Business Context and Reporting Period
Company: Andina Acquisition Corporation (Registrant) entering into a merger with Tecnoglass S.A. and C.I. Energia Solar S.A. E.S. Windows (collectively, "the Company").
Date: August 17, 2013.
Event: Entry into a Material Definitive Agreement (Merger Agreement). Upon consummation, Andina will change its name to "Tecnoglass Inc." and the Company will become a wholly-owned subsidiary.
Business Overview: The Company is a leading Colombian manufacturer of architectural glass and windows, operating a 1.2 million square foot vertically-integrated complex in Barranquilla. It exports 43% of production to North, Central, and South America, with the U.S. accounting for approximately 30% of 2012 revenues.
Key Financial Metrics
Historical Revenue:
- 2012 Consolidated Revenues: $158 million.
- 2011 Consolidated Revenues: $113 million.
Capital Expenditures: Approximately $27 million in 2012 for capacity expansion and machinery updates.
Merger Consideration:
- Closing Shares: 17,525,000 ordinary shares of Andina to Company shareholders.
- Earnout Shares: Up to 3,000,000 shares subject to share price and EBITDA targets for fiscal years ending 2014, 2015, and 2016.
- Indemnity Escrow: 890,000 shares placed in escrow as the sole remedy for indemnification claims.
Post-Merger Liquidity Condition: Andina must have at least $33,500,000 in cash (after redemptions and transaction costs up to $5,000,000) at closing.
Ownership Structure (Post-Merger): Company shareholders will own approximately 76.9% to 91.9% of outstanding shares, depending on the level of public shareholder redemptions.
Material Changes and Transaction Structure
Corporate Reorganization: Prior to closing, Tecnoglass and ES will reorganize into a new Cayman Islands entity. Andina Merger Sub will then merge with this new entity.
Shareholder Approval: The transaction requires approval by Andina shareholders and is conditioned on no more than 87.5% of Public Shares being redeemed for cash.
Lock-Up: Company shareholders are restricted from selling shares for one year post-closing, subject to exceptions.
Registration Rights: Company shareholders receive demand and piggyback registration rights for the shares issued in the transaction.
Guidance, Risks, and Contingencies
Earnout Targets: Additional shares are issuable based on achieving specific share prices ($12.00, $13.00, $14.00) or EBITDA targets ($30M-$45M range) in fiscal years 2014-2016.
Legal Proceedings: Tecnoglass and its U.S. subsidiary are facing a wrongful death and negligence lawsuit regarding a workplace accident. The case is scheduled for trial in February 2014. While AIG provides a $3 million policy, the total exposure is difficult to predict due to non-economic damages claims.
Forward-Looking Risks: Risks include failure to obtain shareholder approval, failure to meet closing conditions (including the $33.5M cash requirement), material adverse effects, regulatory changes, and general economic conditions.
Termination Rights: The agreement may be terminated if the merger is not consummated by December 16, 2013, or if shareholder approval is not obtained.
Investor Verification Checklist
- Verify the final number of Public Shares redeemed to determine the exact post-merger ownership percentage and cash balance.
- Review the Definitive Proxy Statement for detailed financial projections and the specific terms of the Earnout Shares.
- Monitor the status of the pending wrongful death litigation and the adequacy of the $3 million insurance coverage.
- Confirm the satisfaction of the $33,500,000 cash condition at closing.
- Assess the Company's ability to meet the EBITDA and share price targets required to release the 3,000,000 Earnout Shares.