NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS
September 30, 2016
(Unaudited)
|
1.
|
Organization and Business Operations
|
Incorporation
Axar Acquisition Corp.,
formerly known as AR Capital Acquisition Corp., (the “Company”) was incorporated in Delaware on July 25, 2014.
Sponsor
The Company’s
former sponsor is AR Capital, LLC (“ARC”), a Delaware limited liability company. Upon the change in management in October
2016, Axar Master Fund Ltd., a Cayman Islands exempted company, became the new sponsor (the “Sponsor”) (see
Note 9).
Business Purpose
The Company is a blank
check company formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization
or other similar business combination with one or more operating businesses (“Initial Business Combination”). The Company
has neither engaged in any operations nor generated significant revenue to date.
The Company’s management
has broad discretion with respect to the Initial Business Combination. However, there is no assurance that the Company will be
able to successfully effect an Initial Business Combination.
Financing
The registration statement
for the Company’s initial public offering (the “Public Offering”, see Note 3) was declared effective by the Securities
and Exchange Commission (the “SEC”) on October 1, 2014. On October 7, 2014, the Company consummated the Public Offering
of 24,000,000 units (“Public Units” and, with respect to the common stock and warrants to purchase common stock included
in the Public Units, the “Public Shares” and “Public Warrants”) at $10.00 per Public Unit, generated gross
proceeds of $240 million and, in connection therewith, incurred offering costs of approximately $13.3 million, inclusive of $4.8
million of underwriting fees paid upfront, and $8.4 million of Deferred Fees (as defined in Note 3), payable upon the consummation
of the Initial Business Combination.
Simultaneously
with the consummation of the Public Offering, ARC, the Company’s former sponsor, purchased 6,550,000 warrants (“Private Placement
Warrants”) at a price of $1.00 per Private Placement Warrant in a private placement (“Private Placement”), generated
gross proceeds of $6.55 million (see Note 4).
Additionally, ARC loaned
$79,702 through the issuance of an unsecured promissory note (the “Note”) on August 1, 2014 to cover expenses related
to the Public Offering. The Note was payable without interest and was repaid in full by the Company on October 8, 2014.
Trust Account
An aggregate of $240 million
($10.00 per Unit) from the net proceeds of the sale of the Public Units in the Public Offering and the Private Placement was placed
in a U.S. based trust account (the “Trust Account”) with Continental Stock Transfer & Trust Company acting as trustee.
The funds held in the Trust Account can be invested only in U.S. government treasury securities with a maturity of 180 days or
less or in money market funds meeting certain conditions under Rule 2a-7 of the Investment Company Act of 1940, as amended, which
invest only in direct U.S. government treasury obligations.
The Company’s
amended and restated certificate of incorporation provides that, other than the withdrawal of interest to pay franchise and income
taxes, none of the funds held in the Trust Account will be released until the earlier of: (i) the completion of the Initial Business
Combination; or (ii) the redemption of 100% of the shares of common stock included in the units sold in the Public Offering if
the Company is unable to complete an Initial Business Combination within 24 months from the closing of the Public Offering. In
connection with the Extension (as defined in Note 9), the Company extended its liquidation date to (i) October 1, 2017 or (ii)
if prior to October 1, 2017, the Company publicly discloses that an extension past October 1, 2017 will not prevent the Company
from maintaining the listing of its securities on The Nasdaq Capital Market (“NASDAQ”), December 31, 2017. The Company
expects to withdraw the interest earned from the funds held in the Trust Account to pay for franchise and income taxes.
Initial Business Combination
An Initial Business Combination
must occur with one or more target businesses that together have an aggregate fair market value of at least 80% of the assets held
in the Trust Account, excluding deferred underwriting commissions, advisory fees and taxes payable on the income earned by the
Trust Account, at the time of the agreement to enter into the Initial Business Combination.
The Company, after signing
a definitive agreement for the Initial Business Combination, will either (i) seek stockholder approval of the Initial Business
Combination at a meeting called for such purpose in connection with which stockholders may seek to redeem their Public Shares,
regardless of whether they vote for or against the Initial Business Combination (provided they in fact vote for or against the
Initial Business Combination), for cash equal to their pro rata share of the aggregate amount then on deposit in the Trust Account
as of two business days prior to the consummation of the Initial Business Combination, including interest earned on the funds held
in the Trust Account and not previously released to the Company to pay franchise and income taxes, or (ii) provide stockholders
with the opportunity to sell their shares to the Company by means of a tender offer (and thereby avoid the need for a stockholder
vote) for an amount in cash equal to their pro rata share of the aggregate amount then on deposit in the Trust Account as of two
business days prior to commencement of the tender offer, including interest earned on the funds held in the Trust Account and not
previously released to the Company to pay franchise and income taxes. The decision as to whether the Company will seek stockholder
approval of the Initial Business Combination or will allow stockholders to sell their shares in a tender offer will be made by
the Company, solely in its discretion, and will be based on a variety of factors such as the timing of the transaction and whether
the terms of the transaction would otherwise require the Company to seek stockholder approval.
If the Company seeks stockholder
approval, it will complete the Initial Business Combination only if a majority of the outstanding shares of common stock voted
are voted in favor of the Initial Business Combination. In the event the Company seeks stockholder approval or conducts redemptions
pursuant to the tender offer rules, then in no event will the Company redeem its public shares in an amount that would cause its
net tangible assets to be less than $5,000,001. In such case, the Company would not proceed with the redemption of its public shares
and the related Initial Business Combination, and instead may search for an alternate Initial Business Combination.
The Company
had 24 months from the closing of the Public Offering to complete its Initial Business Combination. Following the approvals of
the proposals at the Special Meeting (as defined in Note 9) in October 2016, the Company amended and restated its charter, pursuant
to which it will have until (i) October 1, 2017 or (ii) if prior to October 1, 2017, the Company publicly discloses that an extension
past October 1, 2017 will not prevent the Company from maintaining the listing of its securities on NASDAQ, December 31, 2017,
to complete its Initial Business Combination (“Liquidation Date”). If the Company does not complete the Initial Business
Combination within this period of time, it shall (i) cease all operations except for the purposes of winding up; (ii) as promptly
as reasonably possible, but not more than ten business days thereafter, redeem 100% of the public shares at a per-share price,
payable in cash, equal to the aggregate amount then on deposit in the Trust Account including interest earned on the funds held
in the Trust Account and not previously released to the Company to pay franchise and income taxes (less up to $100,000 of interest
to pay dissolution expenses), divided by the number of then public shares outstanding, and (iii) as promptly as possible following
such redemption, subject to the approval of the Company’s remaining stockholders and the Company’s board of directors, dissolve
and liquidate, subject in each case to the Company’s obligations under Delaware law, the balance of the Company’s net assets
to its remaining stockholders, as part of its plan of dissolution and liquidation. In the event of such distribution, it is possible
that the per-share value of the residual assets remaining available for distribution (including Trust Account assets) will be
less than the initial public offering price per unit in the Public Offering.
Fiscal Year End
The Company has selected
December 31 as its fiscal year end.
|
2.
|
Significant Accounting Policies
|
Basis of Presentation
The accompanying unaudited
interim financial statements of the Company should be read in conjunction with the audited financial statements and notes thereto
included in the Company’s Annual Report on Form 10-K filed with the SEC on February 19, 2016. The accompanying financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.
GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 and Article
10 of Regulation S-X. Accordingly, since they are interim statements, the accompanying financial statements do not include all
of the information and notes required by U.S. GAAP for a complete financial statement presentation. In the opinion of management,
the interim financial statements reflect all adjustments (consisting of normal, recurring adjustments) that are necessary for
a fair presentation of the financial position, results of operations and cash flows for the periods presented. Interim results
are not necessarily indicative of results for a full year.
Emerging Growth Company
Section 102(b)(1) of the
Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) permits emerging growth companies to delay complying with
new or revised financial accounting standards that do not yet apply to private companies (that is, those that have not had a Securities
Act of 1933, as amended (the “Securities Act”), registration statement declared effective or do not have a class of
securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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 election to opt out is irrevocable. The Company 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,
the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or
revised standard. This may make comparison of the Company’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 accounting standards used.
Investments Held in Trust Account
The amounts held
in the Trust Account represent substantially all of the proceeds of the Public Offering and are classified as restricted assets
since such amounts can only be used by the Company in connection with the consummation of an Initial Business Combination. As
of September 30, 2016, there was approximately $202,000 of interest income held in the Trust Account available to be released
to the Company to pay its tax obligation.
Going Concern Consideration
If the Company does not
complete an Initial Business Combination by Liquidation Date, the Company will (i) cease all operations except for the purpose
of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem 100% of the common
stock sold as part of the units in the Public Offering, at a per-share price, payable in cash, equal to the aggregate amount then
on deposit in the Trust Account, including interest earned on the funds held in the Trust Account and not previously released to
the Company to pay its franchise and income taxes (less up to $100,000 of interest to pay dissolution expenses), divided by the
number of then outstanding public shares, which redemption will completely extinguish public stockholders’ rights as stockholders
(including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as
reasonably possible following such redemption, subject to the approval of the Company’s remaining stockholders and the Company’s
board of directors, dissolve and liquidate, subject in each case to the Company’s obligations under Delaware law to provide for
claims of creditors and the requirements of other applicable law. This mandatory liquidation and subsequent dissolution requirement
raises substantial doubt about the Company’s ability to continue as a going concern.
There will be no redemption
rights or liquidating distributions with respect to the Company’s warrants, which will expire worthless if the Company fails to
complete an Initial Business Combination within the required time period.
Net Loss Per Common Share
Net loss per common share
is computed by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding
during the period, plus to the extent dilutive, the incremental number of shares of common stock to settle warrants, as calculated
using the treasury stock method. As the Company reported a net loss for the three and nine months ended September 30, 2016, the
effect of the 12,000,000 warrants issued in the Public Offering and 6,550,000 warrants issued to ARC in connection with the private
placement have not been considered in the diluted loss per common share because their effect would be anti-dilutive. An aggregate
of 22,858,626 and 22,723,498 common stock subject to possible redemption at September 30, 2016 and 2015, respectively, have been
excluded from the calculation of basic loss per share since such shares, if redeemed, only participate in their pro rata share
of the earnings in the Trust Account. As a result, diluted loss per common share is the same as basic loss per common share for
the period.
Fair Value of Financial Instruments
The fair value of
the Company’s assets and liabilities, which qualify as financial instruments under the Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures,”
approximates the carrying amounts represented on the Company’s accompanying Condensed Balance Sheets.
Offering Costs
The Company
complies with the requirements of FASB ASC 340-10-S99-1 and SEC Staff Accounting Bulletin (“SAB”) Topic 5A - “Expenses
of Offering”. Offering costs consist principally of professional and registration fees incurred in connection with the Public
Offering and that were charged to stockholders’ equity. Upon the consummation of the Public Offering, an aggregate of $13.3 million,
inclusive of $4.8 million of underwriting fees paid upfront, and $8.4 million of Deferred Fees (as defined in Note 3) was charged
to stockholders’ equity. In January 2016, upon the consultant’s inability to provide agreed services, an aggregate of $2.64
million in Deferred Fees were reversed from deferred underwriting commissions and advisory fees and additional paid-in capital
on the Company’s accompanying Condensed Balance Sheets (see Note 3).
Common Stock Subject to Possible Redemption
Under the Company’s amended
and restated certificate of incorporation, all of the 24,000,000 Public Shares may be redeemed for cash in connection with the
Company’s liquidation or a tender offer or stockholder approval in connection with an Initial Business Combination. In accordance
with FASB ASC 480, redemption provisions not solely within the control of the Company require the security to be classified outside
of permanent equity. Ordinary liquidation events, which involve the redemption and liquidation of all of the entity’s equity
instruments, are excluded from the provisions of FASB ASC 480. Although the Company did not specify a maximum redemption threshold,
its charter provides that in no event will it redeem the common stock sold as part of the units in the Public Offering in an amount
that would cause its net tangible assets (stockholders’ equity) to be less than $5,000,001.
The Company recognizes
changes in redemption value immediately as they occur and will adjust the carrying value of the security to equal the redemption
value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable common stock shall be affected
by charges against additional paid-in capital in accordance with ASC 480.
Accordingly, at September
30, 2016 and December 31, 2015, 22,858,626 and 22,700,592, respectively, of the 24,000,000 Public Shares were classified outside
of permanent equity at its redemption value.
Income Taxes
The Company complies with
the accounting and reporting requirements of FASB ASC 740, “Income Taxes,” which requires an asset and liability approach
to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences
between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts,
based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. A
valuation allowance is established when necessary to reduce deferred tax assets when it is determined that it is more likely than
not that some portion of the deferred tax asset will not be realized. FASB Interpretation No. 48, “Accounting for Uncertainty
in Income Taxes” (“FIN 48”) (now incorporated into FASB ASC 740, Income Taxes), sets out a consistent framework
to determine the appropriate level of tax reserves to maintain for uncertain tax positions. This interpretation uses a two-step
approach wherein a tax benefit or expense is recognized if a position is more-likely-than-not to be sustained upon examination
by taxing authorities. The amount of the benefit or expense is then measured to be the highest tax benefit or expense that is greater
than 50% likely to be realized. Based on its analysis, the Company has determined that it has no unrecognized tax benefits or expenses
as of September 30, 2016. The Company’s conclusion may be subject to review and adjustment at a later date based on factors including,
but not limited to, on-going analyses of and changes to tax laws, regulations and interpretations thereof. The Company recognizes
interest and penalties related to unrecognized tax benefits in interest expense and other expenses, respectively. No interest expense
or penalties have been recognized as of September 30, 2016. The Company files an income tax return in the U.S. federal jurisdiction,
and may file income tax returns in various U.S. states and foreign jurisdictions. The Company may be subject to potential examination
by U.S. federal, U.S. states or foreign jurisdiction authorities in the areas of income taxes. These potential examinations may
include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with
U.S. federal, U.S. state and foreign tax laws. The Company is subject to income tax examinations by Federal, state and local taxing
authorities for all tax years since inception.
Management is
currently unaware of any issues under review that could result in significant payments, accruals or material deviations from
its position. The provision of income taxes was deemed to be immaterial for the period ended December 31, 2015. For the three
and nine months ended September 30, 2016, the effective rate was 0% due to the establishment of a full valuation allowance.
Recent Accounting Pronouncements
Management does not believe
that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on
the accompanying financial statements.
On October
7, 2014, the Company completed the Public Offering pursuant to which it sold 24,000,000 Public Units at a price of $10.00 per
Unit, generated gross proceeds of $240 million. Offering costs associated with the Public Offering was approximately $13.3 million,
inclusive of $4.8 million of underwriting fees paid upfront, and $8.4 million of Deferred Fees (as defined below), payable upon
the consummation of the Initial Business Combination. In January 2016, upon the consultant’s inability to provide agreed
services, an aggregate of $2.64 million in Deferred Fees were reversed from deferred underwriting commissions and advisory fees
and additional paid-in capital on the Company’s accompanying Condensed Balance Sheets. Each Public Unit consists of one
share of the Company’s common stock, $0.0001 par value per share, and one-half of one redeemable common stock purchase warrant,
the Public Warrants. On October 7, 2016, following approval of the proposals at the Special Meeting (as defined in Note 9), the
Company amended the warrant agreements for all of the 12,000,000 outstanding Public Warrants to convert all Public Warrants into
right to receive $0.15 per Public Warrant, for an aggregate amount of $1.8 million, payable in cash of shares of the Company’s
common stock at the discretion of the Company.
In addition to the
underwriting discount paid upfront of $0.20 per Public Unit ($4.8 million in the aggregate) to the underwriters at the closing
of the Public Offering, the Company agreed to pay additional fees (the “Deferred Fees”) of $8.4 million ($0.35 per
Public Unit sold), comprised of (a) $5.76 million payable to the underwriters for deferred underwriting commissions and (b) $2.64
million payable to RCS Capital (“RCS”), a division of Realty Capital Securities, LLC, an entity then under common control
with ARC, for financial advisory services in connection with the identification, evaluation, negotiation and completion of the
Initial Business Combination. The Deferred Fees are payable to the underwriters and RCS solely in the event the Company completes
an Initial Business Combination. The underwriters and RCS are not entitled to any interest accrued on the Deferred Fees. On January
22, 2016, due to the exigent circumstances publicly announced by RCS’s parent company, including but not limited to its
stated intention to file for Chapter 11 bankruptcy protection and shut down all of its businesses other than its retail advisor
platform by the end of January 2016 (such bankruptcy filing occurred on January 31, 2016 and on May 23, 2016, RCS’s parent
company and its affiliated debtors emerged from bankruptcy under the new name, Aretec Group, Inc.), which resulted in RCS’s
inability to provide the services contemplated by the M&A Services Agreement (as defined below), the Company provided notice
of termination of the M&A Services Agreement for cause. As a result, as of September 30, 2016, the Deferred Fees in the amount
of $2.64 million are no longer be payable to RCS and were reversed from deferred underwriting commissions and advisory fees and
additional paid-in capital on the Company’s accompanying Condensed Balance Sheets.
|
4.
|
Related Party Transactions
|
Founder Shares
On August 1, 2014,
ARC purchased 8,625,000 shares of the Company’s common stock (the “Founder Shares”) for $25,000, or approximately
$0.003 per share. The Founder Shares are identical to the common stock included in the Public Units except that the Founder Shares
are subject to certain transfer restrictions, as described in more detail below. On October 1, 2014, in connection with a reduction
in the size of the Public Offering, ARC contributed to the Company 1,725,000 Founder Shares, which the Company canceled. Thereafter,
ARC sold 20,000 Founder Shares at their original price to each of the Company’s independent directors. On December 5, 2014, as
a result of the underwriters’ election not to exercise the overallotment option in connection with the Public Offering, the initial
stockholders (as defined below) forfeited an aggregate of 900,000 Founder Shares, consisting of a forfeiture of 2,609 Founder
Shares by each of David Gong, P. Sue Perrotty and Dr. Robert J. Froehlich, and a forfeiture of 892,173 Founder Shares by ARC.
As a result of the forfeiture, ARC held 5,947,827 Founder Shares, and each of David Gong, P. Sue Perrotty and Dr. Robert J. Froehlich
held 17,391 Founder Shares, so that there were 6,000,000 Founder Shares outstanding. The number of Founder Shares represented
20% of the outstanding shares. In October 2016, pursuant to the Transfer Agreement (as defined in Note 9), ARC transferred all
of its Founder Shares and Private Placement Warrants to the Company’s Sponsor.
The Founder Shares are identical to the common
stock included in the Public Units sold in the Public Offering except that the Founder Shares are subject to certain transfer
restrictions. The Company’s stockholder prior to the Public Offering, including their subsequent transferees (collectively,
the “initial stockholders”) have agreed not to transfer, assign or sell any of their Founder Shares until the earlier
of (a) one year after the completion of the Initial Business Combination, or earlier if, subsequent to the Initial Business Combination,
the last sale price of the Company’s common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock
dividends, reorganizations and recapitalizations) for any 20 trading days within any 30-trading day period commencing at least
150 days after the consummation of the Initial Business Combination or (b) the Company consummates a subsequent liquidation, merger,
stock exchange or other similar transaction that results in all of the Company’s stockholders having the right to exchange
their shares of common stock for cash, securities or other property (the “Lock Up Period”).
|
|
Ownership of Founder Shares
|
|
|
|
ARC
|
|
|
Independent
Directors
|
|
|
Total Founder
Shares
|
|
Sale of common stock to initial stockholder on August 1, 2014
|
|
|
8,625,000
|
|
|
|
—
|
|
|
|
8,625,000
|
|
Forfeiture of shares on October 1, 2014
(1)
|
|
|
(1,725,000
|
)
|
|
|
—
|
|
|
|
(1,725,000
|
)
|
Sale of Founder Shares to Company’s independent directors on October 1, 2014
|
|
|
(60,000
|
)
|
|
|
60,000
|
|
|
|
—
|
|
Forfeiture of shares on December 5, 2014
(2)
|
|
|
(892,173
|
)
|
|
|
(7,827
|
)
|
|
|
(900,000
|
)
|
|
|
|
5,947,827
|
|
|
|
52,173
|
|
|
|
6,000,000
|
|
(1)
In connection with a reduction in the size of the
Public Offering, ARC forfeited 1,725,000 Founder Shares.
(2)
As a result of the underwriters’ election not to
exercise the over-allotment option in connection with the Public Offering, the initial stockholders forfeited an aggregate of 900,000
Founder Shares.
Private Placement Warrants
On October 7, 2014, ARC
purchased from the Company an aggregate of 6,550,000 Private Placement Warrants at a price of $1.00 per Warrant (for an aggregate
purchase price of $6.55 million) in a Private Placement that occurred simultaneously with the completion of the Public Offering.
Each Private Placement Warrant entitles the holder to purchase one share of common stock at $12.50 per share, as amended upon
approval of the proposals at the Special Meeting (as defined in Note 9). Of the $6.55 million purchase price of the Private Placement
Warrants, $4.3 million of the purchase price of the Private Placement Warrants was added to the proceeds from the Public Offering
to be held in the Trust Account pending completion of the Initial Business Combination.
The Private Placement Warrants (including
the common stock issuable upon exercise of the Private Placement Warrants) will not be transferable, assignable or salable until
30 days after the completion of the Initial Business Combination and they will be non-redeemable so long as they are held by the
initial purchasers of the Private Placement Warrants or their permitted transferees. In addition, the Private Placement Warrants
are exercisable on a cashless basis so long as they are held by their initial purchasers or their permitted transferees. If the
Private Placement Warrants are held by someone other than the initial purchasers of the Private Placement Warrants or their permitted
transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis
as the warrants included in the Public Units. Otherwise, the Private Placement Warrants have terms and provisions that are identical
to those of the warrants included in the Public Units and have no net cash settlement provisions.
If the Company does not
complete an Initial Business Combination, then the proceeds from the sale of the Private Placement Warrants will be part of the
liquidating distribution to the public stockholders and the Private Placement Warrants will expire worthless.
Loans from Related Parties
ARC agreed to loan the
Company up to an aggregate of $200,000 by the issuance of the Note on August 1, 2014 to cover expenses related to the Public Offering.
The Note was payable without interest upon the consummation of the Public Offering. From inception through October 7, 2014, ARC
loaned $79,702 to the Company. The Note was repaid in full on October 8, 2014. Additionally, the Company had a due to affiliate
of $88,800 to ARC for costs incurred by the Company, which was repaid on October 8, 2014.
Administrative Services Agreement
On September 8, 2014,
the Company entered into an agreement to pay RCS Advisory Services, LLC (“RCS Advisory”), an entity then under common
control with ARC, a total of $10,000 per month for office space, utilities, secretarial support and administrative services commencing
on the date the Company’s securities are first listed on NASDAQ. Upon the earlier of the completion of the Initial Business
Combination or the Company’s liquidation, the Company will cease paying these monthly fees. On January 22, 2016, due to the
exigent circumstances publicly announced by RCS Advisory’s parent company, including but not limited to its stated intention
to file for Chapter 11 bankruptcy protection and shut down all of its businesses other than its retail advisor platform by the
end of January 2016 (such bankruptcy filing occurred on January 31, 2016 and on May 23, 2016, RCS’s parent company and its
affiliated debtors emerged from bankruptcy under the new name, Aretec Group, Inc.), which resulted in RCS Advisory’s inability
to provide the services contemplated by the administrative services agreement, the Company provided notice of termination of the
administrative services agreement. The space formerly sublet by RCS Advisory for the Company’s office space was leased by
ARC and provided to the Company free of charge
.
During the three and nine months ended September
30, 2016, the Company incurred $0 related to services under this agreement. During the three and nine months ended September 30,
2015, the Company incurred $30,000 and $90,000, respectively, related to services under this agreement. Upon the change in management
in October 2016 (Note 9), the office space was no longer in use.
Compensation Reimbursement Agreement
On October 1, 2014, the
Company entered into an agreement to pay ARC an amount not to exceed $15,000 per month as reimbursement for a portion of the compensation
paid to its personnel, including certain of the Company’s officers who work on the Company’s behalf, commencing on
the date the Company’s securities are first listed on NASDAQ (the “Compensation Reimbursement Agreement”). During
the three and nine months ended September 30, 2016, the Company incurred $45,000 and $135,000, respectively, related to services
under this agreement. During the three and nine months ended September 30, 2015, the Company incurred $45,000 and $135,000, respectively,
related to services under this agreement.
On October 7, 2016, this
arrangement was terminated, and ARC agreed that all amounts owed under such arrangement as of such date, or approximately $50,000,
were contributed to capital (see Note 9).
Registration Rights Agreement
The holders of the Founder
Shares, Private Placement Warrants and warrants that may be issued upon conversion of working capital loans (and any shares of
common stock issuable upon the exercise of the Private Placement Warrants and warrants that may be issued upon conversion of working
capital loans) will be entitled to registration rights pursuant to a registration rights agreement signed on October 1, 2014 (the
“Registration Rights Agreement”). The holders of the majority of these securities are entitled to make up to three demands,
excluding short form demands, that the Company register such securities. In addition, the holders have certain “piggy-back”
registration rights with respect to registration statements filed subsequent to the Company’s completion of the Initial Business
Combination and rights to require the Company to register for resale such securities pursuant to Rule 415 under the Securities
Act. However, the Registration Rights Agreement provides that the Company will not permit any registration statement filed under
the Securities Act to become effective until termination of the applicable lock-up period, which occurs (a) in the case of the
Founder Shares, one year after the date of the consummation of the Initial Business Combination or earlier if, subsequent to the
Initial Business Combination, (i) the last sale price of the Company’s common stock equals or exceeds $12.00 per share (as
adjusted for stock splits, stock dividends, reorganizations and recapitalizations) for any 20 trading days within any 30-trading
day period commencing at least 150 days after the Initial Business Combination, or (ii) the Company consummates a subsequent liquidation,
merger, stock exchange or other similar transaction which results in all of its stockholders having the right to exchange their
shares of common stock for cash, securities or other property and (b) in the case of the Private Placement Warrants and the respective
common stock underlying such Private Placement Warrants, 30 days after the completion of the Initial Business Combination. The
Company will bear the expenses incurred in connection with the filing of any such registration statements.
|
5.
|
Deferred Underwriting Commissions
|
The Company is committed
to pay a portion of the Deferred Fees totaling $5.76 million, or 2.4% of gross offering proceeds of the Public Offering, to the
underwriters upon the Company’s consummation of an Initial Business Combination. The underwriters will not be entitled to any interest
accrued on their portion of the Deferred Fees, and no portion of the Deferred Fee is payable to the underwriters if there is no
Initial Business Combination.
A total of $240 million
from the net proceeds of the sale of the Public Units in the Public Offering and the Private Placement was been placed in the
Trust Account. As of September 30, 2016 and December 31, 2015, the balance in the Trust Account was approximately $240.2 million
and $240 million, respectively. For the three and nine months ended September 30, 2016, the Company withdrew $0 and $107,503,
respectively, in funds from interest earned on the trust proceeds to pay for franchise taxes. No amounts were withdrawn for the
three and nine months ended September 30, 2015.
|
7.
|
Fair Value Measurements
|
The Company complies with
ASC 820, “Fair Value Measurement”, for its financial assets and liabilities that are re-measured and reported at fair
value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least
annually.
The following table presents
information about the Company’s assets that are measured at fair value on a recurring basis as of September 30, 2016 and
December 31, 2015, and indicates the fair value hierarchy of the valuation techniques that the Company utilized to determine such
fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical
assets or liabilities. Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices,
interest rates and yield curves. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability,
and includes situations where there is little, if any, market activity for the asset or liability:
Description
|
|
September 30, 2016
|
|
|
Quoted Prices in
Active Markets
(Level 1)
|
|
|
Significant Other
Observable
Inputs (Level 2)
|
|
|
Significant Other
Unobservable
Inputs (Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds held in Trust Account
|
|
$
|
240,202,043
|
|
|
$
|
240,202,043
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Description
|
|
December 31, 2015
|
|
|
Quoted Prices in
Active Markets
(Level 1)
|
|
|
Significant Other
Observable
Inputs (Level 2)
|
|
|
Significant Other
Unobservable
Inputs (Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds held in Trust Account
|
|
$
|
240,018,972
|
|
|
$
|
240,018,972
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Common Stock
- The authorized common stock of the Company includes up to 400,000,000 shares. Holders of the Company’s common stock are
entitled to one vote for each share of common stock. At September 30, 2016 and December 31, 2015, there were 30,000,000 shares
of common stock outstanding, including 22,858,626 and 22,700,592 shares that were subject to possible redemption at September 30,
2016 and December 31, 2015, respectively.
Preferred Stock
- The authorized preferred stock of the Company includes up to 1,000,000 shares. At September 30, 2016 and December 31, 2015, there
were no shares of preferred stock issued and outstanding.
Special Meeting
On October 6, 2016, the
Company held a special meeting of stockholders public warrantholders (“Special Meeting”). Following the approval of
the proposals at the Special Meeting, the Company filed an amendment to its amended and restated certificate of incorporation to:
(i) extend the date by which it must complete an Initial Business Combination to (a) October 1, 2017 or (b) if prior to October
1, 2017, the Company publicly discloses that an extension past October 1, 2017 will not prevent the Company from maintaining the
listing of its securities on NASDAQ, December 31, 2017 (“Extension”), and (ii) to change the Company’s name from
“AR Capital Acquisition Corp.” to “Axar Acquisition Corp.”
At the Special Meeting,
shareholders holding 21,493,889 Public Shares exercised their right to convert such Public Shares into a pro rata portion of the
Trust Account. As a result, an aggregate of approximately $215 million (or approximately $10.00 per share) were removed from the
Trust Account to pay such holders.
On October 7, 2016, following
approval of the proposals at the Special Meeting, the Company amended the warrant agreements for all of the 12,000,000 outstanding
Public Warrants to: (i) convert all Public Warrants into right to receive $0.15 per Public Warrant, for an aggregate amount of
$1.8 million, payable in cash or shares of the Company’s common stock at the discretion of the Company, and (ii) increase
the exercise price of the Private Placement Warrants from 11.50 to $12.50 per share. In addition, the Company’s Board of
Directors declared a dividend on the Company’s common stock consisting of one-half of one warrant per share of common stock,
with each whole warrant exercisable to purchase one share of common stock at $12.50 per share (each a “New Warrant”).
The New Warrants will not be exercisable until the later of (i) the date that is 30 days after the first date on which the Company
completes an Initial Business Combination and (ii) October 17, 2017. The Company’s independent directors agreed to waive
their right to receive the dividend. As a result, the Company has issued an aggregate of 1,253,055 New Warrants in October 2016.
Agreements with Sponsor
P
ursuant
to the agreement by and among the Company in October 2016 (“Transfer Agreement”), ARC, the Company’s former sponsor
(ARC), transferred all of its Founder Shares (as defined in Note 4) and Private Placement Warrants to the Company’s
Sponsor, Axar Master Fund Ltd. Upon consummation of the Initial Business Combination, the Sponsor agreed to automatically
forfeit, for no consideration, a number of Founder Shares equal to the excess of (if positive) of (a) 6,000,000 over (b) 25% of
the sum of (i) total Public Shares outstanding plus (ii) the excess of (x) the total number of shares of common stock issued or
deemed issued, or issuable upon the conversion of exercise of any equity-linked securities or rights issued or deemed issued,
by the Company in connection with the consummation of the Initial Business Combination, excluding any shares of common stock or
equity-linked securities exercisable for or convertible into shares of common stock issued, or to be issued, to any seller in
the Initial Business Combination or the Sponsor and its affiliates, over (y) the total number of Public Shares redeemed in connection
with the Business Combination. No Founder Shares should be forfeited if sum of the forgoing (a) and (b) is equal to or less than
zero.
Effective upon the closing of the Transfer Agreement, (i) Andrew Axelrod was appointed as Chief Executive Officer and Executive
Chairman of the Board of Directors, Lionel Benichou was appointed as Chief Financial Officer, and (ii) Nicholas S. Schorsch, Nicholas
Radesca and William Kahane each resigned from their positions as officers and directors of the Company.
Also on
October 7, 2016, ARC agreed to terminate its Compensation Reimbursement Agreement with the Company and agreed that all amounts
owed under such arrangements, or approximately $50,000, were contributed to capital. In addition, ARC contributed approximately
$770,000 to capital in October 2016 to pay for the Company’s outstanding payables.
Pursuant to the Transfer Agreement, the
Sponsor agreed to lend the Company on January 1, 2017 and on the first business day of each of the following three fiscal quarters
commencing thereafter (or, if the Extension date is October 1, 2017, the following two fiscal quarters commencing thereafter)
approximately $125,300, which amounts will be deposited in the Trust Account. The Sponsor has also agreed to lend the Company
up to $2 million for working capital and other expenses. The Loans will be non-interest bearing and repayable by the Company to
the Sponsor upon consummation of an Initial Business Combination. If a Business Combination is not consummated, the note will
not be repaid by the Company and all amounts owed thereunder by the Company will be forgiven, except to the extent that the Company
had funds available outside of the Trust Account.