands, except share amounts)
19. |
Subsequent
Events, continued |
Indemnification;
Escrow
The
Controlling Persons and the Optionholders, on one hand, and GGAC, on the other hand, have agreed to indemnify and hold each other
harmless for certain inaccuracies or breaches of the representations and warranties or for the non-fulfillment or breach of certain
covenants and agreements contained in the Investment Agreement, in each case, pursuant to the terms of the Investment Agreement.
GGAC's rights to indemnification are limited to the number of Escrow Shares, subject to certain exceptions. The Controlling Persons
and Optionholder's rights to indemnification are limited to a number of newly issued GGAC Ordinary Shares equal to the number
of Escrow Shares (defined below).
To
provide a fund for payment to GGAC with respect to its post-closing rights to indemnification under the Investment Agreement,
and to provide security for the Controlling Persons and Optionholders there will be placed in escrow (with an independent escrow
agent) an aggregate of 200,000 of the GGAC Ordinary Shares issuable to the Controlling Persons and the Optionholders under the
Investment Agreement (the "Escrow Shares"), released 30 days after the date on which the Company delivers to GGAC its
audited financial statements for its 2016 fiscal year.
Annex A
FIRST AMENDED AND RESTATED INVESTMENT AGREEMENT
BY AND AMONG
GARNERO GROUP ACQUISITION COMPANY,
Q1 COMERCIAL DE ROUPAS S.A.,
ALVARO JABUR MALUF JUNIOR AND PAULO JABUR MALUF,
AND
THE OPTIONHOLDERS OF Q1 COMERCIAL DE ROUPAS S.A.
SET FORTH ON THE SIGNATURE PAGES HERETO
DATED AS OF DECEMBER 17, 2015
TABLE OF CONTENTS
FIRST AMENDED
AND RESTATED INVESTMENT AGREEMENT
THIS FIRST AMENDED
AND RESTATED INVESTMENT AGREEMENT is made and entered into as of December 17, 2015, by and among Garnero Group Acquisition Company,
a Cayman Islands company (“GGAC”), Q1 Comercial de Roupas S.A., a Brazilian company (the “Company,”
or after the Closing (as defined in Section 1.2 hereof), the “Surviving Corporation”), Alvaro Jabur
Maluf Junior and Paulo Jabur Maluf (the “Controlling Persons”) and the persons listed under the caption “Optionholder”
on the signature pages hereto (the “Optionholders”). The term “Agreement” as used herein
refers to this First Amended and Restated Investment Agreement, as the same may be further amended from time to time, and all
schedules and exhibits hereto (including the Company Schedule and the GGAC Schedule, as defined in the preambles to Articles II
and III hereof, respectively). Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them
in Section 10.2 hereof.
RECITALS
A. The Controlling
Persons, directly and indirectly through Persons wholly owned by the Controlling Persons (“Controlling Person Affiliates”),
collectively own ordinary shares of the Company (“Company Ordinary Shares”) representing one hundred percent
(100%) of the issued and outstanding capital stock of the Company as of the date hereof.
B. Following
the execution of this Agreement (but in any event prior to the Closing Date (as defined in Section 1.2 hereof)), the Controlling
Persons, certain Controlling Person Affiliates and the Company shall effect a reorganization (the “Reorganization”),
of which the Company shall be the surviving entity and pursuant to which the Company Ordinary Shares shall remain the sole class
or series of capital stock of the Company authorized or outstanding and the Controlling Persons shall become the direct owners
of all of the issued and outstanding Company Ordinary Shares (the “Outstanding Shares”).
C. The Optionholders
collectively own all of the issued and outstanding Company Options (as defined in Section 2.3 hereof), representing the right
to purchase an aggregate of 4,737,600 Company Ordinary Shares (the “Option Shares,” and together with the Outstanding
Shares, the “Shares”). The Optionholders have delivered irrevocable instructions to exercise in full their
Company Options at the Closing Date.
D. The Controlling
Persons, GGAC, the Company and the Optionholders entered into an Investment Agreement on August 26, 2015 (“Original Agreement”),
under which the Controlling Persons committed to, at the Closing, contribute and assign all of the Outstanding Shares to GGAC,
free and clear of any Liens (as defined in Section 5.26 hereof), in exchange for certain consideration as described therein.
E. Following
the execution of the Original Agreement, the parties resolved to change certain terms and conditions thereof and the parties desire
to amend and restate the Agreement to reflect such amended terms and conditions as set forth herein.
F. The Company
was advised by UBS Securities LLC and UBS Brasil Serviços de Assessoria Financeira Ltda. as financial advisors to the transaction
set forth in this Agreement.
NOW, THEREFORE,
in consideration of the covenants, promises and representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
Article
I
THE INVESTMENT
1.1 Contribution of Shares.
(a) Upon the terms and subject to the conditions set forth in this Agreement, at the Closing, the Controlling Persons shall contribute,
assign, transfer and deliver the Outstanding Shares to GGAC, free and clear of any Liens (the “Share Contribution”),
and shall receive in consideration an aggregate of three million six hundred forty thousand (3,640,000) new ordinary shares, par
value $0.0001 per share, of GGAC (“GGAC Ordinary Shares”) free and clear of any Liens (the “Share
Consideration”). The Share Consideration shall be allocated and delivered to each Controlling Person, as provided in
Schedule 1.1(a) hereto (as amended or supplemented at the Closing Date).
(b) Upon the terms and subject to the conditions set forth in this Agreement, at the Closing, the Optionholders shall exercise the
Company Options and contribute, assign, transfer and deliver the Option Shares to GGAC, free and clear of any Liens (the “Option
Contribution,” and together with the Share Contribution, the “Contributions”), and shall receive
in consideration an aggregate of three hundred sixty thousand (360,000) GGAC Ordinary Shares, free and clear of any Liens (the
“Option Consideration,” and together with the Share Consideration, the “Investment Consideration”).
The Option Consideration shall be allocated and delivered to each Optionholder, as provided in Schedule 1.1(b) hereto.
(c) Certificates evidencing the Share Consideration and Option Consideration shall bear customary transfer restrictions and shall
note the restrictions and obligations set forth in Section 1.9 hereof.
1.2 Closing.
(a) The closing of the Contributions and the other transactions contemplated by this Agreement (“Closing”) shall
take place at the offices of Graubard Miller, the Chrysler Building, 405 Lexington Avenue, 11th Floor, New York, New
York 10174, at 10:00 a.m., New York City time, not later than the third (3rd) business day after the satisfaction
or waiver of the conditions set forth in Article VI (other than conditions that by their nature can only be satisfied or
waived as of the Closing Date), or at such other time, date and location as the parties hereto agree in writing (the “Closing
Date”). Closing signatures may be transmitted by facsimile or by emailed PDF file. The parties shall use their commercially
reasonable best efforts to cause the conditions set forth Article VI (other than conditions that by their nature can only
be satisfied or waived as of the Closing Date) to be satisfied, and to hold the Closing, as soon as reasonably practicable.
(b) At or prior to the Closing, GGAC shall deliver, or cause to be delivered, to the Company, the Controlling Persons and the Representative
the following:
(i) the Share Consideration by issuance to GGAC’s transfer agent of irrevocable instructions to issue to the Controlling Persons
certificates representing GGAC Ordinary Shares in the respective names and amounts indicated in Schedule 1.1(a) hereto
(as amended or supplemented at the Closing Date), and to deliver such certificates to the respective addresses indicated in such
schedule;
(ii) [Intentionally omitted]
(iii) the Option Consideration by issuance to GGAC’s transfer agent of irrevocable instructions to issue to the Optionholders
certificates representing GGAC Ordinary Shares in the respective names and amounts indicated in Schedule 1.1(b) hereto,
and to deliver such certificates to the respective addresses indicated in such schedule;
(iv) the GGAC Closing Certificate (as defined in Section 6.2(a) hereof);
(v) the opinion of Maples and Calder, counsel to GGAC, in substantially the form of Exhibit A hereto; and
(vi) the Escrow Agreement (as defined in Section 1.6 hereof) executed by GGAC and the Committee;
(vii) the Registration Rights Agreement (as defined in Section 5.8 hereof) executed by GGAC; and
(viii) such other documents and instruments necessary to consummate the transactions contemplated by this Agreement upon the terms and
conditions set forth in this Agreement, all of which, together with the documents and instruments referred to above, shall be
in form and substance reasonably satisfactory to the Company and the Controlling Persons.
(c) At or prior to the Closing, the Company, the Controlling Persons and/or the Optionholders, as applicable, shall deliver or cause
to be delivered to GGAC the following:
(i) (A) the minutes of the General Shareholders Meeting of the Company (as defined below) approving the issuance of the Option Shares
to the Optionholders due to the exercise of the Company Options, (B) the Irrevocable Instructions (as defined in Section 5.22
hereof), and (C) the share transfer book (with the entries for the transfer of the Outstanding Shares and the Options Shares
to GGAC duly executed by the holders of such shares) and the share registration book of the Company, evidencing the transfer and
registration of the Option Shares to GGAC and the transfer and registration of the Outstanding Shares to GGAC;
(ii) [Intentionally omitted]
(iii) the Release Letter (as defined in Section 5.26 hereof) executed by the Company and each beneficiary of the Liens set forth
on Schedule 1.1(a) hereto;
(iv) the Company Closing Certificate (as defined in Section 6.3(a) hereof);
(v) the opinion of Souza, Cescon, Barrieu & Flesch Advogados, counsel to the Company, in substantially the form of Exhibit B
hereto;
(vi) the Escrow Agreement executed by the Representative;
(vii)
the Registration Rights Agreement executed by the Controlling Persons and the Optionholders;
(viii)
a Lock-Up Agreement (as defined in Section 1.9 hereof) executed by each Controlling Person and Optionholder; and
(ix) such other documents and instruments necessary to consummate the transactions contemplated by this Agreement upon the terms and
conditions set forth in this Agreement, all of which, together with the documents and instruments referred to above, shall be
in form and substance reasonably satisfactory to GGAC.
1.3 Adjustments to Contribution Ratios. The number of GGAC Ordinary Shares to which the Controlling Persons and
the Optionholders are entitled to subscribe shall be equitably adjusted to reflect appropriately the effect of any share split,
reverse share split, share dividend (including any dividend or distribution of securities convertible into Company Ordinary Shares
or GGAC Ordinary Shares), cash dividends, reorganization, recapitalization, reclassification, combination, exchange of shares
or other like change with respect to the Company Ordinary Shares or GGAC Ordinary Shares occurring on or after the date hereof
and prior to the Effective Time.
1.4 Required Withholding. GGAC shall be entitled to deduct and withhold from any consideration payable or otherwise
deliverable pursuant to this Agreement to any Person such amounts as are required to be deducted or withheld therefrom under the
Internal Revenue Code of 1986, as amended (the “Code”), or under any provision of state, local or foreign tax
law or under any other applicable law. To the extent such amounts are so deducted or withheld, such amounts shall be treated for
all purposes under this Agreement as having been paid to the person to whom such amounts would otherwise have been paid. If GGAC
intends to withhold any amount from any consideration payable or otherwise deliverable pursuant to this Agreement, GGAC shall
provide a statement to the Representative no later than three (3) Business Days prior to the anticipated Closing Date setting
forth the amount expected to be withheld and the grounds for such withholding and GGAC shall work in good faith with the Representative
to reduce or eliminate any such withholding.
1.5 Taking of Necessary Action; Further Action. Subject to the terms and conditions of this Agreement, at any time or
from time to time after the Closing, each of the parties shall execute and deliver such other documents and instruments, provide
such materials and information and take such other actions as may reasonably be necessary, proper or advisable, to the extent
permitted by law, to fulfill its obligations under this Agreement and the other documents to which it is a party.
1.6 Escrow.
As a remedy for the indemnification obligations of the Controlling Persons and the Optionholders set forth in Article VII hereof,
200,000 of the GGAC Ordinary Shares to be issued to the Controlling Persons and the Optionholders hereunder (the “Escrow
Shares”) shall be deposited in escrow (the “Escrow Account”), which shall be allocated among the
Controlling Persons and the Optionholders in the same proportion as the number of GGAC Ordinary Shares being issued to them hereunder,
all in accordance with the terms and conditions of an escrow agreement to be entered into at the Closing between GGAC, the Representative
and Continental Stock Transfer & Trust Company (“Continental”), as escrow agent (“Escrow Agent”),
substantially in the form of Exhibit C hereto (the “Escrow Agreement”). On the date (the “Basic Indemnity
Escrow Termination Date”) that is thirty (30) days after the date on which the Company delivers to GGAC its financial
statements for its 2016 fiscal year audited in accordance with U.S. GAAP (as defined in Section 2.7(a) hereof), the Escrow
Agent shall release 100,000 of the original number of Escrow Shares, less that number of Escrow Shares applied in satisfaction
of, or reserved with respect to, indemnification claims made prior to such date, to the owners thereof. The remaining Escrow Shares
(the “Tax Indemnity Shares”) shall be available for indemnification only with respect to Tax Indemnification
Claims (as hereinafter defined). On the date (the “Tax Indemnity Escrow Termination Date”) that is thirty (30)
days after the date on which the Company delivers to GGAC its financial statements for its 2017 fiscal year audited in accordance
with U.S. GAAP, the Escrow Agent shall deliver the Tax Indemnity Shares, less any of such shares applied in satisfaction of, or
reserved with respect to, a Tax Indemnification Claim made prior to such date, to the owners thereof. Any Escrow Shares reserved
with respect to any unresolved claim for indemnification and not applied as indemnification with respect to such claim upon its
resolution shall be delivered to such owners promptly upon such resolution. “Tax Indemnification Claim” means
a claim for indemnification pursuant to Article VII with respect to a breach of the representations and warranties set forth in
Section 2.15 hereof.
1.7 Committee and Representative.
(a) GGAC
Committee. Prior to the Closing, the board of directors of GGAC shall appoint a committee (the “Committee”)
consisting of at least two of its then independent members to act on behalf of GGAC to take all necessary actions and make all
decisions pursuant to this Agreement and the Escrow Agreement after the Closing. In the event of a vacancy in such committee,
the board of directors of GGAC shall appoint as a successor a Person who was an independent director of GGAC prior to the Closing
Date or, in the event of an inability to appoint same, another Person who would qualify as an “independent” director
of GGAC and who has not had any material relationship with the Company prior to the Closing. Such committee is intended to be
the “Committee” referred to in Article VII and the Escrow Agreement.
(b) Representative. The Controlling Persons and the Optionholders hereby appoint Alvaro Jabur Maluf Junior as their representative
(the “Representative”) to take any and all actions and make any decisions required or permitted to be taken
by the Controlling Persons and the Optionholders under this Agreement or the Escrow Agreement. The execution of this Agreement
by each of the Controlling Persons and the Optionholders shall be deemed acceptance by such party of the appointment of the Representative
to act in such party’s behalf. Should the Representative resign or be unable to serve, a new Representative shall be selected
by majority vote of the Controlling Persons and the Optionholders (each voting in proportion to their respective economic interest
in the GGAC Ordinary Shares to be issued hereunder). The Representative shall not be liable to the Controlling Persons and the
Optionholders for any liability, loss, damage, penalty, fine, cost or expense incurred without gross negligence by the Representative
while acting in good faith and arising out of or in connection with the acceptance or administration of his duties hereunder (it
being understood that any act done or omitted pursuant to the advice of counsel shall be conclusive evidence of such good faith).
A decision, act, consent or instruction of the Representative shall be final, binding and conclusive and not subject to challenge
by any recipient. GGAC and the Company are hereby relieved from any liability to any person for any acts done by Representative
and any acts done by GGAC or the Company in accordance with any such decision, act, consent or instruction of the Representative.
GGAC, the Company and each of their respective Affiliates shall be entitled to rely upon, and shall be fully protected in relying
upon, the power and authority of the Representative without independent investigation.
1.8 Matters
Relating to the Controlling Persons and the Optionholders.
(a) Each Controlling Person and Optionholder, for himself, herself or itself only, represents and warrants as follows:
(i) it has all necessary power and authority to execute and deliver this Agreement and to perform its obligations hereunder and, to
consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation by such Controlling
Person or Optionholder of the transactions contemplated hereby (including the Contributions) have been duly and validly authorized
by all necessary action on the part of such Controlling Person or Optionholder and no other proceedings on the part of such Controlling
Person or Optionholder, other than compliance by the Optionholders with Section 5.22 hereof, are necessary to authorize
this Agreement or to consummate the transactions contemplated hereby pursuant to applicable law and the terms and conditions of
this Agreement. This Agreement has been duly and validly executed and delivered by such Controlling Person or Optionholder and,
assuming the due authorization, execution and delivery thereof by the other parties hereto, constitutes the legal and binding
obligation of such Controlling Person or Optionholder, enforceable against such Controlling Person or Optionholder in accordance
with its terms, except as may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement
of creditors’ rights generally and by general principles of equity;
(ii) except as set forth in Section 2.5 of the Company Schedule, its execution and delivery of this Agreement does not, and
the performance of its obligations hereunder will not, require any consent, approval, authorization or permit of, or filing with
or notification to, any court, administrative agency, commission, governmental or regulatory authority, domestic or foreign (a
“Governmental Entity”), except (1) for applicable requirements, if any, of the Securities Act of 1933, as amended
(“Securities Act”), the Securities Exchange Act of 1934, as amended (“Exchange Act”), state
securities laws (“Blue Sky Laws”), and the rules and regulations thereunder, and (2) where the failure to obtain
such consents, approvals, authorizations or permits, or to make such filings or notifications, would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on itself or the Company or prevent consummation of the Contributions
or otherwise prevent the parties hereto from performing their respective obligations under this Agreement;
(iii) it is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D under the Securities Act;
(iv) it is not subject to any of the “Bad Actor” disqualifications described in Rule 506(d)(1)(i) to (viii) under Regulation
D of the Securities Act (a “Disqualification Event”), except for a Disqualification Event covered by Rule 506(d)(2)
or (d)(3);
(v) it owns the Outstanding Shares and Company Options listed in Schedules 1.1(a) hereto as being owned by it, in each case
free and clear of all Liens, except with respect to such Liens described in Schedule 1.1(a) hereto that shall be released
in accordance with the Release Letter (as defined in Section 5.26 hereof), and has not granted to any other Person any
options or other rights to buy such securities, nor has it granted any interest in such securities to any Person of any nature;
(vi) it is acquiring the Share Consideration or Option Consideration for its own account, for the purpose of investment only and not
with a view to, or for sale in connection with, any distribution thereof in violation of applicable securities laws;
(vii) it has not, directly or indirectly, offered the Share Consideration or Option Consideration to anyone or solicited any offer to
buy the Share Consideration or Option Consideration from anyone, so as to bring such offer and sale of the Share Consideration
or Option Consideration by such Controlling Person or Optionholder within the registration requirements of the Securities Act;
(viii)
it acknowledges that (1) the Share Consideration and Option Consideration are not registered under any federal or state securities
laws and the Share Consideration and Option Consideration are subject to the provisions of Sections 1.6 and 1.9 hereof,
(2) certificates evidencing the shares comprising the Share Consideration and Option Consideration shall bear appropriate restrictive
legends, (3) such shares must be held indefinitely unless and until they are subsequently registered or an exemption from registration
becomes available and (4) such Controlling Person or Optionholder can bear the loss of his, her or its entire investment in GGAC;
(ix)
it has been furnished with, or has been provided access to, all reports that GGAC has filed with the Securities and Exchange Commission
(the “SEC”) and anything else which such Controlling Person or Optionholder has requested relating to the foregoing
and has been afforded the opportunity to ask questions and receive answers from GGAC’s directors and officers and to otherwise
obtain any additional information deemed necessary or advisable by such Controlling Person or Optionholder and his, her or its
representatives to evaluate the Controlling Person or Optionholder’s acquisition of the Share Consideration or Option Consideration;
and
(x) it has been fully apprised of all facts and circumstances necessary to permit such Controlling Person or Optionholder to make
an informed decision about acquiring the Share Consideration and Option Consideration, including reading the current and proposed
business, management, financial condition and affairs of GGAC, that it has sufficient sophistication and knowledge and experience
in business and financial matters such that it is capable of evaluating the merits and risks of an investment in GGAC represented
by the Share Consideration or Option Consideration.
(b) If Outstanding Shares are held by one or more Controlling Person Affiliates as of the date this representation and warranty is
made, the Controlling Persons, jointly and severally, hereby make the representation and warranties set forth in Section 1.8(a)
hereof with respect to each such Controlling Person Affiliate as if such Controlling Person Affiliate was a “Controlling
Person.” The Controlling Persons hereby further represent and warrant that they collectively own all of the outstanding
equity securities of each such Controlling Person Affiliate, free and clear of all Liens, except with respect to such Liens described
in Schedule 1.1(a) hereof that shall be released in accordance with the Release Letter (as defined in Section 5.26
hereof), and there are no outstanding options, warrants or other rights obligating the Controlling Persons or any such Controlling
Person Affiliate to issue or sell any such securities.
(c) Each Optionholder, for himself, herself or itself only, represents and warrants that it has delivered to the Company Irrevocable
Instructions in accordance with Section 5.22 hereof, that it has taken no action to amend, revoke or otherwise modify such
instructions, that upon exercise of the Company Options, it will own the Option Shares, free and clear of all Liens, except for
the Liens described in Schedule 1.1(a) hereto that shall be released in accordance with the Release Letter (as defined
in Section 5.26 hereof) (subject to the assignment to GGAC contemplated by Section 5.22 hereof), and that it has
not granted to any other Person any options or other rights to buy such securities, nor has it granted any interest in such securities
to any Person of any nature.
1.9 Sale Restriction. Except for the GGAC Ordinary Shares purchased by the Controlling Persons as set forth in Section
5.25 hereof, each of the GGAC Ordinary Shares issued to the Controlling Persons and Optionholders shall be subject to certain
restrictions on transfer, in accordance with the terms of the Lock-Up Agreement (the “Lock-Up Agreement”) in
the form of Exhibit D hereto to be executed and delivered to GGAC by each of the Controlling Persons and Optionholders
simultaneously with the execution hereof. Certificates representing GGAC Ordinary Shares issued as a result of the Contributions
shall bear a prominent legend to such effect.
Article
II
REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY
Subject to the
exceptions set forth in Schedule 2 attached hereto (the “Company Schedule”), the Company and the
Controlling Persons hereby represent and warrant to GGAC as follows (as used in this Article II, and elsewhere in this Agreement,
the term “Company” includes the Subsidiaries, as hereinafter defined, unless the context clearly otherwise
indicates):
2.1 Organization and Qualification.
(a) The Company is duly incorporated, validly existing and in good standing under the laws of Brazil and has the requisite corporate
power and authority to own, lease and operate its assets and properties and to carry on its business as it is now being conducted.
The Company is in possession of all franchises, grants, authorizations, licenses, permits, easements, consents, certificates,
approvals and orders (“Approvals”) necessary to own, lease and operate the properties it purports to own, operate
or lease and to carry on its business as it is now conducted, except where the failure to have such Approvals could not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company and its Subsidiaries taken as a whole.
Complete and correct copies of the by-laws (such documents of an entity, or other comparable governing instruments with different
names, are collectively referred to herein as “Charter Documents”) of the Company, as amended and currently
in effect, have been heretofore made available to GGAC or GGAC’s counsel. The Company is not in violation of any of the
provisions of the Company’s Charter Documents.
(b) The Company is duly qualified or licensed to do business as a foreign corporation and is in good standing in each jurisdiction
where the character of the properties owned, leased or operated by it or the nature of its activities makes such qualification
or licensing necessary, except for such failures to be so duly qualified or licensed and in good standing that could not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company and its Subsidiaries taken as a whole.
Each jurisdiction in which the Company is so qualified or licensed is listed in Section 2.1(b) of the Company Schedule.
(c) The minute books of the Company contain true, complete and accurate records of all written minutes for meetings and written consents
in lieu of meetings of its board of directors (and any committees thereof) or similar governing bodies and shareholders or similar
holders of voting interests (such records of an entity, are collectively referred to herein as “Corporate Records”)
since the time of the Company’s organization. Copies of such Corporate Records of the Company have been made available to
GGAC or GGAC’s counsel.
(d) The stock transfer and ownership records of the Company contain true, complete and accurate records of the securities ownership
as of the date of such records and the transfers involving the capital stock and other securities of the Company since the time
of the Company’s incorporation. Copies of such records of the Company have been made available to GGAC or GGAC’s counsel.
2.2 Subsidiaries.
(a) The Company has no direct or indirect subsidiaries or participations in joint ventures or other entities other than those listed
in Section 2.2(a) of the Company Schedule (the “Subsidiaries”). Except for the equity interests
held by the Controlling Persons in the Subsidiaries as set forth in Section 2.2(a) of the Company Schedule, which
they shall cease to own at or prior to the Closing in accordance with Section 5.15 hereof, the Company owns all of the
outstanding equity securities of the Subsidiaries, free and clear of all Liens. Except for the Subsidiaries, the Company does
not own, directly or indirectly, any ownership, equity, profits or voting interest in any Person or has any agreement or commitment
to purchase any such interest, and has not agreed and is not obligated to make nor is bound by any written, oral or other agreement,
contract, subcontract, lease, binding understanding, instrument, note, option, warranty, purchase order, license, sublicense,
insurance policy, benefit plan, commitment or undertaking of any nature, as of the date hereof or as may hereafter be in effect
under which it may become obligated to make, any future investment in or capital contribution to any other entity.
(b) Each Subsidiary is a limited liability company and is duly organized or formed, validly existing and in good standing under the
laws of Brazil (as listed in Section 2.2(b) of the Company Schedule) and has the requisite power and authority to
own, lease and operate its assets and properties and to carry on its business as it is now being conducted. Each Subsidiary is
in possession of all Approvals necessary to own, lease and operate the properties it purports to own, operate or lease and to
carry on its business as it is now being conducted, except where the failure to have such Approvals could not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company and the Subsidiaries taken as a whole.
Complete and correct copies of the Charter Documents of each Subsidiary, as amended and currently in effect, have been heretofore
delivered to GGAC or GGAC’s counsel. No Subsidiary is in violation of any of the provisions of its Charter Documents.
(c) Each Subsidiary is duly qualified or licensed to do business as a foreign limited liability company and is in good standing in
each jurisdiction where the character of the properties owned, leased or operated by it or the nature of its activities makes
such qualification or licensing necessary, except for such failures to be so duly qualified or licensed and in good standing that
could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company and the Subsidiaries
taken as a whole. Each jurisdiction in which each Subsidiary is so qualified or licensed is listed in Section 2.2(c)
of the Company Schedule.
(d) The minute books of each Subsidiary contain true, complete and accurate Corporate Records since the time of such Subsidiary’s
formation. Copies of such records of have been made available to GGAC or GGAC’s counsel.
2.3 Capitalization.
(a) As of the date hereof the Controlling Person Affiliates are, and as of the Closing Date, the Controlling Persons and the Optionholders,
after the exercise of the Company Options, will be, the direct owners of one hundred percent (100%) of the capital stock of the
Company. All of the Company Ordinary Shares that are outstanding as of the date hereof are, and all of the Company Ordinary Shares
that will be outstanding as of the Closing Date will be, validly issued, fully paid and nonassessable and free of preemptive rights
or rights of first refusal created by statute, the Company’s Charter Documents or any agreement to which the Company is
a party or by which it is bound, and free and clear of all Liens. Other than Company Ordinary Shares, the Company has no class
or series of securities authorized by its Charter Documents. Section 2.3(a) of the Company Schedule contains a true
and complete list of all of the shareholders of the Company, the number of Company Ordinary Shares owned by each shareholder and
each shareholder’s state, country or province of residence. Except as set forth in Section 2.3(a) of the Company
Schedule, the Company has no outstanding options to purchase Company Ordinary Shares (“Company Options”). The
Optionholders are the direct owners of one hundred percent (100%) of the Company Options. Other than Company Options, the Company
has no outstanding warrants or other rights or derivative securities to purchase Company Ordinary Shares. Section 2.3(a)
of the Company Schedule contains a true and complete list of all of the holders of Company Options, a description of the material
terms of each Company Option, the number of Company Ordinary Shares issuable upon exercise of each Company Option and the state,
country or province of residence of each holder of Company Options. All Company Ordinary Shares subject to issuance as aforesaid,
upon issuance on the terms and conditions specified in the instrument pursuant to which they are issuable, will be duly authorized,
validly issued, fully paid and nonassessable. Except as set forth in Section 2.3(a) of the Company Schedule, there are
no commitments or agreements of any character to which the Company is bound obligating the Company to accelerate the vesting of
any Company Option as a result of the Contributions. All outstanding Company Ordinary Shares and Company Options have been issued
and granted in compliance with (x) all applicable securities laws and (in all material respects) other applicable laws and regulations,
and (y) all requirements set forth in any applicable Material Company Contracts (as defined in Section 2.19 hereof).
The Company has made available to GGAC or GGAC’s counsel true and accurate copies of the forms of documents used for the
issuance of Company Options.
(b) Except as described in Section 2.3(a) hereof, there are no subscriptions, options, warrants, equity securities, partnership
interests or similar ownership interests, calls, rights (including preemptive rights), commitments or agreements of any character
to which the Company is a party or by which it is bound obligating the Company to issue, deliver or sell, or cause to be issued,
delivered or sold, or repurchase, redeem or otherwise acquire, or cause the repurchase, redemption or acquisition of, any share
capital, partnership interests or similar ownership interests of the Company or obligating the Company to grant, extend, accelerate
the vesting of or enter into any such subscription, option, warrant, equity security, call, right, commitment or agreement.
(c) There are no registration rights, and there is no voting trust, proxy, rights plan, antitakeover plan or other agreement or understanding
to which the Company is a party or by which the Company is bound with respect to any equity security of any class of the Company.
(d) No outstanding Company Ordinary Shares are unvested or subjected to a repurchase option, risk of forfeiture or other condition
under any applicable agreement with the Company.
(e) Except as described in Section 2.3(a) hereof, no shares, warrants, options or other securities of the Company are issuable
and no rights in connection with any shares, warrants, options or other securities of the Company accelerate or otherwise become
triggered (whether as to vesting, exercisability, convertibility or otherwise) as a result of the consummation of the transactions
contemplated hereby.
(f) The authorized and outstanding share capital, membership interests or similar equity securities of each Subsidiary are set forth
in Section 2.3(f) of the Company Schedule. Except as set forth in Section 2.3(f) of the Company Schedule,
the Company owns all of the outstanding equity securities of each Subsidiary, free and clear of all Liens, either directly or
indirectly through one or more other Subsidiaries. There are no outstanding options, warrants or other rights to purchase securities
of any Subsidiary.
2.4 Authority Relative to this Agreement. The Company has all necessary corporate power and authority to execute and
deliver this Agreement and to perform its obligations hereunder and, to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation by the Company of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action on the part of the Company (including the approval by its board of directors
and shareholders). The General Shareholders Meeting described in Section 5.27 hereof is sufficient to constitute shareholder
approval of the matters set forth in Section 5.27 hereof, which constitute all of the matters requiring approval of the
Company’s shareholders in connection with the Contributions and the other transactions contemplated by this Agreement. No
other corporate proceedings on the part of the Company or its shareholders are necessary to authorize this Agreement or to consummate
the transactions contemplated hereby pursuant to applicable law and the terms and conditions of this Agreement. This Agreement
has been duly and validly executed and delivered by the Company and, assuming the due authorization, execution and delivery thereof
by the other parties hereto, constitutes the legal and binding obligation of the Company, enforceable against the Company in accordance
with its terms, except as may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement
of creditors’ rights generally and by general principles of equity.
2.5 No Conflict; Required Filings and Consents. Except as set forth in Section 2.5 of the Company Schedule:
(a) The execution and delivery of this Agreement by the Company does not, and the performance of this Agreement by the Company shall
not, (i) conflict with or violate the Company’s Charter Documents, (ii) conflict with or violate any Legal Requirements,
(iii) result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default)
under, or materially impair the Company’s rights or alter the rights or obligations of any third party under, or give to
others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a lien or encumbrance
on any of the properties or assets of the Company pursuant to, any Company Contracts, or (iv) result in the triggering, acceleration
or increase of any payment to any Person pursuant to any Company Contract, including any “change in control” or similar
provision of any Company Contract, except, with respect to clauses (ii), (iii) or (iv), for any such conflicts, violations, breaches,
defaults, triggerings, accelerations, increases or other occurrences that would not, individually and in the aggregate, have a
Material Adverse Effect on the Company.
(b) The execution and delivery of this Agreement by the Company does not, and the performance of its obligations hereunder will not,
require any consent, approval, authorization or permit of, or filing with or notification to, any Governmental Entity or other
third party (including, without limitation, lenders and lessors), except (i) for applicable requirements, if any, of the Securities
Act, the Exchange Act or Blue Sky Laws, and the rules and regulations thereunder, and appropriate documents received from or filed
with the relevant authorities of other jurisdictions in which the Company is licensed or qualified to do business, (ii) for the
consents, approvals, authorizations and permits described in Section 2.5 of the Company Schedule, and (iii) where
the failure to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications, would not,
individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company or prevent consummation
of the Contributions or otherwise prevent the parties hereto from performing their respective obligations under this Agreement.
2.6 Compliance. The Company has complied during the immediately preceding three years with and is not in violation of
any Legal Requirements with respect to the conduct of its business, or the ownership or operation of its business, except for
failures to comply or violations which, individually or in the aggregate, have not had and are not reasonably likely to have a
Material Adverse Effect on the Company. The businesses and activities of the Company have not been and are not being conducted
in violation of any Legal Requirements. The Company is not in default or violation of any term, condition or provision of any
applicable Charter Documents. During the immediately preceding three years, no written notice of non-compliance with any Legal
Requirements has been received by the Company (and the Company has no knowledge of any such notice delivered to any other Person)
except for failures to comply or violations which, individually or in the aggregate, have not had and are not reasonably likely
to have a Material Adverse Effect on the Company. The Company is not in violation of any term of any Material Company Contract,
except for failures to comply or violations which, individually or in the aggregate, have not had and are not reasonably likely
to have a Material Adverse Effect on the Company.
2.7 Financial Statements; Internal Controls.
(a) The Company has provided to GGAC a correct and complete copy of the audited consolidated financial statements (including any related
notes thereto) of the Company for the fiscal years ended on December 31, 2014, 2013 and 2012 (the “Audited Financial
Statements”). The Audited Financial Statements were prepared in accordance with United States generally accepted accounting
principles (“U.S. GAAP”) applied on a consistent basis throughout the periods involved (except as may be indicated
in the notes thereto), and each fairly presents in all material respects the financial position of the Company at the respective
dates thereof and the results of its operations and cash flows for the periods indicated.
(b) The Company has provided to Parent a correct and complete copy of the unaudited consolidated financial statements of the Company
for the nine month period ended September 30, 2015 (including any notes related thereto) (the “Unaudited Financial Statements”
and together with the Audited Financial Statements, the “Financial Statements”). The Unaudited Financial Statements
comply as to form in all material respects, and were prepared in accordance with U.S. GAAP applied on a consistent basis throughout
the period involved and in a manner consistent with the preparation of the Audited Financial Statements, and fairly present in
all material respects the financial position of the Company at the date thereof and the results of its operations and cash flows
for the period indicated, except that such statements are subject to normal audit adjustments that are not expected to have a
Material Adverse Effect on the Company and its Subsidiaries taken as a whole and do not include all footnotes.
(c) The books of account and other similar books and records of the Company have been maintained in accordance with good business
practice, are complete and correct in all material respects and there have been no material transactions that are required to
be set forth therein and which have not been so set forth.
(d) Except as otherwise noted in the Financial Statements, the accounts and notes receivable of the Company reflected on the balance
sheets included in the Financial Statements: (i) arose from bona fide sales transactions in the ordinary course of business and
are payable on ordinary trade terms, (ii) are legal, valid and binding obligations of the respective debtors enforceable in accordance
with their terms, except as such may be limited by bankruptcy, insolvency, reorganization, or other similar laws affecting creditors’
rights generally, and by general equitable principles, (iii) are not subject to any valid set-off or counterclaim except to the
extent set forth in such balance sheet contained therein other than possible back charges which to the Company’s knowledge
do not exist at this time, which back charges, to the Company’s knowledge, either individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect upon the Company and its Subsidiaries taken as a whole, (iv) are
collectible in the ordinary course of business consistent with past practice in the aggregate recorded amounts thereof, net of
any applicable reserve reflected in such balance sheet referenced above, and (v) are not the subject of any actions or proceedings
brought by or on behalf of the Company.
2.8 No
Undisclosed Liabilities. The Company and its Subsidiaries have no liabilities (absolute, accrued, contingent or otherwise)
of a nature required to be disclosed on a balance sheet or in the related notes to financial statements that are, individually
or in the aggregate, material to the business, results of operations or financial condition of the Company and its Subsidiaries,
except: (i) liabilities provided for in, reserved against or otherwise disclosed in the latest balance sheet included in the Unaudited
Financial Statements, (ii) such liabilities arising in the ordinary course of the Company’s business since December 31,
2014, none of which, individually or in the aggregate, would have a Material Adverse Effect on the Company and its Subsidiaries
taken as a whole or (iii) liabilities incurred in connection with the transactions contemplated by this Agreement. The Company
is not and has not been a party to any securitization transactions or “off-balance sheet arrangements” (as defined
in Item 303(c) of Regulation S-K under the Exchange Act).
2.9 Absence of Certain Changes or Events. Since the date of the latest balance sheet included in the Audited Financial
Statements, there has not been: (i) any Material Adverse Effect on the Company and its Subsidiaries taken as a whole, (ii) any
declaration, setting aside or payment of any dividend on, or other distribution (whether in cash, stock or property) in respect
of, any of the Company’s stock, or any purchase, redemption or other acquisition by the Company of any of the Company’s
capital stock or any other securities of the Company or any options, warrants, calls or rights to acquire any such shares or other
securities, (iii) any split, combination or reclassification of any of the Company’s capital stock, (iv) any granting by
the Company or its Subsidiaries of any increase in compensation or fringe benefits, except for normal increases of cash compensation
in the ordinary course of business consistent with past practice, or any payment by the Company or any of its Subsidiaries of
any bonus, except for bonuses made in the ordinary course of business consistent with past practice, or any granting by the Company
or any of its Subsidiaries of any increase in severance or termination pay or any entry by the Company or any of its Subsidiaries
into any currently effective employment, severance, termination or indemnification agreement or any agreement the benefits of
which are contingent or the terms of which are materially altered upon the occurrence of a transaction involving the Company of
the nature contemplated hereby, (v) any material change by the Company or any of its Subsidiaries in its accounting methods, principles
or practices, (vi) any change in the auditors of the Company, (vii) any issuance of share capital of the Company, (viii) any revaluation
by the Company of any of its assets, including, without limitation, writing down the value of capitalized inventory or writing
off notes or accounts receivable or any sale of assets of the Company other than in the ordinary course of business, (ix) any
incurrence of debt by the Company other than trade debt in the ordinary course of business or (x) any agreement, whether written
or oral, to do any of the foregoing.
2.10 Litigation. Except as disclosed in Section 2.10 of the Company Schedule, there are no material claims,
suits, actions or proceedings pending or, to the knowledge of the Company, threatened against the Company or any of its Subsidiaries
before any court, governmental department, commission, agency, instrumentality or authority, or any arbitrator that would reasonably
be expected to have a Material Adverse Effect upon the Company and its Subsidiaries taken as a whole.
2.11 Employee Benefit Plans.
(a) Section 2.11(a) of the Company Schedule lists all material employee compensation, incentive, fringe or benefit plans,
programs, policies, commitments or other arrangements (whether or not set forth in a written document) covering any active or
former employee, director or consultant of the Company or any of its Subsidiaries, or any trade or business (whether or not incorporated)
which is under common control with the Company or any of its Subsidiaries, with respect to which the Company has liability (individually,
a “Plan,” and, collectively, the “Plans”). All Plans have been maintained and administered
in all material respects in compliance with their respective terms and with the requirements prescribed by any and all statutes,
orders, rules and regulations which are applicable to such Plans, and all liabilities with respect to the Plans have been properly
reflected in the financial statements and records of the Company or any of its Subsidiaries. No suit, action or other litigation
(excluding claims for benefits incurred in the ordinary course of Plan activities) has been brought, or, to the knowledge of the
Company, is threatened, against or with respect to any Plan. There are no audits, inquiries or proceedings pending or, to the
knowledge of the Company, threatened by any governmental agency with respect to any Plan. All contributions, reserves or premium
payments required to be made or accrued as of the date hereof to the Plans have been timely made or accrued. Neither the Company
nor any of its Subsidiaries has any plan or commitment to establish any new Plan, to modify any Plan (except to the extent required
by law or to conform any such Plan to the requirements of any applicable law, in each case as previously disclosed to GGAC in
writing, or as required by this Agreement), or to enter into any new Plan. Except as disclosed in Section 2.11(a)
of the Company Schedule, each Plan can be amended, terminated or otherwise discontinued after the Closing in accordance with its
terms, without liability to the Company or any of its Subsidiaries (other than ordinary administration expenses and expenses for
benefits accrued but not yet paid).
(b) Except as disclosed in Section 2.11(b) of the Company Schedule, neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby will (i) result in any payment (including severance, unemployment
compensation, golden parachute, bonus or otherwise) becoming due to any shareholder, director or employee of the Company and its
Subsidiaries under any Plan or otherwise, (ii) materially increase any benefits otherwise payable under any Plan, or (iii) result
in the acceleration of the time of payment or vesting of any such benefits.
(c) None of the Plans are subject to the Employee Retirement Income Security Act of 1974, as amended.
2.12 Labor Matters.
(a) Except as set forth on Section 2.12(a) of the Company Schedule, the Company and its Subsidiaries are not a party to
any collective bargaining agreement or other labor union contract applicable to persons employed by the Company and its Subsidiaries
nor, to the Company’s knowledge, are there any activities or proceedings of any labor union to organize any such employees.
Except as would not be reasonably expected to have a Material Adverse Effect upon the Company and its Subsidiaries taken as a
whole, there are no pending grievance or similar proceedings involving the Company or its Subsidiaries or any of its employees
subject to a collective bargaining agreement or other labor union contract and there are no continuing obligations of the Company
or its Subsidiaries pursuant to the resolution of any such proceeding that is no longer pending.
(b) (i) Each employee and consultant of the Company and its Subsidiaries is terminable “at will” subject to applicable
notice periods as set forth by law or in an employment agreement, but in any event not more than ninety (90) days, and (ii) except
as set forth on Section 2.12(b) of the Company Schedule, there are no agreements or understandings between the Company
or its Subsidiaries and any of their employees or consultants that their employment or services will be for any particular period.
The Company has no knowledge that any of its officers or key employees intends to terminate his or her employment with the Company
or any of its Subsidiaries. The Company and its Subsidiaries are in compliance in all material respects and, to the Company’s
knowledge, each of the Company’s and its Subsidiaries’ employees and consultants is in compliance in all material
respects, with the terms of the respective employment and consulting agreements between the Company or its Subsidiaries and such
individuals. There are not, and there have not been, any oral or informal arrangements, commitments or promises between the Company
or its Subsidiaries and any employees or consultants of the Company or its Subsidiaries that have not been documented as part
of the formal written agreements between any such individuals and the Company or its Subsidiaries that have been made available
to GGAC.
(c) The Company and its Subsidiaries are in compliance in all material respects with all Legal Requirements applicable to its employees
respecting employment, employment practices, terms and conditions of employment and wages and hours. The Company’s and its
Subsidiaries’ obligations to provide statutory severance pay to their employees are fully funded or accrued on the Financial
Statements and the Company has no knowledge of any circumstance that could give rise to any valid claim by a current or former
employee for compensation on termination of employment (beyond the statutory severance pay to which employees are entitled). All
amounts that the Company is legally or contractually required either (x) to deduct from its employees’ salaries or to transfer
to such employees’ pension or life insurance, incapacity insurance, continuing education fund or other similar funds or
(y) to withhold from its employees’ salaries and benefits and to pay to any Governmental Entity as required by applicable
Legal Requirements have, in each case, been duly deducted, transferred, withheld and paid, and the Company and its Subsidiaries
do not have any outstanding obligation to make any such deduction, transfer, withholding or payment. Except as set forth in Section
2.12(c) of the Company Schedule, there are no pending, or to the Company’s knowledge, threatened or reasonably anticipated
claims or actions against the Company or any of its Subsidiaries by any employee in connection with such employee’s employment
or termination of employment by the Company or any of its Subsidiaries.
(d) No employee or former employee of the Company or any of its Subsidiaries is owed any wages, benefits or other compensation for
past services (other than wages, benefits and compensation accrued in the ordinary course of business during the current pay period
and any accrued benefits for services, which by their terms or under applicable law, are payable in the future, such as accrued
vacation, recreation leave and severance pay).
2.13 Restrictions
on Business Activities. There is no agreement, commitment, judgment, injunction, order or decree binding upon the
Company or its Subsidiaries or their assets or to which the Company or its Subsidiaries is a party which has or
could reasonably be expected to have the effect of prohibiting or materially impairing any business practice of the Company
or its Subsidiaries, any acquisition of property by the Company or its Subsidiaries or the conduct of business by the Company
or its Subsidiaries as currently conducted other than such effects, individually or in the aggregate, which have not had and
could not reasonably be expected to have a Material Adverse Effect on the Company or its Subsidiaries taken as a whole.
2.14 Title to Property.
(a) The Company and its Subsidiaries do not own any real property.
(b) All leases of real property held by the Company and its Subsidiaries, and all personal property and other property and assets
of the Company and its Subsidiaries owned, used or held for use in connection with the business of the Company and its Subsidiaries
(the “Personal Property”) are shown or reflected on the balance sheet included in the Audited Financial Statements,
to the extent required by U.S. GAAP, as of the dates of such Audited Financial Statements, other than those entered into or acquired
on or after the date of the Audited Financial Statements in the ordinary course of business. Section 2.14(c) of the
Company Schedule contains a list of all leases of real property and Personal Property held by the Company and its Subsidiaries
(other than leases of vehicles, office equipment, or operating equipment made in the ordinary course of business). The Company
and its Subsidiaries have good and marketable title to the Personal Property owned respectively by each such entity, and all such
Personal Property is in each case held free and clear of all Liens, except for Liens disclosed in the Audited Financial Statements,
none of which Liens is reasonably expected to have, individually or in the aggregate, a Material Adverse Effect on such property
or on the present or contemplated use of such property in the businesses of the Company or any of its Subsidiaries.
(c) All leases pursuant to which the Company and/or its Subsidiaries lease from others material real property or Personal Property
are valid and effective in accordance with their respective terms, and there is not, under any of such leases, any existing material
default or event of default of the Company or its Subsidiaries or, to the Company’s knowledge, any other party (or any event
which with notice or lapse of time, or both, would constitute a material default), except where the lack of such validity and
effectiveness or the existence of such default or event of default could not reasonably be expected to have a Material Adverse
Effect on the Company or its Subsidiaries taken as a whole.
(d) The Company and its Subsidiaries are in possession of, or have valid and effective rights to, all properties, assets and rights
required, in all material respects for the effective conduct of their business, as they are currently operated, in the ordinary
course.
2.15 Taxes.
(a) Tax Definitions. As used in this Agreement, (i) the term “Tax” (including, with correlative meaning,
the terms “Taxes” and “Taxable”) includes all federal, state, local and foreign income,
profits, franchise, gross receipts, customs duty, stamp, payroll, sales, employment, occupation, ad valorem, transfer, recapture,
unemployment, disability, use, property, withholding, excise, production, value added, occupancy and other taxes, duties or assessments
of any nature whatsoever, together will all interest, penalties and additions, and (ii) the term “Tax Return”
includes all returns and reports (including elections, declarations, disclosures, schedules, estimates and information returns)
required to be supplied to a Tax authority relating to Taxes.
(b) Tax Returns and Audits. Except as set forth in Section 2.15 of the Company Schedule:
(i) The Company and its Subsidiaries have timely filed all Tax Returns required to be filed by the Company or its Subsidiaries with
any Tax authority prior to the date hereof, except such Tax Returns that are not material to the Company or its Subsidiaries.
All such Tax Returns are true, correct and complete in all material respects. The Company and its Subsidiaries have paid all Taxes
shown to be due and payable on such Tax Returns.
(ii) All Taxes that the Company and its Subsidiaries are required by law to withhold or collect have been duly withheld or collected,
and have been timely paid over to the proper governmental authorities to the extent due and payable.
(iii) The Company and its Subsidiaries have not been delinquent in the payment of any material Tax nor is there any material Tax deficiency
outstanding, proposed or assessed against the Company or its Subsidiaries, nor have the Company or its Subsidiaries executed any
unexpired waiver of any statute of limitations on or extending the period for the assessment or collection of any Tax. The Company
and its Subsidiaries have complied with all Legal Requirements with respect to payments made to third parties and the withholding
of any payment of withheld Taxes and has timely withheld from employee wages and other payments and timely paid over in full to
the proper taxing authorities all amounts required to be so withheld and paid over for all periods.
(iv) To the knowledge of the Company, no audit or other examination of any Tax Return of the Company and its Subsidiaries by any Tax
authority is presently in progress, nor has the Company or any Subsidiary been notified of any request for such an audit or other
examination.
(v) No adjustment relating to any Tax Returns filed by the Company or any Subsidiary has been proposed in writing, formally or informally,
by any Tax authority to the Company or any Subsidiary or any representative thereof.
(vi) The Company and its Subsidiaries have no liability for any unpaid Taxes which have not been accrued for or reserved on the Company’s
balance sheets included in the Audited Financial Statements, whether asserted or unasserted, contingent or otherwise, other than
any liability for unpaid Taxes that may have accrued since the end of the most recent fiscal year in connection with the operation
of the business of the Company in the ordinary course of business.
2.16 Environmental Matters.
(a) Except for such matters that, individually or in the aggregate, are not reasonably likely to have a Material Adverse Effect upon
the Company and its Subsidiaries taken as a whole: (i) the Company and/or its Subsidiaries have complied with all applicable Environmental
Laws (as defined below); (ii) the properties currently operated or being constructed by the Company or its Subsidiaries (including
soils, groundwater, surface water, air, buildings or other structures), including properties owned or leased by third parties
upon which the Company and/or its Subsidiaries have performed or are performing services or other operations, are not contaminated
with any Hazardous Substances (as defined below) as a result of the actions or omissions of the Company and its Subsidiaries;
(iii) the properties formerly owned, operated or constructed by the Company and/or its Subsidiaries, including properties owned
or leased by third parties upon which the Company and/or its Subsidiaries performed services or other operations, were not contaminated
with Hazardous Substances by the Company and/or its Subsidiaries during the period of ownership, operation or construction by
the Company or its Subsidiaries; (iv) to the Company’s knowledge, the Company and/or its Subsidiaries are not subject to
liability for any Hazardous Substance disposal or contamination on any third party or public property (whether above, on or below
ground or in the atmosphere or water); (vi) neither the Company nor its Subsidiaries have received any notice, demand, letter,
claim or request for information alleging that the Company and/or its Subsidiaries may be in violation of or liable under any
Environmental Law; and (vii) the Company and/or its Subsidiaries are not subject to any orders, decrees, injunctions or other
arrangements with any Governmental Entity or subject to any indemnity or other agreement with any third party relating to liability
under any Environmental Law or relating to Hazardous Substances.
(b) As used in this Agreement, the term “Environmental Law” means any applicable law, regulation, order, decree,
permit, authorization, common law or agency requirement relating to: (A) the protection, investigation or restoration of the environment,
health and safety, or natural resources; (B) the handling, use, presence, disposal, release or threatened release of any Hazardous
Substance or (C) noise, odor, wetlands, pollution, contamination or any injury or threat of injury to human health or the environment.
(c) As used in this Agreement, the term “Hazardous Substance” means any substance that is: (i) listed, classified
or regulated pursuant to any Environmental Law; (ii) any petroleum product or by-product, asbestos-containing material, lead-containing
paint or plumbing, polychlorinated biphenyls, radioactive materials or radon; (iii) explosive or (iv) any other substance which
is the subject of regulatory action by any Governmental Entity pursuant to any Environmental Law.
(d) There have been no environmental studies and investigations completed within the last five (5) years or that are in process commissioned
by the Company and/or its Subsidiaries, including to the knowledge of the Company all phase reports.
2.17 Brokers; Third Party Expenses. Except as set forth in Section 2.17 of the Company Schedule, the Company
has not incurred, nor will it incur, directly or indirectly, any liability for brokerage fees, investment banking fees, finders’
fees, agent’s commissions or any similar charges in connection with this Agreement or any transactions contemplated hereby,
and neither the Company nor any of its Subsidiaries has entered into any arrangements that would obligate the Company or any of
its Affiliates to issue any shares, options, warrants or other securities to any third party as a result of this Agreement.
2.18 Intellectual Property.
(a) Section 2.18(a) of the Company Schedule contains a description of all material Company Intellectual Property. For
the purposes of this Agreement, the following terms have the following definitions:
(i) “Intellectual Property” shall mean any or all of the following and all worldwide common law and statutory rights
in, arising out of, or associated therewith: (i) patents and applications therefor and all reissues, divisions, renewals, extensions,
provisionals, continuations and continuations-in-part thereof (“Patents”); (ii) inventions (whether patentable
or not), invention disclosures, improvements, trade secrets, proprietary information, know how, technology, technical data and
customer lists, and all documentation relating to any of the foregoing; (iii) copyrights, copyrights registrations and applications
therefor, and all other rights corresponding thereto throughout the world (“Copyrights”); (iv) software and
software programs; (v) domain names, uniform resource locators and other names and locators associated with the Internet; (vi)
industrial designs and any registrations and applications therefor; (vii) trade names, logos, common law trademarks and service
marks, trademark and service mark registrations and applications therefor (collectively, “Trademarks”); (viii)
all databases and data collections and all rights therein; (ix) all moral and economic rights of authors and inventors, however
denominated; and (x) any similar or equivalent rights to any of the foregoing (as applicable).
(ii) “Company Intellectual Property” shall mean any Intellectual Property that is owned by, or exclusively licensed
to, the Company or any of its Subsidiaries, including software and software programs developed by or exclusively licensed to the
Company or any of its Subsidiaries (specifically excluding any off the shelf or shrink-wrap software).
(iii) “Registered Intellectual Property” means all Intellectual Property that is the subject of an application, certificate,
filing, registration or other document issued, filed with, or recorded by any government or other legal authority.
(iv) “Company Registered Intellectual Property” means all of the Registered Intellectual Property owned by, or filed
in the name of, the Company or any of its Subsidiaries.
(v)
“Company Products” means all current versions of products or service offerings of the Company or any of its
Subsidiaries.
(b) The Company and its Subsidiaries own or have enforceable rights to use all Intellectual Property required for the conduct of their
respective business as presently conducted. No Company Intellectual Property or Company Product is subject to any material proceeding
or outstanding decree, order, judgment, contract, license, agreement or stipulation restricting in any manner the use, transfer
or licensing thereof by the Company or any of its Subsidiaries, or which may affect the validity, use or enforceability of such
Company Intellectual Property or Company Product, which in any such case could reasonably be expected to have a Material Adverse
Effect on the Company or any of its Subsidiaries taken as a whole.
(c) Section 2.18(c) of the Company Schedule lists all Company Intellectual Property owned by each of the Company and its Subsidiaries
free and clear of any Liens (excluding non-exclusive licenses and related restrictions granted by it in the ordinary course of
business), and regarding which a transfer to Colombo Franchising Ltda. has been filed prior to the date hereof, such transfer
to be cancelled prior to Closing, according to Section 5.29 below. The Company and its Subsidiaries are the exclusive owner
of all material registered Trademarks and Copyrights used in connection with the operation or conduct of the business of the Company
and its Subsidiaries including the sale of any products or the provision of any services by the Company and its Subsidiaries.
(d) The operation of the business of the Company and its Subsidiaries as such business currently is conducted, including the Company’s
and its Subsidiaries’ use of any product, device or process, does not infringe or misappropriate the Intellectual Property
of any third party or constitute unfair competition or trade practices under the laws of any jurisdiction and the Company and
its Subsidiaries have not received any claims or threats in writing from third parties alleging any such infringement, misappropriation
or unfair competition or trade practices.
2.19 Agreements, Contracts and Commitments.
(a) Section 2.19 of the Company Schedule sets forth a complete and accurate list of all Material Company Contracts (as
hereinafter defined), specifying the parties thereto. For purposes of this Agreement, (i) the term “Company Contracts”
shall mean all written contracts, agreements, leases, mortgages, indentures, notes, bonds, licenses, permits, franchises, purchase
orders, sales orders, and other understandings, commitments and obligations of any kind to which the Company or any of its Subsidiaries
is a party or by or to which any of the properties or assets of the Company or any of its Subsidiaries may be bound, subject or
affected (including without limitation notes or other instruments payable to the Company or any of its Subsidiaries) and (ii)
the term “Material Company Contracts” shall mean (x) each Company Contract (A) that would be required to be
included as an exhibit to a registration statement with the SEC if the Company had a class of equity securities registered under
Section 12(b) or 12(g) of the Exchange Act, (B) providing for payments (present or future) to the Company or any of its Subsidiaries
in excess of $2,000,000 in the aggregate in any twelve month period or (C) under or in respect of which the Company or any of
its Subsidiaries presently have any liability or obligation of any nature whatsoever in excess of $2,000,000, (y) each Company
Contract that otherwise is material to the businesses, operations, assets or condition (financial or otherwise) of the Company
and its Subsidiaries taken as a whole, and (z) the limitations of subclause (x) and subclause (y) notwithstanding, each of the
following Company Contracts:
(i) any mortgage, indenture, note, installment obligation or other instrument, agreement or arrangement for or relating to any borrowing
of money by or from the Company or any of its Subsidiaries and by or to any officer, director, shareholder or holder of derivative
securities of the Company or any of its Subsidiaries (“Insider”);
(ii) any mortgage, indenture, note, installment obligation or other instrument, agreement or arrangement for or relating to any borrowing
of money from an Insider by the Company;
(iii) any guaranty, direct or indirect, by the Company, a Subsidiary or any Insider of the Company of any obligation for borrowings
in excess of $3,000,000, or otherwise, excluding endorsements made for collection in the ordinary course of business;
(iv) any Company Contract of employment with executive management;
(v) any Company Contract made other than in the ordinary course of business or (x) providing for the grant of any preferential rights
to purchase or lease any asset of the Company or any of its Subsidiaries or (y) providing for any right (exclusive or non-exclusive)
to sell or distribute, or otherwise relating to the sale or distribution of, any product or service of the Company or any of its
Subsidiaries;
(vi) any obligation to register any shares of the capital stock or other securities of the Company or any of its Subsidiaries with
any Governmental Entity;
(vii)
any Company Contract containing an outstanding obligation to make payments, contingent or otherwise, arising out of the
prior acquisition of the business, assets or stock of other Persons;
(viii)
any collective bargaining agreement with any labor union;
(ix)
any lease or similar arrangement for the use by the Company or any of its Subsidiaries of real property or Personal Property where
the annual lease payments are greater than $100,000 (other than any lease of vehicles, office equipment or operating equipment
made in the ordinary course of business); and
(x) any Company Contract to which any Insider of the Company or any of its Subsidiaries, or any entity owned or controlled by an Insider,
is a party.
(b) Each Material Company Contract was entered into at arms’ length and in the ordinary course, is in full force and effect
and, to the Company’s knowledge, is valid and binding upon and enforceable against each of the parties thereto, except insofar
as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’
rights generally or by principles governing the availability of equitable remedies. To the Company’s knowledge, no other
party to a Material Company Contract is the subject of a bankruptcy or insolvency proceeding. Except as set forth in Section
2.19(b) of the Company Schedule, true, correct and complete copies of all Material Company Contracts have been made available
to GGAC or GGAC’s counsel.
(c) To the best of the Company’s knowledge, no other party thereto is in breach of or in default under, and no event has occurred
which with notice or lapse of time or both would become a breach of or default under, any Material Company Contract, and no party
to any Material Company Contract has given any written notice of any claim of any such breach, default or event, which, individually
or in the aggregate, are reasonably likely to have a Material Adverse Effect on the Company and its Subsidiaries taken as a whole.
Each Material Company Contract that has not expired by its terms is in full force and effect.
2.20 Insurance. Section 2.20 of the Company Schedule sets forth the Company’s and its Subsidiaries’
insurance policies and fidelity and surety bonds covering the assets, business, equipment, properties, operations, employees,
officers and directors (collectively, “Insurance Policies”).
2.21 Governmental Actions/Filings.
(a) The Company and its Subsidiaries have been granted and hold, and have made, all Governmental Actions/Filings (as defined below)
necessary to the conduct by the Company and its Subsidiaries of their business (as presently conducted and as presently proposed
to be conducted) or used or held for use by the Company and its Subsidiaries except for any thereof that if not granted, held
or made, would not have, individually or in the aggregate, a Material Adverse Effect upon the Company and its Subsidiaries taken
as a whole. To the Company’s knowledge, each such Governmental Action/Filing is in full force and effect and will be renewed
in the ordinary course of the Company’s business and the Company and its Subsidiaries are in substantial compliance with
all of their obligations with respect thereto. No event has occurred and is continuing which requires or permits, or after notice
or lapse of time or both would require or permit, and consummation of the transactions contemplated by this Agreement or any ancillary
documents will not require or permit (with or without notice or lapse of time, or both), any modification or termination of any
such Governmental Actions/Filings except such events which, either individually or in the aggregate, would not have a Material
Adverse Effect upon the Company or any of its Subsidiaries taken as a whole. No Governmental Action/Filing is necessary to be
obtained, secured or made by the Company or any of its Subsidiaries to enable any of them to continue to conduct its business
and operations and use its properties after the Closing in a manner that is consistent with current practice except for any of
such that, if not obtained, secured or made, would not, either individually or in the aggregate, have a Material Adverse Effect
upon the Company or any of its Subsidiaries taken as a whole.
(b) For purposes of this Agreement, the term “Governmental Action/Filing” shall mean any franchise, license, certificate
of compliance, authorization, consent, order, permit, approval, consent or other action of, or any filing, registration or qualification
with, any federal, state, municipal, foreign or other governmental, administrative or judicial body, agency or authority.
2.22 Interested Party Transactions. No employee, officer, director or shareholder of the Company or any of its Subsidiaries
or a member of his or her immediate family is indebted to the Company or any of its Subsidiaries, nor is the Company or any of
its Subsidiaries indebted (or committed to make loans or extend or guarantee credit) to any of such Persons, other than (i) for
payment of salary for services rendered, (ii) reimbursement for reasonable expenses incurred on behalf of the Company or any of
its Subsidiaries, and (iii) for other employee benefits made generally available to all employees. Except as set forth in Section 2.22
of the Company Schedule, the Company and its Subsidiaries are not indebted to any employee, officer, director or shareholder
of the Company. To the Company’s knowledge, none of such individuals has any direct or indirect ownership interest in any
Person with whom the Company or any of its Subsidiaries is affiliated or with whom the Company or any of its Subsidiaries has
a contractual relationship, or in any Person that competes with the Company or any of its Subsidiaries, except that each employee,
shareholder, officer or director of the Company or any of its Subsidiaries and members of their respective immediate families
may own less than 5% of the outstanding stock in publicly traded companies that may compete with the Company or any of its Subsidiaries.
Except as set forth in Section 2.22 of the Company Schedule, to the knowledge of the Company, no officer, director
or shareholder or any member of their immediate families is, directly or indirectly, interested in any Material Company Contract
with the Company or any of its Subsidiaries (other than such contracts as relate to any such Person’s ownership of capital
stock or other securities of the Company or such Person’s employment with the Company or any of its Subsidiaries).
2.23 Antitrust Filing. The execution and delivery of this Agreement and the consummation of the transaction contemplated
hereby do not require any consent or approval of, or any notice to or other filing with, the Brazilian Antitrust Authority (“CADE”),
as the Company and its economic group do not achieve the BRL 750,000,000.00 turnover threshold established in Law 12.529/2011,
as amended by the MF/MJ Joint Ordinance No. 994/12.
2.24 No Illegal or Improper Transactions. Since January 1, 2012, neither the Company nor any of its Subsidiaries
nor any officer, director, employee, agent or Affiliate of the Company or its Subsidiaries acting on its behalf 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 (a) obtaining
or maintaining business for the Company or any of its Subsidiaries, (b) facilitating the purchase or sale of any product or service,
or (c) avoiding the imposition of any fine or penalty, in any manner which is in violation of any applicable ordinance, regulation
or law, the effect of which, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect
on the Company or any of its Subsidiaries, taken as a whole. To the Company’s knowledge, no employee of the Company or any
of its Subsidiaries has provided or is providing information to any law enforcement agency regarding the commission or possible
commission of any crime or the violation or possible violation of any applicable law. Neither the Company nor any of its Subsidiaries
nor, to the Company’s knowledge, any officer, employee, contractor, subcontractor or agent of the Company or any of its
Subsidiaries has discharged, demoted, suspended, threatened, harassed or in any other manner discriminated against an employee
of the Company or any of its Subsidiaries in the terms and conditions of employment because of any act of such employee described
in 18 U.S.C. § 1514A(a).
2.25 Survival of Representations and Warranties. The representations and warranties of the Company, the Controlling Persons
and the Optionholders set forth in this Agreement shall survive the Closing as set forth in Section 7.4(a) hereof.
Article
III
REPRESENTATIONS AND WARRANTIES OF GGAC
Subject to the
exceptions set forth in Schedule 3 attached hereto (the “GGAC Schedule”), GGAC represents and warrants
to the Company, the Controlling Persons and the Optionholders, as follows:
3.1 Organization and Qualification.
(a) GGAC is a company duly incorporated, validly existing and in good standing under the laws of the Cayman Islands and has the requisite
corporate power and authority to own, lease and operate its assets and properties and to carry on its business as it is now being
or currently planned by GGAC to be conducted. GGAC is in possession of all Approvals necessary to own, lease and operate the properties
it purports to own, operate or lease and to carry on its business as it is now being or currently planned by GGAC to be conducted,
except where the failure to have such Approvals could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on GGAC. Complete and correct copies of the Charter Documents of GGAC, as amended and currently in effect,
have been heretofore delivered to the Company and the Controlling Persons. GGAC is not in violation of any of the provisions of
GGAC’s Charter Documents.
(b) GGAC is qualified or licensed to do business as a foreign corporation and is in good standing in each jurisdiction where the character
of the properties owned, leased or operated by it or the nature of its activities makes such qualification or licensing necessary,
except where the failure to be so duly qualified or licensed and in good standing could not reasonably be expected to have a Material
Adverse Effect on GGAC.
3.2 Subsidiaries and Other Interests.
(a) GGAC has no subsidiaries and does not own, directly or indirectly, any ownership, equity, profits or voting interest in any Person
or have any agreement or commitment to purchase any such interest, and GGAC has not agreed and is not obligated to make nor is
bound by any written, oral or other agreement, contract, subcontract, lease, binding understanding, instrument, note, option,
warranty, purchase order, license, sublicense, insurance policy, benefit plan, commitment or undertaking of any nature, as of
the date hereof or as may hereafter be in effect under which it may become obligated to make, any future investment in or capital
contribution to any other entity.
(b) GGAC does not own directly or indirectly any interest or investment (whether equity or debt) in any corporation, partnership,
joint venture, business, trust or other entity (other than investments in short term investment securities).
3.3 Capitalization.
(a) As of the date of this Agreement, the authorized capital stock of GGAC consists of 120,000,000 GGAC Ordinary Shares and 1,000,000
preferred shares, par value $0.0001 per share (“GGAC Preferred Shares”), of which 18,602,813 GGAC Ordinary
Shares and no GGAC Preferred Shares are issued and outstanding. Except as set forth in Section 3.3(a) of the GGAC Schedule,
all of such securities are validly issued, fully paid and nonassessable and free of preemptive rights or rights of first refusal
created by statute, the Charter Documents of GGAC or any agreement to which GGAC is a party or by which it is bound, and free
of any liens or encumbrances other than any liens or encumbrances created by or imposed upon the holders thereof or under applicable
federal or state securities or “blue sky” laws. Except as set forth in Section 3.3(a) of the GGAC Schedule,
GGAC has no outstanding bonds, debentures, notes or other obligations the holders of which have or upon the happening of certain
events would have the right to vote (or which are convertible into or exercisable or exchangeable for securities having the right
to vote) with the shareholders of GGAC on any matter.
(b) Except as set forth in Section 3.3(b) of the GGAC Schedule, there are no (i) existing options, warrants, calls, subscriptions,
convertible securities, or other rights, agreements, stock appreciation rights or similar derivative securities or instruments
or commitments which obligate GGAC to issue, transfer or sell any shares of GGAC capital stock or make any payments in lieu thereof,
(ii) agreements or understandings to which GGAC is a party with respect to the voting of any shares of GGAC capital stock or which
restrict the transfer of any such shares, nor does GGAC have knowledge of any such agreements or understandings with respect to
the voting of any such shares or which restrict the transfer of any such shares, (iii) outstanding contractual obligations of
GGAC to repurchase, redeem or otherwise acquire any shares of GGAC capital stock or any other securities of GGAC, (iv) outstanding
options to purchase GGAC Ordinary Shares or GGAC Preferred Shares granted to employees of GGAC or other parties, (v) outstanding
warrants to purchase GGAC Ordinary Shares or GGAC Preferred Shares or (vi) outstanding notes, debentures or securities convertible
into GGAC Ordinary Shares or GGAC Preferred Shares. All GGAC Ordinary Shares and GGAC Preferred Shares subject to issuance as
aforesaid, upon issuance on the terms and conditions specified in the instrument pursuant to which they are issuable, will be
duly authorized, validly issued, fully paid and nonassessable. All outstanding securities of GGAC have been issued and granted
in compliance with (x) all applicable securities laws and (in all material respects) other applicable laws and regulations, and
(y) all requirements set forth in any applicable GGAC Contracts (as defined in Section 3.19 hereof).
(c) Except as set forth in Section 3.3(c) of the GGAC Schedule, there are no registrations rights, and there is no voting
trust, proxy, rights plan, antitakeover plan or other agreements or understandings to which GGAC is a party or by which GGAC is
bound with respect to any security of any class of GGAC.
(d) Except for the Share Consideration and the Option Consideration and as set forth in Section 3.3(d) of the GGAC Schedule,
as a result of the consummation of the transactions contemplated hereby, no shares of capital stock, warrants, options or other
securities of GGAC are issuable and no rights in connection with any shares, warrants, options or other securities of GGAC accelerate
or otherwise become triggered (whether as to vesting, exercisability, convertibility or otherwise).
(e) All GGAC Ordinary Shares to be issued in connection with the transactions contemplated hereby, when issued in accordance with
the terms hereof, shall be duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights
or any Liens.
3.4 Authority Relative to this Agreement. GGAC has full corporate power and authority to: (i) execute, deliver and perform
this Agreement, and each ancillary document that GGAC has executed or delivered or is to execute or deliver pursuant to this Agreement,
and (ii) carry out GGAC’s obligations hereunder and thereunder and, to consummate the transactions contemplated hereby.
Other than the GGAC Shareholder Approval (as defined in Section 5.1(b) hereof), the execution and delivery of this
Agreement by GGAC and the consummation by GGAC of the transactions contemplated hereby have been duly and validly authorized by
all necessary corporate action on the part of GGAC (including the approval by its board of directors), and no other corporate
proceedings on the part of GGAC are necessary to authorize this Agreement or to consummate the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered by GGAC and, assuming the due authorization, execution and delivery
thereof by the other parties hereto, constitutes the legal and binding obligation of GGAC, enforceable against GGAC in accordance
with its terms, except as may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement
of creditors’ rights generally and by general principles of equity.
3.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by GGAC does not, and the performance of this Agreement by GGAC shall not: (i) conflict
with or violate GGAC’s Charter Documents, (ii) conflict with or violate any Legal Requirements, or (iii) result in any breach
of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or materially
impair GGAC’s rights or alter the rights or obligations of any third party 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 GGAC pursuant
to, any GGAC Contracts, except, with respect to clauses (ii) or (iii), for any such conflicts, violations, breaches, defaults
or other occurrences that would not, individually and in the aggregate, have a Material Adverse Effect on GGAC.
(b) The execution and delivery of this Agreement by GGAC does not, and the performance of it hereunder will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any Governmental Entity, except (i) for applicable requirements,
if any, of the Securities Act, the Exchange Act, Blue Sky Laws, and the rules and regulations thereunder, and appropriate documents
with the relevant authorities of other jurisdictions in which GGAC is qualified to do business, and (ii) where the failure
to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications, would not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect on GGAC, or prevent consummation of the Contributions
or otherwise prevent the parties hereto from performing their respective obligations under this Agreement.
3.6 Compliance. GGAC has complied with, and is not in violation of, any Legal Requirements with respect to the conduct
of its business, or the ownership or operation of its business, except for failures to comply or violations which, individually
or in the aggregate, have not had and are not reasonably likely to have a Material Adverse Effect on GGAC. The business and activities
of GGAC have not been and are not being conducted in violation of any Legal Requirements. GGAC is not in default or violation
of any term, condition or provision of any applicable Charter Documents. No written notice of non-compliance with any Legal Requirements
has been received by GGAC.
3.7 SEC Filings; Financial Statements; Internal Controls.
(a) GGAC has made available to the Company a correct and complete copy of each report and registration statement filed by GGAC with
the SEC (the “GGAC SEC Reports”), which are all the forms, reports and documents required to be filed by GGAC
with the SEC prior to the date of this Agreement. All GGAC SEC Reports required to be filed by GGAC prior to the date of this
Agreement were filed in a timely manner. As of their respective dates the GGAC SEC Reports: (i) were prepared in accordance and
complied in all material respects with the requirements of the Securities Act or the Exchange Act, as the case may be, and the
rules and regulations of the SEC thereunder applicable to such GGAC SEC Reports, and (ii) did not at the time they were filed
(and if amended or superseded by a filing prior to the date of this Agreement then on the date of such filing and as so amended
or superseded) contain any untrue statement of a material fact or omit to state a 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.
Except to the extent set forth in the preceding sentence, GGAC makes no representation or warranty whatsoever concerning any GGAC
SEC Report as of any time other than the date or period with respect to which it was filed. The certifications and statements
required by (A) Rule 13a-14 under the Exchange Act and (B) 18 U.S.C. §1350 (Section 906 of the Sarbanes-Oxley Act) relating
to the GGAC SEC Documents are accurate and complete and comply as to form and content with all applicable laws or rules of applicable
governmental and regulatory authorities in all material respects.
(b) Except as set forth in Section 3.7(b) of the GGAC Schedule, each set of financial statements (including, in each case,
any related notes thereto) contained in GGAC SEC Reports, including each GGAC SEC Report filed after the date hereof until the
Closing, complied or will comply as to form in all material respects with the published rules and regulations of the SEC with
respect thereto, was or will be prepared in accordance with U.S. GAAP applied on a consistent basis throughout the periods involved
(except as may be indicated in the notes thereto or, in the case of unaudited statements, do not contain footnotes as permitted
by Form 10-Q of the Exchange Act) and each fairly presents or will fairly present in all material respects the financial position
of GGAC at the respective dates thereof and the results of its operations and cash flows for the periods indicated, except that
the unaudited interim financial statements were, are or will be subject to normal adjustments which were not or are not expected
to have a Material Adverse Effect on GGAC taken as a whole.
(c) GGAC maintains disclosure controls and procedures that satisfy the requirements of Rule 13a-15 under the Exchange Act, and such
disclosure controls and procedures are designed to ensure that all material information concerning GGAC is made known on a timely
basis to the individuals responsible for the preparation of GGAC’s filings with the SEC and other public disclosure documents.
(d) To the knowledge of GGAC, GGAC’s auditor has at all required times since the date of enactment of the Sarbanes-Oxley Act
been: (i) a registered public accounting firm (as defined in Section 2(a)(12) of the Sarbanes-Oxley Act); (ii) “independent”
with respect to GGAC within the meaning of Regulation S-X under the Exchange Act; and (iii) in compliance with subsections (g)
through (l) of Section 10A of the Exchange Act and the rules and regulations promulgated by the SEC and the Public Company Accounting
Oversight Board thereunder.
3.8 No Undisclosed Liabilities. GGAC has no liabilities (absolute, accrued, contingent or otherwise) of a nature required
to be disclosed on a balance sheet or in the related notes to the financial statements included in GGAC SEC Reports that are,
individually or in the aggregate, material to the business, results of operations or financial condition of GGAC, except (i) liabilities
provided for in or otherwise disclosed in GGAC SEC Reports filed prior to the date hereof, and (ii) liabilities incurred since
September 30, 2015 in the ordinary course of business, none of which would have a Material Adverse Effect on GGAC. GGAC is not
and has not been a party to any securitization transactions or “off-balance sheet arrangements” (as defined in Item
303(c) of Regulation S-K under the Exchange Act).
3.9 Absence of Certain Changes or Events. Except as set forth in GGAC SEC Reports filed prior to the date of this Agreement,
and except as contemplated by this Agreement, since September 30, 2015, there has not been: (i) any Material Adverse Effect on
GGAC, (ii) any declaration, setting aside or payment of any dividend on, or other distribution (whether in cash, stock or property)
in respect of, any of GGAC’s capital stock, or any purchase, redemption or other acquisition by GGAC of any of GGAC’s
capital stock or any other securities of GGAC or any options, warrants, calls or rights to acquire any such shares or other securities,
(iii) any split, combination or reclassification of any of GGAC’s capital stock, (iv) any granting by GGAC of any increase
in compensation or fringe benefits, except for normal increases of cash compensation in the ordinary course of business consistent
with past practice, or any payment by GGAC of any bonus, except for bonuses made in the ordinary course of business consistent
with past practice, or any granting by GGAC of any increase in severance or termination pay or any entry by GGAC into any currently
effective employment, severance, termination or indemnification agreement or any agreement the benefits of which are contingent
or the terms of which are materially altered upon the occurrence of a transaction involving GGAC of the nature contemplated hereby,
(v) any material change by GGAC in its accounting methods, principles or practices, except as required by concurrent changes in
U.S. GAAP, (vi) any change in the auditors of GGAC, (vi) any issuance of capital stock of GGAC, or (vii) any revaluation by GGAC
of any of its assets, including, without limitation, writing down the value of capitalized inventory or writing off notes or accounts
receivable or any sale of assets of GGAC other than in the ordinary course of business.
3.10 Litigation. There are no claims, suits, actions or proceedings pending or to GGAC’s knowledge, threatened
against GGAC, before any court, governmental department, commission, agency, instrumentality or authority, or any arbitrator.
3.11 Employee Benefit Plans. GGAC does not maintain, and has no liability under, any Plan, and neither the execution
and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (i) result in any payment (including
severance, unemployment compensation, golden parachute, bonus or otherwise) becoming due to any shareholder, director or employee
of GGAC, or (ii) result in the acceleration of the time of payment or vesting of any such benefits.
3.12 Labor Matters. Except as set forth in Section 3.12 of the GGAC Schedule, GGAC does not have nor has it had
any employees since its organization. GGAC is not a party to any collective bargaining agreement or other labor union contract
applicable to persons employed by GGAC and GGAC does not know of any activities or proceedings of any labor union to organize
any such employees.
3.13 Business Activities. Since its organization, GGAC has not conducted any business activities other than activities
directed toward the accomplishment of a business combination. Except as set forth in the GGAC Charter Documents, there is no agreement,
commitment, judgment, injunction, order or decree binding upon GGAC or to which GGAC is a party which has or could reasonably
be expected to have the effect of prohibiting or materially impairing any business practice of GGAC, any acquisition of property
by GGAC or the conduct of business by GGAC as currently conducted other than such effects, individually or in the aggregate, which
have not had and could not reasonably be expected to have, a Material Adverse Effect on GGAC.
3.14 Title to Property. GGAC does not own or lease any real property or personal property. Except as set forth in Section 3.14
of the GGAC Schedule, there are no options or other contracts under which GGAC has a right or obligation to acquire or lease
any interest in real property or personal property.
3.15 Taxes. Except as set forth in Section 3.15 of the GGAC Schedule:
(a) GGAC has timely filed all Tax Returns required to be filed by GGAC with any Tax authority prior to the date hereof, except such
Tax Returns which are not material to GGAC. All such Tax Returns are true, correct and complete in all material respects. GGAC
has paid or accrued for in GGAC’s books and records of account all Taxes shown to be due on such Tax Returns.
(b) All Taxes that GGAC is required by law to withhold or collect have been duly withheld or collected, and have been timely paid
over to the proper governmental authorities to the extent due and payable.
(c)
GGAC has not been delinquent in the payment of any material Tax that has not been accrued for in GGAC’s books and
records of account for the period for which such Tax relates nor is there any material Tax deficiency outstanding, proposed
or assessed against GGAC, nor has GGAC executed any unexpired waiver of any statute of limitations on or extending the period
for the assessment or collection of any Tax.
(d) No audit or other examination of any Tax Return of GGAC by any Tax authority is presently in progress, nor has GGAC been notified
of any request for such an audit or other examination.
(e) No adjustment relating to any Tax Returns filed by GGAC has been proposed in writing, formally or informally, by any Tax authority
to GGAC or any representative thereof.
(f) GGAC has no liability for any material unpaid Taxes which have not been accrued for or reserved on GGAC’s balance sheets
included in the audited financial statements for the most recent fiscal year ended, whether asserted or unasserted, contingent
or otherwise, which is material to GGAC, other than any liability for unpaid Taxes that may have accrued since the end of the
most recent fiscal year in connection with the operation of the business of GGAC in the ordinary course of business, none of which
is material to the business, results of operations or financial condition of GGAC.
3.16 Environmental Matters. Except for such matters that, individually or in the aggregate, are not reasonably likely
to have a Material Adverse Effect: (i) GGAC has complied with all applicable Environmental Laws; (ii) GGAC is not subject to liability
for any Hazardous Substance disposal or contamination on any third party property; (iii) GGAC has not been associated with any
release or threat of release of any Hazardous Substance; (iv) GGAC has not received any notice, demand, letter, claim or request
for information alleging that GGAC may be in violation of or liable under any Environmental Law; and (v) GGAC is not subject to
any orders, decrees, injunctions or other arrangements with any Governmental Entity or subject to any indemnity or other agreement
with any third party relating to liability under any Environmental Law or relating to Hazardous Substances.
3.17 Brokers. Except as set forth in Section 3.17 of the GGAC Schedule, GGAC has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders’ fees or agent’s commissions or any similar
charges in connection with this Agreement or any transaction contemplated hereby, and GGAC has not entered into any arrangements
that would obligate the GGAC or any of its Affiliates to issue any shares, options, warrants or other securities to any third
party as a result of this Agreement.
3.18 Intellectual Property. GGAC does not own, license or otherwise have any right, title or interest in any material
Intellectual Property or Registered Intellectual Property except non-exclusive rights to the name “Garnero Group Acquisition
Company.”
3.19 Agreements, Contracts and Commitments.
(a) Except as set forth in the GGAC SEC Reports filed prior to the date of this Agreement or as set forth in Section 3.19 of
the GGAC Schedule, other than confidentiality and non-disclosure agreements, there are no contracts, agreements, leases, mortgages,
indentures, notes, bonds, liens, license, permit, franchise, purchase orders, sales orders or other understandings, commitments
or obligations (including without limitation outstanding offers or proposals) of any kind, whether written or oral, to which GGAC
is a party or by or to which any of the properties or assets of GGAC may be bound, subject or affected, which either (a) creates
or imposes a liability greater than $25,000, or (b) may not be cancelled by GGAC on less than 30 days’ or less prior notice
(“GGAC Contracts”). All GGAC Contracts are listed in Section 3.19 of the GGAC Schedule other than
those that are exhibits to the GGAC SEC Reports.
(b) Except as set forth in the GGAC SEC Reports filed prior to the date of this Agreement, each GGAC Contract was entered into at
arms’ length and in the ordinary course, is in full force and effect and is valid and binding upon and enforceable against
each of the parties thereto. True, correct and complete copies of all GGAC Contracts (or written summaries in the case of oral
GGAC Contracts) have been heretofore been made available to the Company or Company counsel.
(c) Neither GGAC nor, to the knowledge of GGAC, any other party thereto is in breach of or in default under, and no event has occurred
which with notice or lapse of time or both would become a breach of or default under, any GGAC Contract, and no party to any GGAC
Contract has given any written notice of any claim of any such breach, default or event, which, individually or in the aggregate,
are reasonably likely to have a Material Adverse Effect on GGAC. Each agreement, contract or commitment to which GGAC is a party
or by which it is bound that has not expired by its terms is in full force and effect, except where such failure to be in full
force and effect is not reasonably likely to have a Material Adverse Effect on GGAC.
3.20 Insurance. Except for directors’ and officers’ liability insurance, GGAC does not maintain any Insurance
Policies.
3.21 Interested Party Transactions. Except as set forth in the GGAC SEC Reports filed prior to the date of this Agreement:
(a) no employee, officer, director or shareholder of GGAC or a member of his or her immediate family is indebted to GGAC nor is
GGAC indebted (or committed to make loans or extend or guarantee credit) to any of them, other than reimbursement for reasonable
expenses incurred on behalf of GGAC; (b) to GGAC’s knowledge, none of such individuals has any direct or indirect ownership
interest in any Person with whom GGAC is affiliated or with whom GGAC has a material contractual relationship, or any Person that
competes with GGAC, except that each employee, shareholder, officer or director of GGAC and members of their respective immediate
families may own less than 5% of the outstanding stock in publicly traded companies that may compete with GGAC; and (c) to GGAC’s
knowledge, no officer, director or shareholder or any member of their immediate families is, directly or indirectly, interested
in any material contract with GGAC (other than such contracts as relate to any such individual ownership of capital stock or other
securities of GGAC).
3.22 Indebtedness. GGAC has no indebtedness for borrowed money.
3.23 Listing of Securities. GGAC’s securities are listed for trading on The Nasdaq Capital Market (“Nasdaq”).
There is no action or proceeding pending or, to GGAC’s knowledge, threatened against GGAC by Nasdaq with respect to any
intention by such entity to prohibit or terminate the listing of any of GGAC’s securities on Nasdaq.
3.24 Board Approval. The board of directors of GGAC (including any required committee or subgroup of the board of directors
of GGAC) has, as of the date of this Agreement, unanimously (i) declared the advisability of the Contributions and approved this
Agreement and the transactions contemplated hereby, (ii) determined that the Contributions are in the best interests of the shareholders
of GGAC, and (iii) determined that the fair market value of the Shares is equal to at least 80% of the balance in the Trust Fund
(as defined in Section 3.25 hereof).
3.25 Trust Fund. As of the date hereof and at the Closing Date, GGAC has and will have no less than $144,468,755 in a
trust account administered by Continental (the “Trust Fund”); provided that a portion of the Trust Fund shall
be utilized in accordance with Section 5.19 hereof.
3.26 Governmental Filings. Except as set forth in Section 3.26 of the GGAC Schedule, GGAC has been granted
and holds, and has made, all Governmental Actions/Filings necessary to the conduct by GGAC of its business (as presently conducted)
or used or held for use by GGAC, and true, complete and correct copies of which have heretofore been delivered to the Company.
Each such Governmental Action/Filing is in full force and effect and, except as disclosed in Section 3.26 of the GGAC
Schedule, will not expire prior to June 30, 2016, and GGAC is in compliance with all of its obligations with respect thereto.
No event has occurred and is continuing which requires or permits, or after notice or lapse of time or both would require or permit,
and consummation of the transactions contemplated by this Agreement or any ancillary documents will not require or permit (with
or without notice or lapse of time, or both), any modification or termination of any such Governmental Actions/Filings except
such events which, either individually or in the aggregate, would not have a Material Adverse Effect upon GGAC.
3.27 Antitrust Filing. The execution and delivery of this Agreement and the consummation of the transaction contemplated
hereby do not require any consent or approval of, or any notice to or other filing with, the CADE, as GGAC and its economic group
do not achieve the BRL750,000,000.00 turnover threshold established in Law 12.529/2011, as amended by the MF/MJ Joint Ordinance
No. 994/12.
3.28 Survival of Representations and Warranties. The representations and warranties of GGAC set forth in this Agreement
shall survive the Closing as set forth in Section 7.4(a) hereof.
Article
IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business by the Company, its Subsidiaries and GGAC. During the period from the date of this Agreement
and continuing until the earlier of the termination of this Agreement pursuant to its terms or the Closing, each of the Company,
its Subsidiaries, and GGAC shall, except to the extent that the other party shall otherwise consent in writing, carry on its business
in the usual, regular and ordinary course consistent with past practices, in substantially the same manner as heretofore conducted
and in compliance with all applicable laws and regulations (except where noncompliance would not have a Material Adverse Effect),
pay its debts and taxes when due subject to good faith disputes over such debts or taxes, pay or perform other material obligations
when due, and use its commercially reasonable best efforts consistent with past practices and policies to (i) preserve substantially
intact its present business organization, (ii) keep available the services of its present officers and employees and (iii) preserve
its relationships with customers, suppliers, distributors, licensors, licensees, and others with which it has significant business
dealings. In addition, except as required or permitted by the terms of this Agreement, without the prior written consent of the
other party (which shall not be unreasonably withheld, delayed or conditioned), during the period from the date of this Agreement
and continuing until the earlier of the termination of this Agreement pursuant to its terms or the Closing, each of the Company,
its Subsidiaries and GGAC shall not do any of the following:
(a) waive any stock repurchase rights, accelerate, amend or change the period of exercisability of options or restricted stock, or
reprice options granted under any employee, consultant, director or other stock plans or authorize cash payments in exchange for
any options granted under any of such plans;
(b) grant any severance or termination pay to any officer or employee outside the ordinary course of business except pursuant to applicable
law, written agreements outstanding, or policies existing on the date hereof and as previously or concurrently disclosed in writing
or made available to the other party, or adopt any new severance plan, or amend or modify or alter in any manner any severance
plan, agreement or arrangement existing on the date hereof;
(c) transfer or license to any person or otherwise extend, amend or modify any material rights to any Intellectual Property of the
Company, its Subsidiaries or GGAC, as applicable, or enter into grants to transfer or license to any person future patent rights,
other than in the ordinary course of business consistent with past practices provided that in no event shall the Company, its
Subsidiaries or GGAC license on an exclusive basis or sell any Intellectual Property of the Company, its Subsidiaries or GGAC
as applicable;
(d) declare, set aside or pay any dividends on or make any other distributions (whether in cash, stock, equity securities or property)
in respect of any capital stock or split, combine or reclassify any capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for any capital stock;
(e) purchase, redeem or otherwise acquire, directly or indirectly, any shares of capital stock of the Company, its Subsidiaries and
GGAC, as applicable;
(f) except as permitted by Section 5.2 hereof, issue, deliver, sell, authorize, pledge or otherwise encumber, or agree to any
of the foregoing with respect to, any shares of capital stock or any securities convertible into or exchangeable for shares of
capital stock, or subscriptions, rights, warrants or options to acquire any shares of capital stock or any securities convertible
into or exchangeable for shares of capital stock, or enter into other agreements or commitments of any character obligating it
to issue any such shares or convertible or exchangeable securities;
(g) amend its Charter Documents, except for the corporate documents and amendments necessary to effect the Reorganization;
(h) acquire or agree to acquire by merging or consolidating with, or by purchasing any equity interest in or a portion of the assets
of, or by any other manner, any business or any corporation, partnership, association or other business organization or division
thereof, or otherwise acquire or agree to acquire any assets which are material, individually or in the aggregate, to the business
of GGAC, the Company or its Subsidiaries as applicable, or enter into any joint ventures, strategic partnerships or alliances
or other arrangements that provide for exclusivity of territory or otherwise restrict such party’s ability to compete or
to offer or sell any products or services. For purposes of this paragraph, “material” includes the requirement that,
as a result of such transaction, financial statements of the acquired, merged or consolidated entity be included in the Proxy
Statement (as defined in Section 5.1 hereof);
(i) sell, lease, license, encumber or otherwise dispose of any properties or assets, except (A) sales of inventory and property, plant
and equipment in the ordinary course of business consistent with past practice, and (B) the sale, lease or disposition (other
than through licensing) of property or assets that are not material, individually or in the aggregate, to the business of such
party;
(j) except in the ordinary course of business consistent with past practices, incur any indebtedness for borrowed money or guarantee
any such indebtedness of another Person or Persons, issue or sell any debt securities or options, warrants, calls or other rights
to acquire any debt securities of GGAC, the Company or any of its Subsidiaries, as applicable, enter into any “keep well”
or other agreement to maintain any financial statement condition or enter into any arrangement having the economic effect of any
of the foregoing;
(k) except for the GGAC Plan (as defined in Section 5.1 hereof) or any new or amended employment agreements mutually agreed
between GGAC, the Company and the applicable employee, adopt or amend any employee benefit plan, policy or arrangement, any employee
stock purchase or employee stock option plan, or enter into any employment contract or collective bargaining agreement (other
than offer letters and letter agreements entered into in the ordinary course of business consistent with past practice with employees
who are terminable “at will”), pay any special bonus or special remuneration to any director or employee, or increase
the salaries or wage rates or fringe benefits (including rights to severance or indemnification) of its directors, officers, employees
or consultants, except in the ordinary course of business consistent with past practices;
(l) pay, discharge, settle or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent
or otherwise), or litigation (whether or not commenced prior to the date of this Agreement) other than the payment, discharge,
settlement or satisfaction of claims, obligations or litigations in the ordinary course of business consistent with past practices
or in accordance with their terms, or liabilities recognized or disclosed in the Audited Financial Statements or in the most recent
financial statements included in the GGAC SEC Reports filed prior to the date of this Agreement, as applicable, or incurred since
the date of such financial statements;
(m) waive the benefits of, agree to modify in any manner, terminate, release any person from or knowingly fail to enforce any confidentiality
or similar agreement to which the Company or GGAC is a party or of which the Company or GGAC is a beneficiary, as applicable;
(n) except in the ordinary course of business consistent with past practices, modify, amend or terminate any Material Company Contract
or GGAC Contract, as applicable, or waive, delay the exercise of, release or assign any material rights or claims thereunder;
(o) except as required by U.S. GAAP, revalue any of its assets or make any change in accounting methods, principles or practices;
(p) except in the ordinary course of business consistent with past practices, incur or enter into any agreement, contract or commitment
requiring such party to pay in excess of $3,000,000 in any 12 month period;
(q) settle any litigation where the consideration given is other than monetary or to which an Insider is a party;
(r) make or rescind any Tax elections that, individually or in the aggregate, could be reasonably likely to adversely affect in any
material respect the Tax liability or Tax attributes of such party, settle or compromise any material income tax liability or,
except as required by applicable law, materially change any method of accounting for Tax purposes or prepare or file any Tax Return
in a manner inconsistent with past practice;
(s) form, establish or acquire any subsidiary;
(t) permit any Person to exercise any of its discretionary rights under any Plan to provide for the automatic acceleration of any
outstanding options, the termination of any outstanding repurchase rights or the termination of any cancellation rights issued
pursuant to such plans;
(u) make capital expenditures in excess of $3,000,000 in the aggregate;
(v) make or omit to take any action which would be reasonably anticipated to have a Material Adverse Effect;
(w) enter into any transaction with or distribute or advance any assets or property to any of its officers, directors, partners, shareholders
or other Affiliates other than the payment of salary and benefits in the ordinary course of business consistent with prior practice
or, in the case of GGAC, advancement or reimbursement of expenses in connection with GGAC’s search for a business combination;
or
(x)
agree in writing or otherwise agree, commit or resolve to take any of the actions described in Section 4.1(a)
through (w) above.
Article
V
ADDITIONAL AGREEMENTS
5.1 Proxy Statement; Extraordinary General Meeting.
(a) [Intentionally omitted.]
(b) As soon as is reasonably practicable after receipt by GGAC from the Company of all financial and other information relating to
the Company as GGAC may reasonably request for their preparation, GGAC shall prepare proxy materials, with the assistance of the
Company, and file the same with the SEC under the Exchange Act, and with all other applicable regulatory bodies, for the purpose
of soliciting proxies from holders of GGAC Ordinary Shares to vote, at a meeting of holders of GGAC Ordinary Shares to be called
and held for such purpose (the “Extraordinary General Meeting”), in favor of (A) the adoption of this Agreement
and the approval of the Contributions (“GGAC Shareholder Approval”), (B) amending and restating GGAC’s
Memorandum and Articles of Association, effective upon the Closing, providing for, among other things, (I) the change of the name
of GGAC to “Colombo Group Inc.,” (II) the existence of GGAC to be perpetual; and (III) the removal of various provisions
no longer applicable to GGAC following consummation of the transactions contemplated herein (collectively, the “Charter
Amendments”); (C) the adoption of an incentive plan (the “GGAC Plan”) that will provide for the reservation
thereunder of no more than 10% of the GGAC Ordinary Shares to be outstanding immediately after the Closing Date; (D) the election
to the board of directors of GGAC of the individuals determined in accordance with Section 5.24 hereof; (F) any other proposals
GGAC and the Company deem necessary or desirable to effectuate the transactions contemplated herein; and (G) an adjournment proposal,
if necessary, to adjourn the Extraordinary General Meeting if, based on the tabulated vote count or elections to convert GGAC
Ordinary Shares into cash in accordance with GGAC’s Charter Documents, GGAC would not be authorized to proceed with the
Contributions or the conditions to closing in Article VI hereof would not be met. Such proxy materials shall be in the
form of a proxy statement to be used for the purposes of soliciting such proxies from holders of GGAC Ordinary Shares for the
matters to be acted upon at the Extraordinary General Meeting (the “Proxy Statement”). GGAC, with the assistance
of the Company, shall promptly respond to any SEC comments on the Proxy Statement and shall otherwise use commercially reasonable
best efforts to cause the Proxy Statement to be approved by the SEC for mailing to the holders of GGAC Ordinary Shares as promptly
as practicable. GGAC will advise the Company and the Controlling Persons promptly after it receives notice thereof, of the time
when the Proxy Statement has been approved by the SEC or any supplement or amendment has been filed, or the issuance of any stop
order, or of any request by the SEC for amendment of the Proxy Statement or comments thereon and responses thereto or requests
by the SEC for additional information.
(c) As soon as practicable following approval by the SEC, GGAC shall distribute the Proxy Statement to the holders of GGAC Ordinary
Shares and, pursuant thereto, shall call the Extraordinary General Meeting in accordance with the Companies Law (2013 Revision)
of the Cayman Islands (the “Companies Law”) and, subject to the other provisions of this Agreement, solicit
proxies from the holders of GGAC Ordinary Shares to vote in favor of the adoption of this Agreement and the approval of the Contributions
and the other matters presented to the shareholders of GGAC for approval or adoption at the Extraordinary General Meeting, including,
without limitation, the matters described in Section 5.1(b) hereof.
(d) GGAC shall comply with all applicable provisions of and rules under the Exchange Act and all applicable provisions of the Companies
Law in the preparation, filing and distribution of the Proxy Statement, the solicitation of proxies thereunder, and the calling
and holding of the Extraordinary General Meeting.
(e) GGAC, acting through its board of directors, shall include in the Proxy Statement the recommendation of its board of directors
that the holders of GGAC Ordinary Shares vote in favor of the adoption of this Agreement and the approval of the Contributions
and the other matters described in Section 5.1(b) hereof, and shall otherwise use commercially reasonable best efforts
to obtain the GGAC Shareholder Approval. At no time shall the board of directors of GGAC withdraw or modify such recommendation;
provided, however, the board of directors of GGAC may withdraw or modify such recommendation, if the board of directors
of GGAC determines in good faith, after consultation with outside counsel, that failure to do so could be inconsistent with its
fiduciary obligations under applicable Law.
(f) No amendment or supplement to the Proxy Statement will be made by GGAC without the approval of the Company which shall not be
unreasonably withheld and GGAC shall promptly transmit any such amendment or supplement to its shareholders, if at any time prior
to the Extraordinary General Meeting there shall be discovered any information that should be set forth in an amendment or supplement
to the Proxy Statement.
5.2 Minimization of Converters. GGAC and the Company shall use commercially reasonable best efforts, with the assistance
of a syndicate of financial institutions mutually agreeable to GGAC and the Company, to minimize the number of GGAC Ordinary Shares
as to which the holders thereof exercise their right to convert such shares into a pro rata share of the Trust Fund (as defined
below) in accordance with GGAC’s Charter Documents.
5.3 Corporate Reorganization. Prior to Closing, the Company, certain Controlling Person Affiliates and the Controlling
Persons shall use commercially reasonable best efforts to effect the Reorganization in accordance with the steps set forth in
Schedule 5.3 hereto, such that the conditions set forth in Section 6.3(o) hereof are satisfied.
5.4 Other Actions.
(a) As promptly as practicable after execution of this Agreement, GGAC will prepare and file a Current Report on Form 8-K pursuant
to the Exchange Act to report the execution of this Agreement (“Signing Form 8-K”). Promptly after the execution
of this Agreement, GGAC and the Company shall also issue a mutually agreeable press release announcing the execution of this Agreement
(the “Signing Press Release”).
(b) Prior to the Closing, GGAC shall prepare a draft Form 8-K announcing the Closing, together with, or incorporating by reference,
the financial statements prepared by the Company and its accountant, and such other information that may be required to be disclosed
with respect to the Contributions in any report or form to be filed with the SEC (the “Closing Form 8-K”).
Prior to Closing, GGAC and the Company shall prepare a mutually agreeable press release announcing the consummation of the Contributions
hereunder (“Closing Press Release”). Concurrently with the Closing, the Company shall distribute the Closing
Press Release. As soon as practicable after the Closing, GGAC shall file the Closing Form 8-K with the SEC.
(c) GGAC shall file all such forms, reports and documents required to be filed by it with the SEC subsequent to the date of this Agreement
through the Closing Date (the “Additional GGAC SEC Reports”) and such Additional GGAC SEC Reports shall be
prepared in accordance and comply in all material respects with the requirements of the Securities Act or the Exchange Act, as
the case may be, and the rules and regulations of the SEC thereunder. The Additional GGAC SEC Reports will not, at the time they
are filed, contain any untrue statement of a material fact or omit to state a 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. As used in
this Section 5.4, the term “file” shall be broadly construed to include any manner in which a document or information
is furnished, supplied or otherwise made available to the SEC.
5.5 Required Information.
(a) In connection with the preparation of the Signing Form 8-K, the Signing Press Release, the Proxy Statement, the Closing Form 8-K
and the Closing Press Release, or any other statement, filing, notice, release or application made by or on behalf of GGAC and/or
the Company to any Government Entity or other third party in connection with the Contributions and the other transactions contemplated
hereby (each, a “Reviewable Document”), and for other reasonable purposes, the Company and GGAC each shall,
upon request by the other, promptly furnish the other with all information concerning themselves, their respective directors,
officers, shareholders and Affiliates and such other matters as may be reasonably necessary or advisable in connection with the
Contributions and the preparation of such documents or for such other reasonable purposes. Each party warrants and represents
to the other party that, as of the date of filing, issuance or other submission or public disclosure of such document and the
Closing Date, all such information shall be true and correct in all material respects and will 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 contained
therein, in light of the circumstances under which they were made, not misleading (provided that each party shall not be responsible
for the accuracy or completeness of any information relating to the other party or any other information furnished by the other
party for inclusion in any such document). Any such information consisting of financial statements shall be prepared in accordance
with U.S. GAAP, as modified by the rules and regulations of the SEC, applied on a consistent basis to prior periods and shall
fairly present in all material respects the financial position of such party at the date thereof and the results of its operations
and cash flows for the period indicated, except that any such interim financial statements shall be subject to normal audit adjustments
that shall not be expected to have a Material Adverse Effect on such party taken as a whole and shall not include all footnotes.
(b) At a reasonable time prior to the filing, issuance or other submission or public disclosure of a Reviewable Document by either
GGAC or the Company, the other party shall be given an opportunity to review and comment upon such Reviewable Document, and give
its consent to the form thereof, such consent not to be unreasonably withheld, provided that a party may file, issue or otherwise
submit a Reviewable Document without the consent of the other party if it is advised by counsel that such Reviewable Document
must be filed, issued, submitted or delivered in the form objected to by the other party so that the filing, issuing, submitting
or delivering party is in compliance with applicable law.
(c) Any language included in a Reviewable Document that reflects the comments of the reviewing party, as well as any text as to which
the reviewing party has not commented upon after being given a reasonable opportunity to comment, shall be deemed to have been
approved by the reviewing party.
(d) Prior to the Closing Date (i) the Company and GGAC shall notify each other as promptly as reasonably practicable upon becoming
aware of any event or circumstance which should be described in an amendment of, or supplement to, a Reviewable Document that
has been filed with the SEC, and (ii) the Company and GGAC shall each notify the other as promptly as practicable after the
receipt by it of any written or oral comments of the SEC on, or of any written or oral request by the SEC for amendments or supplements
to, any such Reviewable Document, and shall promptly supply the other with copies of all correspondence between it or any of its
representatives and the SEC with respect to any of the foregoing filings. All correspondence and communications to the SEC made
by GGAC with respect to the transactions contemplated by this Agreement or any agreement ancillary hereto shall be considered
to be Reviewable Documents subject to the provisions of this Section 5.5.
5.6 Confidentiality; Access to Information.
(a) Confidentiality. Any confidentiality agreement previously executed by the parties shall be superseded in its entirety
by the provisions of this Agreement. Each party agrees to maintain in confidence any non-public information received from the
other party, and to use such non-public information only for purposes of consummating the transactions contemplated by this Agreement.
Such confidentiality obligations will not apply to (i) information which was known to the one party or their respective agents
prior to receipt from the other party; (ii) information which is or becomes generally known; (iii) information acquired by a party
or their respective agents from a third party who was not bound to an obligation of confidentiality; (iv) disclosure required
by law, regulation or stock exchange rule; or (v) disclosure consented to by the other party. In the event this Agreement is terminated
as provided in Article VIII hereof, each party will destroy or return or cause to be destroyed or returned to the
other all documents and other material obtained from the other in connection with the Contributions contemplated hereby.
(b) Access to Information.
(i) The Company will afford GGAC and its financial advisors, accountants, counsel and other representatives reasonable access during
normal business hours, upon reasonable notice, to the properties, books, records and personnel of the Company during the period
prior to the Closing to obtain all information concerning the business, including the status of business development efforts,
properties, results of operations and personnel of the Company, as GGAC may reasonably request, including the documents and information
described in Schedule 5.6(b)(i) hereto. No information or knowledge obtained by GGAC in any investigation pursuant to this
Section 5.6 will affect or be deemed to modify any representation or warranty contained herein or the conditions to
the obligations of the parties to consummate the Contributions.
(ii) GGAC will afford the Company and its financial advisors, underwriters, accountants, counsel and other representatives reasonable
access during normal business hours, upon reasonable notice, to the properties, books, records and personnel of GGAC during the
period prior to the Closing to obtain all information concerning the business, including properties, results of operations and
personnel of GGAC, as the Company may reasonably request. No information or knowledge obtained by the Company in any investigation
pursuant to this Section 5.6 will affect or be deemed to modify any representation or warranty contained herein or
the conditions to the obligations of the parties to consummate the Contributions.
5.7 Commercially Reasonable Best Efforts. Upon the terms and subject to the conditions set forth in this Agreement,
each of the parties agrees to use its commercially reasonable best efforts to take, or cause to be taken, all actions, and to
do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable
to consummate and make effective, in the most expeditious manner practicable, the Contributions and the other transactions contemplated
by this Agreement, including using commercially reasonable best efforts to accomplish the following: (i) the taking of all commercially
reasonable acts necessary to cause the conditions precedent set forth in Article VI hereof to be satisfied (but excluding
the waiver of any of such Party’s conditions to their obligations to effect the Contributions); (ii) the obtaining
of all necessary actions, waivers, consents, approvals, orders and authorizations from Governmental Entities and the making of
all necessary registrations, declarations and filings (including registrations, declarations and filings with Governmental Entities,
if any) and the taking of all reasonable steps as may be necessary to avoid any suit, claim, action, investigation or proceeding
by any Governmental Entity; (iii) the obtaining of all consents, approvals or waivers from third parties required as a result
of the transactions contemplated in this Agreement, including the consents referred to in Section 2.5 of the Company
Schedule; (iv) providing and permitting suitably knowledgeable directors, officers, employees and other Persons to attend “road
shows” that are to be presented to existing and prospective GGAC security holders; (v) the defending of any suits, claims,
actions, investigations or proceedings, whether judicial or administrative, challenging this Agreement or the consummation of
the transactions contemplated hereby, including seeking to have any stay or temporary restraining order entered by any court or
other Governmental Entity vacated or reversed; and (vi) the execution or delivery of any additional instruments reasonably necessary
to consummate the transactions contemplated by, and to fully carry out the purposes of, this Agreement. Notwithstanding anything
herein to the contrary, nothing in this Agreement shall be deemed to require GGAC or the Company to agree to any divestiture by
itself or any of its Affiliates of shares of capital stock or of any business, assets or property, or the imposition of any material
limitation on the ability of any of them to conduct their business or to own or exercise control of such assets, properties and
stock.
5.8 Registration Rights. The Parties hereto agree to enter into a registration rights agreement (the “Registration
Rights Agreement”) in the form of Exhibit E hereto at the Closing pursuant to which GGAC will under certain circumstances
agree to register for resale under the Securities Act the GGAC Ordinary Shares to be issued to the Controlling Persons and the
Optionholders pursuant to this Agreement.
5.9 No GGAC Securities Transactions. Neither the Company, the Controlling Persons nor the Optionholders, nor any of
their respective Affiliates, directly or indirectly, shall engage in any transactions involving the securities of GGAC prior to
the time of the making of a public announcement of the transactions contemplated by this Agreement. The Company shall use commercially
reasonable best efforts to require each of its officers, directors, employees, agents, advisors, contractors, associates, clients,
customers and representatives, to comply with the foregoing requirement.
5.10 No Claim Against Trust Fund. Notwithstanding anything else in this Agreement, the Company, the Controlling Persons
and the Optionholders acknowledge that they have read GGAC’s final prospectus dated June 25, 2014 (“Final Prospectus”)
and understand that GGAC has established the Trust Fund for the benefit of GGAC’s public shareholders and that GGAC may
disburse monies from the Trust Fund only (a) to GGAC’s public shareholder in the event they elect to convert their shares
into cash in accordance with GGAC’s Charter Documents and/or the liquidation of GGAC, (b) to GGAC after, or concurrently
with, the consummation of a business combination, and (c) to GGAC in limited amounts for its working capital requirements and
tax obligations. The Company, the Controlling Persons and the Optionholders further acknowledge that, if GGAC does not consummate
a business combination by June 25, 2016, GGAC will be obligated to return to its shareholders the amounts being held in the Trust
Fund. Accordingly, the Company, for itself and its subsidiaries, affiliated entities, directors, officers, employees, shareholders,
representatives, advisors and all other associates and Affiliates, the Controlling Persons, on behalf of themselves and the Controlling
Person Affiliates, and the Optionholders, for themselves, hereby waive all rights, title, interest or claim of any kind against
GGAC to collect from the Trust Fund any monies that may be owed to them by GGAC for any reason whatsoever, including but not limited
to a breach of this Agreement by GGAC or any negotiations, agreements or understandings with GGAC (whether in the past, present
or future), and will not seek recourse against the Trust Fund at any time for any reason whatsoever. This paragraph will survive
the termination of this Agreement for any reason.
5.11 Disclosure of Certain Matters. Each of GGAC, the Company, the Controlling Persons and the Optionholders will provide
the others with prompt written notice of any event, development or condition that (a) would cause any of such party’s representations
and warranties to become untrue or misleading or which may affect its ability to consummate the transactions contemplated by this
Agreement, (b) had it existed or been known on the date hereof would have been required to be disclosed under this Agreement,
(c) gives such party any reason to believe that any of the conditions set forth in Article VI will not be satisfied, (d)
is of a nature that is materially adverse to the operations or condition (financial or otherwise) of the Company, or (e) would
require any amendment or supplement to the Proxy Statement. The parties shall have the obligation to supplement or amend the Company
Schedules and GGAC Schedules (the “Disclosure Schedules”) being delivered concurrently with the execution of
this Agreement 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 Disclosure Schedules. The obligations of the parties to amend or
supplement the Disclosure Schedules being delivered herewith shall terminate on the Closing Date. Notwithstanding any such amendment
or supplementation, for purposes of 6.2(a), 6.3(a), 7.1(a)(i), 7.1(b)(i), 8.1(d) and 8.1(e)
hereof, the representations and warranties of the parties shall be made with reference to the Disclosure Schedules as they
exist at the time of execution of this Agreement, subject to such anticipated changes as are expressly contemplated by this Agreement
or the Reorganization or that are set forth in the Disclosure Schedules as they exist on the date of this Agreement.
5.12 Securities Listing. GGAC shall use its commercially reasonable best efforts to maintain the listing of its securities
for trading on Nasdaq from and after the Contributions and to cause the GGAC Ordinary Shares to be issued in connection with the
transactions contemplated hereby to be approved for listing on Nasdaq from and after the Contributions.
5.13 No Solicitation. Neither the Company, the Controlling Persons nor the Optionholders will, and they will cause their
respective Affiliates, employees, agents and representatives not to, directly or indirectly, solicit or enter into or continue
discussions or transactions with, or encourage, or provide any information to, any corporation, partnership or other entity or
group (other than GGAC and its designees) concerning any merger, sale of ownership interests and/or assets of the Company, recapitalization
or similar transaction.
5.14 Liability Insurance.
(a) GGAC agrees to continue the directors’ and officers’ liability insurance currently maintained by GGAC, the Company
and its Subsidiaries for a period of six years following the Closing Date for acts or omissions occurring on or prior to the Closing
Date.
(b) If GGAC or any of its successors or assigns (i) consolidates with or merges into any other Person and shall not be the continuing
or surviving entity of such consolidation or merger, (ii) transfers or conveys all or substantially all of its properties and
assets to any Person, or (iii) causes the Company or its Subsidiaries to effect a transaction of the type described in clauses
(i) or (ii), then, in each such case, to the extent necessary, proper provision shall be made so that the successors and assigns
of GGAC assume the obligations set forth in this Section 5.14.
(c) The provisions of this Section 5.14 are intended to be for the benefit of, and shall be enforceable by, each Person who
will have been a director or officer of GGAC, the Company or its Subsidiaries for all periods ending on or before the Closing
Date and may not be changed.
5.15 Insider Loans; Equity Ownership in Subsidiaries. Each of the Controlling Persons and the Optionholders, at or prior
to Closing, shall (i) repay to the Company any loan by the Company to such Person and any other amount owed by such Person to
the Company, if applicable; (ii) cause any guaranty or similar arrangement pursuant to which the Company has guaranteed the payment
or performance of any obligations of such Person to a third party to be terminated; and (iii) cease to own, directly or indirectly
(except through ownership of the Company), any equity interests in any Subsidiary of the Company. The Company shall use its commercially
reasonable best efforts to enable such Persons to accomplish the foregoing.
5.16 Certain Financial Information. Within twenty (20) business days after the end of each fiscal quarter between the
date hereof and the earlier of the Closing Date and the date on which this Agreement is terminated, the Company shall deliver
to GGAC interim unaudited consolidated financial statements of the Company and its Subsidiaries for such fiscal quarter, certified
by the chief financial officer of the Company as being true and correct, including a balance sheet, statement of operations, and
statements of shareholders’ equity and cash flow, prepared in accordance with U.S. GAAP applied on a consistent basis to
prior periods (except as may be indicated in the notes thereto) and that fairly present in all material respects the financial
position of the Company at the date thereof and the results of its operations for the period indicated, except that such statements
need not contain notes. This Section 5.16 shall not be deemed to limit the obligation of the Company under Section 5.5(a)
hereof.
5.17 Access to Financial Information. The Company will, and will cause its auditors to, (a) continue to provide GGAC
and its advisors full access to all of the Company’s financial information used in the preparation of its Financial Statements
and the financial information furnished pursuant to Section 5.16 hereof and (b) cooperate fully with any reviews performed
by GGAC or its advisors of any such financial statements or information.
5.18 GGAC Borrowings. Through the Closing, GGAC shall be allowed to borrow funds from its directors, officers, shareholders
and/or their respective affiliates to meet its reasonable capital requirements, with any such loans to be made only as reasonably
required by the operation of GGAC in due course on a non-interest bearing basis and repayable at Closing (or convertible at Closing
into securities of GGAC in accordance with the terms of the promissory notes issued to evidence the borrowing, which such terms
have been set in the Final Prospectus).
5.19 Trust Fund Disbursement. GGAC shall cause the Trust Fund to be disbursed to GGAC and as otherwise contemplated by
this Agreement immediately upon the Closing. All liabilities and obligations of GGAC due and owing or incurred at or prior to
the Closing Date shall be paid as and when due, including all amounts payable (i) to shareholders who elect to have their GGAC
Ordinary Shares converted to cash in accordance with the provisions of GGAC’s Charter Documents, (ii) for income tax or
other tax obligations of GGAC prior to Closing, (iii) as repayment of loans and reimbursement of expenses to GGAC’s directors,
officers, shareholders and/or their affiliates, and (iv) to third parties (e.g., professionals, printers, etc.) who have rendered
services to GGAC in connection with its operations and efforts to effect a business combination, including the Contributions.
5.20 Option Plan. Prior to the Extraordinary General Meeting, GGAC will create and have its board of directors approve
the GGAC Plan in a form mutually acceptable to GGAC and the Company.
5.21 [Intentionally omitted]
5.22 Company Options. Simultaneously with the execution of this Agreement, the Optionholders have delivered to the Company,
with a copy to GGAC, irrevocable instructions to exercise in full at the Closing Date the Company Options held by them, and an
instrument of assignment, duly endorsed, directing the Option Shares to be issued in the name of GGAC (the “Irrevocable
Instructions”), and have taken all other steps reasonably necessary to exercise such Company Options and cause the Option
Shares to be issued to GGAC at the Closing.
5.23 Charter Amendments. Simultaneously with the Closing, subject to the GGAC shareholder’s approval and adoption
of the matters described in clause (B) of Section 5.1(b) hereto by the requisite vote under the Companies Law and the GGAC
Charter Documents, GGAC shall file an amendment and restatement of its Memorandum and Articles of Association that effectuates
the Charter Amendments with the Cayman Islands Registrar of Companies.
5.24 Board of Directors of GGAC. The board of directors of GGAC from and after the Closing Date (the “GGAC Board”)
shall consist of the directors identified in the Proxy Statement, one (1) of whom will be selected by the Company and four (4)
of whom will be selected by the pre-Closing board of directors of GGAC (three (3) of whom will be considered independent under
Nasdaq listing requirements).
5.25 Open Market Purchases. By execution of this Agreement, the Controlling Persons have committed to use their commercially
reasonable best efforts to purchase, directly or through the Controlling Person Affiliates, at least $30 million of GGAC Ordinary
Shares in the open market (“Open Market Purchases”). Any such Open Market Purchases would be effected either
(i) pursuant to a 10b-5 1 trading plan or (ii) at a time when the Company and the buyer is not aware of any material nonpublic
information regarding the Company or its securities. The Controlling Persons hereby agree that, with respect to any GGAC Ordinary
Shares purchased by the Controlling Persons hereunder, (a) they will vote such shares in favor of all proposals set forth in Section
5.1(b) that are to be presented at the Extraordinary General Meeting and will not exercise their right to convert their GGAC
Ordinary Shares into a pro rata share of the Trust Fund in accordance with GGAC’s Charter Documents, (b) the GGAC Ordinary
Shares purchased by the Controlling Persons hereunder shall not be subject to the Lock-Up Agreement (as defined in Section
1.9 hereof).
5.26 Release Letters. The Company shall use commercially reasonable best efforts to obtain customary release letters
(the “Release Letters”), together with any related release documentation, in form and substance reasonably
satisfactory to GGAC, providing for the release of and termination of any Liens set forth in Schedule 1.1(a) hereto.
5.27 General Shareholders Meeting of the Company. At the Closing Date, the Controlling Persons shall irrevocably hold
a general shareholders meeting of the Company (the “General Shareholders Meeting”) in order to approve: (a)
the capital increase of the Company in order to implement the issuance of the Option Shares to the Optionholders upon the exercise
of the Company Options; (b) the extinction of the board of directors and the election of the board of officers of the Company,
as applicable, according to the draft resolutions of the General Shareholders Meeting set forth in Schedule 5.27 hereto;
and (c) the consolidation to the by-laws of the Company. The Controlling Persons shall, or shall cause the Controlling Person
Affiliates holding the Outstanding Shares to, irrevocably vote all Company Ordinary Shares held by them in favor of the matters
set forth in the foregoing sentence at the General Shareholders Meeting.
5.28 Acknowledgement Regarding Projections. GGAC acknowledges that it has received from the Company, certain Controlling
Person Affiliates and/or the Controlling Persons certain projections, forecasts and prospective or third party information relating
to the Company and its Affiliates. GGAC acknowledges that (i) there are uncertainties inherent in attempting to make such projections
and forecasts and in such information; (ii) it is familiar with such uncertainties and is taking full responsibility for making
its own evaluation of the adequacy and accuracy of all projections, forecasts and information so furnished; and (iii) neither
GGAC nor any other Person shall have any claim against the Company, the Controlling Person Affiliates or the Controlling Persons
or any of their respective directors, officers, Affiliates, agents or other Representatives with respect thereto. Accordingly,
GGAC acknowledges that neither the Company nor the Controlling Person Affiliates, the Controlling Persons or any other Person
makes any representations or warranties with respect to such projections, forecasts or information (it being understood that this
acknowledgment does not cover any underlying facts or information which are addressed by any of the representations and warranties
made by the Company in Article II of this Agreement).
5.29 Cancellation of Trademark Transfer. The Controlling Persons shall take all measures necessary in order to cancel
the transfer of the trademarks identified in Section 2.18(c) of the Company Schedules.
5.30 Payment of Debts with Controlling Persons. The Company shall repay to the Controlling Persons the loans made by
such Controlling Persons and any other amount owed by the Company to such Persons at or prior to the Closing Date.
5.31 GGAC’s Warrant. According to the terms of the Investor Relations Consulting Agreement entered into between
the Company, GGAC and MZHCI, LLC on July 1, 2015, GGAC shall issue in favor of MZHCI, LLC a one-year warrant to purchase up to
60,000 GGAC Ordinary Shares exercisable at $11.50 per share. The warrant shall become exercisable in four quarterly installments
of 15,000 shares provided that the closing price of the GGAC Ordinary Shares at each quarterly installment date is at or above
130% of the last sale price of the GGAC Ordinary Shares on the Closing Date.
5.32 Financial Covenant Waivers. The Company shall use its commercially reasonably best efforts to maintain the waivers
of the covenants set forth in Schedule 5.32 hereto (the “Waivers”) for at least sixty (60) days after
the Closing Date.
5.33 Admission of Second Shareholder in the Company. The Parties hereto recognize and agree that GGAC shall transfer
at least one (1) share in the capital stock of the Company to a second shareholder by the date of the annual Shareholders’
Meeting of the Company that shall resolve on the audited financial statements of the Company for its 2015 fiscal year.
5.34 Capital Contributions. Following the Closing, GGAC may, from time to time, and at its sole and absolute discretion,
contribute to the Company amounts of cash as may be required for the Company’s working capital needs.
Article
VI
CONDITIONS TO THE TRANSACTION
6.1 Conditions to Obligations of Each Party to Effect the Contributions. The respective obligations of each party to
this Agreement to effect the Contributions shall be subject to the satisfaction at or prior to the Closing Date of the following
conditions:
(a) GGAC Shareholder Approval. The GGAC Shareholder Approval shall have been duly approved and adopted by the shareholders
of GGAC by the requisite vote under the Companies Law and the GGAC Charter Documents.
(b) GGAC Net Tangible Assets. Immediately prior to the Closing, GGAC shall have at least $5 million of net tangible
assets after giving effect to the exercise by holders of GGAC Ordinary Shares issued in GGAC’s initial public offering of
securities and outstanding immediately before the Closing of their right to convert their shares into a pro rata share of the
Trust Fund in accordance with GGAC’s Charter Documents.
(c) No Order. No Governmental Entity shall have enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, executive order, decree, injunction or other order (whether temporary, preliminary or permanent) which is in effect
and which has the effect of making the Contributions illegal or otherwise prohibiting consummation of the Contributions, substantially
on the terms contemplated by this Agreement.
(d) Corporate Reorganization. The Company, certain Controlling Person Affiliates and the Controlling Persons shall have
effected the Reorganization, in accordance with the steps set forth in the Schedule 5.3 hereto.
6.2 Additional Conditions to Obligations of the Company, the Controlling Persons and the Optionholders. The obligations
of the Company, the Controlling Persons and the Optionholders to consummate and effect the Contributions shall be subject to the
satisfaction at or prior to the Closing Date of each of the following conditions, any of which may be waived, in writing, exclusively
by the Company:
(a) Representations and Warranties. The representations and warranties contained in Article III of this Agreement shall
be true and correct on and as of the date hereof and on and as of the Closing Date as if made at and as of the Closing Date (except
for any representations and warranties made as of a specified date, which shall be so true and correct as of the specified date),
except where the failure of such representations and warranties to be true and correct would not have a Material Adverse Effect
on GGAC. The Company shall have received a certificate with respect to the foregoing signed on behalf of GGAC by an authorized
officer of GGAC (“GGAC Closing Certificate”).
(b) Agreements and Covenants. GGAC shall have performed or complied with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the Closing Date in all material respects, and the GGAC Closing
Certificate shall include a provision to such effect.
(c) No Litigation. No action, suit or proceeding shall be pending or threatened before any Governmental Entity which
is reasonably likely to (i) prevent consummation of any of the transactions contemplated by this Agreement, (ii) cause any of
the transactions contemplated by this Agreement to be rescinded following consummation or (iii) affect materially and adversely
the right of GGAC to own, operate or control any of the assets and operations of the Company following the Contributions and no
order, judgment, decree, stipulation or injunction to any such effect shall be in effect.
(d) Consents. GGAC shall have obtained all consents, waivers and approvals required to be obtained by GGAC in connection
with the consummation of the transactions contemplated hereby, other than consents, waivers, permits and approvals the absence
of which, either alone or in the aggregate, could not reasonably be expected to have a Material Adverse Effect on GGAC and the
GGAC Closing Certificate shall include a provision to such effect.
(e) Material Adverse Effect. No Material Adverse Effect with respect to GGAC shall have occurred since the date of this
Agreement.
(f) SEC Compliance. Immediately prior to Closing, GGAC shall be in compliance with the reporting requirements under
the Exchange Act.
(g) Other Deliveries. At or prior to Closing, GGAC shall have delivered to the Company (i) the items set forth in Section
1.2(b); (ii) copies of resolutions and actions taken by the board of directors and shareholders of GGAC in connection with
the approval of this Agreement and the transactions contemplated hereunder; (iii) a certificate of good standing with respect
to GGAC, dated not more than five (5) days prior to the Closing Date, from the Registry of Companies of the Cayman Islands; and
(iv) such other documents or certificates as shall reasonably be required by the Company and its counsel in order to consummate
the transactions contemplated hereunder.
(h) Trust Fund. GGAC shall have made appropriate arrangements to have the Trust Fund, less amounts paid and to be paid
pursuant to Section 5.19 hereof, disbursed upon the Closing as provided for in this Agreement.
(i) Opinion of Counsel. The Company shall have received an opinion of counsel to GGAC in substantially the form of Exhibit A
hereto.
(j) Registration Rights Agreement. The Registration Rights Agreement shall be executed by the parties thereto.
(k) Resignations. The persons listed in Schedule 6.2(k) hereto shall have resigned from all of the positions
and offices with GGAC set forth next to each such person’s name.
6.3 Additional Conditions to the Obligations of GGAC. The obligations of GGAC to consummate and effect the Contributions
shall be subject to the satisfaction at or prior to the Closing Date of each of the following conditions, any of which may be
waived, in writing, exclusively by GGAC:
(a) Representations and Warranties. The representations and warranties contained in Article II of this Agreement shall
be true and correct on and as of the date hereof and on and as of the Closing Date as if made at and as of the Closing Date (except
for any representations and warranties made as of a specified date, which shall be so true and correct as of the specified date),
except where the failure of such representations and warranties to be true and correct would not have a Material Adverse Effect
on the Company and its Subsidiaries taken as a whole. GGAC shall have received a certificate with respect to the foregoing signed
on behalf of the Company by an authorized officer of the Company and signed by the Representative on behalf of each of the Controlling
Persons and the Optionholders (“Company Closing Certificate”).
(b) Agreements and Covenants. The Company, the Controlling Persons and the Optionholders shall have performed or complied
with all agreements and covenants required by this Agreement to be performed or complied with by them at or prior to the Closing
Date in all material respects, and the Company Closing Certificate shall include a provision to such effect.
(c) No Litigation. No action, suit or proceeding shall be pending or threatened before any Governmental Entity which
is reasonably likely to (i) prevent consummation of any of the transactions contemplated by this Agreement or (ii) cause any of
the transactions contemplated by this Agreement to be rescinded following consummation.
(d) Consents. The Company shall have obtained all consents, waivers, permits and approvals required to be obtained by
the Company in connection with the consummation of the transactions contemplated hereby, other than consents, waivers, permits
and approvals the absence of which, either alone or in the aggregate, could not reasonably be expected to have a Material Adverse
Effect on the Company and the Company Closing Certificate shall include a provision to such effect.
(e) Material Adverse Effect. No Material Adverse Effect with respect to the Company shall have occurred since the date
of this Agreement.
(f) Lock-Up Agreements. The Lock-Up Agreements shall be in full force and effect.
(g) Option Exercises. The Irrevocable Instructions shall be in full force and effect.
(h) [Intentionally
omitted.]
(i) Open Market Purchases. The Open Market Purchases shall have occurred.
(j) Opinion of Counsel. GGAC shall have received an opinion of counsel to the Company in substantially the form of Exhibit B
hereto.
(k) Other Deliveries. At or prior to Closing, the Company shall have delivered to GGAC: (i) the items set forth in Section
1.2(c); (ii) copies of resolutions and actions taken by the Company’s board of directors and shareholders in connection
with the approval of this Agreement and the transactions contemplated hereunder; (iii) a certificate of good standing with respect
to the Company, dated not more than fifteen (15) days prior to the Closing Date, from the competent Board of Trade (Junta Comercial)
of Brazil; and (iv) such other documents or certificates as shall reasonably be required by GGAC and its counsel in order to consummate
the transactions contemplated hereunder.
(l) Insider Loans; Equity Ownership in Subsidiaries. (i) All outstanding indebtedness owed by Insiders to the Company
shall have been repaid in full, including the indebtedness and other obligations described in Section 2.22 of the
Company Schedule; (ii) all outstanding guaranties and similar arrangements pursuant to which the Company has guaranteed the payment
or performance of any obligations of any Insider to a third party shall have been terminated; and (iii) no Controlling Person
or Insider shall own, directly or indirectly (except through ownership of the Company), any equity interests in any Subsidiary
of the Company.
(m) Release Letters. The Release Letters shall be in full force and effect.
(n) Trademarks. The transfer of the trademarks identified in Section 2.18(c) shall have been cancelled.
(o) Reorganization. The Reorganization shall have been effected, in accordance with the steps set forth in Schedule
5.3 hereto, as a result of which the Company shall not have incurred any indebtedness or other liabilities, and the Company
shall have accrued goodwill amortizable under applicable Tax law in the amount of R$200,000,000.
(p) Waivers. The Waivers shall be in full force and effect.
Article
VII
INDEMNIFICATION
7.1 Indemnification.
(a) Subject to the terms and conditions of this Article VII (including without limitation the limitations set forth in
Section 7.4 hereof), from and after the Closing, GGAC, the Surviving Corporation and their respective representatives,
successors and permitted assigns (the “GGAC Indemnified Parties”) shall be indemnified, defended and held harmless
by the Controlling Persons and the Optionholders (the “Company Indemnifying Parties”), jointly and severally,
but only to the extent of the Company Indemnity Cap (as defined in Section 7.4(d) hereof), from and against all Losses
asserted against, resulting to, imposed upon, or incurred by any GGAC Indemnified Party by reason of, arising out of or resulting
from:
(i) the inaccuracy or breach of any representation or warranty of the Company, the Controlling Persons or the Optionholders contained
in or made pursuant to this Agreement, any Schedule or any certificate delivered by the Company, the Controlling Persons
or the Optionholders (or by the Representative on their behalf) to GGAC pursuant to this Agreement with respect hereto or thereto
in connection with the Closing; and
(ii) the non-fulfillment or breach of any covenant or agreement of the Company, the Controlling Persons or the Optionholders contained
in this Agreement.
(b) Subject to the terms and conditions of this Article VII (including without limitation the limitations set forth in
Section 7.4 hereof), from and after the Closing, the Controlling Persons and Optionholders and their respective representatives,
successors and permitted assigns (the “Company Indemnified Parties”) shall be indemnified, defended and held
harmless by GGAC (the “GGAC Indemnifying Parties”), but only to the extent of the GGAC Indemnity Cap (as defined
in Section 7.4(d) hereof), from and against all Losses asserted against, resulting to, imposed upon, or incurred by any
Company Indemnified Party by reason of, arising out of or resulting from:
(i) the inaccuracy or breach of any representation or warranty of GGAC contained in or made pursuant to this Agreement, any Schedule or
any certificate delivered by GGAC to the Company pursuant to this Agreement with respect hereto or thereto in connection with
the Closing; and
(ii) the non-fulfillment or breach of any covenant or agreement of GGAC contained in this Agreement.
(c) As used in this Article VII, the term “Losses” shall include all losses, liabilities, damages,
judgments, awards, orders, penalties, settlements, costs and expenses (including, without limitation, interest, penalties, court
costs and reasonable legal fees and expenses) including those arising from any demands, claims, suits, actions, costs of investigation,
notices of violation or noncompliance, causes of action, proceedings and assessments whether or not made by third parties or whether
or not ultimately determined to be valid, but net of any provisions or reserves relating to such matter recorded in the Company’s
Audited Financial Statements; provided, however, that Losses shall not include incidental, consequential, indirect,
punitive, special or exemplary damages; provided, further, that in relation to any Third Party Claim, a Loss shall
only be considered incurred and be indemnifiable when and to the extent actually due and payable by the Indemnified Party, it
being understood that any claim for such a Loss shall be preserved in accordance with Section 7.4(b) if the claim for indemnification
is made prior to the expiration of the applicable Survival Period (as defined below), notwithstanding that the Third Party Claim
has not yet been reduced to an amount due and payable. Solely for the purpose of determining the amount of any Losses (and not
for determining any breach) for which the Indemnified Parties may be entitled to indemnification pursuant to Article VII,
any representation or warranty contained in this Agreement that is qualified by a term or terms such as “material,”
“materially,” or “Material Adverse Effect” shall be deemed made or given without such qualification and
without giving effect to such words.
(d) As used in this Article VII, with respect to any claim, the term “Indemnified Parties” means the party
seeking indemnification hereunder, whether by the GGAC Indemnified Parties under Section 7.1(a) hereof or by the Company
Indemnified Parties under Section 7.1(b) hereof, and the term “Indemnifying Parties” means the party
against whom indemnification is sought hereunder, whether against the Company Indemnifying Parties under Section 7.1(a)
hereof or against the GGAC Indemnifying Parties under Section 7.1(b) hereof.
7.2 Indemnification of Third Party Claims. The indemnification obligations under this Article VII with respect
to actions, proceedings, lawsuits, investigations, demands or other claims brought against an Indemnified Party by a third party
(a “Third Party Claim”) shall be subject to the following terms and conditions:
(a) Notice of Claim. The Indemnified Party, acting through the Representative, will give the Indemnifying Parties prompt
written notice after receiving written notice of any Third Party Claim or discovering the liability, obligation or facts giving
rise to such Third Party Claim (a “Notice of Claim”) which Notice of Third Party Claim shall set forth (i)
a brief description of the nature of the Third Party Claim, (ii) the total amount of the actual out-of-pocket Loss or the anticipated
potential Loss (including any costs or expenses which have been or may be reasonably incurred in connection therewith), and (iii)
whether such Loss may be covered (in whole or in part) under any insurance and the estimated amount of such Loss which may be
covered under such insurance.
(b) Defense. The Indemnifying Parties shall have the right, at their option (subject to the limitations set forth in
Section 7.2(c) hereof) and at their own expense, by written notice to the Indemnified Parties, to assume the entire control
of, subject to the right of the Indemnified Parties to participate (at their expense and with counsel of their choice) in, the
defense, compromise or settlement of the Third Party Claim as to which such Notice of Claim has been given, and shall be entitled
to appoint a recognized and reputable counsel to be the lead counsel in connection with such defense. If the Indemnifying Parties
are permitted and elect to assume the defense of a Third Party Claim:
(i) the Indemnifying Parties shall diligently and in good faith defend such Third Party Claim and shall keep the Indemnified Parties
reasonably informed of the status of such defense; provided, however, that in the case of any settlement providing for remedies
which are not merely incidental to a primary damage claim or claims for monetary damages, the Indemnified Parties shall have the
right to approve any settlement, which approval will not be unreasonably withheld, delayed or conditioned; and
(ii) the Indemnified Parties shall cooperate fully in all respects with the Indemnifying Parties in any such defense, compromise or
settlement thereof, including, without limitation, the selection of counsel, and the Indemnified Parties shall make available
to the Indemnifying Parties all pertinent information and documents under its control.
(c) Limitations of Right to Assume Defense. The Indemnifying Parties shall not be entitled to assume control of such
defense and shall pay the fees and expenses of counsel retained by the Representative if (i) the Third Party Claim relates to
or arises in connection with any criminal proceeding, action, indictment, allegation or investigation; (ii) the Third Party Claim
seeks an injunction or equitable relief against the Indemnified Parties which is not merely incidental to a primary damage claim
or claims for monetary damages; or (iii) there is a reasonable probability that a Third Party Claim may materially and adversely
affect the Indemnified Parties other than as a result of money damages or other money payments.
(d) Other Limitations. Failure to give prompt Notice of Claim or to provide copies of relevant available documents or
to furnish relevant available data shall not constitute a defense (in whole or in part) to any claim for indemnification with
respect to a Third Party Claim and shall not affect the Indemnifying Parties’ duties or obligations under this Article VII,
except to the extent (and only to the extent that) such failure shall have adversely affected the ability of the Indemnifying
Parties to defend against or reduce their liability or caused or increased such liability or otherwise caused the damages for
which the Indemnifying Parties are obligated to be greater than such damages would have been had Indemnified Parties given the
Indemnifying Parties prompt notice hereunder. So long as the Indemnifying Parties are defending any such action actively and in
good faith, the Indemnified Parties shall not settle such action. The Indemnified Parties shall make available to the Indemnifying
Parties all relevant records and other relevant materials required by them and in the possession or under the control of the Indemnified
Parties, for the use of the Indemnifying Parties and their representatives in defending any such action, and shall in other respects
give reasonable cooperation in such defense.
(e) Failure to Defend. If the Indemnifying Parties, promptly after receiving a Notice of Claim, fail to defend such
Third Party Claim actively and in good faith, the Indemnified Parties, at the reasonable cost and expense of Indemnifying Parties,
will (upon further written notice) have the right to undertake the defense, compromise or settlement of such Third Party Claim
as it may determine in its reasonable discretion, provided that the Indemnifying Parties shall have the right to approve any settlement,
which approval will not be unreasonably withheld, delayed or conditioned.
(f) Indemnified Parties’ Rights. Anything in this Section 7.2 to the contrary notwithstanding, the
Indemnifying Parties shall not, without the written consent of the Indemnified Parties, settle or compromise any action or consent
to the entry of any judgment which does not include as an unconditional term thereof the giving by the claimant or the plaintiff
to the Indemnified Parties of a full and unconditional release from all liability and obligation in respect of such action without
any payment by the Indemnified Parties.
(g) Indemnifying Parties Consent. Unless the Indemnifying Parties have consented to a settlement of a Third Party Claim,
the amount of the settlement shall not be a binding determination of the amount of the Loss and such amount shall be determined
in accordance with the provisions of the Escrow Agreement.
7.3 Insurance Effect. To the extent that any Losses that are subject to indemnification pursuant to this Article VII
are covered by insurance paid for by the Indemnified Parties prior to or after the Closing, the Indemnified Parties shall
use commercially reasonable best efforts to obtain the maximum recovery under such insurance; provided that the Indemnified Parties
shall nevertheless be entitled to bring a claim for indemnification under this Article VII in respect of such Losses
and the time limitations set forth in Section 7.4 hereof for bringing a claim of indemnification under this Agreement
shall be tolled during the pendency of such insurance claim. The existence of a claim by the Indemnified Parties for monies from
an insurer or against a third party in respect of any Loss shall not, however, delay any payment pursuant to the indemnification
provisions contained herein and otherwise determined to be due and owing by the Indemnifying Parties. If the Indemnified Parties
have received the payment required by this Agreement from the Indemnifying Parties in respect of any Loss and later receive proceeds
from insurance or other amounts in respect of such Loss, then it shall hold such proceeds or other amounts in trust for the benefit
of the Indemnifying Parties and shall pay to the Indemnifying Parties, as promptly as practicable after receipt, a sum equal to
the amount of such proceeds or other amount received, up to the aggregate amount of any payments received from the Indemnifying
Parties pursuant to this Agreement in respect of such Loss. Notwithstanding any other provisions of this Agreement, it is the
intention of the parties that no insurer or any other third party shall be (i) entitled to a benefit it would not be entitled
to receive in the absence of the foregoing indemnification provisions, or (ii) relieved of the responsibility to pay any claims
for which it is obligated.
7.4 Limitations on Indemnification.
(a) Survival: Time Limitation.
(i) The representations, warranties, covenants and agreements of the Company, the Controlling Persons or the Optionholders in this
Agreement or in any writing delivered by the Company, the Controlling Persons or Optionholders (or by the Representative on their
behalf) to GGAC in connection with this Agreement (including the certificate required to be delivered by the Company pursuant
to Section 6.3(a) hereof) shall survive the Closing for the period that ends on the Basic Indemnity Escrow Termination
Date (the “Basic Survival Period”), except that the right of GGAC Indemnified Parties to bring (i) Tax Indemnification
Claims shall survive the Closing for the period that ends on the Tax Escrow Termination Date (the “Tax Survival Period”)
and (ii) claims for the breach of the representations and warranties in Sections 1.8(c)(iv), 2.3, and 2.4
hereof shall survive without limitation as to time.
(ii) The representations, warranties, covenants and agreements of GGAC in this Agreement or in any writing delivered by GGAC to the
Company in connection with this Agreement (including the certificate required to be delivered by GGAC pursuant to Section 6.2(a)
hereof) shall survive the Closing for the Basic Survival Period, except that the right of the Company Indemnified Parties
to bring claims for the breach of the representations and warranties in Sections 3.3 and 3.4 hereof shall survive
without limitation as to time.
(b) Any indemnification claim made by an Indemnified Party prior to the termination of the Basic Survival Period or the Tax Survival
Period (each a “Survival Period”), as the case may be, shall be preserved despite the subsequent termination
of such Survival Period and any claim set forth in a Notice of Claim sent prior to the expiration of such Survival Period shall
survive until final resolution thereof. Except as set forth in the immediately preceding sentence, no claim for indemnification
under this Article VII shall be brought after the end of the Survival Period or the Tax Survival Period, as the case
may be.
(c) Deductible. No amount shall be payable by the Indemnifying Parties under this Article VII unless and
until the aggregate amount of all indemnifiable Losses otherwise payable by such Indemnifying Parties exceeds $600,000 (the “Deductible”),
in which event the amount payable shall be the full amount (and not just the amount in excess of the amount of the Deductible),
and, subject to the limitations set forth in Section 7.4(d) hereof, all future amounts that become payable under Section 7.1
hereof from time to time thereafter. With respect to any claim as to which the Indemnified Party may be entitled to indemnification,
the Indemnifying Party shall not be liable for any individual or series of related Losses which do not exceed $30,000, provided
that such Losses shall be counted toward the Deductible. Notwithstanding the foregoing, the Deductible shall not apply to Losses
that arise out of (i) with respect to claims for indemnification by the GGAC Indemnified Parties, (A) a breach of the representations
and warranties in Sections 1.8(c)(iv), 2.3 or 2.4, or (B) a Tax Indemnification Claim, or (ii) with respect
to claims for indemnification by the Company Indemnified Parties, a breach of the representations and warranties in Sections
3.3 or 3.4, all of which shall be indemnifiable as to all Losses that so arise from the first dollar thereof.
(d) Aggregate Amount Limitation.
(i) Except with respect to a breach of the representations and warranties in Sections 1.8(c)(iv), 2.3 and 2.4
hereof, the aggregate liability of the Company Indemnifying Parties for Losses pursuant to Section 7.1(a) hereof shall
not in any event exceed the Escrow Shares (and any proceeds of the shares or distributions with respect to the Escrow Shares)
plus an additional $2,000,000 in the case of any claims made on or prior to the Basic Indemnity Escrow Termination Date (“Basic
Indemnity Claims”) or the Tax Indemnity Shares (and any proceeds of the shares or distributions with respect to the
Escrow Shares) plus an additional $1,000,000 (less any amounts in excess of $1,000,000 paid in respect of Basic Indemnity Claims)
in the case of Tax Indemnity Claims made after the Basic Indemnity Escrow Termination Date (the “Company Indemnity Cap”)
and GGAC Indemnified Parties shall have no claim against the Company Indemnifying Parties other than for any of such Escrow Shares
(and any proceeds of the shares or distributions with respect to the Escrow Shares) or such additional amounts. Notwithstanding
anything to the contrary herein, the maximum liability of each Company Indemnifying Party to the GGAC Indemnified Parties (including,
without limitation, with respect to a breach of the representations and warranties set forth in Sections 1.8(c)(iv), 2.3,
and 2.4 hereof) shall be limited to returning up to 100% of the Investment Consideration received by such Company Indemnifying
Party pursuant to the provisions of Section 1.1 hereof.
(ii) The aggregate liability of the GGAC Indemnified Parties for Losses pursuant to Section 7.1(b) hereof shall not in
any event exceed a number of newly issued GGAC Ordinary Shares equal to the number of Escrow Shares plus an additional $2,000,000
(the “GGAC Indemnity Cap”).
(iii) Any indemnification obligations of an Indemnifying Party hereunder shall be satisfied, first, from the Escrow Shares and any proceeds
of the shares or distributions with respect to the Escrow Shares (in the case of the Company Indemnifying Parties) or newly issued
GGAC Ordinary Shares (in the case of the GGAC Indemnifying Parties), and then in cash through the delivery of immediately available
funds in U.S. dollars.
7.5 Exclusive Remedy. GGAC, on behalf of itself and the other GGAC Indemnified Parties, and Controlling Persons and
the Optionholders, on behalf of the themselves and the other Company Indemnified Parties, hereby acknowledge and agree that, from
and after the Closing, the sole remedy of the Indemnified Parties with respect to any and all claims for money damages arising
out of or relating to this Agreement shall be pursuant and subject to the requirements of the indemnification provisions set forth
in this Article VII. Notwithstanding any of the foregoing, nothing contained in this Article VII shall
in any way impair, modify or otherwise limit a Indemnified Parties right to bring any claim, demand or suit against the other
party based upon such other party’s actual fraud or intentional or willful misrepresentation or omission, it being understood
that a mere breach of a representation and warranty, without intentional or willful misrepresentation or omission, does not constitute
fraud.
7.6 Adjustment to Investment Consideration. Amounts paid for indemnification under Article VII shall be
deemed to be an adjustment to the Investment Consideration, except as otherwise required by law.
7.7 Representative Capacities; Application of Escrow Shares. The parties acknowledge that all actions required or permitted
to be taken by the Controlling Persons or the Optionholders in their roles as Company Indemnified Parties or Company Indemnifying
Parties under this Article VII shall be taken by the Representative on behalf of such Persons. The Representative’s
obligations under this Article VII are solely as a representative of the Controlling Persons and the Optionholders
in the manner set forth in this Agreement and the Escrow Agreement with respect to the obligations to indemnify the GGAC Indemnified
Parties or the right to be indemnified by the GGAC Indemnifying Parties under this Article VII and that the Representative
shall have no personal responsibility for any expenses incurred by him in such capacity and that all payments to GGAC Indemnified
Parties as a result of such indemnification obligations shall be made solely to the extent of the Company Indemnity Cap. The parties
further acknowledge that all actions required or permitted to be taken by GGAC or the Surviving Corporation in their roles as
GGAC Indemnified Parties or GGAC Indemnifying Parties under this Article VII shall be taken by the Committee on behalf
of such Persons. The Committee’s obligations under this Article VII are solely as a representative of the GGAC
and the Surviving Corporation in the manner set forth in this Agreement and the Escrow Agreement with respect to the obligations
to indemnify the Company Indemnified Parties or the right to be indemnified by the Company Indemnifying Parties under this Article VII
and that the Committee shall have no personal responsibility for any expenses incurred by it in such capacity and that all
payments to Company Indemnified Parties as a result of such indemnification obligations shall be made solely to the extent of
the GGAC Indemnity Cap. Out-of-pocket expenses of the Representative and the Committee for attorneys’ fees and other costs
shall be borne in the first instance by GGAC and the Controlling Persons, respectively, either of whom may make a claim for reimbursement
thereof to the extent of Company Indemnity Cap or the GGAC Indemnity Cap, as applicable, upon the claim with respect to which
such expenses are incurred becoming an Established Claim (as defined in the Escrow Agreement) or otherwise having been resolved
in the Indemnified Party’s favor. The Escrow Agent, pursuant to the Escrow Agreement after the Closing, may apply all or
a portion of the Escrow Shares to satisfy any claim by the GGAC Indemnified Parties for indemnification pursuant to this Article
VII. The value of the Escrow Shares shall be determined in accordance with the Escrow Agreement. The Escrow Agent will hold
the remaining portion of the Escrow Shares until final resolution of all claims for indemnification or disputes relating thereto.
The value of any newly issued GGAC Ordinary Shares shall be determined in accordance with the Escrow Agreement as if such shares
were Escrow Shares.
7.8 Tax Benefits. The amount of any Losses for which indemnification is provided shall be reduced by any net Tax benefit
to such Indemnified Party and its Affiliates, to the extent realized by such party as a result of such Losses, including the present
value (determined by discounting at 8%) of the benefit arising from an increase in the Tax basis of assets, net of any Tax costs
incurred by the Indemnified Party as a result of the receipt of the indemnification payments hereunder. In calculating the amount
of net Tax benefit, the Indemnified Party and its Affiliates shall be presumed to pay Taxes at a forty percent (40%) Tax rate.
The Indemnified Party shall provide the Indemnifying Party with such documentation as may be reasonably requested in order to
ascertain or confirm the amount of any net Tax benefit or net Tax cost referred to herein.
7.9 Mitigation. An Indemnified Party shall use commercially reasonably efforts to mitigate Losses suffered, incurred
or sustained by it arising out of any matter for which it is entitled to indemnification hereunder; provided that no Indemnified
Party shall be required to (i) take any action or refrain from taking any action that is contrary to any applicable Contract,
order or law binding on it or any Affiliate thereof or (ii) incur any out-of-pocket expense in connection with such mitigation
(other than de minimus incidental expenses).
Article
VIII
TERMINATION
8.1 Termination. This Agreement may be terminated at any time prior to the Closing:
(a) by mutual written agreement of GGAC and the Controlling Persons at any time;
(b) by either GGAC or the Controlling Persons if the Contributions shall not have been consummated by March 31, 2016 (“Outside
Date”) for any reason; provided, however, that the right to terminate this Agreement under this Section 8.1(b)
shall not be available to any party whose action or failure to act has been a principal cause of or resulted in the failure of
the Contributions to occur on or before such date and such action or failure to act constitutes a breach of this Agreement. For
the avoidance of doubt, in the event the Agreement is terminated, none of the Controlling Persons, Optionholders or the Company
or their respective Affiliates shall have any liability to GGAC or its Affiliates for the failure to obtain any Release Letters
or any consents of third parties hereunder other than for reimbursement of expenses pursuant to Section 8.3(a);
(c) by either GGAC or the Controlling Persons if a Governmental Entity shall have issued an order, decree, judgment or ruling or taken
any other action, in any case having the effect of permanently restraining, enjoining or otherwise prohibiting the Contributions,
as applicable, which order, decree, judgment, ruling or other action is final and nonappealable; provided, however,
that the right to terminate this Agreement under this Section 8.1(c) shall not be available to any party whose action or
failure to act has been a principal cause of or resulted in such order, decree, judgment, ruling or other action being final and
nonappealable;
(d) by the Controlling Persons, upon a material breach of any representation, warranty, covenant or agreement on the part of GGAC
set forth in this Agreement, or if any representation or warranty of GGAC shall have become untrue, in either case such that the
conditions set forth in Article VI hereof would not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue, provided, that if such breach or inaccuracy is curable by GGAC prior to the
Closing Date, then the Controlling Persons may not terminate this Agreement under this Section 8.1(d) for thirty (30)
days after delivery of written notice from the Company to GGAC of such breach or inaccuracy, provided GGAC continues to exercise
commercially reasonable best efforts to cure such breach or inaccuracy (it being understood that the Controlling Persons may not
terminate this Agreement pursuant to this Section 8.1(d) if it shall have materially breached this Agreement or if
such breach or inaccuracy is cured by GGAC during such thirty (30) day period);
(e) by GGAC, upon a material breach of any representation, warranty, covenant or agreement on the part of the Company, the Controlling
Persons or the Optionholders set forth in this Agreement, or if any representation or warranty of the Company, the Controlling
Persons or the Optionholders shall have become untrue, in either case such that the conditions set forth in Article VI
hereof would not be satisfied as of the time of such breach or as of the time such representation or warranty shall have become
untrue, provided, that if such breach or inaccuracy is curable by the Company prior to the Closing Date, then GGAC may not terminate
this Agreement under this Section 8.1(e) for thirty (30) days after delivery of written notice from GGAC to the Company
of such breach or inaccuracy, provided the Company continues to exercise commercially reasonable best efforts to cure such breach
or inaccuracy (it being understood that GGAC may not terminate this Agreement pursuant to this Section 8.1(e) if it
shall have materially breached this Agreement or if such breach or inaccuracy is cured by the Company during such thirty (30)
day period);
(f) by either GGAC or the Controlling Persons, if, at the Extraordinary General Meeting (including any adjournments thereof), the
GGAC Shareholder Approval is not obtained, or GGAC will have less than $5 million of net tangible assets following the exercise
by the holders of GGAC Ordinary Shares issued in GGAC’s initial public offering of their rights to convert the GGAC Ordinary
Shares held by them into cash in accordance with GGAC’s Charter Documents.
8.2 Notice of Termination; Effect of Termination. Any termination of this Agreement under Section 8.1 hereof
will be effective immediately upon (or, if the termination is pursuant to Section 8.1(d) or 8.1(e) hereof and
the provision therein is applicable, thirty (30) days after) the delivery of written notice of the terminating party to the other
parties hereto. In the event of the termination of this Agreement as provided in Section 8.1 hereof, this Agreement
shall be of no further force or effect and the Contributions, as applicable, shall be abandoned, except for and subject to the
following: (i) Sections 5.6, 5.10, 8.2 and 8.3 and Article X (General Provisions) hereof
shall survive the termination of this Agreement, and (ii) nothing herein shall relieve any party from liability for any breach
of this Agreement.
8.3 Fees and Expenses. Except as otherwise specifically provided in this Agreement, all fees and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses whether
or not the transactions contemplated hereby are effected and consummated. Notwithstanding the foregoing sentence, (a) if all of
the conditions set forth in Section 6.1 and Section 6.2 hereof have been satisfied, but any of the conditions set
forth in Section 6.3(d), Section 6.3(m) or Section 6.3(p) hereof have not been satisfied and this Agreement is terminated
by GGAC, the Company shall pay all reasonable and documented out of pocket fees and expenses incurred by GGAC in connection with
this Agreement up to a maximum of $1,000,000, which shall be the sole liability of the Company, the Controlling Persons and the
Optionholders for any failure to obtain the Release Letters or any third party consents.
Article
IX
DEFINED TERMS
Terms defined in
this Agreement are organized alphabetically as follows, together with the Section and, where applicable, paragraph, number in
which definition of each such term is located:
Term |
Section |
AAA |
Section 10.12 |
Additional GGAC SEC Reports |
Section 5.4(c) |
Affiliate |
Section 10.2(a) |
Agreement |
Preamble |
Approvals |
Section 2.1(a) |
Audited Financial Statements |
Section 2.7(a) |
Basic Indemnity Claims |
Section 7.4(d)(i) |
Basic Indemnity Escrow Termination Date |
Section 1.6 |
Basic Survival Period |
Section 7.4(a)(i) |
Blue Sky Laws |
Section 1.8(a)(ii) |
CADE |
Section 2.23 |
Charter Amendments |
Section 5.1(b) |
Charter Documents |
Section 2.1(a) |
Closing |
Section 1.2(a) |
Closing Date |
Section 1.2(a) |
Closing Form 8-K |
Section 5.4(b) |
Closing Press Release |
Section 5.4(b) |
Code |
Section 1.4 |
Committee |
Section 1.7(a) |
Companies Law |
Section 5.1(c) |
Company |
Preamble |
Company Closing Certificate |
Section 6.3(a) |
Company Contracts |
Section 2.19(a) |
Company Indemnified Parties |
Section 7.1(b) |
Company Indemnifying Parties |
Section 7.1(a) |
Company Indemnity Cap |
Section 7.4(d)(i) |
Company Intellectual Property |
Section 2.18(a)(ii) |
Company Options |
Section 2.3(a) |
Company Ordinary Shares |
Recitals |
Company Products |
Section 2.18(a)(v) |
Company Registered Intellectual Property |
Section 2.18(a)(iv) |
Company Schedule |
Article II |
Continental |
Section 1.6 |
Contributions |
Section 1.1(b) |
Controlling Person Affiliates |
Recitals |
Term |
Section |
Controlling Persons |
Preamble |
Copyrights |
Section 2.18(a)(i) |
Corporate Records |
Section 2.1(c) |
Deductible |
Section 7.4(c) |
Disclosure Schedules |
Section 5.11 |
Disqualification Event |
Section 1.8(a)(iv) |
Environmental Law |
Section 2.16(b) |
Escrow Account |
Section 1.6 |
Escrow Agent |
Section 1.6 |
Escrow Agreement |
Section 1.6 |
Escrow Shares |
Section 1.6 |
Exchange Act |
Section 1.8(a)(ii) |
Extraordinary General Meeting |
Section 5.1(b) |
Final Prospectus |
Section 5.10 |
Financial Statements |
Section 2.7(b) |
General Shareholders Meeting |
Section 5.27 |
GGAC |
Preamble |
GGAC Board |
Section 5.24 |
GGAC Closing Certificate |
Section 6.2(a) |
GGAC Contracts |
Section 3.19(a) |
GGAC Indemnified Parties |
Section 7.1(a) |
GGAC Indemnifying Parties |
Section 7.1(b) |
GGAC Indemnity Cap |
Section 7.4(d)(ii) |
GGAC Ordinary Shares |
Section 1.1(a) |
GGAC Plan |
Section 5.1(b) |
GGAC Preferred Shares |
Section 3.3(a) |
GGAC Schedule |
Article III |
GGAC SEC Reports |
Section 3.7(a) |
GGAC Shareholder Approval |
Section 5.1(b) |
Governmental Action/Filing |
Section 2.21(b) |
Governmental Entity |
Section 1.8(a)(ii) |
Hazardous Substance |
Section 2.16(c) |
IDCR |
Section 10.12 |
Indemnified Parties |
Section 7.1(d) |
Indemnifying Parties |
Section 7.1(d) |
Insider |
Section 2.19(a)(i) |
Insurance Policies |
Section 2.20 |
Intellectual Property |
Section 2.18(a)(i) |
Investment Consideration |
Section 1.1(b) |
Irrevocable Instructions |
Section 5.22 |
knowledge |
Section 10.2(c) |
Legal Requirements |
Section 10.2(d) |
Lien |
Section 10.2(e) |
Lock-Up Agreement |
Section 1.9 |
Term |
Section |
Losses |
Section 7.1(c) |
Material Adverse Effect |
Section 10.2(b) |
Material Company Contracts |
Section 2.19(a) |
Nasdaq |
Section 3.23 |
Notice of Claim |
Section 7.2(a) |
Open Market Purchases |
Section 5.25 |
Option Consideration |
Section 1.1(b) |
Option Contribution |
Section 1.1(b) |
Option Shares |
Recitals |
Optionholders |
Preamble |
Original Agreement |
Recitals |
Outside Date |
Section 8.1(b) |
Outstanding Shares |
Recitals |
Patents |
Section 2.18(a)(i) |
Person |
Section 10.2(f) |
Personal Property |
Section 2.14(b) |
Plan |
Section 2.11(a) |
Plans |
Section 2.11(a) |
Proxy Statement |
Section 5.1(b) |
Registered Intellectual Property |
Section 2.18(a)(iii) |
Registration Rights Agreement |
Section 5.8 |
Release Letters |
Section 5.26 |
Reorganization |
Recitals |
Representative |
Section 1.7(b) |
Reviewable Document |
Section 5.5(a) |
SEC |
Section 1.8(a)(ix) |
Securities Act |
Section 1.8(a)(ii) |
Share Consideration |
Section 1.1(a) |
Share Contribution |
Section 1.1(a) |
Shares |
Recitals |
Signing Form 8-K |
Section 5.4(a) |
Signing Press Release |
Section 5.4(a) |
Subsidiaries |
Section 2.2(a) |
Survival Period |
Section 7.4(b) |
Surviving Corporation |
Preamble |
Tax |
Section 2.15(a) |
Tax Indemnification Claim |
Section 1.6 |
Tax Indemnity Escrow Termination Date |
Section 1.6 |
Tax Indemnity Shares |
Section 1.6 |
Tax Return |
Section 2.15(a) |
Tax Survival Period |
Section 7.4(a)(i) |
Taxable |
Section 2.15(a) |
Taxes |
Section 2.15(a) |
Third Party Claim |
Section 7.2 |
Trademarks |
Section 2.18(a)(i) |
Trust Fund |
Section 3.25 |
Unaudited Financial Statements |
Section 2.7(b) |
U.S. GAAP |
Section 2.7(a) |
Waivers |
Section 5.32 |
Article
X
GENERAL PROVISIONS
10.1 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered
personally or by commercial delivery service, or sent via email or telecopy to the parties at the following addresses or telecopy
numbers (or at such other address or telecopy numbers for a party as shall be specified by like notice):
| if
to GGAC, to: | Garnero
Group Acquisition Corp.
Av. Brig. Faria Lima
1485 - 19 Andar
Brasilinvest Plaza, CEP 01452-002
São Paulo, Brasil
Attention: Mario Garnero
Telephone: (55) 1130947970
Telecopy: (55) 1138167471
E-mail: mg@garnerogroup.com |
| with
a copy to: | Graubard
Miller
405 Lexington Avenue
New York, New York 10174-1901
Attention: David Miller, Esq. and Jeffrey Gallant, Esq.
Telephone: 212-818-8880
Telecopy: 212-818-8881
Email: dmiller@graubard.com |
| if
to the Company, to: | Q1
Comercial de Roupas S.A.
Rua São Tomé 119, 3 Andar, Vila Olímpia
São Paulo-SP
Attention: Alvaro Jabur Maluf Junior
Telephone: 55 11 3048 0701
Telecopy: 55 11 3048 0701
E-mail: alvaro@grupocolombo.com.br |
| with
a copy to: | McDermott,
Will & Emery LLP
340 Madison Avenue
New York, NY 10173-1922
Attention: Robert Cohen, Esq. and Meir A. Lewittes, Esq.
Telephone: +1 (212) 547-5885 / +1 (212) 547-5351
Telecopy: +1 (212) 547 5444
E-mail: rcohen@mwe.com / mlewittes@mwe.com |
| Also
with a copy to: | Souza
Cescon Barrieu & Flesch Advogados
Rua Funchal, 418, 10º andar, Vila Olimpia
São Paulo - SP
Attention: Joaquim Oliveira
Telephone: 55 11 3089-6508
Telecopy: 55 11 3089-6500
E-mail: Joaquim.oliveira@scbf.com.br |
| if
to the Controlling Persons
or the Optionholders, to: | The
address set forth for each such person on Schedule 1.1(a) hereto |
| with
a copy to: | Souza
Cescon Barrieu & Flesch Advogados
Rua Funchal, 418, 10º andar, Vila Olimpia
São Paulo – SP
Attention: Joaquim Oliveira
Telephone: 55 11 3089-6508
Telecopy: 55 11 3089-6500
E-mail: Joaquim.oliveira@scbf.com.br |
10.2 Interpretation. The definitions of the terms herein shall apply equally to the singular and plural forms of the
terms defined. Whenever the context shall require, any pronoun shall include the corresponding masculine, feminine and neuter
forms. When a reference is made in this Agreement to an Exhibit or Schedule, such reference shall be to an Exhibit or Schedule to
this Agreement unless otherwise indicated. When a reference is made in this Agreement to Sections or subsections, such reference
shall be to a Section or subsection of this Agreement. Unless otherwise indicated the words “include,” “includes”
and “including” when used herein shall be deemed in each case to be followed by the words “without limitation.”
The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. When reference is made herein to “the business of” an entity, such
reference shall be deemed to include the business of all direct and indirect subsidiaries of such entity. Reference to the subsidiaries
of an entity shall be deemed to include all direct and indirect subsidiaries of such entity. For purposes of this Agreement:
(a) the term “Affiliate” means, as applied to any Person, any other Person directly or indirectly controlling,
controlled by or under direct or indirect common control with, such Person. For purposes of this definition, “control”
(including with correlative meanings, the terms “controlling,” “controlled by” and “under common
control with”), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or
otherwise;
(b) the term “Material Adverse Effect” when used in connection with a Person means any change, event, violation,
inaccuracy, circumstance or effect, individually or when aggregated with other changes, events, violations, inaccuracies, circumstances
or effects, that is materially adverse to the business, assets (including intangible assets), revenues, financial condition or
results of operations of such entity, it being understood that no changes, events, violations, inaccuracies, circumstances or
effects arising out of or relating to the following, alone or in combination, shall be deemed or taken into account in determining
a Material Adverse Effect: (i) the public announcement or pendency of this Agreement or the transactions contemplated hereby;
(ii) any economic, credit, capital, securities or financial markets or any social, regulatory or political conditions in the United
States or Brazil or elsewhere in the world, including with respect to interest rates or currency exchange rates; (iii) any act
of God, hurricane, tornado, flood, volcano, earthquake or other natural or manmade disaster; (iv) any proposal, enactment or change
in interpretation of, or other change in, applicable law, U.S. GAAP (or equivalent accounting practice in any other jurisdiction)
or governmental policy; (v) general conditions in the industries in which a Person operates; (vi) the failure, in and of itself,
of a Person to meet any internal or published projections, forecasts, estimates or predictions in respect of revenue, earnings
or other financial or operating metrics before, on or after the date of this Agreement, or changes in the credit rating of a Person;
and (vii) any action taken or omitted to be taken by a party hereto at the other party’s direction or written request or
otherwise required to be taken or omitted to be taken by this Agreement, provided further, that the exceptions in
clauses (ii)-(v) above shall not apply to the extent (if any) that the impact of such change, event, circumstance or effect is
disproportionately adverse to such Person, relative to other companies in any industry in which such Person operates;
(c) the term “knowledge” means the actual knowledge or awareness as to a specified fact or event and, with respect
to any entity, “knowledge” of any of its directors or managers, principal executive officers;
(d) the term “Legal Requirements” means any federal, state, local, municipal, foreign or other law, statute, constitution,
principle of common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling or requirement issued, enacted,
adopted, promulgated, implemented or otherwise put into effect by or under the authority of any Governmental Entity;
(e)
the term “Lien” means any mortgage, pledge, security interest, encumbrance, lien, restriction or charge
of any kind (including, without limitation, any conditional sale or other title retention agreement or lease in the nature
thereof, any sale with recourse against the seller or any Affiliate of the seller, or any agreement to give any security
interest), other than for taxes not yet due and payable or being contested in good faith;
(f) the term “Person” shall mean any individual, corporation (including any non-profit corporation), general partnership,
limited partnership, limited liability partnership, joint venture, estate, trust, company (including any limited liability company
or joint stock company), firm or other enterprise, association, organization, entity or Governmental Entity; and
(g) all monetary amounts set forth herein are referenced in United States dollars, unless otherwise noted.
10.3 Counterparts; Facsimile Signatures. This Agreement and each other document executed in connection with the transactions
contemplated hereby, and the consummation thereof, may be executed in one or more counterparts, all of which shall be considered
one and the same document and shall become effective when one or more counterparts have been signed by each of the parties and
delivered to the other party, it being understood that all parties need not sign the same counterpart. Delivery by email or facsimile
to counsel for the other party of a counterpart executed by a party shall be deemed to meet the requirements of the previous sentence.
10.4 Entire Agreement; Third Party Beneficiaries. This Agreement and the documents and instruments and other agreements
among the parties hereto as contemplated by or referred to herein, including the Exhibits and Schedules hereto (a) constitute
the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter hereof, it being understood that the letter of intent
between GGAC and the Company dated May 28, 2015 is hereby terminated in its entirety and shall be of no further force and effect
(except to the extent expressly stated to survive the execution of this Agreement and the consummation of the transactions contemplated
hereby); and (b) are not intended to confer upon any other person any rights or remedies hereunder (except as specifically provided
in this Agreement).
10.5 Severability. In the event that any provision of this Agreement, or the application thereof, becomes or is declared
by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement will continue in full
force and effect and the application of such provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace such void or unenforceable provision of this
Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes
of such void or unenforceable provision.
10.6 Other Remedies; Specific Performance. Except as otherwise provided herein, including pursuant to Section 7.5
hereof, any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any
other remedy conferred hereby, or by law or equity upon such party, and the exercise by a party of any one remedy will not preclude
the exercise of any other remedy. The parties hereto agree that irreparable damage would occur in the event that any of the provisions
of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed
that the parties shall be entitled to seek an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to
any other remedy to which they are entitled at law or in equity.
10.7 Governing Law. This Agreement shall be governed by and construed in accordance with the law of New York regardless
of the law that might otherwise govern under applicable principles of conflicts of law thereof.
10.8 Rules of Construction. The parties hereto agree that they have been represented by counsel during the negotiation
and execution of this Agreement and, therefore, waive the application of any law, regulation, holding or rule of construction
providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document.
10.9 Assignment. No party may assign either this Agreement or any of its rights, interests, or obligations hereunder
without the prior written approval of the other parties. Subject to the first sentence of this Section 10.9, this
Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted
assigns.
10.10
Amendment. This Agreement may be amended by the parties hereto at any time prior to the Closing Date by execution
of an instrument in writing signed on behalf of each of the parties; provided that the Controlling Persons may amend Schedule
1.1(a) hereto as necessary to account for changes in the ownership of GGAC Ordinary Shares as a result of the Reorganization,
without the consent of any other party. After the Closing Date, this Agreement may be amended only with the consent of the Representative
and the Committee.
10.11
Extension; Waiver. At any time prior to the Closing, any party hereto may, to the extent legally allowed, (i) extend
the time for the performance of any of the obligations or other acts of the other parties hereto, (ii) waive any inaccuracies
in the representations and warranties made to such party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of such party contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. Delay in exercising any right under this Agreement shall not constitute a waiver of such right.
10.12
Venue; Consent to Jurisdiction and Service of Process. In connection with Section 5-1401 of the General Obligations
Law of the State of New York, this Agreement shall be governed by, and construed in accordance with, the laws of the State of
New York without regard to principles of conflicts of law that would result in the application of the substantive law of another
jurisdiction. The parties hereto agree that any action, proceeding or claim arising out of or relating in any way to this Agreement
shall be resolved through final and binding arbitration in accordance with the International Arbitration Rules of the International
Centre for Dispute Resolution (“ICDR”) of the American Arbitration Association (“AAA”).
The arbitration shall be brought before the ICDR’s offices in New York City, New York, will be conducted in English and
will be decided by a panel of three arbitrators. Each party shall select one arbitrator and the parties shall jointly agree on
the third arbitrator who shall be the chairman and who shall not be a citizen of the U.S. or Brazil. If the parties fail to agree
on a chairman within 20 days of confirmation of the second arbitrator, then such chairman shall be named by the ICDR. The arbitrator
panel’s decision shall be final and enforceable by any court having jurisdiction over the party from whom enforcement is
sought. The cost of such arbitrators and arbitration services shall be borne as directed by the arbitrators. Each of the Company,
the Controlling Persons and the Optionholders hereby appoint, without power of revocation, Souza Cescon Barrieu & Flesch Advogados,
located at Rua Funchal, 418, 10º andar, Vila Olimpia, São Paulo, SP, Brazil, Fax No.: 55 11 3089-6500, E-mail: joaquim.oliveira@scbf.com.br,
Attn: Joaquim Oliveira, as their respective agent to accept and acknowledge on their behalf service of any and all process which
may be served in any arbitration, action, proceeding or counterclaim in any way relating to or arising out of this Agreement.
The Company, the Controlling Persons and Optionholders further agree to take any and all action as may be necessary to maintain
such designation and appointment of such agent in full force and effect for a period of seven years from the date of the Effective
Date.
[THE SIGNATURE PAGES FOLLOW.]
IN WITNESS WHEREOF,
the parties hereto have caused this Agreement to be executed as of the date first written above.
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GARNERO GROUP ACQUISITION COMPANY |
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By: |
/s/ Mario Garnero |
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Name: Mario Garnero |
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Title: CEO |
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Q1 COMERCIAL DE ROUPAS S.A. |
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By: |
/s/ Alvaro Jabur Maluf Jr. |
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Name: Alvaro Jabur Maluf Jr. |
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Title: Diretor Presidente |
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By: |
/s/ Paulo Jabur Maluf |
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Name: Paulo Jabur Maluf |
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Title: Vice Presidente |
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CONTROLLING PERSONS: |
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/s/ Alvaro Jabur Maluf Jr. |
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Alvaro Jabur Maluf, Jr. |
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/s/ Paulo Jabur Maluf |
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Paulo Jabur Maluf |
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OPTIONHOLDERS: |
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/s/ Thiago Chaves Ribeiro |
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Thiago Chaves Ribeiro |
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/s/ Denis Nieto Piovezan |
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Denis Nieto Piovezan |
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/s/ Marina Balaban Spiero |
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Marina Balaban Spiero |
Annex B
THE COMPANIES LAW (2013 Revision)
OF THE CAYMAN ISLANDS
COMPANY LIMITED BY SHARES
SECOND AMENDED AND RESTATED
MEMORANDUM AND ARTICLES OF ASSOCIATION
OF
GARNERO COLOMBO, INC.
(adopted by special resolution dated [●])
THE COMPANIES LAW (2013 Revision)
OF THE CAYMAN ISLANDS
COMPANY LIMITED BY SHARES
SECOND AMENDED AND RESTATED
MEMORANDUM OF ASSOCIATION
OF
GARNERO COLOMBO, INC.
(adopted by special
resolution dated [●])
| 1 | The
name of the Company is Garnero Colombo, Inc. |
| 2 | The
Registered Office of the Company shall be at the offices of Maples Corporate Services
Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands, or at such
other place within the Cayman Islands as the Directors may decide. |
| 3 | The
objects for which the Company is established are unrestricted and the Company shall have
full power and authority to carry out any object not prohibited by the laws of the Cayman
Islands. |
| 4 | The
liability of each Member is limited to the amount unpaid on such Member's shares. |
| 5 | The
share capital of the Company is US$12,100 divided into 120,000,000 shares of a par value
of US$0.0001 each and 1,000,000 preferred shares of a par value of US$0.0001 each. |
| 6 | The
Company has power to register by way of continuation as a body corporate limited by shares
under the laws of any jurisdiction outside the Cayman Islands and to be deregistered
in the Cayman Islands. |
| 7 | Capitalised
terms that are not defined in this Memorandum of Association bear the respective meanings
given to them in the Articles of Association of the Company. |
THE COMPANIES LAW (2013 Revision)
OF THE CAYMAN ISLANDS
COMPANY LIMITED BY SHARES
SECOND AMENDED AND RESTATED
ARTICLES OF ASSOCIATION
OF
GARNERO COLOMBO, INC.
(adopted by special
resolution dated [●])
| 1.1 | In
the Articles Table A in the First Schedule to the Statute does not apply and, unless
there is something in the subject or context inconsistent therewith: |
|
"Articles" |
means these articles of association of the Company. |
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|
"Audit Committee" |
means the audit committee of the Company formed pursuant to Article
41.2 hereof, or any successor audit committee |
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"Auditor" |
means the person for the time being performing the duties of auditor
of the Company (if any). |
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"business day" |
means any day other than a Saturday, a Sunday or a legal holiday
or a day on which banking institutions or trust companies are authorised or obligated by law to close in New York City. |
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|
"clearing house" |
a clearing house recognised by the laws of the jurisdiction in
which the Shares (or depositary receipts therefor) are listed or quoted on a stock exchange or interdealer quotation system
in such jurisdiction. |
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"Company" |
means the above named company. |
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|
"Designated Stock
Exchange" |
means the Over-the-Counter Bulletin Board or any national securities
exchange including the National Market System or the Capital Market of the Nasdaq Stock Market, Inc., the NYSE MKT LLC or
the New York Stock Exchange. |
|
"Directors" |
means the directors for the time being of the Company. |
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"Dividend" |
means any dividend (whether interim or final) resolved to be paid
on Shares pursuant to the Articles. |
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"Electronic Record" |
has the same meaning as in the Electronic Transactions Law. |
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"Electronic Transactions
Law" |
means the Electronic Transactions Law (2003 Revision) of the Cayman
Islands. |
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"Member" |
has the same meaning as in the Statute. |
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"Memorandum" |
means the memorandum of association of the Company. |
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|
"Ordinary Resolution" |
means a resolution passed by a simple majority of the Members
as, being entitled to do so, vote in person or, where proxies are allowed, by proxy at a general meeting, and includes a unanimous
written resolution. In computing the majority when a poll is demanded regard shall be had to the number of votes to which
each Member is entitled by the Articles. |
|
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"Register of Members" |
means the register of Members maintained in accordance with the
Statute and includes (except where otherwise stated) any branch or duplicate register of Members. |
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"Registered Office" |
means the registered office for the time being of the Company. |
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"Seal" |
means the common seal of the Company and includes every duplicate
seal. |
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"SEC" |
means the United States Securities and Exchange Commission. |
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"Share" |
means a share in the Company and includes a fraction of a share
in the Company. |
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"Special Resolution" |
has the same meaning as in the Statute, and includes a unanimous
written resolution. |
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"Statute" |
means the Companies Law (2013 Revision) of the Cayman Islands. |
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"Treasury Share" |
means a Share held in the name of the Company as a treasury share
in accordance with the Statute. |
| (a) | words
importing the singular number include the plural number and vice versa; |
| (b) | words
importing the masculine gender include the feminine gender; |
| (c) | words
importing persons include corporations as well as any other legal or natural person; |
| (d) | "written"
and "in writing" include all modes of representing or reproducing words in
visible form, including in the form of an Electronic Record; |
| (e) | "shall"
shall be construed as imperative and "may" shall be construed as permissive; |
| (f) | references
to provisions of any law or regulation shall be construed as references to those provisions
as amended, modified, re-enacted or replaced; |
| (g) | any
phrase introduced by the terms "including", "include", "in particular"
or any similar expression shall be construed as illustrative and shall not limit the
sense of the words preceding those terms; |
| (h) | the
term "and/or" is used herein to mean both "and" as well as "or."
The use of "and/or" in certain contexts in no respects qualifies or modifies
the use of the terms "and" or "or" in others. The term "or"
shall not be interpreted to be exclusive and the term "and" shall not be interpreted
to require the conjunctive (in each case, unless the context otherwise requires); |
| (i) | headings
are inserted for reference only and shall be ignored in construing the Articles; |
| (j) | any
requirements as to delivery under the Articles include delivery in the form of an Electronic
Record; |
| (k) | any
requirements as to execution or signature under the Articles including the execution
of the Articles themselves can be satisfied in the form of an electronic signature as
defined in the Electronic Transactions Law; |
| (l) | sections
8 and 19(3) of the Electronic Transactions Law shall not apply; |
| (m) | the
term "clear days" in relation to the period of a notice means that period excluding
the day when the notice is received or deemed to be received and the day for which it
is given or on which it is to take effect; and |
| (n) | the
term "holder" in relation to a Share means a person whose name is entered in
the Register of Members as the holder of such Share. |
| 2 | Commencement
of Business |
| 2.1 | The
business of the Company may be commenced as soon after incorporation of the Company as
the Directors shall see fit. |
| 2.2 | The
Directors may pay, out of the capital or any other monies of the Company, all expenses
incurred in or about the formation and establishment of the Company, including the expenses
of registration. |
| 3.1 | Subject
to the provisions, if any, in the Memorandum (and to any direction that may be given
by the Company in general meeting) and, where applicable, the rules of the Designated
Stock Exchange and/or any competent regulatory authority, and without prejudice to any
rights attached to any existing Shares, the Directors may allot, issue, grant options
over or otherwise dispose of Shares (including fractions of a Share) with or without
preferred, deferred or other rights or restrictions, whether in regard to Dividend or
other distribution, voting, return of capital or otherwise and to such persons, at such
times and on such other terms as they think proper, and may also (subject to the Statute
and the Articles) vary such rights. |
| 3.2 | The
Company may issue rights, options, warrants or convertible securities or securities of
similar nature conferring the right upon the holders thereof to subscribe for, purchase
or receive any class of Shares or other securities in the Company on such terms as the
Directors may from time to time determine. |
| 3.3 | The
Company may issue units of securities in the Company, which may be comprised of Shares,
rights, options, warrants or convertible securities or securities of similar nature conferring
the right upon the holders thereof to subscribe for, purchase or receive any class of
Shares or other securities in the Company, upon such terms as the Directors may from
time to time determine. The securities comprising any such units may be traded separately
from one another. |
| 3.4 | The
Company shall not issue Shares to bearer. |
| 4.1 | The
Company shall maintain or cause to be maintained the Register of Members in accordance
with the Statute. |
| 4.2 | The
Directors may determine that the Company shall maintain one or more branch registers
of Members in accordance with the Statute. The Directors may also determine which register
of Members shall constitute the principal register and which shall constitute the branch
register or registers, and to vary such determination from time to time. |
| 5 | Closing
Register of Members or Fixing Record Date |
| 5.1 | For
the purpose of determining Members entitled to notice of, or to vote at any meeting of
Members or any adjournment thereof, or Members entitled to receive payment of any Dividend
or other distribution, or in order to make a determination of Members for any other purpose,
the Directors may, after notice has been given by advertisement in an appointed newspaper
or any other newspaper or by any other means in accordance with the requirements of the
Designated Stock Exchange, provide that the Register of Members shall be closed for transfers
for a stated period which shall not in any case exceed forty days. |
| 5.2 | In
lieu of, or apart from, closing the Register of Members, the Directors may fix in advance
or arrears a date as the record date for any such determination of Members entitled to
notice of, or to vote at any meeting of the Members or any adjournment thereof, or for
the purpose of determining the Members entitled to receive payment of any Dividend or
other distribution, or in order to make a determination of Members for any other purpose. |
| 5.3 | If
the Register of Members is not so closed and no record date is fixed for the determination
of Members entitled to notice of, or to vote at, a meeting of Members or Members entitled
to receive payment of a Dividend or other distribution, the date on which notice of the
meeting is sent or the date on which the resolution of the Directors resolving to pay
such Dividend or other distribution is passed, as the case may be, shall be the record
date for such determination of Members. When a determination of Members entitled to vote
at any meeting of Members has been made as provided in this Article, such determination
shall apply to any adjournment thereof. |
| 6.1 | A
Member shall only be entitled to a share certificate if the Directors resolve that share
certificates shall be issued. Share certificates representing Shares, if any, shall be
in such form as the Directors may determine. Share certificates shall be signed by one
or more Directors or other person authorised by the Directors. The Directors may authorise
certificates to be issued with the authorised signature(s) affixed by mechanical process.
All certificates for Shares shall be consecutively numbered or otherwise identified and
shall specify the Shares to which they relate. All certificates surrendered to the Company
for transfer shall be cancelled and subject to the Articles and no new certificate shall
be issued until the former certificate representing a like number of relevant Shares
shall have been surrendered and cancelled. |
| 6.2 | The
Company shall not be bound to issue more than one certificate for Shares held jointly
by more than one person and delivery of a certificate to one joint holder shall be a
sufficient delivery to all of them. |
| 6.3 | If
a share certificate is defaced, worn out, lost or destroyed, it may be renewed on such
terms (if any) as to evidence and indemnity and on the payment of such expenses reasonably
incurred by the Company in investigating evidence, as the Directors may prescribe, and
(in the case of defacement or wearing out) upon delivery of the old certificate. |
| 6.4 | Every
share certificate sent in accordance with the Articles will be sent at the risk of the
Member or other person entitled to the certificate. The Company will not be responsible
for any share certificate lost or delayed in the course of delivery. |
| 6.5 | Share
certificates shall be issued within the relevant time limit as prescribed by the Statute,
if applicable, or as the Designated Stock Exchange may from time to time determine, whichever
is shorter, after the allotment or, except in the case of a Share transfer which the
Company is for the time being entitled to refuse to register and does not register, after
lodgement of a Share transfer with the Company. |
| 7.1 | Subject
to the terms of these Articles, any Member may transfer all or any of his Shares by an
instrument of transfer provided that such transfer complies with applicable rules of
the SEC and federal securities laws of the United States. If the Shares in question were
issued in conjunction with rights, options or warrants issued pursuant to Article 3 on
terms that one cannot be transferred without the other, the Directors shall refuse to
register the transfer of any such Share without evidence satisfactory to them of the
like transfer of such option or warrant. |
| 7.2 | The
instrument of transfer of any Share shall be in writing in the usual or common form or
in a form prescribed by the Designated Stock Exchange or in any other form approved by
the Directors and shall be executed by or on behalf of the transferor (and if the Directors
so require, signed by or on behalf of the transferee) and may be under hand or, if the
transferor or transferee is a clearing house or its nominee(s), by hand or by machine
imprinted signature or by such other manner of execution as the Directors may approve
from time to time. The transferor shall be deemed to remain the holder of a Share until
the name of the transferee is entered in the Register of Members. |
| 8 | Redemption,
Repurchase and Surrender of Shares |
| 8.1 | Subject
to the provisions of the Statute, and, where applicable, the rules of the Designated
Stock Exchange and/or any competent regulatory authority, the Company may issue Shares
that are to be redeemed or are liable to be redeemed at the option of the Member or the
Company. The redemption of such Shares shall be effected in such manner and upon such
other terms as the Company may, by Special Resolution, determine before the issue of
such Shares. |
| 8.2 | Subject
to the provisions of the Statute, and, where applicable, the rules of the Designated
Stock Exchange and/or any competent regulatory authority, the Company may purchase its
own Shares (including any redeemable Shares) in such manner and on such other terms as
the Directors may agree with the relevant Member. |
| 8.3 | The
Company may make a payment in respect of the redemption or purchase of its own Shares
in any manner permitted by the Statute, including out of capital. |
| 8.4 | The
Directors may accept the surrender for no consideration of any fully paid Share. |
| 9.1 | The
Directors may, prior to the purchase, redemption or surrender of any Share, determine
that such Share shall be held as a Treasury Share. |
| 9.2 | The
Directors may determine to cancel a Treasury Share or transfer a Treasury Share on such
terms as they think proper (including, without limitation, for nil consideration). |
| 10 | Variation
of Rights of Shares |
| 10.1 | If
at any time the share capital of the Company is divided into different classes of Shares,
all or any of the rights attached to any class (unless otherwise provided by the terms
of issue of the Shares of that class) may, whether or not the Company is being wound
up, be varied without the consent of the holders of the issued Shares of that class where
such variation is considered by the Directors not to have a material adverse effect upon
such rights; otherwise, any such variation shall be made only with the consent in writing
of the holders of not less than two thirds of the issued Shares of that class, or with
the sanction of a resolution passed by a majority of not less than two thirds of the
votes cast at a separate meeting of the holders of the Shares of that class. For the
avoidance of doubt, the Directors reserve the right, notwithstanding that any such variation
may not have a material adverse effect, to obtain consent from the holders of Shares
of the relevant class. To any such meeting all the provisions of the Articles relating
to general meetings shall apply mutatis mutandis, except that the necessary quorum
shall be one person holding or representing by proxy at least one third of the issued
Shares of the class and that any holder of Shares of the class present in person or by
proxy may demand a poll. |
| 10.2 | For
the purposes of a separate class meeting, the Directors may treat two or more or all
the classes of Shares as forming one class of Shares if the Directors consider that such
class of Shares would be affected in the same way by the proposals under consideration,
but in any other case shall treat them as separate classes of Shares. |
| 10.3 | The
rights conferred upon the holders of the Shares of any class issued with preferred or
other rights shall not, unless otherwise expressly provided by the terms of issue of
the Shares of that class, be deemed to be varied by the creation or issue of further
Shares ranking pari passu therewith. |
| 11 | Commission
on Sale of Shares |
The Company may, in so far as the
Statute permits, pay a commission to any person in consideration of his subscribing or agreeing to subscribe (whether absolutely
or conditionally) or procuring or agreeing to procure subscriptions (whether absolutely or conditionally) for any Shares. Such
commissions may be satisfied by the payment of cash and/or the issue of fully or partly paid-up Shares. The Company may also on
any issue of Shares pay such brokerage as may be lawful.
| 12 | Non
Recognition of Trusts |
The Company shall not be bound by
or compelled to recognise in any way (even when notified) any equitable, contingent, future or partial interest in any Share,
or (except only as is otherwise provided by the Articles or the Statute) any other rights in respect of any Share other than an
absolute right to the entirety thereof in the holder.
| 13.1 | The
Company shall have a first and paramount lien on all Shares (whether fully paid-up or
not) registered in the name of a Member (whether solely or jointly with others) for all
debts, liabilities or engagements to or with the Company (whether presently payable or
not) by such Member or his estate, either alone or jointly with any other person, whether
a Member or not, but the Directors may at any time declare any Share to be wholly or
in part exempt from the provisions of this Article. The registration of a transfer of
any such Share shall operate as a waiver of the Company's lien thereon. The Company's
lien on a Share shall also extend to any amount payable in respect of that Share. |
| 13.2 | The
Company may sell, in such manner as the Directors think fit, any Shares on which the
Company has a lien, if a sum in respect of which the lien exists is presently payable,
and is not paid within fourteen clear days after notice has been received or deemed to
have been received by the holder of the Shares, or to the person entitled to it in consequence
of the death or bankruptcy of the holder, demanding payment and stating that if the notice
is not complied with the Shares may be sold. |
| 13.3 | To
give effect to any such sale the Directors may authorise any person to execute an instrument
of transfer of the Shares sold to, or in accordance with the directions of, the purchaser.
The purchaser or his nominee shall be registered as the holder of the Shares comprised
in any such transfer, and he shall not be bound to see to the application of the purchase
money, nor shall his title to the Shares be affected by any irregularity or invalidity
in the sale or the exercise of the Company's power of sale under the Articles. |
| 13.4 | The
net proceeds of such sale after payment of costs, shall be applied in payment of such
part of the amount in respect of which the lien exists as is presently payable and any
balance shall (subject to a like lien for sums not presently payable as existed upon
the Shares before the sale) be paid to the person entitled to the Shares at the date
of the sale. |
| 14.1 | Subject
to the terms of the allotment and issue of any Shares, the Directors may make calls upon
the Members in respect of any monies unpaid on their Shares (whether in respect of par
value or premium), and each Member shall (subject to receiving at least fourteen clear
days' notice specifying the time or times of payment) pay to the Company at the time
or times so specified the amount called on the Shares. A call may be revoked or postponed,
in whole or in part, as the Directors may determine. A call may be required to be paid
by instalments. A person upon whom a call is made shall remain liable for calls made
upon him notwithstanding the subsequent transfer of the Shares in respect of which the
call was made. |
| 14.2 | A
call shall be deemed to have been made at the time when the resolution of the Directors
authorising such call was passed. |
| 14.3 | The
joint holders of a Share shall be jointly and severally liable to pay all calls in respect
thereof. |
| 14.4 | If
a call remains unpaid after it has become due and payable, the person from whom it is
due shall pay interest on the amount unpaid from the day it became due and payable until
it is paid at such rate as the Directors may determine (and in addition all expenses
that have been incurred by the Company by reason of such non-payment), but the Directors
may waive payment of the interest or expenses wholly or in part. |
| 14.5 | An
amount payable in respect of a Share on issue or allotment or at any fixed date, whether
on account of the par value of the Share or premium or otherwise, shall be deemed to
be a call and if it is not paid all the provisions of the Articles shall apply as if
that amount had become due and payable by virtue of a call. |
| 14.6 | The
Directors may issue Shares with different terms as to the amount and times of payment
of calls, or the interest to be paid. |
| 14.7 | The
Directors may, if they think fit, receive an amount from any Member willing to advance
all or any part of the monies uncalled and unpaid upon any Shares held by him, and may
(until the amount would otherwise become payable) pay interest at such rate as may be
agreed upon between the Directors and the Member paying such amount in advance. |
| 14.8 | No
such amount paid in advance of calls shall entitle the Member paying such amount to any
portion of a Dividend or other distribution payable in respect of any period prior to
the date upon which such amount would, but for such payment, become payable. |
| 15.1 | If
a call or instalment of a call remains unpaid after it has become due and payable the
Directors may give to the person from whom it is due not less than fourteen clear days'
notice requiring payment of the amount unpaid together with any interest which may have
accrued and any expenses incurred by the Company by reason of such non-payment. The notice
shall specify where payment is to be made and shall state that if the notice is not complied
with the Shares in respect of which the call was made will be liable to be forfeited. |
| 15.2 | If
the notice is not complied with, any Share in respect of which it was given may, before
the payment required by the notice has been made, be forfeited by a resolution of the
Directors. Such forfeiture shall include all Dividends, other distributions or other
monies payable in respect of the forfeited Share and not paid before the forfeiture. |
| 15.3 | A
forfeited Share may be sold, re-allotted or otherwise disposed of on such terms and in
such manner as the Directors think fit and at any time before a sale, re-allotment or
disposition the forfeiture may be cancelled on such terms as the Directors think fit.
Where for the purposes of its disposal a forfeited Share is to be transferred to any
person the Directors may authorise some person to execute an instrument of transfer of
the Share in favour of that person. |
| 15.4 | A
person any of whose Shares have been forfeited shall cease to be a Member in respect
of them and shall surrender to the Company for cancellation the certificate for the Shares
forfeited and shall remain liable to pay to the Company all monies which at the date
of forfeiture were payable by him to the Company in respect of those Shares together
with interest at such rate as the Directors may determine, but his liability shall cease
if and when the Company shall have received payment in full of all monies due and payable
by him in respect of those Shares. |
| 15.5 | A
certificate in writing under the hand of one Director or officer of the Company that
a Share has been forfeited on a specified date shall be conclusive evidence of the facts
stated in it as against all persons claiming to be entitled to the Share. The certificate
shall (subject to the execution of an instrument of transfer) constitute a good title
to the Share and the person to whom the Share is sold or otherwise disposed of shall
not be bound to see to the application of the purchase money, if any, nor shall his title
to the Share be affected by any irregularity or invalidity in the proceedings in reference
to the forfeiture, sale or disposal of the Share. |
| 15.6 | The
provisions of the Articles as to forfeiture shall apply in the case of non payment of
any sum which, by the terms of issue of a Share, becomes payable at a fixed time, whether
on account of the par value of the Share or by way of premium as if it had been payable
by virtue of a call duly made and notified. |
| 16.1 | If
a Member dies the survivor or survivors (where he was a joint holder) or his legal personal
representatives (where he was a sole holder), shall be the only persons recognised by
the Company as having any title to his Shares. The estate of a deceased Member is not
thereby released from any liability in respect of any Share, for which he was a joint
or sole holder. |
| 16.2 | Any
person becoming entitled to a Share in consequence of the death or bankruptcy or liquidation
or dissolution of a Member (or in any other way than by transfer) may, upon such evidence
being produced as may be required by the Directors, elect, by a notice in writing sent
by him to the Company, either to become the holder of such Share or to have some person
nominated by him registered as the holder of such Share. If he elects to have another
person registered as the holder of such Share he shall sign an instrument of transfer
of that Share to that person. The Directors shall, in either case, have the same right
to decline or suspend registration as they would have had in the case of a transfer of
the Share by the relevant Member before his death or bankruptcy or liquidation or dissolution,
as the case may be. |
| 16.3 | A
person becoming entitled to a Share by reason of the death or bankruptcy or liquidation
or dissolution of a Member (or in any other case than by transfer) shall be entitled
to the same Dividends, other distributions and other advantages to which he would be
entitled if he were the holder of such Share. However, he shall not, before becoming
a Member in respect of a Share, be entitled in respect of it to exercise any right conferred
by membership in relation to general meetings of the Company and the Directors may at
any time give notice requiring any such person to elect either to be registered himself
or to have some person nominated by him be registered as the holder of the Share (but
the Directors shall, in either case, have the same right to decline or suspend registration
as they would have had in the case of a transfer of the Share by the relevant Member
before his death or bankruptcy or liquidation or dissolution or any other case than by
transfer, as the case may be). If the notice is not complied with within ninety days
of being received or deemed to be received (as determined pursuant to the Articles) the
Directors may thereafter withhold payment of all Dividends, other distributions, bonuses
or other monies payable in respect of the Share until the requirements of the notice
have been complied with. |
| 17 | Amendments
of Memorandum and Articles of Association and Alteration of Capital |
| 17.1 | The
Company may by Ordinary Resolution: |
| (a) | increase
its share capital by such sum as the Ordinary Resolution shall prescribe and with such
rights, priorities and privileges annexed thereto, as the Company in general meeting
may determine; |
| (b) | consolidate
and divide all or any of its share capital into Shares of larger amount than its existing
Shares; |
| (c) | convert
all or any of its paid-up Shares into stock, and reconvert that stock into paid-up Shares
of any denomination; |
| (d) | by
subdivision of its existing Shares or any of them divide the whole or any part of its
share capital into Shares of smaller amount than is fixed by the Memorandum or into Shares
without par value; and |
| (e) | cancel
any Shares that at the date of the passing of the Ordinary Resolution have not been taken
or agreed to be taken by any person and diminish the amount of its share capital by the
amount of the Shares so cancelled. |
| 17.2 | All
new Shares created in accordance with the provisions of the preceding Article shall be
subject to the same provisions of the Articles with reference to the payment of calls,
liens, transfer, transmission, forfeiture and otherwise as the Shares in the original
share capital. |
| 17.3 | Subject
to the provisions of the Statute, the provisions of the Articles as regards the matters
to be dealt with by Ordinary Resolution, the Company may by Special Resolution: |
| (b) | alter
or add to the Articles; |
| (c) | alter
or add to the Memorandum with respect to any objects, powers or other matters specified
therein; and |
| (d) | reduce
its share capital or any capital redemption reserve fund. |
| 18 | Offices
and Places of Business |
Subject to the provisions of the
Statute, the Company may by resolution of the Directors change the location of its Registered Office. The Company may, in addition
to its Registered Office, maintain such other offices or places of business as the Directors determine.
| 19.1 | All
general meetings other than annual general meetings shall be called extraordinary general
meetings. |
| 19.2 | The
Company may, but shall not (unless required by the Statute) be obliged to, in each year
hold a general meeting as its annual general meeting, and shall specify the meeting as
such in the notices calling it. Any annual general meeting shall be held at such time
and place as the Directors shall appoint and if no other time and place is prescribed
by them, it shall be held at the Registered Office on the second Wednesday in December
of each year at ten o'clock in the morning. At these meetings the report of the Directors
(if any) shall be presented. |
| 19.3 | The
Directors may call general meetings, and they shall on a Members' requisition forthwith
proceed to convene an extraordinary general meeting of the Company. |
| 19.4 | A
Members' requisition is a requisition of Members holding at the date of deposit of the
requisition not less than ten per cent. in par value of the issued Shares which as at
that date carry the right to vote at general meetings of the Company. |
| 19.5 | The
Members' requisition must state the objects of the meeting and must be signed by the
requisitionists and deposited at the Registered Office, and may consist of several documents
in like form each signed by one or more requisitionists. |
| 19.6 | If
there are no Directors as at the date of the deposit of the Members' requisition or if
the Directors do not within twenty-one days from the date of the deposit of the Members'
requisition duly proceed to convene a general meeting to be held within a further twenty-one
days, the requisitionists, or any of them representing more than one-half of the total
voting rights of all of the requisitionists, may themselves convene a general meeting,
but any meeting so convened shall be held no later than the day which falls three months
after the expiration of the said twenty-one day period. |
| 19.7 | A
general meeting convened as aforesaid by requisitionists shall be convened in the same
manner as nearly as possible as that in which general meetings are to be convened by
Directors. |
| 20 | Notice
of General Meetings |
| 20.1 | At
least five days' notice shall be given of any general meeting. Every notice shall specify
the place, the day and the hour of the meeting and the general nature of the business
to be conducted at the general meeting and shall be given in the manner hereinafter mentioned
or in such other manner if any as may be prescribed by the Company, provided that a general
meeting of the Company shall, whether or not the notice specified in this Article has
been given and whether or not the provisions of the Articles regarding general meetings
have been complied with, be deemed to have been duly convened if it is so agreed: |
| (a) | in
the case of an annual general meeting, by all of the Members entitled to attend and vote
thereat; and |
| (b) | in
the case of an extraordinary general meeting, by a majority in number of the Members
having a right to attend and vote at the meeting, together holding not less than ninety
five per cent. in par value of the Shares giving that right. |
| 20.2 | The
accidental omission to give notice of a general meeting to, or the non receipt of notice
of a general meeting by, any person entitled to receive such notice shall not invalidate
the proceedings of that general meeting. |
| 21 | Proceedings
at General Meetings |
| 21.1 | No
business shall be transacted at any general meeting unless a quorum is present. The holders
of a majority of the Shares being individuals present in person or by proxy or if a corporation
or other non-natural person by its duly authorised representative or proxy shall be a
quorum. |
| 21.2 | A
person may participate at a general meeting by conference telephone or other communications
equipment by means of which all the persons participating in the meeting can communicate
with each other. Participation by a person in a general meeting in this manner is treated
as presence in person at that meeting. |
| 21.3 | A
resolution (including a Special Resolution) in writing (in one or more counterparts)
signed by or on behalf of all of the Members for the time being entitled to receive notice
of and to attend and vote at general meetings (or, being corporations or other non-natural
persons, signed by their duly authorised representatives) shall be as valid and effective
as if the resolution had been passed at a general meeting of the Company duly convened
and held. |
| 21.4 | If
a quorum is not present within half an hour from the time appointed for the meeting to
commence or if during such a meeting a quorum ceases to be present, the meeting, if convened
upon a Members' requisition, shall be dissolved and in any other case it shall stand
adjourned to the same day in the next week at the same time and/or place or to such other
day, time and/or place as the Directors may determine, and if at the adjourned meeting
a quorum is not present within half an hour from the time appointed for the meeting to
commence, the Members present shall be a quorum. |
| 21.5 | The
Directors may, at any time prior to the time appointed for the meeting to commence, appoint
any person to act as chairman of a general meeting of the Company or, if the Directors
do not make any such appointment, the chairman, if any, of the board of Directors shall
preside as chairman at such general meeting. If there is no such chairman, or if he shall
not be present within fifteen minutes after the time appointed for the meeting to commence,
or is unwilling to act, the Directors present shall elect one of their number to be chairman
of the meeting. |
| 21.6 | If
no Director is willing to act as chairman or if no Director is present within fifteen
minutes after the time appointed for the meeting to commence, the Members present shall
choose one of their number to be chairman of the meeting. |
| 21.7 | The
chairman may, with the consent of a meeting at which a quorum is present (and shall if
so directed by the meeting) adjourn the meeting from time to time and from place to place,
but no business shall be transacted at any adjourned meeting other than the business
left unfinished at the meeting from which the adjournment took place. |
| 21.8 | When
a general meeting is adjourned for thirty days or more, notice of the adjourned meeting
shall be given as in the case of an original meeting. Otherwise it shall not be necessary
to give any such notice of an adjourned meeting. |
| 21.9 | A
resolution put to the vote of the meeting shall be decided on a poll. |
| 21.10 | A
poll shall be taken as the chairman directs, and the result of the poll shall be deemed
to be the resolution of the general meeting at which the poll was demanded. |
| 21.11 | A
poll demanded on the election of a chairman or on a question of adjournment shall be
taken forthwith. A poll demanded on any other question shall be taken at such date, time
and place as the chairman of the general meeting directs, and any business other than
that upon which a poll has been demanded or is contingent thereon may proceed pending
the taking of the poll. |
| 21.12 | In
the case of an equality of votes the chairman shall be entitled to a second or casting
vote. |
| 22.1 | Subject
to any rights or restrictions attached to any Shares, every Member present in any such
manner shall have one vote for every Share of which he is the holder. |
| 22.2 | In
the case of joint holders the vote of the senior holder who tenders a vote, whether in
person or by proxy (or, in the case of a corporation or other non-natural person, by
its duly authorised representative or proxy), shall be accepted to the exclusion of the
votes of the other joint holders, and seniority shall be determined by the order in which
the names of the holders stand in the Register of Members. |
| 22.3 | A
Member of unsound mind, or in respect of whom an order has been made by any court, having
jurisdiction in lunacy, may vote by his committee, receiver, curator bonis, or other
person on such Member's behalf appointed by that court, and any such committee, receiver,
curator bonis or other person may vote by proxy. |
| 22.4 | No
person shall be entitled to vote at any general meeting unless he is registered as a
Member on the record date for such meeting nor unless all calls or other monies then
payable by him in respect of Shares have been paid. |
| 22.5 | No
objection shall be raised as to the qualification of any voter except at the general
meeting or adjourned general meeting at which the vote objected to is given or tendered
and every vote not disallowed at the meeting shall be valid. Any objection made in due
time in accordance with this Article shall be referred to the chairman whose decision
shall be final and conclusive. |
| 22.6 | Votes
may be cast either personally or by proxy (or in the case of a corporation or other non-natural
person by its duly authorised representative or proxy). A Member may appoint more than
one proxy or the same proxy under one or more instruments to attend and vote at a meeting.
Where a Member appoints more than one proxy the instrument of proxy shall specify the
number of Shares in respect of which each proxy is entitled to exercise the related votes. |
| 22.7 | A
Member holding more than one Share need not cast the votes in respect of his Shares in
the same way on any resolution and therefore may vote a Share or some or all such Shares
either for or against a resolution and/or abstain from voting a Share or some or all
of the Shares and, subject to the terms of the instrument appointing him, a proxy appointed
under one or more instruments may vote a Share or some or all of the Shares in respect
of which he is appointed either for or against a resolution and/or abstain from voting
a Share or some or all of the Shares in respect of which he is appointed. |
| 23.1 | The
instrument appointing a proxy shall be in writing and shall be executed under the hand
of the appointor or of his attorney duly authorised in writing, or, if the appointor
is a corporation or other non natural person, under the hand of its duly authorised representative.
A proxy need not be a Member. |
| 23.2 | The
Directors may, in the notice convening any meeting or adjourned meeting, or in an instrument
of proxy sent out by the Company, specify the manner by which the instrument appointing
a proxy shall be deposited and the place and the time (being not later than the time
appointed for the commencement of the meeting or adjourned meeting to which the proxy
relates) at which the instrument appointing a proxy shall be deposited. In the absence
of any such direction from the Directors in the notice convening any meeting or adjourned
meeting or in an instrument of proxy sent out by the Company, the instrument appointing
a proxy shall be deposited physically at the Registered Office not less than 48 hours
before the time appointed for the meeting or adjourned meeting to commence at which the
person named in the instrument proposes to vote. |
The chairman may in any event at
his discretion declare that an instrument of proxy shall be deemed to have been duly deposited. An instrument of proxy that is
not deposited in the manner permitted, or which has not been declared to have been duly deposited by the chairman, shall be invalid.
| 23.3 | The
instrument appointing a proxy may be in any usual or common form (or such other form
as the Directors may approve) and may be expressed to be for a particular meeting or
any adjournment thereof or generally until revoked. An instrument appointing a proxy
shall be deemed to include the power to demand or join or concur in demanding a poll. |
| 23.4 | Votes
given in accordance with the terms of an instrument of proxy shall be valid notwithstanding
the previous death or insanity of the principal or revocation of the proxy or of the
authority under which the proxy was executed, or the transfer of the Share in respect
of which the proxy is given unless notice in writing of such death, insanity, revocation
or transfer was received by the Company at the Registered Office before the commencement
of the general meeting, or adjourned meeting at which it is sought to use the proxy. |
| 24.1 | Any
corporation or other non-natural person which is a Member may in accordance with its
constitutional documents, or in the absence of such provision by resolution of its directors
or other governing body, authorise such person as it thinks fit to act as its representative
at any meeting of the Company or of any class of Members, and the person so authorised
shall be entitled to exercise the same powers on behalf of the corporation which he represents
as the corporation could exercise if it were an individual Member. |
| 24.2 | If
a clearing house (or its nominee(s)), being a corporation, is a Member, it may authorise
such persons as it sees fit to act as its representative at any meeting of the Company
or at any meeting of any class of Members provided that the authorisation shall specify
the number and class of Shares in respect of which each such representative is so authorised.
Each person so authorised under the provisions of this Article shall be deemed to have
been duly authorised without further evidence of the facts and be entitled to exercise
the same rights and powers on behalf of the clearing house (or its nominee(s)) as if
such person was the registered holder of such Shares held by the clearing house (or its
nominee(s)). |
| 25 | Shares
that May Not be Voted |
Shares in the Company that are beneficially
owned by the Company shall not be voted, directly or indirectly, at any meeting and shall not be counted in determining the total
number of outstanding Shares at any given time.
There shall be a board of Directors
consisting of not less than one person provided however that the Company may by Ordinary Resolution increase or reduce the limits
in the number of Directors.
The Directors shall be divided into
three classes: Class A, Class B and Class C. The number of Directors in each class shall be as nearly equal as possible. Upon
the adoption of these Second Amended and Restated Articles, the existing Directors shall by resolution classify themselves as
Class A, Class B or Class C Directors. The Class A Directors shall stand elected for a term expiring at the Company’s first
succeeding annual general meeting after adoption of these Second Amended and Restated Articles, the Class B Directors shall stand
elected for a term expiring at the Company’s second succeeding annual general meeting and the Class C Directors shall stand
elected for a term expiring at the Company’s third succeeding annual general meeting. Commencing at the Company's first
succeeding annual general meeting after adoption of these Second Amended and Restated Articles, and at each annual general meeting
thereafter, Directors elected to succeed those Directors whose terms expire shall be elected for a term of office to expire at
the third succeeding annual general meeting after their election. Except as the Statute or other applicable law may otherwise
require, in the interim between annual general meetings or extraordinary general meetings called for the election of Directors
and/or the removal of one or more Directors and the filling of any vacancy in that connection, additional Directors and any vacancies
in the board of Directors, including unfilled vacancies resulting from the removal of Directors for cause, may be filled by the
vote of a majority of the remaining Directors then in office, although less than a quorum (as defined in these Articles), or by
the sole remaining Director. All Directors shall hold office until the expiration of their respective terms of office and until
their successors shall have been elected and qualified. A Director elected to fill a vacancy resulting from the death, resignation
or removal of a Director shall serve for the remainder of the full term of the Director whose death, resignation or removal shall
have created such vacancy and until his successor shall have been elected and qualified.
| 27.1 | Subject
to the provisions of the Statute, the Memorandum and the Articles and to any directions
given by Special Resolution, the business of the Company shall be managed by the Directors
who may exercise all the powers of the Company. No alteration of the Memorandum or Articles
and no such direction shall invalidate any prior act of the Directors which would have
been valid if that alteration had not been made or that direction had not been given.
A duly convened meeting of Directors at which a quorum is present may exercise all powers
exercisable by the Directors. |
| 27.2 | All
cheques, promissory notes, drafts, bills of exchange and other negotiable or transferable
instruments and all receipts for monies paid to the Company shall be signed, drawn, accepted,
endorsed or otherwise executed as the case may be in such manner as the Directors shall
determine by resolution. |
| 27.3 | The
Directors on behalf of the Company may pay a gratuity or pension or allowance on retirement
to any Director who has held any other salaried office or place of profit with the Company
or to his widow or dependants and may make contributions to any fund and pay premiums
for the purchase or provision of any such gratuity, pension or allowance. |
| 27.4 | The
Directors may exercise all the powers of the Company to borrow money and to mortgage
or charge its undertaking, property and assets (present and future) and uncalled capital
or any part thereof and to issue debentures, debenture stock, mortgages, bonds and other
such securities whether outright or as security for any debt, liability or obligation
of the Company or of any third party. |
| 28 | Appointment
and Removal of Directors |
| 28.1 | The
Company may by Ordinary Resolution appoint any person to be a Director or may by Ordinary
Resolution remove any Director. |
| 28.2 | The
Directors may appoint any person to be a Director, either to fill a vacancy or as an
additional Director provided that the appointment does not cause the number of Directors
to exceed any number fixed by or in accordance with the Articles as the maximum number
of Directors. |
| 29 | Vacation
of Office of Director |
The office of a Director shall be
vacated if:
| (a) | the
Director gives notice in writing to the Company that he resigns the office of Director;
or |
| (b) | the
Director absents himself (for the avoidance of doubt, without being represented by proxy)
from three consecutive meetings of the board of Directors without special leave of absence
from the Directors, and the Directors pass a resolution that he has by reason of such
absence vacated office; or |
| (c) | the
Director dies, becomes bankrupt or makes any arrangement or composition with his creditors
generally; or |
| (d) | the
Director is found to be or becomes of unsound mind; or |
| (e) | all
of the other Directors (being not less than two in number) determine that he should be
removed as a Director, either by a resolution passed by all of the other Directors at
a meeting of the Directors duly convened and held in accordance with the Articles or
by a resolution in writing signed by all of the other Directors. |
| 30 | Proceedings
of Directors |
| 30.1 | The
quorum for the transaction of the business of the Directors may be fixed by the Directors,
and unless so fixed shall be two if there are two or more Directors, and shall be one
if there is only one Director. |
| 30.2 | Subject
to the provisions of the Articles, the Directors may regulate their proceedings as they
think fit. Questions arising at any meeting shall be decided by a majority of votes.
In the case of an equality of votes, the chairman shall have a second or casting vote. |
| 30.3 | A
person may participate in a meeting of the Directors or committee of Directors by conference
telephone or other communications equipment by means of which all the persons participating
in the meeting can communicate with each other at the same time. Participation by a person
in a meeting in this manner is treated as presence in person at that meeting. Unless
otherwise determined by the Directors the meeting shall be deemed to be held at the place
where the chairman is located at the start of the meeting. |
| 30.4 | A
resolution in writing (in one or more counterparts) signed by all the Directors or all
the members of a committee of the Directors or, in the case of a resolution in writing
relating to the removal of any Director or the vacation of office by any Director, all
of the Directors other than the Director who is the subject of such resolution shall
be as valid and effectual as if it had been passed at a meeting of the Directors, or
committee of Directors as the case may be, duly convened and held. |
| 30.5 | A
Director may, or other officer of the Company on the direction of a Director shall, call
a meeting of the Directors by at least two days' notice in writing to every Director
which notice shall set forth the general nature of the business to be considered unless
notice is waived by all the Directors either at, before or after the meeting is held.
To any such notice of a meeting of the Directors all the provisions of the Articles relating
to the giving of notices by the Company to the Members shall apply mutatis mutandis. |
| 30.6 | The
continuing Directors (or a sole continuing Director, as the case may be) may act notwithstanding
any vacancy in their body, but if and so long as their number is reduced below the number
fixed by or pursuant to the Articles as the necessary quorum of Directors the continuing
Directors or Director may act for the purpose of increasing the number of Directors to
be equal to such fixed number, or of summoning a general meeting of the Company, but
for no other purpose. |
| 30.7 | The
Directors may elect a chairman of their board and determine the period for which he is
to hold office; but if no such chairman is elected, or if at any meeting the chairman
is not present within five minutes after the time appointed for the meeting to commence,
the Directors present may choose one of their number to be chairman of the meeting. |
| 30.8 | All
acts done by any meeting of the Directors or of a committee of the Directors shall, notwithstanding
that it is afterwards discovered that there was some defect in the appointment of any
Director, and/or that they or any of them were disqualified, and/or had vacated their
office and/or were not entitled to vote, be as valid as if every such person had been
duly appointed and/or not disqualified to be a Director and/or had not vacated their
office and/or had been entitled to vote, as the case may be. |
| 30.9 | A
Director may be represented at any meetings of the board of Directors by a proxy appointed
in writing by him. The proxy shall count towards the quorum and the vote of the proxy
shall for all purposes be deemed to be that of the appointing Director. |
A Director who is present at a meeting
of the board of Directors at which action on any Company matter is taken shall be presumed to have assented to the action taken
unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent from such action
with the person acting as the chairman or secretary of the meeting before the adjournment thereof or shall forward such dissent
by registered post to such person immediately after the adjournment of the meeting. Such right to dissent shall not apply to a
Director who voted in favour of such action.
| 32.1 | A
Director may hold any other office or place of profit under the Company (other than the
office of Auditor) in conjunction with his office of Director for such period and on
such terms as to remuneration and otherwise as the Directors may determine. |
| 32.2 | A
Director may act by himself or by, through or on behalf of his firm in a professional
capacity for the Company and he or his firm shall be entitled to remuneration for professional
services as if he were not a Director. |
| 32.3 | A
Director may be or become a director or other officer of or otherwise interested in any
company promoted by the Company or in which the Company may be interested as a shareholder,
a contracting party or otherwise, and no such Director shall be accountable to the Company
for any remuneration or other benefits received by him as a director or officer of, or
from his interest in, such other company. |
| 32.4 | No
person shall be disqualified from the office of Director or prevented by such office
from contracting with the Company, either as vendor, purchaser or otherwise, nor shall
any such contract or any contract or transaction entered into by or on behalf of the
Company in which any Director shall be in any way interested be or be liable to be avoided,
nor shall any Director so contracting or being so interested be liable to account to
the Company for any profit realised by or arising in connection with any such contract
or transaction by reason of such Director or alternate Director holding office or of
the fiduciary relationship thereby established. A Director shall be at liberty to vote
in respect of any contract or transaction in which he is interested provided that the
nature of the interest of any Director in any such contract or transaction shall be disclosed
by him at or prior to its consideration and any vote thereon. |
| 32.5 | A
general notice that a Director is a shareholder, director, officer or employee of any
specified firm or company and is to be regarded as interested in any transaction with
such firm or company shall be sufficient disclosure for the purposes of voting on a resolution
in respect of a contract or transaction in which he has an interest, and after such general
notice it shall not be necessary to give special notice relating to any particular transaction. |
The Directors shall cause minutes
to be made in books kept for the purpose of all appointments of officers made by the Directors, all proceedings at meetings of
the Company or the holders of any class of Shares and of the Directors, and of committees of the Directors, including the names
of the Directors present at each meeting.
| 34 | Delegation
of Directors' Powers |
| 34.1 | The
Directors may delegate any of their powers, authorities and discretions, including the
power to sub-delegate, to any committee consisting of one or more Directors. Any such
delegation may be made subject to any conditions the Directors may impose and either
collaterally with or to the exclusion of their own powers and any such delegation may
be revoked or altered by the Directors. Subject to any such conditions, the proceedings
of a committee of Directors shall be governed by the Articles regulating the proceedings
of Directors, so far as they are capable of applying. |
| 34.2 | The
Directors may establish any committees, local boards or agencies or appoint any person
to be a manager or agent for managing the affairs of the Company and may appoint any
person to be a member of such committees, local boards or agencies. Any such appointment
may be made subject to any conditions the Directors may impose, and either collaterally
with or to the exclusion of their own powers and any such appointment may be revoked
or altered by the Directors. Subject to any such conditions, the proceedings of any such
committee, local board or agency shall be governed by the Articles regulating the proceedings
of Directors, so far as they are capable of applying. |
| 34.3 | The
Directors may by power of attorney or otherwise appoint any person to be the agent of
the Company on such conditions as the Directors may determine, provided that the delegation
is not to the exclusion of their own powers and may be revoked by the Directors at any
time. |
| 34.4 | The
Directors may by power of attorney or otherwise appoint any company, firm, person or
body of persons, whether nominated directly or indirectly by the Directors, to be the
attorney or authorised signatory of the Company for such purpose and with such powers,
authorities and discretions (not exceeding those vested in or exercisable by the Directors
under the Articles) and for such period and subject to such conditions as they may think
fit, and any such powers of attorney or other appointment may contain such provisions
for the protection and convenience of persons dealing with any such attorneys or authorised
signatories as the Directors may think fit and may also authorise any such attorney or
authorised signatory to delegate all or any of the powers, authorities and discretions
vested in him. |
| 34.5 | The
Directors may appoint such officers of the Company (including, for the avoidance of doubt
and without limitation, any secretary) as they consider necessary on such terms, at such
remuneration and to perform such duties, and subject to such provisions as to disqualification
and removal as the Directors may think fit. Unless otherwise specified in the terms of
his appointment an officer of the Company may be removed by resolution of the Directors
or Members. An officer of the Company may vacate his office at any time if he gives notice
in writing to the Company that he resigns his office. |
| 35 | No
Minimum Shareholding |
The Company in general meeting may
fix a minimum shareholding required to be held by a Director, but unless and until such a shareholding qualification is fixed
a Director is not required to hold Shares.
| 36 | Remuneration
of Directors |
| 36.1 | The
remuneration to be paid to the Directors, if any, shall be such remuneration as the Directors
shall determine, provided that no remuneration shall be paid to any Director prior to
the consummation of a Business Combination. The Directors shall also, whether prior to
or after the consummation of a Business Combination, be entitled to be paid all travelling,
hotel and other expenses properly incurred by them in connection with their attendance
at meetings of Directors or committees of Directors, or general meetings of the Company,
or separate meetings of the holders of any class of Shares or debentures of the Company,
or otherwise in connection with the business of the Company or the discharge of their
duties as a Director, or to receive a fixed allowance in respect thereof as may be determined
by the Directors, or a combination partly of one such method and partly the other. |
| 36.2 | The
Directors may by resolution approve additional remuneration to any Director for any services
which in the opinion of the Directors go beyond his ordinary routine work as a Director.
Any fees paid to a Director who is also counsel, attorney or solicitor to the Company,
or otherwise serves it in a professional capacity shall be in addition to his remuneration
as a Director. |
| 37.1 | The
Company may, if the Directors so determine, have a Seal. The Seal shall only be used
by the authority of the Directors or of a committee of the Directors authorised by the
Directors. Every instrument to which the Seal has been affixed shall be signed by at
least one person who shall be either a Director or some officer of the Company or other
person appointed by the Directors for the purpose. |
| 37.2 | The
Company may have for use in any place or places outside the Cayman Islands a duplicate
Seal or Seals each of which shall be a facsimile of the common Seal of the Company and,
if the Directors so determine, with the addition on its face of the name of every place
where it is to be used. |
| 37.3 | A
Director or officer, representative or attorney of the Company may without further authority
of the Directors affix the Seal over his signature alone to any document of the Company
required to be authenticated by him under seal or to be filed with the Registrar of Companies
in the Cayman Islands or elsewhere wheresoever. |
| 38 | Dividends,
Distributions and Reserve |
| 38.1 | Subject
to the Statute and this Article and except as otherwise provided by the rights attached
to any Shares, the Directors may resolve to pay Dividends and other distributions on
Shares in issue and authorise payment of the Dividends or other distributions out of
the funds of the Company lawfully available therefor. A Dividend shall be deemed to be
an interim Dividend unless the terms of the resolution pursuant to which the Directors
resolve to pay such Dividend specifically state that such Dividend shall be a final Dividend.
No Dividend or other distribution shall be paid except out of the realised or unrealised
profits of the Company, out of the share premium account or as otherwise permitted by
the Statute. |
| 38.2 | Except
as otherwise provided by the rights attached to any Shares, all Dividends and other distributions
shall be paid according to the par value of the Shares that a Member holds. If any Share
is issued on terms providing that it shall rank for Dividend as from a particular date,
that Share shall rank for Dividend accordingly. |
| 38.3 | The
Directors may deduct from any Dividend or other distribution payable to any Member all
sums of money (if any) then payable by him to the Company on account of calls or otherwise. |
| 38.4 | The
Directors may resolve that any Dividend or other distribution be paid wholly or partly
by the distribution of specific assets and in particular (but without limitation) by
the distribution of shares, debentures, or securities of any other company or in any
one or more of such ways and where any difficulty arises in regard to such distribution,
the Directors may settle the same as they think expedient and in particular may issue
fractional Shares and may fix the value for distribution of such specific assets or any
part thereof and may determine that cash payments shall be made to any Members upon the
basis of the value so fixed in order to adjust the rights of all Members and may vest
any such specific assets in trustees in such manner as may seem expedient to the Directors. |
| 38.5 | Except
as otherwise provided by the rights attached to any Shares, Dividends and other distributions
may be paid in any currency. The Directors may determine the basis of conversion for
any currency conversions that may be required and how any costs involved are to be met. |
| 38.6 | The
Directors may, before resolving to pay any Dividend or other distribution, set aside
such sums as they think proper as a reserve or reserves which shall, at the discretion
of the Directors, be applicable for any purpose of the Company and pending such application
may, at the discretion of the Directors, be employed in the business of the Company. |
| 38.7 | Any
Dividend, other distribution, interest or other monies payable in cash in respect of
Shares may be paid by wire transfer to the holder or by cheque or warrant sent through
the post directed to the registered address of the holder or, in the case of joint holders,
to the registered address of the holder who is first named on the Register of Members
or to such person and to such address as such holder or joint holders may in writing
direct. Every such cheque or warrant shall be made payable to the order of the person
to whom it is sent. Any one of two or more joint holders may give effectual receipts
for any Dividends, other distributions, bonuses, or other monies payable in respect of
the Share held by them as joint holders. |
| 38.8 | No
Dividend or other distribution shall bear interest against the Company. |
| 38.9 | Any
Dividend or other distribution which cannot be paid to a Member and/or which remains
unclaimed after six months from the date on which such Dividend or other distribution
becomes payable may, in the discretion of the Directors, be paid into a separate account
in the Company's name, provided that the Company shall not be constituted as a trustee
in respect of that account and the Dividend or other distribution shall remain as a debt
due to the Member. Any Dividend or other distribution which remains unclaimed after a
period of six years from the date on which such Dividend or other distribution becomes
payable shall be forfeited and shall revert to the Company. |
The Directors may at any time capitalise
any sum standing to the credit of any of the Company's reserve accounts or funds (including the share premium account and capital
redemption reserve fund) or any sum standing to the credit of the profit and loss account or otherwise available for distribution;
appropriate such sum to Members in the proportions in which such sum would have been divisible amongst such Members had the same
been a distribution of profits by way of Dividend or other distribution; and apply such sum on their behalf in paying up in full
unissued Shares for allotment and distribution credited as fully paid-up to and amongst them in the proportion aforesaid. In such
event the Directors shall do all acts and things required to give effect to such capitalisation, with full power given to the
Directors to make such provisions as they think fit in the case of Shares becoming distributable in fractions (including provisions
whereby the benefit of fractional entitlements accrue to the Company rather than to the Members concerned). The Directors may
authorise any person to enter on behalf of all of the Members interested into an agreement with the Company providing for such
capitalisation and matters incidental or relating thereto and any agreement made under such authority shall be effective and binding
on all such Members and the Company.
| 40.1 | The
Directors shall cause proper books of account (including, where applicable, material
underlying documentation including contracts and invoices) to be kept with respect to
all sums of money received and expended by the Company and the matters in respect of
which the receipt or expenditure takes place, all sales and purchases of goods by the
Company and the assets and liabilities of the Company. Such books of account must be
retained for a minimum period of five years from the date on which they are prepared.
Proper books shall not be deemed to be kept if there are not kept such books of account
as are necessary to give a true and fair view of the state of the Company's affairs and
to explain its transactions. |
| 40.2 | The
Directors shall determine whether and to what extent and at what times and places and
under what conditions or regulations the accounts and books of the Company or any of
them shall be open to the inspection of Members not being Directors and no Member (not
being a Director) shall have any right of inspecting any account or book or document
of the Company except as conferred by Statute or authorised by the Directors or by the
Company in general meeting. |
| 40.3 | The
Directors may cause to be prepared and to be laid before the Company in general meeting
profit and loss accounts, balance sheets, group accounts (if any) and such other reports
and accounts as may be required by law. |
| 41.1 | The
Directors may appoint an Auditor of the Company who shall hold office on such terms as
the Directors determine. |
| 41.2 | Without
prejudice to the freedom of the Directors to establish any other committee, if the Shares
(or depositary receipts therefor) are listed or quoted on the Designated Stock Exchange,
and if required by the Designated Stock Exchange, the Directors shall establish and maintain
an Audit Committee as a committee of the board of Directors and shall adopt a formal
written Audit Committee charter and review and assess the adequacy of the formal written
charter on an annual basis. The composition and responsibilities of the Audit Committee
shall comply with the rules and regulations of the SEC and the Designated Stock Exchange.
The Audit Committee shall meet at least once every financial quarter, or more frequently
as circumstances dictate. |
| 41.3 | If
the Shares (or depositary receipts therefor) are listed or quoted on the Designated Stock
Exchange, the Company shall conduct an appropriate review of all related party transactions
on an ongoing basis and shall utilise the Audit Committee for the review and approval
of potential conflicts of interest. |
| 41.4 | The
remuneration of the Auditor shall be fixed by the Board or the Audit Committee (if one
exists). |
| 41.5 | If
the office of Auditor becomes vacant by resignation or death of the Auditor, or by his
becoming incapable of acting by reason of illness or other disability at a time when
his services are required, the Directors shall fill the vacancy and determine the remuneration
of such Auditor. |
| 41.6 | Every
Auditor of the Company shall have a right of access at all times to the books and accounts
and vouchers of the Company and shall be entitled to require from the Directors and officers
of the Company such information and explanation as may be necessary for the performance
of the duties of the Auditor. |
| 41.7 | Auditors
shall, if so required by the Directors, make a report on the accounts of the Company
during their tenure of office at the next annual general meeting following their appointment
in the case of a company which is registered with the Registrar of Companies as an ordinary
company, and at the next extraordinary general meeting following their appointment in
the case of a company which is registered with the Registrar of Companies as an exempted
company, and at any other time during their term of office, upon request of the Directors
or any general meeting of the Members. |
| 42.1 | Notices
shall be in writing and may be given by the Company to any Member either personally or
by sending it by courier, post, cable, telex, fax or e-mail to him or to his address
as shown in the Register of Members (or where the notice is given by e-mail by sending
it to the e-mail address provided by such Member). Notice may also be served in accordance
with the requirements of the Designated Stock Exchange. |
| 42.2 | Where
a notice is sent by courier, service of the notice shall be deemed to be effected by
delivery of the notice to a courier company, and shall be deemed to have been received
on the third day (not including Saturdays or Sundays or public holidays) following the
day on which the notice was delivered to the courier. Where a notice is sent by post,
service of the notice shall be deemed to be effected by properly addressing, pre paying
and posting a letter containing the notice, and shall be deemed to have been received
on the fifth day (not including Saturdays or Sundays or public holidays in the Cayman
Islands) following the day on which the notice was posted. Where a notice is sent by
cable, telex or fax, service of the notice shall be deemed to be effected by properly
addressing and sending such notice and shall be deemed to have been received on the same
day that it was transmitted. Where a notice is given by e-mail service shall be deemed
to be effected by transmitting the e-mail to the e-mail address provided by the intended
recipient and shall be deemed to have been received on the same day that it was sent,
and it shall not be necessary for the receipt of the e-mail to be acknowledged by the
recipient. |
| 42.3 | A
notice may be given by the Company to the person or persons which the Company has been
advised are entitled to a Share or Shares in consequence of the death or bankruptcy of
a Member in the same manner as other notices which are required to be given under the
Articles and shall be addressed to them by name, or by the title of representatives of
the deceased, or trustee of the bankrupt, or by any like description at the address supplied
for that purpose by the persons claiming to be so entitled, or at the option of the Company
by giving the notice in any manner in which the same might have been given if the death
or bankruptcy had not occurred. |
| 42.4 | Notice
of every general meeting shall be given in any manner authorised by the Articles to every
holder of Shares carrying an entitlement to receive such notice on the record date for
such meeting except that in the case of joint holders the notice shall be sufficient
if given to the joint holder first named in the Register of Members and every person
upon whom the ownership of a Share devolves by reason of his being a legal personal representative
or a trustee in bankruptcy of a Member where the Member but for his death or bankruptcy
would be entitled to receive notice of the meeting, and no other person shall be entitled
to receive notices of general meetings. |
| 43.1 | If
the Company shall be wound up the liquidator shall apply the assets of the Company in
satisfaction of creditors' claims in such manner and order as such liquidator thinks
fit. Subject to the rights attaching to any Shares, in a winding up: |
| (a) | if
the assets available for distribution amongst the Members shall be insufficient to repay
the whole of the Company's issued share capital, such assets shall be distributed so
that, as nearly as may be, the losses shall be borne by the Members in proportion to
the par value of the Shares held by them; or |
| (b) | if
the assets available for distribution amongst the Members shall be more than sufficient
to repay the whole of the Company's issued share capital at the commencement of the winding
up, the surplus shall be distributed amongst the Members in proportion to the par value
of the Shares held by them at the commencement of the winding up subject to a deduction
from those Shares in respect of which there are monies due, of all monies payable to
the Company for unpaid calls or otherwise. |
| 43.2 | If
the Company shall be wound up the liquidator may, subject to the rights attaching to
any Shares and with the sanction of a Special Resolution of the Company and any other
sanction required by the Statute, divide amongst the Members in kind the whole or any
part of the assets of the Company (whether such assets shall consist of property of the
same kind or not) and may for that purpose value any assets and determine how the division
shall be carried out as between the Members or different classes of Members. The liquidator
may, with the like sanction, vest the whole or any part of such assets in trustees upon
such trusts for the benefit of the Members as the liquidator, with the like sanction,
shall think fit, but so that no Member shall be compelled to accept any asset upon which
there is a liability. |
| 44 | Indemnity
and Insurance |
| 44.1 | Every
Director and officer of the Company (which for the avoidance of doubt, shall not include
auditors of the Company), together with every former Director and former officer of the
Company (each an "Indemnified Person") shall be indemnified out of the
assets of the Company against any liability, action, proceeding, claim, demand, costs,
damages or expenses, including legal expenses, whatsoever which they or any of them may
incur as a result of any act or failure to act in carrying out their functions other
than such liability (if any) that they may incur by reason of their own actual fraud
or wilful default. No Indemnified Person shall be liable to the Company for any loss
or damage incurred by the Company as a result (whether direct or indirect) of the carrying
out of their functions unless that liability arises through the actual fraud or wilful
default of such Indemnified Person. No person shall be found to have committed actual
fraud or wilful default under this Article unless or until a court of competent jurisdiction
shall have made a finding to that effect. |
| 44.2 | The
Company shall advance to each Indemnified Person reasonable attorneys' fees and other
costs and expenses incurred in connection with the defence of any action, suit, proceeding
or investigation involving such Indemnified Person for which indemnity will or could
be sought. In connection with any advance of any expenses hereunder, the Indemnified
Person shall execute an undertaking to repay the advanced amount to the Company if it
shall be determined by final judgment or other final adjudication that such Indemnified
Person was not entitled to indemnification pursuant to this Article. If it shall be determined
by a final judgment or other final adjudication that such Indemnified Person was not
entitled to indemnification with respect to such judgment, costs or expenses, then such
party shall not be indemnified with respect to such judgment, costs or expenses and any
advancement shall be returned to the Company (without interest) by the Indemnified Person. |
| 44.3 | The
Directors, on behalf of the Company, may purchase and maintain insurance for the benefit
of any Director or other officer of the Company against any liability which, by virtue
of any rule of law, would otherwise attach to such person in respect of any negligence,
default, breach of duty or breach of trust of which such person may be guilty in relation
to the Company. |
Unless the Directors otherwise prescribe,
the financial year of the Company shall end on 31st December in each year and, following the year of incorporation, shall begin
on 1st January in each year.
| 46 | Transfer
by Way of Continuation |
If the Company is exempted as defined
in the Statute, it shall, subject to the provisions of the Statute and with the approval of a Special Resolution, have the power
to register by way of continuation as a body corporate under the laws of any jurisdiction outside the Cayman Islands and to be
deregistered in the Cayman Islands.
| 47 | Mergers
and Consolidations |
The Company shall, with the approval
of a Special Resolution, have the power to merge or consolidate with one or more constituent companies (as defined in the Statute),
upon such terms as the Directors may determine.
Annex C
[To Come]
Annex D
December
16, 2015
Mr. Mario
Garnero
Chairman
of the Board and Chief Executive Officer
Garnero
Group Acquisition Company
Av. Brigadeiro
Faria Lima, 1485 – 19º Andar
Brasilinvest
Plaza
CEP 01452-002
São
Paulo/SP - Brazil
Dear Mr. Garnero,
We were
requested by you to provide to the Board of Directors of the Garnero Group Acquisition Company (“GGAC” or “Company”)
an opinion (“Opinion”) as of the date hereof as to (i) the fairness, from the financial point of view, to the holders
of the Company’s ordinary shares of the consideration to be paid by the Company in the contemplated transaction described
below, and (ii) whether the Target (as defined below) has a fair market value equal to at least 80% of the balance of the Company’s
trust account.
We will
receive a fee for our services in performing this Opinion and our fees are not refundable or contingent upon either the conclusion
expressed in the Opinion or the consummation of the Proposed Transaction (as defined below). In addition, the Company has agreed
to reimburse certain of our expenses and to indemnify us for certain liabilities arising out of this engagement. Other than this
engagement, during the two years preceding the date of this Opinion, we have not had any material relationship with any party
to the Proposed Transaction for which compensation has been received or is intended to be received. This Opinion has been approved
by our internal committee.
Description
of the Proposed Transaction
Reference
is made to the draft of Amended and Restated Investment Agreement provided on December 12, 2015 (“IA”) confirming
the understanding concerning the basic terms of a proposed transaction in which Q1 Comercial de Roupas S.A. (“Target”
or “Grupo Colombo”) will contribute its share to the capital of GGAC (“Proposed Transaction”).
Target
and option holders of Target’s shares shall contribute, assign, transfer and deliver the Target’s shares to GGAC,
free and clear of any Liens (except as described in the IA), and shall receive in consideration an aggregate of four million (4,000,000)
new ordinary shares of GGAC (“Company Ordinary Shares”)
Description
of Target
Grupo
Colombo was established in 1917 as a single store clothing retailer. In 1990, Target began its expansion, opening its first shopping
mall store. As of December 31, 2014 Target had 441 stores located in every state of Brazil. It is headquartered in the city of
São Paulo, Brazil.
Target
is focused on selling shirts, trousers and suits for men and caters principally to low to middle income consumers in Brazil.
Scope
of Analysis
In connection
with this Opinion, we have made such reviews, analyses and inquiries as we deemed necessary and appropriate under the circumstances.
We also took into account our assessment of current general economic, market and financial conditions, as well as our experience
in business valuation, in general, and with respect to similar transactions, in particular. Our due diligence with regard to the
Proposed Transaction included, but was not limited to, the items summarized below.
| 1. | Discussed
the operations, financial conditions, future prospects and projected operations and performance
of the Company and Target, respectively, and the Proposed Transaction with the management
of Target and the Company; |
| 2. | Reviewed
certain publicly available financial statements and other business and financial information
of the Company and Target, respectively, and the industries in which the Target operates; |
| 3. | Reviewed,
among other things, the financial statements for the two years ended 2014, which were
limited reviewed by independent auditors, and other financial and operating data concerning
Target which the Company and Target have respectively identified as being the most current
financial statements available; |
| 4. | Reviewed
certain financial forecasts as prepared by the management of the Company and Target; |
| 5. | Reviewed
the draft of the IA including, to the extent provided as of the date of the draft of
IA, certain exhibits and schedules reference therein; |
| 6. | Reviewed
the historical trading price and trading volume of the Company Ordinary Shares and the
publicly traded securities of certain other companies that we deemed relevant; |
| 7. | Compared
the financial performance of Target with that of certain other publicly traded companies
that we deemed relevant; |
| 8. | Compared
certain financial terms of the Proposed Transaction to financial terms, to the extent
publicly available, of certain other business combination transactions that we deemed
relevant; and |
| 9. | Considered
and applied three valuation methodologies to Target: |
| ● | Guideline
Public Companies Method (“GPCM”); |
| ● | Guideline
Transaction Method (“GTM”); |
| ● | Discounted
Cash Flow Method (“DCFM”). |
| 10. | Conducted
such other analyses and considered such other factors as we deemed appropriate. |
Assumptions,
Qualifications and Limiting Conditions
In performing
our analyses and rendering this Opinion with respect to the Proposed Transaction, we, with your consent:
| 1. | Relied
upon the accuracy, completeness, and fair presentation of all information, data, advice,
opinions and representations obtained from public sources or provided to us from private
sources, including Company and Target management, and did not independently verify such
information. |
| 2. | Assumed
that any estimates, evaluations and projections (financial or otherwise) provided to
us were reasonably prepared and based upon the best currently available information and
good faith judgment of the person or persons providing the same. |
| 3. | Assumed
that all governmental, regulatory or other consents and approvals necessary for the consummation
of the Proposed Transaction will be obtained without any adverse effect on the Company,
Target or the Proposed Transaction. |
| 4. | Assumed
without verification the accuracy and adequacy of the legal advice given by counsel to
the Company and Target on all legal matters with respect to the Proposed Transaction
and assumed all procedures required by law to be taken in connection with the Proposed
Transaction have been, or will be, duly, validly and timely taken and that the Proposed
Transaction will be consummated in a manner that complies in all respects with the applicable
provisions of the Securities Act of 1933, as amended, the Securities Exchange Act of
1934, as amended, and all other applicable statutes, rules and regulations. We have not
made, and assume no responsibility to make, any representation, or render any opinion,
as to any legal matter. |
| 5. | Assumed
that all of the conditions required to implement the Proposed Transaction will be satisfied
and that the Proposed Transaction will be completed in accordance with the terms of the
IA, without any amendments thereto or any waivers of any terms or conditions thereof.
We assumed that all representations and warranties of each party to the IA are true and
correct and that each party will perform all covenants and agreements required to be
performed by such party. |
| 6. | Assumed
that, prior to the closing of the IA, all of the equity holders of Target are parties
to and bound as Sellers under the IA. |
| 7. | Did
not make any independent evaluation, appraisal or physical inspection of the Company’s or the Target’s solvency or
of any specific assets or liabilities (contingent or otherwise). |
This Opinion
should not be construed as a valuation opinion, credit rating, solvency opinion, liquidation analysis, an analysis of either the
Company’s or Target’s creditworthiness or otherwise as tax advice or as accounting advice. We have not been requested
to, and did not, (a) negotiate the terms of the Proposed Transaction or (b) advise the Board of Directors or any other party with
respect to alternatives to the Proposed Transaction. In addition, we are not expressing any opinion as to the market price or
value of the Company’s Ordinary Shares after announcement of the Proposed Transaction.
In our
analysis and in connection with the preparation of this Opinion, we have made numerous assumptions with respect to industry performance,
general business, market and economic conditions and other matters, many of which are beyond the control of any party involved
in the Proposed Transaction. We have prepared this Opinion effective as of the date hereof. Events occurring after the date hereof
may affect this opinion and the assumptions used in preparing it, and we do not assume any obligation to update, revise, reaffirm
or withdraw this opinion or to otherwise comment upon events occurring after the date hereof.
In rendering
this Opinion, we are not expressing any opinion with respect to the amount or nature of any compensation to any of the Company’s
officers, directors, or employees of any parties to the IA, or any class of such persons, relative to the consideration to be
paid by GGAC pursuant to the IA, if any, or with respect to the fairness of any such compensation.
The basis
and methodology for this Opinion have been designed specifically for the express purposes of the Board of Directors and may not
be translated to any other purposes. This Opinion is not a recommendation as to how the Board of Directors or any stockholder
should vote or act with respect to any matters relating to the Proposed Transaction, or whether to proceed with the Proposed Transaction
or any related transaction, nor does it indicate that the terms of (including the consideration to be paid in) the Proposed Transaction
are the best attainable by the Company under any circumstances. Further, we have not been requested to opine as to, and the Opinion
does not in any manner address, the underlying business decision of the Company to engage in the Proposed Transaction or the relative
merits of the Proposed Transaction as compared to any alternative business transaction or strategy (including, without limitation,
liquidation of the Company after not completing a business combination within the allotted time). Instead, it merely states whether
the consideration in the Proposed Transaction is within a range suggested by certain financial analyses. The decision as to whether
to proceed with the Proposed Transaction or any related transaction may depend on an assessment of factors unrelated to the financial
analysis on which this Opinion is based. This letter should not be construed as creating any fiduciary duty on the part of us
to any party. Without our prior consent, this Opinion may not be quoted from or referred to, in whole or in part, in any written
document or used for any other purpose, except that this Opinion may be included in its entirety in filings with the Securities
and Exchange Commission made by the Company in connection with the Proposed Transaction. The Company may summarize or otherwise
reference the existence of this Opinion in such documents provided that any such summary or reference language shall be subject
to our prior approval, such approval may not be unreasonable withheld.
Conclusion
Based
upon and subject to the foregoing, our opinion is that (i) the Consideration to be paid by the Company in the Proposed Transaction
is fair, from a financial point of view, to the holders of the Company’s ordinary share and (ii) the Target has a fair market
value equal to at least 80% of the balance in the Company’s Trust Account.
Very truly yours, |
|
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/s/ Taiki Hirashima |
|
Hirashima & Associados Consultoria em Transações
Societárias Ltda. |
|
|
|
By: Taiki Hirashima |
|
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Senior Partner |
|
Annex E
[To Come]
Annex F
GARNERO GROUP ACQUISITION COMPANY
(the “Company”)
RESOLUTIONS OF THE SHAREHOLDERS OF THE COMPANY
| 1. | Business
Combination Proposal |
It is resolved THAT the business combination proposal (as defined
in the Company's proxy statement dated [●], 2016 (the “Proxy Statement”)), and the transactions (the
“Transactions”) contemplated by the First Amended and Restated Investment Agreement, by and among the Company,
Q1 Comercial de Roupas S.A., Alvaro Jabur Maluf Jr. and Paulo Jabur Maluf and the persons listed under the caption “Optionholder”
on the signature pages thereto, be approved.
| 2.A. | Charter
Amendment Proposals – Name Change |
It is resolved as a special resolution THAT, effective immediately
following consummation of the Transactions, the name of Garnero Group Acquisition Company be changed from “Garnero Group
Acquisition Company” to “Garnero Colombo Inc.”
| 2.B. | Charter
Amendment Proposals – Classification of Board |
It is resolved as a special resolution THAT, effective immediately
following consummation of the Transactions, the Amended and Restated Memorandum and Articles of Association of the Company be
amended by:
| (a) | amending Article 26 by adding the following new paragraph
after the first paragraph: |
“The Directors shall be divided
into three classes: Class A, Class B and Class C. The number of Directors in each class shall be as nearly equal as possible.
Upon the adoption of these Second Amended and Restated Articles, the existing Directors shall by resolution classify themselves
as Class A, Class B or Class C Directors. The Class A Directors shall stand elected for a term expiring at the Company’s
first succeeding annual general meeting after adoption of these Second Amended and Restated Articles, the Class B Directors shall
stand elected for a term expiring at the Company’s second succeeding annual general meeting and the Class C Directors shall
stand elected for a term expiring at the Company’s third succeeding annual general meeting. Commencing at the Company's
first succeeding annual general meeting after adoption of these Second Amended and Restated Articles, and at each annual general
meeting thereafter, Directors elected to succeed those Directors whose terms expire shall be elected for a term of office to expire
at the third succeeding annual general meeting after their election. Except as the Statute or other applicable law may otherwise
require, in the interim between annual general meetings or extraordinary general meetings called for the election of Directors
and/or the removal of one or more Directors and the filling of any vacancy in that connection, additional Directors and any vacancies
in the board of Directors, including unfilled vacancies resulting from the removal of Directors for cause, may be filled by the
vote of a majority of the remaining Directors then in office, although less than a quorum (as defined in these Articles), or by
the sole remaining Director. All Directors shall hold office until the expiration of their respective terms of office and until
their successors shall have been elected and qualified. A Director elected to fill a vacancy resulting from the death, resignation
or removal of a Director shall serve for the remainder of the full term of the Director whose death, resignation or removal shall
have created such vacancy and until his successor shall have been elected and qualified.”
| 2.C. | Charter
Amendment Proposals – Removal of Inapplicable Provisions and Other Immaterial Changes |
It is resolved as a special resolution THAT, effective immediately
following consummation of the Transactions, the Amended and Restated Memorandum and Articles of Association of the Company be
amended by:
| (a) | amending Article 1.1 by deleting the following definitions
in their entirety: |
|
“Business Combination” |
has the meaning given to it in Article 48.1. |
|
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|
|
“Founders” |
means all Members immediately prior to the consummation of the IPO. |
|
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|
“IPO” |
means the Company's initial public offering of securities. |
|
|
|
|
“IPO Repurchase” |
has the meaning given to it in Article 48.3. |
|
|
|
|
“Over-allotment Option” |
means the option of the Underwriters to purchase up to an additional 1,875,000 units (as defined at Article 3.3) at a price equal to $10.00 per unit, less underwriting discounts and commissions. |
|
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|
|
“Repurchase Price” |
has the meaning given to it in Article 48.3. |
|
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|
“Trust Fund” |
has the meaning given to it in Article 48.1. |
|
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|
“Underwriters” |
means EarlyBirdCapital, Inc. on its own behalf and for other underwriters from time to time, and any successor underwriter. |
| (b) | amending Article 3.3 by deleting the following wording: |
“which are issued pursuant to the IPO can only
be traded separately from one another 90 days after the date of the prospectus relating to the IPO unless the Underwriters determine
that an earlier date is acceptable. Prior to such date, the units can be traded, but the securities comprising such units cannot”
and inserting in its place the word “may”;
| (c) | amending Article 8.1 by deleting the following wording
from the second sentence: |
“, except Shares in the IPO,”;
| (d) | amending Article 8.1 by deleting the following wording: |
“With respect to repurchasing shares of the Company:
“(a) members who hold Shares
issued in the IPO are entitled to request repurchase of such Shares in the circumstances described in Article 48.3; and
“(b) shares held by the
Founders shall be compulsorily repurchased on a pro rata basis to the extent that the Over-allotment Option is not exercised in
full so that the Founders will own 20% of the Company's issued and outstanding Shares after the IPO
(exclusive of any securities purchased in a private placement simultaneously with the IPO).”
| (e) | amending Article 8.2 by deleting the following wording: |
“For the avoidance of doubt, repurchases of Shares
in the circumstances described at Articles 8.1(a) and 8.1(b) above shall not require further approval of the Members.”;
| (f) | amending Article 17.3 by deleting the words “and
Article 48.13”; |
| (g) | amending Article 40.1 to read as follows: |
“The Directors shall cause proper books of account
(including, where applicable, material underlying documentation including contracts and invoices) to be kept with respect to all
sums of money received and expended by the Company and the matters in respect of which the receipt or expenditure takes place,
all sales and purchases of goods by the Company and the assets and liabilities of the Company. Such books of account must be retained
for a minimum period of five years from the date on which they are prepared. Proper books shall not be deemed to be kept if there
are not kept such books of account as are necessary to give a true and fair view of the state of the Company's affairs and to
explain its transactions.”
| (g) | deleting Article 48 in its entirety. |
3. |
Articles Restatement Proposal |
It is resolved as a special resolution THAT, effective immediately
upon consummation of the Transactions and approval of Proposals 2.A-C, the Amended and Restated Memorandum and Articles of Association
of the Company currently in effect be amended and restated by their deletion in their entirety and the substitution in their place
of the Second Amended and Restated Memorandum and Articles of Association in the form attached at Annex B to the Proxy Statement.
4. |
Incentive Compensation Plan Proposal |
It is resolved THAT the 2015 Long-Term Equity Incentive Plan, in
the form attached at Annex C to the Proxy Statement, be approved.
5. |
Director Election Proposal |
It is resolved THAT:
| (a) | John
Tonelli be elected as a Class A Director of the Company, to serve until the next succeeding
annual general meeting of shareholders; |
| (b) | Nelson
Narciso Filho and Amir Adnani be elected as Class B Directors of the Company, to serve
until the second succeeding annual general meeting of shareholders; and |
| (c) | Mario
Garnero and Alvaro Jabur Maluf Jr. be elected as Class C Directors of the Company, to
serve until the third succeeding annual general meeting of shareholders. |
It is resolved THAT the Extraordinary General Meeting be adjourned
to a later date or dates and time or times as shall be announced by the Chairman at the Extraordinary General Meeting, to permit
further solicitation and vote of proxies.
Annex G
AUDIT COMMITTEE CHARTER
OF
GARNERO GROUP ACQUISITION COMPANY
Purpose
The purposes of the Audit Committee (the “Audit Committee”)
of the Board of Directors (“Board”) of Garnero Group Acquisition Company (“Company”) are to assist the
Board in monitoring (1) the integrity of the annual, quarterly and other financial statements of the Company, (2) the independent
auditor’s qualifications and independence, (3) the performance of the Company’s independent auditor and (4) the compliance
by the Company with legal and regulatory requirements. The Audit Committee also shall review and approve all related-party transactions.
The Audit Committee shall prepare the report required by the rules
of the Securities and Exchange Commission (“Commission”) to be included in the Company’s annual proxy statement.
Committee Membership
The Audit Committee shall consist of no fewer than three members,
absent a temporary vacancy. The Audit Committee shall meet the “Audit Committee Requirements” of The NASDAQ Stock
Market, LLC and the independence and experience requirements of Section 10A(m)(3) of the Securities Exchange Act of 1934 (“Exchange
Act”) and the rules and regulations of the Commission.
The members of the Audit Committee shall be appointed by the Board.
Audit Committee members may be replaced by the Board. There shall be a Chairman of the Audit Committee which shall also be appointed
by the Board. The Chairman of the Audit Committee shall be a member of the Audit Committee and, if present, shall preside at each
meeting of the Audit Committee. He shall advise and counsel with the executives of the Company, and shall perform such other duties
as may from time to time be assigned to him by the Audit Committee or the Board of Directors.
Meetings
The Audit Committee shall meet as often as it determines, but not
less frequently than quarterly. The Audit Committee shall meet periodically with management and the independent auditor in separate
executive sessions. The Audit Committee may request any officer or employee of the Company or the Company’s outside counsel
or independent auditor to attend a meeting of the Audit Committee or to meet with any members of, or consultants to, the Audit
Committee.
Committee Authority and Responsibilities
The Audit Committee shall have the sole authority to appoint or
replace the independent auditor. The Audit Committee shall be directly responsible for determining the compensation and oversight
of the work of the independent auditor (including resolution of disagreements between management and the independent auditor regarding
financial reporting) for the purpose of preparing or issuing an audit report or related work. The independent auditor shall report
directly to the Audit Committee.
The Audit Committee shall pre-approve all auditing services and
permitted non-audit services to be performed for the Company by its independent auditor, including the fees and terms thereof
(subject to the de minimus exceptions for non-audit services described in Section 10A(i)(1)(B) of the Exchange Act which are approved
by the Audit Committee prior to the completion of the audit). The Audit Committee may form and delegate authority to subcommittees
of the Audit Committee consisting of one or more members when appropriate, including the authority to grant pre-approvals of audit
and permitted non-audit services, provided that decisions of such subcommittee to grant pre-approvals shall be presented to the
full Audit Committee at its next scheduled meeting.
The Audit Committee shall have the authority, to the extent it
deems necessary or appropriate, to retain independent legal, accounting or other advisors. The Company shall provide for appropriate
funding, as determined by the Audit Committee, for payment of compensation to (i) the independent auditor for the purpose of rendering
or issuing an audit report and (ii) any advisors employed by the Audit Committee.
The Audit Committee shall make regular reports to the Board. The
Audit Committee shall review and reassess the adequacy of this Charter annually and recommend any proposed changes to the Board
for approval. The Audit Committee annually shall review the Audit Committee’s own performance.
The Audit Committee shall:
Financial Statement and Disclosure Matters
| 1. | Meet
with the independent auditor prior to the audit to review the scope, planning and staffing
of the audit. |
| 2. | Review
and discuss with management and the independent auditor the annual audited financial
statements, and recommend to the Board whether the audited financial statements should
be included in the Company’s Annual Report on Form 10-K (or the annual report to
shareholders if distributed prior to the filing of the Form 10-K). |
| 3. | Review
and discuss with management and the independent auditor the Company’s quarterly
financial statements prior to the filing of its Form 10-Q, including the results of the
independent auditor’s review of the quarterly financial statements. |
| 4. | Discuss
with management and the independent auditor, as appropriate, significant financial reporting
issues and judgments made in connection with the preparation of the Company’s financial
statements, including: |
| (a) | any
significant changes in the Company’s selection or application of accounting principles; |
| (b) | the
Company’s critical accounting policies and practices; |
| (c) | all
alternative treatments of financial information within GAAP that have been discussed
with management and the ramifications of the use of such alternative accounting principles; |
| (d) | any
major issues as to the adequacy of the Company’s internal controls and any special
steps adopted in light of material control deficiencies; and |
| (e) | any
material written communications between the independent auditor and management, such
as any management letter or schedule of unadjusted differences. |
| 5. | Discuss
with management the Company’s earnings press releases generally, including the
use of “pro forma” or “adjusted” non-GAAP information, and any
financial information and earnings guidance provided to analysts and rating agencies.
Such discussion may be general and include the types of information to be disclosed and
the types of presentations to be made. |
| 6. | Discuss
with management and the independent auditor the effect on the Company’s financial
statements of (i) regulatory and accounting initiatives and (ii) off-balance sheet structures. |
| 7. | Discuss
with management the Company’s major financial risk exposures and the steps management
has taken to monitor and control such exposures, including the Company’s risk assessment
and risk management policies. |
| 8. | Discuss
with the independent auditor the matters required to be discussed by Statement on Auditing
Standards No. 61 relating to the conduct of the audit, including any difficulties encountered
in the course of the audit work, any restrictions on the scope of activities or access
to requested information, and any significant disagreements with management. |
| 9. | Review
disclosures made to the Audit Committee by the Company’s Chief Executive Officer
and Chief Financial Officer (or individuals performing similar functions) during their
certification process for the Form 10-K and Form 10-Qs about any significant deficiencies
and material weaknesses in the design or operation of internal control over financial
reporting and any fraud involving management or other employees who have a significant
role in the Company’s internal control over financial reporting. |
Oversight of the Company’s Relationship
with the Independent Auditor
| 10. | At
least annually, obtain and review a report from the independent auditor, consistent with
the rules of the Public Company Accounting Oversight Board, regarding (a) the independent
auditor’s internal quality-control procedures, (b) any material issues raised by
the most recent internal quality-control review, or peer review, of the firm, or by any
inquiry or investigation by governmental or professional authorities within the preceding
five years respecting one or more independent audits carried out by the firm, (c) any
steps taken to deal with any such issues and (d) all relationships between the independent
auditor and the Company. Evaluate the qualifications, performance and independence of
the independent auditor, including whether the auditor’s quality controls are adequate
and the provision of permitted non-audit services is compatible with maintaining the
auditor’s independence, and taking into account the opinions of management and
the internal auditor. The Audit Committee shall present its conclusions with respect
to the independent auditor to the Board. |
| 11. | Verify
the rotation of the lead (or coordinating) audit partner having primary responsibility
for the audit and the audit partner responsible for reviewing the audit as required by
law. Consider whether, in order to assure continuing auditor independence, it is appropriate
to adopt a policy of rotating the independent auditing firm on a regular basis. |
| 12. | Oversee
the Company’s hiring of employees or former employees of the independent auditor
who participated in any capacity in the audit of the Company. |
| 13. | Be
available to the independent auditor during the year for consultation purposes. |
Compliance Oversight Responsibilities
| 14. | Obtain
assurance from the independent auditor that Section 10A(b) of the Exchange Act has not
been implicated. |
| 15. | Review
and approve all related-party transactions. |
| 16. | Inquire
and discuss with management the Company’s compliance with applicable laws and regulations
and with the Company’s Code of Ethics in effect at such time, if any, and, where
applicable, recommend policies and procedures for future compliance. |
| 17. | Establish
procedures (which may be incorporated in the Company’s Code of Ethics, in effect
at such time, if any) for the receipt, retention and treatment of complaints received
by the Company regarding accounting, internal accounting controls or reports which raise
material issues regarding the Company’s financial statements or accounting policies. |
| 18. | Discuss
with management and the independent auditor any correspondence with regulators or governmental
agencies and any published reports that raise material issues regarding the Company’s
financial statements or accounting policies. |
| 19. | Discuss
with the Company’s General Counsel legal matters that may have a material impact
on the financial statements or the Company’s compliance policies. |
| 20. | Review
and approve all payments made to the Company’s officers and directors or its or
their affiliates. Any payments made to members of the Audit Committee will be reviewed
and approved by the Board, with the interested director or directors abstaining from
such review and approval. |
Limitation of Audit Committee’s Role
While the Audit Committee has the responsibilities and powers set
forth in this Charter, it is not the duty of the Audit Committee to plan or conduct audits or to determine that the Company’s
financial statements and disclosures are complete and accurate and are in accordance with generally accepted accounting principles
and applicable rules and regulations. These are the responsibilities of management and the independent auditor.
Annex H
NOMINATING COMMITTEE CHARTER
OF
GARNERO GROUP ACQUISITION COMPANY
The responsibilities and powers of the Nominating
Committee (the “Nominating Committee”) of the Board of Directors (the “Board”) of Garnero Group Acquisition
Company (the “Company”), as delegated by the Board, are set forth in this charter. Whenever the Nominating Committee
takes an action, it shall exercise its independent judgment on an informed basis that the action is in the best interests of the
Company and its shareholders.
As set forth herein, the Nominating Committee
shall, among other things, discharge the responsibilities of the Board relating to the appropriate size, functioning and needs
of the Board including, but not limited to, recruitment and retention of high quality Board members and committee composition
and structure.
The Nominating Committee shall consist of at
least two members of the Board as determined from time to time by the Board. Each member shall be “independent” in
accordance with the listing standards of The NASDAQ Stock Market, LLC, as amended from time to time.
The Board shall elect the members of this Nominating
Committee at the first Board meeting practicable following the annual meeting of shareholders and may make changes from time to
time pursuant to the provisions below. Unless a chair is elected by the Board, the members of the Nominating Committee shall designate
a chair by majority vote of the full Nominating Committee membership.
A Nominating Committee member may resign by
delivering his or her written resignation to the chairman of the Board, or may be removed by majority vote of the Board by delivery
to such member of written notice of removal, to take effect at a date specified therein, or upon delivery of such written notice
to such member if no date is specified.
III. |
MEETINGS AND COMMITTEE ACTION |
The Nominating Committee shall meet at such
times as it deems necessary to fulfill its responsibilities. Meetings of the Nominating Committee shall be called by the chairman
of the Nominating Committee upon such notice as is provided for in the by-laws of the company with respect to meetings of the
Board. A majority of the members shall constitute a quorum. Actions of the Nominating Committee may be taken in person at a meeting
or in writing without a meeting. Actions taken at a meeting, to be valid, shall require the approval of a majority of the members
present and voting. Actions taken in writing, to be valid, shall be signed by all members of the Nominating Committee. The Nominating
Committee shall report its minutes from each meeting to the Board.
The chairman of the Nominating Committee may
establish such rules as may from time to time be necessary or appropriate for the conduct of the business of the Nominating Committee.
At each meeting, the chairman shall appoint as secretary a person who may, but need not, be a member of the Nominating Committee.
A certificate of the secretary of the Nominating Committee or minutes of a meeting of the Nominating Committee executed by the
secretary setting forth the names of the members of the Nominating Committee present at the meeting or actions taken by the Nominating
Committee at the meeting shall be sufficient evidence at all times as to the members of the Nominating Committee who were present,
or such actions taken.
IV. |
COMMITTEE AUTHORITY AND RESPONSIBILITIES |
| ● | Developing
the criteria and qualifications for membership on the Board. |
| ● | Recruiting,
reviewing and nominating candidates for election to the Board or to fill vacancies on
the Board. |
| ● | Reviewing
candidates proposed by shareholders, and conducting appropriate inquiries into the background
and qualifications of any such candidates. |
| ● | Establishing
subcommittees for the purpose of evaluating special or unique matters. |
| ● | Monitoring
and making recommendations regarding committee functions, contributions and composition. |
| ● | Evaluating,
on an annual basis, the Nominating Committee’s performance. |
The Nominating Committee shall prepare a statement
each year concerning its compliance with this charter for inclusion in the Company’s proxy statement.
GARNERO GROUP ACQUISITION COMPANY
Board of Director Candidate Guidelines
The Nominating Committee (the “Nominating
Committee”) of the Board of Directors (“Board”) of Garnero Group Acquisition Company (the “Company”)
will identify, evaluate and recommend candidates to become members of the Board with the goal of creating a balance of knowledge
and experience. Nominations to the Board may also be submitted to the Nominating Committee by the Company’s shareholders
in accordance with the Company’s policy, a copy of which is attached hereto. Candidates will be reviewed in the
context of current composition of the Board (including the diversity in background, experience and viewpoints of the Board), the
operating requirements of the Company and the long-term interests of the Company’s shareholders. In conducting this assessment,
the Nominating Committee will consider and evaluate each director-candidate based upon its assessment of the following criteria:
| ● | Whether
the candidate is independent pursuant to the requirements of the NASDAQ Stock Market. |
| ● | Whether
the candidate is accomplished in his or her field and has a reputation, both personal
and professional, that is consistent with the image and reputation of the Company. |
| ● | Whether
the candidate has the ability to read and understand basic financial statements. The
Nominating Committee also will determine if a candidate satisfies the criteria for being
an “audit committee financial expert,” as defined by the Securities and Exchange
Commission. |
| ● | Whether
the candidate has relevant experience and expertise and would be able to provide insights
and practical wisdom based upon that experience and expertise. |
| ● | Whether
the candidate has knowledge of the Company and issues affecting the Company. |
| ● | Whether
the candidate is committed to enhancing shareholder value. |
| ● | Whether
the candidate fully understands, or has the capacity to fully understand, the legal responsibilities
of a director and the governance processes of a public company. |
| ● | Whether
the candidate is of high moral and ethical character and would be willing to apply sound,
objective and independent business judgment, and to assume broad fiduciary responsibility. |
| ● | Whether
the candidate has, and would be willing to commit, the required hours necessary to discharge
the duties of Board membership. |
| ● | Whether
the candidate has any prohibitive interlocking relationships or conflicts of interest. |
| ● | Whether
the candidate is able to develop a good working relationship with other Board members
and contribute to the Board’s working relationship with the senior management of
the Company. |
| ● | Whether
the candidate is able to suggest business opportunities to the Company. |
GARNERO GROUP ACQUISITION COMPANY
Shareholder Recommendations for Directors
Shareholders who wish to recommend to the Nominating
Committee (the “Nominating Committee”) of the Board of Directors (“Board”) of Garnero Group Acquisition
Company (the “Company”), a candidate for election to the Board should send their letters to Garnero Group Acquisition
Company, Av Brig. Faria Lima 1485 - 19 Andar, Brasilinvest Plaza, Sao Paulo-SP, CEP 01452-002, Brazil, Attention: Nominating
Committee. The Corporate Secretary will promptly forward all such letters to the members of the Nominating Committee. Shareholders
must follow certain procedures to recommend to the Nominating Committee candidates for election as directors. In general, in order
to provide sufficient time to enable the Nominating Committee to evaluate candidates recommended by shareholders in connection
with selecting candidates for nomination in connection with the Company’s annual meeting of shareholders, the Corporate
Secretary must receive the shareholder’s recommendation no later than thirty (30) days after the end of the Company’s
fiscal year.
The
recommendation must contain the following information about the candidate:
| ● | Business
and current residence addresses, as well as residence addresses for the past 20 years; |
| ● | Principal
occupation or employment and employment history (name and address of employer and job
title) for the past 10 years (or such shorter period as the candidate has been in the
workforce); |
| ● | Permission
for the Company to conduct a background investigation, including the right to obtain
education, employment and credit information; |
| ● | The
number of ordinary shares of the Company beneficially owned by the candidate; |
| ● | The
information that would be required to be disclosed by the Company about the candidate
under the rules of the SEC in a Proxy Statement soliciting proxies for the election of
such candidate as a director (which currently includes information required by Items
401, 404 and 405 of Regulation S-K); and |
| ● | A
signed consent of the nominee to serve as a director of the Company, if elected. |
Annex I
CHARTER OF THE COMPENSATION COMMITTEE
OF
THE BOARD OF DIRECTORS OF
GARNERO GROUP ACQUISITION COMPANY
The Compensation Committee (the “Committee”)
is appointed by the Board of Directors (the “Board”) of Garnero Group Acquisition Company (the “Company”)
for the purposes of, among other things, (a) discharging the Board’s responsibilities relating to the compensation of the
Company’s chief executive officer (the “CEO”) and other executive officers of the Company, (b) administering
or delegating the power to administer the Company’s incentive compensation and equity-based compensation plans and (c) if
required by applicable rules and regulations, issuing a “Compensation Committee Report” to be included in the Company's
annual report on Form 10-K or proxy statement, as applicable.
In addition to such other duties
as the Board may from time to time assign, the Committee shall:
| ● | Establish,
review and approve the overall executive compensation philosophy and policies of the
Company, including the establishment, if deemed appropriate, of performance-based incentives
that support and reinforce the Company's long-term strategic goals, organizational objectives
and stockholder interests. |
| ● | Review
and approve the Company’s goals and objectives relevant to the compensation of
the CEO, annually evaluate the CEO’s performance in light of those goals and objectives
and, based on this evaluation, determine the CEO’s compensation level, including,
but not limited to, salary, bonus or bonus target levels, long and short-term incentive
and equity compensation, retirement plans, and deferred compensation plans as the Committee
deems appropriate. In determining the long-term incentive component of the CEO’s
compensation, the Committee shall consider, among other factors, the Company’s
performance and relative stockholder return, the value of similar incentive awards to
CEO’s at comparable companies, and the awards given to the Company’s CEO
in past years. The CEO shall not be present during voting and deliberations relating
to CEO compensation. |
| ● | Determine
the compensation of all other executive officers, including, but not limited to, salary,
bonus or bonus target levels, long and short-term incentive and equity compensation,
retirement plans, and deferred compensation plans, as the Committee deems appropriate.
Members of senior management may report on the performance of the other executive officers
of the Company and make compensation recommendations to the Committee, which will review
and, as appropriate, approve the compensation recommendations. |
| ● | Receive
and evaluate performance target goals for the senior officers and employees (other than
executive officers) and review periodic reports from the CEO as to the performance and
compensation of such senior officers and employees. |
| ● | Administer
or delegate the power to administer the Company’s incentive and equity-based compensation
plans, including the grant of stock options, restricted stock and other equity awards
under such plans. |
| ● | Review
and make recommendations to the Board with respect to the adoption of, and amendments
to, incentive compensation and equity-based plans and approve for submission to the stockholders
all new equity compensation plans that must be approved by stockholders pursuant to applicable
law. |
| ● | Review
and approve any annual or long-term cash bonus or incentive plans in which the executive
officers of the Company may participate. |
| ● | Review
and approve for the CEO and the other executive officers of the Company any employment
agreements, severance arrangements, and change in control agreements or provisions. |
| ● | Review
and discuss with the Company’s management the Compensation Discussion and Analysis
set forth in Securities and Exchange Commission Regulation S-K, Item 402, if required,
and, based on such review and discussion, determine whether to recommend to the Board
of Directors of the Company that the Compensation Discussion and Analysis be included
in the Company’s annual report or proxy statement for the annual meeting of stockholders. |
| ● | Provide,
over the names of the members of the Committee, the Compensation Committee Report for
the Company’s annual report or proxy statement for the annual meeting of stockholders,
if required. |
| ● | Conduct
an annual performance evaluation of the Committee. In conducting such review, the Committee
shall evaluate and address all matters that the Committee considers relevant to its performance,
including at least the following: (a) the adequacy, appropriateness and quality of the
information received from management or others; (b) the manner in which the Committees
recommendations were discussed or debated; (c) whether the number and length of meetings
of the Committee were adequate for the Committee to complete its work in a thorough and
thoughtful manner; and (d) whether this Charter appropriately addresses the matters that
are or should be within its scope. |
The Committee shall be comprised of two or more
members (including a chairperson), all of whom shall be “independent directors,” as such term is defined in the rules
and regulations of the Nasdaq Stock Market. Notwithstanding the foregoing, at any time and so long as the Company is a “controlled
company” as such term is defined in Rule 5615(c)(1) of the Nasdaq Stock Market, the Committee may have as one of its members
a “non-independent director” pursuant to the exemption under Rule 5615(c)(2) of the Nasdaq Stock Market for controlled
companies. In addition, the Committee may have as one of its members a “non-independent director” under exceptional
and limited circumstances pursuant to the exemption under Rule 5605(d)(2)(B) of the Nasdaq Stock Market. At least two of the Committee
members shall be “non-employee directors” as defined by Rule 16b-3 under the Securities Exchange Act of 1934 and “outside
directors” as defined by Section 162(m) of the Internal Revenue Code. The members of the Committee and the chairperson shall
be selected not less frequently than annually by the Board and serve at the pleasure of the Board. A Committee member (including
the chairperson) may be removed at any time, with or without cause, by the Board.
The Committee shall have authority to delegate
any of its responsibilities to one or more subcommittees as the Committee may from time to time deem appropriate. If at any time
the Committee includes a member who is not a “non employee director” within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), then a subcommittee comprised entirely of individuals
who are “non-employee directors” may be formed by the Committee for the purpose of ratifying any grants of awards
under any incentive or equity-based compensation plan for the purposes of complying with the exemption requirements of Rule 16b-3
of the Exchange Act or Section 162(m) of the Internal Revenue Code of 1986, as amended; provided that any such grants shall not
be contingent on such ratification.
IV. |
MEETINGS AND OPERATIONS |
The Committee shall meet as often as necessary,
but at least two times each year, to enable it to fulfill its responsibilities. The Committee shall meet at the call of its chairperson
or a majority of its members. The Committee may meet by telephone conference call or by any other means permitted by law or the
Company’s Bylaws. A majority of the members of the Committee shall constitute a quorum. The Committee shall act on the affirmative
vote of a majority of members present at a meeting at which a quorum is present. Subject to the Company’s Bylaws, the Committee
may act by unanimous written consent of all members in lieu of a meeting. The Committee shall determine its own rules and procedures,
including designation of a chairperson pro tempore in the absence of the chairperson, and designation of a secretary. The secretary
need not be a member of the Committee and shall attend Committee meetings and prepare minutes. The Secretary of the Company shall
be the Secretary of the Compensation Committee unless the Committee designates otherwise. The Committee shall keep written minutes
of its meetings, which shall be recorded or filed with the books and records of the Company. Any member of the Board shall be
provided with copies of such Committee minutes if requested.
The Committee may ask members of management,
employees, outside counsel, or others whose advice and counsel are relevant to the issues then being considered by the Committee
to attend any meetings (or a portion thereof) and to provide such pertinent information as the Committee may request.
The chairperson of the Committee shall be responsible
for leadership of the Committee, including preparing the agenda which shall be circulated to the members prior to the meeting
date, presiding over Committee meetings, making Committee assignments and reporting the Committee’s actions to the Board.
Following each of its meetings, the Committee shall deliver a report on the meeting to the Board, including a description of all
actions taken by the Committee at the meeting.
If at any time during the exercise of his or
her duties on behalf of the Committee, a Committee member has a direct conflict of interest with respect to an issue subject to
determination or recommendation by the Committee, such Committee member shall abstain from participation, discussion and resolution
of the instant issue, and the remaining members of the Committee shall advise the Board of their recommendation on such issue.
The Committee shall be able to make determinations and recommendations even if only one Committee member is free from conflicts
of interest on a particular issue.
The Committee has the authority, to the extent
it deems appropriate, to conduct or authorize investigations into or studies of matters within the Committee's scope of responsibilities
and to retain one or more compensation consultants to assist in the evaluation of CEO or executive compensation or other matters.
The Committee shall have the sole authority to retain and terminate any such consulting firm, and to approve the firm’s
fees and other retention terms. The Committee shall evaluate whether any compensation consultant retained or to be retained by
it has any conflict of interest in accordance with Item 407(e)(3)(iv) of Regulation S-K. The Committee shall also have the authority,
to the extent it deems necessary or appropriate, to retain legal counsel or other advisors. In retaining compensation consultants,
outside counsel and other advisors, the Committee must take into consideration factors specified in the NASDAQ listing rules.
The Company will provide for appropriate funding, as determined by the Committee, for payment of any such investigations or studies
and the compensation to any consulting firm, legal counsel or other advisors retained by the Committee.
GARNERO GROUP ACQUISITION COMPANY
Av Brig. Faria Lima 1485 - 19 Andar
Brasilinvest Plaza
Sao Paulo-SP, CEP 01452-002
Brazil
EXTRAORDINARY GENERAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF
GARNERO GROUP ACQUISITION COMPANY
The undersigned appoints Mario Garnero and Javier
Martin Riva as proxies, and each of them with full power to act without the other, each with the power to appoint a substitute,
and hereby authorizes either of them to represent and to vote, as designated on the reverse side, all ordinary shares of Garnero
Group Acquisition Company (“GGAC”) held of record by the undersigned on [●], 2016 at the Extraordinary General Meeting
of Shareholders to be held on [●], 2016, or any postponement or adjournment thereof.
THIS PROXY REVOKES ALL PRIOR PROXIES GIVEN
BY THE UNDERSIGNED.
(Continued and to be signed on reverse side)
PROXY
THIS PROXY WILL BE VOTED AS DIRECTED. IF
NO DIRECTIONS ARE GIVEN, THIS PROXY WILL BE VOTED ‘‘FOR’’ PROPOSALS 1, 2.A-C, 3, 4 AND 6 BELOW, AND “FOR”
THE ELECTION OF ALL OF THE DIRECTORS IN PROPOSAL 5 BELOW. THE GGAC BOARD OF DIRECTORS RECOMMENDS A VOTE ‘‘FOR’’
PROPOSALS 1, 2.A-C, 3, 4 AND 6 BELOW, AND “FOR” THE ELECTION OF ALL OF THE DIRECTORS LISTED IN PROPOSAL 5 BELOW.
1. |
To adopt and approve the First Amended and Restated Investment Agreement (“Investment Agreement”), dated as of December 17, 2015, by and among GGAC, Q1 Comercial de Roupas S.A. (“Grupo Colombo”), Alvaro Jabur Maluf Jr. and Paulo Jabur Maluf (the “Controlling Persons”) and the persons listed under the caption “Optionholder” on the signature pages thereto (the “Optionholders”), which provides, among other things, for the Controlling Persons and the Optionholders to contribute to GGAC all of Grupo Colombo’s equity, as a result of which Grupo Colombo will become a wholly-owned subsidiary of GGAC, and to approve the business combination contemplated by the Investment Agreement. |
FOR
☐ |
AGAINST
☐ |
ABSTAIN
☐ |
|
|
|
|
|
|
If you affirmatively vote “FOR” or “AGAINST” Proposal Number 1 and you hold ordinary shares of GGAC issued in the GGAC initial public offering, you may exercise your conversion rights and demand that GGAC convert your ordinary shares into a full pro rata portion of the trust account (as defined in the final prospectus of GGAC’s initial public offering, dated June 25, 2014) in which certain proceeds of GGAC’s initial public offering are held, less any taxes then due but not yet paid. To properly exercise your conversion rights, you must (i) affirmatively vote either for or against the business combination proposal and (ii) demand that GGAC convert your shares into cash no later than the close of the vote on the business combination proposal, by either checking the “I hereby exercise my conversion rights” box below or by submitting your request in writing to GGAC’s transfer agent and delivering your shares to GGAC’s transfer agent physically or electronically using Depository Trust Company’s DWAC (Deposit Withdrawal at Custodian) System prior to the vote at the meeting. Even if you properly exercise your conversion rights, you will only be entitled to receive cash for these shares if the merger is completed. If you properly exercise your conversion rights and the business combination is completed, then you will be exchanging your ordinary shares of GGAC for cash and will no longer own these shares. |
|
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|
I HEREBY EXERCISE MY CONVERSION RIGHTS. |
|
☐ |
|
|
SHAREHOLDER
CERTIFICATION:
I hereby certify that I am not acting in concert, or as a “group” (as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended), with any other shareholder with respect to the ordinary shares
of GGAC owned by me. I further certify that I am not exercising conversion rights with respect to 30% or more of GGAC’s
ordinary shares. |
☐ |
|
|
|
|
|
2.A |
To approve by special resolution an amendment to the amended and restated memorandum and articles of association of GGAC to change the name of GGAC to “Garnero Colombo, Inc.” |
FOR
☐ |
AGAINST
☐ |
ABSTAIN
☐ |
|
|
|
|
|
2.B |
To approve by special resolution an amendment to the amended and restated memorandum and articles of association of GGAC to adjust the existing classification of directors to conform with the classification described in Proposal 4 below. |
FOR
☐ |
AGAINST
☐ |
ABSTAIN
☐ |
|
|
|
|
|
2.C |
To approve by special resolution an amendment to the amended and restated memorandum and articles of association of GGAC to remove provisions that will no longer be applicable to GGAC after the business combination and make certain other immaterial changes. |
FOR
☐ |
AGAINST
☐ |
ABSTAIN
☐ |
|
|
|
|
|
3. |
To approve by special resolution the amendment and restatement of GGAC’s amended and restated memorandum and articles of association to (among other matters) to reflect changes made as a result of proposals 2.A-C above presented at the extraordinary general meeting. |
FOR
☐ |
AGAINST
☐ |
ABSTAIN
☐ |
|
|
|
|
|
4. |
To approve the 2015 Long-Term Incentive Equity Plan. |
FOR
☐ |
AGAINST
☐ |
ABSTAIN
☐ |
5. |
To elect by ordinary resolution the following directors in the classes set forth below: |
|
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|
|
Class A (serving until 2017) |
|
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|
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John Tonelli |
FOR
☐ |
AGAINST
☐ |
ABSTAIN
☐ |
|
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|
|
|
|
Class B (serving until 2018) |
|
|
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|
|
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Nelson Narciso Filho |
FOR
☐ |
AGAINST
☐ |
ABSTAIN
☐ |
|
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|
|
Amir Adnani |
FOR
☐ |
AGAINST
☐ |
ABSTAIN
☐ |
|
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|
|
Class C (serving until 2019) |
|
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Mario Garnero |
FOR
☐ |
AGAINST
☐ |
ABSTAIN
☐ |
|
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Alvaro Jabur Maluf, Jr. |
FOR
☐ |
AGAINST
☐ |
ABSTAIN
☐ |
|
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|
|
|
7. |
To adjourn the extraordinary general meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies if, based on the tabulated vote or elections to convert at the time of the extraordinary general meeting, GGAC is not authorized to consummate the merger or the closing conditions under the Investment Agreement are not met. |
FOR
☐ |
AGAINST
☐ |
ABSTAIN
☐ |
|
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|
MARK HERE FOR ADDRESS CHANGE AND NOTE AT RIGHT. |
☐ |
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PLEASE MARK, DATE AND RETURN THIS PROXY PROMPTLY. ANY VOTES RECEIVED AFTER A MATTER HAS BEEN VOTED UPON WILL NOT BE COUNTED. |
Sign exactly as name appears on this proxy card. If shares
are held jointly, each holder should sign. Executors, administrators, trustees, guardians, attorneys and agents should give their
full titles. If shareholder is a corporation, sign in corporate name by an authorized officer, giving full title as such.
If shareholder is a partnership, sign in partnership name by an authorized person, giving full title as such.
Garnero Grp. Acquisition Company - Ordinary Shares (MM) (NASDAQ:GGAC)
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